>> this is a year where the narrative changes every week. >> every day, could be leading us astray. >> i think we want lower inflation data and there is a good chance we are going to get it. >> the markets are starting to believe the fed by second hike. announcer: this is "bloomberg surveillance," with tom keene, jonathan ferro and lisa abramowicz. jonathan: your equity markets are slightly positive. 0.2%. two weeks away. rate hike height, foregone conclusion. deutsche bank. hike in july.

for a lot of people, even before the cpi data. tom: done deal. i don't buy it for a minute. we had two more boring days. yesterday was one of the most boring days in two years. it was a struggle. i saw lisa not off at one point -- nod off at one point. it is one big bets at a new asser tatian. jonathan: does this change the conversation? lisa a: i want to say before tom throws us under the bus that i was interested in -- interested in what we were learning yesterday. today is interesting because i am not looking at the headline figure. jonathan: services versus goods, again. lisa a: and how much does

services roll over because people are saying they are starting to see this. the debate is not a lie or september. it is longer-term, are we heading toward an inflationary were gene that is higher or longer? or are we going back to 2% or sub 2% inflation? any information on that is important. jonathan: the strength of the consumer is the story coming out of the pandemic. your today, the performance of tech gets all the headlines. look. delta, american, united. those are the top 10 -- go through the top 10 year today and you will find three cruise operators. how much longer can they continue? tom: a great article from bloomberg today on the nasdaq 100 rebalance. i learned a lot about the basic idea that things are so out of that with seven stocks that they

have to make an adjustment was diversification. jonathan: good morning to you are -- you all. bramo will go to the diary in just a second. equities are slightly positive on the s&p 500. do you not have diaries in the united states? lisa a: we do. we write in them at night. jonathan: all right, journals. did you never look forward? lisa a: no, we only look back. americans only look back. [laughter] jonathan: the 10 year yield is 3.94. lisa a: the cpi will come out at 8:30 a.m.. funny how it comes out on the highest day going back to 1931. core is going to be the sticking

point literally and figuratively. i am watching the bank of canada because they continue to be the front runner. they had a hawkish pause earlier this year and the last meeting the were forced to raise rates. this time, they are expected to raise rates again. it is expected to be one of the last hikes in the cycle. but will they have to do an about-face? we have a meeting with the bank of canada head at 10:00 a.m. we also get the richmond fed president tom barkin at 8:30 a.m., competing with epi. neel kashkari, and brainerd. then the -- the director is speaking at the conference in new york.

raphael bostic has been the fed does. the lori had a master speaking around 4:30 p.m. later. jonathan: i am pleased that you put them up there. i said the same thing about brian deese at one point. he improved. tom: our visit with brian was great. i said brian, your answers have got to be longer. jonathan: it got better and he engaged more but we have not seen enough. tom: as people become a fed visibility, like bernanke or others, they change, learn, and adapt. it is harder for her because she is adapting from fed speak to white house speak. lisa a: do you think her lack of engagement is her choice or biden's choice? it seems like president biden

takes a hard line with not allowing certain people to have a hard voice. jonathan: you think that is the case with brainerd? lisa a: no idea. jonathan: let's hope we get more engagement from the nic director in months to come. russ. wonderful to catch up. data coming in around two hours and 24 minutes. what are you looking forward to? >> us and everyone else are looking for what is happening with core and services. this is interesting because unlike most of the last year where you instantly surprised to the upside and market became accustomed to that, most investors are going into this expected a softer crunch. it will be interesting to see what the market comes out at and what is the markets reaction. tom: what is legit big tech do if we gets to percent inflation?

on the duration analog of big tech, does this give them a second wind? >> that is a great question. on paper, theoretically, it does. big tech, on a relative basis has been a little market performer over the last month. your today, the nasdaq is up 39%. we have seen two-year nominal and 10 year nominal reels binding higher for a couple months now and tech has mostly ignored that. unlike in 2022 when tech took its cue from the right market, what has happened this year is the secular theme about ai which has driven tech higher even in the face of higher interest rates. i think we have seen a little bit of a decoupling between what the bond market is doing in the market is doing. given the secular themes.

tom: the secular themes are fine but your job market is on allocation. i don't care what your allocation is for life and august. i want to know the method you are using to make that. >> i think there are a couple things you are thinking about. the first is, what is the state of the economy? it has been tough because the narrative and regime shifted about every six weeks. the key thinking is we still have a little positive to equities and are still underway to duration. nominal gdp is going to continue to surprise to the upside which means you are so cautious on bonds -- are steel cautious on bonds. the positive side of this is in an environment in which nominal gdp will be this way 5%, the is an environment where earnings are better than it becton and

equities can still grind higher. tom: -- lisa a: can we still see this inflation was robust economic growth? >> i think we do. the big question which i think you were talking about a few moments ago is, how low are you going to know? it is not obvious at this point that you will go back to the post dfc -- post gfc environment . we are in an environment where inflation is lower but not to the same equilibrium and not to the same level of macro stability. lisa a: where is that not being priced into the market where people are reverting back to the other paradigm over the long-term? >> there are a couple places. you have to question, are you being adequately compensated?

in an environment where inflation is probably going to be more sticky and more volatile. we have been hiding at the front end of the curve. everyone knows you can get tremendous carry in cash and cash like instruments. commercial paper for example. there is no need to go out on the curve and take a lot of rate risks. jonathan: talk to me about your cash allocation. a consistent has it been through this year? >> it has been moving quite around quite a bit. we moved our equity allocation pretty high over the year from being underweight in 2022 two slightly overweight in 2023. the other question is, what is your head? last year, there was no heads. the question was what is the dollar going to do? in 2023, the hedge is a view on

inflation. part of this movement in cash comes down to can we rely on bonds in the hedge. probably not yet. jonathan: wonderful to get your insight and input. russ koesterich of blackrock, the global allocation fund. the narrative has changed over the last year or so. i was just going through the journey of 2020 rate. member when the start of the year was about soft landing, then no landing, then hard landing? we went back 5.1% in thursday's session on the two-year yield and are now back to 4.86. tom: i do think the two-year yield is the thing to study. i looked at the i've year yield and we are well -- the five year yield and we are well out. i take russ's point that this is

about nominal gdp any miscalculation of the moving parts and the real economy and inflation and what this means for earnings season. i know we are supposed to say earnings season is going to be terrible and we are all going to die by have said this and been wrong the last six quarters. jon: it feels and we have swung back to soft landing and forgotten about the aching failures of march going into april. lisa a: except the soft landing has a slightly different tenor. the idea you could have higher yields and still perform well, and credit is still performing well. can you get ongoing disinflation with growth that surprises to the upside? that is a tension that has to be resolved. tom: james mcintosh at the wall street journal and macintosh tears to strengths the servant

-- tears to shreds the servitude of our administration because we tore through what jonathan miller's rent looks like in new york city. after macintoshes article, which was great, it is oer wednesday. this book about owners equivalent rants -- rent which is a double fiction. jonathan: i'm sure the fed knows this. tom: they know this but there is still a guesstimate. lisa a: in the column, then talk about how if you measure it the europe did, inflation would be substantially lower but you have the likes of mohamed el-erian talking about the likelihood of stickiness underpinning these measures whether it is cars that could revert back or airline prices. jonathan: dan skelley coming to

talk about this. looking forward to that conversation. equities positive by 0.4%. later we catch up with amh in lithuania. saying ukraine can be a nato member when we are safe on our land. ukraine knows it cannot be a need to member during the war. coming up next. ♪

>> we want to be on the same page with everybody. for today, what we hear and understand that we will have -- where security measures will allow. jonathan: ukrainian president zelenskyy speaking on nato membership yesterday and alongside the nato secretary-general. here are some headlines. to linsky saying ukraine knows it can -- president zelenskyy saying ukraine knows it cannot be a member while the war is ongoing. he says they know they can be an into member once it is over.

speaking just moments ago. tom: lisa mentioned just yesterday that we are in year two of this war. i don't know if this is true in england or europe, but america has a four year war timeframe going back to the war of the colonies where the colonies won but also forward. jonathan: think that is a week old, isn't it? [laughter] tom: we have a four-year gap on a war. if it is longer than that, americans get set. it is only like 1.5. jonathan: you research says 44% of republicans think the u.s. is giving too much aid to ukraine. publications are only 4% more likely year to date but today they are 30 points more likely to say that we are giving too much aid to ukraine. this is the election in uphold.

tom: in the middle 20th century to say, briefing from lothian here -- from lithuania, maria tadeo is there. and annmarie hordern, our chief economist. i want to go back to pre-bucharest. we are, have been, and continue to supportive of ukraine's transatlantic ambitions. set in 2008. how has it changed since two thousand eight? we had president zelenskyy in the new york 8:00 hour. translate for us the ambitions of ukraine. annmarie: a lot of people would say they are feeling a déjà vu in terms of the bucharest summit because there, you had germany,

led by chancellor merkel, and the u.s. led by president bush at odds for what will be the path forward for not just ukraine but also georgia. u.s. wanted a more direct and concrete plan. the germans were more nervous, backed by france, and you had differences over the future. analysts would say you could almost see a difference in line. some would say that because of the summit, it was too ambiguous and basically put a target on kyiv's back. they were still protected by article five but not protected by the alliance. what you heard in the language yesterday which i heard from cu leyba and president zelenskyy -- from kuleba and president

zelenskyy as they wanted a more concrete timeline and that is something the group was unable to. tom: in the last 24 hours -- and this is speculation and i am using multiple news stories so don't quote me on this -- we had a major russian general killed in some missile attack involving reddish missiles. what is going to be vladimir putin's response given these two isolated deaths of generals and the general state of the russian front east of kyiv. annmarie: what you have seen from vladimir putin is he will try to continue this. the military aid being discussed here, the cluster munitions they will get from the u.s., the next missile tromped from france, and a 700 million euros they will get from germany in a new aid package. this will concern vladimir putin

but he will continue this fight especially in eastern ukraine. but vladimir putin has set in the past at this summit is he had no problem with finland and sweden joining the way he has with ukraine because he calls ukraine a territorial dispute. but the issue with sweden is if there would be any infrastructure changes on the countries than russia would have to act in kind. but you have to think about what will happen for russia to act on the baltic sea where they have an all out war they are still trying to win and are losing at the moment. lisa a: never one to let's a moment has to do political grandstanding or see members of congress -- to let a moment go with political grandstanding or see members of congress around any money to ukraine and certain social issues, this stood out.

