>> i think the policy restriction will be well into the first half of next year. >> i really hope. the fed doesn't hike. >> the fed probably only has one interest rate hike in their pocket >> the u.s. economy is really doing fine. tom: good morning. jonathan ferro is on a fourth of

july assignment. i am here on july 3. katie greifeld is joining us. we have a really special lineup today. this is without question the strongest holiday show i have ever, ever, ever done. it is not a boring monday. a lot going on in the world and very good in america. katie: usually the holiday shows are difficult but there is a lot to talk about. we had the first half of the year in the books, looking to the second half after a performance in the first half expected. tom: cameron dawson will join us and will be with us for the entire hour to explain the dow.

the 210 spread -- 2-10 spread, a huge deal. anthony with pimco will join us. we will talk about the recession signal later in the hour. katie: there actually is economic data we will get to. tom: i did not know that. katie: we get manufacturing pmi at 9:45. we are expected to see a deceleration. 15 minutes later, i assume manufacturing. maybe no one cares when it is

july 10. but july 3 it is top-tier data. tom: we have auto sales coming out. maybe the inflation with used cars. i never paid much attention to ism and jonathan ferro sat me down and said you have to look at ism and the numbers for survey are below 50 which is interesting. katie: 50 being the threshold. it feels like every data release hangs on as we tried to piece together what is going to happen in the federal policy path. then through the rest of the week we have the fomc minutes. we know what happened in june meeting. but this is interesting because there were no formal dissents at

june meeting. to get some color on what was actually said behind closed doors is definitely something to watch. that comes out wednesday. friday we get jobs day in america. we expect around 225,000 jobs, unemployment rate expected to fall slightly to 3.6%. tom: on fourth of july fully employed america. in the 8:00 hour, we are thrilled to bring you james bianco of chicago. and ellen zender will join us from morgan stanley and she pulled forward her rate lift. a bang up monday. tomorrow, we dive into the

second half of 2023. joining us now, and we really start strong is cameron dawson. she is with new age wealth. maybe in the nasdaq is up because of tesla. how did you do in the first half? karen: we have been surprised by the degree of market strength and the source being multiple expansion which has surprised us most. we got estimates were too high and we have seen those coming down. the degree of extension has been astounding -- expansion has been astounding. interest rates pushing higher. tom: my problem is everyone is conflating a six-month performance.

i didn't know these numbers when i went to the bloomberg terminal. this is the two-year return, 24 months annualized. standard import is up per year and the dow is up 1.9 percent per year and the nasdaq this 3% per year. that former jermaine then navelgazing 100 ac -- 180 days. cameron: that is part of what we saw in the tech stocks, as we start to see these stocks rebound, a lot have rebounded past trend in that shows you you are starting to see improvement in the trend but we did have oversold conditions. tom: views and listeners have a

long-term perspective and we are all focused on six months right now. it doesn't show the single digitness of the post-pandemic year. katie: the sent to these numbers. i was looking at the median forecast for what will happen to the s&p 500 by year end. the median forecast is 4100. we closed at 4450 on friday. you think about 350 point drop. does that seem realistic to you? cameron: it could be if you see the whites of the eyes of a recession showing up. if you have earnings resiliency then maybe it doesn't like something in the cards. wall street strategists continue to be bearish but positioning has flipped to be more bullish

which means you have seen people chase the rally and moving to be more overweight. it is how far we have come in the positioning and do we get to the point where that becomes a headwind. katie: but stopped about why the forecasters are bearish. think about what happened in march with the banking sector. if you look at the regional banking etf, it dropped and stayed. if you zoom up to the kbw index, it dropped and is near march lows. does that seem like a buying opportunity? cameron: when you see a big earnings reset happen and there is uncertainty about the power going forward, it is understandable he would see things bounce along the bottom. they were cheap but you don't know the degree of regulation

and the margin compression. even though they are cheap, that may be very well warranted it. katie: so not crisis mode but long-lasting impact of the grind of what happened in march. cameron: exactly. what will be watch is if we see loan growth. it has been flashing tightening standards for well over a year, almost 18 months but we seek healthy loan both. it has moderated but not falling off a cliff. that is the big watch in the second half. tom: it is going to be interesting to see how this plays out. i want to talk about fear of missing out. i am fascinated what you are seeing in conversation with

adults in the market living single digit and they are scared to get to 1231. what will their behavior be? cameron: there will be a chase within equity flows and options activity. tom: i agree. cameron: because people weren't conditioned for these stocks to do well and even with our own clients, we showed them, here is how we were good at being offensive in 2022 and this is a great way to have that balance. he looked at the highflying tech stocks and said, why don't we have those and that is because they were down 40%. tom: talk about rebalancing. i am not a fan of rebalancing and selling but what do you do to get to 1231 given that he made in three stocks in a 15th stock portfolio?

do you sell apple? cameron: apple is --. tom: you know people will sell nvidia. cameron: let your winners ride is a great answer. one of valuations get stretched and we talked about how fantastic they are and look at the balance sheets and free cash flow, lest we forget they were down significantly in 2022 because they got too expensive in 2021 and ran headfirst into an interest-rate wall. katie: you bring up that we have seen filings to cup. then you look at credit spreads and ig and high-yield. you have no idea. how do you explain that dynamic? when does that start to make sense?

cameron: it is bizarre you are seeing actual stress within pockets of credit and yet within spreads it remains subdued. it is partially because of supply and demand. there is a lack of supply because funding costs are high which means when people are looking in at yields, if i can write out volatility i will buy that in the is one of things that is keeping credit spreads artificially suppressed. tom: you to see how katie is channeling bramo.

she is waking up somewhere in a mean that you need to dip into that strategic allocation when we think about building portfolios, we might move things tactically, make day to day decisions, but really we want to have the north star of what's the allocation we need to in order to make a goal and think that's where the gloom crew can get you pulled off off center. you can't see polaris with a smoke haze from quebec, canada. no, you can't see the -- north star visibility. are you enjoying us? will you stay for the hour? i would like you. i like to have you. this is great. we're going to have some people stay with us for the hour on this very special monday. we start incredibly strong with cameron dawson of new edge. well, sarah hunt, chief market strategist at alpine saxon woods, will be with us as well. ellen zentner, rumored to darken the door in the 8:00 hour. we got to get we got to get her out of the trout stream. she's a fisher. so think she's she was like trout fishing in the east river early this morning to get there. katie, look at the the remorse

here. and i really think it's a time to get away from the certitude of six month analysis to a longer term analysis, which is really sobering for people for a lot of people, this is subpar single digit returns for whatever reason. but even still, if you really do broaden out that time frame in the grand fullness of time, people say stocks always go up. it's maybe it's not necessarily a bad dynamic that you have seven stocks leading this rally. the market speaks this morning. no holiday for the bond market. the twos ten spread out to 110 basis points. ten year real yield, 1.62%. stay with us. on monday, this is bloomberg.

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>> they have cut production. there is not much more they can do. then it is about finding stability and provide a floor for even the -- when it does demand and certainly have continued investment. tom: she is experts on the elasticities of responsiveness and supply and demand of global hydrocarbons. there is action in the oil

market in the new york 5:00 hour saudi arabia spoke, russia has spoken and you wonder who else will speak. parachuting in, will kennedy joins us from oliver hydrocarbons. it did this catch your team by surprise that was eye-popping oil from 69 of two brent crude 76 point 05. will: they knew that they would have to make that decision. they expected given where we were in the markets to extend by another month. russia was more surprising. them to make extra commitment at

this stage is interesting. what the market will take is russia keeping the oil market where they want it. it is good evidence of that tom: . -- of that. tom: cameron dawson has decided to join us. katie: let's talk about the price reaction, crude is up point 8%, brent is up .9%. could this -- put the production cut in context for us. will: the wider context is the oil marker struggled considerably in the first six months of the year.

a lot of people expect the market to tighten radically. there is a you that global -- there is of view that global demand will fall. it is increasing. we are seeing a record number of people flying this holiday period in the u.s. the supply has come farther than people expected, from iran and russia. people want to see evidence that russia meets the commitments it has made the city market tightening. tom: we are going to bring in cameron dawson. she said, i on chanel as if guessable go down on myspace beach.

he has no idea on long island. cameron: we have seen the rate count move lower. do you think the supply in the u.s. could be an upside driver for oil prices in the second half of the year? will: it is slowing and slowing fast. production is going to reach a new record. it is an important question how fast it slows and where that turns out to be and how long it lasts. it will be a critical thing to look for going forward. we are seeing more supply out of the u.s. and that is part of the broader picture. no definitive answer for you but a key part of the equation in the second half of the year.

