Fed Fallout, ECB's Move | Bloomberg Surveillance 06/15/23

>> TODAY WE DECIDED TO LEAVE OUR POLICY INTEREST RATE UNCHANGED. >> JAY POWELL HAS MADE IT CLEAR THAT THE PRIORITY IS INFLATION. >> PUSHING BACK HARD AGAINST THE RECESSION CONSENSUS. >> THEY SUCCEEDED IN WHAT WE EXPECTED. >> WE EXPECT THEM TO RAISE RATES IN JULY AND DECEMBER TO GET TO THAT HALF PERCENT. >> THIS IS BLOOMBERG SURVEILLANCE WITH TOM KEENE, JONATHAN FERRO, AND LISA ABRAMOWICZ. TOM: GOOD MORNING. AFTER THE FED DECIDES WE DECIDE TO CONTINUE FORWARD. JON FERRO ON ASSIGNMENT IN ITALY. TOUGH DETAIL. LISA WITH ME. CLAIMS AT 8:30. WE WILL CLAIM YESTERDAY WAS ON THE EDGE OF HISTORY MAKING FOR THE CENTRAL BANK. I GOT IT WRONG. LISA: PERHAPS THIS WILL MARK THE END OF THE RATE HIKING CYCLE AND THAT IS ONE OF THE THEME I KEEP HEARING ABOUT. WHY, IF THEY HAD SUCH HAWKISH RHETORIC DIDN'T THEY GO THAT PARTICULAR MEETING? TOM: ELLEN ZENTNER FLAT OUT SAYS THE FED IS DONE. MADISON METLIFE CITIGROUP SAY THEY SHOULD'VE RAISED RATES AND FORGOT ABOUT ALL OF THE HAWKISH MUMBO-JUMBO. LISA: IF THEY ARE ACTUAL PROJECTIONS THEY CHANGE AND BECOME MORE HAWKISH AND INCREASE THEIR ECONOMIC PROJECTIONS. WE HEARD FROM JEFF ROSENBERG THEIR GAMING OUT THE SCOPE OF A POTENTIAL RECESSION. THEY DID NOT WANT TO MOVE AND THEY DID NOT WANT TO COMMIT TO A JULY MOVE. THAT WAS INDICATIVE OF SOMETHING. TOM: WHAT MATTERS. LISA WILL BRIEF YOU. IN THE COMING 48 HOURS, BULLARD, WALLER, AND OTHERS. THEY START SPEAKING. ARE YOU PREPARED FOR THIS? IT IS YOUR JOB TO BRIEF US ON THIS MADNESS. LISA: I WILL HAVE FUN WITH ALL OF THAT AS I AM SURE YOU WILL. JAY POWELL TALKED ABOUT LISTEN TO THE FED SPEAK. THEY WILL SPEAK FOR THEMSELVES. YOU COULD FEEL THAT UNDER THE HOOD, HOW TO GET TO A CONSENSUS WITHOUT CREATING THE APPEARANCE OF DISSIDENTS. TOM: THE ECB TODAY. MARIA TADEO WILL HAVE FULL COVERAGE OF THAT IN FRANKFURT. WHAT IS FASCINATING IS HOW YESTERDAY HAD THE SPIRIT OF WE HAVE OUR OWN KUNDUZ BANK BEING HAWKISH EVEN THOUGH MAY BE THE CHAIRMAN WANTED TO BE MORE LIKE FINLAND OR ANOTHER NATION. ALL OF A SUDDEN WE WERE BUNDESBANKY YESTERDAY. LISA: I WONDER ABOUT A EURO BREAKOUT AS WE GET A MOVE BY THE ECB. WE ARE DEFINITELY MOVING UP. YESTERDAY THE FACT THAT THE NASDAQ RALLIED IN THE FACE OF THE POTENTIAL FOR HIGHER RATES IS A SEA CHANGE. WE HAVE MOVED BACK BIG TECH BEING INTEREST-RATE SENSITIVE. PERHAPS IT IS THE NEW HAVEN. THIS SHOWS THE NATURE OF HOW IT IS THE DEFENSIVE TRADE. TOM: WE WILL DIVE INTO THAT WITH AMY WU SILVERMAN IN A BIT. I WILL LOOK AT THE DATA AND SUGGEST TEMPERING RIGHT ON THE SCREEN. FUTURES STILL ABOVE 4400. THAT IS ALL YOU NEED TO KNOW ABOUT CHAIRMAN POWELL GETTING OUT OF THE PRESS CONFERENCE. THE VIX 14.06. WE HAVE BEEN LOOKING AT OIL. $68.93. IN THE YIELD SPACE, DO NOT KNOW WHAT ELSE TO SAY. HOEVEN VERSION UP TO 92 BASIS POINTS -- INVERSION UP TO 92 BASIS POINTS. THE GYRATIONS CONTINUE IN BONDS. LISA: TO GIVE YOU A SENSE OF FED FUND PROJECTIONS, THERE IS ALMOST A 70% CHANCE OF A RATE HIKE BEING BAKED IN THE FED FUNDS FUTURES IN THE JULY MEETING FOLLOWING THE END OF JANUARY WITH 5.1%. TODAY JOHN MOELLER WILL BE JOINING US AT 7:30 -- JOHN LAWLER WILL BE JOINING US. CURIOUS WHAT HE HAS TO SAY ABOUT TESLA. MEGAN GREENE JOINING US. THRILLED TO HAVE HER. SHE IS JOINING AS A MEMBER OF THE MONETARY POLICY AT THE BANK OF ENGLAND. SHE TEACHES AT BROWN. 8:30 ECB RATE DECISION FOLLOWED BY 8:40 FIVE PRESS CONFERENCE WITH CHRISTINE LAGARDE. WATCH THE EURO. WE GET EMPIRE MANUFACTURING, THE FIRST READ ON JUNE. TO ME RETAIL SALES ARE INCREDIBLY IMPORTANT. HOW MUCH IS THE MOMENTUM BEHIND CONSUMER SPENDING? TOM: 70% OF THE AMERICAN ECONOMY. WE GO TO THE CONTROL GROUP. THE ANSWER IS THAT IS A NOMINAL STATISTIC. EVEN IF YOU SAY THE FED IS DONE, IF YOU GET SOME FORM OF STICKY INFLATION, TALKING ABOUT TOPLINE INFLATION, THEN YOU GET A TOPLINE RETAIL NUMBER WHICH IS SPIRITED AND ADDS INTO NOMINAL GDP. WE WILL LOOK AT RETAIL CAREFULLY TODAY. IN THE CURRENCY MARKET I WANT TO NOTE THE RENMINBI, LOTS GOING ON IN CHINA. I GO TO 7.16 ON CHINESE YUAN. AMY WU SILVERMAN JOINS US. HEAD OF DERIVATIVES STRATEGY AT RBC MARKETS. YOU SAY WE HAVE UPSIDE AND WE MAY NOT GET THE TRADITIONAL EQUITY MARKET ROTATION. THIS IS IMPORTANT TO GLOBAL WALL STREET. WHY WILL WE NOT ROTATE? AMY: THIS IS THE QUESTION WE'VE BEEN ASKING THE LAST FEW WEEKS AND I THOUGHT YESTERDAY'S KNEE-JERK REACTIONS WERE REALLY TELLING. FOR THE LAST FEW WEEKS THE OPTIONS MARKET HAS BEEN CHASING UPSIDE AND YOU GET A LITTLE BIT OF A HAWKISH TONE FROM THE FED AND FROM JAY POWELL. YOU HAVE THE RALLY. YOU HAVE THE NVIDIA RALLY. THAT TELLS YOU HOW THE MARKET IS THINKING ABOUT THESE DIFFERENT SECTORS. THE ONE QUESTION WE'VE BEEN ASKING OURSELVES IS IF THE DATA CONTINUES TO COME IN MORE ECONOMICALLY STRONG, IS IT POSSIBLE TO HAVE A NARRATIVE WHERE IT IS NOT A PART -- IT IS NOT ABOUT VALUE VERSUS GROWTH, IT IS TECH BECOMES YOUR RALLY POINT BECAUSE OF THE SECULAR STORY AND THEN RWM BECOMES AN I WM STORY. BOTH CAN RALLY AT THE SAME TIME. LISA: LET'S DEVELOP WHAT YOU ARE TALKING ABOUT. THE IDEA THAT BIG TECH HAS BECOME THE SECULAR GROWTH STORY AND THE FEAR OF RECESSION IS PLAYING OUT IN THE SMALL CAPS IN A NEW WAY, AND EVEN IN SOME OF THE NON-TECH NAMES WHICH HIGHLIGHTS A DIVERSIFICATION THAT IS VERY DIFFERENT THAT IT WAS SIX MONTHS AGO. AMY: EXACTLY. WHAT HAS BEEN INTERESTING, ESPECIALLY GIVEN YESTERDAY AS WE SAW IWM SELLOFF IN THE REACTION TO THE HAWKISH TONE FROM JAY POWELL BUT WE DO NOT SEE ANY CHANGE IN THE AUCTION SENTIMENT. GOING INTO YESTERDAY THE AUCTION SENTIMENT AT IWM WAS BULLISH. THAT HAS BEEN TRUE FOR THE LAST FEW WEEKS WHEN PEOPLE THINK THAT SMALL-CAP WILL BURST OUT. THAT DID NOT CHANGE YESTERDAY EVEN THOUGH WE DID SEE CONTINUED OPTIMISM IN THE LARGE CAPS AS WELL. THAT IS WHY I'VE BEEN SAYING IT IS POSSIBLE THE NARRATIVE NO LONGER BECOMES THIS ROTATION FROM SMALL THE LARGE WERE FROM GROWTH TO VALUE. THEY CAN GO ALONG DIFFERENT TRACKS AND DIFFERENT NARRATIVES. LISA: ARE YOU SAYING PEOPLE WHO ARE TALKING ABOUT BAD BREATH GETTING INTO SOME SORT OF BROADENING OUT NOT HAPPENING, AND IT IS NOT GOING TO HAPPEN EVEN IF YOU GET A RALLY IN THE EQUITY INDEXES? AMY: YOU SAID BAD BREATH, NOT ME THIS TIME. I THINK THAT IS POSSIBLE. THE ONE MAJOR IMPLICATION THAT HAS FOR VOLATILITY IS ONE REASON WE'VE BEEN COUNTING ON THAT TO WIDEN HIS IT WILL CHANGE OUR CORRELATION FUNCTION WHICH FEEDS INTO INDEX VOLATILITY. IF WE DO NOT GET THAT HAPPENING, IF YOU CONTINUE TO HAVE PEOPLE WHO MISSED OUT ON MAKE A CAP TECH HAVING TO REALLOCATE INTO IT, EVEN AS THAT STORY IS PRAYING OUT -- IS PLAYING OUT, YOU DO NOT GET MUCH OF A CHANGE IN CORRELATION WHICH DAMPENS VOLATILITY. IT IS POSSIBLE YOU HAS ALL OF THESE EVENTS BUT YOU HAVE SUPPRESSED VOLATILITY BECAUSE THAT CORRELATION COMPONENT CONTINUES TO NOT MOVE. TOM: IF WE BELIEVE IN ABLE MARKET -- IF WE BELIEVE IN A BULL MARKET, IF THAT IS THE FIRST LEG, HOW DO YOU USE THE CROSS MOMENTS? HOW DO YOU USE DERIVATIVE MATHEMATICS TO ASSIST IN IDENTIFYING THE SECOND LEG OF ABLE MARKET? AMY: I WILL GIVE YOU ONE BLOOMBERG FUNCTION I LIKE TO LOOK AT A LOT WHICH IS VCA, WHICH GIVES YOU THE VOLATILITY LANDSCAPE ACROSS ANY CONSTITUENTS LIKE THE S&P 500. WHEN YOU ORGANIZE THAT BY SKEW LEVELS, YOU START TO SEE WHERE THE REALLY BULLISH PARTS OF THE MARKET ARE. IF YOU LOOK AT THAT RIGHT NOW, AMONG YOUR TOP 10 NAMES, PROBABLY NOT SHOCKING TO YOU. IT WILL BE AMD, NVIDIA, TESLA, AND IT TELLS YOU NOT ONLY WERE THE MARKET IS OUTFRONT THE MOST BUT WHERE IT IS BEGINNING TO START TO SEE CHANGES IN SENTIMENT. YOU ARE STARTING TO SEE SOME OF THE MORE IWM NAMES GO INTO THOSE SECTORS. TOM: THE BIG NAMES, WHETHER IT IS PROCTER & GAMBLE, WALMART, INTEL IS THE DOG OF THE MOMENT OR AMD, ARE THEY UNDER OWNED BY INSTITUTIONS IN THE TRADITIONAL SENSE? ARE THEY UNDER OWNED AND WHAT HAS WORKED? AMY: THEY ARE AND THAT IS PART OF THE PROBLEM. THAT PORTION OF THE ASSET MANAGEMENT COMMUNITY HAS BEEN UNDER ALLOCATED AND THE ISSUE IS THAT BEGETS THIS POSITIVE MOMENTUM SITUATION WHERE WE TALKED ABOUT THAT EXACERBATION OF GAMMA. BUYING OF CALLS CAN LEAD TO MORE BUYING OF STOCK WHICH CAN LEAD TO MORE BUYING OF CALLS. THE OTHER THING IS HISTORICALLY THAT SEGMENT OF THE MARKET HAS A PROBLEM WITH OWNING THINGS IN SUCH A NARROW CONCENTRATION. IF THE BREATH OF THE MARKET STARTS TO EXPAND THAT HELPS THEM IN PARTICIPATING IN THE RALLY. TOM: THE HEADLINE IS AMY WU SILVERMAN SAYS APPLE IS A MEME STOCK. THAT IS WHAT WE WILL GO WITH. [LAUGHTER] IF I GET GAMMA AS ACCELERATION IN THE DERIVATIVE JARGON, ARE WE GAMMAING OUR WAY TO A MELT UP? AMY: WE ALREADY HAVE AND THAT HAS ALREADY BEEN HAPPENING. WHEN WE LOOK AT THE WEEK POST NVIDIA EARNINGS YOU SAW THE INVERSIONS ON THAT FUNCTION AND YOU CONTINUE TO SEE THAT NOW. THAT HAS NOT CHANGED THAT MUCH EVEN THOUGH SOME PEOPLE ARE ASKING IF THAT AI RALLY IS TIRED. YOU DO NOT SEE THAT IN THE OPTIONS. YOU CONTINUE TO SEE THAT IMBALANCE PRETTY HEAVILY IN EACH DAY THAT GOES BY WE START TO SEE IT IN DIFFERENT PARTS OF THE MARKET. THAT IS WHY IT IS VERY TELLING IN TERMS OF THE SENTIMENT. THE WINDS HAVE REALLY CHANGED OVER THE LAST MONTH. TOM: AMY WU SILVERMAN, TERRIFIC OPENING FOR US. SURVEILLANCE CORRECTION. WE WANT TO BE CLEAR. APPLE IS NOT A MEME STOCK. LISA: [LAUGHTER] THANK YOU. NEWS YOU NEED TO DO. TOM: THIS GOES BACK TO MY CONVERSATION 10 DAYS OR SO AGO. SO MUCH CAN BE LEARNED BY STUDYING THE DYNAMICS AND ALSO AS ASIANS -- AND OSCILLATIONS OF THE CONSENSUS OPINIONS. LISA: YOU HAVE BEEN SAYING APPLE IS NOT UNDER OWNED AND THERE IS DATA THAT CONFIRMS WHAT YOU ARE TALKING ABOUT. MICROSOFT IS 75% OWNED BY INVESTMENT COMPANIES. APPLE IS 67%. INVESTMENT COMPANIES ARE NOT AS HEAVILY WEIGHTED IN THE APPLE SHARES AS THEY ARE IN MICROSOFT WHICH RAISES YOUR QUESTION. ARE PEOPLE GOING TO HAVE TO PLAY CATCH-UP? TOM: THEY HAVE TO. IF YOU'RE AN INDEX FUND AND YOU ARE ON THE STOVE BECAUSE YOU HAVE TO OWN IT AND IT DOES WELL COME UP GOES THE INDEX FUND. IF YOU'RE RUNNING 92 OR 93 OR 95 YOU HAVE TO OWN IT, BUT YOU WANT TO OWN X PERCENT OF BIG STOCKS? THIS IS WAY TOO MUCH MATH. CHICAGO CONSTITUTIONAL MATH. IT IS SCARY. FUTURES -14. MUCH TO TALK ABOUT. >> TODAY WE DECIDED TO LEAVE OUR POLICY INTEREST RATE UNCHANGED AND REDUCE OUR SECURITIES HOLDING. WE DID NOT MAKE A DECISION ABOUT JULY. IT CAME UP FROM TIME TO TIME. I WOULD SAY ABOUT JULY 2 THINGS. A DECISION HAS NOT BEEN MADE. I EXPECT IT WILL BA LIVE -- I EXPECT IT WILL BE A LIVE MEETING. TOM: I THOUGHT MICHAEL MCKEE WAS STUNNING CALLING A SUPER HAWKISH MEETING. YOU REVIEWED IT BRILLIANTLY. YOU SET UP, UP WENT THE MARKETS AND THEN THEY PULLED BACK. A CONSTRUCTIVE MOVE AT THE END. THERE WAS A FLIGHTY NEST TO IT. LISA: THERE IS SKEPTICISM ABOUT WHETHER THEY WILL GO THROUGH WITH THE HAWKISH RHETORIC. THAT IS REALLY THE TAKE AWAY I HAVE HEARD A LOT OF THE ANALYTIC NOTES. TOM: WE WILL JUMP INTO A GOING CONVERSATION ON THE POLITICS OF THE MOMENT WITH UNITED STATES OF AMERICA. PATRICK TOOMEY IS ONE OF OUR MORE INTERESTING SENATORS. FORMER SENATOR OF PENNSYLVANIA. IT IS HIS FAULT THE PHILLIES LOST IN THE ACCIDENT AFTER THAT. HE IS ON THE BOARD OF APOLLO. WHAT IS THE BIGGEST DIFFERENCE OF MOVING FROM THE AUGUST SENATE OF WASHINGTON INTO THE PRIVATE SPACE? SEN. TOOMEY: THERE ARE A LOT. HAVING CONTROL OF YOUR OWN SCHEDULE IS ONE OF THEM. WHEN YOU'RE OUT OF THE SENATE YOU HAVE A LOT MORE SAY. TOM: THAT IS A HUGE DIFFERENCE IN THE HOUSE WHERE THERE ARE ONE OR TWO PEOPLE AWAY AND THAT CHANGES THAT FOR SPEAKER MCCARTHY. LISA: HOW MUCH DO YOU FEEL LIKE YOU WOULD NOT RUN IF THE SAME NOW IF THE DYNAMICS WERE THE SAME AS YOU STARTED IN POLITICS? SEN. TOOMEY: I WAS IN FEDERAL OFFICE FOR 18 YEARS. 