♪ >> all of these high momentum stocks and started to pull back pretty significantly. >> i don't know that it would necessarily be a bad thing to see them broadening out in terms of performance. >> some taking of gains is to be expected after such a strong fourth quarter. could also be attributable to seasonals. >> the resilience of corporate earnings. >> then it is a huge problem in the markets. announcer: this is "bloomberg surveillance." with jonathan ferro, lisa abramowicz and annmarie hordern.

jonathan: live from new york city this morning, good morning, good morning. bloomberg "bloomberg surveillance." starts now. coming up the back of a two-week losing streak on the s&p 500, equity futures bouncing by just 0.3%. your scores look like this. as we go into a massive week ahead. payrolls on friday, chairman powell addressing the nation as well. before we get there, a tariff deadline in the next 24 hours. setting the tone for this market worldwide. an additional 10% on imports from china. lisa: at a time when more broadly the market's position that this will not go on and this will be a negotiating tool, companies are taking this seriously and some of the data that i thought was most interesting last week was the trade deficit for january in the united states surging by 25% with the expectation that a lot of companies are trying to get ahead of these exports.

annmarie: howard lutnick, president trump's commerce secretary went on fox of the weekend and said it is a fluid situation meeting obviously talks are ongoing and there could be potentially an agreement between both these countries. but then he goes on to say there are going to be tariffs on tuesday on mexico and canada, exactly what they are we are going to leave to the president and his team to negotiate. so it sounds like tariffs are going on but maybe the level might be toned down. jonathan: and then reciprocal tariffs in early april. a month from now, europe, believe it or not, has bigger problems. up by more than 10%, a double-digit rally. check out this from reuters over the weekend. they estimate around 400 billion euro are needed for the defense fund and 400 billion to 500 billion for the infrastructure fund. that is one heck of a story.

lisa:lisa: and frankly it would account for a huge proportion of germany's gdp, a huge reversal of what we've seen since 1945 when the u.s. essentially provided the defense mechanism for the entirety of europe. u.s. presidents going back to nixon have wanted a european union to spend more on defense, and they haven't. there's a real question about whether what happened on friday will galvanize europeans to actually pull together some defense funding. what i'm watching is the bond market. how do they fund this and do you start seeing some sort of selloff in european bonds, or do you have a rally in as people expect this to ultimately come at the expense of growth? to me, i'm looking for that bond market reaction. lisa: friday's oval office blowup really led to what we are seeing happen and europe. even more european leaders coalescing around this idea that they need to step up when it comes to their own defense. i will note the nato secretary-general did say

please, let's stop gossiping about what the u.s. might or might not do. they are in nato and committed to nato but this president has made it very clear he wants europeans to spend more when it comes to defense. jonathan: german bond yields higher by seven basis points. a fiscal regime shift of historic proportions. we begin the program this morning with a rupture in the transatlantic relations. >> mr. president with respect i think it is disrespectful for you to come to the oval office and try to litigate this in front of the american media. you should be thanking the president to try to bring an end to this conflict. >> you say what problems we have. from: you don't have the cards right now. with us you start having cards. >> i'm not playing cards. >> you are with world war iii. and what you are doing is very disrespectful to the country. >> have you said thank you once this entire meeting?

jonathan: a diplomatic break and feel an urgency in europe as leaders spent the weekend looking to build a so-called coalition of the willing. >> we are at a crossroads in history today. this is not a moment for more talk. it is time to act. the u.k. is prepared to back this with boots on the ground and planes in the air, together with others. europe must do the heavy lifting. jonathan: team coverage begins right now in washington, d.c. did we make any progress at all over the weekend? >> to a degree. i think that when you see the reaction in the market at the very least you start to see that the market is taking this very seriously. we thought a lot of this rally has already been priced in, all these companies catching a two digit percentage bid this morning in the promise that things are going to change in europe and they talk about this sort of coalition of the willing. what they've not yet answered as

the coalition of the willing to do what? one is going to the money component. there's a lot of different ideas floating around. they cannot get coldest under something very can create. the biggest measure they could put forward is something around joint debt but there are other little things that they could be doing in order to do it at the very european level. you mentioned some of the news out of germany, they are really looking to move in a big way on defense spending, circumventing the debt break to get where they need to go. but then there's this final question about the security guarantees that europe is able to provide. when they talk at troops on the ground, trips to do what? that is the question i get back from every european leader and lawmaker who i speak to. are they there just to observe that the conditions for peace are being maintained or are they there to return fire on russian troops if that cease-fire is broken? that is a very difficult thing for a european leader to sign up to, particularly without those american security guarantees which hang at the center of all

these conversations. lisa: president zelenskyy said at that summit in europe at the u.s. president invites in for a constructive dialogue to solve real problems for serious issues and real decisive actions and answers, i will arrive. the question is, if this white house prepared to extend another invitation? >> the biggest question on the table here is something that was consistent from trumpet ministration officials over the weekend, which is that they do not want to discuss any part of the security guarantees at this moment. and it was interesting to see some of the rhetoric come out of senior administration officials. scott bessent for example telling cbs that this moment, the sequencing of negotiations is just totally thrown off. the white house had wanted ukraine to sign this critical deal and then they would move into brokering that longer deal. but at the moment, scott bessent is suggesting that the economic cooperation deal could be off the table depending on how zelenskyy responds. you read his response right there, the ukrainians saying that they would go back to how

that deal was currently negotiated and zelenskyy would come back to the white house if invited serious talks but at least one european official is telling bloomberg news that in private conversations this white house is looking for a public apology from zelenskyy, something so far he has steered clear of and said he has a right to have an open dialogue about the future of this country. jonathan: to both of you, thank you. let's expand the conversation. joining us, a former senior u.s. intelligence official. welcome back to the program. how does zelenskyy come back from this? >> with great difficulty. friday's terrible meeting basically is a first. it's not uncommon that u.s. leaders had contentious, even angry discussions in private. it is certainly common for each to play to their base in public. but what we saw was a fairly honest and open conversation that became quite heated from the two sides.

at this point the trump administration will require zelenskyy to show remorse for his actions in the oval office, and zelenskyy is going to stick to his guns about looking for some sort of security agreement. i think the primary goal of each side is going to remain the mineral agreement, and it may be that zelenskyy's ministers or some intermediary group signs that when that comes about. get the trump administration does see that an economic relationship is the first step to building a security agreement. i don't think it's going to happen soon. i think europe is going to push for this and events will be one of the pressures for the government. annmarie: over the weekend i was told by a senior u.s. official that the mineral economic agreement is off the table for now. that key point. what kind of timeline are we talking about? >> impossible to say. this is now a political issue. it is a highly partisan issue in the u.s.. we've not had an issue of such

partisanship since the iran nuclear deal. events are going to dictate the pace of some of this, but at the end of the day, the ukraine must have u.s. support. the u.s. will not provide that support without some different type of arrangement with ukraine that involves economic compensation for our expenditures, and europe wants ukraine to maintain this tie with the u.s. so i think you're going to see a process that is impossible to predict when this will come to a conclusion. annmarie: can economic agreement act as a deterrent to putin militarily? >> it depends. an economic agreement that is only on paper, that is not fleshed out, that does not involve significant commercial u.s. presence inside of ukraine will not be a significant deterrent to vladimir putin. but if there are broad economic interests in these economic interests are important to the u.s. economy, then russia will have to take that into consideration for its moves.

there is a reverse to this. if we had significant exposure in ukraine, that becomes in some ways a potential vulnerability. so you are going to see the trump administration likely widening its mineral corp. -- mineral acquisition approach worldwide to prevent that from occurring. but it all depends how quickly this can be executed. lisa: you mention have partisans has become and the pure research put out a poll in mid february before this meeting showing that republicans and republican leaning independents are far more likely, about 47%, then democrats to say the u.s. is giving ukraine to much support. that number for democrats is about 14%. how far does this extent in terms of different views of the u.s. role in the world and who the allies and who the enemies actually are? >>-incontact with a number of -- overseas over the weekend and it is not lost on them that within the united states, we have a very contentious, hyper-partisan

environment where each side will seek to take advantage. but as i've noted in the past, the same people who complain that the trump administration is dealing with russia in the past called for a reset with russia in the past, called for negotiations with the iranians, who certainly killed more americans than russia in recent years. we are dealing with untrustworthy, bloodthirsty actors in russia and iran, but each side tends to choose their dictator of choice. at the end of the day, we got past that, in russian propaganda will exploit this fissure within the united states. it will be easy for more russian propaganda because they are planning against us and the domestic audience but you will often hear reporters say vladimir putin is boasting. that is part of their effort to further increase the pressures within the united states. jonathan: good to hear from you as always. the former senior u.s.

intelligence official. the latest on ukraine, united states. i'm hopeful, call me crazy, that this brings the u.s. and europe closer together it doesn't push them further apart. this came from the polish prime minister. your understanding its global attention will be america's most desirable ally. there was a recognition of the call for action of the weekend by some european officials. lisa: and that he saw them come to the white house. and, keir starmer before you had president zelenskyy. so you do see that potentially, the europeans could offer this bridge. but trump is going to push them to do more which in the end might get them back into his good races. jonathan: yield higher by 10 basis point on a 30 year bumper this morning. with an update on stories elsewhere, here is your bloomberg brief. dani: donald trump is getting ready to impose tariffs on mexico, canada and double levees uncharted tomorrow. trump had previously proposed imposing 25% tariffs on mexico and canada, but cover secretary

howard lutnick indicated that the figure could be lower. his remarks suggested mexico and canada could make last-ditch diplomatic push is to try to avert the measures. israel is blocking all humanitarian aid to gaza after the first stage of the cease-fire expired on sunday. of saudi arabia and egypt criticized the move, saying aid should not be used as a weapon for collective punishment. hamas rejected a u.s.-led proposal to extend the truce until mid april. pope francis is in stable condition in a roman hospital. the vatican said yesterday that the 88-year-old had a tranquil night but his prognosis remains reserve. the pope has been hospitalized since february 14 and has been battling pneumonia in both lungs. and that is your brief. jonathan: more in about 30 minutes time. up next, approaching the tariffs deadline. >> we could either see a ratcheting up in tariffs or is

our trading partners want to remedy what has been unfair trade, then we could see the tariffs come off. jonathan: a conversation of next with lori cal the sena of rbc. from new york city this morning, good morning. ♪

♪ jonathan: equity futures going into it, posited by one third of one person on the s&p 500. payrolls on friday, you will hear from chairman powell as well and a tariff deadline in the next 24 hours. bonds lower, yields higher by five basis points. under surveillance this morning, approaching a tariff deadline. >> there is a series of tariff. there's march 4, and then

there's the big tariff program that's going to be outlined on april 2 by congress and ustr, and that is the president's notion of reciprocal tariffs, and that is going to be very --. so we can either see a ratcheting up in tariffs or is our trading partners want to remedy what has been unfair trade, then we could see the tariffs come off. jonathan: president trump is on the verge of slapping 25% tariffs on mexico and canada, while doubling a levy against china as soon as tomorrow. lori of rbc writing "air 6600 year-end 2025 s&p 500 price target has assumed we would get at least one 5-10% drawdown in the index. the onset of tariffs raises the risk that this kind of drawdown, or something even deeper come has already begun." are you witnessing the vibe shift? >> for the last few weeks. we are seeing it on a bunch of different levels. investor vibes, aei i.

