Bloomberg Surveillance 7/05/2022 Currencies in Focus

>> WE'VE BEEN LOOKING FOR NOT A TECHNICAL RECESSION BUT A SIGNIFICANT ENOUGH SLOWDOWN. >> THE UNDERLYING FUNDAMENTALS ARE STILL PRETTY GOOD. >> THE NEXT NEWSLINE BATTLE IS GOING TO BE BETWEEN EARNINGS AND INFLATION. >> OVER ALL WE ARE LOOKING AT AN ECONOMY LOSING MOMENTUM FASTER THAN WHAT WE ANTICIPATED. >> THIS IS BLOOMBERG SURVEILLANCE WITH TOM, JONATHAN FERRO AND LISA ABRAMOWICZ. JONATHAN: GOOD MORNING. THIS IS BLOOMBERG SURVEILLANCE ON TV AND RADIO. I AM JONATHAN FERRO WITH MATT. WE HAVE TO START WITH THIS FX MARKET. TOM: FX IS REALLY FRONT AND CENTER. BITCOIN IS NOT A CURRENCY, JUST TO KEEP MATT IN ORDER. FX IS A LITMUS PAPER OF THE SYSTEM. MAYBE THREE TIMES IN EVERY DECADE IT REALLY MATTERS. I'M GOING TO GO BACK TO DEUTSCHE BANK, THE DAY OF THE PUTIN INVASION OF UKRAINE, HE SAID STRONG DOLLAR WILL BREAK THE SYSTEM. ARE WE THERE YET? JONATHAN: LOOK AT THE CONSEQUENCES ALREADY. THE TRADE BALANCE IN GERMANY TURNING NEGATIVE. YOU THROW IN THE BUNDESBANK, TO THE ECB AND THE EXECUTIVE BOARD. TOM: THERE IS NO QUESTION ABOUT IT. I'M GOING TO PARTITION IT RIGHT NOW. IS EM FX AND THEN YOU'VE GOT THE ACTUAL FX EURO-DOLLAR, THE REST OF IT, BUT YOU'VE GOT THE TRIANGULATION OF THE DIFFERENT PAIRS AND THAT IS WHAT WE WILL FOCUS ON IN THE JOBS REPORT. JONATHAN: MICHAEL FEROLI ON FRIDAY, DOWNGRADING HIS OUTLOOK FOR ECONOMIC GROWTH OFF THE BACK OF A SOGGY SOFT WEEK IN MANUFACTURING NUMBERS. MATT: AND IT LOOKS LIKE IN THE U.S., WE ARE ALREADY IN A RECESSION, AT LEAST TECHNICALLY BECAUSE WE HAD A CONTRACTION IN THE FIRST QUARTER AND THE ATLANTA FED GDP SURVEY SHOWS THE CONTRACTION OF 2.1% FOR THE SECOND QUARTER. UNLESS THE PRINT BEATS THAT IN 23 DAYS FROM NOW, THE U.S. ALREADY HAS TWO BACK-TO-BACK QUARTERS OF RECESSION. JONATHAN: MORGAN STANLEY PUBLISHING THIS MORNING, SAYING THE RISK OF GROWTH SLOWING MORE THAN EXPECTED HAS INCREASED. TOM: IT IS, BUT EXPECT THE UNEXPECTED AND IT IS NOT ANNOUNCED BUT YOU GET THE TARIFFS FROM CHINA, THE GLOOM, YOU CAN WALK THROUGH IT OVER THE WEEKEND. A HUGE AMOUNT OF GLOOM THIS WEEKEND AND IT'LL BE NICE TO TALK TO A MORE CONSTRUCTIVE TONE LATER. JONATHAN: DID YOU NOTICE WHAT WAS ON TOP OF MILLER'S DESK THIS MORNING? HE CAME IN ON THE BIKE, NOT THE TRUCK. CAN YOU TELL US HOW MUCH MONEY YOU SAVED? MATT: FILLING UP THE TRUCK COSTS $150. FILLING UP THE BIKE COSTS MORE LIKE $20. JONATHAN: MATT MILLER, LOOKING FORWARD TO THIS FOR THE NEXT FEW HOURS. LET'S WHIP THROUGH THIS PRICE ACTION. THE NASDAQ, -6/10 OF 1%. THE FRONT END OF THE CURVE UP SIX BASIS POINTS. TOM, THAT IS THE STORY RIGHT NOW. TOM: TECHNICALLY WE ARE NOT THERE. THE REAL YIELD SPEAKS VOLUMES. WE HAVE SEEN A SHIFT IN THE INFLATION IN JUST THE 10 YEAR YIELD. THAT IS SOMETHING THAT I THINK HAS BEEN UNDER VIEWED THIS WEEK. I'M GOING TO GO TO FX. JONATHAN: DID WE CATCH YOU BEING AN OPTIMIST? BEN, WHAT ARE YOU LOOKING FOR? BEN: THAT IS THE SHOE THAT HAS NOT DROPPED YET. WE HAD A BIG DRAWDOWN IN VALUATIONS. EARNINGS HAVE BEEN ROCKSOLID. AND IF EARNINGS CAN CONTINUE TO HOLD THEN WE SORT OF DODGED THAT BULLET AND SET OURSELVES UP FOR A STRONGER SECOND HALF. IF EARNINGS CRACKED, THAT IS THE INGREDIENT FOR POTENTIALLY ANOTHER LEG DOWN. EXPECTATIONS WILL BE FALLING, COMPANIES HAVE BEEN PRETTY GOOD SO FAR AND HOLDING ONTO THAT TOPLINE GROWTH AND MANAGING TO PASS THROUGH THE COST TO YOU AND I AND KEEPING THEIR MARGINS PRETTY CLOSE -- TOM: LOUSY REAL GDP GROWTH, BUT I STILL HAVE A PRETTY GOOD INFLATION LEVEL, WHICH I BELIEVE IS A GOOD ANIMAL SPIRIT IN NOMINAL GDP. IS THAT A SCRIPT FOR THE SECOND HALF? BEN: IT IS ALL ABOUT INFLATION. WE ARE PRETTY CLOSE TO PEAK INFLATION. IF WE GET RELIEF, I THINK THIS RECESSION FREIGHT TRAIN WHICH HAS BEEN PICKING UP SPEED, TAKES A STEP BACK AND GIVES ROOM FOR VALUATIONS TO RISE, WHICH ARE NOW 20 YEAR AVERAGES, AND SOME OF THIS RELIEF OF EARNINGS EXPECTATIONS A LITTLE BIT, AT LEAST IN TERMS OF THE MARKET, THAT IS A SORT OF BULLISH NARRATIVE, BUT WE DO HAVE NEXT WEEK, BIG INFLATION NUMBERS AND THE START OF CUTER EARNINGS -- Q2 EARNINGS. MATT: -- WAS ON THE PROGRAM LAST WEEK SAYING ANALYSTS ARE IN CRAZY TOWN RIGHT NOW AND THE NEED TO BRING THEIR ESTIMATES DOWN, AND THAT MICHAEL BURRY TWEETED LAST WEEK, WE HAVE DONE THE VALUATION COMPRESSION, NEXT UP IS MARGINS. WHAT DO YOU EXPECT? ARE WE LOOKING AT A 50% DROP IN EARNINGS THE WAY WE DID IN THE GREAT FINANCIAL CRISIS, OR IS THIS JUST GOING TO BE 20? BEN: 20 IS YOUR AVERAGE AND I THINK IT IS GOING TO BE LESS THAN AVERAGE. THERE IS NOTHING INEVITABLE ABOUT THIS RECESSION. RISKS ARE RISING WITH CORPORATE'S IN GOOD SHAPE, TECHNICAL POINTS WELL TAKEN. IT IS NOT GOING TO BE GLOBAL. WE SAW THE CHINA PMI RIGHT THIS MORNING. IT IS NOT GOING TO BE BIG. THIS IS A TYPICAL FED DRIVEN RECESSION. WE WILL NOT HAVE THE 2008 MULTIPLIERS, LIKE OVER LEVERED HOUSING AND BANKS WHICH GAVE US A 45% EARNINGS DRAWDOWN. AND AGAIN, THE S&P 500 IS THE CREAM OF THE CROP. THESE ARE THE PEOPLE WITH THE BIG BALANCE SHEETS AND GLOBAL OPERATIONS. IF ANYBODY CAN HANDLE A MILD SLOWDOWN OR RECESSION,. IT IS THEM. TOM: YOU ARE -- RECESSION, IT IS THEM. TOM: YOU ARE THE KING OF STAYING STRONG DURING THE GLOOM. WHAT IS THE LAIDLER GLOOM METER LOOKING LIKE RIGHT NOW? BEN: WE'VE BEEN HERE FOR SIX MONTHS AND NOTHING HAS WORKED. WE JUST CLOSED OUR FIRST QUARTER, THE FIRST HALF OF THE SECOND QUARTER AND LITERALLY NOTHING HAS WORKED. I THINK PEOPLE ARE VERY DEPRESSED AND THAT IS ONE OF THE INGREDIENTS FOR THIS POTENTIALLY BETTER SECOND HALF, IF WE GET SOME RELIEF ON INFLATION. CORPORATE'S CAN HOLD STRONG AND MAKE US -- I DON'T THINK CORPORATE'S ARE COMPLETELY IMMUNE HERE, BUT I DON'T THINK WE ARE SET UP FOR AN EARNINGS COLLAPSE. THE SENTIMENT IS TERRIBLE. THOSE ARE YOUR FOUR INGREDIENTS. JONATHAN: ON THE EARNINGS FRONT, CAN YOU WALK US THROUGH WHERE YOU ARE LESS CONSTRUCTIVE? WHAT WOULD YOU AVOID? BEN: I THINK RIGHT NOW, WE WANT TO BE IN THE MARKET. THE RISKS ARE HIGH. I WANT TO BE PRETTY DEFENSIVE. CONSUMER STAPLES, UTILITIES, THE EARNINGS RISK IS A LOT LOWER. ANYTHING THAT IS SENSITIVE TO THE ECONOMY HAS BEEN TAKEN OUT OF THE WOODSHED AND DESTROYED. THAT IS WHY THE RISKS REMAIN HIGH. JONATHAN: THE ONE MARKET THAT IS UP IS ENERGY. THERE IS THIS TENSION BETWEEN THE STORY MATT IS TALKING ABOUT, RECESSION AND WHAT IS HAPPENING IN THE ENERGY MARKET, AND WHETHER THOSE STORIES CAN COEXIST THROUGH THIS YEAR. DO YOU THINK THEY CAN? BEN: I DO. MAYBE NOT AT THIS PRICE BUT WE ARE IN A TIME OF A HIGH FOR LONGER ENERGY -- RATES ARE HALF WHAT THEY WERE LAST TIME. THE BIGGEST DEMAND OF OIL IN THE WORLD IS RECOVERING, WHICH IS CHINA. I THINK IT IS A GLASS HALF-FULL STORY AT THIS POINT. JONATHAN: BEN LAIDLER, OF ETORO, THANK YOU. THE FACT THAT WE HAVE SEEN THIS STUFF IN THE ENERGY SECTOR, FOR THAT INDUSTRY WITH THE COMMODITY, WITH CHINA, LOCKED DOWN OVER THE LAST TWO YEARS. THAT IS AMAZING. TOM: THE GLOBAL BACKDROP IS WHAT IT IS, 3% GDP AND WE MAY EVEN SEE THAT MARK DOWN, GIVEN THE TALE OF CHINA RECOVERING, AND THOSE IMPORTANT POLITICAL MEETINGS OF THE YEAR. THIS IS THE FIRST DAY OF THE KICK OFF OF SECOND HALF AFTER THE THREE-DAY HOLIDAY. THIS IS WHERE THE COLONIES WON THE WAR. THAT WAS A CELEBRATION. JONATHAN: CAN I CLAIM SOMETHING? GROWING UP IN THE U.K., YOU REALLY DON'T CARE ABOUT THIS. I'M VERY HAPPY TO WISH MY FRIENDS IN AMERICA A HAPPY FOURTH. YOU SEEM TO BE MUCH OR CONCERNED ABOUT HOW WE MIGHT FEEL ABOUT IT, WE DON'T REALLY CARE. MATT: I GET IT. IT'S THE SAME AS WHEN MICHIGAN LOSES TO OHIO STATE FOR 10 YEARS IN A ROW. WE RUB IT IN THEIR FACES. THEY DON'T CARE BECAUSE THEY ARE IN ACADEMIC SCHOOL. THEY HAVE ALL OF THEIR SURVEYS AND INDEXES TO FALL BACK ON. WE ONLY HAVE FOOTBALL. JONATHAN: SO UPSETTING. TOM: I CAN BARELY KEEP UP THIS WEEKEND, BETWEEN THE FOCUS ON WHAT KIND OF HOT DOGS TO EAT AND THE SCANDAL WITH KETCHUP AND MUSTARD. FULL DISCLOSURE FOLKS -- THE STRESSES OUT THERE WERE SUBSTANTIAL, BUT I COULDN'T RELAX BECAUSE IT WAS THE BIGGEST WEEKEND. WHAT IS RINALDO GOING TO DO? JONATHAN: THESE REPORTS ARE WHILE RIGHT NOW. DID YOU SEE THE TWEETS FROM THE PRESIDENT OVER THE WEEKEND? MY MESSAGE THE COMPANY'S RUNNING GAS STATIONS. THIS AT A TIME OF WAR AND -- JEFF BEZOS HAD HIS OWN THOUGHTS ON THIS. WE WILL TOUCH ON THAT IN JUST A MOMENT. FUTURES -4/10 OF 1%. WHERE IS BRAMWELL? TOM: I THINK SHE IS AT YORKTOWN, WATCHING THE BATTLE MONUMENTS. JONATHAN: SHE'LL BE BACK NEXT WEEK. THIS IS BLOOMBERG. ♪ RITIKA: KEEPING YOU UP-TO-DATE AROUND THE WORLD WITH THE FIRST WORD, I AM RITIKA GUPTA. IN HIGHLAND PARK, ILLINOIS, A 22-YEAR-OLD MAN IS BEING HELD IN CUSTODY. POLICE BELIEVE THE ATTACKER OPENED FIRE FROM THE ROOFTOP OF A BUILDING NEAR THE PARADE ROUTE. CHINA AND THE U.S. HAVE DISCUSSED TRUMP ERA TARIFFS PRESIDENT BIDEN IS LOOKING TO EASE. THE LIFTING OF TARIFFS AND SANCTIONS IS AN AREA OF CONCERN. THERE ARE REPORTS THE PRESIDENT MAY ANNOUNCE A ROLLBACK ON SOME TARIFFS ON HUNDREDS OF BILLIONS OF DOLLARS WORTH OF CHINESE GOODS. THAT WOULD HELP LOWER THE COST OF EVERYDAY MERCHANDISE. THE NEW LEADER OF HONG KONG IS SIGNALING A CAUTIOUS APPROACH TOWARD THE CORONAVIRUS. HE SAYS THEY WANT TO BALANCE TRAVELING CONVENIENCE WITH LIMITING THE SPREAD OF COVID. HE ALSO WARNED THAT PEOPLE IN HONG KONG SHOULD ONLY BE ALLOWED TO GO ABOUT NORMAL ACTIVITIES WHEN IT IS KNOWN THEY ARE NOT INFECTED. CITIGROUP WARNS THAT OIL COULD COLLAPSE TO SIX HE FIVE DOLLARS A BARREL BY THE END OF THE YEAR. ANALYSTS SAY COULD SLUMPED TO $45 BY THE MIDDLE OF 2023 IF A RECESSION HITS. THAT IS BASED ON -- BY THE OPEC-PLUS CARTEL, AND A DECLINE IN OIL INVESTMENTS. SCANDINAVIAN AIRLINES HAVE FILED FOR BANKRUPTCY PROTECTION TO DEAL WITH THEIR DEBT FOR THE SECOND TIME IN TWO YEARS. -- RAISE ADDITIONAL EQUITY. GLOBAL NEWS, 24 HOURS A DAY, ON AIR AND ON BLOOMBERG QUICKTAKE, POWERED BY MORE THAN 2700 JOURNALISTS AND ANALYSTS IN MORE THAN 120 COUNTRIES. >> WE ARE WORKING RIGHT NOW VERY ACTIVELY TO DIVERSIFY OUR GAS SUPPLY. CLEARLY THE RISK IS THERE. WE SEE RUSSIA CUTTING GAS TO OTHER COUNTRIES. IT IS SOMETHING WE NEED TO TAKE SERIOUSLY. JONATHAN: THAT IS THE EUROPEAN COMMISSIONER FOR ECONOMY AND TRADE. WELCOME BACK FROM A LONG WEEKEND. MATT MILLER, I'M JONATHAN FERRO. EURO-DOLLAR BRIEFLY AT 1.02. YOU HAVE TO GO BACK TO 2002 TO SEE THE CURRENCY THIS WEEK. IT HAS BEEN A LONG WHILE. TOM: FIRST THING I DID WHEN I CAME IN, TURKEY'S IDIOSYNCRATIC BUT THERE IS PARTITIONS AND EFFECTS ANALYSIS THAT WE'VE GOT TO LOOK AT AND I'M NOT GOING TO MINCE WORDS. DEUTSCHE BANK, THE DAY OF THE UKRAINE INVASION, ABSOLUTELY NAILED THIS AND SAID IT IS NOT PLAZA CORD LEVELS BUT IT IS A STRONG DOLLAR. JONATHAN: THE FRONT AND CENTER YIELDS OFF BY -- THE DIFFERENCE BETWEEN TWOS AND TENS ACROSS THE TREASURY CURVE, ONE SINGLE BASIS POINT, JUST ONE SINGLE BASIS POINT. TOM: I WOULD SAY THERE WAS A SHIFT IN THE CURVE UP. I'M LIFTING MY HANDS, FOR THOSE OF YOU ON RADIO. THIS WEEK, YOU ARE GETTING SOME OF THE SQUISHY DYNAMICS WHERE YOU HAVE TO -- HEAD TOWARDS INVERSION. JONATHAN: YIELDS DOWN LAST WEEK. NOW INTO TUESDAY. WE HAVE TO KEEP BUILDING ON THIS. NEW COMPONENTS OF THE DREADFUL CONTRACTIONARY TERRITORY. WE HAVEN'T MENTIONED PAYROLLS THIS FRIDAY. TOM: PAYROLLS WILL BE INCREDIBLY IMPORTANT, AND THEN THE MONTH OF JULY WITH EARNINGS AS WELL. INTERNATIONAL RELATIONS ON WASHINGTON AND ALL THAT WE SEE IN EUROPE AND CHINA. MARIA TADEO, AFTER AN EVENTFUL SET OF TRAVELS