♪ >> we've seen equity before despite the fact that you seen a pickup and long and yields because the growth picture has been strong. >> the u.s. has a particularly good spot. >> we are likely to see many packets of volatility brought on by this drip feed of tariff views. >> that is basically the story for the 2025 outlooks, is uncertainty and unforca stability. announcer: this is "bloomberg surveillance," with with jonathan ferro, lisa abramowicz, and annmarie hordern. jonathan: good morning, "bloomberg surveillance," starts

right now following a blowout jobs report on friday. the selloff continues. futures pulling back by 0.8%. the nasdaq 100 down by 1.2. yields up for a seventh consecutive session on the 10 year, up by two basis points. and to make this just a little bit worse, crude, five-month highs, brent crude back through going into a massive week ahead on the data side. ppi, cpi, retail sales, then earnings. lisa: a real question about whether the data we get this week will confirm what we saw in payrolls report that really spoke to the american exceptionalism or whether it will define it. if you get the sense that the u.s. is continuing to diverge and you get this dollar strength ongoing, you get the idea of a potential federate cut pushed off the table for 2025, does

that only make the pain worse in global markets? jonathan: i think we spent friday morning talking about that. pouring some freezing cold water over it, good growth data outweighs higher 10 year yields, but unless and until inflation surprises, and i think we can't talk about friday by just talking about the payrolls report, you've got to throw in inflation expectations because that poisoned the well. annmarie: coming in at the highest levels going back to 2008, rising to 3.3%. if you look under the dynamics of the university of michigan survey, you can argue again this is a political barometer because democrats increase their expectations for inflation dramatically. republicans ratcheting back their expectations for inflation which seemed to be the divide. that said, this has driven inflation in the past. so even if it is political, can you take it off the table?

jonathan: the political breakdown is on the edge of comical. annmarie, wti by close to 2%. annmarie: a lot of analysts raising expectations, morgan stanley modestly talking about the expectation of going higher because be seen the boldest and most significant sanctions placed on russia at a time when an ongoing administration, even though this war has been raging for years now, decided to take the most significant stance when on the horizon there are still concerns about their pockets of crude supply, most notably when the trump administration goes back to maximum pressure campaign on iran, and that is why you are seeing not just what is happening with russia, but also what does this mean for supply? lisa: this you can file under the parade of things that maybe president biden wanted to do before the election, and now that it is over, go full throttle and do all the things

that he feels like are now politically insensitive. a question about whether this an insult to injury long-term because if people are worried about the deficit and the idea of inflation, this doesn't help. jonathan: down by 0.8 percent on the s&p 500 to kick off the new trading week is monday morning. coming up, we will catch up with citi, maya macguineas, and mark mccormick of td with the u.s. dollar on a six-week winning streak. stocks falling as traders dial back a report, expecting equities to rise in the year ahead, writing full-year returns should be more evenly spread between regions, the broadening dynamics may need to wait until we move further past inauguration day. for now, we maintain the overweight stance of the united states. welcome to the program. how much of a challenges this

bond market to your call? >> thanks for having me, what a busy monday morning it is. what you are seeing is put a constructive view on equities but it is going to be a volatile year and there's going to be a lot of uncertainty our core overweight still is the u.s., but since the first quarter of last year is that the u.s. market is really priced for perfection and that is where pressures from the bond market could stronger than elsewhere. so what we've been arguing is that now with the right time to start diversifying some very expensive price for perfection u.s. equity markets into the rest of the world bucket. within the rest of the world, our model suggests that all

various pressures and the second half of last year is the continental europe. so this is our preferred diversifier and worse from the u.s. is under pressure, all of the markets are going to go down. you've been seeing this dynamic starting already, that the pressure on the nasdaq or the s&p doesn't necessarily translate to the same amount of pressure on the rest of equities in europe. annmarie: the idea is the you guys are upgrading europe to overweight at a time when you are concerned for the whole price for perfection idea in the united states, and this goes to this question of is the bar so low in europe or do you actually cease of the positive coming out of the region? i don't mean to sound snarky but we are talking at a time you have inflationary pressures ongoing, governments into disarray and the potential of china's slowdown basically eating into the region as they get caught between trade wars. >> absolutely. these have all been pressures on europe playing out since

december last year. the beginning of june with the french election announcement, but the china slow dead -- slowdown has been the biggest bulk of this pressure. we have been noticing that downgrades have reached recessionary levels of downgrades, of cuts. and historically, it tends to be a contrarian indicator in europe if you have the patience of waiting six to 12 months. the pressures continue, but these are not new pressures. the underperformance to price of these in, and what we see right

now is the rate adjusted model as well, and markets like europe or emerging markets in the second half of last year are not pressing in a line with this forecast. it is a more reasonably priced market. the u.s. is praised perfection. of course it is not a small sailing into this year, but there's a huge amount already priced in. lisa: this goes to the point of the weakest euro vs. the dollar. basically money flooding into the u.s. which is going to your point of priced for perfection, and i just wonder whether the currency plays into this, whether a strong currency will actually impede earnings and whether a weaker currency actually provides a tailwind to

european companies. >> this is one of the potential catalyst for europe going forward. absolutely the move that we can seeing last year has been very meaningful and most of the assets, staying with these assets. perhaps we have another 1%, 2% move on the dollar. most of these moves are already behind us. within the european market, we argue that the market has been positioned just thinking about the negative. exposure to the u.s., but it is a tariff risk. very indiscriminate treatment around the presidential election.

the markets forgetting about the positives, but actually they benefit from the strong dollar. jonathan: the euro-dollar breaking down. just on the european stock performers, a little bit about performance more recently. to your point, it felt like over the weekend he read this just for you. the narrative and markets is that the outlook for the u.s. is great and the outlook for u.k. and china is not good. 41% of revenue in the s&p come from abroad. lisa: i love this line and i love this idea because essentially, how divorced can you say you are from the global market, how much can you talk about american exceptionalism and basically this wall of protection around u.s. companies if they drive 41% of their

profits from the rest of this world which goes to the european strength? how much of the european strength comes from companies who derive a significant portion of their sales from the united states? and they could actually do significant more exporting business because the euro is so weak. it just goes to this question the challenges how much you have this divergence. jonathan: a massive week ahead. ppi tomorrow, then cpi, than retail sales. jp morgan, city, goldman and wells fargo. let's get you an update on stories elsewhere. dani: the wildfires in southern california have killed at least 24 people and destroyed more than 12,000 buildings. firefighters got a brief break from the dry santa ana winds that have spread the flames across nearly 38,000 acres. however, another round of gusting is expected to pick up later today. the national weather service issued a rare particularly

dangerous situation red flag warning for parts of then sure and los angeles. that is from early tuesday morning until noon on wednesday. jd vance says a deal to release hostages could be struck before president-elect trump heads to the white house. he said it could happen in the last day or two of the biden administration. israel said it sent negotiators to qatar for fresh talks. the u.s. supreme court signaled it is likely to whole of a law that would ban tiktok if bytedance does not sell by january 19. a majority of justices suggested they see national security concerns as overwriting the free-speech interest of companies and content creators. bytedance argues that tiktok is an american company, inc., headquartered in california, and that is your brief. jonathan: more from about 30 minutes. is this about free-speech or security? they are two different stories. annmarie: it sounds like they

are very concerned with the tone and tenor of national security. chief justice john roberts asked of the lawyer are we supposed to ignore the fact that the ultimate parent is subject to doing intelligence work for the fiv chinese government? lisa: that cry in the streets was a whole host of teenagers realizing that tiktok was going away and trying to figure out what they were going to be doing. annmarie: ed mills said it could be banned on the 19th and back on the 20th and trump can give it 890 they extension and they try to figure something out. it's very difficult, the parameters of how the steel could get done. lisa: in the meantime if your social capital relies on tiktok, you are looking for diversifiers. jonathan: the clock is ticking and mark is waiting in the wings. of next, drawing a red line on a trump tax cuts. >> we will work through this negotiation with the president, with our leadership and come up with a number that works.

if there is a tax bill that does not lift the camp on salt, i would not support that. jonathan: that conversation up next. live from new york city this morning, good morning. ♪

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♪♪ ♪♪ ♪ jonathan: equity futures on the s&p down here by 0.8%. building on the losses from friday, bond yields still climbing. bank of america with inflation stock above target, the labor market stabilizing. we no longer expect any additional rate cuts. lisa: previously they'd expected to rate cuts, so this is a huge change for them. all the big wall street firms

cutting expectations for rate cuts and this really speaks to how the entire yield curve is shifting upward as people talk about higher for longer and maybe where we are right now. jonathan: one area of the economy where things are restrictive, housing is simply not working. demand is crumbling. lisa: and we are seeing that priming about 7%, mortgage applications falling off a cliff. it hasn't led to huge price disinflation and deflation, and this hasn't been a break for the federal reserve. the ongoing more of the same, does it start to actually eat around the edges? jonathan: wti up by more than 2%. on brent this morning, 81.25. if you are the incoming president you probably have some pretty strong thoughts about the outgoing president and some of the moves he's making over the past week. annmarie: a flurry of activity in the final weeks of the biden

administration even though they could have taken a lot of these packages under consideration the prior year or two. when it comes to this one, someone sent me a message saying one thing i want to make sure you realize is that trump cannot just quickly lift sanctions if you wanted to, he actually needs to go to congress to get congressional approval. so this is another reason why these sanctions had a little bit more right to them -- bite to them then most people seeing them on the surface our understanding. jonathan: inauguration one week away. drawing a redline on trump tax cuts. >> there's reasons for all of us to negotiate in good faith, that's why we went down to meet with president trump, he understands this and he said i'm with you, come back with a number and let's work through it. and that is our objective, we will work through this negotiation with the president, with our leadership, and come up with a number that works as part of the overall tax bill. the only redline i have is that

if there is a tax bill that does not lift the cap on salt, i would not support that. jonathan: house republicans meeting with president-elect donald trump over the weekend to discuss the salt deduction cap, calling the talks positive but saying they got no firm commitments from trump. the move shaping up to be a key sticking point for passing in upcoming tax package. the committee for a responsible federal budget. i just want to start in the market and get to some of the politics. how much more expensive is this bond market making the ambitions of washington, d.c.? >> the bond market as a wake-up call for when you have trillions of dollars of debt, higher interest rates have a profound effect on the overall budget. the fact that we will be paying $1 trillion this year, the second-largest item in the federal budget squeezes out the space for talk of anything else. spending increases, tax cuts, and real pressure on lawmakers to start thinking about fiscal

