BlackRock Goes Big on AI | Bloomberg Surveillance 6/28/23

I think it's just going to take time for people to get used to higher rates five and a quarter is enough I don't think we need to go much farther than that we're going to have a recession in the second half of the year it's going to have to come from the consumer side of the market economists have us starting a recession in just a few days in the third quarter you don't see that in the earnings forecast the Federal Reserve has basically told us the only way out of the inflation conundrum is to have a recession this is Bloomberg surveillance with Tom Keane Jonathan Farrell and Lisa abramowitz good morning everyone Jonathan Farrell Lisa Ramos and Tom Keane it's panel day in Portugal we'll be there to watch it with you every Central Banker on the planet because there's any Central Bankers do we have fed presidents and governors speaking at the panel today can we get them all there to it all matter it'll be fed chair J Powell and also of course his counterpart ECB Christine Lagarde I know you're going to review this in the brief but I'm I'm looking right now at the Fallout of a central bank panel in Portugal on the markets and it's fascinating kitsukes with an absolutely brilliant note this morning hearkening back Lee said a 2004-2005. you're gonna love this Lisa The Vortex of instability will they create a Vortex of instability as Albert Edwards talked about uh years ago this was a very famous moment just before the crisis and there's that tension out there a central Bankers speak today are they going to go too far that is the key concern especially in Europe the U.S has possibly a different situation where fed efficiently yeah much more concerned about some sort of downturn although we have all these upside surprises in the data so maybe we'll get a different tone today from Fed chair J Powell it really is in Europe are they going to hike into a downturn that we're going to see increasingly on the margins particularly in manufacturing can we point out that the standard Porsche 500 futures are 4410 as we worry about Central Bank discussion and I think of and if John was here John Fairmont assignment folks if John was here he would say look at trishay and the mistakes made of raising rates years ago and will we Redux that again with legard and the ECB it's going to be fascinating right now what we've continued to see is just people shrugging off the concern about central banks in the U.S this is more than a tech story at this point because Tech has actually stalled out as our next guest pointed out just as he had on set with us this morning so what's driving that is it underlying growth that we're seeing in the housing market that we're seeing in areas even in manufacturing well it's going to be interesting to see and the markets here are pretty much stasis but can I point out that within the global slowdown you know into the data check here Lisa I had a 67 on West Texas intermediate walking in the door 6816 on oil Bill and renminby is very quietly gone out to new I can round it up now to 7.25 these are quieter stories as everyone's focused on Portugal in your nine o'clock hour this morning this to me is one of the big question marks how much of a downdraft is it trying to slow down which you're seeing in the U.N which maybe you're also seeing in crude which maybe you're also seeing in Copper how much is that really featuring into the fear of something that's less sustainable as central banks raise rates and that I think is really what you're pointing to with some of these other images I think the thing about this panel today it's important we learned this yesterday with Francine Lacroix and Gita gopinath that it's very important that they have this fancy pastry in Centra that we mentioned yesterday which is a creamy almond coating with a butter overlay as well that'll probably make for a more collegial panel news you need to know it is and that's basically what we're going to be looking for is what kind of snacks how many people are in the panel seriously is it four it's four people on the panel and that's gonna to be the key thing the central Bankers from the ECB the Federal Reserve the bank of Japan the new guy from the bank yeah he's going to be there as well so that's going to be interesting to see I'm actually very curious Andrew Bailey I think is going to be uh front and center at 9 30 a.m how far they can go you are seeing two-year guilts uh just the yields on that spread to the highest that we've seen in a long time and this is really a concern especially given the interest rate sensitive nature of uh their their central banks and frankly their housing market that's going to be interesting to see I mean this panel here Lisa will have that on Bloomberg television worldwide here in the nine o'clock hour and it's gonna I I I just don't know what to expect and I also don't know will it be Market moving I don't know I don't know either and I think a lot of people are watching it that the other things that people are watching they're watching uh what we get from the stress tests after the bell at 4 30 pm and even more importantly possibly will be in video earnings that come out and that's the other story that really is dominant today is renewed concerns that President Biden will ban exports of specifically higher Tech AI related chips to China and you're seeing Nvidia come off quite a bit on the heels of that because about a fifth of their business is selling to China so to me given how much this has really dominated the rally year to date that's going to be something we're watching as well Nvidia I agree it's it's sort of the beginning of earnings season now almost with with what they've uh uh done with it with the tech uh ballet as well with the data here red and green on the screen what an odd day yesterday and an odd week we will dive forward here and try to glean from the charts what it all means Christopher Veron joins us now had a technical and macro strategy it's strategic it is a Baird company Chris Fran thank you so much for joining us which chart matters right now I think there's nothing more important in the world right now uh in terms of what bond yields do over the next number of weeks here I mean 10-year yields have been chopping basically since last October this is going to resolve itself very soon we're simply running out of real estate on the chart I think you start pushing above 390 395 on tens uh that's a big deal I think it's a big deal for multiples I think it's a big deal for the growth value uh equation and Lisa as you point out very quietly the last week or so there's been some stalling in Tech and I wonder if that's some reflection in where rates go from here I also think the weakness and utilities might be a reflection of where rates may go from here and the move in UK has been absolutely explosive here you have two-year guilts and tenure guilts basically back to where they were when all these Revelations about ldi and British pensions were revealed last fall can you judge technically and I'm going to guess yesterday that talked about this how what we really need to see is the high two-year yields come out to to a high five-year yield do you see within the charts of spreads the charts of an actual single yield where we're going to broaden out these high yields into a higher yield regime you know what's interesting we always look at this relationship between twos and fed funds right and and twos have largely traded south of fed funds since call it uh February or March of this year they're starting to creep back up there in terms of reclaiming the bar of fed funds here and you know if you look at who's raised rates recently the Aussies the cads and UK what's happened in all those markets they've softened and what's happened with the banks in those indices they've softened as well Canadian Banks Aussie Banks UK Banks they're all pretty soft here as those central banks have hiked over the last several weeks there's a real tension heading into this 9 30 a.m panel of how important the central Bankers are in determining what happens next in markets there was a brief second where people thought maybe we have moved Beyond central banks and we're moving to to fundamentals God willing are you saying that that's not the case I don't think it's the case yet or at a minimum I think the message or the interpretation of the bond market to all of this is still Paramount in our thinking about what the second half of the year looks like but at least as you point out the the trend here is still the trend and the trend is in the trend in stocks is still up there are areas of weakness and there are Pockets that may get weak but in basically brought aggregate here the trend this dock is up what I want to watch as we think about the second half of the year we've seen some modest broadening over the last two or three weeks does that stall or does that continue we're sitting here today with about 60 percent of the s p above the 200-day moving average that's a reading that ordinarily wouldn't worry me that much it's just unusual in a first year off a low that we're not broader narrow markets are common but they're common late they're not common early in a new Advance you mentioned that we have seen this stalling out in the tech trade there have been a number of downgrades from Banks saying perhaps it's got a little bit too far are you saying it's more related to the yield story and the waking up to an old Paradigm that we saw a whole six months ago that people had abandoned when we had the no Landing the soft landing and the macula disinflation of say February you know it feels like a different world ago we we spent basically 21 and 22 thinking the world had changed and we were on the cusp of some big regime change for that view to be massively challenged over the last three or four months my suspicion is if we really get rates up here and I'm talking say above four on tens maybe above 410 on 30s new highs on twos you're going to really begin to question some of the valuations that are put on these Tech names and I wonder if that's why there's a hint of them starting to stall here it's not everywhere Apple made a new high yesterday but quietly Google's come in here amd's come in here Microsoft has softened a touch they've all ridden their 50-day averages all year I think those would be very big levels moving forward and if you want to look at a test this is a different sector but use this as a a test the European luxury names Hermes lvmh Etc they've all been very tech-like this year those have actually started to stall the last two weeks I think we're going to learn about you know other corners of the world from how those stocks respond going forward Bloomberg with a great story Dan uh uh uh is it Louis Vuitton as well you know technical analysis is about looking at the past and learning lessons we came off the mat 7374 we had a nice leg up and then in December of 1975 we discovered a second leg up in the market can people like Chris Varone discover a second leg before it happens you know what I think about markets I don't really operate in the world of levels I operate in the world of what is the characteristics of a certain advance and I think on balance when you look at this current Advance the leadership is still pretty risk seeking we see it with Industrials we see it with discretionary better than Staples so I would use those characteristics to say nothing really meaningful has changed yet I think a shift there would cause alarm but I'm not seeing that here yet and you know Tom you bring up this 1970s period it's often referred to as this 10-year range I I kind of reject that it was periods of Bull and Bear markets yes it was two years up two years down two years it wasn't two weeks up two weeks down so this idea of the 70s being arranged I actually don't think is very accurate if you want to look for a range I think there's some parallels to this Market kind of post-world War II 45 to 50 I think is very interesting also a period where all the economists kept thinking recession was coming recession was coming and it never came um interesting there given that fact check yeah do you reject this idea that the past indicators are no longer working that the models are broken and the technical uh analysis doesn't hold the same kind of cloud you know it's funny I I suppose it's your definition of what technicals is we wake up every morning and we ask ourselves the simple question does the market agree with the consensus that's my definition of what technical analysis uh is anytime in my career where I've begun to question whether the indicators are valid anymore in new regimes they're about to become very valid so I would just keep that in mind here you know put that in context of some of the tech names two three four weeks ago we got what I would only characterize as blow off like volume in a lot of these semis and what do we know historically about blow-off like volume it very rarely marks the top but it can begin the sequence of putting in the top and you were doing about a month ago you were doing four or five average weekly four or five times average weekly volume in Nvidia AMD avago so some of those makings there are a very blow off E-Type volume with all your study of of charts and the in and out and being bullish being embarrassed does Market timing work if I'm in cash can I figure out when to get in efficiently productively effectively I might replace the phrase Market timing with Trend following I I think Trend following works I think we can do a pretty good job I think all of us can do a pretty good job of getting that middle 70 or 75 percent of a move I have it at any I haven't met anyone yet who's particularly good uh at the turns um that that middle Chunk we can you know all the money in this business is made in the trend and not at the pulse right we can I think play Trends and that's what we've tried to do I set him up with that question I knew what the answer would be I think 100 I think this is the gospel the gospel of our own I mean there's no other uh a way to put it Chris Brown thank you so much I came out of that you're a bull I think it's too early to back away from the trend you're with your your guard on for some things to change but watch rights here Rachel decide the second half of the Year Chris Brown thank you so much greatly appreciate it Lisa what do you see in rates this morning before this panel uh it's Central I I take your point that maybe we'll get the most out of Governor Bailey here I don't think he's going to declare Victory a couple weeks ago we heard that from getting open ask that they have the hardest task here and I think everyone would agree with that well we have seen this kind of stasis in markets ahead of this panel we don't know we don't know how far they're willing to go and what they can say to convince us something different than what we already heard please say with us we'll have our coverage here from Central Francine Lacroix leading our coverage in Portugal the most interesting Central Bank that's like it's like one glorious press conference maybe McKee will sit in the back of the room and ask a question here late in the panel red and green on the screen Futures at negative seven stay with us this is Bloomberg [Music] [Music] what we've seen in the actual data has been a lot of resilience we've actually seen that uh stretch of a strong labor market um it improved due to the very large increase we've seen in participation of working age Americans and so there are reasons to think that we are going to continue to see resilience against a backdrop of what we have referred to as more stable economic growth I'm not sure I've ever seen that that is the vice chair speaking differently to shift from a vice chair of the FED to National Economic Council director for the president loud Brainerd Lisa in all my years I believe I've never seen someone try to make that shift and then have such an important role at such an interesting time where we're expecting recession and still expecting it and still expecting it and it hasn't come and all the data seems to point to resilience did you see the consumer sentiment yesterday yeah yeah actually it was it was stunning but but there's there's Brainerd and is a vice chair you're hesitant and you have to wait for white smoke to come out of the chimney and you're looking at dots and all this other stuff and then you go over to the White House and you have to promote optimistically an optimistic message what a shift rhetorically although from Biden's perspective it would probably be better for there to be a short and shallow recession now then right as we head to the polls yeah that I think is one of the tensions so if she's actually trying to you know thump the the cause that's really the tension right now the lab brainer talking about the good economic data Lisa observed yesterday we saw it within a a good stock market yesterday the levels closing right on thirty four thousand on the Dow SPX a little bit under that 4 400 level NASDAQ really with a life of its own uh yesterday we're looking at the currency space I want to take two seconds here at least I think this is too important before the central bank confab and Portugal dxy stable but lots of underpinnings going on I'm going to go to Euro Yen legard and who's the new guy at the bank of Japan to help me waita the guard you ate a pair is up at a 150 38 strong Euro week yen is one thing I'm watching and it has been a week again pretty consistently because they have doubled down on this message even as we see inflation expected to surprise to the upside in Japan and creep higher despite this call that they want that and the rest of the world is battling the same kind of trend it's very uh counterintuitive all this wrapped around the elephant in a room with just Chinese weakness certainly business and Manufacturing weakness and part of that the political tensions between the United States and China before this panel and the nine o'clock hour We're briefed by Wendy Schiller of Brown University director at Tobin Center for American politics Professor Schiller thank you so much for joining again our Anne-Marie Horton reporting that Janet