>> this is bloomberg surveillance with tom keene, lisa abramowicz, and jonathan ferro. >> good morning for our audience worldwide this is bloomberg surveillance alongside tom keene . your equity markets slightly positive on the s&p 500.

in the next hour you will hear from morgan stanley. the commentary from the bears sounds a little like this -- a narrow path to a soft landing modestly wider. they have more confidence that bringing inflation down to an acceptable level will not require a recession. tom: janet yellen with our annmarie hordern saying basically the same thing. i agree the hot see news is important. it is rationalization tuesday as everyone, particularly bears, but the bears are rationalizing where they are going. for more important to me john is this partition i have never seen before between big banks today and and the little banks like

pnc of pittsburgh and also western whatever it is out in california. jonathan:. western alliance lots of major banks are reporting as well. lisa, lots of retail sales, that will be a focus as well. lisa: the expectation is softening in the discretionary spending. one thing we have forgotten about is as things have gotten more expensive people have been more discerning about where they spend their money so everyone was flying everywhere but they may have not in purchasing the cartier watches. these are the trade-offs people are making. jonathan:jonathan: cruises and not watches. lisa: -- tom: there pretty good, except for the united states -- they are pretty good, except for the united states, a bit softer here

in america. why should we be surprised? i guess they pulled back, 5%, 8%. lisa: it is not just china. that is what we should underscore is his belief in what would happen. lisa: in the u.s. we are seeing people pull back on certain spending that is discretionary. we are seeing that across all different income levels. jonathan: let's talk about equity futures. early positive -- barely positive. 3.7540 on the 10 year. even the ecb hawks don't want to commit to a hike beyond july. tom: it is a different story and for lagarde that is beneath the

radar today. i agree. i just looked down here. i have not looked at lease us in saieh walked in the door 10 minutes a -- lisa since i walked in the door 10 minutes ago. 1.49 on the 10 year yield this same as the verbiage out of the ecb. jonathan: let's just sit on this for a second. the euro against the dollar,, positive stronger for nine consecutive sessions. that is the biggest street going back to 2004. lisa: if you have a dovish tone from the ecb the fact that there is still euro strength suggests something deeper and stickier. the bank earnings we were just

talking about, the analyst calls, 8:30 and 9:30 a.m. respectively. i amwhich of the winners, j.p. morgan the clear winner at a 17, morgan stanley at a 3% gain, bank of america today, central bank governors continue their talks, talking about the ecb, cloud notch, over the past couple hours, talk about the ecb, very different tone weeks ago, giving support to the european bond market. 8:30 a.m., retail sales, i'm watching how much higher gasoline prices. not significantly but based on the month over month comparison. the fact you are seeing increased sales in certain nondiscretionary areas, how much is offsetting underlying fundamental behind the sales?

jonathan: thank you. the week really picks up this tuesday morning. joining us as the chief investment strategist oppenheimer. it is the path to a soft landing a lot wider after last week? >> it certainly would appear so. when we think of all of the capitulation that has happened in many spots across the board for the bears, it looks as recognition. the fed is doing his job, consumer showing up to curtail spending and businesses have been remarkably resilient whether it is a cost-cutting, technology, and other barriers. everybody seems to be doing a good job at working through a could be a fairly tough transition. coming out a lot better than expected. tom: what's interesting is not the one of it. i would suggest you have to struggle through 2022 with optimism that it was a difficult

to find a now you had able market. i'm seeing the bears rationalize, how to the bulls like you. how to the bulls like you rationalize? >> we have to stay humble and realize the 40 years i've been in this business, i've learned one thing just about anything can happen. without enumerating all of the things that happened. all the different crises happened, all the difference in terms of innovations and change of the structure of economics and doing business, the political structures have come and gone and returned, it is an extraordinarily challenging period but it does look for now business is doing well, businesses are not a deer caught in the headlights but with advanced technology, able to navigate challenging waters, we are beginning to see that in this earnings season, knocking

on wood, and hopefully we will continue to on that. the fed and central banks around the world, the ecb, boe, have been remarkably sensitive in recognizing the effects of their actions from past periods, and that combined with liquidity around the world still out there from the stimulus is helping float this recovery process. lisa: how do you decide when to take chips off the table? went to get more -- not defensive or cash in, given everybody has join your party and you have got much higher in terms of valuations then we were six months ago? >> there's a couple things. when we look at this, if we all look back and we think are most things that we buy more expensive today than a few years ago, they sure are except for stocks on a broad basis.

the rallies we've seen in technology still have not taken the -- last i looked s&p 500 was down around 5.5% from where it ended in 2021 and many sectors were much worse off. so there is a lot more recovery still do happen here. the other thing is i think an investor has to know, are we traders or intermediate return investors. the intermediate to longer-term picture looks decidedly if not rosie, it looks healthy for our market to factor in the worry. we are not big uncooked occurs -- cryptocurrency but we like positive cash, profitability, management, and products that attract investors. we like tech, industrials, consumer discretionary, and big bang financials look good to us as we begin moving towards we believe what will be a more normalized yield curve. lisa: and we will get a sense

from big bear -- big banks. coming up the latest from morgan stanley and bank of america. you mentioned big tech and you are still bullish on big tech. a lot of people say they want to been on ai looking at companies that will benefit more peripherally. what makes you want to double down on the biggest, most popular of the technology giants? john: i don't know if i would say double down but definitely we are not running away from it. it is the innovation that technology offers today, benefits all 11 sectors, not just itself. when i got into this business, technology was business, government, education that use technology mainly but today it is deeply embedded in the lives of business and consumers and other groups as well. we are all in the upgrade cycle. while there -- there risks increase in terms of privacy and all kinds of issues that need to be addressed, technology has brought us to a most remarkable point today in providing a

resilience we believe is reflected in the market. that is why we still like tech. that said, if you look at our weekly piece, even if we rate technology and outperform the s&p 500, we are somewhat underweight versus the benchmark. i can't believe when i looked at it over the weekend, close to 28% and we are 26 or something like that. for most people, they have to really judge what their exposure will be. think about the sectors like industries that are positively affected going forward in terms of innovation and all that has happened with chip on shoring and the infrastructure built around the world. tom: you are very top-down. most of the people surveillance talk to our top down. i want you to talk about the heritage of bottoms up among the security analysis of opt. i will go back to the giants, who we all worshiped and read every word of on the insurance

act, what is the value of reading bottoms up security analysis to rationalize your top-down belief? john: i think the important thing is to recognize valuations , relative to where they have been historically, not just in recent history but longer-term, then compare it to periods where you had extraordinary innovation and then to recognize how analysis has been affected by technology. i can remember years ago while i was at mike wilson's firm, i used to work at the firm without mentioning the competitor. [laughter] at that time i was working at 1585 broadway if you know the address. [laughter] tom: read visit code. john: the technical analysis -- read the zip code. john: the technical analysis was putting up large pieces of paper on glass windows surrounding their offices to draw up their

charts. today everything is instantaneous. you put things together, back test, forward, analysis and technology has made a big difference in terms of wall street and it is reflected i believe in the resilience that is shown from maximum drawdowns if you do the comparisons from the 1970's into the 1990's to today. it is fairly remarkable. it affects the way the federal reserve operates but most certainly affects the way corporations respond to situations. we think when trouble shows up, it is the quick response that makes the difference. it doesn't mean the quick response is correct what it is often the first response and then you tweak it to get it right. jonathan: we can do it together, therapy session. morgan stanley. tom: let's get michael wilson and john together. jonathan: good to catch up.

tom: congratulations, john. jonathan: difficult year for john and much better year in 2023. the stock market so far this year has performed. tom: looking at the two to four second quarter, laren's mcdonald and his report talked about the great hijacking that is out there. that is what we're coming on with these tech earnings. what will the hijacking stocks do? jonathan: the bulls have hijacked the narrative big time. tom: what is the hijacking going to look like an argus? jonathan: next hour, rbc -- amy. good morning. ♪ the first time you made a sale online with godaddy was also the first time you heard of a town named dinosaur, colorado. we just got an order from dinosaur, colorado. start an easy to build, powerful website for free with a partner that always puts you first.

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>> growth is slowed but our labor market continues to be quite strong. i think we are in a good path to bringing inflation down, the most recent inflation data is quite encouraging. we are making progress on inflation down. jonathan: janet yellen on the conversation of the moment, validating the soft landing hopes and dreams, the treasury secretary catching up with anne-marie in the last 24 hours. we touched base with amh in an hour from now. goldman sachs making a move, cutting probability to the u.s. recession. they will start the next 12

months. from 25% down to 20%. the recent data have reinforced our confidence that bringing inflation down to what they call an acceptable level would not require a recession. heard something similar from seth carpenter of morgan stanley . the equity market bulls so far feeling validated by the date of the last week. let's see if it continues in the summer and beyond. tom: and we got retail sales at 8:30. these are reported nominal, soft inflation coming down, maybe retail sales are in some way a little light and coming down. and that is the indication from the secretary in the interview with anne-marie but there has to be a numerous set of indicators to say inflation is coming down. and they accumulate is how they put it. that's all there is to a. joining us to synthesize the moment is the chief ford exchange strategist at societe generale.

he writes, will you say, two paragraphs? jonathan: three. tom: he even steeped beforehand. [laughter] he joins us now, the king of the three paragraph morning note. is it hard to keep it can -- concise right now, kit? are you overwhelmed by complexity as identified by the forex change market or is it a simple story? >> it is quite complicated but in a sense it is simple. it is simple because everybody has taken a few pieces of economic data in a confusing world and latched on to soft landing story and is embracing it and the dollar has dropped a long way. the chinese yuan, you can see the problems with it and that is across the board. we have a simple reaction to replace what we have been doing all year which was trading foreign-exchange off the next interest rate decision by the

fed, ecb, bank of japan, and whatever. we are going all in pretty quickly on the soft landing. tom: the soft landing identifies to a weaker dollar. can you suggest you can get big figure moves out of any given pair, out of dxy as a traditional index, the bloomberg dollar index? is it a big figure scope or compensating factors so real that it is sort of a nudge along the line into 2000 when he for? john: i think we can go back -- >> i think we can go back. i think we will struggle to get dxy by another 5% from here but it could fall the best part of that. we could go back easily to close to the kind of loans we saw at the end of 2021 when the fed have been accommodative where we had not talked about the ukraine war or much about policy normalization. we can go back to those levels. where we were when we were

recovering from covid but not talking about ukraine. lisa: there was an interesting test this moaning, some speculating the reason for the euro strength and dollar weakness was because the ecb was more hawkish. this morning, it seems there is a decidedly more dovish tone out of ecb members with governing council member class cannot saying, for july, a rate hikes -- rate hike, a necessity. anything beyond july it'll be a possibility a -- and no means a certainty. if you're saying the ecb, if they stop raising rates, we will still see euro strength and dollar weakness? kit: we should but there is one caveat. we have a market that's optimistic about how the economy is looking and still pretty pessimistic about the way the european economy looks. we need the european data at a bare minimum not to get worse but prevalent be -- preferably to look like we are going down a path of economic recovery and

not over embrace the story of europe is a mess in the europe is good because i could push us further. whether the ecb is finished not, there's a lot of speakers and you have not heard from lagarde in a few days and we will get both sides of that argument long before we are done but the euro can go up, just on a rethink of some of the negativity around europe. lisa: i love that. we are sort about the day-to-day level that because we have not heard from chrissy lagarde for a couple days, suddenly that means perhaps on thing might have changed in the past couple days. that is what the indication is, every day is a new message. jonathan: i felt like that was a subtle dig at the ecb president. [laughter] about the frequency at which she speaks. going beyond september, let's go back over the last 12 months. i never expected them to get to 4% on rates of the ecb, did you? kit: no.

