>> if things stay status quo than i think you have the opportunity to see the markets move higher. >> since around mid to late april it has been the maggot -- mega-cap tech companies that have led. >> it is not necessarily an environment where you want to sell all equities. >> i would not be adding a lot of risk to this rally. >> the bottom of the market is driven by growth in technology. announcer: this is "bloomberg surveillance." lisa: good morning. welcome back to "bloomberg surveillance." stocks are edging higher. hopes of fed rate cuts are growing alongside pessimism about the state of the u.s. economy and animosity bubbling over between president trump and former first buddy elon musk,

adding pressure to a fraud budget process. before we get to that fight, and marie very much back in the seat. i do want to start with this idea of an economy that does seem to be weakening. have adp coming in the softest numbers going back two years. o pretty weak ism numbers. annmarie: since june of last year. the question, is soft data starting to hit the hard data? this is ahead of tomorrow's very important jobs report. then thewhat does the fed do wi? is the fed ready to cut rates? it was that adp report that we saw the president take to truth social, saying adp numbers are out, powell must lower the rate. europe has lowered nine times, and he is jawboning him to do more. lisa: just to clarify it has been seven times that the ecb has cut rates and it is probably going to be number eight today. it is notable we always talk

about, who cares about adp? markets take care, but so too did the president, as this is key to the? 's underlying some of the squabbles right now in washington, d.c. annmarie: right now we are 29 days until their self-imposed deadline of july 4 to get the one big, beautiful bell and the fights are out there in the open. it is not just elon musk taking to twitter, saying kill this bill, there are fights when it comes to salt. what did we hear from the senate majority leader after he met with the president? there is no republican senator that cares to keep a high salt deductible cap. there are a number of fights amongst every single provision and the math doesn't make sense to get all the republican senators on board. lisa: there are house republicans from new york, new jersey, l.a.

just underscore, we saw the biggest rally in the 30 year yield going back since february and part of this was on the heels of expectations that may be growth was slowing. it underscores this question about how much what we have seen in the bond markets really is tied to this increase, this expansion of the deficit. annmarie: and potentially the deficit will expand. if you look at what some senators are being added -- are asking be added into the bill. aching tax cuts permanent would expand the deficit. senator schumer wanted to see the cbo score, the tariff impact. it helped the white house case. when you consider what current policy on tariffs, it actually helps. lisa: they talked about keeping tariffs high for a prolonged period of time, bringing in $2.8 trillion.

we will be talking about that coming up. equity markets basically in a turn, marginally higher after yesterday eking out some kind of gains at the end of the day. this is not exactly a runaway rally. what you can see in the bond space did end up driving a little bit of this action yesterday. with the data was weak enough to include possibly more federal -- fed rate cuts. the 30 year yield yesterday dropped by 10 basis points in the united states. the 10 also 4.35%. coming up, we will be talking about that with lori calvasina of rbc. berg's tyler kendall as republican senators looked to strike a deal on salt. and krishna guha of evercore as trump renews his push for the fed to cut. begin this hour with stocks looking for a fourth-straight day of gains. lori calvasina is among other strategist raising their s&p 500 year end targets, writing, our

new price target reflex our belief that the stock work it is on a slightly better path than the one it was on in early april. review the sentiment as the main risk to our call. before we get all bullish, and thank you so much for being here, this is not a lish upgrade to your forecast. you still see declines for the full year. lori: clients who know me know that i am very quantitative and nerdy with targets. we have five different models we look at right now and 5730 is the median. two bullish ones are cross-asset model where bond yields have t us on the move.g more constructive, and wee different ways we are looking at that, but may be 400. that would y be the whole case. but the problem is sentiment is melting up so quickly my model is exiting attractive territory. i don't know where it is going to be in a couple of weeks. when i look at my 5730, that is

my analysis i am most comfortable with right now. that is our modeling where we are breaking in 1.3% on gdp, a few cuts from the fed, 10-year yields moving up but then going down to 3.8%. we have a little bit of margin degradation in the back half of the year. we think that is a reasonable scenario and we have inflation in the height two. think things are better than when we went to 5550 in april, but after we got that china-u.s. de-escalation a few weeks back i got a lot of questions, like, why are you putting on your january target? i said, look, we are not back to where we were economically or the macro backdrop back then. i thought that was an important point. lisa: that is something that underscores sentiment right now. let's talk about feelings. i was talking yesterday about how feelings were so good that even when we get that news it is interpreted as good news because

it refers to a greater degree of rate cuts. yesterday's adp report, you can put that aside for one second. the ism services data showed the first contraction and almost a year. the new orders component falling to a two-year low. and this was stagflation or with prices going to the highest level since 2022. are you surprised the market did not respond more? lori: a couple of weeks ago people were like, look at the tax bill, look at the regulation. now you are starting to hear, maybe we are going to get some cuts for the fed. people are looking for those glimmers of optimism to hang onto. i will tell you what surprised me about the ism data. if you had looked at the consumer confidence index is, like to michigan and conference board, we had been seeing stabilization and inflection there. the fact that we did not get that, soft data is starting to act a little better. even the regional fed surveys, we watched the employment and

data points and a lot of those had stabilized in recent weeks. we just didn't get that on these -- on these two data points. these matter a great deal for business sentiment. annmarie: didn't we see those surveys stabilize because of the detente between china and the united states? we can go back to where january is. now we still have a war of words and we don't have a phone call between the leaders. lori: i would argue we haven't had another big step up in improvement. you know this better than me but i don't know if this is we have taken a few small steps back or we are kind of in a holding pattern, but we have not gotten any better. the other thing we wanted to emphasize with our upgrade -- maybe it was a bearish upgrade -- but the reality is we priced in that de-escalation in about five minutes on the day after it happened, and if we are going to get another big step up in terms of the expectation for the path we think the stock market is on

we need something else big to give us a jolt in terms of approving -- improving the macro outlook. i don't see that coming right now. i need a little more proof. lisa: what is big? lori: if we think about gdp, our economists took that number after that de-escalation 1% on the year to about 1.3%. consensus is at 1.4% and falling. i would want to see the consensus turnaround on gdp and move pretty sharply toward the 2% number. if we were to wave a magic wand and get back to 2% gdp forecast that is a very good environment for the stock market. lisa: what you watching today? just to get a sense of your roadmap and some of the things web song markets. would it be the initial jobless claims, or the continuing claims that gives you a sense of what the chops picture is ahead of tomorrow's payrolls report? or will -- or is it what is

going on in washington, d.c.? lori: i think we have to look at all of them. i would say today i'm keeping a close eye on claims. i feel like a lot of the disruption we got in d.c. earlier in the air, especially from some of the job cuts, we have been hearing clients asking, is that going to end up impacting the hard data? what is the timing around that? that is a debate that is not so much in the headlines. i'm interested to see if that story breaks down and if it comes back to the forefront of the investor psyche. i do think the tax bill, it was this thing last fall, early this year, even a few weeks ago that a lot of people were trying to pin their optimistic hopes on. i agree that there is some really good stuff in that bill for the macro but we have replaced that stimulus discussion with, how did the medicaid cuts end up impacting things? what about section 899? what does that mean for flows into the u.s.?

and obviously the deficit with the moody's downgrade. it has gone from being this easy check the box positive thing for markets to just a bit more complicated. lisa: it seems like when you have more than 1000 pages it is hard to check the box when you have questions about what is in this bill. annmarie: that is right. some congressmen and women have not read the bill. which is standard operating procedure for washington, d.c.. they do a chatgpt version with their staff. but it is challenging because the numbers are so thin. this bill is arguably the only bill speaker johnson is able -- means to be seen if he is able to get any tweaks if it were to happen in the senate through his caucus. going to be very challenging because senators want to sanitize this bill on every single front, and it is the only way he was able to get it across the finish line. lisa: i believe you have the house speaker coming on the show later this morning. we will be talking to him about this bill. lori calvasina is sticking with us for the hour. don't miss the conversation with

house speaker mike johnson coming up at 7:30 a.m. eastern, where he will talk about the path ahead for this spending and cut till. let's get you an update on stories elsewhere. here is your bloomberg brief. yahaira: president donald trump signed a travel ban targeting a dozen countries, including afghanistan, and mark, and chat. the measure partially restricts entry from a host of other nations, including cuba and venezuela. it reinstates one of his most controversial policies from his first term. trump says the move was necessary for national security. meanwhile, shares of wizz air are plunging, falling by the most in five years. the discount airline reported earnings that missed estimates and did not provide guidance, citing poor visibility. wizz is among the airlines that have been forced to ground airbus engines.

citibank is cutting jobs. the bank says it will trim its technology employment workforce in china by about 3500 as part of its global streamlining efforts. citi is trying to simplify operations and lift profitability to complete with -- compete with its rivals. its aim is to reduce jobs by 20,000 by the end of 2026. that is your bloomberg wreath. lisa: up next, failure is not an option. >> we are all in this together. this is a team effort and everyone is going to be rolling in the same direction. lisa: tyler kendall, joining us next. coming up in the next hour, speaker mike johnson, the speaker of the house, talking about the bill they have currently in the senate after passing through the house. this is bloomberg. ♪

lisa: trying to eke out a fourth day of gains. just clawing back to that kind of old market idea which we were talking about yesterday. we were so close to it, and even with some meager gains, unable to reach it. a 10th of a percent pre-much across the board. under surveillance this morning, failure is not an option. >> we are all in this together and everybody is going to be rolling in the same direction. failure is not an option. i am hopeful we will have 51 votes in the senate and whenever the bill goes back to the house they will have the requisite number to put it on the president's desk. lisa: republican senators said they discussed ways to scale back the salt cap with president trump. tyler kendall joins us now.

it sounded like by with respect -- like kumbaya with respect to john thain. some of the rhetoric we are hearing out of senators and house republicans as this process grinds on. tyler: there is some really contentious issues here. there is a different -- a few different moving parts we could pay attention to. since you mentioned salt i did have the opportunity to ask john thain yesterday what a sweet spot for lifting that cap might be. they said they are still working that out ammo which indicates to us there are going to be some changes that end up making its way into this bill. i spoke to one house republican aide who told me the salt caucus is still waiting for john thune's call. $30,000 was not the breaking point for them in the house. they wanted more. you have some senators who came on bloomberg television earlier this week and said that number could drop down to $20,000. it was interesting to hear

leader thune basically say there is not a single republican in the senate who cares about the salt issue, but they understand this need to pass the house and they kicked the legislation back over to them. a lot of other contentious issues here, but i would point out we are watching closely what happens to spending cuts. i spent a long time on capitol hill yesterday with senator ron johnson. perhaps one of the loudest fiscal hawks at the moment. he told me he is pushing for ending the expansion of medicaid under the affordable care act. this is going to raise questions about cuts to benefit programs, and at the moment republicans are trying to thread the needle here. on what is really a politically-fraud issue. annmarie: there are so many challenges when it comes to this bill. and then they have this self-imposed july 4 deadline. how challenging is that deadline going to be? even now more so that one of their own, a former government employee, elon musk, is saying

kill the bill? tyler: there is a lot that goes into what really is this ambitious deadline. of course, we know that the harder deadline is going to be that x date. since there is going to be a hike to the debt limit attached to this bill. that on its own is proving contentious. the likes of rand paul, for example, will not vote for any legislation that does hike the debt ceiling. at the end of the day there's going to be a lot of different issues that are going to have to come to some sort of compromise. republicans have broad agreement about the core tenants of the bill when it comes to the tax cuts, for example, and they do want to get this done quickly. when you have somebody like elon musk adding fuel to the fire for fiscal hawks at a moment when the cbo releases a new estimate showing that the house plan would add $2.4 trillion to the deficit over the next decade, that complicates matters for the white house, which is going on the offensive, calling these senators to get them on board with this bill.