Yellen will exit to China here early in July what can be the goal of a Secretary of Treasury to re-continue to rebuild if you will that permanent codependency we have um and Lisa good morning this is a really strategic move I think to shore up the economic relationship between the United States and China but also to continue to send signals about the United States willingness to engage with major powers that are not Russia so we've got Modi and the Modi State visit rolled out the red carpet ignored some of the human rights issues in India and now going to China our top economic person uh Secretary of Treasury you can you know fight about the Federal Reserve and treasury but she's certainly extraordinarily prominent in our economic infrastructure and sending her or asking her to go uh to China reminds China that we are this stable relatively stable very strong economic power and it again sends a geopolitical message to Russia that the United States is trying to double down on its relationships with the two other very strong nearby Partners to Russia Wendy how much is that message undermined by the news this morning that the U.S May ban exports by U.S chip makers of more advanced artificial intelligence related technology to China at the same time that they're trying to create some sort of stronger relationship well there has been a theme for quite some time actually you know really uh very pronounced on the Trump Administration but certainly continued under Biden that you know intellectual property theft or spying or trying to sort of Steal U.S technology this has been sort of a Mainstay for quite some time in U.S policy it's quite consistent and you know the Chinese have not been as responsive uh to U.S complaints about this both in the government's perspective and the Private Industry perspective in China are quasi-private industry uh and they just want more response so like you can't keep stealing things from us we're going to crack down on your companies we're going to launch charges and we're gonna basically ban exports of Highly sophisticated technology until we can get a handle on how much you are literally stealing from us and that has been a consistent message through the Trump and the bite administrations we're seeing Nvidia lower today it gets about a fifth of its revenue from China we'll be talking about that throughout the show we started talking about this panel coming up of central bankers and Wendy we heard from President Biden yesterday as he was talking to donors that he thinks the us is going to avoid a recession and he was talking about the positive data that we've been seeing across the board is this a good thing for him considering it could push any kind of downturn out to right around the election uh Lisa yeah your point is so uh so excellent about the timing of when people perceive a recession versus when we're experiencing recession there's a famous political scientist Edward tufty a model from the 1970s that says you know whatever's happening in January or February of the election year really has a strong effect on who wins the election in November I think that timing has shifted quite a bit and I think that people's sentiments are also led by Elites much more than they were maybe 40 years ago a broader swap of people pay attention to more popular uh sort of news about the markets and about the economy so uh it's really unclear when the best timing if there is going to be a soccer session would be for Biden but you're right before December 23 is certainly much better than June of 24 for president when he had thought of you yesterday when I saw a British newspaper leading their website newspaper with a poll on the vice president of the United States give us the historic perspective the so what if you will that a vice president does poorly in the polls is there so what to that yeah well it's sort of a new phenomenon actually although vice presidents have been traditionally the people that run for president so why we haven't done more polling historically and the popularity of the vice president is anathema to me because you know with some exceptions Dick Cheney for example and Joe Biden in 2016. usually the VP is the leading candidate and runs for president so we want to know how popular they are um so this is a new phenomenal not much history to compare it to but clearly we have to figure out if we are political observers how much voters really care about the vice president United States you know will this really turn their decision that Kamala Harris might be present given Biden's age but the same thing will be said of Trump's vice president um so I think there will be a far deeper and more sophisticated discussion of the VP role for both if both of those Elite candidates then in 24 we're going to see much more scrutiny on whether Americans are willing to accept the VP as a potential president on both sides of political aisle I want to show us thank you so much with Brown University this morning I was Thunderstruck by that Lisa just you know it's a telegraph in London it doesn't matter which paper it is but in London they're leading with a poll on the vice president of the United States without question I've never seen that there is this belief that vice president Kamala Harris will have to take on a much greater role in this election due to the president's age due to questions about his ability to fill the entire tenure of his term and we saw that with the White House Correspondence Dinner where a vice president Kamala Harris was the first to sit on stage with a sitting president for that I did not know that it was going back a number of years there was a theory that this was to sort of emphasize her position heading into an election or suddenly the succession becomes a much bigger question that's going to be interesting to see to say the least can we go back here to this panel and I'm going to look at foreign exchange and I'm sorry I don't know what to do here there's just massive ambivalence here in the Foreign Exchange Market with Dollar on Sterling is I guess what I'm watching more than anything Lisa 127.07 again it's a churn waiting for the news I mean it's a turn except for the Chinese U.N which is weaker decidedly across everything and that is the one theme as we look to how they can bolster that economy we'll have to see red and green on the screen here right now uh Futures at negative seven the vix wow 13 I'm still not used to this 13.80 on the vix coming up on the events and center of Veronica Clark of Citigroup this is Bloomberg good morning foreign [Music] surveillance Jonathan Farrow an assignment a lot of mystery about that he's just it's like it's like a British thing it's like it's not a mystery time he's on vacation it's a good thing three or four weeks it's like a sabbatical it's a good thing I think everybody have you ever heard a sabbatical no I have not never had a sabbatical I've been working since I got out of college we should work on that yeah I think so too going to Collective surveillance three of us take rolling sabbaticals here into the end of the year John Farrell returns here at some point Lisa Brown was and Tom Keen again Lisa with this important Centric coverage look for at 9 30 a.m this morning Lisa what's that going to be like I mean you know they'd show up and I guess Miss eisen's leading the way and you know they're going to really kill themselves not to say anything right well I feel like I feel like Jay Powell is going to sit there and be sitting pretty and he's going to sit there and be like you know we've got to kind of under control and soft landing and disinflation and then ecb's Christine the guard will say that's not where we're at we're in a much different position we're going to stay hard we're going to keep raising rates and keep doubling down and then you're gonna have Andrew Bailey being like uh we're having a really tough situation and then you could have jueda who's just going to be very awkwardly sitting there saying we're very happy with yield curve control and that's going to be the dynamic of the entire meeting we've tried to bring you folks some of the Dynamics as Lisa mentions of the bank of Japan it's distant it's around the world what's the so what for American listeners and viewers and the answer is it really really matters according to the pros and it links directly into the American economy Yen 144.08 just refuses to go stronger a lower number and for that to get out to 146 or 148 would be a challenge for the bank of Japan it's going to be interesting this particular panel I feel like Fed chair J Powell is probably going to have the best situation because they are further along in some of the rate hikes or so people think Veronica Clark has been pushing back against this idea uh in that City group that the FED is done saying the timeline for a potential recession has pushed out further out as activity and jobs data continue to surprise to the upside a sharp slowdown in growth remains risk but stubbornly High underlying inflation is the current reality we continue to expect the FED to raise policy rates by 25 basis points at each of the next two meetings and that is the distinction between the Citigroup view of the world and the rest of Wall Street Tom which really has pushed back against the idea that the FED has to go that much further can we use be as bold as to say like illyrian and Dudley citigroup's been out front on this for 18 months maybe it's 14 months but I think Citigroup has been way way out front on this and here to take a Victory lap is Veronica Clark Economist at City uh to sort of extrapolate out how far the FED can raise rates is the market accurately pricing just how hawkish the FED needs to be in light of the recent strength yeah I mean never it's not over until it's over of course um but I think the the market is more fairly priced at this point um you know we're expecting a hike in July we're also expecting a hike in September the market is is pricing that hike in July at you know to a pretty you know large degree I think that July hike is a relatively low bar and then after July we'll you know should see still some strong inflation data and then that gets us to the hike in September but for the market it's just going to take time to see that data to price it what are the tensions right now Veronica is a lot of people are saying that the tightening and credit conditions has not been nearly as significant as people thought because of how contained the 10-year yield has been longer term yields how much do we need to see those yields creep higher to achieve what the FED is going after yeah it is an interesting Dynamic where you know we have had a tightening in credit obviously yields are higher but they haven't continued to move higher and this is actually an interesting Dynamic that we're seeing in the housing market now where of course mortgage rates will be more dependent on those longer end yields they've been relatively stable since you know the last half of last year and that means that we're actually seeing a pickup in housing activity again in housing demand you can see these Dynamics if you're not tightening credit conditions more I I look Veronica where we are and I really want to fold it in this panel this morning this panel I think is going to be a snooze Fest and I'm usually wrong to be honest I think there's going to be some interesting complexities out of it as well from where you sit and with your Global mandated Citigroup how removed is America's exceptionalism our monetary exceptionalism from what everybody else is doing out there I don't think too removed actually I think you know it's a it's a struggle for a lot of these you know Global central banks obviously to get inflation lower and I think the FED can maybe learn from from some of these other Banks of course we had Bank of England hiking by 50 basis points Bank of Canada that you know tried to pause their rate hikes and then also got this Rebound in housing activity and inflation that didn't slow enough and had to restart hiking rates again um so the FED can kind of learn from from some of the essential banks that it's just a really hard job to get inflation lower and you might think that you're close to the end but there are still those upside risks if you're you're still well above Target well review with us given the Citigroup call the trajectory that you see on rates linked to inflation is it like five percent struggle through four or do we rapidly come down to three and then it's a struggle to two yeah we're increasingly thinking about these scenarios where inflation doesn't slow as quickly as in our forecasts or as in the fed's forecasts um you know we we have penciled in you know a mild recession for later this year early next year um you know risk that that could be pushed out more because if you're not slowing activity enough if you don't get enough of that loosening in the labor market then it can look like inflation's coming down that might be what the second half of this year looks like but then you can get some kind of acceleration next year or it doesn't come down enough because for the last two years you know poor PC inflation that the Federal target has just been very stably four and a half to five percent Veronica what do you think we're going to learn today from Fed chair J Powell from some of the other Central Bankers incitra hear a whole long from Powell I think it's a relatively hawkish message still we heard from him last week of course in Congressional testimony this is maybe a bit better of a forum if you wanted to you know give any kind of guidance but there really just hasn't been too much data since we you know heard from the said a couple weeks ago so I don't expect the hills sound too different um probably just you know hammering in again that the media and fed officials still sees rates moving Higher by 50 basis points this year how Divergent do you think the messages will be from Central bikers that are fighting what a lot of people say is a very different inflation fight depending on the nation yeah yeah I mean in terms of messaging I don't think really any Central Banker has you know the ability to to not you know really hone in on high inflation uh that really does have to be the message rather inflation is caused by you know different factors um it is still too high everywhere and just on a credibility messaging standpoint you know that is the the goal of all central banks is to have lower inflation than we are now uh Veronica thank you so much Veronica Clark of Citigroup with us this morning here with a steadfast call they haven't budged one iota Lisa have they and that's been a consistent hawkish theme that the FED has to do more and they have been right they said this even through the banking crisis in March and right now the market is joining them that said rate Cuts have been priced out the probability but still people see the first half of next year being a retreat by central banks by a retreat by the Federal Reserve in the face of likely weekends and some of this is the belief of a labor market that continues I mean that we get outlandish four percent four and a half percent unemployment I mean that's the game right it hasn't broken it hasn't broken and the other aspect of this is the credit impulse and what happens with the banks and whether we are seeing more restrictive credit conditions than many people previously saw it thought on the margins that will percolate up in a more material way joining us now for two-hour conversation because there's a lot to talk about in our world is Bloomberg hypothetical scenario correspondent sonali bass secure on the stress test to me stress tests are a snooze Fest but I see in February the fed's model here for stress tests is a 10 unemployment rate why are we going through this exercise today at 4 30. I think the expectation is to test Harder Faster as we get into tougher economic conditions potentially but to the point that you're making here a lot of the criticism has been where has the FED been in testing some of the scenarios that actually had gotten the banks in trouble another part of this test that I think is even more fascinating is the trade writing scenario here this exploratory Market shock and the reason it is it's interesting is because the Federal Reserve is going to be changing its stress testing standards and the expectation here is that trading desks in particular in the future will be facing tougher Capital requirements what does that mean it has real business model implications you're seeing trading desks and investment Banks kind of hold up better in the market relative to Consumer banks that are worried about this economic environment but if this fed is stress testing that more rigorously it means the returns can't be as exciting in the future on radio we're showing up here the sonali put together this gorgeous 35 logo chart of banks Lisa I don't see svb's logo up there this is the biggest banks and that is one big question mark with the stress tests how applicable are they to some of the regional Banks especially if they rise to I don't know about systemic but something of concern for the Federal Reserve you talk about the nature of the stress tests and I agree with that the site idea are they going to talk about what happens if deposits all go away right how do they stress test that what are the likely implications of the results is it going to be that they have to raise more capital is it going to be that they have to increase their debt issuance what are you expecting there is an expectation out there that more banks will go to the debt markets really to kind of boost their buffers here but there's also an expectation that BuyBacks dividends can be pressured in the future and not just for the biggest banks there's an expectation that the big trading desks as we were talking about might be more pressured in terms of the rate of change here than perhaps the rest of the consumer Banks actually Bank of America is expected to have a little bit of an increase relative to before but the mid-sized Banks here because the bar today is 250 billion and above those mid-sized banks are really going to be more pressured when it comes to Capital return than