>> we have had a really good run and asset prices. >> with another round of tariffs coming and the blizzard of policies that come out of washington, there is going to be a lot of volatility. >> the key downside risk from our perspective would be if the tariffs wind up amounting to more than we had anticipated. >> i think people pull out, valuation questions are there and we have this erratic policy that's too hard to invest. >> we are probably going to get some pullbacks, high valuations, slowing growth. >> this is "bloomberg surveillance" with jonathan ferro, lisa abramowicz, and annmarie hordern. jonathan: this is a lo -- the longest trading week ever. "bloomberg surveillance" starts

right now. equity futures resuming the decline. after snapping a two day losing streak. on the s&p 500, negative by 1.2%. nasdaq 100 down by 1.4. jobless claims just around the corner, 8:15, a very interesting ecb meeting with the german debt market taking center stage. 10 year yields in germany having their worst day since 1990. we started the week at 240 and right now we are pushing 280. >> which really raises the question, how much can this bond market absorb? the bazooka the german may or may not be unleashing. you cannot understand how much we have seen a traumatic change to the bond market globally. it's not just europe. you see it in japan, australia. it raises the question, if we get mass fiscal spending from the likes of europe, can this bond market absorb it at a time when we are already dealing with

inflation and a lot of debt sloshing out there? jonathan: you mentioned japan. japanese 10-year, 30 year yields, levels we have not seen since 2008, 2009. exemption for the autos for a month. the confusion just reigns stateside on policy. >> tariff uncertainty, another day of it continues. this comes after howard lutnick, commerce secretary, said to us, according to my understanding, they are usmca compliant. that begs the question, what other companies are calling the oval office saying i am also compliant? we know according to our colleagues down in washington, may be agricultural companies will get some sort of exemption. this is why it is so confusing. who potentially is in and who is going to be out. jonathan: how companies respond to this is going to be increasing interesting. best buy and target said they would be passing the tariffs to consumers.

walmart based on our reporting taking a very different approach. some suppliers, including producers of kitchenware and clothing have been asked to lower prices by as much as 10% per round of tariffs. according to our reporting, essentially shouldering the forecast of the new tariffs. >> these are producers in china. this raises a question about profit margins, may be none, maybe even taking losses. and how much these producers in china can lower their supply chains themselves and get costs lower. who is going to bear the brunt of this? number two, can u.s. consumers with a diminishing consumer appetite handle higher prices? what are companies going to do to avoid doing that? the demand is not there. jonathan: this is why we've got to be open-minded about how the cost will be distributed if the tariffs stick. the exporter can eat it. the importer can eat it. they can pass it to the consumer.

it can be a combination of all three. developments in foreign exchange have gone against what may be a lot of people thought would happen. tariffs went on, the dollar is weaker. the dollar is weaker again in the last 24 hours. we will catch up with jim beyonca as the global bond selloff continues -- jim bianco as the global bond selloff continues and james foley of rabobank. eu leaders holding an emergency defense summit as germany gears up to ramp up spending. oli crook joins us now from brussels. typically would be ecb date. i am not sure how money people care about this ecb. front and center in the driver's seat is brussels and where you are. >> that's right. you can see just behind me, i think we have a zelenskyy just arriving, along with european leaders, having this emergency mean that was called after a number of policy initiatives by donald trump and what the reality of what this presidency

means for europe and european security. we have had leaders, politicians, everyone tell us it's been a wake-up call since november. this is the week europe got out of bed. 150 billion euros in terms of loans. the main issue here, and you will notice from covering the crisis, we have a chancellor coming into germany, cdu leader, this is the party that put the debt break into the constitution of germany who is now lobbing to make exceptions so that the eu will loosen its fiscal rules so that you countries can get more debt. that comes after bazookas of their own fiscal plans of five, 6, 7 hundred billion euros in terms of spending on infrastructure and defense. we talk about the market impact generally speaking on this kind of day, it is monetary policy. right now it is fiscal policy and moving the bond market in ways that lagarde and ecb never could. >> the incoming chancellor really taking a phrase, a

playbook from a former ecb official, italian mario draghi. he says whatever it takes when it comes to defense. what are they hoping to get out of this emergency summit? >> listen, they're going to ratify a number of proposals that have been put out in terms of these outlined by ursula von der leyen earlier in the week. this is going to look at using fiscal rules, look at direct lending. in terms of what i'm watching is, how active is the discussion among eu leaders about the question of joint debt? it may be a bit too early in the game. we have another meeting in a couple of weeks. this is going to have to be one of the other active conversations, especially in the light of the last week, what we saw from donald trump, stopping weapon supply from ukraine, withholding intelligence. we are going to get this conversation on those russian assets, $300 billion aversion russian assets -- $300 billion worth of frozen russian assets.

the one thing we started to see this we can all of the rhetoric we have heard is that some of european leaders are now ready to think outside of the box and make some of the policy proposals that they have been too shy, to reticent to do in the last few monthso. manus: these are things that some south european nations have been asking for ages. if they look at the policy track record of their german neighbors, german foreign policy, economic policy, and energy policy has failed -- european foreign policy, economic policy and energy policy has failed. how does the rest of europe feel about still being led by german policy with such an awful track record? >> listen, i think there is unfortunately an inevitability to it. that bazooka came out of germany and that's basically what shifted anything. i think there's going to be some resentment. we've talked about it for amendments. there is a time -- is it time to

start talking about these things, moving outside the box? there's been a resistance. they are trying to push through this debt break reform within the last parliament where they have the 2/3 majority. you have a new parliament coming into germany, the far-right has won 1/5 of the seats. they are doing it now because they would not be able to do it later. this is another internal domestic issue you are having in germany. you have viktor orban who's going to move to block some of these things so i don't think it's as clean as european leaders will like it to be. this is going to ignite a lot of debate. jonathan: is ecp day. that news conference with -- it is ecb day. that news conference with president lagarde becomes a whole lot more interesting. joining us now is jim bianco. do we need to rip up the global playbook for investing now? >> i think it's already been

ripped up and largely because of what's been happening with this payment for security out of europe. you mentioned they're going to tear up their debt break, they're going to deficit spend, they are going to spend money like crazy. you can see it with the way their yields are soaring higher, stock markets are soaring higher. if you look at their real rate bonds that would anticipate inflation, they are going vertical, that big inflation is coming. just to kind of lead you in little bit, we've got the ecb meeting in an hour and a half. they are still trapped with forward guidance. looks like they are going to cut rates, right into the teeth of a market that looks like we are going to have the economy soaring and inflation going straight up, and it's going to look like a gigantic mistake even before they make the move. >> it is early days and you are right that it is consensus that the ecb will cut by 25 basis points. right now what's going on does not have a lot to do with fed or ecb policy. this has to do with fiscal. fiscal is very much in.

the driving seat. i wonder if it permanently shifts higher yields not just in europe but globally, including the united states going into the future, if, and it's a big if, some of these plans go through. >> if we assume these plans go through, your going to see much higher rates in europe, higher stock markets. you are going to see higher rates around the world. japan looks like it is finally recovering. it has a higher inflation rate than the u.s., over 1.5% for the first time since 2009. rates around the world are going higher. in the u.s., we have an inflation problem. . we had a monster inflation number in january, we have a trending higher inflation. ism services and manufacturing was above 62 for the first time in three years, which is when we had a big inflation problem. if you took university of michigan looking out the highest numbers and 30 years on expected inflation, are interest rates should be going straight up. why aren't they? because we are stuck in the mud thinking that this tariff thing

is going to cause a recession. if we ever get off of that idea, there want to be a recession because of tariffs, we could see a massive snapback and yields here following the rest of the world higher, maybe even substantially higher. 480 is where we were in january. >> somewhat argued that the reason people are looking at lower yields and more disinflation is that we are hearing from companies highlighting how they cannot pass along higher costs. and what you get is may be price adjustment but after that you get slower growth, slower sales. you are seeing that incorporate messaging across the board. why do you reject that and you think inflation is going to be the sticky aspect of this that will remain? >> if you look at the way we have been talking about tariffs in the last several months, we are not sure what we are supposed to do with them. i am old enough to remember january when tariffs were inflationary. now in march, tariffs are recessionary. what are tariffs going to mean in april? are they going to mean stagflation?

are we going to go back to inflation? i get the uncertainty. i get that it is driving a bit. we are not exactly sure what their impact on the economy is because we are not sure how long they are going to last. we are worried about tariffs now. donald trump has not woken up. we will see by 4:00 p.m. when the stock market closes if we have the same view on tariffs as we do right now. these things are going to constantly change and we don't know how long they are going to last. if they don't, could produce that kind of drag on the economy. we are back to fiscal student is around the world, big inflation numbers. that would be a cocktail for higher interest rates had we not been worried about this recessionary call on tariffs. >> it's quite challenging because they not even sure wish tariffs are going to stick. april 2, they are not sure which ones will be introduced. the president said this will be disruptive, and the next day howard lutnick came on this program is that we are going to

meet in the middle and potentially there's going to be some reprieve. how much pain do you think this administration is willing to take? >> i think that they are probably willing to take a little bit more pain than everybody things, that's why their focus is the 10-year yield. scott bessent said you had two 20% years back-to-back and now you're unchanged after three months. don't go crying to me about that just yet. if these tariffs cause the pain that we think they are going to cause, they are also going to cause pain in europe, canada, mexico, and in china as well and we will start seeing it in their markets. their markets almost seem to be ignoring tariffs. in europe, they are so talking about the fiscal situation, they have not noticed tariffs. here, we talk about tariffs so much, we have not noticed their fiscal situation. i think these stores are going to start to bleed over across one another and then we will see agreement on tariffs. jonathan: what a market.

jim bianco on the global economy. . i have never seen sentiment shift this quickly across several dimensions across so many issues in such a small amount of time. >> i have never seen such seismic shift from, of all governments, the germans come out and abandon their debt break and take a completely fundamentally different approach. donald trump wanted to shake things up. he's doing it. is a going to be a case of the careful what you wish for or just wait and see, there will be gains down the road? jonathan: with an update on stories elsewhere is dani burger. >> alibaba shares are routing in the premarket -- rallying in the premarket. it unveiled an ai rival to rival deepseek. it says that use only a fraction of the data used by deepseek's r1. alibaba has also pledged to

invest more than 380 billion yuan on ai infrastructure. seven and i holdings planning to ipo 711. it plans to sell its underperforming retail business, replace its ceo and buy back shares. seven and i said it is still constructively engaging with -- on its buyout. the u.s. commerce department is connected to top former morgan stanley banker michael grimes to lead as planned sovereign wealth fund. the fund is part of a larger public-private collaborative effort to open up large-scale institutional investment options. it is still in its early stages but is expected to focus on areas of national security. that's your brief. jonathan: up next on the program, the automakers get a delay. >> we spoke with the big three auto dealers. we are going to give a one month exemption on any autos coming through usmca. jonathan: live from new york city this morning, good morning.

