Bloomberg Surveillance TV: July 6th, 2026

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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferro, along with Lisa Abramwitz and Anne-Marie Haudern. us each day for insight from the best in markets, economics and geopolitics. From our global headquarters in New York City, we are live on Bloomberg Television weekday mornings from 6 to 9 a.m. Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen. And as always, on the Bloomberg Terminal and the Bloomberg Business app. Mike Wilson and Morgan Stanley writing, falling energy prices, peaking tariff inflation, and contain services keep the Fed on hold rather than hiking this year. Lower real rates should support equities and further fuel the

broadening trade. I'm pleased to say that Mike joins us around the table for the next hour. He joins us for more. Mike, good morning. Good to see you. Good morning. Let's just start with the stability we're seeing in the rates market and how important that is to set the stage for what you're anticipating in the next few months. Yeah, I mean, I think you were saying it earlier. I was listening to the show. I mean, there's somebody expecting a hike. There's someone expecting a cut and we're on hold. And this is, I think, what we've got to get used to is that with the new chair, probably not giving as much guidance. He's going to allow the market to kind of figure it out on its own and

have these different views. We're in that. adjustment period now. And I think that's one of the reasons why the market's been a little choppy or even correcting in the last month or so is we're getting used to this new regime, which is going to be higher volatility in potentially the bond market. But over time, I think what's going to end up happening is the market's going to settle down. It's actually more estimates, a wider dispersion of estimates, actually at least the lower volatility in the pricing over time, but we're in that adjustment period. So we think rates are lower, ultimately, particularly at the back end. And, oh, by the way, we've talked about this on the show many times, new Treasury secretary,

you know, new Fed Treasury, a chord to really anchor the back end. That's what they're focused on. You've got to get the back end down or at least anchored because you have so much debt that you have to basically finance. Do you think in the meantime we're confusing a reduction in guidance with an increase in hawkishness? Yes. In the meantime. Yeah, I think that's right. And the market's pricing that now.

So that's the good news is that we've already had that adjustment. And that adjustment started four months ago, right? This is why precious metals have traded really poorly. You know, the day that Kevin Warsh was announced as a nominee, the gold market peaked. And that was a sign the dollar has been stronger. So, once again, the market has really gotten ahead of this. So rates have reset. We've come down from around 4.2% to 4.1.

There's a belief this morning at least, we've removed the urgency to hike as soon as July. So we can put that story to bed. Cruise declined, massive reset and crude from triple digits down to the 60s on WTIs. Does that open the door within the equity market? And let's talk about the stock market exclusively. Does that open the door to the broadening trade again? Yeah, that's our call, basically, is that that was happening at the beginning of the year. Then we had Venezuela and then Iran.

By the way, the market priced Iran before the invasion even happened or the attacks happened because once again, it was pretty well signaled. And so that's when the broadening trade stopped. The broadening trade literally stopped the day that the attacks happened. And we had the big spike in oil. and then the pricing of the Fed to hike rates. Since mid-May, which is when we reiterated the broadening call, we had a different view of the most.

We thought oil prices would come down. And that has allowed now Fed pricing to sort of stabilize, and that has allowed the broadening trade to reignite. Small caps have performed nicely, just had a massive quarter, up by more than 20% on the Russell. We've seen the broadening trade. Speed to the performance we've seen in the equal weight on the S&P 500 as well. Let's talk about the Mag 7, which increasingly was called the Lag 7.

You've got a note out this morning. talking about maybe the money going back into the hyperscale. Just walk us through how you're thinking about what's happened in tech and that divergence between the big spending companies and the beneficiaries of all that spending and the divergence that's really widened in the last few months. Yeah, I mean, there's a symbiotic relationship between the spenders and the beneficiaries,

and typically they trade sort of in lockstep. And a couple things we've been writing about for the last several months. Number one, capex to sales, that particular factor has been straight up since the big, beautiful bill was passed, right? that basically the government's incenting businesses to spend money today rather than later. And so that CAPEXA sales factor has been driving a lot of stocks higher. That looks like it's peaking now. And by the way, the hyperscalor stocks started to trade poorly about a month and a half ago into this idea.

But that's not sustainable. You can't have the spender stocks trading poorly and the beneficiary stocks continuing to go straight up. And now what we saw last week, you know, meta announced that perhaps they're going to sell some excess capacity. maybe turn into a provider of capacity. That is just a reason for these things to take a break. Also, peak rate of change on revision breadth, right? The memory stocks, the revisions have been spectacular, but they can only go so high.