cameron: we scratch our hat about how much recession is priced in. is this demand fears or actual demand and what could be on the potential upside driver given the heil -- higher oil prices? will: we should talk about china and the u.s.. in china demand has risen but not as fast as people expected at the beginning of the year. people were optimistic at the china opening increasing demand and it has not been spectacular. the industrial side of china's recovery has struggled. there is demand from there. in the u.s. the demand issue is less clear-cut and there is an extent to which it has priced in a weaker american economy then has actually emerged.

there may be upside potential as we do see the soft landing other markets are pointing to. katie: if you think about what was expected months ago, goldman sachs and morgan stanley calling for the return to the $100 per barrel level. is that a thing of the past now? is anyone calling for a move that size? will: there are people saying there could be a snapback in the other direction. i think the mainstream view if you look at the balance of forecasters is that it would be very unlikely to get triple dollar figures of crude this year. never say never but i think most think it is unlikely. tom: the lift up in brent crude,

have to get to 78.79 before i talk about any excitement. somebody is talking to the oil hitters. do they have in their had a four dollar, five, -- 56 other move? will: a lot will depend on what we see. a lot of people are expecting big drawdowns. we want to see that sustained for people to see the market turning with more balanced and ample supply and demand. i think the figures will when demand peaks globally will be crucial. tom: thank you so much for joining us. american oil out to 71.36.

cameron dawson is with us on oil. every part of my body says oil is out except the big oil stocks have really come back. what is the linkage of brent crude of say exxon mobile? cameron: you have seen this diversions of oil prices and oil stocks at different points over the last few years. like having some exposure to oil stock because it adds the inflation hedge and that is where the correlation comes in if you see the pop in oil prices and that propels energy prices higher and that would hurt other parts of the market if you think inflation will come back because of oil. katie: you think about how

dominant energy was over the past several years. it was the leader in markets. has that run out in trade? cameron: partially, yes. was of the big boost in oil stocks because of the combination with a little higher rising and cost-cutting. if you go to the two-year return, oil stocks are up 55% over the last two years. tom: that was the first chart i looked at this morning. cameron dawson is with us. coming up, our interview of the day, he is with pimco. he will join us on the twos-tens spread, 100 basis points of inversion. ♪ ll doesn't make you a rock star. so unless you work with an actual rock star.

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tom: good morning. pitched battle among the team at the four clock a.m. meeting -- 4:00 a.m. meeting. when they close, we close at 1:00 and 2:00. katie: equities close at 1:00 p.m. and the bond market and hour later at 2:00 p.m.

tom: eric out in the hamptons the fed and we are working and the staff is working. katie: i am thrilled to be here today. tom: really? edison hr event in itself. katie greifeld is with us. cameron dawson is with us with prospective on the equity markets. fear of missing out. a little bit of a lift on the nasdaq. do we get to tesla at some point with mr. webb? katie: i hope so. tom: in the bond space, these twos-tens spread, it is out to a number i think i have never

seen, which is moments ago 100 10 basis point spirit to year yield is 1.1% higher than the 10 year yield. joining us now, we are thrilled that tony krasinski -- tony crezzenzi is joining us. how close are we buying? ? treasuries -- treasuries? tony: the tulips you will affect the market for a while.

things change in 2008, 2009 we would say it would never rebound but it did vigorously. i think low and negative yielding bonds are probably out the window for quite some time. tom: i am looking at your headlines. but fund giant pimco prepares for harder lending for global economy. how does that fit into total return in the fixed income market? tony: it is a cautionary note. when we say hard landing it is relative to what others are expecting.

at pimco we expect soft landing but that may be harder than others are expecting. we have treasures, mortgages, cap weighted, you want to be up in quality. if there is a slowdown or week session -- are recession, credit spreads could increase. we are looking at 5%, 6%, 7% returns in assets we think are so-called money could. consider where high-yield bonds are. though they are attractive to some, we would say be cautious as friends are over 400 basis points. it is tight relative to what could happen in recession with the spread of call it a hundred basis points or more and a

widening of that magnitude can be painful. we are saying prepare by keeping your pallet dry and don't reach so much. katie: i wanted to go to duration. if you think about where we were starting to get year -- near in the tenure -- 10-year. when you start to see the 10-year approach for percent, does that look like a good entry point? tony: you range for the u.s. 10 year is now call it 3.3% or four point 25%. when thinking about -- 4.25%. when thinking about duration, you should be thinking about the history. since 1978, core fixed income

and the bloomberg aggregate is a good representation of that. it as outpaced treasury 90% of the time by a substantial margin, three percentage points. the yields look attractive on that basis. one doesn't want to get into the game of market timing because it is a dangerous game. in core fixed income and the idea they can outpaced t-bills and have considerably since 1978, that the time for entering core fixed income is typically close to the peak for the fed funds rate, which we think and many think and the market think is upon us. the typical timeline is up to six months prior. you don't want to point gain of timing diversifier too much. the inflation view at 2.5%, the market has the premium for

moving out the yield curve and the real interest rate, those things together put fair value. the cautious about the idea of market timing. katie: then you look at the $5.4 trillion in cash, very little duration risk there. when does that start to move out? tony: it is a herd mentality. you are familiar with that. it is when others start to leap. but that is not optimal for an investor and that is what active management is all about. now is the time. tom: did jerome snyder survive the first half of the year? tony: yes and there is plenty to

do in that space. you can purchase a t-bill in the low fives, there are assets backed by student loans, car loans. his short-term etf, m int is currently 5% or so. katie: just launched another one. tony: the asset-backed securities have yields close to 6%. cameron: is it possible to see a reese deepening of the curve? tony: benign, i think what you mean in a steepening some event has occurred the cost of flight into short-term that could cause movement.

not usually. the history suggests perhaps not. many are thinking, can there be a soft landing that could occur. it may be occurring now. u.s. economic growth is 1% or so, checking higher today we think it will be slower than that. growth recession is something about zero below growth potential. the u.s. has a 1.8% chance of growth. every year. the u.s. is growing below that which enable supply to catch up with manned, the ability to produce goods and services -- with demand, the ability to produce goods and services is catching up. if supply catches up enough in a growth recession, it could happen.

eventually there are cuts. we caution view on interest rate cuts flies in the face of paul volcker. we thought that for some time and personally strongly for some time, the idea that chairman powell has to keep at it. you have to persist in the battle against inflation to defeat it. that is what is happening. that is why chair powell will go to central bank heaven because the view is that only hawks go to central vanke heaven -- central bank heaven. cameron: you think lower inflation is enough for the fed to cut rates or do you think we actually need to see higher unemployment and weaker growth? tony: the lower inflation expectation would cut it. it is observable and bond

markets rest for the inflation rate at 2% or so. think about various generations. i am from the older generation. but the new generations of americans have experienced inflation. we now think there could be for the prices going higher, faster, at any time. so the public view on inflation could be enough and that is what is needed. tom: let me ask you something mohammed would ask and if i look at the bloomberg total return index there is a textbook.

everybody had to read it. it was almost as thick as tony's. the bonds are in an absolute textbook pennant. nobody is looking for price down, yield up. what if we get the unknown unknown? tony: i wrote a book about the idea of practical limits to the use of that. there was evidence of that in prime minister truss wanted to increase in the markets reacted violently. the pound got pounded, so to speak. so the unknown unknown is whether the bond markets would react violently again. tom: got on twitter brought up all the greek letters, and bonds

displayed gamma? nope equities display accelerated tendencies and then the go down. if we get price down, yields up, you get gamma? tony: it was gamma in europe reversed itself. it disciplines the fiscal authorities and monetary authorities to say, you can't do that anymore. any yield rise from here, would be arrested by the bond market disciplining politicians and the monetary authorities to avoid doing the things that could cause that. tom: whirlwind headlines, let me

get you out on a limb. will we see the bond market discipline central banks in the next 18 months? tony: if there were proposals in the monetary authority seemed to oppose it i would make the bet yes. there will be an election ahead and there will be such a plan. the important point is that any yield rise will be self stabilizing. the bond market vigilantes are back. tom: tony crescenzi from pimco. thank you. ellen zentner in the 8:00 hour. ♪

