>> what ache -- what it comes down to right now is the inflation picture. >> we are not going to be worried about inflation. >> we should get to a point where we see are mild and shallow recession towards the end of the year. jon: good morning. this is bloomberg surveillance on tv and radio alongside tom keene and lisa are -- and lisa

abramowicz. tomorrow morning, u.s. retail sales, one to watch this morning, secretary yellen, sitting down with bloomberg's annmarie hordern. tom: incredibly well-timed just beat to the treasure -- secretary-treasurer. we will get to that in a moment here but it is a time where we have financed an investment dovetailing into each other and that is attention of the bull market a lot of bears are getting used to. a little bit of politics there. romaine: starting to feel that --jon: starting to feel that in july. lisa: it really showed -- a lot of consolidation around any not trump candidate. the santos -- ron desantis burning through the cash.

how much oxygen do we have left for a candidate to come in for either side? jon: let's talk about a market that is getting crowded, four date any streak on the s&p 500 -- for day winning streak on the s&p 500. we are looking at eight days of euro strength on the u.s. dollar going all the way back to july 20 20, for june 2020, -- tom: i will agree with you that you have to go to the euro as a litmus paper for the euro -- a touch by the earnings story but at 112 .41, when we round that out to a 113 -- when do we round that out to a 113? jon: check out the price action, this monday morning, futures are

softer on the s&p, negative by 0.1 percent and yields are down. down six basis points, the 10 year 37 -- 3.7735. move on the euro, 1.1243 on the euro on the dollar. abigail: how much oxygen do we have left at the time where the dollar is creating existential talks. this to me comes after that chinese data that was so interesting, how do they dovetail growth versus some sort of reining in of inflation. janet yellen will be speaking in an exclusive with annmarie hordern and at 8:15 a.m. this morning, and what she says about global growth and china will be key. 8:30 am, we get july any fracturing. -- july manufacturing.

the perfect masks that led to a lot of enthusiasm and today, the regional bank earnings kick off this comes ahead of morgan stanley and bank of america tomorrow. happy -- have -- fp financial. we are looking to see if lending has slowed, what their cost of deposits is an the commercial real estate portfolio on their balance sheets. jon: many of those banks i haven't heard of. abigail: i can give you more. abigail: lisa: --lisa: i can givelisa: you more. jon: why are you still overweight equities over the team at ubs? jon: you mentioned the idea that

this is becoming a more subscribed idea and it is becoming a more crowded position and in equities, our view is that the path to the south lending has widened so much that it can accommodate this crowd better. it is very important to us that we have seen a pretty market deceleration in core inflation and some of the more underlying super court inflationary metrics. you can say it is just one print but in the eyes of investors, you have a lot of confidence that we slayed the inflation bogeyman and the euro recession bogeyman at the same time and that is because they are interlinked and the inflation problem was a drag on incomes and through the potential financial conditions channel, and inflation was something that was causing central banks to be on track to keep policy type for

longer but increasingly tighter for longer and in our view, this is something this risk has receded somewhat. we can move from a world which in 2022 and 20 21, we were relying on excess tastings -- excess savings. jon: we have --tom: the key thing with the sectors is we broadened out the market. does ubs see evidence that we are broadening out from the off the bottom october bull market condition? luke: i would think certainly and even when the u.s. market appeared narrow that was still occurring in the context of european equities doing well. that was occurring in the context of japan breaking out to 30 year highs.

in our view, what has changed and why we want to be selective about what we like, we like the many in u.s. stocks because that is where the resilience in the global economy is and i am sure we might get to the disappointing chinese data. you wouldn't normally think you would have a larger spread between nasdaq you jurors and s&p 500 futures and you have that coming to the day and that is a testament to the expected earnings resilience of the matting and eight the u.s. equity markets and even as we have a higher bar to clear, it is a bar that looks similar to a pre-pandemic environment than it does to an inflation shock environment. lisa: to follow up on the data out of china, are you saying it is not going to be as impactful for a lot of the u.s. companies that are multinationals that do

have big footprints in china or are you saying that has been discounted in sure rises -- share prices? luke: it is largely the former. china has lost a lot of reopening momentum. that is clear on the data, that the more support will be needed. the good news is this cycle, we have not been as reliant on the ebbs and flows on the chinese credit impulse, chinese policy for global wealth and global earnings as we have been in the 15 years prior. that development means you are seeing a lot of the classic cross acid correlation kick in this morning with -- commodities doing poorly. how interesting is it that you have the dollar flat on a pretty

disappointing chinese growth data? that speaks to the idea that global growth can remain in a positive, not gangbusters. even when china is that having its foot on the accelerator. lisa: this market seems to be driven by the narrative and everyone is back in and we are getting a soft landing. narrative. we are expecting a 9% drop of profits from s&p company earnings. a lot of people are saying that is price in. what would that take for you to say maybe there is more weakness under the hood that some people are considering. -- and some people are considering -- could then --hood than some people are considering? luke: estimates weren't that

much accounting to the season relative to previous ones and pre-announcements were generally more positive than they have been and if that guidance output takes a turn for the -- for the worse, we have to be cognizant of that because even if you have it expensive equity market, -- we would argue that is relatively inexpensive but if you are looking at three months, six months, one your performance, the expansiveness of the equity market is not as important as whether earnings estimates are rising or not and for us, that will be the key just to make sure that this nascent better trend we have seen of the bottom up reflecting our macro view of the widening path of a soft landing, if that were to come into question, that would get us to reevaluate. jon: stripped out the muscle of the dumbness of big tech and

shift away from mega cap tech, what -- what is your international fit into that? luke: we have some capacity for the japanese stories, it is very strong and we enjoyed the idea that japanese equities are benefiting from idiosyncratic catalyst in terms of massive change in aptitude speed. european equities from the standpoint of having gotten, still doing well but having surprises being negative, how the euro made a run, if they depreciates, that will be a headwind to european equities but the idea that the u.s. dollar will begin permanently -- will weaken permanently and he was having that relative growth resilience and a relative real

weight advantage, that is something that creates a intensely range brown crates in the dollar and does take some of the negatives out of the way of the international equities. . jon: luke kawa of ubs asset management looking for the relative button out. this appointment on the luxury players in europe, reach mark getting slammed by 9%, ms down by 4%. we are off the highest of the year -- off the highs of the year. just softer than expectation that lit a fuse. -- but that lit a fuse. tom: we say luxury but they participant -- partition that to be polite into three groups and they have the names we quote all the time.

there's a middle packet and there is a kind of luxury and their suggestion is with the chinese worries, at the minimum and it -- affects them minute -- middle group and the lower group. jon: and you rank -- can you rank? tom: cartier? i am not -- van cleave? jon: is that high end luxury for you? tom: the door to van cleave is so low i have to duck into it. jon: take a listen to this, the region's lighting back into deflation, the property market will likely need a more aggressive policy see -- report to rebound sustainably given past the x-axis -- past

excesses. tom: you mentioned that in the first section that sentence -- in the first sentence. jon: next hour, quite a start to the week and it picks up from tomorrow u.s. retail sales in the morning tons of earnings. the bigger banks on wall street return tomorrow with the likes of morgan stanley and bank of america and into wednesday with goldman -- with goldman sachs. we will talk about big tech all over again. futures on the s&p softer. ♪

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>> the fed, several times in the last several days -- years, -- i think this committee will be wary of declaring mission accomplished and victory. a sawfish --softish landing is what the fed is aiming to achieve. jon: always good to hear from richard clarida and former fed vice chair mentioning that he thinks it is sensible to price in a rate cut.

tk, i am sure you love that commentary around the federal reserve but that is what people are looking for, no fed speak and that is the good news for you, into the quiet period next week, a federal reserve decision and the fed is assuming they will hike interest rates. the unknown for july. scarlet: tom: the date of matters -- the data matters. it is july 17, so we are dashing two weeks away from a july report, from ism and in august and they will wait for more data. jon: tons of earnings. tom: the earnings are not a small matter, apple august 3. jon: get that one in the diary or the jenner -- journal or the calendar. [laughter] it is in the calendar. tom: long ago and far away,

great for billy --greg vaville -- no one going on canoe, to see mention of west virginia. he joins us now, chief u.s. policy strategist at atf and he never recovered from that rock flowing up the cliff. you know new hampshire like everyone we speak to, what is the symbolism of the gentleman of west virginia in the granite state -- state? >> but i was a little kid, my dad took me to see john kennedy but a lot of politicians make their bones in new hampshire and joe manchin is aware of that so the big political story, there have been many, the dissent's collapse, the robert kennedy ga

ffe. the biggest story will be joe manchin going to hampshire with this group teasing a possible presidential run. tom: what form of maverick is he? i understand professor carter is the left of bernie sanders. what is joe manchin sit of the president of the u.s.? >> in the center. he feels the biden administration has been too much money so he is a centrist. he feels there is a road there and there may be a path. i am not sure he will be the nominee but he will stir things up and we can up fighting -- weaken up biden. lisa: who will weaken more?

greg: i will say joe biden. if mention gets 20% -- if joe manchin gets 20%, that could hurt joe biden a little bit but at the same time, if you really campaigns as a centrist, as a third party's interest, he can do well, not well enough to win but well enough to hurt joe biden. lisa: there seems to be a discussion about ron desantis and whether his campaign is doing especially given how quickly has -- he has burn through cash and his lack of contributions. do you think there is a path for resurrection in getting back his momentum? greg: i think he is going to campaign in all 99 counties in iowa. he has to take iowa much more seriously. he has indicated he did not want to join the debate. he has to join the debate. i think right now, the lead is

about 40 points for trump over the santos --desantis. lisa: something that caught our attention is ups and the strikes that are going for the workers who have declared a strike but are looking to the deadline. ups, the workers have asked joe biden's administration not to intervene in the way they did with the rail strikes. why is it that we are seeing such a slew of strikes and union activism over the past couple months and whether the -- what are the indications -- implications for the u.s. economy? greg: a lot of workers are feeling their salaries are not keeping pace with prices. i think there is an economic argument for it but it is not just hollywood. it is ups, the united

autoworkers who could go on strike. it is southern california. housekeeping and hotels and the hollywood strike has had a ripple effect on southern california so i think this will be a real sleeper to see if joe biden gets involved. tom: my shock of the weekend, i really don't care about the political debate. the public service of the former vice president of the united states, mr. pence of indiana was noted. i was stunned by his inability to raise money, were you surprised? greg: absolutely. there are many candidates who could say i did great but the performance by mike pence was a surprise. jon: there is a debate on the stage, the former president donald trump, the former

governor chris casey -- chris christie put out an ad calling the former president chicken. do you believe the former president will be on the debate stage? greg: i would say yes. i think he could not resist getting involved in this so he will be persuaded to join the debate. greg: ray valliere --jon: greg valiere joining us. tom: let's move onto the six-day battle for the election in the u.k. it is ridiculous but all of a sudden, it became more interesting when there is challenges there about fundraising and signatures. we rely on a guy like valieva --

valiere to do that. romaine: --jon: you can see reason why he wouldn't let them fight between themselves. lisa: here is his response. he said you are leading people by 50 and 60 points and you say, why would you be doing a debate? it is not fair. why would you let someone add zero be popping you with questions? that is interest -- his response to the chicken comments from chris christie. jon: why should he get him a platform? lisa: it is incredible lubricity -- lovely city and his absence could be construed differently from what he would like and this is a key question if risk is -- if chris christie will have a talked. he is raising running -- money. his role is to put out the stuff mocking the former president. tom: if someone said to me who is mohammed alerian?