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♪ jonathan: welcome to the program. yesterday snapping a two day decline on the s&p 500. equity futures negative. the declines resume, the losses at up. in the bond market, yields higher but two basis points. that euro has been stronger every single day this week. the automakers get a delay. >> we spoke with the big three auto dealers. we are going to give a one month exemption on any autos coming through usmca. reciprocal tariffs will still go

into effect on april 2. but at the request of the companies associated with usmca, the president is giving them an exemption for one month so they are not at an economic disadvantage. jonathan: the white house confirming automakers will get a one month exemption from newly imposed tariffs on mexico and canada. press secretary leavitt leaving the door open for additional carveouts. tyler kendall joins us. the auto tariffs on or off? >> as of now, it looks like they're going to get this one month reprieve. we are going to be looking forward if there is any other companies that perhaps could get an exemption. we are starting to get some clues. bloomberg news reporting that tech leaders expected at the white house on monday. that could include companies like intel, qualcomm, as well as ibm, so perhaps chipmakers could be in the mix. u.s. agriculture secretary telling us the white house is seriously looking at agricultural products when it comes to potential carveouts or

exemptions. she floated fertilizer as an example, which would of course have downstream impacts. the white house press secretary also being asked about whether eggs might be included, sort of emblematic of high prices in the u.s. she said president trump wants to hear from industries and their leaders. i want to stick on agriculture because that is going to keep coming up. it often makes congressional republicans the most queasy. the u.s. agriculture sector lost $26 billion during 2018 and 2019 under the tariffs from the first trump administration. i reached out to senator ted cruz, the head of the u.s. commerce committee. he also represents texas, which doesn't so much trade with mexico. he told me he hopes these tariffs are short-lived. the issue is that this administration keeps pushing us forward that more tariffs are to

come, telling us to stay tuned for that april 2 date when we are expecting a host of other levees to go into effect. jonathan: appreciate the update. to extend the conversation, terry haines of pangaea policy joins us for more. a few months ago before howard lutnick became the commerce secretary, he sat around that table and we asked him about carveouts, he said there would be any. what's the approach now -- there wouldn't be any. what's the approach now? terry: you go and hard, you go in clean on your policy and then you carve out as needed. that's what we are seeing with autos. that's very likely what we are going to see with tech next week. lisa: if autos are getting a carveout because they are usmca compliant, how many companies are we talking about that are usmca compliant that are going to be calling the oval office saying, don't i get a carveout, too? >> potentially hundreds, thousands.

lisa: do they get the carveout? >> some do, some don't. there is no easy way to tell. right at the beginning of an administration, you are in a situation where you don't have enough support, whether from a cabinet secretary or since the whole team is not filled out, or from senior aides who know the inside and outside. and can actually vet these policies before the decisions are made. so,, yeah, that alone enhances confusion in the markets. lisa: how political is this going to get especially with states like iowa, wisconsin, ohio that are massive corn, ag producers? terry: it is already getting very political and i imagine it would continue. we have a situation where there is broad support for the president's general policy but there is also broad concerned about the specifics of the policy and how well it is thought through. congress increasingly is going

to see its job as providing a counterweight to what it sees as deficiencies in the rollout of the specific policies. lisa: marshes drug war month and this is what we learned yesterday. on april 2 we will get the cohesive grand vision of exactly what kind of rejiggering of the global trade sphere donald trump has in mind. do you have a sense of how that adds up? whether that means which tariffs stick and how that handles the drug issue with canada and mexico? terry: i think it is useful to think about tariffs in two different ways. canada and mexico one example and then the april 2 reciprocal is the other example. the specific tariffs are much more what i call geopolitical in nature. the canada and mexico is all about border, is all about drugs, fentanyl, and the like. canada and mexico considered them that way, talk about them

with the united states that way. reciprocal tariffs are much more designed to kind of in a pure trade sense and designed to say, ok, kind of tit-for-tat trade. but the ultimate goal of those tariffs frankly is to lessen tariffs overall. you know, one phrase that scott bessent uses i think is closely borne in mind, which is that he talks about these things as being data dependent. in other words, what the other countries do in response to our desire to raise to their levels is up to them, implication being, you know, if what they want to do is drop tariffs or get rid of them entirely, we are for the and do the same thing. lisa: this is what people have been think. what we heard from the commerce secretary was essentially there will be tariffs and they will be 25%. meeting in the middle just means carveouts. there was a story in the wall street journal sing when the leaders of canada and mexico tried to call donald trump ahead

of this deadline, he did not take their calls. what did you make of that? terry: and negotiating tactic. they clearly want more things and want more assurances and want more negotiations to try to get them. jonathan: terry haines of pangaea policy. we understand there will be a call with the mexican leader today. the sentiment surveys had been softer, consumer confidence softer, ism manufacturing weaker. survey respondents pointed to the tariffs. how much weight you put on that, i don't know. ism services did not confirm the slowdown. i think we can take some confidence from that maybe. we get more data later. lisa: people rejected strength in the ism services, it came in above all expectations, the employment component came in better than all expected, yet it did not shake the market from its belief that this was going to be a significant slowdown. that i think is interesting in

terms of where empathy emphasis on incoming did. jonathan: payrolls 8:30 tomorrow morning, jobless claims later as well. coming up. , we will catch up with mark giannoni of barclays. we are down by more than 14 percentage point. in the bond market, yields bleed just a little bit higher, approaching 4.30 110. from new york city, this is bloomberg. ♪

jonathan: welcome to the program. equities softer this morning. down by more than 1% on the s&p 500. nasdaq lower by 1.3%. in the bond market, two-year, 10-year, 30-year. yields higher in the last 24 hours, pushed by what is happening in germany. ism services coming it better than expected. recent data has not been great on the survey side of things. lisa: particularly the ism manufacturing with the employment weak. bloomberg economic surprise index is starting to creep upward. we saw the ism services component becoming a lot

stronger. jonathan: look out for that. the european board. what a run for the euro. euro-dollar had a three-day run delivering four percentage points of euro strength, the best run in a decade. it has been that good for the euro. back to about 108. in the bond market, yields higher on the 10-year german yield. 20 basis point moves are kind of unheard of. 30 basis point moves on german 10-year yields, we have not seen that since the 1990's. lisa: this is the immediate aftermath of the german reunification plan of 1990. that was the last time we saw a move like this. but they have proposed is as significant as that moment given the fact they are going to unleash almost one trillion euros a spending. that much more because there is a blank check behind defense spending. jonathan: the biggest move on record for germany in its

current form. eu leaders holding an emergency defense,. the european union looking to unlock an 800 billion euro package. ursula von der leyen saying we are in an era of rearmament. lisa: i wonder if that is a bit of be careful what you wish for. we were speaking with bob michele who said this was the peak in dollar exceptionalism. you wonder if that will come on the heels of money being socked away from the united states and various forms and put toward a renewed dynamism of fiscal speng in europe. that is notable and not just europe. it's also china. europe is being pushed into it by the policies of donald trump. annmarie: for decades we have seen the u.s. administration tell europe you need to spend more. i love this quote from the polish prime minister as he enters into the emergency summit. "i am convinced this is the

turning point where europe understood where responsibly rests on it." this is the point where europe follows through with all the rhetoric? jonathan: plenty of coverage throughout the morning. we need to talk about the trade story as well. justin trudeau is not open to lifting retaliatory tariffs unless all u.s. tariffs are lifted. the mexican president will likely have a phone call with president trump later on today. annmarie: that will be this morning. every day she has a press conference in the morning and does not give a reason why. she says that will happen in the afternoon. that will likely happen this morning. there are questions swirling on what these auto exemptions mean. until donald trump signs in order, technically they tariffs -- of the tariffs -- the tariffs are on the auto sector now. what else is left? brooke rawlins talking to our colleagues jenny and skyler said she is hoping the president

looks at the agricultural sector and they will get a carveout as well. lisa: what do tariffs on avocados have to do with reducing the fentanyl trade? that's a question important ask. are there steps mexico and canada can take to push away tariffs on avocados and mufflers and the fact that the wall street journal is reporting calls were made and not accepted. people familiar were talking about the potential president trump ones to tell the rest of the world i am tough. i am to put these on. it raises confusion about what is on and off and with the purpose is. jonathan: he can't provide metrics for the canadians and mexicans. china and tariffs on chinese imports are on. the economic debate sounds like this. by definition, the importer has to pay the tariff. how the cost is distributed is basically up for debate. investors are making the

argument investors will eat it. comedies have to take it on the margin and maybe that leads to job layoffs or they pass month is the consumer and at least two inflation. i think we could have an open debate about this. maybe it's a combination. walmart is setting some chinese suppliers for major price reductions as it looks to shift the burden of tariff impacts. some suppliers have been asked to cut prices by as much as 10%. this is where the secretary bes sent is pushing. lisa: it's big enough to push these type of changes on the supply chain. whether the supply chain can handle it is one thing in terms of not becoming profitable and pushing cost reductions down the chain and other places. is another point. this indicates walmart doesn't think it can keep the sales it has while passing it along to the consumer. that speaks to something about the economic data we have been seeing. some of the uncertainty in some of the data coming out of the

united states. annmarie: we are waiting for what this turns into in terms of retaliatory measures. china is fighting back. this morning from the chinese commerce minister. "if the u.s. goes further on the wrong path, china will fight until the end." how difficult is the trade were going to be on the whiplash of these headlines? we are seven weeks into trump 2.0. jonathan: let's turn to the u.s. economic data. another round of jobless claims that 8:30 eastern time. marc giannoni writing, "the fomc will keep rates unchanged through june, at which point weaker payroll gains in progress on inflation prints should allow it to cut." could morning to you. marc: could morning. jonathan: what is driving weaker payroll gains? marc: you talked about the trade policy uncertainty out there. as is a major factor here in keeping businesses on the side, having them wait to extend until

they make an extension -- a decision on investment and potential hiring. we will see more of that. jonathan: the secretary came on this program i was aggressive about it. he said this is not my president's data. this is biden's data. the policy push we are making. are you seeing it already? marc: we have seen in the ism survey concerns about tariffs. we have seen in the university admission consumer expectations, consumer sentiment, we have seen it another measures. plenty of indications out there among consumers, among businesses as well that people are concerned about tariffs. they are confused about tariffs. they don't know what the effect will be on their activity or consumption. lisa: we have seen this before when the soft data has shown something that led to a spike in negativity. then they go out and spend and

go out to eat. we saw that yesterday and the services spending and employment. it did not seem to confirm the negative bias in surveys. when do we know it is bleeding in and when does the biden data become trump data? marc: we will have plenty of trump data in coming months. but we have seen is consumer spending slow quite a bit in january from the strong readings we had in november and december. that will probably continue to remain muted in the coming months. the reason is, we expect to see lower growth in general due to the trade policy uncertainty and concern about income growth for some of the consumers. with that, we will see hiring. payroll gains should be diminishing. this is coming from the trade policy uncertainty but also the

supply-side from fewer workers entering the labor force and generating jobs and generating income that fuels the consumption. we will see this deceleration taking place in the first half of this year and continuing in the second half of this year. that should ultimately result in lower growth. we downgraded our growth projections a bit from something close to 2.5% last year to now for this year to have a growth of around 1.5%. lisa: this raises a question about the bias in markets. some people have come on the show and said the recessionistas say it is time to be bearish. they are wrong. it is a natural cooling. it was the progress we had seen coming into this year. when is it something different, or is that accurate? marc: we think we will not go through a recession. that is our baseline case, unless the tariffs continue to increase at levels we are not

anticipating at this point. for the current type of tariffs being discussed we think we can go through slower growth this year, higher inflation. when is this going to change? when we see more uncertainty about tariffs, sharper increases in tariffs, and therefore companies starting to lay off workers. we will see the unemployment rate tick up and then consumers retrenching, business stopping hiring, and you have these typical recessionary dynamics with elevated unemployment rate. annmarie: the beige book came out yesterday. firms in multiple districts noted difficulty passing input costs on to customers. for this force the fed to move up there cuts? marc: we don't think so at this point. assuming the tariffs are going to stabilize at the levels we