>> a lot of the good news is already priced in. when you think of the 3

trillion, it is on the back of the iphone which continues to perform very well. we think of the next trillion, you think of vision pro, virtual reality, there are structural challenges for apple. tom: he is neutral on the stock, a hugely constructive long-term. he is not a fan on apple. that was a fascinating conversation. what was a superb effort to inform the product linkage to the financials and a stock performance. the same can be said about something that doesn't have persistent cash flows of apple. and that is tesla. joining us for the hour, karen dawson fromedge wealth -- from

newedge. when you go to the guru -- why don't you go to the guru? katie: let's go to alex webb who joins us from london. i want to start with apple. the news reporting apple is preparing to make fewer than 400,000 units of its vision pro headset. those were downgraded expectations already. we to expect further production cuts from here? alex: apple never formally announced on many units it plans to sell. this is all coming from reports. even if they had higher end of what they have been reporting,

it is still going to be grounded in arrow for the revenue story. they are protected to generate $400 billion in revenue this year. the only way to stretch them is the first generation is about getting the devices out there so they can build services and apps so that by the time they come with a mass-market product it is more appealing. if this limits that slightly it might hurt around the fringes but not significant. katie: if you look at apples holistic revenue it is a drop in the bucket. but apple closing above the $3 trillion mark friday. how much optimism is built on the vision pro at this point? alex: the $3 trillion mark, the 12 month target price projected

30% headroom about where the stock was trading which helped get it over the sort of imaginary line. if facebook is coming to market with virtual reality headgear and apple is in space and that does become the compelling market of the future, then they have something that looks compelling. it means that if they are not going into headwear they still have the dominant smartphone and are well-positioned the core computing interfaces. tom: what does the july 19 mystery look like? i know we look at the financials and all that but when they put out there press release on the

19th, what will you look for? alex: any sort of comments about earnings projections into the quarter because it will give us the idea and how they think the iphone is doing. the risk is in any upcoming park launch cycle, people hold off and don't go for the latest iphones because they expecting a new one. if they show strength in spite of that, it shows how strong the ecosystem has become. if the phone is not good that is demonstrative of the strength. this quarter is the least important. tom: karen dawson is with us and i am honored to ask this question.

we have industry leader mark gurman as well. do people like you care about the product should check of the financial media or do we overplay? alex is going to get new airpods and everyone goes hysterical. cameron: we do care and it is what moves the earnings people. the 2023 apple earnings expected to be down 2% and grow 10% in 2024. is there upside to those numbers because all of the stock strength has been multiple expansion. the multiple seems worth it because of the company but to get to that next trillion you have to see it in the earnings. tom: asked alex about the goggles -- ask alex about the goggles. are you going to get them? cameron: is this enough to move the needle higher and is this

the next iphone where we can have an entire ecosystem around it or do we need other product lines to get you to the next trillion? alex: it is the analogy people compare it to is the watch. even if you don't so big volume in the car, it can be a big revenue driver given the price point and you can get quickly to a meaningful number. for the long-term, that is actually likely to be something that gets growth. katie: the news on tesla over the weekend was record sales numbers and deliveries. is it safe to say the price cuts are working?

alex: it seems like they are working. but tesla had a massive expansion in capacity and it was poorly timed because demand started to fall. it has achieved goal in boosting the demand. the net margin filled -- fell from 18% close to 12% this year and the market doesn't seem to care. tesla is the stock where so many elders have seemed to fall. tom: is it tangential or germane to the debate? alex: the nature of the factory and the agreements they have and what they are allowed to do in terms of selling units is how they direct revenue. the thing they have from a competition perspective is they make very different cars than

the competition. the chinese carmakers and ev carmakers are making cars with smaller batteries because it is more efficient and you don't need the 300 mile range on a daily basis. range anxiety remains top of the list. you have to under whether that will be in effect in the medium to long-term. tom: thank you very much. this goes to, i don't equate tesla with apple. am i wrong on that? cameron: they are two extraordinarily different kinds of companies. one is capital-intensive and one is capital linked. tom: is tesla going to have 15 competitors? katie: something like that and growing. i don't get the multiple

equalization. cameron: it is a very big question and people are betting on the ecosystem with tesla is that you sell as many cars as you can and they are worth power and self driving. it is a capital-intensive manufacturing business. when you look at 64 times earnings, that should raise some eyebrows. katie: you think about the apple ecosystem. it is part of our lives. tom: my radar is up when i hear alex webb. he says it so well. the answer is, ecosystem here what is that? cameron: it is in the clouds. tom: issue a dissenting? -- is she auditioning? katie: she is good. tom: i could go on a sabbatical.

it can be the bramo dawson, greifeld our. a lot going on in the next hour. this is bloomberg surveillance. ♪ i was told my small business wouldn't qualify for an erc tax refund. you should get a second opinion from innovation refunds at no upfront cost. sometimes you need a second opinion. all these walls gotta go! ah ah ah! i'd love a second opinion. take the first step to see if your small business qualifies.

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to get services to them. the idea that we have saved five million people's lives, it's overwhelming. it's everything. >> i think that global central banks are going to keep policy restrictive well into the first half of next year. >> they are going to hike at least twice. >> the fed probably only has one more interest rate hike in their pocket. >> the u.s. economy is doing fine. >> this is bloomberg surveillance with keene

-- jonathan ferro, tom keene and lisa abramowicz. tom: we will be off tomorrow, but we are here. lisa and jonathan are on assignment. katie greifeld is back. this says everything about the moment. katie: definitely. july 3, on a holiday monday. it speaks to the uncertainty that is in the economy as we tear down the second half. tom: jim is scheduled to be with us in the second hour. let me get my incidents. the news flow, i guess i have to flip it and go to oil. oil has shifted. brent crude is a moonshine.

saudi arabia and russia. katie: some news today on those supply cut but not a big reaction. we were talking about what is price in but you still have oil at these levels, speaking to maybe a recession. tom: we'll get you a brief. you are going to do it on the brief. i think the market is open normally. we will see if that actually happens. the bond market, a two-year yield. i am on the march. the two-year yield is obscenely higher yield than the 10 year.

110 basis point of curve inversion. that is sobering on the fourth of july weekend. oil with a lift as well. a little bit. china with some challenges. the turkish lira as well. please brief us on a monday. katie: we have some u.s. economic data coming out today. expected to hold steady below 50. equities closed, the bond market follows an hour later. looking at what takes act for the rest of the week, we get

those from the june meeting. we are going to get more color on what is being said behind-the-scenes. there had been expectations that we were going to see something. i did not read the minutes yet because they are not out. tom: lisa reads them word for word every time. katie: have two. tom: what else do we have? katie: jobs day is probably the biggest of the week. we are expecting to add 225 thousand jobs a june. they are expected to define jerome powell once again. there has been a lot of concerns about a wage price spiral developing. it is expected to hold steady

above 4%. tom: katie greifeld with the breeze of the day. what is interesting to me, diving into july, there is a fed meeting in july. it is fascinating to see off of the jobs report on friday and into the inflationary report that we will see. this is really simple. sarah joins us this morning on the equity market. really, that huge issue of who is in the market. how many people actually missed the? sarah: the agony is for those that are passed jumping an hour, hoping that it will continue. he might see some real softness in earnings. i think the problem is, chasing

it. getting stuck in a position where finally, earnings start to come down. the expectation that earnings will be higher next year and this year, higher over last year, it could be a push. tom: even if it is single-digit return, are you able to identify a second leg of a bull market before it occurs? sarah: do you see a pickup and other sex peers that either catches up to technology, or do the technology stocks keep running and people keep chasing those? even with that, there are six is where we think there is good value. the problem is, once those headline names start running, it is difficult the rest of the stocks and indices. you have this problem where the giant stocks get bigger.

katie: a caught my eye. the equal weight actually outperformed in june, slightly. when you think about some of those other sex peers that could catch up, what names are you thinking about there? >> the fact that oil is coming up a little bit was not part of our uses in the near term. many are not even pricing in where oil is now. you still see some places where we are going to have a longer tail on production and i think we were building in a couple years ago. katie: i was going to make the point that you have this non-reaction that we see in the actual market and you are saying that there is still some catch-up that they had to do.

sarah: if you think there is a longer terms for a for energy, i think there are places where energy has value. there are places that you can look in that during. we have -- people were thinking that we were going to switch to renewables, base have to have an structure that you can plug your car into. we still need to generate those jewels of energy. that is going to have a longer effect. tom: you are supposed to buy shares back october of 2022. is it shared and still part of the story?

sarah: the question is, do you have enough to impact your balance sheet? i think there is a combination of factors that show up. it is strong cash flow. when people start buying back and don't pay attention to how that affects balance sheet, that is when you have problems. tom: how do you identify poor use of cash? sarah: you look at the cash flow statement. but you go through and you see where people are spending their money and what they are spending their money on. there is a huge chunk of that. when money was free, it did not matter as much. there is a catch-up that has to come with some of the rate.

i think that is coming. tom: i say this with great respect. i'm coming out of a level two exam. i'm certain that i fund and an iconic question. this was a cash flow statement workout using indirect or direct cash flow. i got it totally long -- totally wrong and flipped it. i think it saved me. i am honored to say i am -- the clouds parted and the sun shone down. katie: i want to talk about where the haven is.

