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00:00> > FIGHTING AND INFLATION AND WINNING THIS BATTLE IS MOST IMPORTANT. > > WHERE LOOKING AT A MILD RECESSION STARTING MID 2023. > > IS A RISK OF RECESSION THAT GOES HARD AND FAST. > > EVEN WITH THIS FEAR, IT IS A TRICKY SPOT. WE ARE WAY ABOVE TARGET. > > IMPACTING CONSUMERS ARE NECESSITIES, SHELTER, FOOD AND INFLATION. > > THIS IS BLOOMBERG SURVEILLANCE WITH TOM KEENE, JONATHAN FERRO AND LISA ABRAMOWICZ. JONATHAN: A MESSY FIRST HALF, FROM NEW YORK CITY THIS MORNING, GOOD MORNING. THIS IS BLOOMBERG SURVEILLANCE LIVE ON TV AND RADIO ALONGSIDE TOM KEENE AND LISA ABRAMOWICZ, I AM JONATHAN FERRO. FUTURES DOWN AT 1.2% ON THE S & P. WHAT ABOUT Q2? TOM: AN UGLY Q2, KNOWING FOCUSED ON OFF OF THE PANEL YESTERDAY WITH FRANCINE LACQUA, MADAME LAGARDE GIVING A FOCAL POINT OF A ONE OR 4.29 -- 104.9 -- 104.29 EURO. JONATHAN: THEY WANT TO TAKE ON INFLATION, THAT IS THE OBJECTIVE AND THEY HOPE THEY DON'T TAKE DOWN GROWTH. BUT THE GOAL IS TO GET INFLATION DOWN. THE HOPE IS WE DON'T GET NEGATIVE GROWTH AND THAT MESSAGE WAS LOUD AND CLEAR YESTERDAY. TOM: GROWTH IS ON AND THE MESSAGES TO LIE, LIKE 15 OR 16, JP MORGAN, BUT WE WILL SEE COMING OFF THE THURSDAY CLAIMS IS A RECALIBRATION BY THE SELL SIDE OF WHERE O-RINGS --EARNINGS ARE THERE TO BE. JONATHAN: WE TALK ABOUT IT, THE JUNK, 1000 BASIS POINTS. IT IS GETTING MESSY. LISA: THE FIRST TIME GOING BACK SINCE 2020, PERSISTENT MESSINESS IS CATCHING PEOPLE'S ATTENTION. PEOPLE ARE TALKING BUT THE VALUE IN CREDIT SPREADS, THE VALUE IN CREDIT IF WE ARE NOT GOING TO SEE DEFAULT. NO ONE IS TALKING THAT VALUE AS MUCH AS THE RECESSION AND THE FACT THAT CENTRAL BANKERS ARE WILLING TO SEND THE ECONOMY INTO RECESSION TO GET INFLATION. JONATHAN: THAT IS THE DIFFERENCE THIS TIME AND HOW YIELDS CLOSE TO 550. CLOSE TO DECEMBER 2018, BUT WE KNOW WHAT HAPPENED. THE FED IS NOT GOING TO BACK AWAY. LISA: ESPECIALLY BECAUSE THESE AVENUES ARE NOT STRUGGLING. NO ONE IS SAYING THERE WILL BE A CREDIT CRISIS IN THE NEAR TERM. THE CRISIS IS INFLATION. THE RISK IS INFLATION COMES ON BOARD. THAT IS WHAT CENTRAL BANKERS SAID YESTERDAY, THE MESSAGE THIS WEEK AND MARKETS WILL TAKE THAT MESSAGE. JONATHAN: MARKETS HAVE BEEN PRETTY WELL ALIGNED WHERE WE ARE GOING. TOM: I THINK THAT IS TRUE. WHAT HE UNDERSCORED YESTERDAY IS THERE ARE EXTREME DATA DEPENDENCY AND IT COMES WITH IMPORTANT ECONOMIC DATA TODAY. HERE IN THE OPENING, YOU HAVE PCS AND WE ARE GOING TO LOOK AT THE SAVINGS RATES, PERSONAL INCOME, PERSONAL SPENDING. HOW FLAT ON THEIR BACK IS THE AMERICAN CONSUMER? WE WILL KNOW THIS MORNING. JONATHAN: I SPOKE TO LISA FOR TOO LONG THIS MORNING, JUST BROUGHT DOWN. LISA: HOLD ON. LITERALLY EVERYBODY IS TALKING ABOUT RECESSION. JONATHAN: THEY KNOW THE RULES. THAT NASDAQ 100 POUND DOWN -- DOWN BY ONE WAS ITS PERCENT. YIELDS COMING IN. THIS IS WHERE THINGS GET INTERESTING. BONDS BEHAVING LIKE BONDS, YIELDS DOWN BY THREE BASIS POINTS, ABOUT 3.05% ON THE 10 YEAR. LISA: YOU CAN BLAME ME FOR BEING SOMEWHAT DOWN AND BEAT IN TERMS OF THE INVESTMENT. EVEN THE BIGGEST MARKET POLLS ARE GETTING BEARISH. I POINTED NEIL OVER THERE, SEEING A GREATER PROBABILITY OF RECESSION. YESTERDAY HE WAS TALKING ABOUT BEING MORE BEARISH ON THIS MARKET. A BIG PART OF THE STORY IS OIL. OPEC-PLUS HOLDING A MEETING ON OUTPUT, 14 MINUTES, MAYBE 13. THEY WILL HAVE AN INCREASE, WE WILL GET SOME SENSE OF WHAT THEY CAN PROVIDE TO OFFSET DEMAND. WHAT THAT MIGHT BE COMING ONLINE AND WHAT EFFECT LOOKS LIKE CONSIDERING CONCERNS ABOUT THE RECESSION. WE WERE TALKING BY U.S. PERSONAL INCOME, PERSONAL SPENDING THROUGH THE MONTH OF MAY AND JOBLESS CLAIMS. I'M WONDERING WHETHER RESEARCH IS A JOBLESS CLAIMS PICKUP. THE TROUGHS IN JOBLESS CLAIMS AND THERE'S THIS QUESTION, HOW MUCH CAN CONSUMERS KEEP SPENDING WHEN THEY ARE EATING INTO THE SAVINGS RATE, BRING YOU DOWN TO THE LOWEST GOING BACK TO 2008? THIS IS INTERESTING. LOOKING AT EACH CORPORATE STORY AS A TEA LEAF, MICRON TECHNOLOGY REPORTING EARNINGS AFTER THE BELL. HOW MUCH DO WE GET A SENSE OF THIS RISK, THE CHIP SHORTAGE? HOW MUCH COMPANIES WERE HOARDING SHIPS DURING THE PANDEMIC AND THE AFTERMATH, LEADING TO A LACK OF DEMAND. HOW MUCH DO WE GET A SENSE OF HOW MUCH THE SUPPLY CHAIN DISRUPTIONS ARE USING? JONATHAN: DID YOU SEE RESTORATION HARDWARE? TO HEAR FROM THESE COMPANIES, YOU HEAR FROM THEM ONE MONTH AGO AND THEY SAY HOW BAD THINGS MIGHT BE AND THEY COME A MONTH LATER AND IT'S EVEN WORSE. THAT IS WORRYING. MOVING THE QUICKLY. TOM: THIS WEEK WE SAW THE MARKDOWN FROM GOLDMAN SACHS AND MANY OTHERS IN RETAIL. BUT YOU REVIEWED BED, BATH & BEYOND YESTERDAY, BASICALLY A DECADE OLD TRAIN WRECK. YOU WONDER WHAT THE MARGIN DYNAMIC IS AT HOME DEPOT, RADICALLY DIFFERENT THAN RESTORATION HARDWARE. JONATHAN: BIG STORY, JOINING US IS THE CHIEF INVESTMENT OFFICER AT A BANK AND TRUST. IF YOU MONTHS AGO WE TALKED TO DAVID OF JP MORGAN PRIVATE BANK ADHESIVE BONDS ARE BACK. OUR BONDS BACK? -- ARE BONDS BACK? > > YES, IT IS ELECTED FASHION. WHERE LOOK BEST WE ARE LESS SCARED -- IN A SELECTED FASHION. WE ARE HIGHLIGHTING THE RISKS NOW. THE FED AND OTHER CENTRAL BANKS ARE WAITING ON A RECESSION AND THE LEVELS PRICED AND ARE DOING THAT. IF YOU ARE LESS AFRAID OF DURATION, WE CAN START BEING MORE CONSTRUCTIVE ON THE BOND MARKET. THE RISK THAT RECESSION INTRODUCES HIS CREDIT RISK SO YOU HAVE BEEN VERY SELECTIVE. BUT IT DOES ACTUALLY PAID TO BE SELECTIVE. THERE ARE HIGH SINGLE DIGITS, TOTAL RETURNS, ANNUAL RETURNS AVAILABLE IF YOU ARE PICKING COMPANIES AND BANKRUPTCY IN THE NEXT YEAR. TOM: IT'S IF WE ARE NOT IN CASH, IF WE NEED TO BE IN THE EQUITY MARKET, WHICH SECTORS MAKE THE MOST SENSE? HUGO: THAT IS TRICKY, TOM. WE HAVE BEEN OVERWEIGHT IN THE ENERGY SECTOR THE LAST COUPLE OF YEARS, BUT IN THE LAST FEW WEEKS WE HAVE BEEN TRIMMING THAT BECAUSE THE LEVEL OF DEMAND DESTRUCTION IS COMING THROUGH AND ACCELERATING. PEOPLE TALK ABOUT $120 OIL BUT IT IS FIVE DOLLAR GAS. IT IS THIN ON TOP OF THAT. THEY ARE ADDING TO THE PRICE AT WHICH WE FIND OUT WHETHER -- WHERE THERE IS DEMAND DESTRUCTION. WE SELECTED IN THE LONG TERM THE FEAR OF DURATION, YOU CAN START LOOKING AT DEFENSIVE NAMES FROM UTILITIES AND SOME STABLES IN THERE, TOO. THE DOLLAR HAS STILL BEEN GREAT SO THAT IS ANOTHER AREA WE ARE INTERESTED IN. BUT THERE ARE NOT A LOT OF PLACES TO HIDE ITS WHEN EQUITIES IN TIMES OF STRESS BECOME A CASH MACHINE. THERE MAY LIQUID AT ALL TIMES. ALL EQUITIES ARE PROBLEMATIC. LISA: IT IS PROBLEMATIC, BUT ONE LINE OF THOUGHT EARLIER IN THE YEAR WAS THAT BIG TECH COMPANIES WOULD ASK IN TANDEM WITH DEBT MARKETS, THEY WITH YIELDS. WHY IS THAT BROKEN DOWN AND WHEN WILL THAT REASSERT ITSELF IF WE START TO SEE A RALLY IN BONDS? HUGO: AN EXCELLENT QUESTION, RIGHT ON THE MONEY. WE HAVE HAD PAINS TO SAY THAT LOCAL TECH IS CREATED EQUAL. THERE IS A LOT OF TECH WITH LARGE CASH ON THE BALANCE SHEET THAT GENERATES A LOT OF FREE CASH FLOWS, VERY HIGH BARRIERS OF ENTRY AND WE WOULD SUGGEST SOME OF THOSE GUYS HAVE BONDS LIKE QUALITY IS. SOME OF THOSE GUYS WILL HAVE THAT DURATION AND DEFENSIVE CHARACTERISTICS. BUT THERE IS TEXT SEARCH FOR EXAMPLE -- A TECH SEARCH FOR EXAMPLE, SOME SOCIAL MEDIA, GUYS WHO ARE CYCLICAL AND DEPEND ON CONSUMER SPENDING. AND THEN THERE THE FED WE HAVE HATED FOR AGES, WE HAVE BEEN AVOIDING IT COMPLETELY. THIS CASH BURNING CATEGORY, WHERE THEY RELY ON BURNING CASH IN ORDER TO GROW. THIS THEY HAVE JUST DESCRIBED THREE DIFFERENT COMPONENTS AND YOU NEED TO TREAT EACH DIFFERENT IN THE MARKET. JONATHAN: A DIFFICULT MOMENT. GREAT TO GET YOUR THOUGHTS. HUGO ROGERS OF DELTEC BANK AND TRUST. IF YIELDS ARE FALLING BUT NOT BECAUSE THE FED IS BACKING OFF, IN FACT BECAUSE THE FED IS NOT BACKING OFF, THEY WILL KEEP FALLING. HOW WILL THAT INFLUENCE THE RELATIONSHIP BETWEEN BONDS AND EQUITIES IN WHICH PART OF THE EQUITY MARKET IS GOING TO BENEFIT MARK LISA: -- BENEFIT? LISA: I'M NOT SURE. THOSE ARE SOME OF THE MORE EXPENSIVE NAMES OF THE MARKET, SO GIVEN THE RELATIVE VALUATION, WHERE DO YOU HIKE TOM'S QUESTION MY ESPECIALLY GIVEN THE DEVASTATION IN RETAIL BECAUSE OF THE DYNAMIC -- EXCUSE ME, I WILL GET MY WORDS OUT. IT IS A THURSDAY AND THURSDAY. JONATHAN: WHERE 10 MINUTES AND. -- WE ARE 10 MINUTES IN. TOM: IT'S A BEAR MARKET, NO QUESTION ABOUT IT, BUT BETWEEN THE DOW JONES AND THE NASDAQ THERE IS THE PROFITABILITY. I WONDER WHAT IT WOULD BE IF YOU TOOK UP A CASH FLOW SHARE BUYBACK? I BET IT WOULD BE -40 OR -45%. JONATHAN: WE ARE DOWN 1.7% ON THE NASDAQ 100, CALL IT WHAT .6. YIELDS AT THREE BASIS POINTS, 10.05. I LOVE YOU. LISA: THANKS. JONATHAN: THIS IS BLOOMBERG. ♪ RITIKA: KEEPING YOU UP-TO-DATE WITH NEWS FROM AROUND THE WORLD, THE CHINESE PRIME MINISTER TRAVELING OUTSIDE OF CHINA FOR THE FIRST TIME IN 100 DAYS. THIS IS PART OF THE SWEEPING SECURITY ABATING IN 2020. HE IS MARKING THE 20TH ANNIVERSARY OF JENNY'S WILL IN THE FORMER FRENCH COLONY. REACTING TO THE NATO DECISION TO ADMIT FINLAND AND SWEDEN, THEY'RE WELCOME TO JOIN. THE RUSSIAN PRESIDENT SAID NATO AND NORDIC NATIONS ARE DIFFERENT COMPARED TO ALLOWING UKRAINE TO JOIN. PUGIN ALSO SAYS IF NATO FACES -- PUT IN ALSO DESIGNATE OF FACES BEST, RUSSIA WILL HAVE TO RESPOND. THEY MUST CHOOSE BETWEEN FORMER PRESIDENT TRUMP AND THE CONSTITUTION, THEY CANNOT BE LOYAL TO BOTH. CHENEY CALLED HIM A THREAT THEY'VE NEVER SEEN BEFORE, SHE IS VICE CHAIR OF THE COMMITTEE INVESTIGATING THE ATTACK ON THE CAPITAL. INCREASING THE PACKAGE, PART OF A DEAL WITH SENATOR JOE MANCHIN TO GET THIS PASSED. THEY'RE FACING SMALLER TAX HIKES. SUSPECTED NORTH KOREAN HACKERS BELIEVED TO BE HIND THE $100 MILLION HEIST ON THE CALIFORNIA BLOCKCHAIN, HARMONY. A GROUP KNOWN AS THE LAZARUS GROUP, WORKERS IN THE ASIAN PACIFIC ARE TRYING TO BREAK INTO THE PLATFORM. GLOBAL NEWS 24 HOURS A DAY, ON AIR AND ON BLOOMBERG QUICKTAKE, POWERED BY MORE THAN 2700 JOURNALISTS AND ANALYSTS IN MORE THAN 120 COUNTRIES. I AM RITIKA GUPTA. THIS IS BLOOMBERG. > > IS THERE A RISK WE WOULD GO TOO FAR? CERTAINLY THERE IS A RISK. BUT I WOULD NOT AGREE IT IS THE BIGGEST RISK TO THE ECONOMY. THE BIGGEST MISTAKE TO MAKE, LET US PUT IT THAT WAY, WOULD BE TO FAIL TO HAVE PRICE STABILITY. JONATHAN: IF YOU THINK WE ARE IN THE CLEAR, YOU HAVE NOT BEEN LISTENING. THAT WAS CHAIR POWELL OF THE FEDERAL RESERVE. NEW YORK CITY, BUT MORNING. TUTORS POSITIVE 1.3%, NASDAQ 100 DOWN ACROSS THE BOARD. THREE POINT 0537% -- 3.0537%. RUSSIA CONFIRMED IT WOULD -- IN THE BLACK SEA, THE DECISION WOULD FACILITATE GRAIN EXPORTS FROM UKRAINE. THAT SOUNDS LIKE GOOD NEWS BUT WE WANT FOLLOW-THROUGH AND POSITIVE OUTCOMES. TOM: FROM JULIE YESTERDAY, THIS IS OUT OF ODESSA IN THE WEST TOWARD ROMANIA. ON THROUGH THE MEDITERRANEAN AND MAYBE TUNISIA AND EGYPT AS AN EXAMPLE. I KNOW ERIC MARTIN IS FOCUSED ON EGYPT. WE ARE FOCUSED ON THE PRESIDENT OF THE UNITED STATES. HE WILL SPEAK IN MADRID, MARIA TADEO IN MADRID. LET'S BEGIN WITH YOU. WHAT ARE YOU LISTENING FOR FROM PRESIDENT BIDEN? > > TOM, THE PRESIDENT WILL WANT TO MAKE SURE HE TALKS ABOUT THIS HISTORIC WIN AND HOW HE FROM THE BEGINNING. A MONTH AGO WE WERE IN THE ROSE GARDEN WITH HIM AND THE LEADERS OF FINLAND AND SWEDEN. HE HAS BEEN WORKING TO MAKE SURE THEY HAD A CLEAR PATH TO JOIN NATO. AT THE SAME TIME, THIS PRESS CONFERENCE I IMAGINE IS GOING TO BE OVERSHADOWED ON WHAT IS GOING ON AT HOME. YOU'RE TALKING ABOUT WHAT JAY POWELL SAID, IT IS ABOUT INFLATION. A FRESH CALL TO THE PRESIDENT, MANY THINK HE IS NOT HANDLING THE ECONOMY WELL AND THE STATE OF AFFAIRS IS NOT GOOD IN AMERICA, INCLUDING EIGHT IN 10 IMMIGRANTS. THAT GOT MY ATTENTION THIS MORNING. TOM: MARIA, I FOUND EXTRAORDINARY THE IMMEDIACY OF THE WAR FROM CHRISTINE LAGARDE YESTERDAY IN MS. LACQUA'S PANEL. FOR AMERICANS IS DIFFERENT AND FOR CHRISTIE LAGARDE IT IS NOT AS WELL. WHAT YOU THE LEADERS WANT OUT OF THE TWO SETS OF MEETINGS YOU HAVE COVERED IN THE LAST WEEK? MARIA: THEY WANTED A REAL COMMITMENT FROM NATO TO DEPLOY TROOPS IN EASTERN EUROPE. WHEN YOU LOOK AT THE LANGUAGE THAT CAME OUT FROM THE STATEMENT, IT SETS THE AGENDA FOR THE LAST 10 YEARS. THEY GOT THE CLARITY, THE ALL TEXT AND WHAT THEY WANTED. RUSSIA IS NOT A FRIEND OR PARTNER, IT IS A COUNTRY THAT CAN BE DANGEROUS IN THE FUTURE FOR THEM. IT COMES TO THE ECONOMY, THERE ALSO RIGHT. FOR THE EUROPEANS, THIS FEELS PERSONAL. IT IS ABOUT THE TRAITS, BRUSHED TRADES, GREAT HAS BEEN DISRUPTED. THEY WILL MOVE AWAY FROM THE PULLBACK AS A GESTURE OF GOODWILL THEY MOVED AWAY FROM THE CAPITAL BECAUSE IT WAS WELL PROTECTED BY THE UKRAINIANS. IT WAS A DEFEAT. WHEN IT COMES TO INFLATION, ANOTHER BIG TALKER IN EUROPE, INFLATION IS 10%, DIFFICULT TO STOMACH. BUT THE EUROPEANS, DIFFICULT TO SEPARATE, THE SECURITY FROM THE POLITICS AND THE ECONOMY. LISA: WHEN YOU TALK ABOUT RESOLUTIONS COMING OUT OF NATO AND THE SUMMIT, MARIE, DID THEY JUMP