CPI Is accessible in Hot | Bloomberg Surveillance 03/12/2024

For the Fed here.I do think that they're seeing enough in those inflation readings and we'll getthem to a cut in June. There's a reasonable risk that theydon't cut this. If you get more of these inflationnumbers similar to January, then I think those risks increase for start of cutsis not about easing, it's about normalizing.And inflation is what's key. If you boil things down, the U.S.economy continues to do really well. Inflation is slowing down.The data needs to confirm we get to 2% or lower before we can cut rates.You need to get ahead of disinflation,.

Leave everything on the table.This is Bloomberg Surveillance with Jonathan Ferro Lisa Abramowitz and AnneMarie Jordan. It is CPI tuesday live from New YorkCity this morning. Good morning.Good morning. For our audience worldwide.This is Bloomberg Surveillance, your equity market on the s&p 500 positive by0.2% on s&p chairman power would like a little bit more data to get a little bitmore a little bit later going into the Federal Reserve meeting next week.Will he have sufficient evidence to change his call, his view on thiseconomy?.

People are really looking at this CPIreport as being one of the most important in the past couple of years,which is what we hear every single time. But this time we hear it more often.And basically the options are setting up to really have more volatility.On the heels of it. The idea here is if you see anotherhotter than expected CPI print, you will get a material move in markets where youstart to reprice out the Federal Reserve, where they cannot cut rateswell after June, just like got into payrolls on Friday, the question isexactly the same. The question on Wall Street has notchanged.

Was the upside surprise in January a oneoff or not? Bloomberg Economics have this to say?MH This morning we don't expect the February CPI report to provide clearenough evidence of disinflation to boost the Fed's confidence to cut interestrates. This is about how we set up that meetinggoing into next week. So potentially they're going to needmore data. What I extrapolated, though, interestingenough from the Biden budget yesterday, which I find just to be a politicaldocument, was actually how they view inflation averaging the rest of theyear.

It's a 2.9%.So when we sit here and talk about stabilization of inflation, the Fed isgoing to get closer to 3% of their target of 2%.The White House is actually more pessimistic than even our own economistswe surveyed. This is the outlook for the FederalReserve. Can we talk about the BOJ as well?Another story on the project. I just feel like we're going to be doingthis every single day going into the Bank of Japan meeting next week and thismorning. One 4744 according to people familiarwith the matter, it could come as soon.

As next week, the first interest ratehike since 2007. Lisa.And coming back to what we've said over the last 24 hours, it will come down towhat those wage negotiations look like on Friday, given the fact that we haveseen pretty rapid pace of wage increases at the recent labor negotiations, Ithought this latest piece of reporting was sort of pushing back a little bit,given that it was an outcome, was too close to call, considering that marketsbasically saying that this is a done deal, to me, the question ultimately isdo they have a path to walk through it? How much the Bank of Japan depend insome ways on the CPI print and what that.

What that means for the Federal Reserve?So true. We could get the first hike from the BOJsince 2007 And the cut we've all been waiting for from the Federal Reservejust seemed to be pushed back over the last couple of months.I want to talk about tick tock as well. Lots of talk down in Washington, D.C.This is the number two Republican Steve Scalise on whether this bill is going topass on Wednesday. Quote, Anne-Marie, Yes, it will.Some opposition from the former president, Donald Trump.It does not look like that's going to shape votes in the House in a materialway.

Looks like it's going to sail to theHouse as it sailed to that committee and then it's set up for the Senate.And what do they do when it gets the Senate floor to Schumer put it actuallyon the Senate floor. Biden says if it passes Congress, eventhough his campaign is currently using it, he said he will sign this bill andthen it's off to the races. A lot of people I talked to, Jonathan,are talking about the fact that they don't actually see a ban.They just see someone else taking it over.And potentially that would mean a safer tock in the eyes of regulators andofficials.

So here is the former President Trump.This is what he had to say. Frankly, there are a lot of people onTikTok that love it. There are a lot of young kids on TikTokwho will go crazy without it. There's a lot of good and there's a lotof fad with Tik Tok. But the thing I don't like is thatwithout Tik Tok, you make Facebook bigger and I consider Facebook to be anenemy of the people along with a lot of the media.So that's his view. Some people might share that view.Let's park Tik Tok, Let's park the former president, Donald Trump.Let's approach this story like this.

Any other story?If we conclude that it poses a national security risk and there are politiciansdown in Washington that are unwilling to protect people from a national securityrisk, we'd all be sitting here hands in the air, saying, what on earth are theydoing? So I think we should all be doing thatregardless. What on earth are they doing inWashington, DC? And what does it say you about the stateof the nation's capital that they have all concluded that this could pose anational security risk? The sitting president is campaigning onit and there are people down in.

Washington considering not to pass abill that would protect you from it. That's kind of bizarre to me.If you wonder why Washington, DC has lost some credibility, there is a realquestion if it is national security, show us all of the evidence and then dosomething about it. If it's not, well, then take a laissezfaire at a. Who taught it.Well, all we need to look at is what happened yesterday in terms of an intelhearing with Christopher Wray, the FBI director, talking yet again that this isa national security threat. And also we had the global report onnational threats and they mentioned tick.

Tock, specifically playing politics inthe United States midterm elections. Now, if you're an elected official andyou read this report through and through, there's obvious concerns.But, Jonathan, on the right, some of this has to do with money and campaigndonations. And I think on the left, it has to dowith making sure you're reaching that youth vote.Without a doubt, it's about pleasing the kids and making sure you get money.It's bottom line. That's it.That's Washington. That's why people cannot stand whathappens in the nation's capital.

So that's when it comes down to pleasingkids and getting money. It makes no sense at all.It's like, think about it. Let's go through it again.You are facing a national security risk and you're worried about what the kidsmight say. I mean, are you serious?Are you serious? Is that the state you think that is tosay of things? Yes.Are you actually surprised? Come on.Are you actually feigning surprise, Right?No, I'm not.

But if you're wondering why people getfrustrated with politicians, want to know more.This is it. I don't think anyone was wondering.Just so you know, so true. The CEO of Tic TAC is going to be on theHill this week. He's obviously having a grueling week.But yet again, if this is not banned and a US company takes it over, then 150million users it has. And being the number one news source forGen Z may still exist. So they may potentially be able to savethe kids. I'm not sure what this means for someRepublican donors, but to your point,.

Jonathan White, the Washington mayactually act this week. Let's see, Wednesday, Steve Scalise saysit has the votes. That's 2 minutes to money on tech.So let's move on. Actually, futures on the S&P 500positive by 0.2%. It is CPI Tuesday morning full ofinflation conversation yield to lower by a single basis point on a ten year 4.08%in foreign exchange. The euro unchanged 109 28.Coming up this hour. Brian Levitt of INVESCO with investorsawaiting the latest CPI print. John Leaper of Eurasia Group hastensions between President Biden and.

Israeli Prime Minister BenjaminNetanyahu ramp up. And later, Richardson of ADP on theimpact of housing and labor on today's inflation data.We begin with our top story, counting it down to CPI at 830 Eastern time, BrianLevitt of INVESCO looking for disinflationary trends to stick, sayingthis The risk at this point in the cycle would be a meaningful deterioration ineconomic growth that we are not forecasting.And reacceleration of inflation would not be on the top of my list of risksfor 2024. Brian joins us now for more.Brian, good to see you.

Let's just start with the data, the jobs830 Eastern time, what even the team looking for.So I think inflation, even though what I said there, inflation is moving up alittle bit if you look at the momentum. But the good news is it's really notcoming from the consumer. It's really not coming from wages.You're seeing it more on the import side, which of course, is what'shappening in the commodities space. So you might get a little bit of astronger than expected inflation number today.But I'm not extrapolating that out to being we're heading back to where wewere.

This is extremely problematic.It seems like every cycle we go through, including oh seven, right.Let's remember that including 27, there's another head fake on inflation.Ultimately, the lagged effects of policy tightening start to hit.The obsession today is about shaping the Federal Reserve decision of tomorrow.Yeah, for you, you don't seem to be dependent at all on how many times theycut this year. Yeah, I'm not overly concerned about thenumber of of cuts. Now, there is some nuance with regard tomarket leadership, but my Northstar has been and it's been for the last 15months is that the markets do very well.

After the peak in inflation after thepeak and tightening. Now the nuance around how many cutsyou're going to get when the market initially priced in six cuts, which issort of strange in hindsight in November and December, huge small cap rally, hugemid-cap rally. Now that you're backing some of thatout, the market became a little bit more concentrated.So there's that nuance. But ultimately, I'm just after what wewent through, I'm just happy the tightening is over and over the nextyear we're going to normalize the yield curve.My favorite part about this cycle is.

That even the people who sort of soundbearish are actually bullish. It sort of depends on your timeframethat people that people who see a short term selloff see that as a reason to buyand that long term there's real positivity there.Do you count yourselves among them? You may not be FOMO anymore, but is a 5to 10% pullback. You're all in?Yeah, I'm all in. I mean, there's a 5 to 10% pullbackevery year, right? And so this year is likely to be nodifferent. And when do those pullbacks come?They don't emerge out of nowhere.

They're almost always the result ofpolicy uncertainty. So if you get a couple of unexpectedlystrong inflation numbers, well, that will be a catalyst for some type ofpullback. Remember, we've had an incredible startto the year and so you should expect some of that.But ultimately, you have to ask yourself, are we on a path towardspolicy normalization following, what, 525 basis points of interest rateincreases? Ultimately, that's where we're headingand that's a positive. I just want to understand the playbookhere.

BNP Paribas agrees with you.Is the key risk event really is a CPI print and saying a stronger thanexpected print would challenge our process by us talking about this acrossthe board retracement Where do you think it's most punished if we get a hotterthan expected CPI print today? Well, you're going to see some pain inthe bond market. You're going to see some pain in smallcaps in mid-caps. So really more of that cyclical trade,really more of that. We're finally coming out of this Covidenvironment. We're finally going to be able to lowerrates, finally be able to normalize the.

Yield curve.I think investors will shift back, not ship back will remain in the highestquality mega-cap names. If that's the case, I haven't heard thatword comfort for a long, long time with for the next week finally making our wayout of that COVID environment. Do you think we'd still be stuck in it?We're stuck in it not from the sense that we're all living in our basementsanymore, and it's nice to be here on set with all you after after so many years.But when I'm in the COVID environment is it's been such a strange four years.The only reason we got inflation is because we put so much money in people'spockets and businesses had cut workers,.

Slashed inventory at the worst time.So then you have to raise interest rates.You've got to get a growth scare because every time the Fed raises rates, you geta growth scare, the markets fall 25% and now we're coming out of it.You know what? We've been coming out of thatenvironment, but it's still a is it a soft landing?Is it a hard landing? So until we know what that landing lookslike, until we normalize the yield curve, that's still moving our way outof this bizarre Covid environment. But people no longer have that money intheir pockets from the government and we.

Haven't seen the supply chainbottlenecks repeat themselves. Right.So what's left? Not a lot.Yeah, I agree with that. And and so what you're, what you'redealing with is there are some sticky components of it.But what's really been driving the consumer price index is, is shelter.Shelter, the way it's calculated comes in with a lag.I mean, the owners equivalent rent that nobody actually pays continues to drivethis. And and so you see this in every cyclethat it lags.

The Fed says they're going to be datadependent, but we should be looking out to the future.It sounds like you got some questions about the data that dependent on.Yeah, a little bit. Yeah, I do have some questions about it.And ultimately we're going to have to handle year over year on CPI.I mean, we're very close to the Fed's preferred measure.The core personal consumption expenditure year over year is alreadythere. So I think inflation is a story of thepast. You may have some hiccups here in theshort term that could create some.

Near-term volatility, but over the nextyear or two, I'm sticking with peak inflation, peak tightening peak rates asbeing very good for research. I know has got some questions.Premo Just super grandma at the corner of my eye with some real questions.Well, I love this data dependency in the data is unclear and messy and I don'treally trust it. So it wasn't that description of Fridaybasically. What do you do with that?And that's basically what we've been on repeat.I mean, I was reading report after report saying that the people are notresponding to the surveys for.

Unemployment reports and for joblessclaims and for jobs for the nonfarm payrolls report.You're not getting responses so that you're extrapolating out into a void.Look at the revisions on Friday, Massive revisions.Can we finish on that? How dependent are you on the economicdata, given how perhaps there are questions about how dependable itactually is? Well, we look at leading indicators, andso you don't want to be too focused on on things that lag.You will focus on the leading indicators where we continue to believe in thedata.

Real data points are survey data thatpoints to the future. And what it's been suggesting is aglobal economy that's below trend. I think that's reasonable marketsentiment has been suggesting, you know, maybe things pick up a little bit here,but I would still call it a below trend environment that the Fed is likely goingto ease into. Okay.Invesco, sticking with this self-described FOMO guy, is going to bewith us for another segment. Actually, futures on the S&P positive by0.2%. Here's an update on stories elsewhere.Here's your Bloomberg brief with your.

Hire a hacker How Hi, John.Bank of America disclosed pay raises of more than 10% for two of its highestranking executives, even as its CEO Brian Moynihan's compensation with cutsfor 2023 CFO Alistair Borthwick Total pay climbed 14% to $12 million lastyear, while Jim Dimon, head of the bank's global markets division, saw arise of 11% to $21 million. Meanwhile, Moynihan's pay was cut by 3%to $29 million in 2023. A bill that would force a sale of ticktock is gaining steam in the House. The legislation would block app storesand Internet service providers from offering the video sharing app unlessits Chinese owner, Bytedance, sells it.

Within six months.FBI Director Christopher Wray told the Senate Intelligence Committee there are,quote, significant national security concerns associated with tick tock.The bill comes up for a vote in the House tomorrow.The coco rally is showing little. Signs of slowing.Futures climbing as been shipments from the Ivory Coast came in far below lastyear's level. New York futures rising as much as 4%,erasing losses from the previous two sessions and pointing to a tighterglobal market. The risk of lower output from thesmaller mid crop harvest has added steam.

To the rally, which has seen the priceof cocoa jumped by almost 60% this year. That's your brief.John O'Hara, thank you. We'll catch up with you a little bitlater. Up next on the program, division amongallies. I'm telling you that we're not gettingoff the gas. I'm telling you that we have to takecare of Israel's security and our future.And that requires eliminating the terrorist army.That's a prerequisite for victory. That conversation coming up next livefrom New York City this morning.

Good morning. 2 hours away from the CPI report.Equity futures positive 5.2% on the S&P 510 year gilts, a little bit lower, downabout a basis .4.0 9% on the savannas this morning.Division among allies. I'm telling you that we're not gettingoff the gas. I'm telling you that we have to takecare of Israel's security and our future.And that requires eliminating the terrorist army.That's a prerequisite for victory. Victory will come as soon as I think itwill come sooner.

The more united we are not the notdivided or at least on giving the the appearance of division is the latesttensions rising between President Biden and Israeli Prime Minister BenjaminNetanyahu amid the rising civilian death toll in Gaza.Netanyahu not expected to change course as President Biden calls a plannedattack on Rafah a red line. John Leeper of Eurasia Group writingthis. President Biden's comments are theclearest reflection to date of a growing divide between the US and Israel andleave Biden painted into a corner with his domestic political audience.If Israel moves forward with operations.

In Rafah.John David joins us now for more. John, I want to talk about that red lineand I want to talk about the policy potential behind the threat.What happens if Netanyahu does cross that line that the president has said?I think what you get is a mostly symbolic cutback in some of the morehigh profile offensive arms that the U.S.is sending over to Israel. Biden was very explicit in talking aboutthe red line that he would not be cutting things like the Iron Dome,that he believed Israel still had a right to defend himself.But this situation reflects a real.

Challenge for President Biden.He needs to look like he's getting tougher on Benjamin Netanyahu because ofhis own domestic political concerns. You've got a lot of blowback against theU.S. support for Israel in the United Statesand particularly among Biden's Democratic base.So this tension that you're seeing is a really difficult balancing act forPresident Biden to both say Israel has a right to defend itself and Israel cannottrigger yet another humanitarian crisis in Gaza.A recent poll showed that sizable majority of his voters oppose weaponshipments to Israel when he spoke and.

