>> what do we want to see? we want to see more good data. i don't think it's likely the committee will reach a level of confidence by the time of the march meeting. >> it's not march, pushing back because they don't want to rush into a cutting cycle. >> the economy wasn't as strong as it was they be much more inclined to cut rates. >> markets want to take off and put more cuts in than the fed is willing to do. >> right now that's a forecast. >> this is bloomberg

surveillance with jonathan ferro, lisa abramowicz and annmarie hordern. >> live from new york city this morning, good morning for our worldwide this is bloomberg surveillance alongside lisa abramowicz with annmarie hordern, i'm jonathan ferro. s&p 500 bouncing back from the biggest one-day loss since september. positive here by a third of 1%. pushback from chairman powell, a big earnings later. lisa: taking march off of the table making it less likely markets responding to that. big tech focused prayed the question to me is you we get a more motley picture with the likes of meta and apple and amazon after the bell then we did with microsoft and google which had solid earnings. jonathan: we need to talk about the financials. we seem to be at the phase of the cycle with banks we've never heard of before. commercial real estate is something that's been hanging over this market for a long time.

are we starting to see a little bit of a reality check on this side of things. lisa: the fiction that some people might say is is this another crisis in the making and most people say no. an idiosyncratic story with respect to the mix of holdings. you have serious concerns about a reckoning that hasn't happened in commercial real estate prayed those are exacerbated with the bank in japan reporting a 20% drop in just seeing a 20% drop in their shares as a result of u.s. property losses. again it's a shoe that hasn't dropped in commercial property not necessarily fears of the banking. >> these things have not been brought to market. a lot of these banks that they could hold them to maturity and hope things would get better. the maturity seems to be on the horizon in the 20 -- in 24 and the start of 25. saying provisions need to go up. >> a lot of these banks have sort of floated below the radar of having to report regulatory

hurdles. if they increase the regulatory hurdles you can see the reckoning that's more significant. barry sterling recently said he expects about $1 trillion of losses in the office space asset class. how much of that will we see in the bank balance sheets especially given how much. annmarie: these are the scars of pandemic when it comes to commercial real estate and he said there's $1.2 trillion of losses. nobody knows where they are so when does this come up. >> a decent idea of where they are, smaller banks, and j.p. morgan have been numbers on that. if you look at the amount of loans, commercial real estate loans count for 28 .7% of assets in small banks compared with just 6.5% of bigger lenders prayed once again it seems to be a series of events where we say the problem is not the larger banks it's the smaller ones. >> that's the reason we saw the regional bank index have its biggest selloff yesterday since

when we saw the silicon valley bank. the rise to the threshold to the fed turns out yesterday no one asked. it seems everyone we talked to said no. it didn't seem like it factored into their calculus. this isn't a systemic issue you're not to get the relief valve from that vantage point. >> did it rise to the threshold of the news conference. apparently it didn't. why on earth nobody asked about the situation in the banking system just yesterday. >> given this was an evolving story that broke just before jay powell came out he likely brushed off and said i don't have information to come. jonathan: the rules of surveillance, don't defend journalists. s&p 500 positive by 0.4%. the s&p higher. yields higher up three basis points. on the 10 year i think it was the first close at 4% on the 10 in multiple weeks.

>> despite the fact people repricing the likelihood of a march rate cut. it seems like the fed is very much in a posture to cut rates and is trying to embrace this immaculate disinflation. it seems that the bond markets cooperating. >> we will talk about that with marvin as the fed appears to -- hopes for a -- march cut. apple said to report after the close. former bank of england economist counting us down to the rate decision in just about an hour. fed chair jay powell pushing back on a march rate cut. we are not declaring victory at all. i don't think it's likely the committee will reach a level of confidence by the time of the march meeting. state street writing strong conception growth and a still relatively robust jobs environment that pushes back against the view we are in restrictive territory. what did you make of that performance yesterday in the news conference question mark marvin: i think there's been more discussion about this than

we've had in a while then this is packaged around. i think it was a fairly positive view for the economy. the market got ahead of itself. we've been saying march didn't really make sense. consumption was out there from the perspective of continuing to support a slower inflation down ramp but we heard from the chair that all inflation had to do was do what it's been doing. i view that as pretty positive for markets ultimately. >> would be appropriate to reduce the target it's going to greater confidence than inflation has moved sustainably towards 2% so everyone wants to know about 20 different ways to the news conference yesterday how do you get greater confidence, what does that mean? marvin: it sounded to me as if chair powell was ready to cut. he really liked the data, highlighting that ultimately you need to just continue to see what we saw.

a lot of this is hurting the fomc cap. in the afternoon i think they are running around and it's a matter of time. this data will continue moving toward that target particular with the pce discussion the last few weeks. lisa: the cats are ornery and that's why you got that response. the data is good, it's can i happen and they will respond to it. i am curious about what the parameters are. what the hesitation is. if you think the market is pricing in the right chance of a mark -- march rate cut. marvin: a couple of interesting things. for the first time he said they are looking at inflation from an aggregate perspective. so that push back the services inflation has to get to a certain point. housing inflation has to get to a certain point. i think that's where the holdup is. but if inflation moves in the right direction they will be

able to start normalizing. we talk about normalization, a fed that things there several hundred basis points in restrictive territory they can start the process and really see how those more sinking types of components move and whether or not we get to some of the more aggressive market prices. >> thinking about what happens, what happened with potential losses that have not yet been revealed does that on the margins make you more likely to move into an easing posture? marvin: if it develops to something greater than what we saw yesterday, yes. i would add nobody asked about the bank and the fed actually took out the section that they previously highlighted which was very much bank related so it's not an issue for them. i think in the commercial real estate certainly there is this brewing problem we all know about. it's nothing new ultimately. unfortunately. and it's not to become systemic.

if it balloons and there are pockets within portfolios that surprise us, for sure. i'm operating even though there is a commercial real estate problem for several years. jonathan: there is systemic risk and then there is a massive headwind to profitability for the industry. where are the financials now going through the rest of this year given we have the deal potentially with some losses in commercial real estate. >> working for a bank there's always things that are thrown at. it's a challenge. we are -- when you're investing in a bank you are investing in the management team, how to approach the loans and how the market views the bank from a positive perspective. so it does come down to the individual bank. jonathan: it's as though for someone looking at the broader economy at the moments that something that should be concerned about. ultimately will have to hit the brakes. >> for sure.

that's part of the process. it's not necessarily wrong to expect this late in the cycle that have more than we've seen. >> that's the reason why it begs the question are people pricing into much perfection. >> especially given the fact it's been led by the magnificent seven, something should be the magnificent four but i'm concerned about whether we see sort of a risk off kind of tone especially given some of the consensus we've been hearing. marvin: everything up rally is done. we need to parse through and figure out what part of the story we want and we want to hedge. there's a reason u.s. tech is where it is. i still like the earnings power and as a little more longer-term investor, it's undeniable they have this moment that is the envy to any other company in the world. the u.s. exceptionalism is a

story that starting to come out. what the fed is focused on versus the ecb and the boe and other central banks is very different. i think that there is tail risk from both inflation not necessarily packaging as well as the market is saying. hedging that, energy is a hedge from that perspective. recessionary wise there are certain markets in the world but have more value. u.k. comes to mind from the perspective of the very staples driven value kind of market. >> the u.k. being a bright spot, haven't heard that in a while given the fact they saw inflation go up to the first time in 10 months. they have a weaker growth outlook the vast majority, why is it appealing to you? marvin: what i would say as it provides a hedge for those that are worried with a larger global downturn in growth.

there markets would be more supportive in that kind of environment. jonathan: marvin of state street, equity futures on the s&p by a third of 1%. just going through the numbers prayed apple and amazon, 12% of the s&p 500. >> we saw 11% reporting on tuesday is the reason everyone cares about this. how high is the bar and to me the apple amazon story is much more interesting than the key myths of microsoft and google winning the ai game. jonathan: let's get you an update on stories elsewhere. your bloomberg brief. >> eu leaders have struck a deal to send 50 billion euros of financial aid to ukraine. the agreement happening after the hungarian prime minister lifted his veto of the package. under the deal eu member states agreed to debate the implementation of the aid package every year. it avoids a contentious split with e.u. and marks a

significant boost for ukrainian president vladimir zelenskyy. top silicon valley executives on capitol hill over online child safety. the ranking member says the social media giants must be rated. >> mr. zuckerberg you and the companies before us i know you don't mean to be sober you have blood on your hands. you have a product -- [applause] >> you have a product that's killing people. >> the senate judiciary committee wants meta, x, tiktok and snap ceos to endorse proposed bills for stronger protections for children using the apps. formula one champion lewis hamilton is on the verge of a shocking move for the 2025 season. according to reports. hamilton recently signed a new contract at mercedes what is able to leave at the end of the season. for our he wants to pair him with -- next year. jonathan: it's emotional i have

no one to share this with. lisa: i was going to say. jonathan: it's the marriage, the partnership we've always wanted. lois what would lewis hamilton has wanted this as well. i think it's beautiful it may happen in 2025. just to see that happen. just to explain to the audience. lisa: i'm interested in this trip to italy. jonathan: you want to come for that? of next on the program aid border deal hitting the wall in congress. >> this is not conjecture. it's not a publican talking points, this is what experts at the border tell us is necessary. jonathan: coming up next, live from new york city this morning you are watching bloomberg tv. ♪

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here's your equity market down by one third of 1% following the biggest one-day loss going back to september on the s&p. a border deal hitting the wall in congress. >> house republicans are not here to supply more buckets. we are here to stop the flow. stopping the flow is not rocket science. it takes political courage, it takes transformational policy changes. we know what policy changes will accomplish here. it is not republican talking points this is what the experts at the border and the epicenter tell us is necessary. >> house speaker mike johnson casting doubt on a deal to secure the southern border leaving the fate of the bipartisan bill in question. the latest poll showing voter concerns about immigration gaining ground on the economy is the top issue. six in 10 swing state voters say president biden bears

responsibility for a surge in migrants of the u.s. mexico border. our policy analyst at raymond james joins us for more. we will talk about the deal in the house that just got done. how difficult would it be to find agreement on addressing the southern border. >> the senate is going to move first here and we will see if the senate can actually get legislation released working on that. but if the senate were to pass a border deal and the speaker were to bring it up in the house, he would be former speaker johnson. there's no political desire among that core group house republicans to get this done. there is a core desire among a group of senate republicans to probably not get this done. we do get this very much through the political lens you highlighted, the impact on the presidential elections when we look at polls and talk to pollsters, the border, inflation, geopolitical risk are

some of the biggest drags on president biden getting reelected and so for republicans they are not very interested handing a winter president biden because they clearly have an alternative gambit with donald trump. >> let's talk about the bill that got done overnight, senator chuck grassley sing the quiet part out loud when it comes to what the upper chamber may do. passing a tax bill that makes the president look good. meaning he could be reelected and then extend the 2017 tax cuts. do you expect this tax bill that passed on a massive bipartisan support overnight to get passed in the senate? >> i think it has real momentum. i don't think this is a guarantee, but when you look at this bill with a couple of provisions, first of all gets this headline that it's $78 billion paid it's much more than that for 2024 tax returns.

it's 120 $5 billion benefit for research and development for corporations. it's $8.3 billion of expansion of the child tax credit. also in the bill is tax relief for those who got disaster aid in 45 states, if so the momentum is built on this bill it's not yet been the timing and the senate but it has that chance because without momentum and 357 to 70 vote it's hard to be that individual in the senate who is opposed to this especially as there is so much pressure to get this across the finish line. as you mentioned we are in an election year and politics will play a role in kind of how fast if this gets done. >> the white house has said they want to sign this bill into law. what kind of amendment could we see from the senate side. >> i don't think there's much time for amendments in the senate side.

