>> we came into this year with such high valuation, such stretch expectations, that there still is very little room to absorb any kind of bad news. >> it is clear we have a lot of headwinds mounting. >> every single consensus trait has been upended. >> risk assets are vulnerable. >> verse risks of something like a 10% drawdown is rising. >> this is "bloomberg surveillance" with jonathan ferro, lisa abramowicz, and annmarie hordern. jonathan: live from new york city this morning, good morning. for our audience worldwide, "bloomberg surveillance" starts right now.

coming into monday following the biggest weekly loss of the year so far, equity struggling to bounce as president trump forecasts a transition period. >> i hate to predict things like that. there is a period of transition, because what we're doing is very big. we're bringing wealth back to america. that's a big thing. and there are always periods of -- it takes a little time. it takes a little time. jonathan: echoing sentiment from his treasury secretary calling for a detox following in boom in government spending. sobering thoughts for the bond market selling curves down across -- lisa: really starting to price in some sort of downturn, if not recession. a number of different firms talking by the increasing chance of recession. there is some kind of tell in what donald trump said over the weekend to fox news, which is he seems to be leaning into the idea of market selling off, almost saying, you have to be

prepared for more of this. which raises the question, what is he preparing markets for april 2? jonathan: we are going to have a detox, we are going to have a transition. only last week, we heard from the president, we are not even looking at stocks. annmarie: he is taking a very long term view when it comes to the entire composition of what they're trying to get done. at the economic club, scott bessent talked about we are trying to deleverage the government sector and relive rich the private sector. with the market is waiting for is time to get their train rolling when it comes to tax cuts, or at least an extension of tcg a, and reform. jonathan: cpi coming up wednesday, the same day we have inflation data. also, the deadline for trade tariffs, this time 25% on steel and aluminum. lisa: over the weekend, he started talking about the potential for tariffs to go even higher on mexico and canada.

we still are getting the 25% tariffs across the board on non- usmca gods. a raises the question, what kind of reset is he going for? is he talking about manufacturing coming back to the u.s., or is he talking about simply shocking some of the world leaders into acquiescence for negotiating? jonathan: and how much pain are they willing to tolerate? jimmy kaiser at citi, markets remain in a spin cycle. -- a scenario where that fiscal drag, d.o.g.e., and immigration enforcement hit the market first, then crowding of the market, together with deficit spending may be later. annmarie: politically, this is the way you have to do it, in that they want to get the "bad things" done that will hurt markets early on ahead of the 2026 term elections. i will say the number of

companies, if you look at with a list of what they are saying ahead of cpi this week, what they are saying about tariffs, they are talking about the fact they will have to pass some of this on. even alcoa in january, saying depending where metal tariffs come into place, we will have to look at the potential how we trade differently when it comes to global realignment. jonathan: coming up this hour, following the work week for stock since september, stevve chiavarone. kim wallace. -- we begin this hour, stocks falling as concerns grow over the health of the u.s. economy. steve chiavarone still bullish, acknowledging that while there is the risk of an atomic soft patch, -- they are telling us what they want, detox period. steve: trump is always a

negotiator, and he is negotiating with three parties. with the fed, that he wants to have cut, and an economic slowdown helps. he is negotiate with conservatives in congress, where he is looking for a bigger tax cut, and a slowdown helps. and he is negotiating the bond market. if you were talking three or four months ago about tax cuts and rate cuts, we would have 10 year yields north of 5%, 5.5%. that is the detox period we are talking about. what is our visit of what we saw in 2017. in 2017, he was coming into a softer economy. he hit it with tax cuts first and then use that strength to try to do tariffs and other things. here, he had an economy that was very hot. you are taking all the pain first. as an investor, if you want to get offensive ahead of this, you have to do it two months ago, and none of us it -- did.

now you are in a situation where if you think you got the better things to come -- and look, tariff uncertainty may peak april 1, and you are likely to get negotiating on a tax cut soon. i think you got to invest through this and see the better second half of the year in front of you. jonathan: to your point, the investor also has a sequencing problem now, but do you want to buy their cover before you have the downturn? because a hard data is still ok. steve: that is the big question. you mentioned the word recession. i think we will have one. but i did nothing get is a united states recession. i think it is a washington, d.c. recession. i think that is primarily what is being orchestrated. the question is can washington have a recession and the rest of the country doesn't? if those savings get passed along, whether in terms of a d.o.g.e. dividend or a tax cut or lower interest rates, then you can have a washington recession and the rest of the economy as well. the key is how long does the uncertainty play? when we talk to companies, they

are cautious but not pulling guidance at this point. lisa: hold on a second. i would believe what you are saying, the idea of a washington pullback. essentially, they want to strip public's mending and put it back in the private sector. where do tariffs come into this, hearing companies retrenching some of their plans? that is one of the reasons we have seen an absolute bloodbath in stocks -- bank stocks? steve: that is a longer-term piece. what we're trying to get to his growing our way out of a debt problem. the only way you can grow your way out of a debt problem is grow gdp faster than you grow your debt. if they can get the deficit down to 3%, the question is how do you get nominal gdp growth at 5%? part of his administration's belief is one of the ways you do that is bringing economic activity in the united states. you shrink a less reductive government sector, you feed a more productive private sector, and you try to convince companies, through tariffs, to

come back. if that works, that is wonderful. obviously, there's a lot of risk in trying that p the key overarching theme is we have had reactionary fiscal monetary policy for 25 years. this is predetermined, premeditated structural change, with longer-term high -- time horizons. the market has not really contended with that. lisa: that the thing i am struggling with -- it seems like you are bullish and you're getting in and buying, and there will be many opportunities going for because this is a sequencing issue. since this is a slow moving freight train, barge, however you want to call it, how do you do this in six months? how do you expedite the timeframe? steve: you don't, from an actual policy and economic perspective. the question is does the market without out what you're doing and get bullish around it? these are changes that will take a while to play out. even if you are right on tariffs

and it brings calm these -- companies back, that takes years. the question is does the market look at and eat fiscal sanity or a push for growth -- see fiscal sanity or a push for growth? now we are focusing on tax cuts and deregulation the second half of the year? the market can see that, i do not think that plays all the way through the economy. as constructive as we are, i agree with some of the folks you quoted earlier. i think we will still see pressure for a couple months, and equity markets are likely to go lower before they go higher. annmarie: what kind of selloff could you see, especially if she concerns around tariffs will be in early april? steve: we have not had a 10% correction in five years. it is the second longest stretch ever, going back to the mid-1990's. we look at what we are going through, and it is like we are catatonic. you generally have a 10% correction per year on average.

could it be 10% down, could it be a little more? you tell me how long the uncertainty plays, you tell me how long we switch the narrative to tax cuts and -- jonathan: you understand why people are so nervous, though, because this goes beyond the normal 10% correction in some people's minds. we have built up this massive dollar long now for the past decade. that goes past currency, it goes into tech markets and more. the wind down we have seen goes beyond the banks you mentioned. it goes to places like netflix paid what does network have to do with the kind of things we are talking about? that is a worried people have now, that may be this is the start of a big unwind, and the sentiment shift we are seeing goes beyond some of these growth concerns. it goes to a sentiment shift to europe, china, away from the u.s. steve: i would be careful about that. i think you have been in a scenario right now where you are in peak uncertainty, and what the has done is created a desire

for safe haven assets, longer duration fixed income, defensive u.s. equities. in the government, you have seen non-us well as the dollar has softened some. that is great, because the world is looking at a period of time right now where you have debt spending internationally and some austerity or restructuring in the u.s. i do not know that is the world we are income fourth of july. fourth of july, you may see tax cuts that larger. you may see a president pushing congress for pay-fors that may not materialize. you are back in a scenario that is stronger dollar, stronger u.s. growth, and you get an unwind of that trade. in terms of worry, i get that, but that is what our industry exists to do, not to worry and figure this out logically. that is why we charge a fee. [laughter] so i get it, but -- jonathan: so earn your fee. let's do that right now.

we had a 9% moveon banks last week, close to those levels, almost wiped out postelection gains in the kbw bank index. we had moves in nvidia down 35% off the highs. what do you want to buy? steve: what we have done so far is to pat. we came into the year 5% overweight equities. it is kind of like waiting for godot. but it is overweight cyclicals come overweight some of those small caps. i want to buy some of those things in pain right now kid i would like to see little more dislocation and equity market to jump in. but as i look at the back half of the year, isaac we have gotten two previews of what it could look like. we saw it last july, last november. it is a cyclical trade, those banks getting beaten up, though small-cap names. the names that benefit from the trump agenda, short duration fixed income. but i think, back in july, it started, and then harris entered

the race. it started again in november, then powell gave that master class press conference in december. lisa: master class? steve: well, i am being facetious, if you can't tell. [laughter] now we are waiting for that if you get rid of this pain stuff and get into the candy which i think comes later in the year. jonathan: steve, it is good to see. steve chiavarone there of federated. we kick off a brand-new trading week. let's get you updated the news elsewhere. here is dani burger. dani: president trump says the u.s. economy faces a period of transition, declining to rule out a u.s. slowdown. trump argued he is aiming to reshape the american economy. in canada, mark carney won the race to become the next prime minister. the former bank of canada and bank of inland governor will

take over from justin trudeau. in his acceptance speech, carney said her territory tariffs would stay on until "the american show us respect." canada has met tariffs with patriotic fury and widespread boycotts of american goods. taiwan semiconductor their sales grew the first two months of the year. the world's largest chipmakers often seen as a barometer for the sector. their future is uncertain's's due to trump tariffs. that is your brief. jonathan: thank you. up next on the program, a period of transition. >> i hate to predict things like that. there is a period of transition, because what we're doing is very big. we're bringing wealth back to america. that's a big thing. and there are always periods of -- it takes a little time. it takes a little time. jonathan: up next, kim wallace of 22v research joins us next.