Gave that interview.Could you see the White House saying we prefer things like the Iron Dome toprotect Israeli civilians, but we might ratchet back some of the offensiveweapons we give to Israel? Yeah, it's that might ratchet back issuethat I think is the biggest question because there's a lot of Americans whowant Israel to continue to push the offensive against Hamas and to win thiswar. And a lot of those Americans are goingto be voting for Joe Biden in November. So I don't think there's a ton of roomfor the U.S. here to condition aid.You know, you may see some efforts to do.

So assuming this Rafah operation goesahead and we assume the Rafah operation will go ahead.But, you know, Israel is doing this with or without Biden.It doesn't seem like the pressure the United States is putting on them ismaking any difference whatsoever. And I think that's a meaningful aspectof this as well. It sort of shows the limits of even theUnited States as power and influence over Israel to press this offensive.The president of Cyprus tweeted just a few hours ago.The first ship has set to go to this Gaza port they're building for aid.Will that assuage Biden voters?.

It's a it's a step in the rightdirection. I think that really the the aid thatyou're building important getting more aid into the country is going to be asignificantly smaller piece than the images of the offensive in Rafah.Assuming again, assuming it goes ahead and that's really what's gettingbattered right now, is you've got, you know, this massive humanitarian andhumanitarian crisis in Gaza. Aid is not going to help when you'vegot, you know, orphaned children and images of dead families that arecrossing across American social media. And that's really the politicalvulnerability that's going to help.

That's going to hurt fighting here.The aid is only a tiny push in the other direction, I think.I want to shift gears a little bit. This is definitely going to be a massiveissue for President Biden with respect to his voter base.Another massive issue is going to be some of the trade policies that we havegoing into the election. We've heard from former President Trumpyesterday that he said I'm a big believer in tariffs and that if he doesimpose 60% tariffs on Chinese goods and they retaliate by doing the same, hedoesn't care. He welcomes it.This is basically his policy.

How much is this signal and how much isthis noise? Yeah, that's pretty good locker roomtalk. But I think if you look at the U.S.reliance on imports in China, it's really difficult to imagine the U.S.economy without all the consumer goods that are coming into China.I mean, look, the iPhone already costs the latest model already cost $1,000.Imagine that price going up to 1600 dollars.This is the most popular phone in the United States of America.You know, I think that's a really big hit for consumers.And it just seems really unlikely to me.

That Trump can follow through on such anaggressive threat. Now, that said, that threat can be usedto open some kind of negotiation, which is exactly what President Trump did inthe first administration in order to get to what eventually could become a phasetwo trade deal. I don't think we're predicting that justyet. It's really early days.Trump does seem and the Republican Party is moving in a more hawkish direction onChina, where full decoupling is more of a policy goal.But the actual practical impact of that on the ground for the American peoplemake the political cost of that.

Extremely high and therefore probablymake that 60% threat unrealistic. Hey, John, great tonight with you onwhat's happening down in D.C., John. Labor there.If you raise a group, some insight into the locker room, talk of marijuana,maybe something to talk about down there.I'm a big believer downstairs. I mean, I doubt maybe Brian left you aFOMO guy. If a new president comes through with60% tariffs, a book.I mean, my my point on tariffs has been that any time you protect trade or anytime you there's protectionism, there is.

Less optimal economic outcomes.It's just how it goes. But in terms of the market, the marketreally just needs clarity. If you remember, 2018, 2018 was a yearin which we just didn't have clarity around trade policy.We ended up with business investment drying up pretty significantly, a 20%downturn at the end of the year. The tariffs did come through, butultimately that clarity pushed the markets higher in 2019, so less optimaleconomic outcomes. But so long as we have clarity aroundit, then then the markets tend to be able to push past it, which is one ofthe reasons why I've been confused about.

Whether the lack of clarity on who'sgoing to lead the United States after November.Has that led to more deals getting brought forward or has that led to fewerdeals basically being put on hold until more certainty comes to the fore?Well, it seems as if there's they're being put on hold right now untilthere's more certainty that comes to the fore.But but what I, I always advise investors not to put too much onus onelections. I know it becomes a lot of focus in theelection year. If you go back over time, you find thatmarket performance is fairly similar.

Across most administrations.In fact, if you go back to the Eisenhower administration, when the S&P500 came out in 57, every president had a positive return over the course oftheir administrations. But to that was George W Bush, whoseterm ended in the global financial crisis, and Richard Nixon, whose termended in the 7374 recession. So other than that, not only are theyall positive, they're all double digits, they're all 10% per year on average,which is a double every 7.2 years. Bryan, it's good to see you, as always.Brian of INVESCO will be catching up with David Kelly of Jp morgan AssetManagement a little bit later this.

Morning.Great piece interview with him in Barron's.I worry that people worry too much about politics.I worry that people let how they feel about politics affect how they thinkabout investing. There are a lot of Republicans whomissed out on a good stock market under Obama and Biden, a lot of Democrats whomissed out on a great stock market under Donald Trump.More on that a little bit later. Coming up, Jeremy stretch of CNBC onbets. The DOJ will hike next week.It's not just the Federal Reserve.

Meeting next week.We might get the first hike from the DOJ since 2007.From New York, this is Bloomberg. See that losing streak on the S&P 500coming in to CPI. Equity futures trying to pass thismorning up by a quarter of 1% on the S&P, on the Nasdaq up by a half of 1%.It really has been super mild stuff over the last couple of days.In many ways, the week begins in about 2 hours time when we get that CPI report,the scores in the bond market look like this going into that two year, ten year,30 year, the ten year a couple of Tuesdays ago, 430 now back down to about4.1% on a two year yield for 53.

That was north of 470 a few Mondays ago.You just dropped away, Lisa, in quite a significant way in the last couple ofweeks, which is a reason why I can't wait until 1 p.m.today. Yes, the news starts in about 2 hours,but we get auctions, we get a $39 billion of ten year notes sold today.And do we get the same kind of demand coming to the fore after yields havecome in so dramatically, given that people are saying, I don't buy it, thegrowth is still pretty good. Oh, Davis have been coming up a littlebit later on the program here is looking for back up in the longer and we'll talkto him if he's still looking for that.

We'll find out a little bit later.I want to finish on foreign exchange. Talk about the Japanese yen will do thatat the moment. I want to talk about Sterling as well.Sterling a little bit weaker, -5.2% at one 2791.I'm looking to the labor market data from earlier this morning.Lisa, look at unemployment, just a little bit higher wage growth, just alittle bit softer. Basically, you see a labor marketcooling that's positive for the Bank of England in their ability to potentiallycut rates, but raising questions about just how strong this economy is.So on a certain level, is this good or.

Bad for the currency?Right. If they cut rates sooner.Okay, a little bit of weakening, but it comes along with weaker growth as well.The pound at what, 2792 out of Savannah this morning, 2 hours away from CPI,Bloomberg Economics expecting headline data to accelerate 0.4% month on monthwith core slowing down a touch high gasoline prices putting pressure on theinflation rate rising of a 9%. Yet today, the team at bloomberg alsoexpecting the bulk of disinflation to come from core goods led by an easing innew and used car prices. I go back to the payrolls conversationagain.

Lisa, will it confirm the upsidesurprise of the first month of this year?That's what a lot of people are looking for.If it does, I'm actually curious to speak to Stuart Keiser later thismorning because he's talking about how the options positioning means that itcould potentially be a pretty significant response one way or anotherwith, you know, BNP says a huge strengthening in a dollar, a sell off inrisk assets. How much is this the catalyst for thesell off people have been waiting for? And Jonathan, you mentioned Bloombergintelligence, looking at not just rental.

Costs, but also gasoline.It is up 3.5%. Prior, it was in a negative reading.And Bloomberg intelligence says we forecast energy costs added 15 basispoints to the monthly headline print. This was the sticking inflation that theFed really was trying to deal with. And also this could be a massiveheadache not just for Jay Powell, but President Joe Biden.Just to share those estimates with you in a full impact survey, the medianestimate, 0.4% month over month from 0.3 in a previous month.If you strip out food and energy, 0.3% is the estimate down just a touch from0.4% the previous month?.

Would you like a weather forecast on theeconomy from Jamie Dimon, the CEO of Jp morgan, saying this A US recession isnow off the table. Speaking at the Australian FinancialBusiness Review Summit, Diamond adding, quote, The world is pricing in a softlanding at probably 70 to 80%. I think the chance of a soft landing inthe next year or two is half that. The worst case would be stagflation.The comments mark a change of view from Diamond's warning that a hurricane wasabout to hit the US economy as the Fed was kicking off the hiking cycle twoyears ago. Promote your thoughts.I can't keep track.

I mean, this is someone who also istalking about 7% rates. He's also talking about the potentialthat the Fed should keep rates high because of concerns about stagflation.Meanwhile, two of his Jp morgan analysts are warning you havemay and you've got of course market Clyde effect both coming out completelyopposite views Marco saying we're going to have a problem watch for the sell offthe sky is falling. Meanwhile on the other side, techearnings have been so strong that these stocks could still hold up better thantraditional cyclicals. So do you pay attention to the boss?Do you pay attention to one side of the.

House?Do you pay attention to the other? Yeah, you know, maybe just the things tosay. Can we take 60 seconds?Yeah, please go. I'm frustrated by the way peopleinterview him as if he is a South Side economist.He's going to give his base case on what's going to happen with the economy.And in those comments overnight, you actually said that himself.When you run a business, you're not operating on a base case.You've got to manage risk across the spectrum.So they need this business to do well.

With after the weather.And I always find it really frustrating when they're like, how many times are wegoing to get cuts this year? How many cuts do you think we're goingto get? I mean, what kind of insight is he goingto have on that versus anyone else? What you really want to be asking,you've got a massive business inside the consumer on business, on policy, what itmeans for your business, What this would me go through some scenario analysis,but sitting here saying, you know, stick your finger in the air, you know, likewhat's the weather forecast today? I find it really frustrating.You know, you could ask, you know, if.

You were going to be in the seat to run,you know, chief commander of the United States.Would you argue for the Fed to potentially cut rates or to hold themwhere they are? If you were going to go into politicsand are making these prognostications for that reason, then would you do sosooner than later? That might be what they're trying to getat. When I constantly hear him talk andpontificate, I always think it's not protest that he wants.I think he wants Treasury of the secretary.And I felt this way at Davos when he.

Talked about that.He said Trump had a few things right when it came to taxes, immigration,China and NATO, and potentially was auditioning and now throwing some coldwater on a soft landing, even though he probably previously said it was ahurricane. You have to wonder, Jonathan, yet again,is he maybe auditioning for treasury secretary a dime in off the table?I can see why anyone with a lot of stock would find it interesting going down toWashington, D.C., taking a government job and being able to sell that stocktax free. I know what you think.Time and off the table.

I'm just talking about anyone who mightbe interested in making this argument completely off the table with thatdiscussion. Talk about people who have done that andactually got that benefit from doing so. But that might be one of themotivations. I'm not saying it's his motivation.I don't know, because I'm not in the business of getting people's heads.And we can ask him directly if we ever get the opportunity.I'm just saying that in the past people might have done that.Yeah, I can see why people would be interested in doing so.I just keep thinking about Lily Cantrell.

That she has to go around being like,he's not running for president because people are still thinking that maybe hemight be. Libby was great, wasn't she?She's great. She'll be coming back soon.No doubt. Equities right now are just aboutpositive by 0.2%. I did mention in the foreign exchangemarket that we talk about the Japanese yen.So let's do that, Governor. Okay.They're expecting growth in Japan to continue despite some weakness inhousehold spending.

The way they're answering questions fromparliament is traders pass every comment ahead of the decision a week from today.Bloomberg's survey showing a slim majority expect the first hike to comein April. Still, officials and investors arewaiting on the results of spring wage talks, which will offer results onFriday. Jeremy Stretch of CIBC joins us now formore. Jeremy, let's get straight into it.Expectations for next week. What are you.Well, we've long held from CNBC perspective that we anticipated a ratehike coming in April.

But clearly the speculation is notwithout some degree of foundation. I think it may be a case that some ofthe more hawkish members of the BOJ perhaps trying to bounce the decisioninto a rate adjustment next week. But I think probably on balance, westill feel comfortable looking at April because after all, when you think aboutthe the period between the April and March meetings, you're only talkingabout a 38 day wait for what is effectively a ten basis point move.So in a sense, I think it's it's prudent not to the BOJ to wait for the full andfinal information regarding the wage run, but clearly investors are verynervous going into next week's decision.

Jeremy, we've got to move on dollar andwe're down from 150 back to 147 some yen strength we haven't seen in quite awhile. Can you talk to me about what the roadlooks like towards sustainable durable yen strength and why maybe a couple ofrate hikes might not be sufficient? Well, I think what we have to rememberthat if we look at this particular move initially and over the course of thelast couple of weeks, it actually is probably more.A function of the fact of what's been happening in the US Treasury space andin terms of US yields rather than necessarily purely driven bypresumptions or expectations of an.

Adjustment in terms of budget policy, asI say, over a mere ten basis points. But having said that, if we are going tosee a more durable yen rebounds, then we do need to see the BOJ adjusting policy.So allowing our yields to continue to move higher and looking at a higherlevel of upfront and rate. And I think also we need to see asqueezing out of what is still a very sizable short position in terms of realmany young players. So I think there isor or doesn't. And I think it's interesting that we aredebating this process of the BOJ looking towards its first hike at the same timeas even next week we could be.

Considering a bank moving in theopposite direction in the context of the S&P.So I think there's certainly something to play for in terms of some of thosepreviously low yielding currencies. How much, Jeremy, do you think that thedecision for the Bank of Japan hinges in some ways on today's CPI report based onthe fact that it's looking for a window to execute this with the leastvolatility? Well, I think that's absolutely true.I think that all roads inevitably and almost inexorably always lead back tothe US story and what's happening in terms of the US macro andalso more importantly in Fed dynamics.

So I think there is going to be asubstantial reaction function in terms of a CPI miss, whether it be both to theupside or to the downside today, although I think probably moreaggressive risk if there were to be another upside surprise in terms of CPI.But I think if we do get a degree of sort of benign narrative coming out fromthe CPI print and of course we shouldn't lose out or lose sight of the fact we'vealso got that retail number on Thursday, which I think is also potentially quiteimpactful for the Fed narrative. But if we do see this presumption ofjust that generalised moderation in price pressures in the USand leaving open the prospects of Fed.

Easing to come as early as June,although that's not our base case to see.Obviously we're looking for July, but if the market continues to go comfortableprice in June, then that might provide some degree of scope for a benignbackdrop which would open the door for to be a bit of a shaky line on your endor maybe even our end. Jeremy So we're going to go it's greatto catch up. Head of the PGA next week, generallystraight out of CNBC on any and all things Bank Japan.I want to talk about a single name southwest in a pre-market negative rightnow by a little more than 8% an update.

From then they plan to cut 2024 capacityciting the challenges with Boeing. We had warnings about this from otherairlines, including Ryanair in Europe and Lazio saying it right now fromSouthwest. Yeah, and you can see those shares lowerby more than 8%. Less capacity means potentially lowerrevenues. On the flip side from Alaska Air, we sawovernight that they actually had a little bit better profit margins justsimply because they weren't paying as much for some of the Boeing planes.I am curious, though, how this shakes out, especially given some of the newdisclosures overnight that Boeing failed.

A whole host of different, differentinvestigations post the the blowout that we heard about and that there are somereal concerns about their safety protocol.How do they claw out of this when every single day it's tick by, by tick, we getsome more additional negative information.And this is having a real business impact.Re-evaluating all the prior full year 2024 guidance plans to cut capacity.Emery citing these challenges and re optimized schedules as well.Yeah, assumes No. 737 aircraft deliveries, so thatcompletely recalibrates southwest for.