IN SOCIAL AND TODAY, I WANT TO TALK ABOUT THE DIVERSION OF THE WEEKEND, THE THUNDEROUS REALITY THAT THE RUSSIANS ARE WINNING THE WAR. BOTH SIDES GRINDING AND THEN THERE IS THIS STORY OR THAT STORY BUT ESSENTIALLY THEY ARE WINNING THE WAR. MR. PUTIN IS WINNING THE WAR BUT THE BACKSTORY IN MOSCOW IS HE IS ARRESTING EVERYONE IN SIGHT. HIS HE WINNING THE WAR? -- IS HE WINNING THE WAR? MARIA: HE WAS ON CAMERA AND HE SPOKE WITH THE HEAD OF THE RUSSIAN ARMY, CONGRATULATING THEM FOR MAKING -- GOING TO CONTINUE SPECIAL OPERATIONS AND FOCUS ON -- IF HE IS SUCCESSFUL, THAT MEANS THE INVASION AND OCCUPATION OF THE DONBASS WILL BE COMPLETED AND THAT IS THE GOAL. WHAT UKRAINIANS FEAR, AND THERE HAS BEEN A -- WHERE THERE IS A RECONSTRUCTION CONFERENCE GOING ON, THEY FEAR THAT ONCE HE COMPLETES THE INVASION OF DONBASS, IS GOING TO TURN TO FURTHER INROADS OF UKRAINE. WHEN IT COMES TO THE ARRESTS WE ARE SEEING PLAY OUT IN RUSSIA, RUSSIAN CITIZENS, THIS IS JUST VLADIMIR PUTIN DOING WHAT HE SAID HE WOULD DO FOR MONTHS AGO WHEN HE APPROVED LEGISLATION SAYING IF YOU DON'T SUPPORT THE WAR, YOU ARE NOT RUSSIAN OR PATRIOTIC AND THEREFORE YOU HAVE TO BE TAKEN OUT OF THE PICTURE. THAT. . IS ESSENTIALLY WHAT HE SAID FOR MANY RUSSIANS, -- THAT IS ESSENTIALLY WHAT HE SAID. FROM ANY RUSSIANS, WHEN THEY WATCH TV, THEY DON'T HEAR ABOUT THE WAR, THEY DON'T HEAR ABOUT THE ARRESTS, THEY HEAR THAT THEIR BOYS ARE MAKING GOOD PROGRESS IN A VERY GOOD OPERATION. TOM: WE LOST SIGHT OF THIS WITH TRAGIC SHOOTINGS IN THE U.S. AND DOMESTIC POLITICS IN THE REST OF IT. JOE MATHIEU, WHAT IS THE NEXT STEP ON UKRAINE FOR THE WHITE HOUSE AND OUR PRESIDENT? JOE: MARIA GOT TO THIS IN HER INTERVIEW. SOMETHING WE TALKED ABOUT OVER THE LAST WEEK OR SO, THE IDEA OF USING HUNDREDS OF BILLIONS OF DOLLARS FROZEN FROM SANCTIONS, RUSSIAN MONEY TO PAY FOR NOT JUST THE WAR EFFORT BUT THE EVENTUAL REBUILDING OF UKRAINE. I SPOKE WITH DANIEL FRIEDE, THE FORMER AMBASSADOR TO POLAND AND HE SAYS THIS IS THE POINT WE HAVE TO BE FOCUSING ON. IT IS NOT GOING TO COME EASILY BUT THERE IS AN ISSUE HERE WHERE THE MONEY IS GOING TO COME FROM, AS WE GET CLOSER TO THE MIDTERM ELECTIONS. THE PROSPECT OF WAR FATIGUE, IT IS SOMETHING THIS WHITE HOUSE KNOWS ABOUT, EVEN AFTER -- JUST DAYS AFTER, THE WORDS OF THE NATO SUMMIT WERE FOR AS LONG AS IT TAKES. WE ARE TALKING ABOUT INDEFINITE SUPPORT AND LIKELY BILLIONS OF DOLLARS FOR IT. EITHER THAT MONEY IS GOING TO COME FROM RUSSIA OR IT IS GOING TO HAVE TO BE A MUCH MORE CONCERTED FOCUS ON KEEPING PEOPLE TRAINED ON THIS, KEEPING AMERICANS INVOLVED AS WE GO INTO A POTENTIAL RECESSION, WHY WE SHOULD BE HANDING ALL OF THIS MONEY OVER TO ANOTHER COUNTRY. MATT: AND OUR RECORD ON INDEFINITE SUPPORT ISN'T THAT GREAT, IF YOU LOOK AT WHAT WE HAVE DONE IN AFGHANISTAN. WE SAID WE WILL SUPPORT THEM AS LONG AS IT TAKES AS WELL, AND THEN WE PULLED OUT, IN A PRETTY MESSED UP WAY. JOE: I DON'T KNOW THAT WE CAN COMPARE THE TWO. IN TERMS OF DURATION, THIS IS GOING TO BE AN ISSUE AND SOMETHING THAT THE WHITE HOUSE IS ALREADY FEELING. SENATOR RAND PAUL WAS TALKING ABOUT THIS MONTHS AGO, AND THE IDEA OF KEEPING REPUBLICANS AND DEMOCRATS ON THE SAME PAGE AHEAD OF NOVEMBER WHEN IT COMES TO INDEFINITE MILITARY SUPPORT FOR UKRAINE MAY BE EASIER SAID THAN DONE. JONATHAN: ARE THEY ON THE SAME PAGE WHEN IT COMES TO TARIFF REMOVAL? I'M FASCINATED TO SEE HOW THIS WILL PLAY OUT. JOE: THERE IS NEW URGENCY FOLLOWING THIS MEETING WITH JANET YELLEN AND THE VICE PREMIER OF CHINA. THE PARTIES DO NOT AGREE ON THIS. PROGRESSIVES WANT TO SEE THE TARIFFS STAY, AND REPUBLICANS ARE MIXED ON IT. THE FACT IS THERE IS AN ARGUMENT INSIDE THE ADMINISTRATION. THE U.S. TRADE REPRESENTATIVE DOUBTS THE IMPACT OF REMOVING THE TARIFFS WHILE ALSO LOSING LEVERAGE, SOME OF THE ONLY LEVERAGE WASHINGTON HAS OVER BEIJING. THE PETERSON INSTITUTE AND BARCLAYS BOTH SAY THAT BETWEEN 2/10 AND THREE TENS OF A PERCENTAGE POINT DROP IN U.S. PRICES IN U.S. INFLATION IS WHAT WE WOULD ACCOMPLISH. THE QUESTION BECOMES THE BALANCE BETWEEN LOSS OF LEVERAGE AND LOWERING PRICES. JONATHAN: JOE MATHIEU OF BLOOMBERG ALONGSIDE MARIA TADEO. I THOUGHT IT WAS INTERESTING THAT MAYBE THEY PULLED BACK SOME TARIFFS ON CHINESE GOODS BUT DOUBLE DOWN WHEN IT COMES TO TECHNOLOGY. YOU'VE GOT TO FIND SOME BALANCE. THIS IS SO IMPORTANT. AT THE SAME TIME YOU ARE ACCUSING THE CHINESE COMING'S PARTY OF GENOCIDE, THE SAME TIME THAT IS HAPPENING, D.C. IS ON THE SAME PAGE WITH THE STUFF AND YOU WILL GO FORWARD AND POTENTIALLY REMOVE TARIFFS. WE TALKED ABOUT HOW AWKWARD THAT IS. MATT: IT IS AWKWARD, AND NOT THE ONLY AWKWARD SITUATION WE FACE. THE PRESIDENT IS LIKELY TO GO TO SAUDI ARABIA AND MEET WITH THE PARIAH LEADER, NBS AND ASK HIM TO RAISE OIL PRODUCTION, NOT THAT THEY CAN DO VERY MUCH, RATHER THAN GOING DOWN TO TEXAS AND ASSURING U.S. PRODUCERS THAT THEY HAVE HIS SUPPORT. IN TERMS OF TARIFFS, THIS IS A REALLY INTERESTING STORY BECAUSE I EXPECTED IT TO BE A LIFT TO RISK ASSETS THIS MORNING. WE HAVE SEEN BIG DROPS IN EUROPE AND FUTURES IN THE INTERESTING POINT IS AT THE TARIFFS WILL GO BOTH WAYS. JONATHAN: I PROMISED THE JEFF BEZOS'S TO THE PRESIDENT. INFLATION IS FAR TOO IMPORTANT FOR THE WHITE HOUSE TO CONTINUE MAKING STATEMENT LIKE THIS. IT IS EITHER MISDIRECTION OR A DEEP MISUNDERSTANDING OF BASIC MARKET DYNAMIC -- BASIC MARKET DYNAMICS. TOM: PRICE THEORY 101. JONATHAN: WE WOULD LOVE TO CATCH UP WITH JEFF WHENEVER HE IS FREE. JONATHAN: THE U.S. AND CHINA PULLING BACK ON TARIFFS NOT ENOUGH. NEGATIVE HALF OF 1% ON THE S&P. LOSSES LAST WEEK, WE ADD TO THEM THIS TUESDAY MORNING. YIELDS LOWER LAST WEEK, A LITTLE HIGHER TODAY BUT PICTURE THIS, -- A LOT OF THIS IS ABOUT WEAK DATA, A FEED OF WEEK DATA. ALL THROUGH MOST OF LAST WEEK WITH THE POTENTIAL TO DO THAT AGAIN THIS WEEK GOING INTO PAYROLLS FRIDAY. A TURNAROUND, A BIG TURNAROUND IN THE FX MARKET. EURO-DOLLAR, VERY BRIEFLY WITH A 1.02 HANDLE. TK, YOU HAVE TO GO ALL THE WAY BACK TO 2002 TO SEE THESE KINDS OF LEVELS ON EURO-DOLLAR AND YOU CAN TAKE YOUR PICK THIS MORNING. I WOULD SAY LOOK TO THE BUNDESBANK, LOOKING AT THE ECB EMERGENCY POLICY BUT FOR EUROPE RIGHT NOW, THIS IS VERY VICIOUS. IT STARTS TO BECOME A BIT OF A SPIRAL. WHAT BREAKS THAT VICIOUS CYCLE? TOM: THE SPIRAL AS PART OF IT AND I FOLD ON THE E.M. WHICH WE WILL NOT TALK ABOUT BUT I THINK THE E.M. ANGLE BEARS A LOT OF STUDY, A LA STANLEY FISHER BACK IN 1988. THIS IS THE CHIEF ECONOMIST AT AXON INVESTMENT MANAGERS. HE IS A STUDENT OF THE EUROPEAN ECONOMIC EXPERIMENT. THIS IS THE INTERVIEW OF THE DAY ON THE COLLAPSE OF SO MANY CERTITUDES IN EUROPE. I WANT TO CUT TO THE CHASE WHEN I LOOK AT TRADE-WEIGHTED EURO AND I GET IT IS WEAKER AND IT REALLY HASN'T TECHNICALLY BROKE DOWN, BUT WE ARE GETTING THERE QUICKLY. THE STEREOTYPE THAT A WEAK EURO BENEFITS GERMAN EXPORTS, IS THAT FROM ANOTHER TIME AND PLACE OR IS IT STILL TRUE THAT GERMANY WILL BE BENEFITED BY A WEAK EURO? [INAUDIBLE] THE STRENGTH OF THE CURRENCY OR THE ABSENCE OF STRENGTH. WHAT MAKES THE STRENGTH OF GERMAN EXPORTS IS THE QUALITY OF -- THEY HAVE BEEN LESS SENSITIVE THEN ITALIAN OR FRENCH EXPORTS. WE ARE IN A SPECIFIC SITUATION RIGHT NOW BECAUSE THE REASON WHY IS THE TRADE BALANCE IN GERMANY IS GENERATING -- DEGENERATING SO FAST BECAUSE OF WHAT THEY HAVE TO PAY THE REST OF THE WORLD TO GET THEIR ENERGY. WE HAVE A VERY SPECIFIC SITUATION WHICH HAS NOT MUCH TO DO WITH WHERE THE CURRENCY GOES. TOM: GILLES ON SLOWS, YOU AND I HAVE STUDIED FROM ANOTHER TIME AND PLACE. THEY GENTLEMAN OVER AT THE GERMAN BANK IS VERY CONCERNED ABOUT STRONG DOLLAR. ARE WE GETTING TO A POINT WHERE STRONG DOLLAR IS ACTUALLY AN INTERNATIONAL RELATIONS ISSUE, WHERE IT IS REMOVED FROM ECONOMICS? GILLES: WE ARE STILL IN A SITUATION WHERE IF YOU LOOK AT WHERE INTEREST RATES ARE RIGHT NOW, IT MAKES SENSE THAT WE HAVE A STRONG FISCAL DOLLAR. THEY STARTED HEIDI -- THEY STARTED HIKING RATES, THE ECB TALKING ABOUT IF THEY WILL DO IT IN JULY. THE POTENTIAL FOR THEM TO GO PRETTY DEEP INTO RESTRICTION TERRITORY IS QUITE HIGH WHERE IS THE ECB IS TALKING ABOUT -- SO THAT WE HAVE STRENGTHEN THE DOLLAR AT THE MOMENT SHOULD NOT COME AS A SURPRISE. IS IT A POLITICAL ISSUE? I THINK INCREASINGLY, GOVERNMENTS ARE MORE RELAXED THAN THE USED TO BE, AT LEAST ON THE EUROPEAN SIDE, WHEN IT COMES TO THE STRENGTH OF THE CURRENCY, ESPECIALLY IN THE SITUATIONS WE ARE IN RIGHT NOW. I WOULD NOT BE SURPRISED IF IT WERE TO RUN SO HIGH IN THE PUBLIC DEBATE, AT LEAST ON THIS SIDE OF POLICY IN EUROPE. JONATHAN: WE TALKED ABOUT THE TRADE SURPLUS BEING VERY SUPPORTIVE FOR THE CURRENCY. THAT STORY HAS CHANGED. TO WHAT EXTENT HAS THIS BECOME A DIFFERENT STORY WITH A WEAKER CURRENCY, ONE THAT IS VERY HARD TO BREAK? I WANT TO UNDERSTAND YOUR THOUGHTS IN REAL TIME. GILLES: THE FX MARKET THAT IS DRIVEN MORE BY GROWTH AND INTEREST RATES, RATHER THAN ANY CONCERNS OVER THE PAYMENTS IN GENERAL, BECAUSE I KNOW IT IS UNUSUAL TO SEE GERMANY IN A TRADE DEFICIT BUT IT IS DUE TO THIS VERY SPECIFIC SITUATION. IT IS NOT SUGGESTIVE OF PROPER DETERIORATION, TO CONTINUE TO BUILD PRODUCTS WHICH THE REST OF THE WORLD WANTS TO BUY. IT WOULD BE PRUDENT -- CURRENT WEAKNESS IN THE EURO IS THE RESULT OF THE BALANCE A STATEMENT -- IF YOU TAKE THE FIVE TO 10 YEAR TREND, MAYBE GERMANY WILL HAVE A TOUGH TIME TRANSITIONING FROM ITS CURRENT MODEL. ADD THE CURRENT JUNCTURE, AND THE NEED IS REAL. MATT: WHAT DO YOU EXPECT, GILLES , FROM FED? IT SEEMS LIKE THEY ARE LOCKED INTO 75 BASIS POINTS IN JULY, OTHERWISE THEY WILL LOSE CREDIBILITY. WE HAD ED HYMAN ON, AND HE WAS TALKING ABOUT PERSONAL CONSUMPTION AND SPENDING. BOTH OF THOSE DATA POINTS MISSED THE ESTIMATE AND IT IS KEY TO HAVE THE CONSUMER KEEP SPENDING TO HOLD THIS ECONOMY UP. GILLES: -- FAILED TO DELIVER ON HIS FORWARD GUIDANCE. IT IS PROBABLY THIS KIND OF MOMENT WHEN THE FED WOULD BE RETHINKING ITS TRAJECTORY. A LOT OF REASONS WHY THEY SHOULD BE MORE PRUDENT. I CAN TELL YOU, LIKE MANY ECONOMISTS IN EUROPE, WHAT WE WOULD TELL THE FED TO DO. DON'T GO TO 75. WHAT IS HAPPENING IN THE U.S. IS WE HAVE THE STANDARDIZED ENFORCES STARTING TO FINALLY EMERGE. WE'VE BEEN WAITING FOR SPENDING TO BE HIT BY THE EROSION IN PURCHASING POWER. IT SEEMS TO BE FINALLY HAPPENING. A LOT OF THE COLLABORATION, PLENTY OF HAWKISH COLLABORATION AT THE FED WAS BASED ON THE FACT THAT SO FAR, WE HAVE FAILED TO SEE THESE SELF STABILIZING FORCES AT PLAY. IF THEY ARE WORKING NOW, THERE IS A GREAT CASE TO BE MADE. IT IS NOT ABOUT BREAKING CREDIBILITY, IT IS ABOUT BEING PRAGMATIC ABOUT THE STATE OF THE ECONOMY AND WHAT YOU WANT TO ACHIEVE TO DELIVER ON YOUR PURPOSE, WHICH IS TO TIGHTEN INFLATION. IF INFLATION IS CONTAINED ON ITS OWN, BECAUSE PEOPLE START SPENDING OR SPENDING LESS, HAVING -- YOU WOULD HAVE LESS TO DO IN TERMS OF TIGHTENING. IT IS A HEALTHY DEBATE TO HAVE. JONATHAN: GREAT TO CATCH UP AS ALWAYS, GILLES MOEC OF AXA INVESTMENTS. TK, WHAT DID MARK TWAIN SAY? HISTORY DOES NOT REPEAT ITSELF, BUT IT OFTEN RHYMES. TOM: SCANDINAVIAN AIRLINES, I DON'T HAVE THE DETAILS IN FRONT OF ME BUT WE ARE GETTING VERY STRIKING. -- VERY STRIKEY. A LOT OF ARTICLE SAYING IT IS NOT LIKE THE 1970'S. I GET THAT. NEVERTHELESS, THEY TEND TO BE DISRUPTIVE AND I WONDER HOW THAT HOLDS ACROSS E.M.. I'M NOTICING IN INDONESIA, THE RUPEE OUT TO NEW WEAKNESS. I THINK THE LINKAGE -- WE ARE EURO FOCUSED BUT THE -- JONATHAN: IT IS NORWAY TOO. MATT, AS YOU KNOW, THE DEPENDENCY ON