>> i would not assume inflation would be super sticky but it would be bumpy. >> we are talking about inflation behavior. we are not talking about inflation accelerating. >> inflation will be sticky and i think that warrants the fed rethinking its inflation target. >> this is "bloomberg surveillance" with jonathan ferro, lisa abramowicz, and annmarie hordern. jonathan: live from new york city, your week begins right now. for our audience worldwide, this is "bloomberg surveillance." your equity market has not done much over the last couple of days. around 8:30 expected to do something. we have to begin with the words of chairman powell, it is too

soon to see whether the recent readings are more than a bump. at 8:30 will we get another bump? lisa: and how much consists of a bump? we have heard this from analysts saying in-line print will be a beat and you will get a rally in markets. how they give an upside surprise do you need for this federal reserve to reconsider their decision to cut rates in june but the cut rates three times this year? jonathan: .3% month over month for core inflation is the estimate. the previous number was .4%. you go through the numbers, very few people are looking for an upside surprise this morning. annmarie: you see some coming in with lower. i go to stephen stanley at santander. the number of analysts what he sees as trying to spin tomorrow's results. these are expectations of a beat. when he looks at that went 3% rise month over month, that ends

up annually being 3.6%. it is highly unlikely for anyone at the fed, for that number to satisfy them. lisa: the bearish bets on treasuries are skyrocketing ahead of this report which sets the market up for a massive short squeeze if we get anything other than a huge upside beat. you talk about market expectations. how big does that upside surprise have to be to fulfill bearish bets of people expecting runaway inflation. if we don't get that could we get a monster rally in bonds and a monster rally in stocks? jonathan: bullish bets on energy right now. lori calvasina stepping with energy. mike wilson overweight energy. mark at j.p. morgan, stay overweight commodities. that has become a consensus call. lisa: and it has become the hedge against inflation. it is not just oil, it is also gold.

one of the biggest mysteries as it hits all-time high. it is also iron ore, it is all the precious metals. annmarie: we here analysts after analysts talking about how they are overweight. stuart kaiser was talking about the fact that oil needs to prove itself. how much of this is temporary and does the fed look through it? jonathan: crude positive .33%. the broader price action shaping up as follows on the s&p 500. mild days of price action. monday down a little bit. today totally unchanged on the s&p. jim reed at deutsche bank, we have gone seven consecutive sessions without a new record. the longest without an all-time high since january. lisa: the only negative thing you can say about a rally that has not gone down very much. there has been really interesting price action under the hood. you've seen the magnificent seven underperforming. the video was fascinating.

the fact intel came out with a chip that may or may not take off. intel shares, met, nvidia down. there is a feeling people are trying to hedge the high flyers. jonathan: yields unchanged, lower yesterday on the tenure. at the moment for .36. coming up this hour dan morris of bnp paribas. tobin marcus of wolfe research, and bloomberg's george ferguson with new concerns over at boeing. we begin with the top story come investors weighing today's inflation data. dan morris saying "march cpi data will be critical, telling us whether the big increase in inflation was just a blip and whether goods inflation is returning." are these pumps in the road or new terrain? dan: as pointed out from one of your previous commentators, we are still talking about a lower

level of inflation by the end of the year. we do not want to get too carried away. no one is talking about a re-acceleration in growth or a reacceleration in inflation or a fed hike as opposed to cuts. is a question of how smooth the path is but it is going in the right direction. even if we get that .3% which would be 3.6 which is not to percent, that is too much. we expect it will go down and that is what we want to purpose on. jonathan: yields have repriced higher by around 50 basis points year-to-date at the front end on the two year, on the tenure as well. as the boat become too loaded in the bond market? dan: we are looking at steepeners. in anticipation phenomenal real yields in the belly of the curve to start going down. there is a view that if you think about positioning, where the market has gone at this point, it has gone to the other extreme and we think there is a

potential to move back in the other direction. lisa: this is the reason some people are saying if we get in in-line print or a lower-than-expected inflation rate, it will be a riproaring rally in bonds as people go back to this idea inflation is coming down. would you be an active buyer of duration if we get a downside surprise? dan: it certainly would help if you came in at to put -- if you came in at .2%. i don't know how likely that is. the headline figure come it will matter what the components are. we talk about rent, which was. matter for the pce -- which does not matter for the pce. it will be the stickiness of services inflation. with the payrolls data we got last week, average hourly earnings continue to fall. the big questions will be goods inflation which has started to turn up given the issues we have in shipping in the middle east.

lisa: if we get some sort of rally in bonds will that be positive for stocks? will that fuel a new leg of the rally or is that a question mark around why bonds are rallying and the potential for weakness later on? dan: it depends a lot on the increase or the decrease. we know how sensitive stocks are to moves in real rates. if it is a lower rate and we put back cuts from the fed, i would be supportive for growth stocks. if it is higher inflation that is not necessarily so bad. rates do not go down so much, but we are at the levels we are at. more inflation should mean higher revenues. there is a scenario where as long as it is not weak growth data, equities should be supported. annmarie: you just mentioned transportation problems in the middle east. is that really an impact on goods in the united states? isn't this more of a european problem?

dan: we have not seen the data get in even if you look at the european inflation data we have already gotten for march, we should not forget that when we had that initial surprise in cpi inflation in the u.s. we thought it was just a u.s. problem, but then we saw on the services side it showed up in europe as well in january and february. the march data out of europe was much lower. that may indicate we are going to see a decrease. whether or not the goods inflation spreads to the u.s. or middle east is not a huge factor. low goods inflation has been a big part of the decline in cpi over the last year. annmarie: even though commodity prices, the prices of crude are trickling down, do not impact core, how do you deal with this surge in commodities when you are thinking about an uptick in inflation? dan: we like commodities and we are overweight and we appreciate some of that is just a hedge

against inflation. we know it is also a reflection of the geopolitical risks we are facing and not so much because of the increase in demand. that is what we want over the medium term, to think prices will be sustainably higher. for now we see it as an opportunity. jonathan: let's talk about nvidia. lisa mentioned the stock was down close to lowe's. then we had numbers from tsmc, quarterly revenue exploding higher. the main chipmaker to nvidia, to apple come a 60% rise in march quarter sales. is there anything to worry about in that space in the stock market? dan: if we think more broadly about the outlook for earnings in tech, if you take the nasdaq and talk about how much forward earnings have gone up over the last year, big chunk of that is magnificent seven, a lot of it is semiconductors. to some degree irrespective of

what happens around semiconductors you want to see earnings momentum in the other parts of the market, other parts of the value market. lisa: what are you doing around that? are you reducing some of your exposure to some of those tech high flyers and moving into other areas like commodities and cyclicals? dan: we like tech. we are neutral on the u.s.. it is a matter where you see the best relative opportunity. we are more interested in china impact. we all know about the valuation story. are we at the bottom in terms of the earnings downgrades we have seen? if that is starting to turn around, that is an example of a better place to take a position where you have more upside than trying to predict what is going to happen to nvidia next. jonathan: are you saying your more constructive chinese tech than u.s. tech? dan: we are overweight chinese

equities and more of the large-cap domestic space. jonathan: interesting. dan morris of bnp paribas. pray to catch up. strong numbers -- great to catch up. strong numbers from taiwan semiconductors. tom tzitzouris will join us later. here's a flavor of what he will have to say. "washington is committed to run the economy of fulham employment at all costs until the election in the fed is looking for every excuse possible to cut to aid this cause." in the next hour bloomberg surveillance. lisa: which is what people say usually quietly and not when there on air, but the suspicion this federal reserve is biased towards keeping the economy hotter than kohler running into the election. i will not going to that. he will. it does raise a question of why. what gives people conviction?

is this what is giving them a sense that this fed will cut, even if the data is not cooperating? annmarie: he said the quiet part that people tell us behind the scenes out loud. that is why inflation is so important. if you're trying to run an economy that is hot and at the same time try to quell inflation . this is what comes up in polls. annmarie: inflation -- jonathan: inflation data at 8:30. let's give an update on stories elsewhere. here is your bloomberg brief with dani burger. dani: at least three people are dead after an explosion at a northern in early hydropower plant. the company says the fire impacted a transformer it without providing further details. they are italy's largest power supplier and they shut the plant down immediately for safety reasons but local power supply was not affected.

fitch has cut its outlook for china's long-term debt from negative to stable. rising economic uncertainties have eroded fiscal buffers. although fitch sees government debt increasing, it affirmed china's a-plus rating. more trouble for bowing. the faa is investigating whistleblower complaints the company took shortcuts to ease production bottlenecks on the 747 dreamliner. the playmaker says the claims are inaccurate and does not represent the work it has done to ensure the safety of the plane. shares of boeing are down this year. scrutiny of manufacturing practices have been building since one of the planes experienced a midair accident early january. jonathan: this comes with a warning. if you are flying with boeing this morning turn the volume down. factory murders measured -- faulty measured gaps that occur when pieces of the 787 are

joined together. fatigue can impair the structural integrity of more than 1000 of the wide-body jets it serviced. these allegations are something. lisa: he said he had serious acts of retaliations against him and the previous whistleblower died of a self-inflicted gunshot wound last year. a lot mounting. jonathan: more on boeing later this morning. up next, u.s. steel in focus. >> the relationship is bigger and more significant than a single commercial transaction and that will continue. jonathan: that conversation is up next. live from new york city this morning, good morning. ♪ [alarm beeping] amelia, turn off alarm.

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jonathan: it is cpi wednesday. data just between, intraday tueg swings. i cannot explain them but they existed. on the 10 year 4.3577. u.s. steel in focus. >> for four years in a row the

united states and japan are the number one part investors in each other's countries. in 2021 there was election in japan and foreign entities were looking at buying toshiba and japan said for national security interest that would not be permitted. there is a context. one is the relationship is bigger and more significant than a single commercial transaction and that will continue. jonathan: the japanese prime minister in washington for the country's first state visit to the u.s. in nine year. hanging over the visit, nippon steel's takeover of u.s. steel. "japanese officials believe their best play is to stay quiet and work with the committee on foreign investment to try to secure a recommendation. avoid putting biting on the defensive and see if the situation improves after the election." tobin joins us. a big element of this is to try

to secure the vote in places like pennsylvania. is that working? tobin: it is not working yet. biden is still behind in the polls and all of the states he needs to win. all within competition distance for both candidates. it has not worked yet but it is understandable that biden and the biden campaign are looking at that political territory with a very kenai. -- with a very keen eye. jonathan: you since the japanese understand or do we risk isolating some of our allies? tobin: i think they get it. we have seen in the response from the prime minister, the way biden came out surprisingly strongly against the deal a few weeks ago, they understand there is no percentage in pressing him on it. the company is very gung ho on the deal. you are seeing lots and lots of advertising and lobbying focused

on d.c. types touting the economic benefits of the deal. they are trying to engage with the union even though the u.s. wc is against the deal. it is not as if the japanese have given up but at the governmental level they are not making it the number one priority. the summit is focused on security issues and defense cooperation where the mutual issues are more aligned. they'll try to get a good outcome but it is not a foregone conclusion. annmarie: when it comes to the review, the administration is looking at whether there is a connection to china. you think that is warranted? tobin: this is all downstream of politics. if you are doing a purely neutral review with no concerns about politics whatsoever, if this were a company that did not have united states in the name and had an iconic legacy to it, i do not think there would be problems. as we are seeing in the summit more broadly, japan is probably

our most important ally in the indo pacific, one of our most important allies globally. the japanese control of u.s. companies is not a security concern. steel is a special case, but i think we are seeing an exercise in mitigating the potential political liability of allowing this "iconic u.s. company" to be acquired by a foreign entity. annmarie: when you talk to japanese officials they say uniting these companies would be a force against china. are we at risk in washington to create a boy that cried wolf situation when it comes to national security concerns? tobin: you heard this a moment ago in the cookie plate. it is not -- in the clip you played. it is not unique to the u.s. for there to be political considerations and economic considerations to protect domestic champions in various industries.