The rest of the year.And Lisa, to your point is tick by tick from Boeing Washington Post reportingyesterday. Then we also added on top of that, theJustice Department has now convened a grand jury as part of that criminalinvestigation. So that means that it's going to open upthe ability, subpoenas for interviews and documents.So we are going to see a lot more of what is going on behind the scenes ofBoeing from the factory floor, Jonathan, to the C-suite, just another note onSouth and Southwest, where they're still making the point that they expect toreturn to profitability in March.

And this is a classic example of abusiness maybe planning for the worst case and not the base case.Boeing has told them advise the company, according to Southwest, to expect 46,737 eight deliveries. And that's a company, Paramo basicallyplanning, as Emery said, to assume no deliveries whatsoever.And they are planning for the worst because they've already been throughsome real disappointments to the market and they don't want to do that again.They're trying to climb out of that disastrous winter holiday season.Remember that when everybody's planes got canceled?Southwest is fascinating to me also.

Because they hinge more on domestictravel, in particular having to do with vacations.So they're kind of a great read on a lot of things.The fact that they're assuming the worst might mean that there's a lot ofpositivity elsewhere. An update on the stock in a prettymarket where negative here by a little more than 8%.We'll keep an eye on that story throughout this morning.Let's get you an update on stories elsewhere.Here is your plane back brace with your horror hackers.How you horror?.

Hi, John.Four astronauts from four countries have touched down on earth after a half yearmission aboard the International Space Station.SpaceX's Dragon capsule splashed down in the Gulf of Mexico near the FloridaPanhandle. In the early hours this morning.The so-called Crew seven moved into the space station last August.The replacements arrived last week in their own space capsule.Oracle shares are on track for their biggest rise in more than two years asthe company sees a spike in bookings for its cloud computing business.The stock had been down about 10% over.

The last six months through Monday'sclose. Oracle, which is known for its databasesoftware, is now focused on expanding its cloud business to compete with thelikes of Amazon, Microsoft and Alphabet. The FDA has approved weight loss drugwegovy for heart disease patients, a move that could open the door forMedicare coverage, since it raises the question of whether Medicare could nowcover the costs for patients with a history of heart disease.About a third of state Medicaid programs currently cover the use of WEGOVY andother GLP one drugs for weight loss. That's your Bloomberg brief.John Yeah, thank you.

I'm next on this program.Targeting 2% inflation. I do think that they're seeing enough inthose inflation readings and we'll get them to work out in June.Let's say retail sales is weaker. We have a softer inflation report.Then I think we'll start pricing that Medicaid again.That conversation just around the corner.Live from New York, this is Bloomberg. Breaking news on Southwest planning tocut 2024 capacity, citing challenges with Boeing.A new assumption now assuming no. 737 seven aircraft deliveries.A stock is down later, almost 7%.

Also talks about not hiring for a numberof different types of groups, including pilots and flight attendants.Again. This really raises questions about wherethey're going to be flying, how they're going to be flying, and how much this isreally going to reduce their profitability after already goingthrough a really difficult period of time.Keep returning to that story, the broader story for you.Equity futures hanging in, doing okay, but positive mindset.If 1% under seven is this morning inflation data on deck.I think we're in a scenario that we.

Haven't really experienced in decades ina sense in that we have inflation that's running above target and we will havethis emerging weakness in the activity data.I do think that they're seeing enough in those inflation readings and we'll getthem to a cut in June. Let's say retail sales is weaker.We have a softer inflation report. Then I think we'll start pricing thatmay cut again. Here's the latest.Less than 2 hours away from February, CPI, the median estimate from Bloombergsurvey calling for a headline print of 0.4% month over month, slightly higherthan last month's hotter than expected.

Data.Neda Richardson of ADP writing, quote, My view is that inflation will continueto decline to a point. And that point maybe it's difficult forthe Fed to maintain as it was to reach. Neda joins us now for more.Nate, a great to see you. Let's get into that.This is about housing in the labor market.Can we get to housing first? What is it about housing that you thinkis going to make this path to 2% difficult?It's the Achilles heel. It's the juggernaut on the way toinflation.

Why?Well, because we are in a classic inventory shortage that's been chronicfor the last decade. That's not cyclical and it's not goingaway. And people have to live someplace.It's not something they can avoid. And so if you have a for sale marketthat's challenge with inventory that challenges the rental market, especiallyin key cities, and you see that play out over and over again.It's also the biggest part of the consumer budget, a third, you know, of alot of people's actual consumer budgets. So it plays out in terms of inflation.It's a really big issue for the Fed.

It's hard for them to get around.It's hard for us to understand as well. Net net have higher rates boosted pricesor have them back? Which one is it?Ever say supply side story? Here's the problem with economics.There's two sides of every market, so interest rates may hold back demand.It also holds back supply. It's costlier now to build a house.And then you have to think that the construction workers, which are also nowmore expensive because wages have gone up.Labor shortages are there. And so you have both sides of the marketstruggling under higher interest rates.

Who wins?Well, what I've seen for too long to quote on television in the housingmarket as a watcher, is that Pete, home buyers do pull back for higher interestrates and then they go back and they test the temperature.OC It's a little hotter than I expected, but then they'll go back in because atthe end of the day, the house is the goal.Well Nila Exactly. For that reason.How much do you think that some of the easier monetary policy baked into marketexpectations? How much is that already supported areigniting of some of the valuations in.

The housing market?How much is that already making things more expensive?Housing wealth has been incredible since the pandemic.If you look at house prices, they've gone up, but home equity with lowerinterest rates. Remember, most home buyers are locked inat under 3%. And so that equity has been enormous.And I think you do have people who are trying to cash out, cash out maybe, andbuy up, trade up. That's a good, good reason to cash out.But it also means that some home buyers are locked into their ATM.They can't get money out because getting.

Money out requires them to get it out ata higher interest rate. So, ironically, even though there is asegment of homeowners who are flush with cash in their homes, it's too expensiveto withdraw right now. I guess that goes to this question of ifthe Fed starts cutting rates and we do get easier financial conditions, whichwe've been talking about, does that boost longer term inflation becausepeople start to cash out of their homes because people then start to take outmortgages, because that sort of keeps everything in play at a time where thereis the stickier underlying component you're talking about?Exactly.

We're on a hair trigger.A drop in interest rates will unleash a lot of pent up demand.And that is the story of the housing market, not just this year, the past tenyears. So this is a story we've seen over andover and over again. As soon as there is a window, the buyerscome in. How big is the window, though?How much do rates have to go down before people get in?Look, I think it's all about inventory. I actually don't think it's about therate. There are enough wealthy buyers in themarket.

There are enough cash buyers in themarket that they can actually support this.Housing market. If there is a drop more of an inventory,so it's an inventory story, not a rate story.And that's why the Fed is going to have such a challenge.If they could control it like a lever with interest rates, then this would bea foregone conclusion that we could get CPI down to a 2%.The problem is inventory is going to be resistant to even the Fed's attempts atlowering interest rates. Hearing a lot about housing fromWashington, President Biden mentioned it.

In his State of the Union, talking aboutrebates to get help people get on the property ladder.Wouldn't that exacerbate the problem to drive up demand?Maybe, maybe. But the problem is that there's notenough affordable housing. So it's a question of whether thoserebates will actually be meaningful in a market where if you look at a lot of theinventory, it's way out of reach of where wages have been, even though wageshave accelerated. So maybe at the margins, some people dobenefit from a rebate, but that's not going to characterize the entire marketbecause it needs the supply side.

So they need to do something on thebuild side. What can they do?You know, that's the problem with housing.It's all at the local level. So it's local zoning rules.It's local property taxes. It's hard to have a national housingpolicy. We did we did before the great financialrecession. We don't as much now.And I think that is playing out with the affordability issues that we're seeingright now, which points back to inflation, which leads to the Fed.So housing to me is the watch point.

It's the big bolder.It's maybe even the elephant in the room when it comes to inflation.Let's finish on the labor market. You've got tons of data.What are you learning from wage growth for job stayers versus job changes?So this is really interesting because if you if you go back with me a couple ofyears, we've been looking at payroll data.So about 20 million workers, 25 million workers overall, about 10 million thatwe can match over a course of the year in the ADP payroll data.We've seen some interesting stuff here. Wages basically peaked in 2022, springand summer.

They move sideways for the better partof that year. And then in 2023, they started to edgedown. That's great news.But more recently, we've seen for people who've actually changed jobs during thatyear, a bump up. That's the first bump up since November2022. That to us is a is an interesting watchpoint because it may be symptomatic of a market that's not quite as cool as wethink. Depending on the jobs that are beingproduced, you might see some increases in where you could wages.They may not decline in a straight line.

If you don't get a crack in the labormarket. And there still is this strength thatyou see as being likely. Then do we really kill inflation?Does it all come down to the fact that we're not having real weakness andenough weakness in the labor market and you need that in order to get inflationlower? I think the fallacy of the narrativearound inflation right now is that we are at the end of the book instead ofthe end of the chapter, and inflation is going to be a recurrent phenomena in theeconomy because you have these two big drivers of inflation, jobs and pay andlabor shortages, shortages which in my.

View will be persistent.And housing and inventory also shortages that will be persistent.Those two big drivers keep this as like a never ending story.Every chapter you may get down to two and not stay there for very long.Let me just put a fine button on this. It's like the Fed is holding a verycomplicated, intricate yoga position and they could tip over at any time.But they have to hold that position for a very long time to see inflation comedown. So this is where we are right now.I thought that that would be vocalizations of chairman calm trying todo yoga this morning.

But I guess our mode here, they say thisway. No need to thank you.This was great. Really thoughtful stuff.Nadi Richardson, chair of ADP. I love this quote.My fear is that inflation will continue to decline to a point.And that point may be as difficult for the Fed to maintain, Lisa, as it was toreach like a yoga position. It's very complicated with Jay Powellpotentially contorting himself. But this is true, right?Because of these issues and this concern about preventing another recession,given how damaging it can be and how.

Hard it is to claw back.It seems like that's so in the forefront of their minds that they're willing tomaybe not hold the position quite as long.Now. Any younger process really surprisedthat we're playing handstands. What's a scorpion handstand?That one's hard. You're doing a handstand, but your legsare still kind of bend it over. Okay.Do you think it's more of that or. Or the crow pose?That's pretty hard. I'd love to see Jonathan do this in thecrow place.

You can show me in a commercial break.Coming up next, mirror banded at JPMorgan at Mills and Raymond James,George Ferguson of Bloomberg Intelligence and Earl Davis of Female.The second hour of Bloomberg Surveillance coming up next. Let's make it clear so we will get cutsthis year. This recent talk about no landing, nocut. We think the market is going to startpricing that out. The likelihood of them not cutting thisyear is basically zero. The likelihood of them being in a hurryto cut.

I think that is pretty small as well.If you cut in May, do you cut in June, do you cut in July, the timing of thatrate cut? I think Fed officials are right.It doesn't really matter. They have to feel as though thegroundwork has been set for consistently lower inflation.We're still living through this experiment yet to be played out oninflation and interest rates. This is Bloomberg Surveillance withJonathan Ferro, Lisa abramowitz and Annmarie Horden turn.CPI eight a 90 minutes away live from New York City this morning.Good morning.

Good morning.This is Bloomberg Surveillance equity futures right now positive by a quarterof 1%. It's the last read on inflation untilnext week's Fed meeting and the recent data derailing leads to some of thehappy talk around disinflation. Given the fact that we saw a hotter thanexpected CPI and PPI. Does this confirm this, as you've beentalking about right now? How vulnerable is this market to reallya gut check about just how quickly disinflation actually is happening andhow hard the last mile really is? Well, the market has been morevulnerable than the Federal Reserve has.

Been.We've been repricing the Fed aggressively.The Fed has been unchanged, unmoved, hardly derailed by any of this.And they're coming into that meeting next week where we get a new set ofprojections and hardly anyone on the street thinks they're going to change.This is where we were in December. I feel like the market is kind of like ahistrionic person who just keeps switching because there's nothing elseto do and they're basically bored and their trades going on.At a certain point, everyone's trying to figure out how to get an edge and anedge less time where the data is messy.

And nobody can really predict thefuture. So you get these really messy moves.And right now if you look at options trading, it looks like there could be alot of volatility with an upside surprise, messy moves and then therevisions. But above the top line.What's interesting about inflation is we can actually see where they're makingprogress, where they're not and how long the rest of the year it's going to bedifficult. Bloomberg Intelligence and we just heardfrom Neal Richardson really looking at housing and shelter costs, BloombergIntelligence, we're looking at gasoline.

This is really critically important,going to peak driving seasons and what this means for Americans.Polls continue to show that Americans identify prices of goods and services asthe best indicator for how the national economy is doing.That's the CPI report, 830 Eastern time. I want to turn to a single nameSouthwest and a pre-market negative by a little more than 5%.A couple of headlines dropping in the last 30 minutes or so, re-evaluating allprior full year 2024 guidance, planning to cut 2024 capacity.And citing one company in particular, Ali said that company, it's Boeing.I'm wondering whether Boeing's could.

Have to pay anyone anything.I mean, seriously, given the fact that there's a lot of lost revenues.But Southwest also talking about how otherwise first quarter bookings wereactually up and they were actually increasing faster than expected.This is sort of a strange story. On one hand, you've got the disasterthat's Boeing, Right. And how that's going to evolve with theDOJ lawsuit and all sorts of other claims is one thing.But another thing is a lot of these airlines are still doing well.And it's a question of getting enough capacity to meet demand at a time wherethis economy just is not rolling over.

That's me.Might be one of the more interesting angles of this sort of kitchen sinkreport. Boeing down another 1%, Southwest down5%. This is a comment from Southwest on whenwe get that updated 2024 outlook. We have a date April 25th.Is the date planning to give updated guidance on April 25th, But it feelslike we have the updated guidance when it comes to the 737 deliveries, they'llbe no, that's what they're assuming right now.There's going to be no deliveries and they continue to assume in this reportno seven aircrafts are placed into.

Service this year based on the currentcertification status. So until Boeing gets its act together,this is going to be a ripple effect across the airline industry.It's a break of 32 in a pre market for Southwest.Broadly speaking, equity futures doing okay positive by quarter of 1% on theS&P 500 yields a little bit lower on a ten year wait, down about a basis pointto 4.09% ish in the market. Eurodollar 109 35 basically unchanged.Coming up this hour, mirror open to the Jp morgan ahead of a key CPI print atmills of Raymond James. As the tick tock build gathers momentumin DC and out Davis of BMO on its quote.

Great buying opportunity in Treasuries.Oh Davis has been dead on in this bond market the front end of the curve.So looking forward to his thoughts on the longer end on a ten year.Absolutely especially because Barclays came out and talked about potentiallysaying, yeah, and the rallies got a little bit too far, but he has been deadon and it's been tactical and it's been brilliant.It's been a great start to the year for the team over at BMO.We begin with our top story this hour, the US CPI report 90 minutes away aftera hotter than expected January print. Today's February rate giving investorsmore clues on the Fed soon, but not too.

Soon.Rate cut timeline to the Jp morgan right In this, a slowdown in the economy willlikely be one back to trend rather than into recession.The Fed is likely to fill that projection of 75 basis points of ratecuts this year with the first starting in June.I am pleased to say it joins us now for more American Morning.Good morning. You came into this year calling it the2024 economy to 0 to 4. Can you explain what 2024 actuallymeant, the meaning behind it and ultimately where we are now a few monthslater?.

Sure.So 2024 is 2% real GDP growth, zero recessions this year given the data thatwe have, 2% inflation, somewhat controversial, given that people thinkit's a little bit sticky where it is and just under 4% unemployment.And that's broadly where we're trending to.If you look at the data that we've gotten, Atlanta Fed GDP tracking to bejust above 2%, unemployment just below 4%.Now, the key is inflation. Does that continue to progress?Towards 2%. And I do think, look, we have multipleinflation prints, not only CPI, but also.