THE GUN WITH RESPECT TO TURKEY AND ITS ALLOWANCE OF FINLAND AND SWEDEN TO COME INTO NATO, OR IS THERE ANOTHER POLICY RESOLUTION THAT WILL COME OUT THAT PERHAPS WILL BE A BIGGER HEADLINE? LISA: -- > > NO, THIS IS THE HEADLINE. WE HAD THE LEADER OF ITALY LEAVE BECAUSE THEY HAD TO DISCUSS ENERGY ISSUES. INFLATION, ENERGY BILLS, GROCERY BILLS ARE THE MAIN CONCERN. THE ISSUES THESE LEADERS HAVE IS TO MAKE SURE THEY CAN MAINTAIN UNITY WHILE DEALING WITH DOMESTIC PROBLEMS THAT HAVE BEEN EXACERBATED BY WHAT WE ARE SEEING IN UKRAINE. IT IS A GREAT QUESTION BECAUSE THEY HAVE JUMPED THE GUN OF THE SUMMIT. THE HEADLINE CAME OUT RIGHT AT THE START AND THAT IS WHAT THIS MEETING WAS ABOUT. TO MAKE SURE THERE WAS THE TRILATERAL DIALOGUE AND AN UNDERSTANDING BETWEEN FINLAND, SWEDEN AND TURKEY. THAT THESE NORDIC COUNTRIES COULD JOIN NATO. PRESIDENT PUGIN ON HIS TRIP OUTSIDE RUSSIA SINCE THE WAR BEGAN IS TALKING ABOUT THAT. HE SAYS IT IS THEIR DECISION TO JOIN. THEY'RE GOING TO HAVE ARMY OR MILITARY CAPABILITIES IN THE COUNTRIES, A DIFFERENT CIRCUMSTANCE. OBVIOUSLY HE IS CONCERNED ABOUT LENINGRAD ON THE BALTIC SEA. BUT THIS IS THE MAIN HEADLINE. ALL OF THE COUNTRIES HAVE TO GO TO THEIR OWN PARLIAMENTS AND GET SIGNOFF. IT IS NOT A DONE DEAL BUT THE PATH IS THERE. LISA: TO THAT EXACT POINT, THEY HAVE TO GO HOME AND THE ISSUE AT HOME IS MORE SERIOUS THAN IT HAS BEEN FOR A LONG TIME IN TERMS OF CHALLENGES. HIS NATO MORE OR LESS OF A PRIORITY GIVEN THE THREAT OF RUSSIA, PERHAPS THE STRATEGIC CHALLENGE OF CHINA, BUT ALSO THE STRATEGIC CHALLENGE OF WHAT IS GOING ON AT HOME FOR EACH OF THESE LEADERS? > > YEAH, AND TO BE FAIR, THREE YEARS AGO NATO WAS DESCRIBED BY THE FRENCH PRESIDENT AS BRAIN-DEAD. IT LACKED VISION AND THERE WAS NO CLEAR PURPOSE. PRESS TRUMP -- PRESIDENT TRUMP AT THE TIME ALSO SAID THEY WOULD NOT COME IF THEY ATTACKED. BUT TO ME YOU STRUCK THE MAIN POINT. YESTERDAY, DRAGHI WAS ON THE PHONE, NOT PAYING ATTENTION TO NATO. BACK HOME I WAS STRUCK, THIS THE FIRST TIME I HAVE NOT SEEN OR HEARD ANYTHING FROM THE FRENCH PRESIDENT. USUALLY HE LIKES TO TAKE CENTER STAGE. THAT WAS NOT THE CASE DURING NATO. I HAVE NOT HEARD A WORD FROM THE GERMAN PRESIDENT. A LOT OF THIS IS ABOUT TURKEY AND OF COURSE AMERICA, SAYING WE WILL DEPLOY MORE TROOPS AND PROVIDE HELP FOR THE BALTICS. FOR THE EUROPEANS IT IS NOT FEEL LIKE THIS IS A DONE AFFAIR AND NOW THEY ARE WORRIED ABOUT THE ECONOMY. JONATHAN: THAT WAS BEAUTIFUL. ABOUT 2:00 A.M. IN MADRID. TOM: YEAH, IT'S GOING TO BE THERE. AND MARIA IS GETTING READY FOR THE GAME IN PARIS LATER THIS YEAR. JONATHAN: MARIA TADEO AND ANNE-MARIE --- ANNMARIE. 30 YEARS AFTER THE END OF THE COLD WAR, PUGIN HAS DONE FOR NATO WHAT HAS TROUBLE DOING FOR ITSELF. COMING UP, THE MISSION THAT JUSTIFIES THE CONTINUED ROLE AND CLAIM ON RESOURCES. TOM: THIS MIGHT BE MY BOOK OF THE SUMMER FOR THE THIRD SUMMER IN A ROW, WHAT WE ARE LIVING NOW IS NOT IN HIS BOOK, IT HAS ALL CHANGED. JONATHAN: WE ARE GOOD FRIENDS. HAVE ANY BOOKS A YEAR AT THE SUMMIT DO YOU HAVE -- SUMMER TO YOU HAVE? TOM: THE SUMMER CAN BE RICH. JONATHAN: THAT IS THE BOOK OF THE YEAR. JONATHAN: A MESSY QUARTER GETS MESSIER. CLOSE OUT THE FIRST HALF AND THE EQUITY MARKET LOOKS LIKE THIS, ONE POINT 4% ON THE S & P 500. A DOUBLE TAKE THIS MORNING, THE NUMBERS TALLYING UP HOW BAD IT SEEMS, DOWN 15.7% ON THE S & P 500 SO FAR IN Q2 AND MORE PAIN AHEAD. BUT JUST FOR THE EQUITY MARKET, AND CREDIT AS WELL. HIGH-YIELD SPREADS, LEVELS WE HAVE NOT SEEN GOING BACK TO DECEMBER 2018. THE PRIMARY MARKET SPEEDS UP, IT MEANS NO ONE IS ABLE TO COME TO THE HIGH-YIELD MARKET. TOM: YOU'RE TALKING JARGON. IT IS BRAMO JARGON. THE SPREAD IS 500 BASIS POINTS. 5%. SO THE YIELD IS 3% IN CREDIT, PLUS FIVE. THE YIELD ON HIGH YIELD IS 8%. LISA: CLOSER TO 9% ON AVERAGE. TOM: OK. I JUST WANTED TO GET TO THE ENGLISH. JONATHAN: YOU ARE TRANSLATING US. TOM: IT IS JARGON. THAT IS A JOIN OUR MEN'S -- GINORMOUS YIELD. JONATHAN: PEOPLE NEED TO KEEP UP WITH YOU. NEVER MIND. YIELDS DOWN THREE BASIS POINTS, THE 10 YEAR, 3.0537%. TOM: LOOK AT THE TWO YEAR YIELD. DOWN ON 3000. JONATHAN: ARE YOU GOING TO LIVE MARKET CHECK THIS? A SINGLE CURRENCY, 104.12. TOM: 122 AND STERLING, TO YOUR POINT ABOUT THE ORDER, IS ANYONE AFRAID THE THIRD QUARTER WOULD BE LIKE THE SECOND IN THE THIRD QUARTER? I DON'T THINK SO. JONATHAN: THE EQUITY MARKET CALLS. WE TALK ABOUT JP MORGAN WHO THINKS THE BAR IS SO LOW YOU CAN GET THE RECOVERY OF LOSSES FROM THE FIRST PART IN THE SECOND HALF. THAT IS A BIG CALL. TOM: OUR GUEST IS WITH US, A SENIOR MARKET ASSET SPECIALIST WITH EXPERIENCE UNDER THE BELT, MARK, WHERE DO YOU HIDE THIS MORNING? > > IT IS A TOUGH MARKET BUT WE MADE IT TO THE QUARTER. THAT IS THE TAKEAWAY TODAY. IT IS NOT LIKELY TO BE AS BAD IN Q3. THE HEADLINE IS GOING TO BE WORSE. SOMEONE MENTIONED EARLIER, WE GOT SOME WARNINGS COMING OUT BUT THE PLACE TO HIDE IT IS HIGH-QUALITY, SHORTER SHORT DURATION AND LIQUID ASSETS. AND THE WEST LIQUIDS -- IT IS THE LAST -- LESS LIQUID PART OF THE MARKET THAT ARE GETTING PENALIZED AS SPREADS GET TAPPED OUT. THAT IS THE LESS LIQUID PART. YOU'VE GOT TO STAY LIQUID SECURITIES. TOM: A STUDY OF THE AMERICAN MONETARY HISTORY, THE FED ALWAYS BLINKS. IN WHAT WAY WILL JEROME POWELL LINK GIVEN THE CARDS IN THE THIRD QUARTER? MARK: I THINK IT IS IMPORTANT TO LOOK AT HISTORY AND UNDERSTAND HOW ECONOMIC AND BUSINESS CYCLES GO. YOU'RE STARTING TO SEE THIS ROTATION IN CORPORATE CONCESSIONS. COMPANIES ARE NOT JUST TALKING ABOUT SUPPLY CHAINS AND HIGHER INFLATION IMPACTS ON MARGINS. THERE TALKING ABOUT DEMAND DISRUPTION, PARTICULARLY AROUND DURABLES. THAT IS WHERE RESTORATION HARDWARE CAME IN WITH THEIR WARNING. WE NEED TO SEE MORE OF THAT. WE NEED THE CORPORATE SECTOR TO CONFESS AND MARKETS TO PRICE THOSE CONFESSIONS. CREDIT CONDITIONS CONTAIN FURTHER. THEN YOU GET THE FED POTENTIALLY TO MODERATE. BUT WE THINK THEY ARE GOING TO GO ON 75 IN JULY, ANOTHER 50 SEPTEMBER. SO WE ARE NOT THERE YET. LISA: YOU NEED TO INCORPORATE BEFORE CONCESSIONS BEGIN JULY 15 WITH EARNINGS, ACCORDING TO JAY POWELL. HOW MUCH CREDIT HAS SPREAD IN THE SPACE CONSIDERING SO MANY PEOPLE HAVE TALKED ABOUT STRENGTH IN THIS AREA, CORPORATE BALANCE SHEETS HAVE CONTINUED TO BE STRONG AND THEY DON'T NEED TO REFINANCE FOR YEARS? MARK: IT WAS A NOTABLE PART OF THE FIRST FOUR MONTHS OF THE YEAR, THE CREDIT SECTOR HELD IN WELL. WE DID NOT SEE DECOMPRESSION BETWEEN THE LOWER PART OF THE MARKET AND THE HIGHER PART OF THE MARKET. EVERYBODY WAS FOCUS ON THE NEGATIVE RETURNS DUE TO LONG-DURATION INVESTMENT RATE BOTH IN THE U.S. AND EUROPE. NOW WE HAVE SEEN THAT PIVOT TO HIGH YIELDS AND THE LEVERAGE LOAN MARKET. I THINK FOR THE SPREAD MARKET TO WASH OUT, WE NEED TO SEE THIS BACKLOG OF PRIMARY, PARTICULARLY IN HIGH-YIELD MARKETS, TO WORK ITS WAY THROUGH. IN THE U.S., THERE ARE MORE THAN 80 BILLION BRIDGES THAT NEED TO BE TURNED OUT. THERE'S CAT AND MOUSE GOING ON, OTHER INVESTORS WAITING FOR THE MARKET TO CLEAR. AS THAT CLEARS, THEN YOU WILL SEE MORE NORMALCY. LISA: THAT'S BREAK THIS DOWN. BIG BANKS GUARANTEEING CERTAIN LOANS TO FINANCE MERGERS AND ACQUISITIONS. THEY HAD THEM ON THEIR BOOKS AND THEY CANNOT GET THEIR LOANS OFF THE BOOKS BECAUSE THEY CAN'T AGREE TO PRICES THEY ARE WILLING TO ACCEPT. HOW MUCH WILL THAT CREATE A FISSION IN MARKET DYSFUNCTION THAT PEOPLE HAVE TO WORRY ABOUT? MARK: I THINK ABSENT SOME EXTRANEOUS SHOCK, I DON'T THINK YOU WILL SEE DYSFUNCTION. THE BRIDGES AND OTHER FINANCING PROVISIONS CAN LAST FOR SOME PERIOD OF TIME. PRICE ADJUSTMENTS, OTHER THINGS CAN BE DONE. THERE IS NO TICKING TIME BOMB. AND IMPORTANTLY, AS WE KNOW, WE HAVE TALKED ABOUT THE PRIVATE CREDIT MARKET IS BECOMING INCREASINGLY ABLE TO ABSORB EITHER NONSTANDARD TRANSACTIONS, OR OTHERS. THERE IS A SEPARATE ECOSYSTEM OF POTENTIAL VENDORS AT DIFFERENT PRICES THAT CAN STEP UP SO I DON'T SEE ANY REAL DYSFUNCTION OCCURRING ANYTIME SOON. TOM: I LOOK AT -- WE TALK ABOUT SPREADS, YIELDS, ALL OF THAT. ARE WE GOING BACK TO SOMETHING WE REMEMBER, OR ARE WE CARVING OUT SOMETHING NEW AFTER THIS MASSIVE FISCAL SURGE OF THE PANDEMIC? MARK: I THINK WE ARE GOING BACK TO SOMETHING WE KNOW. YOU HAVE TO BE OLDER THAN MANY IN THE MARKET TO HAVE LIVED IT, BUT WE ARE GOING THROUGH A PERIOD OF ELEVATED INFLATION AND THAT TAKES ITS -- TAKES A WHILE TO WORK THROUGH THE PIPELINE. IT TAKES AGGRESSIVE STEPS BY CENTRAL BANKS, COLUMBIA LIQUID TO RAISE MORE THAN 100 BASIS POINTS. WE ARE SEEING EMERGING MARKETS TO THAT AND YOU HEARD YESTERDAY IN PORTUGAL ALL OF THE DEVELOPED MARKET. SUCH A BANKS ARE ALSO ON THE CASE. WE HAVE BEEN THROUGH HIKING CYCLES, BUT NONE THAT ARE SO FOCUSED ON INFLATION FOR A LONG TIME. THAT'S WHY WE ARE MOVING FROM A MACRO RESET IN THE FIRST HALF OF THIS YEAR INTO MORE OF A MICRO RECENT IN THE SECOND HALF OF THE YEAR. ONCE WE GET TO THE MICROBE RESET, YOU WILL SEE A MORE NORMALIZED MARKET AND THE FED IS GOING TO MODERATE. LISA: WHEN DOES THE DOLLAR STOP BEING HAVEN? MARK: THERE IS A LOT THAT GOES INTO THAT, LISA. OBVIOUSLY CURRENCY RELATIONSHIPS ARE CENTRAL, BUT AS YOU MENTIONED AND WE HAVE HEARD FROM NATO, THERE IS A LOT OF POLITICAL AND BUDGETARY AND OTHER DYNAMICS WITHIN DIFFERENT COUNTRIES THAT COULD CAUSE THE CENTRAL BANK IN ONE COUNTRY OR ANOTHER -- BUT I THINK THE DOLLAR IS ON MASSIVE MOVES. WE THINK WE WILL SEE A GRADUAL REVERSAL BUT NOT A DRAMATIC ONE. THE DOLLAR IS STILL GOING TO BE STRONG BUT NOT AS STRONG AND NOT RELATIVELY STRONG. JONATHAN: THANK YOU FOR YOUR THOUGHTS, MARK HOWARD. HE SAYS CENTRAL BANKS ARE CONCLUDED TO SLOW GROWTH. NONE OF IT SUGGESTED DOLLARS OVER. LISA: THAT SEEMS TO BE THE CONCLUSION. THERE IS A STUDY ABOUT THE LACK OF TRUE CORRELATION BETWEEN A GLOBAL AND U.S. RECESSION AND WHERE THE DOLLAR IS GOING TO GO. THEY CONCEDED IT IS HARD TO SAY AND IT SEEMS LIKE THE DOLLAR IT HAS AND CONTINUES TO BE THE PLACE. JONATHAN: BUT KEEP COMING BACK TO THE PRICE, PICKING UP ON RETAILERS, AN EXAMPLE OF SOMETHING YOU THINK IS WELL-KNOWN BUT TURNS OUT TO BE APPALLINGLY PRICED. WE CAN GO BACK TO WALMART, MAKING A NOTE OF THIS YESTERDAY. MAY 17, THEY CAME OUT, STUCK DOWN BY MORE THAN 11%. TARGET FOLLOWED A DAY LATER AND THEIR STOCK WAS DOWN 25%. IT WAS OBVIOUS WHITE HAS BEEN PRICED. THAT WAS BEYOND THE EFFORT. YESTERDAY ADDED PAIN. THE STOCK WAS DOWN ABOUT 24%. THE U.S. FOR SEEING A MARKET CAP OF THESE COMPANIES, A STORY PEOPLE THINK IS OBVIOUS. TOM: HSBC WENT TO LONG AND LUXURY. THIS IS ABOUT THE DEATH OF THE AMERICAN ECONOMY. THOSE RECESSION TALKS ARE DRIVING ME NUTS. RECESSION IS SIMPLE. 10% PIECES OF AMERICA, THE RECESSION HITS HARDEST ABROAD MIDDLE CLASS AND THE POOR ARE ALWAYS HIT. THOSE VENUES YOU'RE TALKING ABOUT SERVE PART OF AMERICA THAT IS ALREADY FLAT ON ITS BACK. JONATHAN: THAT IS THE APPROACH PBS IS TAKING. THEY PUT OUT A REPORT ON CONSUMER HEADWINDS, LOWERING FOR CONSUMERS, THAT'S WHERE THE MOST NEGATIVE CANAL. TOM: I LOVE WHAT MARK HOWARD SAID ABOUT MACRO AND MICRO. I'M A BELIEVER THAT YOU NEED MICRO ECONOMIC FOUNDATIONS TO UNDERSTAND MACRO. IN OIL, IT IS CRITICAL TO LOOK AT THE MICRO PARTS AND PART OF THAT IS THE RESPONSIVENESS OR ELASTICITY OF DEMAND DESTRUCTION. RIGHT NOW, THAT IS ONE OF THE GREAT MYSTERIES OF THE FIRST TWO OR THREE WEEKS OF THE THIRD QUARTER. JONATHAN: IT IS THE WINNER OF THE FIRST HALF, BUT IS FOR SURE. IF YOU CAN FIND ONE IN THE EQUITY MARKET, IS ENERGY. IT'S STARTING TO GET VOLATILE FOR THAT GROUP, BUT THAT HAS BEEN THE STORY OF THE FIRST HALF NEVERTHELESS. LISA: HUGO ROGERS WAS TALKING ABOUT HOW THEY ARE STARTING TO SECOND-GUESS BECAUSE OF DEMAND DESTRUCTION, BUT IT FALLS INTO THE RETAIL STORY. THE DEMAND AND GAS PRICES IS ALSO HAPPENING AT CERTAIN RETAILERS. BUT HOW MUCH IS IDIOSYNCRATIC? THIS IS A FLASHPOINT FOR CRITICISM, BUT COMPANIES, TO GO BACK TO RAPIDLY CAN TEACH -- RAPIDLY CHANGING CONSUMER APPETITES IN ADDITION TO DESTRUCTION BECAUSE OF THE HIGHER PRICES OF GAS AND FOOD. JONATHAN: THIS IS JARGON FREE FOR THE NEXT FOUR MINUTES OR SO. LISA: IS IDIOSYNCRATIC JARGON? JONATHAN: NO, JUST SAYING. TOM: LET'S FOCUS ON SUMMER READING. RICHARD HAASS WORLD. ROBERT KAPLAN, RETURNED TO MARCO POLO. WE'VE GOT THE MYTH OF AMERICAN POLITICS. ALL GOOD READING. JONATHAN: THREE DIFFERENT SHOWS AT ONCE. GOOD STUFF. FROM NEW YORK, THIS IS BLOOMBERG. ♪ RITIKA: KEEPING YOU UP-TO-DATE WITH NEWS RATHER WORLD WITH THE FIRST WORD, I'M RITIKA GUPTA. RUSSIA HAS WITHDRAWN TROOPS FROM A STRATEGICALLY IMPORTANT ISLAND IN THE BACKSEAT. UKRAINE SAYS RUSSIANS WERE FORCED TO LEAVE BECAUSE OF MISSILE AND ARTILLERY STRIKES. THE FALLOUT HELPS WITH GRAIN EXPORTS FROM UKRAINE. A BIG WEEK TO REVIVE THE NUCLEAR DEAL BETWEEN IRAN AND WORLD POWERS. THAT IS ACCORDING TO THE UNION DIPLOMAT MEDIATING A DISCUSSION. THE SEMI OFFICIAL NEWS AGENCY OF IRAN SAYS THE U.S. DID NOT SHOW ENOUGH FLEXIBILITY