the big ones to Tom's point is there any discussion about stress testing some of the smaller Banks particularly in light of what we saw in March well what we had was fetcher Powell confirmed that they really want want to lower that bar to a hundred billion dollars and that is kind of the political uproar isn't it if these smaller Banks face stuff tough for stress tests and those compliance costs go up and there are Ripple effects here in terms of how these banks are spending money there's another interesting thing that's happening here is a greater scrutiny on Bank mergers by the Biden Administration from the Department of Justice from the FTC potentially and if you have that bar Lower to 100 billion dollars does that incentivize Banks to want to merge way above that bar the history of this folks and I remember the clearest memory is standing next to the Bloomberg terminal the first time we distrust us with a great Otis bilodeau and Otis and I are standing there and you know frankly we're Naval gazing folks because we're like okay what's this so what because this has nothing to do with the reality of how Banks fail we have just had a six-month disaster did you see Pac West their chart we've had a disaster in the banks that has nothing to do with these stress test I will defend the stress tests pretty strongly however you know I think about what Marty Chavez has said former CFO of Goldman now at 6th Street and he has not only said had this stress test not happened you would have a lot of runaway activity by the banking system it forces both the banks and The Regulators to just check in and make sure can we check in with the San Francisco banks that were giving out one percent mortgages to taking gazillions of dollars of money not for a complete system why isn't it that's the key question and I think what's happening now is that kind of struggle here on what is the right scenario you can slap more rules on the banks but the supervision is also what fails on the back of this that's what I was going to say it's one thing to game out every situation under the book it's another thing to actually take action to do anything about it what are they going to do to shore up some sort of more consistency and supervision is that going to be part of the discussion today well I think one of the the problem here is it will take years to get there and by the way we're getting to another political cycle very soon where some of these new tighter rules could face a lot of rollbacks in any potential future changes I got the surveillance I think uh Colin and Sparta can say that I can say this on radio this is total Hogwarts this is just what is that cover your ass regulatory idiocy what would chair Keane do Cherokee would broaden it out to the key word Lisa bramowitz just said which is super vision and I'm not I adore Mary Daley she's my favorite fed official where were the San Francisco Banks during the charade that we had in banking out out on the west coast well then what is hogwash is it the stress tests did it's it's impartially and conveniently applied to people who can pass the stress test I feel like Tom Keane is going to get a call from Jamie eyman right after the show but you know what does this do to James Diamond that's a serious a lot of people think it's going to do absolutely nothing because he's already built up his Capital buffers and then some so really the question has to do with the smaller Banks absolutely and so the midsize banks are the really ones and you know this is where Raj Cullen worries about a barbell system in the United States what happens to lending then if you only have the small and you only have the really big across the Bloomberg terminal Ken from HR says Tom will see you at 10 05. I should only basic I learned a lot there that was great 4 30 today stress tests will be stressful at 4 30. stay with us Kathy Jones on bonds we'll do that at 7 30. good morning I think after July it has been indicated and you know it's quite clear September September will depend you know you know what are the factors that are going to determine what happens in September I think that some of these townsite risks have started to materialize and are becoming much more visible so uh well this is something that we'll have to revisit in September he speaks sometimes with Madame Lagarde the vice president of the European Central Bank Luis De guindos at Centra at Portugal Lisa brahmins will have complete coverage of the panel today at nine o'clock it is four Central Bankers I guess it's going to be a snooze Fest but guess what all my Radar's up I really wonder there'll be one nugget or two nuggets oh I don't think it'll be a snooze Quest really really interesting to see honestly even the dynamic between ueda and the Uber Hawks on the on the bench Christine Lagarde in particular is going to be fascinating completely Divergent monetary theories but then also Andrew Bailey on the hot seat at a time when those yields on guilts are just surging I'm not going to mention you alluded to this yesterday so different from Jackson Hole this is the ECB con Fab which is much more non-academic much more visible I would say with authorities trying to manage the message forward even more so than the the Quarry choreography that we see at Jacksonville well even the place it really highlights the differentials here one is a holiday spot beautiful palaces and the other is the rugged Grand Tetons in Wyoming where you go and stay in rustic things and focus on big thoughts let me give you one day to check right now red and green on the screen and that is the real yield a 10-year real yield is of major Focus Chris Varone and I were talking off air about it 1.56 percent on the real yield it is really buttressed up against the ideas Veronica Clark a city group mentioned a newer stickier inflation regime right now in a a summer of discontent for Global Wall Street we can talk about sundry layoffs except they're of a magnitude that is extraordinary no surprise with UBS taking out credit Suites young Patrick Barnett has been wonderful about this in Frankfurt and covering that yeah when you were in the banking business were you ever laid off did were you ever fired were you ever right-sized uh luckily I was not at a bank where this was was necessary though during the financial crisis nobody was really sure if you're going to to lose your jobs and the banks cut down uh tremendously especially in in Europe on jobs but luckily also I'm in Germany and Germany has a very tough labor loss so um it needs a lot to get fired here in Germany let me cut to the chase on thousands of credit Suites they they really have to speak to Swiss authorities does that mean the layoffs will be much greater in London in New York in Hong Kong yeah absolutely I guess so especially yesterday Swiss uh or UBS is looking to to cut the investment banking and those activities are naturally more in the in those cities and not so much in in Switzerland but overall I mean like this is not very surprising remember we spoke about when uh secretary Morty said like he's looking for massive cuts and and we pointed out that this usually means like 50 or more when the CEO says something like that and and now we got kind of confirmation for that it makes total sense for UBS they need to present some success in this very difficult merger very fast they need to get down costs uh and what's easier than that then tend to cut jobs as hard as it is for the people involved let's put some numbers to this UBS intends to ultimately reduce the total combined head count by about 30 or 35 000 people this is a lot of people a lot of jobs do we have a sense John Patrick of just where we are in terms of who has stayed how much of the talent they have lost during a process that has been absolutely scathing in some of the commentary but it's very hard to get into the details like about the talent who really like is is like on the on the on the ground floor on the on the on the working or the front line uh who is really like the big talent that they have lost so that they keep enough of some some managers that had left but that is that is normal in in such a takeover I think like from the perspective of UBS they look at the whole merger right now and think about like okay what do we want to keep and then we cut all the rest and what they want to keep is um some key people in the wealth management who have like unique line bases that are adding to the pool of clients at UBS they want to keep some key talent in Deal making where they have many gaps and stuff like that but but they definitely don't want to keep us like everything that is back office everything that has to do with like uh stuff that can easily be scaled you don't need another 100 traders to trade you bonds and stocks um the Traders you have already can easily do this especially with the the level of technology today so all these um like let's say easy replaceable double um double positions will be cut off and and that will go rather fast that's what we are hearing that uh big majority of these drop Cuts will even happen this year when will we get stability in this combined unit and I say this at a time when not only are there potentially 30 000 planned job Cuts but also we're hearing about ongoing withdrawals from the Credit Suisse unit yeah absolutely that's a difficult question to answer I would say like definitely not this year I'm very skeptical about it even for next year or even for 2025 because the thing is like we get like probably like more stability I would say but the absolute stability is still a long way from from here because we know like these big mergers it takes forever and then when you have solved one issue then probably another one comes up and we don't know what the market will look like how will client sentiment behave in the next two one or two years so this is all going to be figured out the outflows will probably not like happen once but will be gradual from those clients who feel like that they have split up the have to split up their money if they have been a client of UBS and credit it's this so looking for real stability here that's a very long-term goal uh it won't happen fast but I guess like that we will see much clearer by the end of the year how the bank will look like and how the the further steps will look like we've been talking all morning about the 9 30 a.m Eastern panel in Centro with all the central Bankers if the major economy is coming together and talking about their plans we've been hearing about members from the ECB as we came into the segment potentially raising rates several more times even after getting raised to the highest levels going back decades how will that affect a combination a merger like this how will this affect just the banking sector in general that this is actually a positive development for but it's happening very quickly yeah absolutely and we have this like contradicting or in opposite pulling directions uh factors here for the banking sector on the one hand of course we have like especially here in Europe coming out of this very low uh interest rate regime which is like increasing uh net interest margin uh by a lot for many of those European banks on the other hand you still don't know how deep the cracks in the real economy will be in Europe uh how badly the the refinancing of companies will look like and how will this affect credit quality going forward so it's very difficult to see how this is going to play and I'm not sure if we have seen like the the wobbles we've seen in March I'm not sure that has that that it does had that that has been the end of of the banking story all these people laid off what will they do where will they go that's that's another very difficult question because in Europe again we have the the theme of like reducing job Cuts reducing head count for over 10 years now and of course there will be some banks who feel like well if UBS doesn't like that business we are Keen to take it on board it fits well to us and maybe they hire a team here and there hire individual people here and there but for the for the majority I don't think there's much that other banks are Keen to take on board here and that also means like for those people who are losing their job it's not going to be an easy time to find us the same job at the different bank let me very quickly here we have the CFA results yesterday people doing better out of the pandemic on the level one exam our fancy educated people in the global Wall Street business are there days numbered as a generalization or is it just tougher no I wouldn't say so I would say it's tougher like but I guess like smart people have a good education and who are willing to like switch their um their their career path and say like okay if trading doesn't work anymore or more for me in in whatever shape or form then I do something else with my brain I guess they will always find a job it's just like going to be different and you have to adjust your life for it that's for sure yeah I'm Patrick Burnett thank you for the uh brief just just really something at least it's a frightening thing I mean you know you talk about obsolescence are all these fancy jobs obsolete because this is not just about Credit Suisse you mentioned the numbers it's on you know I guess it's what it is it's a bankruptcy merger just to make a long story short but every other bank is doing the same thing on a more smaller basis I mean you you really wonder here you say to a kid go get a CFA you'll love it I'm serious I'm speaking talking my book but well you know at the same time you have stories like the one that came out yesterday about how interns on Wall Street are making 120 an hour so you know it's sort of what talent and this goes to the point that Gina rometti was making which is that when we talk about artificial intelligence when we talk about some of the rapidly changing backdrop for technology how do you train people to keep up with that in a way where it can augment their abilities their knowledge their past rather than make them Obsolete and I I really do think there are still people getting hired we talk about that all the time but there are changing roles within Wall Street and more broadly within the labor market Bloomberg HP 12C calculator there it is on TV you can see it there it's on my phone Lisa intern 55 Hour Work Week six thousand six hundred dollars so you're popping 14 weeks at the shop that's ninety two thousand dollars by Labor Day yeah I was talking with you last night and um how young is too young to get a job on Allstate it's like please just you know finish your homework John Patrick Barnett there from uh Frankfurt he's really been helpful on the travails of Credit Suisse Redding green on the screen sintra in the nine o'clock hour this is Bloomberg good morning I think it's just going to take time for people to get used to higher rates five and a quarter is enough I don't think we need to go much farther than that we're going to have a recession in the second half of the year it's going to have to come from the consumer side of the market economists have us starting a recession in just a few days in the third quarter you don't see that in the earnings forecast the Federal Reserve has basically told us the only way out of the inflation conundrum is to have a recession this is Bloomberg surveillance with Tom Keane Jonathan Farrow and Lisa abramowitz good morning everyone Jonathan Farrell Lisa bramitz and Tom Keenan radio on television and a most interesting Wednesday that we have not much economic data this morning but maybe economic discussion in central Portugal we had Francine Lacroix today with Gita gopinath and today we'll have Lisa abramowitz with the governor of the bank of England the governor of this the governor of that and the chairman of the Federal Reserve System it's an annual event it's going to be interesting what they do say and also interestingly so what they don't say and how Divergent their messages are it is not going to be me on stage with them just to make it very clear I will however be watching it and we'll be showing it to me the question really is do we get some greater hawkishness than we've already gotten which has been pretty uniformly putting aside the bank of Japan hawkish how do we then translate that into a market that's been already hearing that have we already priced it in or is it going to get repriced Tom and the repricing of the data screen this morning to cut the the chase it's pretty quiet out there there's some other there's some little nice cities but it's pretty quiet out there to me I'll be fascinated how the three of them talk theory and monetary Eco Babble with the one guy Bank of Japan over here is a it's like Sesame Street folks one of these doesn't fit with the others whatever the phrase is I mean the bank of Japan is the outlier here well they're gonna continue to say that yield curve control is important even as we see the expected inflation creep up I believe the expectation is for 3.6 percent at the latest read and they're looking at keeping rates near zero at a time when you have the bank of England really fighting inflation in a very different sense in a much more significant and painful sense and the ECB doubling down possibly two more rate hikes how do we really factor that in at a time when we never thought that they could get Beyond zero for Global Wall Street we've got a really important guest coming up so I'm going to get to the brief at first a day to check red and green in the screen features negative five the yields are in today I mentioned some interesting data points I'm going to cut right to it the 10-year real yield suddenly signals a stickiness to inflation 1.55 percent not through to a breakout to a higher regime of an inflation-adjusted yield but nevertheless buttressed up at one point five five percent and the other is China uh 7.25 print earlier 7.24 a very weak Chinese Yuan and this is chair uh chair look at me cherry Yellen maybe she'll be at the panel today as well the secretary treasury will travel uh to China here at some point at least I butchered that data check a lot of Crosswinds there as you were mentioning 9 30 a.m really is the main event today with the panel in