>> i think we are in this new regime. i do not think central banks have a better handle on what is to come next. >> this is about inflation coming in better and the fed adjusting as a result. >> what we can learn from the fed is we have to start entertaining our bull case more. >> i think jerome powell is fixated on this soft landing. >> i have been calling for a soft-ish landing. >> this is "bloomberg surveillance" with jonathan ferro, tom keene and lisa abramowicz. lisa: can we say the year is over? good morning. tom and jon are off today,

hoping to get prepared for the holiday season. tom is helping jon shop for bowties. i am joined by two amazing people. katie greifeld, damian sassower are going to join me the last day of the year. can we say this is the last week of the year? >> this was billed as the last week that mattered. we had so many central bank decisions. we have some data coming next week. we can quietly push to the finish now. lisa: pivot parties turn to pivot manias. >> it is nothing short of spectacular for assets. we have a lot of central bathing -- bank meetings next week. lisa: i saw a rate in peru. i thought, he is going to go crazy to cover that for us. outperformance this week of some

less loved areas was what stood out to me. i was calculating the week to date moves, include a 2% gain on the nasdaq. a 2% gain on the s&p. 9% gain on the kbw index in spirit 6.2% gain for the russell 2000, a true broadening out. katie: it took until the last month and a half of the year but we are getting that broadening out. it is small caps, they have been doing well. it is not these huge, heavy companies at the top of the deck that are outperforming. it is also smaller companies. even as you have some people warning the cost of capital is higher, that is not the best news for these smaller, weaker balance sheets. lisa: do you buy this head fake? damian: a lot of people are talking about feeding this movement. think about jeff from double line saying we are going to see below 3% yields in the u.s. 10 year. katie: who is on the other site of that?

it is none other than bill gross. damian: exactly. you've got mike for early at j.p. morgan scaling back, saying we are going to see more rate cuts than we expected next year. nevertheless, the burden is what will it going to happen. lisa: there seems to be this idea that people had been expecting the fed to hold out and be behind the ecb and others. it was anything but as you were mentioning. the question is, can we see dollar underperformance of the u.s. economy is doing the best? how far can that dollar weakness go in light of true economic weakness in the likes of europe and elsewhere? damian: a lot that has to do with china. from my opinion, you have to be looking at china. the data from china is opaque. it is difficult to get your finger on it this year. that is what a lot of traders are looking at into q1.

lisa: yes, the week is over. the year is over. next week, we get the bank of japan decision. katie: we talk about divergence among the fed, the ecb, the boe and the bank of japan in their only. going to be interesting to see some commentary coming out of japan. we have pce as he reminded me before the show started. there is some stuff happening. lisa: there is a reason to be here. we will be here. the year is not yet over. taking a look at where we are in the morning, we see that pivot party turning into pivot mania in terms of continuing moves, albeit tepidly. s&p futures climbing to all-time highs on a total return basis. people are gaining out now 5000 of the s&p by year end, up almost .25%. shocking considering that is your into targets for so many banks. you are seeing dollar strength retracing some weakness in the

rest of the week as people are wondering whether or not good news is bad news or good news for the dollar, for the u.s. economy. 10 year yields continue their dissent, 3.9166%. they started their week above 4.2%, shocking. crude elevated today. to take you through data points in terms of economic data, empire manufacturing comes out at 8:30 a.m., the first read on december manufacturing. s&p local manufacturing and pmi services come out at 9:45 a.m. the economic surprise in the u.s. has been inflecting upward. the idea a strong economy does not mean inflation is going to restart, this counterintuitive moment we had this week. damian: the economic surprise index is nothing new. this geopolitical risk premium, the war in israel and hamas has not had much of an impact.

i think from an investment standpoint, you have got to look past that. lisa: one thing that has the impact is the deficit in the u.s. from the congressional budget office, the view of the economy including updated projections. let's talk about the deficit again. people seem to have piled into long-term debt. no one seems to be talking about that anymore. katie: that was the hot topic over the summer leading into mid-october when you finally saw that peak above 5% for the 10 year yield. it has fallen out of the conversation. we will see how those 11:00 a.m. numbers are digested. lisa: and if that could be a new potential to end the year. we get capital flows to get a sense of how many international buyers are coming into the market. is the year over? joining us to give us a sense of whether or not, go home, or we can expect another narrative

shift, the lead equity analyst at hargreaves. are you packing it up, rewriting your outlook for next year and saying, we have gotten a pivot and we are going to lean in? >> good morning, great to be back. really, this is a tricky one. we are of the opinion these pauses we are seeing, it is not a pivot. we are not there yet. it is not just i do not see major upsets to the rest of this calendar year. we have to be looking forward. as we head into q one and slightly later on next year, i think this market is behaving in a way that thinks rate cuts are imminent and we have this goldilocks scenario. i do not currently see that. i think there could be a divergence here between what interest rates and the trajectory is and what markets are expecting. i do not want to be a downer here. but, i have some concerns around

that. damian: the nasdaq is at an all-time high. the s&p is not far off. you are calling for a shift from growth to not value, but quality. i wonder if you could expand on that. when you say quality, are you talking about -- what you mean by that? sophie: absolutely. i think what we can say for sure is there is so much uncertainty still. that divergence between what banks are going to do, central banks and what the market is expecting, we think inspectors -- we think investors should be trying to place more quality into their portfolio. i am talking about your old-fashioned names. names with big brand notes, whether they have more reliability or revenue. this expands in different sectors. that is a big consumer conglomerates. you've got aerospace defense. also, within that, you -- there are really a lot of reasons to

be focusing on income, as well, particularly the u.k. has some quite compelling options. that is maybe slightly away from the quality play. i am talking names in the u.k. that have low payout ratios which makes them more resilient when it comes to paying dividends. i think they can be worth the tension. katie: before we get into the rest of the world, i want to talk about how big tech fits into that quality narrative. you talk about brand names. i think about apple, amazon, microsoft, etc., that have amazing cash flow. how do they fit into that? sophie: sure. i think they hold a place. certainly not saying we need to get to tech and ai more generally. but, we know that picking the next big technological game changer is an incredibly difficult thing to do. when looking through the lens of ai and what the winners are going to be next year, we think

it makes sense and the best way to gain exposure is to do so through companies iq mentioned. the core businesses are cash generative, demand is relatively liable. it is a lot steadier than others out there. i think that tech has a place. but, we need to be careful that people are not overweighting towards that area. the u.s. more broadly is looking close to fair value. definitely, have a knock to it but it is not the be-all and end-all and focus on companies that have extra pillars to support them in the coming months. katie: on ai, that is an interesting point. it is hard to identify the game changers at this point. it sounds like you are saying to not necessarily go in on all those aip place. sophie: absolutely. it is, the experts get this and it is difficult to call with things that are so fundamentally

huge. i do not think megatrend is the right word. certainly, do not ignore it. that would not be a good thing to do. absolutely, focus on those companies that have the deep pockets to throw at this. apple has it. microsoft, they also got good, underlying businesses. rather than looking at the start up angle from this or those with less of a premium track record, maybe look at companies that will offer investigation and you get the best of both worlds. lisa: there is a sense you like outside of the u.s. more than you like in the u.s. because of discounted chairs. we are seeing economic data diverge considerably in terms of the flash pmi's we got earlier this morning. how do you justify the idea that there is more room to run in some european equities at a time where we have a somewhat semi, may be lacking conviction, but

hawkish ecb head and you are dealing with souring economic data? sophie: it is definitely incredibly tough. there are pockets particular within the u.k. and the e.u. that we would not be beginning to get excited about. the difference is particularly in the u.k., there are situations where things have been harshly oversold, and my opinion. if there is great income potential that is potentially being ignored. that said, the u.s. has a great deal of incredible companies. the resilience of the economy has been phenomenal. that could not and should not be forgotten. what i would say is this idea of a soft landing or zero recession is not guaranteed yet. particularly for me, data points i look like, the rates that increase in interest payments on personal items.

you look at personal items, that is a quite scary gradient. i do not think that idea of consumer weakening and economic activity slowdowns necessarily being fully priced in. lisa: thank you for being with us. sophie of hargreaves lansdown joining us as we parse through the rubble that has been the past couple of days. what a tremendous reset, given the fact so many people are expecting the ecb to cut rates before the federal reserve starting early next week. damian: it has been a feature of this move. how much runway is there as we head into 2024? it remains as the key question. what is the impact on equity earnings from that? sophie mentioned u.k. equities, but i am not convinced. i think it is largely a currency story. we will see how much runway there is for dollar weakness. lisa: which goes to your point,

katie, earnings have been solid in the u.s. tech has been an unbelievable driver. it must be exhausting for fund managers to get that question. katie: especially when trying to pitch to the rest of the world, pinch european equities. europe does not have the american tech companies and unless you get a sustained broadening out of this rally, it is a hard sell. lisa: which is reason why we keep seeing the u.s. outperform this morning. when you take a look at the dollar, regaining some ground it has lost aggressively over the past week. the euro 1.09. people are talking parity, not so much anymore. 10 year yields, 3.91%. ♪ - so, the question is... - cyber attack! as cyber criminals expand their toolkit, we must expand as well.

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turnover those responsible and give up the hostages. three simple things. this could be over today. lisa: that is john kirby outlining the three conditions for hamas in order to end the war as there is a shift in tone with respect to the ministration cautioning israel to take more of a surgical approach and start to shift away from some of the airstrikes. we have been talking about the israel-hamas war. we have lost focus of another war, ukraine. we have been focused all week with respect to whether they can get aid from the u.s., but also from the european union. that's get to it. this is an important conversation. john lieberman joining us now. i want to start there. considering the fact it was not just the u.s. that failed to pass eight after volodymyr zelenskyy came to washington, d.c. but overnight, the e.u., as well, failing to get anything

through before the end of the year. john: [indiscernible] it makes it hard to get anything done. in the u.s., this is less of an urgent issue then in the e.u., which has a lot a veto points. anyone country can stop the aid for flowing from now. this is a much higher stakes issue in europe then it is for the united states. probably, the europeans are going to be potentially more reliable partners than the united states is. it looks right now that the u.s. is set to punt on this issue, perhaps into january of next year when further funding for ukraine will be tied up not only in the congress's ability to negotiate border funds but in their ability to avoid a government shutdown. this is a messy negotiation. the outlook does not look great for the continued major flow of weapons and support we have seen the ukraine so far. katie: that is what i wanted to talk about, the point you made

that this is a higher priority, a bigger issue with more urgency when it talks to the -- when it comes to the e.u. that debate between more u.s. aid for ukraine where the republicans pushing for more order security. who do you think, what does the compromise look like and how does this evolve in january? john: the republicans have the upper hand in the debate now because they have the ability to veto any additional aid because speaker mike johnson can say, thanks for your effort to the senate, i am not putting your bill on the floor unless i like it. there is almost certainly enough votes in the house and senate to pass more grain aid plus more border funds. the republicans are using this as a leverage point to hold out for everything they want on the southern border. changing asylum rules, creating more ability for the government to deport illegal immigrants. the democrats are saying, no, we are not going to do that.

