Bloomberg Surveillance 06/06/2024

The Fed's sort of back in the corner. And you're probably going to be a little while here until we can see those cuts. The risk for the chairman is to cut to early before there is any economic weakness and then having to reverse course. They're still going to be able to cut in September, places looking a little bit cooler and we're starting to see signs that the economy's moderating. If inflation gets to two points, something that gets the Fed and the Rand and other central banks to begin adjusting rates with signs like that, that cuts are on the way. I think it's sort of a wakeup call to everybody that this is actually going to happen. The soft landing can occur. This is Bloomberg Surveillance with Jonathan Ferro, Lisa Abramowicz and Annmarie Horden. BURNETT Bloomberg Surveillance starts right now. Live from New York city this morning. Good morning. Good morning. For our audience worldwide. With equity futures just slightly negative on the S&P 500 coming into Thursday with equities at all time highs on the S&P 500 on the NASDAQ looking for that first interest rate cut from the ECB since 2019. The decision. 815 Eastern Time frémaux the presser. 30 minutes later and it was kind of kicked off yesterday with the Bank of Canada's meeting at 10 a.m. It was the first of the G-7 central banks to start cutting rates. And what a lot of people presume is the global rate cutting cycle. Key questions are going to be for the ECB. Do they signal ahead to July? But beyond that, just what kind of tone do they set in terms of the balance of risks at a time where that's really the struggle right now in markets? Before we get to that news conference, the next stop on the labor market train jobless claims at 830 Eastern time. Let's go through the information we've had so far this week. Job openings have been soft. ADP softer than expected. I think this is a stretch, but let's go with that. I assume services was decent employment component just a little bit weaker. Put it all together. Apparently this is the recipe this market wanted to see. This is a market that is embracing Goldilocks in a massive way. They basically are cherry picking the data points that highlight a slowdown in a way that caused is some kind of weakening in the labor market, but not weakness as well as some sort of disinflationary trend without the necessarily inflationary pressures. In the ISM services report. You say it's a stretch. You're right. I mean, basically people are picking and choosing the aspects that they want. How much does that continue and how high is the bar for a downside surprise on Friday's jobs report? Let's go through the numbers. 185 is the estimate, previous numbers, 175. What's not too hot, not too cold on Friday, if we figured that out this week? No, because everyone has a different view. I mean, I think that there are people who say 175 is perfect. You some people say between 125 and 175 is Goldilocks. It seems, though, that we've baked in a lot of Goldilocks and a lot of rate cuts in the past four sessions. If you take a look at how far yields have gone in, I mean, we're talking more than 30 basis points for the tenure, 25 basis points for the two year. All of this since the end of May. You're looking at these kinds of shifts. We've already baked in a lot of that. So it raises this question of how much more Goldilocks can we get? Big move in the bond market yields up by about a basis point for 29 on a US tenure. I'm going to run with that phrase a little bit later. How much more Goldilocks see what we get from video? There's nothing Goldilocks about it. Let's pull up the name of the free market. The name is up another 0.9%. I think it's important to frame this. This time last year in video was a $900 billion name and we were looking at it like that's a big market cap. That market cap has more than tripled. And I'm going through the names this morning. Microsoft 3.15 trillion in video, 3.01 trillion. Apple 3 trillion. Alphabet 2.18. Amazon 1.89. Those five names individually on their own, bigger than the DAX in Frankfurt, Germany. Okay, the top three names Nvidia, Apple and Microsoft account for 20% of the S&P 500. Just to give you a sense of that scope to put in to sense the scope of how much Nvidia has risen since April 19th, it has gained $1 trillion of market capitalization. That's basically adding more than a Berkshire Hathaway in less than two months that took six decades to build. Is that Berkshire Hathaway? This took less than two months to add this kind of valuation. It's a freight train and it really is unclear how far further it has to go. Yeah, I'm not sure if you want to step in the way of this one. Nvidia right now is up another 1%. What would you be more nervous about shorting this one or GameStop? What would make you more uncomfortable? You say this is a freight train. No one wants to step in front of it. What would make you more uncomfortable? Probably in Nvidia, but at the same time, I don't understand GameStop. So the same time I don't think I'd really want to do either. I'll take it. I'll take a rain check on that. Yeah, exactly. You cannot sit that one at home and video right now as positive by 1% in the free market you scores more broadly look a little something like this we're treading water in the equity market on the S&P 500 going nowhere, money out a little bit higher by a single basis point. Lisa went through the numbers. It's been quite a run over the previous five days, five consecutive days of yields falling down by more than 30 basis points on a ten year maturity over that period, at least for now. Go through the numbers again a little bit later this morning. Want to check in on the euro for you going into that ECB rate decision. Want to weigh 80 on the euro dollar. That is a slightly stronger euro this morning. That currency pair firmer by a 10th of 1%. Coming up this hour, we'll catch up with Christy Miller, policemen as tech pushes stocks to another record at Mills of Raymond James as President Biden looks to shore up US leadership abroad. And Elena Schlesinger of BNP Paribas on the state of the labor market. We begin with our top story and video. A surge to a $3 trillion market cap happened to push U.S. stocks to all time highs. Christine Milne Placement of Goldman Sachs right in this with potentially weaker than expected data on US growth. Risky assets might become more vulnerable to rates indigestion. This would make a dovish Fed pivot even more important. Christine joins us now for more. So, Christine, can you tell me your reaction then to the data we've had so far this week and the all time highs we printed on both the S&P and the Nasdaq just yesterday? Yeah, it's an interesting discussion you're having on the different shades of Goldilocks. I think a lot of the Goldilocks we got in the last year and a half really was inflation coming down with growth being good and growth actually being better than what most people expected. Whereas now I think we are having a flavor here of bad news is good news where growth actually starts to be weaker and it will be really a kind of very thin line. We have to walk here to understand how much weaker growth can hurt risk sentiment. If you look at the macro crisis relative to our risk appetite indicator, they indicate the market is still not fully embracing the slightly weaker growth data, and that makes it vulnerable to a bit of a disappointment. So what we need to understand now is weaker job market data. Is it less job openings or is there job losses and and thus weaker labor market data actually mean weaker wage inflation, average hourly earnings. These are the things we're watching out for. We can pack all of that into a single word we'll hear repeatedly through the morning rebalancing. We've heard from a ton of economists who were talking about rebalancing. Only a very few are talking about real deterioration. And I think the question we've been asked on this program, Christine, for a number of weeks now, in fact, I've put it at a number of months, is what is the difference between a welcome cooling and an unwelcome deterioration from your standpoint with the team over at Goldman? Christine, what is the difference? Well, we are very much in the rebalancing friendly slowdown camp. And the big difference is does the does the consumer remain healthy because the consumer's keeping the economy going. The services PMI yesterday, the ice end was strong. And the idea is that you can have a bit of labor market slowing, which then gives you the benefits of that, which means lower wage growth. But at the same time you don't see job losses, which means the consumer remains healthy, keeps consuming. And I think one of the core reasons why we've been in the more optimistic camp with regard to the economy and also with regards to equities to some extent where we're still overweight, equities is is the fact that the private sector is very healthy. If you look at the private sector financial balance, it's looking pretty early cycle, everything else looks a bit late cycle. The profit margins are high, unemployment rates are low, output gets up, positive risk premia low. All of these things look a bit late cycle, but the private sector financial balance is pretty healthy and that should mean that the rebalancing is possible. As I said, resilience for the consumer. You said you're still positive on equities, given all of the extreme valuations that you highlighted, the fact that profit margins seem to also be late cycle, what would make a change Have you? Yeah. I think, like the longer you investment horizon gets, the more you start to worry a bit about how much equities you want to have in the portfolio. We just rolled a report on that last week. I think if you look on a 5 to 10 year horizon, you need to have pretty favorable macro conditions in the next few years to have equities deliver as good returns as we're accustomed to in the last 20, 30 years. So you need to have a high of being a very big success driving productivity growth, etc. So the longer you investment horizon gets, the more you are wondering the balance between fixed income and equities, the equity risk premium is essentially very low. But because we are late cycle, we always want to stay invested in equities and possibly overweight. The longest possible we found historically looking at late cycle episodes, there's two optionality is you always have valuation overshooting and re leveraging and restructuring supporting markets, equity markets, late cycle you might say. Hasn't that happened already? Hasn't the valuation already overshot? If you look at all fair value model, which incorporates in particular corporate profitability, we actually find the S&P multiple is marginally above the fair value. So so it's from a level point of view comparable of course to tech bubble levels in certain regards. But because corporate profitability is so much higher, we can justify those multiples as long as that's the case. So the longer your horizon, the more question marks there might be. But in the short run, we are we are actually comfortable with the valuations where they are. You talked about different shades of Goldilocks. Let's go there, especially given the question that John's been asking for the past week or so. What does Goldilocks look like in the data that we get on Friday? How much are we sort of seeing the shades of Goldilocks get a little darker, get a little brighter? How do you sort of gauge that in terms of the way that you look at asset allocation right now? Yeah. I mean, I think as you were saying, we have to understand how much the labor market slows and what the kind of good and bad things about the slowing is. Like if we get a payroll number close to 160, which is where our economists are, and average hourly earnings are starting to come down, that that could actually be the Goldilocks brain step that we need in the sense that you don't have a material slowdown that gets you worried about the consumer. Weaken, weakening because we had a few data prints we had a few corporate results that have made the market a bit worried about that and and and you do want to see obviously the right cost benefit. Now, the cost is slowdown. The benefit is less inflation. So so I think that that is essentially what we are looking for in terms of markets so far, we are starting to see a very subtle repricing of growth. So if you look at cyclicals versus defensives, we've seen a major unwind of carry trades. We've seen a bit of a pick up in the VIX, very marginal. So it does seem the market is starting to build a bit of growth risk premium in. So as long as the growth doesn't significantly disappoint, that could allow the market to make progress. So you need to have confidence that the growth picture remains solid, but the inflation is coming down a bit. Christine, before you go, mea culpa time for me from my side. I want to talk about the ECB with you. I never thought the European Central Bank would be able to take rates from negative territory to 4% on the deposit rate facility without causing a big downturn in the economy, some real strength in European peripheral markets. We haven't seen that stress in a big way, in any way, shape or form. Christine, I just wonder what your expectations are now for the ECB and ultimately what it means for European debt markets. Yeah. I mean, obviously the cut today seems to be a done deal that was pretty committed if you look at the data since the inflation data. But but possibly a growth data as well. It's been stronger. So you could say that President Lagarde has a bit of footwork to do today to to kind of explain the cuts and the outlook is certainly likely to be a bit of a hawkish cut. But I think that the short story is we are likely to get that cut. And it's exactly to your point, it's going to be a relief. And this is why we've been leaning a bit more bullish on Europe and euro risk assets because maybe it's not fully deserved with the macro data, but we are going to get a cut and that will help certain parts of the economy that are more levered. And to your question, why hasn't there been more pain? I think two things. I mean, there has been pain in small and mid-caps in certain areas that are more levered. But I think one interesting thing about the periphery and the remarkable resilience of of of periphery spreads as well, is that these economies are doing really well right now because they're very services driven. There's a lot of travel and leisure. We are coming into the summer season trying to build our holidays. Italy, Spain, Portugal, they're actually currently outperforming materially versus Germany and France. Yes. Supporting €10 dollar helps that cause. Christine, thank you, sir. Chris, similar question there. Goldman Sachs, appreciate it. I was wrong. I really thought you'd see that stress on the periphery. You didn't you know who else was wrong? Literally everybody else. So you've got a lot of company. I mean, you think? I think there was a common belief. We've all been sort of shocked that we've been able to get off negative rates without much of a hiccup. You know, the most important thing with the ECB, it's not the decision. It's not the news conference. It's quite unique. It's the hours after the press conference finishes and you look out for a story might come from us and reporters will try and break something. I'm sure when Governing Council officials just start to leak their own personal views about what they actually thought about the meeting. And you try to try and establish how much daylight there is between the president and the rest of the Governing Council. My favorite part about that is trying to imagine just sitting there seething. How could you you went out, you did this wrong. There's also been the aspect of clean up acts that we've seen on a couple of occasions. That's been less the case now and more the case of just simply just to let you know, we're not saying it's going to be a big fight over July and beyond. I just wonder what that sounds like in the hours after the press conference, the weeks and days after the news conference to ACP. Coming up a little bit later. Let's get you an update on stories elsewhere this morning. In case you're pulling back, brace with your horror hack. Sayonara. Hi, John. Staying on the ECB, it is widely expected to deliver a 25 basis point cut at its policy meeting today. A Bloomberg analyst poll showing almost unanimous agreement on a cut. President Christine Lagarde saying last month that inflation in the eurozone was under control following a historic spike. Lululemon shares are rising in the premarket. The athletic wear company reported first quarter earnings that beat Wall Street estimates and raised its profit outlook for the full year. Lululemon also boosted its share buyback program by $1 billion, but the stock has had a rough year so far, down nearly 40%. And a former president, Donald Trump is beating Biden on tik-tok. The former president got 5.9 million likes on his first video posted to the platform on Saturday. His account now has 5.6 million followers. Biden's campaign account, which has posted hundreds of videos since its debut in February, has just 361,000 followers, as do Bloomberg Reif John Harris, thank you. More from your heart in about 30 minutes time. Bizarre state of affairs, right? We want to ban it or sell it, but we want to be on it, too. I mean, also at the same point, baking cookies. UFC Dana White I mean just sort of, you know and what one of these likes and followers really following for, I mean drama policy earnestness. Yeah. Cookie versus UFC. I'm with you. I hadn't thought of that. Big difference. Up next on the program, President Biden making a pitch to save democracy. The end of the day. Most of us, whether we're Democrats, Republicans, independents, believe that America must stand up for what is right. We don't walk away from our allies. We stand with them. We don't let tyrants win. We oppose them. We don't really watch global events unfold. We shape them. A conversation just around the corner live from New York City this morning. Good morning. Live from New York City coming into Thursday, an all time high on the S&P 500. Equity futures shaping up as follows. Unchanged yields up a single basis point on a ten year full 29. And if foreign exchange can be attached to the ECB, euro dollar one awaits 81. And a Savannah's this morning, President Biden making a pitch to save democracy at the end of the day. Most of us, whether a Democrat or Republican, Independent, believe that America must stand up for what is right. We don't walk away from our allies. We stand with them. We don't let tyrants win. We oppose them. We don't barely watch global events unfold. We shape them. It's the latest. President Biden is in France to commemorate the 80th anniversary of D-Day. The president will then meet with Ukraine Zelensky ahead of a speech on democracy and freedom tomorrow. The trip highlighting the importance of foreign policy for the Biden campaign ahead of this month's debate with Donald Trump and members of Raymond James right in this in the upcoming election, if it is defined by geopolitical issues, Biden is likely to lose. We expect the Biden campaign to work to neutralize the multiple geopolitical hotspots and shift attention towards Trump, raising questions on his temperament and leadership during crisis. And Mills is with us around the table at. Good morning to you. Good morning, John. Let's start there with foreign policy. Where does that rank just in terms of voter concerns this year? I think it's probably one of the biggest drags on Joe Biden's re-election. If you go back and you look at right track, wrong track of the country, favorable unfavorable ratings, when you go to see where it shifted from Biden having a net favorable rating to a net unfavorable rating. It was back in the awful withdrawal from Afghanistan in August of 2021. He's not recovered since. And when you look at Trump voters, one of the things that they're saying is that there wasn't the same level of geopolitical issues under Trump. And so, you know, fair or not, that's driving support