issues, something they've been ignoring for the past years. and it is a reminder that there are real effects of borrowing too much and we are starting to feel those effects and his huge debt load is incredibly sensitive to those rate swings. annmarie: incoming vice president elect jd vance taking notice of the bond market in his interview over the weekend with fox news. he mentioned bond yields rising twice and net interest payments. talking about last year being more than $1 trillion. what are they on track to be this year? >> this year they will be over $1 trillion as well. annmarie: that's pretty incredible and doesn't really give the incoming administration a ton of wiggle room. if that is how much we're spending and the bond market is pushing back on some of the spending, what do you make of all the talk of reconciliation, tax cuts, more money for the border? do you have an understanding from congress on with the top line figure would be? >> on one side, and this is the

side have a preference for, there are members saying my redline is i don't want to add to the debt. the only way that you break that fever is you start using reconciliation and budgets and other tools to bring the debt down. so there are some members, and they are not enough, who are saying i don't want to vote for something that would make the debt worse. but the discussions internally are talking about huge numbers beget the tax cuts, extending them without offset would be so expensive that there are discussions of reconciliation numbers as high as 4, 5, $6 trillion in new borrowing which would be astronomically dangerous to the fiscal situation that is just mentioned, the bond market is already showing real nerves about. lisa: how long do you think they will extend tc jx? they definitely want to make sure that they can get these tax extensions through. >> you've honed in on one of the possible and liketion this to make those tax cuts

temporary. that's why we are dealing with this now, because they weren't permanent. the first effort will be to have offsets to help spending cuts that will offset the cost of extending the tax cuts. i think it is likely that in the end, a number of those extensions will be temporary, talking about just to her for years which will hide the cost and we will be back at the table having the same discussion in a couple years if they do that and none of the entities will be able to plan with certainty that would make investment decisions much more beneficial to the companies. lisa: how optimistic are you about the department of government efficiency? >> i am huge fan. for two reasons. one, it is so clearly needed. there are huge pockets of places where we could have massive savings and the federal government from a huge health care industry that is remarkably inefficient in almost every aspect of how it works. two, the regulations they are

looking at. i was concerned when they came out and said we are going to save $2 trillion in a year because that fiscal ambition is so far from reality that i was worried this was all bluster and kind of like the california hype cycle more than the reality of how budgeting works, but as i've seen the efforts they put together saying we are going to get as much as we can, i continue to be encouraged. i think they will find a lot of places and executive orders where they can save money. i think they will find a lot of regulatory changes. i just hope they are not all directed to loosening regulations on crypto and ai rather than thinking about where to make things more efficiently and actually save the government real savings. the hardest pockets are social security and medicare and they've said those are off the table and as far as i'm concerned, that's really one of the tests of seriousness, are you willing to go to where the money really is? so far they've said that that is

a redline. i get it, politically those are hot buttons, and anybody who cares about the budget knows that those are where the real savings are. lisa: we're talking about a loosely brought to get a coalition of people in an area that isn't actually a department, they are not actually government officials and there is the real question about what kind of political clout they will have, especially in a time where everything gets watered down. at what point do you believe there is a political will to get through some of these cuts that might be recommended? >> that's a great question. on one hand, i think we actually need to outsource some of this. congress has failed to do its job when it comes to fiscal oversight and the fiduciary responsibility for over a decade now and it has been really disheartening to see that the only party that cares about fiscal responsibility is the minority party trying to stop the other one from doing something. very few people out there are talking about how to reduce our borrowing. so i think that is great.

on the other hand, a lot of the people involved in this have potentially conflicts of interest with the federal government and i think that is really worrisome at a time when we need to be rebuilding trust with how our leaders are serving as the stewards of the overall economy and not just looking after their own interests. so i think their ability to disrupt and not care about the political constraints is incredibly encouraging, but i think we have to make sure they are very transparent about how they are doing it. the biggest concern i have, president trump, we've seen him in office before, he was not a fan of spending cuts. he increased spending mass of the on top of future tax cuts and the debt went up under him a lot because he hasn't liked to things. so i think he may see a real political meeting of the minds between those working on doge, the opposite of meeting of minds between those working on it and

then president trump sees how hard these things are says i don't know how that will play out. jonathan: we will see if it is any different a second time around. the committee for a responsible federal budget. up next, nela richardson of adp joining us. this is "bloomberg." ♪

♪ jonathan: a second straight week of losses on the s&p 500, coming into monday and the losses continue. on the nasdaq, the bond market, commodities as well. let's get the fixed income first. yields up again by two basis points. yields climbing for seven convective sessions. it wasn't just payrolls on friday, a few hours later we got the inflation expectations read. that wasn't pretty, either. annmarie: the idea that some people were saying you can basically discount some of the strength by saying the visionary impulse in the wages is shattered. we got the university of michigan sentiment survey, people said this is the republicans feeling fine about inflation and democrats feeling terrible about inflation ahead and it led to the highest inflationary going back in 2008.

nonetheless, it puts that much more pressure on that cpi print and it just speaks to how jittery this market really is. jonathan: the director said nearly one third of consumers spontaneously mentioned tariffs, up from 24% in december and less than 2% before the election. lisa: people are concerned about what is to come and the threat of policy to come. i wonder if it is just consumers are also companies. in one thing that mohamed el-erian was talking about is companies aren't going to deal with terrace the same way this time as they have the last. we don't put prices any more the packaging. they can adjust pricing in a real-time and a new kind of way and consumers are used to not being able to check prices because they are moving so quickly. jonathan: potential even faster in the months to come. crude rallying once more.

five-month highs up by 1.8%. we will come back to that move in just a moment. two rounds of dry santa ana winds heading for california as fire crews struggle to contain the massive blazes in the region. the national weather service issuing a particularly dangerous situation warning for malibu, san fernando valley and ventura county with 70 mile-per-hour wind forecasted from early tuesday through wednesday morning. >> the 40,000 acres that have burned accounts for something that is bigger than the city limits of san francisco, pittsburgh, boston and miami. it is a shocking amount of land. there is now the question of is this something that as a result of global warming, is it something as a result of human failure and planning, or is it two coexisting stories where climate change is happening and it is getting more expensive and more difficult to attic of response to it at a time when authorities really need to do so? jonathan: the palisades fire is

the third most destructive in-state history, the eaton fire the fourth most destructive. these are the wrong kinds of records. annmarie: and you have accuweather coming out talking about the total damage and economic losses, tragic. and this is before the fresh news we have of these tragic winds that are going to be picking up and potentially the fact that these fires are not abating just yet. this economic toll is going to be crushing in california. jonathan: the incoming administration, the tension between donald trump and governor newsom is worthy of attention to the next several weeks or so. back in september president trump said regarding his demands for management, if governor newsom doesn't sign those papers, we won't give him money to put all of his fires. of course context matters, this was back in september. people around him have said he will continue to help in the same way that president joe

biden has, but i wonder how much will change in the next several months. annmarie: he's going to want to make a trip and point to what he perceives as the failure of governance from governor gavin newsom. jd vance over the week and was asked about this and he said the incoming administration intends to have fema and other federal responses continue to help, but also saying that are clued in on what is going on on the ground. jonathan: i promised you an update on crude again, a five month high. all of this following fresh u.s. sanctions against russia's energy industry, targeting large exporters, insurance companies and more than 150 tankers. the move potentially forcing refineries in india and china to seek alternative supplies. a big question about the timing and all of this. annmarie: many people are being very critical of the biden administration. this war has been raging for years and now they are waiting for the final weeks to actually really make a bold action when it comes to sanctioning.

not as much of the u.s. has sanctioned, much closer. these are two massive producers, talking about 800,000 barrels of oil at a time when there are critical concerns about supply in the oil market when trump comes in in terms of the maximum pressure on iran, so how much more can be see risk premium added to the price? if you or saudi arabia or the uae, you might be liking this. lisa: all i can say is what is next, he's got a couple more days. it basically is the last week. he will reap the consequences that have no political batter to him. elsewhere in china, a trade surplus reaching a record 992 billion dollars in 2024. that's 21% higher than the previous year. exporters rushing to make up for

sluggish demand at home and get ahead of donald trump's return to the white house. an interesting detail in this export data, vietnam overtaking japan as china's third largest export destination for the third time. exports to vietnam in 2024 rising almost 18% to a record 162b. lisa: they are not all going to vietnam, they are going to the u.s. and that goes to the whole point we are hearing about that a lot of the traders have just created markets in places like thailand and malaysia and vietnam that act as third parties that can take in those exports from china and repurpose them and send them back to the u.s.. annmarie: it is the backdoor idea where you see both parties talk about the concerns with mexico and china buildings factories on the border with the u.s. after the other story on oil, sanctions don't always work.

sanctions just create new markets. someone at some point will fill that demand. the question i have for china, is this really about trump or how much is this about the fact that china had a really sluggish economy? they don't have the domestic demand. if they can use any nervousness in the economy, they are going to do it to try to dump exports somewhere else. jonathan: cpi out on wednesday after december the blowout jobs report. given the uncertainty of last week's jobs report, the cpi will either reverse friday's market selloff or justify it. good to see you again. >> good to see you. jonathan: how strong was that 250 $6,000 beneath the surface? >> according to the report, it was driven by private sector jobs. 223,000 came from the private sector.