what we are hearing in terms of conversation is a desire to expand out and the local tax to duction. there's going to be a vote in the house on that later on expanding from a $10,000 deduction to $20,000 for individuals and households below $500,000 income. that will get headlines and is not going anywhere. in the senate they talk about some of the provisions of the child tax credit being too expansive. the fact you can choose two different calendar years forgetting the benefits so right now i think if you're in real opposition this dies because the tax filing season started on monday working overtime and we are trying to change tax policy or last year while the tax filings are underway. there's not much time to get anything changed. >> i was struck by the articles and research about the dissent from the freedom caucus. given that sort of tension why

mike johnson isn't going to go the same way kevin mccarthy did? >> it's a great question. this is something that passed with 350 seven votes. it is unusual to have something that is this bipartisan. there was a core group of house freedom caucus members who were opposed to it. there was a small group of members from high tax states that were opposed to this. but what speaker johnson said as if there was a bill that's overwhelming support these can a put it on the floor. he's not going to fall on his sword for this. he will fall on his sword or make sure the politics of the border bill are done. this is something that has momentum and what i can tell investors to take a step back is there's a real concern when republicans got a majority but we could see a fiscal drag in real budget cuts on appropriations over the next 12 months if we get a defense supplemental we can pull that out of this border versus

defense deal if we get this tax benefit. the spigot is still on and that adds to the conversations of whether or not we will have a soft landing because a lot of support is out there especially for the households that are in the lowest income level that has the biggest concern with savings. bills like these actually helped quite a bit. >> to put a bow on it is mike johnson has this sort of more cohesion amongst his party especially with the presumed nominee for the presidential election of donald trump or is it just the people are getting too tired to keep fighting and just keep throwing out there house speaker. >> i think it's more of the latter. he has certain things that are disappointed individuals. what he hasn't crossed that threshold and the fact we went through so many rounds before they chose a new speaker and there's no heir apparent after that, the opposition probably comes maybe from some more

moderates and there's just not a real desire to show a lot of dysfunction among house republicans anymore than has already occurred because they think that would hurt them in november in keeping the house. it's nice when you don't have someone who you know will be easily replacing you. jonathan: good to catch up. thank you. marvin at state street still with us. can you have an outlook for 2025 without knowing whose can win the election this year? >> it certainly is tough. the trump policies will be such a departure from where we are now that it is very very hard. i think you see some of those bets being made, each one of these polls as we move to a national stage. even though we still have a lot left. starring to make its way into conversations for us. >> if you look at 2025 politics

affects policy which affects the economy. >> they shouldn't. the fed obviously supposed to be political -- but from a deficit perspective and worrying about the treasury market i think those conversations are out there and part of -- the fed doesn't want to be at the helm of a recession. part of this pivot over the course of the last couple of quarters to me is to avoid recession because of the amount of debt from stabilizers. jonathan: you said two things. one that bats were starting to be taken and the conversations. how are they expressing this in markets right now? marvin: folks are starting to really think about how trade might get affected. that wound up being one of the more changes under the last

trump administration. mexico and whether or not it winds up being in the eye of the storm the way they were last time, there certainly conversations around that. really the overall planned attacks of everything and whether or not there is inflation associated with that. the last time we tried to tax everything inflation went up. there's hedges around that. those of the conversations these days. >> great to catch up. more those conversations in the weeks and months to come. lisa: the two policies aren't as different. it's sort of either way. jonathan: counting you down to earnings from apple, amazon after the close. you are watching bloomberg tv. ♪ the first time you connected your godaddy website and your store was also the first time you realized... well, we can do anything. cheesecake cookies? the chookie! manage all your sales from one place with a partner that always puts you first. (we did it)

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jonathan: yesterday was pretty interesting. the equity market a bit of a downdraft. the biggest loss in september. biggest one-day law since october. positive one third of 1% on the s&p. on the nasdaq up one half of 1%. in the bond market going into the afternoon. small downside surprise and then the big thing kicked off starring tori about banks all over again. yields lower and then lower again in the next conference. we finished by double digits, two year after the 10 year. lisa: people looking at the fact

the fed is probably less likely to cut in march still on an easing path this year at a time where we see the stresses coming up from the commercial real estate problems people of been talking about for years. the unknown is looming and the unknown being more than expected. >> the ecb last week was the news. negative by 0.1%. to set up the story just a moment there is a big a deal out of europe and the difference between europe and the united states is pretty stark once again. >> 50 billion euros, ukraine desperately needs this. we've heard from president zelenskyy talking about they need some of this aid and that they are suffering on the front lines because of it. able to get viktor orban on board to get this deal across the finish line. >> can you imagine if the europeans had invested that number themselves in defense over the last five to 10 years. >> this was the complaint you

heard then speaking to mark at davos about saying this was appropriate in terms of a criticism for europe. now they are going to have to start. he saw complete 180 from the german defense ministry when you saw this. >> 1080 five on that against the euro. dashing hopes for a march rate cut speaking after decision to hold rates saying we are not declaring victory at all. i don't think it's likely the committee will reach a level of confidence by the time of the march meeting. looking for cuts that fallen over 50% to just over one in three. he doesn't say no. he says it's just not likely and i think the data between now and then can always change the conversation fast. >> which makes the jobs number really thrive. >> if it's a real downside surprise march can be back on the table. they are happy with what they

see. they want to keep seeing more of it. how do we price and exactly how much they will cut. this puts the fed on the back burner in my mind. >> i would also say this. the earnings in the data specifically the fed feels it's quite asymmetrical now. good data is not a problem. talking 12 months ago is good data problem i would've said yes. the fed chair talk to you yesterday and said it's not. we now know if data gets weaker to step up more quickly. >> they are not scared of strength, they want to see strength. this idea you can get strength and have your cake in terms of disinflation. jonathan: let's talk about where there is no strength. banking sector and commercial real estate. your community bank plunging yesterday after the loan loss provision surged to 552 million. the bank became part of signature bank during the crisis.

bank of japan warning of the loss tied to commercial real estate in the united states. that phase of the cycle we talk about banks you've never heard of before. lisa, this is where we are at now. easily spooked about something we've been talking about for a while. lisa: the idea of losses being bigger than expected. honestly i'm looking at this it's the idea of bigger losses than expected. we know this is a problem. not necessarily a systemic issue. a question of how we adequately accounted for weakness in sectors like the office space sector that are existentially challenged. jonathan: on the regionals on the smaller banks in the next couple of hours. i'm get a use a word that will be used around new york community bank, idiosyncratic. how idiosyncratic is new york

real estate given the changes over the last couple of years? jonathan: in terms of the -- lisa: in terms of the depth of pain and loss. and a sort of bifurcation between office property that's used and that's definitely invested in an expensive and those being left for dead. that said it's not that idiosyncratic in terms of office space and other types of reckoning have not been fully priced in. jonathan: given the move we saw you said it earlier i think that something about 6%. deutsche bank with some news this morning slashing 3500 jobs. the bank raising its revenue target with a plan to buy back 675 million euros worth of shares. bnp paribas massey according to one analyst. sliding after missing analysts. up 5% look at the different story, seven there. >> deutsche bank has said they will actually make additional

cuts after already cutting pretty aggressively seeing their expenses, down. what's interesting is everyone's been saying it's finally the time for european banks. i want to get some of those people back on and say is it really still. are you reassessing how this is can a fuel earnings in a new way for the banking sector in europe. >> for the latest this morning, big tech earnings after the market closed. all coming off a strong year of gains. apple looking to avoid a fifth straight sales decline which is amazing when you look at the share move of apple. investors looking to amazon and meta with progress in artificial intelligence. alex webb joins us for more. let's start with apple and think about the move over the last 12 months. a fantastic rally in the fact we are discussing if they can avoid another sales decline. how do we reconcile those things question mark alex: -- those things? alex: the market looking for 12%

bump in earnings-per-share and the most recent quarter, they find a way even as the numbers slow and leaning more into the high-margin product. the iphone you want to be selling, the margin on memory is really good. if you are experiencing growth in your services business that's things like the app store where it's basically software and again very high margin. all of those sort of things they really managed to squeeze the profit out of every last dollar. it's very much tim cook's apple. >> is the bar low given all the news that's coming out. is it lower than say for a microsoft or google. >> it's not been trading anywhere near the multiples of microsoft. apple is more in the mid-20's at the moment. that being the case quite possibly. it's again one of the magnificent seven has enjoyed a pretty good year as john was saying. i think though there is --

people are aware of there being quite a lot of headwinds. it's been quite well telegraphed that their problems in china. the interesting thing will be seeing how bad those problems are there's been reporting from an analyst last week that suggests they could experience a 30% to 40% sales decline in china in this calendar year. that -- if there's any indication of anything worse than that then you've got a bit of a problem. >> i wonder if the bar is somewhat higher for amazon. i ask this because aws has a real question mark around it. how much market share are they good to be losing to even google because of not as robust of an artificial intelligence offering. >> i think it is a great thing a lot of amazon investors are looking at. even as the e-commerce business accounts for huge amount of the

lion share of the revenue. all the profit is generated by aws. the thing that's interesting is if you look at microsoft numbers from the other day. if you strip out what was attributed to the aia gains of six percentage points. growth in its cloud business wasn't terribly impressive. that was one of the reasons the share price was punished by investors in the days afterwards. is that because in general the cloud market is not good or because amazon is actually succeeding in gaining share in core cloud business. it's going to get more important before. right now it's not as if companies are changing the whole business just yet. that might be yet to come. in which case people want to know what amazon's plan is. is the core business showing some resilience without that ai consideration. annmarie: the vision pro headsets seem to have sold out in pre-sale. is apple banking on this

feature? alex: i think one of the things in the last week, one that was misunderstood about the vision pro is apple does not need it to be a success. there is an important caveat to that. it does not need to be a success as long as no other headset is a success. it can't afford for the next vector of computing to be on your face in terms of smart glasses or something like that. and it not to have a product there. if the space does not take off at all. they are still pretty dominant as of last year, the biggest seller of smartphones in the world in a strong position it of course pc's or laptop computers and tablets. if it gets a bit of a boost from this in the medium-term it won't complain but it's less important than ensuring that meta does not dominate the space in the years ahead. >> let's talk about geographies. china, what the latest on that.

you and i've been talking about this all of last year about the clampdown on foreign tech and a lot of that coming out of china. how if things change? alex: the thing that's been cracked down on is the government and government departments and state owned enterprises. the messaging is gone out they should not be owning apple devices. the question in and of itself is particularly bad -- is not bad news for apple. it's a rounding error. it's about what it means for the perception of apple in the country as a whole. we saw this six years ago where there was this real ops well in patriotism were people said we need to buy chinese. that's clearly bad news for apple. the report from last week that i mentioned earlier talking about the potential for a 30% to 40% sales drop in china would be clearly quite painful particularly china has been up

to these recent quarters a bit of a bright spot here recovering from that slow down a few years ago it was experiencing growth again. so it is a concern for apple. but again at the very beginning it still somehow manages to find a way of profit out of the dollars it does. >> given the mood music regarding relationship between washington and beijing is this only going to get worse for apple to continue gaining market share in china? alex: it doesn't look like it's going to get easier. the other concern is what it means for apple's manufacturing base. it employs through its contract manufacturers millions of people there. the same time apple has been gently trying to increase manufacturing capacity and job areas like india and elsewhere. at the moment they are still very small and very nascent. any constraints on apple's ability to build cutting-edge devices as its cutting-edge

devices in china is the other side of the coin that they don't want. >> great to catch up. alex webb of bloomberg on the latest this afternoon. summer earnings coming right now from a cruise liner that was up 162% last year. one of the best performing stocks on the s&p 500 in 2023. lisa: cruises were hot. royal caribbean coming out adjusted eps for this year seeing 950 to 970 versus the estimate of $9.15 seeing first quarter adjusted earnings of $1.10 to $1.20 versus the estimate of -- shares are climbing more. people are going on cruises. it's the post-pandemic reality. >> have you seen this ship. 7005 hundred passengers, 20 deck ship. it looks like a themepark on a boat. >> that's what they are. it looks ridiculous. you should google this.

