AI Spending Spooks the Market

Summary

Bloomberg Surveillance Podcast Summary

Episode: AI Spending Spooks the Market
Date: July 23, 2026
Hosts: Jonathan Ferro, Tom Keene, Paul Sweeney, Lisa Abramowicz, Annmarie Hordern
Featured Guests: Jim Caron (Morgan Stanley), Matt Bloxham (Bloomberg Intelligence), Dara Mayer (HSBC), Julia Coronado (MacroPolicy Perspectives)

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Episode Overview

This episode dives deep into the financial, macroeconomic, and market dynamics created by the ongoing AI spending surge, persistent inflationary pressures, and how these intersect with monetary policy and global markets. The hosts and their guests analyze how artificial intelligence investment is spooking markets, stressing corporate profits, and influencing central banks’ decisions across the globe. They also discuss shifting investor sentiment towards value and quality equities, the evolving landscape of tech innovation (including autonomous vehicles), and the significant macro forces steering bond yields, currency markets, and even crypto infrastructure.

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Key Discussion Points & Insights

1. Bond Vigilantes, Inflation, and the Yield Curve

Guest: Jim Caron, Morgan Stanley
Timestamps: 01:57–07:27

• Bond Vigilantes in Action:

  • Bond yields are rising globally, not just in the U.S.; higher oil prices are pushing yields up and inflation is expected to be higher for longer.
  • “It seems like inflation is moderating, but it's still high... inflation is going to likely stay higher for longer given what's happening in energy prices. And that resets the entire yield curve.” (Jim Caron, 02:14)

• Implications for the Fed:

  • New Fed Chair Kevin Warsh faces a supply-side inflation challenge (energy/oil), which traditional demand-side monetary tools can’t directly address.
  • “This is a supply side shock. Monetary policy is generally there for demand side shocks. So I think it makes Warsh's job a little bit complicated.” (Jim Caron, 03:29)

• Portfolio Positioning:

  • No longer relying on bonds as a hedge; underweighting duration and interest rate risk. Preference for high-quality and value equity sectors, notably healthcare and consumer stocks:
    • “Values outperformed, you know, growth by about 10% this year. It's not all about the hyperscalers anymore, it's about the broader economy.” (Jim Caron, 04:58)

• Critical Yield Threshold:

  • The yield tipping point is now higher due to stronger economic growth: "Right now my estimate would be around 4.85%. So we're, we're close, but we're not there yet." (Jim Caron, 06:27)

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2. Market Anxiety over AI Capex & Tech Valuations

Hosts & Guests: Tom Keene, Jonathan Ferro, Jim Caron, Matt Bloxham
Timestamps: 07:06–15:21

• Tech’s Spending Spree Causes Market Jitters:

  • Alphabet’s (Google’s) announcement of increased capex for AI led to a 5% stock drop, highlighting investor anxieties about ROI.
  • “All of this capex spend, will it turn into a return on investment... in the read through on this whole thing is does this come to a... major repricing in the equity markets.” (Jim Caron, 07:27)

• Robotaxi & Autonomous Vehicles:

  • Progress is real but slow, especially in Europe: “There's a long way to go before this kind of wide scale acceptance... I don't see it personally as a kind of a big thing for quite some years to come.” (Matt Bloxham, 10:19)

• AI Spending & the Demand for Results:

  • Investors are becoming more selective, demanding clear data on AI spending effectiveness. Signs of disconnect between rising capex and revenue growth, citing Google's order pipeline.
    • “They want to see more data about the return...there's a widening disconnect... more needed to show that there's a direct link between increased spending and revenue.” (Matt Bloxham, 11:34)

• Winners and Losers Timeline:

  • The "weed out" period for underperforming tech companies could arrive much faster than historical cycles, in the next 2 years due to scrutiny on enterprise AI spending.
    • “I think it's more like the two year timeframe to be honest. You know, I think the next 12 to 18 months is a really important part of the cycle for enterprise spending on AI.” (Matt Bloxham, 12:43)

• Tech Budget Trade-offs:

  • Traditional IT spending is being cannibalized by AI projects—budgets are not infinite.
    • “There's clear evidence spending is being shifted to AI away from... perhaps now deprioritized technology transformation projects.” (Matt Bloxham, 14:12)

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3. Currencies, Fiscal Risks & Crypto Innovation

Guest: Dara Mayer, HSBC
Timestamps: 15:51–23:33

• Good vs. Bad Rate Hikes & the Dollar:

  • U.S. remains resilient; hikes on strong activity are dollar positive, whereas forced hikes elsewhere (ECB, BoE) due to inflation are ambiguous or negative for currencies.
  • “A Fed where activity is relatively resilient... hike into that. I think it's unambiguously dollar positive.” (Dara Mayer, 16:16)

• Geopolitics and the Dollar:

  • “The U.S.-Iran war... knocked on the head the idea of De dollarization as a theme. Right. Because everyone scrambled for their shiny dollars when geopolitical risk was escalating.” (Dara Mayer, 17:38)

• Fiscal Policy Sensitivity:

  • Since the Liz Truss debacle, G10 currencies have become more sensitive to fiscal risks (UK, Japan, France).
    • “What Liz Truss did... managed to get currencies in G10 sensitive to fiscal risks.” (Dara Mayer, 19:07)

• Crypto and Tokenization:

  • Double-hatted on FX and crypto, Mayer is bullish on tokenized assets for market infrastructure, stressing faster settlement and efficiency:
    • “It's spectacular technology... we're all going to have tokenized assets, trading with tokenized money, whatever shape or form that is... faster settlement.” (Dara Mayer, 21:40)
    • “We issued a tokenized bond in Hong Kong... T plus 1... could have been same day. But no one wants bonds to settle same day because everyone has to pre fund.” (Dara Mayer, 22:49)

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4. Inflation, Oil, and the Labor Market Dilemma

Guest: Julia Coronado, MacroPolicy Perspectives
Timestamps: 24:34–31:48

• Oil and the Fed:

  • $100 Brent oil adds a fresh layer of inflation, complicating the Fed’s job.
    • “It certainly brings another round of inflation pressures... there’s just layer upon layer now of upward pressure on inflation.” (Julia Coronado, 24:45)

• Core Inflation Pressures Broadening:

  • Inflation isn’t just an oil story—supply shocks are rippling through airfares, software, and core goods.
    • “There is a broadening in core inflation pressures... several layers of supply shocks that are rippling through airfares, software prices, core goods prices.” (Julia Coronado, 25:34)

• Labor Market Resilience Explained:

  • U.S. labor market is structurally tight due to an aging population and restrictive immigration, not demand:
    • “The US Is in one [demographic transition]... basically no labor force growth. That means that the unemployment rate really isn't going to rise unless the US Is in a recession.” (Julia Coronado, 27:11)

• K-Shaped Consumer:

  • Upper-income consumers (stock market) are strong, middle/lower “hanging in.”
    • “The consumer is a mixed bag... high income households feeling pretty good... middle to low income consumer isn't feeling good, but they're hanging in enough to keep the economy on track.” (Julia Coronado, 29:20)

• AI’s ‘Dutch Disease’ Analogy:

  • Massive AI capex may be crowding out other sectors—Fed might have to clamp down harder in non-AI areas to slow inflation:
    • “Some people compare AI in the US to a sort of form of Dutch disease... to cool the economy... you might need to hit non-AI sector harder to get the space you need to bring inflation pressure.” (Julia Coronado, 30:43)

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Notable Quotes & Memorable Moments

• On AI Capex & Equity Risk:

  • “All of this capex spend, will it turn into a return on investment... And then if you don't get the overall return on investment, then you major repricing in the equity markets. And that's the crescendo that people are worried about right now.” (Jim Caron, 07:27)

• On Tech Budget Limits:

  • “Budgets are not limitless and companies are realizing they need to kind of prioritize things...” (Matt Bloxham, 14:12)

• On Inflation’s Global Nature:

  • “I don't think... we should frame [inflation] as not an exclusive US story, but this is more of a global macro story.” (Jim Caron, 02:14)

• On American Spending Habits:

  • “I think what we're also addicted to is spending more than we earn... everyone accepts it's unsustainable, but everyone seems willing to support it.” (Dara Mayer, 20:17)

• On Tokenization’s Promise:

  • “It's spectacular technology... we’re all going to have tokenized assets... faster settlement.” (Dara Mayer, 21:40)

• On the Labor Market’s Unique Resilience:

  • “There isn't really... the US Economy doesn't need to create a lot of jobs because there isn't a lot of labor force growth.” (Julia Coronado, 27:11)

• On AI’s Macro Tradeoff:

  • “To cool the economy down, you might need to hit non AI sector harder to get the space you need to bring inflation pressure. That's not a great trade off.” (Julia Coronado, 30:43)