RUSSIA HAS BEEN A BIG DEAL. THAT WILL SHIFT TOWARDS NORWAY TO SOME ASPECT. WHAT WE ARE SEEING IS NORWAY STRIKES WITH THE POTENTIAL TO CAUSE EVEN MORE PAIN IN THE ENERGY MARKET. THIS GOES BACK ENERGY AND THIS RELATIONSHIP WITH THE EURO. THIS IS MORE THAN PROBLEMATIC. MATT: AND IN NORWAY, SEEING STRIKES LIKE THIS IS MORE CONCERNING THAN THE U.K., WHERE STRIKING IS A NATIONAL PASTIME. THE INTERESTING PART -- THE INTERESTING COMPARISON TO THE 1970'S AND THE PUSH BACK AGAINST IT, A LOT OF IT HAS TO DO WITH METRICS. YOU TALK TO NEIL GROSSMAN OR BILL DUDLEY, AND THEY WILL TELL YOU WE MEASURE INFLATION DIFFERENTLY NOW AND IF WE DID AT THE SAME, WE MIGHT SEE TEEN 70'S STYLE INFLATION RIGHT NOW IN THE 20 20'S. JONATHAN: DO YOU THINK WE GROW UP AND THEY TELL US HOW TO STRIKE? MATT: I LIVED THERE A FEW YEARS AND THERE WAS A TUBE STRIKE EVERY COUPLE OF WEEKS. JONATHAN: IF YOU LIVED IN LONDON FOR A LONG TIME, YOU ONLY KNEW LONDON BY THE UNDERGROUND MAP. EVERYONE WOULD COME UP TO THE SURFACE AND THEY WOULD HAVE NO CLUE HOW TO GET HOME WHEN THERE IS A TUBE STRIKE. DID YOU SEE THAT TAKE PLACE? MATT: I TYPICALLY ROAD MY DUCATI TO WORK AFTER I REALIZED THERE WAS NO WAY TO RELY ON THE TUBE, BUT OTHER PEOPLE HAD PROBLEMS. JONATHAN: TRYING TO NAVIGATE OUR WAY BACK FROM EAST LONDON TO WEST LONDON WITHOUT THE TUBE, AND GETTING LOST. TOM: THAT IS A GREAT STORY. ALL I GOT THIS MORNING WAS A MORNING TANG. JONATHAN: TANG WITH VITAMIN C. THAT'S A REAL THING. MATT: THE ASTRONAUTS DRINK IT. JONATHAN: THAT IS WHAT PEOPLE TAKE IT FOR NOW? TOM: THE COLONIES. THE WEEKEND WAS ABOUT WHEN THE COLONIES WON THE WAR IN 1781. JONATHAN: THAT IS WHAT IT WAS ABOUT. I JUST THOUGHT IT WAS AN EXTRA DAY OFF. TOM: I'M SURE YOU DID. JONATHAN: FUTURES DOWN HALF OF 1%. THIS IS BLOOMBERG. ♪ RITIKA: KEEPING YOU UP-TO-DATE WITH NEWS FROM AROUND THE WORLD, I AM RITIKA GUPTA. A 22-YEAR-OLD MAN IS BEING HELD IN THE DEADLY SHOOTING AT A FOURTH OF JULY PARADE IN HIGHLAND PARK, ILLINOIS. HE WAS ARRESTED FOLLOWING A BRIEF POLICE CHASE. AUTHORITIES SAY HE OPENED FIRE FROM THE ROOFTOP OF A BUILDING NEAR THE PARADE ROUTE. SIX PEOPLE WERE KILLED, DOZENS MORE WOUNDED. PRESIDENT BIDEN MARKED THE FOURTH HOLIDAY BY NOTING THE U.S. HAS MADE GREAT STRIDES BUT HAS ALSO TAKEN A FEW STEPS BACKWARDS. AT A WHITE HOUSE EVENT, THE WHITE -- THE PRESIDENT SAID AMERICANS ARE WORRIED ABOUT THE DIVISION IN THE COUNTRY AND HE DESCRIBED THE ECONOMY AS GROWING BUT NOT -- TURKEY HAS RENEWED ITS THREAT TO KEEP SWEDEN AND FINLAND OUT OF NATO. THE PRIME MINISTER SAID HE WILL NOT RATIFY ALLIANCES IF THEY DON'T FILL THEIR PROMISES TO EXTRADITE TERROR SUSPECTS. THE TURKISH PARLIAMENT WILL EVENTUALLY VOTE ON SWEDEN AND FINLAND'S NATO APPLICATIONS. THE U.K. WILL FORCE OWNERS OF APPS SUCH AS SOCIAL MEDIA AND SEARCH ENGINES TO -- IF THEY DON'T, THEY FACE FINES AS MUCH AS 10% OF ANNUAL SALES. BLOOMBERG HAS LEARNED THAT -- AS EMERGING AS THE FRONT RUNNER TO BUY -- THE BUSINESS COULD BE VALUED AROUND $20 BILLION IN ANY DEAL. GLOBAL NEWS, 24 HOURS A DAY, ON AIR AND ON BLOOMBERG QUICKTAKE, POWERED BY MORE THAN 2700 JOURNALISTS AND ANALYSTS IN MORE THAN 120 COUNTRIES. I AM RITIKA GUPTA. THIS IS BLOOMBERG. ♪ >> I THINK THE METHOD WAS CRYSTAL CLEAR FROM THIS WEEK'S REMARK BY CENTRAL BANKERS. THEY ARE WORRIED ABOUT INFLATION GETTING ENTRENCHED. RIGHTLY SO. I THINK THE NOTION THAT THE FED WILL BLINK EARLY, BASED ON CREDIT ISSUES IS NOT LIKELY TO HAPPEN. JONATHAN: ABSOLUTELY BRILLIANT ON FRIDAY, ON WHAT IS HAPPENING WITH CREDIT. SPREADS ARE WIDER. THAT IS THE STORY FOR EQUITIES DOWN A HALF A PERCENT. ON EURO-DOLLAR, 1.03. -- TWO REASONS, RISK SENTIMENT, NATURAL GAS THE OTHER AND CONCLUDING WE NOW THINK THE PROBABILITY OF EURO-DOLLAR FALLING TO PARITY IS AROUND 80%. UNLESS NOT GAS MANAGES A STRONG REVERSAL TO THE DOWNSIDE, IT IS DIFFICULT TO SEE PRESSURE ABATING FOR NOW. TOM: GIVE ME THE CHART IF YOU CAN, THE EU CHART ON NAT GAS. THIS IS VERY DIFFERENT THAN WHAT WE SEE IN AMERICA, IT IS REAL SIMPLE OUT OF THE NETHERLANDS. CRITICALLY ABOVE THE MOVING AVERAGE, I USE FOR THE FEBRUARY SPIKE. JONATHAN: UNREAL, AND THAT IS WHERE THE PAIN IS. TOM: THE CALENDAR, YOU ARE RUNNING ALGEBRAIC EQUATIONS AND YOU HAVE TO PUT THE CALENDAR INTO IT. SOMEBODY WHO IS GOOD AT THIS, SHE WAS ABSOLUTELY BRILLIANT THE LAST TIME SHE WAS ON WITH US, AND OPEN QUESTION WITH ALL THAT IS GOING ON. WHAT IS THE SIGNIFICANT PARAGRAPH IN THE NOTE YOU WILL WRITE THIS WEEK? WHAT IS THE THING THAT YOU ARE REALLY STUDYING RIGHT NOW? >> TWO THINGS I WOULD SAY. FIRST AND FOREMOST IS AROUND RECESSION, I THINK WHILE THERE ARE A LOT OF FEARS AROUND EXACTLY HOW THE RECESSION WILL PAN OUT AND WHAT IT MEANS FOR OIL DEMAND, FOR US, THE CONICAL THING TO HIGHLIGHT IS THAT ASIA -- AND YOU AND I HAVE TALKED ABOUT THIS A LOT -- CHINA'S REOPENING, I DO THINK A MILD RECESSION IS PRICED IN. NOBODY IS TALKING ABOUT WHAT IF DEMAND HOLDS UP, WHAT COULD PRICES DO? WE ARE LOOKING INTO THAT AND OF COURSE ON THE SUPPLY SIDE, WE GOT A STRIKE GOING ON IN NORWAY, AND WE'VE GOT SOME SEASONAL PRESSURE COMING THROUGH AS WELL. TOM: ARE THE ELASTICITIES OF GAS THE SAME AS OIL? IS IT LIKE BRENT CRUDE? AMRITA: I WOULD SAY ON THE INDUSTRIAL SIDE, LET'S START WITH THE CONSUMER SIDE, WITH THE CONSUMER SIDE, ABSOLUTELY NOT. NATURAL GAS IS ELECTRICITY WHICH MEANS YOU ARE GOING TO REQUIRE IT, PARTICULARLY FOR HOME HEATING DURING THE WINTER, WHEREAS ARGUABLY YOU COULD DRIVE LESS, UNLESS YOU HAVE TO DRIVE TO WORK. FROM A CONSUMER STANDPOINT, NATURAL GAS IS EVEN MORE IN ELASTIC THAN OIL. IF YOU LOOK AT GERMANY, THE NETHERLANDS, THEY ARE DIALING DOWN A LOT OF GAS CONSUMPTION, SIMPLY BECAUSE GAS PRICES ARE SO HIGH. OUR MODELS ALREADY BUILDING IN SOME SIGNIFICANT DEMAND IN EUROPE BECAUSE OF HIGH GAS PRICE -- DEMAND INSTRUCTION IN EUROPE BECAUSE OF HIGH GAS PRICES AND GIVEN WHAT HAPPENED IN THE U.S. WITH LOWER ENERGY. IF CHINESE -- PICKS UP IN THE WINTER, RISKS LIKE YOU GUYS WERE TALKING ABOUT IS ABSOLUTELY TO THE UPSIDE WHEN IT COMES TO PRICES IN EUROPE. MATT: TOM, I WILL SEE YOUR ELASTICITY AND RAISE YOU FUNGIBILITY. WHY AREN'T NATURAL GAS PRICES AS FUNGIBLE AS OIL? WE SEE SUCH A HUGE DIFFERENCE IN THE PRICE HERE VERSUS THE PRICE IN THE NETHERLANDS. WHY AREN'T THEY AS INTERCHANGEABLE? AMRITA: GREAT QUESTION. THE SIMPLE REASON IS OIL HAS ALWAYS BEEN A GLOBAL COMMODITY. REMEMBER WHEN THE U.S. USED TO NOT BE ABLE TO EXPORT CRUDE? WE HAD WTI TRADING AT $20. THAT IS WHEN IT WASN'T AS FUNGIBLE. NOW WITH EXPORTS ALLOWED, THE PRICE WILL DICTATE FLOWS. WHEREAS GAS IS SLOWLY GETTING THERE. IT HAS BEEN IN REGIONAL MARKETS AND EVEN RIGHT NOW, THE U.S. DOES NOT EXPORT AS MUCH GAS AS IT COULD AT THESE CURRENT PRICES. AND OF COURSE YOU HAVE THE OUTAGES AT PORTS. THAT IS THE DIFFERENCE. GAS HAS ALWAYS BEEN A MORE LOCALIZED MARKET. MATT: I WANT TO ASK ABOUT THE COMPETING CALLS ON OIL THIS MORNING, AMRITA. CITI, SAYING $65, WHICH MAKES SENSE IF WE HAVE A DEEP GLOBAL RECESSION. ON THE OTHER HAND, JP MORGAN SAYS IT COULD GO AS HIGH AS 380 DOLLARS, WHICH IS AN EYE GRABBING HEADLINE BUT WHAT THE TOSHA CAN AVA PUT BEHIND THAT, SHE SAYS THIS IS -- SHE SAYS GIVEN MOSCOW'S ROBUST FISCAL POSITION, THEY CAN AFFORD TO WEAPONIZE OIL AND PULL 5 MILLION BARRELS A DAY OFF OF THE GLOBAL MARKET. DO YOU THINK THAT IS REALISTIC? AMRITA: WE DON'T THINK THAT IS LIKELY BECAUSE SO FAR, WE STILL SEE RUSSIA ACTING AS A RATIONAL PLAYER IN THE MARKET, BOTH FOR OIL AND GAS. IT DOESN'T MEAN THAT ENERGY DOES NOT GET WEAPONIZED. MORE SO FOR GAS THAN OIL, WE COULD SEE THAT BUT DEFINITELY NOT THE BASE CASE. IN OATH CASES, I WOULD HIGHLIGHT THESE ARE VERY EYE GRABBING NUMBERS. IT MAKES THE MEDIA HEADLINES. I WOULD ARGUE EVEN IN A DEEP RECESSION, I DON'T SEE OIL PRICES GOING BELOW $80 OR $90 BECAUSE OF YEARS OF INVESTMENT. LOOK AT THE U.S. THE DALLAS FED SURVEY ONLY TALKED ABOUT LABOR SHORTAGES AND EQUIPMENT SHORTAGES. NOBODY IS ACTUALLY ABLE TO RAISE PRODUCTION VERY MUCH. THAT IS ON THE ONE SIDE. IF RUSSIA WERE TO CUT 5 MILLION BARRELS, GIVEN HOW TIGHT THE MARKET IS, YOU COULD LITERALLY PICK A NUMBER. $380? IT COULD BE $400 SOMETHING. JONATHAN: COULD THE GLOBAL ECONOMY TOLERATE IT? AMRITA: ABSOLUTELY NOT. THE ONLY REACTION HAS TO BE A VERY DEEP RECESSION AND OIL DEMAND HAS TO COLLAPSE, TO EVEN BALANCE THIS MARKET. JONATHAN: AMRITA SEN, THANK YOU, FROM ENERGY ASPECTS. ONCE YOU GO ABOVE $200, MOST OF THESE GUYS IN THIS MARKET, THESE ANALYSTS DO NOT EXPECT THE ECONOMY TO TOLERATE THAT FOR VERY LONG AT ALL. MATT: THE ECONOMY COULD NOT TOLERATE IT BUT THE MARKET BE ABLE -- MAY BE ABLE TO DO IT. JONATHAN: I AGREE WITH YOU. MATT: THE PRICE ACTION, IF YOU SEE REAL TINKERING WITH THE SUPPLY, THEN THE PRICE ACTION, THE SKY IS THE LIMIT. JONATHAN: LOOKING AT PAYROLLS THIS FRIDAY. THEY ARE EXPECTED TO SLOW DOWN. WELL ABOVE LONG-TERM TRADE GROWTH AND CLEARLY ABOVE RECESSION. TOM: THAT IS THE GAME WE WILL HAVE INTO FRIDAY. WE DON'T HAVE AN ADP REPORT, RIGHT? JONATHAN: WE HAVE TO WAIT ON THAT. YOU ARE NOT DISAPPOINTED? >> WE HAVE BEEN LOOKING FOR A SIGNIFICANT ENOUGH SLOW INTO NEXT YEAR. >> THE UNDERLYING FUNDAMENTALS ARE STILL PRETTY GOOD. >> THE NEWS HEADLINE BATTLES IN BETWEEN EARNINGS AND INFLATION. >> WE ARE LOOKING AT AN ECONOMY LOSING MOMENTUM FASTER THAN WHAT WE ANTICIPATED. >> THIS IS "BLOOMBERG SURVEILLANCE." JONATHAN: LIVE FROM NEW YORK CITY FOR OUR AUDIENCE WORLDWIDE, GOOD MORNING. THIS IS "BLOOMBERG SURVEILLANCE ." BRAMO IS OUT OF THE BUILDING. SHE WILL BE BACK NEXT WEEK. THE DOWNGRADES ARE PILING UP. TOM: WE ARE ALL GOING TO DIE. MOMENTS AGO, THE RESEARCH PIECE OF THE LONG WEEKEND, JOHN OF OPCO, I'M SORRY, IT IS CLEAR. HE SAYS CONSIDER THE SECOND HALF OF THE GLOOM OF 1970, WE WENT FRO -90OM -24% -- WE WENT FROM -24%. I WOULD SAY WE ARE IN A BEAR MARKET. IT HAS NOT ADJUSTED YET. I'M JUST SAYING THE GLOOM THIS WEEKEND WAS STUNNING. JONATHAN: IT HAS BEEN GOLDMAN. THEY ARE ALL REVISING THEIR GROWTH. TOM: REVISING IT. MATT MILLER HAD A VERY IMPORTANT POINT, FIRST ONE THIS YEAR. MATT MILLER SAID, IS THAT ABOUT -- IS IT ABOUT THE ECONOMICS AT THE MOMENT OR FINANCIALS, AND ARE THEY ON THE SAME PAGE? JONATHAN: WHICH ONE IS IT? MATT: RIGHT NOW, IT IS REALLY ABOUT THE ECONOMICS. I HAVE BEEN WATCHING CLOSELY EVER SINCE READING THE NOTES LAST NIGHT, THE ATLANTA FED GDP NOW SURVEY AND IT SHOWS WE ARE IN A RECESSION TECHNICALLY. I WAS TALKING TO GARY SHILLING THIS RECENTLY AND HE SAID, WE ARE NOT IN A RECESSION. CLEARLY, IF WE HAVE TWO QUARTERS OF RETRACTION BACK AND FORTH, THIS ECONOMY IS NOT AS STRONG AS A LOT OF THE ECONOMISTS THINK. JONATHAN: WE ARE NOT SEEING SOMETHING MORE BROADER. I UNDERSTAND THE LABOR MARKETS ARE BACK. I GET ALL OF THAT. THIS IS THE POINT CITI IS TRYING TO MAKE. 290 IS THEIR ESTIMATE FOR FRIDAY FOR PAYROLLS. THAT IS A CLEAR SLOWDOWN IN JOBS GROWTH. THEY GO ON TO SAY WE ARE ALSO WELL ABOVE TREND AND CLEARLY ABOVE RECESSIONARY LEVELS. IS THIS JUST A BATTLE OF SEMANTICS? DOES IT MATTER? TOM: I DON'T AGREE IT IS SEMANTICS. WE HAVE SOME VERY IMPORTANT ANALYSIS GOING ON. ONE IDEA NOT DISCUSSED AS THE PARTITION OF THE DOMESTIC ECONOMY DYNAMIC. THERE IS REAL GLOOM VERSUS THE COMPLETE UNCERTAINTY OF THE INTERNATIONAL DYNAMIC AS WELL. MY ANSWER IS, YOU LOOK AT THE MOOD AND IT IS AS GLOOMY AS YOU CAN BE. DO YOU HAVE THE COURAGE TO STEP IN AMID THIS GLOOM AND THAT IS THE POINT OF DEBATE WE ARE IN. JONATHAN: THAT IS THE VIEW OVER AT J.P. MORGAN. HIS VIEW IS THAT