AND A GUARANTEE OF ECONOMIC GAINS FROM NEW AGREEMENT. THE ECONOMY SHOWS SIGNS OF IMPROVING, THOUGH GAINS WERE LESS THAN EXPECTED. THE NONMANUFACTURING INDEX WHICH MEASURES CONSTRUCTION APPLIED TO THE HIGHEST LEVEL IN MORE THAN A YEAR. AIRLINES DELAYING A SHAREHOLDER VOTE ON EMERGENT -- MERGER. THEY NEED MORE TALKS FOR THIS. THEY ARE SAYING THE FRONTIER IS -- > > ARE FIGHTING FOR A BIGGER, STRONGER BUSINESS. WHILE THERE IS RISK ON THE HORIZON OF RECESSION OR WHATEVER THAT IS, THE BUSINESS WILL RECOVER. IT HAS BEEN IN A DIFFICULT PERIOD OVER THE COURSE OF THE PANDEMIC IN THE RIGHT PLACE FOR INVESTORS TO BE IS IN THE LOW-COST SIDE. THE COMBINED FRONTIER IN SPIRIT GUESS THAT DONE. RITIKA: THE VOTE HAS BEEN SET FOR TODAY BUT HAS BEEN RESCHEDULED. GLOBAL NEWS 24 HOURS A DAY, ON AIR AND ON BLOOMBERG QUICKTAKE, POWERED BY MORE THAN 2700 JOURNALISTS AND ANALYSTS IN MORE THAN 120 COUNTRIES. I'M RITIKA GUPTA. THIS IS BLOOMBERG. > > I DON'T THINK WE'RE GOING TO GO BACK TO THE ENVIRONMENT OF INFLATION. THERE ARE FORCES THAT HAVE BEEN RELEASED AS A RESULT OF THIS TO POLITICAL SHOCK WE ARE FACING NOW, THEY'RE GOING TO CHANGE THE PICTURE AND THE LANDSCAPE IN WHICH WE OPERATE. JONATHAN: FASCINATING REMARKS FROM PRESIDENT LAGARDE OF ECB. THEY CAN YESTERDAY MORNING. I SAT ALONGSIDE CHAIR POWELL AND FRANCINE LACQUA. IT IS EASIER TO RECONCILE WITH WHAT SHE IS SAYING. THE ECB PRESIDENT SAYING WE'RE NOT GOING BACK, FED OFFICIALS SUGGESTING THE BIGGEST RISK IS DOING TOO LITTLE, NOT TOO MUCH, TO GET INFLATION EXPECTATIONS BACK DOWN AND YOU'VE GOT ECB CHIEF. PLEDGING. I WONDER HOW QUICKLY WE WILL HAVE TO RETIRE THE WORD GRADUALISM. IT IS TO COMPARE WITH THESE, THEY ARE TWO DIFFERENT SITUATIONS BUT THE SAME STORY IN ANOTHER WAY. AND WE ARE APPROACHING THE STORY IN DIFFERENT WAYS. IN ECB CHIEF IS COMMITTED TO GRADUALISM, WHICH I THINK MEANS WHAT HE FIVE BASIS POINTS, LET'S WAIT AND SEE. A BIG CHANGE WILL COME LATER THIS SUMMER. EITHER THE FED WILL BE WRONG OR THE ECB IS RIGHT OR VICE VERSA. WE WILL FIND OUT. TOM: THEY CAN BE BOTH RIGHT. WE DON'T HAVE TIME TO TALK ABOUT THIS BUT I WOULD SUGGEST THEY ARE BOTH ADAPTING TO THEIR ECONOMIES. MR. POWELL CAN BE MORE FRONTLOADING BECAUSE AMERICA IS A STRONGER ECONOMY AND THAT OVERWEIGHT SMALL. WE CAN TALK ABOUT THIS OPTIONALITY, I THINK IT IS IMPORTANT. OPTIONALITY WITH OIL, 120, BRENT DOWN FIVE DOLLARS TO 115. ELLEN WALL, SENIOR FELLOW OF OIL VOLATILITY AT THE AMENDED COUNSEL. MANY PEOPLE THROW AROUND THE PHRASE DEMAND STRUCTURE LIKE IT IS A MINT. HOW DOES IT HAPPEN? ELLEN: IT IS ESSENTIALLY WHEN PEOPLE STOP BUYING THE PRODUCT SIMPLY BECAUSE IT IS TOO EXPENSIVE. THEY'RE MAKING DECISIONS LIKE I AM NOT GOING TO GO OUT AND DRIVE BECAUSE I CAN'T AFFORD TO PUT GASOLINE IN MY CAR OR I'M GOING TO SLOW DOWN MANUFACTURING BECAUSE WE DON'T HAVE ENOUGH NATURAL GAS. WE ARE STARTING TO SEE PEOPLE MAKE THESE DECISIONS. TOM: WHAT IS CRITICAL IS IT IS A NON-SUBSTITUTABLE PRODUCT, THEY SAY I'M NOT GOING TO DRIVE, WHICH TELLS ME UNITS ARE SOLD LESS AND PRICE FOLLOWS. ELLEN: THAT'S WHAT YOU WOULD ASSUME WOULD HAPPEN. AS YOU GET AN IDEA THAT THERE IS LESS DEMAND OR LESS DEMAND THAN YOU WERE EXPECTING, YOU WOULD THINK THAT GASOLINE STATIONS WILL PUT IN ORDERS FOR LESS GASOLINE AND THAT WILL TRIPLE TO THE PRICES. BUT SOMETIMES IT IS NOT QUITE WORK LIKE THAT. LISA: LET'S BUILD ON THAT. RIGHT NOW WE ARE SEEING A DIVISION BETWEEN THE PHYSICAL MARKET AND THE FUTURES MARKET. THE FISCAL MARKET HIGHLIGHTING THE TIGHTNESS OF THE MOMENT, LACK OF SUPPLY RELATIVE TO DEMAND, FUTURES TRYING TO DEMEAN -- TO GAUGE HOW LONG IT WILL TAKE FOR IT WORKS ITS WAY INTO CHEAPER PRICES. WHERE'S THE DISCONNECT AND WHERE IS IT GETTING IT WRONG? ELLEN: THIS IS TOUGHER THE MARKET TO FIGURE OUT. AFTER FACTORING SEASONALITY. DEMAND FOR GASOLINE IN PARTICULAR AND NATURAL GAS HAS A SEASONAL COMPONENT. IT IS GENERALLY LESS FOR GASOLINE IN THE WINTER MONTHS THAN IN THE SUMMER MONTHS. THERE'S ALSO THAT FACTOR TO PUT IN AS WELL. I THINK WE ARE DEFINITELY SEEING A DISCONNECT, PARTICULARLY IN TERMS OF WHEN THEY THINK A RECESSION RIGHT HIP. THAT CAN ALSO ACT AS A BIG DEMAND DESTRUCTION FACTOR. IT COULD BE VERY IMPORTANT IN TERMS OF WHEN WE DO SEE DEMAND DESTRUCTION AND PRICES START TO COME DOWN. THERE'S ALSO THE FACTOR OF, AT A CERTAIN LEVEL, GASOLINE IS THE NEXT NECESSITY. THERE IS A RECESSION AND PEOPLE ARE OUT OF WORK, THEY ARE NOT GOING TO BE DRIVING TO WORK, BUT IF PEOPLE ARE STILL LOOKING TO DRIVE TO WORK THIS WILL BE PRIORITIZING THE PURCHASE OF GASOLINE OVER OTHERS. LISA: TO UNDERSCORE THE POINT, WE SAW A DISCONTINUED THE FIRST MONTHLY DECLINE IN OIL PRICES GOING BACK TO NOVEMBER OF ONE SHARE. IS THIS THE BEGINNING OF A TREND OR AN ANOMALY AS PEOPLE RESET EXPECTATIONS FOR GROWTH? ELLEN: I THINK PEOPLE ARE RESETTING EXPECTATIONS FOR GROWTH, PARTICULARLY BECAUSE THE INDICATORS FOR SUCCESS IN THE EUROZONE AND THE U.S. ARE GROWING MORE APPARENT, AND IN EUROPE WE COULD SEE SOME RATIONING IMPLEMENT IT, PROBABLY NATURAL GAS. GASOLINE COULD FOLLOW. I THINK WE ARE SEEING THAT BEING PRICE INTO THE MARKET NOW. THE REAL QUESTION THOUGH IS WHETHER WE ARE GOING TO SEE SOME KIND OF RESOLUTION TO THE RUSSIA-UKRAINE CRISIS. THAT IS WHAT COULD START TO BRING DOWN PRICES ANYMORE SUBSTANTIAL WAY. I WOULD ARGUE POTENTIALLY IT COULD BRING DOWN OIL AND GASOLINE PRICES. WE MIGHT BE ABLE TO AVERT SOME OF THE WORST PARTS OF THE RECESSION BECAUSE PEOPLE WOULD BE EXTREMELY RELIEVED IF PRICES WENT DOWN, SAY OIL WENT DOWN TO $80 A BARREL. IT WOULD BE A HUGE RELIEF FOR MANY. TOM: DRAG US INTO JULY. DOES RIYADH AND ABU DHABI HAVE THE REDUCTION TO CHANGE THE PRICE OF GASOLINE AND DISTILLATES IN AMERICA? ELLEN: I JUST WROTE ABOUT THAT. I WOULD ARGUE THAT THEY DON'T. THEY DO HAVE MORE CAPACITY. THEY CAN PRODUCE MORE, BUT I DON'T THINK THEY WILL ADD THAT MUCH MORE OR ENOUGH TO AFFECT THE PRICE OF OIL. I THINK THE PRICE OF OIL IS BEING ACTED ON SO MUCH BY THE RUSSIA-UKRAINE CRISIS THAT EVEN IF THEY DID ADD A MILLION MORE BARRELS TO THE MARKET COMBINED, I DON'T THINK WE WOULD SEE A SUBSTANTIAL DROP IN PRICES BECAUSE THERE ARE SO MANY OTHER FACTORS LIKE INFLATION AND THIS RUSSIA-UKRAINE CRISIS THAT ARE PUSHING PRICES UP. JONATHAN: ELLEN WALD OF THE ATLANTIC COUNCIL, THANK YOU. LOOKING FOR A BREAK EVEN IN THE GOA -- THE BOND MARKET. THEY'RE GETTING HAMMERED AND GOING THE OTHER WAY. LISA: YOU'RE LOOKING AT PEOPLE PRICING IN THE RECESSION AND THE FED -- THE FED MAY AND OF CAUSING. OVER LONGER WE REVERT BACK TO A LOWER INFLATION ENVIRONMENT. HOW GASOLINE CAN AFFECT THAT IS INTERESTING ESPECIALLY GIVEN THE FACT THAT IF IT STAYS AS HIGH AS IT IS, IT WILL SPUR THE RECESSION OR EXACERBATE. HOW DOES THAT FIT INTO INFLATION? JONATHAN: HOW MUCH LONGER ON THESE PRICE PRESSURES PARTICULARLY IN ENERGY? SHOWING UP IN THE DATA WE GOT A WEEK. TOM: LET'S GO BACK TO LAGARDE. LET'S TAKE SPAIN, 10% INFLATION BECAUSE THAT IS A ROUND NUMBER. THE PATH DOWN FROM 9, 8, 7, 6 WILL HELP IT SOMEWHERE OR ANOTHER AND WE SHOULD MAINTAIN OPTIONALITY. MY STUDY FOR THE THIRD QUARTER IS TO GET TO 5% INFLATION, PICK A COUNTRY. IS NOT MATTER. THE STEPS FROM THEIR GREATLY DIMINISHED THE OPTIONALITY, DEGREES OF FREEDOM THE CENTRAL BANKERS HAVE. THAT IS WHEN IT GETS HARD. JONATHAN: LISA HAD IT AT -- 2.3 SHARE, THEREAFTER. -- THE YEAR AFTER. LISA: IT WILL BE INTERESTING TO SEE WHETHER IT IS ENOUGH TO GET IT UNDER CONTROL. JONATHAN: SHE CAME ON THE SHOW AND SAID IT WAS ASPIRATIONAL. DAN SAID -- FUTURES DOWN 53. -1.4% ON THE S & P, NASDAQ DOWN BY 1.6. > > FIGHTING INFLATION AND WINNING THIS BATTLE IS THE MOST IMPORTANT THING FACING CENTRAL BANKS. > > ARE LOOKING AT A MILD RECESSION STARTED MID-2023. > > THERE IS A HIGH RISK THAT THE FED GOES HARD AND FAST. > > EVEN IF WE HAVE RECESSION FEARS, THE CENTRAL BANK ARE IN A TRICKY SPOT BECAUSE INFLATION IS WAY ABOVE TARGET. > > RIGHT NOW, WHAT IS IMPACTING THE CONSUMER ARE NECESSITIES, SHELTER, FOOD AND INFLATION. > > THIS IS BLOOMBERG: SURVEILLANCE WITH TOM KEENE, JONATHAN FERRO AND WE SEVERAL MODES. JONATHAN: -- LISA ABRAMOWICZ. JONATHAN: GOOD MORNING, BLOOMBERG SURVEILLANCE LIVE ON TV AND RADIO ALONGSIDE TOM KEENE AND LISA ABRAMOWICZ, I'M. FUTURES DOWN ONE POINT 3% AS WE LOOK ABOUT. TOM: YOU SAY BRUTAL FIRST HALF, I'M GOING TO SAY BRUTAL THURSDAY. THE TAKEN MICRO DETAILS, DOWN 19,000, 80,000 WITH BANKRUPTCIES, LIQUIDATION IS WHAT THE BRITISH CALL THAT. UP TO 115, RECESSION, ECONOMIC GROWTH SLOWDOWN AND THE GLOBAL SYSTEM, EVERYBODY BUT THE YEN SCREAMS STRONG DOLLAR. JONATHAN: THIS HAS BEEN A DIFFICULT MESSAGE TO SWALLOW, INFLATION DOWN, TIED TO FINANCIAL CONDITIONS AS PART OF THE OBJECTIVE AND EVEN WITH THE PRICE ACTION WE HAVE SEEN, BUT THE FED CHAIRMAN, DIFFERENT TO WHAT WE HAVE SEEN IN THE PREVIOUS 10 YEARS, ENDORSING IT. HIS WORDS YESTERDAY, MARKETS HAVE BEEN PRETTY WELL ALIGNED TO WHERE WE ARE GOING. TOM: MOMENTS AGO, A 103 PRINT ON EURO. THAT SPEAKS VOLUMES. 103.97 ON EURO, THAT IS THE CHALLENGE FOR CHRISTINE LAGARDE, THAT IS HOW CENTRAL BANKS BECOME OVERCOME. JONATHAN: LARGELY ON THE BACK OF SOME FACT DATA FOR EUROPE, UNITED STATES AND META-, MORE DATA THIS MORNING AND ONTO THE ICE AND TOMORROW. LISA: ALL POINTING TO A DOWNTURN THAT THE FED IS GOING TO RESPOND TO. PICKING UP ON THE COMMENTS YOU ARE MAKING ABOUT YESTERDAY'S ESSENTIAL BANKING DISCUSSION WITH FRANCINE LACQUA, I WAS STRUCK BY WHAT CHRISTINE LAGARDE SAID. I DON'T THINK WE ARE GOING TO THAT ENVIRONMENT OF LOW INFLATION. THIS IS A SEA CHANGE THAT PROFOUNDLY IMPACTS THIS. JONATHAN: ENTERING THE SPACE WHERE YOU STEP IN WHEN THINGS GO BAD IN THIS MARKET, THEY'RE NOT DOING THAT THIS TIME AROUND. IF YOU COMPARE THE HIGH YIELDS AND THE JUNKIE PART OF THE CREDIT MARKET TO LAY 2018, WE ARE AT THOSE POINTS NOW. BUT THEY HAD THE CAPACITY TO BACK AWAY AND HAVE THE DOVISH START. THEY ARE NOT DOING AT THIS TIME AROUND. LISA: HOW MUCH HAS THIS MARKET PRICE AND THE NEW REGIME FROM CENTRAL BANKERS AND A NEW REACTION FUNCTION WITH A HIGHER TOLERANCE TO MARKET PAIN? THAT IS A KEY QUESTION INTO THE THIRD QUARTER. TOM: YOU AT IR IN WASHINGTON THE NEXT WEEK OR THE WEEK AFTER, THE TOP FOR ME IS ADAM OF THE PETERSON INSTITUTE. OUT OF THAT PANEL YESTERDAY, YOU WONDER WHAT THE 2% IS. EVEN WITH INSTITUTIONAL -- JONATHAN: THURSDAY. TOM: NEXT THURSDAY? I DON'T KNOW IF I CAN MAKE THAT. JONATHAN: I WILL MAKE SURE YOU GET TO THE AIRPORT. WE WILL WORK IT OUT. FUTURES NEGATIVE, NASDAQ 100 DOWN ABOUT 1.7. BRAMO FLYING AROUND VACATION TOMORROW. SHE IS GONE. YIELDS AT FOUR BASIS POINTS, 5%. THINGS ARE STARTING TO CHANGE IN THE BOND MARKET, UP ABOUT 70 BASIS POINTS OVER THE CORRIDOR ON THE 10 YEAR. BACKING WAY RECENTLY AS GROWTH DATA COMES IN NEGATIVELY. LISA: A HUGE QUESTION WHEN SOME PEOPLE ARE FORECASTING, INCLUDING OUR NEXT GUEST, HOW THE BENCHMARK GOES IN. WE DO EXPECT THE SLOWDOWN TO TAKE HOLD IN A YEAR. HOLDING A MEETING ON HOW MUCH THEY CAN RAMP UP PRODUCTION, HOW MUCH CAN THEY OFFSET HOW HIGH PRICES HAVE GONE ON GASOLINE IN THE UNITED STATES? WE HAVE SEEN THE FIRST MONTHLY DECLINE IN CRUDE PRICES GOING BACK TO NOVEMBER. IS THIS A TREND OR A MOMENTARY BLIP AS PEOPLE REASSESS GROWTH EXPECTATIONS? 8:30 A.M., THE U.S. DATA FOR PERSONAL SPENDING IN MAY AND INITIAL JOBLESS CLAIMS. WE SEE THE TROUGH IN MARCH OF THIS YEAR? WE STARTED SEE AN INCREASE AS PEOPLE TRY TO FIGURE OUT WHETHER WE ARE GOING TO SEE SOME SORT OF HIGHER UNAPPOINTED RATE IN THE FACE OF TIGHTER FINANCIAL CONDITIONS. I AM WATCHING THIS, BECAUSE INCREASINGLY, THE CORPORATE STORY, EACH INDIVIDUAL ONE MADE TELL THE MACRO STORY WE NEED TO PAY ATTENTION TO. TECHNOLOGY REPORTS EARNINGS. WE HAVE SEEN A HUGE DECLINE IN SHARES THIS YEAR. HOW MUCH DO THEY POINT TO A DECLINE IN THE DEMAND FOR MEMORY CHIPS, SUPPLY CHAIN DISRUPTION AND HOW MUCH COMPANIES ARE INVESTING? HOW MUCH WOULD THESE TWO LEAVES DETERMINE THE SHAPE OF THE NARRATIVE OVER THE NEXT FEW MONTHS? JONATHAN: THANK. CLOSING OUT JUNE AND LOOKING TO TILT -- JULY, JP MORGAN KICKING OFF THINGS IN CORPORATE AMERICA. LOOKING AHEAD TO WHAT THE BOND MARKET WILL PROVIDE TO THE FEDERAL RESERVE. JOINING US, THE BOBBLEHEAD OF MICROSTRATEGY AT WELLS FARGO. TRYING TO WORK OUT GIVEN THE CREDIT MARKET, WE ARE NOT WHERE WE ARE NOW, WHERE IS IT? MIKE: IT IS INTERESTING TO LOOK AT HOW YIELDS, IT TYPICALLY PEAKS AT ABOUT 10% OF THE CYCLE, RIGHT NOW HIGH EIGHT. I WOULD SAY TENNIS OR SOMEWHERE AROUND THERE. BUT NOWHERE NEAR CURRENT LEVELS. THE FED IS SAYING IT HURTS, IT IS PAINFUL BUT THIS IS THE FUTURE. YOU'RE GOING TO SEE MORE OF IT. TOM: THE THEME HERE, PARTICULARLY THE IMPORTANT PANEL YESTERDAY, IS THE FED AND CENTRAL BANKS ARE RESOLUTE. BY READING MELZER, ANNA SCHWARTZ, FRIEDMAN, RICHARD TIMBERLAKE OF THE GEORGIA SCHOOL, THAT IS BALONEY. THEY ALWAYS SUCCUMB TO THE POLITICAL ZEITGEIST, THE POLITICAL PRESSURE. IS IT GOING TO BE THE SAME THIS TIME? MIKE: I SUSPECT THE FED AND CENTRAL BANKS WILL FEEL ITS OUT OF PRESSURE. IT IS INEVITABLE. THE QUESTION IS NOT HOW QUICKLY THE CAVE BUT IMPACT THERE DECISION-MAKING. FOR CHAIRMAN POWELL IT IS A CHALLENGE. HE HAS A LOOK AT THE FED AND SAY ARTHUR BURNS, WORST GERMAN EVER. MILLER PROBABLY A CLOSE NUMBER TWO. I DON'T WANT TO BE NUMBER THREE. THAT PERSONAL LEGACY IS GOING WITH POLICY. TOM: MICHAEL SCHUMACHER, HARSH TODAY. LISA: HOW DO WE GET TEN PERCENT ON THE 10-YEAR TREASURY YIELD? MICHAEL: IT'S INTERESTING. YOU HAVE TO BREAK IT DOWN TO WHERE HIS INFLATION IN THE CYCLE AND WHAT REAL RATES WILL BE APPLIED OR EXPECTED AT THAT POINT IN TIME. WE THINK PROBABLY CORE INFLATION TENDS TO CYCLE 250, PERHAPS HIGHER AND REAL YIELDS, AT LEAST IN OUR VIEW, WELLS FARGO HAS TO BE 150 PLUS. YOU MIGHT SAY 150 WITH A RECESSION, HOW DOES THAT HAPPEN? THINK ABOUT THE LAST CYCLE. FAIRLY MILD, BUT AT THE END OF THAT CYCLE YOU HAVE THE REAL 10 YEAR RATE, ABOUT 115. 