for Trump. And it is pulling down the polling numbers for Biden, especially among key parts of Biden's base, younger voters. But do you think his execution or ideology? Because what we see from Biden, he's proud of. He talks about alliances, allies, multilateralism. What you hear from the former president is a form of isolationism. And that's going on right the way through some parts of Congress as well. Which one is it? I think it's both. I mean, America First, which is Trump's saying, is something that's really popular with his base. It's part of populism, politics, that is a core part of kind of the ability to appear appeal to a broader swath of voters than Republicans have traditionally done. There's a big bifurcation. You look at the Senate, which is his, you know, more senior, kind of been in D.C. longer, fully supportive of Ukraine and was overwhelming in their support for their last aid package. It was a House of Representatives, the newer members to D.C. that are more aligned with President Trump, more aligned with the MAGA movement. And those were the ones that really did not want to see kind of the funding that went to Ukraine and that got passed a couple of months ago. Tomorrow, President Biden's going to be in France. He's going to be there for the head of the G-7 and he's going to deliver a speech on the anniversary of D-Day. I'm curious about this speech on democracy and freedom. It'll be music to the ears of a lot of the European leaders there. How will it be received, do you think, in the United States? So I think it's important to remind the world of America's power. I think it's important to remind the world of the accomplishment that occurred 80 years ago. I'm also looking at the fact that we are going to commemorate and celebrate the 75th anniversary of the Natal alliance. And so in an American audience, I still think that American leadership is important. But there's also kind of it's the economy, it's the inflation. It's the day to day harder kind of existence as voters that look at this more as a nice to have than a necessary because we have not had that same level of threat that we felt in the immediate aftermath of World War two. One of the questions I get a lot at Raymond James is, you know, we're celebrating the 75th anniversary of Naito. Are we going to celebrate an 80th, especially if there is a second Trump presidency? What I tell them is that something that was under the radar in the defense authorization bill last year was Congress trying to futureproof this? Congress is concerned about the NATO alliance and stripped the president of the power of unilaterally withdrawing from NATO's. So Congress cares about this. Probably more so than the average voter. But there is going to necessarily be a galvanizing kind of impetus from the idea of talking about democracy and freedom. And this is, I think, a big divergence from the last Trump Biden mix up where basically you had the threat of losing democracy as somehow galvanizing voters to get to the voting booth. Is it going to have the same appeal this time around? So I think there's probably going to depend on how much the Biden campaign tries to execute on the strategy. And I'd also say how much Trump talks about it to the extent that he is. Eating out and raising kind of real awareness with January 6th. That was something that helped out Democrats in the lead up to the midterm elections. The Biden focus on democracy didn't rank high with voters, but on the margin. And this election is going to be decided very, very small margins. Biden is going to try to shift the attention to Trump, shift that attention to what we are talking about as it relates to the temperament during crisis leadership of the United States and saying for the next four years, who do you trust more? You might not really have liked the geopolitical risks that have existed over the last several years, but going into the future, the next crisis we hit. Who do you want in the Oval Office? Biden is going to make the case that it should be him. Can we just tease out your thoughts on that so just a little bit more? We've had the Dutch prime minister on this program with a smart orator. And let's make the point that the former president was right. And I'd love your perspective on this. Do you think he undermined the alliance or reinforced it? John, it's a great question because what Donald Trump's number one issue with the alliance was the members of the alliance not paying their fair share in over the course of the last, you know, six plus years, you've seen a dramatic increase in the kind of other members besides the United States increasing their dollar amounts. And so one of the questions going forward is how much does a threat to the alliance really come down to a transactional discussion? And if you get up to that 2% and maybe look at kind of the 2% that was not spent over the last several decades, that shifting that dollar burden. And it goes back to that conversation of a lot of American support. Nate, a lot of Americans want to be the world's superpower. I just don't think they want to be the only ones paying for it. As was said, it's good to see you, as always, at most of Raymond James. Very, very difficult waters for the president to navigate over the next several months. Yeah, it's mind spinning especially. It's it's hard to know whether it was policy or whether it was actually just the way he carries himself. I mean, that's sort of the uncertainty that I heard there from Ed, that it goes back to an actual policy shift from withdrawing troops from Afghanistan. But then there's a question of just, you know, an older person who isn't necessarily projecting strength as in policy or execution. PARAMO Because the former president wanted to do the same thing. I know he got the train going the way it was moving. Yeah. And if you're isolationist, shouldn't you welcome some sort of departure from some of that policy? You're correct. It's about how it's done, probably more so. Coming up on the program, we'll continue the conversation on the financial markets will catch up with Atlanta, Bravo Atomic Bravo on private equity investments in AIG. Look out for that with Dani Burger in just a moment. From New York, this is Bloomberg. Equity futures on the S&P 500 just about to change the fireworks yesterday. Big rally, record highs on the S&P. On the Nasdaq, the team at Bloomberg still counting 2525, all time highs that are close on the S&P 500 so far this year. Can we make it 26? Turn a page and get to the bond market? Two year tenure set here. Premo still counting. Five days of yields declining on a ten year gap by more than 30 basis points over that period. Lisa That's quite a run in the bond market. Yields lower across the curve. It's a lot of rate cuts that are suddenly being priced in. Again, we go back to how much more Goldilocks can get. How much more can this payrolls report confirm the idea of some sort of softening in the labor market? That's not over soft. They can confirm this orderly and lovely decline in yields. That also comes with a rally that you just mentioned. We want to just write. We're going to try and work out what just right actually as on Friday, get people to give us a number what is just right on Friday morning at 830 Eastern time. Let's finish on the euro, Euro dollar 1.76, just a little bit of euro strength going into that ECB decision that we'll talk about in just a moment. Under seven is this morning a busy week of data continues. I services expanding the most in nine months after downside surprises to ice and manufacturing and job openings. The median estimate in our survey expecting today's jobless claims to come in at 220,000. The estimate for payrolls on Friday is still 185 k. We mentioned this briefly 30 minutes ago. Let's do it again. Lisa. It felt like a stretch yesterday. If you told me the headline, I said would have come in the way it had done, I wouldn't have expected yields to drop and equities to go off to all time highs at the close. But that's what happened. And the focus seems to be on the employment component of the ICM services rate that came in a little bit soft. This is when you say what is the recipe for Goldilocks? This is a stir fry. It is not a cake. You can basically choose the things that you want. You can throw them in and it's not going to just chuck it in the work. Exactly. And it just comes out and it tastes good versus actually eating the correct amount of baking soda to offset and salt to offset the flour. And that's kind of where we're at right now. People are choosing the ingredients they want, throwing it in the pot. And what you're getting is a 25th record high in stocks. We're also getting a lovely decline and rally in bonds. It's a low end stir fry because this market's easy to place. Is that fair enough? And you stir fry. Being fed to algo is, but whatever. Something like that probably and ECB rate decision due out in just under 2 hours time. The central bank weren't expected to cut interest rates for the first time since 2019. President Christine Lagarde giving a news conference 30 minutes afterwards. Investors looking for clues on the path forward from here. Because this is not about June, which I know sounds really strange to you that might not follow the ECB, but for most people, they assume the rate cut is done. And you'll see exactly that at 815. This is about what happens beyond July, September and further out, you mentioned all the discussions afterwards, the leaked stories from disgruntled policymakers on the ECB council. They don't feel like their view is accurately reflected. What we've heard in the past month is people were uncomfortable with pre committing to a rate cut at all this month. So now how much do you get pushed back into sort of yesterday dependency? Yes. We're not going to give you any information. That's what I'm curious about, is that going to count is hawkish to basically give a nod to those people who are saying it was a mistake. We've got to be just as opaque as the Federal Reserve. Look, it's going to be interested in this news conference. I think it really is one to watch a little bit later. Let's turn to this. President Joe Biden is in France marking the 80th anniversary of the D-Day landings at Normandy during World War Two. Biden is then expected to meet with Ukraine President Vladimir Zelensky. Tomorrow, the president will deliver a speech on democracy and freedom. We just caught up with Ed Mills of Raymond James. Just feels like the president stuck between a rock and a hard place on several of these issues. Right now. He's going to talk about the importance of multilateralism, alliances, democracy, supporting our allies at a time when what plays well domestically in America, increasingly, you just get the sense that it's isolationism at the moment. Who is his audience? That would be my question for this. You're going to get a complete round of applause from European leaders who are very worried about the former President Biden, former President Trump. We heard about that at Davos extensively. But at home, there is a question of whether it's isolationism or whether people just don't care. It's sort of like being numbed by the sort of inundation of it's going to wreck your world and all of these potential threats. There are a lot of people tuning all of that out and just looking at their empirical experience at the grocery store, the gas station, just in their everyday life beyond any messaging, because there is a lack of trust. And you can feel that in all the polls. You can see that in terms of just consumer sentiment. Top two issues repeatedly in all the polls the economy, immigration, one, two, two, one and two, one and two. Repeatedly, the race is on to invest in artificial intelligence. We saw Nvidia make a big move yesterday. Again, public names like that stock absolutely soaring on Wall Street, but asset managers are looking for other ways to get involved. Blackstone CEO Stephen Schwarzman telling a German newspaper the build out of A.I. will need $1.5 trillion over the next five years. Bloomberg's Dani Burger is with Orlando Bravo of Tomer Bravo in Berlin. Danny, good morning to you. Good morning, John. Thank you so much. And that is exactly part of. The mood here in super return? What does this industry do with air? Do they care about air? We have the perfect man for that. As you say, it's Orlando Bravo of Tom Above Orlando. Thank you so much for joining this morning. Danny. Great to see you. So if you look at these public markets, it used to be a frenzy over all of it. You mentioned an earnings call. Your stock goes to the moon. Lately, something has changed. It's now in videos. The winner. And we're more skeptical about other companies abilities to monetize AI. So did we get over our skis in the promise of AI right here and right now? Well, Danny, I can give you the enterprise view of AI, right? The business view, not the consumer view. Now, if you look at the software landscape, $10 trillion of market cap in software publicly traded companies today, about a thousand companies, some of those software companies have been providing solutions to their customers for decades. In fact, some of those companies are pure AI companies. Now, let's differentiate that. When you talk about Jini, I write the new form of technology, and I this is what's going on today. Many software companies have produced and deliver and introduced Ginnie Solutions to their customers, but they're not charging for them. They're including that in the bundle of their products. Is that a problem? We saw that in Salesforce. That stock sold off because margins are not essentially zero two. Companies need to get better about finding a way to monetize this. Yes, they do. But at the same time, the software business has become you have to continuously add value to your product, not only to fend off competition, but upsell your customers. So this is a good development overall. Today we have $25 billion of revenue coming from our software companies and 75% of those companies have released Genesys Solutions to those enterprise customers. But what you're talking about, it's not necessarily extra profit because they're not charging for it. So that promise of huge, outsized profit, is that a little bit misguided because it sounds like you're saying it's just a continuation of value offering, but you should be able to monetize it later. The key is if you run if you really run an efficient operation, you take all of your engineering talents and your product management vision for that engineering talent. You don't have to move resources around. How patient should we be for that? Because these public markets aren't being patient. What should be the timeline we give companies to figure this out? The investors and we as a big investor in software, a private investor in software, we always look at the panel and is the company achieving the level of earnings that we set out to achieve? And if we are within that, the company can create and innovate and move around resources to fit what they need. Okay. In software in general, Orlando, I mentioned Salesforce having a bit of a tough time, not just the issues with AI, but some concerns there that maybe sales weren't as good. Workday had something similar in the private markets. You see Vista taking a huge write down three and a half billion dollars on one of their online learning platforms. It's these pockets of software stress. What's going on? What happened was, you know, when this happens, Q2 of 2022, that's when we first saw a big drop in new business generation by these companies and drop in bookings. Now, always as an owner, you think about what can you do about it? What we do about it is we protect the piano. We have to come in and cut cost again to protect the level of earnings that we set out to achieve in these companies. Now, those pockets of weakness are also related to the business model of these companies. You look at Jenny and you look at a technological shift in the enterprise software world, but also in business model transition. And people don't talk enough about that. Companies that charged by the user are going to be more challenge that companies that use other forms of operations are. Are you still in cost cutting mode now? We always are protecting the PNL. Not right now. We have to do that again in 2022 and it's much better to be early so you don't have to chase your earnings that way for the environment improves. You can come back and invest. Anything private in the environment stays the same. You can basically run your business profitably. I have to be honest, Rolando, when I've talked to a lot of folks here about AI, a lot of people have said it's not not as big of a topic this year. Maybe it was last year. We're not really thinking about it that much. Is this industry behind and having an AI game plan? Do you think? All of these various private equity companies with portfolio companies, do they need to have a plan for all of them? You need to have any AI game plan. In fact, in the SAS era, which really got started in 2010, a bit before that, we used to say that every company needs to think about becoming a software company or their digital side of their business. Now we say that every company needs to become an intelligent software company, and if you look at the buyers of our companies, all the exits we've had over the last 18 months, many of them are industry buyers that are looking to transform their companies through software. But there's some of it that's academic Orlando Like, I don't I don't need my refrigerator, for example, to have I do I mean, isn't some of this we're selling a dream that's not really there sometimes. You are. That's where. See, that's why there's so much value in the software incumbents. There are two reasons for that. The software incumbents are working with their customers, thousands of them, sometimes the entire Fortune 500 customers on solving an important business problem today that they have in a given use case, any given horizontal in cybersecurity or in a vertical. Those are the companies that are in the pole position as a trusted advisor to develop Jini solutions that actually add value to those customers. And secondly, are really important. Something became very valuable in software enterprise, and that is data proprietary data. Many of the companies you mentioned are sitting on proprietary data that they can use from their customers that can be used to develop Jini solutions and train these models. Well, that huge, vast treasure trove of data. It's no secret. It's something that regulators have looked at with consolidation in this industry, and investigation is opening up now. We heard this today with Microsoft and Open Air. It's been a lot of concern about antitrust. How big of a head one is it to you? How have you had to approach investing differently given what's happening down in DC? Very differently. And we take a practical view towards antitrust and the regulatory environment. This is the thing. It's a fact based approach. If you're a senator and you believe you can get a lot of value by selling that company at the right price, and if you're a buyer and you think you can add a lot of value by buying that company, you just have to appreciate that that there is a public policy underpinning environment towards this and you have to live with it. So are there deals you haven't done because of this? Most of the time, no, because if the facts are right, you have to go forward with that. And being willing to be creative, collaborative with the regulators and the regulators are smart. Now, they may look at your deal. It may take nine months to close a deal. Instead of three months, it may take a year to close the deal. But for something that has values, you have to just look forward to that and and put out the facts. Do you think this regulatory environment is a problem, that it's problematic, that it's gotten this much more scrutiny, this many more deals blocked? I don't think the regulatory environment itself is actually a problem because software is a highly, highly competitive industry and the regulators are