absolute nonsense how big this is. >> nonsense for one person and a wonderful way to vacation with family for another person. annmarie: especially if you don't like to fly, my father hates flying so a few times we were forced to go on cruises. we went on smaller ones. i'm looking at this icon of the seas. it looks like disney world. jonathan: it looks like a nightmare to me. [laughter] lisa: you are very particular. jonathan: let's get you an update on stories elsewhere. there's a bloomberg brief. >> boeing ceo dave calhoun has admitted the company because the problem by the incident that saw the door plug pro out -- blow out last month. speaking of the company's earnings call calhoun said an investigation into the causes underway but the ultimate responsibility is on boeing. the plane manufacturer declined to issue a financial forecast for the year. workers in transportation and warehousing took home record pay

in the last quarter. according to new data for the bureau of labor statistics. it jumped a record 6.3% in the fourth quarter from a year earlier. mitt -- factory workers fell behind. their pay cutting just 3.7% and the biggest gap between the two centers on record. elon musk is going all in on texas. seeking shareholder approval from delaware to the lone star state. musk took two social media platform x to let users know on the change to say tesla will soon hold the shareholder vote. this came after delaware vote -- court voided the pay package. calling it excessive. he's already moved tesla's home office to austin and relocated himself and his charity to the state. that's your bloomberg brief. jonathan: you should see lisa's face. googling this looks absolutely disgusted by it.

almost four city blocks long. >> it looks like being trapped in a las vegas casino. annmarie: 46 foot tall drop slide. >> today may be. jonathan: the fed in no rush to cut. >> it's likely the committee will reach a level of confidence by the time of the march meeting to where they will find march is the time to do that. that's to be seen. >> that's next you're watching bloomberg surveillance live from new york this is bloomberg. ♪

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jonathan: good morning to you. equity futures bouncing back from yesterday's losses. one third of 1%. the fed in no rush to cut. >> i don't think it's likely that the committee will reach a level of confidence by the time of the march meeting to identify

march is the time to do that. that remains to be seen. when you ask me that in the near term hearing that is march i would say i don't think that's probably not the most likely case of what we will call the base case. jonathan: chairman powell throwing cold water on hopes of a march rate cut. in about 12 minutes time. economics expecting the boe to hold the pivot writing the boe will probably throw in the towel in the pretext that interest rates could rise and take the first steps towards cutting rates. we pencil in the first cut for june. jennifer we had some hooks putting their hand up saying -- what is it about the data between meetings you think this clip to the wings of those individuals. >> i think most prominently the surprise of inflation which is come down a lot further

certainly than the bank of england was expecting we would see the inflation forecast later on and it's very likely they need to come down quite sharply given the surprises that we've seen. i think that's probably the big thing. activity is still pretty weak as well. we knew that already in the surprises around the persistence or lack of persistence in the inflation figures. >> bloomberg put out a piece showing britain's economists have been missing the estimate put out by the office for national statistics. they've not been able to coalesce around what comes to pass when it comes to inflation and the united kingdom. how much pause you think that will give the bank of england especially at the time where inflation is still higher than other places. in europe and beyond. >> those are all really good points and it's difficult to forecast inflation but i think at the moment a lot of the decline we are anticipating but

most people are anticipating is more or less -- the three month annualized tech rates that are looking more at the recent developments in inflation already showed it's come down significantly. wage growth is still very high in the u.k.. to services inflation, and those are both reasons why the bank won't be ready to see strongly that rate cuts are imminent. we are cutting well after the fed. but the fact that these near-term missions are starting to exhaust. i think it's a good reason to expect that this is coming fairly soon. >> on january 17 england to put out their latest cpi for december and it increased for the first time in about 10 months. this really because some people to raise the question about how good the protections were and the direction that's going to follow.

do you think that is valid or this is just a fluke with some of the changes particularly in energy policy. >> i think that is right. it is slightly worried that services inflation has been relatively sticky. wouldn't be -- one big surprise is in gas prices which the bank of england had been expecting to remain in line with future prices but they've come down and that's been an important factor for the u.k. company as well as for the euro zone that's a good reason to expect inflation to keep coming down further on the headline. at the same time we have this easing in the labor market which should help to bring wage growth down. jonathan: chairman powell often criticized as well was actually transparent about how he felt about recent inflation data. this wasn't comfortable with six

months of data. it's not that he wanted to get better he just wanted to see more of it. and then the fact may be there's a question not a base case but ultimately the concern is the inflation stabilizes above target. when you hear things like that from the fed chair what could those one-off factors be that bring this down to something north of two. >> the one-off factors have been the very -- following the pandemic and those have been the decent wins in the inflation battle. the easy part is pretty much behind us. if we look at what we consider the more persistent parts that the corn services inflation

coming down. with the labor market. we might see some signs in the u.s. labor market. it seems like rent -- newly signed rental agreements .2 rental deflation in the u.s. now. and another reason why we would expect services inflation. after this very high inflation the powell is still sounding very cautious. it's really noteworthy what he said he wants is the good news we've seen not better news. if we see similar inflation out turns, a similar softening over the next couple of months than i think the fed will be ready to cut in may. jonathan: i will throw this at you jennifer, what do you think the number would need to be in payrolls tomorrow to bring up

the conversation of reintroducing a march rate cut given with the chairman said yesterday about moving more quickly and softer economic data. jennifer: i do not know. we penciled in 150000 and we don't think that will be enough to reintroduce signs of a rate cut. the labor market indicators are somewhat lagging. it may be inflation sales you expect to see renewed talk of a rate cut. i think one thing that powell and the fed are going for is they can hold off, they can wait and see because the activity still holding up really well in the ecb situation. you've got evidence that inflation is coming down at the same time and economy in a recession. it makes it difficult to argue it's time to sit and wait whereas the fed with this still

resilient it makes sense to air on the side of caution. we see retail sales data start to come off sharply. that might be what would prompt talk of a march cut. jonathan: unfair of me to ask in many ways but ultimately isn't that the question we are asking tomorrow. >> what is going to move the market, what is going to be enough? i think it a certain point people want to see a rate cut and expect it later this year. annmarie: does the bank of england have to come out and say something about the red sea? if you look at the managing index, the confederation british industry, manufacturing sector in england is suffering because of what they are saying is longer delays in the red sea. jonathan: a brilliant question for the next hour. coming up, chris marron knocked and mandeep singh.

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>> we want to see more good data. i don't think it's likely that the committee will reach a level of confidence by the time of the march meeting. >> i think that's the story, is it may, is it june? it's not march. it's pushing back because they don't want to rush into a cutting cycle. >> if it wasn't as strong as it was, it would be much more inclined to cut rates. >> markets really want to take off and put a lot more cuts in

than the fed is really willing to do. >> jay powell thinks the runway for a soft landing is in sight, but right now that's a forecast. >> this is "surveillancebloombeg surveillance." jonathan: good morning, good morning for our audience world. alongside lisa with arnmarie, i'm jonathan. bouncing back from the biggest one-day loss since september. we need to talk about the similarities and differences between central banks. let's take the bank of england and the federal reserve. i can talk about similarities as the decision drops, unchanged. they dropped their reference to the risk of further tightening. that's the similarity, what they have in common with the federal reserve of yesterday. the way they vote on the m.p.c., that is a split vote. lisa: this comes at a time where they're having it very much out in the open. i would also say another difference is the economic back drop, very different when you have inflation higher than where

it is in the u.s., and frankly growth not as rosy as it is in america. jonathan: again, two voted for higher rates, one voted for a cut. that is certainly not how things are going at the federal reserve. i'll say this about chairman powell, and you said it too. it felt like he was herding cats yesterday, just constitutionalling to, i would say -- just struggling to, i would say reflect the sense of the committee. i think we got a flavor of that in the last meeting in december. lisa: there seems to be a struggle between him representing the committee and representing himself. that goes to this question around walking back some of the aspects of what he said after it. i'm thinking particularly of december. it is a very different economic back drop. on the other hand, growth is the second worst behind germany in terms of the developed market economy, the largest. so it's not as clear cut maybe as it is in the united states. jonathan: annmarie, who does this sound like, governor bay league, evidence needed before

we can cut interest rates. annmarie: sounds like cristina guard in some ways. all of these central bankers say they want to see more data. jay powell wants to see a lot more confidence. the b.o.e. i love because you actually get to know who is looking at hikes and who is looking at easing. disruption to the red sea shipping a "material risk." i'm shocked by some of the manufacturers in england which are saying we are seeing costs go up because of this, and the length of deliveries also expanding. lisa: which is the reason why it's compelling. the bank of england says she see inflation at 2% in the second quarter and then accelerating. that is different than what weave heard elsewhere and puts a code on this idea of maybe we're in a sweet spot that just can't lost. jonathan: got a fantastic lineup for you. the pound just reversing losses here. the pound against the dollar, we're still negative by .2%. just changing in the last 10 minutes or so. the broader price action has the equity market bounce in on the

s&p 500 off losses of yesterday. in the bond market, yields are a little bit higher on a u.s. 10-year by three basis points. coming up on the program this hour, a new concerns about regional banks. and mandeep singh looking ahead to amazon's earnings. we begin with our top story. the bank of england leaving rates unchanged. lizzie is outside the bank of england. unchanged, but ultimately there's a lot in this one. lizzie: exactly, and no one expected the bank of england to cut rates yet, but it was all about the clues to the future past the rates. there are mixed signals here. as you say, there's one fewer hawk in that number today, two voting to hike. but now we have one person voting to cut. if you look back to the history of the monetary policy since its

inception in 1997, if you look at the times when they've changed direction in bank rate, it's usually two meetings after they go in the -- one vote to go in the other direction, that the majority follows. but that's harder when you've got two still voting to hike. we look to the guidance. they dropped the language about the risk of further tightening, but they say that rates need to stay restrictive for now, inflation risks are skewed to the up side. markets might take this as a slap on the wrist for getting carried away with the rate cut expectation. and then if you look at the forecast, there's a way they can communicate what they think is the path ahead. they say inflation at 2% in the first quarter of 2026. a slap on the wrist in the

markets. will andrew bailey give us more clues in the press conference at 12:30 u.k. time ads to the future cut for rates? lisa: one thing i like about the statements is how granular they get. bank of england saying 2/3 of policy tightening has impacted the economy, and still inflation risks are skewed to the upside with inflation potentially accelerating in the second half of the year. lizzie, do you get the sense that this is supply train issue driven, or is this something else, whether it's wages, something else that maybe the bank of england is hinging on and concerned about? liersee: they continually -- what they continually point to is the domestically driven inflation, the pressure from wage growth, services inflation, but also annmarie makes the good point, there is the risk of inflation in 2024 from the supply chain disruption in the red sea. it's interesting as well how much they can cut rates before it actually if he cannively

changes in terms of the mutual rate. one person says she could do 100 basis points of cuts before it actually takes effect. jonathan: great to get your response to this. outside of bank of england in england. sterling erases losses, still negative against the dollar. the rate is 126.56. joining us now is the senior research economist to respond to this. your thoughts on this one, and i would ask this one, you've still got people in the m.p.c. voting for rate hikes before we talk about cuts. what do the hawks have to worry about? sree: i think there's a number of issues here that might be concerning the m.p.c. first of all, it there was very good signs in terms of headline inflation, core inflation also easing, wage pressure, wage growth is starting to slow, all of those very good. however, wage growth is still

elevated. what they're going to look for is the outcome of the wage round indexation. that will give more clarity in terms of the sustainability of this trend. that's one thing. second thing, as you've already mentioned, some of the risks in the red sea that might be a concern for some members, from our perspective, it looks at the moment to be contained. the supply chain issues are very muted relative to what wee already been through in the course of the pandemic, russia and ukraine, so relative to that this is a very low base. demand was low. container demand was low. they're very different back drops. however, there are risks for this duration of the blockage across the red sea and the choke points of the two canals f. that continues for a long period of time, that could have some knock-on impact. furthermore, what if it actually spills over to broader escalation was tension? i guess that could be a risk. these are all factors that could

be playing on the decision for some members. annmarie: do you already see british manufacturers preparing for the risks and hedging against them? sree: at the moment we've seen freight costs have escalated quite dramatically. now, that could be some impact on manufacturing. at the moment what we're seeing is there are plans that they could potentially pass through. we're not seeing a big impact in terms of actual costs just yet. we look at transportation costs, the the direct impact is muted. however, it's really the spillovers across very fast supply chain. now again, this is very different to what we saw in the pandemic, where we had covid restricting supply across asia, also the asian-taiwan strait korea shipping routes, they're much bigger than the red sea.

