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Tensions between US and China re-emerge, big investors bet on a recession and Federal Reserve nominees prepare to tackle inflation. — Kristi [View in browser]( [Bloomberg]( Tensions between US and China re-emerge, big investors bet on a recession and Federal Reserve nominees prepare to tackle inflation. — [Kristine Aquino]( `Political provocation’ [China said US President Joe Biden had made a “public political provocation”](by referring to Xi Jinping as a dictator. That’s in response to comments on Tuesday by Biden, who likened his Chinese counterpart to a strongman being kept in the dark over a spy balloon that floated over the continental US in February. “These remarks are absurd and extremely irresponsible,” Chinese Foreign Ministry spokeswoman Mao Ning said at a regular press briefing in Beijing on Wednesday. The tensions re-emerged just days after the world’s biggest economies held meetings to stabilize relations and Secretary of State Antony Blinken’s trip to Beijing. Recession bets [Some of the biggest buyers in credit markets are betting the Federal Reserve will reverse course on rate hikes soon](. T. Rowe Price, Allspring Global Investments and AllianceBernstein are among investors seeking opportunities in longer-dated, investment-grade corporate bonds, which they believe will benefit more when an economic slowdown prompts the central bank to cut rates. While it’s a risky bet, such debt has outperformed its peers this year. “Bottom line is that the market believes the Fed will cut and cut meaningfully, and that’s gonna drive long duration returns very positive,” said David Knutson, senior investment director at Schroder Investment Management. Fed picks [Three Fed nominees said tackling inflation would be their top priority if confirmed to roles at the central bank](. Governor Philip Jefferson, selected by President Biden to be elevated to vice chair, said the economy faces multiple challenges, including inflation and banking-sector stress, in remarks to be delivered at his confirmation hearing Wednesday before the Senate Banking committee. Adriana Kugler, nominated by Biden to fill a vacancy left by Lael Brainard earlier this year, echoed Jefferson’s remarks and said it’s important to return inflation to the Fed’s 2% target. Governor Lisa Cook, nominated to a new 14-year term, said she “will stay focused on inflation until our job is done.” Mixed markets S&P 500 and Nasdaq 100 futures were little changed, albeit edging lower, as of 5:36 a.m. in New York. A Bloomberg gauge of the dollar was flat and Group-of-10 currencies were mixed, with the pound the worst performer. Treasury yields drifted higher across the curve, following their UK counterparts. Gold and oil were little changed, while Bitcoin climbed for a third-straight day. Coming up… At 10 a.m., Fed Chair Jerome Powell will appear before House lawmakers, while Chicago Fed President Austan Goolsbee will speak at a separate event at 12:25 p.m. The US will sell $46 billion of 17-week bills at 11:30 a.m. and $12 billion of 20-year bonds at 1 p.m. Will US stocks continue to rally, buoyed by the AI frenzy? How will the AI revolution impact the banks and their bottom line this year? Share your outlook for the second half in the latest [MLIV Pulse survey.]( What we’ve been reading Here’s what caught our eye over the past 24 hours: - Another UK inflation shock](prompts traders to bet on 6% rates - [Underwater noises detected]( in search for missing Titanic sub - [JPMorgan cuts about 20 dealmaking jobs in AsiaÂ](in new round of layoffs - [Singapore Airlines unseats Qatar Airways]( as the best airline of 2023 - How did Hunter go out of business [selling $175 rubber boots](? - [Working the `quiet luxury’ trend]( into your office attire - Chinese internet users are[mocking — and eating — #WhitePeopleFood]( And finally, here’s what Joe’s interested in this morning… Throughout the economy, there are signs of ongoing normalization. Supply chains are easing. The labor market is coming into balance. Here's a few items that caught my eye in the last day. - [In the latest Philly Fed Non-Manufacturing Report](, businesses in the region were asked about the degree to which they viewed various factors like labor markets, energy, and supply chains as constraints on their activity over the next three months. As you can see, far more view the situation for both labor and supply chains as improving as opposed to getting worse. This is just a guess, but it wouldn't be surprising to see wage growth cool off (something the Fed wants to see) if firms feel less anxiety about getting caught short on labor. - Meanwhile, evidence continues to mount that the global car industry -- which may have gotten rocked harder than almost any other part of the economy due to Covid disruptions -- is climbing out of its hole. This is from the latest auto note from Morgan Stanley: - Meanwhile, easing of the global freight markets continues to ripple. Yesterday FedEx reported weak results, in part because an easing shipping market has reduced pressure on fright. [Here's Bloomberg's Thomas Black](: The Express unit has been hit particularly hard. During the pandemic, the business was swamped with packages as port congestion forced some shippers to send their wares by air freight. Maritime shipping has returned to normal and commercial airlines are ramping up cargo operations, forcing FedEx to reduce flights and park older planes. - Finally, in residential construction [there are signs that completions are picking up](. Here's a chart from Calculated Risk showing that while a big gap has emerged over the last couple of years between multi-family (apartment buildings) starts and completions, completions are on a clear upswing, in what is presumably a sign that parts and labor are becoming easier to come by. How this all plays into actual realized consumer price inflation is TBD. But the ongoing signs of healing and normalization continue to be encouraging, even if it's all taken longer than people might have anticipated. Follow Bloomberg's Joe Weisenthal on Twitter [ @TheStalwart](. Follow Us Like getting this newsletter? [Subscribe to Bloomberg.com]( for unlimited access to trusted, data-driven journalism and subscriber-only insights. Before it’s here, it’s on the Bloomberg Terminal. Find out more about how the Terminal delivers information and analysis that financial professionals can’t find anywhere else. [Learn more](. Want to sponsor this newsletter? [Get in touch here](. You received this message because you are subscribed to Bloomberg's Five Things to Start Your Day: Americas Edition newsletter. If a friend forwarded you this message, [sign up here]( to get it in your inbox. [Unsubscribe]( [Bloomberg.com]( [Contact Us]( Bloomberg L.P. 731 Lexington Avenue, New York, NY 10022 [Ads Powered By Liveintent]( [Ad Choices](