in terms of the soft Landing Playbook you know that's still up in the air we do think that we're going to see a more of a soft patch I think it's important to recognize that um the balance of risk has shifted when we talk about rates I think every meeting is open to the Federal Reserve we either go in September or we wait until December but I wouldn't rule anything out their biggest concern is if things go south how fast do they go South and what do we really do this is Bloomberg surveillance with Jonathan Perell Lisa abowitz and Anar hurn brammo got so bored of this Market she's taking the next two days off 51877 at the close on Tuesday on Wednesday yesterday 51 8767 this Equity Market going absolutely nowhere Danny Burg is in a hot seat this morning good morning good morning to you all this is Bloomberg surveillance amh is down in Washington DC and we've got a lot to talk about starting with Central Bank decisions some might say the global easing cycle is underway first out the gate the SNB quickly following Sweden's Ricks bank will the ECB and Bank of England make a move Danny Berger in the next couple of months so I see this you brought the fake Brit you know onto the Boe day the to join the real brit fair enough I mean I most recently lived in the UK but this is the thing the Swiss and the Swedish have already shown us there's a willingness to go not even just before the FED but before the ECB the concern of of course is currency weakness Deutsche Bank has gamed this out saying actually the Sterling will move less than it has in the past decade that the rate sensitivity is just not as big as it used to be Sterling right now 12487 that decision about 60 minutes away if you want some drama as we've been doing over the last couple of weeks Danny you go to dollar Yen 15592 that currency pair positive by a quarter of 1% the Yen has been weaker every single day this week in the face of increasing criticism coming from officials both the Ministry of Finance and now the boj yeah what a slap in the face not only has it been weaker but we've consistently seen this market and hedge funds willing to go to 160 willing to put those option pairs on it might be an issue of credibility but John one thing we forget is that the boj is not independent in the sense that we think about the FED we think about the ECB it's it's part of the Japanese government they were just speaking days ago of course UA and kashida and then we get this outcome it's a very very different Central Bank we'll be talking about some of the moves later in the program need to talk about these big moves in the equity Market as well if you've missed this week come anywhere close to missing you've been absolutely punished I'm thinking about the close to 10% move we saw in the Walt Disney Company earlier on this week arm Holdings is down by about 88.5% in the pre-market it doesn't take much in this Equity Market at the moment to trigger an outsize move in response to those earnings the the sentiment of shift there's no doubt usually when you see a move like that you think what a great opportunity to buy the dip something is different this time around you see it in the flows people have reduced their shorts but they're not putting on new Longs things are expensive out there and perhaps with the uncertainty and the volatility of every economic data point and earnings needs to be perfect to buy let's get to the broader price action for you and kick things off with this we're pulling back by a quarter of 1% on the S&P 500 just a little bit softer here 5 days with no real losses here's your pullback not much of one is it yield a high by a basis point or two we're back in the 450s on a 10-year 451 in the FX Market the Euro just a touch weer here euro1 10731 coming up this hour we'll catch up with Russ Krick at Black Rock as Equity snap a 4-day winning streak Ed Mills of Raymond James as President Biden sends a warning to Israel and Sarah House of Wells Fargo with investors looking ahead to CPI next week we begin with our top story the S&P 500 treading water after delivering its biggest four-day Advance this year Russ Co of Black Rock saying this we remain overweight equities based primarily on our views surrounding strong earnings and cash flow generation estimates of nominal GDP keep Rising which should support earnings growth Russ joins us now for more Russ let's get into the earning story first so and it's going to see you as always if you miss this week in fact in this quarter this reporting season you get punished and it doesn't take much of a Miss Russ what you make from that what do this what is the signal do you take away from it well good morning Jonathan I think the short answer is the Market's moved a good deal uh off of the October lows from last year we've got some crowded trades and this is an earnings driven Market Market you know you think about 2023 that was all about repricing it was all about multiple expansion and because of that as you pointed out a moment ago the market is not cheap and this is a year where stocks are going to be driven much more by earnings by cash flow by profitability if companies are not showing investors what they like you're right they're getting punished very quickly JP Morgan Mar kovic with this to say earnings expectations are too optimistic Russ you appear to take the other side of that I would take the other side of that and there are a couple of reasons first of all I do think you've got a number of companies we all know who they are that are dominant in the indices that are tremendous at generating cash flow they've got Moes around their business they are lever to long-term themes whether that's artificial intelligence internet Commerce and I think that continues to be a long-term Trend but the simpler answer for most of the companies is that ultimately the top line is going to be driven by nominal growth and you think about what's happened you know you go back to last year there was still a lot of calls for recession and now we've got estimates for 2024 GDP at 2.4% inflation obviously is a little bit stickier than everyone would like but you add that up and you're likely to get a year where nominal growth nominal GDP is 5% or North that's a pretty good environment for earnings what's expected right now is 244 for the S&P 500 that's around 10% growth I think if you get 5% nominal GDP that is a very attainable number Russ I get that and I get why stocks would do well in that environment but here's the thing that confuses me is that small caps haven't been earnings growth is something like. 3% they're underperforming the market if growth is lifting all Tides why not the small cap tide well that is a great question and I think there are a couple reasons for that the first of which is this has become I think as we all know very much if for a lot of Industries a win or take all economy so the growth you're seeing the earnings growth you're seeing from some of the large companies from some of the Magnificent Seven that is a multiple of what you're getting for smaller companies the other reason the small caps have struggled you know remember they had a decent rally actually a very good rally in November and December why was that well back then rates were heading lower one of the things that is reasserted itself this year is this notion of rate beta parts of the market that are more sensitive to rates and whether you're talking about small cap or early growth companies they've had a much tougher year and not that rates of skyrocketed but we've seen nominal reel rates up 50 60 bips that I think is having an impact on certain segments of the market definitely small caps Russ you also like credit but Bank of America had a note out earlier in the week basically saying a record amount of high yield bonds are trading like IG does that not worry you well I think there are concerns about where current spread levels are at but I go back to a couple things one a lot of the credit we have in the portfolio we bought when spreads were much wider back in 21 and 2 to we're not adding significantly to it there are parts of the market that are interesting but basically you know we're clipping that coupon which is creating for the first time in years a very nice Tailwind in a multi-asset portfolio but the other thing to not is again going back to that nominal growth argument if we are in an environment where nominal GDP is going to be again let's call it 5% or north where a lot of companies both in IG and the high yield space termed out their debt several years ago I think that's an environment where we can expect that the default rate is going to stay low as it has been for for a while now Russ given what you expect nominal GDP to look like does that keep you away stare you away from duration in government bonds I think it depends on the part of the curve you know Jonathan's we've spoken about you know we've been modestly underweight duration for a long time uh and we're keeping that now it's not everything you know again as I said we've got an overweight to credit there are parts of the curve whether it's the short of the belly that we think look more reasonable but yes we have been more cautious on the long and of the curve several reasons for that the stronger growth environment uh the fact that inflation has remained sticky and as we've spoken about while it's more of a longer term issue you've got to be a little bit cognizant of the amount of Supply coming into the market particularly uh when it comes to treasury so Russ with that in mind within the portfolio where do you find risk mitigation at the moment because you're underweight duration at the long end okay one two you're underweight defense top of the pile there seems to be Staples don't like those what do you like on the defensive side of things well you know this is a great question and I'd say one of the challenges now in a multi asset portfolio is your hedge has become more difficult there were a lot of challenges last decade but when your concern was always low growth rather than inflation the Hedge was fairly easy you bought long duration and that worked remarkably well for over a decade and and to your question I think it's a tough Rec call now so there is no one single asset I can give you I'll give you a couple strategies generally being long the dollar at least against the Euro has worked an environment where all when the market sells off you're most concerned about the fed using volatility is an asset Clash you know using Vol when option prices are cheap that's another way to manage your downside risk and the last ideal throw out is this notion of having high quality stocks as a self- hedge uh looking for again a lot of those companies with high profitability with margins that are consistent not that they can't go down but on a relative basis we think they hold up better than the broader Market Russ right now though is the moment where volatility is cheap it is extremely cheap decade lows by some accounts people aren't buying it people aren't looking for protection there what gives it's a good question I I can't really answer that other than we have an environment where people are still looking for risk and the other thing to note which we haven't spoken about is one of the factors that probably supports the market going higher Beyond earnings and and Beyond rates is simply the fact that there's still a lot of cash on the sideline and particularly as we get to a point later in the year we do think the FED will cut albe it later than people thought and hoped some of that money is likely to come back into the market so I think part of the reason people may not be looking for protection as much as they might is there's still a lot of cash to be put to work T bills and chill Russ let's finish on that you mentioned a couple of rate Cuts is that enough is that sufficient to unlock all that money part in Money Market funds well I certainly think you know two rate Cuts is different than the seven or the six that we expected back in the beginning of the year but I think the market can live with an environment where growth is strong uh and maybe the FED only cuts a couple times and you one of the things that is helped this year rates have moved up but generally the move has been contained rate volatility has come down so if we get a couple of cuts yes I think the short answer is the market can live if we just get two cuts this year hey Russ good to hear from you buddy as always Russ Coast there of black root breaking down this market we've been starved of data this week it picks up a little bit at 8:30 East time we'll get jobless claims the estimate 212 the previous number 208 fast forward a week Danny burger and then we can get real about real data CPI retail sales the same day May 15th you know why it's frightening for this Market because earning season is largely going to be over we're not going to get a Fed decision for a while so what happens with each data point where we don't know what the FED is going to do it is lots of volatility which oh by the way a market that's not very well hedged to Russ's point it can get scary on days like that retail sales fascinates me just how is the consumer doing in America if you take Starbucks not great you take the them parks of the Walt Disney Company tremendous where is the US consumer right now well clearly not drinking your lavender lattes that that has been made extremely clear I don't know it's the whole thing of the shift of oh they want experiences oh they want this but there is this degree to which the lower consumer the lower class the one who's going to McDonald's is the one who is not spending it is this bif forcation of the American economy we continue to see talked about that a few times M Wilson Moran Stanley upper end ility low R fragility equities right now a little bit fragile relative to the stability we've had over the last week we're negative here by 0.2% on the S&P with an update on stories elsewhere this morning with your Bloomberg brief here shanali bassek hey shenali good morning John shares of arm falling in the premarket the chip design company gave a lackluster revenue forecast for the year raising concerns that the tech industry's AI spending spree might be slowing 3 months ago an upbeat forecast sent arm share soaring and helped turn the company into an AI darling on wall Street the stock was up 41% this year through Wednesday's close and living in Manhattan is getting even more expensive apartment rents Rose to a new high for April leases were signed at a medium of $4,250 up $9 from the same time a year ago according to appraiser Miller Samuel and brokerage Douglas El Real Estate rents have climbed annually in three months of the past 4 months suggesting another record shattering summer to come and mag has joined Tik Tock the political action committee or PAC becoming the first Trump Affiliated account on the Chinese own social media app the super pac's First videos posted under the handle Maga at Maga attack President Biden's economic record and label Independent presidential candidate Robert F Kennedy as a quote radical leftist Trump and Biden who have been on Tik Tok since February have both supported a ban on the social media app over National Security concerns and that's your Bloomberg John hey shali thank you much more from chali in about 30 minutes time 4250 medium Ren in Manhattan just absolutely ridiculous up next on this program Biden's warning to Israel I've made it clear to BB in the war cabinet they're not going to get our support if in fact they go on these population centers it's quite a warning from the president of the United States if they go into Rafa and not supplying the weapons that conversation up next [Music] it is Thursday morning good morning to you and welcome to the program Equity Futures on the S&P 500 just a little bit softer down here by zero. 2% yields a touch Higher by two basis points on a 10-e back through 450 451 21 under sanas this morning Biden's warning to Israel they're going to Raa I'm not conf supplying the weapons that have been used historically to deal with Rafa to deal with the cities to deal with that problem we're going to continue to make sure Israel is secure in terms of Iron Dome and their ability to respond to attacks but uh I've made it clear to BB in the war cabinet they're not going to get our support if in fact they go on these population centers so here's the latest this morning the president delivering his most public criticism today about Israeli military actions in Gaza Biden warning the delivery of additional weapons may be delayed if Israel continues the ground invasion of Rafa Israel's prime minister Benjamin Netanyahu has yet to respond let's head down to Washington DC where amarie is joined by Ed Mills of Raymond James morning amarie good morning John that was the strongest warning yet we've heard from this Administration regarding the military um weapons that they have been supplying Israel Ed what do you make of that because yesterday we talked about this in the context of this is just a pause now this sounds definitive so the thing I make of this is that there is an election in November and that President Biden is looking at the polling data and shows that geopolitical risk any Rising tension uh is a significant headwind to his reelection and if you have Israel expand the war after he signs into law a kind of Defense supplemental and is transferring the weapons to Israel he owns this much more and politically uh that's impossible for him to withstand and so this is a close as to a red line as we are going to get from the B Administration how does he do both though he also said in that interview he wants he talked about the Iron Dome he continuously says his support for Israel's Ironclad and in the same breath he'll also say something like quote we're not going to supply the weapons and artillary shells so Amry I think most of life is what I call a both and it's both strong support for Israel and conditions especially when it is US taxpayer dollars uh coming here I think what was also really important in that interview is that he was discussing uh after there is a ceasefire how does uh Gaza get rebuilt uh different Arab neighbors of um Israel um one of the things that we've heard a lot from our contacts here in DC and and we've talked to Raymond James clients about this is that I think the Biden Administration is also looking at Saudi Arabia as a potential longer term solution can they normalize relations with Israel in exchange for Israel recognizing a Palestinian State and so this that's also a both and they're they're dealing with the immediate conflict but are also looking at what comes next what's the rebuilding what could be the legacy of this Administration we know the direction of travel the Biden Administration wants this story to go the issue is how do you get there because if not if they're saying they're not going to provide the military weapons that say Israel says they would need to eradicate Hamas how do they get from point A to point B I think it's a very thin kind of uh line that you have to walk um I do think that immediately I think the concern is the humanitarian issues uh within Gaza in a u an attack on Rafa I think this is an Administration that has been desperately wanting a ceasefire um there's obviously clear concerns within Israel about any continued control of Gaza by Hamas who launched the terrorist attacks on October 7th um so it is trying to kind of work all diplomatic angles trying to deescalate the near-term uh situation to put together a long-term solution that actually works how much of this about what is going on at college campus and the protests and the Gen Z the youth vote that Biden needs to secure for November so em that's exactly what I talked about at the beginning here which is uh we've seen in polling data that the Biden Administration or Biden himself was doing quite well after his March