>> when you are facing a momentum market, to say that momentum is going to stop on a dime is a difficult call. >> one of the forces propelling the stock market higher is the productivity story. >> you certainly have support from the labor market. >> they both started from a position of strength. when we think about cooling, it's cooling from a strong place . >> cooling, but not cool, and we are not expecting things to fall off of a cliff right now. >> this is "bloomberg surveillance."

jonathan: let's get you to the weekend. live from new york city, good morning, good morning from our audience worldwide, we are closing out the week and heading towards the weekend, looking for four weeks of gains on the s&p 500 with a sprinkle of fed speak. kashkari, daily, and for the really committed, sunday at chairman powell commencement speech. lisa: i'm sure everyone around this table is very committed and some are double dipping this week. yesterday, fed speak was kind of the same, higher for longer to gain confidence. i want to bring you to raphael bostic. if things don't go that way, i'm not locked into policy but if they go that way, he could see a cut by the end of the year. annmarie: i love how that is the most dovish thing you can get, but this week has shown us that there is a difference between relief and surprise. the data that we got was

relieved. surprised was the first quarter. this week was relief, the market maybe starts to see buying and it backs off with fed speakers who don't change their tune. jonathan: same thing, here are the lyrics to the song that we all know, takes longer to gain confidence. barkan, i think it will take more time. williams, i don't expect to get a greater confidence in the near term. what does greater time mean? a couple of prints? three months, five months? dani: you need to see a trend and the data is not linear at this moment. it's about seeing the trend and this is the problem with the data. to some degree the measures are outdated, accounting for a monolithic economy. we have talked about this how many times? the recovery is k shaped. it's hard to grapple with the data and we are seeing that with the fed. the data does not show us accurately what is happening. jonathan: data out of china

overnight, let me go through it for you. consumer spending is slower since 2020 two. industrial output, that's the upside surprise with the politics coming from the nec director. china getting the same vocabulary it has before, growth at the expense of others by investing in significant dust real overcapacity. annmarie: and this is what janet yellen said to me earlier this week and we hear this from the europeans as well, concern over the manufacturing base in china and the overcapacity they are dumping on markets. china tilting more towards manufacturing and becoming more vulnerable to tariffs, like the ones that we saw earlier this week. dani: i can't help but wonder if that is why the chinese response was so mild. we all knew that tariffs were coming from the u.s., china had such a long time to prepare,

days of they could have hit the switch and unleashed tariffs and they didn't and i can't help but wonder if it is because of this data. jonathan: here are the scores for you this friday morning, s&p futures on the 500 are unchanged, going nowhere, your 10-year yield is 400 3866 with a foreign-exchange dollar showing strength against the weaker euro. ecb has more on the mixed move, 43 other euro-dollar. coming up, we check in on the ny melon on why you should remain overweight as china takes measures to prop up the economy and access managers on the independence of the ecb. top story, stocks and bonds giving up post cpi gains. they want to stress that global investors remain overweight on u.s. assets, irrespective of the fed or macro concentration risks

that need to be considered with anticipated just -- diversification being a feature in the second half of the year. jeff, why wait until the second half of the year? only a few months away to start considering that? jeff: markets are waiting on confirmation that we will get policy diversions and other policy banks can go different ways and they need to know where the fed is as well as they are looking for them easing in september, later than where we work compared to six months ago, with shell shocks elsewhere. in addition, right now china is coming through less on the tariffs side and today the focus wasn't even on the data, it's about the suppose it rescue of the property center that really opens up asia particular. if you asked me where clients are least allocated based on relative data in the benchmark, asia is where it is and maybe there is an opening for flow to

redirect. jonathan: do you think that we might be seeing u.s. exceptionalism playing out fully? peak u.s. dollar, behind us? geoff: going through it one by one, dollar-yen is where the biggest downside risk is. that is as much a japan story as it is a dollar story. we think that dollar is going to be far more resilient, capable probably of somewhere in between. equities, can be see earnings pick up in asia driven by better reflation? china has no global commodity reflation as well, benefiting america, flowing into equities and also into fx as well. earnings, carried. pick your sector asset carefully for diversification from u.s. assets. dani: john hinted at this earlier, the idea of the dollar ceiling, essentially they said

yesterday that what happens in july, it's too soon to say, ecb policy makers are talking about the idea of one cut or they hang around. what does it do to the dollar? a lot of that strength was predicated on a pausing fed with a cutting cycle for the rest of the world. geoff: and if you look at the reaction function this week, they are far more reactive to whatever happens to the fed rather than the ecb. conversely, i would say the market needs a euro ecb shot right now so i don't think they can afford to wait. not until more data points come through. at some point will need consecutive cuts. i'm looking for them to start in june, pretty much confirmed, july needed as well, far more to the extent that the euro-dollar starts reacting to downside euro data and a dovish ecb. that's not happening right now and it's too asymmetric. annmarie: the yen is in focus

this week as g7 finance ministers meet in italy. are you expecting more language when it comes to foreign-exchange? geoff: yes, but it will be behind the scenes with greater expression of concern that some currency misalignment, without pointing fingers -- fingers, can be distorted. going back to central bank diversions, look at when sweden cut rates, there were sizing issues with the fed as an inhibiting factor. eurozone is sweden's largest trading partner. indonesia, there were expectations on the failed and in america, so from the japanese point of view, if your policy is tightening out of your own needs, there is not much we can do. a bit your own way pointing anchors out of toe go. jonathan: i wonder why secretary ellen care so much and i think about managing currency risk

abroad. is that something that we need to be focused on? geoff: 100%. we are saying to global investors are overweight treasuries right now but cross-border flow into duration is lackluster at best. positive, but not as strong as domestic and it's not just japan. add in all the other asian central banks worried about the importing of inflation. if they need to start to liquidate reserves as a buffer, those reserves in treasuries, do you want, with the fed want that to be happening is they manage their own policy as well? they have had to slow qt, for example, so this is really setting things up in the rest of the world will wait for u.s. elections and to see what the fiscal plan is before making a firmer decision but this will be a medium to longer term theme. fiscal, everyone needs to look at fiscal tightening. the u.k. will need to do better as well, you know, when the next government comes in.

global funding for sovereign debt is the big question. jonathan: are we seeing any signs of that? geoff: the pickup in gold irrespective of u.s. real rates, that correlation is a sign that people want to diversify and want protection not just against the u.s. but global fiscal pressures, that is why the highlight on fiscal tightening has to continue globally and we are waiting to see where the u.s. leads. maybe the rest of the world will follow? oddly enough, i'm less worried about the eurozone and southern countries because of the joint issuance framework, those debt issues are probably another two or three years away, but in the u.s. and u.k. there are other areas with high levels of gdp that they need to look at and global investors are watching carefully. dani: to that point, china sold a record amount of u.s. treasuries across the globe.

building so that private foreign buyers are bigger holders of treasuries. what does it mean for bond market volatility? central banks are not trading in and out. what does it mean for the biggest base to be investors instead? geoff: this is something that madame yellen will want to discuss with her japanese counterpart. how are they executing? slow declines, given the size of treasury auctions, they are absorbedable. we saw this in the early days of pandemic before the fed put in the facilities rather than encourage faced force selling. if there is a lot coming in like the clips were, market estimates of 20, $30 billion in a day, that kind of size on a regular basis will be difficult for the u.s. to handle and it should not be the market base case scenario but we need to consider these things with the treasury market,

going back to the point if you want to be long-term investors where for the state -- sake of stability, are we hearing that on both sides? probably not enough. dani: his restraint even enough? talking about the potential for them to continue, fed had to slow qt because of that. is there an element where they need to stop continue the project of qt if central banks continue selling like they have? geoff: they will be looking at treasury carefully but here's where the u.s. gets a free pass compared to the rest of the world, productivity, another way to grow out of debt where the tech scene is just so far ahead of everyone else right now. looking at the growth breakdown of the oecd, so much dependence on public sector investment rather than private sector

contributions where in the u.s. you have got both sides of it. even though we are worried about u.s. fiscal, the markets are going to be willing to extend confidence in innovation for a long time to, and that is something i'm not russian and right now. jonathan: jeff, you are one of the best, breaking things down. bramo wishes she was here in didn't start the weekend early, that was great stuff. cutting that minimum down payment ratio to 15% for first time buyers, 25 percent for second homes with a previous ratio at 20% to 30%, beijing telling local governments that they can acquire homes at reasonable prices and turn them into affordable housing. dani: that project will take a long time, right? if that is what you are doing. at the same time, this is going to put so much strength -- stress on the banks, compressing compared to mortgages with 13% of that csi. this is a big sector for china

that they are putting under shirt. annmarie: but they have to solve the property market, it has been an absolute pressure on china in terms of recovery and growth, today with a host of individuals from state, local, top officials, banks, discussing what to do and it comes to the property sector. why the urgency right now? they realize they have no choice. jonathan: if you are just joining us, welcome to the program. s&p futures are negative by almost 1%. updating your stories elf -- elsewhere, here is bloomberg brief. >> a social media platforms announcing a partnership with openai and chatgpt software for reddit users to access chatbot feud -- feature letting openai to play -- display reddit content and data access to train systems. the financial terms of the deal were not disclosed.

the sports streaming bundle between disney, fox, and warner bros. discovery has a name, musports with no launch date announced. it's set to combine espn plus and sports programming from all three programming companies linear networks. and we had the lowest round in tga championship history after the first day of the gulf second major of the year. three shots clear of the field at the top of the leaderboard. top of the fifth for scottie scheffler. that is your bloomberg brief. jonathan: thank you. fantastic weekend of sport coming up. it's the final big weekend for the premier league. up next, the chinese playbook under pressure. >> there are signs that china is

exporting its way to her -- to recovery, using the same book to him growth at the expense of others by investing in significant industrial overcapacity. jonathan: heading down to washington, d.c., next, good morning.

jonathan: welcome to the program. dani burger is in the hot seat this morning, bramo taking a long weekend. negative by 0.0 5% this weekend. on the 10 year, 400-3866. under surveillance this morning, the chinese playbook is under pressure. >> a strong u.s. recovery is underway, powered by domestic

consumption and investment. there are signs that china is exporting its way to recovery. china is using the same playbook it has before to power its growth at the expense of others by investing in significant industrial overcapacity and flooding global markets with artificially cheap exports. jonathan: new data out of china showing industrial output rising faster than expected with beijing unveiling a rescue package for propping up the property market, encouraging local governments to buy unsold homes for affordable housing. let's talk about the plan. what is the plan and how big a difference will it make? >> it's their most urgent step by authorities yet and what the world has been waiting for, when will china take a turn on the housing market? they have a series of steps making it easier to get mortgages, bringing down down

payment rates. for instance, on the other hand they are going to give about 40, 40 one billion u.s. dollars to state owned mve's to go out and mop up unsold homes to try to convert them into housing. so it is a sweet of steps to intervene in the housing market. whether or not the actions will necessarily work or how long they take to work, the point is it speaks to its most material step by authorities to try to turn around the housing market with data overnight simply showing that house prices continue to fall, the steepest in a decade, speaking to a new urgency that the authorities are trying to turn around housing. remember, that sector is probably 25% of the overall economy. dani: this is been a problem for years. why this urgency now? >> it's clearly a drag on the

economy, trade export propping it up, speaking to a two speed economy because consumer spending slowed in april 2 its slowest pace since 2022 in the whole time of covid zero and every thing else. so, clearly the housing sector is a drag on the economy, a drag for the authorities, they recognize that and are trying to turn it around. of course it helps them, politically, remember the u.s. and other countries have said china needs to slow domestic demand if they are going to mop up the stuff they are making it home, but you can't have domestic amanda doing well if you're housing market is in a funk. annmarie: paul donovan overnight saying that if growth targets meet production without domestic production, they become more vulnerable in a climate of rising nationalism. he is saying that whether or not these accusations are correct, the fact is the prejudice of