we are back to levels we saw at the financial crisis of 2022. cftc is not that bad but the institutional positioning, market is starting to break down from record highs on every contract we track. if you look at consumer, i don't need to tell you what has been going on. if you look at net approval as a gauge of the political vibes, and i do that because it has been tracking the s&p postelection data same way the polling data was in a 2023 and early 2024, that is also starting to stumble even though to be fair, it is stronger than where it was. we are seeing this on a lot of different levels. the corporate vibes have been a look at more resilient based on that conference board ceo confidence survey but even there, if you look at the tenor of reporting season, we've seen uncertainty really start to eclipse optimism and if you even dig into that ceo confidence survey, employment expectations are starting to shift and a negative way and the consumer survey is also assessing that out. i think we are in the middle of

the early stages of the sentiment shock. jonathan: a sentiment shock that hasn't driven a 5% correction, 10% correction just yet. david: i don't consider it to really be a true pullback that is anything to significantly remove froth unless you get internet 5%-10% range. that is the first tier of fear we've been talking about the last few weeks, so we are getting close to sort of being in that technical pullback period, but we are just not even there yet. i've never seen the aaii survey collapsed like this without a big move lower in stock prices. lisa: one of the reasons why is because confidence among ceos has continued to remain strong. what has or take away been from some of the earnings call and the guidance or lack thereof from ceos? lori: through january at least we've not seen a big spike in either downward or upward guidance. if you went back to last year, there was a big spike in downward guidance.

companies were at least trying to keep the bar low. i don't think the companies know where to put the bar right now. and it's interesting that that conference board ceo confidence survey, it was looking at late january, early february. it wasn't telling the cadence of all the weeks. january vs. where we are now. i do think that i've seen that optimism coming down week to week and it seemed like as we were waiting in reporting season, every week was worse than the one before. lisa: if tariffs to get put on mexico, canada and china, helped off sized when this equity market be if those tariffs were to get implemented as stated? lori: we've been hearing for the past month plus the idea that tariffs are just a negotiating tactic, that you're not going to see anything significant or meaningful in a long-lasting way. maybe you get a few weeks but not anything with any duration. i've been hearing that for weeks. if i think back to last week and

i was talking to u.s.-focused investors, i finally started to hear for the first time the idea that this tariff as a negotiating tool is too consensus. i was finally starting to see last week u.s. investors question whether there was wisdom in that consensus and starting to come to terms with the idea that has driven us to that 4.6, 4.3% depth. lisa: you think that the dip we seen so far is hedging that they can be these tariffs implement in? how much more downside you think there could be? lisa: think about a big shopping mall, you have to take the escalators down, you look to one level and then you have to decide if you're going back down. i think that is how i think about these tears of the fear in equity market. we've had plenty of those since 2022. what i've noticed is that when you get to that 8%, 9% mark, that is when you really start to see true fear coming in. one of my valuation models

suggests if we have sticky inflation, a couple of fed cuts, 5600 is a reasonable estimate of where the s&p should end on the year. that is close to the 10% mark so i think that if the first battleground. after that you have to go back to pre-covid, post-gfc to get a good read. we saw declines of 14%-20% in the equity market. these were periods were economic recession was truly feared, did not end up being manifest or some sort of systemic issue. european sovereign debt crisis in 2018. we have the trade war, we had fed concerns on the balance sheet. the industrial recession bent and spread because of consumer resilience. i think the risks that second of fear are rising. after that would be a recession or a major crisis. tier three is like 25%-30% historically, but i don't think

we are looking at tier three or four. but i do think that 14%-20% risk is rising. not my base case, but that would be the next level. lisa:lisa: trade is global. do you think the u.s. is the most prepared? lori: i think that the u.s. companies, and i give them credit for that and when i look at that ceo confidence survey, they've been through a heck of a lot in recent years. they have refined the crisis management skills. we saw that come through during the spd crisis. even in the 2018 trade war, they ended up managing from that pretty well, and we didn't have a massive hit to earnings. i do think that we get some resilience there. but we are sitting in the u.s. at valuation benefit ceilings and they are starting to retreat. we've seen various vibes weakening. positioning data had a brand-new highlight last year just like it

did in 2018. so we are not in a great position in terms of positioning valuation in the u.s. and i think that has started to make some of this rotation out of u.s. equities into european equities start. jonathan: when does the trump put actually kick in? lori: 2018 has been a great example in that there is sort of this view, and i don't completely disagree with this view because i do see if the 500, 50 600 is a battleground for other reasons. but i'm hearing all year in addition to "tariffs are never really going to happen," that they are not really going to look the market go down that much. some of the investors, and i talked mostly to equity folks, they say maybe they're just focused on the bond market and maybe the bond market is the put. -bringing up 2018 along as an example of an economic growth concerns come on the table, things may not be entirely under your control matter how much you would like to control them. and that is what we saw was fear

of the balance sheet unwind, too many hikes. the idea that the fed wasn't listening to markets are watching the economy properly intersected with the unknowns of the paradigm shift from the trade war. and what we saw in september of 2018, and i remember this crystal clear, i was sitting in las vegas and i heard companies coming to the conference rooms and say these tariffs are going to have ramifications and up until that point, the idea that the u.s. would be immune, you wanted to buy the usa, sell the rest of the world, we can manage through, it just completely fell apart. and you blink your eyes and you get a 20% drawdown. jonathan: a wake-up call pretty quickly, that's for sure. a big week coming up.

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jonathan: strong finish to the last week, strong rally into the weekend. not enough to erase a weekly decline. equity futures this morning up by 0.4%. in the bond market, what a run. every single week, 10 year bond yields in america down seven consecutive weeks, the longest run since june 2019. a small bounce in the context of a bigger rally in the bond market, yields higher by just five basis points. last week, the biggest weekly drop of the year so far. lisa: this should be a good

thing for risk assets. this is what people were hoping for, this is what the trump administration has been targeting. not so much. this is coming on the heels of growth concerns as well. i wonder how much of this market is skewed towards downward moves in the tenure being a negative tell on the u.s. economy and not necessarily parlaying into the risk on type of field. jonathan: the epicenter of the bond market moves not the treasury market but the blue market -- bund market. the german 10-year higher almost 10 basis points. in the fx market off backs of the -- off the back of that, the euro stronger, one. from reuters, economist advising the parties that will likely form a new government in germany they estimate around 400 billion euros are needed for a defense fund, a 400 billion euros to 500 billion euros for the infrastructure fund. lisa: i am looking for some sort

of addiction of what it would mean if markets are taking this seriously. george sarah bellows of deutsche bank said there are too many crosscurrents. i am curious how far the tenure yields in germany would have to come if true -- people truly believed they would have to borrow 10 billion euros. jonathan: european leaders considering a 200 billion euro boost to defense spending. in the aftermath of president zelenskyy's meeting with president trump. annmarie: what i see, between the blow up friday and what happened in europe over the weekend, is one key fact that they do not agree upon on both sides of the atlantic, which is that trump says he does not want to talk about security agreements on to their is a cease-fire, until they get to the negotiating table.

ursula von der leyen left the meeting and said we need to talk about security agreements now to give ukraine an upper hand at the negotiating table. when it comes to the security agreement, europe and the united states are not aligned. lisa: that said, where is the leverage? any deal needs a u.s.-backed stop. on the flipside, europe, at least the u.k. and france, trying to put together a deal with ukraine to give to put in themselves so they can bypass the united states. it is a really interesting dance. i am curious how this ends up and what it means for u.s. membership in nato. very interesting moment between the cross atlantic relationship. annmarie: i would say two things on nato. trump has not changed his position, and have seen other presidents, like president obama and president biden talking about the fact europe needs to do more. they outsourced their defense to the united states and need to do more. now, trump will push it even more.

before the election, 5%, they want to see that spending when it comes to gdp. but there's a fantastic quote -- let's stop the gossiping about what u.s. may or may not do. jonathan: how many times did you watch that exchange friday afternoon? lisa: about six. jonathan: what do you think broke things down? lisa: my personal opinion, which nobody really wants, but it seems like there's a lot of animosity hand a -- heading into this meeting that was personal on a couple of sides. if you like donald trump was trying come although irritated about the lack of suit, and jd vance, his involvement and the fact that, in the past, jd vance and validity zelenskyy have had -- volodymyr zelenskyy had had black blood -- bad blood. jonathan: the biggest surprises i had is because these things happen behind closed doors as

well, and it was reported a couple years ago that president biden got very frustrated with president zelenskyy behind closed doors as well. i was surprised zelenskyy allow this to happen in english when he has been so careful with some of the interviews he has done where he chose to conduct the interview in ukrainian. if you saw the interview put on later on with fox news, he had a translator. they had to get clarification as to what the interview was actually asking him. i wonder how much was actually lost in translation in that moment. because we saw him subsequently speaking to the british and european press, everything in ukrainian. you know, behind closed doors, how long it takes when they have a bilateral meeting to choose very specific words and make sure everyone understands where we are in the moment. that was not the moment to be engaging in includes -- english in front of the media. annmarie: if you are asking

something where he feels confident enough to talk in english, he will, but for the most part, especially if something is controversial or he wants to be very precise, he decides to answer in ukrainian to make sure he has a bigger vocabulary. he also looks off to the side all the time to make sure he understands the meaning of the word being spoken in english. one thing i was struck by -- never once did he decide to speak in ukrainian to get a point across. the almost got through this meeting, 40 minutes in, when he decided to say to jd vance, can i comment on that? that is when things took a downward spiral. jonathan: things unraveled pretty quickly. equity futures positive by one third of 1%. the united states set to double the tariff on china, going into effect tomorrow. chinese state media reporting the country is weighing

retaliatory tariffs. it is amazing we have these other tariffs elsewhere, 25% canada, mexico, that has taken all the attention away from the fact that we are probably going to get an additional 10% tariff on china. annmarie: when i speak to officials -- i've been talking to them throughout the entire weekend -- no one is talking about china, because everyone pretty much assumes tariffs are going through when it comes to china. i remind -- i am reminded at goldman sachs note over the summer, and they were right when it comes to stimulus out of china. they were waiting for the bazooka to see what trump was going to do when it comes to trade. we are at 25%, additional to what is already in place on chinese imports. jonathan: the next-door on our radar -- we should be talking about this. president trump announcing lens for a u.s. strategic crypto reserve, set to include undetermined amounts of major tokens, sending cryptocurrency prices soaring, recouping losses