we are old enough that these aren't historically high levels but we have gone up quickly everywhere. i think that is the pc would say he read further i did not expect to get to where it is in the u.k. either. that tells you we're trying -- a it tells you the strength of the economic recovery thanks to the monetary compensation and the fiscal accommodation we got in the last couple years, the global economy came out of the pandemic, a lot of momentum coming through, a lot of people had a lot of places to go, planes to catch, appears to drink, party to have, and we got on with it and that got its own momentum. in a sense, that is a positive. that gives us momentum and we are spending pent-up demand and spending for what we missed. one day we will run out of the desire to do so and credit and have a softer landing. jonathan: kit juckes, thank you,

buddy. i remember chris harvey of wells fargo calling a spring break for adults coming out of the pandemic. if you look at what happened with the airlines and cruise lines, it still feels like spring break for adults. tom: it is rationalization tuesday and just to point out here someone like chris harvey has been incredibly supple, adaptable, amendable, week to week. and the people that are reaching come along in short, whatever the belief, they are suffering. i give the highest marks to someone like chris harvey. jonathan: cool. tom: he's not cool. his dog is cool. jonathan: i with a push back on the soft landing optimism. veronica clark joins us quickly. the team with hollen horse saying optimism might be premature and the and frates -- inflation could accelerate into

the end of the year in 2024. i wonder how useful the call is for anyone that wants to put on the trade because, in the words of mohamed el-erian friday, this is a narrative that he does not think you want to fight -- find an equity market come across as for that matter, because so many are on board with this idea we can land the plane softly and avoid recession. tom: no question to get to where helen horse and others are. the only way to get there is data. if the data swings the other way, it would be stunning giv en but out there now. jonathan: u.s. retail sales around the corner, claims is noise later this week. the data is light, light on the fed speak, you might not get any in the last day or so. it is the quiet period for the federal reserve ahead of their meeting. a week tomorrow. other earnings you get to this morning, bank of america later this ever, should come to any minutes time. morgan stanley and the next 60 minutes or so, then after that,

goldman sachs on wednesday. goldman sachs over the last couple weeks feels like the sell side, media commentary, so low. owing into earnings from david solomon and the team. this of it actually looks like into the results from msn be of a little later. equities totally unchanged on the s&p 500, talked a lot about the ecb with kit. that sparked a bond market rally in europe. it carries over to the treasury market. deals are lower by four to five basis points, your tenure, there it is again for a ninth time, the euro is stronger against the u.s. dollar. ♪

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it's everything. jonathan: really interesting two hours coming up on wall street. bank of america results are on the corner and morgan stanley, then u.s. retail sales into all of that. equity futures on the s&p 500, for to much unchanged through most of this morning the last couple hours. negative by .3%. down by -- down on the s&p 500 which has outperformed massively. into the bond market, two-year, tenure, 30 year, shaping up as follows, down five basis point on a two-year to 4.6 937. down for five basis points the tenure as well, 3.7599. the bond bull's can thank europe, a couple ecb officials, not exactly endorsing a rate hike beyond july and of the most ashy of the most talk is officials are not committed to a

hike beyond july, you wonder who is. in the euro, it does not seem to matter. nothing does over the last nine sessions. nine consecutive days of euro strength that continues, the longest streak going back to 2004. the euro, 112.51. -- 1.1251. tom: it is out four decimal points to the right, a subtle thing but you are correct identify this. i would go across to us to a tenure real yield of 1.51%, the same thing, inflation or disinflation metric there just pulsating a little lower. >> the last week dominated by optimism about soft landings encouraged by the recent economic data out of america. you heard that from goldman, we even got a glimmer of the out of the investment bank at jp morgan. this is what veronica clark on the team has to say about citi -- city city -- city manning.

-- citi, tight labor markets, elevated wages, and upside risk to shelter and other service inflation in we do not share the optimism. it might decelerate next year. tom: the interview of the day for the present and new bulls. veronica clark is a represented was citigroup. they have been out front on market economics and looking for a higher rate. let's cut to the chase, there is a new soft landing out there. what did they get wrong? what is the stimulator -- singular distinction that allows you not to join the club? veronica: i think it comes down to the labor market. the data we might see for the next -- for this year could look like a soft landing. we will probably get strong activity data, inflation by cpi could look like it is slowing, but in the left -- unless we get more loosening of the labor market, it is hard to see inflation durably sustainably comes back to 2%. tom: what is the employment data

that matters and we have to wait for the first friday or whatever of august to get a recalibration here of which way this landing goes? veronica: it ultimately comes down to what wage growth does. it all the employment data will matter. and when we have a low one of limit rate, we are still adding over 100,000, well over 100,000 jobs and still putting downward pressure on the unappointed rate, that should mean there is the upward pressure on wages. we will be watching the eci next week, the elated fed has a wage structure that is still showing wage growth that is too strong to be consistent with 2% inflation. lisa: some people say the reason why inflation is coming down so quickly is because the year-over-year comparison numbers are so easy to beat. can you give us a sense of which aspects of the inflation rate could potential he regroup and rig celery in the next six months? veronica: yeah. as deftly part of it especially

when looking at headline inflation and energy prices that have come down. we will still see falling used car prices in the next couple months and of course that has been a really strong component of inflation and will look better. components we are focused on are still those non-shelter services, shelter which should continue to slow also but even some thing like that we could see reset -- re-acceleration. we have seen this in housing activity and we might see that upside later this year and early next year. jonathan: colleagues just caught up with janet yellen, the treasury secretary, in any interview and this is what she had to say, the intensity of hiring in the united states. those demands subsided. just on the disinflationary dynamics in the united states, she detailed a range of them, cited the labor market, housing cost, used car prices, every reason to see housing inflation dropping from here. on one of the points secretary yellen made come on the labor market, this is still the debates, has been over last 12 months, can we get inflation to

an acceptable level, some thing back to 2%, without significant softening of the labor market, which means can we as the -- achieve that without sending unappointed much higher than where it is now? veronica: yeah. some of the data we've had the last year certainly looks like that could be a possibility but i would still be pretty skeptical of that. we have had job openings that have come off of highs but there is about 3 million more job openings than pre-pandemic and fewer unemployed people to hire. we had the rate that came down to normal levels but it ticked back up and of course he comes onto wage growth and that is still running five to 6% or so and that is still too strong to be consistent with 2% inflation. lisa: do you think at this point, given the fact a lot of the disinflation we are seeing is a result of simply year-over-year comparisons and not necessarily fed policy transmitting? are bets of a soft landing in your view the same of bets of

immaculate disinflation? veronica: a little bit. that is the ideal soft landing scenario for the fed. we get maybe softer growth but inflation comes down without the bigger contraction in activity area i would be cautious, especially around what we have seen in the housing market where that is the most rate sensitive sector and we did get activity slowing, we did get prices coming down some, but that drive for policy seems to have gum and -- come and gone. prices picked up again which could be a cautionary tale as we are getting into next year. tom: i will go to where the cincinnati reds are, the most exciting team in baseball, so let's move to ohio. the unemployment rate is 3.6%. before the great financial crisis it was 5%, 5.2%, even 5.5% as well. are you suggesting this is a fed that wants to drive the ohio unemployment rate above 5%? veronica: no, they certainly don't want to see arising -- tom: i don't get this.

i totally take your answer, but then how can you do what they want to accomplish? veronica: i know, i know. the fed acknowledged maybe the labor market does need to lose and more. their own forecast run implement rate at the end of this year is higher than now, 4.1%. obviously they would prefer to not have a big contraction, but ultimately has to come down to what does it take to get inflation lower, sustainably back to 2% and ultimately that might need to be more loosening of labor market. tom: loosening of the labor market, doesn't that equate to higher unemployment rate? veronica: yeah, and that is the fed's own forecast, they have a higher unappointed rate that now. it does become a question of how high they would be willing to tolerate and maybe we will see as we get there. the next six months, they might look like there on this ideal path to soft landing and it might not be sustainable. lisa: i was reading through

comments john was talking about janet yellow -- janet yellen speaking wit how her colleagues and she is talking about some features that need to happen to keep inflation on the downward path. she points to profit margins in more diplomatic way than others do she said profit margins are high and have cyclical dimension. so i don't want to go to say you could not see inflation come down without further moderation. earlier it was said companies need to bring the markets down. how much is this a feature of why inflation has been sticky? veronica: i think in general, if we are getting the slowing in activity, we probably will see profit margins come down. that is related to slowing of demand and will bring inflation down. i think it is maybe one of many components but you might see some contraction if we get inflation lower. lisa: what is the most mispriced aspect of the inflation path in markets right now from your vantage point? veronica: i think as we are getting into next year, the next

six months we probably are expecting inflation to come down, especially looking at cpi inflation but maybe in the durability of that for next year is still a little bit over appreciated. people are thinking we will get to something like 2% inflation and stay there and would be much -- i would be much more concerned about scenarios where shelter prices are picking up, even as -- that could mean general inflation is stronger for next year and beyond. tom: what is the citigroup call on this present quarter of real gdp? i'm getting two-ish. i'm below two-ish. everything is an ish. are we around two-ish? veronica: yeah. 2% real gdp growth is strong. that is not looking like even a soft landing. that is not looking like below

potential growth, that is still activity that is still pretty strong. jonathan: love the pushback. gotta say. keeps things interesting. veronica clark of citi, pushing back of the soft landing crew the last week or so following inflation data in america, just in the past week. looking ahead to 2024 potentially anticipating a reacceleration of inflation. that would change the debate on wall street for sure. this morning, the focus is elsewhere. it is firmly on the banks. later this morning, around five minutes from now, we should hear from bank of america and onto morgan stanley and then tomorrow you hear from goldman sachs in between tons of smaller banks, so-called regional banks in the united states reporting. months ago, pnc alongside sonali basak, bloomberg wall street correspondent, good to see you. should we start with pnc, what do we got? >> we should. you see the macro challenges banks are floating -- banks are seeing floating into pnc. even though we are above

expectations and charge-offs are below, you see revenue overall come in slightly light and are also seeing their expenses, efficiency coming in slightly high. so this is one of the bigger of the midsized groups here, they are going to be more bellwether for the challenges the rest of the group face. tom: i'm sure and her wonderfully clear statement, 2% of a margin and i'm declined to increase five basis points as well. to someone like you, does that mean rightsizing rise -- right away? pnc with a flatter story here and maybe we see western alliance more challenged, does that mean the only thing you can do is cut costs? sonali: yes. how you cut costs is going to be of critical interest. costs are rising across the board in many ways. personnel being one of those ways. we have seen a lot of pressure in the job cuts be in mortgage units as well as investment banking. for pnc, what do you do when it comes to more personal bankers here? people that are dealing with more of the american society.