it is like butch cassidy, who is this guy? he wrote an essay which encapsulates illyrian. it is about game theory and how we play in the time continuum. this is brilliant and at the moment. we are playing in the equity markets all but hasn't happened. -- in the equity markets on what hasn't happened. jon: you want to -- wherever you when that person came to you? tom: mcdonald's. jon: kelsey berro up next. ♪

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jon: monday morning, equities softer, negative and out on the s&p 500, futures up -- with a muted move lower. we are negative by 0.03%. weekday china, cuts. city --citi, cuts. this can only be achievable if the government continues to step up these measures so i percent, it is 5% and according to

socgen, and needs stimulus. -- it needs stimulus. tom: we have to watch the policy prescription out of beijing, something that maybe annmarie hordern will discuss with secretary-general -- secretary treasury janet yellen. he said, this is not that good except china is not crushing and there is some parallels to where america is falling apart, maybe we weren't and there was a tinge of loom in the pantheon note. this is not the end of the world. jon: it is relative to expectations. we were looking to the second -- here we are sitting in the middle of 2020 and we were talking about government support, last year, down 20

basis points and 10 year down 20 basis points and real move lower off the back of softer inflation data point after soft inflation data point through last week. tom: john and lisa were talking mission impossible and i was talking about where the was the bond market and the bond market on a blended basis, it is priced up and yield down but at -- but it has not broken up to new terrain. jon: soft landing was mission impossible six month ago. [laughter] lisa: that was amazing. jon: with that view, dollar weakness at the moment and let's push it through foreign exchange, the euro stronger against the u.s. dollar for the eighth consecutive session, this will be the longest streak going back to june 2020. tom: everything on the screen this morning, this is the constraint mathematically as euro street -- buttress stock.

jon: the former vice chair richard clarida saying the market share makes sense. kelsey berro writing this -- tom: joining us now, kelsey berro, fixed income portfolio manager and that barely describes her duties at j.p. morgan asset management. i am glad you are here. have you people changed duration, stability, all the different metrics you use have you change the view given the news flow? kelsey: the biggest data point impacting our view has been the recent inflation data. what we have seen there is increased confidence that

inflation is coming down faster than the fed projects. the fed has a forecast of 3.9% of core pce by the end of the year was that we think they will get there and they will go further. the fed is going to be able to pause and it will be a function of this inflation data coming down faster than the fed projects? tom: i look in this and say what is the tactical response? do you barbell? do you letter --ladder? what is the due right now? bob is watching. kelsey: great question and i have been hearing you debate soft landing or hard landing, does that mean for fixed income? regardless of a soft landing or a hard landing, if the fed is at

the end of the cycle, bonds are going to outperform so you look at the last seven rate hiking cycles, in all of those scenarios over the next two years, bonds outperformed cash for three-month t-bills by an average weight -- rate of 3%. what we can agree upon is getting an allocation to core fixed income at the -- at this time is the appropriate positioning at an end of cycle time for the ee -- that to pause -- time for the fed to pause. jon: i know that you and the team are looking at 3% across the whole curve. can you help people listening to this make sense of that? the two-year is at 4.72 and you think there is potential to get at 3.0. the thirty-year is that 3.90.

walk us through how you think about that. kelsey: there are limits to the selloff so if you look at the 10-year yield, here today, it has not been able to sustainably trade above 4%. we had a peek at 4.2 five in q4 last year and we tried to retest the 4% level at q4 last year in that field. we are seeing there are limits to how high longer dated yields can trade and that is a sicko that we are later in the cycle, the fed does have limits to how far they can go and that is reflected in this very historic yield curve inversion we see. jon: late cycle continuing head of cycle. kelsey: it has been a grind tighter for credit in general and we have a looking with our

high yield analysts about what is going on and there is cross currents. you are hearing different things across every sector. they are operating in their own cycle. you hear from chemicals and technology and hide yield, not so great and you hear from hospitality and people cannot stop traveling. everyone on my instagram is in europe. jon: --tom:mine too. kelsey: in the absence of material weakening in that labor market, you see people want to get that spread and they want to get that yield and on top of that, we have very little issuance in the high-yield market so the technicals are in that grind tighter. high-yield spreads do not blowout until the session is actually here so this move is not really that unusual but that has been a grind. lisa: do you see a recession?

is incompatible to see the strength we are seeing that his underpinning the youth -- the euphoria we are seeing and the tighter spreads john was mentioning. is that incompatible -- compatible with a steady grind lower in inflation? kelsey: it is important to understand the labor market is a lagging indicators of the unemployment rate bottoms right as the recession starts and the unemployment rate doesn't peak until a recession is ending so what we are looking at is the leading indicators of things like gross domestic income which is often overload the surface, hours worked within the labor report which is softening. the 500 basis points of rate hikes that have occurred, they are not behind us and still impacting the economy. lisa: we are seeing spreads at higher bonds at the tightest levels going back to april 2022. if credit is a leading indicator and they are saying we will get a default cycle and all systems

are go when you look at stocks. do you reset and start to allocate more towards rick scott -- skier sectors opposed to a couple months ago when a lot of people saw a more eminent recession? kelsey: i would disagree that credit is a leading indicator. just because risk assets are doing well now doesn't mean a recession is in on the horizon --is that on the horizon. -- is not on the horizon. that is investment grade over high-yield and another sector we like right now is agency mortgage-backed securities. you can get attractive valuations there. tom: most people -- it is much bigger and deeper but at the margin, bonds can move off equity valuations.

our bonds competing with equities? our people buying credit, corporate quality bonds versus equities? kelsey: we do observe that. what we are seeing is that people are taking this opportunity to pick up the yields that are historically attractive. if you look at real yield, they are at their highest level in 15 or 20 years. this is not an opportunity that comes are often perfectly in an area where the fed has to -- has you go to the zero bound multiple times this decade. tom: what they do is when they issue bonds, some fancy company, they call four people and one of them is bob michele. are you getting phone calls about bond issuance? kelsey: we are and there is a bifurcation between the market

so high-yield has been a market that has not had very much issuance. you have investment grade market. it is fully open. there is issuance taking place. jon: kelsey, of it. kelsey berro, of jp morgan asset management calls that sell controversial because we are divided around the bond market. tom: technically, it is a perfect pendant. i won't go into it right now but we are still waiting, evidence of which way bonds will cut. i love the idea of the effect of european gdp that shut down the acropolis. the economic impact of americans over -- it is like gilligan's island, a three island tour over italy. jon: is it a travel segment? lisa: every second. -- second --segment.

jon: there is significant growth ahead. things are still ok. i stress ok and they were overly enthusiastic about the outlook but things are ok and the likes of -- the delta saying significant growth ahead. it is an audit cycle --odd c ycle. you have an airline ceo saying let's go. tom: it is a post-pandemic -- it is a post-pandemic original cycle and i think odd cycle captures it. lisa: you cannot factored the change in behavior and how much people have change their behavior after being locked up after however long. the feeling of you need to live in get out there has not gone away. it is a relic of the pandemic and how long will that last? to your comment about how

divided things are, liz young said in a story that was published in dow jones, it is resembling a political landscape which -- where each side looks at each other with anger and recession unable to find common ground. jon: last week was a game change for some people. even from someone who was outspoken about the fed, he pushed back against the doom and gloom around the economy that maybe we can avoid a recession depending upon what the federal reserve will do. even if you believe we will not get a soft landing, comments point on friday was the current narrative is so hard to fight, maybe you don't want to fight it in the market off the back of the data. tom: there is sharp covering and then what? with lisa's leadership, it will be the earnings season and what a high have seen -- what i have seen with and passion and the

terrible earnings with jp morgan, i was crushed at the number of billions of dollars -- jon: kelsey is right there. [laughter] tom: i don't know. it was terrible numbers. jon: getting a raise from wells fargo and citi is getting done. tom: kelsey has her own table at leader house. of little bar with the tv. jon: equities right now and at the s&p, -0.1%. from new york city, good morning.