150 WITH INCREDIBLE INFLATION AND THE FED WANTED TO TAKE OUT INSURANCE AGAINST THE INFLATION GENIE COMING BACK OUT OF THE BOTTLE. THAT SEEMS DOUBLE TO US. THAT'S HOW WE GET TO FOUR. -- SEEMS REASONABLE TO US. THAT'S HOW WE GET TO FOUR. -- I THINK IF YOU GET FOR PERCENT ON TENDS, SPEED MATTERS. SAVE HAPPENS AT THE END OF THE YEAR. IT TAKES STOCKS DOWN QUITE A BIT. I'M NOT SURE IF THEY WILL CONDEMN TO 3000, I BELIEVE THAT TO CHRIS HARVEY, BUT A PAINFUL JOURNEY. JONATHAN: WE WILL CATCH UP WITH HIM LATER. I WANT YOUR FUNCTIONS ON YESTERDAY, WHAT WAS THERE TO YOU, LISTENING TO CHAIRMAN POWELL AND THE GOVERNOR? MICHAEL: WHEN I LISTEN TO CENTRAL BANKERS, ECB HAS THE TOUGHEST JOB. MOST CLOSELY IMPACTED BY THE SITUATION IN RUSSIA AND UKRAINE. I LISTENED TO KRISTI LAGARDE AND SAY OK, THE ECB'S RATE HIKES IS NOT HUMANLY GREAT. ON TOP OF THAT, YOU HAVE THIS QUESTION. I WOULD CIRCLE IN GOLD AND RED JOY 21ST ON THE CALENDAR. THE ECB MEETING AND PERHAPS MORE PORTLY, THE DAY OF THE NORD STREAM PIPELINE GOING OFF MAINTENANCE. WILL THE GAS GO BACK ON? HOW MUCH? VERBAL DRIVE POLICY FOR THE ECB. -- THAT WILL DRIVE POLICY FOR THE ECB. JONATHAN: FASCINATING, MIKE SCHUMACHER FROM WELLS FARGO. TOM: THE GLOBAL SYSTEM -- NOT A HEADLINE. 119 IS A BIGGER DEAL THAN 120, BUT FOREIGN-EXCHANGE SPEAKS VOLUMES. WHAT IS NOT MOVING TODAY, JAPANESE YEN. MAYBE THEY'VE GOT THE DAY OFF OVER THERE. THE YEN AT 137. YOU HAVE TO TRIANGULATE. YOU CAN'T JUST LOOK AT DOLLARS OR ONE PAIR LIKE THE EURO-DOLLAR. YOU HAVE TO TRIANGULATE WITH A SECOND PAIR TO PICK UP THE THREE RELATIONSHIPS AND YOU DO THAT TODAY THROUGH THE EURO-YEN WHICH SHOWS YOU A WEAK EURO. JONATHAN: FOCUS ON ECB, JULY 21. A MOMENT WITH EUROPEAN CENTRAL BANK. THE ECB PRESIDENT WANTS TO BE GRADUAL WITH MISTAKES OF HIKING CYCLES IN THE PAST, 2011, THAT DID NOT LAST LONG. GRADUALLY, TO ANY BASIS POINTS. SOME ONE ON THE COMMITTEE WILL PUSH FOR MORE. LISA: ESPECIALLY IN LIGHT OF GASOLINE PRICES, IT CAN ONLY BE DEALT WITH BASIL REDUCING DEMAND. GEORGE PUBLISHED MOMENTS AGO WE ARE CONCERNED WITH THE ENERGY SITUATION IN GERMANY. IT WILL PERCOLATE AND POTENTIALLY GIVE DOWNSIDE RISK TO THE EURO, PARTICULARLY NEAR THE END OF THE SUMMER. JONATHAN: THIS IS THE DILEMMA CENTRAL BANKS HAVE FACED, IT DEFIES THE CENTRAL BANKING DILEMMA. DO YOU SUPPORT GROWTH OR BRING DOWN INFLATION? THAT IS TOUGH. TOM: MONETARY 101, I THINK THAT IS THE ANSWER. I'M GOING TO GO BACK TO THE DISPERSION OF THE PAIN. PRESIDENT BIDEN WILL SPEAK THIS MORNING IN MADRID, WHAT TIME? JONATHAN: 8:00. TOM: RIGHT IN THE MIDDLE OF MY OPENING OF AT OUR. IT IS UNFAIR. JONATHAN: I IMAGINE HE WILL BE LATE. ONE HAS THE PRESIDENT BEEN ON TIME? TOM: WHEN HAVE I BEEN ON TIME? I'M SORRY. THEY'RE GOING TO ADOPT THE POLITICS OF THE MOMENT. JONATHAN: THE CENTRAL BANKER HAS NOT ADOPTED TO THE MARKET. AND AS MIKE SCHUMACHER SAID, THE WIND OF THE MOMENT, THIS IS A FEATURE, NOT A BUG. WE ARE TO SEE MORE. TOM: GET THE WHITE HOUSE ON THE LINE. GO TALK TO THEM. JONATHAN: FUTURES DOWN ON THE S & P. THIS IS BLOOMBERG. RITIKA: KEEPING YOU UP-TO-DATE WITH NEWS RATHER WORLD, RITIKA GUPTA. XI JINPING IS MAKING A TRIP OFF THE MAINLAND CHINA AND ALMOST 100 DAYS, TRAVELING TO HONG KONG. HIS COMMENTS WERE IN REFERENCE TO SWEEPING SECURITY IN 2020 THAT CRUSHED THEM. IT IS A FORMER BRITISH COLONY. PUTIN REACTING TO NATO AND THE DECISION TO IT ADMIT FINLAND AND SWEDEN, SAYING THEY ARE WELCOME, NORDIC NATIONS ARE DIFFERENT COMPARED TO POTENTIALLY ALLOWING UKRAINE TO JOIN. THEY FOR STRUCTURE AND FINLAND AND SWEDEN, RUSSIA WILL HAVE TO RESPOND. LIZ CHENEY HAS WARNED FELLOW REPUBLICANS SHE HAS TO CHOOSE BETWEEN FORMER PRESIDENT TRUMP AND THE CONSTITUTION. SHE SAYS SHE CANNOT BE LOYAL TO BOTH IN A SPEECH IN CALIFORNIA. THE COUNTRY HAS NEVER FACED THIS THREAT BEFORE. SHE IS VICE CHAIR OF THE COMMITTEE INVESTIGATING THE ATTACK ON THE CAPITAL. PERSPECTIVE NORTH KOREAN CAPITAL -- NORTH GRAND HACKERS ARE BELIEVED TO BE BEHIND BLOCKCHAIN HARMONY. THE HACKERS, KNOWN AS THE LAZARUS GROUP, GOT USERNAME AND PASSWORD POTENTIAL OF WORKERS IN THE ASIA-PACIFIC TO BREAK AND USE THE PLATFORM. GLOBAL NEWS 24 HOURS A DAY, ON AIR AND ON BLOOMBERG QUICKTAKE, POWERED BY MORE THAN 2700 JOURNALISTS AND ANALYSTS IN MORE THAN 120 COUNTRIES. I'M RITIKA GUPTA. THIS IS BLOOMBERG. ♪ > > WE ARE VERY FOCUSED ON REDUCING PRICES FOR THE AMERICAN CONSUMERS. KNOWING WE ARE GOING INTO IT AND ARE IN THE BEGINNING AND THE UNITED STATES HIGHER DEMAND, HE WANTS TO SEE WHAT WE CAN DO TO REDUCE THE PRICE, EVEN 82 $.50. TOLD THE PRESIDENT IF HE CAN GET $.50 OFF PER CONSUMERS THE SUMMER, THEY WOULD WELCOME THAT. MOST OF THE COUNTRYWIDE. JONATHAN: THE SENIOR ADVISOR FOR ENERGY SECURITY IN THE U.S. SPEAKING TO ANNMARIE HORDERN EARLY. WITH TOM KEENE AND LISA ABRAMOWICZ, I'M JONATHAN FERRO. THE NASDAQ 100 DOWN BY 1.6% AS WE ROUND OUT CLOSE OUT THE FIRST HALF AND SECOND QUARTER. BEFORE TODAY, DOWN BY ALMOST 60% ON THE S & P 500. TOM: A SUBSTANTIAL NASDAQ, I DON'T OF THE SPECIFIC BUT TAKE SIX OR SEVEN OTHER STOCKS, NASDAQ 100. HOW MUCH IS IT DOWN? 40%? JONATHAN: BRUTAL. TOM: WE ARE GOING TO RECALIBRATE AFTER AN EVENTFUL WEEK IN BAVARIA AND MADRID. 45 MINUTES SCHEDULED, WE WILL SEE ON THAT. RIGHT NOW, EXHAUSTED FROM THE ROAD TRIP. MARIA TADEO IN MADRID, ANNMARIE HORDERN AND MADRID REPORTING THAT IT LOOKED AWFULLY GOOD LAST NIGHT. IT WAS GOOD TO SEE YOU ON THE SHOP ABOUT 4:00 A.M.. I WANT TO TALK ABOUT THE HEADLINE WHERE THE GENTLEMAN FROM NORWAY SAYS FINLAND AND SWEDEN WILL BE IN NATO BY TUESDAY. I MUST ASK THE QUESTION I ASKED YESTERDAY. HOW WILL THE CZAR FROM MOSCOW RESPOND TO AMERICAN NATO TROOPS ON A LONG FINISH BORDER? > > IT IS DOABLE, THEY HAVE A POLITICAL SIGNAL NOW AND IF YOU THINK ABOUT THE NORWEGIAN, NORDIC, FINNISH AND SWEDISH, THINGS THEY USE ALREADY LIKE MILITARY CAPABILITIES ARE NATO COMPATIBLE. THEY CAN SWITCH FROM ONE DAY TO ANOTHER AND BE FULLY INTEGRATED. THAT IS NO EXAGGERATION. YOU LOOK AT PUTIN, HE WAS ASKED THAT QUESTION YESTERDAY. HE SAID THE WAY I SEE IT COME OUT THIS IS NOT GOING TO BE A PROBLEM. I DON'T GET WHY FINLAND AND SWEDEN WANT TO JOIN BECAUSE WE HAVE A CORDIAL RELATIONSHIP. THIS TELLS ME THAT A LOT OF THE NARRATIVE THAT PUTIN ONLY ATTACKS UKRAINE, WHICH NO ONE BEHIND-THE-SCENES WOULD TELL YOU UKRAINE WAS JOINED -- JOINING NATO SOON, IT WAS SEEN AS A REDLINE FOR HIM, IT IS NOT ABOUT THE MILITARY ASPECT. THIS IS ABOUT HIS THINKING WAS YOU HAVE TALKED ABOUT MANY TIMES, UKRAINE AND RUSSIA ARE ESSENTIALLY ONE PEOPLE AND ONE NATION. CRANE CANNOT BE SEPARATED FROM RUSSIA, LET ALONE SEPARATED FROM MOTHER RUSSIA TO JOIN A WESTERN ALLIANCE. YOU STILL BELIEVE THIS IS ABOUT NATO EXPANSION, NOT PAYING ATTENTION TO THE WORDS OF PUTIN. LISA: IF YOU ARE STILL THINKING THERE'S COHESION AND NATO, PERHAPS WE ARE NOT PAYING CLOSE ATTENTION TO THE INDIVIDUAL STORES ON THE GROUND. BEFORE I GET TO EMERY, I WANT TO GET YOUR SENSE OF WHAT IS GOING ON IN GERMANY, MARIA. POINTING OUT THAT TWO WEEKS AGO, RUSSIA REDUCED A NORSTROM FLOW. THERE IS A FEAR THEY'RE NOT GOING TO COME BACK. WHAT IS THE PLAN FOR GERMANY IF THAT IS THE CASE? > > RIGHT NOW THEY DON'T HAVE ONE AND THAT IS THE ISSUE. THE GERMANS, THE ITALIANS ARE THE REASON HE'S NOT PAYING ATTENTION TO A PRESS CONFERENCE. HE IS ON THE PHONE, ON CAMERA, SAYING THEY ARE WORRIED WE ARE GOING TO SEE UNILATERAL CUT OFF FROM THE RUSSIANS TO GERMANY AND ITALY. THEY DON'T WANT TO TALK ABOUT IT PUBLICLY BECAUSE THEY FEAR THEY'RE GOING TO SEE A REACTION IN THE MARKET. WE WILL SEE PRICES JUMP EVEN MORE. BUT THEY WORRY ABOUT THIS AND THEY KNOW IT COULD HAPPEN, WHETHER A WEEK, I DAY OR A MONTH. THE IMPACT YOU COULD HAVE IN THE ITALIAN INDUSTRY, THE GERMAN INDUSTRY WOULD PROBABLY TAKE THE ECONOMY INTO A RECESSION. THAT IS THE BIGGEST WORRY FOR EUROPEAN GOVERNMENTS IN PARTICULAR. WE HAVE TWO MONTHS AT THIS STAGE DEVELOP THE STORAGE, TWO MONTHLY WEIGHT IN THE WINTER. BUT IF WE GET TO SEPTEMBER AND IT IS NOT FULL, THEY WILL HAVE AN ISSUE IN THE WINTER. IT IS NOT A SECRET. LISA: AND IT IS A POLITICALLY PALATABLE MESSAGE TO SEND, STOP EXPLORING POST-PANDEMIC. FROM THAT PERSPECTIVE, HOW HAS THE U.S. PRESIDENT UNTIL THE MESSAGE OF EUROPEAN STABILITY AND POTENTIAL PRICES IN THE ENERGY SPACE WITH THE ISSUE OF TRYING TO REDUCE GAS PRICES, CONSIDERING THEY WANT TO SUPPLY EUROPE WITH OIL, GAS, THEY ALSO WANT TO EASE CONSUMER PRESSURE LOCALLY? > > IT IS A QUESTION I ASKED THE PRESIDENT JUST A FEW WEEKS AGO AT SOME POINT. I SAID YOU ARE A TRAINED MAN, ARE YOU GOING TO TELL THE AMERICAN PUBLIC THAT BECAUSE OF THIS WAR AND THE REPERCUSSIONS OF IT, PLEASE START USING LESS ENERGY? THAT IS WHAT THE CHIEF EXECUTIVE OF A NUMBER OF FRENCH ENERGY COMPANIES HAD TO COME OUT, ASKING FRENCH CONSUMERS AND CORPORATE. MARIA SAID, THIS WINTER IS GOING TO BE CHALLENGING FOR EUROPE, CONSIDERING WE ARE ALREADY SEEING PRESIDENT PUTIN PLAY POLITICS WITH GASOLINE. THIS GOING TO BE A QUESTION FOR THE PRESIDENT TODAY. I SPOKE WITH HIS ENERGY WHISPER AND SAID WHY DID YOU GO AHEAD WITH THIS ATTEMPT AT A GAS HOLIDAY IF YOU KNOW CONGRESS IS NOT GOING TO GO ON BOARD? THIS ADMIN DECISION IS -- WANTS TO BE SEEN AS DOING EVERYTHING, INCLUDING GOING INTO SAUDI ARABIA. MORE INTERESTING IS WHEN HE SAID THAT RECENTLY OPEC SAID THEY ARE GOING TO PRODUCE MORE AND THEY ARE HOPING TO MOVE TO STEP TWO. I WOULD LIKE TO TALK ABOUT THAT IN THE FUTURE, HE SAID. I SAID WE CAN DO THAT. THAT IS WITH THE ADMINISTRATION IS HOPING FOR. MORE ON THE MARKET AROUND THE WORLD TO BRING PRICES DOWN. JONATHAN: THANK YOU. AND MARIA -- EMERY AND MARIA TADEO, TWO OF THE BEST. THEY'RE PREPARING FOR IT COME WHEN HE WAS TO EMERY -- ANNMA RIE, THEY CAN SEE WAS ON THE HORIZON AND IT IS NOT PRETTY. TOM: IT'S ALSO ABOUT LOGISTICS, MOVING AROUND AND STORING WHAT THEY HAVE. PEOPLE TALK ABOUT A MARSHALL PLAN. YOU GOT TO GET IN THE BOATS, MOVE THE BOATS OVER AND WHAT YOU DO WHEN IT IS AT ROTTERDAM? THAT IS WHAT THIS COMES DOWN TO. IT IS HARDER TO FIND THE STORY THAN THE MEDIA. JONATHAN: IT WILL BE INTERESTING TO SEE HOW MUCH THE PRESIDENT GETS OUT OF THE MIDDLE EASTERN TRIP. IN FRONT OF CAMERAS AND MICROPHONES, IT WAS OBVIOUS WHAT HE WAS DOING, HE WAS IN THE KNOW. TELLING HIM THAT BASICALLY THE PARTNERS IN THE MIDDLE EAST CAN'T SPARE CAPACITY A LOT OF PEOPLE WOULD HOPE. TOM: I SEE MR. MICRON ON THE SIDE -- MR.MAC MACRON ON THE SIDE. IT'S GOING TO BE PRETTY. AS THE LADY SAID, IT'S ABOUT THE CALENDAR. WE ARE IN THE THIRD QUARTER AND WE WILL FOCUS ON THAT. JONATHAN: FUTURES DOWN 1.3% ON THE S & P 500, THE NASDAQ DOWN BY 1.6%. CLOSING THE FIRST HALF IN A WAY THAT DOMINATED THE FIRST HALF WITH A LOT OF RED. YIELD -- LOOKING AHEAD TO ECONOMIC DATA THIS MORNING, INITIAL JOBLESS CLAIMS, AND OUR 35 MINUTES AWAY. > > THIS HAS BEEN PAINFUL. JON: LOSSES IN EQUITIES, LOSSES IN BONDS. LOSSES ON THE S & P 500. FUTURES DOWN 1.3% ON THE SESSION. BEFORE TODAY, ON THE QUARTER, WE WERE DOWN ON THE S & P 500. EQUITIES DOWN, YIELDS HIGHER. OR RECENTLY, THE THINGS ARE GOING THE OTHER WAY IN THE BOND MARKET. TUESDAY, TENS AND 30, THE DATA IS WEAKER. THIS WEEK, SEEING A RANGE OF FEDERAL INDEXES, THE DALLAS FED, THE RICHMOND FED, DISAPPOINTING. YIELDS HAVE STARTED TO COME BACK IN, DOWN FIVE BASIS POINTS TODAY ON A 10 YEAR. CORPORATE SPREADS WIDER. CORPORATIONS HAVE TO PAY OVER THE RISK-FREE ASSET. CREDIT SPREADS. WE COULD TALK ABOUT THEM RIGHT NOW ON HIGH YIELDS. TOM WANTED THE DEFINITION, THAT SORTS THAT OUT. TOM: WE ARE ALL JARGON THIS HOUR. JON: PICTURE THIS, HIGH-YIELD SPREADS. YOU SEE THREE PEAKS. ONE IN THE MESS OF NOVEMBER 2020, ONE RIGHT NOW, ONE IN 2018. THINK OF THOSE THREE PEAKS AND HIGH YIELD CREDIT SPREADS. WHAT YOU WILL SEE IS 550 AT THE RIGHT END, WHERE WE ARE NOW. AT THE END OF 2018, 550 BASIS POINTS. IN BETWEEN, THIS PARABOLIC MESS. THE FIRST IS A