have seen so far. we actually in our baseline anticipate the tariffs on mexico and canada will have significant carveouts or removed altogether. that is our baseline assumption. i don't have too much conviction about that depending on the headlines i hear. every now and then we hear signs some of the tariffs might stick in the coming months. assuming the tariffs on canada and the sicko -- mexico have significant carveouts, what we are going to see is moderate slowing. i think it is to 1.5% growth. this is our assumption. if the tariffs stay, much more significant inflation and we will have much more significant delta. jonathan: the problem with the confront is no one knows what the tariffs will be or how widespread the carveouts will be. no one can plan. we go back to the phrase we have

heard by the business community that expressed it so many times in so many different ways, wait and see. you are not investing. not doing the things you came into 2025 thinking about doing. that is the problem we have already. maybe down the road there will be carveouts. perhaps it will not be 25%. it's an important debate but we have a problem to confront now. that is the 80 the people are not doing things they were otherwise going to do. lisa: something we have talked about extensively, being on hold is doing something. jonathan: it's a decision. lisa: there are anecdotes of smaller businesses that depend on cash flow that are letting people off -- laying people off because they can't survive at the same size if they have that kind of tariff pressure. we are hearing that across the board. jonathan: you can have some sympathy in the idea that if you pull back the government's role in the economy and increase the private sector, you increase the dynamism of the american economy

over time. in between there is a price to pay. if you are a federal worker, i would not be booking that vacation. i would not be spending on the big-ticket item because i would worry if i had my job or not by the end of the year. perhaps they are facing forces that all of us in the private sector have been facing for a long time. ultimately, the conversation is relevant. in the meantime there will be a host of people holding back because it on the with the future holds. lisa: it is not just people working in the federal government. it is contractors. there was an anecdote i read this morning in a newspaper about the small company in new york that imports mangoes and avocados from mexico that are going to be shutting down in certain capacities. there are the anecdotes coming out. jonathan: the destination might be good but the destination will be stock -- but the journey will be choppy. marc giannoni of barclays. we are again 1% on the s&p 500. here is a bloomberg brief with dani burger. dani: the trump administration's

top hostage negotiator met with hamas officials. it's a rare instance of direct contact by u.s. officials with a group designated as a terrorist organization. israel and him assad currently exploring an extension of their six-week cease fire. that expires on sunday. elon musk has met this week with house and senate republicans on his doge efforts. lawmakers urge him to communicate more effectively about living cuts and work with congress on a package for the cuts. they warned the actions might be struck down by the supreme court. republicans expressed frustration about specific cuts like those made among veteran affair employees. the wall street journal reporting starbucks's ceo is telling employees step up, get back to the office and take responsibility for improving the company. it was brian nichols' first address to employees since layoffs last month. next monday, he will hold a shareholder meeting. that is your brief. jonathan: thank you. the five shifting and corporate

america is quite something. we heard from jamie dimon and now brian niccol. think about how it was several years ago. a powerpoint presentation and say we are working too hard. remember that? annmarie: they got more for their per diem if they were too late. jonathan: things have changed then. lisa: let's see how many of those people will stick around. there are not a lot of other job opportunities. jonathan: the end of dollar dominance. >> i think dollar exceptionalism has ended this week. i think you are going to see the flow out of dollar-denominated assets. jonathan: that is a huge call from bob michele. reaction from jane foley. you are watching bloomberg tv. ♪ ♪

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jonathan: we are negative by 1% on the s&p. down by 1.2% on the nasdaq. the move in the euro, three days, 4% move. have not seen that in a decade. absolutely amazing. under surveillance, the end of dollar dominance. >> i think dollar exceptionalism has ended this week. everyone has talked about how expensive u.s. markets have gotten relative to non-us markets. nobody wanted to step in front of the steamroller. now the steamroller is rolling the other way. i think you're going to see this flow out of dollar-denominated

assets. i think the dollar comes off of where it is. jonathan: such a big call from j.p. morgan asset management's problem m -- bob michele. a four month low as tariff policies way on the dictations. "it's been a drag on the dollar. the change in the fundamental drive behind the euro has been even more dramatic." jane joins us for more. we talked it with this hour. it takes time to internalize a shift this large on the continent. it would take months, maybe years. can you communicate from your standpoint how large a shift we are seeing from germany? jane: it is a significant shift but everybody in europe is aware that things take time to come into fruition. this is an issue for the people who have been behind euros aggressively this week. is this a sugar rush or will he actually have a -- will we

actually have a determination of the timeframe to get the money from germany and the eu into the economy and defense sector? if there are disappointments in times of that timing, we could see 105 again quite quickly because we know there are hurdles. we know if the change in fiscal policy gets through germany, it is with the outgoing parliament. the new parliament after march 25 could have legal challenges to this. what about capacity? europe doesn't have huge capacity in terms of defense. how quickly can spend this money? we know the timeline for europe could be quite disappointing. lisa: erased your forecast to euro-dollar to 107. he said he will update that by the end of this week. you have one day to look at all of the facts and figure out how much is real and how much is

overly optimistic. what are you looking at to make the determination? what is the range of potential outcomes? jane: anything from the fed is going to be important here. we are hearing arguments about u.s. growth. we can see the stock market and how that can affect the confidence of the u.s. consumer. if we were to accept the fact that u.s. economy is slowing, what about inflation? maybe we were a little optimistic or pessimistic in terms of the inflation push from tariffs at the start of the year. tariffs are still inflationary. even if the fed is worried about growth, it is unlikely to cut aggressively if it's concern on the inflation front. that's an important part. to what degree are the fed able to cut interest rates in an environment where inflation has been looking sticky? it was looking sticky because of

the biden administration. it is likely sticky now because of tariffs. we don't know the impact of the tariffs. the fed will be cautious on that front. that can give the dollar a little prop higher. it is possible the worries about timing, about german fiscal spending, could knock the euro a little lower from the perch we have seen in the last couple of days. lisa: i wonder if bob michele is onto something. maybe it is not this week but maybe it is this month, maybe the next couple of months we are seeing the peak and dollar exceptionalism. with all the money looking to be raised elsewhere there will be a sucking sound away from the united states and dollar assets. jane: this is a question about u.s. exceptionalism for the next two or three decades. i don't think it will be able to be answered in the short-term. one of the definitions is the fact that the dollar has its own fundamentals.

that derive from the fact that about 50% of the world's invoices are in dollars. even when negative news comes from the u.s. budget, people need dollars. that's why it's a safe haven. for that to change we will have this very slow -- it's already started -- the slow progression away from using dollars as an invoicing currency. therefore as a reserve currency. that has started. it is quite possible that trump's policies with respect to europe and canada and mexico, etc., it will make people move away from dollars. that is a very slow process. i don't think we can answer that question quickly. annmarie: what fills the void, jane? jane: precisely. that is what the movement away from the dollar -- the use of the dollar internationally will be very slow. what we have seen over the last two years is china wanting to

use the renminbi. that will carry on. some of its trade allies will continue to be pushed in that direction. it is going to be interesting to see whether or not there is a european response in the next four years. that will perhaps depend on what happens between trump and europe in terms of tariffs. again, the question about dollar -- de-dollarization is a slow wood. jonathan: potentially huge. it has to get through parliament but it could be humongous. you mentioned how long it would take to internalize the shifts in the biggest economy in europe. i go back to july 20 6, 2012. mario draghi delivers a speech in london. in the middle of the speech he says we will do what it takes to preserve the euro. believe me, it will be enough. i was in london that day. the people in the room, some of

which did not understand how big that moment actually was in the moment. it was only in the days and weeks after we got our hands are red have big the shift was we were about to see. i see something similar in this moment out of germany. similar language. precisely the same language, whatever it takes. it will take a while to understand how big the rebalancing is we could see in europe and the global economy and the bond market. lisa: some analysts talking about a shift to 130 longer-term if you get some of the promised funding. a lot depends at how serious they are. the methods to getting there. it is a market that is not fully efficient. how do you price something that is still in the initial forms? jonathan: up next, max kettner, tobin marcus, jill carey hall, and the forward chair of the council of economic advisers jason furman. ♪

>> staying on top of potential tariff risk is important. >> tariff is taking place in such a haphazard way to create self-inflicted damage to the u.s. >> dollar exceptionalism has ended this week. >> the economy is holding up fairly well, although q1 is looking worse by the day. >> the u.s. economy is going to prove resilient. >> this is "bloomberg surveillance," with jonathan ferro, lisa abramowicz and annmarie hordern. jonathan: the second hour of "bloomberg surveillance" starts now. on the nasdaq 100, south by more

than one full percentage point. some weakness on the small caps. the russell, negative one full percentage point. 19 minutes from now, jobless claims. look out for that 8:30 eastern time. ecb rate decision at 8:15 and news conference 30 ms. later. this one gets far -- 30 minutes later. this one far more interesting. development in the bond market. two-year, 10-year, 30-year out of germany. the 30 year out of germany was up 30 basis points. lisa: raises the point that oli crook was highlighting. the ecb does not hold the cards anymore. it is the fiscal spending and that is front and center. how the ecb responds, they will not discuss it. people say this will probably be the last 25 basis point cut in the cycle. they need to talk about neutral. there's a bigger question here. does that concern them that the

bond market is raising questions about the capacity to absorb all of thi debts? jonathan: that's from christine lagarde at 8:45 eastern time. decisions made stateside in america pushing the europeans, the german government specifically, to do things they have refused to do for a long time. annmarie: donald trump is been needling them to raise defense spending and the fact that he's at the moment halting the transit of weapons going to ukraine, some intelligence being withheld. europe has no choice but they are forced to act. frederick mertz says we will do whatever it takes. jonathan: we are focused on the economic data. the latest data point, jobless claims. payrolls tomorrow morning. economic data will become more important. look out for more tariff deadlines. 25% on steel and aluminum is a week away. in april, reciprocal tariffs. united states maybe pushing the

chinese even further. annmarie: tariff roller coaster is how the wall street journal editorial board is putting it. two key things today. we know they will get an exemption on auto tariffs? we need to see that play out in the executive order. right now they are technically still in place when it comes to the paper trail. second, donald trump is likely going to get on the phone with claudia sheinbaum. is it a deal before sunday? lisa: with the tit-for-tat people are feeling uneasy. we see that in the economic data. i wonder how much that is facing increasing of us is on economic data to the downside and making people dismiss data like the ism services that came in hotter than expected yesterday. to me, it puts the focus on an asymmetrical response the negative news. jonathan: look out for economic data this morning. coming up, max kettner on the u.s. exceptionalism. we will speak to tobin marcus on risk to small caps --jill carey

hall on the wrist to small caps. we begin with a global bond market selloff deepening and stopped resuming declined. max kettner writing, "goldilocks's had a few scratches. data misses causing doubt on u.s. exceptionalism. we would argue this is precisely what we are looking for." max, good money. welcome to new york. a lot to catch up on. what was that last line about? max: i think overall everything from a more strategic perspective, this is the kind of stuff you want for u.s. exceptionalism. think too much back. the consensus opinion was you have to buy the dollar and u.s. equities. don't even look at anything else. it is just the u.s. and nothing else. here we are two months later and all of a sudden nothing has worked. one of the key ingredients for both the idea of u.s. exceptionalism and goldilocks is you have persistent doubts about

it. people say, ai? how are we going to make money with ai? this big discount of the rest of the world equities versus the u.s. isn't the u.s. to expensive? that is so strategic question. that idea of u.s. exceptionalism is not dead. we have lower corporate taxes. the s&p effective tax rate is lower. i would argue you can look at valuations as a really negative sign from a strategic and longer-term perspective in the u.s., but you can look the other way and say the roe gap has quadrupled in 15 years. fine. you are paying a higher price for your getting more than four times as much profitability. that is the strategic perspective. does not tell us all doubtful lot about the next couple weeks. jonathan: this is been the most

exhausting 5% pullback i have ever witnessed on the s&p 500. you chase the strength and europe with banks of 25% year-to-date on the stoxx 600? max: i would rather look elsewhere. we put out a note saying probably the u.s. is not the place to be right now, at least tactically. those tariff headlines are not going away. i think for the fed put to come back into action there is not enough weakness yet. you said this is the most exhausting pullback. jonathan: have you ever seen anything like this when sentiment has shifted so much but the market is done so little? max: we have done some analysis on this this week on the momentum indicators. the drawdown we have seen so far is almost only half of what we would usually see when our indicators go down by that much. you have a big, big shift down in those positioning indicators. normally you would say that's like 6% or 7% down.

