Bloomberg Surveillance 03/22/2024

The Everything rally is likely to continue for a little bit longer. I think stocks and continue probably to do well, high quality stocks. The winners themselves, when momentum is high, can continue to do well. There's still very much a speculative fervor within the market. We've been bullish. We remain bullish. We still, you know, very much seem to be in this sweet spot. This is Bloomberg Surveillance with Jonathan Ferro, Lisa Abramowitz and Annmarie Horden Hearn. Let's get you to the weekend li

ve from New York City this morning. Good morning. Good morning for our audience worldwide. This is Bloomberg Surveillance am back in the hot seat. It's been a while. She can tell us where she's been in just a moment. Equity futures on the S&P 500 positive by 0.1%. Four day winning streak on the S&P 520th all time high of 2024. That date is pretty decent. Central banks are leaning into rate cuts. What's not to like? Which is the reason why everyone seems incredibly risk on which maybe should make

some people worried. But it doesn't because there's no reason not to. You've got the fiscal impulse on one side, you've got the monetary impulse on the other, and the both going in the same direction, which is things going up. The Fed speak a little bit later as well. I think Chairman Powell opening a Fed Listens event. We'll hear from Bostic. And Bob, what are you looking for? I don't know the truth. I looked at this and he's going to come out and say, I'm so glad I'm ready to hear. And listen

. I don't think he's going to try to say anything. But the interesting thing is he's not going to try to say anything. No one's talking about clean up. I'll clean up on aisle two. Jay Powell, which to me is telling because after December, people said, okay, well, who's going to come out and say this was a bit premature? Now it's clear it's a dovish pivot that was real back in December. Regardless of the data, we are listening to the DOJ. Just yesterday, check out shares of Apple down yesterday b

y about 4% this morning, higher by 0.2% in the pre-market. The DOJ suing Apple for violating antitrust rules. And we welcome back. We need to get into that. What stood out for you in that report? Well, there's a number of things they're alleging in terms of these antitrust. It feels like what they say is that rivals are not able to access the hardware or software that Apple keeps so closely guarded. For me, though, it had to be they take issue with the fact that if you're an iPhone user, new mes

sage, an Android user, it's the green bubble versus the blue one. If you read the more than 80 pages of this lawsuit, they actually say social stigma was part of it. So there's a lot of individuals who are pushing back on this and saying, is this going too far in terms of really calling on Apple for Monopoly? What I found interesting was that previous antitrust suits didn't have a market reaction. All of the sort of legal action in Europe didn't seem to matter to Apple shares. Suddenly this one

matters a whole lot. Is it because of the substance of the suit or because it's just convenient timing and people are souring on Apple after a pretty substantial decline in the face of weakness? Can I say both? Because the list is long. China increasing competition. Exactly. Take your pick, Brammer. We're down about 11%, I think double digit losses so far yet today on the stock, which raises questions, is it just sort of the final nail in the coffin for Apple not being part of the Magnificent Se

ven? You know what was impressive about yesterday, though, Alphabet down here tonight having a difficult year. We've got Apple down year to date by double digits, throwing in another surprise this week. We've priced out rate cuts again over the last year. Okay. You've got Apple down double digits, which used to be the market darling of the stock market, the poster child for US tech and yet still the S&P 500 is up by close to 10% year to date. Now we've talked a lot about things we'd be surprised

about in January sitting here saying, okay, if I told you Apple was going to be down double digits in 2024 by the end of Q1, that we priced out half the rate cuts we had priced and then said to you, the S&P 500 would be up close to 10%. What is interesting is this goes to sort of the broadening out and also this question of where are we in this credit cycle? Where are we in this economic cycle? People are saying late cycle last year now suddenly, Max Kutner of HSBC saying maybe it's sort of ear

ly cycle behavior, given the fact that you're seeing, you know, maybe potential signs of weakness. But where quits rate, is that really as well as is as good as you can do? That was quite a change from Max Kent over at HSBC. I read that story this morning. This is not a bubble. This was this. No, we're overweight, high yield credit and equities, overweight oil as a play on the global economy, picking up the attitude, the sentiment shift has been phenomenal in the last few weeks. And it is global

. And you're seeing that in flows. People diversifying outside of the U.S. They want to sort of capitalize on a global growth wave, even though people previously said it was from the U.S. and US exceptionalism. Now it's us is crowded and let's move out and try to really just explore this new early cycle behavior. Are we really early cycle because banks are doing maintenance cuts at central banks are doing maybe because I don't know the answer to that, but I think that's one kind of new theme tha

t's developing. I do know that this week is exhausting. So let's get straight to it. Equity futures on the S&P 500 positive by 0.1%. Here's the state of play. Yeah, it's a little bit lower. Again, we're down three basis points on a ten year for 2375. Coming up this hour, we'll catch up with Bob Michael of J.P. Morgan on the Fed's path forward. Bloomberg's Alex Webb on Apple becoming the latest target of Washington, and Peter Oppenheimer of Goldman Sachs. With U.S. stocks cruising to all time hig

hs. We begin with our top story. US stocks posting another record heading towards the biggest week of gains so far this year. But Michael at JPMorgan Asset Management write in this the soft landing continues to unfold everywhere with the tail risk of reacceleration or contraction looking equally balanced. What's the biggest risk Fed policy error? Either they cut rates too soon or too light bulb joins us now for more. Bob, good morning. Good morning. Can you pick one for us? What? It's the bigges

t risk out of those two options that the soft landing continues to unfold for the next 18 months and people are still stuck in cash. And every meeting I have and I've said this for the last several months, I've been here, that's the first question I get. I have too much cash. What do I do with it? Where do I go? Everything's gone up in price. What am I going to do? And I sit there and I wonder, how could everyone have more cash? Yet every asset price has gone up. Where the hell is it all coming

from? Truly, the everything rally, we've seen it in bonds, We've seen it in stocks, We've seen it in commodities. You've seen it in gold. Can I ask you the question you've asked yourself? Where is it coming from? I don't know. But I've lived through this before and it was 1995. We had our investment quarterly yesterday. We talked about it at the end of 94. It looked as though we were barreling into recession. The Fed had doubled the Fed funds rate, U.S. Steel had defaulted. You had the Tequila c

risis, Orange County defaulted. Everyone was 100% certain we were going into recession and everyone was risk off. And then we had that immaculate soft landing. The Fed took the edge off of things. They cut rates from something like 6% to five and a quarter percent, and the markets did fantastically well. And we were talking about, well, surely going into that credit spreads must have widened a lot. And Lisa Coleman, who runs credit for us, looked at me and said, You asked me this question every

three months. No, in 94 they were dead flat. They didn't move a single basis point. And we're seeing the same thing. The demons are at work. People are worried about a reacceleration or we eventually will roll into recession. They're waiting for a better buying opportunity. Yet credit spreads are holding and there's just still too much cash out there. Which raises this question, have you shifted your stance a little bit on the margins? You used to say that the biggest risk was really a recession

. That was your call. Is this a new call for you, the idea that it's equally balanced now with a re acceleration and potentially a real inflation problem? Thank you for reminding me that a year ago we were all so certain that we were headed into recession. And that's been, after all, the regional banking system did blow up and it looked as though and the Fed still went ahead and hiked rates a hundred basis points in in the first part of of last year. And for sure it looked like recession. But in

September we threw that away and went to more of the soft landing cap. So so we've done reasonably well. I, I sit here and we try to find where is a smoking gun, where the demons, where where is there legitimate proof that actually there's a frailty that will become manifest in the downside and it's too hard to find. And actually there are more signs going the other way when we talk to the credit research teams, whether it's investment grade or high yield, they're telling their companies just l

ook better that EBIDTA is starting to go up again, that actually companies are more confident about their cash flow and their earnings. So it actually feels that there's more of a stabilization than downside. When you talk about where is the money coming from, I'm struck by all of my conversations this week and over the past couple of weeks about how much fiscal money has been pumped into the system and how people who received it and companies that received it aren't going to go out and spend it

. And some of the line items they're going to invest in stock market, which is part of the reason why and the bond market, it's part of the reason why there's this wall of money just flooding in. Is there a concern on the government bond side that there's going to be some sort of coming home to roost with respect to the leverage being transferred from the private sector to the public sector? I don't think so. And and we also looked at the amount the amount of money in plans like ARPA that have y

et to be distributed. There's still 44% of the trillion dollars that have been set aside that have yet to go out into the economy. So that's already a sunk cost, so to speak. And you're right, the policy stimulus was literally off the charts. You had to go back. When you look at the combination of fiscal and monetary, too, World War Two to have any kind of relative metric. But we had the pandemic. It's what we needed. It got us through it. And now we're coming out the other side. It will take ti

me to work down, but it doesn't seem to be a problem. We can't be concerned about the amount of Treasury supply out there when the entire Treasury curve is trading over a hundred basis points through the Fed funds rate, except for the very front end the two year. So there's still plenty of demand out there. There is no alternate reserve currency in the world other than the dollar, so there will always be concern Bitcoin. Let's not go there this morning. It's too early for me to go, though, so th

at there will be support for the dollar. And the quickest, easiest way for a large official institution to maintain dollar reserves is to buy Treasuries. We're not worried. But to Lisa's point, do you think down the road you'll ever have this concern of the path we're on in terms of the US deficit? We are in the world of modern monetary theory where when there's a crisis even, you know, the pandemic was a big one. The regional banking crisis, people want to say it wasn't a crisis, but only becau

se the policy response was overwhelming. Governments borrow and the central banks help to underwrite that. But it it doesn't just disappear into the ether, right? The amount of fiscal stimulus you get actually goes into the system somewhere. There is a credit multiplier, a credit extension effect to it, and that's helped to boost the economy. And we saw that early this year when the Treasury dialed back the expectation on the amount of issuance, because guess what? Tax receipts were up, which is

exactly what you want when you apply that amount of stimulus. So let's put together some of the things you've told us so far. So the economy is pretty decent. Biggest risk is upside risk and maybe the extension of this cycle for another 18 months. You mentioned the inversion of the yield curve as well. So we've got a two year at the moment about 460, a ten year at 424. Given everything you've told us, how are you convincing clients to go further out along the curve to pick up less yield? What a

re you telling them? Yeah, that's a really good question because the Fed funds rate has to come down to 4% to legitimize the Treasury curve where it is. And for sure, if it comes down to 4%, the front end, the two year drops from 460 down to about 4%, but 5/10 thirties stay about where they are. It's not so much that it's looking out into the market, looking into the investment grade credit market where you could pick up another close to a percent going into the high yield market, the securitize

d credit market. That's where you're starting to pick up yields that are in that five and a half and higher in high yield, close to 8% range. And those are the kind of yields and credit spreads that will come down once the Fed starts its rate cutting cycle. You mentioned that with so much cash coming in. Where is the cash going where you would direct and get at the moment? What are the biggest things you're advocating for? Well, we do like credit just because corporate America looks so good and

I myself have gone full circle on private credit. It's so big. I accept it as a legitimate source of non-bank lending into the system. Okay. This is a change. What changed your mind? Just. Well, one, the fact that it's larger in size than the public high yield market. So that's pretty significant that it is getting out there. It is lending to borrowers. Those borrowers aren't just sitting on it. They're actually hiring people. They're using resources. They're creating economic activity. Even if

you think put some unimaginable default rate out there, 20%, that still means 80% Is money good. And while there are problems that are ongoing right now, whether you want to call, to amend and extend or exchanges or restructurings, they're occurring. They're occurring and they're happening without all the fanfare if they happen in the public markets. It's a strange form of re-insurance to the public credit markets. So it's another reason we like the public credit markets, because they just look

so clean right now. I love it. It's like, okay, shoot me to ribbons. Okay. Good morning. My name is Bob and I am accepting private credit. I love how nice that they it just saying that coming up with the biggest comeback for anyone who's been a surprise, I think it's great. Can we finish by asking you a simple one, Bob, When was the last time you were this bullish on your asset class? When was the last time you mentioned the mid nineties? When was the last time you were this bullish? Oh gosh. Yo

u have to go back to to the mid 2000. Wow. Yeah. Does that make you uncomfortable or uncomfortable? As long as it's not 27, it is. I feel great because I feel post-financial crisis. We've sort of been in a la la land where we there's there's been a lot of policy intervention along the way because it was needed to recover from what happened during the financial crisis. And they blame us The baby boomers we learned about leverage in housing, never went down in price and we figured out how to blow

it all up. And it took over a decade to put Humpty Dumpty back together again. And we see that's what's happening. We see that the 91 births are the largest population cohort. They're turning 33 this year. They're the dominant earner. Spend or save or I think we can toss away the last 15 or so years and look at the period pre financial crisis when there will be a demand for capital, there will be a cost to it and there will be a productive use to it. So I'm I'm very optimistic. This was thoughtf

ul stuff. Bob, it's great to catch up with you. Let's kick off this Friday morning and start to close out this week. But Michael of Jp morgan, thank you, sir. Let's get you an update on stories elsewhere this morning. We can do that with your Bloomberg brief. Here is you had a hacker. Sayonara. Hi, John. Investors took a $113 billion bite out of Apple's market value following regulator moves against the company. The DOJ and 16 attorneys general filing a lawsuit accusing the iPhone maker of block

ing rivals from accessing hardware and software features on the iPhone, a claim Apple strongly refuted across the Atlantic. The company is also said to be facing probes about whether it's complying with Europe's Digital Markets Act. Tesla has reduced electric car production in China amid sluggish sales and intense competition in the world's largest auto market, Sources telling Bloomberg the company instructed employees at its Shanghai factory to lower production of both the Model Y sport utility

and model three sedan by working five days a week instead of the usual six and a half. Nike warning investors sales will take a hit later this year, pushing shares lower in extended trading. The world's largest sportswear company says it's working to realign merchandise to better match what shoppers actually want to buy. Nike says revenue and earnings growing next fiscal year as it expects to see it pay off from a $2 billion cost cutting plan announced back in December. That's your Bloomberg br

ief. John Harris, thank you. Up next on this program, the DOJ looking to rein in Apple. We allege that Apple has employed a strategy that relies on exclusionary anticompetitive conduct that hurts both consumers and developers. We'll see how difficult that is to prove that conversation. Up next. Police are on the edge of turning bullish. I don't know how that makes you feel. No, you just sit on. Oh, you're just waking up this morning. You think? What should I worry about? Data. States and feds ab

out to cut interest rates. Stocks are at record highs. Everything is rallying. Lisa is on the edge of turning bullish. Hold on. I understand why this could continue. What worries me is that the wall of money is going into specific areas that when the tide rolls out, they will crash. I can come up with the bears that say worries. Okay. It's hard to see imminently on the edge of bullish. You get like this close stimulus from every sides that you have close. This has ever been. Never been this clos