sintra with the four Central Bankers the bank of England the Federal Reserve the ECB as well as the bank of Japan we will be seeing if there's anything that comes out of that 4 30 p.m we were just talking with shanalei pasik about this we do get the stress test released by the Federal Reserve Tom thinks that there's news Fest I personally think that it's going to be fascinating to either put to bed once and for all all the concept of a banking crisis or reignite concerns about what the FED is looking for in terms of a crisis Tom we can talk about that and debate it I think it's important and after the Bell Micron is reporting earnings and this comes at a time where in general the chip makers are selling off after President Biden indicated that he was going to crack down and Harden some of the export restrictions for AI related chips this is fascinating to me I know this doesn't seem like the main event but to me given the leadership in the market so far this year this is a major issue it's going to be interesting to see to say the least Lisa on the earnings front here uh you know when we've said it's going to be a very different quarter and we start early with Walgreen boots Alliance yesterday and Delta generous Mills GS out with a dividend lift a nine percent dividend increase positively European yeah although interesting to see that we're not necessarily getting the reaction that one would expect the shares down three and a half percent so even though they beat expectations this to me is the quest question well then why are we not seeing a better respect organic nut cells and maybe this is the shift Lisa that we're going to be listening for where a lot of the good news on earnings was from price increase inflation the the generous lights of inflation helping at the revenue line versus unit Dynamics how many uh uh boxes of post Toasties or corn flakes for their competition were sold as as well right now joining us is Wei Lee Global Chief investment strategist at BlackRock and there's always 14 things to talk about I really want to lead with secretary yelling into China and what China means within an investment strategy but I got to rip up the script here there's a guy named Fink who's talking about something BlackRock has led on you've been directly involved with this which is the value the efficacy the usefulness of ESG Larry's come out is a real proponent of talking about it and said it's been a challenging time out of the pandemic I Color Force how you are reinterpreting ESG right now within your investment strategy well sustainable investing right we're incorporating considerations around the impact of climate in our Capital markets assumption we're also thinking about how the transition could look like and really thinking about how that then is reflected in portfolio construction to what extent it is a really in the price so as we think about transition as one example of Mega forces what we're doing actually in this media Outlook that we're releasing today is that we're prominently highlighting a few Mega forces including sustainability and transition to Net Zero but also including drill political fragmentation including aging demographics including AI to really incorporate those megaforces in portfolio construction as you put the review out two days left in the first half of the year what changes for you in terms of your positioning after six months of being really cautious um while I think the biggest change is as we think about kind of the environment where youths have reason is that we're actually within fixed income excited about opportunities across the Spectrum so we have been talking a lot about front end of the curve which we still like but we're actually also putting cash to work across the broader exposures in a fixed income including MBS mortgage-backed Securities including inflation linked bonds especially in the US and also including high grade credit and local currency Emerging Market debt and more broadly as we think about what has changed we're rolling out the new investment Playbook where the first layer is around macro based as a location but macro can only take us this far in this environment of Supply constraint so we're also thinking about having the second layer of very granular unrelated individual investment opportunities to Overlay lay on top of the first layer and then the third layer is the Mega forces that I just talked about where is the idiosyncrasy of artificial intelligence in the overlay that you talk about well so far if you look at markets this year it's being a very narrow thematic markets right so that has taught us that just base as a location a macro assessment along is not enough anymore um so far we have talked about bias towards quality attitude towards quality in our U.S Equity allocation but what we're doing differently at this media Outlook is to break that out and explicitly call out a conviction in a develop Market AI which we have had indirect exposure towards but now we want to call them out explicitly because the interplay between the cyclical Framing and the structural megaforces is so complicated and nuanced that we cannot afford to model them and mix them up together your essay and outlook here is a view from sixty thousand feet it is very macro it is very big picture and in the middle of it is a massive micro reality you say that the pandemic Supply constraints that have affected the world will have a persistency that they will be permanent in some way that's a stunning statement why can't we get back to supply demand normality while some of that Supply constraint is pandemic induced but a lot of that is getting washed out in terms of the cyclical pandemic induced Supply constraints but what we are putting out which we have been of the view for a while is that we're moving away from the last 30 40 years of the Great moderation characterized by demand shocks to the current environment characterized by Supply constraint coming from structural forces like the Net Zero transition like geopolitical fragmentation and also aging demographics and what that means in the context of this week being the central week is that when it comes to Central Bank policy you know during the Great moderation because of the structural disinflation they are they were inclined to keep policy easy for 15 years that was easy and then now they're in an environment where they are actually they need to keep policy tight in order to lean against this inflationary pressure mathematically what we've got here is we finally got to return to a risk-free rate we've got a legitimate sharp ratio without question some of the traditional Dynamics you and I studied in in books what does that mean for the center panel today what are you going to listen for from these people about their new reality which is a reality from 17 years ago of their new reality is the reality from maybe even 30 40 years ago right because the great moderation is over including the period after great uh well after the global financial crisis so what I will be paying attention to is to understand if they acknowledge the trade-offs facing them which is that the cost of fighting inflation in a supply constrained environment is a lot higher so if they acknowledge that and also number two what are they going to choose when faced with this Stark trade-off growth or inflation there's a real tension when you were speaking is there a possibility for markets for U.S equities to Rally even if we do get a recession and even if the FED does become very hawkish and we get that is that what you're saying that you could still see the market respond in an untraditional way to a central bank and do slowdown while U.S Equity markets currently the broad Market is still pricing in earnings to accelerate in the second half of the a year which in the context of growth slowdown is too optimistic which is why as we think about us allocation for the broader Market when it comes to U.S equities we have a minus one out of a scale of minus three to plus three and translating that into portfolios a global portfolio U.S Equity is The Benchmark is around 33 this minus one modest underweight translate to about 31 so we're invested but we're modestly underweight now having said that there are themes that we would like to embrace such as artificial intelligence so we kind of add that on top of the broad Market on the wage modest underweight to get to a closer to neutral but not quite there which is still uh more this job really thank you so much with BlackRock right now uh s p Futures done fractionally a tenth of a percent that was fascinating Tom what Whaley was just saying there really uh just uh struck me as highlighting the difficulty in coming up with something completely macro without taking into uh in into effect some of these other issues like artificial intelligence like what companies are going to benefit from well deglobalization re-globalization whatever you want to talk about to me how much is this going to be the new playbook that might hearken back three or four decades earlier than the one that we've gotten used to with such Central Bank dominated action and not that history will repeat itself but I would take the macro dynamics that we just heard from uh way Lee and I I overlay it with the micro Chicago dynamics of Jeff Curry that we heard from Goldman Sachs where he said look everything in hydrocarbons now is still based on the new reality which is a legitimate real yield a return to a legitimate rate structure of sometime granted there's massive curve inversion and now but the macro structure of BlackRock is adapting to the end of the great moderation that's a huge macro theme for us for the next six months if not a year and it causes some micro ahead winds and Tailwinds and that's sort of the underpinning here when you also have real invention you actually do have new realities with relationships geopolitically how do you interplay the idea of the end of financial oppression with some of these new trends that are very real and causing real Market reaction you're gonna buy the virtual reality thing from Apple the new technology at home there are people there are people in the Bramble house that say this is the future of computing and if we don't buy it we are going to be behind and I say go get a job and then you can pay for it yourself I just wish we had boys so we could worry about this garbage they don't care they don't care red and green on the screen stay with us this is Bloomberg's surveillance what we've seen in the actual data has been a lot of resilience we've actually seen that uh stretch of a strong labor market improved due to the very large increase we've seen in participation of working age Americans and so there are reasons to think that we are going to continue to see resilience against a backdrop of what we have referred to as more stable economic growth an optimistic tone taken by the National Economic Council director Lau Brainerd formerly of the Federal Reserve System she's getting a little more visible over there to say uh the least how about on the chances of a U.S recession at the White House Press briefing the president echoing brainerd's comments uh at a fundraiser saying quote it's been coming for 11 months well guess what I don't think it's going to come I watch brahmo and Biden says it's scheduled you know he's going to give another speech today at 1 pm after sintra I mean this is good news for the White House right Lisa it is good news for now and the tension right now is that if he gets a recession now he could clear it out by the time he runs for reelection if it comes around that time it is more likely that he will be a one-term president so if we have just simply excised any kind of downturn from the equation well that's good news Tom unabashedly let's take on this trend now of our economics we'll try to get to Russia with Emory Horton or Bloomberg Moscow correspondent and joining us from Washington today as always of course another life of balance of power as as well Emory Horton um I I look at the good news in the economy and is out in the Washington Zeitgeist this morning why is this Administration having so much trouble selling their success well the issue is the American people just don't feel it when you look at poll after poll Biden continues to get poor remarks in the economy because of high inflation remember Biden said that he thought inflation would be temporary back in 2021 but then of course Americans suffered for years higher inflation and while Americans are having a lot of jobs you see a very tight labor market you don't always feel your neighbor getting a job but what you definitely feel is higher grocery bills higher Hotel bills higher plane bills and this is why this has been a struggle for this Administration it's what they are trying to do is get back this term bidenomics which I think became first from a Wall Street Journal editorial months ago and what they want to do is Freeman in their own terms and I've asked a number of them how would you define bionomics what does this actually mean and what they're trying to sell is all the legislative wins they've had and really I think it comes to the core about expanding the productive capacity of the United States what they want to do is make sure they are investing in hard infrastructure in chips hundreds of billions of dollars in things like clean energy right their biggest issue is that the when all of these projects come to fruition it is not going to be in time for the presidential election in November of 2024. memory I think of the Zeitgeist besides the return of Aaron judge helping out the Yankees in the in the late June Zeitgeist here there's a clear understanding of the polarities and subsections of the Republican party and how Mr Trump is still doing so well in the polls I hear basically silence on the left what are the polarities and what is the key constituency right now voicing Democrat politics with their incumbent president well they're rallying behind Joe Biden many Democrats still believe that this is an individual that can if it was going to be a rematch of Trump versus Biden that Biden would still win what is concerning to some and potentially this concern will grow is this latest morning consult poll yesterday that showed that actually for the first time in a poll Trump could beat Biden that is a concern but at the end of the day they are all still rallying behind the current president and they do not have anyone that is out there looking to also get in this race there are potentially people waiting in the wings like some certain Governors if the president decides he will not run but at the moment he is planning to take on 2024 and that is exactly why they realize they're low marks when it comes to the economy why they're going on this huge effort with this speech today in Chicago and this will continue to frame and talk about the economy and labeling yeah what they see is biodynamics meanwhile when domestic politics get overcome by geopolitics and that's something that we've been trying to uh put against each other all morning talking about treasury secretary Janet Yellen heading over to China at a time when the U.S is coming out potentially with more strict requirements on not exporting High AI related chips to China why now what is sort of the push-pull right now of Greater diplomatic actions paired with potentially more restrictive export Bans well this is going to be the tightrope that secretary Yellen has has to walk and this is a scoop from myself and Jenny Leonard that she is going in early July also at the same time the administration is ramping up their work not just with the Wall Street journals reporting about export controls on some of these chips needed for generative AI development but also on the outbound investment they are they have a goal and an aim to try to get that done by the end of the July uh very awkward conversations I would say for the treasury secretary as she makes this inaugural trip in that position to Beijing to meet for the first time her brand new counterpart Chinese Vice Premiere this is a new individual Hurley Fung and he was given this job in March uh what we're seeing is the U.S trying to do both they want to make sure they have this open dialogue with China but at the same time they are looking at this competition and putting restrictive measures on some of these very high Advanced applications that are needed for things like AI everyone is talking about the fact that AI is going to be a massive race between China and the United States we have a story out this morning talking about the fact that many in China do see themselves behind we look at the money that's used in AI the United States absolutely dwarfs China but when you're talking to people in China what they say is that yes they're behind but they think they have the capacity to catch up just quickly hear Anne-Marie dovetail this back to the domestic politics of the moment the idea that in general people want to see more hawkish rhetoric around China that has been what has appealed to voters in the U.S how much do we expect some of the bands and the hawkish rhetoric to increase heading into the election season oh it will for sure increase as we head into 2024 every candidate is going to have to come out when it comes to foreign policy and make remarks regarding Russia and make remarks regarding China we've seen some of them already stumble when it comes to Russia and have to backtrack I think it'd be very difficult to see anyone stumble when it comes to taking a harder line or as hard line as they could when it comes to Beijing Emory Horton thank you so much greatly greatly appreciated this morning our chief Washington and correspondent look for balance of power tonight including a briefing on the events from Russia uh as well red and green on the screen right now the 10-year yield 3.74 percent christopherone really shocking they're about four percent you wonder what that'll do to the economy Torsten slack every day putting on a chart he puts out like a single chart every day and I would say they're always brilliant but about every one out of eight or nine ten days it's like are you kidding me he just put out and are you kidding me chart