coming into this year, this was supposed to be the year of fixed income, the year of the bond. when you look at the next six months, maybe biased to go higher from here. to veto or more height. it is the haven in the bond market or is this a situation where you can look at tech stocks? sarah: i'm not sure i would call them a haven year. whether or not that is for every investor is not going to be the case, but for some people who have not been able to invest in fixed income, there is a stability in being able to count on those returns. there is a competition there. that competition looks like bonds have lost and stocks have won. but if you are matching a

liability going forward, there is nothing wrong. it is the long and -- the long part that comes a problem. that is where the bias seems to be. the expectation is that rates are coming down. tom: i mentioned that on friday. it shows a different picture than what we are hearing. sarah hunt is with us for the hour. of course, a lift to the market and quite a lift on friday as well. looking at the 10 year yield, and to call it flat. bloomberg surveillance. good morning, everyone. katie greifeld is with us. not lisa or jonathan.

you know about the closings today. it is monday. all the fancy people are away. they are sitting large. the staff is working and we are working. when did the markets closed? katie: the bond market follows an hour later at 2:00. i think most recently, this happens around the easter holiday. we had a jobs were were. i watched you. the futures were open. tom: all of this culminating toward a jobs report. the bottom line is that we are well above 200,000. i do not understand how we can be restricted to at 225,000.

katie: the question i am excited to as is, is this ok? do we need to crush the labor market, if patient is down? the path to 2%, we need to crush the labor market to get there, but does that still hold when you think about the last two years of data that we have gotten? >> we will see. it has been a resilient market and if you have not been any of bond behind. on washington, on the policy of the nation's capital. that is coming up. on this monday, bloomberg surveillance. good morning. ♪

>> china has been preparing for war with us for decades, and the way we have to deal with china is not look at it tomorrow because it eating to deal with them tomorrow, they will deal with us today. we have to deal with them diplomatically, but we have to do with them economically and militarily. tom: no vest. presidential candidate nikki haley, going to the august presidential debates as well. it is already a full and complex

season. a holiday shortened work week. a holiday shortened monday. but we are here with terrific news flow. i'm going to college 7.25. not much reactionary. whale is up. brent crude 75. a modest move over the last few trading hours. lisa and jonathan are off. this is one thing i was really wrong about a june. it is busy. katie: there is a lot of moving pieces here. there are supreme court decisions and internationally as well, looking forward to janet yellen's trip to china.

tom: i cannot remember exactly. very much confirmed that janet yellen will travel to china. the director of policy and research joins us. isaac, were you surprised that janet yellen will travel to china? isaac: the simple answer is no. what we have seen from the biden administration is this inserted at to keep tensions. whenever there is a negative headline, you can almost bet with certainty that there will be a positive headline that follows. we have this headline now. hopefully there are productive talk by that tells us that something negative is going to follow, and i think what follows are these investment

restrictions that we have been talking about the last few months. many call them the outbound restrictions. we have to think of this as an ebb and flow. katie: the timing is interesting. making the trip just three weeks after antony blinken visited china. quoting officials off the record bank that the goal of the trip is to deepen and increase the see of communication between these countries. when you think about the -- this trip, what would a win mean for the u.s.? isaac: whenever they can leave the room, agree that they will continue to talk, that is a win. there is much more in the way of tangible mile marker is that we can look at.

those types of things are not year being on the table. they are not even in the room. the are just making sure that after each one of these meetings, they are still willing to talk. katie: we will find out enough. let's focus stateside because it was a have week of court decision. throughout the student loan relief land, when you think about the ramifications for that on biotin campaigning for president, what does this mean in terms of him trying to rally the younger voters? isaac: if we view this through a politically craven lands, the younger voters, 18 to 35 were the ones that stopped at red wave from coming. they are an absolutely vital

voting block and that informs our viewpoint on what the president is going to do. it does not mean that they are done. they came out and said they will attempt to do student loan cancellation again i am not old on that for statutory reasons. they came out and said they are going to do a delinquency grace period, where for 12 months, if you cannot make your payment, there will be no repercussions. that is a big deal. tom: here with us, a spirit of conversation here. fourth of july used to be about kissing babies but those days are gone. we are here with sarah hunt.

she is riveted to the political conversation, sarah. sarah: the student loan issue is something that many have been worried about from ace vending standpoint. the question becomes -- i think a lot of people were counting on him form of relief. how much stress is that going to put on them? i'm sure there are some people have been budgeting for payments and are ready to make them, but i'm sure there are many people who are not. what is going to happen now if you have to start paying back some of those loans, or if you do not? does that make a big difference in terms of earnings? i think this is a big question and how it gets resolved seems to be up in the air.

katie: when you think about some of the issues that could follow, what is your thinking at this juncture? isaac: the consumer spending side is fair. you have people who are going to be able to start repaying in october. that is money that can start going towards student loan payment. but i have been thinking about this all weekend. nearly one in 10 student loan borrowers are already dimly went on other credit. we have seen this through academic papers as well that some distressed student loan borrowers use those three years to balloon their credit lines credit cards, auto loan or whatever it may be. i look at this 12 month as a

reprieve, where it is clear that they will not have the pay their student loans. are they going to suddenly saying, will now is the time when i start saving to pay my student loan off, or will i continue to live at this pace knowing that the democrat will most likely promise more student loan relief once we get on the campaign trail? tom: we will continue with our coverage with a terrific bloomberg law team. bloomberg opinion is outstanding on the legal status in washington. somehow, i think we are going to touch on it a lot more. a brief on malaria. this is like homecoming for me.

a few years back, all we need to know is, global warming is here. mosquito territory is bigger. it is shocking. katie: it is domestic malaria. mosquitoes in the u.s. infected people. this is not the case with the current uptick. we will see how this continues. tom: i will put it out on twitter. from florida to southern california, global warming and mosquitoes. this is bloomberg. the morning. -- good morning. ♪

it can happen to the people who teach us and rescue us, the people on our team and in our family. it can happen to the people who serve us and the people who served. the people we work late with and stay out late with. it can even happen to the person in the mirror. opioid use disorder is a disease that can happen to any of us. it's possible recovery can happen to any of us, too. we moved out of the city so our little sophie

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

tom: bloomberg surveillance. emailing from an island in italy. naples is over the horizon and he is like -- i cannot pronounce it anymore. he is scheduled to be with us and complain. i do not know when. it has gone from holiday to sabbatical for jon ferro. lisa is up in the rain in the racket river.

she is the only one i know that a wooden canoe. she can portage into all of the lake. it is like forever and i have done it. you carry the canoe yourself. see could have a guy do it, but she carries the canoe on her shoulders. it could be 35 to 80 feet, but it could also be a few miles. anyways, i think she is scheduled to come back before jonathan. was the real yield exciting? katie: it was. we spent a long time on that call. tom: sarah hunt is sitting with us for the hour.

right now, we are going to look at the equity market and we are going to do it with individual names. i thought we would skip this, but no, there is news. katie: let's start with tesla. a big move there. the news over the weekend was it had record deliveries, delivering over 466 thousand cars worldwide, outpacing estimate. the word around tesla has been that it has been pushing for more volume at the expense of profit margins. tom: but sis in earnings report or an ad hoc unit? it was just a side cap? katie: everybody gets excited and you can be the pop and shares. not a lot of people working today.

it is giving a lift to the entire industry. they resumed coverage with a neutral recommendation. their reasoning for doing that is that the tech knowledge position has been validated by the recent agreement with aston martin. the analyst saying that their gross margin current regression is challenge. it is giving a rift to shares. tom: i saw one on the street once. fancy. it went by me and i waved. katie: you do see them on the road but not as many as tesla. it seems like it is just following the news of the sector hired. tom: sarah hunt is with us. what do you do when something is

en vogue, like ez or ai? how do you treat the next thing thing? the guy in japan, the billionaire, the softbank died. he is gung ho. >> of the extent that we have already been using ai and a lot of different applications, it has already been a name. i do not know how he would characterize it, but it became the thing and it helped equity markets because we had a story and a hook. this is going to drive markets and make things happen. you look for companies that are outside of the absolute immediate darlings. look at tlr and some of the companies that do data centers.

servers have to be housed someplace. the more ai you have, the more you are going to have. they are playing into part of the ecosystem that are very important to making it work. we do not think the valuations are as stretched as other players. tom: joining us now, the investment director at aberdeen. i did not build him for aberdeen. james, cut to the choice. you and my beloved tots, are they going to lose? james: that would be a damper on the summer. i do not think they would blame him, if they saw top trophies elsewhere, but we are desperately hopeful that we can keep him under this new manager.

