>> the market is going through a transition right now. >> we have had so many people chasing these rate cuts and higher valuations that i think we are due for that correction. >> it is impossible to have hold rates at these levels forever about the timing question is a big run. >> higher long-term rates are something we can learn to live with. >> you can live with slightly higher inflation and a slightly higher fed funds rate. >> this is "bloomberg surveillance" with jonathan ferro, lisa abramowicz and annmarie hordern. jonathan: your equity market snapping the six-day losing streak. positive by 0.1%.

one stock that did not snap the streak was tesla. on the month, down by close to 20%. down by more than 40% today. lisa: it has been kicked out of the magnificent seven. we have a company that is fighting a sentiment wave as well as the very real wave of competition in china during a fraught market for the electric -- a fraught moment for the electric vehicle market. jonathan: product release, competition in china, we are trying to figure this out. what is the tesla problem and what is just the broader industry problem right now? anne-marie: you are seeing this ev demand around the world especially in china. you do see china national companies doing very well. the issue seems to be in other places especially in the united states. when it comes to tesla, the problems continue.

overnight we have an exclusive story about the newly formed marketing team part of those companywide layoffs. this was supposed to be to get the message out in advertising. when you saw the inflation reduction act and tax subsidies, a lot of people bought ev's. now the demand is starting to wane. jonathan: we have had problems not just for tesla but apple as well. more bad news for apple. iphone sales in china falling 19% during the march quarter, the worst performance there since covid in 2020. anne-marie: it is losing market share. this is a more important point that they are taking over which raises the question, how do they get a foothold. this is the reason why apple, tesla, they are in a world of their own. they are dealing with the china question in terms of demand but they are dealing with a broader demand question for their products which is why we are seeing this for sure -- fiss

ure in big tech earnings. lisa: the most interesting number was huawei and comcast climbed. you can see these national champions in china doing very well at the expense of apple. this report comes after gina raimondo said we are out shipping you, we are better than you. our product is better. is it? huawei is taking apple's market share. jonathan: it has been said that this is an apple problem. this is a growing market losing market share. we have seen that against the likes of huawei rising to the top. my favorite story this morning is this one right here. the u.s. federal trade commission and its $8.5 billion takeover. this is coach going after versace. the government is worried about more expensive handbags.

is this the story? anne-marie: they voted unanimously on this. what i take question of is why was this able to get through the regulators in europe, which is a highly regular place and japan, yet it cannot get through the u.s. ftc. this remains the question of can any deal get through with this antitrust enforcement individuals at the top? lisa: you need your jimmy choos. we have seen real inflation in luxury. the price gouging in the luxury factor, it is time to target it. obviously, michael kors handbag, shoes, a little bit cheaper now, maybe. anne-marie: i think it is affordable luxury. jonathan: entry-level. this is ridiculous. more on that later. plenty of earnings this morning. ubs numbers dropped moments ago. coming in at 143.

the estimate was 130. lisa: talking about average daily volume in the united states showing improvement and expecting a return to volume and revenue growth. there is a lot of cost-cutting. not necessarily as much of in terms of growth but this does not necessarily speak to some sort of massive slowdown in the consumer spending or even in the goods sector's considering that they will bring back to some normal level in the future. jonathan: the broader market, welcome. equity futures on the s&p 500, futures pushing higher by 0.1%. it was just a touch higher on the 10 year, 461.69. -- 4.6169. that move faded ever since that data came through. 1.0 661 on euro-dollar. coming up this morning,

bloomberg's enda curran and andrew hallman horst of citibank. the s&p 500 bouncing back above 5k. steve chevron saying this, while we recognize markets might be choppy, we view pullbacks as attractive opportunities to add to equities as the market marches toward our longer-term 6000 target. steve is with us in new york. you said it was hard to sound this market. is that still true? steve: that's right. you have the ingredients for a pullback. we are probably in the middle. i think you have a lot of folks that are itching to get in the market. it is an old term but cash yields have probably peaked. we think you will still see some rate cuts. probably one or two which has

been about where we are. there is a risk of zero which is not a zero risk. with the market repricing higher , bonds are not all that attractive. you saw the ups numbers. the economy is still relatively strong. the consumer is hanging in there. earnings are doing ok. jonathan: with a two-year close to 5%, you are saying that does not provide much competition or the competition is in the process of peaking? steve: if you look at where cash yields will be, when you hit rate cuts, those yields will come down. as you look at where the 10 year is, it is hard to envision a world, even if you got two cuts and steepening in the yield curve, this 10 year -- there is some value, but it is not like the table is screaming value.

lisa: it is amazing that everyone was talking about broadening out and that is where the value was. now we are seeing rate cuts being priced into the market. they are just going to do fine and the strong companies will keep struggling. steve: we are not there yet. we came into this year with a one or two cut forecast. the question is will there be two. one to two is fine. leading into 2025, you still get that broadening out. if that ends up being zero cuts and now you are questioning 25 cuts, then all bets are off. from our perspective because we still see one to two cuts at this point, we think that broadening out trade will ultimately be right.

if it is zero, then that is pushback. lisa: can you give us a sense of what you have been doing the past couple of weeks? is this seeing mag seven falling out of bed, you are aggressively buying where you basically watch this and say i am not going to do anything. it is just noise. we are still marching toward 6000. steve: at the risk of sounding right again, [laughter] i'm not going to lie. jonathan: that was beautiful. steve: that was a live tv moment for you. we have underway on the max seven. we came in this year with this idea of broadening out. we took a little bit of pain in the first part of this year but the idea was when you look at the relative earnings growth, it will decelerate for the mag seven and it will be overtaken by the forgotten 493 as you get deeper into this year. given valuations and names that are hard in earnings and given

this idea that if we do get rate cuts at some point and the economy is stickier, then there is catch-up play. we have not had any this past couple of weeks. the markets have come to our positioning. anne-marie: what do you make of some of the noise and a 20% of ability that there could actually -- a 20% probability that there could be a hike? steve: they have gone through so much of the political capital in the market for cuts that now they are being delayed and putting through. to do an about-face, you need to see inflation not just be sticky but re-accelerate and that is the big question right now and for the market. is what we have seen inflation that is sticky or is it truly re-accelerating? we are asking that question but we are not yet ready to say this is reaccelerating and we are back in a hike scenario. we are not there yet. jonathan: if it is sticky mud

that is good for stocks? steve: sticky is ok. you are probably grinding longer. you can get that broadening out. that is better than plummeting inflation. reaccelerating inflation which brings hikes back on the table, that's a different scenario. jonathan: is there anything in the growth inflation mix that risks squeezing margins? steve: we were talking about this yesterday. if you think about where you are versus the beginning of the year, you have energy prices higher than you would have expected. you have overall inflation which has stabilized. the question in the earnings estimates are how many rate cuts are priced into those estimates. if they are not going to come through, there is an interest expense there. we have been bullish on earnings but that is something we are sharpening the pencil on and trying to understand. lisa: average daily package volume for ups came in above

estimates but revenue came in below estimates. speaking to exactly this point. i would hate for you to leave without commenting on expensive handbags and what you feel about the consolidation in the fashion industry and whether you think that this is going to harm the american consumer. how do you factor this into your investment thesis? steve: given the mood around this table before going on the air, i would not dream of supporting the ftc here. i might incur violence. i would say it this way. i do think there are -- there have been a number of merger or acquisition opportunities that have been blocked at the ftc for companies that from our perspective are folks who are trying to stay alive and improve a competitive position that are not in danger of creating a monopoly position. i would agree that this is one as well.

it is not necessarily a pocketbook issue but it is a handbag issue for many american consumers. jonathan: that was good. steve: i think it is terrible and handbags should be much cheaper. jonathan: i totally agree. that was steve chiavarone. perfect. pepsico beat on the top and bottom line. pretty solid international growth as well. not a big move in the stock. softer in the premarket on pepsico, down by about 0.5%. let's get news elsewhere. here is your bloomberg brief. dani: ubs is pulling back on plans to build a mutual fund in china. it will instead rely on existing joint ventures. ubs was contemplating a standalone platform since 2020.

tesla is being sued by former employees who claimed the company's decision to layoff 10% of the workforce in a global retrenchment broke the law. according to the complaint filed in a california court, by not giving notice, tesla acted intentionally and with deliberate indifference and disregard to the rights of its employees. apple is close to making a deal with fifa to get rights to a new month-long world cup style competition according to the new york times. it will be apple's latest venture into soccer following the 2022 deal and it secured a contract for the worldwide streaming rights to major league soccer. jonathan: appreciate it. up next, u.s. tech struggles in china. >> the china shock continues. it is something we have seen over again, creation of excess capacity, overproduction that

brings down prices. jonathan: it has been pretty shocking for the likes of apple. that conversation, up next. ♪♪) the road to opportunity. is often the road overlooked. (♪♪) at enterprise mobility, we guide companies to unique solutions, from our team of mobility experts. because we believe the more ways we all have to move forward. the further we'll all go. but i couldn't find pilates anywhere. so i started my own studio. and with the right help, i can make this place i love even better. earn up to 5% cash back on business essentials with the chase ink business cash card from chase for business.

jonathan: six days of losses on the s&p 500. attempting to add some weight to that. the bond market pretty stable. 4.61.

it is all about the earnings this week. u.s. tech struggles in china. >> the china shock continues. the chinese doubled down on what we call nonmarket practices. investment in a strategic emerging sector. it is something we have seen over again, the creation of excess capacity, overproduction that brings down prices. it is a predatory pricing practice. jonathan: here is the latest. iphone sales falling in china by 19% during march according to research. the worst performance in the region since 2020. the company is facing competition from rivals like huawei. enda curran joins us now to discuss. let's talk about some of the complaints. excess capacity, overproduction, heavily subsidized product and competition. this story feels a lot more like

fierce competition than anything this government is combining about. can you walk us through the forces holding back u.s. tech firms? enda: there is one stock that speaks to your point. huawei sales in the quarter rose 70% even as apple shrank. that speaks to the idea that china is innovating and driving its homegrown technology to compete with the best of the best. at the same time we did have other details. against the backdrop of the chinese new year, consumers are buying and spending. they were buying chinese-made phones. it does lend itself to the idea that there is a homegrown base. we are seeing that among electric vehicles as well. tesla discounting to generate sales because they are facing competition from homegrown chinese technology. it should be set ahead of the

visit to china by antony blinken, there was a rare briefing by the chinese government to the colleagues in beijing where they pushed back heavily against u.s. criticisms of overcapacity. they accuse u.s. of naked economic coercion. two things coming out of these earnings. one is speaking to rising chinese competition. secondly, china's pushing back on this idea that they are exporting against the rest of the world. jonathan: i want to talk about the increased competition. you alluded to it. the consumer choosing chinese brands over american products. do you get the sense it is gathering pace looking at what is happening with apple and tesla? enda: part of the story is nationalism because the government has put restrictions on which companies can buy apple iphones in the first place, state owned companies,

government agencies are not allowed to hold apple phones. that is nationalism, no doubt. the data for that quarter speaks to the point when you see apple losing market share but at the same time huawei gaining ground by 70%. that speaks to the idea that money is there. consumers are not buying these devices. the tech experts with apple launching new devices, they will see if it can rebound. that will tell you how much of this is nationalism at the moment. there is no doubt at the moment it is being reflected. anne-marie: gina raimondo, "we have the most affected semiconductors in the world. china does not. we have out-invaded china." -- we have out-innovated china." steve: there are tech experts

who will make the same point that china is not quite on the spectrum of technological innovation as the u.s.. equally there are critics of u.s. policy who will say that all of the -- all the u.s. is doing is accelerating china's own homegrown technological innovation, forcing it to double down on r&d. we are seeing that from the government in beijing over the last few months as they have said economic policy for the years ahead making it clear that technological innovation and manufacturing is a top priority for the government ahead of lots of other traditional areas that drive economic growth. that is what is one of the spinoffs from the policy, doubling down, forcing china to double down and eventually they will make some breakthroughs as we see huawei gaining ground in their first quarter on the back of their revival and the model they launched last year. anne-marie: you mentioned secretary blinken's travels.