PROBLEM, AT THE END OF 2018, THE INFLATION WAS STILL LOW, THE FED TURNED DOVISH. THE SECOND ONE, INFLATION WAS LOW AND THE FED COULD BE MAX DOVISH. THE THIRD PEAK YOU SEE ON THAT CHART, THAT IS A FEATURE, NOT A BUG. THAT IS A DIFFERENT STORY. THIS FEDERAL RESERVE IS TRYING TO GET INFLATION DOWN, NOT UP. AS THEY DO THAT, THEY WANT TO TIGHTEN FINANCIAL CONDITIONS. WHEN YOU HEAR PEOPLE SAY IT IS A FUTURE, NOT A BUG, THAT IS SOMETHING YOU HAVE TO GET USED TO. TOM: YOU'VE GOTTEN EASY MOVE ON INFLATION AS YOU TAKE OUT SOME OF THOSE NON-CORE FEATURES, AND IT IS HEAVY LIFTING FROM 5%. JON: I THINK THAT WAS JARGON FREE. TOM: I THINK IT WAS. JON: YOU LOOK LIKE YOU ARE IN PAIN. OK. [LAUGHTER] PRICE ACTION, LET'S GET SINGLE NAMES. LISA: TO PICK UP ON THE STORY OF A FED REACTION THAT IS NOT GOING TO COME INTO GIVE FREE MONEY TO THIS MARKET TO SAVE THE MARKET, HIGHLIGHTS THE FROST BEING TAKEN OUT OF THE MARKET. CAN SEE IT WITH SPECIFIC NAMES, ESPECIALLY BIT DOUG, OR BIT COIN GOES AS HIGH AS $47,000. IN MARCH TUPELO $19,000 AT ONE POINT. WE ARE LOOKING AT THIS MESS IN THE BITCOIN AND CRYPTO SPACE. COIN BOYS -- COINBASE NOUN -- DOWN 5%. DIGITAL DOWN 4.3%. THE PETER SCHEER STORY OF HOW MUCH MORE BROADLY THIS PAIN WILL BE FELT IN -- NVIDIA WITH THEIR CHIPS BEING USED IN MINING TECHNOLOGY THAT A LOT OF CRYPTO ASSETS FANATICS USE. THOSE SHARES DOWN 2.2% FOLLOWING A 47% DECLINE THAT WE HAVE SEEN THIS YEAR FOR THIS SPACE. IT IS THE RETAIL SPACE, WE HAVE BEEN TALKING ABOUT THE EARNINGS, SOME CALLS WE HAVE -- THAT HAVE BEEN DRAMATIC. CARNIVAL SHARES DOWN MORE THAN 14% AFTER YESTERDAY, MORGAN STANLEY HAD A BARE CASE OF SHARES GOING TO ZERO. THEY ARE CONTINUING THAT WITH A 3.5% DECLINE AFTER THE OPEN. REDUCING THE FORECAST DRAMATICALLY FOR WHAT THEY EXPECT WITH EARNINGS THIS YEAR. BECAUSE OF A LACK OF DEMAND. SHARES DOWN NEARLY 19%, CONFIRMING THAT STORY. TOM: WHAT IS GREAT ABOUT RESTORATION HARDWARE, ON PAGE 482 OF THEIR CATALOG, YOU CAN BUY OIL DRUMS FROM RESTORATION HARDWARE TO PUT IN YOUR LIVING ROOM. LISA: THANK YOU, TOM. I WILL CHECK IT ON AND -- CHECK IT OUT AND PASTOR MEDICALLY ON THAT. AMAZON SHARES DOWN 2%. I DO NOT THINK YOU CAN BUY BARRELS OF OIL. JON: I DO NOT THINK YOU CAN, EITHER. THE AMAZON RECESSION IS HERE. LISA: EXACTLY. IT HAS NOT BEEN FULLY PRICED, THEY SEE THE DECLINES CONTINUING IN SHARES AS WE GET THE TEA LEAVES. JON: I HAVE TO AGREE. SHE IS SPOT ON. WE KEEP RINGING IT UP IN CONSUMER HEADWINDS, THE PAIN IS ABOUT TO TAKE PLACE IN RETAIL. WHEN SOMETHING IS TALKED ABOUT, SO WELL UNDERSTOOD, YOU THINK IT WAS WELL PRICED. EVERY TIME A RETAILER COMES OUT WITH THESE NUMBERS, THEY GET HAMMERED BY NUMBERS LIKE 10%, OR 25% IF YOU ARE BED BATH & BEYOND OR TARGET. TOM: LESS SURPRISE AT THE EARNINGS CONFERENCE CALL, RIGHT NOW JOINING US IS DANIEL SCULLY, HEAD OF MARKET RESEARCH AND STRATEGY FOR MORGAN STANLEY WEALTH MANAGEMENT. THE TEST -- TEXTBOOK IS MONEY ILLUSION, WHICH IS, CORPORATE AMERICA HAS A REAL GROWTH, LOUSY. PLUS, BIG GROWTH, INFLATION. OUR CORPORATE'S THINKING IN NOMINAL TERMS, WHERE IT IS A GOOD SPIRIT, OR THEY --OR ARE THEY INFLATION ADJUSTING? DANIEL: IT IS FANTASTIC TO BE BACK IN STUDIO. THEY HAVE BEEN THINKING WERE NOMINAL, BUT IT IS STARTING TO SHIFT TOWARDS THE REAL TERM. TOM: I AGREE. THEY HAVE THREE OF US GOING BACK TO 1975. DANIEL: WHEN YOU LOOK AT MEASURES AND SURVEYS OF CORPORATE CONFIDENCE IN PARTICULAR, YOU'RE STARTING TO SEE DETERIORATION ON THE MARGIN. ONE OF THE BOWL CASES THAT WE SEE IN THE INVESTMENT CYCLE, THAT IS ONE OF THE ITEMS ON THE HORIZON THAT I THINK MIGHT BE CONCERNING. JON: YOU NAILED IT THIS YEAR, YOU HAVE BEEN BEARISH ON THE EQUITY MARKET. I WILL NOT SAY YOU HAVE BEEN WOEFULLY BEARISH ON THE ECONOMY. THE NEXT SHOE TO DROP FOR YOU GUYS IS EARNINGS. RUN US THROUGH WHERE YOU THINK THAT PAIN IS GOING TO BE CONCENTRATED, AND HOW POORLY PRICED MARKETS ARE WITH THIS MONTHLY CORRECTION WE HAVE HAD THIS YEAR. DANIEL: YOU ALLUDED TO SOME OF THE ISSUES CONCERNING RETAIL, WHICH WE CONTINUE TO SEE. WHEN WE THINK ABOUT THE OVER EARNING THAT WENT ON, PLUS COST PRESSURES, PLUS LOW INCOME CONSUMER HEADWINDS COMING FROM INFLATION, IT IS A PERFECT STORM FOR THAT PARTICULAR SECTOR. WE SEE FURTHER PAIN TO COME ON THE RETAIL FRONT AND OTHER POCKETS OF CONSUMER. I THINK INDUSTRIALS IS ANOTHER AREA WHERE YOU HAVE TO BE CAUTIOUS THIS QUARTER. WE HAVE SEEN A STRONG DOLLAR, ACUTE WEAKNESS IN EUROPE. THE ECONOMY THERE IS IN MUCH MORE DIRE SHAPE. INDUSTRIALS IS ANOTHER AREA WE NEED TO BE THINKING ABOUT ON THE CAUTIOUS SIDE. JON: THE INDEX HAS BEEN MECHANICALLY CHALLENGED BECAUSE OF THE PAIN IN TECH. DANIEL: MARIA: IT IS -- DANIEL: IT IS FASCINATING. WE HAVE SEEN PHASE ONE OF THE BEAR CYCLE, AND NAUSEA FROM THE END OF LAST YEAR. WHEN YOU THINK ABOUT PHASE TWO, IT IS MORE EARNINGS RELATED. WE ARE GOING TO SEE THE VEIL LIFTED AT THE NEXT CALL IN SEVEN WEEKS. AS IT PERTAINS TO TECH, THERE IS AN IRONIC NUANCE IN THAT THEY HAD THE MOST SUSCEPTIBLE VALUATION RISK AS EARNINGS SHOT HIGHER. ON EARNINGS, YOU COULD MAKE A CAST -- CASE THAT TECH AND EARNINGS GROWTH MAY BE MORE RESILIENT. TWO THINGS TO CORROBORATE THAT, NUMBER ONE. WHEN YOU LOOK AT A COMPANY LIKE AN EXTENSION THAT REPORTED A WEEK AGO A VERY BROAD READ ON THE DIGITAL ECONOMY, THEY ARE ONE OF THE BIGGEST DIGITAL CONSULTANTS OUT THERE. THEY SAID DEMAND CONTINUES TO GROW IN 13 OUT OF 15 SECTORS THEY COVER. NUMBER TWO, MORGAN STANLEY'S CIO SURVEY SAID SOFTWARE SPEND IN CORPORATE ENTERPRISE SECURITY SPEND IS SLOWING, BUT DOWN TO AVERAGES THAT WERE IN LINE PRE-COVID. I.T. SPEND IS BENDING, BUT IT IS NOT BREAKING. THAT IS A KEY POINT FOR OVERALL MARKET EARNINGS. LISA: WHAT THAT COULD DO TO THE OVERALL INDEX LEVEL, DO YOU THINK THE PENDULUM HAS SWUNG TO THE GLOOM SIDE THAT WE COULD BE REACHING A BOTTOM BECAUSE OF WHAT IS GETTING BAKED IN? DANIEL: IT IS ABOUT TIMELINE. IN THE NEXT SEVERAL WEEKS, YOU REACHING PEAK UNCERTAINTY RELATED TO PREANNOUNCEMENT SEASON. WE WILL SEE IF THAT HAPPENS BEFORE JULY. WE HAVE GOT QT AND THE SHRINKING OF BALANCE SHEETS IN FULL FORCE. VOLATILITY IS GOING TO REMAIN HIGH, WE WILL SEE A WIDE DISPERSION AS WE GET INTO EARNINGS. WE ARE NOT THERE YET IN TERMS OF CALLING THE BOTTOM. IT IS ABOUT HOW DEEP SLOW DOWN, HOW DEEP IN EARNINGS PULLBACK WE CAN HAVE. AS JONATHAN ALLUDED TO, WE SEE THIS AS A SHALLOW PULLBACK. THE CYCLE WAS NOT LED BY LEVERAGE AND EXCESSIVE CREDIT, THAT IS IMPORTANT. YOU WERE TALKING HIGH-YIELD EARLIER, LET'S TALK ABOUT THAT. SOME OF THE GHOST OF HIGH-YIELD PAST, CONSUMER IN INJURY CYCLICALS, ARE NOT HONEST TODAY. ENERGY, HOTELS, AIRLINES. I DO NOT KNOW IF YOU TRIED TO FLIGHT RECENTLY, IT IS NOT PRETTY. WE DO NOT SEE CREDIT BEING THE SOURCE OF THIS CYCLE ISSUES, AND WE DO NOT SEE A HUGE EARNINGS OR ECONOMIC CONTRACTION. JON: THAT IS GOING TO CATCH UP. THAT WAS DANIEL SKELLY. THOSE TWO INDUSTRIES, OUR CAPACITY CONSTRAINT. AIRLINES MORE RECENTLY ARE AT CAPACITY, THERE ARE A LOT OF REASONS BEHIND THAT. LISA: THAT MEANS EXPENSES FLIGHTS -- EXPENSIVE FLIGHTS MAY NOT BE ABLE TO GET YOU TO WHERE YOU WANT TO GO. JON: WHEN YOU SEARCH FLIGHTS AT THE MOMENT, TOM, YOU DO THIS EVERY SINGLE MORNING. I WENT PAST HIS DESK THIS MORNING, WHAT IS UP, UNITED. TOM: FRANCINE HAD A GREAT PANEL IN PORTUGAL, SHE GOT GULFSTREAM. JON: YOU LOOK AT THOSE PRICES, PARTICULARLY THROUGH THE END OF THIS YEAR, YOU WONDER IF THEY ARE GOING TO HOLD UP. AT ONE WHAT -- AT WHAT POINT DOES THE REVENGE TRAVEL STORY, UP. TOM: THERE'LL BE RAPID CHANGES WITHIN AIRLINES. PEOPLE CANNOT AFFORD IT. I LIKE HOW DANIEL, HE IS QUOTING CHARLES DICKENS. IT REMINDS ME OF THE GHOSTS OF BRAMO PAST. LISA: STUCK IN ATLANTA. [LAUGHTER] THAT DID NOT HAPPEN. JON: FUTURES DOWN 1.6% ON THE S & P. FROM NEW YORK CITY THIS MORNING, GOOD MORNING. YOU'RE A DOLLAR -- EURO-DOLLAR, 103. REAL EURO WEAKNESS IN A MIX, DOLLAR STRENGTH THROUGH THE FIRST HALF OF THIS YEAR. FROM NEW YORK, THIS IS BLOOMBERG. RITIKA: ISRAEL FACING ITS FIFTH ELECTION IN YEARS. NOVEMBER 1, THE END OF THE COALITION COULD SET A PRIORITY FOR THE FORMER PRIME MINISTER BITTEN YAHOO --TO COME TO POWER. WORLD POWERS HAVE MADE LITTLE PROGRESS ACCORDING TO THE EUROPEAN UNION. DIPLOMATS MEDIATING DISCUSSIONS AROUND US IN THE ADDITIONAL NEWS AGENCIES, THE U.S. DID NOT SHOW ENOUGH FLEXIBILITY OVER IRAN'S NEED FOR GUARANTEE OF ECONOMIC GAINS. IN TEXAS, FOUR MEN ARRESTED IN CONNECTION WITH THE DEATH OF 53 MIGRANTS SMUGGLED INTO THE U.S. FROM MEXICO AND A TRACTOR-TRAILER. THE VICTIMS WERE BELIEVED TO HAVE BEEN IN THE U.S. ILLEGALLY, MOST COMING FROM MEXICO OR CENTRAL AMERICA. TWO SUSPECTS ARRESTED ON MIGRANT SMUGGLING CHARGES, THE OTHER TWO ON GUN CHARGES. LONDON AND PARIS ARE CANCELING MORE FLIGHTS. AIRLINES TO CUT 30 FLIGHTS FROM THEIR SCHEDULES TODAY, A STRIKE BY FIREFIGHTERS CAUSED 17% OF FLIGHTS AT THE -- GLOBAL NEWS 24 HOURS A DAY, ON AIR AND ON "BLOOMBERG QUICKTAKE." POWERED BY MORE THAN 2,700 JOURNALISTS AND ANALYSTS IN MORE THAN 120 COUNTRIES. I AM RITIKA GUPTA. THIS IS BLOOMBERG. ♪ > > IF WE SEE GREATER PERSISTENCE OF INFLATION, IT LEAVES OPTIONS ON THE TABLE. IT IS QUITE CLEAR, THE RESPONSE TO THIS SHOCK, WE WANT TO HAVE OPTIONS ON THE TABLE. JON: THE CHORUS OF POX, GOVERNOR BAILEY, THE BANK OF ENGLAND POWELL. FUTURES ON THE S & P, -1.5%. ON NASDAQ 100, DOWN BY 1.8 PERCENT. BONDS ARE RALLYING. TREASURIES UP, YIELDS DOWN BY SIX BASIS POINTS. 3.03% ON A 10 YEAR. EURO-DOLLAR, DOLLAR STRENGTH WITH THE EXCEPTION OF THE JAPANESE YEN. EURO-DOLLAR, 103.92. GETTING CLOSER TO LEVELS AGAIN FOR THE SECOND TIME THIS YEAR. TOM: YOU'RE GOING TO SEE THAT OVER THE WEEKEND. CLAIMS COMING UP, SPEECH FROM THE PRESIDENT COMING UP. HOUSECLEANING, THE VIX THROUGH 30 IS A BIG DEAL. IN THE EQUITY SPACE, OK, THE VIX IS SO 1950'S. THE FACT THE VIX IS ABOVE 30 IS ANGST. THE TWO YEAR YIELD, COULD WE SEE A 99 HANDLE ON TENURE? JON: THEY ARE RESPONDING TO BAD NEWS IN A DIFFERENT WAY. THEY ARE NOT A PROVIDER OF BAD NEWS, WE HAVE BEEN TALKING ABOUT HIGH YIELDS, MESSY MARKETS. WE ARE STARTING TO SEE BONDS THE HATE LIKE BONDS. TOM: FROM GLOBAL WALL STREET, TAKE NOTES. JANE FOLEY IS A STUDENT OF FOREIGN EXCHANGE, WITH RABOBANK. FAR MORE LOOKING AT THE LINKAGES BETWEEN FOREIGN EXCHANGE. WHAT I NOTICE, IRREFUTABLE. I KNOW THAT PRESIDENT TRUMP WAS OUT FRONT ON THIS, WAS STRONG DOLLAR. TREY WAITED DOLLAR BY INDIE -- ANY INDICES IS BACK TO 2002. WHAT IS THE SIGNIFICANCE OF A STRONG DOLLAR BACK 20 YEARS? JANE: THIS IS A STRONG DOLLAR. WHAT IT IS REFLECTING IS THE RISKINESS OF OTHER ASSETS. THERE IS A STRONG CORRELATION OR INVERTED CORRELATION BETWEEN THE DOLLAR AND RISKY ASSETS. WHEN RISKY ASSETS ARE NOT PERFORMING WELL, THE DOLLAR GOES UP AND VICE VERSA. WHEN WE LOOK AT THE TONE IN MARKETS NOW, PEOPLE ARE TALKING ABOUT A U.S. RECESSION OVER THE WINTER AND EUROPE, BECAUSE OF GAS PRICES. IT IS SLOWER GROWTH WORLDWIDE. THAT IS A ENVIRONMENT IN WHICH THE DOLLAR PERFORMS WELL, AND RISK ASSETS DO NOT. TOM: I DO NOT GO SHORT-TERM WITH TOO MUCH RESPECT FOR YOUR WORK, BUT I'M GOING TO DO IT ON JUNE 30. WHERE DOES EURO AND EE IN SET UP AGAINST DOLLAR, SEPTEMBER 30? JANE: DOLLAR, EURO-DOLLAR, FOR A WHILE. IT HAS BEEN 103-ISH. WE HAVE HAD THIS MASSIVE SUPPORT LEVEL AT 103.5. WE ARE GETTING CLOSE TO THAT TODAY. IF WE GO BELOW THAT, WE COULD SEE PARITY. WE HAVE BEEN ABLE TO OUTLINE THE RISK FOR PARITY, THIS HAS TO DO WITH EUROPE, GAS PRICES, HIGHER FOR WINTER. THUS HAS TO DEAL WITH THE INFLATIONARY STAGFLATION, PUTTING A FOCUS ON -- FOR THE EURO ZONE. THAT -- WITH RESPECT TO THE YEN, THAT IS A YIELD STORY. THE DOLLAR HAS GONE UP MORE THAN THE YEN, ABOUT 136. IF U.S. YIELD START TO COME DOWN, I THINK THAT GIVES THE BANK OF JAPAN A LITTLE ROOM TO CARRY ON DOING THEIR CONTROL UNTIL THEY WANT TO STOP IT, WHICH IS WHEN WAGES WILL START TO GO UP IN JAPAN. LISA: YOU HAVE BEEN SAYING IT IS BEARISH FOR THE EURO, GIVEN THE GAS CONSTRAINTS FOR GERMANY. WHY HAVEN'T WE SEEN MORE WEAKNESS? JANE: I THINK PEOPLE ARE ONLY BEGINNING TO COME AROUND TO THE RECESSIONARY STORY FOR THE EURO ZONE. WE HAVE HAD THAT FORECAST A WHILE, WE HAVE BEEN AN OUTLIER. MORE RECENTLY, THAT HAS BECOME THE VIEW THAT WE COULD SEE A RECESSION OVER THE WINTER MONTHS HAS BEEN MORE COMMONPLACE IN THE MARKET. WE HAVE LAGARDE IS SENDING THE VIEW THAT WE WILL SEE GROWTH IN THE EURO ZONE. THE FACT SHE IS REITERATING THAT THERE IS PUSHBACK A FACT ABOUT EUROZONE GROWTH. IF YOU LOOK BACK TO LAST WEEK, WE HAD THE GERMAN FINANCIER ECONOMY MINISTER TALKING ABOUT THE POSSIBILITY THAT WE COULD CUT OFF TO SOME INDUSTRIES IN GERMANY AND ITALY, NOT DIFFICULT TO SEE RECESSION IF THAT HAPPENS. LISA: THE SPIRALING EFFECT OF A WEAKENING CURRENCY IN AN INFLATIONARY ENVIRONMENT IS SOMETHING THAT IS A BARE CASE, IT WILL ONLY EXACERBATE INFLATIONARY PRESSURES IN THE EURO REGION, PROMPTING THE ECB TO