>> it is much harder to get a good read on the market. these moves are amplified. >> you had a reversal from extreme positioning at the end of 2022. >> let's get confirmation of the trend with a few more data points that a in that direction. >> inflation should ultimately come down but it will take time. >> we have come in annualized terms, very little growth. this is winter stagnation. >> this is bloomberg

surveillance with tom keene, jonathan ferro, and lisa abramowicz. jonathan: you are still in your prime, tom. tom: we hide the walker when we go live. lisa: we are all in our prime. jonathan: that is how we should begin programming every day. this is "bloomberg surveillance." futures down .75%. the new high for the year at the front end of the yield curve. 4.70 and we are talking about 50 basis point hikes again. tom: i am looking at the screen and that six month t-bill. we come into the end of this week and we are thinking about staggering. it is just about short rates gaming the fed. jonathan: hard data has been tremendous. pushing back the recession calls

and introducing a higher peak rate at the federal reserve. jan hatzius at goldman, did you see that? and then they throw in an extra hike in june. lisa: a lot of people are following along with that, including fed officials. they say perhaps we should have raised 50 basis points the last time. jim bullard and others say we have to think about another 50 basis point rate hike. putting this together, there is a real asked. does the fed have to torpedo the economy and away riskier securities have not been preparing for? that is the angst you are seeing reflected in the markets. tom: torpedo the economy is i will game out q4 adjusted gdp, what will q1 gdp be? i thought michelle meyer yesterday has the pulse of it with all of the charge card stuff. i think gdp is still there. jonathan: there is no lending in the first half.

bank of america said it is a hard landing in the second half. this is what barclays said. persistent inflation means there is no free lunch. higher for longer rates is the cost for growth. ultimately they think equities will have difficulty rallying from here. lisa: a lot of people agree. there are some saying if you have any selling activity it is time to buy, but there is a question i have about how long you can get this sense of good growth is good for equities and also higher than is just fine. jonathan: do think the chairman of the federal reserve will say the disinflationary process has started? lisa: i have no clue. jonathan: him uttering those words encouraged a fair bit of this rally so far today, or at least validated it for a lot of people. here we are pushing back on that statement. lisa: i spent a chunk of time yesterday thinking we are

hearing hawkish prognostications from nonmembers. tom: that is a real nuance. lisa: why is it that people do not have a seat at the table can be the true naysayers? tom: why can richard clarida say the things he says? there is an institutional responsibility to sing from the hymnal, to keep the ultimate fear, which is are we on anchored? they will not lift from 2%. everyone is saying what is it? 2.2%? 2.8%? jonathan: it is important to point out they are not voters but nonvoters still participate in the meeting. you will see some display in the minutes. without the minutes would set the stage for a discussion, now there might be a different discussion in the minutes. there was a comment from bullard yesterday. there was a comment from jim bullard bullard that got my attention.

he says he has pushed back against the idea of long invariable lags. he thinks it is not the 50's, 60's, 70's anymore. let's see if the minutes are the stage for that debate to play out with more color. lisa: what is the readthrough to markets? are stocks pricing in the sense the fed may have to go beyond 5.25%? that is the unknown. jonathan: if brian levitt has to wait any longer he might have nothing more to say. equity futures down .8%. in the bond market yields are higher by four basis points. 3.90 on the 10 year is a phenomenal turnaround. at a two year higher by six basis points. we are through 4.70 on the two year. that is a new high for 2023. lisa: and all of this fed speak responding to the data. let's talk about the fed speak today. we will hear from the richmond fed president tom barkan as well

as fed governor michelle bowman. do they read rate this hawkish feel? do they talk about 50 basis point hikes back on the table? the munich conference beginning in germany. we will hear from the european commissioner who will be speaking with maria tadeo. we can get a sense of the tensions growing between the u.s. and europe with respect to trade, with respect to the inflation reduction act. at 11:30 the bank of france governor will be speaking and i'm very curious what he says. we heard from isabel's novel who reiterated this hawkish sense the market is underestimating how much inflation there is an underestimating how far the ecb will go. we have been talking about the u.s., but this is very much a european story. jonathan: you have to tell us who is speaking again. tom: i gave her the announcer. who is speaking?

marty schenker of bloomberg television keeps a list by his desk of my mispronunciations. it is six feet five tall. jonathan: i remember when we started doing the radio show together. if there was a complicated name tom would do a long introduction for the guest and turnaround and go john and then hide behind the desk in tears as i try to pronounce it. brian levitt is an easy want to pronounce. local market strategist at invesco. we have some weakness in this market. it is a weakness you want to buy? brian: we will probably have some pullback. the market was price for a soft landing. we had called this year a roadmap to recovery. you could get some retracement of some of the gains now that inflation has come here and

there is more expectations of policy tightening. ima -- i am a fomo guy i do not want to miss out on a recovery. short-term markets should be doing quite well. tom: people are readjusting into the weekend. you mentioned fear of missing out. the bottom line is people are going i cannot be in cash, i have to play. where do you play? quality? brian: in the near term, if the fed wants to be more defensive, higher quality and low volatility. the challenge from my perspective, i believe inflation will come down, the fed pause will kickstart another one of these moves. if you are looking out over the year into what will ultimately be more of a sustained recovery

in markets, that means you want to be more value, more small international. it is a time horizon thing. could we see retracement? absolutely. over the next couple of years i am looking sustained recovery in markets and markets looking forward to a new economic cycle. lisa: does that mean you are also constructive on big tech despite the rally we have seen? brian: the move in short rates is not going to be helpful. we saw that in 2022 as soon as rates were adjusted, valuations have to come down. the move in rates is not going to be helpful in the near term. you may see another valuation adjustment. investors have been underweight value in their portfolios. they have been overexposed to growth. i would use these opportunities,

particularly if there is a pullback, to try to incorporate more value in the portfolio, more equal weight rather than market cap weight. it will be a different environment what we saw in the prior cycle, which was low nominal growth. the other side will be a higher nominal growth environment. lisa: are you leading into the all bond portfolio? i was just looking at flows and the beginning of the year has been the greatest amount of flows back to 2004. are you on that? brian: why not? this idea of the death of the 60/40, the mark twain line is grossly exaggerated, i do not think he actually said that. this is more of a golden age. if you look at things like high-yield or bank loans where you can get 8%, that is an equity like return, without taking on historical risk. getting these types of rates looks quite good. reinvestment risk, i bet people

will look back at this and say i should have locked in the 10 year. this is a very good opportunity to add income to the portfolio. jonathan: reinvestment risk is a real risk we have tried to discuss it is something we have to discuss even more. i love that line. i am a fomo guy. lisa: embrace it. jonathan: not many people admit to that. lisa: instead of saying all of those people, i am one of them. tom: your observation on bonds, the popularity is there. been laid there goes the other way. he has equities underway back to 2008. i did not realize it was that gloomy. jonathan: the investment risk, you take a six-month t-bill at 5%, where are you in six months? do want to go longer and lock it in for a longer time?

you keep talking about the earnings. full year net income, 8.7 5 billion to 9.25. previously they have seen 8 billion tape .5. that is a lift from deere. tom: in the accounting textbook deere is what you use. there is real affection when deere reports and they are concise. look at the numbers. they are a lift. jonathan: coming up we will talk about the earnings with bob doll. we will do that in the next hour. from new york city? what are you drinking? tom: it is tang zero. jonathan: all of that energy. wonderful. this is bloomberg. lisa m.: keeping you up-to-date

with news from around the world with the first word, i am lisa but teo. -- i am lisa mateo. fed's biggest policy makers legal they may return to fight inflation. loretta mester says she saw a case for a 50 basis point hike at the most recent meeting. that view was echoed by james bullard. president biden expects to speak to china's xi jinping soon about that balloon. the president says he hopes to get to the bottom of this. at the same time he said he makes no apologies for taking down the balloon. the dispute has highlighted how fragile relations are between the u.s. and china. ukraine's ammunition and weapons gap will dominate the munich security conference which began today. nato officials have called for an increase in arms production to address shortfalls. meanwhile the u.k. defense ministry estimates that up to 200,000 russian troops have been tilled or wounded since the start of the war almost a year

ago. expectations are mounting the u.k. and eu will reach a deal on post-brexit trading arrangements in the coming days. prime minister rishi sunak traveled to belfast the top to the regions parties. u.k. and eu leaders are looking to resolve the dispute over the northern ireland protocols, the part of the brexit deal which set up trade policies. in germany shares of mercedes-benz are higher. share buyback helped offset its projections that earnings will slip this year. mercedes's $4.2 billion buyback is its first in 15 years. global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. i am lisa mateo. this is bloomberg. ♪ this is ge vernova, helping generate

and move the energy that our world needs. ♪♪ welcome to a new era of energy.

pres. biden: the violation of

our sovereignty is unacceptable. we will act to protect our country and we did. i expect to be speaking with president xi and i hope we will get to the bottom of this. i make no apologies for taking down that balloon. jonathan: the president teeing up a phone call with president xi at some point in the future. equities down on the s&p 500. yields up four or five basis points on the 10 year to 3.90 57. on the 10 year -- on the two year three -- on the two year 4.70. it is not just the hawkish fed talk, it is also the hawkish ecb talk. we heard earlier from the ecb executive board. really great communication. i always follow what she has to say because it is so easy to understand. ultimately she sees a risk in this market but they underestimate the inflation path. lisa: this was more notable than

what we heard out of bed officials because she was talking about how what the ecb's potential terminal rate people could be talking about would be too low and she was pretty aversive risk. this. one inflationary shock. jonathan: we are now talking about 3.75 at the ecb. with a lot of people i've spoken to it was something like 3.25. tom: the shift, this is a wednesday, thursday, friday, shift. all of a sudden we are paying attention to the 10 year yields. the nuance is the vanilla curve, the two-ted spread has not warren doubt like the negative -- has not widened out because the 10 year is starting to click in and that means maybe we were little growthier before the recession, maybe we are not gaming out the gloom farther

out, so you did the curve dynamics while the 10-year goes up. jonathan: that is well explained. i think barclays is on board. growth is better but the price of growth is higher rates. off the back of decent hard data in america. the big question is whether the february data confirms the trend in january. we have to wait a few weeks on that. tom: what we will do is dive into the politics of the moment. there are eight ways to go with professor schiller. her textbook is definitive. i want to go back to ronald reagan. i can remember when the fdr democrat became a republican and changed out primaries run. there was the moment in 1980, 1978, whatever, where he was pushed aside because he was too conservative. he figured out you run conservative and move to the middle along the election trail.