by that time it was only 3% or 4% down. that is exhausting. i get it. for the fed put to come back we would need more weakness. you are saying 5%. is the fed really going to go in and say nvidia is down so yeah, we need to cut rates? lisa: there's a question about the journey mattering. this has been the theme of the past couple of weeks. how much does the journey matter if the destination is a good one? we could be up 10% and then down 20% and then down 5% in one day. pay raises the question about risk-reward models when you cannot model this type of volatility. you cannot model headline risk. how much is that alone pushing capital away from the united states now? max: on a tactical basis, yes. that's exactly what you want to do when you look at the u.s. if you are predicting what is happening now from a policy perspective, if you had told me that a month ago, i would have said risk off everywhere.

buy europe even less. don't buy china or anything. now, you know what? europe is really looking great. as a german, i look at this. this is as watershed as you can imagine. the germans spending money -- i know that for myself -- to get myself -- i'm in new york. really? coffee is seven dollars? i'm going to the bloomberg office and get my coffee for free and then i will go so i don't have to spend money. it is such an extremely watershed moment for germany. you look at the banks. when i came and it was like 25%. do you want to buy? heck yeah. lisa: we were talking to jane foley to try to pour some cold water on the optimism. what are you looking for? max: once you stop having the conversations about should we

worry and what can stop it, we are there. it is like the idea of u.s. exceptionalism. you are probably done. when you look at positioning and flows, flows have been coming back in the european equities but they have only just started. two months ago, why are we even looking at europe? what is the point? now it is like, wow, this is the best thing ever. because it is so exhausting it might feel like two years, but it is genuinely just a couple of weeks. i was in frankfurt three weeks ago. the amount of conversations with clients i've had about fiscal stimulus, infrastructure, defense spending was zero. three weeks ago. never going to happen. you need a two thirds majority. let's talk about the next thing. that was three weeks ago. this is as watershed as we can imagine. you look away from the u.s.,

hey, why not buy european small and mid-caps? if you look at china and the tech trade, china and the internet, that still makes sense. japan? rates probably also going higher. japan banks have rallied a lot with rates may be going another 25 pips higher than the market is pricing. you look outside the u.s., there are loads of things happening now that are actually really -- four weeks ago i would've said of this happened in the u.s., everything will be correlation. it's exactly the opposite, which is really good. we have the conversation about correction and the exhausting 5%. if we were sitting in frankfurt, we would be happy. annmarie: are you in your german friends thinking -- thinking the president of united states for this? -- thanking the president of the united states for this?

max: i don't really care what the catalyst is. the important thing from a market perspective is is it happening, likely happening? is it sustainable? annmarie: you have conviction this is happening and will be sustainable. you don't think this is a head fake from the german politicians? max: we have gone too far for that to be a head fake. actually, never mind. we thought we would spend 800 billion. annmarie: they are fickle when it comes to spending. max: that is mostly redtape and bureaucracy. that is more of a longer-term issue. this is a head fake? tactically, it is not. is this a great three to six month rate? absolutely -- trade? absolutely. we are only buying european equities. now european profitability is going up relative to the u.s., probably no. you saw what draghi was saying two weeks ago arent implicit

tariffs within europe -- around implicit tariffs within europe. you look at the eu recovery fund. the uptake on the recovery from almost five years ago keeps being subpar. it is not like corporate don't want it at government don't want it but there is so much bureaucracy within the eu, that needs to be tackled. that is not going to be tackled with infrastructure and defense spending. those are two separate things. we can talk about the strategic asset allocation decisions or the six-month decision where you say, is this the watershed moment for the next six months? 100%. jonathan: can the bond market absorb it when they're having a real conversation about a massive tax bill going through congress in the united states? max: i think so. you mean in germany as well? jonathan: the global bond market. the u.s. might have to issue more. max: germany starts issuing more in bills. at some point that will be a

natural bias for bunds. as we get more issuance, bunds will cheapen versus swaps in the next few weeks and months. that trade has gone an awful lot already. i'm not particularly bothered. i'm not bothered in the u.s. we can look at the government debt side of things. when we look at the private corporate debt side of things, the massive deleveraging in the last 15 years. you look at net interest payments on corporate, we are on a 20-year low. corporate seven hoarding cash. they have the high cash trade and locked-in maturity. if you look at the s&p, almost 60% of debt maturing after 2030. people are like, there is debt from corporate. great. call me in 15 years. i don't care. the corporate sector and the private household sector actually looks way, way more healthy to absorb that bigger

issue. jonathan: europeans are so happy right now. max: when have you never see me happy? i blame the free coffee. the german free stuff and he is happy. lisa: watch him go buy a seven dollar cup of coffee and he will know the fiscal stimulus plans are real. jonathan: come back when it's 150 again. max kettner of hsbc. here's her bloomberg brief of dani burger. dani: the white house said it will exempt automakers from tariffs on mexico and canada for one month following please from industry leaders. the exempt and applies to auto parts that can comply with the usmca trade pact. it's giving company time to come over the plans to move more investment and production to the u.s. the aspen pushed u.s. autos higher in yesterday's trading, although most are lower in the premarket. living in the premarket, macy's. shares down 2.25%.

the sales and profit forecast was more downbeat and infected. macy's is taking a conservative approach on the outlook given what it called external uncertainties that the company and consumers are facing. shares of marvel are also down sharply in the premarket, nearly 17%. it expects $1.8 billion in sales in the fiscal first quarter, even of that was in line with the average estimate. some projections were as high as $2 billion. yes rotations for the chipmaker were high. investors wanted to see a bigger payoff from the ai boom. that is a brief. jonathan: thank you. more in about 30 minutes. up next, no pain, no gain. >> i think for folks on wall street who are concerned, look at with the president did for you in his first term. wall street boomed. the stock market boomed. the president expects that again but most important lien main street is going to boom. jonathan: that conversation up next with tobin marcus. from new york city good morning. ♪

jonathan: equities softer. down by a little more than one full percentage point on the s&p 500. in the bond market, yields are higher. look out for labor market data this morning, including 8:30 eastern time. jobless claims round the corner. no pain, no gain. >> president trump has made clear that he loves tariffs. the stock market does not. how does he factor that into his decision-making? >> for folks on wall street who are concerned, look at with the president did for you in his first term. wall street boomed. the stock market boomed. the president expect that again. most important link, main street

will boom. that is why the president has his whole of government economic approach that includes tax cuts, tariffs, regulation cuts, and an energy industry that will bring down costs for american consumers. jonathan: president trump freeing automakers from tariffs on mexico and canada for one month, buying them time to move investment and production to the united states. tyler kendall joins us now for more. it's been a conversation in new york -- i'm not sure about washington -- we have the flavor of it then. how sensitive the administration is to stocks and the equity market, to what happens on wall street. tyler: you asked howard lutnick the same question yesterday. he responded exactly like the press secretary saying the administration is trying to push forward its broader macroeconomic view. importantly, trying to push through the tax-cut agenda. that will be critical moving ahead considering we know capitol hill is starting to raise concerns when it comes to

getting those tax cuts across and made permanent as the white house would like to see. when we go back to the autos, the press secretary was asked whether or not the white house thinks it is realistic to see significant shifts in production or plans within one month's time. caroline levitt responded that president trump told the big three they better get moving. we are talking about some complicated supply chains with auto parts moving across the border multiple times of four a vehicle is ultimately finished. the benchmark of progress the administration is looking for is one of perhaps the biggest questions going forward about whether or not this reprieve or other exceptions or carveouts we see could ultimately get extended. jonathan: tyler kendall over in washington, d.c. joining us. up now tobin marcus, a question to start. where you think we will be a month from now? tobin: we will have just gotten to april 2, the larger tariff

rollout deadline that president trump is focused on. he keeps talking about that milestone as the think he has his eye on. he has talked about sectoral tariffs globally on autos, semites, agricultural product -- semi's, agricultural products. then a reciprocal rate that can be an oculus if you're looking at tariff rates when setting the rates. we looking at a much more genetic expansion of tariffs globally to the tune of 13 percentage points on global average tariff rate increase. annmarie: on the president talks about tariffs, he's all in. 24 hours later we see him take a step back. it feels like two steps forward, one step back. autos are getting a reprieve. what else will get a reprieve? tobin: it is not obvious that anything else will. he seems quite determined.

autos were by far the standout. they were the example everyone would give you. it's a focus of national pride in our industrial base with such obvious possibilities for cascading disruption if you had some in canada and mexico shutting down production. they went after that. they have not done anything else. it is not clear they are going to. you look at the rest of the tariffs, the china tariffs are notably more sweeping than last time around. no illusions for particular products, even things consumers can see directly. now it is 10% across-the-board on everything. they have a preference to go wider. annmarie: brooke rawlinson spoke to jenny later at the white house yesterday -- jenny leonard at the white house yesterday. as far as carveouts for the ag industry to be determined. she's hopeful and said everything is on the table.

isn't this politically really the third rail for the trump administration, especially head of the midterms when you're talking about the corn belt and the red states were agriculture is produced? tobin: last time in the first administration we saw countervailing subsidies meant to blunt the economic impact of the tariffs at that time on farmers. there will be some instances of farmers. the message trump sent to congress the other date was very much it will be great eventually. we may need to deal with disruptions in the meantime. i would not roll is out. it is not like it dramatically scales back the carveouts for fertilizer and what have you. those are small shares from canada and everywhere else. they could be done painlessly. the fact that has not been done is an indication how much they want to leave it in place. lisa: people were speculating behind the tariff threats and

limitation. some said it would lead to lower tariffs in north america after a renegotiated usmca. some people said it was to encourage different national security issues. others said it was because this is a president actually wants to put on tariffs, wants firewalls to protect u.s. production. do we have a clear sense of which it is? tobin: we don't entirely. there has been continued interchangeably in rationale. even in the same interview, commerce secretary lutnick says you cannot kill americans with impunity by letting fentanyl flow into the country. what we have seen in terms of the limited relief so far, that has been economically motivated. i think the latter of your three justifications seems closest to what trump himself is thinking. even the one-month delay seems to be intended to dovetail with his larger rollout on april 2,

which makes the tariffs part of the same overall economic framework that he's been putting in place. there is definitely no clarity in ottawa or mexico city about what they are expected to on fentanyl. jonathan: we will find out if it is a call later. tobin marcus of wolf research. the press secretary making the point to think about the fuller policy platform and not just trade. they will be doing other things as well. this conversation needs to shift fast to the other things. lisa: they need the support of a number of representatives who were facing off in some of the concerns that annmarie was talking about. whether it is doge and job cuts. whether it affects people in their particular regions and they get the blowback. how much support congressionally he has for some of these proposals. annmarie: when it comes to congress, there is a massive to do list before the talk about tax cuts. we might have a government shutdown next week.