lisa: i would love you to comment on how unusual it is for this spending package to be used in tandem with some of the trade negotiations as both sweeteners and potential hooks for trade partners and that there are provisions in here designed for trade negotiations, let alone the actual budget. tyler: right. you were talking about also what has been referred to as the so-called revenge tax, where we could see individuals and corporations alike face a higher tax rate if they are from countries that the u.s. deems as discriminatory tax practices. about the digital services tax practices, such as those trading partners in the european union. another interesting part of this is that others cbo analysis annmarie mentioned -- other cbo analysis annmarie mentioned, that there will be a large amount of tariffs used as creating revenue.

but at the same time we have to keep in mind that while the administration likes to talk about tariffs as a revenue-razor, they also talk about tariffs as a revenue tactic. which means there is uncertainty that could impact those end numbers they could see. lisa: thank you so much. i am curious about how important it is for markets right now to have a sense that these things are going to get wrapped by july 4 when it comes to the bill, and then july 9 when it comes to these trade deals. lori calvasina is still with us. is that crucial for markets? lori: i think there is a window of opportunity. we are going to kick off with a very important earnings season in mid-july. that is going to be the dominant focus through august. if they want to capture the markets attention i think that is when they do it. after that they don't have an opportunity. and you get into the september and fall time period. if people want to work this into their 2026 outlooks -- and that

is where i hear it coming up with clients, the stimulus it could add next year and make people skip over the messiness of 2020 five. if you want to do that you have to bring it forward. annmarie: how challenging might earnings season be if these deals are not wrapped up? lori: in this last reporting season companies did a whole lot of talking about tariffs, but not a lot of specifics. it was a lot of stuff all over the place. if i'm thinking about the industrial sector in particular at the center of this, it was, we can manage through mitigation, adjust supply, and pass on pricing. and we have a bunch of inventory. i think what we are going to see in this next reporting season are those mitigation strategies working? how long are those going to take? my guess is, nothing has really been resolved enough to kind of unfreeze the business activity. kind of a freeze that had happened. you will obviously get a lot of questions on that, but i think

it will be disappointing given the confident tone a lot of those industrial companies have. annmarie: we talk about the business community meeting clarity when it comes to tariffs. how important is it when it comes to taxes? lori: i will say on the corporate side, looking to earnings transcripts, i have seen very few comments on tax policy. i think tariffs are probably more important. some of these issues are important for investors broadly. i do think things like expanding the tax credit -- child tax credit, we see those pop up in earnings calls after the fact. i don't know if we will see a lot of forward-looking commentary on it. lisa: how do you put in perspective procter & gamble saying it would/7000 jobs -- it was slash 7000 jobs, or walmart saying they're going to raise prices due to tariffs? and yesterday there was reporting saying walmart executives said, we don't aim to

be a political figure. and they stood by continuing to warn and be transparent about how they were really transmitting some of the costs of tariffs. lori: i will say their companies across the board, particularly in the industrial, materials complex, if you go back to last november -- i am a transcript junkie. i read these things all the time. i read earnings. people make fun of me for it at this point. owing back to last fall after the last election companies were saying they would pass along pricing if it was needed. that they would try to do all of these things to avoid it, but when push comes to shove they would avoid it. the industrial companies were a lot quicker to say they would pass along those prices. i don't think these consumer companies that have been in the spotlight have said anything that hasn't been said by other companies. lisa: this does come with what we saw in ism services yesterday , which was stagflation a. the prices paid component rose to the highest going back to

2022. even with weaker growth. i wonder at what point can we lean into that as a consequence? that there are going to be marginal price increases, and it will be diss the long term. -- this inflationary in the long term. lori: that is fair. i'm looking at another headline talking about job cuts in a different industry. we do know that certain sectors have sounded less confident about their ability to manage this issue. the consumer sector is one of those, and i sort of think about this pricing discussion. if you don't pass it on through price you have to maintain your margin somehow. that is what companies are supposed to do. there will be cost cuts to offset. lisa: lori calvasina is sticking with us. transcript junkie would be a great name of the band. i can imagine it being really hard-core in high school. annmarie: she is doing god's work. it is better lori than us. lisa: that gives you some

indication, and that is what the beige book is. annmarie: it is interesting that lori is seeing trade come up but not so much the tax and spending bill. lisa: it is basically a continuation of current policy. so it is not as much of an upside as a continuation of the status quo. we are going to be speaking with krishna guha of evercore as trump renews his push for a fed rate cut on the heels of the adp report yesterday. this is "bloomberg surveillance." ♪ your record label is taking off. but so is your sound engineer. you need to hire. i need indeed. indeed you do. our advanced matching helps find talented candidates, so you can connect with them fast. visit indeed.com/hire

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lisa: trying to eke out a fourth straight day of gains in u.s. equities as they are about 3% away from all-time highs. really close to a bull market, which is a 20% gain since the low reached just on april 8. it has been such a huge, tumultuous ride. the s&p up .1%. here are your morning movers with yahaira. yahaira: we start with a stock in the tech space, and that is mongo db, absolutely soaring. a big move in a high-priced stock. mongo db provides database software to businesses and absolutely crushed its latest earnings. it reported a profit of one dollar per share. way above the $.66 analysts were expecting. it also raised its full-year

revenue forecast and boosted its share buyback program. mongo db, firing on all cylinders. next up we have five below, which is up 5%. the discount chain beat expectations last quarter and said that sales are running strong. the new ceo says the focus on product value and customer experience are paying off, with same-store sales rising more than 7%. reeling in those kids with allowances. here is what they had to say on tariffs. they are expecting a profit squeeze in the second half, but trying to blunt the impact by cutting back on sourcing from china and working with vendors. last up, we have pvh. this is the company behind calvin klein and tommy hilfiger. it cut its full-year profit outlook, citing a $65 million hit from tariffs, because these apparel companies rely heavily on imports, especially from

asia. that overshadows otherwise strong results for the company. lisa: i will just say with five below, i don't think some of the clientele are as price-sensitive. maybe the parents are. when it comes to buying, he and such. tesla ceo elon musk is trying to block president trump's tax bill after failing to convince republicans to preserve tv tax credits. writing on at, -- writing on ask, that bankrupting america is not ok. annmarie: we will be speaking to speaker johnson in an hour. he said yesterday he called elon musk. he was waiting for him to call him back. the question here for elon musk is, is this really about the deficit or is it the fact that the house bill pretty much sunsets green tax incentives from the biden-era inflation

reduction act that obviously is helpful to tesla? i think that is a real question right now. you're going to see potentially more animosity between elon musk and this white house. in the president, according to the speaker, this was a 180 for him. lisa: this is why a lot of people are looking to a question of how much this does matter and how much this -- this doesn't throw a wrench in the works. the ev price were is heating up in china and around the world. in china sources telling us at bloomberg aging told ev makers to self-regulate and not offer unreasonable price cuts. this really highlights how there is a concern about cutting too much, and about weaving themselves in a place where they don't have that profitability that is kind of key to continue to innovate. annmarie: this is unsustainable, it seems like. they are telling their companies, you cannot have this complete race to the bottom and basically companies in china

could then become bankrupt. i got it highlighted these media outlets controlled by the communist party, in recent days calling for order to the industry, otherwise this could lead to low quality products that could damage the reputation and brand of "made in china." it is something byd has been trying to change. that stigma is great and sexy and this car looks like a tesla. lisa: didn't want to end up being the cheaper toy. i do you get the brand superiority at the same time as having value? but really highlights how much the auto sector has been front and center when it comes to government intervention around the world. and how much that makes it difficult to really use this as an investable sector and it is used as a pawn in a lot of the international stories we keep hearing about. lori: i think that is a fair point, and it is a fairly tiny, fairly tiny market cap.

i think it is interesting. we ran a study looking at different industries and their correlation with political polling data. this is one of the ones that topped the list, which highlights the extent to which it has become a political football. whenever i talk to my analyst he is always on top of every bit of tariff news. a lot of it faded, but it is just getting to be so tactical at this point. lisa: which is a reason why a lot of people are sitting on the sidelines. fed governor mickey bowman has been confirmed by the u.s. senate to serve as the central bank's vice chair for supervision. this, just quickly here, highlights how much we have not even talked about the deregulatory push going on in washington. annmarie: this is someone who is going to want to see that. a friendly relationship with the bank industry. these like bank oversight. i think the direction of travel

could be seen up close and personal if you walk into her office. we have a great profile today, and sitting atop her filing cabinet is a make community banks great again at. lisa: this might also be part of winning her over in the eyes of president trump, who did not win president trump over. president trump slamming jay powell once again, saying, too late powell must lower interest rates after week adp data. krishna group to -- krishna guha writing, it would take a large increase in unemployment. it is easy for the fed to justify remaining in a wait and see mode. thank you so much for being with us. a lot of people agree with you. at the same time a september rate cut is baked in. does that seem appropriate to you based on the economic data that has been weakening over the past couple of days? krishna: look, i have a base case of a september cut, but i don't think it is anything close to a slamdunk.

i think right now the question is, does the labor market weaken enough over the next several months for the fed to judge that it makes sense to lean against that weakening with a cut in september? to get that you need unemployment moving up to something like 4.5% by september. i think it is a close call, to be honest. lisa: this is the reason why people are looking at whether it is going to be one french, whether it is going to be a collection of prints. something that caught the eye yesterday. we are so data-dependent, yet this bureau of labor statistics put out an addendum talking about how they collected fewer data points in the april cpi survey because of a lack of staff. has been this speculation about some of the accuracy of these surveys as employment has gone down and as responses have gone down. how much credence do you give to some of the data we get? do you think it still has the

same integrity? . krishna: -- krishna: so, in order to make good judgments you have to have good data. it is as simple as that. i think the u.s. government official statistics are still the gold standard, but we have to be careful, because as you say, response rates have been coming down and now we are starting to worry about staffing cutbacks potentially weakening the quality of these data going forward. so at any moment in time you have to look at the holistic picture of the data and all of the private sector data, including layoffs. indeed, job postings and so on. it is a crosscheck and sometimes getting ahead of the official data. i have seen how problematic it has become in the u.k., where some of the core government labor data has not been reliable for some time. it can be very damaging. annmarie: and that is a much

smaller economy. if you are not trusting the data, you don't have policy uncertainty in washington, d.c., what is your northstar these days? krishna: i think we know from first principles that tariffs are going to slow growth and push-up prices, right? we are trying to understand is the relative balance of those effects. i think we are going to learn a fair amount over the next several months on both of these counts, but my hunch is we will learn more on the labor side then we will about what matters on inflation, which is not the first round price impact, but whether it starts to get embedded into underlying inflation dynamics. i'm going to be looking at everything, official and private sector, earnings calls, and so on. what i am trying to understand is, do inflation expectations stay anchored? and then, do we get a material

enough weakening in the labor market for the fed to want to cut, to lean against gathering any momentum? i think it will be a little while until we get visibility on this. i hunch is we will have a feel for how much the labor market is deteriorating by september, which makes it the logical moment to call the next move on rates. lori: lori calvasina from rbc. good to see you. i have been getting a lot of questions on small caps, which are related to rate cuts. in your conversations are you starting to see expectations that the fed is going to do something in september? those moving up? are those moving down? there has been a lot of shifts in the vibe on the ground. what is your read of the tea leaves right now? krishna: the market has, with this most recent patch of root -- patch of weaker data with adp and ism services, markets moved to price in more high conviction

around a september move and more than two cuts discounted through the end of the year. obviously if you get more rate cuts, provided that is not in the context of a recession, that is a moderate weakening the fed is leaning against, that could help the small caps and other stocks. i don't think we should interpret market pricing as saying september is anything close to certain. i say this as someone who has it has a narrow base case. the reality is there is very much a pathway here where we end up with no cuts because the labor market doesn't weaken all the much. there is a pathway where we get two or three cuts. and an intermediate case where there is some softening and the fed is leaning against that. and there is still the recession case. that is at 25%, 30%. a bit more or less. if we do break into recession

this year than the fed will be cutting aggressively. remember, the market pricing is essentially the mean average, the weighted average of those three different paths. lisa: krishna guha, thank you for joining us today as we parse through the ramifications for the u.s. central bank. the ecb will be making their rate decision in just about an hour and a half. it's get you an update on stories elsewhere. here is your bloomberg brief. yahaira: president trump says vladimir putin has warned him that moscow plans to retaliate against ukraine following recent drone strikes inside russian territory. trump and putin spoke for over an hour on wednesday as u.s. efforts to broker a peace deal shows signs of stalling. the two leaders also discussed putin's potential role in ongoing nuclear negotiations with iran. for the first time in six years the indian prime minister may miss the g7 summit.