experienced in doing deals. Is the regulators actually understand this industry really well? So in our field of enterprise software, it's not a problem. The problem is when buyers and sellers want to completely shy away from doing the work that it takes to explain it so they can move forward from there with their transactions. We know of a number of very large strategic buyers that from a management perspective, just don't want to deal with that environment. Give us some names, Rolando. I can't you know, I can't because many of those are partners and buyers in our companies. But but look, once again, we get paid to undergo these processes and to adapt to these processes. And it's really important the buyers and sellers do that. Okay, Rolando, we're going to have to leave it there. Thank you so much for joining today. Really appreciate your time, John. That is Orlando Bravo, the co-founder of Tama Bravo, talking about this regulatory environment. It's changed things, but he says those that are struggling are not doing the work. Danny, great work. Fantastic work at this conference over the last couple of days. Really appreciate your time this morning. Thank you. Dani Burger that with a bravo of Tomer Bravo. Let's get an update on stories elsewhere this morning with your Bloomberg brief as you hire a hacker. Sarah. Hi, John. The rally has gone global. Dutch Dutch chipmaker ASML surpassing luxury giants LVMH to become Europe's second biggest listed company. Shares jumped over 8% on Wednesday after ASML confirms deliveries of its high powered CHIPMAKING machines to its largest client, TSMC. Each machine costs €350 million apiece, or just over $380 million. As for LVMH, shares have fallen over the past month on concerns of a slowdown in luxury sales. US regulators are investigating whether a deal Microsoft struck with AI startup inflexion may have been structured to avoid scrutiny. That's according to the Wall Street Journal. Back in March, Microsoft agreed to pay the startup $650 million to license to, say, software. This coming after the US company moved to hire much of Inflexion staff. The Wall Street Journal saying the FTC is now seeking information about how the tech giant negotiated that partnership. And good news for New York City commuters. New York Governor Kathy Hochul passing the state's first in the nation congestion pricing plan indefinitely. It's a stunning reversal for Hochul, who just weeks ago touted the plan as a way to reduce traffic. The program was set to roll out later this month with almost all of the toll systems already installed. The program was expected to raise $1 billion annually to help modernize New York City mass transit. That's your Bloomberg brief. John Yeah, thank you. More on that story about 730 Eastern time. Brahmos That's just around the corner. Things to say. Oh, yeah. Up next on the program, the labor market softening, thinking about where we are right now. I think what we have to keep in mind is there are an assortment of data that actually are suggesting that things are looking a little softer. From a labor market perspective. The words you will hear repeatedly this morning. Rebalancing and or normalization. We'll talk about what those words actually mean up next on the program, live from New York. This is going back. We've had a ton of economic data already this week. There's more to come. Jobless claims a little bit later this morning can get into that. And futures just about unchanged on the S&P under seven is this morning. The labor market Selznick thinking about where we are right now. I think what we have to keep in mind is there are an assortment of data that actually are suggesting that things are looking a little softer from a labor market perspective. Now, look, I've let me hasten to add, I think on Friday, I think you could probably see about 200,000 jobs being created. I think this is where the Fed comes into play. And I think this is why the Fed wants to start the process of taking back some of that tightening in a different place. So here's the latest. More labor data on deck with jobless claims at 830 Eastern as we push ahead to tomorrow's jobs report. The median estimate and Bloomberg survey calling for payrolls to rise by 185,000. The estimates on Wall Street look a little something like this with the Elaina Schmidt chapter and a team at BNP Paribas expecting a print of 200,000. Jelena is with us around the table. Yellen, good morning. Good morning. The word we've heard repeatedly rebalance another one, normalization. Is that what they says? That's the word of the day. I think that's what it is, really. We are normalizing from a big swing between March and April. That could have been Easter related. But also, we are normalizing from the pace that really probably overstated what the true, you know, state of the labor market is. I think we're going to a more normal, gradual pace of job creation. What gives you confidence that we stabilize at this more normal kind of level? What does that come from? I wish confidence was the other word of the day. And, you know, we'll hear from ECB and the Fed later, but they are talking about confidence. That's what they want to to do. But there's no confidence. We are getting into the area, into a very dangerous area, I would say, at an inflicting point where we could see more slow down in the labor market, an increase in unemployment because we are below 5% on the openings rate, on the vacancy rate. So the JOLTS data we received earlier tells us that it's getting to a very dangerous point at which we may see a little bit of a worsening in the labor market, not just rebalancing. Let's quantify that sort of tipping point that you you really identify in some of your research as being right now. If you start to see a tick up, not from the expected 3.9% of unemployment, but to 4.1% for this month, for next month, you could see a shift in terms of your view of the economy. Can you take that out a little bit more? Sure. So we are expecting 3.9% in the jobs report. But if it goes up more rapidly, like 4.1% in both May and June, that could potentially trigger this same rule. Right. So and we know that that's not a good thing. So it's all about the speed of the increase in the unemployment rate rather than the actual level. So if it rises up very fast, that could trigger that same rule when you know, you have your current increases in the unemployment rate relative to the 12 months minimum. We were talking to Tom Porcelli, as you saw yesterday, and one thing we were talking about with him is do you feel any more clarity now about what's going to happen in the second half of the year than in January? Do you I feel more clarity about what's going to happen in 24 rather than 25. So let me tell you that. But it's a start. I think what gives me a little bit more confidence about the state of the labor market and the state of the economy overall is the consumer. Consumers are doing fine. You know, if you look at some numbers, some good spending that is going, you know, a little bit weaker, but at the same time, you still have the economy where people would want to spend on services that should support leisure and hospitality sector. People want to travel. People want to go out. Okay. So let's go there. You talk about the ESM services. Basically this idea that you can tell there's been a little bit more heat. And we were talking earlier about how basically you can pick and choose the aspects of all of these data points that you want. Throw them in a pot and get the Goldilocks that you want. I mean, how clear really are some of these indicators, given the fact that they conflict with each other and have internal conflict at the same time and they conflict with the actual data as well? So that makes our life very easy, of course. But I think there is some signal in the survey data that people are feeling the fatigue from, you know, high inflation. They still think that inflation is going up, not down. So even though the actual data is telling us otherwise, I think we're going to see a slowdown in economic growth where 2%, around 2% of GDP growth. And I think we're going to see a little bit more of a significant slowdown in consumer spending in the second half of. Year because delinquencies are going up and there's still inflation there. But I think at the same time, we're not going to see like something really bad because balance sheets are still great. Consumers are still in the good position. You know, nobody's paying interest rates that are currently. You know, we see they're paying much lower interest on the debt payments. I think we're in that soft lending kind of scenario right now so we know what to expect from the ECB later this morning. It's a rate cut and a big fight about what to do. Beyond that, what you're looking for Fed Chairman Powell on the FOMC next Wednesday. We've got all these forecasts while you're talking about a low conviction outlook beyond 2024. They've got to put some numbers on that. What does that look like? So our baseline is for full cuts next year, but that could change easily to hikes if some, you know, policies that have been talked about are implemented. So election dependent outlook for 25 totally. So we see one rate cut in December just because of the election. The economy may be ready for a cut in September, but if you are sitting there at the table and you know, the staff is presenting different kind of outlooks for 2025, which one do you choose? You're better off waiting until December. But for 25, you know, if a lot of this policies on immigration, tariffs and things like that are implemented, it's very inflationary. So our team did some analysis recently and we see almost like a 5% percentage point increase in inflation if you know, the 10% tariff. Five points. Yes. So it's obviously it's an extreme scenario and probably we're not going to get the full extent of what, you know, the policies are expected. But still, it's a very inflationary scenario, not so much impact on growth. So if that happens, the Fed would have to react. So you think November could be the difference between cuts and hikes in 25? Well, if we're lucky and we get the results in November, so that could be a little bit of a wait there. Based on the recent history, but seriously speaking, we should get a little bit more clarity by the December meeting. And that's going to be a very interesting one. I think we'll get a hint of what the Fed is thinking at Jackson Hole. I think that's going to be a very interesting event as well, because we'll get a little bit more clarity on inflation, I hope, with a few more readings there. The labor market is at inflection point now, so we'll see which way it goes. And I think it's not going to be a policy move, policy action, but at least, you know, they will tell us what to think. Elana, thank you. Appreciate it. Yellen I should add, Sander, there have been people are echoing Adam Posen of the Peterson Institute. It was on this program a few weeks back, and they're not alone. We've seen other estimates, too, from Deutsche Bank and others saying that depending on who becomes president, you could see inflationary policies that reach a certain point. That said, I'm going to channel Anne-Marie. If she were here, she would say it all depends on the mix of Congress and whether you get a house that goes with them or not and how quickly those those kinds of policies could be implemented either way. All I can say is when you start looking at tea leaves like Atlanta Fed GDP now, it was 4% two weeks ago and now it's 1.8%. It's a big change. Try to get a sense yet the narrative all over the place. Coming up next on this program, Jake Pulaski of T.W. Bloomberg's Mandeep Singh, Bank of America's Francisco Blanch and Iligan of BMO. All of that coming up in the second hour. Up next. With job openings coming back down towards normal. So that's kind of a good thing. We want the labor market to normalize and economy is normalizing. It is decelerating, but in a sort of a bumpy way, even within things like the soft data, you get these five vacations. It's a it's a tough environment. I think we're in a much more normal environment right now. It's not higher for longer. It's normal for longer. This is Bloomberg Surveillance with Jonathan Ferro, Lisa Abramowicz and Annmarie Horden turn. How many times have we heard that? We've heard that line repeatedly live from New York City this morning. Good morning. Good morning. The second hour of Bloomberg Surveillance begins right now. Equity futures unchanged on the S&P coming into Thursday at all time highs. That phrase normalizing with rebalancing. So when you look at a soft ADP job openings delivering a downside surprise the employment component and I sense services a bit softer, too. That's not deterioration, apparently. That's calling rebalancing. It's normalization. Let's put this another way. We don't really care what it is. It looks like it's pretty good and it's going to keep the stocks going up and bonds going up, too. So let's go. And that seems to be what the market's sort of been looking for for the entire year. And that seems to be at least based on their interpretation of the data, what they're getting. Will we get more of the same a little bit later? Let's go to the calendar and check in on things later on this morning. Jobless claims at 830 Eastern Time. Before we get that, we can make the right decision. Then tomorrow, it's payrolls Friday. Sneak peek of the data in our survey. Still 185 is the estimate and the G word, the fairy tale, Goldilocks when it's Goldilocks tomorrow morning. Well, we just heard 160, 160,000. That was from earlier this morning. Christian Glassman Miller, we also heard about this idea of 125 to 175 as being Goldilocks from other houses. Unclear. You've got to look at the internals because clearly that was what allowed bonds to rally. And stocks rallied yesterday on the ISM services data. So we're going to pick out one data point underneath the hood of the headline number after this report. This is my prediction. I'm gonna say this is actually the most important thing, not the headline. That's what I'm going to guess is going to have to think. Over the last few days, we've confirmed the bias of this market that it kind of wants to rally. We have I think the question now is how much have we already baked in a downside surprise and nonfarm payrolls? Have we basically baked in a whisper number into yields going as much lower as they have and based on rate expectations coming up more significantly over the past couple of trading sessions, is the bar that much higher on Friday to surprise to the downside? Let's get the market brought up and check in on the scores and go to the bond market. Let's talk about a ten year maturity has been covering this over the previous five days, five consecutive days coming into Thursday of yields falling, a move of more than 30 basis points on a ten year maturity on a two year front end of the curve. We've had a double digit basis point move as well. So I think by more than 20 basis points or something like that over the previous five days and the commentary has shifted. Peter Scheer put out a note yesterday that I thought was really interesting, changing his call and saying that he now expects a rate cut in July next month. This is suddenly the gravitational force after, you know, frankly, Torsten Slok over at Apollo got the main stage saying that we're going to be no rate cuts. Suddenly people are bringing them forward that quickly, which just gives you a sense of why you're seeing this reaction in the bond market. There's been a complete reset of that framework that we had just like a week ago. What was interesting about the chair call is that he thinks Chairman Power next week puts July firmly on the table. Yeah, that's what he's looking for in the news conference. That's interesting to me because we might get a dot plot. The signal is not to cuts this year might signal just one but he's talking also about the political aspect of this. And I thought that was interesting. And he said, you know, people saying that the Fed is apolitical, hogwash. They're going to want to make it look like they're not political because that does affect their independence and their ability to go further. So if they want to get started, July is really the time to do it because September's a little too close to the election there. They're the people who used to say that and then their people come out and they say, Well, you know, the Fed is independent, so they don't consider these things. Well, I mean, they're human. They're human beings that have eyes and feel and see. And, you know, these ramifications go to the heart of credibility of the institution, which is important. It's coming out coming up this hour, quite an hour for you to tape. Take the loss as stocks post fresh all time highs. Francisco Blanch of Bank of America as Opec+ defends its decision to boost production and Bmo's Ian Lincoln looking ahead to tomorrow's jobs data. We begin with our top story. All time highs for the 25th time this year in video surged to a $3 trillion market cap powering the s&p 500 to yet another record. C p WSJ poloz keep writing this. Inflation is yesterday's problem. We focus forward onward on a return to economic stability coupled with a clear early cycle outcome as global manufacturing picks up. A good friend of mine of this program of ours, Jay Pilarski, joins us now. Jay, it's good to see you that early cycle call. Let's start with that. What tells you that early cycle, not late cycle. Well, John, I mean, you talked about in the video and semiconductors are considered an early cycle indicator. Where are we? That market is hot. You go to exports and South Korea and Taiwan also considered to be early cycle indicators. They're up significantly. Just as as an aside, South Korea's exports of semiconductors were up 55% year on year. Then you go to the two regions of the world which have been problematic, Europe and China. And both of them are clearly accelerating and picking up. People were very concerned about a European recession. That risk has been truncated. I would note that European stocks hit an all time high, also, not just the US. Remember, we listen to stocks, not VOCs. And then you look at China in the PMI numbers that just came out earlier this week, significantly stronger than what we're seeing in the United States. So we believe we're at the beginnings of an inventory restocking cycle in the United States. B, of A, just put out a great chart that showed that the inventory supply level in the United States is at the lowest point it's been in the last 40 years. One of the four lowest point, rather, in the last 40 years, suggesting we're about to see a pickup in a restocking. And so to us, we have what we call the return to stability. Everyone else uses normalization. We talked about a return to stability back in November. It's our third surprise for 2024. It's playing out in the fourth surprise was early cycle and it too, is playing out. Do you think the bond market move over the last five days or so just speaks to that, this move lower of more than 20 basis points at a front end and 30 basis points plus on a ten year? Well, I think the bond market hasn't really been a very good cow over the last couple of years. Right. And so it's gyrating. It's trying to figure out where it where it wants to sit. I think what's important, John, is in the marketplace. A lot of technicians pointed out the 4.35% level on the ten year as an important level. And if rates were to break below that, that would signal an opportunity to get into beta. And that's what we've seen over the last couple of days. I think that helps explain yesterday's action. And I think it suggests that the market feels very comfortable here because it knows it now has the Fed, you know, in its back pocket, so to speak, in terms of a Fed product. And so you have a situation where earnings growth is very solid. And we've discussed this many times. Earnings are what fuels stock prices. Earnings outlook is very robust, not just in the U.S., but globally. And so you have a robust earnings outlook