ACT MORE AGGRESSIVELY, FURTHERING THE DOWNTURN. HOW MUCH ARE YOU LOOKING AT THE INCREMENTAL WEAKENING IN THE CURRENCY AS A BARE CASE FOR THE ECONOMIC TRAJECTORY? JANE: THIS IS INTERESTING. WE HAVE SEEN A LOT IN THE LAST FEW WEEKS AMONGST CENTRAL BANKS. IF YOU LOOK AT THE SPEECH BY CASTRO AT THE BANK OF ENGLAND, SHE WAS TALKING ABOUT THE SPILLOVER EFFECTS OF THE FED HIKING BY A LARGE AMOUNT, THAT COMING THROUGH INTO THE U.K. AND BEING SEEN AS MORE AGGRESSIVE PACE OF INTEREST RATE HIKES IN THE U.K. TO DEFEND THE CURRENCY. YOU CAN SEE THAT IN NORWAY, NORWAY HIKED INTEREST RATES RECENTLY BY 15 BASIS POINTS. IT ONLY SERVED TO STOP CURRENCY GOING DOWN, IT DEBT -- IT DID NOT PUSH THE CURRENCY HIGHER. WE ARE SEEING MOMENTUM, CENTRAL BANKS HAVE TO GO BIG. ALL OF THE BIG ONES ARE GOING BIG. THAT CAN EXTEND TO EIGHT -- ESSENTIALLY -- ACCENTUATE DEMAND. MAYBE FOR EUROPE AND THE U.S., WILL THAT BE SUITABLE, WHERE YOU HAVE LESS WAGE INFLATION AND MORE FULL MOBILE DEMAND? JON: JANE FOLEY OF RABOBANK. I HAVE BEEN SURPRISED BY HOW FEW PEOPLE ARE TALKING ABOUT WHAT SHE IS TALKING ABOUT, CHALLENGES IN THE FX MARKET. THEY ARE EMERGING FOR THE U.K., WITH CABLE AT 120. AND THE EURO ZONE, WITH EURO-DOLLAR UP 103.90. TOM: FEBRUARY 24, CALLED UP DEUTSCHE BANK AND SAID, WE HAVE TO SPEAK TO DR. FOGLER. THAT WAS THE FIRST THING OUT OF HIS MOUTH, WE ARE GOING TO SEE STRONG DOLLAR AND THE NATIONS ARE GOING TO HAVE TO ADAPT. HE IS NOT TALKING THE ANGST OF THE PLAZA COURT, THE THEATER OF THE 1980'S PLAYS A BIG PLACE IN THE MEDIA. THERE IS GOING TO HAVE TO BE A REACTION TO THIS. YOU WONDER WHERE THE LEVEL IS. I HAVEN'T DONE THE MATH WORK, OTHER THAN TO SAY, PLAZA ACCORD STRENGTH IS DISTANT. WE ARE NOT THERE YET. JON: 103.87. IT IS ALMOST THE TOTAL LOSS TO THE PREVIOUS DECADE, WE HAVE GONE FROM FED PUT TO FED CALL. IN THE CURRENCY MARKET, WEAKENING IN THE PREVIOUS MARKET. LISA: IT SEEMS LIKE A LOSING BATTLE FOR BANKS, OTHER THAN THE FEDERAL RESERVE. IF WE ARE RAISING RATES BY A SIGNIFICANT AMOUNT TO DEFEND THE CURRENCY, ONLY TO WEAKEN YOUR ECONOMY, YOU ARE STUCK BETWEEN A ROCK AND A HARD PLACE. JON: SOUNDS LIKE AN EMERGING MARKET. FUTURES DOWN 1.5% ON THE S & P. ON THE NASDAQ, DOWN 1.7. FROM NEW YORK, THIS IS BLOOMBERG. > > IT IS THE FED HIKING THAT HAS SET THE STAGE FOR EVERYTHING. IF THE FED DOES 75, I THINK A FAIR AMOUNT OF TIGHTENING IS BUILT INTO THE MARKET. > > SERVICE PRICES ARE GOING TO BE STICKING. IT IS GOING TO BE HARD FOR THE FED TO SWITCH TO CUTTING MODE. > > I THINK THE MARKETS ARE LOOKING FOR INFLATION TO STABILIZE. > > IF THE INFLATION GOES TO 8%, THAT IS A VICTORY LAP. > > THIS IS "BLOOMBERG SURVEILLANCE." TOM: GOOD MORNING. THE END OF A SECOND QUARTER TO FORGET ABOUT, WE WILL LOOK FORWARD IN THIS HOUR. THE PRESIDENT OF THE UNITED STATES FROM MADRID IN THIS HOUR, CLAIMS. IN THIS HOUR, WE NEED TO RECALIBRATE FOR THE THIRD QUARTER. JONATHAN: AND TAKE STOCK OF THE PAIN WE HAVE SEEN. FUTURES DOWN BY 1.4%. THIS IS ABOUT GETTING INFLATION DOWN AND KEEPING FINANCIAL CONDITIONS TYPE. THAT IS THE FED SUBJECTIVE, WE HEARD FROM MIKE SHOEMAKER OF WELLS FARGO, IT IS A FUTURE, NOT A BUG. TOM: THAT IS THE SCRIPT. WE HAVE TO SEE WHAT THE MARKET SAYS ABOUT THAT, AND HOW THE MARKET AND CHAPS. WHAT I SEE IS DOLLAR STRENGTH. WE TALKED ABOUT THE EURO IN THE LAST HOUR, 103.94. E.M. OVER THE LAST NINE YEARS CANNOT GET OUT OF ITS OWN WAY, DOWN 53% ON A BLENDED JP MORGAN INDEX. JONATHAN: E.M. IS CONFRONTING THEIR OWN PROBLEMS. THAT IS THE STORY, WHAT DO YOU DO WHEN YOU HAVE CONTRADICTORY ISSUES, WHEN YOU HAVE CONFLICTING ISSUES, WHEN YOU HAVE THE ISSUE OF INFLATION TO HIGH AND GROWTH STARTS TO WEAKEN AND YOU NEED TO SUPPORT IT? YOU CANNOT DO BOTH. THEY ARE CHOOSING TO DO SOMETHING ABOUT INFLATION. TOM: E.M. IS EMERGING MARKET, THE OTHER IDEA IS DEVELOPING MARKET, DM. ALL THAT MATTERS IS USD, THAT IS U.S. DOLLAR, WHAT DID JEROME POWELL SAY? JONATHAN: WHEN DID YOU START TO DEFINE EVERYTHING? WHAT IS GOING ON? WHAT IS THIS? HE WANTS TO STRIP BACK THE JARGON FROM THE PROGRAM. TOM: WE ARE NOT GOING TO LOSE THE JARGON. LISA, I AM LOOKING AT THE PRESIDENT, HAS TO ADDRESS DOMESTIC. SOMEHOW, MAYBE THE R WORD WON'T COME UP, BUT THE I WORD WILL. LISA: THE I WORD IS DEFINING THE MARKET. WE ARE ENDING A HISTORIC SIX MONTHS, THIS REFRAMING WE HEARD YESTERDAY FROM CENTRAL BANKERS, WHERE THERE REACTION FUNCTION IS GOING TO BE DIFFERENT IN COMBATING THE "I WORD," INFLATION. IT IS A GAME CHANGER CREATING A LOT OF GLOOM. TOM: DATA CHECK, I NEED TO START WITH A SPREAD MARKET. WE LOOK AT THE GERMAN SPREAD, IT SAYS IT IS WIDER. FRAGILITY WITH ITALY. JONATHAN: YOU ARE IN RARE FORM TODAY. FX MARKET LOOKS LIKE THIS, DOLLAR STRENGTH WITH THE EXCEPTION OF THE JAPANESE YEN, 32.10. CRUDE, 108.50. DOWN 4.2%. TOM: CHIEF GLOBAL STRATEGIST JOINS US RIGHT NOW, YOU WROTE A MIDYEAR REPORT FIVE DAYS AGO. WHAT HAS CHANGED IN THE LAST FIVE DAYS? WHAT IS THE NEW, STAGGERING INTO -- NEWS STAGGERING INTO Q3? > > THANKS FOR HAVING ME ON. I DO NOT KNOW WHAT IS NECESSARY CHANGE. ALL WE HAVE SEEN IS THE CENTRAL BANK UP FROM WHAT THEY ARE HAVING TO DEAL WITH. THEY FINALLY EMPHASIZED THAT PRICE STABILITY HAS TO BE THE NUMBER ONE PRIORITY. FOR MARKETS, IT WAS GIVEN A WAKE-UP CALL. THIS IS NOT GOING TO BE AN EASY RIDE. MAKING THE ASSUMPTION THE FED IS GOING TO STEP BACK FROM THAT, WE HAVE A DIFFERENT VIEW. WE THINK THINGS ARE GOING TO GET TOUGH. JONATHAN: THAT IS ANOTHER WAY OF SAYING, THEY ARE NOT GOING TO TOLERATE EASING OF FINANCIAL CONDITIONS, TIGHTENING, CREDIT SPREADS. I WANT TO KNOW HOW MUCH DOWNSIDE THERE IS TO RISK, DO YOU THINK THIS IS A MOMENT WHERE MARKETS CANNOT RALLY, OR A MOMENT WHERE MARKETS HAVE TO SELLOFF MORE? SEEMA: IT IS INTERESTING. WHEN YOU LOOK AT TECHNICALS, IT IS GETTING NEGATIVE. THERE HAS BEEN A FAIR AMOUNT OF FLOW INTO CASH, WHICH MEANS WE COULD SEE A BIT OF A TECHNICAL RALLY OVER THE NEXT COUPLE OF MONTHS, ASSUMING THERE ARE NO NEGATIVE OR POSITIVE PRINTS ON THE INFLATION SIDE. THAT DOESN'T MEAN THERE IS A SUSTAINED RALLY, WHICH IS GOING TO CONTINUE INTO 2023. AS SOON AS YOU START TO SEE THE SECOND LEG OF THE DOWNTURN, WHICH IS WHEN EARNINGS GROWTH STARTS TO COME DOWN, THAT IS WHEN YOU GET YOUR JOB IN THE EQUITY MARKET. I THINK YOU COULD GET 10 TO 15 DROPS FROM THIS POINT. BETWEEN NOW AND THEN, YOU COULD GET A RALLY. LISA: IF WE ARE DOING A JARGON HOUR, WE WOULD BE TALKING ABOUT A SOFTER SESSION. AS WE TALKED ABOUT HOW MUCH THIS CONTOUR OF THIS PARTICULAR RECESSION WOULD BE DIFFERENT THAN THOSE OF 2008 OR 2009. DO YOU AGREE WITH THIS ASSESSMENT THAT IT IS GOING TO BE SHALLOW, NOT AS PAINFUL AS PREVIOUS DOWNTURNS? SEEMA: I DO. WHEN YOU THINK ABOUT THE GMC, THAT WAS SO MUCH IN BALANCE. THAT DRAGGED IT OUT FOR QUITE SOME TIME. FROM OUR PERSPECTIVE, WE SEE THERE WILL BE A SHALLOW RECESSION, BUT ONCE WE START TO SEE THE FED CUT RATES IN RESPONSE TO RECESSION AND INFLATION FEARS COMING DOWN, HOW FAR DO THEY GO? DO THEY GO BACK DOWN TO 0% LEVELS, OR START TO SETTLE IT BEFORE THE NEW RATE, 2%? I AGREE, THIS IS AN INFLATIONARY PERIOD GOING FORWARD THE NEXT 20 YEARS, MONETARY POLICY IS GOING TO HAVE TO FOLLOW THAT. LISA: HOW DOES THAT RESHAPE YOUR THESIS IN TERMS OF HOW TO REARRANGE YOUR ASSETS? 60/40 HAD ITS WORST QUARTER EVER. SEEMA: I THINK THIS PLAYS INTO THE IDEA, IT IS REAL ASSETS. WE ARE LOOKING AT THE MEDIUM OR SHORT-TERM INFLATIONARY. FROM A BOND SIDE, WE CAN BE THINKING ABOUT HIGHER QUALITY MOVING INTO SLIGHTLY LONGER DURATIONS, BUT THE LONGER DURATIONS DO NOT WORK FOR TO LONG. U.S. TREASURY YIELDS FLOATING TOO FAR IF YOU START TO THINK IN A RECESSION, THE FED IS GOING TO COME TO ZERO. JONATHAN: A COUPLE OF MESSAGES THIS MORNING AND HOW QUICKLY THE CONSENSUS HAS CHANGED. HE SAID, I THINK THE FED WON'T HIKE MUCH IN 2023. THE FED WON'T HIKE 75. INFLATION WILL COME DOWN IN THE FALL. THE FED WILL PAUSE IN EARLY 2023. NO RECESSION, AND A RECESSION. 25% RECESSION RISK. 50% SESSION RISK. A NEW ONE, THE NEW CONSENSUS VIEW IS, RECESSION, BUT A SHALLOW ONE. WE HAVE HEARD THAT SEVERAL TIMES THIS MORNING, A LOT OF TIMES THIS WEEK. TOM: YOU ARE KILLING ME. JONATHAN: GIVE ME SOMETHING. TOM: WITH ALL DISCUSSION, I WOULD LOOK AT WHY Y + G + X, IT IS ABOUT GAMING THE MAGNITUDE OF A SLOWDOWN. JOHN WILLIAMS AND THE NEW YORK FED SAYS THERE IS NOT GOING TO BE A RECESSION, WE ARE GOING TO GET THE AGONY OF A MORE SUBDUED, POSITIVE -- JONATHAN:1 TO 1.5, I THINK IS WHAT HE SAID. RECESSION MAY BE A SHALLOW ONE. ARE YOU COMFORTABLE WITH THAT, AT A LOT OF PEOPLE SEE IT THE SAME WAY, BUT WE HAVE HAD THAT STORY A FEW TIMES AND IT HAS CHANGED QUICKLY? SEEMA: I THINK INVESTORS IN CENTRAL BANKS HAVE BEEN CALLED OUT IN TERMS OF THE INFLATION VIEW. THROUGH ALL OF IT AND ENERGY, THEY ARE GOING TO BE THE WILDCARD. FROM THE RECESSION PERSPECTIVE, BECAUSE WE DO NOT HAVE MAJOR IMBALANCES IN THE SYSTEM, IT IS DIFFICULT TO SEE IT GETTING TO THE GMC PERSPECTIVE. UNLESS, YOU GET COMMODITIES CONTINUING TO RISE, HITTING THE $150 A BARREL. STAGFLATIONARY SHOCK IS A DEEPER RECESSION, AND A LONGER RECESSION. THAT IS THE WILDCARD. JONATHAN: THANK YOU FOR THAT EXPLANATION. SEEMA SHAH OF PRINCIPAL GLOBAL INVESTORS. LISA: ONE OF THE BIG QUESTION MARKS I HAVE IS LEADING UP TO THIS CONSENSUS, PEOPLE SAY IS NOT A LEVERAGED CYCLE. CONSUMERS ARE NOT OVERLEVERAGED, BANKS ARE NOT OVERLEVERAGED, YET, THERE IS MONEY IN THE SYSTEM. IT IS VERY APPROPRIATE. WHAT IS THE RESET -- RECENT PAIN OF DEALING WITH COMPANIES THAT FINANCE AT A 5% RATE, VERSUS 8% RATE? THAT IS A HUGE QUESTION MARK. IF THIS ENVIRONMENT PERSISTS LONG ENOUGH, YOU WILL HAVE REAL PAIN AT THE CORPORATE LEVEL WHEN YOU DEAL WITH THE NEW, FINANCING REGIME OF A INFLATIONARY ENVIRONMENT. I THINK THAT IS SOMETHING THAT IS DIFFICULT TO CAME OUT. JONATHAN: YOU THINK VACATIONS ON BOATS, CRUISE LINERS, THAT IS WHAT YOU ARE THINKING OF? LISA: I PERSONALLY WAS NOT ADVERTISING THAT, BUT I'M THINKING OF CARNIVAL. THEY BORROWED MONEY AT 6%. NOT THAT LONG AFTER THE PANDEMIC BECAUSE OF THE FREE MONEY FROM THE FED. PEOPLE ARE SPECULATING THAT THERE EQUITY COULD GO TO ZERO. HOW MUCH HAS THE SCENE CHANGED OVERNIGHT, HOW ANYMORE CARNIVALS ARE THERE? TOM: WE ARE GOING TO HEAD TO NEW ORLEANS FOR CARNIVAL. JON, THIS REMINDS ME OF WHAT WE NEED TO CONSIDER FROM A CENTRAL-BANK STANDPOINT, THE BRAMOPUT. IT IS MORE NUANCED. YOU FOLD IN A LITTLE SPREAD MARKET JARGON AND DEBT, THE BRAMOPUT IS IMPORTANT. WE APPRECIATE THE MALES, THE TWITTER FEED. JON, WE ARE TAKING IN THE STRATEGIC END OF QUARTER LUNCH. TEAM SURVEILLANCE AT MCDONALD'S ON 3RD AVENUE. ALPHA NEW JERSEY EMAILS IN, HE IS LOOKING FOR AN ALL CLICHÉ SURVEILLANCE TO MOVE INTO Q3. [LAUGHTER] JONATHAN: DICTIONARY CORNER WITH TOM KEENE. LISA: I AM NOT GOING ON A CRUISE. PROBABLY GOING TO END UP IN THE DETROIT AIRPORT. JONATHAN: WHAT IS WRONG WITH THE DETROIT? LISA: NOTHING IS WRONG WITH DETROIT. I THINK IT IS FABULOUS. REALLY. TOM: SHE IS DOING A HOME ALONE INVITATION. LISA: WE ARE OUT OF TIME. JONATHAN: DOWN 4% ON THE S 70 -- S & P. THIS IS BLOOMBERG. RITIKA: U.S. REGULATORS TO EXPAND THE USE OF ITS COVID DRUG, PAXLOVID. THE DRUG IS USED ON AN EMERGENCY BASIS, NOW USED TO TREAT PEOPLE AT HIGH RISK OF DEVELOPING SEVERE DISEASE OR ANTIVIRAL TREATMENTS FOR PEOPLE FROM MILD TO MODERATE COVID. -- TRAVELS TO HONG KONG CALLING THE CITY REBORN, SINCE HE LAST VISITED FIVE YEARS AGO. HIS COMMENTS WERE IN APPARENT REFERENCE TO THE RESTRICTIONS BEIJING AND POST. GOVERNOR PUTIN REACTED TO NATO'S DECISION TO ADMIT POLAND AND -- FINLAND AND SWEDEN TO NATO. ALLOWING UKRAINE TO JOIN, NATO -- RUSSIA WILL HAVE TO RESPOND. LIZ CHENEY HAS FORMED -- HAS WARMED -- WARNED REPUBLICANS THEY CANNOT BE LOYAL TO BOTH TRUMP AND THE CONSTITUTION. CHENEY IS VICE CHAIR OF THE COMMITTEE INVESTIGATING THE ATTACK ON THE CAPITAL. GLOBAL NEWS 24 HOURS A DAY, ON AIR AND ON "BLOOMBERG QUICKTAKE." POWERED BY MORE THAN 2,700 JOURNALISTS AND ANALYSTS IN MORE THAN 120 COUNTRIES. I AM RITIKA GUPTA. THIS IS BLOOMBERG. ♪ > > CERTAINLY, THERE IS A RISK. I WOULD NOT AGREE IT IS THE BIGGEST RISK TO THE ECONOMY. THE BIGGER MISTAKE WOULD BE TO FAIL TO RESTORE PRICE STABILITY. JONATHAN: REAFFIRMING WHAT YOU HAVE HEARD SO MANY TIMES, NA MUCH MORE FORCEFUL WAY, FROM CHAIRMAN POWELL OF THE FEDERAL RESERVE. PRESIDENT LAGARDE TOGETHER WITH PRESIDENT BAILEY, A BRILLIANT PANEL. FUTURES, NEGATIVE ONE POINT 4% ON THE S & P 500 GREAT ON THE NASDAQ 100, NEGATIVE TWO. EURO-DOLLAR, NEGATIVE .5%. WE ARE CLOSE TO THOSE LEVELS, 183.60. REAL DOLLAR STRENGTH. TOM: -- SAID THERE IS NO RESPITE FOR THE GLOBAL ECONOMY. JONATHAN: LOVE TO DR. CARSON'S. TOM: WE ARE WAITING FOR THE PRESIDENT OF THE UNITED STATES IN MADRID, WE ARE GOING TO SEE HOW THAT GOES UNDER THE 8:30 MOMENT, MICHAEL MCKEE WITH US. I AM GOING TO RIP UP THE SCRIPT AND GO TO WHAT WE HEARD FROM CHAIRMAN