center dan sullivan, republican from alaska, saying they have made progress on ukraine but that it could an issue if it falls below 2% spending on the military. how much is this an issue that they are perhaps under contributors? annmarie: john's key research was prevalent going into the 2024 election and republicans. you have many defense hawks that wants a bigger defense budget and do not want extra supplemental when it comes to rain. they just want a bigger defense budget. republicans on the ground and in the waiting are saying that to make our job easier back home because there are fractures for our constituents about how much money is being sent to ukraine, you all need to hit your 2%

target and the language has changed. it is no longer a ceiling or goal to hit 2%. it is the floor. at the moment, 11 countries are hitting this. luxembourg, canada, and italy need to catch up. jonathan: can we lean into the campaign for the republican party and how our expected candidates are actually capturing the story compared to the former president donald trump? annmarie: you are seeing a lot of different views within these candidates who want to be the nominee. the former president says that he, within five minutes of office, could end this conflict and get on the phone with vladimir putin. i think you will see the contrast from president biden heads over to finland, next.

we had a issue in helsinki when donald trump sided with vladimir putin. you had a ron desantis, the governor of florida, have to backtrack. people were mad at him when he called it a territorial dispute, and now he came up forceful and is backing ukraine. even nikki haley, who has chops at the u.n. during the trump administration, mike pence is setting himself out to be the individual to watch when it comes to russia's invasion of ukraine. he was the first to go to kyiv and stand next to president zelenskyy and talk about american support for the country. jonathan: great coverage. looking forward to catching up. annmarie hordern in lithuania. the fate of the republican party for tinsel voters.

you wonder how this will be handled. tom: this has always been there. the fact is there has been an isolationist tendency, particularly from the midwest. my grandfather was called a traditional republican which means a stay out of england. this is embedded in american politics and it is not a surprise or is part of america that feels like this. lisa a: when were we invading england? tom: some other country. [laughter] jonathan: why not? tom: after 1812. they burned the white house. ♪ with a partner that always puts you first. start for free at godaddy.com

jonathan: back gains on the s&p 500. let's see what becomes of day three. equity futures positive 0.2% hearing it cpi data is about two hours away. now start up by zero. in the bond market, what a trip on the two-year yield. 50% of -- 5% up in march and then we collide with svb. backing away to 3.80 six, looking for a softer print on inflation this morning. as yields back down a little, the dollar is weaker. coming into today, four days of week this on ssi.

the longest streak since march. the euro 1.1025. tom: what we see is tangible today after two really boring days on monday and tuesday a. things are really moving. in the yield space, you mentioned the two-year yield. i have a combined twos-tens spread. or is less curve inversion. there is a whole disinflation tendency to what you see in the combined data. jonathan: i keep going to the u.k.. you have gone to japan. we go back to the motherland. from the bank of england, we can talk about this in a moment. the typical household rolled of a fixed rate deal in 2023 and facing 206 pound increase in their mortgage. by the end of 2026, if they push

this out, where the one million households would see their payments go up by 5% per month. ultimately, a lot of people in a lot of pain as mortgages start to roll off. tom: each country is different but the result is, out of the pandemic, we are making this up as we go. i got this feeling from sentra. in less than two hours, cpi data. it will be important. jonathan: high-frequency economics expected a 3% increase . this would make it the lowest since 2021. the chief u.s. economist saying, "we predict a further deceleration by year end to around 2.5 percent, and the annual change can pick 2% target by early next year -- could hit

2% target by early next year." tom: in the last 24 hours, this shows different options. we get a brief on lower inflation in america. with chief u.s. economist carl weinberger at high-frequency. this is a stunning statement. i want to go to the core frequency of your low-inflation call which is the mathematics of real gdp plus inflation equals the animals beards of the nation nominal gdp. are you and carl modeling that we will see a sub 4.5%, dare i say sub 4%, nominal gdp soon? >> did morning. great to be with you on the show. we are looking for a very sharp deceleration in inflation not only today but going or word.

economic activity is set to slow if we look at our numbers and what is happening with household spending. we think this will have an impact on companies which will have an impact on what happens with hiring, labor markets, and what happens in terms of nominal growth. what we really need to understand is where the direction goes from here? we have constantly underestimated the resilience of this economy. but we are seeing moderation if you look at consumer spending. it was pretty much flat in february. i think the lag in economy is catching up and we will go to a sub 1% growth rate in the second half of the year which has implications for demands companies will face. tom: in the soup you described, one idea as we have a medical

pandemic which gives us the sequence of the stimulus is as olivia blanche hard mentioned. we entered the third president biden stimulus. fine, we will not have the excuse for a pandemic with the rubeela farooqi 4% nominal gdp. are we out of optionality if we get down to a slow economy? >> it depends. we are looking at slow economy. we are not looking at a contracting economy. recession is still not part of the base case. i think there is still positive momentum but it is managing the positive momentum in terms of monetary policy. i think this is where the challenge lies. we think the fed is determined to go a little further. we think they should set it out

from this point forward. but july is pretty much a done deal. it is what they do afterwards. i think the data on inflation, especially headline inflation -- we have to remember this is their mandate. once they start moving convincingly to their target, i think the methods have to be managed a bit more carefully. i do think this economy has positive momentum and we think we will avoid a recession. we are want to be fed carefully in terms of how far they push this. lisa a: what are we looking for in terms of a policy error and the correct action. we talked about inflation getting down to 2%. wouldn't this be the green light to move away from restrictive policy? >> no. we need to keep rates at this level for inflation to continue to move down. we cannot move to a less

restrictive stance. this is something the fed is struggling with. we think if they do not think they are there, they will go further. but to consistently bring inflation down to effect -- to affect the labor market and the economy, they do not need to keep them restrictive for a little while. next year, as we hit the target, their policies do not need to be as restrictive and we do have easing. it is going a quarter-point in each category and i think that is what the fed has and what they expect to see over the rest of the year where rates stay higher and the next year with them and just do their policy rate lower. lisa a: throughout the morning, thomas giving the narrative of whiplash we have been giving -- getting. what a lot of people are saying

and equity markets are signaling as we can get our growth and have it to, eat our cake and have it too. in the sense you have inflation coming in and robust codes -- and robust growth continuing. can we minimize the pain? >> that is the real challenge. if you look at what the fed done and managed to accomplish with 500 basis points of tightening, limiting damage to the labor market and no growth to the labor market. inflation is coming down and wage pressures are not accelerating. in terms of policy makers view, this is ideal and something they should take comfort in. the issue is the economy has continued to outperform. core inflation has been sticky. we think things will start easing as the housing lag effects and rent flow through.

if you look at consumer spending, we are seeing variations in services and deceleration in food services, accommodations, creation services. we do you think the pent-up demand will also start using and components for the super bowl. i think this is an important development in the second half of year and something we are tracking. tom: i look at the moment we are at. we are going to get an inflation report and we don't know what it will be. the zeitgeist this morning is disinflation. then we may -- we wait. is it three months or six months? >> if you look at inflation and

where it will be in june compared to three months ago or six months ago, this is an important improve. if you look at ahead, my estimates suggest this inflation will continue and will accelerate. tom: going to accelerate? wow. >> if we think inflation will get to 2%, this will be pretty substantial. but there are still a lot of uncertainties. we are not looking for the geopolitical events which could be a factor. we hope not but that is something we are watching carefully. for the fed, this is the ideal situation where they have raised so much, they have not caused damage to the labor market. we do not think they need to do that. we think they need to be patient early on and after they move in

july. jonathan: let's see how dated changes the conversation. this from citigroup this morning. in an upgrade from j.p. morgan, downgraded to neutral. j.p. morgan is viewed as a high-quality franchise with a strong management team and is rewarded with a premium valuation. on the last point, the premium valuation -- this is why they downgraded the stock. we believe the premium valuation has returned and we moved to the sidelines. lisa a: especially notable considering jp morgan shares are up 12 point 4% this year. it sounds not bad but is savvy when you look at big tech names. it highlights the pressure you will feel on the inking sector. starting friday, even if the rest is much more positive. tom: where were we 90 days ago?

away from that, in general earnings, i think we are redux thing where we were 90 days ago. omg, the world is going to end day. rubeela farooqi is with john williams of the new york fed, back to a start. jonathan: i am not sure bramo said the world will end. lisa a: i have been reading and they have been upgrading their expectations one after another saying we have seen the trough last quarter. it is not the world will end discussion. jonathan: they say bank stocks have underperformed in the broader market due to key issues. funding pressures, impacting net industry income. number two, pressuring longer return profiles. number three, economic downturn.

on credit quality, they say credits quality will be a downturn as we see his and think cycle will be to going into friday, that is going to be the focus for most people. tom: i don't disagree with this. can i switch gears? jonathan: without a doubt. do you need my permission? tom: i am looking at my phone. tonton code-1 you have? tom: i have never seen this. it was 98 degrees at 2:00 a.m. in phoenix. let me translate this to our global audience. phoenix, arizona on saturday will be ready eight degrees centigrade desk be 48 degrees -- will be 48 degrees centigrade. jonathan: that is nuts. tom: it is highly unusual.

there is no other way to put it. lisa a: there was an article about when it is too hot for humans. some of it is the humidity. when it is not human, you cannot sweat and cool down. jonathan: being british, we complained about the weather, and not care what it was doing. sunny, hot, rainy. i refuse to get involved. futures positive on the s&p 500. ♪