and you have a Fed and an ECB that are going to cut rates. That is a pretty good environment for growth and a pretty good environment for risk assets. Well, Jay, a lot of people would say that, you know, profitability is doing great. If you look at one name and that is in video and we've seen that share at more than $1,000,000,000,000 of market valuation since the middle of April in less than two months. That is more than the entirety of Berkshire Hathaway in its current iteration. How much do you really see this as sort of a one stop train that is not percolating out into the others versus how do you then extrapolate out and say, no, this is going to benefit everybody, even though we're not seeing that yet in the numbers? Yeah, I know, Alison. It's a great question. First of all, you know, we're big believers in the age. We think we're in the first inning. We're Dan, I've span we believe we want to be in the pick and shovel of the digital and physical realms, and that is semiconductors in the digital space. And then miners, copper miners, uranium miners, silver miners, etc. in the physical space to help our air factories of the future, also known as data centers. So that's a massive, massive theme of ours that we're playing both in the digital space and in the physical space. Regarding earnings, the point that I would make is that when we look out over the next couple of years, we're not all that concerned i t bw about what already happened. We're much more focused on what's likely to happen. And what's likely to happen based on consensus is that we're going to have double digit earnings growth not only in 2024, but also 2025 and also 2026. And not just us. Sorry, just to finish real quick, not just in the U.S., but also in Europe and in China for 24 and 25. So this is a global earnings acceleration. J I do want to say that it is a dream of mine to get you and Danny in a room together, and it just won't be the sort of explosion of a room can handle that. Yeah, I don't think I don't think it can really contain the bullishness. It would just sort of destroy the walls with just, you know, glory. There is this question, though, J, about how much valuations do affect where you're going and where you're sort of more heavily weighting things you're saying around the world. It's going to be this incredible boom in productivity and and joy. And I guess is it still in Europe or are you still pretty heavily going into China? Yeah, well, you know, we are big believers in the two tech stock divide. These is right. China is walling off its tech space. The Wall Street Journal just did a huge article, I think, on Tuesday making this exact point. So we're very bullish on China Tech because China Tech is a huge market. They understand they have to participate in AI. Everyone must have an AI capability. And remember, in our tribe, all the world, this is a regional integration. And Asia, Europe in the Americas, these buildouts of semis, of EV plants or battery point ads, etc. are fueling public and private sector investment around the world. And so we're actually writing our monthly right now, and our focus is on who will win the second half of the 2020s. So we're looking from our global macro blue sky outlook, which we've already elaborated on 2023 to 2027. We're now extending that to who will win the second half of the decade, 2025 to 2030. And it's going to be the countries in the regions which integrate public and private best. And so it's fascinating your prior guest barking about the implications of the November election. It would be it would be amazing, frankly, for the US to take the gift horse, you know, out of it. I'm not sure what the phrase is, but to really miss the opportunity that is being presented by what I think is White Way, which is a Democrat sweep, which will re and will continue the policies of the present administration, which have demonstrated that they get the point that we have to move fast and we have to move back, trying to get to the point it's moving fast, it's moving back to Europe. We'll see if they get the point. European parliamentary elections, five year budget. Up ahead, Mario Draghi report on what's needed. It's a really fascinating time to see who was going to best integrate public and private, best integrate their regions to compete in a world that is moving very, very quickly with very, very high stakes. I don't remember the phrase either, but I understood the sentiment. Jay, thank you. So a philosophy at t for advisory. Appreciate it. Super constructive audience wanted to hear from him. There he is. Well, yeah, and I'm getting a lot of messages actually about it. Some people disagree and they would point to certain things. I, I just think it's refreshing. I think that we thought we needed it yesterday but evidently didn't because plus he basically got all of his friends on board yesterday and everyone rallied around this excitement. Yeah. Record highs. Yeah. 25th time this year. Still counting here at Bloomberg. I love that. Every time I see the update, it's 25th time, 26. A little bit later on the S&P 500. Let's give an update on stories as to why this morning in case you've flown back, brace with your horror hackers. How are you, Ira? Hi, John. President Biden is in Normandy, France, to commemorate the 80th anniversary of the D-Day landings during World War Two. It will be the longest visit to a single country of his presidency. Biden is set to meet with French President Emmanuel Macron, as well as Ukrainian President Volodymyr Zelensky. On Thursday, he'll look to link the historic backdrop to Ukraine's current struggle against Russia's invasion. Elon Musk's A.I. startup is looking to move to Tennessee X. A.I. is planning to construct a facility in Memphis to help a supercomputer. It's part of the company's plans to bolster its A.I. capabilities as it works to build and offer chat bots and other artificial intelligence tools. Many details about the facility are still under wraps, but local officials are touting it as the largest multi-billion dollar investment in Memphis history. And after a year of setbacks and delays, the Boeing Starliner is bound for the International Space Station. The space taxi took off Wednesday from Cape Canaveral with two veteran NASA astronauts on board and is expected to dock at the SS just after noon Eastern today. The launch went off without a hitch and some much needed good news for Boeing, which has seen shares fall over 25% year to date. The Starliner success provides NASA with a new option for delivering Cruise to and from the space station. More than a decade after the space shuttle was retired. That's the Bloomberg brief. John Uehara, thank you. Appreciate it. Update from Space X as well. I know a few of you out there very keen to watch the launch of the Monster Starship Rocket. What's this, the fourth time? Lisa Yeah, New Target launched 750 local So that's 850 Eastern time. I'm actually really excited for this one because it's basically going to be a focus on reusable parts and this has the most powerful engine. It potentially further the race to Mars, the largest, most powerful rocket ever developed weather conditions, SpaceX says 95% favorable. The webcast will. Go live 30 minutes ahead of liftoff. For those of you that want to truly engage in that a little bit later this morning. Up next on the program is Jen sanity from Nvidia in media and Jensen. That's the new age. I mean they are they're where Apple was when they launched the iPhone in Egypt. You chips right now it's the new gold the new oil when it comes to the U.S. Jay Polaski in that coat. Wow. I just know that his background probably would have been a pattern for dad, I'm sure, in a different color. Yeah, like swatches. Oh, yeah. Yeah, that's. I'm with you. That conversation's up next. As I often say, not this one, but you know what I mean. From New York, this is Bloomberg. One hour, 12 minutes away from jobless claims in America. The next data point to really gauge what's going on with the labor market before the big one tomorrow morning. Payrolls just around the corner. Equity futures got into that totally unchanged on the S&P. Yields a little bit higher, up two basis points on a ten year for 2929. Big moves in the bond market. But grabbing all the headlines yesterday, all time highs on the S&P 500. And this event is this morning is Jen's sanity for Nvidia. Nvidia and Jensen that's in the weeds. I mean they are there were Apple was when they launched the iPhone. And when you look at Jensen that's not someone you want to bet against which speaks to I think when you even broaden this out what it means for the rest of tech for software, because now the baton is being handed software, Nvidia, new chips. Right now it's the new gold, the new oil. When it comes to tech, God love Dan Ives. Here's the latest. Nvidia shares rising to a record high and powering a rally in big tech. The company becoming the first chip maker to hit $3 trillion in market value, passing Apple to become the world's second most valuable firm. Mandeep Singh of Bloomberg Intelligence is with us this morning. Manti, good morning to you. How relevant is that milestone for this company? I mean, it's huge in terms of what a chip maker can accomplish. And, you know, we thought back in the day Intel was the best prime for such a feat. But Nvidia clearly has taken the charge and they are executing to perfection. And look, it's hard to dispute when you are growing at that scale. You know, 100 billion in datacenter revenue expected to do 200 billion in the next three years. And when you compare their cash flows to Apple, which is also a $3 trillion company, they can have the same cash flow, 100 billion in free cash flow similar to Apple, whose revenue is 400 billion and they generate hundred billion in free cash flow. So that just goes to show they are doing it at high margins, which is unheard of in the semi space. Just to build on that, it is notable that we've achieved this milestone through earnings and not through multiples. I think if we'd said this 12 months ago, a lot of people maybe wouldn't have made that call. You've been talking about this for a while. I'd like more color on it. These things come in cycles, but when it comes to this company, we don't really seem to be talking about that. You've been asking the question for a while. How long is this runway? How long do you think it is? Well, so that's where I think there's a question mark. When you compare the Microsoft's 200 billion in revenue, which is a recurring revenue versus an Nvidia that is going to do 100 billion in datacenter revenue. But everyone agrees with that, that there's no guarantee it's going to be a recurring revenue because in the end it comes down to CapEx spend. So 40% of Nvidia's hundred billion in revenue comes from five players who are spending their CapEx. Now, Are they going to keep growing their CapEx 30, 40%, which is what is baked into the estimates up? Time will tell. We haven't seen this sort of steady CapEx, you know, increases ever. I would say CapEx is always you have two or three years of high CapEx and then there is a digestion phase. And I think that's one that's what's going to play out this cycle too, because you want to see the ROI on that CapEx. Yes, the Hyperscalers are seeing that our way in terms of Microsoft generating tangible air revenue. But the other players downstream, we saw Salesforce and some of the application software companies miss. So even though they are investing in generating money, they're not seeing the revenue yet and companies are actually substituting their software spend for investing in Nvidia's AI infrastructure. So there is a lot of substitution going on and at some point I think there will be a digestion phase. There's a lot of interesting, interesting points to unpack. You talk about if you're not seeing other companies that are not in the chip sector really benefiting tremendously from some of the artificial intelligence advancements that are being made, that's going to reflect badly on NVIDIA and is going to eventually reduce some of the demand. Do you think that this is sort of a reversal of what we've currently seen in the market, which is invidious gains will soon percolate out to the rest of the world, as we heard from Cathie Wood, for example, yesterday. You're saying it could be the opposite, that the rest of the world isn't feeling it and that's going to eventually come back to India? Well, there's a lot of disruption that's going on. I mean, look, IP spending doesn't grow 20 to 25% every year. So that's where, you know, the CPU to GPU substitution is already happening. Things are getting substituted on the software side. Everyone is thinking, do I really need to buy that million dollar software contract? Then I can do things differently using generator. So there is a pause in terms of looking at how generally be able will disrupt the existing workflows. And that's where, you know, there will be winners and losers. Nvidia will be a winner. It's just it's not going to be without bumps. That's hard to imagine them going from 100 billion in datacenter revenue to 200 billion in three years. It's hard to imagine them increasing the market cap by $1,000,000,000,000 in less than two months. I guess that another way to frame this is how much growth. What is the growth path? It's being baked into the valuation as much as it's risen over the past, say, year. But the 25% figure I just mentioned. So 100 billion in datacenter revenue, it's a given. Can they double it over the next three years and really going to be at a steady 25% clip? My prognosis is probably not because that's not how companies spend their CapEx budgets. And right now it's a case of Hyperscalers lifting Nvidia and NVIDIA lifting Hyperscalers. So it's it's actually great that, you know, all the Hyperscalers are spending their CapEx in tandem because that's what's driving that big lift in Nvidia's revenue every quarter. Let's see if Amazon pulls back their CapEx next quarter, that's going to have a dent on Nvidia's estimates. They can't keep going because it's a $5 Billion contributor to Nvidia's datacenter revenue. So the risk here are if China revenue pulls back a lot more than what consensus expects or if one of the hyperscalers pulls back. Sovereign, they keep touting sovereign. A lot of their sovereign data is on premise. How do you feed it into the A.I. systems? Like you're not going to see a return in the next 12 months? It takes a while to just aggregate. The data that you need to feed into. A sovereign is a catalyst, but I can't see everything panning out perfectly in the next one year. We could get some pick up slower if those kind of things happen. Can we just finish on this acquisitions, something I know you're thinking about ability, willingness, acceptance. They've got the ability, they've got the cash. Tell me if they got the willingness and would they get the acceptance? Absolutely. I mean, look at their Mellanox acquisition that they did in 2018. That's one of the reasons why they keep raising their ASPs, because they're selling you a system, a cluster that's, you know, full of GPUs and networking and you don't have to do anything, just plug it in and you can start training your models. They tried to buy ARM. Remember that acquisition that didn't go through with the stock at this price? I mean, clearly they could buy anything, but I think they should be looking for tokens because that's the only way you keep expanding your product. And that's paramount for a company like Invidious. The third piece of wonder except approved, would it get approved? I mean, right now we have the top regulator in the US yesterday talking to the Financial Times about how they want to go after a whole host of different big tech companies. Hint, hint, Microsoft for recent non acquisitions that look like acquisitions. It seems like the screws are tightening just a touch. It's difficult in this environment to buy an entry level luxury handbag maker. I don't know how much trouble in fitting would have. Mandeep Singh, thank you, sir. Appreciate it. Coming up on this program, we'll catch up with Bank of America's Francisco blanch on Opec+, his latest decision. From New York, this is Bloomberg. We are 45 minutes away from an ECB right decision, one hour away from jobless claims in America. The scores coming into all of that. Look, a little something like this. Positive by 0.03%. Adding some weight to the record breaking rally of yesterday on both the S&P 500 and on the Nasdaq, too. The Russell down about a third of 1%. Turn the page and get to the bond market. The two year, ten year, 30 year having quite a rally over the last week or so. Five consecutive days of gains rate, ten year Treasury yields a whole lot lower, Lisa, over the last week. And this is basically on this feeling that we're going back to the Goldilocks that people had rejected. It's basically the retracement of some of the rise that we had seen in the previous week. I mean, the whipsawing action that we've seen just shows how much people are sort of clinging to each data point in the narrative shift, the ping pong, the roulette that James Athey talked about, that they're looking for confirmation that all the data points this week, it's confirmation of the soft landing once again. Yes. We just want to see more of that. Will ignore the headline strength in the ice and look to the employment component, because that's where the weakness says the two year right now is for 73, very close to 5% at the end of May. And we've come all the way back down again. Let's turn to the euro. I want to finish on that. The euro against the US dollar going into that ECB rate decision later virtually unchanged, 1.67 on euro dollar right now cut into this one and this event is this morning counting down to that ECB rate decision about 45 minutes away. The central bank won't be expected to begin its rate cutting cycle with all eyes on Christine, the case news conference for clues on the path forward for the rest of the year. I want to understand what kind of fight took place, not actual fists and stuff like that, but what kind of verbal battle took place in Frankfurt, Germany, going into that decision about July and beyond. And the signaling about whether they did want to give some sort of hint about what they were planning or whether they wanted to sort of be as ambiguous as possible in order to preserve all potential outcomes. I agree with you. I think that's going to be interesting. I also think it's interesting that people seem to be shifting on the margins, their view about how much the European region can cut and frankly about the US not being that far behind. Ian Shepherdson Over at Pantheon Macro, this thought I thought was fascinating. He expects the euro to weaken by 8% to 118 by year end because he sees the Fed as easing faster than the ECB. So right now try to understand what the ECB is doing, try to understand the geopolitics, bake that into a euro call. You can have some people calling for parody, other people calling for almost one. Yeah. And you hear central bankers themselves talk about their ability to go alone, but also acknowledge at the same time the limits of divergence. And I think we mentioned the Bank of Canada sort of a snarky way yesterday. The Bank of Canada did address this issue. Yes, we can go without the Fed, but there are limits to the divergence. And they talked about how if they get the data that they're going to get, they probably will cut again with the nod also to the Fed. I will just say I was not being snarky. I really enjoyed Bank of Canada. I actually thought that James, like the one guy who wanted to cover that yesterday, there were there were other people who wrote in to more like thank you to people we've seen. But, you know, to me, I really do think that there is a signal here, especially because they're the first and the balance of risk seems to have shifted their first G-7 central bank. And we're looking for the ECB to follow a little bit later. Shares of in video Rising once again, the company becoming the first chip maker ever to hit a $3 trillion market