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Timestamps for Key Segments

• Bond Market & Inflation Outlook: 01:57–07:27
• Tech, Capex & AI Return Debate: 07:06–15:21
• Currencies, Fiscal Policy Sensitivity & Crypto: 15:51–23:33
• Macro: Oil, Labor Market & Consumer Health: 24:34–31:48

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Episode Takeaways

• Markets are rethinking their faith in unlimited AI spending and tech capex, starting to demand clearer returns and setting the stage for a shakeout in the sector.
• Inflation remains persistent due to global shocks; central banks face tough trade-offs as growth remains uneven and inflation more entrenched.
• The U.S. labor market’s resilience is due to demographics more than surging economic demand, complicating traditional monetary policy responses.
• Tokenization and crypto infrastructure are evolving quickly, promising efficiency and faster settlements in financial markets.
• Investors are shifting preference toward value and quality over pure growth, with heightened scrutiny on balance sheet risk and capex ROI, especially in big tech.

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End of Summary.

Transcript

[Tom Keene]

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[Dara Mayer]

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[Dara Mayer]

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[Jonathan Ferro]

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[Tom Keene]

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[Jim Carreyn]

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[Jonathan Ferro]

James Caron joins us right now, thrilled to have him on with Morgan Stanley, of course, our CIO, Cross Asset Solutions. Jim Tomorrow, Bloomberg Money 12 noon. Ed Yardeni will be with us. Let's get right to the Yardeni moment. Are the bond vigilantes at work?

[Jim Carreyn]

Jim Carreyn, Good morning. I think the bond vigilantes are at work. You know, clearly oil prices are higher, it's dragging up U.S. treasury yields. But look, I mean, you know, you were mentioning mentioning it earlier. Dollar yen is also up around 160. Global bond yields are up. Right. So I don't think this is, you know, we should frame this story as not an exclusive US story, but this is more of a global macro story in terms of what's taking place. It seems like inflation is moderating, but it's still high. And I think the takeaway here is that inflation is going to likely stay higher for longer given what's happening in energy prices. And that resets the entire yield curve. It shifts the entire yield curve a bit higher. Whereas we had a little bit of a break over the past couple of weeks when oil prices went down. And I think that's just reasserting itself. And you know, with all of the issuance that we're getting from all of the corporates in particularly some of the technology, large technology companies, there's a lot of weight on these bond markets and I think that they're acting very rationally at this point.

[Tom Keene]

So Jim, what does all that mean for our new Fed chair, Kevin Warsh? How do you think he's viewing what's going on out there?

[Jim Carreyn]

Yeah, it's a great question. Right. So when we think about what is pushing inflation potentially higher, it's a supply shock, right? It's about oil and it's about energy prices and things like that, monetary policy is there to really address a demand shock, right? So if you have high wages, an overheating economy and wages going up, people are spending money, then yes, high interest rates can certainly help that. But when you have high oil prices as one of the culprits, that's pushing inflation higher, ultimately what you're saying is that higher oil prices is a headwind to the economy. So therefore, with these higher oil prices, maybe we should hike rates and slow the economy further. Like it doesn't really match up, right? This is a supply side shock. Monetary policy is generally there for demand side shocks. So I think it makes Warsh's job a little bit complicated. What he's going to have to look for is are these energy, higher energy prices seeping into core inflation? Is this becoming heavily embedded in the overall inflation and inflation expectation? Now we saw this recently, right? If there's something that gets resolved in the Middle east, oil prices can come down $30 a barrel, right? That's not the kind of thing that the Fed should necessarily think about hiking into, at least not at this point.

[Tom Keene]

So given your world across asset solutions, what kind of screens well for you guys these days, how do you think about that?

[Jim Carreyn]

Yeah, so, so it's so, so the way that we look at this is that we can't just rely on bonds as like the easy hedge, right? It used to be just a great hedge. Just get long bonds. Don't think about it, you know, buy the index and just hold this and be very, be a very passive bond investor in this type of an environment. What you're seeing is that bond yields are rising and that's hurting the prices and that's hurting overall performance. So therefore what we're seeing is that we want to be underweight and interest rate risk. So underweight bonds, underweight, duration, still own some high quality. But on the equity side, the areas that we think actually make a lot of sense are the quality sectors, some of the value sectors. Values outperformed, you know, growth by about 10% this year. It's not all about the hyperscalers anymore, it's about the broader economy. Health care, we really like the health care sector. And actually the consumer, the consumer is actually holding up pretty well with all of this. So there are a lot of things to think about, but we have to broaden our lens.