when you look at this relationship, the chinese government will complain about the ev tariffs, more that are coming down the line, the probe into the shipbuilding sector, the tiktok ban that will get a vote today in the senate. which is top of mind for beijing? steve: there is no doubt, on paper, the relationship is stable. it's the best it has been in a couple of years. officials are going to both capitals. as you say, these measures continue especially on the u.s. side, to continue to double down on punishing china where they can. we are starting to see a hint of pushback from beijing. there was that rear briefing from chinese diplomats -- that rare briefing from chinese diplomats. they are making the point that -- accusing the u.s. of negative economic coercion. these are pretty harsh and

striking words that the chinese are using. it is the harshest rebuttal so far. that one does seem to be striking a chord perhaps above all else. it will be interesting to see how the talks with antony blinken goes. we have reported that he plans to make clear in terms of his views of chinese company support for russia. there are two prongs where we could see tensions flare. lisa: a lot of u.s. officials have met with a lot of chinese officials. there have been a lot of talks. do the diplomats in china speak with president xi jinping after speaking with u.s. officials? steve: there is no doubt there is hardly a unified approach when it comes to dealing with china on several issues, be it economics or national security. we saw last week with the german chancellor's visit to china, mixed signals coming out of that. not necessarily on the same playing field. that is a continuing process.

we see the u.s. taking steps that are unilateral, sometimes with the eu backing and sometimes without. if we are talking about a unified approach to china on economics or national security, i don't think it is there yet. jonathan: enda curran are two big issues there, what is happening in china and the tension on the south china sea. increasingly concerning. lisa: especially at a time, president xi jinping has aims that are divorced from economic growth or what is happening with the economy which is the reason why there are so many mixed signals for private companies and international companies who want to go into china. right now it is not clear where the priority is. jonathan: this line from the head of the end of pacific command, it is moving very fast, the buildup of military power, despite a bad economy, a chinese sovereign territory and the actions going toward

enforcement. there is a lot to unpack. a long list of concerns. anne-marie: it is also why you see the united states today and the philippines conducting military exercises near the disputed south china sea and taiwan. this is on the back of the chinese deck of the -- chinese delegation as anthony lincoln arrives -- as antony blinken arrives. jonathan: coming up on this program, dominik asam. from new york city morning, good morning.

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jonathan: equity futures doing ok. a bit of a lift yesterday after the longest losing streak we have seen in quite a while. a small bounce yesterday relative to the losses we built up over the last week or so. the nasdaq positive by zero point 3%. the russell just about positive, up by 0.1%. kicking things off with tesla a little bit later on this afternoon. bond market, for the third time in about two weeks, breaching 5% on the two year yield ruefully. back down to 4.98. a conversation earlier this morning about how much competition that provides to the equity market and whether we are seeing the peak of that competition. lisa: if you think yields are going to go lower from here,

albeit slowly, the opportunity in cash becomes less, then suddenly that while of cash needs to go somewhere. a lot of people talking the bid in stock supported by the fact by the crossover to 5% was brief. there was a feeling at least there was some sort of floor under treasury evaluations for the time being. jonathan: unlike back in october, we have not seen the sustainable rate of the so-called line in the sand. foreign exchange, the euro stuck around 1.0659, positive by not even 0.1%. data is decent relative to what it was before. the euro zone composition at an 11 month high now. lisa: but it is driven by the services. manufacturing came in below expectations. how long can services growth continue to fuel an economic trajectory that would lead the ecb to keep rates higher?

when you look at the euro, it is in the same place. it moves incrementally. also yesterday, maybe that means pretty much all the dollar strength has been baked in -- i got the sense people do not know what else to do right now. what direction are we getting right now? jonathan: pasta flecked or pasta get confused? the more i pause and look at the euro, the more confused i become. under surveillance this morning, mag 7 earnings. investors will be looking for details on elon musk's robotaxi announcement, as well as plans for a new, cheaper vehicle. next week, we hear from amazon and apple. right now, gm raising their full-year guidance, the adjusted eps at nine dollars to $10. that is the new range. the old range is $8.50 to $9.50. lisa: what is interesting to me

is they kitchen sinked it. they talked about how they would cut back expectations for electric vehicle production, etc. now they are raising full-year guidance. the fact that even half guidance is telling. they have moved out of no man's land of we do not know what this will look like to, yes, this will be good. why? because truck sales are continuing. the china slump does not affect them as much. this is driven by their bread and butter, and their bread and their bread-and-butter are doing fine. annmarie: these are the cars americans want. the ev feels like we had the peak after the tax subsidies came out, there was some move towards it, but there is still a ton of work to do in that space. until they can get an ev truck or a hybrid truck people like, this is the demand, what the people want. the fact that even though they are continuing to struggle in china bar able to beat because of the demand when it comes to things like trucks shows where the market is. jonathan: this could be the potential to stiction as well. if you can overcome the slump like china has in china come

about is the question for tesla later. can they do the same thing? lisa: frankly, gm did not hinge its truck, to put some random phrase out that made absolutely no sense, to china. basically we are talking about a company that really relied on the u.s. buyer base, so they are winning as a result of that. tesla is not that case, neither is apple. jonathan: gm up i more than 4% in the premarket. elsewhere, columba university announcing classes will be held remotely as anti-israel protests continue on campus. yale and m.i.t. experiencing similar demonstrations. president biden telling reporters -- tell me what you think about this. i condemned the anti-semitic protests, and those who do not understand what is going on with the palestinians, i condemn them, too. lisa: i cannot explain it exactly, because i interpret it in lots of ways -- my interpretation -- look, this is a very difficult

moment for him in terms of how to message it, because you have one wing of the progressive party that are very much in the camp of some of these protesters. and they have a lot of people who think, if people's personal safety is being threatened in any capacity, that is a line that should not be crossed. the bottom line to me, and i am sorry, but i see the protests, and part of me is like, free speech, i totally adhere to that. but each university should have its policies, and if someone violates those policies, it is private policy, they can violate -- they can enforce those policies. the idea of making a free space and eight feeling of safety, i think, is fine from a physical level. emotionally, universities should challenge people. annmarie: these biden quotes come after -- talking about blatant anti-semitism, the issue with these protests, beyond free-speech, the anti-semitism he says unconscionable and dangerous. the reason this is political is

you have senators coming on the republicans are telling biden he needs to bring in the national guard when it comes to some of these universities. a lot of individuals were arrested outside nyu for protesting. these protesters are the youth, and that is kind of the issue here. they are going to lean mostly the democratic party, but biden is trying to toe that line in terms of making sure he is on the side of israel and anti- anti-semitism but also making sure he speaks to the youth vote. jonathan: let's move onto this. the ftc suing to stop tapestry's takeover of its arrival capri. this -- regulators alleged the deal would harm consumers and workers. the tapestry ceo saying that shoppers have a wide range of brands and price points to choose from here let's go back to the question we have asked repeatedly regarding the

industry we are talking about. has this government decided any consolidation is just bad, bottom line? lisa: this is the question a lot of executives are asking. we have heard from brian moynihan and others, that basically companies are not going to begin engaging with m&a until they have a better sense of what the room work is pure this just adds to those questions. jonathan: some of the forces we have discussed the last 30 minutes or so, some of the challenges, you think this would be somewhere near the autumn of the list, the price of handbags, but that is where we are. elsewhere, software company sap gaining. europe's biggest software firm posting record growth as it looks to move customers from its legacy business to the cloud. dominik asam, the sap cfo joins us for more. thank you for being patient and waiting for us to get to you. let's talk about these numbers. this growth is coming at a time when there are concerns on the side of the atlantic about cloud growth for some big tech players. where is your growth coming from? what are the tailwinds through

2024? dominik: of course, the advent of ai has clearly propelled the story of the transformation to the cloud to move customers from on prime installations to on cloud, resulting in an uptick in 25% in our cloud revenues. our more forward-looking so-called ccb, the 12 month ahead of subscription revenues we have contractually locked in is growing at 28% pure that his record growth. all of that is driven by the core offering we have in the cloud, the cloud e suite. that has accelerated nine months in a row now. lisa: what is the demand in terms of the specific applications of artificial intelligence in the cloud that you see most commonly invested in by the companies who are your clients? dominik: it is a broad set of applications throughout the enterprise, on hr, finance, the supply chain. there is no exclusion.

it is really broad. we have wrought about 30 use cases to the market. we are planning another 100,. we already have more than 7000 customers using ai powered use cases in the corporation. for 300 million users we have in the cloud are benefiting to make themselves more productive and tough fight, for instance, rising inflation in salaries. lisa: how much are using in market share? dominik: undoubtedly on the cloud, we do win market share. i mentioned the 30% plus growth. the market is more in the low to mid teens, so that is more than twice the performance of the market. lisa: from who are you gaining market share from in particular? dominik: sometimes it is homemade solutions we are displacing. sometimes it is our key competitors. it is also the fact sap has been focused on the more on prime -- now we are really moving to the

cloud, so we can convert that huge customer base on prime into the cloud, and that drives the growth. annmarie: german chancellor olaf scholz was recently in china. ahead of your recent -- talking about how this could be an expansion of sap in china. are you concerned when you see news coming out like apple overnight, over how they have this diminished share when it comes to chinese revenue? dominik: actually, if you compare us to other global tech players, we have a relatively moderate share of revenues in china. we see growth opportunities, but there are other markets that move the needle more for us, so we are not really concerned on that front. lisa: what other markets are moving -- annmarie: what other markets are moving the needle? dominik: we are strong in the asia-pacific outside china. also, good old europe is doing strongly. last but not least, the biggest market for us is the united states. we also have great traction here in the united states. jonathan: you announced a

restructuring in january affected -- said to affect something like a thousand jobs. are you hiring in certain places? dominik: speak. the restructuring program is now on its way. you mentioned the 8000 people you're going to reduce -- this is to focus our resources on the strong growth markets to invest $1 billion into ai to accelerate. on the other side there are areas that do not grow that are in decline, so we have to make that adjustment, so execution is key to deliver the financial performance we have indicated. jonathan: it was certainly a good quarter based on the numbers. dominik asam of sap. thank you for joining us. the stock is higher by some thing like 44% over the last year or something, so a decent run. lisa: it is the part of the g ranola that's working, because

some of the other parts at faulted a bit, but they seem to continue to outperform. jonathan: if you're just joining us, equity futures on the s&p 500 posited by one third of 1%. that is european tech. we will talk more about u.s. tech through the week. we will hear from tesla later after the closing bell. tomorrow, we hear from meta, then microsoft and alphabet to round things out thursday. next week, amazon and apple. you worker -- work your way through may, you'll hear from nvidia. an update on stories let's catch up with dani burger. dani: we stick with europe, where euro area pmi suggests recovery is gaining limits them. the readings hit the highest level in almost a year with strong services and germany's return to growth. it is the kind of data that will likely strengthen the case for ecb hawks that potentially come after well broadcast june cuts, that there should be a pause. the u.s. is reportedly drafting sanctions that would cut off

tiny banks from the global financial system, according to the wall street journal. the effort is to stop beijing's commercial support of russia's military. the secretary of state antony blinken is headed to beijing today. shares of spotify higher in the premarket, 8.2 5% after their earnings. they reported paid subscribers rose 14% year-over-year. spotify had raised prices and plans to do it again for the second time in just a year. that is your brief. jonathan: thank you. up next, the fed can still deliver. >> the fed is really determined, and that, to me, is the difference between really staying on hold or deciding that they want to take this plunge into the rate cut pool. jonathan: citi's andrew hollenhorst thinks they will. he things that are making the case for five cuts in 2024. that conversation up next. ♪

jonathan: stocks in the session highs positive by 0.3 percent on the s&p 500. equities just pushing a little bit higher. yields coming up nowhere on the 10 year. on sooner -- hundred surveillance this morning, the fed could still deliver. >> the fed is really determined, and that, to me, is the difference between staying on hold and deciding that they want to take this plunge into the rate cut pool. it would take a really big revision higher in their r-star estimates to get to a place where they really feel comparable staying on hold. i get hot on this question of do i think they should cut, or will they cut? again, it seems like really the best argument today is they want to. jonathan: they want to, but will the data cooperate?