last time in september that job gains were this high, it was driven by government and health care. so this is actually the same number as september almost, the composition changed, and it looked like from that report the private sector was accelerating at the end of the year. >> i know that the adp report doesn't necessarily track the same kinds of metrics that the payrolls report does, but it was actually a lot less optimistic and i'm wondering why the dissonance that? >> we saw a downshift and private sector hiring. you are right, part of this is a data construction difference. bls is counting the number of people who have received a paycheck. adp is counting the number of active employees on payroll, and we are seeing that disconnect in the broad numbers, but let's focus on the areas of similarity. manufacturing, health care was

dominant in both reports but overall we're seeing a slowdown in job growth, not acceleration. lisa: i saw a number of reports talking about the likelihood that this was going to get revised lower. we do agree with that? >> history has seen big revisions in the first print and that is because the survey response rate has come down. by the second and third you are getting a much more robust number than we see in the initial number. but the issue for the markets as you trade on the first number, not the third. that is why looking at these two reports gives you a range of what the private sector is doing. annmarie: based off these reports and how the market reacted, how offsides is the market going to be for that potential revision? >> maybe this is an educational opportunity. if the market is looking at wages, wages are going to tell you a different story. it's going to tell you that wage

growth has stepped down a little bit in both reports and if you follow wages to inflation, that means lower labor costs and you match that with higher productivity gains that we seen so far, you might get a better feeling in your stomach going into january that at least wage growth is not likely to trigger inflation. annmarie: we talk about this a lot because you do a lot of work looking at workers and employees. who has the leverage right now? >> i don't think anyone has the leverage. employers are keeping their employees tight, and what employers are thinking about is not how to add headcount or replace headcount, they are thinking about how to make headcount more productive, how to make their workers more skilled, how to engage them and how to keep them. at least, that's where we are right now. so we're are in this moment of stasis where neither side has the leverage. until we go further into 2025, i

think we are going to see employers dominate the labor market. jonathan: some big moments where data was quite disrupted by strikes, by hurricanes as well. we've got another big issue to deal with, how destructive will the incoming administration be given the wildfires in california? >> if you use the hurricanes as an example, the damage they did in the carolinas did show up in that jobs report, and i would think that l.a., being the massive market in terms of job creation that it is, especially for retail and leisure and hospitality and the service sector, you match that with a massive amount of damage and destruction we are seeing, i think it will have an impact in the jobs report, maybe not in january, also in future jobs report as well. jonathan: one of the biggest economies not just in america, but on the planet. lisa: honestly this is

absolutely tragic and will have ripple effects at a time where you have to wonder what kind of other effects it will have like on housing prices. you talk about some of these regions that don't have a lot of housing supply, but you have this type of situation. doesn't that cause inflation on some level, doesn't that really create demand for a lot of these workers? >> it's not just about housing which is a key component of inflation as you mentioned. it's also agriculture. we are talking about a highly dense area but we are also thinking about how this has ripple effects. other industries dominating california. if you are looking for places that will trigger inflation i would look away from the headline jobs report in december and these pockets of activity that happen compromised by climate events. jonathan: lots to think about. equities this morning lower once again, building on last week's big losses. let's get you an update on stories elsewhere this morning. dani: vice president elect jd

vance attempted to dial back the campaign promise to pardon all protesters involved in the u.s. capitol ride on january 6, 2021. he said those who behave violently should obviously not receive pardons. president-elect donald trump has also modified his stance saying many will be pardoned and there could be exceptions for people who "got out of control." apple trading lower in the premarket this morning by just under 1%. the company sold 5% fewer phones globally in the final quarter of last year. it was due in part of the lack of apple intelligence features on its latest iphone 16, which are still not available in china. apple's market share slipped 18% as chinese rivals in the ground. samsung for its part also lost share. blue origin has delayed the inaugural launch of its fleischer braga dealing with an unspecified issue with the vehicle. the jeff bezos-backed firm is trying to mount a challenge to spacex, but it repeatedly

delayed its targeted lift off time during a three-hour launch window in florida. blue origin did not give any details on what it would next try to fly the rocket. bezos said that the space industry has room for multiple letters. -- winners. jonathan: up next, dollar strength. >> the dollar has benefited, the yen currencies have not benefited and the rest are suffering. the dollar move and the rate move in u.s. combined really does start to cause issues for all markets going forward. jonathan: that conversation continues up next on the program. ♪

♪ jonathan: not a great mix this morning, crude higher by 2%.

on yields elevated by another to basis points. bringing equities down with more dollar strength, -50 .8% on the s&p 500. under surveillance this morning, dollar strength. >> the dollar has benefited, and the rest of the dm has been suffering. the dollar move and the rate move in the u.s. combined really does serve to cause issues for all markets going forward. there's only three ways you can fix that. i do the rest of the world catches up, the u.s. goes sideways or the u.s. goes down. jonathan: the u.s. dollar surging to its highest level since november 2022 following an upside surprise on payrolls. the dollar remains the only game in town and u.s. data is getting better not worse, supporting a solid backdrop for u.s. flow. mark, welcome back to the program. talk to me that those flows. you talked about the importance

of the performance of a domestic equity market and i think there are some subtle signs that more recently it started to see some performance kick in. >> what is important is u.s. equities are slipping but everything else is slipping harder. if you look at local currency terms adjusting for currency flows, it is down pretty significantly as well. the tightening of financial conditions is feeding back into equities and causing risk off which is now leaning back into the dollar. now you are moved to the other side with the world is kind of looking like it is in a worse place and you are seeing oil prices rising. to me it feels like the u.s. has exceptionalism, europe is more stagflation and the more that we see elevated oil prices and slowing road in europe, we see somewhat sticky inflation, this is not good for european currency. regardless of positioning or

valuations, the market is transitioning into a new environment and this is still bullish for the dollar, interdependency, geopolitics, geo macro are still going to be bullish for the dollar. jonathan: you know better than most there's not much time for nuance but if we could take a minute or so, are there currency pairs where this dollar is inflicting unnecessary pain, and are there currency pairs where this dollar is forcing unnecessary adjustment? how would you make a distinction between the two? >> i think it is kind and a massive wave hitting all of them at the some -- same point. i don't see a reason why canada should be a part of the discussion on u.s. tariffs. the big driver of the trade deficit with canada is energy that is basically in the u.s. it's not like when you talk about the chinese trade surplus, one of the main things the trump

is focused on reducing that trade deficit with china. that's not the game with canada. maybe that is the game with mexico. europe has the same composition, germany has the same composition as china which is why it has been so challenging for germany to remain competitive which is why we are seeing the political uncertainty with the business model broken from what we've seen over the last 25 years. when we think about the currency pairs, everyone is kind of being impacted by the same uncertainty , and the key thing that is happening is governments are trying to find ways to stimulate the economy at the same time that inflation is elevated, so you see fiscal and monetary policy working together and rates are selling off and curves are steepening, creating a lot of panic and uncertainty. given the outperformance of u.s. data, it flows back to the dollar. the euro, sterling, they are all going to continue to outperform. the one place you want to look as a hedge is that the boj is

probably going to have to hike again very soon. lisa: your defense of the canadian loonie made me think maybe he is running. i am wondering what you think about six months forward because some of the interesting wall street prognostications are at exactly opposed to one another. we expect the dollar to rally by 5% over the coming year, pretty much in line with what a lot of people are saying about the idea of parity. bank of america forecasting the u.s. euro dollar to rise by 110 by year-end simply because there isn't going to be the same kind inflation that comes with tariffs and frankly, the blowback on the u.s. economy is going to be more significant. >> i don't think it's going to have a significant blowback on the u.s. economy, i think this is going to be more directed to the fx market itself. a very strong dollar is bad for the rest of the world. it's not great for asia or

europe, or even for the u.s. i think a big piece of it, what is the northstar of the trump economic policy, and while there is a lot of focus on tariffs and other things that are creating a lot of uncertainty which is building into the risk premiums, i think that the met trump once, and we are already talking about the midterms, you cannot eliminate the u.s. trade deficit with the overvalued dollar. so the more panic the dollar creates, the more the u.s. economy looks exceptional, the more you need to have some kind of currency. the more you need to find a mechanism and a way to reduce the value of the dollar, which will require cooperation. so with the endgame here is some kind of cooperation and the means of getting there is the tariffs, is the uncertainty, is the unpredictability to get to that place where you want to create a bargain, that is where you can go in six months to get a weaker dollar. lisa: i'm just thinking about

the mar-a-lago accord that you're basically talking about. what are the contours of this? >> a piece of that is what is going on with the u.s. and china? how do you get to a point where you allow u.s. and china to coordinate a much stronger revenue? of all the valuation models retract, the agent -- asian currencies of the most undervalued. so if you want to find a way to eliminate the strength of the u.s. dollar, you can create an accord saying we will give up some access to the u.s., maybe a byd factory under the guise of tesla, and with that, you get a much stronger chinese remedy. with those type of environments what you can see is to reduce the trade deficit and to have that work with the u.s. as a big export, you need to find a way to weaken the dollar. i think those are the kinds of things you're going to see at the currency market that will

actually change the outlook for the dollar, and the rest of the world catching up. jonathan: i imagine we would have to see a whole lot more dollar strength before we got to that point. how much more? >> we are looking for the bloomberg dollar index to revisit 1350. that is sterling below 120, we don't think this is going to feed directly into dollar china. they can use the fixings that means korea is to weaken, the mexican peso is going to hit a new low. this is a broad dollar move, so i think again if we add from where we started last year, because most of the context around the dollar last year's everyone was very bearish on it, and that changed quite dramatically, i think if you take a combination of the move for q4 and you extend that, we are in a situation where the

world feels very uncomfortable with the level of dollar strength at that point. jonathan: fascinating stuff. the potential for a mar-a-lago accord. lisa: essentially so punitive that they all have to get together in the sunshine of south florida. annmarie: trump has been complaining about excessive dollar strength for a while because he's concerned about the fact that this could hurt export competitiveness in the manufacturing base in the u.s. jonathan: and then embracing policies that lead to further dollar strength, so something's got to give. michelle meyer of the mastercard economics institute and michael nathanson of moffitt nathanson on the latest moves by mark zuckerberg over at meta. the second hour of "bloomberg surveillance" up next.

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>> we have seen a pickup and long end yields. >> the u.s. has a good spot. >> we're likely to see many packets of volatility brought in. >> that is basically the story for the 2025 outlooks, uncertainty. >> this is bloomberg surveillance with jonathan ferro, lisa abramowicz, and and reordering. -- annmarie hordern. jonathan: the nasdaq down by more than 1% and the bond market, no help or assistance

from fixed income this morning, yields up. on 30's, had 5% on friday's session. yields are higher this morning. crude is not helping either, just the wrong time for a rally, up by 1.7. lisa: are we seeing rates rise for good reasons or for bad reasons, which is inflation without growth? the oil story speaks to that. hsbc says we are going deeper into this danger zone but he sees it as a buying opportunity. you can get out of bed in search look at what your list is of buying opportunities. annmarie: all of this goes back to you, even though i know it is colored heavily by politics. there is concerns among the

consumer that you look at the price of oil and think that might trickle down to fuel, especially in places like california. we could see a tight commodities market and that is not going to go well for this fed. jonathan: i do not need much of an excuse to stay in bed at the moment. i do not think the market really matters too much. lisa: the fact that it is dark out. jonathan: consider 3:30 this morning. i am committed to the program. your week ahead looks like this. we have some earnings too. check out wednesday. wells fargo and goldman reporting. lisa: i want to hear what they think about mna and deals that could be on the table and how fruitful those pipelines are, but consumers and consumer confidence and not just for

people who have credit ratings above 800 but the idea of more broadly how much confidence each household has at a time when torsten slok just sent another missive about how households are in incredible shape. do we get that from the big banks? jonathan: how dependent is the outlook on the incoming administration? annmarie: scott bessent will have his hearing. that will be interesting and the market will pay attention to what he has to say about bond yields and maybe sequencing of trump's agenda. jonathan: coming up this hour, chris harvey of wells fargo, alex desilva of accuweather, and michael nathanson on huge changes over at meta. we begin with the s&p 500 on a two week losing streak. chris harvey of wells fargo saying investors are staring at

a wall of worry, driven by the 100 basis point rise since september. ultimately, we expect high yields to be self-correcting. chris joins us for more. self-correcting is a phrase we have been exploring over the past week or so. do you mean to inflict more damage before we see things turn the other way? chris: i think so. the move has been so sharp. people do not wait and say now is the time. risk does not look that great, so they are going to say we have cpi and then let's decide after that, so we are getting there but we still have more upside. jonathan: it is in hundred basis points on a 10 year yield. does the y matter? is this inflation? growth? abigail: if you talk -- chris: if you talk to 10 people, you get 10 answers. it is about the fed and growth.

