>> the message we got from the fed was very much in all clear. the markets responded in kind. >> the market is behaving in a way that thinks rate cuts are imminent. i do not see that. >> the drivers for higher rates have not left of the market. >> there is skepticism around how much will the fed can't. >> when it comes to the fed forecast being realized, i think the truth is in between. >> this is bloomberg

surveillance with tom keene, jonathan ferro, and lisa abramowicz. jonathan: what a difference a month makes. for audience worldwide this is bloomberg surveillance. alongside lisa abramowicz i'm jonathan ferro. here is the big call to kickoff the trading week. david costin at goldman sachs with the new price target on the s&p for next year. 5100. the old one is a month old. here is the quote. "equities were already pricing positive economic activity but now reflect a more robust outlook." lisa: the reason is because jay powell said we are talking about rate cuts but maybe they are not talking about rate cuts. john williams at the new york fed says baby it is premature to talk about it. everyone heard what jay powell had to say. jonathan: that push got

steamrolled by williams and maybe by austan goolsbee. there is quote from mike wilson. he says this is a bullish outlook for stocks. even mike wilson is joining in. how credible is that pushback? lisa: the market has voted and the vote said it is not very credible at all. it is the fed chair thing the client part out loud. he says do not let financial conditions ease too much and he says let it rip. get a chance to say financial conditions concerned him, he did not. he had a chance to say a host of things he did not do. jonathan: are we talking about rate cuts or not? lisa: if you parse through the words some members brought up rate cuts but they are not engaged in a deep conversation. to me it is they are absolutely thinking about it. it is a question whether it is the main tenor of discussion.

these are nuances where people heard what they needed to hear. jonathan: more fed speak through the week. the pushback is only as credible as the data behind it and the data in the ecb is not there. german business confidence was weak. the european economy is weak. pmi pretty dreadful. lisa: which is the reason the market rejected that and why the pushback did not get as much attention as jay powell. the strength is in the economic outlook for the united states and yet the most dovish tone is from the federal reserve of the united states. the outlook does not look good for the ecb and yet they are trying to maintain a hawkish tone. jonathan: what you do? people have been buying stocks. equities on a seven-week winning streak on the s&p. up .2% on the s&p. the euro stronger, 1.0 910

against the dollar. in the bond market yields down another basis point to 3.8978. what a turnaround in the bond market. lisa: it is shocking to think we have come down more than 1% from october. tuesday we get a bank of japan rate decision. people were thinking this is the time for them to exit negative interest rates. they still have negative interest rates. people said the economic data was not good enough. we have seen people reprice stronger. still that feeling they will not move way that quickly is embedded. wednesday another option. -- another auction coming at a time when you see this dramatic repricing in the 20 year note. what happens if people start worrying about the deficit or is that off the table? jonathan: on wednesday tom keene is making an appearance for the

auctions -- no idea of it is for the auctions or not. that will be wednesday. lisa: on friday u.s. november personal income and spending as well as core pce deflator. does it keep coming down? if it does not does that challenge the idea the fed is as dovish as jay powell. jonathan: it seems like we are -- it seems like week over and year over. steve chevron is here. what a difference a month makes. are you more bullish than you were a month ago? steve: 2023 was a year where despite having concerns economically, we held our nose and we bought. we bought equities. then we were too underweight growth and you've got a selloff in the summer and we bought equities. i do not think we were more prescient than anyone else but

it worked. what you are seeing with these price targets moving up is the earnings have inflected positively. we saw that. year-over-year earnings growth, you could forecast earnings growth in 2024. you cannot get to the idea you get any multiple expansion. if the fed is thinking about thinking about cuts, to throwback an old term, then you can start to think about maybe you do get a little bit of multiple expansion and maybe that is why you are seeing so many strategists up there forecasts for next year because there is a multiple expansion component we do not have before. jonathan: financials and banks looking good. you think improving breath is a head or the real deal? steve: that is something you watch. the argument still is, is this a final gasp of the last rally before armageddon, which is not