investors looking ahead to fridays core pce data, clues for when the central bank may start cutting interest rates. citi's andrew hollenhorst saying we continue to see the most likely first cut in june and protect core pce inflation to fall to 2.7 percent year-over-year next week. our base case is for 125 basis point of total cuts delivered this year. andrew is with us. sticking with june, looking at something like five cuts for 2024. i imagine you have had pushback. why do you still believe the bar is low for that move? andrew: definitely had some pushback regarding the view. if you have been following the fed, this is a fed that wants to get to the first cut. the data have not cooperated with that. we had the three stronger core inflation prints. what we brought it back to his this idea that inflation is higher. we think it is structurally higher. but it is structurally more volatile. that means if we get stronger

rings, we will get softer prince. that will be enough, and i think it goes back to the discussion you are having with the prior guest. should it be enough? i am not sure. but it probably will be enough for the fed to say we can get started with these rate cuts. jonathan: it has been whack-a-mole the last three months. every single data point, something new is pumping higher, and the federal reserve needs to talk about why it is going lower again. what is it now that you see fading, that you see this inflation tailwinds continuing? andrew: there are a couple things i could help the fed out. i want to emphasize this is optically we will get softer inflation prints. i am pretty convinced inflation is not returning to 2% in any kind of stable, reliable way. but in terms of optically what can help to that, one thing is car insurance. car insurance has gone up by leaps and bounds over the last year. that is a real phenomenon. my car insurance went up by approximately what is reflected

in the cpi basket. but we know auto prices have peaked. auto prices have come down off of that peak. that is one component that can slow down. that is in core services, in that super court. shelter, again, there are inflationary pressures there. we have had house prices that have really run up. but we should see some slowing, at least in shelter prices come over the was of the year, so that should help the fed. lisa: does it make you feel better that the inflation you are seeing in your auto insurance peaked? [laughter] andrew: it make me feel that at least my lived experience is consistent with the data. lisa: to give a sense of how much you already counter consensus, there is only a 14% chance of a rate cut price into the market in june. what is the fear factor for you that, if they go ahead and cut and use any excuse to cut rates in june, it feels another leg of this rally we have seen in equity markets, even in some bond markets, the a lot of people have argued contributed

to the stickiness of inflation we have seen so far this year? andrew: i think those people are not wrong. it is a valid concern. we are seeing some of these pmi numbers coming in more positively, some of the corporate earnings more positively. we have to think back to what happened six months ago. we had a big fish pivot on the fed where we went into this mode of we are looking for the data that can deliver us what we need to see to get to that cut, and we had equity prices that ran up very significantly. that is a big, positive stimulus into the economy. that helps to protect growth, but it is doing that at the expense of higher inflation, so that is a risk the fed is running. lisa: if the fed were to cut rates with your base case of five times this year, how much does that keep inflation at three point -- 3% or 3.5% for the foreseeable future? andrew: to get the five cuts, we have to see something weaken in the activity or labor market data. we have not seen that yet. we have a lot of forward-looking indicators that indicate we may

see that later this year, especially in the labor market, but so long as that is not happening, i think the fed will be a little more careful, gradual as they have talked about, and that would mean maybe cutting rates at a quarterly pay, so you have the basis points into june or july, then into december -- we have seen equity prices that have peaked and come off of that peak, so i am starting to feel a little more comfortable that maybe we will get tightening a financial conditions, but that is a risk of a run. that is exactly what will be difficult about this year. you are navigating between these two mandates. you have inflation on the one hand, then growth employment on the other hand, and it is probably impossible to get that all right. jonathan: matt from deutsche bank joins us later, and he is talking more about midcycle adjustments, it cut here, a cut there, then wait and see. is it dominating conversation about a rate cutting cycle?

very different to a midcycle adjustment. would you frame it as a potential for a midcycle adjustment may be away from this more aggressive call of 125 basis points, and what would it take for you to shift one to the other? andrew: that will come down to the activity data, the labor market data in particular peer that is where we are seeing signs like part-time jobs coming up, some kind of latent weakness in the labor market that we think will emerge more clearly in the data. if that does not happen, i think the fed is talking about this more in the framework of a midcycle adjustment, the idea that -- if inflation has come down, your real rate is moving up, and you need to adjust lower. jonathan: sounds like of the communication has shifted. in the last week, you can feel the shift. the fed clearly wants to cut just rates, but when they wonder about not being tight enough, don't you think the conversation is shifting from we want to cut

at all costs? andrew: there has definitely been some shifts. that is partly the inflation data. it is also the activity data. when we get strong activity data, that probably does not push them to hike, to move more restrictive on policy rates, but it does reduce any kind of urgency. that is other thing we keep hearing from them, there is no urgency around cutting. as long as there is no urgency around cutting, then you can have these discussions about are we really restrictive enough, how long do we need to stay restrictive? that is the standard monetary policy cycle. you get rates to a level that is somewhat restrictive. you talk about, this is where we should be. lisa: mohamed el-erian -- annmarie: mohamed el-erian was on the show a few weeks ago and was talking about the fact that everyone got it wrong in 2021 about transitory inflation because they were not listening to the earnings calls about inflationary pressures. has there been anything in their earnings you think show that those inflationary pressures are starting to waiting? -- to wane?

andrew: it is not that clear from earnings calls that you are waning in inflationary pressures. you're not ask clear in terms of high inflation, but you're hearing consumer demand has held up better than a lot of people expected, particularly on the services side. when we get the gdp print this week, goods spending has been flat or maybe even declining in real terms. services spending has held up. we have this wave of disinflationary pressure, which largely came through goods. when you listen to some of those service sector firms, it sounds like they think they still have pricing power, and that is an issue when you are trying to bring inflation down. lisa: my bloomberg is letting up with questions for you from watches thinking to themselves, could this be real, because we have priced out so many of the rate cuts? i can only imagine some of the calls you get. one of you are asks how much probability do you put on the possibility of a fed rate hike? is a 0%?

do you say it is on the table? andrew: could we eventually get to a rate hike, we could. we could stay at this level and realize policy is not that restrictive and you have inflation picking up. that is the key -- do you have a real acceleration in inflation. and per your comment, we were at about 5% inflation a year ago. now we have come down to something that, by most measures, would be at least we percent or 4% inflationary. not at 2%. i think that is giving fed officials confidence that policy rates are richard bove. essentially a 0% chance. jonathan: thank you. andrew hollenhorst of citi. this is sounding more and more like most dfc in reverse. we have talked about it a few times around this table. the calls for cuts now sound like the calls for hikes coming out of the financial crisis in 2009. they were always 12 months away. it was sort of a rolling 12

months. i heard the same idea, talking about 2015 in reverse, when we had the first hike and had to wait 12 months to get the next one. lisa: it is the reason why there is zero conviction right now when you talk to a lot of people. we do not understand the inflationary regime we are in. we did not understand it in the post -- i will speak for myself. it is hard to understand where we are now, whether we are in a substantially higher inflationary environment for the foreseeable future. jonathan: a lot of people equally confused. coming up in the second hour of "bloomberg surveillance," darrell cronk of wells fargo, jeannette lowe of strategas, craig -- zach griffiths of creditsights. live from new york, this is bloomberg. ♪

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>> the data could continue to surprise to the upside. >> the data is glaring. it is right there. corporate profitability looks good. >> we have had this easing the financial condition and environment that has basically fostered equity prices, fostered asset prices across the board. >> the mag 7 has been unbelievable. >> balance sheets are quite strong kid although the environment is tough, it is posing quite a lot of opportunities. >> this is "bloomberg surveillance" with jonathan ferro, lisa abramowicz, and annmarie hordern. jonathan: navigating weakness in china. the big challenge this earnings season. live from new york city, good morning. this is "bloomberg surveillance" with your equity market.

tesla, the longest losing streak since 2022, 7 days of weakness. this morning, the stock higher by 0.6 percent. they report later on this afternoon. a flavor of the auto market early this morning. lisa: you got a sense from gm things were just great -- if you focus on the u.s. and you focus on trucks and you put electric vehicles to the side. basically everything tesla is not right now. shares of general motors rising, also increasing their forward guidance. this shows the distinction between the u.s. market and the rest of the world. jonathan: we see that from industry to industry. need to talk about tech and the likes of china and apple. apple down your today by almost 14%, negative by 13.86 percent, and it is more bad news, this time from counterpoint research. i found sales in china falling 19% in the first order this year. annmarie: this is very worrisome for china, given the fact that china, for apple, is about 20%

of their market, where they should be ringing hefty revenue from. at the same time, huawei, in contrast, climbed with revenue profits 70%. you can see the chinese market, chinese consumers still want iphones, they are just ditching apple for a national champion like quality. -- quality -- huawei. lisa: so where is apple going to go? are they going to compete in india? they have to pull down prices. are they going to jack up prices in the u.s.? they have enough -- it is fascinating. jonathan: a big report coming up next week. apple down 0.1%. coming up, we will catch up with darrell cronk of wells fargo, with stocks snapping a six-day slide. zach griffiths of criticize about why he is sticking with a rate cut.