they think this is inhumane and do not want to treat migrants on the southern border that way. ultimately, the compromise is going to be something like what biden proposed, which is tens of billions of dollars in additional aid for ukraine. and the border. the whole thing could fall apart because the two sides are not close to agreeing on this border issue, which right now is the linchpin towards getting a deal. damian: back to europe, i would like to talk about hungary. i would like to talk about the fit as party. what is going on there? what does victor or bond represent, the leaf of the hungarian people? they are holding up the 50 billion in odd funds to ukraine, the only e.u. member doing that. what comes next? john: they are holding up the money. they walked out of the room when it came to the ukraine e central talks. it seems -- what kind of game he is playing is unclear right now. he is trying to flex a muscle

within that you and ensure hungary's influence is felt. i think for both of these bodies, this debate is far from over and there is still more negotiating that could happen both within the e.u. and united states. it is hard to say why he is doing things this way. it looks like he is trying to use leverage over the e.u. for hungary. damian: hungary is generally viewed as the closest ally to china within that you can we read into that? is china pulling the strings behind the scenes? john: difficult to say, especially at this point. the outcome yesterday was unexpected particularly on the fact they let the ukraine ascension go forward. that is a long-term process. it is going to take many years for ukraine to qualify for e.u. membership. it is difficult to say what china benefits from the e.u. not funding this war. i think what china once is the end of the war as quickly as

possible, but not necessarily on russia's terms. which is where this is going to india up if the ukraine can't get more aid out of its western partners. lisa: are you basically saying that russia will win if ukraine does not get more aid? john: if ukraine does not get more aid, russia has the upper hand. they got manufacturing capabilities and the long-term timeframe to wear down the west. ukraine needs the west to step up. if they do not, they will win this war. lisa: in the meantime, we are dealing with the hamas-israel war. there seems to be a tone shift from this administration morning israel against more indiscriminate attacks, airstrikes or more broad-based military action and surgical types of procedures going forward. how big of a deal do you think this is? john: the horrors of what happened on october 7, the political liability for biden and the israeli response in gaza is growing.

biden, there is a lot of damage done for him to mystically -- domestically among the left of progressive voters. i think the humanitarian situation in gaza is becoming untenable for the united states to support. biden is only shifting his tone, the u.s. is still supporting israeli militarily and will continue to do so for the foreseeable future. there is a broad consent among the united states congress that israel has a right to defend elf and will continue to do so with u.s. support. for biden, this is becoming a political liability and they are going to put more pressure on israel privately and publicly to be more tactical in what they want to do and how they approach this. but, that does not mean israel is going to stop and the u.s. is going to stop supporting them. but the u.s. wants to see is a hastening to the next stage of this war, where hamas is removed and you can move to a postwar

period and rebuilding. katie: to your point on political pressure, we are talking about how the biden administration is handling this. let's talk about joe biden, the presidential candidate for -- you think about these hot wars happening in other parts of the world, how is the american public ranking that when they head to the polls? john: wars are bad for biden because it gives this narrative to trump the world is on fire and trump, ignoring covid, is going to say, when i was president we had peace, prosperity, growing real incomes. there was no inflation and he did not have wars around the globe that he is going to attribute to president biden's withdrawal from afghanistan. from a political matter, the wars are going to play in a major way then the narrative of the u.s. election next year, even though foreign policy is typically not a top issue for american voters. i think that works to trump's

benefit, there is nothing biden can do about it. he is committed to funding ukraine if he can get the money and to defending -- to allowing israel to defend itself. it is going to be a problem for him next year if these wars are still raging in the middle of the u.s. campaign. lisa: thank you for being with us. we appreciate the insights, especially at a time where growing concern around both of these conflicts. katie, you were mentioning the election season coming 12 months away. it does not feel like we are less than 12 months away from the election. katie: time is passing quickly and we are expecting that to pick up in january. we know the trump camp is planning a big push, especially when it comes to iowa. a lot more on that. lisa: do markets care, damien? damian: they have not recently, if you look at the price action. i would have loved to have gotten john back on here. the fact he is saying wars are

bad for the biden campaign, i am not sure. sometimes, war can be a good thing in an election year if you have both parties believing that you should be in support of israel, in support of hamas. it can sometimes be a good thing. lisa: the problem is, right now, there is so much disagreement for the democratic party in particular. how do you get that in your party if there is so much disagreement? we will be talking about china data overnight, mixed signals in terms of the economy over there. i am pleased to say the chief economist will be joining us to break it down, what the chances are, some stimulus as we see the pivot party turning into pivot mania in the united states. ♪

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lisa: an incredible week of rallies and bonds and stocks as people embrace the idea of a pivot, the party turns to a ranger as people getting endorsement from fed chair powell. building on gains from this week that are more than 2%, similar gains for the nasdaq 100 although interestingly, i will say this. it has lagged behind some other areas. joining me today, katie greifeld and damian sassower our. that is what got my attention. a 9% gain in regional stocks at

a time when 2% gain when katie: it comes to the s&p. i do not think it is going to be enough momentum to switch up the leaderboard for the year overall. this broadening out has been remarkable in a year that has been dominated by big tech stocks. take a look at the sector level, complete reversal the last several years. damian: we see that with the euro rallying versus the dollar. it has been a value catch up. i do not think that is unexpected given where we are in the cycle. lisa: bonds, that is basically what has been driving the action. it yields plunging by 30 basis points on the week, one percentage point decline -- more than one percentage point decline. i am trying to wrap my head around that. this is shocking, the idea we could have a complete reversal in all narratives, whether the

deficit, the international buyers would come in. damian: auctions, crowding out. you and i are the only people that would care about auctions. you have to get a gauge for sentiment. primary markets are the best way to do it. if there is demand for treasuries at these levels, feed the duck while it is quacking. katie: nobody cares about treasury auctions while you do. when you have a bad sale, everyone seems to be an expert. lisa: we are also watching the euro and how much it has been flipping and flopping this week. it has been flipping to the upside most of the week. today, the downside as people look weaker than expected data in the euro region offsetting a hawkish tone from the ecb even with the pivot we have gotten from the fed. general motors cutting 1300 jobs and two plants in michigan. layoffs at one of the plants is tied to the end of the chevy

volt ev which will no longer be produced in 2024. general motors cutting 24% of jobs after a driverless car hit a pedestrian in san francisco in october causing life-threatening injuries. you are sounding sad. are you sad about the loss of self driving vehicles? damian: honestly, about the money gm paid last quarter alone and are now laying off 900 people. you have to take a thomas driving for what it is worth. -- a thomas -- autonomos driving. lisa: i am struck by the fact we are looking at a company that has a lot of secular issues facing it, the transition to electric vehicles, the increase in costs from the uaw contract, the competition from a broad. how much can we talk about these job cuts as indicative of a broader retracement from

corporate america? katie: i think the auto industry is going to be a fascinating story to watch in 2024 as it deals with some issues. the big talk of the town over the past few months is, where is the demand for ev's? did we grossly underestimated? you think about range anxiety, the cost you mentioned, i do not know if we are going to meet those lofty targets. lisa: oil is a pressure in europe, euro area pmi's contracting for the seventh straight month coming below estimates for december. separate data for france and germany showing the downturn worsened. traders adding to bets and ecb rate cuts for next year after the bank held rates steady yesterday. the actual economy, and the fact nobody believes christine lagarde and her hawkish tone is today. how much can you see that recession developing in a more significant way especially in light of a lack of a bone thrown

to markets for lagarde? damian: very much so, a lot of it coming from china. let's be clear. i believe the consensus you are going into a recession remains to be seen. look at the price action on the back of the pmi data overnight. literally touching 1.10. it is more of what we have seen in the u.s. the last week. there is room for weeks to come down in europe. lisa: which is a reason why i think a lot of people are for the u.s. regardless of underpricing they are seeing elsewhere. katie: you think about the haven aspects in the dollar that are in the treasury market and it is hard to deny. lisa: talking about china, janet yellen planning another trip for china next year. she says she expects to focus on difficult areas of concern with my counterpart. and restated national security as the top priority. [video clip] >> we will seek to cooperate

with china on global challenges. because our national security must remain our foremost priority, we will deploy our economic tools when needed to secure our country's national security interests and protect human rights. lisa: one of the biggest wildcards for next year is going to be china and the u.s. relationship. there has been accusation that u.s. companies have been dictating foreign more than the government. are we getting a sense that the government is moving toward companies or the other way around? katie: it is one of the big issues that janet yellen is trying to dance around. it is interesting to watch her merge as one of the key architects and bringing these countries back together, establishing this relationship although there are huge issues that remain, especially when it comes to the semiconductor industry. damian: moody's put a negative outlook on china a few weeks back. we saw fixed investment coming

back better than investment -- coming back better than anticipated. i think what is interesting is the fixed last night was the strongest we have seen in some time. that means china is a proponent of seeing the yuan o higher from here relative to the dollar. lisa: how much are they actually going to do? this is the ultimate question for next year not just with respect to china but with respect to the european markets in particular. billy knows about this well and we are pleased get him to weigh in on this, he is chief economist at the milken institute with years of experience watching chinese markets, understanding the psychology behind that. do you think what we have seen so far with respect to stimulus is the tip of the iceberg for the pboc? >> china is suffering form lack -- from lack of demand, de-risking the u.s. and china are involved in, bad demographics in heavy debt.