our view, or is this the beginning of something sustainable. it will be more sustainable if it is broadening out. if smalls are performing, if financials are performing, if transport is performing, those are signs you have a sustainable move which is why i think the last month has been concerning. lisa: i want to note there been six other times the market has embraced this notion of dovishness and then gotten cold water because of data stronger-than-expected. how offsides will the market be if we get re-acceleration in inflation? steve: it depends on how much. if we are talking about an extended pause, pauses are historically the best environments for equities. if you have upside surprises to inflation that would react -- if this fed after that press conference had to go back and hike that would be really bad,

but if it is strong enough dated to keep them on hold, that may be better than cuts. they usually cut for a reason. cuts would suggest continued economic softening. if it is stable and they are on pause, that could be just fine for equity markets. the bond market is where you could have issues. lisa: you expect the rally to continue in tandem with bonds and stocks or will the divergence become more material? steve: the scales have tipped in the direction of equities. bonds had a move right off the press conference. it may be overdone. i do not think we will get six cuts until there is -- unless there is meaningful deterioration in the economy. equities have a long way to go. you'll will see them past the old highs. even if you have a recession markets today all-time high before they do that. there is a much better risk return and equities than there is bonds and that is different

from a month ago. jonathan: i've seen lots of economists explain the difference between cutting interest rates and easing policy. you think for markets that is a distinction without a difference? steve: if you're talking about a couple of cuts trying to keep the real rate where it is, that is the behavior you see in the very few soft landings historically. if it is aggressive cuts because you have unemployment rising and defensive's leading, that is a much less benign scenario. humility was something that if you did not come in 2023 with it you probably should be leaving with some. you probably need to understand what is going on in the economy and markets in the context of the cuts otherwise you risk being humbled. jonathan: would you like more pushback from the federal reserve, this an interview with loretta mester, "the next phrase

is not one to reduce rates, it is about how long we need monetary policy to remain restrictive in order to be assured inflation is on the stable path back towards 2%." the markets are little bit ahead. they jump to the end part. hawkish member of the fomc, we know that. it is hard to say the market is wrong after what we have heard in the news conference from chairman powell. what was chairman powell doing? steve: it makes sense to struggle and ask questions about how long we stay at this rate. it is just a communication strategy which we were talking about before air. it is difficult when you have the share with a dovish message and members are walking it back.

i miss the days when we guessed the size of the briefcase from alan greenspan. the market was ahead of the fed. most of the market was expecting chair powell to push back against that, not wanting financial conditions to loosen too much, and he did not. i cannot imagine that was a mistake. i cannot imagine -- i do not know if he is negotiating in public or he is trying to get the market prepared for dovish messages into 2024. what the market has taken is in any event hikes are off the table. lisa: do you think he is bad at his job or he does not agree with the other members? steve: i have a hard enough time doing my job to criticize the chair of the federal reserve. he has an impossibly difficult job and my comment is he has always felt there is some element of disinflation that was transitory.

you have seen it come down on supply-side which is somewhat indicative of that. in that event, with rate hikes, there is a risk of over tightening. i think he wants to stick the soft landing. he is trying to push the public and the committee into that direction. he may not be wrong. he may not be wrong. it is when you have the pushback coming from other governors it is hard to figure out how to interpret that message. jonathan: that is what is difficult for the news conference. the chairman should be trying to represent the consensus. it should have been the opposite, shunted? that is where i am leaving the conversation scratching my head. lisa: he is not worried about financial conditions easing and it is hard to undo this message. two year yields unchanged. mohamed el-erian in the financial times -- "the

inflation round-trip is neither simple nor complete." more on that later. love this tweet this morning. "new drinking game. every time someone on bloomberg says pushback." you are drunk by 6:12 in the morning. lisa: if no one is taking it as pushback, it is just like damage control. that is what we are seeing this morning. jonathan: that is without a doubt what we are seeing. steve chiavarone with you. merry christmas to you. steve: merry christmas. jonathan: the longest weekly winning streak back to the november 2017. we will speak to jay pelosky who is feeling very good about himself. he feels vindicated what we heard from last week. we will talk about politics as well with ed mills. the latest polls not great leading for the president of the

united states. the hypothetical head-to-head over at fox news, loss, loss, loss. lisa: it has been consistent. what strikes me as the underperformance among younger individuals, particular within his own party, and that divergence of generation is market with respect to a host of issues. jonathan: we will get to the details of that in about five minutes. equity futures positive .2%. yields lower by a single basis point. 3.89. the fx market the euro showing strength despite weak data. 1.09 on the euro against the dollar. from new york city, good morning. ♪