I've just barely looked at this Lisa weekly bankruptcy filings there's a four week and a 12-week moving average we're almost back to 0.708 I had no idea what it shows is that the four week moving average when you look at it on a weekly basis the bankruptcies are taking up much more quickly than when you look at a longer term rolling trajectory what this signals is things can move fast the economy could roll over in a much more rapid way and and you know not saying that that's what's happening but that is the tone underneath some of the pessimists out there some of the Bears saying just wait things can turn very quickly whether that's the case or not whether this is Micro Data that points to one reality and paint the narrative that you want using data that points to better than expected consumer sentiment or a housing market Reviving either way this is the nature of how people are parsing the data to try to understand the true story and what's interesting is I don't think we'll hear this today Etc I I think the fact is we have Theory and Analysis like we heard from Wei Lee which is wrapped around one aggregate idea well there's not an aggregate America to kind there's Torsten slock bankruptcy America and there's somebody figuring out how to get on a Delta flight to Paris but it's sold out I mean it's like two Americas and one inflation number that they are heading after a very difficult time for them stay with us in the nine o'clock hour Central at least abrahamas we'll have that for you this is Bloomberg good morning [Music] Bloomberg's surveillance oh you should have the cameras on while we're on break Lisa bramowitz discussing with us but benevolent she's been with Mrs abramowitz senior over the years it's you had to be here to see it we should do that we should make little you know like the sports games do yeah yeah but I think we'd probably restrain ourselves a little bit more maybe not probably we would let's do a market check and save ourselves that's how you save yourself on Bloomberg surveillance look at equities bonds currencies Commodities I'll try to be as good as Karen Moscow and Bloomberg Radio red and green on the screen Futures and negative four the yields 3.74 yields are in a little bit but it's been that range that Christopher own was talking about earlier he models out a four percent yield we're distant from that uh oil really has my attention we are under 68 dollars a barrel and critically on Brent crude we're under 73 dollars this is important 6769 on American Oil Brent crude 72-24 you go down three dollars you're under seventy dollars I'm Brent crude that would be the shock of the quarter uh as well in the currency space Lisa helped me here I got four pairs to look at for four Central Bankers on a paddle and Sentra and I'm getting no no love here from the the markets I'm getting no pre-sale here maybe Sterling a little bit weaker 126.97 that about what I got that's about what you got right now a little bit of Euro softness versus the dollar but what we are seeing hands down the clear move is a weaker you end near the weakest level since November 2022 as that Nation tries to have a more controlling role in the economy in markets at a time when there are a lot of questions around what's going on there Elisa informing me this morning a stupid nvidia's out today and that's what you're looking at well Nvidia is in the news today it has been in the news because it's up 187 percent year-to-date but other than that it's also in the news because the Wall Street Journal put out a story overnight saying that the Biden Administration is continuing new restrictions on exports of artificial intelligence trips to China this would very much concern Nvidia considering about a fifth of their business is sales into China those shares lower by three percent but this comes after a rally that has just been astronomical to give you some perspective their market cap was 351 billion dollars at the start of the year it now is over a trillion dollars what could this do to them longer term is this going to be a momentary blip or something structural at a time when this is still speculation and could be rolled out coming next month AMD in that as well those shares lower by about three percent those are the two main companies that we get affected by some sort of restriction on this front and and I find this fascinating considering that they are the leaders in this market they are the drivers of a lot of the gains we've seen due to what Chris Ferrone said earlier they have to Louisiana's great phrase consolidate it's nothing wrong with going up like a moonshot and then consolidating for dare I say quarters well consolidate is one thing if there is no change in the news we saw artificial intelligence change the narrative now do we see some sort of geopolitical tension change the narrative once again in terms of earnings potential the other company that I'm watching is Micron because they're reporting earnings after the bill to me this is going to be a really important earnings report this is a true test are we actually seeing the revenues and the sales to justify some of the gains that we've seen here to date Micron lagging behind the others because it doesn't have as much of a focus in the AI Tech but those shares still up 34 so far a year today price in unit on revenue and I'm really looking at unit Dynamics as we go into the earnings season of the banks of technology in a course of everything else General Mills out with a dividend increase here earlier this morning right now we increase our knowledge Kathy Jones Chief fixed income strategist at Charles Schwab Kathy I'm just going to cut to the chase as well am I clipping a coupon or can I dream of Total return out the next 12 months oh I think there'll be some Total return in addition to the coupon I think most of what you're going to get is the coupon but I when I look at where we're priced now I think that there's some room still for yields to fall not a huge amount especially if the FED continues to hike rates we'll we'll just seeing more and more curves deep inversion but I think that there's some room and especially if you go in the investment grade corporate bond space there's there's a pretty good room for some spread tightening there and some appreciation help people that haven't bought a bond since Nixon was President what's the yield I can capture on a general vanilla IG piece um so I look at the Bloomberg index uh and after that she can stick the corporate indexes it's well over five percent it's probably roughly around 5.3 percent today that's not a bad yield to lock in you probably have a duration of six or seven on that but that's not a bad yield to lock in on IG so that's a money market yield for six or seven years versus 13 months or 12 months that's that's the show game right that basically is it okay that's fantastic basically locking in those coupons that maybe you can get today in cash but you won't be able to get maybe in three years considering people are expecting rates to come in eventually here and then lies the question of the Torsten slack chart that we were talking about earlier bankruptcy is ticking up in a more substantial way especially if you look at a more micro basis a near-term type of time Horizon how does that affect the credit proposition at a time when people are not prepared for a wholesale to fault cycle akin to what we've seen in the past yeah it's a great question so it's one reason we've been cautious on high yield even though high yield performed very very well because again the coupon and spreads have been pretty tight but it's reason to be cautious on Lower quality credit because we are you know we are in a global tightening cycle we are seeing softness corporate earnings have not been all that strong you know when you look at the broad economy and there's certainly going to be especially the further down you go in credit quality going to be companies who are refinancing is costing them two times three times maybe what it what they were previously paying in interest and that's going to trigger some defaults which really raises the issue of how long central banks plan to hold rates high and how that is so important at a time when a lot of companies have termed out some of their debt structures and won't have to borrow for quite a bit when is the pain point in terms of a wave of maturities that have to be refinanced that could cause companies actually have to pay the rates that we're talking about well you're already starting to see it on the edges but again Lower quality companies that have to refine chance frequently in the bank loan space already seeing it there you would probably have another six to 12 months time frame for higher credit Quality Companies and we're not really worried about a huge default cycle in IG but I think eventually it catches upright eventually if especially if the equity Market doesn't allow you to refinance by issuing Equity to offset some of the the increase in leverage that's been taken place over the last couple of years I I look at the bond market in Lisa's expert on the distress in the high yield place and I remember the comfort of just owning corporate bonds are we ever going to get back to that or the street wants to own corporate bonds or we completely now beholden to a Full Faith and Credit discussion oh no I think we've seen a lot of demand um again for the in the investment grade space we've seen a lot of demand from institutional investors a lot of the mutual funds a lot of the Pension funds Etc looking is there a shortage of IG bonds I know think there's a shortage but the balance is pretty good when you consider the spread as over treasuries is is fairly normal in terms of historical averages I would say we're pretty good ballots right now you mentioned a six-year maturity is that sort of the center point tendency on a barbell strategy or can you Nuance that to five years or seven years around the belly of the curve yeah it'd rather be a little bit longer on a barbell uh maybe seven like 20 years out so I can pick up eight percent yeah there you go thank you well look as we talked if I'm wrong you're crushed thank you sir two days away from the mid-year point in a year that has been full of dashed expectations in a lot of ways people came into this year talking about a longer structural shift upward in inflation now we talk to an increasing number of people who say we are shifting back to what we knew before it's just taking a little bit longer where do you stand on this at a time when we do see nodes of disinflation in certain areas but reinflation in others yeah I would be in the camp that's saying it's just taking more time it's very difficult to see that we have a global tightening cycle higher cost of capital and we have had a slowing economy we have Top Line you know Goods prices falling and it's hard to see that that if the central banks continue to keep real rates high that we're not going to see that inflation come down I think it's just a matter of time it would defy expectations you'd have to have a maybe a massive fiscal policy shift and right now the fiscal impulse is negative not positive and a lot of people will say just look at the yield curve it implies recession it implies downturn and then there'll be 10 people who will message me and say it's broken it's not actually telling us anything because this is a new regime and a new post-pandemic reality how do you fight against that the idea that some of these indicators are broken given a macroeconomic back backdrop that's unheard of yeah I mean look it's complicated right and we haven't been in a pandemic in a hundred years and so I think you know every cycle is very different anyway but I wouldn't uh count on the yield curve being broken I mean all it really reflects is the market expects growth to slow inflation to come down and the FED to ease down the road that's really all it's telling you I mean I I I look at Bond allocation in the heart of all of our conversations at a mid-year review is a reallocation of a 60 40 spill it are you and Liz and Saunders in the safe same page on what that split should be yeah you know we don't we don't specify because we're 60 40. we you know if this 60 40 to us is a good place to start for people but everybody's allocation is going to be a little bit different but you know this this year coming into this year with bond yields up I think 60 40 is not a bad place for kind of the vast majority of people with a long-term High Time Horizon what is the public doing are they buying the story are they all in cash you know we we have such a range of investors but we have a lot of people still very short and in cash yeah who gradually starting to Edge out now that uh yields have been more stable for a while on the equity side you know you we we have a lot of people interested in uh trading and so you know there's been a lot of that but mostly people are holding steady Kathy Jones thank you so much for Charles Schwab this this morning I I think it's fascinating Lisa how the media is full faith in credit or the drama of eight percent oil debt that's going under and something in the middle that's boring the clips of four and a half five six percent coupon nobody ever talks about it yeah but everyone's buying it I mean if you've seen this flows into some of the investment grade bond funds people have just been piling in because it's The Sweet Spot you get a little bit more you lock it in for a long time and who's going to deny the fact that Apple's going to be able to keep paying their bills for a long period of time so this has been one of the sweet spots which raises a question how do we account for this potential wave of insolvencies the potential credit to stress that's implied by the tightening and conditions as well as what we're seeing in the yield curve I get huge use out of the Bloomberg Total return indexes the heritage of the Lehman and the Barkley series at Bloomberg has now and I just wonder how you get price up yield down on those indexes how you break through to some form of real price recovery we're waiting on that we haven't seen the disinflation uh to get there the vix 13.80 standard reports 500 it's down one tenth of a percent yeah and one of the key questions as you're talking about how do we get there is well you know if we don't get a recession if we don't get a real wave in bankruptcies then suddenly you could end up in a better than expected situation a lot of that's being driven by AI but also Other Stories on the margins right now this from the Detroit News serving Michigan since the last time the Tigers won three games of a row Detroit surpassed Chicago Chengdu Delhi and the rest of polluted America it's back this is something we haven't talked about for our International audience Lisa we don't want this to move East do we no we're talking about the fires in Canada that are continuing to rage and continuing to cause bad air to percolate into Detroit into the Midwest you saw Chicago some of those views Windsor Ontario around the lake it's also shifting to Europe we've also seen some of those Maps push the smoke all the way over to Europe it's frustrating and it's scary because when you have to wear a mask and you can't exercise outside it does feel something my urge question is Okay so we've got this we had it three weeks ago it cleared now they have it I guess it's coming this way is what they're saying why wasn't it here last year or the year before I mean it seems do you agree with me that it's sort of something new well this is the worst fire that they've had in a very long time so it is burning more acres and that's part of the reason why really really something I just looked at the the numbers that I look at on my app on my phone in Detroit really front and center on this the Canadian Wildfire here and uh as we suggest maybe moving East and we'll do a Redux on this in New York in the coming days on the American economy on chairman Powell Kathleen visjancic Nationwide this is Bloomberg good morning [Music] I would still stick with tech names I do think that NASDAQ is getting a little bit overbought if you look at the cftc data we're hitting new highs on NASDAQ mini positioning that being said I don't think you have to sort of throw all the growth stocks out at this point a sector like communication Services where a lot of the internet names are those earnings revisions are starting to weaken they're actually staying stronger in Tech proper Lori kelvis Cena of RBC Capital markets there really interesting Nuance her focuses mid cap small cap and and sort of I'll call it valueness not growthiness and uh it's been a really interesting year reading Calvin scene and to me Lisa what's so important about someone like Lori calvisina is the dynamic week to week you know like a John stolphus is the same way Ben laidler over at etoro the the dynamic the way they change week to week is very cool and how much it relates to sentiment at the beginning of the Year everyone was bearish the world was going to fall we were going to get recession and Lori calvacino has been looking at data aaii investor sentiment data that shows people are getting more bullish in their sectors that even look overbought so even though she's positive she's getting a little bit concerned about heady things have gotten a little bit we'll have to see on that right now we're going to dive into a conversation which is is really interesting it can be a nerd Fest and we're going to try to avoid that Mandy joining us now Bloomberg intelligence and and I want to talk the substrate of it all mandyke I'm old enough to remember Mandeep that the way you started a cocktail hour to talk about your world was somebody would walk in with a substrate cylinder that would become silicon Wafers this is an IBM patent from years ago coming off memc Sun Edison ancient technology and I'm and I write in the Nvidia World Mandeep but the Wafers have just gotten thinner and thinner and more productive and more efficacious is that true it is and right now we are in that sweet spot when it comes to the product cycle for data center uh chip demand I mean really a 40 percent you know positive revision what we saw from Nvidia uh last earnings is a