so the red sea in context is a much smaller problem in a sense in terms of inflation. however, as i said, it really depends on the duration of this problem that could lead to some pickup in pass-flew and inflation risks. again, muted for now is our best case, if the tensions remain contained. lisa: one thing that strikes me about this statement as well as the federal reserve's yesterday is this idea of the expectation of stronger growth and that not being necessarily a big problem in terms of the fed or bank of england policy. we saw them upgrade their g.d.p. forecast in the latest bank of england statement. what do you make of this shift where strong growth is good thing, good news is good news, to quote one stuart keyser? sree: definitely this is good news in the sense that a soft landing, the pathway to a soft landing is widening.

that would definitely be good news, because it's exactly what the central bankers want and need. i think really the balancing act here is what's happening with inflation. the headline inflation story has been very good across both u.k. and the u.s. and the u.k., what we're seeing is that base effect drag from energy prices, from food prices, that has been growing a very good contribution. also thinking again about red sea, goods prices, which had been really -- which had really escalated during the pandemic, that's back in sort of flat growth or deflationary territory. all of this is very good news in terms of the overall package that the bank of england are dealing with. so again, they are going to stay data-dependent, as i mentioned, we're not out of the woods here for an upgrade in growth is all very good. but really, it's that wage story that has been the sticking issue

for the u.k., and that's something they will continue to really monitor closely. so again, this is probably quite key. looking beyond that, there is a good chance that headline inflation moves the target after that april meeting. we could see april, may looking at headline c.p.i. around 2%. core will take a bit longer, but that's really what they're watching as well, the wage story. jonathan: thanks for joining us today, sree of aberdeen. we're talking about two economies, lisa. they're going to face elections pretty soon. one is on the calendar for the federal reserve. one isn't yet for the bank of england, but probably will be. and then you've got to start considering the fiscal outlook. more and more attention needs to be paid to that. can you really put out an outlook for toe 25 without knowing the composition of congress, which party is in

control, the white house, what they're set to do. lisa: great point, because either one, and frankly, bank of england is maybe dealing with a different situation, but certainly in the united states, there's going to be spending regardless. there's going to be a bigger deficit. it's just a matter of where some of the spending is going to be. jonathan: the pound continues to erase losses. 126.66. let's get you a update on stories this morning. >> cruise travel is in hot demand with the company's 2024 outlook also coming in ahead of expectations. royal caribbean surged a record 162% last year and is debuting a new ship, the largest in the world. icon of the seas cost $2 billion to build and measures 1,200 feet. at least a dozen major cities around the world are heading for a decline in residential property values this year. hong kong is expected to show

the steepest drop with prime residential prices likely to fall more than 10% amid high interest rates and political unis not. new york and san francisco are facing similar head winds are both cities impacted by remote work and low return to office rates. and formula 1 has rejected andretti's bid to join the racing league in 2025, sagan 11th team would "not provide value to the championship." formula 1 said it was willing to revisit the bid in 2028 when they'll be able to use an engine provided by general motors. that's your bloomberg brief. jonathan: thank you. lewis hamilton said nothing else matters, and still no one around this table is interested. up next on this program, real estate risks hitting bank stocks. >> this appears to be not a capital issue per se, but really an issue of quality. jonathan: no one around the

table? annmarie: i find it fascinating, the mechanics of it. jonathan: good. the conversation of bank stocks up next. live from new york, this is bloomberg. bloomberg. ♪ j.p. morgan wealth management knows it's easy to get lost in investment research. get help with j.p morgan personal advisors. hey, david! ready to get started? work with advisors who create a plan with you, and help you find the right investments. so great getting to know you, let's take a look at your new investment plan. ok, great! this should have you moving in the right direction. thanks jen. get ongoing advice; and manage your investments in the chase mobile app. ♪ (captivating music) ♪ (♪♪) the first law of thermodynamics states

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jonathan: live from new york city, here's a snapshot of things across asset. yields up three basis points, down yesterday by double digits after chairman powell and some banking stress as well. the 10-year, 394811. weaker against the dollar, 1.0811. real estate risks hitting bank stocks. >> this appears to be not a capital issue per se, but really an issue of quality. there are going to be numerous announcements of this is a very

large provision that we're taking, always sort of in the context of we're trying to get everything out of the way at once, and this is all of it. there's never going to be just one cockroach. usually when someone says this is all of it, it may not be all of it. jonathan: new york community bank rebounding this morning after falling as much as 46%, a pair of troubled real estate loans contributing to a surge in its loan loss provision. the bank of japan warning of severe losses in united states real estate. with us around the table this morning, i'm really pleased to say is the c.e.o. of citizens financial group. bruce, good morning to you, sir. bruce: hi. jonathan: you've got a strong story to tell. we'll talk about that in a moment. but can we begin with the stress of yesterday and last year? have we put behind the difficulties of last year for the rest of the banking sector? bruce: yeah, i'd say for the most part everything is in the rearview mirror now, so there were a few idiosyncratic bank

failures that related to the business model and how fast those banks grew. and then the stress caused by the raising rates very quickly. so i think as the year went on, people could differentiate between the traditional regional banks and how well they've managed and been able to handle their interest rate risk. and so deposit pressures eased as the year went on. so things are starting to feel a lot more normal, so yesterday's announcement was a bit of a surprise. i think that's an outlier. jonathan: the monster is under the bed. it spooked people. you know it did. commercial real estate has been something that's been on people's minds for a long, long time now. do you think we have seen, realize the unrealized losses there yet? are with about to see a big increase of provisions from some of the lenders? bruce: in that particular instance, it was more than just commercial real estate, because also as banks grow in size and they enter the new weight cass gore, they have to do a lot around capital liquidity and

funding. and so i think the regulators are having that bank deal with those issues, and that's going to depress the net interest income as them cut the difficult denied. so there's a number of things at play beside just commercial real estate. from my standpoint, our commercial real estate book looks pretty good. the one area we're focused mainly on is the office sector, and given the slower return to office trends, etc., combined with the higher interest rates has put a squeeze on that sector. but that's been relatively predictable and manageable for us. we have a certain number of loans that are coming due every quarter. we're looking through the front windshield at what's going to happen this quarter, next quarter, the quarter after that. and all of our people are working with those borrowers to come up with solutions that work for them and work for us. so we are charging off a certain amount of loans every quart iras we work through that. but i think we have it boxed and don't expect any material surprises.

lisa: there's your bank and then other banks. and i am curious, in terms of especially zora, the zap bank also reporting unexpectedly large losses from u.s. properties, the star ward group was talking about how there could be potentially a trillion dollars of market losses taken off of the office space property. do you think that that's a valid reflection of losses that have yet to be taken down, not at your bank, but more broadly with the good actors and bad actors, potentially even more regulatory pressure from washington? bruce: it's hard to predict how big that's going to be. certainly if rates come down as they're expected to, that's going to be beneficial to the commercial property space. and then if return to office picks up, which we're starting to see signs that that's happening, that could also be beneficial. real estate is very localized, so each building has its own story, has its own rent rolls. what i think we've tried to do is stay very diversified and

stay more in the suburbs and in the central business districts, stay more at the a class and b class buildings and away from c class buildings. there's certainly going to be some pain based on location and dynamics around the building and whether it's a c space. so there will be some losses, but i think for the super regional space that we operate in, i think all those will be manageable. i think we'll be able to deal with those reasonably well. lisa: i wanted to ask about the geography. people are going to nashville, miami, denver. or do you think potentially there could be ripples across the united states? bruce: i think some of the bigger markets like new york and san francisco and chicago probably have the biggest pain factor right now, but we're also seeing some early trends that leasing is starting to pick up and the city feels better, it feels more vibrant. so i wouldn't write off new york city. jonathan: you've been on the front of expanding in new york

city. tell us about that expansion. what are the plans for the new york metro area? bruce: i guess since our i.p.o. almost 10 years ago, we had this dream, i guess, that we would be able to attack the new york market in some way, because we were big in snug in midatlantic, but we had this hole in the doughnut, if you will, which was new york city. hsbc decided they want to exit their east coast retail, and that was a big presence in new york. and then investors bank, we didn't think hsbc by itself was enough, so we went out, the so-called one-two punch and bought investors shortly after we closed on hsbc. and that gave us 200 branches in the new york metro area, about a million new customers, top 10 deposit market share, and that's gone phenomenally well. i'd have to say in terms of account growth, customer growth, deposit growth, we're shooting the lights out there. hopefully if you live here in new york, you get to see our

nice bright green signage. it's good for our overall brand visibility as well to be here in new york. we finally now can say we're a strong northeastern bank, and we filled in that hole. lisa: are you filling in more holes? are you planning more acquisitions? bruce: the other thing that i think we've done in the past couple of years, which is pretty exciting, is last year we had an opportunity to lift out a bunch of teams that were leaving first republic. so we brought about 150 people on to our platform. that was six teams. we start out focused on the east coast, the boston and new york and florida team. and then the west coast teams also said, well, what about us, you should be out here too. so we brought three teams over from the san francisco and silicon valley region, and we had purchased an investment bank about three years ago called j&p securities, which is a really well run, highly respected shop. so in the west coast there, we're kind of thinking we can go at that market over the top, so

with j&p and with high-end private banking teams, we know everybody in innovation economy, and we can go in without the full ground game. in new york we had the full ground game, because we had the 200 branches. so a little different strategy, but interesting opportunity for us, i think. jonathan: the innovation economy has been hammered recently, which opened up the door to make this acquisition for those teams. is it bouncing back? are things getting better? jonathan: yeah, i think it will. everything goes through cycles, and you look at the high rates putting a crimp on a lot of investing activity over the last two years, so we probably had eight quarters, usually these things run, where you run soft for about seven quarters, we hit the eighth quarter and the fourth quarter, and everybody is waiting, ok, when is this going to pick back up? we're seeing signs already in the first quarter, that markets are open, lots of conversations are happening, deal pipelines are filling up, so hopeful that will just continues to flow

through, and it turns out to be a bounceback year in the capital markets. jonathan: we heard a lot of the, in davos as well, the banking business bouncing back, into 2026. annmarie: it feels like there's a lot of pent-up demand. how many investors haven't had their exits for a long time? i keep hearing about that again and again. the question is whether the market will cooperate. jonathan: bruce is going to stick with us from citizens financial. if you are just joining us, your equity market on the s&p 500 is slightly positive by .had%. coming up shortly, mandeep singh previewing mega tech cap earnings. we'll hear from amazon, apple and meta. all of that and more from new york. this is bloomberg. ♪ hey you, with the small business... ...whoa... you've got all kinds of bright ideas, that your customers need to know about. constant contact makes it easy. with everything from managing your social posts,