So all of that's kind of happening at the same time, and I expect the hyperscalers now to stabilize. That's what's going on in the last couple of weeks, and the semi-cutter stocks are going to correct. That's a good development. That doesn't mean the CAPEX cycle is over, but that ebbing and flowing between the two is a natural kind of governing factor because you can't have this divergence continue.

It's unstable. Your words take a break. That's interesting. Some people have called it a narrative shift for the overall trade and maybe a shift in spending two. Why is it one or not the other? Well, we don't know for sure, but we've had three of these already, John. So since ChatGPT was announced in November 22, we've had three of these sort of mini cycles within the broader structural cap-back cycle, which is that the market starts to question,

oh, the return on capital isn't good enough to support this kind of cap-back. What happens then? The stocks trade poorly. And then the CEOs of those companies come out and say, well, maybe we won't spend as aggressively. And then it ebbs the other way. And so that's the story. That's the dance back and forth. Now, there is going to be a period. There is going to be a time. We don't know when it's going to happen yet where the cap-back cycle will exhaust itself. And we will have, you know, we've talked about this. There is going to be malinvestment here. We don't think that that spending cycle is over because they just started raising the capital in the credit market. So they're going to spend the capital. But we can have these many cycles within the structural bull market of KAPA. I think, as you know, though, forget the spending that's not yet happened. It's the intentions that matter and a deceleration in KAPX intentions from here. How do you think this market's going to internalize the prospect of that in the coming months? Well, it's doing it right now. So we talk about it as a peak rate of change or, you know, trough rate of change, second derivative

growth. And that's exactly what's going on. There's two things we're focused on. earnings revision breath for the semi-country stocks themselves are like 75%. That's about as high as it goes. We've documented that. So that's going to roll over. That doesn't mean it goes negative. But the deceleration on that can cause those stocks to correct. And then, of course, the hyperscalers will benefit if the market perceives these companies as being somewhat CapEx discipline, that they're not going to do willy-nilly spending in a way where free cash flow goes to zero or negative.

And by the way, free cash flow expectations for some of those companies are going towards zero. That's why they've underperformed. So it's just dance. Like I said, back and forth. And now in the last week and a half, some of the hyperscalor stocks have started to trade better, that's a good sign that we're going to have

this little correction. This could last, you know, four, six, eight weeks, something like that. And then we'll probably have the next up cycle for the semi-nesty. These newer names that were in bear markets. I'm talking about Meta and Microsoft. Meta had a better week last week.

Chips, you keep using this word correct. When I hear that, I'm just thinking, what do you mean by that? How much is the downside? How big is the downside for some of these chip names? Well, these are high beta stocks. I mean, they can correct 30, 40%, 40% in a bull market. By the way, just look at the 200-day moving average.

That's probably a really good gauge. These stocks are so extended relative to those moving averages. That's how you've got to think about it. Those moving averages exist for a reason, right? They always return to the moving averages. Does it happen in a violent way or does it happen kind of gradually over time? We'll have to wait and see. But yeah, 30% correction in these stocks is, I mean, well within possibility.

In fact, some of them already have corrected 30%. You can have a 30% correction in chips. Just bear with me here. And you can still see the index move up and to the right on the S&P 500, even with the massive weighting they have. Well, we didn't say that. That's what I'm asking. But I mean, that's part of our call, too, is that we think this rotation is happening in a down tape. Okay.

Unlike the correction we saw in the precious metal stocks in January, because they're such a small part of the index. Energy stocks had a big correction after having a great run in January and February. Now the market traded off a little bit because of the war itself. But I agree with what you're saying or your premise or your question, which is, since these stocks are such a big part of the index, it's going to be really hard for the index to make any upward progress until this rotation has sort of happened. This is a summer story for you? Oh, yeah. I mean, we're not bearish on the year end. We're still 8,000 plus for a year end. And we've had that call for quite a while based on the earnings story. So that earning story is very much intact. In fact, the fact that we're rotating now to some of these other areas almost confirms the thesis we've had all year,

which is this is not just a tech story. That's a great story. But the broadening story is the story that I think people have really underestimated the rolling recession from a year ago, this operating leverage story, which I think is still very underappreciated. Do you think the banks can start working now, too? Well, they have been. I mean, the money center banks and the capital markets banks have been phenomenal. Your stock, absolutely.

Government stocks, fantastic. I'm talking about the others. The regionals. And so they've started to perform, and that's been an area we've been highlighting. Now, the Yulker is flattening still or is having trouble kind of restapening. So I think that group could pause a bit. We took that off of our list of favorites for the broadening trade this week. But ultimately, between now and year end, we do think the banks are going to do quite well. Because this is the strategy of the Treasury and the Fed is they want more lending going through the traditional lending sector. So while the euro curve is flattening, loan growth is accelerating, and that's feeding this whole broadening out story of the economy.