reflection of just this profound shift that we are seeing uh you know in terms of the refresh cycle as well as the new demand but at the same time you always have these you know uh negative news around sanctions and what it could do because it's not a low probability event anymore in terms of what it could do to both uh China and Market as well as the supply chains that are uh tied to it Mandy taking a step back the Wall Street Journal reporting overnight that the U.S was thinking about possibly restricting exports of certain AI related ships to China that this could come as soon as next month Nvidia would be among those most affected how much would that dampen their Market valuation let's just say this did go into a fact how much would that strip away from the nearly 200 percent rally we've seen year to date well so I mean uh let's uh maybe focus on the fundamentals right now clearly the data center demand is everywhere and it's across Industries I think what they did the last time around when sanctions were imposed uh you know for one of their chips is they came up with a low performing variant and the focus of these sanctions so far has been on the Leading Edge ships and and so you can work around it they've been very agile in terms of coming up with ways to you know keep selling to that uh End customer that is uh in China and as long as I I think you don't see a material decline in their sales they probably will keep working around it but uh look as I said before like this is not a low probability uh event anymore and China risk is huge when you think about you know the political cycle and elections coming up in Taiwan in the US I mean this could uh escalate and I think that's where investors have to be very given the multiple expansion we have seen this year so what are you looking for how do you play this Mandy you said investors have to be very careful at a time when there is a lot of Hope around Ai and the promise of it so how should investors be careful how should they monitor this how should they even understand what the tail risk could potentially be yeah so look at you know the sales exposure to China it's it's at least you know 20 to 25 percent and look not all the chips are used by Chinese and customers but you can think of you know all the different skus that Nvidia makes especially on the data center side that are more exposed to the sanctions and if we have something like what happened to Russia in terms of you know broader sanctions that could be huge especially for the semiconductor makers and look Nvidia is not the only one you will have the semi-cap equipments that's a big Focus for uh you know sanctions so clearly uh they have to figure out ways to both diversify their supply chain can these uh chips uh be you know assembled somewhere else outside of China when it comes to the end product and things like that so the supply chains have to move quickly and I don't think it's going to be as good for the pricing we've seen so far Mandy when I look at this industry can we say that maybe like the airlines years ago they've learned the value of persistent free cash flow and that they're more financially responsible than they were 10 years ago I think in the case of fabulous chip makers like Nvidia and AMD I mean they have a very robust free cash flow generation machine in in the sense that you know they don't have to invest uh huge amounts of capex in terms of The Foundry side but that's where the risk is because it's so concentrated in Taiwan and Asia like you you can't make chips and look uh there are others like apple who are equally exposed to that sort of uh scenario so uh I think in terms of the fabulous design makers you clearly have a mode in the case of Nvidia and others are trying to catch up but it'll be years before they can make that high-end chip yeah I don't mean to be rude but if President Biden wants to build a chip factory in America to beat those dreaded Chinese are those chips going to be the same quality as the chips in Taiwan well so you don't have the leading node capability right now uh you know when it comes to three nanometer or five nanometer and that's where uh these companies are somewhat constrained they have their designs but they can't manufacture it because we don't have that technology or that factory here and over time it will come but you know things change every uh year uh 12 to 18 months when it comes to semiconductor I mean that's Moore's Law right and and so you don't want to be in a situation where you don't have the latest leading node chips available because that is what drives the pricing Mandeep just quickly here what are you expecting to hear from Micron today how important are their earnings given what we have seen in the run up in chip stocks data center exposure so far micros Micron has trailed because they are having less exposed to Data Centers so how they are navigating around it how are they participating in this AI generative AI way that is what you want to hear Mandeep Singh thank you so much greatly appreciate it with Bloomberg intelligence Lisa thanks so much for that buy tip 10 years ago on AMD up 40 for year 4-0 40 per year thank you for that anytime I try I try to help you out of the triple memories to all cash uh account here's a question a lot of people have especially as we just heard way Lee of BlackRock talk about how they're overlaying and embracing the AI theme where does the political risk come into play how do you even measure it at a time when we are heading into an election and hawkish discussions around China works right I mean that's basically what galvanizes people and wins votes even if businesses say pump the brakes we need to have some sort of other type of relationship I I yeah I totally agree and and to me the basic idea here deep is do you believe in the technological innovation forward wrapped around all this I have never made money in semis I've been a loser loser loser loser there's an index of socks Sox that that this is not a measurement of the Red Sox mediocrity and the answer is I've never been able to make money on an index that's averaged 24 per year for the last 10 years how can you do that you can be as a nap as I've been in the chip well there are winners and they're losers and the disparity between the two is vast it's a something you can run a truck through this question around who are going to be the innovators who are going to be the winners take all in a race that is very specific and that does have the nvidias the amds facing off versus the Micron and getting out way ahead of them so you know you overlay the political risk how do you get in a lot of people will shrug it off and say you just need to own them do you feel that it's sort of like the Apple's gonna die discussion I mean only for 20 years you know every 18 months on cue Apple they're done it's never gonna it's it's just they're so done it's you know I think that if you take a step back they're the people who say ai's Gonna Save everyone other people say it's going to destroy the world and make humans Obsolete and then you have the people in the middle who are saying this is going to change how we do business I already see it changing the way that my Offspring do their homework do their assignments not that they use it as a substitute for them so that they use it to uh you know figure out what the information needs to be looking at to just grade what they're doing I mean they're using it as a tool in a way that I'm not and I probably should gbt conjugate irregular friendships yes it could do it a lot better than I can that's all I can say that was my downfall folks anyways that was really interesting man deep sitting there on uh the wafers in one hour we will consider Portugal it'll be interesting to see Joseph Amato newburger Berman important conversation that's coming up Bloomberg surveillance and radio and televisions stay with us thank you I think margin pressure is very real and I think that's where the equity markets are going to begin a correction they're watching the margins really closely because inflation has been actually very good for margins we're in a nice downward trajectory in inflation I think it will cool off on its own If the Fed has to keep tightening eventually the economy is likely to crack but we're not there yet and we're not expecting a ton more rate hikes from the FED but it does seem like one is likely this is Bloomberg surveillance with Tom Keane Jonathan Farrow and Lisa abramowitz Central Bankers are back in the center stage or maybe they just never left good morning welcome back this is Bloomberg surveillance on Bloomberg Radio and Bloomberg television Tom Keane Jonathan Farrow and Lisa Abram was Jonathan Farrow is on vacation he will be back next week uh which is wonderful this does seem to be the theme of the morning that we are going to be hearing from Central bankers at 9 30 a.m in sintra that include ecd president Christine Lagarde fed president uh Jay Powell as well as the heads of the bank of England and the bank of Japan all together on stage kit Jukes nailed it this morning in his two paragraph research Noti hearken back to 2004-2005 the idea of the vortex of instability and at that time the bankers went this way and Trisha went that way John's very big on this my good friend Jean-Claude touche got this wrong and the basic idea here is is this a Redux of what we saw before the crisis of 0708 and will we see someone today get it wrong what's interesting here is the language issue I wonder if some of the panel will be Lost in Translation because we have a new uh a banker for the bank of Japan it's also coming at a fascinating time where we've had six months people shifting their focus more to the individual companies the individual micro Trends unless on Central Bank speaks saying they're following the same things that we're following and suddenly what we heard from Chris Varone is the exact opposite that from here on out it will once again be Central Bankers it will once again be yields that will determine the trajectory of the market value within the central bank space it sounds like a range bound discussion as he mentioned the 10-year yield being very ranged about 3.73 percent and you wonder whichever I'm not going to opine which way you break out of that yield but if you break out of that yield all of a sudden that's a central bank issue do you think they get along I think they're friends the central Bankers you know I really really do I've been a central bank Watcher for years and I think there's a huge collegiality to it because they realize in the media does a terrible job of this guess what they put their pants on one leg at a time the guard puts a scarf on you know these these people are normal people wrapped around insufferable decisions news you need to know they put their pants on one leg at a time let's save ourselves and take a look at what's going on in the market we're looking at a bit of softness a bit of retracing with the Ned led by the NASDAQ after it's a reprisal yesterday a bit of a pop right now down four tenths of a percent largely on the heels of some of this chip news that we saw overnight Tom yeah the chip news I think uh is the kind of thing that gets it going here and you know big day yesterday a big short squeeze coming up here right till the the end and the levels here 4408 on SPX Dow 34 000 NASDAQ still giving us a lot of love in the Vixen of 13.80 I guess it's a bull market but a lot of people don't don't feel like it's a bull market it's a moment of reset and I think that really is the key looking right now at a two-year yield at 4.73 percent a bit of dollar strength this has just been hovering around your right Tom to say there isn't a lot of Direction when it comes to some of the crosses except for the Chinese Yuan where you're seeing real weakness uh and you are seeing just a shift marginally lower in oil one of the linchpins of just this bet that there will be a Slowdown in growth particularly led by China which does seem to be recruit under 72 and looking at WTI at 67.31 cents we are heading toward the mid-year level we are two days away from that reset and joining us now to help us reset is someone who is resetting in a material way Joseph Amato president and chief investment officer for equities at new Berman joining us here on set how are you Joe changing your view heading into the second half of this year well we we've had an intense debate like there's going on in the market and uh you know our debate within our asset allocation committee probably reflects a lot of the dispersion that exists out there in the marketplace we've got folks that are quite bullish we've got folks that are quite bearish but we went into the year expecting the economy to slow down at a more significant Pace in earnings to be uh more on the disappointing side and that really hasn't played out necessarily so we went in underweight equities and risk assets we moved up in in quality and that's been you know so far the wrong call because markets have been pretty good the first half of the year as you guys have talked about but as we debated the issues and as it looks like any slowdown is probably extended and pushed out further the earnings decline pushed out further we felt neutralize our bet sort of live to fight another day and see we always have a chance to make that a change if we see earnings uh disappointing but right now uh you know we took that underweight off and still have a bias toward torque quality for sure so there's going to be more of an aggressive shift albeit on the margins heading into the second half half we've been debating all morning what's more important what happens with the individual corporations or what happening and what happens today at 9 30 a.m Eastern in sintra with Central Bankers taking a hawkish tone how much are they still in the driver's seat of what happens next Central Bankers are certainly still very much in the center of debate around around what's going to happen in in the economy given the challenges that they have in inflation and you look at across the range of central banks you have a pretty wide dispersion there as well you have the US which was more aggressive earlier on inflation has come down at a more rapid Pace although still we think will be a challenge to get down to the the fed's Target on the Other Extreme you've got Japan which maintains quite you know permissive if you will monetary policy and then you know the UK has got a real inflation problem so they're they've got to be more hawkish and and they used to be somewhere somewhere in the middle so that's going to be an important issue that we continue to watch over the course of the second half of the year what matters right now I mean newberger Berman is priding itself on active management I want to go into the history of what you'd accomplish with Lehman Brothers in a bit but but the basic idea here away from passive active is factor analysis right now what factors matter into the end of the year well I think I think quality matters uh for sure and profitability because if we're in our broad allocations think more up in quality whether you're on the credit side or the equity side I think you want you want to certainly be overweight that factor uh and beta you probably in in our view you want to be underweight beta in in that sense you know again with a bit of a more defensive posture even though we've neutralized our Equity bet again we still lean uh toward lower beta higher quality I I look at where we are in in a bull market unloved can you calibrate and see when a second leg of a bull market Clicks in I mean there was 76.77 which no one expected after the moonshot off of 74. can you find a second leg of a bull market or do you just have to go back to core fundamental analysis I I think the level of dispersion that exists within uh the economy I think to suggest we still need to do a lot of bottom-up analysis as it relates to a bull market or where we are it's been you know the equity markets have been quite perplexing over the first half of the year because you've had a group of seven extraordinary stocks that are up 50 60 that dominate the U.S large cap index as as again you guys talk a lot about and then you've got everything else and that everything else has been flatished up modestly so that's been you know that's been a challenge if you're trying to invest and you see the index perform so well yet some of these you know very few active managers are going to put 40 percent of their portfolio in seven stocks right to be overweight the mega cap so it's been you feel as an active manager you've been just chasing your tail over the first half of the Year we're speaking with Joe motto of newberger Berman CIO for equities uh over there at a time we are resetting into the new year and into the new half of the year it feels like a new year we've been talking a lot about some of the trends you said that there are a number of stocks that have dominated with 40 50 60 percent gains I think chip bankers and then I think geopolitical risk and what we see this morning with a proposed plan by the Biden Administration are you going all in on AI are you seeing this as a lasting Trend that can withstand any geopolitical tensions or are you kind of being more tepid about it I think AI is going to be an incredible long-term trend for sure I mean that's going to be as profound as some of the things we've seen over the last 20 25 years you know similar to the internet broadly broadly defined but as we have seen with different technological innovations you have sort of a boom bus period things consolidate and then you have long-term growth so I think AI is probably going to go through that but it's going to be quite profound I know from our firm standpoint we're all in we're diving in deeply in terms of how it can enhance our productivity and our investment insights so it's quite quite important at the same time you raise the geopolitical issues which having just been in China uh you know it's an issue that we're very focused on it's an issue the Chinese are very focused on um and I think as it relates to AI That's probably one of the most sensitive issues in the transfer of Technology between the US and China