State of the Union Address but with the increase in geopolitical risk with the college campuses um demonstrating uh you've seen a rebound for former president Trump in a lot of polls especially in swing States and especially among younger voters uh the cratering among younger voters for President Biden is an alarm Bell for his campaign and so he cannot see an expansion and having a humanitarian crisis uh that expands within Gaza and probably win those voters over and win in November also an alarm bows the economy Quinn polling came out yesterday just looking at Wisconsin where Biden sat down and gave this interview and they continuously give Trump higher remarks for the economy and they rate the economy as the number one issue now I want to talk about taxes going into next year because yesterday we heard from the CBO if those Trump eror tax cuts come back and are extended it's going to be $4.6 trillion doll added to the deficit how is this sustainable because this is what the Trump campaign is is campaigning on so I think what's was remarkable about that $4.6 trillion estimate the last estimate from CBO was only $1.1 trillion so this is ballooned we also heard yesterday uh from the chairman of the house Ways and Means Committee a republican on the tax writing committee that he's talking to his colleagues and a number of Republicans and Marie are saying the corporate tax rate might have to go up and so the market has expected that if there were to be a trump Victory Republican sweep that all of this gets extended out but at $5 trillion it's becoming less and less likely January 1st of next year we have the restart of the debt limit so will the bond market allow Congress to lift the debt limit and then maybe cut taxes by another $4.6 trillion over 10 years I'm getting increasingly skeptical and for Democrats if they're in charge if they do nothing taxes go back to where they were under Barack Obama and on State and local taxes that $10,000 cap goes away and so a lot of clients that I talk to are like well a trillion dollar tax cuts for New York New Jersey California Massachusetts Wisconsin uh there are a lot of Democrats in this town that says doing nothing and not spending that additional $4.6 trillion might be the preferred path especially if Democrats win if Republicans are voicing concerns about the corporate tax rate and they want to potentially come in line with the Democrats and raise it what can you see in terms of the extension of these tax cuts what's the base case so I think the base case is most things get extended under Republicans most things re go back to what they were under President Obama under Democrats uh there are a couple things that need to be dealt with uh first and foremost the pass through for small businesses uh there would be a huge differential if we don't do anything there uh probably raising the um standard deduction so that most people don't have to itemize uh something to do something on rates especially for lower-end um kind of income households um they could do a short-term extension we talk about these in 10-year numbers and that's $4.6 trillion Nothing Stops them from doing one or two years because when Congress has an option they like to take the least difficult option so especially if there's not a majority kind of across the board for Democrats or Republicans doing something one or two years is going to cost a whole lot less and they can get that done finally Ed if you're seeing already cracks within the Republican party and people talking about well actually even if Trump gets elected even if we get a sweep we might want to actually raise the corporate tax rate what party when you're at Wall Street you're looking down to Washington what party is more favorable for big business well Amry it really depends upon what part of business that is and you know we even were having conversations with a lot of Raymond James uh clients about kind of Defense stocks um in the defense supplemental and and normally you would say Democrats are kind of skeptical Republicans are good for defense spending but it was the reverse and the defense supplemental we look at China um and and Tech restrictions Trump could come in and and and ramp that up and that would be much less predictable on taxes um you know historically Republicans have been more favorable and they are more likely to extend some this out but it is not a one party good one party bad anymore it's a lot more Nuance which gives me a much more interesting job Ed Mills Raymond James Washington policy analyst thank you so much for joining me this morning in Washington uh John big fights ahead in 2025 especially those tax cuts especially when you come to Washington you hear Republicans are talking about their concerns and that they actually potentially want to raise the corporate tax rate which is what Democrats want to do MH a busy six months ahead for you down in Washington DC much more from amarie a little bit later so much has been said about the situation abroad and what it means for the president's re-election chances come November right here at home particularly in places like Michigan go through the polling Bloomberg News morning consult think about Michigan just for a moment okay he's down seven in Arizona he's down six in Georgia he's down 10 in North Carolina he's down four in Wisconsin he is up against the former president Donald Trump by two in Michigan it's not about foreign policy it's about the economy it trly is and has the advantage of trump being tied up in New York so he can go and make these trips while Trump can't but is it the right message is it the right message to tell people no you are doing better than you think you are much more on the economy with the former World Bank president David Malpass sitting down with amh in Washington in the next couple of hours don't miss that don't miss this Sarah House of Wells Fargo looking for a softer CPI print next week the look ahead up next [Music] Equity Futures here negative by 0.2% on the S&P 500 just a little bit of a pullback on the S&P 500 following yesterday's day of basically unchanged price action going absolutely nowhere on the NASDAQ 100 we're down 2/10 of 1% the Russell's had a decent run we snapped that we're down another third of 1% on the Russell 2000 if you switch up the ball and get to the bond market yields lower for five consecutive days into Wednesday then yields a little bit higher and back through 450 this morning up a single basis point at 45042 on a 2-year just about unchanged at 48427 plenty to talk about in foreign exchange before we get there just a couple of notes for you later on today we'll hear from the San Francisco president Mary Dy look out for that 8:30 Eastern jobless claims look out for this dollar Yen 15591 we're looking at 156 all over again again Danny Burger they got a problem over in Japan they do have a problem and it is made abundantly clear by the fact that UA and kosida spoke to each other it's a problem for people who want to go abroad in Japan maybe not for people who want to travel to Japan and spend money there but it's also a problem for importing it is a government problem therefore it is a boj problem how many people are gone to Tokyo that you know it's all I hear about yes so many I'm I'm ready to go I'm ready it's cherry blossom season John I'm I'm ready to go what do they call that momijigari I think is leaf peaking over you know more than me all I know is there's a great view of the shabuya crossing at the Starbucks that that's all I can that's all I got for you okay we'll try and figure this out let's look at Sterling just briefly we are about 29 minutes away from that bank of England decision what 2496 on cable totally unchange look out for the vote the evolution of the vote Danny I think that's what we're looking for right basically you had a couple of officials two meetings ago still calling for hikes they've dropped that call you had one official still calling for a cut we're trying to work out whether that official gets some company and about 30 minutes time yeah it would likely be David ramsten because he came out and basically said I'm I'm less concerned about inflation you compare that though to Hugh pill who says I have the same view I did in March and that view of course was that rates still needed to be higher than longer so regardless we know it is a split MPC but that matters more of course than what Andrew Bailey says much to his chrin we care more about those individual members than the man himself looking for the breakdown of the votes in about 28 minutes the bank of England decision just around the corner here are some of the top top stories for you under surveillance this morning President Biden sending a warning to Israel Biden telling CNN he will delay more weapons if Israel continues with a ground invasion of Rafa the comments coming after the US already paused the shipment of about 3500 bombs the warning was pretty clear I think the president's very clear right about what could take place here if they go into Rafa I'm not supplying the weapons and went on to say that yes these weapons have been used previously to kill civilians one of the interesting things about this the Wall Street Journal reported that originally Biden had hoped that this would be under wraps that he would negotiate with the Israelis and the public wouldn't know about it Biden is someone who's given very few media interviews recently something that he's been very criticized about so the fact that not only is he doing not doing these negotiations behind closed doors but he's using one of his few interviews to talk about it and send a message we mentioned this yesterday think about what's on the table 3,500 bombs which could be used to Target one of the most densely populated areas on the Planet we're talking about Rafa with more than 1 million Palestinians can you imagine the devastation and damage that could be done there and the headlines back home going into November Biden can't have that he can't have that he's already had the youth vote turn against him you already see what's happening across college campuses whether you think it's right or it's wrong the impact is one that the Republicans can say look at the lawlessness look at the commotion that Biden has has basically made come to the four one of the ways he gets that settled is by something that creates a ceasefire and weapons that that is the tool right that is the tool that America can use and that's the latest on the Israel Hamas War here's the latest in Japan we mentioned it briefly the boj governor Eda using tougher language on the Yen after a meeting with prime minister kashida ueda telling the PM he's carefully watching the impact of a weeken on prices then speaking at an event saying abrupt and one-sided weeken moves raise uncertainties and a negative for Japan's economy there was a quote Danny from kit Jukes in the last 24 hours and kit as always over at sock genen absolutely now it yellen's observation that FX intervention should be rare and accompanied by consultation will embolden Yen bears and I took away the same signal over the weekend and also just the idea of they continuously say look when it deviates from fundamentals that's when we're concerned the one-sided bet well if you're a Yen bear you'd say this is fundamental the bond market is volatile we're going in and we're going to push this and see if we can get it to 160 but the thing is is that this is a change of language in only two and this gets to the point of credibility if he's changing his tune so quickly if you're a Yen bear you'd say why would I believe you this time around they started to brew I think at the IMF World Bank meetings a couple of weeks ago you could hear the complaints not a big response from the president no response so far but getting a more of a response from the treasury secretary Janet Yellen fed president Susan Collins adding to the high for longer narrative Collins saying quote the recent data leads me to believe this will take more time than previously thought investors looking ahead to CPI next week Sarah House of Fargo saying this excluding food and energy we estimate Prices rose 0.3% which would break the streak of 0.4% gain since January and pushed the year-over-year rate down to 3.6% a threeyear low Sarah johs is around the table for more Sarah good morning to you morning is three good is that a good thing it's certainly better than what we saw the past three months where we had that string of 0.4 readings which surprised to to the upside so I think it's at least a step in the right direction of resuming the journey back towards the fed's inflation Target but at the end of the day I think that's that's still a bit strong but it's at least improvement from what we saw in the first quarter does it open the door to a conversation about July or is it not come soon enough I don't think it's strong I I don't think a point three print would would be enough for for July just when you think about the data calendar and I think really you probably need to see at least on the CPI front probably set core numbers closer to 0.25s I think to keep even a September rate cut in play so April is going to be the first step I think keeping the door open to even a a September cut at this point July is going to be pretty tough unless you see a market weakening in the labor market we had Kathy Jones at CH swab in your seat yesterday and she alluded to the fact that may be q1 for her at least the strength might have been a bit of a head fake would you go with that I think there's there's the potential for some residual seasonality there where you just saw such strong pricing at various different points in the year that the seasonals are maybe not fully accounting for the typical early year strength but they still do and anticipate more strength in the early part and so I think there's still some signal in the firmer readings and I think it's it's also possible that it's catch it's catching up for the second half of last year which was a bit of a head fake in itself so kind of smoothing that out we're still looking at overall core inflation still probably going to be 3.6 even even with some some downshift in April it feels like every piece of data is a head fake every piece of data we have to evaluate is this really the trend or is it not the trend that's obviously not how the economy works though there is some sort of trend so with each piece of data coming in can you get a clear read at this point can you have conviction in your calls right now so I think the second quarter numbers are going to be very important since q1 was so messy whether we're talking inflation whether it was talking maybe maybe payrolls even ECI and so Q2 is going to be really important for how much of that was was noise or or signal but it does make it difficult to I think really have uh a lot of conviction in terms of what's not necessarily the direction but at least what the magnitude what's the pace of whether it's inflation whether it's job growth whether it's the the overall economy well if the magnitude and the pace is a slow one going in the right direction but perhaps not picking up or going as fast as the FED would hope is that enough to say that policy isn't tight enough so I think when we we step back and and think about how restrictive is is policy it's it's in part the inflation data but I'm also looking at the growth data to tell me that inflation is a lagging indicator but I think what makes me question the degree of restrictiveness is is really the strong activity data that we continue to see coming in at least the underlying components of of GDP some of the consumer spending numbers that leads me to question it a little bit more than inflation I think if you do see a downshift in activity that's also going to help inflation along with I think some some still long Tales of of some of the supply dislocations that that we've seen over the past couple years there has though been some anecdotal evidence perhaps of weakening growth of weakening consumer be it everybody flocking to buy now pay later be it Starbucks McDonald's surveys how much do you pay pay attention to those sorts of pieces yeah I think they're really important at this juncture where we're looking for any pieces of of data especially given timely reports like that I think anything that helps us parse out what's happening across different segments of consumers is really helpful so we know higher income households are are doing better they haven't been as impacted by rates when we think about you know what what their mortgage payments are things things like that and so that's really helpful in terms of are we starting to see some push back in terms of that pricing because there's not a lot of great indicators that that that check the degree of push back we can get things like the nfib uh pricing plans but that doesn't really get at well we're we're having trouble actually P passing on those prices and we're going to hold back a little bit more here's a read on things so you mentioned buy now pay later fantastic story from our colleagues at Bloomberg News overnight with a Harris poll that found 43% of those who own money to bmpl Services said they were behind on payments 28% said they were delinquent on other debt because of spending on the platforms can you help me understand if we're getting an accurate read on what's happening with the US consumer at the moment because of maybe some of these places that aren't gauging things yeah so I think that is one of the the pieces that it's been harder to get an eye on so my my colleagues Tim quinland and Shannon Gren have talked about this is this is the Phantom debt component but I think we're seeing still that stress in the consumer that I think is is is also indicative of what we're seeing in the buy now pay later just in terms of the credit card delinquencies as much of they as as they've risen um back to the highest rate since since 2008 what we're seeing in terms of the credit card rates these things are correlated and so I think even as we don't have a great line of side on that you are still seeing that stress in certain segments of consumers this speaks to what Danny's talking about which is whether we are sufficiently restrictive or not plus where we end up where is neutral and why is this Federal Reserve not engaging in that conversation in quite the same way the market participants appear to be yeah so I think at the end of the day we don't know exactly where neutral is it's it's unobservable we only know it in in hindsight and I think given the uncertainty around it that's made it difficult for for fed officials to to really engage with it but we are starting to see that more you saw casari uh earlier this week talking about he's he's thinking neutral might be higher and that's why uh Financial conditions might not be as as tight as as he would have he would have expected and we're starting to see it in the dots too you've seen that uh the median drift up but even more so the average and so I think there is some a lot more thinking about that even if it's not front and center well this gets the Mohammad alerian argument which is basically you can't get back down to 2% not that you can't but you shouldn't because in order to do it you cause unnecessary damage to the economy is that right to actually get back to 2% it would be extremely ugly in this American economy well we've seen I think obviously a lot of Supply help in this on this front but I think we are in a harder part of the cycle where if we look at labor force growth you know that's grown close to 2% each year of the past two years but now you have things like prime age participation close to highest has spend in 20 years signs of leveling out and so I think it's going to get harder to see that those additional supply side gains we've seen and Supply chains returning to a more neutral level so I think this next phase of the