by comparison, jp morgan's net interest income rose 25%. citigroup's rose almost 1%. as the difference between the biggest of the big and in the middle of the pack. lisa: just to put about on that, pnc financial sees third-quarter net interest income of 3% to 4%. so compare the two numbers, completely different ballpark. we are seeing the average loans in the third quarter were down about 1%. pnc was consider the most strong and best positioned of the regionals. what does this suggest of the smaller, less well-positioned firms? sonali: you see the small and medium-size lending and you have seen this in the fed data so it should not surprise anyone so watch. it is granular, bank by bank. loan demand is not looming on its own. the businesses we have been talking about, credit card businesses you see a lot of money being borrowed from the banks. it is not the texture of loan you see from a bank like pnc per

se. lisa: what are you looking for? will it be cost of capital for some of these firms? will it be loan demand, or will it be a lack of competitiveness at a time when the big banks still have much more capital and much cheaper capital at that? sonali: it's all of the above. the long-term structural challenges they face, we have the endgame release coming out next week on what that looks like, and banks like pnc all of a sudden become more under the surface when it comes to stricter regulation. that is cost. ultimately that is a cost. jonathan: let's set up the next 60 minutes, the next three minutes we get bank of america in a moment, morgan stanley later. you are catching up with james gorman i 1:30. let's start with pfa which drops now. net interest income, 14.2 $9 billion, the estimate $14.3 billion. sonali will dig through this and we talk about loans a moment ago, 1.3 5 trillion and the bank

in line. for anyone interested in equity trading interview that comes at 1.6 2 billion, 1.5 4 billion, credit losses at $1.13 billion. trading revenue, $2.76 billion. the stock is up in early trading by 1.6%. shelley, you have about six he second so go ahead. sonali: there are a few things i want to cut through. one is their trading revenue is very aggressive. they have a significant beat there on the equity side and strong fixed income as well. we want to see institutional businesses be the balance here for bank of america when you think about other businesses. we also have provisions coming in in line with expectations. something bank of america has not done yet is given the expectations for net interest income figures for the year as we have seen the other banks not only do but raise. it will not be an easy comparison to make when you think about what their full-year expectation might be. they have not given one yet.

interestingly, this is very important. the non-interest came in above expectations. so bank of america has long been an expense management story. our invest bashar investors going to be ok with that figure? i would also say they had a regulatory action announced as well. tom: what is a regulatory action? ? sonali: the cfb bb, occ, they did not like what was happening there. they accused bank of america of legal practices when it came to overcharging on fees and came to handling certain customers. tom: their powerpoint deck is different from the jp morgan power deck. it has morning hen acuity. what is brian moynihan's focus? sonali: the charts are better but i want the net interest income guidance. we're talking about the numbers earlier here, can they meet the pace of jp morgan's net interest income growth?

it is very significant there when you look at the 25% increase in the first six mus of the year. can bank of america keep up? lisa: is this telling we see bank of america beat expectations, report robust net income income -- interest income , loans and live with expectations, the same time pnc, the king of the regionals, reports the opposite. is there a divergence important to dry here between these two releases? sonali: it certainly is. to what extent is money moving away from midsize into the bigger ones. even among the bigger ones, what kind of business are they taking on. we are sitting in a story where jp morgan, morgan stanley, bank of america, citigroup, not only big lending businesses but massive wealth and investment management businesses, silicon valley bank alliance, first republic alliance, it is a war for those clients. jp morgan just bought first republic, they hired a bunch of silicon valley bankers so is

bank of america then still patching the share falling out of the market? jonathan: let's plan out the rest of the morning. you need more time to go through the release. morgan stanley and the next hour, conversation with james goldman later. what is the focus this morning? sonali: for morgan stanley it is about the numbers but more about the succession plan. he said a couple months ago he would be stepping down as ceo next year but they do not have a new ceo yet named. what is going to be the future of morgan stanley? we were talking about the requirements, they go after morgan stanley, the fee-based businesses and trading businesses that have the benefit of lighter regulation the last 10 years. jonathan: james, morgan stanley in conversation with cinelli bash ache at 1:30 eastern. don't miss that. -- sonali basak at 1:30 eastern. don't miss that. brian moynihan saying this recently, a healthy use economy growing at a slower pace. we heard a lot of that the last week for the banks on wall

street. the u.s. has a resilient job market. from the cfo, the u.s. consumer health remained a strong. we heard that over citi. tom: can't say enough about the layout of the powerpoint of bank of america. it is a template for big and small banks out there across america. the director of research had to monk him re-scott and the biggest advantage is he looks at the big, little, and medium banks. christopher, i want to sit on the big banks right now, i noticed the fancy deposit charts and they do not run in a log where i can look at the slope and all of that but a generalization looking at friday and bank of america, are the big banks winning because they are siphoning money from the smaller banks? christopher: i think the banks are paying up everywhere for deposits so they are not winning and we see the stability in deposits a systemwide. it is true it is happening at bank of america and the large

banks including pnc this morning too. i think everyone is paying more. there is a catch up effect where we retrace back to the fed funds rate. there is still a big advantage for banks. there is a huge difference between where banks are paying for deposits and borrowings and with the fed funds rate is and where it's going. so the advantages still attacked. you're just giving some back because every bank has to give back to funds. that was the lesson learned. lisa: are we basically seeing the big banks when as the smaller banks loss -- is the smaller bank's loss? christopher: i don't think so. i thing the smaller banks had the better loan growth for second-quarter data from the fed. if you look at through the end of june, small banks grew faster and banks were flat on the large side. deposits are about the same. we have not seen a big dichotomy between large and small. i think every institution across all asset sizes are paying out

for funds. that is translated into more stable deposits. lisa: hearing from brian moynihan that we deliver the strongest quarters net income periods in the history of the company, similar with interest from the other biggest banks including jp morgan. do you expect this to continue? is this something that can be persistent or is it legacy of them not increasing the interest rates as quickly on deposits as they reap the benefits from certain loans they have underwritten? christopher: i think it has a lot to do with credit quality being good. banks are not writing a whole lot off their building reserves in general. you see reserve building in today's releases as well. in general these companies are healthy, resilient, and while you are color -- correct the banks are lagging on deposits, that is no longer the case, that is changing this quarter and i think will change in q3. the lack of credit problems is the signature notice for the investors looking at the bank

sector. tom: you know i talk about how the big banks are hiding in their success. i give brian and his team massive credit. page 13 and 14 of this powerpoint is a deposit clinic. i will have to take the rest of the morning to avoid it and read every word of it. consumer deposits from before the pandemic are up 40%. these banks are struggling. jonathan: is it difficult this morning? tom: it is difficult. up 40% in three years on a one quarter, 2.5 years of -- jonathan: usually when you gotta pay out bonuses, it gets hard. tom: major credit for bank of america fort lee stating it in king's english. jonathan: thank you for that. used to be queens, didn't it? then they changed. you want to turn this way? tom: no, too much on deposits. jonathan: lisa alluded to in, high rates of banks, are high

rates starting to hurt them in any way? christopher: i think you will see net interest margins compress for the rest of the month. there clearly is a pain from margins compressing. there's also a catch of going on in loan yields. i think loan yields will trace higher. credit is scarce around the country and so as credit is scarce, banks can charge more for new loans rate i think you will see that a lot in the second half of this year. that bodes well for margins stabilizing by year-end. in the meantime, because banks have to pay more for deposits to have the deposits be stable in -- and grow, there is compression but there is an offset on the credit piece as i mentioned that i think expenses are behaving well. jonathan: can we build on consumer credit? we hear from every ceo on wall street and beyond the consumer a strong, growth is ok but it is slowing. then we had the fed survey come out in the last day or so, published every four months, they show the rejection rate for loan applicants jumping to 21.8%

in the 12 months for june. they indicated that was the highest level in five years or they also added this one, the overall credit applications declined to the lowest level since october 2020. i was not sure how to read that. i'm wondering how someone like you might read into that given your coverage of the banks. christopher: i think we have a society and country that has a lot of haves and have-nots and i think there were absolutely cohorts of households struggling. i think we cannot ignore that. i think, while credit is scarce, it is available in certain areas but in others it is not. i think that is part of what the fed is trying to do try to expand that but it is a real task, a grind. i think you can see in the applications of the fed survey that it is not where we need to be at this point so i think you should take it seriously. i know i do, something we have to continue to work on. i think there is pressure for these companies, particularly bank of america reported today

to do more in the consumer field. lisa: to bring a back to the overarching theme, if there is a constrained volume of loans, are there some banks winning at the behest of others? in other words, are we seeing gains bank of america, j.p. morgan, even citigroup at the behest of european banks and regionals, perhaps in the margins and perhaps it is overstated? christopher: i think of you think about it as a foreign versus domestic, there absolutely is winning on the u.s. turf that we are doing better there. i'm not sure it is much the size difference between large and small as it is investing versus international. i think that's a great point to make. i think there has been a bigger retrenchment outside of the united states so i think that is partly reflected in today's earnings and what we will see the rest of this week. jonathan: wonderful to get your input, not just today but the last several months, particularly on regionals as we work to the mess couple months ago. christopher marinac there with us, back with us for the morgan stanley results in 35 minutes

time, back with us and ollie bassett now. we've given you an extra five minutes, what have you learned? >> a few things to the point we make about the institutional businesses, bank of america's firing on all cylinders, having the best half-year then they have had an trading in a decade or so. if you take a look, what is fascinating is currently, if you look at the mergers and acquisitions tables on the bloomberg lay table data, bank of america is number three. usually that is a reserve for morgan stanley. you see them finding the investment and talent paying off. why's that important? because the offense number is higher than expected. and you look at why, it is compensation and benefits. being a part of the number. you have to wonder, is activity robust enough to keep the people on board to the point tom has been making? bank of america has been doing job cuts, they have not made the surgical large cut at goldman sachs but if you make money, a pace to keep people on board. jonathan: do think that is where

the questions will be on the call the next hour? christopher: i think for every bank -- sonali: for every bank the expense question is a big deal. the other figure is they don't -- they only bought in $2 million of net interest income from two years ago. on j.p. morgan that a $6 billion. it is a big deal when you talk about where activity is going. jonathan: stay close. morgan stanley to come 7:30 eastern, 34 minutes from now. then we catch up with the ceo, chairman of morgan stanley, a question with sonali basak 1:30 eastern. tomorrow we wrap it up with goldman sachs on the market. rbc capital markets joins us in a couple minutes time with your equity market down by 0.06%. that's on the s&p 500. deal telling south, down another four basipoints, your 10-year is 3.76. ♪