stocks bouncing back as big tech earnings kickoff. darrell cronk of wells fargo writing we reiterate our focus on quality and reduced risk in portfolios and expectancy broader opportunities in u.s. equities over the next 6 to 12 months. darrell is here with us. what are the opportunities now, right now? darrell: right now, you still have to focus on places that have shown the quality leadership, industrials, energy, materials. some of the procyclical nature as the economy does recover. we are fading a little bit more on technology could we think financially's -- we are fading a little bit more on technology. you have to look at those select spots where you are not paying up in valuation. the earnings season will be interesting. order over order earnings, there are only two sectors in the s&p that will actually show positive sales growth from last quarter to this order, and that is

financials and utilities. everything else is down for something like tech is down 8% on sales and 20% on earnings quarter over quarter. jonathan: what is the bond market not screaming "buy"? if i talked to people who missed the 5% yield in october, you will get a second bite now, they would say, absolutely. people don't come on the program screaming "buy bonds," why is that? darrell: it is a little bit equivalent to picking up pennies in front of a steamroller. people are grabbing for basis point on the short end of the curve. you are grabbing for 5, 10, 15, 20 basis point spear but if i have a bond folio that has a seven or eight duration and rates to drop 1%, i make 700 or 800 basis points to the point on duration is the right one. the most important point, i think almost the entire wall

street is missing now, is the yield curve has changed in a more thickly, and no one is talking about it. if you talk about the five-year out, we are almost table top flat. there are only five basis points of difference between the five-year and the 30 year, with just a very mild steepness, so we are getting a little bit of steepness. the long end of the curve still buying into the soft landing care where is the short term curve? killing the inverted. the three-month two-year is 40 basis points in earning. that is tabletop inverted. that is telling you a different story. a lot of the historical studies he would look at will tell you that the signal versus noise, the front side of the curve tells you much more information than the backside of the curve or the tail of the curve. pay attention to the short side, because that site is still telling you we have got some tougher waters to navigate ahead, which brings us full circle to where we think you will get better entry points. lisa: in particular, you said fading tech care that seems like

one of the stalwarts to a lot of people are talking about, and that you see more downside to go. can you talk about where and specifically when you see that? is this a broader things have gotten over bid, valuations not too high, they have more room to fall? darrell: a little bit of the latter. valuations are stretched here. i mentioned about 20% quarter over quarter drop in earnings, 8% decline in revenue. they are going through some challenging times. what people are also missing, under this heading of big themes and changes, massive change inside of tech over the last 6 to 12 months, which is everybody now, and we think investors should be chasing, hardware. there has been this big shift from capital light software intensive, cloud, to now it is all about ai data centers, hardware. even the big googles and microsoft's are investing hundreds of billions of dollars in that type of thing.

that is a durable trend for the long term. within tech, if you're going to get exposure, i think people are still missing the inflection point we have hit from the last 10 to 15 years of software and capital light basically being all the rage. the about google. google started with $100 million and 1000 employees and has probably become one of the greatest rooms on the planet. now it will be all about who can invest the most money in hardware and infrastructure to build for that next enter ration. lisa: it strikes me that everyone who comes on the show has less and less conviction as time goes on. when was the last time you had this little conviction about the direction of travel for prices? darrell: here -- little bit goes back to jon's point. what you are starting to see, and andrew talked about this in the prior segment -- there is this bifurcated -- big business confidence versus small business confidence.

in tech, -- in tech manufacturing spend versus non-tech manufacturing spend. gotta think when you are putting your investments in places, i am oriented towards where strength resides and fading where the weakness is at. the reality is there is so much liquidity in the marketplace. it is driving all asset prices higher regardless. look at the ftse setting off a new time high, the german dax an all-time high, the nikkei overtook 4000, gold at 2300, typically a risk off asset. the s&p was sitting on an all-time high. there's just liquidity chasing everything. it does not matter if it is risk on or risk off assets at today's a level. at some point, that starts to separate and you understand where do i really want to have exposure over the next 3, 6, 9, 12 months, and we think that bifurcated economy theme continues.

annmarie: around the world, where do you want exposure? where in the developed world? darrell: if you're going to have exposure in the developed world, you still want to be japan is probably the best country there. it will be interesting to see if the boj has to intervene at some point to defend the yen on a 34 year low -- jonathan: we saw one poin52, then 153, now baci -- now basically 155. darrell: you have the boj trying to defend the yen. but equities there are doing phenomenally well. i think europe is an interesting case. you almost kind of have to look the other way and hold your nose a little bit when you go to invest in europe, because when you drill down to the fundamentals, you're not going to see particularly great things. but the market there continue to do well. for the first time, it may be a decade, you might have this case

where developed markets start to challenge the u.s. the first quarter, developed market equities actually outperformed the s&p by 0.2%. it was not a huge margin, but the first time in a long time. jonathan: the psychology around europe -- i remember when i first moved here, someone say good for vacations, terrible for investments. when you look abroad, you think of two things. one is the strength of the u.s. dollar, the other is what is happening in china. how are you navigating those forces at the moment? darrell: the king dollar -- we talk about 30 four year low in the yen against the pound sterling that is troubled, the euro is weak, the chinese yuan is weak. there's just no good to -- good place to be in terms of a currency standpoint. it is interesting, to your point on china -- if i go back and look at china over the last 2, 3 decades, china has never been a

good investment. it has been a good tactical trade, at moments in time, but if i pull out -- me a chinese industry -- indices and look at the last 20 or 30 years, it has not been a great, sustainable, durable investment. something has to change there to get is terribly interested there. as a lot of people have done over the years, you can play china indirectly, without having to have the direct exposure to china, so you play the benefits of the chinese economy spilling out into the global marketplace. annmarie: just before -- lisa: just before we let you go. this is a massive week. tech earnings, pc and spending friday. what do you think is going to be most instructive for you to get a sense of whether we are starting to inflect to that divergence you have been expecting? darrell: auctions are always key. it is the theme of liquidity.

you hear this all the time. the bid to cover ratios happen week -- have been weak. pce will come into .7, 2.8, and still a full point difference in cpi. it is earnings. 30% of earnings this week which puts you in the 50th percentile mark. if i were to say what is a theme of earnings season so far and what we have seen in the order of the market cap reported for the s&p, it is weak topside demand with a good defensive margin at this point. some good news, bad news. you can clearly see demand is softening and weakening. companies are doing a great job defending the margin line, but you can only do that so long. you need topline growth to keep driving. if we are going to get to this 11%, 11.5% consensus earnings that everybody believes the s&p will give us this year, we have got to go. we have to get the engine coming here. the first quarter is not looking

good. looking flat to maybe slightly up. jonathan: this was solid. darrell cronk of wells fargo. let's get you some stories elsewhere. here is your bloomberg reef with dani burger -- bloomberg brief with dani burger. dani: i am sure this is coming as a shock to you but jpmorgan's kolanovic warning that the slide will get was because of macro risk alongside higher yields, a stronger dollar, and elevated oil prices. he has been calling downside for some time. he also added that, yes, u.s. earnings could temporarily stabilize the market -- it does not mean stocks out of the woods. shares of jetblue lower in the premarket trade by 7% here they forecast second-quarter revenue falling by as much as 10.5%. its all a full year revenue down into low signal -- single

digits. its capacity in the latin region will likely continue to pressure revenue, and we expect to step in expectations for the full year. amazon introduced a new grocery delivery subscription priced at $9.99 for prime members. it offers unlimited grocery deliveries on orders over $35 from amazon fresh, whole foods, and some local groceries and specialty retailers on amazon.com. jonathan: thanks for bringing up the marco note. the list of concerns -- concerns about continued complacency in valuations, inflation staying too hot, further fed repricing, and a profit outlook where the acceleration this year might end up being too optimistic. a long list from volanovic at jpmorgan. next up on the program, the senate taking on the foreign a id package. >> the package almost certainly passes.

there are also -- on tiktok, i do not think we know yet. jonathan: that story up next. live from new york this morning, good morning. ♪

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jonathan: a lot still to come this morning. we get pmi's. 60 $9 billion of 2-year note's coming on a little bit later

this afternoon. and early -- earnings from tesla after the closing bell. equity features positive by one third of 1% on the s&p. yield higher again by a basis or two. under surveillance this morning, the senate taking up the foreign aid package. >> the aid package certainly passes, the ukraine, israel, the indo pacific, read taiwan. there are also sanctions in foreign policy matters that pass. beyond that, on tiktok, i do not think we know yet. jonathan: the senate voting on a foreign aid package for ukraine, israel, and taiwan, as well as a bill forcing tiktok parent bytedance to divest the plot for more face a ban in the u.s. jeannette lowe of strategas joining us now. can you walk us what you think will pass and what won't? jeannette: we think everything will pass that passed the house.

there will be the package for ukraine eight, israel aid, and for the indo pacific, as well as the sidebar package that includes the potential ban of tiktok if it does not divest from bytedance. it includes the repo act, that allows for u.s. to seize russian assets to build for ukraine. it involves -- all those things we think get through the package. the house put everything together to try to force the senate to vote on some of these things to it as we all know, the senate has been holding up a vote on the tiktok ban. the house deliberately put it this package to make sure that senate would vote on it, and that is why we expect everything to pass this week in the next day or two. annmarie: do you think we could see any amendments to this large package? jeannette: it is unlikely. if they do any mms, it would have to go back to the house or

the house is on recess, meaning you would have to pull them back. we already had a lot of turmoil to get this package. the senate is looking to get the ukraine aid package out the door, and i think they are willing to support these other pieces, even though there will probably be some changes some members might like. annmarie: one provision in this package is the idea of the president can apply sanctions more sharply when it comes to iranian oil. do you think in actuality that is going to happen with this biden administration? jeannette: one of the things important is this is a bill -- it is called the ship act. it was included in the foreign aid package and past the house previously last fall. in the fall, that bill had a 90 day window for it to be enacted. that was not increased to 180 days when it was included in the foreign aid package. that means it would basically but up at the presidential election. so we do not expect any push on

sanctions before the election. this might be something the president can then do afterwards. we will see how the geopolitical situation is then. things might take a turn at that point. but right now, they set it up so we do not have any impact on oil sections before the election. lisa: it seems like a lot of people are expecting the only big move to come from the biden administration ahead of the election is a slew of tariffs to come against chinese goods in particular. do you expect the recent trip by tony blinken to china -- i believe he leaves today, will yield or pave the way to some of those tariffs that people have been talking about? jeannette: secretary yelling, when she showed up in china a believe a week or two ago, this is one of the things she was focused on, that china is trying to export more of its surplus now, and that could lead to a lot of dumping, not only in the united states but also other countries. then you had pretends that he wants to increase tariffs on chinese steel and aluminum care

a lot of other countries are concerned about what may be coming out of china, what those low cost export will mean for their own domestic economies, so that will be on the radar screen. blinken is also time to focus on the fact that china is trying to supply russia with some material that helps its war against ukraine. it also wants to focus on some of the other issues they have had in the relationship. tariffs may not be some thing that goes into effect as quickly. we had the u.s. trade or preventative say that she wants to apply solar tariffs, but i do not think you will see as much of an impact from that. but this will be the constant dance between the u.s. and china, where they are talking a lot but still taking lots of actions against one another, and that will continue. lisa: how much do you think the pressure of the election, of the potential that president biden is not going to be the president after november, or after the transition date in january next year, that that is actually bringing europe -- the u.s.