inflation fight it is going to require more pain and I think a a bigger hit to demand than what we've seen over over the past year or two you've been talking about that for a while the last mile the hardest one Sarah thank you it's good to see you as always Sarah house there of wals Fargo looking ahead some data next week CPI on May 15th alongside retail sales a little bit later this morning 8:30 eastern time job claims the estim in our survey 212 the previous week 208 let's get you an update on stories out where this morning here is your Bloomberg breef with shanali bassc hey shenali hey John the bundle is back Disney and Warner Brothers Discovery announcing that they will sell their biggest streaming services together starting the summer subscribers will have access to Disney Plus Hulu and Max both the adree and AD supported versions the companies have not given a price for the combined service but similar offers typically come at a discounted individual subscriptions and Elon Musk is closing in on a major funding round for his AI startup X aai is set to be valued at about $18 billion when the round closes as early as this week and that's nearly triple what had been estimated with Silicon Valley firm Sequoia Capital contributing to the valuation a source saying that the platform will be able to train from data on X to help build its language models and ultimately it aims to compete with open AI xai currently operates the chatbot grock available on X and Real Madrid will meet Bia Dortmund in next month's Champions League final in London two late goals from Madrid sealed a 2 to1 win over Bayern Munich to advance to the final where they'll look to win their fifth Champions League title in the past nine years earlier Dortmund beat PSG to advance to their first final since 2013 and that's your Bloomberg brief John shenali thank you just leave the picture of that man right there up Carlo angelotti the manager of Real Madrid four-time winner as a coach twice as a player over AC Milan back in the days absolute Legend what a finish it was going towards the end of that game just yesterday that's enough of that up next on the program Traders looking for doves at the boa I don't think in the UK we have felt the maximum impact of past monetary policy tightening so I think there is a clear possibility the BV could actually Del more easing that the market is currently pricing the conversation up next that right decision about 15 minutes [Music] away live from New York City Equity Futures right now pulling back just a touch we're down by 0.2% yields a little bit higher by single basis point 45042 on the Euro 10735 negative by 0.1% under surveillance this morning Traders looking for doves at the P conviction is is quite low not just in the effect Market but um I think also in the rates Market based on what's priced in I don't think in the UK we have felt the maximum impact of past monetary policy tightening so I think there is a clear possibility that BV could actually deliv more eing that the market is currently pricing so here's the latest this morning the bank of England raid decision due at the top of the hour Jeremy stretch of cipc writing quote we would be unsurprised should the bank look to prepare the ground for a June adjustment we expect a 25 basis point cut at the next meeting and assumes 75 basis points of easing in total this year Jeremy joins us now for more so Jeremy let's get into that we've heard from the S&B we've heard from the Ricks Bank C are we going to see the same thing from the Boe and the ECB later this summer yes I think that's highly probable I think we would expect both of those Cent Banks to be very much uh biased towards monetary policy easing over the course of the summer so we're looking for both ECB and the bank of England to start their policy adjustments in June uh the bank of England well clearly the uh inflationary Dynamics have yet to come into place in terms of reaching the target but when we get the next CPI release I think it will be pretty close to that 2% Target threshold but I think the important point today is not only the vote composition because watch out for Mr Ramon's vote but it's also going to be the inflation profile at the bank producers now we know the bank have had a little bit of pressure on their forecasting strategy and methodology from the ban review but nevertheless I think we will focus on that inflation profile and if that's revised down uh then I think that will open the uh or prepare the ground for a policy using at the June meeting let's breathe some life into that the inflation profile how different is it in the United Kingdom compared to what we experience here in America well I think there there are certainly some similarities clearly the UK continues to witness significant degrees of service sector inflation so that I think is one of the factors that we are continuing to Monitor and of course the labor market is also uh continuing to generate or register reasonably elevated degrees of wage growth but I think we are starting to see some signs that discretionary spending is still under some degree of pressure we will expect that to be further compromised as we see uh mortgage resets continue to work through the system uh so I think we can and should see some degree of uh moderation in terms of activity and of course I think the Euro Zone in the UK are probably in similar uh uh circumstances regarding the macro Andor inflation profiles and perhaps that's the delineation with Europe relative to the US the the macro story is much weaker than we're currently seeing in the US and that's the reason why the FED is going to be somewhat more reticent to uh adjust the policy although even there we still expect the FED to be starting to cut rates by September well of course Jeremy no Central Bank wants to go at it alone of course they will if the data says that they need to but is the ECB going in June is that a huge opening right now for the Boe just there in front of them to tailgate off the back of their cut well I think there is certainly some uh some uh communication that will obviously be ongoing between the various central banks we've seen already a couple of central banks uh uh ignoring or uh moving well ahead of the FED in terms of the Ricks Bank this week and of course the SNB uh I think in the context of the bank of England they will look to adjust policy without reference to what the FED is doing clearly there will be some um policy implications in relation to the valuation of Sterling relative to the dollar so we may well be the case that we do see uh a slightly cheaper value of sterling as a consequence of that earlier policy adjustment if we're right in June uh but I think the bank will be very much focusing on the domestic data and that is going to be the important factor here so I think in the context of today the the bank of England Governor will no doubt try and maintain maximum uh optionality in terms of the policy outcome But ultimately the data I think will Ali to the uh the forecast profile uh uh warrant of policies using us uh at the next meeting in June well let me bring another American corollary in because many folks have said okay the FED they can't move when it comes to November because of the election in the UK we're expecting an election Rishi sunak has said it would happen in the second half of this year it needs to happen by at least January of 2025 does that impact the boe's timing no I don't think it does I mean clearly um monetary policy doesn't operate in a vacuum but uh in the context of the bank of England they are very much judged by their uh their economic thresholds and of course that inflation profile uh so I think yes there will be some external influences on the banks thinking particularly if there were to be another fiscal event being announced by the government before the calling of the election now it doesn't look as though the public finances will warrant that but certainly there had been previously speculation there could have been another fiscal easing uh in an early uh Autumn budget uh but I don't think the political timetable in itself is going to cause a significant degree of conation from the bank of England they will be looking purely at that macro Dynamics uh and then that will warrant uh whether the timing is appropriate as early as June for a policy easing I think a lot of people would agree with you Jeremy and that would apply to the Federal Reserve as well which is why so many people are look into September we saw that from Sarah House of Wells Fargo September first cut from the Federal Reserve where it changes the wrinkle I think it introduces Jeremy is 2025 I really struggle to find any clear Outlook whatsoever on 2025 without knowing or understanding the outcome of November yes that's absolutely true because because clearly if we were to have uh Mr Trump back in the White House the risk is that if we were to see uh re acceleration and trade frictions and the associated price pressures that that would bring then that would clearly have an important dynamic or underline an important Dynamic regarding fed thinking so in a sense that is the difficulty that we all face as Market participants in terms of trying to anticipate uh the policy outlook for the FED in terms of 2025 because we have to make judgments or at least assessments as terms of the uh the underlying inflation re Dynamics But ultimately as it stands we are still expecting a graduated easing and policy through the course of 2025 we should see uh yield curve steepen as we do see the FED uh reacting to a slower growth trajectory Andor a moderation in inflationary pressures by some toleration of easier policy so we're expecting obviously as I say two two cuts this year from the FED starting in September but obviously the out of the 25 is going to be contingent on the political outcomes do you think the Federal Reserve dictates how far the can go and I'm thinking more specifically of the European Central Bank if they don't go for a long time does that dictate and shape how far the ECB can go beyond say a June cut well I think June is effectively given and certainly that's the way the market is priced I think if the FED were to be on hold for longer now that as I say that's not our base case view but if the FED were to be on hold for longer then there would be a risk that if the ECB were to be seen to be much more activist and the bank of England would be in the same boat perhaps uh then that would potentially have some implic ations by the uh currency transmission channel in terms of inflationary Dynamic so there is an element of sort of constriction in terms of how far both the ECB and the bank of England can move ahead and Beyond uh the FED dynamic as I say we're assuming uh 50 basis points of easing from the fed this year and that is not inconsistent with uh expecting a little bit more from ECB and the bank of England where we expect 75 basis points of easing from both Jeremy what sort of difference in timing would it take for us to start talking about Euro parody again um I think if we were starting to see the FED very much off the agenda through the context of the rest of this year so I think that would be uh certainly something that would be necessary I think and we probably need to see uh the the ECB announcing a rate cut in June but also uh leaving open if not a pre-commitment but certainly a clear bias towards uh significant policy easing in the second half of the year if the inflationary Dynamics are proving to be U well behaved so I think that's the sort of Nar we would need to see a significant degree of um sort of Divergence in terms of rate expectations Visa where we're currently priced uh in order to facilitate certainly a move down through that 105 103 area and of course once you were to get down to those sort of levels then parity thresholds would start to come back into Vogue or at least into discussion 10735 Jeremy thank you sir Jeremy stretch there of CC on the Euro just at the end want to bring up David Malpass the former World Bank president who wrote this in a Wall Street Journal recently he'll be speaking to Amar in about 35 minutes time January 1st the suspension of the debt limit expires this year's spending bills will likely be extended just long enough to Kick the Can to 25 tax rates will rise at the end of 25 unless Congress and the president can agree to extend some of the expiring Provisions 2025 is so difficult to get your hands around if the former president gets a second term you're staring down a barrel of massive tariffs too yes and it's not just that something many people have talked about this idea that it also styes the flows of immigrants immigration has been such a big Topic in why the economy looks as strong as it does why the labor market is healthy and why inflation is low what happens when that's not the case anymore that conversation just around a corner here's the lineup for you in the next hour of blomberg surveillance we'll catch up with three cacher Govern of abedine we'll speak to Eric fredman of US Bank Asset Management the former World Bank president David Malpass sitting down with amarie down in Washington DC and we'll catch up with Bloomberg's have a blast on the commodity Market this time apparently it's coffee going crazy a bank of England decision is just about 4 minutes away the equity Market States side on the S&P 500 negative by 2/10 of 1% the second hour of blimber surveillance up next [Music] [Music] us exceptionalism it's making its way through the US Stock Market um and I think that can be somewhat sustainable there's been some wild swing at the stock and the sector level dispersion of stocks have been high in terms of performance we would like broadening out in the rally but it is really not happening to the extent that we would like we're looking for a broadening effect we have been for some time now we are cautious on both equities and in on fixed income and we're really waiting for better opportunities to add to both of those asset classes this is Bloomberg surveillance with Jonathan pero Lisa abowitz and Anar hurn live from New York City this morning good morning good morning for our audience World R worldwide the second hour of fimberg surveillance begins right now an absolute stacked lineup for you coming up on the program s cut governor of abedine on the bank of England rate decision former World Bank president David Malpass on the quote perfect storm facing the next US president and Bloomberg's have a blast on what's behind the surge in commodity prices the bank of England leaving rates unchanged as expected Danny burer at 525 and the split is important we now have two MPC members who have voted for a cut this is what we expected that David Ramden would join SWAT dingra this is the part that is important here because it shows an MPC where more movement is going towards a cut you also have inflation they see it at 1.9% in the second quarter of 2026 we've been pricing the Boe a lot like the FED we've been pricing a Boe who moves after July who perhaps moves in August perhaps we need to rethink that now the guidance from the bank of England risk from inflation persistence are receding from Governor Bailey optimistic things are moving in the right direction guess where Sterling is Sterling off the back of this weaker the pound down to about 12458 and negative a3d of 1% out of the UK in London blomberg's Lizzy bird breaking this decision down morning Lizzy good morning John yeah it's a dovish hold this one as expected holding at 5 and a qu% only 1% in markets saw a chance of a cut today but as I say the signals dovish uh look at that vote split 72 jave Ramden joining swatti dingra he had made a speech that suggested he'd had a dovish tilt uh and so there was speculation that he would join if you look back through history uh in no 2021 he voted to hike before the majority followed in December and then in both February and September 2022 he voted for larger hikes and then the rest subsequently followed so the market will take this as a dovish signal perhaps you've seen uh the response in Sterling there um it would be interesting at the press conference uh to hear if Andrew Bailey gives more of a signal like Christine lagard did about which data points they're watching for as to when to to cut will that suggest that they go for June over August so if you are just tuning in a r decision 525 the bank of England leaving rates unchanged in line with estimates the focus was always on the vote split over the bank of England on the MPC out of the nine seven voted to keep rates on hold two voted for a cut that's an extra voice looking for a cut of 25 basis points the guidance from the bank of England risk from inflation persistence are receding Lizzie mentioned the governor of the bank of England Mr Bailey Governor Bailey saying optimistic things are moving in the right direction liy just to follow up what needs to happen between now and next month to make that cut a reality what's on the calendar well there are various bits of data that they're watching for what would be so embarrassing really is if inflation gets to 2% and the bank of England hasn't cut by August you've got to remember that it's easier to explain these things when there's a press conference and there's one today and there's one in August but there isn't one in June but so if they wait till August there's going to be a lot of pressure but it's going to be harder to get the coms right Lizzie what sort of Bailey are we going to see today we obviously heard from hu pill who is more in the latter Camp of rates need to see seem restricted what have we heard from Bailey so far well he has also joined made the dubish signals finally he's acknowledged that the bank of England's situation is a bit more like the ecbs than the Federal Reserves uh in terms of the inflation story it took a long time time for that acknowledgement to come but it's a doish signal in that you could read into it that the cuts are going to come sooner because inflation is coming down uh in a different path to the US here in the UK uh I doubt that he's going to give us any sort of clarity on the scale of the Ricks Bank yesterday I don't think he's going to be telling us Danny that uh one or two or X number of Cs are coming in 2024 from the Boe hey let's great to catch up Lizzie buron out of London the bank of England on the margin doish Sterling weaker bit at the front end of the curve in guilt yield to lower by five basis points on a UK 2-year that yield right now is 424 joining us on this decision three coach gendon of abedine Shri let's get into this one and how it follows up the Ricks bank which Lizzie mentioned over in Sweden the SNB over in Switzerland is the Bank of England about to join them and cut interest rates next month I think there is a good chance now give what we've seen in terms of the vote split as you mentioned but also I think the forecasts have been quite interesting that downward revision across the inflation Outlook is quite key and also if you look at um the undershoot for the from Target which I'm just looking at the summary now um I think that could be quite interesting which is why we're seeing the price action now so I think that there was a split between would it be June would it be August and I think now June becomes a bit more likely obviously looking towards that press conference and the direction from there I don't think they want ever wanted to rule out June but obviously it will be conditional upon data from here well let's get to the data and the Outlook so they see inflation at 1.9% in 2 q26 1.6% in 2027 Shri could you give me a better idea of what's driving that is that the demand side of the economy or the supply side I think it could be a combination of both if we think more near term there's very little adjustment there um and we are expecting a temporary dip below uh Target over the next few months and that's partly base