Setting Up for the Fed: Bloomberg Surveillance 9/20/2022

We’re definitely seeing resilience in the U.S. economy the labor market still strong. I think as usual is going to wind up having a left turn in her job come out. Fed policy is showing up in full force already trying to sort of engineer a soft landing. I think is a very delicate dance. I think we’ve probably not seen the worst of it yet. This is Bloomberg Surveillance with Tom Keene Jonathan Ferro and Lisa Abramowicz. Yields are up stocks are down. Homes on a plane somewhere. All is right in Lisa’s world. But life in New York

City. You’re going to pin it on me. Good morning. Good morning for our audience worldwide. This is Bloomberg Surveillance on TV and radio alongside Lisa Abramowicz. Jonathan Ferro. TI count his way back from London. He’ll be back with us for Fed decision day. Futures lower by four tenths of one percent. Lisa in this bond market it’s headline after headline after headline. Yeah. Well right now I’m just looking at that two year yield. And last week Tom was asking when are we on 4 percent watch. And I just said that we were on it and we

are definitely there. I mean this idea that we’re at the highest level for the two year yield going back to 2007 headed to 4 percent. How does that up end. A

lot of projections of valuation. It’s how quickly has happened is wildly said 12 months ago the two year yield the nominal yield 22 basis points 12 months ago. What a move we’ve seen in the last twelve months. Never mind the last couple of months as well. So it’s poised for the biggest annual increase in that benchmark two year rate going back to 1994. But we’re

actually poised if we continue at this pace to exceed that. How do we then reprice everything else. And you say all is right with the world. I’m not sure of you’re talking about Tom Keene a plane or not. All right. Well all right. Talking about buying stocks being down but always right. Still a market clean of X world because he is so bullish. So I mean I’m just saying that everybody kind of can take something home. It’s going to take them. And from J.P. Morgan he’s no longer talking about upside. In this recent note he

was talking about limited downside. He was the lead quote robust earnings low investor positioning them. Well I could long term inflation expectations should mitigate any downside in risk assets from here. Can we take the first phrase robust earnings. What you make of the earnings front. Now FedEx last week fought overnight. Yeah that’s I was going to say right now what we’re hearing from companies is a little less sanguine than what he’s putting out there. Ford saying that they’re going to take a one billion dollar hit and production costs because of inflationary pressures and talking about

thousands of vehicles that they can’t finish because of supply chain disruptions. I mean a number of companies are coming out with warnings that people were not expecting kind of feeds more into the Mike Wilson view of things than the Markel clan effect. The earnings worry are maybe the right shots. Knox finished real yields on a 10 year high since going back to 2011 this morning. Lisa that’s where your competition comes from now for the equity market and elsewhere. Well phrased. That’s the issue is all of a sudden you can get yields. There is an alternative.

At what point do people say I’d rather get a 4 percent base rate and just know I’m going to get that than go into risk assets. And how much does that continue to confirm the J.P. Morgan Asset Management view. It’s interesting how different they are. That basically has 70 percent in cash. I’ll catch up with Bob Michael as well a little bit later. Looking forward to doing that this morning. Both nominal and real yields at the height of the year multiyear highs in fact across several maturities. Futures negative about a half of 1 percent. A

win for the price action for you when the Nasdaq was down about 76. We’re down six tenths of one per cent. Talked a lot about how much higher yields are. By four or five basis points on a 10 year nominal yield 350 356 and Eurodollar. Lisa just about holding on to parity. Again we’re negative two tenths of one percent on the DAX. I’m watching Japanese yen too because tomorrow starts the Bank of Japan meeting and that’s the one holdout in the negative yield universe as everyone else continues to raise rates today. Or watching 830 AM

August housing starts and brought building permits. And this builds on what we saw yesterday in terms of homebuilder sentiment. Just to give you some perspective we have seen the longest consecutive streak of declines in homebuilder sentiment going back to 1986 giving you a sense of just how much pain you’re seeing in the housing market. This is one of the most direct hits from the higher rates by the Federal Reserve. At what point does this feed into pricing. At what point does this feed into rental costs. And how quickly is that transmission mechanism at a time

when that’s still adding to the headline CPI. Today is the beginning of the two day of FOMC meeting. I have been watching that to your yield. It’s shocking. I mean just the pace of increase. We have increased by more than three percentage points so far year to date. And that puts you on pace for the biggest increases we were talking about going back to 1994. But really how much does this reset risk expectations. What we’ve been talking about all along and how much we’re getting some gleaning from that with respect to Ford with respect to

FedEx ex with respect some of the others that have come out and issued some warnings. And today President Biden is traveling to New York City. Watch out for traffic obviously Democratic National Convention reception tonight. Tomorrow he’s giving a speech to the U.N. General Assembly. And John it’s gonna be really interesting to see first of all after a CBS interview will face to Face the Nation interview where he was talking about Taiwan. How much has he really bought into this polarized allied groups. Right. This whole China Russia versus the U.S. and Europe. How do you sort

of re associate a world post pandemic. Post some of the fissures that we’ve seen over the past 24 months. That is such a New York complaint and I am so on board. Well you could already see the streets blocked off. You keep a walk across the street. It’s ridiculous. We should just stay at home just stayed home and is home to the show tomorrow. OK that’s special. Just go home. Thank you. Futures down about a half of one per cent such a New York complaint. But honestly if you were here the traffic’s terrible battle. US

head of equity and derivative strategy at BNP Paribas couldn’t make it to the studio because the traffic’s so bad. Greg let’s talk about this market and how competitive these real yields are with the rest of the market. Yeah good morning. I think the first half of this year has very much been a story of this huge repricing that you’ve talked about in the right complex and what that’s done to equity valuations is driven a massive compression in P multiples. Looking ahead to the FOMC 75 basis points 200 basis points whatever we may get our house

view is five but we’re going to see tightening through the back end of the year into the middle of next year. And then quantitative tightening. Kuti continues in the background and it’s gonna be a very difficult environment for equity PE multiples to expand into that contraction to use that track. You said like it a market that you think still needs to reprice based on the rate shock. We’ve witnessed this year. Yeah I think the problem that we have for equities is that we have two twin headwinds now. One is the repricing in P multiples driven

by the monetary policy environment. And the second now is the cyclical headwinds that you’re both talking about earlier in terms of corporate earnings estimates for next year to us still look to high. We’re seeing some of these warnings come through. We’re going to get into earnings season middle of October and we expect to see some more. So there’s kind of two twin headwinds. The valuation complex we think is going to put pressure on growth. But you also have to be very careful about the more cyclical stocks as we have this rapid economic deceleration. So Greg

everyone seems to be bearish. How much more downside is there is is often baked in. Yes. So we take a little bit more of a neutral view on markets. The piece that we published itself last week was called Carry On Trading Ranges. And the theme to this is that we still think we can get some really choppy moves. We’ve had a couple of 3 4 percent days around the CPI in Jackson Hole recently and we think that type of volatility can continue but we think maybe it happens in a little bit more of a range

that maybe a wider range than we’ve been accustomed to previously. But we don’t think we’re going to trade back up through those kind of lofty highs. We’ve got to mid-August. Forty three hundred where the market look overbought or overvalued. But we’re also not convinced that the data is going to be bad enough that it’s going to take us down through new lows for the back end of the year. When you see the data are you talking about the macro economic data or are you talking about the earnings reports that we get from some of these

companies as they give profit warnings but also are dealing with a still resilient consumer. Yeah I think that’s a good question. Obviously the two go hand in hand but really it’s the corporate earnings that we’re focused on. Yeah I think we’ve had a view all year. The consensus bottom up forecasts for earnings have been a little bit optimistic. And we talk to our client base kind of institutional managers hedge funds asset managers. There’s really been this consensus that the numbers that we see the published numbers on the street look to high as we look to

2023. And we think the focus is going to be more next year’s earnings at this point than this year. The outlook the guidance that corporate give. We just think the expectations for flat margins year on year and still healthy top line growth are too optimistic. So the street is looking for around to 44 we think is too high. We can get something closer to mid to 30s. If you believe we’re getting and get a bit more margin compression a bit more of a difficult environment you could easily get a lower number. Did you see the

PPA numbers out of Germany this morning Lisa. These numbers are incredible. Factory output prices at forty five point eight percent in August from a year earlier up from thirty seven point two percent in June. And of course you know the main drivers here electricity and gas up 24 percent from a month earlier at one hundred sixty seven point eight percent from August last year. The damage done to Europe. Lisa do you think we fully realize the damage done that will be done to the continent in the months ahead. Eighty percent of people in a recent

survey said that Europe is headed for recession. Everyone seems to be saying that. And you have BlackRock coming out and saying absolutely is not priced in to European equities. I would take it a step further because not only do you see an increase dramatic increase in inflation but you’re hearing around the continent about different companies closing production because they cannot afford the cost of an ailing their factories because they just cannot afford the output. Great catchy price. This messy winter that Europe’s about to go through. It’s incredibly incredibly difficult to price. We’re gonna have a

very difficult winter in Europe and I think fortunately at least in the US we have some relative resilience to that. But I think in terms of valuation multiples and trying to put a number and I think is maybe the wrong way to do it. When we go back and look at equity markets historically we find that markets are much more driven directionally by what’s happening in terms of the incremental bits of data when news flow and data gets a lot worse. The market tends to trade lower and vice versa. That doesn’t tend to be a

single number in terms of valuation. That implies a trough. So in terms of the outlook for Europe what we’d be looking for is some kind of incremental improvement in the data or perhaps the data starting to get worse at a lower pace rather than valuations. Europe has been cheap and on their own for a long time and we don’t think that alone is going to be sufficient to trigger a European rally. That’s how low the bar is getting worse at a slower pace than to offend people. That’s the hope. That’s the hope. And it’s always

about that. Lisa let’s be clear about it. Jokes aside it’s never about good versus bad. It’s about better versus worse things getting worse. And if they’re getting worse they’re getting worse at a pace. You expected them to be getting worse. Yeah. Okay. That said they’re still getting worse. And a lot of people are saying that there’s not exactly a reason to go into European equities. Just extrapolating out have people really fully understood the ramifications of a Europe on its back. Really. For the United States. Right. For some of these other nations. I just wonder how

much you can price in a global slowdown to the extent that you see that safely canary kinds of prints. And if Germany how that bleeds into the global backdrop and the time again to it 75 basis points from the ECB last week in fact the week before my whole mindset to kind of muddle right now we shouldn’t count it a week before that. Anyway September 8th I believe it was. And then you’ve got the BRICS bank count the smaller 100 basis points. Bank. Yeah raising rates the most going back more than three decades. Does this

really actually make a difference for the Fed Reserve. Some people saying that it’s more likely now that they’re going to raise a one percentage point that they’re going to be led by the BRICS bank in Sweden. I’m not sure I even set the tone for chairman. Exactly. They’re late. I mean this is like they’re actually way behind some of the others. Shanahan’s going to weigh in on some of this. Nona Rick’s bank on the equity. Maybe she will. I don’t know. Once to get strong feeling from Wells Fargo at 7:00 a.m. Eastern Time some 50

minutes away. I am just in the studio and a really important conversation with the Ukrainian foreign minister. We’ll break down some of that for you next. Live from New York this is Bloomberg. You have today with news from around the world with the first word. I’m Lisa Mateo. Federal Reserve policymakers today begin a two day meeting that’s expected to end with another jumbo interest rate hike according to economists surveyed by Bloomberg. The Fed will hike its benchmark interest rate by three quarters of a percentage point for the third straight time. Jerome Powell has made it

clear the Fed is committed to curbing inflation sooner rather than later. And in Japan inflation has accelerated to the fastest pace in more than three decades. That creates headaches for the Bank of Japan. We’ll try to explain why it needs to continue with monetary stimulus when inflation is above its 2 percent goal. Consumer prices excluding fresh food rose 2.8 percent in August from a year ago. Britain’s new prime minister Liz Truss says that a trade deal between the U.S. U.K. and the U.S. is unlikely in the short to medium term. She says she will focus

on alliances elsewhere. Trust spoke to reporters while flying to New York for the annual meeting of the U.N. General Assembly. Hong Kong wants to relax its Covid rules like mandatory hotel quarantines that have made travel difficult since 2020. That’s according to the city’s chief executive John Lee. The South China Morning Post reports that quarantine will be replaced with seven days of home health monitoring. Officials in mainland China appear to support the changes to make Hong Kong more competitive. Global news 24 hours a day on air and on Bloomberg Quicktake powered by more than twenty seven

hundred journalists and analysts and more than 120 countries. I’m Lisa Mateo. This is Bloomberg. Sometimes I’m being asked whether there is enough of weapons that we have received and I always say that I will be able to say it was enough. Only after Ukraine wins. Until then we will be asking for more. Fantastic conversation with Dimitri Labor that Ukraine’s foreign minister with blimp DAX Annmarie Horden life from New York City this morning. Good morning. Alongside Lisa of Rabbits. Some Jonathan Ferro futures down a half of 1 per cent on the S&P on the NASDAQ 100

were down six tenths of one percent yield Tara gain by five basis points 353 95 governance to the Fed tomorrow afternoon. Brahma we’ve excited a watch to catch up with the former vice chair Richard Clarity. Do we get the real goods right. I mean not savvy say the only unscripted flash. Exactly. The unscripted moment between Dudley Ascot left the Fed. And I’m gonna speak my mind to Nice if we could have it together just basically hash out what is the reality versus what’s put out there the sort of very sanitized speech that Jay Power comes

out and give us sort of the the wrangling behind the scenes the angst. Yeah you don’t want the sanitized clarity just after this is the decision and then after the news conference as well he’s going to hang out with us. And I can’t wait with his thoughts on that. Looking forward to it. And T.K. is going to be back in the building as well I’m told. Is a travel day. Sights in the sky somewhere. Do we know when he left. I’ve got no idea when he left. Maybe he was going to get another Tom Keene.