it has been more or less real rates. inflation expectations have been well behaved but they are pushing up against 2.5%, which we think is reasonable. when you look at that cannot you say, we are getting to a level we think people start to step in, but the technicals are telling you to wait a little bit. there could be more upside. lisa: things could so off more. you are doing what we were talking about, which is looking at potential entry points. that may be down the line. what are you looking at to understand? >> if i am right, it is about growth. if the economy is strong, should that be good for earnings? if so, navy earnings start to stabilize things. at some point, do bond buyers

start to step in? if they do, great. we are talking about who is going to be head of the treasury. it looks like scott is going to be appointed. there is talk that we could have a liz truss moment. his experience should minimize that probability. what are we looking at with regard to inflation? expectations are at 2.5%. i think inflation will be demand driven. i just do not see enough demand. one of the things we are looking at is how the market reacts to price and one of the things we were always talking about is it is about supply and demand. what we saw during earnings season is the market is rewarding buying growth over price and if that continues to could cause reaction function to limit inflation. lisa: people are worry less about a liz truss moment and have confidence about scott bessent maybe tamping down that

possibility and more worried about the strong dollar impeding earnings. how much are you worried about the international companies who are going to see a bigger hit and domestically oriented companies doing better on a relative basis? chris: we are not looking at that for idiosyncratic reasons. that is a big risk factor if we go back to the summer. if you go back to september of 2022, you saw with the pound did. if you look at the euro and the pound now, they do not look healthy. typically, when you see currencies lie like that, that is a risk factor and that can weigh on markets. can it affect idiosyncratic -- stocks? sure. we are worried about the macro side. annmarie: do you think there is a line in the sand for the incoming administration? chris: they indicated they would

like to see a lower dollar, but that is going to be hard in this environment. where you do that and how you do that is not clear to me, especially if the fed is slowing down and the rest of the world has more stress than we do. >> the economy stronger, yet they are looking to spend more. i spoke to kevin mccarthy and he said the market is going to have a voice did not know how big that voice would be when it comes to deficit spending and pushing back on how much this reconciliation package could be. do you have a sense of what the market could handle? >> i do not, but we need to take control. we need to moderate health care spending. until you moderate health care spending, you cannot get the deficit under control. it is within entitlements, more so health care than social

security. jonathan: i have news for macy's, trimming their outlook. the holidays did not deliver and the stock is down by something like 4%. >> sales are slyly below 7.8 billion, basically saying disappointing holiday season. the idea of improving 50 stores -- i am trying to understand what this means because they are talking about hiring more staff at a time when they were closing more locations. you wonder about the experience but which is different. jonathan: sounds very personal. the stock is down by about two. we mentioned the banks. wednesday, you will hear from wells fargo and goldman sachs. can we continue to maintain faith in the financials? nothing was spared friday with the exception of energy. can we continue to maintain

faith in financials? chris: i think so. does that mean they will achieve better friday? i do not know. we still believe there will be multiple expansion and upward positive revisions. we are talking about lower regulation. you are seeing changes, but you have not seen things come into effect, so we are sitting on a situation we have not seen in 50 years. jonathan: did you get a decent read on the consumer from these large financials given many of them serve a pretty high end client? >> they have talked about low and high end. i think the consumer is ok. what we have to worry about at this point is there psychology. how do they feel about things? we have had reports on inflation and inflation expectations which

were not great. if that continues, that could cause the consumer to pull back. that is a concern. lisa: the consumer appetite right now is for high end handbags and shoes as he deal with different types of customers and it speaks to how much different industries are transforming now. how much dispersion is there at a time when you have those performing well and adapting quickly and those fallen off the map? >> there's a ton of dispersion. if you are still selling to the high end, that is great. we know service is still strong. if you have run run-of-the-mill the mill type stuff, unless you are walmart or costco it is hard to push that. they are taking a ton of market share, which is putting stress on other retailers. jonathan: i kind of went there, but i'm not going to. have you seen the numbers we are talking about?

10% plus. lisa: i imagine some places more than others. i saw deutsche bank coming out. jonathan: equity futures -50.9%. let's get you bloomberg brief with dani burger. >> the los angeles wildfires are on track to be the costliest in u.s. history. fema's administrator says things will need to change when it comes to rebuilding. california governor gavin newsom issued an executive order suspending some environmental and regulatory hurdles to speed up the rebuild. korea's transport ministry says black boxes pulled from an air jet that crashed in december stopped recording in the final moments before impact. a joint team of korean and u.s. officials are trying to find out why the devices stopped working in the final four minutes of the

flight. the crash killed 179 people in south korea's worst aviation disaster. macy shares falling premarket. the company issued a downbeat outlook for the sales, a sign that executives might have been too optimistic about a solid holiday shopping season. higher end stores like looming deals reported positive comparable sales. that is your brief. jonathan: more updates on macy's throughout this program. next, ellie wildfires igniting tensions. >> right now, we are focused on two things, taming the fires and saving lives and protecting property. with the impending wind, we have to pay close attention to this. jonathan: we will bring you the

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jonathan: equity futures were -.09% on the s&p 500 and crude up close to 2% at the moment. under surveillance this morning, ellie wildfires igniting political tensions. >> right now, we are focused on two things, taming the fires and saving lives and protecting property. with the impending wind, we have to pay close attention to this. this wind event is approaching us quickly. our city leaders are fully

committed to ensure that we are ready for this next event. jonathan: los angeles bracing for multiple rounds of santa ana winds this week, set to cause further destruction as political infighting continues with governor gavin newsom and local leaders pointing fingers. president biden pledges for federal aid over the next 100 80 days, president elect donald trump taking office in one week. how aligned are leaders in los angeles at the moment with federal government? >> president biden will convene senior administration officials for an update on the federal response in the state. we know the pentagon has 500 troops on the ground and california governor kevin -- gavin newsom confirms nine states have deployed resources there, so when it comes to federal and state government working together a seem to be

aligned in that case. president-elect trump is going to take office in about a week. we know he has been invited to tour the devastation. he is yet to publicly accept that invitation, though he has publicly criticized the response. yesterday, he called california officials incompetent. governor newsom says he is used to president-elect trump's insults. newsom says he is asking questions of his local officials and has already directed the state to conduct an independent investigation when it comes to l.a. county's water supply, which has been a point of contention. adam schiff is calling for an independent commission to review the state response to the crisis as a whole. annmarie: what is the future of disaster relief in a place like california where there is this tit-for-tat between president-elect trump and every gavin newsom?

>> jd vance appeared to try to tamp down concerns that president trump will withhold aid. you have seen governor newsom .2 past comments from the president-elect, most notably september 2024, where trump primitively threatened to withhold wildfire aid if newsom did not reverse course on some water regulations, notably one trump would like to divert more water to california farmers. i am watching congress on this one because fema recently saw its disaster relief replenished in december but a chronic concern is that fema is going through a backlog of cases and likely will not have enough money for wildfires to cover it. you're likely gearing up for additional supplemental disaster relief to be passed, likely in march when congress considers the next government spending deadline. over the weekend, the number two

republican told cbs news that aid will likely come with strings attached. what that means for california policy remains to be seen. jonathan: appreciate the update. this continue the conversation. there are wide-ranging estimates at analysts work to calculate potential financial impact on real estate and insurance in los angeles. let's get into some of the data. what went wrong here? >> because the fires are still spreading, the fires are not contained. one of the things we are on is this is likely going to be a 20 to $30 billion insured loss event, one of the most destructive wildfire events in los angeles in history.

lisa: this comes at a point when we have already had housing shortages in california. the average price in these areas was $3 million for a home. how do rebuild any place and time when you have labor shortages, when you have insurance premiums that have to go through the roof, and real questions about what additional risks are going to be going forward? >> when it comes to rebuilding, keeping mitigation in mind is important. what we saw looking at historical examples like the camp fire in 2018, rebuilding an entire community can do wonders in terms of reducing wildfire risk and a pretty serious reduction on wildfire insurance premium, not just individual mitigation at the home over -- homeowner level but structures

attached to the primary home and making sure when you rebuild, keeping in mind natural fire breaks within the community and providing individual mitigation can do wonders. it can reduce wildfire losses and could have a direct impact on insurance premiums for homeowners. lisa: the issue is a lot the models, whether fire risk or flood risk, are not updated. they are outdated. they do not necessarily reflect risk zones and it is more expensive to put certain measures in place that can mitigate risk. how resistant are officials about planning ahead if it costs more or takes more resources at a time when resources are strapped in other places? jon: it is a good question and officials are more open to using

these models as opposed to being reliant on historical loss experience. the models are updated weekly to account for increased risk, whether due to the environment, fuel layers, wind patterns, or flood and sea level increase. the models are accounting for these changes and increased regulatory changes in california , allowing carriers to use models. what we believe will be the case is a more healthy insurance industry will be in the state. they will provide more coverage at sound rates so we know there will be finance available for homeowners to rebuild. annmarie: thousands of insurers chose not to renew home insurance policies for thousands of people. the former speaker of the house was telling me his mom lost her geico insurance.

what happens to those people? jon: they end up going to the insurer of last resort in california. we have seen more and more homeowners move into the fair plan. a similar phenomenon we have seen in recent years and as the state backed insurance plans grow, that means there is more risk within their books quite like what we are seeing in california now. now, in california, carriers must participate in the fair plan. any bonds in place are used up as a result of the event. the insurers will make a difference. the downstream economic effects of that, how that applies to premiums or rates going forward,

rain's to be seen but they will be able to rebuild. jonathan: appreciate your input and your time. thank you. we will have -- we all have a great amount of sympathy for emergency services in los angeles, who are overwhelmed by all of this. the rebuild effort will be immense and governor newsom, whose political future is on the line, understands people are taking aim at democratic bureaucracy. he said when fires are extinguished victims must be able to rebuild quickly and without roadblocks. they need to cut a lot of red to help the rebuild fast. lisa: there has to be an assessment of what redtape needs to be cut. they need to reassess how to create a situation where structures are immunized from the spread of wildfire going forward. there are going to be a lot of studies going forward. i am hoping we can strip out

politics and the d or r and go toward what is more efficient to move forward. annmarie: when it comes to stripping out the regulations, there will be environmental concerns. california's want to say this takes too long to rebuild a home and let them go without using those concerns. jonathan: we'll continue this conversation and catch up with alex dasilva of accuweather. ♪

jonathan: stocks down for a second consecutive week this week. we are negative by .75%. the nasdaq 100 down by a little more than one percentage point. let's say good morning to manus cranny. >> good morning. all grappling with a full frontal assault from the bond market and then you have compounding on the downside. apple has just had a quarter they would prefer to forget and terms of iphone sales, down globally. they are losing market share in a growth market because the ar product is not as exacting as the market wanted on iphone 16. mark zuckerberg has change the look and rhetoric, repositioning himself. steve jobs invented the iphone.