e to being bullish. Equities right now positive almost the weak by 0.1% on the S&P 500. Under surveillance this morning, the DOJ looking to reign in Apple. We allege that Apple has employed a strategy that relies on exclusionary, anticompetitive conduct that hurts both consumers and developers. For consumers, that has meant fewer choices, higher prices and fees, lower quality smartphones, apps and accessories, and less innovation from Apple and its competitors. Here's the latest this morning. Th

e US Department of Justice is suing Apple, accusing the iPhone maker of violating antitrust laws by blocking rivals from accessing hardware and software features. Apple shares sliding 4.1% yesterday, wiping out nearly $113 billion in market value. Bloomberg's Alex Swift joins us now for more. Can we start with the victims? Talk to me about this. Who are the alleged victims of these violations? So it's not necessarily other smartphone making companies, but it could be a lot of people offering ser

vices on Apple's platform. So we've heard complaints, for example, from Spotify about the way that actually not only payments are taken, right, that they have to pay a certain cut to Apple if someone signs up for Spotify on the device. But also Apple would not let them tell their customers on the iPhone that if you went and subscribed online, then you didn't have to pay that cotton. It was cheaper there. The companies such as the people who want to make mobile payments possible and contactless p

ayments. So at the moment you can only use Apple Pay with an iPhone. One of the things that the DOJ is saying is that actually other services, perhaps even like Android Pay, should be available. So it's a lot of smaller companies offer. I mean, Google is a smaller company, but not smaller who are trying to offer products and services through the iPhone platform, who the DOJ alleges have been squeezed out. I don't know, Alex, who's waking up this morning, though, and shedding a tear for, say, a c

redit card company like Visa or Bank that says that they can't have a digital player when it comes to the Apple wallet. But what is the DOJ remedy? Are they actually going to call for a breakup? Well, you know, you talk about behavioral remedies, right? So they'll be forced to actually change some of the set up that they have in the device. We've seen that already in Europe and many different ways in terms of the menus you have for what is the default, for instance, search engine. When you open

a smartphone, what is the default then payment service that you would use? These are the sort of behavioral remedies that might be possible. There are other things, of course, you know, other companies for smartwatch makers, for instance, who don't have the same sort of smooth operation with an iPhone, as does the Apple Watch. You have to they could be then forced to open some of those APIs to make it easier for competing devices to have their data, for instance, appear in the Apple Health app.

What have we learned from other such suits facing Apple about the fact that Apple says they need to do this for security reasons? So Apple often makes this argument, right, that this is about the quality of their service, of the quality of the Apple experience, that if you let a bunch of other sort of unmediated, unchecked apps and services onto the device, then it will be deleterious to the customer experience, but also could affect security. The counterpoint to that argument is sight is that u

ltimately that's the choice for the consumer to make themselves. If it is true that Apple's service and product line up is that much better and that that gets worse if you let other products and services onto the iPhone without Apple standing as a sort of gatekeeper in between, well, then that's something that the market should be able to decide itself. So, you know, there is a strong counterargument to Apple's assertion, Alex, in a lot of cases that we've heard over the year going against Apple

, shares haven't sold off that much. A lot of people shrugged it off as just sort of window dressing, regulatory theater. Why is this different? This is probably the broadest kind of full frontal assault that we've seen on the Apple ecosystem all in one go. And we've seen a few sort of chips taken off Apple and of course, other big tech companies by the European Union in in previous years. The fact that this is obviously happening, Apple's home market is meaningful now. Whether or not this leads

to widespread changes at Apple. You know, this is a long way to go and that's a long way to run. Even if the DOJ were to come out with some sort of victory, the changes aren't necessarily about what changes on the device or changes on the operating system. The fear is that it has an effect on the Apple culture. This is something we saw Microsoft that when they were subject to years and years of antitrust investigations and complaints, they became a little bit wary about taking risks. And that i

s something that ultimately was deemed to have hurt them and made them less competitive in the medium to long term. Obviously, in extreme, long term, they're now the most valuable company in the world again. But that was a good ten or 15 year period where they were in something of a wilderness. That is the concern of the sort of massive effect that could have on Apple. So many different dimensions that historic. Alex Webb, thank you, sir, have flown back out of London on messaging Great Wall Str

eet Journal op ed piece that you sent so far. Is it federal law to require tech to be inter operable? That's not clear at all. It's not. It's not clear. So what they need to do is show that this is a proper monopoly, which potentially is going to be very difficult. And we've seen Apple upheld what they uphold, what they do based on security reasons before in court. So this is going to take years. That stock's slightly positive in the free market. Coming up, Headline backer of Ted Cowan from New

York City. This is pulling back. 40 winning streak on the S&P 500. Equities doing okay positive by 0.1%. On the S&P, on the NASDAQ up by 0.1 yesterday. Losses on Apple down by more than 4%. Losses of more than $100 billion on its very large market cap. And yet still this NASDAQ 100 closed at record highs. In the bond market, two year ten year 30 is quite a repricing at the front end of the curve through the week. We've been all over the place for five days. For seven days for 61. This morning, L

isa, we're down about two or three basis points. And why not? I mean, honestly, they're just following the direction from the Fed that basically said they're not that concerned about data inflation data that came in hotter than expected. They're on the right path and they plan to cut. Now, we have a pretty good sized sense in the markets that they are going to cut in June. So it's off to the races. You've got federal funding, you've got monetary policy both on the same page and let's go. You kno

w, it's had a really good week. And you ask the question that this week and we're going to talk to some guests about it. What's good for banks, High rates of lower rates. Banks have had a great week, really stealthy run, five days of gains, I think at 4.7% this week, best week since December. If we close here. And I know we're going to talk more about some of the capital markets activity, but how much of this is because the green light that we've seen from monetary policymakers, but also from th

e federal government has allowed new types of deal making, new types of activity, money just pouring into the system and Mexico to capitalize on that at a time where delinquencies are not picking up the way that some people had expected them to at this point in the cycle. Let's finish on foreign exchange. Something that has picked up over the week is the US dollar. Believe it or not, Euro dollar is down to 1.18, but negative by 0.4% this morning. So some more dollar strength. We're leaning into

cuts from elsewhere, cuts out of Switzerland, hikes that don't work in Japan and potentially cuts in the UK in the not too far distant future to the US economy keeps outperforming. There are no signs. Bob Michael just said he's hearing from different executives of small companies. They're picking up. Every single analyst says that they're going in the opposite direction. So at a certain point, why wouldn't people still like the US as much as they don't want to? And you talk to people, we want to

diversify and then it doesn't work. So we just do this again and again. So that's why people keep coming back to literally everything with a dollar in front of it. This rally this week, that's what it feels like. Equities, bonds in foreign exchange, the US dollar. It's been kind of wild under surveillance this morning. The Justice Department taking aim at Apple, accusing the tech giant of violating antitrust laws, wiping out $113 billion in market value. 15 states plus Washington, D.C., joining

the complaint saying the iPhone maker blocks rivals from accessing hardware and software features on its most popular devices. Apple responding to the lawsuit saying the case is wrong. Are the facts wrong on the law? The news comes as the EU is also preparing new investigations into Apple and Google for alleged violations of rules aimed at big tech. And Lazio right to point out, typically this isn't a stock story. It's just part of the environment that surrounds the likes of names like Apple, G

oogle and others, too. Yes. So they found different. And I can't really wrap my head around whether it's because this suit is different in its nature is Alex, what we're saying it's broader and sort of challenges the fundamental aspects of Apple or whether it's just sort of another thing on top of all the other challenges that this company has. To me, it does feel different though, and the fact that the market responded was unusual given some of the previous track record. A It's been a downpour

when it comes to Apple in general. And John, your point to China, you have Tim Cook actually in China right now trying to shore up this market. That's incredibly important for Apple. But Dan Ives at Wedbush had this to say. The antitrust lawsuit will, quote, kick off a stepped up phase of the Beltway going after Apple. So is this more in the tank when it comes to the antitrust regulators that are looking at Apple and potentially, are we going to see more of this? I want to reduce it to one thing

, but the messaging thing, I just don't understand. I don't understand it. And I'd love to hear from someone that does understand it. It doesn't make sense to me at all. You'll be ostracized from your group chat. They're talking about actual social stigma. The issue I also take with this is that maybe it's because I lived in Europe for a lot of years. Most people are in group chat on WhatsApp on a single precise forum. You don't need to be on an iPhone only. I message group chat. I'm actually on

ly on one. You're not locked in. You can use other options on the iPhone. I don't get it at all. And you mentioned the social stigma. The social stigma. Is that something the DOJ needs to be focused on now, the social stigma of messaging, of whether or not it shows up green or blue on your phone, It is an important thing, ridiculous to be taking up right now. We cannot tell Gucci they can't put the label on the handbag anymore just in case that someone doesn't have a Gucci. Right. And feels guil

ty. Employment and the social stigma of it, that's just ridiculous. Yeah, I think that they should look into it. I mean, it seems like these are the important things that they should be. I'm serious, though. This is where we begin. Where does it end? You know, you're correct to say this, and it's sort of how much are they grasping at straws to try to democratize something that grew up out of a lot of smaller acquisitions over years? Can you backpedal in time and undo that at a time or this is re

ally a pretty aggressively antitrust administration? The complaint includes a quote from Tim Cook at a 2020 code conference and someone. Raised their hand and said, I can't send my mom certain videos. And then Tim Cook said, Buy your mom an iPhone. And that's included in this lawsuit. Okay. Let's move on to a stock that is doing alright better than alright. Just yesterday, social media platform Reddit surging on its first day of trading, shares climbing 48% and ending the day with a market value

of 8 billion. Reddit's most loyal users were able to buy 8% of the shares at the IPO price of $34. The social media company also touting the benefits of artificial intelligence while kicking off the fourth quarter IPO, fourth largest IPO of the year so far. I'm not sure what the pace of all of this, says Paramo. But if you saw that move yesterday, a move of almost 50%, I'd be wondering if I'm just about to come public myself. I'm encouraged, I think, by the move we saw. That was my big takeaway

. Basically, this is a green light to everybody who wants to close out of investments. If you think of private equity or if you're thinking about going public, and that's one reason why I would suspect banks are kind of salivating and chomping at the bit because this means a lot more deal activity. I will just say it does remind me of Overstock coming out and mentioning blockchain and all of a sudden their shares a furniture maker. The shares surged, right? I mean, how much is it sort of similar

? You know, this company comes out says artificial intelligence and boom to the races. And that's the time we're in at the moment. Let's turn to FedEx rallying after announcing a $5 billion stock buyback plan. The company's earnings also were beating estimates and it offered an optimistic outlook despite a difficult demand environment. The results mark a turnaround in its express division after cutting costs and reducing the company's workforce by nearly 22,000. And I'm back to count joins us no

w for more. And I am wonderful to hear from you as always. Let's start with FedEx. The outlook for revenue growth is still not great. Can you talk to us about just how much of the heavy lifting in this company is being done now by cost cuts? No, that's most of what we're seeing here. The revenue lines were were down year over year. And I think that's the key takeaway, that revenue was down and it's the third quarter in a row. Our revenue is down and low single digits and yet the earnings were up

. And I think that speaks to the cost cutting that we're seeing there in the middle of a $4 billion cost cutting program by the end of the current fiscal year, May of 24, they'll have done 1.8 billion and then they'll do another 2.2 billion next year so that the 2026 fiscal year, they've got $4 billion taken out of costs. And if there is a turnaround in revenue growth and actually we can talk about the revenue, a lot of what you see in revenue is fuel surcharges. So in a year or quarter in which

you have lower fuel prices, you're going to have headwinds on revenue and which is part of why it's important to look at revenue excluding fuel surcharges, which actually would have been a. So there are two things here. Number one is what are the prospects of growth? Why are people so excited if this is just cost cutting, that cannot be continued in perpetuity? I would start there. Why are people so optimistic that this is going to be a more valuable company even after shrinking? Yeah. So so so

me of what you have here is short covering. There are a lot of people that were short going into the quarter. If you look back over, I don't know, I've covered the company for 30 or more years and it seems like most quarters, the stock does go down on the earnings release. We've just had a couple where the stock's actually gone up. But to the to the specific question, I think at some point, you know, revenue starts to bounce along the bottom and then you start to see improvement. You're not goin

g to have this poor revenue environment forever. Right. Things do turn around and you start to get into easier comps as the year goes on. And then they should they should start to improve. But yes, they're going to be slightly smaller company. I mean, we're still forecasting that, you know, 20, 30, 20, 32, they do $100 billion in revenue up from around 90, 91 billion now. But yeah, I think I think the focus in the short term is cost covering is cost cutting, rather, it's it's one FedEx getting r

id of all the different operating companies and just focusing on continuing to deliver a high quality product to their customers, to their shippers, so that they can do 3 to 5 or 6% rate increases every year. I mean, a lot of people look at FedEx, UPS, although they have their own challenges right now as bellwethers of this economy, and that typically when their revenues go down, it is a negative sign for consumer spending. Right now, everyone's coming on trying to outdo the other in terms of ec

onomic growth and in terms of investing in pretty much everything under the sun. Is this a sign of caution that revenues actually came in lower at FedEx? Yeah, I think well, some of it is the fuel surcharge. So, you know, excluding that, you probably have flattish kind of revenues. But yes, they did say that the US was weaker than they expected and that international was not improving significantly and that there were concerns. So I think what people look at the consumer, a lot of what they see

is consumer spend, retail spend or spending. You know, for airlines, as we talked about a couple of weeks ago when I saw you guys and and then you think about as people return to their offices, I think three things to focus on. One, as people return, B to B will start to improve. Two, I think we talked a little bit about pricing. So you have that. And then finally things will start to wear out stuff that people bought in 2020 and 2021 will start to have to be replaced at some point. So that will

start to show improvement, you know, maybe in another year or so. But yeah, they were they were really optimistic. They were really upbeat and very excited about a lot of the changes that are happening there. And I think when you think about them being smaller, think about the Express division being smaller and think about ground being bigger when you look at FedEx potentially. Wall Street Journal is reporting a stronger partnership with Amazon. Do you see that coming to fruition? So that's int

eresting because of course, FedEx fired Amazon as a client about five or seven years ago and now they're talking about getting involved with Amazon really for returns, returns this big business. And I think Amazon makes it very easy to do returns, right? You can drop things off at various locations. You don't even have to package it up. And FedEx is is building that business. And so re-engaging with Amazon for returns may make some sense. When when FedEx fired Amazon they were $1,000,000,000 rev

enue contributor versus UPS. It's about $11 billion in revenue. So it was relatively easy for FedEx to replace that revenue. And then re-engaging with Amazon for returns is is obviously an opportunity. Helane, thank you. We've got to leave it there. Headline back of that of to count on the latest with FedEx. Can we get the stock up quickly? Just have a look at where we're trading in the pre market right now. I could do that on the Bloomberg if you can't get it on the screen. I do that on the Blo

omberg Shannon topic so that would be a big move. I quite move Amazon which is sort of raising this question how come there's so much ambition when it comes to this idea of future growth when all of the positive energy really is coming from pretty significant cost cutting? Let's get an update on stories elsewhere. That stock is up by 12 and a half percent here. You plan to operate with your horror hackers. Hey, you horror. Hi, John. Ending the fentanyl crisis is shaping up to be a high priority

for voters ahead of the US election. A recent Bloomberg News morning console poll sees about eight in ten swing state voters ranking the problem as an important factor in deciding their votes. That's more than the number. Who cite abortion, climate change, labor or the current wars. Benson has been linked to more than a quarter of a million deaths since the start of the pandemic. Aston Martin is tapping Bentley CEO Adrian Hallmark to lead the luxury carmaker. Paul Maker Hallmark will take over f

rom outgoing CEO Amadeo Felicia, joining no later than October 1st. Hallmark will be Aston Martin's fourth CEO in four years. The announcement comes after the UK carmaker completed a $1.4 billion refinancing earlier in the month in an effort to ease concerns over the balance sheets. Shares of Lululemon are lower in the premarket after the athletic maker forecast a lower than expected sales outlook for the first quarter and the full year. The company says visits to stores in the US slowed at the

beginning of the year. Lululemon has had a stellar post-pandemic run and continues to post robust results, with analysts still predicting the company will outperform its conservative guidance. That's your Bloomberg brief. John Harris, thank you. I'm next on this program, the US versus the rest of the world. Expectations around growth and the performance of equities is expanding outside of technology and outside of the US and into the rest of the world. So, yes, it's this broadening out of growth