12 YEARS IN THE SENATE AND PRIOR TO THAT SIX YEARS IN THE HOUSE. FOR ME THAT WAS ENOUGH. I WAS READY TO MOVE ON. I HAVE NO REGRETS. I APPRECIATED THE CHANCE TO PURSUE THE POLICIES I BELIEVED IN BUT I DO NOT LIKE THE IDEA OF BEING THERE FOREVER FOR ANYBODY, MYSELF INCLUDED. TOM: YOUR CUT FROM A DIFFERENT CLOTH -- YOU ARE CUT FROM A DIFFERENT CLOTH. WHAT YOUR CLAIM FOR IS STANDING UP TO THE FORMER PRESIDENT AND SING BEHAVIOR IS NOT APPROPRIATE. WE HAVE SEEN A HISTORIC MOMENT FOR THE NATION THAT WILL CONTINUE IN THE COMING WEEKS AND MONTHS. WHAT IS THE BEST PRACTICE OF CENTRIST REPUBLICANS AS THEY ADDRESS THIS INDICTMENT? SEN. TOOMEY: I AM A CONSERVATIVE REPUBLICAN AND MY CONSERVATISM REQUIRES ME TO CALL OUT THE COMPLETELY UNACCEPTABLE AND EGREGIOUS BEHAVIOR OF THE FORMER PRESIDENT AS IT MANIFESTS ITSELF PERIODICALLY. I THINK REPUBLICAN SHOULD CALL IT FOR WHAT IT IS. THIS IS A COMPLETELY UNNECESSARY, OUTRAGEOUS ABUSE OF THE RESPONSIBILITY THE AMERICAN PEOPLE GAVE THIS PRESIDENT. HE KNEW THOSE DOCUMENTS DO NOT BELONG TO HIM. IT WAS NOT JUST SLOPPINESS. IT WAS NOT JUST A MATTER OF A FEW PAPERS GOT IN WITH SOME OF MY MEMENTOS. IT WAS LYING ABOUT IT, IT WAS HIDING IT. IT WAS SUGGESTING TO HIS LAWYERS THEY MAKE IT DISAPPEAR. IT WAS DISCUSSING IT IN FRONT OF REPORTERS, SOMEONE WRITING A BOOK AND RECORDING THIS. IF WE CAN BELIEVE THE ALLEGATIONS, WHICH I THINK THEY ARE THERE FOR A REASON, IT INCLUDED VERY SENSITIVE MILITARY SECRETS OF THE UNITED STATES OF AMERICA. AS IS OFTEN THE CASE DONALD TRUMP IS HIS OWN WORST ENEMY. HE MAKES A FOOLISH MISTAKE AND THEN COMPOUNDS IT MASSIVELY. THIS IS INDEFENSIBLE BEHAVIOR. TOM: I WENT BACK AND LOOKED AT THE SEPTEMBER EFFORT IN THE WASHINGTON POST AND I WAS THUNDERSTRUCK AT THE COUNTABLE RESEARCH OF HOW SMALL MAGA IS. IT IS NOT THAT GREAT A PART OF THE AMERICAN PIE. OUT OF THE BROADER SENSE OF REPUBLICANS AND INDEPENDENTS NOT DEFEND THEMSELVES BUT ADJUST AND MOVE FORWARD IF MAGA IS NOT THAT BIG. THEIR MEGAPHONE IS LARGE. SEN. TOOMEY: THE UNFORTUNATE REALITY IS THE FORMER PRESIDENT HAS A LARGE LEVEL OF SUPPORT AND IT IS COMPLICATED. PART OF IT IS HISTORICAL AND PART OF IT IS A SENSE OF THE GRIEVANCES HE FANS. PART OF IT IS THE PERCEPTION HE IS BEING UNFAIRLY TREATED SO EVEN IF HE DID SOMETHING WRONG IT IS NOT A FAIR TREATMENT. IT IS COMPLICATED. MY THEORY IS THE CUMULATIVE WEIGHT OF ALL OF THE DRAMA AND UNNECESSARY MISERY AND ALL OF THE LAWSUITS AND THE ALLEGATIONS , ALL OF THIS WILL CAUSE INCREASING NUMBERS OF REPUBLICANS, EVEN IF THEY HAVE BEEN SYMPATHETIC TO DONALD TRUMP, TO SAY OK MAYBE HE DID A GOOD JOB AS PRESIDENT, WE HAVE TO MOVE ON. LISA: ONE OF THE INTERESTING THINGS ABOUT YOU IS YOU CAN DOVETAIL FROM WASHINGTON TO WALL STREET AND THAT HAS BEEN YOUR BACKGROUND. WE ARE TALKING ABOUT THE POLITICS OF THE MOMENT AT A TIME WHEN FED POLICY WILL DICTATE A LOT ON WALL STREET. HOW CONCERNED ARE YOU GIVEN THE POLITICIZATION OF THE INFLATION DEBATE, HOW CONCERNED ARE YOU THIS FIT IS NOT REALLY CONVICTED ENOUGH TO GO THROUGH WITH HIS MANDATE AND GET INFLATION BACK DOWN TO WHERE IT SHOULD BE? SEN. TOOMEY: EILEEN IN THE OTHER DIRECTION. I THINK -- I LEAN IN THE OTHER DIRECTION. I THINK THIS FIT IS VERY CONCERNED ABOUT THE REPUTATION. I THINK THEY KNOW THEY GOT THIS BADLY WRONG. THEY KEPT RATES TOO LOW. THEY ESTABLISHED A FLAWED PARADIGM FOR DETERMINING WHEN THEY WOULD CHANGE. THEY GOT BEHIND THE CURVE. THE RISK IS THEY OVERDO IT. PARTLY FOR THE SAME REASON THEY WENT TOO FAR. IN MY CONVERSATION WITH FED GOVERNORS I WAS ALWAYS SURPRISED AT HOW DISMISSIVE SO MANY OF THEM ARE ABOUT MONEY SUPPLY. HOW DISMISSIVE THEY ARE ABOUT WHAT MILTON FRIEDMAN TAUGHT US AND HOW FOCUSED THEY ARE ABOUT THINGS LIKE INFLATION EXPECTATIONS RATHER THAN THE 40% GROWTH IN M2 THEY WERE RESPONSIBLE FOR. THEY MIGHT MISS THE COLLAPSE OF THE GROWTH IN M2 AND MISDIAGNOSE WHAT IS GOING ON. I THINK THERE IS A GREAT RISK THEY GO TOO FAR. LISA: ARE YOU AGREEING WITH ELIZABETH WARREN? SEN. TOOMEY: I DON'T THINK SO. ELIZABETH WARREN WAS OPPOSED ANY KIND OF NORMALIZING INTEREST RATES. WE NOW HAVE POSITIVE REAL INTEREST RATES. WE HAVE HAD MONEY SUPPLY GROWTH GO TO ZERO. WE HAVE HAD THE FED SHRINKING ITS BALANCE SHEET. WE HAVE THE TREASURIES ABSORB $1 TRILLION WORTH OF CASH FROM THE ECONOMY. YOU PUT THAT TOGETHER AND YOU LOOK AT HOW INFLATION HAS ROLLED OVER. I THINK WE ARE PROBABLY ON THE RIGHT TRAJECTORY. I'M NOT IN THE CAMP OF EASING. I THINK THE PAUSE IS THE RIGHT THING TO DO. YOU LOOK AT THE DOT PLOT AND IT LOOKS AS THOUGH THEY'RE GOING HIGHER. I THINK THE ERROR IS MORE LIKELY TO OCCUR ON EXCESSIVE TIGHTENING. TOM: BLOOMBERG SURVEILLANCE HAS A GREAT AFFECTION FOR POLITICIANS WHO COME FROM A DIFFERENT TERRITORY THAN PURE POLITICS. I WAS TALKING TO ARE GREG JARREAU WHO LOOKS AT THE MESS COMING -- AT THE MESS THAT IS THE COMING PRESIDENTIAL CAMPAIGN. I WOULD SUGGEST THAT YOU CONSIDER IN YOUR PRIVATE CITIZEN MOMENTS WE NEED A LA SALLE ACADEMY TICKET. I THINK GOVERNOR RAIMONDO HAD TO BRING RHODE ISLAND TO THE NATION. WHAT IS AT THE -- WHAT IS IN THE PIXIE DUST APOSTOL ACADEMY THAT GIVES US THE COMMERCE SECRETARY AND THE FORMER SENATOR? SEN. TOOMEY: I THINK OUR COMMERCE SECRETARY IS A VERY IMPRESSIVE MEMBER OF THE ENTIRE ADMINISTRATION. OUR WORLDVIEW STILL DIFFER CONSIDERABLY. I HAD A GREAT EXPERIENCE AT LA SALLE ACADEMY. SHE AND I WILL NOT BE TEAMING UP ANYTIME SOON. [LAUGHTER] TOM: WHAT IS THE WORLDVIEW YOU SEE IN THE DEBATES OF THE REPUBLICAN PARTY? SEN. TOOMEY: THERE ARE BIG ONES. WHAT IS OUR ROLE IN THE WORLD? THERE IS A WING OF THE PARTY WHO THINKS WE SHOULD NOT BE HELPING UKRAINIANS. I THINK THAT IS CRAZY. YOU HAVE A WING OF THE PARTY WHO WANTS TO EXPLICITLY REJECT MARKET CAPITALISM AND HAVE CENTRAL PLANNING OF INDUSTRIAL POLICY. TOM: WE WILL HAVE TO LEAVE IT THERE. AFTER YOUR APOLLO BOARD MEETING PLEASE COME BACK AND CONTINUE. I WANT TO TALK TO ABOUT CHINA. PATRICK TOOMEY, FORMER SENATOR OF PENNSYLVANIA. TOM: BLOOMBERG SURVEILLANCE. JONATHAN FERRO ON ASSIGNMENT. DOING A WHICH ISLAND? SARDINIA? LISA: WHY DO YOU CALL VACATION ASSIGNMENT? TOM: BECAUSE I WORK ALL VACATION. I WEAR MY SUIT AND MY BOWTIE AND I WEAR MY FLOATY'S SO I DO NOT SINK. I AM AMERICAN, I WORK ALL VACATION. TOM: TRUE STORY. I AM AT SEA ISLAND IN GEORGIA STUDYING FOR LEVEL TWO. STUDYING WHILE WE ARE VACATIONING. JON FERRO DOES IT BETTER THAN WE DO. LISA: "WE." [LAUGHTER] TOM: THE THURSDAY AFTER A TRULY HISTORIC FED MEETING. A FIVE BASIS POINT MOVE IN THE TWO YEAR. FLIGHTY. IMPORTANT CURVE IN VERSION. -80 BASIS POINTS, NOW -92 BASIS POINTS. DARE I SAY WE CAN GET ONE FULL PERCENTAGE POINT DIFFERENCE BETWEEN THE TWO YEAR AND THE 10 YEAR. WE ARE NOT THERE YET. LISA: I AM WATCHING THE EURO BECAUSE OF WHAT WILL HAPPEN WITH THE ECB MEETING AND ALSO BECAUSE OF CHINA AND THE ADDITIONAL RATE BUT THEY ANNOUNCED OVERNIGHT AFTER WEAKER THAN EXPECTED RETAIL SALES. HOW MUCH THAT WILL GIVE EUROPE AN ADDITIONAL POP ON THE HEELS OF THIS BACON BELIEF IN THE PAST COUPLE WEEKS THEY WERE SLOWING DOWN. TOM: JUST OUT, HEADLINE, AND THIS SHOWS THE DEFENSIVE STRATEGY. TARGET BOOSTS THEIR QUARTERLY DIVIDEND 1.9%. WHY BOOSTED? I GUESS THEY DO IT TO KEEP A SEQUENCE OF DIVIDEND INCREASES GOING LIKE THE BANK OF NEW YORK BACK TO 17 WHATEVER. THERE IS WITH A FRACTIONAL BOOST. WHY DON'T YOU SET UP THE FESTIVITIES YESTERDAY. LISA: IT WAS QUITE A PRESS CONFERENCE. THE RELEASE COMES OUT AND TENDS TO HAVE A HAWKISH TONE AND JAY POWELL TAKES THE BITE OUT OF IT AS HE SAYS IN HIS CALM TONE HE IS NOT COMMITTING TO ANYTHING IN JULY. TAKE A LISTEN TO THE HIGHLIGHTS. >> IT SEEMED TO MAKE SENSE TO MODERATE OUR RATE HIKES. I WILL SAY IT IS A CONTINUATION OF THAT PROCESS. WE DO NOT MAKE A DECISION ABOUT JULY. I EXPECT IT WILL BE A LIVE MEETING. >> THE CONDITIONS WE NEED TO SEE TO GET INFLATION DOWN OR COMING INTO PLACE BY THE PROCESS OF WORKING ON INFLATION WILL TAKE SOME TIME. LISA: BASICALLY TRYING TO EXPLAIN THE AWKWARD HAWKISH SKIP AS IT IS CLEAR THERE IS SOME DISAGREEMENT ON THE COMMITTEE ABOUT HOW MUCH FURTHER THEY SHOULD GO. THAT SEEMS TO BE THE THEME WHEN HE SAID WE WILL NOT COMMIT TO ANYTHING IN JULY. THE DATE IT WILL COME IN. TOM: MY SUMMARY IS SIMPLE. I WILL GO TO THE RICHARD CLARIDA INTERVIEW KRITI GUPTA HAD IN THE LAST HOUR. CLARINET HAD A BLISTERING -- RICHARD CLARIDA TO HEAD BLISTERING ESSAY IN THE ECONOMIST. I WILL DO THIS QUICKLY BECAUSE WE HAVE WILL KENNEDY ON OIL WAITING. JASON FURMAN IS AT HARVARD. HE IS LEAKING LEGIT ACADEMIC MACRO ECONOMICS INTO POLICYMAKING. HE TEACHES AT A SMALL SCHOOL IN THE CAMBRIDGE RIVER. THE FEDERAL OPEN MARKET COMMITTEE IS SIGNALING A BABY STEP AWAY FROM LOW EQUILIBRIUM INTEREST RATES. THE MEDIUM LONG RUN FFR WAS UNCHANGED AT 2.5% BY THE CENTRAL TENDENCY SHIFTED UP. ALL THREE OF THE LOWEST LONG-RUN DOTS SHIFTED UP. EXPECT MORE OF THE SHIFT OVER TIME. THAT IS WHERE THE FORMER VICE CHAIRMAN IS. THERE WILL BE A LANGUAGE OF AN INSTITUTION THAT CANNOT VISIBLY SHIFT UP. LISA: WE ARE TALKING ABOUT THE NEUTRAL RATE BEING SOMEWHAT HIGHER THAN WHAT WE HAVE GOTTEN ACCUSTOMED TO. THIS GOES TO THE HEART OF THE QUESTION OF A LOT OF PEOPLE HAVE. WHY IS THE ECONOMY BEEN SO RESILIENT? IS IT JUST LAG EFFECTS THAT HAVE NOT TAKEN HOLD, OR IS THERE SOMETHING THAT IS LESS INTEREST RATE SENSITIVE OR MORE DYNAMIC ABOUT THE ECONOMY? TOM: IT FITS INTO THE DEMAND QUESTION. WILL KENNEDY IS FAMILIAR WITH THIS, DRIVING ALL OF OUR HYDROCARBON COVERAGE. WILL KENNEDY ENJOYING $68.87 WEST TEXAS INTERMEDIATE. ONE OF OUR THEMES FROM JEFF CURRIE OF GOLDMAN SACHS AND AMRITA SEN IS THE IDEA ALL OF THE SUDDEN INTEREST RATES MATTER. WE HAVE A HIGHER INTEREST RATE REGIME. A LEGIT COUPON ON SHORT-TERM PAPER. HOW DOES THAT CHANGE THE DIALOGUE FOR THE KINGDOM OF SAUDI ARABIA? WILL: OBVIOUSLY IT IS A DESTINATION FOR MONEY. IT MEANS THERE MAY BE LESS PEOPLE PUTTING THEIR MONEY INTO OIL. IT MAY RESTRICT THE FINANCIAL FLOWS OF MONEY INTO OIL. WE KNOW ONE OF THE THINGS WE HAVE SEEN IN THE OIL MARKET THIS YEAR IS THE FINANCIAL MARKET HAS FELT MUCH MORE BEARISH FROM OPEC PRODUCERS AND OIL PRODUCERS AND PEOPLE IN THE PHYSICAL MARKET THINK IT IS JUSTIFIED AND PEOPLE TALK ABOUT THAT DISCONNECT. PEOPLE TALK ABOUT THAT DISCONNECT BETWEEN THE PAPER MARKET AND THE PHYSICAL MARKET AND THAT MIGHT BE ONE REASON. TOM: AMRITA SEN WAS REALLY FORCEFUL ABOUT THAT AND SHE SAID THE PAPER MARKET, THE FINANCIALIZATION OF HYDROCARBON HAS OIL DEMAND WRONG. WHAT IS THE ACTUAL BLOOMBERG REPORTING ABOUT OPEC-PLUS OIL DEMAND? WILL: OIL DEMAND, IS A MIXED PICTURE. THERE ARE PLACES WHERE DEMAND IS WEAKER THAN EXPECTED, OFF FROM WHAT PEOPLE EXPECTED. A LOT OF FOCUS IS ON CHINA WHERE PEOPLE EXPECT A HUGE SURGE IN OIL DEMAND. TO SOME EXTENT WE HAVE SEEN SOME OF THAT BUT IT HAS NOT BEEN QUITE AS STRONG AS SOME PEOPLE HAVE EXPECTED IN OTHER PARTS OF THE INDUSTRIAL ECONOMY IT HAS BEEN WEAK. THERE ARE PLACES WHERE DEMAND HAS BEEN STRONG. IT IS A MIXED PICTURE. ONE THING WE WANT TO TAKE A LOOK AT IS THE WEATHER. IT IS VERY HOT AND THAT IS STARTING TO HAVE AN IMPACT -- LISA: I THINK WE ARE HAVING SOME DIFFICULTIES WITH WILL KENNEDY. LET'S REESTABLISH THAT AS WE GO ON. I WONDER AS HE IS TALKING ABOUT THE POTENTIAL SUPPLY AND DEMAND DYNAMIC, I THINK ABOUT WHAT HAPPENED WITH SHELL YESTERDAY. NOT ONLY DID THEY INCREASE THEIR DIVIDEND BUT THEY ALSO DOUBLED DOWN ON THE FOSSIL FUEL STORY THAT MUCH MORE. TOM: THIS IS A HUGE DEAL. AT ONE POINT IS THIS THEM CATCHING UP TO SHAREHOLDER ACTIVISM THAT IS KEEPING AMERICAN OIL MAJORS PERFORMING BETTER THAN EUROPEAN? HOW MUCH IS THEM STARTING TO POTENTIALLY INVEST MORE IN FOSSIL FUELS? DO WE START TO GET THAT STORY A NEW? TOM: THE UNDERLYING THESIS OF OVER $100 A BARREL IS A BURGEONING EM DEMAND, A PACIFIC RIM DEMAND. THAT HAS NOT HAPPENED. I LOOK AT THE JP MORGAN CALL, WHICH I THOUGHT WAS REALLY INFORMED AND REALLY ARTICULATE AND REALLY INTELLIGENT AND REALLY WRONG. THE ISSUE IS WE DO NOT GET THAT PERSISTENT ABOVE $100 A BARREL OIL BECAUSE DEMAND EVAPORATED. AS IT COMES BACK, AS MR. KENNEDY POINTED OUT, HOW DO YOU SUSTAIN $68 WEST TEXAS INTERMEDIATE IF CHINA OPENS UP? THAT IS THE ARCH QUESTION RIGHT NOW. LISA: AND WHAT IS THE DYNAMIC WITH ELECTRIC VEHICLES? WE DO NOT HAVE A SENSE. SOME PEOPLE SAY THIS IS PART OF THE REASON OF A LACK OF DEMAND AND YOU'RE ANNOUNCING THE TRANSLATION INTO ECONOMIC ACTIVITY AND OTHERS SAY THAT IS OVERSTATED. TOM: WE WILL JUMP FROM WILL KENNEDY, THANK YOU FOR JOINING US THIS MORNING. CHIEF ECONOMIST AT ACCESS MANAGERS, A STUDENT OF THE ECONOMIC AT EUROPE BUT A STUDENT OF THE CULTURAL ECONOMICS OF EUROPE. THANK YOU SO MUCH FOR JOINING US. HOW UNIFIED IS EUROPE AS WE GO TO THIS ECB MEETING? HOW FAR IS THE BUDDHIST BANK FROM THE BURDETTE -- IS THE BUNDESBANK FROM THE DOVES OF FRANKFURT? >> IT IS TRUE THERE IS A BIT OF DIVISION EMERGING RIGHT NOW. IF YOU LOOK AT THE DIVISION EMERGING IT IS NOT WHAT YOU COULD EXPECT IF YOU FOCUS ON DOMESTIC INFLATION SERVICES. COUNTRIES IN THE SOUTH HAVE BEEN PRETTY WELL BEHAVED. FRANCE HAS BEEN WELL BEHAVED. YOU SEE THE STEEPEST INCREASED IN INFLATION NOT NECESSARILY IN GERMANY BUT A LOT OF NORTHERN EUROPEAN COUNTRIES, BELGIUM, THE NETHERLANDS, AND SO FORTH. WE ARE IN A STRANGE SITUATION WHERE THE CENTRAL BANK GOVERNORS ARE ALREADY OF THE HAWKISH DISPOSITION FACING A LOT OF INFLATION, WHICH MAKES THEM EVEN MORE HAWKISH. IT IS NOT ENOUGH TO STOP THE ECB TODAY. PROBABLY NOT ENOUGH TO STOP IT IN JULY. I WOULD EXPECT THE DEBATE TO HEAT UP THIS SUMMER AROUND THE NEED TO CONTINUE. LISA: HOW MUCH DOES POTENTIAL CHINESE STIMULUS CHANGE THE DYNAMIC? WE SAW THEM CUT ONE OF THEIR ONE YEAR RATES LAST NIGHT JUST A TOUCH. IT DOES SEEM TO SIGNAL THEY ARE READY TO SUPPORT THE ECONOMY IN A MORE SIGNIFICANT WAY. IS THAT A BOOST TO THE EUROPEAN ECONOMY? GILLES: IT SHOULD. A BIG DIFFERENCE BETWEEN EUROPE AND THE U.S. CHINESE TRACTION MATTERS QUITE A BIT TO US. ESPECIALLY FOR COUNTRIES SUCH AS GERMANY. THE STIMULUS IN CHINA IT WOULD HELP. WHAT I THINK IS INTERESTING IS WE HAVE SEEN STRUCTURAL TRENDS WHICH ARE -- IRRESPECTIVE OF THEIR GROWTH RATE. IF YOU LOOK AT THE CAR INDUSTRY, GERMAN CARMAKERS HAVE BEEN THE BIGGEST CARMAKERS IN CHINA. IT IS NO LONGER THE CASE. THEY ARE BEING OVERTAKEN BY DOMESTIC PLAYERS. AS USUAL STRONGER CHINESE DEMAND WOULD HELP BUT LAYING A PLATE OF THE ACTUALLY -- LAYING THE PLAY OF THE ABSOLUTE CRUCIAL ROLE THEY WOULD PLAY A FEW YEARS AGO. TOM: GILLES MOEC, THANK YOU ON SHORT NOTICE. MARIA TADEO IS IN FRANKFURT AND WE WILL GIVE YOU THE IMPORTANT PRESS CONFERENCE AFTER THOSE ANNOUNCEMENTS. LISA MENTIONED THERE WAS ACTION IN CHINA OVERNIGHT. WE WILL DO THIS NOW BEFORE IMPORTANT GLOBAL WALL STREET CONVERSATION WITH LELAND MILLER. HOW DOES A SOCIETY RUN ON 20% PLUS YOUTH UNEMPLOYMENT? I DO NOT UNDERSTAND IT. LISA: A NEW RECORD, EXCEEDING WHAT WE SAW IN 2018. I BELIEVE IT IS 16 TO 24-YEAR-OLDS WITH A MORE THAN 20% UNEMPLOYMENT RATE. WHAT KIND OF DISPUTES DOES THIS