together in a play -- in a way to come up with a cohesive plan against china? jeannette: it is interesting. one of the things we think when we look at this election, we thing about whether or not -- it is not whether we will de-globalize or pull back from china but rather the extent to which we would do that. obviously, president biden is much more willing to have alliances, really work with our european partners, work with others around the world to try to get the same policies in place with regard to china. trump is much more of a go it alone style. i think you will still see hawkish moves with regard to china if trump comes president again, but biden is working on trying to build up a foundation, having alliances, having similar structures, so that the policies will be more impactful. i think the europeans, at least in this current effort, are trying to play along to some extent, trying to be on the same

page as much as they can, although i think you also see some other things, because you have a german chancellor go over to china and was also focused on business deals as well. there is little bit of straddling that has to be occurring, but especially in regard to ukraine, that is the biggest concern the europeans may be having about whether or not biden is in office or whether trump is in office and whether any eight -- aid for ukraine is continuing. annmarie: how awkward is it for blinken saying we will have this multilateral approach, the europeans on war, but are they? german chancellor olaf scholz was just there with a ton of german executives with what looked like a very friendly meeting to make sure trade continues even though we all know china is helping russia in their war effort? jeannette: right. this is something they are definitely having trouble straddling. blinken has been trying to be rather forceful, being the representative of the united states, to try to bring the

partners along, but you do have these -- europe is not want to be seen as just towing the line that the united states proposes. at the same time, there is this dichotomy where it seems like china is able to maybe woo france, woo germany to have some better trade deals, better business opportunities, but yet the u.s. is continuing to push away from that. this is definitely a delicate balancing act he has pr obviously his hands would be stronger if there was a much more forceful effort, but the u.s. is definitely going to continue on its path. there's going to be this continued decoupling from china, both from the administration, from congress, and i think they need to see how they can get the europeans to get on board slowly but surely. jonathan: thanks for joining us. jeannette lowe of strategas on the latest of elements in -- developments in washington, d.c. it is kind of surprising we have been able to find an agreement on foreign aid. we are sitting here and still do

not have any agreement, or even a conversation, about addressing what is happening on the southern border. annmarie: that is very true, but i think what you saw in the house of representatives, they knew if they put the southern border into the agreement, the whole package would have blown up. jonathan: coming up, the not so magnificent tesla ticking off mag 7 earnings, stock down close to 47% this year. bloomberg's craig trudell joining us on the other side of -- this is bloomberg. ♪

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jonathan: welcome to the program. jp morgan. the sellout has further to go. went to the long list of reasons as to why the selloff has further to go. let's talk about them. complacency in valuations, further fed repricing. i'm not sure how much more you can reprice the fed bit ok. the implied acceleration this year might end up being too optimistic. lisa: people can target some of those things. i want to stick with the earnings issue. if you look under the hood of earnings that have come out so far they show there is a more tepid consumer and they are managing it on the other site in terms of corporate executives by

cutting costs. we see that ups and other places. jack lew -- jetblue had a rough time. that might be the standard aspect of this earnings season. jonathan: jetblue need to rebrand. they give people the impression they are a budget airlines when they are really decent service, nothing budget about it. lisa: jet extravagant. jonathan: you just need to brea grant -- rebrand. i've never understood the acquisition between them and spirit. lisa: spirit is its own ball of wax. honestly, if people cannot get new planes you will have a questionable ceiling. potentially budgets are ok. i agree with you but jetblue is trying to cater to the family that wants to go on vacation to a warm island which feels nice right now. to me it raises the question, what kind of appetite is there for that type of travel? we are seeing a bit of diminished capacity and

diminished demand. jonathan: more on the jetblue rebrand. lisa: your jetblue rebrand. jonathan: equities positive by one third of 1%. yields higher by two basis points. in and around 5% going into pce. this is a wait and see. this program yesterday, wait for pce. wait and see. wait for a wash at end of month's and. how much more yield do you want? lisa: 5.5%. this is the key question. the reason we do not -- we saw some sort of bid to equities is we did not see the two-year yield stay above 5% for any protracted period. . we get $69 billion of two-year notes that are sold. how easily as that digested at a time when you have the likes of big bond bulls waiting for pce. jonathan: going into pce on

friday. let's turn to foreign-exchange. the bokeh g10 -- bulk of g10 positive against the dollar. the euro is positive by .1%. data better-than-expected. talk about the relatively low bar better-than-expected. pmi has been dreadful for months. you point out the distinction is not manufacturing, it is services doing the important heavy lifting. lisa: which raises questions, especially for germany. that is the manufacturing hub of europe. it is definitely bifurcated. it is good but is it good enough to be sustainable for the largest engine of growth in the region? jonathan: the just about positive. a first senate vote on the foreign aid package set to take place today. it includes eight for ukraine, israel and taiwan and a bill that would force bytedance to divest from tiktok. president biden telling ukraine's zelenskyy aid will flow quickly if the senate

approves the package. approval or no? annmarie: base case approval or this bleed into a little bit later down the week. it is going to happen this week. it looks very likely. with president biden on the phone with zelenskyy saying we can get that aid to you quickly, the administration has been preparing for this moment. one official was talking about the fact a lot of supplies are right over on the border of poland. the second they say the senate confirms it and you have biden's signature, those ammunitions are over the finish line. jonathan: this tiktok issue is something no looker talk about. does it sit there for the next 12 months? annmarie: we will talk about it but they will have a year to deal with this. that basically means you will start talking about it after november 5. lisa: it is politically brilliant. you say we will deal with it. we have dealt with it. it is not a problem, don't worry about it but you're still using tiktok so you can't complain about that either. hallelujah. jonathan: and then the president

hands it to the court. i have done my part. lisa: political brilliance. jonathan: did you see with the former president said about it, donald trump, who tried to do the same thing? basically saying remember, when you lose tiktok this is why you lost tiktok. politics are insane. have i ever said that before? let's turn to apple. shares falling of the iphone sales in china fell 19% in the first quarter according to data from council point research. apple resorts to rare price cuts in january to spur demand. not working out. the stock is down one third of one. annmarie: while way are up 70% while apple sales are moving backwards. this is a huge issue for apple. i do think it's about the consumers don't like this product. this has to do with nationalism and the fact that in beijing if you work in a government office you cannot use an iphone. the message is there on the wall for these chinese consumers.

that is why you are seeing demand shift. jonathan: this has been building for a while. we are just starting to see it in a greater way. we spotted this when you started to see the government organization start to ban the use of the iphone, when you were this was going. now you have some decent competition from the likes of huawei. this is the point you raise earlier that is the most important point. the fact there is a market that is growing and getting a smaller and smaller slice of it. is a big problem it is not like ev's for tesla when ev's are struggling. the smartphone business is not a struggle right now. there is growth but they cannot penetrate it. lisa: are they going to start saying the quiet part out loud? last week it was the quiet part that was being spoken out loud. for tim cook over at apple there's been a question, how quickly can you move manufacturing out of china? thomas can you reduce your footprint and basically count of growth in that region? will he be forced to address that at this point? it looks like there is real

competition. suddenly he has to think ok, what is my growth market. india? pockets of the u.s. we have not penetrated yet? these are conversations that finally people are starting to have allowed. jonathan: let's talk about tesla. a massive report after the closing bell later this afternoon. the company cutting prices, shedding staff and facing waning demand for its ev's. the stock is down 43% this year. craig trudell joins us for more. you said it, get the popcorn out this afternoon. what are you focused on? craig: there's obviously been so much noise around the stock and a lot of attention around that noise and for good reason with the strategic changes elon musk is wanting to push through. we should not lose sight of the fundamentals and what extent the noise and the collapse of the fundamentals our interplay with one another. the fact that revenue and earnings and gross margin and

free cash flow all trending in the wrong direction. leading to musk taking these drastic measures. to what extent is that going to become a self fulfilling psyche -- cycle we get into as earnings underperform, does musk go more extreme and rattle people all the more? jonathan: was at wells fargo who talk about how to value a growth company with no growth? is that is what we are going to hear later? the prospect of no growth for the next 12 months and a carrot over the stock with announcement later this year. craig: i think in the past we have seen the stock work really well when we have had an event months out to get excited about. i think back to the year 2020 and when tesla scheduled battery day for the fall of that year, the stock absolutely ripped going into that event. it helped they were scaling up the model y.

this is a very different company at this juncture, this robotaxi coming in august is maybe something to be optimistic about. yet there are questions about how real that is when the ceo has been talking about robotaxis for going on eight years at this point. how real is it? how soon can they commercialize it? what the risk is in terms of execution and regulatory approvals. all those things are really difficult for the street to get their arms around. lisa: i have my popcorn out and it's not to look at marge's. it is to see which elon musk is coming out. will he be aggressive and try to put on orbit exec if suit and come across like a diligent executive? how important is that the tone in which he takes at this press conference? craig: that's a really good question. we joked during the break about the idea that in the past this

was a ceo referred to analyst questions as boring and boneheaded. when that happened the stock did not perform well the next day. there needs to be some understanding that what he's trying to do here is out there and difficult to wrap your head around. if there is a you guys don't get it but this is blindingly obvious, i don't think that will be well received. he absolutely needs to change the narrative around can this company grow or not to the previous question and can it grow without new product. that is one of the other things that everyone has come to grips with. this "model 2" is not coming. it is definitely not coming to and may not be coming for several years, if it comes at all. lisa: the divide between bulls and bears is often is this a car company or something bigger? the cult of elon musk gone

extreme. how much have we had the cult of elon musk priced out of the shares over the past 40% decline we have seen so far this year? craig: i think it is still priced in. the stock is absolutely getting beat up. this is the world's most valuable car company despite the fact it is still much smaller than toyota. there is some room left for vista gold low or -- for this to go or if the street is not comfortable with the idea of stopping the bleeding in terms of the fundamentals of the business and growing again. there absolutely has been some shine lost over the last few months but this is still a company that is valued very ritually in terms of forward earnings. annmarie: doesn't that bring up the point this is an industrywide problem? i looked at gm this morning and their product driver of growth was sales of trucks.

they were driven by demand in america for gas powered suvs. isn't that the problem tesla fundamentally is facing? craig: i think that's absolutely right. when you compare how this company has performed relative to manufacturers that are still making gas cars, more importantly big gas trucks and suvs, i think we are seeing gm and ford perform really well. we are seeing toyota, the hybrid strategy they have very much stuck to despite the real criticism of our you guys going fully electric fast enough, they really stuck to their guns and were stuck on this goal of electrifying but doing so any sort of piecemeal fashion going along with the consumer. lately that looks like it is paying massive dividends. jonathan: gm higher this morning

by 4%. tesla has struggled over the last week. craig trudell breaking things down on what to look for from tesla this afternoon. we will break that down after the close later. equity futures on the s&p positive by one quarter of 1%. stories elsewhere. here is your bloomberg brief. dani: ftc has sued stop tapestry's takeover of cap re-, alleging the deal would raise prices in the affordable luxury sector. it is the first time the biden administration has used antitrust enforcements in the sector. more problems for boeing. it faces supplier shortages on key parts of its dreamliner aircraft. this comes from reuters who reported going expects a slower increase of 787 production and deliveries. boeing says it was producing five liners per month in the last quarter of 2023 and is still this plan to steadily increase liveries due to strong demand.

apple is getting close to inking a deal with fifa to get worldwide television rights for a month-long world cup style tournament in the u.s. that's according to the new york times. it would be apple's latest venture into soccer following the 2022 deal when it secured a 10-year contract for the streaming rights to major league soccer. that is your brief. jonathan: thank you. up next, the case for buying bonds. >> we are really close. we are looking at levels both in government bonds. more importantly in credit. we feel this is a good opportunity to get in. jonathan: our next guest looking for 375 on the u.s. ten-year. that conversation is next. ♪

how am i going to find a doctor when i'm hallucinating? what about zocdoc? so many options. yeah, and dr. xichun even takes your sketchy insurance. xi-chun, xi-chun, xi-chun! you've got more options than you know. book now. jonathan: equities positive by .2%.