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jonathan: three week losing streak on the s&p 500. early days. we are down by about one point four percentage point on the s&p 500. in the bond market, yields down five or six basis points. under surveillance this morning, a period of transition. >> i hate to predict things like that. there is a period of transition, because what we're doing is very big. we're bringing wealth back to america. that's a big thing. and there are always periods of -- it takes a little time. it takes a little time.

jonathan: president trump avoiding predicting a recession this year, as his focus on tariffs and federal job cuts radel markets worldwide. this is a front approach compared to trump 1.0. tyler: it appears the white house messages there will be a short-term adjustment period in order to have long-term growth. for example, leader in that interview, president trump wanted to compare the u.s. and china, saying china has a 100 year perspective while the u.s. likes to think in quarters care that led him to double down on the fact that he is not watching the stock market. he did say his -- he has his eye on interest rates. -- when there are inflationary concerns, consumer sentiment concerns, or workforce concerns. the white house is really banking on some things actually

happening, and perhaps most pertinent to our conversation today is twofold. but try to get president trump's tax agenda over the finish line, something we know is not going to be easy. those conversations are already starting, as we saw a house republicans float their short-term spending plan to keep the government open until september that signals it will take months to get that tax cut agenda off the ground. and how to get that bill over the finish line when the house and senate appear not to agree over that one big, beautiful approach president trump would like to see. lisa: -- annmarie: when it comes to tariffs on steel and aluminum, is the white house ready to enact them this week? tyler: according to howard lutnick, he said wednesday should be the day we are looking out for. he did say those reciprocal tariffs on canadian dairy and lumber president trump floated

could -- will be on hold until april 2. as of now, we aspect this to be a big tariff week. looking ahead to reciprocal tariffs plans that the administration says is part of the larger agenda they're trying to gather. jonathan: tyler kendall out of washington, d.c. joining us now, kim wallace of 22 the research --22v research. we are told there will be a transition period,. there will be a detox. when you talk to clients, what do you tell them the ultimate objective is, rebalance towards what, exactly? kim: we have not been told that yet, so i do not have advice for clients on where the end game is. i do focus on the uncertainty mentioned a lot over the last week, certainly the last weekend and this morning. that uncertainty hinges on two very large -- two of the three

mac economic policy tools, fiscal and trade -- macroeconomic policy tools, fiscal and trade. it is the fickle to ascertain, as we are months away from peak uncertainty. markets get to vote on an hourly basis. voters are not that fortunate. they do not get asked that often. so you are unsure how the uncertainty plays out. it is difficult to map. whether this will be wildly optimistic or something else, because you just do not have enough details, and you have not heard from the stakeholders involved. annmarie: based on how trump dealt with a 25% on canada and mexico, what we did learn he -- is he is willing to negotiate. do you think everything, barring china, is a negotiating tactic? kim: i finished the week taking that strongly. i am still leaning in that direction, because of that

recent history. however, if the administration is putting together the concept and a policy plan for financial repression, that deliver just washington, re-leverage as the private sector, you have a lot of steps that go through before the endpoint. i am not sure with the administration's game plan at this point. annmarie: tyler ended her report talking about how howard lutnick , the commerce secretary, said steel and aluminum tariffs will go into effect this week, but they were not ready to put them on dairy and lumber. so do you think the president will pull them back the same way he is pulling back on dairy and lumber as well? kim: i hate to keep going back to last week, but it may have been instructive. secretary let nick -- secretary lutnick was at the forefront of negotiating in public on tariffs , moving dates back by a month or more. i am not sure we have hit rock bottom on the public negotiating

part from the initiation, and i am certain we have not landed squarely on what the policy objectives are. lisa: we just had steve chiavarone on, and he was saying, can to eating your vegetables, the first half of the year and getting candy in the second half, when it comes to a policy prescription. do we have a sense of what that candy is? kim: i don't, and i'm not sure what -- that anyone does. on vegetables, the first question you ask -- i grew up in a family of four kids. i mean, vegetables are in the pot. is there enough to go around? that is the political feedback function of democracy. we are in the early stages of gauging what this second turn in policy objective means for americans, businesses, and markets. lisa: is anyone who speaks to you who says there is a lot of

logic to this? that the physical trajectory for the united states is completely unsustainable, that had the economy remained strong with ongoing inflationary pressure, the u.s. would get hit with an interest rate bill that will be off the charts and stymie any potential longer-term growth and would engineer a deep recession? in other words, people who say it actually might be good if the u.s. economy shifts downward for a bit? kim: i have not heard that. this theory appears in sections of stephen moran's essay at the end of last year, that use low consumption in the u.s., and that slowing consumption causes contraction. but if you are gaining revenues from tariffs, that might make up the difference in the lost revenue. what i hear more often than not, from risktakers, is optimal tariff theory has not impressed anyone yet. when you see the speed with

which china, canada, mexico, other trading partners either vowed retaliation or set up retaliation -- and we will have some of that from china today -- if you are counting on optimal tariff theory to make up for fiscal cuts, and that revenue is going to flow, because no one will retaliate, if everyone retaliates, your equation is in question, at least. jonathan: kim wallace there of 22v research on the latest efforts from the trump administration p this just dropped from hsbc. prior to the u.s. elections, we had trump would -- and today, we are downgrading the u.s. to neutral. what we underestimated is how the u.s.'s wavering support for nato and ukraine would trigger a watershed moment for the euro zone. for hsbc, it is about what is developing in europe that is taking money away from that story. lisa: we have seen the sentiment shift in massive form. it goes to the question you asked steve chiavarone.

how much do you see a structural shift with a lot of the money shipping away from the united states to the rest of the world, not necessarily because of just what is going on in the u.s. but also what is going on elsewhere? jonathan: there's tons going on and lots to catch up with. we will catch up with veronica clark of citi in a moment and the labor markets data still to come. job stated later this week, and we get a read on inflation, cpi and ppi. cb wednesday, ppi later in the week, and another trade deadline. this time, 25% tariffs on steel and aluminum. from new york city, you are watching bloomberg tv. ♪ so, what are you thin i'm thinking... (speaking to self) about our honeymoon. what about africa? safari? hot air balloon ride? swim with elephants? wait, can we afford a safari? great question. like everything, it takes a little planning. or, put the money towards a down-payment...

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jonathan: the worst week of the year on the equity market in the last week. s&p 500, we take more away from the benchmark stateside. kaiser and city, market remains in a spin cycle. as we mentioned on the program about five minutes ago, hsbc downgrading u.s. stocks to neutral. lisa: talking about where they like to put their money, which is europe. the question is not what the united states is doing but the response from others. that is the wildcard.

how much fiscal stimulus elsewhere as much as tariffs could shake it up. jonathan: that fear of stunted growth pulls down yields. 4.24 on the 10. last week we took a little break, first week in two months where we had declining yields. cpi and ppi, no federal reserve speak, federal reserve meeting about a week away. we will finally hear from chairman powell. not in a rush to cut interest rates. lisa: it will be bumpy but he's not in a hurry, looking for more clarity. it takes away the chance they will cut aggressively. everyone expects him to change as the data changes. jonathan: the fed chair saying i'm not in a rush to cut interest rates. treasury secretary saying we will have a detox period. lisa: bullish on anything,

morgan stanley coming out and saying this increases the bullishness on bonds in favor of these because they want that 10 year yield to go down even if the fed is not cutting rate. eventually the fed will have to cut rates. the big fear for me is some of this gets away from the orchestrator. job cuts could build on itself. that could be a little bit of fly in the ointment. jonathan: if it is by design it is hard to manage. we talk about europe, hard to be bullish on the german market this week. 40 basis points on the german 10 year maturity. the fx market, this is what i look for. when you loosen fiscal policy you see if it is validated by stronger or weaker currency. strong currency on the u.s. side. out of europe, specifically

germany, the euro had its best week since 2009. the euro-dollar is pushing 1.09. lisa: a lot of people saying is only -- it could only push from here. could they actually come through with a plan that they promise germany? we have a two-week window to get plans past. if they succeed i expect these gains to continue. jonathan: the euro stronger by one third of 1%. the treasury secretary doesn't expect a reprieve on 25% steel and aluminum tariffs and includes imports from canada and mexico. lisa: doesn't sound like there will be exceptions or a pause. they will be going into place this week. we just heard from our guest, what did he say? trump is in the negotiating mode. one thing is clear, april 1,

april 2 is going to be huge. that's the day we come out with those reciprocal tariffs. my question is which tariffs actually hit? which ones have weeks or months leeway because they are going into filing report and another negotiating period? lisa: i'm trying to understand how different companies operate in this environment. there is a study showing one third of u.s. auto parts suppliers have moved reduction out of the united states. is the 25% tariff going to remain on six months or longer? it is counterintuitive. it would make it too expensive to produce in the united states and raises questions about achieving the goals they are setting out to do. jonathan: the economic outcomes are complicated. there are so many different variables to manage. if you are more aggressive on tariffs you get a stronger dollar, we have ended up with a weaker dollar, it complicates things. lisa: because of potential

growth fears, you cannot just say this is people questioning u.s. exceptionalism. jonathan: check out this story, mark carney winning the race to replace justin trudeau. the possibility of a national election soon after. who is in a world of pain? the leader of the conservative party is setting -- sitting pretty comfortable. all of a sudden this trade war starts and it completely turns this race on its head. annmarie: canadians prefer mark carney goes toe to to with donald trump on trade. your will see him have a win and push it too far. they are saying all canadians need to stick together and we are going to go probably stay with the liberal party. pretty incredible, mark carney coming out. americans should make no

mistake. in trade as in hockey, canada will win. jonathan: this alliance would've allowed the trump administration to read some of their goals. wanted to work with them closely on a number of key issues. now you are faced with trump trying to work with carney potentially. lisa: an incredibly angry population of canadians that want to stick it to the americans. in enact some of the policies he is about to do. jonathan: we still have an election and we will see what happens in canada. this is not where we expected to be, not for this country. house republicans, a spending bill to have the government open through september 30. president trump calling on lawmakers to pass the bill. this is the house of course. what is going on with this effort? annmarie: donald trump is

definitely going to be calling everyone if there is fear. he said last night it could happen, a funding lapse but it probably won't. you never know with congress. it probably won't. as soon as tuesday, tomorrow, we could have a vote in the house. do you know why? it is politically unstable and not good for anyone. once we pass this, we moved to tax cuts. annmarie: we moved to debt ceiling and then tax cuts. there is a deadline, some provisions of it expire. as scott bessent has talked about, they will see a tax hike, which you don't want to do. lisa: are they like the candy? are the vegetables the first half year, som of the doge cuts

and tariff war? jonathan: lots of people don't like their vegetables. lisa: do you? jonathan: sure. lisa: my kids like their vegetables. jonathan: could i move on? we should probably move on. increased tariffs and job cuts, the payrolls report was not far off expectations. details of the report suggest a softening trend in labor demand. let's talk about those details. what concerns you at the moment? monica: this looked like the jobs report from six or seven months ago. the increased unemployment rate is still in range alongside participation. maybe some people leaving the labor force. unemployment would've been even

higher if that hadn't happened. the details of payrolls, hours worked coming down. it doesn't feel like there's a lot of demand for workers right now. lisa: it raises the question of how resilient this labor market is. what is your sense, i know you have been saying the economy was weakening. how offset are people with the robustness of the labor market? veronica: this has looked like a very low churn labor market, low higher, low quits, low layoffs. the labor market is not very well-positioned to absorb a shock even if it is coming from government. we are tracking the numbers of those layoffs and the direct impact of those might be minimal enough. a couple tenths could get bigger. i worry about the spillover to the private contractors and just hiring is solo.