it is not the ideal situation. it is not what you would want. i think they get it. it is not derailing the other efforts to get a tighter relationship. the suite of deliverables being rolled out, both sides feel good about in terms of japan's continued shift towards being a full-spectrum geopolitical actor in the indo pacific, undergoing their own military modernization and preparing to cooperate a lot more with u.s. in deterring china. lisa: is getting harder to distinguish politics from policy. i want to get your thoughts ahead of an analyst -- ahead of our conversation with an analyst to strategas will step he said "washington is -- the fed is looking for every excuse possible to cut to aid this cause." would you agree with this assessment? is that the feeling from the clients you speak to? tobin: it is a very active

debate among my clients and other folks in the d.c. space, the extent to which fed decision-making is politicized. i do not agree with the notion that the fed is putting its finger on the scale for the sake of an outcome. i've have heard that talking point a lot. powell's their political incentive is to write up into the sunset as the person who defeated this inflation. he cares more about his legacy then he does about getting reappointed for the political attacks he will face from both sides depending on when they cut. if they cut in june or july they will be criticized for cutting too early or too much. if they cut in september they will be criticized for cutting too late before the election. if he cuts in december he will be criticized for helping front. he is damned if they do, damned

if they don't his challenge is the appropriate path for rates. i think we are seeing an authentic effort to manage both sides of the dual mandate. lisa: there is a question of whether the fed comes under attack in terms of its legitimacy and another administration and whether it has an incentive to preserve more of the status quo. this is one of the conspiracy theories underpinning this which is the reason we hear this so much. tobin: right. if you gave jay powell truth serum, would he prefer biden to trump? probably. he is a registered republican. it is not as if he is someone whose track record would suggest you would move heaven and earth to get biden reelected. when we look backwards at the record of what fed policy has been in election years since nixon and burns, we do not see

evidence there is a historical pattern around election interference. you are no more likely to get cuts than hikes in election years. we see the deviation between the taylor rule and fed funds rates in election years is more hawkish than it is in nonelection years. i think there is not a lot of empirical track records to point to on this and i do not think it makes sense for jay powell. he is towards the end of his career. he would like to get reappointed, but i think he cares much more about not mismanaging the situation and going down in history as the person who allowed a big reacceleration in inflation and failed at the historically important job he is facing at this inflection point. in terms of legitimacy of the fit, they will face our political attacks no matter what they do. i do not think they're trying to solve to that. i don't buy this. the theory is out there. i'm not on board. jonathan: tobin marcus of wolfe

research. super diplomatic. it to his point it does not matter when they go, they will be criticized by someone. lisa: what he said is this fed chair does not want to go down in history as arthur burns, as fueling in inflation surge that was akin to the 1970's. jonathan: jonathan: i don't know about retiring. don't you want to deliver more million-dollar speeches? if i could deliver a one million-dollar speech, i'm not even hiding that. i am not sure what i would talk about. lisa: please reach out to john. italian football. [laughter] ♪ a safari? great question. like everything, it takes a little planning. or, put the money towards a down-payment... ...on a ranch ...in montana ...with horses let's take a look at those scenarios. j.p. morgan wealth management has advisors in chase branches and tools, like wealth plan to keep you on track.

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jonathan: we are going absolutely nowhere going into inflation data. the s&p unchanged. likewise on the nasdaq. on the small caps and the russell we spot a theme. going absolutely nowhere. ten-year and 30-you're going somewhere. up by 40 or 50 basis points. just about unchanged after a rally yesterday. 435.77 on a ten-year. two-year, 473.86. crude just started to break back below $90 on brent. lisa: you did see a bit of a reprieve in the bond market. people are saying maybe we got ahead of our skis.

there was a hint of that coming out yesterday even with a three-your option that did not go that well. there's another ten-year note option today at 1:00 p.m. after the cpi print. i'm curious whether it and flex --flexes when we are another. jonathan: if you want to buy some 30-years tomorrow, $22 billion worth of supply coming to market. compare what's happening to what's happening in precious metals. the rally has been relentless. in march, gold was up something like 9%. we had another decent move in april. just all-time highs. lisa: this goes back to what mohamed el-erian was talking about. central banks are buying. china is buying. there's diversification away from the dollar. not the end of america as we know it, etc. some people might go there. good luck. whether it is some sort of

indictment on the idea of treasuries as a haven asset. jonathan: was this about sanctions or about treasury supply? he said it's about sanctions. annmarie: he did not like the term de-dollarization. you hear this a lot from people. they want to make sure when the looking at central banks that this is why they are diversifying. if this is where policy is today, what happens when there is more geopolitical risk in the world and they can go back to the sanctions policy? jonathan: under surveillance this morning, top stories. boeing's worries continue. the whistleblower says the comedy cut corners on the sibley of the 787 dreamliner, which may dramatically reduce the life of the plane. the outgoing ceo dave calhoun called to testify on capitol hill on april 17.

sometimes we talk about a grilling and they will not get a grilling. i think this guy will get a grilling on capitol hill. annmarie: boeing has repeated shocking allegations about the failings to appoint of an appalling absent. he's worked at boeing for 10 years. he obviously was committed to this company. to come out and outlined everything going wrong, he's clearly concerned. it feels like this grilling will be more bad news for boeing. jonathan: numbers from delta. lisa: this is connected to boeing. it raises the question of whether they can deliver planes that are very much in demand. the demand is very much there. delta beating expectations. expecting quarter profit and revenue to exceed expectations even more. giving you this from ed bastian, the ceo. delta expressed -- expects no let up in demand. the peaks look quite strong.

this goes to the question of consumer spending, of whether the consumer is strong. this is classic discretionary spending and they are spending it. this is why i have been so interested about delta. even with all the hang ups and fuel prices going higher they are able to pass it along and still has the steady demand. jonathan: the stock is positive in the premarket by something like 2.9%. i want to turn to apple continually shifting away from china. they are doubling the output in india. one in seven iphones will be made in india, totaling $14 billion. china remains apple's largest overseen market. you can see quite clearly they are diversifying big time. you see it in the numbers. lisa: you saw something like 14% now of iphones produced in india, it goes to this question are they saying one thing and doing something else? saying they are committed to china, they want to remain there

playing the ultimate diplomat. tim cook has been that person. on the other side just produce this. annmarie: he's off the trip he wasn't china saying they are committed to the company. that 14% is one in seven. this is the whole idea of friendshorn. where will it be tenures on the line? a lot of geopolitics cloud the story. jonathan: calling for the figure to rise 3.7% year-over-year, the smallest gain since april of 2021. frances donald expecting this. we expect rising prices to keep headlines cpi elevated even escort inflation slowly moderates. we see headline inflation hovering around 3% throughout the year, low enough for the fed to begin cutting interest rates. frances is with us here to ask my net. let's get to that. we stabilized at 3% but they can cut interest rates. can you help us understand that more? frances: it goes back to what

the fed said to us. they are trying to land this economy, a soft landing. 3% by standard taylor rules and most of the way the fed looks at inflation is enough to want to keep those real rates from climbing. what i more interested in is not have any cuts we are going to get in 2024 but with the totality of the easing cycle is going to look like. for most investors whether the fed starts in june or september, even if they cut this year, it will not be as relevant as whether we are in a soft landing. it will be three to five because total penance it's a more standard cycle. i'm in the latter camp. for most investors that is far more important than some of the decimal places we will see today on cpi. jonathan: you have said it repeatedly. you don't get to have your cake and eat it too. if you are in the other camp, what is a standard easing cycle? it's been a while.

frances: we see the fed heading back towards what they will consider neutral. we have raised the estimate from 2% to 3%. this is a central bank that will cut hundreds of basis points if we enter recession. that is not what is priced in this story. that is white everyone is talking about the inflation number being so relevant but my eyes are on the labor market and what is starting to crack. rehiring activity coming down, wage growth decelerating and some of the problems with consumers. credit card the link once he starting to rise. interest rate sensitive pockets of retail sales like housing, electronics, furniture, those are declining over the past year and a half. that is evidence of the economy really starting to deteriorate. economies don't break in straight lines or break slowly. the labor market starts to go, it's a nonlinear fashion. that's the one i'm currently watching. lisa: why if there is a break that it means inflation will come back far enough for the fed

to be justified to cut by hundreds of basis points? this has been one of the key questions given commodity prices, given re-shoring, the potential for things like tariffs. frances: it doesn't. that's the big challenge. the central bank will probably have to make critical concessions and recognize they are now at the point in the next six months where the weight of the dual mandate will start to become heavier. while we have always said this was a great thing for the fed to have a dual mandate, full employment, price stability, a lot of other central banks will not be in that position. wage growth is coming down. the demand side will probably bring inflation back down. we are not heading back to some 2% inflation. the fed will have to choose. if they have millions of people who are suddenly out of work do they prioritize that over the 2% target and whatever that means? some of that is subjective call. economics is part art and part

science. the art component and the interpretation of how the fed will respond to the dual mandate will create an already -- and already is a huge dispersion and federal reserve rate forecasts. lisa: it looks like a rorschach test. you can read whatever you want in this data. it has, consistently showing both strength in certain places and weakness in places you mentioned. we heard from mohamed el-erian. listen to what the companies are saying. this was recently out of delta. it expects no let up in demand. usually there is a lull ahead of the summer season. they see nothing of the sort. they see strong travel bookings and people paying higher prices. how do you pair that message with on the margins the idea of delay quincy's picking up and small businesses expressing concern? frances: the u.s. economy is incredibly decent for night, much more -- desynchronized,

much more than we have seen on my career. ceo confidence at big companies is looking very strong. that's a re-acceleration phase. look yesterday at small business optimism or pessimism. the goods economy is deflating. low income households and consumers are incredibly pessimistic. why? they are borrowers. these are the people who rely on the interest rates to help them. high income households are benefiting from the stock market are doing really well. it is not so much that one view is right or wrong. is that this economy is not operating holistically. the best thing is that the cherry pick but look of the holistic view. my personal view is once the labor market starts to deteriorate it will not matter where you are, whether you are

the ceo of a major company are running a bodega, you will be recessionary. we are in an air pocket with is a major dethink in his asian --desynchronization. lisa: when you look at this desynchronization, how big is the gap between higher and lower income consumers? frances: it is sizable. the top 20% of americans spent 35% of total expenditure. this is one of the reasons why if they are benefiting the aggregate economy is doing well. when we look at things like gdp, we've had these discussions on my team, it's possible we don't expect -- experience of gdp recession because high income consumers hold up the number but they are pockets that feel recessionary. policymakers have to be very sensitive to that. not everyone's reality will be the same. this is going to be like

downtown versus rural. california versus new york. we will see a really wide divergence and economic outcomes across this country by incomes, geographies, and sectors. jonathan: small versus large. terrible of the last 24 hours. frances donald. compare what we are hearing from delta. the chief executive of delta expecting no let up in demand. the numbers moment ago saying adjusted. delta apply close to 5%. this has given a lift to american and united. lisa: there are talks about the increase in revenues with higher commodity prices. that's about a third of the cost of the airplane industry. it does come from oil prices. the fact you still have the ability to pass it along speaks to what we heard from frances. ok.