. We'll catch up with Goldman Sachs. Up next, Goldman Sachs looking to diversify. Equities on the S&P 500 positive here by 0.15% yields a little bit lower by two or three basis points. We're down to four 2414 on a ten year disadvantage this morning. The US versus the rest of the world. Expectations around growth and the performance of equities is expanding outside of technology and outside of the US and into the rest of the world. The US does well to Japan does well. Asia does well. The US just

does a little less well than all of the other areas. So yes, it's this broadening out of growth is the latest this morning. Market dominance in the S&P 500 leading some investors to look elsewhere. Peter Oppenheimer of Goldman Sachs writes in this We believe that there are many companies outside of the US that should be considered as part of a global diversified portfolio and should not be ignored simply because their base and listing location is outside of the United States. Peter Oppenheimer j

oins us now for more. Peter, let's get straight into this because it's a really important theme. If it's winning, even if it's dominant. Should I be concerned? Well, the short answer is no. I mean, the outperformance that we've seen of the US, which has really been particularly dramatic since the financial crisis, has been entirely based on solid fundamentals, the US economy. But most importantly, profits have simply outgrown those of other regions. But as a result of that, its valuation has ris

en a lot compared to other parts of the world. And now we're finally seeing a bit of a narrowing in the relative fundamentals. Actually, profits are picking up outside of the US where the valuations are lower and we think that the US market can still do pretty well. But there's some great opportunities outside. And diversification makes a lot of sense. And that's true at the sector and the stock level too. We can talk about those opportunities in just a moment, but could we also discuss what we'

re fighting? Are we fighting passive flows that just couldn't care less? Yet to a large extent. Look, passive investing has worked very well over the last decade or more in an environment of ever lower interest rates, where bigger companies are becoming increasingly dominant and the US equity market itself is got the highest share of the world market since the early 1970s. So what's what's been winning is continue to win and win over time. And that's been a great environment for passive investme

nt. We think that as interest rates stabilize at a slightly higher level, sure, they'll come down cyclically, but they won't come down structurally. Returns the index level is going to be slightly lower and that's an environment where the opportunity set is more attractive for active managers and also for more differentiation and diverse and diversification. And that means across regions, across sectors and styles as well. Peter, when you talk about the case for international, I'm curious where

you're looking in particular and whether it's regional based or sector based, as you were just noting. Look, it's a little bit of both. I mean, the US has done extraordinarily well, partly because it's had a very high exposure to the growth factor, principally dominated by technology, which has been the winning sector over the last decade. We still really like technology. We think the dominant companies have been justified again in their dominance because of incredibly strong fundamentals. But w

e think that you've got better relative valuation opportunities outside geographically the US and indeed last year rather quietly, the Euro Stoxx 50 was slightly stronger than the S&P. Many people don't acknowledge that year to date. Europe has outperformed not just the S&P but the Nasdaq. So has Japan. So it isn't that we don't like the US. It's gone up. It's done well. But there are geographical opportunities to diversify and I think that means also broadening out from technology. We think tec

hnology is still going to be crucially important and do well. But as interest rates come down and we get this soft landing, the opportunity for broadening out into some more cyclical parts of the market is improving. But also into non-tech companies. We put together a list of what we call Etsy's X Tech Compounders. These are global companies outside of the tech sector, which have strong characteristics of reinvestment, a high rate compounding high returns, and they tend to be somewhat cheap, but

I think also offer good diversification opportunities. Overnight, Peter, the Citigroup team, the equity team over there, actually upgraded EU stocks with about 6% more upside year to date in their view. And it's one of the highest in the street. This is the reason why more certainty on rate cuts. We've been talking a lot about that global growth. You alluded to that and dollar weakness. How much is dollar weakness necessary for this call to work? Actually, I'm less convinced on the dollar weakn

ess part of that story, although I agree with the other comments that you made. The European economy is growing at a much weaker pace than the US. You know, we're looking at US growth this year of around 2.8% and in Europe, about 0.7. But we shouldn't forget that the European companies that dominate the indices are very global and therefore they benefit from a recovery in global growth. And in the global manufacturing cycle, which is beginning, beginning to happen. And I think actually that what

we find for European stocks is the growth trumps currencies. Growth is accelerating. European companies tend to do well. Even if the currency is actually stronger now, it may well be weaker and that will add to its relative competitiveness. But we don't think the currency is actually the crucial part of this. It's much more about relative fundamentals. Are earnings improving and as growth improving, our interest rates coming down, all of those things suggest they are. And Europe is only trading

at around 13, 13 and a half times PE compared to something like 21 in in the US, the UK only trades at around ten and a half times about half the valuation of the US. And so there is a valuation opportunity as well, which isn't really dependent I think, so much on currency. Peter, When you look at India and China, you say India has good growth. China can be a value opportunity. A lot of people moved to India because they wanted to get away from China. Why do you see something interesting in bot

h markets? Well, I think that India is a bit of a different story. It's got higher high growth rates, both in terms of the corporate sector and in terms of the economy. It's a relatively expensive market, but it's one that has good exposure to long term growth and is benefiting a little bit from diversification of supply chains and indeed diversification of investor focus away from China towards India. China is a bit of a different story. Is a valuation value play. I mean, the market trades at a

round seven times earnings much, much cheaper. Of course, it has a lot more structural headwinds and a higher risk premium giving given current developments. And it's much less, I think, of a consensus than India. But for a valuation like recovery, if we get any policy stimulus, we think that there's there's reasonable upside, at least tactically in that market as well. Got to finish on Japan. It's just been amazing. Nikkei to 25 year today up by something like 22%. I think we had a move over th

e last year of something close to 50% PE when I buy the S&P 500 market cap weighted and I'm buying, I'm buying megacap tech in a big way when I buy Japan PE. Why am I think. Well, I think there's two things to say about this. First of all, actually, just like the US, both Europe and Japan have seen an increased concentration by stocks. So the biggest three companies in Japan, which are very global, are actually the biggest share of the thousand biggest that we've seen going back over several dec

ades. So you are getting dominant, large cap, globally exposed companies doing very well. I think that the Japanese market is much cheaper than the US. Of course, it's gone up a lot, but we shouldn't forget it's only just broken through the level that peaked at last in 1990. And the fundamentals are finally very different because you're getting expanding nominal GDP with finally coming out of that deflationary stagnation that's dominated that economy over the last 25, 30 years. But also quite a

lot of restructuring stories because of bottom up focus on improving return on investment from a low level. So with rising margins return on equity going up, that justifies a bit more of a higher valuation. But the dominant companies that really are global companies in in areas around technology, high, high value added manufacturing that benefit from a bit of a pickup in global manufacturing cycle as well. And we think they're pretty well positioned. John, always enjoy your thoughts. Thanks for

being with us. Peter Oppenheimer of Goldman Sachs on the latest. Looking for a little bit more out of stocks internationally, Nikkei to 25, four consecutive days of gains. We were talking last week, Lisa, about what would happen, what would happen if they hike interest rates, the yen rallies, what would it do to the Nikkei to 25 so they hike interest rates. The yen did not rally. No. Its stocks keep going higher. Yeah, basically, this is the perfect combination for people to continue to be bulli

sh because they can buy at a discount and it looks like the currency is going to be on their side. It's quite a run, more than 20% up yet today. In the next hour of Bloomberg Surveillance, we'll catch up with Mohammed al Aaron of Bloomberg Opinion Michael Sheppard of bloomberg news, tracy mcmillion of wells fargo and poonam go of bloomberg intelligence, all of that and a whole lot more with equities closing once again at record highs and adding just a little bit more weight to that rally this mo

rning by 0.1%. A lot of investors believe that the Fed is somehow a leading indicator. The Fed is a lagging indicator, and the first few rate cuts that we see are going to be driven by inflation in terms of inflation. We've had a supply effect that I think has been maybe even more important than the Fed. There is a sense that it's not just the inflation point, but the supply point. Our expectation is inflation should come back down towards 2% with growth still being okay. This is Bloomberg Surve

illance with Jonathan Ferro Lisa Abramowitz and Annmarie Horden Hearn. At this point in the morning, I think we really need to catch up with the equity market bear because the bullishness of the first hour of this program has been absolutely overwhelming. We have Bob Michael at J.P. Morgan Asset Management with us in the last hour asked a very simple question When was the last time you were this bullish? They said the mid 2000s laser on the edge of bullishness with almost nothing to say back to

him. He was on the program. Okay. Hold on a second. Everything he's saying rings true. Companies from everything that we hear seem to be making good money. There are some nodes of caution, FedEx, for example. But on the flip side, how do you fight the Fed? And I'm not just talking about the Federal Reserve. I'm also talking about the federal government. How do you fight both prongs? Basically, printing money. The enthusiasm is overwhelming. And we had new all time highs in yesterday's session, e

ven with Apple. The full metallic of the equity market rally in America down by something like four plus percent and losing more than $100 billion of market cap. Absolutely. And this has to come when you have the DOJ going after Apple saying that they have a monopoly in how they're structured, basically talking about how other companies, other apps, Jonathan, can't get into their software, cannot go into the hardware. This, though, has been years in the making. And one thing I find fascinating a

bout this as we talk about the upcoming election, where anything change, if it was to go back to Trump, Trump 2.0, it won't. This inquiry started in 2019 under the Trump administration, so the direction of travel coming from Washington is very obvious. Peter Oppenheimer of Goldman Sachs was saying, Look for opportunities outside of America. And I've got very different views on this. Based on their upgrade very recently, many camera upgrade in their outlook from 4750 on the S&P to 5500. And in a

couple of words, just in one single line Paramo US exceptionalism is going from strength to strength. Why would you want to fight it? Well, here's the argument that people are saying, and this is actually exactly the point that I was cuing in on, which is basically you have the US exceptionalism that everyone was talking about being outside of the rest of the world's weakness. It was the one bright light. And now there is a question, is U.S. exceptionalism not being tamped down by the weakness e

lsewhere, but actually expanding its golden rays across the world with all of the potential profitability traveling worldwide? This is a key question. Is it percolating outside of America or is it remaining American exceptionalism that still hasn't been fully priced structure? And despite widespread market optimism, we view this as rational rather than excessive. HSBC a little bit early this morning, Lisa, this is not a bubble. That's what people keep saying because the earnings are there. This,

though, is really an interesting question. This. Are they talking about the equity rally? Are they talking about specific stocks that have gotten beat up very highly? Are they talking about, you know, the equal weight? That, I think is an important this because some people are talking about, you know, how there are certain names that maybe have gotten a little over their skis. We'll discuss this this hour. Equities right now in the S&P 500 positive by 0.1%. A little bit of a lift, big lift on t

he week heading towards the biggest weekly gain of the year so far in the bond market running and to through the week, yields are lower by two basis points, call it lower by almost 3 to 4 2414 on a ten year and a euro weaker dollar stronger one away 18 on the euro dollar. Coming up this hour, Mohamed El-Erian of Bloomberg Opinion as stocks hit their 20th record high this year. Tracie Mcmillion of Wells fargo on why she says it's time to reduce risk in portfolios. We found one. And bloomberg's Pu

tnam goyle, as nike says, sales will be squeezed during its sneakers shift. We begin with our top story. Another day, another record. The S&P clocking its 20th all time high this year on optimism the Fed will be able to engineer a soft landing. Fed speak picking back up today with Powell and Bostic all on tap. Joining us now to discuss, the president of Queens College, Cambridge, Mohammed Al-Arian. Mohammed, let's get straight into it. How overwhelming is the enthusiasm of the last week for this

market? It's totally overwhelming and for good reason, drawn. Initially we had bottom up drivers, secular themes that were very powerful, but that rally was narrowing. Now suddenly you have a very powerful top down factor that has come in enabling central banks that clearly are going to do what they want to do regardless of selective data focus. So we can these two things coming together are really powerful. We did the pre-game together. We didn't do the post-game. So you were with us. Fortunat

ely, going into that news conference, were you surprised by what came out of the news conference with Chairman Powell? I was surprised by the extent to which he stressed patience in two ways. Patience with inflation running higher, He basically dismissed the fact that we've had some pretty surprising, hotter than expected inflation prints. And then the second patience of the balance sheet saying, you know what? We may get the slower than we would have otherwise, which means that monetary policy

is going to be more expansionary. That would have been otherwise. So I was struck that on on the balance sheet, he took such a big step forward when he could have waited till the next meeting to do that. So we keep wondering what shoe is going to drop. Right. We keep thinking everyone's bullish and then more bullish and then bullish on top of bull. And you have to wonder, okay, well, when does something break? And we were talking on Wednesday. It's the inflation expectations that at some point t

his is going to be a higher, more inflationary environment with a Fed that is less willing to fight it. And yet I'm not seeing it and break even rates. I'm not seeing it in other places that you normally would. Why do you think that is? You're seeing it in gold. Look at the reaction of gold, record highs on gold. I think what you're having is and you've all said it really well the of the everything rally so is going everywhere. What's interesting now is this notion of market enthusiasm, not econ

omic enthusiasm. There's a big difference. Market enthusiasm, Enthusiasm could spread to the rest of the world. And that is quite a consequential statement. If that occurs, then the US relative strength is going to be somewhat diminished. I think it's actually too early to pivot. I do think that, to use your phrase, US exceptionalism, economic exceptionalism isn't going to expand to the rest of the world. The US is really exceptional when it comes to its economy. The others aren't doing what the