THINGS ARE SO DEPRESSING THE AVERAGE INVESTOR IS SO NEGATIVE THAT IT IS A LOW BAR GOING INTO EARNINGS SEASON. CREDIT SUISSE IS ON THE SAME PAGE AND THINKS WE CAN GET DOUBLE DIGIT GAINS IN THE BACK HALF. J.P. MORGAN THINKS WE CAN RECOVER THE FIRST HALF LOSSES IN THE SECOND HALF. THERE IS OPTIMISM OUT THERE AND I THINK THAT PLAYS AGAINST SOME OF THEIR OWN VIEWS WHICH IS THAT EVERYONE IS BEARISH. MATT: I DO NOT THINK IT IS A LOW BAR GOING INTO EARNINGS SEASON. IF YOU LOOK AT THE ANALYST ESTIMATES, AND WE WERE TALKING ABOUT THIS WITH INDIVIDUAL STOCKS AND STRATEGISTS. THEY STILL HAVE NOT REVISED DOWN THEIR FORECAST. THEY STILL HAVE NOT REVISED DOWN THEIR EXPECTATIONS AND THAT NEEDS TO COME. YOU HAVE A PROBLEM WHEN YOU DON'T LISTEN TO CASSANDRA. CASSANDRA WAS GIFTED WITH A VISION OF THE FUTURE BUT CURSED BY THE FACT THAT NO ONE WOULD LISTEN TO HER. MICHAEL ON TWITTER, HIS HANDLE IS @CASSANDRA. HE POINTS OUT VALUATIONS CAME DOWN IN THE FIRST HALF AND MARGINS CAME DOWN IN THE SECOND. TOM: HAVE WE BOOKED HER? JONATHAN: SHE IS JOINING US LATER THIS MORNING. TOM: ABRAMOWITZ WOULD NEVER BE QUOTING GREEK MYTHOLOGY. JONATHAN: MIKE WILSON WAS SUPER DIPLOMATIC. OUR EXPERIENCE IS THAT HIGH QUALITY COMPANIES WILL ADMIT THE PROBLEMS EARLIER AND THAT IS WHAT THEY ARE LOOKING FOR THIS EARNINGS SEASON. FUTURES RIGHT NOW -.4% ON THE S&P. HERE IT IS. WE HAVE GOT TO TALK ABOUT THIS. IF YOU ARE JUST TUNING IN, WE HAVE GOT A 102 HANDLE ON EURO-DOLLAR. TOM: 20 SECONDS, HOW DO I LOOK AT THIS? I GO TO THE BLOOMBERG AND TRIANGULATE TO SEE WHAT IS MOVING AND IT IS AN UGLY EURO WARNING. I LOOK AT THE TRADE STATISTICS OF IMF AND SOME OF THE MAJOR BANKS. THE ANSWER IS TRADE-WEIGHTED MIGHT NOT BE AS GRIM AS SOME OF THESE PAYERS, BUT BOY ARE THEY MOVING IN A CHALLENGING DIRECTION. JONATHAN: I AT THE CHART UP AND WAIT TO SEE HOW LONG WE HAVE TO TAKE IT BACK SINCE THE LAST TIME WE SAW IT. TOM: YOU HAVE TO EXTRAPOLATE OUT DXY. I KNOW WE HAVE TO GET TO DAVID RILEY. JONATHAN: THIS IS A LOVELY CHAT AND THEN SOMEONE JUST SHOUTED "GUEST" REALLY LOUDLY IN MY EAR. DAVID RILEY JOINS US NOW. I WANT TO GO STRAIGHT TO HIGH-YIELD. PUSHING 600 BASIS POINTS. WHY DOES THAT BECOME A PROBLEM FOR THIS FED? MIKE SAID IT WAS A FEATURE. WHEN DOES IT BECOME A BUG AND NOT A FEATURE? DAVID: I THINK WHEN WE GET TO SOMETHING LIKE 800 ON U.S. HIGH-YIELD. AT THE MOMENT, WE ARE NOT SEEING THAT MUCH DYSFUNCTION OR DISTRESS WITHIN THE HIGH-YIELD MARKET. PRIMARY SUPPLIES HAVE BEEN CRUSHED, BUT MOST OF THE COMPANIES HAVE TURNED OUT THEY HAVE PRETTY LOW FINANCING REQUIREMENTS. THE DISTRESS RATIO, BONDS TRADING WIDE AT ABOUT 10% OF THE MARKET. THE FED WANTED TIGHTER FINANCIAL CONDITIONS. THAT MEANT HIGHER RATES, LOWER EQUITIES. THAT IS WHAT IT IS GETTING. I DON'T THINK IT IS ENOUGH TO MAKE THE FED BLINK. TOM: YOU ARE KNOWN FOR GREAT ACUITY ON ASSET ALLOCATION AND DECISION-MAKING. WHAT IS CASH RIGHT NOW? IS IT SOMETHING TO AVOID? IS CASH SOMETHING LIKE AN EMPTY NEST OR IS IT ACTUALLY AN INTEREST-BEARING OBJECT? DAVID: CASH IS AN ASSET AND OFFERS A FAIR AMOUNT OF OPTION VALUE FOR INVESTORS AT THIS POINT IN TIME. WE ARE RUNNING ABOVE DIFFICULT -- TYPICAL CASH BALANCE ACROSS A LOT OF OUR STRATEGIES. INFLATION IS ERODING THE REAL VALUE OF THAT. WE WANT TO BE DEPLOYING THAT ON BEHALF OF OUR INVESTORS. AT THE MOMENT, PLACES I THINK THERE IS VALUE, AND I KNOW OTHERS HAVE SAID THIS, UP IN QUALITY AND IMPROVE THE LIQUIDITY OF YOUR PORTFOLIOS. I THINK INVESTMENT-GRADE CREDIT IS STARTING TO LOOK PRETTY INTERESTING. WE HAVE SEEN A MEANINGFUL REPRICING ACROSS INVESTMENT-GRADE. IF WE DO GO INTO RECESSION, YOU HAVE A LITTLE BIT OF CUSHING COMING FROM ANY RALLY YOU MIGHT GET IN DURATION. MATT: ARE WE IN A RECESSION NOW? DAVID: IT FEELS LIKE WE ARE. I THINK THE U.K. IS IN RECESSION. I THINK IT IS AN OPEN DEBATE IN TERMS OF THE U.S. OBVIOUSLY, PAYROLLS REPORT ON FRIDAY WILL BE INTERESTING. JONATHAN: WE USED TO HAVE THIS OLD CLICHE IN THE MARKET, YOU CAN STOP PANICKING WHEN POLICYMAKERS START TO PANIC. DOES THE WHOLE TRUTH ANYMORE? WHAT DOES THAT MEAN THIS TIME AROUND? DAVID: I THINK WHAT HAS FUNDAMENTALLY CHANGED AND WE ARE ALL STRUGGLING WITH MARKET PARTICIPANTS AND INVESTORS TO ADJUST, IS THAT IN THIS PRE-PANDEMIC LOWFLATION ERA, ANY KIND OF GROWTH ISSUES, WE KNEW THE CENTRAL BANKS WOULD COME IN AND PROVIDE SUPPORT. BUT THEY ARE NOT IN THAT POSITION TO DO SO NOW BECAUSE INFLATION IS FAR TOO HIGH. THEY ARE WORRIED ABOUT THEIR CREDIBILITY, SECOND ROUND OF FED. I THINK THE DANGER IS THAT POLICYMAKERS LEAVE IT TOO LATE TO PANIC. BY BEING BACKWARD LOOKING, WE END UP RAISING RATES TOO FAR AND PUSHED THE ECONOMY INTO RECESSION. I THINK THE FED GOES MEANING WE ABOVE 4%. WE ARE GOING TO GAY RECESSION AND PEOPLE DEBATE WHETHER IT IS GOING TO BE A DEEP RECESSION OR NOT. WHO KNOWS, BUT I WOULD NOT LIKE TO BE TOO AGGRESSIVELY POSITIONED GOING INTO THAT TYPE OF ENVIRONMENT. JONATHAN: THAT IS HOW QUICKLY THIS CONSENSUS HAS MOVED. HEIGHTS TO A LONG AND SHALLOW RECESSION. MATT: LONG AND SHALLOW. JONATHAN: I THOUGHT IT WAS SHORT. TOM: WHATEVER. JONATHAN: WE UNDERSTAND ACCORDING TO "THE WASHINGTON POST," A SECOND MEETING COULD BE WITH THE CHINESE COUNTERPART LATER THIS WEEK. GERMANY APPROVING A BILL FOR ENERGY BAILOUTS. MATT: YOU HEARD ROBERT, THE GREEN LEADERS SAYING THAT ENERGY COULD BE GERMANY'S LEHMAN BROTHERS MOMENT. THEY ARE GOING TO DO MAYBE A $9 MILLION BAILOUT OF UNILEVER, OR THE SUBSIDIARY OF THE SCANDINAVIAN NATURAL GAS COMPANY AND PASSMORE OF THE COSTS ALONG THE CONSUMERS. GERMAN INFLATION LOOKS LIKE IT HAS TURNED OVER A LITTLE. BUT IT IS GOING TO GO RIGHT BACK UP WITH THAT. JONATHAN: I DID THE WALK OF THE NEWSROOM AND DROPPED BY TOM'S DESK TO SEE WHAT IS ON THE BLOOMBERG. WHAT IS THERE PRETTY MUCH EVERY MORNING FOR YOU? EUROPEAN NET GAS. TOM: THE BIGGEST IS TO SEE JON COME THROUGH THE NEWSROOM AND WALK FOR MY ENTOURAGE. HE HAS TO GET PAST LIKE EIGHT PEOPLE. JONATHAN: ARE YOU ADMITTED YOU HAVE A BIGGER ENTOURAGE THAN ME? TOM: I ALWAYS HAVE TO HAVE TWO MORE PEOPLE THAN YOU AND ONE LESS THAN ABRAMOWITZ. HAVE TO HAVE FOUR LESS THAN ABRAMOWITZ. JONATHAN: BRAMO IS OUT, WE MISS HER, BUT MATT MILLER IS FILLING IN. CRETE. FROM NEW YORK, THIS IS BLOOMBERG. ♪ >> KEEPING YOU UP-TO-DATE FROM NEWS AROUND THE WORLD. IN HIGHLAND PARK, ILLINOIS, A 22-YEAR-OLD MAN IS BEING HELD IN CONNECTION WITH THE KILLING OF SIX PEOPLE AT A FOURTH OF JULY PARADE. DOZENS OF OTHERS WERE INJURED. POLICE BELIEVE THE ATTACKER OPENED FIRE FROM THE ROOFTOP OF A BUILDING NEAR THE PARADE ROUTE. CHINA AND THE U.S. HAVE DISCUSSED TRUMP ERA TARIFFS PRESIDENT BIDEN IS LOOKING TO EASE. THERE ARE REPORTS THAT THE PRESIDENT MAY ANNOUNCE A ROLLBACK OF SOME TARIFFS ON HUNDREDS OF BILLIONS OF WORTH OF CHINESE GOODS. THE EURO SANK TO A 20 YEAR LOW AGAINST THE U.S. DOLLAR AND FELL BELOW $1.03. IT IS DOWN MORE THAN 9% AGAINST THE DOLLAR THIS YEAR. BRITISH AIRWAYS IS SCRAPPING MORE FLIGHTS FROM ITS SUMMER SCHEDULE. BRITISH AIRWAYS HAS NOW REDUCED ITS TIMETABLE BY 11% THROUGH OCTOBER. THE U.K. GOVERNMENT HAS WAIVED RULES THAT REQUIRE AIRLINES TO VIEW TAKEOFF OR LANDING START OR MOVE THEM NEXT SEASON. GLOBAL NEWS, 24 HOURS A DAY, ON-AIR AND AT QUICKTAKE, POWERED BY MORE THAN 2700 JOURNALISTS AND ANALYSTS IN MORE THAN 120 COUNTRIES. THIS IS BLOOMBERG. >> OVERALL, WE ARE LOOKING OUT AN ECONOMY LOSING MOMENTUM FASTER THAN WHAT WE ANTICIPATED. RIGHT NOW, WE HAVE A RECESSION CALLED FOR THE BEGINNING TO FIRST HALF OF NEXT YEAR. I THINK IF ANYTHING, THE DATA SHOWS THAT TIMING COULD BE SOONER. JONATHAN: THAT IS THE SOUND OF AN ECONOMIST ABOUT TO DOWNGRADE THEIR OUTLOOK. THAT IS MY INTERPRETATION. THAT IS THE SENIOR ECONOMIST FROM WELLS FARGO. BRAMO IS BACK NEXT WEEK. ON THE NASDAQ 100, DOWN .75%. EURO DOLLAR, SUB 1.03. JORDAN ROCHESTER CONFIRMED TO JOIN US IN ABOUT 20 MINUTES. TOM: HIS SAXOPHONIST WILL BE WITH US. IS THERE A BID HERE AND THE ANSWER IS NO. I HAVE NOT SEEN A BOTTOM. JONATHAN: AND THERE ARE TWO REASONS. INVESTOR SENTIMENT AND NET GAS. UNLESS YOU CAN SEE A TURNAROUND IN THE LATTER, THERE ARE PROBLEMS AHEAD FOR EUROPE. TOM: WE DID THIS WITH JOSEPH MATTHEW HOLDING COURT ON RADIO. INCREDIBLY IMPORTANT CONVERSATION. IF THIS WAS PRESIDENT TRUMP, HE WOULD BE OUT ON FOX MORNING TALK SHOWS, SCREAMING ABOUT A STRONGER DOLLAR. NOT THE POLITICS OF IT, BUT THE FACT THAT THE FORMER PRESIDENT WAS UPSET ABOUT THE RAMIFICATIONS OF A STRONGER DOLLAR. WHAT IS THE DOLLAR POLICY OF PRESIDENT BIDEN? JOE: I THINK IT COMES THROUGH THE END OF THE POLICY ON INFLATION. THAT IS THE CONVERSATION WE ARE HAVING FIRST. I MEAN CONSUMER PRICES SPECIFICALLY WHICH IS WHY WE ARE BACK TALKING ABOUT SOMETHING ELSE DONALD TRUMP A LOT OF TIME ON TWITTER ABOUT, AND THAT IS TARIFFS AND TRADE WITH CHINA. THIS IS APPARENTLY GOING TO BE UNFOLDING OVER THE NEXT COUPLE OF DAYS. TO GET TO THE STORY, LOOK AT WHERE IT BEGAN. THE TARIFFS AGAINST CHINA WERE IMPLEMENTED IN A SERIES OF ROUNDS. THE FIRST COUPLE OF ROUNDS WERE ABOUT INDUSTRIAL EQUIPMENT, TRANSPORTATION, THEN THINGS LIKE CONSUMER GOODS WERE ADDED AFTER-THE-FACT. HE SAID IT LISTING TARIFFS ON THINGS LIKE BICYCLES AND SUNSCREEN. SOME SUGGEST HE COULD INCREASE TARIFFS ON THE OTHERS. HOW THAT IMPACTS INFLATION AND THE DOLLAR IS UNCLEAR. WHAT WE HAVE HEARD FROM VERY SMART PEOPLE SUGGEST IT WOULD BE MUTED, .2% TO .3% OF A DECLINE. MATT: THERE ARE REALLY TWO INTERNATIONAL ISSUES WE ARE FOCUSED ON THIS MONTH IN TERMS OF THE BIDEN ADMINISTRATION. ONE IS THE TARIFF TALKS YOU HAVE EXPLAINED SO WELL THIS MORNING. THE OTHER IS THE TRIP TO THE MIDDLE EAST AND MOHAMMAD BIN SALMAN TO ASK FOR MORE OIL PRODUCTION. WHAT IS THE LIKELIHOOD WE REALLY GET SOMETHING OUT OF THAT? JOE: DID YOU HEAR THE PRESIDENT WHEN HE WAS IN EUROPE, HE WAS ASKED ABOUT THIS. HE SAID I'M NOT SPECIFICALLY ASKING SAUDI ARABIA TO INCREASE PRODUCTION, BUT ALL OF THE PARTIES WHO WILL BE THERE, WHICH SOUNDS A LITTLE BIT LIKE TAMPING DOWN EXPECTATIONS AHEAD OF WHAT IS GOING TO BE AN INCREDIBLY IMPORTANT TRIP, ASKING THE SAUDI'S AND OTHERS TO OPEN UP THE SPIGOT. WHEN YOU BACK UP AND LOOK AT THIS, YOU FIND JUST AS MANY SKEPTICS ABOUT THAT IDEA AS YOU DO ABOUT THE TARIFF IDEA. ALL OF THESE ARE BITING AROUND THE EDGES TO TRY TO FIGHT THIS INFLATION PROBLEM, JUST LIKE THE RELEASE, LIKE SO MANY OTHER THINGS THIS WHITE HOUSE HAS DONE TO TRY TO BUILD A WALL HERE. WE CAN KEEP PUTTING BRICKS IN THIS WALL, BUT NOT EVERYONE SEES THE ACTUAL RESULT BEING WHAT THEY WANT. TOM: NIKKI HALEY -- AND I DON'T WANT TO GET INTO INFLATION MATHEMATICS. I'M NOT GOING TO GO IN IT, BUT THEY COMPLETELY SCREWED UP THE MATHEMATICS. THE MATHEMATICS OF YOUR VIEW OF THE ADMINISTRATION'S THESE ARE ALL TEENSY WEENSY LITTLE THINGS. WHAT CAN HE DO SUBSTANTIAL TO GET AWAY FROMTEENSY WEENSY ADDITIVE CHANGES? JOE: IF I HAD THE ANSWER TO THAT, I WOULD PROBABLY BE WORKING FOR HIM. TOM: MAYBE YOU WILL BE. IT IS A SWEATY, HOT JULY. MATT MILLER SAYS EVERYTHING IS FUNGIBLE. IS THE STAFF AT THE WHITE HOUSE FUNGIBLE? JOE: MAYBE AFTER NOVEMBER. I DON'T THINK THIS IS A WHITE HOUSE THAT HAS THE SILVER BULLET THAT YOU ARE ASKING FOR, AS MUCH AS JOE BIDEN ONCE IT -- WANTS IT. THE HOPE IS YOU CAN CREATE A COMPOSITE EFFECT WITH THESE SMALLER MOVES TO ACTUALLY HAVE AN IMPACT ON INFLATION. BLOOMBERG HAS VERY SMART PEOPLE WHEN IT COMES TO ECONOMICS. YOU KNOW IF WE START TALKING ABOUT AN ACTUAL RECESSION, THAT MAY BE THE ONLY THING CLOSE TO A SILVER BULLET. JONATHAN: GREAT TO CATCH UP AS ALWAYS. WE NEED TO TALK ABOUT THIS AFFECTS MARKET. 