that is on the precipice of what they are dealing with now. then you have the debt ceiling in the summer. then they have to fight it out when it comes to the extension of dcja -- tcja. jonathan: there's a decision this morning. in two weeks, the federal reserve has to put out a forecast. march 19. that will be difficult to do. we will catch up with jill carey hall of bank of america on the impact of tariffs on small caps. that is next. this is bloomberg. ♪

jonathan: let's check out the equity market. on the nasdaq we are down by 1.2 six. yesterday snapped a to date losing streak. -- two-day losing streak. i want to turn to the bond market, the two-year, 10 year, 30 year yield. that by three or four basis points, the 10 year, four point 3129. out of the corner of my icom a data point we don't typically see -- out of my, a data point we don't typically see. a data point that maybe we look past, but not this morning? >> this will catch people's attention. lisa, you've been asking when

will we see doge in the data? this is the first black cloud on the horizon. 172,000 job cuts announced. challenger breaks it down this way. saying that government jobs, they have lost almost 62,000. consumer products and technology also contribute to this. education jobs are down by almost 3000. that may be part of an nih situation. the second-biggest is retail. that doesn't have anything to do with doge but it does have to do with the 20,000 employees at the joann stores going out of business, and also store closings from macy's and coles and others. -- kholes and others. we are setting up ourselves for an interesting march. i have to caution that job cut announcements don't mean that many job cuts because maybe they are filled through attrition or don't happen over a. of time -- over a period of

time, but in this case it is a number that feeds the narrative. jon: job hirings is another part of the pitch to discuss. for number of months we've had a low-turn dynamic in the labor market. hiring has been quite low and we also see firings softening, quits have softened up as well. the freezing of the labor market has taken hold over the last number of months. what would explain something like this? mike: maybe a combination of the doge effects in washington. at the beginning of the year companies reset. hirings were up quite a bit, 34,580 compared to just over 6000 in january. there is always a lot of churn in the labor market, but now it is job cuts getting the attention because everyone is

seeing this story play out day after day. in an hour, we have the jobless claims numbers. that will be interesting, numbers show up in the data. lisa: your tone is the correct one, mike. markets don't respond massively to this. it hasn't been a data point that's been looked at as a tradable one for a while. i'm curious. planned cuts last month, the most for february since 2009, that kind of forward look, is there some tell in that town from these challenger job cut data? mike: it certainly suggests that there is something going on. what's interesting is all of these doge numbers have basically not been announced. they have just happened. we get told after the fact that all of these people get laid off. a number of these may be in private companies who are contractors for the government, and that would suggest there is

more going on under the surface that we need to pay attention to. annmarie: i feel like lisa because i kept referring to the beige book yesterday, but for the first time ever, i thought it was interesting, many contacts reported having little trouble filling positions at one and retail said they had resumes stacked to the ceiling. how quickly could the labor market crack? mike: it could start to crack quickly. at this point it is about the psychology of growth. if the companies out there start thinking about a recession and trying to plan for one, you will see a lot of cuts right away. what jon said has been holding, companies aren't hiring but aren't letting people go. if that is going to change, that is something the fed has to worry about. jonathan: we will catch you in about an hour's time, 8:30 eastern time. an additional weight the jobless claims.

then challenger job cuts come the announcements totaling north of 172,000 in february, a 100 3% increase from last year. that increased the most since 2020. we have to recognize it's only one half of the picture and the other half is hiring. hiring picked up, but it's interesting to see things loosening up in the labor market. i said earlier that things had frozen up. not so much anymore based on that data point. lisa: there has been a shift and we see it in the headlines in terms of doge job cuts. i wonder how much some sort of negativity in the jobless claims data will be shrugged off at some of the doge effect. at what point does it suggest some broader weakening? that is a question that can only be answered by some forward guidance from corporations. jonathan: not necessarily going to see the actual layoffs take place. it could be a head fake, who knows. build a fuller picture we have to go over the data points as we get them.we will get another

one in about 55 minutes. lisa: that will be imported in terms of initial jobless claims. i wonder, the idea of how federal employees are a pretty small number, but contractors are not. we have to add to that the uncertainty that tariffs cause for smaller companies dealing with much smaller margins. anecdotally, they are looking around saying, if this goes on, the longer it keeps going the more that we have to retrench our headcounts. jonathan: lower by one full percentage point on the s&p 500. tariffs, job cuts, equities. remaining cautious saying that, small caps are more risk from tariffs given thinner margins. deregulation should be bullish for the parts of small caps, but macro backdrop will remain important as well. what happened to all of the bullishness on small caps in november after the election? jill: going into the year, we have been cautious on the rush holt -- on the russell 2000

despite bullishness. the economic backdrop if it remains supportive is a positive. if we see deregulation, that will be a positive to the pockets of small caps and pockets of the market where it is not necessarily priced in, sectors like financials. we think there are a couple of issues with the russell 2000 that make it challenging. a year ago everyone expected that small caps would see a bigger earnings recovery and would see very strong earnings growth. that keeps getting kicked down the road. we haven't seen any evidence that make us feel confident in the strong earnings recovery, the corporate guidance from companies has been weak in large cap sense small caps in large cap sense small caps. issue weaker guidance in january and february, but the commentary

on earnings calls, even though it was positive for larger companies in terms of sentiment when we look at positive versus negative words on the earnings call, it was very negative for small caps. the spread between the corporate sentiment measure for small and large was actually the most negative that we've seen in our data history going back to 2004. lisa: it's important at a time when big companies may have the negotiating power of like a walmart trying to jawbone suppliers down to lower prices by 10%. how much thinner are the margins? can you give a sense of what you are seeing in terms of how susceptible and more susceptible some of these smaller companies are to some of the tariffs? jill: the russell 2000 has been challenged in that it has been in the earnings recession since 2023. it hasn't climbed out of it yet. the companies have thinner margins, as he mentioned, and we've seen just a record proportion of nonprofitable, non-earner stocks in the russell. the fundamental backdrop has

been more challenged. at the same time, interest rates have risen come the debt profiles of these companies have been a worry. if we see higher import costs for these companies, the potential earnings hit for small caps if we assume a scenario of the current tariffs on canada, mexico, and china, and then we assume retaliation, this could be about three times as much of an earnings hit for smaller caps on the russell 2000 then the 500th. lisa: a contrarian view is that yields are going lower in the u.s. even though they are climbing everywhere else endorsing lower borrowing costs as a result and you'll get an extension of tax cuts that could be better at a time when less regulation could lead to the mna -- m&a boom. jill: i think that this will definitely be a benefit the pockets of the market. there has been a broad view that

m&a will pick up and this will benefit the russell 2000. we haven't seen that historically. the russell has underperformed more frequently in years that m&a have picked up because the market has run up and valuations were more extended. that may not be the case for the russell now, but valuations are not necessarily cheap anymore. the macro backdrop, the cost of capital, and there will be other drivers beyond who chairs the ftc for m&a, but m&a pickups benefits pockets of small caps, whether it be areas like staples or health, we have seen a pickup. financials, we expect that area to see an m&a pickup. deregulation, we didn't necessarily see small caps outperform during the last period of deregulation because of the other factors that were going on in terms of trade and manufacturing recession. i think that the manufacturing backdrop will be important. we are expecting a manufacturing recovery, so looking at the ism and other data points, many of

them are supportive. many have been more mixed, but that is something that would be supportive of small caps abruptly. all of this suggests that you want to pick stocks. this is a backdrop where there ar a lot of baskets in the market that will be behaving differently, trade, immigration, manufacturing, bullish things like productivity and reassuring. -- reshoring. stock selection will be more important than just buying an index. annmarie: the president said it will be disruptive and we will live with some of that pain. are you potentially saying you will become less cautious when potentially some, of the better policies tax cuts and deregulation, come into play later in the year? is the sequencing hurting small caps? jill: some of the policies that could potentially impact earnings more in terms of tariffs or immigration, where small caps are more labor-intensive and frontloaded,

that could impact that more. also, if it creates uncertainty for corporate's at a time when some of these companies have still been trying to get out of this earnings recession. we think that mid-cap companies within the umbrella look better positioned. they are better positioned fundamentally, they have seen earnings revision trends turn positive, they have cleaner balance sheets, better fundamentals, potentially less earnings risks, and better margins in terms of risks from tariffs. jonathan: how often our clients asking about europe? how much has changed on that front? jill: there is obviously a lot going on globally, and we think the u.s. in terms of the s&p 500 still looks like a high-quality area. the s&p 500 is obviously expensive, but that's one reason why we think that the equal weighted index within the s&p and large-cap value, there are

potentially less extended valuations had more upside for some of the cyclicals in that pocket of the market. jonathan: appreciate your time and the clarity on the stock market. i remember a conversation i had with a guest a long time ago when i first moved here. the best part of 10 years ago. they asked about europe. they said, europe is good for vacations but not for investing. that conversation has changed quickly since the start of 2025. lisa: i was wondering, as you were talking, you flip it on its head. it is good for investing, but i'm glad that i got my european vacation. people talk 1.30. jonathan: i wouldn't be happy about vacations in europe at those levels. annmarie: i lived in rome at 1. 44. jonathan: these are not trade recommendations, ok. jill, it was good to see you.

here is your bloomberg brief with dani burger. dani: german bonds are continuing their decline of about five basis points following the biggest selloff since german reunification in the 1990's. at 1.10 year yield hit 2.93% come the highest since october of 2023, driven by a sea change in germany's spending plans. japan's 10 year yields crossed 1.5% for the first time since june of 2009. elsewhere, sources tell bloomberg that walmart has asked some tiny suppliers to reduce prices by up to 10% offset the cost of president trump's tariffs. suppliers have pushed back citing already thin margins and concerns that for the price cuts it would lead to losses or compromised product quality. the wall street journal is reporting that president donald trump is expecting to issue an executive order that would abolish the department of education as soon as today. a draft of the order viewed by the journal orders the education

secretary linda mcmahon to take steps to facilitate the closure of the education department. the white house has not responded to a request for comment. jonathan: more from dani later this morning. that story won't go away. he keeps lingering. annmarie: they want to put education back into the states. the issue is, there are number of grants, students with special needs, and also it gets appropriated in congress. there will be a lot of fights between doge and congress. jonathan: next, tariffs fueling economic fears. >> some tariffs will come on right away and some will go be registered and they will take three or four weeks. there is a process for tariffs in america. once it is an, they will stick. jonathan: the former chair of the council of economic advisers under president obama joins us next. this is bloomberg. ♪

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jonathan: live from new york city, welcome to the program. equities down one full percentage point on the s&p 500, data point came out 20 minutes ago that we would not typically talk about. challenger job cuts. data released from that firm moments ago reporting an increase in job cuts. 103% increase from last year, the most since july 2020. hiring also picked up, but the data that comes out will get more and more attention over the next few days. lisa: this data has been influenced by doge cuts in washington, d.c., federal workers showing up. we saw the biggest print in job cuts and expected job cuts going back to the great recession is something. jonathan: tariffs are fueling economic fears. >> some tariffs will come on

right away. some tariffs will go be registered and take three or four weeks, and they will come on in due course. there is a process for tariffs in america, but we will announce them, and we will be negotiating with all these countries they are after, then they go into effect over a period of months. once it is an, they will stick. jonathan: markets looking for more tariff really from the trump administration, delaying levies on autos for a month. "i rarely see an economy turned negative as quickly as this one has, but people shouldn't get over their skis. i expect all this to slow growth and add to inflation, but don't expect anything dramatic in the data right away." jason, welcome back. i'm with you. the shift in sentiment is so big and so quick. where does the more constructive tone come from at the end of the quote. why should we ultimately avoid

anything too dramatic? jason: there is no debate that the trump administration's impact on the economy has been negative. just about everything they've done has been negative for the economy, and it's going to hurt it. you can debate the magnitude. partly i am reacting to the atlanta fed's gdp now said that the economy was cratering in the first quarter. i think that number was flawed. things move slowly. consumers are really, really nervous. my guess is, they are probably still spending and will wait and see how things turn out. problems we are seeing now, they take time to build. they don't go straight to a recession. annmarie: we have a carveout for the auto sector and lots of conversation. maybe agricultural will be next. if you are usmca compliant, does that mean that tariffs came and went? what is the impact going to be? jason: you know, there are

tariffs that will come, tariffs that will go, and more tariffs that will come back. you showed howard lutnick. he expressed clearly that there will be more and more and more. as he said, they are going to stick. yeah, you can do carveouts, but there are still lots and lots and lots of tariffs on canada and mexico. remember, we are less than two months into this administration. in trump's first administration, it took him nearly 18 months to get to the first set of tariffs after an extensive and judicious process on a much smaller set of imports than anything we are seeing now. annmarie: what do you make of april 2 argument, that they are looking for reciprocity? trying to make sure they can rewrite the rules of trade so that it actually is, in their mind, free and fair? jason: we already have reciprocity. other rich countries, the tariffs against the u.s. average