that seems to be absolutely blown up. as the governor of south carolina jumps into the boat, as we see the poll for trump. lisa: trump is the leader and right behind him is ron desantis. tom: it seems all blown up. how are the primaries different this year versus what we do with ronald reagan? >> has always you ask a very broad question. ronald reagan understood primaries and in 1976 he challenged an incumbent republican. it is very typical in the republican party to have i lost last time so i am the nominee this time up until donald trump. the democrats change their primary system in 1984 in 1988. they change the rules on how

delegates were allocated. the primary season makes a big difference for ron desantis and donald trump. south carolina is a big priority now for the democrats. what will the republicans do? i am talking about how they divide up their delegates in the beginning? proportional representation, which kept trump alive, or winner take all, which would help trump also because trump is now unknown commodity and has a built in base and if it is a plurality he will start winning those early primaries that prevents -- that presents a challenge. ron desantis, even if he has florida. we have not heard what the rnc will do. lisa: a lot of people are talking about how much time, the two people next to me are talking -- about how long it takes for the election process to be carried out. how much room is there to change the gravitational force in the republican party to change from

trump to ron desantis or nikki haley? wendy: the only way it pulls towards ron desantis is if ron desantis declares and starts running. the mistake he can make is to wait too long. you have florida, a lot of free publicity, but it is not made you are connecting with primary motors. nikki haley will be out there. tim scott from south carolina make it in the race as well. the idea the more people who can present alternatives positively without beating up on trump, they are hoping they can start to pick up steam among rank-and-file primary voters. lisa: on the democratic side we have president biden trying to deal with domestic and international issues and the latest news he is thinking about some kind of phone call with xi jinping. how much does this give him a difficult position to put out

there trying to dovetail a hawkish message within all of branch to the chinese leadership to try to smooth over some of those relations? wendy: he is handling this and the way he handles everything. he marches to his own tune. he has a lot of foreign policy experience. china is a very important economic partner and he has been moderate in his response. picking a fight with russia and china at the same time, particularly china, we just got out of that with tariffs and they stop buying our soybeans, that cost is a lot of taxpayer dollars. there is a lot of very negative consequences to picking a big fight with china geopolitically and economically. he is not falling for it. he is deciding i will take this one day at a time and i will not jeopardize what seems to be a healthier relationship than under the trump administration. tom: underreported is the

agreement between the philippines and the united states where we will expand with investment and some form of military bases. how important is that? what does that signal to the navy and to china? wendy: it is extremely important. china has been making incursions in the south china sea for some time. rattling their saber when it comes to taiwan. understanding the united states will maintain its military presence and that it will be prepared in some way to block what they consider overreach by the chinese military and any threat to taiwan. it is a traditional move, they have been affiliated with the philippines for long time. some would object to the nature of that relationship in its early days. nonetheless they have to show that we are going to engage in some way not to give china freehand. jonathan: we have this munich

security conference in germany. what you expect out of that? wendy: the question of the ukraine russia conflict, how much weaponry we are giving to ukraine. we have seen this in the past, we give a lot of weapons and then we lose and then the enemy gets our weapons. it is a delicate balance. we have finland saying when do we get into nato? there are a lot of complications going on and i think trump took advantage of this in terms of our nato partners saying you have to do more. president biden is doing a lot, but you have to make sure europe continues to stay in. jonathan: and by europe, really, we mean germany. thank you as always. wendy schiller of brown university. a nice broad question. that was great. is that the first time you've been told u.s. to broad

question? tom: oh no. i will drive up to providence and have pizza with professor schiller to make up with that. jonathan: deere is a beat and a raise. they now see full year to $9.25 billion. our story, you want a headline from our story? deere lifts outlook as farmers overhaul aging fleet. tom: john deere 10-year, 19.56%. jonathan: the stock is up 3% in the premarket. tom: they make a good zamboni. jonathan: simon french is coming up. ♪

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jonathan: off the back of the biggest one-day decline of the month so far. we take some more weight off the s&p 500. -.7%. on the nasdaq down .9%. in the bond market the two year went through 4.70, your new high of the year. intraday is 4.7133. we are just off those levels but still higher. 10 year, 3.90, up four basis points.

the euro negative but some hawkish pushback from one key ecb official. essentially communicating to market participants she thinks this market could be underestimated inflation. this is the pushback we are starting to witness. tom: the heart and soul of central europe. jonathan: fantastic communicator. at the federal reserve you of the board of governors. on the ecb you have the executive board. a key speaker. tom: at jackson hole the buffalo stopped when she spoke. she is a big deal. jonathan: she pushed back the same way chairman powell pushed back at jackson hole talking about the pain we may have to go through to get inflation lower. we are talking about the absence of pain in 2023 relative to what we expected. with that in mind this idea that they have to go further than any of us thought. tom: we all agree it was a weird

week? jonathan: it is a continuation of what we have seen over the last several weeks which is hard data in america, a series of upside surprises. lisa: i think there has been a big shift this week. there has been a solidification of a narrative of higher rates and this disinflationary hope was overestimated earlier in the year. tom: john, i give you get credit for this because you pushed it forward. peter tchir's conversation was like lights out. there is this wacko option strategy which is a one-day strategy. jonathan: short dated option, zero days to expire. the theory is there has been a lot of volume in very short dated options. if you are selling a bunch of options you have to hedge that and ultimately you by the underlying which could be the s&p 500.

this creates a self-fulfilling cycle. i have oversimplified it but i think lisa picked up on the important message in what peter tchir had to say. he was conveying there was a cleaner message in the bond market than there was in equities. i think maybe that is the right question. lisa: right now the bond market is sending a clear message that the fed and the ecb have to do more in the readthrough to other markets is the issue. tom: less accommodative on the bloomberg financial conditions index. i've been looking for a theme for weekend reading. simon french has handed it to me with a silver platter as he serves t in london. i love the concept for all central banks. you narrow down to the bank of england where they are declaring victory. the idea that now comes the hard bit, and i like that. we have gone through 18 months and now we are at attention point.

describe the tension point for boe and the major central banks. simon: the major central banks are now into a phase where they will have to use judgments. it is relatively easier as inflation prints were getting harder and harder in 2022. easier for households and businesses to absorb the message. easier for central bankers to justify their actions. now we are in a situation where we have gone through the inflection point on headline and core inflation and they have to use the judgment, the degree to which there is spare capacity left in the domestic economy in the united states, in europe, but around the world economy. if you tack this back to the road by note -- the note i wrote in early september that there may be considerable output gap in the economy than the headline output cap indicators might suggest, i think to jonathan's point, have we seen data start

to support that narrative? i think we have. central banks now have to make a judgment on how persistent those upside surprises will be? tom: there is this idea that 9% goes down to 2% or whatever. it comes to a point where it stops. how does the stopping at 3% or 4% change this week? simon: i'm not sure a lot of the data you can go with compelling conclusions on. if you look at u.s. retail sales, the degree to which both the timing of cost-of-living adjustment for social security checks, the warmer weather in the united states, how much that was giving overinflated view of the underlying strength of the consumer and therefore the persistence of that call, sticky inflation above 3% or 4%. we have also gone with cpi, the degree to which the fed is

discounting the shelter element. there are other parts of the core inflation index which still looks like they are tacking closer to 3.5% or 4% rather than 2%. the data has not necessarily compellingly change the narrative. the bond market is starting to listen to central bankers in the way they have their fingers in their ears. lisa: you did a great job of highlighting the dissonance between the economic narrative that we are headed into a decline and the commentary we are getting from executives of optimism, of projecting strength and ongoing resilience of consumers. which is right? simon: this is to the very point of having to take a judgment. the degree to which corporate u.s., corporate europe is giving a relatively upbeat message. some of the notes i put out on earnings revisions certainly suggests the corporate environment has not seen the

levels of pain central banks thought they needed to introduce , think they need to introduce to bring down core inflation. yet, particularly on the distributional basis, we know there are cohorts of consumers that are under huge pressure, the type of consumers who have a disproportionate amount of consumption allocated to food and energy. there is a narrative there which is decoupling from underlying performance in the corporate sector and central banks have to navigate that, mindful that it is deeply political. lisa: there is a really important point. how much do you get a segment of the population wiped out or really in hard times while the rest of the population manages through or succeeds to build earnings and savings? how much is that a feature of what is going to come versus the beginning phase of a broader downturn?

simon: you are absolutely right in terms of this is a very uneven recovery. one of the reasons why the international monetary fund has been talking about the fiscal authorities, which initially in the pandemic recovery were quite holistic in terms of their support to corporate's and households in terms of fiscal transfers, looking to be far more targeted. the imf and others recognize uneven distribution of excess savings, of facilities. the degree to which it is macro significant is the challenge to macroeconomists because a lot of corporate united states hinges on the consumption profiles of socioeconomic groups a, b, and c. to some extent the underlying earnings performance of a lot of corporate is not hinging on

those difficult measures, which are really focusing the minds of politicians. tom: disinflation. we have seen it in america. we are on a path of some form of disinflation. i do not see it in europe. do you assume when europe disinflation it disinflation in the same way as the united states? simon: with a lag. one of the structural differences between the european economy and the u.s. economy -- if you go back through the last 30 or 40 years of economic cycles, the u.s. tends to have an approach of letting economic forces rip, letting the pain come quickly, then it dissipates quickly. more of a v-shaped recovery in terms of economic activity, but also an n-shaped pullback on

inflation. they because there have been so much forces in the european economy that slow down of inflation comes with a lag and i do not see disinflationary forces overshooting to the downside. as the headline inflation picture improves, you're going to see some of those suppressants the fiscal authorities have put in place start to be eased and squeeze inflation back into the european economy. that is the big difference over the two sides of the atlantic. jonathan: this was great. the perfect guests to have this discussion with. simon french. i think steve englander provided a framework to discuss some of these issues when talked about the federal reserve moving from nontraditional hawkishness to conditional hawkishness. -- we'll keep on hiking 75 basis

points. when you saw the shift to conditional hawkishness chairman powell started to interpret the information as more dovish by saying things like the dish inflationary process has started and then the data started to turn in january. it is january that introduces the conditional hawkishness. i imagine the fed speak will change markedly. it is easy for me to say because i'm not in the market. i can say too early to draw conclusions. wait to see if the february data confirms what we saw in january. tom: one analog is a bathtub or you have water in the bathtub and water flowing in and out. that is the idea of the rate of change. we are at a point where levels really matter, and that is why love what simon said. now the hard bit. it is what we click into it we moved to the march meeting. lisa: i have the luxury of

sitting here talking and i do not have to make a call. that is a huge luxury. how does this factor into some of the traits that were dominant , including the stronger dollar trade earlier this year, if you suddenly have data that question whether the fed was right to shift its focus on the balance of risks? robin brooks of the iaf said the euro would go below parity. he thinks he will unwind all of this. jonathan: that is a call. tom: that is what we call a big figure call. jonathan: that is the kind of call you can make if you are not in the market. helane becker will join us shortly. did you hear about the airline from new zealand? in the air for five or six hours and then cannot land at jfk and had to turn around and go back to auckland. as far as i understand they did not want to land someplace else

because they thought that would disrupt the schedule elsewhere. they had to go back to auckland. amazing. futures down .7%. this is bloomberg. lisa m.: that is a crazy story. keeping up-to-date with news from around the world, i am lisa mateo. president biden is trying to keep the dispute over the chinese balloon shot down from escalating. he says he expects to talk soon with xi jinping. the president disclosed his plans as part of his most extensive remarks yet on the balloon saga. he says he wants to get to the bottom of the matter but does not apologize for shooting it down. president biden's doctor says he is healthy and vigorous following a routine physical examination. the oldest ever u.s. president is expected to face scrutiny over his fitness as he prepares for a widely expected run for reelection. his longtime doctor says he is fit to execute the duties of the presidency. russia has avoided an economic

collapse in the aftermath of the invasion of ukraine. the country logged its third straight quarter of contraction to end 2022. russia's downturn for the year it was a fraction of the 10% downturn predicted a month after the invasion. central bank but last year's drop at 2.5%. in ohio there is growing criticism over the response to a train to rail meant that spilled hazardous chemicals and a tiny town. the ceo of norfolk southern has pledged to ensure the safety of residents of east palestine, ohio. that could cost millions of dollars. the train carried chemicals linked to liver and lung cancer. i am lisa mateo, this is bloomberg. ♪

we all have a purpose in life - a “why.” no matter your purpose, at pnc private bank we will work with you every step of the way to help you achieve it. so let us focus on the how. just tell us - what's your why?