tom: what do you think of the new manager? some italian island i cannot pronounce. we are trying to figure this out at the stadium. is the new manager going to get it done? >> we hope so. i have season-ticket. the last few years have been very. it would make it enjoyable to be there. tom: the entertainment and the stock and bond market. what do you do if you are behind market? the millions of people that just missed it. what is the plan? james: you have to try. we are trying to do that as

emotionally as we possibly can thing it cannot allow your decision-making to be doubted by things that have gone on in the past. you have run your analysis and that easy to make decisions. you should generate consistent results and performance, even if you have experienced a period where things have been more tricky. shopping from when narrative to the other quite violently. katie: what emotion do you feel when you look at the curve, 190 110 basis points inverted? what message does that send to you? >> i am reluctant to call it a better recession indicator than anything else. it is an easy criticism to say that the bond market has been more right more often.

but it definitely tells you that the bond market is nervous about the outlook for the economy. it is a stark divergence versus what we are getting from the equity market. they are trying to narrow down the signal and gives more confusing messages than confirmatory messages. but policy is already tight and the tighter it gets, the more that is going to depress forward growth. sarah khan the question really becomes, has that really tightened money flow? to the extent that it seems that there has been more liquidity than less liquidity. there is another argument that there is not a lot of singles right now. i am always wary of those arguments because i think a lot of those conversations matter. do we really has a tighter global credit situation?

you have higher rate, but there has been a lot of duty. >> it is really complicated. what we have learned from the crisis period is that it was not necessarily a liquidity provided into the real economy. post-pandemic, they became the transition for real economy and liquidity. the fact that they have been trying to withdraw from financial market but have been interrupted along the way has created a balance in markets where coincided with a balance in liquidity, but when you look at the more traditional money stats, you see a decline year on year. all of those monetary aggregate

are telling you that you economy money is tighter today and is getting tighter. sarah: the markets are pricing in the fact that we are going to start putting me. i think that will be tough for the fed to do. what do you think about what the fed and other central banks are going to do? do you think that they are going to end up cutting rate? james: i think they will. there are not a lot of analogues. employment has been at very low or secular lows. it does not tend to be the case. it tends to be the case when unemployment goes and then for one reason or the other, it rises and is the back bone of

the cycle. it is such an extreme example. through trial and error, i use the lag and headline inflation. the 600 days suggests, given where we are in terms of central-bank policy right now, we would be seeing 0% and 18 months time. not data starts to show the progress. tom: if we get that large first derivative move that you are talking about, many others are talking about it. what do equities do? >> i think disinflation without a downside growth is the goldilocks soft landing.

that is what equities are trying to price at the moment. we get that very first on payroll and we start to think about what that means. tom: there on the equity market and the future of the tots as well. that was my english football moment for the day. i miss jonathan ferro so much. did you watch the formula one grand prix in austria? it was very austrian. no one there but the 97 years that was down. i would know that because i bought it at the top. it is flat. good morning to all of you on bloomberg television and radio. it is a monday of subs and.

there is no other way to put it. i just thought that we would -- do you know how many hotdogs america eats on the fourth of july? katie: i should know, but i do not. tom: it is 150 million hotdogs. i hope that is over the extended weekend. katie: i hope that is not just one day. tom: i like mike's mustard commercials. you put ketchup on a hot dog? katie: i do not eat hotdogs, but if i did, i would put mustard on it. tom: thank you. catch up on a hot dog is ridiculous. it is un-american. katie: you need the contrast.

maybe i will eat a hot dog now. tom: he went to haverford word and -- and they did not serve hotdogs? katie: i a lot of quinoa in college. tom: i did not know how to pronounce that. coming up, jim beyonca. really important in the 8:30 hour, equities in the derivatives space. and i will join us. what a strong day. the only one who is here is amy. this is bloomberg. good morning. ♪

this is ge vernova, helping generate and move the energy that our world needs. ♪ welcome to a new era of energy. >>, off of the old economic growth model -- china is moving

off of its old economic growth model. there is a slowdown in the economy and they have not truly cared their people for that. tom: i was talking to him. he is just the absolute best, getting away from the height of china. see look at him all of these year on a monday. katie: bonds later. tom: i get syllabus that at fancy executives wall street. they are out in the hamptons, going horseback riding in the mountains of new jersey. they are up in connecticut. all the fancy people are off today, and the staff is working today.

katie: well, they are probably working from home. tom: it is not the same. everybody has to come in except fancy. it is an outrage. read and green. 13.81. i want to look at the bonds. seriously, two year yield on the 5% watch. what will that do to money market funds as well? the headline number today, 110 basis point of the curve in version. sarah hunt is with eyes. how do you interpret a curve in version? 110 basis points. what does it trance the two?

sarah: you do not have as much to, if you are a bank, it is not help for your interest margins at all. i think the inversion, they had some really good stat on how long you can day inverted and when it matters. it has only been 11 months than it has been inverted. it is a very widespread in terms of how it affects the, overall. i think that there is -- it is generally not a good. tom: there was this newsletter saturday or sunday. there is a photo of him sleeping on a couch. are you relaxed in this market? can you take a nap?

sarah: he is not just relax. it is just laconic. you can never take a nap in the equity market. the problem is with the striation between what has been defined to elegy stocks and where most of the market has been all year has been a surprise to people. the surprise is, what happens to earnings next? are we going to stay with higher earnings, which is what the market is pricing in? you start to see, the earnings are coming down. that is a bigger problem. tom: absolutely brilliant. thank you for being here today. speaking of someone who has not slept in years, and occurring -- enda curran.

thank you so much for joining us today. janet yellen to china. it will greet the secretary of treasury? enda: we do not know the details. it is unlikely that she will get a meeting with president xi jinping. remember, the guardrails for her are about trade and economic stuff. she will be focused on what is happening in the chinese economy and u.s. economy. the message has been about managing x nation. they are talking about improving dictation on both my and maybe looking for some areas where there can be cooperation. certainly a continuation of the trend to stabilize.

katie: it looks like she is not expected to meet with president xi jinping, is that correct? enda: legal have to see how that plays out is more significant that she is going in the first place. this meeting has been talked about for so long. nancy pelosi visited taiwan, but it is back on track now. they are trying to stabilize things. not decoupling, but risking the economies. you can argue about what the difference is, but there might be some pushback about the trip to china. there are certainly grounds for attention. katie: talk about what this relationship uses. this is her first trip to china

as treasury secretary, but as i understand a, at one point, the treasury secretary used to visit every month source of. enda: three covid, this was pretty routine. officials from either side would go, meet, sit down and discuss events of the day. now, critics with say that was a period, when the u.s. should have been more forceful around access to china's market, intellectual property and the rest, but there was certainly a better framework back then than there is now. we are a long way from where that one. they are managing expectations about running in keels rather than any substantial bring.

katie: what falls under the secretary's purview, china is going to impose restrictions on metals used to make semiconductors. it feels like the chip unit has become the battleground for a lot of these less and china attention to play out. enda: that is where the competition comes down to. the rest of the manufacturing story, that ship has sailed. as i just mentioned, semiconductors are competing. it is interesting to see that china is talking about controls. it could be interpreted as eating a tit-for-tat response. more export controls the data over the coming week in china.

but it shows there is room for retaliation. tom: is this your first fourth of july weekend in washington? the colonies won. as we have been talking about, only mustard on the hotdogs. no catchup on the hotdogs. enda: i will bear that in mind. tom: he is on his way to that show people after. i cannot say enough. seriously, i get emotional, the dedication of our hong kong under maximum stress. it is extraordinary. katie: he is now on u.s. hours because i get to talk to him somewhere. tom: how does this affect

american portfolios? does it change the revenue stream and revenue analysis? sarah: if you are going to have on shoring, does that take away some of that disinflation? labor cost countries, that brought disinflation in. does it take away that disinflationary? tom: manufacturing in america. they with us. number of surveillance. -- bloomberg surveillance. ♪