cap, Apple retail and in that club to eight days of gains driving the iPhone maker's market cap pass 3 trillion for the first time since January. Early this morning I went through some of the numbers, the market cap and the top five. It's absolutely ludicrously said Microsoft 3.15 and video three. Apple 32.18 on Alphabet. Amazon 1.89. Let's just sit on video just for a moment. I thought my step just sounded crazy there. We're at 900,000,000,012 months ago. Yours is even crazier because it's where we were just a month or so ago. It's just insane. The idea that we've gained $1,000,000,000,000 market capitalization since April 19th is just lunacy. We're talking about them adding, you know, another big tech company in terms of valuation. I think that actually Mandeep Singh had some of the most profound things that really made me think, especially because of this virtuous cycle between in video, Apple, Microsoft, as well as Google. It just feels like they're all benefiting each other and there's a cycle that's going and there's still a belief in the cycle. If it is up about 2% this morning in pre-market trading. But you just wonder what makes people rethink that and then how vulnerable index levels are to some sort of downdraft given how heavily they're weighted. It's strange how normal this is, right? You don't even need a catalyst. It's just up another 2%. Why not in the premarket on a sense of this story, New York Governor Kathy Hochul pumping the brakes on a plan to charge motorists $15 to drive into the busiest parts of Manhattan. The congestion pricing plan was set to begin at the end of this month, citing inflation and financial pressures for the surprise U-turn. Driving below 60th Street was going to cost you 15 bucks. This is what Axios says this morning. It came down to two things not one, it's not just about inflation. It was about crime. It's a lot of people that just do not want to use public transport and wanted to drive. And there were people who are complaining. Why is there some sort of sort of deal for people who live in it, live in Manhattan, and can park hard to avoid some of these fees? There's another aspect to this, too, which is politics and the election and how much this was a concern about the Democrats losing the mid-term local elections on the wake in the heels of this. Why would it come now? You think that inflation and cost of living have suddenly surged to that much in the past month, that suddenly it's a crisis? I mean, clearly there is a nod to the political unpopularity of when the president changes policy on immigration. What? She's in the room. Just have a look around, have a look at who the companies are. The New York government is in the room with him now. A couple of years ago, that was unthinkable to consider New York as a border state. That's become a big, big issue for Kathy Hochul. I think they understand now that for Democrats, there's a lot of it a applied going into November. And I certainly don't mean at the federal level. I'm talking about what's happening on the ground in New York politics, the fact that the president, the former president, is going to the Bronx and doing rallies. These are big changes you've got to take notice of. And that's the reason why you're going to see some shifts in policies that were highly popular with Democrats and highly popular with the rank and file of a lot of different aspects, suddenly not becoming as popular as there are these shifts big time. Let's turn to commodities and talk about crude. Extending its modest recovery from a selloff triggered by Opec+ flagging plans to start returning supply to the market later this year. Opec+ defending the move even as some analysts question whether the market can absorb the extra supply. Bank of America's francisco blanch joins us now for more. Francisco it has been too long, my friend. It's good to see you. Great to see you in person. What did you make of that decision over the weekend? Well, I mean, it had a bit of a bearish undertone. But as always with OPEC, the devil's in the detail, Right? So they didn't say they're going increase production. They said they planned to increase it, assuming that the market can take it. And remember, OPEC has a much larger demand growth number than anybody else. They're expecting demand growth of 2.4 million barrels a day this year, which is about two and a half, two and a half percent. Everyone else is going to have that rate. So we'll see how it plays out. I think if there are a number on the demand side is correct. And I was I was in Vienna last week. I had the opportunity to spend a fair amount of time with different members of the organization. If their number is right, they're going to be able to increase production. So I think the whole the whole structure hinges on consumption being being robust, and we're not quite seeing the same thing. We still think as summer is going to be good with inventories are going to drop. So the crude market is going to be supportive. But but certainly there is that element of of potentially moving into an oversupplied market in 2025. So I think that's why the market sold off initially. What underpins that call on demand? Where's that coming from? Did you get a flavour of that? What's the sense of. Well, I mean I think what OPA claims is that we are too focused on developed markets, on that we're focused on OPEC, the economies in US, Europe, and they're saying all of the man growth is east of Suez and it's it's Asia, South East Asia, as well as Africa and Middle East. And there is some truth to that. So I think we have to watch the data carefully, see how injuries play out. But, you know, I'm not I'm not nervous. We're looking for at our brand next year. And that's kind of our call as we NorCal for a while. And and we are we are sticking to it for now. We've been talking a lot this week and last week and this year about demand versus supply and trying to understand, which is, as you said, an oversupply based on demand deteriorating possibly in some of those regions that you mentioned. How do you even understand any of this with the fact that there are alternative fuels that are coming into play, the fact that people are trying to look at other sources and it seems like people are traveling around that much more. I just got a note on my inbox about TSA volumes being as high as ever. Right. Right. So you're right, It's a bit of a funny dynamic because we have still a lot of room to grow our air transportation. People want to travel more and fly more, but we are seeing a deterioration in things like gasoline demand. And even on the margin, diesel, gasoline, the story is electric vehicles, while hybrids, not just so we might have to bite quite a bit into gasoline. The very efficient cars have the really high mileage per gallon. And then and then you have a lot of biodiesel to your point, that's coming into bite into the diesel equation. We're probably looking at a quarter of a million barrels a day of incremental biodiesel. So, look, I mean, all this is part of the energy transition. I think. I think we need to see a big transformation in how the hydrocarbon sector works. It's not going to be a year or two, but I think the world still wants to grow. And if the ECB cut rates today and the Fed follows along in the next few months, we're going to see more stimulus. And, you know, these guys, we're talking about financial conditions. We have a lot of 3 trillion or market cap companies coming on break. We cut rates. When you think that there's going to be additional upside pressure on all of asset values. So, look, I mean, we have pretty high liquidity in the system. I'm not I'm not that bad up. And I think I think the the PMIs are looking. A little better. And there is a lot of posturing on trade, but ultimately the global economy is going to pull ahead. There's a lot to unpack there. I want to go to this idea that you're talking about ECB rate cuts fueling the economy and this idea that any sign of economic growth is actually going to possibly cause oil prices to go higher. Is oil still the macro play that it used to be, given some of these other aspects that we're talking about? I mean, I still think it's very important to a macro economy. So it goes into everything we do from producing a loaf of bread to just just any plastic on where we buy plastic right now. Everything's high, right? I mean, all of this oil. So but there is the matter is, I think as we as we as we transition the economy, there's commodities are going to be probably better positioned to take advantage of their run up. And some of them are copper, which has been a source of high speculation in markets. Right. Every every find that thing is being long copper kind of waiting for a price rally at this point. Of course, you know, once you get to the end of it, prices loop pullback because you demand to follow through. But but those commodities are also going to benefit. And and I think there's another big dynamic here is U.S. shale oil and gas still playing a gravity force, strong gravity force on on energy markets. We've seen mean reversion that we've seen the seventies, right when we had the big inflation wave in the seventies. Prices just kept going and going, going this time around. Prices rally, shale responded. Prices came straight back up. I mean, gas through at 148 in IMAX. Right. And we saw what prices in the Permian Basin going negative four weeks. Right. So we still we are in a world where there is commodities are very sensitive to prices and the supply side and commodities, they're not. And that's that's kind of the balance we're seeing at least is right to bring this up. How distorted are the cyclical signals now in places like copper have distorted outside commodities becoming more influenced by secular themes? That may be the sort of economic cycle we use to talk about the end economic cycles that copper has. I'm just wondering whether we sort of confiscated that, so taken it away a little bit. We have a great chart that looks at PMIs versus year on year changes in copper prices. That shows that we are probably ten 15% above the levels justified by industrial activity and PMI indicators. Right. So. And of course, that's where we've corrected because like I said, we need to see the rate cuts. We need to see the man coming through. We need to refill those inventories. There's a big restocking cycle coming if indeed we go into a soft landing scenario. Right. Which which I think is what the market's setting up us for. So that's that's obvious. I think, you know, copper, aluminum are going to be beneficiaries. We like silver. We don't like nickel as much. We think there's a lot of nickel on the supply side. But but then there's other other commodities. I think if you go on the other end of the agricultural sector, they're also hard to produce in the short run, like cocoa and coffee. And those have also have big run rate. So it's really I mean, it's really a tale of two cities on the commodities markets. I love how personal that is. Stripped of its food you know taken it had copper through I mentioned this yesterday or the top copper cup has become a climate scientist. It's true. Companies become a climate scientist. Copper is very hurt. They're listening and they're frightened. I'm curious, Francisco, though, you're talking about some of the transition and the secular themes and how that plays and sort of dovetails into, you know, the idea of a macroeconomic cycle and the response there. I'm wondering at what point the transition to some of the cleaner energies in particular in response to the increased energy needs of machine computing and artificial intelligence, etc., doesn't benefit oil as much as the others. Do you see oil kind of range bound at that $86 a barrel level that you have as a target for next year, for the foreseeable future because of some of these push pull dynamics? Look, I mean, I think I think if you look at five year oil, right, So the price of Brent five years out has been anchored in the middle of the band that we have, which is 60 to 80. Right. So has been Ankara $70 a barrel, five year oil now for two and a half, three years. And this is the most important thing to remember in opaque, right? There's this dynamic going on where, of course, they would like to have a higher price, but a stable price works for the group as well. As long as there is not too much supply coming through. Right. Because that stability in prices is enabling OPEC's members like Saudi Arabia, to fund themselves in the in the sovereign debt markets or selling pieces of their companies in the stock market. Right. So well as the other operators non-OPEC that don't have access to financial markets and I'm thinking of a few like Russia and Iran are maybe trying to raise cash by selling more barrels. So and by the way, it works for the US too. I mean, the Biden administration has been desperately trying to push oil prices lower to contain inflation. I mean, the White House preyed on more to bring down inflation than the Fed by opening up the SPR, by strength, by just allowing this wave of oil. They open every tap they could find. I mean, and the price come down. Right. So, I mean, that's been a successful move to contain inflation. It wasn't the case in the seventies. And that means we have to kind of stick up to this. Up and up and up and up cycle here. We reverted and now we're in a bit of a happy medium. Now it's not going to last forever. Listen, nothing lasts forever in markets, you know, But but right now is where we are. And I can make cases on both ends right there. We still have a lot of violence in the Middle East, still a very tense environment. We've seen Hezbollah, Israel, tensions rising recently. And it's not just Hamas, Israel, we still have Russia, Ukraine. So there's a lot of geopolitics involved here to tilt the market one way or the other. We have a U.S. election coming up that may change the views on Iran, for instance, which has been exporting a lot more oil in the past three years. So it's hard to call. But I think from here to the election, you know, I think we're going to be a range. One market is going to be 75 to 90 lower, Brent, for for most of the next six months. Francisco, it's good to see you, buddy. Thank you. Francisco Blanch of Bank of America here in New York. Crude higher by 0.8%, $79 on Brent WTI a by 0.9 7473. Up next on the program, all eyes on the labor market. We do see this normalization to risk coming in a lot of data, whether it's the labor market, whether it's other economic activity such as manufacturing, construction, retail sales, you name it, counting it down some more data in 44 minutes time. Jobless claims just around the corner. We are totally unchanged in the equity market on the S&P 500. I mean, it gone absolutely nowhere on the S&P. Bond markets doing something, just retracing some of the move over the last few days, up by three basis points on a ten year full 3080 for going against the grain over the last week yields a whole lot lower over the previous five days on the back of economic data in America and the savannas. This morning, all eyes on the labor market. There are huge number of opportunities out there, particularly in fixed income. Right now. You can lock in very, very attractive, all in yields, very attractive territory with very good liquidity and limited duration risk. But that being said is it's a very uncertain time in terms of the Fed. You do see this normalization to a risk coming and a lot of the data, whether it's the labor market, whether it's other economic activity such as manufacturing consumption, retail sales, you name it, it's the light, says Treasury yields steadying after hitting their lowest level since early April as calling labor market data. So always expectations for Fed rate cuts. Investors now looking ahead to jobless claims at 830 and payrolls tomorrow morning. And they're going to be my right in this. The prospects for payrolls to stage an even bigger rally have lessened that set a sub 100 k nonfarm jobs print or a forehand on the unemployment rate with clear the path for ten year yields. The test for 25 is with us now for more. Ian, hello. Good to see you. Nice to see you. What do you make of the rally of the last five days before today? I think that it makes sense in the context of the data that we received. However, it does put the Treasury market in a very specific situation going into tomorrow's payrolls. Expectations are for a relatively benign print, both in headline and for the not for the unemployment rate. But if we get a surprise that gets the market all the more worried about the trajectory of employment growth, I think that's where we get that big rally. And I mentioned 425 but we could go through 425 easily, especially with the Bank of Canada having now cut the ECB presumably later this morning. Yeah, we were told repeatedly that risk was skewed asymmetrically to the downside because this Federal Reserve's not going to hike. So they won't respond to strong data like they would to weak data. Is that different now off the back of this rally going into tomorrow? I do think to some extent that the bar is relatively high to the disappointment side. If you get a 150 or 175, I don't think that we're going to really push to a lower rate plateau. A period of consolidation makes sense. But I do think we can't forget about the average hourly earning earnings numbers. And we still have next week's core CPI number looming over the Fed and its decision. We talk about what's driven yields lower so far. And yesterday people were looking at the ISM services data and saying picking and choosing different things. But there was this other sort of less viewed report that took a look at just how employment actually grew last year. Whether it grew as quickly as as it was said to have, and it actually came in a lot less rosy in terms of employment growth. How much was that behind the rally in bonds? So I do think that that was part of the reason that the market was willing to ignore the ISM services print. And at the end of the day, we are at the point in the cycle where everyone is looking for some evidence that employment is finally rolling over. And so that's why this morning's initial jobless claims will be relevant. And of course, the big the big marquee data is tomorrow, the headline payrolls figures. Do you think that right now some of this data has opened the door much more significantly to a July rate cut than it did, say, two weeks ago, which is what we're hearing from an increasing number of commentators. I think that what it did is it reduced the possibility that when we get an updated dot plot next week, that we'll see 25. I think this has submitted 50, which would be a September and December cut. July is really difficult to justify given the timing of the data, but it's important to keep in mind that between now and the 18th of September, we will see four updated CPI prints. So that's plenty of time to be convinced from the Fed's perspective in Jackson Hole late August as well. If they want to flag something, we got a few people out there who think we will cut rates in July, September, the start of the year. We were thinking about March. I say, wait, you know, so that's not many people we're thinking about March. And it came out pretty early on in 24 and poured freezing cold water over March. What do you think he does about July? Because I imagine some journalist next Wednesday is going to ask in the news conference about it. Do you think he leaves that open? I think that the May CPI data will open or close that door. If you get a point to, then it's a reasonable conversation to have about a July cut, although we don't think it occurs. But nonetheless, it should be on the table if it's a point to a lower on the core. When you talk about a September and December hike, something happens in between there that could potentially matter quite a bit. Or cut excuse me, I'm still sort of struggling between cuts and hikes because that's the way it's been. I'm just. Wondering, how do you sort of frame out the sensitivity of a Treasury market to whatever may transpire November? We have some