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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. >> in the eyes of investors we have a lot of confidence we have slayed the inflation will be man. >> detailed trade is in force. >> the fed will be able to pause and it will be a function of the inflation data coming down. >> markets are looking at 2024. >> this is bloomberg surveillance with tom keene, jonathan ferro, and lisa abramowicz. jonathan: good morning. for our audience worldwide, this

is bloomberg on tv and radio alongside tom keene and lisa abramowicz i'm jonathan ferro. your equity market just negative. numbers from bank of america. in the next hour we will hear from morgan stanley and pushed through to tomorrow. bank of america out just minutes ago. expenses very much a focus. tom: expenses will be rightsizing. i will look for the view from brian moynihan sitting at fenway park looking out at the team come back out of last place. the yankees in last place. buried in the powerpoint is the minutia brian moynihan lives on. equity business, the doom and the bloom, things are terrible, we will not be able to buy the third home in the hamptons. the bottom line is this is why

scale matters. this is why big, i talked about the great hijacking mcdonald was talking about 30 days ago. bank of america is part of that hijacking. this looks to me like a really big machine given all of the challenges. jonathan: bank of america positive a little less than 1%. lisa: that is after delivering a 19% gain in revenue. you asked a great question in the last hour, which is when does that end? do we see it the end of the tunnel for the boone we have seen in jp morgan and bank of america as they have not had to pass along some of that interest to depositors as much as they have been able to reap it from consumer loans. a lot of questions with consumer lending. jonathan: upbeat on trading revenue as well. sonali basak will be back to

break down the numbers. the equity market shaping up as follows. equity futures just slightly negative. there was a bid into the bond market. yields are lower four basis points. the ecb, one so-called hawk being very noncommittal around what they should do after july. is it july 1 and done from the ecb like it may be for the federal reserve, i know a lot of you have that call in mind. treasuries are rallying. still the euro is stronger. i have said that for nine days. 1.1255 on the euro. lisa: people justify the euro strength with a much more hawkish ecb. is everyone betting on a soft landing? morgan stanley at 7:30. this follows what we got from bank of america, which is a

beat. morgan stanley shares up about 1%. we will also be getting western alliance after we did get pnc. the regional banks is very much in focus to see if this dichotomy widens between the big and small. g20 finance ministers are continuing their talks in india. curious to see whether other central bankers make similar types of noise. everyone is seeing a soft landing. at 8:30 a.m., the latest read on the consumer at a time when we have had more stability in gasoline prices. this is one of the key questions underpinning retail sales at a time when every single executive says the consumers are still spending, though may be at a slower pace. jonathan: it is the recession that never was. citi publishing -- a recession

in theory, not in practice. tom: i take issue with this after seeing jp morgan. we will have a national slow down and some form of recession, whatever the jargon, these banks are prospering off of financially successful america. i get the political thing. i get that half of america is flat on their back. i have never seen the numbers and to be fair they do a pre-pandemic analysis. they are booming. jonathan: morgan stanley is 25 minutes away. joining us is abie wu silverman from rbc capital markets. we have had the bank earnings over last week. the banks have lagged what is happening with tech. i am sure you feel the same question we have asked repeatedly. can the rally brought an out? amy: i do and i think you are

seeing that already in the options market. we take the metric where folks buying single stock call options and that was nvidia and apple and google's not too surprisingly a couple of weeks ago, but we have seen that expand to not only s&p but also smaller and mid-cap names and that is happening on a broader basis than before. tom: everybody on global wall street ones to know, what are the forward dynamics, and critically, what does skew do right now? amy: it is doing a lot of nothing. i always say memory is short in the options market and it has gotten even shorter. the folks who have had long put

raids have been burned. the best strategy year to date has been to be long s&p 500. no option strategy year to date has beaten the s&p. you've seen that taken to heart and the vix levels and the volatility suppression. lisa: you said you do expect the rally to brought an out. what are you looking at for areas to benefit the most at this broadening at a time when people are still expecting consumers to stop spending as much? amy: interesting question. it goes back to all of these rotation trades i think investors wanted to put on, even six months ago after the october bottom which is value versus growth or mid-cap versus large-cap. one thing i will say is i have asked investors why it cannot be the case we could just simply have a parallel rally.

make a cap tech does not get hurt, but we simply broaden the rally because one is a secular drive of ai and the other is an economic recovery story. to be clear, we are not seeing less bullish positioning inditex, it is simply that bullish positioning has widened out. lisa: this is the reason some people are saying let's hold on before everyone gets over their skis and the soft landing narrative. more people are invested than have been in equities going back for quite a while. we see much more overweight in market technicals. at what point does that become a concerning sign? amy: i watch this, because i think part of the story from the beginning of the year was there had to be this catch-up trait. one of the reasons we thought positioning would get wider --

for a positioning perspective we are in a much better shape but the question is is there even more to go. i think there is if the rally becomes broader. the second thing is you get technical rebalances for the nasdaq, which will give folks who cannot participate in that narrow breath to have some excuse to do the widening breath. tom: does diversification pay, or is it better to place larger focused bets? amy: it is interesting because we always think about that from a correlation perspective. correlation has been really low. it has been tech going this way and everything else going the other way. if we get more things widening out that breath going larger, maybe that picks up the correlation component of index

volatility. to your question may be the reason volatility goes up and we see a few points higher is because of that widening of breath which makes your correlation component what kicks the ball into higher gear. jonathan: interesting. amy wu silverman of rbc capital markets on the potential for this market rallied to broaden at the potential for the so-called soft landing to materialize. we have had so much commentary on all of this. we mentioned goldman sachs saying the recession was cut from 25 to 20. there was this idea from the likes of goldman and from morgan stanley that maybe you only had a recession to get inflation back down to an acceptable level. to hear an equity market bear say the downside surprise on cpi means a narrow path to a soft landing is now modestly wider, i think that is the closest we have come to any form of capitulation from the team.

it is something. lisa: we will cling onto that because as far as we are concerned it is a big capitulation. here is my fundamental question. if we are seeing disinflation and people believe the lagged effects have not been felt from the higher rates, does that mean there will have to be softness people are not anticipated later on, especially based on people not looking for loans as much and getting rejected when they do? jonathan: i know with a soft landing consensus hopes and dreams are, but the division around the story is remarkable. veronica clark was on this program talking up the potential for re-acceleration in 2024. torsten stopped was on this program talking up the lagged effects of tighter monetary policy that will bite in the next 12 months. that is a big range of use. i will touch base with jim bianco of bianco research later this morning.

he thinks disinflation is transitory, never mind inflation. tom: to companies like bank of america or western alliance -- did they do any poorer without inflation outcome? i am not sure. they are adapting and adjusting and minting money. jonathan: that is what companies do. they adjust. lisa: that's right. tom: joel lovington is the smartest guy on the block and he is just published that the 296 gtb ferrari you want, it is popping in. the ebita on that is $175,000 profit. that is what ford pickup truck is having trouble with. jonathan: that is called a

luxury margin. have you been past the showroom on park avenue? tom: i've never been in. jonathan: i've not been in. i just like to have a look. tom: white of the others do it? i don't understand. jonathan: is there anything more aspirational than that? tom: the green tea. aston martin are doing the same thing. jonathan: from new york, welcome to the program. equity futures negative .05%. coming up later this morning, we pick up coverage around the bank earnings. morgan stanley results just around the corner comment that it is on to james gorman, men we all respect and hold in high regard. jonathan: stunning -- jp morgan wealth management. with james gorman i will ask

what has he built doing, what is morgan stanley wealth management doing? jonathan: who comes next? after work that out with sonali basak. tom: a small matter. may be bombshell announcement today? lisa: is he going to do the bob iger? i found a successor. he has two thumbs it is right here. jonathan: it will take a little bit longer to find one. [laughter] from new york, this is bloomberg. ♪

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>> we are looking carefully at investment controls to make sure we have covered all of the channels by which technologies can be transferred to china that we think posed national security concerns. if we go forward with these they would be narrowly targeted. jonathan: janet yellen with bloomberg's annmarie hordern, the words that matter, narrow, and targeted. the team at bloomberg learning the u.s. is planning a narrow limit on china investment, outbound restrictions. i will share the lead paragraph. abided administration plans to restrict investments in china

and they will be narrowly focused on cutting edge technology. they will not bite until 2024. for the hawks in d.c. it will be narrower than anticipated and will not come quickly enough for a lot of people. tom: a fun event, annmarie hordern killed us in chemistry, we make jokes about it but it is serious. they are looking at a bipartisan focus on batteries. there is a chart in the economist this weekend that showed the climate change differential and the buildout necessary for batteries to make all of this ev stephanie: -- -- all this ev stuff go -- enormous is the only word i can think of. jonathan: there is common ground

between these countries. tom: there is common ground between the technology but the debate is a political debate and annmarie hordern can assess the politics in washington. can everybody get behind what the secretary of treasury is proposing, which is a narrow china proposal? annmarie: it is an interesting line for the administration to walk. this will anchor some of the hawks in washington, d.c. who want to see a more broad outbound investment -- they want to see a broader scope in size, not something so narrow and direct when it comes to the outbound investment. it'll be the reverse of sify us that will track this going to beijing. it comes as the administration is trying to put a floor on relationships and that is why in the treasury secretary most recent visit to beijing she outlined what this outbound investment would be because we already know this is anchored

chinese authorities and they say this is the u.s. trying to isolate their economy and go after their economic development and that is part of the reason why she also went. they are trying to make sure they can keep relations stable but at the same time ramp-up concerns when it comes to national security. tom: cut to the chase. how will china retaliate if we go after rare mineral battery technology? annmarie: we need to see what ends up coming out in the executive order. it keeps slipping. jake sullivan called for this more than two years ago. my reporting it is is supposed to be done by the end of july. that it goes into a hearing review with the public. we are not going to see it take effect until next year and that would likely be the time we would see a response from beijing. if it is very narrow in scope potentially there is not a response. lisa: how does the china