yields higher by three basis points on the ten-year maturity. under surveillance this morning the case for buying bonds. >> i'm trying to hang on all my fingers and toes and keep my discipline into month-end. this feels like a real month-end washout. you have a lot of investors wanting to take profits or a lot of momentum investors in the cash -- into cash. we are looking at levels in government bonds. more importantly in credit. we feel this is a pretty good opportunity to get in. jonathan: that was bob michele at jp morgan. treasury yields holding at year-to-date highs. friday's pc data. the fed -- pce data. we have used several drivers of recent upside inflation surprises as lingering covid effects and indications of

upside inflation surprises. zach joins us now. you have a target at 375 year end on the 10-year. you are bullish bonds. walk us through why. zach: we think inflation will come down and perhaps more so in the second half of this year that allows the fed to start breaking the policy rate lower. that does not really adjust the real policy rate majorly. it just takes it down in line with inflation. we think with that given with the market is pricing now that would cause yields to fall quite a bit relative to what is priced forward at this point. jonathan: are you looking for the classic steepener? economic weakness leading to those cuts. i would have to watch m&a cuts. only two or three month echo that's ago -- three month ago, it was hawkish what the market was priced for at seven. it sounds really dovish so what do we get?

zach: it's been a huge swing and we expect 100 basis points are rate cuts this year with the first one coming in june and that stevens the curve more than the market prices right now. we are looking for the curve shape to be 25 basis points on two tens at the end of this year and it comes down economic growth falling below potential. the fed expected to remain above potential. we would be surprised to see that adjustment to the summary of economic projections. the potential economic growth backdrop and you have another leg lower in inflation that allows the fed to start normalizing policy not in a way that takes it back to anything that looks accommodative but back towards neutral by the end lisa: lisa: of the year. i wonder if underneath your projection there is a belief we are going back to an inflation rate, a base rate in this economy similar to what we saw before the financial crisis. basically two percent but nothing extra nearly high. zach: that is our base case. back to around 2.25% as did

this year. maybe not below 2% at an extended clip like we were in the 2010s expansion. we think that is a win for the fed. we expect the policy rate to move back toward that 4.5% by the end of this year. that is really not a real policy rate that is anywhere near neutral in terms of going back towards the zero or low-level we experienced in the 2010 decade. lisa: that suggest the current rate is sufficiently restrictive and then some. i want to go into this concept. what are you seeing in the economy that gives you any sense that we are actually constructing growth with rates where they are currently? zach: it comes down to what you are seeing and the lower income and lower wealth cohorts of the economy. you are seeing some fiscal buffer come out. when we listen to earnings calls or check in with analysts that are listening to the earnings calls, we are seeing a normalization in consumer spending trends and an uptick in value seeking behavior. we are looking for a consumer

that's been the engine of growth since covid. we are at about one percentage point above the trendline pre-covid for personal consumption if managers and 1.5% below the pre-covid trendline in terms of the economy overall. we are looking for a normalization and we are starting to see signs of that, especially as we go through the consumer side of the economy. jonathan: you are a credit guy. what typically happens to credit when the curve starts the bull stephen? any reason to believe this time is different question mark zach: it's a positive backdrop for credit. we are expecting the steepener is conducive to a caring environment for corporate credits. we are not looking for a lot of spread compression from where we are today. year-end targets on investment grade are 100 basis points in high yield at 350 basis points. that is unchanged coming into 2024. some of the performance we had

expected this year, that got squeezed out of the last year and in the first couple of months of 2024. not looking for a further amount of time -- tana spread compression. 275 for high-yield but that is not our base case was jonathan: the way i think about it is typically when you get a bull steepener it is off the back of a rate cutting cycle triggered by economic weakness and not conducive to equity markets and risk assets doing well. am i thinking about it the wrong way? zach: you are not. when we think about what we will see at the end of this year it is more of that you were talking about a midcycle adjustment in terms of policy. we are not looking for a rate cutting cycle going back to zero. maybe not all the way back to accommodative by the end of this year. maybe not by the end of next year. when we think about the rate cuts it's more of a policy normalization or recalibration to recognize the economy has normalized a bit coming out of

covid. we have growth slowing potential and we don't need a policy rate as high as we been at. if you look at how much inflation has come down, the economic growth, we get the below potential growth and it comes down more needing an adjustment to the stance of policy. lisa: for the sake of scenario analysis let's say the market is right, get one or two rate cuts this year. what does credit do? zach: we think spreads whiten a little bit from where we are today. we can cig moving to 130 basis points. maybe a move up to 500 basis points with some high-yield. not retesting the recent widespread adrift wider. when you consider policy not adjusting the same way we are expecting it will cause spreads to drift a little wider. the concern we had coming in at 2023 about a hard landing comes in a greater focus if the fed leaves policy more restrictive than anticipated. the big driver here is does inflation come down as much as we anticipate? if it does not, perhaps the

market pricing is correct. you don't necessarily have to have a huge recalibration in terms of spreads. lisa: if there is the situation where rates stay where the arc or go down a touch, the midcycle recalibration, do we start talking about wait until 2025 and unity of the companies that finally have the refinance rates that become punitive in a leveraged structure created in a different rate cycle? zach: yes. 2025 is what we have heard a fair bit. when you think about the deals that have gotten done this year investment grade has an incredibly well. we have seen a huge amount of deal flow. we have seen that in high-yield with a lower rated market opening up quite a bit. i think so far even with rates staying elevated in the dictation that rates can stay elevated for quite a bit longer we are getting deals done at the execution and tight ends of christ talk. so far christ talk -- price talk.

if we have no rate cuts, that is not a base case. that does come back into play and probably has a bigger impact in the high-yield market than investment grade around the end of this year moving into 2025. jonathan: this was interesting. always good to catch up. zach griffiths. ten-year right now at 4.64%. some steepness breaking into the curve. coming up, mike wilson of morgan stanley, george ferguson, matthrew luzzetti, vijay rakesh. we will talk to vijay about the earnings coming from tesla. we need to talk to matt about something that zach alluded to, the prospect of a midcycle adjustment in december. that's the call from deutsche bank. maybe have to wait a while to get another one. lisa: this is the world going to stephen stanley's way. here's a question. if that is the case, how many market assumptions are just

wrong? that is not exact a the goldilocks everyone was talking about with enough rate cuts to fuel another like of this rally. we are getting such disagreement on the paradigm we are in. inflationary or owing back to where we were before? jonathan: my favorite note for the south side is when they put in and asked themselves the questions. i go to the note. they do the same thing. lisa: but he gives the answers. jonathan: my favorite question is, are we early cycle given the amount of rolling corrections we've had? that's a conversation we can have that. lisa: and he answered it. jonathan: is network talking about? -- isn't that were talking about? the third hour of "bloomberg surveillance" is up next. lisa: you were in the business of doing that. we can discuss.

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>> the market is going through a transition. >> we have had so many people chasing these rate cuts and higher valuations i think we are due for that correction. >> it is impossible to believe they will hold rates at these levels forever. >> higher rates are something we

can learn to live with. >> you can live with slightly higher inflation and a slightly higher fed funds rate. >> this is "bloomberg surveillance" with jonathan ferro, lisa abramowicz, and annmarie hordern. jonathan: the third hour of "bloomberg surveillance" begins right now and earnings season kicks off in a big way with tesla earnings on deck. your equity market positive .2% on the s&p 500. the fate of this market not in the hands of fed speak. isn't that a beautiful thing. in the hands of tech earnings. lisa: especially that that has been the area of so much angst over the last couple of weeks. the dissonance between all of the tech earnings will be interesting. the tesla-apple story very different from the microsoft story. jonathan: also the negative -- also the not so magnificent magnificent seven.

tesla and apple both down double digits year to date. those names speak to the struggle for u.s. tech firms in china. annmarie: it is a huge struggle for tesla and apple. apple, the data we got is they are seeing weakness in china. it comes as china was celebrating the lunar new year, when people would usually go out and buy things. huawei sales are up 70% while apple is down 19%. the demand is there. the issue is doing business in china. lisa: i am more interested in the 493. that will give you more of a sense of where the consumer is at. the likes of gm, the likes of ups, these are interesting stories. the story they tell together is confusing. good luck with that. it gives you a sense of the crosscurrents and the different cycles we keep getting. lisa: equity futures -- jonathan: equity futures

positive .2%. yields higher by three basis points. 10-year 4.6436. coming up, morgan stanley's mike wilson. matt was at eight of deutsche bank. and vishy rakesh a little bit later. stocks higher. morgan stanley's mike wilson saying "we believe equity markets have been trading poorly primarily due to the repricing of fed cuts. with 10 year yields above our target stock appreciation from here bank would likely be earned through earnings upside rather than multiple expansion." mike is with us around the table. how high or low is the bar for the tech firms? mike: is mixed. it is not all one trait. it is the magnificent three or

four. they have tougher comparisons now. it is always the case. it is not so much about the earnings results, it is about the reaction of the stock to the earnings results. it is fascinating to see how much good news is priced into the winners. i agree with lisa. what is more interesting is what is going on away from those stocks, that will inform us what is really happening in the economy and the fed and the geopolitical risks. that is not our number one concerns but it is one of the reasons we are overweight energy. jonathan: what have we learned so far as we get deeper into earnings season? mike: 50% have been up, 50% have been down. that is worse than normal. now we're in a period of contraction. if you think about the last six months, the fed pivoted, treasury squeeze the bond market.

we had a duration rally at year end and that affected a huge expansion. 2024 estimates for the s&p 500 have not really gone up. they have been flat. it is all multiple expansion. seven cuts was silly. now we are down to 1.5. why wouldn't multiples come down in that environment? that is what we are facing now. you have to be into revision to the upside for the stock to go up. i am curious to see how that plays for the next two week. lisa: what we are seeing is not a cohesive story. cost-cutting is keeping margins of float and other areas where you see demand for trucks in the u.s. going gangbusters. are you seeing any themes you can grab onto? mike: the theme is it is unbalanced economy. post-covid it has been an unpredictable environment.

some of the things we got really right, some things we got really wrong. we are try to figure out what the next stages. one year ago, hard landing in recession was the consensus view. the market overpriced that. then we got a soft landing priced in. then we got a fiscal sustainability problem, then we went back to the soft landing, now we are at no landing. this is our view at the beginning of the year. there is a 33% chance all three of those happening. soft landing, no landing, hard landing. now we are turned a that no landing scenario. i am not confident we will stay in that environment and companies are reflection of that. some companies do better with that. is that sustainable? we will crop -- we will find out. lisa: the multiple expansion has been concentrated in big tech

come it has been concentrated in some of the quality names. it has not been concentrated in the russell 2000, which has not experienced the same kind of run. you start to like some of those areas because suddenly it is an economy that is ok, supported by a couple rate cuts, and you've not seen that multiple expansion. mike: november and december was one of the biggest short squeezes i've ever seen. we did see multiple expansion. we are giving some of that back. that is our call. i do not want to go to the low-quality world. as a group the russell 2000 is a low-quality index and that is why it is underperforming because rates are too high. r star is different because of who you are and what kind of company run. the market has been efficient in saying rates are too high for a

majority of the economy. we are sticking with that. we think the trade is still self funding businesses that have idiosyncratic growth opportunities are pricing power and it is playing out this year. lisa: of people think of you as a bear because for last year you are calling on some sort of downturn in the economy. where are we in terms of how close we are to a downturn? are you saying something this is you cannot call with any definitive production, you have a look at specific companies and stay away from that self? mike: is a humbling business. 70% of the street -- 70% of the street were in the recession camp last year. i think we are late in the cycle. there are a lot of reasons we do not think it is early cycle. we do not have a lot of supply the labor market.