[Jonathan Ferro]

Love the idea of supply side analysis versus demand side and that we can all walk away and say, oh, it's just idiosyncratic of the war or whatever. There's a point, there's a tip point on yield. Jim Carrey and where price goes down and things change. On a 10 year yield, do you have in your head a critical yield point off of. Where are we right now? My eyes are filming 4.691%. Do you have a number in your head?

[Jim Carreyn]

So I do. And I'll first say that it's a moving target. Right. So if, if we were having this conversation six months ago, I'd say that this level would be a, you know, a tipping point. But what we realize is that the economy has grown, earnings have been very strong, we have higher nominal growth. We're living in a higher nominal world these days. Right? Nominal GDP growth is about 6% right now, which is pretty good. So that tipping point for, for 10 year treasury yields that turn, you know, much more poorly. I, you know, right now my estimate would be around 4.85%. So we're, we're close, but we're not there yet.

[Tom Keene]

Jim. I would argue from my perspective, no one's got a better tech call than the greater Morgan Stanley complex here. We saw one of the leaders last night, Alphabet report some numbers and they took their capex numbers higher as it relates to AI and the stocks trading down 5% this morning. What do you guys think is the, the market's a call these days?

[Jim Carreyn]

Yeah, so, so what the market's getting very concerned about is, is, is all of this spend, all of this capex spend, will it turn into a return on investment in roi, as we like to say? And that's not, and that's not abundantly clear, that you just throw more money, that you get a better return, you know, in investment and in the read through on this whole thing is does this come to a, does this come to a other words, in order to have the capex, you might have to issue more bonds. Therefore you become, you know, more indebted as a company if you're leveraging your balance sheet in order to do that. And then if you don't get the overall return on investment, then you major repricing in the equity markets. And that's the crescendo that people are worried about right now. We're not there yet, but that would be, this would be the sign.

[Jonathan Ferro]

Jim Carreine, thank you so much. Just a terrific brief this morning. He is with Forever Morgan Stanley. Stay with us. More from Bloomberg Surveillance coming up after this.

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[Jonathan Ferro]

Matt blocks it. With us now, senior analyst, Bloomberg Intelligence. Paul for those of you on radio, you just can't see it. I mean, he is such a stud, Paul. He looks like he could be in the Burnham Cabinet.

[Jim Carreyn]

Exactly.

[Jonathan Ferro]

I mean, he just, he just looks like, you know, 10 Downing street will call. We need Matt Bloxham to do technology. Matt, I'm going to cut to the Ed Ludlow chase. I read about Robotaxi. It's, it just I'm not taking Tesla's robo taxi from Heathrow to the hotel across from Queen Victoria street, am I?

[Matt Bloxham]

No. And if you are, certainly not for a long time. And obviously we've got quite a lot of Waymo testing going on in the city. So you do see quite a few more of those cars around, but with people in them making sure that they, they drive safely. But yeah, I think it's, it's quite a cultural shift for a lot of people, I think this kind of concept of driverless taxis.

[Jonathan Ferro]

Is there any proof of concept?

[Matt Bloxham]

I mean, there's obviously, you know, some, some good results in, in the US with, with Waymo I think in, in Europe nothing, nothing really yet. And I think again culturally we're quite different over here. So I think that there's a long way to go before this kind of wide scale acceptance. Obviously, you know, I think even, even if you saw an initial kind of positive reaction to it, I think that would probably be put down as a kind of curiosity value and you'd have to see the kind of longer term trend to kind of see people really moving it. I don't see it personally as a kind of a big thing for quite some years to come.

[Tom Keene]

Matthew, you might be surprised because we know each other, but I actually took away in Santa Clara, California to an in and out burger and back and I survived. So I mean it's coming my friend.

[Matt Bloxham]

Yeah. Oh it's definitely coming.

[Tom Keene]

Exactly Matthew. You know we heard from Google last night. Some people call it Alphabet. I'm not sure where that came from but there was a time when higher capex was rewarded by the stock market. I'm not sure that's the case anymore. When you talk to institutional investor clients, how are they thinking about AI these days? That they want to see more investment or that they want to see return? Where are we in that discussion?

