>> how high is the fed going to have to go? the fed will not quit until the labor market quits. > depending what we see from the inflation data, we could see another rate increase. >> there is still a long way to go until the fed target. >> things are moving in the right direction, but we want to go faster. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. jonathan: here we go again. live from new york city this morning, good morning. for our audience worldwide, this is "bloomberg surveillance." i am jonathan ferro. equity futures just a little bit to go until cbi later this week. earning season kicking off friday. tom: and lisa decided she was

going to dive into it -- this time is different. after cpi wednesday to start earnings friday is a huge mystery and will be a little bit smarter. jonathan: is cpi wednesday catching on? welcome back. all the data coming up after payrolls. payrolls for most people disappointing relative to the adp report, leaving the door open for another hike in the fed later this month. lisa: i go on vacation, adp matters, all of a sudden. that will shake up the markets. my question is how much are people bringing forward some of the rate hikes and will that be confirmed by the cbi prints, making it impossible for the fed not to hike? tom: i think all the data into the weekend, it was a rich weekend for people thinking about this mike wilson read

number earnings challenges. the one sister stick that stuck out to me -- i will give the economist credit for this. i am not prime age america -- prime age employment is back. 22 years. we are fully employed around all these challenges at 80% plus prime age employment. lisa: i will say i was on vacation last week, and the amount of spending is dramatic. the amount of inflation is dramatic. the amount of people saying "help wanted" in every storefront is the same as a year ago even though we are talking about a slowing economy. how does the fed deal with the last mile? that is what a lot of people will be talking about with a stickiness underlying a lot of the inflation. jonathan: precisely what was said on this program many months

ago. just for the record, we are all in our prime. [laughter] futures on the s&p, a three-day losing streak on the s&p 500 and on the lack -- and on the nasdaq. let's see if that goes into day four. upon market yield, -- early today, inflation data out of china leaving the door open to stimulus out of china if they want to. lisa: outright deflation now a concern, a shock given everywhere else is worried about combating inflation. president biden is meeting right now with prime minister rishi sunak ahead of the nato meeting in that way near. curious to hear what kind of consensus they can get at a time when nato does not want to be in active war with russia. today, fed's michael bar, mary

daly, loretta mester, raphael bostic -- are they going to say anything that will be useful? tom: let's stop here. this is important. what is the so what? what will we know at 4:00 p.m. this afternoon, remains closed at markets, what will we know from these four we did not know before? jonathan: some division in the fomc, captured by recent minutes. we will find out who is who. who wanted to make a move in june but not because they wanted to wait until july? i will say take july out of the debate. this is september and beyond. how do you reset things and push on from september? lisa: especially at a key time about credit when deals are going higher. does that imply the implied rate is higher than expected? at 3:00, the fed is releasing some data.

how much of the bloom in consumer spending is what i did on my vacation, which is charged to your credit card and leave it there? you have seen the credit card outstanding's actually skyrocket. tom: in the new regime of interest rates, do we breach a 30% per year on credit cards? can they do that? i am just asking. jonathan: are you going to pay that payment off? lisa: i will pay that payment off. jonathan: i do the same thing just to collect the points. tom: i hear this at home -- "i'm doing this for the points." i have to pick up a beverage of my choice with somebody. jonathan: you don't do that on vacation, do it for the points? lori calvasina joins us now. wonderful way to start the week

from you. read a note from barclays who said we do not see it -- we have bank earnings friday. do you see that rally broadening out? lori: i think this market wants to broaden out. we have seen the small cap market make several attempts. we are seeing -- the same thing on energy. when we look across the s&p, most sectors are in recovery mode in terms of sentiment, which means the rate of upward sentiment has either flipped from negative to positive or they are getting less negative. this is a market that has done well in the past, the tech center -- sector. but from the earnings perspective, there are healthy undercurrents going on in other parts of the market as well. tom: i look over the weekend, and i thought there was a lot of good equity zeitgeist.

the answer i see is a massive strategy bet that is pretty darn negative peer is that what you observe? there is a pretty gloomy strategist tone forward? lori: i think so. my target is 4250 on the s&p. 4250 is splitting the difference. even in that context, i tell people i personally feel the market is neutral. there is some -- people keep telling me i am one of the big bulls on the street, and i just kind of laughed. the reality is there has been this view that the earnings expectations are too high, we need to calm it down. i think that interprets how

stockmarkets into spray that in advance. i also think this is a unique moment in history. if we do have a recession, we were all talking about it last year as technical in nature. i think the guy has the ability to focus on it in the bigger picture and may not be as damaged as some assume. tom: give us two attributes when you screen for quality in mid-cap and small-cap. i could scream for quality in the world of apple, but how do you screen for quality in the world of mid-caps? lori: it is tougher in the small and mid-cap space. one thing we talk about his health care technology. that is where a lot of your loss makers are sitting in the russell thousand. especially on prague -- positive and negative earners, you will come across that health care is low earners. --

right now, there is a more nuanced discussion happening, which is we are going to have a subpar economic recovery and gdp stats are below -- people are having to look at things like tech and biotech and health care and say, our losses, is that necessarily low quality? you have to do it from more of an art than science perspective. take into account data but also take into account long-term dynamics. lisa: how much do you push back against people who say stocks are just ignoring this feeling in bonds that perhaps we are underpricing there was, that the fed has to go further, that the real neutral rate is significantly higher? and as you are seeing the real you'll go higher, you are not seeing the small -- lori: in late june and early

july conversations with bank investors, they keep asking me about balance sheets. that is where the rate discussion intersects with the ability of companies to manage through the higher rate environment. only 2% of s&p companies have an average weighted maturity of under two years. the russell 2000 is less than 10%. we have a lot of metrics we take people through. long-term debt has risen, what does fixed versus variable look like? what we come away with is the idea a higher interest rate is not as damaging to companies and the ability to manage cash flows now that it was in the past. investors and portfolio managers deep in the weeds are trying to wrap their head around that issue. it seems to me that it is a hurdle, a challenge, but it is

something companies seem to be able to manage through so far. lisa: does that mean that, right now, fed policy is not as restrictive as people think? enter bring inflation lower, they have to grow significantly higher, because those higher rates are not as damaging to some of these companies? lori: i think higher for longer is still what i here. pre-svb, everybody wanted me to run at 6% and 7% and see what kind of pes would fit out. i do not get those requests anymore. people are pretty content to use that as a general, rough folk before the end of the year. people thing sanguine -- people seem sanguine about that. in general, investors want the inflation fight to be won. if you go back to the debt, one

of the reasons why the market did not collapse around that is i thought -- so ultimately inflation could be brought down here that calculus, at least on the equity side of the business, they want that inflation fight to be won, so they are willing to tolerate another hike or two. jonathan: i have an article set to one side for reading later this weekend. i saw the headlines -- your name. it said something like it is kind of like the 1940's. what is the take away? lori: in 1945, we had a recession that the stock market completely ignored. it was a technical recession that occurred because of the transition from a wartime to a peacetime economy. you had a massive withdrawal of government support in terms of fiscal, very analogous to what we are going through today and a lot of the rhetoric we have heard about recession of the

past year. that is one of the reasons why the equity market has been so resilient. this underlying economy is in good shape and people understand what is happening here. jonathan: thanks for being with us. lori calvasina of rbc. tons of data appeared we talk about wednesday epi, thursday ppi, friday earnings. tom: lisa mentioned inflation in japan is one of the big stories. you nailed it with your cover to cover read on barons, the basic idea of 47 to 51, 52. the truman-eisenhower deflation. outright deflation in the early 1950's, and that was percolating in the zeitgeist a week ago. jonathan: i could have sworn that had soft data from china's leading to a conversation on stimulus was good news. lisa: that is the thing, people

are reading this as potential slower growth in china, not looking at the potential stimulus. is next week going to beat return of china? jonathan: it is the return of the band. the band is back together for the first time in about a month, something like that. lisa: we are doing this all week. jonathan: very cool. are you committed to that? tom: i am committed. jonathan: not convincing. [laughter] futures on the s&p negative 0.2 %. ♪ your 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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>> is the risk of recession completely off the table from your point of view? where do you put the odds? >> it is not completely off the table, but we would expect, with the job market as strong as it is now, to see a slower pace of ongoing job gains. jonathan: janet yellen on tour, speaking on cbs about the risk of a recession following a slight bit of controversy over the last couple days. tom: i was confused -- you are talking diversity or something with her? jonathan: diversifying. they are trying to draw a decision between not the, not decoupling -- it is now diversifying. what is the difference between

decoupling, de-risking, and diversifying? lisa: i took a look at her own words over the weekend. de-risking -- as well as broader concerns with diversifying our supply chain. basically anything we want to mean. it is a key decision at a time when the u.s. will possibly ban exports of chips and china will possibly ban exports of the raw materials needed to make said chips. tom: i will go back to the textbook treasure and the work of the academic catherine man, now holding court at the bank of england. rosenberg, particularly professor mann, codified the zeitgeist of it. the answer here -- everyone is vulnerable right now? baloney. it is codependency of china and washington.

