While. I think the fed can get down to their 2 target. They havent lost confidence or gained conference at just confidence. It will be interesting to see if they are successful getting inflation down to 2 . We are not through this inflationary challenge. This is bloomberg surveillance with jonathan ferro, Lisa Abramowicz and annmarie hordern. Jonathan the third era bloomberg surveillance begins right now. Because up before im cut off, lets get you to the weekend. Were almost there. Futures are positive bite. 1 . If the happiest ive seen lisa all week. Lets go to the calendar, tuesday bank of japan decision, wednesday the Federal Reserve. How does what weve learned this year inform what will happen next week . Should we start for japan looking at Wage Negotiations that are looking good . Lisa it might be a huge market catalyst because Wage Negotiations came in hotter than expected. You are seeing an open door for the bank of japan. It sets up the fed well because we are talking at high rates in japan, the potential for more inflation, do yields keep creeping higher on the heels of the whinny from both Central Banks . Jonathan they are calling it a momentous event. Weve seen it in the equity market with people finally retracing their steps into that market. When you talk about currency pressure, weve come so far from 1989. I want to talk about the data stateside, cpi tuesday, upside surprise and ppi yesterday, upside surprise and equities taking all of that in their stride yields have adjusted higher and equities have hardly moved and we are heading toward weaker gains on the s p 500. Another read on inflation a little bit later. Inflation expectations matter to the central bank and matter to washington, d. C. Annmarie you saw the preliminary different than the final, you saw sentiment deteriorate in which you see from consumers is they are thinking about 3 for the rest of the year. It was 2. 9 in january but last month, you saw the deterioration and you saw at the same time, they didnt specify why. In the oil market, we have hyo higher oil prices. The rest of the timeline, will we see that trickle down to higher gasoline prices which is difficult ahead of the november election . Lisa its such a model now and everybody can parse the news. Everyone says Something Different and the bottom line is people just dont know. Yes there is some exhaustion. You say theyve got record highs , all i can say is you just look at this and there is nothing to say conclusively annmarie its an Oprah Winfrey market, you get a car, you get a car, you get a car. Something for everyone. Jonathan it can get boring lisa lisa . Its not that its boring, like the french word ennui. Its this question of which is it, its a precipice, not just sit back and dont pay attention. This is a momentous pivot point. I can tell you look at gold or copper and point to anything. Jeff curry of goldman used to talk about this. There is a copper story that tells a different story about whats happening instead of iron or. And the divergence, you have to go to the place where this huge demand and we havent seen that at times and thats china and its about the changing economies and what we use these metals four. This gets us into the weekend for the next 55 minutes. Here is the lineup, sam stovall as inflation ways on equities. Mark gurman making a purchase and ai as he looks to catch up to rivals alphabet and microsoft. We begin with a string of hotter than expected inflation prints weighing on u. S. Stocks and bonds as we had toured a fed decision next week. Sam stovall writes this sam joins us now for more. A couple is all it takes to go from three to 2 on the medium. Next week, is that your base case . Good morning, that is the base case. Weve been saying for quite some time that the fed will be slower to lower interest rates. Our expectation had been that june would be the most likely starting point for rate cuts. Interestingly, that is 11 months after the last hike in july. But also historically is the time spread between a less rate hike, first rate cut going back over the last 30 some odd years. I think 75 basis points for all of 2024 with the first cut occurring in june but now possibly in july is what investors are factoring into their expectations. Lisa how much of a mood killer will it be if jay powell says we are concerned about stocks getting ahead of themselves . I think that would sound like irrational exuberance of 1996. There could be some pressure put on equity prices. Right now, the market is priced to perfection with the pe on the s p 500 trading at a 31 premium to its average over 12 month pe over the last 20 years. In a sense, some investors are looking for a catalyst for a minor correction to sort of reset the dials and that would do it. Lisa price to perfection but things are almost perfect. Everyone says we could be poised for a bit of a retrenchment at five or 6 and thats a buying opportunity. R8 do you agree that things are priced to perfection but of its price better we like it . Yes, i would say that but at the same time, it unnerves me that a lot of people are saying that in the market typically does not do what most people anticipate. Election years historically have always been positive when they have been front ended by a january gain in the s p 500 going back to world war ii. Because we have seen so many alltime highs, that indicates that maybe we are getting ahead of ourselves. Lets remember that the cnn fear and greed pull last week was reading excessive greed and theaaii Membership Survey of the bulls was unusually high using their terms. Jonathan everything just feels little bits dale, the consensus. We catch