I’m just told he’s going to make it. Futures are down about a half of 1 percent on the S&P. The latest headline on the U.N. General Assembly. Here you go. The EU Commission president Ursula von der Leyen to meet the UK prime minister Liz Truss in New York tomorrow. It’s a busy day tomorrow Lisa that’s for sure. Mark Gurman in New York City. Yeah I’m wanting to hide. Maybe I think it’s going to be really rough. I’ve got to be honest. I’m curious to hear what that conversation’s like. Liz Truss all of a sudden she

is really facing the firing squad at least rhetorically because her policies are incredibly controversial and they’re absolutely decimating the value of the pound. Anne-Marie is responsible for the busy roads here in New York City. She’s back up from D.C.. She’s with us now. Washington correspondent I might just start with that pretty interview you conducted yesterday with the Ukrainian foreign minister. Things are tough in Europe. They’re getting harder certainly not as hard as they are in Ukraine with a war ongoing. Did you get the sense from him that he’s confident that that resolve on the continent

is going to hold through a tough winter. It is. He is very much so confident and he thinks that Europe understands the crisis and not just because of the war that’s happening on their doorstep in Ukraine. But you know he points to the fact that even before this war started on February 24th you already saw natural gas and oil prices start to spike. And already he says Putin was starting to play politics with energy and he has done so in the past. So he believes that Europe will maintain this resolve because really they also do

not have a choice but it’s going to be incredibly difficult. What’s in The New York Times today the fact that you see factories starting to shut down overnight you’re Germany is extending credit lines so they could shore up some more LNG. It is going to be incredibly difficult and incredibly painful for Europe. And that’s really the big question going into this U.N. meeting. It’s really a sideline meetings that manner. And so much of that is going to be about what’s going on Ukraine. Are they going to get the more weapons they need and the ammunition

they need that supplies to continue. On the heels of his counter offensive offensive that was successful. And also is Europe going to be able to maintain this unity in the fact that they are really feeling the brunt of this in their own economies. And there’s no other way to put this as well and worry as this U.N. General Assembly meeting basically an issue about energy and how to shore up enough of it to keep Europe in a decent situation or not flat on its back over the winter season. How much is there a realization that

this is getting desperate and moves like the U.S. opening up the Strategic Petroleum Reserve through November possibly going to help this. Well what the U.S. is trying to do is make sure they can quell oil and natural gas prices because they have also another issue. Right. This is also the midterm elections and this is a huge domestic issue. It was in the summer and is starting to quell a little bit. But you’re sure the Biden administration wants to make sure they are keeping prices and a lid on those prices going into the midterm elections for

the U.S.. Obviously the big sticker price is gasoline when you fill up your tanks and what that means for supply chains and the cost that means for food etc. but also electricity bills. And this is really the big issue in Europe. Electricity bills obviously that has to go and mirrors natural gas prices. I put this stat to Dimitri Calais by yesterday in Germany over the summer. You add electricity forward prices 1050 euros per megawatt an hour. Do you know what it is. An average at an average about 40 45 euros. This is the desperation Europe

is going to see. And it’s only September right now. I think Jonathan said the other day what we really need is a meteorologist because depending on how cold this winter is going to be that’s really going to affect how Europe is able to deal with this crisis. Anne-Marie what the tenor of your conversation. And around these meetings how much do people think that Europe has recognized European policymakers have recognized the situation that they’re facing. I think they have deeply recognized it right. They know that they are no longer going to be able to rely on

Russian natural gas anymore. It was last summer that Angela Merkel was at the White House and they were still talking about Nord Stream too. And this is something she wanted to see Nord Stream too. We’re never gonna see that come online. And now we’re not even seeing natural gas through Nord Stream one. You have the entire European situation starting to have different discussions with partners that they normally never would have or making more trips to those partners that they normally never would have. The likes of Algeria the likes of Cutter. These are really important conversation

because these are countries that can potentially come and help Europe in this dire winter because they have liquefied natural gas. But that’s just this winter. Europe needs to change its infrastructure in order to be able to handle not just this winter but the winters to come. Germany specifically they shut down nuclear. They’re potentially going to keep some of those more open longer. And also they’re building LNG terminals. This is a complete tectonic shift in how Europe deals and imports its energy. Speaking of the temperature can you tell me how frosty that meeting between the president

and the British prime minister will be tomorrow. Well it’s gonna be an interesting one already. We heard from the new prime minister Liz Truss on her plane over that she doesn’t see a short term medium term trade deal with the United States. John you know better than anyone that this was a key issue for those Brexit tears to go out and vote. This was supposed to be one of the hallmark wins of Brexit. We’re gonna get a huge trade deal. The United States. That’s not happening. When you talk about the Francine Lacqua though that’s going

to come would have to do with the Northern Ireland. And obviously President Biden like many Americans that have Irish ancestry really want to make sure that Good Friday agreement stays in place. So potentially this is going to be a thorny one. And I wasn’t so sure of the president was going to meet her on the sidelines bunch that they will have that meeting. Can I finish on a much much less serious point. Can we stop calling it UNGA. UNGA. I’ve never like that. By the way you went to the subway on the streets. Did you

raise my head UNGA. I just never liked to. You know like saying it’s kind of funny to say I think. Why. It just sounds like you sang a note. I just. All right. I just letting you know you’re ranting. I have not called it UNGA all day. I’m here now. I think I might do it. What would you make of. I am on a subway in New York just skipping the road. Said I was making travel. I think that was her calling us elitist car users. I think that was all I got. What you were

going. I was looking for a rim shot. Talking about the weather. How about those frosty relationships between them is really good. It was clearly pleasant. Nice. That’s just the Lindbergh. Live from New York City this morning. Good morning. Here’s the price action for you. When the equity market on the S&P on the NASDAQ on a Russell on the S&P were down four tenths of one per cent on the Nasdaq was down about a half of one per cent. A small caps a little lighter softer lower negative four tenths of one per cent. It’s where the

poison comes from. The bond market the two year yield is up for I think a ninth straight session now just absolutely flying over the last couple of weeks a two year approaching 4 per cent a 397 0 7 of 3 basis points. Remember all the calls on this show we’ve seen the higher the year we’ve seen the high and the year that was back on June 14th on a 10 year maybe we haven’t. Here’s the high the 353 56 up another 4 or 5 basis points on a 10 year. And just to witness understand the

scale of change we’ve seen on a two year yield over the last 12 months 12 months ago that 2 year was up about 21 basis points to 22 basis points. Look at this turnaround through the valley and up the other side and a big big way. I love this phrase that you just said. The poising comes from the bond market. It sounds like a horror movie. You know it’s kind of like coming in stocks and taxes at the point. It’s true though because this is really what’s causing a complete reset in people’s understanding of where

to get value. If you can actually get income without taking extreme risk at a time of great uncertainty. Well it doesn’t look so bad and really ought to swell not just nominal real yields the high since 2011 on a 10 year maturity. Lisa these are big changes and they happen very very quickly. Maybe the bulls could say 1 percent real yields would be right. You could actually get some real yield if you actually take some risk. But nonetheless it completely transforms the risk reward proposition. And you’re hearing that the likes of JP Morgan Asset Management

and they say 70 percent not liquid. So someone got in touch with me a little bit early this morning and they said I remember a conversation I had with you as of the start of the year. And volumes are 115. And I said it could go to 150 and you laughed at me. So we need to ask them why hasn’t made it to 150. Christopher Ryan partner had a technical macro strategist to take us that bad company. Great call Chris. I mean we’re so close at 143. I think we came even closer than that. When

next I guess. And just to be BMJ blink at. Well I think they have to I mean when you look at yields around the world U.S. tends as we mentioned are 353 this morning. German tens are basically 2 percent. We’ve seen U.K. tends absolutely run away and we sit here and Japanese 10 year yields are 26 basis points. So I’m just not sure how much longer the BMJ can sustain this cap on yield without losing total control of the yen. So we like dollar yen higher until frankly someone breaks. And I think that’s the BMJ.

So whether that’s 150 or 150 5 or some other level. I think we’re on a collision course here that ends with B OJ capitulating raising the cap on yields to get more in step with what we’re seeing around the world. Chris if you’ve thought much about how the dominoes fall from that if that headline drop that they stepped away from your debt control what it means for funds what it means to treasuries. I mean I think the initial reaction is maybe you. Then you get your blow off in yield. But our experience just has been

I think the historical experience has been. Bond yields tend to go up until something breaks. And that’s why I just don’t think that we’re done here yet. On yields. Our view on yields has simply been they’re going to remain stickier and higher than the consensus believes until there’s an accident. And I’m not convinced we’ve quite seen that accident yet. And the accident comes with longer term yields rising in addition to short term yields possibly. What you’re talking about with the yield curve control being abandoned in the bank Japan and the ripple effects through the rest

of the world. What kind of downside are you looking at. How do you sort of hedge against that scenario at a time when it could take a lot longer than people could afford to keep that position on. Well I think it just speaks to our overall positioning here which is play small. Go slow. Be prudent. Caution is still the word of the day. And where you really see at least the impact of yields is on what the leadership framework of this market looks like. You have yields up and utilities continue to dominate. So I look

at that as a very late cycle message. And when you look at the top of the market the big stocks the big waves the one everyone owns. Right. A lot of those are already below where they were in June whether it’s Google or whether it’s Microsoft. So you know you see the impact of yields continuing to hit tech. And I think that’s going to remain the story until yields peak which I just don’t think here. So when you look out to what’s going to happen in the next couple of months what I’m wrapping my head

around is what’s the downside here. Right. I mean an accident. How does that ripple through a market when people are saying there isn’t the same kind of leverage. You’re not seeing that fertility in banks. You have a much more stable base of consumers and their savings and corporate savings. So that’s the reason why you have this big you have this range. What’s going to break that. Will anything or is that still going to be the reality. You know I think that’s unclear. The the narrative or the consensus is that there’s no risk to banks or

that consumers are in better shape than we’ve seen. But I’m gonna let the market be the judge of that. When I look kind of a different pockets around the world I could tell you plenty of weak consumer stocks that would suggest that the market might have a very different opinion of that are plenty of weak bank stocks that would suggest the market has a different opinion to that. So we let the market kind of dictate that. What I think is most important for investors is you know the debate on the street is OK. Is S&P

going to revisit or retest or undercut the new lows. And the only thing I would add to that conversation is a lot of important stocks already have. Right. When we talk about the top of the market Microsoft has Google has net is back to where it was at the Covid loans. Right. So kind of go down the line in a lot of big names. A lot of big weights have already I think started to reflect that risk. Chris lost decades on unheard of. You give it much thought to that at so recently when it comes

to the market. It’s it’s funny that you mentioned jargon earlier in the year. We wrote something to the effect of you know the most provocative thing we could say is not that the S&P is going to go a ton lower because I think everyone was pretty bearish but that the S&P is not going to make much progress for a long period of time. And that’s a view that we’ve kind of embraced here as you’ve kind of make this transition from QE to Q2. I think at a minimum when you look at the very liquidity sensitive

assets out there new IPO is Bitcoin high multiple software stocks. I think those things are done as your leadership for a very very long time. That’s been our view. That remains our view. So I think when you look at those you know very speculative corners of the market they are saying even if the S&P lows are in here there is no new liquidity cycle in front of us. The reason I bring this up and I mention it’s the reason you’re thinking about it too is that we’ve just blown up a decade of QE forever and

said. And I just struggle Chris and we’re all live in this in real time and just struggle to understand why. Twelve months of rising interest rates and two a bit of cutesy. And then we got back to where we were before. These are big moves. It’s not just the Fed. It seems to be pretty much everyone with the exception of sight to be OJ. I mean why would it take just 12 months to reverse 10 years of that. And then the consequences are. Oh yeah. We just got back to the old playbook and about six

NIKKEI. I’m with you. I think to kind of maybe use a little bit of a cliche this this does look and feel like regime change. I think the one chart of the one exhibit that speaks to that. It’s on the Bloomberg terminal is that dollar value of negative yielding debt. You know we went from 18 trillion dollars of negative yielding debt as recently as a year ago. It’s down to about one trillion dollars today. So if you’re looking for regime change I think there’s no better exhibit of it than that. Is this a regime change

when it comes to nominal yields or is this a regime change when it comes to real yields. Are we going to see real yields continue to climb as people price in a very different response from central banks. Well it’s both and I think the thing about real yields right. It’s it’s it’s somewhat fashionable to say that that really yields are positive or that you know real yields are above 1 percent but not not really. I mean the Fed funds rate is still well below the rate of inflation. So it kind of in any practical sense

for savers real yields are not positive here yet. So I think ultimately as we’ve seen in every single cycle going back the last 50 years the Fed funds rate will overcome the rate of inflation. That’s when the Fed has done enough. And I think there’s certainly time before we get there. So people position for what you’re expecting Chris this sort of accident or something breaking. No I think you know when you look at what positioning looks like there is a decade of residual positioning at the top of the market. The big waves that have been

so reliable for so long and kind of argue is again whether it’s market up or market down. That’s actually less important. What’s more important here is this massive leadership change that we’ve seen. I’m very reminded of in 2002 when the Nasdaq bottomed in October vote to bomb with everything. In October of 0 2 it continued to underperform for the next four years. So you’re price low in NASDAQ. I don’t think we’ll be your price low. In relative performance that is the big takeaway from ISE leadership. Picture has changed dramatically here. Interesting. Chris great call on

the end buddy and I’m sorry for you. I’ll never laugh again. I will. Chris All right. It’s two tickets. It’s called Subway. That’s still not a 150 watts Christian. Exactly. Clearly to met Kobe right. It’s a great cool. Anything we need to talk about. Chris mentioned. We’ve just had a 10 year long monetary policy experiment. Trillions of dollars of QE zero rates forever negative interest rates. The ECB fell about eight years. Trillions in negative yielding debt. Lisa that used to come on and bring a chart and tally up every single time not just sovereigns but

corporate debt as well. And are we to believe that after 10 years of that and when you blow it up there aren’t big consequences from that. That last a little longer than a couple of quarters especially because of the Y which is inflation that people said wasn’t possible. Right. I mean to member during that decade people said inflation was dead. You couldn’t get it out. That was what gave rise to this whole modern monetary theory. You could just print money and it wouldn’t cause inflation because nothing could cause inflation. Inflation was dead in this era

of low growth and older older populations. And this is what was going to happen. And it was wrong and it was wrong on multiple levels. And how do we then reset at a time when there still is the resilience built up over that decade of free money. And this is something very difficult to really game out given the concentrated and concerted effort globally from Central Bank. Something will keep building on this morning. Forgive my rant about the traffic in New York City. You want to know why I’m really fired up this morning about it. Yesterday