screaming, riproaring reacceleration in the travel industry with discretionary spending. you look at small businesses, other pockets, it is completely de synchronized -- desynchronized. jonathan: optimism felt of the lows we have seen at 11 years. decade lows. you pair employment intentions, they were kicked lower as well. compare that from delta. two very different world. -- worlds. lisa: we are talking about small businesses. completely bifurcated. if you are the fed and looking at this, who do you cater to? the reacceleration stories from the big companies or some of the smaller businesses and regions that are getting harder hit and say you guys need a reprieve? it is a tough call. jonathan: delta up by 4.5%. let's get an update on stories elsewhere with dani burger. dani: raphael bostic sees one

rate cut this year but is open to changing his mind if economic conditions change. the u.s. economy continues to show resilience but he does not discount the possibility rates have to move further out but leaving himself optionality. he added labor market change would need cutting sooner. tsmc's quarterly revenue grew at its fastest pace in over a year thanks to the ai boom. their value doubled since october of 2022. it's outperformance also helped enhance expectations that it will return to solid growth this year after slower than expected post-covid recovery. they said in january the ai revenue is growing at a 50% annual pace. tsmc is the chipmaker for apple and nvidia. bytedance's revenue is surging. the owner of tiktok said the revenue soared 60% in 2023, the first time it's outpaced tencent

and alibaba. the company faces an uncertain future in the u.s.. the house passed a bill last month to ban tiktok unless bytedance sells its prized assets. that is your bloomberg brief. jonathan: some stunning numbers there. up next, boeing's deepening crisis. >> we will approach this acknowledging our mistake. >> we don't put airplanes in the air we don't have one hundred percent confidence in. jonathan: that story is up next. ♪ you know what's brilliant? boring. think about it. boring is the unsung catalyst for bold. what straps bold to a rocket and hurtles it into space? boring does. great job astro-persons. over. boring is the jumping off point for all the un-boring things we do. boring makes vacations happen, early retirements possible, and startups start up. because it's smart, dependable, and steady. all words you want from your bank. taking chances is for skateboarding...

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jonathan: this is the very definition of snoozing. equities going nowhere. euro-dollar going nowhere. the bond market going nowhere. check back in at 8:30 eastern time. i imagine we will get cpi and we will start going somewhere. lisa: literally right now people

are just sitting on their hands. the bets are in. qa for the casino to open. let's go. jonathan: under surveillance this morning boeing's deepening crisis. >> i have kids, grandkids, and so do you. this stuff matters. we will approach this number one acknowledging our mistake. >> we don't put airplanes in the air we don't have a 100% confidence in. jonathan: boeing's 787 under scrutiny. an engineer claiming they took shortcuts to speed assembly of the aircraft and the issues dramatically reduce the life of the plane. boeing calling the accusations inaccurate. george ferguson joins us for more. can you talk about the allegations and how serious they are? george: good morning. they are just emerging. we are just getting our arms around it. they are talking about the fuselage of the 787.

previously we had going disclose and work with the faa to fix shimming problems they were having. the beginning of this i'm wondering if this is part of that same problem. what i will say is the 787 is an extremely important airplane to boeing. second most important after the 737 this is an airplane they have collected a lot of orders further lately. they at airbus are in the market pretty hard right now. they are the smaller wide-bodies. if they can push these programs up to higher build rates, that would be a tailwind for profits for cash flow. as the second most important airplane to boeing, very important, very concerning. i'm wondering if this is something we have already visited and that is why the faa is jumping quickly to figure out whether this is part of that shim problem boeing had

previously. jonathan: factory workers wrongly measured and filled gaps when they are joined together. the process can create significant fatigue and the composite material and impair the structural integrity of 1000 wide-body jets and service. if you are waking up and saw this plan going yesterday afternoon and you're an airline with some of these planes and service, how do you react this morning? george: very concerning. what i'm hearing and what has been released so far is aching in effect longevity down the line. operations are not affected. do you drive on but you are concerned about an asset you probably paid $130 million for. you are concerned about the long-term ability to use the airplane. you have another boeing quality problem potentially on your hands. you would hate to have that but it could happen. lisa: it raises the question about new artists -- orders when

demand is going to the roof. delta expectations beat wall street's forecasts. they talk about second-quarter coming in robust and no sign of slowdown. typical for this type of season. how much can we inspect airplane tickets to go up and prices to go up simply because of the lack of deliveries of new planes, lack of capacity, an incredible amount of demand? george: there's a debate in the market place right now. if there is a lack of airplanes, if that will filter through into the marketplace. for sure delta would gain from the problems that boeing. you are not getting airplanes as fast as you would like and you cannot compete as much with them. it could help them. what i will say, delta's earnings were nice. if you look at their yields it is the price paid for mile flown by passenger, the yields were down year-over-year. if you look at the bifurcation

of that, if you look at the basic economy customer, the income from them grew 4% against capacity that group -- not capacity but against travel that grew 9%, passenger miles, all the miles that refilled. that grew 4% for the basic traveler. it grew 10% for the premium traveler. what i'm trying to tell you is, it looks like the basic traveler that might be too many seats in the marketplace, if you look at delta's domestic yields, price paid for mile flown by traveler, those were flat. we are not seeing fares rise significantly. in december they guided forward. the guide was an operating margin below last year's operating margins. while the prophet looked good and beat expectations, i'm

seeing higher load factors of delta and maybe fares for the basic traveler are not as good. they are flat-ish and better for the premium traveler. lisa: this is fascinating considering what frances donald said. there is no better microcosm than airlines and flying. some people are put in the back and they have to board lasted you don't have room to put your bags, then people look for and get incredible meals and have great space. you pay up for it. are you saying people in the back are actually becoming much more price-sensitive and are having a harder time justifying high costs and seeing less revenue? the people in the front are doing fine and that is what you are seeing. a lot of hair lentil count on the people in the front more. george: that is what it looks like to me. this bodes well for united and american. if you have premium seats, you can sell them at good ticket prices. those folks are willing to pay for comfort. if you have economy seats, it

will be much more challenging. a lot more price sensitivity. it goes to that two speed economy. annmarie: it sounds like they are operating in a more efficient way and not growing. how does delta grow from here? to they offer more premium for the high-end consumers? george: we are seeing that across the industry. if you can put premium in an airplane, some of the ultra low cost carriers are offering taking the middle seat and blocking it out to create more premium at a higher price point for the seats. that is one of the ways you can give premium in. if you look at delta load factors, they were nice during the quarter. 83%. the airlines are pushing getting the airplane as full as possible. if you are not getting the exact ticket price you would like, if it's softer, make sure you fill the airplane more likely have seen will be travel. airplanes seem to be full every

time we pull away from the gate. that's another strategy for improving revenue and improving profitability. you are putting close to the same costs against the higher revenue base for the whole plane. jonathan: the pre-update. george ferguson of bloomberg intelligence. delta up by almost 5%. nobody on the plane gets a good meal. no one on the plane. lisa: relatively speaking, you sit in the back with a bag of cheeze-its. jonathan: i rather have those than the slop they serve at the front of the plane. jetblue, great food. and air italia. lisa: i see some of the very small violin over there. jonathan: just in case anyone is flying business and they are interested, what we heard was really critical. you can extend that to the economy. flying in the front and flying in the back are two different worlds. lisa: it is basically a tiered

economy for everyone to see. if you're special privilege, come on in. if not, you gotta check that bag. you don't have room for that bag. your kids -- eh. they have very different realities financially. jonathan: this is a trend, the push towards premium and higher margins. lisa: is the y international travel has been more the greeted. the carriers that are listed mystic and more international have done better. interesting to see how the bifurcated economy is playing out in real time in the earnings and how they adjust. jonathan: delta doing better than good. coming up next, amy wu silverman , mandeep singh alongside tom tzitzouris. this is bloomberg. ♪ ♪

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>> this move and commodities has been years in the making. >> the movie got an oil was telling from an inflation perspective. >> that will continue to push certain kinds of commodity prices, specifically on copper. >> we updated our view on gold. there is now to a risk on inflation. >> the world is changing and away the markets are not looking at. announcer: this is "bloomberg surveillance" with jonathan ferro, lisa abramowicz and annmarie hordern. jonathan: inflation data 90 minutes away. good morning, good morning.

the second hour of "bloomberg surveillance" begins now. s&p 500 barely positive. a read on u.s. inflation. how strong is the u.s. economy? this is from ed bastian of delta speaking to bloomberg. expecting no let up in demand. lisa: this stems from what we heard from george ferguson. it is such a bifurcated economy and somebody different ways. splintered in terms of who has money and who was spending and who doesn't. what does the fed pay attention to? is cpi going to call their hand when they look at the weakness we are seeing in small businesses with consumer to lincoln sees and the other metrics people are pointing to? jonathan: delta airlines is making money. the estimate is 223. annmarie: it's people sitting in the front versus people in the back. i go back to the small business survey. a chief economist said inflation

once again top of the issue to mainstream businesses. that goes into the cpi report today. lisa: this raises the question about whether inflation will call the fed's hand. pockets of strength and pockets of weakness. are they going to be paying more attention to the inflation side of the mandate, or is the priority on the strength of the economy and the idea of employment remaining resilient for longer? that is what the market is grappling with. it seems like they think it is a fed that's more heavily weighted to the employment. jonathan: steve has been sangha pedley the federal -- steve has said repeatedly the fed will want to cut. how long before you stop calling them bumps in the road? lisa: i love that comment. is bump the new transitory in terms of for a failed concept. they are set up for the idea of inflation running harder. what is the biggest surprise to the market?

