>> the basic fact is growth has surprised. persistently for the last year. >> the u.s. is quite boomy. that does not seem like an economy that has restrictive monetary policy. >> from a growth perspective we are exceeding expectations but people are still nervous. >> for the next 10 or 15 years is inflation at 2.5% or 3%? >> the u.s. is performing in an exceptional way. is that sustainable or temporary? >> this is "bloomberg surveillance" with jonathan ferro, lisa abramowicz, and annmarie hordern. jonathan: live from the nation's capital for our audience

worldwide, good morning, good morning. the latest overnight. israel said it would respond. reportedly it has responded. long-range missiles targeting an iranian air force facility. crude negative across the board. wti and brent softer on the session. most instructive is what they did not hit and iran's response. lisa: this was signaling. they did not hit any of the nuclear sites. they did target specific -- they did target specific areas by drone. the idea of being this is messaging, we could do more if we wanted to. jonathan: have they demonstrated superiority on iran and you think that will enforce more of a deterrence for the iranians? mario: -- annmarie: they took the fine line we have been talking about. how do you have an attack

without sparking a retaliation cycle? it is an attack but a de-escalation as well. there are already reports that iran says they will not strike israel after this. they were sending a clear message. that is why you see brent pulling back. futures may fall without escalation. this is not escalation. this is capability showing, we can hit these targets if we wanted to. lisa: i will say for now. this is a tit-for-tat. for now iran will not respond. for now israel will not go after it sensitive sites but they are showing they have the capability to do so. it seems like right now within israel there is a feeling that this is weak. there is the push for more. jonathan: we indeed the week how we started the week. with words familiar, contained.

contained but not come. -- but not calm. lisa: what i thought was interest is how the market responded. where are the havens? treasuries. if you get some kind of curtailing of oil flows that will be inflationary. there are questions about what an escalation means beyond just this particular region. jonathan: equity futures overnight down more than 1%. at the moment equity futures -.4 percent on the s&p 500. lisa talking about the bid into bonds. yields lower by five basis points. on the 10 year 4.5796. the note of the morning, i salute you if the dove don't fit. the bank of america regular weekly note. lisa: what he was talking about

is good economic news is starting to be bad news for stocks. i was like we get to talk about good news is bad news and bad news is good news, i know you love that so much. the fact we have had the biggest outflow from u.s. equity funds since 2022, there is a shift where high yields are punitive. jonathan: there's been a shift in the fed speak. i do not think the base case has shifted. let's pick out those two policymakers in the last 24 hours. john williams and neel kashkari of minneapolis. neel kashkari entertaining the thoughts that there might not be cuts until 2025. john williams entertaining the idea that if inflation demands it they can put interest rates higher. i'm not suggesting they hike, but i think they know what they are doing. when a fed official uses that kind of language they know exactly what they are doing.

are they pushing for tighter financial conditions? lisa: i will say that this is a pivot from the pivot. this is john williams, one of the bigger doves on the committee, coming out and raising the prospect of a hike at a time they know how badly that will resonate on wall street. annmarie: so the fed is actually making a u-turn? jonathan: the pivot on the pivot is a u-turn. annmarie: it is not a u-turn. jonathan: we should do this on commercial breaks and not on the program. coming up douglas read occur -- douglas redicker. we begin with our top story. investors weighing geopolitical risk and a more hawkish fed as the earnings season wraps up. vittorio fernandez says "we will need to see earnings be the driver of future stock price appreciation. over 70% of the s&p 500 companies that have issued eps

guidance for q1 have actually lowered estimates." tori a joins us now. -- victoria joins us now. are you saying earnings will not be able to do the heavy lifting into year end? victoria: they are still looking at double digit earnings growth. that is a big stretch. we are just about a week and a half in to earnings. banks were ok. the market did not have big moves. we have not hit a lot of the growth companies yet that tend to move the market. we are not seeing the lift i think we are going to need to see for valuations to stay at a 21.5, 22 times earnings we are seeing. we will have to have a pullback. earnings will probably be the catalyst for that to happen. jonathan: last time we spoke you are looking for economic weakness. where is it?

victoria: i expected we would have seen more of that by now. there are elements. weakness, we have to look and see how do we categorize that. is weakness in the economy going to be the fact that the numbers are stronger and therefore the fed will people rates higher for longer and that puts more pressure on the economy. it is a cycle when you get going. the consumer continues to be strong until we see the weakness in the labor market i do not think we will see the flow through to the rest of the economy. that is what we are waiting on. it could be earnings, it could be margin pressure from earnings as pricing power starts to erode that is going to begin that cycle of pressure. lisa: mi hearing from you, and i hate -- am i hearing from you that good news is bad news and

bad news is bad news and arbery we looking for additional downturn? victoria: a month ago i think everything was good news. it was all positive. momentum was driving the market. i do think we are starting to see shift in that, a lot because of fed speak and a lot because people are concerned we will not see the growth expectations that we are anticipating. there is a lot of pressure on a handful of stocks. we will see the earnings on those. netflix did better but guidance was poor so that stock is down. we will see what happens with the rest of the stocks. the momentum is not what is driving us anymore and i think that is key when we are looking. low momentum names have outperformed high momentum over the last week. we have to take a step back. the equal weight s&p is below the peak it had.

that is telling us we are starting to see worry into the market. lisa: what do you do with this considering the fact everyone seems to be piling into oil stocks? bonds are all over the place. gold, a lot of people are saying has gone too far. what do you do? victoria: you have to have defensive components in your portfolio. you know we like the bond market , lopping in some of the income you can get in a barbell on the short end of the curve and the long end of the curve. utilities are moving higher as rates are moving higher. you look at the telecom sector, another good defensive play you can put in your portfolio. there are areas you can go into to add defensive posture, low beta, strong cash flow names. that is what you have to do right now as you wait to see how things play out over the next couple quarters. annmarie: we are waking up to a

world where we did see retaliatory strikes from israel on iran. the market is shrugging it off. you expect this to be the status quo until there is serious confrontation? victoria: i think there'll be a lot of turning going on. the retaliation we saw from israel many people were saying it is just a warning shot, letting them know we are here. there is the phrase mess around and find out what will happen and that is what they were doing which is why markets have rebounded from what we saw overnight. i don't think we will see a huge shift today unless there is more action coming. i cannot imagine we are done. there is going to be more pressure coming from geopolitical events along with the elements we have going. at congress we have four aid bills sitting there that need to be voted on. i think there is a lot more

prominent which will cause more volatility in this market. jonathan: do you think that puts a floor under crude? we have had a week of losses in the crude market. wti and brent pulling back. what kind of floor do you think is in the energy market? victoria: i do not know number on the floor for the market, but seeing the rally we had overnight on brent and the fact that it has full back to where it is, i think you are looking at a consolidation trade in the mid to low 80's. i would expect we would stay somewhere in this range. you're looking at opec-plus. i've not seen any statement from them. they are saying we will continue with the cuts in place. they are not looking to add any more supply. as china starts to ramp up you have more demand coming in. i they we could move closer to the $90 range than $70 or $80. jonathan: the big rotation everyone was positioning for has

faced a challenge, particular for the small caps. energy started to work in march coming into april. is that a trade in the equity market you want to stick with? victoria: i think you have to stick with it now and i am not just saying that because i live in houston and i'm trying to pump up the energy trade. small caps have taken a hit and we think we will see more correction. if you go down for the s&p 10%, that is down to the 200 day moving average. i would not be surprised if we go closer to that level. small caps will struggle. i think we need to see better economic strength globally and we need to see the fed have a fair plan laid out before we start to see a rebound in the market. that is when you will want to go to small caps. energy continues to be a strong play. jonathan: great to catch up to close out the week with you. victoria fernandez of cross mark.

pricing higher of interest rates has hammer the small caps. down about .3% on wti. let's give you an update on stories elsewhere. dani: 12 jurors and one alternative have been selected for donald trump's trial in new york. it is his first trial in the first-ever ever criminal trial against a former president. opening arguments could start as soon as monday. trump faces three other criminal prosecutions. he has denied wrongdoing and claims the cases are part of a political witch hunt. paramount shares surging 10% after reports sony and apollo are considering a joint bid for the company. paramount is in talks with sky dance but the proposal has generated investor pushback. apple has removed whatsapp from its chinese app store at beijing's request. apple said the country's cyberspace administration

ordered that social media app be removed ever national security concerns. if that sounds familiar it is because the u.s. has also cited national security concerns in a push to force a sale or ban of tiktok. that is your bloomberg brief. jonathan: appreciate it. you spot the difference in how things get done in china versus the united states. we are still working this out in congress, china is just like done. annmarie: there is a debate in china. we want to control some of the communication and it is done overnight. jonathan: up next, israel retaliates. >> israeli retaliation will likely be proportional, it will likely be limited, it will likely be something that is meant to demonstrate that we can touch you in ways that hurt. jonathan: it looks like that is exactly what it was overnight. that conversation is up next. live from washington, good

morning. ♪

jonathan: equity markets recovering from overnight losses on the s&p 500. -.4%. down a lot more than that late yesterday evening. yields still lower. down six basis points. 4.5673. crude settling down, softer .6%. wti $82.26. israel retaliates. >> israeli retaliation will likely be proportional, limited comfort will likely be something meant to demonstrate that we can touch you in ways that hurt and for that reason i think israel is not looking for a conventional war itself. jonathan: israel launching a

retaliatory strike against iran. iranian media reporting an explosion in the country's third-largest city. ieea -- the united states looks to pass and aid package for israel and taiwan. doug, it is good to see you. do you believe iran has witnessed superior capability out of israel? douglas: it depends on who will answer the question. from what we know it seems to be as your guest said. it is a limited response that shows we can do more. the iranians are spinning it as we shot these things down and they are not mentioning it. the president gave a speech and did not mention the attack. the israelis are saying we showed them. i think one of the things we

have to think about is what does the white house think? the white house said don't do anything. is the white house going to say you did something, just not as much as you could have so you kind of deferred to us or is the white house going to say we told you don't to anything. whether they have decided to retaliate or say they will retaliate this morning were not there still risk there will be an escalation and that is what the white house does not want to see. jonathan: the white house told iran don't come iran did. they told israelis to take the win, they did not. how much influence does the white house have? douglas: more than your question suggests but a lot less than we would like it to be. if we go to where the israeli war cabinet wanted to be, they are all in. there is no dovish wing of the israeli government anymore.

