>> i look at 10 year yields, the market is trying to gauge where this will shake out. >> for bonds, this is an inflation story. >> given positioning on where we have in yields, i think we can go higher. >> we are having the conversations of, let's get ready to buy. >> this is bloomberg surveillance with jonathan ferro, lisa abramowicz, and annmarie hordern. jonathan: live from new york city, good morning, good morning . coming into today, a two-day losing streak on the s&p 500, biggest going back to march of last year. that was a month full of banking

stress. now, a month full of better-than-expected economic data including u.s. retail sales. the 10-year, 4.95 on the two-year. 10-year, 4.6488. on the month so far, up by more than 30 basis points on the two-year, 40 basis points on the 10-year. morgan stanley, for equities. socgen, expensive valuation sitting comfortably with higher bonds yield. lisa: part is the right reason, part is the wrong reason. retail sales came in better-than-expected causing the increase of gdp positive for equities. the other side, it is stemming from increasing inflation expectations grading issues of how high the rates have to stay for how long. jonathan: we have heard the same

thing from fed official after fed official. patience and no urgency. monetary policy is in a good place. monetary policy is tight. immediately after, hotter than expected retail sales. lisa: can they get ahead of this? will he have the freedom to cut rates. it seems the market has moved on from fed speak. it seems the market is looking at the data, increasingly pushing out potential rate cuts. fewer than two are being priced into the market. we have hot inflation. you have this sense, commodity pressures that will make life difficult for central bankers. jonathan: tons of fed speak this week including chairman powell, earnings from bank of america this hour, seven: 30 eastern from morgan stanley. a lock to work through -- a lot

to work through. we have the talk about china, data in march a little softer than expected. many the talk about the response potentially from israel. from the israelis, there will be a response. annmarie: everyone is focused on what the timing of the response will be. what israel will potentially hit. i like to look at actual tangible things in the region, not just what people are saying. we heard from the iaea that their inspectors are no longer allowed to inspect nuclear facilities because the iranian authorities say they are keeping them shut because it's security considerations. iran thinks that this could be a target that israel could hit. jonathan: janet yellen preparing fresh sanctions for iran bowing the united states won't hesitate to inflict economic punishment in response to the unprecedented attack on israel. lisa: what is the willingness to absorb the consequences of that in terms of higher oil prices?

how much do you want to enforce sanctions that will cause oil prices to spike ahead of the election? jonathan: let's go through the price action for you starting with wti, down .3% to $85.10. brent crude, down .3% to $89.83. the equity market pulling back on the s&p 500 with the negative follow-through from yesterday's session in the united states in the afternoon to the european session through this morning. mid-day, equities down in europe on the ftse by one point 5%. euro stoxx 50 by more than 1%. yields up by four basis points, call it five. coming up this hour, we will catch up with blackrock . chris marinac with morgan stanley earnings on deck. equity selling off with bond yields near record highs.

blackrock saying, we remain overweight equities, the less so than a month ago. we believe a strong economy will drive double digit earnings growth which should allow for additional gains through year end. russ joins us for more. still overweight. explain to us why the bullish thesis is still intact. russ: good morning, jonathan. lisa described it will. you have rates which clearly this located the equity market in the short-term but the backup continues good and bad. the bad is sticky inflation. the good is an economy that is much stronger than anyone expected three to six months ago. if you go back to last summer and you look at the consensus of bloomberg economic forecasts, economists were may be expecting the economy to grow .5%. that obviously reflected a lot of economists that still expected summer session probability. today those same numbers, growth

is expected to be 2% to 2.5 percent. later, 2.5% inflation on top of that, you get to an environment where nominal growth for 24 is probably going to be in the ballpark of 5%. if you get that, you'll get better than is discounted now in s&p estimates, something that's a very different dynamic from last year. last year was all about multiple expansion. this year, we think the equity market can go higher, but not likely to go higher in valuations, likely to go higher on better earnings. lisa: what will lead it there because higher valuations has benefited the big tech complex. they took it on the chin yesterday and seemed to be struggling in this multifaceted world. what is the leadership? russ: yesterday tech did struggle, but other days tech has held up remarkably well when you consider the backup in rates. we have to be more specific.

early growth tech companies have struggled along with small caps. why? they are sensitive to the back of been yields. you think about the mega cap tech companies generating extraordinary amounts of cash flow, they are doing well and we expect from this quarter in particular many of those companies to lead on earnings growth. lisa: i'm thinking about a lot of comparisons to march of last year, the biggest selloff in the s&p, the biggest spike in the vix over the past two days, how close are we to another moment like that with higher yields based on the fact that small banks haven't dealt with the problems? they are still more vulnerable to higher rates for a longer time, especially without some of the deposit stability that a lot of people have been looking for? russ: i agree regional and smaller banks are vulnerable. we have been underweight that sector for some time. the other part of that is

commercial real estate. that is part of the economy to be concerned about. not in the sense that we're looking at a systematic crisis but that these banks have a lot of fundamental challenges. again, you compare the economy today to a year ago, and a year ago the concern was after silicon valley bank and first republic and credit suisse. we were looking at another systemic banking crisis. i don't think that that is the problem today. if anything we have the opposite problem. aside from issues and the smaller banks, the economy is very robust. we saw that with retail sales. if anything, rather than people adding fed cuts, the case a year ago, they are taking them back. jonathan: there is a reason why some people are still calling the survive until 25. they want rates of the come down by 2025 and they need to survive until then. it is self-explanatory. i am looking to see where credit

is starting to confirm those concerns. how would you frame the move developing and credit? russ: credit has been interesting. spreads are tight. what we have been doing in the portfolio is maintaining the credit and spread exposure we have. that has been a nice tailwind that has allowed us to carry above the benchmark. you have to go back to the strength in the economy. it's not that there will be pockets of stress. if you have an economy where growth is solid -- and let's remember, many companies, including those with high yield, refinanced how their distribution of when their maturities come due. we refinanced that in 2021, 2022, so you are looking at an environment where we think that the default rate for most companies will stay low. it is well below the long-term average. if you have that position in

your portfolio and you carry above benchmark, we don't have to be in a rush to sell it. jonathan: you said a few times in the last five minutes the strength of the economy. we have to be more specific, the strength of the u.s. economy. can we talk about the rest of the world and how that factors into some things you are telling us this morning? russ: i think the u.s. is leading in this is one reason to remain overweight u.s. stocks. we have been overweight the dollar versus the euro. this is the differential in growth we see. europe is clearly struggling a bit more. japan is doing ok. china, we had positive news this morning. i agree that this is a global economy. as we have seen many times in the past 20 years, it is primarily being led by u.s. strength. a lot of that strength is based in the u.s. consumer, where you

have a strong labor market, decent household balance sheets, and a consumer that is willing to spend. jonathan: fulton into the policy conversation. we have -- fold that into the policy conversation. russ: between the u.s. and other central banks? jonathan: look at the euro this morning, one point 06. dollar-yen through 1.54. how much further the ecb could go without the federal reserve joining them in a rate cutting cycle? russ: the ecb will probably have more latitude to cut than the fed. the reason is obviously you have a weaker economy. in the u.s., we have some persistence in inflation, particularly around services which you are seeing in other parts of the world. one reason the dollar has been so resilient is because you have the policy to vergence. another -- policy divergence. another aspect that is interesting, until 2021 when you think about building a portfolio, what is your hedge against equity risks?

for to -- for two decades it was bonds. what has worked very well on days when equity markets have sold off is generally having a long dollar, overweight dollar position. if you worried about the fed when the market is selling off, you generally see better dollar strength. lisa: gold and the dollar, bonds don't work that way. is that how you are playing it? russ: i agree. gold has empirically worked that way. i have to be honest, clearly there have been central bank buying supporting that. when you look at what has happened with the dollar, what has happened with real inflation and interest rates, it is hard to explain why gold is doing what it's doing. we are in a environment of high geopolitical risks and many investors might lean on gold because they have in the past,

that geopolitical safe haven. jonathan: it is great to catch up as always. still bullish, still overweight this equity market. speaking of gold, the call from citibank? crazy. all is goldman too. lisa: people will ride the train that the central bank started. we have heard across the board, is this the new haven? gold in one pocket, triple leveraged gold fund, triple leveraged dollar funds, kick bo nds to the curve. jonathan: gold a little softer this morning. elsewhere, let's get your bloomberg brief with dani burger. dani: i was going to start with gold, but instead let's get to geopolitics. axios reporting the u.s. treasury is preparing sanctions for iran following the weekend attack on israel. the treasury vowing the u.s. will not hesitate to inflict

economic punishment on iran. the move comes as president biden urges the israeli prime minister to be strategic and show restraint when it comes to possible military action. xi jinping is pushing back against european and u.s. pressure to rein in china's powerhouse industries. the chinese leader told the german chancellor that chinese cleantech exports has helped the world tackle inflation. president xi's suggests china may not be swayed by western leaders who want the country to reduce its manufacturing capacity. shares of tesla falling in the premarket to the company's top executives announcing their leaving the company amid the carmaker's largest round of job cuts cutting 10% of its workforce to cut costs as ev demand slows. sources tell bloomberg the cuts could reach 20% and some divisions. already tesla shares are down more than 30%. jonathan: a difficult moment for

that industry. for sure. next, israel is vowing to respond. >> israel proved it has superior military capability and critically they do not stand alone. the united states stands with them. no question that iran recognizes the coalition that was put together to help israel defend itself. jonathan: that conversation is next. live from new york city this morning, good morning.

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jonathan: live from new york, welcome to the program. the biggest today loss going back to march of last year on the s&p 500, a weak session. crude is behaving itself, for now. wti 85 dollars and about $.10. israel is vowing to

respond. >> israel has proved to has superior military capability and justice critically that the united states stands with them. no question iran recognizes the coalition that was put together to help israel defend itself. again, i cannot speak to what either side will do going forward. iran is increasingly isolated on the world stage, increasingly making it harder for anyone in the international community to be sympathetic to any of their interests. jonathan: the israel military chief saying iran's unprecedented attack will be met with a response. on capitol hill mike johnson is planning to hold long-delayed votes on aid to israel, ukraine, and taiwan. let's get to the options on the table. what do you think they are? >> i think israel has a number of options. they will try to do something proportionate to say we know

that iran did a huge barrage of missiles on israeli airspace so we want to do something to counteract that. maybe they target a drone facility in iran to try to take out the actual munitions that were the culprit of this attack over the weekend, that way they are not causing any casualties. they could do something covert. they could do a cyber attack. they could wait to bring down the temperature and act again at some point in the future. they have several options. i think there's pressure from the west to turn down any escalation in the region and say that they shouldn't retaliate. but it seems like israel is going to do something, it is just whether or not it is escalatory or not. annmarie: we learned in is typically close -- temporarily closing its nuclear facility citing security concerns. is nuclear an option for israel? jeannette: in the past they have

targeted iran's nuclear facilities and development. that is probably something they are concerned about and thinking about if that could be an option, especially as you've had increased uranium enrichment and iran. i don't know if that might be on the table, but it is something they've done in the past. it might be more of a cyberattack than a bomb since most of these facilities are underground, but that is something on the table. annmarie: are we at the start of a vicious cycle? when israel responds is it warranted that iran would respond? is that what you would expect? jeannette: that is where this delicate balance comes into play. if you look at the u.s. when we kill general soleimani in iran during the trump administration, iran targeted u.s. bases but there were no casualties, and that allowed the escalation to occur -- de-escalation to occur.

