Jonathan good morning good morning, this is bloomberg surveillance. Alltime highs on the s p 500 and nasdaq 100. You have the data, here comes the fed speak. All on deck following the softer than expected inflation rate. Lisa we have heard hawkish speak even from jay powell saying it hasnt come down as quickly as we would like an the market said we dont believe you and we dont care. Even eight 1 10 of a percent miss in terms of the cpi is enough to bring back the prospect of a september rate cut. Jonathan the rate cut talk simmers into the summer. We had another read on cpi the same day as the next fed decision june 12. Another read in july and another at the end of july. Is that enough time to have the conversation about a rate cut. Annmarie neel said it is unknown in terms of how much downward pressure there is on the economy and that tells me we need to sit here for a while longer. He was Neel Kashkari said it is unknown terms of how much downturn pressure there was on the economy and tells me we need to sit here for a while longer. Lisa yesterday saying 6000, at what point does the fed getting away from the narrative and at this point the weakness is being dismissed. Disinflation is baked in and it doesnt matter what fed officials say, the key question will be how much is it dependent on fed rate cuts at all or not a reacceleration of inflation. Jonathan the fed chair has retained this faster cut rates regardless of what happens with Economic Data. The question we have is was it q or inflation data. It is not just about inflation but retail sales coming in softer than expected. In an hour, we will get the numbers. Annmarie we are seeing weakness in the retail sales number but in consumer sentiment. Home depot softer. People starting to defer some of the big projects they want to take on. What are Everyday Americans at buying and not and are they stopping for the big ticket items. Jonathan walmart positive by 0. 8 . June 27, september 10, abc. Did we just agree to some debates . Annmarie they did agree to debates and they are going outside the commission and going right to the networks. They want to put it on twitter and some people say they take the under. There are some that are skeptical that donald trump and joe biden will show up. Jonathan they want the option to cut off microphones as well. Lisa that is the point of the skeptical and people who dont think its going to happen and what happens to the traditional way debates are established. There is trump who says there is one from foxnews and biden saying we dont know about that one. Jonathan any time from any place with conditions. Equity futures on the s p, positive by. 1 on the s p 500. Yields lower by a single basis point. What a turnaround in the bond market over the last month or so. The euro just a little weakness after the weaker dollar, 1. 0870. We will catch up with julie and emmanuelle later. And bloombergs George Ferguson as the doj moves for personal prosecution of boeing. Slowing inflation fueling recordbreaking rally. Julian emanuel saying our base case remains an ongoing correction that ultimately tests the s p 500. The potential for further nearterm upside cannot be eliminated given the economic surprises lie at the exact intersection of goldilocks and too cold. Julian joins us for now. What did you make of it yesterday . Julian the market liked the tick lower in the monthly number and was certainly celebrated. You look at retail sales, the intersection of goldilocks and too cold. If you strip out gasoline, the number would be weaker than the headlines. For us, around the feds activity or lack of activity or whatever their path is leading has certainly driven it but the bottom line is 3. 4 percent cpi, 0 retail sales, other signs of economic weakening, that doesnt say the upside is unlimited as the market is trying to behave. Jonathan this is a record high you want to sell . Julian we want to be tempered about it. What i would say is this, when you are facing a momentum market the likes of which we have, to say that momentum is going to stop on the dime is a very difficult call. We do think this is one of the times. Think about the beginning of march, last summer, when all of the news feels as if nothing can go wrong. That is probably the time to do a little bit of hedging. Lisa which wouldve been six months ago, a while back when people are basically saying things seem like they are priced to perfection. What gets us to 47. 50 . Julian it is the intersection of inflation staying stubborn and if you think about the months coming up, it is not likely the readings are going to get a lot better which is i think why you will probably see today the fed governors come out and talk about counseling patience. The Monetary Policy of the last two years is finally starting to kick in. Lisa you said the equity market is promoting it and some would disagree and say it is promoting the idea that things are going great. The financial conditions matter, could we accelerate inflation on the other end. Why do you disagree . Julian again, this is the fine line. You are going to have annuals in the next few months that will make it seem as if inflation is sticky. The longer term course is the same course we have been on for the last year and that is lower inflation and frankly that is part of the benefit of the slowing economy but it is a gradual process and i think the market is a bit too overenthusiastic about the fact that this is the path to success without bumps. Annmarie you think inflation is coming down and you to say that the rate cuts are not guaranteed. What are you sure thinking now . If what is your thinking now . Julian it is a very fine line. The data does prove it sticky they will have to reconsider and i think that is why you are seeing the narrative come out the way it is. Given the political schedule, it may end up being no cuts this year. Jonathan record highs on the nasdaq and s p 500, small caps participating. What do we do now . Julian i think the case for small caps is interesting. Jonathan why . Julian we have seen this time and again throughout the last decade or two when the enthusiasm around large cap tech gets the way it is and next week will be an interesting time to test that enthusiasm when we get the stars earnings recorded. The discount is extreme, the seasonality around the russell indices is reliable. The sentiment is small caps