what is the potential bigger reaction? if there is an upside surprise or downside surprise? i think it is a downside surprise. everyone will say this is guinness use for the fed to go. that's amazing. this is the all clear to them, even if inflation is running harder than expected. that is the balance to risk, to rally further. jonathan: we have been talking about how short things are in treasuries at the moment. if you want the estimate, we can put them on the screen. 0.3%. the median estimate was 0.4%. equity scores look like this on the s&p 500. futures positive. on monday, we were down a little bit and then up a little on tuesday and that up a little on wednesday. really muted price action going into this inflation data. ten-year, 435.57. yields going nowhere. the euro unchanged against the dollar. coming up this hour to discuss,

amy wu silverman on why the left tail is waking up. mandeep singh with a bytedance report. tom tzitzouris on what washington and the fed are aligned on. that's a conversation you do not want to miss. we begin with stocks holding steady in the united states ahead of cpi data later this morning. amy wu silverman says enthusiasm is beginning to fade. the left tail is starting to wake up. we are referring to the bed for downside -- bid for downside protection. amy: good morning. jonathan: how are you interpreting this shift? last time we spoke it was a different story. amy: might i add it was actually the peak of enthusiasm when we looked at the call demand on nvidia as a proxy for ai enthusiasm. we went to the 100th percentile to about 40th percentile now. what it tells you is this enthusiasm is still there but

it's waned substantially. as you mentioned in the quote, the left tail is picking up. we are seeing the options market say maybe there is some thing to hedge out there. to be clear, we have not seen that since 2022. jonathan: is this anticipation or the price? since we last spoke, nvidia was down by 11%. the price has moved. what do you think they are anticipating? amy: sometimes the question is, is this an indicator or situation of the tail wagging the dog? in other situations where nvidia has sold off or ai has taken a pullback the enthusiasm has not waned. to me what is different is the positioning has stayed pretty stable in the last few years. this is the first time we have seen price action change and folks say i will not jump in the pool again. to me that nuance is important. lisa: is this bearish or bullish? you can say this is on the

margins not that great for the high flyers and ai. if you're seeing it brought now and people actually getting more confident in the rest of the sectors, it's overall positive. is that what you are seeing? amy: the problem is that is really, kate it. we are not sure. when you see the market broaden out we expect to see this translation to something like the proxy of the market broadening out. you probably see that call demand transfer over. we have seen that a little bit but actually what we have seen more of is the downside picking up. enthusiasm has waned. that has not happened in the past and we have not seen that transfer. that is what i'm watching for in terms of this going to continue. the options market is more concerned that it's more than a general pullback. lisa: this is a highly complex time, especially towards cpi coming out in a little less than 90 minutes. what do you think of market is

better positioned for? an upside surprise or downside surprise? is the market prepared for inflation running too hot or cooling rapidly with potential for some weaker growth? amy: this is the first time the market is more prepared for the downside rather than the upside, in terms of the market itself selling off. like a print being hotter than expected. what i think is interesting is it is not just that. the market magnitude from cpi is the highest it has been. we measure that through the straddle pricing and options itself. the magnitude of the move is one of the largest we have seen out of all the prints we have had. annmarie: and the options market, people are hedging with gold, correct? is it just inflation or are people buying into that for other reasons? amy: another interesting part of the market. we have been talking about prior to this left tail waking up one thing we said was we know people

are worried. where is the worry being expressed? we have seen it in gold and energy due to geopolitical risks. i think the asian bank narrative is some of it but i do think it's an outlet for expressing inflation concerns. when you see that historic pickup and call skew you are saying if you own gold the payout is at a level that's extremely attractive relative to history. we continue to see that climb. it's an outlet that's expressing it on the left tail has not been working in the market itself. jonathan: how consensus is the long energy story become? overweight energy, overweight commodities. that note. amy: this is a train people have gone on but it's hard to price that unknown coming from the geopolitical risk. this is something investors struggle with. last thursday's price action was a good example of that.

if we get into an escalating situation with iran, how do we price that? how do we price the unknown unknowns. i think that continues and you have the valuation argument that continues to hold to, which is why people continue to stick with it. lisa: we are seeing -- i'm seeing a lot of people buying 125, winter 35 calls on oil. how high are people expecting this peak in the summer to get? amy: a good analogy is i also see people buying 30, 40 strikes on vix itself. do they think we are going to get there? no. if we do, the payout is really attractive. you get that convexity immediately. if we get some situation that is unanticipated, we know the tail events are relatively in extensive for extreme the attractive payouts. lisa: one thing i hear from you was that there has been a shift, whether with ai stocks or with

just this preparation for downside from this hotter than expected cpi print, which people are anticipating. what does this tell you about inflection points based on your history when you see derivatives trading? amy: i keep harping on this. this is the first time the derivatives market has said something different when we have seen momentum go this way. i think i was here right prior to march 18 when the nvidia conference was. i said there were these clearing events were either momentum continues over and stops. when we see this shift in momentum from the options market itself, that is typically a really interesting leading indicator. we have not gotten that. that is the one difference between now and over a month ago. jonathan: thoughtful stuff. amy wu silverman. i heard basically economists are looking for 0.3% but the market is positioned for 0.4%.

lisa: all the shorts are going to get squeezed out. this is a unique moment as we heard from amy. this is the first time in recent memory that the market is more prepared for an upside surprise than a downside surprise that comes with it from the cpi print rather than amy does. jonathan: which is why we have said in-line might be the new beat when it comes to inflation and the way the market is set up. equity futures positive 5.1% on the s&p 500 --.1% on the s&p 500. dani: -- stable to negative. rising economic uncertainty has eroded fiscal buffers. although the government debt is increasing, it did affirm china's a-plus rating. signs that apple is pushing beyond china. bloomberg reported the company assembled $14 billion worth of iphones in india and his last fiscal year, double the

production from the year prior. sources say the tech giant now as much as 14% or about one in seven of its marquee devices in india. more trouble for bowing. the faa is investigating whistleblower complaints that the company took shortcuts to ease production bottlenecks on the 787 dreamliner. the playmaker says this is not represent the work it is done to ensure the safety of the plane. shares of boeing so far this year are down 30%. scrutiny over manufacturing practices had been building since the mid air in early january. that is your brief. jonathan: pretty concerning stuff. early run, promoting the interview with tom tzitzouris. if you're joining us, listen to this line. washington committed to running the economy at full employment forecast until the election and the fed is looking for every excuse possible to cut aid. these are the kind of things people whisper. they have quite conversations about. the cynical people amongst us.

lisa: this is an active conversation in terms of policy. yet there is this ultimate question, where is the mandate now? keeping inflation dented to 2% -- down to 2%. in terms of employment that is an important one. that is where the mindset has shifted. jonathan: we'll have a conversation later this hour. up next, the biden administration taking on china. >> china's whole strategy is to isolate the philippines. isolate australia with economic origin. isolate japan. our strategy is to flip that script and make the isolated party china. jonathan: live from new york this morning, good morning. ♪ ♪

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jonathan: one hour, 15 minutes away from inflation data in america. the equity market dead flat going into it. futures just about positive by .1%. yields lower by a single basis point. things are warming up. 434.97. it's been so quiet so far this week. he will pick at 8:30 eastern time. on surveillance this morning,

the administration taking on china. >> china's whole strategy is to isolate the philippines. isolate australia with their economic origin. isolate japan. our strategy is to flip that script and make the isolated party china. they are the ones that have isolated in the south china sea as it relates to the philippines. they isolated when it comes to use economic origin to coerce australia to change their posture. they become the ice later party. jonathan: president biden looking to crackdown on china's isolationist tactics, hosting the prime ministers of japan and the philippines tonight before a summit tomorrow. i want to go through this line from the ambassador. our strategy is to flip the script and make the isolated party china. how is that going down in china? dani: -- enda: it would be a big ask isolate china.

here in washington with japan and the philippines it's all about coordination and cooperation at the security stage. that's a handful of nations. asia is much bigger than the philippines and japan and australia. there is plenty according gone on china's side. it is far too early to say there is isolation going on as best -- at best they look fairly modest. it's about cooperation. they will be some additional cooperation on u.s. naval basals repaired or maintained and japanese shipyards. more coronation around technology and ai. it's all about building up this drumbeat of support against china's claims over taiwan and tensions in china. -- in the south china sea. that is coordination. isolating china is another story altogether. annmarie: if you look at defense, this comes on the heels of naval exercises between the

philippines, japan and the united states. that was a huge warning sign to china. is this their diplomatic way of pushing back even more on china, especially in the south china sea? enda: it very much is. there was a white house statement making a point they want to send a signal that china needs to know where their limits are for its aggression and its claims in the east and south china sea. those drills very unusual with australia, the philippines, japan and the u.s. sending a clear signal. as the talks with japan and with the philippines tomorrow, it's all about creating this idea, the optics there is an alliance and pushback among allies against china's claims in that part of the world. china is self does have its own allies in the region. china remains the most powerful economic force in that region. it is not like whatever comes out of these talks today and tomorrow is going to result in china necessarily taking a step

back. annmarie: rahm emanuel talked about this no multilateral approach. how does the united states do that when the president has come out in opposition of nippon s teel taking over u.s. steel even though japan says it's one way to fight china? enda: this is the steel elephant in the room. there's politics and economics here. the economics are, the u.s. is asking allies to do more to restrict technology into china and help it in his pushback against china. you have japan trying to buy that steel plant in the u.s. and the president giving his disapproval of it. it has not been blocked out right but his disapproval which is unusual. what signal does this send about the u.s. attitude towards foreign investment among allies? the politics are also pretty real. this is a sensitive sector, the

steel sector, in a sensitive electoral state. pennsylvania. there is no doubt politics has trumped what is going on here. the question remains how much more damage does it due to the u.s. standing in the world of free-trade? chinese state media are dining out on it. there's a view that the prime minister has said he does not plan to raise this with president biden today. lisa: we talked about the concept of isolating china and how it's being received. some of rahm emanuel's fiery words. you see apple just quietly shifting production out of china and into india. at the same time they don't really sell in india because india is flooded with cheap chinese phones that really dominate the market. how much has this become part of the issue for the united states that china is flooding the market globally with cheap goods

that it wants to sell not just of the u.s. but crowding out competition elsewhere? enda: it seems to have become the topic of the moment. the main messaging from secretary yellen's trip last week was all about the idea that china is making too much excess produce and dumping it on global markets at good prices. during that speech janet yellen made the point it was not just a threat to u.s. factories and u.s. workers. it was a threat to workers around the rest of the world to drum up support. we have the big imf world bank meeting here next week on the finance ministers will be in washington, d.c. i would be interested to see what kind of support which countries way in behind u.s.-but complained that china is now stoking a new china shock with the export of its excess capacity around the world. so far the argument has not

really let up or taken off globally. it is mostly u.s.-led. lisa: it raises the question of whether countries have to choose alliances, whether to go with the united states and the concept of avoiding goods that are cheaper, but from china to getting over the united states, or whether they can move to their own music and if they want cheaper goods and import them from china, go for it. enda: this is the big economic trade-off. no death that china has been a source of cheaper labor, cheaper manufacturing, lower environment of standards. that is why the world's factory base is based their. consumers end up with cheaper clothing and goods, cheaper steel. when it comes to making choices countries in the global south are not in the mood for making a choice between either the u.s. or china right now. they are happy to do business.