effects um from Energy prices now I think going forward we're likely to see some of these pandemic driven um uh D um um impacts on inflation that's already starting to sub subside but they're also looking more critically at that core underlying inflation and specifically at wage Dynamics and the labor market so I think there the key drivers are likely to be focused around that labor market Dynamic and that's really something that they've been talking about materially um over recent months sh the split of the vote also important it's something that I always find fascinating because it is a Fed who is so cohesive in their message and it is a Boe which is anything but you have Rams now voting to cut now we know hu pill has talked about Table Mountains choose whatever analogy you want doesn't want to move Bailey more biased towards the cut what does it mean to have such a divided MPC when we are nearing the start of a cutting cycle I think I think the vote split is an interesting messaging tool and I think if anything it's less divided than before remember there was a three-way split in the past so this is clearly having a more doish tilt but obviously we've heard more hawkish messaging from the likes as you say from Hill from Haskell and man as well but again it's very conditional upon the data and I think this overall split and let's see let's see what the forward guidance is from the press conference but it does look like you know we are past the worst in terms of that inflation Dynamic we are starting to see labor market conditions cooling a bit um and then really it's going to be that focus on wages um which is unfortunately above Target consistent levels but as we can see from the projections they are signaling confidence that they can see wages cooling over time now it could be the case from the messaging that we see that the bank of Eng doesn't actually have to wait for inflation to really prove that uh wages are are are cooling that they can actually start the easing cycle but remember the messaging is also even if they start cutting rates will remain elevated for a meaningful period of time so this is not going to be jumping into easy monetary policy it's still very tight conditions and well above um neutral rates even so sh Bailey has to get up there in front of the crowd at the press conference speak to to the markets just as much as he speaks to the journalist and say perhaps some version of what you just said but this is currently a Boe where does the individual members who set the pace who get the market reaction it is not Bailey that is acting as the weatherman is this a credibility issue I don't believe it is a credibility issue I think this is a technique that is very exclusive to the bank of England um but it's also a very useful transparency technique as well and I think this um the fact that there is as I said one One Direction split is starting to move more doish it's still the majority on hold um and you are correct we need to look at not just what the um what the governor says today but also the individual speeches that will come after now that we're out of the blackout period we we'll start to hear more um from those individual members and I think what we need to focus on is as you say the commentary from those more hawkish members and um you know I think the the looking at the guilt price action now with yields falling it's it's even though it's a 72 split it does look like the markets have really interpreted this as a clear dovish signal that news conference starts in about 20 minutes time looking across Europe right now we've had a cut in the last 24 hours from the Swedish the Rick Bank we've had a cut in the last few weeks from the Swiss the Swiss National Bank and now anticipating more perhaps from the bank of England as soon as next month and maybe even the ECB as well Shri can we talk about what all that means for the fed reserve and I'll share a quote with you from Andrew host over at City this is what he said quote the growing rate differential between the Us and other countries is yet another marginal factor that would encourage the FED to follow the global Trend towards lower rates how do you think this sets the scene internationally for the Federal Reserve well I would say that um what we've seen recently in over the last few months is a narrative that suggests that because the FED are going to delay the start of the easing cycle that will have spillover impact on other central banks clearly that is not the case it does seem that each Central Bank is very focused on International Drivers but more specifically now on domestic drivers and domestic core underlying service sector drivers so if you have confidence there then you can start the process of easing now with the FED obviously it's it's at a different stage in terms of what's happening with the labor market and what's happening with wage growth now we had a a mix of data recently payrolls data was a little bit more in Powell's favor um but that doesn't necessarily mean that they're going to be able to start easing soon so we are expecting the first hike in September and possibly just two hikes whereas previously obviously in the dots they was there were signaling three um and obviously the the markets have shifted along those lines as well so I think the fact that other central banks have moved won't necessarily impact the FED decision the FED are very focused on that domestic labor market Dynamic and I think that will continue to be the case when it comes to issues of your currency weakening because that's obviously the main nugget of why you would be concerned of moving before the FED Jane Foy has been really good on this idea that for Europe where growth is anemic the concern isn't necessarily just the landing but what it looks like after that Landing that they would welcome a weaker Euro because of the growth it brings would you agree with that I think that's true actually you need to think about the long-term structural Outlook as well and I think that's there's less of a focus on that right now markets are very much you know what when is the date is it June is it August and that seems to be the focus but longer term we need to think about the divergencies across economies and I think that's absolutely right and I think when looking at that yield spread from fed to other economies Euro area is one place that it has an impact but obviously Japan we've seen this week there's been a huge focus on the Yen um and as as mentioned earlier on in this program you know Governor ueda has had to have meetings with kushida and potentially they will be forced to raise rates themselves a bit sooner than originally planned there is a dilemma there between managing inflation and also managing the FX impact and how that has broader spillovers across corporates as well so it's a very challenging backdrop as a result of this yield differential between the Us and other countries but each country has to deal with that in a very specific manner so the Euro area impact would be very different to say Japan or APAC in in broader APAC economies so that's something that leads to more Divergence and opportunities for markets really well framed sh wonderful to hear from you shet CER govern in there of abedine if you are just joining us welcome to the program just recapping the bank of England rate decision rates unchanged as expected of 525 a change to the vote though of the nine officials on the monetary policy committee seven voting to leave rates unchanged two voting for a cut that's an additional member of the NPC voting for a cut since the last meeting the guidance is interesting risk from inflation persistence are receding optimistic things are moving in the right direction more on that guidance in about 15 minutes time 16 minutes away that news conference for the price action bit in the front end of the yield curve over in the UK guilt rally at the front end just a little bit yields lower and if you're looking at Sterling we are weaker on the pound by about a third of 1% against the dollar that's the price action over in the UK let's get you an update on stories elsewhere this morning here is your Bloomberg brief with shanali bassek hey shenali John shares of arm falling in the pre-market the trip design maker gave a lackluster revenue forecast for the year raising concerns that the tech industry's AI spending spree may be slowing 3 months ago an upbeat forecast sent arm shares soaring and helped the company turn into an AI darling on Wall Street the stock was up 41% this year through Wednesday's close and shares of airb can be also falling in pre-market trading the company posting Revenue that beat analyst estimates but provided lackluster guidance for a second consecutive quarter the company which specializes in shared home and vacation rentals said it sees growth slowing before an uptick in summer travel and it's expecting Revenue growth to re accelerate in the third quarter as key international events like the Summer Olympics in Paris and the Euro Cup in Germany fuel travel demand and some distressing news in the housing market a approximately 1 in 37 homes in the US now considered seriously underwater nationally 2.7% of homes carry loan balances of at least 25% more than their market value in the first few months of this year and that's up from 2.6% in the previous quarter Kentucky Mississippi and Oklahoma saw the biggest increase in number of homes seriously underwater and that's your Bloomberg brief John hey Shady thank you we'll catch shali again at about 30 minutes time up next on the program the importance of earnings this is an earning driven Market if companies are not showing investors what they like they're getting punished very quickly saw that with arm again this morning that stock is down in early trading and down hard that conversation just around a corner from New York this morning good [Music] morning live from New York welcome to the program Equity future is here negative by 0.1% on the S&P 500 amh is down in Washington we'll catch up with amarie in about 10 15 minutes time leas is going to be off for the next couple of days I've got Danny burer alongside me yields are high by two basis points on a 10-year 45121 on a US 10 year under sanas this morning the importance of earnings this is an earnings driven Market you know you think about 2023 it was all about repricing it was all about multiple expansion and because of that the market is not cheap and this is a year where stocks are going to be driven much more by earnings by cash flow by profitability if companies are not showing investors what they like they're getting punished very quickly here's the latest this morning stocks on paes following the biggest four-day advance so far this year Eric fredman of US Bank Asset Management writing this we used equity and commodity Market weakness in April to add to risk assets and sell bonds leaving us overweight domestic equities and real assets and underweight fixed income Eric join just now for more Eric great to see you sir in your words you've been trading up a storm can you walk us through what you've been doing and why yeah we've been active Jonathan I think it's been an environment where we've been using price weakness to really bolster our thesis if you will that we think corporate earnings will deliver this year we also want to be protected against we think maybe an incipient inflation environment so you know we've looked at equal weight S&P is our more favored choice right now just with a Viewpoint that we want to stay in large cap we want to stay domestic we also want to be more spread out if you will from a factor standpoint so we think equal weight S&P is a good way to express that view also think that inflation is going to be hanging around in fact it could re accelerate as we get deeper into this year due to both the the catalog costs if you will shelter costs but also just the considerations around comparable so we think that those are two spots we're not looking for a shock and awe if you will in inflation but we do think the gradual incremental increase is a risk that we want to make sure we have protection on in portfolios your favorite sectors Tech energy financials midcaps I'm putting this all together Eric this scream strong nominal GDP what's your base case for this economy yeah we think the economy is still going to be really in the back of both a a consumer which is starting to incrementally slow but is still in good shape Jonathan and also think the corporate capex cycle remains quite robust that's something that we've seen a lot through this earning season the themes that you've seen in terms of spend remain AI cyber remain big data so those are things that we think are more durable to your point on nominal GDP we are starting to see some participation from across the pond which is a good thing in terms of the consumer really hanging in their financials also being in relatively good shape so those are all things that we think still leave us more with an overweight position uh bias if you will but also a flexible mindset I think this is an environment Jonathan where if you don't have tight stops around your views uh there's there's a level of huis that we prefer not to have in this environment so we think again more of a constructive bias but also making sure that we're not risking too much in a in what's going to be very Dynamic back half of this year well perhaps part of that hubus Eric is also having protection for when things go wrong for when your Viewpoint doesn't play out and for an economy that we're still unsure of but when you look at things like the vix the vix of the vix there there's nothing there there's no one who is willing to go out and buy frankly these cheap Hedges Eric so what does work in this environment yeah Danny I worked alongside Sandy ratray who developed the vix uh many many years ago and and it's something that I think is a great observation just because the V the Val ofall has been very very limited so we think doing the following makes sense number one is that we're underweight to fixed syndic as Jonathan mentioned but we do own some what we consider you know longer duration exposure in the event that we're wrong that's something that again we think makes sense in the event that there is a a significant surprise with either the fed or a deflationary pickup that which again we forecasting as our base case we think that makes sense we also think again that Commodities exposure which again is not energy related in terms of energy equities but direct commodity exposure again that broadening out of inflation risk that you're seeing in everything from wheat to Coffee to Cocoa those are things that we want to make sure that we have in portfolio so again having a a view having a tight stop around those views we think that's going to serve investors well in this environment well Eric you also said one of your views equal weighted S&P this is a market where over the past decade if you you had said to someone valuations are too high you shouldn't go perhaps to a market weighted index you would have been wrong because the expensive companies could keep getting more expensive John mentioned this you look at something like an arm earnings that is getting punished and Eric I wonder how much of that is down to expensiveness something like arm 27 times sales more expensive than Nvidia is this a market that cares once again about valuations yeah Danny I think that's a really important observation we think it absolutely is in fact one of the reasons why we went more equal weight is because that value Factor again not that we always invest in factors if you will but because of our desire to want to stay large cap we do think there's a risk of refinancing with small caps as well as the unprofitable nature of about a third of that index even though it's certainly lagged we'd actually prefer to be in a higher quality lagging index like Eco S&P so you are seeing that that Stand and Deliver type of Market from companies right now if you do not either have strong guidance or a good reason why you missed this is a a market which is quite punishing so we think that there's a level of of margin of safety if you will on equal weight that's certainly not the cheapest we've ever bought but a space that we think is going to be well well represented in a decent earnings climate for the next next couple quarters well Eric usually the value trade does well in a in a rate cutting cycle or at least when we're in that trajectory getting to that trajectory so how much of that is dependent on the FED actually delivering Cuts yeah you know we think that if there isn't one or at least I think it's been a great phrase that you all used this morning which is the the doish pause if you will if there isn't more of that doish doish pause type of language or ultimately uh we think one cut and at least a signal for for a bias towards more this is a market which is a bit more vulnerable but again for us it's not so much when did the rate cut start we do think the Market's starting to pay a lot more attention to the terminal value and and if you look at again expectations out through 2025 2026 uh again for someone who doesn't know what he's having for dinner tonight it's hard to look out that far but this is an environment where you know that terminal rate if you will is becoming more important so Some Cuts uh this year with a signal and a bias for more in 2025 are important not necessar we think the terminal rate is much more important so again you know that that two and 3/4 to three in a terminal rate s we think would be a good place to anchor on higher than that would be an issue for this Market yeah never mind 25 I'm strugling to get be on next week CPI retail sales Eric it's good to hear from you Eric fredman there of US Bank asset manager an interviewer a conversation we just screamed strong nominal GDP in America it does I mean again I go back to this idea of value in order for Value to work you need some sort of cyclical upswing because the way that cheap companies become not cheap companies is they deliver good earnings so it says a lot about where you think you are in that cycle if you're willing to make that bet which by the way so many people over the past decade have said now is the time for value and it's basically always been a head fake based on what he just said overweight equities overweight real assets overweight Commodities under weight bonds that is a very constructive outlook on the US economy coming up on this program former World Bank president David Malpass with Amar hon down in Washington DC that conversation is just around the corner from New York this is Bloomberg [Music] so here we are two hours away from the opening B with equities pulling back just a little bit we're down by 0.2% on the S&P 500 on the NASDAQ we're down by about a third your next stop for this Market in about 60 Minutes time jobless claims in America just around the corner very light on data this week as we've said repeatedly on this program very heavy on fed speak more fed speak a little bit later San Francisco fed president Mary Daly coming right up in the bond market we look like this on a 2-year the front end of the curve 484 48 y TI by almost the base point on a 10year Higher by two at 45141 we need to talk about some central bank rate decisions let's take a quick sneak peek of what's happening with Sterling in the FX Market cable shaping up as follows the pound against the us dollar$ 12456 we are softed by about a third of 1% that is a weaker pound sterling following this under surance this morning the bank of England keeping rates on hold for a sixth consecutive meeting seven MPC members voting for no change two voting for an immediate cut officials also cutting their inflation Outlook as well and Danny for a lot of people they're just sort of nudging this decision out to June and a lot of people encouraged by this