US is doing in terms of investing in the future drivers of growth. They don't have the entrepreneurial society that we have. They don't have the mobility of factors of production that we have. The US is truly exceptional among other advanced economies. So do you think it's rational for people to stay in the United States and to keep adding more, even if valuations are at such high levels relative to the rest of the world, to continue to kind of bet on this ship and not expect it to expand? So I

've been asked that question every single year for the last five years, and every single year the US premium has increased and every single year I said, Don't say the US too early. I see some argument for diversifying away from the US purely on this enthusiasm and on relative valuation, but I don't see it as strong. It is not being supported by fundamentals. People have to realize this. This is more betting on the momentum and I understand that the momentum factor is very strong right now. You m

entioned just a moment ago there's enthusiasm for the stock market. There's not enthusiasm for the economy. Well, doesn't that has that make any sense? So what the reason why it makes sense and I've learned this the painful way is that markets are not the economy. Markets can decouple from economies for a very long time. And we've seen that happen over and over again. But there are parts of the world, for example, one of the biggest puzzle is while you've had a surge in inflows in the US, high y

ield and corporate bonds, investment grade bonds, you haven't had them in emerging markets and people conflict. So we have this very peculiar situation whereby it is US investors. Managing in the US investment grade bonds that are taking of benchmark bets in emerging markets. And I think that's because most investors think it's enough to be in the US. You wear a few caps. Can we go to the Gramercy cap and talk about what's happening in the and what's the reason for that? What are you and the tea

m over at Gramercy thinking about em at the moment? I think that people have been hurt so much and people like same reason why so many people are in cash. They think they can get adequate returns from safer places to be in. If we were looking at em and we saw a central bank that appeared to tacitly accept high inflation for longer, I think we'd be doing something very different with the assets of that country, particularly with the currency. Why is it different with the US? Because the US issues

the reserve currency. Because the US is the place where people outsource their savings to be managed. The US can misbehave quote unquote much longer and in a much bigger way than any other country in the world. Which is a reason why we've all been waiting for this to show up in longer term bond yields and waiting and waiting and asking lots of people the question. And everybody says it's not going to happen because we're the reserve currency of the world. At a certain point, is the concern abou

t inflation only going to show up in gold? Is this the only place or will you start to see it wake up? Is that something that you're willing to bet on? Look, we've set aside three concerns that are still in play. We just are not focusing on them right now. One is the US deficit and the tremendous amount of issuance. I remember being with you back in October where the question was, who's going to buy all these bonds? No one cares like that. So that's issue number one. Issue number two is we've ta

ken a small step in Japan for exiting from a highly distorted monetary policy regime. And we have a really long journey ahead of us. But no one is asking the question, will Japanese investors have to sell all these foreign securities have bought? And of course, the third one is the banking system. There are this is not a banking system issue. This is a few banks that are still facing difficulties and that is going to play out this year. But it's not a banking system issue. You talk about Japan a

nd let's go there for a minute, because they did come out with some inflation numbers overnight that were hotter than expected. And yet people aren't concerned because it seems like the BOJ put is as consistent as the Federal Reserve put in terms of not over hiking or being overambitious about how much to really tighten the screws. Does that make you think, you know what, even if that's a sort of outside threat, that's not going to happen. This isn't a normalizing cycle. This was simply ticking

the goalpost a little bit further out the field. So, Lisa, you're doing what John does, which get me on a Friday and then I front run my Financial Times article coming out next week. It's okay. No one's listening. Go on. So I think we're going to look back this week on This Week as the week in which central banks abandoned. A point inflation target for a range that we're going to look back and say this was the point when they realised in the case of the Fed, for example, it's no longer a good id

ea to have a 2%. Let's have 2 to 3%. It's not it's going to happen in a very slow way. Is gone. The first step was taken this week. When you acknowledge that inflation will be higher. You acknowledge growth will be higher, but you see straight through it. Japan, same thing happen. So we're going to look back and this is my hypothesis on this, as this has have been a really important moment, but it's going to play out very slowly. Japan is going to play out very slowly. They will tolerate hotter

than expected inflation for much longer than anybody expected. Now, we've seen the equity market. That's music to your ear as long as it doesn't get out of control. And so far, inflation expectations have been relatively well anchored, as you said, raises questions about what it means for the bond market. We'll talk about the consequences of that a bit later. That was the greatest promotion the Fed's ever had. MOHAMMED That we had to do it to me every single week. But it's good for everyone. We

get a little bit, they get a little bit. Everybody wins, okay? It's the everything rally. It's literally everything. It's simply thank you. It's going to stick with us in place to say for most of this hour, let's give an update on stories as to why this morning. Here's your plain fact Brace with your horror hack case. How you horror? Hi, John. Reddit rose 48% in its trading debut yesterday with the social media company closing up more than $50 a share. That's well above its IPO price of $34. Inv

estor enthusiasm for the listing, driven by the company's pitch to profit from the growth of artificial intelligence. Reddit's IPO is the fourth largest on a US exchange this year. At Market Close, the company had a market cap of $8 billion. Investors took $113 billion bite out of Apple's market cap following regulator moves against the company. The DOJ and 16 attorneys general filed a lawsuit accusing the iPhone maker of blocking rivals from accessing hardware and software features on the iPhon

e, a claim Apple strongly refuted across the Atlantic. The company is also said to be facing probes about whether it's complying with Europe's Digital Markets Act. And Tesla is pulling back electric car production in China amid sluggish sales growth and intense competition in the world's largest auto market. Sources telling Bloomberg the company instructed employees at its Shanghai facility to lower production of both the Model Y sport utility and model three sedan by working five days a week in

stead of the usual six and a half that's here. BLOOMBERG Jon O'Hara, thank you. Up next on this program, regulators closing in on Apple. Apple has maintained its power not because of its superiority, because of its unlawful exclusionary behavior. That conversation coming up next live from New York City this morning. Good morning. A four day winning streak on S&P 500 longest winning streak got back to where they separate at a similar way to that. S&P 500 futures right now up by 0.15% on the S&P,

calling it the everything rally. Here's a little bit more of it. Bonds rally in gold silver by two basis points for 2414. Crude up by a 10th of 1%, $81 on WTI and the dollar stronger the euro down to one away, 21 under surveillance this morning. Regulators closing in on Apple. Apple has maintained its power not because of its superiority, because of its unlawful exclusionary behavior. Monopolies like Apple's threaten the free and fair markets upon which our economy is based. If left unchallenged

, Apple will only continue to strengthen its smartphone monopoly. Here's the latest this morning. The DOJ suing Apple, accusing the tech giant of blocking rivals from accessing iPhone hardware and software features. Apple raising $113 billion in market value. The iPhone maker pushing back, saying the lawsuit could, quote, set a dangerous precedent. Empowering government to take a heavy hand in designing people's technology. Bloomberg's Michael Shepherd joins us now for more from D.C.. Shep, can

we just stop with the so-called Apple monopoly? What are they getting at here? Well, what the Justice Department alleges is that there are certain features that people value in smartphones that Apple is tinkering with in a way that creates an advantage. This includes cross-platform messaging, say, between Apple devices and Android devices. It includes digital wallets and also support for non-Apple smartwatches. And then finally, also cloud streaming services. And what it is saying is that Apple

is putting its thumb on the scale in a way that hurts not only consumers, but also the makers and innovators in these areas who are not named apple. Shep the Wall street journal editorial this morning comes out and says the suit also claims apple has, quote, suppressed mobile cloud streaming video services by requiring each to be submitted as a standalone app for approval. And they say lol, as the kids say, because the FTC claim that Microsoft Activision Blizzard acquisition would create a cloud

video game Monopoly. So is the DOJ, FTC, these these regulators basically talking out of both sides of their mouth. Well, that is in a way, what it looks like. And that is certainly what Apple will try to argue, because when you pass Apple's statement from yesterday and Jonathan was good to show an element of segment of it, in short, they are saying that they're being punished for being innovative, for succeeding and for drawing consumers. They say that, look, we don't blame us for people likin

g our products, for people gravitating to what we have to offer because of enhancements like security that people really value and that we're able to bring by setting higher and different standards for access to our app store, for instance. Let's talk about the politics of this. We have seen a robust regulation from the Biden administration, a more amped up DOJ, FTC. But this lawsuit, the inquiry of it started in 2019 under Trump. Do you expect whether we get Trump or Biden, this is the directio

n of travel? It's an interesting question, Emery, because we are in an election year and there's a lot of questions about what the Trump administration, if he is elected, to return to the White House, what a Trump administration would do in terms of its enforcement of the market. In this case, it's interesting. Donald Trump did not have a huge love affair with the tech industry and the Justice Department under Trump. Also, as you said, started this case, but also pursued it on a lot of the same

grounds that we are seeing here articulated by the Biden administration and also in the Republican Party under Trump. There is a strong libertarian streak. We are seeing the party increasingly reject scale, in part because Trump is trying to make that appeal to the little guy voters, so to speak. Shep, I got to say, i know it's kind of a fool's errand, but i'm looking for consistency. I want to understand what the framework here is in terms of what the desired outcome is. Is it national champion

s? Is it smaller companies? Is it a democratization of tech? Is it trying to push up tech behemoths so they can compete with China? What is it? You know, that's a great question, Lisa, in the way, what is the end goal? And when you look at the president's platform, Biden nomics, the whole question of competition enforcement is important. And what they want to ensure is that innovation is not stifled, but that also consumers are not hurt. And it doesn't only apply to tech, although it's getting a

lot of attention, of course, in the past few days with Apple. But it does extend to other areas. We saw the Biden administration's antitrust enforcement who sued to block the Kroger's acquisition of Albertsons, for instance, trying to crack down the concentration in the grocery aisles. So so there is something when you hear from the president's top economic advisers, when Amery and I and Washington have talked to some of the administration officials and asked them about biodynamics, this whole

question of fair competition to preserve innovation and fair pricing is something that is very much on their mind. I think they're thinking less of so much national champions and they are trying to make sure the playing field is a little bit more equal. They are concerned that over the past few decades we haven't seen as rigorous or robust antitrust enforcement as the public and innovators deserve a chef. Great to hear from you. Michael Shepherd there down in Washington, DC on the latest with Ap

ple. I'm thinking about who wins, Lisa. A lot of lawyers who are going to make a lot of money. And then I'm thinking of South Korea and China. I mean, who wins here? It's going to be foreign smartphone makers. That's who wins here. And it comes at an interesting time ahead of what Samsung is expected to do, which is launch an AI infused phone. That's going to change. Our sort of experience is what they are saying. And we have Apple racing to catch up with the Gemini partnership of Google. You ju

st have to wonder what's the ultimate goal? And if you don't have one, how do you sort of create enough consistency to give people the confidence to actually make deals to go out? Have a framework, a rubric for their business? I mean, there's some real questions here. This came up at Bank of America this week. How do you get together and have a conversation about doing a deal where you feel like if you're about to be acquired and you sign up to that, you could be hung out to dry for a whole year

, waiting for the regulators to decide whether or not it's bad for business. And on the flip side, you've got a regional banking crisis that people say, well, there's just too many banks, there are too many banks too. So you need to have more consolidation. But we don't want consolidation because we don't want to have dominance. It's sort of it's it's it's a little bit mind bending. So please forgive me. And Mohammed, let's talk about this. How interventionist is America becoming? Is becoming mo

re interventionist? I don't think there's any question about that. But the more interesting question is, does it need to be more interventionist? There is a view, which I must say I have some sympathy with that industrial policy is going to be really important in pivoting from old style growth models to new style growth models. And you're seeing it not just in the US, you're seeing it elsewhere as well. Well, this is actually one of the reasons why when we're talking about don't fight the Fed, t

he Federal Reserve, but also don't fight the federal government because this kind of industrial policy is going to be crucial if you want to shift away from some of these supply chains. I remember maybe a year ago when people thought this would be inflationary. Six months ago, people thought this would be inflationary. Three months ago, probably going to increase pricing. Now people don't care why. The reason why people don't care is because inflation has been coming down and it has come in been

coming down without a sacrifice and growth. So it's not a top issue right now, but it's inflationary. Yes, it's inflationary. Of course it is. All the restructuring that's happening in the global economy other than life sciences are inflationary. The rewiring of supply chains for geopolitical reason, inflationary, the rewiring of supply chains because companies want more resilience and not just efficiency. Inflationary. What's happening in the labour market in terms of mismatches between skills

and and what people have, that's inflationary. So you have all this going on on the other side. You have the promise of AI, you have the promises of life sciences, and people right now are completely focused on the promise and are willing to live with all these other restrictions ongoing. We posed the question earlier on this week and there was actually a really decent piece in the Wall Street Journal yesterday. Not sure if they've been watching Bloomberg Surveillance through the week or not, b

ut whether America is becoming more like China as opposed to an area where we believe China would become more like the United States. Is America becoming more like China? That's like saying that AI as old and unfit as I am and becoming more like an Olympic athletes, you know. Could I take a small step? Yes. But am I coming becoming anything like that person? No, I'm not saying they're going to become full communist overnight in Washington, D.C. There might be some Republicans worried about that

in the Democratic Party. I'm not saying that. I'm just saying we look a little bit more like them than they do us in the last couple of years. And that's not what we expected. Well, we look a little bit more like here. We've realized that government has to play a bigger role in enabling the private sector. And we've realized that private public partnerships matter. Mahamat is going to stick with us. Coming up next on the program, we found a little bit of an equity market there, which is refreshi

ng because everyone on this program at the moment is very, very bullish. Tracy Mcmillion of Wells Fargo. As the S&P 500 hits its 20th all time high in 2024. That conversation up next live from New York City. This is Bloomberg. What a week for stocks on the S&P 500. The rally continues. Equity futures on the S&P up by 0.1%, just about unchanged on the NASDAQ. They've been spoiled, though, all time highs at the close yesterday on the Nasdaq 100. The banks have been tremendous. Talk so much about t