I was in a super. And he was getting angry at the traffic. Yeah I log onto the Uber app this morning and my writing has come down a point because of course he was angry about the traffic. I wasn’t angry. Are you sure it was that. Thank you sir. I went from four ninety five to four ninety four. You didn’t rant about the man or tell him no rants. Too bad. I was very quiet peaceful. I’m a great person Jim Unger. I’m a fantastic pastor. Unger. Are you cut for 95. For 94. Dude quote the

Dow for no other way. By the way by the way tell you so you know. Nobody is very good right. NYSE writes very good writing. Take the subway. In all caps. I think that she’s trying to say I’m not supporting the cab drivers of New York City. Seriously thank you for your service. Coming to Barrow Island World a senior fellow at the Atlantic Council. From New York this is Bloomberg. Keeping you up to date with news from around the world with the first word. I’m Lisa Mateo. The foreign minister of Ukraine is urging the West

to send more weapons. Dimitri Calabria told Bloomberg TV that Ukraine wants to add to its recent territorial gains and deny Russian forces any strategic advantage. Joel Weber says it makes sense to supply Ukraine because it can defeat Vladimir Putin and his army. In Switzerland the government has slashed its forecast for economic growth and significantly boosted its projection for inflation. Swiss GDP is now expected to rise one point one percent next year. That’s down from June’s estimate of one point nine percent. Meanwhile the Swiss raise their outlook for inflation by almost one percentage point to two

point three percent. President Biden’s vow to defend Taiwan with U.S. forces if China invades is making a U.S. policy shift explicit. A spokeswoman says the president’s comments on CBS 60 Minutes did not mean that the policy toward Taiwan had changed. But the remarks are being seen as a reversal of decades of so-called strategic and butte ambiguity in which the U.S. refused to make its intentions clear. And Hurricane Fiona has exposed Puerto Rico’s fragile power grid. The storm caused a general blackout that affected the entire U.S. territory of three point one million people. The power outages

hit just as Puerto Rico’s Electric Power Authority is dealing with a bankruptcy that has no clear end in sight. And Ford has joined those warning about macro challenges rippling through the economy. The automaker says inflation is pushing supplier costs a billion dollars higher than expected in the current quarter. Ford expects adjusted earnings to be well below the three point seven billion that it reported last quarter. Global news 24 hours a day on air and on Bloomberg Quicktake powered by more than 20 700 journalists and analysts. I’m Lisa Mateo. This is Bloomberg. I think they’re caught

in such a rock and a hard fight where they’ve been so High Flyers starting our Jackson ball they’ve been continuing that message. I think someone’s got to step back and say OK we’ve got to be a little bit careful. I think now as usual it’s going to wind up having to let folks in or down come out. Some of us in a tough picture had a macro strategy and a CAC. It’s what you make of that. They say you’re in a tough inner dove. Except it’s about protecting the economy from sinking too much and not

unleashing the animal spirits of people who are looking for a pivot. It’s a very weird dance. Grandma doesn’t like to in the commercial break. She just wanted the whole control room to know that her writing is five. And I just thought I’d let you know. Well thank you. I just wanted everybody to know that I am the reason. The other studio. She’s very quiet. She hasn’t spoken. It’s just fine. God. You can’t say that to just have her mike on. She’s laughing but she’s still quiet. Okay. Read between the lines. Have you won’t say futures

are down a half of 1 percent on the S&P 500 on the NASDAQ 100 down about six tenths of one percent. We are softer lighter lower negative. And you go to higher by 4 basis points 350 336 on a 10 year two year getting closer and closer to 4 percent this morning. It’s quiet for you from NASA Saudi Aramco. When the global economy recovers we can expect demand to rebound further eliminating the little Spanish oil production capacity out there. Credit to Tom Laser who often brings this up. Can you imagine the commodity situation if China

was back on line without its Covid zero policy. I keep wondering is this a headwind or a tailwind for the global economy. Right. On one hand you could then get more activity from China. But on the other hand you get a dramatic repricing in oil prices considering that their demand has been falling off a cliff at a record pace. Right. I mean how much does that change the scenario and how much is that a possibility in the near term. And Wolf joins us now the senior fellow at the Atlantic Council a good friend of this

program over the years. And a nice start there. What would happen if China dropped Covid 0. What would happen to this commodity market. Yeah I mean I think we would just see an explosion in prices because we just don’t have enough supply of basically anything at this point. But oil would definitely be the number one. And right now we’re kind of basically what we’re seeing is that some of the global SPDR releases have basically smoothed over the fact that we have a supply deficit right now. So if we see an increase in demand and in

fact if we do see what they’re predicting as you know 3 percent global growth and that’s basically with recessions you know in Europe at the very least and possibly in the United States too we see that in 2023 we’re going to need an extra one point five million barrels a day in global oil demand anyway. And there’s absolutely no indication that we have that spare capacity anywhere. Investment is just way too low. I mean I think we’re we’re looking at investment. It is is too low just to replace what we what we need for our

current demand let alone let alone go forward to accommodate a growing demand. So Alan perhaps this is an unfair question but you said that the SPDR release is papering over the deficits in supply and allowing prices to go down. So if the U.S. were not releasing millions of barrels of oil to the market where would crude prices be. I think they definitely be higher. You know it’s it’s hard to give an exact number because a lot of that papering over is also a result of you know that there’s kind of the paper market as opposed

to the physical market. Plus we keep seeing years of a recession causing prices to go lower when in fact you know there are indicators that we may not see a recession. There are some pretty positive indicators in terms of industrial production in the United States. Of course then we have all of these issues in terms of supply chain. You’ve got these huge price increases like the one you mentioned from Ford. We’re seeing that all across the board. So we’re really kind of in this place where we’re not really sure whether we’re going to end up

in a recession or not. And you know it also depends on the increases in the interest rate that could definitely send us into a recession which might be a good thing inflation wise but could definitely cause oil prices to go down. On the other hand other countries in the world developing nations aren’t necessarily heading towards recessions and they could put pressure on oil demand too. So we’re really in a place where certain things are kind of covering for the fact that we are technically in a supply deficit. And if those things go away like one

of them being the SPDR release we could definitely see higher oil prices. But on the other hand we could see lower. Well thank you. Yes. That’s an evergreen Covid going forward though. Putting aside the macro economic. Yes in game of will we or won’t we get a recession if you just look at the on the ground fundamentals. Does the decline in price make sense. I think it does make sense to some extent because we saw such high increases due to speculation over the geopolitical situation and some of the other issues that we’re now seeing are

kind of backing off of that. I mean I think one hundred and twenty barrels 120 dollars a barrel was too high for the supply demand situation. And so we’re seeing that back up. Of course some does depend on what happens in December with the sanctions on Russian oil and if that actually does take any take any Russian barrels off the market. Alan do you think we’ve seen enough of a rethink a material rethink about how much more investment CapEx we need in the oil patch and in how we go about incentivizing. Not at all. I

mean NASA goes through the numbers and the numbers Elena just enough of that 700 billion a year to serious in 2020 basically everywhere. And I’m. Well thank you. The Galactic Council I don’t know why we ended up speaking over each other but you can hear me. I can hear you. But thanks for letting me know. And thank you. Those numbers. Lisa it’s just amazing. 700 billion in 2014. 300 billion in 2021. I mean NASA just saying quote too little too late. And it’s everywhere. I mean if you take a look at for example on the

shale patch some of the most productive oil patches I was reading in The Wall Street Journal are basically used up. They can’t really get as much. So they aren’t producing as much. They’re not investing as much in debt. Investors haven’t been going in because they got burned back in 2014. So you raise a question and there is a political question behind it which is the sort of uncomfortable incentivizing of fossil fuel companies at a time when a lot of these governments want to move to greener energies. And how do you do that dance. I mean

how much is that coal to be discussion of the UNGA. Uncle Mark Gurman got thrown in there. This came from Amin Nasser as well. This quote The conflict in Ukraine has certainly intensified the effects of the energy crisis but it is not the root cause. He went on to say sadly even if the conflict stopped today as we all wish the crisis would not end. It’s a big big problem for Europe and beyond. Well and right now we’re just getting a headline that Germany is closing in on a deal to nationalize one of their gas

companies Juniper. And this is sort of the solution. Over in Europe or Germany in particular is nationalizing companies. Well OK what kind of investment comes with that. What kind of incentivising comes with that. How do you have a free market at a time when the only solution that you may have is to just take government control over it. And this is this is a difficult situation facing me. I feel terrible for speaking. I’ve run in the control room. Towns may have video froze. If that helps. Technical issues apparently Alan Wall to get a back seat

features down four tenths on the S&P on the Nasdaq 100. We’re down to half of 1 percent. I’m sure that sounded ridiculous to people at home. Yields up 4 basis points on a 10 year 353 36 on a 10 year and two year yields. Two year yields have been absolutely flyin for the last week or so on 20 basis points from last year. Twelve months ago from 20 basis points to 353 on a 10 year to 396 on a two year just 20 basis points twelve months ago and now approaching 4 percent. The front entered

a curve. I Wells Fargo joins us shortly from New York. This is Bloomberg. We definitely see resilience in the US economy the labor market still strong. I think our as usual is going to wind up having to let phone underdog come out. Fed policy is showing up in full force already trying to sort of engineer a soft landing. I think is a very delicate dance. I think we’ve probably not seen the worst of it yet. This is Bloomberg Surveillance with Tom Keene Jonathan Ferro and Lisa Abramowicz yields absolutely flying over the last couple of weeks.

Live from New York City this morning. Good morning. Good morning for our audience worldwide. This is Bloomberg Surveillance on TV and radio alongside Lisa Abramowicz some Jonathan Ferro NIKKEI back in the building tomorrow. The Fed decision day futures down four tenths of one per cent on the S&P on the Nasdaq Lisa down a half of 1 per cent. And we said it repeatedly in the last hour. The poison is in the bond market. It has been a complete reset and it comes as you have more than a dozen central banks having decisions and all consecutively

raising rates. With exception of one the Bank of Japan. But other than that everyone is basically talking about regime change where they’re fighting inflation. And that is the foremost concern. And you’re seeing that borne out through Mark Gurman. What. Get your attention more so is it the level or the speed the rate of change we’ve seen in this bond market over the last few weeks. It’s both rate but the speed is really shocking because you’re having a complete reset and a sudden thought of 4 percent to year yields which would be the highest levels going

back to 2007 and already is there. But the speed three percentage point increase how much work has the bond market. This is sort of your freezing rate. How much work is the bond market done for the Fed. It seems like the Fed doesn’t think enough which is a reason why some people are saying 100 basis points could still be on the table during the meeting. And that’s the nominal yield. Let’s talk about real yields as well. On a 10 year all the way back Lisa all the way back to 2011 Dani Burger. Although Chris Brown

said we still don’t have positive role yet. I mean this is basically a fiction because this is gaming out what the inflation rate would be when you start talking about a 9 percent CPI rate or an 8 percent CPI rate getting 4 percent or 3 and a half percent and tenure doesn’t look that great. So the question really is how much more do you see that increase if people start to think inflation maybe will stay higher for longer. If the two camps are amazing right now we both get the pushback. I get the pushback from

people who say 4 percent isn’t enough. You’ve got to go higher than that. Maybe the Deutsche Bank swelled close to 5 percent. Then there’s another camp who say no it’s too much. The economy can’t operate with a 4 percent Fed funds rate. Just polar opposite views right now. And how much is that really decided by where you are. How much are people outside of the U.S. saying 4 percent too much because you’re seeing the dollar strengthen and you’re seeing the World Bank start to warn about this. And then in the U.S. people are saying it’s

not about the rest of the world it’s about the United States. We just don’t know it just to the original moment of economic history that is very hard to really create a roadmap for that decision. Just around a corner life from New York City this morning. Good morning. Let’s wait for the price. Action will lower by a third of 1 per cent on the S&P on the NASDAQ 100 down by four tenths of one per cent. Yields are higher by four or five basis points 350 356 on a 10 year. The highs of the year

the two year three ninety six and pushing 4 per cent crude lower by four tenths of one per cent eighty five thirty nine and a bit shy. And as I said repeatedly over the last couple of days just about holding on to parity. Lisa here on euro dollar negative two tenths of one per cent. When we talk about some of the rate decisions that were coming up against one of the big questions is how quickly is rate policy transmitted into the economy. And the real place to look for that is the housing market. At eight

thirty a.m. we get August housing starts and building permits for the United States. This comes after yesterday with homebuilder sentiment declining for yet another month the longest streak of declines for a homebuilder sentiment going back to the mid 1980s. It just shows the pace of the decline at least in this one area. Again I go to this question of the transmission mechanism because a lot of people don’t have debt. Consumer debts are actually lower than they have been traditionally. Corporations have plenty of cash which raises a question of what it will do if the Fed

does raise rates all the more so in order to combat inflation. Today is the beginning of a two day FOMC meeting. We will get that rate decision and it comes as that two year yield that you’ve been talking about continues to climb 4 percent. Does that get it done. Four and a quarter percent. Four and a half percent. What do they say. How do they push back against the moves that we’ve seen the piece of them and the levels. And today President Biden is going to clog up traffic in New York City. He is attending

the Democratic National Committee a reception tonight. Tomorrow he goes to say do it anger United Nations General Assembly. What do you say that if you hadn’t said that it wouldn’t have even thought to say that. I mean hunger it doesn’t bother me that much that I’m going to get annoyed about it. I just prefer that we just set the U.N. General Assembly. We’ve going as planned. And I want to understand where the camps are in terms of allies and also the policy with respect to China because honestly his rhetoric has gotten so harsh recently with

respect to Taiwan it’s taken a very different stance than some of the prior presidents. How does this translate into a more different or just a changed approach toward China. Maurice’s anger all the time. All the time. Should be Mark Crumpton just walks around say. Just repeatedly once she’s in New York the other room like why are you guys doing. What are you talking about. Exactly. Lisa thank you. The president meeting with less trust tomorrow. We’ll hear from him as Lisa pointed out Von to land as well. Meet him the prime minister. Less trust in New