[Matt Bloxham]

I think they want to see more data about the return. I think conceptually people get that you need to spend to generate revenue, but I don't think they're quite yet seeing enough revenue being generated off the spend that's happening. And I think if anything the Google capex upgrade today relative to the revenue growth is not that. You know, there's a widening disconnect there. And I think one of the numbers people were looking at quite closely was the order pipeline and that grew a bit but didn't grow spectacularly. So I think there's, there's more needed to show that there's a direct link between increased spending and capital and revenue.

[Jonathan Ferro]

When you look at all this madness, there's got to be losers. What's the when of when we work out the losers? I think of the railroads of the American railroads, Matt, coming out of 1880, 90, it took little 40 years to get rid of them. Are we going to weed out the tech losers? Doug Cass calls it the same stack. They're investing in all this stuff. Okay, fine. Are we going to do this in two years or 20 years?

[Matt Bloxham]

I think it's more like the two year time frame to be honest. You know, I think the next 12 to 18 months is a really important part of the cycle for enterprise spending on AI and more scrutiny about where it makes sense, where it doesn't. You know, we see lots and lots of anecdotal evidence coming out about companies burning through their token budgets and reining in, where they're guiding people to use AI in their businesses and they're going to be, the CFOs are going to be pushing people to kind of really demonstrate those savings and those benefits much more clearly. And so if that makes things a bit more kind of discerning about where they, where they use AI, then we potentially in a position where we have overcapacity, we'll go from under capacity to overcapacity quite quickly. And that's where all these kind of potential big investments we're seeing in chip capacity and decent capacity start to kind of maybe look a little bit misjudged.

[Tom Keene]

We saw, you know, a real bombshell from IBM Matthew, a couple of weeks ago when they prenounced their numbers and the stock fell the most ever in the history of IBM. And I think that opened eyes for a lot of investors like oh, this capex funnel is not like there's limits to it. I mean, so how do you think about tech spending overall? Because it doesn't seem like all this AI stuff is incremental. It may be coming from some other areas of the tech stack. How do you think about that?

[Matt Bloxham]

Yeah, that's right. I think you to a large degree see that in the IT services space. So if you look at the recent print from Accenture and various other IT services companies, they're still seeing incredibly muted demand for traditional IT services services. So there's a clear evidence, I think there that spending is being shifted to AI away from what has seen perhaps now deprioritized technology transformation projects. And I think that's what we've seen play out with IBM too, is that their mainframe business, which historically had been growing quite well, certainly hit a bit of a brick wall because budgets are not limitless and companies are realizing they need to kind of prioritize things and there are other more important parts of the stack they have to spend money on.

[Jonathan Ferro]

Which company forward are you most focused on after seeing Google yesterday?

[Matt Bloxham]

Yeah, I think we're kind of very much looking at the metal results and the Amazon results because I think it's. Do they, Google's kind of raised them essentially in terms of Capex and do they kind of match that Capex race and then we get into another Capex cycle and I think that's stretches things even more.

[Jonathan Ferro]

Matt, thank you, thank you, thank you so much Matt. Bloxom with us from Queen Victoria Street. Stay with us. More from Bloomberg Surveillance coming up after this.

[Bloomberg Announcer]

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[Jonathan Ferro]

Joining us now from HSBC, Dara Mayer, the senior strategist. I need to explain that the heritage of HSBC in looking at the dynamics of the global markets is second to none. What is the distinction you're writing about right now? Are you linking in commodities? Are you linking in the Spain one, the World Cup? What's the distinctive future right now?

[Dara Mayer]

Yeah, strange we haven't managed to weave that last one in. Good to be back, by the way. I think one of the distinctions I quite like at the moment is between a good interest rate hike and a bad interest rate hike. And at the moment we've got renewed escalation in oil prices. So everybody's getting more hawkish about ecb, bank of England and the Fed. Normally for currency markets, that's a wash, right, because your rate differentials don't move. That's the currency angle. But I think a lot in terms of how the currency market should react to that will be determined by how activity is going into the hike. Right. So you have a Fed where activity is relatively resilient, the labor market's resilient. You hike into that. I think it's unambiguously dollar positive. The ecb, the bank of England, where you've got question marks over activity and growth and they're kind of forced into a hike because inflation's misbehaving, that for me is at best ambiguous for the currency, but potentially a negative for the currency. So I think in the narrative about hawkish drifts or whatever it might be, that I think could be a currency takeaway to us, it plays as a dollar bullish angle.