idea that maybe that's when we get that 25 basis point cut the market is starting to go there it's not completely there guilts little change this morning but we are what we are seeing under the surface our pricings for futures for the Boe completely in August now so we do have that priced in because for so long this is basically been trading on when the FED goes maybe the Boe will go was following that pricing we're starting to see a change and Deutsche Bank really underlines this they game this out basically saying actually the risks to Sterling are not that great if the Boe goes before the fed the move will basically be an error a rounding error so therefore they can go the currency effect is not bad enough to hold them off much like we saw from the Swiss and from the Swedish I'm guessing we read the same note because this was from Jim Reed of Deutsche Bank was it from Jim it was from Jim okay so Jim had this to say about the bundus bank so if you need a long history of the ECB we only have so much because the euro is only couple of decades old so if you include the bundus bank and just say that's the same thing so this is what he says the bundus bank ECB have not eased before the FED apart from in 2011 when the ECB cut rates due to the sovereign debt crisis when the Fed was already at zero and didn't cut rates further so this is a history going back to 65 years ago from Jim Reed of Deutsche Bank where on the ECB bundus bank it's very very rare for them to go before the Federal Reserve and we're about to see that potentially next month maybe it's because this isn't exact ly a rate cutting cycle I mean if they're going to cut once twice I think that's the right point I mean it's it's it's not the same as it used to be they're not going to have this huge difference because inflation is not where it is so it's again not the same type of impact if you start your cutting cycle quotes cutting a cycle a month two months before maybe a midcycle adjustment I think that's a phrase I've heard quite a few times both here in the United States and elsewhere as well that's the latest on the Central Bank staff here's the latest on individual Nam shares of Warner Brothers Discovery trading lower after wider than expected losses and a revenue Miss blimber reporting the company is looking for further Cost Cuts including possible layoffs and in a surprise move announced yesterday Disney Plus Hulu and Max will be sold together in a bundle starting this summer we have long talked about this Danny Burger the return of the bundle it is back I I can't get my head around it it feels like at some point there are so many bundle offerings I'm like this this is cable TV that's exactly what you're selling I I you know it's that jam problem you go to the grocery store there are too many Jam so whichever one you buy you're unhappy with this is the world we're getting into with these bundles and you end up with a fridge full of jams it well which is what the TV looks like now I mean I I think the point is you buy one jam and you hate that jam so in this scenario you throw it away though I thought you end up in the fridge anyway we'll leave that story there expired jams everywhere and the bundle you don't watch I think that's it I think that's that is definitely a UK thing to have a fridge full of gems I don't see that in America so much here in the United States President Biden's so-called red line on a raer invasion is becoming clearer in an interview with CNN Biden warning he'll stop additional shipments of weapons to Israel if it launches a grand invasion in the Gaza City the US already pausing a shipment of 3500 bombs rare to hear from the president of the United States directly in an interview we actually got one yesterday evening and very very clear about what he thinks should happen next and it's a different Biden than we heard in March he gave an interview to MSNBC there basically saying going into Rafa in Rafa Invasion that is a red line but John he caveat that with saying there is no red line in which I would stop supplying all weapons now to be clear he's not stopping supplying all weapons but it's a change in tone and to your point it's a public change in tone that he's giving on an interview that he rarely does it is Biden trying to make a point to the Israelis you know the commentary I always hear on this side of the Atlantic in the United States on the president is often this is really important to his reelection chances particularly in States like Michigan and I mentioned this early on the program and I know a lot of other people have identified the same thing when you go through swing State polling Mitch is the least of his worries in our recent poll with morning conso he's up there he's down hard everywhere else if you take an average of all swing States he's down six against the former president and one of the things I go back to one of the things that pulls extremely well that Biden has an advantage over things like abortion rights you don't hear Biden out there talking about that obviously current events have taken over but the messaging is the war the messaging is the economy there's low hanging fruit there it feels like he's not getting after yeah the economy very much top of the power sticking with politics 6 months out from the November election and the next president could be heading into a quote Perfect Storm according to former World Bank president David Malpass writing in the Wall Street Journal Malpass saying quote the suspension of the debt limit expires January 1 this year's spending bills will likely be extended just long enough to Kick the Can into 25 and tax rates will rise at the end of 25 unless Congress and the president can agree to expend some of the expiring Provisions in the 2017 tax cuts and jobs act Amry done joined by David Malpass in Washington morning Amar good morning John that's right I'm joined by David Malpass the former World Bank head and also under secretary at Treasury under the Trump Administration thank you so much for your time John outlined some of these thoughts that you have going into next year this perfect storm the debt ceiling The Perennial spending fights that happen in Washington and also this expiration the Trump error tax cuts whether it's Biden or Trump how should the next president be thinking about all of this morning and Maria and John um so that you have to recognize what's been going on politically in DC which is not making decisions not really sorting out what to do about spending about debt about taxes and so that's all pushed into 25 and that has an impact on businesses they wait to see so the uncertainty I think is what's prevailing within the economy I don't want to invest if there's going to be a big tax increase but I can't see what they're going to do to avoid it and so that's the the time clock that's going on now I'd like to talk about taxes cuz Ed Mills was on from Raymond James earlier this morning and he made a great point which is the fact that yesterday we heard from the house ws and means committee chair Jason Smith coming out and saying it's actually some Republicans who want to see a higher corporate tax rate Trump brought it down to 21% from 35 Biden has pitched 28 Senator Joe Mansion has said maybe 25 is something we can all agree on where do you see Republicans and Democrats potentially having this equilibrium when it comes to the corporate tax rate it's a bit of a fight in the election itself you've got a choice of do you want the economy to grow stronger and do you think tax rates matter I think they really do in terms of the growth rate if you raise the taxes there's less investment going on in the corporate sector we're already seeing it in the small business sector just very hard for them to make the new Investments needed to pull down or to improve the supply chain so we're seeing this persistent inflation and stagflation so so what do you make of Republicans though out and saying that it should be higher you know all through the party Unity is not as much in the Republican party so they've got to sort out what is the message of Republicans that you want Washington to be bigger you know it'd be fun for a lot of politicians in Washington to have a big debate over which taxes to raise that pulls in a lot of political contributions but the what we should be looking at is which taxes affect growth the most and you want to hold hold those down so that you can have more jobs more people uh back to back to work after Co a lot of people are just staying out of the economy because it's not strong enough to bring them into the labor force well labor participation rate though is pretty high and unemployment is below 4% I most people would argue and would say this is a very healthy labor market under 4% for more than two years the labor force though doesn't include the people that have opted out and those are people that we need in the economy in in order to really be catching up in the meantime China's numbers yesterday they show their their their uh trade numbers they're cleaning up uh by having a a u um factories running at full speed I'm from Michigan what you see is the manufacturing inventories not building PE you know the the whole US economy is waiting to see what's going to happen in terms of policy in 2025 that's this fiscal train wreck and they want to see how is that going to be resolved by Washington to get Washington out of the way what we're seeing right now is this regulatory uh uh push that's going on day by day you're seeing these massive new regulations come out of Washington as an end point to the current Administration uh also the proposals for big tax increases that you're talking about that yes there's going to be some Republicans who say we need it but I think the the public recognizes if you give more money to Washington it's just going to be spent so it's not really going to help on the national debt front when it comes to the national debt and taxes the CBO came out yesterday and said if we were to see a extension of the Trump era tax cuts $4.6 trillion so fiscally this would be incredibly challenging how do you think about that would the bond market even allow that to happen this gets into what are the taxes and how do they affect growth there's this tendency of people to do what's called static modeling meaning they say if nobody changes their behavior then a tax cut will will just be added to the national debt but the whole point of Taxation is to uh raise revenue without stopping people from doing what they need to do small businesses reinvesting I think we're over the laugher curve uh right now in terms of small business taxation I don't know if you saw the statistics as as President Biden has proposed these big uh tax increases on capital gains and also on basis Step Up it causes small businesses to just stop investing in their business they look to sell to somebody big uh because they can't afford the taxes so I I challenge that four trillion statistic and say look you would get more growth out of the economy if you had better tax policies you don't need to raise the corporate rate okay well that's going to be definitely day one something and we already see committees being formed now in Congress to try to map out what this tax policy will look like um I want to also ask you about what potentially we could see under Trump 2.0 you were an economic adviser for him when he was campaigning in 2016 you joined the administration you ran the World Bank when the Wall Street Journal comes out with a report and says that Trump potentially wants to put his thumb on the scale when it comes to the fed and questions fed Independence do you think that actually would be happening I saw that story there weren't any sources I don't think that is the policy that would create growth you know the FED has I I I've criticized the FED for being too big for inserting itself into too many markets the interbank market has gone now the you know trading of fed funds that were so vital to the dynamism of the US economy that's gone the repo Market has been almost nationalized as you as you look at the amount that the FED is controlling within that market so I think we could have a smaller fed a smaller balance sheet for the fed and that would actually be very positive for growth the commercial Banks would love to be uh lending right now to small businesses but the the way the regulatory policy Works they can't they can't do it it's uh it's biased against small businesses and that's true also of the borrowing that's done by Treasury and by the FED they're borrowing in the short end of the curve and that's just crowding out small businesses so I think that's the key Dynamic going on but they're borrowing the short end of the curve because everyone thinks why lock in rates this high at the long end we'll do that maybe in two years when they come down right I mean isn't that prudent that no that's not prudent the the yield curve is deeply inverted so if you if you borrow at the short end uh you're you're uh you're paying this 5.4% by the FED they're borrowing every day at 5.4% to own bonds that yield substantially less that's not prudent it what it does do is helps prop up the stock market for now I think there's there's some endgame going on within the economy where you you it's part of the Kick the Can is to say well let's just borrow shortterm hoping for better in the future but foreign the global markets look at that and they're not voting for the United States on that we're weak at home in terms of the economy just 1.6% growth and cbo's forecasts are for weak growth into the future and then abroad we've also got that the weakness that's leading to Wars wars in multiple parts of the world and so and they look at the fiscal situation at uh at in the US the the inverted yield curve and say why would I invest into that high a short-term uh interest rate two final quick ones so one you think under Trump there would be an autonomous fed and two would you go back into a trump Administration uh you know right now that that's way premature the the issue is for people to sort out the policy differential you've got a choice of weak versus strong of uh growth versus uh stagflation uh that's the decision for people to make and Trump would have a whole array of people uh that could really Implement a growth policy I think that's quite possible uh but it's the election cycle so let's focus on that David Malpass thank you so much for your time this morning John of course that was the former head of the World Bank David Mal pass he thinks potential we going to a stagflation environment we should remind the audience what Jay pal recently said about that he doesn't see any stag for any inflation MH thank you on the challenges of 2025 the World Bank president former World Bank president David Malpass if you are just joining us welcome to the program I want to check out Sterling just quickly the pound weaker against the US dollar down a third of 1% at 12458 the bank of England 45 minutes ago leaving rates unchanged at 525 the news conference on thread needle Street underway Governor Bailey saying it is likely we will need to cut the bank rate we will need to make policy less restrictive rates may fall more sharply the markets expect so hello June maybe take a listen to what he had to say about the month of June a June bank rate cut Danny is not ruled out or planned helpful very helpful that's how I find basically all of his comments and one he says don't over interpret interpretate the ups and downs of data oh but also we need the data to help us interpret where the CPI is John I think you put it really well that this is about giving himself optionality but you can see in those last comments he can't help himself to have that doish tilt it was only in January of last year remember that whole thing of we're turning a corner we're almost there and here we are over a year later we're we're not really maybe we're kind of almost there you can still see that impulse from him creeping out it's like a three Monon rolling view yeah it's always 3 months out maybe it's another 3 months out Sterling's weaker by about a third of 1% capable at the moment at about 125 let's give you an update on stories elsewhere this morning here is your blimber brief with shanali bassek hey shenali hey John Chinese president Xi Jinping appears to have wrapped up his trip to Serbia without visiting the site of the former Chinese Embassy bombed by NATO forces she timed his arrival in Serbia to coincide with the 25th anniversary of the bombing where us missiles killed three Chinese journalists the White House later called the strike a mistake and blames it on faulty Maps she wrote an oped published in a Serbian politica newspaper on the day of his arrival vowing to never forget the attack Maga has joined Tik Tok it's the first Trump Affiliated account on the Chinese social media app the super pac's First videos posted under the handle at Maga attack Biden's economic record and labeled the independent presidential candidate Robert F Kennedy as a radical leftist Trump and President Biden who has been on Tik Tok since February have both supported a ban of the social media app due to National Security concerns and living in Manhattan is getting even more expensive apartment rents Rose to a new high for April leases were signed at a median of $4,250 up a $9 from the same time a year ago that's according to appraiser Miller Samuel and brokerage Douglas element real estate rents have climbed annually in three of the past four months suggesting that another record shattering summer is to come that's your Bloomberg proof John shenali thank you we'll speak to shenali again in about 30 minutes here's the deal yes it's a lot of money people are paying it this is what stands out for me leasing has sold 42% 42% up on last month in April over 2023 that that I you're just tempting this rant from me about how there are too many people in New York me I'll be with you I'll be there just too many people here too many people willing to pay that you know it's the bank the consultancies they all over hired they're still here and paying those rents inventory in Manhattan rising 23% from a year earlier so that churn that they're speaking is starting to happen it's a lot of money but people seem to be paying it here in Manhattan I'm next on the program the case for Commodities we have already shifted towards Commodities with an overweight there a commodity's position we think it is probably uh a smart thing to do at this point we'll catch up with the brilliant Havier blast up next [Music] equi pulling back stocks down by 0.1% no drama here yield are high by single basis point on a 10-year 45062 and crude rallying by 7/10 of 1% 7955 under surveillance this morning the case for Commodities we have already shifted towards Commodities with an overweight there again you know the the non-correlation we like that about Commodities we've certainly seen precious met performing well gold in particular and we think that oil does have some upside from from here so you know a commodity's position we think is probably uh a smart thing to do at this point here's the latest this morning self Commodities rally in this year with extreme weather and shortages driving prices of coffee and cocoa higher have a blast of Bloomberg opinion explaining one more reason why coffee is rallying writing this for long coffee was one of the few Commodities that one could still analyze without paying much attention to China that's not the case anymore Havier joined us now for more Havier talk to me about that how great a source is China now of demand for coffee well you were looking at the coffee Market 20 years ago you didn't even have to think about China even 10 years ago China was not even on the top 15 consumers today is the seven largest consumer this is from a country that has been always um you know almost synonymum with with tea consumption uh China