this is being attributed to frosty ties between india and this year's host, canada. prime minister modi has not yet received an invitation, but officials say modi is unlikely to attend even if he was invited. india has been invited to every summit since 2019. nintendo switched to went on sale at midnight in one of the biggest global gadget abuse in years. the long-awaited console sells for $450 in the u.s., and gamestop and best buy expect to sell out today. the success hinges on nintendo's ability to design compelling games of its own, while also accommodating titles from outside publishers. that is your bloomberg brief. lisa: it also depends on parents being really patient and wanting their kids to use these things, and i hope if my kids are watching it is -- it has been delayed for a long time, so you cannot get it up next, we take you to the super return conference in or -- in berlin.

orlando bravo sits down with dani burger. do not miss that coming up. and then we will be speaking in about 45 minutes with house speaker mike johnson here on "bloomberg surveillance." ♪ ♪

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lisa: initial jobless claims thursday before payrolls friday, and we are seeing strength in equities, if you can call it that. grinding a little bit higher, although as the session goes on we are seeing the nasdaq basically flat. the russell still up .1%. did see a rally in the bond sphere yesterday, which gave some people hopes the -- hopes

it was not just hinging on the budget discussion. a lot of people are watching this as it relates to the credit space, the investment space, both in the public and private markets. now we take it to the super return conference where dani burger is standing by with a special guest. dani: thank you so much. i'm pleased to say that joining me this morning is orlando bravo, the cofounder of thoma bravo. thank you so much for joining me. orlando: thank you for having me. dani: congratulations. a more than $24 billion fund raise. in general you have been extremely active, selling down your nasdaq stake. and of the biggest buyout deals with boeing. this is a time where this industry has felt really icy. and not a lot of movement. we are we seeing a lot of activity from you and not your competitors right now? orlando: thank you for bringing that up. i want to talk to all of the private equity funds about this. in our business you always have to be selling and you always

have to be buying. it is actually not a forever business. that might be a great strategy but if you want to do that you go to the public markets, you get some other investors and tell them a different story about what you are going to do. for us we have a clear strategy. that has two parts to it. number one is we by the number one software company in many different categories. there are hundreds of great businesses to pick from, regardless what interest rates are, regardless of the macro outlook is, regardless with the world order looks like. and second, a key part of our strategy is, we transform those companies operationally and strategically. and the opportunity for operational gain in software is enormous. one less thing i will tell you, the average publicly traded software company does not make any money. our average company has a 40% down margin, and that is the opportunity we look to achieve. dani: i'm sure a lot of your

competitors would like that sort of thing. is this an industry that has lost its way? orlando: private equity has lost its way in the last three years, but it will come back. dani: how so? orlando: i think private equity leaders have been too concerned about the macro, and i just mentioned that before. let's predict whether there is a recession. stagflation, what is going to happen to interest rates. what is going to happen to the world order. those are factors that as a business owner, business buyer you cannot predict, and certainly you cannot control. we have to get down to the basics, which is there are many great companies to be bought, and as a control owner and change agent, which our industry is, there are so many companies to transform. let's say you buy a company today. let's say you and i buy a business, and next month nasdaq is up 50%, but our earnings are up 50%. would you be happy?

let's say the reverse. let's say you and i buy a business and earnings are up 50% next month. regardless of what market say you're going to be happy. people have to focus on those. dani: one of the big macro issues that affect your world -- because you are less touched by the terrace because software is your court -- is ai. you are at the forefront of a lot of it, but even in something as simple as google search has been disrupted by chatgpt. when you are doing these big deals for software companies, how do you think about and protect against revolutionary changes that might hurt some of the software business models? orlando: that is why it is key to be a specialist. in software or whatever you do, the days of being a generalist in anything is too competitive and there were too many disruptions. in the corporate world, in selling software to corporations, technology is

evolutionary, not revolutionary. it does take a while for these corporations to consume technologies. even today. software-as-a-service companies should be selling to every single enterprise. it takes about two years to convince your customer of the use case of that application, do they have budget, what is the roi, what are the competing choices, should they build it internally? your point on ai is excellent. we believe ai will be transformative, especially to the companies we are buying. the companies we are buying have thousands of customers in that use case, and many of them, only the data that is heavily important for these powerful predictive models. dani: i would love to know your thoughts. you see this on a ground level. the anthropic ceo gave an interview where he said in the next three to five years ai will wipe out 50% of white-collar jobs. is that sound right to you? orlando: it doesn't. it is a very interesting point

of view. it is a very futuristic point of view. what i think it will make white-collar jobs more productive and people a lot smarter. about how we use it personally. i use chatgpt all the time. i say, write me a paper on this topic. then i can think a lot more thoughtfully and deeply about that topic and improve it. and spend my time much better than rudimentary first drafts on something. look in banking analysts. and i started in investment banking in 1992 there was no internet. if we wanted to run comms on a company we had to call the library department, go get pages and pages, input all of them, and come up maybe six hours later with a set of comps. now it doesn't work that way but there is still more investment banking analyst jobs then when i started. dani: that is good news for a lot of entry-level people who maybe were concerned that ai was going to take the job. we could probably do this all

day. i appreciate you spending the time. that is orlando bravo of thoma bravo on the changes this industry needs to do to stay with it. lisa: thank you so much. a wonderful interview, especially that point about artificial intelligence. especially as we parse through the data to understand what is behind it. much of it is technological and how much is actually commenting on the macro sphere? still with us is lori calvasina. curious how much that underpins some of the difficulty in analyzing the data we are going to be getting. not only initial jobless games, but tomorrow with nonfarm payrolls. lori: i will go back to what i read in transcripts. lisa: junkie. lori: which is an old-fashioned process. i have been watching for clues from a lot of different angles. have definitely seen some companies that have laid off in certain areas because they are hiring on the ai side. i would say that is the most

consistent trend i have seen. i have seen some role-switching. you know, deemphasizing this part of the business to more emphasize the ai part of the business. to be honest, when we look through transcripts we divide companies into two cohorts. the companies in the center of the ai build, and all of that commentary sounds good and you get really bullish and think this has legs and is going to be powerful. then you get on the other end of the spectrum the companies that may be are your typical retailer. maybe not as data-intensive. it will give you what we call the small potato examples where you are like, this is not going to be transformative anytime soon. there are a few in nemo -- in the middle that are making progress. i'm in the camp that this is going to take more time during -- time. lisa: lori calvasina, thank you for being with us. our transcript junkie.

annemarie, it has got to be a couple of parts we have today. we have the initial jobless claims. before that we get the challenger job cuts announcements. throughout the day we are going to be having a key meeting in washington, d.c. between the german leader and president donald trump. and on the going -- and ongoing negotiations over this bill. annmarie: ongoing negotiations over this massive tax-and-spend bill. though all this does is keep current policy with cuts on the sidelines. how they get this done in 29 days is going to be challenging for the speaker. lisa: i think a lot of people would agree with that. next we will be speaking with tom becker, dan greenhaus of solus alternative asset management, and of course don't miss house speaker mike johnson this is "bloomberg an surveillance." ♪

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>> from the fed's perspective, for them to start cutting interest rates they probably need to see employment growth not just hold, but substantially slowed down. >> if we see any type of weakness in the labor market, that is what the fed is going to be looking at. >> for the fed it is going to be tough to cut interest rates this year. >> are economists expect no cuts this year, seven cuts next year. >> this is "bloomberg surveillance." lisa: good morning. welcome back to "bloomberg surveillance." markets looking for direction ahead of initial jobless claims. in just about 90 minutes time.

ongoing animosity between elon musk and president trump threatening to complicate the tax and spending bill. we're looking at a market that is trying to figure out whether rate cuts are a good thing for risk assets or a bad thing, because it means a weaker growth. futures just marginally higher after three days of gains, but it seems like the data yesterday indicated there was a real softening under the hood, which would allow the fed to cut, but raises a question about whether people are being overly rosy about growth outlooks. annmarie: are we back to the bad news is good news? the president certainly thinks so. those adp numbers came out. he said, now is the time to cut. jay powell called him late. what the market is trying to digest, we have seen this survey data and consternation about tariffs and trade. is that starting to hit the hard data? or potentially are we still just muddling along and we might hear

for the rest of the year? lisa: we also have neglected the ecb. i say this to president trump, who is an ecb-watcher, as we learned yesterday. he said there were nine rate cuts. today might be number eight. there was a question about how long this divergence can continue where you do see europe getting a green light from cpi reports, recent inflation estimates, getting a green light from the overall market to cut rates at a time where a lot of people have a question mark around the stagflationary types of reactions in the u.s. economy. annmarie: and may be president trump is foreshadowing the ecb. they have cut actually seven times, but in 13 months. it is that actual ninth time. do they take this pause, the european central bank, in the summer? for an individual like president trump, they are able to cut

because of the policies enacted by him and his administration. lisa: this is the question going forward about what the policy mix is going to be in the united states. i cannot emphasize enough the july 4 and july 9 deadline is deliberate to move these processes, where the bill directly affects some of these negotiations. a likely does seem right now? i know you have been talking to a lot of people. annmarie: it is incredibly challenging. 29 days to get all of these senators and house republicans on board, given the fact that speaker johnson had to do gymnastics, dealing with all of the different caucuses to get all of their measures into the bill that many of these senators want to strike down or edit. and he comes to the trade and tariff story. i just got back from europe. what i heard from the top trade official in switzerland was she was given assurances by scott bessent, by ambassador greer that if there are still negotiations but not a hard deal by july 9 there will be an extension.

they were still dealing with a summer of policy uncertainty if we don't have the deals done. lisa: let's talk about policy discontent. right now you are seeing in markets a bit of a lift. there was a rally into the bond space yesterday on the heels of weaker than expected data, which seemed to support some of the positive reaction we saw heading into the close yesterday. you see 10-year yields lower. four point 35%. you can also see a little bit more dollar weakness. coming up this hour, tom becker of blackrock as stocks look for a fourth day of gains. lotfi karoui. and house speaker mike johnson on the pfeiffer president trump's tax bill. investors await fresh economic data. tom becker writing this. market attention could shift away from trade slowdown

concerns and focus on a global economy that could be running quite hot this summer. tom joins us now as it climbs toward 88 degrees today in new york city. i am curious how hard it is to push against the recent data that is actually -- i say resend, in the past couple of days -- but lower with respect to growth. how much does this reflect the heat we are going to see later on? tom: once you have liberation day and all of the uncertainty that unleashed over the subsequent month, we kind of down-weighted average you of the hard and soft data that was going to be coming out. market reaction to that p.m. i think kind of tells you a little bit more about positioning than it does the economy. that rally in yields may be telling you people were set up short, because services pmi has been revised the last few years and particularly in the wake of that uncertainty. lisa: this actually speaks to

your broader call, which is you kind of are moving away from the by europe trade and are going to buy america, which is counterintuitive, given some of the pessimism we have seen of late. tom: it depends on which asset class. we think the dollar trade is lower from here. we think treasuries underperform global yields. we think the rebalancing kicked off by the change in trump trade policies, we think that has legs. particularly on the dollar, where foreigners are going to reassess their aggregate u.s. exposure. we think the path of least resistance is to put in some currency hedges, kind of hedge bonds a little bit. it is a little bit expensive. you can think of that as insurance. if you think about u.s. equities, they have been real big laggards. people may be lumping those in with concerns about the u.s. economy or the u.s. policy outlook. those companies are going to earn globally based on their competitive advantages during

weaker dollars, good for foreign earnings. to get to re-denominate those foreign sales back into dollars. and q1 earnings were quite strong. u.s. was the place where you got a earnings growth and you got multiple expansion in the rest of the world on expectations. europe in particular, a lot of hope. on the corporate side, more good news. in terms of the near-term earnings outlook u.s. is where it is going to be over the summer. annmarie: you think the dollar is going to go lower. how much is this u.s. policy without them actually saying we want a weaker dollar? because, of course, they will never say we have a week dollar policy. tom: totally agree. the policy is, we want a weaker dollar to get some competitiveness on manufacturing, some trade competitiveness. there is a couple of challenges with that. one is the interest-rate differential. you mentioned the ecb is going to be coming. they don't want the euro going to 1.20%.