>> the economy is upside down and backwards and we need to be aware that every release we get could be leading us astray. it is not clear if we are doing a re-balancing or going down. jonathan: that was a former fed economist weighing in. we have been all over the place,

in her words, upside down and backwards. we need to be aware that every data release we get could lead us astray. we get another release today. headline inflation, which gives a lot of headlines. in cpi, looking to move this down to 3.1%. in wall street, a month over month cost so you strip out food and energy. and others will strip other things out to tell whatever story. 4% was the previous week. looking for this to come down. tom: we take this out to one decimal point but i am seeing adult houses trying to gain this by three or four decimal points. i find it ridiculous because it breaks every scientific and learned in microbiology. you don't do that.

the sum of our study does not warrant going to three or four digits. lisa a: i take your point. some people say, are the models broken than some people say it is 2.7963. there is a consensus hovering around what would it take and where is the balance of markets to get disrupted? tom: i like with the united kingdom does. they just declare victory. [laughter] jonathan: is this another day at the u.k.? are we talking about the world or inflation data? tom: the government of the bank of england was responsible and set it is too early to declare victory. jonathan: the u.k. is in delicate situation on inflation and so is the bank of england governor. tom: i think they are doing better delicately than we are in waiting it. we are going to four decimal

points, which is absurd. have you noticed how brent crude crept toward $80 a barrel quietly? that means we are -- it is time to talk to stephen short, principal of the short group. he writes a letter eight-page is constantly using three and four decimal points as well. let's go to the blunt instrument. oil finally gets a lit. is there legs? >> what has really sidelined over the past six months is the win moments with china demands. it never really quite showed up but we are neighbors in the market with production. we are not allowed to peek at july but the season has been very strong at this point and seen significant drawdowns and supply cover. every markets at set -- every

markets except for propane. are all down lower on a year-over-year basis and a five year basis. as i have been saying since the beginning of the year, coming in, the bottom part of the range for oil wti was the $70 mark. $75 for brent. we dipped below that by have been saying all along that i have confidence in our modeling and every time we below $70, we get back below -- back above it. tom: for those on the radio, steven has a grizzled beard a look. he is not saving until the -- win. you are so into the micro data. what do you do when there is 117 degrees in phoenix, due to our use of energy? i think i brought stephen schork

to silence. jonathan: you wanted to talk about baseball so he left. a tentative connection. we are going to try to reestablish that. tom: that is the way bramo is with us. lisa a: come on. you don't complain about my beard. tom: was silent. jonathan: why don't you take it wide. i don't want anything to do with this. tom: we have a gift of low oil prices with an hour early this week send. do we get more disinflation here ? coming up, how do you do the pushing against $88 or 28 -- against $80 brent crude. jonathan: i don't watch tv much anymore or much sport either? i have pulled back a little bit by will watch your new addition

of -- what is this -- a sit down with the red sox? tom: they came to me. it is like if they sat down with you and said can you do the chief financial officer at milan? this was cool. i cannot say enough about how the red sox behaved. this is the team, fenway sports group, the owns the red sox and pittsburgh. they have a supper club in liverpool. it was not just about the red sox but it was absolutely great. i almost fell right over and hit my chin. jonathan: i have to ask the question on behalf of the liverpool fans. are they still selling the club? tom: it did not come up. i was told the meeting would be over if i brought this up. they talked about their adaptable points.

kennedy and julie swinehart made very clear that they are hugely flexible. there is very little mckinsey going on and very little to analysis. lisa a: sports teams adapt and adjust. tom: this was really special. julie is out of the midwest and is a cubs fan. they brought her in and she is like the people adult for the boston red sox. everyone else is running around, doing sports. like sidney crosby and all the rest of it. she is like, who is going to pay for this? hello, it's me. jonathan: you mentioned when i walk into the subzero as a lifelong fan, it is a feeling. people may laugh about this but you are overcome by emotion. people get teary when the crowd starts to make a noise. can you talk about how magical

fenway is? i have still never made it. tom: you have to go to fenway. what i would say is these people are dealing. john henry and the crew are dealing with the afterthought that they saved fenway park. everything they do after their initial action when they took over from the yaqui family is secondary to the fact they wanted to tear down fenway park and they said no. this was huge in boston at the time and transfixed the city. jonathan: do you think this will rejuvenate the stadium itself? tom: i don't have the name in front of me but i can give you the architect that saved fenway park. bill. they basically same to the 1912 stadium from the inside out in real time while they kept

playing baseball. it was great. it was fun. the best part about it is you get to go there. jonathan: did to get tickets now? tom: i did not get tickets but you walked in and they have hotdogs and it is all laid out. hotdogs and lobster rolls and lager beer. jonathan: very boston. looking forward to this. fenway sports group cfo julie swinehart coming up at 9:30 tonight. tom: it is going to be on youtube too. jonathan: we are staying up for this. tom: no, i'm going to be asleep. [laughter] but seriously, this is going to be on youtube and lisa, jonathan

and i are making a huge effort on "bloomberg surveillance and youtube because you have asked for it. jonathan: i love atk -- a tk promo. big morning ahead. cpi around the corner, 8:30 p.m. -- a.m. eastern time. then onto ppi tomorrow morning and from there, bank earnings. jp morgan, wells fargo, citibank . right now, going into the market open. several hours away. 0.16% on the s&p 500. your 2-year yield right now is four point 86. your 10 year yield .98 -- three point 95.

>> this is a year where the narrative changes every single week. >> we need to be aware that every release could be leading us astray. >> i think we want to see lower inflation data and there is a good chance we are going to get it. >> we have a labor market that still seems too tight. announcer: this is "bloomberg surveillance," with tom keene, jonathan ferro and lisa abramowicz. jonathan: good morning for our audience worldwide. this is "bloomberg surveillance," on tv and radio.

s&p 500 up by 0.1%. the data is just around the corner. tom: there is a lift on equity but the data and anticipation further may be greater dissipation -- greater disinflation. over the weaker dollar, there is a surging japanese yen. it coalesces around a bond market which signals how important a 30 a.m. is. jonathan: fed officials say there is more work to do. lisa, you wonder if the data at 8:30 a.m. changes the conversation. lisa a: or the message where they want to have a hawkish message at the same time when the ed buck to stay at this level for a longer period of time. they will signal a hawkish rhetoric. are they going to continue if

there is decent inflation -- if there is disinflation at the same time? tom: i will not get set -- gets upset at fed officers that missed the tipping point. because by definition, they missed the tipping point. mary daly said, it is ok if they get it wrong because they are being cautious and conservative. jonathan: there have been some bank failures in their district. i will say their stories were inflated three months ago. we came out of march and april and some people thought the fed credit crunch was on its way. three months later and we are talking higher rates again. tom: i believe any given fed is a separation between the monetary analysis and regulation. i have been appalled the last couple days at the lack of focus on bank supervision. this idea of going after jamie

dimon. you mentioned jp morgan as we went after earnings. or going after brian moynihan and that will solve the banking crisis? it is baloney. sorry. i am not focus. i am sending out tweets on my red sox special. at 9:30. jonathan: so you are done with threats? tom: i am and i learned how to delete an instagram account. they make it so hard to do, it is an conspiracy. jonathan: so you were in conversation with the dogs last night? [laughter] equities right now on the s&p positive 0.2%. yields lower. down two basis on the 10-year yield at 3.9483. lisa a: we are expecting the cpi

report at 8:30 a.m. eastern. will it be enough? will it change the conversation when fed officials want to remain as hawkish as half full? the bank of canada has been a leader so far this year. it was one of the worst with a hawkish pause earlier -- one of the first with a hawkish pause this year. they are expected to race again. it is expected to be the final hike. at 10:00 a.m., curious to know what their thresholds is about achieving victory. which the british evidently do if you listen to tom. [laughter] i am just following our fearless member here. today, a stream of fed speak. it is dramatic after yesterday's quiet. the richmond fed president

today, neel kashkari at 9:45 a.m. a.m., the nic -- nec director speak around midday. raphael bostic has been the loan does, the one saying i think we have done enough. he has been the most extreme on this. more than austan goolsbee. goolsby has been more on the encz but raphael bostic has been more definitive. that comes at 1:00 p.m.. just wait, there is more. cleveland fed president loretta mester around 4:00. tom: do the others know what the numbers are? neel kashkari will be like, dang, i have to rip up my speech. jonathan: have you seen this? i caught up with him earlier this week. there he is.

nice cabin. with fire. just beautiful. lisa a: love it. jonathan: what am i doing here? tom: i guess ♪ he would rather be in colorado ♪ it is about a british land on wall street who is wasted on park avenue and the british l ad on wall street would say ♪ i guess would rather be in colorado ♪. jonathan: we are live. your today, the nasdaq is up more than 30%. look at this line from morgan stanley. the air market is not done yet. dan scally, in case like this. you guys are saying the bear market is not done yet. tell us why.

dan: the market today has been incredibly stronger. stronger than we did. we are still in an environment where we think things will come under pressure as inflation and weight -- and waves cost a elevated. the starting point in this cycle was stronger than many expected. consumers and corporations took advantage of lower rates to increase balance sheets in 2020 one, given high fiscal spending. our team has talked about the idea that many of the lower quality areas of the market into a world where inflation growth is slowing pricing is difficult to maintain forever. to be fair and answer your question, a part of the market that has not seen the collapses the high quality mega caps --

mega cap space. tom: i looked at the market last year and there is all this silliness from our childhood about an intermediate trend in the bear market where the bull market. are you reaffirming a bear market where are you reaffirming an intermediate bear market trend within a bull market? which way is it? dan: more of the latter. michael talked about this idea he first published two years ago about a cyclical bear within a structural uptrend and the cyclical bear had two phases. fire, which is the idea they had to adjust to higher rates and the dead. it played out to 18 in ice. this manifest because a stronger starting point of the economy and stronger starting point of the consumer. at the mega cap level, it was

higher than we painted. you are seeing this deteriorate from the bottom companies but not aggressively just yet in the top 100. the last point i would make is given where values have gone, it is difficult for us to change the view at the moment. if you have gotten to the point when earnings have bottomed or flattened out, when you look back 30, 40 or 50 years, the market expands in advance of this. this time around, it has been 20 times. you really need to see the hockey stick into 24 to get the market to go further from now. 240 five is the expectation in 2024 -- 245 is the expectation in 2024. lisa a: is it getting harder to be cautious?