if they try to target something like a missile depot, something that is not a strong strike, just a little more targeted, that allows things to calm down and not require iran to retaliate again. there does have to be at balance to figure out how they can show strength but at the same time not escalate things further. i think that iran doesn't want to have a major conflict. they don't want to get the u.s. involved. there is that piece of it, which is why the u.s. and western allies are trying to get israel to lower the temperature and maybe not retaliate. ritika: this raises the question -- lisa: this raises the question if eight is passed in the near term. perhaps two separate bills for israel and ukraine financing. what you think the probability is that we will get something or see action on this front in the next couple of weeks? jeannette: we are quite optimistic that we will get

something done. speaker johnson has been much more supportive of getting a to ukraine since has moved into the leadership position. this has been something he has talked about getting done since they came back from the march recess. he is putting something on the table. this is a tricky package he is trying to put together, because he is trying to create separate packages for ukraine, israel, and taiwan, but also putting other pieces in as well. things like the repo act so they can seize russian assets and use that to pay for ukrainian reconstruction. the tiktok bill back into the package so the senate would be forced to vote on whether that app should be divested from bytedance. they will package it and send it to the senate to try to force its hand towards the end of the week. we are optimistic they can get it done, it just might be a messy process and there might be changes to what the legislation was that came out of the senate. lisa: the administration is

looking to act unilaterally as they can. treasury secretary janet yellen is saying that she hesitate to renew iran sanctions. how willing is the united states to enact some sort of policy that would cause oil prices to significantly increase ahead of the election? jeannette: that is a risk for the president as he goes into the reelection and into summer driving season. we are seeing gas prices go higher and they are expected to go higher during the summer. they are not looking to have an increase in gas prices over the next couple of months as that will hit american pocketbooks, and that is never good for the president's approval rating into the election. i think that they need to be careful. sanctions have had a modest impact. so, you have china buying iranian oil, which isn't helping to actually make them enforced. the president does have other tools. he may lead oil out of the spr

this year to help with oil prices, but i think that they will be targeting iranian sanctions. there will be bills in the house and senate. they will try to get that enacted. the bigger pressure now is to put more pressure on iran either through china or to get them to maybe stop with that who these -- with the houthis. jonathan: do we need new sanctions or do we need to enforce existing ones? jeannette: this is the big question. we have been putting in numbers of sanctions on iran for quite some time. the problem is, what you are starting to see is that there are countries who have been sanctioned by the united states, like russia, iran, and north korea, trying to create ways to skirt sanctions. we have had talk last week of china and the way that they might be helping russia and its war with ukraine by providing dual use pieces that go into

military equipment to help them with their offensive against ukraine. that is a sanction undoing in some form. we are having other countries trying to challenge the united states' sanction regime, and this is the problem we are moving into. this new era multipolar world with countries like china, russia, and iran trying to challenge the united states and distract the united states into different skirmishes. you have ukraine, israel, and the red sea and that is to divert u.s. attention come use resources, use the federal budget, use munitions and create the opportunity for the u.s. to have less power and other countries to have more. jonathan: it is a massive issue. let's go to admiral kirby yesterday with us. iran is increasingly isolated on the world stage, increasingly

making it harder for anyone in the international community to be sympathetic. the memo, russia and china, did they get it? annmarie: i would love to know what the administration defines as isolated. you have iran producing more than 3 million barrels a day going to china and sending weapons to russia. at the same time, fresh diplomacy with arab leaders. jonathan: expecting to hear from secretary yellen later today. coming up, looking ahead to fed chair jay powell's comments later this afternoon. from new york city, this is bloomberg. ♪ (upbeat music) there's more to business than the business you're in. if you use data, that's the privacy business. manufacturing on demand?

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jonathan: a shaky start to the weekend global markets. stocks are down. let's check it out, stocks down and yields up, a repeat of monday, just less aggressive. on the nasdaq, we are down 0.4. small caps down by 0.9. tech is outperforming, then it got hammered, i can't keep up. every industry group was a negative territory at the close yesterday. the two-euro, 4.9 five. up another 45 basis points on the 10-year to 4.64. the front end of the curve, on the 10-year up more than 40 basis points, a repricing in fixed income. lisa: it strikes me the reason

people said the reason the increase in yields hasn't affected stocks was the slow grind. this has been a shift dramatically higher in the light of the hotter than expected cpi. and then the reeds have all been hotter than expected. it is the pace, overlay of geopolitical concerns. jonathan: the data so far this month, we will talk about it in a moment, i think it started with the isn manufacturing, prices paid, really punchy, and that was it. yields up and away, and that is where we stayed. the bond market moves through fx, these are the numbers you get. everyone around this table remembers when 152 was a problem with the doj. now not just 155, but some

people talking about 160 on dollar-yen. 154.54. lisa: summit bank of america talking about 160 on the japanese yen. can they fight against this freight train? this raises the question of how far the globe can divert from the u.s. it is compelling because it is such a difficult nut to crack. it isn't just their currencies, it is the oil prices. we heard from the ecb, one member, who said that we can cut rates but our hand might be called by geopolitics. jonathan: don't miss the conversation on u.s. exceptionalism. under surveillance, china reporting faster than expected economic growth with gdp growing 5.3% the first quarter of the year. the data coming with a reported slump in retail sales and industrial output for march. a decent quarter, weaker into

it? lisa: people are worried it is losing steam and won't feel the same kind of growth. another takeaway that goes to a policy question we've been talking about is that the gains came from factory output come the exporting of cheap goods to support their economy. it is working on the margins. to the chagrin of policymakers around the world that do not want cheap chinese goods flooding the rest of the world. that sets up the shift of domestic property investment the factory output, which is what a lot of people don't want to see. annmarie: domestic demand is not even flat. it is underperforming when it comes to china and this is the problem holding back the country economically. bloomberg economists say that this pickup was driven by public investment and private demands, the recovery, is on thin ice. there is a closer to the 5% target been under the hood in a shaky.

lisa: on one hand you have to think if you're worried about inflation, the disinflationary impulse from china has to be somewhat welcome. how can you say, we want more expensive goods? on the flipside, how do you talk about unfair competition and how you understand what the global level playing field is? it's confusing and a great moment for us to go to washington, d.c. jonathan: lose-lose for politicians, but a good excuse to go, i agree. special coverage thursday and friday. let's turn to military officials in israel saying that the country will respond to iran's first direct attack on the country. warning that a tit-for-tat response could lead to a wider war. telling bloomberg that the government has been presented a range of possible options. talk about the potential options. annmarie: we heard potential cyber, potentially this diplomatic dance that israel needs to do to show force and

strength, but also to not create a retaliatory cycle. one thing that iran is doing that we know from the iaea as of yesterday as they aren't reopening nuclear facilities because of security concerns. that tells me that tehran is worried that that could potentially be a strike target from the israelis. jonathan: a word we used yesterday a lot was contained. lisa said contained but not calm . lisa: we don't understand what the response is. i don't understand who is leading the charge in israel because there are three members of the war committee at war with one another and they are longtime rivals. how does the u.s. influenced three warring rivals to not necessarily escalate this? it is a fraud moment which is why you see the nervousness under the hood. jonathan: you probably want to know the price of crude. brent crude is a little softer negative by a quarter of a percent. 89.88. president mary daly saying that

there's no urgency to cut interest rates. we have a host on fed speak today. carson hunter, a macro policy perspective, joins us in new york. good morning, constancio. we are trying to work out where the fed is. michael mckee sat down with the fed president of new york and he said monetary policy is tight. is that how you would describe monetary policy relative the information, the data we are getting? >> they are in a good place because they have room to move. if we see a deterioration they can move down meaningfully. the economy does appear to be chugging along. we had retail sales yesterday and we can debate how strong they were under the hood or not under the hood. on a real basis year-over-year up 0.5% and negative for the first two months of the year, so

retail sales are negative yet trending slightly higher. you could say consumers are chugging along. their are cracks in the financial system in the u.s. in the sense that we have commercial real estate as the slow burning thing. there are certainly cracks under the hood where we are concerned with how strong the labor market is. inflation is giving us a lot of mixed signals now. if you dig under and look at what percentage of goods is changing price, that is a good indicator with regard to is all all of the price movement one way? we are seeing it is two-way on a month-to-month basis, a good sign it will trend down, but it has been stickier than the fed once, so they are in a good place. they can hold rates but if things deteriorate they can cut rates and have a substantial impact. lisa: can they hike rates?

constance: they can, but that is not my base case. no cuts, i guess, but people are floating this possible rate hike. we have the risks that we have geopolitically. as you were talking at the bottom of the hour, there are crosscurrents. you have deflation coming out of china, possibly inflationary impact of higher oil prices, so we have to wait and see. lisa: when you talk about the central banking response to geopolitics, the central bank talked about how geopolitics poses the biggest risk to rate cuts for the ecb. this speaks to the idea of the divergence of the euro and what that does if oil prices are spiking. how much do policymakers have to respond and consider a tighter monetary policy in response to

higher commodity prices on the heels of geopolitics? constance: it was the ukraine war that caused so much price increases in europe, supply constraints. if you look at the underlying strength that the individual european economies have, they are much weaker than the u.s. and don't warrant this level of interest rates except that the ecb had to respond to the price influence brought about by geopolitics. jonathan: in the u.k. there is an interesting conversation developing that started with governor carney years ago how the speed limit of the british economy changed. an old friend of this program wrote in the financial times recently. u.k. is in the united states come they can't run i high-growth economy because it will lead to higher inflation. what does that look like in the united states come the speed limit of the u.s. economy? constance: john williams talked about if we have higher productivity and for a time higher immigration, and that raises potential gdp from 1.5%

to 2% or 2.2%, that is meaningful. you are compounding 40 basis points over several years, a significant change. we are definitely of the view that many of these productivity gains are just getting started, that there are a lot of positive circles happening within the economy to fuel that. if that is the case, if we end up being correct and we can have productivity gains of 2.2 percent reliably for several years, plus slightly higher population growth due to immigration, we are looking at a potential gdp that sets us up well to have a nice late 1990's period of growth. jonathan: what are the tailwinds for durable product good -- durable productivity gains in this economy? constance: this high level of business formation. without that that was a covid thing and would fade.

it has maintained this high level that we haven't seen, actually, the highest ever. when the data started being collected in 2005, we are way above those levels. newer firms tend to be more productive, adopt newer technologies, and that is a good thing within the economy. of course, ai. not just chatgpt, but all of the forms of ai that are defusing throughout the economy, that's so significant for productivity gains, and that is really just starting to be deployed widely. right? a number of really well-known authors talking about the use and diffusion of this technology and it is growing and it is expected to continue to grow. then you have tech workers being laid off and they are defusing out into the economy. that diffusion brings technology know-how into other companies, which is a good thing. when i was at aig and we were

trying to higher tech workers, 2022, you could not buy them at any price. we aren't stupid. we said this will come back eventually and we have to scale back hiring plans. now these firms are able to hire these workers and that diffuses technology throughout the economy. annmarie: you talk about capacity utilization. who is ranking highest? constance: manufacturing is very high right now. that makes sense. you've had this huge buildout in manufacturing capacity in the u.s., where a lot of the structures capex is going, the chips act. you are seeing those new factories are also more productive. if you're building a new factory you will make every aspect of it the latest technology. jonathan: constructive on the u.s. economy. we want to get an update on stories elsewhere briefly before we get to our brief looking for bank of america results. those earnings will drop any moment. let's get you up to speed on the news elsewhere.

dani: another bank, another upgrade to gold. citibank's target is $3000 over the next six to 18 months as money managers play catch-up from demand we have seen from consumers in china and central banks. the latest leg of this rally reached an all-time high yesterday driven by haven buying. president biden is hitting the campaign trail in his home state of pennsylvania. they will be highlighting the differences between the president's tax and economic agenda versus donald trump versus tax cuts for the wealthy and corporations. president biden's trip will include pittsburgh where nippon steel' is deal has irritated his union allies. the best thing to happen to basketball in a long time, caitlin clark has gone to the nba fever -- wnba fever. he became a household name during her college career. can she do the same for the wnba?

she is faced with turning around the franchise which hasn't made the playoffs since 2019. jonathan: wrapping of earnings on wall street. >> there are big macro risks in the marketplace. i think that strength and stability seems to be a bigger presence in the strategic boardroom of these banks. jonathan: numbers from b of a. that conversation, next. ♪ what about africa? safari? hot air balloon ride? swim with elephants? wait, can we afford 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. when you're planning for it all... the answer is j.p. morgan wealth management. tamra, izzy, and emma...