>> what we are seeing about the consumer's they are using all of

their sources of purchasing power. the good news is they have a lot of purchasing power from job creation. at the moment you still have a lot of income flowing in which a supported that spending in real time. the consumer is able and willing to spend. jonathan: you see that in the data. that was michelle meyer of mastercard. just fantastic. i promised you a better flavor of this story. this is the flight at jfk terminal one. terminal one had difficulties. a power outage or something like that. everyone started following this on flight radar 24 website. it was halfway into a 9000 mile journey and the boeing 787 jet had to make a u-turn just below hawaii and fly all the way back to auckland. can you imagine? can you imagine you are going auckland to new york.

did trevor track the flight on the map? -- did you ever track the flight on the map? and then the plane starts turning around? i would be furious. lisa: i think about how i would feel in that situation, throw some kids, throw some exhaustion, failed vacation. you have to give a lot of free drinks. jonathan: let's give air new zealand are in opportunity to respond. the airline recognized the diversion was inevitable. all options had been considered and a decision was made to return in light of multiple factors such as distance traveled. that is the statement from a spokesperson from air new zealand. tom: there been a lot of these stories. jonathan: we will do something different -- tom: we will do

something different with helane becker. we will talk to her about the unspeakable. you can write about it, you can think about it. i will cut to the chase. when i was in school a long time ago a friend of a girlfriend's family was a pan am pilot and he walked on water. there was a time when these people were gods of the airspace. maybe it touches to the leonardo dicaprio movie "catch me if you can." things have changed. do you have confidence in the pilot shading -- in the pilot training, the pilots coming up, are they the same as that god from 50 years ago? helane: the first part of the questions is do we have confidence in safety and security of our air traffic? yes we do.

the pilots of 50 years ago were training during wars. we do not have that much anymore so pilots are more civilian trained. they are -- they all have 1500 hrs of experience before they can work for a commercial airline. if they are in the military they can have fewer hours. it has gotten increasingly difficult to be a pilot because of concerns about safety. tom: i look at the financial part of that, of recruiting pilots. describe the pilot shortage and the reports the major carriers are basically stealing pilots from the lesser regional carriers? helane: they are eating their young. here is the situation. we have been talking about this since 2014 but the pandemic accelerated it. you have a group of pilots, beginning in 2020, about 27,000

pilots who will turn 65 this decade. when you think about that, the u.s. airline industry employs about 57,000 or 60,000 pilots. about 45% of pilots are retiring and they have to be replaced. the u.s. only trains collectively about 5000 or 6000 pilots a year. you will have a shortage anyway. then you have the pandemic and airlines asked pilots intending to retire between 2020 and 2022 to consider retiring in 2020. the only airline that did not do that was united. they made different arrangements. others retired. then when things started to recover, not only did you have to hire back the 10,000 that retired, but when you think about growth, you need roughly

5000 or 6000 pilots a year collectively, you are hiring 14,000 or 15,000 pilots in 2022 in an environment where you are only training a third of that. we were going to have a shortage. go ahead, lisa. lisa: this boils down to the question of consumer experience and what is behind the shortage of capacity relative to demand and inexperience -- i cannot blame this on why a plane turns around -- but a feeling things are running more by a shoestring than they used to? how much will consumers put up with given this is a catastrophic experience for someone on that flight, but if they want to leave new zealand they will get back on a plane? helane: right. i think the incident you're talking about was the one yesterday where the air new zealand aircraft turned halfway into the flight. here is the thing. you want to travel.

you have missed it. maybe you have not traveled that much in the last couple of years and you want to get back to experiences and doing things. you try to figure out the best way to do that. traveling days of the week that are less popular like tuesday, wednesday, saturday. they are less popular than the other four days of the week. the other part of it is for the consumer we are seeing a lot of biopsy from the main cabin to premium economy or business class. those fares are struggled to go up a lot. we will see whether -- we will see whether that lasts. jonathan: i'm not flying on a tuesday. if i take the week off i am leaving on a friday night. earlier i read you a statement from airline. it was actually from korean airlines. there were two flights that had

to make a u-turn. let me share the statement from air new zealand. helene, can you help us understand this? they said diverting to another u.s. port would mean the aircraft would remain on the ground for several days impacting other services and customers. how messy can that gap? helane: what happens is pilots have duty our limitations. as a flight as long as the ones we are talking about, these over the pacific flights usually fly with two cruise, you fly with your pilots who are flying the plane, and then halfway through you switch out crews. there are different ways of doing that. the point is if you divert to another airport, now your duty day is over and now everyone has to rest for the minimum rest period. you have to get back on the aircraft but meantime the aircraft is out of place because

you cannot just pick an airport, you want to pick an airport where you have services, where you have a gate, or you have a ticket counter that can help the people in the aircraft get to where they are going. then you have people intending to go back to auckland trapped in new york. you have to get the plane there anyway. jonathan: given the nature of the conversation we've just had for five minutes about this industry, american airlines is up 29%. united is up 30%. delta is up. these stocks are running so hot year to date. why? helane: what lisa and i were just talking about in terms of demand is very strong, supply is limited. oem, not only delays from boeing and airbus, but engine delays. maintenance issues. parts turning round and 48 hours

are taking weeks. you have all of these supply constraints, you have a lot of demand, and you have very strong pricing and fuel costs have come off their highs. from a margin perspective we are looking at a very good first half of the year. whether it carries through all year we will see but we definitely think the first half will be good and that is propelling the stocks. jonathan: good for them and bad for us as we all just have to suck it up. helane becker there. the situation with the airlines. tom: i am seeing some moderation in prices from stupid down to a little bit less stupid. i am still fascinated, the ratio business class to economy is comical. it is like 9-1 on some flights. people are legging up. jonathan: i think the staff are under so much pressure. customer service has just gone

downhill. lisa: i will bury. it will be top -- i would agree. it will be tough. jonathan: this is bloomberg. ♪ our dell technologies advisors can provide you with the tools and expertise you need to bring out the innovator in you. this is ge aerospace, advancing flight for future generations. welcome to a new era of flight.

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>> it is much harder to get a good read on the market. the moves are amplified so you cannot see that. >> you had a reversal from extreme positioning at the end of 2022, and it has not ended yet. >> let's get compilation of the trend that hopefully online and then get on that train. >> inflation should ultimately come down, but it will take time the cycle is taking time. >> we have very little growth,

kind of stagnation. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. jonathan: heading for the first two-week lots of 2023. good morning. this is bloomberg.com -- this is "bloomberg surveillance." this story of the week, a continuation of better data and a lift in bond yields. tom: a big change in bond yields. i agree bonds is the place to start, and wishing -- shifted from a dynamic yesterday with the 10-year, the yield up to 3.89%. donath end the 10-year had a look at 4.70% earlier this morning. lisa: how long to they have to hold this way? it is about understanding this disinflation, perhaps not as disinflationary. you are seeing that born after

bond markets and also seeing it in currency markets. the dollar spot index has given up almost all of its losses for the year, gaining against the euro and the yen. you are seeing that reversal as people start to price in more rate hikes in the u.s. tom: another thing is, and we heard about it yesterday, is the higher interest rate regime beginning to impact quality em and the so-called frontier economy? as we go to imf in april -- sorry, you have to get through march with this new higher rate regime, the people are going, what are you doing? jonathan: and if this continues, do we have to start thinking about dm debt problems? yields, problems in the u.k. that are specific and unique, what is the word, idiosyncratic? people throw that word around, it becomes broad. i wonder if we have to start thinking about the issues all

over again? lisa: a lot of the increase in some of the debt tied to some of the interest payments going forward. these things can snowball and why people were not expecting. tom: john deere, and i come from a deere family -- jon, you don't understand this, but if you are the it kid in your neighborhood, your father had an ice skating rink in the backyard. i was before this, we had the pull cart thing with the water coming out the bat. but if you are the it kid, you had the john deere tractor with the zamboni on the back, an extension. it is like a wheat combine in iowa. this one product alone, zamboni -- on radio, it is a gorgeous green. jonathan: for those of you new

to the program, tom calls one of the producers chart banner because he has always put up a chart. the latest from deere, net income cnet $8.75 billion to 9.25 only dollars -- $9.25 billion. the numbers today, stocks higher in premarket. tom: free cash flow, like $5 billion. john deere, this pre-pandemic, but we will never recover from the pandemic. $5 billion to $7.5 billion, john deere. lisa: ultimately, it will be out -- about tom throwing out random things and jonathan trying to

translate them. jonathan: waiting for the ice as central park thanks, tom. are we done with you yet? tom: no, i have to give you a function, core services function. if you really want to tear apart a country -- this is sort of new to bloomberg. deere equity, mldl go. this is like everything on the company laid out, like pro-securities research analyst. jonathan: thanks for that. futures on the s&p down by about .7%, yields pushing higher. away from the highs of the session, back below 3.90% on the 10-year. lisa: some of the things we are watching, said speak, tons of it, including richmond fed president tom barkan and fed governor michelle bowman, both speaking within the next two hours or so. i am curious how they push back against some of the move in pure