RAISE BETWEEN A POPULATION AND THEIR LEADERS AT A TIME THEY ARE TRYING TO SHIFT THE DYNAMIC, SHIFT THE ECONOMIC MODEL WHILE ALSO KEEPING THINGS APPROACH -- KEEPING THINGS AFLOAT. TOM: HEAD OF ECONOMICS FOR JP MORGAN WITH US AND HIS CHINA TEAM MODEL IT OUT AND THERE ARE OTHERS THAT HAVE BEEN WORSE, BUT THEY PUT A 4X NUMBER ON IT. CHINA YOUTH UNEMPLOYMENT IS FOUR TERMS LONGER -- FOUR TIMES LARGER THAN THE AGGREGATE UNEMPLOYMENT IN CHINA. LISA: THAT IS NOT SUSTAINABLE THE PEOPLE ARE UPDATING THEIR EXPECTATIONS FOR HOW MUCH GROWTH COULD SURPRISE TO THE UPSIDE. THAT IS THE LOW END BECAUSE RIGHT NOW THEY WILL GO BACK TO THE TOOLS THEY KNOW BEST WHICH IS SIMULATE EXISTING INDUSTRIES THAT SOME PEOPLE WOULD ALREADY SAY ARE PUBLISHES. HOW MUCH DOES THAT SUPPORT GROWTH AND INFLATION? IS IT JUST AVOIDING THE WORST OF SOME SORT OF DOWNTURN? TOM: THIS IS IMPORTANT WITH LELAND MILLER COMING UP. HE HAS BEEN MORE OPTIMISTIC THAN MOST. IT IS DOMESTIC RESEARCH FOR CHINA. LESS US LOOKING AT CARDBOARD BOXES THAT SAY MADE IN CHINA. IT IS A DOMESTIC STORY. LISA: THAT IS THE REASON WHY IT MIGHT NOT HAVE THE SAME KIND OF STIMULATIVE EFFECT ON OTHER ECONOMIES AS IT DID FIVE TO 10 YEARS AGO. TOM: WILL HAVE TO SEE. ELEVATED EURO OVER THE LAST FEW DAYS. FUTURES AT -80. I WILL CALL THEM QUIET -- FUTURES AT -18. I WILL CALL THEM QUIET. WE GET CLAIMS IN A REPORT ON RETAIL SALES. LELAND MILLER WITH CHINA BEIGE BOOK. >> AS THE CHAIR INDICATED, THE NEXT MEETING IS LIVE, WHICH IS FED SPEAK FOR THEY COULD GO. GIVEN WHAT WE SAW YESTERDAY, THEY WILL GET THAT RATE HIKE IN AT THE JULY MEETING. TOM: THE FORMER VICE CHAIR OF THE FIT. RICHARD CLARIDA. WE WERE TALKING TO JOSEPH: AND THE OTHER DAY. SOME WOULD SAY HE INVENTED MODERN COLUMBIA ECONOMICS. BRINGING MICHAEL WOODFORD FROM PRINCETON IS SOMETHING PEOPLE CONTINUE TO TALK ABOUT. A LOT OF GOOD WORK FROM RICHARD CLARIDA AT PIMCO AND COLUMBIA AND DRIVING FORWARD THE IDEA THERE WILL BE A NEW RATE REGIME. THAT DOVETAILS INTO CHINA. RIGHT NOW FUTURES AT -17 WE WILL ADVANCE THE CONVERSATION ON CHINA. I WILL NOT MINCE WORDS. LELAND MILLER IS AN OUTLIER WITH HIS GRANULAR ANALYSIS OF CHINA. YOU AGGRESSIVELY PUSH AGAINST THE CHINA ECONOMIC GLOOM. WHAT ARE THE GLOOMSTERS GETTING WRONG? LELAND: I THINK THERE IS REASON TO BE GLOOMY BUT EVERYTHING HAS TO BE RELATIVE. THESE ARE PROBABLY SOME OF THE MOST DIFFICULT ECONOMIC NUMBERS WE HAVE EVER HAD TO UNRAVEL IN OVER A DECADE. IF YOU LOOK AT WHAT WE DO KNOW, WE KNOW THE EARLY EXPECTATIONS THERE WOULD BE A RALLY, THOSE WERE WRONG. IF YOU LOOK AT WHAT IS HAPPENING WITH Q2, THE IDEA THERE WILL BE A BOOM, THOSE LOOK WRONG. IS THERE A RECOVERY OR ARE THINGS FALLING APART? IF YOU LOOK AT THIS SEQUENTIALLY, YOU HAVE BEEN SEEING SOME IMPROVEMENT MONTH-TO-MONTH. CHINA BEIGE BOOK DATA IMPROVED THREE STRAIGHT MONTHS. IF YOU GO INTO THE INDUSTRIAL PRODUCTION DATA IT LOOKS LIKE THERE IS SEQUENTIAL IMPROVEMENT. RETAIL SALES NUMBERS ARE HARD TO DECIPHER BECAUSE THEY SEEM TO BE MOVING THESE AROUND. YOU SEEM TO BE SEEING SOME ELEMENTS OF IMPROVEMENT. YOU'RE NOT SINGING A RECOVERY EVERYBODY IS EXPECTING WHICH HAS MADE EVERYBODY PESSIMISTIC. IT IS ABOUT FRAMING EXPECTATIONS FOR THE REST OF THE QUARTER AND GOING BASED ON THAT. LISA: THE PBOC RESPONDED AFTER GETTING THESE DISAPPOINTING RETAIL SALES FIGURES. THEY CUT THIS RATE ON THE ONE YEAR LOAD ASPECT OF THEIR PORTFOLIO BY 10 BASIS POINTS. THAT IS NOT NECESSARILY A SIGNIFICANT MOVE. THIS FOLLOWS ANOTHER SMALL MOVE EARLIER IN THE WEEK. WHAT DOES THIS SIGNAL ABOUT WHAT THEY'RE PREPARED TO DO IN TERMS OF STIMULUS? LELAND: I DO NOT THINK IT SIGNALS THAT MUCH. IN AND OF ITSELF IS A SIGNAL THEY UNDERSTAND DATA IS NOT WHERE THEY NEED TO BE. HERE IS THE PROBLEM. EVERY TIME PEOPLE SEE WEEK DATA THEY EXPECT STIMULUS. SOME OTHER STIMULUS IS COMING DOWN THE ROAD TO SAVE THEM. GO BACK TO 2020, 2021. NOW IT IS 2023. WE ARE HAVING THE SAME TYPE OF CONVERSATION. CHINESE DATA IS GETTING WEAKER. EXPECTATIONS STAY THE SAME. THEY ARE UNLIKELY TO DO ANY BIG STIMULUS. THEY ARE CUTTING RATES, WILL NOT HAVE MUCH OF AN EFFECT. DO THEY DIVE BACK DOWN INTO THE OLD LET'S BUILD A BUNCH OF BRIDGES AND TOWNS INFRASTRUCTURE INVESTMENT? THAT IS UNLIKELY. NOTHING WE ARE SEEING IN CHINA SUGGEST THEY WANT TO GO BACK ON THAT MODEL. THESE SIGNALS ARE SENDING SENTIMENT BOOST MARKETS BECAUSE THE DATA ARE RELATIVELY WEAK. I DO NOT THINK THEY FORETELL A MOVEMENT TOWARDS BIGGER STIMULUS. LISA: THERE IS A CONFLICTED PICTURE. YOU DO NOT THINK THE DATA IS AS DIRE AS PEOPLE EXPECTED TO BE IN TERMS OF THE DECELERATION OF THE CHINESE ECONOMY. ON THE OTHER YOU DO NOT EXPECT STIMULUS TO SAVE THE DAY AND PROPEL GROWTH ABOVE 5%. WHAT IS THE NEW GROWTH PARADIGM? HOW MUCH WILL CHINA'S GDP EXPAND THIS YEAR AND GOING FORWARD, THE NEW NORMAL. LELAND: OUR JUNE DATA, THIS WILL BE THE MOST INTERESTING DATA WE HAVE SEEN IN OVER A DECADE. JUNE, WHETHER THE SECOND-QUARTER GROWTH CAN BE SAVED WHERE THEY CAN GET ANYWHERE NEAR 5%. THEY ARE COMING OFF A POOR BASIN 2022. HITTING SOME OF THESE NUMBERS ARE NOT AS HARD AS PEOPLE THINK. WHAT IS THE BIG LESSON? THE LESSON THEY ARE NOT JUST PRIORITIZING HITTING LEVELS OF GROWTH PEOPLE ON WALL STREET ARE TELLING US THEY WILL HIT. THEY ARE TRYING TO MOVE FORWARD, RESTRAIN THEMSELVES FROM BIGGER STIMULUS AND REPRIORITIZE THE ECONOMY IN TERMS OF NATIONAL SECURITY. DIFFERENT PRIORITIES. TOM: JONATHAN SPENCE 101. WHEN IN DOUBT WITH A TOTALITARIAN REGIME, EMPLOY THE MASSES. I AM LOOKING AT FEBRUARY. MEASURES FOR THE ADMINISTRATION OF NATIONAL WORK RELIEF. DOES THIS COME DOWN TO THE PRIMAL SCREAM THAT THE TOTALITARIAN ELITE IN BEIJING HAVE TO EMPLOY MILLIONS OF UNEMPLOYED, MILLIONS OF LOW-WAGE? THIS IMMENSE LABOR PRESSURE THAT HAS BEEN THERE FOR 50 YEARS? LELAND: LABOR PRESSURE IS AT THE CENTER OF THIS BECAUSE THE TALK FOR YEARS HAS BEEN CHINA NEEDS TO RESTRUCTURE THEIR SOCIETY FROM INVESTMENT DRIVEN TO CONSUMPTION DRIVEN, TO ALL TYPES OF ECONOMIC MODELS TO A NEW TYPE OF ECONOMIC MODEL, THAT IS A RESTRUCTURING OF JOBS. YOU HAVE TO MAKE SURE YOU KEEP PEOPLE EMPLOYED. YOU HAVE ISSUES OF THE LABOR MARKET THAT WILL BE HELPFUL WITH WORKING POPULATION. THIS IS STILL A GRAND TRANSITION FOR THEM. THEY HAVE ENORMOUS CHALLENGES GOING FORWARD TRYING TO MAKE GROWTH WORK. TOM: THEY HAVE THE CHALLENGES THAT WERE THERE 10 YEARS AGO. I OBSERVED THEM IN SHANGHAI AND FOUNDED EXTRAORDINARY TO SEE SERFDOM IN MODERN PSEUDO-CAPITALISM. WHAT IS THE LELAND MILLER UNEMPLOYMENT RATE? LELAND: A LOT OF THIS IS THE METHODOLOGY. PEOPLE LOOK AT THIS YOUTH UNEMPLOYMENT RATE WHICH IS AWFUL AND BAD NEWS AND SCARY. IT IS DONE VERY DIFFERENTLY THAN IN THE UNITED STATES. IF YOUR UNEMPLOYED YOU ARE UNEMPLOYED. IT DOES SHOW THERE IS A PROBLEM. I DO NOT THINK IT IS THE KEY PROBLEM THEY ARE LOOKING AT. WHAT THEY NEED TO DO IS RE-INSTILL SOME LEVEL OF CONFIDENCE, NOT THROUGH STIMULUS BUT THROUGH ORGANIC POLICIES AND THEY NEED TO BOOST DEMAND. RIGHT NOW THERE NEEDS TO BE A DOMESTIC DEMAND STORY THAT IS ABLE TO SPUR THIS RECOVERY. WE ARE IN A WEIRD POSITION WHERE THEY'RE NOT GETTING THE ORGANIC RECOVERY THEY ARE EXPECTING BUT THEY'RE A LOT LESS LIKELY TO BE GOING DOWN THE STIMULUS ROUTE, AT LEAST COMPARED TO WHAT PEOPLE AROUND THE GLOBE THINK. THEY ARE IN A POSITION WHERE THE PRESSURE IS ON. LISA: MEANWHILE WE SEE TONY BLINKEN IS HEADING TO BEIJING TO GET A SENSE ON WHETHER THEY CAN EASE SOME OF THE TENSIONS THAT HAVE BEEN ESCALATING BETWEEN THE U.S. AND CHINA. WHAT ARE YOU LOOKING FOR IN TERMS OF UNDERSTANDING LEVERAGE AND WHAT CHINA WANTS IN TERMS OF INTERNATIONAL PARTICIPATION FROM THESE MEETINGS? LELAND: I AM NOT SURE THEY WANT MUCH. ONE OF THE SOURCES OF LEVERAGE FOR THE CHINESE IS THE FACT THEY DO NOT WANT TO INTERACT WITH THEIR AMERICAN OPPOSITES. THEY DO NOT WANT TO ANSWER MILITARY HOTLINES. THEY WANT TO SAY IF YOU WANT TO BE ROUGH ON US FROM INTERNATIONAL RELATIONS STANDPOINT WE ARE GOING TO IGNORE YOU. THAT RAISES THE RISK FOR EVERYBODY THERE WILL BE A CONFRONTATION. THAT WORKS IN CHINA'S FAVOR. BETTER COMMUNICATIONS, MORE COMMUNICATIONS IS A GOOD THING. I DO NOT THINK THIS MEETING WILL SOLVE ANYTHING. TOM: ONE FINAL QUICK QUESTION. ON THE SOLIDITY OF THE FEDERAL ADMINISTRATION IN BEIJING. EVERYBODY MAKES A DEAL, PREMIER, PRESIDENT FOR LIFE, WHATEVER XI IS. HOW STABLE ARE THEY AND WHAT SUPPORT DO THEY HAVE FROM THE CITY'S MAYORS AND THE SUPPORT OF THE COMMUNIST PARTY? LELAND: CHINA IS A BLACK BOX. THAT IS STILL TRUE. THERE IS NOTHING WE ARE SEEING THAT SUGGESTS THAT THE CHINESE COMMUNIST PARTY, DESPITE STRUCTURAL HEADWINDS IN WEAK ECONOMIC GROWTH, DOES NOT HAVE THE SUPPORT OF THE PEOPLE, THAT THERE IS ANY TYPE OF PUSHBACK AGAINST XI JINPING. WE ARE NOT SEEING THAT. UNDERNEATH THE SYSTEM THERE IS NO PRESSURE VALVE IN DEMOCRACY TO THROW THE BUMS OUT. IT IS HARD TO SEE ANY TYPE OF SPECIFIC POLITICAL STRESS IN THE SYSTEM ALTHOUGH THERE IS LOTS OF ECONOMIC STRESS. TOM: LELAND MILLER. HE IS WITH CHINA BEIGE BOOK. CANNOT SAY ENOUGH ABOUT THE WORK WE SEE THERE. I REMEMBER STANDING IN SHANGHAI, THEY WERE BUILDING WHATEVER SKYSCRAPER OF THE MOMENT. IT WAS A LABOR COMPONENT I HAD NEVER WITNESSED IN MY LIFE. MY STEREOTYPE WOULD BE THEY BROUGHT THEM IN FROM THE HINTERLANDS TO BUILD A SKYSCRAPER. THAT IS BEEN THE MO FOR 50 YEARS. WHY HAS IT ENDED? I DON'T THINK IT HAS ENDED. LISA: IT IS TRUE AND IT MIGHT BE THE TOOL THEY GO BACK TO. THERE IS A FEAR ABOUT THE LEVERAGE THAT HAS BUILT UP IN THE SYSTEM AND THE DESIRE TO RIGHT SIZE IT. HOW MUCH CAN THEY SUPPORT THE PROPERTY MARKET? TOM: CHINA YUAN ROUNDED UP. A DEVALUATION OVER THE NEXT FEW MONTHS. STEVEN ENGLANDER TALKING 7.10 AT STANDARD CHARTERED. THE ECB IN THE 8:00 HOUR. AMERICAN ECONOMIC DATA IN THE 8:00 OUR. >> TODAY WE DECIDED TO LEAVE OUR POLICY WITH INTEREST -- OUR POLICY INTEREST RATE UNCHANGED. >> RIGHT NOW THE PRIORITY IS INFLATION. >> THIS IS ABOUT PUSHING BACK HARD AGAINST THE INFLATION CONSENSUS. >> THEY SUCCEEDED IN WHAT WE EXPECTED, DELEVERAGING -- DELIVERING A HAWKISH SKIP. >> THIS IS BLOOMBERG SURVEILLANCE WITH TOM KEENE, JONATHAN FERRO, AND LISA ABRAMOWICZ. TOM: MR. JONATHAN FERRO IS ON ASSIGNMENT IN ITALY. SARDINIA LOOKS NICE THIS, VIA -- LOOKS NICE THIS TIME OF YEAR. THANK YOU FOR JOINING US TODAY. SOME SAY WHERE YOU STAY -- WHERE DO YOU STAY, YOU STAY RIGHT IN THE STUDIO. IT IS AS SIMPLE AS THAT. IT WAS EXHAUSTING YESTERDAY BECAUSE IT WAS UNEXPECTED AND YOU SEE IT IN THE MARKET REACTION. I GO BACK TO MICHAEL MCKEE, NOT THE TENSION IN HIS VOICE WITH THE UNDERSTANDING OF THE HISTORIC MOMENT WE SAW YESTERDAY. LISA: SUPER HAWKISH SKIP. DON'T CALL IT A SKIP ANYMORE BECAUSE JAY POWELL SEEMED TO NOT LIKE THAT. THERE IS A TENSION BETWEEN WHAT THE FED SAYS AND WHAT THE FED DOES. THEY WANT TO EXPRESS HAWKISHNESS DO NOT GET THE MARKETS THIS EARLY LOOSEN CONDITIONS AND LOOSEN CREDIT CONDITIONS FOR THEM AND MOVE AWAY FROM WHAT THEY WANT. ON THE OTHER HAND, IT IS UNCLEAR THE CONVICTION THEY HAVE TO RAISE RATES BY ANOTHER 50 BASIS POINTS. TOM: WE HAVE CLAIMS TODAY. THAT SHOULD BE INTERESTING. THE MONTHLY RETAIL SALES IS A NOMINAL STATISTICAL BEING. LISA: ESPECIALLY BECAUSE CAR SALES AND USED CAR SALES HAVE BEEN COMING IN AND THAT IS GOING TO DISTORT THE NUMBERS ON YOUR RETAIL SALES BUT ON THE INFLATION FRONT. ONE OF THE FEEDERS INTO WHAT PEOPLE BELIEVE, THERE IS GOING TO BE DISINFLATION. IS THERE YEAR-OVER-YEAR AFFECTS OR ARE PEOPLE JUST SAYING I'M NOT GOING TO PAY 12% INTEREST RATES TO BUY A CAR? TOM: WE ARE GOING TO HAVE TO SEE. WHAT I WOULD SUGGEST IS THE FED SPEAKERS COMING UP, INCLUDING THREE TOMORROW, IT IS GOING TO BE AMAZING TO SEE HOW DIFFERENT GOVERNORS REACT TO WHAT WE WITNESSED YESTERDAY. LISA: AND HOW MUCH DISPERSION THERE IS. I KEEP GOING BACK TO HERDING CATS. TOM: WE HAVE AN IMPORTANT AGAINST COMING UP. FUTURES, -15. WE HAD A 13 HANDLE SHOWING EQUITY OPTIMISM YESTERDAY. 10 YEAR YIELD, ELEVATED AT FOUR BASIS POINTS. WE ARE DISTANT FROM 4%. THE KEY ITEM, CURVE INVERSION, SUBSTANTIAL CURVE INVERSION OFF OF WHAT CHAIR POWELL SAID YESTERDAY. 