Abramowicz i am jonathan ferro. Lisa abramowicz actually going to 731 lexington avenue and just making it in time. Good thing Brian Moynihan does not join for another 60 minutes. Lisa really, that is how we are going to start . I was prepared to be here early. Jonathan you want to trade . This will fill out for the next two or three hours. Brian moynihan will join us in 60 minutes. We want to start with the price action. We begin with dollar yen. Something truly historic just happened, something since not since 2007. The japanese yen is weaker even though weve just seen the first Interest Rate hike in 17 years. Lisa on one hand people were expecting this. Some of the rhetoric out of the central bank was not hawkish. They were indicating they were not prepared to hike again. That is why this currency pair is dead in the water. I do not understand this. This is what everyone was waiting for. Michael jonathan there is a big difference between the end of negative Interest Rates and the end of easy money. This is not the end of easy money. The governor going out of the way to say they need to keep things accommodative. The end of negative rates, yes, but the end of easy money, not yet. I got on the phone and i said what matters is not the first move, it is how far they go. How far you think the boj will go after this move overnight . Lisa i think to where they are right now. Eventually they go higher. Right now there is no indication there will be any further rate hikes because they they do not have to. When you take a step back, this is the end of the negative rate experiment. This is the last central bank to remove the negative rate policy. When we write the book will be considered stimulative or suppressive of growth . I wonder what the history books will say . Jonathan i think a lot of books will be written and they will be inconclusive. Every thought in the negative era is what youll think in the next 20 or 30 years. Will be arguing about this forever but lets hope we never get to a situation where we need to have a conversation about negative Interest Rates. The Federal Reserve has gone from zero to 550. The Global Fund Manager survey from bank of america is out this morning. Will be talking about highlights. Global growth expectations, two your high. Risk appetite highest since november 2021. Eps optimism the highest in two year. That is Interest Rates with the five handle in america. Does that look restrictive based on the fms survey . Lisa bonds and stocks are operating on two timelines. They are looking at the inflationary. Stocks are looking at is what he happening in the tech revolution. They are talking about all these other things. At what point to stocks wake up to bonds . That is what it seems like. Are we going to test the threshold at which stocks start waking up to the prospect of higher for longer . Jonathan but we spend more time talking about j and less about jensen. Equity futures negative. 2 . A bounce back in yesterdays session. In the bond market yield still high in close to the highs of the year. 4. 3183. Grinding higher over the last five or six sessions. Euro 1. 0 841. The currency pair. 3 . Lisa this raises the question on how much emphasis will there be tomorrow on jay powell in deciding whether the dollar will keep rallying . Lets see what youve got. Will that be the deciding factor . The boj is off the table. Jonathan fed Decision Just around the corner. Well will catch up with mark cabana as investors continue pushing back bets. Liz everett on the bank of america and marcy macgregor of merrill bank of america private bank. We begin with the top story. The fomc meeting getting underway as traders push back bets on the first cut beyond june. Mark cabana is looking for discussions on the Balance Sheet , writing the fed needs to prioritize how and when to slow qt given the reduction of excess liquidity in the system. Slowing qt is fed priority number one. Mark kicks off our show this morning. Good morning. Mark thank you so much for being here. Jonathan lets kick it off with the Balance Sheet. What are the considerations that go into making a decision like the one they have to confront for next when he for hours . Mark we think the Balance Sheet will be an important point of discussion and the fed will have to answer the question of how far and how much excess liquidity so they want to remove from the system and how comfortable are they pulling that cash out of the Banking System that appears to really be wanting to hold an elevated amount of reserve levels and cash levels. Lisa we are talking out of Balance Sheet that strunk from 9 trillion. To what effect has the Balance Sheet shrinking by 1. 5 trillion had on the market that seems intent on rallying . Mark the clearest thing that has done is pulled cash out of money market funds and pulled the excess cash with the fed. That has caused money market rates to rise. Bills are not as rich as they were a year or so ago. That is the only impact it has had. In terms of a broader marketplace it has not done much. The fed will have to ask how much do they want to keep pushing the Balance Sheet reduction and how much do they want to risk pulling excess liquidity out of commercial banks that have been clearly bidding up to hold that excess. Lisa the fact it has not had a clear and obvious impact on markets is a reason a lot of people are not paying attention. A lot of peoples eyes glaze over and say we want to see where the dots are. You think there is too much emphasis on the dots . Mark priority one was with regards to the Balance Sheet discussions. The feds real focus