it might be going lower in the face of uncertainty. that could be the bigger impact on the labor market. lisa: it seems like there's a sense that you take your pain up front and it is moving on one or two year cycle. president trump saying he judges himself quarters. could you talk about the timeframe of the labor market that is slower moving? veronica: we have come a long way in terms of the labor market loosening already. it looked like there was some stability. i think we are at that point where in past cycles you have seen this much sharper increase in the unemployment rate. it has been slow-moving for now. maybe taking a bit longer to get to that last stage then usual. annmarie: what kind of impact is doge having on the labor market? veronica: we will start to see

that in the march employment report. it wasn't showing up in the february data quite yet. something around 40-60, the bigger numbers will come over the summer. we have these plans for mass layoffs over the summer. maybe something like 300,000, maybe more. annmarie: could the private sector absorb these jobs? veronica: i don't think so. it is a private sector that has been weakening for a while. the private sector will feel some of this also. government contractors, those will be people not spending the economy as much. jonathan: is that the ultimate goal of the administration? to rebalance the economy and your response is i don't think so? veronica: in a nice, orderly rebalancing i think no. we had a weaker view of the economy going into this year already. we see that in the day that.

this is a precarious labor market. jonathan: is it a rebound a fed needs to report? veronica: i think they will be there to support the labor market. we have concerns of inflation and tariffs related to that. if this is a true weakening economy you cannot demand higher wages, you are not as worried about the persistent inflation from this. lisa: what does the fed have to say to start cutting rates? do we have to see the rates of a recession size before we start engaging? veronica: we we getting more concerned on the labor market on the growth side of things. if you see inflation data, maybe add to that confidence that inflation is slowing. they could be cutting as soon as may. jonathan: wednesday four cpi. two things to look for,

veronica, good to see you. let's get an update on stories elsewhere with your bloomberg brief, here is dani burger. dani: president donald trump says he's negotiating with four different buyers for tiktok's u.s. business. trump did not specify who the contenders were. tiktok faces an april deadline for its u.s. operations or be banned under bipartisan law passed last year. elon musk has called on the u.s. to quit nato. he called for the u.s. to exit the block saying we really should and it doesn't make sense for america to pay for the defense of europe. trump has discussed calibrating u.s. engagement with nato favoring countries that pay higher percentage of gdp on defense. tesla shares falling more than 3% in the premarket, shipments and china have been declining three straight months. they fell 45 percent in february

compared to a year ago. they have been losing market share. jonathan: up next, is the u.s. losing its? >> currency, u.s. equity performance to the rest of the world, all of the consensus trade at the beginning of the year have been upended. this notion of u.s. edge, i'm worried this energy is being eroded right now. jonathan: from new york city, this is bloomberg. ♪

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jonathan: leaving behind the biggest weekly loss in september and adding to it.

one full percentage point on the s&p 500. the 10 year, 4.24. the euro-dollar approaching 1.09. under surveillance this morning, the u.s. losing its? >> currency, relative u.s. equity performance compared to the rest of the world, all of the consensus trades at the beginning of the year. the u.s. is still not as clean for outsiders as it was a few weeks ago. this notion of the u.s. edge. i worry this edge is being eroded right now. jonathan: investors looking for opportunities outside of the united states. our economists expect the u.s. tariff rate will raise three times more this year than it did during trade war 1.0.

the policy changes and foreign policy response, joining us now for more. i want to pick up on this dollar trade story first of all. last time around, tariffs up, dollars stronger. we came into 2025 thinking about the same kind of playbook. what has changed? >> good morning, thanks for having me. it is not just the difference between last time around, think about the response of tariffs in mexico at the end of january. we saw near term rates up, what has changed? at that point and too much of the trade war one point zero, the markets were focused on the inflationary impact of tariffs. as u.s. growth views have repriced lower the focus has shifted dramatically.

that is mediating the tariff response. now when there is more tariffs and that uncertainty rises again , it is more nervous about what it does to u.s. growth then it worries about inflation. that is what is causing the tariff response to be much more muted. lisa: could we sit on the idea that slower growth in the u.s. is causing investors, traders to move away from the dollar? that is different than in the past. it is not just the u.s. that will face growth stock, it is other economies as well. what is the u.s. look like it will suffer more or have a more significant generation than a did a month ago? kamakshya: some of it is the way the data has panned out. a lot of expectations including ours increase in tariff uncertainty and the broader environment of policy uncertainty appears to be weighing more on the u.s.

economy then the trade uncertainty appears to be on the chinese data or european data. those look to have bottomed the little bit. the way it is played out, i think markets are seeing that concern reflected more on the u.s. side than the rest of the world. what it refers to is narrowed on some stuff going on in the rest of the world as well. you had a big shift in german fiscal policy turning on its head. china also talking about how big the fiscal deficit. that takes a big step towards achieving better global balance and that's what i think is also weighing on the dollar. lisa: i get the story given you have the potential biggest fiscal spending package going back in decades in europe. especially talking before april 2, the real tariff plan will get released. is there a risk in your view that people have gone too far

that the u.s. dollar has peaked and the euro is the new place to be? kamakshya: i worry a little about that risk as well. we made a big shift in markets. we are showing the euro-dollar going close to parity going 1.10 in a couple of weeks. there is this big shift in fiscal spending that we are talking about in europe. there will be battles, hiccups, nothing happens easy in the euro area when it comes to spending money. tactically you could see some reversals. it is important to zoom out of it. if you can't it -- if you are thinking of a macro constellation that leads to the overvaluation of the dollar it would look something like this. the u.s. growth repricing, coming down. more fiscal spending in europe and china.

asset market look turns -- returns. in terms of the bigger picture, i don't think we have gone too far. you could have some tactical backend or. annmarie: when it comes to donald trump, he wanted a weaker dollar because of trade, manufacturing, selling products outside. do you think this is part of what they are trying to do when it comes to global realignment? kamakshya: there is pressure on the rest of the world to boost domestic demand, defense spending, it is all part of that global realignment the administration has talked about. i don't think it was a designed to have a weaker dollar. that is not part of the agenda going forward. i think that is the big picture to focus on.

does the rest of the world really step up the plate to get this balanced asset market picture? is it a question of u.s. growth being a bit softer? annmarie: he talks about the cftc data that wiped out the entire euro short. we have this repricing he is talking about. we don't have the gdp forecast to back it up. how do you think about the rest of the year just on headlines? kamakshya: i do think there will be a lot of whips on on headlines. the move in currency is generally developing equity performance and rate. the gdp forecast changes from 2025. the market is looking ahead.

what this could potentially mean for 2026 and 2027. a broader increase in demand. it has been very absent the past few years. if that plays out, that is a big shift. jonathan: let's finish on europe, i want to talk about italy. spreads were pretty steady last week. the bad news is because spreads were steady, i wonder when that starts to be a problem or whether you see that as a factor of rebalancing in europe and a better story, is a good news or bad news? kamakshya: the key is always growth. in an environment where the cyclical growth is upgraded, europe and italy could have the higher nominal growth profile. i think they will be ok and italy will be fine. if you get the fiscal spending and yields going up and you don't the follow-through and

growth, nominal quantities, that is when the sovereign side of things gets a little bit tricky. that's not what we expect given the nature of the news we are getting so far. jonathan: good to get your thoughts as always. not a problem for italy yet. might become one further down the road. lisa: let's talk about italy, how beautiful is it? would we go? annmarie: is there a self-limiting factor to the spending plans that are getting price them before they even happen when the economy there still needs a lot of growth? it does raise the sequencing issue and a time when the markets are getting ahead of some of these land. jonathan: infrastructure spending is quite another. we will see what takes place in europe. the markets anticipating getting ahead of it. in the second hour of bloomberg surveillance we will catch up with henrietta treys, kelly and

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>> i think that is being replaced by recession fears. >> there's a very big difference between falling into recession and collapsing growth versus decelerating growth. >> the attitude on the inflation side of the fixture -- picture is very different now. >> we will see more of it, it could snowball as things go forward.

>> i worry this edge is being eroded right now. >> this is "bloomberg surveillance" with jonathan ferro, lisa abramowicz, and annmarie hordern. jonathan: a defensive set up in the financial markets across assets to start this morning. equity futures on the s&p, on the nasdaq we are lower by 1.2%. we see a similar picture in the bond market. on the 10 year this morning we are down six basis points. lisa: the big question with bond markets, is it just in hibernation? is there a point when donald trump does come in and start to support some of the equity valuations? are we talking about the wrong game? are we talking about a that prioritizes something no longer on the rise?

a reordering of global trade and the way we haven't done in decades. jonathan: who is going to step in? not the federal reserve. not the president of the united states. the president or treasury secretary on rebalancing this economy. annmarie: trump said you can't really watch the stock market. that is not the barometer of what they are watching. there is a longer-term outlook. they are focused on the stock market between secretary besson and donald trump, we cannot make it any clearer. jonathan: this is a shift from where we were back in 2016, 2017 in the first term of the trump administration. cpi on wednesday, could be

inflation open the door for the federal reserve to step in? lisa: some people might see that as the case. the problem is you take a look at february, are you really getting a clear picture where you understand ramifications and current policies on the underlying economy? there is this ultimate question of how do you calibrate the economy and data moving quickly at a time where a growing number of analysts and wall street are just throwing out assumptions? annmarie:annmarie: i go back to what mohammed said to us. listen to a corporate executives are saying. here's the list, best buy, giant wildcard. why are there price increases? potentially because of tariffs. kroger shifting to geographies that will be less affected to keep prices low. very interesting in terms of what these executives are saying

