that's all for this edition of "dateline." i'm craig melvin. thank you for watching. ♪ good morning welcome to "street signs." i'm joumanna bercetche >> and i'm julianna tatelbaum. these are your headlines central bankers gather for the ecb forum as they deal with high inflation and rising borrowing costs. the imf says policymakers have to face up to uncomfortable truths >> we have to recognize it is taking too long for inflation to come back to target. that means central banks will remain committed to fighting

inflation even if it means risking growth. the ecb tells cnbc the rate hike is all but guaranteed at the meeting, but the latvian colleague says it will likely extend beyond summer >> we say inflation is still to high i think further rate hikes would be necessary also past july. we see the economy has softened. and we will hear from ecb president christine lagarde at the ecb forum shortly. european equities open in the green as the stoxx 600 looks to end the streak. and u.s. futures point higher after the dow sees the

longest losing streak since december of 2022 and investors take profit in the recent tech rally. not quite breaking news, but i'll take you to markets the heat map behind me is evenly splitbetween green and red in the first hour of trading, we have been losing gains stoxx 600 is barely above the positive line. a couple of bps or so. the central bank conference is taking place annette is there she is speaking to central bankers in many of the eastern european bankers there is a bit of hawkishness

from the conference. we will hear from christine lagarde shortly. we will get to that speech when she commences. a big, big indicator for where markets are headed from here all of that coming up at sintra. the forum for all of the central bankers around the world as for european markets, you see that pretty much the gains are broad based. all of the indices trading nicely in the green. this is after some mixed activity yesterday the cac 40 in the green. the rest of them less so the dax is up with a bounce in cyclical names that got a beating. banks and basic resources doing well insurance and real estate are making a comeback. ftse 100 in the uk is a far cry from 7,600

the level from six weeks ago and now sitting .70% stronger. fintech space is posting a profit and that is leading the sector and having an impact overall. the swiss defensive index is up .10% as well. in terms of sectors, this is how the split is you actuhave utilities up .40% some defensive names are doing well autos are getting hit down .80%. this as that sector prices in the weakness we were talking about the surprisingly weak pmi numbers on friday and weak ifo numbers from germany. all of that is beginning to be priced into the cyclical sectors. oil and gas with a bit of a spike after the geopolitical developments in russia over the

weekend has pared down the gains. some of the positivity has fizzled out. julianna joumanna, this is a big p w -- big week for the central bankers. we are waiting for christine lagarde to take the podium to address the audience of ecb watchers there the central focus is how many more rate hikes are in store and the ecb and fed and bank of japan and bank of england frame the policy path moving forward you can see there is action at the ecb forum and madame lagarde will be getting under way shortly. joumanna, what is your sense of the debate at the center of sintra this year >> one of the issues we fall into in terms of the central banks is assuming that every

single central bank has the same reaction function and dynamic. if you look at the action taken last week out of the central banks we know and talk about the bank of england and s&p and n norges, they all did hike and with all different views of where they end up, the s&p was gradual. they went for 25 basis points. some of the market had hoped for a 50 basis point hike. the picture was muted. they pretty much had 2% inflation which is a dream for other central bankers. ecb still indicating hawkishness. annette spoke to sendcentral bar and they indicated more hikes after july the cpi is at a 5% handle.

we don't need to talk about the bank of england. the situation there is a lot more intense namely because other cpi is so high as you have been flagging, a lot of concern about higher interest rates and what it means for borrow onning. >> in the uk case, there are some extenuating circumstances that don't inflict the eurozone or the united states there is a degree of brexit with the large number of labor shortages. the uk government and governments around the world are in a difficult position because if they want to provide support to the economy to prevent a bigger slump, they risk fuelling inflation further and exacerbating the situation. >> that is one of the questions the central banks has to be asking why is the existing monetary policy delivered and not had more of a notable impact on the

inflation levels it was quick to go up, but it is taking a long way for the inflation levels to come down. perhaps the ecb president christine lagarde can give us more clues of how they are thinking of the persistence of inflation. >> joining us online as well you are missing the beautiful location inflation in the euro area is too high and is set to remain so for too long the nature of the inflation challenge we are facing in the euro area is changing. we are seeing a decline in the inflation rate, headline predominately, as the shocks that originally drove up inflation wane and our monetary transactions are committed to the economy.