they have a lot of headwinds to deal with. right now, the management of the economy, the central economic work conference that just took place, they point out old solutions. most of the supply side, make our industries modern, try to shift our resources to try to bolster the supplies side of the any factoring sector. that is not the solution that they need to support the economy because the real problem at least in the short rum is deficient demand. there is no one willing to consume. i think the fiscal policy on the part of the chinese is one where they have an ad version two putting support into the household and private sector. instead, they want to shift emphasis on to the public sector. that is one of china's key problems. damian: as u.s. election season ramps up, many are expecting china-u.s. trade rhetoric to pick up again. do you see markets beginning to price in an increase in u.s. tariffs on china? william: one of the things that

is going to come out of the election campaign is that everyone will agree that we need to the risk from china. one of the results we have already seen is a diversion of capital faults to the rest of asia and unfortunately, the chinese do not seem to recognize the seriousness of this. president xi has not addressed anything past the speech he gave in san francisco about how china is open to foreign investors. they have not done anything to reduce the espionage act and measures to make it difficult for foreign investors to get into china. this heated debate that is going to be amplified by the election is going to make tensions even worse. that is why secretary yellen is going ahead of the wave and trying to get a charm offensive going on both sides, both from the chinese and from our side. damian: when the china-u.s. trade war started, there was talk from multinationals about

how they cannot afford to pull out of china. demand coming out of china. fast forward and here we are, the cost of doing business in china has gone up considerably. what are the national saying? do they want to continue doing this is in china? william: the people already in china are ones that are plotting president she's speech. saying we are going to stay in china, china is our market. if you ask, where are you putting the marginal dollar? more often than not you're going to hear, i need to diversify my supply chains, find places that are cheaper for my manufacturing. that is often other parts of asia. the policies that china has put in place have not done themselves well in terms of keeping investors there and attracting more money. katie: let's talk about investors. you mentioned the multinational perspective. when he thing about confidence on the part of investors, is that they and how do you restore it? william: china is thought of it

the -- as the great market is they have to sell one coke and i'm going to make a fortune because there are so many people there. one of the things people are realizing his while there is a huge population, it is a population not currently willing to spend because they do not have the confidence in their income and not have the wealth to be secure because of property market. without a public safety net as one of the supports china can offer their people, people are saving a lot of their money and american investors and western investors are realizing it is not a safe market in the near term until china is able to put in safety nets that will assure the chinese consumer that their income is secure and their wealth is secure. lisa: did fed chair powell give a lifeline to china and the rest of the world given the fact there is a massive shift in tone this week? william: absolutely. one of the things we worried about was whether the transmission of monetary policy was effective or not. we looked at the middle interest

rate. right now if you look at the belly of the curve, the most liquid part of the curve, you see real rates adjusted for inflation is somewhere over 2%. that meant we were drawing in capital from the rest of the world. chair powell by saying we are targeting that real rate and reducing it, lowering the fed funds rate, that will reduce the real rate differential between us and the rest of the world and stem some outflow coming out of china. lisa: we have seen some of the biggest to day declines in real rates going back to the height of the pandemic. five year real rates 1.6 9%, down from a high in early october of two .6%. do you think this is overdone, given the fact we are getting stronger than expected data and yesterday's retail sales came in stronger? is it consistent for you to see a stronger economy and ongoing disinflation regardless of the fact we have a fully employed

america? william: we have always counted on markets overreacting. this is another example of markets overreacting. chair powell put rate cuts on the table because you want markets to lower real term interest rates. it gives him time to adjust the federal -- the fed funds rate, wait until spring or summer before starting implementation of rate cuts. that way, he can smoothly navigate that real rate down. if something goes wrong, he has the option to raise rates to offset upward inflation or go down further if the economy were to go south. lisa: thank you so much for being with us. the volatility we have seen the past week, the past year, has been shocking. you wonder what the consequence is of these whipsaw moves in full faith and credit, benchmark rate for all other instruments. katie: it has been fascinating to watch the epicenter of

volatility become the balance of bond markets. whether there is a pathan switch, maybe that goes back to equities in 2024 as the fed steps away, i do not know. damian: when i think of volatility, i can't believe you guys are saying there is volatility. there is no volatility. now is the time to start buying. it is time to hedge up your bets. lisa: you are seeing volatility when you look at the moving index. coming up, bloomberg's maria tadeo on the leaders summit as they parse over ukraine aid and the fiscal backdrop amid a hawkish ecb. right now, a lift to markets as the pivot party turns to pivot glory. this is blue -- this is bloomberg. ♪ ♪

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>> we did not discuss rate cuts at all. no discussion, no debate on this

issue. i think everybody in the room takes the view that between hike and cut, there is a whole lactose, whole beach of hold. looks like, i do not know, liquid gas. you do not go from solid to gas without going through liquid phase. lisa: ecb president christine lagarde recovering from covid, speaking yesterday, taking a different tone from the fed. tom and jon are off preparing for the holiday season. katie greifeld and ayman sass are joining us. -- damian sassower joining us. it sounded like she had a different tone than fed chair powell and no one bought it. damian: of course not. full disclosure, i love she was explaining the movement from gas to liquid to solid. katie: damian: i needed a refresher. that was helpful. how long can they hold out with the euro above 110?

that is going to make it more difficult to hit them out of the economic funk. katie: when it comes to the fact you have the fed handing markets a gift, then you had president lagarde pushing back, the market not believing her, there was an interesting quote in bloomberg news from the time being, it is only the words of jay powell that carry weight coming from rbc bombay asset management. the ecb, the bank of england can try to go their own way. it is the fed is anchored. lisa: which gives us a sense on why everyone focused on the fact it couple of words were taken out of the statement, inflation is expected to remain too high for too long and this was alone enough for people to say, we are going to cut. maria tadeo is going to let us know, is that the pivot? maria: it was not. i was not shocked by the tone

she took in the press conference. the way you look at the central bank and you know how it operates, internally they want to stretch for as long as they credibly -- i say credibly because there will be question marks if we get data the next few months and data that points to an economy that is softer. they want to stretch as long as they can. this theme for higher for longer rates, she did not want to precipitate the talk of cuts. they say they want to look more into the data. the governing council and the way they operate and the idea they feel cutting too soon be enforced pressure could undo some work they have done the past year. it is about the immediate ramifications on the political and social front across europe. they worry about that. i was not shocked. the question going forward is, how long can she credibly sustain that lining?

the central bank has been criticized that times for being too optimistic. and perhaps not being that optimistic about the monetary policy, which shows inflation is coming down fast. it is in that tension that will dictate the tone she takes in the next few meetings. katie: let's talk about that tension more. i love this quote from christine lagarde saying that the ecb, it is not time-dependent, it is data-dependent. as you have mentioned, the ecb, they are not going to lower their guard when it comes to inflation. you look at the data coming out overnight, recessionary signals there. at what point do those growth figures force christine lagarde's hand here? maria: yes, by the way they always say they are data dependent, they do not focus on the fed, they always say we are not as fed driven, we respond to our own dynamics and believe whether right or not inflation dynamics, growth dynamics, labor

dynamics are different across the e you -- eu. you have to listen to that press conference. when it comes to the data, she said it will guide our future decisions and she talked about the first half of the year. this is not a story she wants to present as a q1 and we see. she talked about the first half of the year, it will be data rich and we will get a better picture of where the european economies going. you get a points like the one you had today with pmi's, which are softer. you continue to get may be better than expected inflation prints, that is going to build the central bank and get it in a position where they will be criticized as to whether or not they are running the economy and the prospects for it. let's switch gears and talk about the e.u. summit happening now, the boat we got yesterday when it comes to ukraine aid. hungary, sitting out, vetoing

that. what will make hungary budget here? maria: on that, i would say we have to be more nuanced. you could argue he vetoed part of the deal but not the succession talks for ukraine to one day enter the european union. the process sets the wheels in motion for one day ukraine to join the e.u. and that was politically significant for the country and there was an agreement on that not because he voted a favor but because he exited the room at one point, the german tensile are told him -- chancellor told him, we want a vote unanimously. the best way to go about this is, exit, leave. he left when the deal came to a head. we know the 50 billion package the pledge the e.u. has made, that was not agreed yesterday. he said he could not agree with the structure. i am being told by sources today the european leaders believe come january they will have

another meeting in brussels and can get this through the finish line. they say the situation funding ukraine does have the money to bridge this gap until they meet again in january. when you speak to ukrainians, they say they take a different note. when you are in a war, you want the money and weapons as soon as you can. damian: after 13 years and offers, many argue viktor orban and hungary are at a kleptocracy. do you believe it is more important to the hungarian people it should be restricted? maria: it is a complex situation because it is undeniable that viktor orban, the election , haswon numerous times. he is the prime minister of hungary. when he comes to brussels, he speaks to some extent the voice of the hungarian people. there are opinions on what to do with ukraine, which we should note that for all of the optics

and testosterone viktor orban carries, when you are in a room with him, you feel it. yesterday, he was isolated in a number of topics when it comes to funding. this is a play he does to get his own funding and money. if you asked me with -- will there be money for ukraine come january, i would say it is likely. damian: i wonder if you could expand on that, why is the e.u. holding up funds to hungary and can russell's release those funds? is there any discussion there? maria: the funding -- how much time do you have? this is a story that goes back years or has been concerns, there are serious concerns about the judiciary in hungary about the idea of rule of law, but the separation of power which the european union has at times been dented by the orb and administration. there is funding the e.u. provides to all countries across the euro area in a differing

amount. that funding has been blocked for many years for hungary. the hungarians say they have made progress. they amended legislation to get the full package. they got a part of it and the inclination would be now that viktor orban would continue to push until he gets the amount of money he believes he deserves. it is a complex task for the european union. you do not want to be seen as compromising rule of law and the democratic values of the e.u. they have to cater to the needs of ukraine. it is being floated if there is not a fully unanimous deal in january, maybe they can do 26 countries minus hungary, that is complicated. europeans say we did not get this deal, ukraine can reach it until january and there will be a deal come january. lisa: maria tadeo, thank you for being with us. i love that she can drop in

testosterone she felt from viktor orban into the conversation. we are going to be speaking with julian emanuel, at a time where people are gaining out the possibility of the snb hitting 5000 in the next few weeks. this from tony roth. katie, do you hear this as some sort of -- you have no idea given how quickly things have moved. katie: it is also the path to get there, which i find interesting, especially as we will forward this rate cut pricing. it is going to be interesting to hear from julian emanuel about the path he sees. it looks rocky. damian: and trading conditions, anything could happen into year end. that is a huge move, but on light volumes, anything could happen. lisa: you think everyone is going home/ damian: everyone has gone home. lisa: if you are watching from your home, welcome. coming up, that conversation with julian emanuel.