there is hawkish and more hawkish. on that basis i think the israelis have been somewhat restrained in how they responded, not only to the iran response but to rafah, to gaza, it is hard to say it is anything other than egregious. it has been somewhat more restrained than we thought would be the case. having said all of that the white house is trying to tell benjamin netanyahu and his government to not do a lot of things they are doing. i don't think it is right to say the white house has no influence. particularly rafah. six weeks ago the threat was if there is no hostage release by ramadan we are going into rafah. now we are after ramadan and they have not gone in. that does not mean they will not but there been some tempering of the worst scenarios. annmarie: you've have done a lot of work on sanctions. have any of these sanctions

worked? the u.s. is mulling new ones, but they have a laundry list of others. it does not seem like they're enforcing them. douglas: your question has a lot of parts. enforcement is the key. what we do and what we say and whether we enforce it are often two things. sanctions used to be very rare. over the past decade they have become enormously commonplace. that is a problem for the markets because what are sanctions? sanctions are the government stepping in and impairing commercial relationships for geopolitical reasons. they are saying you have a contract, we will tell you you cannot enforce the contract. you want to buy something or sell something, we will say no. the question is on oil where a lot of the sanctions are focused. we have seen's anxious that are not only -- we have seen sanctions that are not only porous, they are blatantly

ignored. if you put on sanctions and ignore compliance, are you undermining the effectiveness of the sanctions? one part of the sanctions regime that works is secondary sanctions. that is where we say no in the world can touch anything that has even a secondary relationship with something that was sanctioned. the banks say we will not touch this. we have not done that in most cases. why? because we are worried we will wrap chinese banks and other banks in a broad-based geopolitical and significant way. we are saying we like oil being on the market because it helps gasoline prices. we do not want to go there on the secondary sanctions. we are escalating sanctions, they are a serious threat, we do not enforce them very well. annmarie: all of these issues are cloud overhanging the imf meetings, especially what higher oil prices would meet a central banks at the same time they are dealing with a stronger dollar.

much are you seeing on the sidelines of the imf? how much u.s. policy is impacting the rest of the world? douglas: it is a major topic of the official meeting. it is hard to say people are not saying u.s. fed policy, u.s. fiscal policy. that has been a percolating message. what is interesting is if you go back six months ago to the last time this group got together, many of the same issues were there. the reaction to participants then was one of enormous unsettling nervousness. now the same issues are here and everyone seems to be saying it is too uncertain for us to figure out how to price it so we will it ignore it. that is almost the difference between risk and uncertainty. uncertainty is too big to price so you can take your money off the board and go home, or you can say i will exhort.

that is what is going on. lisa: how much of this is faith in the election cycle, given the fact that some of the people in this administration does not want disruptions of a certain type, read higher oil prices, head of the election? therefore they will pull out all of the stops to not enforce sanctions or unleash the strategic petroleum reserve to prevent that from happening. why not bet on the federal reserve doing the same thing? douglas: the premise of the question is the uncertainty. this is not the stuff you can model out. one of the problems markets have is they do not do geopolitical risk well but they also do not understand politics well. they think they do, but they are pretty bad at it. to answer a different question than the one you're asking, everyone is asking what is going to happen in the election, everyone is saying what their favorite pundit is saying, and i'm saying you have to be kidding me, is april.

there'll be 25 surprises between now and november, there will be 10 surprises in october. who the hell knows? everyone is looking at the election as the elephant in the room. i bet with delegations and say how much is that impacting your thinking and they say it is not because we do not know what to do about it. we found ourselves misplaced in january coming out of davos, everyone was like trump will win. now we don't know. i asked what you will do about it. they say we don't know. jonathan: great to catch up. douglas rediker weighing in on a whole host of issues. the lack of international cooperation seems to be an issue in washington, d.c. bramo, you will catch up with gita gopinath later. lisa: she wrote a paper where she was talking about what fragmentation looks like.

what she found is it is not list trade, it is just going through intermediaries that create less efficiency. i want to know how much that will be inflationary, in addition to some of the other issues we have been talking about. jonathan: looking forward to that conversation. coming up next, tobias adrian of the imf. equity futures recovering on the s&p 500. this is bloomberg. ♪

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jonathan: five-day losing streak on the s&p 500 into friday. equity futures negative on the s&p .4%. on the nasdaq down .7%. we are off .75% on the russell. small caps not having a good time. on the s&p the longest daily losing streak back to late october. big moves again this week. two year yields making their way back towards 5% then fulling back four basis points. we just get the feeling the conversation, maybe not the conclusion, but the conversation is changing at the federal reserve based on the commentary we have had over the last few

days. jonathan: the john williams note -- lisa: the john williams note highlighted how much of a turnaround there has been. this is one of the doves a knowledge and the possibility of a hike if the data were hotter than expected speaks to a complete shift in how they are thinking. jonathan: four consecutive weeks the two year yields have been pushing higher. yields have been pushing higher. if you switch of the board. fruit is softer on the session and down on the week as well -- crude is softer on the session and down on the week as well. wti down to $82.29. the market is embracing the idea things are contained in the middle east but i think we have done a fantastic job of making sure this market alone does not shake your thoughts and -- does not shake your thoughts on what is happening in the middle east. as norman said on monday this is a new middle east. lisa: and we saw that with the

knee-jerk reaction going up to $90 quickly. every note we get across wall street people talk about the increasing possibility of a $100 barrel of oil if there is a greater escalation that could be highly punitive for other asset classes. annmarie: greater escalation that hits global supply. what we have seen in terms of missiles back and forth does not touch a barrel of oil. that is why you're seeing of this risk taken out. if it were to touch vessels in the strait of hormuz come then we have a different price on brent. jonathan: 86.50 six dollars is the price on brent. israel launching a strike on iran. explosions heard in iran's third-largest city. united nations watchdog says nuclear facilities located there are safe. the details in america are very vague. at first it was missiles, then it was drones.

we have various reports suggesting this was unsuccessful and they will not be doing anything about it. what we know about what took place last night? annmarie: there is still a lot we are trying to digest. israeli media says it was missiles. iranian media is saying it was drones and it was not big enough to warrant a national security meeting. they are trying to downplay this. one, they want to show they got the last big hit, and two, if they do not want to escalate, they have to show public domestic consumption that this was not big enough to warrant escalation back to israel. lisa: to your point, we do not know what they hit. what were they targeting? it was a highly targeted strike. on what? still a lot of questions. jonathan: demonstrating capability was the conclusion people had on monday. if you're targeting that city, isn't that what you are trying

to demonstrate? that you can, if you need to. annmarie: it is where you will have nuclear facilities, it is where you will have drone manufacturing, it is one of the key cities when iran targeted israel. what israel is saying we are not hitting you right now. do it again and we will hit you. jonathan: that is the latest on strikes in iran. we will give you regular updates on bloomberg surveillance. tech earnings season tipping off. shares falling. the streaming service giant posting its best start of the year since 2020. the company guidance saying they expect subscriber gains to be lower this period. investors will no longer get quarterly membership metrics. that is what is weighing on the stock. it is hard to point to sub growth as a reason for the stock going up when the company says it will not provide it going forward. lisa: they will get value in

other ways which means prices are going up. if you read this release it is how many ways can they raise prices on your netflix account, and if you are sharing anyone's account, you can potentially have a problem going forward. this also speaks to how much risk aversion there is in the market. not even that big of a miss gets punished. jonathan: i do not -- i cannot tell who is a password sharer. annmarie: is it a sharer or a moocher? i think netflix has done a fantastic job cracking on passwords but maybe they need to do better. jonathan: let's get you the fed wrap. presidents neel kashkari and williams saying rate cuts may not come this year. raphael bostic saying the cut is unlikely until the end of the year. tobias adrian warding the fight against inflation may be stalling, saying "there is

recent evidence disinflation may have stalled in some countries. higher-than-expected readings could challenge the narrative and investor optimism." tobias joins us from washington, d.c. for more. the last mile has proven to be difficult. rates have repriced higher. we've seen complaints from all over the world, from japan to south korea and malaysia and elsewhere. have those countries been given a green light to intervene if they need to? tobias: morning. very good to spend time with you today. we have certainly seen quite a bit of movement in the dollar since the beginning of the year, in particular since the announcement of inflation data in the u.s. that was above expectations. the moves we are seeing in currencies is fairly closely

aligned with moves in currency differentials. we are watching the situation closely. jonathan: do you think if this is driven by larger deficits in industrial policy that perhaps countries may be have a stronger argument to intervene than they otherwise would? tobias: when we are thinking about currencies, we look at two main inputs. the one our fundamentals. exchange rate differentials are a key driver of exchange rates. the second thing we are looking at is market conditions. to what extent are market conditions orderly or disorderly? to date these movements have been fairly orderly but we will certainly be monitoring the situation. lisa: some people have been talking about the idea for the election and what could happen

if proposals for tariffs and potentially increasing the deficit, if we could see something a kid to what we saw in the united kingdom under liz truss. you think that is a risk? tobias: we have certainly seen fluctuations in longer-term bond yields in the u.s. and around the world. some of that is certainly driven by expectations of fiscal policy going forward. there are other ingredients such as federal reserve policy and other central bank policy about quantitative tightening, i.e. the balance sheet going forward. then the economic outlook. part of the drive up in bond yields is reflective of the strong economic performance, particularly in the u.s., that has kept surprising to the upside in recent months. lisa: one thing we are trying to

get a handle on his understanding where financial systemic risk is. that is why we are focused on the dollar. when will it be strong enough to break something? that is why we are focused on yields. when will they behind after break something? where do you think the biggest systemic risk was? tobias: the good thing is the major emerging markets have been very resilient over the past five years we have seen massive shocks. the pandemic, inflation, geopolitical contentions come and the strong policy frameworks , the higher reserve levels, the strong regulation of banks has kept these major markets very resilient, really for a long time. when we are looking at financial stability issues, we continue to worry about financial sector weakness in some corners. in most countries there is a

weak tail in the banking sector and in the baseline of a soft landing and inflation coming down, that retail is probably ok. in an adverse scenario where inflation is higher than more persistent, where interest rates are moving and where credit risks may deteriorate at more than what is currently priced in, we could certainly see some turbulence going forward. lisa: what is that weak tail? are you talking about hedge funds that have dominant positions in treasuries? are you talking about retail banks? what is it? tobias: banks around the world do have exposure to credit risk. for example in the u.s. there are some institutions that have exposure to commercial real estate, and quite a bit of commercial real estate is coming to refinancing this year and next year. a combination of the macro

outlook together with tightening of financial conditions could put some banks, but also some non-banks under pressure. annmarie: the imf pointed toluse fiscal policy in the united states being an issue for the rest of the world. how much do you see the inflation reduction act adding to inflation that the rest of the world is dealing with? tobias: a thing for the world -- the good thing for the world is the u.s. economy has been strong and that is a positive spillover to other countries. demand is strong. capital market activity is strong. capital markets have reopened for countries that were not able to issue in the past year or year and a half and we have seen strong issuance. the dollar markets remain very important for issuers around the

world. financial conditions have been tightening to some degree in recent days as volatility and uncertainty more broadly has increased. spreads remain fairly tight, even for riskier issues. overall the picture it remains fairly positive. jonathan: interesting. we appreciate that assessment. i know you have a very busy day ahead of you. tobias adrian of the international monetary fund. we have heard plenty of complaints from places like japan, south korea, and malaysia. malaysia has had to intervene in the fx market. concerns about potential crowding out in capital markets given where yields are in america and the capital that is attracting into u.s. capitol markets. what you heard there was almost a positive assessment of the spillovers that come from better-than-expected u.s. growth. lisa: this is the reason the imf