the pass through of the shocks is still ongoing and making the decline slower and more persistent the persistence is caused by the fact that inflation is working through the economy in phases. as different economic agents try to pass the cost on to each other. monetary policymakers need to address the dynamic decisively to ensure it does not lead to self fulfilling spiral so the key question we face today is how can we break that persistence? the ecb governing council, many members whom are here in the room, have been clear that two elements of the policy stance will be key. i will quote elements of monetary policy statement. we will have to bring rates to,

quote, sufficiently restrictive, unquote levels and keep them, quote, for as long as necessary. both elements are effected by the persistence of inflation and the strength of the transmission of monetary policy to inflation. setting the right level and length will be critical to our monetary policy as we continue our tightening cycle so in my remarks today, i will explore why the inflation process has become more persistent and what this implies for our policy stance. disclaimer, typical of lawyers will say, my intention is not, is not to signal any future decisions, but rather to frame

the issues that monetary policy will face in the period ahead. so let's look a under the skin of inflation the euro area economy has faced a series of overlapping inflation shocks since the end of the pandemic. since the beginning of 2022, these shocks have both raised the price level by 11% and led to us transferring more than 200 billion euro to the rest of the world in the form of a terms tax. in an environment such as this, the natural reaction of every economic agent to pass this to other areas in the economy we can identify two distinct phases the first phase was led by firms which reacted to steeply rising

input costs and defending margins and passing on increases to consumers the intensity of the reaction was unusual. during previous terms of trade shocks in the euro area, firms absorbed rising costs and private margin as slower growth made consumers less willing to tolerate price hikes the special conditions we experienced last year turning this regularity on its head. the fierce scale of input cost growth made it harder to judge whether price hikes were due to higher costs or profits fuelling a stronger pass through. as this was not offered at the same time, pent-up demand and reopening with expense savings and supply restrictions brought

on by bottlenecks gave firms more scope to test consumer demand with higher prices. for this reason, unique profits contributed around 2/3 to domestic inflation in 2022 whereas in the previous 20 years, the average contribution had been around 1/3. this, in turn, led to the shocks feeding into inflation much more quickly than more forcefully than in the past this first phase, however, is now starting to wane largely thanks to lower energy prices, year on year producer price inflation has dropped by 42 percentage points from the peak last summer while it is taking time to feed through to prices more generally, it is partly reflected in a broad based

decline in headline inflation and a leveling off in some measures of underlining inflation, especially inclusion based measures and energy on the economy wide prices. at the same time, high inflation has eaten into domestic demand which contracted by 2% over the last two quarters with the excess savings is fading the early effects of policy tightening is visible especially in manufacturing and construction sectors that are more sensitive to interest rate changes. so faced with this combination, falling input costs and g dwindling demand, we saw profit growth slow markedly in the first quarters of the year

the second phase of the inflation process is now starting to become stronger. workers, who are also consumers, have lost out in the inflation shock seeing large real wage decline which is triggering a sustained wage catch-up process as they try to recover their losses this is pushing up other measures of underlining inflation that capture more domestic price pressures, particularly measures of wage sensitive inflation and domestic inflation. since wage bargaining in many european countries is multi-annual, this process will naturally play out over several years. in our latest projections, we expect wages to grow by a further 14%, 1-4, between now and the end of 2025.

in real terms. while this has captured the inflation outlook, the inflation from rising wages has been amplified by lower productivity growth than we previously projected which is leading to higher unit labor costs. alongside past surprises, this is a key reason why we revised up our projections for core inflation although our expectation for wages remained broadly the same two features of the current business cycle are contributing to the dynamic and both could linger, too. the first is the resilience of employment relative to gdp growth some call it the mystery not all. typically, most of us who expected slowing economy growth over the last year to have

someone -- somewhat reduced employment growth. the labor market has been performing better than the regularity would suggest that disconnect partly reflects increased labor hoarding by firms in the context of labor shortages which is visible in the current total hours worked and average hours worked this is weighs on producperduct growth with this likely to fall further, the motivation for firms to hoard labor may not subside that quickly the second addition to hoarding contributing to weaker aggregate propductivity is the position of the growth that is concentrated in sectors with low productivity growth