now is a big factor in the coffee Market it's not the main reason why coffee prices for Robusta as the the cheaper Bean are the highest in 45 years that's mostly weather in Vietnam but it's increasingly a factor in the market and factor that we need to consider Javier how much of this is about the fact that it's a cheaper Bean that it's not the expensive stuff that you know people who can afford it will keep paying up for well it is a a factor I mean let's let's look at the fundamentals of the Robusta coffee Market uh the the big producer is Vietnam it has suffered with a heat wave drought so that has been then in production and we saw a roers of coffee last year they were very aware that we were living on a cost of living crisis that consumers were going to probably tray down and try to get cheaper alternatives so the demand from the roosters for robusta beans went up in expectation that there will be more consumption for it and expecting that the supply was going to be there then the supply was not there because of Vietnam and that that's the combination that increase in demand coming from The Roosters expecting that they the need for a cheaper blend and then the the the supply failure the crop failure in Vietnam well usually it's the demand mechanism that sorts this kind of thing out Javier that it's really expensive now so you get someone like a Starbucks where people are less willing to buy their fancy coffee drinks so therefore they're not selling as much they're not buying as much but you mention the big issue here is the supply issue do we need to start thinking about these soft Commodities in a very different way considering what climate change has done in terms of Storms and extreme weather I think that we need to think about uh soft Commodities as been always exposed to weather uh coffee in particular has been particularly exposed not to to heat ws and droughts but mostly to fro in Brazil we have big frost in the 70s that really damaged the crop in in one weekend in what at what point in in in the mid 70s we lost half of the crop of Brazil just because we have a big frost and and that that was it but I think that we need to see these Commodities as uh areas where the demand continues to increase where the uh elasticity of demand to prices is very low we are going to still consume in a cup of coffee every morning almost no matter what the price is and where let's be honest also the price of the commodity makes a very small fraction of what we pay on the Starbucks that's a lot about salaries a lot about marketing a lot of about the profit margin is very little of that whatever is today on the Starbucks every time I visit New York I'm really shocked by the price of a coffee in New York uh that has very little to do with the price of coffee in the market I appreciate the complaint a lot of people agree with you Javier just quickly this is softs it's not just softs it's hard to swell copper has rallied it's all about Supply there too see the same thing in iror ion or starting to pick up as well would you go as far as calling this a perfect storm for Commodities on the supply side I I would not say that I mean you look at other Commodities with corn soybean prices are coming down rice prices are coming down even olive oil which I care a lot the prices is starting to come down but there is a there is an element of uh supply shortages in some Commodities I think that that copper certainly has a lot of upside to go up in the next few months and yes oil is a bit more balanced supply and demand are balanced the price is going to stay between the range that we have seen so far this year between 75 and $95 a barrel so I would not go to say this is a very bullish story for for Commodities in general but certainly for some of them there is a there is a bullish picture we should avoid the olive oil argument jaier let's leave that there have a blast of Bloomberg opinion have you enjoyed the article as always sir thank you lot to talk about this morning underway at the moment a news conference with Governor Bailey of the bank of England here's another headline for you Danny no law that says the FED must move first from the bank of England I love the idea that there would be a law like this that's a great idea Andrew Bailey we should get that sometimes we have conversations as if there is a law that we have to wait for the FED more on that in just a moment we'll catch up with David litz of JP Morgan Pua sham of Barkley and Bloomberg's GE Ragan and M deep sing that's all coming up next from New York this is [Music] blo in terms of the soft Landing Playbook you know that's still up in the air we do think that we're going to see more of a soft patch I think it's important to recognize that um the balance of risk has shifted when we talk about rat I think every meeting is open to the Federal Reserve we either go in September or we wait until December but I wouldn't rule anything out there biggest concern is if things go south how fast do they go south and what do we really do this is Bloomberg surveillance with Jonathan Perell Lisa aboit and Anar hurn so last week we were over overwhelmed by economic data and we've said all this week that we're light on data a Sprinkle of it this hour 8:30 Eastern Time jobless claims just around a corner a little bit more fed speak this afternoon going into tomorrow and onto the weekend we need to talk about 8:30 Eastern Time jobless claims will get our hands around this economy and what it means for the Federal Reserve and what the Federal Reserve means ultimately for everyone else and at the moment not much it seems we've already had a cut from the SNB out of Switzerland we've already had a cut from the Swedish over at the Ricks bank and a bank of England saying this Danny just ago no law that says the FED must move first for us to make a move that is indeed correct there is no law that says they must do that but we've heard this from lagard right and basically every ECB speaker saying that we don't need to wait from the fed the Swiss and the Swedish showed us that indeed they don't need to wait for the FED but the calculus John becomes different if we're talking about waiting for the FED past this year what happens if the FED doesn't cut this year what happens if they don't cut until late 2025 and they've already started their cutting cycle that's perhaps when you get the tricky this is where rate differentials get a little bit more difficult for some of these central banks it might not shape when they start it might shape how far they can go we'll have that conversation in just a moment Andrew Bailey the governor of the bank of England speaking in this news conference underway started about 32 minutes ago had this to say on the outlook for inflation two more prints before a June rate decision and the NPC now sees the second round inflation if we can call it an inflation shock fading faster than previously anticipated so things seem to be inching towards a 25 basis point C from this Central Bank he also though did say that he expects inflation to edge up later this year so wrap wrap your head around that he's he's saying two different things potentially at once but it just goes to show that they don't exactly know the path of things going forward he made the mistake before of saying we're going the right direction here he is giving himself an out if it doesn't go that way it's a word you hear a lot on Wall Street it's optionality they always want the option in either direction the pound against the US dollar a little bit weaker by a couple of tents of 1% in at around 125 at the moment the broader price action we're down 2/10 of 1% on the S&P just a little bit weaker going into the opening bell in about 88 Minutes time in the bond market yields are high by two basis points the 10year 4 5141 and a broader look at the FX Market Beyond Sterling into the Euro the Euro weaker as well against the dollar at 10729 coming up this hour we'll catch up with JP Morgans David Lovitz as stock snap a 4-day winning streak we'll speak to Mand deep Singh of Bloomberg intelligence as chipmakers become a geopolitical flag Mash point and Pia three ramp of Barkley on what it would take for rate hikes to re-enter the conversation I can't keep up we were talking about hikes then cuts and now hikes again we begin with a big issue awaiting the next big data Point Market momentum stalling as investors look ahead to next week's CPI print JP Morgan David lit saying this for investors so long as the FED remains biased to cut rates at some stage we think risk assets will remain supported David joins us now for more David good morning to you morning how are you is that the bias did it change last week in any way shape or form so it's funny because when we when we think about and when we talk about what happened last week you know I would describe the market as almost right we started with a very hot ECI print and everybody was pricing out cuts the fed's not going to be able to go this year we ended with a non-farm payroll report which was effectively Goldilocks so there there was something for everybody last week and you could see that in the way that that the market was moving I think the most important thing was what pal said during the press conference and when he laid out the potential scenarios for rates this year he didn't really talk about hikes he talked about staying on hold he talked about easing policy and we've actually done some work and looked at whether it's the stock of cuts that the market is expecting or more about the flow and as long as the market is continuing to price in Cuts over the next 12 months we think that that's going to keep uh long-term rates in a range and likely leave equities fairly well supported so let's do some scenario analysis so chrisan manmani was satting your seat just yesterday and he was saying there's two worlds there's one where the econom is great and the FED can't cut and it's basically one where the economy starts to sell for in the FED can right is there a better outcome for markets you know I I don't think there is I I think that the ladder may be slightly better for the market the market is clearly getting a little bit Twitchy about this very robust pace of nominal growth and the issue is you're getting the earnings coming through but but you're capped on multiples given the you know subsequent outlook for for rates and so I actually think a little bit of softening in economic activity maybe getting the FED to acknowledge that easier policy really is on the horizon that could be the ideal scenario you know very much going back to a world that feels like the one we were in for the better part of the expansion uh post GFC and you can feel the Market's desire to get back to that we keep referencing back to that but I wonder in what you were talking about about Powell laying out all these scenarios where you very he very well could have said that would lead us to hike he says that would lead us to not cut is that the PO put I I think to an extent it is and I I also think it's important to to recognize what the issue is that they're dealing with right so the the FED has this dual mandate for Full Employment and price stability they don't really need to be worried about the employment situation at least given the data that we've seen and so inflation remains Public Enemy Number One and what I think would lead the FED to become more hawkish is if we saw that reacceleration in inflation which in our view would be directly tied to a labor market that heats right back up and so if we see non-farm payroll prints go back to 300,000 that could well give us a bit of pause but it feels like the overall direction of the labor market and the wage data is supportive of some easing later on this year and then we have a quiet week we get some more of that data next week but but here's the thing is it seems like we're in a bit of a no man's land during that data because earning season will be over we'll get we won't have all those cues for corporations we're a far ways out now from the next fed decision so what does it mean for each of these data points when we're kind of in the middle of nowhere well it's interesting because to your point it's really the level one data right the CPI numbers the employment numbers that tend to move rates and and subsequently equities uh in particular you know I actually think that it's not the worst thing in the world we have a somewhat quiet week the market can digest what it learned last week I mean we got a lot of data last week in the US around the world the market can process that and the market can listen to what fed speakers have been saying right we're seeing you know relative balance between those that are continuing to talk about easing later on this year and those that may be a little bit more hawkish like the uh Mr from the man from Minnesota uh and his blog yesterday and so you know when we think about what the market is going to do this week it's going to digest that data and frankly you know the outlook for the economy looks pretty good 2q growth is tracking nicely we may see a bit of a deceleration in the second half of the year but again back to where we started the conversation I'm not sure the market would dislike that but the bar is higher and we need to talk about that data relative to expectations so let's take the City Surprise index looking at us economic data incoming relative to what we were expecting it is no died over the last month it's turned negative in the last week do you think there are better opportunities abroad do you think we've reset the bar low enough abroad that we're starting to beat expectations at the same time they're starting to deliver rate Cuts so the the international story is an interesting one the thing I will say about the US economy before we move on to the rest of the world is we were thinking about the various kind of pillars of growth as being you know assets or liabilities or or neutral there's a lot in the neutral bucket today but that does skew a bit more toward the liability side than the asset side and I think that that's supportive of slower growth in the US during the back half of the year now the Counterpoint to that is the rest of the world is picking up right if you look at kind of the edge of the world being southeast Asia what's happening with semiconductor activity and and overall technology exports things have picked up quite nicely we're seeing some green shoots finally begin to emerge out of Europe and that makes us constructive on a pickup in the overall Global manufacturing uh in global Goods cycle and you know frankly what we need to see is is the European consumer come back because if the European consumer comes back and that source of demand reemerges we'll see the inventory cycle pick up we'll see that manufacturing activity re accelerate and we'll see Europe emerge from a relatively soft period of of economic growth what is it about the phrase Europe and green shoots I feel like we say Europe green shoots for like 10 years same story exactly I think it's it's definitely become convention but I think that the reality here is that you've seen an extended period here 18 to 24 months where manufacturing activity globally has been soft you're not only seeing things pick up in in Asia you're seeing things pick up in Europe you're even seeing things pick up in the US barring that most recent ISM Manufacturing print okay but once we get the cuts coming out of Europe what happens not to The Landing but after the landing I know you're seeing green shoots but is it enough to get some sort of growth coming back into Europe so I I do think that we can get growth going in Europe again and I think you know one of the one of the bits that we've been really focused on as of late is the response to the pandemic right so in the US you had you know money dropping from helicopters people got laid off but they got a stimulus check in the mail that created too much money chasing too few goods Europe had a different approach right they fured their workers they put them on a percentage of their overall salary and I think that that led the consumer to just retrench a little bit further and so as we see consumer confidence begin to pick up and as we see signs that the labor market is remaining healthy that does make us more constructive on opportunities in Europe than we have been uh up until this point the one thing I will say is that the folks who like to point to well you know you can invest in semiconductor producers in Europe and technology in Europe it's as expensive as Tech in the US right so that's a completely different conversation this is more about picking up the the cyclical trade and jumping on board as things begin to accelerate but it is so hard to remove the American bias and go overweight Europe is that time then so I it's it's a good question the thing that's really plagued that trade for the better part of the past decade plus has been the strength of the dollar and so I think that the the the way to to weigh this and to think about this is if the ECB is easing and the FED needs to stay on hold you know what happens to the euro right because if we can get that Euro strength and maybe the FED easing as well that's going to be an an additional Tailwind for us-based investors in European markets if we' have a Fed that keeps rates where they are in an ECB that starts easing I think I think that even if you see a pickup in in local market activity and local currency Returns the dollar May well work against you at the wait so Square those two for me European growth is better go into not just the expensive Tech but at the same time by all accounts the FED is not going to cut as soon as the ECB dollar remains strong which WIS out so I I think if the FED is able to ease and our view is that we will get one to two cuts before the end of the year you will see some of that Euro strength begin to come through and you will be able to participate in a recovery uh across the pond we've got a lot to talk about you're going to be sticking with us David litz there of JP Morgan Asset Management sticking with us for the rest of this hour this week started with a conversation about us exceptionalism and just how exceptional that exceptionalism actually is H CH Academy asked that question he's right to ask it based on how the DAT has come in relative to a much higher bar yeah and I'm going to you know Channel my inner Lisa CU she's not here uh the debt is certainly exceptional okay perhaps that's the exceptionalism that we see but can a country be exceptional with this huge debt pile it is a concern more folks are talking about it I don't know maybe it's not so exceptional with that considered you say brammo and I go straight to the Bloomberg terminal for anyone with a subscription E20 space us Supply 30-year bonds $25 billion worth coming a little bit later this afternoon brma if you're at home watching that was for you let's give an update on stories elsewhere this morning here is your Bloomberg brief with shanali bass hey shenali hey John speaking of bonds the Bank of India England has voted to hold rat steady for a six straight meeting seven MPC members voting for no change which two votes for an immediate cut officials also cutting their inflation forecast Governor Andrew Billy saying that he's optimistic that things are moving in the right direction and Bloomberg is reporting that alphabet is in talks to buy marketing software provider HubSpot discussions are ongoing no agreement has been reached according to people familiar with the matter the deal would allow Google's parent company to better compete with Microsoft Oracle and Salesforce HubSpot has a market value of about $30 billion meaning this could be one of the biggest takeovers of the year and shares of Warner Brothers Discovery trading lower after wider than expected losses and a revenue Miss Bloomberg reporting that the company is looking to