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jonathan: good morning to you. equities positive by 0.4%. two days of weakness on the s&p 500. yesterday, biggest one-day loss on the s&p. nasdaq, biggest day lower since october. on the nasdaq 100, three names making up about 12% of the index on the s&p 500, apple, amazon, and meta reporting after the close. that's the equity market. here's the bond market picture for you. the two-year, 10-year, shaping up as follows. they're up three basis points. the 10-year, 39424.

lisa: we lend a little bit yesterday, but basically march is less likely, but still they're moving into a cutting posture, and the market seems to be adopting that with this idea we can continue disinflation in the face of growth. jonathan: they didn't change the base case outlook. isn't that the truth the last 24 hours? lisa: you could basically say they didn't give us anything conclusive, but they pushed back, just on the edges of market pricing, which is probably beneficial to the ultimate goal. jonathan: it's just going for the reaction yesterday on the south side. while the punch bowl wasn't completely taken away, it was put out of reach. i think it will take the markets a day or two to accept that. we're accepting it this morning. stocks are positive. yields higher. the euro looks a little something like this against the dollar. we are just about negative on the euro at the moment, 108.15. the pound, cable, almost unchanged on the day now. negative by 0.1%. under surveillance this morning,

central banks holding steady. the bank of england opening the door to rate cuts, but two members of the policy committee calling for another hike, this on the back of the fed's message not so fast. chair powell saying, "we're not declaring victory at all, i don't think it's likely the committee will reach a level of confidence by the time of the march meeting." we need more evidence apparently. lisa: or at least we need evidence that's the same for longer. this idea there is a concern that maybe they're missing something and how much is born out of the mistakes that have been made at the past. at the same time, he's basically confirming what everyone knows, they're going to cut rates. if it's going to be may, ok. at some point. but in the near future. jonathan: bruce, citizens financial group c.e.o. is with us today. what did you think of yesterday's news conference? bruce: there were no surprises. he was appropriately cautious. i think he wants to push out the notion that the next cut is in march and say it may be at the may or june meetings. jonathan: how much do the rate cuts grease the wheels for you?

bruce: i think he should go gradually, because they don't want to have to turn about and then have a hike, so i think they'll put their toe in the water and go and start with 25 and do a series of 25's. jonathan: lisa, we always talk about going early, but ultimately does it move the dial to go 25, then 50? lisa: anyone who's trying to plan a business model says no. i like that you rattle it off like auction numbers, 25, 50, 75, 100, what gets it done, how are we doing? where are you going? where you been? it's ultimately how many cuts they're going to get done, not necessarily if they're going to start in march or may. jonathan: news out of washington, let's return to that. the house passing a $78 billion bill that could hand president biden an election year political victory. the bill provides child tax credits for families and restores expired tax breaks for businesses, allowing them to quickly recoup r&d costs. the bill heads for vote in the senate, where be republicans could offer hundreds of amendments. this one is happening or is not

happening? annmarie: looks like it's on the path to potentially happen. i was struck by the vote count, 357-70. this is a house of representatives that's been stymied with dysfunction, and they're able to get a tax bill done, but we heard from chuck grassley, the senator, talking about the fact that this would give biden a huge win. they're questioning why would we do that, but it's less controversial than the border deal, so i think there is more hope for a tax deal. jonathan: favorite part when we ask about politics and guests trying to ignore it. that's going to happen right now. 2024 elections, how important are they to your industry? bruce: i think they're quite important. we'd like to see strong economic policies going forward. probably a little bit moderate view on regulation. but what i would say is the banking industry historically just makes the pivots and adjusts to whoever is in power. i think we can certainly deal

with another four years of biden, and we could deal with four years of trump, which we've already had in the past. annmarie: are the proposals that different? lisa: we've been talking about it a lot in terms of the deficit and some of the different policies that would come down the pike. how different is it? bruce: the funny thing is up don't hear that much about substance and policy. when you see these guys talking, they're kind of throwing mud at each other, but they're not really telling us what they're going to do for the country and what the policies will affect. jonathan: we get another trump presidency, can we talk about the regulatory proposals on the table right now? what do you think of them? do you think they appropriately confront the risk that we went through last spring? what do you think? bruce: i would say historically any time there's an incident or there's some turmoil, the regulators come with a tool kit and usually the pendulum will swing too far, and then it needs to be dialed back. and i think we're going through that process.

the knee-jerk playbook is banks need more capital, ok, well, how are you going to go about that and what are the consequences? is it going to reduce the supply of credit, and who is it going to harm if that happens? i think they put it out there for comments, and the industry is commenting, and politicians are looking at it. so my expectation is that things will be dialed back some as we go through that process. jonathan: have you been surprised the focus has been the on larger banks when the larger banks seemed to be the pond in the storm last year and it was the smaller backes that got into trouble? bruce: well, i think there's still the residue of too big to fail, and so if you aren't sure, 100% sure was this a broader regional bank crisis or just isolated to a few banks that grew too fast and had undiversified business models, you shoot first and ask questions late. i take my money and put it in one of the mega banks, even if they're not paying member a great rate of interest, but the government will never let the banks go down.

jonathan: deposit insurance, do we need to see reforms? for deposit insurance. bruce: i think it would be good if we could cover companies' operating accounts, because they're not rate shopping between banks, and they need those services provided to them. so i think if those were covered, that would create more stability. but that's difficult to achieve politically. so i'm not optimistic that will happen. jonathan: that's the politics down in washington, i think the broader assumption is they water down this proposal for much stricter capital requirements. lisa: regional banks will see a lot more pressure if they have to comply with regulations that are fit for j.p. morgan rather than just some of the smaller banks. we already are seeing it with new york community bank. they had to change the regulatory capital in response to hitting a new bracket. who's next? jonathan: so true. that's the banking sector. let's talk about tech. mega cap tech earnings resumingg with amazon, apple, meta reporting. a.i. set to be at the forefront.

some analysts have perceived amazon web service as lagging behind microsoft and alphabet in generative a.i. two companies have failed to meet lofty estimates earlier this week. mandeep singh joins us for more. mandeep, good morning to you. let's talk about expectations for later auto this afternoon. what are they? mandeep: in the case of amazon, clearly all eyes are on the growth number, which is decelerated sharply to compare it to microsoft azure at 30%. we are comparing it to 12% to 13% growth. and in the case of meta, look, this is a company that had almost 80% draw down, reclaimed it, $1 trillion market cap, and now everyone is expecting they have course corrected. meta verse has become a sideshow, and they're pivoting to a.i., which they have. but they're still losing $15 billion a year on metaverse, which nobody knows what they're losing on. i think the call will be interesting to find out if that

has changed. lisa: maybe they'll change their name to a.i. i'm just curious how much we're going to see additional job cuts and things of that nature, because that was really what triggered some of the rally, this sort of right sizing, whatever that phrase is, that meta put out there. do you expect more of that? mandeep: they did a pretty big roundup last year, and my sense is they're done with the cost structure optimization. now the focus is on top line. and look, they are expected to grow 21 is% this quarter. that's very healthy when you compare it to others like snap and pinterest. they're still growing mid to high single digit at best. and that is where there's a disconnect. online advertising is cyclical f. these companies are growing north of 20%, then snap should catch up. pinterest should catch up. that's where i feel like in the case of meta specifically, their user growth is low to mid single digits. engagement is low to mid single

digits. but they're growing top line 20%. that's a function of all the ad loads. they're stopping the feed with more ads. that's working for now, but clearly there will be a pushback in terms of engagement, at least that's how i look at it, it's not as if you can keep showing more ads and people will be ok with that. lisa: we have a bloomberg opinion piece out today, iphone makers never faced this many uncertaintied at the same time. what does tim cook need to say today? mandeep: in the case of apple, all these companies had a decline in e.p.s. last year when you look at meta and google also had a sharp deceleration. apple was steady. they're not growing top line, but because of the huge buy backs they do, their e.p.s. growth has been still steady. and the main concern around apple is how do they grow top line because of the china factor. the units are declining, there's no bout about it. but they're made up with, selling the higher end more and more, and that's off set some of

the unit decline. it's about unit growth and it's a new category. i'm glad they announced the new category, because for the longest time people were like what's next with apple? at least there's something on the horizon. i don't think it's going to be as big as your smartphone category, but at least there is something new to talk about. jonathan: you talked about how android would integrate a.i. how is ios going to do that in the years to come? mandeep: they haven't talked about generative a.i. they've always been like that. even when machine learning was the rage, they never really talked about machine learning that much. so apple does things quietly. they've done so much at the chip level, the vertical integration. to me, they will catch up. yes, they are behind in technology, probably i talked about this on the show, they need an acquisition. there are so many companies that are developing large models. that would help. the key concern is that services line. that is the profitability driver. and over there, half of their

revenue comes from app store. that's coming under pressure from e.u., saying you can't -- to me, that is the part that worries me the most with apple. jonathan: let's talk about a.i. as a bank, how are you integrating some of the new technologies we've been talking about over the last year? bruce: we have an a.i. group inside the bank, and we're looking at launching, we've already launched three or four use cases, which allows us to start to test and learn. so, for example, how we serve folks that call in to our contact centers and using that predictive analytics about how to execute the calls more efficiently and more effectively. so there's a number of places in the bank that we're going to be rolling that out, and then as you have some success, then you figure out what are the next things down the list and how can you be even more impactful with the next things. but certainly the potential for kind of game changing impact in terms of customer service and cost efficiency is all there,

all in front of us. annmarie: cost efficiency is going to ring some pills. how many people are not going to have a job because of artificial intelligence and how it changes the mix of the people you hire. bruce: what's interesting, i just look at us citizens since we had an i.p.o. had about 18,000 people in the company. we've done several large acquisitions, and we've also just grown organically. but we still have 18,000 people. so we have people in different capacity and more customer facing people than we did back then. so i'd like to continue to be on this journey of continuous improvement, where we can take out more manual processes and then we can reinvest in things that help us grow the bank and better serve customers. i think that churn is what you're going to see. i'm not sure you're going to see a big reduction in employment, but you'll see different kind of jobs inside the banking sector. jonathan: jamie die moan talked about working fewer days in a working week.

lisa: 3.5. jonathan: i can't think of any time in human history over the last 100 years where we've taken a technological advancement and worked less. we've just taken that productivity boom and worked even more with it. is that going to change? bruce: no, i don't see it. sometimes jamie just says some things to be amusing. i don't think he probably in his heart of hearts thinks that's going happen. this country has a high work ethic. we're very industrious people f. we gain a little more free time, weeing if out what else can we do with it. jonathan: totally. bruce: a lot of times it's not sitting by the pool or being on the golf course. it's like let's get to the next business that's interesting, let's innovate, let's do more great things. jonathan: we're on the same page. i feel exactly the same about this. it's human nature. it's human nature. three-day workweek? lisa: no, it's not going to happen, but what's going to happen is some people are going to going to work more and some people are going to struggle to be employed.