POWELL ONCE AGO, THIS GOES BACK TO THE WONDERFUL NEIL SAUCE AT CREDIT SUISSE YEARS AGO. NEIL SAUCE WOULD POUND THE TABLE ON ASYMMETRIC OUTCOMES, THE THIRD RAIL OF JEROME POWELL AND ALL OF PHD'S -- ALL THE PHD'S AROUND HIM, IS THERE IS A ASYMMETRY AND A MUCH BIGGER RISK IF THEY ARE WRONG ON INFLATION. MICHAEL: THAT IS THE ARGUMENT THE FED IS MAKING, THAT IS THE ARGUMENT, TO AN EXTENT, CHRISTINE LAGARDE IS MAKING. YOU LOOK BACK AT HISTORICAL INFLATION, YOU SEE WHEN IT STARTED RISING IN THE 1960'S, IT WASN'T UNTIL THE MID-1970'S THAT IT STARTED TO COME DOWN. YOU ENDED UP WITH ABOUT 14 YEARS OF EXTRAORDINARILY ELEVATED INFLATION, THAT JUST AWAY AT AND COMES AND LIVING STANDARDS. THE FED DOES NOT WANT TO REPEAT THAT. EVERY CENTRAL BANKER, IT IS LIKE THE STEPHEN KING NOVEL FOR CENTRAL BANKERS. IT IS THE THING THAT KEEPS THEM UP AT NIGHT TERRIFIED. YOU READ BETWEEN THE LINES, IT MEANS THEY ARE GOING TO GO HARD ON TRYING TO BRING DOWN INFLATION. THEY WILL RAISE RATES. TOM: FENWAY USE TO SIT IN FRONT OF LYNCH, WHAT FRIGHTENED STEPHEN KING WAS THE RELEASE OF THE BOSTON RED SOX. CALL IT EIGHT TO SEVEN, VERSES FROM FIVE TO FOUR. THOSE ARE TWO DIFFERENT WORLDS. MICHAEL: THOSE WILL BE TWO DIFFERENT WORLDS. THEY DID TALK IN THE SESSION YESTERDAY ABOUT THE IDEA THAT WILL SEE A SLOWER RETURN TO A LOWER RATE. THEY NEED TO KEEP GOING TO THAT LOWER RATE. THEY COULD ADJUST THEIR RATE LEVELS, BECAUSE THEY KNOW THEY COULD COME DOWN RELATIVELY QUICKLY TO THE 5% OR 4% RANGE. IT WILL TAKE A WHILE TO GET IT BACK DOWN TO 2%. I HAVE TALKED TO A NUMBER OF FED OFFICIALS, THEY SAY WE HAVE GOT TO GET BACK TO 2%. WE PROMISED 2%. IF WE LIVE WITH MORE, PEOPLE ARE NOT GOING TO TRUST US ANYMORE. LISA: IT IS HARD TO MAKE THE ARGUMENT THAT THEY ARE DATA-DEPENDENT. THE ADP JOBS REPORT, WE DISCOUNT THAT AS COMPLETELY INACCURATE. THEY ARE SUSPENDING IT FOR TWO MONTHS TO RE-TRIGGER THE INPUTS. DO WE UNDERSTAND WHAT HAS GONE WRONG WITH THIS METRIC? MICHAEL: NOT EXACTLY. THE ADP ORIGINALLY WAS A LOOK AT THE NUMBER OF PEOPLE WHO WERE ON ADP'S PAYROLL, THEY DO DATA PROCESSING PAYROLLS FOR THOUSANDS OF COMPANIES. THAT DID NOT WORK. THEY ROOT -- RETOOLED IT AND PUT IN ADDITIONAL MATHEMATICS THAT INCLUDED THE JOBLESS CLAIMS NUMBERS, THAT IMPROVED THE NUMBERS SOMEWHAT. AS WE HAVE SEEN, PARTICULARLY IN RECENT MONTHS, THE ADP NUMBERS, AND OFTEN WAY OFF OF WHERE THE LABOR DEPARTMENT NUMBERS ARE. SO, THEY ARE TRYING TO FIGURE OUT HOW THEY CAN MAKE IT MORE ACCURATE. IT IS SOMETHING THAT IS TRADED ON EVERY WEEK. SOMETIMES, INFLUENCES ECONOMISTS VIEWS. IT IS NOT SOMETHING THAT IS AN ACCURATE PREDICTOR OF WHAT THE JOBS LEVEL IS GOING TO BE. JONATHAN: LOOKING FORWARD TO IT TOMORROW, ESPECIALLY THE PMI'S WE HAD AND THE DECELERATION. WHAT WE HAVE SEEN, I WOULD LOVE YOUR VIEW, SOME REGIONAL FED INDICATORS HAVE BEEN DREADFUL. THE DALLAS FED, RICHMOND FED. I WANT TO KNOW HOW MUCH WEIGHT YOU WOULD PUT ON THOSE READINGS. MICHAEL: THIS IS THE KIND OF THING THAT MAKES YOU RAISE HER EYEBROWS, MAKES YOU WANT TO LOOK DEEPLY INTO THE SITUATION WITH MANUFACTURING IN THE COUNTRY. ISF DOES NOT USUALLY REFLECT CHANGE IN ANY ONE OF THOSE PARTICULAR REGIONAL NUMBERS, BUT IF THEY ARE ALL GOING DOWN, THAT MAY TELL YOU SOMETHING ABOUT WHAT IS HAPPENING. THEY ARE NOT AS STATISTICALLY VALID OR OLD AS THE ISF NUMBER, BUT THE ISM IS GOING TO REFLECT SOME PROBLEMS. WE SAW IT GO DOWN LAST MONTH, IT IS A QUESTION OF, DOES IT GO INTO NEGATIVE TERRITORY? WE WANT TO SEE THE PRICE INDEX FOR ISM, WE WANT TO SEE THE EMPLOYMENT INDEX FOR ISM. EVERY DATA POINT MATTERS. JONATHAN: MIKE MCKEE, THANK YOU. MORE DATA POINTS COMING OUT AND ABOUT SIX MINUTES. YOU WILL NOT HEAR FROM ADP IN QUITE A WHILE. SOME OF YOU WILL WELCOME THAT. LIVE FROM MADRID, SPAIN. THE ROOM IS GETTING READY FOR A NEWS CONFERENCE WITH THE PRESIDENT OF THE UNITED STATES, HIGH-LEVEL TALKS OF THE PRESENT OVER THE LAST WEEK OR SO ON THE NATIONAL STAGE. BEFORE HE DEPARTED, WE WILL HEAR FROM THE PRESIDENT OF THE UNITED STATES. TOM: WE ARE NOT GOING TO HEAR FROM THE PRESIDENT OF ITALY, I BELIEVE HAS LEFT AND GOES BACK TO A DOLLAR A GALLON VASELINE IN ROME -- EIGHT DOLLARS A GALLON GASOLINE A ROME -- IN ROME. THEY ARE GOING AWAY FROM THE HORROR OF THE WAR. JONATHAN: THAT DISCUSSION INFLUENCES THE DOMESTIC PRESSURE AT HOME, THE ITALIAN PRIME MINISTER GOING HOME TO WHAT THE AMERICAN PRESIDENT WILL HAVE TO GO HOME TO. AND, THE GERMAN CHANCELLOR AND FRENCH EATER. LISA: HOW MUCH DOES THAT INFLATION BACKDROP FEED INTO THE SOCIAL UNREST? HOW MUCH SUPPORT DOES HE HAVE HEADING INTO THE SECOND HALF OF HIS TERM TO MAKE A DIFFERENCE, GIVEN SOME OF DISAGREEMENTS ENFORCED OVER THE PAST COUPLE OF WEEKS? JONATHAN: YOU HAVE TO ANSWER THAT, GIVEN THE PROXIMATE -- PROXIMITY OF THE ISSUES. THEY HAVE A MUCH STICKIER PATH IN 2022. TOM: I AM SORRY, I THOUGHT YOU WERE GOING TO LISA. I WAS LOOKING TO SEE WHERE PRESIDENT BIDEN'S, I GUESS WE ARE WAITING FOR HIM. JONATHAN: GOOD TO HAVE YOU BACK. TO PARTICIPATE. TOM: I WAS READING A MEMO ON JARGON. JONATHAN: SURE YOU ARE. WHEN THE PRESIDENT TAKES THE STAGE, WE WILL TAKE YOU TO THE NEWS CONFERENCE. THE NEWS CONFERENCE FROM THE NATO SUMMIT IN MADRID, SPAIN. THIS IS BLOOMBERG. JONATHAN: MIKE MCKEE IN THE BUILDING, WHICH MEANS WE ARE SECONDS AWAY. ON THE NASDAQ 100, DOWN BUYING -- DOWN BY 1.6. MORNING, MIKE. MICHAEL: JOBLESS CLAIMS HIGHER, GOING TO SEE WHAT THE REVISION IS TO LAST MONTH. WE ARE UP BY 2000, NOT A LOT. NOT A BIG CHANGE. 231 THOUSAND JOBLESS CLAIMS, AND JOBLESS CLAIMS FOR THE WEEK ENDING JUNE 25. THE INCOME AND SPENDING NUMBERS IS WHAT EVERYBODY HAS BEEN WAITING FOR. PCE INFLATION NUMBERS, UP 6/10. IT LEAVES THE DEFLATOR AT 6.3% ON A YEAR-OVER-YEAR BASIS, WHICH IS PROBABLY GOOD NEWS FOR THE ADMINISTRATION AND THE FEDERAL RESERVE. ON A MONTH OVER MONTH BASIS, CORE IS UP 3/10, THE SAME OF -- SAME AS LAST MONTH. THAT DROPS, THE YEAR OVER YEAR NUMBER TO 4.7%, FROM 4.9%. THIS HAD BEEN EXPECTED, BECAUSE OF THE BASE EFFECTS INVOLVED AND WE ARE GETTING A WEDGE BETWEEN THE CORE RATE AND THE HEADLINE RATE. THE HEADLINE RATE IS MUCH MORE INFLUENCED BY ENERGY PRICES, THE PROBLEM FOR THE FED IS THAT ENERGY PRICES HAVE COME DOWN SIGNIFICANTLY, BUT IF THEY GO BACK UP AGAIN, THEY CANNOT DO ANYTHING ABOUT IT. THEY HAVE TO FOCUS ON THE CORE TO GET A GOOD IDEA OF WHERE INFLATION IS. THEIR FAVORITE INDICATOR ON A CORE BASIS IS A LITTLE BETTER. SCROLLING THROUGH THE DATA HERE, I WANT TO POINT OUT INCOMES WERE UP .5%. SPENDING UP .2%. THAT IS AFTER A 6/10 GAINED THE MONTH BEFORE, REVISED DOWN FROM 9/10. TAKING SOME OF THE INFLATION OUT OF WHAT PEOPLE HAD BEEN SPENDING. THE NEWS ON INCOME, BETTER THAN FORECASTED. THE SAME AS LAST MONTH THAT .5%. SPENDING ON AN INFLATION-ADJUSTED BASIS, DOWN .4. WE ARE SEEING INFLATION AFFECT THE SPENDING NUMBERS, I WOULD IMAGINE THERE IS INFLATION IN THE INCOME NUMBERS, AS WELL. JONATHAN: I'M GOING TO BORROW THAT PHRASE USED EARLIER, A LITTLE BETTER TO THE MARKET. EQUITY FUTURES DOWN 1% ON THE S & P 500. WHAT WE SAW IN YIELDS IS STARTING TO ROLL OVER A LITTLE BIT MORE, SIX BASIS POINTS AT 3.02%. EURO-DOLLAR GOES TO 104. TOM: MAY BE INCONSEQUENTIAL, MAYBE NOT. WE HAVE THE SUMMIT TOGETHER WITH THE OTHER DATA. JON, AS YOU MENTIONED, THE DATA HAS BEEN SOGGY. IS THIS SOGGY DATA? I DO NOT WANT TO BE GLOOMY. YOU SAW YIELDS MOVE IN BASIS POINTS, MAYBE THEY ARE ONLY IN SEVEN BASIS POINTS. I AM GOING TO WATCH THE 10 YEAR YIELD, IF THAT BREACHES 3%, THAT WILL GET MY ATTENTION. JONATHAN: A COUPLE BASIS POINTS AWAY. AS I WAS LOOKING AHEAD TO THE WEEK, YOU DID A GREAT JOB. ISM SAT THERE GOING INTO THE LONG WEEKEND, I THINK WE ARE FOCUSED ON. I WOULD LOVE TO KNOW WHAT YOU'RE LOOKING FOR GOING INTO THAT. MICHAEL: I THINK WE WILL SEE A DECLINE IN THE OVERALL HEADLINE NUMBER, GIVEN THE REGIONAL INDEXES SHOW A DECLINE. IT WILL BE INTERESTING TO SEE WHAT THE PRICES PAID NUMBERS ARE, SOME OF THESE HEADLINE ENERGY NUMBERS HAD OTHER COMMODITY PRICES, HAD DROPPED OVER THE LAST MONTH. WE WILL SEE IF PRICES COME DOWN, THAT WILL PROBABLY BE SEEN AS GOOD NEWS. THE FED IS LOOKING AT CORE, BUT ANY TIME YOU GET A DROP IN THE HEADLINE RATE, IT IS GOOD NEWS FOR THE FED. IT PUSHES BACK THE IDEA THAT INFLATION IS GOING TO GET OVER ENTRENCHED IN THE ECONOMY. I WAS LOOKING AT THE NUMBERS FOR PERSONAL INCOME AND SPENDING. DISPOSABLE PERSONAL INCOME, UP 5/10. NOT A MAJOR IMPACT. ON A MONTH OVER MONTH BASIS, ON WHAT YOU GET AFTER TAXES. A REASONABLE FIGURE THERE. JONATHAN: THANK YOU. LOOKING AHEAD TO TOMORROW MORNING AT 10:00 A.M., EASTERN TIME. FEATURES DOWN -- FUTURES DOWN 1%. TOM: WE WAIT FOR THE PRESIDENT OF THE UNITED STATES IN MADRID. WHAT IS YOUR BIGGEST MYSTERY INTO Q3 ON THE CLASSIC EQUATION ASSUMPTION, WHICH IS THE GREAT MYSTERY? STANLEY: YOU NEED TO WATCH THE CONSUMER AND HOUSING. THE MARKETS ARE STARTING TO SMELL THE ECONOMIC SLOWDOWN, WHICH IS PREMATURE, BUT THAT IS THE ISSUE OF THE DAY. IF WE ARE GOING TO GET A SLOWDOWN, THAT IS WHERE YOU ARE GOING TO SEE IT. WE HAVE BEEN FOCUSED ON HOUSING, IT DOES SEEM TO BE COOLING OFF. IT IS COOLING FROM A HOT TEMPERATURE. THESE NUMBERS ON THE CONSUMER ARE IS APPOINTING. I THINK THE CONSUMER IS GOING TO HAVE A BIG SUMMER, PEOPLE GETTING OUT AND DOING THE THINGS THEY HAVEN'T BEEN ABLE TO DO THE LAST COUPLE OF YEARS. THE DATA THIS MORNING ARE NOT ALL THAT ENCOURAGING. LISA: THAT IS WHERE I WANTED TO GO, WE'LL SPENDING DECLINED FOR THE FIRST TIME GOING BACK TO DECEMBER. MORE PEOPLE EXPECTED THIS IS INFLATION-ADJUSTED SPENDING PER A HOW QUICKLY IS THE CONSUMER ROLLING OVER, AND TERMS OF THEIR ABILITY TO ACCEPT THE PRICE INCREASES? STEPHEN: THERE IS ABILITY IN WILLINGNESS. THE ABILITY IS UNUSUALLY STRONG, CONSUMERS ARE SITTING ON A HUGE PILE OF CASH THAT ACCUMULATED DURING THE PANDEMIC. THE FISCAL LARGESS, IN PARTICULAR. CONSUMERS HAVE THE WHEREWITHAL, AT LEAST IN AGGREGATE, TO SPEND. INFLATION IS GOING TO CREATE STRESS FOR CERTAIN HOUSEHOLDS. THERE IS A QUESTION ABOUT WILLINGNESS, I THINK GIVEN THE CONSUMER CONFIDENCE DATA, YOU HAVE TO WONDER ABOUT HOW EAGER CONSUMERS ARE GOING TO BE TO CONTINUE TO SPEND. MY SENSE IS, THEY ARE ENTHUSIASTIC, CERTAINLY ANY FIELD TRIP TO THE AIRPORT WOULD SUGGEST THAT PEOPLE ARE LOOKING TO GET OUT. TOM: LISA, YOU ARE GETTING BACK FROM THE FIELD TRIP TOMORROW. LISA: IT IS GOING TO BE A NIGHTMARE. HOW MUCH DOES THIS PART OF THE STORY, A BLIP IN REVENGE TRAVEL, PEOPLE ARE REPRISING THE PAST, WERE NOT ABLE TO LIVE DURING THE PANDEMIC THAT ENDS. IT ENDS WITH THE FACT PEOPLE HAVE TRAVELED, THEY ARE EXHAUSTED, READY TO START WHATEVER IT IS THAT IS A POST-PANDEMIC REALITY. HOW MUCH OF THIS IS THE LAST HURRAH WHEN COMES TO TRAVEL AND INPUTS THAT LEADS TO THE NEXT PHASE THAT BEGINS AT LABOR DAY? STEPHEN: IT SEEMS LIKE THERE IS GOING TO BE CATCH-UP, THERE IS A SHORT RUN VERSE IN THE ECONOMY. THAT DOES PROTECT ANY THREAT OF A DOWNTURN IN THE NEAR TERM. AS YOU SAY, ONCE YOU GET PAST THAT, IT GETS BACK TO THE USUAL FUNDAMENTALS. ONE THING THAT IS ON THE POSITIVE SIDE IS THE LABOR MARKET, THE EMPLOYMENT RATE AROUND 3.5%. PEOPLE HAVE JOBS, INCOMES ARE NOT NECESSARILY KEEPING UP WITH INFLATION THE WAY WE MIGHT LIKE, BUT INCOME GROWTH HAS BEEN STRONG. I THINK, SUFFICIENT TO SUPPORT ONGOING GROWTH AND CONSUMPTION. I THINK -- I TAKE YOUR POINT. THE UNDERLYING FUNDAMENTALS ARE STILL PRETTY GOOD. I THINK WHAT WE HAVE TO SEE IS HOW SENSITIVE IS THE ECONOMY TO HIGHER INTEREST RATES? WE HAVEN'T HAD A HIGHER INTEREST RATES FOR A VERY LONG TIME, GOING BACK BEFORE THE FINANCIAL CRISIS. IT REMAINS TO BE SEEN HOW SENSITIVE THE ECONOMY IS AS INTEREST RATES RISE, HOUSING IS GOING TO BE THE TEST CASE. JONATHAN: THIS CONVERSATION OFTEN COMES UP, ECONOMISTS OFTEN DESCRIBE THE AGGREGATE STORY. KENNY BREAKDOWN WHAT THE GROUPS EXPECT? FROM AN EQUITY PERSPECTIVE, THAT WILL HAVE A FRIEND OUTCOMES FOR DIFFERENT COMPANIES. STEPHEN: IF YOU GO THROUGH THE PANDEMIC PERIOD AND THE ACCUMULATION AND HOUSEHOLD BALANCE SHEETS, WE ARE TWO STORIES. FOR THE WEALTHY HOUSEHOLDS, THEY WERE NOT GETTING THE FISCAL LARGESS, BUT WERE BENEFITING FROM THE MARKETS, IN PARTICULAR, THE EQUITY MARKET AND HOUSING. THE PEOPLE WITH MORE MODEST INCOMES WERE THE ONES WHO WERE RECEIVING THE REBATE CHECKS AND UNEMPLOYMENT SUPPLEMENTAL BENEFITS, THINGS LIKE THAT. EVEN THE FOLKS AT THE LOWER END OF THE SPECTRUM CAME OUT OF THE PANDEMIC, PERHAPS A LOT, BETTER SHAPE THAN THEY MIGHT HAVE BEEN OTHERWISE. OF COURSE, OVER TIME, THAT CUSHION WILL GET SPENT. IN PARTICULAR, IN THIS ENVIRONMENT, INFLATION WILL ERODE PURCHASING POWER TO A DEGREE. IT IS GOING TO BE IMPORTANT FOR THE LABOR MARKET TO STAY STRONG. THOSE FOLKS AT THE LOWER END OF THE WAGE SPECTRUM HAVE BEEN DOING PARTICULAR WELL, IN TERMS OF WAGE GAINS. WE WOULD LIKE TO SEE THAT CONTINUE. JONATHAN: STEPHEN STANLEY OF AMHERST. ISSUES WE HAVE TO