1% or 2%. hours against them averages 1% or 2%. some have higher tariffs than we do, some things have lower tariffs then we do, but they average out to about the same. so, we have reciprocity. if they want to do a free-trade agreement and get tariffs from 1% to 0%, i would be wildly enthusiastic. lisa: you said that it takes time. the shift in the u.s. economy will take more than a couple of weeks of bad sentiment. at what point will be start seeing some of the uncertainty and potentially the expectation of higher prices begin to show up in the economic data? the hard data? jason: i think you will start to see it right away, but it will start pretty small and grow. some of what i most worried about here is what it does on a five-year or 10-year time horizon when you're talking about how businesses thinking about integrated supply chains. how they organize themselves to

have maximum efficiency. now they will have to think how they organize themselves to be resilient against an extremely uncertain political system. you will start to see it a little bit right away, but it will really grow. it depends on, do these tariffs escalate or end up dropping all of them? anything is possible. lisa: this is a significant regime shift when it comes to tariffs. we've been talking about europe, china, and what is going on with respect to fiscal stimulus and supporting their defense sector. it raises the question that jp morgan's bob michele raised yesterday when he said, we saw the peak in u.s. dollar exceptionalism this week. do you agree? is that something you're seeing in the slow drip feed of rearranging supply chains and invoicing around the world? jason: i feel pretty good about the dollar. i'm pretty secure about the

dollar, although if you wanted to do something about dollar supremacy, you would throw a massive amount of uncertainty into the u.s. economy, which we are seeing, but i don't think even that will be enough. i'm glad that germany is untying its hands. i know that's a little bit for the bond market to adjust to upfront, but absolutely the right move. europe has been behind in spending on its own defense. they do need to shift to something more closer to a wartime economy so they can be in a better position to defend themselves. jonathan: they have been massively behind. jason furman of the harvard kennedy school. i think you refer to the u.s. economy as a barge. more like a supertanker, difficult to maneuver to things that happen quickly. lisa: i like the reality check. people feel bad but they still go out to eat, they by sweaters,

they buy watches. the drip feed, the 5-10 year outlook, how do you model that at a time when we are focused on what could happen in the next two minutes? annmarie: markets getting over their skis because the headlines have been like a fire hose, very quick. the problem is you do have the administration taking a step forward and one back. the problem is come you don't know how far back they are going to take some of these measures. jonathan: you're focused on the next hour of programming. the ecb interest rate decision. 8:30, jobless claims. 15 minutes after that a news conference with christine lagarde. coming up, from new york city with equity futures down one percentage point, this is new york. -- this is bloomberg. ♪

>> we have had a really good run on asset prices with another round of tariffs coming and the blizzard of policies that come out of washington, there is going to be a lot of volatility. >> the key downside risk from our perspective would be if the tariffs amount to more than we

anticipated. >> people pull out evaluation questions and we have an erratic policy that is too hard to invest. >> we will probably get pullbacks. >> this is bloomberg "surveillance," with jonathan ferro, lisa abramowicz, and annmarie hordern. jonathan: the third hour of bloomberg "surveillance" starts now. an ecb rate decision in 15 minutes later jobless claims in america. 15 minutes after that a news conference with the ecb president, central bank president christine lagarde. scores at the moment look like this. equity futures near session lows down one full percentage point on the s&p 500. the nasdaq 100, down by 1.4%. the bond market, the front end of the yield curve, yields are down by six or seven basis points. it is 3.9384. the economic data becomes more and more important this hour.

lisa: we can flip the script into this year during this week. growth was strong in the u.s. and will be weak everywhere else. suddenly, that's no longer the case. europe is investing in fiscal spending package that we haven't seen yet in terms of confirmation but is being priced into the market. in the u.s., we got challenger job cuts that highlight the potential pain from the federal layoffs and really sets up the initial jobless claims that we get in about a half-hour. jonathan: we've had conflicting data. consumer sentiment dropped back, a lot of people claim to. we have seen trade uncertainty. a bit of a relief on services. the tone was decent, just about ok. jobless claims and payroll are important. tomorrow, looking at 1.60 on payrolls. lisa: a lot of people are looking past disruptions are tied to washington, d.c. you see that in a muted reaction

to today's numbers. a muted reaction to the challenger front. i'm curious at what point people are discounting good news and focusing on the back news. they're looking for high-frequency data that isn't really going to confirm it in the same degree that a lot of people are feeling it. jonathan: i think they just want clarity. tell us what the tariffs are and on what. on autos come off autos, why do we have to go from one day to the next and not know it? we came in to 2025 with a lot of confidence. companies want to hire and invest in america and are still anticipating tax cuts this year. annmarie: throughout this entire process, donald trump, the negotiator, has actually been able to get concessions when it comes to mexico and canada on things like the border and fentanyl. the issue, of course, is the pullback in the stock market and the fact that we are seeing the autos, technically, get a carveout. we are waiting for the executive

order to drop that it has actually been amended. what about every other sector that is usmca compliant? looking forward today is not the ecb but scott bessent speaking at the economic club of new york at noon. jonathan: we will catch up with morgan stanley on when it is time to buy stocks. today's ecb decision. and reacting to u.s. jobless claims. we begin with higher bond yields and stocks resuming declines. "i think this is a time to get incrementally more bullish. we've seen a dramatic risk-off. i think we can increase our exposure to risk-on stocks. welcome to the program" . we said the most exhausting 5% pullback that i can remember. why is now a time to buy? >> the 5% pullback, but you've had a series of stocks that were very speculative in nature and they have really pulled back hard.

if i was on a month ago, i would have said i'm worried that there is too much enthusiasm for these go-go growth stocks. i think this will be the story of this year, more of a trading market. i think the market will in the year fine, but it won't be as good as it has been the last two years. the markets are open to under 50 days a year and if you get a single-digit return, that's a lot of movement around a single-digit return. what lisa said before i think is right. sentiment is very washed out now. it wasn't a month ago. it's a time to get incrementally more optimistic. my experience, i've been in this business for a long time, jonathan. you fade d.c. when people are too optimistic. jonathan: it will be fine by the end of the year? what is the strategic

anchor that gives you confidence by the time we get to the end of the year things will be fine? andrew: two things. i'm not as convinced that earnings will collapse. the fourth quarter was very good and we haven't even begun to factor in the possibility of tax cuts. you may say, it will never happen. no one factored it in. i think earnings are going to come through. the problem is, the multiple is too high. the story of american exceptionalism when you really think about from a multiple standpoint has been that we had these big tech stocks that were capital lite and that drove the multiple higher. they are not capital lite anymore. they are spending a lot of money. i think the story is earnings will come through, but maybe the return will be as good as weighing the multiple down. the other thing i think is key is that we really have only seen flows from retail turn positive

the second half of last year. $8 trillion, or $7 trillion, whatever the number was, that was the hottest product until the second half of last year. there's a lot of liquidity and you have the fed cutting. i don't think it's a negative year. i just think we are coming off of two very good years and we need to play catch up on the multiple. lisa: i hear you, and there is a lot of liquidity out there. two weeks ago people would say, where else would it go other than the u.s.? suddenly there is a competitor, a story not just about policy uncertainty in washington, d.c., but fiscal spending in germany, fiscal spending in china, the potential of bright shoots elsewhere. how much does that change your equation? andrew: that's right. there are other alternatives. that would be reflected in the multiple. not as much, necessarily, in the fundamentals. yes, i think china is very intriguing, because you are seeing these companies

fundamentally beating numbers. their multiples are lower. now you have a government that has done a huge pivot and is embracing. however, as an investor, you have to be a little cautious on there will be noise coming out of washington, d.c. and beijing. i think incrementally increase your exposure relative to the u.s. i think europe is also intriguing, although i can't help but wonder if europe is like china was last fall where you get a big pivot on hope, and then some of the reality sets in and there was too much enthusiasm, too immediate? let things calm down and then look for opportunities. that is what we did in china. we didn't chase it last fall, but as the stocks, back down and once the pivot, the meeting with

xi, that was the time to step in. lisa: in terms of chinese tech stocks and the u.s. with u.s. tech stocks, in particular nvidia, getting hit hard again. i wonder how much the story, if we didn't have the stuff in d.c., if we didn't have potential fiscal spending in europe, would it be about new advancements made by alibaba talking about the deepseek moment on steroids, saying that they can do more with less and suddenly come out with these models? how much does that challenge u.s. tech companies that are spending, that are not capital lite? andrew: i agree with that. the problem is come you have a multiple differential between the hyper scalars and the chinese tech stocks. i'm a believer in the big semiconductor companies, because there does seem to be an advancement. morgan stanley had a conference i heard nothing but good things

from the nvidia's of the world. i think there is an opportunity. going back to the original question from jonathan, i think that you have to look at companies. what companies have just had big pullbacks that are fundamentally doing well? some of our tech stocks. some of these big mega cap tech stocks, they have a spending problem for their multiples. that is what is going to keep the cap on the s&p this year. lisa: you mentioned the fed, the fed will be cutting rates. that is part of the bullish thesis that you have underpinning the reason why you are optimistic and still risk-on. how much does that get challenged with some of the commentary from fed officials that they are trying to balance the potential for higher inflation on the heels of tariffs with potentially slower growth? andrew: i am not a fed expert. i am a portfolio manager.

i look and i say of the economy starts to weaken thef the timinl be perfect. it doesn't mean you can't get drawdowns.i suspect it is early in this year we will get a 5% pullback. i suspect we will get a rally and then a bigger pullback this summer. i think the fed has equity investors backs. if we see more meaningful cuts, more uncertainty out of washington on tariffs that creates concern amongst companies, i think the fed will step in. jonathan: can i jump in? when they talked about increased uncertainty last year it led them to raise their inflation forecast, not drop it. i wonder why that's going to change soon? andrew: because last year the economy was doing really well. you know, you saw fourth quarter numbers come in great.