dan: it certainly is. the idea that the market, the fed says maybe one left in july or maybe there is more to go as the fed said. you look at history, there are five instances of a good pause and 85, 95, 97, 2006 and 2018. those are where the fed said we have done enough to fight inflation at the time. but the data at those instances was a complete inverse of today. the yield curve was positively sloping, credit conditions were loosening, inflation was much lower than today and leading economic indicators were accelerating, not decelerating. it continues to be difficult to stick to this slowing but the rationale we are seeing the support it.

lisa a: what would it take to change the story and the thesis at a time when the economy seems to have ongoing strength that has defied all expectations? dan: the economy is flowing. last year, gdp was 3.5 to 2.5 but now it's closer to 1.5 or two. you would need to see the economy re-accelerate and see the two times earnings rates fixtures being more probable next year. amid that, a lot of people think we will have a reading celebration or ramp up -- a re-acceleration or ramp up going back to 2%. that is the disconnection we find to be somewhat anomalous. a lot of people have been saying to go from 9% peak in 2022 25% court today. this includes money supply

collapsing and going negative after exploding during covid stimulus. then china reopening in 2022 and oil and gas 30% lower than the premium of ukraine invasion highs. this is 925. the firm is not sure there are other issues out here that are structurally related to inflation being sticky. i.e. shortages in labor and shortages in housing. related to the market having its cake and eating it too, we have said residential housing is bottom. from a first order and second order effect, look at this. we think it will be hired to get to the earnings level and if we are wrong about this, we also think it will be equipped to not see inflation peak at multiples 20 times. jonathan: difficult to be bearish, that is for sure.

dan skelly at morgan stanley wealth management. very transparent on the difficult year they have had so far. are we through it? tom: we are not there yet. dan skelly saying it has been a tricky six months but could reverse on a dime if they get the kind of strategy they laid out. when you get out on the wrong side of it, way out, that is when you get into trouble. to be fair to mike wilson, i think he has been very probable about it. jonathan: if you are just joining, welcome. s&p futures positive 0.2%. coming up, kelly from morgan wealth -- jp morgan asset management. tom: it is a huge deal and david kelley is one of two people i will describe to the idea, are

you ready for some 100,000 or even negative nonfarm cyclicals report? jonathan: this year? tom: i think he would say in december. we can ask him but we are not ready for 2% inflation. jonathan: will we get a handle today on the headlines he i? most people looking for something with a three? coming up. gene tannuzzo in 16 minutes. ♪ it can happen to the people who serve us and the people who served. the people we work late with and stay out late with. it can even happen to the person in the mirror. opioid use disorder is a disease that can happen to any of us. it's possible recovery can happen to any of us, too.

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>> it is a meretz--- a merits- based process and we see ukraine reforming and that is advancing rapidly toward nato membership. i am confident if they keep this speed that success will be there soon. jonathan: ursula von der leyen, the european commission president. with potential for ukraine's e.u. membership. we will head to michael mckee later today and talk about the economic data that drops in around one hour and 12 minutes time. s&p futures, positive 0.2%.

the fate today may be decided early on by the inflation report around the country -- inflation report around the morning. down two basis points on the 10 3.95. the 2-year yield, 2.486. tom: it is a real statement after the quiet of monday and tuesday. jonathan: yes. a snooze, you could say. tom: monday even more but tuesday was a snooze fest. jonathan: we are talking about markets. it -- we should rest and relax. tom: for the first time today, we agree. we agree it is a good time to talk in lithuania to annmarie hordern and also maria tadeo. maria, thank you so much for letting me know the giants of

check literature -- czech literature has died. everyone says he should have gotten a nobel prize for a book. he talked about the fractured dissidents along the frontier. has that been shattered? has vladimir putin shattered the frontier that was the distance from the czech republic to germany? maria: tom, that is the toughest question you have ever asked be because i don't think i am qualified to talk about the genius this man is and his literary legacy he leaves behind. to some extent, you can argue there is a parallel and the idea of perspective. at the time, he talked about central europe and the influence and talked about able civic civilization and soviets on the

sphere. it is about the ship from the soviet sphere to now becoming the west. the message from nato is you are not formally in it but it is getting closer. perspective is crucial and this is why president zelenskyy was infuriated yesterday at the tone change and the idea of first active and where you belong in the old really matters. tom: this is really germane. my childhood was tito in yugoslavia and the dynamics across eastern europe. this seems to be ancient news and shattered. annmarie hordern, what is the white house think has replaced those relationships on the eastern front? annmarie: i think they are replacing those relationships. what you have seen as more of these former soviet union

countries, part of nato or wanting to become nato, like ukraine. we just heard from president zelenskyy speaking and what you are seeing is a more fortified, united front in eastern europe. now you have an uninterrupted nato force from the baltics to the black sea which is a concern for the russians and something they do not want to see, especially when you are hearing president zelenskyy have reconciliation compared to his golden yesterday on twitter when it comes to the west. he says of course some are anxious and worried to come out and talk about the fact that ukraine at this moment could be a part of nato. he says for the first time today does feel like he is given recognition that one day it could happen. lisa a: we have seen a couple different threats whether it is the rain or more. european debates and also a

question of turkiye and how it has entered the front of everyone's mind. maria, from your vantage point, why is it that president erdogan seems more amenable to a relationship with the west? maria: we don't know if you wanted more from the relationship because a lot of this for the turks is transactional. we know we want the planes. when you say what is present already one want and what -- president erdogan once, he speaks to the turkish audience and it has been great. he can present himself. he is there with president biden and is one of the strongest voices represented.

he was a starving show and also talked to the muslim world. he also talks about faith and burning the koran which he says should not happen in sweden. we have to see what the central bank does but this is a country that need investment and international investors and maybe there is something on that. it is too early to tell whether this is a transactional shift in nato or if there is something medium-term changing. lisa a: how is president biden going to spend this and when will he talk about what actually transpired in nato to generate some reader popularity? maria: i think you -- annmarie: i think you will see this this evening. the president will get with the white house -- will give what the white house is billing as a major address. they want to make sure they are holding consensus within the nato allies and europe as

vladimir putin stole has his aggression in ukraine, and making sure they show their support for ukraine. but at the same time, they want to show to the american public their arguments that there economic policy has been successful. there are some republicans who would agree it has been successful. they were able to get this morning where they were able to read about the over crane -- able to agree about the path forward for ukraine. tomorrow, it is going to become even more apparent what the white house is trying to do. when you look to 2024 at the moment, everyone would argue that given the polls, this will be another matchup between donald trump and joe biden. what you will have tomorrow is an american president back in helsinki, but not to meet with

vladimir putin, just to have a meeting with nordic countries. with finland's president. it is a victory tour for this president. they will try to contrast that the last time a u.s. president was there was with donald trump was there and had comments on vladimir putin. jonathan: a lot has happened in the last 24 hours. for some, the take away might be joe biden did not attend dinner. does the administration care about optics. annmarie: i think they care less about optics than the former administration. it is pretty much status quo that joe biden skips dinners. they view what they are doing on the ground as substantive and some optics are not as necessary. he has a major speech today, potentially some prep work he was doing last night.

he was also dealing with major floods but it is not unusual that he decided to skip dinners. will this hurt them in the polls? it is on top of mind of headlines at the new york post. the messaging will be misconstrued for what they want to show as a major achievement in the lius -- in vilnius. jonathan: amh and maria tadeo. thank you. sometimes the focus shifts to who went to dinner in the evening. ♪ welcome to a new era of flight.

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>> cpi data, 60 minutes away. equity futures positive by 0.25% on the s&p and up 0.3 on the nasdaq. that is a story on the index level. bramo has individual stocks for you. to year, 4.86, 10 year, 3.95. we have been retreating on a two year yield going to inflation ever since we got the big upside out of the adp report. we print is a new cycle height on the two-year, 5.11. it came to 4.82 in the last couple days.

1.1020. >> i am watching euro and yen to see the way the dynamic is. the stronger yen versus the euro. there is a stew to this and i will go to dollar mexico, when i look at the screen, my eyes miss the mexican peso because it is 17.02, not yet printing 16.9x. it is unimaginable to see the pace so strong. >> long history going back to march. >> what i am looking at in single names, you can say, is not totally wrong. coty is the biggest mover thanks

to kim kardashian. she is in talks to buy back the state -- state of her company she so to -- sold to coty. reeve -- rivian is up 85% in gains up more than 1% and i put snap here because i was looking for the example of the me meification of the meme stocks. meme stocks are up 10% over three days. even as you have consumer staples down and i am looking right now at how much you see that increase, how do we parlay that into a market call at a time where previous -- people previously think it is false? tom: it is getting out front of what is perceived to be a disinflationary shock. jon: i remember when 5% rates would kill all of that.

do you remember that? kriti: i do --lisa: i do and it is not causing that anymore. you see visible -- this rally in a tremendous -- is this real? tom: it is the markets, they are expecting out and there has been a shift -- lisa: is this philosophy from tom keene? tom: adapt from along -- a death from along with era -- i death from a long can darrell -- could dara --cadera. jon:jon: there is a strong case to be made that inflation -- this should help reduce interest rate voluntarily -- volatility and be supportive of prices. tom: seems to be in the air this

morning, how rapidly does this occur, if i look at the bloomberg terminal -- total return index nic price up, you'll down -- return index and ic price up, you'll down -- i see price up, yield down -- gene: as inflation continues to ration lower, that we get the fed to have the confidence in their pause and that can push bond prices higher and you are looking at returns on the bloomberg aggregate index this year that are paltry, a little bit over 1% and we could see the 3%-5% range, i don't think that is a stretch. but we have to appreciate is the fed in their summary of economic regard -- projections has a forecast that is beautiful and inflation can surprise on the low side.