. jonathan: i think they have been very clear about what they want to do. how much pain are they willing to accept in the meantime? lots of government at the border. immigration will come down, tariffs go up. spending is going to drop. we will allow the private market to step in. that is the rebalancing we are talking about. the strategic anchor for us is the policy makes us positive and in 12 months we will be in a battle -- better place. how much pain are you willing to accept? are you willing to buy the recovery to the downturn that hasn't happened yet? could it get worse? the hard data is actually still ok. lisa: you kind of have to stay invested, it could go down before goes up. the good is coming on the backend end of this year. the question i kept asking

myself, something that the fed has talked about a lot. a loss in buying power and earning power stays for a long period of time. they do start to escalate on themselves. on the broader economic level, does it get away from some of the overall grand plan? jonathan: chairman powell in the summer of 22, i thought it was easy for chairman powell to say because he's not elected. the midterms are right around the corner. they will come up quickly. how much pain are you willing to accept? lisa: it's one of the fundamental problems where people have plans that could be executed over years. jonathan: that's why china has a 100 year plan, they don't do elections. not a story we want stateside. just to clarify. [laughter] coming up this hour with markets whipsawed, president trump with

aluminum tariffs on deck. we will speak to kelly and shaw on why opportunity is a future. stocks lower, s&p 500 expending -- extending losses following the worst weeks in september. investors attempting to determine whether tariff policy will prove more bark than bite. more bite creates higher costs. more bark generates more noise. what is the price of that noise? >> certainly we are seeing markets shutter in the united states and rally abroad. that is a function of many factors. one is the u.s. backing away from the 80 plus year historical security agreement with europe and our other allies from singapore, japan, beyond.

into this reality over the last couple of weeks, you have reported on this quite well. you have germany out last week, this is a country that has embraced austerity. they have a very high savings rate. they are going to spend 20% of their gdp to defend their country. the eu will spend up to one trillion euros or more. here in the united states we have the tariff debate, doge, fiscal stimulus that began during covid really waning now. not to mention the president has had the remaining funding from a good portion of the chips act. that is only going to reduce liquidity in the united states. you have valuations which are relative to the rest of the world. lots to contend with. lisa: how much are you buying

this idea that there's so much more to come at a time where we are pricing and they will do all of these things like you just said even though there are potential roadblocks? aaron: the next two weeks in germany are important. you have a parliamentary seats changing. if they could move before then, there is a much higher likelihood that some of the spending will occur, they will pass funding in germany. this is an existential threat to europe. this is now being taken very seriously in europe donald trump was asked if he would defend a native country, if they paid their bill. if there's a country like

estonia from 2%-4%, if they only make it to 3.9%, the united states would not come to their defense? there are huge unknowns here. that is the problem with tariffs . there are unknowns here. it is not that the market can't react to a tariff if we understand what the details of a tariff are, there is so much uncertainty on both timing, which countries are next? is it china and then maybe the next largest economy in the world, germany and japan? what is the order, what is the cadence? there are a lot of unknowns. jonathan: one of those unknowns is the prepended -- proposed spending in germany and whether it could happen? do you just assume these are teething problems or do you think there is a chance that maybe these plans don't become reality? aaron: there is certainly a

chance. this is the first moment in my lifetime where this type of spending is occurring for a reason that is existential to the sovereignty of these nations. there is a greater likelihood that we will see it for sure. post two thousand 8, 2009, spending during covid. we have to keep that in mind. lisa: people talk about how wall street firms don't want to be the first to change their views. we are getting a lot of revisions in terms of downgrading u.s. growths, upgrading expectations. could you give us a sense of what you have been doing in the past week or two and how you have been shifting allocations to the transformative news we have been hearing?

aaron: we mentioned the importance of thinking long and hard, we have ensured that to the extent that clients who need to have non-us exposure or should have non-us exposure, we are looking at our targets and making sure we are at the right levels. also thinking about non-correlated investments in the alternative space. whether that is arbitrage or traditional merger arbitrage. there are many non-correlated alternatives. not just sort of private credit, which is highly correlated. just thinking about the fixed income market. where do you want to have duration with the u.s. economy slowing down? where do you want to have your credit exposure? we are pushing our treasury mortgage a little further out the curve. this is what we were doing several weeks ago.

that worked out reasonably well. as growth expectations have come down you will capture more upside as they rally. jonathan: thanks for breaking it down for us. two things to look at to take the temperature of the story. the bond market after a 40 plus basis point move in germany this past week. the fx market, the biggest week of euro strength come back since 2009. german debt market, yields up a little bit lower. the euro coming off session highs, stronger on the day as this crosses out of germany, -- annmarie: if they don't get more support behind this proposal it will not pass. it needs two thirds majority to eliminate the zero debt break.

just to give you a sense of what the timeframe is. discussions take place on march 13. how much is this a negotiating tactic and how much is this basically the green party saying this isn't going to happen? jonathan: i will let the market do the speaking. ultimately, we will see. lisa: the reason why it is fair to say europe has often struggled to get this passed. the market is running away with the story, how much does this really put the euro-dollar at risk as this will be a choppy procedure. annmarie: they hold the cards. the entire idea, entire package will either fall or pass, which is why they have a tremendous amount of leverage. they might be using that right now. jonathan: right now the euro just off session highs. let's get an update on things

elsewhere with your bloomberg brief. dani: house republicans unveiled a spending bill to keep federal agencies open through september 30 setting up a potential confrontation with democrats. president trump called on gop lawmakers to pass the bill. congress must act by friday to avoid a partial government shutdown. israel has said it's already limited electricity to the gaza strip. the six-week gaza truce expired a week ago. an open-ended suspension of hostilities. morgan stanley's michael wilson says stocks are at risk of slumping another 5% on concerns about tariffs and lower fiscal spending. he expects the s&p 500 to get a low of about 5500 in the first half of the year before recovering to 6500 and 2025.

that is your brief. jonathan: thank you. up next on the program, is a recession on the table? president trump: i hate to look at things like that, there is a period of transition. we are bringing wealth back to america. it is a good thing. there are always periods, it takes a little time. jonathan: henrietta treyz of veda partners. live from new york city, good morning. ♪

jonathan: stocks down 1% on the

s&p 500. in the bond market lower by five or six bases went. under surveillance this morning, is a recession on the table? president trump: there is a period of transition. we are bringing wealth back to america. that is a good thing. there are all these periods, it takes a little time, it takes a little time. jonathan: president donald trump refusing to rule out a recession with more tariffs set to take effect on wednesday. the debate we are having throughout the table is it seems to be very key to balance the economy, how much pain are they willing to take? >> it appears there seems to be a higher threshold than

previously believed. you have president trump talk about this idea that he acknowledges there is a disturbance but there doesn't seem to be any indications that the policy will be ruled out. businesses could wreak -- expect more reliability and his answer was he's at liberty to hike tariffs even higher and he's not sure if there's any predictability around that. also notable, commerce secretary howard lutnick saying it americans should brace for higher prices and u.s. goods will ultimately go down over the long-term but there might be that transition period as well. an evolving rhetoric when it comes to the white house when you look ahead to what has been shifting tariff plans. they are expecting those steel and aluminum tariffs to go into place. we have been told not to expect any exceptions. that is where economists say

consumers could get hit particularly hard. annmarie: are we going to get carveouts or exemptions when it comes to some companies, especially downstream companies? tyler: at the moment we are not expecting any. we should expect the conversation from the white house to start to shift with the rhetoric. that conversation is still going to shift to talk about national security concerns. whether or not countries could prove to president trump that they pose this for example, that might end up being here. one of the country starting bidding for president trump's favor when it comes to metal imports, canada and mexico get hit particularly hard. we will see is an all shakes out. jonathan: tyler kendall in washington, d.c., joining us now is henrietta treyz.

a really revealing conversation with the president of the united states over the weekend. i took away a lot about when he was thinking about trade. a lot of people maybe didn't get the answers they want, what did you learn? henrietta: the president is saying there might be a recession this year, he's not going to predict but maybe that's the direction it is going. what's really striking to me is we are about to enact $5 trillion worth of tax policy. effectively with the president saying is that is not stimulative. it's not enough to offset the impact of the tariffs. it's not enough to offset what doge is doing in terms of firing federal employees. that's the most striking part. for trillion dollars is deficit financed, there's a higher potential for recession because of the foreign policy trade. annmarie: they are not fresh

cuts, we are extending what we have right now. they are exactly an extension of existing policy. all the stimulative provisions have been posted as part of the tax deal in 2017. there's a 14 percentage point reduction in the corporate rate that was stimulative. the reason inflation partially in the wake of the trade war is just because we cut corporate rates by 14 percentage points. some of the members on the house republican congress are talking about raising the corporate rate to 23% which could generate $150 billion of revenue per point. it is just an exception of the status quo. lisa: when it comes to a trump is not paying attention to, he's not really paying attention to

the equity markets, at what point does he pay attention to the polling? last week a poll was talk about how most americans wanted to focus on inflation and bringing prices down, something that he ran on. henrietta: i do not buy the narrative that trump follows the stock market. i think he follows it when it's positive. when it's negative he tries to limit foreign engagement in the stock market. what i think is important is pointing out polling data, i'm constantly stress testing whether or not they continue to support president trump. they think tariffs are a good idea, they believe the president has some priorities that are not there is right now, egg prices being $11 per carton. where does not exist is house republican congress -- conference or senate republican conference. you are seeing members come out of the woodwork like oklahoma to

get carveouts from doge, keeping the weather service open. those are members specific problems that do not have the benefit of the extreme popularity that trump does. you will see a fisher between republicans and trump. lisa: maybe we need a lower benchmark rate in order for him to actually carry out some of his plans including those tax cuts which may not be all that stimulative. this may all be by design to try to lead to lower rates. otherwise the fiscal picture does not make sense. does that have validity to you? henrietta: it generate some economic feedback. there is part of a corporate labor production gets offset on taxation. it thousand covering the full cost. if the one percentage point on the corporate tax cost $150 billion you would get an economic feedback number.

it doesn't cover the cost. it generate some economic growth. another thing investors are focused on, expensing, that encourages you to go out and buy some machinery and get it to work. i think you could see those pieces. the shift needs to be changed. bonus depreciation is something we could see for a period of time. jonathan: appreciate your input as always. henrietta treyz struggling to get clarity on trains. really interesting exchange between the president of the united states over trade. whether we get that clarity anytime soon, that's what most officials, most people running businesses want, whether it is 5%, 10%, 15%, what is paramount is knowing if it will be 10%, 15% so we could plan.

the president has said it might go up, it might go up more. lisa: that's almost like a soundbite. we want clarity. he said you have clarity. he went on to say you have our plan. what more do you need? annmarie: also very telling right now, he told reporters over the weekend he doesn't like the word exemption. when i go into the oval office he says i will probably get kicked out. don't expect too many of those. jonathan: had a great phrase in the last week, macro paralysis. confident but not doing anything. former a seizure -- deputy director kelly ann shaw. trump's aluminum tariffs, on deck.