banks are fighting against their currencies appreciating, so that is going to make it hard to go down on fundamentals if u.s. growth is strong. you think the aggregate mass of accumulation of u.s. assets by foreigners, where they have taken all of the advantages of of getting long equities come along bonds, a be letting their hedge ratios drift and get more dollar exposure, the correlation shock you saw in april was a shot across the bow for a lot of them. annmarie: do you think where currencies are trading as part of the trade negotiations? tom: the bilateral negotiations, there is certainly some asian countries looking to kind of throw that in the mix. some asian economies for years have been -- we call them dirty floating exchange rates, where they manage them pretty closely, the fiscal and monetary and the government all kind of coordinate to keep the whole economy competitive.

i think that is potentially, i laterally, you know, part of the negotiating. tom: you have this counterintuitive argument -- and i love that, the way you try to shift in markets -- where you are pushing against this idea that the u.s. is going to be the most hurt by some of these tariffs. that seemed to be the idea may be a week ago, two weeks ago. it has been the theme that caught wind. why do you think it has been emerging markets, even europe? tom: in terms of who builds this stuff americans buy, over time that has shifted abroad. and we think there is a real reason out to bring some of that production back home. so, some of the uncertainty that has maybe hold back investment, we think there is a good incentive for producers who have factories in the u.s. and abroad to run the u.s. factories hot. there is a mechanical price incentive to do that. that is one thing. the other is, i think the u.s.

consumer, u.s. innovation, those are the lifeblood of the economy. firms want to locate here in order to access u.s. consumers, access human capital, access the huge unified market. go to europe you have to negotiate with 25 regulators. this is a topic that keeps coming up. the u.s. has this powerful consumer that is bound by the same rules and principles. i think that is a benefit. annmarie: do you think trump's policies are helping that reassuring back into the united states? tom: i think the first trump administration started it. if you look at import share from china, it has been declining since 2017, 2018. a lot of it went to mexico, a lot of the nearshore and this round of tariffs makes people think it is going to get closer still. corporate america had a playbook that was working after china, wto ascension. that playbook is probably not the right playbook for the next decade.

corporate executives, when they decide on their sourcing decisions, they are going to shift them closer to home. it will have effects. lisa: one thing i find striking, the idea that morgan stanley was raising, which is you could see u.s. stocks do well. you disagree with them on u.s. rates. you think the rates will not do well and yields could stay high, but the dollar will be weak and that is going to be the ongoing theme for the foreseeable future. how much is this out of consensus right now? tom: the dollar is getting more into consensus, but the dollar is an asset that tends to trend. that is because a lot of huge organizations globally make the decisions on these affects hedge ratios and policies, not on a daily or weekly meeting. i think it can trend for that institutional reason. in terms of the u.s. equity outlook, that's going to be about earnings. if u.s. consumers consume, which

they did in the first half, i think you could have u.s. companies put up really strong earnings, and a lot of it is beating expectations. the expectations have shifted abroad. positioning shifted abroad. it is a little bit the underdog. lisa: thank you so much for being with us. tom becker of blackrock in our studio. let's get you an update on stories elsewhere. yahaira: the u.s. education department says columbia university no longer meets accreditation standards. due to its violation of federal antidiscrimination laws. it is the latest effort by the trump administration to target elite schools over their handling of pro-palestinian protests. if it fails to come into compliance, students' access to federal loans and pell grants would be impacted. elon musk is ramping up his fight against president trump's one big, beautiful bill, asking americans to call their lawmakers and kill the

legislation. sources telling us that musk personally lobbied house speaker mike johnson to save the ev tax credits in the bill, each would have benefited tesla. speaker johnson will be joining our show at 7:30 this money. alphabet ceo sundar pichai says the google parent company will not stop hiring, despite advances in artificial intelligence. he spoke in san francisco. >> there is no doubt to me that three years from now there will be a company that is dominant in this ai age that we do not even know the name of today. yahaira: he also said whoever runs off a bit in the future will have an extraordinary ai companion. lisa: in the market for an ai chief financial officer. up next, betting on a slowdown. >> from the fed's perspective, for them to go ahead and start cutting interest rates they probably need to see employment growth not just cool, but

substantially slow down, and maybe even become negative. lotfi karoui joins us next at a time when president trump is saying to the fed, too late powell needs to cut. this is "bloomberg surveillance." ♪

lisa: maybe trying to get a fourth day of gains. welcome back. in markets we are seeing a bit of a lift. now we have turned negative. the nasdaq down about .1% after king up point 1% earlier. the russell 2000 has fallen about 30 basis points in the past couple of hours. in the bond space we saw the

biggest rally in 30 year yield yesterday going back to february. 10 basis point decline and that continues this morning. down three basis points. you can see this across the curve, but more notably in duration. 10-year yields as well, 4.34 percent. under surveillance this morning, betting on a slowdown. kathy: from the fed's perspective, for them to go ahead and start cutting interest rates they probably need to see employment growth not just cool, but really substantially slow down and maybe even become negative. this is a labor market that matters most, because that is going to drive consumer spending and that is really the bulk of our economy. lisa: u.s. treasuries gaining as traders but the fed will cut rates in september. weaker adp data raising expectations of a slowdown ahead of u.s. payrolls tomorrow. lotfi karoui of goldman sachs

joins us now. i am curious about how much the rally yesterday gives you some sort of confidence in treasuries, given the fact that it was adp everyone dismisses this data, and all of a sudden it has become the rationale for why there was a rally in long bonds. lotfi: it is a great reminder that bonds have not lost their age as a hedge. you still want to own duration going into a slowdown. we need to frame things differently, which is, is there a floor because of the current and forward outlook for the fiscal situation? the answer is, yes. if we have a recession tomorrow it is unlikely 10-year yields will go back below 2%. with that said, yields will go lower, and i think from a multi-asset standpoint you still want to keep a little bit of exposure to duration to protect yourself against that. lisa: just to put a floor under what you are saying, because

this is important, a lot of people -- and we are going to be speaking with house speaker mike johnson coming up -- they are going to argue, look at what happened yesterday. in economic data turns people going to long bonds. it has to do with more optimism about the u.s. economy. you are saying it is a bit nuanced. it is a term premium, but it doesn't mean these assets will not rally in some sort of negativity. lotfi: absolutely. if i think about corporate credit or mortgages, you look at the base yield and decompose it into spreads and treasury yields, spreads are a very tiny portion of the total right now. obviously when you own treasury bonds you are long duration, but you are also long duration if you own corporate credit, if you own mortgages. the bar is still very high to derail price returns because of that negative correlation that kicks in whenever you have a negative surprise in growth. tomorrow will be interesting. you are right.

adp doesn't move markets that much, and it did yesterday. annmarie: what do you make of what lisa is talking about? that what we are seeing in the bond space is a correlation when it comes to the one, big, beautiful bill and the u.s. deficit? lotfi: to some extent, yes. that puts a floor on the term premium. if you are -- if you are owning duration for the next 10 to 30 years and you look at the fiscal outlook you are supposed to demand a higher risk premium. that doesn't mean that treasuries have lost their edge as yields are moving lower and growth decelerates. i think there is a difference to me between the two. also there is a relative value view you can make, which is, what part of the curve do you own? i sort of like the five-year part of the curve. i think there are question marks about the 10 and 30 year. annmarie: some are even shorting it. do you think potentially they

are on the wrong side of the boat? lotfi: shorting it outright, i would not be short duration going into a slowdown. shorting it relative to the front end, choose or even shorter than that, i don't disagree with that view. that view became a consensus view today, so you have to be mindful of that. in relative terms there is room for underperformance. lisa: what do you make of the fact that auctions are becoming great, for lack of a better word? they have become risk events. we saw japanese auctions taking front-page business news in the united states as people look to weaker demand, but not as weak as expected. then next week we have 10 year and thirty-year auctions. how important are they? or is this just a fiction people have created to give themselves of some drama this summer? lotfi: you usually see that type of behavior in corporate credit markets. the short answer is, it is evidence there is some kind of a physical premium building up. the fact that these options are getting so much attention

globally tells you there is some kind of a fiscal premium. goes back to the point i made earlier. that fiscal premium will not die out. lisa: what does that do to the corporate premium? i say this because ultimately corporate credit is pegged as a rate to this government bond yield. is there a point at which corporate's will see -- see more responsible than governments? lotfi: they have been the last five years. corporations have acted in an incredibly disciplined way from a capital management standpoint. have yet to see evidence of any crowding out. where corporations are issuing more as the treasury and others, you know, jurisdictions, or dumping bonds. the take away from me is governments have been sort of spending more the last five years, but corporations and households, by the way, in aggregate, have been acting in a disciplined way. annmarie: speaking of government

issuance, in the financial times -- but said even though he wrote this paper with stephen miron he thinks it is going to continue under the trump administration. do you agree? lotfi: yeah. look, we will see where the bill eventually gets to come about the fiscal outlook does point towards or supply in the treasury market. on the short end. and there is plenty of ways you can play that. you complained in terms of synthetic versus cash. based on what we know thou -- know now that will likely continue. lisa: you are talking about government issuance and issuance on the corporate side. typically companies borrow for funding, but also expansion, mergers and acquisitions. that activity has not been as good as people expected because of the uncertainty we have seen in policy. i wonder how much you see that reviving this year versus remaining on hold as people understand, wait a second, i

don't know if we are going to hit these deadlines or if it is going to mark the end of uncertainty. lotfi: to see a boom in and -- in m&a you need to see certainty. in dollar terms we are up relative to last year. 2024 is a low base count. we are also up. what matters for bondholders is the funding structures more than anything else. how much leverage are you going to deploy in these transactions? i would say if you believe we are in for a higher for longer cost of capital that makes the economics at a lower transaction a lot more challenging than it was. i am positive that once we cleared this uncertainty we will see a rebound in m&a. i don't think the funding structures will be as hurtful to bondholders as they were in 2016. lisa: you are going to get compensated and it is not going to be as risky? lotfi: the cost of capital is too high. lisa: wonderful to see. lotfi karoui of goldman sachs as

we planned for next year's bond auctions. i hear that you are incredibly excited about that? annmarie: not really. [laughter] i'm more excited to hear your take on them. it is interesting when you read nouriel roubini's piece. you saw individuals in the current trump administration really go after secretary allen, saying what she was doing was activism in terms of the yield space. they are actually following the same path. lisa: at a certain point if you issue more of what people don't want you are asking for an accident. it is what people are saying. a be even reduce the amount of 30 year issuance across the world because there has been a lack of appetite for them. at the end of the day how do you deal with long-term structure -- funding issues at a time when you have a tickly elevated funding costs? the answer is, it's going to be difficult. but we can talk about that with my -- with house speaker mike

johnson, who will be defending president trump's bill as it faces opposition in the senate. also from elon musk. first body coming out and saying, he calls on people to call on their congress members to kill the bill. a real question about what the roadies ahead and how important it is to get done by july 4. this is "bloomberg surveillance." ♪ ♪ [city ambience]

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♪ >> early optimism has soured just a touch at least the equities race. futures just marginally lower across the board as we await some key economic indicators. not only do we get initial jobless claims any second, we also get the job cut announcements. to mirror we have nonfarm payrolls at a time we did get adp data coming in at the lowest in about two years. you saw that bid into bonds as a result yesterday. the bid into the long bond in particular. sharp basis point declined the most, going back to february. 4.85%. found that two basis points the 10 year space and three point 34%. the euro ascendance, north of that you got the dollar weakness.