120 ON CABLE, STERLING, 119.93. EURO-DOLLAR WITH A BREAK AT 103. EURO-DOLLAR, A BREAKDOWN, STERLING, A BREAKDOWN. TOM: I DON'T KNOW WHICH ONE IS A BIGGER DEAL. I WOULD SUGGEST MOST OF THE PEOPLE WE TALKED TO ARE WATCHING STERLING. IT IS SOMETHING THAT COULD REALLY CAUSE SOME SOCIAL ANGST WITHIN THE UNITED KINGDOM. I THINK IT IS AN IMPORTANT POINT. IF YOU HAVE WEEK YEN, TO THE JAPANESE PEOPLE CARE? IF YOU HAVE WEEK STERLING, THAT THE BRITISH PEOPLE CARE? IF YOU HAVE WEEK EURO, DO THE PEOPLE REALLY CARE? JONATHAN: IF YOU ARE IMPORTING INFLATION RIGHT NOW, YOU CARE. MATT: THE GERMANS CARE A LOT. I WOULD JUST SAY THAT THE GERMANS FOLLOW EXCHANGE RATES MUCH MORE CLOSELY THAN THE BRITS OR AMERICANS AS FAR AS I CAN TELL. ESPECIALLY WITH THE TRADE DEFICIT STORY YOU POINTED OUT, THEY ARE GOING TO BE LOOKING MUCH MORE CLOSELY. TOM: FARRO POINTED THAT OUT, I WAS ASLEEP. JONATHAN: IF YOU ARE AN ENERGY IMPORTER AND HAVE A WEAKER CURRENCY, YOU ARE GOING TO MAKE -- YOU ARE GOING TO HAVE A PROBLEM. TOM: YOU GUYS HAVE LIVED THE CALENDAR. WHEN DOES THE CHANGE IN TEMPERATURE IN SEASONS CLICK IN ON THE CONTINENTAL ENERGY STORY? JONATHAN: THAT IS ONE FOR MILLER SINCE HE LIVED IN GERMANY AND I LEFT EUROPE A LONG TIME AGO. MATT: END OF SEPTEMBER, YOU CAN HAVE TEMPERATURES HIGHER THAN 30 AND EVEN UP TO 40 IN BERLIN. THAT IS CELSIUS. JONATHAN: THANK YOU, MATT. TOM: YOU HAVE GONE SO EURO, YOU ARE ONLY THINKING IN CELSIUS? MATT: IT IS ONLY INTO SEPTEMBER WHEN YOU GET A COOLING. JONATHAN: IT COULD BE JULY OR AUGUST WHEN THE COLD STARTS TO KICK IN. TOM: I TALKED TO ONE OF ABRAMOWITZ'S ENTOURAGE. I CANNOT KEEP UP. MY GOAL IS TO GO BELOW 52ND STREET THIS SUMMER AND MAYBE GET DOWN TO RUBIES AT CONEY ISLAND. SHE IS IN CRETE SOMEWHERE. WHERE IS THAT? THE MEDITERRANEAN? JONATHAN: IT IS A GREEK ISLAND. TOM: SHE IS OUT LIKE SOME HOLISTIC EPICUREAN, EVERYTHING IS FRESH KIND OF RESTAURANT. JONATHAN: ARE YOU NAMING THE RESTAURANT SHE IS AT RIGHT NOW? WHAT IS THE ZIP CODE? IF YOU PUT THE ZIP CODE ON TV. TOM: IF YOU WANT TO SEND A POSTCARD. [LAUGHTER] JONATHAN: DO NOT RESPECT ANYONE'S PRIVACY? TOM: IT IS BIG, THE ZIP CODE FOR THE ENTIRE ISLAND. JONATHAN: HOW BIG IS THE ISLAND? JONATHAN: COMING UP ON THE BACK OF A WEEK OF LOSSES. NEGATIVE ABOUT 20 POINTS ON THE S&P. WE HAVE TALKED ABOUT THE DOWNGRADES BUILDING FOR THE ECONOMIC OUTLOOK. TAKE YOUR PICK, ALL OF THEM FOR THE OUTLOOK, CHOP, CHOP. CITI BELIEVES THE FED WILL KEEP ON HIKING. THE CONSENSUS IS DOWN FROM 390. THEY POINT OUT THAT IS NOT RECESSIONARY LEVELS FOR THEM IN THIS LABOR MARKET. SOME OF YOU MAY SCREAM BACK YET. THE BOND MARKET HAS BEEN RESPONDING TO WEAKER GROWTH. ISM MANUFACTURING IN CONTRACTION TERRITORY. WE HAVE NOT SEEN THAT SINCE MAY 2020. WE OPEN UP THIS MORNING WITH YIELDS HIGHER BY THREE BASIS POINTS. TOM: THE DISTINCTION TO ME HERE IS WE HAD SHIFTS IN THE CURVE LAST WEEK AND THIS WEEK WE HAVE DYNAMICS IN THE CURVE. JONATHAN: ARE PERSON SOME OF THE MOVES THAT WE SAW. YOU MAY HAVE A LOOK AT THE DIFFERENCE BETWEEN TWOS AND TENS. THE CURVE IS GETTING FLATTER THIS MORNING. TOM: THERE IS A DIFFERENCE BETWEEN FLAT AND INVERSION. JONATHAN: RIGHT NOW JUST TWO OR THREE BASIS POINTS. EURO-DOLLAR, A BREAKUP 103. YOU HAVE TO GO BACK TWO DECADES THE LAST TIME WE SAW THIS. CITI MAKING THE POINT THAT RISK SENTIMENT IS ONE, THE SECOND IS NATURAL GAS. IF YOU DON'T BELIEVE IT WILL START TO TURN THE OTHER WAY IN EUROPE, GET USED TO THIS CHART. TOM: EURO CAME IN AT 1.06 A YEAR AGO. WE ARE IN BETWEEN THE SPAN OF EURO. JONATHAN: 1.15 IS THE HIGH OF THE YEAR, I BELIEVE. JORDAN ROACH KNOW TOMORROW WILL BE CATCHING UP WITH US LATER ON. HE HAS BEEN WAITING FOR THIS ONE TO HEAD TOWARD PARITY. LET'S GET YOU SOME SINGLE NAMES WITH KRITI GUPTA. KRITI: AS WE SEE THAT EURO-DOLLAR DROP AND WEAKEN, NATURAL GAS PRICES SHOWING UP IN THE STOCK MARKET. THAT HEDGE HAS BEEN WORKING WELL. OCCIDENTAL, EXXON, DEVON ENERGY ALL HIRE. THOSE NAMES HAVE MORE EXPOSURE TO AMERICAN PRODUCTION. IT IS THAT OIL STORY IN THE FACE OF STRONGER DOLLAR THAT CONTINUES TO BE KEY. AS YOU SEE, IT HAS RIPPLE EFFECTS ACROSS NOT JUST THE OIL AND COMMODITY NAMES BUT OTHER MULTINATIONAL COMPANIES THAT HAVE THAT EXPOSURE TO A BROAD. THE COMMON THREAD IS ALL OF THEIR BUSINESSES HAVE THIS MASSIVE EXPOSURE TO CHINA, EUROPE, BRINGING THOSE PROFITS INTO THE STATE AND TURNING THEM INTO DOLLARS. THAT WILL HAVE AN EFFECT ON THE BOTTOM LINE. YOU CAN SEE ALREADY THEY ARE WEAKER THIS MORNING. TOM: GREATLY APPRECIATE IT. SECOND HALF OF 2022 WITH MARK CABANA, HEAD OF U.S. RATES STRATEGY AT B OF A. I WILL GO SHORT RIGHT NOW. LINOR IS LIFTING. I AM OLD ENOUGH WHERE I STILL CARE ABOUT THE RE-MONTH LIBOR. WHEN IS THE SIGNIFICANCE OF THE SHORT-TERM TRUST MARKET SHOWING HIGHER YIELDS? MARK: IT COULD MEAN TIGHTER FED POLICY OR A WORSENING OF CREDIT. WE THINK IT IS MORE OF THE LATTER. THE FED POLICY KICKING IN, CAUSING OVERALL FRONT END RATES TO INCREASE. THAT WILL HAVE A TIGHTENING OF FINANCIAL CONDITIONS, ESPECIALLY IF YOU ARE A FLOATING-RATE BORROWER. THE FED IS TRYING TO SLOW THE ECONOMY DOWN, TITAN BORROWING RATES, AND LI IS ABOR. TOM: YOUR FIXED ANALYSIS NOW? IT IS A FLOATY GREAT BRITAIN. MARK: IF YOU ARE AN INVESTOR, YOU WANT TO BE IN A FLOATING FIXED INSTRUMENT, IF YOU ARE A BORROWER, YOU WANT TO BE FIXED. WE THINK THE CURVE WILL INVERT TWOS AND TENS, YOU WILL SEE THE FUND RATE INVERT TO THE FIVE AND 10 YEAR POINT IN THE NOT-TOO-DISTANT FUTURE. THAT IS WHAT THE FED IS TRYING TO DO TO GET INFLATION UNDER CONTROL. JONATHAN: LET'S THINK ABOUT WHERE THIS FED FUNDS IS HEADING. SOME HAVE BROUGHT THEIR EXPECTATIONS IN, NOT BROUGHT THEM OUT. WHERE ARE YOU? MARK: THE TERMINAL FED FUNDS RATE WILL BE AT 4 TO 4.25 IN THE FIRST HALF OF NEXT YEAR. 3.5% BY THE END OF THIS YEAR, AND THEN KEEP GOING IN THE FIRST HALF OF NEXT. THAT WILL BE DEPENDENT ON ECONOMIC OUTLOOK, BUT AS YOU WERE DISCUSSING, WE THINK THE ECONOMY WILL SLOW. BUT WITH THE LABOR MARKET THIS TYPE, WE ARE SKEPTICAL THAT WE ARE IN FOR AN IMMEDIATE RECESSION. WE ARE WELL ABOVE THE BREAKEVEN FOR JOBS GROWTH. OUR TEAM IS AT CONSENSUS. 3.25 BY THE END OF THE WEEK. WITH THE LABOR MARKET THAT STRONG, SOME OF THESE DISCUSSIONS ABOUT RECESSION WILL HAVE TO BE PUSHED OUT. MATT: WITH A TERMINAL RATE THAT HIGH, WOULDN'T FINANCIAL CONDITION BE WAY TOO TIGHT? I SPOKE WITH GARY SHILLING OVER THE WEEKEND. HE REACTED WITH SHOCK AND AURA WHEN I SUGGESTED THAT THE FED COULD GO TO 4.25%. MARK: IT DEPENDS ON HOW RESILIENT THE UNDERLINING ECONOMY WILL BE. WE ARE NOT LOOKING FOR EMINENT RECESSION, GLOBAL SLOWDOWN, BUT NOT EMINENT RECESSION WE. WE THINK THE ECONOMY CAN WITHSTAND HIGHER OVERALL INTEREST RATES. WE ARE NOT SEEING THAT IN THE MARKET TODAY. IT HAS PRICED IN CUTS STARTING IN THE MIDDLE OF NEXT YEAR, CONTINUING THROUGH 2024. WE ARE NOT THERE YET. WE THINK WE NEED TO SEE MORE OF A LABOR MARKET SLOWDOWN IN ORDER TO GUARANTEE THE FED WILL BE CHANGING COURSE. MATT: HOW FAR OUT DO YOU THINK SPREADS WILL GO? WHAT SHOULD WE BE LOOKING FOR THEIR? MARK: WE THINK FINANCIAL CONDITIONS HAVE TO BROTHER START TIGHTENING. THEY ARE ALREADY SEEING SOME RESPONSE FROM TIGHTER FINANCIAL CONDITIONS, IN TERMS OF THINGS SLOWING. I AM NOT A CREDIT SPREAD EXPERT HERE, BUT WE THINK WE ARE PROBABLY ONLY HALFWAY THROUGH THE TIGHTENING OF FINANCIAL CONDITIONS THAT NEED TO TAKE PLACE IN ORDER TO GET INFLATION LOWER, FOR THE FED TO DECLARE VICTORY. WE ARE STILL CAUTIOUS ON THAT RISK BACKDROP. TOM: MICHAEL ROSENBERG AND THE TEAM AT BLOOMBERG INVENTED THE BLOOMBERG FINANCIAL CONDITIONS INDEX, PICKED UP WITHIN 14 DAYS BY THE IMF AS A KEY BAROMETER. IT IS NOW AT -1.2 STANDARD DEVIATIONS. AT WHAT POINT DO FINANCIAL CONDITION DATA TITAN TO WHERE IT CHANGES THE BELIEFS THAT OUR CENTRAL BANK? THERE HAS TO BE A TIPPING POINT WHERE THEY CHANGE BECAUSE THE FACTS CHANGE. MARK: WE GET ASKED A LOT WHERE THE FED PUT IS, IN TERMS OF HOW FAR DOWN CAN THEY PEAK IN EQUITY MARKET. WE DON'T THAT WE ARE THERE YET. WE HAVE LONG ARGUED THAT IT CAN BE 30% DOWN, BUT IT COULD BE CLOSE TO 40%. BUT I DON'T THINK THAT IS WHEN A CENTRAL BANK CARES ABOUT. THEY DON'T CARE ABOUT HOW FAR EQUITIES HAVE FALLEN, HOW WIDE CREDIT SPREADS HAVE GOTTEN. THEY CARE ABOUT THE REACTION FUNCTION FOR BUSINESSES AND CONSUMERS. WHEN DO THEY REALLY START TO DIAL BACK? WHEN DO BUSINESSES SAY WE DON'T NEED THAT CAPEX, WE DON'T WANT TO HIRE THAT PERSON? WHEN CAN THE CONSUMER SAY I DON'T WANT TO BUY THAT CAR OR TAKE THAT VACATION? WE ARE STARTING TO SEE SOME SIGNS OF THAT ALREADY, BUT WE THINK THERE IS STILL A FAIR AMOUNT THAT NEEDS TO HAPPEN IN ORDER TO SEE THAT DIAMONDBACK INACTIVITY. IT WILL LOOK LIKE A PRETTY NOTABLE SLOWDOWN OR RECESSION, BUT WE GOT THERE WE ARE QUITE THERE YET. WE WILL PROBABLY GET THERE, WE THINK, BY THE FOURTH QUARTER OF THIS YEAR OR EARLY NEXT YEAR. JONATHAN: ISN'T THAT THE HORSE HAS BOLTED INDICATOR, ISN'T THAT LIGHT? MARK: THEY NEED TO BE CONVINCED THAT THE CONSUMER AND BUSINESSES WILL BE DIAMONDBACK. WE HAVE SEEN SENTIMENT INDICATORS THAT ARE VERY LOW FOR THE BALANCE OF THIS YEAR. YOU HAVE NOT SEEN THAT RESPONSE FUNCTION YET. IF YOU WERE GOING TO BE LOOKING AT FORWARD-LOOKING INDICATORS, SENTIMENT, YOU WOULD HAVE ALREADY THAT WE ARE IN A RECESSION. MAY BE WE ARE BUT PROBABLY NOT ESPECIALLY WITH THE LABOR MARKET IS STRONG. THE CENTRAL BANK NEED TO SEE THAT DIAMONDBACK OF ACTIVITY. CENTRAL BANKS TYPICALLY OVERSHOOT. THEY EITHER EASE TOO MUCH OR TIGHTEN TOO MUCH. THAT IS PROBABLY WITH THE FED WILL BE DOING IN THE CYCLE, BUT THEY NEED TO SEE THAT ADEQUATE SLOWDOWN. THUS FAR, WE ARE NOT CONVINCED THAT THEY HAVE. TOM: MARK CABANA OF B OF A. ONLY HALFWAY THROUGH THE TIGHTENING OF FINANCIAL CONDITIONS. ULTIMATELY, WHAT MATTERS TO THIS FED, YOU PROBABLY WILL NOT FIND IT IN THIS MARKET. TOM: WHAT I HEARD WAS GO OUT THE X EXCESS. -- AXIS. THERE IS A COMPLETE FOCUS ON THE SHORT-TERM. I WILL LET YOU DEFINE WHAT THE SHORT-TERM IS. IF YOU GO OUT THREE YEARS, YOU HAVE TO CHANGE BECAUSE THINGS GET WASHED OUT, CORPORATIONS ADAPT. CAN WE EVEN GO OUT A YEAR RIGHT NOW? JONATHAN: YOU ARE TOUCHING ON THE HEART OF THE ISSUE BETWEEN THE ECONOMY AND THE MARKET. YOU HAVE A MORE CONSTRUCTIVE VIEW OF THE ECONOMY. MARK IS MAKING THE POINT, I AGREE WITH YOU. FOR THAT REASON, THE FUNDS NEEDS TO GO HIGHER, FINANCIAL CONDITIONS NEED TO TIGHTEN MORE. TOM: MARTIN FELDSTEIN 101. YOU GO DOWN, THE FACTS CHANGE, YOU COME BACK. JONATHAN: WE ARE IN CRETE APPARENTLY, THE BRAMO FAMILY. >> KEEPING YOU UP TO DATE WITH NEWS FROM AROUND THE WORLD, I'M RITIKA GUPTA. 22-YEAR-OLD MAN IS BEING HELD IN THE DEADLY SHOOTING AT A PARADE IN HIGHLAND PARK, ILLINOIS. SIX PEOPLE WERE KILLED, DOZENS MORE WOUNDED. PRESIDENT BIDEN MARK THE FOURTH OF JULY HOLIDAY IMPLY NOTING THE U.S. HAS MADE GREAT STRIDES BUT HAS ALSO TAKEN A FEW STEPS BACKWARD. HE SAYS AMERICANS ARE WORRIED ABOUT DIVISIONS WITHIN THE COUNTRY AND DESCRIBE THE ECONOMY AS GROWING BUT WITHOUT -- NOT WITHOUT PAIN. THE CRACKDOWN IS PART OF THE FORTHCOMING ONLINE SAFETY BILL. SEMICONDUCTOR STOCKS ARE TRADING AT BARGAIN PRICES. MICRON TECHNOLOGY GAVE A DISAPPOINTING FORECAST. INTEL SET THE MACRO ECONOMIC ENVIRONMENT IS WEAKENING. PEOPLE IN CHINA HAVE LARGELY ESCAPED THE CONSUMER INFLATION AFFLICTING OTHER MAJOR ECONOMIES, BUT THAT MAY BE ABOUT TO CHANGE. THE GOVERNMENT HAS STARTED A CAMPAIGN. WHOLESALE MEAT PRICES ARE AT A SIX MONTH HIGH. >> THE ONE RISK I AM REALLY WORRIED ABOUT IS LIQUIDITY RISK. WE ARE STARTING SEE MARKETS LOCKED OUT OF FUNDING. KEEP A VERY CLOSE EYE. ISSUANCE IN JUNE WAS LOW. COMPANIES WERE EITHER UNABLE OR UNWILLING TO REFINANCE THEMSELVES. JONATHAN: THAT WAS MOHAMED EL-ERIAN. GOOD MORNING. LISA IS ON VACATION. FUTURES, -.7 THE S&P. EURO-DOLLAR, 10298. STERLING AGAINST THE DOLLAR, SO-CALLED CABLE, 120. 