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jonathan: equities right now, the s&p 500, just negative. negative zero point 04%, recovering just a touch in the last 10 minutes. >> there are still big macro risks in the marketplace. when i talk to bank management teams, it is almost like i feel

like i am having a credit analyst discussion more than an equity analyst discussion. they are focused on their own balance sheet. i think that strength and stability seems to be a bigger presence in the strategic boardroom of these banks. jonathan: bank of america and morgan stanley reporting as wall street's biggest banks wrap up earnings. a surprise 28% jump in profits. bank of america drop in now. sonali basak joins us around the table. it was a strong quarter. how strong? sonali: strong enough. this is good news after we haven't seen the same at jp morgan and citigroup. bank of america with its lending presence relative to investment banking is what you would want to see. they came in above where they were last quarter. there was a worry that they would trend lower. when it comes to trading revenue they were in line to missing a little on fixed income, but

equities beat expectations. all in all, it has been net income that has the first look on wall street. jonathan: the $700 million fdic's special assessment expense, not the first time we've seen this in bank earnings. is this complete? how far along are we in the process? sonali: it is still coming. the efficiency ratio they came in above where wall street was guiding for. it is at 67%. where they are already trying to keep a handle on costs all over the board, all of these banks have suffered from the weight of that fdic assessment. even jp morgan guided expenses higher in part of that assessment. the story isn't over. regulatory costs may remain somewhat high, but we are getting passed at least that first year now since the bank failures. lisa: i am old enough to remember when it was cost-cutting trying to reduce the expenses was the

focus of these banks. bank of america, first quarter compensation expenses. what you make of that? sonali: direction of travel is higher. we've been talking about it with goldman where if you are making more money you have to pay people more. that is the problem, isn't it? so, on balance, that efficiency ratio higher, that flurry of ideas with compensation being higher, regulatory charges being higher, so keeping a handle on costs. net interest income came in above expectations. you been pointing at it all season that that has been a big weight on that net interest income. for them to come in higher is good news. jonathan: stock is down by zero point 1% in the premarket, an upside surprise on trading revenue. we are joined now for more. you've had a few moments to go over this one. what is the signal you're taking away so far? >> i think overall provision

expenses mixed. we saw provisions rise from b of a this morning, which is a good thing because they had a healthy step up. i think that it's interesting we are seeing deposits act well, the deposits for the whole system grew for q1 and were higher for b of a this morning. you see that in the wealth management business for b of a on the balance sheet is seeing expansive which is a way for the company to manage net interest margins and higher interest rates. lisa: we saw this with goldman sachs and jp morgan. the balance sheet to engage with fixed income commodities trading and others. how much is this a new tack, we were talking about this yesterday, to compete with the private asset managers? chris: some of that is true. the other thing that is happening is the banks want to grow net interest income this year and provide themselves latitude on ppn are which gives them cash flow to earn through the cycle. as losses rise, on commercial

real estate or consumer, you will see banks fund that through the provision expense. having more income coming through the balance sheet makes sense. for me, that's the primary reason you will see securities growth. lisa: are they taking more risk or being more aggressive in terms of commercial lending? chris: i think it is taking more aggressiveness on balancing the -- damaging the balance sheet on cash and liquidity. i don't think that they are taking more loans. generally speaking we will see loans a very slow this year across these large banks. jonathan: b of a pointed out that this was the highest for q1 and more than a decade. where's the strength coming from? chris: fixed income, for sure. there is better equity activity and certain parts of the marketplace. i think the commodities continue to do well and they are a player. i think everything is contributing. jonathan: talk to me about the kind of bank, business model, that is the optimal exposure to banks in 2024?

there is the theory net interest income will be challenged but that story cuts both ways. what business model you want exposure to? chris: having a balanced attack where you are part consumer, part commercial, you have the investment bank that can be helpful. the wealth management business can be a buffer. on the same token, i think the spread business bull be better than expected to some extent because banks are still setting loans on the upside. higher for longer has a contribution spreads rising in terms of loan deals getting better. we think that the cost of funds will level out as the year goes on, though it is still quite high. annmarie: how are they dealing through the basel three endgame and fresh regulations out of washington? chris: most banks have been building liquidity for the last six to nine months and that is the primary reason basel three has been holding back earnings. from the capital standpoint it feels like we will see the

change in terms of excluding the unrealized losses for the regional banks above 100 billion dollars. that ship has sailed. i think a lot of the other changes to risk-weighted assets might be as bad as -- might not be as bad as expected. the risk-weighted assets and growth to balance sheet and how that creates capital calculations is where the nuances are. we think that there will be a little bit of relief, but the main tenets are liquidity and capital miscalculation for unrealized losses. annmarie: commercial real estate has been front and center. brian moynihan told lisa and jon recently it is a "slow burn" for the banking industry. when do you think that will shift or does it all rely on the fed? chris: i think it will shift in probably six to seven quarters. we are still in the second or third inning of this credit cycle. while we may not be as bad as we saw 15 years ago thanks to leverage and more equity in

deals you have higher losses and problems to deal with. i think that the slow burn attitude is correct. if interest rates come down it will simply give banks the flexibility to work through, loans a little faster provide better options to clients to work through in some of these loan resets. maturity walls that we talk about our real, but it will take several years the play through. we have to deal with what is going on on maturity wall in 2024-2025 and that is the key interest we have. jonathan: thank you for jumping on to respond to some of these numbers. sonali basak is still around the table. we have a few extra minutes. what jumps out to you? sonali: even the chris was talking about net charge-offs jumping, provisions are lower than expected. what you see is loan souring faster than analysts expected. we have been talking so much. i think that we have been paying close attention to the drift higher in fica scores in the

bank of america consumer base. consumer vehicle lending, you need a fica score above 800 at this point. jonathan: 800? sonali: free consumer credit cards, 777, 774 last year in the same quarter. if you look at new accounts, there is pressure on that line. the discipline being instilled by these banks has -- lisa: the discipline or luxury of being at the top? they say we want the top and we will give you great deals. everyone else, regional banks come you can pick up the slack and deal with the charge-offs as well as the increasing problems with respect to demand? sonali: a little of both. banks are dealing with higher income customers. jp morgan said the same thing, lower income customers are where you are seeing the stress. credit selection, you see it very clearly as they are extending that. what does that mean?

can they squeeze more out of their high net worth customers? maybe. another point that chris was making his institutional businesses haven't been getting the premium in trading that banks have been getting over the last year. the idea that the wall street rebound can save these banks is under question when the vix is also on the rise, isn't it? jonathan: 800 is absolutely stunning. bank of america down in the free market by 1.3%. we will get numbers for morgan stanley around 7:30 eastern. about 30 four minutes away. coming up in the second hour of "surveillance" we will catch up with mohamed el-erian and david hunt about u.s. exceptionalism. the equity market on the s&p 500 is just about unchanged. following some of the losses in yesterday's session. equities on the s&p -0.1 percent. from new york, this is bloomberg. ♪

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>> you have this u.s. exceptionalism compared with the rest of the world. >> the entire time the fed has been technically restrictive, the u.s. economy has grown above trend. >> as long as the growth momentum stays all right, markets will be ok with it. i think that is really u.s. exceptionalism. >> there are still big macro risks in the marketplace. >> i think it is nice to say we are not worried about what is going to happen down the road but market is. >> bloomberg surveillance with

the jonathan ferro, lisa abramowicz, and annmarie hordern. jonathan: can we sit on the feeling of the sun on your skin yesterday in new york city, blooms of summer after a long winter? lisa: and now you will talk about heavy gloom? jonathan: soften things up. a little bit delicate. we have been waiting for that. smiles on the faces of people in new york. lisa: and now the eclipse. jonathan: going back to the bank damage of last spring. in the bond market, massive moves. the two-year, 10 year. the two-year is very close to 5%. the 10 year, four point 65. new highs for 2024. the move so far in april, we have to start there, we have been talking about something like 12 sessions for the month of april so far. a move of more than 30 basis points moving more than 30 basis

points so far in april on the two-year and more than 40 on the 10 year. lisa: it's the pace that has a lot of people nervous. the reason why, we are seeing note after note from wall street saying that these rates are going to bite into equity valuations, which we are seeing. the curious thing is, people still are overweight equities. where is the leadership going to come from? not from small caps or big tech. what will potentially be the driver of growth? jonathan: the u.s. dollar and fx market. i think that we are facing the prospect of a sixth day of dollar strength. the dollar is having its longest winning streak back to september of last year. you can identify problem after problem and i think we have to start with the boj. 150 four on dollar-yen. do you remember when they were going to defend 152. 154. staring down the barrel of 155.

lisa: 160 if you talk to bank of america, j.p. morgan. are they going to be forced to raise rates to defend their currency?they have to take a more material stance. this goes to a broader question of, how much is the disruption in the currency market, potential disruption in oil market going to force the hands of central banks walking on a string on where their economies really are. jonathan: president lagarde says we are not federal reserve dependent. then we hear from the bank of greece governor that maybe we can continue to divert. we have heard from guest after guest that you can to a degree. what will set the tone is the commodity market. what happens with crude. what happens with crude i have no idea. we started the session yesterday by discussing a potential response from israel. are we going to get one at what does it look like? are we going to get one? israel says that there will be a

response. what will it look like? i've no idea. annmarie: this is the question everyone is asking. jeanette low said that israel wants to retaliate without having to spark a revenge cycle. it's potentially something with cyber, something that goes a little less bombs going off into more delicate, or something like a nuclear facility? i'm struck that iran wants to keep them closed because of security issues. jonathan: let's start with price action in financial markets. brent down .3%. let's talk about earnings. equities just about unchanged on the s&p 500. we have a out, upside surprise on trading revenue. the stock basically unchanged since the premarket. lisa: net interest income coming in above expectations, different than what we saw jp morgan. the statistic of the morning has nothing to do with these

headlines. it is the fica score for auto loans is 800. this is everyone who paid every bill before they got the bill. it is someone who borrows just so they can have an 800 fica score. this is the divide between the big banks and smaller ones. jonathan: no one can get a bank of america loan? lisa: don't even try. jonathan: coming up this hour, mohamed el-erian on the global stock market selloff. why bonds are back. we begin with top story of equities delivering the biggest today drop in a year. mohamed el-erian bloomberg writing the following. i've been arguing for almost a year now. here and elsewhere that the u.s.

price inflation would become sticky. wednesdays hotter than expected data release, the third in a row, is evidence that this scenario is indeed unfolding. good morning. i won't ask if you can get an alda loan from bank of america, but i think the rest of the street and media are catching up. we have been read articles about u.s. exceptionalism. what are the sources and how durable do you think they are? mohamed: two sources that speak to u.s. exceptionalism. the inherit attributes of the u.s.. it is more flexible, benefiting from higher labor force participation, more entrepreneurial. the second element is policy. it has been running a very loose fiscal policy. running deficits of 7% with unemployment under 4%, unthinkable but is happening.

