Three hours. We came into yesterdays session, its said, saying that the only thing more boy before a long Holiday Weekend is the friday morning. Weve got stronger service pmi print as a readily identifiable trigger. What a need shift, starting yesterday. If you hadnt told anyone that second tier data would trump admit he a, trump nvidia, what happened . Were we to onesided . Was fed speak nervous before the data . I dont know what it is, but it feels like a big sentiment shift. Anxiety around inflation. I put this to chris williams, Companies Remain cautious with respect to the Economic Outlook with Interest Rates also citing geopolitical instability in the president ial election. Pulling back, theres a feeling that the university of Michigan Sentiment survey matters. They may pole five hundred people online through instant messages or whatever else they do, but at the same time if people have deteriorating sentiment, theres a feeling that it will have a bigger impact Going Forward, not only on how hard it is to kill the inflation bogeyman, but inflation generally. Annmarie weve seen starbucks, others, looking for those products, and then theres janet yellen at the g7. This is what she had to say she talked about the concern, trying to be empathetic with where the American Consumer is. Saying that they see it when they shop for food, higher mortgage rates. Its tough for young people who want into the Housing Market to enter. Dani at the same time i think that is more sympathetic than what we have heard from biden, who has had this tone like look, i know you dont think that the economy is good, but we know its good. Looking at the pmi yesterday showed us that for businesses, they are doing well, despite the business sentiment. Even that shows us to take those surveys with a grain of salt. Lisa looking at prices paid, this was sort of the rub, coming in at the highest since 2022. Everyone was expecting Services Inflation to come down. We are seeing it potentially moving the opposite direction and to me that is a part of the rub. Yesterday, we were thinking that it would be all about nvidia lifting all boats. Then we got this inflation read at a time where you have a lot of people looking for cool off. Michael hart met saying that the rally in Global Equity is at risk of overheating with barclays talking about how it is starting to look tired. How realistic is that . Dani ai things sold off yesterday. Amd, intel, falling more than 3 yesterday. If nvidia is the tide lifting only ai boats, it didnt even do that. Utilities were hurt a lot yesterday, too. To me that seems like exhaustion. Annmarie which led to the biggest selloff in the s p and the nasdaq in may. The biggest klein of course was particularly in the russell 2000 yesterday, going backo april. The state of play is a little more optimistic, one quarter of 1 to start the trading day. A little bit less than that on the s p. Dollar weakness toddling around for a while, basically steady. You can see the 10year yield is just a little bit lower but yesterday really climbing on the prospect of potentially some sort of ratcheting back of suspected rate cuts. Coming up, state street, u. S. Stocks pulling back from record highs and elon musk rejecting tariffs. Pantheon, the global Economic Outlook, leaders diverging in italy. We begin with our top story, u. S. Stocks easing from fresh records, despite a 9 surge from nvidia. Looking ahead to next week, leaf average of state street writing if we see higher inflation for may and june, one cannot ignore the prospect of the next move being a rate hike. Its a bigger tail risk now than it was a few weeks ago. Lee, good morning, thank you for being with us. What did you make of yesterdays price action where the nvidia price action couldnt overwhelm the slightest tick up in goods and inflation . 4 thank you for having me. What yesterday showed was the balance in the risk of the market has now shifted. Before, there was a bigger reaction to positive news in the market. Be it lower inflation or a sign in slowing down in the economy, which would be setting the path for the fed to cut rates. That would cause a bigger reaction than stronger data. When the slowdown comes in, the fed looks through it. Yesterday showed maybe that the balance of risks in the mind of the market is shifting. The fed told us now that they are going to need time to trust the down trend in inflation again. Is that two more . Three more . We dont know, but they told us they will need time. On the other seida of the inflation print, how quickly does that feed into the fed starting to think about hikes . There are various members in the minutes who said they would hike rates further if the data were like today. The balance of risk and how we react to data is shifting. Lisa you have had a positive bias towards risk equities. How much was it instructive yesterday at how at risk these equities are over the prospect of a rate hike being back on the table . Lee i think it has become a real prospect, as i wrote in my notes. Its still a tail risk. Its not a central view. I would put it 25 , ok, higher than a lot of people would, but still a tail risk. But its there. You know, the fed have openly talked about it for a year and now they are starting to talk about it and i think that vulnerability is now there in the market. Look, the central view, i still think data looks ok over the next month or two. As long as the market believes the next move is a cut and that we are in a cutting cycle, risk assets can continue to perform well for the next month or two, but it will get more volatile, more days like yesterday with overall up trending talent and we will get more days like yesterday and if the market really starts to believe the next move could be a hike, that will signal the top of the market for me. Dani what about the idea that a policy remained tighter or got more tight, the reason it is doing that is economic strength and if thats the case, equities are ok because earnings are ok. Is not the case anymore . Lee yeah and that has been the narrative. We had seven cuts this year somehow in the first week was meant to be march with equities up 10 . Because it was extend and pretend