Transcripts For BLOOMBERG Bloomberg 20240703

Ferro, Lisa Abramowicz and annmarie hordern. Lets get you to the weekend. Live from new york city this morning, good morning. This is bloomberg surveillance. Amh has started social be back on monday. Equity futures positive by 0. 7 . Alphabet and microsoft, they do not need rate cuts from the Federal Reserve. Alphabet we are talking about beats on the top and bottom line. Throwing a dividend an extra 70 billion Share Buyback. Lisa i was trying to put this into perspective because its one thing to see a random share gain 11 . Its another for it to be google. Those what 400 billion combined. Thats almost equal to walmart. Its basically to mcdonalds. Its unbelievable to see two names dominate in this way. Jonathan very happy with himself he will join us in about 10 minutes time. He says this is the mid 90s not the late 90s. For tech stocks. Lisa essentially this isnt just nice words about how Artificial Intelligence make robots cook our dinners for us this is about them expanding their Cloud Services and increasing the number of customers because of Artificial Intelligence. For google it was a watershed moment because they were showing they could monetize and grow with their Cloud Services. Jonathan theyve had some big challenges in the First Quarter. Maybe there was a big threat to the search engine. We need to move to the bond market. New highs for the year on the twoyear, 10 year in the last 24 hours. The 10year briefly down to 468. The word stagflation coding around trading floors. I wonder how misplaced that is, calling it stagflation shatter. Is it anything more than that after the data from yesterday. Lisa a lot of people talking about it, some might argue that was premature. I think bruce nailed it. He said basically that sound that you hear is the breaking up of the narrative, essentially what we are is joining this disinflation, where we dont know where we are. My question today is how much have we actually priced out any rate cuts. Have we fully done that through the market or is this select pockets waking up. Jonathan we will get the pce data. That sound you hear is the yen breaking. 156, 67. Coming into the month, 152. Staring down the barrel of 157 or 156 and about 4 00 p. M. Eastern time there was a big swing. Starting to chatter we are back to where we were. Lisa george of Deutsche Bank nailed it. Benign neglect, essentially this is a bank of japan that does not care. Its like ok i guess this is happening. Does it bother the japanese economy. He went through the reasons why it does not really matter which is the reason why fight it . Jonathan the yen has declined its becoming disorderly which goes to a sharp decline. We will see if this will be the potentially sharp decline before it finds a floor. Putting out a survey early this morning who needs a soft inflation print more. Chairman powell, President Biden or the bank of japan. At the moment the boj must be begging for a downside surprise on u. S. Data. Lisa right now it seems that the only offramp they have. Theyve adopted talking more about positive consumption and inflation which is still around 2 in the region which raises the question do they really care about the yen weakening or not. We try to have this attitude and annoy you thats very connected to who you are. Is that where youre going with this . Keep selling my japanese yen. Dollaryen, no idea where this show is going. Equity futures more broadly lets get to the markets for you. Equity futures positive by 0. 7 . Yields are lower down to basis points. Coming up this hour we will chat catch up with stocks rebounding. Alphabets blockbuster results and sarah wolf of morgan stanley. Next weeks big decision. We begin with our top story. Stocks getting betterthanexpected results from microsoft and alphabet. Shifting focus to data with the readout 8 30 eastern time. Christian joins us for more. I want to start with the tech earnings. Alphabet is absently flying in the premarket. We were focused on metagetting nowhere. Do you think the tech trade in america is alive and well . It seems like but i have to say without the good earnings we got from europe i think the market would have read it differently. It was jittery from my point of view but if you see the outlook coming in positively thats good news and you see the futures up at this point. Jonathan cloud spend looked pretty solid. More specifically on the single names. For you what you looking to overweight equities, is there anything outside of u. S. Tech and u. S. Equities more broadly . Christian honestly, if youre talking from europe and you look at the european performance for the time being, a year today even from a dollar perspective its outperforming the s p. The question is why is that. I think there is a lot of investment to take, a lot of investment in the u. S. But interesting talking to clients. Maybe theres some value in europe. Im not saying thats forever the case but we do see some investments here. I think this is also performing quite interestingly. This is where we are now in the cycle. People think there is some value in europe. Its not all isolated to the United States. Theres a question of how much people have really internalized this idea of no rate cuts for the Federal Reserve. Has that been baked into the idea of what it means for a broadening out of the rally and potentially everything other than the negative is at three. Christian i think importantly if you look at the rate cuts i think what needs to be discussed is the rate cut story is not about the economy being so weak that theres too many rate cuts. Its about the strengths and the economy and the inflation which we call higher for longer. We think its not going through the roof, it will stay an elevated level. I think thats important so i would still think and thats why dont think its priced out that there is a part of the fed this year in the fourth quarter. I think it is really priced in with the ecb will cut in june. By the way thats also making that more attractive. I think this rate cut story is not over from that point of view. A lot of people suggesting the pivot party is over. If we dont have volatility in rates thats enough to sustain some sort of rally. Do you buy that or do we have stability of these levels. Thats good change a lot of feces hinged on this idea that the rate cut will come. I think what we watch closely if you look at the 10 year at 225 in the u. S. I think whenever this is moving faster than the equity market also gets a bit nervous. So as long as it is quite stable that seems fine but if the debt is rising faster which we have seen that means a slight pickup in volatility. If that is stabilizing from that point to view i think thats a decent outlook. Also in terms of where we are i think if you look at gains its probably not wrong. If there is the setback in the market which i would say is sound, then it is by 22. Still longer on the equity side. Jonathan what did you make of the growth inflation notes of yesterdays data. Talking about a test talking abut it briefly. Around trading war floors, what did you make of the growth inflation mix in america . Its probably the worst outcome for the central bank. So growth coming down and inflation moving up of course you have the discussion about stagflation but we do see growth coming down. But not to levels but up to levels that are very low. I dont think inflation is moving much higher from here. From that perspective i am not in the camp that there is pure stagflation. I think there is down in the second half of the year some room for rate cuts and from that perspective i would not be so negative. Jonathan where does that leave you on treasuries . Christian if i fastforward into the second half to 2025 we think we can imagine we are for 20 in one years time which is a benign environment for the fixed income space. Which is following inflation is not moving substantially higher. I think its not too bad on the income side. Jonathan good to hear from you. Following some stellar earnings from alphabet and microsoft. Alphabet in the premarket absolute flying. I think there was Something Like that. Jonathan absolutely crazy. On the bond market we catch up a little bit later this morning. He thinks this is an opportunity to get a second bite out of this bond market locking and what is available on the 10 year. Which is what i thought was so interesting, christian has a different idea. We havent really killed off expectations for rate cuts. People are Still Holding out hope. If we get a higherthanexpected core pce print today if that kills off some hopes how much more of a move do we have left versus how much could we see if we get a weaker than expected print. I dont think it would take much to reintroduce the conversation this summer. The conversation starts, look at yesterday. All it took was a downside surprise on growth and upside surprise on pce and all of a sudden we are hearing about stagflation in america. Lisa thats because people have no clue. Essentially we dont know where we are each of the reason we are seeing such volatility. Im curious to see what volatility on some of these mega cap two or 3 trillion gains. They are trading like penny stocks which gives you a sense of the certainty there is now. Here is your bloomberg brief with dani burger. Secretary of state Antony Blinken has met with the chinese president in beijing. Morning blinken of vicious competition between the countries saying china and the United States should be partners rather than rival according to a statement. Blinken warns china on supporting russias war machine. The bank of japan kept rates on hold bringing the yen to a 34 year low against the dollar. Japans finance minister said the government will respond appropriately to foreignexchange moves. Now we are past 156 and a very volatile day of trading. Writing that the losses are warranted and this finally marks the day when the market realizes japan is following a policy of benign neglect for the yen. Blackstones credit chief is downplayed the industries rival with banks even as banks step up to muscle their way back in the market share of lending. He spoke with me in his first interview since taking the job. Spreads have titan because Public Markets are back. Anything to gives borrowers ailed choice to say im a Public Financing vehicle want a private option. This may be more execution and that choice is a good thing for financial systems. When i asked if that meant private care led to the fall he said instead of dropping it would ebb and flow throughout cycles. Thats your bloomberg brief. Jonathan we will pick up on some of those themes in about 20 minutes time. Equities right now negative on the s p 500. Up next the ai boom in full swing. The one thing weve been seeing is everyone is spending a lot more. This is going to all Ai Data Center infrastructure today. Live from new york this morning, good morning. You, with the Small Business. Whoa. Youve got all kinds of bright ideas, that your customers need to know about. Constant contact makes it easy. With everything from managing your social posts, and events, to email and sms marketing. Constant contact delivers all the tools you need to help your business grow. Get started today at constantcontact. Com constant contact. Helping the small stand tall. Jonathan tech stocks absolutely flowing in the free market. Equity futures positive 0. 7 , yields a little bit lower. Under surveillance this morning the ai boom in full swing. The one thing we have been seeing between microsoft and google is everyone is spending more on capex acts which is going to all day Ai Data Center. We are not seeing money wasted, we are seeing these Companies Making money early on because theyre charging so much for that. Shares of microsoft and alphabet rising after both Companies Reported earnings that blew past estimates. The tech giant sink spending on aim Cloud Computing is paying off. Microsoft continues to put together masterpiece after masterpiece as this represents its dominant position in the ai revolution. They have an outperform rating on microsoft. Dan ives joins us with a big smile on his face. Tell us why this is the mid 90s and not the late 90s. Dan the spending is unprecedented. Thats why theres two companies youre listening to to understand the gauge of option, and then whats happened. What we heard last night the adoption is even massively ahead of their expectations and when you start to put numbers through we think its to be a trillion dollars to spend over the next decade, to bet against that its to that against the knicks in the playoffs. Jonathan meda spending bad, spending microsoft and alphabet good. Whats the difference . Dan they are spending like a 1980s rock star but they are spending on ai. Microsoft is getting that google, amazon. Our view is thats good money. You want to see them spend on ai. But it just speaks to where all this money is going. Its going to a Fourth Industrial Revolution and you can debate economics but the monetization is there. You were sleeping very well going into this weekend. Im curious about whether big tech is created equal. Is the benefit of google and microsoft to the detriment of amazon struggling to keep up with their u. S. Offering. I think chassis has started to get them on the right track from an ai perspective. If you look at google and amazon they were behind dell and microsoft which were top of the mountain but i think we will hear good things from a cloud perspective. Some of the ai initiatives i think they will be more acquisitive. This is an arms race going on in terms of ai. You see more acquisitions across the board but this is a tech bull market in the early stages. This seems to be the consolidation we are seeing in the likes of google and microsoft. What consolidation do you think will be allowed and is feasible with these tech giants . If you look at microsoft they are free as a bird because everything in the 90s from an antitrust doj they will get more aggressive for m a. I think when you look at the rest of tech they are no longer scared from an ftc in terms of whats happening there. You start and seymour bigger deals. Ibm is getting more inquisitive. You wont see big tech sit there in their shorter rooms not going for big acquisitions because otherwise others will do it. Private equity and other big tech giants. Thats why you are seeing more of an offensive approach from alphabet and amazon and others. I think thats a trend we will see. Lisa we will get into the politics in a minute. Im sure lena con is wondering how this is can happen. Im wondering what they are going to go after. Are we going to see microsoft buying something or will we see them with the situation of netflix acquisition. Its good to be more on the Software Side because now the baton and the ai revolution is been handed to software. The use cases thats where its all starting. Weve seen you can service now, salesforce, its starting this phase, the Second Derivative of the ai revolution. You will see big tech focused on software and cybersecurity. Microsoft tiktok, our view is tiktok despite legal challenges its microsoft and oracle they will be number one and number two potential buyers of that without the algorithm. Right now new york city cabdrivers, i believe as the ai story comes to cupertino. The cabdriver has good reason. But betting against cupertino and cook is the wrong move. Jonathan right move yeartodate. Dan i think we see six or nine months from now i believe they see a renaissance of growth not just because ultimately what we will see from china as units have easier and the second half. Its the ai story that will be unveiled, Ai Technology incorporating the iphone 16. I think apple is been on the outside looking in from the mag seven perspective. That will not be the case. Jonathan should they drop the numbers and stop counting and just have a new product. Which is the ai product. Are we seeing a big enough change to the hardware to say this is a brandnew thing. Dan i do not think we are there yet. I do believe this is a stepping stone to where they will go. But when you look at apple from a services perspective, ai will be a massive tell. I view them similar to how we view facebook and meda 18 months ago. They are on the cusp of a renaissance growth even though china is the elephant in the room with tesla and apple. That continues to be right now in this mag seven party they are in the cold on the outside behind the line. Lisa some headlines from Tony Blinkens meeting in beijing. Tesla, was that sufficient for you . Are you feeling like theres any name that doesnt get it done in the same way . Dan you need an adult in the room and that adult was muska. He stepped up on the conference call, waited out the strategy in terms of the lower cost and i think that was so important. Our view when you say are we bearish, theres going to be losers of the ai revolution. Even when you look at the Companies Like an ibm, look at how aggressive they are in acquisitions. You either mojo come back and my view, to bet against tech and a Fourth Industrial Revolution is betting against mahomes and the super bowl. Jonathan are they better than the celtics . Dan its going to be a tough series but i do believe they can beat the celtics. Thats my view. I think we have a hot team right now. Im probably more confident on apple, but i have a very high level of confidence once they get past philadelphia. Brunson or cook and you are like cook. I will take cook and then brunson. Jonathan appreciate that. Love how serious that is. Some of the big tech names. Coming out of china. The chinese leader, this is the readouts from the headlines. The last trip was at a time of profound tension and i came to china to take stock of progress. The governments agreed to close loopholes on money laundering. They need to prosecute those in the business of making fentanyl. More headlines to go through. Coming up shortly looking ahead to core pce. That data two hours away. This is bloomberg. My name is teresa barber. I was in the United States navy and i served overseas in the middle east and africa. Early on in my career i had a commander that taught our Suicide Prevention training on a friday afternoon and the very next day, he took his own life. 90 percent of suicide attempts involving a gun are fatal. You dont know how much somebody can hide whats going on in their head. Store your guns securely. Help stop suicide. Her uncles unhappy. Im sensing an underlying issue. Its tmobile. It started when we tried to get him under a new plan. But they they unexpectedly unraveled their price lock guarantee. Which has made him, a bit. Unruly. You called yourself the uncarrier. You sing about price lock on those commercials. the price lock, the price lock. so, if you could change the price, change the name its not a lock, i know a lock. So how can we undo the damage . We could all unsubscribe and switch to xfinity. Their connection is unreal. And we could all unexperience this whole session. Okay, thats uncalled for. Jonathan stocks doing nicely up three quarters of 1 on the s p 500, the bounce continues driven by alphabet and microsoft. Off by one full percentage point. Lets get into the bond market. On a 10 year as well in yesterday session briefly through 417 this morning. Down about two basis points. 49954. In and around 5 over the last few weeks. There is a concession suddenly in certain markets that we are knocking to get more than one rate cut this year. How much thats percolated out into the rest of the market, there is still lingering for so many people this is just a head fake. The hope for intervention over the boj, the hope continues. Its level after level. Talking about session highs pushing 157. We are at 156. We took out 152. We are looking at 157. This still no sign the boj will get involved in any of this either because they are not saying a thing. Dani burger pointed this out, this idea of benign neglect and that seems to be the feeling. It doesnt matter whether it weakens all that much to the bank of japan. How do you really understand what move would be enough to matter at a time when potentially they are still looking for inflation to increase. Everyone wants to go see the cherry blossoms. Theyve got the smile on their face saying theres a new energy there. Jonathan if your funding in u. S. Dollars on vacation. Its a new dawn. Its a wonderful thing. Congratulations. I know. Earlier this week you nailed it, they risk more creativity if it doesnt work. Isnt that the risk facing the ministry of finance on dollaryen. Lisa thats why this feels like the high school analogy we were talking about before. If they were to step in and it wouldnt work they would be throwing good money after bad and that would be a huge problem from a whole list of perspectives. If the tone is we are watching it, it does not concern us. Then it downplays the expectation and gives them more credibility. How many rate hikes does that imply for the bank of japan maybe not now, they want to do it on their own time but later in the year. We are all watching a currency pair. Under surveillance our top story. Shares in the premarket, earnings easily be wall street estimates. Both Companies Say spending on aim Cloud Computing is paying off. A very different story yesterday afternoon compared to 24 hours before and how the stock responded to what they had to say. Lisa why is this spending different from all other spending. Theres real questions on what you are spending on. They are spending on things that are delivering revenues. To me when people say every selloff is a buyable tip, in what is this the dip people are buying . The moves weve seen are astronomical and they are diverging. What do investors do with this, do they pile on. Theres so much to discuss here in terms of understanding the markets lack of understanding of where these name should be valued. It gets a whole lot bigger overnight. Antony blinken and chinese president xi jinping meeting in beijing, the sitdown coming as problems are mounting in the relationship with the United States. Blinken saying the two governments of agreed to close loopholes on talks to hold ai, and far more interested in the foreign policy. The rates on concern and components coming out of china knowing into russia also bringing up iran urging china to use their influence over iran to limit the conflict in the middle east. This is about the influence china has on rogue actors and how much, issue influence america has over china. Lisa they are seeing increasing competition and that economic pressure. Did you understand what this meant, that there was progress or ties had stabilized since theyve started talking but negative factors were increasing. Do you understand what that means . Jonathan no. There are negative factors that are getting worse but we are still talking. Lisa i think behind closed doors in might look like we are better than the other guys to work with us. I think thats part of the discussion. Jonathan could be. The terrace under someone else could be worse. They are knocking to deal with anything other than this. What is their willingness to engage at this point. The feds preferred inflation read just under two hours time meeting and estimate a Bloomberg Survey calling for the core pce to rise from a year ago. The last data before the feds Rate Decision next wednesday. Im pleased to say waiting patiently through the around the table, great to see you. Thank you so much. What would it take to just reintroduce the conversation about rate cuts this summer at the fed . By the end of last year the core pce inflation on a quarter by quarter analyzed basis at 2 based on the recent data on the core pce is todays paid data point. It will feed into the fed expectations in june. By the end of this year if we are on to point something on inflation that would be sufficient to get a cut or two by the end of the year. If we are in the 3 range that would make it quite difficult. Weve been on quite the journey in 2024 weve gone from seven cuts to one or maybe less. What is the trade now after weve discounted that for the first four months of this year. At the beginning of the year we had almost seven cuts priced in. That looked a little bit more excessive and now with more of those cuts taken out less than two cuts priced in. The value is back under fixed income. The trait is to start thinking about fixed income on a longerterm basis where you can get over 6 in most states of the world you realize 6 in the scenario were Growth Stocks or inflation comes down you can see how they generate that return and the fed would have to cut more. Value was back six months ago. So theres a question here of what you are buying. Is it the idea of duration and holding longterm treasuries. Is this credit even though youve seen the rally and spreads or is this Something Else whether its in the private world or elsewhere these he is holding the most value. Its in broad highquality fixed incomes that include some duration but also Agency Mortgages and other highquality fixed income assets and some Investment Grade so the idea here is your of the highquality fixed Income Portfolio even 7 . And thats what i mean by fixed income. Lisa what are your conversations with fixed incomes and pensions and our member everyone saying ok they are knocking to make that. Are they just levering up shares of microsoft and hoping for the best. How much money are they pouring into the strategies you manage . Mohit the insurance complex is excited with the backup in yields we have seen so they are finally able to lock in for an extended period of time. Youre seeing that from the Insurance Community and fixed income has certainly picked up this year so certainly for them its an opportunity to lock in these high yields. Jonathan this has been the theme, how much investors are by the prepandemic which are is no yields. There was a conversation we talked about, you go to equities for income and one point the Capital Appreciation is everything weve seeming to be going negative. Do you think investors have shaken that psychology of prepandemic, do you see money migrating from elsewhere for other asset classes. I think investors are also thinking about cash so for now many investors are keeping money in cash. But the challenge will be giving you that yield until the fed begins so i think once that rate cut process begins you will see more money at fixed income but certainly there is value. Jonathan this introduces the u. S. Exceptionalism argument. You dont have to worry about that reinvestment risk because they will steib e they will still be there. Youve used a word i have not heard for a while, convergence and divergence. Convergence between the u. S. And the rest of the world at a time when everyones talking about divergence where does that come from . Mohit we see more divergence from a growth and inflation in the u. S. Versus the rest of the world. Easily around 2. 5 , the 3 compare that to europe and the u. K. At around half a percent and inflation around 2 so theres diversions on that front when i was referring to is from a rate perspective now that rates have moved back relative to where they were the beginning of the year you see more value in finding opportunities in the u. S. As well. Lisa the deficit, does that worry you . Its a big worry for us. As far as we can see for the next five plus years it doesnt change depending upon the election outcome. It will likely stay at the same high level. I think the way it plays out in the bond market when you are thinking about value more in the intermediate point of the curve and at the longer end of the curve, double get back to the higher deficits for longer. There is a fear of theres a weakening in the u. S. Economy that there wont be the same kind of rally in treasuries because any fiscal spending will add to a deficit that exploded during otherwise good times. Do you adhere to anything like this or do you think its not the way it works in Government Bond markets even though it might work for any of us who might be spending during good times. I think it a genuine risk off scenario the strategies will be the safe haven asset, a dollar will remain the safe haven asset so it can go up in that scenario and there will certainly be more demand given the level of yields in u. S. Fixed income for good to be so much happy that someone said yes to that question. Lisa ive been thinking a lot about whether it makes sense to even worry about it. Their arguments on both sides and an argument that if things get bad the fed will cut rate so much the deficit goes down. Theres all sorts of arguments that are interesting to me but goes to the heart of this idea. In understanding what paradigm we are in and what matters and what doesnt. Its fascinating. Jonathan thank you. Good to see you. Lets get to an update on stories elsewhere. Your bloomberg brief with dani burger. Dani Donald Trumps allies have drawn up plans to give trump a say in Monetary Policy should he become president. The plan would have him consult on Rate Decisions and give him the authority to remove jay powell before his term ends. Powell has long professed his preference for lower rates of the concern is political interference would force the fed to tolerate higher inflation possibly raising longterm rates as the government rolls over trillions of dollars of debt annually. J. P. Morgan is revamping its leadership in asia. Appointing 48 executives across asia into the managing director positions. Looking for to hong kong and shanghai offices. Jp morgan reported Net Interest Income estimates amid a high bar. That sent shares tumbling on the day. Lets get a quick check on intel shares. Low or premarket. They reported earnings secondquarter outlook weaker than expected highlighting some difficulties the chipmaker has had in executing a turnaround. Shares are down 30 this year its one of the weakest performers in the stock exchange. Analysts say this is likely the decline back up, the pace of which is unclear. Thats your bloomberg brief. More from danny in about 30 minutes time. The feds preferred inflation gauge on deck. I dont see why the fed would be rushing to be cutting rates in an environment where inflation is still sticky. That was true three months ago and is true today. Jonathan that data about two hours away. How am i going to find a doctor when im hallucinating . What about zocdoc . So many options. Yeah, and dr. Xichun even takes your sketchy insurance. Xichun, xichun, xichun youve got more options than you know. Book now. Harlem has everything. But i couldnt find pilates anywhere. So i started my own studio. And with the right help, i can make this place i love even better. Earn up to 5 cash back on business essentials with the chase ink business cash card from chase for business. At morgan stanley, old school hard work meets bold new thinking. To help you see untapped possibilities and relentlessly work with you to make them real. Jonathan bouncing back this morning, alphabet big time in the premarket. Equity futures up by 0. 7 and yields lower by a single basis point. Its all about the data this morning, the feds preferred inflation gauge on deck. We believe inflation will prove more sticky that the feds preferred method which is core pce it may settle at 2. 5 versus two. And the fed is not, i dont see why the fed would be rushing to cut rates on an environment where inflation is still sticky, that was true three months ago it is true today. The median estimate in Bloomberg Survey calling for a 2. 7 increase from a year ago. Its a last data point ahead of the fed decision. Sarah wolf saying we expect little change to the fomc statement but see the risk of a more hawkish press conference. We expect tapering on qt with the announcement of the parameters to begin in june. Sarah joins us now. Going straight to wednesday, what are you expecting from chairman powell in that News Conference . We are expecting chair powell want to be patient as we heard from him a couple of weeks ago at the imf that the inflation data in the First Quarter gave him a lack of confidence inflation is moving in the right direction. The data only corroborates that and we saw progress on inflation but not nearly as much as the fed would like to see. That run rate is looking to be well above the 2 on the month that the fed likes to see to feel confident. While there does not need to be much change to the statement, when the chair powell is discussing in the q a, he will emphasize upside risks and there will be patient in need to see more incoming data feel confident. Theres no reason to rush into cuts when they clearly need more data. Jonathan people were whispering the word stagflation. How bad was that gdp or how good was it. A big downside surprise prayed what was the story . If you look at private final domestic demand which captures the domestic side of the economy and residential investment that was over 3 quarterly growth. A very robust economy. The headline number came from trading inventories which are very volatile likely we see that in the next quarter but the good news is the fed can be patient because the economy is still very robust in particular Consumer Spending is still growing at a strong pace. We are seeing more of the dollars toward services over goods so consumers are spending but becoming more picky of how they spend. On the other hand we have the higher inflation data based on the monthly data we got for january and february and the inputs we have for march core pce inflation we were looking at core pce for the quarter at 3. 4 . The data came in yesterday 3. 7 so what are we expecting today likely upward revisions to the prior two months and a stronger march core pce as well that we get in two hours time. Do you think the rate markets got it right and thats it . The first cut still comes in july in our view but the bar is higher to get to that. We need to see a point to core pce inflation rate to meet the bar for a july cut. Data has been volatile so confidence in a. 2 for the next three months is looking more shaky now that we are seeing more volatile data. The cadence of upward revisions will be coming to Core Services its morgan be january and february and march will still be promising without rate going into april and may looks better set up on the month. The bar is higher. With jobs over 250,000 a month, the fed has emphasized there is not its not going to assume more than the risk of being patient. Lisa which is why some people who believe in a rate cycle that begins in the middle of the year says they have more on their mind. They want to provide some volatility tied to a strong dollar. Do you believe this Federal Reserve would be swayed by the International Moves to have some sort of adjustment rate cut adjustment midyear without incredible improvement in the data . Sarah we know the dual mandate is maximum employment and inflation solo be focused on the incoming inflation data. Of course they care about whats happening in the global economy. That could cause some nonlinearity to the u. S. Economy so they will be taking Global Conditions into account but the reality is they will be much more focused on the incoming inflation data. Were concerned Core Services is much stickier than what they expect and they need more time to get inflation down to 2 they will want to be more patient. Inflation is going to be top of mind over whats happening globally unless we see some type of significant disruption to Financial Markets. We know the fed has been able to backstop whats happened in Financial Markets over the past couple of years without having to adjust their policy rate. But who is to say how big this disruption could be and if they could push the fed to move rates quicker. We typically talk about the importance of the fx channel to the price stability mandate in places like europe and the united kingdom. Does the fed need a stronger dollar. Sarah they do not need a stronger dollar necessarily. The biggest thing impacting inflation and helping us is whats happening to china. The Slower Growth deflation cycles that we are importing stronger core goods prices from china thats helping us reach our mandate but the fx channel while it has some impact on u. S. Inflation it does not have as large of an impact as in europe or emerging markets. Thats one of the Silver Linings of the u. S. Economy is the are fairly resilient and insulated to whats happening overseas unless its some kind of large shock. Base case for you when the team is it still july . Sarah still july with risks of the incoming data is more volatile or significantly above the 2. 3 threshold. That data comes out 8 30 eastern time. The last data point in the Federal Reserve decision. Lots of things to say about the fx market and the importance of the weaker u. S. Dollar. This from the wall street journal this morning. Donald trumps allies quietly drafting proposals that would attempt to erode the independence if the federal if he wants wins a second term. How aggressively to challenge the Central Banks authority. Did you make of that . The next fed chair that we are looking at. He be able to weigh in on this. Im not sure what to make of this because on one hand you would have to wonder if this was Campaign Rhetoric taking control of everything and it will be great under my watch versus actual proposals on the main institutions on the markets economies and social systems in the United States. Hard to know the answer it seems a lot of people dismiss what comes out of this administration and his campaign as lipservice. This is not the first time and its the reason a lot of people are saying september will be tough for the Federal Reserve to cut because this is the type of rhetoric happening behind the scenes and around the scenes at a type of deep political dissent. Jonathan according to people familiar with the matter the former president , the trumpet Administration Officials and other supporters of the percentage gop nominee have discussed a range of proposals from incremental policy changes to a assertion the president himself should play a role in setting Interest Rates. A small group of the president s allies has produced a roughly 10 page document outlining the policy vision for the central bank. Lisa the biggest fed put you could imagine in your life. Thats what we saw from his previous administration. This is the reason why think a lot of people are taking it seriously. I read this story thinking to myself people are going to dismiss this as so outlandish as to be unrealistic yet this is one of the main president ial candidates talking about completely overhauling the fed independence a lot of people say has been held sacred. I would say it only makes things around the fed and what it makes decisions that much louder. Jonathan i used to call it the president ial put. Any time market went lower. A turn coming out of the white house. The problem with policies like this and who knows how seriously we should take them. You can be the judge of that. The problem with initiatives like this if you talk about them seriously you introduce so much risk into markets that there is no point. You might have to hike even more to regain credibility. Weve seen an example and example after that when Central Banks may be veered away from their core mandate. You think about turkey, erdogan p how much turkeys had to do in response to that. I dont of course know the counterfactual but obviously using difficulty after difficulty with Central Banks that when they go in this direction they have to hike more than they otherwise would. Lisa you wonder if this Federal Reserve wont hike in september even if they have a reason to. Im sure a lot of you have thoughts on this. In the next hour bloomberg surveillance, john lieber of eurasia group. And Alliance Bernstein coming up next. Hi, im jason and ive lost 202 pounds on golo. So the first time i ever seen a golo advertisement, i said, yeah, whatever. Theres no way this works like this. And threw it to the side. A couple weeks later, i seen it again after getting not so pleasant news from my physician. I was 424 pounds, and my doctor was recommending weight loss surgery. To avoid the surgery, i had to make a change. So i decided to go with golo and its changed my life. When i first started golo and taking release, my cravings, they went away. And i was so surprised. You feel that your body is working and functioning the way it should be and you feel energized. Golo has improved my life in so many ways. Im able to stand and actually make dinner. Im able to clean my house. Im able to do just simple tasks that a lot of people call simple, but when youre extremely heavy theyre not so simple. Golo is real and when you take release and follow the plan, it works. When i was your age, we never had anything like this. What . Wifi . Wifi that works all over the house, even the basement. The basement. So i can finally throw that party. And invite shannon barnes. Dream do come true. Xfinity gives you reliable wifi with walltowall coverage on all your devices, even when everyone is online. Maybe well even get married one day. I wonder what i will be doing . Probably still living here with mom and dad. Fast reliable speeds right where you need them. Thats walltowall wifi with xfinity. The pillars of this bull market are in place. The winners are going to keep winning in the more Profitable Companies make up a bigger percentage of the s p 500. We see more business dynamism. That had been lacking. It is not a hockey stick. Its not a stock market its market stocks. This is bloomberg surveillance with jonathan ferro. Lisa abramowicz and annmarie hordern. Its not a morning for the bears. Good morning for audience worldwide. The second hour bloomberg surveillance begins right now. Lets get straight to it in the premarket outperforming. Alphabet absolutely flying. It was difficult to find a miss. Beat after be on the top and bottom line. The extra 70 billion buyback dividend. Up in the premarket. Lisa which raises this question how do you that against the behemoth with so much cash that can do the capex, they can do the Share Buyback and still have a fortress Balance Sheet when their share move was Something Like 250 billion. To me its sort of shocking. Lets talk about what we didnt see from meda. We talked but this with dan ives earlier. With meda saying this is what we are spending and alphabet and microsoft doing the same thing with two different stockprice reactions. Wall street has not bought the Virtual Reality headset story. Meda has not given it up. The metaverse came to be in the way they thought they would. And just go in on what has been profitable. Its hard to understand why they are doubling down on something but wall street has collectively said this isnt going to work and that is a real big distinction. Alphabet and microsoft making up more than 10 , equity futures absolutely flying. We need to talk about the bond market as well. Yesterday the two year yield briefly virtually down right now. New heights for 2024. Weve got pce out a little bit later. Bringing you a quote. This is a thing you would i up both exploring. This is what andrew has to say. We still think markets are mistaken and pricing are cuts entirely this year. Softer growth concerns will be a key factor in q1 gdp details show fading support from fiscal stimulus and softer goods spending. He believes with the team that it would not take much to reintroduce the conversation about rate cuts this year. Lisa i would argue thats the consensus away from the fed funds future market. You argan hear that from a lot of gas to come on and still believe the rate cutting cycle will begin this year and possibly even get legs. Is there true weakness under the hood and if so is that supportive of risk assets . I think bruce nailed it when he wrote the sound you hear is the narrative breaking and thats how i feel. We will hear him talk more about that theme. Equities doing ok. Lets talk about foreign exchange. Dollaryen positive by three quarters of 1 . That is japanese yen weakness on the screen this morning. Yen weakness for this boj struggling out and about. You said the bank of japan cares quite a bit about the yen. They are not just taking a benign neglect kind of approach. Its unclear what they can do at this point unless they have some other type of weakening and data from the United States. Again this raises a question whats the breaking point to them. Talking about 170 is a level highlights how much there is out there. New high for the session for the month, for the year, for the last four decades. Coming up, Emily Rowland of john hancock, john lever of eurasia and gershon distant feld her sean of alliancebernstein. Emily rowland writes this we have been married to tech stocks for years, its been a successful relationship but may be time today more cyclical parts of the market during this reacceleration growth. Lets talk about why you want to cheat on something thats treating you so well this morning . Emily after last nights Earnings Results the narrative is shifting a little bit. It feels like you are married to mr. Perfect here. We know your company is doing great, earnings across tech and Communication Services coming in around 30 to 40 but the stocks are starting to get flashy. We like them more when they were more humble. Its really about thinking about still owning the stocks we are still in a relationship but you might want to look around to see who is the next up and calmer. Jonathan are you saying theres red flags . Emily not necessarily around the fundamental. The earnings are great, it works high on our quality metrics. Things at return on equity these have a ton of cash its just everybody is in love with them. Everyone he wants to be married to them so thats already reflected in the price. We want to diversify away from that. And as the economy continues to chug along here we think areas on the value complex specifically the Energy Sector deserves a look in portfolios. Why leave him . You have to realize if we are knocking to get rate cuts if its not to look better elsewhere is it just sort of to see whats out there for the sake of seeing whats out there but mr. Perfect ultimately is the one to be with . I have to be careful to make sure my husband is not listening. After a little while you guys know weve been married to tech for a long time. We will continue to have that relationship, theres no doubt about it especially given our preference for quality and for u. S. Equities over international. We have the best earnings here in the United States and a lot of thats been driven by tech. So its not about abandoning the relationship its about looking around a little bit to see what areas of the market actually have been left in the dust and might benefit from this modest reacceleration in Economic Growth and demand globally. We think on the value side those stocks have been ignored. Im going to have to bite my tongue. I will leave that there for now. I am curious at what point this idea of diversification is predicated on a rate cycle even if its one that starts this year. Does that fail if you get the idea of no rate cuts this year and potentially much higher rates for longer. The idea we are looking at is we have this massive momentum fed pivot party driven rally and really tech and growth were the biggest beneficiaries of that. The s p 500 growth index was trading at a 45 percent premium to its longterm average. And really a lot of that was predicated on the idea growth was slowing and rates would get cut. The higher for longer narrative speaks to the idea and seeing some participation from areas that did not participate in that momentum in that pivot party rally so i think in a higher for longer environment which it looks like we are here to stay, we do think more cyclical areas deserve a look in portfolios. Exxon came out with earnings in the last hour or so. The estimate, to 19. The stock is lower in the premarket. Is that where you want to be . We think it looks like energy can do well here. Those companies in general have a lot more capital discipline for years Energy Companies were just pumping more money into producing more oil and now theres a lot more use of that capital whether it is cap x, investment or producing dividends for investors. We think the Portfolio Managers we work with have done a great job being active in that space and it feels like a little bit of a 2022 playbook with the stagflation narrative coming to the forefront and of course we know energy is the only winner that year in the u. S. Dollar in cash. How much do you put on the stagflation narrative of yesterday . Emily there is whiffs of it but obviously the first reaction in the roller coaster ride is everyone started digging further into the gdp data deciding it wasnt that bad. I think that was the gut reaction. The missing piece to this, the twist on the argument is the labor market is so resilient. Everyone was focused on gdp but initial claims came in at 207,000. Theres nothing to see here. The Unemployment Rate still well below 4 so the economy is doing ok leigh if you look at the hood under gdp, consumer and business spending still doing well. There were pieces of the pie that werent so great. The economy is chugging along so we are not past that inflation yet but there are some whiffs in the air. Lisa you are married to mr. Perfect, dating a hot thing which is commodities. Basically where does that fit into this holy equation . You know that weve continued to emphasize bonds at portfolios. The fact you can get paid to wait in this neverending rate cycle environment to us is really attractive. Weve been able to continue to see some chop in rates from here as we look at how long its taking to get back down to the fed 2 targeted inflation. Growth is picking up again modestly. The fact you can earn five plus percent in income owning the aggregate bond index thats something we have not been able to say in a long time so we think it makes sense to lean into bonds, because the cycle likely ends the way that it always does which is something will break which is hard to see right now. Jonathan where is this going . Are dust you argan to make friends this morning. Lisa i love it. How long can that last . Thats what everybody loves. Lisa hes too perfect. Which means what exactly . Men the world over lisa babysit frankly crypto. Jonathan we are going to go. This is your fault. I love the parents is the bond market. Everyone in fixed income agrees with you. Everyone in fixed income looks down every other asset class. They need to get responsible and balance their books. And essentially the stock market is saying just live a little. Risk a little, invest in the future. This is what you do. This works. Its not even a quiet newsday. Everything on the s p 500 up by 0. 8 . Lets get you some of the news elsewhere. Testimony resumes in the trial donald trump. Its the defenses turn the question david packer who was the prosecutions first witness during which he described very dust looking to bury embarrassing stories. The latest smartphone carries a version of a processor that had alarmed u. S. Officials. It was revealed last year during which washington thought the advanced made in china was beyond chinas capabilities. U. S. Is weighing additional sanctions to contain the chip industry more broadly. As for the company itself its new phone sold out within two days of its launch according to checks done by jeffries. Blackstones head of credit and insurance sees a further slowdown for corporate which means they will see extensions of loans and he says blackstone is ready to take advantage of it. Certain Companies Lee will need a bit more runway and more of an extension, they may need the preferred security so we are getting ready for that. I do not think you will see a massive slowdown but you will see a slowing topline and bottomline we started to see a little bit here. He spoke with me in his first interview since taking the role and thats your bloomberg brief. We will catch up with danny at about 13 minutes time. Tuesday you will hear from amazon. Two days later thursday we will hear from apple thats the big focus for tech earnings sandwiching a Federal Reserve decision on wednesday. Up next blinken breaking ground with china. The u. S. Is clear died with the challenges clear eyed with the challenges. But the way china grows matters. Jonathan the conversation between secretary of state and the leader of china. Good morning. When you own a Small Business every second counts. 120 seconds to add the finishing touches. 900 seconds to arrange the displays. If youre short on time for marketing constant contacts powerful tools can help. You can automate email and sms messages so customers get the right message at the right time. Save Time Marketing with constant contact. Because all it takes is 30 seconds to make someones day. Get started today at constantcontact. Com. Helping the small stand tall. Jonathan heres a picture of two names that make up roughly 10 of the s p 500. Thats what they are doing, microsoft on and alphabet is flying by more than 12 . When you put that together you get this, equity futures doing nicely on the s p. S p 500 futures up by more than three quarters of 1 . Yields lower down to basis points. With Economic Data around the corner. Pce the feds preferred inflation gauge. Under surveillance this morning, blinken breaking ground with china. The u. S. Is clear eyed about the challenges we are seeing and visions for the future. I reiterated our serious concern about them providing components for putins war of aggression. I made clear of china does not invest this problem, nor we decoupling our economists. We want chinas economy to grow. But the way it grows matters. Secondary blinken meeting with discussing every thing from russia to iran but not tiktok. Joining us to discuss is john lever. There was a meeting between the secretary of state and the leader of china and between the Chinese Foreign minister whose accuse the u. S. Are taking endless measures to suppress chinas economy. This was a conversation of more than five hours over a working lunch. Do you think the United States has managed to get its point of view across where the chinese wont change their mind about this language. Its not removing risk but creating risks. The language isnt really the problem here youve got to countries that are clearly on a continued collision course but will be each others antagonists both in the economic sphere but also the geopolitical sphere. These conversations should probably be seen as positive just because they are happening. The real issues here are what blinken said in his speeches that the chinese continued support russian material in its war against ukraine. That the u. S. Is ok with for now it would probably prefer to get the iranian oil off the market particularly if donald trump comes back in. You have this tech competition which is looming in the background of the relationship where a lot of American Companies are trying to decouple and to vest away from china because of the increased threat they perceive both in the operating environment in china but also americas politicians very hawkish turn that could lead to a sudden stop in relations at some point. The amount of influence that beijing has over iran has over russia and the amount of influence they have over china to do something about it. How much influence to both sides have . The u. S. Influence comes in the form of sanctions. They could sanction chinese entities buying iranian oil. They could sanction more chinese entities that are supplying dual use goods to russia. They are not yet in order to preserve the relationship and maintain gas prices. But they have the power to do so. The chinese influence over those countries matters and theres probably been quite a few things going on behind the scenes that we dont know about in terms of how to support russia and iran. Theres just things we do not know. That Material Support plus the Strategic Support probably helps those regimes counter american influence which is in some ways helpful for the chinese and their longterm goals. How much do you think this is willing to work with President Biden because they are for him over the alternative. They have a decent relationship with biden but it hasnt been great. If you look at the relationship compared President Trump its largely the same. Biden did nothing to reduce the terror of complex created by the Trump Administration and hes gone significantly further than the Trump Administration on cutting off chinese access to semiconductors and other is setting up to do more in a second Biden Administration. The trumpet administration is probably in a do a lot of the stuff so i wonder from the chinese perspective if they really care which of these men wins the white house at the Biden Administration has done a lot more lateral and been able to align a lot of u. S. Allies in favor of their initiatives but the troubled administration struggled to do that more. We have now as the president said weve got this increasing tech competition, this tech cold war between these two countries thats likely to continue to matter who wins in november. This specter hangs over a lot of american businesses as well. When they try to figure out what kind of retaliation, expect from china if there is some sort of tiktok ban or a forced divestment. Do you see this is something xi jinping is willing to do to divorce the relationship between the United States businesses and china even more . Jon the news yesterday indicates bytedance is willing to let shutdown tiktok in the u. S. If theyre forced to do vest because of the fact the operation is such a small share of overall project. The retaliation has already occurred. China has been harassing u. S. Tech companies with google, facebook. They dont really compete if they are in there at all on a level playing field. Theres a thing for other big u. S. Companies none of those really rise to the level of being geopolitically important to the United States and what i would expect to see our further decoupling bands of individual companies in both countries in the coming months and years. The fact people are talking about some potential incursion on taiwan in the foreseeable future. Do you think china has the appetite to do that at a time when its economy is not growing as much as they would like. Jon something happened on the isle of taiwan is not likely. Its not likely in chinas interest, it doesnt seem they have a lot to lose. If things go wrong they will set themselves back significantly and economically but also diplomatically and geopolitically. There are a lot of actions they can take short of an actual incursion including a blockade which is not on the table right now but that would be ecig of it and challenge for taiwan. They can also start harassing taiwanese shipments. Which could end up having a massive disruptive effect on commerce even if the chinese recognize what a huge mistake it would be to try and take taiwan back by force. This is a bigger question, it mightve been the nato secretarygeneral. Comments on whether europeans were making the same mistake with china they made with russia and relying too much on profits out of china do they run that risk and how big is that risk. The germans have done a lot of work to integrate their industrial base. China is important market and important manufacturing hub for germany as well. You got olaf scholz who seems like he is out of step with the rest of the west and the europeans and wanting to deepen and continue that relationship. One of the interesting things coming out of a potential second Trump Administration would be this alienation between the europeans and the United States on the issue of china. We could have different Political Leadership in germany, change course. Theres a big risk they are running. And losing one of the most important trading and Economic Partners in the United States. Breaking down some of these issues. Its basically how divided or united europe is on this matter do you hear Something Different from macron. Its been pretty much across the board. How alone is germany a time when they needed. There economy is there sick man of europe. As opposed to the strong suit in the closet. To me this is a big deal because how does germany restart growth if they dont have china and if they do have china to still have the United States down the line. The model is broken. Its very broken. Coming up, something thats working. Shares of alphabet and microsoft flying premarket. Blockbusters Earnings Report blockbuster Earnings Reports. We catch up with Mandeep Singh next. Starti is never easy, but starting it eight months pregnant, thats a different story. With the chase ink card, we got up and running in no time. Earn unlimited 1. 5 cash back on every purchase with the chase ink business unlimited card from chase for business. Jonathan heading towards a week of gains on the s p 500. On the nasdaq 100, up by 1 . Lisa s p 3. I dont know. Jonathan lets get to the bond market. Fixed income. No idea whats happening. 4. 99 on a twoyear. Heading toward five weeks of gains on a tenyear yield. An amazing stretch, the longest going back to october. Breaking through 4. 70 today. Hard, soft, no stag. Hard landing, soft landing, no landing. After yesterday, stagflation. Lisa this has been a dramatic month. The past four weeks have been i dont know the rest of the market has bought this. Is emily roland having conviction about cheating on mr. Perfect if you dont believe they will be rate cuts this year . That is one of the key questions today. Jonathan its around 5 at the front of the curve around the last few weeks or so. Zero unchanged on the session. Lots of things to say about bank of america, the dollar rip in q2 and u. S. Needs Dollar Strength to counter inflation. This is bad news for em. Lisa he says mr. Perfect is the place to be with until you do see some sort of situation with rates bringing the activity lower. Suddenly you get the prospect of rate cuts again. Essentially into the really get belief in a rate cut and see the whites of their eyes you have to bet on mr. Perfect. Jonathan dont cheat on mr. Perfect seems to be the takeaway. Bank of japan keeping rates on hold and the finance minister reiterating they will respond properly to foreignexchange moves. Pushing through 156 against the dollar. 157 insight. I say volatile. You can see it on the screen. 4 00 a. M. Eastern time, when some of us are on the way to work, we gap to lower. Gapped lower. We snapped back very quickly. Lisa this becomes a credibility issue. Ultimately, can you imagine for 60 billion any goes nowhere. They care quite a bit. You need a mix of both intervention on the fx side and the policy shift from the bank of japan side. You did not hear that it all. The governor talked about how they want to see personal consumption continue to be strong. They want to see a greater degree of inflation. This did not seem like the bank of japan normalizing with aggressive policy shift in the next couple of months. Jonathan they have told us they care. There has been enough intervention over the last few weeks to suggest they do. I think you are on the right line of things when you raised it earlier this week. What you care most about . Most about preserving credibility of an institution. To your point earlier this week, if it doesnt work and you sacrifice credibility, if you think about the perfect time to come in and intervene, you have a downside surprise on u. S. Data, the dollar weakness and you slapped it down even more. It forced through a stronger japanese yen. Thats the time to do it, exacerbate the trend. Its why we got through six. They are looking at 157 and have not done anything yet. Lisa just wait if we get a softer than expected pce print to gauge inflation in the United States, was are a very volatile move in the dollaryoung cross. Dollaryen cross. Jonathan sure. Lisa probably not. We have to keep wondering how high the bar is. Jonathan i think we all have it on the bloomberg terminal, staring at the chart every morning. Under an hour away get a fresh dose of u. S. Inflation data with the core pce at 8 30 eastern time. Watching for hints of stagflation after yesterdays gdp data. Its amazing how quickly everyone is talking about a different thing. Stagflation, a whisper of it after yesterday. Lisa nobody was talking about potential for weakness. More than core pce, personal income and personal spending will be more important. That was the area that missed yesterday in the gdp numbers. If we see personal spending come in hot, stag is out. We go back to this idea that you have peers strength with no asterisks around the edges. That will be a bigger number. Jonathan big moves in the premarket. Microsoft and alphabet rising big time. Both blowing past earnings estimates yesterday afternoon, fueled in part by booming use of Artificial Intelligence. Tech giants adjusting jostling for dominance. A stark contrast to what we saw meta do yesterday. Mandeep singh joins us now for more. These are the big ones this week. Can we start with alphabet . Earlier in the quarter struggles. Gemini screws up. Here we are up by more than 10 in the premarket. Mandeep the overhang from the gemini screwup has been cleared up and they showed that in the search results. 32 operating margin in the quarter was driven mostly by search. Cloud and youtube are great, 100 billion combined businesses. You could give it a trillion dollar market cap for those two businesses. Search. For a company like google, a 200 billion business they can grow, and increment to margin of 75 in search. That tells you how much Pricing Power they have. That is what they are doing, flexing that muscle. Jonathan they doubled capex from last year which is amazing. Mandeep what they are doing is using that capex to grow the cloud business. The difference between meta boosting capex versus alphabet is alphabet is pretty much using that capex for cloud capacity. The business accelerated to 20 . What we learn from microsoft is ai services, the cloud component where they run the infrastructure actually contributed seven Percentage Points of growth. Pretty similar to alphabet. That show you how much power they have. Jonathan this is a big move of more than 10 lisa was talking about a next or 250 billion market on the market cap. Thats kind of ridiculous. Do you think there are trends we can strap laid out beyond the next quarter the on the quarter after that into the next years beyond the quarter after that into the next two years . Mandeep it was right there to see how much power they had with the three independent businesses. Theres optionality in the portfolio. If robotaxis is a thing with elon musk in august, they are far ahead in terms of the autonomous fleet even though they dont have as many cars. I would argue that business is worth a lot as well. With alphabet when you look at the software parts, youtube, score search, more than a trillion dollars in market cap. The business was undervalued for sure. Lisa trillion here and a trillion there. Are they just making money outright that was not to be made elsewhere or are they taking share from aws of amazon . Mandeep on the cloud side given the numbers we saw from microsoft with 31 azure growth and google growing 20 , amazon has a 97 billion run rate and cloud. The larger cloud player. It was growing at the low teens. If they dont show that kind of acceleration when they are close to 20 they are probably losing share now and for good reasons. They dont have nvidia gpus on the cloud. They dont have their own foundational model. They are partnering and that is where the market needs more clarity. Lisa if the market confirms your suspicion, how violent could the move be given the fact the eight of yes platform has been the profit driver for amazon aws platform has been the profit driver for amazon . Mandeep its another 50 billion dollar Business Amazon has been able to curate over the last for years. They made it quite well given what we saw from meta and google search. Amazon is quite formidable with their own search. They dont have the chinese advertiser exposure that we are talking about with meta and to any stent with google. Amazon does not have any that. Its all the Small Businesses that advertise on amazon. The ad side may be better but your point cloud is the bigger is this, the profit driver business, the profit driver. Jonathan do you sense any ecommerce fatigue over amazon . I feel like attitudes have shifted pretty quickly. Mandeep on the ecommerce side what theyre doing is making the prime bundle indispensable. They are adding more services, adding grocery delivery now. They are making that sticky and thats always been amazons playbook for driving recurring subscription revenue. Lisa i hate buying close on amazon. Jonathan i think he was sent into hate buying anything on amazon. Lisa is frustrating if you dont get executive you want. They want this physical world. Jonathan you pay for prime and i have to pay extra for prime video for no ads. Did i see earlier there was going to be a new thing you have to pay for for delivery for the year when you already pay for prime . I dont understand that either. Lisa all that they can work through. Mandeep the one window you cannot get rid of. That is their play. You can get rid of all the jonathan everyone else out there ecommerce game that maybe you can live without it now. Are we getting closer to that . Mandeep that is why the package so many features. Part of giving you video and grocery delivery and ecommerce at all sorts of other things is that that is the one bundle. If you have to come back, cut your one offs of scriptions. You cant get rid of your amazon bundle. Lisa dan ives said with the tech names hes watching acquisitions. Elective google and microsoft will amp up that engine. I dont know about amazon. They have done that quite a bit. Do you see that as possible given the environment we are in . Mandeep very unlikely, unless tiktok, which is up for sale, can be bought by lets say google. Google doesnt have its own social media youtube is as close as they come. Maybe thats a potential acquisition of the regulators let it happen. I dont think that will fly. Lisa that is what i was going to ask. How much of this can be a base case . What did they do with their fortress of cash . Mandeep and they announced a dividend. That is the only one among the mag six not to have a dividend. Jonathan what you make of these Companies Offering dividends . Mandeep when you are generating 80 million in cash flow, buybacks, you can do that when you want to do that. Having a dividend attracts more longterm shareholders. Different kind of shareholders. The yield is less than 1 . It is not like they are up there with other sectors. Jonathan think about the companies that are so big now. What is google doing owning waym o . Mandeep their argument is ai is everywhere. They are infusing it and all their products. Lisa its on the data. They are collecting data on every aspect of our lives. The more data they can collect and own the more their Artificial Intelligence models are the best. Jonathan just call up elon and do a swap. Waymo for twitter. Mandeep x for teslas ai. Jonathan making deals this morning. Mandeep singh the bloomberg intelligence. Its a fruitless conversation. Equity futures on the s p positive by. 7 . Plus get an update on stories elsewhere. Heres dani burger. Dani testimony resumes in the hush money trial of the former president donald trump. Now it is the defenses turn to question the National Enquirer publisher david packer. He was the first witness and described helping to very embarrassing stories trump felt would hurt the campaign. The ftc is alleging amazon founder jeff bezos, the ceo and other Senior Leaders destroy business related text messages. He said between april 2019 and may 2022, they used signal with a disappearing message function. The filing also expands from other antitrust allegations from last fall. An amazon spokesperson called the allegations baseless. Bhp bids for anglo is riddling to the copper markets. For the first time in two years. That deal underscores supply issues among the metal. They would rather buy arrival them build new projects. It tells you it is just too offensive. Blackstone says prices need to hit 12,000 before new mines make sense to be built. Jonathan thank you. We will catch up with dani in about 30 minutes. The case for buying bonds. The yield is what matters. The yield is what wins. Yield remaining high really continues to be the tail for the bond market. Jonathan we will catch up with Gershon Distenfeld just around the corner. Tamra, izzy, and emma. They respond to emails with phone calls. And they dont circle back, theyre already there. They wear business sneakers and pad their keyboards with something that makes their clicketyclacking. Clicketyclackier. But no one loves logistics as much as they do. You need tamra, izzy, and emma. They need a retirement plan. Work with principal so we can help you with a retirement and benefits plan thats right for your team. Let our expertise round out yours. Jonathan equities positive by three quarters of 1 on the s p 500. There is a lift in the market. 43 minutes away from Economic Data. Yields lower by two basis points. Under surveillance, the case for buying bonds. The rates being higher is the story here. If you rewind the clock, january, november last year, there was so much bullishness around rate cuts. I felt that was the worst thing from the bond market perspective. I think ultimately at the end of the day the yield is what matters. The yield is what wins. Yield remaining high really continues to be the tailwind for the bond market. Jonathan yields near and today highs after Economic Data pushed back expectations for rate cuts. Gershon distenfeld of alliancebernstein writing, investigators are getting a Second Chance to not miss the rally in fixed income. The markets will again become convinced the fed is going to start the cut and we will in all likelihood have another very sharp rally in yields. Wonderful to catch up with you. A Second Chance, first chance that expired in october. Talk about how different this moment is compared to that moment several month ago. Gershon i dont think it is that different. Half an hour ago you said we think we know more than other investors. We dont think it. We know it to be true. Its a fact. Except it. Jonathan you can answer the question now with that said. No argument here. Gershon [laughter] i dont tickets that different. History suggests the bonds have very strong returns three to six month before the fed starts cutting rates. Back in november the market was convinced they would start cutting run now. There are good reasons they are not going to. I cant tell you when they will start in september or december or sometime in 2025. At some point we focus on the latest data in the market will recognize you cant keep rates up here forever. The fed will start to cut and you will have a massive rally. Three month ago we were answering questions, did we miss the fixed income rally . We had to say we probably did miss a lot of it. Maybe all of it. Investors are now getting a Second Chance. Jonathan something that is interesting, your perspective on Market Pricing. You look at Market Pricing for fed funds, you call it an average of everything. That is the way you look at this. We sit here in the media and in the markets are guilty the same thing, we are now pricing in just one cut for the Federal Reserve. You say that is not what this is. Its an average of everything. You think the average right now is the least likely outcome. Can you expand that little bit more . Gershon lets start with a year ago. The market was pricing in three or four cuts by now and they got zero. Was the market wrong . Not necessarily. You would have gotten six or seven or eight cuts by now or there was a chance it would happen and inflation would be sticky and the fed would not cut it all. Its the same thing going forward. I expect one to two cuts is an unlikely scenario. Either the data will get quite a bit worse and inflation will be whatever it is but the fed will be like we have to cut and they will cut four or five or six times. Or, inflation will be sticky. The economy will be fine. The fed will hold off until 2025. Those are more likely. Lisa if you love treasuries can you love credit . Gershon i think you can love both. Spreads are justifiably tight. Companies have spent the last four years postcovid paying down debt. Leverage has come down. They were not buying back shares. Companies are in good shape. The quality of the credit market, particularly the u. S. Highyield market has never been better. That is relevant because almost 80 come from cccs. Tight spreads are justified. As my esteemed friend greg peters said at the outset, yields matter a lot. They matter more than spreads. Even as spreads widen. As treasury yields come down they will have strong returns. Treasuries and then credit. Lisa maybe there is a different type of buyer coming into the fixed time come market and yields matter. People realize they might have a sure bet on a 6, 7, 8 return. A reverse of what we saw for so many years. Gershon the you will not get to 10 or 11 . Its more like 6 or 8 . Any percent yield. 8 yield. Even if you have 2 , they will be lower. 6 to 7 is probably the right level. The one highyielding credit is consistent on and down markets echo sound less than equities. People sometimes tell me tight spreads, liquidity, whatever reason they come up with. What percent of your portfolio do you have an equities . Its always 50 , 70 . I want to inform you that historically speaking every time highyield cells off, equities selloff more. Sell off more. Every single time without exception during that drawdown equities did worse. Is it possible . Things that have not happened in markets can and do happen in markets. Is there a scenario where equities do well and credit is poorly . , probably. Investors should stop thinking about highyield is a way to take up risk and think of it more holistically and take some chips off the equities side and put it in the highyield. Definitely reduce your risk and downside and maybe not give up return. Jonathan thats an argument for resilience. When you make that argument are they open to it . Gershon it is difficult for love investors. It depends on the type of institution. A lot of very segregated among highyield text income. I made some inroads even though im on the fixed income subcommittee. Thats the reason highyield had about the best short ratio of any asset class there is. People dont recognize this. Im not suggesting it is practical. If you leverage highyield to the same risk level of equities and 40 years he would have had a high return. Under allocate the highyield. They look at it in the fixed income lends. Weight wait. Why do i have fixed income . To protect me. Put some highyield in there. Wait a second. That doesnt do so well when equities sell off. Dont put that in my portfolio. It is hard for many institutions to do that. You have to look at the entire portfolio and realized it ask more of a low volatility equity serve. Lisa we have amended. What about the other tale, not cutting rates at all . What does that do to this thesis . Gershon if prolongeds it. I have a hard time if the tenyear got the 5 it would not shock me. Inflation. The fed wants to percent and the market is coming around saying 30year breakevens are about 2. 4 . You get the 2. 5 on longterm inflation. Real rates have an average of 175 basis points over the century. Im a simple person. Two point five plus one and three quarters is four and a quarter. If you expect a slowdown, that should come in a little bit towards 4 . I dont know how we get there but i do look out a couple of years now and fed funds will be somewhere around 3 . You will have a normal 2 and that puts the long end of the curve around 4 . In the next year or two yields are going to go lower. Jonathan fixed income defender Gershon Distenfeld, cohead of fixed income at ap. Good to catch up. The amount of people in wrote that wrote longlived bonds. Happy birthday, kevin. Longlived bonds. Everyone in the bond market feels that way. Lisa actually we are the star. You can come back and appreciate who we are as people. We are the smart ones and we can provide you excitement. Jonathan can you . The third hour of bloomberg surveillance is up next. To me, harlem is home. But home is also your body. I asked myself, why doesnt pilates exist in harlem . So i started my own studio. Getting a brick and mortar in new york is not easy. Chase ink has supported us from studio one to studio three. When you start small, you need some big help. And chase ink was that for me. Earn up to 5 cash back on business essentials with the chase ink business cash card from chase for business. Make more of whats yours. How am i going to find a doctor when im hallucinating . What about zocdoc . So many options. Yeah, and dr. Xichun even takes your sketchy insurance. Xichun, xichun, xichun youve got more options than you know. Book now. At enterprise mobility, we never stop looking for new mobility solutions. Because sometimes the best road forward, is the one you didnt expect. her uncles unhappy. Im sensing an underlying issue. Its tmobile. It started when we tried to get him under a new plan. But they they unexpectedly unraveled their price lock guarantee. Which has made him, a bit. Unruly. You called yourself the uncarrier. You sing about price lock on those commercials. the price lock, the price lock. so, if you could change the price, change the name its not a lock, i know a lock. So how can we undo the damage . We could all unsubscribe and switch to xfinity. Their connection is unreal. And we could all unexperience this whole session. Okay, thats uncalled for. Hi, im jason. Ive lost 228 pounds on golo. So when my doctor told me i needed weight loss surgery, i knew i had to make a change. Golos helped me transition to a healthier, sustainable lifestyle. Im so surprised just how crazy my metabolism has fired up. I have a trust in golo cause i know it works. Golo isnt like every other program out there, and im living proof of it. announcer change your life at golo. Com. Thats golo. Com. I dont see why the fed would be rushing to cutting to be cutting rates in an environment where inflation is still sticky. They want to be cautious about how sanguine they are. There it is one cut, two cuts, three cuts, we dont care. If we do in fact hit some kind of a but not economic speedbump or recession there is scope for rate cuts. The fed has to buy time here. They are between a rock and a hard place. This is bloomberg surveillance. Jonathan 30 minutes away from Economic Data. The third hour of bloomberg surveillance starts now. Good morning, good morning. New highs for the bond market. Yesterday back through 5 at the front end of the curve. On a 10 year, through 4. 70. On a twoyear year, 4. 9954. Lisa whats going to be more important, core pce inflator or personal income and spending . After yesterdays gdp print called into question the strength of the american consumer, did they reprise that strength and a newfound sense of consumption . Jonathan the dollar has been stronger. It has been problematic for pretty much everybody, including the japanese. Dollaryen looking at 1. 57. If you have been away for a few weeks we are not talking about 1. 52 anymore. We are looking at 157. Session highs, 156, and not a beep out of the boj. Lisa we are way through the intervention points of yore, and you have the bank saying their job is not to support the yen wholesale. Can they do . If it is not a bank of japan rate hike like people say they are waiting for this core pce number to come out softer than expected or waiting for some kind of better intervention point. That said, i think we keep going back to this, it is unclear what can break this trend if the bank of japan is going to remain on the sidelines. Jonathan payrolls as well, we today. Plenty of opportunities to reprice this market all over again. But let me tell you this. A company that does not need rate cuts, it is alphabet. Apparently it has a whole lot more. It has a 70 billion dollars buyback in the mix, an additional 70 billion yesterday. It has a bead on the top line. A ton of capex no one cares about. We are up by 11. 5 in the premarket. Lisa i think it is worth repeating, their market cap last night gained 250 billion. That is more than mcdonalds. They tech a mcdonalds onto google. On top of that we saw from microsoft an implied 150 billion move. They basically almost added a walmart overnight to these two companies. When people start worrying about Capital Expenditure and Share Buybacks, it takes on a new meaning when you are talking about an entire government of a tech promise, which is what we are talking about here. Jonathan the magnificent seven. Meta said the wrong thing, stock lower. Alphabet couldnt say anything wrong at all. That stock is ripping. Amazon tuesday, apple thursday, nvidia later on in may. Lisa im more interested in amazon, because are they losing cloud share . What does that mean for how big of a share response you could see . Tablet is more interesting from a geopolitics standpoint. How much they are adjusting to the intensification of the tensions between the u. S. And china. They also have questions around the demand for smartphones, but it is a different story than cloud spend and this adoption of Artificial Intelligence. Jonathan they are losing market share, particularly in china. Had plenty of reports on that over the past few weeks. Equity futures, positive by. 3 on the s p 500. Lets turn to the broader markets. Bond yields pulling back. And a euro, negative, dollars stronger today going into that data about 30 minutes away. Coming up is troy gayeski of ss of of fs investment. We will speak to michael pond of barclays. And jp morgans bruce kasman on why q1 surprises were a bump in the road. Feds preferred inflation read, about 25 minutes away. Troy gayeski sameness. It is hard to see what negative force would be powerful enough to crack the labor market to the point where the u. S. Economy rolls over into a recession. Troy joins us now for more. If you are constructive on the economy, if you struggle to see why the labor market breaks in the economy rolls over, a constructive are you on this market right now . Troy from an equity market perspective . Jonathan yes sir. Troy concern for equities up until 2020 one and early 2022 was not the earnings power. It was multiples, right . We had a period of compression in 2022. We have reexpanded, so we are confident they will be earnings growth. The question is if you get the 10 year treasury yield up to 5. 25 , will you see another round of compression . The risk for equities is less about earnings and more about valuations. The cap tech just continues to crush it on basically every angle. So im very synthetic to the argument now, given that the market cap constituency that multiples should be more permanently elevated, around that 20 number. We expect more volatility, but nothing as problematic as we saw in 2022. Jonathan we just spoke to alliancebernstein. These prices, these yields is your Second Chance. You had a chance in october. If you missed it, you get a second bite now. Is he right . Troy i have never met a bond Market Participant that is not bullish on bonds, right . Regardless of yield. Obviously yields are much more tractive today than they were coming into the year and certainly where they were at the end of 2021. Because we continue to have stronger Economic Growth, which in turn is leading to a resurgence particularly in core inflation, where you strip out owners equivalent rent, rent, energy, energy services, those numbers look bad for the fed right now. You have to be realistic that if you are in now you could have three or five months of market pain. If you think about a normalized yield curve, a fed that might not hike it all this year, where should the 10year be if we continue to avoid recession and Inflation Numbers come in hot . Risk reward is much better than it was coming in at the beginning of the year you have to be cautious not to get over your skis. Every town yields pop up, lets buy fixed income, fixed income rallies, then you have some bad inflation data driven by strong Economic Growth, and it has almost been a rentsrepeat. Whereas the flipside for equities is you have compression because yields pop up, and earnings come out strong, and that leads to our rally back. Lisa we were talking about big tech being mr. Perfect and the bond market being the parents warning about needing to get life insurance. You said something that were fighting words. I have never met a bond participant that is not bullish on bonds. Are you bearish . Should the 10 . Troy fighting words is a strong term. I just watched from the trenches the last two and a half years. Time to get long duration. That has led to some chagrin with clients. Effectively we are in the right range. But about where inflation data continues to come out, with a softer economy than we saw last year. So it is entirely possible that we preach the recent highs of 5 and go slightly higher. Its not the end of the world, it just means you have to be prepared for that. The flipside is, if the fed starts to cut late this year, early next year, they are going to go at a very slow pace. It is very easy to understand how the curve just twists, meaning the front and dropped, but the back and does not drop at all. You are not going to get the market upside that a lot of Market Participants have expected and continue to expect. Lisa why not just be complacent . On some of the big tech, some tbills, and sit there and be happy . Troy i think you never overreact, right . And i think right now the biggest challenge for investors is what to do with that massive cash pile they have. In some cases they are nibbling on duration. It didnt go so well late last year. On the others they are adding equity risk. So far, so good this year. Particularly if you have tied your points well. The other side is to start adding to alternatives where you can increase return meaningfully but not take uncomfortable levels of risk. It is no reason to ever overreact in asset allocation, but incremental changes add up over time and that is one of the key challenges today. How to deploy those massive cash awards without taking risk and meaningfully meaningfully increasing your return. Lisa we have heard this over the last couple of years, we hear about private credit, we hear about other types of assetbased lending. A whole host of different strategies. At what point do we understand the valuations there . It is a less transparent market and it seems like a lot of people have been plowing in. Troy there has been substantial growth in private credit. A lot of that is driven by the growth in private equity. When you think about the trend in markets it is really one of the reasons you have this concentration in mega cap tech is more companies are deciding to stay private. Every dollar of private equity invested means a dollar of private debt. In terms of market environment, as private lenders we have been rooting for the fed to hike as much as humanly possible and keep rates as high for as long as possible without cratering u. S. Economy. And here we are. Right . When we look forward, the stronger economy means less of a hangover from the default cycle. Including us in 2022. And you are earning more income. It is a great environment to be a private lender as long as you have dry powder. Jonathan troy complaining about bonnie guys talking their book, and then he talks his book afterwards. Troy i can talk too. Jonathan thank you, sir. Equities right now positive by. 7 . Lisa, the data 18 minutes away. Lisa how big is the coiled response going to be . The fact that we have seen so many massive moves on not significant data just highlights how it is sort of hard to get ahead of this at a time where people are ready to change that narrative. Jonathan at the index level and single names as well. You have seen tesla and alphabet and various directions. Lets get you an update on stories elsewhere. Here is dani burger. Dani lets get you a quick check on microsoft and alphabet after big earnings beats yesterday. Alphabet manages to hold onto that near12 gain, it will surpass nvidias market cap today. Michael hartnett flagged that concentration in his note this morning but said it will persist until real yields at 3 or when higher yields and spreads threaten a recession. Remy cointreau reported demand for cognac in china, but that wasnt enough to make up for a downturn in the u. S. There is low visibility on when a recovery might come. The ceo yesterday said there is increased momentum everywhere except china and the u. S. According to the wall street journal Donald Trumps allies have drawn up plans to give trump a say in Monetary Policy. The plan would have the president consulted on interest Rate Decisions and give him the authority to remove jay powell before his term ends. The concern among some is that political interference would force aggressive cuts at a time of stillelevated inflation, possibly raising longterm rates as the government rolls over debt annually. That is your bloomberg brief. Jonathan appreciate it. Fascinated by this story. This is according to people familiar with the matter. It is the wall street journal reported. They have produced a document outlining a policy vision for the central bank. I would love to hear from the former president. He is a bit tied up with other things. I would love to hear him talk about what this is about. Lisa how seriously they are going to take this. He raised the specter of turkey before and having to raise rates further to support the dollar if you start questioning the fed independence. It is so hard to know what to take seriously. This is something i know Market Participants are struggling with as well. Jonathan im sure chairman powell has lots to say. I think he is going to avoid that at all costs. Up next, inflation data on deck. The market needs to see a couple of good prints on the data. You need to see two to three good inflation prints. That takes another three to four months, minimum. Jonathan what would it take to reintroduce a conversation about rate cuts in america . How small with the data surprise need to be . That conversation is up next. This is bloomberg. Jonathan very focused on the inflation data, but also have one eye on the red bull design chief, reportedly set to leave a red bull and potentially going to ferrari. Which for ferrari fans would be massive. Lisa if you were on the set with tom right now we would not even be covering core pce and we will be talking about design. Jonathan how successful is new e . How dependent are red bull on him . Could it change things for ferrari and Lewis Hamilton . Lisa not that you would rather talk about that. Clearly. Jonathan i would rather talk about inflation, which is 13 minutes away. This is sport to me as well. I love markets as much as i love former l1 formula one and football. Unless interested in formula one than football. These are the scores that matter to me. Lisa the more you talk the worse it is getting. Von. Jonathan we are down two basis points on a 10 year. Inflation data on deck. The market needs to see a couple of good prints on the data. And we keep telling people it is a market of catalysts, not levels. You need to see two to three good inflation prints, whether core pce or pci. It takes another three to four months, minimum, and could be into next year. Jonathan here the latest. The estimate calling for a 2. 7 increase from a year ago. Michael pond of barclays saying this. No matter how one slices and dices inflation, it is not showing signs of further moderation. Despite the strength in inflation itself, the inflation market continues to price in a return to the fed started quite soon. Michael, lets start with the story. What are you expecting to see in about 12 minutes time . Michael usually when we go into core pce we already know what it is going to print, because we know from the cpi and ppi earlier this month. But this time around, yesterdays number threw a wrench in the story because we got an upside surprise to the quarterly number. We are not exactly sure how that is going to play out versus the revisions in january and february. But if all of the surprise from yesterday came through in this mornings number it would round up 2. 5. That is not only above the feds forecast, that is dramatically above. If we cap seem prints like this we would Start Talking about hikes. Jonathan where did that upside surprise come from . Michael we will have to see. We dont know the details when it comes to the inflation print from yesterday. That is why the monthly print will be interesting. Usually it is just confirmation of what we already know. So we will be looking at the monthly prints, how much january and february get revised, or is it all in march . Is he components we can throw out and say more bumps in the road . Or, no, this is real, inflation really is not going down and the fed needs to Pay Attention . Lisa how much credence do you give this idea that it is Auto Insurance and one time pop . Some sort of miss valuation of rents, given the fact that you have instability in markets and from what you hear in earnings there is a sensitivity to pricing by consumers . Michael if you strip out everything in inflation that is not 2 , you get 2 . I think too many people overmassage the data to fit their view. The bottom line is for goods inflation is near zero, it has been near zero for a while. Shelter inflation has stalled, so it has come down from its highs, but that is not going down. Super core also has stopped coming down. Regardless of which inflation you look at you can slice and dice it to get the answer you are looking for. But if you are honest, inflation has stopped going down and stalled at a level that is uncomfortable for the fed when it comes to potential cuts. Lisa you studied inflation for decades. This is been one of the key debates, about what is driving in and how sustainable it is, and whether rate hikes could curtail it. You give any credibility to this argument that higher rates are helping to fuel inflation by keeping the Housing Market stagnant and giving certain people with savings extra cash to keep spending . Michael not overall. There are certainly components of inflation that are sticky because of high rates. You just mentioned housing. The extent that potential homebuyers cant buy a house because inventory is stopped. Those who have low rate mortgages dont want to sell their house. They want to keep that lowrate mortgage. It is difficult to buy a house when Mortgage Rates are so high. That leaves more singlefamily renters. So, rent inflation remains strong because Housing Market activity is weak. That is pushing up on shelter inflation. But beyond shelter inflation, we still continue to see strength. That is a labor market story. The extent that the fed can impact inflation is through the labor markets. Labor markets remain strong. At next fridays employment report we expect another 250,000 dollars job growth and the Unemployment Rate to stay at 3. 8 . That is not a labor market that is slowing. The fed needs to do more work on that front to get structural inflation down. Jonathan i was just looking at the estimates. 250 is the median estimate in our survey, which is unbelievable. Michael, i promised you a conversation about the price of the story as well. It begs the question why is there so much faith about a return to 2 . Michael it seems like this print is high, but next month, for sure. And we are just not getting that. The market seems to be going back to that definition of insanity, where over and over again they expect Something Different and it is not happening. The fed has credibility, and it does seem like the market wants to buy into that credibility, that as long as inflation is high the fed is going to be hawkish, and therefore inflation will come down. We think that leaves breakevens cheap across the curve. Until the fed shows it might be more tolerant of inflation, longerterm breakevens are going to be stable in their current range. It is at the short and where we think there is a potential for a big move up in breakevens. At the front and you have high real yields. The market has taken up most fed cuts, leaving the market high at the same time breakevens are low. A hawkish fed, but low inflation are not consistent in our view, and one should win out. We think we need higher breakevens here to justify the level of real yields and lack of fed cuts. Jonathan thank you. You are one of the very very best. Michael pond of barclays setting up the conversation. Pce just around the corner. Mike mckee joining us. You looking for . Best guess, yesterday waited that surprise come from . Mike probably in upward revisions to january and february. We will look to that, and when you drill down into it you have to go into three digits. In these monthly changes. That is really nerdy economist stuff, but it will make a difference, because if that is the case then we will not necessarily see march be pushed off as much. Lisa how much of a surprise could beat in personal spending be . Mike it is very possible, because what we know about spending is that the retail sales have been, for goods, have been week. In gdp yesterday goods sales went down. It is services. If Services Come in strong, then we could see spending be a little bit higher. Jonathan the estimate for pce is 0. 3 . The data drops next. On the s p 500, positive all morning off the back of decent earnings from the likes of alphabet and microsoft. We are up by. 7 . Mike mckee is going to break down the number, and then we will get the view from roos katzman. All of that up next. Bruce kasman. All of that up next. People couldnt see my potential. So i had to show them. Ive run this place for 20 years, but i still need to prove that im more than what you see on paper. Today im the ceo of my own company. Its the way my mind works. I have a very mechanical brain. Why are we not rethinking this . I am more. Im more than who i am on paper. Jonathan it is the last big inflation rate going into the Federal Reserve decision next wednesday. That data drops in 20 seconds. Beginning with equities, positive by. 7 on the s p 500. On the nasdaq, bouncing by. 9 . Encouraged by earnings from alphabet, from microsoft. If you go into the bond market, yields have been elevated over the last month or so. The 10 year, just south of 4. 70. With Economic Data, here is mike mckee. Mike good morning. It looks like sort of, as predicted, for the pce Inflation Numbers. Of come in at. 3 . The headline and the core, on a month by month basis. On a yearoveryear basis the headline number is at. 27 . So, little more than expected. The same story for the core deflator. Two point 8 , unchanged from the prior month. That is a little bit higher than anticipated, but not a huge move. It doesnt show, basically, inflation is sticking around. Personal income, at up. 5 , as predicted. Personal spending,. 8 . It was. 8 the prior month, so americans are still spending. Gives more credence to the idea that the economy is strong. This is certainly, im going to wager, this is certainly not going to change a lot of bond market thinking about when the fed might cut rates. Jonathan interesting to see how the market responds to this. A spike in the equity market. Up on the nasdaq by 1. 3 . If you turn to the bond market, a rally started. Dollaryen, still elevated, for whatever that is worth. We talked about this a few times. People are so spooked by the data yesterday that maybe the. 3 is almost a relief. Lisa i would build on that by saying if there had been an upside surprise that was what this market was girding for. I wonder how long it is going to last . If this market has internalized what no rate hikes looks like. It is what michael pond said. You can strip out everything that is not inflationary and you get 2 , but what point are you looking at the new reality . Jonathan pce coming in at. 3 . The estimate,. 3 month over month. Equities are a lot higher on the s p 500. Up by Something Like 1 . Encouraged by what we have heard elsewhere. The likes of alphabet and microsoft doing better than good in the premarket this morning. If you turn to the bond market the yields are lower by about five basis points right now. On the twoyear at about 4. 97. Mike, you have had some more time. What jumps out for you . Mike i did look at the threedigit moves and looks like january and february were revised higher. You get 3. 8 for january and three point 3. 3 , 3. 4 for february. That is where most of the change comes in. The march cumbers numbers come in at 3. 0 percent exactly, so right on the number. It doesnt suggest there was a big inflation build in march, which is good news. We look at the personal income numbers, the important numbers always is always wages. Compensation is up. 6 . Wages up. 7 for a second month in a row. Mayor dickens still have money coming in and they can still spend. We know that people spend what they make. That is what drives them in this. At this point the numbers are good. Spending was higher than anticipated. Lisa i understand the market pop because of that. This goes back to just the immaculate disinflation, but without the disinflation. Which raises this question about why this bond market is rallying on the heels of, on the margin it is a hotter than expected print, but in line. Is this a sense that this is basically frontloaded this year and you could have that this inflationary impulse . Or is this the hope and dream the fed is going to find a reason to justify rate cuts regardless . Mike i dont know if they find a reason to cut rates regardless, because their goal is to bring down inflation and they have lashed themselves to that mast so tightly would be hard to try to push it through. Do we see inflation start to come down again . It is hard to say, because a lot of what has been happening here, oneoff things you mentioned earlier, that we dont know if they are going to continue. I havent looked at the breakdown of the pce numbers, but we know real estate has been an issue and we know there have been things like cars and airfares that have been issues. Do those continue to put upward pressure on . And what is the Service Industry pressure coming from . Are we seeing inflation because companies are raising pay because they are trying to attract workers . Those are the questions the fed has to answer, and we dont have good answers for all of them yet. As far as the stock market, not to tease ahead, but i am with bruce kasman. We were talking off air, i dont know why the stock goes up and down. Jonathan i will say this, whenever we get Economic Data at about 8 30, the first move is not always the right move. This is the move we have right now. There is a rally in bonds, yields are pulling back. This is not about rate cuts, this is about whether this keeps rate hikes at bay. Data is going to keep that at bay going into next week and beyond. Lisa that is the whole thing about what you said earlier, this idea that anything inline is a beat. At what point do all of these hotter than expected prints, one after another it was supposed to be three that would be a trend. We have gotten that. At what point does this raise the question of, are we understanding this paradigm correctly . Jonathan . 3 was the result on pce. If you look at an intraday chart of the s p 500, spike higher, fall back. Have more detail, mike . Mike here is something you may not have expected if you are looking at overnight index swaps as a forecast for what the fed might do. They have now priced november back in. So, why . Youve got smarter people coming on, you can ask there. Fed fund futures still down, but the swaps are pricing november. That is very volatile, but interesting. Jonathan we have been all over the place this week. Lets get to bruce kasman of jp morgan. Lisa has been quoting you all morning. That sound you hear is a narrative cracking. How does this data inform that view . Bruce i think it is pretty supportive on a number of fronts. The one people have been most focused on today is the inflation news. Certainly we got a more distributed outcome of that surprise. It was an all in the march number, but the march number on an unrounded core is still pretty firm. I havent seen all of the details as to how that is jupiter. I dont think the Super Court Services were that high. But the basic point here is this is no longer something you can explain as just the beginning of the year pop. But i also emphasized two other things. One is, as you look at the data on income and spending here, we are getting very strong wage numbers, and i think there is probably some pressure here on wage inflation, as well as strong income numbers. You will see the employment cost index next week. The other thing here is, we did have a squeeze on incomes to some degree, both for taxes and Higher Energy prices in q1. Consumers held up well. One of the reasons is the savings rate went down. I think that is a message that wealth affects are going here. There is both a story about the Economy Holding up well with high Interest Rates, as well as inflation pressures being persistent. While i dont think it is right to talk about this from the point of view of fed tightening, i think the case for easing is pretty small we will see where we are six months from now, but certainly the fed is going to have to change its tune about its view that there is a fair amount of easing coming down the road. Lisa i would add that real personal spending increased is to. 4 , even though weight was expected to fall. Even the fact we are seeing or hearing that sound of the narrative cracking, what is the new narrative . Is it no rate cuts in your case . Bruce i think the clear part is higher for long on rates. The question is, where does that take us . We have been struggling. We have two scenarios we think are reasonable. We have been one we have been calling boiled the frog. High Interest Rates begin to create vulnerability on Balance Sheets, and that causes problems for us. Not now, but maybe six or 12 months from now. The second is we find out we can live with higher Interest Rates that we have had better supplyside performance, the economy is in an underlying resilient position, and this is a new world and we should understand that the economy has higher Interest Rates and is sustainable. Between those two right now i think there is support for both and some of the things we are seeing, and we are not trying to take a strong call on what the new narrative is going to be. Lisa you think there is going to be a new tone tone from the Federal Reserve. What is the right way to weigh the risks . How much should they shift away from what we saw in december . Bruce you have to remember that the may meeting is not a forecast meeting. The may meeting is not one where we got a lot of new information since last one. We really get a lot more with two cpi reports, up to the june meeting. I think this is a bit of a waystation. I think what jay powell is going to do is basically say he has lost a lot of confidence in the views in terms of where inflation is going, but they have not shifted those views in a material way. Hes going to downplay what the acp in march was telling us, and hes going to look to june for the bigger shift in the fed. We will see that in the light of what we get in the next two sense of readings. Jonathan just got some reaction, this from inflation in site the title is, core pce, fugue. Yesterday there was a risk of a big upside surprise, which is why we are saying inline feels like a downside surprise. Yesterday new highs for 2024. This morning pulling back, particularly on a 10 year. Bruce, im thinking who else is saying few this morning. It is officially the ministry of finance in japan. If they are looking at dollaryen staying up and approaching 1. 57, the last thing they needed was an upside surprise. Can we take this global . What are finance ministries around the world staring down the arrow of this resilient dollar . What are they going to do . Bruce the first point to make here is, we are seeing the world in which growth is broadening its base. I think it is starting to take some of the weak links, including japan, into a better position. I think in terms of what Central Banks are doing, there is more differentiation. We think the european inflation picture is looking a lot better than the u. S. I think there is some room for easing. As you know, the minister of finance is probably breathing a sigh of relief. Im not sure they are happy with the way the doj talked with us overnight. They were more dovish than we expected in terms of their guidance. I think the basic message here is you are going to get easing in western europe. I think the boj is going to be patient. The yen is going to be under pressure relative to the dollar. I think the pressure will build. Ultimately japan is going to do more and the economy is going to do better than people expect. They will do less on easing, the boj is tightening, and we will get better growth and people anticipate. Lisa i know this is a difficult question and everyone has a slightly different answer, but where are we in the Economic Cycle if you are talking about affirming europe, japan at a time when a lot of other people are talking about u. S. Exceptionalism and a potential for latecycle types of behavior . Bruce you can come back to this tension on high for long, and i think when it is embedded is an inflation dynamic, even once we have taken out the highs we had in 2021 and 2022, and a position in terms of Monetary Policy, labor markets that screams late cycle. I think with the pandemic has done is, it has created that dynamic, as well as a far more positive dynamic in terms of where the positioning in terms of leverage, durable spending, profit margins, things like that that are normally late cycle signals that tight Monetary Policy is going to do damage. I think we are in a weird new world of late cycle inflation in Central Banks and early midcycle private sector behavior. How that plays out, im not feeling very confident right now. I think there is this possibility of the boiled the frog and we grind to a problem. There is a possibility we could sustain this for a while longer, while being a few years. Jonathan thank you. Bruce kasman of jp morgan. It makes you think of a thing we have been talking about. The prospect of it being postgse in reverse. You are waiting for lift off, and left off never comes. I wonder how long we have to wait for that first cut . Lisa it has already been that way for a number of months, where we talk about, month. Was that michael pond saying, month it will be softer . The idea of a weird new cycle, how we invest around that is causing a lack of conviction, which is why you see such significant moods, even on no real news. Jonathan stocks are back to where they were going into the print, basically. Mike drops by because he is amused by price action following data points. You have a final word on this . Mike i think omar sharif had the best word. Few. We avoided a real problem, but it doesnt change the narrative at all. We are going to be waiting for the fed to cut. My thoughts were that gadot never showed up, and the economy lived with rates like this for decades. And now we may be back to the old normal. Jonathan the old normal. Mike and people will adapt. Jonathan lets get you an update on stories elsewhere. Here is dani burger. Dani blackstone is getting ready for an even more boring error for the private credit division. They are hunting for more deals, Investment Grade, and assetbacked finance. The assetbased finance market, which is a larger addressable market, is a very large opportunity for us, and given our scale and size, with about 420 billion on our platform, he gives us a really unique position to take advantage of what is happening. Dani he spoke exclusive me exclusively with me. The university of Southern California has canceled its Commencement Ceremony as propalestinian demonstrations continued. The school cited safety concerns. Administrators had barred the valedictorians speech. Dozens of smaller ceremonies will be held between may eighth and 11th for the universitys individual schools. So for 90 protesters have been arrested on campus. Usc says many of them were not affiliated with the school. Lets get you a quick check on intel shares. They are lower by 8. 5 percent in the premarket trade. Intel gave a lackluster forecast in their earnings, as it is struggling to get back to the top tier of the industry. Ruben roy wrote that while 2024 should mark a bottom for intel the pace of the climb is still unclear. That is your bloomberg brief. Jonathan appreciate it. Have a wonderful weekend. Equities on the s p 500 up by. 8 . Breaking down the inflation data, coming in at. 3 . We will catch up with Morgan Stanleys adam sheets, next. So i started my own studio. And with the right help, i can make this place i love even better. Earn up to 5 cash back on business essentials with the chase ink business cash card from chase for business. How am i going to find a doctor when im hallucinating . What about zocdoc . So many options. Yeah, and dr. Xichun even takes your sketchy insurance. Xichun, xichun, xichun youve got more options than you know. Book now. Jonathan s p 500 futures, basically back up to where they were at 8 29, which was a minute before the inflation data came out. We are up by. 7 on the s p 500. Yields are a little bit lower. We are down about three basis points. Under surveillance this morning, no bad surprises. One people have been most focus on 2 focused on today has been inflations. Certainly we got a more distributed outcome of that surprise. It was not all on the march number, but the march number at. 317 is still pretty firm. The basic point is, this is no longer something you can explain as just the beginning of the year pop. Jonathan here is the latest this morning. Stocks rising, yields falling after the core pce deflator came in in line with expectations. Morgan stanleys andrew sheets joins us now for more. Can we get your initial reaction to that data from 20 minutes ago . Andrew i would echo earlier comments. It was not as bad as expected. It could have been worse. After yesterdays numbers there was a risk you would have gotten a much higher number today on core pce. I think that would have been much more damaging to the market narrative. Narratives like our own where we are expecting the fed to be cutting in the back half of the year. At the moment it was not as bad as expected. The jury is still out on that and the market will continue to be reactive and wait for incoming data. Jonathan soft landings, you have said they are rare. Do you think the data is still tracking one . Andrew we still think it is. The growth data from yesterday was a little bit better than the headline number might suggest, given what you adjust for, for inventories and exports. Inflation is not coming down as fast as expected, but it is important to note that the fed still thinks core pce will be at 2. 6 percent by the end of the year, and in that scenario it is still Cutting Three times. I think the moderation in rates, in our view, does not require inflation being at target by the end of the year, by any means, as long as we could see some progress. I dont think we have seen that progress yet, but there is time. We still think we could cut rates modestly this year and that is consistent with a soft landing scenario. Lisa we were just speaking with bruce kasman, and he was talking about toggling between these two potential narratives. The idea of oiling the frog or high rates creating something more pernicious than a soft landing, or the idea of the new normal, which is basically we can live with rates here. Why do you think we are going to be in a different kind of paradigm are going back to the old, which is neither of those two . Andrew i think it is interesting that when we think about going back to the old, and you mentioned this idea of the old normal, and is that a problem for assets . Especially is that a problem for credit . It is important to remember that the modern era types tights for credit were not too thousand four to 2007, they were in the mid1990s. Where rates were higher for longer, where growth was ok, where the fed cut a little but did not cut a lot on the were corporates were slow, or to time to ramp up their aggression. I think we can look at environments where higher rates in and of themselves are not necessarily a bad thing for credit. That means you need to change your strategy somewhat. You need to think about what can be larger and weaker beneficiaries of that. I do think the mid90s continue to be an interesting template for what is going on and an optimistic scenario of how the market can deal with somewhat higher Interest Rate environment. Lisa speaking early this morning, if you missed the opportunity to buy earlier, this is a good time to get back in. Would you agree with that . With the idea that higher yields look pretty attractive . Andrew i think our advice differs by what part of the income structure we are talking about. Our rates are neutral, and over a 12month period we are expecting yields to decline. But the carryon for bonds is negative. The seasonality in april is pretty poor. The data has been good, and supply is heavy. Those are some notable tactical factors still working against you and keep us on the sidelines. Similarly with mortgages you have had a lot of volatility, which is very unhelpful for mortgagetype of risktaking. On the credit side we are more optimistic. I think this is a more friendly credit environment. Credit is an asset class where issuance is lower. The improving pmis we are seeing is more helpful historically. I think credit is a place we think and outperform on a relative basis. Within credit we really like loans. Spreads there are average, not expensive, and the yields are high. We think it is wellsuited if we are in a hotter, higher for longer environment. Jonathan you alluded to supply. There has been a huge amount of supply to kick off. As the window been opened for lower rates and credits . How many bricks have we taken out of the socalled maturity wall . This goes into lake 2024, into 2025 late 20242025. Andrew we think that maturity wall is looking good. There is still wood to chop there, but when our analysts in the u. S. And europe look at that data and we break it down in detail we are making our way through that maturity wall at about the average pace you usually do. So i think you continue to see a market in credit that has a lot of differentiation. We are seeing a lot of idiosyncratic risk. The yield spread between triple c and single be is white. Single b is wide. This is a market that is not funding anything and everything, but we are seeing that maturity wall being worked through pretty well. That is why we think the peak of the default rate is going to happen in the first half of this year. Its going to be lower in the second. Jonathan fantastic to get your reaction. Andrew sheets of morgan stanley. Core pce coming in line with the estimate. Next week on monday, have a wonderful weekend, on monday we will catch up with rbc. Sarah hunt of alpine saxon woods. Stephanie roth of wolf research. And a fed decision on wednesday. From new york, this was bloomberg surveillance. The future is not just going to happen. You have to make it. And if you want a successful business, all it takes is an idea, and now becomes the future where you grew a dream into a reality. The all new godaddy airo. Put your Business Online in minutes with the power of ai. I dont want you to move. Put your Business Online in minutes im gonna miss you so much. You realize well have internet waiting for us at the new place, right . Oh, we know. We just like making a scene. Transferring your services has never been easier. Get connected on the day of your move with the xfinity app. Can i sleep over at your new place . Can katie sleep over tonight . Sure, honey this generation is so dramatic move with xfinity. Manus from new york city, very good morning. Im manus cranny. These markets, it is a relief. The pce could be worse and our faith is restored in the big tech equity story. Go on, alphabet. We count you down to the open, right now. Coming up on the show, those stocks looking to close their best week of 2024. Alphabet microsoft deliver