the one theme that has been consistent throughout what we've seen. meanwhile, elon musk is ratcheting up his offense against president trump's signature tax legislation urging americans depressed lawmakers to kill the bill. house speaker mike johnson saying musk is dead wrong in the tesla ceo vowed to help reelect the republican majority just a day before slamming that bill. i am curious how much this really torpedoes some of the momentum that had been underway in the senate for whether it kind of busy relevant based on the ongoing tit-for-tat of the specific issues. annmarie: i think elon musk now give some credit to those who say they are concerned about the deficit but also potentially those on the senate side. they are saying they want to see these green energy tax incentives continue. and yesterday speaker mike johnson said that basically this was a 180 from where elon musk was and he said he was going to

call elon musk who didn't pick up but he was waiting for him to respond and we can find out whether or not elon musk actually did respond. mike johnson joins us now. they cue so much for your time. have you received a call back from mr. musk? >> look, elon is a good friend, we texted late last night, we are going to talk this morning. i just want to make sure he understands what i think everybody on capitol hill understands. this is not a spending bill, this is a budget reconciliation bill. what we're doing here is delivering the america first agenda. all the presidents priorities and all the priorities of the republican party. that is what we are delivering. the reason we are using the reconciliation process is because that is the only way to get around the 60 vote threshold in the senate. everybody probably recognizes chuck schumer and the democrats are in no mood and are not going to be helpful in delivering president trump's agenda for the people. we have to do it this way. we can do it with 51 votes in

the senate only, and that is the urgency of the hour and we have to do it quickly for all the reasons we can discuss this morning. annmarie: so did you get a sense from elon musk that he was going to stop his insistence on this bill that the pigs needs to be killed? >> he seems pretty dug-in right now, and i can't quite understand the motivation behind the. what we are delivering this bill is not only historic tax cuts but historic savings as well. he seems to miss that. the projection is that this legislation is going to save us $1.6 trillion with a t. there's never been a piece of legislation ever the lizard -- ever delivered in the history of government on the face of the earth that save that much money so this is truly historic. is it enough? no, because we understand we have a large federal debt. we had deficits for some time and it is a serious concern. in fact if the number one threat to our national security. but this is the biggest step in

addressing that problem that congress has ever delivered and we must do it. and i will hasten to say this, this is the first of a series of steps that we will take to bring that data under control. but you can't turn it on a dime. it took us decades to get into this situation so we have to do it incrementally. this is a huge step forward in that endeavor. annmarie: what is the driving force behind elon musk's conflict with this bill? has he ask you directly to potentially keep the electric vehicle benefits we saw under the inflation reduction act of the biden era into the bill? >> i will let everybody draw their own conclusions about his motivations. i will tell you that obviously the ev mandate going away is i'm sure a concern for the leader of tesla. in other things as well. but i think there's a lot of confusion out there about what the legislation is. there's certainly a lot of misinformation. the democrats have engaged in this strategy for many, many

weeks and many months. but remember it took us over a year to develop this piece of legislation. we have 11 different committees in the house that worked on the reconciliation effort to reconcile the budget. and what we are going to deliver again is historic tactual he and savings at the same time. if we do not get this build on, the tax cuts of 2017, the tax cuts and jobs that expire at the end of december. every american will receive the largest tax increase in history all at once. we've addressed that year, we've made the tax cuts permanent and we've infused it with a progrowth series of policies that will get the economy going again and really jet fuel to the economy because we are going to reduce wasteful spending, reduce taxes and reduce regulations as well. that is what will allow job creators and regulars to get going again. annmarie: and your version of the bill increases the salt reduction cap which yesterday

senate majority leader john through and said there isn't a single republic as much about assault issue you and i both know you cannot pass this bill without increasing the salt induction cap. how do you envision that deduction changing, given the fact that no senator, republican senator wants to vote for this? >> i appreciate that they don't, they all come from red states, as do i. we have very different perspectives on salt and our colleagues in the blue states, in california and new york and new jersey. but that is the reality in the house, and they have to remember, my senate friends and colleagues, i have to deliver 270 votes to get that thing across the line if they modify it. i had lunch with my senate friends before he passed the bill in the house on that thursday, and i encourage them to modify this as little as possible because i gave a metaphor that said my friends, i'm crossing the grand canyon. the equilibrium that we reached

took quite a bit of time to get to where we are, and you can't load me up on either side. if you go and slash the salt cap to be negotiated carefully for over a year, it's going to make it very difficult for me to deliver the necessary number of votes. i can only lose three in the house and three in the senate to get this done. we are all working together as one team united in this effort. they understand that and i think they understand certainly leader food understands the complexity of what we are having to deal with. lisa: $40,000 still likely to remain the cap? >> that is what we negotiated here and i'm certainly trying to hold to that number. we paid for it, i think we've got it worked out in all the math and the legislation and i think it is something that i know they are not in love with, but i certainly hope they will tolerate it so we can maintain our vote tally over here. lisa: as you walk that piece of dental floss over the grand canyon there is this question of how the bill is currently being

used, whether it is for budget negotiations and budget reconciliation over the next decade or rather it is to negotiate trade agreements. there is $2.8 trillion of revenue that is being penciled in by the congressional budget office from tariff that might be used as a negotiating tactic, might not be. how do you understand the way the tariffs are looked at as part of this budget balancing act? >> it hasn't been included in the calculations because groups like the congressional budget office as you know will give us any credit for that. but it is very real. the revenue is real and is not included in the calculation that we or they have made. but obviously it's a big factor. we believe that we are going to bring about a roaring economy again. it's not based on conjecture or optimism. this is based on history. we did this in 2017. after the first two years of the

trumpet ministration we passed the tax cuts and jobs act, we reduce regulations and the economy was roaring. you all remember before covid we had the greatest economy in the history of the world. every demographic was doing better. wages were up, job participation numbers were at record highs, inflation was down and manageable. things were going great and then covid hit. we are going to do that same series of policies come implement that same philosophy, but this time on steroids ended 20 make a major difference. lisa: a lot of people in markets are concerned about a number of provisions here and actually don't think they will spur growth. one of them being section 899 which talks about taxing foreign investment in the united states from specific countries that have nontariff barriers like the vat tax and other things that have been contentious during negotiations of trade deals. how much do you see that dampening? is that a concern for you, because right now around the world there are people wondering what they can still invest in

the united states without getting penalized for it. >> there is a complexity to the tariff negotiations. we tip our hats to the white house and the president strategy is working. this more than 75 countries renegotiating trade agreements right now, finalizing that even as we speak. that's going to be better for america because it will be more fair. i always likened myself to be a reagan republican and free trade is one of our core principles that we've all supported over the years, and every time i would say that, he would say yes, free and fair trade, and he's right. this is a disparity that must have needed to be addressed, and it has been. we think in total this is going to be good. when the dust settles on the tariff negotiations and the new trade agreements it's going to be good for america and for the world. so we are factoring that in, working in tandem with the white house. lisa: just to be clear, that provision will stay in, that is

important to you? >> i think it is. obviously the bill is still a live instrument that is being worked on in the senate so we will see if they modify those provisions, but for now i think that is good policy for us. i want to say to foreign investors, you are in good stead to invest in america. this is the time to do it because the american economy is about to take off again and it's going to be good for you and good for the world. we are the largest trading partner for most other nations. a strong america is good for the whole world and that is what we are going to bring about with these sound policies and progrowth initiatives. annmarie: you and your colleagues have a self-imposed july 4 deadline, partially because you have to raise the debt ceiling. are you considering raising the debt limit if this deal isn't finished by july 4 with a different measure? >> it would be very difficult to do it. it would require a bipartisan measure in that regard and i would like to believe the chuck schumer and the democrats in the senate will do the right thing but i wouldn't count on that.

that debt cliff as we have regarding it is coming soon and that is why secretary bessent has said we've got to get it done for independence day. but it's not just because of the debt ceiling. it's also because we need to get tax relief in this new rural economy to the american people as quickly as possible. this is going to be a great thing for everyone. i have to also think about the politics of it. we have a midterm election coming up. if we get this done soon and quickly the summer, everyone will feel those effects before they have to go vote again. we want to keep the house majority and keep this going for four years and not two. if we lost the majority there's no doubt that the house democrats we try to impeach the president and everything would be truly chaotic for investors and job creators and consumers. so we have to keep this going, keep the momentum going. that's why i put this on a very aggressive schedule. back in the early part of this

year i said we've passed the big beautiful bill out of the house before memorial day. people laughed when i said that, but we beat it by four days. we are going to stay on track and deliver for the american people. annmarie: you have exactly 29 days to hit that deadline. you saying there is no plan b for raising the debt ceiling if this bill is not done between house republicans and house senators? >> republicans in the house and senate will deliver and we will take care of our business one way or the other. i'm just telling you that the smartest and most efficacious way to do this is to stay on the schedule and deliver for the people. we are doggedly determined to do that, laser focused on it. if we take our focus off of that, the strategy doesn't work. i'm telling you that we are working on that regard. leader thune and i are in constant communication. the secretary of the treasury, all the leaders in the white house and the administration understand that, so we are going to get it done. lisa: how closely are you watching the bond market right now given the fact that we've

seen a real sense of concern, particularly in longer duration u.s. treasuries? >> we watch it closely. i really do believe that delivering this historic legislation is going to be critically important for a lot of reasons, not least of which is that congress can send a very important signal to the bond markets, to the stock market, to investors everywhere that we are very serious about this. not only in getting the u.s. economy roaring again, but also in addressing the long-term debt. i think that is an important thing for everyone to understand. we have a strategy that is multiple steps to address this over the next year, two years, three years. we are going to get the u.s. economy back on sound footing. we are the party of fiscal responsibility and you will see that demonstrated day after day. annmarie: thanks for being with us, it was really great to hear how this is going on your no sleep schedule as you careen toward july 4. there is this question about all of the machinations that have to

go into walking the piece of dental floss over the grand canyon. annmarie: it's incredibly challenging when you have a sold caucus, individual the don't want to see cuts to medicaid, deficit hawks. and the math is incredibly challenging, even more so for him than set majority leader thune. lisa: up next we will continue the conversation with dan greenhaus, and it doesn't necessary have to do with going on -- what is going on in washington, d.c.. this is "bloomberg sur furious storms, gentle tides, and everything in between. for 174 years, we've also stood by you, through times of turbulence and stability... ...with financial protection and personalized guidance built on one idea: when we stand together, we can weather any storm. (♪♪)