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when you show generosity of spirit to someone. and you want people to be saved and to have a better life, then you don't stop. the idea that we have saved five million people's lives, it's overwhelming. it's everything. >> i really do think those recession calls will continue to be misplaced. >> got a fairly bullish forecast

for inflation. >> the disinflation narrative will become more established. >> we are basing our optimism on backward looking, not forward-looking. >> session is still -- receptionist on the table. >> this is bloomberg surveillance. tom: good morning, everyone. our strongest holiday monday since i've been at bloomberg is superb. jim beyonca will join us and ellen zentner will join us and we do it with real significant changes in the bond market. greifeld is here and i'm on a 5% watch on the two-year with no curve inversion. katie: let me channel lisa. i was fiddling with some charts and we are at -- we are at three point 6% on the tenure and came into the year at 3.87% and we

are almost completely flat on the 10 year yield with about a 75 basis point range, incredible volatility to go nowhere. tom: bring me up the two-year annualized return on the equity markets. everyone is going nuts about the six-month track record of the nasdaq and apple. if you go back to years and you look at the annual return over those 24 months, it's like low single digit. the nasdaq 100, 3% as well so forget about the hype of the last six months, we have noodle along. katie: you think about justo ugly 2022 was and you think about the rebound we have had since october, it's easy to forget but we were down double digits and then some on the big

benchmarks and it's been a while since we've seen that. tom: are we going to do a brief this hour? katie: we will not. tom: jonathan ferro is on his fourth island awfully italy. i didn't know there were so many islands off of naples. we have ism manufacturing, new orders and total vehicle sales and the answers these are still sort of soggy numbers. it's the first look of june on july 3. katie: you look at u.s. manufacturing pmi expected at 46.3. that is solidly below 50. not great there but than you think about other parts of the economy and they are still doing really well, defying the messages we are getting from the yield curve. tom: our schedule is markets closing at one and two, i don't

know which. katie: equity and then bonds. tom: a holiday shortened work day. then we go on to the jobs report on friday. i feel like the earnings season is starting and i don't know what the jobs report will be and i don't know what earnings season will be. katie: the jobs report will be strong but the earnings report, i'm not sure what we are expecting this season and neither is wall street. tom: negative five on the spx so a little bit of soggy with a holiday feel to it. the real yield elevated over the last four days. this is a joy. joining us for the entire hour is ellen zentner, chief u.s. economist at morgan stanley.

i will say you were 15 when you came out of texas and joined us on bloomberg and it was a few years ago. you are expert on the american consumer. what is the state of the american consumer? >> if you look at the consumer, you have to look at it by income group. i think we have been long talking about the lower income quintiles that have been dealing with, having gone through their excess savings and still dealing with high predictions of inflation and labor has been slowing. you look at the upper income households and look at jonathan ferro on his fourth island in italy, the appetite is insatiable. tom: he sent me photos and he spent the entire trip on a boat. it's like a george clooney boat. it has the wooden thing and girls draped over the sides. it's unbelievable. that economy is holding us up.

>> the u.s. is a services economy, the bulk of it and you've got the upper income quintiles were there total spending is 40% of all consumer spending. if the wealthy are spending -- middle to middle and upper income and above -- it shows weekend of the lower level so it looks like a slowing in consumer spending but resilient but it's being driven -- it's lopsided. a lot of the economy is lopsided in certain sectors. tom: you made headlines for two hours ago. link that into the basic idea that we are aggregating our economic analysis. you told me with consumers, we partition. do you aggregate to get to your calls or are you looking at two and three americas up there?

>> it depends on what side -- i have one foot on the equity side of the markets and one foot in the fixed income side. on the equity side, equity investors really care about who is doing the spending. you want to look at companies that cater to those income groups and where and what are they spending on. on the fixed income side, is the economy growing well above potential and are we creating inflationary pressures the fed will have to respond to? that's where i look at things in the aggregate. it's an interesting dichotomy. it something we started doing after 2008. after the financial crisis, i started digging into spending not just in the aggregate but by income group and ethnicity and age group. it can differ widely. katie: let's fold the labor market into this conversation because friday's jobs report is the big event to what's in the

unemployment rate is expected to fall to 3.6%. how sustainable is that at this point? >> the unemployment rate had this big pop higher to 3.7% in the last month and had been sticky around 3.5. it is an extremely low unemployment rate. the big yes has been it's really low so doesn't that mean supertight labor market? it's questionable as to how tight is the labor market. a lot of these open positions that are not being filled or what we would call phantom positions where companies, it's easy to list jobs and easy to keep that opening out there in case you feel it and we are seeing a lot of those phantom openings are being closed. look at how low the unemployment rate is and inflation has been coming down. it's sticky and high but it has been coming down. we've been able to do that without killing the labor

market. katie: that's exactly what i wanted to talk about. we've so far been able to bring inflation down without killing the labor market as you say but when you talk about 2%, how much distance there is to go there, maybe we don't need to kill the labor market or maybe we do. >> nobody wants chair powell and the fed to want to kill the labor market. they absolutely don't. they would love to bring inflation down in an orderly way and do it where you have more sustainable rates of unemployment without a lot of high inflation. we are all guessing and i think chair powell has been a very humble leader we don't know exactly where full employment is or what the ideal level of unemployment is. we know he would like for in place to come down work clean then it is. housing is a key element of that

if you want inflation to come down work late and a tight labor market with very strong income growth is going to continue to put pressure on that. kids get out of college and integrate unemployment rate and they can get a job and get paid and get an apartment. that puts more demand into the system because you are increasing household formation. you need to get household formation to shrink if you will bring pressure off of home prices and rental prices. you got to get these kids to move back in with their parents. that's one of the elements. tom: are you moving back in? katie: i would love to, honestly. that sounds really good but i think i have another household of this point. tom: the ducks are all lined up and i'm in search of a theory. is any of this theory in the textbooks?

there was a great graduation ceremony at cambridge and i said to mohamed el-erian, it's all waiting for the next data point. is that all we have now? >> the fed is data dependence we have to be data-dependent. there is no forward guidance. this is something i thought was interesting that has emerged? -governor jefferson has been nominated to be vice chair and he is already begun posturing as though he is vice chair but that's an important executive position on the fomc. chair powell's is data dependency and we've not made any decisions that we will make a decision at every single meeting and that means a lot of volatility and a lot of guesswork. you have vice chair jefferson that came out not long after he was nominated and said this may be a time where forward guidance could be good, could be useful. starting to put his toes into the water and say, maybe this is

good. the vice chair voice is very important. i think it underscores the kind of debates they are having in the board room. tom: stay with us for the hour we will talk about the job at friday. with all the inflation hysteria, the labor discussion is important. katie greifeld is in fort lisa abramowicz and jonathan ferro and ellen zentner joins us for the entire hour. lots of economic data today in a 10:00, we will talk about that in the next couple of minutes. the vix is 13.80, standard & poor's 500 down three. i will call that a fractional percentage. we say good morning on bloomberg radio and television. the market is closing at one or two and it doesn't matter so get your orders in early. ellen zentner is with us and let

us continue here on ism manufacturing. i didn't care about it and jonathan ferro says it matters. the ism surveys are under 50. does that signal contraction? >> at a level of 46 at the ism, historically, that is a recession level. under 50 doesn't mean recession because generally, you can get to 48 and that tends to be the average where you get into trouble. maybe this gets into the boring nitty-gritty that economist get into but there is a component within the ism called the livery time. -- delivery time. if i'm super busy and trying to catch up on incoming orders and produce them, my delivery times will slow down. that means things are tight and that's a good thing. when delivery times become better, it means that i'm

producing things quickly and i don't have a lot of incoming orders and i can get them out the door quickly. because supply chain disruptions meant that my delivery times are really slower because i didn't have a lot of business, that was supporting ism at that time and as delivery times of increased because supply chains are normalizing, that has depressed ism. at 46, that's not a good level. tell me if you are confused yet. tom: we will be saved by the bell. alan zentner with an ism lecture. stay with us, jim beyonca o in the 8:00 hour. ♪

>> our call is that the fed will probably stay in and around the current levels for the remainder of the year. it's not out of the question they raise rates by maybe 25 basis points or even 50 by the end of the year, but that is only going to really bring the recession forward, if you will. tom: that was really timely, look for that with the dynamics in fixed income. that sets up the debate. katie greifeld is in for bramo

and ferro. the bill dudley piece was the tone set her from last week area katie: it arrived in a perfect moment because it feels like we've been stuck in this range on the 10 year yield, basically flat for the year with a lot of volatility. it's whether we take a leg higher or we have seen the peak. bill dudley coming ferdie -- further out on the side of higher yields. tom: alan zentner - ellen zentner is with us for the entire hour. we will join with jim bianco. it's a smart note but there will be one sentence that hits you over the head we get that from jim bianco where he talks about inflation coming down to the before level and then it will

reverse and drift tire. how will we get to 3% and drift tire? >> it's the base effect. june of 2022, we had one of the highest monthly numbers ever. gasoline prices were five dollars per gallon a year ago. we will drop that off and replace it with a much lower number, something like .4 and that will bring the year-over-year inflation rate down to 3% for june. july 2022 was zero. august was .2 and those numbers will be easy to jump over. if you start looking at september, november, december, those numbers will be easier to jump over. we will hit 3% and start drifting toward 3%. i assume no major downturn in no crisis that comes along and no heating up of the war and that could change the equation but if

the inflation rate bottoms at three and drift tire, the fed will find this unacceptable. the two rate hikes we have priced in for the rest of the year will happen if not three. tom: you're such a student of history. his the fed finding it unacceptable because they are wedded to a return to the great moderation or is this a society committee country and a nation and a fed that has to get used to a permanent higher rate regime? >> i don't think the fed needs to accept a higher permanent regime. i think they look at 2% and i think it comes back to may of last year when chair powell was in the oval office and president biden pointed at him and said this is the guy who will bring inflation down. he has taken it very seriously. he has stated over and over that their goal is to percent and he has said that without getting