politics is increasing around the world. do you think that if china remains on this track, we will see more tariffs from the u.s. and europe? >> it's not a good look for the rest of the world of china is going gangbusters on exports and trade industrial is doing well at a time when other industrial sectors, like in germany, they are suffering hard, but china isn't taking the necessary or painful steps to get their own consumer up by borrowing spending and getting a consumption up for things that are revved up. it will be a topic in the global forums around the world and it won't be just the u.s., as we have similar concerns being raised by other key industrial nations with certain optics and all of this. on the one hand, china is trying to rev up its own domestic economy and intervene in the housing market that has been in the doldrums for years. on the other hand, they can use this like they did before to say that we are taking steps here

and putting money on the table to turn around households and consumers. dani: but if that comes to fruition, if we see more tariffs coming from europe, if the rest of the world looks at but china is doing and gets concerned, what is the impact to china if we are talking about a two speed recovery led by industrials, how vulnerable is it? >> china is clearly vulnerable to ongoing trade restrictions, export controls, investment restrictions, tariffs and the like, but overall you have to say that the economy and the chinese trade industrial sector has shifted what has been thrown out so far reasonably well or better than expected. the industrial export side of things was recovering even under existing tariffs. there is definitely a channel for china to navigate trade tensions. the question becomes how much

harder and complicated will that the more that these tariffs and restrictions get bound up in chinese goods? there will be a lot of interest in focus right now in how york responds with new clean energy products like these, the tariffs and restrictions they might respond with on chinese goods. here to now, china has been navigating this ok, but the question then becomes what else is coming down the pipe and how long can they withhold against it? jonathan: europe, that's the next big stop, i remember this phrase, who will wait on the other capacity and how do you make the chinese weight their own overcapacity? what are you expecting them to do? >> if you look at the chinese reels -- chinese retail assets, currencies in particular were down sharply. china itself cannot purchase the cars it is producing, europe is

the open market for with mixed signals coming from the industry, from car markers -- carmakers. the european story remains an open book in terms of how it plays out, it isn't unified like the u.s., but right here now you have to say is the best market china has. jonathan: thank you, sir, down and washington, d.c. on the trade front, this is it. europe, front and center. annmarie: they are behind the u.s. and you see the chinese making inroads and jonathan, we have an talking a lot about this, lisa always questioning, what do european auto officials say in public as opposed to behind-the-scenes? the bmw chairman says we should not hit ourselves by doing this. they want access to the chinese market, but how actually concerned are they? jonathan: and it's a struggle i think, to believe them, that

ultimately they want everything open in europe? what will happen if everything is wide open with chinese competition? dani: byd said they would overtake european ev makers by 2030. european officials are aware of this and have talked for a long time about investigating china but china is not doing itself any favors by having the vladimir putin there, it's a tough sell. jonathan: i agree with you. coming up, we catch up with julie norman on the fight in israel over the future of gaza. that conversation is just around the corner. s&p futures are just a little bit negative. down by 0.02%. from new york, this is bloomberg. ♪ just stop calling each other rock stars. and using workday to put finance and h.r. on one platform. tim, you are a rock star. using responsible ai doesn't make you a rock star. it kinda does. you are not rock stars.

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jonathan: friday morning is treading water in the equity market, going nowhere, nasdaq positive by 0.0%, russell going towards for weeks of gains. a four-week winning streak on the s&p 500, the longest going back to early february. yields were higher, higher, then lower, three consecutive weeks on a 10 year. down again by double digits, up a single basis point this friday morning on a two-year going nowhere.

400-7884 on the front end of the yield curve. want to talk about the euro. dani, you mentioned the executive more -- board member of the european central bank saying that based on the current data, rate cuts in july don't seem wanted speaking to the newspaper over there in japan. i wonder if that is to get the hawks on board in june. dani: it could be, but i wonder also if it is and it should not how much we can cut when the fed is. talking about the data coming in, we've had a run on the potential for earlier weakness and if they started the cutting cycle in didn't start cutting until 2025, that is a way for thinking. jonathan: strong thoughts on the topic, don't miss that conversation. it may take more time for -- than expected for inflation to

reach, cooler in the cpi print, adding that it could appropriate to reduce rates the end of the year. annmarie: he's grateful to see it but how many more need to be there to become a trend in inflation? when you look at the incoming economic information, it indicates it will take longer to gain the confidence. john williams, doesn't expect to gain the confidence you. barkan, to get to the 2% in the right kind of way, it take more time. time, patience, hopefully they seem very and hope. dani: at least someone is hopeful, someone needs to be. i still go back to this idea of why isn't the fed reacting the softer data we have seen? take something like cpi, it's capturing everyday people buying milk. whether you are jeff bezos or an everyday person, but it's not capturing is what we have been talking about, the upper class still spending.

they are buying things like assets. that's not in cpi. when you look at cpi and say why isn't the fed moving, that has to be a part of it. jonathan: we talk about this, you used the word softer, language is good. softer not soft, cooling not cool, the distinction is important when you start to see the price indexes rolling into negative territory. dani: bed at the same time if it is just softer and not soft starting a cutting cycle, it invigorates this other cycle of financial easing. they don't want to do that until they are certain. jonathan: after what we saw the back end of last year into this year, equity markets, tying it up. elsewhere out of china, new data showing growth in manufacturing exports. the country announcing new measures to prop up the troubled housing market, slashing the floor on minimum inserts rates and payments and encourage governments to purchase homes. let's go to the key complaint

from the national economic council washington. china using the same strategies as before for significant industrial overcapacity and at the top of the program we looked, what did you get out of china overnight? aced on consumption, it's worse. annmarie: it's going back to china in lockdown phase, spelling that it's really bad when it comes to the consumer in china. this will be a huge story going into next week, the g7 ministers meeting is in italy and the italian minister said the world as we know it is finishing, adding that a trade war is underway for flexing geopolitical tensions. they will be talking about these tariffs. jonathan: the u.s. have made their move, the europeans, can they find actual real consensus and agreement on something like this? dani: you know the answer to that, history suggests the struggle they have in that.

but you're good point, where does this overcapacity go? europeans have a huge problem. annmarie: when you look at the biden administration, they are really going to try to goad them to come along. it's going to be push, push, push, like we saw with sanctions on russia, they will be pushing the europeans do more on china. jonathan: in the middle east, a rift is growing in the israeli war cabinet, the defendant minister pushing for a postwar plan for gaza, benjamin netanyahu yet to announce a path forward despite growing international pleasure -- pressure. saying that in the absence of a plan, the result is a new occupation from israel or a resurgence of hamas as we see in the north gaza strip or even a more radical group. judy joins us now for more. you have written about this. you have thought about it extensively. what extent that's what explains the failure of yahoo! to

articulate an extended plan? he doesn't have one or knows it would not be welcome? judy: this has been a point of tension between the biden administration and an end yahoo! since the start of the war. unwillingness to articulate what the day after plan might look like. some of that is due to the fact that there are not many good options. most in israel do not want the occupation of the gaza strip. no one wants a hamas resurgence. the u.s. has been pushing for a sort of revitalized palestinian authority, the entity that currently governs the west bank, having some kind of role. that is where netanyahu has really pushed back, doesn't want to see the pa have a role, that's been the main sticking point. where there is starting to be more open resentment between netanyahu and other members of the war cabinet. annmarie: how divided is his war cabinet? julie: divided on some

things, but not as much as sometimes it seems. not in yahoo! in the middle is being pulled further to the right by several members of the war cabinet that are much more outspoken about israel taking over gaza with more extreme measures. more moderated in the moderate wing, most of those individuals are not talking about a two state solution, not endorsing the long-term visions showing the bite administration the one the world wants to see, admitting more that they need to have a plan for something in gaza and it need to be articulated by the prime minister sunak, but most are very confident on continuing the war. annmarie: the phone call they had last night was about the progress of the maritime corridor to get or humanitarian aid in. can you give us a sense of the state of affairs and rough? julie: yes, the conditions there

right now are extremely dire going into what might be a major operation. if people remember, in the early months of the war many were encouraged to leave the north and go to the southern city of roff on the kitchen order. this has been the main site for most people displaced, over one million people taking refuge there. now that the operation appears to be underway, israel is encouraging most of those individuals who start evacuating yet again into other parts of gaza. these people have already been displaced once, twice, three times, trying to get to a place that is not only safe from the war but has the humanitarian capacity to accommodate that, which is extremely lacking right now anywhere in gaza. israel, i think, sees rafah as essential, not only for ousting the last for gaetz but to take control of the tunnel network that runs from egypt into the gaza strip. it will be a difficult operation

and it is one that the u.s. and many other partners are wary about the potential success from, what it might look like, the civilian inflation as well. dani: a lot of what u.s. is said and even that yahoo! mentioned this, arab nations need to come together to rebuild gaza, but i'm reminded of the camp david accords, when egypt did not want any part of gaza. is it realistic to believe, that arab nations would come together with a threat intentionally of hamas still there to rebuild gaza? julie: great question and i would say that this is where a lot of the blinken diplomacy has been focused in the past few months, doing all of this crucial diplomacy in the region. remarkably, he's gotten tacit commitments from most arab states in the region that they would support reconstruction in gaza, but it would need to be tied from their perspective some

kind of plan for a palestinian two state solution. then yahoo! is not endorsing them, so it's a question of with these states still commit without that? it's very unlikely, they don't want to see us coming in and writing on the backs of israel, so to speak, after the war, without that kind of guarantee of a move towards statehood. annmarie: given that it's the middle of a humanitarian crisis, what would it look like to have local palestinians involved in government? how did they build up that kind of political force at a moment where many folks are just struggling to find a place that is safe? julie: absolutely, one piece that is missing from a lot of this conversation is local voices, what people want to do, what they are able to do, and the capacity they have to do that. just the conditions make that

kind of organizing governance very difficult. obviously, people are hoping that in a postwar context it could be a bit more viable. i will say that there is a lot of palestinians who are for a more about -- viable state. hamas has had control of gaza for a while, but they are not the only actor that could lead in the future and i think that future is a long time away will take a while to get there after this kind of war. jonathan: people warned of the israeli government directly about these risks in october, that the response could bring lack of loss of support on the international stage. are you seeing that from western governments being a factor on the ground in the decision-making of this government in israel? julie: not so much, actually. netanyahu his perspective has always felt the world is not

support israel in their operations. the main thing that matters for israel is the u.s. and the tensions that have obviously arisen between netanyahu and biden, especially when it gets to tangible, tangible elements like withholding, the brief pause that we saw in the military aid going to israel from the bite this ration over the rafah invasion in particular. only when it gets really down to that role is there a lot of pressure, but really it is more from the u.s. as a key ally. netanyahu has been clear in his statements saying that whatever the world thinks, we will go ahead to do with the world needs to do and that will be our continued mentality. annmarie: closer to the november election difficult of this relationship the? the u.s. and jerusalem? julie: obviously this is not what biden wanted to have an open rift in the party over the war, the increasing rift between

him and then yahoo!. from the bite administration perspective, they were hoping for a cease-fire diplomatic solution, but as that remains elusive this will continue to be a foreign policy issue weighing heavy on biden and complicating his campaign and places like with young people in on college campuses. jonathan: julie, thank you for your perspective this morning. updating stories elsewhere this morning, here is your bloomberg green. hey, yahaira. yahaira: isabel schnabel warned against back-to-back interest rates cuts in june and july, saying that based on current data, the rate cut in july does not seem warranted and we should look carefully at the data, there is a risk of using prematurely. eurozone inflation during the 2% target, ecb officials are in

agreement over initial reproduction next month but have been wary of discussing what would happen beyond that. told jacob anna being sued by a customer because of the nft outfit they spent $6,000 on in the metaverse loss 97 percent of its value. the italian fashion house is accused of mishandling the delivery of the nft as digital outfits showed up 20 days late and the customer said it was only usable in a metaverse platform with barely any users. the english football premier league will come down to the last day of the season. if manchester city beats west ham on sunday they will steal a record fourth consecutive league title, but if they draw or lose and arsenal manages be everton, the title heads to north london for the first time since 2004. the final round of matches kicks off at 11 a.m. turn on sunday. jonathan: never thought i would

do this, not talking about football. go chili national jacob anna being sued over a virtual they spent $6,000 on? annmarie: i don't understand how you can spend money for a luxury good without physically having the good? it's a digital look? jonathan: and then they complain about it? dani: how do you blame don't jacob anna for this? you purchased nft, left holding the bag by everyone else, another fall. jonathan: losing 97% of value? my goodness, ok. up next, the ever patient federal reserve. >> we are committed to holding a restrictive stance for longer, prudent at this point as we gain. jonathan: that conversation, around the corner. this is bloomberg. ♪