York tomorrow too to. So this trust is going to be pretty busy. The British prime minister and she’s going to hit the ground running in a big big way on a budget later this week a mini budget I’m told and a bank having the right decision as well. We’ll save that for later in the week. We need to get to this equity market. We can discuss it with the equity strategist at Wells Fargo Securities. Ana wonderful to catch up with you as always. You’ve got to give us one reason to be bullish here because everything

is so so gloomy. Well this isn’t going to be the best answer your job but some reason is to say things might not be as bad as feared. One of the biggest things we’re watching is conference season. We want to tell them on how corporate earnings and outlooks are going. But you know from the early reports so far it was not so great. I think we’re hoping to see that at least margins and growth can peter out for the rest of this year and be somewhat not the worst news. That could be one of the

things. But on top of that I think the bigger risk and tail risk aspects are going to be really European energy crisis and how the mid-term elections go this year. We were talking with Chris Verrone about a lost decade. How many people you speak to really have thought through the concept of a lost decade of profits of gains for U.S. stocks. You know that’s a great point. It’s hard to see that impact. What we thought was one of the shortest recessions and yet now we’re battling some of the highest inflation. How long that could possibly

persist. How much of earnings was robbed from us in that time. But you know what’s been really the engine here has been the strength of the labor market the strength of the consumer and how long that stays resilient in the face of persisting inflation. That’s going to tell us how much we can really recover or gain back from that lost our earnings. But that said and when you start talking about real yield when you start talking about a nearly 4 percent two year yield we start talking about going into full faith and credit and actually

earning income. It prevent presents a Compaq comparable or competitive story to equities for the first time in decades. How much does that change the equation and raise the bar even if the consumer still does have money to spend. Well that’s a great point Lisa because when you look at earnings yield on the S&P 500 or you look at who actually has even a higher dividend yield in their dividends paid for corporate versus what you can get in the fixed income markets it begs the question how much of your portfolio do you want to allocate to

U.S. equities versus some more of that steady Eddie different impair that coupon clipper style. And that’s really weighing on people’s minds which is why corporate earnings is so important. And as real yields rise and mortgage rates are higher and starts eating into people’s pockets. That’s what they’re thinking about. And one thing that you and Chris have said over the last week with regards to the Fed is the decelerating path to a terminal. Right. Can be a positive for stocks. And what kind of pushback did you get from clients when you told them that. I think

the biggest pushback actually was in the reverse. The first was the market was pricing in cuts rather sooner than we were looking at. And that was something that had to kind of come out of the market and flushed out of the equity market. But now that we’re thinking that things could slow down. Of course the number one argument is going to be well inflation is going to persist. It’s going to continue ratcheting higher. And perhaps that’s what we thought. The biggest components that might come down for example. But we are rate or owners equivalent rent

maybe in that component doesn’t come down as quickly. That’s what’s worrying people. If that does not come down if we continue to see High 8 handles on these CPI prints then really. Can the Fed do they have a choice or would they have to remain hawkish maybe continue on their 75 basis point path for us. We think that that’s unlikely so far. Our house view is that terminal rate for this year is closer to 4 but a bit quite shy from getting to fight for the end of 2023. But that is the argument out there

and that’s something we’re thinking about. Next question is your phone. This is from MarketWatch. A new ETF would tick as NANCE and Cruz aim to track lawmakers. Stock price has been on congressional trading. Looks unlikely before midterm elections. Of course they’re referring to Speaker Pelosi and Senator Cruz. This got your attention. You made sure it got mine. What you make of this. I think it brings into focus midterm elections. There are a lot of hot topics that we’re going to be discussing and it’s going to be quite polarizing. Not only are we talking about congressional

trading but now we have as an Biden in New York one of the hot topics in Taiwan and China. There are a lot of things going around in this midterm election that very much can bring uncertainty the equity markets. Right now you’ve seen the massive shift in polls. First we thought that the Democrats had a pretty strong hold in keeping the Senate majority. But that has declined. And now. So that change there between who that potential ruling party will be that can be very volatile for the equity markets. But our view in general is that

it’s underappreciated how much the GOP has a chance of flipping the House and Senate. And these are things we’re watching for it come this fall. And again thank you. Of Wells Fargo the brilliant Shanahan. Always good to catch up. Thank you for making sure this got my attention. The man’s fund would be based on Democratic lawmakers portfolios Lisa while crews fund would have stocks hounded by Republican politicians. To me I’d find the the makeup of those funds more interesting than 13 F filings. I would be honest with you. I mean it brings into focus. You

can’t beat em. Join em because. Yes sickly. This is looking unlikely that they’re going to ban trading of stocks by some of these Congress members ahead of the midterm elections. So join em and see what they know. NYSE criticism of the Federal Reserve. Bremmer was right that the still frame the still not fixing it. I mean and this is amazing thing about Wall Street as Wall Street says. Okay. If you’re not going to fix it I’m not going away and morally what you should do. But I’ll join you. You know let’s see what you do.

I can just track your stock holdings and maybe we’ll win together. And do you do you weight the portfolio more Democrat versus Cruz. Can you park your politics. Are you able to do that. Lean in and see who you lean into your politics or do you hate him. Paul it’s Mr. Juliette Saly. We should track which is doing better at different times. Who’s picking better stocks. This would be a great index right. Yeah depending on who runs what committee. You know networks not Senate does well like that. I’m just saying you know how it might

work. What operating with the ATF have. That’s true. Just the memories can be back with us next time. I’m sure she will. But done a third of one percent on the S&P. From New York this is Bloomberg. Keeping you up to date with news from around the world with the first word. I’m Lisa Mateo. Federal Reserve policymakers today begin a two day meeting that’s expected to end with another jumbo interest rate hike according to economists surveyed by Bloomberg. The Fed will hike its benchmark interest rate by three quarters of a percentage point for the third

straight time. Chair Jerome Powell has made it clear the Fed is committed to curbing inflation sooner rather than later. In Japan inflation has accelerated to the fastest pace in more than three decades and that creates headaches for the Bank of Japan. It will try to explain why it needs to continue with monetary stimulus when inflation is above its 2 percent goal. Consumer prices excluding fresh food rose 2.8 percent in August from a year ago. Britain’s new prime minister Liz Truss says that a trade deal between the U.K. and the U.S. is unlikely in the short

to medium term. She says she will focus on alliances elsewhere. Trust spoke to reporters while flying to New York for the annual meeting of the U.N. General Assembly. Bloomberg’s learn that Germany is closing in on a deal to nationalize gas giant Juniper. Now contracts haven’t been signed but Berlin is aiming for an announcement this week. Germany has been working on a historic takeover of three large gas importers to prevent a collapse of its energy market. Global news 24 hours a day on air and on Bloomberg Quicktake powered by more than 20 700 journalists and analysts

and more than 120 countries. I’m Lisa Matteo. This is Bloomberg. The world has a long to do list. We need finance and the investments from the public and private sectors. This is the only sustainable best way to address the obscene inequalities that exist in every country while ensuring that the world doesn’t slide into recession. Governments need to invest like never before. Antonio Gutierrez said the United Nations secretary general life in New York City. Good morning. With Lisa Abramowicz some Jonathan Ferro. T.K. back with us tomorrow for decision day for the Federal Reserve. Coming into that

futures down on the S&P and on the NASDAQ was down about a third of 1 percent. No real drama here in the equity market but I would say some drama in the bond market yields up by 5 basis points on a 10 year. Your nominal yield 353. Ninety five. Your real yield the highest since 2011 at the front end of the curve. So much like count down for 4 percent or count up to 4 percent on a two year at the Voisin. Lisa 397 on a two year up another three basis points. I think you

could categorize this as poison for risk asset. I agree with. I think so. I just person wise man once White’s van wins that poison for the risk assets that I would agree with him. I think that it’s a wise point to raise especially as the pace of increase just keeps going. Nice session thing. Yeah. It’s nine sessions and we keep on climbing. And Evercore out with the latest research a shadows quote with Elisa. It’s all about for them the top floor and the summary of economic projections. And they’re essentially pointing out that they think the

medium will be at 4 to 4.5 for the end of 22 peaking at 4.5 to 450 with a sizable number for 450 to 475 and 23 with no cuts next year. That’s the way they can push back against some of that rate cut talk I guess. Do you like the dot plot. I hate it. I think it’s a hoax. It’s just it’s ridiculous. It’s just basically putting something out there and you know the facts change. Then they decide to you know read rejigger their their their estimates. I mean what is this. We just have dot

plot cupcakes the NEWSROOM and plan days. Did it on TV. Somebody had over on the prince and the prince idea. Don’t come. Okay. Nice. Look it had his time didn’t it when he wanted to communicate very Covid policy for longer. And you wanted to flatten the curve all the way out several years. The dot plot was useful for that. If they’re saying forward guidance is dead and then they’re putting out there was no longer useful. I’m with. I just. I’m sorry. I’m done with my rant. We’re on the same page. Have a run about this.

I want to get back to this story. New ETF with tickers. NANCE and Cruz aim to track lawmaker’s stock buys. Ban on congressional trading looks unlikely before midterm elections. I don’t know how I missed this yesterday. This was for market. Thank you. Two and a half. Wells Fargo four points to get out. Amari is back with us up from D.C. into New York City. MH What is this about and why are they still not addressed. The congressional trading issues. Well won’t be addressed as you just said before the midterm elections. A corner. Senator Jeff Markey

what we should discuss though and part of this is this analysis last week by The New York Times. I’ll read some of that to you. At least 97 current members of Congress or their families bought or sold stocks bonds or other financial assets that overlapped with their work. Well I’m going to be fair and give you two of the examples. So you know fair and balanced not not partisan here. Senator Tommy Turbo Bill Republican of Alabama he’s on the agricultural committee. He even admits he’s discussing cattle prices but also he’s invested in cattle prices. And

then you have Representative Alan Lowenthal Democrat of California The New York Times calls it especially striking. His disclosure statement said that he had sold Boeing shares on March 20. Twenty one day before a House committee on which he sits. Released damaging findings on the company’s handling of its 737 max jet which was obviously involved in two fatal crashes. So this is getting now a lot of publicity of course. But the issue as you have 97 members of Congress who are involved in this. What is the likelihood they’re really going to move on this legislation. OK.

Well what about the pushback from voters. I mean how much anger is there that they’re getting an edge now. We can track the edge with ETF that you can also invest in. I mean to me the fact that you could even create something where you could potentially join them in their wisdom or knowledge of what’s going to happen. How much public pushback is there. Well at the moment there really isn’t a lot of public pushback. What you see tracking in polls and what people want to go vote on are things like the economy the border

that’s really too big Republican talking points. And then for Democrats it’s the like of what is happening right now with the former president and his issues after the Mar a Lago raid. And they were getting all of his national security documents abortion. These are the issues that obviously are tracking within the public. But I think many Americans probably feel the same way you two do which is how would our viewers feel if I was able to trade oil contracts given the fact that I talked a lot of people in the Orient oil. Industry we would

never be allowed to do it. And I think a big question is why are elected officials who have sensitive information right. And how much is there transparency around what their holdings are when they trade. How quickly do we learn those possession. You learn about them later in these disclosures. It’s not in real time. Right. So it’s a lag time. They’ve got time to even get out of it before you actually get ahead of the bad news. Yeah. Okay. At that point it’s a news story and there’s not a lot of pushback. John what do you

think about this. You know I think about this issue ISE Sciences as well. I think it’s a massive massive problem for policymakers who we expect it to do more when it came to institutions like the Federal Reserve. But at the same time as they were preaching what the Fed should and shouldn’t do. They were doing what they’re doing and I think we’re all uncomfortable with it. Lisa and most journalists would tell you when I think Camry did a great job it just they’re the rules for journalists are stronger than the rules for the people setting

policy which is which is amazing. Yeah. It wasn’t absolutely amazing. It is amazing. And Anne-Marie as we head into the midterm elections you said this really isn’t registering. What’s the latest view. You’ve heard some some people including an offhand who is just saying that she thinks that people are underplaying the chance the Republicans really make inroads in the House. Is that what you’re hearing in terms of the polling even as the Democrats do gain. Well they need six seats right. And they’re boosting up on these advertising campaigns with big money and making sure they can

flip the House. The Senate is the one where there’s more of a question mark. Right. And you had Senator Mitch McConnell come out and say it’s really about the caliber of the candidate potentially. Some of these are a little bit more fringe individuals. That was really backed by the former president and some of his acolytes getting pushed into this big general election. When you look at a Senate race over a House race this is a wide variety of people. So there’s potential that we’re going to have this lame duck Congress obviously because we’ll be split.