PC until we get to the Fed's Junemeeting. And I do think it's not going to be aneven path, but that data will increasingly confirm that the Fed shouldbe ready to implement modest cuts in light of a benign economic environment.Late spring was the date coming into this year for you.Has that date shifted out or stayed the same?It shifted a little bit from May to June, so not a huge shift.But I think that what has been helpful is, one, the Fed speakers have beenpretty consistent in the way that they've approached their timeline thisyear in terms of the long engagement,.

Know we've committed to doing this, butwe're not going to set a date yet. And now they're getting closer andcloser towards let's do this. And in the summer, given what the datamight show. And I also think the very helpful thingfor the markets is that finally you've seen the Fed and the markets converge.So I do think that risks to some extent a lot of these jobs and CPI prints thatwe're getting because there's not that much of a delta between the two.I love this. We get people online like yourself andthere have a longer term horizon and they start talking about how it doesn'treally matter whether they cut May or.

Whether they cut in June.And then you have a report saying that the market's going to go haywire if weget a hotter than expected CPI print because it's going to push out how manycuts and when they start. So which is it?I mean, how vulnerable is this market to a hotter than expected CPI print?It's how vulnerable is the market to surprise?And again, right now, with Fed expectations and market expectationsfairly aligned, I think it's a lot less vulnerable certainly than it was a fewmonths ago when you would see a lot more rate volatility around any time a Fedspeaker got up to the podium or any.

Piece of data that we got, I think thatthere's a little bit more comfort. And I also think look at some of theFed's projections. We'll see next week how those change.But if you look at headline core PCE, we're really not that far today relativeto where they want to be at the end of the year.So isn't that a pretty good sign that they came up with these projections lastDecember? And you know what?We're kind of getting to the right place.Well, so there's another question, too. It's not just how much is the marketpotentially vulnerable to a shock, It's.

Which stocks are most vulnerable, giventhe fact that we've seen this huge run up at the Magnificent Seven and themomentum stocks, Do you see this fragility there or is it elsewhere?Is this sort of a consolidation of earnings and profits in a select numberof companies that make them less vulnerable to some of the volatilitythat that some people are expecting? I think the macro micro is very muchdefying the micro because you would think, okay, if there's somevulnerability around the macro outlook in terms of the path of rates, that'sgoing to shock stocks. But I think instead we're just seeing abroadening out in, okay, if it's still a.

Reasonably good environment, the maxseven can do fine. But is everything else going to start tocome along? And you're starting to see that,especially when you think about how that's underpinned by earnings.Last year you had profit growth that was essentially in aggregate negative acrosseverything in the S&P 500 except for the Magnificent Seven, which were up 30%plus this year, we're expecting to see about 40% of profit growth coming fromthe Magnificent Seven, about 60 from all the other stocks in the S&P 500 and eachquarter. That is going to improve until we getinto the end of the year or we're.

Actually projected to see a flip whereyou're going to see more growth coming out of the rest of the index relative tothe Mag seven. Now, still very impressive growthnumbers, but it's hard to get too spooked by stocks when earnings havebeen as strong as they have. I struggle with the logic just in termsof how GDP is set to decelerate, but earnings contribution from elsewherewill increase. Why do you think such strong US growthover the last 12 months has resulted in such narrow leadership in the equitymarket? How has that happened and why is italmost like the reverse for this year.

Where we're going to get less USexceptionalism but better contribution for earnings from elsewhere?How does that work? I think a big part of it is the factthat earnings were relatively poor when you think about earnings growth lastyear across the board. So despite the fact that the economyactually defied expectations of recession and re accelerated, you didn'treally see that as much in the profits numbers last year.I think disinflation is helping to, as we see more margin stability andrevenues seem to be holding up pretty well in light of of accelerated economicgrowth.

So I think that the profits reallyactually lagged or told a different story last year than the economy did.I think this year as we get to, again, a reasonable place with the economy, butyou do see profit growth pick up from essentially flat to double digits.That is what really propelled stocks this year.You mentioned margins. Can you talk about that a little bit?What have you noticed of how they're protecting margins?Is this cost cuts? Are they laying people off?Where's that coming from? It's a little bit of both.You do hear a fair amount of layoff.

Announcements and people being prudentabout hiring going forward. I think that in certain sectors, youknow, staples, for example, they'll be a little bit more pressured in terms ofcost cuts. We haven't really seen it across theboard, but I think companies are certainly willing to do what it takes todefend margins throughout the year. The question is, what will it take?Because if we do still see a reasonably healthy consumer backdrop, there may beless of that that they need to do, given the fact that we keep talking aboutAmerican exceptionalism, given the fact that we're not seeing layoffs, given thefact that that.

We just were talking to Neal Richardsonabout how sticky some of this inflation is.What's the threshold for rates at which point stocks can keep gaining?At which point stocks are still a positive type of investment?Well, we have seen that stocks have done pretty well through the three percentsinto the fours, you know, nearly kind of getting into the fives as well.So I think the stocks overall, if the economy is reasonable, if the earningspicture is reasonable, can be quite resilient in a variety of rateenvironments which we have existed in even in just the last six months.So, again, I really do focus a little.

Bit more here on the micro than themacro. And you're seeing that globally, too.I mean, despite the fact that we have potentially, you know, technicalrecessions or near technical recessions in areas like the U.K.and Japan and Europe, you're seeing that not only are U.S.stocks at all time highs, but also within Europe, Germany, France, go overto Japan. So you are seeing that that disconnectthere, which I think is a healthy thing because people are paying a little bitmore attention to stock selection. I mean, if you look over the last 25years, you've basically seen half of the.

Best 50 performing stocks each and everyyear, essentially come from international companies, internationallylisted companies. So I think it does make the case forreally being pretty discerning in terms of which companies you're going after,as opposed to worrying too much about the rate and inflation environment,because we've really seen the gamut over the last couple of years.Mary, stick with us. We've got a lot to get through.Mary painted that of J.P. Morgan Asset Management.If you are just joining us, inflation data at 830 Eastern time, about onehour, 20 minutes away.

The estimates look like this month overmonth, 0.4% in our survey, up from 0.3 in the previous month.Core stripping out food, stripping out and looking for 0.3% versus 0.4.That data hits at 830 Eastern Time. Let's get you an update on storieselsewhere this morning. Here is your plane back brace with yourhorror hack. Sayonara.Hi, John. Speculation is growing.The Bank of Japan may be getting closer to raising interest rates.Sources say a final call will be made Friday.This is when wage talks between Japanese.

Companies and unions wrap up.April remains the most popular prediction for a rate move amongeconomists surveyed but surveyed by Bloomberg.We'll see what the BOJ decides next week when it holds its policy meeting.JPMorgan CEO Jamie Dimon issuing a warning on the US economy, sayingrecession is not off the table just yet. He told a business summit in Sydney thechance of a soft landing in the next year or two is about 35 to 40%.Diamond says economic indicators have been distorted by COVID 19, and he takesthem with a grain of salt, saying the Fed should wait for more clarity beforelowering interest rates.

The Coco rally is showing little signsof slowing. This has been shipments from the IvoryCoast came in far below last year's level.New York futures rising as much as 4%, erasing losses from the previous twosessions and pointing to a tighter global market.The lower output from the smaller mid crop harvest has added steam to therally, which has seen the price of cocoa jumped by over 60% this year.That's your Bloomberg brief. John, thank you.Love this story from the Washington Post.Just dropped former president Donald.

Trump asking Elon Musk last summerwhether the billionaire industrialist would be interested in buying Trump'struth social. According to two people with knowledgeof the conversation. Well, maybe that's recently why he wasmeeting with the former president everyone was talking about.This was about Elon Musk getting into the campaign donations game.He said on Twitter that that wasn't it. Maybe it's about truth social.I'm not sure how much capacity Ellen's got to make another kid make anotheracquisition. I just want to know why he wants toraise the money.

True.That's the latest from the former president of The Washington Post.More on that a little bit later. Next on the program, the tick tock bellgaining momentum in Washington. This bill does not ban tick tock.It just bans the Chinese Communist Party from essentially owning it.I hope it gets a vote. I think that that we don't need theChinese Communist Party telling our kids what to watch online.That conversation up next live from New York City this morning.Good morning. Equities on the S&P 500 positive by 0.2%yields a little bit lower by a single.

Basis .4.0 9%.The CPI data just around the corner under surveillance this morning.They take tough belt gaining momentum in washington.This bill does not ban tick tock. It just bans the Chinese Communist partyfrom essentially owning it and trying to ban tick tock.I hope it gets a vote. I think that that we don't need theChinese Communist Party telling our kids what to watch online, which isessentially with two going on here. And I just want to see tick tock surviveand thrive. Is the latest bipartisan bill that wouldforce Tiktok's parent company to sell.

The platform or face a ban is gainingtraction in Congress. Officials set to brief House members onthe bill today ahead of a vote tomorrow at most of Raymond James writes in thisWhile the bill has a high probability of passage out of the House, we believe theSenate may be more skeptical, given concerns about the dignity of the bill.With notable pushback from TikTok users adding to bipartisan concerns aboutlosing the younger voter crowd at Mills joins us now for more.And we've been talking about this for the best part of four years and nothinghappened. Is that about to changeup?.

Maybe.I think that this bill is absolutely going to have a massive vote tomorrowout of the House of Representatives, But after that, it slows down.The Senate has a different approach. The Senate Commerce Committee chair hassaid that she would prefer to have larger authority to take a look atdifferent apps controlled by countries of concern and potentially regulate thathere in the United States. So Joe Biden has said that he would signthis if it comes to his desk, but he knows that there is the ability tochange this in the Senate, deal with some of those legal and politicalissues.

And to me, the real question beforepasses is how long does it take between the Senate and the House to work outthose differences before it even could get to Joe Biden's desk or potentiallysomeone just buys it in the medium term as they go along on this very longprocess? Yesterday, we got the annual report onglobal threats and here's what it had to say.China is demonstrating a higher degree of sophistication, its influence,activity. It goes on to say tick tock accounts runby a PRC propaganda arm reportedly targeted candidates from both politicalparties during the US midterm election.

Cycle in 2022.If they know this and you also had Christopher Wray on the Hill yesterdaytalking about the national security concerns, how can any politician voteagainst this? Well, that's what I've always said, thatin politics when you're explaining, you're losing the vote last week in theEnergy and Commerce Committee in the House was 50 to 0.So no one wants to vote against it. But as soon as that bill passed, the topDemocrat on that committee, he's in the minority, came out in outlined a numberof those concerns. It is bonkers to think that you wouldhave a foreign government that is not an.

Ally controlling what people are seeinghere in the United States. When I talk to national securityofficials after the October seven terrorist attacks in Israel, there was alot of concern of how quickly, especially among the youth, there weresentiment shifts that were not expected. As we go into the election, there isgoing to be even greater concern about those influences on voting.So ultimately, something has to change here.It's just a question of that process in the timing at this point in my mind.Former President Donald Trump has thrown some cold water on this bill.Does that change the minds of some.

Republicans?In a little bit. Yes.But that's why the FBI director of the office ofthe national director of Intelligence is going to be up on the Hill today todiscuss with members of the House why they think this is a national securityimperative. I do think it is part of the reason whyyou saw some members of the Senate come out and say we are not willing to justadopt the House version. First and foremost, the Senate almostnever takes what the House does and just signed it into law.But what you need to do in the Senate,.

If you were to take the House bill isunanimous consent. So it denies the ability of unanimousconsent is actually a gift to Democrats who want to make some of these changes,that Republicans are not going to be able to blame them.They'll be at least one or two Republican senators who is blocking thisbill, giving the opportunity for the Senate to do their work.And the question is, can what the Senate produce and what the House produce getreconciled and make it to Joe Biden's desk?Will we see an actual impact on tick tock before the election?I'm pretty skeptical that forgive me,.

I'm going to say something dangerous.I'm going to ask you to read the Trump tea leaves if we can.What do you think his position on this signals more broadly about how we mightgovern regarding China? It's a good question, John.I think that all of the conversations we've had at Raymond James about Trump'spotential re-election in China, first and foremost, a less predictablerelationship. Number two seems to be very focused ontariffs and number three, somewhat transactional.There is going to be a question of his business interests and true social.Any of the campaign contributions he's.

Had in his position on Tick Tock.What does his ownership of true social do as it relates to the potentialbenefit for other social media companies?He highly lighted Facebook and Metta yesterday.A lot more questions of what is driving those decision making and thatunpredictability and the volatility that comes with that from the market is wherea lot of our conversations have been with Converse with with the clients ofRaymond James. That's about it, though.Just quickly, less predictable and more volatility does not necessarily meanworse than what we currently have.

Right?Well, we have viewed that, you know, current administration is picking upeverything that Trump did on China and bringing it to the next level, but hasdone it in a more process driven basis that is going to be easier to uphold onlegal challenges. So neither is, you know, kind of goodfor China. It's just the question of how bombasticthat relationship would be John. A very different approach and appreciatethe clarity at Mills there of Raymond James.Still with us for a final thought. May happen to a J.P.Morgan Asset Management metric.

Go to question for us around the tableover the last few weeks. How tough is this going to be formultinationals to navigate? Is that really what I want?Exposure to a very unpredictable, volatile relationship between the UnitedStates and China? It will continue to be a challenge, andthat's almost regardless of the political situation that we'reundergoing, because this has been a long standing issue for, you know, 6 to 8years now. So it is something I think that they aremore accustomed to dealing with, and especially after the pandemic with someof the non politically related.

Challenges with supply chain.I think companies have readjusted some of their global strategies and in termsof how they will operate, but certainly it's an additional headwind.So I think it will be a challenge undoubtedly, but not necessarily a newone that that that companies are going to have to to deal with.You write in your note, it's not always policy and politics.It's also about what's going on. In the time you talk about the energysector is actually shocking how clean energy did well under Trump and actuallyfossil fuels doing well under Biden. How do you prepare for potentially Trumpto point out when you look at.

Historically, something like that?I think you have to remember that because sector implications don't playout how you think they will. You know, we have this idea thesesectors will do well under a Republican. These sectors will do well under aDemocrat. And what you point out is essentiallythat during the Trump administration, you saw essentially clean energy upalmost three X, whereas you saw traditional energy down by about 40%.Within the Biden administration, you saw clean energy have, whereas you sawtraditional energy double. And that had to do with under Trump lowoil costs because of the pandemic, low.

Interest rates, helping some of thatclean energy financing. Under Biden, it had to do with the warbetween Russia and Ukraine, recovery of oil prices, also some of thatuncertainty around politics policy itself.So sometimes policy can actually have the equal and opposite reaction.Bring us back to physics class in terms of how you think things will play out inthe markets. So really important not to try to playpolitics with your portfolio because it rarely works the way you think it willhappen. Jp morgan Mara, appreciate it.Donald Trump I do wonder, too early to.

Draw conclusions, but at least you dowonder what his approach on take out means for his broader approach to Chinain the years to come. If he gets back in the White House.I thought I'd put it really well. It shows how complicated andtransactional it's going to be if it affects, you know, true social.Does it change the scenario and raise a question about what national securitymeans not just to the social, but does affect his ability to bring in topdollar donors? Jeff Yass, he recently called, quote,fantastic an individual he's trying to bring in.Yeah.

Campaigning versus government.I go to different things, I guess. Are they coming up on this program?Shares of Southwest falling after the airline announced plans to reduce itscapacity in 2024. Now go in there.And so that was almost the whole Mike almost at Corey's right now, the S&Ppositive by 0.3% on the NASDAQ positive by 0.4.Two days of losses on the S&P 500 last week, a very rare week of losses.We've only had three of them since the end of October.Just a stellar run in the equity market. In the bond market, two year, ten year,30 year looks like this city are calling.

It inflation week.And it is starts with CPI data a little bit later this morning, too year for5380. You know, it's a touch high there.No drama little bit lower on a ten year, basically unchanged 4.09%.A real flavor, a picture of inflation in America later this week going into theFederal Reserve decision in about a week's time.Yeah, it comes at a time where we've already had this incredible rally andpeople basically are saying, although zero cut, call people, hey, I'm look atit Utah since they've come on the show and said I don't think so it's not goingto happen.