people writing that it's potentially not a Liz Truss moment because people have rejected that idea, but something akin to that type of disruption. Other people saying it's going to take so much more than an election of one person to really determine that. I would say that the election outcome matters the most when there's a sweep in one direction or another. If we get a divided Congress, it's almost a non-event because even a Trump victory wouldn't be the surprise that was in 2016 at this point. And so from the markets perspective, what is more important will be the overall trajectory of global monetary policy, and then we'll start to look forward to any potential implications on the geopolitical side, the trade side, tariffs obviously come to mind. But I don't think it's quite as relevant as as it could have been. And appreciate the update. Thank you, sir. Anything in there? A female? Laser. I think we can run with this Liz Truss thing. I really do think we can. I don't think it has to mean we have a crisis in financial markets. Could it mean we have another 5000 basis points higher on a yield curve? I think we can have that conversation. Why can't we have that debate? I would agree with you. And I actually think that Michael Crowley over JPMorgan put it best when he said, you know, essentially what we're looking at is a Treasury market that's expanding rapidly and the same small pool of primary dealers who don't have the capacity to take down Treasuries the same way that they used to. What happens if they can't buffer a massive decline in yields or increase in yields in the wake of a of a not very good auction? What happens then at a time when the US government is depending on these auctions to finance the deficit and these auctions are getting bigger? That to me seems plausible. And that would might spook the biggest, deepest, most liquid market in the world. We also don't know what the plans are really, and how they'll be implemented, how they'll be executed. Elena, should I serve a SAT in that chair to intervene right now? A little bit early this morning, I said we can have five points, five percentage points to inflation if some of these plans go through some wild swings that we could see the difference between hikes next year and cuts. It's a big, big difference between the policies. Coming up on the program in the next stab, we'll catch up with keith Lerner of Truist will speak to the serious genetics of Aviva on the ECB rate decision. Rob Wilder of INVESCO Citi's Veronica Clark still thinks they cut in July. That conversation coming up shortly. Your ECB right decision is about 20 minutes away. The Fed sort of back in the corner here. You're probably going to be a little while here until we can see those cuts. The risk for the chairman is to cut too early before there is any economic weakness and then having to reverse course. They're still going to be able to cut in September, places looking a little bit cooler and we're starting to see signs that the economy's moderating. If inflation gets to two points, something that gets the Fed and the Rand and other central banks to begin adjusting rates with signs like that, that cuts are on the way. I think it's sort of a wakeup call to everybody that this is actually going to happen. The soft landing can occur. This is Bloomberg Surveillance with Jonathan Ferro Lisa Abramowitz and Anne Marie Hordern. The third hour of Bloomberg Surveillance begins right now live from New York City this morning. Good morning. Good morning. Coming into Thursday. At all time highs in the equity market on the S&P 500, on the NASDAQ and the S&P right now totally unchanged, coming into a very busy 60 minutes 15 minutes from now. The ECB rate decision 15 minutes after that. We look at jobless claims in America. 15 minutes after that, a news conference with Christine Lagarde. And then at some point this hour, space sex launching a monster starship rocket as well. If that wasn't enough for you, Fred, let's kick it off with the ECB. I talk a lot about tier one central banks. The ECB is one of them. And we're looking for the first rate cut since 2019. And you've really highlighted how important it's going to be, how its message. This is really going to be sort of we're just doing this. We pre committed to this, but now we're going to really check out all the data and be truly data dependent or is there going to be this sense we're on the downward trajectory for inflation and now we need to handle growth much more significantly. That will be more important potentially than really the decision itself. I think we have to reflect on where we've been with the ECB. I really do. We got to negative territory. Ten years ago, 2014, we were talking about negative interest rates at the ECB. We went into the eurozone debt crisis, came out. The other side were unable to hike interest rates. We're going into the pandemic. Bad, bad times rates stay negative. I remember having conversations with you and we'd be talking about a we facing another decade where this ECB can't hike interest rates. Is that what we're facing? They've gone from negative territory all the way out to 4% on the deposit rate, which was unthinkable just a few years ago. And even if we had to do that to contain inflation, the idea that we haven't had this massive fallout in the eurozone debt market for me is just absolutely staggering. It's staggering for everybody. Nobody expected this to happen. The question now is, does this actually give them more ammunition to juice growth going forward? This is what some people are arguing for, the Fed as well, that sort of the central banks in the developed world have been given a gift of higher rates that they can actually use to respond to some sort of crisis or what we talked about, Bob Diamond yesterday. Is it that the higher rates didn't really matter because people have basically insulated themselves that much? So if you drop rates, it won't really have that much of a stimulative effect on the other side. I think it's a very real question at a time where we still don't understand the transmission mechanism, probably more so in the US, but also on the margins in Europe. There's one thing we do understand is the fight has taken place on the Governing Council today for this decision. We have widely expecting this interest rate cut in about 12 minutes time. It would be a shocker if we didn't get one. What it's really up for play, I think, is July and beyond. It's September. And just consider what we've heard from some of the ECB officials over the last few weeks and you've always got to turn to the Bundesbank. If there's a rate cut in June, we have to wait and I believe we have to wait until maybe September. So we know the German central bank government has gone into this meeting, pushing this out and saying do not entertain actually rate cut. I wonder how that plays out in the news conference in about 42 minutes. I also wonder if they have Bloomberg terminals in the ECB meeting in Frankfurt and they're looking at it and they're saying it's a good thing if the euro strengthens or a bad thing. And if they say it's a good thing, if shares gain or if it's a bad thing. Remember at one point we thought that they were sensitive to the markets. It wasn't Operation Close the Gap, but it kind of was in terms of peripheral spreads. How market sensitive are they or have they moved away from that paradigm entirely? I remember early 2020, Christine Lagarde, early days at the ECB. We're not here to close spreads literally 5 minutes later. Yes, I meant we're here to close spreads. Such a sight pretty tight. And that was in part after some criticism on the back end. Push back, clean up, backed by sort of unsourced messages from the ECB Governing Council. So, yeah, to your point, full circle, that's what's entertaining about the ECB. It's not their decision. It's not the news conference. It's the story that comes out a little bit later in the afternoon after the decision from people who are very unhappy maybe with the performance in the news conference. Typekit Draghi continued with the card. Let's see if we get more of the same a little bit later here. The school is coming into all of this. Equity futures just about positive on the S&P 500 big our coming out we'll catch up with Keith learner of truist. As tech leads stocks higher aviva's the city of Damascus reacting to the ECB rate decision and citi's veronica clark looking ahead to US payrolls. We begin with that top story. Tech driving stocks to all time highs. The S&P 500 hitting its 25th record so far this year. Keith Lerner of Truist saying this, whether it's empathy. Order for the back camps and a choppier near-term market environment is expected. The White If the evidence suggests the primary stock market uptrend remains intact, Kate, I'm pleased to say, is with us now for more. KEITH Hello, sir. I just wondered what you make of that 25th record high on the S&P 500 and why you believe there's more in store for 2024? Now. Of course. Great to be with you, Jonathan and Lisa. If you remember, we were with you early, man. And as you played April, we actually upgrade our view of equities on that pullback and also on duration as your call to the 470. But I will say to start with your question. New highs is a characteristic of a new bull market, right? So historically, we just put out a chart. You can look at all the all time highs and just overlay that on a chart and you see that's a common basis and seen 25 new highs for the year is a positive sign. As long as as long as this is supported by earnings and economic growth as well. So that's in our view, the bull trend is still intact, deserves the benefit of the doubt. I will say when you look back historically at bull markets, the median gains a little bit over 100% were around 50% today. But we would expect more of a moderation after this first leg, which has been very strong. But again, overall, we think it deserves the benefit of the doubt. Talk to me about leadership. We know the headlines from yesterday in $33 trillion market cap, a whole bunch of those stocks now carrying weighty, weighty market caps and big weightings on the overall S&P 500 is that way. You still expect the leadership to come from for the year ahead? Yeah, we're still overweight tech. We've been overweight tech for some time. I mean, to a point, the biggest risk of that is just concentration that the top ten stocks in the market now about 34% of the overall S&P. That's the most and the least the last 40 years. If one of them stumble, that's the challenge. The market has become more narrow. Right. There's only now, I think, three sectors that are outperforming the S&P tech and communications at the top and the average stock this year, the equal weight Index is only up about four or five versus the S&P up 12. So, listen, we're sticking with tech because that's where the earnings momentum is. And we're seeing new earnings momentum continue to be much stronger than the overall market. So that's that's typically when you want to stay with tech. Again, just to be candid, I think that the risk is just that it's become so narrow. I would certainly welcome some broadening of this rally from just this heavy segment. Last point is each of those three top stocks, which are over 3 trillion, each of them alone are now more than the Russell 2000. Yeah, Overall, I love some of these statistics. They're just absolutely wonderful to frame just how distorted this market has become, maybe for the right reasons, some people would argue. Keith, I am wondering, especially if you're talking about continuing to focus on the big tech names, even without a broadening out how much some of the economic data is going to matter. Does the labor market report tomorrow really going to move the needle potentially for you? As you well know, the employment report is everyone has so much anticipation. It comes out. A lot of times the market acts differently than you expected and then it gets revised next month. So it's important. I would just say it's one number. I think the initial jobless claims coming out today and the trend in that is just as important. And we all heard the program this morning. We've also using this word cooling normalization. But overall, we still think the economy is fine. One thing that's changed, though, I think some point this year we came into this year estimates the consensus was around 1%. Does your business have been moving higher all year long? And they moved up to about two and a half percent on the Bloomberg terminal. Now you seen that flat line. So it's kind of where we are now, where the economists and the market is underestimating economic growth. Now they're almost more in sync and we're probably going to see more of a two way economic data, not just the surprises, the upside that we've become accustomed to over the last year. KEITH How much of an offset are bonds? We've been talking about the 6040 with a number of different people, including PIMCO's Rich Clarida, looking at how it's going to be reversed or twisted with Bonds holding more of value, do you kind of agree with that, or are you sticking kind of close to what's been working or not for the best ones? So we still like stocks and we still like bonds. I mean, we we overweighted did upgrade our view. As I mentioned at the end of April, stocks have gone up about 8% over over this rally. We still think bonds have some value, especially as a diversify out. There's a lot of crosscurrents. I think there's three levels that would kind of problem around is important to continue to watch. But if you look at it on a ten year treasury, if you go up 50 basis points, the total return still about 1%. If you go down 50 basis points because of that, a carry in that price appreciation, there would be a total return closer to 8% based on where bonds are today. So I think it still is important diversifying portfolios. We think that 6040 portfolio still makes sense, but we're not tilting to the point you just bought up to bonds over stock. We still like stocks over bonds within our portfolio. That's our position. Still bullish case. It's good to hear from you, Caitlin too that of true on this equity market and what's happening elsewhere. So some of these stats ceramic unbelievable thicker than the Russell I love this I mean you can play with the numbers and come up with anything. I think what everyone's trying to do is basically give some context and scope to numbers that are unfathomable. The idea of earning $1,000,000,000,000 or gaining $1,000,000,000,000 in market valuation in less than two months is rather staggering. Absolutely incredible. Equity features just about positive on the S&P. Let's get you an update on stories elsewhere this morning with the Olympic race. Sahara hackers. Hey, you Hara. Hi, John. Nvidia is the first chip company to hit a $3 trillion market cap, surpassing Apple. NVIDIA has become arguably the biggest beneficiary of the A.I. frenzy as more industries adopt the technology. Shares have rallied roughly 147% this year, adding about $1.8 trillion in value. Nvidia currently trails Microsoft by market value, but Wall Street expects that to change. The union representing American Airlines flight attendants rejected the company's offer of an immediate 17% pay raise. Negotiations between the two sides have stalled over compensation and scheduling rules, according to the union. The flight attendants haven't received a pay raise since before the pandemic. The two sides are set to resume talks on June ten, and SpaceX is poised to launch its Starship rocket on a fourth major test flight, part of the company's push to develop its system for regular flights into orbit and beyond. The rocket and its super heavy booster are expected to lift off around 850 Eastern this morning from Boca Chica, Texas. The test flights are meant to advance the Starship's progress, with the company now focused on bringing the rockets back to Earth's atmosphere intact, a capability the craft will need for any future launches with a crew on board. That's your Bloomberg brief, John O'Hara. Thank you. The ECB just around the corner. Just to give you a sense of expectations. 62 people were surveyed in our survey about what they expect in a few minutes time. Just one said no change. Just to frame things is that the person who is saying sell in video, it would be absolutely shocking if they didn't cut interest rates in 3 minutes time. Up next on this program and ECB rate decision. Then about 30 minutes after that, this one right here, a news conference with Christine Lagarde from New York. This is Bloomberg. ECB right decision out of Frankfurt, Germany to end just 20 seconds time the scores coming into it. A start in Germany. We'll go to Italy. We'll finish on the euro. German yields inching just a little bit higher across the curve, particularly on the ten year. That's been a theme over the last few weeks on a ten year right now up by a couple of basis points to about 253. Over in Italy. Let's turn the page and have a look at the Italian debt market. This is what things look like 384 on an Italian ten year and the euro shaping up as follows Got into this just about unchanged throughout the whole of this morning. Euro dollar one to wait 65. They should write cut down from 4% to 3.75. It's a 25 basis point cut as expected on the deposit rate. On the main refinancing rate, we come down 25 to 25 in line with expectations. The marginal lending facility coming in at 450 in line again with expectations down 25 basis points here. Paramo across the story at the ECB. And this was broadly what they expected by pretty much everybody. It's about the guidance from here. It's going to set the tone through the summer. Well, ECB saying that it is now appropriate to moderate the degree of restriction, kind of echoing what we heard from the Bank of Canada as they embark on the rate cutting cycle. How much we hear more about that in terms of just what this means going forward is going to be key. They are saying inflation and expectations of it have declined across all horizons just to make this really kind of to sort of frame it. Well, this is the first rate cut in five years. Question is, how deep is this path at a time of a lot of uncertainty? I'll share some of the story with you from the statement released just moments ago. This is what they've got to say Since the Governing Council meeting in September 2023, inflation has fallen by more than 2.5 percentage points, and the inflation outlook has improved markedly. Underlying inflation has also eased, reinforcing the signs that price pressures have weakened and inflation expectations have declined on all horizons. Monetary policy has kept financing conditions restrictive by dampening demand and keeping inflation expectations well anchored. This has made a major contribution to bringing inflation back down. At the same time, despite the progress over recent quarters, domestic price pressures remain strong as wage growth is elevated and inflation is likely to stay above target well into next year, the latest Eurosystem staff projections for both headline and core inflation have been revised up for 24 and 25, compared with the March projection staff. Now see headline inflation averaging 2.5% in 24 2.2 and 25, 1.9 and 26 for inflation, excluding energy and food staff project an average of 2.8% in 24 2.2 and 25 two in 2026. For economic growth, that's expected to pick up to 0.9% in 2024, 1.4% in 2025 and 1.6% in 2026. So their forecasts will return back to them in just a moment. Here's an additional point from the Governing Council Determined to ensure that inflation returns to its 2% medium target in a timely manner, it will keep policy rates sufficiently restrictive for as long as necessary to achieve the same. The Governing Council will continue to follow data dependent and meeting by meeting approach to determining the appropriate level and duration of restriction. In particular, its interest rate decisions will be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. The Governing Council is not committing to a particular path, and I imagine that last line that lay in that paragraph