This is a strategy of the administration. They want a privately driven organic economic expansion, and that's what we're getting. Notwithstanding that maybe the labor market isn't as robust as some people were hoping, but that's also then feeding the earnings story, right? Because you're seeing revenue growth without a crazy need to hire a bunch of people, and that's the operating leverage story 101. Stay with us. More Blenberg surveillance coming up after this.

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At IBM, we've seen this firsthand, but by embedding AI across HR, IT, and procurement. process is we've reduced costs by millions slash repetitive tasks and freed thousands of hours for strategic work. Now we're helping companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business. IBM. When you own your own business, you own every decision. Now own the card that rewards you for it. The Chase Sapphire Reserve for business card brings the best Sapphire Reserve benefits to business owners who expect hardworking rewards. Designed to meet the needs of business owners at scale, this pay-in-full card elevates

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apply. Cards are issued by J.P. Morgan Chase Bank, N.A., member FDIC. Henry Trey's evade a partner is looking forward to the NATO summit, saying it's a prime opportunity to direct attention away from the war and the energy fertilizer price spike it has created. So investors should be prepared for a flurry of announcements. Henrietta joins us now for more. Henry, welcome. What kind of announcement are you looking for? Well, as you mentioned with Tyler, I think the idea of a joint defense effort with Germany is exactly what the doctor ordered. You know, the president is really looking to deflect away from what is happening in the strait. And there are so many issues, not least of which is the toll that still hasn't been agreed to and which NATO nations have a real problem with.

So I expect them to talk about pretty much anything other than that throughout the next two days. The other piece would obviously be Russia and Ukraine. And a discussion there as the United States Congress provides substantial funding to not just Ukraine in their various appropriations bills, but also to the neighboring regions, Latvia, Lithuania, and the Baltic region, as a whole, and as you were mentioning before, trying to ensure that we keep troops in the region as well, in Poland and elsewhere across NATO nations. And rid of the toll. Let's talk about it. I get that the Europeans and others aren't happy about it.

But right now it feels like that's the price of admission to get energy moving again. Is there anything they can do about it? Yeah, that's exactly it. The result of this war is that Iran now has control of the street. You see it with the U-turns of tankers happening throughout the weekend and on a daily basis. as people deal with the general uncertainty of where these 80 mines are in the region. So Iran has the ability here and is using different countries as an example of how to set up a toll. Call it a climate assessment, call it an environmental fee, whatever you want to call it,

you're normalizing relations with the IRGC. And this is in many of the NATO nations opinions. I've heard from Canada, for example, directly and France directly, simply untenable. They don't want to work with a state sponsor of terrorism. And I would also point out that Treasury Secretary Scott Bessent has created waivers for all these sanctions, but those are only going to hold as long as the administration decides that they will. They've already reversed that several times since the start of the war. And they don't have a lot of comfort from banks or insurers or NATO nations about what the policy is going to be in the future.

So this is going to take a while to unfurl probably much longer than the August 20th deadline. Henry and it's Mike Wilson. I had a question with respect to just how the world may. get around the straight itself in the sense that what this war is highlighted is, how crazy it is, that we have this choke point to begin with. And how fast do you think the world itself will start to migrate towards perhaps drilling for resources elsewhere or building alternative ways to get the oil out of the region through pipelines, et cetera? How fast can that happen? And will this be talked about over the weekend? Yeah, perfect point, Mike. I mean, the way to think

about this is that it was so obvious that going to war with Iran would result in some sort of closure of the strait. No administration has done it before. Very transparent, very understood. This was a potential choke point. We have many of them around the world, whether it's in the Red Sea, the Black Sea, the Southeast Asian areas. There are problems like this all around the world. So you're going to see now a scramble to try to create alternatives to whatever choke point there might be in the entire world. And what I think, you know, for investor purposes, what this means, and particularly for the Federal Reserve Chairman, as they consider inflation, is a permanently higher insurance risk, permanently higher costs of doing this shipping, higher tanker rates.

And those are all things that we're seeing across the board. So whatever level this settles at is almost guaranteed to be higher than it was before the president made the decision on February 28th to start the bombing. And what about Taiwan? Is that something that people are still talking about in the mainstream? It seems like that's kind of taking the backseat. Yeah, absolutely. Great point.