there are some moments in that worth listening to. have a look at tesla. there is an offer story here. you have one of europe's largest pension funds, dumping half $1 billion of stock because of the pay rise elon musk gave himself. you have tesla doing better, all of them under pressure. porsche sales dropping in china, but tesla -- go figure. let's finish off with nvidia. the reason why i have penned this one is a couple things. the story we put out last week was i think new regulation on high end chips. the official track it -- traffic light system comes in. we are not firmly down by 9%.

if we open down by another 3%, we are down 12%, so the stock has now firmly enter the correction zone. you will hear this is your golden opportunity to jump in. jonathan: thank you. a porsche, just to throw that out there. apple's core business taking a hit in 2024. it sold fewer iphones globally, with apple losing market share to chinese rivals. one reason for the slowdown, apple ai has been rolling out in stages and is not yet available in china. lisa: i am curious how much this has to do with ai of -- availability and disappointment that it has not been available earlier and how much this is just national champions in china making inroads because that is what you have seen, essentially huge inroads being made by the likes of huawei technology,

basically chinese companies. that is probably part of this as well. annmarie: the actual ai agents they are developing on their own are already in the phones. you have to it for this hodgepodge approach if you buy the apple phone. jonathan: you have to wait until january 30 to get the official numbers. that is when we get numbers from apple. that stock is down by a little more than 1%. in washington, a group of house republicans say their meeting with president-elect donald trump was productive. gop members from new york and california pushing for the $10,000 cap on the salt tax deduction to be raised or eliminated. annmarie: trump give them a little work to do, basically saying i am going to need a number. a line is in the sand for these republicans. i do not think they care if it is one reconciliation package or

two, but they need salt included . this comes down to the fights that are going to be happening in the next few months when you have the slimmest republican majority ever. every lawmaker on capitol hill. jonathan: biden had this headache through this administration. now there are a bunch of the house for donald trump to deal with. lisa: which will raise a question about how much they can actually cut. it is all the pork. annmarie: i was in palm beach this weekend. you had all the chairs of the committees from congress preparing to come in on day one and really have a lot of these conversations out of the way. one thing i'm keen to learn about is whether the debt ceiling gets put into wreck conciliation -- reconciliation or not. he wants these debts cleared as quickly as possible. it is debt ceiling, spending, then reconciliation. it has potential to get messy.

jonathan: is that work or vacation or a mix of the two? annmarie: i went there for work, but i did get some sun. i think it is everyone. >> mark zuckerberg was there friday evening at mar-a-lago hanging out with trump. jonathan: appreciate the expo nation. i am keeping up, just about let get some serious news. the national weather service issuing a dangerous situation alert, most severe across los angeles, including al abu and the san fernando valley, los angeles bracing for at least two rounds of powerful wind this week alone, with real fear this will spread and get worse. lisa: when you really think about it, people in their homes not sure if they will have to evacuate ready to get out because they might lose their

homes and they know it is going to get worse. it is devastating to think. the area looks look it has been firebombed, so you start to wonder how to move forward when we are still not out of the heat of it. a really terrible situation there. jonathan: the cost is heading in the wrong direction, accuweather raising its estimates of loss. alex dasilva joins us for more. welcome back to the program. what is the latest? >> the winds are starting to pick up, but some of these fires have been contained more. the eaton fire is 27% contained and the palisades fire is now around 13% contained. what we have to look forward to over the next couple days? more wind coming into southern california, a big area of high pressure coming down. this will increase wind from the

northeast over the next couple days. we could be looking at 60 to 80 mile-per-hour winds and those vulnerable areas just north of the los angeles metro area. this is the area i am most concerned about. i do not think it will be the strength of the last event we saw but we could see wind gusts up to hurricane force. jonathan: thank you. let's turn to the economy and think about the impact of all of this. cpi on wednesday, retail sales after that. in a couple months, we have had a huge disruption in economic data. joining us now is michelle of the mastercard economics institute. great to catch up with you. how disruptive will this data be? >> that is probably one of the littlest things we think about when considering wildfires and devastation it is having on people and families. but as economists we are trying

to understand what is happening in the economy and the markets. it will be noisy in the coming months, so you will see a lot of people trying to check out -- x out to the impact of california. lisa: it raises some notes of pressure we have in the housing market, the idea they will have to rebuild at a time when housing shortages already were prevalent in the area. how much room is there in the economy to compensate for some of these things at a time when people say it is a finely balanced labor market? >> think about the inputs into the equation in terms of raw materials and labor and capacity to add that much housing stock as quickly as it needs to be added. that said cut we should be seeing stimulus, which should help encourage and speed up that

rebuilding process, but it is going to take time. the devastation is tremendous. lisa: we were talking about broadening out. there is a larger question about how good numbers actually were verses may be overstating things with a preliminary read that was not necessarily verified with other data. from what you are seeing from card expenditures and secondary and tertiary data, do you think this is a labor market that has more upside surprise that people are giving it credit for? >> i do. we have been positive on the trajectory of the economy this cycle. a lot of that is because of the ability of the consumer to spend, which represents a positive feedback loop with the labor market. any given jobs number is subject to revision. you do not want to over emphasize one report, but if you look at a moving average and think about what has happened the last several months, it has

been strong drop creation and measures of unemployed insurance that are still very low. the labor market is supportive. wage growth is continuing at a solid pace for goods and services and that is supporting consumer spending. as consumers spend, that further drives the feedback loop back into the labor market, so on friday's job numbers we have strong hiring in the retail sector. part of that was seasonality, but that does represent the fact that consumers are engaging. lisa: when it comes to concern about inflation, i know it is covered with politics but consumers are concerned about inflation going forward. is that driven because of talk of tariffs and policy or just because they are not comfortable with the price level they have seen? >> i think expectations are

still resetting with that price level. they are saying it used to be less expensive to buy this and that less expensive might have been a week ago, a year ago, or five years ago depending on when they last purchased the item, so i think expectations are still resetting. it depends on the product. when he think about groceries, we have been in steady and low inflation, so for food you're starting to get consumers who feel more comfortable, that this is probably the price that it is sticking and they are not continuously seeing price increases but there is discomfort for consumers after seeing such a big price level increase. if you look at long-run inflation expectations, this whole cycle, they have been pretty well contained overall, so over the longer term i think consumers have a more disinflationary psychology that is sticking. annmarie: how do you think the

economy will deal with potentially broad-based tariffs? >> it defends -- it depends on how you define broad-based tariffs. i think in general what we have seen is it does prove to be somewhat of a temporary price level increase on products impacted by tariffs. and it could also change in general the cost of production, around the cost of rebuilding and housing construction. input costs matter. jonathan: is it leading to any pull forward from the data you have seen? >> it is hard to ascertain whether that is happening. you do see it more visibly in terms of companies stockpiling and trying to make sure they are importing as much as they can from areas that might be targeted in terms of tariffs, but for the consumer that is something hard to determine whether it is forward or just an

acceleration of spend. jonathan: appreciate your time is always. on the federal reserve front, the last week of fed speak before the blackout period. we'll hear from the new york fed president a couple times. look out for tomorrow, some opening remarks. lisa: have we learned the number of members? i wonder if anyone will stand up and say i was the person who decided to take into account potential policies. jonathan: you have identified one beneficiary who has put themselves in the running. taking that side of things as well. let's get you an update on stories elsewhere this morning. here is your bloomberg brief with dani burger. >> some fed speak from the former vice chair, who does not think independence will be in

jeopardy wants president-elect donald trump takes office. >> the fed cannot really be affected and the people who are appointed to the fed generally have fairly thick skin. while there is political pressure, there are not really political levers someone can fall. annmarie: he said trump's plans tariffs should not be inflationary. openai executives are planning to host events in washington, d.c. to promote investment in ai. the company released a new economic blueprint for ai calling for public and private sectors to work together in areas like energy and infrastructure to keep the u.s. ahead of china. openai plans to hold events in pennsylvania and alabama to announce new ai projects as part of efforts to boost economic activity. the nfl playoffs are in full swing with the wildcard weekend kicking off. the houston texans upset the l.a. chargers after justin

herbert threw four interceptions. buffalo took care of denver. the steelers fell to the baltimore ravens in their fifth straight loss. green bay came up short against philly and it is jubilation in the beltway after the commanders eat the buccaneers to win their first playoff games is to thousand five behind their rookie qb. that is your brief. jonathan: next on the program, turning the page onto ei. >> the masculine energy is good. i think corporate culture was trying to get away from it. having a culture that celebrates aggression more has its own merits. jonathan: for the record, lisa is more aggressive than i am, every meeting we have. from new york city, this is bloomberg. ♪