will be on repeat in the news conference with Christine Lagarde at 45 Eastern Time. And you can see I see a bit of a market response with Chairman Bond selling off a bit. That said, in the market, it does seem like people are still looking for about 40 basis points of additional cuts so far this year. So not clearly altering the market expectation. As you said, all eyes very much on the press conference. Can you reconcile the decision with the forecasts? How easy is that to do this morning? It seems as if the decision and some of the rhetoric is in conflict with itself. You're looking at this idea that it's appropriate to ease some of the restriction while still talking about some of the persistent wage growth and the ongoing growth just generally in the overall economy. Also, inflation not getting down to 2% until 2026. If you strip out inflation energy, it becomes even more difficult. I'm curious how they process those two ideas. What does it mean in a timely manner? If you're willing to wait three years, Let's cross over to Lexi Bird and in Frankfurt, Germany, let's go through the top line for you and what we should be looking for in the news conference in about 20 minutes. Well, John Stockton put it well. They called it a data independent rate cut before we got the decision, of course. And that reflects the economic data we've had recently. Inflation, sticky wage growth, rapid output, surprisingly robust. And look at the forecasts here. We've got inflation lifted for both 2024 and 2025. So some are saying that they've talked themselves. Into this rate cut today, even if it was well telegraphed, fully priced unanimously, almost expected by economists. Perhaps if they'd seen that recent data beforehand, they wouldn't have taught themselves into a June today. How do you think Christine Lagarde is going to navigate exactly what you've just described in this news conference? How do you do that? Well, I think you picked the precise line that she's going to be holding on to throughout the press conference. She's going to be hedging her bets because they may need to keep rates restrictive. It's a similar problem, actually, to what you've got in the US. You know, the two situations started very differently in the US, started with that massive fiscal stimulus here in Europe, started with the energy crisis after the war in Ukraine. But now the parallels really being drawn between the ECB's headache and the Fed's headache. Actually, the inflation problem looking a little more retractable here in Europe as reflected by these updated forecasts today. John, are you getting the sense that maybe they're going to be emboldened hawks in the on the ECB Governing Council in the wake of this, especially given the rhetorical challenge that Madame Lagarde has facing her with an upgrade to inflation forecasts and a rate cut. You need to respect it, especially from the northern European officials. They've been particularly cautious about the path ahead. And we've already heard from the likes of your Kim Naugle and Isabel Schnabel pretty much saying that July is off the table. Robert Holtzman of Austria saying he only sees too close for 2024. I reckon Christine Lagarde is going to keep her options open. It would take a lot of clarity in terms of the cuts that are coming. To have sustained weakness in euro dollar off the back of this. I'm sure you can tell us how the markets are reacting to it, but I'm sure she's going to want to keep her options open. Stronger euro, firmer by a 10th of 1%. 1.84. Lizzie, wonderful work on the ground in Frankfurt, Germany, off the back of this ECB right decision. It is a 25 basis point cut, but it's difficult to reconcile with some of the things they're saying in the statement. Let's get to the serious tonight case of a V for investors who joins us now visiting us. How can we have a statement that shows a rate cut and at the same time, inflation above target well into next year? Make sense of it for us. So. But it doesn't actually so. So I think what's happening here is that the ECB went into the previous meeting having a very, very high degree of confidence over confidence that the data is going to cooperate. It made all that noise about the importance of a negotiated wages for Q1 that they became available in May. In the end, pretty much all of the data have surprise. And the upside you saw in the updated projections, which I thought they were actually more hawkish than I expected, and we went for this year's growth rate from 0.6% to 0.9% at inflation from 2.3 to 4.5%. And all of that within the context of data independence and conditional guidance. And yet we had an interest rate cut being delivered today. I think that was almost exclusively driven by the fact that it would have been far too embarrassing for the Governing Council to backpedal on its previous pre-commitment. But I think going forward, I hope in in terms of credibility that the ECB is going to maintain a very, very neutral stance and definitely going forward. I think the bar for gaining more confidence has increased, which is interesting, especially at a time where you do see inflation expectations over the next 5 to 10 years in Germany start to tick up just a bit on the heels of this report. I am curious what you make of this. Ian Shepherdson talking now before this before this release that he expects the Fed to end up cutting rates more than the ECB? That is counterintuitive against what a lot of people thought at the beginning of this year. Are you on that page now? I think, you know, given where the data stand right now, it doesn't seem likely. That's not how house few equal. At the same time, we have to point out that where the Fed stands right now, its 150 basis points higher. Well sorry, current 75 basis points higher now compared to the Fed. It would take a significant deceleration for the US economy and significant resilience in its ongoing resilience. Look, I think I've been in the camp that the eurozone growth is going to surprise in the upside. But nonetheless, in order for such a scenario in which foresees the ECB cutting by less compared to the Fed, you would need to see a significant two things happening, basically. You would need to see further fiscal expansion in the eurozone, which I don't think it's likely. And you would need to see Chinese growth surprisingly materially on the upside, which again, I don't think is likely. So I wouldn't say that we're actually in this camp. That person and in this context really appreciate your input. A serious dynamic is there of of investors responding to that ECB rate cut just moments ago even with inflation above target well into next year. This is going to be an interesting news conference in 20 minutes, isn't it? It's going to be a challenging one for her, especially as Vesalius Shanaka said, It doesn't make sense and it doesn't really logically paint an easy story for her to tell. She might say, we want to go now and then we'll wait and we'll wait as long as we have to for this data to come down. It still is challenging, especially given some of the rhetoric. This is a twisted decision. I love the line that Lizzie used from such a data independent. Right decision. Right. Is that what this is? Well, this is this is an ECB that took a framework and they said that they're going to follow through with it. The market's saying we don't know, but basically pretty committed to this rate cut. Now, we've been saying the last couple of weeks they're going into June for a fight over July. That's about July, about the rest of 2024. I'd be very interested to see how this plays out in this presser in just a moment. In just a moment, jobless claims in America and why Citi think we'll get a rate cut in America in July. The next step in the labor market takes a jobless claims about 20 seconds away, the score of 72 that looks like this one hour away from the open about equity futures totally unchanged on the S&P 500 after closing yesterday at all time highs and the Nasdaq firmer by a 10th of 1%. Turn the page and get into the bond market. Isco is there? Yeah, it's a little bit higher in sympathy with what's happening in Europe as well, pushing up there with a stronger euro off the back of this call from the ECB. A rate cut and then flying blind never mind 2524, flying blind for the rest of this year. Jobless claims are out. Mike McKay as the number one in Mike Morning, John. It looks like we're going to be debating in a moment here when the Fed is going to raise interest rates, 229,000, a jump of 10,000 from the initially reported to 19 last week, 1,792,000 is the continuing claims number. That would be up only 1000 from the previously reported. The 219 is revised up to 221, so a gain of 8000 basically on the week and continuing claims, 1,000,007 90. So it's a 2000 change. It's not much change really at all, but it is in the wrong direction for people looking at the jobless claims numbers for some kind of signal, nonfarm productivity rises 2/10. The forecast was for a flat reading in the first quarter. This is a revision and it goes basically down from 3/10 in the prior month. So not good news. Unit labor costs up 4% and that's significantly down from the initially reported 4.7. So maybe that's some good news on the inflation front. Now, where do we go from here? That's the debate to be had. You were saying in the commercial, I'd hate to trade this. Oh, my goodness. If you told me if I had the ESM yesterday under embargo, I wouldn't know what to do with it. I would have got it all wrong if you knew that the ice time was going to come in as strong as it did on a headline level yesterday. Would you have put the right trader in the bond market? Absolutely. I would have nailed it. It's now hundred percent all. It is tough, right? It's so difficult. Yeah. I mean, this is really challenging. It's hard because the also wondering what you're putting it together with. I wonder how much this other sort of peripheral report mattered. Suddenly, quite a bit about revisions to employment figures from last year that came out around the same time last yesterday. So you have to wonder what's pushing what around. And we'll have to ask the Algos 60 minutes away from the open about when those outcomes kick in a little bit more. Equity futures on the S&P just about unchanged off the back of this number in the bond market. It's looking like this at the front end of the curve. Let's pick up on the two year story coming really close to 5% of the back end of May and all the way back down again, up by not even a basis point this morning at four 7282. I can tell you briefly, the euro on my screen went through one night just moments ago, just south of that level. At the moment that we are at 108 98, not just the ECB in the mix here, taking away the prospect of cuts later this year, but also jobless claims that upside surprise just moments ago, Lisa, just spark an additional move back to 109. There is this sort of creeping feeling that maybe the euro region is on some sort of stabilization or expansion. The US economy is cooling and that that hasn't been fully baked into that dynamics. You could get that stronger euro going forward and you're sort of seeing that play out. Check in again this time tomorrow when we get payrolls. Michael, thank you. With this around a table, Citi's Veronica Clark in West Coast. Rob, while I am not going to bury the lead, Veronica, we're going straight to call July rate cut. So I rate cuts. I need to know how bad the number needs to be tomorrow. Let's keep that in play. Yeah, I honestly I think the bar for bad labor market data for the Fed to be cutting sooner than the market is pricing is pretty low. Tomorrow we think we're going to see 140,000 payrolls which is a further slowing obviously from the slowing we had in April. The level of job growth, You know, that's still a pretty healthy level, but it's the trend that's concerning. I think the unemployment rate can go to 4.0% tomorrow. That's the Fed's end of year forecast. And we're we're hitting that sooner than they expect. And the favorite phrase of every constructive economist on Wall Street right now, rebalancing, normalization. You don't share it? No, don't share it. No. I think the issue is when you're going from a you know, a region where you're running to strong and you're moving to a region where you're running too weak, you will have a moment where you look like you're in balance. It's the trend that's concerning. And I don't see any good reason why this cycle wouldn't follow previous cycles where you do get that slow weakening and you suddenly get an accelerated weakening. So now for the cage fight, Rob Waldner, who has completely the opposite view, he doesn't think July is anywhere in the cards. He thinks September probably. I mean, how much do you disagree with that approach? I think the big thing I disagree with is we think the growth will continue at a more steady pace that I think, Veronica, you laid out, which is, you know, we have an economy with a lot of momentum to it. And so the growth on its own doesn't really justify a rate cut. And so the rate cut narrative of multiple rate cuts, I think is built on a growth narrative. What justifies rate cut in September is kind of the way the Bank of Canada laid it out yesterday, which is, hey, the economy might be growing, but inflation is coming down. We're in it in continued disinflation, and we just don't need as much restriction as we used to have. So that's a different kind of narrative. And I think one where the Fed will be a little bit more cautious and we'll continue to be data dependent, which means, you know, they do one in September and then they watch to see how things come in. You know, we think probably September and December, maybe two cuts. So, of course, the difference between you both is not just a few months. You've got a completely different way of looking at this economy. How many cuts are you looking for in the next 12 months? 200 basis points total, 200 basis points. Time till mid 2025. Yeah. Okay. You're nowhere near that are you know, we're not on a base case. We're not looking for 200 basis points. Okay. So you can drive a truck through the two opinions around this table right now, which is there is no rate hikes at the table. Well, okay. Well, there you go. But, Rob, to that point, just to sort of elaborate the aspect that you disagree with that we're hearing from Veronica, this is going to be more like a normal cycle where once they embark seeing that weakness, it's going to accelerate when the data gives you confidence that's not the case. Well, I think what in the data would point the other way, we don't see that in the data that would point to this weakness. I think there's a lot of concentration on this increase in the unemployment rate, which you talked about. And looking at past cycles, the same rule, other things like this which have pointed to, you know, recessions following an increase in unemployment, what we see in the labor market is that the stress has been removed from the labor market. Right. That's what that's what job openings and hires and quits are telling us. But still a healthy labor market. You know, look at the jobless claims number today. So we don't see you know, we don't see a big growing weakness there, Veronica. I'm sure that you guys get a lot of pushback. Yeah, no, absolutely. But yeah, I would certainly disagree on on the signs of weakness. I think we in the labor market, what we've seen is, you know, hiring rates that are at ten year lows, you know, part time employment increasing, hours worked coming down. It feels like all the early signs of businesses looking to cut labor costs. And we heard that in the anecdotes of the December report yesterday. What we don't see yet are the layoffs, but that would really be the last step. And we have had a worsening of consumer sentiment around job prospects, around the labor market in the last couple of months. And we've seen that reflected in a pullback in spending. We've had real good spending declining three or four months of this year, restaurant spending declining. It could be that pullback in spending and activity that gets businesses finally to do that last step of cutting labor costs, which is layoffs. Can we talk a little bit about communication? How do you think this sort of plays out on Wednesday? Yeah, it's going to be tricky because we have two pretty important reports before then, obviously tomorrow and then we're going to get CPI inflation the morning of the meeting. I do think the report tomorrow, if it is showing like what we expect slowing and job growth rising, the unemployment rate, this is a Fed that is going to leave all options on the table. We probably do see the dots come up, you know, 25 basis points showing just 50 basis points of cuts for this year. But I think it's really important for us to base our Fed outlook on where we think the data are going and not Fed speak, which could sound stale in a couple of months. It also depends, Rob, on what the market kind of gives them in the sense that we've already seen suddenly more rate cuts baked in. How do they respond to this idea that this is a market suddenly more bias to seeing weakness and continuing with the Goldilocks trend? Does that make their job easier to really signal that they're going to continue on the same path? Well, you know, they've had a there's been a real challenge for the Fed and for the market, which is the narrative has changed so much. And what's in pricing has changed so much over the last year. If you just look at the volatility of expected rate cuts in 2024 has been huge because it's responded to higher for longer than slower multiple cuts at the beginning of this year. And they've been very steady through the whole thing. You haven't seen them react to that. They've been we took, we think, where were where we have a chance of a soft landing. We think we're in disinflation. They've been very, very steady. And so I think I don't think they're going to respond to this change in market narratives. I think we're going to get Powell talking about disinflation continuing. There's a lot of tension around the exact inflation numbers and what they're telling us. I think we'll probably see quite a bit of conversation around that. And, you know, I don't know. I would be surprised if there's a lot of discussion around the labor market, but maybe there will be. Let's have a conversation about the bond market for a big move. Five days, 30 basis points low on a ten year plus more than 20 basis points lower at the front end on a two year yield. They should not be talking about this a little bit earlier. We've had tons of conversations about how risk skewed asymmetrically to lower yields going into data points because the Fed won't respond to strength given the move we've had over the last week or so. Just what is the setup going into payrolls, going into CPI next week? Well, because the curve is inverted, right? We have negative carry the further you go out in the curve. And so I think that limits the ability to rally too much from here. I mean, so if you get down closer to 4%, I think we would be going would be going underweight. You know, and I think that this both the rates market really is a range trade here. It has been for quite a long time. And we're getting towards the bottom of that of that range. You don't think we're more sensitive to weak data but more sensitive to strong data tomorrow? Is that fair? I think that's fair. Yeah. Okay. All right. Let's think about it. Maybe it was where phrased it best. Thanks to appreciate it, Veronica Clark. A city with quite a cool for July. Difference between July and September, they're a lot bigger than meets the eye. Because it's not just what happens in July and September. It's what happens for the remainder of the year. And it's what happens over the next 24 months and how this sort of percolates into a cycle that's either an adjustment or whether it's like a true recessionary type of rate cutting. You don't have rebalancing and normalization for the team over a city. You do not hear that. Let's give an update on stories elsewhere this morning with your