jonathan: your headline is yellen went for therapy in china? tom: i don't know, but catherine man nailed this 15 years ago. we are widely dependent on china. jonathan: this morning, it is the president's turn to go on tour. he meets with rishi sunak. the ukrainians want weapons. president biden is willing to provide them. sweden wants to join nato, took is not keen. tom: it is the stew in the backdrop. the backdrop is a new conservatism we see across europe. maybe it accentuates in america as well. the big, big problem i see with europe -- and this is true of every president -- they and up 11 going abroad. wing abroad is so much easier

than sitting in 1600 pennsylvania avenue, wearing about the senator from kentucky. lisa: it usually is. this time is different. last year, there was consensus among nato members to help ukraine. now is not. you have the u.s. and germany coming out again supporting outright ukraine membership in nato. other people are saying you're not giving them the full backing they need. the issue is, how do we do that without declaring war on russia and engaging in world war iii? jonathan: really encouraging -- staying on top of the price action. equities a bit softer over the last three days. down again by 0.2%. it is a big week ahead for earnings, for economic data as well. if you go to the latest from barclays, they have raised their price target to 4150. it was as low as 3725. that is about as far as the bears will go right now, as far

as capitulation goes. they say they think equities remain rates down through year-end. that is going to be the debate going into friday morning, when we get bank earnings. lisa: here is the tension right now. if the fed is truly restrictive, is it that this economy could slowly and softly land, or is it that the fed is not quite restrictive enough? i think that is the key question behind the resilience we keep seeing, and people saying perhaps we have to capitulate, perhaps we have to get into the formal trade, which seems -- into the fomo trade, which seems like what everyone is doing. tom: i would look at the rev . you make get more persistent revenue. remember the gloom 90 days ago, omg, we are all going to die? 180 days ago, we're all going to die -- the bank crisis and all

that. i am sorry i am a broken record. corporations will adapt, and they will do it right now. jonathan: bramo used the word fomo. fomo is in full swing. there is complacency being built into stocks. if the activity momentum this week in the second half, relative to the current projections of no and/or soft landing, stocks are unlikely to shrug it off. lisa: and numbers from his analytics team point out you see a complete capitulation with isolate -- asset managers piling into a more overweight vision in some of the tech names, etc., going back months and months. this is nearly 18 months they had. here we have a situation where people are piling in, creating may be a dynamic where there needs to be some sort of -- tom: to me, the most important part of the --

the most important chart of the week. these are smart value add --we could positive, like lori calvasina, or negative. lisa: that is not true. she actually came out and said -- carry on. tom: i am going to search it right now to make sure i have it right. jonathan: barchat or barchart? tom: barchart. jonathan: i just wanted to be clear about it. [laughter] tom: go on twitter and look at barchat. jonathan: [laughter] just to make sure, going on barchart. tom: they are not adjusting to bulls. lisa: but the low for some of the bears is getting less low, because they are looking around

and saying, maybe tom keene is right and companies adapt and adjust. we keep repeating that, and we will be just fine for that seems to be where we are with these upgrades. tom: again, i will go off of the october lows. october was the low. we had a surprise bull market, fine. now what? that is where we are now. jonathan: we have a guest lined up, and now they are gone. let's go on a tangent on the federal reserve. -- morgan stanley's -- was on the program friday, greece will go in july. does not agree about september. the incoming data will not deliver the bar for the fed hike in september. there is continued evidence of flowing that we expect to persist over the next two job reports ahead of the september

fomc meeting. the july debate is done with. i think everyone is moving on, unless you get something dramatic later this week from cpi, ppi, and/or a big surprise from elsewhere. it comes down to august or september. tom: and you have september 20, not like september 5. it is a good amount of data after jackson hole. again, it goes to the idiocy of cpi wednesday. jonathan: you want to finish on a bit of sport? high-speed corners? beautiful track. tom: where is it? jonathan: north of london, south of where i grew up, somewhere in between. tom: i just thought it was great. there is a lot of it i still do not understand. verstappen, to me, they do not give him enough love. they are so worried about the netflix battles. lisa: can i just say, they are

talking a formula one pr was so excited, saying i know what they are talking about. everybody is talking about it, do you think it will actually have the same flavor in the u.s., in miami? [laughter] jonathan: you know what i think about these tracks, the new tracks. it's not silverstone, one of the legendary tracks. it is made for car racing could i look at america and what is happening with some of these tracks. ♪

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jonathan: the bar chart is real. great chart, thank you for that. tom: we are celebrating bramo back and if you want to send in your emails or tweets or whatever, we are doing it for the points. that's the biggest thing we've learned this morning. if i get 5000 more points, i will get a plaque. jonathan: it's a controversy. that's the good news. on the s&p 500, softer by zero

point 2%. a three date losing streak and on the nasdaq, the longest losing streak of the month so far. getting to the bond market, the two year yield higher for five consecutive weeks, not by much last week. the 10 year is up by more than 20 basis points last year. we had that de-conversion. tom: this is serious. the bloomberg total return index picked up really informative. the worst was -18% down in price. it's a major bond bear market but we've recovered and then recovered in the last couple of weeks. higher yield and now it's negative 13% from the peak in bonds. we haven't broken through the

new gloom. jonathan: potential pain trying to emerge. the data's been pretty decent relative to expect tatian's. even if you look at the payrolls report friday and take out 80 -- adp, that's encouraging with unemployment not as low as it's been. the euro looks like this, pretty much unchanged. plenty of data this week and 90 of beds week. cpi on wednesday.

tom: a smart insight on the dynamics of price change in the review is inflation, there is disinflation is outright price decline, the fear of the middle 20th century england. then there is this cosmic thing only understood at columbia,reflation. it's a question out of the time of greenspan but here we are, people will go omg china, deflation. can we import deflation? from china or on a global slowdown basis? >> i think we can definitely import deflation and there is definitely a force at work which is related to china downshifting , the you on going down and

perhaps more powerfully, the unwind of goods price pressures in a world which manufacturing has been contracting goods pricing will not deflate but there is a deflationary impulse. i think the problem is other things will be blunting that movement and keeping core inflation probably around 3% or perhaps a little higher in the u.s. and globally as well tom: are we beyond the pandemic? >> we are hopefully beyond the pandemic from the point of view of its impact on behavior. there is reverberations from this which are powerful and profound. what you are seeing in the u.s. for example now is in the employment report, a moderation in some of the post-pandemic recovery sectors like leisure and hospitality. i don't think that transition and that declining growth of jobs is a shifting from strength to weakness.

i think it's assigned of shifting of should strength -- of strength to normalization. they try to attribute that to the move toward an early start of u.s. recession. lisa: the consistent aspect was the strength in the figure that was beyond what the fed would like to see. this is on the hills of people worried not about the year-over-year comps because of rents and used cars but because there is this wage pressure underlying some of the strength and some of the ongoing inflation. how much are you factoring that into how high real neutral rates truly are? >> i would be a little hesitant to put a lot of weight on the swings on the average earnings which went down sharply this year but bounced back up. i think wage inflation in the u.s. is running above 4% on an annualized basis. that is too high to be consistent with getting inflation down to the mid- 2's.

wage inflation is the primary driver of u.s. inflation. i think there is an issue of tight labor markets and issue of psychology having shifted. i think the interaction of those things and the absence of a slide into a recession is something like that. it will blunt these unwinds that are happening and we should ignore that as well. we were running inflation at 5% this year and i think we will slide below for but i don't think we will slide below three. lisa: how long will it take to get there? >> i think it will take a recession to get there. it's a mistake to think the primary thing you need to do is create unemployment. you need to hit pricing power but unfortunately when you do that, you change labor market behavior and the unemployment rate will go up alongside it. lisa: are rates restrictive enough where they are to induce a recession? >> i don't know, it might be. i don't think the fed will wait

around. in our forecast of the fed boiling the frog, they continue leaning against this. by the time they're done, rates will be high enough the lag to create a recession probably sometime in 2024. tom: is it true the modern fed will react to higher interest rates? if we breached through and start talking at a 6% level, if we get a higher interest rate structure, there is a central -- does the central bank respond? >> when you look at the move up in the 10 year yields we've seen in the last month or eight weeks, i think some of that is a tightening of financial conditions but some of it is also taking out recession risk and you can see more broadly financial conditions moving up. in that environment, it's hard for the fed to look at that and

say this is legs and we can be patient against that backdrop. i think the fed is struggling to figure out where is the right degree of restrictiveness in this economy. they will not move too much because of the inflation news. it's hard to get the timing and the level of rates that will end the cycle. tom: that's dead on and i thought this over the weekend. are we asking too much of our central banks? by definition, they don't get the timing right. this absurdity that they will nail plus or -14 days a turn in the macro climate is absurd. >> i think we are in a really difficult macro environment, the inflation dynamics, the appropriate level of rates, but

the fundamentals are relatively straightforward. this economy is resilient and has elevated inflation and i think the chances of delivering a soft landing are pretty small. there is every reason for the fed to try to calibrate and try to deliver that kind of outcome but ultimately, i don't think it will be successful. ultimately, i think we will need a recession but it's a question of getting the timing rate -- the timing right in the right path right. people are forecasting recession starting this quarter and people have been confident about forecasting recession. forecasting a break in the economy like that is not that easy to do. lisa: there is also a question of what the trigger could be of some sort of recession. how closely are you watching the price of rare metals of some of these tit-for-tat focused areas of chips and the instruments, the commodities required to supply those chips?

>> i think it's unlikely that dynamic specifically will be the catalyst for recession but i think your point is important which is recessions are about the fed and about the vulnerabilities of the u.s. private sector and recessions are about shocks. often times, though shocks are in commodities and energy specifically i think it's reasonable to say the next recession will not only be about the fed hiking rates but about some shock. shocks are not easy to anticipate in terms of when they hit and exactly where they hit. lisa: how do you measure the vulnerability of the financial system weathering a shock because that's the key how deep a recession will be. >>'s vulnerability in the financial sector as we well know with banking sector stress and tightening that's going on. we are nothing the spill over to the broader financial space but i think that's important but vulnerability is also where the private sector is. it's how healthy the u.s. and

global private sector is on the household and business sector side but it doesn't mean they will be a strong engine for growth but they will be the buffers against the potential for a break at least for the near term. jonathan: love catching up with you, thank you. a little distracted by max kenneman at hsbc -- he says we see the risk around macro data running too hot. that's max pushing back once again. lisa: he's been correct and is coming back with the idea of a positivity from what we've seen in the past with hsbc which is usually been negative and it highlights how much people are changing their tune we seek

risks around macro running too hot. does this mean the fed has to counter it? does it mean it's ok? does it mean the bulls can keep on running? tom: i think there is a lot of different opinions out there. i believe in the resiliency of what's going on. we will get it friday with j.p. morgan and we will have a lot better handle on the gloom that's out there. i go to the bar chart that says there is a lot of gloom out there and the strategists are really cautious. jonathan: you really like the bar chart. tom: it says what all the analysts are saying and they are all -- the bulls are a lonely group right now. jonathan: getting lonelier based on the price action. a great job in the last 10 minutes.