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jonathan: things are recovering a little bit. bond market pretty stable. crude still rallying but the 10 year is hanging in just about unchanged. under surveillance this morning, the focus on meta, turning the page onto ei. >> the kind of masculine energy i think is good. society has plenty of that, but when i think corporate culture, it has really tried to get away from it and i do think there is something -- all these forms of energy are good and i think having a culture that celebrates the aggression a bit more has its own merits. it is one thing to say we want to be welcoming and make a good environment for everyone. i think it is another to basically say that masculinity

is bad. jonathan: sweeping policy changes at men in -- at meta, days after overhauling its content moderation the ceo blasting the biden administration are putting pressure on his platforms and saying it is optimistic about donald trump's return to the white house. joining us to discuss is michael nathanson. where do we begin? let's start with advertisers. mark zuckerberg is not a leader here. he is a follower, following elon musk. what do you think happens next with advertisers? >> good morning and thank you for that lead in. the core of their advertising is a or medium businesses that are buying performance from its advertiser. they are not grand advertisers. grand advertisers get skittish

when they are in content that is not brand safe. most of twitter's business at the point of purchase were brands. brands ran away from that platform, but at meta they are there to sell things come to drive traffic. they have different types of rationales to be there and i do not think it will be that much of a deal in terms of changing their reason to be there. they are there for performance marketing and that has only gotten better through ai, so there's a lot of noise about what it is going to mean to his core business on the app side. it is probably a nonevent, just a lot of noise. jonathan: perhaps it could be good. if you strip out liberal influence and reduce censorship, do you think engagement can increase? do you think that is what this is really about or is it just

about keeping the incoming administration office back? >> second question first. i think he has realized big picture that he was the only person -- the only company really trying to play to the rules he thought were going to come out of ec, but in that nuance this is good for meta. he is going to reduce content moderation cost, to open his platform to people who thought he was biased. in terms of your question about engagement, it is possible a year ago you see a subset of consumers actually finding more content they like on meta than they did before. from a business standpoint, it is win-win. then if tiktok gets banned, having the administration not consider you in and me of the people will help if the

government decides to challenge or not challenge whatever the supreme court decides next week, so it is a win-win on all the business quadrants. lisa: does it increase the chances that meta could purchase the u.s. business of tiktok? >> that is one step too far up her that would fly in the face of antitrust law, but if the government does not want it -- to sell tiktok, that means it is just a massive win for these guys but i do not know how a government would allow that to happen. they are there biggest challenge or, just too big. >> the issue is tiktok is so expensive. individuals who can purchase it will all be against -- up against antitrust laws. is there a company you think could buy tiktok? >> there were rumors of the past. maybe oracle makes a play for it. you can see a couple private

equity offers to happen, but the reality is, without google's ability to buy it or twitter quip maybe x would make a move, but alphabet and meta cannot do it. it is a valuable asset and we will see if the chinese are willing to sell it, but it will not be a frothy auction because two of the biggest competitors will not be allowed to bid for it. jonathan: this is a massive vibe shift in corporate america and something to see as ceo of one of the biggest companies want to go on rogan and say the things he did about someone still in power, the sitting president. do you think this behavior opens the door for other ceos to follow and start saying what they really think about what is going on in washington? >> to a point. i think people would be afraid to attack trump given the fear

of retribution for the next four years. i think this is a special case because this has been an issue for meta since 2016. the question about how you want to moderate content. they are looking to the government for answers and the government never came up with a plan. i think this is a specific case because i think it really challenged his personal beliefs about what he should be doing. i do not see it that way. i do not think the next four years people will be going out and attacking trump's policies. perhaps they will challenge biden. i think this is a unique case playing to the strengths of meta . also, you have elon musk at the hip to trump and this is a transfer zuckerberg to open up opportunity to get his thoughts across because it has been dominated by elon musk for the past 90 days.

jonathan: there is so much to talk about here. a lot of positives here in this year for mark zuckerberg according to the team. the fear of retribution from the incoming president i think has been covered. there is a whole industry dedicated to covering that story. only scratching the surface on that and we have seen mark zuckerberg going into the weekend. lisa: to his point, is this a specific case of a specific person? jonathan: it is highly unique. let's put it that way. lisa: he basically hurled a lot of cold water. jonathan: the third hour of bloomberg surveillance next. ♪

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>> it's been a rally in bond yields around the world. . >> i don't think we want to push our luck on yields much higher from here. >> yields help to stabilize otherwise you risk triggering these dynamics that can really hurt. >> hopefully we see the selloff calm down. i don't think it will. >> this is "bloomberg

surveillance" with jonathan ferro, lisa abramovitz, and annmarie hordern. jonathan: on the nasdaq, down by 0.9. kicking off with the economic data, we have cpi, ppi, retail sales, and some bank earnings as well. what a busy morning wednesday will be. lisa: that will really take center stage in parallel with cpi which has the potential to edify what we heard on friday. if you heard from banks, people are spending, capital markets are open, and regardless about what happens with political uncertainty, people are ready to do deals. watch out when it comes to bond prices. yields will continue to climb. jonathan: arguably the favorite sector on wall street. we will see if the numbers and outlook justify it. wti and brent, up by .6.

wti up 1.9. crude rallying. annmarie: boldest action we have seen from the biden administration in their final weeks in office really going after russian crude in a more material way that we have seen in this crisis. then people talk about maybe we will see a glut in 2025. what is on the horizon in terms of a risk premium of? going back to the playbook that he will likely use again. he will enforce the sanctions on russian crude. that is why you are seeing the tight market. jonathan: that is why you are seeing the equity market pullback as well. this equity market fears the possibility that we see a re-acceleration of inflation alongside that economic growth. lisa: especially when people don't have faith in that economic growth. how many people tried to poke also in the data that we got on

friday, the stagnancy, the idea that if you got a stronger dollar, that would impede on international companies. people concerned about the risk premium, deficit concerns, the idea of inflation, these other issues that will cause yields to rise without the commencement growth. jonathan: what if markets reacted so poorly because no one believes the data but everyone believes the fed needs to react to the data? lisa: it speaks to the overtly data dependency of the federal reserve, go to something that we were talking about last week, the fed might be the ultimate risk factor in the room. what happened in 2018 was not the policies of the trump administration, it was the fed's reaction to these things, the fact that they raise rates, and that is what people will be focused on. jonathan: the last week of fed speak before the quiet period kicks in. john williams will be speaking

next week. s&p just off session, close to -0.7%. we will catch up with sam stovall with cfra. christopher marinac from jenny montgomery. and why veronica clark from citi is still looking for 125 basis point cuts this year. a blowout jobs report puts rate cuts that's firmly on hold. sam stovall of cfra seeing trouble ahead. investors now worry that the number of rate cuts this year may be reduced to only one if not none. in response, the united states equity markets have resumed their downtrends and are likely to face additional challenges. sam, welcome to the show. where do those challenges come from? sam: good morning. i was eavesdropping with your

conversation with lisa a second ago, trying to figure out what is causing yields to move higher. reminded me of the chicago song, " does anyone really know what time it is?" the question is how far does the 10-year rise, 5%, or the long-term average of 5.75. in the near term, while we wait, ppi tomorrow, cpi on wednesday, pce at the end of the month, all three are expected to show flat to higher readings. i think that could add to it all. jonathan: we caught up with chris army a moment ago, that to get lower yields, you need higher yields. others have called it self-limiting. do you think we are in that zone where this puts pressure on the economy, puts pressure on equity markets, risk assets, and yields stuck to come back again? sam: it is being self-correcting

in terms of the market action itself. i like to look at the percentage of the sub industries in the s&p 1500 trading above their 15 and 200-day moving averages. right now we are only at 10% which is closer to the longer-term oversold level i like to look at. i'm expecting us to see a bit of a bounce back today as well as possibly early this week. probably a retest as we move later this week into next week. also investors will be calm and down as it relates to the 10-year yield. i believe forward inflation readings will reassert the downward trend line. i think investors will be able to breathe a sigh of relief again. lisa: i want to go back to running out of time.

over the weekend, they were writing, this will push the market higher but these right tantrums are a reminder that it doesn't take much to disrupt the markets mojo when valuations are high. you were talking about the idea of oversold in the index. are valuations high or are sectors deeply oversold? sam: the answer is yes, it depends on the time you are looking at. in the near term we could see a countertrend rally because of being oversold. but i believe we will need to see the yield on the 10 year note come back down again in order to maintain the upward trajectory in equity prices because valuations are high. right now the s&p is trading at a 20% premium to its 10-year average forward pe ratio, more than 35% on the 20-year. technology is close to 65% based on its 20 years.

valuations show a market that is priced to perfection, so i don't think we can see for a longer period of time and elevated level of 10 year yields. lisa: do we see banks priced to perfection at a time when we see j.p. morgan getting off the unofficial earnings season, even though delta did it on friday, are you also expecting that to be overbought or oversold? sam: i think financials will be setting a positive tone. in 60 of the last 60 two quarters, actual results have exceeded end of quarter estimates, proving again that management does a good job of managing expectations. we are looking for 38% year on year rise in diversified bank earnings. looking for 43% gain in consumer finance. 45% increase in investment banking and brokerage. our belief is we are likely to

be pleased quite a bit from the start of the earnings reporting period from financials in general and from the banks in particular. annmarie: i want to go back to the idea of the 10 year yield heading lower once things start to calm down with jobs and inflation. when you look at what will happen in washington, debt ceiling debate, they still have to deal with 2025 fiscal spending before march, before they even get to this idea of reconciliation. why do you think the 10 year yield will be calm after all that? sam: i wouldn't necessarily say, but i will say that it will look to reassert its downward trend, mainly because i think we are going to be seeing a decline in gdp growth from the 2.8% that we forecast for 2024, down to a two point 5% level for 2025, 2.2 in 2026. certainly there are a lot of

what-ifs that can work against this in terms of the tariffs being more than a negotiating ploy, elevating the salt write-offs, what kind of impact that would have on government revenues. there are a lot of things out there that will be adding to volatility over all and lead to a single digit gain in the stock market for all of 2025. but i don't think we are heading for a deep correction or a new bear market. annmarie: i was in palm beach over the weekend and it is not just lisa talking about this concern of a liz truss moment. do you think the bond market will have a seat at the table when it comes to policy in washington? sam: good question. certainly, washington ran on the platform of cutting expenses, reducing the overall debt level, etc., so the electorate will be reminding those at the table that is what

they ran on, that is what they won for, and that is what they have to carry through. jonathan: sam stovall, i appreciate your time. massive week with tons of economic data and bank earnings. i agree with annmarie, will this bond market get a seat at the table in washington, d.c. when they come together with a big number for tax cuts? lisa: depends on whether the bond market has whipped itself up into a frenzy to get some attention from washington. that is what people tell us. it depends. annmarie: over the weekend, senator jd vance mentioned bond yields twice in his interview with fox news, and the concern that you bring up all the time being made about paying off the interest payment on our debt. maya mcguiness saying it will be more than one trillion again this year. lisa: people are mentioning it. jonathan: can we just reduce the

masculine energy around the table? it is absolutely overwhelming. let's get an update on stories elsewhere this morning. dani: residents and firefighters in southern california are preparing for two rounds of santa ana winds later this week. the winco's are expected to challenge crews struggling with blazes which have left at least 24 people dead and destroyed over 12,000 buildings. jp morgan's jamie dimon says that if used properly, tariffs can resolve issues of unfair competition in national security. he went on to say, if it is misused, it can do damage, too. dimon says that he has not spoken with trump about tariffs. johnson & johnson has announced it will buy intracellular

therapies. jay and jim will acquire all outstanding shares for 132 dollars per share. total equity value of $14.6 billion payment it is subject to regulatory and stockholder approval. jonathan: thank you. i don't think we can overstate how much the incoming president has changed the conversation around tariffs. used to go on radio years ago talking about why we needed terrace because china was not playing by the rules, you needed reciprocity, and people would look at me like i was a heretic. now you have people talking about the need for them in certain places. lisa: frankly, we saw joe biden keep a lot of them on and keep certain ones. it is a bipartisan sort of effort. annmarie: this is now a bipartisan policy in washington when it come to tariffs, especially your adversaries in china. jonathan: next on the program,

the morning calls, plus we will catch up with christopher marinac. looking ahead to some big bank earnings including jp morgan. that kicks off on wednesday. we will get his thoughts in a moment. from new york, good morning. ♪

jonathan: one hour, 14 minutes away from the opening bell. equity futures pulling back by .6%. small caps lower by 1%. in the bond market, check at treasuries first. the 10-year treasury yield, some comfort for the equity balls. 4.7655.