>> i agree with a lot of trump's policies.

i think he was the right president at the right time, but looking at the situation now our country is in disarray and the world is on fire and chaos follows him and we cannot have a country in chaos for four more years. jonathan: republican presidential candidate nikki haley speaking to abc as a new cbs poll shows that nikki haley is closing in on trump in new hampshire. that is latest for nikki haley. for the president of the united states things are looking worse. in hypothetical general election matchups nikki haley is a get -- is ahead by six points, trump is up by four, desantis and joe biden type, and as recently as august biden was narrowly ahead of all three of them. lisa: what stuck out to me was a wall street journal poll saying democrats and independents, 45% of those polled says biden's policies hurt them personally or had no impact on them, so he is

losing on the economy, even though economists are talking about a golden economy. jonathan: our poll was pretty brutal last week for the president. we have done this a few times. when respondents were asked which leader they trust to handle the economy, it is president trump leading 51 to 33. that is a maximum spread. 16% net -- 16% said neither. lisa: it is the exact same kind of message. how much of this is tax cuts, how much is economic expansion? biden is not getting his message across in inflation is taking a bite out of the sentiment. jonathan: ed mills joins us, washington policy analyst at raymond james. is it personal, is that the economy, what is it? ed: is a combination of things. two things we look at, approval

rating, right track-long -- right track-wrong track. president biden is underwater on both. when people do not think you are doing a good job and do not think the country is in the right directions, those are warning signs. if it is a head-to-head matchup between biden and trump, the questions become how much is a referendum on biden or how much is a referendum on trump? trump also has very high negative ratings. one of the things i think about as i compare these candidates is donald trump is always one of those candidates that has i high floor and a low ceiling because of the intensity of his support among his base. that floor for biden is lower because there is less intensity. in a head-to-head matchup i still think this is a very close election which will be decided by a few swing states next november. jonathan: are you think maybe

the white house should trust the calendar, that things will close over the next 12 months? ed: i think they should be nervous. i do not think you can trust the calendar. i think there is a lot that needs to happen between now and november. when i go around talking to clients, i was in l.a. with raymond james last week. there is a sense there is something going to happen in this race that will upend things that we do not know. the unknown unknowns. people think we probably are going to see this rematch, but people are watching nikki haley, people are watching for a third-party candidate, people are watching for that surprise. this far out does show flashing warning signs for joe biden. i do not think anyone has great certainty right now as to who will be in the white house on inauguration day. lisa: we have spent years talking about the schisms in the republican party with the house

speaker and the debacle around that. there is a question in how big the schism is in the democratic party in terms of the progressive wing the rest of the democratic party and whether any democratic candidate can pare those at a moment that is polarized. ed: that is part of the reason you see joe biden pulling relatively low is that schism for those folks were not in favor of some of biden's policies, they are not saying they are going to vote for him. the job of the biden campaign will be making sure they have enough of a contrast against whoever establishes themselves as the republican candidate, assuming it is biden on the democratic side, and get them to the polls. they cannot have them sit out. that is why his floor is lower than donald trump because of that intensity in that schism within the democratic party does not have anyone rallied around at this time. lisa: we have another year of this.

there is a question of whether there are specific aspects of the race market participants you talk to our particular interested in. is that the deficit? is it foreign policy? what is it from a market perspective people are most trained on? ed: it is all of the above. we will have a really busy january. the senate is still negotiating a potential border deal which includes money for ukraine, israel, taiwan. that is probably getting kicked into january. in january we have the iowa caucus, primaries in new hampshire. taiwan has an election. a potential government shutdown. 1% cuts that get triggered because we did not finish up our appropriations process in washington, d.c. i am getting more questions about the debt and the deficit, how that plays into not only the election but after the election, and there is the expiration of