also, importantly, the u.s. is investing in the drivers of tomorrow's growth and is way ahead of other countries in that. you put that together and you get this incredible engine that drives exceptionalism. jonathan: how sustainable do you think policy is? mohamed: more sustainable than people realize, but there is a limit. this can be derailed by two things. oil at 110 or a fed that is to take. -- too tight. if these two things come together, possibility of geopolitics get worse, you can derail u.s. growth. lisa: in terms of the pressures of what is going on with the middle east and increase in commodity prices on the heels of that, one theme that we've heard is that europe will be hit harder than the u.s. you say, maybe so, but the u.s. isn't immune? mohamed: the u.s. dominates in relative space almost regardless of what the global scenario is. in absolute space, the u.s. has

dominated so far. for the u.s. to continue to dominate, we need to avoid really high energy prices and avoid other policy mistakes. it will dominate in relevant space for a long time. lisa: the question the ecb board members were talking about, that they might not be able to cut rates because of geopolitics. do you think that this one-two punch is looking more likely for the federal reserve? they will keep rates higher for longer in response to higher commodity prices, even at a time of a potential shock that could curtail growth? mohamed: this is a great question. most people, not everyone, on your show have agreed the last mile of inflation will be complicated. that inflation is more sticky. where there is massive disagreement is what the fed should and will do. there is massive disagreement. those who think the fed should hike. the ubs today showed 6%.

those who think like me that the fed should maintain course and cut twice this year by 25 basis points. why are we all over the place? we disagree on what the right inflation target, and therefore disagree on how the fed can best lead us to a mandate. this is where it will play out over the next year. in order to predict the fed, if you think we will remain data dependent, which they are today because they got so embarrassed by what happened in 2021, then the fed will not cut. if, like we hope, they will go from excessive data dependency to having a macro framework in their head looking forward, they will cut, and that is what we will see play out in the next few months. annmarie: if they are data dependent and we had hot retail sales yesterday and they start to get more concerned about inflation, is it not just that they are not going to cut, do you think that they could hike?

mohamed: if inflation gets much worse they could hike. if they do, we will have a regional banking crisis. we will have all sorts of damage in the marketplace. i think that is in the back of their head. the likelihood of them hiking is low. is it zero? no, they could. jonathan: what is the difference in 25 basis points and holding for the rest of the year? mohamed: 25 basis points opens the way to hiking more. that is the difference. today, chair powell will try, i think, to do what he did earlier, maintain maximum optionality. on the one hand, i think you will say the inflation story hasn't fundamentally changed and he will probably use the word fundamentally. on the other hand, he will say we need more evidence to know what we do. he will keep his options open and that is what he will do for a while.

jonathan: is it too early to move away from three bumps in the road? mohamed: i would have moved away a long time ago, but we will probably maintain bumps in the road. lisa: you talk about the disagreements and i'm thinking about what fed chair williams, the new york fed, said when he said we aren't thinking about the target. we are playing it by ear and taking the data. you talked about how the biggest debate among you and your colleagues is, where is the endpoint? where's the destination is the biggest issue. what gives you confidence that they should adopt some kind of belief and go with it rather than live in complete confusion? mohamed: the confidence that i hope i have -- a little bit of confidence and hope -- they do have a dual mandate and understand how exceptional u.s. economic performance has been. they are proud of it. you opened with how depressing it is that we've had two days of

massive losses. if i had come here in december and said to you all that the market will reprice fed cuts from seven to under two and the s&p would be up 6%, what would you have said? jonathan: you are nuts. mohamed: we were up 6% on the s&p, 10% in the first quarter. to go back to the first question, i don't have confidence, i have hope. hope that they understand they need to get away from excessive data dependence and look forward. they need to have a view. they are being pressed hard on tell us what your view is. at some point come they will have to deliver. you know, president williams has said, think about the target. you will hear the term longer-term come in every time they talk about the inflation target. it is a longer-term inflation target or medium-term inflation

target. they won't come out with a massive statement, they will start off a skating what is meant by target. jonathan: can you imagine if chair powell came out and said, i don't have confidence i have hope? lisa: people would clap. finally, you're telling us the truth. jonathan: mohamed el-erian will be sticking with the. equities turning positive, hopefully. equities right now positive 0.1%. dani: donald trump's first criminal trial got off to a slow start. proceedings stalled over disagreements about evidence and last-minute arguments. jury selection did not kick off until the final hours of the day. the former's lawyers argued with prosecutors over which evidence would be admissible. more than half of the first panel of 96 potential jurors had to be excused after they couldn't be partial. first quarter warnings beat.

unpredictable results following a cyber attack. united says that they continue to make significant progress in restoring the affected services. boeing is recommending that operators of its 787 dreamliner inspect a nose component that helps to maintain pressure in the cabin. boeing engineers are carrying out a multiyear study of the wide-body plane's structural integrity and that is in the spotlight. engineers say that they found no risk of premature failure in the 787 carbon composite body. the senate at the same time will hold a hearing tomorrow with testimony from yet another whistleblower. jonathan: the sooner that we stop hearing about that company the better for everyone, including that company. next on this program come the uncertain path to rate cuts. >> we will need to start a process at some point to bring interest rates back to a more normal level. my own view is that that process will likely start this year. jonathan: the new york fed

president sitting down with mike mckee. we'll catch up with mike and get reaction from mohamed el-erian. good morning. ♪

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feel more confident with stock ratings from j.p. morgan analysts in the chase app. when you've got a decision to make... the answer is j.p. morgan wealth management. jonathan: if you're just joining us, welcome to the program. in the bond market, the selloff continues in treasuries, yields higher by five basis points. 4.6488. the uncertain path to rate cuts. >> i think monetary policy is working at the rates we have now. i think monetary policy is in a good place. >> we will need to start a process at some point to bring interest rates back to more normal levels. my own view is that that process will likely start this year. again, it will be driven by the data. jonathan: putting back rate cuts

on strong economic data, comments from chair powell, and a string of other fed officials. mike mckee sat down with john williams yesterday. great work yesterday, as always. what jumped out to you in that conversation? michael: the fact that the fed is anxious to cut rates. the thing that was not said in between those two soundbites was the reason that they think they should cut rates by sometime this year is that real rates are high and they are afraid of lack effects of -- lag effects hitting the economy. they are looking to cut rates if they can, but they're all saying now that we don't have to move yet. we can wait for the data on inflation and make sure that it is going down. lisa: the interview was interesting. i found it most compelling when he said they don't talk about or think about the long-term

target. it is a play by you go, feel it out, though bumps in the road, figure out if they are big moms were small bumps. do you take him at his word or do you think they are thinking seriously about our net neutral rate? michael: i think they are thinking about it but on an individual basis. the long run, they don't have to do anything because it is the long run and things change. it was fascinating that he said he started to think that the neutral rate might be higher. he is mr. neutral rate. if that is the case, it would mean interest rates stay higher for longer. they would be higher certainly than they were in the pre-pandemic era when they were around zero. the question is, how far back down do they go? it sounds like the fed is beginning to think not that far. mohamed: i like the way that you got him to say data dependency, but also the lag to look forward. how do you think they will

characterize the latest inflation number and how do you think chair powell will characterize it this afternoon? michael: that is an interesting question. of course, they thought that it was a one off january and maybe a two off in february, but a third one you have to say it's a trend. they think we will see prices continue to fall, albeit slowly. they rely on the pce rather than the cpi. they are little less worried, because when you do the calculations to translate cpi to pce they expect pce to come in lower, but also they bought into the idea that inflation is sticky and it will take a while. jonathan: mike mckee, great work in washington, d.c. breaking down the latest fed speak. the final word from mohamed. we touched about u.s. exceptionalism and central-bank divergence. what do you think the limits of the divergence are and what

central-bank are you the most focused on? mohamed: divergence in policy and outcomes driven by both the macro and what is happening at the sector level. the growth engines are very unequally distributed around the world right now. the divergence will increase. i love the fact that you said a 154 yen was sure to trigger intervention. it hasn't because the authorities are frozen around the world to how do you react to generalized dollar strengthening, generalized increase in interest rates in the west? unfortunately, in the past when those two things go too far they create something else, and that is what a lot of us will be worried about going forward. jonathan: do you think that something is breaking now? mohamed: i think the global economy has strong resilience and a fascinated with the imf will say this morning. does it extrapolate forward the strength or say that the strength was good but you cannot

extrapolate forward? i expect the latter, but it will be interesting to see. lisa: where do you think something would be most likely to break? mohamed: it tends to happen when balance sheets are imbalanced, so keep an eye on certain regional banks. it is not a banking system problem, it is a few banks. keep an eye on a few countries whose debt dynamics aren't sustainable. lisa: like? mohamed: like a few countries. [laughter] lisa: that was informative. i wonder if this is a restrictive rate for an economy that shows a lot of heat? are we seeing breaking points? people have been saying look at the cracks. the cracks never get bigger. in fact, they have gotten smaller.at what point can you say a couple of regional banks can fall out of bed but we can keep chugging along? mohamed: i don't think the cracks got smaller, i think they got covered by liquidity.

don't forget the u.s. guaranteed every single deposit in reaction to what happened last march. that is how the cracks got covered. they didn't disappear, they were covered by a change in policy. we have used balance sheets to cover over some any cracks. at some point we will reach the end of the ability to use our balance sheets. jonathan: whose balance sheet? mohamed: the fiscal and monetary balance sheets over and over. jonathan: do think we are testing the limits? mohamed: if we were prudent we would believe that, but i don't think the political system will allow us to believe that. jonathan: where do you think we will look six to 12 months? mohamed: no different from today. we will run a high deficit at a time when we should be using economic exceptionalism to fix the roof while the sun is shining. jonathan: when we have u.s. exceptionalism if we didn't have problems on the balance sheet? mohamed: there's a lot of good

in this economy, there is a lot going on, tremendous innovation. yes, we would. annmarie: you said earlier in the conversation that american exceptionalism is because of fiscal policy, the money being floated in. how do you want them to do that and rein in the deficit? mohamed: i said including policy. fiscal, but also investing in the growth engines of tomorrow. there is no doubt that the loose fiscal has helped. totally agree with that. but what i more encourage is how much is going into generative ai, life-sciences, sustainable energy. that will power growth tomorrow. if you look at -- to take it to another part of the world -- official reaction to china's growth, they significantly beat expectations of their target but warned the underlying growth dynamics aren't strong enough because they understand they have to pipit to tomorrow's

engines of growth. jonathan: bramo would have told you something different. they beat their own expectations. bramo seems skeptical when you started about china's gdp beat. lisa: they will look forward to an era where they will try to choose their economy by investing in factories to export cheap goods to the rest of the world which raises the question about how much you can diverse international policy from domestic policy. mohamed: they are back to using a weaker currency to promote that. jonathan: agreed. this was great. hopeful, not confident. i'm going to run with that for the rest of the week. hopeful not confident. thank you, sir. we will catch up with david hunt about the bond market. fixed income, treasuries, credit. bramo, so march to talk about. a new era. lisa: weakflation was his word.

what that means when everyone is talking about american exceptionalism and growth. jonathan: he things that bonds are back. treasuries are down and yields are higher by five basis points. the two-year higher by two basis points at 4.94. equity markets pulling back a little bit. we wrap up earnings season on wall street next, looking for numbers for morgan stanley. sonali basak will break that down.those numbers something like four minutes away. ♪

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♪ jonathan: welcome to the program ended morning to you all. futures on the s&p 500 bouncing back a little bit. about a 10th of 1% on the s&p. biggest since march of last year. doing better this year. if we switch up the board to get to the bond market, massive levels broken through over the last month or so. we have not taken out the highs of last year but we new highs for this year, very close to 5% on the two-year, a move of more than 30 basis points so far in april. over 40 so far in april. 46488. we will talk about bank earnings in a moment. lisa will look at that.