ech in a video, stealthy rally in the financials, the banks on the S&P up for five consecutive days, up close to 5% so far this week. And some really decent gains year to date from the likes of Jp morgan, Goldman and others. Jp morgan coming out this week and saying it was increasing its dividend for the second time in 12 months. So just to give you a sense, they have so much money, they don't know what to do with it. They're just to funnel it back to shareholders, which kind of gives you a sens

e of where we are. I was looking at the year to date gains for some of the financials, up 17% on Jp morgan, up 19% on Citi, Bank of America up 11 over the last year. So you have to remember 12 months ago was like the ding dong lows of the central bank malaise and regional banking crisis, if we can call it that. We can't call it that, can we? You didn't like that word. Regional banking stress of last spring. Jp morgan is up 60%, Goldman's up 36, cities up 47%. And Bank of America is up about 40%

since then. This kind of relates to the conversation we were just having, which is how much have they been gaining share from some of those regional banks that were facing not a crisis, but stress at a time when they really are the main players? I mean, again, it goes to this question of is their strength a good thing or is it sort of coming at the expense of those that some of the politicians want to protect? Really, it's it's it's a curious moment right now. Well, the banks are doing better, t

hat's for sure, as is pretty much everything else. I'm not going to weigh in on that. I know that it's sensitive on market. So your ten year 30 at just briefly here, this goes for you. You go to lower by two or three basis points for 61 on a two year. We can finish on foreign exchange first hike first hike from the DOJ in 17 years. And again on the week, we've had a move of 1.7% in the dollar's favor against the Japanese yen. So weaker yen on the weak. Lisa one 5157 And it goes even to this poin

t of we got how does it expected inflation in Japan and yes we're seeing a little bit of yen strength but not much nothing to write home about. Honestly Mohamed El-Erian column that he's going to be publishing is a really good one about how it's sort of been a shift, a sea change with respect to the rate hiking cycle and the potential rate cutting cycle and the potential of running inflation between two and 3% rather than 2%. I was speaking to T.K. yesterday and I feel inspired. Let's. What is h

e saying? Rip up the script? Yes, let's do exactly that. Yeah. Let's go to this piece that's coming out in the Financial Times next with I spent a few minutes on that instead. What you said is really important that perhaps central banks are tacitly accepting higher inflation rates without actually formalizing this in any specific way, because some of these central banks actually need the government to do that for them. I just wonder what the consequences of that are going to be. And I'm with you

, Mohammed. This week was the first baby step towards potentially, I stress, potentially something much bigger. We saw that and the contradiction in the 24 projections. And for those of us who maybe missed that, if you take it, I'm happy to go through it again. The Fed Reserve came out with a medium projection for 2020 for unemployment, a little bit lower growth, a whole lot stronger, and CPI was revised a little bit higher, Inflation expectations were firmer, yet still the median just showed th

ree cuts for 2024. Now we were trying to work out if that was just a small contradiction that they could iron out. Chairman start speaking in the news conference and he didn't seem fussed by it at all. Didn't seem bothered by the optics of it, the substance, nothing. What do you think we're going towards? And we mentioned the consequences. What are the consequences going to be? The financial markets. So I think the critical thing is when he said the story has not changed. So we could have argued

over three cuts versus two cuts. All you need is one more member to move its furious accuracy. But when the chair says the story has not changed, when you've had three hotter than expected inflation prints and you've revised up your inflation projection, I think that's a real message. As the story change for bond markets, then, well, we see it in what's happening in the bond market. Yes. I mean, the bond market is now realizing that finally the curve is going to steepen and it's realizing that

we are going to tolerate higher inflation for a while, but that inflation is going to be what anchored that. That is a very consequential statement. So this is important because we've been trying to figure out if this is good or bad for the long end of the curve. Short end if they want to come, we know what happens. It's influenced by the policy rate. I think Lisa was first to ask this question following the news conference. What does it mean for Bonds? What does it mean for the longer end of th

e. And I remember sitting here with three Misra and she said, Don't take me there. I want to talk about the front end. I want to talk about the belly of the curve. Don't take me to the long end, because things get ambiguous when you get beyond five years where we're taking you there, What does it mean for the ten year? So I think for this year, an average ten year yield of 425 around where we've been is reasonable. We're going to be quite volatile around it, but that's going to be reasonable and

the excitement is going to be elsewhere in the curve. Which raises the question, is this a correct move that basically it is important for the Fed to have a little bit more flexibility and 2 to 3% is a more. Stimulative kind of environment for the economy to avoid the trap that we got into of disinflation for so many years. So he would go full into the article now. Okay, So paragraph. Here we go to answer your question. It is not without risk, but it is the right move. It is not without risk be

cause at some point you could destabilise inflation expectations. But it is the right move because we are living in a different macro paradigm. We live in a paradigm where supply is inflexible enough globally and if you try to run a 2% inflation target, you will end up sacrificing economic well-being unnecessarily. So. Does it concern you that some people are speculating just your comment about how markets are not the economy, that a lot of the inflation is asset inflation. It's not real world i

nflation because lower income families are the ones most likely to spend and are the ones who are most at least likely to really benefit from some of the rally that we're seeing in asset prices. How much does it divorce financial markets from the fundamental economy in a way that could be potentially harmful? I mean, that's been the story of QE. That's why there was a call for people's QE, the recognition that the generosity of the central bank was was going to a very small group of people who o

wned assets. Look, let's not. I tried to hide it. The low income people have not recovered from a 9% inflation hit. Yes, their wages are going up more. But the cumulative impact of the inflation we've seen since 2021 has been significant. And if you don't believe me, go to food. Food. Have a look at what the you know, I talk to one food bank in particular and they're still seeing long lines of people. So underprivileged segments of society have been hit hard by inflation. The good news is that w

ages at the lower levels are going up faster than they have been in the past. But the inflation hit was painful. And that also explains why, despite U.S. economic exceptionalism, it doesn't get reflected in President Biden's. Polls on the economy. It doesn't get reflected because people remember inflation. And for many people out there, when you tell them inflation is better, they'll say, well, prices aren't coming down. They think that if inflation is better than prices will be coming down. So,

well, frame to Mohammed, the second plank of the piece coming out Monday. Coming up Monday, Tuesday. Okay. Tuesday, Tuesday, they're going to send somebody copies. On Tuesday, the soft landing trade in full force. The S&P 500 notching the 20th all time high of the year. We found someone who's a little bearish trace amount, billion of Wells Fargo, same risks ahead with a weakening, consumer cash stockpiles diminishing and delinquencies on the rise. Tracy, I'm pleased to say, joins us now for mor

e. Tracy, you've been looking forward to this because everyone that's come on the program so far is overwhelmingly constructive on this equity market. What don't you like? Let's start there. Okay. Well, I think to call us a bear might be a bit of an overstatement. So relative to work with us, I would say that we're medium term optimistic. What we're seeing is that markets can't keep going up indefinitely. As you mentioned, the 20th day this year that we have hit all time highs on the S&P 500. I

did the math. That's about one every three days we're hitting all time highs, so about a third of the time this year. So that said, we could see some weakness, we think, through the summer as growth starts to slow down a little bit. And then we could see a rebound towards the end of the year. But we really don't see prices moving much higher than where they are today. So some weakness through the summer, then perhaps a rebound back to the levels where we are today by the end of the year. So, Tra

cey, the lesson of the pre-pandemic markets were that people had the frame of mind that you may get a sell off but is going to rebound. And we never got those sell offs because people immediately put money to work on any sign of a sell off. Why would it be different this year? Yeah. So we don't think it's going to be different this year. In fact, typically within a 12 month period, we do see about a 10% correction. So we think that that is possible this year. We do think that, yeah, we saw some

really strong growth last year. Market the S&P 500, I should specify, is up 35% over the last year. And we just think it's probably time to take a pause there. And that would be an opportunity not necessarily to buy more large caps because we're already overweight, large caps, but potentially to broaden our exposure into things like small caps and potentially even emerging markets. This is just amazing. The biggest bear on the street, we might possibly maybe see some weakness, maybe not bearish.

I mean, I'm not bearish. You call me a bear is ridiculous. So here's my question. Is this ultimately a valuation story or are you actually seeing weakness that people aren't recognizing whether it's in companies or in consumers? Yeah. So one of the things we have been pointing out is that the equity risk premium right now is very unattractive relative to bond yields. So valuations are high. Absolutely. But, you know, experience teaches us that that doesn't necessarily provide us with a good tim

ing tool. Or so although valuations are high, they could go higher. So it can persist, especially if equity investors think that earnings growth has upside risk, which is what we think we're seeing right now, Does mean, though, that we think that stocks are increasingly priced for perfection. So that increases the chances that we could see a pullback on some disappointing news. Does that mean that you're increasing your exposure to bonds? You say that there's probably a better risk premium place

d on bonds. And I'm looking right now at investment grade credit spreads at their tightest level going back to November 2021. That still is more attractive. Yeah. So we do think that bonds at four point to 4.5, 4.6, if we were to see that range and that's a good entry point for the long term, we are not necessarily adding to our bond positions at this point. Instead, we have already overweighted short term fixed income and we think that that will provide some additional cash to go into riskier a

ssets. You know, somewhere down the line when the opportunity looks more attractive. Tracey, we were talking a few minutes ago about all this concern from a few months ago about issuance. We're going to see massive issuance. Who's going to be buying all those bonds? Has that disappeared? I don't know that that is necessarily disappeared because we are still running budget deficits. So there is still the need to fund those budget deficits. What didn't change was that the Treasury was issuing on t

he front end of the curve more so than the long end. So if they change their duration, if they change their maturity, then we might start to see those rates rising a bit. Know our forecast for the end of the year does reflect that. We think 4.5% is a reasonable point to end the year. So yes, there could be some yield pressure from issuance, but at the same time, if the Federal Reserve does start to weaken and start to pull back on its quantitative tightening, then that could offset some of that

as well. Tracey, we tried. Thanks for being with us. Appreciate it. It's Megan at the Wells Fargo Investment Institute. So relative just not as bullish as everyone else, I guess is bearish. You know what, the most bullish forecast on the street was on the S&P at the end of last year, 5200. It was John. Staffers of Oppenheimer should not be closed at yesterday. 5241. I think one's been playing catch up through the year and this has happened even with fewer rate cuts priced in than what we were lo

oking for. And you remember what the story was. I know they keep beating on the same drum. I understand. But the end of last year, everyone was saying this is the rally based on rate cuts coming and we were looking for six or seven. We might not even get the three that the Fed is looking for based on the economic data we've seen so far. And yet everyone's upgrading stocks. And just to put a bow on it, Savita Subramanian of Bank of America, you've asked her every time she's been on, what's the bi

ggest risk for you, downside risk or upside risk, still upside risk. And that's what Michael said. Jp morgan. Upside risk. Upside risk. Mohamed, what was the last time you saw it like this? This environment, this market has been a long time, Bob said. The mid 2000s, right. As you reflect on things over the last few decades, what does it remind you of? So it does remind me a little bit of the 2000. But there's also other things that I don't want it to remind me of a couple of years later. Yeah. Y

eah. Are we there, though? No, not yet. It doesn't feel like that. You say yet? Yet? You thinking we might be so people get carried away? I mean, look at the behavioural issue. Momentum is your friend. Momentum is your friend. Momentum is your friend. That is no longer your friend. Yeah. I don't like benchmarking to extremes, and I know you don't either. So I'm not saying that in two years time we have anything like that. But where would you look for pockets of maybe things going a little bit to

o far? So I go back to Anne-Marie's point is that you need the fundamentals to continue to be positive, not fully supportive, because there's so much liquidity in the system still, but to continue to be positive. And then let's not forget there's all these other things. You know, if you wait for someone to talk about geopolitics today, that would paint such a depressing picture. Yeah, and that would argue that there is no way that what happened in geopolitics plays into your politics. The S&P 50

0 this morning just about unchanged. Let's give an update on stories elsewhere this morning. Cambridge, your Bloomberg Daybreak with your horror hack. Hi, John. Shares of lululemon are lower in the premarket after the athletic clothing maker forecast a lower than expected sales outlook for the year. Plus, the retailer says visits to stores in the us slowed in the first quarter and shoppers are buying less. Lululemon has had a stellar post-pandemic run and analysts are sticking with it, predictin

g it will outperform its conservative guidance. FedEx shares are rallying in premarket trading as the company's cost cutting measures helped deliver better than expected earnings. The courier is in the process of restructuring the company's delivery networks, part of a sweeping plan that includes shrinking its workforce by tens of thousands of jobs. FedEx also plans to buyback $5 billion of its shares. Also in retail, Nike warning investors sales will take a hit later this year, pushing shares l

ower in extended treating. The world's largest sportswear company says it's working to realign merchandise to better match what shoppers actually want to buy. Nike says revenue and earnings growth are sees revenue and earnings growing next fiscal year despite the slump in the first half of the year, it expects to see a payoff from a $2 billion cost cutting plan announced back in December. That's your Bloomberg brief. John Harris, thank you. We'll talk about some of the retailers up next. Up next

on this program, a softer consumer. What we're seeing now isn't recession on the horizon by any means, but the consumer is softer, but they're stable. That conversation up next. Stocks pulling back just a touch were -0.1% on the S&P 500 lower in the last 10 minutes or so. In the bond market, yields still down by two basis points. A ten year yield, a full 2414 under surveillance this morning. A softer consumer. If we were talking a year ago, I would have said resilient, resilient, resilient, res

ilient. I mean, there was there was nothing. What we're seeing now isn't recession on the horizon by any means, but the consumer is softer, but they're stable, they're softer and they're staying. That's the latest this morning. Shares of Nike and Lululemon falling with both retailers issuing a cautious outlook. Nike warning sales will take a hit later this year. Lelo saying U.S. consumers are, quote, a little soft coming into 2024. But I'm girl Bloomberg intelligence joins us now for more now ca

n we start with Nike When Nike talks about positioning for where the consumer is currently, what are they talking about? What trends are they missing? I think the biggest mistake is that due to the pandemic, it's innovation for them. So what they're trying to do now is bring back innovation to drive sales for the longer term. And as their product launches, so will their positioning in the market. Nike is the largest sportswear retailer brand in the world. So for them to really keep that lead, th

ey need to continue to push on innovation across all sports. Well, speaking of who's winning, who do you think is winning as they're not doing so well? They're not doing so well, I think know. And you just come back a little with the new CEO under management. So we think they're taking some share back. We also have others of our retailers that are coming off the mark and that includes retailers like on and right. They've been doing really well, taking share and the running and the lifestyle cate