And of course the White House will be Democratic. So really a lot of legislation won’t be able to get done except for big ticket items. Obviously they need to get a stopgap funding measure before the midterms. But then after that things like foreign policy where everyone can line up on whether it comes to Taiwan whether it comes to money to Ukraine that’s really the only place you’re going to see individuals really cross the aisle. Mary thank you. Love having you in New York City. Stay around unless you can be with us all week in the

subway. I’m taking a subway because approval ratings so low. Oh come on. It’s true. It’s not that that’s true. It’s not. It’s true. It’s not that low. You know you haven’t seen it. But I trust. I trust. And I’ve seen it. You’ve seen it. I’ve seen it when we were in London together. Mr. Tanner how to behave when she gets out the car. But I’m saying the rage in the other room gets to difference. Like got Bluetooth Anna Edwards the black blast music for the speed. Okay. It’s really not enough is lift it. It’s really

good. I’m telling you I’m over there shaking infested. You Jihye Lee. Live from New York City this morning. Good morning. Can we squeeze out another day of gains on the S&P 500 right now. Just a little bit softer lighter lower negative. A third of one percent on the S&P and still about six percentage points higher than the June lows. Your 2 year is 50 basis points higher than the June highs right now. Up another 2 or 3 basis points were climbing now for a ninth straight session on a two year yield. Its relentless. We’re closing

in on 4 percent 396 on a 10 year. We’re looking at ISE we haven’t seen since 2000 and 7 on a nominal yield on a real yield. You’ve got to go all the way back to twenty eleven. And as Lisa and I have said repeatedly through this morning what’s happening in the bond market is absolute poison for what’s been developing at stocks. Can you get bullish if we’re at 4 percent on a two year yield in the bond market. You’ve got to think about the change as well not just the metals and to capture that

story. Just let’s take a sneak peek at a chart of a two year over the last three four five years just the valley through the pandemic and then up the other side almost going vertical over the last several months. Twelve months ago we were at 20 basis points something like 21 22 basis points. Twelve months ago September 20th 2021. And right now Lisa closing in on 4 percent 396 22. And are we here yet. Right. I mean I guess that that’s really the question. Is this where we stop or do we keep going. And I

guess that’s why people care about the dot plot. I don’t know that that will really give people more of a sense. But you know when do we have a sense of how close we are to finishing this incredible meteoric rise. And you’ve raised a good point. It’s not just about whether we finished the rise or it’s about whether we stay there for an extended period of time. And we have to push out that view several years and weekly a summary of economic projections which include that so-called dot plot where they capture communicate convey that part

of the story. I mean honestly this is the big question. I’m just watching this. And I keep also wondering. We understand the ramifications. You’ve been asking this question for all day of the end of an era. Do we understand those ramifications on the economy at a time when we haven’t seen yields like this going back more than DAX. I don’t think we have. We’re blowing up 10 years of unprecedented monetary policy zero interest rates QE forever negative yielding debt. Think about it when we look back at this period negative yielding debt not just sovereigns but

also corporates as well. And we’re moving away from that. And this idea and Chris run off to teargas was great on this about an hour ago on this program later this idea that you walk away from that blow it up 10 years worth of unprecedented monetary policy and it resolves itself in a couple of quarters. It’s difficult to believe which is the reason why he was talking about a lost decade. And what does that mean in terms of the appeal of cash like instruments. If you’re getting yield there and you’re not necessarily getting reliable returns

within stocks you go back to a stock picker kind of argument or do you just basically say it’s OK to hold out in something more liquid. Jamie semantics. I think it’s got to be the story here. If we have the rate shock we could debate that. Are we about to see the earnings scare started with FedEx last week and we see more of it this week too. Well that’s why I’m watching for it. And today I’ve been really looking at what happened there because they came out and said they’re going to take a billion dollar

hit as a result of the inflation that they’re seeing and the slowdown there. And they’re seeing that that share prices go down by four point four percent as people try to game out what this means going forward. It’s following on to FedEx. It’s following on some of these other warnings and they’re all slightly different. I just. Again how much is this the beginning and how much is this an idiosyncratic shift by different companies. The other company that I am watching is beyond me. I’m sorry John I had to do this. But it’s just kind of

an amazing story. The shares are up 1 percent. That’s kind of not really the story. The story is that chief operating officer was arrested on Saturday about allegations that he beat a man’s nose during an argument after a college football game in Arkansas. A college football game at a college football game. But the reason why so many people find this amusing is because it’s a company that caters to Higgins and people who don’t want to eat meat. You know he put a man’s nose. I’m just there. Are there a lot of questions about that. Does

that mean he’s no longer a vegan. No. You can you could you could debate the culinary meaning behind this. But a lot of people are looking at this as sort of a story of now. It’s interesting. The shares are up. The shares have been absolutely decimated over the past nine months or so as people rethink the proposition for this company. I’m not sure what the connection is there between the stock and that incident. I don’t really. Did you notice. I didn’t even try. I’m just saying stocks are up. But it was a fascinating story. I

felt like we had to kind of put it out there. It’s kind of interesting. Kathy Judge is here to weigh in. Fixing the trust. Well she’s not. Kathy stay with us. That’s why I’m not coming to you on that. Kathy we all want to know a 10 year through 350 a two year approach in 4 percent. Kathy these big guys either one of them for you. Well we like extending duration here. I think it’s unsustainable to have the Fed hiking rates at a very rapid rate doing duty with you know the economy slowing. We’ve had

six months of declining LTI. We’re seeing the housing market decline. These are unsustainable trends. At some stage of the game the Fed will have to shift and or you know we’re just going to go into a deeper recession than we may already be in. And so we do like extending duration albeit yeah rates could continue to move up. I think all we’re getting is a deeper and deeper inversion of the yield curve here. And Kathy this column extended duration ultimately has to be a cold on the economy. Rolling Covid Jeff an idea if the pain

threshold the Fed is willing to go through. Well I did mention pain for households and businesses last time and I think there’s a willingness to let it continue and worsen particularly. I think the Fed wants to see unemployment rise. They won’t say that out loud but I think they want to see labor conditions not as tight as with it. They’ll cut it and they want to see wages slow down. Right now average hourly earnings running about 5.2 percent year over year. It’s leveled off. It’s stabilized but we haven’t seen that decline. And I think their

comfort zone is closer to 3 percent in terms of wage gains than 5 percent. So that is probably what they’re willing to tolerate. The question is whether you know whether risk assets can tolerate that sort of pain. Cathy do care about the hot. Well we have to write because we put it out there but it’s a moving target. I just look at it as a moment in time guesses. I’m not going to take it too seriously. I think it’s a messaging tool. Simply the will show that there are a lot of hype raids and keep

them there for a long time. But it’s a moving target. Kathy I ask this because there’s a question about the credibility of this Federal Reserve the credibility that they’re actually coming up with a thesis that they can follow through on versus just following the market and doing what the market is dictating. How much has that shifted your view of how to operate and how much volatility is going to be injected in these markets at a time when the Fed is not leading anymore. It is apparently following much more with the markets already doing. Yes I

think the Fed is in a position now actually following the inflation data. And we know that inflation is a lagging indicator. We know that monetary policy works with a lag. And so they’ve shifted instead of saying hey we’re on top of this. You know we’re we’re taking action. We’ve got Kuti on top of rapid tightening cycle. They should do it instead of saying OK we know that what we’re doing will make progress in the future to reacting to numbers that are coming out today. And that’s why the risk is for a deeper and deeper slowdown

in the economy. And this was compounded globally. You know we’re seeing this all over the world. And that that makes it even more of a problem for people who are trying to look forward and look at what the Fed is saying versus what the Fed is doing. How much conviction do you have. CAC you are saying it is a good time to go into duration. How much conviction do you have that we’ve seen the highs here at some of the higher levels for longer term treasuries at a time when you’re questioning whether or not we’re

actually already in a recession let alone headed for one. You we feel pretty confident moving out the car out and buying you know 30 year bonds or 10 year bonds here but we do think that it’s unsustainable to see credit spreads widen. The spreads in the economy are the strains in the marketplace. Liquidity isn’t what it used to be. And so if you’re pretty confident that this is the time to start taking advantage of yields where you can lock in an investment grade portfolio right now you can market 4.5 percent yields without taking a tremendous

amount of the risk at risk. We think that that’s a good alternative compared to some of the other asset classes out there. Kathy thank you. They put in Kathy Jones a Charles Schwab on the bond market. Some guys out there in fixed income won’t be the first time you hear that. This morning we’ll catch up with Bob Michael Barr J.P. Morgan Asset Management as we can get down to the open amount a little bit later. If you’re lucky enough fortunate enough to have access to a Bloomberg terminal Fed go and you get a quick snapshot

the forecast of the bottom of that page. The pain bromo that we’re talking about here that the chairman of the Federal Reserve talked about in Jackson Hole Wyoming in that speech several weeks ago. Do you think the forecast will begin to capture it. Unemployment moment for them three point seven percent year and this year 22 23 three point nine per cent in 2024 four point one per cent. That is of course painful for a lot of people to get that number out there. But as a lot of people also looking at this situation and saying

Lisa. They need to see more pain than that to get inflation back towards Target will they start to communicate that in their forecasts. And if they don’t. What does that mean about the credibility about how much people actually trust that they’re communicating the reality of what they’re looking at. And the reason why this is really the discussion right now is because the fact that CPI came in hotter than expected. The real most important data point ahead of this meeting for the Federal Reserve highlights that there perhaps is more momentum than people had expected that you’re

not seeing the deceleration the stickiness of rates the stickiness of higher wages the stickiness of medical bills the stickiness of grocery bills all of these basic items that people pay every day they have to see decelerating in a way that’s going to only happen with that pain. And you have to see them communicate that in some capacity they’re forecasting a soft landing. In the last round raids. I hope that. Right. Thanks America. Mike Griffin doesn’t think they are. He thinks they’re wrong. He thinks we’re going to get a hard landing. And this projection the next

set of projections in the summary of economic projections the forecasts will have to capture that sort of risk of a hard landing. If we’ve got a whole host of guests and the consensus may well be wrong but increasingly the consensus says the landing strip for a soft landing is like this. Who said it yesterday. It’s like landing a jumbo jet on a picnic blanket Saturday. I don’t know. I think he said and asked. It’s all a blur to me. But someone said it and it wasn’t me so they’ll get credit for it and I don’t

want it. But ultimately it’s very very difficult to land this. And yet the Fed is projecting a soft landing based on its current set of forecast. Dani Burger. It takes a great deal of luck. Right. A lot of people have been saying that and they’re not getting that luck. The facts are not cooperating. When you look at the gas prices are low on the margins. You know gasoline prices have come down dramatically. But how long that last. It was NIKKEI Brooke of Wells Fargo and a picnic blanket landing it on a picnic blanket. I think

it was him. The Senate. Is that unlikely or impossible. I think it’s impossible to scuttle it. Like Tom Cruise Maverick. Maybe he could do that right. Let’s let’s get into the Fed see what he could do. 54 54 on a 10 year yields up 50 basis points making green up a little bit later at thirty Eastern Time. Looking forward to that. This is Glenn Beck. Keeping you up today with news from around the world with the first word. I’m Lisa Mateo. The president of Turkey says Russia should return occupied territory to Ukraine as part of

a peace treaty. Recep Tayyip Erdogan told PBS that he had very extensive discussions with Russia’s Vladimir Putin last week. Erwin says Putin had showed him that he’s willing to end the war as soon as possible. Hurricane Fiona has exposed Puerto Rico’s fragile power grid. The storm caused a general blackout that affected the entire U.S. territory of three point one million people. The power outages hit just as Puerto Rico’s electric authority is dealing with a bankruptcy that has no clear end in sight. President Biden’s vow to defend Taiwan with U.S. forces if China invades is making

a U.S. policy shift explicit. A spokeswoman says the president’s comments on CBS 60 Minutes did not mean that the policy toward Taiwan had changed. But the remarks are being seen as a reversal of decades of so-called strategic ambiguity in which the U.S. refused to make its intentions clear. Morgan Stanley will pay U.S. regulators a 35 million dollar fine over data security lapses. The S.E.C. alleged that one of the bank’s units failed to secure the personal data of millions of customers when replacing hard drives and servers. Morgan Stanley agreed to settle the case without admitting or

denying the allegations. Global news 24 hours a day on air and on Bloomberg Quicktake powered by more than twenty seven hundred journalists and analysts. I’m Lisa Mateo. This is Bloomberg. A couple of breaking headlines on Ukraine and Russia. Amari back in a studio for Sam H. What’s the latest. What we’re hearing now from Moscow is they’re gonna have these special elections. A vote on joining Russia for the Lugansk Reason Region. And it’s September twenty third through twenty seventh. And this is according to Interfax the state run media agency in Russia. I spoke to Dmitri coolly