some comfort if you are following the u.k. bond market. gilt yields a little bit higher by four basis points. the british prime minister 100% confident the u.k. will get the economic growth we will need, will be ruthless in our spending decisions. the chancellor is doing a fantastic job and has his confidence. lisa: she is the chancellor for good reason, she is the right person to do the job, according to the cabinet office minister. i will just say, the bond market right now is not so impressed. jonathan: let's get some morning calls. bank of america raising its call on delta airlines, highlighting its pricing power and positive industry backdrop. the stock is down about 1% this morning. jp morgan downgrading constellation brands to neutral, flagging deterioration in consumer demand in alcohol.

finally, steve will raising its price target on alphabet, expecting a boost in ad dollars if the supreme court upholds the ban on tiktok. big bank earnings picking up on wednesday, jp morgan, citi, wells fargo all reporting. christopher marinac writing banks are well positioned for success in 2025. chris, welcome to the program. what is there to be positive about for the year ahead in financials? christopher: i think lower interest rates are the key. the fed has dropped 100 basis points, which is huge for how funds reset. the treasury rates are backed up the last 10 days but we can work through that. overall, pricing is favorable for banks, which will allow markets to rally both this week and next week, as well as the outlook for the first half of

the year. that combined with loan growth accelerating in the months of november and december is positive for the sector. jonathan: we will talk about where the revenue growth will come from in a moment. can we touch on expense management? we have seen a lot of reports about how strong bonus season is going to be for certain banks. will he be focused on expense management, where will that show up in certain banks? christopher: the bonuses will be a part of the fourth quarter number. that also goes to higher revenue growth. i don't think it's an issue, per se, but i am focused on expense power management. it revenue goes off, they will adjust expenses a little higher not just for bonuses but also increased spending. a lot of banks are trying to grab additional personnel, particularly midsized banks, to win additional lenders, find

additional avenues for growth. that will lead to more spending. i also think that will be matched by the expanded margin and income growth happening right now. lisa: what kind of spending do you want to see? i am talking specifically about artificial intelligence, including bank of america coming out telling us that he expects the size of business to grow dramatically but the staff to maybe stay the same because of some of the augmented resources. how are you examining which banks are best positioned for that? christopher: i think every bank is trying to get more efficient along the way but from the standpoint of ai, what you can do as a bank is use it to beat thoughtful about their compliance. we had a recent issue would be of a on that front. ai can really help in that area. to some extent, the cyber world continues to be the biggest area where banks spend, so ai gets lumped into that.

you can also make the customer experience better. a lot of the commercial oriented banks that have small and medium-sized businesses continue to sharpen their pencil as far as improving the customer experience lisa: a lot of things you don't have control over, policy coming down the pike, and that has been one of the main drivers behind mergers and acquisitions, potential dealmaking that gave way to some of the optimism behind the big trade. how much visibility do you expect from executives on that front? christopher: i think there's a lot of optimism about policy improving banks, where capital rules will go, getting mergers approved faster, as well as the overall grinding of the regulatory community which was difficult in 2023-2024. that is a huge positive for banks. it will allow them to be more on

the front foot, be assertive trying to expand their business, which includes deals. all of that policy change is out there for us to accept. i think it will take six to nine months to filter through but i think it is out there and positive. lisa: you started the conversation talking about how lower rates were beneficial for banks, certainly front and rates are beneficial with higher long-term rates if they can lend long and borrow short. there is a question of what that does to the dealmaking environment, at what point it becomes a headwind to potential dealmaking. where is that line in the sand for you? christopher: saying treasury rates go above 5% would be one line in the sand. if we get the five and 10-year above five would be a huge red signal. fair value marks on deals are still an issue, even coming off

of the last two years. we are removed from the liquidity scare but we still have the interest rate bond scare as it pertains to higher rates. i also think to some extent it would harm the stocks, and therefore the stocks would filter down into less enthusiasm for deals. stock enthusiasm has a role in this as well. jonathan: looking ahead to earnings this week. appreciate it. spending a lot of time in 2024 talking about surviving until 2025. you have the federal reserve, if you held on, not cutting interest rates. that story has changed into the new year. lisa: maybe companies adapt and adjust, they can push out the maturities so much, it will not be a problem. that said, some of the hope baked into these bank stocks, there will be huge dealmaking

opportunities, maybe even ipos can come back, does that make sense if you have rates that are punitive, forcing company to stay alive? annmarie: i think the deregulation is something that everyone is welcoming. what did the jetblue ceo say to us? it cannot get worse. they view this now as an opportunity to potentially go into the market when they were waiting on the sidelines because of how this administration was running deregulation. jonathan: you didn't know what kind of deal could get done, you didn't. i go back to the conversation we had with brian moynihan maybe 10 months ago. he turned around and basically said, told us early on, companies cannot have a conversation about doing a deal because they don't know what kind of deal can get closed in washington. lisa: it does seem like more deals will be acceptable to getting done. i just wonder about the financing at a time when you have yields at such a high

level. by pretty much all accounts, everyone is saying there is more dealmaking. jonathan: there must be a pipeline of deals to go from the last two years. lisa: we have heard from jane fraser it will basically be a hose of deals. again, where where the deals happen, where is the pushback going to happen? curious to see who takes over the ftc come who gets through the nomination process that will be taking place in washington. still a lot of unknowns, which is why the price to perfection comes into place, or is there always understated optimism? jonathan: some of that and a little bit of that. massive wednesday morning. 8:30 eastern time, we get cpi. we also get numbers from j.p. morgan, citi, wells fargo. then on to thursday, bank of america, morgan stanley, and retail sales data as well.

that will be massive for markets. lisa: your favorite time of the year where you actually get interesting details. why are you laughing at me? jonathan: you know that i hate bank earnings. a fire hose of numbers. that nobody looks at later in the day. lisa: then they parse through them. it will be fun. jonathan: drives me nuts.

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jonathan: the opening bell 60 minutes away. opening futures on the s&p 500 -5.7 percent. the nasdaq close to 1%. with your morning movers, let's cross over to manus cranny. manus: brutal moment for moderna, reduction in their demand outlet payment they will make 1.5 to 2.5 billion dollars in sales. this is a $1 billion drop in terms of the estimates. at into that losing market share. you will see a ramp-up in information here. they are losing market share. the stock is under huge pressure as you can see. there will be further cost cuts but that story is not translating.

when it comes to deals, j&j bidding 14 point $6 billion for intracellular therapies. think about schizophrenia, depression, central nervous disorders. they want to step in. the stock is roaring higher. the largest biotech transaction in over a year. j&j stock, meh. certainly the specter of this helping the stock. apple, holiday season for them which they would prefer to forget. iphone sales dropping 5%, losing market share in china, they don't have the ai that everyone wanted. but you have to hand it to mark zuckerberg for the killer line. steve jobs invented the iphone and they are sitting on it 20 years later. jonathan: manus cranny, thank

you. fascinating podcasts with joe rogan. apple is trading at a pretty lofty multiple. when they come up with earnings at the end of the month, this is not a good time to be missing estimates. lisa: especially when there is ramping up of geopolitical tensions, the ability to have a place in china, given tim cook used to be the diplomat but does not matter if you have national champions? annmarie: i don't know if she was leisure ring but he was also in palm beach friday night, i think his second dinner with president-elect trump. lisa: a different kind of diplomacy that we are used to. a diplomatic approach is not typically that. this is diplomacy of a different kind. jonathan: thanks for clarifying. where did you go on vacation on

wednesday? investors and pricing for ppi and cpi data. december payrolls report prompt and widespread rate cut doubts. veronica clark and the team at citi now seeing it may take several months for the fed to resume rate cuts. our base case is for rate cuts to resume in may with five total 25 basis point cuts this year. good morning. let's get into the job report. you are looking for 120. what did you in the team miss, how are we looking at things now? veronica: remarkable stability. payroll and job number was really big, unemployment declining. that is where we are taking our more trustworthy signals from. it looks like a couple of months where unemployment is stable in this 4.2% range. the issue for us, it looks like

a very precarious stability. we know that hiring is so low. i don't see how you don't just have some gradual upward pressure on the unemployment rate new labor market entrants, you are not finding a job quickly. this has been a couple of months of stability. it may take longer for the fed to see any weakness. jonathan: enough to make you question your own process? veronica: of course, i would want to see hiring pickup, to know if this is a real stability or not. the last couple of months, unemployment moving sideways, but for a couple of months it was alongside people dropping out of the labor force, not a stable situation. maybe this time is different. we have had some pretty remarkable data. lisa: how policy dependent is this for you given that companies are saying that they are waiting to see what the policies are? veronica: there are lots of

uncertainties, new administration. that certainty has not improved in the last month or two so we would still be waiting a couple of months to know. in general, a lot of the resilience in the economy the last couple years is because of such substantial fiscal support. that will be feeding in 2025. if rates are restrictive, 10 year yields are higher, the fed starts cutting, there are a lot of policy restraint that will weigh on the economy. lisa: what makes you believe that rates are restrictive? veronica: we see labor demand. we saw manufacturing jobs in last week's data. hiring is weak, and that seem to be not just a normalization of the last couple of years of tight labor markets and strong hiring but businesses are looking to cut labor costs may be to offset high borrowing costs.