my point is, will they pivot? i don't think they will need to. i think the economy will stay in. i think that the fed counterbalances what's going on in washington. washington really steps on tariffs, really hurts companies, i think the fed incrementally gets more dovish. jonathan: appreciate your time. andrew slimmon of morgan stanley. the bond market down about seven basis points on the two-year. 3.93. let's get it update on stories elsewhere. dani: the latest data that you mentioned come u.s. employers announcing the most job cuts since 2020 last month according to data. the government sector saw the biggest reduction with nearly 62,000 workers laid off thanks to doge. overall job cut announcements increased 100 3% in february compared to the year prior. it comes before jobless claims data, that's due out in a few minutes, and a payrolls report

out tomorrow. alibaba shares rallying after it unveiled its latest open-source model. it is a leap over its previous versions while using a fraction of the data that deepseek's r1 uses. alibaba pledged $250 billion on aim for structure over three years. kroger shares in the premarket are down about .3%. the grocery store chain reported fourth quarter sales of $34.3 billion, just shy of estimates. it is the company's first report since it's former ceo resigned on monday following a personal conduct probe. jonathan: thank you, very much. an ecb rate decision plus reaction. from new york city, this is bloomberg. ♪

you know what's brilliant? boring. think about it. boring makes vacations happen, early retirements possible, and startups start up. that's why pnc bank strives to be boring with your money. the pragmatic, calculated kind of boring. jonathan: ecb rate decision dropping coming in at 2.50.

the estimate was 2.50 on the deposit rate. that's a 25 basis point reduction, as anticipated, so no big change. headlines elsewhere, to set the scene, tensions shifted from monetary to fiscal policy in a big way over the past few days, and that has driven yields higher across the continent as we anticipate a loosening of the fiscal push out of germany. what does that mean for this market? to touch back with the offense -- touch base with the fx market, 1.0 818. what are the headlines? lisa: the fact that the ecb said that monetary policy is becoming meaningfully less restrictive is the initial move towards saying that we are closer to a neutral rate. this is going to be considered the baby step towards maybe shifting to a pause at a time when, you said, fiscal is very much front and center. otherwise saying that the disinflation process is well on track and wage growth is moderating is expected.

at what point are they setting up for a pause, and how much does fiscal factor into that? jonathan: lizzy burden joins us out of frankfurt alongside ali crook. go through the details and what you're looking for from the news conference in 30 minutes. >> jon, this is what was expected in terms of the decision. the focus is very much on the path ahead. you are bang on to focus around the language of restrictive policy. is becoming meaningfully less restrictive. they haven't quite dropped the language. if they had it would have suggested an end to cuts. perhaps this is a pause to cuts, not keeping it fully which would suggest you would have another cut in april. keeping options open because there is so much uncertainty on the tariff front and the fiscal front. he pledged to do whatever it takes to defend infrastructure -- the defense and

infrastructure spending. you talked about the massive impact on the bond market, and i'm sure that will come up in the press conference with christine lagarde. how much will the ecb do to support all that spending? if you see the spreads widening to the fact that you do need the ecb to step in when the transmission attention instrument. jonathan: and the ecb's words, uncertainty is rising. some comes from where you are on the fiscal front? >> absolutely. it will be interesting to see what christine lagarde has to say in the press conference. you know she will be pressed on this. talking about the germans pumping one trillion euros into the economy over the next few years for infrastructure and defense spending will obviously have material effects on a number of different things. heating up the economy, what will he do to inflation. i did interview a lot of ceos from the defense space, there is a lack of skilled labor. if you want to build out all of these developments. some of them are taking full

teams from the auto sector, encyclical downturn, going into defense. this has the potential to rewire the european economy in a major way. we will get in a few hours the fruits of the discussions. how many hundreds of billions will be unlocked at the eu level to be pumped into the economy? to say nothing of the fact that if they loosen the fiscal rules at the member state level, that will have national consequences as well. jonathan: appreciate your time. more from lizzy later today in frankfurt, germany. that news conference is 25 minutes away. a line from the ecb, not pre-committing to a particular rate path. you hear that a lot but it takes on a new meaning. a month or two ago, maybe a month ago, we thought that maybe there was a strong argument that the ecb would need to get accommodative to cut rates more aggressively. a month later, the ecb is in no man's land, because the german government is looking to push

through a big easing of fiscal policy. lisa: i can't even imagine how christine lagarde will give any guidance. if you look at their forecast, they lowered their economic growth forecast for the euro region in 2026 and they lowered the inflation forecast going forward. they increased it this year. at the same time, we don't understand with the applications will be from tariffs. you have the great divide of this watershed german spending moment, and then you have the potential for u.s. growth slowing and tariffs putting up walls to europe. you put that together? good luck, christine lagarde. jonathan: in europe, the biggest selloff that we've seen going back to the 1990's, a move of 30-basis points on the 10-year maturity and this morning up another six. stateside come equities near session lows, down 1.4%. yields dropping at the front-end of the curve on 2's as we anticipate jobless claims data

in 10 minutes before payroll tomorrow morning. lisa: we are seeing the script being flipped on its head. suddenly growth looks stronger in the euro region, the potential for spending. the jobless claims and planned job cuts from challenger really shifted the conversation slightly. now, you see an increasing number of federal reserve rate cuts being priced into the market. jonathan: we're joined now for more. welcome to the program. it's a start with europe. where does the effort from germany leave the european central bank at christine lagarde in 20 minutes? >> good luck, christine lagarde, as you said. i think it is a tricky situation. one thing people were not expecting was such a big fiscal package. how it gets implemented is still a big question. we really don't know how much of it can actually get into the growth in the short term. to give you some perspective, we

had an 8 billion program that gay 1% growth in the 10-years. i'm not sure how much it impacts the growth narrative for the ecb right now. even when it comes to inflation, it is hard to pencil down when there is also the risk of tariff. for me, how do they think about risk? if they seem more complacent they will not need to cut more rates, that is when you could see bunds getting hit. it is not just bunds, the entire ecb complexes being hit now. next, looking at how they are viewing the fiscal package. in case you missed it, we saw a pause for the german growth and credit rating. in theory it's a great concept, but what markets weren't prepared for was within a scale of two days we have easing from

the eu and germany which is hard for markets to take in. especially in a world where the ecb is not buying any bonds. lisa: the comment from the ecb that they aren't pre-committing to any particular path, and frankly they think that there has been a meaningful shift towards being less restrictive for policy, what are you looking for in a press conference soon? pooja: i think since the ecb has released their paper on what they think about neutral, a range of 1.75 to 2.25, there are arguments even within the market as well as views across the board as to what does the ecb define neutral as? i would like to know, what are they thinking? do they really believe the statistic papers that said 1.75 to 2.25 is the range? it is a long-term given a period

of five years we have spending coming in europe, and then how do we define the new neutral? that would be key right now. i don't think ecb is in the shape to answer this question, given the fact that nothing seems to be certain right now. annmarie: looking through the statement, it talks about lower exports, ongoing weakness in investment, high trade policy uncertainty, broader policy uncertainties. what is going on in the united states, even though we haven't seen tariffs yet, is that impacting on the ground what's happening in europe in terms of trade and exports? pooja: so far, pmi's in europe saw a pickup because everyone was frontloading. now, sentiment is we don't know if it is coming or not. when we get to know what is the consequence of all of the retaliatory tariffs that trump is proposing, that's a

big hit for the european economy if you look at that as well as the tariff bill done. that is a very big move. i think with all central banks, we don't know if these tariffs are coming or if they are just a negotiation tool. that is what the ecb will try to say, that they have no clarity when it comes to tariffs. they know they are coming. it's evident that trump is actually coming to europe. whether you think about the ukraine war, nato spending for defense. the ecb as a whole needs to watch april 1. jonathan: appreciate your view. after reducing interest rates by 25 basis points, no one will be talking about that rate cut. they are interested in two opposing forces, fiscal stimulus potentially out of germany. stressing potentially because it's not done until the money

has hit the ground and we are doing things off of it. a month from now we could have additional tariffs on the european union. the ecb has to work out how to set policy in between. lisa: that is why everyone is looking at the statement that monetary policy is becoming meaningfully less restrictive and saying, what do you mean? how much does this mean you won't cut rates again? jonathan: the news conference 20 minutes away. more economic data around the corner. ♪

jonathan: jobless claims just seconds away. equity futures here, session lows and down by 1.3%. it has been so volatile all week. and the nasdaq, down by 1.7%. in the bond market, a drop at the front end of the yield curve. 2-year yields declining by six basis points. back below 4%. we are down a single basis point on tens. with the jobless claims data and more let's cross over to michael mckee. mike: good morning. no major change in headline jobless claims. 221,000. that is a drop from 242 thousand initially reported last week. let me just say.

242,000 on revised. not a major change now. number everybody wants to see is former federal civilian employees, 1634 last week. that is about triple what we had originally seen. they are starting to show up in the numbers now, and of course that is only 1000. have 20,000, 40,000, who knows exactly, who have been laid off? the other is the trade imbalance, -$131,000 -- -$131 billion. that is close to a record. remember, we had a big increase in exports in the goods category last week. this adds back in some surplus on the services side, so it does narrow it a little bit. that was the reason we saw that big drop in the atlanta fed gdp. jonathan: noteworthy also, just

canada specifically, the canadian surplus with the united states widening to a record. how much frontloading are we seeing in this economy ahead of these tariffs? mike: it would be interesting to look at the data on canada, because that stuff goes on all the time, but it is perhaps possible that a lot of auto dealers brought in cars from canada to get ahead. frontloading is a major story in terms of the imports into this country in the last month's trade numbers. jonathan: mike mckee, thank you, sir. mike is going to be back with us later to go through all of this and look ahead to payrolls as well. jobless claims come in at 221,000. so, no drama there. the trade front looks like a frontloading of imports to certain places. canada and the trade surplus with the united states widening to a record importing from america has been huge over the past month. lisa: this to me, the fact that the tape -- that the trade

deficit plunged to the lowest going back in history, frankly, it was the most going back to 2015 if you look at the trade deficit and how much it deepened. to the frontloading point, how much are we seeing companies saying, ok, china, ok, europe, it's get all of that stuff in right now. jonathan: canada, mexico, the list goes on. joining us now, constance hunter. welcome to the program. let's talk about the jobs data first. no drama in jobless claims. are you expecting drama in the payrolls report tomorrow morning? constance: we are expecting a softer payroll report than we have seen on a three and six month average, so i would say about 180,000. what we are looking at is under the hood what is happening. it is not just government employees, but services employees and consultants. it is where you have seen a lot of layoffs. it a multiplier effect from what

is happening, and so are a lot of people on the job market with very highly qualified skills. if we continue to have a fairly strong labor market and stronger economy i think those people will get hoover dump into other jobs. but if we don't then you are looking at some longer-term damage to the u.s. economy. lisa: we were talking earlier this morning about this being a big economy that takes time to really damage and that some of the sentiment shift has happened quicker than the actual underlying data. would you agree with that? constance: yes, absolutely. one of the things we look at to think about forecasting payrolls is the ism services employment indicator. that is still taking up, even though -- ticking up, even though that is a real-time indicator. the uncertainty index combines three things. it combines uncertainty gleaned

from eiu documents on our own website, behind our payroll cash pay wall. it looks at changes in the tax code. we have the tcja up for possible extension. and it looks for differential between economists' forecasts. when we look at that index, when it has spiked up has presaged a were -- a recession is coming. we are at levels well above the 2008 financial crisis, well above what happened during the dot-com bubble, and well above what happened in the 1990's. we are not quite a covid levels, but we are pretty elevated. what we are doing is, we are using not to forecast, how is this going to impact? how is this going to impact household consumption? lisa: how reliable has that sentiment data been? i know there are other things that go into this.