So Taiwan has taken a backseat publicly, but in D.C., it's still paramount. You have a pretty substantial bipartisan focus group, not a standing committee, but a select committee on China relations that focuses directly on Taiwan. And I would say that as you look at BIS and what they're doing with export control restrictions, they're very focused on Taiwan. Members of Congress are very focused on Taiwan. So it may not be front and center for this administration, and there's a lot of, um, questioning of how the president's allegiances towards Taiwan differ from prior administrations. But I would say Republicans and Democrats are unified in wanting to continue to provide protections to Taiwan, whatever that takes.

Stay with us. More Bloomberg surveillance coming up after this. Support for the show comes from public.com. If you're actively involved in your portfolio, you probably catch yourself repeating the same actions. buying the dip, manually sweeping idle cash, putting on a hedge. On public, you can now create AI agents that handle all these tasks on your behalf. Just describe what you want to do in plain English. Like, if the VIX hits 25, buy a put option on the S&P 500.

Or, if my cash balance goes above $20,000, move the excess into my direct index. You approve the workflow and your agent handles the risk. Monitoring the market, watching for your conditions, and executing your strategies exactly as defined. An investing platform driven by your intent, not just your clicks. You can also get full read and write access to your account via the public API. Go to public.com slash market and fund your account in five minutes or less. That's public.com slash market.

Paid for by public investing. Rookridge services by Open to the Public Investing Inc. member FINRA and SIPC. Advisory services by Public Advisors LLC, SEC registered advisor. Complete disclosures available at public.com slash disclosures. The thing about AI for business, it may not automatically fit the way your business works. At IBM, we've seen this firsthand, but by embedding AI across HR, IT, and procurement processes, we've reduced costs by millions slash repetitive tasks and freed thousands of hours for strategic work. Now we're helping companies get smarter by putting AI where it actually pays off,

deep in the work that moves the business. Let's create smarter business. IBM. When you own your own business, you own every decision. Now own the card that rewards you for it. The Chase Sapphire Reserve for Business card brings the best Sapphire Reserve benefits to business owners who expect hardworking rewards.

Designed to meet the needs of business owners at scale, this pay-in-full card elevates your travel experience and offers premium benefits and value toward business services that will take your business to the next level. Fuel your business and maximize rewards with 8x points on all purchases through Chase travel, 3x points on social media and search engine advertising, annual partnership credits, and more. Make every journey more rewarding with a $300 annual travel credit and access to a network of airport lounges, whether you're looking for pre-flight productivity or time to rest and recharge.

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Here's a tape from Neil Dutta of Renmark writing June's employment report is a reminder that the economy remains uneven. Inflation remains too high, and so the threat of hikes is not receding. Neil joins us now for more. Neil, good morning. It's good to see in person, buddy. I'm not going to bury the lead. You are not impressed with Kevin Warsh, Fed Chair.

Well, I mean, I think he's kind of blurring the lines between the Fed having a reaction function and forward guidance. You know, getting rid of forward guidance is fine. No one needs to be spoon fed every single meeting in advance. That's not what this is about. But just to say, you know, kind of swear on the monetary policy Bible stack and say, you know, I believe in price stability. I mean, that's fine.

But the question is how you actually achieve that. And in my opinion, he hasn't really. done much to tell us how that will be achieved. So it's really about how they respond to data and how that kind of drives their decision-making process, and we don't really know much about that. Which, you know, if the market has one view of it and the Fed obviously has the whip hand, they know more about their own reaction function in the market. It could mean that the closer you get to these meetings, we won't know their reaction

function until it's revealed, in which case it creates some volatility in the financial markets. I think it's fine so long as things are stable, as guests have been saying, but you know, that may not always be the case. So he's going to have to tell us eventually, and I would say sooner rather than later. In the meantime, it's the ambiguity strategic. Do you think it is beneficial? I think for him it is, right? I mean, in the sense that I think by failing to, I mean, he's been very vocal about not wanting to submit dots, give a forecast, anything like that. But I think because the Hawks really are ascendant on the community, The last job number didn't matter one way or the other.

It's really about the inflation data. That's going to break the tie, so to speak. But by not submitting a dot, he absolves himself of having to take responsibility for the hawks on the committee. And so it's kind of interesting. I mean, you do see some guidance from people like President Trump, NEC director Kevin Hassett talking about, well, you know, you do see some guidance from people like President Trump, you know, in his heart of hearts, he's actually devish, but he has these, like, sort of people he has to deal with him. So, you know, I think it kind of absolves him from having to kind of take responsibility if he's able to say, look, I didn't submit something.

At the end of the day, though, don't we need higher inflation to grind and grow out of the debt problem? And so he's talking about rewriting the data sets that they're going to use to sort of justify maybe inflation is really only 2.5, but reality is every American knows it's much higher than that. We've been going through this song and dance for 10 years. So what's that framework look like? And what does the real target inflation rate do you think to actually grow out of the debt problem? I don't know, Mike. We'll have a task force for that.