♪ lisa: some of the optimism fading as we fail to at least get an early four days of gains. right now futures lower after being higher earlier, east on the russell 2000. we are so close to a bull market, 3% away from all-time

highs on u.s. equities in the bond space. a rally as people look toward nonfarm payrolls after the adp print and after a less than terrible auction in japan. 30 year yields, the biggest rally yesterday going back to february, down an additional three basis points this morning. this morning, delivering the america first agenda. >> this is not a spending bill, this is a budget reconciliation bill. what we're doing here is delivering the america first agenda. this is all the presidents priorities and all the priorities of the republican party. everything we promised the american people, that is what we are delivering. lisa: mike johnson reaffirming his commitment to passing president trump's big come beautiful bill. tyler kendall joins us now. what is on deck today, and what are some of the big takeaways as we understand how likely it is for them to get a deal? >> what we are going to have to see as he said that elon musk is

pretty dug in here when it comes to his criticism, but mike johnson also said that he thinks he can convince muska that this is the first in the series of steps to address the deficit, and that could get him on board even if the sea over these new analysis yesterday showing that the house bill as it currently stands would add about $2.4 trillion to the deficit over the next decade. a person familiar did tell us that muska appealed to mike johnson directly to save some of those clean energy tax credits. we know that has some republican momentum so that is one thread we are going to be following. but one of the big takeaways i had from the interview is when you asked him if he is watching the bond market and he said he was, his answer tracked similarly to the answer i got when i posed this question to senate majority leader john yesterday. which is essentially that republicans are trying to say that ultimately this will stabilize the debt to gdp ratio and that will be more important that they are able to implement those policies they say will grow the economy, but there's

already started to be questions about have some of these tax provisions in particular will incentivize growth. you asked him about one of them, the so-called revenge tax and it was interesting to hear him say that that could end up making its way into the final version. lisa: joining us now is dan greenhaus. following that discussion we just had with mike johnson, there's a question about how much the bond market has been sending a signal to washington, d.c. vs. pricing and more positive growth. what if be learned yesterday from the rally that we saw and what actually spurred it? >> i actually don't think we learned anything. very easy. i'm not sure that the bond market is in any way signifying a problem with spending. we've made this point on the show before, this is a story that we've heard for decades and decades, and i again went back and i like to look through old newspaper articles, people

talking about the unsustainability of the debt in the 60's, the 70's and so on. 434 on the 10 year now, let's call it 450, doesn't seem to me to have a problem with the level of spending the government, nor does it signify to me really that there is any growth or inflation concerns. it's just a perfectly benign number in the treasury market. that's not to say that we don't have a spending problem, because we clearly do. and that's not to say that we don't need sustainable, meaningful adjustments going out , which we currently do not have. but it does tell me that there isn't much of a problem now and when i hear people tell me the bond market is telling, i just don't see it. lisa: so do you think there's any problem at all in the bond market but just not coming from policy? dan: again, 450 on the 10 year just doesn't seem to me to be problematic. obviously as lisa just mentioned the equity market is basically factory high, so that doesn't

seem to be a problem. at the end of the day the u.s. government spends too much money, we know that. but we also know that we have tremendous tax incapability, tremendous asset that we can sell. tremendous ways of servicing the debt. don't get me wrong, viewers are out your thinking i'm sanguine about the level of debt, it's gross. i don't like it, i wish we did something about it. my point is i don't see evidence that financial markets have a problem with it. lisa: on one hand you could say ok, then the move that we've seen in bonds is no problem whatsoever because reflects positivity and the underlying economy. on the flipside, we could say that it is a distortion and it is people being overly optimistic at a time of economic data is starting to turn lower and frankly, this going to have to be some sort of response. so if you don't think it has to do with the deficit, do you think this bond market has been corrected in pricing and faster growth and faster inflation or do you take the other side of that and really say actually,

there was something else underfoot that we are starting to pick out in the data? dan: there's three things. usually in the from column a and column b. column c, is there no deficit concern? surely there are some corners of the market that think 55 trillion dollars in debt over the next 10 years in total is a little too much. is there some of it that is growth, undoubtedly. i've been fighting people on tv about the strength of the u.s. consumer for two years now, and we continuously use the word surprisingly. it's not surprising. the economy and the consumer i doing fine. the third part which i think is reasonable is the shift in ownership of the bond market, which is partly by design. away from what i call price sensitive buyers, let's say central banks and pension funds, and toward more price-sensitive investors, hedge funds, or more

trading-oriented individuals and organizations. that's probably going to put up pressure on the term premium as we've seen already happening which overtime is going to put upward pressure on yields. and that is a story that is going to play out over many quarters over many years as the inflation and the tariff and spending story unfolds. but i don't think that story which may be every bit as important if not more important than the growth in the deficit side of the conference -- conversation, i don't think that really get enough attention. annmarie: but isn't policy in washington exacerbating that exact problem, the fact that we're in a number of trade negotiations, china, absolute trade war? dan: that's fair. i think the bigger issue is just the dollar is too high, part of this larger story about the appeal of the united states, the reserve currency which attracts capital inflows, which you mentioned in the previous segment, all of this feeds into

just the desire to hold risk assets and it as i mentioned earlier there the shift going on here where the u.s. is on the margin less desirable, and i'm not sure that's happened just yet, that's going to put upward pressure on yield, downward pressure on valuations. but i think that larger argument about the desirability of the u.s. global capital flows, the appeal of the dollar in the treasury market which dwarfs every other market in size, so that not exactly clear substitute, that i think is a story that we need to spend more time on. lisa: we will spend more time on it with you when you come back next time. coming up in the next hour, neil richardson of adp, joanne feeney of advisors capital management, jordan rochester, and krishna m emani of lafayette college. this is "bloomberg surveillanc " ."

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♪ >> i think you have the opportunity to see the markets move higher. >> around mid to late april, it's been the cap tech companies. >> it could remain elevated but it's not necessarily an environment where you want to sell all equities. >> i would not be adding a lot

of equity risk to this rally. >> our market is really driven by growth in technology and growth in technology is ok right now. announcer: this is "bloomberg surveillance." with jonathan ferro, lisa abramowicz and annmarie hordern. lisa: welcome back, stocks turning as traders try to figure out with the jobs data really means for the forward trajectory of the u.s. economy. is it the data or is it the policy? d.c. still hashing out the bill as elon musk expresses his discontent with the legislation. i am curious about how much of what we heard from house speaker mike johnson really underscores the fact that he was sleepless the trying to get through something that a lot of people have a lot of problems with. annmarie: one of them being elon musk and the speaker just said to us musk is digging in is how he views the situation right now. he did say that the two of them were texting last night and the light elon musk is not going to stop with his crusade.

is it really the deficit or is it the fact that maybe the house version of the bill is sunsetting those green incentives from the biden era inflation reduction act? he says you can draw your own conclusions, we do know that he is at the helm of one of the biggest tv makers in the world. i think we are able to read between the lines there on potentially what the speaker's office think the problem is right now with elon musk. lisa: and we are so lucky because we have alongside us neil or richardson of adp. a response from president trump talking about how maybe it was time for the fed to cut. we did see a number that was much lower than expected on adp yesterday, which signaled that maybe there is significant cooling in the labor market. you are the perfect person to give perspective to this. how much is that a valid reading of those numbers? >> first of all, good morning, it's great to be with you. it's clear that the hiring moment from the beginning of the

year, 37,000 is the lowest we've seen since march of 2023. what is also clear is that there is enough resilience in this labor market to spring back. we calculate a lot of wages. you will see that there is still strength in pay gains which means there is still efficiency, productivity and companies are keeping their workers in this labor market. so it is a tale of two but still forward resilience. lisa: this really speaks to the churn under the hood and that is what we are seeing in markets with equities trying to figure out which direction to go in after three straight days of gains. we do have to remind you we are about 3% away from all-time highs and potentially on the cusp of a bull market. people not necessarily taking extra heat. in the bond space you do see a bit of a rally at the long end, which is completely different than what we'd seen for the bulk of the year, particularly the 30 year yield that yesterday saw its biggest one-day move going back to february.

coming up this hour, we got joanne feeney with the s&p 500 on the brink of a bull market. jordan rochester with the ecb rate decision around the corner and krishna money reacting to the latest data. we begin as stocks steady following three days of gains. trade policy risks have worsened and uncertainty is here to stay for a while. joanne joins us now for more. thank you so much for being with us. i'm curious what your takeaway is from trade policy and economic data. is it true that the market can only focus on one at a time, or is there a sense that the economic data will ultimately trump a lot of the policy uncertainty? >> i think if the earnings stated that could trump policy concerns. clearly, the tariff risks have not gone away, we've got that

double leg of the steel tariff which is significant to a lot of industries. so we have the tariff and are outstanding, potential new terrace coming, or maybe not. navy they get negotiated away. but if we do see prolonged elevation in cost for both firms and consumers, that is kind of like a negative supply stock for the country. at the same time we are seeing evidence of a negative demand shock being created by all of the chaos and uncertainty. we are seeing firms delay orders. we are seeing hiring slowdown. in fact labor turnover, hiring that is quits and firing are pretty low right now, and that is actually an indicator that suggests economic activity may be slower than we are currently measuring it. lisa: this raises the question about what we are hearing from anecdotal companies and a status both with respect for the beige book as well as procter & gamble that said it was going to cut 7000 jobs because some of the

tariffs and other issues that are going to crimp costs. we heard walmart is going to communicate more directly how much they are going to have to increase some of their costs. but also potentially curb employment certain places for specific reasons. are those just anecdotal, are those just good business, or at some point to those matter to you from an overall sentiment read? >> i think those examples are specific to the types of business models these companies have. we know the tariffs are going to be more impactful for companies with thinner margins. walmart has an awful lot of pricing power from their supplier so they can try to buffer it, but even they are saying basically that they can't stop all of this from passing through their profit margins. their consumer base is not the wealthiest in the world. there is only so much they can pay in higher prices. i think these examples are useful to pay attention to. obviously they are not data.

the hard data is holding up pretty well. but some of the indicators out of the ism show us that things are potentially slowing down in a way that we need to keep an eye on. but ultimately it comes back to earnings. what are these companies going to tell us of the next six months? >> i hear what you are saying that the proof is in the profits, so to speak, and if the earnings can hold up then we might get a different reaction in the capital markets. i'd like to concentrate on the tech sector since it is such a big driver of whether or not we reach this bull market and how long it is maintained. the worries that you are seeing on the labor side or on the policy side, does it extend to those frontier firms that are the driving the bull market higher? >> that's a very bright part of the market and of the u.s. economy and the global economy. i've written a couple of notes recently about the power of generative artificial

intelligence to keep innovation growing, and i think that is the new growth engine for at least a decade. so no, those are real improvements in materials, in products, and services, and it's spreading across the economy. it's creating demand for energy, utilities, industrials. that's a real and they obviously have much bigger profit margins and their product in many ways help companies improve their cost structure. so in a situation where economic conditions are becoming more difficult, perhaps we could expect that those ai providers are going to see more demand. that's an area where we think we will continue to grow. we do have significant exposure for our clients. we will have broadcom reporting tonight, we tell that company for our clients for a very long time, and we do think they are

going to provide further evidence that the growth engine continues to hum along. annmarie: when it comes to more policy, i'd love to get your thoughts on this idea which dan greenhouse in the last hour just put some cold water on as well as speaker johnson, this idea that it's the house bill that is continuing because it's going to increase the deficit, that is continuing this nervousness in the bond market. do you buy that, or do you think that it is other issues? >> the bond market kind of captures everything. but i do believe that the difficulty of strengthening the deficit and therefore the debt long-term is one that every income investor should be paying attention to. right now debt is pretty high, 100% of gdp, that is not off the charts. we have other developed countries that are higher than us like japan. but we can't sustain the continued increase of the debt forever.

and as long as interest rates remain high, that becomes more and more costly. i think there's legitimate concerns about this bill because it doesn't do a lot to improve that situation and i think what everybody is recognizing is often hard to get the deficit under control without raising taxes somewhere. because we have so much of a budget that is nondiscretionary, and it really does put legislative between a rock and a hard place and therefore the bond market says ok, this is going to continue for a while going to keep longer rate interest rates higher for a while. lisa: thank you so much for that perspective. this is something that people keep talking about, the idea that is one of the aspects behind the bond market. i just wonder if this bond market for the is a problem, is it crimping investment by businesses or is it something that is totally normal and actually appropriate given the growth levels we are seeing? >> i think bond markets are used

as a tool. they are supposed to have a special relationship with equities so the correlation should hold if it is supposed to work in terms of any portfolio. but those correlations are breaking down. it's not just volatility in the bond market that is concerning, is the fact that they are not doing their job in managing that risk on the equity side. annmarie:annmarie: and in the meantime we have the ecb poised to have a decision in less than five minutes. trump is probably standing by watching to see what they do to understand what the fed response function should be in terms of responding to inflation that seems to be coming down. >> is probably waiting to tweet as he did yesterday, i'm sure you saw the adp numbers, world famous now in the oval office. but what is so interesting as he was able to lower because of the policies coming out of washington and what that has meant for the european union, for the euro, and for the e.u. landscape when it comes to the fact that they are dealing with others trade uncertainty in washington and people are

looking for other places to invest. lisa: right now that's get you an update on stories elsewhere this morning. yahaira: president trump signed a travel ban targeting a dozen countries including afghanistan, myanmar and chad. the measure also partially restricts entering from a host of other nations including cuba and venezuela. it reinstates one of his most controversial policies in his first term. he claims the move was necessary for national security. meanwhile in sports, the edmonton oilers are up 1-0 in the stanley cup final after a thrilling game one victory over the florida panthers. the oilers came back in the third to force overtime where they scored the game-winner in the final minute of that overtime. game two is set for tomorrow night in edmonton. and elon musk is ratcheting up his criticism of president trump big beautiful bill, telling americans to press their lawmakers to kill the bill.

mike johnson earlier telling lisa and anne-marie he's working with the test the ceo. >> he's a good friend, we texted late last night. we are to talk this morning. he seems pretty duggan right now and i can't quite understand the motivation, but i will tell you that what we are delivering in this bill is not only historic tax cuts, but historic savings as well. he seems to miss that. >> johnson also send the tax bill is a step to bring u.s. debt under control. of course, others disagree. lisa? lisa: coming up next, jordan rochester with the ecb rate decision right around the corner. that is coming up next, and this is "bloomberg surveillance." is "bloomberg surveillance."