THINK ABOUT WHEN IT COMES TO MARKET AND THIS ECONOMY. WE WERE EXPECTING TO HEAR FROM THE PRESIDENT OF THE UNITED STATES 40 MINUTES AGO. WE WERE SCHEDULED TO HEAR FROM THE PRESIDENT OF THE UNITED STATES 8:00 A.M. EASTERN TIME, A LOT OF US EXPECTED WE WOULDN'T HEAR FROM HIM THAN BECAUSE IT IS LATE. NO SIGN OF THAT BEGINNING YET, A LOT OF PEOPLE SEEM READY TO GO WHEN IT STARTS. WE WILL BRING IT TO YOU. TOM: STEVE STANLEY WAS BRILLIANT, THAT IS THE REPORT PRESIDENT BIDEN WOULD LIKE TO HEAR. WE NEED TO REEMPHASIZE, THERE IS A WHOLE SCHOOL OF THOUGHT OF OPTIMISM, NOT THAT THIS TIME IS DIFFERENT, BUT THE GLOOM IS ON A MAGNITUDE BASIS OFF THE MARK. JONATHAN: ON THE GLOOM OF FLYING, I HEAR FROM DELTA THAT YOU CAN CHANGE YOUR FLIGHT FOR FREE THIS WEEKEND. I TAKE ISSUE WITH THAT. IF THEY WANT US TO CHANGE OUR FLIGHTS, SHOULDN'T THEY SUBSIDIZE THAT EFFORT? SHOULDN'T THEY BE INCENTIVIZING THAT? THAT DOESN'T WORK FOR ME. LISA: WE WILL SEE WHETHER ANYONE TAKES THEM UP ON THAT. WE WILL HAVE TO SEE IF THEY HAVE TO PAY UP TO DO THAT, BUT THEY HAVE TO USE THAT BEFORE JULY 8. I SAW THIS, YES. JONATHAN: RIDICULOUS. LISA: YOU HAVE TO CHANGE YOUR PLANS. PERHAPS, YOU HAVE LESS ABILITY IN ALL OF YOUR PLANS. IT IS FINE WITH YOU. LET'S SEE WHAT HAPPENS. JONATHAN: WILL YOU TAKE A CAMERA WITH YOU TO THE AIRPORT TOMORROW? LISA: DO YOU REALLY WANT PICTURES? DO YOU WANT LIVE NARRATION? JONATHAN: I WOULD LOVE THAT. [LAUGHTER] LISA: OH, DEAR LORD. [LAUGHTER] JONATHAN: FUTURES DOWN ON THE S & P. IN THE NEXT HOUR, WE HEAR FROM JONATHAN GOLDMAN OF CREDIT SUISSE. AND, DAVID OF GOLDMAN SACHS. AND, THE PRESIDENT WILL BE OUR PRIORITY. WE ARE WAITING FOR HIM TO SPEAK ANY MOMENT NOW FROM MADRID, SPAIN AS THE NATO MEETING WRAPS UP. FROM NEW YORK, THIS IS BLOOMBERG. ♪ RITIKA: DELEGATE SEO PACK AND ITS ALLIES HAVE RECTIFIED THE PLAN INCREASE. THE AGREEMENT CALLS FOR 600 48,000 BARRELS A DAY MORE. NOT ALL INCREASES HAVE MATERIALIZED. MORE CONSUMERS HAVE BEEN CLAMORING FOR MORE SUPPLIES FOR A WHILE. IT WILL BE A HISTORIC DAY AT THE U.S. SUPREME COURT. KETANJI BROWN JACKSON WILL BE SWORN IN AS THE BURKE -- FIRST BLACK FEMALE JUSTICE ON THE COURT. SHE WILL REPLACE JUSTICE BREYER. JUSTICE JACKSON WILL JOIN DEMOCRATIC -- INCREASES IN ENERGY AND FOOD COSTS DROVE CONSUMER GROWTH TO 6.5% IN JUNE. EUROPEAN AND CENTRAL BANKS STAND TO LIFT INTEREST RATES NEXT MONTH FOR THE FIRST TIME IN A DECADE. SETTING THE STAGE FOR AN ELECTION IN NOVEMBER THE FIRST, THE END OF THE COALITION COULD PRESENT AN OPPORTUNITY FOR THE FORMER PRIME MINISTER TO RETURN TO POWER. HIS PARTY IS LEADING IN THE POLLS. GLOBAL NEWS 24 HOURS A DAY, ON AIR AND ON "BLOOMBERG QUICKTAKE." POWERED BY MORE THAN 2,700 JOURNALISTS AND ANALYSTS IN MORE THAN 120 COUNTRIES. I AM RITIKA GUPTA. THIS IS BLOOMBERG. ♪ > > IF THE FED THOSE 75, I THINK A FAIR AMOUNT OF TIGHTENING IS BUILT INTO THE MARKET IF LORETTA MESTER GETS HER 4% NEXT YEAR, THEN I THINK WE ARE SEEING AN INVERTED YIELD CURVE. TOM: KATHY JONES OF CHARLES SCHWAB, SHE WAS IN -- SHE HAS BEEN ON FIRE REPORTING WHERE WE ARE RIGHT NOW. CERTAINLY, WHAT WE HAVE HEARD THIS MORNING IS A DIFFERENCE OF OPINION. THE HEATED DEBATE OF THIS JUNE ALREADY. WE ARE PREPARING TO HEAR FROM THE PRESIDENT OF THE UNITED STATES IN MADRID, WE WILL BRING THAT TO YOU AS WE SEE ALL OF AMERICA WAITING TO HEAR HIS COMMENTS ON THE HISTORY OF WHAT WE SAW AT NATO, AND HIS RETURN TO AN 8% INFLATION IN AMERICA. RIGHT NOW, WE ARE GOING TO TRY AND SQUEEZE IN A CHART WITH KRITI GUPTA. KRITI: SURGING SHIPPING RATES, WE JUST GOT THAT PCE DATA AND STILL ACCELERATING, BUT LESS THAN A MARGIN LESS THAN WHAT WE EXPECTED. THERE IS THE PREWAR INFLATION AND THE POSTWAR INFLATION. COMMODITY INFLATION, WE ARE USED TO TALKING ABOUT. CHECK OUT SHIPPING RATES, A LOT OF THE ISSUES WE HAD WITH SUPPLY CHAINS CAME DOWN TO THESE SHIPPING RATES. MY CHART OF THE DAY SHOWS THE COST IT TOOK TO TRANSPORT A 40 FOOT CONTAINER FROM SHANGHAI TO L.A.. FOR OUR RADIO AUDIENCE, THIS IS A MASSIVE SURGE COMING DOWN. IT HAS ROLLED OVER. THIS IS ONE OF THE POSITIVES, OF THAT INVENTORY BUILDUP. IF YOU HAVE A MASSIVE INVENTORY, YOU ARE NOT CLAMORING FOR MORE SUPPLY, CLAMORING FOR MORE E-SPORTS -- EXPORTS. DEMAND IS GOING TO COME DOWN. THAT IS EXACTLY WHAT WE ARE SEEING, A SLOWDOWN WHEN IT COMES TO SHIPPING RATES. TOM: THANK YOU. WAITING FOR THE PRESIDENT OF THE UNITED STATES, WE THINK MOMENTARILY. WITHIN HIS WONDERFUL BOOK, "BAILOUT NATION" IS WHAT A PRESIDENT CAN DO ABOUT INFLATION. BARRY, WHAT CAN I PRESIDENT DO ABOUT INFLATION? CLOSE YOU ARE ASKING THE QUESTION AFTER THE FACT. IT IS WHAT PRESIDENTS CAN DO THAT LEADS TO INFLATION, THAT THEY NEED TO AVOID DOING. > > IT WAS CLEAR THAT NOT ONLY WAS THE CARES ACT ONE AND TWO AN IMMENSE FISCAL STIMULUS, A FIRST CARES ACT WAS 10% OF GDP. IT WAS A RECORD OF CARES ACT THREE UNDER BIDEN, IT IS THAT MUCH MUCH -- IT ADDS THAT MUCH FUEL TO THE FACTOR. FISCAL IS PART OF THE PROBLEM. ONCE THE GENIE IS OUT OF THE BOTTLE, IT BECOMES MORE DIFFICULT TO GET THINGS UNDER CONTROL. I GIVE CREDIT TO THIS ADMINISTRATION FOR TRYING TO WORK ON THINGS LIKE MEDICAID REFORM AND PRESCRIPTION DRUGS, BUT THAT IS A SMALL PORTION OF THE TOTAL INFLATION PICTURE. ENERGY, FOOD, THOSE ARE BIG FACTORS NOW. THAT IS OUT OF THE PRESIDENT'S HANDS. TOM: WHAT DO YOU SAY ON A VIEW OF SOMEONE'S PORTFOLIO, HE LIVES WITH THIS EVERY DAY. BONDS ARE DOWN 15%, 12%, 8%, WHATEVER. EQUITIES ARE DOWN, LET'S CALL IT 10%. WHAT DO YOU SAY TO BE STEADFAST IN YOUR OPTIMISM? BARRY: THIS IS THE FUTURE ABOVE, YOU DO NOT GET UPSIDE WITHOUT DOWNSIDE. IF ARKANSAS ONLY WENT UP, IF THERE WERE NO DRAWDOWNS, CORRECTIONS, BEAR MARKET CRASHES, WE WOULD ALL BE WEALTHY. IT DOES NOT WORK THAT WAY. IN ORDER TO GET TO THE PROMISED LAND, WHETHER THAT IS DECADES DOWN THE ROAD OR A COUPLE OF YEARS DOWN THE ROAD, YOUR BEHAVIOR MATTERS MORE THAN ANYTHING ELSE. YOU CAN HAVE THE WORLD'S GREATEST PORTFOLIO, BUT IF IT KEEPS YOU UP AT NIGHT TO THE POINT WHERE YOU ARE SICK AND YOU CAPITULATE AND SELL AT THE WORST MOMENT, YOU ARE GOING TO DO VERY POORLY. THE BEST PORTFOLIOS IN THE WORLD -- PORTFOLIO IN THE WORLD GIVES UP PERFORMANCE, BUT ALLOWS YOU TO SLEEP AT NIGHT. THIS IS THE COST OF ADMISSION, THERE IS NO WAY AROUND IT IF YOU ARE AN INVESTOR. LISA: HOW DOES THE NATURE OF SLEEPING AT NIGHT CHANGE WHEN YOU HAVE A SEA CHANGE WHEN IT COMES TO A FED POLICY AND FED RESPONSE MECHANISM? THAT IS WHAT WE HEARD YESTERDAY, WHICH CAPPED OFF A HISTORIC HALF OF A YEAR. WHERE WE BASICALLY SAW BONDS AND STOCKS FALL IN TANDEM, AND WE HAVE CENTRAL BANKERS AROUND THE WORLD SAYING, WE ARE PROBABLY NEVER GOING TO GO BACK TO THAT LOW INFLATION ENVIRONMENT. HOW YOU CHANGE THE CONSTRUCTION OF YOUR PORTFOLIO? BARRY: YOU HAVE TO PUT YOUR MONEY INTO THE FED CONTRA FUND, WHICH HAS OUTPERFORMED THE MARKET BY -- WAIT, THAT DOES NOT EXIST. [LAUGHTER] TOM: BE CAREFUL. YOU ARE GOING TO HAVE THREE FIRMS COME OUT WITH THE FED CONTRA FUND. [LAUGHTER] BARRY: YOU HAVE TO RIDE IT OUT. EVERY TIME HAVE THE DISCUSSION ABOUT, I WANT TO GET OUT OF EQUITIES FOR R X MONTHS AND GET IN, HISTORY SHOWS A THIRD OF PEOPLE WHO TRIED TO DO THAT NEVER RETURN TO THE MARKET. YOU COULD LOOK AT THIS, YOU COULD LOOK AT. BY THE WAY, WE COULD GET TOGETHER FOR DINNER AND TALK ABOUT WHAT THE FED IS DOING WRONG AND HOW THEY WERE BEHIND THE CURVE IN INFLATION, AND NOW THEY ARE PROBABLY OVERREACTING. I THINK THE MARKET ANTICIPATING A 75 BASIS INCREASE, AT THAT POINT, I MOVE INTO THE RECESSION CAMP. THEY WERE BEHIND AT ONE POINT, NOW THEY ARE PROBABLY OVERREACTING. LISA: OK, LOOK. UNDERSTOOD. THIS IS THE TRADING ARGUMENT, WHERE YOU HAVE TO STICK TO YOUR GUNS AND HAVE SOME STRATEGY. THE STRATEGY CHANGES WHEN YOU TALK ABOUT RATES NOT BEING IN A BOND MARKET, YOU ARE SAYING THIS HAS BEEN THE DEATH OF IT, WE HAVE WATCHED THIS CYCLE BREAKDOWN. NOW, YOU ARE HAVING CENTRAL BANKS TELLING US IT IS OVER, AND THEY ARE NOT GOING TO HOLD YOUR HAND. THEY DO NOT HAVE THE AMMUNITION TO DO THAT BECAUSE INFLATION IS THEIR PRIORITY. HOW DOES THAT CHANGE THE 60/40 MENTALITY, THE IDEAS OF BONDS, BALLOTS, AS A PROFIT DRIVER THAT HELPS YOU SLEEP AT NIGHT WHEN YOU HAVE LOST MORE THAN 12% IN BENCHMARK BONDS? BARRY: I WILL GIVE YOU A SPECIFIC QUESTION BASED ON WHAT WE DID. EARLIER THIS YEAR, WE LOOKED AT THE RISK ASSESSMENT OF VARIOUS TREASURIES. ANYBODY WHO IS LONG TREASURY INFLATION PROTECTED SECURITIES, THOSE BONDS ARE DOING FINE. WHEN WE LOOKED AT WHAT WE WERE GETTING PAID FOR TAKING THE RISK OF DURATION, THE YIELD IS THE SAME IN THE BEGINNING OF THE YEAR FOR SEVEN AND 10 YEAR BONDS AS THEY WERE FOR THREE AND FIVE YEAR BONDS. WHAT MAKES SENSE AS A STRATEGY IS SHORTENING OF YOUR DURATION, NOT BECAUSE YOU ARE FORECASTING THE DURATION OF INTEREST RATES, BUT IF YOU ARE GETTING PAID THE SAME YIELDS FOR TYING UP MONEY FOR SEVEN YEARS, THEN TAKE THE THREE YEAR. TOM: STAY WITH US. LET ME DO A DATA CHECK. WE ARE WAITING FOR A SUCCESSFUL PRESS CONFERENCE FROM THE PRESIDENT OF THE UNITED STATES, SCHEDULED TO MAKE COMMENTS. HE IS AT THE FEMA BUILDING OF MODERN CONSTRUCTION IN MADRID, SOMEWHAT LIKE A CONVENTION CENTER. VERY POIGNANTLY, HAD 5000 BEDS DURING COVID. THIS WAS A HOSPITAL FOR SPAIN BELEAGUERED BY COVID. THE DATA IS MOVING. BARRY, I AM GOING TO THANK YOU. THANK YOU SO MUCH. LISA, WE HAVE GOT A NOTE THAT THE YIELD GIVEAWAY, THE TWO-YEAR YIELD DOWN NINE BASIS POINTS, 2.59%. WE ARE A TICK AWAY FROM 3% TEN-YEAR. LISA: WHICH IS FASCINATING, WHEN PEOPLE ARE LOOKING FOR HIGHER YIELDS WITH CURTAILED GROWTH. WHERE IS THAT HIGHER YIELD GOING TO HAPPEN? WHERE DO WE SEE THE INVERTED YIELD CURVE WHEN THE SHORT END GOES HIGHER AND THE LONG TAKES A BID? HOW LONG CAN WE CONTINUE IN THAT TYPE OF ENVIRONMENT? TOM: FUTURES, NEGATIVE 46. VIX WITH A 30 PRINT. IAN LANGAN LOOKING OUT, A MORE COY ASSENT INFLATION TONE. BITCOIN, I DO NOT KNOW WHAT TO MAKE OF BITCOIN. I WOULD SUGGEST IN THE FOURTH OF JULY WEEKEND, WHERE IT TRADES 24/7, THAT IS GOING TO BE A WOW WEEKEND FOR BITCOIN. LISA: BITCOIN HAS BEEN FASCINATING WHEN YOU TAKE THE FROST OUT OF THE MARKET, THAT SEEMS TO BE WHAT IS GOING ON. FROM 47,010 19,000, THAT IS WHAT WE SAW THIS YEAR AND A COUPLE OF MONTHS FROM BITCOIN. TOM: I WANT TO STAY IN THE BACKDROP, I WILL SUGGEST A NATO NEVER ENVISION. TWO MOMENTS YESTERDAY THAT LISA, JON AND I MADE NOTE OF. THE POIGNANCY OF THE PRESIDENT OF THE UNITED STATES SITTING ON HIS RIGHT AND LEFT WITH THE LEADERSHIP OF JAPAN AND SOUTH KOREA SPEAKING AT A NATO MEETING IN PRIVATE ABOUT CHINA WAS ABSOLUTELY EXTRAORDINARY. NOT ENOUGH CAN BE SAID ABOUT THE SHOCK OF FINLAND AND SWEDEN AND THE HEADLINE TWO HOURS AGO, MAYBE JOINING NATO BY TUESDAY. LISA: WHAT A SHOCK IN THE NATO MESSAGE, A COUPLE OF YEARS AGO THAT RUSSIA IS NOT THEIR ADVERSARY, TOO, RUSSIA IS CLEAR THE AT -- CLEARLY THE ADVERSARY. WE NEED TO COME UP WITH SOME PLAN TO COUNTER CHINA'S DOMINANCE IN CERTAIN INDUSTRIES. HOW DID THEY BALANCE THAT OUT, AMID THE BACKDROP THEY COME HOME TO? WE HAVE BEEN TALKING ABOUT THE IDEA OF INFLATION LOOMING LARGE WITH DISTRESS AMONG INDIVIDUALS. VERY DIFFICULT MOMENT. TOM: WE ARE GOING TO HAVE TO SEE. ON THE PRESIDENT AND TRAVEL, HE WILL COME HOME TO ANY NUMBER OF THINGS, INCLUDING A CRITICAL LABOR REPORT. LISA: MANUFACTURING DATA COMES OUT TOMORROW. TOM: IS JOBS DAY TOMORROW? I CAN'T REMEMBER. LISA: [LAUGHTER] I THINK JOBS DAY IS THE WEEK AFTER. TOM: WE WILL HAVE THAT FOR YOU. THAT WILL BE IMPORTANT, TO SEE IF FILING AN EROSION IN THE LABOR ECONOMY. WE HEARD FROM POWELL AND HIS TESTIMONY TO THE SENATE AND JOE BIDEN, THE FIRST SENTENCE OUT OF HIS MOUTH WAS SIMPLE, WE HAVE A STRONG ECONOMY. STEVE STANLEY JUST SAID THAT, WE HAVE ANOTHER GUEST ON IN 20 MINUTES WHO WILL SAY, NO WE DO NOT. THAT IS THE DEBATE. LISA: HOW MUCH CAN THAT STRONG ECONOMY FALTER, IF YOU DO HAVE A FED RAISING RATES AND CONSUMERS CUTTING BACK IN THE FACE OF INFLATION? THIS IS WHAT PRESIDENT BIDEN WILL BE ADDRESSING, WHAT IS IMPACTING HIS RATINGS, HIS SUPPORT AT HOME AND ABROAD. TOM: WE WILL HAVE TO SEE IN THE MIDTERMS WITH THOSE IMPORTANT ELECTIONS THE PAST COUPLE OF DAYS. KATHY HOGLE AS GOVERNOR OF NEW YORK STATE, WINNING HER PRIMARY EFFORT. ON A DATA FRONT, FOREIGN EXCHANGE. DOLLAR ASCENDED, I WOULD SUGGEST IF PRESIDENT TRUMP WAS ON THE PODIUM, THE FIRST THING HE WOULD MENTION IS THE DOLLAR.

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'Bloomberg Surveillance Simulcast' Full Show 6/30/2022

Tom Keene, Jonathan Ferro and Lisa Abramowicz have the economy and the markets "under surveillance" as they cover the latest in finance, economics and investment, and talk with the leading voices shaping the conversation around world markets. This show is simulcast worldwide on Bloomberg Television and Radio. (Source: Bloomberg)

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