keeping a hand on the fomc but divisions among the artistic pins. what do you think, do we have to do more? that's the debate we will be having through july and the rest of the summer. lisa: we are seeing a peak fed funds rate of 5.4%. people are saying they've got to do more but do we misunderstand the vulnerability of this economy, the immunity of it, the resilience of it? jonathan: i think we have to get away from his binary recession debate. there isn't one and services and good prices are rolling over and services prices are sticky and robust. it depends where you look. a lot of people wrote to me talking about these rolling recessions popping up everywhere area if you have the singular

approach which is recession yes or no, i think you are missing a lot on this economy at the moment. tom: what i notice is that greifeld couldn't tie bramo's shoelaces. i gave her that feedback. jonathan: is that the requirement for anyone who sits in bramo's seat? jonathan: equities are a bit softer, from new york, this is bloomberg. ♪

>> the big strategic issue is that ukraine once membership in nato. should it get membership in nato? >> i don't think it's ready for membership in nato. it's not a question of whether to bring ukraine into the nato

family now. at this moment in the middle of a war, i think we have to lay out half for russia, for ukraine to be able to qualify to get into nato. jonathan: president biden speaking over the weekend, coming into a q. week for him alongside the british prime minister rishi sunak later this week area they will have a nato get-together. welcome to the program, equity futures are slightly negative down by zero when percent on the s&p 500. coming into a new weekend softer once again. tom: more than anything, it's a compendium of what's critical on a monday. there is not much information from foreign-exchange and that so k is we are waiting for cpi wednesday. jonathan: then ppi thursday. then bank earnings moves over to

tech earnings to close out the month of july. i'm getting excited. let me build up the enthusiasm going into august. tom: are we close to august already? jonathan: thinking about it, sure. you taking some time off? tom: no, i'm the father. they are in six time zones and i am at home with that bill. this is a conversation particularly for american listeners and viewers. it was buried this way -- this weekend. there's something going on in europe and the expert on this in the moment is maria todeo. it's an important conversation with the leader of lithuania later but are more, all eyes are quietly on the netherlands. mr. ruda is out the door, why?

maria: you nailed it, it's a shift we are seeing across europe. you have to look at the elections and the cycle. the european union is tilting to the right and mr. ruta had a spat with his coalition over migration and has decided that he will leave politics. this is a shocker because he was seen as a very smart and smooth operator. the wind is changing in europe due to his leaving but he has incredible experience, more than 13 years in office and out leaves a gap in the netherlands. today, we are not sure who will represent the netherlands here in nato. anything that happens here has to be ratified by all the allies. this speaks to the turmoil we see in the european politics. we are seeing the shift with the

continent turning to the right. tom: what does it mean for germany and france? we have a president in the united states who tried to get discrete to build a wall to mexico but you cannot build a wall in europe. what will they do about migration in germany and france? >> in some places you could but the problem is some of the progressive voices will tell you those are not european values and not european standards we don't want to do anything that president trump suggested. the issue is that when it comes to migration, this is becoming a toxic debate you see it in the public opinion changing and they want tougher measures. you see a lot of the turmoil player in france over the last few weeks. in germany, olaf scholz is not doing well with his coalition and this brings about a new debate as to what to do with migration but this is a never-ending issue for europe and the issue comes down to the

fact that nobody wants to take in more migrants. it's not politically correct and screwed to save it ultimately that's where europe is at. lisa: this underscores a shift with a more conservative viewpoint on the right side of the political sphere in europe. how does this debate colored the nato discussions taking place in lithuania starting tomorrow at a time when there is a lot of disagreement over how to proceed with respect to ukraine and nato? maria: ukraine is one big issue but today it's about erdogan and turkey. we hear from the turkish president what is a power move on behalf of turkey, suggesting if you want me to say yes to sweden joining nato, we have to talk about the european union and turkey. there is very little appetite at this point in the european union to talk about turkey joining the european union.

i suspect european leaders will see it makes things difficult. it's not the time or the place to talk about this but for sweden, this is incredibly complicated. if her to gun is serious, they will probably wait a long time. lisa: what with the olive branch be? what are the nodes of agreement of this potential resolution? maria: on the turkey/sweden side, there will be a bilateral meeting today between erdogan and the swedish prime minister. this was about legislation changes in sweden. this was about sweden proving to erdogan they are serious about those issues when it comes to potential terrorism. now this issue of the european union membership really changes the game. when i woke up this morning, i was not expecting this today.

it changes things. it definitely makes things for the eu and i'm not sure they want to get into this debate right now. jonathan: you catch up with the leader of lithuania later so what will be the topic conversation? maria: the medium is the message and the meeting is happening in the heart of the eastern flank. when you look at it on a map, it's next to what belongs to the russian federation, belarus. are they worried about wagner operating around belarus? tom: only you can say this, the way you say the eastern flank, what does central europe think about redeveloping and

redeploying military assets to the eastern flank? maria: they would probably say yes and i would point to a speech made a few weeks ago in which they said there is not a western and eastern europe, it's europe over all. this is a continent that did not spend enough on defense for a long time. even if you want to move the capabilities to the eastern front, who is going to make them? do we have enough and what will happen with the european industry? what about the money and how do you finance this and how do you think about the next 10 years? jonathan: she will have an interview with the lithuanian president later today. tom: languages everything and

i'm sorry, when we say eastern front, it's hollywood and the movies but just to hear maria say that is chilling, the eastern flank and that's where we are in this new world. we have to remind ourselves that this has all changed. jonathan: the reality of those countries, you wonder what the dividing line is at nato for the countries that would support the president's effort to provide this new weaponry to the likes of ukraine when others are trying to push back. lisa: it's a complicated debate because of the type of weaponry to u.s. government is looking to provide, cluster bombs which have been banned in other places and have been castigated percent of the negative effects. you take a step back and there is a difference between supporting ukraine and bringing it into nato now at a time when that would essentially bring the entire nato membership into the war with russia.

a lot of people are saying wait until the war is over and then we can discuss this and have a real conversation but that's the tension here. jonathan: it sounds like a nonstarter for most people. tom: raging debates steeped in history. it goes back to belgrade in 2008 with condoleezza rice and others saying be patient, go slow. america didn't and some people attribute that to the jump spot of how vladimir putin has responded. jonathan: we have a lot on threads coming up. tom: i'm not impressed. jonathan: we will get tk's take on that in the next hour. futures are slightly negative, this is bloomberg. ♪

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>> how high is the fed going to have to go, because the fed will not be able to? >> the data suggests the fed needs to continue to tighten. >> we could see another rate increase. >> still a long way to go in terms of breaking inflation back down to the target. >> we really want it to go faster. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. jonathan: live from new york city to our audience worldwide, good morning. this is "bloomberg surveillance." i am jonathan ferro.

equity markets slightly negative, recovering a little bit off session lows, down by 0.1% on the s&p 500. a few days of weakness to close out last week, and we start this morning with a touch of softness. tom: cpi on wednesday and earnings friday. not that monday and tuesday do not have value, but it is churning off of the jobs report. a member of jp morgan was brilliant on the mysteries of that jobs report, the way it cut both ways. it gets the cpi report that may cut both ways. jonathan: cpi and ppi later this week. big inks on friday. what is the big risk for the second half? for the second half, we see risks around macro data running too hot, far from recession we expect sessions -- re-expectations, it is that purely we suddenly have an economy with a lot of steam. based on the tourism industry

that i partook in last week, seems like it is a very robust economy and internationally so, which kind rebounds upon itself. there is a question of how much the fed will respond to it and how it factors into market pricing. do we have to worry about the fed again? there was about a month where people were less worried about the fed might that seems to be changing. jonathan: any crazy stories from your travels? lisa: no, which is fantastic. only thing is is when you travel and unnamed family friendly online, there is not an announcement that comes on that says if there is any behavior that needs to reported, alert us, which is really unnerving. trying to be settled here. tom: i want to talk about a shift germane to everybody worldwide, and you are living it terribly in the united kingdom, jon. the 30-year mortgage rate with

jump position rates is two point six standard deviations, a huge deal for the fancy people in the middle of america. 7.38% on a bankrate 30-year mortgage. this goes to europe or someone codified this weekend -- i was shocked that the percentage of mortgages under 4%. this completely confirms -- this is hard data on what jon has been talking about for weeks. i believe 70% of mortgages are 4.00% or under. jonathan: the question is, who is paying it? how and where are those interest rates happening? lisa: this goes to corporate debt because companies have not refinanced and do not have to, so there still paying relatively low coupons. it is like people staying in homes not moving, it is pushing up prices and people paying

higher rates. so at what point does a bite, and when it does, does it inflict damage? tom: the new rate regime, new rate environment, for us, it is a bloomberg surveillance financial exercise with 14 spreads, this has real impact across the real economy, as jeff curry said about a aral of oil and the cost -- about a barrel of oil and the cost of commodities. jonathan: homeowners get the joke on those stocks are flying on the s&p. s&p, futures a little lower, down by 0.1%. we are still north of 4% on a 10-year. lisa: we are looking at the discussion president biden is having with u.k. prime minister rishi sunak, meeting today. initial communique out of that meeting, our relationship is rocksolid, president biden cannot be meeting with a closer friend or greater ally.

a lot of the talk will circle around ukraine today. fed speak, parade of speakers, the fed vice chair at 10:00 a.m., the san francisco fed mary daly, cleveland president, and the atlanta fed president following. at 3:00 p.m., credit card data -- how much are people just spending on debt, on leverage? the fed releases the latest consumer credit survey for the month of may. the previous one showed an increase far beyond what people expected. this is a key question to me, especially as i look at my own circumstances. in terms of, you know -- you go on these vacations and then you look at your bill, and you go, oh, my goodness. anything, at least i get a lot of points. pretty intense. jonathan: i know, i know. tk has been saving not contributing to the u.s. economy. tom: spread across 14 hours of

time zones, the keene family. the far side of the world. at camp -- campus the thing that kills you. jonathan: i did not have camp as a kid, was not a thing. we had a bicycle and a football, and you are left to make a summer of it. tom: if you are big spenders like me, i got $10, which went a long way for mars bars. now i am getting chinese takeout for 16? jonathan: how much is camp? tom: i cannot afford it. there is lacrosse camp at disney world where you go away for a week, but it is four days. that is the other swing. ridiculous. lisa: camps can cost $10,000. tom: you have no idea. lisa: i do not do that stuff. tom: summer racket. jonathan: just a segment of u.s.