>> when chinese growth slows, it has an impact on growth in many countries and we are seeing that. it is something i discussed with

chinese counterparts, discussed with plans they have to take actions to address the weakness in their economy. jon: 90 minutes away, janet yellen sitting down with bloomberg's annmarie hordern. speaking from india. we are looking forward to that conversation, a few weeks after janet yellen sat down with government officials in china, the latest data in china this morning getting tons of attention. morgan stanley doing the same thing together with jp morgan. now looking at 5% gdp growth for china which is around the government's target for 2023 but most people stressing to achieve that, it will need further government support. equities is softer on the s&p 500, we are negative by 0.1%, no real drama. another letdown. we are down six basis points on

the 10 year, 3.77 and it is a brutal grind for anyone who has the u.s. dollar about the euro. -- above the euro. this is day eight. tom: it is day eight of the euro up and it is the follow on to what will the data be, the economic data. we are heading towards a quite period for the fed but this earnings announcement and i take it globally, u.s. earnings has a ramification on the correlations of the global market. jon: given the outperformance to tech, you have to bleed the next week is the start of the real earnings season. if you take on that tech positions, microsoft reporting and alphabet and meta. then it is onto apple in august. scarlet: we have to --tom: it is called disappointment after the

measured pulldown we have seen over the last 10 weeks. without question, the book of the year on china is by a professor at the london school of economics, this one has crept up on the zeitgeist, the new china playbook, beyond socialism and capitalism. keyu jin, who has been a supporter of this effort, bloomberg surveillance, we are thrilled that professor keyu jin could join us. congratulations on the impact of the book. what is beyond socialism and capitalism for china? keyu: these labels no longer are that relevant in describing today's world, china fees of mix of its own socialism and the markets work well and it has a new playbook more about the softer metrics of the relevant and dealing with geopolitical

tensions. jon: --tom: separate from that, the goods and state owned enterprise economy is struggling. what is the goal of beijing and the goal of a totalitarian regime to drive those two together to prosperity? i don't see that plan. keyu: china doesn't work as effectively as it did in 2009 after the great recession, you can call state banks and they would be flush with liquidity and the state would undertake large projects and that is what got china back on track. that is not going to happen now. the returns -- the effect of stimulus is lower and there is no appetite for a massive stimulus in china. the chinese government is going

to do enough so that china safely progresses its economy towards 23,000 per capita donald -- dollar income in the next 10 years but no appetite for more than that. lisa: there is a huge question especially around the employment picture in china with a record amount of youth unemployment and challenging some of the sentiment. how does that play into whatever stimulus they decide to degree -- to agree upon? keyu: the youth is the key group and audience the government will prioritize but it is not like there is no jobs around. there is 25 million job cap. there is a 300,000 telling cap every year and the problem is the chinese economy educates -- placed ahead. --raced ahead.

china, as far as to be a giant and smart germany as far as a power. we are talking about an economy trying to lean --wean off a economy. that is why we are seeing we are such a slow down or lack of recovery in china. lisa: do you take issue with people saying part of the problem is that multinational companies are increasingly moving out of china and trying to de-risk some of the political crosscurrents by shifting to vietnam and india? janet yellen has visited in -- three times in the past nine months. keyu: vietnam is the size of a province and may be smaller so i don't think all the worlds's factory can be realistically shifted out to southeast asia

and china is trying to move the global value chain so it is consistent with its economic development but all in all, it is deeply embedded in the global supply chain system which is also why zero inflation right now is also -- it also means it will not add to inflationary pressure globally. tom: i look where we are with orval schell writing about the challenges she faces with china. what is the economic sophistication and knowledge of beijing to address these domestic issues? there is a feeling -- the great work of foreign affairs mac to see -- magazine and cfr, i will mention off this, there is a feeling that these guys are not that sophisticated and working within a communist manufactured -- con -- communist structure

that is stated. --dated. keyu: think the policymakers are incredibly sophisticated. the question is what is the central leadership priority and it is not about -- just about economic efficiency. it is about security and realizing the chinese dream. that goes to chinese socialism so it is not just about economic efficiency but on the government policy, i think there is an incredible amount of thinking behind that and there is policy -- take the local government debt issue. a huge amount of debt but they're coming up with a plan, lots of different ways with commercial banks -- setting up new funds at the local government level to inject liquidity and it is more of a choice rather than a lack of expertise. jon: thanks for joining us. keyu jin of the london school of

economics and author of the new china lay book -- playbook. we had a string of worse than expected economic data through china over the last six months. there has been great disappointment over what has not materialized relative to lofty expectations. tom: we are wedded to three cities of the pacific rim and there's a whole china west including the record heat at 126 degrees fahrenheit and the answer is in the broad spectrum of china, there is only one mandate, employ people. lisa, you nailed it with the question of youth 21% unemployment. lisa: there are questions of the tears with the u.s. and what it would have been with the aspect of the interlocking with multinational companies. one person put out a threat of tweets over the weekend saying

that trade has gone down, imports to the u.s. would have been so much higher from china if it had not been for the tariffs. that is the suggestion from some of the data so you wonder around the margins how much of the geopolitical landscape is also affecting what we are seeing on the ground in china. jon: not a thread of threads on grant --threads. but a string of tweets on twitter? lisa: it is a little slow. tom: there is a blistering note that a lot of you are quitting. it is not working. lisa: it is harder to find people and harder to cultivate your tweet string, your thread needle. [laughter] tom: my twitter feed is dramatically weaker than it was. jon: this lasted for two weeks, this conversation turns so quickly. equities are softer.

from new york, this is bloomberg. ♪

it's an amazing thing when you show generosity of spirit to someone. and you want people to be saved and to have a better life, then you don't stop. the idea that we have saved five million people's lives, it's overwhelming. it's everything. >>. >> even if storm clouds do materialize we think that is still a ways away. >> it comes down to the inflation picture. >> we are confident that by 2024 we will not be worried about inflation. >> we will see a mild and shallow recession towards the end of the year. >> this is bloomberg surveillance with tom keene, jonathan ferro, and lisa

abramowicz. jonathan: a week of quiet confidence following the economic data in america. this is bloomberg surveillance on tv and radio. i am jonathan ferro. getting your monday morning started with equity futures slightly negative. one hour and 15 minutes away, secretary yellen catching up with bloomberg's annmarie. tom: the travels of secretary yellen, not only there but to europe. this is the near national secretary of the treasury that has to come home to serious domestic issues. one idea is the zeitgeist over the weekend of the ample amount of debt in america, which leads us to a linkage with japan and italy for amount of debt out there. jonathan: looking forward to her view on that topic.

we talked about a range of banks that have come out. citigroup and morgan stanley and jp morgan and socgen, take your pick, cutting expectations for growth in china this year. tom: what does that mean for you -- lisa: what does that mean for europe or the luxury sector? we heard of some sort of decline with concern around china sales. how much has the recovery fueled some of the wagers overseas that perhaps might be losing steam. this is some of the questions people have. jonathan: there are hopes this rally will broaden out. we have the perfect guests to have this conversation with. one stock is paramount, -2.9%. box office numbers for mission impossible slightly disappointing. i will give you my review if you wanted in about 28 minutes. tom: give us the review right now.

the guy does his own stunts. grace is lovely. the plot is deeply thick. it is a prequel to the real movie? jonathan: it is timely. it is about artificial intelligence. i enjoyed the beginning but it felt like a warm up for part two and i do not want my movies to feel like a warm up, i want them to be somewhat conclusive. it did feel like that in the theater. i felt like i was sitting around for something that comes out of nine months. lisa: can i just say you are like i will give you my review in 26 minutes. jonathan: that is the tees. the full review is in 27 minutes. tom: maybe they could go see the barbie movie. lisa: it is still -- jonathan: it is still a solid movie. it is good to see the theater beat -- the theater business

doing what it is doing relative to a few years ago when we thought it was dead. tom: i did not know that in the movie he is part of the imf. jonathan: is that news do you? ethan is working for the director of the imf. equities software .5% on the s&p 500. slightly negative. yields are lower five basis points. this run continues, the euro against the dollar. squeezing out in eighth day of strength against the u.s. dollar. we are positive .03%. the currency pair is 1.1231. lisa: an amazing move over the past couple of weeks. today we will be hearing from janet yellen who will be in a conversation with annmarie hordern at 8:15 eastern as janet yellen is in india today and tomorrow.

also yesterday as she attends this g20 finance ministers and central bank governors meeting. curious to hear about the balance between inflation concerns and growth at a time the u.s. economy will possibly fueled the global economy much more than it has in the past because of china. eight: 30 am july empire manufacturing survey. how much do we see a re-acceleration in a manufacturing sector that has been flat on its back? will that meet up with services or will services come down to manufacturing? today regional bank earning start rolling out ahead of morgan stanley and bank of america. on wednesday we hear from fb financial, which in particular is tracking. guaranteed bank shares. jonathan: are you excited for

that? tom: i am excited to hear how bad this is for small banks. to lisa's brief this is not jp morgan. these guys have other headaches. jonathan: some banks we have never heard of. it is like what we do march madness and everyone talks about gonzaga. i never heard of them. if you went to gonzaga, i am sorry. tom: good morning, washington state. [laughter] jonathan: good morning. you are one of those individuals looking for this market to broaden out. can you tell me about the framework? michael: people have been too negative. i think they talk themselves into looking for a recession and a lot of the cyclical sectors have not participated in this rally. there is a lot of the s&p still

in the cyclical portion. where it was last december. if we get some sign from management that not only have earnings held up but they took their guidance down last quarter and feel better about things, i think that portion of the market can play catch up. jonathan: said through banks or through energy? what is it? michael: i do not think the banks will surprise people. i think we will see the big banks will of benefited from the small banks losing deposits. i do not think that is shocking. energy does stand out as a cheap sector if oil is stable. that is one to look for. exxon took expectations down a couple of weeks ago and we want to see whether they are ultraconservative where there has been a problem in that sector.

the disconnect between commodity producers and industrial equities is unusual. industrials have been a participant in this rally and a lot of the commodity producers have been tied to and some have not. tom: -- lisa: the recessionistas point to manufacturing. the sub 50 ism in many months in a low. how do you dovetail that into the soft landing with participation from some of the manufacturing sector? >> our theory is what you are seeing is a broad slowdown in manufacturing rather than a deep slow down. all you get from the ism is more people saying things have gotten slightly worse and more people saying things are slightly better. if it is lot of people saying things were unusually good year or year and a half ago, and that gives you a reading of 47, it is not the same as an early

recession reading of 47. people do not distinguish a rapidly deteriorating environment and an environment which is quite as good as people expected it to be. lisa: there is a tension and it was present last week. i am concerned about this polarization of this idea of an overheating economy with the strength to firing all of the recessionistas with inflation coming down rapidly and the sense we will see that pressure. are those ideas in conflict? >> i think it is a complicated economy, and particularly post-covid i am of the view that monetary policy has not affected that much of the economy.

