>> i think it's going to take time for people to get use >> higher rates. >>5.25 is enough. i think when i get too much more than that. >> starting a recession in a few days in the third quarter. you don't see that in the earnings forecast. >> the federal reserve told us the only way out of the inflation conundrum is have a recession. >> this is bloomberg surveillance with tom, jonathan ferro, and lisa abramowicz. tom: good morning. john -- jonathan ferro, lisa abramowicz, and tom keene. it's been a monday and portugal and we watch it every central banker on the planet.

many central bankers doing fed presidents and governors speaking. can we get them all there to talk? lisa: jay powell and also of course is counterpoint -- counterpart lagarde. tom: i'm looking at the fallout of a central bank panel in portugal on the markets. it is fascinating. an absolutely brilliant note this morning, harkening back to 2004-2005. you will love this. the vortex of instability. will they create a vortex of instability as howard edwards talked about years ago? this was a famous moment before the crisis and there is that tension out there as central bankers speak to that. lisa: are they going to go too far? that's the key concern. the u.s. possibly has a different situation, much more concerned about downed, more upside surprises in the data so maybe we get a different tone

from jay powell. it is in europe, are they going to hike into a downturn that we are going to see increasingly on the margins, particularly in manufacturing. tom: the s&p 500 is 441 zero. as they were about central-bank discussion. if john was here, jon ferro on assignment, if he was here, he would say look at the mistakes made at raising rates years ago and will we read out that again with lagarde and the ecb? lisa: we've continued to see people shrugging off the concern about central banks in the u.s.. this is more than a tech story because tech has stalled out as our next guest pointed out. what is driving that? is it underlying growth we see in the housing market, that we see on areas even in manufacturing. tom: the markets are pretty much stasis. within the global slowdown in the data check, i-67 in west

texas intermediate, 1616 and renminbi is going it -- is quietly going out to 7.25. these are quieter stories since everyone is focused on portugal and in your 9:00 hour. lisa: this is one of the big question marks, how big is the china slowdown which you see in the yuan and also incurred which you also may see in other places. how much is that into the fear of something less sustainable as central banks raise rates. that is what you're pointing to. tom: i think the thing about this panel that's important today that we learned with francine lacqua, it is important they have this fancy pastry. it is central to what we mentioned yesterday, a creamy almond coating with a butter overlay as well. that will probably make for [indiscernible] lisa: news you need to know and that is what we will be looking

for. tom: how many on the panel? lisa: four. that will be central bankers from the ecb, the federal reserve, bank of japan. tom: the new guy from the bank of japan, very cool. lisa: andrew bailey will be front and center at 9:30 a.m.. how far they can go, you see to your gilts, the yields on that spread to the highest we've seen in a long time and this is a concern, especially given interest rates of their central banks and their housing market. tom: that will be interesting to see. lisa will have the panel on bloomberg television worldwide in the 9:00 hour and i just don't know what to expect and i also don't know will it be market moving. i don't know. lisa: i don't know either and i think a lot of people are watching. they are watching what we got

from the stress tests after the bell at 4:30 and even more portly possibly video earnings come out. that is another story that is dominant today is renewed concerns president biden will ban exports of specifically higher tech ai related chips to china and you see nvidia come off quite a bit on the heels of that because about one for their business is selling to china so, given how much this is dominating the rally today, that will be something we are watching as well. tom: nvidia, it's sort of the beginning of earnings season, done with the tech ballet as well. the data, red and green on the screen, what an odd day and odd week. we dive forward and try to glean from the charts, christopher of her own joins us at strategic's. thank you so much for joining us. which chart matters? >> i think there's nothing more

important in the world in terms of what bond yields do over the next number of weeks here. 10 year yields have been chopping, basically since last october. this will resolve very soon. we are running out of real estate on the chart. you start pushing above 390, 395 above 390, 395 on tens and that is a big deal. for multiples, for the growth value equation, and as you point out, very quietly the last week or so reflection in where rates go from here. weakness and utilities might be a reflection of where rates might go from here and the moving in the u.k. has been explosive here. two year yields on 10 year yields back to where they were with all these revelations about lti and british pensions were revealed last fall. tom: can you judge technically and i guess yesterday that talked about this, what we really need to see is the high two year yields come out to a

high five year yield. do you see within the charts of spreads, the charts of an actual single yield where we will broaden out these high yields into a higher yield regime? >> we always look at this relationship between twos and fed funds. twos have largely traded south of fed funds since call it february or march of this year. they are starting to creep up there in terms of reclaiming the bar of fed funds and if you look at who has raise rates recently, the aussies, cads, and u.k., what has happened in those markets, they softened. what happened with the banks? they softened as well. canadian, aussie, and u.k. banks are soft as central bank psyched of the last several weeks. lisa: there's a real tension into this panel on how central the bankers are into determining what goes into markets. it was a brief second where people thought maybe we moved

beyond central banks and are moving to fundamentals. are you saying that is not the case? >> i don't think that is the case or at a minimum the message or interpretation in the bond market to all of this is paramount in our thinking about what the second half of the year looks like but as you point out, the trend is still the trend, and it is still up. there are areas of weakness and pockets that make it week but the british brought aggregate here. what i want to watch as we think about the second half of the year, we have seen modest broadening the last two to three weeks, does that stall or continue? we are sitting here today with about 60% of the s&p on average. that's a reading that automatic -- ordinarily would not worry me that much but it is unusual in a first-year off of a low we are not broader area now markets are common but they are come in late but they are not common early in a new advance. lisa: you mentioned we've seen the stalling. there's been a number of

downgrades from bank saying it has perhaps gotten too far. are you saying it is more related to the yield story and the waking up to an old paradigm we saw six months ago that people abandon when we had the no landing, soft landing, and macula disinflation of say february? >> feels like a different world to go. we spend basically 21 and -- 2021 and 2022 thinking the world was on the cusp of something to change for that view to be challenge the last three to four months. if we really get rates up here and i'm talking say above for on tens and for 10 on 30's, new highs on twos, you will begin to question some of the valuations put on these tech names. i wonder if that is why there's a hint of them stalling. apple made a high yesterday but quietly, google has come in and microsoft has softened a touch. they have all ridden their 50 day averages all year and i think there are big levels moving forward. if you want to look at the test, a different sector but this is a

test, european luxury names, lvmh, etc., they have been tech like this year. those have started to stall the last two weeks. i think we will learn about other corners of the world and how those stocks go forward. tom: bloomberg with a great story today on what is it lewis feuding? lisa: about how it is the latest csg stock yeah. tom: technical analysis about looking at the past and learning lessons. a nice like up and in december 1975 we discovered a second leg up in the market. can people like chris verrone discover the second leg before it happens? >> when i think about markets i don't really operate in the world of levels. i operate in the world of what is the characteristics of a certain advance. on balance when you look at the current advance, the leadership is still pretty risk seeking. you see it with industrials,

with discretionary, so i would use characteristics and say nothing really meaningful has changed. i think a shift there would cause alarm but i'm not seeing that yet. you bring up this 1970's area, it is often referred to this 10 year range. i kind of reject that. it was. zobel and bear markets. it was two years up in two years down. it was not too weak 72 weeks down so this idea of the 70's being a range, i don't think is is -- is accurate. if you look for range, there are parallels to the market, post-world war ii, 45 to 50 i think is interesting and a period where all the economists have thinking recession was coming and it never came, interesting there. lisa: given that, do you reject this idea the past indicators are no longer working. the models are broken and technical analysis doesn't hold the same cloud? >> i suppose her definition of what technicals is, we wake up every morning and ask ourselves

the simple question, does the market agree with the consensus? that is my assessment on where technical analysis is. any time of my career where i've been questioning whether the indicators are valid and new regimes about to be valid, i would keep that in mind. keep that in my with tech names. two to four weeks ago we got what i would only characterize as blowoff like valium -- volume. what we know about that? it very rarely marks the top but can begin the sequence of putting in the top and you were doing about a month ago a four to five average weekly volume in md and some of those makings are very blocky type volume. tom: with all your study of the charts and in and out, does market timing work? if i'm in cash, can i figure went to get an officially and productively and effectively? >> i might replace the phrase

market following with trend following. i think trend following works. i think we can do a good job, all of us, of getting the middle 70 or 75% of a move. i am not met anyone who is particularly good at the turns. that middle chunk we can -- all the money in the business is made in the trend and not at the pulse. i think we can play trends and that is what we tried to do. tom: nice set up for the question, i knew what the answer would be. lisa: i think everyone knew. [laughter] tom: this is the gospel. there is no other way to put it. chris verrone, thank you so much. you came out today, you are a bowl? >> i think it's too early to back away from the trend. put your guard on for things to change but watts rates, they will decide second half of the year -- watch rates, they will decide second half of the year. tom: what do you see in rates for this panel?

i take your point that maybe we get the most out of governor bailey. i don't think he will declare victory. lisa: i think you can. we heard that they have the hardest task here and i think everyone would agree but we have seen the stasis and markets ahead of this panel. we don't know. we don't know how far they are willing to go and what they can say to convince us something different of what we are looking at. tom: francine lacqua leading our coverage in portugal, most interesting central bank -- it is like one glorious press conference. maybe mckee will sit in the back and ask a question late in the panel. red and green on the screen, features negative seven, stay with us, this is bloomberg.