since the pandemic, employment has grown in the construction and public sector which both have seen a decline in productivity and in services with a meager productivity growth. these trends could persist in the next few years given the relative weakness of manufacturing and long-term shift forward employment in services all of this means that we will face several years of rising nominal wages with unit labor cost pressures exacerbated subdued by productivity growth in this setting, monetary policy must achieve two goals first, we must ensure that inflation expectations remain anchored as this wage proper

cyst plays out while we do not -- process plays out. while we do not currently see wage price spiral or de-anchor onni de-anchoring, we remain above target and the greater the risk. that means we need to bring inflation back to the 2% target in a timely manner second, for this to happen, we need to ensure that firms absorb rising labor costs in margin if monetary policy is sufficiently restrictive, the economy can achieve disinflation overall and real wages recover losses this hinges on our policy dampening demand for some time so firms cannot continue to display the pricing behavior that we have seen recently sensitivity analysis by ecb

staff underlines the risk we would face if firms try to defend their margins instead for instance, if firms were to regain 25% of the lost profit margin that our projections foresee, inflation 2025 would be substantially higher than the baseline at almost 3%. so faced with the more persistent inflation process, we need a more persistent policy. one that not only produces sufficient tightening today, but maintains restrictive conditions until we remain confident that the second phase of the inflation process has been resolved so what does that imply in policy terms we have not yet seen the full impact of the rate hikes that we decided since last july.

400 basis points we know that the job is not done yet. bearing a material change to the expectations for inflation, we will continue to increase rates in july. as we move further into re restrictive territory, we need to pay close attention to two commences dimension of policy. the rates and the future decisions and how that is influencing the expected length of time that rates will remain at that level. the governing council provided orientations on both dimensions. it stated clearly and i repeat future decisions will ensure the key ecb interest rates will be brought to levels restrictive to achieve a timely term of inflation of 2% target and will

be kept at those levels for as long as necessary. two sources of uncertainty effect the level and length of the interest rate policies first, since we face uncertainty about the persistence of inflation, the level at which rates peak will be state c cont contingent it will depend on the policies evolve over time it will have to be continuously reassessed under these conditions, it is unlikely in the near future the central bank will be able to state with full confidence that the peak rates have, indeed, been reached this is why our policy needs to be decided meeting by meeting and has to remain data dep

dependent. we face the uncertainty of monetary policy transmission this effects current decisions with the future policy and therefore effects the policy stance how strong it turns out to be in practice will determine the effect of the given rate hike on inflation and this will be reflected in the expected policy path and uncertainty about transmission arises from the fact that the euro area has not been through a sustained phase of rate hikes since the 2000s and has never seen rates move so fast so quickly. this raises the question of how quickly and forcefully monetary policy will be transmitted to firms via interest sensitive spending and households via mortgage payments. for firms, ecb analysis finds

monetary policy shocks are transmitted more quickly to manufacturing and reflecting the sector's higher interest rate sensitivity and there is more muted and delayed impact in services the key question, really today, is whether the services sector will eventually catch down, not catch up, catch down, which is what we have seen in previous cycles or whether it will be insulated from the effects of policy tightening for longer than in the past given the strength of the demand and employment in the sector as for firms as for households, there is evidence it will take longer for policy changes to pass through to interest burdens in this tightening cycle as a higher share of households have now fixed rate mortgages than in the mid 2000s. at the same time, once mortgages

have been repriced, the restrictive effect may be greater. debt servicing capacity is higher than in the previous tightening cycles while the share of homeowners with the mortgage has increased both sources of uncertainty will only fade away over time that is why we have made our future policy decisions conditional on first the inflation outlook and second, the die newynamics of underlinig inflation and monetary policy transition to ensure this does not interfere with the policy stance in terms of level and length, two points are clear first, we need to bring rates into restrictive territory to lock in our policy tightening.