dollar strength potentially a sixth consecutive day of income of the longest stretch going back to september of last year. the euro trying to bounce back. dollar-yen, we have a problem, boj. 153 is really problematic. 154, i think they are in no man's land. positive by a quarter of 1%. the numbers for morgan stanley, let's get a 35,000 foot view and then we can cross over to sonali . what stands out to you? lisa:lisa: they had compensation expectations come in higher-than-expected. we saw bank of america beat on the interest income but they missed $1.8 billion versus the estimate of almost $2 billion, raising a question about some of these banks are using their balance sheet to get ahead of some of the areas that are under more pressure. jonathan: net revenue, $6.88

billion u.s. if we can bring up the stock in the premarket, it is positive by little more than 3% at the moment at my last look. let's cross over to sonali basak. what do you see? sonali: there are a few things going on. both management number coming in above estimates and the pretax margin also coming in above estimates. they want to see the wealth engine to driving performance. also better than expected in fixed income and equities trading i believe them about what is interesting is that equities trading number actually comes in below what goldman sachs brought in. the competition is pretty stiff on wall street today. another thing to look at is the competition expense coming in higher-than-expected. we have been talking about it. this has been a trend. a lot of pressure on competition cost in a year where activity is jumping back. over at the investment bank as well, underwriting fees for equity and debt coming in above estimates, but advisory is coming in a bit light.

this is another area of stiff competition. goldman's advisory fees are more than double what you see over at morgan stanley, so the core institutional businesses will be where ted will have to show where the market share is being gained and lost in those businesses. lisa: you mentioned ted pick. this is one of the first earnings seasons we hear from him or the second or third but he just took over. there is a question of what does the new morgan stanley look like? do you have a sense from these numbers about where the shift is in terms of focus? sonali: it is interesting you say that. this is the first full quarter you have ted reporting results. right out of the gate, this is his first scorecard. to the point you are making, the new morgan stanley has been driven very heavily by the asset and wealth manager. they have been the kingmaker in u.s. asset and wealth. while we see the revenue holding

up, the competition in the investment bank is something he has been focused on. he said investment banking would lead the cycle with compensation costs on the rise. how will they pay for those bankers and regain the chair in the equities business? we were talking about it yesterday when we talk to folks on the street. they see him showing up and being competitive. we know morgan stanley wants to retain its top spot here on a lot of those institutional businesses. what is interesting is the market has not been reporting those poor wall street businesses yet. they do not seem to be convinced volatility will not stifle the windfalls. hearing what they have to say after goldman sachs on how far they can run in institutional will be a question. lisa: some names -- jonathan: some names are doing better. the banking sector was down 5% on the s&p 500. sonali, year-to-date going through some of the stock moves, let's look at some of the scores. goldman is positive by 4%. citi is up by double digits.

jp morgan is doing ok. morgan stanley is down on the year. what is holding back that stock? sonali: it is not even down by a little bit. it is the only one that is down, let alone down by that margin. for morgan stanley, they bank the wealthiest of the wealthy in the united states. this should not be as messy of a story but you have a massive management change and this other question about investigations being faced at the behemoth well and asset manager so it is a succession story that creates a lot of questions as well as those investigations that you do not see in this earnings report. this is a question of how to pick will be able -- of how ted pick will be able to address this. are there any financial levies could be seen at the wealth manager at the end of the day? this is a matter of, are people moving money out of cash and into markets? there is a sense that is coming.

there is a positive signal for that but let's see how quickly that translates. jonathan: we can have that conversation right now. thank you. the last big name out of the gate on wall street, wrapping up banking earnings. joining us now around the table is david, the ceo. good morning to you. david: good morning. nice to be with you. jonathan: i want to pick up on sonali's comments. the money coming out of money market funds and migrating elsewhere. have you seen that trend develop? david: we have seen that. it has been small pieces but it is beginning to pick up speed. some of the reasons are obvious. certainly at a higher level of interest rates relative to money market funds as we begin to see rates peak and then decline. duration begins to look a little more attractive. but there are two other things going on which are at least as important. one is that the big pension funds with higher rates are better funded.

they are using this as a chance to de-risk. and that means for them they are moving money into fixed income. the second is that we have the continued demographic trends going on not just in this country but around the world, and retirees need income. so we are in the process now of this huge shift from accumulation products to d accumulation and income products. those need fixed income. if you take the short-term shift, you add to them two structural shifts, we think over the next three years we are going to see bonds are back. jonathan: this sounds like a new regime and i will give your team a bit of a shoutout. pre-pandemic, really defining the bond market regime of yesteryear. can you talk about how different this regime will be compared to that? david: we think it will be different. you are right, they were on the lower for longer for quite a long time and more recently our call has actually been we will

be higher. if you go back six months, we were very early to the we are looking at two cuts for 2024 when the market was pricing in seven. we held with that view, and the markets have kind of come back to us at this point. we take pride in considered non-consensus views that are long-term in nature rather than simply trading views. i think we have made a very good job on those. i will say that in order to do that, you need a culture that supports people to take those nonconsensus views even during times when they don't look so right. many organizations have a hard time doing it. we are proud of our culture to do it. lisa: to rip up the script quickly because i have tom's shadow over me and competition expenses coming up, is it getting harder to recruit and keep that kind of talent? david: no question it is. if you look over the last 20

years, you would say that many of the functions and things that used to be done in the investment banks are now being done on the buy side. i have 130 credit analysts. you never would have seen that before. all of that would have been done by goldman sachs and morgan stanley and we would have bought research from them. so the actual value chain continues to move from the sell side to the buy side and i don't think that will change. that puts a lot pressure on those of us on the buy side because we need to move our compensation levels up in step with that. so the war for talent is very real and very practical for us day-to-day. lisa: so artificial intelligence, how do you use that? i really am diverging here. i was going to talk about bonds being back. jonathan: i wanted to talk about the bonus. lisa: how do you make things more efficient to reduce costs

while continuing to prioritize this? how do you see that playing out, or do you think some of the gains in productivity are overstated and it really comes down to talent and people who can do the job best? david: i think we are in the midst of a game changer on technology. in asset management over the last decade, technology has mostly been about, can we automate things, get more efficient at things? so it has been a bit of a cost play. that is not where the game is today. technology now is allowing us to move data to the cloud and then do things with artificial intelligence we never could do before. and so it now is being used by our investors, the front lines to make decisions. that is a very different use of technology than it was before. i think that is very exciting, but it means we are needing to significantly up our game on the use of technology and making sure we are employing some of these latest uses of it in our

actual investment process as well as trying to get more efficient and some of the back office functions. that is different for the industry. lisa: you are saying it is making you more efficient but you need a leaner team. david: it means the quality of jobs we have will be better because we will take a bunch of things that we can do much more efficiently with technology, and then we will be able to augment our portfolio managers with technology so they are making better investment decisions. that is what they want to focus on anyway, so the more i can focus them on the higher value topics, the better and happier they are through the use of technology. >> when you look at ai and inflation, weakflation, is that the rest of the economy? david: the big story that does

not get reported enough is the world has not been in the last couple years more divergent in their views of growth, so spending time in europe, i would say the u.k. is in a technical recession right now. you spent time in germany, growth is really hard to come by and it is not looking so terrific. inflation continues to be a worry but has come down a lot and is related mostly to energy prices. you move to the u.s. and growth is higher than most people thought. the labor market is in excellent shape. and growth appears and productivity appears to be better. inflation is higher and rates are higher. i just spent last week in japan and it is fascinating. after literally 30 years of trying to get inflation to go again, it is a beautiful spring week, the cherry blossoms were out, and there is a spring in the japanese step. they finally have inflation coming back. they have productivity numbers

that look better and some growth. and so the stock market is at an all-time high, and you feel optimism in japan. we saw the numbers come out of china china continues to push on manufacturing in order to get the economy going. i think all of us wish they had the tools to get domestic personal consumption going because that is really the rebalancing they need in their economy. the way they are going right now will flood the world with cheaper manufacturing, which will maybe export deflation back to five years ago, but it is not the balancing that we would hope. i think if they could get their domestic consumption going, it would be good for the chinese people, the chinese economy, and the world economy. the reason we come to weakflatio n is the world is very different, but when you put that together, growth is going to slow from what has been. we are going to have higher inflation we believe for longer and higher rates. that is where you get the

weakflation piece of it. it is different from stagflation. within the labor market is pretty strong. jonathan: there is a ton to unpack their. i one to unpack the china piece of it -- there is a lot to unpack there. i want to unpack the china piece of it. there is talk of more policies going against china from the united states. secretary ellen has been talking about that the last week. does that make it harder for you to run a global business? more difficult now than it used to be? david: yes, it is. many of us are headed to the imf meetings this week and one of the big topics will become a what are the impacts of the new chinese economy, and what will the u.s. administration do in response to that? i will say having spent a week in japan that the country that is the number one beneficiary of the tension between the u.s. and china is japan. when i was there, there were

three companies launching new chip manufacturing centers there. there was companies that wanted to invest more in japan. japan is taking on a roll in asia and in a pan asian trade that i did not have before. the other thing is the security alliances have come together i think faster than any of us would have thought. when i spent time with folks in the diplomatic and security world there, the coming together of japan, south korea, now the philippines and australia is creating a stronger alliance than we had before, so these kinds of reverse powerful impacts that we have are hard to predict, but they change the supply chains a lot. jonathan: you mentioned japan quite a few times. you visited there and build a business there. david: we are one of the largest asset managers in japan. we absolutely believe it is a critical country. obviously, if you just look at where the money is around the world, japan remains one of the

wealthiest and highest savings places so there is a lot of money to manage. jonathan: is that money coming home? david: the money is coming home to some extent but also foreign money is going and both portfolio flows and fdi, which is a fairly new story. jonathan: a massive change. i am pleased to say you will stick with us. let's get you an update on stories elsewhere briefly. here is dani burger. dani: israeli military officials say they have no choice but to respond to iran's drone and missile attack over the weekend. the u.s. and european allies are urging israel to avoid the kind of tit for tat that would spark a wider war. the u.s. has said they have placed more than 500 sanctions on iranian entities to hold iran accountable. another bank, another upgrade to the outlook for gold. gold is likely to reach $3000 an ounce according to citi. their timeline is the next 12 to

13 months. the fed will eventually cut rates and that is getting longer out now. the precious metal has been on a tear this year driven by haven flows with wars in the middle east and central bank buying and consumer demand in china. shares of bny mellon higher in the premarket. results beat across the board. total revenue $4.5 billion in the first quarter. total fees jumped 6%. but of those are a beat. that is your brief. jonathan: thank you. up next on the program, debating the fed's path forward. >> if you think we will remain data dependent, which they are today because they got so embarrassed by what happened in 2021, the fed will not cut. i think the likelihood of them hiking is low. is it zero? no. they could. jonathan: more with the pgm ceo david hunt. from new york city this is bloomberg. ♪

jonathan: equity futures on the s&p 500 positive by a quarter of 1%. use a little higher, up for basis points. debating the fed path forward. >> in order to predict the fed, if you think we will remain data dependent, which they are today because they got so embarrassed by what happened in 2021, then the fed will not cut. if like we hope they will go from excessive data dependency to also having a macro framework in their head moving forward, they will cut and that is what we will see play out, but i think the likelihood of them hiking is low. is it zero? no. they could. jonathan: jay powell speaking later today as investors look for more clues on the fed path forward. the 10 year yield climbing to its highest level since november. the fed is in no rush to cut.