i think that needs to be focused on. jonathan: that's absolutely right. mandeep singh of bloomberg intelligence, let's get you more stories elsewhere this morning. here's your bloomberg brief. >> boeing's c.e.o. has admitted the company caused the problem behind the incident that saul a door plug blow out during an alaska airlines flight. speaking on the company's earnings call, calhoun said an investigation into the cause is still underway, but the ultimate responsibility he said is on boeing. the plane maker said it would not provide a financial forecast for the year. elon musk is going all in on texas, seeking approval to move the corporate registration from delaware to the lone star state. musk took to his social media platform x to poll use others the change before saying tesla would soon hold the shareholder vote t. came after a delaware court voided the c.e.o.'s $55 billion pay package, calling it excessive. he's already moved tesla's home

office to austin and relocated himself and his charity to the state. universal music group has begun pulling its artists' music from tiktok after failing to reach a new licensing deal. that means tiktok users will have to find alternatives to music from the likes of taylor taylor swift, drake, and bob dylan. in an open letter, the world's biggest record label said negotiations stalled over disagreements on compensation for artists and protections against a.i. tools. that's your bloomberg brief. jonathan: thank you. up next on the program, regional bank stocks under pressure. >> i do think that overall regional banks are going to be weak in the months ahead on the back of the news. jonathan: that's coming up next. live from new york city, this is bloomberg tv. bloomberg tv. ♪ get help reaching your goals with j.p. morgan wealth plan,

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jonathan: equity futures this session, highs on the s&p 500 up by 0.5%. under surveillance this more than, regional bank stocks under pressure. >> in some ways it's easy to say that new york community bank corp stands alone and this is a problem that's idiosyncratic to that bank, but i think the problem arises that as we go through and see more and more of these idiosyncratic events pop up among the regional banks, that's a cause of concern. i do think that overall regional banks are going to be weak in the months ahead on the back of this news. jonathan: here's the latest this morning. wall street scrambling to take the temperature of regional banks following a dismal report from new york community bank. they slid 38% yesterday after saying it would have to hold more money to cover losses in commercial real estate loans.

every bank above $100 billion in assets must plan for tougher capital standards. we think the bank credit cycle is still early innings and more issues will unfold. chris, i'm pleased to say, joins us now for more. let's get into it. do you think this is a new york community bank corp issue or a banking sector issue? chris: i think it's a bank sector issue. every bank has a certain amount of problems. we call that the frequency of problems. we think that will rise the next two years. it's still early innings in the process of recognizing credit risk. and then we transition to the severity of losses, which i think will be lower than investors fear. but the problem is in the recognition that's still happening. that's exactly what happened with new york community, in addition to their decision to cut a dividend and in addition to build more liquidity. lisa: is your concern centered around banks of a specific size and region, or is this just more broadly that people are going to get increasingly concerned about commercial real estate values that haven't been fully written

down and pressure on the stocks regardless what the details are under the hood. chris: every time we go through a credit cycle, whether it was the early 1990's, 2000's, all of these times u to recognize risk, set up reserves, and take the losses. i think the concern is across the board. i think it varies by the type of loans you do, but it's not just commercial real estate. it's going to be typical some consumer, it will eventually be residential if prices come down in residential down the road. i think we have to be prepared to recognize risk, build reserves, and eventually take charge off. i think the ultimate charge off rate is going to be less, but i think the recognition of issue social security still happening, and i think it's particularly keen in certain commercial real estate types like multifamily, which have been pristine and are no longer pristine. that's sort of the exact prescription of what they had to recognize. but i think they'll do more of that in the next two quarters, and then eventually it will start to repair as time passes. a lot of these borrowers are

stressed by higher interest rates. if interest rates back off just a little bit on the five-year treasury, for example, it's going to make life easier for them to get through. that would be how i think this plays out. bruce: chris, nice to see you, but i guess what i would say to that is that the traditional super regional banks all reported in the last two weeks, and really were pretty optimistic, ground it out for another two quarters, but then things should pick up in the back half of the year as the economy gains some steam and the fed starts to cut. and in terms of credit, folks were kind of giving charge-off guys that were pretty manageable and we've already built a lot of credit reserves. i would say the markets have responded favorably to that, and maybe, to me, i would view new york community ads an idiosyncratic one-off. they attempted to do a lot in a

very short period of time, buying signature bank, lifting out a bunch of teams, and so they're acclimating to kind of that bigger size and all that goes with that. and they did have a very strong commercial real estate focus in terms of their loan portfolio and the dynamics around that, and they had a very high loan to deposit ratio. there's still more work for them to do. traditional banks, it kind of irked us last year when people called it a regional bank crisis. it was the west coast banks that grew too fast that weren't diversified. that's where the problem lied. and then it's guilt by association. if you have a simas set size, you must have the same problems. from where i sit, we don't have anything like the same problems, and i think you'll see that 2024 will be eye year that gains steam appears the year goes on and we're setting ourselves up for a really strong 2025, 2026, and 2027. chris: i agree with your points

completely from a standpoint of charge offs, and the particular issues with first republic and signature last year, but the only point i would contrary, as 10k's are filed in three or four weeks, i think we're going to see the criticize assets do go up from september to december. and that's really more of loans that used to be pristine that are now on watch lists or a few downgrades and sub standard. it doesn't necessarily change the charge off guidance, and i think your points are really well taken. charge offs are still low and expected to be low, even the largest banks with big consumer books are going to have 45 basis points of losses this year. and that pales to the 250 to 200 points they wrote off in 2009, 2010, 2011 when you had extremely high loss rates. i don't see that happening at all. but i think i think the recognition that loans become nontasked, i.e. criticized. and that's where the reserve building still has to happen. obviously in new york community's case they had to catch up on used to be 40 basis

points presignature to now being 80 and then now 125, and that brings them back up here. and because they're graduating to $100 billion today, they have to be up here. that was the primary change that the reserve related. but the liquidity piece is still ongoing. my concern is the fed liquidity stuff is going to continue to throw curveballs at the industry. jonathan: chris, great to catch up. got about a minute left, bruce. your final thoughts on that? bruce: just one thing, i agree, again, with some of that perspective, but we made a point in the fourth quarter earnings call to say we started to see criticized as settings stabilize. so i actually think that we're starting to feel more positive that we've identified where the issues are and they're not continuing to grow as we go through 2024. jonathan: interesting. bruce, good to see you. thanks for being with us. just sort of flipping the table

and taking on the analyst. the analyst taking on the bank. lisa: it's perfect. i think that was very valuable. let's do it again. jonathan: got to work it out. this is a big issue we've been talking about for 12 months. annmarie: i also wonder how many banks are on the precipice of that $100 million level. lisa: where suddenly they have to report in a different way and have different capital requirements. jonathan: let's set the stage for the next hour for the third hour. coming up on the program, we have four guests coming up on tech earnings a little bit later. the reaction to the federal reserve, the stress on the banking system, if you think there is, the stress from yesterday. equities future right now positive by 0.5%. yields higher by a basis point or two. on your 10-year, 3.9292. from new york city, good morning, the third hour of "bloomberg surveillance" up

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>> markets have been rallying

strongly not just in a cap tech put spread be speaking over the last two or three months. >> this has been more than a tech driven rally. >> it is critical tech can hold up your. >> you still have the ai preference. they are excited to grow their earnings by 21%. >> we think the excitement will come as we see more efficiency coming through for tech stocks. >> this is "bloomberg surveillance" with jonathan ferro, lisa abramowicz, and annmarie hordern. jonathan: good morning for our audience worldwide. this is "bloomberg surveillance" your equity market prancing back following the biggest one-day loss on the s&p 500 since september after chair powell pushes back on rate calls. lisa: suggesting he believes the

immaculate disinflation. people are expecting the fed to cut rates this year. he confirmed that, the question is when they start. jonathan: throw in bank stock stress, still can't believe this. why wasn't that talked about in the news conference? it was a big part of the move in the market and dissipation going into the news conference and then tumbleweed for 60 minutes, no talk of it. lisa: a lot of talk of other things like the terminal rate and the inflation concerns and the areas of the strength and e.g. economy. the issue is is this idiosyncratic or is this a systemic that or is this systemic? have a sheen crash in boosted prices given the overweight is regional banks have had? annmarie: no journalist was graduates to question on something that was just developing where they know jay powell was going to say i don't have enough to have a

substantial statement to say on that. likely he would say this is idiosyncratic to this bank. jonathan: real estate stress, unrealized losses, provisions? how idiosyncratic is that going to be? lisa: each none has its own issue but the fact that you have barry talking about market valuation losses on the office space real estate, a market that could be near $3 trillion, resist -- raises some concerns. jonathan: if you get enough it is a credit issues, you have a big issue. annmarie: college contagion. . lisa: it might be contagion that is locked in -- priced in. how much has been baked in at a time when arguably we could be getting people back to work? everyone is calling everyone back to the office. jonathan: you know what i think, i cannot believe those headlines are still out there. that is still a thing? lisa: get back to the office,

jonathan ferro. this is a shifting sphere. jonathan: if you want to succeed -- i am not going to do that. equity futures on the s&p 500, positive. we are a little firmer, yields higher. no one is that. coming up, mike wilson on wall street's reality check and stephen stanley previewing the january payrolls report. pierre ferragu looking forward to after the bell. jay powell saying not so fast when it comes to rate cuts. mike wilson writes this, the data tells us growth and inflation are growing -- are slowing and the fed will be using -- will be easing this year. quality group performs. it pays to go with the highest probability winner. in this case it is high probability growth. mike joins us now.

we will get to stocks in seconds. a conviction this outlook was a theme in his recent note of yours. top conviction less i think stamp -- how conviction-less are things right now? mike: we had this big rally after the pit. -- after the pit it. i would say it started with the treasury squeeze. it was a duration rally that fed into a stock rally. valuations are stretched again and people are saying what is next. there are things that will determine the direction. how much deceleration do we get? we will come back to this banking question. to me, it is not a systemic issue. it is a weight on credit growth. they are not lending at the same rate they were because they are constrained. that has been our view along which means quality stocks will continue to do better. the companies is reliant on that funding are going to continue to

see that is a paperweight for them. that is the main takeaway. new themes will evolve. last year was about two main themes, gop and ai. can those drive the market? to some degree, but then there will be new themes. that is what investors are looking for, new themes to latch onto in a world that will remain macro uncertain. jonathan: can you identify any themes now? mike: instead of enablers, we are going to adopters. that is the biggest thing. the gop what is positive and negative. that is a great thing for long short investors. i am wondering if we are good to get some growth out of the international markets. international economies have not recovered from the pandemic yet for the most part and i think that is a wildcard. if that could happen, that could be a good thing. it could be good for things levered more towards growth.

lisa: you fly around and talk with the, i noticed your recent travels. you were recently in miami. you talked about the ai stocks saying i think it is the magnificent four now. who are the magnificent four? who gets dropped? mike: people have been talking about this, i'm not the only one. you can identify which stocks have fallen off. there was a magnificent one that has topline acceleration growth, everybody knows what it is and the bit -- the others are cost-cutting. lisa: nvidia? mike: yeah. my sense is we will see a broadening out in quality growth. when we do screens on a quality growth, only 27% of that basket is in i.t.. another 10% or 12% is in services. another 60% or 70% of the s&p 500 qualify for the high quality

growth bucket. we should broaden out. if we have a soft landing that doesn't have other issues. that is something we have been trying to help clients with, give them a framework on the macro. here are the three buckets, soft landing, decelerating growth and inflation. that is what we had last year. soft landing with accelerating growth and stickier inflation. the third scenario is still a hard landing. that is going to determine how you position your portfolio. lisa: how do you headship you are cautious and there is this uncertainty? visit energy stocks? more duration stocks? how do you understand what it means to hedge when you have bipolar outcomes? mike: diversification. one thing we talked about at this conference that did not make headlines is this idea that we have attractive real rates and nominal rates.