where we were putting out the rate cut cycle. We didnt take it away, but he delayed the start because the data was so good. As long as we can keep doing that over the next month or two, stocks will be fine, but if the market sits back over the next couple of months and says are we right about the cutting cycle . If the fed signals the need to hike, why are they signaling a need to hike . They need to slow the economy more to get inflation back to target. To get it trending back to target. So, soft landing sort of goes out the window because they are saying this isnt working, we need to slow the economy and hike rates. Certainly that argument that stronger data is good for markets suddenly doesnt look as clearcut as before because stronger data means they would have to do more. Dani the other argument is ai, ai came to save the day. Perhaps yesterday proved that that is not necessarily the case if amd is falling with nvidia. Is that trade tired out . Ai is the rising tide that lifts all boats . Lee we have come along way, the ai story has come a long way. Look at where nvidia is. I dont think the story has played out, there is further to go and ai specific stocks will continue to outperform. But the rest of the market will struggle to continue to play that sort of ai rising tide. I think, you know, that is what we saw yesterday with nvidia having a great day, the rest of the market couldnt go with it. The whole thing with ai lifting everything, that story has run its course. Not ai specifically but the boat lifting everything, that story is looking very tired now. Annmarie you are the second person this to come on and talk about the hike and adam posen was concerned about the fiscal impetus going into next year and the spending that we get from washington. Say we see more spending in 2020 five, tax cuts, a fiscal package, potentially tariffs that could be inflationary. What sort of vulnerability could we see from the idea of a hike . Lee tremendous. We have come a long way. If the fed believes we have to hike to slow the economy, yes, you will see a significant pullback. We have come a long way and even if we pull back 10 , we are flat for the year. I dont tickets that much more than that, but a pullback of that magnitude, if the market starts to price hike, thats fully possible. The fiscal thing is important. Everyones assumption on rate hikes is restrictive, therefore the next move has to be a cut. Rates are above neutral for sure, not as far above as we thought. Neutral is nominal and the fed has hinted that it is not as restrictive as they thought the other day, but policy is not just rates. Its made up from a level of Interest Rates besides the fed Balance Sheet, which is bloated, and fiscal policy. Take them together as a combination, policy itself is not restrictive. That is what the data is telling us. That is why the u. S. Economy is growing year on year close to double the estimate of trend growth. If policy was restrictive, we wouldnt be growing the way that we are. That does not mean that policy is restrictive. If you lose the fiscal policy for the next year, by definition you have to tighten it somewhere else and the only tool you can do it through is higher Interest Rates. Lisa lee, thank you so much for that. We have come a long way, echoing the sentiment, risk looking tired. Updating your stories elsewhere this morning, here is your bloomberg brief. Jenhsun huang, nvidia ceo, had a good day yesterday. Net worth growing to 91 billion as shares of nvidia rose following betterthanexpected results. A majority of that comes from his stake in nvidia that he cofounded in 1993. He is now the 17th richest person in the world according to the billionaire index. Spacex has initiated discussions on selling existing shares in a deal that could value the company at 200 million according to people familiar with the matter. The valuation would be a premium to what it fetched in its previous tender offer and they are already on par with some of the worlds public lee traded companies. Hundreds of students walked out of the Harvard UniversityCommencement Ceremony yesterday in protest of the governing board decision to withhold degrees for 13 students who took part in a propalestinian encampment on campus. A mix of graduate and undergraduate students stood up and chanted as they left in the middle of the ceremony, continuing to protest within earshot as the ceremony continued. Lisa . Lisa thank you and aside from that, congratulations to graduates on a general note. Up next, tesla pushing back on tariffs. Tesla competes well with the tariffs in china. No differential support. Tesla competes well with the tariffs in china. No differential support. So, in general i am in favor of no tariffs. Lisa thats next. You are watching bloomberg. To start a business, you need an idea. Its a pillow with a speaker in it thats right craig. A team thats highly competent. Im just here for the internets. At t its superfast. Reliable. You locked us out . arrggghh ahhhh solutionoriented. [jenna screams] and most importantly. Is the internet out . Dont worry, we have at t internet backup. The next level network. I sold a pillow get your Business Online in minutes with the power of ai. With a perfect name, a great logo, and a beautiful website. Just start with a domain, a few clicks, and youre in business. Make now the future at godaddy. Com airo lisa after the biggest selloff so far in three weeks, we are trying to claw back a couple of a bit of those gains, you can see one quarter of 1 gain on the s p in early trading with dollar softness and a risk on tone as people look to potentially Stronger Economic data and may be a fed rate cut coming in september. Under surveillance, policy front focus, tesla pushing back on tariffs. Neither tesla nor i asked for these tariffs and i was in fact surprised when they were announced. Tesla competes quite well in the market in china with those tariffs, no tariffs, no differential support. So, in general i am in favor of no tariffs. Lisa elon musk criticizing the recent tariffs on chinese made eveys, saying that he favors no tax incentives while avoiding a question on whether tesla would bring a cheaper model to