energy was a massive contributor to inflation on the way up and has been on the way down. i think there is some pact of monetary policy on housing. demand for housing has been crimped. monetary policy has been so lax -- we're adapted is having any impact on aggregate demand. jonathan: inflation data came out last week. it was celebrated, and it was good news. i think too many people ran away with the idea and said the federal reserve has been successful and they can back away. are you saying it is because this economy is more resilient or has not come through the pipeline? michael: is more resilient in

the long end of the curve has not completed monetary tightening. if you look at credit yield, a bbb borrower is paying more to issue debt to date the next year. jonathan:'s next year a better year based on everything you've just said? michael: i don't know if it is a better year for markets but i think the economy will surprise people by its resilience. jonathan: michael, fantastic to catch up with you. not the only one i have heard saying this on the inflation data we have had so far. we need to have a bigger conversation about this. inflation is improving in terms of where we want it to be, but why, and what is taking it there? lisa: fed policy has not taken effect yet. it is not their victory. it is not because of their policies. what michael was saying about longer-term rates, they have not been restrictive since september because of this rally, then does

the fed never fully transmit its policy to an economy that keeps chugging along an dis-inflated naturally regardless of what they did? tom: "the dilution of manufacturing" and what is so important with the dilution of manufacturing -- the delusion of manufacturing is we are still a service sector economy. we are a service sector economy. maybe there is a new manufacturing might. jonathan: rick rieder of blackrock making the same point to our colleagues in bloomberg news. welcome to the program. -.1%. coming up in about 48 minutes, look out for this conversation. will be catching up with david balin of citigroup global

wealth. and i bring you that quote. "i think recession is grossly overstated as a phenomenon without some massive shock to the system." we think we had that shock in march and april. we quickly left behind concerns about that sector. let's see if they return. tom: david balin. michael schill while, what is the common feature? you have to be in the market and if you establish a more long-term view you have to participate in enterprise and right now the enterprise is an american system, american corporations adapting and adjusting. to rick rieder's point, without a shock how do you get to a true recession? we do not give our opinion but all three of us have pushed against that. jonathan: i spoke to him on friday. jay pelosky as well.

they pointed out there is a ton of cash in money markets. tom: larry mcdonald, his essay in the second quarter was the essay of the quarter, which is the first order condition is the money out there that has to find a place. jonathan: if it does, that is argument one. argument two is where it goes. they believe it does not go to tech, maybe it goes elsewhere. tom: the credits bed -- the credit spread realities of high-yield are screaming. jonathan: coming up, u.s. treasury secretary janet yellen with bloomberg's annmarie.

>> tariffs were put in place because we had concern with unfair trade practices on china's side. our concerns with those practices remained. i would say it is premature to use this as an area for de-escalation at this time. jonathan: janet yellen speaking in india. in about our -- in about an hour speaking to the treasury secretary about china and things beyond that.

equities slightly negative, we are down .1% on the s&p 500. once again, we have a weaker dollar against the euro. 1.1238 for the euro against the dollar and yields are lower, down five basis points. your 10 year 3.7794. tom: euro breakout would be something we have not seen yet. it is a quiet day but it is a on the watch quiet day for what is supposed to be quieter monday. jonathan: looking out for the ecb to potentially hike again and then watched? recession right now in germany. tom: we could waste our time on that with annmarie hordern. she is the euro correspondent but there are more important things to talk to her about today. there is a conversation with the secretary of treasury.

annmarie hordern, i am certain that in washington we have never had a secretary of treasury who understands the dynamics of our labor economy as this sector of the treasury. does janet yellen feel we have reached escape velocity away from a recession? annmarie: it is a question we could ask her in about an hour. she has hinted they are in a good position for the soft landing. i think she is very prudent and the fact she would not take a recession off the table, especially this administration having dealt with coming out and calling victory or trying to socialize, that they thought inflation was transitory. i do not think they will claim victory that they have the soft landing, but given the latest inflation data that is something obviously top of their mind and hopefully they are optimistic about it. one concern is what we are

seeing out of china this morning. already citigroup is cutting their gdp growth target for china. what does this mean for the global economy? this is what is painting the backdrop of the bankers meeting the secretary is at in india. jonathan: mohamed el-erian writing this market has been rallying on what has not happened. let's talk about what is not changed between the former administration and this administration. i mention china will be top of mind for you and the treasury secretary. what is happening with those tariffs? annmarie: they're almost at the finish line of this review of the tariffs. the point you make is important. this administration, the biden administration not only kept the trump era tariffs in line, especially in a time inflation was incredibly high and economists that that could be

one tool of the toolbox to bring inflation down. they still kept them in place. they are doubling down when it comes to their executive order they are starting to lift this summer, potentially as soon as the end of july, and other penalties or sanctions on china or expert controls on china. you see the treasury secretary saying they want to de-escalate, but right now when you see a tit-for-tat on the economic front between china and beijing that does not bode well for any de-escalation. lisa: and the fact she is speaking in india where she has visited three times and talks about the incredibly close friendship she hopes to transpire in india moving potentially away from china. how does that messaging go over in china. how do she try to finesse over that reality? annmarie: i think it is no

surprise to chinese authorities what united states has been doing. after this she will be going to vietnam. she has been a stalwart when it comes to this idea of for ensuring and their supply chain when it comes to covid-19 and national security when it comes to supply chains in china and they want to diversify. i would also note india is a critical player. modi's got a state visit to the united states. janet yellen has visited three times in 10 months. she is not visited any place as much as india. they will be hosting the leaders summit in september. india will be the presidency around this, and they are in a very difficult position because they are still conducting a tremendous amount of trade with russia and at the same time the u.s. wants to make sure they are in line with how they view the world order.

tom: the heritage of janet yellen under james tobin and stiglitz were hugely influential and she was renowned for her acuity, her immediate seat of her janet yellen notes. they were literally called yellen notes and she was in a meeting. how are her yellen notes on china received in the oval office. is anyone paying attention to professor yellen? annmarie: certainly they are. there has been a little bit of diversion without treasury sees the relationship with china versus how the white house sees the relationship. this comes down to an issue like the tariffs. the issue with the tariffs becomes an issue with economics versus politics. a lot of economists would say it

would be prudent if you want to ease up on inflation to lift the trump era tariffs. obviously that would be politically toxic for this administration, especially going into an election next year. she said it was premature to say they are on the table, but potentially this is something this administration is looking at yet again. i would find it hard to see them now that we are seeing inflation cooling and going into an election cycle that now would be the time. it seems like the boat has missed in terms of lifting those tariffs. that is where you see some of the tension between this white house and the treasury market. jonathan: just to give tom an extra question, i will ask one for him. there was a view over the last couple of years that janet yellen had been sidelined in this administration. i that we have talked about her potential departure 10 different times. what is happening now? she having a bigger voice in

this white house? annmarie: i think the treasury secretary has been used as an important aid when they're trying to have this we engagement when it comes to china. we have secretary of state antony blinken go first. the administration wanted to set this tone we have serious issues when it comes to the support of vladimir putin, when it comes to taiwan. these are also the two biggest economies in the world and the administration understands the rest of the world wants to see how they have a dialogue and how they can be there as an aid to explain what was going to be coming down on the pipeline. in that sense she is a safe pair of hands. one criticism of the secretary is we know her as an academic, as of fed chair, not so much as a politician. jonathan: will be speaking to the treasury secretary about 45 minutes. and reordering sitting down with

janet yet -- annmarie hordern sitting down with janet yellen. amh use the word premature, citi using the same words. andrew hollenhorst says all of the optimism is premature. upside risk to shelter and other services inflation means we do not share the outlook. tom: same page as mohamed el-erian. that is what the market is trying to do. triple leveraged on cash. i was thinking i would get my shows in the morgan stanley. jonathan: is that what you are thinking? from new york, this is bloomberg. ♪ start saving today at godaddy.com you got this. let's go. gobble gobble. i've seen bigger legs on a turkey!

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jonathan: no drama this morning. stocks down a touch on the s&p. the nasdaq totally unchanged after a decent week of gains on the s&p 500. we are -.1% on the s&p 500. the nasdaq totally unchanged. -- validated by some of the data. retail sales tomorrow morning.

we talked about andrew hollenhorst at citigroup pushing back against that view. soft landing optimism is premature. andrew and the team saying a tightening of financial conditions but inflation may re-accelerate in 2024. i am sure you can agree we are sick to death about talking about it. their hopes in 2024 that it will not be. there is more of this to come. tom: i get that we have to rationalize with the sum of all of our fears of the market and i get it is a healthy exercise but the phrasing wrapped around we just have to wait for the data is comical. jonathan: retail sales tomorrow morning is the next big data point. it is quiet on the fed speak as well. they are in the quiet period of. wednesday looking for another rate hike and then onto the earnings from bank of america

and morgan stanley tomorrow. goldman sachs on wednesday. the euro, eight consecutive days. tom: that is the one thing i'm watching. jonathan: grinding out another one. tom: i notice on china weakness, brent crude back to $78.9. what is important is bramo when we dive into stocks, bramo will control the truth. that is what she is doing. jonathan: the truth around markets or mission impossible? you've given the impression we watch -- you watch that movie over the weekend. tom: full disclosure, our world stopped on friday evening with the tv show for mission impossible. lisa: i want to start with chewy. the newsflash of the moment is

all of the pets people adopted during a pandemic still have to be fed. shares of julie were up 210% and then down -- shares of chewy up 210%. goldman sachs raise the expectations that profit would expand because tom keene would be spending the most as possible on or get dog food. tom: the chewy thon is unbelievable. their whole racket is there is nothing you can do with a few clicks to spend more money than chewy. jonathan: amazon is the same thing. tom: chewy is better. lisa: it is like a dating app except for dog food. tom: the dog food just keeps going up. up and up. lisa: speaking of prices going

up tesla looks like it will be its fifth day of gains, up 2.2%. you can see gains in chinese electric vehicle manufacturers because sales are coming in strong. you also have the first cyber truck rolling off the production line at its texas plant. the cyber truck i know john will drive. here's what we been waiting for, the whole day since john teased his review on mission impossible: dead reckoning part one. there shares lower 2.8% because the box office numbers were not as good. the review? jonathan: $56 million over the weekend. people were looking for something into the 70's. it felt like you are watching part one of part two, that is what it is. it is never good when you have that experience. i also got the feeling -- you mentioned grace played by haley

atwell, i got the feeling that maybe he would hand over the franchise to a new lead. there was talk about ethan hunt taking a backward step in letting the character play out his last movie. i understand based on the success of harrison ford and indiana jones maybe tom cruise will stick around. tom: he is a long way from 80. jonathan: you can see what they do with graphics to make you look younger. they can go back to 1996 tom cruise and keep churning out the movie. i am actually 65 and have been doing this for 30 years. lisa: i am 106. tom: i am less qualified than everyone but everyone raves about tom cruise skills and his intensity of making films. jonathan: the stunt he does when he goes off the edge of the cliff, they use that for the blizzard he tore.