since its worst month since 2022. lisa: we should be talking about this, including tokens that are less mainstream then bitcoin. it ignited the ira people in the crypto universe who do not want you legitimacy placed on these. the only country that has really engaged with this type of crypto experiment has been el salvador, and it did not end well. at what point, to what end, is this coming on now. jonathan: the explanation i am waiting for is why the issuer of the reserve currency requires a strategic reserve of cryptocurrency. can you make sense of that? the other issue i have with this, and i thick a lot of conservatives would have issue with this, is this is not a good use of taxpayer money. in the mind of a lot of taxpayers i have supported the republican cause. i wonder how much noise is made

about that in the coming days and weeks. lisa: this is a speculative asset class, and some people would argue, in the trump camp, that if there is massive upside, the taxpayers get that. at the same time, is this really a prudent use when we are worried about every single dollar in a time of incredible volatility? jonathan: we are seeing that rally off the back of some of those headlines. a tariff deadline fewer than 24 hours away. tobin marcus of wolfe research writing, if trump follows through with his threats, it increases the risk you will go big with his april 2 reciprocal tariff policy. will the president follow through on his rights? tobin: in some ways, the set up looks exactly the same as early february, when i was fairly confident he would not follow through, at least not with long-duration. i am less optimistic this time. he has been quite resolute he will do something. even comments from economists --

the commerce secretary. it is hard to have total confidence, but it is also impossible to write off the risk you will go through with it. annmarie: scott bessent said to david westin on bloomberg tv friday that the mexican government made a proposal matching u.s. on china tariffs, and then he said it would be a nice gesture if the canadians did it also. is that a big enough concession to put a pause on these tariffs? tobin: conceivably. the tariffs have never made a lot of economic sense for the u.s. for the canadians, they are way out of scale in terms of the problem we have with migration and drug trafficking. so it all comes down to trump's assessment of whether or not he accomplishes his political goal. in the mexican case, there is much more in the way of actual policy we need.

if he wants to, he certainly can what he does last time and just points at progress made. annmarie: one of the tariffs will be a 10% -- basically, the trump administration signaling they understand how important canadian heavy crude's, especially to the midwest. but the canadians are also saying they could have reciprocal tariffs on energy. how ugly can this get? tobin: it could get very ugly. the initial executive order imposing these tariffs made it clear the united states reserves the right to further escalate it if there is further retaliation. i think the sense will be there will be retaliation because the canadians and the mexicans cannot just take it sitting down. there is absolute upsides if things go badly. when things get personal, there is a risk things can go south in

ways that do not totally line-up with either side's objective interest. lisa: can you develop that idea that what happened friday will influence the likelihood of these tariffs go on tomorrow? tobin: i do not think there is a direct influence. it is more a case study. as trump himself said in the truth social post he put out afterward, it is telling what comes under emotion. if there is an actual move to go forward on these tariffs, the likelihood of tit-for-tat retaliation is something we need to worry about, and if we are locked into a confrontational stance with these two countries, you cannot rule out the possibility that, interpersonally, things go wrong. annmarie: tomorrow, we also have a joint address to congress from the president of the united states, which basically is a different way of saying we will have a state of the union. what are you expecting? tobin: they have done very little previewing kate even talking to republican sources on the hill, there are no rumors or

gossip about what will be announced. my guess is it will be mostly focused on our accomplishments, where he points to the massive amount of activity that has already gone on, much of which they feel very good about. i am sure they will have tidbits of news. it will be uncharacteristic to go into this with nothing new or headline grabbing, but a lot of it will be framing up the totality of what they have done so far. jonathan: thank you. tobin marcus of wolfe research. things could look very different on the trade front tomorrow. let's get an update on news elsewhere. here is dani burger. dani: ukrainian president zelenskyy said he is willing to meet with u.s. president trump if he is invited again. zelenskyy says he wants to solve real problems, adding ukraine is ready to accept a minerals deal with the u.s., which was put on hold last week. elsewhere, deepseek says its theoretical profit margin to be more than five times its cost. it revealed it saw a 545% profit

margin for its models during a 24 hour period but added a disclaimer actual revenues are substantially lower due to factors like only some services being monetized and discounts during off-peak hours. prada is said to be moving closer to a deal for versace, agreeing to a price of nearly 1.6 billion euros. talks are progressing after initial due diligence did not find any risks. an acquisition would allow prada to create a larger italian playe r. jonathan: thank you. remember the snoozy biden years. that would have been a top story. annmarie: this could be the answer to carrying an lvmh out of milan. jonathan: entry-level handbags and all that stuff. lisa: sort of mid-level and high-level luxury. jonathan: up next on the

program, risk on the horizon. >> today, what is the risk is, if you look out over the horizon, in an environment where policies are likely to be inflationary, there will be demand destruction. jonathan: from new york city, this is bloomberg. ♪

jonathan: i sound like a broken record, but what an interesting time for financial markets worldwide. in germany, bonds down, yields higher on the expectation of more spending on in frustration -- on defense and infrastructure. last week, second week of

losses, but a strong rally into the weekend and positive follow-through. the s&p 500 higher by one third of 1%. under surveillance this morning, risk on the horizon. >> we have preemptive inflation anxiety. there is much more anxiety anticipating the shocks from higher prices today. what is the risk is, if you look out over the horizon, in an environment where policies are likely to be inflationary, we have consumers that are seeing a lot of prices and playing clue -- paying close attention to all these prices. as a result, they are pulling back on demand. there will be demand destruction. jonathan: investors bracing for the february payrolls report. ajay rajadhyaksha of barclays writing if the drumbeat of negative news picks up, including in the payrolls print, investors will have to take a scenario that seemed unlikely at the time of the election.

could the u.s. economy, under a trump administration, beheaded for a recession over the next few quarters? good morning. so it is not your base case, but the odds are not zero, and have the arts just gone up? ajay: they have gone up. i would have said it is extremely unlikely 2, 3 months ago. but first, the president seems to be far more serious about tariffs than what was confesses when he won. the second is we have heard a slew of leaker data in the united states in the last two or three weeks. personal consumption has slowed down, income slowed down, income sales were weaker. things are starting to move in the wrong direction. jonathan: is he far less sensitive to inclining equity markets? ajay: it seems that way. this time around, as opposed to his first term, he has not --

what they seem to be talking about is the 10 year treasury rate, getting interest rates lower, getting the dollar weaker. they may have moved the guidelines. i do not know. i do not think anyone does. this is a president who is somewhat material, keeps changing his mind from time to time. the trumpput on the equity market still seems far away. lisa: there is a consensus the u.s. economy has so much momentum and strength that it would take such a massive number of shocks to santa into full-blown recession, which is a reason people are discounting that. what would happen to go wrong? ajay: the single biggest tailwind both hind -- behind the u.s. is the u.s. consumer. wealth has gone up so much. household wealth is up over $50

trillion over the last four years. these are very large numbers. he is spending every single dollar he takes in. but if equities first pullback, 15%, 20%, that starts to fail. job cuts kick in. you need a lot of things to all go wrong simultaneously. i do not think it will happen, but the odds are little higher than before. annmarie: put into perspective we are seeing the rule over to the most negative going back to september, the fact we are seeing an increasing number of sort of tepid economic signals. do you discount that as normalization? i will point you see that as a weakening trend. ajay: i think it is a weakening trend, i just do not think right now it is anywhere close to get you to a recession. you would need one final shooter drop, which are the job cuts the government is doing. if we actually let go of close to one million people, government related, that takes

away 50%. if equity markets fall simultaneously, 15% to 20%, that would get you on comfortably close to a recession. annmarie: do we see those d.o.g.e. job cuts in the friday payrolls report? ajay: no. it will take time. about 130,000 people left voluntarily and were replaced last report. if you do not do both, that is about 200,000 jobs going away. then there are about 200,000 people on the government payrolls under one year of service. pretty soon, the numbers start adding up, but it will take time. annmarie: so you think tariffs and d.o.g.e. are drags now. what about potential good policies, like tax cuts. do those need to be brought

forward to balance the market better? ajay: in an ideal world, probably, but i will direct your attention to the house budget resolution. if things do not change at all, if status quo persists, if we just extend the tax cuts -- 12 months from now, you do not get a tax cut -- that will add $4 billion in the next decade. with the house is aiming for is to trillion numbers -- $2 trillion. so they are looking for a mild fiscal drag, because they do not have the votes for large, new tax cuts. lisa: does this mean, on some level, especially if this administration is targeting a lower 10 year yield, there needs to be slower growth on an ongoing basis to finance a deficit that seems much more structural? ajay: you have to be careful about that, because growth slows down too much, and it does not

improve your deficits. i do not know that is something that -- no administration is going to say we want much weaker growth, because that gets you stoned. i do not think the administration is trying for that, it is just they are no longer focused on the equity markets. jonathan: how brittle are the arguments are barclays now -- how brutal are the arguments at barclays now? ajay: i will have a conversation with him. [laughter] jonathan: have you had that conversation you? ajay: to be fair to him, data has shifted a lot in the last few weeks. two months ago, if you told me that we were going to impose 25% tariffs, and then you would have said, on canada, that would not have seemed realistic. and yet, here we are. the facts on the ground have shifted.

jonathan: we will look for an update in the next couple weeks. the latest from partly -- barclays. lisa: are you trying to create some sort of animosity? jonathan: i have a 600 price target. lisa: for now. we will see what happens. jonathan: things have changed. annmarie: that is what lori calvasina was saying. there are these tiers of selloffs, and she sees much greater likelihood of these selloffs if things like tariffs come to pass. jonathan: coming up, we will catch up with mohamed el-erian, michael zezas, christopher harvey, mark mccormick. you are watching bloomberg tv. ♪

>> the more that we have, the risk we have both higher prices and less sales, the more markets will be preparing themselves for the risk of an inflationary scenario. >> i am not that worried about inflation -- famous last words. >> there should be concerns about longer-term structural inflation. >> the fed is clearly in. wait and see mode. >> i think the fed will be too reactionary in this environment, and that will always be too late

in this environment. >> this is "bloomberg surveillance" with jonathan ferro, lisa abramowicz, and annmarie hordern. jonathan: the second hour of "bloomberg surveillance" starts right now. equity futures on the s&p 500 positive by 0.4 percent, a strong end to last week going into the weekend, and positive follow-through on the nasdaq 100, up by 0.5%. your week ahead packed. friday, the payrolls report. and you hear from chairman powell. in between, lots of economic data. an address from the president to a joint congress. later, a tariff deadline for mexico, canada, china. lisa: and just how offsides tariffs tariffs is this market should go on the docket? a lot of people talking about this as a negotiating tool. and yet, lori calvasina said an increasing number of clients have been asking her about it and said maybe they are not

taking it seriously enough, and maybe they will be offsides when it comes to market valuations. annmarie: the treasury secretary said, if trump's favorite word is " tariffs," his second favorite word is "reciprocal." when it comes to canada and mexico, it is a little hard to understand where they are going, because howard lutnick, the commerce secretary, said two interesting things. fluid situation -- what does that mean? things are changing, they could change. lutnick also said there will be tariffs tuesday on canada and mexico. exactly what they are will be for the president and his team -- howard lutnick is part of that team -- to negotiate. jonathan: throwing europe into the mix, big moves in germany. bunds lower, yields higher. in defense stocks, you are seeing a monster rally on rheinmetall, bae systems. it looks like that will medic

break down friday could spark a big change in europe. lisa: maybe that is they kick in the pants to get them to actually spend on defense spending. you mentioned the reuters report earlier that came out with something to the tune of one trillion euros in spending from germany, from the joint european union as a result of needs to beef up defense spending as well as infrastructure. a question of whether this is realistic, given the appetite, given the lack of political leadership in europe. at the same time, people are taking it seriously enough you are seeing moves in the market. i wonder if this could boost some of the outlook for growth, the ecb meeting thursday could be interesting. jonathan: this is what the president of the u.s. would like to see, these kind of outcomes. annmarie: he does not want to see a europe that continues to rely on the united states when it comes to defense. the administration wants to see europe step up.