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>> what we see in the actual data, a lot of resilience. we have seen the stretch of a strong labor market in proof due to the very large increase we have seen in participation of working age americans. so there are reasons to think we are going to continue to see resilience against a backdrop of what we have referred to as more stable economic growth. tom: speaking differently, to

shift from a vice chair of the fed to national economic council director for the president, lao brainerd, and all my years i believe i've never seen someone try to make that shift. lisa: that have such an important role an interesting time where we are expecting recession and still expecting it and still expecting it and it has not, and all of the data seems to point to resilience. did you see the consumer sentiment yesterday? tom: yeah. it was stunning. there is brainerd and you have to wait for the whitesmoke to, the chimney and outs and other stuff and you go to the white house and you have to promote optimistically and an optimistic message. what a shift rhetorically. lisa: from biden's perspective, it would probably be better for there to be a short recession now rather than when we had to the pole and that is one of the tensions. so she is trying to thump the cause, that is really the

tension now. tom: talking about the good economic data yesterday, he sought within a good stock market yesterday, levels closing right on 34,000 on the dow, s&p, a little bit under the 4400 level, nasdaq the life of it own -- life of its own. looking at the currency space, i want to take two seconds, this is too important before the central bank confab in portugal. lots of underpinnings going on and i go to euro-yen, lagarde and who is the new guy at the bank of japan? lisa: yuaida. tom: that pair is up at a 158, strong euro and weekend is the one i'm watching. lisa: it has been a weaker yen consistently because they have doubled down on the message even as we see inflation expected to surprise to the upside in japan and creep higher despite this call they want that and the rest of the world is battling the same trend.

it is counterintuitive. jonathan: all this wrapped around the elephant in the room, chinese weakness and in been -- and business and manufacturing weakness. the political tensions between the united states and china. before the panel in the 9:00 hour, we are reefed by wendy sheltered from the center for american politics. thank you for joining. annmarie hordern reporting that janet yellen will exit to china early in july. what could be the goal of a secretary treasury to re-continue to rebuild if you will that permanent codependency we have? >> good morning. this is a strategic move i think to shore up the economic relationship between the united states and china but also continue to send signals about the united states willingness to engage major powers that are not russia. so we've got the modi state visit rolled out the red carpet and ignored human rights issues

in india and going to china, our top economic person, secretary of treasury fighting about the federal reserve and treasury she is prominent in our economic infrastructure and sending her or asking her to go to china reminds china we are this stable , very strong economic power and it sends a chew political message to russia that the united states is trying to double down on its relationships with the two other very strong, nearby partners to russia. lisa: how much is that message undermined by the news this morning that the u.s. may been exports by u.s. chipmakers of more advanced artificial intelligence related technology to china at the same time they're trying to create some stronger relationship? >> there has been a theme for some time, really very pronounced another trump administration but certainly continued under biden that

intellectual property theft or spying or trying to steal u.s. technology has been a mainstay for some time in u.s. policy, quite consistent, and the chinese have not been as responsive to u.s. complaints about this. what the government protected and private is tree protected and china and they want more response. you can keep stealing things from us, we will crackdown on your companies and we will basically been exports of highly sophisticated technology until we can get a handle on how much you are stealing from us. it has been a consistent message through the trump and biden administration. lisa: we see nvidia lower, a pet of its revenue from china. we will be talking about that through the show. talking about this panel of central bankers and when can we hear from president biden yesterday that he thinks the u.s. will avoid a recession and he was talking about positive data we have been seeing across the board.

is this a good thing for him considering it could push any downturn out to around the election? >> your point is so excellent about the timing of when people perceive a recession versus when we experience recession and the famous scientist from the model of the 1970 saying whatever's happening in january and february of the election year really has a strong effect on who wins the election in november. i think the timing shifted and i think people sentiments are led by elites more than maybe four years ago, a broader swath of people pay attention to more popular news about the markets and the economy. it is unclear when the best timing, if there is going to be a soffer session, would be for biden. before december 23 certainly much better than june 2024. tom: i thought of you yesterday when i saw a british newspaper leading their website newspaper with a pole on the vice president of the united states. to give us the historic

perspective, the so what if you will that a vice president does poorly in the polls. is there a so what to that? >> sort of a new phenomenon actually, though vice president have been traditionally the people that run for president. so i we have not done more polling historically on the popularity of the vice president's, with some of sections -- some exceptions of dick cheney, usually bp is the running candidate to run for president so we want to know how popular they are. this is a new phenomenon and don't have history to compared to but clearly we have to figure out if we are observers, how much voters really care about the vice president of the united states. and will this turn their decision that, harris might be president given biden's age but the same thing will be set of trumps vice president. i think there will be a far deeper and more sophisticated discussion of the vp role in both elite candidates.

in 2024 we see much more scrutiny on whether americans are willing to accept the vp as a potential president on both sides of the aisle. tom: thank you so much with her university this morning. i was thunderstruck by that, lisa. just the telegraph of london, doesn't matter which paper it is but in london they are leading with a pole on the vice president of the united states. lisa: there is disbelief that vice president kamala harris will have to take on a much greater role in this selection due to the president's age, due to questions about his ability to fill the entire tenure of his term and we saw that with the white house correspondents dinner where a vice president,, harris, was the first to sit on -- kamala harris, was the first to sit on stage. it's going back a number of years. there was a theory this was to emphasize her position heading into an election where suddenly the succession becomes a bigger question. tom: that will be interesting to

see to say the least. i'm looking at foreign exchange and i don't know what to do here. this is my foot -- is massive ambivalence in the foreign exchange market with dollar on's to. sterling is what i'm watching more than anything and it is a turn waiting for the news. lisa: it's a turning step forward with the chinese do when which is weaker and that is the one theme. we look to how they convulse that economy. tom: red and green on the screen, futures negative seven, the vix, wow, 13. i'm still not used to this, 13.0 on the vix. on the events, veronica clark on citigroup. good morning.

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tom: "bloomberg surveillance," jonathan ferro on assignment. a lot of mystery about that. it's like a british thing. lisa: it's not a mystery, he's on vacation. it's a good thing. tom: it's like a sabbatical. have you ever had a sabbatical? lisa: i have not. i've been working since i got out of college. tom: we should work on that. lisa: go on a collective surveillance vacation. tom: three of us take rolling sabbaticals and look for that coverage at 9:30 a.m. what will it be like?

they show up and this is leading the way and they were really kill themselves not to say anything, right? lisa: i feel like job -- jay powell sit there pretty and say we've got it under control and soft landing and disinflation and good things blah blah blah. then ecb's christine lagarde will say that is not where we are at, we are going to stay hard, keep raising rates and doubling down and then you will have andrew bailey say we have a tough situation. and they will awkwardly sit there saying we are happy with yield curve control and that will be the dynamic of the entire meeting. tom: we tried to -- try to bring you some of the dynamics of the bank of japan. it is distant, it is around the world. a so what for american blisters and viewers and the answer is that matters according to the pros. and it leads directly into the american economy. yen 144 .08, refuses to go stronger, a lower number.

for that to get to 146 and 148 will be a challenge for the bank of japan. lisa: this particular panel, venture jay powell will have the best situation because they are further along in some of the rate hikes. or so people thing. veronica clark has been pushing against this idea at citigroup that the fed is done saying the timeline for a potential recession has pushed out further out as activity and jobs data continue to surprise to the upside. a sharp slowdown in growth remains a risk but stubbornly high, underlying inflation is a reality. we continue to expect the fed to raise policy rates by 25 basis points at each of the next two meetings. that is a distinction between the citigroup view of the world and the rest of wall street, which has pushed back against the idea the fed has to go that much further. tom: can we be as bold as to say a larry and dudley has been out front of this for maybe 14 months and i think citigroup has been way out front. lisa: here to take a victory lap

is runco here to take a victoryp is runco clark to extrapolate out how far the fed can raise rates. is the market accurately pricing? >> it's not over until it is over of course. i think the market is more fairly priced at this point. we are expecting a hike in july, we are also expecting a hike in september. the market is pricing a hike in july and two large degree i think the july hike is a low bar. after july, we should see strong inflation data and packets us to the hike in september but the market is going to take time to see the data. lisa: what are the tensions as a lot of people say the tightening in credit conditions has not been nearly as significant as people thought because of how contained the 10 year yield has been, longer-term yields eerie how much do we need to see those yields creep higher to achieve what the fed is going after? >> it's an interesting dynamic

where we have had a tightening in credit, obviously yields are higher but they have not continue to move fire. this is an interesting dynamic we see in the housing market now where mortgage rates will be more dependent on those longer and yields and they have been relatively stable since the last half of last year and that means we are seeing a pickup in housing activity again and housing demand. you can see dynamics if you are not tightening credit conditions more. tom: look where we are and i want to fold in this panel, i think it will be a snooze fest and interesting complexities out and interesting complexities out of it as well. for more use it with your global mandate at citigroup, how removed is america's exceptionalism, our monetary exceptionalism, what everybody

else -- >> strong global central banks to get the fed lower and i think the fed can learn -- rates lower and i think the fed can learn from some of these other banks. we had bank of england that tried to pause and inflation that did not slow enough and had to restart hiking rates again. the fed can learn from some of the central banks that is a hard job to get inflation lower and you might think you are close to the end but there are still the upside risks, still well above target. tom: review with us given the citigroup call the trajectory you see on rates linked to inflation. is it like 5%, struggle through 4% or do we rapidly come down to 3% and a struggle to 2%? >> we are increasingly thinking about scenarios where inflation does not slow as quickly as in our forecast or the fed's forecast. we have penciled in mild recession for later this year and early next year, the risk

that could be pushed, the risk that could be pushed out more. if you are not slowing activity enough, if you don't get enough of the loosening the labor market, it can look like inflation is coming down and that might be what the second half of this target has been 4.5% to 5%. lisa: what do you think we will learn today from fed chair jay powell and the other central bankers? >> i don't know if we will hear a whole lot of new from powell. i think it is a relatively hawkish message. we heard from him last week and in congressional testimony. this is maybe a bit better of a form if you wanted to give the guidance but it has not been too much data since we heard from the fed a couple weeks seo. i do expect he will sound two different, probably hammering in that the media and fed officials see rates move higher by 50 basis points this year. lisa: how divergent do you think the messages will be from

central bankers fighting what a lot of people say is a different inflation fight depending on the nation? >> in terms of messaging, i don't think really any central banker has the ability to not really hone in on hind inflation . that does have to be the message whether inflation is caused by different factors, it is still too high everywhere and on a credibility and messaging standpoint, that is a goal of all central banks, to have lower inflation then we are now. tom: thank you so much, veronica clark of citigroup with us with a steadfast call. they have not bunched one iota -- budged one iota. lisa: they said this to the banking crisis in march and right now the market is joining them. that said, rate cuts have been priced out of probability and people see the first half of next year being a retreat by central banks, retrieved by the federal reserve. tom: some of this is the belief

of a labor market that continues. we get outlandish 4%. -- 4% unemployment or 4.5 percent unemployment. it has not broken. lisa: and the other aspect is a credit impulse and what happens with the banks and whether we are seeing more restrictive credit conditions then many previously thought. on the margins that will percolate up in a more material way. tom: joining us for a two hour conversation because there's a lot of talk about in her world is bloomberg hypothetical scenario sonali basak here on the stress test. to any stress tests are a snooze fest but i see the fed's model for stress test is at 10% unemployment rate. why are we going through this exercise today at 4:30? sonali: i think the expectation is a test harder investor into tougher economic conditions. to the point you're making, a lot of criticism has been where has the fed been in testing some scenarios that had gotten the