tom: on the duration basis, is the market, more conservative big money, are they under duration right now? are there short cover to be had? gene: i think there is room for that. a trend over the last 18 months is don't fight the fed. the fed's hiking and they continue to hike and active managers have underweight duration and that is understandable because in a the bond market, our biggest competitor is cash or cds or deposits because short-term interest rates are high but when they stopped going up and they see there is a more visible propensity for longer-term yields to go lower, there is a tremendous opportunity for long-term yields to go longer -- lower and see that price appreciation in fixed income. lisa: there is a tension. can we see some sort of rally in

credit and stocks if you do get this ongoing disinflationary -- disinflation -- as you have been pointing out and expecting, do you see credit as holding up and doing well or getting punished because of weakness that would have to accompany that type of move? gene: there is a distinction here between the stronger balance sheets and the weaker hands that maybe can't withstand a more rapid growth environment. i look at the investment-grade universe and i say they can't withstand that slower growth, slower invasion -- slower inflation environment. absolutely on the investment-grade side, particularly with the encouraging the degree to which the large-cap banks have come through the regional bank malaise of the last two quarters, on the high-yield side, it is more divided.

the higher-quality companies we think and do well, they maintained small -- strong market positioning but those triple see rated countries, it is -- companies, is likely the rates will increase and it is common and in a slower growth environment, they will struggle. lisa: even when we have a potentially soft landing scenario, you -- you see risk for lower rated credit. what you say to people who recession is the base case, that soft landing seems unlikely and who said the monetary policy transmission takes 12-18 months and we are not there yet? gene: there is a long and variable lag to tightening of financial conditions to the real economy but it is hard to argue the first half of 2023 has been a soft landing. that is what we have seen, low and positive role, the unemployment rate start with a three.

the economy is in a good strength --shape. i will look at other economies around the world and say he is right and we are seeing more risk of a hard landing urgently in areas like china and europe so those are areas we are concerned about and we have to be careful of those differences. tom: this is technical, you talk about mortgage backed securities being the place to be. how does the challenges of commercial real estate full into our listeners and viewers trying to buy yield? does commercial -- is commercial real estate germane to your analysis? gene: we have to respect those things in two. those guaranteed by government agencies so the credit risks associated with commercial real estate are not embedded in those securities. what you have is the benefit of higher yields coming from the fed that has been raising rates

and higher interest rate volatility over the last year. that gets you to a point where those residential mortgage bank securities are yielding or have a credit spread on par with what we see in corporate bonds. on the commercial side, we are conservative particularly in the office sector. there is more pain to go and some analysis suggests that fundamental valuations of these commercial robberies need to come down 30% or more to get a equilibrium level. we remain cautious on the commercial real estate but we differentiate where we see strength and opportunity from the residential side. lisa: what do you do on a slow summer? the idea that we have a low in real news and we will get something on friday with respect to earnings. we get cpi do you take a breather, does everyone lobby for working from home? gene: i think a lot is ok.

yields are higher and i look at high-quality years and -- yields in the five percent area, -- i think the low is ok and we don't need price appreciation. we can earn our income and those are equity returns. tom: the only reason we book you today is the understanding of columbia threat needle -- columbiathreadneedle. columbia is a venerable boston firm and someone who put it together for -- ameriprise -- he is a lag. truscott -- jon: tom is going to promote the show that he does that he is not going to watch. [laughter] scarlet: it is at night --tom:

it is at 9:30 tonight. i am not sure what they are doing but ted truscott has the best seats in fenway. on youtube. thank you for watching on youtube. john and lisa are working everyday on a youtube franchise. as they say. jon: do you want another promo? tom: i am promoed out. [laughter] romaine: --jon: 9:30 eastern time. tom: it is amazing -- she is an amazing cfo. she did not know what liverpool was. they own the penguins too. jon: i have been distracted by reading about someone in wisconsin. lisa: it is interesting. jon: 6000 to 7000 gallons.

going down the drain. lisa: this has become a real problem when they have oversupply and is the physicality of a good at it time where that matters, how do you store it? tom: what is the wisconsin of england? jon: i don't think there is one. if wisconsin was a state, it would be the number four g producer of the planet. -- number four cheese producer of the planet. tom: my mother was so bad, i thought though vito was gourmet -- i thought velveeta was gourmet cheese. jon: you want to talk more about cheese? tom: velveeta --

there is. thank you for that. jon: bill dudley, former fed president coming up. that will be cool. tom: the disinflation will push against that. the disinflationary trend will push against the view. jon: what does milk -- how does not fit into this. tom: you will have to ask the president. lisa: i have a lot of family in wisconsin and -- jon: you are more wisconsin then you are new york. [laughter] lisa: because i see my farm girl? jon: totally. lisa: there is a element of truth to it. it -- is fascinating because -- that we talk about every day and physicality of goods is complicated.

tom: are they drinking milk like they used to? jon: i am an almond milk kind of guy. not in my coffee. you can get unsweetened. tom: really? lisa: is a good? -- is it good? jon: is for protein shakes -- it is for protein shakes. you can have it with oatmeal or porridge as we would say back home. [laughter] lisa: that is so good. jon: inflation data coming up. ♪

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>> inflation is getting close to bottoming the cycle. we think it will be difficult for the fed to get inflation below 3%? >> the fed will find is unacceptable and that two rate hikes we have priced in for the rest of the year will happen if not three. jon: great guests over the last

week on the outlook on inflation. the data drops in 44 minutes. on the green, positive by 0.2%. a lift across the s&p, the nasdaq and bill russell -- and the russell. the tate not talking about the market in the commercial break, tk talking about barbie. tom: i have never seen a summer hype on a combination of barbie, pink and all that and something as serious as oppenheimer and the development of the atomic bomb. jon: my all producer because it barbenheimer because a lot of

people are going to watch barbie and then oppenheimer at the same time. tom: that is nice -- nuts. lisa: we went from a book story to -- jon: mission impossible saturday. tom: does that come out saturday? is a like mission impossible? jon: you have an watch that -- you have not watched that? tk does not watch movies. tom: i did see gone with the wind. lisa: what about barbie? tom: no, are you kidding? i don't have the time. i did see talladega nights. that was spectacular. the dinner scene as talladega nights was lights out. lisa: how about anchorman? tom: i have not seen it. jon: frozen? how many times have you watched it? tom: i have seen it 400 times.

jeremy stretches here to save us. he is in london. serious question here, to this raging debate of this inflation, duke -- to a pro-life you you, what is the u.s. dollar say about the disinflation story. you say the fx markets say this about where inflation is going. can you do that? >> what you can say in terms of the reading is that the market is in the opinion that we are going to see a benign cpi print in terms of the recent data and headline core but the question is not just about where we go in terms to this data point but in terms of one of the other talking heads, the base fx which are so beneficial for the

headline cpi print are proving more challenging for the second half of the year and that will be difficult. base effects --fx will preclude -- that will probably keep the pressure on the fed in terms of not only this meeting for the next one. -- but the next one. tom: there is only one talking head and that is me. i am the talking head here within bloomberg surveillance. i am reminded daily by bramo and pharaoh --ferro. do you want to pick it up here? jon: i don't. lisa: we have been talking about the weakness that we have seen in the dollar and how that comes to an expectation that we are going to have some plateauing and disinflation. where is the positioning around that trait?

does that confirm the likelihood of a continuation of this weakness? jeremy: when you are looking at this location in markets in terms of positioning, one of the big dislocations is in terms of dollar yen. we have seen positioning looking stretch and terms of money patients back to extremes we haven't seen since 2018 so we are seeing relocation or reorientation of short positions so it will be the case, there is still story or presumption of a weaker dollar into bea and the -- weaker dollar into the end of the year. i think there is a residual risk that we see more than one fed hike. we are looking for two and including july and september and september is not priced into any meeting. at the data suggests that is a mispricing so -- i think some of

that positioning dynamic in terms of the dollar will keep the green back relatively firm in terms of summer and it is perhaps a q4 story where we will see a more obvious weakening in terms of u.s. currency. lisa: 38 minutes to go to the cpi report. based on what we have seen, what is the biggest risk, an upside or downside surprise for fx markets? jeremy: everyone is going in with the presumption that cpi will be be nine, when you look at -- but nine, when you look at used cars and axes, the cpi print in line or higher would be a greater surprise and painful. you touched upon the retreat we have seen in u.s. yields. in the context of an in-line or a take higher, that will be a far greatest -- greater surprise

for the market so it could be a classic case of buyer -- buy the rumor and sell the fact. tom: what pair offers the best big figure opportunity? jeremy: it is very much the case are looking for yen positioning and i think there is a good case to be made as we move towards the boj were the end of the month, there is skeptical further adjustment there in the other currency of note is the norwegian krone. now only are you getting the oil influence but you have the cpi over the week so i think -- i think in terms of scaling, there is interest because we have seen very good slowing from the cyclicals and i think sterling will remain supportive. those cracks are small fissures. i think it is a case in the opportunity for some degree of sterling position but over time, it may be that prices like

sterling and will be interesting. jon: jeremy stretch, thank you. every now and again, bramo throws in a thought. barbie is fascinating for how mattel is broadening its image and business concept. [laughter] tom: how many barbies did you have? lisa: i didn't have barbies. it explains a lot about me. [laughter] jon: what does that mean? lisa: but tell is a --mattel is a toy company benefactor and all of a sudden they are a content producer and barbie is an ip and that is a fascinating transition. [laughter] that is interesting. tom: can i do a security -- way

more up to speed. this is a kid out of nowhere, picked up by georgia tech who is dazzled -- who has dazzled them in england. this is mr. eubanks. this guy is in the quarterfinals. jon: he is 27 years old, 6'7". a late bloomer to -- compared to the likes of alcaraz. he is in the quarterfinal of -- with someone else. i think the only u.s. singles male player in the draw. tom: usually -- usually rare to be this on here --unheralded. jon: i don't think anyone else

has a look at it -- that is my take. most people would be on board with that view. i hope we get some upsets. unlikely. lisa: is that a think? --thing? jon: i make some ice cream over the weekend. tom: gelato? jon: actually frozen yogurt. [laughter] ♪ >> you can watch all the action daily on 5 p.m. eastern at tennis channel.