the trump tax cuts in the end of 2025. d.c. is more of a conversation for this market than historically and i would end that with the fact that when we look at the markets in presidential election years, january to march is a week period for the market because that has some of the greatest uncertainty as the parties are choosing their candidate. we have this run-up we have had. we have this optimism because of the fed. will we see that continue into january and be an outlier or will we return to what we saw in 2020 when it looked like bernie sanders might be the democratic nominee, and the market. will we see a repeat of that or is there something that will emerge? is nikki haley going to emerge? that will see a stronger market. jonathan: things get bigger

quickly. january, the key dates. the deadlines for they have to come to some agreement on spending. ed: january 19 is the first deadline. february 2 is the second deadline. what i am watching with this border and defend supplemental is do they require a bill to get funded for the entire defense budget? if they were to do that, republicans have a stronger hand in pushing budget cuts elsewhere. i do not think the market is prepared for budget cuts. if we have a government shutdown, one thing we would highlight is in the past when the government has shut down the market on averages of more than 3%. beyond that it is the iowa caucus on the 13th, 25th is the new hampshire primary. jampacked dates. congress returns january 8.

jonathan: i mentioned the polling that came out of fox. number one issue in both parties, the economy. the southern border is a close number two for republican voters , does not feature highly for democrats. is that where the fight will be? ed: that is exactly why republicans are insisting on getting something done on the border in exchange for that ukraine, israel, taiwan eight. house republicans on the floor of the house of representatives saying they got nothing done. they want to have a key issue for their constituents solved, or at least progress on that, so when they run on their own races in 2024 they can point to something. this is the one area where we know there is still broad bipartisan support to get that aid package on the military side. they think this is their

opportunity to talk about other national security issues. what they're asking for is more than what democrats want to give. unfortunately for democrats they will have to give it to get the other side of this funding done. jonathan: unsettled business into 2024. thank you. breaking news on bp. you will recall there have been a series of attacks by houthi militants off the coast of yemen. shipping companies working to where to send their crews through. bp to pause all oil tackle transit through the red sea. from new york, this is bloomberg. ♪

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jonathan: live from new york city, good morning. equity futures positive .2% on the s&p 500. seven weeks of gains on the s&p. we have. had losses since october. nasdaq 100 futures up .6%. the massive outperformance from elsewhere. the russell more recently. the banks are up 26% over the same period of. from the end of october, the banks are up 26%.

helped out by this move in the bond market. two year, 10 year, 30 year, well off the highs of october. down almost a single basis point. on the two year we were talking about 5.25, 5.26 in october. now we are talking about 4.42. yields lower. lisa: you remember when we worried about the deficit? about who will buy all of this debt. all of these stories people bought into and we had an auction and it was catastrophic and it edified this feeling this is a new era and suddenly it is back to the future. jonathan: those issues have not gone away. they are still with us. lisa: if anything it makes it more likely the bank of japan will move away from negative rate policies and normalize what is going on. a hawkish message from the bank of england and ecb. is there some room between where

we were a month ago and where we are right now? jonathan: the buzz word of the day is pushback. pushback from williams on friday, from austan goolsbee over the weekend, from loretta mester this morning and nobody seems to be listening. if you get any encouragement you latch on it. that has been the story for number of weeks. lisa: jay powell said we are talking about the timing of rate cuts. new york fed president said they are not really talked about rate cuts. what constitutes really talking about it versus talking about it? they are not necessarily doing a forensic analysis. it does not count as pushback when you have the chair talking about it. jonathan: the ecb try to push back but the data is terrible. none of it has any credibility. the euro is positive, 109 -- 1.0 912. we did not hear chair powell in the news conference.

lisa: what we heard from christine lagarde is this feeling the need to stick with it, the feeling they are not thinking about rate cuts, the feeling they are not the federal reserve. no one was listening to her because jay powell set the tone and the data is not there to support an economy that can withstand date -- that can withstand rates at this level. jonathan: german business expectations worsening, dampening hopes of a recovery. a gauge of expectations fell from the previous month. analysts had been expecting an uptick. put that together with the pmi's on friday, not a great picture of the european economy. lisa: it is the biggest economy in the region so if it is having trouble you have an issue. can you get the same kind of commitment hold a great sigh, especially when inflation is coming in faster in europe. the services sector is not seeing the same kind of inflation that is inflecting