we saw the comments from the argentinian president. companies will do president would china as they wish. if you're looking to the binary lens of with the u.s. over against on the economic front, that is not yet how it's playing out. jonathan: totally missed the boat. something seems so stale to me over the last week. there is nothing fresh, nothing new in this whatsoever. let's dissect the linkage again. china wants to isolate australia and japan. we want to flip the script to make china isolated. do you remember tpp, transpacific partnership? that included japan, australia. who did not include? china. wasn't at the plant eight years ago. are we trying to refresh that all over again? enda: quite right. there's a lot of repetition. it is true of the overcapacity debate. you mentioned tpp. that was sold by the u.s. administration at the time as a grant bargain to build a trading

network in the asia-pacific without china. it was discarded by president trump. here we are today. while accounts if you look what's happening over the past for years china has grown its export base. it has grown its economic trading clout around the world. it continues to court the global south. as the u.s. builds its alliances and puts on the portrayal of the alliance with japan and the philippines, china is building its own alliances and its own trading networks. it is not as simple as saying china is being isolated. they are continuing to build their alliances. jonathan: good to catch up with you. the former president trump blew up tpp when he came to office. nothing new about any of this. what is new? hardly anything. eight years ago, what happened? the electorate said no and yes to donald trump and ultimately no one can campaign of these issues anymore going into november. annmarie: it is why this nippon

steel deal will likely get blown up. maybe we will not get any sort of consensus on what to do with the steel until after november 5. jonathan: strong words with back it up with policy. lisa: that leads to the expect of tariffs that will probably come before the election. how much daylight is there between the two candidates and how they get ahead of something that seems almost like an inevitability? jonathan: bytedance's profits surging 60% in 2023. mandeep singh of bloomberg intelligence is up next. ♪

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jon: about 60 minutes and 30 seconds. equity futures now on the s&p positive by .1%. unchanged on the nasdaq, positive by a quarter of a percent on the russell. we have -- we are close to 4.8% on the two year. on the 10 year, around 4.4%. perhaps encouraged by what's developing in commodities, brent and wti. brent crude $89.97.

more of a sense of ease in the middle east in terms of some resolution or lack of an escalation. there is a new consensus trade with commodities and oil. if that's the case, how much does this have fuel to go further? >> overweight commodities. lori campesinos sticking with energy. the middle east is quiet. we have silence over the weekend. what were we waiting for? a response from iran. gauging the prospect of a confrontation between israel and iran. i think crude sold off but it's constructive. we have the prospect of confrontation between those countries. >> netanyahu has said he has a

date in mind of when he wants to going to iraq -- go into rafah. this story is far from over. >> $89.92 on brent. on wti, $85.73. just under an hour away from the u.s. cpi report. the median estimate is calling for 0.3% monthly rise, a slight tick down from a month ago. you have the survey and our survey and what we price for. we have explained the difference. >> priced for an upside surprise around 0.4%, the i -- the idea that this inflationary story -- does this set up the market for a much bigger reaction if we get a downside

surprise or an in-line number than we would otherwise expect? or are we looking at if we get that the narrative shift we heard from amy silverman that could be a pivot point? >> i love stephen stanley at santander because he brings up governor waller's point because they will need two consecutive months of that benign inflation story. that gets up to the june date. analysts are starting to spin the results, this idea of .3% month over month is basically good, even though we would have to see that before the fed considers. >> this is why it's a lose-lose for the fed. if they have to wait, they get accused of waiting too long. if they are too close to the election, it's politics. this is the problem. >> basically, if they are doing

an ok job and there's nothing dramatic to talk about, people need to do something with their day, so you have people analyzing themselves into a tizzy. that is potentially problematic. that's also what's going on to a degree. >> delta shares rising in the premarket, reporting first-quarter earnings. also coming out with strong guidance for the second quarter on the back of increased business travel and steady leisure demand, up close to 4%. some strong words coming from the ceo. >> basically saying they don't see any end in sight to demand. even though you typically see a lull in terms of travel ahead of the summer, you are not. they are expecting the higher end of the estimates. it indicates the strength in the underlying consumer but also what we were talking about with george ferguson, the fact that

people are doing well. >> is the people at the front of the bus, the plane, that's basically propping up all of this when it comes to the revenue and profit this airline is making, and potentially we see united said to come out, their stock being pushed higher. >> let's talk about who is making money, bytedance reporting a profit surge of 60% last year. underscoring the strength of the app. the company facing an uncertain future in the u.s. the house passing a bill to make tiktok be sold by bytedance unless conditions are met. mandeep singh. strong numbers from bytedance. decent numbers out of asia when it comes to tech. what is behind it? >> different story in the case

of bytedance. it is the strength of their app and how the ad spending is bouncing. i don't think it has to do with the tiktok u.s. business as much as the domestic business. in the case of tsmc, it comes down to every iplayer -- every player. they have pricing power and have not flexed it as much as nvidia has on the chip they are selling. in the case of tsmc, they have talked about a 50% kicker for their ai business over the next five years. this is a company every hyper scaler would go to. and i think you have clear -- have a clear line of sight in terms of how this business could grow. >> tsmc has a working relationship with nvidia and apple. can you read into these numbers and strength elsewhere as well?

>> in the case of apple, yes. it bodes well for a refresh cycle. we don't have clarity on what they are doing on the ai side. but clearly the data center spending is holding up nicely. when you look at the numbers that google and amazon and microsoft have talked about in terms of their capex going up, that all is going towards buying nvidia chips and going directly to tsmc to make the round, which is what google indicated. >> there's a larger question that was introduced yesterday when intel came out with the idea of another ai chip, which is how saturated is this market? is this something nvidia can dominate and others can grow or is the entry of new players problematic? >> i can tell you the market is constrained. we have gathered that from a number of participants who keep

saying nvidia chips are in short supply, the h100 and a100. so given the supply constraints, i would say this year, you are talking about intel making a dent. google is making their own cpu. that's going to hurt intel. intel is the dominant player when it comes to the cpu market. every hyper scaler is making their own cpu. that hurts intel and amd. it helps the building block companies, but not the chipmakers in the cpu space. >> with tsmc, how much of a clutch to they have. we have talked about seeing production in other places. is that not happening? >> they are and they are diversifying. i would argue they started a new fab in japan. that's alive. it's manufacturing chips.

so that diversification play is happening. in the u.s., it is still slow. they announced a new round of funding from the chips act. they clearly still have the secret sauce when it comes to the advancement of manufacturing. intel touted the performance of their chip yesterday but have not announced a large company buying chips from intel. that's the proof point that intel needs to give to convince investors they are up there, competing with nvidia. >> i would like to talk about bytedance. it's the first time it's overtaken tencent when it comes to revenue and profit. you look at the u.s. business. they want to grow it tenfold. this will be lucrative. how existential is a given the politics room tiktok? >> i would be surprised if tiktok is able to get into e-commerce in that big of a fashion under the current ownership.

we are talking about more transactional data and i cannot see regulators allowing that to happen. >> what is stopping? >> they have to bill a delivery business. you think about amazon goes about fulfilling the e-commerce side of things. tiktok does not have anything like that. they have to partner with a large e-commerce player. for that to happen, i cannot imagine any company announcing a partnership with tiktok. >> maybe we will have to wait until november. it sounds like there's no -- there's now a ceiling on how much tiktok could grow. >> in the u.s. outside the u.s., they have apps they continue to see healthy user growth. they are doing well domestically. so when you look at companies like by -- like bytedance,

you have to do a sum of the parts analysis. >> appreciate that. mandeep singh. equities positive by 0.1% on the s&p. inflation data 50 minutes away. here is your bloomberg brief with dani burger. >> at least three people are dead after an explosion at a northern italian hydropower plant. the company set a fire impacted a transformer without providing further details. italy's largest power supplier shut the plane down immediately for safety reasons. raphael bostic still sees just one rate cut this year but says he's open to changing his outlook of conditions change. he gave himself for optionality, saying the u.s. economy continues to show resilience, so he cannot discount the possibility that rate cuts have to move further out. bmw sales of fully electric vehicles jumped 41 percent in

the first quarter. mercedes reported ev sales that fell 8% in the first quarter while tesla reported its first year on year sales drop since 2020. ev is made up roughly 50% of bmw's total deliveries last year with the figure expected to rise to 20% in 2024. >> good piece of news. thank you. there has been bad news in that space. i have been cheering this quote all morning. washington committed to run the economy at full employment at all costs until the election and the fed looking for every excuse possible to cut. up next, the fed in politics. >> if they cut in june or july, they will be criticized for cutting too much, in september, criticized for cutting to close to the election. >> that debate next.

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>> 46 minutes away from cpi data in america. 0.3% is the estimate in a median survey. the previous rate 0.7%. equity futures positive. under surveillance, the fed getting pulled in the politics. >> pala's political incentive is to go into the sunset as the person who defeated this inflation. they will be criticized.

>> less than one hour away from the march cpi report, investors looking into insight into the fed's path forward. "washington is committed to run the economy at full employment at all costs until the election and the fed is looking for every excuse possible to cut to aid this cause." tom, good morning to you. what tells you the fed is looking for every excuse possible to cut to aid the cause of the white house? >> because we are still at full employment, inflation is still well away from target, and the fed is already talking about cuts. and on the speaking circuit, you have fed leaders talking about rate cuts, the need to slow balance sheet reduction. that's indicative of wanting to ease sooner rather than later.

>> do you think that's a mistake? why is it political bias? >> it's a mistake if we continue to be at full employment and miss on the inflation mandate because it's unprecedented to be easing aggressively when you are already at full employment and inflation is too high. by definition, that's a policy mistake. but do they know something different or is it a political bias? we don't know that. we don't know if they are seeing something that's making them concerned. they could be concerned about financial stability, which is not politically biased, but has political ramifications. there's a lot that could be worrying them that is not political bias but is suspicious. >> to be clear, you hint this is a political bias because he cannot find the justification in the data. is that your conclusion? >> that's what we have to conclude. that is the most simple conclusion. there's another possible

conclusion, that we have a treasury deficit that is gargantuan. it will become progressively more difficult to digest. that causes not just political consequences but financial instability. we know well that is the reverse repo facility shrinks toward zero and t-bill issuance ramps up, you will start pulling money out of bank reserves. if the fed doesn't ease into that, there's pure liquidity. you cannot run to trillion dollars deficits year after year. there's a stability risk that could be motivating the fed as well. >> i love it. potential political motivation by the federal reserve or bias. two, this potential the deficit is hanging over their head and they want to ameliorate some of that. what about this argument that you are seeing pockets of weakness in segments of the population, that you are seeing small business confidence come in at the lowest level going back more than 11 years, that you are seeing delinquencies pickup, certain segments hit

hard? >> i agree with that. that's why they should not have raised rates. they should have run off the balance sheet at a quicker pace. because what you are doing is you have seen the fed -- fed funds rate. part of the reason inflation has remained persistent is because they have not used the balance sheet aggressively enough and the world's largest vendor has not seen any constraints on it. if they used the balance sheet more aggressively, there would have been less strain on main street and more on the big spenders. >> were saying they should have disciplined the government by not helping them? >> understanding where the excess aggregate demand is coming from. it's coming from high net worth individuals, affluent households, government spending. the way to rignet in --the way to rein that and is put pressure