11989 IS THE LOW OF THE SESSION. TOM: LET'S GET TO IT RIGHT NOW WITH JORDAN ROCHESTER. HE HAS NOT BEEN ALONE BUT WAY ARTICULATE ABOUT THE CASE FOR WEAKER EURO. I MENTIONED EARLIER MARTIN FELDSTEIN OF HARVARD WHO NOTICED WHEN YOU GET WEAK EURO LIKE 1995, 2001, YOU GET A STOCHASTIC RESPONSE. IT IS DOWN, WEEK, AND TURNS AROUND. DOES THIS HAVE TH SAME FEELING? JORDAN: YOU ARE KIND OF ON THE MONEY OF THE NONLINEARITY OF EURO MOVES. I CAN EXPLAIN WHY IT HAS MOVED BUT IT HAS BEEN NONLINEAR, MUCH FASTER THAN EXPECTED. PEOPLE LOOKING FOR NORMAL MACRO DRIVERS, THEY DIDN'T HAVE THAT. IT WAS NORWEGIAN GAS FLOWS. I DON'T THINK EURO IS A BUY AT ALL. I THINK WE GO TO PARITY, COULD EVEN BREAK A READY. THE MOVES WILL BE NONLINEAR BECAUSE OF GAS SUPPLIES. AS WE GET TO THESE LEVELS -- BREAKING KEY LEVELS BACK TO THE FRENCH ELECTION. PERIODS OF STRONG EURO WEAKNESS. WE ARE IN NO MAN'S LAND OUT. JONATHAN: IF WE ARE NONLINEAR, DOES THAT SUGGEST MR. PUTIN CAN DRIVE YOUR LOWER? JORDAN: HE ALREADY IS, AND HE CAN DO MORE. I MENTIONED GAS. THE MOVE TODAY, GERMAN ELECTRICITY PRICES, RECORD HIGHS FOR THE ONE-YEAR PART OF THE CURVE. GERMAN CONSUMERS ARE PAYING RECORD PRICES. WHOEVER IS BUYING AT THE NEXT YEAR. THAT WILL AFFECT CONSUMER CONTRACTS. THAT IS A SQUEEZE FOR EUROPEAN CONSUMERS. RECESSION RISKS PUTS THE EURO LOWER. NORWEGIAN WORKERS HAVE GONE ON STRIKE. 13% OF SUPPLIES ARE TURNING OFF THIS WEEK. WE DON'T SEE AN END DATE ON THOSE STRIKES. JONATHAN: THIS HEADLINE CROSSING THE BLOOMBERG THAT IT COULD SHUT 56% OF GAS. WHAT IS YOUR CALL ON EURO-DOLLAR? I KNOW YOU ARE LOOKING FOR PARITY. TO WHAT EXTENT IS THAT A CALL ON EUROPEAN GAS PRICES? JORDAN: A LITTLE BIT LIKE THAT. THAT HAS BEEN THE PRIMARY DRIVER OF THE VOLATILITY TODAY. A FEW OTHER FACTORS THAT FEED INTO THAT VIEW. WE ARE LOOKING FOR A U.S. RECESSION IN Q4 OF THIS YEAR. EURO DOES NOT STRENGTHEN WHEN WE HAVE RECESSIONS, ESPECIALLY WITH THE PARIS FEEL RISKS WE HAVE IN SPAIN AND ELSEWHERE. EUROPE'S MAIN TRADING PARTNER IS CHINA. CHINA IS GOING THROUGH A COVID BUSINESS CYCLE. WE JUST HAD ANOTHER WAVE OF CASES, MORE LOCKDOWNS ANNOUNCED IN THE PAST 48 HOURS. THE EXPORT FOR GERMANY ARE BEING WEIGHED ON BY GAS PRICES, MAKING MANUFACTURING LESS COMPETITIVE. SEVEN TIMES MORE EXPENSIVE, THAT IS HOW MUCH MORE EXPENSIVE THEY ARE THAT AMERICA. EUROPE'S MAIN TRADING PARTNER, CHINA, IS IN A STATE OF SLOWDOWNS. MATT: YOU HAVE A LOT OF PROBLEMS IN YOUR ISLAND NATION THERE THAT THE PEOPLE ON THE CONTINENT OF EUROPE HAD. PLUS, YOU HAVE BREXIT FLARING UP AGAIN WITH THE JOHNSON GOVERNMENT THROWING OUT AGREEMENTS THAT THEY MAY JUST ONE YEAR AGO. HOW MUCH WORSE CAN IT BE FOR THE POUND? JORDAN: WE ARE SHORT STERLING, LOOKING FOR 1.18. THE CABLE COULD LOWER. IN TERMS OF THE RISK OF REASONS, THE BANK OF ENGLAND IS LESS HAWKISH THAN OTHERS, MAKING THE YIELD LESS ATTRACTIVE TO FOREIGN INVESTORS. THE DEFICIT IS GETTING WIDER. THE U.K. IS FACING SIMILAR PROBLEMS TO EUROPE, WITH A KEY DIFFERENCE IS THAT U.K. HAS BREXIT. THE U.K. RAISE TAXES. THE ENERGY SUBSIDIES THAT THE JOHNSON GOVERNMENT ANNOUNCED NOT COVER EVERYBODY. IT DIDN'T DO MUCH FOR THE MIDDLE CLASSES AND HIGHER, SO YOU ARE SEEING A CONSUMPTION SQUEEZE. MARKETS ARE LOOKING AT THAT BUT I DON'T THINK STERLING HAS THE PREMIUM FOR THE FTA TO BE SUSPENDED. I DON'T THINK THAT YOU WILL SEE THE EU ISSUING SANCTIONS OR ANYTHING LIKE THAT. THAT IS WHY THE MARKET IS IGNORING IT. I AGREE WITH THE MARKET THERE. WHO KNOWS WHAT COULD HAPPEN IN THESE MARKETS, BUT STERLING WOULD BE EVEN LOWER THAN118. THAT IS WHY I DON'T THINK IT WILL HAPPEN. JONATHAN: SOME BIG CALLS. JORDAN ROCHESTER OUT OF LONDON. MATT MILLER, FROM THE GERMAN ECONOMY MINISTER, NOT RULING OUT INTERVENING IN GAS PRICES. TOM: HOW DO YOU DO THAT? JONATHAN: I WOULD LOVE TO KNOW, BUT THAT IS ESSENTIALLY THE STATEMENT THAT'S BEEN MADE. MATT: IT IS ALSO THE OPPOSITE OF WHAT WE BEEN READING. WITH THE BAILOUT AND A LOT THAT JUST WENT THROUGH, WE EXPECTED THEM TO LET HIGHER COST TO BE PASSED ON TO THE CONSUMER. I AM NOT SURE HOW HE WOULD INTERVENE. THE INTERESTING THING THAT DOESN'T REALLY MATTER, THIS IS CONTRARY TO HIS PARTY'S RAISON D'ETRE. THEY WANT TO REDUCE THE USE OF FOSSIL FUELS. HIGHER PRICES SHOULD BE GOOD FOR THE GREENS. JONATHAN: ONE HELL OF A REALITY CHECK ABOUT HOW YOU GO ABOUT DOING THAT. WE HAVE A NETFLIX CALL AS WELL. TOM: WE ARE GETTING INTO EARNINGS SEASON AND THEY ARE ADJUSTING. HE GOES A LITTLE WEAK AND SAYS IT IS THE NEW STREAMING. PAUL SWEENEY IS THE EXPERT ON THIS. STREAMING WARS ARE HERE AND IT IS NOT HAPPENING. THIS SHOW "STRANGER THINGS" IS NOT GOING TO SAVE NETFLIX. I BELIEVE THEY GO TO A NEUTRAL. THIS WEEKEND, SHE WANTS ME TO CALL IT 12. I DON'T KNOW, THEY ARE IN INDIANA. JONATHAN: CAN I JUST REMIND YOU HOW DREADFUL THE PRICE ACTION HAS BEEN FOR NETFLIX? TOM: FULL DISCLOSURE, WHERE IS THE PROFIT? JONATHAN: FEATURED DOWN .8%. >> IF ANYTHING THE FED HIKES MORE THAN WHAT YOU HAVE PRICE TO THE MARKET. >> GIVEN THE FACT THAT VOLATILITY IS SO HOT AND LIQUIDITY IS SO LOW, WE ARE CAUTIOUS. >> A LEVEL OF DEMAND DESTRUCTION IS ACTUALLY COMING THROUGH AND ACCELERATING. >> THE CONSUMER IS ON SOMEWHAT MORE FRAGILE PUTTING. WE ARE SEEING CRACKS EMERGE IN THEIR SPENDING PATTERNS. >> THIS IS BLOOMBERG SURVEILLANCE. TOM: GOOD MORNING, EVERYONE. I HOLIDAY SHORTENED WEEK. HERE WE ARE WITH THE JOB STAY ON FRIDAY. MATT MILLER IS IN FOR BRAMO. FOREIGN-EXCHANGE IS THE LITMUS PAPER OF THE GLOBAL SYSTEM. JONATHAN: A BREAK OF 1.20 ON CABLE. DOLLAR STRENGTH. FUELING THAT IS THE ENERGY MOVE WE ARE SEEING IN EUROPE, SHAPING THE VIEW THAT WE SEE RECESSION THERE, RISK SENTIMENT ON THE BACK OF DOWNGRADES. TOM: THERE IS A STORY HERE, NORWAY ANGLE, BUT THE REAL ANGLE IS UNCERTAINTY. JONATHAN: WE HAVE DOWNGRADED THE OUTLOOK IN THE UNITED STATES, WHETHER IT IS GOLDMAN SACHS, MORGAN STANLEY, THEY HAVE ALL DONE THAT. EARNINGS IS NEXT. THAT WILL BE THE NEXT BIG DRIVER FOR MANY PEOPLE. TOM: PIPER HAS THEIR OWN SOAP OPERA ON NETFLIX, BUT WHAT A DIFFERENCE OF OPINION WE HAVE. JONATHAN: SOME ARE MORE CONSTRUCTIVE THAN OTHERS. MORGAN STANLEY HAS DIFFERENT VIEWS ON THIS. TOM: MATT MILLER, LET'S USE YOUR EXPERTISE ON GERMANY TODAY. THEY ARE NOT WORRIED ABOUT EARNINGS EXPECTATIONS, THEY ARE WORRIED ABOUT PAYING THE GAS BILL. MATT: PRICES CONTINUE TO EXPONENTIALLY RISE. I THINK THEY ARE ALSO WORRIED ABOUT SELLING THEIR STUFF. EVEN WITH A WEAKER EURO, AND WE HAD A 1.02 HANDLE TODAY, WE SAW A SALES COMING DOWN IN FRANCE, PORTENDING A BIGGER DROP ACROSS EUROPE. THEY CANNOT GET THE CHIPS THEY NEED. TOM: WHAT DOES THIS MEAN FOR CHRISTINE LAGARDE? WHAT DOES THIS MEAN FOR HER? HER DEGREES OF FREEDOM ARE MUCH LESS THAN THE FEDERAL RESERVE. JONATHAN: SHE HAS NOT HAD TO DEAL WITH A WHOLE LOT OF IT BUT SHE MAY HAVE TO NOW. THE BUNDESBANK PUSHING BACK AGAINST BUILDING THIS FRAGMENTATION, WHATEVER THAT LOOKS LIKE. THAT WILL BE A THORN IN THEIR SIDE AS THEY PUT THIS TOGETHER. HOW DO YOU TIGHTEN FINANCIAL CONDITIONS BUT NOT TOO MUCH? WHAT IS TOO MUCH IN ITALY COMPARED TO GERMANY? TOM: I WILL START THE DATA CHECK. THE BLOOMBERG DOLLAR INDEX IS DOING A LITTLE BIT BETTER THAN THE MAJOR TRADING DXY. 1.06 IS REALLY SOMETHING. YEN HAS NOT PLAYED. JONATHAN: YOU HAVE TO GO ALL THE WAY BACK TO 2002. 1.0290. FOUR STRAIGHT SESSIONS OFF THE BACK OF WEAK DATA. STARTING TO SEE THE FRONT END LEFT. THE DIFFERENCE BETWEEN TWOS AND TENS, A SINGLE BASIS POINT. THE INVERSION THAT SOME OF YOU ARE LOOKING FOR, MARK CABANA IS LOOKING FOR A 4 HANDLE ON FED FUNDS. HE THINKS THE ECONOMY IS STRONG ENOUGH FOR THE FED TO BE ABLE TO CONTAIN INFLATION. THE PUSHBACK WE HAVE HAD ON THAT CALL, MASSIVE. PEOPLE ARE SAYING, TAKE IT TO 4. DOES THAT DO ANYTHING ABOUT ENERGY OR FOOD PRICES? AS YOU HAVE SAID, YOU HAVE GOT TO EAT. THAT IS NOT A JOKE. THINGS ARE EXPENSIVE BUT THERE ARE SOME THINGS YOU HAVE TO CARRY ON BUYING. TOM: MATT MILLER WITH THE WORD OF THE DAY, FUNGIBILITY. OVER A DECADE AGO, SAM STOVALL DID WHAT WAS HARD TO DO, HE FOLLOWED ON FROM HIS HISTORIC FATHER AND WROTE THE SEVEN RULES OF WALL STREET. IT DID RATHER WELL. SAM STOVALL OF ALL, WHAT IS THE RULE OF WALL STREET THIS MORNING SAM: GOOD MORNING. I GUESS THE RULE IS YOU DON'T FIGHT THE FED. I THINK THE FED HAS TO REMAIN AGGRESSIVE BECAUSE THIS IS NOW THE SIXTH TIME SINCE WORLD WAR II WE HAVE HAD THE YEAR ON YEAR CHANGE IN CPI ABOUT 6.5%. EVERY PRIOR TIME WE SLIPPED INTO BOTH A BEAR MARKET AND RECESSION. I THINK THERE ARE STILL CONCERNS AHEAD. JONATHAN: HELP ME WITH THE EARNINGS PICTURE AS WE KICK THINGS OFF NEXT WEEK WITH J.P. MORGAN. TO WHAT EXTENT IS THE BARLOW? OTHERS HAVE SAID WE HAVE NOT EVEN STARTED CUTTING OUR ESTIMATES ON THAT FRONT. SAM: MY FATHER USED TO SAY THAT YOU CAN RARELY INJURE YOURSELF BY FALLING OUT OF A BASEMENT WINDOW, BUT I DON'T THINK THE EXPECTATIONS ARE THAT LOW. THEY HAVE COME DOWN FROM MARCH OF THIS YEAR, WE EXPECTED TO SEE THE S&P POST A 6.3% RISE. PROFIT MARGINS, WHICH WERE EXPECTED TO BE DOWN 4.1%, EXPECTED TO BE OFF 5.3 PERCENT WITH MORE SECTORS JOINING THE NEGATIVE SIDE. I STILL THINK THERE IS MORE DOWNWARD REVISIONS TO BE EXPERIENCED. MATT: WE ARE TALKING ABOUT NETFLIX TODAY. PIPER SANDLER REDUCING THEIR CALL FROM A NEUTRAL TO A BY. THE ANALYST ESTIMATES ARE STILL FOR 2.83, SO THEY EXPECT A 60% GAIN BETWEEN NOW AND THE SECOND QUARTER OF 2023. ONE WILL ANALYSTS BRING THEIR REVISIONS DOWN? SAM: IN MANY WAYS, ONCE THEY HEAR FROM MANAGEMENT IN THIS COMING REPORTING PERIOD, NOT ONLY WILL WE SEE EARNINGS COME IN WEAKER THAN ANTICIPATED FOR THIS QUARTER, BUT THEY WILL BE FORCED TO REDUCE THEIR ESTIMATES. IN MANY WAYS, PRICES LEAD FUNDAMENTALS. RIGHT NOW, FUNDAMENTALS ARE HOLDING FIRM. THEY WILL LOOK DOWN SOON AND REALIZE THEY DON'T HAVE THE SUPPORT THEY WERE EXPECTING. MATT: CAN I ASK YOU A TRIVIAL QUESTION? THAT YOUR TIME AT THE STERN SCHOOL OF BUSINESS, LEARNING PORTFOLIO CONSTRUCTION FOR THE CFP, THE TERM DRAW DOWN TO ME ALWAYS MEANT PEAK TO TROUGH. AND YOU HAVE TO FULLY RECOVER BEFORE YOU CAN MEASURE A DRAWDOWN. IT SEEMS IT IS THE WORD OF THE QUARTER. EVERYONE IS USING IT TO REPLACE "LOSSES." DOESN'T A DRAW THAT HAVE TO BE MEASURED AFTER A FULL RECOVERY? SAM: JUST AS WE DECIDE WHETHER WE ARE IN A PULLBACK, BEAR MARKET, WHETHER IT IS GARDEN-VARIETY OR A MEGA MELTDOWN. YOU HAVE TO WAIT FOR CORRECTIONS AND PULLBACKS. WE HAVE TO GET BACK TO BREAK EVEN BEFORE WE CAN SAY THAT WAS WHAT WE WERE IN. FOR BEAR MARKETS, WE NEED TO SEE THAT 20% ADVANCE OFF OF THE PRIOR LOWS. YOU ARE RIGHT, A LOT OF THIS IS DONE IN THE REARVIEW MIRROR. MAY BE THE TERM DRAW DOWN IMPLIES THAT YOU DID NOT ACTUALLY TURN A PAPER LOSS INTO AN ACTUAL LOSS, SO THEY ARE DOING A LITTLE REFINING ON THE TERMINOLOGY. JONATHAN: AWESOME TO GET YOUR VIEW. SAM STOVALL OF CFRA. REMEMBER THE NETFLIX NUMBERS, A LOT OF THAT WAS AN INDUSTRY VIEW. WE WERE NOT TALKING ABOUT WEAKNESS IN THE ECONOMY. THOSE TWO WEAKNESSES FROM NETFLIX. 