by the way, that is bipartisan. we saw the same rhetoric from joe biden as well. a little more forceful from trump in 1.0 and now 2.0. this is also what will be needed if there is a peace deal with ukraine. jonathan: equities positive. a lift in the bond market. the euro stronger as well. coming up, we will catch up with mohamed el-erian as investors brace for a busy week ahead. chris harvey of wells fargo on the perfect storm against momentum stocks. and mark cormack of td as secretary bessent pictures fortress north america. we begin this hour stocks study. mohamed el-erian writing a heavy data week on top for the u.s. with the monthly jobs report, lots of speaking engagements, including scott bessent and jay powell. welcome to the program. where to begin?

i think we start friday and the rupture in transatlantic relations and their breakdown in the oval office. when you saw that and you think about the consequence it could have for the economic picture in europe, for military spending awakening for financial markets, what are your thoughts at the moment? mohamed: thanks for having me. my thought is that feeds into some existing themes, both top-down and bottom-up, and intensifies them. top-down, we have had issues of fiscal realignment, and that will feed into fiscal realignment, including putting pressure on the debt rate in germany, including the question of how does it interact with what d.o.g.e. is doing in the u.s. secondly, it feeds into the energy market. third, it feeds into the realignment of the global order that also has a trade element and currency element to it. you have all these top-down

factors being amplified. the bottom up factor being amplified his defense. we are seeing significant sector differences occurring, as you would expect. i think of it not as unprecedented, which are the words the political science and international relations people are using, but in the fields of economics and finance, it is amplifying things that were there already. jonathan: a number of weeks ago, we said the president of the united states may well push the europeans into doing things that may be good for them. you wrote in the financial times about a month ago, the mounting risk to u.s. exceptionalism. how do some of these things play into what you wrote? mohamed: the good news and the bad news is we have a very action oriented administration. it has come in, it has hit the ground running, if not sprinting. if you are a business, it feels like you are trying to drink from a fire hose.

there are energy issues, immigration, trade, public-sector issues, including public-sector contract. there are regulation issues. you are trying to absorb all this. what we are seeing a sentiment has come down, and there has been a wait and see attitude, because most of these things impact both your income and your expenditure. it is really hard to figure out how all these things will play out. then there is the international relations side of it, your trade side of it to get the worry i have is that the lack of ability by the public sector to absorb all this results in a wait and see attitude. that wait and see attitude comes at a time where we already have a bit of a with -- whiff of stagflation, and next thing you know, people start worsening u.s. exceptionalism. if they do, you start

questioning the only reliable engine of growth for the global economy, and you start questioning the shield markets have had against all sorts of geopolitical and political aspects. lisa: that is a lot of hair on the american exceptionalism story. we have been talking about it, the lack of certainty, the on hold nature of a lot of ceos. yet when you ask them, they still say they prefer to invest in the u.s. over the rest of the world. if europe went through with a 900 billion euros spending package on defense and infrastructure, with that shift for you? would you see brighter shoots in europe? mohamed: no, it would not shift for me. i would still prefer the u.s. over europe for the simple reason europe does not have a genuine, endurable growth engine. maybe defense contribute in the short term to growth, but they need to get a handle on some really fundamental things.

i encourage everybody to read the draghi report. it is a really good assessment of what has gone wrong in terms of investment and productivity, and what needs to go right. that should be your benchmark when u.s. future growth prospects in europe. lisa: what happens if this american exceptionalism story is challenged to the degree you are laying out and there is not a brighter alternative in europe? mohamed: that is the concern. i've always said the good, the bad, and the ugly of the global economy. the good is the u.s., the bad is china, the ugly is europe. if you do not see china and europe converge up to the u.s., there is a risk the u.s. converges down to the other two. it is a risk scenario, not the baseline. but in mid-january, no one was questioning u.s. economic exceptionalism. now, a lot more people are

starting to worry about it. annmarie: what do you make of the tariffs? do you think they will actually come on tomorrow, or do you think the market consensus that china's goes on but there will be another pause or a pass when it comes to canada and mexico is the accurate way to view this? mohamed: i do not know, i really do not know. i do not think anybody knows but the president. what has become clear is there are three sets of tariffs. that explains why the president was issuing so many objectives with tariffs. when he came out in october and said it is my favorite word, he said it can raise revenue, it can result in fair trade, -- fairer trade, it can put pressure on adversaries and allies, and in addition, it can protect u.s. industry, and the initial reaction of economists was too many objectives or a single tool. but we see now what is happening. you have a set of general tariffs that do the revenue and

reciprocity side. you have a set of sector specific tariffs, aluminum, steel, that protect industry. and you have a third set of tariffs aimed at particular countries, to get particular outcomes. that is the thing we will live with for the next few months, if not the next few years, which is multifaceted trade policy. jonathan: for the first time in a long time, there was a fed official in the last week that considered stagflation. i am sure you noticed the same comments, downside risk to growth, upside risk to inflation. if we were to have a fed mandate that went into conflict, how do you suppose would be the best way to approach that situation? mohamed: it's tough. stagflation is the nightmare of policymakers. it is the nightmare of a fed with a mandate, as you point out. i worry, like you had in

introduction, that we have a reactionary fed, so the fed is not going to be getting ahead of this anytime soon. i hope it understands it, but it will not be getting ahead of any time soon, so the risk is that monetary policy continues to amplify volatility rather than acting as an anchor of stability. lisa: can you give us a sense of the trajectory of your belief that the economy can withstand all of this in the united states? ashley has progressed -- i realize it is the beginning of march -- but how much more worried are you now then two weeks ago about a real calling into question of american exceptionalism and a real ruling over of the u.s. economy? mohamed: i've been worried for a while. i put out an "ft" op-ed february 14 saying, be careful, slowly we may see the erosion of u.s. exceptionalism.

that is bad news, not just for the u.s.. i been worried for a while. i have seen three element that make me worried. one is the way business is reacting to all these policy changes, which increasingly is wait and see. we think it will be fine, but let's wait and see. second, we know that the lower segments of the household income distribution is under enormous pressure. that has been a concern for a while. the third issue is the risk of a fed policy mistake. these things have been there, and now they have amplified because of what has been going on. jonathan: always appreciate your time. mohamed el-erian of queens college cambridge there on some of the challenges for officials worldwide in global markets as well. speaking of challenges for officials, let's talk about europe. a reality check for defense spending. the next stop, potentially, is a

reality check for the push for net zero, and some of the issues we have had on the continent for how excessive this is. this from the e.u. to grant carmakers leeway in reaching 2025 co2 targets. lisa: they have to unravel so many layers of regulations and policies to get something progrowth that become something so onerous they cannot respond with the aliveness people want. annmarie: and how much leeway does ursula von der leyen have to give if they face potentially a harder market with the u.s.? they need to use other levers to make it easier for autos to produce and thrive in their own economies. jonathan: we talked to guy johnson a few times about this in the past, how extensive it is to start a business in germany because of the cost of energy.

lisa: you put all these things together, including ossified policies that have been in place for decades, how do you get to a group -- progrowth place? we are talking about carmakers potentially getting leeway to 2025 co2 targets when they need something to compete with china. annmarie: for decades, germany was able to have a manufacturing base as good as they had it because of the tsipras russian energy they were importing. once that shifted, you can tell they were really out of alignment in terms of their manufacturing base and how much more costly it was to produce these products. they have to recognize all of this now. jonathan: we are hearing from germany's election winner, the united states is putting enormous pressure on europe to act. equity futures positive by 0.6%. with an update on stories elsewhere, here is dani burger.

dani: france and britain are proposing a partial one-month truth -- truce between ukraine and russia. the agreement would cover air, sea, and energy in for church or attacks but would not include ground fighting. the comments come after president zelenskyy's unsuccessful meeting with president trump at the white house friday. china's abbasid to australia is warning a ban to deepseek would risk trade ties. the ambassador's comments came as i chinese naval task force continued to scout australia's territorial waters. "anora," hey drama about a sex worker who marries the son of a russian oligarch, won best picture at the academy awards. mikey madison won best actress for her role. adrien brody was named best

actor for his role in "the brutalist." jonathan: i have not watched any of those movies. have you? lisa: i have not either, and to be honest, last night hours looking at markets. jonathan: up next, facing the tariff deadline. >> there will be tariffs tuesday on mexico and canada. exactly what they will be, i will leave that for the president to decide. jonathan: from new york, this is bloomberg. ♪

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and intel. clearing the way, [rumble] [whoosh] so you arrive exactly where you belong. jonathan: session highs on the equity market, s&p 500 positive by 0.5 percent.

under surveillance this morning, facing the tariff deadline. >> there will be tariffs tuesday on mexico and canada. exactly where they will be, i will leave that for the president to decide. this president is totally focused on building america back, and we will use tariffs to create fairness. we need fairness, and we need the strength of donald trump to make the world reasonable to america and stop picking us off. donald trump will end it and make the world trade fairly with america, finally. jonathan: the trump administration preparing to implement 25% tariffs on canada and mexico and an additional 10% levy on china some more. with more, tyler kelly joins us now. tyler: this specific batch are tied to specific policy. the white house confirms that

president trump is tracking overdose deaths as a metric of progress when it comes to this, although when asked if he was satisfied with the numbers he has been seeing, he said "not at all." canada and mexico have sourced tangible resources to the borders, but something we are watching is if those countries will have their own tariffs on china. we should note our reporting indicates mexico is open to that and that canada has enacted similar -- similar measures, putting a 100% levy on chinese made electric vehicles. jonathan: more from tyler kendall throughout today on bloomberg tv. michael zezas of morgan stanley joins us now. the words of the commerce secretary, "there will be tariffs on tuesday on canada and mexico. exactly what they are, we believe that the president and his team to negotiate." what is your base case? michael: base case is these

tariffs will be pushed off to a there's more common ground with mexico and canada then china. but if we pull back for a second, our base case, when talking to clients, differs a little bit from others. where it is common ground is everyone expects tariffs will go higher. i think that consensus is right. as time goes on, the u.s. will raise more tariffs barriers. whether or not you agree with the goal of what that will achieve and whether or not it will be beneficial in the long term in terms of re-industrializing the u.s., it comes at a cost. we are focused on the growth pressure that creates over the next year or two. annmarie: how much is this about china in the end anyway? scott bessent told bloomberg how amazing it would be if mexico and canada impose their own tariffs on china to have one fortress north america. michael: there is a common goal around china.