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>> jean we are in this new regime -- we are in this new regime. >> will be learned from the fed is we have to start entertaining our bull case more. >> jerome powell is fixated on the soft landing. >> i have been calling for a soft landing and now i have more conviction. >> this is bloomberg surveillance with tom keene,

jonathan ferro and lisa abramowicz. >> welcome back. i am pleased to say that joining me is katie greifeld and davey and sass our as we parts -- as we parts through a week that shattered expectations. >> is been too long. there's plenty of data to digest. i don't see how people can take a vacation yet. >> you take a look at futures edits been a trend. i hope i did not jinx it but after a massive reality it nine

point to settle on. >> >> settling near a level near 3.9%. have we found the center of gravity lowered to yields with the sense that maybe the sky is the limit as everyone welcomes this disinflation? >> someone makes a good point. she says it's the two sides of the dollar smile. u.s. exceptionalism. the dollar will rally. but the middle ground is shallow. the market will bounce back between the two. it is these extremes driving the market. that is why the range is expanding and we are not seeing the volatility but we are seeing the price action across the board. >> we have talked about how everyone will be rewriting their outlook for next year. two weeks ago, no need. katie said something important, where you said it's the path.

it is not necessarily getting to 5500 as some are projecting. . what? >> that is the big question. looks like we are heading to a soft landing. even if we have to wait until march, that's quite significant. >> in markets, you can see a left after an incredible rally. a rally in the russell 2000, particularly the kbw index. s&p futures up.

the euro regaining some gains. the 10-year yield in stasis but inflected lower and considering the fact that we started about 4.2% and are now at 3.1%, this is u.s. debt having a lift in crude -- lift and crude, north of $71. we are looking at a slower day after a wild week. manufacturing coming out at 8:30. u.s. global coming out at 8:30. surprises in the u.s. have started to inflect upward, meaning better-than-expected more frequently, and again, this confirms the idea we have a stronger-than-expected economy. katie: how do markets read that better-than-expected data? for so long, good news has been bad news.

not to trot out tortured phrases but may be good news. lisa: good news, soft landing. the cbo will publish their view of the economy from 2023 to 2025, including updated projections. i care about auctions. this is when people parts through a window we have to care about the deficit? damian: the question is not whether the fed will cut but why. what is the reason they will use when and if they cut? is it enough to say inflation is below target? it will be a difficult argument to make. lisa: it is. there's also the question of foreign investment. capital flows get pointed too given the fact there's been a question about whether they will come back given that hedging values are cheaper. julian emanuel calling for the s&p 500 to in next year at 4750, where we are now.

he sees a pullback in the first half that will take the index to 3970 and a rally kicking in prior to the 2024 election based on the recession trough and inflation falling to 2%. julian i'm glad to say is doing is now. you are calling for a big drawdown. does that mean you are against what we are seeing now? >> in the context of typical drawdowns, it is not a big, would you tend to see most years . you did not see it in 2023, which is why we have this great feeling and momentum in december. look, the message we got from the fed was very much an all clear. the markets responded in kind but when you think about that and go back to july, when we had

the interim peak at the time of the last hike cycle. there was a diminution of the wall of worry. that does not exist now. even if you manage to skirt around the recession, which is possible, and the data does not show we are in imminent danger, but if you do, there will likely be a scary time just because there is so much optimism in the markets now. lisa: so that is what you think will crack it, bad economic data? that is what you think will spur the downside, not any kind of retracement around the idea of a fed pivot? julian: no. the fed will not -- and list the inflation data surprises to the upside -- unless the inflation data surprises to the upside, which i don't think will be the case, though i would observe that oil and other

things have rallied in response, but no, i think, based on what we have seen, the fed will likely try and be as quiet as it can for the next several months. damian: does that mean it drops out as a driver? you think about the equity markets that have been so macro driven for quite a long time. if the fed is really on hold and starts cutting, those rate cuts priced in, that we start paying more attention to corporate fundamentals? julian: the fed will never disappear in this cycle because it is so unusual, but we will turn the page should january -- page to january, have elections in taiwan and fourth-quarter earnings reporting season. from our view, it's not that big a deal, but the consensus is too high in terms of earnings expectations. those will be walked back. and as has been the case the

entire year, the important thing will be the price reaction to the news. all the volatility of this year has been almost exclusively the purview of the bond markets. it's been relatively quiet in terms of credit, equity. we think that will change next year. damian: let's say i agree with you and i believe the time is now to get defensive. do i want to be rotating into those defensive sectors like staples, health care, or using options? do i want to be buying puts, selling calls? julian: so the beauty of what we have had the last number of months is that some of them were classically defensive areas have not actually been the beneficiary of interest rates coming down is inflation coming down -- down and inflation coming down.

there's been a lot of confusion and a lot of fear around the gop phenomenon, so people have stayed away from there, but now we are in a place where, particularly when you think about inflation, input costs into those suckers are moderating. wage gains are starting to moderate. they will benefit and the work we have done shows the defensive sectors, staples and health care particularly, tend to outperform on average from the time of the last fed hike to the time of the first cut first -- of the first cut. katie: are you looking to hedge here? julian: so it is something where, particularly if -- and we say this in terms of the retail investor's mindset, is it you

want to envision yourself as a buyer down 15%. if you don't see yourself as a buyer because buying the dips has been a strategy that has worked our entire lifetimes, we don't see that changing, then take advantage of the fact that options are inexpensive. lisa: will bond yields go lower in this scenario? julian: i think the bond yields are may be getting to some sort of stasis. because if we do have an economic turn down or growth scare, that is more downward pressure on yields, but on the other hand, there is this idea that there is a secular change in international investors appetite, and the fed is still doing qt, so that limits any downside and bond yields. lisa: you did call the turn in small caps. it has been a riproaring rally.

is it time to get out ahead of concerns about growth? julian: we don't think it is and it is fascinating because this has never happened before in 2023. you undercurrent your bear market -- you undercut your bear market low at the october low, and then you had a new high in the nasdaq. that divergence has never been seen before in the entirety of a calendar year, let alone one month. so even if you do get a recession, small caps have for the most part already been through their recession. in terms of share price performance. and again, similar to consumer staples and health care, they are going to benefit from a labor market that is easing, and yes, the consumer still is have excess savings, which we think cushions the severity of any downturn. lisa: julian emmanuelle of

evercore, thank you. we are seeing a lift to beyond the year end target julian has, 4785, .25%. how much do you think there is enough fear that could get brought in from any weakness for a drawdown given there is so much cash that will be pushed out of money market funds as yields go in? julian: it will cushion the blow, but again, going back to this idea, yes, we have more or less been promised three rate cuts, but if inflation has -- does not continue that marked downward path, you are still going to have cash yields north of 4%, 4.5%, and within the context of the last 15 years, that is quite attractive. lisa: this is one of the key questions, this idea of being pushed out of cash. suddenly it is not 5% anymore.

damian: what is interesting is seasonal. no one wants to talk about seasonals until it has happened. from november to now, it's like a playbook. just by in november and go up in january into february and sell. katie: are we going to talk about the santa claus rally? lisa: we are not. katie: ok. lisa: go for. do you have something to say? katie: no. lisa: we will get to that. coming up in washington, d.c., bloomberg's mario parker. (sfx: stone wheel crafting) ♪

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>> what needs to happen to end the war are the conditions i laid out, and there are three of them, not atypical.

lay down your arms, give up the hostages. three simple things. it can be over today. lisa: that was john kirby talking as the u.s. administration does shift with respect to the war, warning israel against going forward with the same type of airstrikes going forward. this is bloomberg surveillance. katie greifeld and damian sassower with me today. it has been distracting and a focus point to keep watching, the tit-for-tat, wondering when will it be over, when can we move on? damian: your guess is as good as mine. the american war machine is back. the most america has spent on defense in 2019. this creates a lot of noise amongst what we are seeing among

globally geopolitics globally among the geopolitics globally. lisa: president biden will cater to certain aspects that will anger so progressives -- some progressives. mario parker is in washington. what do you make of that, coming to the middle, to get some sort of military aid past? mario: you are saying -- you saw earlier this week, zelinski came to washington, d.c., to put more pressure, particularly on republicans. the biden administration made some concessions. we are talking about immigration reform, border reform, to get that aid. we know there is support for israel. to your point, the continued aid

to ukraine has been a sticking point. damian: trump flipped michigan in the most recent poll and all seven swing states are in favor of trump according to the most recent poll. what is driving that? is it israel-hamas, domestic issues, or something else? what are your thoughts? mario: it is everything. but the main thing is the fact that americans by and large feel as though the economy is not working for them right now. which is a contrast and frustration for the biden administration, which every week it seems they are getting some type of positive economic indicator data coming in, but americans feel very glum about the economy, and they are giving more credit to former president donald trump, so for the biden administration, there is this frustration about the amnesia about the trump years.

damian: what will be interesting in this election is in addition to the issues we have both the president and trump facing legal issues themselves. talk to us about that timeline. what should be we looking for regarding hunter biden, trump? what comes next? mario: with hunter biden, we saw him in the capitol this week playing a game of chicken with house republicans, trying to make him the focal point of investigations. some of this is a reboot of what we saw in 2020, wherein the final stretch he was a topic of discussion as well. that portends to be -- that will be the case. he will be front and center over the next year with some of his legal troubles. for former president trump, even as he seems to be cruising toward the gop nomination, he does have to have several knockout blows in the primaries

earlier next year. talking about iowa, new hampshire and south carolina, because what happens in early march, around super tuesday, is he's said to have his first court date for his actions around the 2020 election. lisa: in the same way that donald trump legal troubles have not seemed to impact whose campaign at all, his popularity with his base, what do hunter biden's legal troubles mean for the biden campaign, if it all? mario: it is signaling they have one of their best fundraising days after the republicans targeted -- re-upped their targeting of hunter biden. what is ironic is they are taking a page out of donald trump's playbook, where you would see his court appearances or indictments coming in, and he

would say he has raised x amount of money as well, but otherwise, the white house, what you will see is -- i mean, you will not see hunter biden, you know, prominently in the campaigns or anything. they will try to compartmentalize it. they will try to say this is politicized, has nothing to do with the president, the president had nothing to do with hunter biden's troubles, and voters should not hold that against him. lisa: looking forward to the 2024 election, bloomberg broke the story this week that you look at donald trump's campaigns, there's plans to significantly ramp-up activity in iowa during the first two weeks of january, and as we flipped the calendar into 2024, how quickly might we expect the gop field to shrink at this point? mario: we could see it shrink pretty quickly. polls this week showed donald

trump has about 51% of the vote in iowa. nevertheless, and this goes back to the calendar, the legal troubles commit cetera, nevertheless, you see him keeping his foot on the gas in iowa because he needs to settle that quickly before he is pulled off the campaign trail and will have to spend more time in the courtroom. what we could see in this unique election where it looks like we will have a rematch of the 2020 election, what we could see is the longest general election we have seen in modern history. if he sews up iowa in january, january 15, if he sews up new hampshire, south carolina, with really resounding wins, then we will see a general election fight where he is pivoting to joe biden and job ivan -- and joe biden is pivoting to him in march or april. lisa: i am sure everyone's to

see the longest general election in history with two candidates no one is excited about. i'm curious about the possibility of third-party candidates. it never gains traction. is this your different? mario: this year is different. it gets to what you said. americans are dissatisfied with the choices they have before them so they are looking to some other arms. not necessarily that a third-party candidate will win the white house, but could play spoiler, and a lot of that is because of the dispatches faction voters have -- the dissatisfaction voters have with both donald trump and joe biden. if the election is anything other than rematch between them, this seems to be the election of the third party candidate. you are getting a more credit field than we have seen this more crowded field than we have seen in recent years -- you are getting a more crowded field and

we have seen in recent years. lisa: mario, thanks. katie: these are two candidates no one is excited about. but when you think about all of the geopolitical issues in the world now, you think about domestic voters who tend to be focused on domestic issues, it will be interesting to see the messaging for both campaigns and how they try to tread those lines. damian: i hate to channel chair echols but this is an election year. chair powell was dovish heading into 2024. people might be drawing corollaries between the fact that cutting rates in an election year is not necessarily something we have not seen before. lisa: we have talked about that. is there a canoe incidents -- is there a coincidence? the issue i have stemming from that back-and-forth is that we

have not heard president biden be able to celebrate an economy that looks like it is achieving what nobody thought it could, and this is the perennial frustration we are increasingly seeing, why are you not seeing -- not giving us a victory lap? what is going on? you cannot just discount people's feelings and say they are not valid. damian: it is difficult to tell what the majority of americans are even thinking on these topics, so there in lies the rub. lisa: just in terms of the level inflation coming. next, earl on fixed income. this he still see higher yields from here? ♪