inflation down, you don't have an economy. he is dead serious about trying to bring it down and he should. crisis for the last two years of largely been running faster than raises. on a real basis, they been falling behind. that has to be rectified. katie: we've seen expectations for the terminal rate move higher over the past week or so after hearing from powell and the commitment to keep fighting inflation but let's talk about the neutral rate. has your calculus for where the new full rate change at all? >> it hasn't changed except i will go with what the fed says. that the neutral rate is somewhere around 0.5% of the long-run average of inflation. week could argue what the rate of inflation is. i am more in the 3.5 range. that means neutral is for an chair powell put some nuance on

it. he said the entire yield curve has to be above the neutral rate, not just the funds rate. some of the race like the 10 year note at 3.85 are not quite there. that would suggest higher rates. i am with bill dudley on that that rates will continue to drift tire. tom: it feels like a fed slideshow. -- sideshow. i want to get an observation, is this a fed that has two fit -- that has to make a regime shift around the silliness of 1.x on the fed funds rate? >> i think it's something that will underscore how much they have to go back to the table every five years and taking a look at their framework of how they conduct monetary policy and if we are at a longer run and a higher yield rate.

tom: are you looking at this chart and others? >> i think these things are evolution and not revolution when they make changes. i don't think they will change the inflation target but they can fudge a rabbit like some of the central banks have some uncertainty around that. when you think about how long the expansion will last, we will have a downturn at some point and inflation will probably higher than goal at that point so does that mean the fed will be less reluctant to do a steeper cutting cycle in order to offset slower growth? >> sure, let's look back to your go. q1 and q2, we had two consecutive negative quarters of gdp. the big debate last year was is that a recession most people said no. what did the fed do? they hiked by 50 in the by 75. they were not deterred by the slow down in gdp. if we see the consensus forecast

at the end of the year we might see negative gdp numbers, if inflation stays elevated, i don't think that dissuade them from raising rates. what would is if maybe we saw a big slowdown in the labor market. as we all know, the payroll report is beaten 14 consecutive months. we have anyone gotten a miss on the payroll report let alone a slowdown but that might be the game changer. >> are we too complacent here that we've had a shock in the economy pre-march 8 and post march 8? one camp says we escape that and will not have a big impact on credit and labor markets and another camp says we just not seen it yet. where you stand there? >> i agree with you that march 8 was probably the most important economic date of the year pre- and post bank failures.

i agree we've seen a big credit shock and we will continue to see that. the credit shocks will probably result in another bank failure but it will result in a pullback especially with small and medium businesses. as we go forward, the fed will look at that but chair powell has already hinted that that's more of a regulatory measure and michael barr, it's his job to deal with that. our job is to deal with inflation. at the end of the day, i don't think the credit situation will dissuade the fed other than push them from a regulatory standpoint but not necessarily from a monetary policy standpoint. tom: jim bianco thank you. people talk about inflation and he's calling for a tick up. katie: haven't heard much about

inflation is bottoming in a sort of makes sense when you hear about the fed cycle expected with this stop and go cycle. it makes sense you would also see inflation follow that path. tom: it will be interesting to see and we will see dated today we will have ism for you later this morning. i've never looked at it but jonathan ferro is all about it. katie: today's the day. tom: we will continue with ellen zentner with us in ample time with her. if you are in the equity markets and you are confused, the equity strategist at wells fargo will be with us next. what a list today. i am tearing up. ♪

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tom: bloomberg surveillance and we say good morning. katie greifeld is with me. someone emailed in from washington and secretary yellen will go to ben's chili bowl. it's the best shop of food. you have to go, it's in georgetown. the airport is not the same. katie: it doesn't count?

tom: katie and i thought this would be a sleepwalk today but no, it's really interesting. you mention 4.93% on the two-year. you get the higher yield ferments. katie: that curve inversion continues today and you have two-year yields marching higher and the 10 year per flat and there's a movement in the oil market and news from tesla so there is plenty of talk. tom: if you are in the equity market, ellen zentner is with us. it's not only the equity conversation today, it's the equity kickoff conversation of the second half. anna han brings prestigious math

and physics with her. i recommend the classic options text. i look at gamma is the accelerated tendencies any given indications in this case. we came off the map from their market are tober and maybe it's a bull market, can you identify with your mass -- math and physics, the second half of a bull market? >> i prefer the whole book. i will let you go on that one. with acceleration the market, what's important is what's dragging up the market and how much more that can go. it's losing steam and overbought levels but you seen that correlation between the 500 names in the s&p 500 and had to climb because of the separation of the handful of names which the rest of the market and

that's with bringing equity volatility lower and that might be what has people concerned with low breadth. until we see that expand, you will not see a surgeon the second half. tom: do you reallocate or rebalance? >> you shouldn't be overweight in those areas with the tech market tied to growth in the weight yields might be going higher before they come back lower, we would recommend being more neutral. tom: do you agree we can have an option where rates go higher and we could go down to new weakness? morgan stanley is different because they have 47 opinions but is the general statement there that you could have a higher yield regina at morgan stanley? -- yield regime at morgan stanley? >> the economy is not the markets.

you can have higher interest rates and try to slow the economy but there are other factors driving different parts of the markets. is that which you were saying, because you got a handful of names that are propping up the market whereas the economy look stronger but there is a constant concern that rates will go higher but we will go into recession? i think you end up getting those were differences. >> there can be that deviation. there can be the economic health and there could be economic recession but what about the earnings recession? those can have different times and that's what we are worried about. we might see a recession and it might be mild and yet the consumer continues to spend. that spending is slowing to how much does that deceleration or the gamma in that spending really start to bleed into equity corporate earnings? that's what we has strategist are trying to decipher?

katie: it feels like the worst-case case scenarios for earnings have been lifted last couple of weeks especially when it comes to profits. was that premature? >> i think it is a little premature. i think you see some companies and corporate's doing well but what's concerning is if you look on a sequential basis over all for the s&p 500, you are seeing the top line revenue figures declining faster than where the consensus aps for revenue numbers would put it. taking into account, we are also seeing more marching russian than expected and what's remaining about growth. it's not to say that could be different from where multiple trading where the market can trade. perhaps the market is already looking to years earnings we have to keep in mind that we need to still get there and we have another six months. katie: i want to get your thoughts on equity volatility. you look at the vix right now in its below 14. equity volatility has been

declining but a vix below 14, does it feel right? >> given what's happened the actual balance and was leading the market, it's part of what it is, the index correlation it brings it down. who thought but this post-pandemic regime, we would see a 13 handle so soon particularly with the fear of recession. i don't know if it feels right. i don't feel comfortable but mechanically, it seems to be the right value. tom: now the part of the show we go toanna han. the essay of the first six months was larry mcdonald wrote a brilliant essay. he starts with a massive look of money and etf funds and institutional money out there. then he walks through on top of it, x number of to rigid of --

of derivative strategies. do you feel we are going into a second half with notional derivative instability potentials or is there integrity to the system? >> when you bring up instability, or people hedged right now? you would expect it to be cheap but why by the downside protection if we are only going one way upward? tom: it feels like 1987 but continue. >> in that environment, maybe it is prudent to have some protection but we are not calling for a major pullback or major downturn but perhaps that deceleration in this upward trend we have seen. if you want to put on those options strategies and your upside exposure but also take some off the top in terms of stock positions and consider rotating a little less. tom: is your study that

rebalancing works? i'm not a big fan of rebalancing. where are you on that? >> it depends on timing and we are not say get out of it completely but take a little. it's been six months and you've gotten 33% on some of these names. you cannot be too mad about that. tom: she sounds like a traitor. she was a trader. katie: take some profits and lock in those. i want to go back to the essay that tom brought up. you are having a conversation a week of go about covered call strategies, some of the most popular etf sat there on the market now are covered call strategies. they sell call options. when you think about the stability of markets in this drag lower in volatility, do

those sorts of strategies have any volatility masking effects? >> it's possible and if the average investor is selling calls, the broker has to buy those calls. they need a delta headroom i buy those calls and the need to sell -- sell the underlying positions. you have this dynamic were some people are holding these calls outright and other people are holding them hedged. tom: we always turn to an economist to translate. >> it's been really difficult with incoming data being strong especially when you think about jobs for anyone to believe there is any other direction but up for equities. we are looking for another big print on friday. it's very difficult for investors to get past that.