-- for the publicity tour. tom: what did a thing of popcorn cost? jonathan: i do not buy any. sometimes i like to get popcorn. sometimes. i did that 18 months ago. lisa: very specific. [laughter] jonathan: winter programming. tom: to they have popcorn and movie theaters in england? jonathan: of course they do. what you think england is, the dark ages? [laughter] tom: do have moving -- lisa: do you have moving pictures? tom: jenny go see barbie and give us a review? jonathan: if you buy the tickets? tom: lets go and watch barbie together. saving the show is deborah cunningham, global liquidity market. this is an important conversation. we talked to stephen auth the

other day and he made clear that a long time frame is necessary. with the bond losses over the last 36 months, the pandemic bond losses, what is your time frame to recover in the bond market? deborah: we think we are not going back to zero rate. recovery to that low is unlikely. you will have maturities and a bottom that is probably more like 3.5% or 4% if inflation is allowed to settle in. our expectation is that is at least a year in the making. as you know we are looking for something that is higher for longer. our expectation from the fed is a move at the end of this month and maybe another one in september or november. in either case we are looking at

rates five plus percent for a period of time, at least into the middle of 2024. as such that means the bond market is recovering on a mild basis, but it is not going to be a full recovery for a while. tom: the mission impossible of the bond market is to get retail enthusiasm. retail enthusiasm is how much apple can i own right now. what is the process to get back to a bond enthusiasm among retail? tom: -- deborah: right now retail enthusiasm for the cash investor or the fixed income investor is cash and that is because they were woken up about their deposits in banks being zero, 25, 50 basis points not that long ago. they went to money market funds. their next move is to ultra shorts and from ultra shorts they go longer. that takes time.

the retail investor right now from a cash perspective in the fixed income market is short and probably will not be getting long until there is some plateau reached and maybe even the first rate cut, not until the first rate cut we see from the fed. lisa: this is fascinating and answers a question we've been asking. john and tom talking about when will take the money and start putting it into equities and other risky securities. are you saying you're not seeing any signs of that? people are very happy cashing in on those coupons? deborah: absolutely happy. quite honestly, the institutional side of the market has not come into the money market fund projects, but they are in direct security. they are in repo and short-term paper and it is because there institutional in nature and have

the opportunity to purchase direct securities when the fed is raising rates they have the ability to be on top of the rates right away, whereas the money market fund may lag 30 or 40 k. the institutional trade has not happened yet. that will happen when rates peaked. retail trade is still on in full force. lisa: are you concerned people say things like there's a lot of money on the sidelines but it is not really on the sidelines but it is an incredibly lucrative instrument like cash like securities? deborah: it is a good thing. we have seen these patterns occur before. i think people watch earnings or understand what is happening from an economic perspective from their own day-to-day happenings with what they are paying at the gas pump, what they're paying at the grocery store, what they're paying in rent or mortgages. i think it is a natural thing for retail to lead into the

short end of the market. i also think it is natural for them to lead into the longer end of the market. they do not do it in a u-turn. it is something that is a gradual process. it is not particular worry some. we try to keep our finger on the pulse of what is happening from an economic and earnings perspectives. jonathan: deborah cunningham there. there was a view at the start of the year you wanted to be in cash. then all of the set of the equity market happened. i know it sounds cliche but capital goes to where it is treated best there is a feeling it is been treated best inequities and we will see who wins out. tom: is a modern view? a fear of missing out? the idea is you get your 401(k) and you look at the thing and the bond markets are up 2%, cash is up 4%.

even a middling s&p portfolio is up 11 or 12% and that is what feeds the retail enthusiasm. lisa: we mentioned rick rieder of blackrock and how he does not see a recession. given that you would think is he going all in on equities or riskier bonds, and he says one of the beautiful things on investing is you can on the front end yielding assets. i bought commercial paper at 6.5%. i want to go home at 6.5% and just sit. tom: when does the money market frenzy stop? do not understand why anyone rule out a five-point expert money market fund. jonathan: you can get a money market fund. he almost eight phd in psychology. if you have not been in this market and have sat in cash. this is why polasky thinks if the money comes in from money market funds it goes to where the gains have not been.

that is not my view, that is just a range of views. tom: id dow 36,000 to consider this. jonathan: that is what you're waiting for. welcome to the program where we do not quote the dow jones, which is -.13%. looking forward to catching up with the chief economist at ey parthenon. we will do that in 50 minutes. in about 30 minutes you will hear from janet yellen alongside bloomberg's annmarie hordern in an exclusive conversation. we are all looking forward to this one on china. tom: it will not just be one sentence. it will be what annmarie hordern can crowbar out of her. not so much what the market will do but the domestic challenges we have into an election season and the overlay of international economics. to be blunt she is better qualified on this than anyone in the administration.

jonathan: morgan stanley and bank of america report earnings in the morning and that it is goldman sachs on wednesday. in a moment we will catch up on the banking sector. the last time we caught up with him was a few months ago and the conversation around the banking sector was very different a few months ago. tom: it was brutal and the first question will be what is the level of angst amongst smaller banks, way below the super regionals where the big four. jonathan: what he softer .1% on the s&p. year to date up around 17%. nasdaq up around 42% year to date. from new york, this is bloomberg. ♪

>> who is firing on all cylinders? it is jpmorgan chase.

citigroup is on the right course. if we have a stable or healthy economy, is a pre-good picture for banks. jonathan: that is the view of ken leon following earnings from jp morgan, wells fargo, and citigroup. tomorrow you'll hear from morgan stanley and bank of america. tons of regional banks you've never heard of that lisa abramowicz has talked about a few times. in the equity market a bit softer. not going anywhere. a quiet sure in the equity market. in the bond market we just resumed this move lower. the 10 year at 3.78. euro is positive against the u.s. dollar. 1.1236. over the last couple of days do highs for the year, new euro strength for 2023. tom: bloomberg surveillance

committed to giving you the best of the earnings season. lisa driving forward our coverage. we are thrilled with our coverage friday of the big banks and we'll have more coverage tomorrow. jonathan: looking forward to it. tom: wednesday, big banks. then we are done. our guest understands this american banking system like no one we speak to. off the march shock, i am stunned by this. a dead count bounce up 4% of march. i thought it would have done much better. why are the broader indexes of banks, why is it lagging? thomas: mainly because the market is unsettled about what the earnings will be for the regional banks and the banks and there is a reset underway, the

first reset is around net interest income and what is happening with deposit costs. i thought it was interesting that when you looked at the big bank earnings on friday which are actually pretty good relative to expectations the stock still went down across the sector. it is because the view is we are not there yet in terms of understanding how this remixing is happening in deposits. the good news is we are not seeing big shoes drop on credit. that also continues to be a concern. i think kbw for our 2024 estimates for banks, we have cut estimates 20% in the last six months. investors want to know when is that going to stop? when is the reset to profitability going to stop? jonathan: can you help us understand the size of the banks? tom m.: it is all the way through the industry. jonathan: up and down? tom m.: if i were to talk about

dynamics, if you are a spread income lender view of more pressure. don't forget we think the second quarter will be a difficult quarter for investment banking. they did a smidgen better than we thought but let's say down 20% year-over-year. we are seeing green shoots and investment banking. only half a dozen or so companies were that matters. the other companies are feeling the brunt of the spread compression which impacts the bigger banks, even though the biggest banks are faring better. jonathan: have you been surprised at how quickly we have left behind the events of march and april? lisa: i am -- tom m.: i am, which is good and bad. it is good because the american banking industry is resilient and these were idiosyncratic risks. at the same time we need the right reform and in the last quarter i did testify in front of congress and i was urging deposit insurance reform.

instead we are getting capital increases which i think will create unintended consequences and be a whole other dynamic. lisa: how idiosyncratic was it? i ask this at a time a lot of people are studying commercial real estate, which accounts for about half of all loans on smaller bank balance sheets, and we are looking at a record of maturities, maturing commercial real estate loans this year. how do you dovetail that into future weakness we could start to see this earnings cycle. tom m.: i remember the last time around we talked about this. we have a commercial real estate research group and higher rates will hurt commercial real estate values everywhere in the country. but once we are most worried about are the cities in the cities where they have the big properties, that is where using the biggest stress in terms of occupancy in particular, where we think the hits may be the biggest. big news out of friday, wells

fargo took the reserve for those type of properties to 9%. 9% is a big number for a bank after you think about all of the equity already in those projects. that is pretty big. we had a regional bank we took around in new york to think about investors. their median commercial real estate loan was $1 million and almost none of it in the city. we feel better about that. if that describes were regional bank portfolio looks like there'll be pressure but nothing like these big cities where there will be bigger hits. lisa: we talked a lot about consolidation. you did expect a wave of consolidation among smaller banks. you feel better or do you feel like we will see an ongoing turn of consolidation? tom m.: i think we will see consolidation because it has been the trend for the last couple of decades, and you ask yourself why would that happen? it will happen because the cost of regulation will go up and one

way to afford it is to have more scale or merge with a bank that hasn't. that way you do not have to build it yourself and it makes the system more sound. over time healthy banks tend to acquire banks that are not performing as well and that is a healthy step that also happens. lastly, it is a bigger story. over the last decade, especially since dodd-frank, you have seen nonbank lenders pick up market share. we get a report earlier this year where we think banks have about half of the market. anytime capital ratios go up, vice chair bar talked about 2%, that will benefit nonbanks. jamie dimon talked about that in his car -- in his call. that world is less regulated. tom: all of us have a bank we will follow. i will not mention the bank that it is a small bank and it is called bank x.

it has delivered 2.2% shareholder return into the last 20 years has returned 1.4%. are these guys not put out of their misery because they are protected by an umbrella of government support back to andrew jackson? when do you and the rest of them roll these dogs up? tom m.: in some cases there may not be a buyer. there is a chance there may not be a buyer. as technology continues to evolve and there is less branch traffic some of these companies may find there is not the buyer. tom: so what does bank x do in their 20 year garbage mediocrity , kept afloat by government regulation? tom m.: the other thing is sure that company need capital because let's say they have a bad loan or the need to make an investment, investors will look at that and in an industry where investors do not have strong incentive to invest, i think

this applies to any industry. if there is not a return they will not have the access to the capital regulators would like. you need a healthy industry up and down. tom: this is a uniquely american thing. tom m.: i get a lot of questions saying other countries have five or six big banks. we have four big ones. it would be great if we had 15 to 25 big ones and then he would have really good choice and really good competition and some of those local banks will still be critical to their local communities. it is that middle. 97% of the banking industry in america is below $10 billion in assets. that means there are 140 thanks above $10 billion. we are approaching the end game. jonathan: when you went in front of congress, did you get the impression they wanted to make sensible policy or punish the sector? tom m.: i would say the majority

was they were thinking about steps they could take, but i felt as if they were going to address issues that were not solely silicon valley and other bank failures in the chances for unintended consequences whereby. if you push too hard you will benefit the nonbank industry and i think we could be headed in that direction. jonathan: thank you. a diplomatic response to the question. the question, not so much. david balin of citigroup a wealth coming up. what year it has been for wall street and beyond. tom: all the small banks want to do is go to lunch with tom michaud. that is the only reason they are in business. they want to go to the restaurant on top of the ritz-carlton in boston. they go up to brookline country club and say here's how we do it. jonathan: 10:00 teatime.