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>> this is a here where the narrative changes every week. >> every day, the relief you get could be leading us a tray -- astray. >> there is good chance you will get it. >> you have a labor market that looks too tight.

>> this is bloomberg surveillance with tom keene, jonathan ferro and lisa abramowicz. tom: jonathan ferro, lisa abramowicz and tom keene on radio and television, cpi wednesday and the markets on the move. johnson's july 6. we have seen a disinflation in the two year yield writing down right now to 4.84%. jon: two weeks away from the fed decision. butch of h -- deutsche bank's -- that data, 29 minutes away? tom: if you get the disinflationary tone -- over at the wall street journal, if you get that disinflationary trend in place, something goldman sachs wrote up, it changes everything. jon: base fx kicks in.

headline on wall street, thomas is focused on month over month and that estimate going into the print, in our third -- survey, 0.3%. tom: they really pick own real estate as being bad map within the american inflation statistic. they are not having this conversation in europe. lisa: they use a different measurement that if used in the u.s. would make inflation substantially lower. i put that out on twitter on other media. on threats, --threads, which i have not avoided and the responses are interesting. it speaks of ambiguity of the moment. this -- does disinflationary justify a search in meme stocks? tom: we are seeing that in foreign-exchange.

i got west texas -- brought -- brent crude mounted up to $80 a barrel but look at equities like yesterday, they are trying to go higher. the vix, 14.64. jon: tom mentioned the dollar weakness, five days of dollar weakness if you look at dxy. the dollar index with heavy weighting into the euro. tom: let's get to it. this is an important conversation with david kelly, chief local strategist at j.p. morgan asset management and what dr. kelly has done is say there is a point where non-firm payrolls will crack. for in your guesstimates of the -- fold in your guesstimates of the inflation view of -- punchier, that the labor market will crack. david: the labor market will eventually crack.

the momentum that we saw in the second quarter of gdp has put that out a little bit and i think it is more likely to be very late in the year, early next year where we see a decline in payrolls but the much more important point is we are seeing disinflationary freeware stop we are seeing a deceleration and disinflation in the u.s. economy. the numbers of today, we will get 2/10 of a percent of the overall cpi and three 12% year-over-year looking at is at a seasonally adjusted basis but the key thing is -- i know the base fx goes away but i don't see inflation picking up from re-present and it stays 3% on headline cpi through december and it falls all the way through 2024 down to 2% by the end of the year as the shelter -- begins to flip the other way so i see plenty of signs of inflation is fading away and the frustration here is seeing the federal reserve tighten to fight a battle they have one -- won.

tom: i have been fair to them. it is an institutional level -- lever and they are allowed to be late but when they turn on a dime, how rapidly does that affect our world? david: the really interesting part here is that some stage we will get that negative payroll read and it will be a fear of actual recession and that -- and that point, the federal reserve cuts rates but the problem is the first rate cut they do will make the situation worse. monetary policy is at its most restrictive in -- and oppressive when rates are high. start to cut them. no one is going to take out a mortgage when the fed cuts 25 basis points because you know the rates are going lower and people will be scared that we are headed for a recession. the federal reserve is miscalculating is that they will gradually downgrade from a two high level. when they cut, they have to cut

aggressively. lisa: do you think it is time to get more cautious when everyone else's feeling sanguine about the economy and -- and the likelihood of a soft landing? david: we won't have a soft landing forever. there is no instance in the last 70 years of having the unimportant -- underemployment -- unemployment late below 4%. if you have full employment with a slow-growing labor force, any wind can knock you over so at the moment, the odds are, we won't have a refresh -- an official recession start this year but as we go to 2024, the odds of recession increase. i don't think it is bad for markets and i don't know if you get a huge market correction out of this but i think it will take the last with --whiff of inflation out of the economy. lisa: until then, you just by meme stocks? david: you don't because we will

have volatility. i don't -- i am not saying that a recession will necessarily cause a big market correction but we will have some market correction at some stage. the stuff that is not worth anything, the zooms are a frothy market. at some stage, everyone gets there -- scared and the stuff of reevaluation will do ok and stuff that is nonsense we will take on the chin and that is why i would not overload on means -- meme stocks. jon: where would you position -- lisa: robert you position at this time where people say cash is a good opportunity, -- david: that is exactly right. a close to peak cd rates but when we look back at the last six cycles of the fed tightening, the closes peak cd rates, cds are almost never the

best investment and we are at a 4% 10-year treasury and a real feeler -- fear of recession coping that below 3%. that is a 10% annualized return -- that is better than cd and you get the cds now but what do you do after reinvesting in a years time? i will -- i still say high-quality because of the risk of some economic turmoil here but stay long duration because there is a play there and for equities overall, value does -- is she relative to growth and notwithstanding that growth likes lower rates. the operation cap is so dramatic, it would be a little overweight value and international. i am impressed by the act but -- the fact that the dollar is coming down. when rates go lower in the u.s., we can have a significant dollar to line -- decline.

tom:tom: as keep it simple. you are looking for a demonstrative weak dollar move? david: over the next three years, that is likely to happen. the problem has been the first half of this year, we thought the u.s. was going to slow quickly. we thought europe would be more resilient. that hasn't played out that way but i think where we are, the federal reserve is overdoing it and they have this weird notion that they can overshoot in rates and cut rates dramatically. that is not the european playbook and at the japanese playbook so that groep -- that gap in rates will close over the next year as the federal reserve brings rates down and the ecb and the bank of england and bank of japan don't. in the next years, you will see a dollars decline. tom: john has been so good about outlining the shock in the u.k. of inflation particularly in utility bills and real estate. are you and your shop optimistic

on united king -- united kingdom disinflation? david: ultimately, yes but the problem that comes -- is that it comes from a fair amount of fear of the overall position of the u.k. colony -- economy. the u.k. has a bad fiscal situation. does the government? that with the risk of slowing economy or let it get worse? if they tackle it, you will get less inflation but it could be a pretty miserable times a week -- i would say disinflation will take hold of britain. it will be a slower process in the u.s. because they have a strong union movement in the u.k.. disinflation will take hold of britain as the economy slows. it is not a good outlook. jon: only an irishman could say that. [laughter]

it is just perfect. david, how bad with the inflation problem be if we had union memberships in line with 1970's stateside? david: it would be different because what we have seen his wage growth has been decelerating since march of 2022. if we had 30% of the private sector unionized as we did in the 1970's, that we would have had anything like that deceleration rages --wages. unions would say, give us 15% raises so we would have had chaos but had much higher wage inflation and that would keep inflation stickier but in the 1970's, we were having over 200 strikes a year. we had six major strikes this year so it is nothing like the 1970's and this is why it is so bad for the federal reserve to say, let's talk about the lessons of history will stop the only lesson of history of art --

of high inflation in the u.s. is the 1970's and that is a different way book. -- a old playbook. jon: 18 minutes away. tom: his call of the job market linking it to inflation is historic. we will have this gift of 200,000 plus per month -- jon: we will see it again. cpi around the corner. the s&p 500 positive by 0.25 percent. i have been itching to talk about this. not bill dudley or cpi. mr. ricardo -- tom: what we have learned with our five audiences, i don't want into goat -- i don't want to go into details, a lot of people watch us to get a new job so ricardo was on.

daniel was on. nailed that. [laughter] ricardo is on and he is lighting it up. he has a new job. explain how web bull has two teams and fired one kid that wasn't doing it. ricardo is the back of driver going to the other team. jon: outputs re: --alpha tauri is the bottom of the pack. tom: this is where recover -- ricardo came out of? jon: we wish him luck. it will be difficult. it is a hard car and slow compared to the rest. it is difficult to get on. tom: he is going against perez? what happens? jon: you will have to define

what success looks like but if he manages to impress, you wonder if it read was under threat given the difference between max and sergio perez. max is phenomenal -- [indiscernible] tom: p.r. street --peostri it well. jon: there's talk that he might leave. this is great stuff. ♪

>> inflation remains above our goal of 2%? >> we will need more hate -- more rate hikes to bring inflation back. >> it will take time to assess and collect information and be able to act. >> i believe underlying inflation is declining gradually

and in a way that may be sustainable. >> we say we have work to do. -- we say we are closed but we have work to do. bill: two weeks of --jon: two weeks from now, they will have to make a decision, do we are straightened now we raise interest rates? tom: one person did -- they did a massive study of economist predictions. the answer is really in recent days, they don't have a clue. we are doing this. you saw a beautiful bear with a very important guest coming up. the answer is this is a tough -- jon: 12 months ago, the risk of doing too little outweighs the risk of doing too much. 12 months later, the balance of risks shifts wages why you sees wintering on the committee. -- which is why you see splintering on the committee.

chairman will do the best he can to represent some form of consensus on the fomc and we can gauge that from the dots but if you look at the median., that tells you one thing. if you look at the spread -- there are a range of views? tom: the hallmark of bloomberg surveillance is that we want to talk to people informed who can state what they believe in any -- and the risk they see. we will be with you commercial free through the inflation and into the later part of the hour. william dudley joins us. it has been a wonderful relationship since his days at goldman sachs and he was a former president of the new york fed and a bloomberg opinion economist. what are the asymmetric risks or the asymmetric balance that the fed has right now?