bonds are back. we anticipate investors will move a chunk of funds in money markets to high-quality strategies that have some direction as they see rates begin to reduce. david is still with us at the table for some final thoughts. let's talk about where the money is set to go. we have heard a million times the phrase survive until 2025. can you talk to us about the pockets that you are not constructive about, perhaps even concerned about? david: we certainly have seen while yields are high, spreads are compressed and so there are parts of the market right now where you are not getting paid for the risk and we would say some of the lower quality areas of high-yield and others would fit that bill at the moment. but broadly, there is way too much attention paid to exactly when the fed begins to move and not enough to the most important question, which is the fact that we will have higher rates for longer. even when they begin to come

down, they will not come down that much. that is going to mean you are going to have higher yields for the next several years. as a long-term investor, the fourth largest bond manager in the world, that is our focus, and we believe bonds will be a very important part of a portfolio going forward, as will credit were broadly. we talked a lot about the public markets, but we are one of the largest private credit managers in the world. and we continue to believe that will be a really good growth engine both for institutional investors, increasingly retail and high net worth, and the money manager business because banks, despite all the earnings you all have covered today, continue to pull back from their core lending functions because of capital constraints. lisa: when you talk about private credit, and a lot of people have been going into the field and there is the idea that there are companies becoming banks that do not have 800 fica

scores, the equivalent of that are becoming unbanked in public markets frankly adjust by the banks. you are buying their bonds, holding them for the long-term, hoping to clip a coupon of 7% or 8%. david: so it is a combination of all of the things you said. first of all, there are many middle-market companies which are very good credits but for whom the banks really cannot lend it to the way they did because of the new capital regime that came on after the gsc, and if we get another round of increased capital constraints on the banks, that will become even harder for them, so this growth you have seen in direct lending, which is lending really into the smaller companies has been quite significant, and we think that will continue to grow. but the other area, this has been asset-based finance. for many years, most of this was funded by banks and the commercial finance companies. whether or not that was aircraft leases or railcars or solar

panels, and that kind of asset finance now is coming more and more into a core institutional asset manager portfolio. we have been a fairly large player in that, and we would say as we look toward, we think it will be one of the large areas that fixed income will continue to grow. so you have public markets where we see attractive credit. we have direct lending and some of the higher-quality private markets, and you now have a market that is growing, so we remain very constructive on credit, public and private, looking for the next several years. jonathan: let's stay on private and rapid up there as well. we cut up with mark and sentiment can you define the prime opportunity? he said basically everything that has a bank balance sheet. do you think there is space for everybody? how big of an opportunity? david: so i think the good news is that actually private credit, particularly direct lending, is actually maturing.

institutional investors who for a number of years all kinds of people get into this business and set themselves up and immediately were able to raise money. i think that period is now over. institutional investors are much more picky about the managers they are using to do private credit. we are seeing fewer managers raised more money in that space and i think that will continue because investors want to see it. you have multiple track records, have done this over multiple cycles, and have the skills to do it. your ability to set up a new shop and raise money is a lot less now than it was years ago. there will be a bit of a shakeup in that and that is no bad thing. jonathan: i have loved this. we have to do it again. david: thank you for having me. lisa: what you can see is the bigger asset managers are basically taking over a lot of businesses traditionally on balance sheets. i am just thinking about who is

winning this game, who is basically losing this game, and how are the banks fighting back? but it creates a different type of asset management regime that has many other opportunities that previously were not there. jonathan: a massive change over the last few years. huge compared to the previous bond market regime. in the third hour of "bloomberg surveillance," we will speak to nick and catch up with torsten, who said no cuts at all for 2024 from the federal reserve. we will catch up with him in just a moment. equities doing ok. yields up by four basis points. 4.64 on the u.s. 10 year. from new york city, this is bloomberg. ♪

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>> i look at 10 year yields the market is trying to gauge where this is going to shakeup. >> for bonds and is still an infection story. >> the level of use in the u.s. is attractive. >> given where we are in you, we can go higher. >> now that we have seen this go

higher and yields, we have the composition of let's get ready to buy. >> this is "bloomberg surveillance" with jonathan ferro, lisa abramowicz, and annmarie hordern. jonathan: remember when rate cuts were going to start in march and then june and july and now you are here in december or maybe never? toasted will join us later -- total student -- tolsten will join us later this hour. the big three speak today. we would hear from the new york fed president. and chairman powell himself later on this afternoon. lisa: is he going to talk about hope, confidence? is he going to say anything at all when fed officials have pushed back against the possibility of a rate cut, at least one if not two earlier this year? they talk about patience. it means you will do what we think and right now it is in the

cards. jonathan: mohamed el-erian in the last hour said i am not confident, i'm hopeful. i turned around and said, can you imagine if the fed chair said i am not confident, i'm hopeful? lisa: i think it would -- annmarie: it would be a scary situation. the ubs note talking about potentially pricing in a possibility of a hike, now you have more people so this is not just a contrarian idea from one person that used to be the former treasury secretary. if we have stick inflation, completion of u.s. growth continues, in a labor market that is healthy, could the fed potentially move to the other side? lisa: fed chair powell came out and said confident, i would say thank you. none of us know. everything person who has come on the show has basically said we have no clue. this is a new paradigm. we make the best, we can and adjust accordingly along the way.

if he came out and said that, people would say, finally, a bit of a breath of fresh air. jonathan: equities would be down. yields would be up. annmarie: you think so? jonathan: if he talked about being hopeful and not confident, that would imply a thing has changed because a month or so ago, this equity market believed the fed chair shifted into a new policy stance. if he gets strength, he does not need to respond to it. supported equities even with the repressing of the federal reserve you start to be the federal reserve back away from that, i think the floor put under the equity market the last few months starts to be taken away. lisa: and not a people think the policy error so far was the fed put baked into the market in december. a lot of people said that his financial conditions enough to keep inflation harder for a bit longer. at what point is that tightening and financial conditions what is required to get inflation back down? do we even want to get it back down?

that was something mohamed el-erian talked about. maybe let it run harder for longer because that is the reality of it. there are big questions and the fed does not want to weigh in on them. jonathan: the last two days, the solution and not the problem according to bramo. do we need tighter financial conditions? the repressing in the bond market has been phenomenal. a 40 basis point move on the 10 year month to date and it is april 16, so we are talking about 12 sessions, something like that. 4.6365. lisa: which is the speed you are talking about is the reason people are saying i buy into equity valuations. it is coming from a whole different number of aspects, not just the gradual strength, the grinding of american exceptionalism. this is the reason why people are uncertain right now and why people who thought stocks were a great buy at higher valuations are getting queasy. jonathan: 49380 on the u.s. to

year. we will catch up with nick as israel vows to retaliate in a call for note rate cuts this year. investors wrestling with the threat of higher for longer rates and potential escalation between israel and iran. the tensions in the middle east look contain for now but we see risk of further escalation, wei li said. a view that we are in a higher for longer interest-rate environment. good morning to you. wei: good morning. jonathan: are you hopeful, not confident with equities? wei: i am hopeful and still confident but maybe less so compared to before. the key question is around inflation. we sent out at the beginning of the year that this is a year of two parts. the first part will be supported by the narrative of the

immaculate disinflation, and a second part will become a derived by the reality of inflation roller coaster and higher for longer. the last one feels like part two. the question we are asking is if this is a blip or part two. i am confident but less so compared to before. i think this is a fed that wants to cut. jonathan: let's do scenario analysis and say we have pulled forward the second half call. what would that mean for stocks? wei: i think it would be negative. if you think about what stocks are primed for at this juncture, so far, up more than 6% on the year and rate cuts at the beginning of the year emily had seven priced and markets and now there are less than two so the only offset supporting the strong momentum was earnings, but right now, the bar for earnings surprise to the upside has risen as well, so equity momentum is having to clear the ever rising bar, which is why it

feels a bit different compared to before. lisa: were you more concerned about the earnings picture than rates? wei: i am positive around the earnings picture. if you look at the growth dynamics we have experienced so far, we have had positive surprise to growth and positive surprised to inflation and the boost to nominal growth, which translates into earnings supporting equity momentum. i am positive on earnings but recognizing now that markets are expecting the s&p 500 to deliver 11% earnings growth for 2024 versus the historical average of 7%. the bar is higher. i am a bit nervous but there is room for ai as a team to deliver and i also think there is room for earnings momentum to broaden out as well given the cyclical manufacturing we are seeing coming through in the data. we like industrials, energy,

materials for that reason. these are the sectors seeing earnings upward revisions as well so we like all of those cyclical aspects but on top of the ai theme that is still coming through. lisa: you talked about being underweight bonds and not liking bonds and that is nothing that has played out throughout the year for sure. there is a question of what a haven is and we have been discussing this extensively. is it the dollar? is it gold now increasingly? wei: it is really hard especially when we think about safe haven. we have to understand what type of scenario we are trying to hedge against. if we talk about geopolitics, it is hard to prepetition for geopolitical events. things happen very quickly. typically historically, it has paid to fade the moves rather than chase it but it makes sense to ask the question, is this an event risk in which case stating it historically worked, or are we in a new geopolitical

paradigm in which case we need to think about safe even maybe structured really exposures that give you a little bit of a medium-term risk at a reasonable cost. talked about gold. energy inflation leapt balance. and the dollar has really worked so far in terms of being a hedge. one has not worked as well in this inflationary environment's duration as a hedge this time around. lisa: mohamed el-erian wrote about how a gold markets are well-placed to hedge geopolitical risk premiums but less so if this actually became a serious wider conflict. how do you see the difference between the two? wei: that is the difference if it is a geo -- an event risk or not. maybe fading some of the immediate nervous movement has actually paid off.

you talk about people buying the dips when historically, there have not been a sustained effect but if we are talking about risks of escalation and also channels of transmission mechanisms being broader, then we have to think about geopolitical risk premium being baked in portfolios needing to be higher. this is where we talk about being structurally long, some of the enclosures that i talked about. lisa: one of the areas you talked about was energy equities and energy in general. at what point does a rise in the price of oil and other commodities challenge some of the industrial over weights that you have right now just based on how much it is going to cost with the inflation there? wei: yes, energy prices had a $10 increase, shades of global gdp. i think we are looking at 20 or 30 basis points or so must we

are talking about a meaningful negative impact on growth and inflationary impact as well, so that feeds through to the fed calculus. yes, of course, this is not core inflation, but if that anchors inflation expectations, that leaves the fed to be more prudent in terms of rate cuts going forward. some of the cyclical momentum many factoring uptick upswing that has come through in the data may well stall, so i think there is -- i think of energy as a hedge to our call but also as a risk. jonathan: i just want to finish on foreign exchange. my favorite function on the bloomberg terminal, a snapshot of the g10. i was going to finish on this. the dollar has absolutely ripped year-to-date, stronger against the japanese yen by question on percent -- by a 10th of a

percent. what kind of damages that do into the global equity market call? how does that play into the overweight we have seen in japan and places like europe? what does this mean for the trades? wei: the dollar is inversely correlated to the risk sentiment. it is driven by rate differential and risk sentiment. currently, it is doing this because both actors are supportive for the dollar to go higher. we are overweight the japan call, but obviously, the weaker japanese yen translating to stronger equity momentum, there is a bit of a auto hedge their but the stronger dollar games and we should question what we have. jonathan: this was wonderful. took me a while to get that. lisa: that is your favorite. wei: everyone's favorite. jonathan: you are my favorite. thank you. thank you. let's get to the bloomberg

brief. dani: morgan stanley shares are open to premarket. net new assets and trading revenue. morgan stanley said it was a rise in competition costs despite headcount fallen 3% from a year ago. tesla down in the premarket. two of the company's top executives are leaving and tesla cutting 10% of its workforce to slash costs with ev slowing. the cuts could reach 20% in subdivisions. tesla shares down this year. donald trump's first criminal trial got off to a slow start. they stalled over disagreements and last-minute arguments. jury selection did not take off until the final hours of the day. the former president's lawyers argued with prosecutors over which evidence will be admissible. more than half of the first panel of 96 potential jurors had to be excused after saying they could not be impartial. trump back in court today. jonathan: thank you.