20 OF OF JANUARY, STOCK DOWN 20% OFF OF EARNINGS. . GO AGAIN. JUST GOES TO SHOW YOU HOW MUCH WORK WE HAVE DONE IN SOME PARTS OF THIS EQUITY MARKET ALREADY. MATT: THE CONCERN ON NETFLIX IS YOU HAVE REACHED SOME LEVEL OF SATURATION ALREADY AS THEY SWITCH OVER TO MORE OF AN ADVERTISING SOME ORDERED MODEL. REMEMBER HOW WELL WE DID DURING THE LOCKDOWN. THERE WAS NOTHING ELSE TO DO. IT HAS BEEN SUGGESTED THAT IF WE HAVE A DEEP ENOUGH RECESSION AND WE ALL LOSE OUR JOBS, WE WILL DO NOTHING ELSE BUT WATCHING NETFLIX AT HOME. JONATHAN: I REMEMBER WHEN THE ECONOMY WAS SMASHED AND MY DAD CUT THE CORD ON SKY. THINK ABOUT HOW MANY SUBSCRIPTIONS YOU HAVE TO CHOOSE, WITH THE FLEXIBILITY TO MAKE THAT CUT. IT IS NOT JUST ABOUT MAKING THE CUP TO SKY SPORT OR THE SATELLITE PACKAGE, YOU HAVE INDIVIDUAL CHOICES. YOU CAN START TO SEE SOME OF THAT EMERGING. TOM: MATT MILLER TALKED ABOUT FUNGIBILITY, WHICH MEANS SUBSTITUTION, BUT IT IS NOT FUNNY. A MIDDLE-CLASS CLOBBERED BY INFLATION ARE GOING TO MAKE CHOICES THAT WILL GO OVER TO ENTERTAINMENT. THEY WILL GO SEE THE NEW TOP GUN. I KNOW YOU HAVE SEEN IT FIVE TIMES. BUT THEY WILL MAKE CHOICES HERE. ON THE REVOLUTION OF STREAM INCOME IT IS SIMPLE, THEY WILL GO DOWN TO THREE IN THE HOUSE. JONATHAN: ON SUNDAY, I ACTUALLY WATCHED IT FOR THE FIRST TIME. WHAT AN UPSIDE SURPRISE. WHAT AN AWESOME MOVIE. MATT, I WAS SO IMPRESSED. MATT: YOU KNOW MY PROBLEM WITH IT. WHERE IS CHARLIE? THE WHOLE POINT OF THE FIRST TOP GUN, HE IS GOING TO LEAD, BUT HE COMES BACK FOR THE LOVE OF HIS LIFE, KELLY MCGILL US, AND I DON'T EVEN MENTION HER. PENNY BENJAMIN WAS THE ONLY ONE LEFT. JONATHAN: THERE WAS SOME WEAKNESS IN THAT STORY PLOT. THEY HAD A GENERATION OF FIGHTER JETS THAT THEY DIDN'T HAVE. THE ENEMIES HAD A SUPERIOR JET, AND I COULD NOT GET MY HANDS AROUND THAT. WHY DID THEY CHOOSE THE F-18? MATT: THEY CHOSE THE F-22 BECAUSE THE ACTORS BUT NOT ABLE TO PILOT THE JET. THE F-35, THEY MADE UP SOME REASON FOR WHY THEY COULDN'T USE IT. JONATHAN: YOU KNOW MORE ABOUT THIS MORE THAN I DO. TOM: JUST TO INDICATE THE PLANET THAT WE ARE NOT ON, I HAVE NOT SEEN EITHER MOVIE. JONATHAN: YOU HAVE NOT SEEN THE ORIGINAL? TOM: NO. OVER THE WEEKEND, MS. KEENE SAID LET'S WATCH GRACE KELLY. SHE WANTED A BAG. JONATHAN: CHEAPER FOR YOU TO WATCH TOP GUN? TOM: GRACE KELLY KILLED IT WITH WILLIAM HOLDEN. JONATHAN: THAT IS WHAT YOU DID OVER THE WEEKEND. LEG LOWER ON THIS EQUITY MARKET. THIS IS BLOOMBERG. RITIKA: KEEPING YOU UP TO DATE WITH NEWS FROM AROUND THE WORLD, I'M RITIKA GUPTA. THE MAN WAS ARRESTED AFTER A BRIEF CHASE. POLICE BELIEVE THE ATTACKER OPEN FIRE FROM A ROOFTOP. CHINA AND THE U.S. HAVE DISCUSSED TARIFFS THAT RESIDENT BIDEN IS LOOKING TO EASE. THE VICE PREMIER TOLD JANET YELLEN THAT THE LIFTING OF TARIFFS IS AN AREA OF CONCERN. THERE ARE REPORTS THAT THE PRESIDENT MAY ANNOUNCE A ROLLBACK OF SOME TARIFFS ON HUNDREDS OF BILLIONS DOLLARS OF CHINESE GOODS WHICH WOULD LOWER THE COST OF EVERYDAY MERCHANDISE. GLOBAL NEWS 24 HOURS A DAY, ON-AIR, AND ON BLOOMBERG QUICKTAKE, POWERED BY MORE THAN 2700 JOURNALISTS AND ANALYSTS IN MORE THAN 120 COUNTRIES. I'M RITIKA GUPTA. THIS IS BLOOMBERG. >> WE DON'T THINK IT IS HIGHLY LIKELY THAT THEY GO TO 4%. WE THINK THAT WILL BE TOO MUCH OF A CATALYST TO THE ECONOMY. RIGHT NOW THE MARKET IS CORRECT WITH A 3.35 PEAK, EASING IN THE SECOND HALF. WE STILL THINK THE FED WILL DO 75 IN JULY. JONATHAN:. MORNING -- GOOD MORNING. BRAMO IS BACK NEXT WEEK. FUTURE DOWN BY 1% ON THE S&P. ON THE NASDAQ, DOWN 1.3. A LOT OF TALK ABOUT THE EURO-DOLLAR. 1.02 HANDLE. WE HAVE SOME PROBLEMS WITH GAS. YIELDS ARE LOWER AGAIN FOR A FIFTH STRAIGHT SESSION, DOWN ALMOST A BASIS POINT. 2.8729. JONATHAN GOLUB AT CREDIT SUISSE WAS AT 4900 ON THE ESSEN THE. HE GOES DOWN TO 4300. HE IS REITERATING HIS OUTLOOK ON EARNINGS, STILL CONSTRUCTIVE. THE TARGET IS BEING ADJUSTED LOWER. IT IS NOT ABOUT RECESSIONARY CONCERNS. TOM: WE WILL SEE A LOT OF THAT IN THE SECOND HALF OF THE YEAR. I WOULD SUGGEST EVERYONE NEEDS TO RECALIBRATE THIS FRIDAY. JONATHAN: YOU MENTIONED LAST WEEK THE DOWNGRADES AND HERE THEY ARE. TOM: ARE THEY GOING TO RECALIBRATE A GET OFF OF A JOB SUPPORT? JONATHAN: IF YOU NEED TO RECALIBRATE AGAIN, IT WILL BE OFF THE BACK OF THE EARNINGS. TOM: OR OFF OF YOUR PINK SLIP AS YOU GO OUT THE DOOR. JONATHAN: THAT IS NOT FUNNY. TOM: JIM BIANCO JOINS US THIS MORNING. HE HAS A BUTTON ON HIS LAPEL. THAT WAS FROM ANOTHER TIME AND PLACE, THE RED BUTTON, WHITE LETTERS, GERALD FORD. GREENSPAN SAID THIS WILL NEVER WORK. THEY SAID NO IMMEDIATE MIRACLES. TURN THE BUTTON UPSIDE DOWN. WHEN IS THE MIRACLE THAT JOE BIDEN NEEDS TO FIX INFLATION? JIM: INFLATION IS THE ISSUE. THE DEBATE RIGHT NOW IN THE MARKETPLACE IS SLOWING GROWTH AND HIGH INFLATION. THE MARKET WANTS TO CENTER ON THE IDEA THAT GROWTH IS SLOWING, SO WE HAVE TO CUT OUR IDEA ON HOW AGGRESSIVE THE FED WILL BE, LOWER INTEREST RATES BECAUSE THE ECONOMY IS SLOWING. I DON'T THINK THAT MATTER SO MUCH. THAT PRIORITY NOW WITH INFLATION IS TO BRING IT DOWN. IF THE ECONOMY WANTS TO WEAKEN, IT WEAKENS. AS LONG AS PRICES STAY UP, YOU'LL SEE AN AGGRESSIVE FED, HIGHER INTEREST RATES, AND AN INVERTED CURVE. TO THIS FRIDAY'S PAYROLL REPORT, I'VE BEEN WATCHING, IF WE GET 325 JOBS, GOOD NEWS IS BAD NEWS. THAT JUST MEANS THE FED CAN GO 75 AND TALK ABOUT ANOTHER 75 RIGHT AFTER THAT FOR THE SEPTEMBER MEETING. TOM: THE HALLMARK OF YOUR WORK, YOU LOOK AT THE GLIDE PATH. IF I SUGGEST A GLIDE PATH THAT IS NOT LINEAR, THERE HAS TO BE A KINK SOMEWHERE AROUND 5%. WHAT IS THE STRATEGY NOW VERSUS 5% WHERE THEY HAVE TO KNOW GET DOWN TO THE 2%? JIM: IF THEY WERE TO GET TO 5%, YOU WOULD SEE THE FED READJUST. BUT THE BLOOMBERG ESTIMATE IS ANOTHER 1%. THAT MEANS, THROUGH JUNE, WE WILL ALREADY HAVE 5% INFLATION DONE FOR THE YEAR. LAST YEAR WE HAD 4.3 LAST SUMMER. WE COULD SEE AN 8 ANDALON INFLATION WELL INTO THE FALL. IF WE SEE THAT -- AND CHAIRMAN POWELL HAS MADE THIS ABUNDANTLY CLEAR -- HE IS NOT BACKING OFF IF WE DON'T SEE THE INFLATION NUMBERS COME DOWN. MATT: HE CANNOT AFFORD TO NOW. THEY HAVE TO GO 75 ON JULY 27. IF THEY DON'T, AND INFLATION POP TIRE, THEY RISK LOOKING LIKE ARTHUR BURNS. JIM: EXACTLY. THEY HAVE SET THAT IN STONE, WHICH IS WHY IT'S DIFFICULT FOR THE MARKET TO COME AROUND TO THE IDEA THAT SLOWING GROWTH WILL MATTER. GDP IS OUT THE NEXT DAY, JULY 28. THE ATLANTA FED NUMBER, -2.1, IT HAS NEVER BEATEN BY 2.1. YOU WOULD HAVE TO EXPECT THEY GOOD 75 BASIS POINTS, AND THE NEXT DAY WE WOULD GET A SECOND CONSECUTIVE NEGATIVE GDP PRINT. WE HAVE NEVER HAD TWO NEGATIVE GDP PRINTS THAT WERE NOT IN A RECESSION. THIS COULD BE DIFFICULT FOR THE FED. MATT: THIS IS A POINT THAT BEARS REPEATING. I PICKED DOMINANT -- PICKED UP ON IT BY FOLLOWING YOU ON TWITTER. THE ATLANTA FED GDP FORECAST IS FOR A CONTRACTION OF 2.1% IN THE SECOND QUARTER, AFTER WE KNOW THE 1.6% CONTRACTION IN Q1. IT IS TERRIBLY UNLIKELY THEY ARE WRONG, AT LEAST IN TERMS OF UP OR DOWN. JIM: THEY COULD BE WRONG, BUT ARE THEY WRONG BY MORE THAN 2.1%? THEY HAVE NEVER BEEN THAT WRONG THIS CLOSE TO THE MEETING. THERE IS ALWAYS A FIRST TIME FOR SOMETHING, BUT HISTORY SAYS WE WILL PROBABLY PRINT A SECOND NEGATIVE GDP NUMBER THE DAY AFTER THE FED HIKES 75 BASIS POINTS. JONATHAN: AND THEY WILL HAVE TO HIKE AGAIN, AND THAT MAYBE AGAIN. JIM BIANCO. WE ARE GETTING SOME INTERESTING CALLS ON THE SOUTH SIDE. NOMURA. JORDAN ROCHESTER DID NOT SHARE THIS WITH US. TOM: LEGALLY, HE CANNOT DO THAT. HE HAS TO SELL TO HIS CLIENTS BEFORE JONATHAN FERRO. JONATHAN: TODAY'S MOVE LOWER IN EURO-DOLLAR IS JUST A WARNING SIGN AS TO WHAT MAY MATERIALIZE. WE HAVE AN EVEN HIGHER CONVICTION THAT EURO-DOLLAR WILL REACH PARITY TOWARD 98 IN AUGUST, AND MAYBE EVEN LOWER. JONATHAN: HOW DO YOU HAVE A HIGHER CONVICTION ON A WAR IN UKRAINE, WITH ALL THE SERIOUSNESS OF THAT, AND AT SOME POINT THEY MUST ADDRESS STRONG DOLLAR. 98 EURO. THAT IS .98. JONATHAN: WITHIN THAT IS A CALL FOR GAS PRICES. THIS IS WHERE FX TEAMS ARE GETTING UNCOMFORTABLE. THEY HAVE TO MAKE THAT CALL TO MAKE A CALL ON EURO-DOLLAR. MATT: I JUST WANT TO POINT OUT, WE TALK ABOUT THE EURO AT THE LOWEST SINCE 2002. THAT IS WHEN IT REALLY STARTED. YOU CAN TALK ABOUT 1985, 2001, BUT WE DID NOT TRADE OUR DEUTSCHMARK'S FOUR EUROS UNTIL ABOUT 2002. JONATHAN: FROM NEW YORK CITY, GOOD MORNING. JONATHAN: LOOKING AHEAD TO PAYROLLS FRIDAY. GOOD MORNING. BRAMO WILL BE BACK NEXT WEEK. FUTURES ARE DOWN MORE THAN 1% ON THE S&P. JUST OBSESSION LOWS ON THE S&P. WE HAVE TALKED ABOUT THE FX MARKET BREAKING DOWN ON THE EURO SIDE. 1.0296. SOME INTERESTING CALLS OUT THERE. NOMURA LOOKING FOR .98 IN AUGUST. TREASURIES FIRMER, YIELDS LOWER. IT IS THE CORE GOVERNMENT BOND RALLY. GERMANY, DOWN 12 BASIS POINTS. 10 ON THE 10 YEAR. TOM: A LOT OF THIS HAS HAPPENED IN THE LAST HOUR OF THE DIFFERENT HEADLINES. THE EQUITY MARKET IS DOWN, BUT NOT DOWN TO WHERE IT WAS JULY 1. THE VIX HAS NOT COME OUT. OVER 30 WOULD CATCH MY ATTENTION. JONATHAN: JONATHAN GOLUB IS PRETTY CONSTRUCTIVE ON THE BACK HALF OF THE YEAR. HE SAYS 4300 IS THE BASE CASE. 4900 PREVIOUSLY. THIS IS NOT RECESSIONARY CONCERNS FOR THE TEAM AT CREDIT SUISSE. TOM: THE COST TO CAPITAL, NOMINAL AND REAL, AND THAT'S A GREAT PLACE TO START WITH JOHN RYDING OF BREAN CAPITAL. THE QUESTION RIGHT NOW, BUSINESSES, TO THEY THINK IN THE NOMINAL SPACE, IS EVERYONE A SLAVE TO THE INFLATION-ADJUSTED ANALYSIS? JOHN: IF YOU THINK ABOUT IT, WE HAVE NOT HAD THESE INFLATION PROBLEMS SINCE THE 1970'S, 1980'S. MANY BUSINESSES ARE NOT USED TO HANDLING AN INFLATIONARY ENVIRONMENT. MONEY ILLUSION EXISTS WITH CONSUMERS AND BUSINESSES, AS WELL. IF YOU START WITH THE POLICY RATE, WITH THE INFLATION RATE AT 8.6%, YOU ARE LOOKING AT A POLICY RATE THAT IS EXTREMELY NEGATIVE IN REAL TERMS. ALL THE ANXIETY ABOUT THE FED RAISING INTEREST RATES, IT HAS TO BE LOOKED AT IN THE CONTEXT OF THAT INFLATION RATE. THE IDEA THAT WE HAVE HAD THIS BEAR MARKET IN EQUITIES BUT IT HAS BEEN A MULTIPLE ADJUSTMENT TO A HIGHER NOMINAL YIELD. TOM: I THINK OF YOU AND MICHAEL DARTED OUT WITH YOUR WORK ON THE FED YEARS AGO. SO MANY PEOPLE HAVE NOT LIVED THIS. WHAT I'M HEARING FROM RELATIVE OPTIMISTS, WE WILL ADJUST AS YIELDS MOVE HIGHER. WE WILL ADJUST AS THEY BRING UP INTEREST RATES. DO YOU HAVE THAT OPTIMISM THAT WE WILL ADJUST ALONG THE WAY? JOHN: THERE WILL BE ADJUSTMENT ALONG THE WAY. TWO NEGATIVE QUARTERS OF GDP DO NOT MAKE A RECESSION. RECESSION IS INEVITABLE, BUT I DON'T THINK IT IS IMMINENT. I DON'T THINK COMPANIES EXPERIENCED A NEGATIVE GDP IN THE FIRST QUARTER. IF YOU LOOK AT THE INCOME SIDE OF THE ACCOUNTS, GDP EXPANDED BY 1.8%. IF YOU LOOK AT BUSINESS AND HOUSEHOLD SURVEYS, PEOPLE ARE NEGATIVE ABOUT THE ECONOMY BECAUSE THEY ARE TRYING TO HANDLE DISINFLATION PROBLEM, BUT THEY ARE RELATIVELY POSITIVE ABOUT THEIR OWN FINANCIAL PROSPECTS. SMALL BUSINESSES ARE RELATIVELY POSITIVE ABOUT THEIR OWN OUTLOOK. THERE IS A DISCONNECT BECAUSE PEOPLE ARE TRYING TO ADJUST TO THE INFLATION PROBLEM AND THEY HAVE NOT EXPERIENCED IT. CONTRARY TO WHAT THE FED HAS TRIED TO DO, HOUSEHOLDS DO NOT LIKE INFLATION, BUSINESSES DO NOT LIKE INFLATION. MATT: EVER SINCE LLOYD BLANKFEIN TOLD ME TO GET MY HOUSE IN ORDER, I'VE BEEN CONCERNED ABOUT THIS. I WONDER IF A WEAKER CURRENCY IS BETTER OR WORSE IN TERMS OF INFLATION. HOW IS GERMANY EXPERIENCING THIS IN REAL TIME? THE EURO GOING DOWN TO 1.02. THE INFLATION PICTURE HAD ROLLED OVER THERE. CAN IT POP BACK UP? JOHN: WE HAVE TO REMEMBER, WHEN IT COMES TO USING CURRENCIES TO JUDGE INFLATION, IT IS A RELATIVE JUDGMENT ABOUT THE FEDERAL RESERVE VERSUS THE ECB. IT IS QUITE CLEAR THE FEDERAL RESERVE IS MUCH MORE AGGRESSIVE, PLANNING TO BE MORE AGGRESSIVE IN HIKING RATES, THAN THE ECB. THE U.S. HAS HAD A STRENGTHENING DOLLAR. IT IS SUFFERING JUST AS BAD AN INFLATION PROBLEM AS HAS BEEN EXPERIENCED AND CORE EUROPE. CERTAIN PARTS OF EUROPE, LATVIA, FOR EXAMPLE, INFLATION NORTH OF 16%. SPAIN, 10%. THOSE ARE WAY ABOVE THE 2% RATE THAT THE ECB -- THEY HAVE ONE OBJECTIVE, NOT A DUAL MANDATE. TOM: AS FUTURES DETERIORATE, WHAT IS SO IMPORTANT, MOHAMED EL-ERIAN AND JOHN RYDING ARE ON THE SAME PAGE, THERE IS SOME URGENCY HERE. JONATHAN: SOME DATA WE HAVE SEEN RECENTLY. THE ISM DOWN TO 53. NEW ORDERS IN CONTRACTION TERRITORY. PART OF THE REASON WHY WE SEE WHAT WE ARE SEEING ON THE SCREEN. YIELDS ARE LOWER FOR A FIFTH SESSION. 