banks in trouble. another part of the test i think is more fascinating is the trading scenario. this exploratory market shock eerie at the reason it is interesting is because the federal reserve is going to be changing its stress testing standards and an expectation is trading desks in particular in the future would be facing tougher capital requirements. what does that mean? it has real business model implications. you see investment banks hold a in the market relative can -- relative to consumer banks. if the fed a stress testing that more rigorously, it means the returns cannot be as exciting the future. tom: on radio, we show appear, sonali put together this gorgeous chart of banks. i do not see svb's logo up there at all. lisa: this is the biggest banks and that is one big question with the stress tests, how are they to the regional banks, especially if they rise to i don't know about systemic but

something of concern for the federal reserve. you talk about the nature of the stress test and i agree this idea that are they going to talk about what happens if deposits go away? what are the likely implications of the results? will it be they have to raise more capital? is it going to be they have to increase their debt issuance? what are they expecting -- what are you expecting? sonali: there's an expectation more banks go to the debt market to lose their buffers but there is an expectation that buybacks, dividends can be pressured in the future. not just for the biggest banks, there's an expectation their trading desk might be more pressured in terms of rate of change then perhaps the rest of consumer banks. bank of america is expected to have increased relative to before. the midsize banks here, because the bar today is $250 billion and above, the midsize banks will be more pressured when it comes to capital return then big ones. lisa: is there any discussion about stress testing some smaller banks, particularly in

light of what we saw in march? sonali: what we had was fed chair powell confirm they really want to lower the bar to $100 billion and that is the political uproar, isn't it? if the smaller banks face tougher stress tests than's appliance caught -- costs go up and there's another interesting thing happening, a greater scrutiny on bank mergers by the biden administration from the department of justice and from the ftc potentially and if you had the bar lowered to 100 billion dollars, does that incentivize banks to want to merge way above the bar? tom: the history of this, and the clearest memory of standing next to the bloomberg terminal, the first time we did a stress test with the greatest otis bilodeau. we are standing there and frankly we are navelgazing because we are like so what? this has nothing to do with the reality of how banks fail. we have just had a six-month disaster.

did you cpac west, there chart? we have had a disaster in the banks. that is nothing to do with the stress tests. sonali: i will defend the stress tests. i think about what marty chavis said, former ceo of goldman at 6th street and he has not only said had the stress test not happened, you would have a lot of renault activity by the banking system. it forces both banks and regulators to check in and make sure -- tom: did we check in with the san francisco banks giving out 1% mortgages to take in gazillions of dollars of money? sonali: it is not a complete system. tom: why isn't that? sonali: i think what is happening now is that kind of struggle here on what is the right scenario. you can slap rules on the banks but the supervision is what fails on the back of this. lisa: it's one thing to game out every situation under the book and there's another to take action to do anything about it. what are they going to do to shore up consistency and supervision? will that be part of the discussion?

sonali: yes but i think part of the problem is it will take years to get there and, by the way, we get to another political cycle soon. where some of the new tighter rules. tom: i got the surveillance ground. lisa: why are you grunting, let's hear it? tom: i think colin in sparta can say this is total hogwash. this is cover your ass, regulatory idiocy. sonali: what would chair keene do? tom: he would broaden it to the keyword lisa said, supervision. i adore mary davis, she is my favorite fed official. where were the san francisco banks during the charade we had in banking on the west coast? lisa: then what is hogwash, the stress tests? tom: it is impartially and conveniently apply to the people

i can pass the stress test. sonali: i feel like tom keene will get a call from jamie dimon after the show. lisa: a lot of people think it will do absolutely nothing because he has already built up his capital buffers and then some. the question has to do with the smaller banks that are less affected. sonali: rog cohen worries about a barbell system in the united states. what happens to lending then if you only have the small and only really big? tom: can from hr says tom we will see you at 10:05. [laughter] i learned a lot there. 4:30 today? we will be stressful at 4:30. cassie -- kathy jones with us on bonds, good morning. ♪

>> i think july [indiscernible] september will be better. what are the factors that are going to happen in september?

some of these risks materialize and are becoming much more visible. so this is something that we will look at in september. tom: he speaks sometimes with madame lagarde, the vice president of the european central bank, at portugal. lisa abramowicz will have complete coverage of the panel today at 9:00. it is four central bankers. i guess it will be a snooze fest but all my radar is up. i wonder, there will be one nugget or two nuggets. lisa: i don't think it will be a snooze fest. tom: there will be interesting to see. lisa: even the rhetoric between hawks on the bench, completely fascinating. but also anja bailey on the hotseat at the time where yields on guilds are just surging. tom: you alluded to this yesterday, so different from jackson hole.

this is the ecb confab which is much more nonacademic, much more visible i would say with authorities trying to manage the message for it, even more so than the choreography we see a jackson hole. lisa: even the place really highlights the differentials. one is a holiday spot, beautiful palaces and the other is the rugged grand teton's in wyoming where you go and rustic digs and focus on big thoughts. tom: one data check, red and green on the screen and that is the real yield, tenure real yield is a major focus. chris verrone and i were talking off air, 1.56% on the real yield and it has buttressed up against the ideas of veronica clark, newer and stickier inflation regime. right now, some are discontent for global wall street. we can talk about sundry layoffs except they are of a magnitude

that is extraordinary. no surprise with ubs taking out credit suisse, patrick barnett has been wonderful about this in covering that. when you are in the banking business, were you ever laid off? were you ever fired? >> luckily i was not at a bank where this was necessary. airing the financial crisis, no one was sure if you were going to lose your jobs and the banks cut down tremendously, especially in europe on jobs but i'm in germany and germany has tough labor laws. tom: let me cut to the chase on thousands and credit suisse, they have to speak to swiss authorities. does that mean the layoffs will be much greater in london, in new york, in hong kong? >> absolutely. i guess so, especially as credit suisse or ubs is looking to cut investment banking on those activities and not so much in switzerland but overall, this is not very surprising. we spoke about when they said

they are looking for massive cuts and pointed out this usually means 50% or more or something like that and now we have confirmation for that. it makes total sense in the ubs, they need to present success in this difficult merger and what is easier than that than jobs as hard as it is for people involved? lisa: ubs intends to ultimately reduce the total combined headcount by about 30% or 35,000 people. this is a lot of people, a lot of jobs. do we have a sense of where we are in terms of who has stayed, how much of the talent they have lost during a process that has been absolutely scathing in some of the commentary? >> it's hard to get into the details about what the talent is like on the ground floor, on the front line, who is like the big talent they have. we know some managers that have

left but that is normal in takeover. the perspective from ubs, they look at the merger and think about what do we want to keep and then we cut the rest. what they want to keep is some key people in the wealth management who have unique line basis that add to the pool of clients at ubs. they want to keep key talent in dealmaking where they have guests and something like that but they don't keep everything in the back office, everything that has to do with stuff that can be scaled. you don't need another 100 traders to train bonds and stocks -- trade bonds and stocks. all these easy replaceable double positions will be cut off and that will go rather fast is what we're hearing, a big majority of these cuts will happen this year. lisa: when will we get stability in this combined unit? i say this at a time where there are not only potentially 30,000 potentially job cuts but we hear about ongoing withdrawals from the credit suisse unit. >> absolutely.

that is a difficult question to answer. deafly not this year. i'm skeptical about it for next year even for 2025 because we get probably more stability i would say but the absolute stability is a long way from here because we know big mergers take forever and when you have soft bond issue, another one comes up. we don't know what the market will look like or sentiment behaves in the next one to two years so this is going to be figured out. outlook probably not happen once but gradual from those clients and feel like they have to split up the money, have to do -- looking for real stability, that is a long-term goal. we will see much clearer by the end of the year how the bank will look like and how the further steps will look like. lisa: we have been talking about the 9:30 a.m. panel with the major economies coming together and talking about their plans. we have been hearing about members from the ecb as we came

into the segment potentially raising rates several more times , even after getting rates the highest levels going back decades. how will that affect a combination, a merger like this? how will this affect the banking sector in general that this is a positive development but happening quickly? >> absolutely. we have this opposite pulling directions for the banking sector, on the one hand we have europe coming out of this low interest rate regime which is increasing net interest margin by a lot. on the other hand we don't know how deep the real economy will be in europe, how badly the refinancing of companies look like and how this will affect credit volatility going forward. it is difficult to say how this will play and i'm not sure if we've seen -- what we've seen in march, i'm not sure that that has been the end of the next story. tom: all these people laid off,

what will they do? where will they go? >> that is another difficult question because in europe, we have the theme of reducing job cuts, reducing headcount for over 10 years and of course there will be some banks who feel like if ubs doesn't like the business, we can take it on board and it fits well to us and maybe they hire a team here and there in individual people here and there but for the majority, i do not think there is much other banks are keen to take on board and that also means for those people losing their job, it will not be an easy time to find the same job at a different bank. results yesterday, people doing better out of the pandemic on the level 1 exam. find the same job at a different bank. tom: quickly here, we had the cfa[indiscernible] is it a generalization or just tougher? >> i would say it is tougher but smart people have a good education and are willing to

switch their career path and say if trading doesn't work anymore for me in whatever shape or form, i lose something else -- do something else with my brain, i guess old find a job and it is different and you have to adjust your life for a. tom: thank you for the brief. it really something. it is a frightening thing. you talk about obsolescence. are all of these fancy jobs obsolete? this is not just about credit suisse, you mentioned the numbers and i guess it is what it is, a bankruptcy merger. every other bank is doing a -- doing the same thing on a smaller basis. you wonder, you say to a kid, go get a cfa, you will love it. i'm serious. you know. lisa: at the same time you have stories like the one yesterday about how interns on wall street are making $120 per hour at citadel. it is sort of what talent and this goes to the point gina room eddie was making, when we talk

about artificial intelligence and talk about some of the rapidly changing backdrop for technology, how do you train people to keep up with that in a way where it can augment their abilities, their knowledge, their past rather than make them obsolete? i think there are still people getting hired. we talk about that all the time. but there are changing rules within wall street and more broadly in the labor market. tom: pulling out the bloomberg calculator, there it is on tv you can see it there, in turn, 55 hour workweek, $6,600. you are popping 14 weeks at the shop? that is $92,000 by labor day? lisa: i was talking with the off spray last night and how young is too young to get a job in this? [laughter] i was like please finish your homework. tom: john barnett from frankford, he has been helpful on credit suisse. reading greed on the screen. citra in the 9:00 hour.