it is hard to know if it is specifically all about china, but it is's's clear, from both trump first term and everything sent by his advisors since that term, that there are far greater conflict of interest between the u.s. and china and how that trade relationship progresses, both in terms of the magnitude of the trade deficit, but also how the u.s. wants china to operate in terms of a free-trade arrangement that china will be willing to make a lot of those concessions. it is about how they manage their political economy. annmarie: say your base case is accurate. the 25% on mexico and canada and on canadian oil does not go through but an additional 10% goes through on china, what will china do? michael: if we follow the prior pattern on retaliation, they go kind of less, maybe hoping if they can engage in broad negotiation with the u.s., that maybe they can get to some arrangement that will be less complicated or less impactful

than what trump and his allies have been threatening, trying to get some something like 60% tariffs on all imports. at the end of the day, we are headed to a much higher level on china tariffs, because we do not think there's a lot of room for success inside those negotiations. some of the things the u.s. is asking for from china, which they asked for in the first trump administration, were really about how china wants to manage its economy, so the u.s. probably has to raise tariffs along the way in an attempt to negotiate but they ultimately stay higher. lisa: i want to pick up on something you said, which is increased costs as there is more rapid deglobalization. how are companies preparing for that? where are they moving production? michael: it is complicated. after trump's first term, you saw a pickup in foreign direct investment in the u.s., you saw companies trying to reshore,

nearshore. but we do a piece of research with our colleagues in economics, and we looked at what supply chain realignment happened already, and you saw the low hanging fruit had already been picked. what is left over for it supply chain realignment is complex products in concentrated areas that rg obliquely very different in the u.s., like ringing complex supply chains out of china. it is a very costly endeavor. even if you create incentives for reinvestment, it is costly. it will be for route to consumers in some way. this transition may be a good thing for the u.s. and the fullness of time, but it costs something along the way, that is part and parcel of the growth pressures we expect in the next year or two. jonathan: what interests me is the way economists talk about the economy, like it is still joe biden's. so conceding the week dated we may get -- weak data we get over

the next couple months is not his fault. lisa: what is the expiration date of laming biden and going back -- blaming biden and going back to that every single time? jonathan: we have something similar, the economy we are inheriting is not as good as we may think it will be? lisa: so they will try to come in and salvage it? jonathan: we will see. michael zezas of morgan stanley, thank you. on the equity market, chris harvey of wells fargo joins us next. ♪

jonathan: equity futures positive here peer to starting the week in the right way, by zero point 5% on the s&p 500. nasdaq 105.75%. up by 0.9% on the russell. check out your rep, look at this rally. the dax, record high, 2.4%. cac 40 up by 1.4%. year-to-date in paris higher by 12%. on the dax, 16 percentage points. two hours away from the cash

open stateside payment manus cranny, some of the defense sector is phenomenal. >> rheinmetall, wholesaler rating of one euro and will spend on defense. jp morgan raised their price targets across the sector, up 25% on the price, turbocharging european rearmament. have a look at capri. reporting that product are close to a deal to buy versace. 1.5 billion euros. good about it in 2018 for 1.4 billion. microstrategy. three beautiful words from the president, crypto strategic reserve. boom goes bitcoin and the rest of the complex. president trump talking about

this crypto reserve for america, a family of reserves. jonathan: manus cranny, thank you. hard to keep up with some of these moves. in europe, equities racing away. germany, yields are higher by nine basis points. further out on the 30-year, up by 10. lisa: this is pricing out when a defense infrastructure fund may look like in terms of financing. i wonder how far we are moving into conviction, if this is any chance of going through, if there is this incremental field to the shifts going on. the idea of cars not having to comply with co2 mandates highlights just how many small things have to go before you get to bigger discussions in a serious way. jonathan: i have said this once before, but the chances are nonzero, chances going up. lisa: the bar is not really low

anymore but it is not exactly high. maybe it just means that there are more questions elsewhere. jonathan: big move in the equity market higher elsewhere. president donald trump's first direct deadline looming tomorrow. the u.s. planning to put 25% tariffs on mexico and canada, doubling china to 20%. annmarie: on canada and mexico, howard lutnick called the situation fluid, which means they have been in negotiations. we have seen a flurry of diplomacy in d.c. they were all there trying to come to an agreement. then mr. lutnick said, tariffs will go on on tuesday, i'm not sure the level. jonathan: why did he say that? he said something else that was interesting to me, we need to negotiate with the teams. he is a part of the teams. he made it sound like it was

somebody else's call, plus the team, even though he is the team. lisa: there are lots of different views, and that is clearly the case. annmarie: sounds like the president has not decided yet. jonathan: could be 25% on mexico, canada. the fact that we are accepting just another 10% on china and that is ok, that is where we are at. lisa: another feeling that we don't know what we don't know. companies are just not doing anything. how long does that uncertainty prolong, when does that have an economic toll? jonathan: more on that as we approach the trade deadline. israel altering humanitarian aid into gaza after the cease-fire with hamas expired. annmarie: steven witkoff wanted to extend the first phase of that cease-fire.

hamas says no, we should be moving into phase two. israel says we still have hostages, not enough has been done. now they are halting humanitarian aid. others are saying the aid needs to go through because we are dealing with the influx of palestinians. this is a massive issue that the white house needs to be dealing with, at the same time, dealing with the blowup in the oval office, europe, ukraine, just another list of issues around the world. jonathan: trump to make an investment announcement today, scheduled for 1:30 eastern time. may have something to do about the tweet over the weekend, crypto. annmarie: even a lot of conservators are saying, what is this about, why is taxpayer money going to this? could this devalue the importance of the u.s. dollar when you talk about a strategic crypto reserve?

lots of questions. all it did was feel speculation in the market. jonathan: certainly an opportunity for the press to ask questions about the trade deadline. singapore investigating whether dell and supermicro service shipments to malaysia contained nvidia chips bar for china-- barred for china. how are they getting into china? lisa: it raises the question of how these countries get on donald trump's good side so he doesn't make a choice about whether they are with china or the u.s. because they have benefited from this fissure. they will try to avoid the wrath of this white house. jonathan: how export-compliant was deepseek? annmarie: nvidia ai chips reach china despite the ban.

selling systems with the blackwell chips, so through third parties in the region. this will be focusing on allies and foes of the united states if they are not complied with the export controls, and there is a way that they are getting into beijing. jonathan: equity futures valving stateside. in europe, riproaring rally. christopher harvey writing, we would expect a different investment set from the last 12 months, namely rest of the world over the united states, value overgrowth, and cyclicality over momentum. let's start with the u.s. versus the rest of the world. what a rally in europe. christopher: we were there in october and sentiment could not have been worse. everyone wanted to wait for the election. and then bag, here we have it. the real catalyst is, you are starting to get some optimism around russia-ukraine.

when you get optimism, you can see an environment where oil comes down, inflation comes down, rates come down. that is positive for europe. jonathan: this is something else potentially, not stimulus dependent. christopher: the administration really does want lower oil. what does lower oil do for them? i think it puts weight on inflation, interest rates, and that is something they want. it makes a resolution in ukraine a big priority. the funny thing is, the european probably benefit more than we do. lisa: is the bar still low for some sort of positive development in europe or is it appropriately set? christopher: i think people are still skeptical. the fundamentals are still attractive. we have a situation where you have good valuation. the economy is not so great but can improve. the ecb is still in a rate easing cycle.

then you have catalysts on the political and possibly energy side. and by the way, the currency has been devalued. yes, it is pop, but that place has been a malaise for a long time. lisa: how much is not wanting to unravel the complicated story in the u.s., might be something with respect to uncertainty, may be a hangover from the past? find your narrative, it's very confusing. christopher: when you were talking about that, should we talk about momentum, europe? lisa: it is a flow of his own type of thing in the white house. people feel like they have no conviction of anything and it is hard to get an angle. is that why people are going outside the u.s., they don't want to think about it? christopher: to a degree it is but you have these catalysts. it is very hard, as you point out, to handicap the back row.

we can talk about tariffs as much as we want but we don't know what will happen. the only way to hedge that uncertainty, you need a certain allocation to volatility to hedge that. one thing that we've been advising clients, you need an allocation to low volatility. that is one of the better performing sectors year to date. i think it will continue to perform and help out at portfolio because you need to be able to stay in the game until we get resolution on a lot of these things. could happen in three weeks, three months or three years. annmarie: you think this administration wants lower oil prices. y slept 10% tariffs on canadian oil went last year we imported more than 60% from canada? christopher: that is the $64,000 question. what exactly are they using tariffs for? what do they want? we think they are using them more to get certain things.

whether you are paying a tribute, getting concessions, tariffs are not really about generating revenue. it is something that will put people on the back foot, maybe causes some people into unforced errors. that is really what i think it's all about, not so much about revenue generation. annmarie: if we are continuously in that cycle, how much can that affect the stock market, even if the tariffs don't come into play? christopher: what i've heard the last couple of weeks, sentiment is turning four, it is fading. i'm also hearing more talk about stagflation. i have talked to a lot of people about, does the sentiment really affect activity? we don't know. if this continues, the answer is eventually it does, but unclear at this point in time.

that is why we continue to point out, you have to have some risk aversion in the portfolio, exposure to low volatility. that is the only way i know to handicap the volatility. lisa: it is that code for holding a lot of cash? christopher: not necessarily. looking for stocks at the lower end of the risk spectrum. for example, in financials, typically what you see our insurance companies are typically lower volatility. what those stocks do in some laughs is outperform, they anchor that portfolio, but also capable of participating to the upside. it is a really unique play, one of the ways that will help you navigate these difficult markets. jonathan: how do they fit into a portfolio given there was a big ai trade over the last 12 months? christopher: last year, we downgraded utilities from overweight to neutral.