upgraded their forecast for growth globally so this is more of a positive than a negative. maybe you will not hear that from central bankers that have to deal with it on the others. this raises the question are we looking at a world where it will be a stronger dollar. there's not disruption to derail that. member off the discussion about dedollarization? where we go with that? jonathan: have we seen excess volatility or disorderly moves. the way the rest of the thing -- the way the rest of the world looks at things is this based on unsustainable policies? if you believe this is based on an unsustainable fiscal deficit, in part on industrial policy, and you are a country that does not have the ability to do the same thing, certainly does not have the privilege america has when it comes to raising debt and going forward with industrial policy initiatives

like the inflation reduction act , then do you have a reason to intervene? that is what i was trying to get after. how legitimate would intervention be in countries that do not have the options america does? lisa: i would argue you can draw an analogy between what you described and what china is doing with respect to putting their thumb on industrial policy and subsidizing it. on one level you can say that is not a fair playing field. the u.s. has the privilege to borrow and file recovery that allowed it to avoid the scarring of the pandemic. do you have a legitimate reason to intervene? can you? jonathan: that is a much tougher question. you said it is like throwing money uphill and hoping it does not rollback down. that is a great phrase. that is exactly what they're trying to confront in foreign-exchange. let's get you to on stories elsewhere in the danny -- in the bloomberg brief with dani

burger. dani: retail sales unexpectedly stalled in march. shoppers scale back spending on food and department stores. the volume was unchanged in march. deutsche bank is overhauling its staff, trimming 10 private banking roles. as many as 60 were cut in singapore and hong kong. deutsche bank wants to focus on more profitable markets and weed out underperformers. tesla shares lower premarket, down nearly 2%. they recalled almost 4000 cyber trucks. tesla will be repairing cyber pedals that can dislodge and because the cars to unintentionally accelerate. tesla says the fix will be free of charge. that is your bloomberg brief. jonathan: that is a problem. up next, tech earnings season kicking off. a new approach from netflix. >> we will not be silent on

members as well. we will update when we grow and when we had certain major milestones. it will not be part of our regular reporting. jonathan: that conversation up next. live from washington, this is bloomberg. ♪

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jonathan: equity futures in new york -.4% on the s&p 500. softer. last night much weaker. negative more than 1% as we start to get reports of retaliation from israel on iran. the details of those reports are still pretty vague. will try to get more details as the show grows older. on the 10 year, 4.5653. on the commodity market -.6% on wti.

$82.27. we wrapped up earnings on wall street and alley attention starts to turn to big tech on the west coast. netflix new approach. >> we will report and guide on revenue. net income. eps. free cash flow. we will not be silent on members. we will update when we grow and hit certain major milestones. it will not be part of our regular reporting. will continue to report subscribers until q1 next year. jonathan: netflix following in the premarket despite posting its best start in four years, adding over 9 million new customers. the company announcing it will stop reporting paid quarterly memberships and revenue for subscribers in 2025. this stock in the premarket has been getting slammed over last few hours. the numbers themselves are pretty decent. we have to start elsewhere.

removing certain disclosures. you sense that is what is spooking the stock? >> absolutely. it has rankled investors. netflix is a subscriber story and always has been. this has been one of the easiest companies to model out. you have a number of subscribers you have the average revenue contribution for month, you just multiply those and you have your netflix model. that is not the way it is going to be. there is nuance to the way the model is working. the company is a mature company. it will be hard for investors to map out the growth because you do not have that subscriber disclosure and that is adding to uncertainty. jonathan: can we throw this in. the company has been terrible about guiding around subs for a long time. even though we've been getting

used to this company for last 10 years, the way subs come in relative to the estimate, is all over the place. you think this is maybe the right thing, move on, no one can predict this? geetha: with netflix you see a tremendous volatility around earnings. it is hard for them to predict things. this is the right approach for them to take. they have consistently said over the past couple of quarters that subscriber growth is no longer the main metric. it is important. what they really want investors to focus on are the financials. double-digit revenue growth, operating income come and look at the operating margins. we are getting to 25% this year, possibly 30% in the next couple of years. that has been the question. can netflix replicate the old media model where companies were earning 30% margins.

it looks like they can and maybe they can exceed that. lisa: not on a selfish level but maybe a little bit on a selfish level, i was reading commentary from the executives and they were talking about monetizing certain corners as they provide more value to their subscribers which has dollar signs in my mind about how much i will be paying for netflix. can we expect price increases? geetha: there will absolutely be price increases. the fact that they introduce this new advertising base to cheer, it is a lower-priced tier, that gives them a lot of flexibility to raise prices without having to worry about subscriber churn. you look at the price of a standard plan of netflix, it is about $15. the price on that plan has not gone up for more than two years. they will raise prices on that. they were asked this question on

the call. how much more runway do think you have? where is the ceiling? they cited the bundle as the ceiling. the average price of a bundle is $70. i do not think they will take it that far. they have a lot of pricing levers and they will exercise them, definitely. lisa: is this the new model? this is what we heard from disney. they will charge more for premium content and they will not focus on growth. is this the new streaming model at a time when we are reaching maybe saturation points? geetha: i think we are reaching saturation point. that is part of what nondisclosing subscribers tends to indicate. it will be all about pricing. the new mantra in the media model is profitability, is operating income, is free cash flow. netflix is delivering. one way they can do that is deep

raising prices and regular cadence. annmarie: can you tell us what the latest is in terms of paramount? do you see this apollo deal with sony going through? geetha: i am not yet sure about the details but i think it is great news for investors. they were always very dubious about this guy dance/paramount may go -- about the sky dance /paramount negotiations. both shareholders felt they would be diluted against the red stones getting a better deal in the transaction. apollo came in with an offer for paramount. there always concerns on the management side as well as investors about whether they would be able to finance that. now that you have sony, a huge player, a huge media conglomerate coming in, i think it is good news for investors. jonathan: paramount up more than 10% in the premarket.

wonderful summary as always. let's get netflix backup. not a great start to tech earnings if you consider that stock a tech name. down more than 6% in the premarket. i think the only thing you care about are the numbers we get in early may, that is apple. apple just around the corner. apple is the standout this earnings season. let's not be cute about it. given the amount of different stories and tensions they touch, i think that will be the story of earnings season. lisa: it is rather inauspicious that the taiwan semiconductor came out with a warning about smartphone shales -- about smartphone sales when they talk about ships going down. how high is the bar? netflix performed really well adding subscribers this quarter. the limitation of that sent shares down. how high is the bar for apple? annmarie: she said if you do not

have disclosures it will be harder to map out what the growth model looks like and what the profit model looks like. apple, i am so interested in china, how bad is it, they are struggling in that market. ai. they want to do an ai macbook. what does that look like? is it just trying to sell macbooks by attaching ai to it or will this be a brand-new product you have to go out and get? jonathan: can earnings support this equity market? need to talk about the latest in the middle east. we'll catch up with nadia level of ubs, terry pate -- terry haynes, and retired brigadier general mark kimmitt. futures are lower. crude, everything is contained. 82.30 five dollars on wti. live from washington, this is bloomberg.

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>> we think that ultimately they are not going to be cutting in the middle of the year. >> we have concluded there'll be no rate cuts this year whatsoever. >> at some point they might realize they need higher rates to tame the economic conditions. >> there is a realization that we are in a higher interest rate for longer. >> there is the assumption we know what jerome powell will do three months for now. i do not think that makes a lot of sense. >> this is "bloomberg surveillance" with jonathan ferro, lisa abramowicz, and annmarie hordern. jonathan: live from washington,

d.c. this morning, good morning. for our audience worldwide this is "bloomberg surveillance." some of you up late looking for more detail on the strikes conducted by israel on iran. we still have questions and very few answers. the nature of the strikes. what was behind them. how much damage was done. annmarie: the israeli press says these were missiles, the iranian press says these were drones. it is obvious that at the moment this was a messaging tool. it hit a city that has nuclear facilities. it hit a city where iran has launched some of their strikes. it is a message of we can hurt you, even if we are not right now. they want to establish deterrence. jonathan: let's bring up the crew to board. we are pulling back on crude. brent down to 86 $.47.

similar move on wti. we keep going back to something you said at the start of the week, contained, but not calm. lisa: that is the reason we saw such a big jump. douglas rediker summed it up perfectly. back at marrakech they were talking about the concern around uncertainty and people were feeling negative. this time it is like what lori calvasina said, staring into the sun. we will ignore it. that goes with everything. in the crude market a good question is how much risk premium is priced in given the fact people are talking about $100 a barrel so there will be a true escalation. annmarie: goldman sachs says it is five dollars to $10 or $50 max priced in. given that this strike is messaging or a symbol, you will see the market start to pull back. we are waking up without a

single barrel of oil hit. if something happens in the strait of hormuz, we wake up to a different story will step jonathan: you mentioned what douglas rediker said. the degree of influence this white house has ever events in the middle east, let's take two stories. they tell iran don't and iran did last weekend. they tell the israelis to take the win. the israelis did not. how much influence does this white house have? lisa: what douglas rediker was saying is more than it seems because of what is going on in other areas like rafah where you do not see a redline crossed. there is a question of what the limits are. i also wonder how much oil prices are impacting the white house decision-making given prices cannot go up if they want to win the election. annmarie: the u.s. posture in the gulf and the u.s. rhetoric we have heard is constant defense.

trying to take the temperature out of the room. it is similar to what we are seeing overseas and similar to what we are seeing at the bully pulpit speaking about these issues. we talked a lot about norman roule about this moment. his u.s. moving from deterrence in the region or defense. jonathan: i will tell you what i do not see. i do not see any appetite from this white house to do anything to disrupt global oil supply in any way, shape, or form. annmarie: zero. if they wanted to, they would've gone after russian oil and gas, which is the money that is fueling putin's ability to continue to fund this war. if they wanted to go after iranian barrels they can. more than 80% of iranian oil goes to china. the sections are there on paper. they are not enforced. jonathan: we are expected to

hear from secretary blinken later this hour. any headlines worthy of talking about we will bring to you. let's check in on the market. -.4%. yields lower on the session. over last few weeks a lot higher. down five basis points. 4.5776. the fed is still looking to cut later this year. this conversation has changed and a massive weight in the last few weeks. lisa: john williams was the one who seemed to exemplify that the most, given he is so devilish and entertain the idea of hiking -- he is so dovish and entertain the idea of hiking rates. neel kashkari talking that there is a real possibility they are not going to cut rates. it will be 2025 when they cut rates the first time. jonathan: i love the bramo tone. "let me tell you."

annmarie: you missed jonathan pingel of ubs. the probability they are starting to look at there could be a hike and that is a pivot of a pivot which is a u-turn. jonathan: we are doing that again. coming up, nadia level of ubs. adam posen of the peterson institute, and retired general mark kimmitt as israel reportedly retaliates against iran. middle east tensions and a hawkish fed driving stocks to five days of losses. nadia level -- nadia lovell writing "we expect companies to beat estimates and look for profit growth to broaden out beyond the mag 7." let's get into that. lisa wants to talk about png. where is there pricing power right now?