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>> i think is just going to take time for people to get used to higher rates. >> 5.25% is enough and i don't think we need to go much further than that. >> if we are going to have a recession in the second half of the year, it has to come from the consumer side of the market. >> you don't see the third quarter recession and the earnings information. >> the only way out of the earnings conundrum is to have a recession. >> this is bloomberg surveillance. tom: good morning, everyone.

on radio and television on a most interesting wednesday. we have not much economic data this morning but maybe economic discussion in central portugal. francine looked coiffed -- francine lacqua had an interview yesterday and the bank of england and another -- and other governors. it's the annual event and it will be interesting what they say and interesting what they don't say. lisa: and how divergent their messages are. i will not be on stage with them. i will be watching it. do we get some greater hawkishness than we have already gotten which has been pretty uniform putting aside anka japan, pretty hawkish. how do we translate that into a market that is already hearing that? tom: the repricing of the data screen this morning, it's pretty

quiet out there. there aren't little niceties but it's pretty quiet. i will be fascinated how the three of them talk theory and monetary eco babble, it's like sesame street. one of these doesn't fit with the others whatever the phrase is. the bank of japan is the outlier here. lisa: yield curve control is important as we see the expected inflation creep up and the expectation is for 3.6% . they are looking at keeping rates near zero at a time when you have the bank of england really fighting inflation in a much more significant and painful sense and the ecb doubling down with possibly two more rate hikes. we never thought they could get beyond zero. tom: an important just is coming up. but first a data check.

futures are negative five and yields are in today. i will cut right to the data points, the 10 year real yield is suddenly signaling a stickiness to inflation. not a breakout to a higher regime of an inflation-adjusted yield but buttressed at 1.55%. the other is china, 7.25%, a very unique chinese yuan. the secretary of treasury will travel to china and i butchered that data check. lisa: as you mention, 9:30 a.m. is the main event with the panel in sintra with four central bankers. we will see if there is anything that comes out of that. 4:30 p.m., we get the stress

test released by the federal reserve. i personally think it will be fascinating to put to bed once and for all the concept of a banking crisis or re-ignite concerns about what the fed is looking for in terms of a crisis. we can talk about that debate. after the bell, micron is reporting earnings when in general, the chipmakers are selling off after president biden indicated he would crackdown and harden some of the export restrictions for ai related chips. this doesn't seem like the main event but given the leadership in the market so far this year, this is a major issue. tom: on the earnings front, we've said it will be a different quarter and we start early with walgreen yesterday and delta. generous mills out with the dividend lift, a 9% dividend increases positively european. lisa: it's interesting to see we

are not getting the reaction we would expect which shares down 3.5% even though they beat expectations, this is the question -- why are we not seeing a better boost? tom: maybe that's the shift we will be looking for when a lot of the good news on earnings, inflation, price increases helping at the revenue line versus the unit dynamics, how many boxes of post toasty sore cornflakes they have sold. joining us is wei lee from blackrock. there always 14 things to talk about. we can talk about china in investment strategy but a guy named fink has been talking and you been involved with this. it's the efficacy and the usefulness of esg.

larry is a real proponent of talking about this and said it's been a challenging time. color for us how you are reinterpreting esg in your investment strategy. >> sustainable investing is investing, incorporating considerations around the impact of climate we are thinking about how the transition could look like and think about how that is reflected in construction and to what extent it is really in the price. as we think about transition as one example of forces, what we are doing in this media outlook we are releasing today is that we are prominently highlighting a few mega forces including sustainability and transition to net zero but also including geopolitical fragmentation,

aging demographics, including ai to really incorporate those forces in construction. lisa: two days left in the first half of the year, what changes in terms of your positioning after six months of being really cautious? >> the biggest change, as we think about the environment where yields have risen is that we are actually excited about opportunities across the spectrum. we have been talking about the front end of the curve which we still like but we are also putting cash to work across the broader exposures in fixed income, including mortgage backed securities and inflation links especially in the u.s. and including high-grade credit and local currency, emerging orchid debt and as we think about what has changed, we are rolling out the new investment playbook where the first layer is around macro-based allocations but

macro can only take us this far in this environment of supply constrained. we're are also thinking about the second layer of very granular correlated individual investment opportunities to overlay and the third layer is the mega forces -- macro forces i talked about. lisa: where is artificial intelligence and the overlay you talk about? >> you look at markets this year and it's a very narrow thematic market. that has taught us that based on asset allocation, the macro assessment alone is not enough anymore so far, we have talked about bias versus quality. what we are doing differently in this media outlook is to break that out and explicitly carve out a conviction in ai which we have had indirect exposure

toward but now we want to call the map explicitly because the interplay between the cyclical framing and the structural macro forces is so nuanced we cannot afford to model them and mix them together. tom: your essay is a view from 60,000 feet area it is very macro and is -- and it is very big picture. in the middle of it is a massive micro reality. you say that the pandemic supply constraints that have affected the world will have a persistency, that they will be permanent in some way. that is a stunning statement. why can't we get back to supply/demand normality? >> some of the supply constraint is pandemic induced but a lot of it is getting washed out in the supply constraint. what we are putting out which we have been of the view for a while is that we are moving away from the last 30 or 40 years of

the great moderation characterized by demand shocks characterized by supply constraint coming from structural forces like the net zero transition, geopolitical fragmentation and aging demographics. what that means is that when it comes to central bank policy, during the great moderation, because of the structural disinflation, they were inclined to keep policy easy. tom: we had a free lunch for 15 years. >> that was easy and they are in an environment where they need to keep policy tight in order to lean against this inflationary pressure. tom: we finally got a return to risk-free rate and a legitimate sharp ratio, some of the traditional dynamics we studied in books, what does that mean for the sintra panel today? what is their new reality i'm 17

years ago? >> their new reality is from maybe 30 or 40 years ago. great moderation is over including the period after the global financial crisis. what i would pay attention to is to understand if they acknowledge the trade-offs facing them which is the cost of fighting inflation in a supply constrained environment, it's higher. if they acknowledge that, what are they going to choose when faced with this stark trade-off? road or inflation? lisa: is there a possibility for markets, u.s. equities rally even if we get a recession and even if the fed does become hawkish and we get that? you could still see the market respond in untraditional ways to a central bank induced slowdown? >> u.s. equity markets, the broad market is still pricing in

earnings to accelerate in the second half of the year. in the context of growth slowdown, it's too optimistic. we think about asset allocations as far as the broader market, we have a minus one out of the scale of minus three and translate that into portfolios. the benchmark is around 33%. modest underway translates to about 31%. we are modestly underweight but having said that, there are themes we would like to embrace like artificial intelligence so we had that on top of the broad market to get to -- closer to neutral but we are not quite there. tom: thank you so much. s&p futures are down fractionally 0.1%. lisa: that was fascinating there. it struck me as highlighting the difficulty in coming up with

something completely macro without taking into effect some of these other issues like artificial intelligence, like what companies will benefit from deglobalization or re- globalization. how much will this be the new playbook that might hearken back three or four decades earlier than the one we've gotten used to with central bank dominated action? tom: i would take the macro dynamics and i would overlay it with the micro chicago dynamic of jeff curry we heard from goldman sachs where he said everything and hydrocarbons now is still based on the new reality which is a legitimate real yield, a return to a legitimate rate structure. now, the macro structure of blackrock is adapting to the end of the great moderation. that's a huge macro theme for us for the next six months or one year. lisa: and it causes micro

headwinds and tailwinds and the underpinning here. you also have real invention. you actually have new realities with relationships, geopolitically. how do you interplay the end of financial repression with some of these new trends that are very real and causing real market reaction? tom: are you going to buy the virtual reality thing from apple? lisa: there are people in my house a this is the future of computing. i say go get a job and you can pay for it yourself. tom: i don't worry about this garbage. red and green on the screen, stay with us, this is bloomberg surveillance area ♪

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>> what we've seen in the actual data has been a lot of resilience. we have actually seen that stretch of a strong labor market improve due to the very large increase we have seen participation of working age americans. so there are reasons to think we are going to continue to see resilience against a backdrop of what we have referred to as more stable economic growth. tom: and optimistic tone taken by the -- by lael brainard.

the president echoing her comments saying -- biden watches bramo and he will give another speech so this is good news for the white house? lisa: it is good news for now and the tension is that if he gets a recession now, he can clear it out by the time he runs for reelection. if it comes around that time, it's more likely he will be a one term president. if we have simply a downturn from the equation, that is good news. tom: let's take on the trend of economics. we will try to get to russia as well. the star of balance of power joins us today. anne-marie, i look at the good news in the economy, why is this

administration having so much trouble selling their success? annmarie: the issue is the american people just don't feel it. when you look at the polls, biden continues to get poor marks on the economy because of high inflation. biden said he thought inflation would be temporary back in 2021 but american's suffered for years, higher inflation. while americans are having a lot of jobs with a tight labor market, you don't always feel your neighbor getting a job. what you feel is higher grocery bills, higher hotel those in higher plane bills and this is why this has been a struggle for this administration. what they are trying to do is get back to bite nymex -- bidenomics. they want to frame it on their own terms. i asked how you would to find it -- how you would define it.

they are trying to sell the legislative wins they have had and it comes to the corvette expanding the productive capacity of the united states. they want to make sure they are investing in hard infrastructure, chips and things like clean energy. their biggest issue is that when all of these projects come to fruition, it is not going to be in time for the presidential election in november of 2024. tom: besides the return of aaron judge helping at the yankees, there is a clear understanding of the polarities of the republican party. mr. trump is still doing so well in the polls. i hear basically silence on the left. what are the polarities and what is the key constituency now voicing democratic politics with their incumbent president? annmarie: they are rallying behind joe biden.

democrats still believe this is an individual that there will be a rematch of trump versus biden and biden would still win. what is concerning to some and potentially this concern will grow is this latest morning console test consul poll that shows for the first time, trump could be biden. that is a concern but at the end of the day, they are also rallying behind the current president and they do not have anyone that is out there looking to get in this race. there are potentially people waiting in the wings like certain governors if the president decides he will not run but at the moment coming is planning to take on 2024 and that's why they realize there are low marks when it comes to the economy and why they are going on this huge effort with this speech in chicago today and this will continue to frame and talk about the economy and labeling what they see as

bidenomics. lisa: when domestic politics can overcome by geopolitics, talk about treasury secretary janet yellen heading to china at a time when the u.s. is coming out potentially with more strict requirements on not exporting high ai related chips to china, why now? what is the push/pull of greater diplomatic actions paired with potentially more restrictive export bans? annmarie: this will be the tight rope the secretary yellen has to walk this is a scoop for myself and jenny leonard that she is going in early july. at the same time, the administration is ramping up their work not just with the wall street journal reporting but export controls and some of these chips needed for generated ai development but also on the outbound investment. they have an aim to try to get that done by the end of july.