up next the program, israel weighing its options. >> this we opened it military capability and just as quickly, they do not stand alone, that the u.s. stands with them. there is no question iran recognizes the coalition that was put together to help israel defend itself. jonathan: that conversation coming up. we will catch up with a reporter in washington, d.c. from new york city morning, good morning. ♪

at morgan stanley, old school hard work

meets bold new thinking. to help you see untapped possibilities and relentlessly work with you to make them real. ♪ jonathan: welcome to the program to bounce back from yesterday's losses. this is my bounds. positive by 0.15% on the s&p. the euro higher and the 10 year higher. israel weighing its options. >> israel proved it has superior

military capability and just as quickly they do not stand alone. the united states stands with them. it is no question iran recognizes the coalition that was put together to help israel defend itself. again, i cannot speak for what either side will do going forward. iran is increasingly isolated on the world stage. they are increasingly making it harder for anybody in the international community to be sympathetic to any of their interests there. jonathan: israeli military officials playing down options in response to iran's attack. benjamin netanyahu now deciding the next steps as allies warn against a full-blown escalation. nick, let's talk about options. yesterday, there were two questions, would we get a response, and what with the response look like? today, we have one. we are going to get a response. what do you think the options are on the table and what might the response look like? >> there are a few things

happening. the biden administration is pressing israel to go back into the shadows so we can see where iranian proxies were attacking israel and israel was responding in some ways with strikes it would not take credit for, so assassinations for example or cyber attacks things like that where it had in some ways possible deniability in the shadow war with iran. the u.s. does not want escalation here. they want both sides to be able to sort of say it was not us, for example. and they are really pressing that for israel. i think what you will see is a recognition from the biden administration that israel needs to respond in some way. it still sees iran as a serious threat, but it should not do something that feeds the tit for tat very public escalatory cycle that compels iran to respond in its own right. lisa: what options are left on

the table to retaliate but not spark a revenge cycle? nick: that is a great question because it really depends on sort of how the target, in this case iran, interprets or views the attack. i think what you are seeing is a lot a focus on the cyber realm right now. there is a lot israel could do to harm infrastructure in iran. it may use this as an opportunity to again go after iran's nuclear program. there is a lot of pressure on israel to do that. i ran has proceeded with its nuclear program by leaps and bounds in terms of enriching more uranium. that is an obvious target and one that cannot be solved with military strikes because iran has done so much to protect that program, so at this point it looks a lot like they would use their massive cyber capability to do something. but again, this is very much a

live debate between the biden administration and israel. annmarie: we have had news that janet yellen will greenlight new iran sanctions. what is left to sanction on the iranian economy or should this administer should be paying more attention about enforcing the sanctions already on the books? nick: that is very true. there is very little in the iranian economy that has not been sanctioned the last many years. when janet yellen says that, in some ways it shows the limits of u.s. leverage over iran because it has basically severed the u.s. from iran's economy through the imposition of those sanctions for so many years. and the fact is iran is not quite as isolated as the u.s. would hope. it has pretty powerful countries on its side that iran can work with economically, namely russia and china. china buying a lot of iranian oil and there are a lot of sanctions on iran sales of oil but something the u.s. has not significantly enforced in recent

years, and that is what you have seen oil sales from iran go out, so that may be a target. i think less focus on new sanctions and much more of a focused on squeezing what we know is iran's main money supply, which is its oil supply. annmarie: how difficult is this for the biden administration when they show up to meetings with chinese officials? there will be a menu, a list of options to pressure china. on top, it looks like the export capacity, the excess capacity they have when it comes to exports with clean materials. we are potentially in a new realm. the biden administration will put pressure on the iranian regime that they want to see from china. nick: the question really there is whether china is willing to play ball. we are in a very different world now that we were in 2017, 2018 where you had some indication that despite the tension, the growing tension between the u.s. and china, there was a

diplomatic dance happening behind the scenes where you have china and even in some cases russian willing to help u.s. sanctions actions on north korea, for example, and also to some degree on iran. willingness to reduce sales of iranian oil. world has changed so much since then -- the world has changed so much since then with spiking tensions between the u.s. and china and the ukraine war. it feels very much like we are in a situation where china and obviously russia will not be willing to partner with the u.s. to put the squeeze on iran. also it is a delicate dance for the biden administration because they are worried about oil prices so that as a whole other factor they are thinking about. this is something they want to squeeze but they don't want to squeeze too hard for their own sake. jonathan: let's finish here with how things have changed for you covering national security. it feels like everything is a national security risk. just how busy have you been?

how much is not a national security risk right now? nick: it has definitely been a busy little while. the fascinating thing that your question gets to is how much there is an overlap between economics and national security now. the u.s. has been willing to use economic levers to achieve its national security aims so you have seen that very much in the case of sanctions, but also with export controls, tariffs, all of these measures that were not in the realm of considered national security tools, and now it just feels like there is so much overlap in these things are so interconnected that i don't think this will let up anytime soon. hopefully i will see you guys again very soon and we can keep talking about it. jonathan: thank you, sir. down in washington, d.c. it makes you wonder who is in the driver seat of the administration? who runs things? annmarie: i also think it

depends on what the issue is and what year you are in. it is an election year so decisions will be different. you think about the lng permit whole. it is a national security issue when you talk to european officials but this administration leaned into the climate interests of the administration. you look at steel. is this a national security interest? the japanese say there is greater strength between the u.s. and japan inviting china. it is a labor issue because it is an election year. by think lisa make this point a few times. national security is making a a lot of heavy lifting in washington for them to go ahead and exact policies. lisa: the problem higher coming -- the problem i am coming up against is i don't know what we are prioritizing and a lot of these goals are contradictory. do we want to prioritize national security and domestic reliance on things like oil and energy, or are we were concerned about making sure gas prices are cheap enough? are we looking to prioritize disinflation and easing some of

the concerns for the lower class, or are we trying to curtail china, which will lead to more inflation? there are counter aims when it comes to national security and economic goals. there has not been one cohesive theory that seems to encompass both of them in some sort of understandable way. jonathan: let's talk about the price on the street. you remember when russia went into ukraine and essentially the message that was coming out of the administration was basically higher energy costs at a price we need to pay to punish russia. what i hear is the absence of that conversation entirely. it is april of 2024 and we are a number of months away from november of 2024. every conversation we have had today -- lisa you really because you hammered the same point. america response to every situation seemingly informed by a happens to the price and what it means come november. i think that is shortsighted and highly problematic. lisa: it raises a question with respect to pushing for a

response to iran in the near term because you don't want to disrupt the price of oil but it goes to the question of, are the u.s. hands tied in some capacity and does everyone else know it if the emphasis is on keeping oil prices below a certain level? jonathan: remember glasgow? lisa: yes. jonathan: thank goodness for their own sake that all the things they wanted to happen did not happen. thank goodness have 13 million barrels a day because if you think the policy decisions in front of them now are compromised, imagine how much more it would be a production in america was much lower than that. from new york city, this is bloomberg. ♪

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jonathan: equity markets shaping up as follows about one hour away from the cash open in new york city. unchanged on the nasdaq, still lower on the russell. small caps lower by 0.7%. big move so far you today on treasuries. just picking up the last few weeks for the month of april. use a lot higher, a little higher this morning. 4.9466. on the 10 year, 4.6385. michael mckee has information for you in washington, d.c. michael: we have some negative economic news for a change. housing starts and building permits down on the month or

than forecast. housing starts on a month over month basis down 14.7%. the forecast was for a 2.4% decline. they have grown 10.7 percent the month before so now we are at a 1,000,300 21,000 pace annualized pace for 1,521,000. the forecast was for a 9/10 drop. so not clear if this is the weather or just a rebound effect, but it is one of the first indicators we have seen in a while that suggest a little slower growth in the first quarter. these are march numbers. jonathan: can we talk about fed officials as well? later today we will hear from the vice chair, the new york fed president john williams, and chairman this afternoon. your reaction from yesterday and your conversation with the new york fed chief and how you think

what -- how you think that informs what we might hear from the fed chair? michael: the vice chair of the committee that sets rates, the right-hand man of the chairman, so one would think jay powell will sound a lot like john williams and stressing the fact that there is no hurry to cut rates, but at some point, they anticipate they will. we also hear from the vice chairman today of the federal reserve, from jefferson. we will see if he adds to that. i do we will get much more from john williams today. he is speaking with the president of the bank of france so more probably about french issues but there is a consistent message now coming from all of these that officials that do not expect rate cuts at the next meeting or maybe even the meeting after that. lisa: thank you so much. i am curious what we were talking about earlier about the

idea of, have fed officials game doubt the idea of no rate cuts this year? -- gamed out the idea of no rate cuts this year? how many fed officials feel the same? michael: it is hard to know because mostly the message has been that we do not have to rush but we think we will cut rates. i specifically asked williams about that yesterday, and he said we will just go where the data take as. he did not rule it out but he did not embrace it in the same way that the person from minneapolis has. jonathan: thank you, sir. breaking down the data and the fed speak. i was going to say the french of a lot of issues but the italians have bigger issues. you see this story yesterday? my favorite story. alfa romeo has had to rename the suv they had coming out called the milano but it was not produced in milan so they have to rename it because the italians pushed them to.

they are renaming the junior or something like that. they will call it the junior. stellantis under pressure by the italians for using an italian city for a car name that will not be produced in that city. i love stories like this, european rivalries. lisa: the idea of do not try to. it is not good enough to become milano. jonathan: something like that. what you see here is basically the argument. you want to use the city's name, produce it here. lisa: that you think about that with the spanish oil they rebrand as italian oil because they use the spanish. annmarie: they don't do that. they don't do that. lisa: no, they take the spanish olives and grind them up but produce it in italy and colin italian. -- and call it italian. jonathan: it is deemed higher quality on the market. you are into the market, right?

the market has decided italian palm oil deserves a premium over spinach all of oil. lisa: the market is trying to bounce right now. i imagine they rein into each other in the pantry. jonathan: talking points on all of oil -- olive oil. better conversations. from easy financial conditions continuing to burst inflation and growth including consumer spending in march given the ongoing acceleration in the economy. the fed will not cut interest rates in 2024. it has been quite a call, and i imagine you are feeling better about the call over the last week or so. >> what is happening is when the fed pivoted after having set for two years that rates are going up, now they are saying rates are going down and still saying rates are going down. when the change came with the fomc meeting, the s&p is up $10 trillion. in other words the tailwind to wealth in the household sector and for corporate and

consumption is not surprising. payrolls for the last three-month have been strong. therefore, it is not surprising inflation has been strong. i think the tailwind will continue the next several quarters. jonathan: you are not lonely. others have joined you the last couple days at saying no cuts in 2024, even deutsche bank saying one cut in december, likewise from bank of america. what is interesting about the way you frame it is you put it on looser, dz, financial conditions. when you speak to the fed, they say conditions are tight, not loose. even with credit spreads really tight. what are you seeing they are not? torsten: that is really important because the discussion splits into two points mainly if you look at the rates at 5.5, that is certainly above most estimates meaning the long run equilibrium interest rate for the economy, which only the fed would say is 2.5, so looking at rates on their own and the old-school models in economics

literature, you would look at that and say you have the monetary policies tight, but what has happened is that has been completely neutralized and offset by the rise in the stock market, the rally in high yield and loans, the incredible increase we have seen in issuance in high yields and m&a activity coming back. yes, it is to your old-school textbook model tells you rates are higher than where they will be in the long run. that tells you policies tight, but that is completely be more than offset. a sugar high coming from the easing and financial conditions lifting the wealth component for households that is boosting consumption. therefore increases in travel, restaurants, airplanes, entering what comes to hotels, concerts, sporting events. a huge tail went to consumer services and that is why it is accelerating so quickly at the moment. lisa: essentially you are saying it is a policy error for the