on borrowing costs. they carry their inventory with bank lines of credit. they have seen it go from 3% to 10%. pure bottom up cost pressure for these guys. if you look at large companies, they see their borrowing costs rise 200 basis points maybe. in some cases, negative. you are looking at negative borrowing costs on. so there has not been enough tightening. >> what is more important, fiscal or monetary policy? >> in terms of the labor market, fiscal policy. we are looking at stimulus coming out again in 2024 likely targeted towards the middle or third quarter of the year. that's more important for the

labor market because it's designed to keep the consumer spending. talking about financial markets, monetary policy is most important. monetary policy is being blurred by the amount of cash the treasury has been pumping into the economy. so we are in a liquidity air pocket as households and businesses pay their taxes. people are pulling bank reserves, money market funds. that's pulling liquidity out of the market. that's one reason we have seen the equity markets and bonds off. is that results in a cash horde by the treasury that will come out this year, liquidity will matter. and if the fed eases into the treasury cash push, you are looking at an ocean of liquidity coming into financial markets from may until election day. >> if we could talk about the election, this idea that the fed wants to aid the course of what we are seeing, potentially keeping biden in the white house, how much consensus does

powell need if he wants to make that cut? >> i would stop short of saying they want to keep biden in the white house. i think they want to keep financial stability for many reasons, one of which is it creates political stability, but their primary motivation is still financial stability. i don't think they care about the white house or senate. they want to stability that comes with a stable treasury market. that comes with huge political ramifications. i forget the second question. >> how much consensus does powell need? because the stakes are high and it will be seen by many through the lens of politics. >> how much do they need? they already have proof they have not tightened enough. will today's cpi give them proof they can cannot cut three times this year? i believe if we get a hot cpi, if that comes in .4% or higher

month over month, that should take the june rate cut off the table. it should take an announcement for a taper starting in june off the table as well. that should be enough. but i don't know if that's enough for the doves in the fed to continue to pull back and say we have to wait another month. but that should be enough. that should be enough for powell to say we have too much inertia to this inflation. it is still too sticky. if there's been one casualty of the fed over the last decade -- i would stop short of saying their political independence have been sacrificed, but i think there focus on a dual mandate of full employment and price stability has been sacrificed because of an excess focus on financial stability, which is not one of their legal mandates, and is probably the least achievable of these philosophical mandates.

they really cannot achieve financial stability but there's been such a laser focus on it from a regulatory standpoint to simply a monetary policy standpoint, keeping the financial markets stable. >> these are some big statements. if the fed is willing to do that, you also believe the treasury supply could be a financial stability risk as well? could you tell me what to do at treasuries? >> we wait for the cpr number because that will tell us which direction the fed will go in the next few months and tell us where it is not real growth going to be? that's the real benchmark. that's the first point. what do you do with treasuries? they are the gold that backs of the financial system. you cannot liquidate them completely.

so you cannot migrate away from them entirely. you have to be tactical. we are in an environment where, depending on your mandate, depending on what you do, you have to hold treasuries but you don't have to hold duration. so you can move in and out of duration. we start to see five and 10 year treasuries approach where nominal growth is, that's a good buying opportunity. >> controversial at times. thank you. some big calls. >> talking about why the fed wants to cut so badly and how this has raised questions of what could be behind that. in terms of the conclusion for the investment thesis, i wonder how much he is on the same page as bob prints, basically saying not cash but short-term treasuries. what's the motivation to leave that if you are getting yield? unclear when they will go lower and risk off. >> here's the lineup.

lisa, james, steve, david, with steve and david having different views on what the fed should be doing and how they view incoming inflation data. that's coming up. >> i am looking forward to another face-off. david talking about how this is real, steve more on the same page as tom. >> cpi just around the corner. 34 minutes away. equity futures positive. the scores in the bond market look like this. the 10-year yield lower by two basis points. ♪

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>> we are in an economy that still has a lot of inflationary pressure. >> i would not assume inflation numbers would be super sticky but would certainly be bumpy. >> still looking for disinflation to continue. >> we are talking about

inflation behaving. we are not talking about inflation accelerating. >> inflation will be sticky. and i do think that that works over the long-term to the fed rethinking its target. >> this is bloomberg surveillance with jonathan ferro, lisa abramowicz and annmarie hordern. >> this is what it's about. the third hour of bloomberg surveillance begins now. inflation data 30 minutes away. , previously -- the estimate 0.3%, previously 0.4%. chairman powell with this. too soon to say whether the recent readings are just a bump. >> we will get a sense of how the market is shifting. it seems there's an inflection point. i want to make a correction. it's been thrilling over the past 48 hours.

we have gotten treasury auctions, delta earnings. that's where we are at. no one can really get ahead of this based on the fact that we don't have an understanding of the fed, their reaction function, an understanding of an economy that's the most confusing i have ever heard of. >> let's get to the market board and look at equity futures. i believe on the s&p yesterday we were positive by 0.14%. monday, -5.1%. huge, massive moves. >> delta moving in premarket. i'm looking forward to this hour. david kelly. i love his note. it was a little bit of a humble bread. he talks about what it means for monetary policy.

does the print today support that in terms of the fed cutting before others say they need to? >> nothing humble about it. good for him. wonderful. >> 28 minutes away from that inflation number. lisa shalett on her outlook, steve on my rate cuts are not guaranteed, and david kelly online the timing of cuts is crucial. cpi data just around the corner. lisa saying this. inflation has remained sticky. for the fed, the hot data is not simply a risk to estimates. it shines a light on its long bias towards cutting rates. lisa joins us for more. where does that bias to cutting rates come from? what's it about? >> our perspective has been that for a long time they have been

focused on managing liquidity. we know, as some of your prior guests talked about, liquidity has begun to finally drain out of the system. this has been a 2.5 year period where financial conditions have remained extraordinarily accommodative and i think they want to cut so they get to qt, the tapering of qt. they have tried to keep an order to things. that's what this is about, managing liquidity in the economy, this idea of ample versus abundant that they keep talking about, they don't want to have a 2018 correction in this market. >> are financial conditions tight or easy? i don't know. is fed policy that tight? where are we? >> we are 100% easy. you don't see markets like this.

you don't see credit spreads where they are. you don't see auctions going off without a hitch unless there are easy financial conditions. >> that said, they are tight for some people, which is what we heard for smaller businesses and what we hear when we look at delinquencies. have you ever found the economy this confusing? >> no. one of the things that has happened, and we can trace it back as long as the past 15 years of what zero interest rates have wrought, which is an extraordinary diversions between the haves and have nots. so when you think about it, for the wealthier 40% of the economy, high rates are actually income producing, and that's been stimulative. for those who need credit, it has been a headwind. and i think that divergence is getting bigger and bigger, which is why peeling apart in decoding

the economy here is tough, because if you actually look at consumer confidence in the aggregate, it looks like it's drifting up, but when you look at consumer confidence by income cohort, the lower two thirds are suffering and saying there's inflation. there are higher rates. my credit card payments are going up. >> which goes to what you do from an investment standpoint given the fact that the fed has to make a choice. do they try to curtail some of the gains in markets or do they try to throw a bone to some of the lower income sectors who are struggling? if they err on that side and cut rates, are they going to turbocharge what's been benefiting the upper class for the past year or longer than that? >> yes and yes. i think that's why they have backed themselves into a corner. i think this lack of stability

is going to be with us for a while. and i don't think they have a clear strategy for how to manage it. >> some words and phrases you have used. vigilance, maximum active management, reduce exposure to the consumer. why do you think margins will be challenged soon? >> if we peel things apart, you know, the overall margin expansion of the mag seven last year was spectacular. it really drove the aggregate market cap weighted index, rebounded margins. underneath that, margins are basically where they were pre-covid, which suggests we are "normal," but we are not expanding it. the question we have for that cohort, the non-mag seven cohort, is where is margin expansion going to come from? it looks based on the inflation data like costs are going up. manufactured input costs are going up.

we know the ppi has been going up. so that's a pressure. it's not clear to us that while we may say that wage growth is decelerating, it is still over 4%, and so our contention is, without a lot of topline growth in the economy, which we may get for some cyclical sectors, it's going to be hard to get margins going. >> can it be made up with better topline growth? is there a better way to play higher nominal gdp in america, outside of the consumer? >> yes. our contention has been the best way to play what we are seeing now, a rebounding global growth and manufacturing growth, is with cyclicals, industrials, energy, materials, financials, potentially away from some of the more general retail or consumer discretionary names. >> you point to the fact that there are more upside to

-- upside surprises coming from outside the u.s. are you liking emerging markets and areas that are typically more leveraged to a more positive cycle even though we might not be heading toward one? >> absolutely. one of the things we spend the most time educating clients on now is the extent to which we are seeing all-time highs outside the u.s., telling them the story about what's going on in japan, about the rebound in industrial production in germany after germany's languished for the last 18 months. it's an interesting story. european markets have responded and we think there is more juice in that lemon. emerging markets as well. even in china come as negative as people want to be on china -- china, as negative as people want to be on china, does look like there's improvement that's positive. >> are you moving more heavily into europe, into japan, even

china, and out of the u.s.? is that the way you are playing this? >> we are trying to rebalance and be diversified as part of the aggressive active management. let's be maximally diversified and take advantage of some of these emerging trends, which includes not just moving by sector but moving by geography. >> you mentioned china. are you touring or is it a destination? >> china cannot be a destination for our clients here. i think the volatility of policy and geopolitics is too hot. so we have been favoring an em x china perspective. we think there are good opportunities in places like brazil, mexico, india. >> talking about industrials, energy, what exposure is it? is it the companies you like or do you like these materials? >> we are owning both.

we believe inflation will be stickier. we have owned the underlying commodities. that's been a decent trade and we think will remain one so long as global growth is improving. we also want to pick companies that are going to beat estimates . given where valuations are, it's our perspective that the only way this market keeps going is if you have that earnings achievement and surprise. where are the expectations most benign or not stretched? it's actually in some of these more cyclical sectors where people were not betting on acceleration and gdp, and that's been the surprise. >> how are you going to play the cpi data? >> we cannot play a print. our best guess is that it's been telegraphed that we are going to see yet another acceleration in the one-month, three-month and six-month inflation prints,

three point 4% headline looks about right to. and our guess is that the market again is positioned for that number. i don't think we are going to get a hotter number than that, but, you know, we will have to see. >> great to see you in person. >> great to see you. >> lisa shalett of morgan stanley. i want to issue a quick correction. we had a full screen earlier attributed to france's domino but should have been attributed to anna wong. ultimately we see in you inflation around -- we see annual inflation around 3% on the. >> it's basically speaking to this belief that the fed wants to cut. we got that from andrew holling horse at citibank.