further C costs including possible layoffs and in a surprise move announced yesterday Disney Plus Hulu and Max will be sold together in a bundle starting this summer and that's your Bloomberg brief John shali thank you so I'm losing count so I've got Hulu and within Hulu I get Disney plus and I get ESPN so now I'm going to get Max as well is that right and and then I think uh okay Verizon I think they have something where you can get Max and Netflix too and then remember that whole thing of everyone teaming up together and also offering Sports so sorry you thought you got to just choose between yes that too so there's a you know plenty of bundles to choose from because separately of course Netflix Prime Paramount for the Italian football peacock for the British football this list just goes on you're just buying for football at this point I pay more now than when I first moved to this country and got cable and just had the full package with the sport and everything didn't pay for any of this stuff I pay way more now than I used to yeah well I I'm just I'm just sticking to Cable in Netflix that's that's all I I can't be bothered honestly it's too much to figure out the bundle is back in a big way apparently up next on this program the morning calls plus we'll catch up with Mand Singh of Bloomberg intelligence as chip makers weigh the impact of new US restrictions on Huawei that conversation just around a corner live from New York City this morning good morning [Music] it's the price action for you on the S&P 500 negative by 0.2% just a little bit softer going into the opening B about 1 hour and 14 minutes away it's time now for the morning calls first up City raising its price Target on Uber to 93 maintaining a buy rating the ride sharing Company still one of City's top picks as it sees booking and profitability growth his second call from JMP Securities raising its price Target on instacart to 42 sticking with an outperform rating the analyst citing stronger first quarter earnings and the company's new restaurant delivery deal with Uber and finally JP Morgan raising its price Target on arm to 15 keeping an overweight rating the analyst highlighting another positive quarter driven by jump in chip design activity even with that stock getting absolutely hammered this morning we're down in the pre-market by more than 8% let's stick with the semis CFR maintaining its positive fundamental outlook on the chip industry the analyst Angelo Zeno saying the Commerce Department's Blacklist of Huawei won't negatively impact us firms writing this we anticipate no change to qualcomm's revenue Outlook as the company already cited that it planned to completely stop shipments to hwei by the end of the year while the impact on the industry is not a needle mover China remains a long-term risk to the supply chain investors should expect more sanctions to come through the pipeline Mand singer Bloomberg intelligence joins us around the table for more Mand good morning good morning can we talk about how some of these chip makers are navigating very choppy Waters over in China well so in this case I think it may actually help Qualcomm I'm not so sure about Intel but Qualcomm uh in their last earnings called called out how they were gaining traction on the premium side uh they remember they uh use Android and all the uh OEM makers like Samsung Oppo honor which are Huawei competitors in China use Qualcomm processor so in this case if you're sanctioning qualcom from supplying the modem and the connectivity chips which is also part of their business that actually helps the other OEM Android makers who uh may actually see more business so I do think Qualcomm in this case benefits Intel I'm not so sure sure because if you're not providing the CPU that goes into a Huawei laptop does it benefit Dell Lenovo HP not so sure about that the companies have been preparing for a lot of this for a long time now could you talk to us about Nvidia reports May 22nd what have they been doing an anticipation of some of these moves around China I mean we know they have come up with a scaled back version of their uh chips and that's how they have been skirting the you know the restrictions on the latest end of their chips but remember Nvidia has got uh you know the pretty much the entire GPU space to themselves in the sense that everyone needs whatever they can make off so even if they're making a low-end chip Market is taking it and especially I think the Chinese OEM companies that are trying to catch up on the AI side they don't mind taking the lowend chip because they don't what's alternative and so in that case I think it hasn't affected Nvidia in a big way barring an outright band where you can't sell to the China Market at all that's when it will hit uh I think Nvidia but for now this news is actually it may be good for Apple too I mean think about it if Huawei can't make a good smartphone and that too they were targeting the premium end of the market it benefits Apple to an extent because suddenly the iPhone is uh a viable alternative and as is Android OEM maker so I I think this is targeted to driving uh you know helping uh to an extent the uh Us phone makers as well as the alternative to Huawei in China Mand how long until the conversation turns not from what is the impact of of us restrictions on China but kind of the EV conversation of the Homegrown Chinese players coming up and posing a real threat how far away are we from that well so again when you look at all these uh you know car makers that are uh coming up with new designs xiaomi being another one that's quite prominent they've come up with their own EV they use a lot of components so as long as you uh you know limit the supply of those components to someone like byd it can't innovate as fast as a xiaomi or a Tesla can so I think right now the restrictions are going to that level where you really pick your spots and that's how you can make a difference in terms of you know applying those restrictions and and how are you thinking about the overall cycle you know we were talking during the prior segment that we're seeing signs that overall semiconductor activity is picking up in places like Korea places like Taiwan how much runway do you think this all has particularly in light of some of the political issues that are now coming into play I mean look right now every Sovereign is trying to build as much capacity as they can on the AI side because everyone realizes you know this is The Cutting Edge stuff this is what the governments need to focus on so I'm not surprised every Sovereign is investing in such a big way and you just kind of focus on the things that uh really matter in terms of the early stage infrastructure remember applications and software will come much later right now it's all about setting up that infrastructure that can Propel you to the next wave of AI and Innovation that's about to come so it's fair to say you see more opportunity in the picks and shovels today than you do in things like the software this is a multi-year secular Trend and we are still in the very early stages and right now everyone is trying to get their hands on as much capacity they can when it comes to these cutting Ed chips why isn't the market then rewarding someone like arm who says our next venture is to help devel the things that go into the data center surely the market would say great opportunity arm instead we see the opposite well there is a price for everything right so when you're a company that's trading at 30 times price to sales you have to ask yourself how much of the good news is already embedded in in the stock price and in this case there was nothing wrong with the quarter it's just the expectations that got to a point where you have to beat and raise like Nvidia does you know and not everyone can deliver results like Nvidia how much well by the way arm is more expensive than Nvidia so that tells something um how much of this though is just the fact that soft Bank still owns what 90% of these shares I mean there's barely any float out there so if you want to buy the supply is so little can you say that's the impact not necessarily that expectations are really high I mean I I haven't looked at the short interest but uh you know all these things matter when it comes to when the company reports and what impact it has on the stock price the knee-jerk reaction but I would say long term the story is intact there are a lot more arm design vents arm is going into Data Centers as well as you know in a lot of the edge stuff so clearly they have that wind on their back I mean the valuations did get ahead of themselves and sometimes you see that sort of reaction arm is down about 7.5% in early trading to Danny's point doesn't take much to push this stock around at the moment just to confirm Nvidia reporting May 22nd Mand thank you it's good to see you m sing there of Bloomberg intelligence David you nailed it I think that's the big question we've all got how long is this Runway how much more how many more quarters can Nvidia keep coming out and just saying yep beat race beat race beat race and I think that's the big question particularly coming out of this earning season where we really saw that the dent and the armor was Visa the guidance you know you could have beaten on sales beaten on earnings but if you didn't upgrade your guidance you got completely pummeled the next day in the market and so how long can these companies maintain these growth rates I think you make an excellent point about the fiscal impulse when it comes to all of this and The Sovereign spending that's being funneled in but at some point I think expectations just become too high and you settle into some sort of sustainable rate of grow can we talk about these outside moves that we've seen as well post earnings I know you can't do single names but I'll tease some of them out arm is one a move of something like 8% this morning we saw a double digit move in One Direction on meta saw something similar on Tesla other big Tech names as well what's the signal you take away from that so it we actually crunched the numbers at the index level and if you beat on earnings and revenues and increased your guidance you were flat relative to the market the next day if you beat on earnings and revenues but didn't upgrade your guidance you were down 150 basis points relative to The Benchmark I mean I think I think that that tells you all you need to know is that expectations potentially have just become overextended for some of these names yes nominal growth is is is robust in the United States but as we talked about earlier that's not necessarily going to last forever and so I think what you're seeing are people kind of readjust to a world where real growth isn't 3% with you know 3 to 4% inflation on top so John I also asked that question to Peter Shar who had a much more technical answer he said these things moving 10% Like penny stocks it's a liquidity problem that people aren't really playing in this market people have pulled back do you see any degree of that too I mean you you've definitely seen people step back from you know it being all about tech and you've seen the market broaden out financials in particular have been behaving uh behaving quite well I think that that could well be a part of it right liquidity always matters when it comes to those outside moves but when we think about more of the fundamental story right these stocks were trading at valuations that were simply extrapolating current rates of growth you know nearly and definitely into the future and we all know that at some point you need to land the plane and I think that that's what we're in the early Innings and beginning to see I love what Pete said over the weekend 10% is the new 1% for Mega cap Tech we're talking about trillion dollar names moving double digits which is just unbelievable coming up next breaking jobless claims data just around a corner four minutes away we'll catch up with Pusa sham of barley here to react alongside David litz of JP Morgan Asset Management as we count you down to a little bit of data in America Equity Futures down a 10th of 1% on the S&P 500 yields a high by single basis point on a 10-year 450 [Music] 82 some data for you just moments away equity's right now pulling back by 0.15% on the S&P 500 a little bit lower on the NASDAQ we're down by let's call it 210 of 1% and ran that down for you switch up the ball and get to the scores in the bond market going into jobless claims yields are a little bit higher at the longer end up by two or three basis points on a 30e at 46666 and on the 10 year 45062 up by a single basis point with jobless claims Mike mcke the estimate is 212 the number is 231 uh kind of a surprise here remember me I used to do economic data here but when we used to have data first data point of the week 231,000 that is quite a change from uh what we had in the previous month the continuing claims at this point look like gone up I'm waiting to get the uh the the change from the uh the revisions and uh they're at 1, 785,000 the initial print last week was 1,774 so a slight rise there okay 209 is the revision to last week so we go from 209 to 231 and we go from 1,768 to 1,785 so not a huge rise in the continuing claims number but a fairly big proportional rise in the initial jobless claims number but we've been here before so we have to see if this continues yeah we have we've got up to these levels and then drop back down towards 200k again but nevertheless the question will be asked at 231 versus the estimate of 212 what is the difference between a welcome Cooling in this labor market and an unwelcome deterioration let's turn to the price action and start with equities we'll turn to bonds and then get to Foreign Exchange equities are positive off the back of this and now just about unchanged on the session on the S&P 500 bear in mind where the bond market was switch out the board yields were higher by a basis point or two at the long end and now we're lower by about a basis point on a 10year at 44865 so we unwind some of that move likewise on a 2-year down a single basis point to 48217 so all of this is marginal stuff if you get to Foreign Exchange I can tell you the euro is Raising losses from earlier this morning now just about unchanged at 10744 so Mike that is the question that will be on people's minds looking at a number that reads 231 against the of 212 are we seeing a welcome Cooling in the labor market or an unwelcome deterioration well unfortunately with this high frequency data it's going to take you a number of weeks to find it out because of course it's uh the first time in a while that we've bounced up now do we stay up our companies laying off more people or is this a one-off that we have to figure out going forward um that's the hard part with this data I know we ask this every time and you know it feels like it needs to be asked again what's the useful of initial job claims to give us any sort of signal value uh only in a sort of aggregate overtime period um on a weekly basis it doesn't add a lot to it but it does suggest if you see a a r two things a rise in the initial claims over a period of time suggests the companies are starting to get rid of workers because they see something that worries them and AR rise in continuing claims would tell you it's getting harder for people to find jobs now we had this as John said a couple of weeks ago and then it went away again so you got to be extremely careful in deciding this is something that matters I would also add it's it's the highest frequency indicator we have for the labor market and so if you're trying to keep your finger on the pulse of what's happening it's it's arguably good to look at even though it's a little bit noisy what I think is interesting about the print this morning is you know claims had kind of been sitting on on one side with respect to being you know very tight running hot you're seeing it moderate and move back in line with the broader set of US economic labor market data and so um you know Mike I'd be curious from from your standpoint when you look at the US Labor Market Today zoom out think about all the indicators non-farm payrolls jolts Etc where do you think we are from a slack perspective do you get the sense that the labor market is moving in the direction the FED wants it or do you think that we're still sitting here pretty tight and there's a bit more progress that needs to be made well both I think we're moving in the direction that the FED wants it again it's hard to tell from jobless claims but when you look at jobs created when you look at the decline in jolts openings uh and other indic ators it does suggest that we are seeing the labor market come into better balance I don't want to sound like J but even at this point I mean 175 in jobs is still a big number and so uh we're balance is a better word than uh getting rid of a a lot of slack and we're not really sure what's happening with all the immigration uh into the US how many of those people are going into the labor force seems to be uh a lot of them that keeps us higher it able to hire and helps hold down wage gains but we'll have to see we're light on data this week but over the last few months there's enough data for everyone to construct whatever argument they want to make let's construct a really bad one of the US economy right now it's easy to do let's take the data from last week exclude the ECI and go to payroll smallest gain in six months wages slowest Pace nearly three years go out sweere and look at the ism first contraction since 2022 below all estimates in our survey business activity slump into a four-year low input cost going in the wrong direction 231 on jobless claims we're starting to see an upside surprise there too David we could sit here and make this sound really really gloomy and say q1 strength head fake this has gone in the wrong direction what's the Counterpoint to that so I think that the Counterpoint to that is when you peel back the layers of the onion on the first quarter GDP data you saw final domestic demand still very robust and so you know yes we can interpret all of this as a beginning of you know a a cooling in the labor market a cracking in the labor market but you know the Counterpoint that you can make to that is we're starting from a very positive position so unlikely the consumer just falls out of bed overnight at the same time you're seeing business confidence begin to pick up you're seeing CEO confidence begin to pick up that could well lead to an improvement in investment spending and Manufacturing activity this year and I don't think you would be getting that signal from the corporate boardrooms if they didn't perceive the end demand to be there now I will admit you know often times when you get a couple of negative prints on non-farm payrolls the NBR comes out and says hey you know what we were in a recession we just didn't know it at the time and so that does always exist as a risk but I think the fact that you're hearing Business Leaders continue to illustrate and and remind us that demand is robust gives us confidence that the economy is unlikely to roll over why do you think the fragile though the narrative is so fragile over the last 12 months or so if you think about where we've been we've had hard Landing soft Landing no Landing started this year we had seven Cuts we went down to one we brought a few back in why has that narrative been so fragile over the last 12 months so I I think that the it's a relatively simple answer is that you know a lot of us have never been in a situation like this before and you know we went through covid we went through the pandemic none of the economic models worked all of our forecasting was completely off and now we're kind of dealing with this reemergence of consumers globally that you know a lot of people just don't have experience with it was just a couple of years ago where people