This is kind of the gut check right AndI keep going back to what Neal Richardson was saying.The housing market is still strong and it's a supply side issue.Labor market might be stronger than it seems when you look under the hood.How does that come to the final mile that everyone's already baking in state?For sure. That may see another rate cut call for2024 is coming up a little bit later, about 60 minutes from now, when it turnsto foreign exchange. Let's pick out a currency pair together.Let's take dollar yen, Japanese yen right now, a little weaker after severaldays of strength.

One 4737 on dollar.Yet another report, this time again here from the team at Bloomberg suggestingthey're very close considering a hike in interest rates next week.Paramo if and it's an if and it's dependent on what happens on Friday withthose weights negotiations. It also depends on what happens todaywith CPI in the US. I mean, just to think about how they'retrying to calibrate this perfectly to do with the least disruption possible, tome, the fact that you get a little bit of a weaker yen highlights that anyuncertainty about a rate hike, a rate hike next week, let's write rate hike,we're talking about rate cuts everywhere.

Else.It's hard to get your mind around right now given the fact they just haven'tdone it for 27 years. It's also not what anyone else wouldsay. Yeah, I mean, it's basically, you know,this is where this is where people's minds are, right?One 4736 on Tully. And right now I'm with you.Every time I say it, I'm like, yes, rate hikes, rate hikes, rate cuts.I mean, how many times do you mess it up with the Fed?I've done that with cutting rate cuts. Rate hikes.Yeah.

At a time.Yes. Do that too.Oh, I know. It's just dependent on what you use towrite. It's not a big deal.It's okay, Lisa. So.Right. One 4736 Until again, I'm just a fan isthis morning a little under an hour away from us CPI after a hotter than expectedJanuary print survey expecting a slight uptick in headline inflation with corecontinuing its trend lower. Bloomberg Economics expecting increasedgasoline prices to push up the headline.

Figure writing, quote, We do not expectthe February report to provide clear enough evidence of disinflation to boostthe Fed's confidence to cut interest rates.I think most people on that page, regardless of what this says today,Lisa, it's too soon. If they want a little bit more evidence,I don't think that's one CPI print. I don't think many of us believe it iseither. And a lot of people are looking to June,Right. Which is the reason why that's theconsensus rather than this month. Gas prices, nobody really cares becauseit's going to be a seasonal thing.

That's what people are saying.However, we did see inflation expectations creep up just a little bitin the New York Fed consumer survey yesterday.It's not going to be conclusive. I think that that's what we've heardfrom guest after guest. So why would they make a move or reallychange? It's not going to be conclusive, whichis why Mohamed El-Erian says the Fed has become not even data dependent, Dataobsessed. I was looking at the misery to index.Why this is interesting is because this has more cumulative inflation ratesbaked in.

And what it shows is that voters inseven swing states actually say inflation is worse than voters overall.In states that normally vote deep red or deep blue.That spells for me a massive problem for this White House.And that's why CPI prints like today are really important.Just to spell out the estimates for you, we're looking for 0.4% headline monthover month from 0.3 stripping out food and energy 0.3 versus 0.4 in theprevious month. Elsewhere, tensions rising betweenPresident Biden and Israeli Prime Minister Benjamin Netanyahu as the deathtoll rises and cease fire talks stall in.

Gaza.Biden calling an assault on the city of Rafah a, quote, red line.Netanyahu not backing down. The gas.I'm telling you that we have to take care of Israel's security and ourfuture, and that requires eliminating the terrorist army.That's a prerequisite for victory. A prerequisite for victory.What happens if he crosses that red line?Do we know? We don't know yet.But we do know in Politico was reporting that potentially Biden would put stringsattached to weapons.

One thing I thought was interesting inthat interview Netanyahu gave to FOX. He said, we have agreement on the basicgoals. We have disagreements on how to achievethem. That seems to be where the gap is.And yesterday, when we heard from the White House, deputy press secretarygargling with reporters, said that they have no such plan yet about how Israelisplan to go into Rafah, but make sure that Palestinians are not in harm's way.We asked a few times yesterday, is this a fundamental division, a big separationbetween two leaders, President Biden and the leader of Israel, or a convenientmedia narrative for the president of the.

United States, given his politicalchallenges? We have mixed answers to that.But I think based on the Politico story a little bit earlier on this morning,suggested that maybe they bring in some conditionality to the military aidthat's offered to Israel. If that red line is crossed, and I thinkthat's the real test of that question, what is the policy going to look like ifthey cross that red line? Is this really a big, big shift, adecision between two leaders or typically, as we might be in a cynicalway, expect this just to be a convenient media narrative for the president?We'll find out based on the policy, not.

The words, in the months to come.That's true, but I tend to read the tea leaves the way Aaron David Miller does,which is that there is a shift, and most notably because I can't remember thelast time Benjamin Netanyahu and Biden spoke.And for me, it's not just did they speak recently.It's how much they've been speaking. Remember, after October 7th, they werespeaking regularly. When was the last time we saw them speakin that sort of level of regularity? I have not seen that.That's the latest on the Middle East. Let's turn to shares of Southwestfalling after the company announced its.

Plans to reduce its capacity this year,citing Boeing's ongoing challenges. This after Boeing suffered its biggestsingle day drop in over a month after the DOJ opened a criminal investigationinto the midair blow out of a fuselage panel.Back in January, Judge Ferguson, senior aerospace and airline analyst, theBloomberg intelligence, joins us now for more.Josh, can you tell us just how seriously we should be taking this criminalinvestigation? So I think, you know, any criminalinvestigation has to be taken very seriously.Boeing obviously has its reputation on.

The line here.It's been it's definitely been muddied, its reputation.So it would like the criminal investigation to come out well for it.My understanding is that criminal investigations are typical in this kindof event. You had that blow out of the plugand it doesn't necessarily indicate that they have evidence that there's there'scriminality here, but they want to make sure there's beenno criminal act that would have created that that problem.But I'm not an attorney typically an analyst by day.So that's my understanding of the.

Criminal side of this.George, I'm struck by the fact that the news gets worse and worse for Boeingevery single day. I mean, honestly, we heard this reportthat basically safety regulators went in there and found huge gaping errors injust how they have their protocols laid out and the confusion around them.Where's the flaw here? Shares are dropping, but there's also acomplete lack of any kind of sense of whether we've gotten to the bottom ofthis. Yes, I agree.I mean, it seems like the the bad news just keeps coming here.I do think that, you know, the reports.

I've seen indicate to me that part ofthe fix has to be this by spirit aerosystems.And so this may well start to be a floor as Boeing explores how to take apartspirit aerosystems inside spirit. There's some Airbus business, butthere's a lot of Boeing business, and I think they can't afford to have anymuddied lines between what Boeing wants to do on quality and production, youknow, and a spirit management. And so I do think that's I think it'ssomething they never wanted to do. You know, they spun Spirit out becauseit was a lower margin business. They didn't want to be involved in it.I think they've they've ran it this far,.

Trying to keep spirit outside.But I think they've just looked down there and said it's too integral to thebuild of the 737 and the 77, the two most important airliners.And they can't control what's going on down there.They can't stabilize what's going on down there.And they've got to get in there and fix it from the very beginning, all the wayup into into Boeing and Renton, Washington.George, do you think we could see any more shifts in the C-suite?Look, you know, C-suites job is to is to build airplanes correctly the firsttime.

All the time.Make sure you know, all of the processes that are in place are followed.And and it's not being done right now. And so I think that absolutely puts theC-suite at risk. Well, I say this because the US crashinvestigators are accusing Boeing of not even being able to cooperate in theprobe. Doesn't that spell a massive error atthis moment when they should be trying to cooperate?You know, I would think they would want to be cooperating here as well.But I also think that there probably situations in this investigation whereyou might have differing opinions on on.

How things should be.But it's a really, really tough spot to be in right now.And I think, you know, I think Boeing probably needs to be a lot morereceptive to some of this feedback then trying to manage it.What I find interesting, George, is that the Boeing debacle seems to be masking alot of actually good news under the hood.We're seeing a lot of bookings that are coming in stronger than expected.People are still traveling a lot more than many of these airlines expect ofSouthwest. That was sort of the silver lining, thatthey actually had greater numbers of.

Bookings than they had expected.How much has this sort of muddied or blocked out the sun that has really beencast over the rest of, frankly, the travel industry?Yeah. I mean, well, I mean, I think aninteresting thing will be right is that if you're a Boeing flier, an airlineflying Boeing, you may not have enough capacity to take advantage of that.And so I think it has been, you know, a bit of a silver lining.We continue to see fares sort of ebbing down.So we don't see profitability, doesn't look like it's going to be it was lastdecade for the airlines in the next year.

Or so.I think the consumer's held up okay. Again, we're still seeing it start toslide. But one of the silver linings couldactually be that there's not enough airplanes in the market.And if you're not a Boeing flyer, you're an Airbus flyer, you're going to bethere to take those rewards. So it's you know, it's maybe glass halffull, glass half empty. For those that are Boeing flyers.Take those rewards, take those rewards for the airline airplane companies.The airline companies, not necessarily for the consumer.Does this mean that prices probably are.

Going to go up if capacity isconstrained? I mean, typically when capacity isconstrained, prices absolutely do go up. And if you look at profitability at USairlines, like I said, it's not last decade profitability.The pilots got big pay increases. That's really impacted it.Fares actually do need to come up for these airlines to earn an appropriatereturn on capital. So I think they're too low right now.George Ferguson of Bloomberg Intelligence.George, thank you. We heard that same warning from Rana andthat was almost like the trial balloon.

To higher fares through the summer,wasn't it? That's exactly what I am hearing.You know, capacity is constrained. So guess what?Prices are going up ahead of the CPI print.Sort of interesting. You know, what's happening next.Later this summer, capacity is down as Boeing's fell.We've got to put up hundred percent fares.Expect to get basically I want to call my flights as soon as I'm done withthis, get it done. I mean, this is right now on the S&P,just about positive.

That data coming up a little bit later.Let's get you an update on stories elsewhere.Hazel Bloomberg Daybreak with your horror hackers, how you horror?Hi, John. Bank of America disclosed pay raises ofmore than 10% for two of its highest ranking executives.Even as its CEO, Brian Moynihan's compensation was cut for 2023, CFOAlastair Borthwick total pay climbs 14% to $12 million last year, while Jim deMare, head of the bank's global markets division, saw a rise of 11% to $21million. Meanwhile, Moynihan saw his pay cut 3%at $29 million in 2023.

US small business optimism hit a ninemonth low in February, according to the National Federation of IndependentBusiness. The report citing high prices andborrowing costs, taking a toll on expansion plans.Just 5% of respondents in their survey indicated now it's a good time to expandtheir business, while a net 39% see business conditions getting worse.Rupert Murdoch's News Corp is reportedly in talks for a takeover of the U.K.Telegraph. News Corp is said to be working with theowner of the Daily Mail and UAE backed investment fund, Redbird EMI on apotential deal.

A joint bid by the three would result ina smaller stake for Redbird EMI, which would reportedly ease concerns byBritish politicians over foreign state control of a legacy media outlet.That's your Bloomberg brief. John O'Hara, Thank you.Next on the program, markets signal the coast is clear and we continue to havestronger U.S. growth.And this U.S. exceptionalism story keeps coming back.You have pockets of weakness and pockets of concern.Markets are concerned about private credit.Markets are concerned about the regional.

Banks.None of these are systemic issues at this point.That conversation up next. Update on stocks right now.Positive just about 1% on the S&P 500 in the bond market, lower on yields by asingle basis, .4.0 8%. The euro per touch stronger 109 34against the dollar. Under surveillance this morning, marketssignal the coast is clear. We continue to have stronger U.S.growth and this U.S. exceptionalism story keeps coming back.Economists and policymakers are all having trouble contextualizing.Why is the U.S.

Economy so strong?So I think that kind of it comes back to that.We don't have a broad recession. It's hard to see signs of that.You have pockets of weakness and pockets of concern.Markets are concerned about private credit.Markets are concerned about the regional bank.None of these are systemic issues at this point, and markets are notconcerned about additional supply. Bond yields slightly lower ahead of abusy week of auctions, with a combined $61 billion in ten and 30 year debt tobe sold over the next two days.

Oh, Dave Sabemos saying this.We believe that there will be continued upward pressure with incoming ten and 30year bond supply. This will be a great buying opportunity.Credit markets have continued to rally with a solid bid to risk assets.Markets are now discounting an extremely low probability of recession.Oh, David, some place to say is with us right now.Let's get into it. I gave you the victory lap last timearound, so I've got to stop compliments. And you absolutely nailed the front endof the yield curve on a two year pact away at the tippy top for 70, I believe,a couple of weeks ago.

Further out on the curve, you were stilllooking for yields to climb, maybe to 450, perhaps out to 470.What's been happening on that side of things?Yeah, we've we've actually had a good, I'd say, underlying rally in yield sincewe last spoke. You know, we're tactically short ofcover today angles very small long but that bid into supply both on durationand credit, we've seen record credit and you know, spreads keep tightening tellsus there's some significant underlying demand.So we're just going to be slightly overweight.And the reason why we're not going to.

End upmore overweight is because we're bang in the middle of our range for ten yearbonds that we saw for 2020, for the range that we anticipated is the rangeof 2023. So 325 to 5% right in the middle.But the demand, we're respectful of the demand.So we're just going to be slightly overweight coming out of supply thisweek. Well, I want to just talk a little bitmore about how you do think that just the incredible demand has sort ofshifted your opinions. Where is the demand come from?Why has it been so much stronger than.

You previously expected?That's a great question. I demand to start.The year was coming from retail and I think we were all speaking about that.And the reason why that was coming from retails, we had a strong fourth quarterretail likes calm markets and markets where the rallying slid that theybought, reduced the volatility in the bonds and they continued buying wherethe balance of the demand is coming from is a little bit of a question mark atthis point in time when we're doing some research into it.So so because to tell you the truth, I'm not quite sure, but given our view that,you know, we're coming towards the end.

Of the business cycle to mature businesscycle, we think we'd rather we prefer to air on being slightly overweight thanunderweight at these levels. It's an interesting moment to do thisbecause we do have, of course, CPI coming out in about 45 minutes time.The expectation is the economy is stronger than a lot of people have beenexpecting. And then we get that supply, $39 billionof ten year notes later at 1 p.m. Eastern.Barclays strategist actually turning short on longer term.Treasury is saying incoming data suggests that the US economy remainsresilient, with the labour market.

Generating solid real income growth.The rally over the last few weeks seems excessive and we recommend shorting tenyear U.S. treasuries.Why don't you agree with that, Earl, given the fact that you probably agreewith the assessment of the economy, but you are seeing something in the marketthat just doesn't cohere with that. Yeah.It's very interesting. You are getting tremors, you know,before you get the earthquake. I'm not saying it's an earthquake, butyou're seeing in the unemployment number, you're seeing in some othernumbers where you know what the totality.

Of the number, once you dig inside, isnot as strong as the headline. Having said that, we do think we remainresilient for at least the first half of the year.That's why we're not going significantly overweight.But to our point, if we do get a strong CPI number today and we do get a selloff in bonds, we will be a buyer. What will you be buying with?Is it going to be moving out the short end into the long end?But this has been something else. What was it, T-bills and that we heardyesterday that some people are saying there's no rush because rates are goingto be saying here for quite a while.

Do you kind of adhere to that?Are you saying actually this is a good time to lock it in on the long end?It's a good question. For two year bonds, for example, we'renot a buyer here. If we get above 475, we're definitely abuyer. So if we get weakness, go towards 475will be a buyer. We still think, you know, thepossibility is is going to be pushed out, you know, basically a Q3, maybeeven Q4 story, not a June or July. So that's why we don't like owning twoyear bonds here, ten year bonds. We don't mind dipping our toes here.You know, as we said, we'll be slightly.