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and to have a better life, then you don't stop. the idea that we have saved five million people's lives, it's overwhelming. it's everything. lisa: with sawing into the end of the year, trying to get a new bearing after a fed pivot turned into something that looked glorious for the bulls and problematic for bears, seeing a lift to markets as we tread into the end of the week, end of the year, 4785 on the s&p, .25% after more than 2% gain, the nasdaq regaining steam, up .3%, and the russell 2000 again continuing to outperform, up .8% after already gaining north of i believe 5% this week. katie: as i was saying earlier,

i had not looked at the year to date chart of the russell 2000 in a minute, and it's straight up. the performance of small caps has been outstanding when you thing about what a terrible year they have been having until october or november. lisa: the other thing that has been straight up is the kbw index of banks. we take a look at the bond yields. they have come in and that has fueled everything, yields going down by more than 1% since the middle of october. how are lower yields good for banks? damian: you make a good point. i need to refresh and look at how equity yields are looking relative to the move we have seen just now. bond yields have become higher. but my goodness, it's been such a quick move so fast. it's interesting how equity investors are looking at this.

katie: cash has been the biggest competitor for about every asset class going back at least a year, so now that we have the markets really in love and fully bought into the fact of this idea that we will give meaningful amounts of fed cuts, do we finally start to see that 5.8%, $6 trillion make its -- that $5.8 trillion, $6 trillion make its way out of funds? damian: it will be more of a question for january. just how many people will reach into their pockets or out of their money market funds and try to chase? lisa: it is also curious because people are trying to game out if they can spread from the u.s. to the rest of the world? is this the lifeline in terms of what the outlook is for china, for emerging markets, as well as for the euro? you can see dollar strength. this is interesting because a lot of people are talking about, ok, dollar weakness here to stay

with a pivot there, but not with the ecb or bank of england, and yet today people think he may be matters again. katie: maybe it does and it's been interesting to see where that dollar strength is coming. the euro was having a good week until the lassie days, especially -- the last few days, especially when you consider the fed and ecb, but this dollar, feels like we have been calling it stuff for a long time. damian: the story has been about yield differentials and since june we have seen that fizzle away. what comes next, growth, value? what will be the next driver of currency move? it's rallying versus the dollar. lisa: let's talk about the european union. eu leaders agreeing to open membership talks about ukraine

but failing to agree on a new aid package, which was backed by 26 of 27 members. there was one nation standing alone, hungary, that opposed the funding. we are talking about viktor orban and some of the language we heard from our colleague in europe. i'm wondering whether this leaves ukraine in limbo heading into winter, especially as russia ramps up there financial support. katie: absolutely. it is hungry that is the odd man out but that is gumming up this aid from the e.u. the u.s. unable to pass an aid package as well and it's creating a lot of really tough questions for ukraine as we get into 2024 and potentially another year of this war. damian: let's talk about hungry because this is my realm of expertise. inflation and hungry is the fastest you will find in the euro zone.

a lot of investors going into the front end of hungary and take advantage of high yields, but this year is not so much. nevertheless, what is to say that those foreign investors that keep propping up the hungarian fixed income market will stay? where will they go? and if hungary is not playing ball with the rest of the eu, what is keeping them invested? lisa: you are like, it's all about fixed income. viktor orban will get disciplined by the fixed income market. in a memo, someone said it is no longer viable to increase the firm's overall returns. the move impacting about 100 employees. there are two things here and i want to get to you with your experience working at citigroup. there is this issue of prioritizing the appearance of

roads and tunnels and conflicts that have come into play in texas versus getting in the black, getting a profits -- getting into profits, which has been jane fraser's focus. katie: she has been ruthless. this was shocking. i'm not as intimately acquainted with citigroup but i did cover munis years ago and citigroup was so dominant in the muni market. the fact that they are completely exiting this business is shocking people in that market, which is sleepy, but we are talking for trillion dollars. damian: there is a scarcity. there has not been much issuance. the reason munis do well is because it's a scarcity play. there are not many municipals out there. the muni guys were once the guys who had ground-floor access. they were separate from the rest

of the firm. they had their own place where they hung out and did their thing. the killed it, crushed it -- they killed it, crushed it. lisa: is this resentment? come on, like, they were great? damian: go figure. lisa: there has been restructuring. jane fraser has been reviewing everything and there are no sacred cows. that has been made clear. this story is generating discussion for a lot of people, potentially for mets fans. they feel it's unfair the l.a. daughters have -- l.a. dodgers have such an advantage. ohtani talking about the contract, saying it felt like it was worth it. agreeing to a 10 year, $700 million contract. you might say that is worth it but he will only be paid $2

million a year for the next 10 seasons with $680 million deferred. i have to say on behalf of my older son, saying it's unfair because suddenly the los angeles dodgers can create this incredible team without having any kind of cap because they are only paying $2 million a year, and it will undermine the chances of other teams, like the mets, of doing anything. damian: that is not in tri-valley that that is not entirely true and -- that is not entirely true and i will tell you what. they still have to put $46 million in escrow each and every year for the length of his contract to be able to pay him in 2034. in 2034, otani will be 40 years old and probably a baseball, and probably will be living in california. it will probably be living in a tax efficient jurisdiction like

bermuda or the caymans. this is more of a tax play than anything else. katie: this has been a fun story because i thought i was going to learn about baseball but i just learned a lot about taxes. lisa: i also learned a lot about the pricing cap and the sales of jerseys that are off the charts and how big the audience is in japan. damian: one more point, which is interesting, because we have negative rates in japan going out as far as the eye can see, so from his perspective as a japanese citizen, what does this mean with negative interest rates? i get paid for deferring my money rather than having it in hand. lisa: an interesting season and i got a message from someone indicating it's not as if the mets have no money. we have earnings coming out. we heard from darden and olive garden coming out, basically in

line, shares a little bit lower. you are seeing bars and restaurants stay busy this season despite expectations retail sales would slow. food services and drinking places up 11% from november of last year, but data from black box intelligence says diners are skipping family meals and fine dining, opting for cheaper and faster options. i understand this looking at some of the bills i have got. an analyst with more. do you have a sense of what a downgrade means. does it mean mcdonald's and olive garden are doing great at the expense of more bespoke and higher end restaurants? >> that is what we are seeing in a slowing environment. that is what we see with restaurant spending in the second half of the year. it continues to slow for a lot of reasons but a big one is increased consumer debt, you know, how people have been

dealing with higher inflation. they have an opening credit cards, racking up a balance. you know, rates are extremely high, so we see a consumer that is strapped. darden -- you know, they are well diversified. they have high end restaurants and cheaper restaurants like olive garden and chatter -- and cheddar's. what we have been arguing is that in a slow and potential recession, you will have more people going to quick service, because you want people wanting to save -- because you have people wanting to save money and they will be moving to quick service. you are not paying for a tip, not buying appetizers, so it's cheaper. we have seen that. the november industry sales data we get from black box

intelligence really bore this out. we saw 100 basis points of sequential improvement in those sales and a similar decline in casual dining chains. katie: is this how it usually goes when you have consumers and diners really worried about inflation and frankly miserable about the economy? katie: yeah. customers fall into that bucket and fall out of that bucket, so the low income consumers are probably going to eat at the grocery,, shop at the grocery more, make their own meals more frequently, and we have had some of the quick service names we cover talk about that on this latest quarter, but at the higher end, you will see more up all-middle income consumers and high income

consumers trying to save money by eating a quick service or fast casual restaurants more often. what we have heard is that a lot of u.s. consumers are cutting back on some of their higher cost, independent restaurants, and eating at fast food a little bit more, and what we see in the data is that fine dining has slowed significantly, down, you know, seven straight months, i think, now. lisa: if you are destroying the program, the s&p of about .25%. damien has some strong feelings on fast food. damian: usually we talk about -- i will talk about texas roadhouse. it carries the highest p multiples in full-service restaurant land. what are they doing differently compared to darden, cheesecake and the rest? michael: they are growing and growing aggressively and wall street loves growth. i don't need to tell you that. they do a phenomenal job. there's a lot of value on the

plate. you get a lot of food for the price they charge. it's an experiential type of place. there is line dancing. it's a popular place for birthday parties and occasions, so they have done phenomenal, man, so there's a lot of growth both through same source sales and elsewhere. it's a very entrepreneurial culture there and they have done a phenomenal job. lisa: michael halen of bloomberg intelligence, thank you with the line dancing of roadhouse. damian: we like to go line dancing. lisa: i can see that. this is bloomberg. ♪

what do you see on the horizon? uncertainty? or opportunity. whatever you see, at pgim we can help you rise to the challenges of today, when active investing and disciplined risk management are needed most. drawing on deep expertise across the world's public and private markets in pursuit of long-term returns... pgim. our investments shape tomorrow today. >> are we going to get that pullback or do you need to look at the bond market today and say, you know what? 4% is not too bad. i think you need to be slightly

concerned about the supply that is coming, so bonds make more sense from a risk-reward standpoint, but we are in an environment that should be good for the bond market. lisa: that was someone from j.p. morgan asset management on a view everyone seems to share considering the rally into bonds. welcome back. damian sassower hour, katie greifeld, lisi abramowitz. we try to understand how long this can last. i want to get to it with our next guest, who had a bold call the next time he was on, talking about the potential for yields to go to 6% on the 10 year. maybe now that now but still counter consensus. earl davis at mbo asset management -- at bmo asset management. do you still see that? earl: i will start with i think 2023 will be an extremely informative year for 2024 yields.