[Tom Keene]

So I mean, we kind of came into the year dovish on the US Dollar. I think the market was generally that was kind of the consensus. And then of course, the war with Iran came about and that changed the narrative a little bit going forward. Is there still room for this dollar to be stronger here?

[Dara Mayer]

I think so. I mean, to be fair, we did a pivot. You know, we came into this year, I would say we were modest dollar bears. Now we're modest dollar bull. So we're lowercase both sides of the equation. I think, you know, the U.S. iran war did one thing. It, it knocked on the head the idea of De dollarization as a theme. Right. Because everyone scrambled for their shiny dollars when geopolitical risk was escalating, at least initially. I think a second element that's changed is I think the market's more confident about the independence of the Fed. And this, this was a narrative in 25. Right. President Trump bashing them. But I think you know the perception that would be the Fed stood firm under Powell and Wash has come in and if you like not said anything dumb. So that's a win as well for the markets. So I think those were two big game changing events. I think that correctly, appropriately kind of caused this pivot in market kind of sentiment.

[Jonathan Ferro]

Hong Kong and Shanghai Banking Corporation. If I look at the Bloomberg Global Global Global Total Return bond Index, I've got a great moderation and even with the recovery from 2022, global bonds are screaming 4 standard deviations off the old trend. We got a long way to go to get back and it's rolled over and it's an ugly chart. What are the ramifications if oats, gilts and the rest of it break through? Like think of 5.5 30 year US bond.

[Dara Mayer]

So I blame Liz Truss for this. Remember her back in the day, Prime Minister Liz Truss ago the letters. Right. Okay. Up until that point I would have said fiscal policy anywhere, at least in G10 was kind of an irrelevance for the currency market. Right. We, we talked about twin deficits in the US but I'm 55 years old. We've had twin deficits every year I've been on this planet. Right. So. But what Liz Truss did and quasi kwarteng was they managed to get currencies in G10 sensitive to fiscal risks. And now we've seen it with Japanese fiscal risk. We've seen it still obviously with Sterling. I think Tom, it's good to bring up the oats. Do French politics become a new driver for. Well, the bond market obviously, but by extension for the euro. So it's something we're addressing. What I think is interesting from a relative perspective is the US fiscal discussion seems to have drifted off the radar. Right. Since the one big beautiful bill and the big beautiful actors announced. I just drifted off from where I am.

[Jonathan Ferro]

We are addicted to a Covid and a post Covid stimulus. That's all there is to it. Nominal GDP is worldwide. Dara, they're nuts.

[Dara Mayer]

They are. But I think what we're also addicted to is spending more than we earn. I mean on a human level, dining room table. This is the problem. Right. And everyone Accepts it's unsustainable, but everyone seems willing to support it. But it's getting more and more expensive now, I think. Where's the currency overlay? I'm not sure there's a direct currency takeaway unless something's unraveling, unless we have true nervousness about Japan, about the UK, about France, etc. And that's not quite manifest yet.

[Tom Keene]

Well, how about you mentioned Japan here? I mean we got the yen at 163 and change weaker again today.

[Dara Mayer]

I mean.

[Julia Coronado]

Yeah.

[Tom Keene]

What does the BOJ do here? What are they thinking?

[Dara Mayer]

I don't know. I call this the Wayne Scales effect because I get on the Wayne Scales every morning and a number that looked outrageous two weeks ago. So it doesn't look quite as outrageous when I step on this morning and you know, yen at 163, it's like, okay. But it was, you know, I got

[Jonathan Ferro]

someone emails in a fan. They say Dara is doing more crypto now. Yeah, explain.

[Dara Mayer]

Explain why or explain crypto because the second one's going to take a lot longer.

[Jonathan Ferro]

Are you, are you, have you like shifted over from effects to crypto?

[Dara Mayer]

I'm doing that great task. You know they call it double heading where you do two jobs, price of one. Right? Yeah, I'm sure you do it here.

[Jonathan Ferro]

It's like, no, we don't. Alexis, please. No, Derek. Crypto 120 to 60 on bit dog. What's the future?

[Dara Mayer]

Fortunately, my, my obligations around crypto don't extend to the nonsense of forecasting tokens quite yet. Where my conversations focus is tokenized currencies, you know, stablecoins, these elements, the banks moving. I think it's spectacular technology. I definitely think this is the future of kind of financial market infrastructure future. The future will be we're all going to have tokenized assets. We're going to be trading it with tokenized money, whatever shape or form that money is. And we're going to have faster settlement.