discussion play into 2024 which may be when these sanctions take effect, but it also is the election and becomes a political moment where joe biden is looking to hold onto his seat with razor thin margins. annmarie: the rhetoric will get hotter and hotter every single day with beijing. every candidate will be asked how they feel about relations with china, what they would do in terms of whether it is taiwan , whether or not it is human rights concerns coming out of beijing, whether or not it is xi jinping still backing president putin, not condemning the war in ukraine, every candidate will be asked about this. the rhetoric will be hot. it is advantageous to run a political campaign to say you are a china hawk. that pulls very well. that is what is going to happen into 2024. for this administration that wants to make sure they have a dialogue with china, it will be

a hard needle to thread. lisa: former president trump is putting together a plan to overhaul the executive branch. our current executive branch, according to the architect of this plan, was conceived of by liberals for promulgating liberal policies. there is no way to make the structure function in a conservative manner -- talking about eliminating the deep state. this is a popular approach with others in the republican party? annmarie: this sounds like this is a very trump populist approach for him and his base, the 30% stronghold he has. the issues that the others in the party face is they are trying to not just knock away some of that 30% he has but also gain a larger majority than him. what many are concerned about who do not want to see a trump 2024 nominee is the fact we

could see what we had in 2016, which is it comes down to a plurality. no one gets the major popularity but he will maintain the 30% and everyone else divides it. this sounds like something is very trumpian, less so than what we see from other candidates. tom: look at the calendar for july. we are in the summer doldrums. it gets completely upset by republican politics as lisa mentioned. i am thunderstruck over the raising of money. give us your treatment across 18 candidates. what is the biggest surprise for you in the inability or ability to raise money for the gop? annmarie: the biggest shock had to be the money mike pence brought it in the second quarter , $1.2 million. we are seeing members of congress bring in more money than him. this is a former vice president.

that makes questions about whether or not he meets the threshold to go to debate in milwaukee. that for me was shopping that this is a former vice president at the money he brought in was so low. the other shock on the other cited the aisle is biden brought in $72 million. the campaign says they have $77 million on hand. that speaks to a lot of optimism from his backers about the current president, even though poll after poll continues to show many in the electorate are concerned about bidens age. jonathan: first debate is one month away for the republicans. we have had a conversation about whether or not the former president show up to that debate. any read on that? annmarie: not at the moment. i think he says he is not sure yet or he won't. for trump e views it as almost pointless.

he has the 30% hold he needs. why would he show up when he is probably going to be attacked by everyone? others say he loves a show so if he is not part of it that will not bode well for him. maybe he does counter programming. a lot of individuals like chris christie are trying to troll him to show up on that debate stage. jonathan: daytime. chris christie is -- big time. chris christie is out for him in a big way. august 23 in milwaukee, the first gop primary debate hosted by fox news. that is a big field. tom: you have to narrow it down. what is interesting is the little micro battles icy. i have been focusing on iowa. the conservative and evangelical heart of donald trump's gop party has a voice and they are letting it be heard on the road to august. jonathan: coming up we will

change focus from politics and get back to the banks. morgan stanley coming up very shortly. those numbers should drop in five minutes. chris marinac reacting to those numbers and sonali basak to break down those results and look ahead to the conversation with the ceo and chairman of morgan stanley. that is at 1:30 eastern time. from new york, this is bloomberg. ♪ 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

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jonathan: numbers from morgan stanley seconds away. equity futures negative zero point 04% on the s&p 500. on the nasdaq we are down. no drama whatsoever in the equity market this morning. in the bond market there is a rally. treasuries firmer. yields lower four or five basis points. looking at a two year down four basis points. on the two year, a little north of 4.69. numbers from morgan stanley just dropping. the euro advancing for a ninth consecutive session.

we are stronger on the euro against the u.s. dollar for the longest streak back to 2004. here are some numbers from morgan stanley. net revenue $6.66 billion, the estimate $6.5 billion. there is a lot in here. sonali basak has had a couple of seconds to break it down. give me your first look and we will give you some more time. sonali: morgan stanley back on top. we know morgan stanley is the king maker. fixed income shine expectations. that is a business they are trying to grow on. they are the baby when you compare them to j.p. morgan and goldman sachs. james gorman in his statement highlighting that $100 billion in wealth and investment management net new assets, bringing in over $200 billion year to date. that is the number he wants to bring in more than $1 trillion every few years and he is

showing you they are well on track but the story they've been talking about all morning is how much more business can they squeeze out some of these other banks have shut the market. tom: we are not comparing morgan stanley to j.p. morgan, we are comparing them to goldman sachs. sonali: i think they deserve the j.p. morgan comparison when they are trading at 1.6 times book value. tom: i am looking at a pretext margin. they will go to the decimal point. 25.2 is different than 25%. sonali: 25.2 is less than expected. tom: how does she do this.

did she pull it all-nighter before this? lisa: i am looking at net interest income which came in below expectations versus the estimate of $2.3 billion. how concerning is that at a time when j.p. morgan and bank of america meaningfully beat? sonali: i think that is very important. we know the market is quite soft across the board. to brian moynihan's point it is slowing. the competitive pressures are stark. these businesses are being competitive on every business line, including the bottom line, including costs. one thing that is interesting is you have morgan stanley highlighting severance costs. that is fair cost everyone has to contend with in terms of compensation costs. the unfortunate thing is these are not costs that are necessarily adding to that topline for that competitive pressure. jonathan: the stock is up.

let's talk about the ark of the quarter according to james gorman. the quarter started with uncertainties and ended with a more constructive tone. what you make of that? sonali: we have been talking about the disparity between clients. for morgan stanley it is the creme de la creme across america. the wealth management pretext margin, the reason they missed is because of the expenses we are talking about. they do have record net revenues in that business. the multiple you're getting at morgan stanley is driven by that booming wealth business that is raking in money. tom: i want to go to goldman sachs tomorrow as well. to be clear, they do not have a marcus, do they? they do not have a distraction. sonali: they do not have a consumer business with such ugliness in aunt.

-- in it. there is another thing goldman sachs has that morgan stanley does not have and that is potentially $2 billion tied to that consumer business, and a commercial real estate portfolio that is baked into their asset and wealth manager that they are trying to compete with morgan stanley on at scale. jonathan: early question for the man himself? sonali: succession. there is no other question. with these numbers you have to ask what does the board want of a new candidate? to they want an asset or wealth management head? is the same reason dan simcoe it's is -- the institutional guy you would've said he had a shoe it and it was his to lose. tom: i would suggest perhaps the board of morgan stanley -- i have a friend that is pretty good about this. probably what the board will say is you can find somebody who

will not screw it up. jonathan: given the trajectory they have been on. sonali: there headwinds they have the james gorman will not have. they have more regulation and the businesses that may james gorman a lot of money. that means pressure on r.o.e.. jonathan: thank you. coming up at 1:30 james gorman, the morgan stanley chairman and ceo. tom: christopher merrimack -- chris marinac, thank you for taking time out from your clients. is morgan stanley a bank? chris: absolutely. they make loans and take deposits. their deposit cost rose a lot. they had 100% data. if you look at the change in average deposit cost, this is 47 basis points which is the average change in the fed funds. tom: i am fascinated by the

compare and contrast with the mystery of what we will see tomorrow with goldman sachs. what is the key distinction of a marcus like free morgan stanley? chris: i think morgan stanley can get access to funds cheaper than what marcus is paying. marcus is the rate leader in the marketplace and that has a different spread component and i think that is important. there is less of an advantage at goldman on the cost of funds and that is one thing most banks have an morgan stanley does have an advantage in terms of borrowing and raising money cheaper than the cost of fed funds. lisa: as we parse through the results come at bank of america the average fica score was 7.67. a very well-off customer base. we are seeing a similar type of suggestion in the numbers of morgan stanley. what does this mean for those not in the echelon of upper tears of income earners?

does that mean they are not getting credit or they are going to the pnc's of the world? chris: all of those banks to to have a higher fica score in general so they are looking outside the banking industry which means it is more expensive. the banks are bragging about high fica scores and that cuts both ways. it is good from a credit quality perspective but it does make it difficult for certain borrowers to access funds. lisa: as you take a look at morgan stanley, bank of america, citigroup, wells fargo, who looks the best to you in navigating an uncertain time? chris: bank of america has the best deposit base and the country. they have access to funds that are cheap and have a big advantage over fed funds. they have a lot going for them and have been a leader on the digital buildout. j.p. morgan has too and those are two big engines, the

transformation of the industry towards digital. that'll create a wider gulf between other banks. tom: and the zeitgeist of this july is a massive rollout worldwide in asset management. clearly active management, but also index, passive management as well. is morgan stanley one of the giant players that can take advantage of that roll up or do they have to grow and defend against the roll up? chris: i think they are in growth mode. if you go back to march and april when we had the explosion of first republic they received several clients and teams of people and that will bode well. they still have a lot of transactions and new customers that have come in and where that will become more apparent on the asset side in the months ahead. tom: sonali basak is studying the succession plans. you are a student of it. what kind of person should be

taking over? a wealth manager? a banker? somebody from outside? chris: you need a leader. you need a person who can focus on how to lead an organization, bringing new clients, be flexible when you have market volatility. that is really what it is about. i would be less about labels. i think being able to lead a team of folks and grow the business in the next decade is what is most important. jonathan: appreciate you being with us. chris marinac there. goldman last big one still to come. they report tomorrow morning. the bar is set pretty low. tom: the communication -- i've never seen a mystery in the press. it is not just bloomberg, it is other saying what will we see and the massaging of the message

will be fascinating tomorrow. lisa: i am also curious, some of the earnings calls that parse through the data. looking through the numbers, morgan stanley second-quarter compensation expenses were $6.3 billion. the estimate was less than $6 billion. will be talking about efficiencies. where the cuts come into play? some of the questions ongoing at a time when people are looking for places to trim around the board. jonathan: hooves fading. morgan stanley up 0.4%. it is not just about the major players, it is about the regionals. a few months ago was completely different earnings season on wall street. totally different atmosphere around the financials compared to where we are now. tom: i am as guilty of this as anyone. dare i say western alliance is of equal interest is morgan

stanley this afternoon? here is the book value study. this is the acclaimed pq screen on the terminal, one of the reasons people by the terminal, it gives you a snapshot of the ratios of a given company. morgan stanley 1.57. goldman sachs 1.02. that is a well differential. jonathan: there's a difference at the top of goldman compared to morgan stanley. tom: i have to put the surveillance court in my mouth -- the surveillance cork in my mouth. jonathan: heavy over found that? tom: there is a supply down here. lisa: but it never gets up. [laughter] tom: there was assigning once. it was recent. jonathan: the 1980's? welcome to the program.