we could get a fed cutting rates. >> someone at morgan stanley said something similar. maybe the bar is lower you think for the month of june to get that. equity futures up point 2.5% on the s&p. an update on stories elsewhere. >> delta earnings -- delta shares are up in the premarket trade after a higher forecast and earnings beat. the ceo expect no let up in the man. it also helped lift shares of united and american air. delta is the first major u.s. carrier to give a preview of their current quarter. mortgage rates top 7% for the first time in a month. home purchase applications fell by the most since mid february. despite that, the overall index made a slight gain thanks to refinancing activity. the data cover more than 75% of

all retail residential mortgage applications in the u.s. godiva's parent company is raising prices for chocolate as the price of cocoa sores. they are still finalizing price plans but they say they expect global price increases in the high single digits. the company expects occasional customer pullback. total units moved will be declining. cocoa prices have more than doubled so far this year. that your bloomberg brief. >> important news. thank you. next, gold trading near all-time highs. >> the other impacts that we are seeing will be different and the greatest force is central banks trying to diversify their reserves. >> that next. from new york city, good morning. inflation data 16 minutes away. ♪

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>> inflation data at 8:30 eastern. the s&p 500 positive by 0.2%, yields coming in a touch, down two basis points. unmoved. crude positive by .7%. under surveillance, gold trading near all-time highs. >> the other impacts we are seeing on things like gold are different. the biggest force there are central banks trying to diversify their sources of reserves. i think this diversification story will continue. we have gone through this. if you look over the last 100 years in terms of the place of gold in central bank reserves, it has gone up and down through time. i don't think it will be

long-term. >> here is the latest. gold flirting with record highs as investors await data. james steel saying gold keeps rallying even though fed officials have not made bullish comments and other factors in the financial market are not gold friendly. it could hit some headwinds. momentum buying is overwhelming other facets of the market. james is with us for the first time in a long time. good morning to you. good to catch up. let's talk about what's happening here and what used to happen. when you see yields moving this way, what is happening? what is the relationship between the two? >> we have seen a disconnect. first, yields have been positive for some time, many months, a couple years. the gold market has been able to resist that. the disconnect has carried over. and we have had a lot of --

recently, this year, we have had a lot of buying coming in as a safe haven and hedge against equities. asset managers, portfolio managers, have no choice but to be in equities, but they have a choice if they want to hedge and how they hedge. gold is a standout in that regard. it's a good diversifier and head for paper assets -- and hedge for paper assets. it's sent this market to all-time highs. the dollar has been pretty firm and yields have been firm. >> can we get to geopolitics? the physical central bank buying and what underpins that. what is that story about? >> first of all, you need dollars. we are running a substantial deficit and have done for some time, so many central banks have

adequate dollar reserves that they can devote to some buying of gold if they wish. central banks are limited as to what they can buy. they only have a few fixed income instruments they can buy and a few foreign currencies. then a particular want to be -- i'm not saying they do or don't, but if they wanted to be out of the dollar modestly, reduce holdings slightly from 65% to 63%, but did not want to go into the euro or the yen, gold is marvelous. you can get out of the dollar without being in another currency. like with financial risk, gold has proven to be a good asset to own during periods of elevated geopolitical risk. gold has actually been going higher since the day after the hamas attacks.

if you look at the market, we declined from may of last year until october 6. as it became clear we were not going into a recession and the fed was not going to cut rates and we came out of the debt fiasco and bank stress situation eased, the gold market dropped right until there was -- until those attacks. if you look at that end geopolitical incidents around the world, it makes it likely that not only a central bank would buy but others would as well. >> you are making that a lot less traumatic and others who would come on, saying -- less dramatic than others who come on, saying other things. are you saying this is on the margins, they have filled their coffers with dollars and it's pretty much done? >> know, but i'm trying to find some moderate level in between.

central banks are major buyers and they are buying it over the average of the last 15 years. 2022, almost one out of every three ounces of gold mind ended up in a central bank. that's enormous. that's almost 1100 tons. the year before that, it was more like 450 tons. last year, i think it was 1037 tons. we are looking for more like 800 tons this year. but that's still well above the levels. we are saying maybe not as high in the last couple of years but higher that we have seen historically. but i think what many of your other commentators are pointing to, and i would agree, once central banks start on a policy course, it's usually multi-year. when they sold gold, and i remember when they did -- my hair was gold at that time, back

in the 1990's -- they sold for almost 20 years when they did sell. over 15 years. so once they start, and central banks also, in the last couple years, published a lot of policy papers on why a central bank would want to own gold. that was another indicator they were getting interested. >> after the freeze on russian assets, we saw central banks bring back within their control physical gold. does that set the direction that potentially we will see more of that in terms of the sanction policies coming out of the u.s.? >> barry eichengreen, i believe -- i'm almost sure it was him, in a paper that he wrote, said the threat of u.s. sanctions would be an inducement for some central banks to buy gold. >> would you categorize that as de-dollarization or is that too

harsh? >> it is slightly too harsh. at hsbc, we are in the camp that the dollar will remain the world reserve currency for the foreseeable future, but that is not to say that they need as many dollars as they have now. so the point being, you know, u.s. dollars 59% of foreign exchange reserves, down from the 60's a number of years ago. you don't have to go into another currency. you could go into gold and that's what many of them are choosing. >> i think you have reminded a lot of brits at the home of the brown bottom in the late 1990's. james steel of hsbc, thank you. good to see you. an update on inflation. in six minutes, inflation data drops. mike mckee, what are you looking for? >> continued disinflation on a short-term basis with the monthly headline and core dropping a little bit, but

because of energy prices and base affects, the year-over-year number for cpi headline is expected to rise to 3.4% from 3.2%. that would be a disappointment to some. core expected to go down year-over-year. that might make the fed happy. we see a lot of tweets from people saying this is the most important cpi of our lifetime. maybe not. of the year, maybe. it's going to tell us something about what the fed is thinking. as it goes into may and june, a rise probably means june may be off the table. maybe it comes on. >> how high is the threshold to shift the fed given the fact that we have gotten a number of higher-than-expected inflation rate over the past -- inflation reads over the past few weeks? >> if it goes up significantly, it does have an impact. cpi does not usually come in. it can't surprise but when it does it is by .1%.

a lot of that is down surrounding. everyone is looking at three decimal places on the cpi numbers. it's going to take a lot for something like that to happen. >> sit tight. the inflation data four minutes and 25 seconds away. we will catch up with steve, david kelly. those two reacting to the numbers as mike mckee reacts. the s&p 500 positive by 0.1%. yields lower. the 10 year 4.35%, the two year 4.73%, inflation data next.

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>> inflation data 20 seconds away. the s&p 500 positive by 0.16%. the nasdaq 100 up 0.13%. to the bond market. we look like this. your two year down two basis points. your 10-year down not even a single basis point at 4.3577%. mike mckee with the data. >> we are looking for the cpi data to drop. it seems to be slower than it has been. we are getting some numbers in and we are on the high side by .4% for headline and core on a month over month basis.

that pushes the year-over-year number from 3.2% to 3.5% for the headline. for the court, we go to 3.7% -- 3.8%. no change. disappointing result in terms of the headline numbers. we will see what we can find in terms of what pushed the numbers up. food prices were not a problem, up just .1%. gasoline up 1.7%, so that's not a major issue. and we always want to check used cars and trucks. they fell by 1.1%. so there's something else here that's pushing it up. looks like shelter costs are unchanged, up .4%. i will take a deeper dive into this and see if we can find out the problem. >> you can guess. another bump in the road. equity futures on the s&p -0.9%, down across the board.

nasdaq down by more than 1%. the small caps negative by more than 2%. the bond market. yields up by 12 basis points. new highs for the year on the two year yield, 4.87%. yields higher. you can imagine the dollar stronger. the euro against the dollar, 1.806%. dollar stronger. are they going to call this another bump in the road? how long before we start calling it new terrain? >> you are going to have the people like raphael bostic talking that way. maybe chris waller as well. because they were already concerned inflation had not continued to go down as they were expecting. now this cpi seems worrisome because it continues the trend of the past two months. there was a thaw that january was an outlier, maybe february

was an outlier, but now you have three months and i think people will start to say that's a trend. >> which raises the question of how much will we start to move toward the raphael bostic of the world and the neel kashkari view of just cutting once this year and having the message be we might go before the election season but don't expect us to move again. >> that's going to be a tricky thing for them to pull off because it gives too much of a timing to it. they do not want to bring the election into it. i don't think anyone will change their public view on how many cuts this year or go to none between now and may 1 because it's coming up quickly and we will get more reports before the june meeting, but they might start dialing back this number and markets are certainly going to start pricing in a two-cut year rather than three cuts. they will probably go down to

one cut. but to say wind would probably put them in danger -- in dangerous territory. >> mike mckee, stay close. 0.4% is the number. the estimate in our survey, 0.3%. strip out food and energy and its 0.4%. the median estimate 0.3%. every time we have seen this, the fed has called it a bump in the road. for the equity market, it might be more. s&p 500 futures down -.9%, nasdaq down 1%, the small caps struggling, down 2%. treasuries down and yields are up. 14 basis points on the two year, preaching -- year, approaching 4.9%. >> you can see this being bled out in the bond market. you now see only two cuts priced into the market in terms of forward expectations.

you take a look at the currency market. i'm interested in how this puts pressure on other countries and central banks. you see the euro breaking down and the yen crossing that 1.52% mark. >> the dollar stronger against everything in g10. to break this down, steve and david. steve has been talking about the fed wanting to cut but the data is not cooperating steve has been talking about the fed wanting to cut but the data is not cooperating. ? >> the door you heard was the slamming door on the june rate cut. jay powell presumably wants to achieve consensus. he's only had eight meetings at a 51 in which there's even been dissent, so he will try to convince the committee, but he cannot convince the committee of something it does not want to believe on average, so he's not going to be able to get consensus around a june rate cut. i don't know if he would even want to push one at this stage. unless there's something weird

in this data, i would love to see what pushed this. it sounds high. it stefan lee moran play than the fed once. i still think they ought to normalize over time. >> it's too soon to say whether the recent readings represent more than a bump, said shery ahn powell -- said chairman powell. >> i think they are creating a problem for themselves in terms of the promises of rate cuts and inability to execute on them. forward guidance has locked them into something because they want to do something the data is not allowing. i think they want to change it. whether they will becomes an interesting question. i think there's enough doves on the committee that it will be difficult to sell. as mike mentioned, they are more likely to hold status quo and allow the markets to do the effective adjustment for them.