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♪ jonathan: two hours away in the opening bell, on the nasdaq, we are down by 1.1. i want to settle on europe and look at the german 10 year euro-dollar. this is what we have heard, they plan to reject a package in parliament. that took the euro off the highs and sent the bond yield to germany lower initially. the key part of the story is they seem to be annoyed they were left out of talks about the debt plan and they signaled they want to come to an agreement and were prepared to negotiate a

real reform. germany is still pointing in the right direction as far as the market is concerned. it's just not going to be as easy as some people thought it might be. lisa: which goes to the point they are willing to negotiate which is a positive to this getting done, not an obstacle. the key question is can they go through with something that is potentially an existential threat that they need to do or will it be stymied in office, procedural disagreement that we have seen in the region? this speaks more to negotiation than obstacle. jonathan: the market is speaking loud and clear. this market believes this is going to happen. if it didn't, you wouldn't see the euro being positive on the day and you wouldn't see the german 10 year yield lower by three or four basis points. lisa: if they were looking to mock this, they would criticize

the spending and the goal of it. they would not criticize their particular involvement of it. they just want their say too. everything could change but that seems to be the tone in markets. jonathan: we will see if that changes. the euro is stronger. let's get you up to speed on equities. here is manus cranny. >> the laggard last leak was tesla, down 10% and down for seven straight weeks. it will start on the back foot. this is a manifestation of concerns around politics and production. roll it over, airbnb, giving you a little bit of light -- this is novo nordisk. this is the next generation of weight loss drugs. people lost 15.7% weight loss over a period of time. the expectation was

higher. it was at 20% weight loss. now we will have airbnb. in the midst of all of this recession talk, airbnb, they have upgraded the stock. price target, $185. jonathan: more from manus cranny later on this morning. on our radar, president donald trump reiterating there will be growing pains as his policies no into effect. >> i hate to predict things like that. there is a period of transition because what we are doing is very big. we are bringing wealth back to america. that's a big thing. there are all these periods -- it takes a little time. it takes a little time. jonathan: will there be a recession? i won't forecast that, there

will be a period of transition. it takes time. annmarie: what you are hearing from the presence here -- president and scott bessent that they are preparing the american people for this and two, they think it is necessary for long-term gains to have short-term pain. if you see people being laid off and the scars that leaves -- lisa: right now, you are not trade 538 came out with a pole and donald trump's approval rating is at 48%. i've been watching those polls to see if they have been shifting and they have not been. that is telling. he still has some leeway to go. that's the reason why, it's hard to see why he would take a step back from this approach. jonathan: we haven't had a massive gap lower just yet. we might in the future. we are at 6%, 7% on the s&p? lisa: it feels more dramatic than it is.

wall street has downgraded the forecast significantly. you are seeing goldman sachs, it went he percent chance on friday of a recession. you saw a 40% chance -- a 20% chance on friday of a recession. you saw a 40% chance from j.p. morgan. jonathan: let's give you the latest elsewhere, elon musk urging the u.s. to exit nato, saying it does not make sense for the u.s. to pay for the defense of europe. >> this is a lot of consternation between nato allies because of elon musk. the proximity of power he has to president donald trump. last week in the oval office when trump was asked about nina, he said do you think they will come and protect us? -- nato, he said do you think they will come and protect us? i'm not sure. we know the united states is pressuring nato allies to spend more. 5% of gdp, the united states does not but maybe they will get to. i would struggle with what scott

bessent said. he said the increased burden sharing of security is critical. -- basically, we are no longer going to fund these social programs that europe has the blessing of having. lisa: if people are worried about the green party stymieing a negotiation in germany, this pushes it that much further. if the u.s. drops out of nato, let's keep going. jonathan: have you seen the meme, you're about to find out why america doesn't have socialized health care with the fighter jets? annmarie: we have an $800 billion defense budget. jonathan: doge and elon musk got a shout out at the berkeley

center friday and there was a roar. lisa: the concept of reducing waste and becoming more efficient is hugely popular. it is something a lot of people should embrace. the question remains how it's being done and whether it will be effective and frankly if the people who are affected by it will feel the same about it. that's the key question as this unfolds. jonathan: i want doge to come to my house. lisa: and deal with what? jonathan: we will talk about that another time. -- this story at and center. annmarie: because the clock is ticking. tick tock. trump could extend it, he could give these parties more time. more people come into the ring when it comes to who want to take over tiktok.

then beijing has to sign off on it. jonathan: 25% tariffs on steel and aluminum costs. the ambiguity of trump's tariff plans are a future and not a bug as he sets to negotiate oath usmca and relationships with a number of key trading partners. welcome to the program. those negotiations are set to kick off in the next month at the start of april when we get the reciprocal tariffs. what are you expecting to see in the next month or so? >> good morning. i think what's been really interesting is despite the fact that last week's tariff action on canada and mexico was the single largest tariff action of any president in modern history, the administration can keep saying hold your breath and wait until april 2. i'm exciting the announcement of large tariffs on a number of u.s. trading partners, particularly those with large trade deficits which will give them an opportunity to negotiate their weight out of what the

ministration has planned in terms of rebalancing those trading co. relationships. annmarie: how long until we see tariffs actually take place? >> the truth is we don't know yet. we are not clear with how the ministration intends to structure this. other they intend to move forward with tariffs on something like section 33. or, whether they will announce their plan and take those off into investigations which would take several months before that went into effect. they could pick either path. annmarie: if it's a path where they will have more time, does that mean trump is a negotiating mode and he's happy to pull back the terror threat if he gets something from one of the trading partners? >> i think the president has been clear he's open to negotiations on these reciprocal tariffs. his idea is that we will charge you when you charge us. if other countries come to the table and lower their own tariff

barriers, the tariff rates would go down on the u.s. side as well. that is the beauty of this concept of reciprocity. it is the a pitta me of fairness from the perspective of the president. -- the epitome of fairness from the president's perspective. annmarie: do you a speck the tariffs to go down over the weekend? >> i do. i think it is a redo of what the ministration did in 2018. there were so many exceptions and so many exclusions that it became a loophole you could drive a truck through. they are starting with the maximum tariff approach when it comes to steel and aluminum. i think there is room for australia, canada and mexico to get country exclusion but he's moving forward with the full measure i think. lisa: production might move more quickly out of the united states if the 25% tariffs do continue, particularly on canada and mexico.

i am talking about auto parts makers in particular. how much do you think the president accounts for this type of behavior at a time where companies are trying to insulate themselves from headline risk? >> yeah, i think that the president's reaction to pair back some of the canada and mexico tariffs and say for companies that are applying for usmca that you would be exempt shows the president is paying attention to this. and it's not just about production in america and north america. this is an administration that is focused on production. not only are the using tariffs to achieve that but they have forecasted when it comes to tax cuts, deregulation and a number of other policies, they will do what they can to incentivize producing in the u.s. and north america. lisa: what do you make of the theory that this is all by design? that a little pain is the goal, to offset increasing

expenses that the u.s. is paying ? do you believe that could be by design? >> i'm not sure if that's the objective of the administration. when they talk about the fact that there will be pain and when the president talks about this transition period, they are talking about the fact they have their eye on the ball, 10 steps ahead. at the end of the administration, they want to be in a place where u.s. trading relationships are in a more balanced position, where there are lower tax rates and there is a greater incentive to produce in the united states and what they referred to as this golden age of manufacturing and golden age of production. but that will not be easy to get to, it's not a straight line. if some of these other economic consequences are happening, that is part of the entire measure. i'm not sure all of these are necessarily intended consequences. annmarie: there is one place we know tariffs are going to stick, china. 20%.

china's reciprocal tariffs on the united states, the retaliatory measures have gone into place for a number of agricultural products. given that you were there for phase one, do you think there is a bigger deal to be had at the end of this when it comes to china? i remember 2018, there were billions of dollars of losses from the agricultural sector in the united states and trump had to have a bailout for these farmers. >> agriculture is at the tip of the sphere. they are the first to get retaliated against. they are one of the most politically sensitive rocks in the united states and every member of congress has some form of agriculture in their district which is why it's so attractive for trading partners to hit them first. we will have to see where this goes. the president has tweeted and posted on truth social about taking care of farmers. i think he's keenly aware that they are getting hit first. when it comes to china and some sort of trade deal, the jury is out. we will have to see what happens

and whether china wants to come to the table with the united states and vice versa. april 2, there is a report on china's compliance with the phase one deal. and then china's ip practices. i fully expect this relationship to get more tumultuous before it gets better. maybe in the spring or summer, there might be some room for negotiating it back down. jonathan: well said. we get tariffs potentially on steel and aluminum this week and next month, it's reciprocal tariffs time which will be the big one, we are told by the administration. here's your bloomberg brief with dani burger. >> president trump is set to meet with ceos and major tech companies in the white house. that includes hp, intel, ibm and qualcomm. the meeting will focus on trade policy and u.s. manufacturing with lots of questions on expected policy change including tariffs and stricter import rules that could impact the tech

industries global supply chains. a new gaza cease-fire deal is possible within weeks. the possible agreement could even see israel recover all hostages held by hamas. a six-week truce expired earlier this month with both sides divided on conditions for more suspension of hostilities. a check on novo nordisk's shares , down 6.4%. that is after the drug maker's next generation shop showed a 15.7 percent weight loss in a clinical trial of people with diabetes. patients were allowed to choose their dose of the medicine and after 68 weeks, less than two thirds were on the highest dose. shares have fallen 37%. that number will not be able to compete with competitors long-term. jonathan: more from dani burger in 30 minutes time. separating signal from noise. >> there have been recent

developments in some of these areas, especially trade policy and uncertainty around their changes remains high. as we parse the incoming information, we are focused on separating the signal from the noise. jonathan: the chairman of the federal reserve, in no rush to cut interest rates. coming up next, michael zesas from morgan stanley. this is bloomberg. ♪

jonathan: extended losses going into the opening bell. down more than 1% on the s&p. separating signal from noise. >> the new administration is in

the process of implementing significant policy changes in four distinct areas. trade, immigration, fiscal policy and regulation. while there are recent development in some of these areas, especially trade policy, uncertainty around their changes and the likely effects remains high. as we parse the incoming information, we are focused on separating signal from noise. jonathan: the fed chair tackling these issues head on. michael of morgan stanley writing there is a near-term cost to the economic transition the u.s. is pursuing. and fiscal policy may not be much of a medic in. -- mitigate her. nt. >> -- they think they can get domestic manufacturing tax credits in there.