2'S, DOWN TO 2.82. WE ARE STARTING TO SEE THAT INVERSION AGAIN OFF THE BACK OF WEAK ECONOMIC DATA AND THE FED DETERMINED TO HIKING. WHERE IS THIS GOING IN THE ULTIMATE ECONOMIC DATA? WHERE ARE YOU SEEING POCKETS OF WEAKNESS THAT WE SHOULD FOCUS ON? JOHN: A WORKING HYPOTHESIS I HAVE WHEN IT COMES TO LOOKING AT THOSE MANUFACTURING NUMBERS, LIKE THE ISM THAT YOU REFERRED TO, IN THE MIDST OF SUPPLY CHAIN DIFFICULTIES, WHICH ARE ONLY EASING SLIGHTLY, COMPANIES MAY HAVE OVER ORDERED IN ORDER TO GET SOME INVENTORY TO MEET THE DEMANDS OF THEIR CUSTOMERS. WITH THAT COMES A CYCLE ADJUSTMENT WHERE YOU HAVE OVER ORDERED. YOU HAVE CUT BACK BECAUSE YOU ARE STARTING TO SEE IMPROVEMENT IN YOUR SUPPLY CHAINS. IT IS NOT REALLY FINAL DEMAND THAT IS THE PROBLEM HERE. IN THE FIRST QUARTER, TAKE THAT GDP CONTRACTION AT FACE VALUE. THAT WAS COMING OFF OF AN INVENTORY ADJUSTMENT IN THE FOURTH QUARTER. DEMAND WAS RELATIVELY STRONG, 2% IN REAL TERMS. IN NOMINAL TERMS, MUCH FASTER. MY GREATER CONCERN IS THE IMPACT TO INFLATION EATING INTO PURCHASING POWER, THAN IT IS THIS ADJUSTMENT OF THE MANUFACTURING SECTOR, WHICH IS POSSIBLY AN ADJUSTMENT TO OVERWATERING TO GET THROUGH SUPPLY CHAINS. JONATHAN: IF THAT IS YOUR BASE CASE, HOW DOES THAT SHAPE YOUR FED CALL? JOHN: I THINK IT IS CLEAR THE FED HAS SIGNALED THEY WANT TO GET A POSITIVE, INFLATION-ADJUSTED FED FUNDS RATE. NEXT YEAR, THE FED HAS UNTIL THE AND OF 2023, ASSESSMENT OF THE MEDIAN FUND RATE, AGAINST A BACKDROP OF A 2.6% INFLATION FORECAST. IT IS EXTREMELY UNLIKELY THAT INFLATION, THIS YEAR EXPECTED TO RUN 5.25%, WILL SLOW SO MUCH. LET'S SAY INFLATION RUNS AT 3.5% NEXT YEAR, WHICH IS MORE LIKELY. THEN YOU ARE LOOKING AT A FED FUNDS RATE THAT MAKE IT TO 4.5%. IS THAT A MISTAKE? IT MAY BE, BUT REMEMBER, WHAT IF THE FED MAKES A MISTAKE? I SAY THE MISTAKE WAS ALREADY MADE LAST YEAR WHEN THE FED CONTINUED TO EASE INTO A RISING INFLATION PROBLEM. NOW THEY HAVE TO CORRECT THE PROBLEM. THEY DON'T HAVE A MODEL OF INFLATION THAT WORKS. THEY WANT TO SEE A COMPELLING REDUCTION IN INFLATION. THAT PROBABLY MEANS THEY WILL OVER TIGHTEN THE FED FUNDS RATE, AND THAT IS WHERE YOU GET THE RECESSION PROBLEM. TOM: JOHN RYDING, LET'S CUT TO THE CHASE. JONATHAN FERRO AND I WILL BE IN WASHINGTON THIS WEEK, SPEAKING WITH ADAM POSEN, WHO SUGGEST THAT 3% IS THE NEW 2%. WHERE IS THE NEW 2%? JOHN: THE NEW 2% SHOULD BE SUB 2%. THE WORK ON WHAT CONSUMERS BELIEVE ABOUT INFLATION, THEY BELIEVE INFLATION IS BAD. POSEN AND OTHERS MAY TALK ABOUT A FASTER INFLATION RATE, BUT THE FASTER INFLATION RATE IS WHAT IS KILLING THIS ECONOMY TO THE EXTENT WE ARE BEING HURT RIGHT NOW. THAT'S A PROBLEM. HOUSEHOLDS DO NOT LIKE INFLATION BECAUSE IT ERODES THEIR FINANCES. THEY SEE DOWN THE ROAD SOME ACTION TO BE TAKEN TO RATE INFLATION PRESSURES IN. FOR MORE THAN TWO DECADES, RELATIVELY STABLE 2% INFLATION RATE. CAN WE KEEP A STABLE 3% RATE? HISTORY SUGGESTS NOT. JONATHAN: THEY DON'T TALK ABOUT FLEXIBLE INFLATION TARGET ANYMORE. WHAT DO YOU MAKE OF THAT? JOHN: IN SEPTEMBER 2020, WHEN THE FED INTRODUCED WE ARE GOING TO AVERAGE 2% INFLATION, THEY REALLY CONTRIBUTED TO GETTING INFLATION OUT OF THE BAG. IT WASN'T JUST THE AVERAGE INFLATION TARGETING, IT WAS THE BACKWARD LOOKING. WE HAVE TO HIT 2%, MAXIMUM EMPLOYMENT. BEFORE THEY EVEN BEGAN LIFTING OFF ON RATES. IF YOU ARE TALKING ABOUT AVERAGING 2%, IT BECOMES A REAL PROBLEM GIVEN HOW HIGH INFLATION HAS BEEN. THE FED HAS PUT IN AN ESCAPE CLAUSE. WE ARE A LONG WAY AWAY FROM THAT NUMBER RIGHT NOW. JONATHAN: WHAT A CLINIC FROM JOHN RYDING OF BREAN CAPITAL. TOM: MARKETS ARE REALLY SOMETHING. TO GET TO FRIDAY IS NOT A SMALL MATTER. JONATHAN: BRAMO IS WITH US NEXT WEEK. TOM: SHE SENT ME AN EMAILS SAYING THEY DON'T CALL IT FETA CHEESE IN CRETE. I CANNOT PRONOUNCE IT. JONATHAN: PETER CHEER JOINS US IN THE NEXT HOUR. THIS IS BLOOMBERG. RITIKA: KEEPING YOU UP TO DATE WITH NEWS FROM AROUND THE WORLD, I'M RITIKA GUPTA. A 22-YEAR-OLD MAN IS BEING HELD IN THE DEADLY SHOOTING AT A FOURTH OF JULY PARADE IN HIGHLAND PARK, ILLINOIS. HE WAS ARRESTED FOLLOWING A BRIEF POLICE CHASE. HE OPENED FIRE FROM A ROOFTOP NEAR THE PARADE ROUTE. SIX WERE KILLED, DOZENS MORE WOUNDED. PRESIDENT BIDEN NOTED THE HOLIDAY BY SAYING THE U.S. HAS MADE GREAT STRIDES BUT HAS ALSO TAKEN STEPS BACKWARD. HE SAYS AMERICANS ARE WORRIED ABOUT DIVISIONS IN THE COUNTRY, DESCRIBE THE ECONOMY AS GROWING BUT NOT WITHOUT PAIN. AN INDICATION OF SUPPLY CHAIN PRESSURES. A SHARP DROP IN TRANSPORTATION COSTS WHICH UNDERSCORES THE SLOWDOWN INTO THE ECONOMY. SCANDINAVIAN AIRLINE SAS HAS FILED FOR BANKRUPTCY PROTECTION TO DEAL WITH ITS DEBT BURDEN. THE CARRIER HAS BEEN IN TALKS WITH ITS CREDITORS TO CONVERT 1.9 BILLION DOLLARS IN OUTSTANDING DEBT AND HYBRID SHARES INTO NOTES AS THEY TRY TO RAISE ADDITIONAL EQUITY. GLOBAL NEWS 24 HOURS A DAY, ON-AIR, AND ON BLOOMBERG QUICKTAKE, POWERED BY MORE THAN 2700 JOURNALISTS AND ANALYSTS IN MORE THAN 120 COUNTRIES. I'M RITIKA GUPTA. THIS IS BLOOMBERG. >> I THINK THE RISKS OF A 2022 RECESSION ARE SIGNIFICANTLY HIGHER THAN I WOULD HAVE JUDGED SIX OR NINE WEEKS AGO. TOM: LAWRENCE SUMMERS, FORMER PRESIDENT OF HARVARD, SECRETARY OF TREASURY, THERE ON THE GAMING OF RECESSION. LAWRENCE SUMMERS ABSOLUTELY NAILED THE DOG TRANSITORYNESS AWARE WE ARE. MATT: IN FACT THERE HAS BEEN A DEBATE ON TRANSITORY AGAIN, I THINK. WE HAVE SEEN INFLATION ROLLING OVER IN SOME PLACES. IF YOU LOOK AT THE CHART OF FUEL, FOOD, ESPECIALLY METALS, IT HAS COME DOWN, BUT THAT MAY BE A HEAD FAKE. CONSENSUS NOW IS THAT NUMBERS CAN STILL GO HIGHER. TOM: WE WILL HAVE TO SEE. CHINA, TERRACE, KRITI GUPTA. KRITI: AS WE TALK ABOUT THAT INFLATION THAT MAY OR MAY NOT BE COMING DOWN, WE CAN TALK ABOUT WHAT THE BIDEN ADMINISTRATION CAN DO TO EASE SOME OF THE TARIFFS. THE AMOUNT OF TARIFFS, A PERCENTAGE ON A GLOBAL TRADE-WEIGHTED BASIS ON CHINESE GOODS IN PARTICULAR. WE ARE LOOKING AT A PERCENTAGE OF 19.3%. IT IS A STORY OF THE TRADE WAR WE HAVE SEEN OVER THE LAST TWO OR THREE YEARS. 19.3%. IF I WERE TO GRAB THESE ON U.S. TARIFFS, IT WOULD BE ABOUT 20%. IS THIS THE SOLUTION TO USING IMPORT PRICES? I HAVE TO KEEP IT SHORT AND SWEET. TOM: VERY SHORT AND SWEET, AND VERY NUANCED. THE TARIFF STORY DESERVES A LITTLE MORE ANALYSIS THAT MAY BE WHAT WE ARE SEEING. HE HAS BEEN PUSHED ASIDE BY NEWS FLOW RECENTLY, BUT HE HAS BEEN GREAT. BARRY RITHOLTZ, DOES A LOT FOR US, ALSO RUNS REAL MONEY AT RATE HOLDS MANAGEMENT. I LOVE YOUR ESSAY ON GETTING OVER IT. TELL ME ABOUT THE QUALITY OF THAT NEEDS TO BE. BARRY: IT HAS TO BE DATABASED. YOU HAVE TO UNDERSTAND WHAT MAKES THE CIRCUMSTANCES UNIQUE COMPARED TO PREVIOUS SCENARIOS. FIRST, LET'S GET THIS OUT OF THE WAY. TWO CONSECUTIVE QUARTERS OF NEGATIVE GDP IS NOT THE DEFINITION OF RECESSION. HAS NOT BEEN SINCE THE POST RATE DEPRESSION ERA. IF YOU DON'T HAVE A BROAD ECONOMIC ENVIRONMENT, IF YOU ARE AN EMERGING AUTONOMY, YOU COULD USE IT AS A SHORTHAND, BUT THERE HAVE BEEN ALL SORTS OF DIFFERENT CHANGES THAT HAVE BEEN GOING ON IN THE PRESENT ECONOMY. IT JUST SEEMS FOOLISH TO APPLY OLD, DISCARDED RULES TO A NEW SCENARIO AND SAY SUDDENLY THIS IS A RECESSION, WHEN MOST OF THE DATA DOES NOT SUPPORT THAT. MATT: THAT'S EXACTLY WHAT GARY SHILLING TOLD ME WHEN I ASKED HIM ABOUT THIS ON SATURDAY. BUT THE MBDR DOES NOT TELL US OFF AT TIMES THAT WE ARE IN A RECESSION UNTIL WE ARE OUT OF THE RECESSION. THAT IS PRETTY USELESS. BARRY: WELL, WHAT ARE YOU USING THEIR DECLARATION FOR? YOU ARE NOT USING IT AS A BASIS FOR MAKING INVESTMENT DECISIONS. WHEN WE LOOK AT PAST RECESSIONS, WE SEE A DECREASE IN ECONOMIC ACTIVITY, PRIMARILY IN EMPLOYMENT AND WAGES. THAT IS THE BIGGEST DRIVER. GO BACK TO JANUARY THROUGH JUNE. UNEMPLOYMENT WENT FROM OVER 4% DOWN TO 3.6%. WE HAVE NEVER BEEN IN A RECESSION WITH DECLINING UNEMPLOYMENT. I DON'T WANT TO SAY IT WILL NEVER HAPPEN IN THE FUTURE, BUT IT MAKES IT MUCH MORE CHALLENGING WHEN YOU LOOK AT THE ECONOMIC DATA. WHAT WE ARE REALLY SEEING IN NEGATIVE GDP IS NOT SO MUCH A DECREASE IN ECONOMIC ACTIVITY AS WE ARE SEEING A MASSIVE SURGE IN INFLATION. GDP DATA IS REAL, NOT NOMINAL. IF IT TIPS INTO NEGATIVE TERRITORY, IT IS PARTIALLY DUE TO INVENTORY BUILDUP BUT ALSO INFLATION. TOM: QUICKLY, WHAT DO I DO IF I'M IN CASH? TOUGH MARKET, FUTURES ARE NEGATIVE. WHAT IS THE PROCESS TO GET BACK INTO THE MARKET IF I'M IN CASH? BARRY: THE DATA SHOWS TWO TO THREE TIMES YOU ARE BETTER MAKING A LUMP SUM PAYMENT THEN DOING DOLLAR COST AVERAGING OVER TIME. PEOPLE HAVE A HARD TIME EMOTIONALLY MAKING THAT ONE-TIME INVESTMENT. TWO WAYS TO APPROACH THIS. YOU COULD BREAK THIS UP INTO 520% LUMPS, AND EVERY OTHER MONTH PUTTING THAT MONEY TO WORK. OR YOU COULD DO IT ON A PERCENTAGE BASIS. DOWN 20%, PUTTING MONEY INTO THE MARKET. BUT PRE DECIDE AND EXECUTE. DON'T RELY ON YOURSELF TO DO THAT. EMOTIONALLY, MOST PEOPLE BECOME PARALYZED. IN THIS SEA OF RED, IT IS DIFFICULT TO SAY THAT ME FOR GOOD MONEY AT BAD. MATT: IT'S A GREAT POINT. I WAS WATCHING YOU LAST WEEK, AND YOU SAID SOMETHING LIKE, IF YOUR MINDSET, YOUR MOST IMPORTANT VARIABLE WHEN IT COMES TO INVESTING. BARRY RITHOLTZ, GREAT TO HAVE YOU ON. I ALWAYS READ YOUR BLOG AT THE BIG PICTURE. OF COURSE, A BLOOMBERG CONTRIBUTOR, AS WELL. THE POINT IS, IT'S ALWAYS BETTER TO JUMP STRAIGHT INTO THE POOL RATHER THAN PUT YOUR TOE AND AND SLOWLY GET DEEPER, BUT IT IS TERRIFYING. TOM: IT IS TERRIFYING. EVERYTHING AGAINST THE HUMAN CONDITION. BARRY'S MATH IS CORRECT. WE DID SOME WORK ON THIS LAST WEEK. IT IS WIDELY ASYMMETRIC. IT IS SO HARD TO GET BACK INTO THE MARKET. FUTURES -46. DO YOU WANT TO GO LONG THIS MORNING? MATT: I DON'T HAVE THE COURAGE -- YOU HAVE A PHRASE FOR THIS. I NEVER HAVE THE COURAGE TO BE INVESTED. I JUST HAND IT OFF TO SOMEBODY ELSE. BUT THERE ARE BRAVER PEOPLE THAN I, AND THEY MAY BE IN THE MOOD TO GO LONGER, ESPECIALLY WITH FUTURES DONE MORE THAN 1% AFTER THE DROPS WE HAVE SEEN. THE QUESTION IS WILL THE SECOND HALF BE EVEN WORSE? TOM: MATT MILLER AND TOM KEENE. AS WE WRAP UP AN EVENT THE LOWER. -- IN THE LAST HOUR. WE WERE VERY SUCCESSFUL IN AVOIDING BITCOIN, 19,400. BITCOIN GOT THROUGH THE LONG WEEKEND. MATT: BITCOIN TRADITIONALLY DOES MUCH BETTER WHEN THE MARKETS ARE NOT OPEN. IF YOU ALWAYS BUY AT THE MARKET CLOSE AND SELL AT THE OPEN, OR IF YOU ONLY BUY AT THE WEEKEND AND SELL BEFORE THE MONDAY STARTS, YOU DO BETTER. TOM: DXY IS A HUGE STORY TODAY. 1.04. STRONGER U.S. DOLLAR. THE EURO, STUNNING. STAY WITH US ON RADIO AND

Channel: Bloomberg Television

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Id: 2CQZ8IhtQuc

Length: 133min 2sec (7982 seconds)

Published: Tue Jul 05 2022