janet yellen coming up shortly. ♪

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when you show generosity of spirit to someone. and you want people to be saved and to have a better life, then you don't stop. the idea that we have saved five million people's lives, it's overwhelming. it's everything. >> we are of the view that inflation will be able to settle back to 2%. of >> conditions are starting to

be place for capital markets to really open up in the back half of the year. >> we don't want to get aggressive. >> we think higher rates will bite in the third part of this year. >> this is bloomberg surveillance with tom keene, jonathan ferro and lisa abramowicz. tom: jonathan ferro, lisa abramowicz and tom keene on ado and television, commercial free for most of you for a good part of this hour. a conversation with the secretary of treasury. annmarie hordern with many questions on china as well. jonathan: china and chinese growth disappointing overnight. free economic growth in the world's second-largest economy, it comes from the likes of that city, socgen and others. they have taken down the expectations from 5.5% to 5%. it's a only achievable if the government continues to step up

using measures. the china stimulus story, he fixed me or in deflation and ultimately you will need something really big to address the market in china. tom: janet yellen knows that china of ago, six or 7% gdp, we see it with a deflationary, disinflationary impulse out of the pacific giant. that is brent crude 80 down to 78 .88. brent crude gives way. jonathan: the inflationary numbers in china -- softer ppi. there is hopes this will continue. some people think a soft landing conversation is premature. in 2024, will have the dynamic inflation accelerator. something to explore, let's say andrew is right.

what can you do as a market participant now? made the point on friday, you don't want to find that in the markets. tom: is the credit spread market away from full faith and credit? what are other bonds doing? how did they respond to the last 36 trading hours to what we see? lisa: kelsey barrow was saying, perhaps not what they once were credit spreads. the lowest rated securities, the tightest going back more than a year to april. it is the same kind of trend we are seeing in the stock market which is support, strength, not a default cycle. if we do get a read excel array of inflation, which some people are calling for. this -- everybody is ignoring the -- people today are ignoring

that. do you start to see chipping away at the strength we have seen with concerns over an overheating economy? tom: i don't think we will hear an overheating economy from janet yellen. but from the bank of england and brandeis, she would send -- say it can't emphasize enough. i wonder how alone in a bipartisan washington they can't stand beijing. jonathan: the seat has changed for janet yellen. in that seat, how do you balance economic objectives with national security concerns? the national security advisor in the same administration. that is always going to be the challenge, not just for the economy but for security as well. anyone who is going to be in the white house for the foreseeable future. tom: with economic data, what

manners -- matters? lisa: retail sales, but she is looking at the housing market, many things. everyone is looking at their earnings. we know that janet yellen has had a lot of discussions with businesses. may talking about what their trying to do and how they will work with china. tom: the dow down 600, the nasdaq 60,000. they are terrible. jonathan: equities a bit softer, yields lower. down five basis points. the longest run of euro strength against the u.s. dollar going all the way back to june 2020. it has been a while and we have seen this. it has been relentless. another .05% today.

it tom: we are peopling our discussion with people of vintage who have seen this, michael met with us earlier. any number of others including gina martin adams, joining us now of experience is david, the cio at city global wealth. -- citigroup global wealth. what is the character of this bull market? david: it is a bull market born of a variety of things. a lot of exceeding expectations. we started the year expecting an energy crisis in europe that did not happen. the banking crisis you discussed did not turn out to be a banking crisis. ultimately, what we saw as inflation coming down meaningfully, it is hard to make the argument that next year inflation goes up. what will the source of i.b.? the last remnants of inflation are the areas of housing and

rental costs. it is possible for us to get to the two, two point 5% inflation rate in 2024. think about where they start -- we started the year from an investment position. much worse than 2008 and 2009. we had $1.25 trillion of morning market funds, people thinking they should invest or waiting to invest. and then a topic came about artificial intelligence and the impact of it have on markets. that is the accommodation that has brought us here. and the backdrop in 2022 is that this was a rare year. only in 1931, 1969 to receive markets and equities that go down at the same time. a lot of factors. it has contributed to where we are now and where we go forward is more difficult because so much optimism is built into the market at these levels. tom: do you have enough combined

information from your securities analyst to say that we have a better revenue growth line because of a better nominal gdp? david: not really. next year we are going to be .5% higher. it will take time for momentum to build. we imagine a short recession would never be like this unless for six months we think this is probably a 15 month link. it is just a shallow trough. it is going to take a while for us to have built momentum. we are looking at what is going to happen in 2024. it is not this year that we see revenue growth, but next year. the next quarters will be challenging. lisa: when did you start to make a more many full shift on the

heels of better-than-expected data? david: the first was to brazil, and about week and a half ago we added emerging markets into our portfolios. we want everyone to think about their cash position a lot. the five or six year duration risk, capture the yields in your money market fund today for the next five to six years. an emerging markets, if you don't take a lot of credit risk, you can get yields of seven tape percent. that is attractive if we expect inflation to be at 2.5%. lisa: how much of that is predicated on the dollar continuing to weaken? david: the dollar really took a move once the inflation print came out last week. that is indicative of what the world is expecting. the u.s. house and more active central bank in europe. the expected rates in the united states will come down when they

need to. think about the european central banks. they will keep their policies constant. if that is the truth, you have seen the beginning of the weakening dollar and we think that trend could last several years from here and the dollar could be weaker if we were to look out 18 months. tom: i am told it is pushing against 60-40. the work in 2024, 2025? david: i'm back in love with a-40. you're getting paid now for the first time in a long time to hold a medium duration on portfolio. if you can make it 5%, 5.5%, or you want to take more risk, you can earn some terrific yields in emerging markets and cried -- private credit. it will have diversification compared to your equity portfolio. the second thing people have to be mindful of is that value they

are getting for the portfolio. we are at a recovery in 24, you want to have smaller meetings nonstop. you want to diversify into areas even like china. they are trading at low values. but ultimately it you have got to be forward-looking in your portfolio construction and diversification is only free lunch on wall street. we need more of it. less u.s. interests. tom: one final question, david, are we clipping coupons or can we own the debt portion for total return? david: right now i think you can get it for total return. if you can capture three or 4% of real interest rates a year and a half or now, that is exciting relative to the last 11 years. it should be both risk reduction and total return. we are seeing some real movement at the private bank into these

areas. we are saying wow, i've got too much cash. i can put money to work and sustain yields. jonathan: for the people who have been trapped in cash this year, are you aware of gains in the s&p 500? if they come back in, they will feel foolish bringing that in. what do say to them? david: our clients have been sitting there 10 years waiting to come back into the market. so the difference between now and in a time in the last 10 years is if you want to capture a real yield. you need to do that now. this opportunity may go away with that much cash on the sidelines. if you think about the technology trade, the valuation of the nasdaq, the s&p at 21, there are much of the market that you can invest in.

it is totally acceptable if we expect rates to go down. you want to move away from the trendiest markets into the mid-caps, small caps, foreign markets. if you do that meaningfully, you will get the benefit of the market you will take place. you have this movement in technology. the type of change with artificial intelligence affects your intelligence -- we're looking for summing that will be efficient. the result of the rapid acceptance of ai. jonathan: david bailin, thank you. waiting for what tom always talks about, the entry point, the elusive entry point.

we talked about it a few times, you go to cash, that is the decision one. the hardest is one to get it back out again. tom: we don't have to be wildly asymmetric. it is easy to get out of the markets when you are in profit mode. a lot of people are in that position. you take profit, taxable or not, and you are in cash and you are comfortable. and it approaches a set up. what is your mental and actual on paper set up to get a process to get back in the markets? most don't have that. lisa: i loved what he said about 60/40. he is back in love with it. that is the quiet story underneath. it seems to be this feeling that people push into other areas like we heard from michael. tom: real simply here, there is no respect for david braylen --

david bailin until you are down 13.2%. jonathan: a 5% return until the nasdaq started to do the 10%, 30. to your point, the psychology i find the most interesting, if you have set this out, what do you do? chase gains in tech, look for gains elsewhere, look for the market that broadens out? we have heard that from multiple people. looking for a market running broader. michael from the asset management, looking for that. tom: it is so much like 1976 when janet yellen was five years out of yale. she was at the hotdog place at harvard square. she was a research assistant at harvard before she went to berkeley to be at the school for one million years. jonathan: she did not do hotdogs quite like you did. tom: i'm sure she was teaching

at harvard. jonathan: annmarie hordern sitting down with the treasury secretary, janet yellen. over to you. annmarie: we are pleased to be joined by treasury secretary janet yellen, joining us from india where you are meeting your counterparts, the g20. the cloud around the meeting is the data out of china, beijing slowing in their growth. city is talking about the growth target being at risk. i would like to start with the fact of whether you think this means there could be an increased chance of a u.s. recession. janet: well, you're talking about the slow growth number from china. is that right? annmarie: that is correct. janet: i think china has seen slower growth than they expected

upon opening up from covid. consumer spending has been relatively weak. it looks like consumers are more focused on building back the savings buffers. growth has been slow and as you know, youth unemployment is quite high. i think the chinese are concerned about sluggish growth in their economy. annmarie: what does this mean for u.s. growth and global growth, is the soft landing in the u.s. your base case scenario? janet: maybe countries do depend on strong chinese growth to promote growth in their own economies. particularly companies -- countries in asia. and slow growth in china can have negative spillovers. for the united states, growth is

slowed but our labor market continues to be quite strong. i don't expect a recession. i think we are on a good path to bringing inflation down. the most recent inflation data were quite encouraging. we are making progress on getting inflation down. i had hoped and expected that would occur in the context of a strong labor market and we continue to see that. the fact the labor market has been so strong has encouraged more people to enter the labor force and work. that has helped take a bit of heat out of the labor market. the fact of growth overall is slowed after we enjoyed a rapid recovery. that is normal but it is also