as a new people of -- new group of people touts rapid disinflation? bill: the fed's concern, if they ease too quickly, financial conditions ease as well and come bouncing back and inflation will be down for and -- an extended period of time. some of the disinflation we see is transitory on the way down. i think the fed thinks they haven't done quite -- the labor market is tight and wages are at a level well above the 3.5% range that chair powell says is consistent with 2% inflation. probably even more important is what is happening to growth and pressure on labor resources and what does that mean for wages. tom: how important is the real estate analysis and the zeitgeist, james mackey costs -- james mcintosh at the journal

and some in bloomberg news talks about the mystery of how we measure real estate inflation. we have an accurate reading? bill: we measure in the states, we say if you have -- that gives fed into the compete -- consumer price index even though people don't pay themselves for the home they own so it is a fantasy. that number is going to be coming down in the second half of the year. that will flatter the headline inflation numbers. chair powell and others have made clear, what is happening to services and housing will be important because that is in part of the -- that is a part of the inflation picture that is driven by wages. until we see improvement in services x housing, i don't think the fed will be comfortable. the cpi report will be a good reading. the fed pays more attention to core personal consumption expenditures, and note that

cohort -- core reading has been stuck between a wage -- range of 4.6 and 4.8%. lisa: how concerning was it to you that the new york fed put out the consumer exploit -- expectation survey and it showed a decline in near-term inflation expectations but an increase in long-term make -- inflation expectation has been greater than people expected. is this an alarm bell for you? bill: one month reading doesn't ring alarms but the fed is nervous, if it takes too long to bring inflation down to 2%, people may think the fed will never get there. if they think that, inflation expectations will drift up. that is why think they want to stay the course and get inflation down to 2% by the end

of next year and if they do that, they are confident that inflation expectation will stay anchored and that will make the job easier. lisa: one concern has been that longer-term years -- yields are not cooperating and they have been declining and they haven't gone up as much as people would like. we are looking at a 10-year yield of 3.9%. do you see that going up to 4% as a conservative guess? bill: i think it is about the market psychology about where we are going in the future. what is the net -- the level of short-term interest rates, what is the level of the bond risk reading and spreads relative to the path of short-term interest rates. people are putting weight on where we were close to the financial crisis and i think we are going to a different place where inflation will be higher, by 2.5%. short-term rates that -- and will be higher than they were in the past because the fiscal situation is a lot worse than it was and the fact, we have a lot

of investment demand that we did not have the 44 climate change. i'm -- a tremendous amount of money is being spent. i think the bond market is overly optimistic about where we are going because it is telling -- putting too much weight on what happened. tom: the bank of america chart shows a wonderful fan distribution of potential outcomes of where we are on inflation, of giving -- of getting from 4% to a lower statistic, to some form of stasis and there is a campus that we may see a turnaround and a higher inflation. if you set up a present vector, the direction of disinflation, how skewed are we right now to a higher inflation or a lesser inflation or greater disinflation?

bill: there are two positives and one negative. the positive is good prices are coming down because people have changed their demand competition. they bought a lot of goods during the paint --the pandemic. you see weakness in goods prices. you are seeing the housing price inflation will come down with a lack of effect. we are not seen progress on the services side outside hand -- housing. it is a mixed picture. the federal reserve has gotten to a restrictive policy. i don't think it is that district -- restrictive but it is restrictive enough that it should slow the economy down and the fed has 50 book -- 50 basis point rate hikes ago. lisa: what are you looking at when you talk about longer-term, we won't go back to the low-inflation regime that we had previously and i see this at a time where increasing automation is driving efficiency and perhaps productivity in a number

of different companies like chipotle with avocados and avocado qatar and peeler -- qatar --cutter and peeler? bill: the productivity numbers have been horrible over the last year or two so we are not seeing productivity improving yet generated from things like artificial intelligence and it could take time. there are things we do in the economy that aren't getting more efficient. you think about hospital care, medical care, home construction. our teachers being more productive in terms of how they are teaching their students so there is a whole part of the economy. >> how do we>> get to avocados and avocado peelers? tom: bramo --jon: bramo is reading. tom: dr. dudley knew what you were talking about. lisa: joe foley has a

collaborative robot that cuts and peels avocados. tom: amazon prime, i can see in the promo kitchen. jon: did you do prime? lisa: i did not. did you? jon: i got some protein. lisa: with your on milk? -- almond milk? jon: bill will stick with us. mike mckee. if you are on tv, you can see it, if you're watching this on radio, you can't. mike mckee in this romantic love fire cabin seen --scene. what are we doing wrong? tom: he is just -- he owns the high ground. jon: beautiful. thank you for taking some time to come on with us. we appreciate it. cpi in four minutes. what are you looking for?

>> we are looking for a good report, especially for headline numbers but as bill made good point that things will be transitory on the way down. we will not hold the same numbers and we run into what is called base fx in economics because inflation rose so much in june last year because of energy, it is going to look better this year. we will see a big drop in the headline number. the fed will be looking past that. they know it will be tougher the rest of the year. inflation may come down over a month over month basis significantly after june so don't put all the money on this being the turning point. jon: we were told we had two employment -- important data points. we had payrolls last week and we have cpi this morning. deutsche bank and jim reed earlier today, -- one person said, quarter port -- point hike

on july 26 is a foregone conclusion. is there any reason to believe the information we have learned could change the conversation? ? >> i don't think so for the reasons i mentioned, the fed will look past a lot of those different one off changes. they will want to see consistent movement and as bill said, they want to see services sex shelter -- services x shelter start to drop. we have not seen a real change in core or services x since the beginning of the year and that is what the fed is looking go -- for so we will get the rate increase in july and the real question is the data between now and september, does that make a difference to them? jon: two minutes of now, we get cpi data for you and onto to ppi tomorrow morning. bill, former new york fed

president, he will weigh in and respond to that. the scores going into all of this, equities are firmer. positive on the s&p 500 and up by 0.2%. yields going into this, backing away, ever since that adp report on thursday. euros lower -- yields are lower. lisa: people seem to think that -- don't seem to think that disinflationary is -- this inflation is transitory -- people don't seem to think that disinflation is transitory. jon: we have those pockets of cash, those parts of cash that we came out of the pandemic with still? lisa: we have seen reports it was expected to run out in the first half of this year. what people and having grasps -- what people have not graphs -- have not grasped --

tom: you called it a ball of money? the ball of money all over and went to camp. [laughter] it went over to pay for camp for various offspring. jon: lisa has been on top of this, when those jewish repayment starts again, though student loan repayment start -- there is a worry. tom: i made a joke, someone coming off and set it is serious. jon: it is. yields are down lower. but the economic data, cpi dropping across the bloomberg terminal. let's get to mike mckee. >> we are waiting for the numbers to come down and we are expecting a change in the overall headline number that would look good and here's number that comes in better than expected and that is the over the cpi court, --core, up by

2/10. the expectation was for three and it was for nass -- last month and that -- the forecast was for 5% and for the headline basis, we get to tenths mood -- move and that brings it down to a 3% year-over-year number and that -- the numbers will be the lowest since the pandemic and the lowest we have seen in about 2.5 or three years. good news but we want to warn everyone. this is transitory -- a transitory situation. food up only one tent -- one tent --1/10, and energy prices up 6/10. all of these numbers are in spite of arise of energy prices,

gasoline fell. in terms of used cars and drugs, they are down 5/10 on the month and year-over-year basis, down 5.2% to a quick turnaround in used car prices. apparel prices up to tenths. --2/10. i will get you numbers on rents and shelter. we will get the numbers on services. --x services. romaine: --jon: features positive by zero .7% on the s&p 500. bond yields are diving on the two-year, down by more than 10 basis point. 4.77 on the two-year. we have backed away and backed away some more so yields down. dollar weaker. the euro breaking 1.1050.

1.1095 was a high of the year. just short of it following the data. tom: brent crude showing a buoyant global economy off of disinflation salvation in america. you have a jump condition in the 10 year real yield. i will go from the 1.80 number on the panic of july 6 down to where we are right now. 1.66. nothing short of a miracle. jon: this is a downside surprise across the board. month worth -- month on month. .2% for core. .2% for headline month over month, down from 4 -- .4% month

over -- month over month on core. headline looks like this, year-over-year, 3%, just 3.0% down from 4.0% previously. strip out food and energy, 4.8%, down from 5.3. the idea from -- that we will hike from july, most people assume that it will happen and the ideal we will hike from that, a big question. lisa: if you look at what they are pricing in, it is a lesser chance of a second break -- rate hike. this according to the latest reading. this is the other side of things. how this support spending, on the flipside. jon: it is the big argument, we will catch up with him and catch up with these guys in 30 minutes

time, robert tipp. sarah hunt. tom: we usually look at euro. but to see dollar swiss, has shades of 2011. we are not there? it shows how the u.s. inflation report has a global ramification. jon: let's wait for the fed speak. lisa said there is plenty. look out for that. we will see where they guide us towards. ultimately, it could change the conversation in september if we get another one like this x month going into the september meeting. tom: let's go 20 miles north of iowa -- idaho. your thoughts as you dive into the economic data?

michael: it is better than anticipated but it tells the same story that we thought about going into this meeting. we did see the first significant declines in a shelter costs that have been cropping up a lot of the inflation we have had. rights of primary residence of by .5%. the owners' equivalent of rent drops to an increase of 4/10. we are seeing that get into the numbers which is what you want to see. airfares went down a .1%. --8.1%. i'm not sure people will believe that. we have seen a decline in airfares and we saw a decrease in energy at all of this will be offset by the fact that base fx from this year, this will be one of the best months we see and i and waiting for the services x to come in and out comes in a

month over month basis, 1.3 percent which is a significant improvement from over 6% we started with at the middle of last fall on a year-over-year basis, down at 3.93%. we are seeing progress in services x shelter. tom: moments ago, brent crude over $80 a barrel and that has something to do with the expense of travel on your sabbatical. jon: moments ago, i was stepping away and i unplugged the microphone. you take a dig at me as i walk out the door. tom: michael mckee took the dig. [laughter] jon: never mind the rental numbers. [laughter] tom: that was of michael mckee production. this is market moving data and jonathan ferro will get ready for 9:00. mastec -- mastec up a full 1% --

nasdaq of a full 1%. we will continue the thrust of the news of into your guild, hi never miss -- a large -- the news of the two-year yield, a ginormous 17 -- how do we have transitory disinflation? >> prices went up dramatically. we are on the flipside of that and they are running less goods and more services and good prices are weaker as people have manage their inventory. when that comes to an end, goods prices will level off so the benefits from falling goods prices will be over and we will be stuck what is -- with what is happening on the services side.