I mean, to borrow from our chairman. No, I don't, look, I don't think you can inflate your way out of this. I mean, you have to grow your way out of it. I remember back after the financial crisis, people were making the same argument. We had to, you know, and what ended up happening? We essentially grew our way out of it, right? We had sort of stable growth, stable inflation,

and over time, you know, things kind of even, out in the bond market. So yeah, I mean, I don't think he's leaning into the inflation piece of it to the extent he's been leaning into anything in terms of dealing with it. It's the productivity boom, the AI sort of golden age thesis. That's been the linchpin for, you know, for Kevin Warsh, I think. Right. So not letting it, don't kill the boom, as President Trump likes to say. And so having this obscurity around what I'm actually looking at gives them the freedom to maybe not be so reactive to the data sets? Well, sure.

But at the same time, by not laying out a strategy, that's the only thing that people are... I mean, the vacuum is ultimately going to be filled by something. And so, what's... I mean, then you do... In an odd way, by trying to get people off the data, you actually push them towards the data because they don't actually know what strategy

you have. What do you think he is in his heart of hearts? I think he's... I mean, I've thought he's hawkish. And I think it's almost like a revealed preference. By not saying anything, you allow the hawks on the committee to become ascendant. And so you wouldn't have done, and you wouldn't have done that if you didn't at some level kind of agree with them. You know, the idea that you can, you know, the sort of productivity

golden age, if you were thinking about that honestly, the fact that inflation is above target, to pull a green span would basically mean to allow productivity to remain whatever it is to bring inflation down to target. So you wouldn't be advocating for cuts, which is what he's doing. But generally, generally speaking, I think if you didn't lay out a strategy, you allow the hawks to fill the void, you wouldn't have done that had you not believed or kind of agreed with them at some level, right? Base case for you. We've got Bank of America on the one side looking for three hikes, city on the other looking for something closer to two cuts this year. That's how wide things are

right now on Wall Street. That's quite a spread. Where do you fall? Well, I think if there was going to be a Fed that was dysfunctional enough to deliver a one and done, it would be this one under Kevin Warsh. So that's sort of, I mean, to me, it's sort of, why wouldn't you think the Hawks kind of come back for more? And from his seat, I actually think it makes sense because you can show that you gave a hike. You stood up to the president. You're establishing yourself your credibility with the market. And now we kind of can get past this and say, look, we got the hike. I mean, almost like the ECB.

You kind of take some of the tail out of the inflation risk, and you maintain your optionality. So there's a way for them to perhaps go once without having the market price in a lot more. And what about balance sheet? Because that's been the real sort of angle on Kevin Warsh's because it's a balance sheet hawk and maybe he's less hawkish on rates, which is who knows. But do you think it requires market volatility to get them to increase? the R&P, for example, or to start doing more liquidity injection?

So I think that this is one of these things where people say things to get the job to create distinctions between themselves and the people that were there before. And the balance sheet is a good example of that. It's kind of like, you know, hitting Yellen over the head with how she's dealing with bill management and then coming in and then doing literally the same thing. All of these things are going to be met by committee. I think that's, you know, that's something that people say to rationalize it, right? like, oh, he's not really hawkish. He's just hawkish on the balance sheet so he can be

devish on rates. Like, it doesn't work that way because the balance sheet's not really a tool of monetary policy. The only tool is rates. So I don't, I don't put, I don't think it's, to me, it's not a big, a big factor. Being hawkish on rates, though, we had this conversation earlier in the hour, has it allowed the longer end of the yield curve to stabilize? And is that something that both the Treasury and this Fed would look at and say, that's beneficial. That's the kind of approach we need right now. Yeah, I mean, I think, but I mean, that, like, the The first meeting was the most hawkish meeting that you've had in the press conference era. And we had like what, like a 13-15 basis point rise into your yield.

So, you know, talking helped take some of the risk out of the back end. Yes, I would agree with that. Do you think he fooled the president? Do you think he fooled the president in the interview process? What do you mean? Oh, fooled him. Oh, fooled him. Yeah, I think if there's a risk, it's that the president was duped.

Yeah. How's that going to play out if he was duped? I mean, I think there seems to be like, I don't know. I mean, your colleague Joe Wisenthal said, I think, you know, maybe Kevin Warsh Hikes and Trump is oddly chill about it. And I don't know. It sounds like he's giving him a lot of grace at the moment. Depends how close we are to the midterms if that happens, right? That's why I say, get it out of the way sooner.

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