we like the space, but what we are telling clients, on a sector basis, if you want something more defensive, it is staples. the utility trait has gotten caught up with the ai trade. it may not give you that defensive properties that you want. jonathan: not the broad proxy it used to be. christopher: exactly. you have very different dynamics with some of these companies and distributors. we want something, when stress comes into the marketplace, these will work. jonathan: we are not done by even 5% on the s&p. christopher: what we tell people is, look at low volatility, value. europe. those are pretty strong markets. growth is weak at this point in time. getting back to lisa's comment about momentum, tech is momentum, if you look at the tech etf, it is the most

underweight of any sector represented in the index. momentum now is financials and communications. jonathan: i appreciate your insight. christopher harvey from wells fargo. let's get a quick update on stories elsewhere this morning with dani burger. dani: crypto recoup some of the losses over the weekend after president trump posted yesterday about his plan for a strategic reserve that includes more tokens. many of the details are unknown including how much the government will actually buy and how the purchases would be funded. kroger chairman chairman and ceo rodney mcmullen resides after an investigation into his personal conduct. the company confirmed it did not relate to operations or financial performance and did not involve kroger associates. the board has put in place and

interim ceo. fulham beats manchester united on penalty kicks. bruno fernandez tied things up. the goalkeeper saved two penalties to win the shootout 4-3. they will place crystal palace in the next round. jonathan: i told you, watching the game yesterday, no idea why. absolutely dreadful. such low quality football. they looked like a team about to get relegated. no emotion in the game. lisa: but you are still angered by the absolute dreadful football. jonathan: clearly someone in the control room doesn't like manchester united. next on the program, preparing for tariffs. >> one interesting proposal that the mexican government has made is perhaps matching the u.s. on our china tariffs.

it would be a nice gesture. if the canadians did it also. jonathan: that was the treasury secretary negotiating in public. mark mccormick from td joins us next. this is bloomberg. ♪

jonathan: big rally in europe, all time highs in paris. stateside, equity futures higher by 0.5% on the s&p 500. the dollar weaker, euro stronger. euro-dollar up by 1%. under surveillance this morning, preparing for tariffs. >> i do think one interesting proposal the mexican government has made is perhaps matching the

u.s. on our china tariffs. i think it would be a nice gesture if the canadians did it also appeared in a way, we could have fortress north america from the flood of chinese imports coming out of the most unbalanced economy in the history of modern times. jonathan: global currencies under pressure as the trump administration repairs to impose new tariffs on canada, mexico, and china. mark mccormick writing our short-term valuation tools tell us the u.s. dollar is oversold and cheap. a set up we have not seen since before the election. welcome, good to see you. the dollar is oversold and cheap. against what? mark: everything. the thing that is standing out the most is em currencies, going back to your last segment, low volatility. the fx market version is the carry trade. em currencies have come back.

g10 currencies, particularly the euro, all of these look overbought. one thing that is interesting, we get fixated on a new story, theme, geopolitical tensions or tariffs. we forgot about market fundamentals. if we go back to the valuation drivers, what is happening behind the scenes, the market is extremely short the dollar now. we have given up on the premium coming through the dollar, relative fundamentals right now are so much better for the u.s.. lisa: does this mean that you are leaning into the dollar, could reclaim all of the valley it has lost since the inauguration? mark: there is the short-term tactical set up which we are very bullish on the dollar on that and then there is a longer-term forecasting period, where we are actually bearish. we are in different environments and the markets respond to

different drivers in those timelines. what you have to do is connect the narrative to what everyone is talking about two what is priced in, where markets are positioned. we came in at the start of the year, our view was that goldilocks was an environment that was not going to play out, not a volatility price in the markets. the dollar was basically oversold. we have now swung to the other side of the pendulum where the dollar was overbought for a little while, tariffs didn't deliver, not as much shock value, so the markets were disappointed. now we swing back, the dollar seems cheap, very complacent. we have moved back into low volatility strategies. another thing happening in fx is value is working. the fx market is driven predominantly by equity trends. a big piece of what is going on here is inflation, growth, the

macro story, and now the technical setup still favors dollar exposure. euro around 1.02. weaker currencies across the board. lisa: i want to pick up on the euro. you can overlay to all of these questions about the economy, the questions, as well, particularly when it comes to europe trying to beef up its defense spending. is your 1.02 the dollar a rejection that they would not come together with any sort of fiscal bazooka likely heard from reuters over the weekend? mark: that is a longer-term story that people are condensing into the immediate price action. what is the thing that matters most to the euro in europe?

energy prices. while we are looking at whether or not this is a positive in terms of trade shock, which reverses 2022, a lot of things need to come into place. energy prices need to come down to a place, how is europe going to build production? the pipelines have not been used for years so there's a lot of degradation happening in the pipelines. you cannot just turn these things back on and everything becomes cheaper again. you can see it in the futures market, energy market. this isn't going to happen overnight. the markets are building in the expectations around an improvement in the european growth situation. even with a $200 billion defense spending package, it will come through the rates market. but the immediate risk is that tariffs come back. you could see a fiscal premium driving europe, but the front

end could also be coming down because the bank of england, european central bank's are dealing with negative growth shocks, which is more immediate than everything else being priced in for the next 24 months, which reinforces our call that we will see a peak in the dollar probably this quarter. you should be buying the dollar to trade it to generate alpha, hedge risks of a weaker dollar over the next two years. that is where the markets are completely dislocated drivers. annmarie: i would love to get your sense about what you think this crypto reserve could actually mean for the u.s. dollar, could it hurt it? mark: it could. it is an alternative source of currency. part of it here is probably a little bit more rhetoric, more entertainment value than any kind a real policy that comes in place from a crypto reserve.

anything that reinforces alternative currencies to the dollar which the u.s. is building assets around would mean a weaker dollar. if this was done in principle and practice, something that would weigh on the dollar, because you are funding an alternative reserve currency. whether it is the euro, chinese renminbi or crypto, this would be negative. in terms of the importance of what is driving fx right now, this is way down the spectrum. we don't even have clients asking questions about it at the moment. jonathan: mark mccormick, thank you. euro-dollar positive by 0.9%. approaching 1.05 as the push for defense spending ramps up on the continent. next, we will catch up with liz young thomas, joseph feldman, steven ricchiuto, and robert tipp. the third hour of bloomberg surveillance is up next.

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>> all of these high momentum stocks have started to pull back pretty significantly we think it

is just an unwind of the crowded positioning. >> i don't know if it would be a bad thing to see that broadening out in terms of performance. >> some taking of gains is to be expected after a strong fourth-quarter. could also be attributable to seasonals. >> the resilience of corporate earnings. >> if you cannot see earnings brought an outcome of that could be issued problem in the markets today. >> this is bloomberg surveillance with jonathan ferro, lisa, and annmarie hordern. jonathan: a big rally in europe and positive follow-through stateside. equity futures on the s&p 500 higher by 0.5%. on the russell, up 5.9. the week ahead concludes with payrolls on friday and an address from the federal reserve. beginning of the week, we are all staring down a barrel of 25% tariffs on imports from mexico and canada, an additional 10%

from china. lisa: if they go on, you have to see a pretty big repricing with a couple of stocks. i just wonder how this feeds into what some people are talking about, essentially paralysis in the c-suite. how do you come up with bigger plans if you don't understand the ultimate goal when it comes to tariffs? that will be an ongoing theme. annmarie: it is hard to read the tea leaves around canada and mexico. there has been a flurry of diplomacy in washington dc between canadian and mexico officials trying to offer enough concessions when it comes to what donald trump to see. but then he said there will be tariffs on tuesday. what they are, we believe that for the president to negotiate. but that sets the bar that there will not be another pause. jonathan: we know what the

president wants to see in europe, more defense spending. check out european markets today. german bonds lower. defense names rallying really hard. rheinmetall up 13%. all-time highs in paris france on the equity market. the euro is stronger. lisa: maybe there could be a real bazooka when it comes to fiscal and defense spending in europe, unlike what germany has seen since the reunification. question of how feasible this is, how low the bar is, whether there is the collective will let alone the financial power to borrow at that level. jonathan: deutsche bank say ing potentially a regime shift of historic proportions. the president forcing the europeans to do some things that are actually good for the europeans. annmarie: german leaders saying

they are getting your enormous pressure to act. merz is saying they have not discussed a date yet for convening parliament but they will be discussing what this means. there is another european summit on thursday. potentially details about how much they are willing to spend on defense this week. jonathan: from the polish prime minister, europe awakened, understanding its global potential, will be america's most desirable ally. exactly what the president wants to hear. lisa: let's be honest, this goes back to nixon. something that u.s. presidents have been asking for for a long time, contribute more to defense spending. i do wonder how much this is the goal and whether this is a cohesive goal to ultimately beef up europe at a time when they want to rejigger supply chains and emerge. annmarie: the mentality of this administration.

europeans have nice trains and functioning infrastructure because an 800 billion dollars u.s. defense budget. jonathan: the trains are great here stateside. you love them. lisa: i was in austria and they lost a train car. jonathan: equity futures on the s&p 500 up by 0.4%. coming up, liz young thomas on the momentum reversal. joseph feldman looking ahead to target earnings. steven ricchiuto on why he is constructive on the u.s. economy. stocks look to rebound following last month losses. liz young thomas saying there has been a notable shift in which stocks, sectors, and assets are leading the markets. it can be described as a reversal of momentum. i wonder if you think it is anything more than that. discussions about a growth

scare. based on the conversations we have had, feels like a massive sentiment shift. how do we square that circle? liz: there has been a sentiment shift in the fact that everything that got us here in the last two years have gone out of favor. you could have seen some of those markers in the second half of 2024. ai-related stocks, big tech stocks, more scrutiny over the spend and expectation. coming into 2025, investors look for growth in other places. lay on top of that the fears of economic growth. when we talk about this rotation that is occurred under the surface, it is quite healthy. the difference is you need a number of different sectors to keep up and pick up the slack if technology stocks are not going to be the darlings again in 2025. jonathan: discretionarys have a

big run up here but a lot of that is tesla. seven consecutive weeks of lower bond yields on the 10-year maturity. are you saying that high yield credit confirm some of those jitters? liz: you see some of that. if you look at high-yield spreads over the past few months, you have seen this grind lower in sprints. high yields are highly correlated with the equity market, but there has been a spike in high-yield spreads over the past four weeks which again is healthy. there should be a correlation with the equity market. the big change that has occurred in 2025, 10-year treasury yields started to respond to growth fears more so that inflation fears. what we were seeing in the latter half of 24, early weeks of 25, the 10-year was rising because of inflation fears. now it has come down quite a bit

because of growth fears. the shift is, that drop in the 10-year yield has not served as a tailwind for stocks. you are seeing those fears faked through into stocks, high-yield spreads, and the 10-year treasury yield. lisa: there are so many different themes layered on top of each other, we talked about the potential for tariffs to come on on tuesday, response from the european union to different geopolitical developments. from your perspective, what is more interesting to you this week, has the bigger catalyst affect potentially on the markets? what we get on tuesday with respect to potential tariffs and the state of the union, or the economic data that culminates with the nonfarm payrolls report on friday? liz: if the report is a surprise and some sort, that will likely be the market moving event. tariffs, if they go into place

as announced tomorrow, the market all are reacted two that in january. there has been quite a lot of uncertainty since then, but if we get a surprise on the payrolls, that is a more market moving event. the trouble is we have to make it through the week before we get there. i don't expect a huge surprise on the payroll support yet. as the first half of the year progresses, we will get some bump your data, largely because of things going on in washington, weather patterns, other things going on in the construction market, the fact that mortgage rates have stayed high, so construction has slowed down a bit. but i don't expect a huge change in payrolls this week. lisa: are you leaning into the selloff, or do you think this is a sign that things will be jittery for a while and people should reduce risk because of that uncertainty?