equity futures negative 0.09%. morgan stanley out with results. the stock is fading. positive .4%. bank of america up .3%. a beach across the board on wall street relative to expectations? tom: there is little bit of nuance. in the typical things sonali basak follows, i am a student of them. it is uneven across different companies. lisa: uneven and we have seen pretty dramatic numbers in terms of incredible revenues from net interest income, and yet morgan stanley shares 3.3%. j.p. morgan shares are the outliers. bank of america shares down 9% year to date and not climbing that much after better-than-expected earnings. jonathan: greg peters of pgim

fixed income will be joining us shortly. in the next hour looking forward to catching up with jay bryson of wells fargo and ed morse of citigroup. ed saying the commodity bulls have got this wrong you should keep an ion happening with china. crude this morning, south of 80 in the last 24 hours. brent, $74.50. on the fixed income market, with treasuries railing and yields lower, greg peters coming up shorter. a week and a day away from the federal reserve decision and potentially another rate hike from chairman powell and the fomc. ♪

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pretty good scenario. you can get sixes without taking a lot of interest rate credit risk or beta risk you build a portfolio of equities for upside and build a lot of income in your portfolio. a good environment for fixed income investor. jonathan: rick rieder of blackrock subscribing to the idea that maybe you get that soft landing, but ultimately sees a lot alike in fixed income. he felt that way the start of the year and still feels it in the middle of the year. deeper into july and single bond market rallying. yields are rallying. let's pull up the board and have a look at what is happening. on a 10 year treasury yields are lower four basis points. this dollar selloff continues but only just. the high of the session on the euro today, getting closer to 1.30. your session high was 1.1276. not far off. tom: it is still a resilient

euro and you see other things. forget about the idiosyncratic turkish lira which will print at 27, that shows the chaos in turkey and argentina. i would point out to rick rieder, and i think that is important, the total i look at is the bloomberg total return index, either corporate or total return aggregate, and the answer is it is in between where price has not come down. prices not gone up. jonathan: and wishing the peak in yields? so from the ecb. those comments, to hear a hawk on the governing council saying yes, july, let's go, but ultimately in august and beyond september. tom: we have such an important guest and i want to get to this. the read of the weekend was at

the economist about the dilution of manufacturing that speaks right to germinate. jonathan: totally different growth profile in germany. the china influence is huge compared to the united states. tom: went back and forth with mohamed el-erian yesterday. we will keep the theme of manufacturing through a hot summer. greg peters is co-cio at pgim fixed income. if i'd defy a given aggregate index in between here on a technical basis, which way is price going to break? are we going to get higher price, lower yield, or the other way around? greg: i think it is the other way around. the market is very excited around policy rates peaking. if you see what is embedded in the future price there is talk about soft landing, inflation coming down, and on top of it you have substantial rate cuts.

those factors are somewhat confusing to me. as the economy continues to chug along and we avoid a recession i am not sure why a forward rate should be 200 basis points lower than they are today. tom: i look at where rates are and what is going to give way. from where you sit, how will issuance change given price down, yield up? what will be the spirit of the market? greg: what we have found over the last couple of years is there's not a lot of price sensitivity. corporate will issue when they have to. there is a constant desire to issue. i do not worry about that factor too much. to me it is steady as she goes. it is a good environment for fixed income, but at the same time some of the pricing confuses me. lisa: let's talk about that.

why do you think prices are too high? greg: it is pricing in a soft landing, which i think should be the outcome. the risks are pretty elevated. i look at credit spreads, index levels 125 basis points well below the long term mean. a high yield is sub 400 basis points. you are not getting paid a lot from a spread premium standpoint vis-a-vis the risks out there. the overall yield environment is a fantastic one and i think that will continue to drive flows into fixed income. it makes fixed income a very attractive place as we are back to the role which is the hallmark of fixed income investing. lisa: typically after banks report earnings they see a slew of bonds. we saw wells fargo offer with an

eight handle on a subordinate pond with equity-like features. is this the type of asset you want to own? are you looking at the big banks and saying i'm a buyer? greg: the key point is equities like features. i've always been of the mind that is a poor risk. you have fixed income type of yield with equity optionality so the option is always against you. i never liked that part of the market. the senior place looks very attractive to us and continues to be. the money center banks as we call them are very attractive investments and continue to be one of our favorite places to play in investment grade corporate. tom: the theme with price down is i will get a coupon along the way. i get that rationalization.

as a general statement out of pgim short-term three years, are you going to clip a coupon or are you going to invest three years for total return? greg: i still believe that given the shape of the curve, given the attractive nature of the front end, to me it does not make a lot of sense to go out in duration. i think front end carry, a very attractive place to play. i do not see the need to reach. i think investors are in the reach for yield environment, going back free pandemic. the truth of the matter is you do not need to reach. it is right in front of you. you do not need to take unnecessary credit risks or duration risks at this point. lisa: does this mean you do not

necessarily buy into the soft landing narrative or that it does not matter if there is a soft landing or hard landing, you're going for the sure thing? greg: you go to the soft landing narrative. i do not understand -- this is the price confusion in my mind. i do not understand if you believe in a soft landing why the fed would be cutting 200 basis points. to me, that is the and congruency in the market. if you do get a soft landing, i think the front end yields will remain sticky. maybe they're a cuts into the market. that should help normalize the curve, which means the inversion starts to normalize and that means higher yields across the curve. that is how i see it. jonathan: break, one of the best -- greg, one of the best. greg peters, thank you. mohamed el-erian says the market

has rallied on things that have not happened, not things that have. we came into the earnings season and we were worried about things like credit quality and there has been nothing scary so far. jonathan: -- tom: is ex ante bet in ex post world. there is an equals sign on both sides. lisa: it is also the delay in some of the readthrough through effects of monetary policy. i keep thinking back to the fed survey, the rejection rate for auto loans exceeded the application rate for the first time ever since the survey's inception in 2013. to give you a sense of the changing credit dynamic that is happening in real time. jonathan: it is amazing the pushback you are starting to see. a lot of america is flat on its back struggling to obtain credit, then we went through bank of america the average credit score of their customers

is in the high 700s. for everyone who tracks their credit score everyone north of 700 is tidy. high 700 is decent stuff. that means you have a solid consumer as your customer. i'm not sure that it is an accurate description of everybody. tom: at goldman sachs tomorrow and all of earnings season, i look forward to what we will see through technology, and everyone is rationalizing. it is rationalization tuesday. let's go to someone you follow more than me. jp morgan. he is talking about it is modestly wider. the chances of getting to a soft landing is modestly wider. i think there is an adverb in there somewhere. jonathan: that is as about as far as he would go. tom: the red sox are out of last place so we are rationalizing. jonathan: where are the yankees? tom: when i filmed at fenway the

yankees were in last place. jonathan: is that because of your special coverage? [laughter] ♪

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>> we see a recession still in the horizon. >> we are looking at rates at

five plus percent. >> we have seen consumer spending slow. we have seen business investments slow. we haven't seen the type of retrenchment we typically see in front of a recession. >> this is bloomberg surveillance with tom keene, jonathan ferro and lisa abramowicz. tom: an extraordinary rationalization tuesday in the middle of bank earnings. on to goldman sachs tomorrow but more than that, onto the mystery of the rest of american earnings. jon: i want to go to the 12 month forecast of 12 months ago. it is where people thought we would be and we are nowhere close. we are still at 3.5% even with the fed going from zero to 550 and maybe beyond. with the earnings today, to

build on what mohamed el-erian was talking about friday. with the bank earnings three-month after a crisis for the regional banks, it is not terrible and not terrible is so much better than what was expected three months that, never mind 12. tom: not only the crisis of the banks a number of months ago but we are in the shadow of the pandemic, the dynamics of the consumer. here is peter monahan -- here is monahan talking about a buoyant american consumer. jon: this is the struggle reading the economy. push it out for services, here we are experiencing the pent up demand for services, travel, cruise lines and you look at manufacturing. manufacturing sub 50, china not doing great. and services are really robust and we have been asking these

questions, how do you think that converges manufacturing up to services or services down to manufacturing and that is a debate through 2023. tom: we agree we don't have a clue out 12 months where we are. lisa, what is your take? what is the development through the summer you were looking for? lisa: the tightening in credit, that fed survey is interesting. on the margins, how difficult is it for people to get loans, how much higher do credit card interest rates go up -- there are more people getting answers of no than yes to their applications for auto loans at a time where there are people who are underwater, who took out loans for cars that were worth more than they are now at a time where you have for cutting prices. tom: he saw the huge f-150 cut prices. this goes to the heart -- as

veronica citigroup, help me. jon: veronica -- veronica clark. tom: thank you. they -- the answer, veronica nailed this. everyone is waiting for the job market to break and there is no evidence of it. jon: veronica is pushing the story of the re-acceleration of inflation in early 2024. you can find consensus on wall street about the saw patch of inflation through the summer but the vision emerges through september -- and i mentioned jim bianco. we caught up with them recently. jim believes that this inflation will be transitory, that inflation hasn't topped its bottom.

he thinks inflation is bottoming for 2023. a very different perspective to the popular narrative on wall street. tom: fhm financial with a pause on the street. with the atlanta fed gdp tracking model estimating 2.3% annualized growth, even a big downside miss on this morning's retail sales will be a decent second quarter. lisa: this idea of immaculate disinflation in vogue at a time where you are saying that that's tightening will have ramifications and you have -- you cannot have your cake and eat it too. if you have inflation under control, kenny be plaintiffs -- can it be plain -- painless. tom: one point 49% 10 year real yields. jon: nominal yield down five or six basis points, the bond market looks like 3.7 five on the tenure and the two-year down

five or six basis point. we have been drowning in bank earnings. 25 minutes away, the less bang on wall street to report, goldman sachs, coming tomorrow. 1.1 257 on the euro against the dollar. we are down by 0.06% on the s&p. tom: katrina dudley joins us now, running real money at franklin templeton. we are talking about the mystery of three months, the mystery of three years. how do you adapt to the midyear? katrina: we have been at the position for over the years that if we do have a recession, it will be will be called a little r recession. we are calling it the the dough recession --the gadot

recession. all of the data is showing is that maybe we will not have the recession. you're talking about the strength of the job market and the fact that unemployment is persistently low, you also need to offset that by the fact that the job openings, the jokes data is stubbornly high. there are so many openings for jobs not being filled. that is why we think the unemployment number will be sticky and remain low. lisa: are you saying you're getting convinced that we can see inflation get down to the feds to the fed's 2% target without the pain that fed chair jay powell was talking about last year? katrina: the definition of pain will be felt differently in different parts of the economy. if we have a look at the worker, they have been underpaying for 30 plus years and now -- they have been underpaying for 30 plus years and we are seeing