it is a tight labor market. margins are at record high levels. all of the things we would look at or just not there. we are still late cycle. that means that could last another two years or be over tomorrow if we have another shock. will not be as aggressive trying to make the shock because we do not know what it is. we thought it was a regional banking crisis last year. turned out not to be the case. i would also argue we have an incredibly imbalanced policy mix. economic data does not look like the earnings data to us. economic data is much stronger than the earnings data. the and or miss amount of fiscal support in the economy is keeping the economic data looking strong, which is preventing the fed from cutting rates for an early cycle rotation. we are stuck in that. i do not see that breaking. we are spending more money this week.

that is where we are. the question is is that overpriced? should i pay a higher multiple for lower quality growth? i would argue no. for some companies you can pay a higher multiple. companies that do not need government support are doing better. companies constrained by higher rates are underperforming. let's talk about -- annmarie: let's talk about fiscal and the fact that it does not matter who wins the election -- is it too soon to start preparing for november? mike: typically the volatility in the market picks up two to three months before the election. my experience is until we have the conventions and we see deplatforms, we do not see a lot of action. this year the market has rallied at the beginning of the year. typically it does better in the second half. is that going to reverse this

year? maybe. i agree with your first position , which is i do not see a lot of difference between these two campaigns and when they're ready -- these two campaigns and the fiscal and monetary mix. focus on the area where the president can do things. the biggest one on my mind is immigration. tariffs and immigration can be done without congressional voting. i am not confident we will get a sweep either way. that is the least likely outcome . it'll be very close. to get one party is a sweep will be challenging. the executive order lever, that is where the action will be. jonathan: are you suggesting that if we get a president trump volume to the supply-side nirvana would be threatened? that is right -- mike: that is right. this is a hot issue for the

election. this is a hot topic. the question is do they try to curtail some of the inflow prior to the election? we will learn more about that in the confections. jonathan: this could change quickly in the space of a couple of months. i'm just china figure out how quickly the market could respond to the change. mike: here is the real takeaway. there has been a lot of market to market going on. i would argue everyone has been wrong about the fundamental picture in many ways. the market to market, why are you any more confident you know what will happen next? that is where we have a problem with valuations is there seems to be this perceived certainty in being priced in. i am not certain at all. i feel like there is complacency around what is going to happen. there could be positive surprises but those may lead you to a different group of assets

you want to own. i think bonds, this is one where i could flip a coin and i would think that is it. i can see rates higher from the standpoint of fiscal sustainability problems. we had a term premium increase last year. or i could see things slow down because rates are higher. maybe things slow again. our house call up as we are going back towards 4.15. we just had a guest say 3.75. 4:15 is things slow down a little bit. jonathan: is it easier for them to perceive being 100 basis points lower than 100 basis points higher. mike: on the 10 year? 100 is big. 100 on the upside would be the markets really concerned about funding sustainability like the u.k. 100 basis points lower is kind of a hard landing. jonathan: give me the next 50.

mike: 50 i am still leading to higher, but our house call is lower and i have to go with the house call. the bond guys, that is their job and i have to bet with them. what happens in that scenario for stocks? all the sudden our new lending scenario is probably not the case and we would probably downgrade energy and go back to some of the things that were doing better last year. you have to keep a flexible open mind. we have battop much about index because we are trying to focus -- we have not talked much about index because we are trying to focus on the relative value trait. jonathan: mike wilson of morgan stanley. equity futures fate just a touch. let's get to the bloomberg brief. dani: president biden has weighed in on anti-israel protest on college campuses. the president told reporters he

has set up a program to deal with it and i condemn those who do not understand what is going on with the palestinians. columbia and yale are cracking down on the protest. 100 students at columbia were arrested and 60 at yale. gm shares higher premarket. robust truck sales. the company sales and earnings in the first quarter both came in above estimates. that lived in guidance overshadowed a slump in china where gm lost about $100 million last quarter and it is a region which won $2 million a year in profits. amazon offers subscription for unlimited grocery on orders from amazon fresh, whole foods, and specialty grocery retailers on amazon.com. jonathan: up next, u.s. aviation facing headwinds. >> if you think about 100

aircraft removed out of bowen's forecast, that could translate into a big price momentum for u.s. airlines, which have been suffering. jonathan: more on the u.s. airlines up next. live from new york, good morning. ♪

jonathan: equities fading just a touch. yields higher by four basis points. approaching 4.65 on the u.s. 10 year. u.s. aviation facing headwinds. >> boeing is in this purgatory. there at this low production. that brings us to airlines and the way capacity is tight. if you think of 100 aircraft removed out of going forecast that could translate into price momentum for the u.s. airlines

which have been suffering. jonathan: boeing set to report earnings tomorrow amid investigations. jetblue shares are falling. they are lined disappointing on second quarter and 30 or guidance. that name is down on most 11%. george ferguson of bloomberg intelligence joins us for more. let's talk about the airlines. talk about the names that are doing well and the names that are struggling. george: so far we have seen united and delta report and those were decent reports. it was built on restrictive revenue. those are airlines that have good premium in their revenue risk. higher price point seats. this morning we saw jetblue report. they have more of a mix of caribbean, and we know there is a bunch of weakness and capacity

going into caribbean and latin america. it looks to us like this is more of a story of that basic part of the cabin is a much more difficult place for airlines to get any decent price out of. that has hurt profits during q1 and to q. -- and q2. revenue falling within capacity is falling which is telling you fares are falling faster. i chalk this up to that basic economy section of the jetblue airplane as well as some of the mix caribbean creating problems for jetblue. we have -- lisa: we been talking about the airplane represents the bifurcated economy with the people in the front doing just fine and the people in the back struggling. what does this say for other airline earnings? george: we are about to go into

earnings for the lower cost airlines. spirit has already given us a bit of a guide. what it indicates to us is it will be a rougher story for those airlines in earnings because they do not have the premium content to bolster revenue. what we are hearing from every corner of this market is if you can find a way to create more premium content you will. frontier is creating premium content by taking out the middle ceased in airplanes. will end up come airlines will step on them premium seating, and demand as hard as they can, we are seeing that everywhere in the market. if you have a lot of premium stadium you'll have a hard time maintaining revenue and that will hearst earnings. jonathan: you lost us at

frontier and premium. got to go. not to be a snob at all. mike wilson has thoughts on this. you're overweight energy and what it means for your view on the u.s. consumer and discretionary. how does one inform the other? mike: this is probably more of a trait than a secular call. energy got killed last year. it was a major underperformer. from our standpoint, this was a call about earnings revisions not about geopolitical risk. geopolitical risk is still there and it is a hedge in case something happens. this is a revision call. oil prices do not need to go up for this to work. it is that simple. lisa: went does this become attacks on the consumer at a time you see weakness elsewhere?

mike: in oil these prices are fine. gasoline at four dollars is where the consumer starts to push back. crude has gone down. we are $83 and wti. that is informing me we are ok. if we were to hit 95 or 100, oh yeah. as part of this trade we are underweight consumer discretionary. we think the consumer is weaker for reasons beyond gasoline prices. a good chunk of the consumer is hurting. it's gets back to the comments on the airlines. it is a happen have bought world playing out everywhere we see. the consumer is being very judicious with their pocketbook. they are barring lot and credit cards. we're single he would see action there. it is just harder to get the dollar to your company. consumer discretion will be difficult. annmarie: can energy what you like outside of crude?

mike: anything levered took root. when we upgraded energy we said you still to take the quality curve. this not a situation where you want to be going down the quality curve. integrated, some of the higher qualities in peas. -- higher-quality enps. annmarie: what about gold? mike: this gets back to fiscal sustainability. fiscal dominance was something we brought up four years ago. we think we are in a fiscally dominant policy world. at the end of the day, pose telling you markets are starting to worry about about fiscal sustainability. if you think about gold and how it trade relative to real rates, that is the number one signal. real rates have gone up and it is a vote against the sovereign. central banks are buying gold and it is a good hedge against

fiscal sustainability. jonathan: one piece missing is dollar weakness. why is that piece missing? mike: because everyone has the same problem. tell me a major country that does not have the same issue. all of the major currencies are depreciating against gold or crypto. it is sustainable. lisa: you like bitcoin? mike: the market does. i like gold better. it has a longer standing history of being a good place to be in this outcome. jonathan: really thought. . have to do it again. -- really thoughtful stuff. have to do it again. it has been too long. we have to go to the bramo cam. bramo's face lit up when he brought up bitcoin.

lisa: he brought up the liz truss moment everyone mocked. the question is when this becomes a real issue. that tell him goal is fascinating. jonathan: up next, deutsche bank's matthew luzzetti. and the fed's preferred read on inflation. equities positive .2%. in the bond market yields drifting higher four basis points. on the 10 year, 4.65. from new york, this is bloomberg. ♪

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jonathan: equities positive .2% on the s&p 500. a little bit of a lift. up .2% on the nasdaq. the russell pulling back. down much more than this. down one third of 1% on the russell. in the bond market, going into the pmi's in about one hour and 15 minutes. yields higher by four basis points. on the two year higher by two basis points. threatening to block in we did weekly last time. as you said, supply is very much the focus over the neck to you days the front end of the curve will be aware that supply lands. lisa: options of two your notes being held today at 1:00.

yesterday people think because the two year yield remained behaved, that is a reasonable out breathing space for a rally. much of this is the tale that is wagging the dog up equities. jonathan: lisa went through the supply. two your today, tomorrow the five-year. record issuance. seven your notes, $44 billion worth. let's take it from the bond market to foreign-exchange and i want to talk about one currency pair with levels. the levels have turned up to be so important. it was very quickly 153 and 154. now we are at 155. the authority around the currency relies in the finance ministry. we heard from the former vice minister of finance for international affairs in japan. he said we are very close to intervention. we want to understand what that

intervention looks like and whether it will be powerful enough to do something about this. lisa: right now i will gauge the market response. the answer is no, absolutely not. for the former fx chief to come out and say it is almost there, they have lost credibility in terms of signaling verbal intervention. jonathan: verbal intervention has been hanging over the fx market for months. under surveillance this morning, the ftc suing to stop tapestries $8.5 billion takeover of capri, it is the biden's administration first antitrust action in the fashion industry. regulator saying the deal would harm consumers and workers. the tampa tree ceo saying customers of a wide range of businesses. explained to me why this is happening.