society, let's be clear on that. tom: i think it is a hardship for a lot of society. it creates a lot of employment for people, i give them that p but there it is. jonathan: joining us now, olit hia, wonderful to talk with you. i was looking at your notes, u.s. remain overweight, underweight e.m. start with the u.s. and break it down. overweight -- why remain overweight? >> i think investors have been investing in a new regime in the last 10 years. higher rates, higher inflation for longer, but equity markets, cautious on equities in general after a very strong first half. what is going to break the equity markets? consumer spending is something we are looking at very closely. within the equity markets, the bull market this year has been driven by eight make cap stocks,

more than 70% greater cumulative with the russell 2000 year to date. seems immune to fed action ear and when does the party stop. tom: why take a long-term view? at the imf meaning, they went to america's, people would stop to know that opinion on the linkage of the global economy. hydrocarbons. when you look out to a three to five-year look, do you have the gloom of the imf? do you share their view of tepid global growth? >> i think growth is going to happen, in particular niche sections and areas. we are investing in alternatives, that is interesting. we want to take advantage of the secular on term trends in the u.s., europe, emerging markets. tell ones from the ira and climate infrastructure projects, huge innovation in ai,

agriculture technology, health care, data centers. companies producing renewable steels for rails, terminal, livestock and so many interesting investment opportunities today that they will not necessarily make you money in the next three months. lisa: how do you navigate the idea of being less positive over the next three months but very positive about the u.s. over the longer term? how do you communicate that two investors not looking today trade? >> we manage very institutional per folios, long-term investors. they want their endowment to be there for the next 50, 100 years so they can continue doing the good work they do. so diversification in an institutional per folio is key, especially in this uncertain environment. public equities market, if you had taken a very singular view of small-cap stocks, you would be missing out entirely on the first half of this year's rally. so you have to be diversified,

we think, but you also have to look long-term and start to plant the seeds now for those areas that are going to be your biggest return drivers in 10 years. lisa: feels like diversification is changing and the meaning of it. the people we talked to used to be in stocks and bonds, and now it is private credit, private debt, some other private equity mother aspects, real estate, that really are coming to the fore and becoming more mainstream and have been over the past couple of decades. i'm your vantage point, how has the idea of diversification shifted? >> that is a great question. the flipside is there is a lot of money chasing some of those opportunities that you said, as well. i would not say that we want to just run into deference evocation for the stake of diversification, but it has changed. in any particular period of time of the last 10 to 20 years, you have seen one of those asset classes be able to drive returns from their per folio. even today, fixed income, spread between short-term and long-term bonds, but 1% to 1.5%, and maybe

you can eke out a little return and fixed income. diversification mean something different today. i think that if you do not have allocations across different asset classes, you will end up getting na hole and a certain period of time in the market and it is very difficult to climb back out. we're looking longer term, want our endowments to be there in 10, 15, 20 years. jonathan: the geographic diversification, japan or japan is getting it done year to date. tough week more recently, but where are you on that country? a lot of people say it is getting interested. >> japan is funny, i think over the last 20 years we have been investing, there has been fits and starts and japan. the question is, can japan start to change their economy, change the demographics, and get out of the disinflationary environment they have had over the last 10 years? if they can do that, then there is a chance for japan to continue on this path. it remains a question on whether

they can actually get those things done. meantime, it is a stock pickers market, probably more so in the japan than in u.s. or emerging markets. in u.s. equity markets, there is more dispersion on single stock level than the japanese market today. from a stock pickers market, it is great right now. longer-term, we will have to see if there are fundamental changes in the economy. jonathan: you today, 23%. not bad. balance --balance -- alifia doriwala, thank you. i have had a lot of people start to think about what is developing there. lisa: i heard about that from steve, he was really hot in japan and has been investing tremendously in that nation. you're starting to see some growth and inflation that we have not seen before, but also because perhaps a knock on effect of some of the labor and manufacturing, dynamism moving out of china.

they could also bolster that economy. tom: this is cripple -- critical. they have a new owner of the central bank. jonathan: i don't disagree. welcome to the program. s&p 500 -0.05%. coming up shortly, 7:30 eastern, gennadiy goldberg of td securities on interest rates and the future of the bond market and federal reserve decisions. final word on japan, people are probably thinking, 'bramo, yeah, if you are interested, maybe it is time for me to get out. 20% or so. lisa: especially if you have the idea that there could be abandonment of yield curve control on the future, what does that do if you have rates going up? do people go in or does that disrupt some of the models of companies that have been built on cheap debt? how much of the market does the japanese central bank owns? jonathan: ridiculous.

amp up -- tom: jon, you have been great on this because of your coverage on the real yield, and there is not a japanese bond market. jonathan: no, there japanese bonds. tom: owned by the government. jonathan: john kennedy of jp morgan global wealth management next hour, don't miss that. -0.1% for equity futures. from new york, good morning. ♪ 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

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meetings served as a step forward in our effort to put the u.s.-china relationship on a sure footing. i think we have made some progress, and i think we can have a healthy economic relationship that benefits both of us and the world. jonathan: janet yellen, u.s. treasury secretary, after concluding her visit to the world's second-largest economy, china. good morning to you. equity futures about unchanged on the s&p 500. three haven't a losing streak to close out the session on friday, payroll a bit softer -- three-day losing streak to close out on friday. a key report the day before. but it leaves the door wide open for the fed hike once again later this month. four we get to that decision, we have economic data for you. we have gone through these a few times per wednesday cpi, thursday ppi, and then bank

earnings start to come through on friday into next week. earnings season coming get the banks first, then tech later on in the month. tom: apple, august 3. do you hold a short straw for the sun valley conference? jonathan: no, why? tom: it goes to idaho, like hazardous duty. seriously, he has to wear rattlesnake boots up to his knees because in the summer, the rattlesnakes come out. i did this years ago with david. -- david gura. he was on the lawn and the sun valley conference and everybody is in their patagonia trying to, you know -- i am worried about ed ludlos'health here. it is hazardous duty. lisa: let me guess, you are volunteering to save him? tom: no, we are letting 'bramo go.

this is in the ether and is actually really important, there is a strident agreement in the u.s. that china is the bad guy. getting perspective this morning with andy curry -- enda curry. i was really taken away by the aloneness of janet yellen as the chair of the federal reserve. the loneliness of our secretary treasury. how lonely was she on u.s. policy in beijing this weekend? enda: she is framing all of this through the economic lens. she spoke about the need for guardrails, pushing this line that the u.s. measures against china are not about economic areas that are targeted around areas of national security. she said it is not decoupling but it is de-risking.

she said she's willing to listen to concerns. all this messaging from beijing over the weekend. it is not quite gel with some of the more hawkish rhetoric over here in washington. but it underscores the idea that the administration seems to be putting a guardrail between both governments. tom: one of the great realities of landing at p&g and shanghai is you realize it is goods trade with shanghai and with china. can yellen or biden or anyone in the future of america partition a tech dialog from the massive manufacturing goods dialogue that we have with china? enda: this is where the big complication is. yellen is making the point that they are focusing on national security areas, and that might be ai, computing, technology, maybe even separating manufacturing. but when you have tensions

within both governments, it overshadows all economic activity, overshadows the broad manufacturing sector, as well. that is why there is the ongoing discussions about alternatives to china. you can make the argument that there is a narrow path that can navigated. but for businesspeople, the broad sentiment matters most. lisa: is there anyway her view can represent the mainstream and the biden administration? or is it toxic for him to take anything other than a hawkish stance with respect to china? enda: you would assume she was given license about that. she had about nine to 10 hours with her counterparts in the economic sphere in china, stressing this point of talking to each other, and ms. yellen said we're willing to listen. the biden has the four-year statutory review of tariffs

underway, for example. china has asked about those tariffs and economic containment. you have janet yellen and she might be saying basic communication, not wanting to overstate it. but against the backdrop of the hawkishness of the administration, it does not quite gel with what we have seen over the past few years. lisa: i was struck how dependent the u.s. was in raw commodities from china to supply some of the chips the u.s. is now saying they are not going to send over to china. how does that complicate the issue and give china a bit of leverage at a time when the entire economy is so dependent on these chips come on quantitative computing on ai? enda: seems to be fueling this kind of tit-for-tat. the white house is considering further export restrictions and controls on investment, china responding with talks of controls over some of those.

china is showing that they have some leverage, too. let's not forget how weak china's economy is at the moment, how weak the consumer is on the ground, and their manufacturing sector. u.s. is the biggest consumer, so it is how to push the leverage without cutting off its biggest customer. jonathan: enda curran, thank you. so much of this is for public consumption, particularly after the last couple months. lisa: this is the second meeting by high-level official over the last few much from the u.s., antony blinken a few month ago, now janet yellen or the idea is we're trying to set a floor. have we set a floor? have we established every thing over the weekend, especially given the blowback in terms of the body language of janet yellen to some of these chinese officials? tom: i agree that an economist,

legit first-order economist doing a politician's job as secretary treasury is unusual. can you imagine some of the secretaries of treasury we have had, basically secretaries of commerce, business, ceo types over there. i think it is a different debate with the giant janet yellen. jonathan: do you think she's different behind closed doors? tom: i think she is tough. what is great about yellen, and i have seen this in new york, she gets upset -- someone will ask a smartass question, and her voice changes and she gets tough quickly. jonathan: i.s. because of a story this morning, old yeller, yellen's private fury. an interesting read. i think it is pretty funny. some would say the president would be better off showing his anger in the public --

lisa: oh, dear. jonathan: one way to get a message out. lisa: get riled up. jonathan: if i see someone at old age getting angry in public, i would be more concerned about their physical fitness. lisa: no, no. tom: i am in a full-blown tantrum here. [laughter] oh, god. jonathan: equities on the s&p 500, about unchanged. that is what calms you down. futures done by 0.1%, no real drama. yields unchanged, 4.50% on the u.s. 10-year. we will see what happens by the end of the week with a ton of fed speak later today. cpi and ppi to get another read on inflation in america going into this fed decision later on. tom: we will have to see. a huge inflationary report.