sign that they are being taking -- taken pair of -- taken care of. if you look at the housing market, the data has been positive so it doesn't just -- suggest that there is more pain. areas where numbers are weaker is in manufacturing. if you take a look at the stocks, their trading differently on a short cycle basis from where they have been in the past. industrial short cycles use to track pmi's and they are not anymore and that is reflecting the fact that people are looking forward and looking at all the positive news coming through. we have talked about them ad nauseam, the industrial landscape is positive. even if we have a slight pause in manufacturing, by 2024 we will be out of the woods. lisa: you lean into industrials and financials and all the areas that have not cot into big tech this year -- have not caught to

big tech this year? katrina: if you're sitting on cash, you're making a call -- we do not see a deep recession that will justify you holding cash to you need to lean into those part of the market that have not rallied as much as tech. tom: you are one of the great voices on european stocks. you have seen the reaffirmation of nestle. we talk about quality blue chips, our audience has a real quality. what are the quality blue chips in europe and are that you to america? -- are they cheap to america? katrina: you mentioned siemens, and they automation franchise so it is a company that has sold off on this earth you are talking about, manufacturing. it is selling off because people are concerned about orders. these are companies that have very strong order books and some of those orders they could not

meet because of the short cycle -- the supply chain issues we saw. we are looking at a company selling offer what we think is the wrong reasons so if you look over the pond and look at the pure rockwell automation, you can see the valuation disparity. we think it is unjustified because we have seen siemens is hot -- a high quality player in the digital industries franchise and it is a company you need to beat if you are playing in automation. jon: katrina dudley of franklin templeton on the equity market. what a title from jim reed. the soft landing beverage of choice, referring to the beverage curve in relationship between unemployment and job vacancies. the soft landing average of choice. do you like that? tom: mr. beverage was a force and underrated on single-handedly saving the institution. he did so the rockefeller

foundation of new york. it was going under in the depression. beverages has been a kenyatta with british economics for years but he came up with the relationships of jobs and welfare. janet yellen is truly expert in the dynamics on an the job market hasn't broken. the relationship hereto something out of lsc like the phillips curve is not working. someone with the recession call, he is looking for what the -- what is the theory that works, the traditional labor dynamics is not in play. jon: one of the hopeful objectives of the fomc is to get -- so far, we have managed to reduce job openings to a certain extent. we have not taken a massive

chunk out of them but unemployment is around 3.5%. lisa: please see jobless -- we see jobless claims to come around to 50000 and they haven't sprung upward. have we been pain free or are we hearing about pockets of pain in different places, the white collar recession? the areas where there are greylock -- layoffs, is this the downturn that is keeping a floor on how will things can go? tom: one thing that is great about mike mckee, he always has a beverage in his hand when he talks about the jolt survey. he talks about the employee -- employed america. people worry about unemployment in the job. there is another america out there that politicians that -- have to pay attention to.

jon: we talked about manufacturing and recession but service sector, do tech -- but let's do tech? some of these major tech firms who have seen cuts after cuts, big cuts to the workforce for some companies. welcome to the program, on the s&p 500, we are negative by 0.09%. the next stop comes in 18 minutes time and it is retail sales for america. 3.7462. i wonder will will be the soft landing, the data point that will drop in 17 minutes? lisa: a little slower in respect to spending but robust but people are buying but they are pushing against christ increases. happy medium -- the happy medium of not too soft, not to park --

hard. jon: goldilocks, do you approve? ? no? tom: seriously. can you see janet doing good night moon? she would have a ratio, good night beverage curve. jon: she would sing it? tom: it is a children's book. jon: you don't know it? --tom: you don't know it. lisa: i have it memorized. tom: the movie was great. jon: what --lisa: what? it is like three words. [laughter]

>> to re-weaponized food in a row where there are massive food shortages, i think the russian action is reprehensible. if this is what russia is intent on doing, the rest of the world has to take action to make sure we get rain --grain out. jon: this is how we set up this morning, going to retail sales 13 minutes from now. equities is negative and dow lower -- and down lower. i want to take up moment to set

on crude. $74 a barrel on wti. we are down about 7% year to date on wti and down a percent on brent. -- 8% on brent. some people got this right and one of them was at morse -- was ed morse on citi. he said -- ed morse pushing back. tom: he is different than the others and we talk to them all and have immense respect of the oil economics of goldman sachs and maybe what we see from, rita and then there is ed morse. he does geopolitics and the larger view better than anyone. he joins us this morning.

you allude to it in your research, we are having a climate change 2023 globally to beat the band. someone as giant as michael man is intense that this is a new climate change. how do you interpret the global warming we are observing? ed: it certainly has upended expectations. the world has decided to rely more on solar and wind and on water and part of the climate change process we are seeing is disrupting that, the son is being impacted by bonfires, the rain is not having in places we needed happening in places we don't one in the wind stopped blowing at the wrong kind. we are in a powergen crisis that

is global and it will not stop anytime soon. jon: what will that --tom: what will that due to the price of oil and off the price, the supply and demand dynamics? ed: the price of oil is based on the transportation fuel market. part of the climate change surprise in 2021 is that we had a surge in natural gas prices so that made diesel more expensive because it was feel switching between natural gas and diesel so that is the first time we have seen a spillover of that the powergen market and the transportation and fuel market and it will be the last time that happens. that separation we used two think of as automatic as the longer. -- automatic is no longer and when we get to the next crunch of that gas which may be 2024,

we may see that happen. between the obstacles to invest in fossil fuels and the reduction in demand we are seeing, that spells volatility. it spells a market that will be moving between supply storage and oversupply on the oil side from year-to-year and the oversupply will not be big enough to bring us down to $20 or let alone negative prices and the end of supply will not bring us over $100 but it will mean volatility in the market, it will be there. lisa: what is the range? the band is from $60 to $100 a barrel? ed: it is soft put it --putted around $70 a barrel. it exists because opec who doesn't want oil below $70 but we have the u.s. which has

announced it will be more aggressive about billing the strategic stockpile. when we get to china which has third 2008 and 2009 financial crisis, decided to -- when prices are low and to use those inventories when prices are high so we have a soft put at the moment, higher at 16 -- 60 and maybe at the $70 marrow. there are wildcards. hurricanes are wildcards. we need five category hurricanes in the gulf of mexico and we get damaged like hurricane harvey or rita and katrina where refineries are out for six months. the u.s. is the heart of the global fossil fuel market. the u.s. gulf coast is the largest contributor to combine oil and gas in the world. we are between oil and crude and petroleum products and now

seeing nine or 10 million barrels a day. most of that coming out of the gulf. that is larger than the total production of either russia or saudi arabia and we are seeing 15 bcf ida -- a day of natural gas coming out of the west coast so we have the wildcard without the wildcard, i am comfortable thinking $90 is the ceiling for whatever we see on the tightness side of oil. lisa: where does a soft landing versus a hard landing fit in from the u.s.? you said we hadn't price in something of a more honest recession in the u.s. which people are discounting. what makes you think we should not? ed: probably because my colleagues, you were talking about earlier, i believe what they say about where economic growth is going and i tend to believe people like summers who

are pushing for the hard landing. there is something secular going on. we had lower oil demand going on last year in the u.s. then the year before and that is why every measure on almost every product other than the category recall other but we had less gasoline than them. we are seeing a pickup in gasoline demand this year because people are taking vacations more than they did last year but we are not at 19 levels. we are really seeing a phenomenal structural shift in gasoline and diesel in the u.s.. the diesel side is related to the efficiency of trunks. there are two things structurally going on. if you look at those of us living in new york and seeing delivery vans, they are fueled by cleaner energy than diesel.

there are fueled by either hybrid vehicles or electric vehicles are natural gas vehicles. that plus the actual drop in trade. we have a lower level of movement since last september. we have onshoring going on in the u.s. and europe to take away from china what has been a significant part of their exports. we are seeing a slowdown in trade which means a slowdown of trunks going back and forth to parts. --ports. that is a really permanent factor in the market. on the gasoline side, one of the biggest issues is the increase of fuel inefficiency. we didn't expect the increase of fuel and fish -- efficiency we have seen the drawing three years in which we have supply problems in the auto industry, manufacturers were selling either the most fuel-efficient

or the most expensive -- vehicles they had are selling electric vehicles. we are having a record amount of requirements and fewer people with two or three are going to people with one or two cards -- cars. announcing that are other factors and i think we are close to the u.s. joining china and europe in oil demand coming sooner than most people expected. jon: we have to leave it there. fantastic analysis. ed morse there of citigroup. mike mckee and more coming up. ♪ you should get a second opinion from innovation refunds at no upfront cost. sometimes you need a second opinion. all these walls gotta go! ah ah ah! i'd love a second opinion. take the first step to see if your small business qualifies.

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tom: bloomberg surveillance. jon ferro getting ready for the 9:00 hour. mr. dissen felt would join john -- mr. dissenfeld will join john. it shows retail sales top line on inflation but maybe there is less inflation so maybe i am making this up. lisa: there is expectation that auto sales will cushion the numbers because of sales but there won't be the same kind of

underlying strength we have seen in prior readings. tom: michael mckee is searching for what retail sales will be doing here. there is a mystery. before you get the numbers because your dissen place the -- because we are dissen plating into the numbers -- we are disinflating into the numbers. michael: i don't have any kind of revision yet and that is much lower than that .5% and was thought. x autos was up 0.2 and there was a five that autos would drive the bigger headline but it appears to be not the case, take out gas in -- and euro, 3/10. that is not the kind of a performance economists have

expected. tom: i will come right back to mike mckee. we have a substantial market move with the 2 -- with the yields lower. big move, 4.67%. lisa, critically, i have a 1.49 on the 10 year real yield, this is a disinflation half of a report. we are making for -- we are waiting for the meat of it. michael: the meat is better. the control group, which takes out gasoline and building materials and autos is up 6/10. there is a weakness in one of those three areas we haven't seen and i will look for that. lisa: we are seeing the move lower in yields but i want to pick this out. u.s. retail sales may have revised upward from your .3% to

0.5% so even though the headline number came in slightly -- slightly softer than expected, revisions of birds in the prior months, this is not a clear-cut report especially with broad-based gains outside of the gas in the auto sector. tom: here are the revisions. i feel like i am doing miss universe. michael: the numbers for may, the headline number revised up to 5/10, have a percent from 3/10 and the control group revised up to 3/10 from 2/10. i will give you where the headline fell short. the advance for gasoline was down in terms of the overall numeral -- number, 1.4 percent and there were thoughts that gasoline would add to this.