we see that in survey data, the beige book, so i don't see that picture changing. annmarie: how tight can the labor market get if we see these deportations the president-elect is talking about? veronica: it will be an interesting question, will certainly affect a lot of sectors. over the last couple of years, substantial immigration has helped to slow wages. the reversal of that would be net inflationary, upward pressure on wages again. maybe because it would impact certain sectors so much, we are not expecting big deportations. annmarie: when you look at what that may mean for the unemployment rate, with a tighter labor market, which you have to reassess? veronica: certainly you could. there is a timing issue. we don't know if we are going to get these deportations. if they happen, probably not impacting activity until later in the year. you have to legislate these

policies first. certainly could be a game changer. the issue is, certainly not in the next six months. jonathan: deportation is highly charged and political. you have seen millions of people come across the border illegally, undocumented workers. if you reduce some of that, and we have seen that over the last several months. what kind of change or go to see off of the back of that? veronica: definitely been a factor the last couple of years, net immigration is slowing. it has not been captured well in the data, so i don't think that is the reason that unemployment rate has not risen. maybe it was one reason for running stronger payroll job growth. we didn't see that on friday. jonathan: a lot of people

watching the program outside financial markets, if we can get wages up, that is fantastic news. any reason to believe that is stagflation every? veronica: potential policy changes, it could certainly look stagflationary. you will see some bad economic data if you are deporting a bunch of people. that will weigh on activity. there are those risks. for this labor market, we see wages slowing. you see that in the employment cost index. that makes sense within unemployment rate that has risen. this is a looser labor market than a year ago. jonathan: cpi and ppi, you are confident we are on this disinflationary trend? veronica: a lot of the data components still are not normal but we are starting to see things like shelter inflation slowing, and that has been a sticky component for a while. it could look volatile but the trend looks more favorable

there. even if you get some surprises in certain components, it looks like inflation will slow. jonathan: veronica clark, thank you. still looking for 125 basis points of cuts this year when the market is getting closer to zero. michael mckee joins us now for more. a ton of data this week and a sprinkle of fed speak. what are you focused on? michael: cpi is what will be moving markets, markets that are nervous about inflation. ppi tomorrow. expected to rise significantly on a year-over-year basis, and that could scare some people. maybe the creak in the floorboards before one of those guys from the horror movie shows up. that could be wednesday when cpi is expected to rise 2.9%. core basis, 3.3%.

that is not what you want to see. we have so far seen inflation bottom out in september and it's been moving up every month since toward 3%. you have to wonder, when do the markets get really scared? i don't mean just pushing up rates, but when do they think about the fed actually raising interest rates to fight inflation? i love him will leave you with this thought, what is the two-year note right now? jonathan: 4.40. mike: the fed funds rate is 4.43. at this point, the 2-year note for the first time since the fed was raising interest rates, is now above the fed funds rate. that suggests that people are starting to think about the idea of rate hikes. jonathan: getting closer, that's for sure. adam posen suggesting that could be a reality. i have to give him credit for this.

august before we got the jackson hole speech. lisa: it has now become an increasing conversation with bank of america saying there is this increasing risk that the next move is a hike. you wonder at what point that is really factoring on the sellout that we are seeing. jonathan: i thought we were about to do a pop quiz with mike mckee. brent schutte of northwestern mutual joins us now. we have had a strong data point, selloff in bonds, the bears started to come out. can you give us reason to be confident, if there are any reason to be left? brent: more on the cautious side, not only the optimistic side. the conversation you are having is a real one. we have higher interest rates. the hope was the fed could cut rates to alleviate pressure on areas of the economy that have been harmed by rates, housing,

manufacturing. you did have a strong jobs report what you also had inflationary pressures. ism services spiked at 64. the university of michigan inflation expectations rose to three point 3% and you actually saw some sort of return to inflationary psychology where people were buying in advance. you have this thing going forward where we have to think about what the fed does next. the reality is higher interest rates are here to stay which means they work their way into the economy, asset prices have to reflect those, and that is where there are valuations that don't make sense with the 10-year at 4.75. jonathan: where are you finding those, where is that risk more concentrated? brent: more in the s&p 500 where the risk of high valuations is out there. the s&p posted its second 20% plus gain but it was narrow again. less than 30% of the stocks beat the s&p 500 which is the second

time. to find similar numbers like that, you have to go back to 1998-199, which scares me a bit. before that, 1973. what ties all that together, it was a later cycle economy that led to bifurcated markets. we think there are ironically opportunities on the others a. the market tends to broaden beyond that. we are positioned more for the broadening because that is where valuations are cheap, even though i know higher rates harm those parts of the economy. i think one way or the other, there is a broadening on the others. that is where we are focused. lisa: so are you just hoarding cash waiting for that to happen, waiting for a blowup in the top and then going into a broadening out trade? brent: we are not hoarding cash, we stayed fully invested, but

more invested with a tilt toward those areas. we think you should invest in bonds along the curve. it does reflect summaries of inflation that are out there. one way or the other, the fed will get this under control, it just may take some tightening in between. that is where we are just a bit more cautious right now to where the overall equity markets. lisa: someone who is bullish on the equity markets might say what do they need to get under control? this economy is managing fine with 4.25% benchmark rates, you have this engine of innovation in tech names continuing to deliver at this transformative time. why is that not convincing you? brent: it is out already priced in? that would be the first question i would ask. the second is does the fed want to get inflation back to 2% or not? people always say, isn't it close enough? i don't know if that is the kind of psychology that led to

higher inflation in the 1960's. i believe they will have to try to get it back under control. the university of michigan, something that the fed has pointed to, if inflation psychology changes, that could be making inflation more embedded than it was in the past which was a transitory thing, more tied to covid. now it is becoming more embedded. jonathan: that word was banned a long time ago. you know the rules. [laughter] certainly the rules have changed and the fomc. you saw that in the communication we had from a handful of members, showing some discomfort with inflation. lisa: i think the increase in question becomes how low is the bar for them to start talking about the possibility that they would have to hike again? one thing to not hike for the remainder of the year, but another step to become restrictive. annmarie: how much tension will

that because with the incoming administration who wants rates lower? this is a real estate guy that wants to see rates lower. jonathan: he wants rates down, the dollar weaker, policies that will push things in the other direction. all it takes is that you just get some finance ministers together, sing a couple of things, and things start to shift. lisa: what would that deal look like? jonathan: who wants to play ball if you are getting so aggressive on tariffs? lisa: maybe greenland. jonathan: conversation for another day. let's get an update on stories with your bloomberg brief. dani: wildfires in southern california have killed at least 24 people and destroyed more than 12,000 buildings. over the weekend, firefighters got a brief break from the santa ana winds that have spread the

flames across 37,000 acres. however, another round of wind gusts is expected today. the national weather service issued a particularly dangerous red flag warning for parts of ventura and los angeles counties run tuesday morning until wednesday. tesla has been audi for the first time in global sales. audi's ev's also declined, dropping 8% to around 100 62 4000. venture global is seeking up to $2.3 billion in its second ipo. they plan to sell 50 million shares in a range of 40 to $46 it plans to float on the new york stock exchange. jonathan: up next on the program, setting you up for the week ahead. you are watching "bloomberg surveillance." ♪

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jonathan: 40 minutes away from the opening bell and recovering just a touch. if lows on the s&p. down by .9 on the nasdaq. one full percentage point on the russell. the 2-year unchanged from around 4.40. 4.3877. lisa: at what point do we start talking about the potential for some sort of increase in rates by the federal reserve at a time when this market is all about pricing out rate cuts for the remainder of the year? jonathan: deutsche bank said it early on, bank of america saying the same thing to kick off the week, looking for no rate cuts

in 2025 from the federal reserve. this will not help crude, brent, wti rounding today. brent crude went through 81 today. up by 1.4%. wti up by 7.8. this is not just about the economic data or growth. this is about policy in washington. annmarie: sanctions. the boldest move we have seen yet on russian companies, the vessels carrying russian crude, going after two of the larger producers. it is certainly impacting. one analyst put it at potentially 800,000 barrels impacted from this. critics are saying why is the biden administration doing this now? they are heading toward the exit. you have to think they are doing it now because gas prices for the domestic consumer are no longer there problem. jonathan: that is pretty shocking stuff. annmarie: given the fact that the incoming trump

administration, if they were to do a deal with putin, beaumont sanctions relief, part of any deal that he does with ukraine. to get these sanctions lifted, you cannot just go to the treasury department. one analyst was saying, they have to go to congress to get congressional votes to lift these sanctions. what will happen when those hawks in congress say i want to keep russian crude off the market? jonathan: this feeds into the fears that some have. it is not jepson job numbers. inflation has picked up. you can say that is a ridiculous number influenced by politics. i would agree with you, but i pick up on the argument from peter tchir, the argument that the fed has responded to that before, responded to these things many times in the past. lisa: it just increases the temperature more for wednesday's cpi print. if you get a hot print on top of

expectations increasing, it will be harder to ignore. add commodity prices to that, it become pretty fraught. jonathan: before we get to cpi, tomorrow, bp and fed speak from john williams from the new york fed. that will be really important. if the offer is any color on his expectations for interest rates. there are a handful of officials right now who are uncomfortable with inflation. one governor in the past week that didn't seem too uncomfortable, and that was governor waller. john williams is a part of the big trio, vice chair, federal reserve chair, and in the new york fed president. what he says will carry a lot of weight in the market. wednesday, cpi, and then being bank earnings kicking off. thursday, more earning from bank of america, morgan stanley. retail sales and then another round of jobless claims. the city of los angeles bracing

for another round of santa ana winds. for a brief update, we can catch up with serene show --zohreen shah. >> the latest is the death toll is 24 people. the missing count, 16. one of my own neighbors is one of them. his family doesn't know where he is. right now, a lot of people are just fearful that their community could be next. the wind is expected to pick up again. we are here in altadena where i know three people that have lost their homes and they are incredibly afraid of not just the coming days but the future of how they will ensure their homes again, what the rebuilding process will be like. a lot of stages of grief and emotions here. jonathan: i appreciate the update. no doubt you'll be giving us updates throughout the day today. things are set to get worse and not better. a real fear of that.

lisa: it is horrendous. people are trying to be delicate as they fight a fire that is still very much a threat, while also looking forward to the rebuilding effort, just how to recover. a really horrific situation. jonathan: coming up tomorrow, we are hitting the ground running, catching up with stuart keizer of citi, libby cantrill of pimco, as we await economic data. ppi tomorrow, cpi on wednesday. tons of bank earnings coming up on wednesday and thursday. from new york city, good morning. thank you for choosing bloomberg tv. this was "bloomberg surveillance ." ♪

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matt: another down day. 30 minutes until the start of the cash trade here in the u.s.. sonali: katie greifeld is on assignment today. "bloomberg open interest" starts right now. matt: l.a. fires still arranging as santa ana winds are poised to intensify the wildfire battle. we will take it to the front lines. stock traders have been hit by diminishing bets on fed rate cuts as apple's iphone sales fall 5% in the holiday quarter. plus, it is murder monday. j&j agrees to buy intracellular therapies for over 14 billion dollars. katie greifeld is in the midst of all of that action at the j.p. morgan health care conference in san