gory. So we do think there is increasing competition in the space overall. Let's leave that year. Today I bought up and put I'm glad we got to go. So we appreciate your time. Nike is down 7% year to date. Adidas is up by 8%. There was a big win in Germany. Yes. Did you see this? Yes, I did. I was kind of shocked by that. This is the German national football team. The jersey will no longer be made by Adidas. It's going to be made by Nike. And what was so amazing about this story is that even the

economy minister Robert had that came out and said, I don't like the way this feels. What about a little bit of love to some loyalty to the national team? But the German team is like, well, they were the most competitive economically. This made more sense, but it's kind of crazy to not see the three stripes on the German team and they're going to go with Nike. This goes back decades, decades and decades. Yeah, I mean, this was the national champion. Talk about national champions, Adidas. It's no

t Adidas, right? Are we going to have to call it Adidas now because they're no longer the national team and they're just going to have to be international. This should be the poster child for the destruction of the German economic model. Really. So there you go. There is a bit in my column this weekend, and it's published in the Financial Times to state exactly along with other columns. They like them out. Let's get a final word from you. It's been quite a week. Just looking around the world, al

l the decisions that been made, a hike from the DOJ, a cut from the S&P. Quite interesting news conference from Chairman Powell. Just to recap the week. What stood out for you so far? So before we get there, you know, there's a huge controversy in England about the English, it all about the St George Cross. Yes, I've seen that. Yes, Huge controversy. Use different colours on it and I think different. Was that Nike, too? I think that was not. That is Nike. And they're refusing to recall it. They

think it's modern. They think it's modern. But the politicians are getting into the act right now. So the politicians are going to intervene. They have intervened. And what are they going to do? They've expressed their opinion. Okay. And is that consequential? I'll leave that up to you. Can we return to markets? So what was the question again? The question was, Mohammed, after the week we've had so far. But I can do it again. Let's talk about the week so far. It's not scripted speeches, hikes as

some base camp, Federer said with a pretty interesting news conference. What stood out for you? I think what stood out for me is that central banks took a significant dovish turn. And I think that is something that is not just cyclical, I think it's secular, and we're going to be talking about it for a while. I want to just double down on this on this point that John was drawing out of you, if you haven't seen this since the mid 2000s. What takes us to 2007. Right. I mean, it not to sort of ben

chmark to cataclysmic events, but, you know, there is this question of if it's an everything rally and feel people feel like nothing can fail, that can lead to difficult moments. How likely is that? So you need a big shock. You need a really big shock, either an economic shock and or a political or geopolitical shock on the economic side. I think we started to hear to hear, you know, the consumer is driven by two things net savings and income. Net savings has a. Orange light or a yellow light fl

ashing on it. Income is a green light. So if the labor market weakened significantly and income becomes an issue, then that would be something on the economic side. On the geopolitics, you can imagine something that drives oil up to over $100 a barrel. That that would be a big shock. Well, why is all this discounted? There's two hot wars. 90% of the American tech giants, their chips are manufactured in Taiwan. There's there's so many different areas or pockets around the world that are brewing t

he tension and it's not playing out in the markets. So let me tell you a story. 2008, the beginning of 2008, a really respected banker comes and sees me and I ask him, where are we in the cycle? And he draws an upside down. You. And he says near the top. And I said, What's your risk position? He said, Fully risk on. I said, How could you be fully risk on when you need a top? He said, three reasons. I don't quite know where the top is. To everybody is also full of risk on three. I can get out in

time. That bank had to be saved. So I'm just saying that the attitude of the markets is that you you never know where the top is. You're you don't miss out. You're being judged on a high frequency basis. And there's this almost arrogance that we can all get out when it matters. So it can run for a very long time. So the final question then, how it should be and I want to jump in because about 60 seconds left. That's your experience at PIMCO. PIMCO in that time became the cash machine because you

didn't get into trouble. What were you identifying? Which goes back to Lisa's question, What did you identify at that time that made you take a very different position in markets? So, you know, PIMCO tends to be early and it certainly was early on the housing call, but it stuck to its guns. And that's the advantage of being a long term investor. And in the case of PIMCO, having clients that have been there a very long time. Now, other firms don't have that confidence of taking a longer term vie

w that PIMCO has. And that's been the metric that Bill GROSS really wired into the system. Structure. This was fascinating. I'm going to go home and we listen to a lot of these conversations. Appreciate it. And if you want to hear for a moment from Mohammed, you can bill impact. I'll come at the Bloomberg opinion column on Tuesday and something's coming out Tuesday morning. Your column in the print edition of the day only available in the city of London. Is that true? Maybe it's no, it's not tru

e. You can get it elsewhere in northern England as well. It's good. It's a great. Coming up, Sarah Hunt of Alpine Saxon Woods, Kim Wallace of 22 Research. Sophie, trust us of point 72 and a whole lot more. The Everything rally is likely to continue for a little bit longer. I think stocks and continue probably to do well, high quality stocks. So the winners themselves, when momentum is high, can continue to do well. There's still very much a speculative fervor within the market. We've been bullis

h. We remain bullish. We still, you know, very much seem to be in this sweet spot. This is Bloomberg Surveillance with Jonathan Ferro Lisa Abramowitz and Anne Marie Hordern. One last one for Paramo. Let's get you to the weekend. You live from New York City this morning. Good morning. Good morning. This is Bloomberg Surveillance. I'm with you. This week is exhausting in this market in a major way. Equity futures on the s&p 500 negative by 0.1%. Four day winning streak on the S&P 500. If you're ju

st joining us, welcome to the program. Here's a flavor of the last 2 hours. Bullish. I mean, seriously, really bullish. Really constructive. Let's start with Bob Michael of Jp morgan. Bob Michael comes on a program so bullish on almost everything in fixed income. We ask him a very blunt, straightforward question when was the last time you were this bullish? He sat there, he thought about it, and he said the mid 2000, we asked Mohamed El-Erian about it. Same question, reflected on it a little bit

, said the same thing. That question that you asked really to me is the theme of the morning. How far do we have to go back before we start to see this type of all encompassing bullishness? Yes, there might have been consequences down the line, but it took long enough for people to make a whole lot of money in the meantime. And that seems to be where we're at. You hear things like that and it makes you feel uncomfortable, but it's been upgrade after upgrade on Wall Street. On the S&P 500. We had

another one from stocks in many Acampora taking year end price targets from 4750 to 5500. US exceptionalism it's going from strength to strength. Despite widespread market optimism, we view this as rational rather than excessive. This is not a bubble. This is not a bubble. How many times have we heard that in the last few weeks? Which brings us to the Max cutter note of HSBC where he's talking about. This is not a bubble to me. It raises this question enhancer. This there's a lot of early cycle

types of behavior in terms of economic strength, different corporate cycles that he's observing. Where are we in the cycle? We thought we were late cycle last year. Now all of a sudden, more early cycle. That I think is infusing the optimism, feeling like this has a lot more to go with money coming out of all spigots. What Mohamed said, I think was really important. He said, you speak to financial market participants at the moment, it's overwhelming, just overwhelmed by happy talk. Whenever the

y talk about financial markets. Speak to an expert on geopolitics, he said. You have a very, very different conversation, very dark. It's very different than the optimism, momentum you're seeing in the equity markets, in the markets overall when you look at geopolitics, Jonathan, and it's a good point to bring up today because we do have Secretary Blinken in Israel. There's two hot wars right now in the world, and any one of these can also have a huge impact on commodities, which have a huge imp

act on inflation expectations. But then, of course, you look back at the tech darlings of the United States. 90% of them, when they get their chips, is exposed to Taiwan. And that is obviously brewing tension in the South China Sea with China. The problem is, is that none of it's really panned out. Right. And it hasn't worked for the market. And so it raises this question, are we essentially going to become increasingly fragile as we keep going with the momentum until something happens that we c

annot predict, that we cannot plan for? So that's why I'm still hiding in a bunker. Well, right now, not much is happening. She's she's bearish saying I said earlier on as well, very close. We're getting closer. Lisa is almost bullish equities right now, but still in a bunker, right? Oh, it's so equity futures on the S&P down by 0.2%, yields lower by three basis points for 2355 in the market. Dollar strength against the euro, 1.16 just about holding on to one away with negative on that currency

pair by point 4%. Coming up this hour, Sarah Hahn of Alpine Saxon Woods on the Fed rally. Kim Wallace of 2012 Research as Congress races to avoid a government shutdown and the fear draws us of point 72 on the Fed's path forward. We begin with our top story. The Fed fueled rally pushing stocks to fresh all time highs. The S&P 500 hitting its 20th record so far this year. Not even tech losses led by Apple or Alphabet curbing market momentum. Sarah Hahn of Alpine Saxon Woods saying this. The Fed me

eting this week seems to have confirmed that the central bank is also on the soft lending path and gave markets enough to imply that even with elevated inflation readings in 24, the path is still open for lower rates. Sarah joins us now for more. Sarah, just how constructive have you become after what you heard from Chairman Powell this week? I think it's difficult not to be constructive given the fact that you had this. So first we had it in December of last year. Right. We had all this concern

about a hawkish Fed in August and into October. And then in December, they basically said Powell basically said, you know what, We think the risks are balanced. He had a chance this week to come out and say, you know what, We think that there's been some, you know, irrational exuberance or over enthusiasm, and he didn't. And I think that that just says the Fed is comfortable with where things are going now, sort of overlook the higher inflation readings in January. That has to be positive for e

quities if the path is still lower and not only is not higher, we're still saying it's lower. We're not even saying we're not going to do it. The fact that we didn't go to two from three, that might change this year depending on what happens. But in the scheme of things, I think that that was pretty much and an okay, go ahead and keep buying things. We've labeled this week the Everything rally. We've been buying almost everything, not just things including banks. Banks are up this week on the S&

P by something like 5%. What are they running on? So I think on the on the bank side, I think that there was this issue that happened in March of last year with Silicon Valley Bank. I think what the banks are realizing is that even though we keep hearing these really dire commercial real estate stories and really dire stories about you've got this big refunding, we've got all this all this debt has to be termed out. I think that there's a realization that the odds are that if something does go w

rong, there's going to be a backstop for it. And I think that that makes people feel better about banks. Now, that's not been explicitly said yet, but I just think if you take the totality of the evidence that the odds are that you're going to get something done, if you see some sort of a crisis in commercial real estate, which we do keep hearing about and we keep hearing the valuations are lower and people have extended pretended, but the fact that you've got private credit, being able to do th

at may just let that be less of a crisis than we were all expecting. So does this basically mean that there are other areas as well that could really benefit from the Fed put that essentially you're saying is implicitly being thrown into the market in a massive way that you're kind of leading into? Well, I think that that's where you switched. I think that in ACT in August and September of last year, you were worried that the Fed put was gone. And now it seems the Fed pushes back. And I think th

at it's hard to argue against that. Right. It's the don't fight the Fed idea of where they're going, then markets are going to follow. I can list a whole bunch of things to be worried about. But you're right, a lot of them are not playing out. And the global political scene is a disaster. And so there's plenty of things that could happen, but could is not. I see. I see a line and I see a time and I have a catalyst. How much are you doubling down? How much have you actually shifted allocations an

d bought banks, bought riskier credit, bought everything after that meeting? I think the answer is more what didn't we do when things were ugly, which was sell those things. So you keep those things right? So it's not like you had to double down in technology because we were already there and we saw some of the things that happened in 2022. But even in August, when the market crashed last year, in September, October, just not shifting out of things and trying to get into the safer bets at that p

oint would have been a more difficult thing from a performance standpoint as you came into 2024, because December happened in that market, just hasn't really looked back. I mean, it's had a couple of little. A couple of little Philips, but it hasn't really looked back. I spent amazing since the end of October. It's just been a phenomenal run in this equity market. I think we've had three weeks of losses since the end of October and two of them were the previous two weeks. And we've taken it all

back this weekend. Some what was that statistic that a third of the days that the S&P has traded has been at record highs? Just to throw that out there, I thought that was pretty 20 record highs so far this year. It's just phenomenal. It's just been absolutely amazing. We caught up with Goldman Sachs early this morning. Goldman said, look elsewhere, get away from the dominance that a concentration of US equities, big cap tech look to Japan. What do you say to that? Well, I think it was interesti

ng when the Bank of Japan changed their policy and the yen didn't do what people had expected it to do. So that's positive for the stock market, right? Because if the yen had strengthened too much, then people get worried about the currency movements. I think that it's fine to look outside, but you also have to be careful because if anything is going to derail the US, it's going to derail outside too. It's not going to be the US goes down in the rest of the world, says, okay, everything is great

even with these massive valuation discrepancies. So I think that there is room for other things, but you have to think about them as all kind of working together. I just want to frame that a little bit more tightly. Are you saying the US continue to pull from the rest of the world, but the rest of the world can't decouple from the US? Yes, That wasn't how I was framing it in my mind. But I'm just thinking that that's the same is always the obvious bet just to own us equity risk. If you want to

own any equity risk at all, from our standpoint, it's very difficult to think of not owning U.S. equity risk. You can add other things to it, but especially as a US based investor, it is very difficult to think I'm going to swap out of the US and go to other places just because I'm worried about the valuations in the US. All right, let's stay on American exceptionalism. We've been talking about how long we can have this privilege to keep borrowing endless amounts of money while also fueling our

economy through that kind of financing. Does the Fed pivot make you less optimistic on longer term bonds? The question John was asking earlier, because it does sort of imply a bit of a higher inflation target and a bit of more tolerance by the Fed to price instability. Well, I think what what it does is it means that you're not going to go back to zero interest rates. So that gives bonds a place in a portfolio. It gives bonds a place in a portfolio, especially if you have a demographic that's ol

der. You don't want to only be in equities because there is that risk there. And I think that the bond at this point has less risk to it because of the Fed's dovish ness. But you also are are long term bonds going to go a little bit higher because the economy's better, They're going to go a little bit higher because they're worried about the US financial system. And I think that this is the this is the joy of having the reserve currency, is that you have a lot more room to act within that than a

lot of other countries do. One thing that Mohamed El-Erian was talking about was that the one place where you're seeing inflation concerns is in real assets, in particular gold. How much is this turbo charged enthusiasm for things like oil, for things like metals, for things like gold? Well, I think I mean, I've always had a little bit of a predilection for gold. Most clients don't like that. So I can I can do that more personally than I can in other ways. But I think that, you know, there is a

n argument for debasement of global fiat currencies coming out in other places, and that will come out in things like gold, it will come out and things like commodities will come out and things like the coins that we don't talk about, it will come out and people will put a view on that by buying things where they feel like there's a difference than just the fiat currency. But again, you know, the US having the reserve currency makes a huge difference in how we can act and other people can't do t