nadia: we still think there is pricing power in the market. we are starting to see that dissipate. we saw that in the survey, whether beige book or ism, we are seeing some of that start to come out of the market. a view on consumer staples, it is neutral and pricing power is starting to dissipate among those companies. this is why we have been neutral on consumer staples and we look towards areas like tech and industrials where we think industrials will benefit from manufacturing activity. lisa: i am looking at tide pods and how much they cost. you can spend eight dollars on 25 tide pods in new york city. this is why procter & gamble does not seem to have any problems exceeding estimates in the price target some analysts have because they do have that

pricing power and they pay a lot in terms of advertising. how much do you see this as an anomaly versus the mainstream given the fact we have very different types of commentary out of the beige book? nadia: i would say in terms of the pricing power, companies are noting they are having a more difficult time passing those price increases and consumers are starting to push back on that. there are certain brands that are going to be able to continue to do that. even that is dwindling. at some point the consumer will push back, even with those brands we will start to see potential trade out to store brands or labels. i think companies are aware of that. they are doing the best they can to protect margins. that is something we are closely watching. we think within consumer staples , those that are able to drive volume growth and not rely on

pricing are the ones that are going to stand out. it tends to be the stronger brands. lisa: it is striking, the fact we heard netflix rely on price increases and procter & gamble is on track to boost prices for a 60 year. those are impressive -- for a sixth year. those are impressive prices for tide pods. jonathan: i am paying the price for them. last year we saw immense topline growth with u.s. companies. is there anything about this regime that might change that story, might threaten it? nadia: i don't think so so much. you still see topline growth for the s&p 500. we expect that to continue this quarter. we are looking for low to mid single digit growth. the margins are still expanding. when you look through for the rest of the year we are looking

for 7% to 9% growth. we think that will continue for the rest of the year. the baton we are expecting to be passed through to the rest of the market. this earnings season will be important. you might recall last year -- all that was -- this could be the first quarter where we finally see the 493 earnings growth for the first time since fourth quarter 2022. by the time you get to the end of the year and you see conversions and growth between the mag 7 and the s&p 493, you will get to 10% or so eps growth. the top line should hold in given the strong economy above trend growth. we are still looking above trend growth. the margins companies are able

to hold on the margins because of control expenses. we saw that from the bank this earnings season. even if they cannot put price increases across companies, companies are looking to control expenses and protect margins. jonathan: lots of attention on the middle east and lots of commentary. the latest from peter tchir saying "iran's attack last week was meant to be more successful than it was. downplaying the attack makes more sense. iran cannot afford to have another attack fails miserably as last one in likely needs time to analyze what went wrong and what can be done differently." there's a sense from people who specialize in this stuff that things are contained and the threat of escalation is subdued going into the weekend. where are you in the team now on the energy market and energy equities as they are somewhat related to developments between israel and iran? nadia: we did recently lift our

expectations for brent by five dollars across the board. now looking for $91 for brent for june and september. we recognize there is geopolitical risk premium built into oil prices. our change is due to fundamental factors. we have a modestly positive view on oil. we are expecting brent to trade between 85 and $95. demand remains intact. we are seeing strong japan -- we're seeing strong demand from oecd countries. we think the country -- we think russia will shift attention -- we are expecting a higher compliance from opec-plus production cuts. production in the u.s. seems to be well-controlled. as it relates to equities, energy equities, we are neutral on this sector. in this sector we continue to have a preference for integrated

oil and gas companies given their diverse business models and strong balance sheet. we also like oil refiners because refining margins are elevated and product inventory hopefully remains low. those are the opportunities we see in the energy sector despite the fact we are neutral. annmarie: the keyword you said is june. the summer. what you see for the year end? is this just a temporary lift in the energy markets? nadia: the upcoming summer season -- we do expect it as the voluntary cuts from opec-plus is dial back. i think that will be gradual and demand will remain strong. that should help oil prices stay in the high 80's into year end. we are not looking for $91. we are looking for $87. jonathan: nadia lovell of ubs

global mouth -- global wealth management on pricing power and commodities. let's get in update on stories elsewhere. here is dani burger. dani: l'oreal shares are up after the fed cosmetics company reported better-than-expected earnings in first-quarter sales. strengthen the european and north american markets helped offset a slowdown in shopping by chinese travelers. shares of l'oreal rose 9.4% held by strong demand for its mainstream consumer products. fashion icon giorgio imani is hitting it big changes for his business empire. the nine-year-old billionaire says he will not rule out his firm someday combining with a big arrival or pursuing an ipo. it is a shift for giorgio romani who has typically capped tight control over his company and has

not left clues about what could happen if he leaves the country. the air of hockey in arizona is coming to a close. nhl owners have approved the coyotes relocation to salt lake city. the team was purchased by the utah jazz owner for $1 billion. the franchise will get a new name and play next season in downtown salt lake city, which they will share with the jazz. that is your bloomberg brief. jonathan: appreciate it. in just a moment we will talk about comments from secretary blinken. serious comments. are they in capri? nadia: the g7 -- annmarie: the g7 presidency is the italians and they decided to have the meeting in capri. this is so tone daft. -- this is so tone deaf. jonathan: up next, israel striking back. douglas: it is a limited

response that shows we can do more. the iranians are spinning it as we shot these things down. jonathan: that conversation is up next. for our audience worldwide, good morning. ♪

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jonathan: coming off of the back of five days of losses on the s&p 500, wrapping up the week with another one. -.3%. we are at session highs on the s&p 500. yields lower four basis points. the first thing we all checked, where is crude. it is lower 1%. under surveillance this morning, israel striking back. >> it is a limited response that shows a signal we can do more. the iranians are spinning it as

we shot these things down and one of the things we have to think about is what does the white house think? the white house said don't do anything. jonathan: iranian state media confirming an attack by israel, saying the drone operation failed. the iaea saying there's no damage to the nuclear sites. terry haines joins us around the table. difficult to have a conversation about this because we have such little detail. let's assume the strikes have taken place. let's talk about the white house as douglas rediker did earlier on this morning. the degree of influence they have over events in that region. how much influence do they have? terry: not that much. it has never been that much. one of the reason i go on about it being the highest geopolitical risk in 50 years is that was the time of the yom kippur war war when there were

nuclear threats from the soviet union combined with domestic unease in the united states. that still happens today. the united states has given conflicting signals for the last three plus years and that has taken a toll on its ability to affect events in the middle east. annmarie: conflicting signals when it comes to this white house and how they communicate with israel. you wake up and there's a fresh report in the wall street journal that this administration wants to send another $1 billion worth of weapons. how fraud is that for joe biden? terry: it is very fraught. the mixed messages send a bad signal at a time when congress is debating what to do and how to do it. i imagine there'll be some kind of congressional response. it tends to undermine the president's own authority and ability to argue what the foreign policy of the united

states should be to congress, much less anybody else. annmarie: congress is adding sanctions on iranian oil. we already have sanctions. what congress would pass, with that go after the refineries in china taking in the oil? terry: that is potentially the case. what you will get from the house bills this week is a senate response that will take a couple of weeks to develop and it is very much on the table with republicans and a lot of centrist democrats in the senate , just how far and how much they want to direct the white house to do this. the white house needs to continue to be in front of the troops instead of being behind them. annmarie: there's no appetite from the white house to enforce these sanctions. terry: apparently not. i am with you on that. there is a restiveness in washington that something will happen sooner rather than later.

lisa: what you tell people in the market about this administration's ability to cap oil prices where they are. that is the bacon assumption, that there will not be the enforcement of sanctions or you will unleash -- or you will unleash the strategic petroleum reserve into election season. terry: i think if you are relying on assumptions you're relying on too much. there is a situation where that is clearly what the white house wants to do but events may overtake them. let's not forget the underlying political advantage for republicans in all of this. they can wrap themselves, not only in the flag, but in a political advantage that will help them in disadvantage biden by making prices higher. lisa: looking at the average price of gasoline in the united states. right now it is $3.68, the

highest level going back to october. not at historic highs. is there a level that becomes politically toxic for oil and gasoline? terry: i would say roughly $4.50 a gallon. i think four dollars tends to be tolerable. it will jump up and down within that range. when you get to an embedded four plus or even five as it was in 2008, i think that is intolerable and that will snap back very negatively on biden. jonathan: to what extent do you think that is guiding policy in the middle east right now? terry: i think it is a big factor, quite frankly a bigger factor than it ought to be. that is another discussion. the bottom line is what the president has to do is to much more forcefully talk about american interests and spent much less time thinking about the political advantage.

that will be difficult. annmarie: if that is the case why isn't he touting the fact that the united states is producing 13 million barrels a day. this is a record no country in the world has ever reached. it is astonishing. you will not say it. terry: he will not say it because large parts of his base do not want those sorts of things to happen. you have a lot of mixed messages and a lot of strains on what the biden energy policy is. he was in pittsburgh the other day talking to the steelworkers about the u.s. steel deal. 15 miles away is the world capital of fracking, a town i happen to be from. he is not going anywhere into that area to talk to anybody about his lng policies or why that is good or bad or indifferent for the united

states. the net-net is for his politics in pennsylvania is very negative. he will talk to one constituency group but ignore other issues, in this case energy. annmarie: we will get this vote in congress tomorrow. tiktok. do you see it being banned before the election? terry: i do before the election. i keep saying this i think one day i will be right. in congress what tends to happen is if you are doing a package of bills, you focus on trying to maximize the votes on the stuff you want. in this case it is the aid package. the tiktok stuff is important. until you get the consensus on something it will not happen. i think the white house and senate democrats want to play around with this ball of string longer. jonathan: you are one of the best. great to catch up. thanks for having us in your hometown. terry haines.

coming up, we will catch up with adam posen of the peterson institute about why he expects a stronger u.s. dollar. equity futures recovering attached. down .25% on the s&p. treasury yields lower to close out the week but higher through thursday across the curve. on the 10 year we are about down to about 4.60%. wti down 1%. live from washington, this is bloomberg. ♪

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jonathan: things really are improving as the session grows older, equities off below,. the nasdaq is down about one third of 1%. a five-day losing streak on the s&p 500, the longest since somewhere in october. quite a stretch of gains before we got this stretch of losses. in the bond market, looking at the two you're getting close to 5% in the last 24 hours. let's stick on the front and then talk about the voices we've heard in the last day or so. the conversation is starting to change.