yields or whether they endorse the idea of a terminal rate that is significantly higher than what they previously thought and held there for longer. the munich security conference begins today, a lot of things there including u.s.-china. we will hear more later from maria tadeo, and i am curious about the increasingly fraught relationship between the u.s. and europe when it comes to tech investments. 11:30 a.m. -- i know you are all waiting for this, the bank of fed governor is speaking. he actually is really out front. he believes in a soft landing. believes in no recession, and he thinks the ecb -- he read rates what was said this morning, that an -- underestimating this. jonathan: look out for this, rishi sunak, the british prime minister, sitting down with maria tadeo on a panel. tom: he does not know what he is

in for. i never heard tadeo ask a softball question. jonathan: looking forward to that. that a saturday, tomorrow, so we will try to bring you highlights on this program on tuesday, because we get a long weekend. tom: want to bring in robert doll? bob doll is here. jonathan: from crossmark global investments. we asked this already, given the pullback in equity markets, what do you make of this most recent move? is that something you want to take in? bob: you guys are having way too much fun over there for a friday morning. look, the bulls have had the year to date run. the year will obviously frustrate both the bulls and the bears. look, the narrative has been, maybe the fed is almost done, inflation is coming down, i think we will have a soft

landing, i better buy some stocks. that ignores one of the most inverted yield curves in 40 years, the lei's have rolled over, retail sentiment is equal to the peak of a year ago, money growth is negative, the impact of what the fed did last year is yet to be felt on the economy. i think the market is ahead of itself and we will give a lot of this back. tom: bob doll, i talked to a member of morgan stanley yesterday, and he was brilliant, a clinic on what you and i remember, which is an actual normal rate environment. he was talking about that everyone should understand markets are looking forward and expecting out to the future. what does the bob doll future look like that gives me comfort in owning stocks? bob: for starters, we have to get through this period of economic weakness. i am going to call it a mild recession. i know it is not popular, was

fourth quarter last year, but now the soft landing school has taken over. i ignore this, i just put on the table we have to get through that, and during that timeframe, earnings estimates are going to come down. they have come down a lot already. stocks have a hard time moving significantly higher when earnings x them it's are coming down. some caution here makes sense. lisa: this was just put out about a no lending situation, giving a sense of what the market response would be to such a scenario. basically, high inflation is a problem. the fed is not done raising rates, which means a trading environment from 2022 will become a back and the 60/40 portfolio will perform poorly? do you agree? bob: i do. inflation takes a long time to get out of the system. to think it peyton will come straight down, look, if the fed really wants to percent

inflation, they have massive amounts of work in front of them. do we get down to 4%, maybe 3%, yeah, but nowhere close to 2%. lisa: what does that mean for 10-year treasury yield, considering they have been creeping higher after huge flood of cash into longer duration for the first month of the year? bob: i think those rates have moved up appropriately. i could not believe how low they got. i suspect they will stay will -- where they are, maybe move a bit higher before we see the eyes of a mild recession and some more lower inflation numbers. inflation is sticky. you guys have talked about that. jonathan: what do you want to own? bob: some of that 4.5% cash in my portfolio. i do not mind a nearly 4.5% 10-year treasury yield. stock market, i want the things that have not done well year to date, which are the things that did do well last year. companies with earnings,

reasonable valuations, big cash flow. the big leadership have been the main stocks. jonathan: great to have you on the program. thanks for being with us. bob has talked about it. others have. some words we have heard our disconnect. it needs to be reconciled. canfield's stay at these levels and tech carry on outperforming? which one has to move. tech down. tom: there is no analog for this out of the pandemic. people are reaching back, trying to game inflation here, inflation there, markets here, markets there. there is no analog for this health crisis we are coming out of. lisa: true, no analog for this inflation, and the lack of understanding is something causing a lot of angst for a lot of traders. the issue is it has not been one data point, it has been one

after another, labor market report, ppi yesterday, jobless claims that continue to be low. all of this building on the idea that perhaps people work over enthusiastic about the disinflation narrative. jonathan: can we talk about golf, just briefly? it is such a privilege to be able to watch tiger woods play golf, just something so special about it. yesterday alongside rory mcelroy and justin thomas, the three of them birdied the 18th, all smiling, just a joy to watch. they tee off later this morning, 1024 time eastern time. 10:24, racing home to watch tee off. it is special and great to see him back. from new york city, this is bloomberg. lisa m: keeping you up-to-date with the first word, i am lisa

mateo. two of the most hawkish policymakers of the federal reserve signal they may favor returning to bigger interest rate hikes to fight inflation. the cleveland fed president said she saw a compelling case for a 50 basis point hike at the most recent fed meeting. that view was echoed by the st. louis fed president. president biden expects to speak with china's xi jinping soon about the chinese balloon that was shot down by the u.s. the president hopes to get to the bottom of this, and he said he makes no apologies for taking down the balloon. the dispute highlighted just how fragile relations are between the u.s. and china. ukraine's ammunition and weapons gap will dominate the munich security conference, which began today. u.n. nato officials have called for an increase in arms production to address expected shortfalls. the u.k. defense ministry estimates that up to 200,000 russian troops have been killed or wounded since the start of the war almost a year ago.

the federal judge overseeing the fraud trial of the ftx co-founder is threatening to send him to jail. the judge wants restrictions on his use of electronic devices and apps because of concern over his use of encrypted messaging app to contact the ftx u.s. general counsel, a potential witness in the case. germany shares of mercedes-benz are higher, share buyback and strong performance helped offset its projection that earnings will slip this year. mercedes is $4.2 billion buyback is its first in 15 years. global news powered by more than journalists and analysts in more 2700 than 120 countries. i am lisa mateo, and this is bloomberg. ♪

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no matter your purpose, at pnc private bank, we will work with you every step of the way to help you achieve it. so let us focus on the how. just tell us - what's your why? >> there is still some misunderstanding as to how europe works and how it reacts but it is more open mindedness

now. equity markets in europe can rally, even with the central bank doing what it is. europe's biggest problem is hopefully transitory, that is the putin problem. jonathan: august meeting, chief economist at berenberg on the ecb in europe. headline, inflation, possibly persistent, inflation rate may have to buy mid-2023. still problematic, isn't it? lisa: he has talked about the probability of raising rates and still have soft landing or no landing or no recession in the euro region, confident of those things. we are starting to hear more pain discussed, and that might get the attention of lymph markets. jonathan: seems to be a distinct distinction here. things are terrible with the war in ukraine. the way we talk about the european economy, relatively

speaking, things are not better and we might have to confront the kind of winter we feared. but that leaves out the war that is still breaking out in ukraine. tom: i totally agree and cannot get to my perception of a world war ii analog, because i do not think it was like this with a real war -- pick your war, but i find the separation to be remarkable. jonathan: look at this headline from the central bank official over the ecb, governments should cut aid as energy costs ease. i think they're worried about those fiscal transfers to individuals. lisa: he was basically glossing over that, saying you are not exactly having that, and it is more drawn out. but you are seeing broader based inflation be on the energy costs you are seeing. tom: we're going to stop right now and doing with all the work our team has done, bloomberg and its reporters across the front of ukraine in the last year. maria tadeo -- what was the

beginning of all this was february 19 of a year ago. mr. zelenskyy was at your munich security conference, where you will speak with the prime minister tomorrow, and he said there were 30 children in don boss and they are not going to nato, they are going to school, which they never did. explain your experience of the distance from a year ago. maria: and what year it has been, because that was president zelenskyy a year ago here at this motel behind me, calling for the security conference, and that speech he said ukraine does not want war but we are ready for it. at the time, everyone in the audience hesitated, thought this war would make no sense, that vladimir putin would not go for it, that there was still a diplomatic solution to this. now a year later, you have a full invasion, crimea, east of

ukraine, and belarus come and we see potentially a new offensive. the nato secretary-general says you do not have to wait for the spring, this offensive is already underway. meanwhile, ukraine says we need the weapons and training and are also prepping for their offensive. overall, for many people here in this conference today, what a year it has been, but also how wrong they got it. tom: the uncertainty of the news that is out there, i saw something that said that russia is committing 90% plus of its material to the so-called front of this late winter in ukraine. you buy it, maria? is there intelligence that they are putting everything into this new effort? maria: look, when it comes to russia, it is difficult to tell truth from propaganda, the different intel we get. but i was told by a very senior official who told me, yes, the war has been a mess for russia. they were hoping it was going to

be a quick operation, a week potentially, now a year, but do not underestimate the capabilities russia may still have and do not underestimate that this is a huge country with a massive population. and you listen to nato, they say vladimir putin does not care, is willing to wage a war with a high cash rate, meaning sending units that will probably die, but if that is what it takes to move the front line, he is willing. jonathan: there is a fatigue emerging after sending money, financing, and weaponry across ukraine. do you see that across europe? how united are europeans? maria: yes, and before that, i say that i completely agree with you in terms of the dislocation. when you look at the battlefield and situation in ukraine, ukrainian officials will say the next few weeks will be difficult. and you look at the bloomberg terminal with the headline saying gas prices dropped below 50 euros.

remember, in august, the peak of the energy crisis, that topped 300 euros, so there is a disconnect between the energy war and nashua war. we should stress the difference between the two. on the message, politically, yes , they still say we stand with ukraine and that will not change. but there is an interesting debate that we are not talking enough about, the assets from the russian central bank. there is a growing debate behind the scenes, and it would be unprecedented. is there a way to confiscate and use those assets to rebuild ukraine? because everyone here now realizes the bill will be enormous, and taxpayers should not pay for the damage putin has created. lisa: much is the -- i don't want to say complacency, but this feeling people can move on and curtail any worries about the ukraine war and what russia is doing? how much is that tied to the feeling it will not escalate? because if vladimir putin was going to escalate, he would have

already done so. maria: behind the scenes, it is the opposite. there is a lot of uncertainty. i have been told repeatedly this , and the conference is about to start. a lot can change between now and monday. the mood here is this idea that a lot in this war could be decided in the spring rather than summer, so ukrainians are pushing for the training and weapons as fast as possible for the counteroffensive. there is a sense that a lot could be played out in and next few weeks, and that will be crucial. the other point -- i am not sure if compliance, but there is relief, this idea from the european side that the energy war at this point has flopped for vladimir putin. measures that they took and the fact they got lucky with the weather. this was not a cold winter for europe. the question, and this is the answer for the time being, how do you fill up the storage for next winter without the russian gas? tom: maria, i am fascinated with

your conversation with the prime minister. i am absolutely fascinated. jon, how do you approach it? jonathan: the prime minister question part --? . that is maria's job tomorrow. what are you looking for in the conversation? maria: the timing of this is fantastic, because the idea is that in the next few weeks, the u.k. could finally put an end to the issues around the northern irish protocol. this could mean that deal is finally achieved, that this is the final episode, finally, of the brexit tensions, and that feeds into a change in music from the u.k. for years, we talked about a country that is no longer a big geopolitical agent, that is retrenching from the world. i would be surprised tomorrow if rishi sunak does not push back against that narrative. the u.k. wants to say we still matter, we are a big country and are decisive with european community.

jonathan: looking forward to the fantastic conversation tomorrow with rishi sunak, the richest prime minister. we have a long weekend. we will pick up with some of that on tuesday. tom: i am absolutely fascinated by all the heritage of the continent of europe, from boris johnson to mr. thune at -- sunak , their commitment, and the data of the u.k. versus america, a tangible debate about the use of emanation, the secretary of defense saying we need to build up our ammunition, as well. jonathan: two words, continuity, it continues, and proximity. they are just so much closer to it. when you have the energy crisis alongside the war, you can leverage what is happening in the energy crisis to get support for the war. maria painted the picture pretty clearly that, ultimately, as the

energy crisis starts to fade, you see that fatigue set in for the work, but they were is not fading. lisa: it is actually escalating and people are preparing for something really dramatic. she said about how a lot of businesses in europe are preparing for recovery, the rebuilding of ukraine. if you talk about this behind closed doors, they are all preparing for some sort of rebuild and what potentially that could mean in terms of the economy. jonathan: do you see gas prices? lisa: plummeting. jonathan: down hard and your appeared futures up by about .6%. yields have been higher. we have backed away from those levels. from new york, this is bloomberg. ♪

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jonathan: my dentist was a genius about a month ago. he said you need to make employment, what time? i said, what have you got? he said, february 20, 10:00 a.m., and i thought, great. i can come from work around the corner. now monday is a day off, i have to wake up. i cannot change the appointment. you have to pay. america. very smart that they did that. february 20, 10:00 a.m., lots of

space. tom: february 12 and february 22, i did not know it was president's day until yesterday. i am as and yachting -- i am way past my prime bottom line here is i am thinking february 12 and february 22, and i did not know it was president's day february 12. it is emotional, when you become a u.s. citizen, the surveillance team will be with you. jonathan: a few more years. live on air. lisa: i think you. jonathan: just to stop the haters and trolls from saying go back to where you came from. i am american. [laughter] actually being able to say it. anyway. futures down about .7% on the

s&p 500. yields have been pushing higher over the last 24 hours. two-year, 4.68%. earlier, we had a new high of the year, 4.71%. not just the u.s. but europe, too. euro pushing back against the disinflationary hope that has existed and persisted through the year so far and i would say exacerbated by the officials themselves who said the disinflationary process has started and now they are unhappy with the pricing. i guess the data has turned. euro holding onto 1..06. lisa: i cannot agree more in terms of officials feeding into this. look at some of the stocks. did you know that deere reported earnings this morning, and they were better than expected, significantly better, with cash flow exceeding what it was for about the pandemic by a

significant margin. incredibly rosy him and the shares are just up 2.4%, which i think is interesting. it tells you the distinction between companies that have already done well and have been bid up and those that have not. deere shares are down on the year after getting 25% last year and 27% the year before, a haven stock, so a lot of people are factoring that in. doordash is interesting because they beat expectations, raised guidance yesterday after the bell. people are still getting a lot of delivery. that is what this says. this screams disposable income, and people are willing to pay for a salad to get delivered to their homes. tom: i do not want to catch you unawares, but i have no idea what doordash is. which brands are doordash? jonathan: caviar. lisa: [laughs]

this is where you can order food and get it delivered. jonathan: doordash, just quickly, lisa mentioned a salad, if you order a salad now, it is double the price by the time it arrives. if you do sweet greens, $15 per salad. i like to tip nicely, doing my pit as a proud american -- i like to tip well. by the time we have done that, it is double the price per lisa: honestly, ordering it is really expensive. one of the reasons why do not pick up is because i want to tip nicely, but then if i do not want to really justify the expense, i feel guilty, this internal thing. moving on, draftkings, sports betting. people are betting on sports in incredible fashion. these shares are up more than 56% year to date. an additional 8% in premarket

trading. tom: do we have details that there was a super bowl pop? they must have. lisa: they were looking at fourth-quarter earnings, and people were excited, but the guidance also came in hot. tom: i did a speech in las vegas years ago and remember standing in caesar's palace looking at the betting stuff and how foreign it was, and now it is everywhere. jonathan: everywhere. my producer this morning -- top of you have a producer? jonathan: he made $800 on a $10 bet. fantastic. i am not sure if his wife is watching, because i do not know if she knows the results. now you have to spend that money on flowers. futures are negative. we have had a ton of fed speak. this from jim bullard, st. louis fed president, all that talk, here we go, i have pushed back against the long and variable

lags argument, because i think in the modern era the transmission of monetary policy is much faster than it would have been in the 1950's, 19 60's, 1970's. tom: we are progressing towards march 22, and milton friedman and chicago, another time and place, and the elasticity of what the electrical engineers called the slough rates of our economy now, and a gentleman from indiana would say i did not go to chicago, i went to indiana, i am looking at the reality. jonathan: so you say the reality is the increased financial is asian of this economy hits quicker. -- the increased financialization of the economy hits quicker. tom: it is incredible. it diffuses through the system different. jonathan: that word. would you like that, lisa? french. lisa: i am not even french, but i am vaguely offended.

saving us is the portfolio manager from pj. -- from pgim. price down, yield up. what does pgim do with that? lindsay: we are long-term investors and would not necessarily do anything differently. we understand that there is a feel-good rally going on, but we have not been chasing risk here, and that is purposeful the fact that yields are a little bit higher, that is ok. that plays into how we thought that this year may play out, which is one of security selection, not one where we are banking on anything. lisa: you talk about security selection, let's talk about the overall market, particularly high yields and how much is has tightened. a guest last week said it is almost frothy in terms of how much demand there is. do you think it has gone too far?

lindsay: i think there are pockets of the market that have gone too far. some of the outperformance is not warranted. what we think will happen in terms of economic traditions, we have gotten a lot of positive data in the past week, which means the fed is likely to be more aggressive. you see that priced in. as a result, the likelihood of a soft landing, a garden-variety recession, even maybe a small chance of a hard landing, that is all there, and the story of ccc's are telling you is not the story. so that is where it is certainly frothy. but there are names with value that have not been fully realized with high yields, and it goes back to that security selection of finding the purely simple narratives, feels like a different time, very confusing one. jim beyonca was talking that perhaps -- jim beyonca is talking that perhaps we are misunderstanding the neutral rate that perhaps we are not even excessively restrictive at

this term with the expectations of the terminal rate, and that is why risk assets can continue rallying even though the fed has been lifting rates. do you adhere to that view? lindsay: it is a big debate that we're all trying to understand. the fed, as well. what it feels like to us right now is that we are starting to see that those rates are becoming restrictive. an important thing to remember is not every rate that is important or pivotal for the consumer is off to the front end, and we have not seen as much move in the five to 10-year as the front end of the curve. as that starts to shift through, we will see that kind of impact. i would say we have felt restrictive territory. we are not at the peak potentially, but it has definitely started. tom: away from the sophisticates

like you and mr. peterson the rest at pgim, people look at the bloomberg total return index, down let's say 14% last year and there is a presumed recovery price up, yield down. is that at risk? are we in jeopardy of seeing a leveling out of price or, dare i say, even an aggregate price it, yield up, by year end? lindsay: i think there is always the chance of that, we started this year in a very different condition from last year. which is we have got a ton of interest rate hikes already there and we have pushed in from the fed side, and we have also had push in from the friends side. we are in a different position, and i think there is positive total return, but it will not be straight-line. that is what we have seen so far. you look on the bloomberg terminal, up 2.70%, then maybe off 1.75%.

do not expect a straight line, but we think it has been a positive total return tom: if it is modeled out as 6% rates, up from 5.20 5%, if james buller shocked us was 7%, how does your world change of we get a terminal rate lifting? lindsay: if we get the terminal rate lifting, we would be in the camp that that is going to be so restrictive on the economy that the fed would be forced to cut and cut more aggressively. so we are in that camp, back to your prior question, of feeling that this level is restrictive, so if you go higher, 6%, 7%, that will be ever so more, and we will have an economy that is choking, and we will have to come off those levels to a more normal rate. so that would be some pain, but i think we get back to a place that is better in the end. jonathan: such a complicated moment, tom.

liz new rusnak -- lindsay rosner there of pgim. there are longer variable likes or are we being restrictive and need to do more? you will be in one camp or the other. but having the information that allows you to make that decision with confidence, not sure how many people have that. lisa: which is the recent perhaps the message from central bankers has been muddied. some want clearer communication and say the ecb could guide on the duration of the terminal rate and needs to keep rates high. jonathan: he has changed his tune five different times. lisa: euro-dollar, stronger dollar. the yield fades a little bit. equity move fades a little bit, still down about .6%. this is bloomberg. lisa m: keeping you up-to-date with news from around the world with the first word.

president biden is trying to keep the dispute over the chinese balloon that was shot down from escalating. he expects to toxin with chinese leader xi jinping. he disclosed his -- he expects to talk with chinese leader xi jinping. he said he wants to get to the bottom of the matter but does not apologize for shooting the balloon down. meanwhile, president biden's dr. says he is healthy and vigorous following a routine physical examination. the oldest ever u.s. president is expected to face scrutiny over his fitness as he prepares for an expected run for reelection. his long time doctor says he is fit to be president. russia has avoided an economic collapse in the aftermath of vladimir putin's invasion of ukraine. the country logged its third straight quarter of contraction to end 2022. still, the downturn for the whole year was a fraction of the almost 10% downturn predicted a month after the invasion. central bank put last year's drop at 2.5%.

deere has raised earnings guidance above estimates higher crop -- higher crop prices keep farmers spending. that led to the windfall. a year ago, russia's invasion to ukraine sent wheat futures to record. the bets are that crops will stay pricing and farmers will have to replace aging fleet speared more could be brewing for manchester united. we have learned qatari investors, including the countries prime minister, are preparing a roughly $6 billion opening bid to acquire the english football giant from a u.s. family. a british billionaire has already lined up financing. global news powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. ♪ and see how changes you make today... could help put them within reach.

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we all have a purpose in life - a “why.” no matter your purpose, at pnc private bank we will work with you every step of the way to help you achieve it. so let us focus on the how. just tell us - what's your why? >> at this juncture, the incoming data have not changed my view that we will need to bring the fed funds rate above

5% and hold it there for some time. at our meeting two weeks ago, setting aside what participants expected, saw compelling economic case for a 50 basis point increase, which would have brought the top of the target range to 5%. jonathan: that is news from the cleveland fed president, not voting this year but still participates and attends meetings and saying she saw compelling case to go 50 basis point at the last meeting. jim bullard laid it on as well. will that be part of the conversation at the next one? tom: there was market move yesterday, and then there was the word 50 and that was the beginning of the real move. jonathan: comps came in downside surprise, good news, yields with good news. but when she spoke, there was that initial move purely upon bit was a 1-2 punch, confirming the data of the hypermarket

tightness. then you had fed officials calibrating this differently and coming out is more hawkish and talking about paying. she mentioned pain again. the more they mentioned pain, the more they are willing to tolerate more weakness in the economy as the balance of risk tilts more to inflation. jonathan: do you want to talk about a lack of pain? homebuilders, the low and homebuilders over the last 12 months was last june. since in, homebuilders in the s&p are up more than 50% over that period, from the lows of june 2 now. phenomenal. tom: phenomenal, no question. when there was a construction site with a hammer and nail, they said, why don't you take the day off, mr. keene, i was the worst. i did a lot of concrete. jonathan: how did that work out? tom: i learned a lot. it was back when you did not go up for three weeks in france whatever, you went out and got a job. they are taking how much out of my paycheck?

we used to have a six pack and sandwich at lunch and it would not even faze us. that is what it was like. ok, a member of drexel university joins us right now, expert on home depot lows and the rest of it. i measure home depot when i go to 3rd avenue and see the number of contracted trucks in the lanes outside home depot. things look pretty good, they are lined up always two lanes deep, sometimes a third lane on 3rd avenue. how good is it for the resiliency of home depot? >> i think the point on what you're saying with the contractors is an important one. home depot has about 45% exposure to the professional contractor, and that is really what is in those results and lead to outperformance versus the lowes which has about 25% exposure appeared the reason the professional customer is doing so well is because backlogs are

still pretty healthy. going back to the pandemic, a lot of projects were put on hold , when we got into 2021 to 2022, consumers started taking on these larger projects and contractors do not have enough labor to get them done so the backlog built appearance of they are still living off this healthy backlogs. so we think as we get to the middle part of 2023, those backlogs will start to thin out. and we think there is a little more pressure on the diy consumer. tom: there is the under discussed apple computer, 19.36% for the last 10 years. do they have an addressable market that lets you envision that out into the future? debbie not 19%, maybe 15%. -- maybe not 19%, 15%. does this homebuilder market grow in size over five or 10 years? drew: absolutely.

whether talking about the homebuilders or talking about the home improvement market right now, we think we are in a cyclical downturn that falls within a broader long-term positive demand trends. for the repair and modeling market were home depot and lowes like to play, we do have pressure on disposable income, pressuring diy. the fact that mobility and the housing market is so low, because inventory is low and there is a disincentive for current homeowners to move because rates are so high, we think you start to see a lot of remodeling on current residences rather than moving. at the same time, a large portion of the housing stock is coming into the age where you would traditionally see a ramp in remodeling spending. we think once we get through this pocket over the near term, there is a longer-term runway for growth in home improvement. lisa: a lot of people agree with you, and we hear perhaps a bottom is in in terms of the

weakening trends in housing and it will reignite, especially because mortgage rates seem to have plateaued and have even come down again, although they are cribbing back up. how much does this speak to the sense at home prices will remain high and rents will keep climbing, basically the idea that we will enter some downturn that will soften the inflation and cost of housing? drew: a good point with rates paired with all rates come down 100 basis points from november to early february. during that time what we heard from the boulders and broader housing market in general is that there was a reemergence of demand starting in mid-january and into early february. that is not only because rates have come down, it is because builders are willing to play ball now and cut base prices, willing to help with incentives. they are going to buy down your interest rates. they need to turn their inventory. but you also made the point that over the last couple of weeks, rates of moves back up, up about 75 basis points here now the

rate on the 30-year is about 6.75% again. to the point we stay at this elevated level or even creep higher, we could see demand start to slow down a little bit more. lisa: when you talk about creating a new housing stock, what type of housing is getting traction? i remember when the mcmansion was hot, then there were the modular homes, now people perhaps moving to more basic things -- what is the hot trend? drew: you can see a clear trend over the last couple of years my from the beginning of the pandemic were square footage was increasing because people were working from home, the home had to take on more functionality, but now in the middle of an affordability crisis, you see the median square footage of homes trend lower. i think that will continue because builders have to find a way to get that price lower because they need to make the math work for buyers. they will do with lowering the square footage on a home, through increasing the density

within their communities, so more homes on smaller lots. they will do it through the product itself, which is more townhomes because they want to increase at density and spread fixed costs over a greater number of units. jonathan: a quick one that i'm thinking about, haven't we got a whole generation of homebuyers now locked into mortgages of like 3%, with no real incentive to move? maybe ever. how do you think about that situation given what we have seen take place over the last few years? drew: that is important something like 80% at the current outstanding mortgages are sub-4%, so it is a diss intensive -- disincentive to move, and i think that is why we have not seen an explosion of inventory in the resale market the people were calling for when the rates start to rise and economy started to slow. it goes to what we were talking about, people have a disincentive to move but still need more space and are looking

at the current home and say to themselves, why don't we reinvest in our home and maybe add square footage and make changes? jonathan: a fascinating conversation. thanks for your inside. 80% of the market is sub-4%, 80%. when jim bullard talks about this and pushes back, how does that feed into it? lisa: and there is a whole arc it people are talking about restarting, where they basically change the title on the mortgage to the new homebuyer. they get the low rate. this goes back to like the 1980's, thinking about that kind of action. tom: this is a singular u.s.-u.k. difference, when you had that fixed rate locked in, in your world, that is not true. jonathan: fixed rate, a couple of years, maybe. or you have a floating rate. it is tough. tom: i go to 3rd avenue and stop at mcnaught olds -- at

mcdonald's for breakfast and then go to home depot, and it is not too early. i mean, they have got the nine foot feel real christmas tree with 1000 dual color l.e.d.'s for over $1000, for a fake tree? jonathan: i did not pay that much home depot. but they do a great same-day delivery service. tom: they are very good. lisa: doesn't doordash? jonathan: i do not think they doordash. tom: they throw the batteries in, so the color thing that turns, the different colors -- jonathan: why are you so envious of my tree? tom: it is year-round. lisa: i am sure he has only the white lights. jonathan: i saw him tearing up,

so jealous. tom: our tree did not make it to epiphany. jonathan: did you decorate it this year? tom: no. ♪

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>> comes down to a point until we get back to this disinflationary trend. >> i don't think the story is

over but we have to be aware that it's going to take time. >> the disinflationary story was not destroyed by the cpi. with it hawkish and as it was standing out in the market right now. >> equity markets can rally. >> the economy, we don't think it's going into recession but there will be -- tom: what a strange week it has been. it says all about the shock of our economic, finance and investment. jonathan:jonathan: higher yields. 470. high yield than that the front end of the curve. hawkish fed speak. maybe the last couple of weeks.

tom: what does it do to the broad disinflationary ritchie are seeing? i wonder what the guys like the edward hindman does looking for some 3% inflation and of the year does he amend that in the coming days? jonathan: chairman powell said the process has started. we spoke with washington after the report. he said it was in a good sector. if we hear from him next time based on the information we had so far. tom: prime minister today, on the schedule. lisa, i look at this and it is down to our certitude. we have this whisper of the agony is over, baloney. the rent think on new york city where i compared it rent to income, everybody is falling behind. with rates up we fall behind again. lisa: disposable income becomes

squeezed. john raised you with the two-year i will raise you with the six-month. it's 5.02%. post-2007 high which speaks to what you are talking about read this idea of if you get a federal reserve that is responding to true inflationary pressure it creates a much more negative situation. jonathan: reinvestment risk, a little bit early this morning. what do you do? take the high guilt and face the reinvestment six months down the line? or do you lock it in for a little bit longer? lisa: to meet this is a difficult debate to weigh in on. what we are hearing is do a little bit of both because you can't have conviction. you have conviction? go back to a 2% world. tom: that was tested this week. lisa: markets are willing to accept the pain required for

that. do we need a recession to get back to that type of scenario? tom: where is the recession? michelle at mastercard has more knowledge, i'm just going where is the recession? i don't know if it's there. jonathan: that looks like a soft landing. but it looks like a no landing until it's a hard landing. ultimately, the belief is everyone is talking about it. the fed has to go harder and then they think the real pain comes later. all i know is we came into this year and people were looking for one thing, a dreadful market and an awful economy. let's see if that changes. don't 6/10 of 1%, equities struggling in the last 24 hours. i'm talking about 3.90. we are up three basis points on

a two-year, up five basis points. just short of 4.70. tom: reading into the weekend good times we could speak on a curve. thank you for joining us this morning. how do you amend and adjust off the last three days festivities? >> while the story is about disinflation and we are not willing to give up on the disinflation story. we think it's going to take time. the goods have declined and if you look at the cpi basket that's a third. the other two thirds is the problem today we have owner equivalent rent which still has to decline but that takes 15 months after the cpi peak. that could be a quarter or two away from now and the other challenge is wages. you are starting to see

companies take action here. employment numbers have not reflected that yet. we are in the camp with a couple more rate hikes. tom: this is totally irresponsible but it's irresponsible friday. what does marge look like? help our viewers and listeners, what does marge look like? >> you're right, tom. thinking more long-term than one month from now but at the moment we have our estimate at the 25 basis point rate hike. we have a me rate hike after this week. there is a lot of economic data that's going to come out between now and then. the fed is very data dependent. it's possible you get in the camp that is not or we are at right now. lisa: i want to double that, the reinvestment risk. where do you go in terms of specific types of bonds at a

time or you are getting 5% to on six-month treasury? >> we recognize the curve poses a challenge but we think for anybody that is looking for beyond six months, think about intermediate high quality. they took it on the chin last year. the credit quality is still high. we really don't see default risk in that space and the tax equivalent yield is close to 5% in the high-quality sector. it will pay off you are getting price depreciation there as well and off to the races already this year. we would barbell between the intermediate duration and the public bond market with thinking about private credit. because there, we are seeing yields north of 10% on new loans that we are issuing area we think this barbell between the public bond market and the private bond market is something that is new and quite attractive for investors today.

lisa: where do stocks fit into this? >> they fit right in the middle. we started the year with the range in the mid to high single digits. of course we said mid february and we are there in terms of the turns so we had the most challenging earnings season in decades we are seeing this week a lot of get back on that. we focus on quality focus on the companies that can manage margins the story of the year's wages. last year the story was goods. who are the companies that can manage their cost structure? they are still out there. it is all about individual stock selection. jonathan: where are you finding them? where are you finding those names? >> we have been adding to names like unitedhealth, visa, we like microsoft as well. it's not a sector specific but

it's companies that have been able to be successful in this environment are you we are not making a call on a particular sector. are looking at individual companies and their ability to manage the cost structure. tom: what do you do with the one that trades at a high. there is growth in cash flow they have all been stars do you just hold them and pray? what is the approach there? >> if you think about what is in the growth index it is a lot of technology and a lot of health care think about technology and the companies struggle today to manage margins in many ways, companies are going to continue to add to technology. the innovation is going to be disrupted whether it's ai or software trades. that is an excellent way for companies to manage cost. i prefer not to be replaced by

chetgpt but there is a possibility to purchase in the tech space. we think there is a lot -- long-term buy jonathan:. have you tried to use chatgpt? >> a member of our team tried to write our outlook with the and we were relieved that our jobs are safe. jonathan: that's wonderful is in it i wonder how many people have done that. lisa: i have had this very heated debate at home about writing papers for younger offspring who have -- jonathan: i had a great mine i wish i could attribute who wrote it. math had to change once the calculator came out and now the education system is going to have to adapt and shift.

teach them a different way. clearly it doesn't have to be a memory test anymore. lisa: that's a good way of putting it there has to be credible but this can kind of fake critical thought on the margins probably is all a some high school students can some high school students can fake -- tom: i think at the washington post this week or maybe the new york times there was a blistering thing in the last 48 hours where he went to dinner and did fake ai stuff and he said it was frightening what the output was are we sure this stuff works? lisa: will, no. right now there is a huge investigation particularly into certain biases in these programs that are coming out with what you put in and what you get out. you could potentially spohn a much greater degree of bias jonathan: political bias. lisa: political bias, social bias it becomes a problem.

tom: i am under huge pressure and have had meetings on it. jonathan: how is it going? tom: we don't know which way to go but ai is going to come into our world are we going to do chatgpt on inflation? i don't see it. lisa: there is a little computer here. jonathan: it's already in our world we do things on the print side with automation. tom: but that's not gaining inflation. lisa: is a tool. how do we use it as a tool to make it more efficient? jonathan: i agree they have to adapt and adjust. lisa: resilience. tom: i would recommend a knowledge of the sentiment limit theorem.

jonathan:jonathan: and you explt to us? futures down 6/10. this is bloomberg. >> keeping you up-to-date with news from around the world with first word, i'm lisa mateo. the federal reserve's most hawkish policymakers saying they pay return to bigger interest rate hikes. cleveland fed president said she saw a compelling case for a 50 point hike. that was echoed by st. louis fed president. president biden to speak with xi jinping about the chinese alone shot down by the u.s.. he hopes to get to the bottom of this. he said he makes no apologies for taking down the balloon. he highlighted just how fragile relationships are between the u.s. and china. in northern ireland it is prime minister told politicians that significant progress has been made toward agreeing treaty agreements for the region. there is no deal yet with the european union an agreement would resolve how a good move

between the region. the trial of ftx founder is threatening to send him to jail. the judge wants the restrictions placed on his use of electronic devices and apps. there is concern over his use of encrypted messaging apps to contact u.s. general counsel, a potential witness any the case. in germany the two largest airports have come to a virtual standstill. security and ground crew began their walkouts one day early. that led them to cancel 1300 flights. global news 24 hours a day on air and on bloomgerg quicktake. powered by more than 2700 journalists and analysts in over 120 countries. i'm lisa mateo and this is bloomberg. ♪

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that shouldn't be leading but i do think we have an environment where we get into closer to the end of the fed cycle. jonathan: how much closer are we getting to the end of the fed cycle because now we are talking about return may be to 50. that is going to be highly dependent on the data. if we get a repeat for the february economic data things are going to change. we are down six tens of 1% on the s&p 500. through the last 24 hours tom talked about a 10 year yield we talked about two-year. and the start of this month i think the low was 4.03%. on a two-year and that has changed very quickly off the back of the data. tom: the move is substantial we don't need to go over it again but flip it around here just in the last 48 hours or so actually is the first thing i thought about when i got up his moving

close to the start of the year which is march 31 were people rewrite the outlook. jonathan: i'm telling you it would be great research when we set one up together and we put out our research is going to be that what is that guy? like a mix of him and that's going to work really well and i'm going to say as research director just to help you guys out. lisa: thank you, i appreciate that. jonathan: omsk chief economist i'm going to say put out a one year outlook. tom: it's going to be different we talked about housing in america where is that going to end what will the disinflationary crew do after we have seen the last four days part of that is expressed in oil which we all know is impossible to predict. five dollars a gallon for gas down 3.09 a gallon of gas we

have had a pop but not the technical breakthrough how do you correlate a barrel of oil and the guest to hundred dollars a barrel to a gallon of gas or a liter of petrol how do they correlate? >> it's a really difficult correlation to make. if your look -- if you look in europe you have taxes in there that don't change. whatever happens to the price of crude, those taxes stay fixed unless governments change them. and so do the movements in the oil market, they have a you to affect on petrol prices in europe. in the u.s. you don't have the same balance but that's like of taxes but still you don't see a

one-to-one correlation between movements in crude prices and movements in gas prices. although i think that correlation is much stronger in north america than haps in europe. lisa: let's talk about europe. this is where the crisis was supposed to happen. we saw prices surged to almost 350 euros. coming down to less than $50 going back to almost her it was before the russians were in ukraine is this justified? >> i think the fundamentals of european gas are very tricky at the moment. we have come through most of this winter in tact we have seen temperatures that have been much higher than perhaps a normal winter, that has certainly helped. we had a big inflow of gas from the united states and elsewhere

which helped offset the loss of a lot of russian supplies. but i think that europe, we are not out of the woods yet by any means. i think the next winter is going to potentially be at least as difficult as people were anticipating that this winter might be we may not have the mild temperatures again in the coming winter. we almost certainly won't have the volumes of russian gas that we had reduced though they were they were still flowing into europe for much of 2022 which helped rebuild gas stockpiles ahead of the winter that we are now slowly coming out of we won't have those next year so i think there are certainly very few reasons to sort of think

that europe has weathered the storm completely. we got off to a good and perhaps a lucky start i think the weather has certainly played into the movements we have seen in gas prices. lisa: some people would push back and say europe has done a lot with they have seen from russia and not only building supplies but also building a sort of more diversified backdrop do you disagree with that? do you think that has been overstated? >> i certainly think that those things have happened. we have seen significantly more liquefied gas coming into europe. we have seen the infrastructure starting to be put into place to allow that to happen. more infrastructure will go in but i think you have to remember

europe has survived several very large gas pipelines from russia those pipelines during 2022 worked to some extent. nowhere like as much as they have done in the past. we saw the closure of the pipeline beneath the baltic sea for example, we saw the end of flows through belarus and into poland but those flows did contribute to stockpiles that europe had available at the start of this current winter and they probably won't contribute to stop building during 2023 i think that something that european governments have to bear in mind steps have been taken to reduce consumption they need to be continued. tom: in summary what is the probability, totally unfair but let's go there. what is the probability of seeing $100 brent crude?

is it something a little larger? >> i think it's a little larger but not a chance in hell. at the moment, markets are looking relatively well supplied. the concerns around higher prices, i think, are very much for the second half of the year. i know very much linked to expectations of a rebound in consumption in china and strong growth in the demand for jet fuel but right at this moment i think the market is digesting suggestions of rate hikes in the u.s. in this very large bill that we saw in crude oil stockpiles out of the u.s. department of energy it was the fourth biggest increase in commercial crude stockpiles in more than 30 years.

jonathan: we have to leave it there thank you's for being with us. crude, natural gas as lisa mentioned. tom: 77% in america. someone must have made a lot of money but look at the price of diesel. jonathan: i saw some headlines i will bring you those headlines right now. because for balance between support and avoiding escalation i think it's going to be a really interesting line because there is some talk of providing jets to ukraine and that line from the chancellor called the balance between support and avoiding escalation because he also says this line to support ukraine is necessary. the real question is how how will they support them? lisa: especially if they need the air force power right now. russia is building up, a push into ukraine heading into the

summer and that is going to be really important for them to have the ability to defend themselves. where does escalation kind of start to kick in? jonathan: battle tanks should do so. where do they stand on jets? tom: i saw one headline these are huge, historical baggage issues. what i would do is what nobody is doing. i would watch mr. putin, every image, every photo, every comment, every moment he has. jonathan: coming up on 12 months since this war started. looking forward to this conversation. the top of the hour on bloomberg tv. from new york, this is bloomberg. ♪

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>> bloomberg surveillance. preparation for -- among any the next hour. almost are 17 and then we had a non-disinflation. it was a transitory move from 18 point out to 20.88. it has been an abruptness. lisa: i really am wondering about this shift we sell this week and how much really is going to have lasting power whether the data continues to confirm this and whether stock stocks are truly reflective

will. the stocks right now more than noise. jonathan: you segued to that nicely here. seth carpenter global chief economist at morgan stanley i looked at one of the beauty contest out there he is sandwiched between daily of san francisco. i know i'm going to get the niceties from you hear but let us begin in the derby to replace brainerd and the vice chairman to our audience with the vice chairman actually does. >> when i was there on staff it was really important position very working very closely with the chair really helps to steer the strategy from policy not just for the next meeting but also over the course of the next few quarters. tom: there are schools of

thought here and one of the things that is so important is the politics of capitol hill and the basic idea of main street wall street. i even at the academics of a few on the list. have we politicized the fed in the last number of years? is it different than when you studied at princeton? >> i would say the world goes in lots of cycles. there are very famous apus oats back in the late 60's and 70's and the interactions between president johnson and the fed chair and whether it was appropriate to tighten policy while the u.s. was fighting in new york -- vietnam so i think there was more politicalization i think the main thing from my personal experience as people inside the fed tend to be very focused on what they are mandate is in they try to block out the political noise to aid the most

agree. lisa: that mandate is getting harder to rub your head around right now because we don't understand the contours of inflation if jay powell were having his press conference right now do you think you would mention disinflation as john was in shinning earlier as many times as he did during the press conference? >> i have to say the last data print does make things challenging to read exactly the fundamental story of disinflation of goods and disinflation from housing that is generally still intact you never want to fully change your worldview based on one months worth of data but there had been some surprises and it wasn't just one data series the cpi report had some surprises the retail sales report was strong all of those have to make you wonder is there a little bit is there more resilience for the

u.s. economy we have had the view for a long time that we would have a soft landing that we would not go into recession this year that view was hard to hold six months ago, three months ago even. now i think the market is coming there and the conversation is shifting are we actually getting a re-acceleration instead of a slowdown at all. lisa: can we get inflation back down to 2% if we don't get a recession? this to me is the underlying question of a lot of what we are discussing. there is momentum but this is only increasing the expectations for the rate hikes. >> my baseline view is yes you can have inflation back down to target without a recession. but it is a narrow path. we needed to be reined in so there isn't consistent for several quarters overall demand that exceeds the ability of the economy to produce now we know the u.s. economy is still somewhat understaffed outside of

tech. i think it is that residual catch up and hiring that is giving some support to what is going on. if we can get the economy to slowdown fundamentally open up a bit of slack in the labor market without causing a recession, that is possible. it's tricky to do but that is exactly what the fed is trying to pull off. tom: i was reading on portugal of all places, it seems like every nation has a housing crisis. our remodeling out housing inflation correctly, or is it a changing set of data that were going to have to adjust down the road? >> housing inflation, there is a strong sort of philosophical argument the way we measure housing inflation in the united states is not on home prices, the theory is they want to separate out homes as an asset versus the flow of housing

services that you get. that is why we have this concept of owners equivalent rent and when the bls measures housing inflation, they "on rents and they try to ascribe that obviously directly to people who are renting their homes. they try to prescribe that to people who own their homes. is the way it is measured in the u.s.. tom: i did a completely amateur apples to onions analysis this week and i looked at the rent increases from the pandemic beginning in new york city and approximated the income increases which are tangible. it adds a plug of 12.5% over three or four years. does the fed understand the angst all listeners and viewers feel about the housing economy and what do they do about it? >> my senses, yes the fed does understand that there is a

challenger real wage growth has been negative because of overall consumer prices have been rising faster than people's income. that tends to crimp spending behavior. we have seen over the past couple of years a slowdown in consumer spending growth. how does it affect housing directly? what needs to happen is a bit of a pullback for housing specifically. that is usually tied historically with increases in total employment so a slowing of the labor market will help there. the 517,000 doesn't go in that direction but there is something special about this like with covid. we did see a surge in demand for more housing space. people wanting to live alone because they are working from home. people wanting more space. part of this shift that was covid specific, the challenge is sorting out the typical part of inflation in housing.