kind of taking current policy forward in the aggregate. what you are experiencing right now is impending growth in a challenging way. >> when you say manufacturing credit for domestic producers, do you mean a lower tax rate? >> that would be the result. if you take that credit because you are fully manufacturing credit and paying a lower tax rate. we don't think they will actually create a separate tax rate and a separate tax structure. >> what happens to things like no tax on tips and no tax on social security, all of these things trump was throwing out during the campaign trail. >> we don't have either of those things in the baseline because we don't -- republicans have a slim majority. we don't think they will be able to tackle or bring forward enough pay force to fit inside

of the budget reconciliation shell they have. in particular, that budget reconciliation shell calls for spending cuts that we don't think we'll be able to materialize or have the votes to get through. >> even if desert comes, it's not really dessert. is nothing exciting for this market, it's an extension of what we have, status quo. michael: i think that's mostly right. there are some sectoral elements that are beneficial. for the most part, we are taking current policy and extending it forward. it's better than if we let the tax cuts its fire -- expire but it's not a stimulant. lisa: we will work on that a little layer. -- later. the execution risks and potential costs are hard to ignore. the outlook is skewing more

favorable for bonds over equities. can you give us a sense of the execution risks you see on the horizon that seemed to be very worrying to wall street. but, frankly, that aren't meeting the popularity of some of these programs in the polls? michael: we have not realized or experienced the impacts. the trump administration has clear goals on what it wants the economy to look like. they want more secure supply chains. you might completely agree with those polls. the tactics you are using to achieve that speed it up. those goals were not shared by the last administration. the trump administration was moving faster, using tariffs. the execution risk is what we are talking about, what economists were talking about, lower expected growth for this year. so, that's the execution risk. you have to accept lower growth in the short term. but we don't know is the

reaction function from the rest of the world and how that comes back to impact the u.s. this might be a transition you agree with. but it does cost something that we have to deal with in the short term. lisa: the u.s. was on a collision course with its interest payments and it would have been so damaging that it would have created a crisis anyway. if you didn't have lower 10 year treasury yields, you would run into a problem in the near term, especially if you wanted to pass an exception of these tax cuts. are you sympathetic to that view? michael: it's hard for me to know if the administration is pursuing that as a strategy or if that was a strategic concern of theirs. don't think there is anything intrinsically problematic in the near term about the u.s.'s fiscal posture. for example, if we are extending current tax policy, we are looking at something like deficit stability in the near term. i think the policies we are seeing our about achieving restructuring goals and the net

effect of that is lower growth in the short term and we will probably get a more dovish fit. that puts yields lower and that's why we are more constructive on bonds. jonathan: what's the shape of the yield curve? -- what does that mean for the shape of the yield curve? michael: the shorter curve should stay at the higher end. may have to look at the incoming data and make sure what we are seeing from tariffs is not a permanent thing. meanwhile, the 10 year point, reflecting growth concerns should come. jonathan: postelection where we have this big statement coming through, they start to take control. lisa: it matches the idea that people expected the acceleration in growth at the end of last year and now it's the opposite. do we get a re-inversion of the yield curve and what does that say when this is an

administration targeting 10 year yields? jonathan: good to see you. is it by design? it is something a lot of people are talking about right now, that's for sure. lisa: you have to imagine that at a time for the deficit is the biggest concern for an administration that wants to cut taxes and engage in some of the sweeteners, you have to think it's convenient that you have yields coming down. in that interview with donald trump over the weekend, when maria asked him are you concerned about inflation and he said trump said you may get it, he said guess what, interest rates are down. jonathan: the 10 year for 24, on 30's, we are down five. on the 30 year maturity, we are down to 4.55. we will catch out with barbara reinhardt, gerard cassidy. the banks have been hammered. we will speak to neil

dutta. this is bloomberg. ♪ >> bringing you up news whenever and wherever it happens. this is bloomberg. ♪

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>> we came into this year with such high valuations and such

stretch expectations that there is still very little room to absorb any kind of bad news. >> it's clear we have headwinds mounting. >> every single consensus trade has been upended. >> risk assets are very vulnerable. >> there is risk of something deeper than a 10% drawdown. that is rising. >> this is bloomberg surveillance with jonathan abramowitz, lisa -- jonathan ferro, lisa abramowicz and annmarie hordern. jonathan: later on this week, cpi on a wednesday. bpi later. another deadline for tariffs, this time, 25% on steel and aluminum. lisa: we heard from kelly and shaw and -- kelly ann shaw. i love what stuart kaiser said. he said michigan is oddly

important. jonathan: we are sitting here, waiting to see whether any of the uncertainty or the lack of clarity on trade -- things are about ok on a headline basis. annmarie: when you look at what ceos are saying, they are looking at the fact that this will be challenging. how do they digest this and how much will they be passing on to consumers? and it comes to wednesday, the 25% on aluminum and steel, steve said that's not even peek uncertainty when it comes to tariffs. we have an entire month. -- month to wait. april 2 is when we will get the outline on reciprocal tariffs. jonathan: he said tariffs might go up. lisa: they might go down. he won't give any clarity and that's by design because that is a negotiating feature. in the meantime, what do businesses do and how much can they engage with some sort of

spending package or some sort of execution plans, if they have a lack of certainty? that's the reason why tomorrow, the nfib small business optimism survey will be important. do you see the shift come out in that data? jonathan: confidence was skyhigh. we want to see that translate into higher income and more investment. you keep hearing the same thing over and over again. wait and see treat even the chairman of the fed is saying we will wait and see, we will not cut interest rates. macro paralysis. i think it is a perfect quote. that's the moment we are in at the moment. lisa: paralysis is a decision and that is something you made the point of last week. if you have a lot of in action, it has consequences and that will show up in the data. there's a reason why it is difficult to look at backward-looking data and use it as a benchmark for what's to come and the reason why it is

getting more choppy. annmarie: kevin said, pointing to the gains that are set to come. talking about we need the deregulation train and the tax cuts or the extension of tcg a to make sure they have the ground running and offset what we are seeing. jonathan: good data is trump data, bad data is biden data. are we clear on that now? >> sure. [laughter] jonathan: it's not my presidents data. kevin comes with me on friday and said we are making changes already and you see the benefits. lisa: donald trump says if there's pain, there's pain because we are looking for long-term gain. at a certain point, does it even matter? that's the reason why it is difficult to get a handle, whether it is trump data or biting data, it is a quickly moving economic backtrack. jonathan: coming up, we will catch up with barbara reinhard.

gerard cassidy. barbara reinhard wrote it is challenging to have strong views in this turbulent market environment. if the prior trump administration is guidance, ratified trade policies should be better than feared. is that playbook worth looking at anymore? barbara: the problem is the stop and go nature of the administration's policies seem to be what's causing indigestion in the markets. that also coupled with softer survey data, earnings revisions have been marked down a bit for the first half of this year. it's causing a lot of problems. on february 20, we had a new all-time high for the s&p 500. it feels like it was a year ago. jonathan: the president is not changing course. why would he? the chairman of the federal

reserve is not stepping in or changing course. what do you need to see to generate a countertrend rally? barbara: markets are oversold. we have long and short-term indicators on investor sentiment and are short-term indicators are as oversold as they have been in over three years at this point. you would have to go back to the 2022 selloff to have this type of short-term oversold indicators. i think you need some clarity on tariffs in order to be able to get the market to be put in a sustainable rally. when a countertrend rally comes, what's likely to do well? the things that have sold off the most. u.s. small-cap stocks are down over 20% from september of toys 24. -- of 2024. it could be a while before you get visibility to generate that countertrend rally. lisa: you said the oversold indicators were the most going back to 2022 and yet we are at

21 times earnings. we are at an elevated valuation which goes to the structural argument that may be money has been flowing into the u.s. disproportionately so long that now just a normalization, especially back to europe, makes a little bit of sense. how much credence do you get that idea? barbara: i give a lot of credence. i would note the following. the fiscal stimulus plans that germany is putting in place is -- planning to put into place is only for germany. you have long-term issues that need to be solved for europe read you have demographics working against you. -- europe. you have demographics working against you. those have to be addressed and changed dramatically for europe to say europe will outperform the u.s. for the next three years. lisa: one difficulty is you don't invest in hours. barbara: my horizon is technically 40 years. lisa: this is the difficult aspect. this is the traders market right now, we are talking about shifts

that are incremental. when you look and have to understand what the long-term goal is and whether it's feasible for us to get there. how are you doing that? barbara: the issue we are considering is the stagflationary scenario is getting a lot of attention in markets. if that's the case, nothing works. maybe cash works in the short term. if you have a little less policy, you can look forward to the u.s. data needs to be softening a bit, at least on the survey side. if it starts to reach the hard data, such as employment, you would see a fed policy response if they had the air cover on inflation. the problem is even with the change in policy on friday, you did not see this big rally of getting really fonterra's that you had seen before. the market is a show me state. the only way you get there is clarity on inflation and tariffs

and neither of those seem to be coming. having said all of that doom and gloom, i could potentially see a good case that the fed has the ability to cut rates in the second half of this year. maybe in the late third quarter, because if all goes well, if tariffs are indeed staved off, it's a one-time inflation hit to the upside, you should get enough relief from weaker economic data that inflation is coming down, that core pce is dropping and the fed would be able to say we can cut interest rates twice this year. that should give the market enough relief as long as the earnings picture stays intact. annmare the narrative is on the local economy and the headlines from trump. you are saying it could shift to the fed and that could be a catalyst for an upswing in equities? barbara: it could be a catalyst for an upswing globally. don't forget, as we get toward the second half of this year, they have to start worrying about the midterm elections of 2026.

the clock on the uncertain trump policies that can be growth negative have a time decay associated with them. annmarie: tariffs have gone into place on china. are you saying uncertainty on everything else is almost worse than going into place -- than tariffs going into place? barbara: what happened after the first tariffs went in on china, you have this opportunity where the rest of the world stepped into be the manufacturer. countries in asia, thailand, malaysia, the philippines and also even scope. when you start talking about tariffs and our two biggest trading partners, that's a different story. those will certainly put mexico and canada into a recession. and they account for 40% of globally traded goods. it's a very different story to tariff china and then think differently with mexico, china

and europe. if you tariff europe, that will have a big effect on china as well. the biggest swing you can get in stimulus is coming from the chinese. that makes us more bullish on the emerging markets then we would say -- than we would say the european market. lisa: -- is that the idea? barbara: in our portfolios, we bought into the emerging markets and bought something into u.s. mid-caps. we want to have exposure to parts of the market that will benefit from the rotation. we have been reticent to buy european equities because they have been running so far at this point. every single type of technical indicator that you look at, you can look at on your bloomberg terminal and many of our sentiments where they say european equities were overbought. if you are buying them at this

point, the potential tide is against you because the news has been so positive for europe. we would wait for somewhat of a reprieve before we think about going into european equities. jonathan: taxes are 25% even with the 1% move. good to see you. if you are just joining us, equities are down one point 4% on the s&p 500. a snapshot of wall street, nothing to point toward stability in the near term. cameron said expect volatility and get used to volatility because there is no question, no margin for error. lisa: trump 2.0's head spinning barrage of executive orders and firings and tariffs are causing him to lose confidence in the potential buildup he had talked about before. jonathan: in the bond market, yields are lower.