I think is going to continue to be an issue you guys talked about this morning in terms of potential uh uh restrictions on on selling chips and now folks the most important conversation for Global Wall Street to the end of the year this is with Joe Amato of Lehman Brothers I'm going to cut to the chase there's blood in the street Credit Suisse is throwing thousands out every other firm is throwing those fancy IB Bankers out the door that you can't stand you and Jack Riv can build Lehman Brothers from 1997 to 2003. I remember looking at the sell side analyst is the the sheets rather Lisa this is when we had printed research reports they got better every year until Lehman dominated the business Newburgh involved with that and all that is that a history of the asked are we at a point now where we're taking the intellectual Capital out of the business with all these layoffs all this uproar that's going on in the street right now I don't think so Tom I think the you know fundamental bottom-up analytical work that helped Propel us back in the day uh in terms of our own research rankings or the work that we do today at newburger Berman is still hugely important you have different tools that you use right the bar is higher for sure um uh I think the sell side has under invested in research over the course of the past decade or so what do you what do you expect what do you want to see from the big Banks if we were having a conversation right now with Brian Moynihan on the future of Bank of America Securities research what would be your counsel to Mr Moynihan oh I I think the the breadth of Global Research that these firms are committed to is important to us we're a global investment manager so there are a lot of parts of the globe uh whether it's the small cap space or large cap for that matter that have less coverage now in some respects that's advantageous to active managers because we've invested a huge amount of research so the more inefficient the sell side is if you will the more Advantage we have as a buy side firm if we're committed to research but that said we value quality research and if it's provided by whether it's Brian Moore enhance Farm or you know or other large firms that's super valuable to us don't let the dust break with the Credit Suisse resumes coming in Joseph Amato is at neuberger Berman the home of security research the Dow a little bit of a deterioration down nine down two tenths of a percent Tom we're talking meanwhile about whether there'll be a downturn and one thing that we keep hearing whether it's from Joe Amato or whether it's from Whitley of BlackRock there's a shift to a bit more bullish tone a bit of a feeling that perhaps there is a change in the earnings maybe it's late maybe it's you know you can't necessarily just simply say we're going to stay on our hands like the courage of getting in that's sort of what you've been talking about Tom for quite a while if the facts change people's Theses change and the facts particularly with corporate balance sheets have been different than what people expected what people really have to do is say Okay Charles Cantor washed lost in here in the vicinity of October November and painted an optimistic picture about selected corporations adapting and adjusting that's been my theme for 18 months why does that end now I agree it may be different it may not be the moonshot off the the October low but you wonder how corporations will adapt and adjust they will at the revenue line particularly as the inflation drifts away some of them will adapt and adjust others will go out of business and this is sort of the tension right now as we talked about bankruptcies picking up is things are different when you start holding rates at this level for longer all of a sudden certain business models get challenged and others do well which is the reason why some people are still concerned going forward Tom at a time when there still is quite a bit of lag effects that people have been saying are going to come to the floor any day it's going to be interesting uh to see the yield 3.73 lease is focused on oils 67 at 40 on West Texas intermediate we're also focused on Portugal and Centra in the nine o'clock hour for Central Bankers lined up in conversation stay with us this is Bloomberg's surveillance foreign Ty is the reality from maybe even 30 40 years ago right because the great moderation is over what I will be paying attention to is to understand if they acknowledge the trade-offs facing them which is that the cost of fighting inflation in a supply constrained environment is a lot higher so if they acknowledge that and also number two what are they going to choose when faced with this Stark trade-off growth or inflation on fire today we're gonna stop the show right now Tom Keane and Lisa Bremer it's fair on assignment but this is really important Whaley of BlackRock came out with a new macro view that's what you do as you come to July 1st and it was really if we get the scenarios she set up what happens to our world it changes well she was talking about right the overlay of some of these big drivers including a AI including some of the geopolitical tensions and how you play them and she had been underweight she had been cautious she still is but it's with an asterisk next to it about what to be cautious about and how to be not cautious in certain areas it reminded me sort of of the stiglitz globalization is over thing okay well it's a whole new world after all three years out of the pandemic four years out of the pandemic where are we in 2025 I hear sort of a deadly and I'm glad that BlackRock came out with this study because we got to start we think we got to be thinking about 2025 2026 in a whole new world after all did you see the Jonathan Gallup no I missed this please please report of Credit Suisse coming out and saying that okay indicates that there's no recession until 2026. trying to waste time because this is the most painful discussion of the day they're going to have right now Futures deteriorate negative 10. the airlines what is it about the airlines Helene Becker joins us now senior research analyst most hated person in the world at TD Cowan this morning Elaine I'm just going to cut to the chase who do we blame for this early summer mess uh well so it's weather um and then there's there's the airlines who who are prepared but um there's the government who's not prepared so the airlines are doing less with more that they have more employees now than they did in 2018 but the government has fewer air traffic controllers now than they did four years ago and this mess is going to continue for the next at least five or seven years because the FAA doesn't seem to have a plan to resolve the shortage of air traffic controllers we're supposed to have 14 000 we only have 11. um I think something like 2500 retired uh in the last couple of years and the government is was supposed to hire 1500 this year could only find uh something like 960 or 70. um we expect about half that many to reach higher and half that many to wash out so they're only going to net about 500 and when you're short three thousand five hundred into three thousand is six so yeah this problem's gonna last for a while some of us have a certain vintage can remember staying in any great train station South Station Boston Union Station uh in Washington I spent a whole night once in the Omaha train station and the trains used to be like people all lined up going in eight different directions are we asking too much of the airlines to be like our train stations of another time and place is it too much to ask for Newark to be the old Penn Central and it's not it's and it should be it it should not have these problems the the airlines I mean the airports I'll start there are just bursting at the seams because demand is just so strong um United is forecasting that between June 30th and September 5th or fourth whenever Labor Day is they're gonna carry five million passengers and if you kind of extrapolate that out to American in Delta it's probably similar so that's 15 million right there and then you add in all the other airlines you probably have another 9 or 10 million so we're looking at 24 25 million people that are going to travel over the next three months the rest of June what's that two months July and August and um in the the industry should be able to handle it they have relatively new aircraft you you look at American Delta United they've all been repleting most of the other airlines the JetBlue Spirit um Frontier Southwest they also have young fuel efficient Suites and so it's not an aircraft maintenance problem it's just that weather rolls in and the FAA goes on a ground stop and instead of lifting it in in an hour or half an hour um they lie it lasts for three or five hours and then Crews start to time out I mean we still have the safest Airline system in the world so you add all that and you add all these people in um into the mix and and you wind up with these awful delays and cancellations and unhappy Travelers Elaine yesterday we did hear from Delta CEO at their annual meeting and he acknowledged that business travel is still 25 below where it was pre-pandemic given all the roadblocks given the expense do you expect it to get back to the same level as it used to be So Lisa yes and no the typical analyst answer so so when you think about business travel and GDP it should get back to it should be the same percentage of GDP as it was in the past and and I think what you don't see um is that people are just traveling differently and um from a corporate like large corporate tech for example check people from the tech industry haven't really come back Financial Services hasn't really come back so from that perspective we're not expecting it to come back but we are expecting the same number of people to travel for work as we've seen in the past on a relative to GDP basis but think about it Lisa we're seeing two and a half to 2.7 million people a day travel that's what we saw in 2018 with 25 more business Travelers and 15 were International Travelers and Helene to that point and just quickly here there has been a shift under the cover of businesses using economy instead of business class because of how much the prices there have risen and companies trying to restrain costs how much is that part of why costs why the revenues for some of these Airlines isn't picking up from business in the same kind of way yeah exactly so so so customers businesses are trading down from business class to premium premium economies and um and then people are using mileage their own miles to upgrade into into the front cabin so we definitely are seeing that and yes Lisa that's a part of it too what's your single best bye um so our top three picks are united Delta and Copa Airlines in that order interesting what's a United Delta distinction um so United's bigger in international markets right now than Delta is United as about 50 International 50 percent domestic and Delta 60 40 domestic International and the travel is really International this summer so that's that's the difference Helene Becker brilliant thank you so much greatly appreciate I'll be thinking to you when I'm sleeping on the floor at Newark it's that time of year folks it's that time of year where Grandma looks forward to the Hartsfield Atlanta wait all right I mean there's a plaque there's a plaque in Atlanta that says the brown when you get stranded everybody's stranded I sit at home and Mrs Keane is on the phone to a lot of people seriously in airports domestic and international travel sitting there if we were supposed to it's ugly we were supposed to go to Puerto Rico as a family and we ended up uh being delayed by three hours ending up in Atlanta and not getting a flight to Puerto Rico and so we ended up staying and having a vacation in Atlanta which for The Offspring was not incredibly uh wonderful and they cut to the chase if you're not traveling Rockstar the ramifications of you know you and the kids I don't mean you personally Lisa but anybody in the kids oh you got to take the plane at 8 A.M tomorrow 6 a.m tomorrow and there's no like 400 or 800 or a thousand dollar check coming your way those days are over it seems correct we're not going to be talking about that coming up on the open We're Not Gonna Be reprising My Days of getting stranded in Atlanta which will not be happening next week Lisa Chalet of Morgan Stanley and Jack Manley of JP Morgan are going to be uh Germany good yeah it'll be interesting I said especially ahead of that Centra panel which is going to be the key event of the daytime it's going to be interesting really looking forward to how Christine Lagarde massages the message this is Bloomberg's surveillance good morning [Music] nerdfest good morning everyone Bloomberg surveillance and radio and television Lisa Bramble is preparing for the nine o'clock show Mr Farrell's On Assignment there have been selected Pharaoh sightings he's alive he's breathing he's tanned and rusted that's a good thing on assignment here in a British fashion is uh well Futures in negative seven yields have come in nicely and there really is I'm not going to call it a recession worry out there but I am going to point out three ideas very quickly here the real yield the 10-year yield a 1.55 gets my attention that's an elevated inflation statistic over the last three days West Texas intermediate uh Brent crude under 72 shocking 71.85 on world oil 67-26 on American oil that bears careful study uh into the end of the week and I'd also know Chinese reninby gives it up again rounded up 7.25 is a very weak Chinese Yuan there's a there's economic data today there's not 14 lines of economic data there's freelance it's sort of an off day but we bring in the star Michael McKee joins us in charge of important day and lesser important day economics what do we got well if you're going to be an Eco nerd these are some interesting numbers they're generally thought of as sort of secondary or tertiary but they do mean something for GDP and that is the advanced good trades balance Falls to 91.1 billion from 97.1 billion so a significant decline in the trade balance which could add to GDP uh wholesale inventories continue their decline down another 10th they were down three tenths in April these are May numbers and the retail inventories are interesting they come in up eight tenths after three tenths gain which is revised higher from two tenths for April so we are looking at some additional strength for the overall economy and the retail numbers are kind of interesting because they had work them off over the holiday season into the beginning of this year and now they're significantly Rising again is that because consumer demand well let's go here or big people are not buying it kills me by chance with the moment we're going to Mike McKee for the entire half hour to get ready for the central ballet we're going to go nerd on you in about 15. uh minutes but Mike Mickey this is important I talked to John hotsiest once at Goldman Sachs about this the media talks about inventories like it's apples in a grocery store or whatever let's dig into this right now retail inventories are up but you don't know why they're up uh I haven't uh looked closely enough at it I'm not a retail analyst uh we should find one that means there's stuff out there yes there's stuff out there and is it because uh people have not bought their summer clothes the way they thought or is this because we're starting to stock up for fall uh but remember we had a big rise in retail inventories during the pandemic because people weren't buying you can get out uh and then retailers had to clear them out and now it's rising again and all this adds that it gets counted into GDP uh that which is at least um made in the U.S so we'll see uh what this means but if you're calculating the Atlanta fed GDP now number which is 1.8 right now could go up a little bit okay this is important and again we're going to get to about John sick of nation right here in a moment tomorrow we get the third look at first quarter GDP I'm going to editorialize that's a non-event but the data you're are looking at now is for ending June 30 right right and you have a pretty good guesstimate of that whether it's Atlanta GDP now or it's Kathleen bus Johnson at Nationwide well I'll put my money on Kathleen of course but um nice security the uh the GDP now numbers give you a snapshot in time like a political poll as of today sort of but there's still a lot of data to come we're still getting this may data and we're in June now Michael McKee with me for the half hour and again we'll really focus on some of the theories behind Center here I think that'll be a huge value add to our Global audience that in the nine o'clock hour in Portugal but right now on this American economy Kathleen bus Johnson joins us Economist at Nationwide mutual as well Kathleen the data that comes out today and we're getting near June 30th ish do you have a really firm grasp of where the American economy is Q2 ending uh good morning Tom well I thought um I I thought Mike did a great job summarizing the impact of the data sorry um you know what we're seeing is on the trade sector uh that's the biggest drag on on second quarter GDP so the fact that tree figures came in a bit better than expected right less of a drag so overall GDP growth now I would say especially with putting inventories in the mix probably um over two percent annualized interesting Q2 over q1 now just to put that in perspective because you are speaking about the central Bankers uh speaking later today chairman Powell has said that we need to see several quarters of growth below potential growth potential growth is is around 1.8 percent so if we're coming in above two percent uh it's not quite slowing enough for his liking what are domestic final sales I've always loved this study defined domestic final sales and are they a recession statistic so domestic fighter sales is one of those core measures of GDP and that excludes um it changes in inventories and the reason you may want to look at that is just as Mike said you don't know sometimes why inventories are moving uh they could be intended and that's a good thing like they