if you look at the close on 10-year yield's, it was roughly 350. if you look at the high poles, it's roughly 5%. we think it's 5% and we will test both of the lows and the highs. a lot of the drivers for higher rates have not left the market. we still have supply and inflation. i have been in the market since 1994 and i know that at any given point in time, the market looks at one thing. we are looking at the one thing now that gets us to 3.5% and then the other issues that have not been solved. damian: if we are going to see the type of volatility and movement in u.s. treasury yields, what does that mean for the plumbing of financial markets? talk to me about the reserve repo facility and other factors. earl: remember i said the

volatility we expect for 2024 is the same volatility we had in 2023. the fed brought in some additional facilities but that, the plumbing, the foundation, is solid. this is interesting. we have been tracking volatility and in a simple manner. that's three. 2022 was the most volatile year in the 2000's except for 2023. that will be the most volatile year in absolute yield moves so there is no reason for that to stop. there is such a dispersion of views, incredible views, plausible views, that it's a tug-of-war between these. we will continue to see that. the plumbing is fine. damian: what about demand? what are your thoughts on the market's ability to absorb all the supply expected to come through during the first half of next year? earl: that is why we expect this to go back up to 5%. here's an interesting stat for

you. since 2007, the amount of treasuries outstanding has increased fivefold, five times. the amount of capital dealers to support that inventory has increased twofold. what that tells you is you get broader, wider moves for any given piece of data that comes out, which is why we are getting these type of moves now, which is why we will probably test 3.5% and will probably test the highs again. katie: let's bring this conversation about demand to the front end of the curve, money markets. there's five point $9 trillion or so sitting in money market funds right now. that ben has been unstoppable in 2023 -- that bid has been unstoppable in 2023. looking into 2024, do you think there will still be that heavy, robust demand for cash? earl: i think that will continue into q1. it goes into fixed income because once people get their statements and they see that

bonds are actually out this year, they will feel more comfortable buying more bonds, and we think it is a q1 phenomenon, and once that subsides, then the supply issue. and we have not even spoken about inflation. all those uaw wages kick in in january. government employees get a 5% plus increase in january. the defense bill that came out this week is a 5% increase for service persons. there's a lot still no background but we are not focused on a now and i understand that and that is how the markets operate. katie: when it comes to the inflation picture, you think about the fed's gold to get inflation back to 2% -- fed's goal to get inflation back to 2%, chair powell said that has come without job loss so far, and he said he's reluctant to say that will be a painful process. is that your read as well and your read for the bond market? michael: it will be painful because that last drawdown in

inflation will not come unless unemployment goes higher, and of the reason that is, the two most sticky elements of inflation keeping it above inflation is, one -- about 3% is come along, employment. people continue to get their paychecks, which adds to excess demand. not only will they get their paychecks. they are emboldened to ask for more money. that is one thing. the other thing is if they are employed they are still going out. they may be downgrading or going to less extensive restaurants, but they are still spending, and that's directly to related to employment, so a soft landing consumes disch assumes -- soft landing assumes that. i look at the 1970's. u had three peaks of inflation.

it went back up to 9%, came down, went up to 14% before voelker came in. we have had just one peak here. this is a secular trend. it's not all going to happen in 2024, that's on our expectation, but over the next three to five years, the grind is higher. lisa: which will be a lot of fun for the people getting used to the whipsaw action. if you are looking at a band between 3.5% and five percent, how do you play that? what do you do? earl: i love this question. you know what we are buying now? i have said this before. we are buying real yields, tips, 10 and 30 year tips. we love them because we think the financial conditions using underpins inflation, possibly pushes up inflation expectations, so your real yields will outperform in that environment, so now, we have been bearish for the past two years.

2024, we will play for the bullish side until we touch the 3.5% level. on pullbacks, we will look to buy real yields. and if you are thinking the opposite way, another thing we actually just did, we shorted u.s. two year bonds, discounting 165 basis points of easing by january, plausible, but we like that making money if nothing happens. we think that is a great tactical trade. a great structural trait is buying real yields and tips on pullbacks. lisa: it is bald to outright short two year yields. how do you do that without losing so much money that he could -- that it could hurt returns? earl: when i say there's 160 five basis points in discounted two your bonds, it means they have to ease by more than that for you to lose money. the other thing that is enticing about this is it's discounting eases starting in march, so if

they don't start in march, even if it's summer or later, you make money additionally. as a long-term investor and asset manager and an active manager, you have to say where does the math make sense? where does your forecast look? when it's different than the market expectations, that equals opportunity. so that is where we see opportunity topically, which means it is a smaller trade. structurally, we like buying yields on backups and we still like credit. the economy will do well and be resilient in 2024 so we like buying ig credit and triple b an picking -- and picking away at high yield as well. lisa: earl davis of bmo asset management, love to hear what you have to say. you are nodding along. damian: i agree with what he is saying on tips. the move lower has been driven by real yield, not breakevens. ig credit is up 7%, high yield

11%. in an environment where if you think we are end of cycle and spreads have not reacted to that, i don't know about that one, but he a braver soul than i. katie: especially when it comes to the front end, outright shorting two year yields. seems brave but then you remember you have that lofty yield. you're still clipping meaningful coupons. it would take a lot to lose a really painful amount of money. lisa: just to build on what you are talking about with investment-grade credit and the question of whether spreads are too tight, investment-grade bonds, over benchmark rates, the lowest level going back to january of last year. that is where we are at. it's less than 1% above the benchmark rates, amazing. katie: it's tight. lisa: this will set up our conversation next. michael purves and how much you play into the pivot party, how much you join, how much you bring someone, or how much you try to leave early.

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>> i really wanted to pull back. i thought we had this great run but then i look at what the fed did come you have to keep these positions. >> central banks are making the

big calls in the market is no running even farther ahead. >> i think it will be dependent on the data. >> the earnings recession is likely over and we will see earnings recoveries. >> i feel like we need to get this bout of disinflation first before we talk about what happens next. >> this is bloomberg surveillance with tom keene, jonathan ferro and lisa abramowicz. lisa: is it foam out or no go -- fomo or nogo. i'm misbehaving. we are plowing toward the weekend after crazy week and it's cheesy but a lot of people are feeling fomo right now and we just heard from earl davis. katie: shorting u.s. treasuries and i'm still stuck on that. damien: i'm not even thinking about or thinking about thinking about shorting treasuries.

lisa: this idea of trying to lean against the freight train, give us a sense from all of the hats worn how hard that is. damian: the two year yield is not what it was. this is a difficult trait from a p and l perspective. lisa: why are we talking about two year yield they are down from recent highs on october 18 of 5.2%. they are currently 4.30 8%, almost 80 basis points of decline in less than two months on the heels of what many say are a dramatic pivot from fed chair powell in terms of his tone, opening the door and solidifying the markets belief the fed will cut rates as early as march of next year. how much can people move against this idea of immaculate disinflation and maybe it was

just transitory when it's being supported by the fed chair? katie: the question i've been playing with his it seems like fighting the fed actually work this time. you had all of these rate cuts pricing come into the market and powell & co. pushing back until the blackout period. we came to this wednesday and what is a completely different fed chair. damian: everybody out there was how are they going to maintain a hawkish tone amid a dovish meeting. it was all doves all day all the time. it took the market by surprise. lisa: john williams will be talking soon and whether we will see any walking back. could anything change without that heading into an otherwise sleepy two weeks of the year. katie: it's a great point.

you typically get the press conference on the weeks that follow, you have the fomc members coming out with fed speak either endorsing the message or trying to walk it back. damian: you would think volatility would pick up given the level of uncertainty out there now but it's not. if you look at history, it's not expected to. after the last hike, you get this kind of dribbled down for three or five months. it's risk on it that's the case. lisa: volatility has gone nowhere. it is close to the lowest going back to november of 2019. you can see the gains we are tracing on the two-year. up about 0.1% and the dollar giving back or reclaiming some of its lost ground to the euro but still a pretty tremendous rally for the week for the euro.

the divergence between central banks and the question about how much people are buying it. the fact that everyone completely discounted with the ecb chair was saying is notable. damian: people didn't buy into the scarf. i'm just kidding. lisa: she came out and said bear with me. damian: ok. katie: i think she looked very chic. lisa: she didn't have the same kind of vigor. damian: i think it's interesting because you don't see central banks especially develop markets cancer the fed. we think everyone follows the fed but the ecb took a different tack that stands out in my mind. katie: how long can they do that? they are breaking ranks right now. especially when you think about the economic situation in the euro zone, at what point does a

group picture for us christine lagarde's hand? damian: they are just targeting pricing. the fed doesn't target positions either. lisa: they didn't seem to end his last press conference. michael purves joins us now. are you a fomo kind of guy? >> i am now. you were talking about the seasonals and you have to look at them. when the market is up and what it was year to date coming into q4, you can check a couple of boxes. did rates get contained when the tenures file desk spiraled up to 10%? they got contained. out of that, a softer dollar in those three boxes are checked. then you have the fomc. then you have a lot of catch up. with all these crazy market movements, there's been a lot of positioning and a lot of people

were offsides coming into this year, very bearish equities and perhaps bullish bonds and the recession call. we forget sometimes how important that is. for the here and now and two-year income of 4800 on the s&p 500 is a real scenario here. i've been bearish coming into december and i think we could see a 10 handle vix. i'm wondering what volatility catalyst is between now and the end of the year. everyone will go on vacation in any kind of dip you will see i think it's pretty well bought here. damian: the vix is now just above 12. volatility has come up significantly. the volatility premium is still there for you to perhaps want to

write protection instead of buying protection. what move do you want to make in this market right now? >> i think the best trade -- i'm not pulling the trigger on it today but it's not spx puts. it's really rather vix calls. i think what will happen, one thing underlying this market dynamic is there is a lot of rotation. if you have rotation, you can see the s&p 500 being supported. you may not get the big down move you need inputs but if the vix gets to 11 and you get some sort of anxiety as we get through this hangover from this rally which is pretty inevitable in the late january and february timeframe, if you buy a vicks call, the bucket can get to 2.5 dollars easily where the spx put can kind of melt away. that's my preferred way to play

this. i will probably pull that trigger in a few days. katie: besides you and besides damien, is anyone else hedging in this market? what does the demand for protection look like? >> a lot of the put calls have failed to be elevated through so much of this rally through some much of this year quite frankly. you have seen this big growth and option usage and i think that's an interesting structural component that has a lot of implications for price action. the vix came through a period of some extraordinary events like covid and the ukraine war and it's really been leading the way down. you look at the ratio bond volatility to equity volatility

and i think one of the things i'm looking for into next year's rate volatility to really come down and that will be a very constructive force to keep risk appetite strong. katie: i think you are speaking everyone's language. the conversation for a lot of this year was how we see those two lines come back together. it seems as if the move is converging with the vix has been the trend for at least a few months now. if we see the move coming further, the measure of bond volatility, you talk about 10 on the vix, does single-digit center the conversation? >> in 2017, we had a nine handle. i wouldn't say that. there is always a lot of anxiety points and i think we are getting overcooked on the smelt up from a valuation point of view. unconstructive for next year but

generally, those levels are not sustainable hence might long vicks disposition. i want to point out on rate volatility is that people think about the next move being jacked up because of the record hiking cycle. the philosophy of hikes was amazing and coming from a dovish place, one of the most hawkish places in the fed history and that transition created bond volatility but you had that subsiding last summer just as term premium related volatility was coming in and i think both of those factors, the rate hiking is done but now we have the term premium thing which i think will be higher but the shock of that will subside. lisa: do you still expect the s&p to close next year at 4900 as a high? >> i do which doesn't sound much from here. it's more like 4300 from current values. it's relative to my current fair value estimate.

we will see how the year goes but if some of the things happen and ai starts kicking in a little bit and you see that kind of productivity gains, you can see well north of 4900. someone has predicted 5500. it's not nearly as crazy as it might sound. i think there is a real upside there. to get from here to 4900 let alone about 5000, you will probably have to travel down to something closer to what i think is fair value now. i think earnings will hold together between nominal gdp supporting everything else to a certain degree i think multiples of gone through a lot of the adjustment process for the higher and longer backend interest rate conditions. lisa: michael purves, thank you so much. we are seeing the end of a week ending on a high note with the s&p up 0.2%.

you said earlier it's the path of how you get there and that's what we just heard from michael purves. the same thing we heard from julian emmanuelle. katie: you think about his prediction that we need a rocky first half but where we will be sitting a year from now, it seems most of the consensus says it will be bullish. damian: 5500 on the s&p 500 i can't even imagine what the market capitalization will be. it's like the size of france. lisa: it's stupid until you see what they are doing. if you have to upgrade your phone or if you have a kid who broke their phone, you see all these people lining up for the privilege of paying $3000 for various devices around the house. it gives you how much of a sense of cash they are generating. katie: you want to pay attention to the quality factor and look at dividend growers and dividend stocks. you can take a look at apple and

the incredible month it has had and all the cash it's sitting on. damian: it's got safe haven qualities to it. i consider it to be a safe haven in my portfolio. that's my fixed income allocation. lisa: it's probably a money market allocation. coming up at 8:30 a.m., the chief economist at ey talking about the likelihood of a soft landing into the weekend and into a year with an update to the markets. the uptick is continuing with a bit into bonds. ♪

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in pursuit of long-term returns... pgim. our investments shape tomorrow today. >> em demand growth will continue. to forget the marginal cost is

the early leading indicator of an upside. it's a matter of time for the markets to significantly tighten and as it does, we expect the second half of the decade, that is the point where the only real volume we can rely on is opec. lisa: the global head of energy strategy at jp morgan talking with a nuanced brush about what to expect next year especially given the surprise declines in oil prices we have seen this year. this is bloomberg surveillance. i'm looking right now at the bloomberg commodities index which is down about 7% from mid-october. we are looking at oil prices, crude down from a high in september of $93. it's down to $72. on brent crude, you are seeing similar types of declines currently trading at $77 and

$.20. disinflation hopes are fueling that are fueled by lower oil prices. damian: it hasn't had a big effect on markets. it's been the macro usually. it's driven valuations in many markets and you haven't seen that the last couple of years. katie: what it means for energy equities is significant because those have been the leaders. up 59% last year for the sector. it's down on the aaron's one of your biggest losers in the stock market. when you think about the ripple effects, it showing up in the equity markets as well. lisa: it's showing up in the

airline stocks as well. that's one of the biggest input costs. understand the trajectory. how much has this underpinned the disinflation, the idea that for whatever reason, commodity prices are going down and even the demand is not falling off a cliff? >> it's been quite a trend. clearly, many policymakers are delighted to see it. they are comfortable see oil prices where they are today. what happens next? there is a certain amount of disagreement. damian: i haven't read through the iea expectation for oil to mid next year but it's lower, it's 50% lower in terms of

growth. what is driving the downshift in growth? is this china? >> it is a china story. over 2 million barrels per day is a strong number. that growth is driven by the fact that china was the last major market to emerge from covid. there was a real spring back that juiced oil demand more. the 1.1 million barrels per day we will see next year's by historical standards a healthy number. they were pretty downbeat on oil demand in the last quarter this year, they revised up expectations slightly showing that despite all the uncertainties, demand remains fairly strong. damian: production cuts with the opec-plus of global oil supply

fall to its lowest since they were created seven years ago. i've seen pictures of handshakes between vladimir putin and mbs. can saudi arabia afford these production cuts? how long can they last and will they try to increase production in the current state of oil prices? >> we spoke with the saudi energy minister couple of weeks ago when he was firm in his belief that the action they took at the last opec meeting will be enough to balance the market. they looked long and hard of what it like early this year and cuts they can deliver, the additional cuts will prompt the market demand. want to keep the cuts in place beyond the first quarter if they need to. they are losing market share right now. the oil market has the strength

of supply growth from the shale industry. it's shown itself to be remarkably resilient. it hasn't slowed as much as possible. whether they can sustain that next year will be fascinating to see. it's always the most important, one of the most important things to look at. there is a reason for it as you get into a vicious cycle we reduce production to keep prices high and encourage more production from shale. . that happens almost 10 years ago where they opened the taps. i don't think saudi arabia wants to do that again at this stage but that's clearly the danger. their hope is these additional cuts will be enough to market -- to balance the market. katie: we are coming out of the cop 28 summit, one of the big news pieces from that summit was

the first u.n. deal to dig fossil fuels forged at the summit. what are people in the market like oil executives thinking about long-term what demand for oil looks like? >> it was an historic agreement. it signals bit of a pause and travel. they are saying they want to transition away from fossil fuels which is pretty remarkable. it's quite long-term in nature. it won't happen overnight. one of the more significant things is transition fuels. i think that's a code word for gas and oil and gas has been and will peek at some point. by the end of this decade maybe it might have peaked but i don't people think gas demand will

peek. the gas industry was present at cop in the industry presents itself as a way to get cole out of the system and replace it. that side of the industry is quite bullish. it trends that should underpins this trend which is the oil and gas industry being more gas oriented. katie: point taken that when you think about the demand side, this is something that will take place over decades if at all. talk to us about where supply could come from. you think about the u.s. involvement in this deal and you think about the fact that u.s. production has surged. how long term do you think the push to increase production will last? >> shale always tends to supply only upside but they don't think that shale will grow forever.

the financial structure of the shale industry has changed a bit with more emphasis on making money and i think that trend will continue. if we look more broadly, people are not investing in much -- as much in new production is the used to. there will be a crunch point down the line if the trend continues. one of the things about cop's it sends a signal that maybe investing in the long term projects over 10 or 20 year returns, billions of dollars, you can't be reluctant to do that if this transition is going to happen. one of the important things about cop 28 is as likely to keep investment in new oil fields suppressed at a historical level which means that we could seek markets get tight. lisa: thank you so much for being with us at a time when oil

has been so counterintuitive. everything in the complex. this is from yesterday. yesterday we had the fourth highest percentage of overbooked readings in the spx since 1990. this overbought is historically bullish. katie: a lot of people might take that as contrarian but i think about one of the ultimate contrarians and it's neal mcdonough. lisa: what it shows is you come up with these indicators but ultimately, they may be different to other people. some people decide to sell another people keep on buying. this is bloomberg. ♪

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lisa: coming up, some exciting things. we are seeing a bit of a lift in the market after a massive week of gains particularly for the small caps and particularly for the bank stocks. looking at the russell 2000, up almost 0.4%. as down from earlier but those shares are up more than 5% on the week. those shares are up by more than 9% if you take a look at futures on the week. it's just a real melt up and that's what we heard. it's why fight it if there's no reason to sell.

katie: we are looking at a pretty booming equity rally now. temperate gains at the moment but you think on a weekly basis, this is the seventh straight week of gains which is astonishing. that's the longest streak and quite a number of weeks. damian: and the seventh straight day of gains. it's been quite a while. lisa: it's also been fueled to buy the bond market with yields going lower substantially, particularly in the two-year space, 4.4% but marginally up now. the 10 year space got as low as 3.9%. these moves are massive and you brought up a good question earlier which is what does it do to the structure of the market that is not built for whipsaw action like this? damian: what part of the curve do want to look out? -- you want to look at?

everyone is talking about a normalization of the yield curve but at which point. i dig in katie: katie: my heels there. i would imagine that's one of the big trades to talk about next year. what happens to the yield curve? in what way does it normalize? do you see two-year yields drive this? it looked like it was just the tenure going up that could get us there but it feels like a long time ago. lisa: you see the euro lower just a bid versus the dollar as people look at weaker than expected economic data out of the region. we are trying to ramp up stimulus to help the ailing property status. $112 billion in one year loans to commercial lenders in beijing and shanghai are relaxing lending as concern mounts and has been mounting for china and janet announced she is planning

yet another visit to china in 2024. how much is the promise of stimulus outstripping what china can actually deliver? damian: there was an unconfirmed report overnight that china will allow its budget deficit to expand as much as 3% of gdp. the market is fired up on that as well. all investors are looking and hoping and waiting for stimulus out of the pboc. if we see more of that, things could ramp up. you could definitely see a risk on move. lisa: in the u.s., the senate delaying its holiday break's aid for ukraine hangs in the balance and chuck schumer saying negotiations will continue in hopes they can pass a bill next week. house speaker mike johnson has repeatedly said ukraine aid cannot pass without a deal on immigration and the houses left washington for its holiday break and this is one of the most under told stories of the past

month. people have been focused on israel/hamas that they haven't focused on the ukrainian border and if they don't get funding, they are handing a victory to russia. katie: especially with what's going on in the eu, not being able to produce some aid package. it's interesting to see is playing out in congress. when it comes to the democratic side, president joe biden has offered some compromises on u.s. border policy but you think about how doug in the two sides are and what the eventual compromise will look like hopefully hammered out in january. damian: the house has left for the holidays but the senate is still there. it's interesting that chuck schumer held them back in her getting things planned for beginning of january. lisa: this is the story we wanted to get to? apollo and blackstone getting into the holiday spirit with their annual videos.

one chief economist is dressed as an elf and blackstone going all in on taylor swift. they are lip-synching about the firm's alternatives era. the ceo wearing a jacket similar to the one taylor swift war. katie: i have two thoughts. i think the apollo ceo has to be the tallest elf. on the blackstone side, i know a lot of people did not like this. i saw a lot of snarky tweets. i didn't hate it. katie: i didn't hate it either. the sequins and the whole jacket , to see them having so much fun -- katie: should they not have fun? damian: it's supposed to be fun, they're supposed to make is money. lisa: it's the whole instagram

era. you want to get the taylor swift fans. damian: i appreciated seeing the other side of them and they are so serious when we go out for drinks. lisa: what are you guys doing? we are talking about it that's probably the point. katie: it works. lisa: if they are looking for publicity. we are looking for some sign of confirmation of the disinflation narrative. there is the expectation of increasing 2% in the prior reading gives us a sense we are seeing some sort of slow down. joining us is greg daco. judah hopes and dreams of immaculate disinflation gotten overblown? is there a concern about a

slowdown that is steeper than people anticipate? >> we are in an environment where we are seeing slower economic activity. there is no denying that whether it's on the consumer side or the business side. we have seen a slowdown in terms of the pace of growth. it's not immaculate disinflation. we seen the supply come back online which has helped with the inflationary picture and we are seeing moderating demand which is putting downward pressure on inflation so as not immaculate. into next year, that will continue to drive inflation lower whether it's rent disinflation, slower momentum in terms of growth activity, even wage growth compression and let's not forget that the fed is still maintaining a restrictive monetary policy stance. combine those and you have the right environment -- the right ingredients for a disinflation or environment. katie: you think about the u.s. consumer and you take a look at these sentiment surveys and it's been grim out there for years now.