92 BASIS POINTS. OIL, 69.14. THANK YOU, WILL KENNEDY, FOR THE BRIEF ON OPEC DOLLAR STABILITY. WE WILL TALK TO SOMEBODY WHO HAS A PULSE ON THE AMERICAN ECONOMY. LISA: THAT IS WHERE I WANTED TO GO. THE MOST INTERESTING ASPECT OF YESTERDAY'S MARKET ACTION WAS THE STRENGTH IN THE NASDAQ. THIS WAS DYNAMISM. IT WAS THE IDEA OF SECULAR GROWTH. JOHN LAWLER IS GOING TO BE SPEAKING WITH US IN HAVE ANY OUR, FOLLOWED BY MEGAN GREENE AT KROLL INSTITUTE. SHE WILL BE JOINING THE ECB AS AN EXTERNAL MEMBER OF MONETARY POLICY. JOHN CRAWLER -- JOHN LAWLER WILL TALK ABOUT BECAUSE THE CHARGING FACILITIES, WHAT THIS MEANS. WE GET THE ECB DECISION AND THE PRESS CONFERENCE WITH CHRISTINE LAGARDE, WATCHING THE EURO TO SEE HOW THAT PLAYS OUT. THEY DID A DOUBLE, WHICH INCLUDES JOBLESS CLAIMS, WHICH IS ALWAYS IMPORTANT. U.S. READ TO YOU -- U.S. RETAIL SALES WILL BE INTERESTING TO SEE HOW LONG THE CONSUMER CAN DEPLOY CACHE WELL BEYOND WHAT ANYONE EXPECTED. TOM: THE TWO AMERICAS, ONE IS FLAT ON THEIR BACK AND THE OTHER GROUP IS SUSPENDING -- IS SPENDING. FUTURES, -17. FOR WALL STREET, MAYBE THIS IS A VALUE, BUT FOR ALL OF YOU WHO MISSED THE GREAT BULL MARKET COMING OFF OF THE OCTOBER THOSE, THIS IS IMPORTANT. ERIK KNUTZEN JOINS US NOW. THE CIO AT NEUBERGER BERMAN. HAVE WE BEEN HERE WITH A BULL MARKET AND NOW WHAT? ERIK: WHAT WE ARE FOCUSED ON IS THE DIFFERENCE BETWEEN THE SHORT TERM WHICH IS POSITIVE FOR EQUITIES AND CARRYING ON WHAT WE HAVE SEEN THE PAST SIX MONTHS. BROADENING OUT A WAY FROM THE SEVEN BIG STOCKS THAT HAVE BEEN BEATING THE MARKET. LET'S SAY SIX TO 18 MONTHS WE THINK THE PRESSURES OF HIGHER RATES AND STICKY INFLATION AND CENTRAL BANKS LONGER RATHER THAT HIGHER IS GOING TO START PUTTING PRESSURE ON EQUITIES. WE WANT TO FIND WAYS TO PARTICIPATE RIGHT NOW BUT NOT NECESSARILY BY CHOOSING THE 7 -- CHASING THE SEVEN AI DARLINGS AND FIND AREAS OF THE MARKET WHERE AI IS GOING TO HAVE A BIG IMPACT BUT THAT IS NOT PRICED. TOM: THE HERITAGE OF NEUBERGER BERMAN IS AWAY FROM INDEXING. I KNOW YOU ARE GOING TO TELL ME THERE IS A VALUE IN ACTIVE MANAGEMENT RIGHT NOW. WHAT KIND OF ACTIVE MANAGEMENT? IS IT STOCK SPECIFIC, SECTOR SPECIFIC? WHAT IS THE NUANCE? ERIK: THE WAY WE APPROACH IT IS WE WANT A COMPONENT OF OUR PORTFOLIO TO SIMPLY BE OUT ANALYSTS' BEST IDEAS LOCKED DOWN TO THE INDEX. JUST THE BEST IDEAS MANAGED AGAINST THE S&P AND THE RUSSELL 1000. THAT APPROACH HAS DONE WELL BECAUSE OUR ANALYSTS LIKE NVIDIA, ONE OF OUR HAS RATED STOCKS, MICROSOFT, ETC.. WE DID ON -- WE DID NOT OWN TESLA OR META. THE COUPLE MET THAT WITH EXPOSURES THAT ARE MEANT TO EXPOSE FACTORS OVER THE LONG-TERM. BETTER VALUE, LOWER RISK. THAT APPROACH HAS NOT WORKED. IT WORKED GREAT LAST YEAR, IT HAS NOT WORKED THIS YEAR BECAUSE YOU ARE UNDER OWNING THE BIG CAP STOCKS. LISA: WITH RESPECT TO BROADENING OUT AND SEEING OTHER AREAS THAT HAVE NOT GONE BIT UP BUT WILL FIT FROM THE SAME TRENDS, HOW MUCH DOES THIS REMAIN WITHIN THE SPHERE OF TAKE RATHER THAN BROADENING OUT TO OTHER AREAS LIKE SMALLER COMPANIES? LIKE CONSUMER DISCRETIONARY. MAYBE THE SECULAR GROWTH STORY IS JUST THE TECH STORY AND THE REST ARE GOING TO STRUGGLE, ESPECIALLY IN A NEW RATE REGIME. ERIK: IS A GREAT QUESTION. IN A TACTICAL WAY, WE ARE PLAYING THE BIG CAP TECH STOPS -- TECH STOCKS BY CALLS ON THE S&P. TAKE IT CHEAPLY. FOCUS AWAY FROM TECH, AWAY FROM THE NAMES WHERE AI IS ALREADY BAKED IN. BILL GATES SAID AI IS GOING TO BE EXAGGERATED FOR THE NEXT TWO YEARS BUT UNDERESTIMATED FOR THE FOLLOWING 10. A LOT OF OUR RESEARCH SAYS THE BIGGEST IMPACT IS GOING TO BE ON AREAS AWAY FROM THE BIG CAP TECH. MAIN STREET COMPANIES, FORD, THE JUST TAKES COMPANIES, MARKETING COMPANIES WHERE THIS IS GOING TO TRANSFORM THEIR BUSINESSES. LISA: PEOPLE HAVE WORKED AWAY FROM IT INTEREST-RATE SENSITIVE. I WONDER ON A BROADER LEVEL IF WE ARE HEADED FOR A HIGHER RATE REGIME, IF THAT DOES TAKE AWAY FROM THE POTENTIAL RETURN ON EQUITIES OR IF PEOPLE ARE SHIFTING BACK TO THIS BELIEF THAT IT IS COMPLETELY SEPARATE, THERE IS A DIFFERENT GROWTH STORY AND YOU HAVE TO GET OUT OF THAT MINDSET. ERIK: DEFENSE FUND RATE HAS HAD NO -- THE FED'S FUND RATE HAS NO EFFECT ON THE MARKETS. WITH RD MARK -- WITHOUT THE MARKET REACTION FROM TWO -- TWO BOOK 230 WAS ABOUT RIGHT. YOU NEED TO LOOK OUT FURTHER INTO 2025 AND THE LONG-TERM RATE. THE FED STILL HAS THE LONG-TERM RATE AT 2.5. THAT IS WHAT WE THINK NEEDS TO CHANGE. AS OF 2013, THE LONG-TERM RATE WAS THREE PLUS. LISA: THIS IS WHAT TOM -- HAS BEEN TALKING ABOUT. PEOPLE ARE SAYING THAT IS GOING TO GO UP TO 2.6, 2.7%, THAT WE ARE HERE -- WE ARE ENTERING A HIGHER MUTUAL RATE REGIME. WHAT DOES THAT MEAN? ERIK: IT NEEDS PRESSURE OVER THE MEDIUM-TERM, PRESSURE ON VALUATION AND ON MARGINS. EVEN WHILE WE ARE TO PARTICIPATE IN THIS ENVIRONMENT, WE ARE MORE CAUTIOUS AND WE ARE TRYING TO TRADE-OFF, IS THERE ENOUGH LIQUIDITY IN THE SYSTEM? DOES AI MAKE A DIFFERENCE TO OFFSET WHAT WE THINK IS LIKELY A HIGHER STRUCTURAL INFLATION ENVIRONMENT. TOM: WHAT IS THE VALUE OF OWNING WALMART WITH A 25 MULTIPLE? YOU GET A NOMINAL GDP REVENUE TO REVENUE -- NOMINAL GDP REVENUE. WALMART DOES BETTER THAN MOST RETAIL. I DON'T -- I CANNOT FIGURE OUT HOW I GET THE 25 MULTIPLE. ERIK: I'LL LEAVE THAT TO MY SMART OTHER COLLEAGUES. WE WOULDN'T WANT TO OWN IT AT 25. THE S&P IS TRADING AT 19 TIMES BUT IF YOU SURE ABOUT THE BIG SEVEN IT IS TRADING AT 17 TIMES. THAT IS NOT CHEAP BUT THAT IS REASONABLE, ESPECIALLY WITH THE TAILWINDS WE HAVE. RATHER THAN WALMART AT 25, WE WANT TO GET OTHER STOCKS THAT CAN BENEFIT WITH SOME BETTER VALUATIONS. TOM: THANK YOU SO MUCH. ERIK KNUTZEN FROM NEUBERGER BERMAN. LISA: WICKED SMART, I JUST THINK ABOUT THAT. TOM: WHEN YOUR RED SOX ARE IN LAST PLACE, IT IS NOT WICKED SMART. PAINFUL IS WHAT IT IS. LISA: THIS IS INTERESTING. HOW DO YOU PLAY A MARKET THAT HAS ONE STORY THAT IS SO DIFFERENT FROM THE OVERALL STORY BUT THAT STORY IS DOMINANT IN TERMS OF THE NEXT VALUATION. THAT IS THE TENSION OF AI. TOM: I ENCOURAGE EVERYONE TO LOOK AT THE DIGITAL FILE FROM ABBY FROM COLUMBIA BUSINESS SCHOOL. THERE IS ANY OPTIMISM BUT IT IS AN OPTIMISM OF ROTATION. YOU HAVE GOT TO GET OTHER STUFF. LISA: SHE WAS ALSO TRAINED AS A COMPUTER SCIENTIST AND SHE HAS BEEN SPEAKING WITH A SPECIALISTS. I TALK ABOUT THIS AT HOME WITH THE LITTLE ONES TRYING TO USE CHATGPT TO WRITE THEIR PAPERS, THE LIMITATIONS ARE SIGNIFICANT. LISA: THE 10 YEAR YIELD, 3.82%. FOUR BASIS POINTS. WE ARE WATCHING OIL, UNDER $70 A BARREL, 69.02. THE S&P IS DOWN .4%. ERIK: I HAVE BEEN LOOKING -- LISA: I HAVE BEEN LOOKING AT ONE STORY ABOUT DEUTSCHE BANK SAYING TRADING REVENUE IS GOING TO FALL. THIS FOLLOWS WHAT WE SAW FROM WEINBERG, COMING OUT AND POSSIBLY CUTTING 40 PEOPLE BUT A SIGNIFICANT PORTION OF THEIR STAFF. I WONDER IF THAT WAS A CALLING CARD GETTING READY TO HIRE. I WONDER IF WE START SEEING MORE OF THIS. CITIGROUP CUTTING 1600 PEOPLE. HOW MUCH IS THIS GOING TO PERCOLATE AS ACTIVITY STRESSORS LOOK? TOM: BLOOMBERG REPORTS DEUTSCHE BANK'S TRADING REVENUE DROPPED AS MUCH AS 21%. THE KEY IS NOT THE INDIVIDUAL STORY BUT THE DAILY OCCURRENCE OF IT SLIDING INTO A SUMMER WHERE GOOD PEOPLE ARE TRYING TO PLAN FOR THE AUTUMN AND INTO NEXT YEAR. LISA: THE OTHER STORY IS WE TALKED ABOUT AI IN A SECULAR SHIFT. IN BANKS, WHAT DOES THAT MEAN? IF YOU HAVE TO SHIFT THE COMPOSITION OF YOUR PEOPLE, I AM NOT SAYING IT IS GOING TO WHOLESALE REMOVE SWATHS OF EMPLOYEES, BUT DOES IT CHANGE THE ROLE? IT CHANGES WITH THE JOB DESCRIPTION IS IF YOU ARE TRYING TO INCREASE YOUR USE OF TECH. CITIGROUP'S CFO CAME OUT YESTERDAY AND SAID THEY WILL BE AN EXPENSE OF $400 MILLION THIS QUARTER AS THEY CUT 1600. TOM: I HAVE SEEN THE NUMBERS THAT ARE MUCH LARGER. WHAT IT IS IS A SEA CHANGE IN WALL STREET. I AM LOOKING FOR A ROBOT TO REPLACE A CFA. I DON'T SEE THAT. LISA: I AM LOOKING FOR A ROBOT TO REPLACE ME, PARTICULARLY AT NIGHT WHEN I HAVE TO MAKE DINNER AND CLEANUP. TOM: CHATGPT REALLY WORKS OUT. >> IT SEEMED TO US TO MAKE SENSE TO MODERATE OUR RATE HIKES AS WE GOT CLOSER TO OUR DESTINATION. I WOULD SAY IT IS A CONTINUATION OF THE PROCESS. WE DID NOT MAKE A DECISION ABOUT JULY, I SUSPECT IT WILL BE A LIVE MEETING. THE THINGS WE NEED TO GET INFLATION DOWN ARE COMING INTO PLACE, BUT THE PROCESS OF THAT WORKING WILL TAKE SOME TIME. THE RISKS OF INFLATION ARE TO THE UPSIDE. TOM: THERE WAS A POINT I BURST OUT LAUGHING. HE WAS STRUGGLING WITH SKIP AND PAUSE. IT WAS ON THE EDGE OF COMEDIC. THIS HAS GOTTEN SO SILLY. I REMEMBER V-SHAPED WAS UNUSUAL. THAT SOUNDS LIKE BIBLICAL COMPARED TO THE SILLINESS WE ARE DOING NOW. LISA: IT IS AWKWARD. THAT IS WHAT RICH CLARIDA SAID, THEY WANT TO DO ONE THING AND SEE ANOTHER AND HOPE PEOPLE LOOK AT WHAT THEY ARE SAYING AND NOT WHAT THEY ARE DOING AND THEY FOLLOW THAT GUIDANCE. IT IS AN UNCOMFORTABLE MOMENT WHERE THEY ARE DEPENDING A LOT, LETTING THEIR CREDIBILITY DO THE HEAVY LIFTING. TOM: A LOT IS GOING ON. ECONOMIC DATA AT 8:30, CLAIMS UNTO RETAIL SALES AND MICHAEL MCKEE WILL BE WITH US. MARKETS ARE -18. FAR MORE IMPORTANTLY, WHAT HAS BEEN UNSPOKEN HERE IS HOW DOES THE ECB AND THE CHRISTINE LAGARDE PRESS CONFERENCE ADAPT AND ADJUST TO SKIP AND PAUSE. SHE'S GOT TO BE ASKED HOW CLOSE ARE YOU TO ESCAPE? LISA: SHE WILL PROBABLY SAY WE HAVE SUBSTANTIAL WORK TO DO WHILE RAISING RATES POTENTIALLY TO 3.5% FOR THE ECB ERA. THAT IS SHOCKING CONSIDERING WHERE WE ARE COMING FROM. THIS COMES AT A TIME AND THEY DON'T HAVE THE PRESSURE TO DO THE PAUSE YET. THEY CAN CONTINUE DOING THIS WITHOUT A LOT OF DISAGREEMENT. IN THE U.S., THE TENSION IS THAT RISK ASSETS CONTINUE RALLY EVEN ON THE HEELS OF A HAWKISH PAUSE, EVEN ON THE HEELS OF SOMETHING THAT COULD POTENTIALLY END UP TIGHTENING CONDITIONS. TOM: IS A LONGER DURATION WORLD AND YOU CAN DECIDE WHERE YOUR DURATION KICKS IN. IT COULD BE FIVE YEARS. SOME PEOPLE COME ALONG DURATION IS 12 MONTHS. LISA: THAT IS PART OF THE ISSUE, YOU SEE THAT IN CREDIT. THE REFINANCING RISK COMING THAT MUCH MORE INTO FOCUS. JOINING US, WINNIE CISAR. THAT IS WHY WANTED TO GO, ARE WE BASICALLY UNDERSTATING THE LONG AND LAG EFFECTS BECAUSE THEY GOT SICK OF WAITING AND WAITING? THE REFINANCING COSTS ARE GOING TO COME TO BITE. WINNIE: THIS IS A TRICKY SPACE FOR THE FED AND THE MARKET TO BE IN BECAUSE THE MARKET MOVES SO FAST AND THE DATA DOES NOT MOVE THAT FAST. THIS IS WHERE PATIENCE HAS TO MOVE IN ON THE FED'S PART. WE HAVE SEEN SLOWDOWN ON INFLATION BUT WE HAVE SEEN AN INCREASE IN BORROWING COSTS. MARKETS ARE OPEN, EVEN FOR HIGH-YIELD COMPANIES, EVEN FOR THE MORE STORIED CUSTOMERS -- STORY COMPANIES THAT WERE PRESSED OUT OF. HOW SUSTAINABLE IS THIS CAPITAL STRUCTURE AT 7% TO 9% INTEREST COSTS VERSUS 3% TO 5%? IT HAS INVESTORS TRYING TO FIGURE OUT WHICH COMPANIES WE ALIGN WITH. LISA: YOU HAVE BEEN TALKING ABOUT HOW YOU ARE OVERWEIGHT IN INVESTMENT GRADE, WE HAVE SEEN HIGH YIELD RALLY SINCE MARCH. ARE YOU FEELING THAT? -- FADING THAT? WINNIE: WE ARE NOT FADING THAT YET. GIVEN THE DANCE THAT CHAIR POWELL DID YESTERDAY, WE FEEL THE PROBABILITY OF A HARD LANDING IS MODERATELY INCREASING. WHEN WE LOOK AT THE ALL IN YIELD FOR INVESTMENT GRADE AT HIGH-YIELD AND THE REALITY OF THAT IS A HARD LANDING MANIFESTS , TOTAL RETURNS ARE GOING TO BE AMAZINGLY GOOD. YOU HAVE THIS NICE BALANCE OF DOWNSIDE PROTECTION AND INCREMENTAL CARRY THAT LEAVES US CONSTRUCTIVE ON CORPORATE CREDIT, ESPECIALLY RELATIVE TO THINGS LIKE EQUITIES. TOM: THE BEHAVIOR I -- THE BEHAVIOR OF THE MARKETS, WHAT IS THE BEHAVIOR IF YOU DON'T GET WHAT WE SAID AND THE FUND IS 4% OR 5%? HOW DO WE BEHAVE? WINNIE: THIS HAS BEEN THE HEADWIND FOR CREDIT, EVERY CROWD EVERY CLIENT IS SITTING ON ATTENTIVE CACHE. IT FEELS LIKE A GOOD OPPORTUNITY WHEN YOU ARE WAITING FOR SPREADS TO BLOWOUT. THAT IS ONE OF THE THINGS THAT INVESTORS NEED TO PAY ATTENTION TO BECAUSE SO LONG AS THERE IS CACHE, THAT MITIGATES FENCE -- MITIGATES RATES REACHING OUT. TOM: IF WE GET A SHORT-TERM HIGHER YIELD WHICH I WOULD SAY IS AGAINST CONSENSUS, I GUESS IT IS PRICED -- IT IS PRESSED DOWN AND HEALED UP BUT YOU HAVE A MASSIVE CARRY PICKUP. HOW DO WE BEHAVE WHEN WE HAVE THAT? WINNIE: IT DEPENDS ON WHAT THE LONGER-TERM VIEW IS. FOR INVESTORS FOCUSED ON THE 12 MONTH HORIZON, THAT KERRY FEELS ON THE HORIZON. IF IN 2024 WE ARE CUTTING RATES BACK DOWN TOWARDS WHAT THE NEW NEUTRAL IS IN 2025, IF IT IS THAT THERE IS A POLICY MISTAKE, THAT DOESN'T FEEL THIS GOOD WITH THE LIQUIDITY OF THE MARKETS ALLOWS YOU TO GET IN AND OUT QUICKLY. LISA: YOU WERE TALKING ABOUT ITALIAN HIGH-YIELD COMPANIES CAN ACCESS THE MARKET. THIS SPEAKS TO THE LOOSENING AND A CREDIT CONDITIONS THAT FLIES AGAINST THE IDEA OF A BANKING CRISIS. WHEN DOES THAT STOP? -- CHANGES THE DYNAMIC OF WHETHER COMPANIES CAN KEEP PAYING? WINNIE: YOU NEED TO SEE EVERY -- AERIAL DECELERATION ON THE CONSUMER SIDE OF THE EQUATION. WE HAVE SEEN SO MUCH EXCESS SAVINGS AND REVENGE TRAVEL AND ALL OF THE DISCRETIONARY SPENDING PROPPING THINGS UP AND AT THE SAME TIME DELIVER MARKET IS HOLDING IN WELL. THE PROBLEM THE FED HAS IN TERMS OF MESSAGING IS THEY ARE TRYING TO MESSAGE POSITION OR A TO SLOW THINGS DOWN WITHOUT CAUSING A RECESSION. THAT IS A TRICKY TIGHT ROPE. TOM: NORTH CAROLINA CHILD PROTECTIVE SERVICES EMAILED IN AND SAID WE HAVE A PROBLEM, WINNIE CISAR HAS A RISING THIRD-GRADER. ARE YOU REALLY FORCING HER TO USE AN HP 12C TO LEARN COMPOUND INTEREST? WINNIE: WE DO TALK COMPOUND INTEREST. TOM: I AM ASSUMING SOMEONE FROM CREDITSIGHTS GOES TO REVERSE POLISH ROTATION. WINNIE: WE PULL OUT THE ABACUS. TOM: THAT IS MORE SAFE. WINNIE CISAR, THANK YOU SO MUCH. THEY BRING THEIR KIDS UP HERE, LET'S GO SEE "BLOOMBERG SURVEILLANCE." LISA: IT IS FANTASTIC, IT IS GREAT TO GET SOME FRESH BLOOD THAT COULD BE AN INTERNET YEAR. TOM: LISA, WHAT ON YOUR SCREEN GETS YOUR ATTENTION? LISA: I AM WATCHING THE EURO TODAY BECAUSE I WANT TO UNDERSTAND THE DIFFERENCE BETWEEN THE PAUSE OF THE FED AND WHAT THE ECB DOES. HOW MUCH DOES THIS DOVETAIL INTO THE QUESTION AROUND CHINA AND STIMULUS AND TO SOME SURPRISE TO THE UPSIDE WITH RESPECT TO GROWTH? HOW MUCH COULD THIS BE A CATHOLIC COMMENT, ESPECIALLY GIVEN THAT -- A CATHARTIC MOMENT ESPECIALLY GIVEN THE DOLLAR WEAKNESS. TOM: WE HAVE A GIFT OF ENERGY AND A BARREL OF OIL. THEY HAVE A HORRIFIC WAR HEATING UP. I WONDER HAVE ENERGY -- HOW ENERGY WILL FOLD INTO HER DISCUSSION. DOES SHE USE IT AS A TANGIBLE THING? IS IT TANGIBLE TO THE OUTLOOK? LISA: DOES IT REDUCE INFLATIONARY PRESSURES OR INCREASE DISCRETIONARY SPENDING AND ALLOW PEOPLE TO KEEP GOING ABOUT? THE TENSION BETWEEN GERMANY AND SOUTHERN EUROPE IS INTERESTING BECAUSE SUDDENLY IT IS A REVERSAL