about the Ukrainian foreign minister yesterday and he mentioned this region. He said it’s the only region right now that Russia has full control over. So it would make sense. And this is really a playbook that Russia does if they have full control over this region. They’re going to have an election and just say that these individuals want to be part of Russia. We’ve seen for months Russia really tried to do this in any territory where they’re gaining grounds. And it’s not just about we’re gonna set up an election and send propaganda in there but also

about introducing things like the ruble. So we’ve seen this in Crimea. We’ve seen a number of places and now they’re doing it in the hands. Is it a stretch to suggest that this could be one way that the Russian leader claims success of the special operation the so-called special operation. I think that’s exactly how a lot of people will view this. Putin has said and he said to Xi Jinping he still remains that he is in this quote special operation. Obviously Ukraine the Western world. All with our ISE are viewing this as a war but

potentially back home. And you have seen a I’m not going to sell a lot of pushback but a little bit of individuals talking about the fact that we should be calling this a war. It is a war right now. I mean the head of the Communist Party in the Duma. This is the individual that back in February floated the idea of recognizing Luhansk and Donetsk as separate entities. Then President Putin went in and said he’s gonna have a special operation. That same individual recently said we should call this a war. That would potentially mean having

to go through conscription having to spend more money. But potentially Putin can use this. They can get control of who hands and then he can claim that he’s quote unquote special. A special operation was in fact a success. But to say that Maria today you can join us now from Brussels. Maria let’s get your take on all of this. What’s the significance of these headlines that just crossed in the last 20 minutes. Look Jonathan it is very significant and this are a bold power moves coming out from the Russian Federation. I think for a week

now the question was how would Russia respond to the gains made by the Ukrainian army. That had been an embarrassment for the army in Russia. You’re now seeing as Anne-Marie mentioned potentially this referendum happening in Lugansk which of course Ukraine will never accept. And we’ll see this as part of our territory in Ukraine. And we will never accept what we think is a fake referendum. But also as Anne-Marie mentioned there there has been now rumors now for weeks in Russia that this now will have to shift from a special operation to remember. Vladimir Putin always

says these are professional soldiers or would be no conscription. We move slowly because our soldiers are professional. They do not want to hit civilians. Of course the reality on the ground is very different but I think it does tell you a lot about the mood on the ground in Russia. And there’s two things for me that are that are risky here for. For the Russians. One is when you go for war you never know what the reaction of the people is going to be. There is a big difference between watching a war on television like

it’s reality TV to now being told well now pack your bags you’re going to Ukraine to fight. And then the other one is that if you really believe we could be anywhere near a peaceful resolution this would escalate this because the Ukrainians will say that is our territory. Anything that’s diplomatic if you attach it to the Russian Federation is out of the question. This is still a war. Well and that raises a question Anne-Marie. And I’d love your take on this. But you’re saying that perhaps this offers a potential to claim victory for Vladimir Putin.

We just heard Maria say that it could be viewed as an escalation or escalate the conflict because Ukrainians will not accept this. Is it viewed as an escalate escalation or a potential end game to the conflict if Russia can say we have a victory. Vladimir Putin says we have a victory and can walk away. Well Putin will use that victory at home. But as Maria makes the point there is no way that Ukraine would accept this. And I just saw another headline Interfax saying it’s not just Lugansk but it’s done. Yes. So he’s going to

have these special elections in both these individual entities to see if they will join Russia. And obviously like Crimea this will obviously be very fixed not an actual election. It will be viewed potentially for Putin at home as a success. And then he can even use that as to get conscription of Russian soldiers because that would then be Russian territory. But Ukraine would not accept this. So I don’t see this as an end game only that Putin can claim it as a success. And as Maria said it was quite embarrassing this counter offensive that the

Ukrainians had run in in the Kharkiv area and now they’re moving that to the south. But this is certainly viewed in my eyes as an escalation. Maria how much cohesion is there among the European allies to really support Ukraine in combating this and in this escalation as you see it in the next couple of months. Yeah. And again going back to the point also I think to answer that question and you have to put yourself in the psyche of the Ukrainian people and the Ukrainian government. And if there is something Ukrainian officials repeat is that

either not going to give away territory of anything they want to get Crimea back and they also point to their international borders of 1991. That is what they would declare a victory. When you look at the European response to this there will view it again as an escalation. And a lot of this precipitated the conflict back in February that think this is Vladimir Putin back again with his old tricks. The idea of mediation work and potentially once again that would be out of the question for the European Union. And you heard it from the head

of the European Commission last week in a speech that was very belligerent. We’re going to stand with the Ukrainian people. And there is this one thing that she repeats all the time. This is now an autocracy versus democracy. What they would consider a fake referendum would be once again another demonstration of what in the eyes of the European Union is Russian autocracy. Can I squeeze one more in here. And Anne-Marie perhaps you can respond to this. We heard from the Russian leader in the last week and there was almost a nod towards the concerns that

China had about the situation. How do you think that plays into this. Well I think he could take this to Beijing and say this was my special military operation and I’m successful. That’s what he’s going to do. For the any allies he has now. I mean who is that really at Xi Jinping. It’s North Korea and obviously take it back home. But it was also a a rare really admission that he was making to President Xi saying basically we know you we’ve put you in this difficult spot and you probably have some questions about what

is going on. MH Maria Tadeo to the very best on this story to both of you. Thank you. Our lead paragraph in a write up of this story Granma reads as follows. The Kremlin is moving hastily to stage sham votes on annexing the regions of Ukraine. Its forces still controlled after Cuba’s military drove Russian troops from large areas of territory taken in their seven month old invasion. Yeah I think it’s really important to get the context of this could be viewed as an escalation since Ukraine will not accept this. It will just create more red

lines and more motivation to combat what we’re calling in our story. Sham votes. How does the U.S. respond. And I do wonder some of the European allies as they face off with a very difficult winter. How much unity there is to really provide that support to Ukraine. Quite a time for global leaders to convene in New York City for the UN General Assembly isn’t it. Well how much is this an oil and gas summit. I mean at a certain point how much is this the energy summit to try to figure out how to stave off

a really difficult winter. Maria Maria will continue to provide coverage of this story tweeted today Bloomberg TV and on Bloomberg Radio. On top of the markets two down four tenths of a S&P 500 election of each being. Y Mellon will be joining us very very shortly with futures down and yields higher by five basis points. Your tenure in America 354 34. From New York this is Bloomberg. The US economy is going to have to endure a period of elevated interest rates in order to tackle inflation. Inflation is the worst problem here. It’s going to be

hard to get that longer term inflation under control without a significant disruption to near-term growth. We still gotta get to the next CPI print before you can have any sort of clarity at this point. I think we all know where the data is headed. As the official data catches up and it’s going to be weak and it’s going to be a little bit scary I feel like the market has gotten a little bit ahead of itself. This is Bloomberg Surveillance with Tom Keene Jonathan Ferro and Lisa Abramowicz. Cotton yields are still climbing. Live from New

York City for our audience worldwide. Good morning. Good morning. This is Bloomberg Surveillance live on TV and radio alongside Lisa Abramowicz some Jonathan Ferro NIKKEI back with us for that decision. Day tomorrow. Going into that Fed decision equities down a half of 1 per cent less a year higher. Much higher. You’re saying bond yields still higher. They’re going higher still. I mean I feel like it’s sort of been a broken record not by you but just in general. Call me a broken record of the past. I’m not saying you’re a broken record but it’s been

a one steady note over the past couple of weeks. And at what point do we reach the end. At what point does something break. We’ve seen just sort of a slow bleed on the other side in equity valuations but it hasn’t been dramatic. And that really is interesting to me that resilience that lack of a complete collapse in the face of yields that were unthinkable a year or two ago if I sound like a broken record is because we’ve had nine days of it now I a two year saying nine straight days. I’m happy to

be called a broken record. Suddenly people right now agree with you. It’s fine. Is it Brooke. No. No one is to look at someone at home is just doing I’m parent anyway. Carry on like nothing’s wrong. Care 4 percent on to is just around the corner on a nominal yield the real yield on a 10 year lease. So it’s not just nominal is it’s real to the real yield the highest since 2011. And I keep asking this question. I’ve been a broken record on this. At what point does this become an alternative to equities. And

we are going to ask our next guest about this. But we’ve really been hearing about this idea of you actually can stay in cash and earn something. And at what point does that create that lost decade that Chris Brown was talking about in equities. Because people are fine hanging in there and just clipping coupons. We’ve asked the question haven’t we a million times if we’re 50 basis points higher at the front end versus where we were on June 14th and still 6 percent higher from the lows on June 16th in the equity market. Does it

open up a retest of the lows. And let’s face it not be cool to say that anymore if we’re five or six percentage points away. I would agree. The question is where are the losses going to come from. Because we’ve seen certain names absolutely blown out already and some of the stories are specific. And Chris and I keep going back. This was mentioning Metta Facebook. I know that Tom if you were here would rail at me and say I can’t believe you would call it mad. It’s not matter. It’s Facebook. What does matter even mean.

But it’s been a complete evisceration of evaluation at a time when people are worried about advertising worried about a business model and worried about bringing forward revenues from an era where we’re already seeing low rates completely upend are just you know the fact that we have higher rates completely up that presumptions from the lowered era. We spend a lot of time reading research on the south side. I know you read as much as I do perhaps more. It’s interesting to see the big equity market bulls now not talking about upside potential but talking about limited

downside. And this was remarkable unofficial J.P. Morgan who is still bullish but said this robust earnings slow investor positioning of winning. Could long term inflation expectations should mitigate any downside in risk assets from here. Is that where the conversation is now for the BOVESPA that it’s about limited downside risk and no longer about big upside potential. Is this the most constructive way for you to sort of raise a question of whether this is the most bearish Marco CAC has gotten that he’s basically just talking from into limited outside. You know given the fact that he’s

been such a screaming ball for for so long maybe I do think about what the potential for accidents are. Right. And I think that that perhaps is what he is responding to. There is a fear that something breaks when things move this quickly. When you have a complete reset of some of the presumptions and a lot of people are keeping their eye on Japan and what happens if you have suddenly a wholesale rethink of a bond market that has not been a market for a decade. It’s been capped at 25 basis points at the upper

end of the yield curve control in Japan. Chris Brown is to take us a couple of hours ago on this program signaling that he thinks maybe that could break. What we all ask is what the dominoes are and a fall from that. Can you imagine they step away from yield curve control. And thank you to the individual that wrote to me about this in the last week or so. Of course a lot of problems in this bond market. I keep going back to a couple of different strategists we’ve had on who say that that is

the trigger. That is the difference between a three point five percent 10 year yields in the U.S. and Fuller 5 percent or 5. Yeah some people are saying even 5 that that’s where you start to see yields that climb dramatically maybe not stay there. But really that’s where the fissures start to come into place as suddenly some of those foreign investors have a reason domestically to buy. I wonder what would leave this equity market. Certainly not here. We’ve done a half of 1 percent on the S&P on the Nasdaq were down about six tenths of

one per cent squeezed out a day of gains yesterday. We do the same a little bit later this afternoon. Yields are higher by 5 basis points 354 54. Let’s go straight to Alison of Eden the head of equities and capital market advisory at Ben Y. Menem Wealth Management. Alicia how big is the risk that we’re headed back towards something like 30 400. Well I think it’s a 50 50 percent odds on that. We go there simply because all year that the equity market has really been following the. Market here and as 10 year yields move

higher and pushed through three point five percent. That’s our trigger for another move lower from here. So in thirty nine hundred couldn’t hold. Which was sort of that last vestige of support where there was a lot of supply and a lot of trading previously technically when that didn’t hold. You know it was just kind of clear that as you move bond yields up equity markets are going lower. And really for good reason because the top of the market arrow high growth and tech stocks where the valuations will come down as yields move higher. So it’s

a neat little equation. Unfortunately it’s playing out and that opens up downside from here. But as you say that 366 the the June 17th low is not that far away from here. It’s not it’s not a heroic call to say that anymore. Are we pricing in the weakness that we’re hearing for the likes of Ford from the likes of FedEx that already are starting to sound some profit warnings. So so in an interesting way your conversation about how does this conversation change. Right. How do we move higher from here. It is our view that the

way the equity market can climb out of this hole that it’s kind of got it gotten itself in is for estimates to finally come down and for realistically to price in the slowdown in growth because it’s all been driven by yields even now. Even now estimates are holding in there. You know the forward 12 month on the S&P is something like 17 times. And if you take energy out of it it’s 19 times. That is not a cheap market and it’s not a market reflecting a slowdown in growth. That has to happen. And I think

if you realistically reset growth expectations and earnings then you can begin to bottom. But until that happens wholesale then I think we’re sort of stuck in this purgatory for a while. So this is the part of the conversation where equity strategists where their bond hats because it’s all about rates and this is what we’ve been seeing for a long time. And so you have to come up with a call whether we’re getting to peak hawkishness whether people are already pricing in more than the Fed could potentially do. Do you have a call on that. Is

that something that you want to game out or is there some kind of relative trade that seems a little bit more insulated from those macro guessing games. Great question. I think that the risk is actually two more hawkishness here simply because if you think about that that CPI print was pretty devastating for the Fed’s up plots I think and for the terminal rate on the Fed funds. So that likely goes higher. If that goes higher multiples get compressed further. But that hasn’t happened yet. So I think there is some thought that we’re getting to peak

hawkishness but that’s not going to move the market now. It’s the earnings that are going to move the market in a realistic reset of where we’re going in this. So yes there are relative valuations. Look in the end this is a short duration market. It has been a short duration market. Same in equities and not just in bonds. So we still like utilities are fine. Some staples are fine. Safety is fine. We love real assets. We are allocating our clients real assets because we do think we are in a regime change where inflation remains higher

for longer and rates remain higher for longer as a result. And all you have to do is listen to some of the workers strikes that are going on out there. What happened with the rail strike. I mean these are huge wage increases. This will is a change for the economy. And the rates were guns are going to reflect that going forward. I don’t think we’re going back to a world where you have a 1 percent yield on the 10 year and let’s have a party and buy you know high growth no earning tech stocks. So

we’re still in that short duration world. And to your question are bonds an alternative. Not on the long end but on the short end. They certainly are doing better. And whether a 4 percent yield on a two year is fully reflecting inflation on a real basis. It is not but it’s short a lot better than losing money in the equity market. And they should just quickly wish a time horizon for one of this. It’s so well put together. When you start thinking about these issues sticking with this for longer how much longer are we talking.