up with a lot of people every single week and hardly anyone has shifted their views. Thats whats intriguing to me. They were bullish and now they are more bullish and if they expect rate cuts, they still are by that push them back to june maybe the magnitude hasnt shifted much. Why havent we seen a change of views directionally when the Economic Data has pushed back against expect tatians . I agree and i think its because of the old saying that the trend is your friend. Right now, the trend continues to work higher despite those like myself who think we are due for some sort of digestion of gains. Every bear market since world war ii recovered everything that was lost. The market advanced another 5 or so but then fell into a decline, averaging 8 but no more than 14 . We are waiting for that resetting of the dials. Because the trend remains our friend, thats why i and others have not change their directional forecast. Jonathan lets talk about what to do. Do you stick with the winners or position elsewhere . If youre uncomfortable right now, where do you want to be . Right answer to most financial questions is, that depends meaning what is your time horizon . If its shortterm, i would tend to say weve seen a lot of rotation going into the underappreciated areas such as materials, industrials, health care. History basically tells us following it up year, you want to let your winners ride to out of every three times over the last 30 years. The sectors that did the best in the prior up year continued in the subsequent up year. That would imply that Communication Services come as Consumer Discretionary, tech and financials are those that you still want to favor for the year ahead. Lisa picking up on Consumer Discretionary, retail sales stood out as a weak spot yesterday is giving people comfort the fed can cut rates and the economy is not as strong as it seems. It might give a people some sense they can settle into their opinions. Does that give you pause about Consumer Discretionary, about the strength of the consumer . The consumer has been questioned i think over the last half year at least looking at debt levels, looking at Consumer Confidence levels but we continue to see very strong employment numbers, unemployment rates, etc. I guess the old saying continues that consumers stop spending only when the banks stop lending. We will need to see a curtailment of lending practices by the banks to slow down the consumer. Yes, i think the Consumer Discretionary sector is losing momentum but thats primarily because of tesla. When you look at the equal weight things are holding up relatively well. I would tend to say that the jury is out as of the near term but still positive for the longerterm. Jonathan a huge tesla distortion in the consumer part. Great to catch up with you. A year ago, it wasnt whether we would get a recession but how deep it would be. We were about to get a big contraction in lending and it did not happen. Lisa and we see Credit Card Debt outstanding and continuing to increase. How many people have come on to talk about consumer lending. Its a great time to lend and people are asking for it. Its still there. Jonathan i remember that conversation of mary daly of the conversation of the San Francisco fed. When the data was in conflict, it meant we are at turning points. Have we turn anywhere . Jobless yesterday were rocksolid and weve seen the conflict for a number of months. Lisa ive been focusing on the exhaustion feature. Its been a model for a long time. Everyones waiting for a turning point that hasnt happened. Do you embrace that this is the reality and there are different cycles in conflict with one another and moving beyond one another . Its a difficult moment to have conviction. Jonathan do you enjoy the weeks we have no fed speak . Lisa in quiet times, people say what will they say . Than we imagine what they will say and then we get the fed speak after that. Pick your battle. Jonathan you get fed speak this coming week with a jay powell News Conference wednesday afternoon. Lets get to an update on stories elsewhere. A mas proposing what its calling a comprehensive ceasefire deal as it tries to make progress on talks with israel. It was see the fraying of hostages including israeli women, children, the elderly and those who are ill. This is an exchange for the release of up to 1000 palestinian prisoners. The israeli Prime Minister says militant group is still making unrestricted unrealistic demands. The countrys war cabinet is expected to discuss the work proposal today. Shares of adobe or falling in the premarket after posting a weak sales outlet. The guidance is fueling concerns of new ai focus startups threatening its market share. The company has been integrating its proprietary ai model firefly into its top products like photoshop and illustrator. A recent demonstration by openai of its video Generation Model is fueling concerns about competition. Bitcoin is retreating from its latest record high. There is an intensifying debate about whether the bull running cryptocurrencies has reached a bubble. It reached an alltime high of almost 74,000 earlier this week. Bit coin and a gauge of the top 100 tokens surprising the likes of all these companies are up about 60 so far this year. Thats your bloomberg brief. Jonathan how many times that we heard people talk about the bubble . Lisa exactly. People are still doing it whether people buy it is another story. Its getting institutionalized at this point. Annmarie i think its a bubble when you have this theater. This has been ongoing. Jonathan it keeps going up. Up next, supply concerns driving up oil. Opec is still projecting we are likely to see 2 demand growth yearoveryear with a decent economy domestically and some improvement we are in seeing emerge globally but to me, that is the ingredient for why oil prices are being propped up and could continue to grind higher. 