i don't think anybody believes that a covid cycle is 100% normal business cycle. lisa: speaking with seth carpenter of morgan stanley who has a long and storied history in this particular sphere and i'm curious about your process this week and the past couple of weeks. as we have seen the data come in hotter than expected causing your team to increase their expectations of terminal rates how long the fed was going to hike rates. but then also to increase the rate cuts on the backend. can you talk about the process of how much your view shifted? >> i think the key right now is trying to figure out how much underlying momentum there is and as a result how much the bed --fed needs to raise rates. the strategy remains tighten policy have the economy slow

down that you can be very certain that you are going to be on a glide path back to 2% over a couple of years. the last several data points have not been consistent with that outcome. as a result, more tightening is what is necessary for the fed strategy. i think the open question and the part that is very typical for us to know, for markets to know generally and for the federal reserve to know is just how far is enough. part of that is how much was the 517,000 jobs a one-off like it was in july of last year and how much of it is it underlying strength? how much of the strength in january's data for retail sales for nonfarm payrolls, was because of changing seasonal adjustment that's going to come out later in the year because it has to be zero. very hard to know right now. that's what we've done, but the

data available now and if we go to the march meeting what data will the fed have available. we get to the main meeting, what information will be available then? another mother somewhere the extra data, they have to take data not one month changing their view but sort of accumulated history of data and by the time we get to may, it's very hard to see why they would have concluded that everything is hunky-dory at that point. that is why we put in those extra hikes. what would lead to even more hikes, for example yesterday loretta mester talking about 50 points being on the table. we occur evidence that january's data was not an anomaly but a shift in inflection higher. we get another 400,000 for example, they have to be talking about the 50 basis point hike. lisa: 20 seconds, do you think this takes us further away from a soft landing? >> it's a mixed bag.

i would say no for now it's hard to say that a stronger economy results in a weaker economy. that doesn't follow on it's on. the tricky part is the fed has to react. it's always been difficult to gauge how much to tighten so it's a bit of a mixed bag. a greater chance of a harley new but right now we are happy to stick with the soft landing story. tom: dr. carpenter, thank you very much. i love the list that shows the strength of american economics. mayor daley is on the list, jason furman, i think he is now chicago fed president. either that or pitching for the cubs. lisa: some people just joining as are talking about the potential nominees for the next fed vice chair to replace brainerd so this is the question people have. tom: i haven't have tied to give

it on twitter yet. one of the best things kyle stock rates, moments ago about you and i have talked about which is there is a lot of evs in new york city but new york city is largely an ev charging desert. you can get your car charged. lisa: how do you build the charging station network to make this a pliable model? tom: for anybody considering, the issue. stay with us. the prime minister of the united kingdom, tomorrow. >> keeping you up-to-date with news from around the world with first word, i'm lisa mateo. president biden is trying to keep the dispute over the chinese balloon that was shot down from escalating.

he expects to talk with xi jinping the president disclosed his plans as part of his most extensive remarks get the balloon saga. he wants to get to the bottom of the matter but doesn't apologize for shooting it down. russia has avoided an economic collapse in the aftermath of the invasion of ukraine. walked to the third straight quarter to an 2022, still russia downturn lower. the central bank but last year's drop at 2.5%. one of the biggest car dealership chains in the u.s. expects prices to fall this year. still autonation doesn't expect sales to return to pre-pandemic levels. the company reported higher than expected earnings but grossed profit on new cars fell 13% from a year earlier. consumers continue to borrow more to fuel their spending

according to the new york fed's household debt and credit report . americans racked up nearly $1 trillion in credit card debt in the ford order. the 61 billion increase was the biggest since 1999 and missing payments with delinquency rates surpassing pre-pandemic norms. a bidding war could be blooming. investors including the former prime minister and text head of the authority are preparing a $6 billion opening bid to acquire the football giant. british billionaire jim radcliffe has lined up financing. global news 24 hours a day on air and on bloomgerg quicktake. powered by more than 2700 journalists and analysts in over 120 countries. i'm lisa mateo, this is bloomberg. bloomberg. r a payroll tax refund of up to $26,000 per employee, even if it received ppp, and all it takes is eight minutes to get started. then we'll work with you to fill out your forms and submit the application; that easy.

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>> market growth at the battlefront and the war continue

into ukraine's benefit. we do anticipate a little growth in the margins of 2% at the end of 2023. the economy suffered a lot because it's obvious the challenges we are facing are not without consequences. tom: of course the troubled economy getting some growth there and a lot of assistance considering further growth. lisa abramowicz and tom keene with jonathan ferro. the and -- the dynamics of europe you do that when you are prodigious in his physics. of former prime minister, continues his public service to the continent as european commission executive vice president on an historic moment in unit a conversation with our maria tadeo. maria: he does and he's also

very good with numbers. let's talk about this vice president thank you so much for joining us however you? i want to ask it's been a year now and we all remember a year ago a lot of mere zelenskyy was here and said we do not want war but we have to beer ready for it. it turned into a massive invasion but also unprecedented sanctions. i want to ask you there are sanctions but russia continues to move along. are there sanctions working? >> sanctions are working and i will say last year despite record high energy prices russia was still in recession. it is expected to continue this year. that is a direct impact of sanctions. thanks and on russia's energy were coming late last in a sense it was affecting the biggest

source -- >> those has some it's very obviously oil products price cap are running substantial losses and actually there is budgetary -- >> it is completely different to the situation in the summer. would you say the battle to weaponize energy, he made a bet and he lost that bet? >> strategically, he has lost it. it doesn't mean we will not help -- have our share of difficulties because we need to prepare the the next season. this winter, there were still a lot of russian deaths. this is not going to be the case this year. we still will need to see

substantial additional supplies and have updated infrastructure. we have agreements as many it will be possible but it will be done china's economy is opening up in global demand for gas it is quite a bit of work i think it's clear that we move away from this dependency. >> russia is an energy player. >> i would not say it's done because we have the greenville. and fighting for climate neutrality. it's done, i want to ask you a question yes or no answer on this question there is a debate behind the scenes perhaps you can talk about it more what to do with the present assets of the russian central bank they

have been present now for a year but there is this idea that one point they could be confiscated that would be used to rebuild ukraine, are you in favor? >> i am in favor because -- it is russia's responsibility as an aggressive state to pay reparations, to pay for the damages. it's unlikely russia is going to do it voluntarily so we need to look at confiscating russian assets. if you look now at the sanctions package which we are putting forward from european commission side one of the measures is six and overview of how much frozen russian central bank assets there are. >> this is never been done before to this scale, to really confiscate another central bank, many would argue the problem is if you do that the jurisdiction

is out the window what do you say to that? >> unprecedented situations we are facing unprecedented war operations against sovereign european nation. if you remember historically for example the tribunal did not have some kind of pre-existing legal framework created as a response to german emigration here it's similar we need to think outside the box and we need to create a framework. >> that is a fascinating point you completely feel the mood around this conversation has changed you can increasingly hear about the confiscation of assets but i want to ask you for this to work you need the banks to report the relationship they have and to play along will you do that?

are you already having conversations with european banks? >> that is what they propose now. of course other states have to agree on this. they need to report on how much frozen russian central bank assets there are in each member state. so we can have an overview on the situation and also for example it concerns a private entity. we need better tracking system. >> thank you so much for joining us on bloomberg today at the munich security conference. i love going on here but to me a key point this idea of what to do with the assets from the russian central bank never been done before to this scale but you heard it on the situation tom:.

historic moment think if her everything. a very difficult 12 months. today in conversation with the prime minister of the united kingdom this will be on saturday we will have it for you on a delay tuesday because it is abraham lincoln and george washington's birthday and of course london televisions will have full color -- full coverage of this on monday. i look at the telegraph of litmus paper i'm not sure if i'm accurate on that it's amazing how the prime minister on this anniversary has been pushed aside by the shock that we are when you're out. lisa: it's shocking because everybody thought it would be something that would get taken care of quickly or that would be resolved it is something that has dragged on i want to highlight something that dombrosky said he said the eu should confiscate frozen russian assets and use russian money to rebuild ukraine this is

something that has been a growing fame how to rebuild ukraine after how different nations are preparing to do that, to finance that. tom: deutsche bank was on this i believe it was the 25th of february last year and to get that idea i did a panel with ned phelps years ago and they are doing a panel on the rebuilding afghanistan while the war is going on. i have real trouble, personally, with rebuilding discussions when i'm reading the telegraph talking about how we have dominance over the russians but the russians on the border before a great battle and there are russians on the border, it's a stew here. lisa: your point is so in person -- important. when you look at the catastrophe

that is unfolding for other families and other individuals on the ground it is subject to this where it is the backdrop which is raising more questions about the optimism frankly the very low oil prices some of the lowest levels we have seen since the russian were in ukraine i just wonder how much that narrative starts to shift shift especially with the flow of money into the past month and a half whether it starts to perhaps balance out as we have seen over the past couple of days. tom: we will see on this one year look back futures -23 yields higher, two year elevated basis points. 3.8% on the 10 year yield the fragility apparent. please stay with us on bloomberg television and bloomberg radio, click -- good morning this is bloomberg surveillance. ♪

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jonathan: coming off the back of the biggest one-day loss this year so far. from new york city this morning, the countdown to the open starts now. ♪ >> everything you need to get set for the start of u.s. trading. this is bloomberg, the open with jonathan ferro. ♪ jonathan: live from new york, equities heading for the first two week loss of