Bloomberg brief. Has your hire a sayonara? Hi, John. U.S. jobless claims coming in slightly higher than estimates, 229,000 for the first week of June compared to the 220,000 that were expected. Last week's claims were also revised up to 221 from 219,000. The highly anticipated US payrolls report for May is due tomorrow at 8:30 a.m. Eastern. The ECB delivered a widely expected interest rate cut but stopped short of signaling any more may follow, having kept the key deposit rate at 4% for the past nine months. The ECB cut by 25 basis points, saying the inflation outlook has improved markedly. In a statement, the ECB said they are, quote, not pre committing to a particular rate path. ECB president Christine Lagarde. News conference is due to start in just a few minutes. Also coming up, space sex is poised to launch its starship rocket on a fourth major test flight. Part of the company's push to develop its system for regular flights into orbit and beyond. The rocket and its super heavy booster are expected to lift off around 850 Eastern this morning from Boca Chica, Texas. The test flights are meant to advance the Starship's progress. The company is now primarily focused on bringing the rockets back through Earth's atmosphere intact, a capability the craft will need for any future launches with the crew on board. That's your Bloomberg brief, John. Very cool, Uehara. Thank you. Look at the coverage of that in just a moment. Ed Ludlow is going to run you through things. This from Deutsche Bank. Just moments ago. As expected, the ECB cut rates 25 basis points, but the statement arguably gave less guidance that might have been expected. On what comes next, they go on to say. In that sense, the immediate tone is a hawkish cut. This is not a central bank, Lisa, in a rush to ease policy and maybe after this particular reaction in markets even more so, considering that inflation expectations ticking up, particularly in Germany, just around the corner, a news conference with Christine Lagarde. The next step in the labor market takes a jobless claims about 20 seconds away, the score of 72 that looks like this one hour away from the open about equity futures totally unchanged on the S&P 500 after closing yesterday at all time highs and the Nasdaq firmer by a 10th of 1%. Turn the page and get into the bond market. Isco is there yet? It's a little bit higher in sympathy with what's happening in Europe as well, pushing up there with a stronger euro off the back of this call from the ECB, a rate cut and then flying blind, never mind 25, 24, flying blind for the rest of this year. Jobless claims are out. Mike McKay as the number one Mike. Morning, John. It looks like we're going to be debating in a moment here when the Fed is going to raise interest rates, 229,000, a jump of 10,000 from the initially reported to 19 last week, 1,792,000 is the continuing claims number. That would be up only 1000 from the previously reported. The 219 is revised up to 221, so a gain of 8000 basically on the week and continuing claims, 1,000,007 90. So it's a 2000 change. It's not much change really at all, but it is in the wrong direction for people looking at the jobless claims numbers for some kind of signal, nonfarm productivity rises 2/10. The forecast was for a flat reading in the first quarter. This is a revision and it goes basically down from 3/10 in the prior month. So not good news. Unit labor costs up 4% and that's significantly down from the initially reported 4.7. So maybe that's some good news on the inflation front. Now, where do we go from here? That's the debate to be had. You were saying in the commercial, I'd hate to trade this. Oh my goodness, market these. If you told me if I had the ICM yesterday under embargo, I wouldn't know what to do with it. I would have got it all wrong if you knew that the ICM was going to come in as strong as it did on a headline level yesterday. Would you have put the right trader in the bond market? Absolutely, I would. If now that it's now hundred percent all it. It's tough, right? It's so difficult. Yeah. I mean, this is really challenging. It's hard because the also wondering what you're putting it together with. I wonder how much this other sort of peripheral report mattered. Suddenly quite a bit about revisions to employment figures from last year that came out around the same time last yesterday. So you have to wonder what's pushing what around. And we'll have to ask the Algos 60 minutes away from the open about when those outcomes kick in a little bit more. Equity futures on the S&P just about unchanged off the back of this number in the bond market. Yields looking like this at the front end of the curve. Let's pick up on the two year story coming really close to 5% of the back end of May and all the way back down again, up by not even a basis point this morning at four 7282. I can tell you briefly, the euro on my screen went through one night just moments ago, just south of that level. At the moment that we are at 108 98, not just the ECB in the mix here, taking away the prospect of cuts later this year, but also jobless claims. But upside surprise just moments ago, Lisa, just spark an additional move back to 109. There is this sort of creeping feeling that maybe the euro region is on some sort of stabilization or expansion. The US economy is cooling and that that hasn't been fully baked into that dynamics. You could get that stronger euro going forward and you're sort of seeing that play out. Check in again this time tomorrow when we get payrolls. Michael, thank you. This around the table cities. Veronica Clark in Vegas. Rob, while I am not going to bury the lead, Veronica, we're going straight to your call. July rate cut. All right. I need to know how bad the number needs to be tomorrow. Let's keep that in play. Yeah, I honestly I think the bar for bad labor market data for the Fed to be cutting sooner than the market is, pricing is pretty low. Tomorrow we think we're going to see 140,000 payrolls, which is a further slowing obviously from the slowing we had in April. The level of job growth, You know, that's still a pretty healthy level, but it's the trend that's concerning. I think the unemployment rate can go to 4.0% tomorrow. That's the Fed's end of year forecast. And we're we're hitting that sooner than they expect. And the favorite phrase of every constructive economist on Wall Street right now, rebalancing, normalization. You don't share it. You don't share it. No, I think the issue is when you're going from a region where you're running to strong and you're moving to a region where you're running too weak, you will have a moment where you look like you're in balance. It's the trend that's concerning. And I don't see any good reason why this cycle wouldn't follow previous cycles where you do get that slow weakening and you suddenly get an accelerated weakening. So now for the cage fight, Rob Waldner, who has completely the opposite view, he doesn't think July is anywhere in the cards. He thinks September probably. I mean, how much do you disagree with that approach? I think the big thing I disagree with is we think the growth will continue at a more steady pace that I think, Veronica, you laid out, which is, you know, we have an economy with a lot of momentum to it. And so the growth on its own doesn't really justify a rate cut. And so the rate cut narrative of multiple rate cuts I think is built on a growth. Narrative. What justifies a rate cut in September is kind of the way the Bank of Canada laid it out yesterday, which is, hey, the economy might be growing, but inflation is coming down. We're in there in continued disinflation, and we just don't need as much restriction as we used to have. So that's a different kind of narrative. And I think one where the Fed will be a little bit more cautious and we'll continue to be data dependent, which means, you know, they did one in September and then they watch to see how things come in. You know, we think probably September and December, maybe two cuts. So, of course, the difference between you both is not just a few months. You've got a completely different way of looking at this economy. How many cuts are you looking for in the next 12 months? 200 basis points total. 200 basis points total. Mid 2025. Yeah. Okay. You're nowhere near that are you know, we're not on a base case. We're not looking for 200 basis points. Okay. So you can drive a truck through the two opinions around this table right now, which is there is no rate hikes at the table. Well, okay. Well, there you go. But, Rob, to that point, just to sort of elaborate the aspect that you disagree with that we're hearing from Veronica, this is going to be more like a normal cycle where once they embark seeing that weakness, it's going to accelerate when the data gives you confidence that's not the case. Well, I think what in the data would point the other way, we don't see that in the data that would point to this weakness. I think there's a lot of concentration on this increase in the unemployment rate, which you talked about and looking at, you know, past cycles, the same rule, other things like this which have pointed to, you know, recessions following an increase in unemployment, what we see in the labor market is that the stress has been removed from the labor market. Right. That's what that's what job openings and hires and quits are telling us. But still a healthy labor market. You know, look at the jobless claims number today. So we don't see you know, we don't see a big growing weakness there, Veronica. I'm sure that you guys get a lot of pushback. Yeah, no, absolutely. But yeah, I would certainly disagree on on the signs of weakness. I think we in the labor market, what we've seen is, you know, hiring rates that are at ten year lows, part time employment increasing, hours worked coming down. It feels like all the early signs of businesses looking to cut labor costs. And we heard that in the anecdotes of the December report yesterday. What we don't see yet are the layoffs, but that would really be the last step. And we have had a worsening of consumer sentiment around job prospects, around the labor market in the last couple of months. And we've seen that reflected in a pullback in spending. We've had, you know, real good spending declining three or four months of this year, restaurant spending declining. It could be that pullback in spending and activity that gets businesses finally to do that last step of cutting labor costs, which is layoffs. Can we talk a little bit about communication? How do you think this sort of plays out on Wednesday? Yeah, it's going to be tricky because we have two pretty important reports before then, obviously tomorrow and then we're going to get CPI inflation the morning of the meeting. I do think the report tomorrow, if it is showing like what we expect slowing and job growth rising, the unemployment rate, this is a Fed that is going to leave all options on the table. We probably do see, you know, the dots come up, you know, 25 basis points showing just 50 basis points of cuts, four for this year. But I think it's really important for us to base our Fed outlook on where we think the data are going and not Fed speak, which could sound stale in a couple of months. It also depends, Rob, on what the market kind of gives them in the sense that we've already seen suddenly more rate cuts baked in. How do they respond to this idea that this is a market suddenly more bias to seeing weakness and continuing with the Goldilocks trend? Does that make their job easier to really signal that they're going to continue on the same path? Well, you know, they've had a there's been a real challenge for the Fed and for the market, which is the narrative has changed so much. And what's and pricing has changed so much over the last year. If you just look at the volatility of expected rate cuts in 2024, it's been huge because it's responded to higher for longer than slower multiple cuts at the beginning of this year and they've been very steady through the whole thing. You haven't seen them react to that. They've been we took, we think, where were where we have a chance of a soft landing. We think we're in disinflation. They've been very, very steady. And so I think I don't think they're going to respond to this change in market narratives. I think we're going to get Powell talking about disinflation continuing. There's a lot of tension around the inflation, exact inflation numbers and what they're telling us. I think we'll probably see quite a bit of conversation around that. And, you know, I don't know. I would be surprised if there's a lot of discussion around the labor market, but maybe there will be. Let's have a conversation about the bond market for the big move. Five days, 30 basis points low on a ten year plus more than 20 basis points lower at the front end on a two year yield. They shouldn't have talked about this a little bit earlier. We've had tons of conversations about how risk is skewed asymmetrically to lower yields and get to data points because the Fed won't respond to strength given the move we've had over the last week or so. Just what is the setup going into payrolls, going into CPI next week? Well, because the curve is inverted, right? We have negative carry the further you go out in the curve. And so I think that limits the ability to rally too much from here. I mean, so if you get down closer to 4%, I think we would be going would be going underweight. You know, and I think that this both the rates market really is a range trade here. It has been for quite a long time. And we're getting towards the bottom of that of that range. You don't think we're more sensitive to weak data but more sensitive to strong data tomorrow? Is that fair? I think that's fair. Yeah. Okay. All right, let's think about it. Maybe it was where phrased it would have been best. Thanks. Appreciate it. Veronica Clark. A city with quite a cool for July. The difference between July and September, they're a lot bigger than meets the eye because it's not just what happens in July and September. It's what happens for the remainder of the year. And it's what happens over the next 24 months and how this sort of percolates into a cycle that's either an adjustment or whether it's like a true recessionary type of rate cutting. You don't have rebalancing and normalization from the team over a city. You do not hear that. Let's give you an update on stories that square this morning with your Bloomberg brief. Here's your Hiroko. Sayonara. Hi, John. U.S. jobless claims coming in slightly higher than estimates, 229,000 for the first week of June compared to the 220,000 that were expected. Last week's claims were also revised up to 221 from 219,000. The highly anticipated US payrolls report for May is due tomorrow at 8:30 a.m. Eastern. The ECB delivered a widely expected interest rate cut but stopped short of signaling any more may follow, having kept the key deposit rate at 4% for the past nine months. The ECB cut by 25 basis points, saying the inflation outlook has improved markedly. In a statement, the ECB said they are, quote, not committing to a particular rate path. ECB President Christine Lagarde. News conference is due to start in just a few minutes. Also coming up, space sex is poised to launch its starship rocket on a fourth major test flight. Part of the company's push to develop its system for regular flights into orbit and beyond. The rocket and its super heavy booster are expected to lift off around 850 Eastern this morning from Boca Chica, Texas. The test flights are meant to advance the Starship's progress. The company is now primarily focused on bringing the rockets back through Earth's atmosphere intact, a capability the craft will need for any future launches. With the crew on board. That's the Bloomberg brief. John Very cool. Uehara Thank you. Look at the coverage of that in just a moment. At Ludlow, it's going to run you three things. This from Deutsche Bank just moments ago. As expected, the ECB cut rates 25 basis points, but the statement arguably gave less guidance that might have been expected on what comes next. They go on to say in that sense, the immediate tone is a hawkish cut. This is not a central bank, Lisa, in a rush to ease policy and maybe after this particular reaction in markets even more so, considering that inflation expectations ticking up, particularly in Germany, just around the corner, a news conference with Christine Lagarde. Yeah. Happened about 45 minutes away. Equity futures on the S&P 500 cut into that cash open just about negative by 0.04%. A big focus on what's happening in Europe and the eurozone. First interest rate cut since 2019. Euro dollar one a wait and see. A positive by 2/10 of 1%. Why? Because a lot of people, including Deutsche Bank this morning, promote describing this one as a hawkish cut from the ECB because in Deutsche Bank's rationale, there didn't really there wasn't any guidance in terms of what this means for further rate cuts. And in fact, arguably, especially given the inflation forecast rising over 2025 and the remainder of this year, you might argue there is more reason in here to hold rates where they are for a longer period of time. The ECB president, Cristina God, just walking into the room. We can get those pictures up for you. This is going to begin in about 2 minutes or so. But it's a line in the statement that I imagine we're going to hear on repeat from BCP President Christine Lagarde. And that line in the statement reads as follows The Governing Council is not pre committing to a particular right path. What is really strange about this particular decision and there are many, many dimensions to why this is strange. They basically pre committed to a 25 basis point cut in June and we thought there'd be this big fight over July, over September. I'm wondering whether this just a big fight over 2024 now, whether 2024 is in play at all for the ECB to make another move. What are the questions I would want to ask her is what are the metrics that go into sufficiently restrictive? How do you understand this as a mid-cycle adjustment? How do you understand this is a normalization? What normal are you going to all of these questions that none of them can answer and that, frankly, are probably the subject of massive debates on the council? Imagine if Chairman Powell did this next week. He wrote something like this in the statement. The Federal Reserve projections for both headline and core inflation have been revised up for 24 and 25. And at the same time, the statement read, we've just lowered interest rates by 25 basis points with the open arms around this table. That's exactly what's just happened at the ECB this morning. And people will be up in arms about that. And I'm sure you'll get the sort of, you know, haters that will come out quietly and unsourced reports who speak to publications afterwards who say this was absolutely an irresponsible move. There is this issue, though, of whether this actually removes the onus of them going again this year or even potentially not until way later this year. Right. Is this basically look, we're getting ahead of any potential weakness, particularly in Germany. How much does this actually give us ammunition to go that much further? These are maybe some of the conversations she could raise. You know how we talk about Chairman Powell and how much distance between him and the committee, the consensus, how much daylight is there between him and some of the members of the FOMC? I just wonder how difficult it is to establish a consensus on a 20 nation Eurozone European Central Bank, and come out into a news conference after what many people might consider to be a controversial decision this morning and deliver just a seamless news conference for 60 minutes. Yeah, what would you do? And we're going to find out what she's going to do. Right now, I'm going to punt. Let's take a listen to the ECB president Christine Lagarde conference.

Channel: Bloomberg Television

Views: 34,334

Keywords: Jon Ferro, Lisa Abramowicz

Id: LoTQO-9opV8

Length: 151min 59sec (9119 seconds)

Published: Thu Jun 06 2024