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this was what was expected. also seeing 2026 inflation at 1.6% prior to a forecast of 1.9%, this idea of possibly lower inflation allowing them to cut more than people previously thought. inflation is currently around the 2% medium target, this according to the ecb. raising questions yet again. just one more rate cut while they potentially cut more. lizzy burden joining us with more details. >> of course the focus isn't necessarily on the cut itself today. that was widely expected given the euro area inflation has dropped below the 2% target to 1.9%, giving you have a lower energy prices and the rise in the euro against the dollar in the aftermath of donald trump's liberation day. so the focus really as you say is clues as to when it is going to cut again, is it going to be july or september as economists

expect? if we look at that inflation forecast, as you say they've downgraded as expected the inflation forecast for 2025 to 2% now from 2.3%. for 2026 to 1.6% from 1.9%. and there are some on the governing council concerned about the persistent undershooting of inflation. others like christine lagarde or self say they need to work through that, given all of the risks in the medium-term to inflation. not just from tariffs if donald trump raises tariffs from 10% to 50% after that july 9 deadline and the e.u. retaliates, but also from the expansionary fiscal policy as well. in terms of the market reaction, i know you will talk about this, because the traditional link between fx and rates has been a bit severed in recent weeks, we weren't expecting a huge amount of euro volatility off the back of this.

the focus frankly is more on the nonfarm payrolls report tomorrow. so now we look ahead to the press conference. i'm sure christine lagarde is going to keep her cards very close to her chest when she is inevitably asked if a follow-up cut is coming in july and i'm sure she will also be asked about her own future here at the ecb because there's a lot of speculation that she wants to go to lead the world economic forum and she hasn't denied that she is considering it so far, and it would make sense given that inflation is back toward at 2% target. lisa: thank you so much for being with us right now. the euro trying to figure what to do with this but you're seeing a clear move in german bond markets, yields lower on the heels of what seems to be indicating that there is more room to cut from the ecb that now sees inflation well within that 2% range and downgrading expectations which you can see across the board is a rally, particularly into the long end. german 30 year bond below 3%.

2.95%. what you see in the u.s. is that actually adding to the united states rally that you seen in bonds, the idea that maybe if the ecb can cut, soak can the united states. right now to your tenure yields, 4.34% in the u.s. jordan, your first take on this? >> it's a dovish outcome in terms of the inflation forecast for the next two years in terms of the numbers for 2025 and 2026, however the elephant in the room is what is not in the statement which is the view on the impact of trade tariffs. we will get back to 45. that will be the scenario that says do they double what we expect from tariffs? what about the 50% from donald trump? so far the moves are quite small. in the front-end rate, a two basis point rally. nothing too big. we wait to see what lagarde says later on and those forecast scenarios that come out late

this afternoon. annmarie: some notice we have when it comes to trade is that the ecb statement says trade escalation would lead to lower growth and inflation. how do you start thinking about if the european union doesn't get a deal with the u.s. by july 9? >> i think the e.u. is probably on the bottom of the list in terms of major partners. japan, india, vietnam, this much more focus on those negotiations. when it comes to the e.u. there's a lot of lobbying to go hard on the e.u. to reform some of the nontariff areas they have such as the digital service attacks with the u.s., and various other nontariff measures. that is something very difficult to agree to by july 9. so what might happen as a stopgap, another delay. that is the best they could hope for. we saw that when trump ramped up tariffs to 50%. we saw an immediate delay happen within a day or two. so i expect the worst case scenario of the terrace coming at the reciprocal levels around

the 25% level, and the e.u. will be facing a summer of weaker data as a result and more dovish ecb, so we are looking for more rate cut thin the market is pricing. we expect rates to get down to 1.5 as markets price around 1.7. if there is a deal to be done it is still going to be a 10% minimum. it is like picking between bad and worst scenarios for the ecb. annmarie: is there a scenario where the ecb goes on pause and misses a meeting? >> there is if you have an upside surprise in the pmi. the difficult thing about that in the pmi comes the morning of the ecb meeting so it's going to be difficult the trade around that event. if you look at the cpi data, and the downside surprising services cpi and the curve into what the market is pricing has inflation below 2% for the rest of the year. it's really hard to get a hawkish meeting but i've got to be honest, some of the hops really have surprised me with comments suggesting we should

have a slower pace. hawks have to be hawkish. i think the core unit of the ecb overall still loads for a rate cut in july and not as price. but we need to see how this press conference goes. nela: i understood that there a lot of attention to the upside risk of inflation coming from tariff policy, but i want to ask a question in the opposite direction. if inflation in the e.u. continues to undershooting the 2% target, is there a risk that a real interest rates actually turn closer to that zero bound or even negative in the next two or three years? >> i don't think the risk of that is to hide because what we are seeing is inflation is coming down. the ecb forecast today has it below 2% for the next two years. when it comes to the real yield, you've gotta think about phenomenal side as well. actually kind of leading to the question annmarie mentioned, the german fiscal stimulus will make it difficult to be materially week because what we are going to see in q4 if the budget is

passed in germany and we will have much larger amounts and issuance. the hawks might be able to hang onto that, that is over six months away and difficult to trade every single day. but long-term i find it very difficult to see real yield underperforming in europe because of higher nominal yields i expect to see with the german tenure getting to 3.3%. nela: how much of a seachange, a game changer is german issuance for the ecb? >> a massive game change. we've had many years where the weaker growth in europe was underpinned by the lack of fiscal austerity we saw in germany, roughly speaking, compared to what others should have done. the germans have a lot of fiscal firepower. the infrastructure loan package is 500 billion euros over 10 years, so at least 1% to gdp from next year onwards. we don't yet know what the numbers will be on the fence. we got a sense of what will be

on tax cuts. so the numbers will be large. germany starts from a very strong position and that is why you see fiscal firepower a lot next year. lisa: it's a great question at a time and potentially the ecb is looking at subpar inflation. inflation below that 2% level. how inflationary are some of these fiscal packages that germany has floated? >> it depends. if you're going the tax cuts, that's immediately more inflationary when it comes infrastructure spending. we have to know the sizes of these numbers. let's say it's $50 billion, that's a pretty sizable number for that. that is something that will have to be reflected in the forecast. but it is just a german number and you got a problem with the rest of the euro zone, you don't have the same fiscal firepower. u.s. france which is fiscally constrained, italy and spain not really able to move the needle on things either. and then when it comes to

infrastructure spending from germany, that is a big positive that markets like. but it won't translate to high inflation on day one because building bridges and so forth, it will boost commodity prices and rate the price of building services but it won't affect everything else. lisa: jordan, thank you as always for the insights. you may savor the great question which is this question of the lower bound. people sent me with -- never see negative rates again. we've already seen them, but i digress. i'm curious about what this says if they see inflation falling below that 2% target as soon as next year. nela: so remember their past, 20 years of lackluster growth tied to that zero boundary and dipping underneath it. i'm sure it is a past the ecb doesn't want to return to and they are looking forward into a different future with the risk of inflation's are going up, not down, but i wonder just how material that downside risk is and how it could affect all kinds of things, including the

issuance of german bonds. lisa: especially if china is going to become a stronger trading partner with germany, with europe, and necessarily lower prices to get some of those goods in there. coming up, talking about u.s. economic data breaking trade balances as well as jobless claims. krishna memami of lafayette college here to react. right now we are seeing bond markets get a bit after that dovish ecb decision. this is "bloomberg." [city ambience]

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♪ annmarie: 25 seconds away from initial jobless claims, these crucial indicators give people a final look ahead of nonfarm payrolls tomorrow. equity markets turning as they try to digest economic data that was weaker than expected yesterday plus the ecb rate cut that is willing bond markets. 10 year yield both in germany and the u.s. lower on the day, a pretty sharp rally in german tenure yields. right now with the economic data, right now let's get to michael mckee bloomberg economics and policy correspondent. >> we don't have jobless claims over the wire yet but we do have the trade balance at $61.6 billion. that is less than half of what we saw last month, 140.5. of course that is in part because we see a big drop in imports. we will get a number on that for

you any second. initial jobless claims coming at 247,000, so a slight rise from 239 the week before. this is a rise and it is in a higher area, sort of goes above the bar that we've been training under for a while, but it isn't a huge rise. it does suggest a little bit of additional weakness in the labor market but not something particularly to worry about. for the continuing claims number, one million 91 4000 is actually a drop from the week before. then finally we have updated nonfarm productivity, negative one point 5%, that's worse than the -0.8%. this of course is for the first quarter. unit labor costs up 6%, up from 5.7% in the second revision last time. so at this point we got a little more inflation, a little more weakness in the labor market and we've got some strength in the

growth figures for the second quarter because of trade balances cut significantly in half. lisa: right now we are seeing markets respond to that in the front end of the u.s. yield curve in particular, sharply lower on the heels of that nonfarm, of what we saw with initial jobless claims. lower than expected but not necessarily something particularly exceptional. still, it is the highest level going back to october 2024 with 240 7000 initial jobless claims. what is your take on this? nela: the take is that they are still not at a worry point but the second week in a row of it increases something to keep a watch on. i don't think people will get really excited until we get well above the levels that we are now. to meet the most interesting part of all of that data with the productivity numbers because that is the future and to see that productivity is what made u.s. growth exceptional the past year, two years. when we talked about u.s.

exceptionalism, it was in large measure about productivity. so to see those numbers get revised in the wrong direction is actually the biggest concern of anything i heard just now. lisa: it kind of flies in the face of what we heard with respect artificial intelligence, some of the productivity gains that have come from there. how much is this tied to immigration and potentially some of the loss of the employment force? nela: immigration is such a big part of the labor market. i don't know if the slight uptick in the layoffs -- or are you talking about the productivity numbers? lisa: the productivity numbers. nela: it's hard to tell, there might be quite a few drivers there but remember before the pandemic we were looking at levels like this and it was really the pandemic that triggered an increase in productivity. so on the other side, are we going back to where we were before the pandemic? that's the question i would like to ask on that. annmarie: tomorrow becomes really interesting.

we are being close to some soft employment numbers, and you wonder are we going to get that tomorrow? then what would this mean for the fed, does this give them a pathway to potentially cut interest rates? lisa: maybe a pathway. doesn't seem like they are going to cut right away. mike mckee is also going to stand by and parts through but in the meantime doing this now, krishna, thank you so much for being here, great to see you. how do you use data like this, isn't that enough to cause the fed to make a move, is it good enough to give you confidence? it is sort of maybe a trend that we maybe can ignore, maybe need to pay attention to. krishna: if we ignore it, we ignore it at our peril. i think the economy is slowing. it's not slowing at a precipitous pace, but it is definitely slowing and you can see that it used to be in the soft data, now the soft data has improved the hard data is

softening. i think there is a substantial trend for slowing in the economy. again, not precipitous, but gives the fed the path the cut rate not today, but in the later half of the year. nela: in your opinion, what would it take to see that cut, what would it take in terms of whether it's jobless claims or continuing claims or the unemployment rate, the mix of and all, how dire does the labor market of data have to be to challenge the fact that the economy is fine and can continue to grow? krishna: i think the fed on that count has kind of been very clear that at the end of the day, what they are focused on for cutting rates is really the employment picture. if the employment picture deteriorates meaningfully, not one month but a couple of months in sequence, i think that is what gets them there. i think even if we get a soft employment report tomorrow that

is just not enough. however if we see that in the third quarter on a consistent basis, i think they have a pathway to cut rates. lisa: annmarie: even a data dependent fed that keeps saying they need certainty and they are very unclear at the moment what trade policy might mean for inflation? krishna: from the fed's perspective, tariffs are really a wildcard to get they don't know. they don't have enough of a framework to kind of figure that out. on the other hand, simultaneously if the employment markets are deteriorating quite substantially, i think they have the headroom in terms of work policy rates are today relative to where inflation is for them to be able to cut on a proactive basis as opposed to just on a reactive basis. lisa: quite substantially, what is that? krishna: i don't think if the unemployment number itself. it's really the trend in

employment growth that on a consistent basis, several months comes to be significantly lower than what the trend rate has been. annmarie: like last year when they cut. krishna: exactly. lisa: but it raises the question how much it would matter. how much we are talking about the wrong issue. if the issue really how much people take the fed to cut, or is the issue that we are slowing or stalling out? that's the bigger question for maybe both bond markets and the fed. not just adjusting things on the margins, but how much heat is left in an economy that has a lot of questions around it? krishna: that's a really good observation in the sense that even if the fed cuts in the third quarter or any part of the fourth quarter this year, the likely impact of that on the markets, at least equity market it's probably not going to be as positive as people are expecting because i think in the throes of a terror situation, if they are cutting rates than they are really worried.