we are down six basis points on the 10 year to around 424. let's give you an update on stories elsewhere. here is dani burger. dani: tensions between the u.s. and mexico are simmering. claudia sheinbaum said she's confident the u.s. will not impose reciprocal tariffs on her nation exports. president trump said he would policy 25% tariffs on mexican goods and services that fall under the usmca. the prime minister of greenland said president trump making residents of his country feel unsafe with his threats to take over the island. greenland is facing an election tomorrow. an opinion poll showed an overwhelming majority don't want to become part of the u.s. in sports, it was a busy weekend of nfl signings. the browns signed miles garrett to a record extension, making him the highest-paid non-quarterback in nfl history.

reigning league m.v.p. josh allen agreed to a $33 million -- $330 million contract. including a $250 million guarantee. jonathan: gerard cassidy of rbc with weakness in the banking sector. the kbw banking down almost 9%. we will talk about why and what's next. from new york city, this is bloomberg. ♪ where ya headed? susan: where am i headed? am i just gonna take what the markets gives me? no. i can do some research. ya know, that's backed by j.p. morgan's leading strategists like us. when you want to invest with more confidence... the answer is j.p. morgan wealth management

jonathan: three weeks of losses on the s&p 500. have not seen that all year. biggest loss of the year so far. we are down again by 1.4% on the

s&p. lower by 1.6% on the nasdaq. jeffrey is upgrading airbnb. the stock is positive by 0.04 percent. the second call from burstein, united airlines stock is down 2.5%. the price target on ox he is cut to 64 by raymond james. -- oxy is cut to 64 by raymond james. thanks extended declines, the sector is the worst performing of the s&p 500, falling more than 5%. the kbw almost 9%. gerard cassidy joins us for more. let's talk about the pullback and the financials. which kind of banks are finding it more difficult in this environment and what is it about this environment that has proven

tough for these stocks? gerard: it's coming down to the outlook. the increased uncertainty caused by the tariffs that the resident has -- president has offered up with canada and mexico early last week has caused a lot of uncertainty on the growth of the economy. specifically, john, the capital markets investment banking activity got off to a slower than expected start. particularly in the ecm equitable cap the markets -- equitable cap markets. jonathan: do you think that is activity that is disruptive that may not happen now or delayed for a number of months and quarters? gerard: rbcs financial -- at rbcs financial conference, the

banks talked about the pipelines are still full. it's a delay at this point rather than business going away. i would say it is more of a delay, possibly second and third quarter as things hopefully calm down after what we saw last week from the white house. lisa: at the conference, when you say hopefully calm down, what could happen for these deals to come to fruition at a time where we have not yet reached peak uncertainty? gerard: i think what we need to see is the economy continues to grow, continues to be healthy. when you think about m&a activity, management teams have to have confidence the economy will not be heading into a recession before they enter into a merger or acquisition. i think once we see more economic detail as the months go by, giving these management teams confidence, that's why think we need to see over the next 2-3 months. lisa: we heard from president trump he's not ruling out a

recession. that there will be a little bit of pain as they make this big adjustment. at the same time, we have seen this administration celebrate the five fed longer-term yields have gone lower. at what point are those lower yields supportive for some of these businesses and for some of this m&a activity that is still at the pipeline. gerard: lower yields what accelerate some m&a activity. it would also accelerate the housing market. if we were to see the 10 year government bond fall below 4% and you see spreads come in on mortgage bank secured is, that would stimulate the housing activity. to the m&a question, lower rates would make deals more attractive and that could get people to jump off and start doing more deals in the second quarter, going into the early part of the summer. lisa: on the flipside, what we are seeing is the reverse -- reverse of last year. the steepening yield curve trend

has turned into a flattening yield curve. while shortened yields remain pinned. this is problematic for the banks. at what point does that itself really flight in the face of this ongoing rally? -- fly in the face of this ongoing rally? gerard: coming into the year, banks were set up very well. the regulatory outlook was going to improve for the banks, that was number one. number two, you had a healthy economy. number three, interest rates. we had a positive yield curve which we had not seen in quite some time. it's going to be interesting to see what the federal reserve does. because if the economy is slowing and there is no real threat of inflation, if they could look to the short end of the curve and create that positive yield curve, that would certainly be positive for the banks. jonathan: what would you buy? what are you telling clients to do right now? there are pure capital plays

that have been beaten up a bit. bank of america and j.p. morgan are down double digits. j.p. morgan down 13% from the highs of only a month ago. what are you thinking about at the moment and what are you telling clients to do? gerard: when you look at the valuations, the banks have become quite attractive. not to say that they weren't attractive before. but bank of america is a good example of a way of playing the economic expansion through the consumer and small business. at the same time, they have the capital markets business with bank of america and merrill. there is one way of playing the banks. on the regional front, the regional banks are still doing well. we point people toward the likes of key core as a way of playing. if people want to go into a risk off position on commercial banks, we would steer them to

pnc or a mentee m&t bank. jonathan: we are very close to erasing the postelection gains. this was one of the favorite sectors coming into 2025. lisa: it's a reversal of everything we saw in the first couple of weeks of the trump administration. with banks, there is a question of whether this is simply tracking the sentiment shift or whether this actual repudiation of this idea that we will get some boom in m&a and boom in the fundamental american economy, that has yet to be seen. that is why stuart kaiser said this is the tell that the bear market could come, if this keeps selling off.

jonathan: they believe the activity will come but it is just delay. once you start to unlock some weakness, does that weakness get away from you? that could be problematic. we are seeing that from the calls on the street. i mentioned morgan stanley dropping their growth forecast and increasing their inflation forecast. in the one full month from the administration, this comes from goldman. they have updated things in the past week. new tariff assumptions imply the core pce inflation will rise at 3% year-over-year, as opposed to staying at 2%. gdp, larger tariffs likely hit gdp harder. we have reduced our 25 q4 gdp forecast to 1.7% from 2.2 percent. things are moving in the wrong direction when it comes to the outlook of the knights during its -- united states.

we could get to the end of the year and the growth in america is better than europe but where we are pointing is important. lisa: that's the reason why the dollars are flowing in tandem with that. how do you invest in uncertainty? why try to play? the question is whether this is such a quickly website narrative shift that people are getting over there skis of excitement for europe and perhaps leaving the u.s. to the dus there is a long way to go even how expensive u.s. stocks have been and how much the dollar has been entrenched in global investing for the past decade. jonathan: this going to be nothing easy about this. the outlooks are moving in the right direction for europe. and at the moment, things can change, they are moving in

the wrong direction for the united states. we have seen a monster move over the last month or so. the s&p 500 down by 1.4%. cpi on wednesday, ppi after that. another deadline for trade. 25% tariffs on steel and aluminum on deck this week. coming up next, we will speak to neal dutta and we will speak to ashok bhatia. that conversation is up next. ♪

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jonathan: 60 minutes away from the opening bell. equity futures down 1.4% on the s&p 500. on the nasdaq, down 1.7%. as we count you down to the cash open, let's get you some morning movers with manus cranny. >> tesla is the personification of the pain, seven straight weeks. we are on the back foot again this morning. five months of pain for elon musk.

$550. a bit of a double bubble. novo nordisk, this is a big one. this is the weight loss drug and another series of clinical trials. for those with diabetes, you lose 15.7% of your body weight. the expectation was 20%. about two thirds of the trial group were taking the highest dose. it's bad news for the nexgen weight loss drugs. airbnb pivoted into the red since an hour ago. jeffries talked about buying durable growth. with the discussion you are having about the shift, this discussion around recession, how long before that percolates into airbnb. this is a white collar recession. jonathan, good morning. jonathan: manus cranny, always talking about vacation.

appreciate it. cpi on wednesday and ppi on thursday. michael mckee joins us. what are you expecting this week? michael: why wait until wednesday? we start with the new york fed consumer expectations, which contains expectations about where they think -- people think inflation is going. it has been relatively steady compared to the university of michigan numbers. let's see if it stays that way. rest of the week, we get jolts tomorrow. that's not a big of a -- not a big deal. these are january numbers and would not reflect anything that is going on in washington. it may not be relevant anymore. cpi on wednesday and ppi on thursday and then we go back to what do we think pce is going to be? jobless claims should reflect a bigger increase in the ongoing

claims for federal workers as that continues. then we get to friday. the michigan sentiment figures, we will see if people think inflation is going higher and whether that's a problem for the fed. the fed will be sitting back this week and watching. no fed speak because we are in the blackout period. jonathan: the chairman got the final word. appreciate it. tackling the policy issues head-on in a way that he has avoided in news conferences. lisa: he laid out just how much they seek to transform. he uses the catchphrase that surveillance uses. parsing out the signal from the noise. he's trying to figure out what is real, which highlights the backward looking effect and the fact that some of the people will be discounting cpi as biden data. jonathan: or trump data. it depends on how bad or good it is. lisa: when is the statue of limitations up on that? jonathan: they can do it for as

long as they want. it's their opinion. let's turn to washington and president donald trump refusing to rule out a recession for the united states and the economy. joining us now for more is neil dutta. i want to take a step back with you because i think you are talking about something bigger than tariffs. you think may be something bigger is happening. i want to give you the opportunity to share your thoughts. neil: i think what's important things while there's a lot of, sort of enthusiasm, i guess, to lay everything we are seeing at the feet of the trump administration, the truth is that things were slowing before they walked through the door. even february, it was hard to say that this was a function of policy uncertainty and tariffs. the three months ending in february, total hours worked have actually contracted. that is pretty rare on a three month basis.