[Jonathan Ferro]

Why faster settlement?

[Dara Mayer]

Because people love speed. I mean, you know, it's been like that saying, no good story started with a salad. Right. Markets look for efficiency gains and this technology does provide that. I'm not necessarily an evangelist for bitcoin or other specific tokens, but as a, as a plumbing gig it's 24. You might say, why do we want 24. 7 trading? Because you like, we want to play golf the weekend. But the reality is people want to be. To move money flexibly. 24. 7. And if you can reduce settlement risk

[Jonathan Ferro]

and other aspects for seven argument, do you need Paul help me here?

[Tom Keene]

No.

[Jonathan Ferro]

Do we need a first mover status? Like, does JP Morgan have to step in as the elephant?

[Dara Mayer]

Let me give you an example. We issued a tokenized bond in Hong Kong, right? For the HKMA. You settled T plus 5. Tokenized format. Settles T plus 1, right.

[Tom Keene]

T plus 1, right.

[Dara Mayer]

And that's. And it could have been T could have been same day. But no one wants bonds to settle same day because everyone has to pre fund. Okay? So the technology allows for that. It means you don't tie up capital waiting for things to settle. You don't have a bunch of banks going, hey, who owns this? Do you own this? My ledger shows this, yours shows this. It's. It just makes complete sense.

[Jonathan Ferro]

You think it's gonna work?

[Dara Mayer]

Yeah. Yeah. And I'm not just saying that because I need it to work for the next 10 years. You know, genuinely believe I might core.

[Jonathan Ferro]

I would say to the lovely people at hsbc, Darren needs a third hat to put on.

[Tom Keene]

Thanks.

[Jonathan Ferro]

You know, Max. Max Kempner, watch out. Jeremiah.

[Dara Mayer]

Thank you so much.

[Jonathan Ferro]

Really, really appreciate it. Thank you with hsbc. And stay with us. More from Bloomberg Surveillance coming up after this.

[Tom Keene]

This week on Leaders with me, Francine

[Julia Coronado]

Lacqua, I speak to tennis legend Rafa

[Tom Keene]

Nadal about how he stayed competitive despite injury. I was able to enjoy the victories probably more than if I will not have this issue. One iconic match in my mind was

[Dara Mayer]

I am almost dead.

[Tom Keene]

And whether he misses playing, I don't miss Denis, because who has nothing else to offer? Listen and watch Leaders with me, Francine Lacqua on Bloomberg Television or wherever you get your podcasts.

[Bloomberg Announcer]

You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10am Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube.

[Jonathan Ferro]

Julia Coronado, perfectly timed with us with macro policy perspectives. Julia, how does $100 Brent, again change the Fed debate?

[Julia Coronado]

Well, it certainly brings another round of inflation pressures on top of several layers that we've already gotten from the earlier phases of the war, from the AI buildout from tariffs. There's just layer upon layer now of upward pressure on inflation. And yes, this is also a demand shock in the sense that those higher prices are going to hurt consumer purchasing power. But at least so far, the labor market's holding up, the US Economy is holding up, and so the Fed is really going to need to focus on the inflation side of the mandate.

[Tom Keene]

So, Julia, when you know, we've seen inflation metrics, cpi, ppi, fluctuate with the price of global oil here. What's the underlying inflation story to you, though? You know, kind of X the energy.

[Julia Coronado]

So I think the underlying story is pretty well described by the trajectory of core PC inflation. That's been the Fed's preferred metric. They may revisit that, but if we look at the details, they do make sense. There is a broadening in core inflation pressures. So it's not just an oil story or a food story. It is really a story of, again, several layers of supply shocks that are rippling through airfares, they're rippling through software prices, they're rippling still through core goods prices. We were just getting to the tail end of the tariff impulse, it seemed to us, and that was good news. We are expecting some relief on goods inflation in the second half of the year, but that is now at risk because shipping costs are going to go up and that could push up on goods prices and other input costs. Costs could be on the rise the longer this level of oil prices. Again, it's not just the impulse, but that level of energy prices is so much higher, it's going to ripple through supply chains and prices and in a wide range of categories.

[Jonathan Ferro]

Julian, a dual mandate. When I see claims today back to 1969, and let's say it's an aberration, it's FIFA, or it's a Red Sox winning 50 in a row, who knows? But, but the answer, Julia here, is there still a labor mandate is it's still. They really can't raise. They really can't raise rates because the market, the job market is still resilient.