that is an area where we see weakness. moto -- motor vehicle sales, 3/10 in june 2022 -- 2002, we are seeing -- we're seeing 5% changes. we saw the client in help and personal care scores -- stores. general merchandise stores, down to percent -- down 0.2%. tom: the mess of this moment -- amounts meant -- the mess of this announcement. how does this information for any -- fold into the q2 view? michael: it will go into the q2 view -- the retail sales report is not a real component. the control group is a proxy for retail spending but this is

mostly goods. so it is the personal consumption number be get the end of the number -- month is the number of people want to see. tom: michael -- michael mckee, thank you so much. it was in a full seven basis points and now it is at three basis points after the revised numbers. jay bryson, chief economist at wells fargo. wonderful to have you. i think that states the consumer -- confusion, does wells fargo have very over the american consumer is doing? jay: that is a strong word. in general, when i stand back and look at everything, there has been deceleration in consumer spending. consumer spending in the first quarter in real terms grew over 4% annualized and we will not get in -- that into the second quarter. these numbers that mike talked

about on balance, they are ok. in general, it doesn't change the big story that there has been some deceleration in terms of consumer spending. lisa: how much has the overall discussion been distorted by the auto sector? how much the price is shot upwards in the aftermath of the pandemic and are coming down especially as auto loan rates are getting so high? how much is that behind the confusion? jay: i would not say it is a huge part of it. if you break down consumer spending, roughly two thirds of consumer spending is going to be on services and the other third is split roughly equally between nondurable goods, like clothing and shoes, and durable goods, what component of that is autos. the big driver of consumer spending growth in the economy is services and i think has been more disturbing -- distorting in

this sense, when the economy with shut outcome the service sector was shut down and that came roaring back with the economy opened up, and all -- a lot of that is behind us. here hopefully getting to the point where the aftershocks of the pandemic in terms of the economy are settling. lisa: the aftershocks are settling out, what is the new economic trajectory when it comes to inflation? is it back to what we saw previously or is it something different especially as people are getting paid more and not pushing back as significantly as some would like with respect to how much prices can keep going up? jay: i think you are seeing signs of that. we are seeing that in terms of deceleration in terms of inflation. it is coming through in the service sector slowly. if you look at the rate of change over the last three months, you are seeing the last

service sector of inflation as well. we are heading back towards 2%. it won't be right away. part of that is predicated on some economic softness, i.e., mild session -- we session early next year. these 10% sort of numbers we saw or 5%, that is a thing of the past and we are heading towards a 2% era. tom: on the international basis and after the clumsiness we see here of american retail analysis, do you have a clue what the chinese consumers are doing? guys like you -- have to pontificate and say this and this but do we believe know what the chinese consumer is doing? jay: we started this with lisa is -- saying, what is the news -- your idea of what is going on and ate the u.s. and square that with china in terms of the gaps.

it does seem like things in china are slowing down. you have this lousy gdp number. i think that will continue going forward. what we do know is the chinese consumers, they still have a high savings rate. they are still concerned about health care. you don't have to health care system in china as you do in western countries. that keeps the savings rate of china elevated. tom: this is your team. the retail sales control group, ex red sox tickets, ex building materials, ex this, ex that, do you get value out of the points control group for 60 days -- out of a boy control group for 60 days -- out of a poignant

control group -- out of a boyant control group -- buoyant control group in 60 days? jay: that is when you get the service sector components and you get real numbers as well. lisa: argue increasingly in the soft landing camp this being a soft landing -- with this being a soft landing type of retail number? jay: it depends on your definition of a hard landing but we have been in the recession camp for year and we had to push that call increasingly back out. if you say what is the probability of a recession in the next 12 months, i would say

it is roughly 60%. what will happen when we go forward, inflation is coming down. no one think the fed will be cutting anytime soon so will have been in the months coming, you will get a passive tightening of monetary policy as the real rate drifts higher. in order to have a soft landing, i think the fed needs to be adept in terms of monetary policy later this we're -- later this year as inflation comes down. tom: jay bryson leading all of economics at wells fargo. your thoughts on this in general, the clumsiness. lisa: is it just a disinflation that is a good thing or is it a path something -- for something more pernicious? that is the uncertainty. people are saying that the sewer is healthy.

balance sheets are flush with cash. that is the distinction, people are saying where we are, it is a normalization that leads to a less painful type of lower inflation subsisted. -- such as the -- inflation statistic. tom: we had a real stability, 29,000. a tough 30 hours for bitcoin, the yield space higher yield off the shock of the ugly, clumsy rollout of retail daily -- data. we had sharply lower yields and now we do not. the 10-year yield, 3.78%. the standard and poor's --e mpores out. we say good morning. jon ferro preventer drag us into the morning.

howard moore will join us on radio and i am excited to get his equity update, his courage to be in the market. our ability is to speak to mckee and the economist sam row has on twitter, a great observation, online up 1.9%, department stores down 2.4%. that is a giant or miss --gino rmous delta. it seems to me this observation from sam row of buoyant online department stores flooding at back speaks volumes -- letting it back -- stores flooding it back speaks volumes. michael: there have been obituaries written for

brick-and-mortar stores that seems to be premature. people like to try on clothes and shoes. it is true in this latest month, department stores were down significantly while the online folks were up and department stores have been struggling the past eight months. they are seeing the same kind of traffic people saw. tom: that is an extraordinary trend, that across 30 days in june. features negative six. the vix is stable. thank you ed morse on -- for wisdom on climate change. brent crude, 78.57. this is bloomberg surveillance, good morning. ♪

>> china has huge potential but it is a small market for you.

>> it is small for us. huge short and mid-and long-term potential. we are there elaborate -- we are deliver in our approach in china. -- we are deliberate in our approach in china. tom: that is the ralph lauren ceo as they look at luxury and the partitions of luxury as well. i'm out -- they -- their work on lvmh, we will digress from the vet -- fed. chuck grom is easy qualified to talk about this and usually -- hugely qualified to pay attention to what the people at adobe are doing.

this is a beautiful thing. he joins us this morning. on prime day, away from the math of this, what is the message you learned? chuck: i think the single biggest message is the target looks like it was a real disappointment on a year-over-year basis and when we compare visits to other retailers on a multi-year basis, they look like they disappointed so we are seeing some mean reversion for target on the sales front. lisa: as you look generally at retail sales following the retail print out of the u.s. government, there is the question on whether this is good deceleration in consumer spending or bet deceleration meeting they are running out of time to buy? which is it? chuck: i know the headline numbers are on a one year basis but if you compared to 2019,

that you numbers look good. we are talking at a -- we track things across, close to 15 categories and every single category we look at had an acceleration so we are taking a different view. i have crunched the numbers. -- i am still crunching the numbers but they look good. lisa: when you say pretty good, is it across the board or just looking out of. if you strip out that sector, we are spending on retail and they are spending more and travel. chuck: there is no doubt about that. digital looks like it is a bright spot and department stores looks like a weak spot. that is not new news. if you look at a couple categories that have been weak over the past 18 months, category that has been -- that have been on the downslope mean

research in -- reversion. we are taking look -- a little more optimistic approach with the june numbers and it dovetails nicely with -- tommy mentioned the adobe statistics. we look at the football dado -- the footfall data. tom: i know when you are at the college of the coley cross, -- of the holy cross, you go down route 9, you look at the future of america, is the nadtick mall, when you look at the math you study of omnichannel, is it working? chuck: it is working and you're seeing brands opening retail

stores and retail stores have adopted digital. target has gone through a rough patch but during the pandemic, they have accelerated their online pickup and drive up this is so it is intermediately -- intermingling the drive up business and the stores. there is a place for walls --m alls. tom: i will amazon compete with this? the stock is in recovery and their is a hold sidecar, amazon story of over hiring. what is your perspective on the 14th ox is that show up at lisa's house every day -- the 14th boxes that show up at lisa's house every day? chuck: i think amazon is winning but we are focused on the brick-and-mortar. the company -- a company like walmart is catching up. the speed they are delivering,

walmart is in a and able -- in an enviable position. we think they have a great chance to hold onto that customer base. tom: there is a new vengeance with tensions coming off inflation, people up the food chain, they are hyper focused one thing in the kitchen, two things in the chip -- kitchen, one thing in the bedroom. they are hyper focused. lisa: you said that more affluent people are trading down and we heard from the likes of louis vuitton that in the u.s., luxury consumer is pulling back just a bit. how much is that a persistent trend that is benefiting the walmarts of the world but maybe not so the luxury layers that had unfitted disproportionately over the past year?

chuck: i think you will see it to a degree and he touched on earlier that the consumer is generally -- and he touched on it earlier that the customer is generally healthier. real wages, when you strip out inflation, is starting to see an uptick. that bodes well for the holidays and into 2024. if we see this inflation cool, that puts more money into people's pockets. tom: single best buy, let's go back to jp morgan and although awards you have won. single best buy? chuck: overtime? tom: right now? chuck: i think walmart is the best name on the board followed by pgx. tom: even walmart with a 20 x pg multiple? chuck: both names you can make money over the year. tom: chuck grom, legend.

that is real retail talk. how much do i hate the phrase omnichannel? what is that? lisa: i wonder if it means people go to the store and try it on an order it online. i want to reset because we are seeing the market reaction as we get the bank of america earnings call and after their earnings have come out, you are the networking stanley shares that have pulled back and retraced -- and retraced almost all of their gains after several disappointing measures and easy bank of america turned slightly negative as people parse through what to expect going forward. interesting how high the bar was even with the big beats from bank of america. tom: i really never set this in any years -- i really never said this in many years.

i am sorry, this is a katie --kb w season. this tells you a lot about the linkage of finance into economics and hopefully over to doubt --dow. lisa: he and she --pnc shares are lower. they also saw their bleat of deposits going out like you saw at the big banks. tom: bank of america with a great powerpoint, there is the money people want to earn on their guilt, -- yield, and that is what banks are really -- willing to pay. lisa: bank of america total deposits fell 5% from the year earlier, 2% on the first quarter.

non-interest-bearing deposits fell 24% while interest-bearing deposits are -- fell 4%. tom: there is no question about that. you see it with the money market funds. that is hinging off the three-month -- 5.35%. with any kind of jim beyonco on disinflation, -- the 10-year yield in five basis points, three .75% -- 3.75%. it is something to watch as we go through the week into the goldman sachs earnings tomorrow and the real yield 1.52%. goldman sachs earnings tomorrow but in between, and 1:30 p.m., sonali basak with james gorman, the leader of morgan stanley.

that will be most interesting. from new york, on the radio, on television, this is bloomberg surveillance. ♪

jonathan: good morning, equity futures on the s&p 500 negative a little bit, down by 0.1%. the countdown to the open starts now. >> everything you need to get set for the start of u.s. trading, this is bloomberg the open with jonathan ferro. jonathan: coming up, wall street banks deliver another round