Overweight if we test the recent highsat 430, the 450 level again, which is a very real possibility.We'll buy some more and then we'll save our last sort of dry powder for above450 in case we get there. I'm going to say one thing.Our highest conviction view this year was volatility.That's why at this level, right in between, we don't believe we stay here.And the reason why we expect volatility, there's a lot of credible news outthere, us thinking rates go lower, The Barclays and others thinks it goeshigher. We will see both sides of that, but welike it from a structural position to be.

Playing this from the long side, givengeopolitical risks, given where we are in the business cycle, if there is morevolatility, are some of the riskier credit spots really pricing that in orallowing that to be the case with likelihood of retaining their value?Yeah, that's that's a really, really good question.We actually reduced our credit on Friday, given the new lows we saw inrisk assets. We did that through CDs, so we boughtprotection. And to your point, we like, we stillthink the economy is going to be resilient and credit will be good, butwe want to move up the capital structure.

To safer credits and also into GS.We still have a little bit of high yield, but no triple C's.We're moving up the capital structure there just because we think thatvolatility will impact markets. And you know that financing refinancinglevels here, we've had record corporate issuance, but not very good buying.To counter that, we have what we call disciplined valuation discipline.So we don't like being overweight credit at these levels, although we don't seeanything immediate in that we'll sell off credit.So which when I say I'm just trying to work out, there was the price that astory interposed is just getting too.

Rich.Exactly. Yeah.There's that. You're not being rewarded enough.I think I said this last time. We're in it for the meat, not for thefat. Where the spreads on triple C's areright now. That's all fat.That's all fat. So we're going to move to areas wherethere's more meat on the ball and where we have protection.Given how mature this business cycle is. And Lisa mentioned earlier, she askedwhere's the demand coming from?.

And I would ask a similar question withregards to supply. We've had tons of it.Treasury and also in credit as well, just within credit, where's that demandcoming from? I think it's twofold.I think what you're seeing is some real money players, you know, your pensionplans, your insurance de-risking, So moving from higher risk assets, youknow, your high yield or lower rated ideas into higher rated credit orduration, you know, makes a lot of sense if you're a pension plan.Given the risk rally that we've had, you're probably fully funded at theselevels.

So we believe that's adding to theretail, buying the interest in both duration and credit.I have to basically immunization strategy.I have to ask this, Earl, are we going to start caring about the Treasuryauctions more? I mean, I always care about them andthey're $39 billion of ten year notes coming later today.They've all been pretty calm. No one cares.Again, when do we start to care again and talk about the deficit and say,okay, supply is going to matter again for the Treasury market?Yeah, I think, you know, that's not.

About I think people will buy treasuriesas long as the economy is resilient. I think inflation comes back on theradar the second half of the year. You know, a lot of things you weretalking about prior to my segment, you know, Israel, that that's that'sinflationary if that war becomes a halt or what happens there.Boeing and the salaries of the pilots coming through back in the airplaneairplane ticket you spoke about B of A and those wages of executives.So, you know, those are still out there. We're not talking about it now becausethe market economy focus on one thing at the time, But we definitely thinkinflation in the second half of this.

Year story.And when that happens, then you see less people being willing to buy bonds andthe supply come back into the picture as well.Interest in, oh, great to cash out with this and I'll do it again.Why not. Great start to the year out Davis thatthey might just not in that call at the front end of the yield curve long aroundit's been a surprise that yields have come back in the way they have done overthe last couple of weeks. But I guess encouraged by the economicdata, just not surprising. The upside in quite the same fashion.Lisa mentioned the supply.

I've never seen someone hug for a storyso much hope to make this one of its sometime soon.Ten year notes, $39 billion worth today. And then I believe tomorrow we get $22billion at 30 year bonds. Well, I don't want to make this a story.Let's be honest. I'm not looking to manufacture news.What I'm trying to do here. No, that's not my business, I guess.But my issue here is that people talk about the deficit.They talk about how supply is increasing, and it hasn't been an issue.And at what point does that become a story unto itself?It's not an issue.

Or is this basically just people doingOperation Ostrich on a smaller scale where basically they're not payingattention until they have to? I don't know the answer to this, whichis like my asking of the people matters, the backdrop matters.And that's the end story, basically. And that's what Al Davis was saying.If you start to see these numbers continue through the year base case,they will. And it's happening as inflation startsto accelerate, then supply starts to matter.If it's happened with disinflationary trends that are super durable, then thismarket could take it.

This is the reason why I'm interested inthe tariffs, because to me, if you start to really get tariff talk at the sametime as supply is coming in, just say it.You know what you want to say. Liz Truss I'm not going to say it, butgetting it right this time, you can let us and just sit here and say, Great,that you're not wishing for it. And I bet there's going to be like inthe form of lettuce instead of my head speaking CPI.Up next. For the Fed here.I do think that they're seeing enough in those inflation readings and we'll getthem to a cut in June.

There's a reasonable risk that theydon't cut this. If you get more of these inflationnumbers similar to January, then I think those risks increase for start of cuts.It's not about easing, it's about normalizing.And inflation is what's key. If you boil things down, the U.S.economy continues to do really well. Inflation is slowing down.The data needs to confirm we get to 2% or lower before we can cut rates.You need to get ahead of disinflation, leave everything on the table.This is Bloomberg Surveillance with Jonathan Ferro, Lisa Abramowicz andAnnmarie Horden turn.

Okay.This is the third hour of Bloomberg Surveillance begins right now and thebig data point is 30 minutes away. Live from new york city this morning.Good morning. Good morning.This is Bloomberg Surveillance inflation data just around the corner.Headline. Month over month.This is the guess. The median estimate in our survey not tooffend the economists on wall street. I know how much work goes into this.0.4% is the estimate against a previous number of 0.3 strip out food and energypromotion.

We're looking for 0.3% month over month,which is down from 0.4% the prior month. And that really is what everyone's goingto be looking at because there is this gasoline impulse that will prop up someof the all in CPI. But when you strip it out, that's whatthe Fed's going to be focused on. Where does this leave the FederalReserve? And we're a week away tomorrow.Yeah, where it leaves the Federal Reserve, they're going to be focused onthis. But Jonathan, as we've been hearing fromeveryone, this isn't going to be enough. They're going to want another dataprint.

What strikes me is the year over yearCPI that we're expecting 3.1% is not too far with the Biden administration'sbudget put out for their yearly projections.I know I say that this budget is just political.It doesn't matter. But the projections are interestingbecause what the administration is saying is 2.9% inflation.That is not going to help them or the Fed when they're talking about a 2%target. We know what the Fed is looking for 2020for real GDP of the estimates in front of me, 1.4% core a 2.4% this year, 2.2%the year after 2%.

Is there a few years out?Yeah, I don't think they're going to change it.They're probably going to keep it there. My thing is that everyone we've talkedto today says that the disinflation we've seen so far is kind of going tostop. It's kind of going to stall out.We heard that from Nila Richardson with respect to housing.We heard that with respect to airplane tickets, they're going to go up becauseof capacity issues, but the demand is still there.You know, these are the things that are going to factor in and have to beweighing on the Fed.

Even if you get a bang in line printthat we get today, what is in line? Can I just ask that question briefly?Is in line a beat for this market and be a downside surprise is in linesufficient to keep the door open to an equity market rally because there is adifference between what the market is looking for and what economists arelooking for. I would argue that yes, in line would bea beat because right now people are looking for tail risks.They're looking for this idea that maybe they're missing the inflation risk andthey've priced it out to significantly. That is the biggest cloud hanging overthe market right now because everybody's.

Priced in and prepared for disinflation,even weakness, but not a reacceleration of inflation.Inflation data 27 minutes away. The stage is set like this.They sort of scars equity futures on the S&P 500 positive by 0.2%.Looking across the Treasury curve right now yields a little bit higher and thefront end by a single basis point for 55 on a ten year down a basis point toabout 4.09. That's the story in the bond market andforeign exchange. The euro just a touch stronger againstthe weaker dollar, 1.35 on the euro against the dollar.Coming up this hour, fantastic line up.

City Stuart Keiser on why today's CPIreport is the biggest risk event this month may see what was Steve Moorechutes wanking on inflation data. He is not looking for cuts in 2024.And we'll catch up with David Kelly on what he calls the Fed's slow dancedownward in rates. We begin with our top story.All eyes on february cpi just under 30 minutes away, sitting stuart kaisersaying this CPI is now priced as the largest risk event in March.That is a change from the recent pattern, but we agree with it as theFOMC is at least partially contingent on today's data, a report could shift FOMCthoughts to less than three cuts this.

Year, while an easing in month overmonth core inflation would support the seasonality argument surrounding lastmonth's data. Stuart, I'm pleased to say, is with usaround a table. Stuart, let's get into this.You wrote about this, which is why I've asked the question, the differencebetween what the market is looking for and what economists are projecting.Yeah, I mean, I think it's actually similar to what happened on Friday withthe labor market report where I think economists consider that a miss.And from a market perspective, we're like, Hey, this looks like pretty gooddata.

You know, equity markets are going to gohigher. So, you know, I do think from an equityperspective, you know, this is completely right.It's a tail risk story. You know, our view is if you're anythingthat rounds 2.3 or below, it's going to be positive for U.S.equity markets. On core inflation.I think if around 7.4 you start to have some issues and that's going to reallyput that march FOMC as a key day. Point three does it help the whole indexpart of the index, the big players, the Mac four, not the Mac seven anymore,Which part of the equity market's going.

To do well off the back of that kind ofnumber? I think it helps the market at large,but I think what you'll probably see is things like small cap and some of.These things that were traded as proxies early in the year, kind of start to findtheir footing again and move higher. You know, it has been a broadening outin the market for the year in general, though.So I think it's generally a positive print, but it probably helps some ofthose proxies in particular. I've been citing your research all weekbecause I found it really interesting and in the sort of guts of it, you weretalking to how volatility has been.

Picking up.The same thing that Earl Davis has been talking about just a moment ago.How much does that affect your call for the remainder of the year, whether it'sgood or bad in terms of how you price risk at a time where people areexpecting more volatility? Yeah, exactly.So we appreciate the support. Of course, anytime you're my mom or oh,it's a reader. So it's a it's very good.Your memory area. Yeah.Look, it matters. You know, we've been through a periodreally over the last 12 to 15 months of.

An enormous compression and process ofvolatility on a global basis. So to see you kind of tactically pickingup, I think what that tells you is kind of the the risk driver of the market haschanged a bit. Right.You know, as you mentioned earlier in the year, this is all about, you know,lower yields. And does that come from a recession orfrom assurance cuts? The last month it's been wait a second,inflation might still be here. I kind of reintroducing that third riskback means people have to readjust portfolios and you start to seevolatility rise a little bit.

So I think it is important because it'sindicative of sort of a shifting underlying stance among portfoliomanagers. How offsides would this market be tothat? Tell us coming to the fore of apotential reacceleration in inflation could quite offsides, I think.I mean, obviously we've had a month to digest it, which helps, you know, afterafter the, you know, average hourly earnings and CPI last month, you I thinkpeople started to do a little bit of work there, you know readjusting howthey're thinking about things. But it would be a significant risk.You know, I think, you know, the most.

Common market hedges we've seen thisyear have really revolved around lower equities and lower yields.What you're describing would be potentially lower equities and higheryields. Right.And I don't think a lot of portfolios are set up for that.So I do think it will be a meaningful a meaningful change.Our view, though, is growth data is can get you that big pullback, you know,down 10%. We think if you're going down 10% in USequities is probably because you're printing negative payrolls.Inflation to me is much more of that 3.

To 5% type risk.And the reason for that is you have really strong underlying growth and youhave very strong EPS growth. So I think that kind of sets a prettyhigh floor for equity markets. So I think it would be disruptive,particularly internal to the markets. But the degree of sell off you could getI think is a little bit limited by the really strong growth data.There's an implication here that's actually pretty deep and that actuallywe're hearing earlier as well from Mirror Mirror Pendant that basicallythis stock market has shown incredible resilience to any kind of yield move andthat it can handle any kind of yield.

Regime as long as it comes with growth.Are you basically saying that unless it's a really dramatic move, it isimmune to potential rate shocks? So you could see a real rate shock inthe bond market That doesn't play out when it comes to the stock market.Immune to strong word. But but I mean, I think I think whatthis is, again, it's a discussion about tails.I think the equity markets view on inflation is that deep inflation tailrisk is kind of been cut off. And if that's the case, I sort of putthat to the side and I start talking about margins and earnings and GDPgrowth.

So if you were to get inflation to alevel where we have to kind of respect that tail again, then yeah, that becomesa real risk for the market. I think we're a little ways away fromthat. You mentioned Treasury auctions.It was funny three or four months ago, that was the big focus.You know, how bad is just how bad is this Treasury auction going to be that'salso gotten pushed to the background today?It'll be interesting. Honestly, if you got a high inflationprint and then you had to auction ten year bonds, you would actually be a veryinteresting sort of combination of data.

To keep an eye on today.Obviously not the base case, but we'll see how that plays out.You make it really simple. You keep buying until the labor marketbreaks. That simple, that straightforward.I mean, for us, it is at this point. I mean, look, it's obviously there'smoving parts in the markets, always looking at a distribution of risks andall that and all those things. But from our perspective, if you're ifyou keep printing 150 or 200 K jobs in the US, it's really hard to not likeowning equities in that environment unless you got just a really, reallylarge ramp higher on the inflation side.

Is that by the S&P 500 or the equalweight S&P 500, what's the best for you now?What's the split? And we still like S&P equal weight.It's made a little bit of a comeback the last couple of weeks.You know, to be fair, it hasn't done great on a year to date basis.But you are seeing broadening out, right?That Mag seven was called it two thirds of S&P market cap gains in 2023.That number is below 50% now. So you are seeing broader participation.We haven't seen it get kind of all the way down to that S&P equal weight.And the reason for that is cap weighted.

Versus equal weight in the S&P isbasically long tech versus industrials. And so we kind of need industrials andhealth care to really kind of move for that to start to work better.What for you is the labor market breaking?Because we've seen a number of revisions, but the unemployment ratestill under 4% where I need to go? Look, I think if you print sub 100 K,the market's going to pay attention. If you print negative payrolls, it's areal issue. We've sort of looked at it as a softlanding would be payrolls between zero and 100 k unemployment rate stays belowfour and a half.

Hard landing would be are printingnegative payrolls and you get that unemployment rate up above four and ahalf. But look, if we print 50 k, the marketis going to really pay attention to it. It's actually unfortunate because lastJune, on a revised basis, we printed 105.It would have been really fascinating if we printed that live just to kind of sowe had a better idea of. What do you want the reaction functionis? I mean, it's easy to say now.Back then I would have kind of like. Jan.Yes.

350, not 350.Exactly. Exactly.So what potentially could shake your view in terms of this idea that theequity market's going to keep on rallying and that it's going to keep onbroadening out even with an economy that is supposed to be decelerating enough tokeep inflation under control. Where is the tipping point, the sort of,you know, awkward yoga pose that becomes problematic?It's it's a great question. I think if you if you're looking atriskier labor markets, the key risk fundamentally speaking, I think marginsis is what people are really focused on.

If for look at one or two quarters out.And I think the logic there is you had this very high nominal growth the lastyear and a half and companies were able to defend margins in there.And I think that would have even surprised some corporates that they wereable to push on price the way they were. The question this year is if you're onlygrowing 5% nominal with all the wage inflation in the background, are youable to defend that margin? So if we started to see that kind ofmargin turning over, that would kind of be your let's call that medium term ish,you know, kind of risk. And then obviously you have an electionto stuff on the front burner.

But for me, it's payrolls and justmargins would be the two if I just had to summarize it.We've got to unpack that. How the two related to each other.When you said defend margins, you talked about pushing on prices, not on reducinglabor and cutting costs. Is that the next step?Is that the focus for you? Yeah, I mean, if you look at thehousehold survey, you've you've taken out over a million full time jobs in thelast in the last few months. So it is kind of happening in thebackground. So to your point, these things are allsort of interlinked and it's going to be.