awkward conversations for the treasury secretary as she makes this trip to meet for the first time, her brand-new counterpart, the chinese vice premier who was a new individual and was given this job in march. what we are seeing is the u.s. trying to do both. they want to make sure they have an open dialogue with china but at the same time, they are looking at this competition and putting restrictive measures on some of these very high advanced applications needed for things like ai. everyone is talking about the fact that ai will be a massive race between china and the united states. we have a story out this morning talking about that many in china see themselves behind and look at the money used in ai in the united states absolutely dwarfs china when you talk to people in china. they say they are behind but they think they have the capacity to catch up. lisa: dovetail this back to the domestic politics, the idea that

in general, people want to see more hawkish rhetoric around china. that is -- that has what is appeal to voters in the u.s. so how do we expect the hawkish rhetoric to increase heading into the election season? annmarie: it will for sure increase into next year. every candidate will have to come out when it comes to foreign policy and make remarks regarding russia and regarding china. we have seen some of them already stumble when it comes to russia and they have to backtrack. it will be difficult to see anyone stumble when it comes to taking a harder line when it comes to beijing. tom: thank you so much, greatly appreciate it this morning. look for balance of including a briefing on the events from russia as well. red and green on the screen and the 10 year yield is up. you wonder what that will do to the economy.

we get a signal chart every day and there always trillion. he just put out a chart on weekly thanks separate says bankruptcy filings, of 14 and 12 week moving average, we are almost back to 2008. lisa: it shows the four-week moving average when you look at it on a weekly basis, the bankruptcies are being taken up more quickly when you look at a longer term rolling trajectory. this signals things can move fast. the economy could roll over in a much more rapid way. i'm not saying that's what's happening but that is the tone underneath the pessimism out there with the bears saying wait. things could turn quickly and whether that's the case or not and whether this is micro data that pains the narrative you want, either way, this is the

nature of how people are parsing the data to understand the true story. tom: i don't think we will hear this today at sintra. we have theory and analysis like we heard fromwel li which is one aggregate idea. there is not an aggregate america. there is bankruptcy america and his somebody figured out how to paris but it's sold out? it's like to america's. lisa: and one inflation number they are going after. tom: stay with us, in the 9:00 hour, sintra, this is bloomberg, good morning. ♪

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tom: bloomberg surveillance, you should have the cameras on while we were on break. lisa abramowitz discussing how benevolent she's been with mr. abramowitz over the years. we should do that. the sports games do that. lisa: we would probably restrain ourselves more. tom: let's do a market check. i will try to be as good as radio. red and green on the screen,

3.74% but it's been in that range. a 4% yield but we are distant from that. we are under $68 per barrel and critically on brent crude, under dollars. 67-69 un-american oil. you go down three dollars and you are under $70 on rent fruit and that's the shock of the order. in the currency space, i've got four pairs a look at for for central bankers and i'm getting no love here from the markets and no free sale, maybe sterling a little bit weaker. lisa: a little bit of euro softness versus the dollar but hands down, the clear move is a weaker you on. that nation tries to have a

controlling role in the economy at a time when there lessons around what is going on. tom: nvidia is out today and that's what you are looking at. lisa: it has been in the news because it's up 187% news to date but also, the wall street journal said the biden administration is continuing new restrictions on exports of artificial intelligence chips to china and this would concern nvidia considering 1/5 of their businesses sales into china and the shares are lower by 3%. this comes after a rally that has been astronomical. their market cap was 351 billion dollars at the start of the year and now it's over $1 trillion. what could this do to them longer-term? is this something structural at a time when this is speculation and could be rolled out next month. amd shares are lower as well and those of the two main companies that would be affected by some

sort of restriction on this front. they are the leaders in this market and they are the drivers. tom: they have to consolidate. there's nothing wrong with going up like a moonshot and consolidating for dare i say quarters? lisa: consolidating is one thing if there is no change in the news. we saw a intelligence change the narrative. do we see some sort of political tension change the narrative once again in terms of earnings potential? the other company and watching is micro because they report after the bell. this is going to be a really important earnings report. this is a true test. are we seeing the revenues and the cells to justify some of the gains we have seen to date? micron is lagging because it doesn't have as much focus on ai tech the shares are up 34% year to date. tom: i'm really looking at unit

dynamics into the earnings season. general mills is out with a definite increase earlier this morning. we increase our knowledge with kathy jones, fixed income strategist at charles schwab. i will cut to the chase as well. and my clipping of total return over the next 12 months? >> i think there will be some total return in addition to the coupon. most of what you will get is the coupon. when i look at where we are price now, i think there is room still for yields to fall, not a huge amount especially of the fed continues to hike rates. we are seeing more and more curve inversion. i think there is some room especially if you go into investment grade corporate bonds, there is a pretty good room for some spread tightening. tom: what is the yield i can

capture in bonds on a general vanilla ig piece? >> i look at the bloomberg index. tom: she can stay. >> the corporate indexes well over 5% is probably roughly around 3% and that's not a bad yield to lock in. you probably have the yield of six or seven on that but it's not a bad yield. tom: that's a money market yield for six or seven years versus 13 months? that's the shell game? are you ok there? lisa: that's basically locking in the coupons that maybe you can get in cash but won't be able to get in three years considering people expect rates to come in eventually. here in lies the question of the chart we were talking about earlier -- bankruptcies are ticking up in a substantially especially if you look at a more micro bases in a near-term time horizon. how does that affect the credit proposition at a time when

people are not prepared for wholesale defaults? >> it's one reason we have been cautious on high yield even though height yield performed very well because the coupon and spreads of been tight. it's reason to be cautious on lower quality credit because we are in a global tightening cycle. we are seeing softness. corporate earnings have not been all that strong when you look at the broad economy. there is certainly going to be, the further down you going credit polity, companies who are refinancing that's causing them to an three times what they were previously paying interest on that will trigger some defaults. lisa: it raise the issue of how long central banks can hold rates height and how that is important at a time when many companies have turned out some of the debt structures and won't have to borrow for quite a bit. when is the pain point in terms of a wave of maturities that

have to be refinanced that could cause companies to actually have to pay the rates we are talking about? >> you are already starting to see it on the edges but lower quality companies that have to refinance frequently. we probably have another 6-12 months timeframe for higher all the companies. we are not worried about a huge default cycle but eventually it catches up and especially if the equity market doesn't allow you to refinance equity to offset some of the increase in leverage that's been taking place over the last couple of years. tom: i look at the bond market and i remember the comfort of owning corporate bonds. are we ever going to get back to that on the street? are we completely now beholden to a full faith and credit discussion? >> i think you're seeing a lot of demand in the investment

grade space. we have seen a lot of demand from institutional investors, a lot of the mutual funds, a lot of the pension funds -- tom: is there a shortage of ig bonds? >> i don't think there is a shortage but the balance is pretty good when you consider the spread over treasuries is fairly normal in terms of historical averages. it's a pretty good balance right now. tom: you mentioned six year maturity, can you nuance that 2547 years? >> i would rather be a little bit longer, maybe seven years. tom: maybe then you can pick up a percent? >> there you go. tom: maybe 20 years. lisa: two days away from midyear in a year that has been full of dashed expectations in many ways people came into this you're talking about a longer,

structural shift upward in inflation and that we talk to an easing number people who say we are shifting back to what we knew before, is just taking longer. where you stand on this at a time when we see notes of disinflation in certain areas but re-inflation in others? >> i would be in the camp that says it's taking more time. it's very difficult to see that we have a global tightening cycle, higher cost of capital and we have had a slowing economy with topline new goods prices falling and it's hard to see that if the central banks continue to keep real rates high that we are not going to see that inflation come down. i think it's just a matter of time. it would to fight expectations and you would have to have maybe a massive fiscal policy shift and right now, the fiscal in all his negative, not politic. lisa: people say just look at the yield curve and than 10 people message me and say it's broken.

it's not actually telling us anything because this is a new regime and a new post-pandemic reality. how do you fight against that, the idea these indicators are broken given a macro economic backdrop that is unheard-of? >> it's complicated. we haven't in in a pandemic in 100 years. every cycle is very different anyway. i would not count on the yield curve being broken. it reflects the market expect growth to slow and inflation to come down and the fed to ease down the road. that's all it's telling you. tom: i look at bond allocation in the heart of the conversations in a midyear review and is the reallocation of the 60/40 split. are you and liz ann saunders on the same page as to what that split should be? >> we don't specify -- 60 slashing -- 60/42 us is a good place to start but everybody's allocation is

different. coming into this year would bond yields up, i think 60/40 is not a bad place for the vast majority of people of a long-term time horizon. tom: is the public buying the story or they still in cash? >> we have such a range of investors but we have a lot of people still short in cash who are gradually starting to edge out now that yields have been more stable for a while. the equity side, we have a lot of people interested in trading and so there has been a lot of that but most people are holding steady. tom: lisa: kathy jones, thank you so much. tom: i think it's fascinating how the media's full faith and credit and the drama of 8% in the debt of going under and there's something in the middle that's a 6% coupon that nobody talks about. lisa: everyone is buying it though. people have just been piling in because it's the sweet spot. you lock it in for a long time

and who will deny the fact that they can pay their bills for a long time. it raises the question, how do we account for this potential wave of insolvencies, the potential credit distress that's implied by the tightening and conditions as well as what we see in the yield curve? tom: i get a huge bruce -- a huge use out of the total return index. i just wonder how you get price up, you'll down on those indexes and how you breakthrough to some sort of price recovery. we have not seen the disinflation to get there. the vix is 13.80. the standard & poor's is down one third of 1%. lisa: you were talking about how we get there. if we don't get a recession and if we don't get a real wave in bankruptcies and suddenly you could end up in a better than expected situation, a lot of

that is been by ai but other stories on the margins. tom: right now, this from the detroit news, serving michigan since the last time the tigers won the games in a row, detroit surpassed chicago and the rest of polluted america. it's back. this is something we haven't talked about. we don't want this to move east, do we? lisa: we are talking about the fires in canada that continued to rage and because they had dared -- bad air to percolate into the midwest. it's also shifting to europe. we have seen some of the maps push smoke all the way over to europe. it's frustrating and it's scary because when you have to wear a mask and you can't exercise outside, it feels tom: tom: something. so we've got this and we had at

three weeks ago and it cleared and now they have it. i guess it's coming this way is what they are saying. why wasn't here last year or the year before? do you agree it something new? lisa: this is the worst fire they have had a long time so it's burning more acres and that's part of the reason. tom: it's really something and i looked at the numbers. detroit really front and center on this. the canadian wildfire here as we suggest maybe moving east. on the american economy, chairman powell, nationwide, this is bloomberg, good morning. ♪