we need facts on the ground. second, we need to communicate clearly that we will stay at those levels for as long as necessary. this will ensure hiking rates does not illicit expectations of the rapid policy reversal and allow the full impact of the past actions to materialize. all the while, we need to carefully evaluate the policy strength transmission in calibrating the policy in either direction. so in conclusion, it will not surprise you if i say that monetary policy currently has only one goal. to return inflation to our 2% median term target in a timely manner and we are committed to reach this goal come what may. as the author helen keller wrote, "our worst foes arelliget

waivering spirits. we have made significant progress faced with a more persist inflation process, we cannot waiver we cannot declare victory yet. thank you very much. [ applause ] >> that was christine lagarde of the ecb delivering her speech at the ecb forum in sintra. joumanna, she used the phrase we cannot waiver or declare victory yet. paving the way for more interest rate hikes france >> that is consistent with the language we got from the ecb over the last couple months. they are very, very committed to

bringing down inflation back to target there is no sense of waivering with the hawkishness we interviewed investors over the last couple months if you drill into the details, she was saying services inflation is sticky. that will be an interesting one to watch labor hoarding by firms and labor shortages resonate a lot here in the uk ultimately, we must ensure inflation expectations remain anchored as the catch-up process plays out. that is something we know the bank of england is currently facing here. ecb looking to avoid that fate. coming up on the show, annette is standing by at the sintra conference with chairman lorenzo bini smaghi. that is coming up next

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welcome back to "street

signs. i'm julianna tatelbaum >> and i'm joumanna bercetche. these are your headlines >> ecb president christine lagarde says the central bank is unlikely to call a peak in rates and adding policymakers will keep making decisions on a case by case basis. >> it is unlikely the central bank will state with full confidence that the peak rates indeed have been reached this is why our policy needs to be decided meeting by meeting and has to remain data dep dependent. >> scentral bankers arrived in sintra and policymakers have to face up to uncomfortable truths. >> we have to recognize it is taking too long for inflation to come back to target. that means central banks are committed to fighting inflation even if it risks weaker growth

or cooling the labor market. european equities open in the green as the stoxx 600 looks to put an end to the longest losing streak since october with the utilities and household goods leading the gains. u.s. futures point higher after the dow's longest losing streak since september of 2022 as investors take profit in the recent tech rally. all right. we are about an hour and a half into the trading session we are seeing a bit of a rebound in europe after risk-off tone yesterday on both sides of the and particular we did have a -- atlantic. we did have a rebound in hong kong paving the way for the europe rebound it is modest with the moves higher the ftse mib up .40%

similar in the spanish market. here in the uk, ftse 100 is up 14 basis points. similar gains for the cac 40 in terms of currencies, yesterday, we saw the dollar index retreat 0.14%. this morning, a strong gain in the euro up .30% against the gree greenback. sterling is holding fifrm -- firm against the dollar. you saw the u.s. tech with the brunt of selling yesterday this morning, we are looking at a bit of a bounce back across all three indices stateside. including the tech heavy nasdaq. huge day for the central bank community the formum banking is under way at sintra.

annette is joining us. we heard from the ecb president christine lagarde spelling out the commitment to bring inflation back to target >> reporter: yes, exactly. the speech from christine lagarde, i think, was quite interesting as to being very analytical and putting a timeframe on thes inf she inflan dynamic. we are over the first phase and entering the second phase of wage inflation which could last a long time. to discuss that and also the implications it may have for the financial industries, i'm joined by the former board member of the ecb lorenzo smaghi.

what is your assessment of the situation? >> i mean, inflation is coming down probably it takes longer, but it was very high it was unexpected to come down quickly. monetary policy has to do its job. it is an illusion to not think it will have an impact on the real economy when inflation comes down, it has to some extent, it has to slowdown the economy of this is required, otherwise inflation behavior gets entrenched into wages and companies' baeehaviors we have to break this as quickly as possible. it will take time. the ecb is determined and other central banks are determined to achieve that >> it seems that so far, at least, participants here on the

ground, feels it has no financial impact you are now a chairman of the big european bank. what is your assessment? >> i think over the last 12 months, we have seen the fastest increase in interest rates since 50 years the european financial industry has held pretty well i think the resilience of the system is proven. there are other factors we have to look at first is if the economy slows down and we have high interest rates and the economy slowing down that is the combination of this which may be concerning. the other is that together with higher interest rates, we have potential and regulatory policies which are restrictive the impact on the real economy may be stronger than we expect we have to look at this.