led to reduction in the desire of firms to hire. still lots of drop openings, but wage growth is moderating and inflation is subsiding. so i think we are in a good path on the united states. annmarie: it sounds like soft landing is your base case. you don't think we are going to see a recession. yesterday when we were speaking to reporters we talked about de-escalation with china. you pulled out lifting tariffs as part of the de-escalation with beijing. what is on the table? janet: several years of gone by in which we have had covid lockdowns, especially in china. and very limited contact between senior officials and the united states and china. we now have a new economic team

in china that we need to establish relationships with. we need to get our relationship back in a more stable place. put a floor under it and try to promote better understanding between our countries. i recently made a trip, met with a number of senior chinese officials, including the new economic team there. we had very candid discussions. each side it raised a series of concerns. chinese, certainly mentioned their concern with the tariffs that we have in place. but we had constructive conversations that deepened our understanding. and of the economic situation and our concerns, we are able to address them and agree that

there are a broad range of global challenges, debt and climate change, that affect the entire global economy. we need to work on it jointly. i am hopeful we will be able to do that more successfully. and tariffs, we put tariffs in place on china because we had underlying concerns about unfair trade practices, particularly those affecting intellectual property and technology transfer. those concerns really have not been addressed. we are undergoing a 40 year required review with tariffs. of course china also retaliated, putting tariffs in place on us. we have to see what comes out of

the for your review. but i would emphasize that the underlying concerns have not yet been addressed and we have to work on that going forward. annmarie: but we are trying to figure out what is left on the table. it feels like the administration's and hung up when it comes to tit for tat with beijing. there is the outbound executive order we could see at the end of summer. it could not pull a place from the outbound executive order, could that be a place you could de-escalate with beijing? janet: first, i want to say that what we are doing is not tit for tat. what we are doing is putting in place controls that are designed to protect u.s. national securities. and to address fundamental human

rights abuses. we do intend to protect our national security. we have controls that play an important role in accomplishing that. what i tried to explain to our chinese counterparts is that our desire is to make these u.s. policies clearly national security focus, transparent and narrow. we are not attempting to stifle economic progress in china. we have and want to continue to have deep economic ties after this year. our trainers reached almost $700 billion.

-- annmarie: if the national security concerns are so important, jake sullivan called for this outbound executive order two years ago. while thinking the initiations along -- the administration so long? janet: we are looking at outbound controls and they would serve as a complement to the export controls we have in place to make sure we have covered all the town -- channels by which technology can be transferred to china that we think pose national security concerns. i explained to my chinese counterparts that if we go forward with these, they would be narrowly targeted. they would focus on a few sectors. in particular, semiconductors, quantum computing and artificial intelligence. they would contain a combination

of notification requirements. and in narrowly scoped portions of these sectors, prohibitions. but these would not be brought controls that would affect u.s. investment probably in china or -- broadly in china or in my opinion have a fundamental impact on affecting the investment climate for china. these would be national security focused. annmarie: it sounds like it is already done. does the initiation have it finished and is waiting for a good time to release at? janet: we want to make sure that if we do this, we get it right. if we do go ahead, and there is a good chance we will, we would

put out along with the executive order a notice of proposed rulemaking so that the public would have the chance to comment on these proposed controls. we would receive a wide range of public input before finalizing anything that we do. annmarie: you obviously have a lot on your plate when it comes to re-engaging with china in your discussions there off this trip from beijing. how difficult will the dialogue be after the revelations about the chinese hacking of your colleague, secretary rolando -- secretary gina raimondo? janet: i do have concerns about hacking of u.s. government officials or private individuals or companies. i know the united states has the

growth --expressed those concerns. but we continue to deepen our discussions with china to increase our engagement. it is especially important to explain what our motivation is, to avoid misunderstandings that can lead to unnecessary and dangerous escalation. president xi jinping and president biden agreed in bali that senior officials, including in economics, should interact more regularly. i think an outcome of my trip there was that we will have deeper, ongoing engagement at all levels. annmarie: when did you learn about the chinese email hacking?

i am curious if you had a chance to bring it up in beijing. janet: i believe i did not know about that in beijing. it was not one of the things we discussed. annmarie: i also want to ask about what is happening on the ground. something i know it's important you, debt relief in developing countries. there is been a push for the u.s. and meditation to use that as a principal for come--other countries like ghana. but it is not getting the support among other g20 finance ministers. his china the hold up your? -- is china the hold up? janet: the g20 designed something called the common framework, a set of principles and processes to deal with unsustainable debt situations. we would like to see countries

that apply to use the common framework, get rapid relief from their debt that they need in order to grow and be able to attract investment and undertake imf programs that can help stabilize their economies. the few cases that have applied to use the common framework, including zambia, have taken too long. the process has been onerous and has taken a long time to get debt relief. we are pleased that china has become -- china is a major creditor of these companies -- we have been anxious to see china move more quickly and take a more constructive attitude, participating in these debt relief talks. and getting agreement on zambia

was an important step. china is also helpful in the case of ghana and sri lanka. i am hopeful that we will be able, going forward, to make more rapid progress. i should emphasize that the debt issue is one that concerns the entire g20. we are united in wanting to see this framework work more effectively. it is a >> madam secretary, thank you so much for your time today. he from india, the g20 finance ministers and governors meeting. safe travels to you, as i know you are heading off to vietnam next. that was of course treasury secretary janet yellen. the main takeaway for me, obviously, is that she is pretty much rolling out a u.s. recession. also, when it comes down to the

escalation between china and the united states, she did not want to get into the tools they can use on the table, and tariffs seem like something the administration won't touch. when it comes to the outbound executive order, it sounds like it is almost done. it seems like it is very narrow in scope. jonathon: great questioning there. fantastic conversation, as always. annmarie hordern in conversation with treasury secretary janet yellen. two themes there. one about china, one with u.s. growth. this from janet yellen moments ago. china has not addressed u.s. concerns that led to tariffs. those of course from the previous administration still on china, being continued by this administration. janet yellen on the u.s. economy . we are on a good economic path in the united states. i don't expect a recession. the labor market is strong. on that second point, the labor market being strong, several are

going back to last year, were unemployment was 3.5% to or percent, and right now, it is the .5%. tom: this is one of our experts, whatever your view on politics you want to wear slack is when it is two point six unemployment rate in milwaukee. it is the oddest of times and she is super, super, wicked qualified to understand how employed the employable are in america. there is the political issue that the president faces, of people who are less than employable. jonathon: we will play out tomorrow that conversation to the next several hours on bloomberg tv and radio. i will catch up with anne-marie again and get some reaction to that conversation with matt miss can and colin martin from john hancock and swap -- and schwab respectively. a surprising performance from

the airlines, from the cruise line operators. janet yellen talked about the strength of the labor market. can continue, given the performance of stock so far this year? tom: if are you weak, it is a different airport. i think everyone is so dumbfounded by the new character of our travel, i don't think anybody has an informed understanding of autumn 2225. lisa: i would agree. i also think people are looking out october, when student loan payments have to get going again for the first time in three years. where does that money come out of at a time when a lot of these creditors have not been paying down debt, they have been incurring other debt? tom: let's go there right now. that is brilliantly said. let's go to what we heard from the treasury secretary.

gregory daco here with us. is the overlay of an indebted america, let's begin with the consumer. how indebted does ernst & young see the american consumer? greg: there's no doubt we have seen overall debt rise for all consumers, but if you look at historical numbers, we are still at a historical low. we have still seen revolving debt combat quite aggressively. that is one pocket of concern, as lisa was highlighting, with consumers having to now pay student loans once again. that will put tremendous pressure on those at the lower end of the income spectrum. we know that is already where we were starting to see some cracks in the foundation, with higher debt servicing ratio, and also interest rates on these credit cards rising to levels that are

21%, 22%, very high for anyone to pay. tom: this is one aspect of consumer analysis that you guys do. lisa and i brought this up the other day. i am speaking as both a complete hack both in religion and finance. it is biblical these rates that we are being asked to pay on charge cards. are they sustainable? do we get up to the new, new testament on what we are going to pay here? greg: what's important to realize is that we are going to be in an environment where the cost of capital is going be higher. it is not just consumers, but businesses as well. we are seeing gradual adaptation of this higher cost of capital and hearing from a lot of clients that they are being much more careful with their investment decisions because in this higher rate of interest environment, you have to be careful that this project is to going to be profitable. that is the new reality that we are going to be in, still taking some time to filter through to

every actor in the private sector. once we get to more stability and more foresight as to where the fed will end up in terms of terminal rate, where long-term interest rates will settle, we will have more clarity, and likely a bit more of a tailwind in terms of business sector investment and perhaps even hiring. i think that is where the hope really comes from. in this environment, there is not enough supply, we are undersupplied. this potential boost from the supply side, once the private sector adapts to this, it could be a tailwind in this economy. that is where the hope of a soft landing comes from. lisa: just taking a step back, is less consumer spending a positive, a necessary prescription to get a softer landing, to bring the economy to a more sustainable pace? greg: we have seen it consumer spending slow, investment slow. what we have not seen is retrenchment like we do head of recessions. that is why you are seeing a lot

of forecasters dialing back recession calls. essentially, we have not seen employment retrench, consumer spending retrench, manufacturing retrench. what we have seen is a slowdown in the pace of economic activity. still moving forward, but at a more conscious pace. that may be just enough to get us onto this trajectory back to a 2% target. that is what the fed is hoping for. it's going be very difficult for the fed in this environment to calibrate monetary policy. we know there are still hawks that were disappointed not to have raised rates in june. the question is what happens later in the year, in terms of further tightening. lisa: it does feel like every week, we have different stories. we were speaking earlier with market field asset management. pointing to the mannish -- to the manufacturing sector, expecting it to catch up with services, not necessarily the other way around. just moments ago, we got the empire manufacturing data for july.

it was supposed to contract. it did not. and expanded by 1.1%. are we seeing that trend that manufacturing has been in a slump and will recover and catch up to the dynamism we are seeing in the services area? greg: eventually. that's what can happen in an undersupplied world. in the can structure -- in the construction world in manufacturing, we are seeing businesses invest in areas where there is a shortfall of supply. that can be a very interesting economy going into 2024. actually, it is the supply side that drives momentum and the fed does not need to do too much on the demand-side toot -- to cool demand too much because it has already cooled. as we get this rebalancing, it helps with inflationary pressures, in terms of cost, as well as wages. that is the optimism that is there. still have to note that there are risks. we have an environment where credit conditions have tightened. we are talking about leverage in some sectors of the economy.