>> i would still stick with tech names i think the nasdaq is getting overbought. we are hitting new highs on nasdaq. that being said come i don't

think you have to throw all the growth stocks out. a sector like communications services and internet names, those earnings revisions are starting to weaken and they are staying stronger in tech proper. tom: rbc capital markets there, and interesting nuance and her focus is mid-caps and valueness. it's been an interesting year reading her. what's important about her is the dynamic week to week. the way they change week to week is very cool. lisa: and how much it relates and everyone was bears at the beginning of the are in the world was going to fall them are going to get recession and lori has been looking at data that shows people are getting more bullish in sectors that look overbought. even though she is positive, she's getting concerned how

things have gotten. tom: right now, we will dive into a conversation which is interesting. mandy psong joins us. the way you started a cocktail hour to talk about your world was somebody walk -- would walk in with a substrate cylinder that would become silicon wafer's. this is from years ago coming off ancient technology. am i right that the wafers of gotten thinner and thinner and more productive and more efficacious? is that true? >> it is in right now we are in that sweet spot when it comes to the product cycle or beta center of chip demand. a 40% positive revision from

nvidia last earnings is a reflection of this profound shift we are seeing in terms of the refresh cycle and new demand. at the same time, you have these negative news items around sanctions and what could do because it's not a low probability anymore as to what it can do to the chinese market and the supply chains. lisa: the wall street journal reported overnight that the u.s. was thinking about possibly restricting exports of certain ai related shift to china. they say this could come as next month. nvidia would be among those most affected. how much would that dampen the market valuation? if this went into effect, how much would that strip away from the nearly 200% rally we have seen your two dates? >> let's maybe focus on the

fundamentals. clearly, the data center demand is everywhere. it's across industries. what they did the last time around when sanctions were imposed for one of their chips as they came up with a low performing variant. the focus of these sanctions so far has been on the leading edge chips. you can work around it and be very agile in terms of coming up with ways to keep selling to that end customer in china. as long as you don't see a material decline in their sales, they probably will keep working around it. as i said before, this is not a low probability event anymore. china risk is huge when he think about the political cycle and the elections coming up in taiwan and the u.s. this could escalate and i think that's where investors have to be careful. lisa: how do you play this? to investors have to be careful

at a time when there is a lot of hope around ai and the promise of it? how should investors be careful and how should they monitor this or understand what the tail risk could potentially be? >> you look at the sales exposure to china. it's at least 20-25% not all the chips are used by chinese and customers but you can think of all the different skews that nvidia makes especially on the data center side that are more exposed to the sanctions. if we have like what happens rush in terms of broader sanctions, that could be huge, especially for the semiconductor makers. nvidia is not the only one. clearly, they have to figure ways to diversify their supply chain. can these chips be assembled somewhere else outside of china when it comes to the end product and things like that? supply chains have to move quickly.

i don't think it will be as good for the pricing we have seen so far. tom: when i look at this industry, can we say that may the airlines years ago learned the value of persistent free cash flow? are they more financially responsible than they were 10 years ago? >> in the case of chipmakers like nvidia and amd, they have a very robust cash flow generation machine in the sense that they don't have to invest huge amounts of capex in terms of the foundry side. that's where the risk is. because it's so concentrated in taiwan and asia, you cannot make chips -- there are others like apple who are equally exposed to that sort of scenario. in terms of the design makers, you clearly have skin in the game and others are trying to catch up but it will be years before they make that height and chip. tom: i don't mean to be rude but

if president biden wants to build a chip factory in america to beat the dreaded chinese, are those chips going to be the same quality as the chips in taiwan? >> you don't have the leading capability right now when it comes to three nanometer or five nanometers. that's where these companies are somewhat constrained. they have the designs but they cannot manufacture it because we don't have that technology or that factory here. over time, it will come but things change every year when it comes to semiconductors. you don't want to be in a situation where you don't have the latest reading of chips available because that's what drives the pricing. lisa: what do you expect to hear from micron today? how important are their earnings? >> data center exposure, micron

has trail because they have less exposure to data centers so how they navigate around it, that is what you want to hear. tom: thank you so much, we greatly appreciate it. mandeep singh. amd up 30% so far, thank you for that. lisa: i try to help out. here is a question as we heard about how blackrock is overlaying and embracing the ai theme. where is the political risk and how does it come into play? there are hawkish discussions around china and that works and that's what galvanizes people and wins votes even if some say pump the brakes. tom: i totally agree. the basic idea is do you believe

in the technological innovation forward wrapped around all this? i have never made money in semi's and i've been a loser. there is an index sox, not a measurement of the red sox mediocrity. i've never been able to make money on an index that has averaged 24% per year for the last 10 years. how can you do that? lisa: there are winners and losers and the disparity between the two is vast. there is a question about who will be the innovators and the winners take all in a race that is very specific and has these companies facing off? you overly the political risk. some people shrug it off. tom: do you feel like the apple is going to die discussion.

every few years, they say apple is done. lisa: if you take a step back, they are the people that say ai will save everyone and everyone says it will destroy the world and make humans obsolete and then you have people in the middle that say this will change how we do business. i see it changing the way my offspring do homework assignments. not that they use it as a substitute but they use it to figure out what the information they need to look at and grade what they are doing. they are using it at a -- as a tool in a way i'm not and i probably should be. tom: can chatgpt conjugate french? that was my downfall. that was really interesting. in one hour, we will consider portugal. it will be interesting to see josephamato coming up. bloomberg surveillance on radio

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>> i think margin pressure is very real and i think that's for the equity markets will begin their correction. >> they are watching the margin

closely because inflation has been good for margins. >> we are in a nice downward trajectory and inflation i think will cool off on some. >> the fed has to keep tightening and eventually the economy is likely to crack but we are not there yet. >> we are not expecting a ton more rate hikes from the fed but it seems like one is likely. >> this is bloomberg surveillance. lisa: central bankers are back at center stage but maybe they never left. this is bloomberg surveillance on radio and television. jonathan ferro is on vacation. he will be back next week. tom: these on assignment. lisa: this seems to be the theme of the morning that we will hear from central bankers at 9:30 a.m. in sintra that includes the ecb president, the fed president and the heads of the bank of england and the bank of japan together on stage. tom: kit jukes nailed that this

morning. the idea of the vortex of instability and at that time, the bankers went this way and jean-claude trichet went the other. he got this wrong. the basic idea is this a redox of what we saw before the crisis of 07-08? will we see someone get it wrong? what's interesting is the language issue. i wonder if some of the panel will be lost in translation because we have a new banker for the bank of japan? lisa: we have had six months of people shifting their focus to the individual companies in the individual micro trends. they say they are following the same things we are following. suddenly, what we heard from chris verrone is the opposite. from here on out, it will once again be central bankers and once again be yields that will determine the trajectory of the

market value. tom: it sounds like a range bound discussion. the 10 year yield is very range bound. if you break out of that yield, it's a central-bank issue. lisa: do you think they are friends? tom: the central bankers? i really do. i watched them for years i think there is a huge collegiate deal to a because the media does a terrible job of this. they put their pants on one leg at a time. christine lagarde puts a scarf on and these people are normal people wrapped around insufferable decisions. lisa: the news you need to know, they put their pants on one leg at a time. let's take a look at the market. we are looking at a bigger softness in retracing led by the nasdaq after a reprisal yesterday, right now down 0.4% largely on the heels of some of

the chip news we saw overnight. tom: that's the kind of thing that gets going in a big day yesterday. the levels here, 4408 on spx and the nasdaq is giving us a lot of low. i guess it's a bull market but a lot of people don't feel it. lisa: it's a moment of reset and think that is the key. looking at the two year yield at 4.73% with a bit of dollar strength. there isn't a lot of direction when it comes to this except for the chinese yuan where you are seeing weakness and a shift marginally lower in oil, one of the linchpins of this bet that there will be a slowdown in growth led by china which seems to be a thing. and looking at wti at $67. we are heading toward the midyear level.

we are two days away from that reset. joining us now to help us reset is someone who is resetting in a material way, joseph amato at newberger german. how are you changing your view heading into the second half of this year? >> we have had an intense debate. within our asset allocation committee, reflects the dispersion out there in the market laced with folks quite bullish and some that are quite bearish. we went into the are expecting the economy to slow down at a more significant pace and earnings and are more on the just just disappointing side and it hasn't played out. we were underweight equities and risk assets in a moved up and quality and that's so far been the wrong all because markets have been pretty good the first half of the year. as we debated the issues and it looks like in a slow down is probably extended and pushed out

for the earnings decline further, we felt neutralize our bet and live to fight another day and we would have a chance to make that change if we see earnings this went. right now, we took that underweight off and still have a bias toward quality. lisa: so there will be more of an aggressive shift on the margins into the second half. we've been debating all morning, what's more important, what happens with the individual operations what happens today at 9:30 a.m. eastern insintra with central bankers taking a hawkish tone? how much are they still in the driver seat? >> they are at the center of debate about what will happen in the economy given the challenges they have with inflation. you look across the central banks and is a wide dispersion with the u.s. that was more aggressive earlier on and inflation has come down more rapidly but we still think it's a challenge to get down to their target. on the other extreme, you got

japan which maintains permissive monetary policy and the u.k. has a real inflation problem. they've got to be more hawkish and the ecb is somewhere in the middle. that will be an important issue we continue to watch over the second half of the year. tom: what matters now? the basic idea away from passive/active is factor analysis. what factors matter into the end of the year? >> quality matters for sure and profitability. because if we are in our brought allocations, more up and quality whether you are on the credit or equity side, you certainly want to be overweight that factor. in our view comey want to be underweight data in that sense with a bit of a more defensive posture. we still lean toward lower beta and high quality. tom: i look at where we are with

a bull market unloved. can you see when the second leg of a bull market kicks in? there was 77 which no one expected after the moonshot from 74. can you find the second leg of the bull market or do you have to go back to court fundamentals? >> the level of dispersion that exists within the economy suggests we still need to do a lot of bottom-up analysis as it relates we will market were where we are. the equity markets have been perplexing over the first half of the year because you had a group of seven extra ordinary stocks up 60% that dominate the u.s. large-cap indexes. you guys talk about it and then you have everything else. everything else is been flat or up modestly. that's been the challenge if you are trying to invest and you see the index perform well. very few active managers will

put 40% of their portfolio to be overweight the mega caps. as an active manager, you feel you been chasing your tail the first half of the year. lisa: we are resetting into the new year and into the new half of the year and it feels like a new year. we've been talking about some of the trends and you said there is a number of stocks that have dominated with 60% gains. i think chipmakers and geopolitical risk and what we see this morning with a proposed plan by the biden administration. are you going all in on ai? are you seeing this is a lasting trend that can withstand political tensions or are you being more cautious about it? >> it will be incredible long-term trend for sure. we've seen it over the last 25 years. as we've seen with different technological innovations, you have a boom/bust period where

things consolidate and then grow. from our firm standpoint, we are diving in deeply in terms of how ai can enhance our productivity and investment insights. it's quite important. you the geopolitical issues which having just been in china, it's an issue we are focused on an issue the chinese are focused on. as it relates to ai, that's probably one of the most sensitive issues in the transfer of technology between the u.s. and china. it will continue to be an issue in terms of potential restrictions on selling chips. tom: now the most important conversation for global wall street to the end of the year -- i will cut to the chase, there is blood on the street and credit suisse is throwing thousands about and every other firm is throwing fancy bankers out the door.

you built lehman brothers from 1997-2003 and i remember looking at the sell side analyst sheets. this is when we printed research reports. they got better every year until lehman dominated. is that a history of the past? are we taking the intellectual capital out of the business with these layoffs and this uproar going on on the street right now? >> i don't think so. the fundamental bottom-up analytical work that helped propel us back in the day in terms of our own research rankings for the work we do today is still hugely important. you have different tools you use , the bar is higher for sure, but i think the sell side has underinvested in research over the past couple of decades or so. tom: what do you want to see

from the big banks? what will be your counsel to mr. moynahan? >> the breadth of global research these firms are committed to is important. we are global investment manager so there are parts of the globe whether it's a small cap space or large-cap for that matter that have less coverage. in some respects, that's advantageous to active managers because we've invested in a huge meta-research. we value quality research and if it's provided by brian moynihan's firm or other large firms, it's super valuable to us. tom: josephamatio is atneu berger berman. lisa: we are talking about whether there will be a doing -- a downturn in whether we hear

from joe orwei lli there is a shift to a bullish tone. there is a change in earnings and maybe it's late. you can't necessarily simply say we will stay on our hands. the kurds of getting in if the facts change, people sees the change in the facts with corporate balance sheets have been different than what people have expected. tom: people have to say charles cantor was in the vicinity of october and november and painted an optimistic picture about selected corporations adapting and adjusting. that's been my thing for 18 months. what is thatend now? you wonder how corporations will adapt and adjust? they will at the revenue line as inflation drifts away. lisa: some of them will adapt and some will go out of

business. we talked about bankruptcies picking up and things are different when you start holding rates at this level for longer. all of a sudden, certain business models get challenged than others do well which is the reason why some people are so concerned going forward at a time when there still is quite a bit of lag effect that people say will come to the fore any day. tom: it will be interesting to see, lisa is focused on oil at $67. we are also focused on portugal s andintra in the 9:00 hour for central bankers lined up a conversation. stay with us, this is bloomberg surveillance. ♪

>> their new reality is a reality for maybe 30 or 40 years ago because the great moderations over. what i would pay attention to is to understand if they acknowledge the trade-offs facing them which is the cost of fighting inflation and a supply constrained environment is a lot higher. if they acknowledge that and what are they going to choose one base with this stark trade-off, growth or inflation? tom: we will stop the show right now. this is really important. wel li of blackrock came out

with a view -- if we get the scenario she's set up, what happened to our world it changes. lisa: she was talk about the overlay of some of these big drivers including ai, including the geopolitical tensions and how you lay them and she had been underweight and cautious and still is at its with an asterisk next to it as to what to be cautious about how to be not cautious in certain areas. tom: it reminded me of the globalization is over thing. where are we in 2025? glad that blackrock came up with this study because we have to be thinking about 2025 and beyond in a world. lisa: did you see the jonathangolub report? it indicates there is no

recession until 2026. that's when he sees it. tom: right now, we are not trying to waste time because this is the most painful discussion of the day. huge is thierry reading -10. -- what is it about the airlines? i'm going to cut to the chase, who do we blame for this early summer messed? >> it's whether and then there is the airlines who are prepared but there is the government was not prepared. airlines are doing less with more. they have more employees now than they did in 2018 but the government has fewer air traffic controllers than they did four years ago. this mess will continue for the next at least five or seven years because the faa does not seem to have a plan to resolve

the shortage of air-traffic controllers. we are supposed at 14,000 we only have 11. something like 2500 have retired in the last couple of years. the government was supposed to hire 1500 this year and could only find something like 900. we expect about half that many to retire and have that many to wash out.they will only about 500. when you are short 3000, this problem will last for a while. tom: some of us of a certain vintage can remember in the train stations, i spent a night once of the omaha train station, the trains were lined up with trains going in a different directions. are we asking too much of the airlines to be like our train stations of another time and place? is it too much to ask for newark

to be the old penn central? >> it's not. it should not have these problems. airlines in the airports are bursting at the seams because demand is so strong. united is forecasting that between june 30 and september 5, they will carry 5 million passengers. if you extrapolate that out, it's probably similar in other airlines. you add in the other airlines and you probably have another nine or 10 airlines so 25 million people that will travel over the next three months. the industry should be able to handle this with relatively new aircraft. most of the other airlines, jetblue and spirit and frontier and southwest have young,

fuel-efficient fleet so it's not an aircraft maintenance problem. it's just that the weather roles in the faa goes underground and instead of lifting in an hour or half an hour, could last for three or five hours and the crews start to timeout we still have the safest airline system in the world. you add up all that and all these people into the mix and you wonder with these awful delays and cancellations and unhappy travelers. lisa: we did hear from the delta ceo at their annual meeting yesterday he acknowledged that business travel is 25% below where it was pre-pandemic. given all the roadblocks and the expense, do you expect to get back to the same levels it used to be? >> yes and no. typical analyst answer. when you think about his travel and gdp, it could get back, it

should be the same percentage of gdp as it was in the past. what you duck-soo is that people are just traveling differently. -- what you see is that people are just traveling differently. people from the tech industry have not come back and financial services not really come back. from that perspective, we are not expecting it to come back but we are expecting the same number of people to travel for work as we've seen in the past on a relative to gdp basis. we are seeing 2.7 million people per day travel. that's what we saw in 2018 with 25% more business travelers and 15% more international travelers. lisa: there has been a shift under the cover of businesses

using economy and set a business class because of how much the prices there have risen and companies trying to restrain costs. how much is that part of why the revenues for these airlines is not picking up from business in the same kind of way? >> businesses are trading down from business class to premium economies and then people are using mileage, their own miles to upgrade into the front cabin. we are seeing that and that's a part of it. tom: what's your single best buy? >> are top three picks are united, delta and copa airlines. tom: what is the united/delta consideration? >> united is bigger in international markets than delta is. they are 50% international then domestic.

the travel is really international this summer so that's the difference. tom: brilliant, thank you so much. it's that time of year when bramhall --bramo looks forward to the hartsfield atlanta weight. there is a plaque in atlanta this is thebramo family, sit here when you get stranded. everyone is stranded. a lot of people are sitting there. it's ugly. lisa: we were supposed to go to puerto rico as a family and we ended up being delayed by three hours, ending up in atlanta and not getting a flight to puerto rico so we ended up staying and. having a vacation in atlanta for the offspring, that was not doubly wonderful tom: if you are not traveling rockstar, the ramifications of you and the

kids, anybody and the kids, you have to take the plane at 8:00 a.m. tomorrow, and there is no $400 or $1000 check coming your way, those days are over it seems. lisa: we will not be reprising my days of getting stranded in atlanta. essential planning event the time. tom: forward to how christine lagarde said. under surveillance, good morning. ♪

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tom:, good morning, everyone. lisa abramowicz preparing for the nine :00 a.m. show. jonathan ferro is on assignment. hhe is alive, he is breathing. teachers negative seven. yields have come in dish futures negatives --futures, negative seven. that is an elevated inflation statistic over the last 3 days.

brent crude under 72. 67.26 on american oil. that bears close study by the end of the week. it is a very weak chinese yuan. there is economic data today. there is not 14 lines of economic data. it to sort of an off day, but we bring in the star, michael mckee. i called -- michael: these numbers mean something for gdp. the trade balance fell, his significant decline in the trade balance, which could add to gdp. wholesale inventories decline another 10th. they were down 3/10s in april.