liz: i think you have to define what you mean by reduce risk as an investor. if you are overweight, naturally, some of those mag seven stocks, maybe the ai theme, many investors have become overweight on those themes because the performance has been so strong the last two years. if you are looking at reducing risk by divorcing out -- diversifying the drivers that you have, it's time to do that. you can broaden out into some sectors that have the opportunity to produce growth but are trading at lower multiples, not quite as exposed to this volatility occurring on a week to week basis. those sectors to be would be health care, first and foremost. looking at things like materials, if we are worried about inflation heating up again. you can look at industrials, financials. that could be an opportunity. i still really like gold, the

fact that it has hit a new all-time highs, there continues to be a lot of appetite, both institutional and retail. jonathan: always appreciate your time, liz young thomas of sofi. basically, 2025 is 2024 upside down. lisa: she pointed out the major change that has happened which is the decline in yields, the rally in treasuries has not been a tailwind for equities that a lot of people believed it would be. perhaps on increasing growth fears. jonathan: no growth fears in europe. massive spending plans apparently coming together. let's get an update on stories elsewhere with dani burger. dani: president trump is expected to make an investment announcement at 1:30 this afternoon ahead of tomorrow's

tariff deadline on canada and mexico and a joint address to congress later in the evening. shares of intel are up 5.8% on a potential manufacturing partnership with nvidia and broadcom. so far, the company has declined to comment. if an agreement is reached, it could generate hundreds of millions of dollars in contracts for intel. andrew cuomo has announced he is running for mayor of new york city. the former governor of new york resigned in 2021 amid multiple allegations of sexual harassment. he enters a crowded race. his decision to run has upended the race with several polls showing him leading the field. jonathan: thank you. more in 30 minutes time. up next, the morning calls, and joseph feldman looking had to

earnings from target and the prospect of tariffs from mexico, canada, and china. from new york, this is bloomberg. ♪

jonathan: equity futures on the s&p positive by 0.4%. over in europe, a really big rally. let's get some morning calls. jp morgan up -- downgrading southwest two an underweight. morgan stanley naming tesla a topic, highlighting opportunities in autonomy and robotics. up by 3%. evercore adding target to its technical outperformance, seeing

opportunity for the stock to play some ketchup. the stock is up by more than .8%. joseph feldman of telsey advisory group keeping an outperformance rating on the stock. target continues to a look customer experiment -- experience and enhance its product offering through partnerships and popular brands. welcome to the program. let's start with tariffs. if we get them on mexico, canada, additional tariffs on china, who in retail is most exposed? joseph: a lot of exposure broadly to retail. it will be a challenge to everybody, will take prices up. that seems to be clear, retailers have told us they will negotiate with suppliers to share some of the burden, but some of the burden will be shared by the consumer, as well. it's interesting because the first go around with tariffs and

china, anyone with a heavy grocery contingent of sales like walmart, kroger, even costco, they really avoided a large part of this. now with mexico and canada, that could be a big hit on the grocery side because of the produce that comes particularly from mexico. they will be a lot of issues. first go around, a lot of lumber comes from canada. the home-improvement guys sell a lot of lumber and building materials. there could be issues there. homebuilders would have trouble building homes. i think there will be some issues for the consumer going forward if these tariffs go into effect. lisa: from a retail point of view, is it better to be bigger facing off with these tariffs given you have a greater degree of power over your supply chain? joseph: that is a great

statement, much better to be bigger. when walmart posted their earnings call, they did not seem too worried about the tariff issue. they dealt with it before, they know how to deal with it. they diversify their supply chain the last time this had been. as you said, they can use their buying power and scale. you can go down the list and get a sense of where there is the ability to do that. the big box guys have more ability to spread it around but there will still be some impact. we saw it last time, likely to see it again this time. lisa: i wonder if there is a perverse benefit to some of the larger retailers, if some of the smaller retailers go out of business or cannot handle the added cost, which we have seen on the margins. does that seem possible? joseph: in this environment, anything is possible.

there is hope the regulatory environment will ease enough, that will help with the tax side of things but they will still be an issue. it is tough or smaller retailers. think about the investment in the businesses. walmart is racing ahead, and feasting -- investing into new technologies like computer vision, generative ai, whereas a smaller company, single brand company cannot really do that with the same efficiencies that walmart can, same scale. it does make it harder for smaller players to compete. you have to have something differentiated, a reason to get people to come back on a repeat basis. annmarie: for those smaller players, how important is it for this administration to open up some carveouts, exceptions? joseph: a lot of hope that that could be the case. i cover some smaller brands that actually already have that

exception with the prior round of tariffs on china from the first trump 1.0. there is some hope that i could be the case. different regions, they are not just going after retail. if you pose tariffs on europe, it is also luxury goods, not a lot of apparel, furnishings come from there, so it really depends on what the categories are. at the moment, it seems pretty broad-based. without question, every economist i have read seems to indicate you'll see some burden on the consumer. annmarie: how much frontloading are we seeing? are you still seeing retailers bringing in products to avoid the blunt of those tariffs? joseph: we have seen it a little bit with inventories accelerated but not as much as you think. when we speak to retailers, they are telling us they are

operating as if there are no tariffs at the moment. they are preparing, they have game planned it, thought about it, but the retailers that have erred -- reported earnings so far have not really put that tariff into their guidance. that is the approach they are taking. until we know, is president from using tariffs as a threat or to negotiate, or is he really trying to raise revenue? we may see things change wednesday or thursday. jonathan: we have seen certain companies stepped on some inventory landmines, thinking of target specifically. what lessons have they learned from the recent experience, from a couple of years back? joseph: target has faced this issue a couple of times. they tried to get ahead of the port strikes in late summer, early fall of 2024, ended up

getting stuck with a lot of inventory basically. a lot of others didn't take that approach. target was trying to be proactive. a couple years ago, coming out of the pandemic, there was great enthusiasm about what retail sales would look like. we think target has gotten that straight, have been bringing down their inventory. we will see tomorrow when the report earnings. we are hoping to see better trends on inventory. the in stock has been good because you can sell the product. to your point, we have not seen too many retailers get too heavy with inventory. walmart, for example. home depot was pretty ok for a . jonathan: it was also the spending. i am sure you looked at the same data. consumer confidence is softer across a couple of different retail surveys.

where are you expecting that to show up across the retailers? joseph: you are hearing a lot of them talking about a soft start to february. as january progressed, sales seemed to have eased a little bit. i think february is off to a sluggish start for some of the retailers, especially the big box guys. some of the smaller ones were able to maintain solid first-quarter guidance, but some of the big box guys gave a cautious outlook, talking about the weather being a big impact. we have seen that be disruptive throughout the country throughout this first quarter. there is a lot of emphasis once again on the second half of the year, sales trend should pick up. there is a lot of hope that we will see a normalization in trends for a lot of categories, but sitting here today, we are

up to a little bit of a sluggish start. sentiment numbers have been coming in a little weaker the last couple of days. we are concerned. the jobs report on friday will be a big sign of where things are headed. lisa: a lot of people point to walmart's earnings as touching off the soul if we are seeing particularly in big tech, more broadly the feeling of road concerns taking the stage. how much do you hear from other companies that that is the case, this is something more persistent, rather than just may just company looking to get more wiggle room and the lower the bar so they can beat later in the year? joseph: what's interesting about walmart and home depot, lowe's, their sales guidance was in line with expectations for the most part. that wasn't the issue, it was on the earning side. maybe they are not saying they are baking in some tariff

pressures but are trying to. they may have been lowering the bar a little bit. it seemed to us walmart was being conservative, home depot ,lowe's, that there could be a better second half to help the earnings reports for these guys, but i think we have taken a cautious approach with the earnings side of the p&l. sales have been studying in line with expectations. jonathan: thank you so much. responding to what we have heard on the retail front over the past few weeks, for good reason. they have to lower the bar. you may have to do it even more, particularly home-improvement companies. dealing with lumbar, different picture for those companies. lisa: they cannot pass it along all to the consumer. if they cannot pass that along, it may not be as inflationary, but it will be a hit to ebs and potentially to their shares.

jonathan: how many times have we heard wait and see over the past couple weeks? business level, consumer level. joe just saying weakness started to creep into retailers to start february. lisa: a real question of how long there can be this wait and see, outperformance of financials, when that is hinging on the idea of m&a picking up. jonathan: joining us next, steven ricchiuto, robert tipp. lots of economic data this week including may be the biggest of the week, and it is not payrolls, it's a decision to put tariffs out mexico, canada, and china. that decision, 24 hours away. ♪

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jonathan: this is a personification of rheinmetall in europe. boom time for defense spending in europe. jp morgan raising the sector by 25%. capri. we understand restart your in a deal to buy product.

up seven and an eighth. in tone, talk about that breakup discussion. we understand broadcom are testing 18a. up 6%. jonathan: manus cranny, thank you. amazing to see this european story come together. diplomatic breakdown on friday between the president of the united states and president of ukraine, an emergency meeting for the europeans becomes more urgent over the weekend. they push for defense spending. you will see more than just defense spending from the german government when they get their act together. infrastructure spending as well. numbers pushing 900 billion euros. the german debt market trading software, the euro stronger going into the ecb this thursday, cpi sticky for the europeans going into that meeting. defense stocks across the

continent are absolutely surging. lisa: there is a timing issue, an important one that mark mccormick was talking about. a lot has to happen before this goes through. longer-term can be a positive story for all of these things, defense stocks and the euro. short term, what has to happen for it to be a long-lasting move? jonathan: record highs in the equity markets in europe including in paris. state side, we are focused on tariffs on canada, mexico, china. mike mckee, our economics correspondent joins us now from washington. what a week coming up. mike: absolutely. 10:00, we got the first indicator that people will be launching, ism. under the hood today, is it not

just an expansion but are we seeing inventory's rise? we saw that big trade deficit in the last month. what are orders doing? tomorrow, i sit done with fed bank president john williams to get his reaction to tariffs. could be detailed, could be still up in the air. wednesday, we get into the idea of what happens with labor markets, adp. jobless claims on friday is the big one. payrolls even gets superseded because the chairman of the fed, jay powell is speaking. we will get his take on everything that is happening so far. jonathan: you also have the policy conference. what are you and others focused on at the moment? mike: you can see this chart that shows there are not many federal workers as part of the overall workforce, so cutting them will not show up in the

jobs report, but cutting them at the statistical agencies could affect the report. a lot of economists at the nabe meeting say they have heard from a number of folks that have taken the fork in the road by out. they are afraid there are more cuts coming and some data series will be discontinued. howard lutnick yesterday talking about the idea of totally messing up gdp reporting. a lot of concern about how we will know about how the economy is doing going forward. jonathan: thank you. looking ahead to payrolls. 160 is the estimate. at the moment, the median is 160, previous month, 143. lisa: what is a good report when people are looking for some deceleration? if you get anything below that, does it have a bigger shift on markets? what happens if we get above it?