will be what to they want to do with the overall setting of Interest Rate policy, how long to they want to keep rates at current levels and how much restrictiveness are they comfortable exerting on the economy. The market is right to focus its attention on the dot plot, keeping the Balance Sheet secretary but slowing qt when they think about all the considerations. That is the number one priority they have. On the dots come the big question is will they show three cuts or two cuts for their expected 2024 outlook . That will have a notable rate and market response either way. The market is quite divided on this. You talked about the fund manager survey. We do our own survey of rates and fx clients. When we asked them, 68 said the fed will keep three cuts, 75 basis points of total rate cuts. That survey closed about a week ago. That has probably shifted a little bit as you look at how much the market is taking out fed rate cuts for this year, the fact that the june meeting is around 50 50 in terms of whether the fed will go. The responses weve got suggest the market is closer to 60 40 in terms of investors thinking they will show three cuts versus two cuts. That will be the big question and the market will respond in either direction. If they only show two cuts for this year, so they take out one cut, we think the two year will sell often basis points, we think youll will see the dollar rally and you will see risk assets take it on the chin to some extent. That is because the market will be questioning how accommodative is the Central Bank Going to be . If they show three cuts as they had in december and as our economist expect they will we think the two year will rally five basis points, the curve. In and youll see the dollar weaken and risk on. It is a Pivotal Point for markets. I know if been talking for a while. Lisa, you asked how long until the equity market catches up with the bond market. I do wonder to some extent how long before the bond market catches up with the equity market . You can look at price action and say Monetary Policy is too easy and rates are too low and that is why the equity market is doing this. When i talk to our equity market folks, what they say is we do not care about Interest Rates. Have you seen the Growth Profile these companies . Have you seen how strong the economy is running . We talked about the fund manager survey. Risk appetite very high. They do not think that whether you have tends at 4. 30 or 4. 75 or 5 disrupts the investment narrative. That is a real question the market will have to rebalance. I wonder if the bond market might have rebalanced what the equity market has done. Jonathan we are in your home so i will not cut you off. I want to talk about something you said. The equity market will take it on the chin then he laid out as to why the equity market will take it on the chin. If you think about what has happened this year, january 4. 1 on a u. S. Two year, we have gone from 4. 1 to 4. 70 this morning. Over the last weeks weve been in and around that level and equities have done nothing in the face of that which tells me yields can go even higher and they can keep going higher until they become a problem. Is that the right way of thinking about this . Mark i think if you are look at what Financial Markets were telling you and you are only looking at Financial Conditions, i think Financial Conditions would tell you Monetary Policy is not too restrictive. Jay powell says Monetary Policy is that well into restrictive territory. Financial conditions are not telling you that. I cannot help but rewind to where we were last summer and fall. As we know at that point in time we saw a rates selloff very materially. The 10 year rose over 100 basis points. The 10 year real rate rising a similar amount. Risk assets were relatively stable. The equity market did not go down. Credit spreads did not widen. The fed told us they were very worried about higher term premium and they felt higher Interest Rates were doing the work for them. When we looked at risk assets we set risk assets do not care about this. Risk assets do not care about the rate rise because we thought it was all about better growth expectations. The market was taking fed rates cuts and risk assets were generally ok with that and then the fed subsequently eased in the face of that and drove rates lower over the course of november and december through very dovish rhetoric and the Treasury Department also did their part. They issued less long dated bonds than we thought. The treasury and the fed eased Financial Condition substantially and assets kept rallying. I going to this to make the point that risk assets are telling you the economy is fine, growth expectations look very healthy. May be Interest Rates are not that restrictive. That is the key question they have to grapple with at the meeting the next couple of days. The Balance Sheet will be a focus. It is secondary to the setting of Monetary Policy. They have to ask themselves how restrictive our week . That is an opening question for them. Jonathan can we wrap it up with the target. 4. 70 on the two year. What are you saying . Mark we have been saying to clients that clients can be patient on adding duration because we think rates will continue to rise in the near term and that is due to the fact that growth has been so strong. Risk assets are not telling you Financial Conditions are particularly restrictive. As a result of that we think investors and wait until rates are around 4. 50 two at long positions and be comfortable with that around 4. 