A question of of how do they cometogether. I think if you're if you're in a strongeconomy, it becomes less of an issue, right?If the economy really starts to slow, then companies really need to make avery hard decision about about margins versus labor versus revenues.And and that's why I say that's kind of your let's call it one or two quarterout issue that I think the market is going to have to get through for now,things are okay, apparently. Stuart Kaiser, since he's going to besticking with us, inflation data is about 18 minutes away.These are the numbers we're looking for.

In our survey.The median estimate headline month over month 0.4 versus a previous number of0.3. Stripping out food and energy, we'relooking for 0.3 previous number in the previous month, 0.4.That data just around the corner, 830 Eastern time.Let's get an update on stories elsewhere this morning.Here is your Bloomberg Daybreak with your horoscopes.How are you? Hi, John.Southwest and Boeing are sliding in pre-market trading.This after Southwest said it will have.

To cut capacity and adjust schedules dueto continued challenges and a drop in deliveries from Boeing.Southwest also sees job cuts by year end in addition to a hiring freeze forpilots, flight attendants and other workers.The FDA has approved weight loss drug wegovy for heart disease patients, amove that could open the door for Medicare coverage.The Centers for Medicare and Medicaid Services confirms it is reviewing theFDA's action and whether it will cover the treatments.About a third of state Medicaid programs are already covering Wegovy and otherGLP one drugs for weight loss.

Last summer, former President DonaldTrump asked billionaire Elon Musk if he would like to buy Truth social.The Washington Post reporting Musk declined the offer but revealed yetanother high profile discussion between the two.Earlier this month, Trump and Musk met in Florida as the former president linesup donors for the general election. Musk took to social media company X tosay he is not donating money to either candidate for US president.That's your Bloomberg brief. John Harris, thank you.Up next on this program, inflation data about 15 minutes away.You might get a little bit of a stronger.

Than expected inflation number today,but I'm now extrapolating that out to being we're heading back to where wewere. This is extremely problematic.That conversation coming up next live from New York City this morning.Good morning. Cause there's some things that happen incommercial breaks. Sometimes I try and move on quickly thattalk about it. Just to say from a from a South.But on this occasion, you're not going to repeat what you just said.What are you looking forward to? The Oprah special, it's called SameBlame in the Weight loss Revolution on.

March 18th.And the reason why is because he's going to talk about her use of weight lossdrugs and give the whole case for them at a time where this is actually one ofthe revolutions in markets, too. So it's a market story.And that's why I'm I say sort of getting along GLP one's the day after thespecial, I don't know, maybe get short Weight Watchers, which is I think what alot of people are doing. But this is really a key question.She's going to host a sit down, informational and revealing discussionabout shame blame in the weight loss revolution.I thought it was important that we share.

At that moment.We pick up on that story in just a moment.Equity futures right now in the S&P 500 positive by 0.3% under surveillance thismorning. Inflation data just around the corner,you might get a little bit of a stronger than expected inflation number today.But I'm not extrapolating that out to being we're heading back to where wewere. This is extremely problematic.It seems like every cycle we go through, there's another head fake on inflation.Ultimately, the lagged effects of policy tightening start to hit.If you get a couple of unexpectedly.

Strong inflation numbers, will that willbe a catalyst for some type of pullback. Here's the latest February CPI 13minutes away with the headline month over month figure expected toaccelerate. The Bloomberg economics team sayingthis. Ultimately, we don't expect the FebruaryCPI report to provide clear enough evidence of disinflation to boost theFed's confidence to cut rates. Michael McKee our economics and policycorrespondent with us around a table at the key.What are you looking for in about 12 minutes time?Well, we're looking for some upside.

Surprises.That seems to be the general consensus on Wall Street that on a year over yearbasis we see CPI go down because of base effects, but on a month over monthbasis, it might come in hot again. And the real focus for everybody whofollows this stuff is housing, because we had a big divergence between ownersequivalent rent, which is what the BLS uses to figure out.We've done this before of housing prices and rent, and there was a wholekerfuffle over that. So we'll see what kind of numbers we getin housing and then what might surprise underneath.Now, Lisa has given me something to work.

With here because she remember therefrigerator when she bought her refrigerator that went on for weeks.We checked prices. We GE and they were going down.Prescription drugs are in the in the CPI.So we're going to check and see. I tried to say that my home that's goingon my weight loss revolution. No, but you brought it up with Oprah.So I want to talk to you in this moment, Kate.I want to talk about the disinflationary trends.The confidence of this Federal Reserve wasn't derailed by what we heard at thestart of the year, even with that blow.

Out payrolls report in January, too.Why do you think that was, Mike? The Fed is looking longer term than themarkets. The markets are looking right.Here's what's today. And we try to extrapolate that.What's that's going to mean? The Fed is like, we'll wait until wehave to make a decision and we'll take a look at where we are now.There are is going to be a question of whether Jay Powell was too optimistic athis Humphrey-Hawkins questioning because he said, we feel like we're gettingclose here. If CPI comes in hotter than expected,then that's going to not look so good.

Now, nobody was expecting them to doanything in March, but we do have a new summary of economic projections and wehave a new DOT plot. And so if we get a hot number, thatcould influence some of the members and change the dot plot a little bit.That's actually exactly where I was going to go.Because you are Kizer here from Citi has been talking about how this is anincredibly important CPI print that basically this was will be a definitivefor markets on some level to figure out whether January was just a blip or not.I don't have a sense of how flexible some of the Fed committee members reallyare at this point to one print.

Right.Are they kind of going with the assumption that disinflation willcontinue even if it's bumpy and that the risk right now is potentially more tothe downside for the economy than really the upside with inflation?I think they think it's about 5050 for the economy.What they will do is pass these numbers closely because there are seasonaleffects in here. In January, February, prices tend to goup more because it's the beginning of the year.They have to take those out of the equation and figure out whether whatthey see is a lasting jump or not.

And the dot plot is basically going tobe looking at this year. So if you have a hot first quarter, itmight push things out further and maybe you end up with fewer cuts just becauseyou run out of time. That's kind of where the Fed is going tobe looking at this, whereas the markets are going to be looking at this andgoing, Oh my goodness, we have inflation, let's push down some bondprices and push up bond yields and see what we get out of it.Might you frame this perfectly going into next week?I think a lot of people on the street. Cluding Andrew Hong lost the city.Your compatriot over at Citigroup.

Basically is looking for the P to remainunchanged. Is there any think about what happens at830 that could bring that Fed Reserve meeting alive a little bit more?I think it'll it'll start the discussion in markets.If we were down 2.4 or above. I mean, I think it only takes twocommittee members to raise their dot to go from three cuts to two.So it's a relatively low bar to get there.Again, this is not the base case. Andrew is by far from this that we are.But I think from a markets perspective, if if you printed hot, the market has toat least adjust what the probability.

Distribution is.It's it's okay to try to ignore one and call it seasonal.If you get them back to back, I think if you're being intellectually honest aboutthat, you have to respect the fact that those two things happen.I think Mike used the right word kerfuffle, which is like a fun word forargument. And I think we'll get we'll kind of getthat kind of situation if we get it, if we get a strong print.I'll use another word that Jamie Dimon used because he likes to do weatherreports, but he talked about the potential for stagflation.And at what point do we get inflation.

That's not accompanied with the strengthenough to call it just a hot market anymore?Yeah. And that's that's why we're so focusedon the jobs market. I think the equity market is willing totolerate a lot of stuff as long as that that labour market remains strong andGDP growth remains, remains kind of strong.You know, we're talking about stagflation.I think what you're saying is inflation is going to be persistently high.So I think that almost means you're stuck at a level of let's call betweentwo and a half and three and a half that.

Is above what the Fed would otherwiselike and the growth is slowing or is kind of below trend alongside thatbecause of the kind of a give back from maybe all the fiscal spending stuffwe've had. So to be stagflation is that's somethingthat has to play out over, you know, a number of quarters or months as opposedto something you're going to see in like one data print.I have to go there with the artificial intelligence talk and the weight lossdrugs. Is this inflationary or deflationarysort of in the short and the long terms? GOP wanted I look, I think the market isprobably thinking of these as more.

Deflationary trends, i.e.kind of works against wage growth and GLP one theoretically get you more laborforce participation and reduce the spending on health care.So if you're being optimistic, you know, that's how you would put it seriouslythat people are actually gaming out that it increases labor force participation100% because people lose weight, but they're also healthier.They're able to vest to go to certain kinds of medical treatments, etc., andthey're less happy. So they don't mind, you know, just goingto work, you know, like a comment on that better.Well, there's the weight loss stuff.

It's not just weight loss.That's they say they see a lot of potential uses forthese GOP ones. So there could be a lot of healthproblems that would be taking care of that.Then people could go back to work. The interesting thing about it is you'regoing to get probably a deflationary impulse from those drugs as they getapproved by the FDA for other uses, because then insurance companies will betaking over the payments. It'll show up more in the PCI and thepie, but it will reduce the price of it on a monthly basis, which would be ashort term win for CPI.

How do you price a story like that?We can sit here and talk about the revolutionary potential of a drug.How on earth do you come up with a fair pay a multiple spot on companies likethat? It's extremely difficult because a lotof a lot of companies have this drug. Right.There's just, you know, a number of them that have caught the bid, so to speak.But I think the issue here is you look at total health care spending in the USand you try to model out how much, how much it could kind of a road that and,you know, how many people do you think are not in the workforce because ofthis?.

It's it's a layer of assumptions.So what do you think Can I just ask you this in the context of a broaderportfolio as health care and the position in it as a portfolio managershifted just the characteristics of health care?Because when people come on the program, they used to talk about health care asjust a defensive way of maintaining some kind of allocation to equities now feelslike pretty constructive, optimistic, super super aggressive ways ofpositioning for a completely different world.Yeah, we, we, we like health care as a trade to the long side from a sectorperspective for exactly the reasons you.

Described, just more defensive.It actually has a positive beta to inflation right now.So if you got that kind of risk off thing that Lisa's been describing, itshould hold in. Well, it's going to grow EPS about 50%this year and you've got GLP one as a theme.So the view is if the market rallies, you can kind of keep up because it hasenough growth to do that. So yeah, we're pretty positive on it.But both these themes I GOP want to become more than single stocks themes.You know, they're their earnings their P but they're also GDP growth andinflation.

People are talking themselves into thesejust being like collectively large themes, which is why we have to talkabout mega themes. Stewart Good to see you.Stewart Kaiser a sitting alongside my the key might be he's going to stickwith us. He's going to break down the inflationdata in just a moment. Reacting to that fantastic panel for youAlways stay for you. Tell him why he thinks we get a no ratecuts in 2024. Look at his reaction to the economicdata together with Jp morgan's David Kelley.Plenty of price action just around the.

Corner.The biggest data point of the week stateside, maybe even worldwide, iscoming up next. US inflation data just around thecorner. The scores coming in into thatinformation look like this on the S&P 500, negative or rather positive by 0.2%on the NASDAQ 100, up by a half of 1% in the bond market to yet ten.The 30 is shaping up as follows yields lower negative by two basis points on aten year 4.08% on a two year full. 53 with your economic data CPI inAmerica. Miami key as the numbers.Let's play hot or not and it does look.

Like we are hot because CPI comes in ona month over month basis, up 4/10, core comes in up 4/10.The forecast was for a 3/10 rise, pushes up the year over year CPI to 3.2%.Now that is probably energy related, gasoline price related, but we willcheck the numbers as they come in. But the core rises are actually comesdown to 3.8 from 3.9, but that's above the 3.7 consensus.So at this point, it looks like we have a little bit stronger core numbers thananticipated and we'll just have to look and see where that inflation came from.Looking for a bigger shift lower in CO did not get it.Equities look like this on the S&P 500.

Pulling back just a touch they werepositive going the print by about a quarter of 1% now just about unchangedon the S&P 500. We're positive still by about point 2%on the NASDAQ 100, a clear remove in the bond market.Yields were coming in a couple of basis points on a ten year now up a singlebasis point to 4.1%. These are major moves up about two basispoints to 455 for 56 on a two year. You have to think about where we weretwo days ago through 470 at the front end of the curve.So yields have come down a lot since then and they're only up by about threebasis points right now.

So yields high dollar stronger, the eurodropping back to about 109 20. And looking at this economic data,again, we were looking for point for headline month over month.That's what we got. We were looking for 0.3 on corestripping out food and energy. We didn't get it.We got a hotter Michael McKee 0.4%. When you look beneath the surface, Mike,what you say? Well, the headline number is probablyenergy driven. We saw gasoline prices for the month up3.8%. They fell 3.3% in the month of January.So a big difference there.

Food, everybody keeps an eye on foodprices because we all got to pay that. And for the month we saw food pricesflat, which is a bit of a surprise. There was an expectation they might risesome. But I think in the core, the two biggestthings that affected the core were used cars.They were up for the month by 5/10 of a percent, which is in contrastto the 3.4% they declined in January. So a big change there.And then what we're seeing for owners equivalent rent is that we have seenthat come down a little bit. It's up 4/10 compared to 4/10 for rent.So the divergence that we saw in January.

Has gone away.I'll look for some other some other big movers, but it looks like used carsplayed a big role, energy played a big role and food did not, which is a bit ofa surprise. I'm struck by the market move right now.I'm just watching as people shrug this off, essentially saying to you, yieldsreversed a lot of the earlier move. And I'm looking at this and trying tofigure out why, Mike, because right now we're seeing the inflation surprisecomes from a different place every month.Last month it was over. It was owners, owners potentialequivalent of rent.

Now we're looking at used cars.Why isn't this being viewed at least by the market?Can you figure out as something that is stickier and multifaceted versus justsimply noise on the disinflationary trend down?Well, that may be why, because we're seeing a lot of things go up one month,down the next month. And so it's not a consistent pattern ofinflation in any particular area. And since you have that, it may be noiseyou don't know. Some of these things are prettyvolatile. Looking for airline fares, which Ihaven't come across immediately yet.

Because I've got this whole long thingto look for. But that's a good example of things thatgo up and down on a regular basis, and that's the kind of thing thattells you it's not a it's not something that can't be gotten rid of or won'tchange as we go forward. That sticky would be the word, not.Okay, let's go through those numbers again.This is what we got. Then 0.4%.The estimate was 0.4%. That's headline month over month coursestripping out food and energy, 0.4%. The number the estimate, 0.3.So it's much hotter than anticipated.

That might break this down.What jumped out to me was the shelter index might be just not as bad as it wasin the previous month. And I want to to some extent and I hateto make these comments to market, but we are accelerating again in the equitymarkets. So it's probably worth asking thisquestion whether we can take comfort from that that this chapter pricingstory didn't run away this month like it did in the previous one.I think you can, and I think the Fed will.There was concern because we are went up and then we had this whole kerfuffle asas we mentioned earlier, about the.

Weighting of single family houses in theindex that the BLS had to explain. And we got half the economists saying itdidn't mean anything and it did mean something.But right now, it doesn't matter because they came back down to 4/10.Now the Fed is hoping they continue to decline that.Rent prices and home prices continue to decline because that's what's supposedto happen. And if that's the case, then we'll see alittle bit better numbers going forward. And they can take a little comfort inthat. This stock market is turning aroundpretty quickly.

As Lisa identified, we were lowerinitially, then just about unchanged. Then a few minutes later, a positivemindset of 1% on the S&P, up by 0.6% on the NASDAQ.The move on here, it's fading just a touch still higher by about a basispoint across the curve, the two year out to the 30 and the fixed market.The euro just about unchanged against the dollar.One of 926. Fantastic panel for you.Steve Rashid of Mizuho, David Kelly of Jp morgan Asset Management alongside us.David, first to you. Your view on this inflation data overthe last 5 minutes or so?.