how rapid is the recalibration of the weakness that people are pricing in? jonathan: barclays was with us earlier. u.s. recession, improbable, no longer unthinkable. steven ricchiuto says the u.s. fundamentals are healthy. the underlying strength of the business cycle is evident in the harder data releases payment they will dominate in the long run. good to see you. a lot of people have become almost bearish. give us the constructive take on the u.s. economy. steven: a lot of people have been wanted to call recession. i don't think that this one will either. the concept that doge is going to create some major labs in employment growth on the government side of the equation that the private sector will not be able to absorb over time is not correct. to the extent that people are worried about we are reducing immigration and where will the workers come from?

if you have a transfer from public sector to private sector employment, maybe it's a healthy thing in terms of the transition. what you have to worry about is negatives usually come before positives. a lot of the soft data has turned negative, therefore, everyone is willing to jump on the recession story again. this is the seventh recession story since 2022. seven in less than three years. everyone is convinced that the next one will be there. major investors screaming about a meter debt crisis. warren buffett over the weekend talking about tariffs being the moral equivalent to war. the reality is, look at where the equity market is. we have taken up the trump bump. the bond market is still up from september even though we are off of the 4.80 high. what we are really looking at is

consolidations within markets rather than breaking and having new trends. jonathan: politicians in the business of the fighting bad versus good. we are interested in markets, better versus worse. will growth be better in 25 versus 24? 3% gdp down to two point five, or up to 3.5? steven: if we are in that area, this is the fifth year of above trend economic growth. that has never happened before. in the postwar period. i don't think that is a bad performance. certainly persistent with the where bottom-up expectations are for this year, around 12.5%. if you look at all the negative headlines around earnings, our tracker is -12.6%, which means 12.6% of companies are downgrading earnings versus upgrading them. that is not contraction phase in

the market. the headlines you are getting are out of step with reality. lisa: called daughters second because it's a strawman argument. i have to be honest. a number of headlines talking about recession. most investors do not say that recession is their base case. most of them believe this is a market slow down, maybe catch up from some of the post-covid period that was inflated by some of the spending by the government. how do we measure whether this is something that is underpriced as a risk in the economy and markets, the idea that the slow down more significant than people thought, even if not recession. at what point is it not workable for you? steven: you have to have the argument you will stay below trend gdp. we are in an environment right now where the federal reserve is cutting 50 basis points. we have taken the 10-year note

off the peak by 60 basis points. all of those factors are coming it against healthy balance sheets, liquidity still ample in the system, excess savings. i think you have to get to a sustained period below trend gdp. i don't see that in the cards. lisa: this ultimately comes down to a fed argument. if they cut right now in response to a weakening trend, you think that could be the policy error that could trigger some sort of inflation, maybe positive growth shock? steven: if the fed were to cut again in this environment, we could see bond yields re-trend back to the 4.80 level. people realize fundamentally this economy, as you said, investors are talk to, all of these people are telling me business is good. things are not a problem. yet, you have these negative

headlines beating on people. as a result, you are holding down the expectations. if the federal reserve were to cut interest rates again, people would rethink the story. annmarie: do you think the negative headlines are actually creating uncertainty, people on the sidelines? steven: people are saying, why do i get involved at this particular juncture? the investor side of the base. the issue were signed, look at what they are doing, they are going to sell at these levels. these levels are attractive, these spreads are attractive longer term. bond market investors have pulled us down from four point 80 to 4.20 five, so they have put money to work. we are just to the point where there is so much negative news, negative economic news, positive thought news. seventh recession call not only that, scott bessent is going to produce 800 billion dollars of borrowing this year. doge will save us a trillion

dollars every year for the next 10 years. all of this is pressed into the market and we are at 4.20? why aren't we at 2%? annmarie: torsten slok puts it this way, we are in a moderate phase. steven: stagflation requires that you believe inflation is accelerating in an environment where unemployment is rising. i don't see unemployment rising. 4.1% is still below the natural rate. where do we have to be before they say the labor market is tight? the reality is the labor market is healthy. inflation is at three, not two. is that the end of the world? no. does it suggest bond yields are expensive? yes. is not the end of the world in terms of average individuals out there in the country. 2% versus 3% inflation, not the

end of the world. that is the other thing to look at in terms of payroll numbers coming out on friday, the hourly earnings number, besides the slowdown that we will see in employment. very consistent with trend gdp. question is how much of that is a function of the weather, forest fires, doge. we don't know. the reality is when you look at the moving average of these things, they are all looking healthy, especially on a year-over-year basis. jonathan: you acknowledge in their trip that we will see some weak prints, based on what you said. the destination might be good. i agree, and can increase the dynamism of the government by allowing the private sector to step in. in the near term, how much week nixt experience in the next three months? trying to understand what you expect in the next few months. steven: if we got to 2% gdp, i

would be fine with it. what you saw in terms of the atlanta fed numbers, we had this massive trade deficit shock. everyone says, it cannot be in manufacturing. if you are manufacturing and you are pulling in a lot of intermediate product, we don't know the inventories yet. maybe the inventories were very big. maybe it is a one-time shock. maybe all of this data gets revised. the reality is, you are jumping on every little marginal change, when the reality is the fundamental trend has been healthy. we have called seven recession since 2022 and we have had an economy that is growing about trend for four years, going to be five years. there is a disconnect between the logic and reality. jonathan: steven ricchiuto of mizuho. joining us now is robert tipp of pgim fixed income.

he is constructive on the u.s. economy. we keep calling for recession that never happen. where are you now? robert: i think we are constructive, and i agree with stevens take by and large. but you have to ask yourself, why is the market having this big rally? in a standstill situation, things are fine, great take. but the tariffs are looming over the market, the policy framework is changing rapidly. people are not sure what to expect. there is a perception that neutral is probably lower than where we are. along with the fact that investors equity allocations are pushed up by market appreciation, money fund balances are incredibly high. that creates a strong technical backdrop where all else equal, people get nervous they are not in the market, any absence of accelerating growth, in the absence of tariff threats not

going by the wayside. people start to buy. that is what we are seeing in terms of this rally in the market. it is not really a realization that there is weakness out there, it is fear. lisa: technical buying opportunity. we just had steven ricchiuto on, talking about his belief that this is a head fake, that the economy is doing pretty well. if the fed were to cut rates in response to this head fake, you would see 10-year yields retrace back to four point 80 again. do you agree with that? robert: if you think about it, that is what we have seen. the fed it rates, interest rates go up. the fed right now is not inclined to cut rates because the inflation picture is sticky. what you have to ask yourself, if they cut rates, you would see rates go up. but the fed will only cut if the

economic picture weakens and or the inflation picture softens. and it gives them a reason to cut. right now they are standing pretty firm. the things we have seen in terms of developments over the last 72 hours are risk producers, maybe not from the perspective of ukraine itself, but from a global perspective, the u.s. and russia resuming diplomatic, not necessarily relations, but begin to sit at the table, is a risk reducer. in the way that when nato took themselves out of the crisis in 2022, that reduced systemic risk. that is a positive. europe working on defense, pulling together in that regard is a balancing element, it

brings fiscal, could be technology along with defense spending. those are the positives. against that backdrop, we will see a rebalancing. what we have seen is a creeping wider of spreads last couple of weeks as the markets were really going past the saturation point with all of the policy changes a leaker data. now you may see the rates and shall your mile spreads maybe get traction as the market wraps itself around this new set of news. lisa: so much to unpack in that. i want to go to what you brought up, the idea of more military spending in europe. yields creeping higher in the european region, in sympathy in the u.s. when does that send yields globally significantly higher if there is a huge injection of fiscal spending in europe? robert: let's see how this goes.

not the typical response in europe but they have shown the ability to react in recent years, so i think you'll get something. it will have a marginal impact in terms of where government bonds trade relative to swaps. we have seen where bunds have cheapened relative to swaps in europe. if germany is this big spender, we will see it there. we will see what an experience there. -- widening spreads there. but i don't think you'll see it on a decelerating level. you will see it in terms of government spreads in the u.s. a part of that has been positive. we have seen massive treasury issuance, lighted relative to swaps. yields have pushed higher relative to swaps. that is an element of the positive credit backdrop we have had, so you'll have a good balance. it will be a pretty good range bound fixed income investment

environment despite all of these crosswinds or because of them. jonathan: i want to jump in and extend this. help me understand the space for which what germany wants to do. do we have the market space? if we are buying highly rated german debt, and there is more of it, what are we selling? robert: this market is, by and large, underinvested when you look at the money fund balances. the money is there, number one. in terms of, the first part of your question was? jonathan: whether we have the space to do this. not talking about the fiscal space, the market space. if i am buying bunds, and my selling treasuries, something else on the continent?

something in euros? robert: it depends on the central bank posture. if we were in a central bank rate hiking cycle, getting procyclical fiscal stimulus, this would be a huge problem. we are at 2.75 on the way down in terms of the ecb deposit rate. i don't think the market will have any major problems absorbing another 100 or 200 billion coming into the system the next couple quarters. jonathan: i appreciate it. robert tipp of pgim fixed income. things to think about in the coming years. lisa: maybe the market can absorb 200 million in new bond issuance. what about a trillion? which is some of the proposals out there. jonathan: let's get an update on stories with dani burger. dani: in other german news, sources reported that several were injured, some critically,

after a car drove into a pedestrian zone in the city of mannheim. an suv was driven at high speeds into a crowd of people. the driver has been arrested. the incident comes after two people were killed in an attack in munich. firefighters battled over 170 blazes over north and south carolina over the weekend. strong wind and dry conditions fueled evacuations. despite the intensity, no injuries or structural losses have been reported. disney's hulu crash last night as people were watching the oscars. the outage was resolved after about two hours. that is your brief. jonathan: next on the program, we will set you up for a busy week ahead. the week is absolutely packed. from new york, this is bloomberg. ♪

jonathan: the opening bell, little more than 35 minutes away. the equity futures positive by 0.5 percent on the s&p 500. nasdaq higher by 0.7. your week ahead, president trump making an investment announcement at one: 30 eastern time. tomorrow, trump's tariffs go into effect on mexico and canada, additional 10% on china. president trump delivers his address to congress on tuesday. thursday, jobless claims. friday, payrolls report. comments from fed chair jay powell. lisa: cannot wait for the beige book. just getting.

looking -- kidding. it is also the state of the union, understanding what the priorities are, also how much there is a confirmation or rejection of the weakness we have seen. jonathan: we would not call this a state of the union technically but he has done so much in the first few weeks i think we can call this a state of the union. annmarie: pretty much is state of the union. what he was saying, tomorrow night will be big, i will tell it like it is. i just want to know, tariffs, does he come into the address saying i got great concessions from mexico and canada, or does he say i'm going for reciprocal tariffs, punishing those that let migrants and fentanyl in. tariffs go on. jonathan: tomorrow, and julie and stuart kaiser of citi. from morgan stanley, thank you

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