upward. there is a real question about how sticky this is and how much they will be able to deal with more disinflation into next year. jonathan: i promised you an update on this story. bp pausing all oil tanker transit through the red sea following an escalation of attacks on merchant shipping by houthi militants. immersed making a similar announcement on friday. clearly big questions for the u.s. military and for these companies. lisa: this is the big sleeper story of the next couple of weeks. this is the most important thing to watch because it has to do with global trade, you are dealing with this question come a breaking apart of certain middle eastern allies in the u.s. in terms of how to deal with this because of the allegiance of people behind different factions, and then you have this issue of what does this mean for supply chains? do we then get in inflationary pop if you cannot get this good

shift or not the same kind of deflation we saw? jonathan: remember that massive ship and everyone was freaking out a few years ago? lisa: this is that on steroids. jonathan: goldman-s david coston lifting his 2024, seeing an index of 5100 by the end of next year. a month ago the price target was 4700. that is a big lift. he writes "equities were already pricing positive economic activity but now reflected even more robust outlook and when they are constructive about." lisa: what happened with robust outlook? that was jay powell. jonathan: that is the only thing that has changed in the last month. lisa: he created the robust outlook. jonathan: jan hatzius had what was article robust outlook. they said the hard part was over

and jay powell gets gasoline imports on the fire. i match on the bonfire. lisa: does the data confirm it? a lot of people are saying there is nothing in the data to be inflationary. everything will be disinflationary. if that is the case does this keep running regardless of any kind of pushback. the date will confirm the disinflation and we know the reaction function of fed chair powell. jonathan: i am pleased to say revisiting us around the table is priya misra, portfolio manager at j.p. morgan asset management. we were talking last week going into that news conference. surely we were going to get pushback from the chairman. your point is important. are we dusting off the 2019 playbook? what is the 2019 playbook? priya: in 2019 the fed tried to cut rates, they cut rates 75 basis points trying to extend the cycle.

this is the fed that says once they get the great light from inflation -- what surprised me is how quickly they are convinced inflation will head back down to 2%. they are trying to get the soft landing. if that means they can normalize policy and get real rates closer to 1%, they think they can extent the cycle, that we do not get that recession. i think it is a little but of a risky move. what if inflation does stall? if you are at 2.5%, that is not that far from 2%. whether they will work or not, that is the trade. we are seeing growth slowed down but not to recession levels and they are hoping that by these preemptive rate cuts they can actually get that soft landing. jonathan: you did not say teasing, you said normalize, what is the difference? lisa: there is a big difference -- priya: there is a big

difference. the market is hearing the fed is cutting to the fed is easing. i think they are trying to get rates to a neutral level. we will be debating for the next year. what is that level at which point policy is accommodative. we are very far from accommodative. chair powell said we are well within restrictive territory. normalizing is getting rates to 2.75 or 3%. easing would be below that. 1% or 2%. the market is pricing in normalizing. when i hear too much is getting priced in, we are pricing in inflation to 2%. growth in that 1% range. 2.75 or 3% fed funds is normalizing. i think we do not price and the chance the fed will have to cut through that because they are trying to extent the cycle. what if the damage has already

been done? there is a chance the fed may have to cut south of that 3% level which the market is not pricing in which is why think there's more room for rates to decline. lisa: why do you think there are so many fed officials lining up to pushback on jay powell if it is consistent with what they hoped to do? priya: i think they are trying to prevent getting bullied by the market to cut down to zero or 1%. whether that will work or not -- lisa: the market is not even bullying them to that degree. priya: exactly, but what if the growth data does start to slow down? i think the fed is saying there is a different bar to normalizing. we have reached that bar, than there is a different bar to take rates into accommodative territory. it is hard for the market to make that, for the fed to make that point, and for the market to hear it. the trade for today is the fed is going to ease.

until we see data it is not working, it is risk on. lisa: here is my issue. there was a time we thought the easing in financial conditions mattered. it would have a stimulative effect on the economy and inflation. jay powell had a softball to respond to that, to lead into that message. he did not. we take a message that they do not care about the easing or do we take a lesson from all of the other fed officials that try to say it does matter. priya: financial conditions are always context dependent. financial conditions have eased. inflation has come down. the growth data is weakening. even if you look at payrolls, if i strip out a few sectors it is looking week. the consumer is levering up. we are seeing a pickup in the floor.

if the household sector is starting to weaken the fed looks at easing financial conditions and says it is appropriate. have we seen a reacceleration in growth? the fed will pushback. if we see inflation stalling out they will say not so fast. with growth slowing down i think financial conditions matter less. jonathan: two year 4.42, 30 year just above 4%. how much space is there for yields to fall? priya: it will depend on the data. my view is things are slowing. even though financial conditions are easing, it is hard for them to have an impact on the economy that quickly. i think the zero to five or seven-year part of the curve can decline a lot more. we can price it a 10% or 15% chance of recession. you put that in and then you are looking at the 10 year closer to 3%. there is room for it to decline.

we have come a long way quickly. two months ago we were at 5% on tends. it has moved a long way. i think it can consolidate but i do not think we are getting much of a backup. i would use any backup as an opportunity to buy. i they going to have a flat curve over the next three months. jonathan: why is this curve still at -51 two year of versus 10 year. wire we getting the class of end of cycle bull steepener? priya: dear question around normalization versus easing, that is the part of the market that understands. the fed is not talking about easing down to zero. the curve has steepened when we see signs that a hard landing is in front of us. if we are still in his soft landing i think we have a flat curve. there should be some term premium. here is my pushback. there is $6 trillion sitting in money market funds. i am earning more, if the fed

hikes more i will earn more. think about reinvestment risk. as the fed starts to cut rates those rates will not stay high. money starts to move out and it is not obvious to me at all moves to stocks when real rates are close to 2% will bond start to look attractive as well? jonathan: what is guiding you? looking at various economic indicators, what is guiding your assessment of where the economy is going? forward indicators have been signaling slow down. what are you looking at? priya: part of why q3 happened is incomes searching. inflation declined but wages are high. if you look at wage growth, i'm basically looking at the household sector. i'm looking at small business hiring. that sentiment seems to be slowing. i am looking at the consumer. at the margin you are seeing cracks.

we do not know if the cracks will be systemic enough and can the fed prevent the cracks from deepening? there are cracks in terms of the consumer leverage, in terms of consumer delinquencies. there are signs of trouble. i think it is still too early to say is this a hard landing but we should put in some probability of a hard landing. jonathan: priya misra of jp morgan asset management on the difference between easing and normalization. lisa: this is the reason the fed does have a nuanced message to send out. how do they convince them this is just normalizing? jonathan: and is that a distinction without a difference. more coverage still to come. the outlook from wells fargo is up next. this is bloomberg. ♪

>> even if you manage to skirt

around the recession, which is certainly possible, even if you do there will likely be a growth scare time because there is so much optimism in the markets right now. based on what we have seen the fed is likely going to try to be as quiet as it can from the several months. jonathan: they are doing everything but staying quiet into the christmas period. williams on friday, goolsby over the weekend. lisa: they are all trying to sing from the opposite hymnbook of jay powell. what are they worried about? are they worried about financial conditions getting carried away? are they worried about being bullied by the market or are they trying to be the last voice before the end of the year to try to be responsible? jonathan: i will try to be responsible. prudent to reintroduce two way risk after what we are from

chairman powell. lisa: when the chair speaks he speaks and if he is on a different page to the committee we have a problem. jonathan: he was anna different page from -- he was on a different point -- he was on a different page from jay powell 12 days before. the bar has reset big-time into 2024. wells fargo calling for the economy to contract. the economist saying "there are unmistakable signs the momentum is downshifting and cracks appear in the household setting." shannon joins us now. we will dive deep into the fed speak but your outlook is calling for contraction. where are you seeing weakness in what you think that continues next year? shannon: we are still seeing early cracks in the economy. we think recession risks are elevated into next year. we think the fed is done and it comes down to when they start to ease policy.