ppi, as well, not small. i used to work with ppi. the linkage of the two reports is powerful. jonathan: and china at the moment. disinflation, deflation what are you calling that? lisa: deflation. disinflation for now. jonathan: keeping the door open for some stimulus potentially. futures are lower as we kick off a brand-new trading week. good morning to you all. ♪ you are a rock star. no more calling co-workers rock stars. look, it's great that you use workday to transform your business. but it still doesn't make you a rock star. so unless you work with an actual rock star. hi, i'm ozwald. hello ozwald. pam, you are a rock- i wasn't going to say it. ♪♪

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jonathan: live from new york city, getting started. futures on the 500 up -- s&p 500, slightly softer. nasdaq down by 0.2%. will it be a four-day losing streak for the s&p and nasdaq never closing down on friday for a third they of losses? plenty of banks publishing this morning, including citi, u.s. performance. u.s. strategy team thinks mega cap growth will see a pullback. europe act to overweight. this is after the data out of china this morning. europe once again trading at a record discount and should benefit from a weaker dollar and any stimulus out of china. their latest read following the latest ppi data that came out of

china, latest read on inflation for the second largest economy. we will have a read on inflation under this week for the u.s., cpi wednesday, ppi on thursday. on market as follows, two-year, 10-year, 30-year. two-year, 4.9082. 10-year still north of 4%. more than 20 basis points higher on the 10-year. tom: we have really come in, disinvited from a -105, -100 11 basis points, full percentage higher. 10-year into 86 basis points. it has been underreported this week. there has been distant version. jonathan: more on that 1:00 p.m. on friday. even on a summer friday, which is impressive. good for katie. great show, 1:00 p.m. eastern

time on bloomberg tv. bloomberg real yield. fx, away from the bond market, fx market just below 110 on the euro against the dollar. 1.0957. your last week showing a bit of strength to close out the week, even with high yields on the two-year and 10-year. lisa: curious development with dollar weakness, attach. rivian shares, the electric vehicle maker, up 3.6% in premarket trading. interesting because it has rallied 84% over the past eight sessions, on a record streak. this comes after the company said that it manufactured more ev's over the past quarter than expected, has shipped first time commercially outside the u.s. tom: is it like the theater

stock that was before? lisa: there is some substantial story underpinning this stock, people think it can be some sort of significant competitors to elon musk. tom: she is up in the adirondacks and the kids are outside the tent daytrading for rivian. lisa: exactly. the problem is is that people would pay for them and then they would get them at two years. the fact that they are able to deliver more is better. jonathan: we have to stop the cv climate change process -- this ev climate change process and call them what they are. it is nuts. the printer on this is incredible, so stupid lisa: have to address the size of the vehicle. if looking for efficiency, probably not the best to put a direct type of battery in if you are going to have a hummer.

we will have that discussion later. tom: we will do that later, jon. lisa: now how i said it. alibaba, down about .2%. they were down vastly more earlier today in the premarket trading after the negative data they came out overnight from china. the risk of deflation potentially and slowdown in growth. what is interesting as there was a feeling that perhaps the fog of concern was lifted from some of the chinese text stocks friday. that seems to be a little bit eased today. iep, a fascinating story, the carl icahn enterprise company, up more than 9% because a wall street journal is reporting that he has finalized agreements to decouple his loans from the share price of his company. basically, the fair was he had leveraged some of his purchases backed by the shares of his company. the more they went down, the

more he could be susceptible to margin calls i could potentially spiral the shares lower. they came out and basically said we have facebook grab here and are not going to be -- said we have a start grab here and not going to do that. tom: too much information from lithium and and -- from lithuania. jonathan: six a death of having these expensive ev's -- sick to death of having these expensive ev's shoved down our throats, and no one can buy one. i understand industrial policy, and that is interesting. i see that in many circumstances, and get one if you want one, but the idea that you will save the world by dumping this kind of cash into a massive hummer, i don't get it. lisa: i think the size of the vehicle is important and you are right on that. there is a question of how to get the materials out of the earth and what is required to do that.

there is a larger discussion that is important to have. tom: here is the title of this academic article, further dynamics and the energy usage of electric vehicles. i got a quality c in thermodynamics, really tough stuff, really difficult two-year to your point, hon, there -- jon, there are a lot of questions not being asked about this. jonathan: we will ask those questions. exciting stuff on the outlook for the federal reserve. td securities pushing out the recession call, from the fourth quarter two the first quarter next year, and expectation for a downturn in the economy. we now look for the fed to implement its first rate cut arch 2024. we believe the market is sharply underpricing the potential for deeper cuts next year or the longer the fed keeps real rates elevated at higher levels, the more likely a hard landing becomes. tom: the calendar and what we're going to do about price of

bonds, gennadiy goldberg joins us a head -- head of u.s. rates strategy td securities. td securities reaffirms with a vengeance curve inversion and we could even get out to a steeper curve inversion down the road. what is the process that gets us to a deeper inversion? >> thanks for having me. i do think that former rates remaining quite elevated for a while is what is going to get us there. it has been one of the most painful traits this year. i cannot tell you the number of clients that have tried to enter curve steepen us and have not been able to hold onto the trade because they are very expensive on a carrion role in specter of -- perspective. we see the curve moving a little higher as the market has capitulated to the fence viewer of slightly higher for slightly longer, and that is very painful ready two to five-year part of

the curve, and we'll push up those rights and could keep the curve very deeply inverted for at least the next couple months. the steepening typically starts about three to six month before the first cut, at least that is what research shows. market right now is pricing in a cut even after us. we have our first cut penciled in for march of 2024. the market is all the way in may of 2024, not looking for a anytime soon. these two are you basically plotting in this idea that there is going to be some catalyst to that downturn that is going to prompt the cuts and that is sort of the reason why you expect the deeper and sooner cuts than the rest of wall street? >> correct. typically you do have higher rates acting in some what of an expected way. we saw that in march with the sbb crisis. i would not be surprised to see more tremors in the month ahead. i do not think the market is

looking ahead and realizing that higher rates or real high cost of cash, 5%, is not exact we cheap at this point. that tends to put downward pressure on economic growth momentum. they could push the u.s. economy into recession over time. i think people overestimate how much that can create shocks in the economy over the course of the coming year. i do not think we are quite pricing that in just yet. lisa: let's say we do not get any shocks and save the economy is truly more resilient at higher rates than anyone previously imagined and companies continue to adapt and adjust, then how high should rates go on how high should they stay for a longer period of time? >> i think what you're describing is the nightmare scenario of the fed. they think they're right near the terminal rate, actually dancing around where exactly they wanted dial into on the terminal funds rate. if inflation continues to rage, there is no real impact on the economy, higher, much higher at

that point, and that would be very scary. honestly, the harder you push rates like that, the more likely you are to get downside shocks to the economy and the financial system. something on par with what we saw with sbb. tom: people like you talk about the economic consequences of price down, yield up. i mentioned the bloomberg total return aggregate index earlier. it is on the cusp of lowe's. if we get bonds to go down in price, up in the on an aggregate, do we get gamma? do they have an accelerated behavioral tendency like equities where it up steam? >> we saw that back last year where investors were looking at the rockford folio and saying, what is this? i thought these bonds were safe, do not think they were supposed to lose value, and they were down a very substantial -- at some point last year, they were down quite substantially.

if that happens again this year, you could have investors actually selling out. interestingly, the rates are now attractive enough were a lot of investors are going in and saying even though i think rates can go higher -- jonathan: i thought the connection had gone. you are back. >> i was going to say, there's a lot of investors who are really looking at the bond market and saying these yields are quite attractive. even if i am down a little bit on my portfolio, i am looking ahead to the next one year, two years. this year, the fact that the aggregate index has not done much, we have seen over $120 billion flowing into the fixed income space overall. maybe not a lot of outflows. so i do not know if there is necessarily that kind of moment that happens with fixed income this year. tom: i find it fascinating. what is your 10-year you'll call, quickly?

>> as we are heading into the end of the year, we think things start to slow down, the consumer starts to slow and labor markets, so we look for 3.25% 10-year rates next year. jonathan: gennadiy goldberg of td securities come on the bond market. slight technical issue at the end of that conversation. it happens. live tv. just warming things up on the technical side. tom: we aspire to the ability of the 'bramo cam. it is rocksolid. lisa: consistent, we know, right? [laughter] tom: film and the camera, 16mm. jonathan: equity futures on the s&p 500 just about unchanged, -0.02%. coming up in the next hour, stever should've -- our guest will have something to say on

economic data in the week ahead. bond market, federal reserve, maybe a read on what will happen with his bank earnings later this week. i remember not long ago we were obsessed with regional bank earnings. now no one talks about this anymore. moved on quickly. tom: i remember pacw, and you talk about debt, it has just like flat lined. flatlined. went from 27 to 8. lisa: i would argue that the bank earnings, including regional banks, they will become more in focus as soon as they come out. everyone will say, my goodness, everyone has to watch this maybe more interesting than cpi, maybe more telling what kind of dynamism there is and how much we have actually withdrawn some of the momentum from the economy. because right now i'm a we have had lowered expectations. companies continue to raise

prices. how do we see that play out? tom: what is great here is the president drives a corvette, do you think the king of england, when they meet here, do you think they will talk british grand prix? jonathan: they might do. they will be talking about climate engagement later on with a philanthropist, for those of you interested, later on this afternoon. look out for that. the president of the united states and his majesty, king charles iii. ♪

tom: going to get critical mass? >> i think it will be difficult. the name of the game for zuckerberg is to further expand the instagram base, look for opportunity for advertising. they are trying to strike when the iron is hot. twitter and musk, will be

difficult. jonathan: meta launching threads, rather, instagram launching threads, same thing, going up against elon musk and twitter. tom: the news businesses in an uproar, saw it clicking into saturday evening, sunday, etc. it is not twitter. that is the major message. jonathan: the review is it is not twitter. could be right on that. tom: way too many people drunk at parties on saturday, because it is an instagram feed on the threads -- i don't want that. i want to know what our competitors is doing, and that is not there. they don't want people like the three of us. jonathan: the president of the united states just meeting with king charles iii at windsor castle. president's across his chest.