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jonathan: equity futures, just about unchanged on the s&p 500, yields are higher on the 10 year work 39. under surveillance this morning, the ever patient federal reserve. >> fomc remains fully committed to returning inflation to the price stability cycle of the long-run health of the labor market, overall economy, and stability of the system. holding a restrictive stance for longer is prudent at this point as we gain clarity on the fast to inflation. -- path to an nation. jonathan: officials maintaining they should hold rates higher for longer as the ecb begins to get ready for cutting next month, saying that they are concerned about the risk of intellectual contagion. risks being asymmetric across the atlantic, europe being red

with american lenses could lead to costly policy mistakes. wonderful perspective. do you see is a real and evident risk in europe? >> yet, as usual, the u.s. market is the dominant market of the world. there might be a sense in europe that diverging too much from the fed and what they are about to do or not to do would actually trigger a further weakening of the currency, in turn triggering more in inflation and making our own progress tools of inflation targets harder to hit. so, there is this contagion that is traditional in policymaking in europe. i would venture that the inflation story in europe is clear that in the u.s., heading down in a more obvious manner. second, when we still have issues with the inflationary

process in europe, it doesn't have anything to do with inflation, it's usually about domestic forces, service inflation in particular. even if we have further depreciation of the euro, in the case of the fat i don't think it would massively change the picture. jonathan: you think that they should deemphasize the importance of the fx channel? gilles: yes, but that was something that was very obvious in the latest units of, of, of the government counsel. they clearly spent quite a bit of time talking about laois and in the u.s., talking about demand for the fed. again, it's obvious the fed is the biggest most important central bank of the world. our inflation story at this point is very, very different. jonathan: based on current data, they said a rate cut of july

doesn't seem warranted. what's your reaction to that communication from a key executive board member? gilles: what's interesting on the positive side or the dovish side, that's usually my, it's that they are already talking about the next cut. the june cut is completely in the back, which during coming from someone like schnabel, who can be a hawk, but you can see how they are already focusing on -- well, we have to be careful, we have to be very patient, very slow in our process. the risk there is that you wind up undershooting your inflation targets. it's not a theoretical issue. the central bank of sweden just had to cut rates without waiting for the ecb or the fed. when you look at their own inflation or cast, already, they already have laois and below 2%

and the latest forecast, it was the same thing for 2026, they are clearly concerned with inflation falling. i understand needing to be prudent and as far as i know, no one is calling for a rate cut in july. alternately, i'm not calling for a rate cut in july or september, it would be fine after june, but it is a sign of the ongoing tension where the debate has shifted from should we or not, that's fine, to how quickly, and the fact that they are already warning against a july cut. this already reflected an internal tension on the council. dani: i can't even understand what the point of cutting in june is, what difference does it make if you do it and then you cause for a while? we are talking about 25 basis points, only a few months apart. why is this such a vigorous debate? gilles: i think because

the important inflection point in your stance, as the ecb has continued hiking since the fed stopped a few months before. there is a lot of symbolic policy focus around the inflection point. when do you stop cutting? everyone knows that once you started cutting, that's the beginning and it can make july or september -- it doesn't matter, you are on trend. so, the biggest fight was -- should we cut it all? that is completely in the bag. now we are talking about the new trajectory. i think that it is actually less problematic, the entire market, we know, a bit of time. dani: is it the same this time

around? this isn't a classic cutting cycle. it's not a recession the ecb needs to get somewhere in a hurry. as you say, they can take their time. this is a midcycle tweak. can we look at it the same way? is this as big of an inflection point as it usually is when a central bank cards cut? gilles: i think it is still, it really still matters, because precisely with this issue of divergence with the fed, in the market there is a very strongly held belief that usually it is the fed that sets the tone. from a symbolic -- more than symbolic -- from policy continuity the ecb would in june take the risk of diverging from the fed, making a decision for itself without necessarily waiting for what happens. it's a strong signal that indeed, monetary policy in

europe has been decided based on inflationary prices in europe and we cannot entirely more whatever comes from that channel , with 90% of our decision-making needing to be based on mastic development. so, i read with you, there is no recession made to deal with at this moment, but ecb needs to send a clear message to the rest of the world, really, into public opinion in europe where we make our decisions based on what's good for europe. the fact that the fed is facing current difficulties with a less clear disk -- disinflationary process should not stop the ecb from making the right decisions. jonathan: as always, sir, great to catch up, there, on the aspect of intellectual contagion and the risk of viewing europe with american lenses. dani: i mean that is exactly what the market is doing. when the dollar finally came down after cpi, they said now

the ecb, now the u.k., now they have more room to cut. i get that you don't want the intellectual contagion, but the currency markets matter. the ecb talks about it. you can say that the picture is different, but they are impacted by the u.s. annmarie: the fed dominates and leads the path but the disinflation story is just not they are the same way it is in europe, so europe needs to work internally in an idiosyncratic way. jonathan: it's not the start point, june potentially, does it shake and the limits of how far they can go? dani: i think we might hear more language like saying that we could cut now but we need to wait because the fed has cut their cycle? jonathan: second hour of "surveillance," coming up left. -- next. from new york city, this is bloomberg. ♪

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>> the fats in historically has been to sit on your hands and don't do anything until you're forced to move. >> do we have to be right at 2% for them to feel like they achieved what needs to be achieved? >> they don't need to percent, they told us they need to see it moving down towards 2%. >> a bumpy ride lower in inflation. >> a trajectory towards a more

normal inflation environment. >> this is bloomberg surveillance with jonathan ferro, lisa abramowicz, and annmarie hordern. jonathan: my from new york city, good morning. the s&p 500 just about unchanged. looking for four weeks of gains. the opening bell is a few hours away. we said there are a few ways to look at the u.s. consumer. you can talk to bank executives, look at the economic data, or listen to retailers. this came from walmart. we are seeing customers trade into walmart. how you and come earners going to walmart. we heard this from starbucks. we feel the consumer. even mcdonald's, consumers have been discriminating and how they spend. referred this from company after company. annmarie: this matches up with consumer sentiment. mohamed el-erian talked about the transitory camp missed in 2020 one, they weren't on the earnings call, not listening to

ceos, you see inflationary pressures. no on the earnings call you can see that the consumer is having some of these issues keeping up with that pace. dani: the walmart point is important. talking about starbucks and mcdonald's, this is the lower end consumer. walmart is talking about middle to upper starting to trade down. maybe the upper echelons are still spending and are ok, but the income earning class as a whole feeling the pain, that is enough to see disinflation. jonathan: how does that commentary stack up with the economic data and what we are hearing from bank executives? dani: retail sales started to slow down. the banking execs, credit card spending looks good. jamie dimon is talking about yesterday with francine some of his concerns, but in the last earnings he said the consumer is still good. there is a mismatch. it's nonlinear and i think that is confusing people. annmarie: we are seeing credit

card delinquencies and more people have to pick up a second job to pay for all of their bills and everything they want to buy. maybe the consumer is buying more, but how are they getting to that point? you can see there is pressure on the consumer. jonathan: that is what the white house going into the election in november. let's start with the scores. equity futures on the s&p 500 are just about unchanged. going towards the weekend looking for four weeks of gain. the yields are higher by single basis point on the session on the week, down by double digits on the 10-year. foreign-exchange, the dollar showing a bit of strength, the euro some weakness on that currency pair. 1.0839. we will catch up with alpha simplex on the two views polarizing markets. mandeep singh with apple on track for its best month in over a month, and bank of america with a contrarian view on the state of the u.s. consumer. we begin with our top story. stocks are on pause with markets

at a crossroad. "the market seems to be polarized between two views, bullish view on equities and growth versus worry over sticky inflation and higher for longer. as a result trend signals with long equities with short fixed income, long dollar, and long commodities." let's break it down into its individual parts starting with the bond market. last time you said that there were more reasons to be sure. what happened in between conversations? katie: we have seen a pullback this month based on inflation coming not as hot as people might have been worried about. i think that we are getting closer to a point where we might actually see cuts this year. we know that the fed wants to cut. the trend has been confusing. bonds are trading more like equities. vol is high and bonds are down. i think that the big question will be who wins? the inflation narrative staying

longer or equities are right and we can smooth into rate cuts this year? so far, signals are still short in fixed income. look at the long-term trend. it is still there despite the recent pullback. jonathan: help us go through your position for bonds versus commodities, and let's throw in foreign-exchange too. katy: what you see is the short bond signals really tell you higher for longer. you're also seeing in the commodity markets, and that is the thing that we are watching the most, massive moves in commodities this year. commodity indices are up over 10%. precious metals, copper in particular has been up tremendously lately. these are signs not talking about the consumer about talking about prices of raw goods. i think that you're seeing that mixed picture, where crossasset themes suggest higher for longer and it will take longer to get

over the inflation issue and get inflation down then people would like. it is fascinating that the ecb might cut first. in some sense that will be a good proof point to see what happens when someone actually starts -- when a large economy like the ecb starts cutting. dani: what are you looking for? what are the risks and potential takeaways from the reaction of the bond market to the ecb that you can apply to the u.s.? katy: if you look at inflation data, it looks steadier in the euro zone. eurozone has definitely seen more restrictive effects of policy. like your previous guest said, more position to have to deal with that issue. the u.s. is more confusing, because the data is more mixed. it will be interesting to see how the market actually reacts. if indeed we do see a pop up in inflation, your upside risk in the eurozone, it is really going to get interesting this summer. there are a lot of things that

can cause markets to be very trendy but also very volatile as we try to navigate this pivot. dani: we have had huge amounts of volatility. bond volatility is something like 50% above the pre-2020 two level. that is great for you and the team at alpha simplex to trade in and out of bonds, but what about the rest of investors who view bonds as something that you buy and hold? how does it change things when you see this market that is known for being more volatile in some cases more than equities and fx? katy: this is a good point and i think that is the biggest and most important thing for investors to take home. when you're thinking about bonds as a risk off asset, a risk-free safe haven asset, that is not the case in an environment when inflation comes into play. in fact, bond-stock correlation has been positive for some time. bond volatility is higher. bonds trade more like equities.

this means that investors need to look around and find things that actually like inflation and like this type of environment that actually complement their portfolios. you just don't have that flight to safety asset in the traditional sense when we think about stocks going down. we think about bonds being there has our ballast. when we are dealing with inflation that ballast is not as good. dani: are there strategies going forward should cease to exist that investor shouldn't be looking into anymore? thinking of the 60-40's? is this it? katy: they are still there as an important tool in your portfolio, but your portfolio is incomplete. you have to think about what assets will benefit from changes in inflation, things like commodity exposure, like assets that have -- real estate, for example. diversifying your portfolio to

be aware of the potential volatilities of fixed cash flows in an inflation environment. jonathan: you said the risk mitigation characteristics required depends on what you think the dominant risk actually is. the market seems to be polarized between two views, bullish on equities and growth versus sticky inflation and higher for longer. what are the two ballasts that you need to account for the two risks given how polarized they are at the moment? katy: this is a good point. usually we just worry about recession, about equities going down. right now, we have to worry about the impact of inflation and that is precisely the risk that you saw manifest in april. i know that we have forgotten about it after last week, this week's big rally, but the key risk that we are facing is more than inflation. it is really causing stress in our system. thus, a risk or investors is very different from a pre-covid-type of risk where we are thinking about how inflation will affect all of the assets

that we hold and cause diversions across both monetary policy and across regions geographically. jonathan: this takes us to the commodity market, it is a broad place, broad space. what would you pick out in the commodity market, ace metals, precious metals, fossil fuels? -- base metals, precious metals, fossil fuels? katy: copper, cocoa, commodities that have moved. the index of over 11%. you are also seeing the most interesting trend to start watching, the one sector that has been disinflationary this year to date has been agriculturals. you have seen corn, wheat, and soy, many agricultural products pivoting for the first time as we are talking about cuts. to me, that's very interesting. watch energy, it has continued to move up as well. all of these things are definitely putting a headwind against this inflation narrative

and they will make it more tricky this summer. annmarie: you didn't mention gold. it continues to rise but there are many reasons that some strategists say it will continue along this trajectory. what do you make about gold assent? katy: gold is seen as a safe haven investment for inflation. what was interesting to me is to watch the tremendous acceleration in gold around the time that people started to get re-concerned about inflation, particularly april. or interesting is that it has continued into may. it seems in some sense that people are thinking about gold as their safe haven asset instead of bonds given the volatility and risk off properties dissipating in those assets. i think that gold is something to watch as a barometer of how people feel about the realities of inflation. jonathan: thank you. katy kaminski on a range of issues and echoing the risk around central bank reserves

shifting from treasuries towards goal. dani: what is interesting is one that it could cause more bond market volatility to tie the two things that she was talking about, central banks won't be mass sellers, and jamie dimon sort of got at this yesterday, the idea what bank regulation is doing to the bond market. if they cannot hold bonds on their balance sheets en mass, what happens when there are a lot of sellers? it feeds into the idea that bond market volatility is ratcheted up a level. jonathan: a great conversation with francine yesterday and the jp morgan ceo. there is a line that stands out. there are a lot of inflationary forces in front of us. the economy, re-militarization, trade disputes, large fiscal deficits. it is something that mohammed said repeatedly. annmarie: it is about fiscal spending out of the united states and other places, but mostly the u.s. which is why we

have seen u.s. exceptionalism and why potentially jamie dimon is saying that those forces will remain. whether or not you get a red or blue white house, you will see more fiscal spending out of washington. jonathan: mohamed el-erian is joining us in 48 minutes. equity futures on the s&p are just about unchanged. it is a calm friday morning so far. here is your bloomberg brief. >> ecb executive board member warning against the back to back rate cuts in june and july. she said based on current data a rate -- rate cut in july doesn't seem warranted. we should look carefully at the data because there's a risk of easing prematurely. as euros -- as eurozone inflation meets the 2% target, they have been wary of discussing what will happen beyond that. china announced its most forceful attempts yet to stabilize its property sector.

chinese authorities unveiled new measures, including scrapping its nationwide minimum mortgage rate and cutting the amount that homebuyers need for a deposit. it is encouraging local authorities to buy unsold homes from developers and turn them into afford will housing. the significant move showing an urgency by policymakers after data showed home prices in april reported the steepest month on month drop in a decade. a deadly storm in texas has killed at least four people and left more than 800,000 without power. intense rainfall and heavy wind barreled through the houston area on thursday, blowing out windows on skyscrapers in the center of the city. the storm hit just as the grid again warned of a potential power emergency. houston is under a flood warning through tuesday with more rain expected over the weekend. that is your bloomberg brief. jonathan: thinking of everyone in the affected areas this morning for sure. more from mohamed el-erian in 30

minutes. ai optimism fueling gains. >> are about to enter an incredible new world, the world of artificial intelligence. we will see incredible new ways to run our businesses. jonathan: we will talk about those new ways next on the program. from new york, good morning. ♪ tamra, izzy, and emma... they respond to emails with phone calls... and they don't 'circle back', they're already there.

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with rates from $199 per person per night. visit sandals.com or call 1-800-sandals jonathan: equity futures on the s&p unchanged. as i have said, light on economic data throughout the day. into the weekend, lots of fed speak. powell over the weekend, a commencement speech. you have to be a committed fed water to watch a commencement speech, but it is georgetown law. pretend you have a student there. i don't know. drop by. i am watching football.

i am not watching that, are you kidding me? dani: i think you are safe. jonathan: far more interested in the final week of football. yields up by two basis points on the 10-year. under surveillance this morning, ai optimism fueling gains. >> right now, we are about to enter an incredible new world, the world of artificial intelligence and how it will transform these customer relationships. i think we are about to see some technology that we never thought we'd see in our lifetimes. we will see incredible new ways to run our businesses. jonathan: apple shares on pays for their best month in over a year. the latest leg in the rally coming after a bloomberg report that the company is closing in on a deal with openai to use chatgpt in the new iphone. mandeep singh of bloomberg intelligence has been focused on this for a while. how real is this offering?

mandeep: you look at what android is offering, they have so many on device ai features that when i look at the next six months they will make a lot of progress in terms of android offering new features that apple doesn't have. in this case, apple has two choices. continue to rely on google to give them the features or partner with openai. i think in this case they will do both. the 25 billion dollars from google every year for them to be the default. and openai kind of gives them the variety that they could deploy for certain types of features on their phone. not for everything. they still have to rely on google for maps and the traditional search, but for certain generative ai features, openai is a good bet. jonathan: how much innovation do you need from the old iphone to the new iphone to carry this kind of technology? mandeep: what apple has going for them for the last 10 years

is that they vertically integrate. they own the chip. they can add as many features as they want at the chip level. they own the operating system. that vertical integration will come in handy to incorporate openai or whatever features. i don't think they have anything homegrown, which is the problem that apple has when it comes to generative ai, but they can innovate at the chip level, which is what the market is hoping for. annmarie: tim cook said that they would have an edge in ai, but if they don't have anything homegrown, where do they get the edge? mandeep: apple is secretive about everything that they do, but if you don't have your own large language model, what are you going to show at w w d.c.? to me, there is some surprises in store, but we know that they don't have their own large language model, furtive -- that's comparative to openai and gemini. that is something that is a concern that you have to rely on these companies for those features. dani: but who isn't trying to

ink a deal with chatgpt? is it an edge or if you don't have a deal with chatgpt or something similar, some ai, you are behind? mandeep: and read -- reddit, openai needs their data more than reddit needing chatgpt. even google relies on reddit's data. these models have to be constantly trained every two months because that is how you make the model current. the best source of data is reddit data and twitter data, all of these forums that are there. these large language models, the intelligence comes from these large data sets out there. jonathan: have they given up on siri? mandeep: part of the openai deal, and this is just speculation, is aimed at improving siri. what google has shown is that you can have an assistant without having to toggle to the apps. right now on android, you don't need to toggle through the app

to go to their voice assistant. it is there all the time. it is contextually there. that is a big enhancement at the operating system level. with siri, they need to do something similar in terms of voice features that you don't have to toggle through the app all the time. can ask siri a question because it is available all the time. jonathan: we joke that our phone is listening to us. i am dead serious, i know it is. in the future you say it is going to and be open and honest about it? mandeep: it has to because that is how you drive productivity. if you have to copy and paste the pdf or open the app every time it's not going to be fun using it. it has to be listing all the time with the hope that they are privacy conscious, which apple is and they have proven that over the years, but clearly it is listening all the time. dani: especially on instagram and adds come to you on a brand you're talking to your friends about. jonathan: conspiracy theories, they say, but i stand by it and

am convinced there listening to us. annmarie: i have lived it. i'm not convinced, i have lived it. chatgpt, they will go on an operating system. can you use your old phone and the new operating system or will they push new iphones? mandeep: one thing we realized with generative ai is that it consumes a lot of power. the older processors, at the server level or at the pc or smartphone level, are not good enough to run the kinds of workloads that chatgpt runs on. clearly, it is -- you can hope that it drives a big hardware refresh cycle, but it comes down to the features that you're offering and whether it is worthy of an upgrade. we haven't seen that from apple yet. the wwdc is a big catalyst. if people are disappointed you will see a reaction at the stock level. dani: maybe we get an upgrade cycle and are excited about

whatever ai features, but what about emerging markets and lower in consumers who are concerned about prices? presumably the next models will be expensive? how does apple solve that problem? mandeep: they have the brand that they can get extra dollars when it comes to the purchase that everyone wants to have the luxurious purchase. the china factor they downplayed in their last earnings. when you look at the cell in the --ssell in and sell through, they're not selling as much phone. dani: are investors having the wool pulled over their eyes on ai and ignoring a week china story? mandeep: you have to remember the $110 billion buyback, almost 3% of their market cap. when you come out with that

capital allocation, which they have been great at, the market reacted positively, but it has to be at the top line level for a market to be convinced that this is sustainable. that is what i fear with apple. they had a decent quarter, but there's nothing out there that shows that they can revive topline growth right now. jonathan: are they using some of that money to hire a new ad agency? did you see samsung's clap back? it's pretty decent. mandeep: samsung built on android, look at the features right now for android phones. this is the first time that i can remember where i am on the cusp of switching to an android phone simply because they are offering features that ios doesn't have. jonathan: mandeep singh a bloomberg intelligence looking ahead to what we can expect from the new apple iphone and next week nvidia around the corner. the big earnings report, the quarter that we seemingly have to wait weeks for. they need to bring that forward. dani: do know why it's perfect?

we are getting this lull in data and nvidia has become a macro event. you don't check the stock market you check the price of nvidia. jonathan: every morning alongside the treasury market, apparently. in a moment, credit spreads exceptionally tight in high yield. is it justified? megan might give you reasons why she thinks it is. equity futures going nowhere. the yields are just about unchanged, higher by two basis points in and around 4.40. 4.3983. from new york city, this is bloomberg. ♪ it's a pillow with a speaker in it! that's right craig. a team that's highly competent. i'm just here for the internets. at&t it's super-fast. reliable. you locked us out?! arrggghh! ahhhh! solution-oriented.

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jonathan: taking us into this, widely reported this morning, espn saying this. the world number one golfer scottie scheffler detained by police in handcuffs after a misunderstanding with traffic flow led to his attempt to try to drive past a police officer going into the golf club to get ready for second round. the police officer attempted to attach himself to scheffler's car and he stopped before the entrance of the car. the officer screamed at scheffler to get out of the car. when he exited the car the officer immediately placed him in handcuffs. that is the latest on the world's number one golfer on one

of the major tournaments this year. dani: his tee off time is in a little over an hour. that will be hard after something like that. annmarie: he needs time to stretch. jonathan: no verification from bloomberg and i can't imagine anyone is working on the story , but if we hear more we will share it. equity futures on the s&p are going nowhere. on the nasdaq with positive by 0.1%. on the russell going nowhere also. four weeks of gains across the s&p, the nasdaq, and the russell. the two-year, 10-year, 30-year, yields higher on the long end of the curve. on the session up by two or three basis points on a 30-year at 4.5387. we are down on the week on the two-year and 10-year. foreign-exchange, i want to talk about the euro. 1.084 one, negative on the euro by .25%. the executive board member in an

interview suggesting that june we are ready to go but july i don't think so. we had pushback. about 40 minutes ago basically saying that we should deemphasize the importance of the fx channel as a factor in the decision around interest rates and the future of inflation in the euro zone. dani: he said i don't know if july is viable. maybe they cut in june and wait until september. saying that the important thing is when they started the cycle. that was an important psychological shift. to your point, because inflation is more contained in europe, but again, i don't know if i'm buying the idea that they are going slow because they need to. part of it must be the fx transition channel because it's important, we know it is. she is saying this because she is thinking it too. jonathan: it is a question for christine lagarde in a few weeks time. under surveillance this morning, after a turbulent start the boeing shareholder meeting taking place at 11:00 a.m. eastern. the new search for a ceo is the

focus following dave calhoun's decision to step down at the end of the year. we have a name? annmarie: they are on the search. this also with calhoun can remain on the board. there is pushback from shareholders that maybe he should just go. potentially boeing will want this to be a nonevent, but it might be. this is about whether or not he will remain part of the company in a broader way and stay on the board. dani: there is irony, will it be larry cole pulled? he was a gl alumni. we have had four past boeing people that have been ge alumni's. we want someone internally? no, because of the mess. what if you get someone externally? this is an insane learning curve for someone new to come in. do shareholders have the appetite for a veteran and boeing? jonathan: the conversation yesterday with george ferguson of bloomberg intelligence was concerning. george told us that he thought that the regulator can only do so much because they were in

such a unique position as boeing that almost alluding to the idea that some people have, maybe you want to call it a conspiracy theory. i think that people would take it as it is. this is such a unique company that you can't push them to the brink of collapse. annmarie: it is fact in the sense that boeing is too big and too important to fail. they don't make airplanes for people to fly on vacations too, they are part of the u.s. industrial complex which is why this is so challenging for regulators. jonathan: the biden administration accepting an offer from cbs for a vice presidential debate ahead of november's election. political reporting the debate will take place in july or august with kamala harris facing off against who? we don't have a vp candidate from donald trump's side. annmarie: we don't, but the rnc will commence that week. two months is the countdown for trump to decide on his vp pick. the washington post analysis has an x and y axis.

more likely and less likely to help the ticket. more likely, less maga nikki haley on top. more maga less likely to help the ticket, marjorie taylor greene. ,it has a range of people to potentially show what trump is thinking. j.d. vance lands is somewhere in between all of that. more maga, less likely to help the ticket, but not as far to the right is marjorie taylor greene. jonathan: do we get his decision? annmarie: he has to have a decision before the republican national convention. in two months we will likely know. you see what he is doing. we heard from kevin mccarthy who he thought that it could be. tim scott, the north dakota governor who has a lot of cash and the donors like him, doesn't outshine the former president, a lot of names floating around. jonathan: how would scott feel if it was nikki haley after scott has behaved towards nikki haley? annmarie: he would feel like, i

am from the same state and i have been behind you the second that i dropped out. but if he were to choose nikki haley, this would encompass the entire republican party, some think. this would be a huge win for donors. jonathan: it has been a week of kissing the ring in downtown new york. that is exactly what has been happening. everyone is coming to washington to bow down in front of the emperor to say, can it be me? annmarie: so many republicans have been in new york that they almost lost control of their majority on the floor. jonathan: this is a true story? annmarie: yes. jonathan: ridiculous. fed officials embracing the higher for longer narrative in no rush to cut rates. fed chair jay powell capping things off, giving a commencement speech at georgetown law on sunday. the head of u.s. credit strategy at bnp paribas joins us. it is good to see you. fed speak and then these tight credit spreads and then talk

about how justified they are. has the song changed for you that we are hearing fed officials sing? meghan: our base case is the first cut in december. what we have learned this week is that markets went a little too far in terms of pricing in risks of a hotter inflation outcome. as you saw with cpi just getting something in-line line was enough to see a lot of relief in markets, a rally in credit included. from here it could be this benign environment where you have a fed reaction function that we think is more dovish. some relief on the inflation front. that is constructive for credit into the summer. jonathan: spreads are tight, tighter this year, high yield something like 300 basis points. how justified is that? meghan: there is scope to grind into the summer. there are a few drivers. one is that there is progress on inflation, dovish fed speak puts us in a place we don't have to worry about the mini rate scares

like we saw in april. that is a key driver of that. dani: are you being fairly compensated for the risks you are taking if the spread is at a 2.5 year tightness? meghan: in the summer supply slows. you have the seasonally supportive backdrop we're on a technical basis low supply should be positive. the other factor to consider is that investor positioning was very long. our positioning indicator max long into april. we saw de-risking events which means that investors have capacity to add a little bit to risk, and we can see spreads continue to grind. dani: that's incredible with the demand that we seen this year, and that continuing. i wonder, you talked about an accommodative fed. during covid we saw the fed stepped into credit markets and be a balance when there was an issue. does this market believe that the fed will and may do that again if we do see a huge rise in credit spreads?

something that looks alarming? that the fed has a backstop in the market? meghan: the fed put is still alive and well in people's minds, but we are a ways away from that type of scenario. in our minds, the more credible risk, credible bear case would be a re-acceleration inflation. that is a higher probability case. last week, we were talking about rate hikes and the potential for rate hikes. seeing a severe growth slowed down i think is something that is further down the horizon potential risk. jonathan: you have been looking at -- what does that tell you about financial needs? meghan: the survey is still in tightening territory, level of 16. relative to a year ago it has come down a lot. we have seen a lot of stability. we were at a level of over 50. from a tightening standpoint, yes, lending conditions are tight but improving. the second piece that we found interesting in the survey is demand. demand from corporate's for

loans continues to decline. it goes along with the theme of deleveraging where a higher cost of capital is starting to have an impact on these types of decisions. jonathan: is it possible they are meeting needs from other sources of finance? meghan: i think that free cash flow, there are areas of free cash flow and the balance between the cost of debt and the cost of equity. the cost of equity can be more attractive and cost of debt is the highest that it's been in relation for 15 years. in our view, you will continue to see companies that can deleverage, they will. places like that, investment grade, triple b's, some of the noncyclical sectors with free cash flow like health care telecom, are in a good position to do that. jonathan: who is in a good position given that the fed might be on hold? meghan: there are parts of the market that we are worried

about. despite the fact that spreads are tight we have seen a rise in the distressed ratio. that is unusual to see an elevated share of bonds trading over 1000 basis points. triple c's, lower quality loans, places where it is still a question mark. can these places get financing needs and will they be able to? later this year we will see the maturity wall for 2026 coming into view. companies are looking a year ahead, so i think that we are out of the woods for the next few months, but at the end of the year it could come back into risk. dani: do we have a view on some of the nontransparent loans? the floating rate loans? the ones from private markets? do we have an idea we are talking about higher for longer, they couldn't refinance at a lower rate if they have floating rates. are they safe? what is the maturity wall looking like for them? meghan: the biggest risk we are watching aside from maturity walls, a lot have been in extended out. for us the risk is a cash flow issue. you have seen interest costs

double for many of those issuers. we have been surprised by the resiliency of that market. given that private equity has had a role, some companies have been given help, there are a lot of distressed exchanges that felt to extend the runway. those are places where there is definitely risk in the system. jonathan: things are getting better not worse in credit, which is a good thing. let's hope that it stays that way. equity futures at the moment, just about positive on the s&p 500. an update on stories elsewhere, here is yahaira jacquez. yahaira: a u.s. judge has ordered a secret indian option strategy alleging that two former traders took to their new jobs at millennium management. it is facing a deadline next week to provide specifics about the information that it alleges was stolen. millennium and the two ex traders claim it is in bad faith.

the price of nickel jumped the most in a month on continued unrest in new caledonia. the french territory was the third largest supplier last year. violent protests have rocked the area over a change in voting rules. nickel is a key medal for electric vehicles and the surge boosted other base metals like aluminum and copper. shares on the rise. the swiss watch and jewelry maker that owns cartier beat analyst estimates. the company pointing to a new ceo, a three-decade veteran and head of the fast-growing brand will take over as ceo on june 1. he will continue to report to the chairman. that is your bloomberg brief. jonathan: more in about 30 minutes. it is on brand and esoteric. a secret indian option strategy at jane street. dani: the irony is excellent. we are going to sue these two traders because they still our

secrets. the judge says, tell us what those secrets are. jonathan: a fantastic story. threats emerging in the u.s. consumer. >> it feels like the consumer feels a little stretched. we are watching the lower income consumer more so than the broader economy. jonathan: that is next. this is bloomberg. ♪

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jonathan: equities right now on the s&p 500 are just about unchanged. we are going nowhere -- we are going somewhere, just not very far. another week of gains in-store on the s&p 500. so far through thursday heading towards a fourth week of gains. yields declining on the week up by two basis points on a

10-year. 4.3964. under surveillance, cracks emerging in the u.s. consumer. >> it does feel like the consumer feels a little bit stretched, but of course we are watching the lower income consumer more so than the broader economy. keep in mind that both the labor market and the consumer started from a position of strength. when we think about cooling, it is cooling from a very strong place. jonathan: traders are assessing the effects of a higher for longer rate environment on the u.s. consumer. bank of america writing, low income spending has generally outpaced higher income spending on a year-over-year basis since early 2023, even excluding the subsidies this is consistent with the strength in blue-collar wage growth since the start of the pandemic. the low, sir. this is not consistent with what everyone is telling us around this table. what gives? >> that is what we are seeing in our internal data. that on a year-over-year data

lower income spending is out facing -- outpacing higher income spending. we understand it lower income folks spend more on necessities, but even if you take those out you get the same result. there are a couple of reasons. you can argue that maybe we are not seeing cash transactions and that is why this is the case. we are only sing cash transactions. we are only sing card transactions. another possible explanation is that lower income folks are seeing the fastest wage growth that they have seen since the start of the pandemic and also seeing the fastest job growth. income is the first order driver of consumer spending. while there are stresses on the spending side for lower income folks, obviously, the income growth they have seen have offset, and our view, a lot of the pain from inflation. jonathan: what explains income and not leverage? aditya: we think income is the first order driver of spending and balance sheets are

second-order. you do see some issues with credit card delinquencies according to the public data from the new york fed. delinquencies are the highest and fastest rising amongst lower income households, and those households are the most likely to be maxed out on their cards. the way that we think about it is, as long as the labor market holds up this group will be fine in aggregate. of course there will be struggles for certain households, but as a cohort this group will probably be fine. if the labor market cracks, delinquency issues could make this group more sensitive to a potential downgrade. dani: why do we have starbucks, mcdonald's, all of these companies saying that the lower income consumer isn't spending as much? that they are or price-sensitive? what accounts for the mismatch? aditya: it isn't entirely inconsistent with the public data. those two names would fall

under food services. food service was down 2.7% on an annualized basis in the first quarter, but it's only 6% of consumer spending. as a whole it is holding up. that's not enough to make a dent.more broadly, you think about markets versus macro, and the names that are represented in markets that get the most attention typically don't account for a huge share of overall spending. annmarie: looking at the data for late credit card payments, especially 18 to 30-year-olds, has the u.s. economy become buy now pay later? aditya: inaditya: terms of buy now pay later, we don't have a ton of visibility. our understanding is that it doesn't get reported in the official debt statistics, but it is probably still very small and not moving the needle on macro yet. annmarie: there is another subset in jobs, the fact that more people are now having to pick up multiple jobs to pay for their bills. is it potentially at the lower end consumer, they are able to spend more but they are having to have an extra job to do so? aditya: you are assuming they

are picking up multiple jobs because they have to pay their bills rather than we have moved more into a gig economy typesetting. that could be the other explanation. they are picking up more jobs because they have more flexibility. jonathan: some of the numbers coming out of the bank of america institute. it backs up what you are talking about. if you missed this last week the numbers are staggering, on the verge of being unbelievable, but they are what they are. lower income balances were 67% higher than the 2019 average at the end of april. middle income, 50 8% higher. higher income households, 45% higher. together with what you're telling us come you say there more resilience in the economy the prospect for a deep economic downturn is not great? aditya: are these numbers unbelievable? jonathan: it is staggering to see those numbers. aditya: consumer spending in february and march are the two strongest months.

i'm talking about on an inflation-adjusted basis. amongst the two strongest months in a couple of years, actually. they will be revised down after retail sales, but the broad picture is that spending actually looks fine. the last couple of quarters there has been talk of stagflation, but we don't buy it. for us, services spending is accelerating even though services prices are quite elevated, inflation is elevated. it looks like if anything services demand is driving spending. we could be in the last stage of rotation from goods to services after the pandemic. jonathan: you wouldn't put much weight on the retail sales number this week? aditya: the revisions were not great. the number in itself was not a concern. a lot of the weakness was driven by some bureau syncretic moves. there was a big promotional event in march, so that spiked and spending levels re-normalized. if you take out that component,

it looks fine. dani: what most people say, you have a lower end consumer not doing well, maybe that is creeping into middle markets too? that means inflation is slowing and the fed will be able to cut this year. are you saying if we aren't seeing that slow down, if it is a strong lower income consumer, we need to start thinking differently about what the fed does this year? aditya: our view is the fed starts cutting in december, but the risks are delayed. in part because services inflation is holding up well. there is no reason right now for the fed to cut. look at the last inflation print, markets really liked it. we think that it translates to 23 basis points on the core pce, much better than the last months, but that still annualize us to 2.8%. we are not actually decelerating on a year-over-year basis. there is still more work to be done. with services demand holding up, there is no reason for the fed to start.

dani: you are describing an environment where inflation could come back if spending is still a strong as it is. why are you convinced that december will be a cut and the next move on to be a hike? aditya: chair powell has done a lot of work to keep hikes off the table. we think that the fed doesn't want the hike and would prefer to stay on hold for as long as they need. in terms of the first cut, i think that the story would have to be that the mix of inflation is improving. if housing inflation moves down, that is a lagging variable, but if that moves down the fed will feel better and probably more confident. annmarie: if the consumer is holding up, especially in your data low income consumers, why do people feel like the economy is not doing well? aditya: there is a difference between price levels and inflation. inflation has cooled off but price levels are way above people are used to seeing. even if folks are seeing wage growth to offset those higher prices, it is still a mental exercise that people don't like to do. why are prices so much higher?

why does lunch around midtown manhattan cost $20? jonathan: why does it cost $20? aditya: because prices are up above the board. the price hasn't changed that months in the last 12 months. it is now flattening out. jonathan: it is just not coming back down? aditya: it is probably not coming back down and the fed does not target deflation. jonathan: just going through the data, which seems to go against the widely held sentiment at the moment. dani: it goes against the sentiment because it goes against some of the data but it gets back to the idea of how reliable is the data we are looking at? cpi, owners rent coming down, this isn't a real price. this isn't something that people actually pay. maybe we need to pay attention to the kind of data that we've been talking about, credit card data, to get an actual sense of what is happening in the economy. annmarie: this is consistent

with the strength of the blue-collar wage growth since the start of the pandemic. this isn't showing up in the polls. this is what the biden administration wants to see and would love for people to feel. maybe the data is there but the emotion is not. jonathan: looking forward to the first debate in the next month or so if it happens. i assume it's going to happen. annmarie: they say it's happening. jonathan: let's see if they can agree on the rules. the lineup, muhammad ali area in of queens college cambridge is joining us for the next one hour or so. we will catch up with nvidia earnings next week, and we will speak to seth carpenter of morgan stanley. from new york city with equity futures on the s&p 500 just about positive, the yields at the longer end of the curve higher by two basis points, the yield at about 4.39, and of the dollar showing strength against the euro at 1.0 845. ♪

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>> when you are facing a momentum market, to say that momentum is going to stop on a

dime is a very difficult call. >> one of the forces propelling the stock market higher is the productivity story. >> you have more laborforce engagement. you have the support from the labor market. >> the labor market and consumer started from a position of strength. when we think about cooling, it is cooling from a strong base. >> when we see the data it is slowing. it is cooling but not cool. we don't expect things to fall off a cliff right now. >> this is bloomberg with jonathan ferro, lisa abramowicz, and annmarie hordern. jonathan: bramo have the right idea to start the weekend early. good morning, good morning. the third hour bloomberg surveillance begins now. s&p 500 futures just about positive as we head towards four weeks of gains on the s&p 500 on the nasdaq and russell as well. we begin without big issue. is it all just happy talk? >> u.s. economy is chugging along pretty well. >> there are thousand things

that can go wrong tomorrow. right now it is in pretty good shape. >> in six months, how much slowdown we see in the bottom quartile, we have to watch the data closely. >> i think the chance of something going wrong is higher than people think. >> we are in an unusual time so adjustments are taking place and going through the economy >> there are inflationary forces in front of us. >> it is president biden's top priority to do all he can to bring down the cost of living. >> whatever the world's pricing in for a soft landing, it's probably half of that. a lot of happy talk. jonathan: a lot of happy talk for the next 60 minutes. mohamed el-erian, good to see you. is it all just a bunch of happy talk, these good vibes about the u.s. economy? mohamed: happy talk testified on where we have been but dangerous looking forward. jonathan: jamie dimon sounded like you speaking to francine lacqua. there are a lot of inflationary

forces in front of us, he said. he gave a list of reasons that you have given us before. the green economy, remilitarization, infrastructure spending, trade disputes, large fiscal deficits, what is the federal reserve fighting? mohamed: jamie and i have been on the same wavelength for a while. thank you for saying that. this is a reactive fed, a data-dependent and. when jamie and others list the things going forward that are inflationary in nature, that is not something that the fed talks about. they talk about the latest set of data. we will continue to have a reactive fed because they lost self-confidence in 2021 when they tried to be strategic and got the call horribly wrong. what is the safest thing to do? become data-dependent. jonathan: no strategic outcome which is what you've talked about repeatedly and high percentage from data point data point. what does that mean for financial markets? lots of volatility trending higher? mohamed: yes, as long as the

whiff of stagflation doesn't turn into something stronger. jonathan: stagflationary wind is what you've called them. mohamed: that is what you have to keep an eye on. we don't want that to become stronger. annmarie: how dangerous is that with revisions like the ppi report? mohamed: very dangerous because the data is noisy month-to-month . it is also dangerous because the data is backward looking and the tools act with a lag. this is not where you want to be. there was another article yesterday where they are trying to encourage the fed to be more self-confident and look forward and be less data dependent. annmarie: when you talk about stagflationary winds, where exactly would you see that showing up if we were to see stagflation? where would you be looking? mohamed: you talked about it earlier. listen to the corporate calls.

they are telling you that certain segments of the consumer base are already having problems. listen to the previous interview which was very bullish about the economy, but there was an admission that if anything happens to live labor market we have no buffers -- to the labor market, we have no buffers. balance sheets have deteriorated. jon mentioned where every segment of the population is running much higher balances. we no longer have savings, we have higher balances on credit cards, higher interest rates, so we are totally dependent on wage income. if anything happens to the labor market, which i hope it doesn't, but if anything happens we will slowdown really quickly. dani: you have hit the nail on the head. the data is uneven and we are seeing a diversions between different types of consumers except perhaps some of the credit card data. the data was built along time ago when we didn't have that type of diversions. it was trying to capture an

american economy that was a monolith. do we have the right tools to evaluate the american economy at this point? mohamed: that is an important point and explains annmarie's point as to why the person on the street doesn't feel as good as the macro data suggests. during the pandemic we had a moment where we realized our existing databases were too partial and moved to high-frequency data. we were suddenly living in a world where we were as economists much more focused on let's get the best high-frequency data. when we got out of the pandemic we went back to the old world and don't use high-frequency data enough. estimates are being made elsewhere to incorporate the high-frequency data. the big problem is the providers of those high-frequency data, who used to provide it for free, are now charging money. when you charge money, guess what happens?the access to the data goes down. this is an issue being discussed in the economic profession. jonathan: do you see the

mistakes this time around being the reverse of the mistakes out of the financial crisis? we are waiting for the economy to go back to what used to look like and it never did. it took a while for everyone to agree with larry summers. they eventually did. waiting for the economy to go back to what it looked like and maybe it never will. we had the qatar economic forum when bridgewater said don't use the playbook for the last 10 to 15 years for the next 10 to 15 years. let's park next month or next quarter's data. what are you looking out for the next decade or so? mohamed: the big mistake coming out of the global financial crisis was to assume that the shock was cyclical. that has been the new normal which came early on in 2009. the big issue now is that we as a profession are two influenced about what happened after the global financial crisis. we believe in the back of our

mind that very low interest rates are the norm not the exception. we believe that inflation is not an issue. look at what has happened to the fed. the fed pivoted on the basis of data. it was the opposite of the pivot that they did in december when they pivoted. now they have to do a u-turn. as they are doing the u-turn and stay higher for longer, the market is going the other way. you saw what happened to the two-year, the 10-year. there are two problematic issues. how sensitive are the stubborn components of inflation and interest rates? they are not very sensitive. that is problem number one. problem number two, what implications are we getting from the economy? it is slowly weakening. once again, the fed is going to have to pivot. not on the basis of inflation numbers but the basis of the real economy numbers will pivot yet again. the big issue that i know that no one wants to discuss that i

insist to understand fully is the inflation target the right target? we talk about wanting to go back to 2%. every quote you had this morning assumes the 2% is right. 2% is completely arbitrary but i understand why no one wants to talk about this. we should realize that if we are pursuing the wrong inflation target that the risk of a mistake, and that mistake would mean sacrificing growth unnecessarily, the risk is high looking at the people most at risk. jonathan: i know how much criticism you get when you bring this up because you been bringing it up with me for 12 months or longer. if we go back to 2022 when he was talking about pain being required to get inflation under control, the last 12 month when we got seduced on the idea that we don't need pain whatsoever to get inflation under control, are you saying that the pain is required to go from 3% to 2% is not worth the squeeze?

mohamed: correct. if you were to establish an inflation target today based on secular issues, let's talk about it. we no longer in the consensus of the and fiscal prudence. we are in a world of industrial policy, government intervention, and fiscal irresponsibility. let's talk about the international. we are no longer talking about globalization. we are talking about fragmentation. look at the transitions. we have major transitions going on. not just generative ai, life sciences, sustainable energy come things happening in health care, in food security. if you put that together it is a different inflationary environment. a world that suffered higher inflation coming from a world subject to lower inflation. dani: if the world still has that recency bias that we will go back to 2%, entire industries are pretending and hoping we are getting back there.

i think of the private capital world. if you have financial markets that have engineered themselves to be used to a low-inflation world, used to rates getting somewhere to 2%, what happens if we don't get there? mohamed: you are absolutely right. the whole news yesterday was about commercial real estate. they have recognized. more importantly, investors have recognized that there is a valuation issue ahead. that is also an issue. you have slower moving segments that refinance in a discrete fashion that we will have to deal with. you are right. jonathan: we have a very important review that will come from you later on a council that took place over the weekend. a breakdown on whether that is worth the experience. dani: does the fed need to hike? jonathan: does the ecb based on what has happened in france over the last week or so? if you have no idea what we are talking about, stay tuned.

mohamed on taylor swift in a moment. here is your bloomberg brief. yahaira: the new york times is reporting that nato is considering a plan to send troops into ukraine to train local forces as the country looks to stop a russian advance towards ukraine's second largest city. if nato moves forward, it raises fears that nato and russia would be closer to a direct conflict. bloomberg is also reporting that the biden administration and european allies are looking to send more equipment to the region. the new sports streaming bundle between disney, fox, and warner bros. discovery has a name. venue sports. the joint venture was revealed in february but no launch date has been announced. venu will combine espn plus and the sports programming from all three companies' linear tv networks. gamestop's volatile week

continues. down in premarket trading after pool limit nearing net sales for the first quarter missed estimates. gamestop is set to fall for a third consecutive session as the meme stock rally that started earlier this week fizzles out. jonathan: more from yahaira in 30 minutes. the morning calls and chris caso picking amd over nvidia going into earnings. good morning. ♪

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who wants to come see the future?! get your business online in minutes with godaddy airo ♪ get your business online in minutes ♪ ♪ jonathan: mohamed el-erian has these views on sophisticated topics and all anyone wants to know over the next 45 minutes is the taylor swift review. equity futures on the s&p are totally unchanged with yields

higher by two basis points on the 10-year. 4.3983. citibank retaining a buy rating on walmart boosting the price target to 75 from 63 point 33. all segments of the business are operating in sync after yesterday's sales beat. the bank of america upgrading robin hood to buy from underperform raising sales by two notches given the pickup and retail engagement. finally, wolf research replacing nvidia with amd on the wolfe alpha list. chris caso citing nvidia's relative move today expecting numbers to move higher for both names. chris joins us now to explain the call. it is important for us to point out that this is a tactical call that doesn't say anything about bearishness around nvidia per se, but the timing is interesting. why next week going into earnings? chris: in terms of the timing, obviously earnings next week, nvidia is going into that report

on its highs. we are not negative on nvidia at all. it has actually been our topic for most of the last two years. we still like the stock into the end of the year. a lot of this is tactical timing and terms of when additional capacity becomes available for nvidia. they have been very supply constrained because demand is good. much of that incremental capacity comes as we go into the calendar's second half of the year. there is impact from new products, the next generation product that comes in the fourth quarter in the beginning of next year. we are still there for those catalysts. we are a believer in ai and nvidia remains the leader in ai. amd, pulling back from its highs, there have been concerns on amd's ai business. that is related to their ability to get memory. there is a specific type of memory called hbm associated with ai.

amt sources that from samsung and they haven't been getting enough, which we believe is a little bit of a short-term issue that has gone around in the market. we think that it's a very short-term issue being solved quickly. with that we think that the number will be stronger in the second half of the year and they will have new product at the end of the year. tactically, with the relative movement of the stocks and news flow is why we made the move we did. dani: we saw amd's earnings fall 10%. perhaps some of that underlying weakness was a concern, but it was generally in line. you saw that for arm earnings, another ai name. is that the stakes for nvidia? is in line the new miss for ai names? mohamed: certainly --chris: certainly expectations are for beats that people want to see. expectations are high. we want to see numbers continuing to go up instead of

right for a while. it doesn't always happen in a linear fashion, of course. nvidia and amd both, one thing that is important is pricing is going up as well. that is also one of the factors that we look at as you go into next year when the new products come out. the new products are higher priced and that has never happened in semiconductors. that is another driver that gets numbers higher that doesn't happen in a linear fashion. expectations are high for ai in general right now. mohamed: zoom back out. this was characterized as a winner take all sector and a lot of nvidia's stock price moved was on the back of that. are you telling us that this is not a winner take all?that this is something where you get an early lead and other people catch up over time? chris: it depends on what you defined by all. the way that we see the competition between nvidia and

amd is much the same way that the competition between intel and amd for the last 30 years. even in the time when amd was one or two process notes behind until they could still get a 10% to 15% share of the market because the industry doesn't want to have one player take everything. i think that is happening here. if you look at what the expectations are for ai over the next three to five years, just a 10% share of that market would mean much bigger revenues from ai then what amd is saying. their current guidance for this year is $4 billion. i don't think it is entirely winner take all, but it is a very big market. annmarie: another chip was added to the export list for the u.s. commerce department meaning the likes of intel could not go to china. when you look at companies like amd and nvidia in this space,

how concerned are you about the tit for tat between beijing and washington? chris: it has been a bit of an issue. what happened last week was a bit of a clarification. it was one particular company, huawei, that has been targeted. if you can't send it to huawei another will pick up that share, so it's not meaningful. it has been meaningful in ai and those restrictions have been in place for a while. neither nvidia nor amd can ship advanced ai products to china. that has had an effect on the market. the market would be bigger if china could buy these advanced products. frankly, i'm not really sure how that will wind up playing out. right now, the chinese have the ability to produce much lower end products that they can do internally, but that does not solve the problem they have. i say that that is where control

has been effective in reducing china's ability to compete with ai. what their alternatives are art very good alternatives right now, because it is coupled with the restrictions that china also cannot get the leading edge equipment to make these leading-edge products. they cannot buy them from nvidia and amd and they cannot get the tools to make them themselves. jonathan: looking ahead to earnings next week, fantastic thoughts from chris caso. this has been a big week for big tariffs. a lot a strong language coming from the u.s. administration again. china is using the same playbook that it has before to pair its growth at the expense of others by building industrial overcapacity. where do you think that this is heading this year? mohamed: it is clear where it is heading. you have a strategy on the china side emphasizing production more than consumption.

the rest of the world is looking at this and screaming that this is mover capacity and trying to preempt this overcapacity. the notion of putting a 100% tariff on something that we do not import right now but want to make sure that we do not import later on -- dani: that is called politics. mohamed: it is a good example of what was still ahead. i think annmarie said this morning that the big surprise is that china has not responded in a significant manner. let's wait and see. i think that what we are seeing now we will see more of going forward. . annmarie: our view is the u.s. would be better served by maintaining open trade policies vital to its economic performance. that is the imf. what do you make of the constant criticism from the imf on how the u.s. is regarding not just trade but also the u.s. deficit, fiscal spending? they have been very critical. mohamed: they have. going back to how the paradigm has changed for economies. they are on the old paradigm

and that is not there anymore. countries are different. why, it is simple. in the old days economics was driving the car and national security and politics were in the backseat. right now national security and politics are driving the car and economics is in the backseat if not out of the car completely. dani: why hasn't china responded more forcefully? why are they using diplomacy if it is politics driving things? mohamed: i don't know. i can try to guess but i don't know. one total guess is they realize that they are in a weak situation and they need to get things done domestically in the last thing that they want is to accelerate the tit for tat between them and not just the u.s. but europe as well. jonathan: you spend a lot of time in the united kingdom in your current role and are close to events on the continent. what is that move going to look like? when we talk about

overcapacity, at the moment it looks like it will be the europeans unless they do something fast. mohamed: they are in a much weaker position than the u.s. they require pan-european responses and they are not pursuing them. they are pursuing much more country-specific responses. if they look forward and want to promote future drivers of growth, they are going to have to shift to a more pan-european approach. jonathan: talk about what that model might look like for germany? what is the new model? mohamed: not being in the middle is important. understanding a lot more growth is going to come from generative ai and life sciences and all of these sectors and less from traditional manufacturing and traditional manufacturing is being challenged by ev's etc.

i have faith. it tends to be late always but it gets its act together. jonathan: my strategy is to use your taylor swift review. mohamed: you're going to disappoint people. jonathan: why will you disappoint people? dani: this is the review for our audience. jonathan: all of the dads who may have to take their children to a taylor swift concert, you are the guy. dani: the ultimate girl dad. jonathan: this is what people want to hear. seth carpenter wants to know too. he is joining us after busy week of economic data. from new york, this is bloomberg. ♪

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jonathan: 60 minutes away and equity features just about positive heading towards four weeks of gains on the nasdaq and russell as well. the nasdaq positive by .4%. the two year, 10 year and 30 year, what a turnaround. back down to the four point 70's on the 10 year. 4.3944 higher on the session but down in the week. we are higher by two basis points. on foreign-exchange just briefly

and a look at the euro, negative by about .25%. we might be stretched to tie this to the ecb, but indicating that the ccp is ready to talk about cutting interest rates not interested about july. dani: the euro might have the exhaustion of the dollar and you might get that to come back. june everything decided on the ecb. the accounts to suggest that they will move in june. they all seem very torn on what happens after june. in a large part perhaps that is because of the currency. if you start cutting every consecutive meeting what does that do to the era of the fed moving. jonathan: the dollar is stronger against -- against everything. under surveillance china announcing to shore up the struggling housing market. beijing lowering down payments and encouraging local

governments to buy unsold homes from developers and convert them into affordable housing. the club for growth foundation is lobbying former president donald trump for cap -- for tax cuts. the group with ties to jeff yass calling for a flat tax deduction to help businesses. how many times will we hear his name? dani: he has been thrown out as a potential treasury pick and he has a lot of links to tiktok which is why a lot of people think that trump has slipped a few times. when it comes to these taxes i do not thanks they need to convince trump to do this. over the weekend he was talking and it was like this opera moment. he said lower, middle, upper class in business class you are getting a cut. jonathan: we all get a tax cut and someone has to pay for it. higher for longer. williams and barkan's spoke

separately and all said it might take longer for inflation to reach the 2% target. but seth carpenter says that he is confident that inflation will trend lower and it is a question of when and not if. seth, good morning. taylor swift review coming up later. let us talk about the commitment about getting back down to 4%, are you so constructive? seth: we are thinking about how the data will turn out just from a bottoms up perspective. you have three -- the key components of housing inflation and how rents have been when they turn the crank on the machine and that points to that continuing to fall over time. the same thing is going on with moves of consumer goods. there is an onnet average deflation that will continue for the rest of the year.

the mixed bag is in the services out of how -- outside of housing. one strange example that we would be talking about, auto insurance has been sky high and strong. that development is the product of years of higher costs from a couple of years ago. insurance companies finally allowed by the regulators to catch up for that and that is starting to fade. we talk a lot with our colleagues who cover the insurance companies and we think the example of friction from covid working its way through. jonathan: how would you respond to everything just said? mohammed: seth has very good points and the thing i would ask you is the history of this that we are surprised by something else and we focus on what has been higher than expected and something comes along. earlier we heard about commodity prices and how this rally is broadening. the bpi surprises to the upside.

how worried should we be that it is the surfeit -- this will service as a housing access? seth: that is a great concern especially when we are talking about policymakers. if they are not worried i start to get worried. they should be worried about everything. you have to make a forecast and have an idea of where the probability lies. when you think about the good sector u.s. imports a lot of goods from china and the world imports a lot of good. they have been a deep -- in a deep and protracted inflationary episode. as you have been talking about they are trying to ramp up production and they are exporting a lot of that capacity. i think the odds are in flavor of dish of -- disinflationary continuing. mohamed: you are dealing with a fed that is data dependent. and the motion here is that we need to get comfortable. and yet you said it is not if but when.

talk a little bit about how you mailed your view and -- meld your view with a fed reaction function that is active. and what does that mean? seth: when i heard jay powell say in the last press conference and at other times and reiterated that was essentially and i am paraphrasing, they want to cut interest rates if the inflation data will allow them to. if the data shows they are on a downward trajectory. ever since the beginning of the cycle they were willing to cut rates they just need to see the trend. and so from my perspective that is a sell side analyst. the question is what would they do and how do i forecast what they are going to do with my forecast. we have the cpi and ppi and import prices which clearly said

the reflationary data was the anomaly and not the trend. one or two more months that i -- that our forecast goes for continued disinflation they will take that as their signal. >> the data is incredibly bumpy, what happens if it is not a trend and is instead just volatility, like we have continued to see, what does the fed do? seth: if it is not a trend down but inflation hanging out where it is, then they keep postponing the anticipated rate cut and maybe they will change their tune. the one time the chair powell was willing to swim up to the question could you hike? what i heard from him is you need inflation not just to stay where it is but to start to clearly rise again, and i think that is not the most likely outcome.

mohamed: let me push a little bit. in january we got a negative surprise and it was a dismissed as a bump and we need two more data points to confirm that there was something going on. now we get one favorable number and it is not a bump. suddenly we are going back to what we really want and it is what we want to happen so why are we asymmetrical? seth: i agree that the data is noisy but i am not convicts -- convinced it is so asymmetrical. if we go back to january and february the market was pricing in six or seven cuts and we got to the point where we were pricing in substantially fewer than two cuts and things are very gently coming back. it is not as though we swung back to the market pricing, i think it is a little bit of an overreaction and i subscribed to that view that markets do.

we have been in our own forecasting a little bit consistent. we have grown into the year thinking there are four cuts total and q1 said that will not happen as quickly as you thought so we have pared that back to three. but we have that the same way the market has because we should try to see through some of that noise. >> it is hard to keep around yo-yoing of these markets. part of the confusion is trying to understand where the consumer is. we have had five different takes of what the consumer is doing. credit card data is strong but delinquencies are troubling. you see spending but mcdonald's are saying consumers are not spending as much. how do you make sense of that? seth: it is tricky and one of the points i try to make is that everything that you build your standard narratives around based on previous cycles, you take those with a grain of salt or a that a vinegar, if you are

making fries. jonathan: a back story for that but we have no time for that. carry on. seth: it is tricky. let us look for data for gdp in the first quarter. consumer spending was finance solid but consumer spending on durable goods was negative. consumer spending on nondurable goods were flat. when it comes to the delinquencies, it is the lower end of the income distribution that are having a hard time. people were able to pay down credit cards and i wanted to go back down to spending habits and people were trying to sort out where prices were going and what they can afford and it is the lower end of income distribution that tends to get hurt and that is where you see the delinquency rates rising. does that mean we are in for doom and gloom? i do not think so. consumer spending on service is about 70% of consumption and consumption is 70% of gdp and

that is half of the economy. as long as that holds up we are in decent shape. but we should not forget that the reason the fed has interest rates on 500 and seven -- 500 something basis points higher is precisely to exert restraint on the economy and spending. some slowing is what they are looking for. annmarie: you think of the consumer and the massive imports, what you think 2024 will look like with 64% tariff on imports from china? seth: the difference based on the election are tricky and manifold. one of the points that is easy to reduce things to biden versus trump but investors are well reminded that we need to think about the composition of congress. if you are thinking about fiscal packages and tax cuts and extra spending that would require tariffs. annmarie: you could do this

seth: on day seth: one. exactly. we need to start modeling things out. i try to go back and say what happened when we had the round of tariffs last time? and i think there is a common view that it will be just inflationary. . it is worth pressure testing. a couple of things happened, the renminbi fell and u.s. imports from china actually initially sell and have since recovered. if that was the goal may be did not get there. but in the first instance we saw a fall and we have to remember that if we are measuring inflation by the cpi some of the tariffs are intermediate goods where the margins can compress. you saw may a little reaction but it did not last and i defy anyone to look at the chart of core good cpi during that period and distinguished 2018 from what happened years before. annmarie: you sound like robert

lighthizer and katherine tai and she said the terror versus prices relationship has been debunked. seth: i will push back strongly that sounds -- "i" like them. what is important is that they were increases in costs and costs along the way. the u.s. manufacturing sector took a massive hit. the fed was on at that point and somewhat reminiscent on the hiking path that got derailed. and what we were writing about was how disruptive and destructive the tariff war was to the u.s. economy especially in the manufacturing sector in the fed went from thinking they were on a path of qt on autopilot and then very quickly things changed because we saw the reverberations through the economy. jonathan: let us finish on this. lack rock is making headlines.

speaking of david westin who will air on wall street week. here's the quote. "i am not certain that raising interest rates actually brings down inflation. you might agree with .1 how rate and sensitive it might be and in fact i would lay out an argument that if you cut interest rates you bring down inflation." what would you say back to that? mohamed: i agree with .1. on .2 what he is thinking is housing. and what high interest rates have done to the supply-side that people do not want to trade out of low rate mortgages into high rate mortgages and i suspect that is what he is thinking. seth: i think, tricky, to repeat one thing i said earlier, this cycle is different. a lot of the inflation going away now is not driven by the hiking of monetary policy. we had commodity inflation settle down and we have had a reversion of some of that

inflation that was covid induced. but i am personally skeptical that everything the empirical literature on how monetary policy affects the pot -- the economy is flat-out wrong. if you raise interest rates you get crimp in overall on your spending and it is that overall spending that allows higher inflation to sustain. i would disagree on the fundamentals. mohamed: you said three cuts this year. when? seth: september, november, december. we have shifted that back to balance the risks because, as you pointed out the fed is data dependent. i take your point but you have questions on whether or not they should be. my job for 20 years was to argue about what should happen and now it is what is likely to happen. so, i think there is always a chance that there is another blip in the data. but i think powell wants to start cutting. jonathan: should we get to the

review? can we have the review. service sector inflation? taylor swift? mohamed: overhyped. you really have to learn. manage expectation. jonathan: i have the audience. mohamed: context is important. this was a mother's day girls outing organized by and it involved my wife and my two girls. at the last moment one girl cannot go so i was pulled off the sideline i am a professional person and i came in. the next thing i know i am on the train from the u.k. to paris, a wonderful train. and i am in there. expectations focused on two things. one, i want to understand the swift economy. two, what should i wear. i had zero expectations about what would happen on stage. and, wow, an incredible

performance. three plus hours by someone who is an incredible entertainer. and what she did that i have never seen anybody do is make the crowd genuinely believe that she appreciated you being there. i have never felt that at a concert or anything else. she was actually grateful for people they are. and that showed in the reaction of the people. so you had this incredible love affair because i came from the outside on this and i really understand this phenomenon. jonathan: did you feel grateful? mohamed: i did because her show was incredible and i was amazed by people going out and thinking could they get tickets for tomorrow. to go again. dani: my friends did that in paris. dani: you kind of sound a bit like ray. took an excellent selfie and said she can unite the world in a way that no politician can right now. jonathan: would she be present?

mohamed: i would not go that far. she is sensitive to her audience and it is something i would never see so far. jonathan: what did you learn about the taylor swift economy. mohamed: it is powerful. the consumer spending. when the people we are with left in the morning, went all the way to the concert site an hour away to get in line to buy merch. they were not confident that they would get it at the actual thing. dani: what are we talking about for total, ticket, merch and new outfit. what are we talking, a range? mohamed: we are talking a lot of spending. someone said to me there are more americans coming to paris for the four concerts and they will see for the whole of the olympic games. i do not know if that is true or not, but it could happen.

jonathan: we are grateful to have you here. i feel this way, you are like taylor swift to me. thank you so much. seth carpenter of morgan stanley. let us update you on stories elsewhere. here is the bloomberg brief. >> a deadly storm in texas has killed four people and left 800,000 without power. intense rainfall and heavy wind barreled through the houston area allowing out windows on skyscrapers in the center of the city. the storm hit as the grid warned of a penitential power emergency. houston is under a flood warning with more rain expected over the weekend. the world's superrich club has 15 members with fortunes over $100 billion, the most on record. while they have crossed 100 billion before this is a force time all of them have held fortunes that size at the same time. according to the billionaires

index their combined net worth is up 13% to $2.2 trillion. the pga championship delayed the start of it second round after the world's number one golfer was reportedly arrested on his way to the course. espn reported that he was detained by police in handcuffs after allegedly trying to drive around a traffic stop from an earlier crash. with the delays he is currently scheduled to tee off for his second round just after 10:00 a.m. eastern. jonathan: that is the most mental story of the morning, the week, the month or the year. thank you. setting you up for today and the week ahead. you are watching bloomberg surveillance. ♪

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jonathan: equity futures on the s&p 500 positive by 0.1%. 40 minutes away from the opening bell swinging from data point to data point. >> we are really constructive on how the data will turn out over the next classic seven months. just from primarily a bottoms up perspective. you have the key components of inflation and housing inflation and we know where the spot rents have been and where the bls will take the data and turn the crank to make the statistics point that the continuing to fall over time. jonathan: the trading diary into next week, a host of fed speak including jay powell's commencement address. plus earnings from target and nvidia on wednesday. pmi's on thursday and on friday the u. mich consumer spending sentiment. takeaways from this week and

what to look forward to? mohamed: an unusually uniform signal from the fed higher from longer. you can think of everything -- -- every single speaker lined up and i've not seen that for quite a while. annmarie: it is what mohamed said especially into the g7 finance ministers meeting and they will be discussing the tariffs and you put it brilliantly, how we have a changing economy. national security used to be in the back of the bus and it is driving the bus and maybe economics is not even in the bus. jonathan: what do you think that means more inflationary economic outcomes? mohamed: yes and more unpredictable. dani: that is not great news for the fed. the thing i'm coming back to it and i say i still do not understand the consumer. jonathan: i am on the same page. dani: maybe it is as simple as as it is a k shaped economy and the upper end is doing well in the lower end is not. how do you explain the credit card data, can you make sense of

any of that? mohamed: i think that weakness is going up the income ladder and that is what we are seeing. what i cannot determine right now is how will companies react to that and what will companies do? jonathan: do you think they have pricing power? do you think ultimately to protect those margins you will see the layoffs. this is the last story for the last few quarters. mohamed: i remember one job i had a long time ago when the economy was weakening and my boss said you had to reduce your labor force by 20% and my reaction was why don't we expect -- except eight when percent reduction in pay. and they said that the market judges you want layoffs to find out if you are reacting. so that is the concern is that you will have layoffs. jonathan: some people talked about medially after the pandemic? seth: that phenomenon is dying out. jonathan: final word, nvidia and economic data and what stands

out for you and what will you be focused on? mohamed: friday sentiment, sentiment about prices and where the economy is going and it will be very important. jonathan: sentiment has not been good against the earnings and data and what you hear from bank executives. contradictory signals. dani: there're been plenty of people who said you cannot trust the sentiment measures they are too political and do not capture inflation because it is about the absolute price level. but sentiment surely matters. it mean something. you are looking out for so what you say to the people who say it does not matter anymore? mohamed: if you think it does not matter then go back and ask yourself what i looking for in indicators. jonathan: mohamed thank you for the full hour and dani, awesome as always. coming up on monday, stuart and amanda. will catch up with michael o'leary and raphael bostic. and finally i will not hear the

rest of it for the end of the weekend, annmarie, thank you. from new york city enjoy your weekend. this was bloomberg surveillance. ♪ 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.

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>> from new york city from viewers worldwide i am scarlet and we are looking a little bit of change for every market. the s&p futures and nasdaq futures up .1% to two -- .2%. the russell indicating a lower open. countdown to the open starts right now. coming up, st