Yeah, I think it's okay.There are some bouncy numbers here. We've got a 3.6% increase in airlinefares that contributed to it. We've got a 6/10 increase in apparel,which was down 7/10 the prior month. So it's bouncing around.But I think the big picture here is it's kind of like when you take cookies outof the oven, they're cooling, but they seem to be cooling really slowly.And, you know, you want that inflation rate to come down faster and it iscoming down, but it's just it's going to take some time and that's okay.But I don't think there's anything here to alarm the Fed or anybody else.Some of the things have bounced month to.

Month, bounced higher in February.And that's why you got this number. David, just to extend this one stepfurther, is eating the cookie kind of interest rates, is that what that is?Yeah, but it's probably, you know, too many cookies are not good for you.So I'm not looking for a very fast reduction in interest rates and that'sokay. I just want to see this expansionstretch out. And if the inflation rate can slowlycool, that's really the best for the economy and for investors.There's a question, just to continue the analogy, Stu, for Chouteau, if you leavethe pan of cookies on the oven and the.

Oven is still on, do they cool at all?And that is really a key question. Essentially, if we're dealing with a lotof these different factors that still are sticky and going is coming, but ifyou don't have some sort of ongoing tight policy, do they call at all?Well, the reality fundamentally the oil comes down to the labor market.At the end of the day, I hate to bring it back to last week's economics todaystatistics, but it really does. The result is that most of thecomponents in inflation that are not going down are components that areservice related. Therefore, they're income based.And that's an important driver.

And as long as we have an economy thatis running with this tight labor market and, you know, 3.9% up from 3.70, thatsounds like a really big move. It's really not a big move.We're still well below the natural rate of unemployment, which means that thefrictional level of unemployment in the economy, this is a tight labor marketand it's not generating the easing of the labor market conditions that couldsay to you, inflation's definitely going to go back to 2%.And I think at the end of the day, the reason why you have a market that'slooking through this number that came in had an expected is because the Fed'stelling you they want to cut rates so.

They're not telling you well, we'relooking to see whether we have to raise rates or we have to cut rates.They're telling you we want to cut rates.The problem is the data is not letting them.And this has been the driving force behind our call all year.And we began it late last year in November that they probably weren'tgoing to be given the opportunity in 2024 because the economy is not going togive them the opportunity. And that continues to be the underlyingthought process here. And this data just kind of pans it out.This is what makes your call really,.

Really compelling.As you say, you are fighting the Federal Reserve.Well, I'm not the Federal Reserve's fighting the economy.That's the difference. I'm not fighting the Fed.I'm not fighting the economy. They're fighting the economy.And I hate to tell you, fighting the American consumer is a losing battle.And that's what we're running into. This American consumer, they have atight labor market, They have income gains and they're going to spend it.There's liquidity. People are willing to lend the money.They're going to spend money.

And that's the Energizer Bunny of the USeconomy is the US consumer. David, I heard your voice as you triedto interject, so go for it. Well, yeah, with all due respect, I doslightly disagree with this whole idea that we're getting inflation coming orsignificant inflation coming out of the labor market.It is still a tight labor market. Yes, But even in this report today, oneof the key variables I look at is food away from home, what the what arestaurant meal is doing, because that is very sensitive to wages and they wereonly up 1/10 of a percent. Also, if you look at last Friday andlook at labor market data in general,.

The quits rate is now down to 2019levels. So people are not quitting in hugenumbers. If you look at the National Federationof Independent Business Survey of Owners, the number of people who anumber of small businesses that say they're going to raise wages is now atits lowest level since March of 2021. So we're not seeing those wageincreases. Yes, it's a tight labor market, butwe've got a lot of low, low wage immigrants coming into the labor market,which I think are holding that wage growth down.And I don't see a spread of wages in.

This report.What I see is auto insurance up 20.6%. Still, that's pushing up the measuredCPI inflation rate. We've got shelter costs up 6% year overyear. Still, that's pushing up the measuredCPI inflation rate. But both of those numbers are laggingreality. And so what I think is going to happenover the course of this year is, yes, inflation is going to come down slowly.And I think that's fast. You know, I think that will be fastenough for the Fed to start cutting in June, because we still do have ademonstrably tight monetary policy given.

The direction of inflation.And we ought to try to move back to neutral states.Yeah, well, I think when we go in, start looking at individual components of anindex, we're making huge mistakes. This is the points I think Lisa wastalking about earlier. This is an index.It has components that are going to move up and constantly are going to movedown. That's why we use an index.That's why we just don't look at individual components.We look at the broad index. And the broad index is telling you amessage inflation sticky.

We can argue say, oh, this month, thisdid this, this month, this did this. But the reality the situation is theindex is not doing what they want it to do.So general price movements aren't doing what they want to do, and they're doingit because of the labor market. And this concept about the quit ratesand everything else. We don't have enough historical data ofthe JOLTS data to make any real, really valid statistical commentary off theJOLTS data. It doesn't exist far enough back.And we're jumping on these new statistics just like we did duringCOVID, when we were looking at all these.

Things about, you know, how many peoplewere booking restaurants, how many people were going to, you know, takingout a DoorDash and things like that. And they all led us absolutely nowhere.The reality is the index is not going down anymore.It's stalling out. The core numbers seem to be leveling outas well. That's telling us that we still have atight labor market and on average, that labor market is generating enoughconsumer activity to keep this economy going and to keep inflation from comingback to the Fed's target as quickly as they would like it to be, becausethey're promising to cut rates.

And the reality is the economy's notgiving them the opportunity, and that's the real driving point.David Kelly, I'm sure you want to jump back in.Well, yeah, I do think even with the gel state, I mean, we've got a lot of data.You do have to put together a mosaic of all of these data.I do think it's a mistake to use sort of rules of thumb or how the economy wouldhave operated 20 or 30 or 40 years ago. The truth is, this is not yourgrandfather's economy. It is not inflation prone.Inflation went up a lot. It's coming down.And even on the you know, looking.

Beneath the surface in the index, Iagain, I agree if these were small categories but that an auto insuranceissue is adding 6/10 of a percent to the overall CPI inflation rate, I would youknow, we would be at a 2.6 instead of a 3.2 if it wasn't for the auto insuranceissue. And again, the shelter issue is alsoactually more than 50% of the year over year inflation rate.So these two things, the way the government is mis measuring shelter andthe way it's mis measuring auto insurance, if those two things pull outgradually of of the CPI numbers over the course of this year, that CPI inflationrate will move down towards 2% unless we.

Have an energy shock.So I think we're still it is you know, I still think it's cooling.I think somebody shut the oven off. These cookies are cooling.They're just cooling slowly. Well, let me just deal with the autoinsurance issue, because one of the reasons why auto insurance rates aregoing up is because when you get a fender bender today, it's awfullyexpensive to repair the car. There's a lot more in fenders these daysthan they used to be in fender. So the reality is the costs you'remeasuring what's real in reality happening.It's not a spurious uptick.

That's number one.Number two, when people get into arguing about, oh, the rent to shelter doesn'tdo this or it doesn't do that, the reality is this is the index we have.Let's not talking about, oh, gee, we can get a perfect index.This is the index we have. This is the index we're setting policyon. This is the message that's coming acrossthe BLS. There's a very good job at trying tomeasure these things and measuring them as accurately as possible.And I think all of this second guessing as to what the data is doing underminesthe real reality of the situation and.

Keeps people hoping for something that'snot happening. This is exactly what the Federal Reservewants to have happen. They want everybody to keep on hopingthat it's going to happen. So it keeps markets in.It keeps the labor market tight, and they hope they get a good increase insocial welfare. And that's what I think is the drivingmotivation behind this. And that's the reason why the equitymarket is up. Let's be honest.You have an economy here where the Federal Reserve is saying we're notgoing to upset the apple cart.

We're going to keep this economy moving.We're going to keeping it going in a forward direction.And that's good for stocks. So it's no surprise to me that theequity market is doing what it's doing. The corollary is the bond market, on theother hand, is taking the assumption that we're going to get back to 2%inflation. And when people say, oh, this isn't yourgrandfather's economy or whatever, and we're not getting back to double digitinflation, the reality is if we're talking that big difference between 2%and 3% inflation, we're talking 100 basis points on the ten year note.That's huge.

And therefore we can't discount the factthat we're getting stuck around three, not around two as you speak.Equities doing nicely up by 0.6% on the S&P.We'll continue this conversation, stay for Q2 and we'll see what alongside ustogether with David Kelly at Jp morgan Asset Management.Steve basically saying no rate cuts in 2024.David Kelly is basically saying the Federal Reserve should get out of theway. Inflation is coming back down.The conversation continues. Up next,last year was the year of cash.

All of a sudden, a lot of these saverswho were coming off the sidelines realized I have to do more than have mymoney sit in a bank account. U.S.inflation numbers have just moments ago, core inflation topping estimates for asecond consecutive month with a very different outcome in the equity market.Equity futures are positive by 0.6% on the S&P 500.Yields are lower by single basis point on a ten year, 4.08%, and the euro isstronger linked to that tell us weaker euro dollar right now.109 37 Which is confounding to me and it really it goes to this question, is itthe David Kelly version of things which.

Is essentially that this is just a bumpyroad down to 2% or is this de pursuit of a form of things where nobody wants tofight the Fed and the Fed wants to cut rates?And frankly, that's what they're going to do and that's going to support thingsno matter what. And nothing in these numbers is strongenough to derail that. David Kelly is safe to share that withus right now. David.Carrie, let's talk about the Federal Reserve Governor.Well, what's the rush? President Kashkari, y do anything.You've got an answer to that, David.

What is the answer?Well, I think I think the answer is, to be honest, the Federal Reserve shouldnot be trying to micromanage aggregate demand in the economy.If we've got a tenure, if we've got a federal funds rate between five and aquarter and five and a half percent, that is a tight policy.It is designed to slow the economy down. It can cause, you know, it's it's givenus an inverted yield curve. It's causing problems in the pricing ofassets and in regional banks. I don't want the Fed to cutaggressively, but I think they should gradually move back to neutral if theinflation rate is heading towards 2%.

And so I think they'd be right to startin June, cut again in September, cut again in December.Take it easy. But we'll bring rates back down to aneutral level, which I regard as being somewhere that three and a half to 4%range for the federal funds rate. But they ought to they ought to do thatbecause there's no reason for them to be interfering with the economy, which isactually going in the right direction with inflation, in fact, heading towardswhere they want it to go. And on the issue of auto insurance, Irealize that auto insurance prices have gone up.I have to pay higher auto insurance to.

My real issue is it's up 20.6% year overyear now. And whether the government is measuringthat wrong or incorrectly or incorrectly, I'm be willing to put moneyon the table. That will be up 20.6% a year from now.In fact, I wouldn't think it'd be up as half as much as that.So if it comes down over the course of this year, it's going to pull the CPIinflation rate down. So I do think that inflation is comingdown. And if the economy's moving in the rightdirection, the Federal Reserve shouldn't have its hand on the tiller either way.That's why they should move back to.

Neutral.Which raises this question, David, before we go to Steve, I am curious,though, about the oven and the cookies, just because there is the sense that ifyou have easier financial conditions, as we see today in the market on the heelsof a hotter than expected CPI print, that this will actually keep thesemultifaceted areas, continue to make them hot.Basically the wall of money isn't going away because real wages are actuallyincreasing. How do you fight against that idea?Because we've had for years we've had an economy which before the pandemic, wehad all this fiscal policy.

We had an economy which was quitecapable of producing low inflation. You know, yes, it's a tight labormarket, but how many major strikes do we have occurring right now in the UnitedStates today? I think the answer is zero.I mean, we're not seeing a very vigorous labor force demanding high wageincreases to or they will quit. And so I don't I think you can actuallyrun this economy relatively strong at at high levels of capacity withoutgenerating higher inflation. And what's wrong with that?So so I you know, I do think this is not an inflationary economy at its core.We got inflation because of the.

Pandemic.The policy response in Ukraine that's fading and has really faded.And because of that, I think inflation comes back down to 2% anyway.This is fascinating, Steve, because ultimately this is one of the bigdisagreements. Are we entering a new normal or is thisgoing back to the old I mean, is that essentially the breach between yourselfand David Kelly? Well, there's this concept that becausewe were there before COVID, we're going to go back to there.Okay. It's a simple argument.The reality of the situation is the.

World we had before COVID had two verybig differences. One, Larry Summers, I should say, LarrySummers was talking about secular stagnation, which clearly was notcorrect. Alan Blanchard, on the other hand, Ithink was hundred percent correct, talking about the fact that we had adebt overhang while COVID corrected that debt overhang.Okay. The federal government bailed out allthe state and local government. The lower interest rates allowedeverybody to refund all or refi all of their mortgages and all their corporatedebt at much lower levels of interest.

Rates.Interest expenses are actually no problem for corporate America.That's a big difference there as well. The other fundamental difference that'staking place is before COVID, people were uncertain in their jobs.There was a high degree of uncertainty in employment.People were always convinced this whole concept of double digit earnings.Corporations making sure they managed towards earnings was going to bring downtheir employment. They could get fired any moment.Now, there's a lot more security in your job, and when there's a lot moresecurity in your job, it doesn't mean.

We're going to get acceleratinginflation. The question is, does inflation comeback from 3 to 2? There's a big difference between the twoof them. And the big difference is notnecessarily in equity. Consider consideration.It's a bond market consideration because fundamentally, where should the ten yearnote be? The ten year note should take theinflation target or the long term outlook for inflation and at theunderlying trend rate of growth to the economy.So if you have 2% inflation, you should.

Have a ten year trading range of threeand three quarters to four and a quarter.We're basically in the middle of that range right now.If it's 3% inflation, then it's four and three quarters in five and a quarter.We're nowhere near that range. And this is the fundamental differenceand this is the problem for the Federal Reserve.They have a 2% target here. They don't have a 3% target.They have a 2% target. Now, markets right now are allowing themallowing them to continue to be patient. At some point, the markets may say we'renot going to allow you to be patient.

And that.Becomes the concern when the bond market begins to turn around on them and say,you know what? We're not dealing with this, that you'regoing to get back to 2% inflation. That's the risk.If they move, if they move and you wind up seeing the dollar go downdramatically, you could reverse a lot of the goods, inflation, disinflation thathas been taking place. And if that happens, they didn't have aninflation problem on their hands. And this is why they have to be patientand they're probably going to have to be patient throughout the balance of thisyear.

But it's not a negative equity storybecause this Fed does not want to set this economy back.It's a positive equity story, and that's what's happening in equities.My consideration is the yield curve could stay inverted a lot longer.And just because the yield curve is inverted doesn't mean it's a problem forthe economy because nobody borrows at the front end of the curve anymore likethey used to. And that's a critical differentiation.You're asking a balance of risk question around the Federal Reserve, and I thinkit's an important question. David, help us answer it.The biggest risk right now.

Is it coming too soon or holding toolong? And why do you still believe it'sholding too long? Well, I don't think the biggest risk tothe economy is actually the behavior of the Federal Reserve.I think they should, you know, as a matter of long term strategic policy,move back to a neutral rate because the economy doesn't need them to be tightat this point. But the bigger risks to the economy arereally, really from outside of the behavior of the Federal Reserve anyway.You know, geopolitical risks, environmental risks.You know, if something happens to oil,.

Then then, you know, our entire view ofthe of the world sort of changes a bit here.So I think I think the Fed ought to beginto cut. I think they will begin to cut.But my main point is that as we look at the data month by month, category bycategory, that we do build up to the piece of the index because that's how weforecast. We have to look at the individualpieces. And what I see is a global economy,which is relatively sluggish, China is sluggish, Europe is sluggish, is notgenerating enough demand to push up core.

Goods or even food and energy in anyway. So without some supply shock there, thewhole goods part of the of the global economy is not going to give youinflation. I don't see a labor market that isparticularly inflationary either. And so that allows it down to 2%.Let's agree on one thing. We do this again next month.David Kelly, stay for shout out to the two of you.Thank you. Inflation data just a little bit hotterin the equity market. The green light is still on apparentlyto carry on rallying.

The S&P 500 positive 0.4%.Big data follow up tomorrow. Looking forward to that coverage fromNew York city. This was Bloomberg Surveillance.

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