jonathan: and there was god save the king at the grand prix yesterday. jonathan: what did you think of that? tom: i don't know, i was going to refer to mr. ferro. jonathan: i'm no expert on national anthems, but i was not impressed. tom: the fed king -- this is the king of the united kingdom after his, m&a speak out of turn here -- and i may speak out of turn here, after his coronation in scotland over the last week. some emotion. jonathan: the president will participate in ceremonial arrival and inspection of the honor guard with king charles iii. i understand there will also be a private meeting with the king at windsor castle. later, this was the climate engagement story i talked about, the president will participate in climate engagement with his message -- his majesty king

charles at the castle. tom: particularly with the war in ukraine, the debate of climate, has it adjusted and changed, and what will these leaders do about a new debate over esg, a new debate over climate change, still while the war goes on? jonathan: how involved will king charles be on that effort? tom: and the president, as well. the imagery here at windsor castle, and it brings back the funeral of the king's mother and late on that afternoon, the final private ceremonies for the family at windsor castle. it is the history of it, away from buckingham palace. jonathan: we step away from some of those pictures and get the headlines later on this morning, we will bring those to you, the president stopping in the united kingdom, and then he will go to lithuania, and then the focus will really shift towards all

things international relations and nato. tom: maria tadeo in lithuania with an important conversation coming up here on bloomberg radio and television. looking at technology, and there can only be one brief, the twitter-threads mandate. i do not need to make jokes about this. how unusual is it that one leaner copies the platform of another alien there? >> -- one billionaire copy supply form of another billionaire? >> over the years, they have been very good at copying features or iterating on their core apps. they did with snap. to an extent here. it goes to show that twitter, as a platform, did not have the kind of modes meta has, with the engagement they have on instagram. maybe this is an idea for them to do something similar for pinterest.

kind of opens the doors for anybody to go out there and experiment with a new app. we know mastodon and blue sky, and to the case of meta, they got the transfer over from instagram to threads, which is why you see that 100 million users in the first week. lisa: could it potentially be a twitter killer or will it be a distinct and separate entity? tom says it does not have the same tone as twitter, and i concur. it is much more chatty, people giving their take and personality, much less facts and data and economic discussion. is that how it is geared? >> it is still week one. one change you can see with social media is there is a lot more ai-driven algorithms than before. facebook did realize, as they realized engagement declining,

they did pivot to ai with reels and now they are doing the same with threads. the thing about ai's there is a lot going on in terms of innovation, and it is not a strong as it used to be because it was more data-driven. with ai, anything you can do to train your algorithm for better recommendations will help your engagement. lisa: there are deep-seated and securities over the weekend from elon musk. from your vantage point, do you think this is truly going to an ali eight -- annihilate their business model from a much bigger competitor? >> was social media or any consumer app, it is all about engagement. if they are able to take engagement away from twitter, that is going to hurt. a look at the time spent on social media apps is not

growing, user growth has stagnated. it is a zero sum in the end. they needed something to drive encouragement, tried that with metaverse last year. i think this is the answer for the future. they may look for more drivers down the line. metaverse was a flop. this will show a lot -- this is showing a lot more momentum early on. jonathan: it is difficult to break this out, but we have a number of new sign-ups to threads. but i want to understand how much of that is new numbers to instagram and how much is just people coming over from instagram and spending some time on threads? then the number becomes maybe less impressive. >> you are right. first week it was really on boarding, existing instagram users. look, facebook has 3 billion users across her family of apps. even if they converge in 25% of

the daily active user base, they will probably bring over a lot of those twitter users and more, and that is the power of their platform that no one else has. alphabet could have built something similar, but they filled with google plus. they may be thinking they can do some thing similar. there are very few platforms that have over a billion daily active users across her platforms, and they are the ones that can try out a new app and move over existing users. jonathan: love your coverage on these topics. mandeep singh andy on bloomberg intelligence. lisa: about 330 million users. in just a couple weeks, you have 100 million. that is the latest estimate. if those are active users, is that the end? is elon musk facing $40 billion of useless loans he has to repay? jonathan: you have to think he

is making some changes, taking advice. i have not decided on threads. tom: i have. i don't get it. jonathan: but what about actually using it? tom: i want to get it. can't. lisa: meta used to be the bad guy. people were talking about facebook and instagram and how they had too much power. now people are serious about threads because they are fed up with twitter. but our people concerned about giving one company so much power? tom: they want to make it lightweight and fun, not the news organization. our team in the control room, when news breaks, we use twitter with attribution because it is the fastest thing in the world from legitimate news sources. that is where we go when news is breaking paired will be say that about threads? jonathan: honestly do not know. still making my mind up on whether i actually want to be on

another platform hosting garbage. get some fresh air, take up golf? maybe i will start playing golf again, instead of threads. why not? want to play with me? why not? what about tennis, tom? lisa: he is great at tennis. >> welcome back to another special wimbledon update. jessica put gula into the -- jessica pegula into the quarterfinals with a dominant win. she becomes only the fifth american woman to reach the elite eight at all four majors. you can watch all the action daily at 5:00 p.m. eastern on tennis channel. ♪

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announcer: this is bloomberg surveillance with tom keene, jonathan ferro, and lisa abramowicz. tom: cpi wednesday upon us and earnings begin on friday. i am going to call it a quiet essence monday but there is tension in the air. jonathan: wait on the wage growth and unemployment and declining payrolls. tom: wage growth is where she is looking. and you are back to where wage growth goes down and disinflation if it comes down you get flat to actual true wage growth. jonathan: most people looking for a hike. evans at morgan stanley says

they think the slowdown you are seeing in jobs will persist ended bar to get the next rate hike will be met. tom: making clear when they cut into 2024 they will cut with a vengeance. what did bonds indicate to you as you came down from the record? lisa: i'm looking at a bond market that looks very similar to where we were before the bank crisis. we have reversed almost all of the declines in yields, expectations of rate cuts. we are now pricing in the terminal 5.4% rate by the federal reserve. this is the tension right now, can stocks keep rising even if bond yields keep rising as well and even if bonds are saying different things than stocks. jonathan: yields are up, rates

are up. pick a sector and industry group. interest rates are high so everyone is staying in the home they have because they don't want to remortgage the house get a new mortgage. is that right? lisa: perfect summary. it demonstrates how complicated this moment is and how so many but get it wrong. one guest after another has said they are pushing out the recession forecast and getting more optimistic. this is sort of going back to march 1. tom: this is ancient history and i do not think it is equivalent analog. what we are looking at in the equity debate is the second leg of a bull market. the first leg is easy to pick

out. how do you get to a second leg? it was the second leg in january 19 76, no one saw that coming. i am looking for corporations to adjust. it is a broken record. i am sorry. jonathan: let's check the markets. tom: the dow up 35 points. jonathan: equity futures on the s&p unchanged. longest streak since late june. yields unchanged. in the fx market, he bit of a snooze. the euro, 1.0955 against the dollar. tom: thomas kennedy joins us this morning.

what is the key adjustment july 1? : in the last 90 days, what has changed from the macro perspective -- thomas: in the last 90 days, what has changed from the macro perspective question work working from home. participation rate, china honed in on historic highs but we have blown through the pre-covid levels. why does that even matter? it matters because the trend inflation level without we were fighting of 5% during silicon valley bank is also to 3.5%. the macro community has to adjust to maybe the fed is not fighting as big of is in inflation problem without 90 days ago. jonathan: what are we thinking, 3% is the new 5% and the fed will go higher and growth will be ok? thomas: what you have to

acknowledge is the fed's job is to maximize employment and stabilize prices. that stable has come down. core service inflation, court services has stepped down to 3.5%, the best indicator of labor imbalance. and that suggests there is more balance jonathan: is this saying you are bullish? thomas: it is a way of saying the slowdown we are likely to get, it is natural to believe a recession will happen. you have interest rates far above anyone's estimates. how persistent does the fed have to make that slowdown and if the labor are kicking come more into balance they don't have to push as hard. so the risk management mode for the fed is part of the challenge people are having. lisa: if we seem to be having

some sort of soft landing, do you pile into the equity trade as a good place to be? thomas: you have to say where is your opportunity set. jp morgan wealth assets, 26% of all investable assets are in cash and we are trying to help people invest for the long term that does it feel like the right one for them. the easiest thing is to buy fixed income. on the equity side, where do you need to reinvest. unity is overweight tech and we can find ways to rebalance. the rest of the market is pricing in a decent earnings downdraft. lisa: what about the potential we have been hearing about the vulnerabilities of the market at a time when borrowing costs are substantially higher and there is a lag effect. as companies have to refinance and people have to move and have

to start recognizing and feeling higher rates, how much are you expecting some sort of significant accident to interfere with some of these calls? thomas: the risk is elevated and part of the reason why two thirds of wall street think you will see the downdraft. the question is what do you do in the meantime. equities can rally. what can you do to help get investments to where you need them to be over the long run? if the risk of a deep recession goes down, even if it is subtle, you have to make adjustments in your portfolio and private credit opportunities, subordinated bank capital and equal weighted s&p angle can help you get there. tom: that has to be a huge percentage of people who feel like they missed this. how did 60-40 do in the first half and can you stave it off going forward? thomas: the 60-40 did

fantastically well. our clients are underweight bonds. how can we help them diversify and find a long-run strategic allocation? tom: here is how they think, they are looking at total return of say 5%, 6%, 7% and they are looking at the s&p and all the friends on nvidia and they are making 15 percent to 20% in the stock folio. thomas: that has been a problem without question. every bull market is a hated for market. in this experience i think we are just balancing where we were. we have two where we were pre-silicon valley bank. that shock to the system wasn't the think macroeconomists thought it would be. we have not seen the material slowdown in lending yet. you have to be able to balance

out what the risks are and the risks of a deep recession are lower. tom: thomas kennedy is calling this a bramo point. lisa: oh boy. thomas: bank earnings will continue to so -- show challenges they need to shore up the process. you are seeing lending growth slow. member at silicon valley bank without slow banks would slow lending and it is the opposite, large banks have slowed lending materially. it is different but the outlook for the economy is challenged. it is normal to assume growth will be below trend until something breaks. in the baseline scenario, the s&p 500 earnings below trend for three years, 2021, 2022, 2023.

how do you start to move and adapt to what that wrote like? -- to what that world looks like? diversify. jonathan: the favorite thing in fixed income, what is it? thomas: it is unsexy bonds. you lock in 5.5%, 6%, you can get 6% and not take too much risk. jonathan: good to see you. tom: i don't think this is a marginal issue. what tells me it is still there is the stock price action given the healing of the bank system and the verbiage from institutional authorities, pac west should not be flat running like it should.

lisa: there is a distinction between the risk for regional banks versus the risk to the broader economy. what tom was saying from a macro economic standpoint, the regional banking crisis was not an economic crisis and did not had the bleed through effect many thought it would. that is what we are seeing priced in to the bond market as well as possibly equities. tom: listened for the bramhall -- bramo point. jonathan: it was only a few months ago. tom: when was the last time we were altogether? jonathan: it has been a month. the s&p 500 turning positive, 0.08%. coming up at 8:30, pushing ahead to inflation data later this week. cpi wednesday. thursday, ppi.

. tom: i am focused on the healing and the president. jonathan: i am trying to adapt and adjust. lisa: how is it going? tom: at only does he have the glory to provide eight financial synthesis, but he is expert at digging into the dynamics of the gdp function. he is the best at. there is no question about it. jonathan: into next year when we push the request -- recession call out, we will continue to reflect on the calls that came to the start of the year when we were thinking about a dip and rip. lisa: and grip some more. tom: a note from fidelity said

the market reflects maximum pain on the maximum number of people and the maximum amount of paint would be to flush out the shorts and have it rip higher and keep going and recession gets pushed out and everyone is rightly or wrongly positioned. jonathan: i yields is the next pain trade, -- hi yields is the next pain -- high yield is the next pain trade. ♪

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>> it is my hope that and believe that there is a path to bring inflation down in the context of the market and the data i've seen suggests we are on that path. jonathan: u.s. treasury secretary speaking. equity markets are in nominal growth less risk asset so continued positive numbers is stabilizing for markets we have had the first part of that, the positive economic data. you need to stabilize inflation numbers and will see if we get that wednesday and thursday. equity market just about turning positive. equity futures up by almost

0.1%. tom: it will be interesting to see how the equity market rebounds and what will j.p. morgan do friday. it is amazing we have pulled back in this room to 15.31. 100 days ago, 15.31 would have been a religious experience. that is how far we have come. jonathan: jp morgan saying foam a in -- fomo in full swing. tom: i wonder what global wall street, what do you do to people who are up 4% blended come up 7% blended. what are we doing? i think it permeates the

zeitgeist. someone in the hamptons so there is no hamptons. jonathan: you went to the hamptons this weekend? tom: i did not. right now, mary lovely's hugely qualified, senior fellow at the peterson institute to speak of the mistress of china including the leadership of the china economic review a number of years ago. thank you for joining us this morning. i want you to some the mystery, zeitgeist of china, pacific rim, three or four big cities and all of the distance. it is china struggling? is china flat on its back or can we be are optimistic? mary: and it is struggling but

not flat on its back. we are waiting for the q2 numbers to come out in a week or so and we will know how badly it is struggling but it is definitely struggling. it had some wind in its sales coming out of covid but consumers are not having it. the global economy has slowed. it has managed to have several good quarters with net exports and looking for drivers of growth and not find them in households. tom: is the hierarchy of the communist party all that matters is employing people? mary: no, very much not. it is preserving the rule of the chinese communist party and preserving the role of the state. one of the key ways you would do that is keep people employed but we have seen serious problems

with unemployment among college educated youth hitting almost 20%. they have a really serious problem in terms of driving jobs, not that factories that were get with the trump eric tariffs from the u.s.. this isn't service economy. it is in the higher tech sectors, finance, the kinds of jobs college educated young people or trained to do and expect to have. lisa: how does that influence the discussions janet yellen, over the weekend, the second high-level u.s. a to head to beijing in the last month? mary: the two intersect. the chinese would love to see a decrease in tensions with the u.s.. they would like to see roback in the trump era tariffs. janet yellen coming is good news

but it is not only a further visit from someone high up what someone they are familiar with, someone who has enormous respect globally and an enormous amount of experience, the fed and treasury and other ways. they treated her with the dignity and respect she is due. lisa: given there is that respect on one hand, there did not seem to be a lot of resolution. do you think there were inroads made over the weekend, given some of the pullback janet yellen has got for kowtowing? mary: that is just noise. she is an older, tiny woman going to shake hands. that is noise. she is there to do business. her main message was that we are trying to put some guardrails on the relationship.

we have major disagreements with the chinese but it is a relationship we want to manage and in a way that doesn't lead us into higher levels of conflict. tom: you have been led by thinking about an america that post-pandemic will adjust to a higher rate regime. added frozen -- adam posen has really let on this. if we bring our general level of interest rate up, what does it do to china? mary: it is a challenge for china and leads to a tendency if they didn't have capital controls, you would see investors trying to get higher yields. this capital flight, pressure on currency they don't want takes their monetary policy and says we have to do this with it. at the same time they would like to continue to stimulate the economy.

they tried to do it with targeted credit expansion and they have a number of different individual pots of money for small businesses and different sectors but they are still having trouble. that is not really having the effect on the economy they are hoping. jonathan: mary lovely their of the peterson institute on the economy and china. we talked about the surprises of 2023 so far moments ago the market. the nasdaq doing tremendously well after a difficult year last year. what happened to china doing all the heavy thing, the real opening story, the boom we were expected to spread through europe? now we have china struggling and we are talking about stimulus in china in the middle of the year, really? lisa: a lack of willingness to invest, spend by consumers who can't find jobs as we were talking about with mary lovely. taking it a step further, why

does this play into the commodity space, the idea we didn't see the boom in energy prices and perhaps that was a tailwind that offset the fact that china didn't provide the boom. jonathan: still down in the 70's. tom: we went from 2020 in the blended bloomberg economy and we have technically no way broke the commodities to a higher visibility. jonathan: to get your week started, rotations coming up in a 35 minutes. tom: it will be interesting to see. it will be interesting to see what brian levitt does with asset allocation. for huge body of our listeners and worse, this was gospel. you put 60 here and 40 year and you played golf.

jonathan: you know by now that you pick up 5% and put money in ai and do something more distinct and play golf. lisa: surf? jonathan: get away for a long weekend. tom: we are having an october conversation in july. that is the heart of the matter. jonathan: you are skipping summer? no vacations? ♪ 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.

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tom: good morning. we are altogether again. ferro as gone off to get ready for 9:00. cpi wednesday. it is a rich discussion. for those joining in across america, it is about china and whispers of disinflation. lisa: there were a lot of weeks so far this summer were not a lot happened and people are spinning wheels trying to come up with a new narrative. this week will be important with the cpi report, lots of fed

speak, the geopolitics of china and u.s., potential deflation there but what is happening with the tit-for-tat with the u.s. and china. and friday we have bank earnings. you put that together, what is a massive pivot point for people reassess session -- reassessing. tom: we stop tuesday, the small business report. what is the mood of people small enough to burn businesses off of charge cards but frankly companies bigger than that. i've -- i don't like the word small america but -- small business but this is mid america. lisa: what we need to do to hire

and what we do during the summer. tom: the watch wimbledon? lisa: i have briefly -- have you watched wimbledon? lisa: i have briefly. cpi do out. steven ricchiuto joining us. the economy remains stuck on the current trajectory that will ease to -- lead to high rates despite global access spending -- savings. the real zillions -- the resilience we see in businesses, the economy and labor market. how much hired rates have to go to bring inflation down to read the fed would like it to be? tom: it comes with the

granularity of steven ricchiuto. of course in a recent note you go bigger and broader. i love how you pushback against secular stagnation. that is the gloom that is out there and you say america is different. talk about america in the immediate frenzy of the secular stagnation. steven: the u.s. economy is about the underlying resilience the biden administration and trump administration provided savings through covid and there is still about $1 trillion there which contrasts easily with the san francisco fed number of $500 billion. we have healthy balance sheets for the health sold -- household sector. despite the regional bank

hiccups we have seen, there is still a solid balance sheet for the industry in general. that drives home the liquidity. between liquidity, excess savings and health of the balance sheets this is not a credit crunch. this is an inflation session which means the fed has to get short rates high enough to choke of levels of economic demand. they are trying not to do that and the net result is they are slowing the economy but delaying the inevitable. if you run the risk that you could wind up with increased inflationary pressures built into the system. need to get the belly of the curve up. that is where everyone funds. they don't fund in the fed's market or the 30,-, 60 date market. a fund in the three to seven year maturity. tom: the respect i have for lawrence summers but there is

lawrence summers on stagflation. should we worry about stagflation? is there something like dis -stagflation? is that a word? steven: if they hold onto this experiment which is to crack a soft landing. you look at what the markets are doing. the equity market is saying the fed is forecasting a perfect soft landing and they have priced in a perfect soft landing. you look at the curve and the fed will rise rates but cut quickly. the down word slope in the market between twos and tends a week ago now we are at 80 or 90 -- two's and 10s and now we are at 80 or 90.

a lot of the impact you are getting from monetary policy is not finding its way through to the cost of financing households and corporations. lisa: the idea that sin is not a credit crunch -- the idea that this is not a credit crunch. with seen the regional bank crisis was not an economic crisis and did not have the ramifications for the economy a lot of people believed. how high do you think the fed has to raise rates for it to be restrictive in a way that it is not now? steven: it is a function of the curve and we have to get the five-year note to the two-year levels. how high the rate has to be to get there is the question and that is difficult to answer. if we had the five-year note trading with the two-year is we would have a different level of macro economic activity. that differentiation gets into how much of a curve does the fed anticipate to cut?

the dots and the sep, although they raised the level of rates, they actually made the curve drop steeper over time. they went from seeing 80 basis points of adjustment downward to 100 basis points per they took out the sting of what they were doing. lisa: this goes to the idea the higher you raise rates, the more quickly you will induce inflation in the medium term which offsets monetary policy. where does the balance sheet play in that? is that another tool when you have seen it accelerate? steven: they have it so much into the system with the $5.4 trillion that they've monetized in the economy has grown. some of that excess is being eaten up by the growing economy and expansion necessary on the underlying balance sheet the

economy. i don't think they have the opportunity to accelerated. there is -- to accelerate its. -- accelerate it. lisa: you talk about pushing out the recession, that seems to be the consensus and seems obvious if you look at the data which is not consistent with recession. what is the nature and contours of when you expect it to hit next year? steven: it should be shallow. they are not going to try to kill it. it is an evolutionary process and this gets back to the question of stagflation. you run the risk that inflation expectations get embedded in the system and you could get an environment where the economy slows that you don't get the full bang for your buck on the

disinflationary side that you have your the benefit of the global deflation story is it is holding down long-term real yields, nominal long-term rates. that is helping to keep the economy growing as well because that contributes to the idea there is still ability to finance out the curve and it is helping to invert the curve between twos and tends. tom: is the great moderation over? i just did a concave chart on with the price of bonds has done to the bloomberg total index and the slow acceleration of the great moderation, can we see the peak is done? steven: that is a darn good question. the global deflation story is the key to that end to the extent we have expanded our production facilities by diversifying our supply chains in an environment with the global economy is aging and in

an environment where the global economy is slowing. it have cyclical inflation taking place in the u.s., europe and to some extent in japan but you have local deflation taking place outside. it is that trade-off that is reflected in the inversion of the curve. the short and is being pushed up by domestic cyclical constructs and the fed is grading the problem by anticipating cuts. tom: i will be here in july getting to october. the question is simple, given the imf's 2028 gloom, how does america adapt and adjust to a global slowdown? steven: it is hard, but we benefit from the fact that we are the largest net importer. we wind up suffering from the potential deflationary risk. can we get back to the great adoration?

if they -- moderation? if a deal with the cyclicals we will. if they deal with the cyclical issues incorrectly we could end up with stagflation before we have to deal with the issues and get us to the great moderation. tom: thank you so much. i thought about this over the weekend, the basic idea of a john williams reaffirming a low r-star and i am taken by how many people i respect agree with the president of the new york fed that we can be optimistic and get back to some form of that great moderation with a sustained or subdued are starred -- r-star. lisa: the amount of debt, demographics and aging population make it if occult to see inflation gathering steam which is the reason i am curious about the geopolitical tensions that could raise prices of

commodities in the way we have not seen so far this year. where did the other factors come into play when we start talking about the bigger underlying inflationary? tom: rent is up to $80 a bottle. -- brent is up to $80 a bottle. the vix is 15.41. lisa: yesterday was the busiest day for commercial aviation ever recorded by flight tracker which is the tracking mechanism online. that is the tenor behind some of our discussion about inflation. the prices are higher and experience is worse and yet people want to travel and get out. tom: you look at the celebration of greek recovery and a prime

mr. is a great supporter of the efforts of bloomberg surveillance. i wouldn't want to be there. it is so crowded. why would anybody go over in wait in line for six hours you bought a ticket three months ago? lisa: vatican, if you go to any of these, it is incredibly crowded from all accounts. tom: it shows clear -- it shows where ferro went to four islands that were not crowded. lisa: you have it strongly in europe and in the u.s. and in so many places around the world, it gets harder to see how we get down to something more reasonable without some sort of more material intervention. tom: him in the camp there are other factors like technology

and american exceptionalism -- i am in the camp there are other factors like technology and american exceptionalism there. maria tadeo in conversation on the president of lithuania. the president is in london with the king. stay with us worldwide on bloomberg news. ♪

>> there's an issue here of tight labor markets, psychology having shifted. i think the interaction of those things in the absence of slight intercession will blunt some of these that are happening and we shouldn't ignore that as well we were running inflation at core

and we will slide below 4% but i do not think we will slide on a sustained asia's -- basis below 3%. tom: bruce kazin, chief economist at global economic -- kazin -- bruce kassman, chief economist at global economy. i called ferro and he said he wanted every set for wednesday. and that is what we are doing. tom: you could go on vacation rather than lobbing jabs in there. 14 time zones covering. lisa: i take your point about the cpi and how important that is going to be. the last major data point behind

the quiet period. you brought this up where we believe july is a lock. it is going to be a hike here what about after that? tom: then we will have to see. the two year yield down. joining us right now -- what is good about this is the kids are at camp. gina martin adams joined -- joins us. october last year, what did bloomberg intelligence say about the equity market? gina: that we were at a massive sentiment washout. historically good conditions to take on risk. our model suggested the market was positioned for a 15% downdraft in earnings growth for the next 12 months. a big earnings recession was priced into equities. luckily enough that has not

happened. we have seen earnings but excluding the sector getting stronger or less week and that is what has taken the market by surprise. tom: i looked back in my youth were about to bob seeger albums. they are record albums. gina noted. tom: the second leg of opal market, it was january 1976. is this to leg of a bull market? gina: we need leadership to broaden beyond the top seven to establish the second leg. we saw that in june, broadening of the advance but there is still a great deal of nervousness as to whether anything other than the top five can produce earnings throughout the second half of this year which makes the second season consequential. the top five is leading growth.

that segment is expected to post 17% year-over-year, that is a big earnings. the biggest stocks in the index. lisa: to build on what you are talking about, it highlights the concerns people have which is the largest companies are masking what is going on elsewhere. does it make it difficult to talk about the index level so heavily skewed and doesn't reflect? gina: you miss everything that is happening underneath when you focus on that level. last year, everyone but earnings are holding up much better than expected. if you look at earnings x energy , you saw that emerge in the s&p 500. the opposite is occurring today. it is extreme importance to decompose it to its constituent parts and look beyond the sector

level and look at aggregates in a different way because otherwise you will it right. lisa: that is why people are looking at equal weight indexes. i've seen reports highlighting you are seeing a comeback there as well because people are looking for other places to put cash. how can you judge whether that has gone too far? gina: it is challenging but you want to look at valuations for the equal weighted index is well below pre-pandemic ovals. there is plenty of room for the valuation level to rerate outside of the largest stocks. you want to look at earnings growth excluding the top five. wen yu look, you are seeing stabilization emerge. we need to see that continue in seat follow-through into the second half of the year and the macro conditions need to support

that. this has been earnings recession about inflation and not growth and that has left a lot of people on their back foot because we have been in an environment where growth was the only thing that mattered and now we are having inflation predominate. it took a lot of people by surprise when the earnings stream was better than anticipated. we need to see that continue. cpi has to grow at a pace faster than ppi and both need to decelerate to support the margin stabilization which should lead to a broadening in performance and earnings. tom: i just brought up a small lori, i am looking at art. i am looking at the screen. this is where gina martin adams looks at every day to become wiser. the cash flow is 11 times.

what does it signal? gina: this is important because cash flow is under an extreme amount of distress in 2022 as well. this is another thing missed in the consensus was earnings are better than expected but cash flow fell throughout 2022 year-over-year. cash flow is starting to improve. we should see cash flow continue to improve through the rest of the year and investors are not paying for that cash flow. that provides an opportunity for companies who can produce that for multiple expansion. is it for the overall index at large? not necessarily because you are paying an enormous amount for cash dynamics. on a stock by stock industry basis there are tremendous opportunities. tom: i'm looking at the hp outflows.

apple's free cash flow from p pandemic -- pre-pandemic ovals is only up 79%. lisa: h mentis valley. the importance of both cpi and ppi and cpi needing to rise at a faster price. this is another way of saying they are jacking up prices more than the base cost. dovetailed that into friday and the bank earnings and what important to place on them at a time when people are going to some lending contraction. gina: bank earnings is a whole other story. this is one of the weaker components of the index where people are losing a lot of faith. bank earnings expectations for both have been cut in half over just the last six weeks. investors are getting nervous about that.

this is about loan quality, credit quality, deteriorating credit conditions. it is about growth more so than inflation with the exception of the inflation impact on the yield curve. financials are in this worse place position because they have negative yield curve spread and inverted yield curve is terrible for bank earnings and they are not particularly expensive but no one has any faith in the earnings out with because of the risks that are under the surface of this economy and that is credit quality is a concern. everyone is worried about maintaining stability into the second half of the year. financials are therefore this risk and i don't think that will change. we see no indication of a in the second quarter. we probably will start of the quarterly earnings season with relatively bleak results and have to ramp up into stronger

components as the season goes on. tom: thank you so much. i have to go on to a surveillance correction and see if i can come back tomorrow. thank you for all of you in central and commercial banking who listen every day. he says tom, you are an idiot. he says i was comparing the acropolis to disney world and equating them and i apologize if that was the tone i took. i was not equating the acropolis of 500 when he five bc as compared -- 525 bc compared to pinocchio. lisa: you can come back tomorrow. ♪

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tom: live from new york city this meeting -- morning. jonathan: 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. ♪ jonathan: live from new york, earnings season around the corner. powell will ontrack to hike again. present item touching down in europe. inflation data next. >> june cpi report. >> let's see what the data is telling us. >> a softer number. >> squeezing water out