i hope the central bank is looking at this carefully. there is a risk of overdoing it to some extent if you combine high interest rates and tight financial conditions >> and we have seen that in recent bank lending service conducted by the ecb that the demand for loans and supply of loans is falling down. is that also what you are witnessing >> it is a normal reaction by the financial industry we have seen what happened in the u.s. we want to protect ourselves we have the regulator saying don't lend too much. the bank is reacting and protecting the capital of shareholders the point is what does it do to the real economy what is the impact of the higher interest rates and the policies going to do on the companies that's the only thing i'm asking the european central bank to be

very careful and not to ignore the second instrument of the policy which is working and we are seeing it is producing reactions by the banking industry >> could it work faster than some of the central bankers think it does so we have sharper contraction in the economy >> i think we will have a contraction of the economy i think it is not fair to say that inflation will come down by miracle without having an impact we know by our experience in the past and economic analysis it will have an impact. the important thing is the impact is quick and the economy can rebound next year in europe and in the u.s the complication is all central banks are the same the contraction may be similar and parallel in the u.s. and in

europe and in whchina. the world economy may be in the same phase and this may accentuate and have an impact on each other so there is no support of the real economy we may face a slowdown in the economy which is sharper than what we expect >> let's zoom out a little bit and look into the geopolitical world and all of the tensions in that space what is your opinion or what affect will that have on the macro economic outlook and the banking? >> well, you know, analysts suggest there is a war and this will have an impact on expectations by consumers and companies and re-shoring will have an impact on the economy. again, this suggests that, you

know, we may face a slowdown that is sharper than expected because of the political tensions which have not gone away they are still there w we tend to forget them. >> also, talking about europe and we are headed for a pro prolonged crisis in the real estate sector because depending which jurisdiction you look, it has various durations of loans out there. it will hit the real estate world in a way with the hike of interest rates what is your concern here? >> i think compared to the u.s., looking from the banking and lending point of view, the lending policies are prudent fixed rate the customers don't get the increase in interest rates immediately if you have done things properly.

collateral is more prudent i don't expect a crisis similar or difficulty similar to those in the u.s when you have a slowdown, it affects all sectors and commercial real estate is one of the sectors. we are prudent >> lorenzo, thank you. guys, with that, back over to you. we will bring you more from sintra during tomorrow's show. >> annette, thank you. we look forward to the interviews you have lined up tomorrow let's check now on markets we saw notable action stateside yesterday. here is the picture of how wall street closed up you had all three of the majors t end lower with the selling in the tech names particularly the faang stocks under performing nasdaq dropped 1%. te tesla shares pulled back 6%. nvidia pulled back 4%. in terms of trade today, we are

looking at a rebound according to u.s. futures. you see all three majors are pointing to a stronger start modest whomoves in europe. we will see if the slump in tech continue its here is a picture of the u.s. tech and closer look at the moves. tesla is the real under performer pulling back 6%. alphabet dropped 3%. we did see a owngrade to the stock. part of why it under performed joumanna, the tech names have been real stars year to date the source of the strength in the u.s. and clear leaders of the rally stateside. a lot of bears were looking for them to collapse of i wonder if this is the beginning of sustained selling or a blip and defy gravity again. >> we are getting toward quarter end. if you were invested in tech stocks, you are thinking you are

getting to the end of the quarter. good time to take profits. there may be a bit of that going on profit trimming at the end of the month. specifically, we did see a couple of downgrades ubs downgraded alphabet. that is the reason the stock fell 3%. the reason they downgraded the company is competition in a.i. space. we had the downgrade come through and also tesla was the one to drop as well down 6%. that was on the back of the downgrade by goldman sachs goldman sachs' justification is the difficult pricing environment for new vehicles it is the timing in the summer season and lighter trading volumes and addition of the downgrade from the broker side. >> valuation has become frosty for the companies to grow into

the al indvaluations, they needo grow longer. one positive or support for why you might continue to hold tech stocks or put more money into them came from the court filing from microsoft the ceo said he wants to hit $500 billion of revenue by 2030. that is double the revenue in 2022 implied revenue growth of 10% per year if you believe that microsoft can deliver in growth, then perhaps there is reason to continue holding the stocks at the elevated valuations. >> ultimately, we were due for a pull back. it makes sense that some people started paring back the positioning in the overbought sector it started last week chip makers getting hit. intel down 9%. amd and now we are seeing the

big mega cap stocks also getting hit. it probably is a bit of a pull back i think the growth argument is there. all right. we will take a quick break when we come back, ecb presiden christine lagarde says we cannot pull back on inflation just yet. we will discuss those comments ne xt