it's not the conclusion that's change, if the conversation and to hear the new york fed resident have the need to have a conversation about hiring interest rates tells you how much it's shipped in the last few weeks. lisa: they sound more hopeful than confident. they are basically talking less about definitely sufficiently restrictive but we think we are sufficiently restricted to break down inflation. they say we have to have more evidence and we are not confident in the evidence we have. you can call it a u-turn but i think they thought they were making a pivot with better data and that influenced some of the inflation and now they have to retract from some of that. annmarie: and now they are pivoting again potentially. you say potentially there might be a world in which you hike rates, that means they are implying these are not bumps in the road. this is the trend when it comes to fighting inflation potentially. jonathan: a hot print story, three bumps in the road, we will

have that conversation in a moment. looking at oil, pulling back by 1% this morning. a break of 82. israel retaliating against iran following last week's missile and clone attack. they say the drone operation failed in israel has yet to comment in the details our pearls -- are still pretty light. we are trying to work out what happened overnight. annmarie: it's just the question is whether it was a missile or drone where it hit. this has capacity for drones. they have an air force base here and it's where they have a nuclear facilities. the message from israel to iran is we know what your nuclear capability is we have the capacity to hit it and this is a warning. we are ready to take the temperature down but we will do it if we feel the need to. jonathan: we will have this conversation whether is the --

israel has sufficiently demonstrated the capability it wanted to demonstrate with the strikes overnight. check out netflix, falling in the premarket with them adding more than 9 million subscribers in the first quarter so why is the stock down 5%. it's the guidance going forward and the lack of disclosures which seems to suggest is responsible for a five percentage point move in the premarket. lisa: netflix was up 25% before this so how high is the bar and how little does the disappointment have to be to get this kind of move. the fact that there is less of a focus on subscribers and more on price increases speaks to where we are in this cycle. they are not alone. if you lump in proctor and gamble, talking about six consecutive years of price increases. i couldn't believe it. an additional 3% this year, the speaks to inflationary moment that has not been killed off yet

and i think that's fascinating. jonathan: let's turn to the hawkish fed speak that's been ramping up. neel kashkari saying they could hold rates steady all year. the new york fed president sing a rate hike is not the baseline but leaving the door open up the data warrants it. -- adam is with us in washington. >> welcome to washington. jonathan: can we talk about the lack of cooperation and maybe the complaints you've heard this week about the strength of the u.s. dollar? how loud are the complaints? >> after a long time of silence, even though the dollar kept rising, we saw janet yellen and her counterparts in japan and korea do an open mouth operation. sometimes stuff comes out and sometimes it doesn't there are

big fundamentals here. the japanese economy is doing very well by its standards and potentially could be raising rates but it's not the u.s. korea is a lot of positive fundamentals but the point is even if japan and korea are losing ground against the dollar, this is a way. my fear is it just goes up from here. jonathan: and then problems get bigger? >> political and economic problems. jonathan: can we talk about the political and economic problems? what would be the political problems that come off the back of this move? >> it will probably not affect the direction -- the election directly but it sets things up or bigger trade deficits which is not necessarily a bad thing. if trump, as he stated or if over the course of the campaign come the biden administration decides it's a problem, then you have a need to deal with it.

tariffs which might have lack of virtues on their own merit, they don't fix trade deficits and that was demonstrated over the last seven years. you end up if you care about the trade and the dollar and most importantly, you care about what that does to credit conditions. lisa is rightly talking about monetary policy is not as tight as the fed thought if you have a strong dollar and money flowing into the dollar. that loosens credit conditions. lisa: you mentioned the fiscal deficit. annmarie: the imf put out a warning to the united states that it's too loose and is prepared to be looser in an election year and is no path forward for fiscal discipline. how much is the u.s. the biggest problem when you talk to officials from around the world? >> u.s. is the biggest problem mostly because of our unreliability in international commitments and the potential for unwinding further and a lot of self-dealing. a lot of it is on the trade front and security front.

unreliability with ukraine funding and trade deals with usmca. in terms of the dollar and the physical, was glad to see the imf adding loud because sometimes they are scared to do real surveillance on china-u.s., the big economies. we got open ended fiscal problems. we've got this threat that by end of 2020 five, the 2017 tax cuts expire. whoever is in congress or who's ever in the white house has to make a deal. there's no historical precedent for letting tax cuts expire and having them jump 7%. the nature of that deal is only's just is certainly not going to include a tax increase and without a tax credit -- increase i don't know how you get the budget -- the deficit down. lisa: are you saying we need the benchmark rate higher to get inflation back down to 2%? >> i think it has to be higher

if you want to go to 2%. i am actually calm with the fed letting it stay roughly where it is in saying it's a two-sided risk as john williams started to say. i would be ok with that but i believe the monetary conditions are not tight. a year ago in february, people like us which is a funny category but -- lisa: speak for yourself. >> fed nerds. the fed had tightened 100 basis points and it wasn't affecting the economy that much and then came svb and everyone got extracted but if you go back to the first quarter of 2023, that was the talk area i cap saying that credit conditions are what matter, not with the fed funds rate is. john williams and lori logan were coming out about six months ago and talking about there might be a recession because the

interest rate goes up as inflation comes down. we kept saying don't obsess with the fed funds rate, credit spreads are incredibly narrow. it's less about the fed having to do something different because the numbers are ok unless you care about getting to 2% but the extent to which its tightly think his way overestimated. lisa: you've been talking for a long time about the need to have a higher target around 3%. we keep going back to the pivot. i think there is a key question of whether it was a policy error for fed chair powell to enunciate the possibility and the likelihood of rate cuts this year at the end of last year. >> i think it was. it's a communications error and it goes with i think two things that have generally been sub optimal. first, they are too busy trying to guide the markets and second,

they are too reactive to data. if they had more structure, they would say we've gotten into here, you can say if i'm data dependent why you are. you can't just say i'm data dependent but i think i will do this. jonathan: do the politics matter, does the election matter? what is your impression of what people saying -- are saying in washington. on wall street, there is the belief there is a window into light if they don't go through it, that door slams shut and it doesn't reopen till the end of the year. >> for the rate cut? i think that's fair. if they cannot avoided, even when i thought they were going to cut in june, i never thought march, i thought they would try to avoid cutting again so close to the election. i don't think that's the big picture of what matters. what matters is the u.s. is essentially sidelining itself or next year. we don't know what the fiscal policy will be.

monetary policies on hold which is reasonable but therefore not reacting to things. foreign policy which you also cover is dominating matters. annmarie: there is so many unknowns to 2025, how can the fed do anything. if we get 60% tariffs on imports coming into the united states, inflation may potentially skyrocket. how does the federal reserve cut rates going into that? >> i completely agree with you and i'm glad you are putting that out there. it is a true statement. tariffs mean inflation new matter how you cut it. if you don't do brought across-the-board cuts in tariffs, 1-2 percent jump in inflation almost immediately and another 1% probably the next year before you can pass on effects. what does the fed do? the fed doesn't want to be seen as judging trade policy. if this is a one off, they can say it's just a one off.

but they certainly should be saying there is a risk of an upward spiral if you put that on top of inflation that's already above target and it's already low unemployment. i agree, i think they should be warning about that. lisa: put this together. there is the question of how long will the fun -- how immune the financial system is to higher rates. we spoke yesterday about the potential for the federal reserve to raise rates to 6.5% net your if inflation stays above 3% and a persistent way the rest of this year. what is the rate at which you start to see things break on the yield space side and the dollar? >> here's where i'm probably more optimistic. what we've seen over the last year or two is how much bank capital, household balance sheets, risk aversion matter. the households having a lot of

savings. we had much less breakage from these rate increases than we've had in the past. talking to the financial and monetary officials in washington this week, i think they are right even though was boring because they never do anything, talking about non-bank financial intermediaries, what they used to call shadow banks because we don't have transparency into what part of the credit system is in there and how risky it is. if i'm worried about something breaking, that's where i worry about it breaking. what we are talking about is potentially a further hike in the dollar and that is not sustainable long-term. if you are busy having been annoying to your allies and putting tariffs on them, it's hard to say please do something cooperative to bring down the dollar. jonathan: let's finish on trade. over the last couple of days, who in the city is left fighting

for free trade? >> i wouldn't say we are leading it but we are the only ones trying to feed the facts about what happens to american households and inflation and growth with tariffs. you're getting a stronger and stronger dollar which is distortionary and which will overshoot but if it's like 85 putting tariffs on people and if you don't let them invest in the u.s., you cannot unwind this. in the mid-80's when everyone was cap concerned about japan, and the dollar shot up hugely because you had loose fiscal money so a lot of echoes of today, part of the way we got out was we had the plaza accord. it was also politically japanese and other foreign countries had their invest a lot in the u.s. so there is hundreds of thousands of toyota and honda workers in the u.s.. we are not letting the chinese

do that. you're making it even more complicated to unwind this. jonathan: it's a complicated mess already, thank you so much for your time to day. a whole range of issues and equity futures continue to recover, down about 0.1% on the s&p 500. here is your bloomberg brief. dani: netflix crushed expectations for subscribers and shares are lower by more than 5% this morning. i caught up on bloomberg brief and he said he's confused why the streamer would stop reporting subscriber metrics. >> we are perplexed why you would get prescriber numbers that are a little less confident and don't want to surprise on the downside. analysts are saying maybe this is a more mature company. dani: as for the details,

netflix says it was self reporting quarterly membership and revenue per subscriber in the first quarter starting in the first quarter of 2025. american express earnings expectations is down 1.6%. revenue jumped in the first quarter of 11%. it still attracting high spending and high credit quality customers. fees made up 70% of their new accounts. 12 jurors and one alternative have been selected for donald trump's trial in new york. it's his first trial in the first ever criminal trial against a former president. opening argan is in the case could start as soon as monday. he faces three other criminal prosecutions and denies wrongdoing and says it's a political witch hunt him. that's your brief. jonathan: thank you. up next, israel retaliates. >> we are committed to is really security. to d escalating, to trying to

bring this tension to a close. jonathan: that conversation is just around the corner. live from washington, this is bloomberg. ♪ ♪♪ the road to opportunity. is often the road overlooked. at enterprise mobility, we guide companies to unique solutions,

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jonathan: live from washington, good morning and welcome to the program. the imf world bank spring meeting is happening and equities aren't negative on the s&p 500. treasuries are still steady but lower by three basis points. even with some tension in the middle east, we've got crude down by a half of 1%. israel retaliates this morning. >> we are committed to israel's security. we are also committed to d escalating, to trying to bring this tension to a close.

you will see soon in the g7 statement a commitment to hold iran to account for its destabilizing activities, holding it to account by degrading its missile and drone capabilities. jonathan: israel launching overnight airstrikes near iran's third-largest city. iranian state media says new -- nearby nuclear facilities are safe in the drone attack failed and officials are feeling -- or appearing to downplay the risk of a wider conflict. he is with us in washington. good morning to you. do you believe based on the reports you've seen this morning that israel has managed to at least convey some superior capability to the iranians? >> they displayed a capability. i think israel has held that considerably the fact that they can hit the nuclear reactor.

that was more of a message than it was a capability. at this point, there is less chance of escalation than there was 24 hours ago. jonathan: would you consider this episode closed? >> my opinion doesn't matter. they've got to decide if this episode is closed. for me, what they are trying to do is go back to the status of which is a war in the shadows, not a war in the open that happen since the assassination of the officers inside the damascus embassy. annmarie: how do you go back to a status quo and red lines have been evaporated this week especially considering the fact we had drones and missiles coming from iranian soil to israel? all the red lines have been pushed? >> that's a good question, the fact that it appears one of the targets on the iranian attack was the nuclear facility in israel. the fact that the israelis went

after a target near the nuclear reactor in iran which is the center of the iranian program, i think both of them have gone to the cliff and looked over the edge and perhaps this is a chance for them to pull back. annmarie: what do you make of what we've seen from the u.s. response? they said it was a success to shoot down these missiles and drums headed toward israel. the fact that it happened means where was the deterrent from the west? >> i think it's surprising to see that the iranians took the level of attack that they did to respond to the syria targeting. we had not seen that before. that was far more than we had seen after the targeting of soleimani. by comparison, the iranian response to the american operation against soleimani was almost muted. we had a lot of soldiers get injured and that but none were killed.

compared to the response against this recent incident in syria come i think everybody is surprised. at this point, everybody is trying to get the genie back in the bottle. lisa: you are talking about iran representing strength at a time where and it attack that exceeded all previous ones ultimately failed. >> that's the right way to put it in many ways. i ran show their weakness, not their strength by doing this. they were not trying to achieve military victory, they were trying to -- the victory they were trying to win was a soft power victory to show that they are the head of the axis of resistance and show they would not stand for what israel did in a foreign country. lisa: we are talking about the coalition that was unprecedented of the u.s. and the u.k. and france but also of jordan and saudi arabia. how much was that loosely cobbled together on just this

particular issue almost contingent on a resolution to what's going on in gaza? >> it's important to understand that we have put together this coalition for over two decades now. it's been a slow effort and we've tried to turn the region into a centralized air defense capability. the abraham accords took care of some political issues and military issues are being worked out. i think this demonstrates to the region why they want to work together more for the defense of the region militarily and diplomatically. this builds on the abraham accords and i would certainly hope this continues. annmarie: for the abraham accords to continue, we need to see saudi and just saudi arabia and israel signed a deal and that can't happen without a resolution in gaza. where does this leave gaza given the fact that you had this

sideshow between tehran and jerusalem? >> i'm glad you call it a sideshow because it is. everyone seems to think it's the main effort but it's a sideshow. i don't think prime minister netanyahu has slowed down one moment from his attack plans into rafaah. what happens the day after rough of falls, the day after the israelis declare that hamas is no longer an effective fighting force and we destroy the infrastructure? then governors will come in which we talked about for quite some time. until there is a solution on governments, there is no solution for the two state question. jonathan: when it a few more hours to complete this conversation but thank you for joining us. >> thank you. jonathan: that was the latest between israel and iran. coming up in the next hour, we will catch up withtpw and our other guests and sitting down

with the imf first managing director. lisa: it wasn't gloomy enough today so i will go to the imf headquarters. there was a brilliant paper that was interesting, talking about what the fragmentation looks like and what that might mean about inflation but we been wondering what is the imf role in an era where so many people are rejecting the concept of free trade? jonathan: a lack of cooperation backsliding into a tri-polar world, china, europe and the united states pushing forward with industrial policy and protectionism and tariffs and subsidies. lisa: this is the bastion of free trade, how do you deal with that? jonathan: equity futures are negative by 0.1 percent, the third hour of bloomberg surveillance is coming up next. ♪

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>> the basic fact is growth has surprised persistently for the last year. >> the u.s. is booming. that does not seem like an economy with restrictive

monetary policy. >> we are exceeding expectation. >> is inflation at 2.5% or 3% and the economy is fine with that and will continue to grow. >> the u.s. is performing in an acceptable -- exceptional way. announcer: this is "bloomberg surveillance" with tom keene, jonathan ferro and lisa abramowicz. jonathan: good morning, good morning. the imf world bank continues in washington, d.c. we will catch up with the first deputy management director in 45 minutes. if you want to know where the cross-section is, i can start with equities. the focus is in the commodity market and crude is a lot lower.

by 0.3%. based on the calls from overnight, they have responded. anne-marie: the key here is the fact that the city they struck, this is where there are nuclear facilities in iran. we are trying to send a message. jonathan: what is most effective is what they did not hear his nuclear sites and response to it which at the moment is basically just failed and we do not need to respond to it. anne-marie: they want to put this to the side which means we have a sense of the escalation in the region at the moment, potentially on this specific episode which is why we are seeing crude pullback. it does not mean we could not see skirmishes in the future. jonathan: we have two basic questions.

the first one was whether israel demonstrated capability superior to iran. the second question would be should this reinforce israeli deterrence to iran. anne-marie: given the city they have struck, potentially they are getting to that point. i ran had this -- iran had this barrage. israel sent a few to one specific city. it was a clear message that they were trying to send. jonathan: let's check out the price action starting with equities. equities negative by 0.1%. we are doing some work to make sure that does not happen. 4.5919 pulling back from yesterday's highs struck over the last week or so. we are heading toward another weekly loss on crude. down by 0.9%.

coming up this hour, katherine tai on the 2021 trade agenda. what she calls the risk of an economic cold war. the s&p is heading for its third straight week of losses but remaining bullish, saying "we remain happy to trade rate cuts for earnings growth. we are impressed at how well the equity market has moved ahead shifting gears from the ai, t ech-led magnificent seven." do you have a different view on things? jay: yes. you want to fade the consensus. one year ago the imf meetings

were ultra-gloomy. over the last 12 months equities , global equities up 18%. bonds down 4%. we are more in the roaring 20's camp and we have wrote about this recently in the shape of things to come. our view is that the 2023 to 2027 period globally will be very much like the 9095 to 1999 period in the u.s. which was a period of above trend growth, better productivity, low inflation, real gains and a good environment for risk assets. we think the difference this time is it will be global. jonathan: what tells you that it will be global? what is guiding that assessment at the moment? jay: you touched on it. thank you for the reference to our thesis which is now almost 15 years old and it is funny.

i have been thinking about it a lot over the last couple of weeks. when we wrote the thesis it was the idea that each region could self-finance, self-produce and self-consume. what we have seen over the last five years with covid is an acceleration of that process as supply chains region lies as the response to -- regionalize as the response shifts to a point now where ai and the climate in ev revolution is fast forwarding this process. you can see it by the ai companies in china raising money internally. you can see the same thing happening in europe. president biden pushing for the

inflation reduction act. we are in a period where terrorists are forcing countries to produce in each region. we have the chinese coming to the u.s. producing dvds in the u.s. to avoid tariffs. -- producing ev's in the u.s. to avoid tariffs. yes, we will probably have slightly higher inflation and yes we will have higher interest rates but to us, that is not that bad of a problem as long as we get the earnings growth that we anticipate and consensus calls for three years, 24, 25 and 26 to have double-digit earnings growth in the u.s. and add buybacks and you have an

environment where i think the risk reward for equities is pretty compelling. jonathan: who have offered us the framework. let's talk about the vehicle. what is the optimal way of expressing that in capital markets? jay: i am really starting to think that investors need a tribe polar world investment portfolio meeting they need to be exposed to the growth opportunities that are manifesting in each region and therefore, you need to be looking elsewhere. i will give you a reference point. the imf just put out a growth forecast for the next five years and they noted that china will be responsible itself, by itself, for about 25% of the global growth over the next five

years. you are telling me as a global investor you will not be invested in china that represents 25 of the global growth over the next five years? you need to be invested there and today is a wonderful opportunity to do so given that chinese assets are selling at massive discounts particularly in the tech sector. one perfect example is you have a tech divide in the world. chinese companies will dominate the tech stack. we love that idea. another idea is the ai revolution will require tons of energy and therefore we want to be exposed to both the semiconductor cycle and the commodities cycle. finally, we want to be exposed to the emerging markets which is a beneficiary historically of a

global growth upswing and again it has been a tremendous laggard so you are buying assets that are selling at 30 to 40 year lows versus the united states. those are just a handful of the opportunities that we see. we see lots of opportunities around the world. anne-marie: the same companies we spoke to yesterday, there was another 20% that could be the 1970's. how do you prepare a portfolio for downside risk is this -- if this were the 1970's? jay: we are in the same boat with him and we think that is good company. i don't think it is anything like the 70's. we were talking about what is going on in the middle east. to me the middle east is the least important it has been in 50 years. in the 1970's the problem was

the oil shock and oil prices quadrupled. that is not going to happen today. here are a couple of reasons why. most importantly, the u.s. is now the biggest oil producer in the world. second is there are 5 million to 6 million barrels of production capacity today on the sidelines as they try to push the price up. third and perhaps most importantly you have the ev revolution gradually eating away at fossil fuels demand as we see it manifesting itself on almost a daily basis. i see the risk of a 70's type of world being very minimal. having said that, we love commodities. we are overweight equities, overweight commodities, we are massively underway fixed income. we have zero u.s. treasury

exposure. we have not had exposure for years because we are in this view of a stronger growth environment than many expect. jonathan: i will give you a call when we get back to 5%. good to hear from you. thank you. it is interesting to hear that as the middle east is probably the most unstable it has been in years, to hear someone say it is the least significant from a commodities perspective in decades. anne-marie: also you have to think of the fact that there are cables underneath the red sea that can hurt telecommunications. i don't buy the fact that the middle east is insignificant. saudi arabia could pump barrels into this market that could change where we are. maybe it is not as important but it is still very important. jonathan: crude down by 0.7 percent. here is your bloomberg brief from danny glover. dani: the yields are lower.

technology told me earlier on bloomberg brief that now is one of the best opportunities in the past 10 years two bank bonds. >> u.s. treasuries at this level is extremely interesting. it is probably the best time in a decade to use u.s. gold as a classification. dani: paramount shares up .5% after sony and apollo are considering a joint bid for the company. pair mom -- paramount, the proposal has produced significant pushback. tesla shares are lower, and were called -- recalled almost 40,000 cyber trucks due to a feature that can cause the vehicle to unintentionally

accelerate. that is your brief. jonathan: thank you. up next, joe biden taking on china. >> the chinese government has pushed them to make so many deals as possible subsidized by the chinese government. they are not competing, they are cheating. we have seen the damage here in america. jonathan: that conversation is coming up next. a special conversation with katherine chi tai, the u.s. trade representative. that is just around the corner. live from washington, good morning. morning.

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joe biden taking on china. >> america can compete as long as they have fair competition. for too long the chinese government has poured money into chinese steel companies pushing them to make so much as much as possible, subsidized by the chinese government. they are not competing, they are cheating. we have seen the damage here in america. jonathan: here is the latest, president biden calling for higher tariffs on chinese steel in a bid to shore up the u.s. steel sector. china is slamming the restrictions saying that they are slapping chinese tariffs on -- slapping tariffs on chinese products. ambassador, wonderful to have you here on the program. we will make this work properly . this is a topic we have been talking about for a long time. we have studied the

manufacturing in places like the united states of america. can i get a few minutes for you to lay the ground for us. what is changed and what is new about what is developing now? katherine: it is wonderful to be here with all of you. you are right about the china shop. it has become an established set of facts as we look back over the last several decades of china's emergence as an economic powerhouse in the world. as you have seen the growth of the chinese economy, what we have also seen is the negative impacts on other economies like that of the united states and of course, the industrial erosion we have seen in the manufacturing capacity is not just limited to the united states. we can see it in other advanced economies. we also see it in developing countries as well. to your point, a lot of what we are seeing is not new. the china shock continues. we have seen it in the sectors of steel and aluminum.

we have seen it in solar panels. years ago the united states and other countries have growing industries around solar panels. the chinese double down on their, what we call nonmarket practices, their state investment in a strategic emerging sector. what you have seen is something we have seen over and over again, a creation of excess capacity, overproduction that brings down prices. it is a predatory pricing practice worldwide that has driven out producers in other economies leaving the chinese economy having cornered the market in production right now. we are 85% reliant on chinese production and supply in solar panels. we have also seen it in batteries. we are seeing it now in ev's. radical minerals is another example. what we are seeing with respect to steel is actually responding

to a set of pressures that have been building over a couple of decades. on the steel point, i wanted to really enforce what you heard president biden talk about earlier this week was to call on the u.s. trade representative to consider increasing the existing tariffs on chinese steel imports. but we know that the chinese with overcapacity -- the problem with overcapacity is a world problem. the chill -- skill of the chinese economy and the ability to manufacture and produce will depress prices worldwide. it infects the global economy and global prices. what you have seen is as well the maintenance of the global steel tariffs and aluminum tariffs but you also see the biden administration evolving

out of that particular framework . you can see us taking leadership with the european union over the last two years. we have been engaged in intensive negotiations for a new framework, a global sustainable steel and aluminum agreement that we are working on to address not just the excess capacity pressures but also to try to create incentives for cleaner production and cleaner trade in steel and aluminum. jonathan: if we can focus just on steel because we have so much to unpack. we both know how complex this is and i can share some numbers with our audience. direct chinese imports, the estimate is 0.6% of total steel demand in the u.s. a lot of this is going to mexico. ambassador, the question i heard someone ask recently is how do we make them eat it. how do you address what is

happening in mexico? how do we stop the steal coming through the back door? katherine: i will unpack this in a couple of ways. one is to reinforce the point that when you have a producer, a major dominant producer like china, producing at below market rates, it affects the entire supply chain starting upstream all the way downstream. the mexico challenge is a piece of this. again, the challenge is worldwide. with respect to mexico, there are a couple of pieces. one is to the extent that upstream steel is coming into mexico and being worked on and then coming to the united states, you have to figure out how to level the playing field there. there is a much more blunt challenge with respect to steel coming into mexico and improperly coming into the united states as mexicans feel -- as mexican steel.

there is a challenge to the evasion of trade programs where steel that is not properly mexican is coming in as mexican steel and enjoying the preferences that we provide to the mexican economy and mexican producers. again, with respect to steel production, in order for the united statese continue to grow our steel industry, to continue to grow cleaner steel, what you see is a number of programs that we are putting in place to ensure the integrity of trade systems. the challenge right now, and steel is an excellent example, that there is no such thing as free trade in steel. the market in steel globally is significantly distorted by what we are calling nonmarket policies and practices, from china. supply being created, production plans that are not linked to

demand. what happens is we have a significant depression of prices and it requires economies like the united states to work with other economies that want to be open, that want to openly trade, to take more significant defensive measures against the unfair practices that have affected the sector. anne-marie: ambassador, do you see similar dynamics happening with the ev market? katherine: 100%. it is the same pattern animal -- it is the same pattern that we see in different sectors. the challenge is this has not been our practice. we have really adhered to this notion that if you just keep taking down barriers, if you just keep trying to trade more, if you just keep chasing efficiency, that everything will work out great. the challenge is that in every one of these sectors we see that chinese practices allow for

beijing to capture larger and larger shares of the global market so that you end up with a dominant producer in this entire economy. what happens is the rest of us become extremely vulnerable and reliant on that supply. what we are trying to do is find opportunities for us to defend, to stand up so that we can restore more freedom to trade, more freedom to economy, more freedom for other economies to stand up to the coercion that results when you have these types of vulnerabilities that can be used to create political pressures on economies. anne-marie: the biden administration made very clear that tariffs on chinese ev's are coming down the pipeline. the secretary said the u.s. will not take anything off the table when it comes to this overcapacity coming from china. we have not seen one single wto complaint from the united states. is that a tool that you can use?

katherine: i wonder if you are getting your talking points from my republican counterparts from i'm hearing earlier this week. the wto is an incredibly important, valuable institution in the world as part of the post-world war ii breton woods framework, the wto is critical to the functioning of a modern world economy. that said, we are clear in our commitment to the w tl lies argument to reforming the wto. this is not new to the wto. all of the bretton woods institutions, the imf imf, the world bank this is their week. in all of the conversations today, what you hear in those conversations is the question of how do these institutions evolve to meet the challenges we are facing today. with respect to the wto, that is true.

we as the united states are very very proud of our record with respect to challenging chinese practices at the wto. what we have found over time is that each one of those cases that we bring, each victory that we score ends up being a limited victory. ends up being limited change. what we are doing in terms of the challenge with the chinese economic system, it is structural. it is systemic. that is why we are bringing more strategy. we are bringing more creativity to look for a more effective way to level the playing field, working with other like-minded economies and also, working to raise these concerns inside of the wto. anne-marie: it is funny you bring up republicans and their talking points. what we see is that whether or not we get another biden administration or trump back into the white house, trade policies look almost the same when it comes to china.

do you see a divergence in what we could see from trump or biden given the fact that we still have trump-era tariffs right now? katherine: i think what i will say is this. whether it is republicans or democrats, going back to the earlier comments around the china stock, -- china shock, we are together, we are coming to a realization, raising in our consciousness a common assessment with respect to diagnosing what the problem is, what the source of today's world economic and trade challenges is . then you have to move on to what you will do about it. with respect to the biden administration we are proud of our record. the tariffs are an important tool in the trade toolbox. it is important to use them effectively and strategically to know what the leverage is with

respect to the tariffs. yes, we continue to retain tariffs for strategic purposes. second, the biden administration has not rested on just trade or tariffs to address the challenges that we face with respect to competing fairly with china. we have also, as you have seen, activated significant investments into the united states economy for the u.s. workers and for american infrastructure. it is a bipartisan infrastructure law, chips and science, inflation reduction act , the investment into the clean energy revolution. in addition we have initiated an investigation into china's unfair market practices that have been elected by five labor unions -- that have been alleged by five labor unions. when you take these three

segments together, what you have is the articulation of the biden administration's china trade response. jonathan: i just want to ask a question about china ev's. can we expect a conclusion anytime soon? katherine: i am not sure there is a specific question before us. with respect to maritime logistics and shipbuilding mother was a position that was presented to us. to your point, what are we going to do about this trend we see in the ev sector, we have a set of tools before us. many of them are with the u.s. trade representative, whether it is with respect to investigations that we can begin, whether it is looking at a set of tariffs that are enshrined in our tariff review which has been ongoing for the last 18 months. with respect to that, i am

confident that as a whole of government exercise that we have been undertaking with deliberation seriousness especially with respect to looking at more strategic and effective deployment of the tariffs that we have to address the inequities in our trade relationship with china, i am confident that that conclusion will be coming soon. jonathan: may i conclude with the following question? it may be difficult to answer directly. the issues we have discussed over the last 10 minutes or so, they are not new. they have been at the forefront for a long time. what strikes me is somewhat amusing is that it took someone like donald trump to put them into the forefront of american politics, to shake the establishment to almost make this consensus. when i was listening to janet yellen, i thought this feels like a discovery tour, something

personal to her and not new to policy. what took so long for the establishment in america to figure out this was the road to go down? katherine: it is an excellent question. what i would do is i would actually have leaders in trade policy take the earliest calls for the need for attention to the challenges we are all focused on now. these are issues we have been raising at the wto bilaterally with china for a very long time. we have had direct dialogues with china where we would raise these issues over and over. part of what you see is the increasing pressure that is being placed on economic dynamics. one last point i wanted to make with respect to inflation, the inflation conversation gets attached to tariffs a lot. the more we are talking about inflation and examining our worldwide experience with this

phenomenon over the last couple of years, the more we are realizing that inflationary pressures are linked to the supply challenges that we have. those supply challenges go to our vulnerabilities, overconcentration, the domination that we see by certain producers in the world economy. i think that is the next area where we need to drive coalescence around our analysis so that we can work together, whether it is democrats or republicans, whether it is the united states or other countries on solutions. jonathan: looking to having this conversation in person next time. thank you for your time. the u.s. trade representative, ambassador katherine chi tai on a whole range of issues. welcome to the program. equity futures on the s&p 500 just about turning positive moments ago. we are still negative by only 0.1%. the russell just about unchanged. in terms of the bond market we

are looking at a two-year, 10 year and thirty-year. 4.9643 on the two year maturity. on the 10 year, 4.5796. we are down by 0.7% on brent crude at 86.49. on wti, 82.21. israel launching a retaliatory strike on iran. explosions were heard in the city. a watchdog saying facilities did not sustain any damage. elsewhere, better-than-expected first-quarter earnings. netflix saying it will start reporting paid quarterly membership and revenue subscriber. the stock has been trading negative all morning. it is down something like 5% at

the moment. finally, apple removing whatsapp and threads from the chinese app store. in the u.s. lawmakers trying to force bytedance to sell tiktok. erik fossing nielsen joins us now. good morning. good to see you. can you give us your impression of the tone of cooperation in washington, d.c. with all of these potential spats ongoing. erik: it is terrible. i came to washington thinking we are on a slippery slope. it is getting worse. maybe i was naive. i am stunned by how fast this thing is moving. suddenly you hear senior people talking about banning stuff. ev's for example. we are thinking about where does

the u.s. go, how does europe follow. we have to start to think about how will china react to what we do because we will do things now. jonathan: this used to be an economic forum. it is sounding more like a national security forum. how have the changes been over the last few years? erik: it is big. security has always been the big thing. four 30 or 40 years we have had the belief that economic openness took care of it. it was once said there has never been war between two countries -- the idea has changed now. certainly within the last two years, the data has completely changed. anne-marie: have we moved on from a world where we are past

free global trade? erik: for sure. yes. what worries we more -- what worries me more, we don't know what machine we have. all of these years the imf has set the tone. with all respect to the ambassador, saying they always work for the wto, america was not always cooperative with the wto. it is not fair to put blame on just one. anne-marie: where does the? -- where does this leave institutions like the imf? erik: economic policymaking has become secondary to national security.

the way i would put it is a few years ago during a big strategy meeting, the first one who spoke was a knock -- economic policy. now it is national security. then everyone follows. when the economy says, we need very high walls, why is it that tesla cars which are made in china are not allowed into a government building? because ev's have become data collection centers. i don't think we have fully gotten our heads around this. as it happens now, it is problematic. jonathan: when you think about the economic outcome, let's try to do that. this is the direction of travel.

governments are not known for the efficient allocation of resources. one of the consequences of this massive industrial policy effort. what does this look like five years down the road? erik: certainly, less trade. jonathan: higher inflation? lower growth? erik: slower growth and higher inflation. this is almost for sure. it is not a surprise that the imf saw 3.5% global growth which is a lot less than it used to be. for the next five years we will have lower growth but it really depends on how the west reacts to this and how china and other countries react. if we had an intelligent and coordinated western world, it is not all is lost. the risk is that these institutions are no longer playing a role in getting people

to decide. jonathan: enjoy the last day in washington, d.c. but does not sound like you are enjoying it at all. anne-marie: at least the weather is warm. erik: i have been disappointed. it is problematic. it dominates the debate and it should. as you hinted at, it does not dominate the official debate. we talk about environmental things, all important stuff. we have to anchor it together and if this is the first thing that we have to understand, that globalization and free trade is gone, then we have to rethink where do we take it. as a professor, you are not very good at reprogramming yourself. jonathan: that is something we will be talking about when we see each other again. this was great.

up next on the program, we will catch up with ana botin and the first deputy managing director gita gopinath. that is all coming up next on the program.

jonathan: good morning and welcome to the program. let's start with the price action. we have recovered. we were deeply negative, down more than 1%. we are just about unchanged on the s&p. the rally in the bond market continues. on the 10 year, 4.5960. the fed and ecb divided. >> growth in europe has been mediocre and has been much slower than growth in the united states.

but, on both sides, you have employment and the job market which is phenomenal. we are clearly seeing signs of recovery now beginning and picking up in the course of 24. jonathan: here is the latest. the ecb and federal reserve on diverging paths. the ecb looking to cut rates this summer. fed officials are warning that cuts my not come out all this year. ana botin is looking to navigate these challenges and more. good morning to you you. thank you for being with us today. we had a guest five minutes ago who was very depressing. very downbeat on the future for growth. how are you and your team about the same things? ana: first of all, we have two wars which is a human tragedy with all the people that are suffering.

aside from those nations which we must deal with first, the economy does not look bad. we have managed to bring down inflation. remember, we were on 9%, 10%. 3% or 4% in most countries. that is the one thing we cannot allow to get out of control. we have slower growth him about growth overall. we have very high employment levels. when i think about america's footprint, every single one of the countries is at historically high levels of employment. this is not bad. one year ago many people where we will be -- one year ago if you asked many people we will be and if you said soft landing, they would say you are being too optimistic. but we have a soft landing. jonathan: although we still have two wars, we have increased

potential. a backslide toward industrial policy in places like the united states. does that make it more difficult to be an international bank against that backdrop. ana: the key thing we are looking for is that the most difficult and the key risks now are geopolitical. the macro looks much better at least for now. as we think about what is happening and what these geopolitics mean for supply chains for our business, understanding that this is going to mean more structural inflation because it can have higher costs, understanding that you need to prioritize defense or national security or in the case of companies, diversification which is a key asset. for us, this is very valuable. these are things you need to think about.

how do i protect my business at a time when the world is increasingly volatile, where you are having a big shift in terms of we want a secure supply chain. we want it to be affordable come good prices, but security is paramount. we also want to show that we can manage the transition. anne-marie: if geopolitical risks are your number one concern, that can mean a spike in inflation. do you expect the ecb to go ahead of the fed and have a rate cut in june? ana: what we are thinking about is what is the terminal rate. that is the key question. as an institution, the terminal rate will not be the same in europe as in the u.s.. it will probably be around 4% in the u.s. and around 3% in europe. rates will end up around those levels, around 3%, 4%.

that is what allows us to plan. that is not bad for commercial banks. negative rates are unsustainable, risky for the system. very high rates kill the economy. low rates, maybe we will have low growth and that is where we need to focus. how to we -- how do we manage and that economy were terminal rates are a factor? you have structural trends that are more inflationary than before, slow growth. what do we do about it? jonathan: i know you cannot talk directly about the financials but can you help me understand how do you plan for net interest income you are across so many different regions with different policies and so many different terminal rates? what does that look like? ana: it is a global bank. we have 166 million customers. diversification is key.

not just for us but for anybody. diversification by businesses and by regions and countries. if something does not go well in one country, usually it is compensated by another. what you try is to have a context for risk appetite. do we have more risk, less risk? we don't manage interest rates. as i said, the context is really good for financial institutions, especially commercial banks like ours. negative rates mean that with a big retail base, you can up charge but you are not being charged by the central banks for 20% of deposits. positive rates, low growth and high on employment is another bad scenario for commercial banks. jonathan: international banks, i'm taking specifically of hsbc -- i am thinking specifically of hsbc. what are you planning in the united states?

ana: we are very excited about the opportunities in the united states. we have reached 15% on return tangible equity. we are keeping it simple. play to our strengths. where do we have a stake in this market. make sure we are leveraging this market. the biggest interest is the consumer. we have something none of the other foreign banks had. we are number five in the u.s., number one in europe. we bring our oem's here. we have investments in technology so we can deploy our own technology to launch a digital bank to make sure we can fund the business competitively. simple. jonathan: this was brilliant. we appreciate you having time for us here at bloomberg. thank you so much. ana: great to be here. jonathan: let's go to the imf headquarters where lisa is standing by with a special guest. we will throw it over to you. lisa: thank you so much. i am at the imf headquarters

with the first deputy managing director for the imf, gita gopinath. all of the discussion about fragmentation. you wrote a paper that was fascinating about fragmentation. just how much is actually happening, etc. gita: if you look at the data and superficial number, that number is holding up really well. if you look under the surface you are absolutely seeing signs of fragmentation. if you look at trade between u.s. centered block versus a china centered block, that trade has gone on much more. that is also true for foreign direct investment. we are also seeing the role of connector countries like vietnam and mexico coming in and

re-channeling supply chains around the world. all of this can raise the cost of goods for countries. lisa: which is really the key question which is how much higher is inflation in this new era of fragmentation. gita: these are numbers that we have to determine. we are still at an early stage. we are looking at very dramatic movements over here. if this process continues, it could lead to much more inflationary pressures. lisa: do you have a rate in mind? is that the kind of rate you can imagine in this world, 3% or 4%? gita: right now at this scale, i can say it would be that large. but it looks to be at a much more worse direction. lisa: everyone is talking about fragmentation and protectionist policies in an era where so many countries seem to be rejecting free trade. what is the imf's role? gita: we have a really important

work -- role to play. the world is moving away from a rules-based system. what needs to happen is diplomacy and pragmatic approaches. that is what we try to push for in this meeting, getting countries to work on these areas where they can agree like the services trade. much more progress is happening on the services trade. we need to work together on debt issues, on climate issues. that will hopefully rebuild trust and slow the process of fragmentation. lisa: we also see an increase in geopolitical tension. we saw this with the attacks in iran. people have been talking about de-escalation. also the possibility of an oil shock against the 1970's with oil prices going up to $100 per barrel. do you foresee a similar type of thing happening? gita: this is a risk that we

worry about. if there is a serious issue, which means a much more wider explanation them in what we have seen so far, then we could have a shock. prices went up some but they have come back down. we have supply excess capacity in saudi arabia. we have countries putting a lot more oil out on the market. there are other sources of supply that can buffer these shocks. there is a large-scale escalation in the middle east and that can be a problem. lisa: what $100 per barrel consist of a shock? gita: i think it would be problematic but even going from here to $100 per barrel would be difficult for countries to deal with especially for those still fighting the last inflation. lisa: particular in united states, what is the outcome of

sovereign debt? is the fear of this sluggish growth picture because of the overhang, is it higher rates and potentially a liz truss moment? is it something like that that can potentially happen? gita: the u.s. is running very large deficits for a country where demand is very strong and there is still at the last mile in terms of bringing inflation down. for all those reasons, it needs to be lower. if you project out, it will stay at those high levels for a while. that has consequences for debt servicing in the u.s.. in a sense, the bigger problem is to the rest of the world because the rest of the world, when you have so much of debt being issued by the u.s., that can crowd out the length of borrowing from other countries. the cost of borrowing goes up and their debt servicing can go up by much more. i want to say the u.s. has a

debt sustainability problem now is at the same time when the u.s. is borrowing that heavily, that causes rates to be that much higher. it has implications for the rest of the world and for corporations and households in the u.s.. lisa: how much higher can you see the rate staying here for the rest of this year, even into next year? gita: that would not be our baseline. we would expect to see rates coming down. right now it is getting inflation back to target. we expect that to come down. it will take a little longer but we expect that to come down. it comes back down to what we saw in the decade after the goc. right now that does not seem to be the case. lisa: one thing you talk about is this fragmentation will lead to a higher inflationary regime. is it appropriate for central banks to have a higher inflation target long-term as their goal. say, 2.5% or 3% just because it

is a different reality now? gita: that is a conversation we should not be happening now. we need to ensure the market comes right down to 2%. monetary policy can pin down inflation. if you have a lot of volatility, that can create problems because we are in a much more shock-prone world. again, that is a conversation for later. lisa: for later. but it might be. gita: yes. lisa: ok. you have to get to a panel. it was wonderful to speak with you. thank you. jonathan: great work. thank you so much. lisa abramowicz with gita gopinath. part of that conversation about fiscal responsibility. the united states does not have a debt sustainability problem as of now. as of now is probably where the emphasis is. the u.s. cannot have a 7% of gdp deficit. it must come down.

that is the problem in washington, d.c. and we have been having this conversation. america is running a large deficit. that is part of the reason why we are seeing this u.s. exceptionalism and that exceptionalism is coming with problems for the rest of the world. you do not just get positive spillover from economic growth. you also get much higher interest rates and a much stronger dollar. what you have heard over the last few days is complaint after complaint about what is developing in foreign exchange. those complaints are coming from all over the place including malaysia. south korea and japan are stressing that they might do the same. south korea and japan had a meeting earlier this week with the treasure tecra terri janet yellen -- with the treasury secretary janet yellen. the big question for the imf and the world bank is whether that continues. how much longer will this go on for. the duration question is the one being asked in washington, d.c. and none of us can give you an answer.

the longer this goes on, the more problems that accumulate, the more stress that will build and ultimately words will not be enough for japan and south korea. anne-marie: absolutely. this was in their report. do not expect this to be a remedy to what is going on in the united states. on the sidelines of the imf, everyone is talking about the u.s. election. the united states is not going to spend less and there will not be tax hikes in an election year. getting a fiscal policy under wraps for a more healthy outlook that will not happen this year and definitely not in 25. jonathan: the conversations will continue when we are back in new york city. jp morgan's bob michele and mattia calvino joining us in new york. thank you very much for being with us here at the imf world

bank spring meetings. this was "bloomberg surveillance." manus: from washington to new york, a very good morning to you. the equity markets are grappling with more hawkish fed speak and de-escalation. is that the context? 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. ♪ ♪ manus: markets are uneducbl