the fed should be cheered by this but i do not think it changes what they will do at the july meeting because they are looking at the totality of the data over the last three months going from the july reading and the economy is doing well. we had 2% growth from the second quarter. if you look at the fed gdp tracker -- it is 2.3% to the economy has not slowed down enough to make the fed confident that they will see the slack that they want. it opens of the question, could july be the last one and that is possible because they won't move at the meeting after july and take a break like they did last time and we will get to november. it is a long time between now and november 1. it is possible that they will see enough news that makes them confident that they have done enough so i think the november hike is up for grabs. lisa: you talked about how disinflation might be transitory and there may be re-inflation as

real incomes rise at a faster pace -- as inflation comes in. what you have to see to believe in disinflation that it will hold and hold back to a sub 2% inflation norm? bill: i want to see a slowdown in them -- unemployment growth. the labor market is too tight, you won't get inflation down to 2%. tom: thank you so much for joining us. your commitment to bloomberg surveillance, appreciate it. the former president of the new york fed. thanks to zero hedge. that is a chart from bank of america that showed the fan distribution of our american inflation where we could see the surprise of a normal disinflation back to the 2% level or maybe something stasis, or percent -- 4% or we could see

sticky inflation. a lot of kung flu -- a model -- a lot of confusing trends. what is the key determinant of how disinflation unfolds? >> i think it is catching on with what bill dudley said. does the labor markets often enough to give you confidence that services inflation will keep inflation running around 2%? for me, it is about broad-based disinflation across services. we should get payback and goods prices and we saw that this month with used cars but can we get a combination of disinflation in services, beyond shelter, i am not sure. as a broad-based enough to make you confident that the new trend, we are back to our prior

trend of roughly 2%? lisa: what do you make of, you can see this ongoing disinflation on let's the labor market cracks and you see more at loosening in but we see in the jobs space? do you agree with that, do we need to see the pain to create subsistence in below inflation --in the low-inflation? michael: i do agree with it. i think the fed will hike in july if we are posting .2% encore from here, it will call into russian what they have to do after that so they may stay on hold. they may be reluctant to cut until they see more evidence of the labor market is in balance and supply and demand for labor are in balance. that may be more about how quickly the fed cuts or when it cuts that it is on how high the fed goes in the near term. lisa: bill dudley has been

hawkish in terms of the fed has to do to get inflation under control. this may be the last rate hut -- rate hike. a lot of data in between. establish or bears for bonds or the idea of how long the vatican can code rates at a high level? -- how long the fed can hold rates at a higher level? michael: you have to conclude it is bullish in the sense we are seeing disinflation in the u.s. economy, that is gradually becoming more broad-based in an environment in -- what bill was saying is, if this is the run rates, it will call into question hikes beyond july and it might give you more confidence that is a less pain and eight the labor market is needed to convince and get the fed companies that inflation and price stability will be restored

so i think it is hard to argue that disinflation in an environment of a strong labor market is bearish. tom: where are you on nominal gdp? if we go out one or two years, do we get back to some kind of 4% topline gdp, 2% inflation, 2% real gdp? michael: probably not until 2025. if most of our baseline forecasts are accurate with gradual inflation -- if -- if growth slows down, you might get something like 4% temporarily but nominal gdp growth is likely to remain healthy until you get into 2025 and inflation may settle down around 2%. tom: if you are joining us, we are commercial free through the

rest of this hour. lisa abramowicz and tom keene and jon ferro is here. with a shock inflation report. dow futures up once -- 1.72. there is a little bit of an ebbing and flowing. the shock is a celebration of disinflation. lisa: you are seeing the swiss franc at the strongest versus the dollar going back to 2015. you are seeing strong moves. yields coming back dramatically as people game out what it looks like, if the fed rate hike is the last month -- in the cycle. you were saying if this data continues, it seems like a likely case. i want to get a sense from you,

how does that make it difficult to see ongoing disinflation, that real wages are rising at an accelerated pace? and michael: makes it difficult if you are a policymaker -- michael: it makes it difficult if you are a possible -- a policymaker. and may be hard for them to make that conclusion -- and may be hard for them to make that conclusion that we are a path back to 2%. you need a combination of actual evidence on the ground, where is the new trend in inflation? is it .2% or is it the one off and we go back to the .3%? you need a collection of evidence on what the new 1 -- one rate is and where spending and real wage data evolves and it may be the timing -- about the timing of cuts and how quickly they come in and near

term path of the fed may be more about prince on inflation. inflation may dominate, whether the fed hikes beyond july but the cutting environment, whether they are back to the neutral slate on the other site could be about the labor story. lisa: one person saying the u.s. inflation rate is high in the fed has been moving as an groep -- as inflation -- as aggressively as it could against inflation. if we see the rate hike that we get this month as the last in the rate hiking cycle, how long do you expect rates in the u.s. to remain above 5.3% for the foreseeable future? michael: we have the first cut coming in may of next year so the base hike has -- that will be data-dependent. our first because -- our first

cut will be in a of next year so the debate on the committee is some commendation of higher or for longer and i think they will be inclined to, this is about the evidence, the accumulation of evidence and confidence of restoring price stability so we don't have the first cut until may of next year. tom: thank you so much an congratulation on that informative bank of america chart of the last 24 hours. david rosenberg will be on radio with me in the next hour but this is a big deal, how mike mckee breaks it down and he is having a family breakfast in victor, idaho. -- a manly breakfast in victor, idaho. eggs down 7.3 percent. the beverage of his choice,

flat. lisa: thank you for letting us know. is that your breakfast? tom: that is my breakfast. [laughter] lisa: bacon and eggs and a glass of whiskey. tom: we call that a shot. [laughter] megan horneman joins us now, chief investment officer of verdence capital? you change this outlook -- do you change your outlook with this disinflation report? >> disinflation is going in the right direction but i don't think it changes the move in july from the fed. they cannot take their foot on the pedal. there are three things they're looking at and they are not necessarily looking at airline fares. they are looking at housing which is likely elevated, they are looking earnings which we finished talking about how real

earnings are higher. they are looking at the service sector. those three things, they are improving. you cannot deny it. i don't think it is enough for the fed to say we are done. lisa: do you think there is a greater likelihood as a result of this report that this rate hike, at this month's meeting will be the last? megan: if this is the trend continues, yes. there is a lot of base fx in this report but if this continues, this may be the last but i don't think they will be cutting but we have been saying this for a long time, the market is too optimistic about the path and the timing of rate cuts. we think they will stay higher for longer. they have told us that and they cannot afford, especially with the consumer winning to spend, to take their foot off the gas. lisa: how does this shift your view on how to allocate your assets at a time where people are betting that the economy can remain strong even as we continue to see price stability

restored to the market? megan: we have been taking the opportunity this year with a big rally we have seen across the globe are exit -- global equity sector to reduce allocation. we want to give a neutral waiting to the benchmark because while we are looking at a period where the fed may be at the end of the aggressive tightening cycle, we are not calling for cuts. there is inflation in the pipeline they have to get under control. the market got a little too often -- little too optimistic about the economy and we see in these reports, underneath the details, there is significant weakness in the economy and especially the consumer. we talked about this, the fed tightening cycle as well as tightening lending conditions, this takes time to work into the economy. we haven't seen the full effects. the labor market is showing signs of weakness and this is negative for the consumer so we are concerned about the consumer in the second half of this year

despite the positive inflation report because we don't see the spending we saw in the first part of this year sustainable. tom: to cut to the kick -- chase, this is important. a tepid economy means less revenue for corporations and that is where the earnings shortfall begins. megan: right and we are getting ready to start this earnings season in the second quarter. this is the worst -- it is expected to be the worst earnings season we have seen since the pandemic. we don't think this is over from a earnings perspective. tom: i look, megan, the step forward here and i get this is one report. lisa has told me that three times. maybe take a three -- smooth three month moving average. megan: not yet. i mention those three things,

that is what the fed is looking at and they have gotten better but even a few look at the owners equivalent rents component that was running at 5/10 of a month over month basis, it slipped to 4/10, is that enough for the fed? i don't think so. we have a nice cash position as we are earning on that and we are looking for the potential that we could see some weakness in the equities of the second half of this year. lisa: i am looking at the investment, at the headline level, there have only been two stronger-than-expected cpi readings since last year. just three stronger-than-expected monthly cpi readings and that has been the fewest since november 2020. there is a sense that wall street doesn't have as much faith as disinflation -- tom: dr. dudley alluded to that when he did his calculus in english where we talk about the

first derivative, the second derivative. he made jokes, if you have a hangover from course -- coors, you made a joke about the third or fourth derivative but all of this anecdotal evidence leads to some form of vectors which says the agony of inflation is over. lisa: is it time to get out of cash? tom: that is what david kelly said. megan: we started to do that recently as well. we moved our duration of our fixed income investments out. not significantly long because i do think there is uncertainty around the fed. it looks like they may be done in june, that in july but when the kind -- but when it comes to rate cuts, where does it come in? it is not a rush to run into the

long-term yields but we do think you should move out some of those shorter durations into more of an intermediate duration. tom: megan horneman reference capital -- with convergence capital -- with for dance --with verdance capital advisors. i would suggest the disinflationary zeitgeist got it right. you have a tangible move here. i got 4500 and spx features 40 46 on the dow --446 the dow. the nasdaq 100 up 9/10 of a percent, 15,400 on the nasdaq. maybe -- lisa: markets are partying.

they are excited about disinflation and the data suggests, is inflation going lower. jason furman putting out, even the super court dated the fed looks at, which excludes food and energy shelter and used cars coming in dramatically. anyway you slice it, it says the same picture. it is a lesser inflationary backdrop. tom: mab transitory. -- it may be transitory. we want to thank our team to putting great focus on inflation through the day. coming up tonight, on "balance of power", a timely conversation with the senator from the commonwealth of manages use -- of massachusetts. elizabeth warren. stay with us. this is bloomberg. ♪

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>> it was boring in the week started. good morning. inflation data is coming in softer. at the are rallying hard area the countdown to the open starts right now. >> everything you need to get set for the start of u.s. trading. this is bloomberg the open. was jonathan ferro. >> live from new york, coming up. inflation data is coming in soft red is raising questions about the next move of the fed as the president get set for a victory lap at nato. we begin with the issue of inflation in america. >> is a critical one.