OF THE NORMAL RULES. TOM: SPEAKING WITH THE FINANCE MINISTER OF SPAIN, THERE IS A BUOYANCY THERE. IT IS UNDERSTOOD THAT THE NEEDLE IS MOVING ON ITALY BECAUSE JONATHAN FERRO IS OVER THERE. HE IS SINGLE-HANDEDLY MOVING A NEEDLE. LISA: ON ASSIGNMENT BECAUSE WE DON'T TAKE VACATIONS HERE. TOM: WE LOOK FORWARD TO SEEING HIM ON MONDAY. DOW FUTURES, -81. TOM: GOOD MORNING, EVERYONE. BONDS, COMMODITIES, CURRENCIES, ONE HOUR AWAY. THE STATE OF RETAIL SALES REALLY FOLDS RIGHT INTO THE DEBATE THAT IS GOING TO BE ENGENDERED TOMORROW. BOULDER, BARGAIN, AND WILLARD SPEAK OFF OF THE BOMBSHELL FED MEETING. LISA: SINCE WHEN DO YOU FOLLOW FED SPEAK? EVERY TIME I SAY IT, YOU SAY NO ONE CARES AND TODAY YOU ARE TRYING TO GOAD ME ON. TOM: I DID NOT SEE THIS IN THE ZEITGEIST AND MICHAEL MCKEE NAILED IT, YESTERDAY WAS HISTORIC. IF YOU SAW THAT WITH MARKET MOVEMENT, WITH THE INTENSITY OF THE PRESS CONFERENCE. THERE WAS NO SCREWING AROUND IN THE PRESS CONFERENCE. HE WAS READING OFF OF THE SCRIPT AND IDENTIFYING WHERE THEY ARE IN THIS USUAL TIME. LISA: THAT IS TECHNICAL LANGUAGE FOR WHAT TRANSPIRED IN THE PRESS CONFERENCE. WHAT WE ARE SEEING TODAY IS A DIFFERENT TONE, PARTICULARLY FROM THE TECH STOCKS THAT RALLIED IN THE HOURS AFTER JAY POWELL'S PRESS CONFERENCE. WE ARE SEEING A SHIFT WITH NVIDIA AND TESLA DECLINING. TODAY IS A LITTLE BIT OF SOFTNESS AHEAD OF THE ECB LOOKING FOR SOME SHIFT. TESLA IS DOWN ALMOST 3% AFTER 13TH STREET DAYS OF GAINS. MORE THAN $200 BILLION OF MARKET EVALUATION TO THAT COMPANY. NVIDIA IS SOGGY. THEY HAVE GOTTEN SO MANY GAINS THIS YEAR, DOWN 1.3%. ALIBABA AND BAIDU ARE DOWN -- ARE OF MORE THAN 1% AND THIS COMES ON THE HEELS OF POTENTIAL STIMULUS. TOM: THEY REACTED TO THE CHINESE NEWS? INTERESTING. LISA: I WONDER HOW MUCH YOU ARE SEEING THAT IN EUROPE WITH THE REACTION OF RATE HIKES SHIFTING HIGHER AS A RESULT OF CHINA POSSIBLY BE MORE DYNAMIC. TOM: I OVERLAY THAT ON OECD VIEWS WHICH ARE MORE OPTIMISTIC. THEY ARE CALLING FOR THIS GLOBAL SLOWDOWN NEAR GLOBAL RECESSION. GOVERNMENTS WILL ADJUST. NOT ONE TIME FROM CHINA BUT THREE TIMES RECENTLY -- LELAND MILLER IS OPTIMISTIC -- CHINA WILL ADJUST. LISA: LET'S START BUILDING NEW CITIES NO ONE WILL LIVE IN. TOM: WE ARE SCRUPULOUS ABOUT FOR DISCLOSURE SO I WILL GIVE YOU FULL DISCLOSURE. IN THE OLD DAYS, MAYBE ONE GUY HAD A FIAT CITROEN AND EVERYBODY ELSE HAD SOMETHING FROM GENERAL MOTORS FROM DEARBORN. YOU WERE EITHER AGM OR FOR FAMILY -- A GM OR A FORD FAMILY. THE KEENE FAMILY WAS A FORD FAMILY. JOHN LAWLER JOINS US, THE CHIEF FINANCIAL OFFICER FOR THE FORD FAMILY. ARE THE FORDS STILL INVOLVED IN THE COMPANY? JOHN: ABSOLUTELY. BILL IS VERY INVOLVED AND HE SETS THE TONE OF OUR VALUES AND WHAT WE STAND FOR. TOM: I WAS IN DETROIT AND YOU PEOPLE TOOK A DIFFERENT PATH FROM EVERYBODY ELSE. DO YOU SEE THE OUTCOME OF THE KURDS YOU HAD NOT TO TAKE THE PATH EVERYBODY ELSE TOOK? IS IT STILL WITH YOU THESE MANY YEARS ON? JOHN: THERE IS A LOT OF PRIDE IN THE COMPANY ABOUT THAT AND RUNNING THE BUSINESS WELL AND WHAT THAT MEANS FOR US. YOU SEE THAT WITH WHERE WE ARE APPROACHING OUR PRODUCT LINEUP, THE QUALITY FORD STANDS FOR AND RICH HERITAGE IS A PART OF WHAT WE DO. WORKING THROUGH THE FINANCIAL CRISIS THE WAY WE DID IS A PROUD POINT FOR THE COMPANY. LISA: HOW DO YOU STAY WITH YOURSELF IN THE HOTTEST GROWING AREA OF ELECTRIC VEHICLES WHEN IT SEEMS AS IF THE FORDS AND GMS ARE GOING TO MANUFACTURE THE CARS AND TESLA IS GOING TO MANY FEDERALLY CARS AND PROVIDED CHARGING NETWORK? JOHN: WE SEE OURSELVES AS A FIRST MOVER AS WE HAVE THREE GREAT VEHICLES ON THE ROAD TODAY, WE ARE ALREADY WORKING ON OUR SECOND GENERATION AND WE HAVE STARTED WORKING ON OUR THIRD GENERATION. WE SEE OURSELVES OUT IN FRONT. WHEN WE MOVED TO CHARGING, THE MOVE WE MADE WITH TESLA IS GOOD FOR THE CUSTOMERS AND THAT IS WHAT IT IS ABOUT. IT OPENS 12,000 ADDITIONAL CHARGING STATIONS. IT ALLOWS US TO SCALE QUICKLY AND ABOUT MAKING LIFE EASIER FOR THE CUSTOMER. TOM: KEITH IN DETROIT MAKES IT CLEAR YOU ARE GIVING IT AWAY TO TESLA. HOW MUCH DID YOU GIVE AWAY TO TESLA? JOHN: WE DON'T SEE OURSELVES AS GIVING WAY TO TESLA. WE ARE OPENING UP THE TESLA NETWORK AND PROVIDING THAT FOR OUR CUSTOMERS. IT IS ABOUT GIVING THEM WHAT THEY NEED AND THE CONVENIENCE OF MORE OPTIONS. LISA: IS TESLA THE INDUSTRY STANDARD WHEN IT COMES TO CHARGING? JOHN: TESLA HAS A VERY GOOD CHARGING NETWORK AND IT IS GOOD FOR OUR CUSTOMERS TO PARTICIPATE IN THAT. LISA: YOU TALK ABOUT THE ADOPTION OF ELECTRIC VEHICLES. YOU MAKE ELECTRIC VEHICLES BUT PEOPLE STILL WANT TO BUY SUVS THAT WERE NOT GASOLINE. YOU SEE IS COMING TO 30% OF THE INDUSTRY BY 2030. THAT IS DIFFERENT THAN WHAT THE PRESIDENT HAS PUT OUT THERE. WHY IS THERE THIS DIFFERENTIAL? WHY IS THERE A STICKING POINT TO KEEP IT GETTING TO THAT POINT? JOHN: ULTIMATELY, THE CONSUMER DECIDES. WHEN YOU LOOK AT OUR BUSINESS, WE HAVE THREE STRONG BUSINESSES. WE HAVE AN ISA BUSINESS WHICH IS GAS AND DIESEL, WE HAVE THE ELECTRIC BUSINESS, AND WE HAVE OUR COMMERCIAL BUSINESS. WE SEE THAT GASOLINE POWERED VEHICLES WILL BE AROUND FOR A WHILE, ESPECIALLY THE VEHICLES THAT WE LEAN INTO, PICKUP TRUCKS AND SUVS. A LOT OF THEM DO WORK OR HAVE AN DISEASED ACTIVITIES THEY DO. WE SEE THAT CONTINUING FOR A WHILE. WE SEE STRENGTH IN ALL THREE OF THOSE BUSINESSES. WE HAVE TWO STRONG BUSINESSES WHILE WE HAVE A STARTUP AND THE FUTURE IS EV BUT THE CONSUMER WILL DECIDE THAT ADOPTION RATE. WE ARE MOVING INTO EARLY ADOPTERS INTO EARLY MAJORITY. I DON'T KNOW IF ANYONE KNOWS HOW THAT CURVE WILL TAKE PLACE. TOM: YOU LEARNED ABOUT PERSISTENCY OF FREE CASH WHICH LEADS INTO TOTAL RETURN. THE AUTO INDUSTRY HAS A FLAT-OUT MEDIOCRE RETURN OVER 10 YEARS. YOU HAVE FIVE YEAR DIVIDEND GROWTH THAT IS PRETTY SNAPPY. THE AIRLINE SHIFTED TO A MORE PERSISTENT FINANCIAL MODEL OF SUCCESS. CAN FORD AND THE AUTO INDUSTRY DO THAT? CAN YOU MOVE TO A MORE PERSISTENT FREE CASH THAT GENERATES HIGH SINGLE-DIGIT RETURN? JOHN: ABSOLUTELY. TOM: HOW ARE YOU GOING TO DO IT? JOHN: FIRST OF ALL IT IS LEVERAGING THE BUSINESSES WE HAVE IN BLUE AND PRO. THE ABILITY CONSUMER BECAUSE THE VEHICLES WE PUT OUT NOW ARE CONNECTED AND WE CAN CREATE A LIFETIME EXPERIENCES THAT HAS ACCRETED. TOM: -- LISA: CAN YOU RAISE PRICES WHEN YOU SEE PUSHBACK AND FALLING CAR PRICES? YEAR, PRICES ARE DOWN SLIGHTLY. INCREASING PRICES IS BEHIND US AND WE ARE GOING TO HAVE TO MANAGE THAT. PRICE NEW PRODUCTS. OVERALL, I THINK THE INDUSTRY IS PASSED SAW THE LAST COUPLE OF YEARS LARGELY DRIVEN BY INFLATION. NOW WE AFFORDABILITY AND WERE IS AFFORDABILITY FOR THE CONSUMER. LISA: DO YOU FEEL LIKE YOU HAVE TO RESPOND TO PRICE INDUSTRY MORE GENERALLY, THAT THERE IS THIS COMPETITIVE MOMENTUM DOWNWARD TRY TO CATER TO A CONSUMER THAT IS BORROWING AT A HIGH RATE? JOHN: VEHICLE AND BY SEGMENT. WHERE THE COMPETITION DIFFERENTIATION YOU CAN PROVIDE, WHERE IS THE DEMAND FOR THAT PRODUCT? PRODUCT ON THE BOARD. PRODUCT IN THE DIFFERENTIATION AND THE ICONIC BRANDS WE HAVE, WE HAVE PRICING POWER AND HIGH LISA: WHAT IS THE PROPORTION AND HOW HAS IT SHIFTED OF CARS IN--RATHER THAN CREDIT? I ASKED THIS IN TERMS OF THE HAVES AND HAVE-NOTS. PEOPLE ON CREDIT ARE DISAPPEARING. SHIFT OF PRODUCES THEIR CREDIT. THEY DO A GREAT JOB WORKING WITH OUR CUSTOMERS. MODEL AND WE WILL BY CUSTOMERS THAT OTHERS MIGHT SAY PURCHASABLE OR ARE NOT QUALIFIED. WE HAVE A VERY GOOD RECORD WITH NOT INCREASING, THEY ARE STILL LOW. HOW WE DO THAT. TOM: THE TERMINAL SAYS YOU AN EIGHT MULTIPLE. WHAT IS A MULTIPLE YOU RECEIVE FOR THE JOHN: THE INDUSTRY HAS BEEN CONTAINED IN THIS TOM: HOW DO YOU GET OUT OF THE BOX? JOHN: EFFICIENCY, WATCHING WHERE YOU ARE WITH AND CONSISTENTLY DELIVERING. NOW WITH THE INDUSTRY AND THE ABILITY TO WE HAVE ANY OPPORTUNITY TO BREAKOUT. TOM: NUMBER YOU PERCEIVE -- WANTS TO KNOW THE NUMBER YOU RECEIVE. CAN YOU BE A 30 MULTIPLE COMPANY? LAMIA: JOHN: THE BETTER PERFORMING INDUSTRIALS. THAT IS THE FIRST STEP. LISA: ARE THERE GOING TO BE JOB JOHN: WE ARE ADJUSTING OUR EMPLOYEE BASE BECAUSE YOU HAVE NO -- ARE REQUIRED AND OTHERS THAT ARE NO LONGER REQUIRED. YOU WILL SEE THAT ON A REGULAR BASIS FROM TOM: OTHER ROOM SAYING I THINK WE NEED TO BRING THAT DOWN $100. IT IS ABOUT THE ROMANCE OF SELLING GAME. JOHN: THAT IS WHAT IS GREAT ABOUT FORD MOTOR COMPANY. CREDIBLE DEMAND FOR THEM AT INCREDIBLE POWER. INCREDIBLE POWER. TOM: THE TWO OF YOU AT THE SAME TIME WOULD BE GREAT. FINANCE STUFF. LISA: ARE THEY THE SAME TOM: WE WILL HAVE TO SEE. COMPANY. FUTURES, -18. DAY ABOUT WHAT IS GOING ON WITH RESPECT TO THE THE ECB COMING UP IN ABOUT HOUR. WE ARE GOING TO HEAR FROM CHRISTINE LAGARDE AND GET THE RICH DECISION. WE GET THIS NOTE WHICH BUILDS ON WHAT WE WERE HEARING CISAR SAYING A CREDIT IS MORE ATTRACTIVE THAN EQUITIES AND THE MOST ATTRACTIVE IN 15 YEARS. NOW. THERE IS A GROWTH IN THERE IS EVERYTHING ELSE AND IN. THERE IS YIELD. PEOPLE LIKE TOM: THERE WITH THE IDEA THAT OUT OF CIRCULATION, IF YOU DISINFLATION, IF YOU GET A ROSENBERG MOVE AND YOU GET THE RATE ARE NOT JUST CLIPPING COUPONS, YOU HAVE A TOTAL RETURN TOM: -- LISA: PEOPLE ARE FINDING WAYS TO FINANCE TOM: UP ON A PROFESSIONAL SERVICE. FORD IS ROCKETING >> THE TRICKY PART OF THIS PAUSE OR SKIP WAS MESSAGING IT. MUCH OF FINANCIAL MARKETS IGNORED THAT CENTRAL BANKS AROUND THE WORLD THAT HAD A POSITIVE -- THAT HAD PAUSED HAD TO REASSESS. THINK ABOUT THE BANK OF AUSTRALIA AND THE BANK OF CANADA, ECB, AND THE FED DOESN'T WANT TO LOOK LIKE ANY PAUSE IT TAKES IS BEHIND THE CURVE AND NOT CONTINUING THAT PROCESS. TOM: DIANE SWONK, ORIGINAL AND BRILLIANT YESTERDAY. I CANNOT EMPHASIZE ENOUGH THE ORIGINAL ECONOMICS OF THE LADY FROM MICHIGAN -- UNIVERSITY OF MICHIGAN. SHE WAS PATIENT ON THE -- PRESCIENT ON THE ECONOMY AND OF TWO AMERICAS. SHE DISCUSSES THE HAVES AND THE HAVE-NOTS, DIFFERENT THAN MOST WALL STREET ECONOMISTS. LISA: AND HOW DIFFICULT IT IS TO PARSE THROUGH THE HAVES AND THE HAVE-NOTS. THE AGGREGATE OF DATA POINTS DOES NOT TELL THE STORY. TOM: ALAN MULALLY USED TO GET ANGRY WITH ME AND SAY YOU HAVE TO AGGREGATE. THERE IS NO OTHER SOLUTION. IDEAS THAT BUT IT IS EVER SO MORE EVERY QUARTER WHERE AMERICA IS DISAGGREGATED TO CENTER THIS -- TO SAY THE LEAST. LET'S GO TO THE ECB, IN HAVE ANY OUR, ECONOMIC DATA. DXY IS DECEPTIVE. I AM GOING TO GO TO THE JAPANESE YEN WHICH IS WEAKER IN SIGNALS THAT THROUGH EURO-YEN BLOWING OUT TO A 1.5 THREE. THIS MAY BE AN AUDIBLE, BUT I WOULD SAY WATCH CHINA, WATCHED JAPAN AND THE CHALLENGES OF WEISS IS. LISA: JAPANESE POLICYMAKERS SAID IT WAS SUBOPTIMAL, SOME OF THE MOVES IN THEIR CURRENCY, THE QUESTION AROUND HOW THEY CAN REMAIN IN THIS YIELD CURVE CONTROL ENVIRONMENT. TOM: SUBOPTIMAL ALSO IS HAVING MEGAN GREENE ON RIGHT NOW. SHE IS A FELLOW AT BROWN UNIVERSITY AND CONSTRAINED WITHIN THE MONETARY BANK OF SAYING MUCH BECAUSE SHE WILL SOON DARKEN THE DOOR OF THE BANK OF ENGLAND AND IS RESTRICTED ON WHAT SHE CAN SAY AND WE WILL RESPECT THAT AND GET A VALUE FROM MEGAN GREENE WITHOUT SAYING WHAT THE BANK OF ENGLAND IS GOING TO DO NEXT. CONGRATULATIONS ON YOUR APPOINTMENT BY THE BANK OF ENGLAND. WE LOOK FORWARD TO THE CORONATION IN LONDON. IT IS AN UNUSUAL TIME. I WAS THUNDERSTRUCK BY A VETERAN LIKE MIKE MCKEE'S VOICE AT 2:00 P.M. OVER THE SHOCK AND ALL. -- SHOCK AND AWE. NONE OF THIS IS IN THE TEXTBOOKS AT BROWN UNIVERSITY. HOW ORIGINAL IS OUR ECONOMICS? MEGAN: WE ARE IN A WEIRD PERIOD. EVERY MAJOR PERIOD HAS HAD A PANDEMIC, A COST-OF-LIVING CRISIS, A WAR. TOP-DOWN TELLS YOU WHATEVER YOU WANT IT TO. THERE IS SOMETHING FOR EVERYONE. YOU WERE TALKING ABOUT AGGREGATION, TRYING TO -- CAN BE A USEFUL GAUGE ON WHAT IS GOING ON. I WAS NOT SO SURPRISED BY THIS FILE DIVIDE -- THIS PAUSE BY THE FED, NOR AM I SURPRISED THEY ARE NOT DONE YET. I THINK THEIR UNDERLYING INFLATION PRESSURES AND THE FED HAS TO PLAY TOWARDS THE RISKS IT IS SEEING RATHER THAN JUST TAKING IT CENTRAL FORECAST. TOM: ARE WE GIVING UP ON IT WILL MANDATE? DO WE HAVE A GIVEN CENTRAL BANK, IN THIS CASE, THE U.S. MIGRATING TOWARDS OTHER SINGLE BANKS -- OTHER BANKS' SINGLE MANDATE PROCESS? MEGAN: I DON'T THINK SO. INFLATION HURTS EVERYONE. IT HURTS THE BOTTOM PARTS OF THE INCOME DISTRIBUTION THE MOST. I THINK THAT IS WHAT THE FED IS LOOKING AT. IT DOESN'T MEAN IT DOESN'T CARE ABOUT INCLUSIVE EMPLOYMENT. IF THE LABOR MARKET STARTED TO DETERIORATE, WE WOULD SEE A SHIFT BACK TOWARD LOOKING AT THE LABOR MARKET AND EMPLOYMENT MORE CLOSELY. LISA: 25 MINUTES UNTIL THE ECB REVEALS THEIR HAWKISH PAUSE, IT IS PROBABLY NOT GOING TO BE A PAUSE. AS WE GET CLOSER TO THAT, TRADERS IN THE DEBT MARKETS HAVE RAISED THE ODDS OF A 4% ECB PEAK RATE TO 50%. THAT IS A SIGNIFICANT INCREASE AND THE MOST GOING BACK TO MARCH. DO YOU SEE THAT IS PROBABLE? MEGAN: IT IS DIFFICULT. THE EURO ZONE, UNLIKE OTHER ECONOMIES, IS IN RECESSION. THE U.S. AND THE U.K. AND JAPAN HAVE SKIRTED RECESSION. THAT DOES PUT THE ECB IN A TOP POSITION BECAUSE THEY'RE STUCK WITH THIS TRADE-OFF WITH SUCCESSIVE SUPPLY SHOCKS BETWEEN INFLATION AND OUTPUT. I THINK IT WILL HIKE TODAY, THEY HAVE EFFECTIVELY TRANSMITTED THAT. I DON'T THINK THEY ARE DONE AFTER TODAY EITHER. LIKE EVERY OTHER CENTRAL BANK, THEY ARE GOING TO BE DATA-DEPENDENT. IT WILL VERY MUCH DEPEND ON THE DATA COMING OUT. THE VERY MILD, TINY RECESSION YOU HAVE TO SQUINT TO EVEN SEE IN THE DATA, IF IT DOESN'T GET WORSE, WE