. they were revised higher from 2/10 from april. retail numbers are interesting because they had worked them off over the holiday season into the beginning of this year, and now they are significantly rising again. is that because of consumer demand? tom: we will go nerd on you in about 15 minutes, but this is important. the media talks about inventories like it is apples in a grocery store. let's dig into this right now. retail inventories are up, but you do not know why they are up? michael: i haven't looked closely enough at it. tom: that means there is stuff

out there. michael: there is stuff out there. is it because people have not bought their summer clothes or is it because we are starting to stock up for fall? we had a big rise in retail inventories during the pandemic because people could not get out, then retailers had to clear the amount. now it is rising again. all of this gets counted in gdp, that which is made in the u.s.. we will see what this means. if youre calculating the atlanta fed number, it could go up. tom: tomorrow we get the look at gdp, but the data you are looking at now is ending june 30 and you have a pretty good guesstimate of that whether it

is atlanta gdp now or whether it is kathleen at nationwide? >> the gdp numbers give you a snapshot in time like a political poll. "as of today." tom: we will really focus on some of the theories. that will be of huge value to our global audience. right now onto this american economy. we are joined by kathleen an economist at nationwide. do you have a really firm grasp of where the american economy is ending? kathleen: i thought summarizing the impact -- i thought might did a good -- i thought mike did

a good job summarizing the impact. overall gdp growth now is over 2% annualized q2 over q1. to put that into perspective, chairman powell has said we need to see several quarters of growth below potential growth. potential growth is around 1.8%. if we are coming in above 2%, it is not slowing enough for his liking. tom: what are domestic final sales? define domestic final sales. are they a recession statistic? kathleen: domestic final sales is one of those core measures of gdp. it excludes changes in inventories. you don't know sometimes why inventories are moving. they could be intended. they think demand is picking up

and they want to replenish their stocks because consumers will be strong and purchasing. it is unclear at this point how that works out, but we tend to like to look at final sales. you could even take it a step further and look at domestic. that takes out the trade sector, which could be very volatile. >> as long as we are talking gdp, let me ask you what you think so far. yesterday we got some news that suggested businesses are spending money again at least in terms of durable goods quarters. i'm not sure what you are seeing in terms of consumers. what is your feel for domestic spending at this time for the second quarter? is atlantic giving us a good idea of where we are or are you much higher or lower than they

are? kathleen: they give us a good idea of where gdp is. you excluded the trade sector, you are looking at growth in the high 2% because consumers got off to a very strong start at the start of the quarter. they will get the may data on friday. saving the best data for the end of the week, right before the holiday weekend! the pc price index will be important. i think that is still feeding through to durable goods. it is still soft overall, the trend, especially when you adjust for inflation, but i think the consumer goods portion, that is what is helping to push an uplift in business investment. michael: are you in the camp of a lot of economists saying we

will have a recession in the next quarter and kept pushing that out again, or are you giving up on the recession idea? kathleen: the timing is very difficult to call on this downturn. we have not thrown in the towel on the recession call. based on the current data, you have to take that in stride of course, and the fact that there is still high propensity for hiring more than we had, anticipated. we still see the leading economic indicators diminishing, and we still see that. we have now pushed it out to q4, q1 of next year. we will continue to watch the leading indicators, but those leading indicators are still pointing to downturn. it is hard to just ignore that. tom: to me, nationwide has

always had a wonderful clarity's outbreak in the midwest and ohio, about jobs in america. 3 zip codes in new york -- what is your labor call on america with a central bank that is hoping and praying that columbus, ohio will have an unemployment rate that surges above 3%? kathleen: employment has been strong across the country. it is really hard to point to any particular state or areas where there is weakness in this labor market. the demand seems to be very broad-based. the challenge for the federal reserve is this course don't want to see a surgeon unemployment. they don't want to engineer a

procession at all. the question is if this economy continues to grow in potential, can you get inflation to trend lower? part of what we are looking at is the fact that housing has started to rebound and home prices have been up the last few months in a row. banking and rental inflation is rolling over. it could be that home prices rollover a little bit, but not as much as expected. therein lies the rub. tom: do you buy the rent disinflation story? kathleen: certainly we are seeing some slowing in rental price increases, but what i worry about is that some of that is happening, it will level off the structural rise like we are seeing in the overall economy. rental inflation is a lagging indicator. if we are seeing the economy

being resilient, i thin -- that means the federal reserve only needs to do more. to throw in the towel and abandon the recession call -- the other point is the inversion of the yield curve, there is very long and variable lags. but also what many of us were looking at is the degree of tightening. we went from 0 to 5%. that is the fastest tightening we have seen. it is not just of the inversion, but the speed at which interest rates rose. tom: thank you. mike, we have a bit of time here. i really want to fall into a nerd discussion. something you just excel at. can we predict gdp?

we can't predict recession. maybe weekend predict insulation dynamic -- maybe we can't predict inflation dynamics. can we predict gdp? michael: it depends on how close you want to get. the data are getting better. the data are being released on a more timely basis, but these numbers do get revised. that is where you fall into issues. as better numbers come in, but now that we have a better picture of inventories and trade, it is little bit easier to figure out what gdp will be. the big question is what are consumers doing? tom: 75% of the american economy. we say good morning to all of you on bloomberg internationally and domestically as well on radio and television.

futures -11. 10 year yield, 7.4%. i'm focused on oil. it is a stunning number. $67.45, down $.27, brent crude 72 point -- crude 72.01. we will try to said well with a value advert. on four discrete nations with four different central bankers and underneath that there is supposed to be a theory that bailey lagarde, powell, and

ueda canned rest on. are these 4 flying blind? michael: not flying blind, but trying to figure out past relationships and what they mean for current relationships is very difficult right now. we have seen that over and over again in this pandemic phase. some central banks have decided they want to hold back and others want to go forward. the differences have been vast. tom: we will have to see. i really want you to stay with us. it we'll be a good show with our michael mckee. --i= it will be a good show with our michael mckee. this is bloomberg. good morning. ♪

>> we are expecting a hike in july. we are also expecting a hike in

september. after july we should see some strong inflation data. that gets us to the hike in september. tom: a minor conversation today but a major impact from veronica clark of citigroup. stay where people are heading. they have said we will have higher interest rates and resiliency of the economy as lael brainard said from the white house seems to be the tone here into the end of the second quarter. bloomberg surveillance, ferro on assignment, abramowitz getting ready for the non-:00 a.m. -- 9:00 a.m. sentra hour. remember that article on ingres

loan -- on equilibrium? how is sentra different from jackson hole? michael: jackson hole is an academic conference that focuses on topics in economics. in sintra they're talking about what is going on right now in markets. sintra is more open to the press in terms of having things broadcast to the prest. at jackson hole you only the chairman speech, which is only been aired for 2 years. tom: powell's speech at jackson hole was an outrage. jonathan: i think the introductions took more than eight minutes. tom: keep it up! keep it up!

i will go right to the type to construct. what did they not want to say? michael: you have to take japan out of the conversation with the other three in the sense that japan has its own economy,its own issues, its own inflation rate. its inflation rate is going up at the same time that everyone else's is going lower, and that is what they want. they are having a negative impact -- the negative impact on them is that the yen is weakening tremendously. for ueda, he would be interested in not encouraging that move and seeing if the others can actually give us some indication

that they are almost done, which is what the other three don't want to do. they want the markets to worry that they have more to come, because they don't want the markets to start pricing in rate cuts. you and i were talking offline about the function on bloomberg that shows you futures trading. we have added out another year, so you get a long look at what is in the markets, and while it is certainly not trustworthy, because markets change their minds all the time, it shows big rate cuts in the u.s. in 2024, still not in 2023, which is what jay powell wanted. tom: nailed it this morning by harkening back to 2004. jonathan ferro has been really good about this, talking about not so much how trichet got a wrong, but the ecb took a turn precrisis by staying tight.

all of these people have been advised by their phds let's remember the mistakes that were made. what is the mistake that haunts these makers? michael: it is about the same time period in the u.s. and the u.k. for slightly different reasons. the u.s. went through the great inflation during the 70's and the 80's. it came about because the fed was too slow to tighten rates. jay powell doesn't want to make that mistake. he wants to keep the pressure on. u.k. had its problems in the 70's with inflation, and after that we had the sterling crisis. they don't want to give up too early and have people start selling their currency. the ecb has been through it with the trichet tightening that sent them into a recession and was a precursor to the great financial

crisis at the time. everyone is looking back, and the lesson they draw is that you have to have a policy and stick to it. i think that that is the emphasis we will get from them. tom: i will look at one metric, folks, and this is american for our international audience. this is something unique to america, which is a 30 year mortgage rate. 7.11% -- what is the ramifications for these 4 bankers if as chris verrone said at the top of the show this morning, we do get yields higher on the resilient economy? what are the ramifications for the central banks politically, if we get a new higher rate vision? michael: at this point there isn't a huge impact on the fed because the democrats in office,

joe biden have a policy against criticizing them, and they think the fed is doing a reasonably good job. republicans will complain, but it will depend on how the economy is performing in 2024 whether they feel any significant political pressure. the british have a bigger problem because they have a different kind of mortgage rates, most of them much lower and many of them are variable and much shorter maturity. many of them are variable. as they raise rates there becomes the possibility of a mortgage crisis there. there are not that many resets coming in the near future, so may be it is not a today problem, but it is something down the road. european central bank has to deal with not just core inflection, which is a problem, but with the fact that energy is so important there, and right

now there are questions about what the energy supply is going to be next year, which keeps energy prices elevated a little bit. tom: i'm sure you will be with lisa here with an analysis of what we see in sintra as well. i have to focus on the elephant in the room. i am as guilty of this as anyone. bloomberg has a beautiful chart overlaying the balance sheet of these 4 banks, or critically summin themg -- critically summing them together. how critical is that right now? michael: it is becoming more important. the primary debate at the -- it is not the primary debate right now. for japan it will be an issue because the government owns

so much of the debt. i have spoken to people in japan who are concerned about what it will do with government debt rates. the u.k. has talked about selling some, of their portfolio and if they want to tighten in a backhanded way that could be something that they address that would maybe help out i a mortgage sense because it would affect then longer end of the curve, and many british mortgages are set closer to the shorter end of the curve. the u.s. will keep going at the pace it is going right now. they do not see any reason to change. they are looking for where they hit a rock. jonathan: what does -- tom: what does tobey maguire say? rate cuts to come? michael: the fed said that as well. you have to reinforce it. i think the balance sheets will run up against the demand for reserves sometime in 2024 and we

will see them temper or stop off the balance sheet, but no one knows where that is. tom: we are going to lean into this in july. i promise you in july this will be a study. mike and i have avoided the elephant in the room and that is japan. what i have found over the years is every time you talk about japan, you have to sell it to the western audience and say this is why japan matters. what is japan matter? michael: japan is one of the biggest holders of u.s. treasuries. it is one of the biggest economies in the world. tom: mike mckee used to do this years ago. michael mckee and tom keene. this is a good them beautiful thank. thank you for -- good and beautiful thing. thank you. lisa abramowicz will identify the news flow out of these 4

central bankers. good morning. ♪ the first time you made a sale online with godaddy was also the first time you heard of a town named dinosaur, colorado. we just got an order from dinosaur, colorado. start an easy to build, powerful website for free with a partner that always puts you first. start for free at godaddy.com

lisa: from new york city to our viewers world i'd i move -- viewers worldwide, i'm lisa abramowicz in for jonathan ferro. >> this is bloomberg the open with jonathan ferro. ♪ ♪ lisa: coming up, fed chair jay powell joining his global counterparts for a panel in portugal. the u.s. is said to be weighing new