think demand's picking up and they want to replenish their stocks because consumers are going to be strong and purchasing or it could be an unintended build which is bad news right and they have to work those down because they have too many Goods so it's unclear at this point you know how that works out but we we tend to like to look at final sales that stretch out the inventory uh fluctuations you could even take it a step further look at domestic right and that takes out the trade sector as well which could be very volatile well as long as we're talking um GDP let me ask you what you think so far yesterday we got some news that suggested that businesses are spending money again at least uh in terms of durable goods orders uh and I'm not sure what you're seeing as far as consumers whether this in the retail data suggests consumers are out buying but what's your feel for domestic spending at this point for the second quarter is uh Atlanta giving us a pretty good idea of where we are or are you much higher or lower than they are no I think I think they are giving us a good idea where GDP is and we're you know right in line with that um when you exclude the the trade sector you're looking at growth uh that's probably in the high two percent right um because consumer got off to a very strong start and at the start of the quarter um now we'll get the May data on Friday so that will be important in fact saving the best data for the end of the week right before the holiday weekend but consumer spending income and of course the the pce price index will be very important but domestically as you said we're seeing the consumers still firing I think that is feeding through to durable goods orders and and business investment um now it's still soft overall the trend and then and when you especially when you adjust for inflation but I think the consumer goods portion that's really what's helping to kind of push a little bit of an uplift in an overall business investment well are you in the camp uh of a lot of economists saying that we're going to have a recession in the next quarter and keep pushing that out again or are you giving up on the recession idea yeah unfortunately we the timing is very very difficult to call um on this downturn uh we have not thrown in the towel on the recession call uh we have uh based on the current data I mean you have to to take that and destroy it of course um and the fact that there's still a high propensity for one for hiring um and and consumer spending more than we had anticipated but we still see the leading economic indicators and credit availability diminishing um and we still see that you know we've now pushed it out to Q4 so Q4 q1 of next year um and and we'll continue to watch the leading indicators as well as the coincidence but those leading indicators um still are pointing to to a downturn so it's hard to just ignore that and say okay current data looks better let's you you don't want to forecast based on coincidence indicators I can't think to me nationwide's always had a wonderful Clarity sort of the fabric of the Midwest and Ohio and and all that about jobs in America it's less three ZIP codes in Manhattan analysis or maybe one ZIP code in Washington one quadrant in Washington as well what's your labor call in America with a central bank that's hoping and praying that Columbus Ohio will have an unemployment rate that surges above three percent so it really employment has been strong across the country um it's really hard to point at any particular States or or areas where there is uh weakness in this labor market that demands needs to be very broad-based um I think you know the the challenge for the FED Reserve is they of course don't want to see a surge in unemployment and they of course don't want to engineer a recession at all but the problem the real question is if this economy continues above potential meaning you know running a bit hot can you get inflation to Trend lower and I would say part of what we're looking at is the fact that housing starts right have started to rebound and home prices have been up the last two months in a row well everyone was banking in rental inflation rolling over that could put a wrinkle in things it could be that you know home prices are part of the inflation measures does it rules over a little bit but not as much as expect method so therein lies the kind of the rub right there do you buy the rent disinflation story so I I think that we certainly we're seeing some slowing in rental price increases but what I worry about is that some of that's happening but then it's going to level off and start to rise again just like we're seeing in the overall economy that this is you know inflation and Rental inflation is a lagging indicator so if we're seeing the economy sort of you know being resilient and even picking up a little bit I think that spells trouble with the inflation that means the Federal Reserve only has to do more and that's why it's really tough to throw in the talent abandon the recession call even though we've been saying this for a while I think the other point just real quick Tom is that it's you know the the inversion of the yield curve and I think you and Lisa were talking about it's really there's very long variable lags between when it inverts and we get the recession but I think also what many of us were looking at was the degree of tightening we went from basically zero to five percent that's a tightening fastest tightening we've ever seen even looking back at Paul Walker's period so it's not just the level or the inversion the speed by which interest rates Rose Kathleen thank you so much Kathleen bastianzak a brief there on the American economy with Nationwide uh Mitchell Mike we've got a a bit of time here and then I really wanted to fall into a nerd discussion on on Central something that you just excel at but can we predict GDP I think we all understand we can't predict recession maybe we can't predict inflation Dynamics maybe we can't predict oil do we have any confidence we can pick GDP well it depends on how close you want to get I guess uh economists are getting better because the data are getting better and the government is releasing data on a more uh timely basis especially things like trade but these numbers do get revised and that's where you fall into uh issues better as better numbers come in but now that we have a better picture of inventories and uh trade it is a little bit easier to figure out what GDP is going to be within a couple of tents and then the big question is what are consumers doing because there's so so much of 70 people 70 of the American economy standard reports 500 down two tenths of a percent and we say good morning to all of you on Bloomberg uh uh internationally and domestically as well on radio and television with a churning to the market features negative 11. a bit of a deterioration in the tape in the last 30 minutes 10-year yield three point seven four percent gives me nothing this morning I'm focused on oil it's just a stunning number particularly for those modeling out well above a hundred dollar Barrel oil 12 months ago 67.43 down 27 cents on West Texas intermediate Brent Cruz 72.01 this is going to be a joy we're going to dive into this right now and and really try to set you up with a value add for Global Wall Street not so much on Centro which is sort of a Jackson Hole of Europe but on four discrete nations with four different Central Bankers with four different outcomes and we all have in our mind what they're framing out as well and underneath it there's supposed to be a theory that Bailey legard Powell and ueda can rest their feet on Michael McKee joins us now with Decades of studying this conundrum are these four flying blank uh not Flying Blind but try to figure out past relationships and what they mean for current relationships is very difficult right now and we've seen that over and over again in this pandemic phase Some central banks have decided they want to hold back and others want to go forward and the differences have been kind of vast yeah well we'll have to see we're going to bring up this debate here coming months I really want you to stay with us it's going to be a real Joy with our Michael making head of all of our economic coverage Futures negative 11. this is Bloomberg good morning we're expecting a hike in July we're also expecting a hike in September the market is is pricing that hike in July at you know to a pretty you know large degree I think that July hike is a relatively low bar and then after July we'll you know should see still some strong inflation data and then that gets us to the hike in September a minor conversation today but I'm sorry A Major Impact from Veronica Clark Veronica Clark of Citigroup is she and Andrew hollenhorst just absolutely stay where people are heading they have said that we're going to have higher interest rates and persistency and resiliency of an economy is Leo Brainerd said from the White House seems to be the tone here into the end of the second quarter we say good morning Jonathan Farrell Lisa bremets and Tom King Bloomberg's surveillance Pharaoh On Assignment uh Lisa getting ready for the nine o'clock Central hour and I have the privilege of being here with Michael McKee his formal titles Bloomberg International economics and policy correspondent but the reality is I go Mike remember that paper from two years ago on Nash equilibrium and Michael will have it buried six papers down on his desk he's actually the one that reads the papers in that how is Centra different from Jackson Hole uh it's a little different in that uh it is generally more focused on current economic issues not that Jackson Hole isn't but Jackson Hole is an academic conference that focuses on topics in economics where in Center they're often talking more about what's happening right now in markets which is definitely something that they are doing central is also a little bit more open uh to the press in terms of having things broadcast like this panel discussion that is coming up at Jackson Hole you get the Chairman's speech which has only been aired now for two years but I expect will continue maybe this panel will be longer than eight minutes I'm still gonna get over from Powell speech folks that don't keep scoring us a Jackson Hole was an outrage Pharaoh I think was offset when we had to jump back I I think the introductions probably will take more than eight minutes because they'll be going keep it up keep it up please please introduce us longer I'm going to go right to the type 2 construct what do they not want to say let's go right through them starting with the bank of England ECB Powell and the Mystery of Japan what's the number one thing they don't want to say well you've got to take Japan out of the conversation of the other three in the sense that Japan has its own uh economy its own issues its own inflation rate their inflation rate is going up at a time when others are going down and they want that and they want to make sure that inflation is going to stay a little bit higher so their policies are different obviously they're holding way down uh monetary policy very loose and so they're having a the negative impact on them is that the yen is weakening tremendously against all three of the other currencies so for ueda he would be interested in not encouraging that move and seeing if the others actually can give us some indication that they are almost done which is what the other three don't want to do they want the markets to worry that that they have more to come because they don't want markets to start pricing in rate cuts and you and I were talking off line about the wirp function on the Bloomberg that shows you what Futures Trading is predicting and now we have added out another year so you get a long look at what's uh what's in the markets and while it's certainly not trustworthy because markets change their minds all the time it shows big rate Cuts in the U.S in 2024 still not in 2023 which is what Jay Powell has wanted and probably will emphasize today but the markets expect those to come get you nailed this this morning by harkening back to 2004. John Farrell's been very good about this folks talking about not so much how Trisha got it wrong but that the ECB took a turn pre-crisis of staying tight all these people have a history or have been advised by their phds let's remember the mistake cakes that were made what is the mistake that haunts these four bankers at 9 35 this morning well it's all kind of about the same time period well it's it's about the same time period for the U.S and the UK for slightly different reasons obviously uh the U.S went through the uh great inflation in the late 70s and 80s and the uh it came about because the Fed was too slow to tighten rates and so Jay Powell doesn't want to make that mistake wants to keep on keep the pressure on and the UK obviously had its problems uh in the 70s with inflation and then after that we had the Sterling crisis so they don't want to give up too early and have people start selling their currency and the ecb's been through it as you mentioned with the the triche tightening that then sent them into a bit of a recession and was a precursor perhaps to the great financial crisis at the time so everybody's looking back and the lesson they draw raw is that you have to have a policy and stick to it and I think that that's the emphasis we'll get from them this is almost like the anchored expectations argument I'm going to look at one metric folks and this is American for our International audience and this is something unique to America which is a 30-year mortgage rate now I didn't realize this legged up here in the last couple days seven point one one percent what's the ramifications for these four Bankers if it's Chris Varone said at the top of the show this morning we do get yields to work higher on a resilient economy on Central Bankers that feel like they have to raise rates what's the ramifications for these central banks politically if we get a new higher rate regime well at this point there isn't a huge uh impact on the FED because the Democrats in office uh Joe Biden have a policy against criticizing them and they actually think the FED is doing a reasonably good job Republicans will complain but it'll really depend on how the economy is performing in 2024 whether they feel any significant political pressure the British have a much greater problem because they have a much greater inflation rate and they also have a different kind as you more mentioned Tom of mortgage rates most of them much lower and many of them are variable and much much shorter maturity and many of them are variables so as they raise rates there becomes the possibility of a mortgage crisis there there's some feeling that there aren't that many resets coming in the near future so maybe it's it's not a today problem but it is something down the road and the European Central Bank obviously has to deal with not just core inflation which is a problem but with the fact that energy is so important there and right now there are questions about what the energy Supply is going to be next year which keeps Energy prices elevated a little bit I I've got eight ways to go here and not enough time to do it Mike I'm sure you'll be with Lisa here as through the morning and with analysis of what we see at Centra is is well but I I really have to focus on the elephant in the room which is under discussed by me I'm as guilty of this as anyone and that is their balance sheets you and I know there's a chart Bloomberg has a beautiful chart on this overlaying the balance sheet of these four Banks or critically summing them together into an unimaginable intrusion into the ownership of debt the Japanese leading the way on this towards literally a liquid Market how critical is that debate right now it's becoming more important it isn't the primary debate at the moment uh for certainly not the debate in the media for Japan it's going to be an issue because the government owns so much of the debt as rates rise it kind of constrains them and I've talked to people in Japan who are concerned about what it's going to do to government debt rates the UK has talked about selling some of its portfolio and if they want to tighten in a sort of a backhanded way that could be something that that they address it would maybe help out in the mortgage sense because it would affect the longer end of the curve and as I said many uh British mortgages are set closer to the shorter end of the curve the U.S uh is going to keep going uh at the pace it's going right now they don't see any reason to change they are looking for where they hit a rock but does wirp say rate cuts to come uh I believe it does it says rate cuts to come next year but the FED said that as well so you've got a reinforcement I think the the balance sheets most people think the balance sheet will run up against the demand for reserves sometime in 2024 and we'll see them start to taper or stop running off the ballot sheet but nobody knows really where that is and then we miss on this folks I'm really going to lean into this in July I promise you in July this will be a study for us Mike and I have avoided the elephant in the center room and that is Japan and what I found over the years is every time you talk about Japan you have to sell it to the Western media sell it to the Western audience and say this is why Japan matters quickly here why does Japan matter because Japan is one of the biggest holders of U.S treasuries it's one of the biggest economies in the world and so it's Imports its exports and its current account balance have an impact on other nations Mike McKee and I used to do this years ago folks Bloomberg on the economy Michael McKee and Tom Keane this is a good and beautiful thing Mike McKee thank you for the briefing on Centra here we'll have it for you at 9 30 this morning Lisa bramowitz identifying the news flow out of these four Central Bankers Futures deteriorate negative 11. good morning thank you foreign

Channel: Bloomberg Television

Views: 64,745

Keywords: Jon Ferro, Lisa Abramowicz, Tom Keene

Id: Y4prRS7cKNY

Length: 146min 17sec (8777 seconds)

Published: Wed Jun 28 2023