MAY SEE ADDITIONAL RATE HIKES. WE MAY SEE TWO MORE. IF THE RECESSION DEEPENS, AND I DON'T THINK THAT IS THE CASE, I THINK THE RECESSION WILL REMAIN MILD OF THE BACK OF STRONG CONSUMER CONFIDENCE IN GERMANY AND OTHER PARTS OF NORTHERN EUROPE. I DO THINK THEY WILL END UP HIKING MORE. LISA: I LOVE HOW TORTURED WE HAVE BECOME. WE TALK ABOUT HOW YOU CAN SELECT ANY DATA POINT AND TELL THE STORY YOU WANT TO TELL AND THEN WE SAY WE ARE DATA-DEPENDENT BECAUSE WE HAVE DEFINED FOR STORIES THAT TELL THE RIGHT ONES FOR EACH INSTITUTION. -- MEGAN: I THINK IT IS LESS THAN WHAT WE WOULD HAVE SEEN IN PREVIOUS CHINESE RECOVERIES. A RECOVERY IN CHINA THIS TIME AROUND IS CONSUMER DRIVEN. THAT COMPRISES OF CHINESE CONSUMERS BUYING DOMESTIC SERVICES AND NOT BY CAPITAL GOODS FROM OUTSIDE. IN COMMODITIES, IT CHINESE RECOVERY WILL BID UP PRICES AND THAT WILL HAVE EFFECTS ON THE REST OF THE WORLD. RELATIVE TO PREVIOUS -- IN CHINA, THEY WILL BE LESS TURNOVER IN TERMS OF GROWTH WHICH IS NEGATIVE AND IN TERMS OF INFLATION WHICH IS POSITIVE. TOM: I WENT TO GET OUT FRONT OF THE POTENTIAL GREEN DISSENT WE WILL SEE AT THE BANK OF ENGLAND. IN YOUR STUDY OF THE ACADEMICS OF CENTRAL BANK, HOW DID AMERICA GET TO WHERE WE DON'T DISSENT? DO WE BLAME IT ON ALAN GREENSPAN? AMERICA SEEMS TO BE DISSENT FREE AMONG OUR CENTRAL BANK. WHY IS THAT? MEGAN: I THINK IT IS PARTLY TO DO WITH THE MANAGEMENT STYLE OF THE CHAIR. IT IS NOT THAT YOU DON'T EVER HAVE A DISSENT, THEY ARE JUST VERY RARE. WHEN YOU DO HAVE THEM, THEY REALLY STAND OUT. YOU GET A SENSE OF THE DEBATES HAPPENING ON THE BOARD AT THE FED. THEY HAPPEN, THEY ARE JUST LESS FREQUENT. IT IS PARTIALLY BAKED INTO THE CULTURE. SOME CENTRAL BANKS ARE HAVING DEBATES ABOUT EVERYTHING RELEVANT. SOME CENTRAL BANKS PREFER TO HAVE THOSE DEBATES BEHIND CLOSED DOORS BOTH COME UP WITH A CONSENSUAL APPROACH -- A CONSENSUS APPROACH. IT DIFFERS BUT IT IS DUE TO THE CULTURE. TOM: WE DECLARE VICTORY. WE GOT THROUGH THAT INTERVIEW WITH MEGAN GREENE WHO WILL JOIN THE BANK OF ENGLAND IN THE COMING MONTHS. WE GREATLY APPRECIATE IT THIS MORNING. TALKING TO PEOPLE GOING INTO SOME FORM OF CENTRAL BANK OR SOME OTHER INSTITUTION IS CLUMSY AND EVEN MORE CLUMSY WHEN THEY COME OUT. WHEN A VICE CHAIR CLARIDA LEFT THE FED, YOU ARE LIKE, WHAT IS HE GOING TO SAY OR NOT SAY? WITH EACH INDIVIDUAL, YOU HAVE TO GET THE LAY OF THE LAND. LISA: I HAVE NO DOUBT MEGAN GREENE WILL HAVE A CLEAR AND CONTROVERSIAL VOICE AS SHE PLOTS HER PATH FORWARD. SHE IS NOT SHY. TOM: CATHERINE MAN HAS HAD A DEMONSTRABLE IMPACT. LISA: THERE IS A GREATER DEGREE OF DISSENT ENCOURAGED IN THE MONETARY POLICY COMMITTEE OVER AT THE BANK OF ENGLAND. WHEN THEY WRITE THE BOOK ON CHAIR POWELL, I WONDER WHAT THEY WILL SAY. TOM: IT WILL BE FASCINATING. LISA: I AM CURIOUS ABOUT THE INTERNAL NEGOTIATIONS. SPECIFICALLY YESTERDAY WAS HISTORIC AND I AGREE, I WONDER WHAT THAT MEETING WAS LIKE. TOM: A GOOD MONOGRAPH IS LAWRENCE MEYER, GOVERNOR OF THE FED AND BRUTE -- HE WROTE A SHORT TREATMENT CALLED "A TERM AT THE FED." IT IS A BIT HISTORIC NOW. LARRY MEYER HAD A CANDID BOOK ABOUT THAT PROCESS. WHAT IS SICK ABOUT THE BANK OF ENGLAND IS THAT -- OF DARTMOUTH TRY TO GET THE BANK OF ENGLAND TO BUY A CARD OF FOOTBALL AND IT DID NOT WORK OUT. LET'S GO TO THE BOND MARKET. 5.21% ON A THREE MONTH T-BILL. YOU COMPARE THAT TO A 3.28% 10 YEAR YIELD. LISA: TWO YIELDS, THE HIGHEST SINCE THE BANKING CRISIS TOOK HOLD. 4.76%. A HUGE SHIFT UP FROM THE LOW AS RECENTLY AS MARCH 24, 3.76%. ALMOST A FULL PERCENTAGE POINT GAIN OVER THE SPAN OF THREE MONTHS. TOM: ♪ >> THE FOUR EFFECT ARE YET TO BE FELT. >> THIS WAS AN EFFECTIVE WAY TO MESSAGE WE WILL ASSESS WHAT TIGHTENING >> IS OUT THERE. >>-- TIGHTENING IS OUT THERE. >> THEY SHOULD HAVE HIKE TODAY BUT I THINK THEY THAT -- THEY GOT CAUGHT UP. >> THIS IS BLOOMBERG SURVEILLANCE WITH TOM KEENE, JONATHAN FERRO, AND LISA ABRAMOWICZ. LISA: THIS IS BLOOMBERG SURVEILLANCE. WELCOME BACK, GOOD MORNING. JOHN IS ON HOLIDAY. WE ARE HAPPY HE'S GETTING TIME OFF. TOM: NO WERE NOT. LISA: WE WILL SEE HIM IN A COUPLE WEEKS. WE ARE DISCUSSING WHEN THE ECB WILL MOVE. TOM: THERE WAS AN ODD DUCK OF THE LAWN OF -- AND I WAS THINKING WHO IS THIS GUY WITH A BRITISH ACCENT. HE OPENED HIS MOUTH AND HE ACTUALLY KNEW WHAT HE WAS TALKING ABOUT. IT WAS REALLY GREAT. LISA: THIS IS AS MUCH OF AN ENDORSEMENT PEOPLE GET FROM TOM KEENE. TOM: THEY WERE VERY GOOD I THOUGHT WHO IS THIS? LISA: WE ARE LOOKING AT A HIGHER TERMINAL RATE FOR THE ECB. YOU BROUGHT THIS UP. IT IS KEY THAT -- DO WE HAVE THE GROWTH PROFILE TO SUPPORT A 4% RATE? TOM: TO ME THIS IS THE HEART OF THE MATTER. QUICKLY HERE BECAUSE WE HAVE SO MUCH TO DO WITH OUR WONDERFUL GUESTS. THIS COMES DOWN TO THE SINGLE EMOTIONAL WORD FOR EUROPEANS AND AMERICANS, EUROSCLEROSIS. THERE IS A NUMBER OF YEARS WHERE EUROPEANS CANNOT GET IT DONE THEY DO NOT OWN APPLE OR NVIDIA. WE ARE AT THE IMF, I ASKED THE PRIME MINISTER OF ITALY, I ASK HIM IS EUROSCLEROSIS DEAD? HE SAID NO, IT IS STILL THERE. WE HAVE A CAP ON THE ECONOMY HOW DO WE GET TO 3.7 5% OR 4%? LISA: ESPECIALLY IF YOU DON'T HAVE NVIDIA OR APPLE OR META. TOM: EXACTLY. BAD FORM. LISA: YOU CAN CALL IT WHATEVER YOU WANT TO CALL IT. EGGEN GREEN WAS BRILLIANT ON THAT. SHE SAID IT DOES NOT MATTER AS IT WOULD HAVE 5-10 YEARS AGO THAT THEY MAY BE COMING BACK. WE SAW THE STIMULUS MEASURE A SMALL ONE OVERNIGHT COMING OUT. AND WE HEARD CHRISTINE LAGARDE TALKING ABOUT THE PEOPLE'S BANK OF CHINA. TOM: WE SEE IT WITH THE ECB COMING UP TO 15 TODAY -- AND WE HAVE OUR GUEST COMING IN THE MOMENT. AND BIT DOG UNDER 25,000. -- 2500. WHEN I LOOK AT THE TREND BASED IDEAS, BITCOIN IS A LITTLE BIT SHAKY AND IT DESERVES -- CATHERINE GREIFELD VERY CLOSE ANALYSIS GOING FROM 26,000 TWO 24958. JOHN'S AND VARRO JUST FELL OFF OF HIS BEACH CHAIR ON AN ISLAND IN ITALY. LISA: WE HAVE SOFTNESS ON YESTERDAY'S RALLY WITH THE TECH STOCKS. WE ARE LOOKING AT OTHER TECH DARLINGS SUCH AS TESLA COMING OFF OF THEIR INCREDIBLE RALLIES. AND TAKING A DEEP REST. TOM: IT'S ONE DAY OFF GET OVER IT. LISA: IT IS INTERESTING BECAUSE OF THE SET UP BECAUSE OF THE DEPARTURE WE SEE IN YIELDS. THE HIGHEST LEVEL GOING BACK TO WHAT WE WERE CONCERNED ABOUT SINCE THE BANKING CRISIS. TOM: THE TWO YEAR YIELD -- THE EURO U.S. VERSUS THE DOLLAR 1.0815. AND WE ARE SPEAKING WITH JORDAN ROCHESTER WHERE YOU HAVE THESE FANTASTIC CALLS. AND YOU GIVE US A SENSE OF WHAT THE VIEW IS BEHIND IT. LONG EURO IS THE CALL. WHAT IS THE RATIONALE BEHIND THAT? JORDAN: WE HAD GROWTH THAT RE-DISAPPOINTED AND A WEAK CPI NUMBER. WE HAD IT ON MOST OF THE YEAR FOR THE EURO-DOLLAR BUT IT HAS BEEN -- FOR EVERYBODY THE TRADE WASHING PEOPLE OUT OF WHAT IS A ESSENTIALLY -- IT IS NOT A MARKET THAT HAS BEEN HELPFUL TO ANYONE IN THE MACRO SPACE. WHAT HAS CHANGED IS THE DATA SURPRISES ARE EXTREMELY LOW. SO ECONOMISTS FROM HERE WILL PROBABLY REVISE DOWN. THE MARKETS WILL BE LESS REACTIVE TO THE MANUFACTURING OF PMI AND NEXT WEEK WITH THE PMI FLASH. MAYBE SERVICES AS WELL. I THINK THE MARKET MAY SHRUG IT OFF BECAUSE IT IS ALREADY PRICED IN. WHAT MAY BE CHANGING IS THE CORRELATION OF THE U.S. DOLLAR. I WOULD BE SHORT EURO-DOLLAR RIGHT NOW I THOUGHT IT WOULD GET DOWN TO 1.06 BUT WE ARE IN A CORRELATION REGIME CHANGE. THE EQUITY MARKET HAS BEEN RANGE BOUND FOR QUITE SOME TIME. THIS AI BOOM HAS CHANGED EVERYTHING. AS WE CLOSE TO THE END OF THE FED HIKING CYCLE, EQUITIES ARE HIGHER AND IT SHOULD BE TOWARDS 97.50. RATE SAY 106. -- 1.06. I THINK THAT WILL HELP THE EURO AGAINST THE DOLLAR AS WELL. TOM: YOU SAY WASHED OUT, THAT MAY BE DESCRIBING THE SEASON FOR -- WHAT IT REALLY MEANS FOR FX TRADING IS TO STOP LOSSES. WITH ALL THIS AMBIGUITY BACK AND FORTH AND DIFFICULTY IN TRADING, HOW DO YOU ESTABLISH STOP LOSSES IF YOU'VE GOT SUCH A NARROW IDEA OF WHERE YOU ARE GOING? HOW DO YOU SET UP A STOP LOSS IF YOU'RE ONLY LOOKING FOR TWO BIG FIGURES? JORDAN: IDEALLY YOU WANT AT LEAST A TWO TERM RATIO. WE TEND TO DO THAT. YOU LOOK AT 4% UPSIDE AND A 2% STOCK. WE HOPE ON AVERAGE YOU ARE 50% OR MORE HIGHER ON THE RATIO. THE OTHER SIDE IS TO TAKE LEVERAGE. YOU CAN DO LEVERAGE SALES MAKING LEVERAGE PLAYS QUITE CHEAP. IT IS ALSO LOW. WHAT WE ARE TALKING ABOUT IS -- IN THE SECOND HALF THIS YEAR UP A BREAK IN THE EURO. IT -- IF WE BREAK THROUGH FROM 1.0821.10 THAT IS WHERE THE EURO WILL -- 1.08 TO 1.10 THAT IS WHERE THE EURO WILL -- TOM: I AM FASCINATED WITH THE SIGNALS OF JAPANESE YEN, EURO YEN WELL OVER 1.50 AND I LOOKED VERY CAREFULLY AT THE DOLLAR-YEN TODAY. WHERE IS THE WEEK END OF HOPE -- POINT WHERE THE SWEAT BREAKS IN TOKYO. IS IT DEMONSTRATIVELY BACK TO THE ONE POINT -- 150 DEMONSTRATIVE LEVEL. JORDAN: WHAT A DESCRIPTION. WHEN THE SWEAT KICKS IN IS WHEN WE GET TO THE 150 LEVELS. WHEN THEY WANT TO INTERVENE, THAT WAS IN A PERIOD WHERE THE FED WAS HAWKISH. GLOBAL INFLATION AND ENERGY PRICES WERE GOING UP. IT IS A DIFFERENT SET UP THIS TIME AROUND. WE HAVE A HIKE HIGHER IN U.S. YIELDS WITH THE MARKET BITING THE FED THE WHOLE WAY. ONE OF THE FAVORED TRADES IN KOREA FOR CLIENTS IS SHORT DOLLAR-YEN. IT HAS ABSOLUTELY BEEN A PAIN TRADE IS SO FAR THIS YEAR. IT IS EITHER JUNE OR JULY WE THINK. BUT THE FED IS DOING MORE THAN BOJ AND THE -- IT IS NOT STOPPING THEM FROM HITTING HIGHER U.S. YIELDS AND RISK ON EGG MAKING A TRADE THAT IS GOING UP. TOM: THIS IS CRITICAL WITH HOW MR. ROCHESTER FOLDS THE YEN DYNAMIC INTO THE TWO YEAR YIELD IN THE UNITED STATES. THE LINKAGES HERE ARE TANGIBLE. LISA: ESPECIALLY BECAUSE A LOT OF INTERNATIONAL BUYERS OFFENDED THE U.S. MARKET. HAVE WE SHIFTED BACK TO AN INTEREST RATE DIFFERENTIAL STORY DRIVING FX VOLUME VERSUS GROWTH DIFFERENTIAL WHICH REMAIN IN QUESTION? JORDAN: IT HAS BEEN THE TWO WORKING AGAINST EACH OTHER TO MAKE LIFE TOUGH FOR EVERYBODY. THE YIELD STORY AND -- ABSOLUTELY. YOU SEE THAT. IF YOU APPLY THAT FRAMEWORK TO THE REST OF G10 AND ASIA YOU GOT ABSOLUTELY SMOKED. BECAUSE EQUITY RALLY -- AND AI SEMICONDUCTOR SENTIMENT IS PUSHING THE AUSSIE DOLLAR HIGHER. WE HAVE THE U.K., BANK OF ENGLAND THE REAL RATE SMOOTHED IS HIGHER. IN THE U.K. RATES ARE CORRELATING. THAT IS WHY IT IS SHORT-TERM FOR THOSE WHO HAD IT ON. BUT IT IS A LITTLE FROTHY IN THIS SPACE. THE ANSWER IS, YES, RATES TO APPLY BUT THE EQUITY COMPONENT IS MAKING IT TOUGH FOR EVERYBODY. LISA: WE ARE ABOUT FOUR MINUTES AWAY FROM THE ECB RATE DECISION. EURO STRENGTH AS WE EXPECT SOME MOVE TOWARD ADDITIONAL RATE HIKES. IT HAS TURNED AROUND AS WE HAVE BEEN SPEAKING. NOW WE SEE THE EURO LOWER THAN THE DOLLAR FLUCTUATING. AT WHAT WHITE DOES THE GDP STORY FOR EUROPE BECOME A PROBLEM EVEN IN THE FACE OF POTENTIALLY MORE HAWKISH POLICY? JORDAN: IT REALLY WILL BE A PROBLEM IF IT IS LIKE THIS A REST OF THE YEAR. GROWTH DRIVES INFLATION BUT INFLATION DRIVE CENTRAL BANKS. WHAT WE SEE RIGHT NOW IS THE LACK OF INFLATION FROM LAST YEAR. ALL THE SERVICES AND CPI CREEPING THROUGH. FOR THE ECB THEY WILL RAISE THEIR CORE INFLATION. AROUND 4.6 FOR THIS YEAR AVERAGE. THE INFLATION CORE HAS A FIVE HANDLE FOR MOST OF THIS YEAR. IT NEEDS TO BE HAWKISH, YOU HAVE CREDIT SPREADS TIGHTENING. AND NATURAL GAS PRICES SHOOTING BACKUP. INFLATION HAS GONE AWAY BUT IF IT CARRIES ON, I WILL BE SURPRISED IF WE GET A DOVISH MEETING. TOM: IT NEEDS TO BE HAWKISH AS WE GO TO THIS MEETING IN TWO MINUTES. THE ANNOUNCEMENT BEFORE THE PRESS CONFERENCE. THE INFLUENCE OF THE BUNDESBANK AT 8:15 NEW YORK TIME. JORDAN: EVERY COUNTRY HAS A ROTATION OF COURSE THROUGHOUT THE COUNTRY. SOME DO AND SOME DO NOT GET TO VOTE IN THIS MEETING. THERE IS ONE ASPECT OF EVERYTHING THAT IS A MOVE AND THAT IS MANUFACTURING AND HOUSING. YOU LOOK AT THOSE COMPONENTS OF GROWTH. RIGHT SOME INDICATION SHOW IT IS DOWN 10% IN GERMANY. THEY GOT 10 YEAR AND 30 YEAR MORTGAGE RATES FIXED JUST LIKE IN THE U.S.. THERE ARE CLEAR SIGNS THAT THAT NUMBER IS CREEPING UP AND IT WILL LEAD TO DIFFERENCES. FOR FRANCE AND GERMANY THE AVERAGE CONSUMER HAS NOT FELT THE IMPACT. FOR THE TIME BEING, I STILL HAVE TO LEAN HAWKISH LEE. -- HAWKISHLY. TOM: STICK AROUND WITH US. WE WILL GET YOUR THOUGHTS AND COMMENTS. YOU ALLUDED TO A HISTORIC HIKING CYCLE EARLIER. LISA: IT SEEMS LIKE WE ARE GETTING CLOSE TO THE END. THIS MIGHT BE THE END FOR THE FED. HE MAY ARGUE IT IS THE END OF THE HIKING CYCLE AND AT THE EC -- ECB THERE IS ONE OR TWO MORE HIKES BUT YOU GET THE FEELING THAT THEY HAVE TO DECIDE WHETHER TO PAUSE OR SKIP. WHAT THE DAMAGE IS TO THE ECONOMY SIGNALING. TOM: WE HAVE TO GO TO FIRST PRISONER BULLS -- FIRST PRINCIPLES. NOT HAVE UNIFIED FISCAL POLICY VERSUS -- POWELL HAS CONGRESS SPENDING OODLES OF MONEY AND WE SEE THAT ADDRESS TODAY. THE GDP FOCUSES ON THAT FRONT AND CENTER. LISA: CHRISTINA LAGARDE HAS BEEN DOING GOD -- DOING GOOD IN HER JOB. THEY ARE FURTHER BEHIND THE FED IN TERMS OF THE RATE HIKING CYCLE. WE WILL THIS BE SHORT OR CLEAR OR DECLARATIVE. WE HAVE MORE WORK TO DO. BASICALLY HUMORING PEOPLE SAYING IT SHOULD SLOW DOWN. IT IS AN EASY JOB FOR HER THAN IT WAS FOR FED CHAIR -- FED CHAIR JAY POWELL. TOM: WE OUT -- WELCOME TO YOU ALL HERE AFTER THE FED FESTIVITIES YESTERDAY WITH EUROPEAN CENTRAL BANK. WE WILL HAVE HEADLINES THAT WE DO IN ABOUT 30 SECONDS. THE BENCHMARK ALWAYS THE EURO THAT WAS 1.05 RECENTLY IT IS AT 1.0829 NOW. WE WERE ARE CURIOUS TO SEE WHAT IT WILL DO IN THE COMING MINUTES AND THE COMING MONTHS AS WELL. THE U.S. TO YEAR YIELD IS UP AS WELL. TRYING TO REACH A 5% TO -- U.S. YIELD. WE ARE WAITING ON THE HEADLINES ARE SLIPPING OUT NOW. I WILL DO MY IMITATION OF JON FERRO, THEY RAGE -- RAISE THE MARGINAL LENDING FACILITY TO FOUR POINT 25%. WHICH IS THE KEY HEADLINE. BUT RAISING THE DEPOSIT FACILITY AS WELL BY 25 BASIS POINTS. THE RATE OF 25 BASIS POINTS. JOHN JUST FELL OFF OF HIS BEACH CHAIR. LISA: THIS IS IN LINE WITH EXPECTATION. RAISING 25 BASIS POINTS TO 3.25%. THEY SAID THEY WILL CONTINUE TO APPLY ROOF FLEXIBILITY OF THE ASSETS UNDER INVESTMENT. TALKING ABOUT PRICE PRESSURES REMAINING STRONG. INFLATION STILL THE PREEMINENT CONCERN. THE ECB SEES THE 2025 INFLATION RATE AT 2.2% VERSUS THE PRIOR FORECAST OF 2.1%. INCREASING THEIR INFLATION EXPECTATIONS AT A TIME WHERE PEOPLE MORE BROADLY HAVE BEEN HOPING FOR PERHAPS ENERGY PRICES TO DECLINE AND FEEL SOME DISINFLATION. TOM: THEY GO OUT IN TIME DIFFERENTLY THAN WE DO BUT THE 2024 FORECAST OF INFLATION WAS 2.9%. WITH A -- ALL THE CHALLENGES OUT THERE, YOU COME UP FROM 2.9% TO 3.0%. WHAT IS A 10TH OF A PERCENTAGE POINT WHEN YOU'RE OUT SIGNALING? LISA: THIS PERHAPS SIGNALS MORE. YOU LOOK AT CORE INFLATION OVER THE U.S. OVER TIME. WHEN YOU STRAP OUT -- TO STRIP OUT ENERGY AND FOOD IN EUROPE, THEY SEE THAT BEING 3% VERSUS THE PRIOR ESTIMATE OF TWO POINT 5%. SIGNIFICANT STICKINESS TO INFLATION OVER THE LONG-TERM IN A TIME WHERE WAGES ARE GOING UP. AT A CLEAR CLIP. THIS IS THE DISTINCTION ACROSS THE WORLD. TOM: THE HUGE DISTINCTION HERE IS THE GDP DIFFERENTIAL IN EUROPE VERSUS ACROSS THE ATLANTIC TO THE UNITED STATES. I KNOW THIS IS KEY. THE VIEW 18 MONTHS TO 2025 IS A EUROPEAN GDP OF 1.6% THAT SPEAKS VOLUMES. WE HAVE GROWTH IN LOANS SLOWING. TILTING THE BANKING TIGHTER AND FINANCIAL CONDITIONS TO AN INCREASE. THIS IS A STICKY REPORT, THE ECB WILL ENSURE RATES REACH SUFFICIENTLY RESTRICTIVE LEVELS. LISA: AND DOWNGRADING POTENTIALLY SOME OF THEIR GROWTH EXPECTATIONS. AGAIN, HOW MUCH WILL THIS BE A MESSAGING DEVICE TO SAY WE ARE COMMITTED TO BRINGING DOWN INFLATION. THE THREAT IS REAL, AND YES, WE MAY HAVE TO SACRIFICE. TOM: THE GERMAN TO YEAR YIELD MOVES THE SOLID 14 BASIS POINTS A JOIN OR MISS -- A HUGE MOVE. THE EURO IS -- THE SYSTEM HAS A MODEST BID OF 1.0839. SHAKING OUR HEAD ALONG AT -- WE HAVE MARIA REALIZING THAT WAS THE FIRST -- WORST PRESS RELEASE SAYING WHERE IS JON FERRO? AND JOINING US NOW IS MARIA. WHAT ARE YOUR THOUGHTS AS THE MARKETS MOVE? MARIA: IT IS A 25 BASIS POINT HIKE. WE WERE EXPECTING THAT. WHEN YOU LOOK AT THESE NUMBERS WITH THESE PROJECTIONS WE GOT TODAY, YOU SEE INFLATION TAKES UP AND GDP GOES DOWN. IN OTHER WORDS THEY ARE HIKING INTO OVER SESSION. THAT IS THE SCENARIO THEY WANTED TO AVOID. THE DOWNSIDE RISKS CONTINUE. THE PANIC YEAR AGO MAY BE GONE BUT THIS FEARS OF THE FALLOUT IS STILL THERE WHEN IT COMES TO INFLATION. THEY WILL HAVE TO CONTINUE TO RAISE RATES AND CONTINUE TO HIKE. WHAT IS CLEAR NOW IS THAT THIS IS ALMOST BUT ENDGAME. IT IS A HIKE TODAY AND POTENTIALLY ANOTHER ONE IN JULY. BUT WHEN YOU GET TO THAT POINT YOU SEE TENSION KICKING IN IN THE GOVERNING COUNCIL. EVERYONE NEEDS TO MAKE SURE THEY FEEL COMFORTABLE WITH THE POLICY. THEY NEED TO MAKE SURE THEY HAVE DONE ENOUGH TO TAME INFLATION. THIS IS A CENTRAL MANDATE BANK INFLATION. THE REALITY IS, THIS IS A CONSTANT BALANCING ACT AND THERE ARE 20 DIFFERENT ECONOMIES. YOU CANNOT FORGET THAT. LISA: LOOKING AT YIELDS HIGHER. GERMAN YIELD 3.12% CLIMBING SIGNIFICANTLY ON THE DAY. 13 BASIS POINT CHANGE. THE EURO MARGINALLY HIGHER. AND THE ECB PLANNING TO CAN -- DISCONTINUE APP ASSET REINVESTMENTS. NOT ONLY RAISING BY 25 BASIS POINTS BUT TIGHTENING THE SCREWS ON THE LIQUIDITY SIDE OF THINGS. DO YOU THINK THIS INDICATES WE WILL HEAR FROM RESTING LAGARDE AND 25 MINUTES THAT THEY ARE PLANNING TO HIKE MORE AND WITHDRAW STIMULUS THROUGH THE BALANCE SHEET? MARIA: WE KNOW MEMBERS OF THE GOVERNING COUNCIL ALREADY ASKED FOR THIS FOR A LONG TIME. THEY SAID NOT JUST THIS, BUT THEY SAID WE NEED TO DRAIN EXCESS LIQUIDITY ALREADY BECAUSE INFLATION IS UNACCEPTABLE HE HIGH AND IT CONTINUES TO BE. NOT JUST HEADLINE, BUT WHEN YOU LOOK AT CORE, THIS IS A NUMBER YOU LOOK AT. IT CONTINUES TO BE A PROBLEM. ONE OF THE KEY QUESTIONS YOU ALLUDED TO IS WHAT HAPPENS IN JULY. THAT QUESTION IS ONE FINAL ONE AND YOU'RE DONE YOU FEEL MONETARY POLICY HAS DONE THE JOB. OR IS IT MORE JULY, LET'S TAKE A BREAK, THAT IS EUROPEAN TO CLOCK OUT AND REASSESS IN SEPTEMBER. TO ME THAT IS A KEY QUESTION. TOM: DO YOU SEE THE HANDS OF THE BUNDESBANK SAYING WE NEED TO BE MORE RESTRICTIVE? MARIA: I THINK THEY OBVIOUSLY HAVE PUSHED THAT LINE AND THEY HAVE BEEN WINNING THAT ARGUMENT. HAD WE NOT SEEN THE INFLATION NUMBERS THE WAY THEY ARE. BUT WHEN YOU LOOK AT THE BUNDESBANK, YOU LOOK AT AN ECONOMY THAT HAS TAKEN A HUGE HIT BECAUSE OF THE ENERGY SITUATION. YOU SEE GAS PRICES TAKING A HIT. WHEN YOU TALK TO CEOS AND THE GOT -- GERMAN GOVERNMENT THE EXCITEMENT ABOUT THE FUTURE OF THE GERMAN INDUSTRY CONTINUES TO PLAY IN. FOR THIS ROUND, IT IS NOT JUST AROUND INFLATION BUT ALSO GROWTH. TOM: THANK IS A MUCH REPORTING ON THE ANALYSIS OF THE ORIGINAL GDP WITH SOME NATIONS OF EUROPE. WE CONTINUE WITH JORDAN ROCHESTER STRATEGIST AT NUMERO. OMURA. GERMANY IS NOT GETTING IT DONE RIGHT NOW. HOW DOES THAT CHANGE IN ENERGY CALL FROM NOMURA. JORDAN: I'M NOT CONVINCED THAT GDP IS A WAY TO LOOK AT EURO RIGHT NOW. BUT THE INFLATION FORECAST HAS A REVISION DOWN. HER CORE INFLATION, WHAT HAS BEEN SURPRISING FROM THIS RELEASE IS WE'VE GOT ON AVERAGE NOW 5.1 FROM THE ECB CORE INFLATION THIS YEAR UP FROM 4.6 IN THE PREVIOUS FORECAST. I SAID EARLIER IT IS TOO LOW TO BE REVISED UP WELL. WE THOUGHT THE ECB MAY NOT PENCIL IN A FIVE HANDLE FOR THE CORE INFLATION BECAUSE THAT IS A NUMBER THAT WOULD MAKE VERY UNCOMFORTABLE FOR THE AVERAGE THIS YEAR. 5%. NONE OF THE FORECAST FOR INFLATION HAVE BEEN GOING BACK A LOW 2% IN THE HORIZON. THE 20 25 INFLATION FORECAST REVISED UP SLIGHTLY. ALL OF THIS SAYS THE ECB IS BEING HAWKISH. WE WILL FIND OUT HOW THEY -- EXPRESS IT, BUT WE SEE THE PRICE TARGET JUMPING ALREADY TO 25 BASIS POINTS. THE MARKET WAS DOWN A LITTLE BIT IF THAT WOULD HAPPEN. NOW WE ARE TOYING WITH THE MARKET THINKING MAYBE THIS CARRIES ON AND GOES TO SEPTEMBER. FOR THE MARKET, IT IS PRICING MANY 25 BASIS POINT RATE HIKES FOR THE BANK OF ENGLAND. AND I SUGGEST IF THAT IS THE CASE NEED TO CONSIDER THE ECB. LISA: DOES THIS MAKE 4% ECB RATE MORE LIKELY? AND THE BASE CASE IN YOUR VIEW. JORDAN: IT IS NOT THE BASE CASE BUT IT MAKES IT POSSIBLE. WE SEE THIS EQUITY PICKING BACK UP AND BOOSTING RISK SENTIMENT. AS I MENTIONED EARLIER, NATURAL GAS GOING UP SHOULD REALLY WORRY THE ECB IF IT IS LIKE LAST YEAR. AUGUST LAST YEAR WE HAD THE HIGHS. IT IS JUNE NOW AND IF WE GET TWO MORE MONTHS OF GAS PUSHING UP INFLATION OF NATURAL GAS IT UPSETS THE -- ALL OF MY CHARTS SAY THAT EURO INFLATION WILL SLOW DOWN BUT IT WILL CHANGE IF NATURAL GAS MOVES AWAY. IF IT CARRIES ON IT IS POSSIBLE. JORDAN ROCHESTER. -- TOM: JORDAN ROCHESTER. THANK YOU FOR SHARING TODAY. WE DO THIS ON THE BLOOMBERG AND IN REAL TIME, THIS IS COOL. I CAN GO TO THE EURO STOCKS. 50 WHICH IS SUDDEN -- SOMEWHAT LIKE THE DOW JONES INDUSTRIAL AVERAGE. UP 32% OFF OF THE OCTOBER LOW. AN EQUIVALENT TO THE U.S. DEBATABLE BULL MARKET. YOU HAVE THE EURO UP 32% AS WELL. IT IS NOT A SMALL ITEM FOR ENTHUSIASM. LISA: AND HOW MUCH DOES THAT RUN INTO MASSIVE HEADWIND WITH GERMAN YIELD DOWN 3.15% URGING ON THE HEELS OF AN INCREDIBLE HAWKISH ECB. YOU CAN SEE IT MATERIALLY HIGHER. SIGNIFICANT 15 BASIS POINT INCREASE. WE ARE LOOKING FOR THE POTENTIAL FOR THE FED AND ECB TO MOVE MORE THAN MANY PEOPLE THOUGHT WAS POSSIBLE. TOM: AND ECB -- THERE'S NOWHERE THAT COVERS THAT LIKE OUR ECONOMICS TEAM IN WASHINGTON AS WELL. WE WILL GET FURTHER NUANCE THROUGH THIS MORNING. IN A BIT. TOM: TO AMERICAN ECONOMIC DATA. WE DO THAT WITH MICHAEL MCKEE. WE SEE CONTINUED DEBRIS FROM THE ECB ANNOUNCEMENT. THE TWO YEAR YIELD 3.15%. GERMANY THAT IS A SUBSTANTIAL HIGHER YIELD. LISA: THE HIGHEST GOING BACK TO MARCH. A 14 BASIS POINT CLIMB AS PEOPLE ASSESS HOW FAR THE ECB IS WILLING TO GO MOVING THEIR PROJECTION FOR CORE INFLATION UP TO 5.1% FROM 4.6%. INCREASING THEIR EXPECTATION FOR NEXT YEAR AND 3% IN EXPORT FOOD INFLATION READ FROM 2.5% EARLIER. TOM: FORD CONSUMER OUT THERE. MICHAEL MCKEE SEES THAT FROM THE RETAIL SALES DATA. WHAT DO YOU HAVE? MIKE: WE START WITH RETAIL SALES. COMING IN ON THE MONTH UP BY .3%. THE FORECAST WAS FOR A .2% DECLINE. STRONGER THEY ARE. AND AUTO IS UP 5.4%. IT IS DIFFERENT FOR THE UNIT SALES, BUT THE CONTROL GROUP STILL WAITING FOR THE NUMBER TWO DROP. THAT IS THE ONE ECONOMISTS LOOKED AT. IMPORT PRICES ARE OUT DOWN .6%. EXPERT TROLLING DOWN AS WELL. A LOT OF AT -- PETROLEUM DOWN AS WELL. AND THIS MATCHES EXPECTATIONS. WE ARE SEEING AMERICANS SPEND, BETTEL -- BUT AT A LOWER RATE THAN THEY DID. AND JOBLESS CHAIN -- JOBLESS CLAIMS ARE UNCHANGED. IF YOU WANT TO MAKE IT HARD FOR THE FED TO READ THE LABOR MARKET THERE IS A GOOD NUMBER FOR YOU. YOU TO NOT KNOW IF LAST WEEK WAS A FREAK OUT NUMBER OR IF IT IS NOW A NEW LEVEL. EMPIRE MANUFACTURING HAS A BIG JUMP FROM NEGATIVE 3.182 6.6. THE PHILADELPHIA FED COMES IN AT -11 AFTER -10.4. I'M NOT SURE WHAT YOU CAN MAKE OUT OF THE REGIONAL INDEXES TO SAY ARE THE OPPOSITE OF EACH OTHER. WE WILL SEE IF WE CAN FIND OUT WHAT IS GOING ON WITH RETAIL SALES. TOM: MANY WAYS TO GO WITH RETAIL SALES PARTICULARLY ON THE MANUFACTURING DATA. LOWER IN THE YIELD OFF THE SHOCK. WE COME BACK WITH REAFFIRMATION OF THE TWO-YEAR AFTER -- FOR 10 YEAR YIELD AT 3.81%. I GUESS IT IS NOT A BIG DEAL, BUT A 4% WATCH ON THE 30 YEAR BOND AND ALL OF ITS MOTION IN AMERICAN HOUSING AS WELL. I'M LOOKING AT THE YEAR OVER STRENGTH IN THE RECENT SECONDS. AND BEFORE WE GO BACK TO MIKE, WE HAVE TO LOOK AT CLAIMS. BACK TO BACK 2.62 WHICH GIVES YOU A FOUR-WEEK MOVING AVERAGE WHICH IS LITERALLY A JUMP CONDITION OFF OF THE GLIDE PATH OF HIGHER CLAIMS WE SEE. LISA: I'M GLAD YOU SAID THAT BECAUSE THIS IS A CONFUSING DATA DUMP. WE SEE THE STRENGTH OF THE CONSUMER ON ONE SIDE, AND THE MANUFACTURING WITH'S COMING BACK IN THE GOOD SECTORS, BUT THE JOBLESS CLAIMS AND NEIGHBOR MARKET LOSING STEAM. I WONDER HOW YOU PUT THOSE TOGETHER. AS ONE LAGGING AND ONE LEADING AND WHICH IS THE LEADING ONE THAT WE CAN FOCUS ON? TOM: MIKE MCKEE LOOKING AT RETAIL AND 45 MINUTES. WHAT IS THE NUANCE OF RETAIL SALES? MIKE: BASICALLY IT LOOKS LIKE WE SPENT MONEY ON EVERYTHING. VERY FEW CATEGORIES OF WEAKNESS ONLY GASOLINE WHICH WILL NOT SURPRISE ANYBODY BECAUSE WE KNOW SALES ARE CALCULATED IN EVEN DOLLARS. AS THE GAS PRICES FALL SO DO THEIR PERCENTAGE OF SALES. GAS STATIONS WERE DOWN 2.6% THEY WERE DOWN 20% THE PRIOR MONTH. EVERYTHING SHOWS MILD GAIN FROM LAST MONTH BUILDING MATERIALS NUMBERS. IN MAY THEY ROSE. IT MAY HAVE BEEN A RAINY APRIL. AND CARS SURPRISE IN THIS -- SURPRISE INTO SLEEP. THEY COME UP 1.4% -- SURPRISE IN DISTALLY -- ENDLESSLY. THEY COME UP 1.4%. PEOPLE WERE OUT SPENDING MONEY WITH A .4% GAIN FOR EATING AND DRINKING PLACES. TOM CONTINUED TO DO HIS PART FOR THE ECONOMY. TOM: I'M WORKING ON IT. MIKE: AND A LOT OF PEOPLE ARE STILL SPENDING LESS BUT STILL OUT THERE SPENDING. LISA: DOES THIS DATA DUMP SIGNAL RESILIENCE OR MARKET THAT IS LOSING STEAM? MIKE: IT MAY BE LOSING STEAM, BUT IT IS HARD TO SAY IT IS RAPIDLY CHANGING BECAUSE WE STILL HAVE A BIG JOLTS NUMBER THAT HAS A TWO MONTH DELAY. IT SHOWS A LOT OF JOB OPENINGS STILL OUT THERE. THE FACT WE DID NOT SEE A RISE IN JOBLESS CLAIMS TELLS YOU THERE IS SOMETHING STATUS QUO ABOUT THE ECONOMY NOW. YOU CANNOT REALLY LOOK AT IT AND SAY WERE GOING TO SEE A BIG JUMP IN UNEMPLOYMENT BECAUSE RIGHT NOW THE NUMBERS DO NOT SUPPORT THAT. TOM: THANK YOU, MICHAEL MCKEE. WE APPRECIATED. AS HE SAID A SUBSTANTIAL SET OF ECONOMIC DATA. FUTURES DETERIORATE A LITTLE BIT. DOWN JUST FRACTIONALLY. THE VIX 14.14. THE ECONOMIC TEAM IN WELLS FARGO HAS BEEN MEASURING THIS NATION FROM SEA TO SHINING SEA. I WOULD LIKE FOR YOU TO GO TO THE OTHER SEE TO SUMMARIZE WHAT WELLS FARGO SEES IN MANUFACTURING IN AMERICA VERSUS A CLEAR SLOWDOWN IN MANUFACTURING IN GERMANY. WHAT IS THE STATE OF THE ECONOMY OF MANUFACTURING IN AMERICA WHEN WE LOOK AT THE DATA THIS MORNING? >> I WOULD ROUGHLY SAY WHEN I THINK ABOUT THE MANUFACTURING SECTOR IN THE UNITED STATES, I WOULD SAY IT IS FLATTISH. IF YOU LOOK AT THE DATA OF MANUFACTURING PRODUCTION IT HAS BEEN KIND OF FLAT. AND WHAT HAS BEEN GOING ON THERE IS TWO DIFFERENT THINGS. THERE IS A SLOWING DOWN AND THE REST OF THE WORLD THAT WE ARE NOT EXPORTING AS MUCH AND BEEN THERE'S BEEN THIS ROTATION OVER THE LAST YEAR AWAY FROM SPENDING ON GOODS TOWARD SERVICES. AND MANUFACTURING IS -- IT IS NOT REALLY CONTRACTING BUT IT IS NOT GROWING. AS A SAID, IT IS KIND OF FLAT RIGHT NOW. LISA: WHICH IS THE BEST LEADING INDICATOR OF ALL THE DATA WE GOT IN IN -- IS IT RETAIL DATA COMING IN OR UNEMPLOYMENT -- JOBLESS CLAIMS COMING IN MORE THAN EXPECTED. >> THEY ARE CAN'T -- COINCIDENCE INDICATORS. IT GIVES US AN IDEA OF WHERE WE ARE RIGHT NOW BUT IN TERMS OF RETAIL SALES NUMBERS, IT IS CHOPPY BUT WHAT I WOULD SAY IS WHAT IT IS SHOWING US IS THAT THE CONSUMER CONTINUES TO SPEND AT A MODEST PACE. AS LONG AS THAT CONTINUES TO HAPPEN THE CONSUMER SECTORS ARE -- I THINK WHERE WE ARE RIGHT NOW IN TERMS OF THE ECONOMY -- IF WE LOOK AT THE FIRST QUARTER WE GREW ROUGHLY 1%. I THINK THAT IS WHERE WE ARE RIGHT NOW ON THE SECOND QUARTER AS WELL. PLUS OR -5/10 OF A PERCENTAGE POINT. LISA: IF NOTHING CHANGES. AND WE GET SHOCKED LIKE THIS THE NEXT FOUR WEEKS DO YOU THINK THE FED WILL HAVE TO RAISED BY ANOTHER 25 BASIS POINTS? THAT YESTERDAY'S MEETING WAS NOT THE END OF THE RATE HIKING CYCLE? JAY: I THINK THAT IS RIGHT. YESTERDAY WAS A COMPROMISE BETWEEN THE DOVES ON THE COMMITTEE WHO WANT TO PAUSE RIGHT HERE IN THE HAWKS WHO WANT TO KEEP PRESSING AHEAD. AND I THINK IT WAS EASIER FOR THEM, THEY CAN SINCE IS THAT IT WAS EASY FOR THEM YESTERDAY TO COALESCE AROUND WE WILL KEEP THIS, BUT WE WILL SAY AND -- SEND A SIGNAL THAT THERE'S A PAUSE. AND IF WE DON'T SEE ANY CHANGES FROM THE ECONOMY, THEN THEY CAN MAKE IT UP -- BY 25 BASIS POINTS. BUT THERE'S A LOT BETWEEN NOW AND THEN WITH THE LABOR REPORT IN THE CPI NUMBERS. SO IF WE COME IN WITH THE STATUS QUO OF WHERE WE ARE RIGHT NOW THAT I THINK WE WILL GO 25. TOM: I WILL SUGGEST THAT NONE OF THIS IS IN CHAPEL HILL ECONOMIC TEXTBOOKS. IT IS ORIGINAL WHERE WE ARE. HOW MUCH ARE WE BEHOLDING TO AMERICAN EXCEPTIONALISM RIGHT NOW. EUROPE HAS SO MANY STRUGGLES AND SO FAR A 1% GDP VIEW FORWARD. WE ARE DIFFERENT AND DOING BETTER. DOES WELLS FARGO SUGGEST THERE IS AN AMERICAN DIFFERENCE AND AMERICAN EXCEPTIONALISM? JORDAN: WHEN YOU LOOK AT -- JAY: WHEN YOU LOOK AT THE BROAD STUFF, THE U.S. IS THE TECHNOLOGICAL LABOR IN THE WORLD. THIS IS WHERE AI IS BEING DEVELOPED WHICH I THINK WILL PROBABLY CONTINUE BUT I ALSO THINK WHERE WE ARE IN TERMS OF THE CYCLE, THEY'VE BEEN HIT WITH THE NUMBER OF SHOCKS THAT THE UNITED STATES HAS NOT HAD PARTICULARLY THE WAR IN UKRAINE. AND A SPIKE IN NATURAL GAS PRICES. THERE'S BEEN A LOT MORE SHOCK HITTING EUROPE THAN THE UNITED STATES. IS THE UNITED STATES EXCEPTIONAL? FROM A LONG STANDPOINT, YES, BUT FROM A CYCLICAL STANDPOINT I CAN COME UP WITH REASONS WHY EUROPE IS DIFFERENT. TOM: WHAT'D YOU THINK YESTERDAY WHEN WE HAD IS STEAMED PEOPLE LIKE YOU ON SAYING THEY SHOULD HAVE RAISED RATES AND STOP WITH ALL OF THIS MUMBO-JUMBO SKIP PAUSE AND ALL OF THIS OTHER STUFF. DO YOU AGREE THAT THEY SHOULD RAISE RATES? JAY: I DON'T THINK SO. GREENSPAN AT THE END OF THE DAY WAS VERY CAUTIOUS AS WELL. YOU LOOK AT THE LAST TIGHTENING CYCLE STARTING IN 2004, IT IS 25 BASIS POINTS CONSTANT. DID THEY DO THE RIGHT THING YESTERDAY? OBVIOUSLY PEOPLE CAN DISAGREE ON THAT, BUT WE ALL KNOW THAT MONETARY POLICY WORKS WITH LONG LAG. AND IT SEES SIGNS THAT THE ECONOMY IS GROWING AT SUB TREND PACE RIGHT NOW. SOME PEOPLE WILL BELIEVE IT WILL BE SUB TREND. IF HE CONTINUES TO GROW AT SUB TREND IT WILL PROBABLY BRING INFLATION DOWN OVER TIME. YOU DO NOT WANT TO PUT THE ECONOMY INTO A RECESSION IF YOU CAN AVOID IT. SO IT IS A LITTLE BIT OF A HARD COMMUNICATION STRATEGY RIGHT NOW. THEY ARE WALKING A FINE LINE BUT I THINK APPLAUSE IS DOABLE. LISA: WE ARE 3.5 MINUTES AWAY FROM CHRISTINE LAGARDE EXPLAINING APPLAUSE AND THE EURO VERSUS THE JAPANESE YEN WAS EXTENDING THE GAIN TO THE HIGHEST LEVEL LONGEST GOING BACK TO 2008. AS YOU SEE THAT DIFFERENTIAL AND RATE POLICIES. IT IS STARTING TO BLEED INTO THE CURRENCY. TOM: I DEFERRED TO JORDAN ROCHESTER EARLIER, 160 IF YOU'RE A DISTANCE FROM OMG THE WORST EVER. BUT WITH SCOPE AND SCALE BACK TO 2008 IT SIGNALS HAVE REMOVED JAPAN IS FROM THIS. LISA: AS WE SET UP FOR CHRISTINE LAGARDE, TO GIVE ME BEHIND THIS. WHAT DO YOU EXPECT? WHAT WAS THE BIGGEST SHOCK WHEN THE ECB IS FORECASTING A 3% CORE INFLATION NEXT YEAR AND A FIVE ONE INFLATION THIS YEAR? JAY: I THINK SHE'S GOING TO BE VERY HAWKISH AS WELL. SHE IS SPEAKING FOR THE ENTIRE GOVERNMENT COUNSEL. WE KNOW THERE'S A LOT OF TALK ON THE GOVERNMENT COUNSEL. AND WE THINK WHAT THEY SEND AS A SIGNAL IS THAT WE NEED TO BE HAWKISH YEAR. THE CHRISTINE -- I THINK CHRISTINE WILL FORECAST A HAWKISH VIEW. AND I DO NOT THINK THAT IS A BAD THING FOR THEM. TOM: IS THIS OPERATING WITHIN EUROSCLEROSIS? JAY: [LAUGHTER] DEFINED THAT TERM. I'M NOT SURE I GET THE TECHNICAL -- GET THAT TERM. TOM: IS THERE JUST TO WAIT IN THE EUROPEAN MODEL THAT WAS DEFINITIVE 20 YEARS AGO? JAY: THEY ALWAYS LAG SOMEWHAT. IN TERMS OF PRODUCTIVITY, GROWTH, AND VIBRANCY OF THE ECONOMY. I DO NOT THINK THAT WILL CHANGE ANYTIME SOON. WHEN WE LOOK AT THE AI BREAKTHROUGHS HAPPENING IN THE UNITED STATES, THEY ARE NOT HAPPENING VERY -- HAPPENING. TOM: THANK YOU VERY MUCH. THAT IS JAY BRYSON FROM WELLS FARGO. HELPFUL TO US ON THE ECONOMIC BACK AND FORTH. SOMETIMES THERE ARE SIGNALS OF POST-PANDEMIC THAT THIS IS A WELL-RUN MACHINE, DELTA AIRLINES. THEY SEE AND EVER SO SLIGHT BUT NEVERTHELESS QUARTERLY -- AFTER A THREE YEAR RALLY. LISA: THEY ARE HAVING THEIR ANNUAL MEETING AND WE ARE HEARING ABOUT NORMALCY RETURNING. INTERESTING AND A TIME WHERE TRAVEL HAS FUELED BE EXPENDITURES AND INFLATION WE HAVE SEEN EVERYWHERE. THE IDEA IS TO POTENTIALLY INFLATE THEIR VALUATION. WE WAIT FOR CHRISTINE LAGARDE. HOW MUCH IS TRAVEL PART OF EUROPEAN STORY? TOM: AND THE TOURISM IS GDP SALVATION. THAT IS ITS WORDS. LISA: THAT MAY BE WHY YOU SEE A DIFFERENT PICTURE IN SOUTHERN EUROPE. AND SOUTHERN EUROPE PERHAPS GETTING MORE. TOM: I HAPPEN TO TALKED TO A GUY HE HAS A GREENHOUSE UP THE HUDSON RIVER A QUARTER OF AN ACRE A HUGE, JOIN OR MISS -- A HUGE THING. AND HE IS LOOKING AT A TRIP TO LONDON AND IT IS $10,000 BUSINESS CLASS. HE IS IN MARKETING AND HE ONLY FLIES LARGE AND HE IS GOING OVER 10,000 LARGE TO TAKE A FLIGHT. LISA: AND YOU TALKED ABOUT TRYING TO GET A HOTEL IN PARIS. BUT ALL OF THE QUESTIONS IS REALLY FUELING THE INFLATION. TOM: IT IS UNFAIR BECAUSE SOMEONE LIKE ME, I WANT TO -- GOING IN PARIS AND HE IS GOING VERY LARGE. WE START THE ECB RIGHT NOW IN -- PHOTO OPPORTUNITY. EVERYBODY DOES THIS DIFFERENTLY. THE CHAIRMAN HAD A LOT OF FLAGS AND HUNTING BEHIND HIM YESTERDAY. IF YOU ARE ON RADIO THIS IS A STARK BLUE ASSOCIATED WITH THE ECB. CHRISTINE LAGARDE AND OTHER GOOD PEOPLE WILL COME IN AS WELL. AND MAKE AN OPENING STATEMENT OF CHRISTINE LAGARDE WITH THE QUESTIONS I WILL BE LISTENING MOST CLOSELY TO THE INTENTION -- AND THE REST AS WELL. LISA: DO YOU THINK THIS WILL BE MORE INTERESTING THAN THE FED PRESS CONFERENCE? TOM: THAT WAS ALSO INTERESTING YESTERDAY. THAT IS A GOOD QUESTION, NO, I THINK SHE WILL HEDGE IT IN A POLITICAL WAY OR YESTERDAY WAS MORE OF A FREE FOR ALL. WE WILL GO THERE FOR NOW THIS IS THE PRESIDENT OF THE ECB. THEY HAVE A WHOLE PROCESS OVER THERE. THEY HAVE TO MOVE THE CABLES AWAY AND ALL OF THAT. LISA: HAVE YOU NOTICED THAT HE IS ON TIME THE DOOR OPENS WITHIN 30 SECONDS OF THE 2:30 P.M.: EASTERN TIME MARK. AND SHE -- 2:30 P.M. EASTERN MARK. >> MY NAME IS -- WE ARE ALWAYS IN HYDRA FORMAT. AND WE ARE FOLLOWING THROUGH WITH VIDEO. WHEN YOU HAVE A QUESTION PLEASE TURN ON THE CAMERA AND MICROPHONE SO WE CAN SEE YOU WITH REGARDS TO THIS. CHRISTINE: GOOD AFTERNOON TO ALL OF YOU. THE PRESIDENT AND I WELCOME YOU TO OUR PRESS CONFERENCE. INFLATION HAS BEEN COMING DOWN, BUT IS PROJECTED TO REMAIN TOO HIGH FOR TOO LONG. WE ARE DETERMINED TO ENSURE THAT INFLATION RETURNS TO OUR 2% MEDIUM-TERM TARGET IN A TIMELY MANNER. THE GOVERNING COUNCIL DECIDED TO RAISE THE THREE KEY ECB INTEREST RATES BY 25 BASIS POINTS. THE RATE INCREASE REFLECTS OUR UPDATED ASSESSMENT. THE DYNAMIC SELF UNDERLYING INFLATION AND THE -- MONETARY POLICY TRANSMISSION. ACCORDING TO THE MACROECONOMIC PROJECTIONS THEY EXPECT HEADLINE INFLATION TO AVERAGE 5.4% IN 2023, 3% IN 2024, AND 2.2% IN 2025. INDICATORS OF UNDERLYING PRICE PRESSURES REMAIN STRONG. ALTHOUGH SOME SHOW TENTATIVE SIGNS OF SOFTENING. STAFF EVER VIES UP THEIR PROJECTIONS FOR INFLATION EXCLUDING ENERGY AND FOOD ESPECIALLY FOR THIS YEAR AND NEXT. GOING TO PASS UPWARD SURPRISES AND THE IMPLEMENTATION OF THE PAST LABOR MARKET FOR THIS. THEY NOW SEE IN REACHING 5.1% IN 2023 BEFORE IT DECLINES TO A 3% AND 2024 AND 2.3% IN 2025. STAFF HAVE SLIGHTLY LOWER TO BE ECONOMY GROWTH PROJECTIONS FOR THIS YEAR AND NEXT. THEY NOW EXPECT BE ECONOMY TO GROW BY .9% IN 2023. 1.5% IN 2024. AND 1.6% IN 2025. AT THE SAME TIME, OUR PAST RATE INCREASES ARE BEING TRANSMITTED FORCEFULLY TO FINANCING CONDITIONS AND GRADUALLY HAVING AN IMPACT ON THIS ECONOMY. BORROWING COSTS HAVE INCREASED STEEPLY. AND GROWTH IN LOANS IS SLOWING. TITLE FINANCING CONDITIONS IS WHY INFLATION DECLINES FURTHER TOWARD OUR TARGET AS THEY EXPECT TO INCREASINGLY DAMPEN DEMAND. OUR FUTURE DECISIONS WILL ENSURE THAT THE KEY ECB INTEREST RATES WILL BE BROUGHT TO LEVELS SUFFICIENTLY RESTRICTIVE TO ACHIEVE A TIMELY RETURN OF INFLATION TO OUR 2% MEDIUM-TERM TARGET. AND WILL BE KEPT AT THOSE LEVELS FOR AS LONG AS NECESSARY. WE WILL CONTINUE TO FOLLOW A DATA-DEPENDENT APPROACH TO DETERMINING THE APPROPRIATE LEVEL AND DURATION OF RESTRICTION. IN PARTICULAR, OUR INTEREST RATE DECISIONS WILL CONTINUE TO BE BASED ON OUR ASSESSMENT OF THE INFLATION OUTLOOK IN LINE WITH THE INCOMING ECONOMIC AND FINANCIAL DATA. THE DYNAMICS OF UNDERLYING INFLATION AND THE STRENGTH OF MONETARY POLICY TRANSMISSION. THE GOVERNING COUNCIL CONFIRMS THAT IT WILL DISCONTINUE THE REINVESTMENT AND THE ASSET PERSEUS -- PURCHASE PROGRAM IN JULY 2023. THE DECISIONS TAKEN TODAY ARE SET OUT WITH A PRESS RELEASE THAT IS AVAILABLE ON OUR WEBSITE. I WILL NOW OUTLINE A MORE DETAIL HOW WE SEE THE ECONOMY AND INFLATION DEVELOPING. AND WE WILL THEN EXPLAIN OUR ASSESSMENT OF FINANCIAL AND MONETARY CONDITIONS. LOOKING AT THE ECONOMY -- ECONOMIC ACTIVITY, THE EURO ECONOMY HAS STAGNATED IN RECENT MONTHS. AS AN THE FOURTH QUARTER OF LAST YEAR, A TRUNK BY -- IT SHRUNK BY .1%. IN THE FIRST QUARTER OF 2023, AMID A DROP IN PRIVATE AND PUBLIC CONSUMPTION. THE ECONOMY GROWTH IS LIKELY TO REMAIN WEAK IN THE SHORT RUN. BUT STRENGTHEN IN THE COURSE OF THE YEAR. AS INFLATION COMES DOWN AND SUPPLY DISRUPTIONS CONTINUE. -- CONTINUE TO EASE. SECTORS IN THE ECONOMY ARE UNEVEN. I MANUFACTURING IS LOWERING GLOBAL DEMAND AND TIGHTENING FINANCIAL CONDITIONS WHILE SERVICES REMAIN RESILIENT. THE LABOR MARKET REMAINS A SOURCE OF STRENGTH. ALMOST ONE MILLION NEW JOBS WERE ADDED IN THE FIRST QUARTER OF THE YEAR AND THE UNEMPLOYMENT RATE STOOD AT ITS HISTORIC LOW OF 6.5% IN APRIL. THE AVERAGE NUMBER OF HOURS WORK HAS ALSO INCREASED. ALTHOUGH IT IS STILL SOMEWHAT BELOW ITS PRE-PANDEMIC LEVEL. AS THE ENERGY CRISIS FADES, GOVERNMENT SHOULD ROLLBACK THE RELATED MEASURES IN A CONCERTED MEASURE TO AVOID DRIVING UP MEDIUM-TERM INFLATIONARY PRESSURES WHICH WOULD CALL FOR A STRONGER MONETARY POLICY RESPONSE. FISCAL POLICY SHOULD BE DESIGNED TO MAKE OUR ECONOMY MORE PRODUCTIVE AND GRADUALLY BRING DOWN HIGH PUBLIC DEBTS. POLICIES TO ENHANCE THE EURO AREA SUPPLY CAP CUSTODY ESPECIALLY IN THE ENERGY SECTOR CAN ALSO HELP REDUCE THE PRICE PRESSURES IN THE MEDIUM-TERM. THE REFORM OF THE EU'S ECONOMY GOVERNANCE FRAMEWORK SHOULD BE CONCLUDED SOON. LOOKING AT INFLATION NOW, INFLATION FELL FURTHER TO 6.1 PERCENT IN MAY ACCORDING TO EUROSTAT'S FROM 7% IN APRIL. THE DECLINE WAS BROAD-BASED AND ENERGY PRICE INFLATION WHICH HAD RISEN IN APRIL RESUMED ITS DOWNWARD TREND AND WAS NEGATIVE IN MAY. FOOD PRICE INFLATION FELL AGAIN, BUT REMAIN HIGH AT 12.5%. INFLATION EXCLUDING ENERGY AND FOOD DECLINED IN MAY FOR THE SECOND MONTH IN A ROW TO 5'3" PERCENT FROM -- 5.3% TO -- GOODS INFLATION DECREASED FURTHER FROM 5.8% FROM 6.2% IN APRIL. SERVICES INFLATION FELL FOR THE FIRST TIME IN SEVERAL MONTHS FROM 5.2% TO 5%. INDICATORS OF UNDERLYING PRICE PRESSURES REMAIN STRONG. ALTHOUGH SOME SHOW TENTATIVE SIGNS OF SOFTENING. PAST INCREASES IN ENERGY COSTS ARE STILL PUSHING UP PRICES ACROSS THE ECONOMY. PENT UP DEMAND OF THE REOPENING OF THE ECONOMY DRIVES UP INFLATION ESPECIALLY IN SERVICES. WAGE PRESSURES WHILE REFLECTING THE PAYMENTS ARE BECOMING AN INCREASINGLY IMPORTANT SOURCE OF INFLATION. COMPENSATION FOR PARENT EMPLOYEES ROSE BY 5.2%. AND NEGOTIATED WAGES BY 4.3%. FIRMS IN SOME SECTORS HAVE BEEN ABLE TO KEEP THE PROFITS RELATIVELY HIGH ESPECIALLY WHERE DEMAND HAS OUTSTRIPPED SUPPLY. ALTHOUGH MOST MEASURES OF LONG-TERM INFLATION STANDS AROUND 2%. SOME INDICATORS REMAIN ELEVATED AND NEED TO BE MONITORED CLOSELY. TURNING TO OUR RISK ASSESSMENT. THE OUTLOOK FOR ECONOMY GROWTH AND INFLATION REMAINS HIGHLY UNCERTAIN. THE DOWNSIDE RISKS TO GROWTH INCLUDE RUSSIA'S JUSTIFY WAR AGAINST UKRAINE AND AN INCREASE IN BROADER GEOPOLITICAL TENSIONS WHICH COULD FRACK WENT GLOBAL TRADE AND WAY ON THE ECONOMY. GROWTH COULD ALSO BE SLOWER IF THE EFFECT OF MONETARY POLICY ARE MORE FORCEFUL THAN PROJECTED. RENEWED FINANCIAL MARKET TENSIONS COULD LEAD TO EVEN TIGHTER FINANCING CONDITIONS THAN ANTICIPATED. ALSO WEAKER GROWTH IN THE ECONOMY COULD FURTHER DAMPEN ECONOMY IN THE -- EURO AREA. HOWEVER GROWTH COULD BE HIGHER THAN PROJECTED IF THE STRONG LABOR MARKET AND UNCERTAINTY MEAN THAT PEOPLE AND BUSINESSES BECOME MORE CONFIDENT AND SPEND MORE. UPSIDE RISK TO INFLATION CONTINUE WITH UPWARD PRESSURE OF ENERGY AND FOOD ALSO RELATED TO RUSSIA'S WAR AGAINST UKRAINE. THE LAST RISE IN INFLATION EXPECTATIONS ABOVE OUR TARGET ARE HIGHER THAN ANTICIPATED

Channel: Bloomberg Television

Views: 58,666

Keywords: Jon Ferro, Lisa Abramowicz, Tom Keene

Id: mkTs0_jcLZQ

Length: 151min 30sec (9090 seconds)

Published: Thu Jun 15 2023