sometimes people are pointing to the sentiment and talking about how negative it is. i'm just wondering, we are not seeing the shift in consumer spending habits just yet. so, is there a chance that what people say and feel and what they do just is not going to cohere like we have seen in previous cycles? constance: arguments going to keep being humans? yes. we have a lot of dichotomy, right? between what we say and what we do. that is a significant possibility and we have to think about some of that frontloading is happening in terms of consumer behavior as well, right? people buying things if they were planning to buy a car this year, they are saying, be i should buy it now, rather than waiting until april or may when it would be more expensive. with that said, really have you said this level of heightened uncertainty without seeing it

because some pullback, both in capital expenditure and consumer behavior. i would say one thing underpinning this that we have not necessarily had in previous cycles is, we are really in the midst of an incredible productivity boom. that could give us a bit more cushion then we would normally have. the other thing is that the fed knows it can afford to wait should things get wobbly, because we have such an immense amount of mortgage equity in homes. you saw yesterday all it took was the slightest move down and you had a huge increase in applications for new homes and applications for refinancing. so, there is a lot of capital there on the sidelines to be deployed in the economy. should we get into a weaker situation and assured the fed need to lower rates. annmarie: what kind of impact are you seeing doge have on the labor market? constance: say

it is negligible. we didn't see it show up in claims. it is ae federal workers are getting laid off. they are really highly qualified individuals, generally speaking, advanced degrees and important specializations. so if they are not rehired by government once people realize they were doing valuable jobs, then it is likely they will get rehired within the economy. then of course some people chose this opportunity to take an early retirement. jonathan: constance hunter there. thank you for joining us to break down the latest on the labor market. jobless claims out eight minutes go. no drama there. david rogal joins us now. let's take the temperature of markets together. equities, a 5% pullback. if i knew nothing about the world right now and i was on vacation and i had missed the last two months and you just sent me a chart of high-yield spreads out would have no idea what is going on. still south of 300 basis points.

anything to be concerned about? david: thanks again for having me. we have been pretty constructive on the economy. again, taking a step back, services economy, hard to break. i think you spoke about this before. what i think you are seeing here is you had a huge amount of optimism in q4. you actually had a huge amount of consumption. i think we are coming off of that optimism on dereg, business friendly policies, and thinking about some of the near term growth impacts. i think what we are seeing here is a moderation in growth expert haitians, and we will see what happens from here. i do not view it as a serious negative. lisa: does this market pricing in moderation or something more negative than that? david: the concern is that it returned -- that it turns into a recession. particularly if you look at the three things the market is worried about that is immigration policy, tariffs,

obviously, and then some of the austerity through some of the spending cuts. i think there is a big open question, and ultimately our view is that it is a moderation in growth, but not a recession. lisa: this all would have been palatable if we had not had a seachange in europe. it would have been easier to digest, the firehose of different headlines, but now you and on top of it the fact that there is an alternative to the united states. and the u.s. exceptionalism is not necessarily being countered. but certainly there are other places where we could see growth and fiscal investment. does that change your view? david: i think it is an important change. one of the impacts we have been tracking and one of the themes we are focused on is term premium. with the idea of fiscal going up in germany to the degree you have seen, this supports our view. we think term premium is going to widen from here, and we are

focused on the front and intermediate part of the curve. i think this is another factor. turn premium is a global concept. he saw it for years with global qe, central bank balance sheets expanding. that was crossing cross-border flows into the u.s.. i think that is another factor that is going to support the trade. jonathan: we talk about the u.s. exporting policy to the rest of the world. are we importing policy from germany then? in the u.s. treasury market? david: i think it is going to be a meaningful factor. it remains to be seen how much gets spent and over what time period, but i think it will be a mean -- will be meaningful. annmarie: isn't the u.s. actually pushing germany? or is that now basically reversing? david: i think the u.s. exceptionalism story has been driven by strong economy, strong domestic fiscal spend. i think you can see some of that rivers, but we are still

constructive on the u.s. i think you can see some flows reverse on the back of this. lisa: when you say term premium go up, you are saying long-term yields around the world are going to stay elevated and maybe go higher because there is a difficulty digesting some of this bond issuance. some of the money has to come from somewhere, right? how much does that cause you to lower return expectations in other places, or in the u.s. versus europe? to allow for all of that money to finance some of these projects? david: i think as long as it is a relatively orderly move i don't anticipate seeing a huge amount of disruption. i think the potential is there if we were to get a disorderly move in term premium, as long as the physical trajectory is supporting growth and supported for the overall global economy, i don't view it as a huge source of disruption. lisa: have we seen the bottom in long-term yields for developing market debt? david: if i take it back to

where fixed income is today, i think you could see some pullback from these valuations. but when we look at where yields are, we have had a 100 basis point decline in the funds rate. and we have had a rise in term rates. you can now pick up around 150 basis points by going into intermediate-focused fixed income, particularly on the active site. i think that will continue to support the market. jonathan: david rogal there of blackrock. investment committees the world over need to reconvene and work out what is going on in germany and what it means for fixed income. with an update, here is dani burger. dani: the white house said it will exempt automakers from tariffs on mexico and canada for one month following pleas from industry leaders. the exemption applies to auto parts. it is intended to give companies

time to come up with plans to move more investment and production to the u.s. sources tell us that klarna is looking to raise at least $1 billion in a u.s. ipo. set to file publicly as early as next week. klarna is targeting a $15 billion evaluation -- valuation. the new york times are reporting that fifa will look into expanding number of teams in the 2030 world cup to 64. the expansion will reportedly be a one-offer currents to highlight the world cup's 100th anniversary. next world cup will be mostly played in the u.s., with some matches in mexico and canada in 2026. that is your bloomberg brief. jonathan: thank you. why damage something so perfect? i have no idea. why do that? it is such a great format. they did this to the champions league. next up, we will set you up for the day ahead. i'm alone on that one, i know.

send an you know. up next, a news conference with ecb news -- ecb president christine lagarde. this is bloomberg. ♪

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jonathan: the european central bank, reducing interest rates by 25 basis points. the ecb news conference is underway. we were crossover to that in just a moment. this came from deutsche bank. the ecb finds itself in a challenging position. and the growing commitment to higher defense spending over the next several years, which will be required to court europe's strategic autonomy. that is the tricky position this ecb president finds herself in this afternoon in germany. lisa: is it a growth stock from tariffs or a growth stock to the upside from fiscal spending? jonathan: let's crossover to the

news conference with ecb president christine lagarde. pres. lagarde: the open revision in headline inflation from 2025 reflects stronger energy price dynamics. for inflation, excluding energy and food, staff project an average of 2.2% in 2025, 2% in 2026, and 1.9 percent in 2027. most measures of underlying inflation suggest that inflation will settle at around our 2% medium-term target on a sustained basis. domestic inflation remains high. mostly because wages and prices in certain set or are still adjusting to the past inflation surge with a substantial delay. but wage growth is moderating as expected. and profits are partially

buffering the impact on inflation. our monetary policy is becoming meaningfully less restrictive. as our interest rate cuts are making new borrowing less expensive for firms and households, and loan growth is picking up. at the same time, a headwind to the easing of financing condition comes from past interest rate hikes, still transmitting to the stock of credit and lending remains subdued overall. the economy faces continued challenges and staff have again marked down there growth projections to 0.9% for 2025, 1.2 percent for 2026, and 1.3% for 2027. the downward revisions for 2025 and 2026 reflect lower exports

and ongoing weakness in investment, originating from high-trade policy uncertainty, as well as broader policy uncertainty. writing real incomes and the gradually fading effects of our past rate hikes remain the key drivers underpinning the expected pickup in demand over time. we are determined to ensure that inflation stabilizes sustainably and our 2% medium-term target. especially in current conditions of rising uncertainty we will follow a data-dependent and meeting by meeting approach to determining the appropriate monetary policy stance. in particular, our interest rate decisions will be based on our assessment of the inflation outlook in light of the incoming economic and financial data, the

dynamics of underlying inflation, and the strength of monetary policy transmission. we are not pre-committing to a particular rate path. the decisionsw taken today are available on our website, and i will now outline in more detail how we see the economy and inflation developing and will then explain our assessment of financial and monetary conditions. so, looking at the economic activity, the euro-area economy likely grew modestly in the fourth quarter of 2024. the first two months of 2025, so a continuation of many of last year's patterns. manufacturing is still a drag on growth, even if survey indicators are improving. high uncertainty, oath at home

and abroad, is holding back investment and competitiveness challenges are weighing on exports. at the same time, services are resilient. moreover, rising household incomes and the robust labor market are supporting a gradual pickup in consumption. although consumers' confidence is still fragile and saving rates are still high. the unemployment rates stayed at its historical low of 6.2% in january. and employment is estimated to have grown by .1% in the last quarter of 2024. however, demand for labor has moderated, and recent survey data suggest that employment growth was subdued in the first

two months of 2025. uncertainty has increased and is likely to weigh on investment and export by more than previously expected. but growth should be supported by higher incomes and lower borrowing costs. according to the staff projections, exports should also be supported by rising global demand so long as trade tensions do not escalate further. fiscal and structural policies should make the economy more productive, competitive, and resilient. the european commissions competitive compass provides a roadmap for action and its proposal should be swiftly adopted. governments should ensure sustainable public finances in line with the eu's economic

governance framework and prioritize is central growth -enhancing structural reforms and strategy -- the teaching investment. looking now to inflation. annual inflation stood at 2.4% in february after two point 5% in january and 2.4% in december, according to euro stats. energy price inflation slowed to .2% following a strong increase to 1.9% in january, from .1% in december. by contrast, food price inflation rose to 2.7% from 2.3% in january and 2.6% in december. goods inflation ticked up to .6%, while inflation eased to

3.7% from 3.9% in january and 4% in december. most indicators of underlying inflation are pointing to a sustained return of inflation to our 2% idiom term target. domestic inflation, which closely tracks services inflation, declined in january, but it remains high as wages and some services prices are still adjusting to the past inflation surge with a substantial delay. at the same time, recent wage negotiations point to a continued moderation in labor cost pressures. the assumption of higher energy price inflation led to staff to advise up the headline inflation projection for 2025. at the same time, staff expect core inflation to continue

slowing as labor cost pressures ease further and the past monetary policy tightening continues to weigh on prices. most measures of longer-term inflation expect haitians continue to stand at around 2%. all of these factors will support the sustainable return of inflation to our target. risk. the risks to economic growth remained tilted to the downside. an escalation in trade tensions would lower euro area growth by dumping -- dampening exports and weakening the global economy. ongoing uncertainty about the global trade policies could drive investment down. geopolitical tensions, such as russia's unjustified war against ukraine and the tragic conflict in the middle east, remain a major source of uncertainty as well. growth could be lower if the

lagged effect of monetary policy tightening lasts longer than expected. at the same time, growth could be higher if easier financing conditions and falling inflation allow domestic consumption and investment to rebound faster. an increase in defense, in infrastructure spending, could also add to growth. increasing friction in global trade is adding more uncertainty to the out look for euro-area inflation. a general escalation in trade tensions could see the euro depreciated and import costs rise. which would put upward pressure on inflation. at the same time, lower demand for euro-area exports as a result of higher tariffs and the rerouting of exports into the

euro area from countries with overcapacity would put down more on inflation. geopolitical tensions create two-cited inflation risks as regards energy markets, consumer confidence, and business investment. extreme weather events and the unfolding climate crisis more broadly could drive up food prices by more than expected. inflation could turn out higher if wages or profits increased by more than expected. a boost in defense and infrastructure spending could also raise inflation through its effect on aggregate demand. but inflation might surprise on the downside if monetary policy dampens demand more than expected. let's look at the financial and monetary conditions now.

market interest rates in the euro area decreased after our january meeting, have risen over recent days in response to a revised outlook for fiscal policy. our interest rate cuts are gradually making it less expensive for firms and households to borrow and loan growth is picking up. at the same time, a headwind to the easing of financing conditions comes from past interest rate hikes still transmitting to the stock of credit, and lending remains overall subdued. the average interest rate on new loans to firms declined to 4.2% in january from 4.4% in december. by contrast, firms cost of issuing market-based debt rose to 3.7%,