is that what it will take him a clear slow down a jobs were clear increase in jobless claims, to get people to start to think that maybe there could be mourned of various outcome for the economy in the back half of the year? >> i think the employment picture is the linchpin we are looking for nets why we are so focused on every single jobs or wages related relief. we expect the consensus right now on are in line with the unappointed rate and if that holds come i think the market has some of that priced in already but unless we see something really concerning and a big uptick in unemployment or big deterioration in the wage picture, it seems somewhat sideways is steady going. 3 tom: what your spx level? >> we are still at 420. tom: does that mean take the summer off? >> sell in may and maybe go away

but not quite go away. i think you could see further upside the question is how much more and towards the end of the year, as we realize that consumer spending continues to deteriorate and that starts to take hold in the earnings picture kicks in, i think you see a pullback. tom: thank you so much. an interesting monday. i'm fascinated with the idea of q1, q2. look at what people actually wrote in the second and third week of december. katie: also the second and third week of march if you think about it. there was a lot of bearish cases built on what we saw in march that have not come true yet. >> every commas nightmare is we look back at what we are writing. tom: to me, it's just an extension of the pandemic. we underweight the medical disaster and the timeline off

that medical disaster. >> i think we underestimated how long the covid effect would lessen how long the pent-up demand for services would last especially among the wealthy. there are still many tales supporting the economy and we're wondering if it evolves into a nice slow down as that phase or do we fall off a cliff? tom: ellen zentner with us and we will dive into the american labor economy here in our next section. thank you so much. the markets are churning. it's a monday markets closed at whatever it is. s&p futures now down 0.1%. we say good morning on radio and television, bloomberg surveillance. katie greifeld in for lisa abramowicz. we've got a lot to talk about.

let's sum up the whole debate through the hours this morning. the answer is, there is six opinions for every five discussions. katie: in the markets and the economy. we will get another big piece on friday. perhaps friday we get that jobs report and its expected to fall. 3.6% near some of the lowest levels in decades. tom: it's a really eventful week. factory orders, durable goods, we start on the sixth with adp. that's a thursday statistic. we get adp with claims and the six, we get the jolts in the fed will have a lot of vision monday next than they do right now. katie: then we also get another cpi print before july.

we know this fed is looking at every single data released in every meeting is live and thus we hang on every single comment. tom: are bramo and ferro back by the cpi print? katie: i don't know. tom: we will talk a lot about this, they never miss me, they miss ferro. the nasdaq up an ev, rivian did something big. tesla did something big as well. we are ready for fourth of july. coming up, ellen zentner on morgan stanley on friday is jobs report. this is bloomberg surveillance. ♪

>> u.s. growth last year was about 1% or so it's tracking a

little higher today who we think it will be slower than that this year. the u.s. is in a growth recession. it's something above zero but below growth potential. the u.s. has the potential to grow each year by 1.8%. there are changes in labor force as well. the u.s.'s growing below that. tom: tony crescenzi of pimco is the short-term bond expert. a little bit cautious there on what we will see in terms of price up yield down. i really informed conversation. the team today tour de force job in a monday. katie: the guest lineup has been fantastic and i've been spoiled.

i had great conversations. james emailed in. thanks for watching this morning. ellen zentner is with us now. i saw a hockey stick chart on manufacturing in america. it doesn't matter with the details are but the answer is, is something we are not used to. i gotta big chart of manufacturing labor to our population in america. basically, the back was broken in 1970 and really broken into thousand. can we have a manufacturing renaissance in america? >> we can have an increasing share manufacturing in the economy. these things are slow-moving and the decline of manufacturing has taken decades to play out. we have larger step downs in the

70's and after the wto and china's rise with more pronouncement after that. i think we've got something exciting going on now. i think we are digging into the data and we are seeing and especially of go around the country and talk to small manufacturers in the country which i have done. they will tell you they are starting to get more and more domestic orders from people on shoring. they at least feel their business is picking up. this feels like it could be the start of something, we are seeing something. there is some on shoring story and there is near shoring story in the story around mexico benefits from near shoring and that's exciting. there is a lot of infrastructure building going on across the country. state and local governments have been ramping up hiring around that so i think there is something going on in

manufacturing here that's exciting but that is a smaller share of the economy than the services side. tom: through june, the mexican peso is stunning in strength. you will get a 16 handle on the mexican peso at some point which i never thought i katie: katie: would see. it's important to remember because we talk about how strong and resilient the dollar has been all the time. there is definitely some pears were that that is not quite true. we have you on monday may get the jobs report on friday. is there anything we could get at 8:30 a.m. friday that would take the fed off the course for a 25 point basis hike later this month? >> we have these roadmaps to each fed decision we produce. because it seems like they are data dependent but feels they are locked in for this july

hike, i think the bark is a lot lower than we thought it would be -- that the bar is a lot lower than we thought would be. for the data to say don't hike, i think it be a payroll print of less than 100,000. that would get the market thinking that maybe they will not hike in july and still wait for the cpi print to do the rest of the job and if you have a downside surprise, that would be the final box that says it doesn't have to be a july hike. i think it would still keep the fed saying there may be more to do and i stink there will be an asymmetric hiking bias, but i think it would have to be pretty big downward misses for them not to hike in july. katie: when you look at the expectations that are baked in for the fed to go ahead in july

based on labor strength continuing with june's report, what you think would prompt the bigger reaction in markets? is it an upside surprise ray downside surprise? >> i think it would be a downside surprise. the fed has been successful here. the market says they are on this hiking bias and we will give them the benefit of the doubt that it could be two additional hikes from your not just one. even pushing at the expectation they could cut before the end of the year. the market has grabbed onto that narrative and the data has helped support that so i think it would be a downside surprise that would get the bigger reaction. tom: is part of the american public having a 2% unemployment rate in another part of the public has a 7% unemployment rate? how does morgan stanley see the quintile makeup? >> it's more around education

level. tom: the bottom has done well off of the pandemic. >> they have from government support which has now ended. they have off of a tight labor market which has increased labor income and wage growth especially for low paying service centers. we are only just now seeing real wage gains positive. inflation was still outpacing wage gains for those folks. that diversions between those with the 7% on up 100 and those with the 2%, you can go to 13% unemployment rate, that has always been the case. what i look at is has the unemployment rate been improving across by ethnicity, by age, by geographic location, has it been

improving across all groups? yes it has and we are back to the kind of tight labor market for the most underserved in the country, being just as good or as tight as it was pre-pandemic. tom: they asked if we could get zentner for this monday but she will probably be in chile. this is a sacrifice on the part ofellen zentner because she can buy a fly rod and go out on the river. fly fishing with zentner, do you do the saltwater thing? >> not as big on saltwater flyfishing and i love saltwater but not to fly fish. you can't cast far enough. tom: you go to jackson hole or the yellowstone river and all of it had a goni a, we have listeners today emailing and

from chile with your appearance here. there is the rio simpson and chile is huge flyfishing. why is it so much bigger down there? >> they don't have a whole lot of pressure. not a lot of people are going down to chile. it takes some time to get down there to fish. the trout are not native to the region. they were introduced in the 1930's by the british. we've got them to thank for that. katie: so they are invasive. tom: listen to you, it's a sport, not invasive. >> some inflammatory commentary this morning. tom: she is worse than brahma with. >> they didn't kill off the native populations of fish but they have really thrived there and it's been a great industry in chile. tom: what's your favorite river in the rocky mountains? >> gosh, in montana probably.

there is one i can say publicly because then everyone will go. tom: this is when you live large at morgan stanley. >> maybe the beaverhead and montana because everyone knows that when integrate river but i won't say the one that's my favorite because it will get more pressure. tom: can we get a beeper in here next time? is the fishing good near jackson hole, wyoming for the fourth week of august? >> it depends, the run-up was really big this year with record snow in the river levels are high. it's not been highlight that in some time. august has been really drive it if you look cap through fishing, you want to go to jackson hole. tom: she will be on the phone first week of august. i think i need to go to jackson hole. this has been a joy, ellen zentner with us on radio and television and i'm going to tear

up here. on going to miss you, katie greifeld. katie: this has been fun. tom: good morning. ♪ what do you get from the morgan stanley client experience? listening more than talking, and a personalized plan ♪ to guide you through a changing world. ♪ and your store was also the first time you realized... well, we can do anything. cheesecake cookies? the chookie! manage all your sales from one place with a partner that always puts you first. (we did it) start today at godaddy.com

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all of the work that we're doing, all over the world, and looks at the most effective ways, to get resources to them, to get services to them. the idea that we have saved five million people's lives, it's overwhelming. it's everything. >> happy july 4, i'm caroline hyde in for jonathan ferro. the countdown to the open starts now. >> everything you need to get set for the start of u.s. trading. this is bloomberg the open, with jonathan ferro. caroline: coming up, q3 underway with friday jobs suppo