are we avoiding the definition of luxury prices meant to be high? i think the ftc will come out and they talk about workers potential of what this meeting could mean or -- what i find challenging is regulators in europe and japan green lit this deal. why is it an issue in the united states? that you go back to the statistic. since their appointment, lita, and jonathan kanter have brought the highest requirements since the u.s. begin requiring antitrust deals in 1976. they do not want to do deals. lisa: a defense of the deal. 33,000 employees is how many people would work for the combined company. you can reduce wages if you combine the companies and create comedies of ill. how do you compete with the likes of gucci if you are a bit

rand. from the biden administration, it seems like this is more of a worker thing. jonathan: if that is the obstacle to closing a deal in america we will never close a deal again. they come on tv every time they close a deal and talk about efficiencies and cost savings. annmarie: this is the reason -- lisa: this is the reason brian moynihan was saying a lot of things are getting iced. jonathan: we will focus on that story. data showing iphone sales falling 19% in china. apple losing market share to competitors like huawei, which saw sales climb 70% in the same period. you said the market is growing. it is not a market problem, is an apple problem. lisa: are they going to start to

say out loud we are trying to shift to india, we will cut our prices further? we will talk with the government and try to divert different streams of revenue. this is a huge cloud hanging over the stocks. annmarie: this after bank of america named apple a top 2024 pick. they are talking about the prospects for services, growth, and margins to remain strong. collagen is the china story to the outlook. with double-digit move year to date. stocks lower. ee on friday. bloomberg stash pce on friday. -- pce on friday. matthew luzzetti say "we now expect only one rate cut this year followed by modest reductions in 2025." matt is with us for more. i think a lot of people have

moved your view of the world. you are talking about a midcycle adjustment quite a while ago and everyone else has,. this is no longer about the start of a cutting cycle. can you frame the difference in what led you towards that conclusion? matthew: we have two historical examples of midcycle adjustments. one in the mid-1990's and one in 2019. the logic is the fed is cutting rates because maybe they are seat weakness in the economy they're trying to get ahead of where they are seat weakness is coming down substantially. this cycle will be about inflation coming down and the fed cutting rates in response to that. with the labor market where it is and growth as resilient as it is in financial conditions as accommodative as they are there is no reason for the fed to guide towards a full cutting cycle. jonathan: pre-pandemic i remember of phrase chariman powell talked about on the objective was to raise the cycle. where are we in that? matthew: you have seen fed

officials talking about risk management for a long time. risk management has meant raising rates to ensure inflation does not become entrenched. three or four months ago we saw a better balancing of the risks. the past three months of stronger inflation prints have put inflation back to the forefront for the fed. extending the cycle does mean ensuring inflation does not get entrenched, not cutting rates prematurely. we hear about the bigger risk, having to re-hike later. lisa: i like ben bernanke's idea of scenario analysis. i would like to have a sense of how the fed would respond of certain things happened. now many hot inflation prints will it take before we start typing about no hikes this year? how may week prints does it take for the fed to cut? matthew: we are close to talking about no cuts.

our expectation is the fed cuts in december. we also expect you will see disinflation. even if you get disinflation three or four months ahead, the fed will be more reluctant to cut rates because they have seen a head fake from the inflation data and it will take a wild to rebuild the confidence. core pce inflation might be to .07 or 2.08. we have the labor market adding 200,000 jobs per month with a historically low unemployment rate. there are not many reasons to cut rates. lisa: how much are they tacitly admitting that the pivot last year worked against their goal of disinflation? that that might have contributed to the stickiness we are seeing right now in some of the data? matthew: perhaps it is a contributing factor. a lot of this is seasonal. you have seasonal factors.

what that means is the disinflation we saw last year was overstated. overall inflation will be more elevated than we thought. financial conditions help to boost growth as we go ahead. i do not think that is a key factor. lisa: midcycle adjustment is not sound like we are near any kind of hard landing. the different cycles we are seeing in the earnings report, the two cited economy, it is very real. how do you play that out given the fact that if rates remain at this level, the lower half of the population will struggle that much more. i am talking about companies and individuals. matthew: from my perspective that is returning to more normal conditions. it is the reality of the u.s. economy that you have delinquency rates more elevated for lower income households. a lot of this is returning to a more normal pre-covid environment as excess savings gets drawn down. what we have seen in that

environment is robust consumer spending. we see gdp growth that looks solid. we see employment gains above 200,000. we see houses adding meaningful income growth. all of that is supportive for still solid growth for the u.s. economy and something the fed should be worried about. annmarie: what about 2025? how are you thinking about 2025 given that we might have very different policies coming out of washington? matthew: go doubt. it is a challenge to think the fed could cut rates in december. i think that could be highly conditional on the election outcome we get. if you have an election outcome that has meaningful fiscal stimulus and policies whether through trader immigration, the reality that the fed cuts rates in december is reduced. the fed certainly will have to factor economic policies that will impact inflation and growth. jonathan: trapped up with a

counterpoint. andrew hollenhorst and citigroup who is still looking for midyear. you push that back out to december. can you walk me through how low the bar might be to rate cut midyear? i'm trying to work out how the market will respond. let's say we get a soft inflation print. to the conversations of last month disappear? how does that work? matthew: to get a cut by june seems unlikely absent a weakening in the growth environment. to get a cut by july i think you need to see a quick deceleration in the inflation data. we have now had three inflation prints well above the fed's objective. we have seen annualized rates accelerating. it is unlikely you get core pce down in that time. i think you need to see a swift and convincing prints of weaker inflation data coupled with weakening of the labor market.

jonathan: what do you see in the inflation mix that makes you think that is unlikely? matthew: mean and median have remained elevated. it is not about outliers. and we got a rent index from the cleveland fed. the alternate index stabilized of elevated levels. that tells us that through q2 we are unlikely to see shelter develop lightly. jonathan: the brilliant matt luzzetti of deutsche bank looking for the first rate cut in december and looking for there to be moderate adjustment in 2025. the team at deutsche bank are calling a midcycle adjustment. let's get you an update on stories elsewhere. here is your bloomberg brief with dani burger. dani: shares of spotify higher 10%. paid subscribers are now at almost 240 million. spotify plans to raise prices for the second time in a year. shares of ups lower this

morning. they were higher. despite the fact they did beat estimates in the first quarter and reaffirmed its guidance for the remainder of the year. the headcount, management, and restriction of delivery appears to show through. apple is close to inking a deal with fifa to get worldwide television rights for a month-long u.s. world cup style competition according to the your times. it would be apple's latest venture into soccer after it secured a 10 year deal for world streaming rights to major league soccer. jonathan: up next, all eyes on tesla. >> instead of focusing on technology for the sake of technology, what i like is tesla succeeding to make tv's in the foreseeable future. jonathan: up next, vishy rakesh.

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jonathan: the opening bell about 45 minutes away. futures positive .43%. under surveillance this morning, all eyes on tesla. tesla said report earnings after the closing bell. shares down 43% year-to-date. the ev maker at an inflection point as investors worry about a shift in priorities. elon musk widely projected to ditch the rollout of a cheaper model in favor of developing a roby -- -- a robot taxi. vijay rakesh joins us now. we have some time with you to work through a lot of issues.

they go to question on this program has been do we have an industry problem here or a tesla problem. which one is it? vijay: i think it is a little bit of both. in terms of industry we have seen a strong adoption of ev's last few years. you've gone through the first round of early adopters so getting to the second round is tougher as most of the low hanging fruit has been taken. yours in the ev industry faced challenges, especially with china. on tesla specifically, you have a fleet that needs a refresh. investors were looking for the model, but that would be unclear if that is -- we see that get pushed out into 2026, which in this case between 2024 and 2025 you do not have new models

coming to market. jonathan: if we do not have growth, how do you value the growth company? it is a question wells fargo have tried to answer. what kind of valuations put on that name? vijay: it is a tale of two scenarios. one is near-term where you have challenging growth expectations because of a fleet that needs a refresh. longer-term you still have the electrification is still very much on track and you can see the global ev market grows significantly. that is where everybody is placing their chips. all the global ems, everyone's economy, everyone is pushing on the ev road now. that is for the challenges. near-term you're facing a conundrum of lower costs -- the

ev market still needs to bring costs down. the model two would have been a very welcome addition to that fleet but it looks like there are some question marks around that. lisa: what gets us to $195 a share from the $142 a share as you project? vijay: i think a lot of the pullback has been given the recent trends in slowing sales, but also down around the model two timeline, especially with it still on second half. the more clarity elon musk and tesla can give to the street, the better chance he would have for the stock to consolidate on a higher level. that is what investors are virgin so jan. robotaxis are good map.

they will get literally come requirements, giving these standards. it is still a roadmap that needs evolving. we could see something happening by 27 or 2028 at the nearest. the big focus has to be getting model to back on track. lisa: we were talking about which elon musk which up to the earnings call. how much would his tone matter to you, whether he likes you guys or whether he excoriates you for boring question? vijay: we have to separate the execution -- the valuation should be late to the execution of the company. as tesla has done and active job

-- they have a massive balance sheet. now the focus should be on getting the product roadmap act on track, getting growth back on track. that is really the valuation of tesla stock, the execution on the product roadmap and how that evolved. annmarie: as it deals with this price war in china, was it a mistake to get rid of the cheaper version $25,000 tesla? vijay: i think we are not there yet. i think there have been supports that money gets delayed i am sure that is where all of the investor focus will be. it is much less focused on what the earnings for the current quarter will look like because estimates for the current quarter have come down

significantly. i do not think there will be much of a concern around what the numbers are for the quarter -- that is really where the focus is. that is where all of the questions will be based. annmarie: as they plan to rollout the robotaxi, you went through issues they have to deal with before august. this does not have government approval. what you need to hear from elon musk them into thinking august we can see this project. vijay: seeing the product is not a big challenge. the real question would be what is the execution? what is the performance? what are the standards -- what is the customer feedback?

there are smart points out of this. i think there are against. that makes me think -- [indiscernible] also significant structural upgrades as well. it is what everyone wants to see happen. we have seen this multiple times before where timelines get pushed out. at this point 2027 or 2028 is where we think there is any chance of seeing global taxes. that is not geo fenced. jonathan: let's wrap things up by talking about -- elon musk has not always been a polarizing figure.

he is incredibly unique the amount of success he has had across various industries. you think about the time of paypal. what he is doing right now. innovations in health care. at the same time is booming spacex and we can talk about twitter another day. more recently the experience of twitter has led to increased polarization of the man himself. when you have conversation with clients about leadership to they feel he is isolating a portion of the consumer base? vijay: when you look at geniuses the list of accomplishments are long. they always tend to be eccentric. that is why we have to compartmentalize the execution stop and how tesla itself is doing from personalities. i know it is tough to do that. how is the company securing,

what is the roadmap, is there something that drives valuations. what drives this company? obviously, every genius got there because of their accomplishments, and of them have helped them. i would not go there. jonathan: very diplomatic. well navigated. vijay rakesh. look out for him on the call. those earnings coming out later on. that stock is on a seven-day losing streak come the longest this year. the name is down more than 40%. if it goes to the s&p 500 come the second worst name on the s&p. given all the troubles boeing has had, that stock is down more than boeing in 2024.

lisa: it is unclear what will revive faith in it. will it be the robotaxi? jonathan: to me the robotaxi is the parent hanging over the stock. just waiting and waiting. annmarie: it feels like a hail mary. everyone is like we need regulatory approval, we need a product but how to get that product to market. it feels like he buying into this idea come it might work. jonathan: coming up tomorrow, p a fair goo, mike schumacher, kate moore. pimco's tiffany wilding. fantastic lineup. good morning to you all. the opening bell is 34 minutes away. this was "bloomberg surveillance." ♪

manus: from new york city, we are counting down to tesla which is been down for seven days in a row. the longest losing streak since 2022. we will count you down for the next hour. the next 30 minutes takes you to the open. coming up on the show, earnings busiest season as we start ramping up. futures looking for direction as the markets digest results. we begin with the big issue. earnings take center stage. >> if i were to say what is a theme of earnings season so far