[Julia Coronado]

Yeah, the job market is resilient. And that gives them scope. That gives them some, some scope to raise rates. I think, Tom, one of the sort of underappreciated macro dynamics that is quite significant, but we don't talk about it as much because we're so busy talking about AI all the time is the demographic transition. The US Is in one. We've got a rapidly aging, retiring, baby boom population. And on top of that, we've chosen extremely restrictive immigration policy. That adds up to basically no labor force growth. That means that the unemployment rate really isn't going to rise unless the US Is in a recession or heading into a recession. There isn't really. The US Economy doesn't need to create a lot of jobs because there isn't a lot of labor force growth. There's no labor force growth. And I think what that means is it leads to a more resilient labor market. It's really tough to knock it over again. You need, you need to be seeing truly recessionary dynamics on the demand side. And while the AI boom isn't particularly accretive to the labor market, it's also enough to keep overall demand on track and the labor market hanging in there. So, so it's not like we're seeing companies super bullish across sectors, adding employees. That is definitely not the picture. But nor are people really looking to lay people off or reduce their workforce. They're sort of in a hold steady mode and that's good enough for this labor market, for this demographic transition we're in. And again that leads us back to the inflation side of the mandate.

[Jonathan Ferro]

Julia Coronado with us. Thrilled to have her with us today here as we continue. Vix out 2.57. The Dow futures down -600 ish. So this market's still deteriorating. Our Paul Sweeney with Dr. Coronado.

[Tom Keene]

So Julia, what's your view of the underlying consumer here? We were just talking about the labor market. Seems like everybody who wants a job has a job. Wages are rising, maybe not in pace with inflation, but how do you view the labor, the consumer?

[Julia Coronado]

So the consumer is a mixed bag. You know, we talk all the time ad nauseum about the K shaped economy, but it is a reality. So. So you know, for say the median or average household, they've got a job, they may not be feeling great about it. Consumer sentiment around the labor market is pretty, pretty low. But they have a job, they're earning income, they may be seeing some slippage in purchasing power from inflation, but they're not rolling over and retrenching and really tightening up their budgets. Meanwhile, you still have high income households feeling pretty good after years of a very bullish stock market has left their net worth, you know, pretty close to all time highs. So the upper income consumer is powering more of the spending. They always power a large share but, but it's certainly more than than usual. And the middle to low income consumer isn't feeling good, but they're hanging in enough to keep the economy on track. So it's not a rah rah economy by any stretch for most people. But it's okay. It's getting by.

[Jonathan Ferro]

One final question. The real yield creeps up. Maybe not like other yields, etc. But the inflation adjusted yields speaking volumes. Is it enough now to stall business?

[Julia Coronado]

We'll see. I mean this is the tricky part of AI and some people compare AI in the US to a sort of form of Dutch disease in the sense that, you know, these hyperscalers and this capex build out for the AI capacity is so large and seemingly so, you know, resilient or interest rate insensitive and yet, you know, the Fed may need to tighten policy and that would hurt other sectors more. Housing is already hurting. Could it hurt more? Yes, it could hurt more. And so. So to cool the economy down, you might need to hit non AI sector harder to get the space you need to bring inflation pressure. That's not a great trade off.

[Jonathan Ferro]

The gentle lady from Texas does this.

[Dara Mayer]

Yep.

[Jonathan Ferro]

She throws out Dutch disease and thinks I don't know, it was the economist magazine in 1977 that harken back to the Netherlands. I say out in the north in 1959.

[Tom Keene]

Is that right?

[Jonathan Ferro]

I mean it's just amazing. It's amazing how Google Gemini saved the show on an hour to hour basis. The Dutch disease. Thank you Julia Coronado. Go away. Greatly appreciate it.

[Bloomberg Announcer]

This is the Bloomberg Surveillance Podcast available on Apple, Spotify and anywhere else you get. Your podcasts listen live each weekday 7 to 10am Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app. You can also watch us live Every weekday on YouTube and always on the Bloomberg Terminal.

[Tom Keene]

Hi, I'm Barry Ritholtz inviting you to join me for the Masters in Business podcast. Every week we bring you conversations with the people who shake markets, investing and business. I speak with CEOs, Nobel laureates, market innovators, and legendary investors.

[Jonathan Ferro]

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[Tom Keene]

commodities, even crypto, these are discussions you absolutely need to hear. Subscribe to the Masters in Business podcast on Apple, Spotify or anywhere you listen to.