were talking about embarking on the Roaring 20s right we're going to have this period after the pmic people are out and they're spending and they're consuming and it's about doing it today and not waiting to do it tomorrow you know that narrative is completely faded but frankly aligns pretty nicely with what we've been seeing over over the past couple of quarters in particular and so I think it's just unique and and that's the nature of where we are let me also point out the Atlanta fed came out with their latest second quarter GDP now number yesterday and it's 4.4% right now it's really early and that's really high and that'll come down but it is kind of funny that uh we're seeing signs of strength in some areas fed is like a driver who's stepping on the brakes they want to step on the brakes but not so hard that they get rear ended by recession and at this point they don't know we're going in the direction they want because they've raised rates and the economy is slowing how far did they do too much we don't know well I think what's what's really interesting if I can just jump in quickly is if you look at high yield default rates they've remained very low because a lot of these companies were able to term out their debt in a fixed rate fashion during the very low rate period of 2020 and 2021 if you actually look at bankruptcies in the United States that number is rising a lot of those businesses rely on floating rate debt and so I think one of the things that gives the FED a bit of confidence that you know they are applying the break in the right way is you are seeing that impact of higher rates finally begin to filter through and show up in some of the data after a period of tremendous resilience that is something so many people have said look everybody refinanced we're we're okay now it's okay if rates you know stay higher for longer because everybody took out cheap debt but that was in 2020 when the FED started to cut dramatically we're four years out David are we not finally starting to face some manner of a maturity wall so you you are beginning to face more of a maturity wall than had been the case I think it's important to look though at the share of debt outstanding that the maturity walls represent you know it's it's mid to high single digits for both high yield and investment grade the real issue is in private credit right where that number is call it 15% over the next couple of years now you know private credit loves nothing more than to amend and extend and kick the proverbial can down the road so will that lead defaults I mean your guess is probably as good as mine but what you've seen and and now particularly with the bank loan Market heating back up right there's competition to do deals and that's allowing people to address the higher interest rates we're dealing with today and not have that become a problem until some point down the road well then you get the scary thing of private credit to compete with the banks all of a sudden has to make these concessions you know not hat charge as high as fees so are we in this environment where banks are coming back in credit private credit has done an extend in pretend When the Music Stops what does that look like with a non-transparent and somewhat unknown entity so it it looks completely different than what we went through almost 15 years ago because at the end of the day the people on the hook are investors you know and and I'm not saying that that makes it okay but you know if you think about who invests in private credit it's it's Pension funds it's endowments and Foundations it's high net worth individuals and so it would be unfortunate if all these funds had a problem and and people began to lose their shirts but you know people who try to draw parallels to what happened in ' 08 I just think it's it's apples and oranges if you are just joining us welcome to the program a rare upside surprise on jobless claims about 10 minutes ago came in at 231 as we like to say on this program the wrong kind of upside surprise on claims 231 against an estimate of 212 going into the opening batt about 50 minutes away Futures were negative then they turned positive just about unchanged on the S&P 500 yields were higher now they're lower we're down three basis points on a 2-year at 480 in the FX Market the dollar was Stronger flips weaker the Euro 10755 the Euro now positive by a tenth of 1% Mike mcke said it's straight out the gate we haven't seen much of Mike because there hasn't been much data so far this week this was the first data point tomorrow we'll get um Mitch consumer sentiment expectations then Mike the big ones next week PPI CPI us retail sales yeah uh we put it all into one week to make it more exciting uh we're looking for a Slowdown in inflation and that's going to be the big story next week and we'll be watching every day to see what fed speakers have to say about that retail sales very interesting you got people who are all over the map on what's happening with sales you got got a lot of notes from people saying retail sales have slowed a lot Bank of America out this morning saying that not only are retail sales holding in they're not saying they're growing hugely but they're holding in but that they're seeing at the lower end of the income scale which everybody's been talking about the poorer people are all out of money and so they can't spend it anymore that's not what Bank of America is seeing let's talk about the setup can I just get into the set for next week last week we were talking about asymmetric risk and what people were saying basically was that if the data is hot Ys won't rise too much because the fed's not going to hike but if the date is weak yields can drop a whole lot more because this fed wants to cut that was when yields were at 5% on a 2-year we're down to about 480 we've reset a little bit is there still asymmetric risk around this story until next week I I think that there is because if you look at the positioning data in particular there is a massive short position sitting across the rates market today and so I I think part of why you saw rates come down so sharply in the wake of last week's non-farm payroll report was really just people adjusting to okay maybe the economy is getting a little bit cooler maybe we shouldn't be betting on going to five maybe it's more reasonable to bet on going to 430 or 425 but you know to me I I always come back to where the move index is because it's important to think about volatility and what's being priced there yes we've come off the boil but we're still at elevated levels and what that represents to me is simply a wider dispersion of outcomes you know again back to where we started the conversation at the top of the hour last week had some for the Bulls and and some for the Bears and so I think we just need to see more data particularly this CPI print uh next week to get a better sense of the broader I'm trying to do what I can for both sides very kind of you Mike can I can I take that same sort of logic though and apply it to equities it was Michael hartnet who before the jobs print basically saying if it's low enough then it brings the stagflation fear so in that way bad news is bad news again we got a lower print we got a higher print for the jobless claims yet equities they're up are we not worried about that environment eventually we will be but I think we're still in the early Innings of seeing the data really cool in the way that the market wants it to and the way that the FED has been suggesting they would like to see it as well um we were chatting the other day yes at some point here bad news becomes bad news but if you look relative to history 175 payroll growth certainly isn't bad 4% wage growth certainly isn't bad and an unemployment rate below 4% you know that's that signals a pretty robust labor market situation Davis you're going to stick with us listen to these numbers thank America Institute numbers are just out take a listen to this lower income household balances were 67% higher than the 2019 average at the end of April middle inome household balances 58% higher and higher income households 45% higher compared to where we were back in 2019 those numbers are absolutely staggering more on that a little bit later let's give you an update on stories outw this morning here is your Bloomberg brief with shanali bassac hey shanali hey John we're going to stick with real estate here because the approximately 1 in 37 homes in the United States are now considered seriously underwater nationally 2.7% of homes carried loan balances of at least 25% more than their market value in the first few months of the year and that's up from 2.6% in the previous quarter Kentucky Mississippi and Oklahoma saw the biggest increase in homes seriously underwater and living in Manhattan is also getting more expensive apartment rents Rose to a new high for April leases were signed at a median of $4,250 up $9 from the same time a year ago according to appraiser Miller Miller Samuel and brokerage Douglas element real estate rents have climbed annually in three of the past four months suggesting another record shattering summer to come and shares of Airbnb are falling in pre-market trading the company posted Revenue that beat analyst estimates but provided lackluster guidance for a second consecutive quarter the company which specializes in shared homes and vacation says it sees growth before slowing uh an uptick in summer travel it's expecting Revenue growth to re accelerate in the third quarter though as key international events like the Summer Olympics in Paris and the Euro Cup in Germany fueled travel demand and that's your Bloomberg brief John shenali thank you appreciate the work this morning thank you very much up next on the program back to the bundle the other positive for us is obviously the streaming service we're encouraged by the progress we've made in that business in in a relatively short period of time that conversation is coming up next Just moment ago jobless claims coming in at 231,000 against an estimate of 212 your equ Market recovering just about unchanged on the S&P the open and Bell 45 minutes [Music] away we got jobless claims data moments ago go it came in at 231,000 the estimate was 212 that is an upside surprise the wrong kind of upside surprise and off the back of it equities raised the morning's losses we are just about un changed on the S&P yields were higher now they're a little bit lower down a basis point on a 10e to 4 4845 and senters this morning it's back to the bundle the other positive for us is obviously the streaming service we're encouraged by the progress we've made in that business in in a relatively short period of time we took prices up a little bit in in the beginning of this year and didn't really see much of an impact but we do believe that the the great experiences we provide uh people are willing to pay for so here's the latest Disney and Warner Brothers Discovery announcing they will combine their streaming services into one bundle starting this summer subscribers will have access to Disney Plus Hulu and Max both the adree and AD supported versions GE ragath and of Bloomberg intelligence joins us now for more GTH we've talked about this for years now the bundle is making a comeback I I guess here it is what's the price point of this we don't know the price point just yet John but yeah you're absolutely right what's what was old is is kind of new again right and it's all about now creating this super bundle for Disney and Max this kind of makes sense I mean they're both their products together will definitely have four quadrant appeal and I think you know why we're seeing this I mean that there is a kind of a hint of desperation here from from all of these media companies because we know that streaming subscriber growth has kind of hit a wall I mean Disney's is not really able to get beyond that 150 160 million subscriber Mark and then if you kind of look at Max which has been fairly successful they've really struggled to get past that 100 million Mark so this is about kind of reinvigorating that subscriber growth but more importantly curbing churn because one thing with streaming that we know is it's really easy to cancel your service and and they're hoping that this way they can kind of keep customers on the bundle Geth as Danny mentioned earlier on this morning it's not just this effort we're seeing it in sports as well as you look at the companies that are combining what is bringing those specific companies together versus say tie-ups with others yes so you know this particular uh instance uh John with the Disney Warner Brothers is actually I think it's perfect timing because it's kind of a good setup you mentioned Sports they do both these companies along with Fox have that Sports joint venture so they do have a streaming product coming out a little bit later they have now this Disney plus Max product then they have the sports product it kind of eventually sets up a path for them to to have that super bundle if you will and I think that's kind of what they're aiming for here uh and so far what we've seen with bundling is that it it does work so Disney itself has said that about 40% of its streaming subscribers actually take the bundle right now so that's you know the the Disney bundle with Disney plus with uh with Hulu and with ESPN plus so bundles do work and that's kind of what they're they're betting on here what about the math of how it works for the company e though we learned that Warner Bros Discovery wants to cut cost wants to raise some of its subscription prices what happens then if you need to offer a bundle and need to price it competitively to be the super bundle yeah I think they will so so this uh this partnership here is a little bit different from what these companies have been pursuing so what we've seen across uh up until this point has really been bundles more with the Telecom providers so we know like that we had that big Verizon bundle where you had uh you know Verizon was offering kind of the bundle with uh with Max and Netflix multiple Telos you know you had T-Mobile with Netflix uh you know there's obviously a revenue share agreement here obviously what these companies are trying to do is by doing it themselves without a Telco partnership uh they're obviously trying to uh keep more of that profit for themselves but yes ultimately it is going to come down to cutting costs and this helps them to kind of really cut down on marketing cost because if you look at just marketing cost for all of the streaming uh sub uh subscription Services apart from content marketing and selling expenses have are actually one of their biggest cost center so this really helps them with that when they kind of pull their resources together and that's actually a perfect segue into the question that that I wanted to ask we've talked about subscribers we've talked about price we've talked about costs but but content is King in this space and so how competitive do you think this bundled content will be relative to the other folks that are in the market I think that's absolutely what they're betting on you know Disney obviously has its own appeal with with younger children HBO Max as you know is prestige TV they're really kind of and then Hulu right right now is kind of getting into more edgy entertainment and then with Max remember you have a whole bunch of movies that are going to come on the service as with Disney plus you know once they release in theaters and so that's really kind of what they're betting on here I mean you have two superpowers in terms of content IP in in terms of story Brands and so they're really kind of betting on on getting uh you know those Brands together and appealing to a much broader section of the audience getha this was great it's always great to catch up with you ge rathan there Bloomberg Intelligence on the latest streaming effort trying to get our hands around just how strong this consumer is want to go back over those numbers from Bank of America and the Bank of America Institute research piece lower inome household Balan is 67% higher than the 2019 average at the end of April middle inome household balances up 58% higher income households up 45% David can we talk about this obviously the month of April can be skewed by say tax returns but where is this us consumer it's something we grapple with every single day jobless claims tell you one thing you look at overall payrolls growth it tells you another you hear from Disney and the thing par business everything's fine McDonald's Starbucks we got a problem where are we so I I think that the consumer is in a period of transition and you know when when we look at the broad swath of data that that we have access to you know one of the things that you are seeing particularly among lower inome individuals is is trading down right so not buying the name brand of say paper towels or detergents so on and so forth but people are still still very much valuing experiences because it was experiences that were taken away from them during the pandemic and so you're seeing a lot of spending continue but the underlying profile of that spending has in our view shifted I think what's particularly interesting about the lower income individuals it all comes back to the labor market you know if you want a job in this economy you can go out and get a job and if you look at the data from the Atlanta fed where as to where wage growth is most robust it's still in those lower income buckets and so these people the the cash is coming through the door given their higher marginal propensity to consume they don't save it they don't invest it they go out and spend it and that's what's keeping the whole thing humming along and and not only is what they're putting it in changing but also how they're doing it sure they can get jobs but at the same time the pandemic savings has run out John and I were talking about this earlier buy now pay later a Harris poll found 43% of those who owe money to buy now pay later said they were behind on payments so as we get people shifting to this type of credit sure they're still spending for now but when does it the music stop so I I think you're beginning to see that stress build and I think it's all part of a broader story and we talked about this a little bit earlier in terms of small businesses and floating rate debt and that finally beginning to pinch that you have seen delinquency rates on credit cards and auto loans rise here you know one of the things that came out of the Great Piece that you all put together on on buy now pay later was a lot of the folks that are engaged with those Services also tend to have credit cards that are all kind of tied in together and so you're seeing that leverage profile begin to build and that's something that we're watching you know I think that the conversation is Shifting here from okay you know it looks like the economy May cool off How much cooling are we going to see and the big risk is if we see people continue to get over their skis if you see consumers continue to lever up if you see CEOs become increasingly confident and and go for those Capital expenditures if you see vehicle sales housing right the cyclical parts of the economy if that begins to heat up we're going to like get a little bit nervous David this was great just fantastic to have the a with you David leave it's there of JP Morgan brammo warned you at the start of the week this week might be a little bit boring last 24 hours was 5 188770 at the close on Tuesday and then uh the close yesterday 51 8767 we've barely moved things are getting a little bit more interesting going into the weekend tomorrow morning here's the lineup former house Speaker Kevin McCarthy will speak to Jim biano of biano research Anastasia amaroso of my capital and Dan Suzuki of Richard Bernstein Danny's going to be back tomorrow we'll do it all again from New York this is Bloomberg