you can avoid that contraction. what we've been trying to stress for clients is a soft landing will not feel that different. we are looking for slow growth in 2024. where those cracks are starting to materialize we are starting to see some in the household sector. the household sector is indecent financial shape but those four abilities are starting to rise with delinquencies higher, interest rates starting to pick up. your strongest the household sector think about changing their behavior. jonathan: i thought chairman powell had started to change his behavior last week. i heard a chairman entertaining a conversation about rate cuts and then william spoke on friday. austin goolsby spoke over the weekend. the red investor spoke to the financial times. -- loretta mester spoke to the financial times. how credible are those? shannon: i think we should be paying attention. powell surprised many of us with how dovish she was in we are

seeing a lot of that being walked back. the market has gotten exciting about easing in the fed speakers are trying to walk back some of that so they do not see an overly accommodative stance that puts them in a precarious situation with inflation meaningfully above target. we still have work to do. i think they're trying to walk back some of the market excitement the best they can after powell's comments. lisa: let's pair these ideas together. you say they are beginning to think about changing their behavior. beginning to think about rate cuts. you put these things together and you wonder if the combination we have seen in markets will change people's thought process in households where thinking about changing their behaviors to be less the bully and when it comes to shopping. is that what you are seeing, that financial conditions matter at this junction? shannon: i think they matter for households more than we think

based on how they follow markets. what i mean is i think consumers have been remarkably resilient over the past few years. i think the wealth effect has something to do with that given how sturdy their financial situation has been. i think that could add to further strength in consumers. our forecast is for continued moderation through the fourth quarter next year as some of those unique factors have helped support spending have begun to fade. excess liquidity, the things we have been stressing. if you continue to see this accommodation in financial markets and the rise in equity values that could help bolster financials, i get worried we see strength in the consumer. i use the word worried because our forecast calls for construction but what does that mean for the fed in terms of policy? how does that translate to inflation and where does that put the fed in terms of where

they are able to ease? lisa: i spent the weekend thinking about buy now, pay later, because that is hidden from a lot of credit agencies. it is hidden from debt loads people have ended accounts for almost 10% of recent online shopping during black friday. how concerned are you about the segment that is flying under the radar? shannon: we are a little bit more concerned about it because it was extremely difficult to measure. it is not tallied by credit agencies and is a little bit of a phantom debt. it is more of a concern for us as households use it in terms of their holiday spending pattern. that suggest you might not get as clean as a read on some of this high-frequency data. the retail sales data came in above expectations and that surprised us, especially based on the high-frequency credit card data. coming from economic analysis which look for a long decline.

some of that could be the by now, pay later programs. we are growing more concerned. it is an area to pay close attention to. it puts lenders in a more difficult situation as they tried to make loans to consumers and may be don't have the full picture in terms of their financial burden. it is a growing vulnerability. jonathan: you think there is space for the consumer to re-leverage going to next year? shannon: i think the leverage environment for the consumer is shifting in the sense households have taken on increasing debt out of the pandemic after paying some down in the initial year or so during the pandemic. i think we are a more challenging position for households to continue to take on debt. not only have banks tighten their standards at a pace consistent with recession and interest rates are higher which makes it more difficult for consumers to rely on that source of purchasing power.

our expectations is consumers will pull back on debt and rely more their incomes. our trajectory is for a mild contraction but it depends on the labor market. if the labor market remains sturdy, i think households can continue to spend, particular if the real income remains sturdy. the outcome depends on the income. lisa: where is the bigger risk into next year? is it a rapid deterioration in the economy or sticky inflation that does not get back to 2%, with the fed that is easing or normalizing? shannon: it is tough to say. i think it might be more of a deterioration. the inflation trajectory is in train. as i think about the fed and how they think about easing, it is not necessarily the headline figures that come down. we are forecasting a decline in the core inflation metrics. it will depend on that

composition, which prior to last press conference we heard jay powell stressing, getting the core services component lower. while i think the risks to the outlook are balanced, we do have a modern contraction, a -- does not seem too likely because consumers are still in good shape and the labor market is showing signs of recession. the consumer will be key in making sure houses moderate their spending but are not pulling back to be consistent with the imminent contractions. jonathan: this was great. let's do this again soon. let's take stock of the last 50 minutes. it seems for many people there is a big difference between easing and normalization. i go back to a question i've asked multiple times. for financial market participants is that a distinction without a difference? i think it makes a difference. lisa: i would agree because it is taking one of the headwinds