when you think about inflation, we are in a disinflationary environment but the outright level of prices still much higher than it was. do we need to actually cd place in to see the sentiment numbers pickup? >> you are alluding to the most important point when it comes to the inflationary dynamics. we talk about inflation. economists and policymakers talk about inflation but what matters for the average person whether it the consumer or the business leader is the cost level. the cost fatigue phenomenon is very real. the cost of everything is much higher than it was pre-pandemic whether it's goods, services, labor, inventory and even interest rates. everything cost much more that is leading to business decisions being pulled back and being more scrutinized as to what to invest in's leading coup consumers to be more careful about how many goods and home services they buy even though they are spending a little less. i think that the important narrative that will be underlined the pace of growth next year is how sensitive

people are to this higher cost of everything environment and how the labor market reacts. the labor market is the key pillar to economic activity. damian: the dot is calling for 75% of cats. talk to me about the why. is disinflation enough of a reason for the fed to cut rates next year? >> the key reason why they will adjust rates is because it sees less inflation. last time i was on the show, i talked about the fact that we have the holy grail of non-inflationary growth in front of us. we have an economy so moving forward and inflation that moderating. that's with the fed wants. they do not want a recession, they want inflation to come back down to 2% and becoming non- issue, something we don't talk about every day on the show or other platforms. this is what the fed is aiming for. whether it's the fed forecast being realized where the market

expectations being realized, i think the truth will lie somewhere in between, probably 125 basis points of rate cuts by the end of next year with an environment where inflation is gradually slowing we don't into recession. if we enter a recession, the game will be quite different. damian: we like to talk about real yield. the 10 year real yield is down 60 basis points since october. how low can they go? >> that's the key question for next year, what happens in terms of growth momentum and inflation momentum and how rapidly will the fed ease monetary policy. that's what chair powell and the rest of the officials will be focused on. they will focus on ensuring that really yields don't rise. they don't want to be tightening in the face of a slowdown in demand or slow down and inflation. they will recalibrate monetary policy gradually. i think the march rate cut calls are bit extreme.

they will be making sure that inflation is sustainable on this trajectory of lower inflation and recalibrate to the downside gradually with 25 basis point increments to start with. lisa: the new york fed chair john williams has been speaking and he said the market is reacting more strongly than forecast and he said we are not really talking about rate cuts right now. you can't put that toothpaste back in the two but there is a market response. we are seeing bond yields rise to about 6% and 10 year yields are spiking upward to about 3.96%. do you think they are getting concerned about the easing of financial conditions beyond what jay powell indicated yesterday? >> when people say the easing of financial conditions will reignite growth and inflationary pressures, i tend to be more cautious.

as we were just talking, we have to factor in that maybe market expectations are too strong. fed policy communication is going to recalibrate the market perspective. let's not forget, cost fatigue and labor market developments are going to be the key drivers of economic activity but not so much rates. number three which is important, we are in an environment where there is less rate sensitivity. there is much less on the upside and we should expect it to be a little less rate sensitivity on the downside as well. all three factors mean we have to be more nuanced when it comes to the economic picture. lisa: wonderful as always to catch up with you, happy holidays. if you're just joining now, you can see the s&p 500 has turned negative on the heels of these comments. the 10 year yields are markedly higher by about five basis points. there is the idea that john

williams, the president of the new york fed came out and said we are not really talk about rate cuts now. the knee-jerk reaction is to reverse what we saw over the past couple of days. katie: i think we should feel vindicated. either the fine tuning in the pushback or the horseman starts with john williams saying we are not talking about it. jerome powell said wednesday that they talked about it but they discussed the timing of rate cuts at the meeting this week. it's interesting. damian: after a week empire state survey. if you really believe that he needs to walk this back a little bit, the one thing you cannot walk back our financial conditions in the u.s. and the fact that the fed has said they are watching that means they are watch everything. it's not just inflation and growth anymore, it's more than that. lisa: it's a pretty direct

knee-jerk reaction. they are pricing in about a 72% chance of a fed rate cut in march. still solidly pricing that in. about the same yesterday but we saw that idea of a knee-jerk reaction to get that up to close to 9% -- 90%. keith lerner is next and marilyn watson and max from hsbc is everyone rewrites their year ahead outlook. maybe not, maybe it's a matter of timing and we can expect another year like the one we been having. that's coming up next. ♪

an ever-changing landscape comes with challenges. from our vantage point, we see opportunities. as a top-ten real estate manager, we harness the power of a 360° perspective, delivering local insights and global expertise across public and private equity and debt. our experienced team and vast network uncover compelling opportunities giving our clients an exclusive advantage. principal asset management. actively invested. >> chair powell put the rate cuts on the table because you want the markets to start to lower the long-term rate expectations any gives them time to slowly adjust the fed funds

rate. maybe spring or summer before actually starting the rate cuts in that way, he can smoothly navigate the real rate down. katie: that was bill lee, chief economist at the milken institute, talking to us earlier on surveillance. tom and john are off this weekend lisa is on her way to the open. damian: it's just you and me. tech about the pathway from treasuries into broader markets, everything is ramping until a few minutes ago. katie: we are hearing from john williams coming out from some comments after hearing from his boss two days ago, saying we are not really talking about rate cuts. that would be premature to be thinking about a march rate cut. a lot of interesting things there.

we heard something different from jerome powell a couple of days ago. damian: we were hopefully thinking about rate cuts and here comes john williams to the rescue. i think we have to walk these things back and i think the market is getting too far ahead of itself. katie: taking a look at the market, turning a here negative. the 10 year yields reversing a little bit, up about three basis points. damian: very low levels but at the end of the day, this is more than a rate story. it's more about currencies. there is a big move against the dollar for the last few weeks and now that's reversing as well. if we see some compression between europe and the u.s., we will see euro-dollar come off. katie: rest assured you will

never let me forget that. let's get to the individual movers. i wanted to start with general motors. not too much of a move now. gm will cut more than 1300 jobs at two plants. it's been a tough time for the automakers recently. damian: their autonomous driving section, they've invested almost three quarters of a billion dollars in the last quarter alone. they have a billion in revenue by 2025 is the expectation. they have used numbers and them having layoffs tells you what's going on. katie: the big three still dealing from the fallout from the six week long strikes.

let's move on to the other movers. we have le nard which is an earnings story. the homebuilder reported yesterday and is declining right now, weaker gross margin and the forecast was disappointing as well. shares are currently off by about 3.6%. when you think about what's going on in the housing market, the total freeze, for a while, it was benefiting home builders but the story is changing. damian: they have been ripped in the last few weeks. it's understandable to see a pullback but in terms of rate sensitive equity sectors, homebuilders are probably number one. if you believe we will test the lower end of the 3% handle, the homebuilder should be able to play with that. katie: we are still talking about a 7% rate. damian: it's so high. katie: five point 5% is when you'll see movement? damian: that's when you will see

supply come along. katie: let's talk about roku not having a great morning, down about 3%. this is on the heels of a downgrade to a sell. the company was getting more focused on efficiency and margin expansion but at over $100 per share know, roku share prices have doubled since then. a victim of its own success at least in the equity market behind that downgrade. let's get back to the bond market and the equity market, driven by these comments from john williams. megan is director of u.s. rate strategy at bank of america. this feels how it usually goes. you have jerome powell come out of these fed meetings and then fed speak happens and they tend to walk it back. >> that's exactly right, we had such a prominent rate market response to powell's dovish

comments. we were actually flying some of this in a recent publication. it seems the market is in for a bit of a consolidation. the john williams comments endorse that. one thing we've seen born out in a lot of indicators we had positioning largely long coming into some of these moves we got. that's an area where we can see investors covering profit-taking alongside some of these recent moves. damian: you talk about currencies and we are talking about dollar-yen. you believe there is more downside at current levels but i look at rate differentials and i say look at those. how do you put that type of trade on? >> this is something we see a lot in the fx rate sentiment survey we conducted at tank of america. investors are typically short dollar and they are playing this against the yen.

we think that positioning is stretched. ahead of these adjustments we see coming from the boj, we think the preferred way to do this is in short jgb's because of that stretched positioning we see. damian: i don't disagree. you've got the peso which has been off relative to the pace of every other currency. talk to us about that dynamic. they tend to track the dollars so how do you manage through that when you are a fixed income investor? >> what the real impetus we see for a lot of this diversions positioning is the conviction about the fed path. that's another thing we see born out in the surveys that investors are long rates and short dollar. ultimately, there is some cap skepticism about how much the fed will cut. investors generally think if

there is one central bank that can surprise more to the hawkish side versus expectations, it could be the fed. i think it comes down to this message they been delivering which is data dependence. the market understands the reaction functionality and want to cut alongside his progress and pce inflation. that's why we've gotten the sharp recalibration. the fed has done such a heel turn on this there is risk they can do it again. katie: let's talk about the dispersion of outcomes because you have the. plot penciling in 75 basis points -- .75 basis points cuts next year. >> we've come into this most recent rate yeah -- rate rally. it really has been almost a year and a month in terms of some of this price action. we've been recommending investors trade long on the five-year sector.

that's the point in the curve that cannot just be sensitive to what the timing of cuts are near-term but also this trough of the fed cutting cycle. when we look at market pricing versus the dot plot, we see the market is overpricing the extent of cuts versus what the fed has endorsed. what we also see is that the market is pricing a higher trough of the fed cutting cycle then ultimately what the fed is telling us. the dot plot suggest the fed will get below 3% of the market is reluctant to price that. it's really driven by some of the uncertainty we still see in the inflation market and the fact that we are not releasing broad-based weakness elsewhere and trying to get a better sense of what is it that will cause the fed to cut more aggressively and bring it backed into something they think is the neutral rate. we've than long and taken that position largely off because of the sharp performance we have observed.

now we are being more tactical, managing some of the opportunities we see headed into next year. katie: great to check in with you and especially to get your live reaction to these comments from john williams that are moving the markets now. we've been joking that not too much going on but fed speak. damian: i think the real big question -- we know it will be the fed and treasuries to pastor broader risk assets. which direction do we go? will it be a hard or soft landing because the implications are so far-reaching. that will be the focus. katie: the year is not over yet. coming up, at 2:30 p.m., nicholas bailey, the president of re/max holdings on his outlook for the housing market in 2024. thank you for tuning in, this is bloomberg. ♪

lisa: i am lisa abramowicz in for jonathan ferro. little softness, pushing back or try to after enthusiasm from yesterday. the countdown to the open starts right now. >> everything you need to get set for the start of u.s. trading, this is "bloomberg: the open," with jonathan ferro. lisa: coming up, the fed fueled rally continuing or maybe. stocks heading for a seventh week of gains as the ecb pushes back