it tells you the economy was already slowing. you can make the argument that trade related policy uncertainty is what's potentially dooming the outlook. but the consensu -- the consensus on the data was already coming in. i think that is important. incomes are slowing. the housing market has frozen up. government spending, particularly for state and local governments has been getting sliced and diced come along before doge came on the scene. these are interesting things to consider. one of the things that we are learning is, number one, the powell park, the strike price on that is lower than we thought. the strike price on the trump

put is lower than we thought. embracing the labor market even though it's getting worse is not necessarily a good place to be. lisa: you've been consistent about this for a number of months that you think the economy is weaker than people have been pricing in and the fed would have to respond. it raises a question of the fragility to headline risk. the fragility of the uncertainty we hear coming into the ceo commentary coming out after earnings. do you think that it is even more susceptible to some of what's happening on the policy front? neil: i mean, you know, look. it depends. for example last week, we've been seeing the markets kind of get dinged every time there is some kind of a trade announcement, right? but, you are not seeing that relief when the trade

announcement is undone. with the mexico-canada tariffs, we put 25% tariffs on everything coming in from canada and mexico and then the next day, we exclude everything under the umbrella of the usmca. we targeted everything and exempted everything at the same time. you did not see much relief in the markets from that. to me, that suggests the uncertainty is hurting to some extent. but also, there is something beyond just trade that is driving markets. i think it is a deterioration in the data and what that means for the outlook going forward. it's not like the fed is about to step in. the fact the fed is not willing to step in even though the economy has slowed reinforces that downside. lisa: a lot of companies have come out, best buy and target, have talked about how they will pass along price increases and expect to sell less as a result of these tariffs. we are hearing about companies

shuttering certain operations to try to deal with the ebbs and flows of tariffs that come on and off. are you saying it has had no effect and the vast majority of everything is the existing economy that was slowing and essentially it is biden data and not trump day that? neil: i think it is -- lisa: trump data? neil: i think it is oversold. i think that is kind of amusing to me. i would just say that -- i thought the comments were interesting where he was talking about reciprocity. one of the ways that they have long said they planned to use tariffs is an escalate to de-escalate situation. do you get the heat down up to dial the heat back down and get other countries to reduce their tariffs? how will the stock market respond to that? i think what companies largely deal with is what's right in front of them. what they are seeing, i think,

is that demand has been slowing. and that is probably prompting additional caution in their outlook. i don't think they are making -- maybe some of them are but i don't think that's the big story here. to me, the big story is government spending was already getting worse. particularly state and locals. housing has been locked up and labor markets have been locked up. what trump is doing has not been helping. but those are much bigger considerations than policy uncertainty. >> let's talk about the potential of side. neil: the question is would miss it matter when upside uncertainty is high? if you look at credit spreads, they are relatively tame at the moment. lisa: they are rising. neil: they are rising from very low levels. annmarie: can we talk about the market upside that you

mentioned? scott bessent, you mentioned the trump put. he said if we have good policies, the markets will go up. when can we see the and what kind of strike price are you looking at? neil: i don't know, it's like anything else. you have to peel back the onion and think about what they are trying to say here. what that means is, look, they are playing a game of chicken. it's exhausting but it is what it is. and i think at some level, what they are trying to do is kind of maybe get the fed to -- you could see a scenario where the fed is cutting interest rates in the back half of the year, probably somewhat aggressively. maybe 100 basis points in the back half. at the same time, we are past the kind of uncertainty regarding trade. and then you get the fed cuts.

and then you get the call option, which is the tax la getting extended. and, you know, the markets focusing on lower taxes and deregulation. jonathan: what's the threshold for those cuts for the fed reserve? what do they want to see or need to see? neil: the data will get worse and the inflation is not as strong as they think. you talk about inflation expectations, michael mckee was talking about how there would be inflation expectations coming. why do we care about inflation expectations? people take those expectations and try to bid up their wages. luck with that. see how it works out -- good luck with that. see how it works out. no one is quitting their jobs. they have no incentive to pay people up. to the extent they have those expectations, i think companies

will be in for a rude awakening if they try to meet those expectations. think they will be much more resistant to higher prices than companies believe. tariffs, are they inflationary? it may be. the bigger issue is they increase costs. we don't know how much of that increase will pass through to consumers. jonathan: i want to say to everyone, push, keep asking, no your worth. neil dutta, one of the best. don't ask. >> who does that? does anybody look at the university of michigan inflation expectations and say i need a raise and take that to their employers? i love that. annmarie: no but it feels like it's the employer that has the leverage right now in this labor market. >> neil has the leverage. jonathan: he writes we

anticipate a favorable fundamental backdrop. ashok, welcome to the program. walk us through where that comes from. >> i think we agree with a lot of what neil was talking about. the u.s. economy enters this period and there is softening from a 3% gdp rate to something around 2%. that was the natural underlying outlook for the economy this year, and inflation coming down. when we think about our baseline, we had been expecting, the u.s. tariff rate is about 3%. we think the big challenge now obviously is the u.s. tariff rate based on what's been announced, likely to settle somewhere between 6% to 16%. 6% is an outcome we think the economy can manage. 16%, which would reflect full

implementation of a lot of different things that have been discussed and retaliation, that's a harder outcome for the u.s. economy to manage. this year, we have seen this decline in bond yields. we have been reducing a little bit of our duration exposure in u.s. interest rates. and at the margins, seeing more opportunity today in the european bond markets. lisa: let's delve into that. are you saying you will move against the trend right now, where people are seeing yields in europe go up and yields in the u.s. go down? are you saying yields will come in from where they currently are in europe? ashok: last week's 40 basis point rise, you look over the last three years, the average change in a week of german

yields has been 2.5 basis points to three basis points. a significant rise last week. the environment we see is that capital at the margin will be re-domiciled and european capital will increasingly stay in europe at the margin and that european yields will find a bit of a bottom here -- or top. what we are right about on the u.s. side is this growth slowdown the fed can ease. we are a little more cautious on long-term u.s. yields. the idea here is there is a couple of forces. you have really yields and lower growth. that -- real yields and lower growth. that would tell you yields go down on deficit spending. it grants more upside pressure on u.s. long-term yields. we like the front ends of u.s. markets and the long ends of some high-quality european markets. lisa: this is important. a lot of people have been talking about how maybe the u.s.

policy, potentially slower growth in the u.s. was by design. to offset some of the interest expenses that have been going up pretty dramatically. we said years ago, don't fight the fed. why not say now don't fight the trump? don't fight this trump put on treasury yields, frankly? ashok: there's a little bit of, in our view, a little bit of difference. the fed has ultimate power to set where it wants short-term rates. the reason why you have interest rates for a fed put is because the fed has that full power. for the long end, but we are more concerned about is, yes, it they can thread this needle of spending cuts, maintaining growth levels and a edible plan where peak deficits and depth levels don't have to drop overnight. that was the start of supports

for tenure yields. if we get the slowdown on some of these stronger tariff policies, all of these spending cuts could end up being thrown out in the wash. u.s. growth slows and tax revenues slow and stabilizers increase and there will be this up pressure. that is the story for why term premium can expand with some of these longer maturities given at that outlook. there is a lot at play but it comes down to this policy mix is a lot of things that have to go right. the administration will be trying to get back to that balance. that's the risk that is out there. jonathan: can you translate that in much more simpler terms? are you suggesting that we might face a situation where bond yields rise and unfold? ashok: i think we are worried about seeing an economic

downturn and long-term yields don't fall as much as they should in the downturn and fed easing policy. that is a risk we see rising right now. jonathan: what kind of levels do you think would be a kind of flaw? ashok: what we ideally want to see is if the fed -- these are all depending on how much of a slowdown. in our base case, the fed will deliver two maybe three types of eases this year. whether they can get below 4% or whether some of these counter forces prevent the 10 year yield from going a lot below 4%, which is what you would expect in that type of fed easing environment. jonathan: if we didn't get the comfort from the -- what would it mean for financial markets? ashok: as neil was talking about, i think he mentioned, you have to use a magnifying glass on credit spreads. that is completely accurate.

this has been a very modest winding of spreads. for people who maybe don't follow bonds every day, high yield spreads are about 14 basis points wider on the year. that's not a whole lot. european spreads have been doing quite well this year. i think with some of these the emerging growth outlooks. that would be an environment where you see more upward pressure and spreads given the slowdown and the starting point. and a little more divergence within some of the sectors that are being pressured more by government spending cuts. jonathan: still some 300 on high yield spreads. we were close to 400 last summer, to give you an idea of where the last 12 months have taken us. thank you. really interesting thoughts there on how treasuries would respond in a potential economic downturn. lisa: it's not that yields would go up, it's that they would not go down as much as people would

expect in a downturn, which does not provide a boost to borrowing that you would get in a recession. jonathan: on the 10 year, we are down by 67. down to 4.24. here's your bloomberg brief. president donald trump said he's negotiating with four possible buyers for tiktok and the deal could come soon. he did not specify who the contenders were. elsewhere, a student activist at columbia university who led anti-israel protests has been detained by immigration authorities. the students attorney says immigration officials are trying to revoke his green card. elsewhere, morgan stanley's mike wilson says stocks are at risk at slumping -- of slumping another 5% amid concerns on tariffs and lower fiscal spending. no pain, no gain. lisa: it's this nuance that he's

not bearish, to be very clear. he seeing that potentially there is more downside before upside. i'm just saying because he has pushed back on that. jonathan: next on the program, we will set you up. from new york city, you are watching bloomberg tv. ♪

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jonathan: the opening about about 36 minutes away. no real news this morning. after some comments from the president, not exactly fanning away recession fears. this is falling through from the negativity of last week. down another 1.6 on the nasdaq

100. president donald trump meeting with tech ceos at 3:00 p.m. on wednesday, cpi plus the tariffs on steel and aluminum. thursday, another round of jobless claims. friday, the u.s. government shutdown deadline is still to come's. lisa: you are trying to jinx us, no real news yet. it's 9:00 eastern time -- not even 9:00 eastern time for you just wait. they see a hit to growth and they see potentially a shift up in inflation. annmarie: mike wilson is sounding like the president. scott bessent, the path is likely volatility. -- volatile. lisa: the market here's the and says he's not going to come to our rescue. that trump put is in a coma

right now. anybody who is betting that would be the ultimate pressure valve, it's not happening. jonathan: coming up tomorrow, we will catch up with brian levitt, lisa, holly o'neill and lindsay rosner. from new york city, thank you for choosing bloomberg tv. this was "bloomberg surveillance." ♪

♪ i know sometimes we get into it and it's just hard on both of us. but, you know, try to understand me more and i'll try to do the same. but you have excuses cause you're old. it's okay.

>> futures drop to kick off the week. katie: bloomberg "open interest" starts right now. katie: no pain, no gain. president trump declines to route a recession and says the u.s. face as period of transition. matt: