Bloomberg Surveillance 05/29/2024

I don't think the Fed is at this pointin any need, nor are they being compelled to move rates in eitherdirection. The hawkish case for the near term is donothing and the dovish case is anything different than that.We could get too much easing before inflation makes its way down to morestable zone. Perhaps they will find an opportunity toinitiate a rate cut this year, just depending on how the data, particularlythe inflation prints, play out. There's a little bit of downside risk tothis market, and I think that's under appreciated.This is Bloomberg Surveillance with.

Jonathan Ferro Lisa Abramowitz and AnneMarie Jordan live from New York City this morning.Good morning. Good morning for our audience worldwide.This is Bloomberg Surveillance with equities futures negative by 0.6% on thes&p 500. Decent close in the equity market.Yes, but I can't say the same thing about the bond market.Some shaky stuff. Three points to make her hawkish Fedspeak on repeat. We'll talk about Kashkari a little bitlater. Consumer confidence a little bit betterthan expected.

That bounces.And as I said just yesterday, the most important thing that will take place isbond issuance. I didn't say that Frémaux did.He should tell you ahead. The next 24 hours, looks like there'smore bond issuance for you. We will have $44 billion of seven yearnotes coming to market. The Beige Book will be released andwe'll hear from New York Fed President John Williams for the first time alittle bit later on this morning. And then you will hear from him againtomorrow, which to me comes interestingly after we heard from NeelKashkari, not necessarily taking rate.

Hikes off the table.We've heard this before from him and he is more hawkish on the margins.But is the reaction function changing on the margins, given the fact thatconfidence is coming in stronger than expected?And auctions are absolutely the most important thing for a week or otherwise,There is a vacuum of other types of data points.To be fair in the auctions though, it was after Memorial Day weekend, sopotentially people are still at the beach.They're taking it easy as they come back in to ease into the week.When it comes to Kashkari, not so much.

That hikes are still on the table.What I thought was interesting is this. But I can tell you this, it certainlywon't be more than two cuts. Remember, we were talking about six orseven. He's saying definitely not that,certainly not more than two. I'm more interested in Williams tomorrowbecause the venue, maybe it's a place where he would want to shift tone orchange of tweaking of policy. Are you running on Laci's parade?Because we should spend some time talking about the bond supply.So we had two auctions yesterday at the front end.What was a two year?.

Five year?Yep. Both were a little bit softer thanexpected. I think that move reinforced by thatbounce back in consumer confidence and the backdrop was the hawkish Fed speech,but ultimately a little bit softer than expected.What that means is, number one, the bond traded at a lower price, higher yieldafter it was issued. And also dealers were stuck taking downmore of the notes. In other words, other kind of investorsweren't as strongly bidding as the actual dealers were, which is usually asign of weaker demand.

Granted, it is true a lot of people areon the beach. On the other hand, you would think thatif you've got yields close to 5%, suddenly people would think, okay, thisis a good time to buy. I mean, we're just kicking back up tothat higher for longer being 5% on the short end of the yield curve and peoplearen't biting. That is indicative of a lot of feelingsand a lot of fear of potentially what a new higher for longer means.We're getting closer to 460 on a ten year this morning at four 5698.That's the bond market. Lots more still to come about that.Well, let's talk about a single name of.

The pre-market American Airlines gettinghammered in early trading. We're down here by close to 8%.They've come out and cut the outlook. Adjusted earnings will be to 115 ashare in the second quarter. That's down from a previous expectationof only a few weeks ago of as much as 145.That is a big adjustment, Lisa, to the outlook.And this has to do with higher costs and it also has to do with fears that maybeAmerican isn't doing as much to really bring in the revenues are also chiefrevenue officer essentially stepped down.So there are questions about what their.

Plan was with that.There also are questions about whether maybe they're catering more to adomestic flyer base and ones that are more budget conscious, which puts themon a different plane in terms of the competitive advantage or lack there incompared with, say, Delta, Jefferies now says they have a stock as a whole, nolonger a buy. They said the strategy has not gone toplan that they were expecting. And this was the quote I loved.It's not all sunshine and rainbows for American Airlines and it's certainly notthis morning Eastern Airlines problem or an American Airlines problem.And the reaction you get from the South.

Side overnight sounds much more like anAmerican Airlines problem than an airline's problem.That's what the reaction sounded like. And yet somehow that dragged down theshares of Delta and United. So go figure.Maybe if this is just an American Airline issue, maybe it's a buyingopportunity for Delta and United. But right now, people aren't reallymaybe we'll see if we get the adjustments from those companies thismorning and through the next couple of days.Equity futures right now on the S&P, the scores, it looks like this we are lowerby 0.6% on the S&P 500.

Life could be easy.You could just down in video three days. We've had a move a 20% over those threedays, promote the market cap, move 466 billion USD market cap added to thiscompany. That's insane.That's more than two McDonald's added to this.Added to the market cap of this company in just three trading sessions.Again, you've pointed this out before. It is remarkable with that kind of movein a $2 trillion stock, more than that, two and a half trillion dollar stock nowis probably almost $3 trillion. It's amazing to see that and not see theentire market rally.

It just shows that the gravitationalforce of higher yields, the threat of maybe higher for longer, is pulling downeverything else. Even with the secular story ofartificial intelligence, 2.8 2.8 trillion, that's bonkers, isn't it?Coming up this hour, here's the line up for you.James Arthur of Marlboro Investment Management.As the Fed's Kashkari keeps a hike on the table, former White House fellowElliot Ackerman on Israel's advance in Gaza.And we'll catch up with Amanda Lyneham of BlackRock on the growing dividebetween US consumers.

We begin with our top story.Higher bond yields happened to push futures lower following comments fromKashkari and a pair of weaker than expected debt auctions.Fed president Kashkari saying this. I don't think anybody has totally takenrate increases off the table. I think the odds of us raising rates arequite low, but I don't want to take anything off the table.James Athey of Manpower joins us now for more.James, first of all, what did you make of that Fed speech?Is it anything new at all? For me, at least, it didn't feel like itwas.

So what would explain that weakness thatwe saw in those bond issues yesterday? Hey, John could see you again.Yeah. I don't think we've learned anythinghugely new here. I think certainly the latest FOMCminutes really did suggest that there are quite a few participants who aregetting a little uncomfortable with the whole financial conditions situation.And I think that's, you know, reasonable that they do so because the sort ofdirect link, if you like, between their policy, their policy setting and theircommunication and asset prices has to some degree been been pretty weakrecently.

And you guys have just been noting thatthe tear that certain Mega-cap stocks have been on and obviously that does inand of itself, you know, provide some loosening of financial conditions.And I'm really that's not what the Fed wants to see.Ultimately, as Mr. Kashkari has said, I think the chancesof hikes are still fairly low. I think the Fed would prefer to keeppolicy, you know, in a tight setting for a longer period of time, as opposed totry and tighten things because they could very quickly and easily lose losecontrol of the narrative under financial conditions if if they restarted hikesnow.

James, They're low, but they're notzero. This is what Peter Chair, the academyhad to say. People are consigned to the view that ifwe get a hike, it will only be because the economy remains incredibly strong,so it won't be a big deal. James when I read that yesterday in theresearch academy, I have to say I took a step back and thought, really, is thatreally the impression of clients of Peter?Chair James, is that your impression of things?How well would we take that? I mean, from an economic economyperspective, it's not a big deal.

I think for for 30 years we've reallyoverestimated the significance of minor monetary policy changes on economicactivity and the lesson that we possibly should have learned over these last 12,18 months is that, you know, monetary policy is not really the deciding factorfor economic decision making. 99 times out of 100, there are myriadother factors that drive the economy forwards or backwards, and monetarypolicy can influence that at the margin and over much longer time horizons.I think I'd I'd have concern that it would cause a few ructions from a marketperspective. Again, equities are pretty significantlyover their skis in valuation terms,.

Particularly in the US.It's a hugely consensus trade. And what happens is even if there isonly one hike potentially on the table, you have to start considering the righttail opening up, i.e. what if what if it's not just one hike?What if it's two? And you know how the market works?As we saw at the end of last year, you could actually go from oh, they mightcut one or two times to they might cut six or seven potentially if the data tohot for a few months, we could really start to price a considerablerestarting of hiking. And I don't think equities would likethat at all.

James, I want to dig into what you weretalking about. Essentially that if there were anotherrate hike, it wouldn't materially change the economic outlook.And yet even with that massive move and Nvidia, as John was talking about, we'vestill seen the market kind of go nowhere, if anything kind of go south asthe market was priced in, only one rate cut now by year end price out a lot ofthe other potential easing that they had seen previously.Are you basically saying the reason why stocks are so sensitive to any kind ofiteration of Fed policy is simply because people are looking for an excuseto sell incredibly inflated valuations.

Right now in stocks?I'm not sure that's truly something. I kind of wish it were true because itwould suggest there were more sort of fundamental investors out there.I share there are more technical than fundamental investors driving the equitymarket on a daily basis. And that's why I say if the Fed crediblymade a commitment that it was going to be one, I can no more in the marketbelieve that. I don't think it would be hugelydisruptive at all. I think even the equity market couldtake it in its stride. You know, the way equities work, right?There's this sort of two sides to the.

Coin and they both work in equitiesfavor. Either growth is going to see buyequities because earnings are going up or growth is not good, but the Fed'sgoing to ease and that's going to support equity valuations.Either way, you stay long exposure, long acting as you buy equities.That's the way the story works, right up until unemployment starts shootingmaterially higher. And we have to face to face a recessionreally close up. So if it were just one hike, that'sgoing to have not really any economic impact and it would be almost a sign ofstrength, it would be confirmation that.

The US economy is strong and I thinkequities would enjoy that. I think it just if equities had toconsider potentially a more significant additional tightening of policy, itwould have to raise the prospects for a much more rapid a much more significantgrowth slowing. And of course it should impact equityvaluations by the whole discounting of future cash flows argument.So if only one and done that wouldn't be a problem.If the market weren't convinced of that and had to consider two, three or fourhikes that I think that would be disruptive.Again, that's not what I'm expecting.

James it sounds like you're a little bitfrustrated by this stock market rally. Is that true?You're talking about how everything is positive and, you know, it seems like itcan never go down until it faces some sort of recessionary pressure.Is that sort of the place you're in? I feel like I should be lying on a couchas we have this conversation later. But yeah, I mean.Bond Market therapist. Okay.Actually, I mean, frustrated. Yeah, I think it concerns me.I guess it is like frustration, but I come on TV and say equities areexpensive and then they just go on a.

Tear and I look a fall.But no, seriously, it's more about the fact that I have concerns.I have concerns about this fragility. I have concern for investors andeconomic actors are sort of learning the wrong lesson.And we know from history that when this happens, you do build up into these, youknow, call them Minsky moments, call them dislocations.You build up the risk of a system that comes from sort of throwing away somepretty fundamental principles of investing.And ultimately, price is what you pay in value is what you get over long periodsof time.

The valuation that you have paid for agiven asset is the number one predictor for the long term returns from thatasset. And when you have such significantconcentration as we do and such significant participation in the equitymarket, not just from US domestic retail investors but globally, that raises theprospect that if that turns around, it can become a really disruptive force inthe other direction. So, James, what you went for accountingfor in fixed income, what do you do in. Yeah.I mean, I think there is again, uncertainty is often used as an excusenot to act.

And sure, there is uncertainty over thegrowth and inflation outlook. You know, I would openly questionwhether they have ever been periods of certainty.And if there were, is it not the case that that certainty is fully reflectedin asset prices and therefore investing on that premise is not going to yieldexcess returns? So I think the bond market is, to asignificant degree currently compensating you for that uncertainty ina way that potentially the equity market is not.And so as always, we would advise diversification both across assetclasses and across geographies is wise.

But yeah, we think duration is alreadyattractive and we're quite happy to lead into some of the market weakness that wehave seen in the last few days and that potentially we will see as we wrestlewith this idea of whether Fed policies actually tighten.Mr.. S It's been so long.It's good to see you, as always. Thank you, sir.James Athey of Marlborough sounded like a frustrated bond manager throwing shadeat equity investors. They've got an easy life.Stocks just go up until they die. Well, it's true.I mean, we're talking about bad news is.

Good news.And good news is good news. Still good news for for stocks untilit's not until you look into the face of some sort of recessionary increase inunemployment and then it's all over. But, you know, the idea that he's sayingthere's a lot of uncertainty, he can argue whether there's ever certainty.But bonds seem to compensate you more by bonds and stay diversified.That's the pitch actually features right now the S&P negative five 0.6%.Let's get you an update on stories now, I swear.Here's your Bloomberg brief with Dani Burger.Hey, Tony.

Hey, John.Jurors are expected to begin deliberations today in Donald Trump'shush money trial After more than six weeks of testimony, closing argumentswrapped up last night. The prosecutor urged the jury toconsider what he called a mountain of evidence that showed Trump tried toinfluence the 2016 election by paying a porn star to stay silent about analleged affair. Trump's defense attorneys saidprosecutors failed to prove the records were false or that the former presidentintended to influence the election. ConocoPhillips is in advanced talks toacquire its smaller rival Marathon Oil.

That two reported.The proposed all stock deal would value Marathon at more than 15 billion.It would give Conoco control of assets in Texas, Oklahoma, North Dakota and thePermian Basin. In other commodity deal news.Anglo American has rejected BHP request for a deadline extension in his takeovertalks. BHP had ousted smaller rival for moretime to negotiate a $75 billion takeover angle.For its part, oppose the complicated deal structure and said its biggestconcerns have still not been addressed. Now BHP must wait six months before itcan make another offer.

And that's your Bloomberg brief John.Danny, thank you. More from Danny in about 30 minutestime. This came from you, Mitch.Adam Simon, professor of environmental studies.Take a listen to this. A normal Honda Accord needs about £40 ofcopper. The same battery electric Honda Accordneeds almost £200 of copper. Onshore wind turbines require about tentonnes of copper, and in offshore wind turbines, that amount can more thandouble the conclusion in the paper. The amount of copper needed isessentially impossible for mining.

Companies to produce.This is a big factor in that story between BHP and Anglo.Basically the reason why Anglo is saying $49 billion doesn't come close to thevaluation that they should potentially get.Whether BHP is going to offer them or they have until 5 p.m.London time. Insatiable demand for copper.And this is why Jeff Currie says it is the best trade he's seen in hislifetime, the trade of a lifetime or on that a little bit later.Up next on the program, the White House holding the line.I have no policy changes to speak to.

It just happened.The Israelis are going to investigate it.We're going to be taking great interest in what they find in that investigation.That conversation coming up next live from New York City this morning.Good morning. Live from New York City.Equities futures negative by 0.6% on the S&P 500.Decent close to the session yesterday. Decent.Not in the bond market though. Yields up again by a basis point, I'dsay on a ten year full. 5659.More on that a little bit later.

Under savannah this morning, the whitehouse holding the line. I have no policy changes to speak to.It just happened. The israelis are going to investigateit. We're going to be taking great interestin what they find in that investigation. It's not in israel's best interest andit's not in our best interests for Israel to become increasingly isolatedon the world stage. So here's the latest.The White House saying a deadly Israeli airstrike in Rafah won't stop PresidentBiden from sending arms shipments to the country.This comes as international condemnation.

Against Israel continues to grow fromthe White House, fellow Ackerman saying this Israel is struggling to communicateits vision of not only its wartime objectives and strategy, but also whatGaza would look like post-war. This makes the cost of such strikes muchmore costly politically. Civilian casualties play right into thehands of Hamas. Alan Ackerman joins us now for more.And he great to catch up with you, sir. If we can just play what if just tostart this conversation? What would this conflict look likewithout US support? Well, it makes the margins forprosecuting the conflict much more tight.

For the Israelis.And it also would further isolate them, but also further make it more difficultfor the U.S. to influence conditions on the ground.So to me, it seemed that the Biden administration is appropriate andcontinuing to support Israel, you know, despite the fact that we've had anotherinstance of civilian casualties. ELLIOTT What do you view as thepresident's red line when it comes to Israel?I'm not completely sure that there is some hidden red line here.And I think if there's one thing President Biden probably has learnedfrom his time serving in the Obama.

Administration is that activelytelegraphing red lines isn't strategically wise.But I'm sure there is a lot of frustration behind the scenes.And sometimes that frustration spills out into the public view about not onlyIsrael's prosecution of the war when there are civilian casualties, but up tothis point, Israel's inability to clearly articulate on the world stagewhat the end state is. Where is this all leading so that theBiden administration and the world can kind of see the off ramp here?Yesterday, the AFP reported that Israeli forces have reached the center of Gaza.Is it your understanding that this is.

The start then of a major groundinvasion? You know, it most certainly is.And, you know, we've seen multiple incursions into Gaza by Israeli forces.But what we're sort of not seeing is a clear vision for how those incursionslead to a cessation of the war and ultimately to whatever Israel'sarticulation is of victory. And because that isn't being clearlycommunicated, it's becoming increasingly difficult to sort of see where all ofthis is leading. And I think that is tryingthe patience of Israel's allies and also the patience of public opinion in theworld.

And I'm wondering if this is going toirk the White House, because yesterday Admiral Kirby says we don't support wewon't support a major ground operation in Rafah.And the news we got overnight is that they were there in the center of Rafah.Could this be potentially, given your years of experience with the WhiteHouse, a final straw for the Biden administration?So I would be surprised if there was a final straw for the Bidenadministration. And oftentimes, you know, what is saidpublicly is different than what is said in back channels.But, you know, the US support for.

Israel, appropriately so, runs very,very deep. And although we are seeing, you know,increasing upticks in frustration with Israel, I think everyone in the WhiteHouse continues to remember, you know, who started this war and the strategythat Hamas has prosecuted since the war's outset on October seven, which hasbeen one to basically take the entire civilian population of Palestine hostageto create situations in which civilian casualties are likely in order to turnglobal opinion against the Israelis. How much do you see, Eliot, as this goeson, an increasing divergence between the United States and Europe.We saw, for example, Norway and Ireland.

Recognize a Palestinian state.We've seen it with respect to also the Ukrainian conflict as well as Iran.A real kind of discrepancy between a European view and the U.S.view. Do you see this as something that ismaterially widening in the past few weeks?I do. And I think that by design, again, theattacks on October 7th were made to elicit a certain type of response.And part of that response, too, is to place strain between Israel's allies.Just show where there was daylight. And so as much as this is a war that'sbeing prosecuted very locally in Gaza,.

It's also a war that's happening on amuch broader stage. And we've seen the strain that isexisting between the US and some of its European allies and also, you know,fears that have existed since the war's outset of a regional war in the MiddleEast. So it's an incredibly delicatesituation. You can see that clear and presentdaylight within the electorate as well, Eliot, playing out on the streets ofsome of the major cities of these countries as well.If I may, I want to talk about Iran as well.The Wall Street Journal reported.

Yesterday that the Biden White House ispressing allies not to confront Iran on the nuclear program.And we ask the question, yes, and I think it's the right one.Just what is the policy of this administration towards Iran?And it is the one. Well, it was certainly seemed to be arather incoherent policy right now. And you're also seeing that thatincoherence follows on, you know, many, many years of appeasing the Iranians.And the Iranians have their fingerprints all over current events in Israel and inGaza. And right now, it would seem that kindof a stronger hand against the Iranians.

Would probably be the better course,particularly considering just sort of the weakness that exists within theregime. You know, sometimes we set up Iran asthough they are ten feet tall and they aren't necessarily ten feet tall, and weshould treat them accordingly. Thank you, sir, for that final word, andI commend that on the latest in the Middle East.To Amira, you asked the question yesterday.Far more important this morning after that report in the Journal and far moreimportant after, we also reported that Iran increased its stockpile of nearbomb grade uranium.

This is the problem.The United States doesn't want to potentially go out to Iran and, youknow, put more sanctions on there, enforce the sanctions.They have very different policy than the Europeans actually want to see rightnow. They're unwilling to take a strong,strong position on this, at least because they're unwilling to disrupt orat least risk disrupting the global energy market.And a lot of people might say possibly you'd agree with them, too, that this isabout the oil market and gasoline going into the election in November.That's why people are drawing a parallel.

Between their stance on Iran.I'm talking with the White House and how they're pulling away from Europeanallies, as well as their stance with Ukraine not going after assets inRussia, energy related assets in Russia, diverging from some of also the Europeanallies on that front. Brent Crude 8490.We're up by 0.8%. Coming up very shortly, we'll catch upwith Bloomberg's Jen Zambezia. As the party of Nelson Mandela faces itstoughest election since taking power in South Africa.That conversation is coming up next from New York City.This is Bloomberg.

You said this new hybrid from beingwhite. Listen to this.The range capable of travelling more than 2000 kilometres without rechargingor refueling. So this is like New York to Miamiwithout recharging or reseal. On one hand you could say if you reallywere committed to the transition to electric vehicles, you would welcomeBYD to come in and all of a sudden your range anxiety would go poof.And then at the same time, what else would go poof?Didn't even get to the price. 3,800.This is what we're talking about with.

Some star a little bit later thismorning in about 60 minutes time. Should we be embracing China'scomparative advantage to deal with some of these climate associated risk, giventhat they can manufacture a car that goes 2000 kilometers without rechargingor refueling and they can do it for 3,800?Well, you need to decide at the White House, do you care more about climatechange or to care more about union jobs and potentially national securityconcerns? When you look at electric vehicles andsome of the data potentially in these smart cars?Paul Romer, who is the chief economist.

Over at the World Bank, typicallysomebody who would celebrate the idea of internationalism and global trade,talking about how there is a necessary pull back and trade just simply becauseof how some of the globalism was executed before us for the mistakesmade. So the question that I have is what arethe correct lines given how we weigh different goals, Right.If you want this transition to electric vehicles faster, well, maybe you have togive a little on this idea of what competitive advantage China has, theoversupply. If you prioritize the way we get there.Well, how much do you have to push back.

Your vision of a truly electric fleet ofvehicles? The answer you'll get from a politicianis everything we can do all at once. Just sitting here and watching how thisplays out. It is clear there is a hierarchy ofobjectives and you light some of them out.The number one objective is getting re-elected in November.And if you embrace that 4,000 vehicle, you're not getting elected in November.Especially because if you think about Michigan, that is the key state toreally be catering to in Michigan is watching this very carefully and doesnot like the idea of a 3,000 electric.

Vehicle that can go from New York toMiami without being recharged. That is being subsidized by the Chinesegovernment and it's going to drive them out of work.And not just Michigan. Where's the president today, this angstabout China potentially taking U.S. jobs?He's in Pennsylvania. Once again, the president is speaking inPhiladelphia and this story is top of the agenda.Big time equities right now, the S&P. Welcome to the program.We're positive by 0.6 or rather negative by 0.6 on the S&P.On the NASDAQ, similar move lower under.

Russell were down by one full percentagepoint in video. It's been an island and maybe we can siton that just for a moment. We've had three days of gains and we'reup 20% over those three days. A massive company, $2.8 trillion inmarket cap. We've added close to 500 to that in justthree sessions. And if I told you that, Lisa, going intoearnings, you would have said this equity market with ripped alongside it.And it just has it. And it's been really surprising to seethat play out in videos when has been in videos alone.And to me, this is the fascinating.

Point.They're a winner take all story. They're not necessarily a harbinger ofthis transition to artificial intelligence, saving all of the otherindustries in the same kind of way. To me, front and center, the reason whyI was emphasizing bond auctions was because front and center very much isFed policy. Again, the fact that Fed policy canshift around the equity market, which, you know, James Athey had some strongwords about, really tells you how much uncertainty there is baked into and lackof conviction among a lot of equity in the bond market.Just a moment.

This is what Peter Chair the academy hadto say. I'm not sure how many people had invideo at roughly 10% with the Nasdaq 100 down on Thursday.That certainly wasn't a scenario I thought was plausible.Yet it happened. Then he said this.It makes me wonder about market participation and liquidity.Those two issues, especially at a time where everyone's at the beach, as Emorywas mentioning. But it raises something else that peopleare talking about. There's fake liquidity right now in themarket, especially with zero days to.

Expiration trading, especially with someof the ETFs. There's basically this feeling thatthere is volume but not liquidity. People are trading but are going to stepaway if there is true volatility. That really does leave people uncertainabout the outcome. That's a fear people increasingly have.It's with the stock market and it is with the bond market.Well framed, massive move. NVIDIA, a shaky move yesterday in thebond market to Lisa alluded to that. So let's talk about it.Here's the two year ten year 30 on the session, a two year getting closer to5%, pulling back just a little bit this.

Morning by two basis points to four 9539going through yesterday. It was four days of yield shiftinghigher at the front end of the curve on a ten year getting closer to 464 5599.If you missed yesterday's session, we had a couple of softer auctions.Lisa, We'll get another one a little bit later.$44 billion of seven year notes at 1 p.m.today, Eastern time at a time when the long end really is a point of realquestioning. We've already seen the sell offdisproportionately hit the front end with the idea that maybe the Fed's goingto have to remain higher for longer, but.

That will ultimately bring down in.Lation. What happens if people start talkingabout structurally higher inflation and a yield premium based on the deficit,based on whatever else you want to throw in there?Yesterday, dealers were stuck with the second highest percentage of five yearauction notes since September 2022. You can get this feeling people haveuncertainty on the front end on the mid end.What about in the long end? Speaks to some nervousness.And if you're sitting at the front end, then the seven year is going to beinteresting.

Exactly.A little bit lighter. I want to finish on foreign exchange.The one to watch for the euro today is German CPI.We'll get that number at eight Eastern time.So about 90 minutes or so from now. So look out for that.The euro got into it just a bit softer at 108 42.This one has been quiet, but Donnie yen just beneath the radar getting closerand closer to 160 here Lisa one 5725 And the move with the yen versus the poundhas just been extraordinary. Weakening is the weakest going back to2008.

There is a feeling right now that Japandoesn't have a lot of oxygen to move. They're talking about maybe having tohike rates later, but really moving slowly.At what point do they have to start worrying about it if it's just the sortof slow grind back to when 60, are they okay with it essentially because itisn't disorderly? Or do they have to step in, especiallywith shady loans, kind of, you know, scepter of angst hanging over them,saying, stop it, warn us, don't sell Treasuries.One 5725 Isn't that what that's about? Basically, probably, Anderson.Disadvantage This morning, shares of.

American Airlines falling in thepremarket. The company cutting its profit guidanceheading into the crucial summer travel season.In a separate announcement, American announcing its chief commercial officeris leaving the company. Some people suspicious as to whetherthese two things are connected, but that stock down close to 9%.There have been complaints that this is the person who basically is a chiefrevenue officer. It's called chief commercial officer.And how do they sort of get revenues that are commensurate with some of theirincrease in costs?.

Other airlines arguably have done abetter job. That is the reason why their revenuesare coming in lower, even as a lot of people are talking about a really robusttravel season. You ask the question, John, and I thinkthis is the crucial one. How much is this American Airlines storyand how much is this a broader airline story in general?Guidance from United and Delta are going to be really important on that front.Well, to that point, Jeffrey says that management is in a strong situation whenit comes to cost management. They're in a strong situation, but theirtop line lags their peers.

It also comes under a dangerous.I know you've been looking at TSA, how many people they've screened.People are still out traveling. TSA screened over 10.5 million peopleover the weekend around the United States.That's up about 8% from last year's Memorial Day weekend.Kind of shocking to hear those numbers. And then have American Airlines comingout the long weekend kind of the outlook.But that's where we are and that's where the stock is elsewhere in the bondmarket. So it looks about this Treasury slumpingafter debt auctions for two and five.

Year notes through limited interest.And the Fed's Neel Kashkari said rate hikes are still on the table.You're going to get a bit more Fed speak later from Williams and Bostic later ontoday. Williams at the Economic Club of NewYork tomorrow. Plus the Facebook and an auction for $44billion of seven year notes. So three things on the table.Williams Volume one Beige Book, seven year notes from I take your Pick seven.Your notes I think are going to be most important just based on the price actionof yesterday potentially the New York Fed's Williams is going to befascinating especially because what Mike.

Said typically when it is a New YorkEconomic Club speech, this is where they often issue some sort of policy shift ora broader statement. And I am curious about some kind of newframework that they use to analyze economic data that Loretta mester wastalking about, is that something is going to be kind of codified by Williamswith Mickey and Lisa. It's got to be the double dip, thesecond inning of Williams that I'm interested in at the New York EconomicClub. But also, P.S.is Friday. Remember when we waited every single dayto see what pieces this what drives.

Powell?It's coming out on Friday. What does that data potentially say tothe Fed? Looking forward to that number in acouple of days time. I want to turn to China just briefly.The IMF raising its growth outlook for the country to 5% for the year from 4.6.The fund revising the outlook after a better than expected start of the yearand added government support. The rate is also coming despite anongoing slump in the housing market, which is weighing on domestic demand.Also an upgrade for next year. So there is a hope that maybe thiscontinues, especially with some aid from.

The government in terms of buying upsome of those empty homes to try to cushion the housing market.And we heard that from Kitty Gopinath as well.The the first two deputy. What's her what's her first deputymanaging? Basically, she's that she's one of theheads of the IMF now for promotion still early six know what is the title ispeople are still investing directly thank you thank you first interview oflike a month ago I know she was wonderful to her as the intellectualleader of the whole group. Let's hope she's not watch it in SouthAfrica this morning, at least, you know,.

Just for that little moment of thisprogram in South Africa, voters heading to the polls in the closest election inthe post-apartheid era. The African National Congress facing itstoughest fight since taking power in 1994.Blimp exchange numbers. Archer is in Durban, where the latestJan is one of four to catch up with the. And I've been anticipating this momentfor quite a while. Just help us understand how big thismoment is for the country you're in. That's right, John.I mean, really, when we think about just the position of South Africa as Africa'smost industrialised economy, but take a.

Look at what the past few years havebeen. This is really shaping up to be anelection where voters are really going to cast their vote for an economy thatthey believe they think they need to see here in South Africa.And so if we just take a look at where the economy has been.33% unemployment, a much of it amongst the youth, There have been issues aroundelectricity, port and rail infrastructure has been a problem andreally hobbled any sort of economic growth in this country and in particularwhere I'm at in Durban. It is it has the busiest port insub-Saharan Africa, but you wouldn't.

Know that based on really the growthprojections and the numbers that we've been seeing lately.And so, you know, just saying all that, just to contextualize really howfrustrated South Africans feel. But at the same time, as you werementioning there, John, the African National Congress has been the majorityruling party here in South Africa since the end of apartheid back in 1994.That has been 30 years. And so this could really be a seismicchange for this country if this is the first time that they're going to have toform a coalition with another party. Jim, what would it actually mean if theANC loses its parliamentary majority,.

Given the fact that they've been inpower for more than 30 years? Exactly.There's a few scenarios that we are playing out, Amara, when we think aboutthis. So, you know, the ANC could potentiallyretain this 50% majority and there's not so much of a change, even marginallybelow that. We're taking a look at the ANCpotentially teaming up with some of the smaller parties and not necessarilyhaving to concede to a lot of demands from a smaller party.The big question is what happens if they dip below 45% majority because in thatcase, they would then have to find a way.

To team up with some of the biggeropposition parties who could then potentially demand some ministerialpositions or other positions. And so that's really what investors havebeen focused on in the lead up to this election, because if we do seepotentially that dip below 45%, we could really see a change in terms of fiscaland economic policy moving forward. But, you know, if we just take a look atwhere the rand and also bonds have been lately, it is not the best case scenarioto see the ANC, the ruling party team up with a populist party like the EFF thatis trying to nationalise the Reserve Bank in mines.But the question is, how are voters.

Actually going to vote today?And then how will that then affect the economy and policy moving forward?Hey, Jen, good to catch up. Looking forward to the results andhearing from you over the next couple of days.Jennifer Samp is out of there. I flew in back in South Africa on thelatest. South Africa did something reallyinteresting, the president, Ramaphosa. He basically gave a new term to suchKenya at the South African Reserve Bank. And when I caught up with him in D.C.to basically insulate the institution from the election cycle, now this is anemerging market sensitive to those.

Concerns.We're seeing things happen in places like South Africa that maybe peoplewould like to see in the United States, and that's not going to happen.Basically, there was an understanding that in order to have a more developedmarket type of economy and protect the independence of a central bank, you hadto do a move like this. At the same time, to your point thatpeople are speculating maybe there would be a Federal Reserve Reserve that losessome of that independence with another term, albeit unverified.You know, in terms of actual policy. But you're right.I think a lot of people are looking at.

This as sort of a bellwether moment, asensible moment for South Africa. Let's get an update on Stories Housewhere this morning, Commercial Impact Brief with Dani Burger.Hey, Danny. Hey, John.US pharmaceutical group Merck is reportedly buying IPO, an AI drugstartup that says that the deal is worth .3 billion of an upfront payment.Upfront payment with a further .7 billion dependent on certain milestones,they said. In an interview with the IPO, CEO Merckdeclined to comment. Famed short seller Jim Chanos is beingsued by one of his partners.

Chanos is accused of taking 0 millionin loans from the company over more than a decade and using them as a, quote,piggy bank. The lawsuit from Conlin Holdings alsoaccuses Chanos of selling a miami luxury apartment for 7.8 million and thenusing his girlfriend as the sales agent to net her more than half a milliondollars in commission. Chanos tells Bloomberg that the lawsuitis published puzzling and baseless. Elon Musk's A.I.startup has locked in yet another investment.This time it's Cathie Wood's Ark Venture Fund, which has purchased a stake in theNation A.I.

Company.The stake represents about 2% of the fund's holdings.Last month, the fund disclosed a position in open A.I.that made up about 4% of its holdings. Our chief futurist said that A.I.Foundation models are going to be worth multiple trillions of dollars.By the end of this decade. And that's your Bloomberg brief.John. Danny, thank you.Much more from Danny in about 30 minutes time.Next on the program, a divided consumer. We're bullish on the consumer globally.There's nothing that suggests we're in.

Any kind of approaching a cliff for theconsumer. The Chinese bullish on everything andcome on. Well, basically said if you bring himtogether with the knives it's like he's bullish.Bright colors and fireworks. That's next on the program.You're watching Bloomberg Surveillance. The S&P 500 pulling back just a touch onthe S&P were negative by 0.6% in the bond market yields a little bit higherby a single basis point on a ten year for 5619 under surveillance thismorning. A divided consumer,we're bullish on the consumer globally.

We think there's a fully employedworkforce. Wage gains and we're not believers thatthe consumer is going to create a problem either here, Europe orelsewhere. And there's nothing that suggests we'rein any kind of approaching a cliff for the consumer.Here's the latest. US consumer confidence unexpectedlyrebounding in the conference pool, its latest gauge of sentiment, despite theincrease confidence trending lower in recent months with the you may sentimentindex standing at a six month low. Amanda Lang and BlackRock writing this,the U.S.

Consumer remains notably bifurcates it.This helps explain some of the conflicting data points released aboutthe financial health of the U.S. consumer in recent months.Amanda joins us around the table. Amanda, good morning to you.What do you think? Can we talk about that contradiction inthe economic data? How does that showing up in markets atthe moment? Yes, So I think just to frame it from abroad perspective, you've got a consumer, the top 20% from an incomeperspective, generating nearly 40% of spending, 87% of them are homeowners.At the lower end of the spectrum,.

Obviously contributing a much lowerpercentage of spending more likely to rent in certain markets.That matters less in this market. It matters a lot because you've had homeprices up 49% using the Case-Shiller index since December of 2019.You have borrowing costs for consumers that are in a net debt position, prettyelevated in terms of credit cards. And then you have equity market gainsfor the consumers that are a net asset position.So that bifurcation has always existed. There's always a high end and a low endin terms of income. But in this market we believe it'smattering more.

Now how it's showing up in corporatecredit, actually, ironically, sectors like retail have been outperforming thebroader index and high yield in IG. It's a little bit of a different retailmix because you've got kind of mass merchants in home improvement andretail. So I don't I don't see that as kind of adiscretionary spending, but you've got leisure retail outperforming and highyield. So there are certainly there'sdefinitely a cyclical tilt to outperformance in corporate credit,especially in high yield still despite this.And I just think it speaks to this kind.

Of bifurcated consumer where you havethe low end and a net borrowing position.So really getting squeezed in the high end in a net asset position and reallydoing well. It's a basically for the low incomeworker right now, they're not going to be saved.That's what it sounds like, because we're not seeing any kind of creditstress that would prompt authorities to change policy.I think that's right. And just like in credit, where we're notbanking on significant interest rate relief, we're not really seeing that inthe consumer as well.

That would obviously be the same policyrate the Fed has told us as much as the Fed speak.I think you can swing the narrative day to day, but in general, I think there'sjust not an urgency to cut. And even when there is the start of acutting cycle, we're expecting it to be shallow.This, to me raises a question, and I liked how John put it, They're not goingto be saved. How long can this kind of divergencekeep going where there's a cohort that's really feeling pain and that isstruggling with an increase in delinquencies and defaults and aninability to rent it completely being.

Locked out from the housing marketwithout there being some material distress that causes some sort of policyresponse. So two things I would note.One is the New York Fed data gave some some data on this a couple of weeks agowhere a significant portion, around 18% of US consumers are using 90% or more oftheir credit card availability limits. So it just goes to show you that they'rereally stretched in a higher than normal share of those are transitioning todelinquency. So 30% of that is transitioning todelinquency. So I think that speaks to the stress.Banks are telling us that they're.

Expecting consumer related net chargeoffs to peak in 2024, in decline in 2025.Some of those banks are reserving for a 5% unemployment rate, for example.So higher than where we are now. I think the bar is high for Fedintervention or policymaker intervention due to run of the mill credit stress.I think where we saw the Fed step in in the 2020 episode, for example, was whencapital markets were freezing, when there was a concern about creditavailability at any cost. I think that's really kind of thedividing line. I'm thinking about Thomases who as thestrategics yesterday and he was saying.

That he actually thinks thatinflationary pressures are going to return next year, in part because ofwage negotiations. I'm thinking about that lower incomecohort that's really on their back right now.And why wouldn't they ask for bigger raises?Why wouldn't they say we need higher costs, we need higher incomes in orderto survive in this kind of environment? And oh yeah, if you're earning so muchfrom the top decile of income earners, you can afford to pay us more.Why wouldn't that be what happens? Right.And I think one of the really.

Interesting data points that you oftenhear referenced is that the share of the US economy isn't that heavily weightedtowards unionized employees. That is true, however.If you are working at a competitor of a unionized employee and you see unionizedemployees get wage gains. Would you not, to your point, start tokind of comp your own compensation relative to that data point?So I don't think just looking at the share of unionized employment is is asmany do, a representative of. Okay, well there's a cap on wagepressures actually I think it's a lot more translatable across the broadereconomy.

But I think this is the point also thatis the pain point in Europe as well as the domestic services inflation largelydriven by wages. And I think they've just been slower tonormalize. They've definitely improved, butprobably still running ahead of the Fed's 2% target, even if baking in anexpectation on productivity. And so I think it's I think it's part ofthe reason why there's just there's not this sense of urgency to cut from fromthe Fed just given some of these, I think, tail risks on inflation.But then also just in general, a pretty strong growth backdrop when you look atthe high end consumer, the low end.

Consumer, what about the middle class?Have policy basically whittled out the middle class?Well, I think if you look at so I gave that stat of the top 20%.If you look at the top 40% of consumers, they generate 61% of spending.They're still more likely to be homeowners.I, I think it really is the highest of the high end consumer really drivingdisproportionately the spending. But to your point, I think in general,you kind of have this bifurcation of are you in a netborrowing position or a net saving position or net asset position?And that's really what is the driving.

Factor in terms of the consumer health.So where do you see potential cracks, though, in the consumer?Because we heard from a bunch of retailers, they say that consumers arelooking to trade down and Wal Mart's case, even the consumer confidencereport, it was better. But all the right, basically people aretalking about they're struggling with higher food prices.It's really in that lower end. And I think that's really contributingto the dispersion that you're seeing in the credit market, at least for us, isthat dispersion even across sectors but also within sectors is really pickingup.

So if you're a retailer, for example, itmatters what category are you in, what customer are you targeting, what channelare you selling into? All of those things really matter.But I would say, Ann-Marie, it's really it's those customers that are in thoseconsumers that are in a net borrowing position that can't rely on equitythat's accumulated in their home, can't really rely on savings, they don't havethe financial cushion to handle an emergency expense, for example.Those are all things that we're watching.So super, super thoughtful framework. Now the question, what do I do with mymoney?.

What do I put it in credit markets?So I think a couple of things for choice.We're still preferencing floating rate exposures over fixed rate because Ithink that long end of the curve is a bit of a wild card within IG actuallylike moving down into triple B's and we've seen actually triple B'soutperform their higher quality single day counterparts like banks and IG andhigh yield. That sweet spot is kind of in the singleB range. The double B's are more durationsensitive, so be mindful. They're definitely still not chasingtriple C's.

So there are definitely pockets to putmoney to work, but in buying credit you need to be buying for income, not totalreturn. Got it.This was fantastic. It's good to see you as always andunderline them there of BlackRock. And basically I'll make it very simple.You either own a home or you don't. Is that when it comes down to especiallyat a time where rent is going up pretty dramatically?Yes. Because ultimately you are sensitive tothose rising rates if you do not own a home because of that translated intorent costs.

If you own a home and you've locked in3% mortgage rates, it potentially is a different story.If if you I knew where you were going with this saying obviously there's somereal stress out there. It is.That's for sure. Coming up in the next hour on thisprogram, we'll catch up with Victoria Fernandez of Cross, Mark and Retrace.Avacopan is looking forward to this. Tom Steyer of Galvanize ClimateSolutions and ABC's Aimee Silverman. All of that and a whole lot more equityfutures down by 0.6% on the S&P yields on the ten year getting closer to four6456.

We're up a single basis point from NewYork. This is pulling back. This rally is about earnings growth.Earnings growth has been remarkable. That mega-cap growth trade is stillquite expensive. It's still quite crowded and it's gotdecelerating earnings growth and being overweight tech, given that it's 30% ofthe index, to me it's almost wrecked. Utilities have been under owned for avery long time. The whole thing that the air is going tolift everything. I think that story's run its course.This is Bloomberg Surveillance with.

Jonathan Ferro, Lisa Abramowicz andAnnmarie Horden turn at the second hour of BloombergSurveillance begins right now live from new york city this morning.Good morning. Good morning.Equities right now pulling back by 0.6% on the s&p 500.Your line up looks like this a little bit later on.The base book will be released. You'll hear from New york fed presidentjohn williams to look out for that and promote top of the path for, you know,$44 billion worth of seven year notes coming to market after twin auctionsyesterday came and of itself the fact.

That they came in soft and their shortend of the yield curve, they're basically short term bonds.The fact that people did not clamor for two year notes to me indicates a bit ofexhaustion or lack of clarity around what Fed policy could be.I understand maybe the idea of a rate hikes isn't exactly the base case, butstill having that even openly discussed by Fed officials makes some peoplenervous. It's worth saying it wasn't just thesoft auctions, it was also the economic data and economic data that maybetraditionally wouldn't put a ton of weight on.Rather like the premise of, say, last.

Week, it was the consumer confidencenumber that started to show a bit of a bounce.We bounced back that, too. And I think that reinforces the hawkishFed speak. It's not that it was anything new fromKashkari, it's just that when you say it and the data backs it up, I think itturns the volume up on it just a little bit more.Consumer confidence unexpectedly on the rise.First time for the first time in four months.What I would say, though, when you look at what data Peterson says, the chiefeconomist at the Conference Board,.

According to me, is right in responses.Consumer cited prices, especially for food and groceries, as having thegreatest impact on their view of the US economy.So, yes, some are a little bit less downbeat about the outlook of theeconomy, but still this theme is not abating.This is the idea that prices are still too high for many people for their basicneeds. All I can say is remember how we weretalking about S&P global PMI suddenly shaking a market.The idea that conference for consumer confidence that looks basically like aheartbeat it's like zig zagging across.

The screen could really dictate wherepeople are at gives you a sense of just how susceptible people are to anythingthat can confirm a narrative on a given day that otherwise seems ratherlistless. That's the Fed speak and the debtauctions. Let's talk about the deals.This from Conoco to buy marathon oil in an all stock transaction.This is what they have to say. The deal enterprise value 22.5 billionUSD. This is Conoco buying marathon oil in anoil all stock transaction. Paramo We've seen this a few timesalready over the last 12 months or so.

Exxon.Pioneer. Chevron.Hess. Here's another one in the mix.What's fascinating to me is there's no debt in this deal.I remember back in 2014, during the shale boom, it was all driven by theleveraged finance market. Now, this is driven by fundamentalstrength and by stock. This is a much more financially stableindustry that is gearing up for even more production later on.I was speaking with someone in the oil industry yesterday who basically saidthere isn't really a limit to the.

Production of shale.A lot of the technology is actually increasing the potential production muchmore, which much greater degree. Which raises the question, if it's 13million barrels now of US production, what could it be in a year's time?It expands their footprint in this domestic shale.This is a resurgence almost of American oil and gas under a president who oncecalled them what, John, stranded assets were north of 13 million barrels a dayfor a president who wants to be the cleanest, most pro climate president inhistory. And we have record U.S.production.

Conoco has been super, super acquisitivethrough the pandemic. The same thing I remember they tookShell's assets and the Permian. So I'll get to some more details, by theway, if you want. Just joining us, Conoco is going to buyMarathon Oil all stock transaction. This is what they have to say aboutbuybacks, buybacks to be have a $20 billion over the first three years.They go on to say Primo that the deal would immediately and to earnings andcash from operations. That stock is down by about 1.9%.Marathon is up by about a half a percentage point.And we were asking about how much more.

Of this would we end up seeing.And it looks like quite a bit. Conoco is down just a touch in earlymarket trading. But to me, what this indicates is howmuch more of this tie up can you expect, especially given that maybe thisadministration would be more amenable to allowing some of these transactions togo through in order to create that resilience in the face of some of thegeopolitical threats that remain pretty much looming large?More on that story throughout this morning, if you want just to and I guessI want to get to the broader price action as well for you.The scores look like this on the S&P.

We're negative by 0.6%.Yields are higher by a single basis point on a ten year for 5619.This our. We'll catch up with Cross Marks VictoriaFernandez As stocks fall on hawkish Fed comments, the co-founder of GalvanizeClimate Solutions, Tom Steyer, with an optimistic view on climate change.We'd love his thoughts on that deal this morning, too.And ABC's Amy Silverman on the market Uncertainty around the Novemberelection. We begin with the top story in themarket. We're stuck in the Fed waiting game,stocks falling on the back of hawkish.

Comments from the Fed's Neel Kashkari.Victoria Fernandez across Mark writes in this We continue to see volatility inthe markets as the uncertainty surrounding the right path in the USremains high, keeping US cautious. As cracks in the labor market begin toappear. Victoria is with us right now.Victoria, let's start with the sustainability of this uptrend.Other question marks around that. Now, given that we've seen a big move inthe biggest name, the most important name of this equity market, three days,20% gain for NVIDIA and this equity market more broadly has done nothing.No, I think you're absolutely right,.

Jonathan.And Nvidia is kind of playing a game all by itself over there and the gains thatwe're seeing. But you look at the rest of the marketand there are some concerns. Look at the diversification and thedifference between the Dow and the transports.That's worrying to us. Transports have been coming down prettysignificantly. That's usually a key indicator and aleading indicator of what we're going to see in the markets.And so we're seeing that divergence come there.We're seeing cyclicals no longer being.

Leadership.We're seeing other names start to come out.Now, cyclicals are becoming leadership overseas.So we're starting to see a pickup over there.But pulling it down here and look, a couple of weeks ago, Jonathan, when wewere talking, you said, Victoria, where is the weakness in the market?And we've started to see that now since we spoke last time.You're seeing weakness in the consumer. Look at retail sales.We are actually flat with real retail sales over the last four months.Regional PMIs regional manufacturing.

Reports are weaker as well.There's different weaknesses that we're seeing.Housing also we've got a 5% gain in housing prices right now, which again,all of this feeding into the idea that the Fed is going to be very uncertain inits path forward. And I think that's why we'll have avolatile market going forward. Victoria, sometimes it's difficult todraw a distinction between a single name issue and a broader sector problem.Great example of that this morning is American Airlines.The name is down by more than 8%. They've had to cut the outlook.How would you distinguish between a.

Single name issue in that sector and abroader sector problem? Yeah, you have to really take a stepback and look at what's going on across the board.When we look at airlines and and, you know, we're not strong holders ofairlines in our portfolios, but when you look at American, they have had someidiosyncratic issues going on there. We know that they have a key individualleaving. That person was responsible for some ofthe revenue generation, especially around the credit card issues that theywere having where they had not succeeded like United has done, like Delta hasdone.

So there are some issues specificallyfor American. But you also have to wonder if thattravel sector that had such a huge comeback after COVID, if that's going tostart to pull back as we see the lower income and the middle income consumersreally struggle. I know in the in the little montage thatyou all played, there were different voices in in regards to whetherconsumers are doing well or not. But we are seeing those lower and middleincome consumers struggle both in the balances they're carrying on theircredit card. You've got almost 60% of those lower andmiddle income consumers carrying.

Balances, and now they're turning to thebuy now pay later, which doesn't even show on their credit reports.That's a whole nother issue where almost 10% of those people are using it to buynecessities. So it tells me we're going to bestruggling with the consumer. So that could flow through to the sectoras a whole going forward. It raises the question, what does itmean to be cautious? And we hear this a lot.You know, we're cautious moving up in quality.How do you even determine what that is? Is that just to continue to buy in videobecause they run the world, is it to go.

Into utilities that are increasinglythought of as an artificial intelligence play and that have been bid up?Or is it go into the oilpatch, which is often thought about as actuallyleveraged to the consumer, but seems to be dancing to its own music?How do you view caution in a new world? So, Lisa, I don't think it's a specificname or sector. When we say we're being cautious, whenwe're looking for high quality names for us, that's in regards to thedependability of their earnings, the quality of their earnings, the cash flowon the balance sheets. I mean, you you look at the energy storyyou were just talking about with Conoco.

Phillips.I mean, they can do these deals because their cash flow is so high and sostrong, it gives them the opportunity to make these acquisitions like marathon.So you want to have companies that have that that cash flow, those earnings thatdoesn't have to be in one sector or another.But I do think it means you have to be stock picking.You can't just pick a sector like you previously and.So Check is doing great. Let's go in.I mean, you look at health care, for example.It's been down pretty significantly.

But you can find a specific name likeGilliatt that we own or you've got, you know, a stock trading at less than tentimes price to cash flow. You've got almost a 5% dividend andyou've got strong earnings. Those are the types of names that wethink fit into that cautious scenario. It seems like a lot of cylinders in theUnited States are working for it in terms of the tech plays in Vedere, amongsome of the others, we're talking about oil.All of a sudden oil prices going up is actually not necessarily so negative forthe United States. It actually is becoming an increasingexporter and sort of more.

Self-sufficient.You're looking at even some of the drug innovations, albeit maybe the obesitydrugs is launching from certain European countries.But I'm just curious, from your vantage point, is the U.S.still the place to be cautious in yet?Look where we want to see some exposure in our clients portfolios tointernational because like as I mentioned earlier, we're seeing some ofthe cyclicality in the market, some of those cyclical names, discretionarynames doing better outside the U.S. So maybe you start to dip your toe insome of those international markets that.

Are doing well.But when you look at the U.S., I do think you have to take that cautiousapproach. And it doesn't mean you're not investedin the market. We are in the market 100%, but you haveto be careful as to where you're putting your money to work.Does it make sense to dump everything into those Mag seven names?Well, probably not. We think we'll see some earningsdeterioration in those names over the second half of this year.And other areas like utilities, like health care, will start to pick up.So being cautious just means be careful.

Where you're putting your money to work.But we do think being in the U.S. makes a lot of sense.Dipping your toe in other markets starts to make sense as we're seeingcyclicality pick up. When you look at the hedge fund exposureto big tech, the Magnificent Seven, that you're saying potentially you're seeinga little bit of cracks, cracks in 20.7% of hedge funds, total net exposure to USsingle stocks. That's what they account for now in inthese magnificent seven. Do you think that's way too much?It seems really strong, right, Andrea? I mean, you look at top five names inthe S&P 500 are almost 30%.

And you look at semis, that's 11% of theS&P. A few years ago, it was only 2%.So we've had this tremendous amount of growth in those names.It it is one of the reasons why we remain cautious Or do we have exposureto those names? We do, but we're underweight versus thebenchmark. So you want to be able to take advantageof some of the gains there, but also be a little underweight because we do thinkwe'll see a pullback and it gives us a little dry powder when we trim thosenames to go into other areas of the market.So it does seem pretty heavily weighted.

And as we all know, there is adifference between their waiting in the S&P on their market cap and theirwaiting in earnings as well. So you have to look at that differenceand decide where you think it's the best place to be.I Victoria busy morning. It's good to catch up so always VictoriaFernandez there across market the broader market right now is -0.6%.There is a deal we need to get you an update on with your news your Bloombergbrief has Dani Burger. Hey, Tony.Hey, John. That's right.Conoco Phillips is buying its smaller.

Rival, Marathon Oil in an all stockdeal, the enterprise value of which is 22 and a half billion dollars.Adding marathon will give Conoco control of assets in Texas, Oklahoma, NorthDakota and the Permian Basin. The transaction is expected to close inthe fourth quarter of this year. Elsewhere, Elon Musk's ex AI startup haslocked in another investment. This time it's Cathie Wood's His ArkVenture Fund. It purchased a stake in the Nation AIstartup. The stake is about 2% of the fund'sholdings. The purchase comes a month after itdisclosed a position, also an open AI.

That makes up roughly 4% of itsholdings. Ark's chief futurist said that thepurchase that means that now foundation models are going to be worth multipletrillions of dollars by the end of this decade.Chinese carmaker BYD unveiled a new hybrid powertrain that's capable ofgoing 1250 miles without a recharge or refuel.That's the equivalent of driving from New York to Miami.In a livestream event, the automaker announced that it will use the new techin two sedan models that will cost under 3,800.Now, for now, it'll go into made in.

China cars, but they're likely to beexported soon. And that's your Bloomberg brief.Jon. Danny, thank you.More from Danny in about 30 minutes. That story presents the perfect questionfor politicians right now. Should they embrace that or not?If they want the transition to electric vehicle futures?Well, you don't have range anxiety here. You don't have a lot of the potentialnegatives that a lot of people are talking about.And it's affordable. On the flip side, if you really dobelieve this is a new era of industrial.

Policy, it becomes really problematic toembrace a Chinese vehicle, even if in a. Producer actually wrote this, and itmakes a lot of sense, even if it's 100% tariffs on this car.But sure, it stops. It not does that.It's double what? It's 11,000, 4,000.Yeah, I'm not sure that's going to make a big enough difference.Tom, stop, by the way, 15 minutes away. A lot of thoughts on this, I'm sure.Next on the program, the White House holding the line on Israel.The president doesn't make decisions and he doesn'texecute on policy based on public.

Opinion polling or on popularitycontests. He bases his decisions on our ownnational security interest. That conversation just around thecorner. Live from New York City this morning.Good morning. Live from New York.Welcome to the program. Equities right now down by 0.7% of £5,0.66 to be precise. It's bleeding a little bit higher.Again, we're up two basis points, getting closer to 464 5698.On the US ten year. And this event is this morning the WhiteHouse holding the line on Israel.

The presidentdoesn't make decisions and he doesn't execute on policy based on publicopinion polling or on popularity contests.He bases his decisions on our own national security interests.What's at stake for our safety and security here at home and abroad?Sometimes what's in the best interest of your alliance and your partnership is tobe candid, forthright, even tough with your friend, which we have been able todo with Israel. So here's the latest.The White House saying it will continue sending arms shipments to Israel despitethe IDF deadly strike on an encampment.

In Rafah.President Biden opting to stand by Israel even as he's facing increasingpressure from voters in his base. And what to try to say to partners rightin this in states where there are substantial college graduates andcollege towns and disproportionately large populations of Arab and Muslimvoters, Biden is actually doing better than he has elsewhere in the nation.Henrietta joins us now for more handed of place.You've brought this subject up. You see in the polling it's so clear, itjust makes you wonder how relevant what is going on in the Middle East as towhat's about to take place in November.

Yeah, that's exactly the right way toframe it. I think when you're watching a proteston TV, it feels all encompassing. And if you're a senior about to go offto Columbia, it's a very important component of your decision makingprocess. But for the average American, this isjust not a factor. Americans are famously not attuned toforeign policy. The president's commitment to Israel hasbeen pretty unshakable. The last major bipartisan piece oflegislation that will pass until November was specifically to provide aidto Israel, a battle that President Biden.

Fought for seven months with the HouseRepublican Conference. So the commitment to Israel is plain.American support for the protests and any kind of effort to denigrate Israeldomestically is at 23%. It's a very small subset of the UnitedStates, and the bigger areas of concern are plainly from your polling data andothers are plainly on other issues. And I think one big one is going tosupersede the narrative this week, which would be the conclusion of the Trumptrial. The reason I point that out is becausejust a few weeks ago, 22% of Indiana voters decided that they wanted NikkiHaley to be the nominee, not Donald.

Trump.But it was it was primarily in suburban, white, affluent, married areas.And the disparity between support for Trump and between men and women wasabout ten points from men favoring him and seeing more favorable news cyclesfrom him and maybe tuning out the court trial to ten percentage points.More women seeing some bad news about the former president in the last week.So those are some of the data sets that in your polling and others is reallystand out as opposed to the Israel-Gaza conflict, which is going to continue torecede in voters minds, especially as we head into the summer months.And it'll pick back up in October and.

November if it's still going on.But the president's line is pretty plain here, Henry, And it could take hours,days, weeks, potentially, until we know what the conclusion is going to be ofthis Trump trial. But can you map out potentially what thestrategy is going to be from the Trump camp and the Biden camp if Trump isconvicted? I can't really speak to it.I think the Biden team is actively trying to be more of a fly by the seatof your pants, sort of Let's see what happens.You know, they threw out Robert De Niro yesterday in sort of a last minute adhoc press conference.

I think that's going to be the approach,the design. And I think to tie this into thedecision about the debate, the design is to break through the media cycle.So whatever they can do, they had largely been ignoring the Trump trial.And I think the Fox News audience has a different narrative around the Trumptrial. And what the Biden team is basicallyacknowledging with their debate is, hey, we are not breaking through eithermoderate to maybe adverse Republicans in the trump camp right now to RFK jrvoters, even to Democratic voters, particularly youth voters, to try to getout this message, whatever it may be in.

A way that breaks through that they havenot been able to do for the last year. We do see the president trying to breakthrough when it comes to the blue wall. The Philadelphia Inquirer talking todayabout this is Biden's third trip to Philadelphia and sixth to Pennsylvaniajust this year alone. Is it working?This is exactly the issue that the Biden team needs to work on.And it goes back to John's question earlier.The Nevada Arizona contingent is so much further underwater for Biden than theblue wall of Michigan, Wisconsin and Pennsylvania that it is playing and Ithink good campaign strategy for the.

Biden team to really focus on the RustBelt. You just did a segment and we'll doanother one on the electric vehicles coming in from China.Those tariffs are extraordinarily popular.Whether they're effective or not is one thing.An export control ban and import control ban would be highly effective.A tariff is just a one time here to tax the EPA.You know, as you point out, if you're going to pay for that car in the firstplace, you're probably comfortable paying a 2% tariff.You want the the certainty of it.

But the path to the Rust Belt and thepath to winning for President Biden is straight through those blue wall statesright now. And that's what they really need toconcentrate on shoring up. So I'd expect to see Biden there morethan, say, Nevada or even Georgia, North Carolina.And I want to sit on the electric vehicle question for a minute, becausewe were talking earlier about how it's really difficult to get a handle on howwe rank some of the priorities of this administration.Arguably, if inflation is the number one issue for a lot of people, the idea of a3,000 new car that can be charged once.

And drive from New York to Miami soundspretty good. How strong is the support for tariffs atthe expense of higher inflation? And how clear is the message right nowfrom this president? Well, I think you have to focus on whatthe tariffs actually do, especially if you're going to have the inflationconversation. It's the tariffs on components that area lot more inflationary because they go into so many more vehicles as opposed tothis new flash in the pan, you know, fancy vehicle that's coming in.It's untested and maybe you can't get from New York to Miami.But how many people are really trying to.

Do that on their electric vehicle?So the tariff on imports of whole vehicles, of which there are not thatmany imports, is very different than the tariff on components.I would say that it continues to be our view here to partners that the tariff orexcuse me, the export control restrictions around semiconductors,around investment, around what components can go in and outside of theUnited States and potentially travel to China is far more punitive than any ofthe tariffs that they could put on. So when Ambassador Tie pulls together awhole of administration effort on challenging China, you see it insanctions, export control, restrictions,.

Tariffs, but not just on the finalvehicle that's more flashy, but a very small fraction of actual imports, kindof like the steel tariffs. You know, they put a three times highertariff on steel, but that's only 2% of the imports that we have here in theUnited States. So it sounds big.It's really the component pieces. And I think the export controlrestrictions that are much more impactful.We were planning a whole show around this.We were going to expense the new with a 3,800 premise was going to drive usfrom New York to Miami.

So that was the plan?Yeah, evidently, Because am I the only one?No. You drive, right, Emery.I have a license that technically I'll bedriving. Hence why I said exactly how to thankyou and not a trace of a partners. Wally Adeyemo is going to be joiningBloomberg TV a little bit later. Don't miss this, Joe.Matthew Caddy lines the US Deputy Treasury secretary later.My first question would be why shouldn't we embrace that car, especially ifinflation is really a problem and we.

Want to make this world a greater worldthat embraces electric vehicles? It's a really important question.More on this in just a moment. Anne-Marie is going to go away earlythis morning. Good for you.Hopefully will be back with us tomorrow as jury duty.So I do hope I'll be back with you tomorrow.Tom Steyer on the other side of this commercial break, looking forward tothat. From New York, this is Bloomberg. Live from New York City this morning.Good morning.

Equity futures on the S&P 500 look likethis. We're down by 0.7%.The scores shaping up as follows this morning.And good morning to you. The Nasdaq's down by three quarters of1%, the Russell down by one full percentage point.It's amazing to see this equity market not rally, given what has happenedwithin 53 days and a gain of 20% and a move in this market cap of somethinglike 466 billion USD, Lisa, in one stock.One company even now looking at a $2.8 trillion market cap.Can we fairly say it's a magnificent.

One?Can we fairly say that Stop it with the Magnificent Seven, Magnificent Six,Magnificent Five, and we've gone down the whole range.Now, there is one big winner and it is in video, but what about the other 499?The S&P 500 struggle, especially given the fact that they seem more susceptibleto higher yields. People said the rising for the rightreason. Well, that seemed to sort of bechallenged a little bit in the past couple of weeks, albeit a quiet coupleof weeks. But this idea that maybe suddenly itdoesn't really matter why they're.

Rising, but at some point it's going tobite if the Fed really doesn't really respond to the strength to any kind ofweakness by cutting rates. That's the equity story.Here's the bond market picture for you. Will snap up the yield curve.Two year, ten year, 30 year looks like this.The two year, is it 496? We've had a move over the previous fourdays, higher in by about two basis points this morning on a ten year up byanother single basis point, they getting closer and closer to 460 at four 5659 toauction soft yesterday. You've pointed towards a seven yearauction that takes place a little bit.

Later this afternoon.That's a test for this market, $44 billion of seven year notes after softerthan expected auctions on the front end. Remember, everyone was bullish in thebelly of the curve. Let's go to the medium term.We can't go all the way out, but medium term, it's going to be a positiveenvironment. There's no way we're really going tohave 5% interest rates over the next five years.Well, maybe not. Right.And suddenly the fact that you have softer than expected auctions there justpaved the way for that much messier of a.

Seven year note experience thisafternoon. I think it's really important.I mean, yes, it is not a liquid market right now.It's summer. Everyone's away barbecuing at the beachhouses. But still I'm watching that coupled withbetter than expected data last week on the PMI and yesterday we consumerconfidence and the softness this morning here's the line up Fed speak withWilliams and Bostic on deck today. We'll also get the beige book at 2 p.m.Eastern time. That all following comments from NeelKashkari that the Fed hasn't completely.

Taken a rate increase off the table.I'm not sure what I thought about those comments yesterday.I think he's kind of stating the obvious.That's basically what they've told us repeatedly over the last few weeksanyway. They can't take anything off the table.I agree. I think just the tenor of it maybe movethe needle. I think more it was the auctions,though, and the consumer confidence coming in at one or two versus that inthe nineties as people expected I'm with you.I think that it's just sort of on the.

Margins, not necessarily thatsignificant based on this prior rhetoric more Fed speak and look out for thatauction a little bit late this afternoon.Just a quick update on the latest in the Middle East.The White House saying Israel's deadly airstrike in Rafah didn't crossPresident Biden's so-called red line. It comes as international condemnationgrows following the attack with French and German leaders calling for animmediate cease fire and elsewhere. Anglo saying it won't give BHP any extratime to commit to a takeover, likely spelling the end for now, at least ofthe $49 billion deal.

The takeover would have created theworld's biggest copper producer at a critical time.The metal is seen as the key to the energy transition, with annual demandset to double by 2035, according to a study by S&P Global.Joining us now really pleased to say is Tom Steyer, co-founder of GalvanizeClimate Solutions and author of a new book, Cheaper, Faster, Better How WillWin the Climate War? And I've got that book alongside me.Tom, good morning to you, John. How are you?I'm good. This is a hopeful book.This is constructive.

Can you walk us through the essence ofwhat I'm holding this morning? Sure.I mean, basically what I'm saying is that the news from the natural worldabout climate change is worse than most people know.And we read that virtually every day. There's a new study saying, oh, youknow, do you know what's happening in the Amazon?You know what's happening in Antarctica? Do you know what the temperature isaround the globe? But what people don't know and what theydon't see but what I see all the time as an investor is the technology response.And what we're seeing is an amazing.

Response in terms of the ability forclean products to win in the marketplace on their own.That's why I called the book. Cheaper, faster, better that you haveproducts that people choose of their own volition for their own reasons.And that's happening across the globe. What we say in the climate responseworld is we're not looking for a silver bullet.We're looking for silver buckshot. Literally hundreds of ideas, hundreds ofcompanies that, in fact, are going to solve this problem in the marketplace.We're winning in the marketplace, and we really have to keep that momentum.Do you think government is helping or.

Getting in the way?Well, I think there's a I'm sure your question really is focused mostly on theUnited States. And I think the Biden administration haspassed a series of legislations that most Americans do not know anythingabout, but which are designed to make clean technologies,the production of them and the sale of them much faster.And so in that ways, government, the US government, has helped a great deal.But what's true is this is an international problem, and we reallyneed international cooperation between countries with America in a leadershipposition so that we have the same rules,.

The same standards, the same measurementaround the world. Let's talk about one industry, which isin the headlines every single day, and it's EVs.And, you know, I'm going with this. We've talked about this all morning,this new AP wide hybrid with a super long range of 2000 kilometers, 3,800.And the policy of this administration and the next one of it's Donald Trump.Volume two is going to be to put up the walls, make it really difficult to buythat car. Do you think China has comparativeadvantages to tackle the things that you're concerned about that we shouldembrace?.

So I think that China has a verytroubled economy and they are using the power of the government to try and winin the clean energy arena to create jobs and some economic momentum.So do I think that BYD gets advantages that, in effect, it is unfaircompetition between BYD and American carmakers?Sure, I absolutely do. Do I think that a 3,000 car that youcan drive to Miami from New York is a game changer in terms of clean energy?I also think that do I think you guys have been talking we're just talking allthe time about I think they call it inflation.It sounded like the 1980s in this room.

Every single day.Yeah. I mean, crazy attention to every singlebond auction. Yeah.Okay. Well, you think a 3,000 car makes adifference in terms of the inflation equation?Absolutely it does. So when we look around the world, thisis a global problem. It requires a global solution.China is the biggest emitter by far. Almost a third of global emissions.It is also the country which is focused on winning this from an industrialstandpoint, you know, leading in terms.

Of solar panels, EVs and everythingelse. So, you know, as far as I'm concerned,from an American standpoint, we have to compete in this.This is critical for us. Game on.But everything we do in that will, in fact, help save there is this crisis.There is ultimately a question, though, about industrial policy in places likethe US and Europe is less efficient than, say, having it all in acentralized place that's perfecting it. It's not advantageous to uscompetitively, but it isn't necessarily going to advance the aim of trying toget to a cleaner world.

If everyone has their separateindustrial policies, it's competing and duplicating all of the processes.I mean, how much do you sort of embrace just some of the cheap goods and howmuch do you say no, national security trumps some of the environmentalconcerns, at least for now. I absolutely I get that.I mean, at my heart I'm a believer. Maybe it's from my Econ 101 coursesdecades ago. I'm a free trader in the sense that,yeah, the world produces the products in the places where it's best to producethose products, and American consumers get the advantage of that.And we do the things that we do best.

And, you know, the issue is, okay,that's how the world equilibrate. China is dumping.That means they're giving us stuff very, very cheap.That's really hard for us to compete with sometimes from an industrialstandpoint, but from a consumer standpoint, from an inflationstandpoint, from an environmental standpoint, that's a gift to the world.So do you think that there is too much of a sort of industrial policy on aregional basis and they just embrace free trade?Or do you think that right now is a moment to lean into developing andcompeting on a domestic front even at.

The expense of the advancement?What I can see when I talk about silver buckshot, that is hundreds of companiesdoing hundreds of different things, and all of them growing like a weed andcreating a lot of jobs. So I'm not worried about the UnitedStates ability to compete. I know we can compete.And I think when I look around the world, I mean, look, let's just take astep back, show cars. You guys want to talk about cars?What is the car company in the United States that has grown like a weed that'sworth hundreds of billions of dollars, which isn't in Detroit?Okay.

So if we're really trying to protect thestatus quo, which is what I hear you guys saying is we need to protect thestatus quo, the existing companies. That's really hard to do.Like the companies that are going to succeed are the companies that are goingto be on the cutting edge of the cheapest, best, cheaper, faster, better.Okay, let's produce the cheaper, faster, better products.And let's what we're saying is we need to protect these jobs that exist incompanies that aren't evolving fast enough.Now, is it true that China's dumping. Yeah.And when you say that a better.

Industrial policy, I would excuse me forsaying this, but really, because I take a look a little deeper at their economy.Say, well, they've really messed things up to a fare thee well to this point.How much can this be done from central planning?You know, especially through the idea of subsidies for electric vehicles at atime when a lot of people are saying hybrids probably are the better, moreeconomical, ecologically friendly vehicle.So then they'll buy them. That's my point.How are we? I say cheaper, faster, better.How will win the climate war in the.

Marketplace?Yeah, letting people make their own decisions.I don't like central planning. You know what?I think 330 million Americans are smarter than any group of centralplanners in the world, including in Washington, DC.Let the American people decide. That's why I love capitalism.It's dispersed decision making. It's like democracy in economics.Human beings get to make their own choices for their own reasons, andthey're smart. And that's what that's how we're goingto win.

That's how we're going to saveourselves. And that's what we've traditionallydone. We've done that.We've heard some automakers compare and complain about some of the things you'retalking about. And I think it is important.The automakers are saying ultimately, we want to leave it to the marketplace, butthe government is setting these targets that we can't bridge because theinfrastructure does not exist yet. But we get get back to front.We've got it the wrong way round. What would you change tomorrow about thepolicy towards savings and the build.

Out?Well, everybody's focused. To be fair, you guys are really focusedon EVs, which is playing to. Three companies in the United Statesthat are very old that in fact, did not lead the EV revolution, in fact, triedto push back against the EV revolution for a really long period of time.Right. And the company that actually leanedinto it was the one that sells many more EVs than any other company in the UnitedStates. So does that doesn't that making mypoint that in fact it's about innovation, it's about change, it'sabout being in the front with the.

Product that is, in fact, cheaper,faster and better, that that's how we win and that trying to predict, protectpeople from those forces. You know, I always say to people, peoplesay, what will happen if there's a Republican administration?I say, you can't stop people from buying the cheap, good product.You know, it's the old story about King Canute putting his throne in the middleof the waves and telling the waves to stop coming in.Yeah, Good luck. You can't do it.Right. So do you think we're overemphasizingthe importance of who's in the White.

House for this transition?And if that's the case, it's important. Should it matter who is important?But not for the reason you're saying. Go on, tell me why.Because what I'm saying is economics. Trump wins.The good products, the cheap products win.But this is a question about global response, not American response.We're seeing it through American eyes. This world is a lot bigger than theUnited States of America. And it takes it.And so we need international cooperation so that the Chinese companies are heldto the same standards as American.

Companies, so that around the world,okay, China is trying to win this industry.They're by far the biggest emitter of greenhouse gases, and their greenhousegases went up 5% last year. Their greenhouse gas increase was morethan the world's increase. So let's be clear.If we do the international cooperation, that's how we get a level playing fieldwhere if we measure emissions so people know right down through their supplychain, that's how we get every company on the same playing field.That's an under Republican administration.Do I think that will happen?.

I would be very skeptical that aRepublican administration believes in international institutions, ininternational standards, in building the information systems to make all of thatpossible. Maybe I'm revealing too much, but Iremember being a ten, 11, 12 year old and learning about the deforestation ofthe Amazon and not being able to sleep at night.And then, you know, as I got older, reading all of these things about globalwarming and just that we were all evil and, you know, all contributing to therapid destruction of this of this globe. And it made me kind of tune out after awhile, because if I went to sleep at.

Night, I wanted to feel like I couldactually have a normal life. It was hard to even pay attention.How much is that making it difficult to really get people engaged, to really getthe investment strategies to continue with ecological sorts of focuses?Because we've seen a lot of pull back from that.Well, Lisa, that's why I wrote the book to have Lisa sleep.Is it? Well, pretty much to say that I deserveto get paid for it. I'm just I'm not even going to go there.It goes without saying, for goodness sakes, John, That's obvious.You know, my point is this.

Look, there are two big themes inAmerica about energy and about decarbonization and climate.And the means are, one, we're an oil and gas driven society, and that will alwaysbe true. That is not true.That is absolutely not true. Every country in the world, every singlecountry in the world has agreed we need to get off oil and gas.We need to get off fossil fuels. And the second one is we're going to dolook like we are destroying the natural world.We can't stop ourselves from destroying the natural world.You know, all these terrible things are.

Going to happen.And the point of my book is, no, this is a huge struggle that we all need to joinin on, but we have the tools and the abilities to win it.We will inevitably win it, but we have to win it this fast as possible,basically to create a safe society, to avoid almost unimaginable humansuffering, but also to have American lead a new century in terms of doing theright thing and winning. So in terms of the Amazon, the Amazonhas been providing a service to the rest of the world for free forever.It's the so-called lungs of the world, and 30% of it's in drought now, which isa huge, you know, problem.

But what we need, if we have theinternational measurement systems that I was talking about, basically it's asystem for trying to measure value being created and trying to move money tocompensate people for doing all the things they're doing for each other forfree, and charge people for doing all the things to hurt other people forfree. That's really what we're talking aboutchanging in this world. Tom, this was thoughtful stuff andhopefully we can catch up again before November and have a bigger conversationabout this election. Thank you, Terry.Just remember, we can win this.

We will win this.We should keep our chins up and let America do its job.Tom Thank you, sir. Tom Steyer there, the author of the bookCheaper, Faster, Better How We'll Win the Climate War.Let's get you an update on news elsewhere this morning with the Olympic.It's Dani Burger. Hey, Danny.Hey, John. Shares of American Airlines are fallingin the pre-market trade, nearly eight and a half percent.It cut its profit guidance heading into the crucial summer travel season.Airlines are now finding that the.

Revenge travel boom from the pandemic isgiving way to a more cost conscious traveler.In a separate announcement, American also said that its chief commercialofficer is leaving the company. Some deal news for you.US pharmaceutical group Merck is reportedly buying a bio.It's an AI drug startup that says the deal will come in the form of a .3billion upfront payment and then a .7 billion future payment that's dependenton certain milestones. They cited an interview with the CEO ofAI Bio. Merck declined to comment.Officials in Iowa have detected the.

Biggest outbreak of bird flu in twoyears. The deadly disease was found in an egglaying chicken flock and is believed to have affected over 4 million birds.It's the first detection of bird flu in Iowa since December, and the state isthe country's top egg producer. It has about 12% of egg laying hens.The virus has already been infecting dairy cows across the US.And that's your Bloomberg brief, John. It's one story I can't even read aboutthe moment. Danny, Thank you.Next on the program, The fog of November.And we want to be forward looking.

There's a lot of fog out there.There's a lot of clouds, and we're all just stuck talking about the Fed.That conversation up next. Live from New York, this is Bloomberg. Equity futures right now, -0.6% in thebond market shaping up as follows. Yields high yesterday again thismorning, two basis points on a ten year full, 5718 under surveillance thismorning, the fog of November. U.S.based investors again are struggling to come up with the salient differencesfrom an investment perspective between the two candidates.We want to be forward looking.

There's a lot of fog out there.There's a lot of clouds, and we're all just stuck talking about the Fed.Here's the latest FiveThirtyEight and US polling showing former President DonaldTrump leading President Biden by 1.5% as of last Friday.It's Trump's largest lead since April 2nd, when he was ahead by the samemargin. ABC's Amy Silverman writes in thisHistorically, markets tend to run up during the US elections.One exception is if the outcome is unclear, there is a hump baked into thefixed term structure for US elections. However, there is no harm baked in forthe idea that we could have a prolonged.

2000 style situation where the resultsare not immediately known. And we saw this around a table.Amy, good morning. Good morning.Are you suggesting there should be a hump further out?Potentially? Yes.You know, look, I think one thing we've talked about a lot is just thecomplacency we've seen in the markets, in particular the left tail.And there are a lot of scenarios in particular with this election wherethere are so many unknown unknowns of what is going to be policed out that,you know, the idea that maybe that hump.

In fixed term structure should extend alittle further, I think is certainly one worth exploring.Are you actually actively pitching that to clients that this is something thatthey should really think about? Or are you sort of worried about beingperceived as political in any way, shape or form when it comes to this wholenarrative of trading? You know, it's interesting.I think the one good thing about options is you can be a little apolitical in thesense that you just simply talk about magnitude, that not not necessarily thatwe say one outcome happens or another, but just the idea that maybe thatoutcome is prolonged.

But that said, I think it's tricky thesedays to pitch something very long dated. And part of the reason is investors justwant to know what's happening. 30 days and this is only beenexacerbated by zero data trading. But, you know, I think actively we'retalking about the short term. But thinking about the long term, do youthink that people are not really pricing in the presidential election at all,that there's sort of like a de facto hump out there just sort of as a coveryour bases kind of moment, but that people haven't really embraced it in areal way because as your colleague Laurie said, it's like staring into thesun.

It absolutely is.And I'll tell you, you know, we speak with investors a lot.And the same investors who I would tell you five years ago would prepare forsomething like US elections, their tenure, their horizon has shrunk down tomaybe a week. They're now trading CPI p C with threedays left to go. It's like turning in your homework superlate. I mean, that's what we're seeing.And the market structure is allowing you to do this, right?Is allowing to do this. So why sit there and burn the premium?So I do think we're going to kind of get.

To elections and be like, holy cow, whatdo we do to prepare? I just want to pick up on something yousaid. Do you think that explains why we'veseen some of the price action we have seen off the back of some of the datapoints we've had like PMIs last week that we struggle to explain.Do you think everything's become super short term focused?It absolutely has. And one thing I'll tell you is when youlook at just the at the money straddle break evens in front of some of thesecore data points, they have gotten larger When you kind of look athistorical quarters one obviously,.

Because the Fed continues to say we'redata dependent, but two people are just trading those more with, you know, oneday to go or maybe a few days to go. And I think that is exacerbating thesevery, very tight moves, but not necessarily these longer tenor moves.There's another move in this equity market we've struggled with, and I'dlove your perspective on things Nvidia. We've had this move a 20% in three daysand one of the biggest names to the market with a market cap of $2.8trillion at least when I was talking about this earlier, if you'd said that aweek ago, out of sight, this market on the S&P, we're up by three, 4%.Big rally, big moves off the back of.

That.It hasn't happened. We've got an explanation for that,what's going on there. So I think I do, because this issomething we've actually been talking about for a while, probably ad nauseumat this point. But we said it even prior to in videoearnings, which was you're not seeing that right tail sentiment anymore.So the tailwind in the options market has really been sucked out.We saw this exuberance peak in March, but in India and in the market as awhole, that right tail gain that we saw all of last year and beginning of thisyear has gone.

And even after Nvidia earnings whichwere quite good. Right.And a beat its options implied move, we didn't see it reignite either.So look there's no left tail really. It's still relatively inexpensive, butthat momentum on the right side has really, really flagged and I thinkthat's very important. Does that indicate to you that there'smore downside risk, especially in light of a greater macro focus and the ideathat there was a much more negative response to the possibility of higheryields for longer in the past couple of days?So I'll say I'll say two things.

I think it's a little nuanced in thesense that I think there is less upside. Risk because that right tail has reallyflagged, you're not going to get that exacerbation of gamma.But second, that left tail still remains inexpensive.And I do think there is safety in the kind of trades now where you could sellthat upside safely to fund downside, whereas when it video was roaring andall those adjacent things were roaring, you really couldn't do that because youcould have been blown out on the right side.The stock is up again this morning by 0.9% in early trading.Equity futures are down by about 0.6.

I mean, it's wonderful to hear from you.Thanks, as always. Amy Silverman of ABC.Coming up in the next hour, here's the lineup for you.U.S. senators I a Franklin Templeton willcatch up with Scott Devitt of Wedbush Renn Max and they'll talk to alongsideTony Rodriguez of Nuveen Senate Deci Lisa with some thoughts about what'shappening in this bond market. We've heard repeatedly that that's wherethe risk is for equities. We heard that from Mike Wallace in amorgan Stanley just last week. And then the auctions of yesterdayputting even more emphasis and attention.

On the auction a little bit later thisafternoon, especially at a time where even shorter dated bonds haven't reallybeen sold off that haven't really sold that well.Here is the question. How much risk is there in the equitymarket from higher yields for longer? And where is it just going to be ongoingconsolidation in small caps or does it start to broaden out in the rest ofthis? 499 names at the long end would start topick up that sorry, yesterday again this morning, up two basis points on a tenyear, 457 on a two, you're getting closer and closer to 5%.We've had four days of yields rising at.

The front end of the curve.Make it five up a single basis point on a two year yield this morning.That's the bond market. Equities pulling back just a touch onthe S&P 510 by 0.6% in just a moment. German inflation, the euro one away 47negative by 0.1%. From new York, this is Bloomberg. I don't think the Fed is at this pointin any need, nor are they being compelled to move rates in eitherdirection. The hawkish case for the near term is donothing and the dovish case is anything different than that.We could get too much easing before.

Inflation makes its way down to a morestable zone. Perhaps they will find an opportunity toinitiate a rate cut this year, just depending on how the data, particularlythe inflation print, play out. There's a little bit of downside risk tothis market, and I think that's under appreciated.This is Bloomberg Surveillance with Jonathan Ferro, Lisa Abramowicz andAnnmarie Horden. Live from new york city this morning.Good morning. Good morning for our audience worldwide.Very focused on debt auctions in the last 24 hours.Paramo has edited the script this.

Morning, so here it is for you.Seven year notes later, $44 billion worth.That's going to be the main event this afternoon following those two softauctions yesterday, $74 billion of five year notes and about $69 billion of twoyear notes. I love pulling the strings.I feel like I'm just sort of, you know, quietly orchestrating in the back of theroom. I did think yesterday when the auctionscame out, this really was the most important moment of the day, especiallyas you point out, with some of the consumer confidence numbers that cameout hotter than expected and a hawkish.

Tilt some of the Fed rhetoric.Key question to me is going to be how much of these auctions and theindigestion or sort of uneasiness around them is really going to come back to thedeficit because we've been talking about this or the deficit.Does it ever matter? At a certain point, if you start to seeweaker than expected auctions with this expectation that inflation is going tokeep coming in later this year, you have to ask what gives?Yeah, the big test later this year, the vember.I think that's the time in everyone's diary on the calendar November in thiselection and how those who say bond.

Market respond to proposals from the twocandidates if you get a Republican sweep this is what Bill GROSS the FTA isconcerned about. He believes that Trump is the fairestcandidate. Directly because of what he thinks isgoing to happen in the bond market off the back of it.And this is exactly what Mike Wilson of Morgan Stanley said.The risk for equities is in bonds, and it's about whether treasuries rejectthis deficit as 6% of GDP. And my question would be typically inbad times for developed market economies, when the economy rolls over,you buy what you buy treasuries.

If we're running a deficit of 6% now,what does that blow out to? What we fund that in quite the same way.And we'll see. We'll see.And I think most people conclude we will.But the risk is we won't. We're not hearing we will fund it fromany candidate. We were talking about that yesterdaywith our guests. There's no one talking about how we careabout the deficit. It's all we're going to create astronger economy that's more competitive at an international level with moreproductivity, and we can grow our way.

Into this deficit as the deficit growsat a faster pace than the economy. Here is the question At what point doesthe bond market care? Is it already starting to care on themargins? Maybe it's not going to be a Liz Trussmoment, but do you start to see that premium just creep in slowly and slowlyand make it much more difficult to fund the deficit on the margins as a result?I shop here. Neuberger Berman What did he say lastweek? There's a clear in price for this andthe rates are going to be higher and it's why he doesn't like duration.He does not like long dated treasuries.

Specifically because of this reason.I don't think that's a consensus view yet, but he's certainly getting companyas the weeks go by. We've heard that from other people,which is the reason why I thought it was fascinating that yesterday the belly ofthe curve, the five year notes that we normally see quite a lot of bullishnessaround actually saw weakness in this auction in terms of the total demand.This raises a question, at what point do people start to say, why is this reallyjust because of inflation and where the Fed is expected to go, or is thissomething else that's going on? The next 10 minutes of this programdedicated to Lisa?.

Coming up, we'll catch up with senatorsi a Franklin templeton on what she calls the twin rates of rising rates.Scott david of what first on his ap and B upgrade as summer travel begins andread Max Neil Dutta on why economic nirvana is still possible.We begin with that top story. Stocks falling, bonds retreating asinvestors digest hawkish Fed speak. Minneapolis Fed President Neel Kashkarisaying that policy remains restrictive, but rate hikes are still on the table.This is the FOMC and officials on it. And investors await the Fed's preferredinflation gauge. Japan on Friday.So decide if Franklin Templeton is with.

Us around a table for more snow.Good morning to you. Good morning.What did you make of the auctions yesterday?What did you think about them? Is that something to be concerned abouton the margin? On the margin, Because, look, you can'ttake the auctions and then take it all the way that this is the beginning ofsomething longer. But, you know, I do think that longerterm, we have to we have to start building in more risk premium.The extent to which I would not agree with Bill GROSS, who you were justmentioning is actually I don't see it as.

A Trump versus Biden issue.This what the CBO is talking about is over the next decade, it doesn't matter.That's the way I see it. It really doesn't matter.One thing Lisa has talked about is that in this trust moment that took place inthe U.K., repeating maybe in the Treasury market, would you put anyweight on that? If you had it, it would almost bebetter, because I think it might be the only thing which could bring theRepublicans and the Democrats together to have some more sensible fiscal policyin this in this environment. Do I think it's the baseline?Actually, no, because otherwise we.

Should have already been there.When we hear about promises to keep the Trump tax cuts for everyone making lessthan 400,000 that people should be aware is almost two thirds of the cost of thatpackage. So two thirds or more of the cost of theoriginal tax cuts comes just from there. This raises the question of what is thecost of clearing, as John was mentioning, how much are you baking inan extra premium that you want to see on that longer duration bond before you'rewilling to buy it? So I think about this in two pieces.There's what I think about is the mini cycle Fed rate cuts, which actuallymakes.

Some duration attractive, but for a verylimited time, because I think that rate cutting cycle is going to be short, it'sgoing to end early and then the market is going to correct to that longer termenvironment, which I think looks a lot like pre GFC, which means Fed shorthandis looking at it, looking at around four.You know, that is we're looking I'm talking about Fed funds so literallyovernight for four and a quarter and the long end fair value build in a nonrecessionary 100 and 2030 basis points premium even before that fiscal deficit.Oh, hold on a second. You're talking about structurally longterm ten year treasuries being north of.

5%.Is that correct? Absolutely.So how do you arrange now? Because given the fact that you expectshort term there to be a rally and then long term for there to be yields muchhigher than most people had expected? Well, I think how you right now we arevery slightly long, but not really closer to neutral, I would say, than tobeing actually long, because we don't think that a massive rally is going tobe forthcoming over here as I. You get your clipping coupon as far as Isee this in fixed income more broadly. I'm not anticipating that massive returncoming from rate cuts during this cycle.

There is this belief that this economycouldn't really survive with a ten year note as north of 5%, that you would seesome real pockets, in particular some of the corporate borrowers who had borrowedat very low rates. We've all been surprised and haven'tgotten any answers as to why we have not seen that distress.Will we see it over time or is it done? Has it been worked out through privatecredit and through a financing and through, you know, just general growth?So I think that all of these factors have contributed together with actuallymore sensible behavior on the part of culprits in terms of pre-financing, soon and so forth.

Pushing that maturity will be allexpected for next year and the year after it's been pushed further andfurther out. And I think that is definitelycontributing to what we're seeing. But ultimately, yes, you know, at somestage, if we start seeing this very narrow channel through whichFed policy is currently operating, begin to have an impact, some easing in ongrowth and so on is is bound to happen. I don't see a slight pickup, but I'm notanticipating a massive collapse here just because of five, 5%, five and aquarter percent rates. If we get the the phrase we've heardaround this table repeatedly is survive.

Until 25, is that phrase no longerrelevant given what you just said? I, I don't think that is relevant.This is, for me, definitely a new paradigm where, you know, we can livewith five, but we can live at 5%. Look, it's only 15 years.It's in the post global financial crisis period that we all got really used tothese ultra low rates. And it all worked as long as you, youknow, the last six years we've had even averaging 8% of GDP budget deficits.So, you know, we have no idea how much this economy can bear, but certainly itcan bear five, five and a quarter when there is no no outlook for a reductionin the fiscal deficit, which continues.

To support its in the previous regime.And we took after and you basically had two choices if you wanted income, you gofurther along the curve or you go down and credit quality.What's changed for you? Is it easier?Is it simpler? Do you go back to an old playbook?What's changed for you just in terms of your approach with the bond market thatoffers rate income now without much ice compared to ten years ago?Oh, you know, look, spreads are incredibly tight.So one thing which has changed is, you know, versus ten years ago, you're notgoing to have everything rising together.

Because you've got very little margin oferror. I think at this stage, certainly spreadsbeing as compressed as they are right now in the high yield space.For example, it implies you have to be extremely careful in terms of pickingyour spots. That was perhaps less so ten years ago.So you're a Bond girl. I get it.But every argument you're making kind of speaks more to stocks at a time when yousee growth and you see this idea of inflation and you see this idea of 5%yields not curtailing corporate activity, but maybe eroding the fiscalprofile of the United States.

How hard is it for you to argue buybonds? So, you know, I'd say buy bonds relativeto what you've done in the last 15 years.I am not saying buy bonds outright relative to equity.I'm not an equity person. But it's very hard for me to argue rightnow that bonds are going to give you the types of returns that people have becomeaccustomed to with incredibly easy policy and Fed rate cuts and all thislovely stuff that just got handed out. I don't I'm not talking about that.But having said that, you know, it's a good diversifier.It gives you ballast to your portfolio.

And hopefully we won't see the type ofvolatility once the market settles into recognizing what the Fed is going to do,as we've seen over the last.I pick up on one of those last points. Okay.As a ballast, you still think the bond markets retain those risk mitigationcharacteristics taking into account everything and thefact that yields will probably be somewhat higher?I think, yes, they are going to offer you that ballast.Okay. So now this is great, thoughtful.It's good to see you in person, too.

Thank you.So does either a Franklin Templeton. Let's get you an update on storieselsewhere this morning. We can do that with your full impactbrief. It's Dani Burger.Hey, Danny. Hey, John.On the German inflation numbers, they edged up yet again, underscoring thechallenge facing the ECB as it prepares to cut rates next week.Consumer prices rose 2.8% from a year ago, higher than estimate estimates andup from the 2.4% recorded in April. The numbers are unlikely to deterpolicymakers from cutting rates in June,.

Considering how well broadcast that'sbeen but may serve as a deterrent for subsequent moves.Until loose Conoco Phillips is buying its smaller rival, Marathon Oil.It's an all stock deal with an enterprise value of 22 and a halfbillion dollars. Adding marathon will give Conoco controlof assets in Texas. Oklahoma.North Dakota and the Permian Basin. The transaction is expected to close inthe fourth quarter of this year. Abercrombie and Fitch gaining in the premarket, up more than 1%. It beat and raised its remarkablecomeback from the teen fashion.

Graveyard.Revenues rose for the sixth straight quarter to billion and Abercrombieboosted its outlook. The stock is up 73% this year at alltime highs. And that's your Bloomberg brief, jon.Hey, Danny. Thank you.Appreciate it. More from Danny in about 30 minutestime. I'm next on the program, the morningshows, plus Scott Devon of Wedbush on his AP and B upgrade as summer travelkicks off. That conversation just around thecorner.

Live from New York City, this isBloomberg. The up and about about one hour and 15minutes away. Equity futures pulling back just a touchon the S&P 500. We are lower by 0.55% decent closeyesterday. And the S&P 500, we were in negativeterritory and then we closed higher by just 0.02%.But there was a gain towards the end of the session.Bremmer. Well, at a time when we did see betterthan expected consumer confidence. Okay.We realize this is a bit noxious, but.

Good news is good news.Bad news is good news. What are we?Where do we really stand on this? Bad news is good news.That's what we heard from Max Kettner. There is this feeling that if rates arehigher for the right reasons, it can be something that stocks can tolerate.James, the earlier on this morning, James basically said all news is goodnews for stocks until the labor market really breaks and unemployment shootshigher. In fairness, it was spoken with asincere frustration of having perhaps been a bit more bearish than perhapssome of the price action had been.

And he said, you know, maybe I shouldsit on the couch to discuss this. But there is this feeling of a lack ofunderstanding about how much is fundamental, how much is momentum, andhow much is just something else. I think what you heard was a bondinvestor who just thinks the life of equity investors is much easier than itsown anyway. Time now for the mining Co's first stop,TD Cabot, raising its price target on comet to 90, Keeping a buy rating.The analyst pointed to strong first quarter results, staying bullish on thecompany's plans to grow traffic this year.That stock is down about 3%.

Next up, Citi raising its price targeton United Airlines to 96. The analyst noting that the stock tradesbelow its pre-pandemic t and keeping united on the focus list.Their stock is down by 2% because of this jefferies downgrading Americanairlines to hold with a 2 price target.Analyst Sheila Kiley, good friend of this program citing a cut in itsearnings outlook and expecting sales to fall behind competitors this year, thestock is down by more than 8%. We've asked the question all morning, isthis American Airlines or is it a broader airline story there?Chief commercial officer left.

And I really have to wonder thisquestion we've been asking a long time. Are these airline companies, are theycredit card companies? How much is the revenue profile of someof these firms basically going to rise and fall and how well they could ropecustomers in with American Express and give them perks like access to thelounge, even above people who actually travel on their planes?Delta, I might just say it just so you're not talking about American rightnow, are you talking about Delta? Well, America didn't do a good enoughjob with their credit card, which maybe is part of the problem.And it's out to lunch a couple of weeks.

Ago.I don't usually go to terminal four or fly down to China, but a flight out totrying to save the company some money sit in the lounge.Right. And this guy comes up to me.It's half empty. Can't sit there.I'm like, why is that reserved reserve for you?Right? So I left and that was my that was myrelationship with down to it lasted all of 5 minutes reserve.I haven't heard of a roped off area this up and I said to the guy there as wellwhy is terminal force such a mess?.

That should not.He said to me what people love flying down to.So the terminal is really busy. All right.So is this an airline? All right, Well, what is it?Well, if it's a cult, if it's a cult and you want to buy stock, that's all I cansay. Possibly.You know, so basically it's helpful because everyone loves it.Okay. Sticking with travel, it's got to.Effort of Wedbush turning bullish on Airbnb, upgrading the vacation rentalcompany to outperform the 165 price.

Target, noting near-term resilienttravel demand and long term growth catalyst.Scott, I'm pleased to say, joins us now for more.Scott, the floor is yours. Let's start from the beginning.Why the upgrade and why now? Good morning.So the upgrades really premised on the pullback in the stock post-earnings ofAirbnb always has traded at a premium since it reported first quarter results.The stock's been down about 10% versus its closest peer booking up 10% in theNasdaq about four. So that valuation gap has tightened andthe prospects for the business are as.

Bright as they've ever been.Scott, do you think this is execution or more broadly, is this about leisuredemand in this country holding up better than expected?I think it's I think it's very strong execution.It's a founder led company that's created a category.In addition, you do need a macro backdrop that's favorable.And as you highlighted before, consumers have jobs.The unemployment rate is low. Wealth has been created through the boomin the housing market and the stock market, and that tends to lead totravel.

When and if that changes, it'll be aproblem even for the best strong travel companies.That's not the case right now. Scott With all due respect, I used tolove Airbnb and then some of the add on fees.You have to have, you know, the cleaning fee that doubles it for one night.So you have to do more than one night to make it worthwhile.And then the taxes on top of it, you start looking at that comparison andit's cheaper to rent a couple rooms in a hotel than going to Airbnb.How much of a competitive edge do they have at a time when there are all ofthese fees and restrictions in certain.

Places that constrain supply?I'm thinking also in New York City. There's always sources of friction inNew York City, as you highlighted, I think.There's also, you know, anecdotes that may favor hotels.I have one recently that actually favored Airbnb, about 60% of the cost ofthe competing two room hotel choice for a college football game coming up inSeptember. And so I think that I think that the gaptightens as the mainstreaming of a service occurs, which has happened withAirbnb being so that the price delta that existed I think Amazon in the earlydays sales tax avoidance and lower.

Prices, you know, leads to convenienceand other reasons why consumers gravitate to the brand.And I think you're seeing that right now with Airbnb.How sensitive is Airbnb and some of the other players in the space to theconsumer cycle and how do you even identify what the consumer cycle is at atime where it does seem to be a tale of two different consumer bases?There's there's no detaching the travel industry now, no matter how well-run acompany is from the cyclical aspects of the economy.And travel is tied at the hip with the economy.And so I think you have to pay close,.

Close attention to the macro trends,consumer trends, and that will ultimately drive the success of even thehighest quality travel companies. You know, as I noted right now, thingsare still good. Whether they'll be in 6 to 12 monthstime will tell. I would I would note as it relates toAmerican, you know, it's not probably the best run airline.You did have one of its peers reiterate its guidance for the quarter.You did have good, very positive commentary coming out of the cruiseindustry in recent weeks and more broadly in the travel industry.So I'm not necessarily sure that what's.

Happening as it relates to American is acanary in the coal mine, as they say, as much as it possibly as a companyspecific issue at the moment. Scott, This is such an important pointand it closes the conversation. Basically why you and I started it onexecution. I'm just going through the list ofcompanies that fall under your coverage. Booking holdings outperform.Expedia Neutral. TripAdvisor neutral.When you're picking through industries right now.What is it about the companies that are doing well and the companies that you'renot so constructive on?.

We look for blue chip leaders and inInternet blue chip leaders tend to create significant wealth.Many times they're founder led or they have been in and turned over to a verygood operator. And in the travel industry, we highlightone in booking that is not a founder led company, but it's been a phenomenalperformer and executed well over 20 plus years now.And Airbnb, which is founder led, which has created a category and executed welland in in its business for many years as well.And if you look at our broader list of recommendations, that's really the caseacross the board.

And my view just in recommending stocksone over the other is benefiting from the compounding nature of thedifferentiation in business quality, and that's a significant factor in stockoutperformance interest. And.Scott, thank you, sir. Appreciate the update following theupgrade. Scott David of Wedbush.On the execution, you're saying in the travel sector right now, and we saw amention of it right there, just heard it why American Airlines might be anAmerican Airlines problem and not a canary in the coal mine, as you said,given the fact that maybe the execution.

Hasn't been that great when you lookthrough the travel companies, I wonder also how much of the haves versus thehave nots are arranged in certain geographic locations that are moreskewed toward a certain demographic of consumer?Right. I mean, if we're talking about abifurcated consumer base, I do wonder how that plays out in a leisure sectorwhere you see, you know, ski resorts and other types of high end vacation spotsdoing really well. Go back to a mountain line of BlackRock.And what you said to us out of this morning is clear bifurcation with theconsumer.

You don't see in the aggregate data andbecause you don't see it in the aggregate data, you're not going to seeit shake policy any time soon. So high for longer is going to stay.The low income cohorts that are suffering because of this, based on whatwe're hearing from a lot of people this morning, will carry on suffering becausetheir pain doesn't reach the surface and it's that it reaches the surface.It won't set the agenda for policymakers in quite the same way.And I'll take it a step further, because what I was thinking about as she wastalking was what does this mean for home ownership for lower income families?Not going to happen.

Renting is going to be extremelyexpensive because of a lack of housing, borrowing to get a car, incrediblyexpensive credit for sort of a credit card.Also. I mean, you start putting this togetherand you start wondering how do you ameliorate those stress points for onecohort that is so disproportionately affected?Well, everybody else seems to be doing just fine.And I don't know what the answer to that is.Broader conversation coming up very shortly on this will catch up with Wren,Max, Neil Dutta and Tony Rodriguez.

Neil breaking down the economic storyand why things can improve and get better.They're more optimistic for you and we'll catch up on the bond marketperspective on things as well. Let's turn to the bond market right now.The skies look like this and the treasury market coming in to that debtissuance a little bit later on this afternoon, the Fed's Beige Book and ofcourse, some more Fed speak you ought to buy a single basis for and a ten yearfor 5639 and you're just creeping higher over the last week or so at the frontend of the curve. All of a sudden we're talking about 5%again on a two year at 496.

And it comes with better than expecteddata in the U.S. when it comes to consumer sentiment.But also today, I don't know how much the international story is also playinginto this, but that's also played a role.German harmonised CPI actually came in hotter than expected, rising 2.8% yearover year versus the estimate of 2.7%. So there is this feeling, even with theECB cutting rates almost for sure in June, there is this feeling inflation isa harder thing to kill, not just in the United States.That ECB meeting a week tomorrow. Full coverage of that right here onBloomberg TV and I'm playing back radio.

Well, still to come, Tony, and now onthe other side of this commercial break from New York City, this is Bloomberg. Equities right now, the S&P 500 negativeby 0.6% on the NASDAQ shaping up as follows down by 0.7.So witness on the Russell, we're down by one full percentage point.We've said it a million times already this morning.Amazing to see in video up close to 20% over three days.And this equity market not run with it in the bond market.So a ten year, 30 year, the yield curve looks like this for 95, 39 on a twoyear, pulling back by two basis points.

On the session on a ten year up.Another single basis point after the move we saw yesterday, we had some whiteto sweat for 5639. And just to finish on foreign exchange,the euro looks a little something like this.108 55 just about unchanged, Lisa, as German CPI year over year comes in onthe margin, just a little hotter than expected going into the ECB meeting nextweek. What's amazing is this doesn't changethe rhetoric at all. You still have basically a baked in Junerate cut and you have the French head of central bank coming out and talkingabout how, you know, you shouldn't.

Discount a July rate cut as well, eventhough you still have inflation running hotter than expected.This is the advantage or I should say in quotes, advantage you have of an economythat's not doing as well as you states. Right.So even still there, it coming at a very low pace in terms of inflation as wellas economic. If that first cut very likely to come aweek tomorrow and disadvantage this morning, Conoco Phillips buying itssmaller rival Marathon Oil in an all stock deal with an enterprise value of$22.5 billion. Adding marathon will give Conoco controlof assets in Texas, Oklahoma, North.

Dakota and the Permian Basin.The transaction is expected to close in the fourth quarter of this year, andwe've seen Conoco do this repeatedly over the last few years.And it's not just Conoco at this point. A lot of people are for getting into theshale consolidation trade. Really one key question, especially aswe've been talking about how a lot of mergers haven't been allowed to gothrough that the antitrust sort of regulators step in, not necessarily.A question here raises this question about this administration maybe notbeing feeling that bad about some of these tie ups, considering the fact thatenergy independence suddenly is a real.

Action, is a welcome that 13 millionbarrels of oil a day, they just don't like talking about it so much, dependingon who you talk to in the administration, a necessity to get us tothe next phase at a time of a lot of geopolitical unrest.One of those deals you're alluding to, its merger Wednesday continues, hasshareholders voting in favor of Chevron's $53 billion takeover deal.Chevron looking to secure a stake in one of the biggest oil discoveries of thepast decade through Hess and its 30% interest in a organize field.We talked about that on a few times and how they really get in at a time of alot of questions about who owns that and.

What Venezuela might want to do.At this point. There is this question of what are themarginal producers and how quickly are we going to actually get to peak oil ata time when we are getting more efficient vehicles?To me, it seems like the new idea is you can't get rid of oil.It's going to be part of this economy for a longer period of time.And so you have to invest in solidifying that so that you're more immune togeopolitical risk. So suddenly there's a lot moreinvestment in fossil fuels. It just sort of is counterintuitivemoment compared to where we were a.

Couple of years and the minus two, canwe find enough copper? Can we find enough copper you match whenthey come out with this study from Adam Simon, professor of Earth andEnvironmental studies, I'm going to go through these numbers again.If you've missed this, I'll share it again.A normal Honda Accord needs about £40 of copper.The same battery electric Honda Accord needs almost £200 of copper.Study goes on. And basically they conclude that theamount of copper needed is essentially impossible for mining companies toproduce.

Ten years ago, they used to get moneyand dig a hole. Ten years later, they were punished forthat big time. There was a big bust in mining.They stopped doing it. We need them to start digging holesagain. It takes a long time to bring thiscopper online. It's not happening and it's not going tohappen fast enough. This is the reason why copper has been amoonshot when it comes to pricing. There's a question, especially when wethink about the interconnectedness of the world, where some of those coppersupplies are going to come from,.

Especially if there are some sort offissures in the geopolitical order, how exactly a nation like the US is going tosecure those copper supplies versus China?And imagine they're in the same places and you get that competition.This is going to be really the focal point of a new sort of sort of soft warin a way. And we've already seen that percolatewith certain areas. Copper absolutely surging so far thisyear. We've talked a lot about the bottommarket this morning after a weaker than expected auction.So the two and five year notes just.

Yesterday, we will get the Fed speakcontinuing today with Williams on deck and again tomorrow, Bostic as well,followed by the Beige Book and an auction for $44 billion in seven yearnotes. Mike McKay with a little bit of a lookat is this the appetizer for Williams ahead of the main course tomorrow?It could be because he's speaking at the Economic Club of New York tomorrow andhe's going to have a text and he's going to be presenting a case for something todo with the US economy. So we're anticipating he'll lay out moreof his views on where we are and when the Fed might do something.It's a roundtable US commentary today up.

In Watertown.And so it may depend on what people ask him.Which is kind of kind of the way they get into trouble.You want to get into the room, Mike, and plant your own question.You said just yesterday the Economic Club in New York addresses can be usedto say something bigger about the moment we're in.What could that possibly be tomorrow? It probably not a lot bigger than whatwe've already heard. But he could throw his weight behind theidea that we're going to have fewer than three rate cuts because he hasn't put anumber on it.

And some of them are starting to putnumbers on it. He will probably repeat he wouldprobably repeat what he has already said about we're not taking rate increasesoff the table. That's nothing new from him.So at this point, there isn't much they can say beyond the guidance they'vegiven because they've pushed things out. And so there's not going to be adecision any time soon. They can't really give us moreinformation if they don't have it. But perhaps Loretta mester set the tonewhen she started talking about scenario analysis yesterday.I thought this was fascinating, the idea.

That maybe the Fed could do a better joblaying out what data they look at and how they input it into different modelsand different structures to understand what exactly would be the threshold foreither cutting or hiking. At what point do you think that startsgaining steam? Well, it could gain steam fairly quicklyif they are as a group interested. We talked about this yesterday, abouthow they're going to be doing this review of their policy frameworkstarting in the fall some time. And it'll take probably about six monthsto a year. But that's the kind of thing they wouldbe talking about.

The scenario analysis would kind ofreplace the kind of odd guidance we get from time totime of this may happen or that may happen because the idea is if you tellpeople, if this happens, here's how we think about it, then the idea is thatthe markets have a better idea of where the Fed is going.When we get new data. Yesterday I was trying to get excitedabout the Beige Book. You poured some cold water on that.We want to reprise that conversation. Is there anything to look for the BeigeBook, the big selling Mike if you don't needto.

I'm just I was just going to sort of thesame things that we have been getting from companies in their earnings reportsand from Fed officials who say they talked to people.We'll see what it says about inflation trends, whether companies are stillraising prices or whether they're finding it hard to find workers.But this is the kind of stuff that's been out there a lot in a lot ofdifferent formats. So that's why they call it the BeigeBook. You know, lots of Fed officials watchthis program, Michael. We'll be reading it.We promise you.

I will be reading it.Michael is going to be reading it. Okay.No data from back around the table with this alongside new feeds.Tony Rodriguez. Jen, it's good to see you.Now, let's talk about why you're still constructive on this economy.Why? Well, I definitely think the trade offsare getting a little bit trickier for the Fed.So I tend to think that, you know, we're still at the end of the year, you'regoing to be talking about an economy that's growing and how much has the Fedbeen cutting?.

I still think that's really the name ofthe game. But, you know, I do think thatto me, it's not as obvious that, you know, I mean, the Fed goes around sayingwe have time enough to worry about things.I mean, you never have as much time as you think in hindsight.And we know that the risks with unemployment are always that they'renonlinear in nature. Right.So it's never just that unemployment goes up a little bit.It goes up a lot of it. Right.And so I think,.

You know, when I look at that, when Ilook at what the Fed is doing in the data as it's unfolding, I mean, all itreally feels like they're doing right now is just taking the last few monthsof data and just extrapolating that forward and things can change.And and I think that's especially true of the inflation data.And, you know, I don't think you can really make a fundamental story for whyinflation perked up. I mean, you can point to specific thingshere and there. Right.Auto insurance people talk about health care services, but generally speaking,it really boils down in my mind to.

What's going on with the labor markets.And the labor markets are cooling. I mean, I don't think that that's even adebatable point. If you look at average hourly earningsfor all employees over the last three months, it's up less than 3% at anannual rate. So if you believe that inflation isgoing to remain sticky, John, you need to start worrying then about a declinein real wages. And if real wages are contracting, thenconsumer spending will slow. And if consumer spending will slow,corporate earnings will slow. So,you know, I don't think that strong.

I mean, in the first quarter you hadthis strong inflation data and I think a lot of investors sort of said thought,okay, this is reinforcing this inflationary boom narrative.But the labor markets, frankly, just are not in the same place as they were ayear ago. And unit labor costs are basically 1%.So I just wonder where the inflation comes from.So my sense is that if you want to be optimistic on the economy, you almosthave to think that inflation slows down because of.If it doesn't, then you need to start raising your recession probabilities.Kevin Into the pandemic, the Federal.

Reserve used to say things like We needto extend the cycle and some of the language.I remember a phrase I think it was Vice Chair Carter at the time would saythings like an ounce of protection was worth a pound of cure.Are you saying they should move preemptively and begin to reduceinterest rates just on the margin surgically?Well, I think I mean, I think that's all we should really expect.I mean, I've been saying that they should be recalibrating policy, but Ithink that they should be focusing on what's happening with the labor markets.And the labor markets are clearly.

Moderating.And so you're basically saying, you know, we're waiting on what likehealth care services, inflation to moderate and some of these idiosyncraticfactors. I mean, again, you know, to me it's youknow, and in many cases, economics is basically like identity, like identity,things on one side of the equation have equal things on the other side of theequation. And certain things just need to be true.And so in my view, from my perspective, I mean, compensation growth should equalinflation plus productivity. And what do we know about those things?We know that compensation growth has.

Been slowing.Right. No matter what you look at and, youknow, job labor turnover is down, the number of people that don't have Ihaven't seen a movement in their wages over the last year that numbers up.If you look at quits hires those have all moderated.If you look at posted wage growth that's moderating.So we have a pretty good indication that wage growth is slowing.If you look at across a whole number of industries, whether that's professionalin business services, retail trade, leisure and hospitality.Wage growth in those industries,.

Particularly leisure and hospitality andretail trade, because, you know, those are the folks with the higher propensityto spend. Those industries are seeing wage growthat the lowest at the low end of their range over the last year.So if compensation growth is moderating and productivity is normalized.You don't really get much. I don't I don't think you can reallymake a very strong case for inflation other than,you know, it's been strong. But, you know, Tony, I'd love you toweigh in on this. You believe that the disinflation storyis true and you expect it to continue.

But we're talking here a nuance, becauseat a certain point, if it stays sticky at a certain rate, it can still lead tosome real problems. So can you give us a sense of what thetrajectory is and kind of where the margin of error is for the Fed at thispoint? Sure.So, I mean, we can kind of agree with the idea that, you know, the wage of thelabor market is softening and we think that's going to kind of flow through towage pressures declining as we go through the year.Our view is that while inflation is going to continue to decline, it's goingto a really slowly.

So it really was rapid in the secondhalf of last year. We saw this spike kind of early in theyear. That was really a surprise to us, Ithink, in the the market that inflation was so high.Our view is that we're sitting at maybe a27 kind of PC level by the end of theyear. So kind of flat to where we are now,maybe down a 10th. Next year, we again move very slowlytowards more like a23. And getting back to the target is moreof a 2026 event. So in that environment, it allows theFed to us be basically higher for longer.

Because the economy remains prettyresilient. While we're seeing that softening in thelabor market, it's not down to sub 100,000 jobs.It's more of the 100, 150 range rather than what had been a 250 range.So still a reasonably healthy macro environment.What does Higher four longer mean at a time where you've got Tom's historicistAdam Posen, saying basically a Fed rate cut here would be a policy error becauseof some of the inflation it could fuel later on.Yeah. So our view is that right now we have areal rate that's well over 2%.

We think that one cut, maybe two by theend of year is the most and we'll see That kind of recalibration to us is notgoing to drive a spike up again and inflation is just going to keep the realrate at a level that is not overly restrictive and therefore putting thelabor market at greater risk than is necessary given the current overallenvironment. Can we talk about what everyone's beentalking about over the last several months, which is the supply side story?And I know you've got thoughts on this, Allan.Senator Morgan Stanley has made the point that this economy can get biggerwithout getting tighter.

And everyone's pointing to is the amountof immigration we've seen in this country.Do you think we're putting too much weight on that explanation as to what isdeveloping in the labor market? I mean, this is a very hot button issue,John, But I do I think that I mean, America is not the only place in theworld that's seen rising population growth.I mean, just look to our friends in the North and Canada.They've had very rapid immigration growth, hasn't stopped their economyfrom not doing well. I mean, if you look at per capita GDP inCanada, it's in the toilet.

So just because you have a lot ofimmigration doesn't necessarily mean that your economy is strong.So I really think the immigration angle is something that people are looking atas a way to work back. Lots of places across G10 have seen veryrapid growth in immigration. What's not clear across all thosecountries is strong growth. The US in that respect is the one thatstands out. Which would suggest that productivity inthe US is is the primary reason of why we've seen this outperformance.Can I just ask me, although a lot of people are saying it's not just stronggrowth, it's that the growth came.

Without the inflation as a result ofwages climbing as much as people previously expected.That was the component of immigration that people were talking about.Do you buy that? Matt, and follow that basically becauseimmigrants were coming to this country willing to work even for wages that werelower or potentially that it actually kept down some of the wage inflationthat otherwise would have been given the natural tightness in the labor market.I'm sure you could find some I mean, you have seen some slowing in wages, somaybe you can make more of a labor market case.But generally speaking, I mean, I think.

There are lots of other reasons beyondimmigration that, you know, I mean, for example, we're less exposed to what'sgoing on in Ukraine and and Russia than than than Europe.Obviously, monetary policy transmits itself differently in the US because wehave so many people on 30 year fixed rate mortgage debt.That's not the case in Europe. We had a very, very robust fiscalresponse relative to Europe. And, you know, I mean, generallyspeaking, the US does set in my mind the productivity frontier for the world.So we're sort of on the leading edge of that.So there are lots of reasons for for why.

The US is outperformed.I think immigration frankly ranks very low on the list.And, you know, I think that's shown in the fact that lots of countries acrossG10 have seen very strong growth in immigration.Not every country has been enjoying the kind of economic performance the US hasenjoyed. Tony Yeah.So our view is that the immigration was just very well timed.It's not a long run. Fundamental force is going to be adriver of growth and higher potential growth for the US over the next fiveyears.

Given immigration policy in this countryis challenging. But the timing of it, which was aboveexpectations, really helped ease some of those pressures on wages.But going forward, it's going to have to be much more about labour forceparticipation to help grow potential growth or productivity remaining veryhigh, which you know is possible with AI, but it's going to be more of atraditional either productivity or labour force participation that there isprobably unlikely. So it's going to have to rely onproductivity in our mind. Well, I mean, that's that's I mean,that's a great point, that it's.

Temporary.Could be temporary, right. I mean, a lot of the immigration thatwe're seeing could just be pent up demand from the pandemic.I mean, the visa approvals were basically shut down and then we reopenedthem. So, you know, and now you have a lot of,you know, foreign born workers coming into the workforce.But that shouldn't sustain. I mean, I do think it's interesting thatyou've you've you started to see the foreign born workforce moderate a bit ata time when everyone's talking about it kind of kind of makes me think aboutwhat it means that everyone's talking.

About not being long duration andthinking rates are going to be 5%, like what that means for the next move.But that's that's, I think, exactly what's going to go, Tony, this idea thatpeople are saying that the reverse could happen where suddenly that animmigration policy that would restrict some of the foreign workers and thatwould lead to a surge in inflation. Do you not buy that that there couldpotentially be some sort of post-election increase in inflationexpectations that could really challenge the bond market?I think it's probably more likely to come election related, be more likely tocome from maybe potential tax changes.

That occurred.What happens with those tax changes are going to either roll off or not.The national immigration policy immigration policy might take, I think,a little longer to work through. And we already have a labour marketthat's softening. As Neil pointed out, there's lots ofmetrics that we look at that say it's softening.So I don't think it'll be from the Labour side that we might get thatinflationary impulse that's election related.Would you expect to see this in payrolls next Friday, that deceleration continue?Yeah, we would say that we're probably.

Likely to see a 200 or below numberrather than move back to 250. So it's not a weak labour market.It's just one that's not overheated like we were.Final word now? Yeah, I would just say I mean, you know,Lisa, you mentioned immigration's taking the pressure off of wages.I mean, let's be clear. Excess labour demand has been slowingvery rapidly as proxy by job opening. So it's not just, oh, we have all thissupply. I mean, demand has come down.You know, businesses are trying to get the most out of their workers.They're not really trying to go out and.

Hire more workers.And I think that's very important because that's what's keeping laborcosts in check, which will in turn, in my opinion,bring inflation down. Interest in pay rose to Friday's away.The estimate in our survey at the moment a sneak peak for you 180 K the previousnumber 175 no data a friend mark Tanya Rodriguez a new venture gents thank you.And McKay as well. Thank you, sir.Let's get an update on stories elsewhere this morning.Rachel Bloomberg Daybreak with Dani Burger.Hey, Tony.

Hey, John.Starting with some deal news, US pharmaceutical group Merck is reportedlybuying IPO. It's an AI drug startup that says thatthe deal will come in the form of a .3 billion upfront payment and then afurther .7 billion payment, depending on certain milestones.They said in an interview with the IPO CEO.Merck, for its part, declined to comment.Chinese carmaker BYD unveiled a new hybrid powertrain that's capable ofgoing 1250 miles without a recharge or refuel to put them in context.That's the equivalent of driving from.

New York to Miami.In a livestream event, the automaker announced that it will use the new techin two sedan models that will cost under 3,800 for now.Made in China, cars will likely get the upgrades, but they'll likely to beexported soon. Elon Musk's ex AI startup has locked inanother investment. Cathie Wood's ARK Venture Fund purchaseda stake in the niece and AI startup. The stake is about 2% of the fund'sholdings now, and the purchase comes a month after the fund disclose a positionin Open II that made up roughly 4% of its holdings.Ark's chief futurist said that after the.

Purchase that foundation models aregoing to be worth trillions of dollars by the end of this decade.And that's your Bloomberg brief. Jon.Danny, thank you. Great work today, as always.Appreciate it. Equities right now down about threequarters of 1% on the S&P 500. The opening bell about 40 minutes away.Up next on the program, we're setting you up for the day ahead.You're watching Bloomberg Surveillance. Live from New York, counting down to theopening bell. Here's the training diary, setting youup for the day ahead.

This is all we hear from the FederalReserve presidents Bostic and Williams a little bit later on today at 1 p.m.Eastern time. Promote two main events.Just think the office late for it. If you got a plane back terminal,there'll be a green dot next to a name. At 1 p.m.Eastern time, the US selling $44 billion of seven year notes a little bit laterwon't be leaving. And if you want to drop by the studioand have a chance to. Right.All right. It's going to be here for the next 5hours.

And then she's sticking around for thebase book at 2 p.m.. But more to saylater. Some big events a little bit later thisafternoon. Well, I mean, look, let's overblow thebeige book. I mean, I try to make it sound exciting.And Michael McKee was like, no, it's basically exactly what you've alreadyheard. I do think the seven year auction couldbe interesting, just based on the weakness we've seen with the other twoauctions as well as the Fed speak, how much are they adjusting their viewpointaround this table?.

I just want to reset around this table.We have heard people say that there could be a potential policy error if theFed goes now in terms of cutting rates and people saying there's a policy errorof the Fed waits too long. Either way, the windows narrowed.Do this. Does the Fed feel that way or do theyfeel less pressure and the window is still long and ample for them to make adecision? I think it's fair to say this market hasmoved way more this year than Fed officials have.I think that's fair to say. I think that's well framed.Okay.

If you wanted to take the temperature ofthis market at the moment, I've got a story for you.Have you seen this in The New York Post on our good friend Dan Ives of Wedbush?I'm Wall Street's best stress man. Here's how I use fashion to help menavigate a stressful, high stakes job. Have you seen this article?I have. And it's just a series of pictures ofDan wearing fashionable clothes, including a photo of his appearance inthe last week on this program wearing shorts and that green jacket after andfitting of results. Fashionable clothes.Is that how they framed it?.

I literally got a message just momentsago and someone said, I'm just going to say this.This is a sign of itself that's coming out to say that, look, I love himbecause he has his own style. He has them sort of custom madedifferent places that he goes around the world and he finds these patterns andthese sort of other patterns that he puts on top of those patterns that areall bright colors. I love the idea that, you know, if thereis ever a disappointing earnings season from one of the tech giants that he willcome in, they promised he's promised dressed like, you know, I'll give afinal word on this.

If you're looking for Dan Ives in hisclothing to give you a sign of the top that's been wearing the same thing thewhole way up, like the whole way up like 200 percentage points to go on in videoup. Like he wouldn't have told you anything.I want to finish on this. That story out of BYU, that hybrid 2000kilometer range of 3,800 is a big deal.It's a really big deal. It raises questions about priorities,big questions. Coming up tomorrow, your lineup.Peter Oppenheimer of Goldman Baker Hughes CEO Lorenzo Simonelli, seniorShop of Principal Asset Management and.

Deutsche Bank's Baker Charter.Welcome to a special Roland Garros update for Bloomberg TV and Radio.From Tennis Channel, I'm Andrew Guy. Arena Sabalenka blasted her way into thesecond round with a dominant straight sets victory over Erika Andreeva.The two time and reigning Australian Open champion raced to an early leadafter taking the opening set six one and once in front she didn't look back,closing out the victory six two. And don't forget, you can watch all theaction from Paris live on Tennis Channel.It all starts at 5 a.m. Eastern in New.

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