hat. And even if it is a race to the bottom, you know, you're still the US still ends up in a privileged position. We noted to all time highs on Wednesday in that news conference. One was stocks, the other was gold. Gold I think is really noticeable what's happening there in the last few weeks and the fact that this might be the inflation hedge or the concern about a surge is saying the debasement of fiat currency. Sarah, good to see you. That's catching up with Sarah Humber of Alpine Saxon Wood

s Equities at the moment. Devon okay, all time highs coming into Friday down just a little bit. Equity futures negative by 0.1%. Let's get you an update on stories elsewhere this morning. Here is your Bloomberg brace with your horoscopes. How are you? Hi, John. Ending the ethanol crisis is shaping up to be a high priority for voters ahead of the US election. A recent Bloomberg News morning console poll sees about eight in ten swing state voters ranking the problem as an important factor in decid

ing their votes. That's more than the number who say abortion, climate change, labor or the wars in Ukraine and Gaza. Fentanyl has been linked to more than a quarter of a million deaths since the start of the pandemic. And FedEx shares are rallying in pre-market trading as the company's cost cutting measures helped deliver better than expected earnings. The courier is in the process of restructuring the company's delivery networks, part of a sweeping plan that includes that includes shrinking it

s workforce by tens of thousands of jobs. FedEx also plans to buyback $5 billion of its shares. And BlackRock is calling a Texas decision to pull eight and a half billion dollars from the asset managers funds reckless. The Texas Board of Education says BlackRock's involvement in environmental, social and governance, otherwise known as ESG, makes investments in eligible under state law. This is one of the biggest actions taken against BlackRock as states with Republican leaders push ahead with an

anti ESG campaign. BlackRock denies any wrongdoing and says the company holds more than $320 billion in energy investments, including in Texas based companies. That's your Bloomberg brief. John Yarborough, thank you. That story, it's just the beginning. This has been brewing for a while. Saw a little bit in Florida State, in Texas, not going away anytime soon. It's not it's actually good. It's going to ramp up, especially as we head towards the November election. Jonathan, when you hear from co

mpanies is it's really hard to decipher how to do business, whether it's a blue state or red state going to get harder and harder. Up next on this program, Congress racing to avoid a shutdown. Democrats have repeatedly made clear that we will find bipartisan common ground with our Republican colleagues. Under no circumstances can we tolerate a government shutdown if market participants had a list of things they didn't care about. Is this one at the top? Yeah. The market shutdown that never happe

ns or that just doesn't matter right up there. My conversation is up next. This is. In fact, talk about it. Equities put in just a touch for down 0.1% on the S&P 500. Into the bond market, yields are lower by five basis points on a ten year for 2178 under surveillance this morning. Congress racing to avoid a shutdown. From the very beginning of this Congress, Democrats have repeatedly made clear that we will find bipartisan common ground with our Republican colleagues. We're prepared to do it on

ce again in order to make sure that the final six appropriations bills are passed and on a path to be signed into law. Under no circumstances can we tolerate a government shutdown. It's the latest this morning. Lawmakers racing to vote on a $1.2 trillion bipartisan spending package which would keep the government funded through the end of September. House Speaker Mike Johnson, once again facing opposition from within his own party as the GOP majority is shrinking further with the early departure

of Congressman Ken Buck, both chambers have until midnight to get the bill to President Biden. Kim Wallace, Washington policy analyst at 22 Field Research joins us now for more came this might be the shortest segment ever because market participants look at this and just sort of glaze over and they're like really again this do we need to care about this? No, you don't need to recess. Thank you very much to say thank you and good night. Why is it so much easier now for this speaker than it was f

or McCarthy? Oh, I think because we're nearing the election and he's got a shrinking margin, as you've noted. But more importantly, as Tom Cole, the chair of Rules Committee, said two or three weeks ago, the deal that was cut in May 23 on top line spending has been substantiated four or five times now since then. So you roll all those together. There's no play here, what, October 1st, you know, So I do worry about it. So we'll get there again. But you have bigger things to worry about in the mar

ket. The previous two segments, is it growth or is it a head fake? And if it's growth, do we have to worry about what that means for policymakers and fiscal policy? Yes and no, not now. But in December we go through debt ceiling again. That's when you begin to pay attention in Washington, December number four. So if it is growth, what do they do between now and the election? Tread water. There has been, although there has been rising bipartisan agreement on the US-China competition front. So yes

terday we saw the House passed 393 to 24 legislation that would require a review of all ships at the at U.S. ports to check them for cyber security risk, because those ships and much of the cranes in those ports were built in China. So, you know, we've got substantive stuff going on, but that's not what gets the headlines. And what about Ukraine? Because that is still been a stalemate. Slowly, tortuously they're headed toward where they've been for the last six months, providing assistance to Uk

raine and Israel. You talk about how they're bigger fish to fry, in particular the sort of bipartisan effort for the U.S. to compete with China. I'm wondering if we're having a cohesive kind of policy shift here or if it's kind of just ad hoc, throwing things at the wall to see what sticks and what sounds good, but doesn't actually come together in something that businesses can really plan around? Lisa, It's a good question. We'll have to answer it next year after the election because the US-Chi

na competition generates a lot of noise, but it also points to a lot of deficiencies in the US manufacturing base, shipbuilding chips. We've got Defense industrial base. Deputy Secretary of Defense Kathleen Hicks two days ago addressed the defense industrial base and how far behind we are. Chief Naval Officer almost a week ago said You go through history. Nations that can build ships have navies, have commerce. It's connected. We're behind. We're way behind. We were number one in ship building,

1975. When? 19 now. It matters and will matter more as we have the great power, friction. A lot of people point to the fact that the US is at the bottom of the list in terms of industrial spending more generally, even with the recent spending packages that have been approved. I'm just wondering though, how much more appetite is there as well as capacity for this country to borrow more, to invest more? So many people are basically betting on in markets. So Washington is going to have to start mul

titasking. But after the election, yeah, I know it's scary, but it's real. They're going to have to decide the path forward and fiscal policy that also includes a pro-growth stance. We did in the early nineties. We reduced deficits just as we were having desktop publishing and desktop computing coming from Microsoft. It helped in the boom of the 1990s. It's in front of us now. We have technology that could be bleeding the edge that might be applicable across many sectors, and we have a fiscal pr

oblem. Those are just votes. Those are decisions on the way forward. That doesn't do away with the challenges you have geopolitically, nor the deficiencies that we've had across our industrial base that make those challenges worse. It begs the question, why are we going after our national champions in the United States? Why aren't we supporting them? Why are we going after the likes of Apple? The short answer, John, I think, is maybe we would have 20 national champions instead of seven. If we ha

d better competition in that space. That's not a view. That's just what you hear from some of the competition policy analysts. What's your reaction to the DOJ case? Oh, yes. It's been brewing for half a decade. And given the DOJ's press release, they seem to think they have a very strong, multilayered case. The courts will decide. It cannot be that we've had these fantastic tech companies for the past 20 years, and increasingly their network effect has resulted in power for them in the market an

d that not stunt competition. The question is, has it been illegal? Did Chief antitrust head under the Trump administration? Makan Delrahim. He had notably said that, you know, these technology companies are, quote, digital gatekeepers, very similar to what we hear out of this current DOJ. What do you expect? Where can this all go? Basically, if we get Trump back in the White House, do you think this stays the same? Emery We don't know if if Trump is back in the White House. You have to ask the

question when he's back in the White House. We have to ask it almost every day because he changes his mind based on how he feels on topics and based on with whom he speaks and their interest. You said wait until the election. And I was sitting here thinking, why do we need to wait until the election? Don't we know what both stand for on these issues? And isn't this administration quite similar to what we saw from the former administration on a number of these topics to. I like the first half of

that in that we are nearing in this country a very stark choice. I would push back strongly in a long time that they're very similar in trade. You see some similarities there, protectionist. But if you look at the strategic level, it's different whole of government versus rifle shot. Give it a say sample of that. Well, the tariffs both on steel and agriculture, that was the brunt of the US-China competition under Trump when he was about to ban ZTE. And while away technology and hardware from the

US, he was contacted by people in the US who knew him, who had positions in those companies. They backed away, similar to Tick Tock. So it's strategic versus what you feel like at the moment. But in my view. But the Biden administration kept those tariffs in place and Trump is weighing potentially even more aggressive tariffs, 10% wall overall for the world and more than 60% from China specifically. True. But when you look at geopolitics or even trade, those tariffs are a very small part of the

overall story. Very small part. And the two men approach that question very differently. What do you think the approach is going to be regarded China in the near term, then specifically for Biden regarding events? I think it's a really important topic. What happened over the weekend, a lot of news organizations went for this headline about Bloodbath said. So I think the story for us was actually the president. Just before that, the former president talked about a 100% tariff on Chinese EVs. The

former president talks about tariffs. The current president talks about protecting union workers. What do you think he can do between now and November to do just that attack? The same thing the current president? Yeah, make promises and that's all I can do and see that his inflation reduction that continues to unfold. We have to accept the fact that the US is way behind. And if they're going to compete industrial base technology, we'll be talking about this for a decade. In terms of the catch u

p, you say promises. What were those promises? Big promises. Be that if you re-elect me, I'll double down on boosting the defense industrial base $60 billion in his first supplemental request. Hicks, in her speech, reiterated that same $60 billion and broke it out. So it's you have to ask each candidate, what's your plan? And we will if they join us. But as you know, they like joining their own respective TV networks, which is what happens in America quite often. Thank goodness that open space f

or the other night. Kim Thank you, sir. Kim Wallace It's funny, TV research coming up on this program, point 72 so far. Address us on the Fed's path forward. That conversation just around the corner. Equity futures on the S&P 500 negative by 0.1% in the bond market. The rally continues there. We had about five basis points on a ten year to for 21 and a two year. We're down three basis points to just about 460 from New York City. This is Bloomberg. Let's attempt to wrap up the trading week and gi

ve you a flavor of the price action on the session. And over the last week as well, four days of gains on the S&P 500, small mining of losses. We're down by 0.15% on the S&P, negative by 0.3 on the NASDAQ, both on the S&P and on the Nasdaq. All time highs at the close on Thursday. We switch on the floor and get to the bond market snapshot of treasuries full year to year, ten year, 30 year yields down across the curve, most on the longer and down about five basis points for 21, 58 on tends on two

s. Quite a round trip this week from the four seventies on Monday. Lisa briefly the fourth one through the middle of the week and back up to four 6041. The Fed puts back the Fed's got the markets back. That's essentially the message that the bond market is keeps keeps taking. We've been asking all week, what about the long end? Does this make sense in the long end, given the fact that there's a tacit understanding that inflation might run hotter for longer? And that's okay. And everyone's saying

, I mean, we're not really getting a clear point out that gold may be just sort of picking up on the sense of that just a touch. It seems like there's a wall of money and this is what people are struggling with. Something that might make sense in theory doesn't work in practice just because there is so much liquidity that people say is looking to find a home. But Michael is talking about just people buying more equities. People buy more credit, but the cash balance is still going up. So how do y

ou put this together and come up with some thesis that's going to really play out in markets? We've said basically anything with the dollar sign this week is done. Well. I mean, I know that's a stretch, but it's felt that way. Stocks and bonds rally in dollar to tell a strength in the whole of G10 with the exception of the Japanese yen this morning. Yen showing a little bit of strength, dollar yen down by 31%, one 5116 stronger in the session, weaker on the week. And I think the week has been th

e story, Lisa, not today. They did it. They raised rates to zero. Woo. And yes, but you wouldn't know it because they also effectively say that they're still doing yield curve control. They're just not calling it yield curve control and they'll come in if they need to. So even though we got a hotter than expected print with respect to inflation in Japan overnight, it doesn't matter because the Fed put the BOJ put central bank put seems to be back in play. We've got some time this morning still t

o build on this. But what Mohamed El-Erian said a little bit early this morning, that just the early signs of a long, long game, but the early signs, the first few steps of maybe accepting a higher inflation rate without actually being mandated, one which I think is going to be controversial in some circles. But that's essentially what Jay Powell said. He said emphasis on take a while or with the words that are I'm lost in my in my head. But my question, I think, yes, there is this question of,

you know, how long they will be patient and allow inflation to drift down to 2% if they allow it to be north of 2% for ten years. Has their target changed? We'll come back to those comments in just a moment. Under surveillance this morning, some of our top stories for you. Regulators hitting Apple at its core, the DOJ and 16 attorneys general filing a lawsuit accusing Apple of blocking rivals from iPhone software and hardware features the tech giant losing $113 billion in market value in yesterd

ay's trading. Meanwhile, the EU is preparing to investigate the company over compliance with the Digital Markets Act. Apple shares down about 11% year to date, underperforming both the S&P and the NASDAQ. And this is the interesting feature of this. And of course, there are many interesting dimensions to this story. But typically we were accusing the Europeans of going after the darlings of US tech, and now it's the Americans going after their own babies. Yeah, it is. And this inquiry started in