the public. Craig trudell joins us now. Riddle me this, on the one hand what people say in public feels different than what they might say it in private. How difficult is it for not just the elon musks of the world, but the bmw and were sadies of the world facing off with the chinese threat. Craig its a great question. They proven extremely competitive. Elon musk it was saying that, you know, quite recently. I think in january he was asked about just how tough the chinese are and he said that he thinks they will have significant excess outside china, depending on what kind of tariffs or trade barriers are put up. So, while he said yesterday that he was surprised by this, i dont know that i necessarily believe him. This has been well telegraphed. He himself has referred to the idea that if trade barriers are not established, they will really give the likes of bmw and tesla real challenge. Lisa how much is this political . We know that elon musk has been weighing in in the political sphere. And how much of this is a business interest with tesla having a significant presence selling in china along with bmw and the german manufacturers . Craig that absolutely has to be coming into play. He referred to the idea of no tariffs in china. Thats silly. China really does kind of insist for the most part on when you produce locally, and he also referred to the idea that tesla hasnt had preferential treatment, which is also a questionable claim. They were the first foreign car company to be let into china that didnt need to set up a local joint venture with a local manufacturer. So, you know, tesla has gotten some help in china. It is also the case that tesla has significant business that they are exporting to other markets and musk would rather not see, you know, sort of escalation of tensions between china and the u. S. Or china and europe. You know, here in europe, he is quite reliant on the shanghai factory sending over model 3s and, you know, he is making some model ys in germany, but it is the case that his plan in china they are an export hub. Annmarie we heard from the french finance minister earlier this morning talking about the overcapacity concerns with china , saying that there needs to be a united front when it comes to dealing with china. He is speaking alongside g7 partners. What is the european plan right now . Where are they in the process of dealing with the china dumping on the market . Craig we are weeks away from getting a sense of the next step russells is going to take here. There is a general sort of consensus or can assumption that tariffs will go up. I think that the chinese manufacturers saw this coming and actually had been kind of conservative in terms of how they have priced their vehicles. There have been quite a lot of evs coming into europe from china, but you know, when you actually take a look at what they charge for their vehicles in europe, they are quite a bit more expensive than they are in china. Some of that is, of course, localization differences and, perhaps, slightly more robust crashworthiness. There are Higher Standards for those sorts of things in europe than in china. But i do think it has been the case that they were trying to avoid this sort of clash and just were not able to because even with initial, you know, bit of exporting from china, without a huge amount of success, it was enough to set off alarm balls. To the extent that we have seen success it has been tesla exporting from china and mg, a state owned company that used to be a british brand. A lot of europeans kind of assumed they were buying a british car when in fact they were buying one from a state owned chinese company. Annmarie tesla was out with their 2030 report. Do you think do you get the sense that they are emphasizing autonomy over the core market business . Craig it is clear as day at this point. Over the last couple of years they have alluded to the idea that they wanted to sell 20 million cars by 2030 and in order to do that, they are going to need to offer much cheaper electric vehicles. We have seen one indication after another in the last couple of months that musk is less interested in that pursuit and wants to sort of really doubled down and focus more heavily on autonomous driving and that has been something that even very bullish tesla investors have been nervous about, because we have seen real issues with companies, you know, running into problems with trying to commercialize the technology. It has a lot of promise and has been something that a lot of people have been very interested in, but the nuts and bolts of getting these onto the road and dealing with potential crashes and the costs of bringing this to market have proven much more difficult and, maybe, you know, in a several year, even decades phenomenon, as opposed to something that will be ready for prime time soon. Dani its pretty incredible that he avoided or answered indirectly all questions about this, all questions about whether he is still committed to lowcost vehicles. It was only a month ago in earnings where he talked about their growth being mostly underpinned by lowcost vehicles. Which musk are we supposed to believe in . Craig i do think that there was more than a few contradictions in what he was saying yesterday. My assumption is that he was sort of hearing yesterdays question as alluding specifically to the idea of a standalone, brandnew 25,000 tesla. A lot of people refer to it as the model2. That car is just not a priority for him. Again, he wants to go the selfdriving route instead. Reading between the lines of what you said in the latest earnings call, it really just sounds like they are working on taking some of the Development Work that went into that 25,000 car, applying it to their existing lineup and, you know, spinning that as we are going to offer more Affordable Electric vehicles as soon as late this year, leaving out the particulars, which i think, you know, it means that we will see a cheaper model 3 or model y late this year or next year. Lisa its always confusing to know which musk to listen to as it can be a contradiction. In an otherwise light daytoday, we have durable goods and at 10 a. M. We have university of Mic