that's bad news that will end up being bad news for the equity markets. that's why i think equity markets at this point, the only upside is really going to come from productivity growth, earnings growth, things like that, and that is not looking very likely at the moment. nela: i want to follow-up on that statement and realize we are asking you to ping-pong between the real economy and the markets right now, but what are the growth drivers that you see in the second half of the year that when the catapults the economy forward, that raises those productivity numbers? is there something we are waiting for to happen that could really trigger that growth? krishna: i don't think ashley anything substantial in the pipeline that can get you there. i think the fiscal impetus for the fiscal impulse that has been in place because of deficit financing is really what is carrying us through. in that mix, tariffs are basically a contractionary policy. there's really no significant

stimulus coming into the economy until he tax package passes and then we see the implications of that in terms of further deficit increase. lisa: michael mckee is still with us parsing through the data. in addition to jobless claims, some really interesting trade data. >> basically what we saw with the pull forwarding imports. imports dropped by 16.3% and that pushed the overall trade deficit down by 55.5%, and the census bureau says those are the two largest declines in those categories ever. now, it's all statistical delays in the sense that we didn't make a big deal out of the rise in the trade balance in january or february because we knew it was the pull forward of imports, but it does have an effect on the overall data. a bigger rise in second-quarter growth then we saw the big fall in first-quarter growth. the one thing to point out about jobless claims is this is the biggest jump, the highest level

in eight months, and it's the highest two week in a row level in more than a year, so we do see some weakness here. neil daughter writing in that you have about a 260,000 level would be the breakeven for jobless claims and if we get above that we are going to see weaker payroll numbers. we will see what we get tomorrow, but of course we are starting to see the numbers come in. procter & gamble today saying it's going to lay off 7000 people. it is weakening out there. lisa: how much are you getting people questioning the integrity of some of this data as we got reports yesterday from the bureau of labor statistics that they didn't collect data for cpi in certain regions in april due to budget cuts. >> cpi is the one being affected most and first but there are also concerns about the labor data as well. what is happening if the government has cut funding and not kept up funding for years. then we had the doge cuts, so they can really collect all the data that they have.

now, the data that they do collect is going to be used as well as a possibly can be, but just because you have fewer people collecting it and less data you're going to have a wider margin of error. lisa: what exactly do you do with this, the idea that the granular data shows some degree of weakening and yet there's a question about just how accurate it is on any given week? krishna: it's kind of a sad state of affairs at the best statistical data collecting agency in the world is struggling to kind of do the surveys that we desperately need at this time of transition. it is what it is. however, they do enough data collection for it not to be kind of disturbed in a significant way, and you can probably derive the basic trim side of the data they are collecting. again, i would reiterate my point, it is a very sad state of affairs. annmarie: but does the data even

matter when the policy is changing so quickly? krishna: data does matter because how would you expect a policymaker who is one mandate is employment to react to it if they don't have accurate data and a really clear picture what the impact of the various policies are on the economy? without that, we are blind. that would be a terrible state of affairs. annmarie: i mean more for the markets, not the real economy. krishna: to some extent markets to react to policy. for the policy to be commensurate with the state of the economy we need that data. lisa: don't be a stranger, great to see you. thank you so much for being here. get to an update on stories elsewhere this morning. yahaira: the ecb cut interest rates by 25 basis points, expecting trade uncertainty to weigh on business investment and exports in the short term. if the eighth time in a year the central bank has lowered rates. christine lagarde is speaking momentarily. we will bring those remarks

live. meanwhile, trump says vladimir putin has warned him that moscow plans to retaliate against ukraine following a recent drone strike deep inside russian territory. trump and putin spoke for over one hour on wednesday as u.s. efforts to broker a peace deal showed signs of stalling. the two leaders also discussed putin's potential role in ongoing u.s. nuclear negotiations with iran. and the nba finals tipoff tonight between the indiana pacers and the oklahoma city thunder. for top rank oklahoma city, it is their first trip to the finals since 2012. they are the heavy favorites over the pacers who returned for the first time in 25 years. both teams have gone 12-4 so far in the playoffs. lisa? lisa: up next, setting you up for the day ahead and of course, christine lagarde's press conference, don't miss that. this is "bloomberg surveillance."

lisa: stocks turning after the ecb rate cut, the eight of the cycle. meanwhile, people looking through some of the trade data as well as initial jobless claims slightly weaker. lower particularly at the long end, down that 30 year bond, down three basis points. the euro gaining some steam even after what was perceived as a dovish interest rate cut by the ecb, still euro strength. 114.37. so glad to say that nela richardson is here with us. we are waiting christine lagarde's news conference. before we get started we were having a conversation with krishna and yourself about the integrity of some of the data and i'm curious about how much

increasingly markets are trading off other indicators that might be viewed as economic and the way that some of the classic metrics have been. nela: terrausd statistical system is the gold standard for data and continues to be, but i do think there is a broader outlook when it comes to data. we are all in some sense data-dependent but i wish we could move more to trend dependent and how companies are actually expressing her outlook is an important data point. corporate america is the boots on the ground for the real economy. their narrative is important as we think about what is ahead. lisa: thank you so much for being with us. now we turn our attention to christine lagarde who is beginning a news conference. >> inflation is currently at around 2% medium-term target. in the baseline of the new year a staff projections, headline inflation is set to average 2%

in 2025. 1.6% in 2026, and 2% in 2027. the downward revisions compared with the march projections by 0.3% for both 2025 and 2026 mainly reflect lower assumptions for energy prices and a stronger euro. staff expect inflation excluding energy and food to average 2.4% in 2025 and 1.9% in both 2026 and 2027, broadly unchanged since march. staff see real gdp growth averaging 0.9% in 2025, 1.1% in 2026, and 1.3% in 2027.

the unrevised growth projection for 2025 reflects a stronger-than-expected first quarter combined with weaker prospects for the remainder of the year. the policy surrounding trade is expected to weigh on business investment and exports, especially in the short term. rising government investment in defense and infrastructure will increasingly support growth over the medium term. higher real incomes and a robust labor market will allow households to spend more. together with more favorable financing conditions, this should make the economy more resilient to global shocks. in the context of high uncertainty, staff also assessed some of the mechanisms by which

different trade policies could affect growth and inflation, and some alternative illustrative scenarios. these scenarios will be published with the staff projections on our website. this scenario analysis a further escalation of trade tensions over the coming months would result in growth and inflation being below the baseline projections. by contrast, if trade tensions were resolved with a benign outcome, growth and to a lesser extent inflation would be higher in the baseline projections. most measures of underlying inflation suggests that inflation will settle at around a 2% medium-term target on a sustained basis. wage growth is still elevated, but continues to moderate visibly and profits are

partially buffering its impact on inflation. the concerns that increased uncertainty and a volatile market response to the trade tension in april would have a tightening impact on financing condition have eased. we are determined to ensure that inflation stabilizes sustainably at our 2% medium-term target, especially in current conditions of exceptional uncertainty. we will follow a data dependent meeting by meeting approach to determining the appropriate monetary policy stance. our interest rate decisions will be based on our assessment of the inflation outlook in light of the incoming economic and financial data. the dynamics of underlying inflation, and the strength of monetary policy transmission.

we are not pre-committing to a particular rate path. the decisions taken today are set out in a press release that is available on our website. so i will now outline in more details how we see the economy and inflation developing. i will then explain our assessment of financial and monetary conditions. the economy grew by 0.3% in the first quarter of 2025 according to eurostat's flash estimate. unemployment at 6.2% in april is at its lowest level since the launch of the euro, and employment grew by 0.3% in the first quarter of the year, according to the flash estimate. in line with staff projections, survey data points overall to

some weaker prospects in the near term. while manufacturing has strengthened, partly because trade has been brought forward in anticipation of higher tariffs, more domestically oriented services sector is slowing. higher tariffs and a stronger euro are expected to make it harder for firms to export. high uncertainty is expected to weigh on investment, but at the same time, several factors are keeping the economy resilient and should support growth over the medium term. a strong labor market, rising real incomes, robust private sector balance sheets and easier financing conditions in part because of our past interest rate cuts should all help consumers and firms withstand the fallout from a volatile global environment.

recently announced measures to step up defense and infrastructure investment should also bolster growth. in the present geopolitical environment, is even more urgent for fiscal and structural policies to make the euro area economy more productive, more competitive and more resilient. the european commission's competitiveness compass provides a concrete roadmap for action in its proposals including on signification should be swiftly adopted. this includes completing the savings and investment union following a clear and ambitious timetable. it's also important to rapidly established legislative framework to prepare the ground for the potential introduction of a digital euro.

governments should ensure a sustainable public finances in line with the e.u. economy governance framework while prioritizing essential growth enhancing structural reforms and strategy investment. annual inflation declined to 1.9% in may from 2.2% in april, according to eurostat flash estimates. energy price inflation remained at -3.6%. food price inflation rose to 3.3% from 3% the month before. goods inflation was unchanged at 0.6% while services inflation dropped to 3.2% from 4% in april.

services inflation had jumped in april, mainly because prices for travel services around the easter holidays went up more than expected. most indicators of underlying inflation suggest that inflation will stabilize sustainably at our 2% medium-term target. because they are gradually moderating as indicated by incoming data on negotiated wages and available country data on compensation per employee. the ecb's wage tracker points to a further easing of negotiated wage growth in 2025. while the staff projections see wage growth falling to below 3% in 2026 and 2027.

while lower energy prices and a stronger euro are putting downward pressure on inflation in the near term, inflation is expected to return to target in 2027. short-term consumer inflation expectations edged up in april, likely reflecting news about trade tensions. but most measures of longer-term inflation expectations continue to stand at around 2%, which supports the stabilization of inflation around our target. turning now to our risk assessment, risks to economic growth remained tilted to the downside. further escalation in global trade tensions and associated uncertainties could lower euro area growth by dampening exports

and dragging down investment and consumption. a deterioration in financial market sentiment could lead to tighter financing conditions and greater risk aversion and make firms and households less willing to invest and consume. geopolitical tensions such as russia's unjustified war ukraine and tragic conflict evidently remain a major source of uncertainty. by contrast, if trade and geopolitical tensions were resolved swiftly, this could lift sentiment and spur activity. with further increase in defense and infrastructure spending, today with productivity enhancing reform but also add to growth. the outlook for euro area inflation is more uncertain than

usual. as a result of the volatile global trade policy environment, falling energy prices and a stronger stronger euro could put further downward pressure on inflation. this could be reinforced if higher tariffs led to lower demand for euro area exports and to countries with overcapacity rerouting exports to the euro area. trade tensions could lead to greater volatility and risk aversion in financial markets, which would weigh on demand and lower inflation. by contrast, the fragmentation of global supply chains could raise inflation by pushing up import prices and adding to capacity constraints in the domestic economy. a boost in defense and infrastructure spending