2019 under the Trump administration. So it's been years in the making. And what is so interesting and potentially why you see the stock sell off is that it was really comprehensive in how much they're going after everything that is integral to the iPhone, its messaging, how they deal with digital players when it comes to the wallet, cloud services, five years in the making, I think years in the making as well in terms of how what is going to be the remedy for this. And there was a briefing call

yesterday with the DOJ and they didn't take off the table this idea of a breakup, who wins if the DOJ is successful, maybe China. Chinese President Xi Jinping said to meet with a group of US business leaders next week. As Beijing looks to attract foreign investment, the list of participants isn't complete. But the president of the National Committee on US-China Relations and president of the US-China Business Council are expected to attend. US executives are already heading to Beijing this week

end for the China Development Forum, according to the Wall Street Journal. Those names include Apple's Tim Cook and Blackstone's David Saltzman. This is the charm offensive and the big data point I think matters here. Recount in this story is FDI, and that number is not a pretty one for China. It's been negative in the most negative that we've seen really going back decades. There's a real question here of how much executives are going to actually hear what Xi Jinping has to say and how much the

executives who are going there are being forced to hear what he has to say because of how much of their businesses are dependent on the China economy. Tim Cook, Good point. Whether or not they like it or not, do they have to show up? But I was with she and Biden in San Francisco. Remember that dinner they hosted $40,000 to sit as she's table so this is probably can be expensive. And I think the fact that Tim Cook was in China this week as this was unfolding with the DOJ in Washington kind of te

lls you what's important to them right now. They're tied to it from demand standpoint. They're tied to it from a manufacturing standpoint. They can't get away from it. How many other Tim Cook's are there? Not as many as there used to be, but it's really a difficult thing to extricate these two economies that are the world's biggest apple, the big mover yesterday. Let's finish on this with Nike and Lululemon under pressure, both anticipating challenges in the US market, Nike warning investors sen

se will take a hit this year as it recalibrate its merchandising lineup. The company is shifting its sneaker offerings to better match customer demand. Lululemon seeing a sales slowdown to start the year thanks to lower foot traffic and shopper pullback. The activewear company focusing on expansion in China as competition rises stateside. So I guess that kind of reinforces the conversation we just had. At the end of the day, it's a very populated country that has a lot of money. It's where busin

esses want to be. At what point are they really going to be so hesitant to get in because of the geopolitics when you know their dollar signs there or yuan signs the stocks are struggling. Let's push forward a slow offensive, a contact today. I like that, including Fed Vice Chair Powell, Fed Chair Powell, vice chair of Supervision, Michael Bar and Atlanta Fed President Rafael Bostic. Sofi address us 4.72 weighing in on the FOMC, its path forward, writing, quote, We continue to look for three rat

e cuts this year, starting in June and continuing at a quarterly pace. The Fed will be cutting rates as inflation falls, but growth remains above trend. That should prove supportive for broader risk sentiment. I'm pleased to say that with us around the table is Sofia. Sofia, good morning. Good morning. Thanks for having me. What a week. Mohammed, who was on the program with us about 30 minutes ago and he was talking about central banks almost tacitly accepting higher inflation rates. It's not a

view that you'd endorse this morning based on what you've heard this week. Well, what I would say is that in central banks are starting to focus perhaps a bit more on other aspects of their mandates. And they're supportive of this idea that inflation has come down and they are making progress on that front. And so we are seeing policy shift. And what I think is very interesting I have never seen it in my career is that central banks are cutting in tandem globally, but we don't have a negative ca

talyst that's driving it. So for me, it's like central banks are taking out some insurance to to to help the growth side of their mandate, particularly here in the US, and that's very supportive of risk assets. Do you think this can be explained by some kind of post-pandemic supply side renaissance that is have these central banks out and they get to pull back a little bit? Is that what this is? I think that's part of what it is. Certainly when I listen to what the Fed has been saying over the l

ast few months and I think Chair Powell put his marker down very specifically in January saying that the monetary policy is very tight, but we haven't felt the full effects of it in the US economy because the supply side has been shielding us from that. So it's very rare that we see such dynamism on the supply side and certainly very rare that we see it globally. But something is happening because goods prices are falling across the board in all major economies. And when I look at producer price

s and in major economies, they're either in negative territory on a year on year basis or they're relatively flat like they are in the US. So certainly the good side of the economy and the supply side of the economy is doing a lot of the work for the Fed right now. Sophia, I want to get into one aspect that maybe got less attention, which was the balance sheet. And a lot of people were looking for the Fed to talk about how they were going to be cooling off on some of the balance sheet roll off.

They still are going to do that even with stocks at record highs and bonds continuing to rally, have they really drained liquidity from the system that seems to be just absolutely chock full of liquidity? Well, I was looking at this last night because, as you know, the Fed balance sheet data come out on Thursday. You're a nerd on the balance sheets. I know that. Okay. And what's interesting is the Fed's balance sheet was about four, four and a half trillion pre-pandemic. We got up to 9 trillion.

We've done the Fed has done some duty, but the balance sheet is still very large. And certainly the supply of money seems like it's much higher than what one would have expected to be supplied by the Fed in sort of a normal environment. So we're still dealing with a lot of liquidity. And I think with regard to Kuti, the Fed is being very smart about it. They've learned some lessons from 2019 where they continued at a relatively aggressive clip and eventually this led to some frictions in the mo

ney markets and prompted them to very abruptly and cut and start QE. So what they're doing here, I think, is slowing the pace means they can go for longer and it probably means that Q t is less volatile for for financing markets to basically put this all together. The Fed is being very cautious. They want to support the economic cycle. You have fiscal spending that keeps pouring in to support some of the technological advances. Just as you advise investment professionals at your own firm. What's

to say this is not early cycle and can keep going for a long time and that the rally, even if it's getting to higher levels, has legs? Yes, of course. Again, going back to what I said earlier, I've never seen a cycle where global central banks are cutting in tandem and there isn't a negative growth shock. So it is a very positive tailwind, I think, for growth expectations. When I think about it in terms of the global economy, it seems to me that the way that central banks are acting in unison i

s reducing the risks to the global economy. It should be raising people's expectations for global growth and we should start to see these pockets that are more tied to the global beta. The global cyclical cycle start to percolate a bit more. And I think that's why you're seeing that Japan is still a very heavily subscribed trade. Europe as well. Italy is one of the best performing stock markets here today. I think that would surprise a lot of people. Not this guy. Not this guy. He's in Ferrari's

in banks, I guess. So that's what the move has. But but but in general, I think that it is a very positive global growth environment. So in in that sort of context, it's not surprising people have got cash on the sidelines. Every every Thursday I look at the money market assets and they don't decline measurably. So there's still a lot of cash on the sidelines. Central banks are taking out some of the downside growth risks and it looks to be a more positive outlook. The story we talked a lot abo

ut the story in the last five, six, seven, 8 minutes. Can we talk about the price of the story? How relevant is the price of the story? Does that matter at this point, given how strong the storytelling is so far this week and how justified that is, too? Well, I think it's it does matter. Right. And I think that's one of the reasons investors might be looking for catch up trades. And again, if central banks are perhaps giving us a little bit more assurance on the growth side, it is giving some in

vestors the opportunity to to look for value. So that was one of the initiating catalysts, I think, for Europe and Japan too, for their equity markets to start to catch up to to the US. And now we're seeing it in other pockets as well. We're starting to see a bit more interest in in small caps and in value. And I was looking at the screens this morning, the Russell 1000, the S&P 1500. Those are all moving in tandem with the S&P. So this Wednesday, we were talking about it, the outperformance at

the Russell on Wednesday, as Powell was talking in that news conference, as you said, people are itching for catch up trades. Are there some trades that you would advise people against taking some catch up trades that maybe you think won't of overnight desirable direction? Well, in this kind of environment, I think a lot of things are are look pretty good, Right. There's a lot of positive outlook in terms of growth expectations. Inflation's coming down. And I think this is one of the reasons you

're seeing the Everything rally. It's, I think, very hard to differentiate the globe, the tide that rises. I'll I'll I'll ships we're seeing a little bit of that. But you know pricing could be an issue for for for some investors. And again I think this is one of the reasons people are looking more for catch up trades Where where can I find good value? Where can I see an opportunity to to see a bit more of a catch up to what's happened in the S&P? There's been a bit of a debate on the show this m

orning. Do you go outside of the U.S. or do you stay with the U.S.? Because a lot of this growth is being driven by U.S. exceptionalism. Peter Oppenheimer of Goldman Sachs saying go elsewhere. What's your view on that? Well, I think typically when we get to a Fed cutting cycle, historically, the dollar has trended lower. And I look at the starting point for for the US dollar, and it seems quite strong to me. If you look at it on a inflation adjusted basis, we are at the levels we were in in the

2000. And so currencies do mean revert over time because investors expectations for growth in other parts of the world will also catch up to the US. And as we see that, we could see more capital flows and allocations to other parts of the world. I think also to, you know, the US still has a current account deficit at about 3%, not extreme by historical standards, but still something that we need to finance, whereas other economies are in a current account surplus position and in some cases are s

eeing their surpluses start to expand, like in Japan, in places like Brazil. So I do think that this global environment gets investors to look outside of the US for sure. So this was great. Got to do it again. Thanks for being with us. Okay, Thank you. Sophie addressed us there of Point72 equities. Right now, the S&P negative by 0.1%. Let's get an update on stories elsewhere. Here is your Bloomberg Daybreak with your horror hack. How are you? Hi. Hi, John. Bitcoin is set for one of its worst wee

ks of the year as ETF demand weakens, the token has pulled back. More than 10% after touching all time highs over $70,000. Bitcoin ETFs are also on track for their biggest weekly outflows since trading began back in January. A net of $742 million have left the funds. From this Monday through Wednesday. Reddit rose 48% in its trading debut yesterday, with the social media company closing out more than $50 a share well above its IPO price of $34. Investor enthusiasm for the listing, driven by the

company's pitch to profit from the growth of artificial intelligence. Reddit's IPO is the fourth largest on a US exchange this year. At Market Close, the company had a market valuation of $8 billion. Tesla is reducing electric car production in China amid sluggish sales and intense competition in the world's largest auto market, Sources telling Bloomberg the company instructed employees at its Shanghai factory to lower production of both the Model Y sport utility and model three sedan by working

five days a week instead of the usual six and a half. That's your Bloomberg brief. Jon O'Hara, Thank you. Up next on this program. Regulators hitting Apple at its core is a white knuckle period. No doubt that Apple is going through. But my view is, is that after 1 to 2 quarters, they get on to the other side, this for the pent up upgrade cycle. You know, I've got the transcript for that piece of sound in front of me. And I was reading it and I knew it was Dan Ives before I even saw his name. Th

is white knuckle ride is just sort of like leather jacket. Dan Ives is a rock star. Yeah, all of that. That conversation is up next. We have to empower. 42 minutes away. Equities pulling back just a little bit. We're down 0.1% on the S&P 500. The bond rally continues. Yields are lower by five basis points for 2158 on a US ten year under surveillance this morning regulators hitting Apple at its cool. It's a white knuckle period no doubt that Apple is going through. But my view is is that after 1

to 2 quarters they get on to the other side this with the pent up upgrade cycle and I believe it's all right now. But I do not want to be selling this stock into a I come to Cupertino that that's why this is, in my opinion, not the time to throw on the white towel. Well, people are selling this stock. Here's the latest. The DOJ suing Apple for alleged antitrust practices over its iPhone hardware and software. The company also expected to face a probe in Europe as part of another crackdown on big

tech. The news putting pressure on the stock down 11% year to date, underperforming the S&P and the NASDAQ. Joining us now, Bloomberg's Mark Gurman, an Apple guru. Mark, let's get into this. What is the defense coming from Apple in the last 24 hours? I mean, the defense is essentially that the DOJ lawsuit is littered with with nonsense. They make five central points, and three of the points they make against Apple are things that have either already been resolved or things that Apple said would

be resolved. So there's a lot of confusion as to why the DOJ is making allegations against Apple about issues that have already been rectified or in the process of being rectified. The suit is filled with technical inaccuracies, inaccuracies related to things that Apple may have done or is doing. And, you know, Apple believes that the DOJ is throwing as many items as it could gather against them, but none of them prove that the company is a monopoly. None of them show that Apple is harming cons

umers. To me, what you see here is Apple harming some app developers and partners. The major two pieces that that seem relevant are the inability to create a third party tap to pay payment applications in the U.S. and the way the company sort of throttles third party smartwatches when they're paired with the iPhone. So I think this is not going to be a couple quarter type of situation. I think this is going to be a three or four year situation where ultimately you see the DOJ adjust their case a

nd maybe narrow in on some specific items. You see a back and forth between Apple and the Department of Justice. What you've seen in Europe in recent quarters where you've seen the Digital Markets Act and Apple making tweaks to the iPhone operating system to fit those new requirements and make some changes there. I think you're going to see the same thing happen in the U.S. to some extent. I would imagine that Apple is going to pick items one by one and rectify what actually could be changed and

sort of try to come to some sort of settlement here. Whether this is a fine with the DOJ for past behavior and then those tweaks to iOS, I think that's going to be able to get this over with, but it's going to take a few years. This sounds incremental, Mark. This doesn't count catastrophic. Does this justify some of the sort of existential fear that seemed to come to the market yesterday at a time when everything else was rallying? I don't agree with the stock sell off related to existential fe

ar about this DOJ case. With Apple, I can make a far better case why you should sell your Apple stock that has absolutely nothing to do with these DOJ allegations. There are obviously features coming soon. Apple has done little to nothing to prove to the consumers and to the marketplace over the last decade plus why anyone should trust that these new features will be impressive or on par with what you've seen from competition. I think there are concerns about Apple's next major new hardware cate

gory. I think the cancellation of the self-driving car is a massive disappointment and underscores some serious innovation related problems at the company. So fine, you can sell your stock. I just think you've probably sold it for the wrong reasons. Mark, I'm glad you mentioned that Wall Street Journal is reporting that Apple held talks with Baidu to put their AI generative technology on devices in China. We have Tim Cook in China right now. Was that part of also potentially the defense when it

comes to the US, DOJ? I don't think that you have to do with each other. I reported last week that Apple's artificial intelligence plans include some combination of in-house AI, which is not the more advanced generative AI that you're talking about. And then the other piece of it would be partnering with an outside AI company. We've held they've held talks to license Gemini from Google. They've held talks to license GPT from OPENAI. They've held talks with Anthropic. I have reported all of that

last week. And for China and for other markets, you probably need a more localized AI player. And that's why you see the conversations with Baidu. It's the same. Whereas in the U.S. and many other countries you have Google as the default search engine. But in China you have Baidu. And that's because obviously Google's not operational in China. China's a big market for Apple. And if you want the generative AI features to work in China, you're going to need a local partner. So that's why you see t

hese conversations happening with Baidu. Mark, I'd love to finish on your latest article in Businessweek. You and a couple of colleagues worked on this one. I just want to go to the third paragraph, first couple of lines of it. This year, the Magnificent Seven has looked more like the Magnificent Two, the meddling two and the Math three. Mark, what's changed this year compared to 2023? Well, Apple in particular is under a lot of pressure. I would not put the DOJ specifically in that category. I

would put regulation as a big category of its own. They have suits in almost every country. You can name off the top of your head with the U.S. being at that top of the list. Obviously, the 27 nations that make up the EU, you have Australia, you have countries in in Europe, not in the not within the European Commission. Definitely. This car thing, I think is a major, major disappointment. What is the legacy for Tim Cook to hang his hat on in terms of a major new product? You know, when he eventu

ally steps down, I mean, spatial computing, that vision pro headset is cool, but does that have the potential to be a $100 billion category like the car could have been? And again, like I said, Apple is the creator of Siri. They've had ten or 15 years. Who's to say their new A.I. is going to be great either? So true. Mark, Thank you, sir. You're one of the best. Appreciate it. Mark Gurman there at Bloomberg. Just about got enough time for a final thought. What a week. Everything rally. Just have

to say this idea of mid twenties, that really sums it up. And we heard that from Bob Michael and then reiterated by Mohamed El-Erian. Mohamed El-Erian said, Where are we at the peak? If you look at that upside down, you buy this banker that had to be bailed out, said to him, we're in the peak. But then came the financial crisis, Equities right now, honey, S&P 500 negative here by 0.1%. The up and down just around the corner. This was Bloomberg Surveillance.