50 to add long positions and be comfortable with that. Our end of year 10 year forecast is for. 25 , well above consensus. Is to be well above the forwards, not really anymore. We think that is consistent with his expected strong growth backdrop in the u. S. Economy and may be a reassessment of the fed in terms of how much they will be able to cut this year. Great ticket jonathan great to kickoff the program with you. Mark cabana of bank of america Global Research. Lets get it update on stories elsewhere. Here is your bloomberg brief with sonali basak. Sonali President Biden and Benjamin Netanyahu held their first call and weather months to try to ease tensions over israels war in gaza. Benjamin netanyahu agreed to send a group of advisers to washington about his planned invasion of roof and Antony Blinken is heading to the to the region. It will extend his trips with stops in saudi arabia and egypt to push for a ceasefire between israel and hamas. Donald trump is narrowing down his list of potential running mates for november. Bloomberg has learned trump has ruled out Vivek Ramaswamy as his Vice President. Sources tell us trump told the entrepreneur personally he will not be his Vice President ial pick but is considering them for a cabinet position, including possible Homeland Security secretary. The bank of japan has ended its era of negative Interest Rates and is signaling easy Financial Conditions will continue, giving clues on when to expect further hikes. The central bank is shifting from its negative Interest Rate policy after seeing its 2 inflation target had come into sight and the move has prompted a slide past the 150 mark against the dollar. That is your bloomberg brief. Jonathan making the case for tesla. My view on tesla is it is easy to give negative. They will gain more share in the leverage will be there. I believe ultimately numbers and growth will start to go back up. Jonathan daca that conversation is coming up next. Live from new york city, good morning. Investment opportunities are everywhere you turn. But at t. Rowe price, were letting curiosity light the way. Asking Smart Questions about opportunities like advances in healthcare. And how these innovations will create a healthier world tomorrow. Better questions. Better outcomes. Jonathan live from new york city, good morning. Live from the home of bank of america, we are new york throughout this morning for the next two hours and 41 minutes or so. On the s p 500 futures pulling back ahead of the fed tomorrow. Equity futures softer. Yields pulling back. Very close to 2024 highs. 4. 31 on the u. S. 10 year. Dollar stronger against g10 yesterday. 1. 0 842. Under surveillance, making the case for tesla. My view on tesla is it is easy to give negative. They were going through a White Knuckle period. China demand has been soft. My view is on the other cited of this this will be a company on its way to 2. 5 and 3 Million Units and they will gain more share, the leverage will be there and numbers and growth will start to come back up. Jonathan tesla looking to raise prices on the model y and regain Investor Confidence after becoming one of the worst performing s p 500 stocks of the year. John murphy maintaining a neutral rating with a 12 month price target of 2. 80 of 280. John murphy citing teslas ability to remain agile. Lets start without difficult this industry is at the moment. Who got this right and saw where this market would be . John ive been doing this for 25 years and it is an industry that is difficult to get right. One company that has been very good and very agile and foundational has been toyota. When you look at this rule they have where they say basically for all the Precious Metals and everything they can make six hybrids or 90 hybrids. With those 90 hybrids they save 37 times the co2 as you do with one ev. The consumer will be a lot more adopting and a lot more accepting of hybrids. That seems like a good interim solution until we get Hydrogen Fuel cells worked out. Lisa to underscore a point that is implicit, are you saying electric vehicles as we know them are not the environmentally friendly vehicle that say a hybrid would be . John when you look at well the wheel there is a lot of debate about how environmentally friendly evs are. The reality is that evs work very well for folks that are in large suburban houses that can put a charger in and have a second car. For the masses and folks that live in cities they do not work so well. It is a challenge. What you need to do is make a better product for most folks at a better price and they are not there right now and weve major issues with the charging infrastructure. Lisa do you think the answer is to allow imports from china at cheaper price points or do you think china has its own interests for creating an electric vehicle ecosystem that is dominating a marketplace that is a shorty . John one of the major complicating factors is it is soap macro and has a much to do with the broader economy. If you are xi trying to drive your economy you are pushing the auto industry. It is the biggest industrial manufacturing base. They have a real position to drive forward the industry and builder National Champions and they are doing it with evs because they can never get around on the powertrain. Their motivation is to drive the economy forward. What you have seen from china is three years ago net import export on vehicles was zero. Last year it was about 5 million net exports. They have become a big player on the global stage. Jonathan do you think this could spell the end of the global auto market . Will we see regions with pause eyes state sponsored Natio