>> i'm struck by the fact that core inflation came in hotter than expected as well as everything else when we are seeing oil prices and more broad commodities increase, which creates this question of how much more could inflation rise? from your perspective, steve, do you think this data raises the proposition of a hard landing because it forces the fed to stay high even if you see some weakening on the margins? >> the answer is simple. i defined it as a hot landing, an environment in which the economy slows back towards 2.3, which is still above the revised trend. but cbl raised its underlying rate of growth in the economy to 2%. so my 2.3% number is above trend still. that gives you a tight labor market environment and suggests it would be hard to get inflation to the 2% level. could inflation wind up settling somewhere around 3% as opposed to 2%?

yes. it still keeps the inflation percolating. >> check out this market move. the russell getting slammed, down more than 3%. on the s&p 500, down more than 1%. david kelley moments ago, the sound of the door slamming shut on a june rate cut. 0.4% is the estimate. mike mckee in washington dc. you have had time to chew over these numbers. what is underpinning this one? >> there is not any huge jump in any category except motor vehicle insurance, up 2.8%. it does not have a huge weight but figures in the core services. what you are seeing is a lot of slight increases in a lot of different areas. rent up .5% after .4% last month. the owners equivalent rent, the housing component, unchanged at .4%.

that's still an upward weight on the overall numbers. we are seeing the same sorts of things throughout this. .7% gain for apparel. things that go over 1%, very little. but a lot of things moving up .1% ordered .2% during the month -- or .2% during the month pushing things higher. that would suggest a broader base for inflation than just a few outliers like we have seen in the past. >> thank you. i'm looking now at super court, someone noting that it's at 4.8%, not with the fed wants to see. david kelly, i know you have been big on the disinflation, the immaculate disinflation, this idea that we were going to get a landing and natural effects would take hold. do you question some of that now? >> what mike was saying makes me feel better about the situation. that 2.8% and auto insurance --

in auto insurance is probably not a real member. i know rates are up but don't believe the negotiated auto insurance rates month-to-month are actually going up that much at this stage. i also don't believe we will be seeing 20.6% on auto insurance a year from now. and difference are up, then the owners equivalent -- and if rents are up, than the owners equivalent is as well. but the year-over-year inflation we are seeing is coming from auto insurance and the governments measure of shelter costs and both of those are smooth, badly measured things, which should come down over time. i will admit this is too much for the fed and they will not want to look into more details to find a reason to cut here but it does not make me worried. in the long run, inflation is coming down. >> your response? >> it's an index and you take it

as what it is. a lot of these components are not seasonally adjusted. they are aggregated. there's lots of components in the cpi. the fact that some components go one way and some the other is why we have an index. i don't look into the details. i will look at the major aggregates and components and they are telling me inflation is not doing what they wanted on average and this is a problem for them. they laid out a scenario and actually lowered the bar at the march meeting to cutting rates and the economy is not even meeting that lower bar for them. this becomes an ongoing quandary for them because they have created a financial market environment that's to accommodative -- that is too accommodative for what their environment is. therefore they have created a problem for themselves because they -- because there forward guidance has made the labor market tighter than it would have normally been if they did not have this guidance. the dots are a bad concept.

they lead the market in a direction it should not go. this has been a mistake since it was created by janet yellen. nobody has backed away from it. i hope when they review it, they realize this is a dumb thing and they walk away. >> do you agree? to the dots create this problem? >> i don't really have a problem with the transparency. i do have a problem with overly active monetary policy. you were talking about how their monetary policy has --

you think you slam the door against june? where do you think the fed should have to step in? >> i would rather than get going slowly and send the message, please pay no attention, we are not easing, just normalizing. i would like them to message that way. i think they ought to try to get to normal before they need to

because someday we will be sitting around this table and the fed will be at a high level and suddenly the floor has fallen out, some shock or something, so we are facing the possibility recession. then the fed says we have lots of ammunition. we can cut rates fast. i have never seen that work out well. if the fed has to cut rates in an aggressive, responsive way, it always hurts the economy. obviously this data doesn't help them. lisa: yields continuing to climb. almost pushing up toward the 5% level. 4.9 .3% the highs of 2024. also watching the russell 2000. you say a hot landing. that raises the question of what this will look like if you see some of the smaller companies continue to be pressured given the fact that the fed lost their excuse to cut in june. that was the door of -- the sound of a door slamming on the

june rate cut. >> the reality is smaller companies get squeezed because they don't have the pricing power but wages cost more. this is something the fed think they are attempting to do, to create an environment where -- longer-term, there are global deflationary stories. the problem is there's a lot of domestic cyclical inflationary stories. this is a battle that's been going on. but the reality of the situation is the domestic cyclical dominates more than the global deflationary overtime. the other thing is the fed keeps missing the importance of fiscal policy in this equation. it's not only monetary policy that continues to stimulate the economy. it's fiscal policy. therefore the fed's concept of what their neutral rate is, the natural rate they are looking for, is incorrect. r-star is substantially higher. the level of rates that needs to be in the environment to bring

inflation down is substantially higher than the fed is assuming. i believe the market prices the dots. the market takes a look and says they are this and this is what we price and. the forward structure of rates inches abates the dots and that's a problem. >> let's talk about the price of fiscal policy. we are talking about a 20 basis point move on a two year yield. we took out 4.8% and 4.9%. we are up 14 on the tenure. four point 5% on the u.s. 10 year this morning. past that through the foreign exchange. the dollar stronger against absolutely everything. the euro broke lower.. and if you are just joining, we said earlier -- this one is loud. the estimate was 0.3%. you have had much time more now.

how difficult does this make life for chairman powell next time we hear from him? >> it makes it a little bit of a public difference but i don't think it will make as much of a difference inside the fed in part because of what both david and steve were saying about the idea that this is not driven by a particular thing but by several broader categories. when you look, and this gives very nerdy, but this is where we are these days, a lot of people looking at the three digit numbers for the changes, and we see headline go down from three -- from 4.0% to 3.78 percent and a slight rise in the core from three .58% to 3.59%. it does not suggest inflation is reversing tremendously but suggest we have stalled out. that's going to be the

interesting thing for fed officials to address. it probably means fewer rate cuts because they are not making progress so it's going to be higher for longer. >> i want to talk about that with david kelly. this is an email i got. core cpi over -- month over month gets rounded up to .4%. lower, you could rounded down to .3%. does that make a difference in any way? >> no. i think the other thing is any inflation between 2% and 3% i regard as basically ok. i think the fed is a little too focused on getting precisely 2%, just as they were in their last decade trying to raise rates up to 2%. i think getting inflation down to 2%, they are little too forceful on that. i don't worry much about that. what i look at is two things.

one, we have lots of demand but we have tremendous labor supply. we were at a 15 year high on the labor force participation rate. we have massive immigration, which is generating labor supply. wage growth year over year since its lowest level since june 2021. longer-term, inequality, competition, the lack of -- we've had virtually no strikes so far. the lack of any union pressure to push up wages suggests this is a fundamentally disinflationary economy. there are cyclical forces that are make it -- are making it slower coming down. but i am fine with inflation coming down. jon: you have said this disinflationary trend had nothing to do with the federal reserve. when you talked about the labor market, you talked about forces that had nothing to do with the federal reserve.

why doesn't that play into what one fed governors saving, which is why do anything at all? >> you are starting at the wrong place. if the fed was at a neutral level, i think the neutral level is a lot higher than 2.6%, but if they were at 4%, they should focus on their golf game. they don't have as much -- impact on the economy day-to-day as they think. they have been trying to slow the economy down and failed. it's clear they are in a rough stream with a tiny paddle and are not moving the boat at all really. what they can do with a lot of this active monetary policy is disrupt markets, mispriced assets. last decade, we mispriced housing terribly and now a large chunk of younger americans can never buy a house because home prices are too high. we have mispriced a lot of speculative assets, meme stocks and mega cap stock of some

kinds and cryptocurrencies. all these things were funded because the carrying costs were zero. i wish the fed would pay more attention to what they do to financial markets with their manipulation of interest rates and not worry too much about what they are doing to the economy. jon: can we play the will game? what do you think they will do? >> i think they will skip in june and probably -- at the moment, i think they probably set up for september or december, two rate cuts this year. >> i totally disagree with what david said in terms of what's driving this and monetary policy returning to some natural or neutral rate. the federal reserve was trying to stimulate the economy when there was a debt overhang. it was weighing heavily on the economy and the fed was doing what it was supposed to do, offsetting that overhang low. kobe cleaned out that debt overhang -- covid cleaned out that debt overhang.

the economy has back its animal spirits. therefore the federal reserve needs to be taming back by keeping the level of short-term interest rates high enough not to allow the economy to get to excessive in its growth rate to create a substantially higher rate of inflation that then gets embedded in the system. this is the mistake the federal reserve made in the 1960's that created the 1970's and i think they have learned from that and i hope they have realized not to succumb to the idea that there is some natural or neutral rate we have to get back to. if monetary policy gets back to some level, we are fine. they have to fight against the animal spirits created from an economy that has healthy balance sheets, local print debt burdens -- low corporate debt burdens, and a labor market feeding the engine of the consumer economy. >> i think you are talking about wall street animals and not main street and will. >> i hate to tell you a lot of it has the same effect. the company strives the share prices, keep their employees.

all those things matter. it matters what happens in terms of main street. >> we just disagree. i don't think monetary policy is as effective as you think. >> let's talk about where wall street meets main street. we will have a wall street response to this and are seeing it now. there will be a one-two punch because we see the price action now and at 1 p.m. we will get an option of 10 year note that will test the appetite of markets. how vulnerable is this market to a real upset that will disrupt some of these easy money conditions and happy talk we have been hearing all your? >> these moves tend to be partially reversed by the end of the day. i understand the 10 year option is coming at it will probably be a result of it. but the more important to understand is what this says to the average ceo in this country is inflation is hot. why am i not raising prices? i may be getting squeezed on my margins. i have to get double-digit earnings.

i have a tight labor market. inflation is up. why don't i just raise my prices? that becomes the self creating -- the self-fulfilling prophecy of creating the inflationary. rubber meets the road because if i'm sitting in that office and my stock is getting it, how do i drive up -- getting hit, how do i drive up my stock price? >> this feeds into this question that a lot of people are expecting margin expansion. where is it going to come from? it's going to come from some of these price increases. is that one of the theses underpinning some of the rally we have seen in equities? >> i hope not because it would lead to higher inflation if ceos do that and they say now is the time to raise prices or workers say now is the time to demand a wage increase. we would not have come down to 3.5% on the cpi if businesses

were able to do this and workers were able to do that. when we get the data and look carefully here, we are still going to be in a situation where 80% of that is the government's measure of shelter costs and auto insurance. energy, food, goods, everything else, is not inflationary. we have a competitive economy. everybody wants to raise prices but are scared to. jon: i'm afraid i have to wrap it up. steve alongside j.p. morgan's david kelly. thank you. if you are joining us, the number 0.4%. that .1% seems to make difference from the .3% we were looking for. .4% the number. some major moves in the equity market. and equity markets and futures more broadly doing nothing all weekend then breaking lower. down one point 2% percent on the s&p 500. things were worse on the russell. 10 minutes ago, down more than

3%, now 2.7%. the moves in the bond market phenomenal, higher by almost 20 basis points on the two year. if you have been missing, some big changes to the board. 4.9180 becomes 4.92% on the two-year. close to 4.5% on the 10 year, breaching that level earlier. to foreign exchange, the dollar is absolutely dominant against g10. the euro breaking down to 1.0786. we will react to all of this tomorrow with our guests. your opening bell 34 minutes away with a lot to talk about. we are seeing these moves stick. equities down and down hard. ♪

manus: the equity markets grapple with the spike in use and it shrugs the rate cut possibility to less than 50 basis points for 2024. we spend the next half hour counting down to the open. >> everything you need to get set for the trading day. capped down to the open with jonathan ferro --