from a portfolio construction standpoint, this is the first time in 15 years, bonds provide their diversification benefit. bonds rallied, stocks were down. we are bullish. we have been bullish. here we are, probably not as good of a value. in the event that's a systemic does have, that bond portfolio, yields are high enough that they can provide diversification to your equity risk. you can take equity risk, still love the quality curve. diversification between stocks and bonds and standard -- understanding what you're working with. if we see better growth, we could go out of the risk curve and more equities as long as we have the duration benefit. jonathan: you mentioned the theme from ai enablers to adopters. where should ai be looking for adopters? mike: it looks more non-tech.

who will be the early adopters of ai as a cost-benefit and driving new growth? we think it is more of a 2020 five-story. we are not that -- bullish this year. we are 230. next year we have 266, 16% growth. a letter that will be driven by productivity improvements as this is adopted. i don't think this is a first come second, third quarter, even fourth-quarter. are bottoms up report identified potential winners and the market will probably sniff that out during the year. they will not wait until 2025. that runs the gamut of industries away from tech. jonathan: are the labor-intensive industries? mike: they could be, but it could be growth drivers. we don't know yet.

this is what is exciting. it is also uncertain. there are also going to be a lot of losers. one of the things that worries me about ai in the short-term, we have seen a lot of layoffs within the tech sector. maybe these guys are already sick leave and able to remove head can. there are various views in the labor market. our views are it is slowing, weakening, a lot of government jobs, health care, social worker jobs. this could be an interesting catalyst for more layoffs. it is going to be uncertain. lisa: i have to ask this because i get messages that you are such a downer, so pessimistic. when you are talking to different clients, how much pushback do you get to a more realistic view of the potential risks given that only the rosy have come to pass? mike: our clients are active

managers so they are not worried about the s&p 500. they are trying to figure out what works. for all the headlines we get around the s&p 500, what we talk to clients about our individual sectors and stocks. last year we gave an f on s&p but an a or b on being in the right places in the market. that is what active managers are trying to do. it is not about being bearish or bullish, is about being bullish in certain parts of the economy and cautious in others. most stocks up until october 27 had a tough time. we had this rally at the end of the year. we have been consistent about this over the last 12 to 18 months. we don't think the trade is then to go to the lower quality bucket, to go for lower quality cyclicals. that is a recession trade. you need a clearing event.

that was our call in 2020. that worked well. don't over think it. you need to buy high quality growth stocks and it is not all magnificent seven. there are other businesses that have those characteristics that are not as presented. jonathan: i love what you did there. do you get the feedback i get, people hitting on you for being gloomy? lisa: all the time. i don't think i'm that gloomy. but sometimes. jonathan: not at all, brenda. mike wilson is going to stick with us. equities posited by 0.4% on s&p -- positive by 0.4% on s&p. you are the most gloomy person on markets. yahaira: eu leaders struck a deal to send 50 billion euros -- to ukraine. the agreement happened after the high-grade -- the hungarian

primary stroke lifted his -- the breakthrough avoids a contentious split within the eu and marks a win for latimer zelenskyy -- volodymyr zelenskyy. at least a dozen major nations are heading in declining residential property this year. hong kong is to have the steepest drop, following 10% amid high interest rates and political uncertainty. new york and san francisco are facing similar headwinds with that is impacted by remote work and low return to office rates. workers in transportation and warehousing took on record pay in the last quarter according to new data. employment costs and transportation jobs record 6.3% in the fourth quarter. factory workers fell behind. just 3.7% and the biggest gap between the two sectors on record.

jonathan: coming up next on the program, raising concerns facing banks and commercial real estate . >> everything is in the rearview mirror now. yesterday's announcement was a bit of a surprise. i think that is an ally or. jonathan: fly from new york, that is coming up next. you're watching bloomberg tv. ♪ how am i going to find a doctor when i'm hallucinating? what do you think, fever monster? what about zocdoc? zocdoc? dr. castell has a great bedside manner. so many options. but dr. xichun will take your sketchy insurance. xi-chun! xi-chun, xi-chun, xi-chun! thanks, bro! you've got more options than you know. book now.

j.p. morgan wealth management knows it's easy

to get lost in investment research. get help with j.p morgan personal advisors. hey, david! ready to get started? work with advisors who create a plan with you, and help you find the right investments. so great getting to know you, let's take a look at your new investment plan. ok, great! this should have you moving in the right direction. thanks jen. get ongoing advice; and manage your investments in the chase mobile app. jonathan: live from new york city, equities doing okay. one hour and about 30 minutes away from the opening bell, positive .3%. on the 10 year, 3.29. resnick concerns over regional banks and commercial real estate -- raising concerns over regional banks and commercial real estate. >> everything is in the rearview

mirror. there were a few idiosyncratic bank failures related to the business model and how fast those banks grew and the stress caused by the fed raising rates quickly. yesterday's announcement was a bit of a surprise. i think that was an outlier. jonathan: new york community bank plunging yesterday after the bow must provision surged to 255 million. there took on signature bank last year. a pair of troubled loans for office space. herman chan joins us now. new york bank community problem for a banking problem? herman: it is indigestion from the acquisition. it ushers in high regulations. they are conducting the stress test with the large originals -- the larger regionals later this

year. it seems the issue of cutting the dividend is to better put themselves in place to pass the test. jonathan: do you know why this fruit investors? data vault commercial real estate. we saw provisions a day japanese bank and greater bank. that is going to get people worried we are good to see more of it. do you not sure that concern? herman: there is concern because we have not seen the pickup in real estate defaults yet. it is going to be a long cycle when we see it affecting the industry. overall the banks have been reserving against higher loan losses. lisa: mike wilson is still with us. we were talking about credit being constrained. how much of this is present in given how decimated regional banks have been? mike: i am more focused on the impact of the broader economy.

you could say the small caps underperformed. we do have a refunding need over the next 12 to 24 months. even these private companies, too. that is the thing to watch. we have loan growth which is flat on the year-over-year basis. does that go into negative territory? that would be my concern. maybe these write-offs will be the cap best to get regional banks to say we have cleared the decks and we can start lending again. this is a live situation that is going to wade through earnings. this is another reason we are going to be slow considering the move to small-cap stocks. lisa: when you analyze the undermining balance sheets, do you find that loans are slowing and they are having constraints in how much they can extent? herman: in the reporting, loans were flat across the board. that is a function of banks have pulled back in terms of shoring up their capital. it is not a lot of loan demand

given where interest rates are. across the board, management teams have talked about this demand for business borrowers because of high rates. jonathan: since the pandemic, there has been this feeling that we are not going to see distress ritzy in normal cycle because of these massive transfers we saw from the treasury to individuals , balance sheets. with the same thing with corporate balance sheets. super low interest rates. do you think we could get the recycle -- get through a cycle with the credit stress? there is this what part of credit we can identify as a problem area. do you think it is the problem area? mike: commercial real estate is usually akk can kind of situation -- a usually kick the can kind of situation. we had two rtc one, rtc two. my guess it is going to be a

situation where it constrains the ability for the banks that have these loans to lend to other businesses. your other question is there is so much savings created in the pandemic it allowed the consumer to avoid a typical credit cycle. that may morph. this act was not over, eventually there will be a credit cycle. is it this year or three years from now? we don't know. we are moving in that direction. we are past the midpoint. credit conditions are tight. that is what we think the quality trade is -- jonathan: you mentioned the banks, it is going to hinder their ability to finance the economy. that also means it is good to be a massive headwind for profitability. would you extrapolate that through the whole banking sector or just a small group of regional banks? mike: the market has been

efficient not just in the banking sector, all over the place. this is why the magnificent seven did so well. they were the only companies showing positive revisions. i think the market has done a good job of it risk. is it fully pressed? it is getting priced. stock by stock. . it is not systemic. we are producing more of these. there are going to be more situations where there are some winners and some losers. lisa: let's put some ideas around the idiosyncrasy of the moment. we were talking about 100 billions of dollars of assets being the threshold for regulations that could force this shutdowns. how many banks are on the precipice of that 100 billions dollars. herman: there are banks going through this stress test, community which -- which but svb.

those will be new participants. each one has a high ratio than new york community. it is in better standing. there are a couple of banks like american and zion that are in the $85 billion to $90 billion range. they are not growing their balance sheet at this point so they have run away two or three years before the passover. they have more time to develop their systems and develop processes before they undergo this. jonathan: herman chan. we have time for final words with mike wilson. international, it has felt like the only game in town has been u.s. tech stocks and japanese equities. someone said that yesterday. does that attract your interest? mike: japan is international, it has been our favorite region but all of that is crazy.

the risk on the japanese trade is currency and that is move markets. if the fed gets more lenient, the dollar will probably weekend. the question is which currency is the beneficiary of that. usually it is good for em broadly. em will be said of craddick that will be sitting credit -- will be idiosyncratic. europe is europe, is not that exciting. they are hovering around recession. low growth, unexciting. if there are things going on around the world, people choose to go somewhere else. i don't see why that changes. jonathan: i don't take that personally. christine lagarde may. lisa: there is the thing and then there is the granola. jonathan: europe is europe. mike wilson there of morgan stanley.

equities on the s&p 500, 60 minutes from the opening bell, posited by 0.4%. those gains fade a little bit, the 10 year down to 3.92. lisa: when people look at the statement, this is a fed poised to cut. it is a matter of when and i don't think it matters all that much for people looking at a 10 year horizon. if they are looking at a one-month horizon, that will be more. jonathan: give a get thoughts from stephen stanley on that call. looking to tomorrow's payrolls report and reacting to the federal reserve and chair powell's conference yesterday. live from new york city, this is bloomberg. ♪

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jonathan: mike mckee has thoughts, he will share them in a moment. our next guest doesn't think we look at rate cuts until after the election. equities on the s&p 500, positive by .3%. the nasdaq come up 0.5%. jobless claims in focus. it is the bond market, yields look like this, but unchanged 2010 year. let's call it 390. with your jobs data and more is

mike mckee. mike m: we have able to bit of a jump higher in jobless claims which probably does not surprise a lot of people given the layoffs we have had. jobless claims rise to 224,000 from a revised 215,000. still within a range but a little bit higher. one of the people who has drilled into me that you don't pay attention to jobless claims in the holiday seasons is stephen stanley. he will be on in a moment. see if we have gotten at that season yet. the other big number this morning is productivity. the priest reader positively for the fourth quarter comes at 3.2% after 4.9% in the third order. another big number, another strong productivity number for the u.s. economy and one of the reasons perhaps that we are seeing inflation come down even as workers are getting more money.

labor costs rise half a percent after falling 1.1% in the third quarter. decent news this morning, not terrible jobless claims. at least reflecting a little reality. jonathan: equity futures still doing okay, not a big move. where posited by 0.4%. in bond market, yields unchanged. the two year, yields are higher this morning. 4.20 on the two year. looking for a marginal rate cut, pushing that out to june, that is the call from bfa. a faster policy easing cycle, the latest from bfa. lisa: this is the key question, does it matter if the fed pushes out to later rate cut if they accelerate the cutting cycle. mike, what was your take away yesterday at how does the job status factor into it?

mike m: i was writing a piece of the jobs data for tomorrow and i was going to put that they do not matter to the fed, stared outside of the parameters expected. they are looking at inflation. they know the labor market is performing well. as powell said, this is a good economy. he suggested they have abandoned the idea that unemployment has to go up in order to bring inflation down. less emphasis on the jobs numbers unless they start falling off significantly. then the fed would have to think of any earlier cut. it is all about inflation and i think powell was specific saying what we were to seize the same news, the same kind of progress. it doesn't have to be better but if we get a couple more months where in general the pc rates go down, we can move. the advantages we get three more pce numbers.