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When you go for Something Big like this, your kids see that. And they believe they can do the same. Earn unlimited 1. 5 cash back on every purchase with the chase ink business unlimited card. Make more of whats yours. Jonathan this has been quite a week. Equity futures right now on the s p 500 are positive by 0. 06 . I want to start on monday morning. Lets wake up monday morning, not together, that would be weird. I say this is the inflation data we will get for the week ahead. Tuesday cpi will come in hot and i will say thursday ppi come in hot and then i will say guess what the stock market does . I dont think he would have guessed on tuesday the s p 500 would be up by more than 1 . I dont think you wouldve guessed that on thursday we would be down one third of 1 after ppi reinforced what we saw in cpi. I think thats was difficult about conscious week but not just this week but difficult about this year. You come to this your and your market looking for for six or seven rate cuts and again, we started the year together and i said to you what would happen as we close that gap from six or seven down towards the fed three or maybe two at this point and with the stock market would do. Not many people lined up on this program turned around and told us that i think record high after record high on the s p 500 even if we reprice in that manner. Lisa we saw the underlying strength in u. S. Economic growth and earnings. People come to that would come to this good news is good news and bad news is good news moment which is interesting given the fact you have the fed as a relief valve is theres weakness and you have strengthened bowstring earnings on the others. To me, this is the sort of wedge that people are in. The only thing that could and that is true weakness with inflation. Jonathan a little bit later this morning, we will get Inflation Expectations and the university of Michigan Sentiment survey in one hour and 40 minutes. All of that going into the Federal Reserve. If you want to look at the bond market, these are the yields the two year yield yield is at 4. 70 and the 10 year yield is about 4. 20. Wti is 80 and about . 59, negative by 0. 8 . Supply concerns this morning driving up oil. We know that opecplus has been stringent with regard to their supply and we have not seen that kind of demand we otherwise might have coming into this year. There is a consequence of that. Opec to still projecting we are likely to see 2 demand growth yearoveryear. Net net with a decent economy domestically and some improvement we are seeing globally, to me that is the ingredient for why oil prices are being propped up and could continue to grind higher. Jonathan oil prices this morning are climbing with theiea forecast at a high demand. Copper is also rallying to its highest level in 11 months im better Global Manufacturing and construction could pick up. Will kennedy joins us now. It feels like this commodity market out of nowhere has woken up. What has woken it up in the last few weeks . I think is the strength of demand which is the strength in most parts of the Global Economy feeding through into final demand. If we take iron and copper one at a time, there is a supply story as well. On oil, the supply story is opecplus. The iea is saying that of opec and continues those cuts through this year, not necessarily give them but if we do, we will see a deficit which will put pressure on inventories and force prices higher. Demand for parental for final products looks strong. People are out there and they are driving. That is changing the narrative to something more bullish than we saw at the beginning of the year. There were supply problems with copper and a couple of minds like the one in panama is not producing but again, there is a Strong Demand story. Copper is critical to many economies. Demand is strong. Lisa what has changed . Why are people suddenly waking up to this . Are the Energy Agencies talking about it or is it the opecplus cuts or Something Else . They are climbing a wall of doubt especially in china. People are concerned about final demand there. As the data comes in, they show that in other parts of the world, demand is strong and more robust than they were expecting. They see on the whole, opec is complying with the cuts it promised. In russia for example, they made a tweak to the way it will interact with opecplus that means it has beefed up its pledges somewhat a couple of weeks ago. Put that together and people slowly are coming round to the ideas market may be more bullish than they thought at the start of the year when people were vague about the prospects of oil in 2024. Annmarie this potentially sets up a showdown between washington and riyadh. When with the saudis come in and add more supply . I think they would like to but they dont necessarily have a group mind on this. Its not ideal for them to keep this level of production of 9 Million Barrels all through the year. They may ever problem with the market this year. I think they will be closely looking at the economy. They will add the barrels when they can. The point about politics is important. If you look at copper and oil together and this and if this rally continues, commodities which have gone away as an story start to come back. Annmarie we all we are already seeing this. Can you take me into the geopolitics of this . Its an Election Year so i