we have a global economy slowing. the numbers out of china were not that good this morning. the backoff is soft. that is a risk in terms of u.s. activity. tom: this moment -- this headline out moments ago. i don't want you to comment specifically. ford cuts f-150 lightning prices, some by as much as near $10,000. is this the disinflation and deflation up at the revenue line? is this the price adjustment we are beginning to see? greg: i think to some extent, it is. we have seen both used car prices and new car prices surge well beyond their pre-pandemic trends. we are starting to see some correction on that, both in terms of new and used car prices. that is the disinflationary win that we were talking about six months ago. the fact that once this

inflation gets underway, it can actually surprise to the upside, in terms of velocity. tom: greg daco, thank you so much. greatly appreciated on the adjustments of the economy. the toxic brew here, which is really interesting to see, is at the revenue line. i am talking about a holistic, not microcosm, but joy norma's revenue line. it is price dynamics. my right that the f-150 is a successful product? i know that you love it. matt miller decided to get one, too. but we are not talking about tesla stress or too much catch up on the shelves -- catch up on the shelves. lisa: we have seen this and other electric vehicles as well. the key issue is, did they just get too greedy and the margins were too big to begin with, or is this a lack of demand and something more insidious about

consumer spending? people will try to say this is more about the former, not necessarily the latter, and it is simply that the margins were too wide. but ford said it was cutting prices up to nearly 17%. the f-150 lightning pro, the price cut is a most $10,000. the f-150 lightning by about $6,000 of a price cut. but is this to compete also with more traditional cars? because people could not spend what it costs. tom: this goes back to secretary ellen talking about china. i love how our control room has you driving. for you own radio, this is lisa in her lightning.

lisa: [laughter] i wanted a pickup truck. tom: what did you take out of secretary yellen? what i took out of it is that there are debates within pennsylvania avenue how to proceed. lisa: and the interconnectedness of the u.s. and china, how to break some of that delicately without causing an economic collapse in either country. also the sense that there is a lot of loving from private companies to janet yellen, i'm guessing quietly saying this is going to be tough for us to get too combative. tom: yields down 2%. lisa: i have to say, to me, the theme of the week is going to be that all of the data we get, but also earnings. in particular, what we see from banks, not just big banks. how much do we get guidance that

we're going to see a rapid tightening and guidance that we have not seen you? -- seen? tom: to keep you all interested sunday into monday into tuesday into wednesday, the focus is on goldman sachs. we think morgan stanley will come out with a story. we will see others. i think a lot of wall street, there is a curiosity to the state of goldman sachs. lisa: especially considering all the news we have heard and how they have pulled down some expectations. if we do have all of the banks come out with a jamie dimon-like proclamation that consumers are still spending, still seeing a really robust economy, a recession nowhere in sight, we heard that from wells fargo as well, where does that leave the market? is 60/40 back invoke? -- in vogue? tom: we will have all of that

for you with sonali basak, coming up on tuesday and wednesday. but i'm going to go beyond it to what we see with the rest of the earnings. that goes back to the fort announcement, or all these people at the bloom of outstanding revenue, 4% revenue growth suddenly because -- became a percent revenue growth. the calls on that will be absolute fascinating. lisa: you have been great on that. and revenue growth might slow with slower inflation. that is the interesting conundrum. tom: misery here on a monday. green on the screen, uncertain. it's like the yankees and the red sox tied for last place. good morning. ♪

>> growth is slowed, but our labor market continues to be quite strong. i don't expect a recession. i think that we are on a good

path to bringing inflation down. the most ration -- most recent inflation data were encouraging that we're making progress on getting inflation down. tom: yellen viejo, a most original secretary-treasurer. i cannot emphasize that enough. really unique in the modern history of the office. i will take it back to andrew mellon a few years ago. lisa does not remember that, but i do, unfortunately, remember andrew. but that is a really original secretary-treasurer. everyone knows i'm a big fan of chairman yellen. the bottom line is, they are really forceful here on the state of the american economy. the biden administration, for whatever reason, they stand tall on what they are fed their institution is doing. lisa: and they seem to just let it run its course. the consistency we have heard,

soft landing, soft landing, and people used to shrug it off. now, they are saying, actually it is. and everyone is agreeing. tom: we're going to pause now. i'm going to suggest this is the interview of the week. what's important here is to understand a financial meeting is focused on full faith and credit. on government paper. it is easy, people follow it. they look at the 10 year yield and the dow. there is a whole new world out there after all. long ago and far away, i think she was a political english economics major. she was pretty spread. she owned the high ground at the university of chicago and brought it to bloomberg news to look at the security called the bond market. we are now going to talk about your absolute wheelhouse, which is the difference in yield between normal full faith and credit government, were amateurs like me look, and where guys

look on a piece like procter & gamble over seven years. lisa: this, to me, is a fascinating moment. it is the equity-like asset in the market. how do you price out economic slowdown? the person to talk about is not me. it is bradley rogoff, head researcher over at barclays. he is joining us at a time when that equity-like premium is at its lowest level going back more than a year. even though we are seeing defaults pick back up, even though things are slowing, albeit not a crash and burn recession, how do you make sense of this? bradley: everything is rallying across most markets. the high-yield credit market, for example, which you are referencing, is rallying like everything else. it is hard for the rising tide not to lift all ships. when you have all spreads, i'm sure you can pull up the bloomberg index, getting inside of 400, that is well inside of average levels.

it does feel tighter than you can justify if you think about medium-term fundamentals and everything going on in markets, and especially default rates. we think this year in high yield, you will see a 3% to 4% default rate. you would expect a little premium for that. is the mismatch really large? no. when we feel better if it was on a points wider? yes, we would. lisa: if credit is a leading indicator, it would suggest that there is not going to be a significant default cycle. she said it is not a leading indicator. is credit no longer the smart money? brad: i think each cycle is different. that is what we are learning. credit was certainly the leading indicator if we go back to 2008 in the financial crisis. but things are quite a bit different this time. you think about the most recent episode we had around recent -- regional banks, we came up with some rules that worked really well versus the 2008 crisis when

it was an asset quality problem. when you do that to you with rules, you bought up the curve, because it was slipping at the time. i do think you have to take a step back and say that maybe this crisis is not going to be like the next one, if you're looking for that next episode. the last thing i would say is that the high-yield market specifically has gotten a bit higher quality than it was historically because of the alternative of financing. as a result, maybe that is not the best place to look. tom: i want to make it clear that we are trying to get him over to bloomberg here. you bring up the lehman total return index. now, the corporate index as well. it is basically a linear regression straight out. everything goes off a cliff in what i call a dead cat counts.

brad: i think the reason we had that fall off a cliff that you just alluded to, a lot of that is when you think about corporate's in general, especially investment-grade corporate's, for example. the duration is significant and longer than on average treasuries. as a result, when you have a huge increase in interest rates, you can have pretty bad total returns. that does not mean the credit spread component is problematic. as lisa was alluding to, and tom, you were originally, that has come in quite a bit. three medications here is that yields actually look pretty attractive on a lot of these assets. the spread is well below average , around 400 spread. if you look at returns going forward, it tends to be mediocre. but if you look at a percent to 9% yield, which is the range we have been in, those returns tend to look pretty good.

i think the one thing you have to factor in is because of the move, you have got margin for error right now in total returns and credit markets. lisa: i mentioned procter & gamble earlier taking given corporate. with yields up, you have priced down and corporate landscape. is this a tendency where you load the boat on size or are you more sophisticated about duration as you ladder into corporate bonds? brad: i think what we're seeing right now in terms of corporate's is people taking a comparison and saying you can get risk-free or full facing credit, as you mentioned, at the front end for a lot of yield. if you look at the shape of the curve, you have to want duration , to not have the reinvestment risk, and feel really comfortable if you are going to buy longer dated credit.

lisa: you said you wouldn't necessarily look in credit for risk signals, you would look elsewhere. where is elsewhere? is it the private markets that are created almost a buffer for the public credit markets that used to be a frontier for a lot of this investing? brad: i think you have more risk there. do i think it is a systemic problem? no. i don't thing the size of those markets are big enough to have any systemic problem like we had in 2008. i also don't think the leverage in the system they are, in terms of people using financial leverage to buy those assets, is quite enough to have what we likely had in 2008. but if you look at corporate leverage, some of it went to the leverage loan market. a lot of it did go to the private credit markets. while there is some opacity around that, you can look at things like bbc's and see a lot of leverage there. there's a little more risk there. lisa: business development

corporation. it is a close-and fund. i was looking at lisa when i said that. sorry. lisa: one final question as we came out what is to happen. tom asked this earlier and it was a great question. how the equity investors are parlaying into your space because of the yield? brad: there were a lot. if i look back at the second part of last year, the credit markets were under pressure. there was one, was on about these leveraged buyout that got hung at the banks. we saw a lot of that. right now, the spread is starting to scare them a little bit. as we get into eight handle yield and not a ton of spread in high yield, we are seeing a little less. tom: there's 8% yields out there on something i can tolerate? brad: maybe sevens for you. lisa: [laughter] you got a haircut.

tom: i remember full faith credit, i'll say 11% full faith. lisa: when you think about it, right now, the average yield on high-end bonds is 8.3%. even with that really narrow spread. just to give you a sense, that's average. tom: what do you say quickly here to the youngsters at barclays that have never known a normal yield market? brad: that's actually a great point. someone who was not there before 2008, it's a very different conversation. the conversation we are having, and i had a big investor event last week, the conversation was that when you look at high-yield , do you look at price or yields? tom: that's beautiful. i'm going to steal it from you. that is my theme for this week. coming up, we're going to look at price and yield, all on bloomberg "surveillance." we will steal from barclays anytime we can. radley, thank you so much. important bank earnings tomorrow. we will have complete coverage.

this is bloomberg "surveillance." good morning. ♪ i was told my small business wouldn't qualify for an erc tax refund. you should get a second opinion from innovation refunds at no upfront cost. sometimes you need a second opinion. [coughs] good to go. yeah, i think i'll get a second opinion. all these walls gotta go! ah ah ah! i'd love a second opinion. no. i'm going to get a second opinion. with innovation refunds, there's no upfront cost to find out. so why not check like i did for my small business? take the first step to see if your small business qualifies for the erc.

jonathon: let's get your trading week started. good morning. your equity market just a little bit softer. the countdown to the open starts right now. announcer: everything you need to get set for the start of u.s. trading. this is bloomberg "the open" with jonathan ferro. ♪ jonathon: live from new york, coming up, yellen telling bloomberg, "i don't see a recession" as the fed goes quiet for next week decision. in the dollars on its