he said six month is not enough, baby nine months is. jonathan: i want your thoughts on what happened in the banking system. they removed a reference to banks in the statement and then we got one specific bank in new york. your thoughts on where the fed is that in regard with banks? mike m: i don't think they change their view that the banking system is sound and resilient. i think it is quits it is that was taken out -- coincidence it was taken out. most was rewritten yesterday. p back half is boilerplate -- back half is boilerplate. is not that they are ignoring the situation but new york community bank is not a big bank. it has a loss because of real estate within took over signature bank accounts. that was part of it. you are to have losses at banks because of commercial real estate.

it does not seem to be as a stomach problem in this sense it is going to spread through the banking system or cause runs in the same way we saw march of last year. i don't think the chairman would have had a lot to say about it. jonathan: i appreciated. good to hear it. jobless claims in, the final read before payrolls tomorrow. santander chief economist stephen stanley has his eye on labor force participation. "if we cannot count on a repeat performance from the labor market, it will be tougher for the unemployment rate to backup further and less deliver market weekends more dramatically. i see the unemployment rate holding in the 3.5% to 4% range." stephen stanley joins us now. you are looking for 50 basis points worth of cuts, not the next meeting, not in december, for the whole year and not until

after the election. why are you all the way out there? stephen: number one would be i think the inflation numbers are probably not good to be as good this year as they were the second half of last year. a lot of one-off and temporary factors helping to bring inflation down. it will probably not be repeated first half of the year. you got a sense of that yesterday. we have had six months of the deflator running below 2%. i am sure there are a lot of treated market participants saying isn't that enough? the -- the answer is no because if you look at the distribution of what is driving inflation lower, it is a lot of the noisy categories. the underlying inflation piece is not as good. jonathan: let's get into it. chairman powell talked about it, he is transparent about the whole thing. in nativism -- he needed the

data, maybe the drop in inflation had been down to one-off factors worried things would step less about target. what are those one-off factors that drive inflation lower over the last six months that you don't think we'll be there over the next six? stephen: a lot of the noisiest categories, airfare, hotel rates, used car prices, and if you switch over to bpce deflator which has a lot of -- to the pce deflator which has a lot of obscure stuff, another one is -- costs. it is debatable how those were measured with they were down the first half of the year and to me that does not jive with what we are seeing. lisa: was there anything that you heard from jay powell that gives you pause given the fact that they seem poised to cut rates as soon as they feel any comfort? if things don't necessarily take

a tic upwardk in inflation, they're going to be cutting rates. stephen: he was clear about that. he was reflecting the situation has not changed from december. we have the dots from december and the median was three cuts. to little different there. -- a little different. i was encouraged because given the market talk about cuts in march or may, to me they don't seem particularly close to being convinced. he was only willing to go out as far as march. based on what he said yesterday, even an cut -- even a may cut would require stellar data. lisa: initial jobless claims climbed to the highest levels in months. it is probably noisy data. what levels of job weakness would you have to see before you shifted gears, whether it is

tomorrow's data or down the line? stephen: that is an interesting point. my committee second point. a year ago, powell and the fed were saying we'll have to see we getting out of the economy, subpar growth, the labor market cooling to get inflation where we wanted. they are not saying that anymore. the jobs data are not necessarily vital in that sense. if the economy and the vapor market start to begin -- and the labor market start to weeken, it would accelerate. i am looking at the unemployment rate. we have been unaided 3.5% to 4% range that i cited in the piece about two years. we are still in that range. i think we will get above 4% this year. it will come in the back half of the year. jonathan: i want to talk about the politics. you don't see these cuts coming until after the election.

is that for a good reason? is that associated with the election itself? stephen: here is where the election plays in, if the fed to get started early in the year, they could give going through the election. they have done that on either side in the past. i don't think they want to make newspaper headlines in the heat of the election season. if we get to the july meeting and they have not moved yet, i think the first move is not going to come until after the election. annmarie: for those concerned if he cuts is a boost to biden, if he doesn't cut, doesn't it mean he is practicing to biden? stephen: they are damped if they do edit them to they don't to do the right thing. the political risk is lower after the election then before because you don't have people campaigning. they don't want to have one candidate or the other going out and making speeches every day saying the fed is doing this wrong with the fed is biased.

you want have that after the election. jonathan: you have a window in mind. you said you live which makes me think if they started before july, will this stop in july -- will they stop in july? what about summer mission think it is not what this fed wants to do? stephen: historically they try to avoid being in the news during the heat of the election cycle which is after the conventions, end of the summer. they are not in the news if they're cutting for the fourth meeting in a row or the fifth meeting in a row. if they get started early, they can plow through and they have done that before. the first move is always the biggest, the most significant one and i don't think we will see the first one coming and, or two before the election. jonathan: 50 basis points of cuts is only 25 basis points out

from the doppler. if you're so foreign because of what the market is price for this year. lisa: is also when do you start and raises this question of whether you be stymied if they move too much? the first cut is always the deepest. jonathan: are you going to start sinking? lisa: no. jonathan: let's get some stories . get you the bloomberg brief. yahaira: the boe has opened the door to interest rate cuts. it slashed its outlook for 2024 and that is that borrowing costs would have to rise. the monetary policy letter the key rate unchanged at 5.25%. >> if it was at 5.25% of the next few years, it is likely inflation would fall significantly below target. if we were to follow the market condition, we think inflation would be above target for the

next three years. yahaira: the committee was split on action with one vote to cut, two to hike, and the remaining members voting to hold. elon musk is going all in texas, seeking approval to move corporate registration for tesla from delaware to the lone star state. he took to x to poll people on the change. it came after delaware court voided the ceo's pay package. he is already move the home austin -- the home office to boston and relocated himself and his charity to the state. ftx, the defunct crypto exchange set of plans to repay customers and creditors who can prove their losses. failure said they will fill drug claims for those that religion it. attempts to restart the exchange has been halted after the team

failed to find investors willing to inject cash. jonathan: thank you. coming up next, high hopes for big tech. >> look at microsoft and google, the results were fine. it is almost like the market is looking for a reason to pull back and that is understandable given the run they have had. jonathan: earnings coming up after the close, go to the opening bell. equity futures on this and be positive by .3% on the s&p 500 positive by -- futures on the s&p 500 positive by .3%. this is bloomberg. ♪ fever monster? what about zocdoc? zocdoc? dr. castell has a great bedside manner. so many options. but dr. xichun will take your sketchy insurance. xi-chun! xi-chun, xi-chun, xi-chun!

thanks, bro! you've got more options than you know. book now.

jonathan: here we are going into the opening bell, 45 minutes away, equity futures on the s&p 500 attempting to balance. posited by 0.4%. yesterday, big one-day rally

going back to september. biggest one-day move lower on the nasdaq going back to october. pretty dreadful stuff powell pushing back on baking stress. yields, 3.29 -- 3.90. lisa: the wrong side of upside surprise in two months. we are seeing the trees revealed at the lowest going back to january 15. i am looking at this and thinking, how much are we pressing out rate cuts in march -- pricing outreach because in march? that means they're going to be consolidated. jonathan: chairman powell set this up yesterday. we are comfortable with stronger growth. if it weakens, if the market starts to crack, we have the ability to step in. but have that room now that if things we can catch weekend --

we can bank, they can move in. lisa: the balance of risk is for an even greater rally in the bond market because the fed is more cognizant and will be responding more to weakness. jonathan: high hopes for big tech. >> microsoft and google, the results were fine. it is like the market is looking for a reason to pullback and that is understandable. we think this is a gap year for genai. the big question is will the market be patient and wait for that to come through? jonathan: mehta, amazon, apple reporting after the close, disappointing results from amazon -- from alphabet and microsoft. we recommend segue from apple. if there cautious on the iphone

come investors will struggle to see the catalyst. pierre ferragu joins us. it is bizarre that we had a rally by almost 50%, 48% in 2023, and yet we sitting here asking this question, can apple avoid its 5th street sales declined? what was supporting that run last year before we get into the year ahead? pierre: behavior in every surprising way in 2023. all the tech stocks recovered, i don't think it was specific to apple but it reflected on the fact that the outlook for all tech related players having been batted down in 2022. since june, they have been

treating sideways in a fairly large way. that is what happened. a bit of weakness, but compared to what we have seen elsewhere in autos, with tesla, apple looked very resilient. that is what facebook told us -- that is what destocked told us over the last six months and that is where we are today. lisa: how big of a disappointment are you expecting the today? how much are you seeing this play out in discerning cycle rather than a slow bleed over the next year? pierre: it is always difficult to time things. we don't have any significant edge. what we saw is a lot of week, painful data points in december. consumer being weak and while

way -- and while way being great. applegate 20 million units out of what we are getting out of the market. now it is coming back and doing well. the chinese consumer sentiment is what it is. my concern today is that expect a flat five for development between 2023 and 2024 and beyond. if there is a crack on iphone expectations, if management feels the need to go down on iphone, if that happened then it is would you be difficult for investors to be patient. that is a risk. do i have a high conviction they're going to disappoint? not really. lisa: guest after guest comes on here and they say we might see

magnificent four, magnificent age, but that seems to have -- magnificent age, but that seems to have fallen away. do you think apple does not belong in the same category because they have not leveraged the ai trend? pierre: i think it is an important aspect. they are the kindest best highest consumer -- highest consumer tech in the world so it a great business for that reason. but you don't see much news flow on ai. they are working on it. the iphone user experience will be revolutionized by generative -- ai. this might be concerning. that might make apple actually falling a bit off. jonathan: this is something i've

always struggled with and a question i often ask you, what multiple do you put on this name? you have the core growth story of the last decade which is the iphone. the revenue mix is shifting toward services and we have seen that. what multiples should you put on this stock? pierre: it is a very high-quality franchise which means apple will always be able to grow in high single digits their earnings power, even if nothing exceptional, nothing magic comes through. apple still works like a premium on the s&p, a premium on the overall market. not a premium for growth. what could be a good earning in 2025 today. i think it is a reasonable --

which means between now and waiting to 2025, they would have much room to grow. if we have a 7% to a percent earnings growth, that is the upside you can affect -- you can expect. if we come into a period of duress, you can see compression. that would create more than anything -- jonathan: i wanted to finish with a question but on a different company. you know i'm going. i am going to talk about tesla's. should i -- what is this now? pierre: tesla is a very interesting point in time where they are maxing out the market today. we have put a lot of numbers

recently -- pulled a lot of numbers recently and found that tesla has addressed 50% of the market today -- 15% of the market today. tesla has come three first leg of development successfully. now it is a 15% market share player. as a reference, the largest car manufacturer he only has 20% of the market. that is a very high market share. what can they do? they still can grow, still getting some growth this year and next. they agreed to continue to gain share and expand their market. in two years from now, a lower price point car with the nexgen model. they should still be able to achieve 50% market share. 15% market share -- 15% market

share. they are in transition phase now. in it to six months they start raising prices again when costs come down -- in six to eight months start raising prices again when costs come down. if 15% of the market is what they have today, they should continue to grow from there. that is a very high growth potential. we will talk about the ceo another time. in you have got to go. pierre, thank you. anticipated apple earnings after the bell. tesla has a buy. lisa: at a certain point, are you buying an electric car or binder tesla? that has been the key question. jonathan: we have been asking that question the last few months. tomorrow is payrolls friday. this lineup is stacked. kevin of morgan stanley and former governor and our good

friend mohamed el-erian. all that's coming up tomorrow. from new york city, this was "bloomberg surveillance." ♪

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>> from new york city to our viewers worldwide, it is prospect thursday. it is day two of magnetek with apple, amazon, and met all sitting he agenda after the close. they can't out to the open starts -- 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.