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it is unlikely that in the near future the central bank will be able to state with full confidence that the peak rates have indeed been reached this is why our policy needs to be decided meeting by meeting and has to remain data dep dependent. >> inflation is still too high i think further rate hikes would be necessary past july we do see the economy has s softened, but this is more of the risk off with weak growth. stagnation it is not recession to deal with inflation. with the labor market strong, we have wage pressure persistent

and profit margins still quite resilient. i think we will need more monetary tightening to return to 2% >> we do think it should continue tightening. importantly, it should stay at the higher level for a while this is unlike what several markets expect to come down quickly in terms of rates. i think they will have to be on hold for much longer >> we have been hearing from policymakers on the challenges of tamping down high inflation i'm happy to bring in the head of macroeconomics research management wonderful to see you at sintra fredrik, let's kickoff with the ecb president christine lagarde's speech

talking about bringing back inflation to target. she said the second phase which is now beginning to become stronger there is still a lot of concern of the persistence of inflation, specifically core inflation. >> yes, absolutely i think the ecb is in a position to use this inflation word in her speech it is the next result of the supply and excess demand and uncertainty over the medium term and core inflation a lot of things going on at the same time. this idea that rates need to remain higher for longer is the bas baseline i think what is interesting from the president's speech to hear more details from the next phase. the second phase of inflation

adjustment which will require a lot of flexibility and data dependence and we don't know when we need to stop when enough will be enough. >> frederik, the data has started to turn. a bunch of numbers starting to turn with the flash pmi on friday and the germany ifo numbers to the down side this week are we at the stage where the impact of all of the monetary tightening and cumulative impact is now beginning to be felt by the real economy >> yes there is a paradox here. in a way, europe is in a better position in terms of monetary policy we are not talking about fragmentation risk or italian debt spread and more the uncertainty is not so much in terms of the transmission or lags of monetary policy which is still working, but in terms of

how much the ecb needs to tighten and sufficiently convinced inflation is back to target i'm cautious with the decline of the pmi last yeweek that is not where you expect to see it happen first. it in any case, as the president said, you need more evidence of core inflation, so a bit of backward looking data to confirm this has taken a turn. it is the case, but it will take longer for the ecb to be 100% sure >> frederik, julianna here how does this compare to the eurozone and u.s.? >> a lot worse on top of the shocks we have all been facing since the pandemic and energy shock, the uk came into the crisis with a supply

crisis weaker supply side of the economy and labor shortages. the point was weaker with the budget uncertainty last year it is a surprise that we are back to a higher level that we have seen last year without already, i would say, more cracks in the system i think the housing market in particular in the uk will be a key transmission channel and the bank of england will go as far as they can and until the ecb has an impact on the mortgage and housing market in particular >> a lot of concerns around the bank of england's credibility ahead of the meeting last week after the surprise inflation print. has the bank of england restored its credibility after that rate hike >> that's difficult to say i think the markets are giving them the benefit of the doubt at the moment we are looking at break even rates that came down initially you may say you might get a rece

recession, but maybe that's what the bank of england needs or wants because there is no other fix to the situation for inflation. i think the bank of england will be market dependent as much as they are data dependent. if there are signs of core inflation expectations, they may have to act again with another 50-basis point hike. >> frederik, thank you very much we will catch up with you later. head of the macro economic search at wealth management. >> it looks lovely windy. >> a combination of your favorite things. i'm julianna tatelbaum >> i'm joumanna bercetche. "worldwide exchange" is coming up next.

it is 5:00 a.m. at cnbc global headquarters and your "five@5. the dow with the longest losing streak since last september. futures are pointing to a gain at the open. is the tech red hot run set to cool this summer? how the mega cap tech is raising questions of whether the rally can roll on. and treasury secretary y yellen going to