federal reserve chair powell to talk about the potential for cutting rates? torsten: i do think this was the intention. i think the intention was to take the textbook out and say when we run the phillips curve, we get what matters and they did not have the intention of lifting financial conditions and boosting the stock market. up 25% since november 21. roughly around $10 trillion or $11 trillion increase additionally in the household sector. it just happens to be what i would describe as a sugar high that is now lifting for several quarters. for several quarters, we will get the tailwind where consumers will say my balance sheet looks a lot better, probably more meaningful for the household sector. consumption getting a huge tailwind as the data yesterday showed. lisa: this raises a question of what happens at the market starts to agree with you and

make it no rate cuts this year. does that curtail some of the sugar high? we are starting to see some people on wall street saying will be see yields where they are by equity valuations, slow some of the capital markets activity? do you believe that? torsten: absolutely. i think the rate hikes we have had, it is already biting hard on highly levered consumer balance sheets and corporate balance sheets and particularly retail banks. the consequence is we still have the negative effects of the transmission mechanism working but it is only working on those that have debt so we are working through the process. as a sugar high starts to fade if the market does not continue to go up, you will begin to get that to dominate. you will get the risk of a harder landing. for now, the economy should be riding the wave. because of the yields being so

high, probably higher than they have been for decades. that is very supportive for the household balance sheet. jonathan: to make this confusing, if we believe there will be no cuts, there will be cuts? torsten: the fed has the goal of getting inflation back to 2%. it is not a 2% -- at 2%. the trend is not the fed's friend here so the worry is it might take longer to get down to 2%. the fight against inflation is not over. we may get the market environment for 2022 the comeback because in 2022, we had stocks down and rates higher and obviously it was not good for markets or your portfolio. that environment is at risk of coming back if we are not done fighting inflation. annmarie: what about hikes? people are starting to talk about this. torsten: i think the likelihood is relatively low because there are so many competitions in doing that and saying we are wrong and now rates are going up again. there are some challenges with

the basic effects of inflation so more technical things. we have to go in july, otherwise it will be december or next year because the base effect is supported for inflation for the second half of this year so it will be quite challenging for the fed to get all of that in place in time to turn things around and say we need a hike or two. they would rather keep rates higher for a little longer, maybe one or two quarters, and achieve the goal of getting the economy and inflation to slow down. jonathan: so you think if we do not get two soft prints on inflation, we get a rate cut in july? torsten: i don't see where they will be coming from. inflation is showing signs of going down much slower than anyone expected. if i look at my bloomberg screen, you see that is beginning to accelerate. even goods inflation went through the roller coaster of being no problem, big problem, no problem again. now goods inflation with energy and oil, you have that at rest of providing some lift inflation. jonathan: that was a reaction

function question, not a forecast question. let's assume we get the data. do two soft prints lead to a cut? torsten: let's turn that around and say if they absolutely want to cut in june or july, we will need some very dramatic slowdown in inflation the next several months, absolutely. jonathan: this was great. really smart. feeling much better about his call for no interest rate cuts in 2024 given the hot retail sales print we had in the last week with hot inflation and all the above gone wrong for the federal reserve. let's get you some stories elsewhere. dani: president biden is hitting the campaign trail in his home state of pennsylvania. his campaign says that triple highlight the differences between the president's tactics and economic agenda versus donald trump, who oversaw tax cuts for the wealthiest corporations while in office. but he has imitated his union allies. shares of united health care

higher premarket. it affirmed its outlook for the year. analysts warned of a printable result following a february cyberattack. united says they continue to make significant progress in restoring the affected services. boeing yet again in the headlines recommending operators of the 787 dreamliner inspect a knows component that helps maintain cabin pressure -- ose component that helps maintain cabin pressure. the study is in the spotlight. the playmaker facing mounting scrutiny -- in the air playmaker facing mounting scrutiny -- the airplane maker facing mounting scrutiny. testimony tomorrow from another whistleblower. that is your brief. jonathan: thank you. up next on the program, wrapping up. >> right now, having a balanced attack to where you are part

consumer, part commercial. you have the investment bank that can be helpful. i think the wealth management business can be a buffer. i think having all of those, that is where the large national banks compete effectively. jonathan: that conversation coming up next.equity futures positive on the s&p 500. the opening bell about 47 minutes away. ♪ hey you, with the small business... ...whoa... you've got all kinds of bright ideas, that your customers need to know about. constant contact makes it easy. with everything from managing your social posts, and events, to email and sms marketing. constant contact delivers all the tools you need to help your business grow. get started today at constantcontact.com constant contact. helping the small stand tall.

jonathan: equities right now on the s&p 500 positive i a third of 1%. i want to talk about crude. down to $85.16. some headlines coming through from secretary yellen. we will hear from her later beget a conversation taking place between two interesting leaders moments ago. annmarie: between president vladimir putin and the leader of iran.

putin asked for restraint, according to the kremlin. restraint, the idea coming from the u.s. and western allies on netanyahu seems to be coming from moscow on tehran. when secretary yellen speaks today, she will talk about responding to challenges in the middle east and what the administration has laid out during the past two and half years, which is sanctions, and potentially signal more to come. you have to ask about what is left in the iranian economy for this treasury to go after? jonathan: it is not about new sanctions but enforcing existing ones. iran has already said as far as they are concerned, this is done. this is about israel now, israel's response if they want to take one, and what that looks like. lisa: and whether i'm in response to that and then israel response to that, the domino effect. one vladimir putin is trying to indicate. it comes down to, how will israel respond?

what influence do some of the coalition members have on israel at a time when they are saying 300 missiles were thrown at us? jonathan: crude is down by a third of 1%. we are down by 0.4%. up next on the program, wrapping up earnings on wall street. >> right now, having a balanced attack to where you are part consumer, part commercial. you have the investment bank that can be helpful. i think the wealth management business can be a buffer, so i think having all of those, that is where the large national banks really compete very effectively. by the same token, the strength of business will be stronger than expected this year because banks are still resetting loans on the upside so higher for longer actually has a contribution to spreads rising in terms of loan deals getting better. jonathan: the latest this morning. morgan stanley shares gaining in the premarket, beating expectations. it is the final of the five big wall street banks to report quarter results.

sonali, put it altogether. what is the take away the last few days? sonali: costs are on the rise everywhere. most of these banks, headcount has reduced. costs are going up regardless. you have to bring in more money to justify for that. in the case of morgan stanley, what is interesting is they brought in $95 billion of net new assets at its wealth management unit. they were expected to bring in closer to $60 billion, so the wealthier individual is really driving performance at the wealth managers in a really compete in the market, and people are excited for the institutional businesses to come back to get you after buffer the wealthy individual is almost considered an institution here when you look at a lot of these banks. in fact, even structurally, some of the wealthy individuals were moved over to the institutional training clients. jonathan: 800. the number 800, fico scores at the bank of america.

torsten is walking off the set and that is all he wanted to talk about. can you go through the numbers for us? sonali: even credit cards are up to 777. credit cards are an area where all of the banks are trying to gain more share. the question that has not yet been really answered, are the consumers tapping out on credit? the fact that we have record amounts uptick in america already at record high aprs begs the question whether consumers can take on anymore and how much that will start to drive loan growth at these banks. lisa: we used to think of jp morgan as kicking off the earnings season. this would set the tone for the rest of the economy. can we really say that in any capacity if we are talking but the consumer with 800, which i never heard of, on the score and 777 on the critical? sonali: there is a question of whether the banks bank america at large anymore. keeping savings is one thing but how much credit is being

extended and to what businesses? you were talking that housing starts a little earlier. hitting a mortgage is hard to come by for many americans. auto loans to missing situation. you are seeing credit start to deteriorate. the banks tell you everything is fine, that the metrics themselves are fine, but they are still under pressure to return capital to shareholders so they lean into the businesses that are a little safer. it is interesting. if you are paying an investment banker and investment banking business, the rov is very high because all you are paying for is the banker. but when you get to the big consumer businesses, that is when these things get a lot more bloated and you have to start to worry about the pesky things like charge-offs. lisa: the other thing we noticed is this question around the private asset managers and the banks and the idea that you have the likes of apollo but also evidently pgm eating the lunch of some of the bigger banks. how much do you see that

reflected in the earnings in terms of where banks are leaning in or where they are leaning out and saying other companies may be better to take this business? sonali: if i told you today blackstone is not only worth more than goldman but also morgan stanley, most people don't even remember that is the case. by market value, they are larger. that creates a new question. if you are a bank or asset manager or if you work on wall street, isn't better to be in the business of moving money or holding money and putting it to work? goldman yesterday said there private credit business can double over five years to $300 billion. that is just about what blackstone has today. in a couple of weeks, apollo is expected to bring in more than half of $1 trillion in could alone, not including equity and other hybrid products. so they are bringing in massive money. where do the banks make money from that? by the underwriting fees, by

facilitating deals. but again, these asset managers are certainly competitive and they are competitive on the fee war as well. annmarie: competition costs were rising this quarter. what does that say about the rest of the year? sonali: they have to be making enough to justify that. there have been significant job cuts the last couple years on wall street. we are in the beginning of a capital markets rebound. but volatility is starting to rise back in the markets. if you look at fixed futures into may, they are trading higher than the one your average. what does that mean?can equity and debt underwriting keep going? can they keep going after an election in the u.s.? does mna at a large-scale get stopped at the gate, or do they get that through? some people are suing to make those deals work, but some companies might turn away from that. jonathan: you have been brilliant over the last week. thanks for your hard work. appreciate it.

just want to go through the lineup for you. sebastian of t. rowe price, christian, and dana. i want to pick up sebastian page, who was aggressively neutral. has that changed? lisa: we heard other people say enthusiastically or eagerly neutral. how do you decide which side of the fence to sit on when it is such an ambiguous moment? i am curious about his stock choices because evidently last time he came, he came with some t. rowe price stocks that went up to my knees. jonathan: i did not notice that. how did you see that? lisa: i tried them on to see. jonathan: i did not get any merch at all. did you take mine? lisa: i took yours. jonathan: nothing ambiguous about the equity market moves, just higher the last few weeks. a 10 year sitting at 4.64, a two-year of 4.94. what was contrary and is now a consensus.

it will be a lot later if you are looking for interest rate cuts. annmarie: the dramatic -- lisa: the dramatic repricing over the last three weeks has been nothing short of amazing. the fact that the markets have digested it as well as they have until now is pretty impressive. the question is just, have we reached that level? that is increasingly what people are saying at a time where there is this overhang of geopolitics creating credit nervousness. annmarie: it has been months since the power pivot in december. he will speak today and we had six or seven cuts and now everyone is quickly moving to the torsten part of the world. i am struck by ubs trying to model it out. the fact that we can go higher and see hikes because of where we are right now. jonathan: joining us, the man behind the call, mr. jonathan pringle. i think that is a must watch conversation. the prospect of doing the unthinkable. i think it was unthinkable at the start of the year, and maybe

sort of not the consensus view but becoming more probable certainly. lisa: i want to know what kind of conversations he had with clients that read that and called him up. was in expletives or people saying you are totally right and i am on board but did not want to say it out loud? people site and will not happen, not a chance, we will just hold rates for a longer time. what happened to get there? jonathan: let's finish on how high the bar is. three high inflation prints to start the year we had and a member of the federal reserve just in an interview with michael mckee and set monetary policy is in a good place. that tells you it would take a lot more for the federal reserve to believe it was in a bad place. lisa: especially because high rates are affecting a lot of small business is disproportionately and that is a problem. jonathan: the open about 34 minutes away. live from new york city this morning, good morning. this was "bloomberg surveillance ." ♪

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>> good morning. we are really grappling for some kind of stability in these equity markets as yields continue to rise. bank of america up this morning in the eye of the storm. the countdown to the open kicks in right now. >> everything you need to get set for the start of u.s. trading, this is bloomberg the open with jonathan ferro. ♪ manus: coming up, futures steady as traders that the latest fed pe