Yes we talk 5 10. What is it. So look I was trained as a historian and I look at things in big picture ways in the short term. I think we get a nice bump coming out of the election. OK midyear elections are notoriously difficult leading up to it and you never lose money in the 12 months after the election since 1942. So we likely have a rally coming out of the election and it could be sustainable because we’ll get to that peak nastiness heading into it. Right. We have terrible seasonality now better seasonality but

at the end of the year. So we’re optimistic for how this year came. Stabilize and move higher. Looking forward I think you’ll have to have a more intellectual view of where yields can be and where the market is and where we can grow. And one of my favorite things to do is just look at you know the top 10 stocks of the S&P or the top 10 stocks of the Dow. The beginning of every decade to see the change of of where capital is being allocated and what the growth companies are. And I think you

can make a good case that some of these large cap tech is where the risk is here. Let’s just avoid the down. Just stick to the coach Tom Dunning Kerry. Honestly you know somebody should write that one of the best selection events. If when my man. That was fabulous management. Tech stocks don’t work and make this world that world is a scary place for tech names that’s for sure. What does that mean then for total return for the S&P and the Nasdaq and Cingular given their weighting. Precisely. Futures down six tenths of a time from

New York. This is pulling back. Keeping you up to date with news from around the world with the first word. I’m Lisa Mateo. Federal Reserve policymakers today will begin a two day meeting that’s expected to end with another jumbo interest rate hike according to economists surveyed by Bloomberg. The federal hike its benchmark interest rate by three quarters of a percentage point for the third straight time. Chair Jerome Powell has made it clear the Fed is committed to curbing inflation sooner rather than later. In Japan inflation has accelerated to the fastest pace in more than three

decades and that creates headaches for the Bank of Japan. It will try to explain why it needs to continue with monetary stimulus when inflation is above its 2 percent goal. Consumer prices excluding fresh food rose 2.8 percent in August from a year ago. Britain’s new prime minister Liz Truss says that a trade deal between the U.K. and the U.S. is unlikely in the short to medium term. She says she will focus on alliances elsewhere. Truss spoke to reporters while flying to New York for the annual meeting for the U.N. General Assembly. Bloomberg’s learn that Germany

is closing in on a deal to nationalize gas giant Unilever contracts haven’t been signed. But Berlin is aiming for an announcement this week. Germany has been working on a historic takeover of three large gas importers to prevent a collapse of its energy market. Morgan Stanley will pay U.S. regulators a 35 million dollar fine over data security lapses. The S.E.C. alleged that one of the bank’s units failed to secure the personal data of millions of customers when replacing hard drives and servers. Morgan Stanley agreed to settle the case without admitting or denying the allegations. Global news

24 hours a day. I’m Bloomberg in on Bloomberg Quicktake powered by more than twenty seven hundred journalists and analysts. I’m Lisa Matteo. This is Bloomberg. A strong dollar I don’t think is a problem or an issue for the Federal Reserve. United States policy makers. But it is becoming at least a bothersome I would say for many foreign central banks NIKKEI than the Wells Fargo international economists. Many foreign central banks making decisions this week the risk bank account. Earlier this morning from Sweden with a 100 basis point hike the Swiss National Bank later this week the

Bank of England later this week following the Fed Reserve tomorrow. From New York City this morning. Good morning. Lisa Abramowicz and Jonathan Ferro came back with us tomorrow morning coming in. So tomorrow and a Federal Reserve decision futures down actually softer negative six tenths of 1 percent on the S&P on the NASDAQ down six or seven tenths of 1 percent 354 54 on a 10 year yields up five basis points. Unsurprisingly Lisa people in the program already today. Kathy Jones chart swapping one talking up why you might want to buy a 10 year 355. Right.

Which follows a lot of discussion about peak yields earlier in the yield. But nonetheless people saying that eventually there will be a recession if not caused by monetary policy certainly caused by a confluence of events talking about the wrecks bank over in Sweden. What I find interesting is the krona is actually the weakest that it’s been versus the dollar going back to 2001. That’s some of these some of these moves are not necessarily being effective in terms of supporting the currencies. And this really has been a theme that we’ve seen certainly in Britain and elsewhere.

Sterling a decent example of that going into the fairway on Thursday. Here is some cause for you. Euro and sterling 96 on euro told us to call on sterling on cable one eleven. That call from Mark McCormick global head of Affect Strategy at Tedy Securities. Mark I think people itching itching to face some of this dollar strength. Would you suggest they should do that. And how would you suggest they go about doing it. Yeah that’s a great question because I do think we are slightly transitioning through narratives and effects. I would absolutely not say the

core G10 weakness that we see in Euro Sterling. You talked about stocky and in even Norway those currencies are probably set to weaken and continue lower. I do think that we are getting into an interesting place where we can selectively look at emerging market currencies and see some value there. Kerry’s becoming more important like lately because interest rate volatility starting to peak. And what’s what’s really interesting is that while we are still kind of exploring the Fed’s terminal rate which is now at four and a half and then maybe it’s at four point seventy five

and a week from now. Well what we’re seeing is we saw a very significant amount of tightening in financial conditions and repricing of volatility over the last year. So incrementally we’re not getting more shocks to rates volatility. So what we’re starting to see is like data surprises are starting to improve. We’re starting to see a little less volatility comes around the rate side. And people are getting interested in more emerging markets that offer the yields like Mexico Brazil Indonesia even India. And a turn in the global commodity cycle would also be very interesting for some

of these Asian currencies that offer attractive yields in this environment. Mark how much work if those central banks of those currencies how much work have they done before the Fed even got started. Well a lot of them as you know like us like the central banks in Latin America are where our operating they have to maintain credibility. So they kind of have to front load and they have to write real raise real rates much higher than they would across the U.S.. So you’re getting a real yield pickup in a lot of these places. And again

you have not had the same stagflation environment in Mexico and Brazil. I mean you could actually see the Latin America has been a little bit more insulated from the global south inflationary conditions in every other country in the world. And as you mentioned as well with policy divergence in Asia it’s all about the easing of financial conditions. They’re dealing with disinflationary pressures versus what the U.S. has which is they have to deal with tightening of financial conditions and the inflationary pressures. And the eurozone in Europe in general is dealing with basically an implosion of financial

conditions that’s been dropped on it. So everyone around the world is kind of operating very very differently in this environment. That’s what’s kind of creating a lot of this interest in in different currencies and in Asia and Europe and also in the Americas. John’s question made me think about how much work certain nations did in advance and how much catchup certain nations are doing now and how ineffective some of that catch up will be. Given the fact you still do see for example the krona continuing to weaken despite the recent rate hike and you see

the euro continuing to really flirt with that parity and below levels. How much are rate hikes going to be counterproductive to strengthen these currencies because of the damage that they will do to the economy. That’s a great question because I think part of the credibility that’s been lost for the European central banks is is again it’s not entirely their fault. You are dealing with an external shock that’s come through on the financial conditions and it’s also come through on the terms trade side which is essentially are importing a massive energy bill that is a one

off temporary shock. So break evens in the Eurozone and UK and also we don’t have a good liquidity and break even for Sweden. But inflation expectations across Europe are continuing to surge particularly again if we look at break evens like as proxies for inflation and the central banks can’t raise rates fast enough in the short term. And the concern is is again now we’re getting fiscal stimulus. We’re getting a tremendous amount of fiscal stimulus in the U.K. We’re getting fiscal stimulus in the eurozone. And that is counterproductive for real rates which in the U.S. are

moving to the highest levels we’ve seen on on two year front end. Real rates are basically close to 2 percent depending on how you how you measure this. So right now what. Yes DAX markets responding to is the terms of trade shock which is creating winners and losers on the real rates base. And Europe central banks just can’t keep up with the inflationary shock that’s been imposed on them. And the Fed is doing a better job not because they’ve got more credibility it’s just that they’re handling domestic inflationary pressures which is basically a result of

the pandemic fiscal stimulus. And also the you know the existing folks who have left the labor market which is again dealing with the wage concerns. So there are two completely different shocks. But I think what you’re starting to see is the ECB has gotten ahead of it a little faster. The Bank of England is lagging the most. And again with the BRICS bank with inflation expectations they’re just not where they should be. We’ll hear from Governor Bailey this Thursday. If the Bank of England. Mark thank you Bonnie. Always good to catch up. Matt Michael McKee.

FTSE. Security started to think about what to do with M and maybe fate. Some of that dollar strength selectively. We’re starting to think about steeper yield curve this morning. He’ll tire at the longer end by a nice 10 year by 7 basis points to 356 on a 30 year by 6 or 7 basis points as well. Lisa could have a bit of a breakout on our hands this morning. Yeah. ISE levels what we’re seeing going back to 2014. It’s interesting to see this kind of activity at a time when people are talking about recession when

they’re saying that the front end is doing a lot of the work and it’s going to cause pain that is going to lead to a new reality of slower inflation. And this goes to Felicia Levine’s point where she was saying this is a new regime. She’s recommending real assets because the actual stuff is getting more expensive. And you wonder whether people have accurately priced that into some of their market valuations. If we really are seeing higher for longer not lower for longer. After a decade of the opposite it’s the duration of this cold. Yeah I

think we’re all trying to get get a better idea of how long we’re gonna have to live with this for. How long would it take. The fact that you are seeing the long and rise is fascinating because it suggests a lot longer than people thought. Just a month ago equity futures down seven tenths of one percent on the S&P and the Nasdaq was down a tenths of one percent coming up. Michael Green of the KRON Institute from New York this is Glenn Beck. Some economic data just seconds away on the housing sector. That industry here

in America might NIKKEI is going to break that down for you coming into it. Futures down a tenths of one percent on the S&P. Another like lower on the Nasdaq. We’re down by eight tenths of one percent. Also with your data is my NIKKEI. Well this is a little bit unexpected John. Housing starts in the month of August rose by twelve point two percent after falling nine point six percent the month prior. So it looks like builders may be trying to get some more stuff in the ground before the housing market completely dries up. Building

permits reflect the idea that it is going to because they’re down 10 percent after a six tenths decline the month before. So a big drop in what builders think is going to happen or are planning to make happen compared with a big rise in what they’re making happen. And it’s also August. So maybe the last weather chance for them to get things through privately owned completions private housing completions at a five point four percent drop below July. So the number of houses that are being finished is also falling. So in all it is a picture

of a industry that is slowing significantly. And no doubt because the Fed has raised interest rates and mortgage rates are now above 6 percent and yields are going higher again on a 10 year by 6 or 7 basis points. No big change off the back of the state. See a 10 year 356 year to year 396 up two basis points. The equity market down seven tenths of one per percent on S&P on the NASDAQ 100 down about eight tenths of one percent. Mike the Fed and Chairman Power talked about the totality of the data. We’ve

got all the data now. What does it mean for tomorrow. It means 75 that they’re focused on inflation. So it was the CPI report that is going to be most influential for them. We have seen in some of the other data PMI ISE especially some drops in prices paid and some indications that maybe we’re seeing some inflation peel back to the CoreLogic. People put out a report today that said rent prices have started to slow their increases. So in the long run that will help. But for right now where they are with the core CPI

and core P.S. they’re going to move 75 and give the same message to the markets that Jay Powell did in Jackson Hole. We continue Mike as you prepare your question that will inevitably come at the end of the news conference tomorrow after Jay Powell speaks and you really grill him. How much are you focused on the balance sheet and what they do with the mortgages that they have whether they’re going to unwind that. That’s an interesting question. And it’s being talked about more and more in the markets Lisa. But the feeling is the Fed’s not

going to address it at this meeting because they’ve got the 75 and they want people to focus on the idea that they’re going to keep going on rates. They also have the SGP the new projections and the dot plot. So a lot going on there. But there is a feeling that maybe they’re not going to be able to shrink the balance sheet as far and as much as they thought they were going to and that they might have to sell off some mortgages because at this point nobody is selling and nobody is refinancing. So those

are questions but maybe down the road a little bit in D.C. tomorrow Mike. Absolutely. In the news conference. Looking forward to it. Bob Michael Barr joining me later. Bob Michael every time he joins us. He likes to give him the key question to ask Chairman Powell. Some account for that a little bit later Mike. Joining us now is making three of the Con Institute and senior fellow at Brown University Macon. Can we just start here. And I think it’s really about the economic data and how much this Fed needs to do to get growth below

potential and ultimately get inflation lower. It’s 4 percent at. No and actually John you asked me this a month and a half ago I think on your show and I thought that the Fed would never get to 4 percent. But I’ve changed that view. They certainly will. And probably by the end of this year I think they’re going to have to go higher at the beginning of next year. But then I think they’ll pause. I also think they’ll slow down their rate hikes the further they get away from the neutral rate which you know we

don’t know exactly where it is. But we do know that we’re probably close to it now. Also as Mike said I expect a 75 basis point hike later this week. I expect another 75 basis point hike later this year. That’ll bring us to four by the end of the year. And then we may have an extra hike in the first quarter of next year. But I don’t think they’ll continue at 75 basis points. I think they’ll start to slow down as they’re already going to be in restrictive territory. Is the transmission mechanism of higher yields

effective this time around. We talk about the lag time of how long it takes before this actually starts to slow inflation. From your vantage point is it too slow. Are they going too far based on just trying to do something at least now. Yeah. So that is a question Lisa. And it’s not just a question in terms of what the Fed is doing but if we take a more global perspective. Most major central banks are tightening pretty significantly. I mean the BRICS bank is a good example today. The Bank of England will be tightening pretty

aggressively I think later this week. And so there is a question about when you have this kind of coordinated tightening with the knock on effects are whether it creates sort of a spiral. And I do think the slowdown could be more significant than many economists are expecting. We’re already seeing some slowdown in the housing market in the US. That’s by design right. Higher rates are supposed to take the heat out of the housing market out of car loans you know credit cards as well. So that should start to slow the economy. But we’ve had a

lot of aggressive rate hikes will kick in with a lag. And that’s a lot for an economy to digest. And so we may see trouble not just because we’ve had rate hikes in the US but because pretty much everywhere. But China is hiking rates now. A lot of companies though have taken this time to push out the maturities that they don’t have to borrow in the near term. And you do see a lot of people with fixed rate mortgages that have locked in their their levels of for the low rate period and they’re not going

to be that effective. Is there a problem with transmission. Is there an issue with the Fed being able to raise rates much higher than people previously thought and not shake the economy. And that’s completely change the expectation for how high rates could remain over a longer term. So that could be the case. I would also say adding to that is the massive cash buffer that’s been built up over the course of the pandemic both amongst households in aggregate and also among corporates. I mean loan defaults are at record lows. And so it’s going to take

a while before we see a real pinch to kick in for consumers and companies on the basis of higher rates. That being said you know when consumers finally retrench is a question more of psychology than it is economics. And we don’t actually have a great answer. You know is it enough for them to know that a recession is coming to retrench or do they actually have to experience the recession. We don’t have a great answer for that. But we do know there’s a lot of cash in the U.S. economy because of the pandemic response stimulus

measures. And so that should provide a bit of a buffer and means that the Fed can hike aggressively before pitching us into a recession. So I don’t actually expect a recession in the U.S. before the middle of next year which I think is a bit later than than some other economists are calling out a sense that count versus Europe. Meghan you’ve just been there. How bad is it. Yeah. Europe looks a lot worse. I think Europe will be in contraction by the end of this year. The second quarter outperformed relative to expectations. You know I

think the third quarter can be buoyed by a banner tourism year in the peripheral countries of southern European countries. But the last quarter of this year I think it’s going to be pretty ugly in part because of high energy costs. And I think Europe will be in recession next year early next year already. How much are U.S. company is going to be exposed to the slowdown not only in Europe. And we you also have written a number of pieces about China and some of the problems there. How exposed as the U.S. in ways that people

are not counting for. So I actually think China is the slowdown in China is probably a bigger deal for U.S. companies than than Europe. It’s probably a bigger deal not just because part of the slowdown is driven by 0 Covid policy that I think President Gee will have a hard time pivoting from for a number of reasons. So we may have some form of zero code for a while that’s causing all kinds of factory closures supply chain disruptions that will continue to impact U.S. businesses but also because China’s just such a huge market for some

U.S. businesses and a huge source of global demand. I mean I think Bloomberg consensus has China growing by three and a half percent this year. That’s a hard landing. Certainly we’ll see more stimulus coming out of China after the party Congress. But a lot of that stimulus will be pushing on a string. I mean you can only do so much to push out credit when no one wants to borrow. And I think confidence will be low. Consumer and business confidence in China for a while. So I don’t think that stimulus will really kick in until

next year at some point. So I think it’s the China slowdown that’s being underestimated in the markets and will impact on U.S. companies pretty significantly. Megan thank you for that. We appreciate it. Making Shery Ahn that’s a call institute. Megan not alone on that front. I think it was pneumonia that came out several months ago and said to handle on Chinese GDP this year consensus on a CFC on the Bloomberg terminal three point five for twenty two. Just to pick up on what Megan was saying and they a five point two four twenty three five

percent for 24. I can’t get to the entity here. Never mind gets 20 20 force. We can district that three point five percent. A lot of people got into their low 3s on China for this year. And there is this speculation as we heard from Bill Lee over at Milken of whether that is inflated whether people don’t go below 3 percent because they don’t want to incur the ire of the People’s Party Congress in China. How much though can they pivot from zero Covid and they point to what happened in Hong Kong where they’re actually

trying to reduce some of the quarantining rules to open up more to the world and mainland China is OK with that. Yeah I just I wonder if that’s something like a petri dish. I’m trying to figure out what it would look like to remove some of these restrictions and open up a little bit more at a time when there’s a lot of social angst an uprising about what they’ve been doing. How much would change would that be if you’re cutting Hotel Taccone team but still monitoring people at home. It’s a pretty big change. I’ve had

a friend go over to Hong Kong and it’s a pretty significant thing to have to stay in a hotel and not leave the hotel for days on end and have people cater to you and then get a certificate at the end saying I completed my quarantine time vs. be able to go out. And then at the end of it that note literally means they get they actually get a certificate. That’s ridiculous. I mean that’s what they’re doing. So yes I survived court. I can’t believe I stopped doing this two years later. Well here we are.

And what would happen if they reduced that. If they actually eliminated some of the zero Covid to the commodity market. CAC animal was talking about that. I’m a Nasser at Saudi Aramco talking about these problems gone on for a whole lot longer than just one winter. Lisa it’s gonna be an issue. And I do wonder how much pricing that in at a time when we can’t really get to the end of the year. You’re right to say that. I love how you just rejected outright. You’re just like you know I’m not going to see that

far. So it’s wrong. I you get you into the. I can’t get to. I can’t even get to the next month. Are you kidding. Can’t get to next week or tomorrow. Well 20 minutes away. But to say above Michael Barr JP Morgan Victoria and to get there across Mark I can get down race in there and Sarah Hunt of Alpine words to guide you through the afternoon. They shouldn’t leave the service alone. It’s just me this morning. Smaller costly take case. A smile dream for views on the future and and a better time. Many decades

ago adapting our futures to have six or seven tenths of one percent. Isn’t that a favorite line of his. Adapt and adjust from New York. Adapting and adjusting. This is Bloomberg. Keeping you up today with news from around the world with the first word. I’m Lisa Mateo. The president of Turkey says Russia should return occupied territory to Ukraine as part of a peace treaty. Recep Tayyip Erdogan told PBS that he had a very extensive discussion with Russia’s Vladimir Putin last week. Says. Putin has showed him that he’s willing to end the war as soon as

possible. Hurricane Fiona has exposed Puerto Rico’s fragile power grid. The storm caused a general blackout that affected the entire U.S. territory of three point one million people. The power outages hit just as Puerto Rico’s Electric Power Authority is dealing with a bankruptcy that has no clear end in sight. Well NASDAQ is making its first major push into crypto. The second largest stock exchange will initially offer CASSIDY services for Bitcoin and either to institutional clients or NASDAQ would be competing with crypto firms such as Coinbase Anchorage Digital and Bingo in China. Tesla’s Shanghai factory has finished

upgrading production lines so we can double output to a million vehicles a year. The Shanghai plant accounted for half of Tesla’s deliveries last year. It went to extraordinary lengths to keep the factory running during Shanghai’s Covid lockdown. Switch watch. Exports are on the rise. The Federation of the Swish Swiss Watch Industry says exports increased 15 percent to one point a billion dollars in August. That’s the fastest pace in six months. The most popular shipments included the relatively cheap Swatch Group’s Omega Moon Swatch Global News 24 hours a day on air and on Bloomberg Quicktake powered

by more than twenty seven hundred journalists and analysts and more than 120 countries. I’m Lisa Matteo. This is Bloomberg. I think the Fed wants to see unemployment rises. They won’t say that out loud but I think they want to see labor conditions not as tight as labor put it and they want to see wages slow down. The question is whether you know whether risk assets could tolerate that sort of pain. Some of the big questions. Kathy Jones chief fixed income strategist at Charles Schwab. As we look at short term yields rising to the highest levels

that we’ve seen going back to 2007 really bumping up against that 4 percent level we’re looking right now at a further deterioration in equity futures ahead of the open with about 40 minutes to go really. The Nasdaq seeing more significant losses. The S&P down seven tenths of a percent. People looking at some of those tech sensitive stocks is really driving some of the losses there. Euro once again below parity. Ninety nine. Sixty four. And that 10 year yield reaching the highest level going back to 2011. Have we reached peak yields. The housing market very much

in the forefront as we watch yields rise because mortgage rates have been climbing so significantly. And no one better to speak to this John. Jonathan Miller who has decades studying the industry president and CEO of Miller Samuel he always puts out these fantastic reports that gives these real deep dives into what’s actually happening on the ground. And we’re talking about the pain and we’re talking about homebuilder sentiment rolling over yesterday. We’re talking about what it means to have a mortgage rate at 6 percent. And you are still seeing bidding wars. Are we underestimating the demand

the strength in this housing market. Well absolutely. Before the Fed was raising rates bidding wars in most of the markets recover across the country were dumber in the neighborhood of 50 percent of all transactions Southern California with two thirds of transactions they’re still bidding wars now. So it’s just much more muted. I think that the narrative is that you know you can hear crickets and that is not the case. It’s just not what it was and what it was wasn’t sustainable. But how much are we speaking about idiosyncratic markets. Right. I mean the market in

Connecticut for example very different than the market in Phoenix Arizona or the market in San Francisco. How much are we seeing. Potholes where you are seeing wholesale declines in prices in some areas particularly the Sunbelt darlings whereas other areas are holding in more significantly. I think the the chatter on pricing is more about sellers cutting asking prices more than wholesale price declines throughout a region. You know in aggregate in these regions because inventory is so low even with the increases that we’ve seen there is a fairly firm underpinning underpriced. It’s certainly you know I’m not

saying we’re not looking at some sort of price decline. A couple of quarters out or you know sometime in 2023. But I don’t I don’t see that as a correction scenario because the market was wildly overweighted on the demand side going into this and the inventory was literally obliterated. You know a typical market submarket might have 200 listing just before the Fed rate increase and begin a year. There might have been 10 let’s say twelve listings. Now there’s 50. It’s still 75 percent below. I mean that’s sort of the scenario we’re seeing in the different

markets that we cover. But just the pushback we’re seeing that just the volume of sales drop off a cliff. And a lot of times that’s a precursor to price drops that are more substantial. Right. It really is a matter of where people are willing to transact especially if they’re all in borrowing costs are rising by hundreds of dollars a month. I mean at what point does that housing the sales slowdown translate into something materially in price. Yeah. So typically there is a an average of about a 15 month lag between sales sales correction and some

kind of price decline. I think what many people get wrong in a market pivot like this is the scenario is external event sales activity falls then inventory rises. And then because there’s more supply prices. Correct. But housing prices are sticky on the downside that they take longer to fall than they do to rise. And we’re in that sort of discovery period right now. But what’s different is that supply in general is still relatively low as compared to historical norms. Jonathan you are talking about how just because rent increases are slowing down doesn’t mean they’re going

to see a decline in rents. And you’ve talked to before how rents typically are pretty sticky that they don’t go down that REITs. Does that mean the transmission mechanism of mortgage rates where they are is going to be largely ineffective at bringing down some of the base costs like rents like housing prices that people are imagining is the case. Right. I think housing is about 30 percent of CPI and its owners equivalent rent. It’s not that you know any kind of correction in housing prices is going to bear a little impact on our limited impact

on inflation because it’s owners equivalent rent. And effectively what’s been happening is it’s you have a slowdown in the sales market. And largely because of the loss of affordability with a spike in mortgage rates. Mortgage rates are literally double what they were at the end of December. And this scenario ends up. You’re pushing those people into the rental market which is already tight which keep rents elevated which makes me worry that the that the Fed path is going to be longer than we think in terms of cresting rates higher. How high could mortgage rates go

in your view. Who knows. I. I’m not. It’s funny. About a year ago I was basically saying that race should be in the fives. That would be a more normalized market. Maybe the Sixers. I’m skeptical that they think they can leave the Sixers but but I still think there is some upward movement going forward. There’s no bar yet. A recession. I mean you know the idea that the Fed is taking a baseball bat to the economy is something that you have to factor in housing. Since it’s so large and I’m not sure if that’s going

to be effective just because of the owners equivalent rent calculation driving rents or keeping rent by the OP instead of rising rent is not following rent it’s stabilizing. And in my view and the only thing that’s going to bring rents down is going to be some sort of recession at that point Jonathan. Twenty seconds. Have we overdone the back to cities trend or is that going to continue. I think it stays where it is pretty pretty close to that. This is this is not returning to the mean sort of scenario. We’ve been working from home

too long for this pattern to go away. Jonathan Miller of Miller Samuel thank you so much for being with us. I always love speaking with you and your insights in the housing market especially at a time when some people too many people say this is the best example of the efficacy of a Fed policy of tightening policy of higher rates. And Jonathan Miller casting a little bit of cold water on that and saying actually hasn’t slowed much because it isn’t as interest rate sensitive as many people think. Coming up on balance of power on Bloomberg

TV and radio Congressman Chris Van Hollen Democrat from Maryland. As we countdown to the elections as we look to President Biden’s speech later today tomorrow as he comes to New York City for the United Nations General Assembly. From New York this is Bloomberg.

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