have been funding short for active managers for two years now. Jonathan the new york fed president speaking, april cpi positive developments is restrictive and we have heard that a few times. You just said maybe no cuts this year and then straight afterwards sent by small caps. What is the relationship between the two . Julian interestingly enough, if you actually dont cut this year, you may in fact hold longerterm yields in stock by remaining with that degree of discipline. When you think about stocks in general, they are much more sensitive to longerterm yields in terms of discounts. Lisa how much is the confusion evaluation story . It is hard to make the argument for small caps if you see inflation a question of where we are between the goldilocks and something more pernicious in terms of a hard landing and not sure what will happen with fed rate cuts. Is the case for small caps valuation . Julian valuation is more important than it has been in quite frankly it is uncomfortable for us to talk about valuation. When you get to these kinds of extremes and theyre not extreme extreme come in y2k, you got to 6300. We dont think that is the case this time that nothing tends to last when you get to the extremes. Lisa is that there is a broadening out and not just with small caps but with the idea that not everything is in a i play. Utilities are an ai plate. How much do you ai play. How much do you ride this out from industry to industry . Julian the comparisons with the internet in the 1990s are apt but to get to full internet adoption over the course of the last 20 years, you had several recessions, several bear markets, it is not a smooth line function. We do think the potential for ai to secularly improve productivity across the entirety of Corporate America is there. Jonathan we will get a bonus round with you. Kit juckes is joining us. He said the lack of conviction and tendency to be led if not by the nose than by each of the major data points makes the choppy markets and not trendy ones. He goes on to say should anyone try to over interpret data be full by random shortterm surprises. You wonder how quickly this conversation can change from data point to data point. Kit juckes around the corner. Here is your bloomberg brief. Dani the slovakian leader were shot in public. The first assassination attempt on the european leader in more than two decades. The 59yearold admitted to the hospital in very serious condition. The police said the gunman had a clear political motivation. He returned to power last year as a force of opposition in brussels. Chinese president xi jinping confirmed the relationship with russia remain strong and told Vladimir Putin the ties between the two nations should last for generations. Putins trip to the nation returns as russia intensifies the war against ukraine. It is said that it is one of the main stabilizing factors in the international arena. U. S. Cpi data accidentally published 30 minutes early yesterday. No obvious sign that the early publication moved markets, but the bureau of labor statistics said it is launching a full investigation. This isnt the first time the data practices have come under scrutiny. A month ago bloomberg reported that a correspondent talked about it and talk with major firms including jp morgan and blackrock. Jonathan it goes without saying that is a problem. We have been joking about it may be leaking a day earlier but maybe it was 30 minutes. Lisa i was thinking why didnt i look at the website earlier. Why didnt anyone catch this . Jonathan because we were staring at the bloomberg terminal for when it should come out. Up next, the fed sitting tight. We probably need to sit here for a while longer to figure out where underlying inflation is headed before we jump to any conclusions. Jonathan you will hear more from julian moore and kit juckes on the others. Live from new york city this morning, good morning. Do you want to close out . Should i . Normally id hold. But. Taking the gains is smart here, right . Feel more confident with stock ratings from j. P. Morgan analysts in the chase app. When youve got a decision to make. The answer is j. P. Morgan wealth management. Smiled with the rising sun discover our newest resort, sandals st. Vincent and the grenadines now open. Visit sandals. Com or call 1800sandals jonathan equities on the s p 500 about unchanged. Yields no on the 10 year, 4. 3342. That the fed sitting tight. Published downward pressure is it putting on the economy . That is an unknown. That tells me we need to sit here a while longer until we figure out where underlying inflation is headed for we jump to any conclusions. Jonathan the minneapolis fed president repeating the fed is likely to hold rates steady for a while longer as investors bring forward rate cut bets. The index fall into a onemonth low with treasuries adding to their advance following the cpi data. Kit juckes joins us for more. You wrote about it this morning the next data point seems to be no trend. Is that what you are replicating this morning, dont get excited about yesterday it could change the next month and the month after . Lisa definite kit definitely in the short run. I think we probably are close to learning the next move the fed will make is a cut and not a hike. So the upside for the dollar is somewhat capped by that. We have had three cpi monthly prince followed by a point prints followed by a wheat free. We have an election coming a point free. It we have an electi coming we have an election coming. Lisa fireworks and the eurodollar cross. Are you explaining why we are not moving out of this any time soon and saying it needs to be a tighter range that people are going to get their faces blown off if they try to do something that is more bold . Kit in my mind, eurodollar is in the 106110 range and i think it goes higher next year. It is almost that bad. The really surprising thing in this sense is that after all the shocks we have had from the macro events, geopolitical events since the beginning of 2020 that the u. S. Economy is having soft landing which i would not have believed possible. We are settling down and really saying, what happens next . Lisa there is a question on the european side saying that was a number of gdp prints coming stronger. Certain regions going that way. How much is that something that could drive strength. It is not just the you u. S. But also overseas. Kit it was pessimistic about europe and it was impossible to think this piece of european news could make things worse and now we are moving to a point where instead of the stagnation we have slow growth and i think the most growth sensitive currencies, the norwegian krone are stands out in kroner stands out. They have leverage on the recovery sentiment. The key for europe will be the German Economy because clearly the situation in ukraine and germany is reluctant on natural gas and clearly heavy industries and the tray position with china are all fairly serious issues and the trade position with china are all fairly serious issues. Went all the news is nothing but bad, it doesnt take much for a currency to go up on the back of slightly better news. Julian the narrative has been that the ecb has been able to give out this declaration of independence from the fed in terms of its own rate cutting cycle. Is there a price on it eurodollar where the declaration of independence has to be amended . Kit not necessarily. Certainly the declaration of independence if we got back under the 2022 low at 95. We only got there on the back of the biggest terms of trade shock in favor of the dollar and negative for the euro since any of us were born. That is a long way away in terms of what the situation is. I think it is solid. Where it gets tested is by the fed hiking while the ecb is easing. If the would have raised rates twice and the ecb would have cut twice at the same time, i think i would go and hide under the sofa for some of the data points. I dont think it is written in stone they have to move step for step. You can see by the yen, you can have big currency moves that dont have a major impact on the economy. The japanese are not getting the kind of economic recovery you would like to see whos currency has lost that much value. Jonathan we noticed the ministry of finance in japan looking at the news and is the worst over for them in the fx market . Kit tell me if we have seen the height in the 10 year notes is the answer. It doesnt feel to me and probably one solid data print that gets us to 160 again. People who have been selling the yen have given back some of their profits but every day they pick up more money from the carry of that trade and volatility is coming back down so trades are getting less expensive. They are getting a period of calm but you wouldnt declare the fight over yet. The basic driver, the huge Interest Rate differential, has not gone away. Jonathan im thinking of going into the weekend as a fan. A tough couple of days for us fans. Lets get numbers from deere, they see 7 billion u. S. , the previous range 7. 5 to 7. 75. The stock is down by close to 6 in early trading. Lisa farm income has been easing in part because prices have been coming down. This is the flipside to disinflation or in some cases outright deflation. It has been a driver of earnings, the idea that we have disinflation not the panacea for some of the industries people were thinking. Jonathan what is your reaction to this one . Julian the agricultural income has been under pressure and not a story well understood when you think of the price of cocoa for example in recent months. Wheat prices have been in a downtrend for months on months and our Analyst Thinks that the ag cycle has to work its way through. Lisa the idea that the shares are lower by 6 tells you something in terms of the reaction function we have seen so far. Any misses we have talked about, are we pricing and potential weakness and we wont see the massive reaction or is this the new normal . Julian this is the Second Quarter running and we would expect that to happen next quarter as well because the stock market has been a market of stocks and not a stock market, very uncorrelated. You will have these individual reactions in extremes and less about, if you get misses like this you will get the reaction but a lot of is positioning. Jonathan and 35 minute you will get walmart. What would you look for from a name like that when they report . Julian it is a generalized state of the consumer and is there any pressure that they are seeing on the low end consumer because that is where the stress has been noted in recent weeks. Jonathan those numbers 35 minutes away. Thank you. Lets turn back to deere, they netted 7 billion u. S. , the re the previous range was 7. 5 to 7. 7 nine. Stop down 6 . They say they are managing the industry level to adapt to the changes and adapt to the business for the future. That stock is negative in early trading. We will talk about a stock that has been negative. George ferguson on the possible criminal prosecution of boeing. That conversation is just around the corner. Walmart numbers 34 minutes away with equity futures positive just about an coming into thursday at record highs. And theyre all coming . Those who are still with us, yes. Grandpa whats this . Your wings. Light em up gentlemen, its a beautiful. Day to fly. Hi, im tali, and i lost 85 pounds on golo. All my life i struggled with my weight. I tried every diet, and i even had weight loss surgery. But, after complication, i had gained everything back extremely fast. I was unhealthy, miserable and depressed. Following golo, and taking release, i was able to lose weight gradually and keep it off. I wish id started sooner. Dont wait, go straight to golo. Com. Jonathan live from new york, welcome. Equity futures just about positive, alltime highs in the s p 500 and nasdaq for the First Time Since march. We are positive and more weight to the rally up. 1 . To the bond market, what a turnaround we have seen in treasuries. Think about where we were in the front end of the curve, closing out at 4. 7382. Lisa 10 basis points on a 10th of 8 downside miss yesterday, i read note after note and they all had completely different interpretations. Basically the rbc saying it will begin in december. Another says we have seen a stalling out at 3 . Evan has a different take and interpretation. Jonathan they did not everyone has a different take and interpretation. Jonathan they did not play out yesterday. Lisa everything is good news for equity markets and you are talking about hitting that sweet spot that kit juckes was talking about. Jonathan the dollar index having the worst day of the year so far in yesterdays session. Against the euro, 5. 1 . Negative by. 1 . The euro getting close to 109. Lisa