off the table. another leg of more restriction. jonathan: are we going to hear more about this from fed speakers? the surgical rate cut story neil dutta was talking about. when inflation starts to come down he want to focus on real rates. shannon: does it matter? -- lisa: does it matter? a cut is a cut it if you do not have the pressure on markets people will view that as bullish. jonathan: you always think about the next move. there is a believe this starts a cycle of cots. lisa: the bias is not necessarily remaining late to the party. the transitory discussion is not something that was deeply scarring that makes the fed more hesitant to cut rates. jonathan: let's speak to a man who was not late to the party. jay pelosky at tbw. he joins us next on the program.

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>> the message we got from the fed was very much an all clear, the markets responded in kind. >> the market is responding in a way that makes rate cuts absolutely imminent, and i don't currently see that. >> a lot of the drivers for higher rates have not left the market. >> there is skepticism about how much the fed will ultimately cut. >> when it comes to the fed

forecast being realized or market expectations being realized, the truth in the end will live somewhere in between. >> this is "bloomberg surveillance." jonathan: right now, the truth is whatever you want it to be from this financial market. good morning. good morning for our audience worldwide. this is "bloomberg surveillance ." your equity market on the s&p is just positive following seven weeks of gains on the s&p 500. chairman powell started a rate cut party. the conversation was already going. the market went up. strong black coffee, nobody is having it. lisa: the party keeps on going and people feel edified about this idea of surgical cuts. whatever you want to call them, the fed is done hiking rates, number one. number two, they understand the triggers to start cutting rates

next year. jonathan: my absolutely favorite quote over the last month or so, what a year november has been. let's go back to november. you are publishing your outlook and feeling good about gains in 2024 and then november happens and you added a little december and you reassess and think maybe you should put out a new outlook. from goldman sachs, 5100 on the s&p year-end next year, mid-november, 4700. they hiked the price target big-time. lisa: 9% gain from the original price target to the one he put out about a month later. so what changed to have a more robust backdrop? the fed will not be late to cut rates. that changed the game. that was one of the big risks for market participants, that they would be conditioned. instead, they are embracing it because it is the truth after all.

this to me is the game changer at a time when people are looking for excuses to be bearish. they have none now. jonathan: morgan stanley getting into the festive spirit. this is a bullish outcome for stocks. hi high have we reset the barn out going into 2024 how high have we reset the bar -- how high you set the bar now going into 2024? lisa: a host of others sees that as well, that next you will be rocky, more of the same. but what will be the trigger? the cold water that officials are trying to put on this? i don't think so. is it the earnings? this is the question or the cracks the people are thinking about seeing. jonathan: thinking about rate cuts. lisa: they are not really

talking about it. jonathan: thanks for that clarification. this market is still rallying. positive on the s&p 500 by 0.2%. 3.90 on the 10 year. the euro just about positive by 0.16%. lisa: this is what we are looking at this week. it is the last week of the year basically before everyone goes on vacation or maybe it is just as. tuesday, the bank of japan rate decision, the sleeper issue a lot of people are expecting that maybe they would move away from negative rate policies. now people think it will be this week. but still, again talking about potential tail risks, could this upend some of the euphoria? treasuries do not matter until they do. twenty-year bonds after the incredible rally, it doesn't hold after more than a percentage point in decline from the pk month and a half ago --

peak a month and a half ago. what happens if it does not cooperate with the euphoria we are seeing in markets? spending is out and the core pce deflator which has been coming in now 3.4%. does it keep coming in or do we get a plateauing? the comps show us it will. jonathan: thank you. that is your week ahead. now, our guest has company, tons of company. it is wonderful to catch up with you. how good does the external validation feel for you this morning? >> it makes for a warm, wet, windy monday morning in new york city, that is for sure. as you guys have been talking about, you and others, markets have rallied. they have rallied right in your face. it is difficult to stand aside.

it is a classic year-end rally. you have a gain at the end of the calendar year. you are underperforming because of cash. you have to participate. at the end of the week, 10 out of 10, right? there is a lot of pressure on people to perform in this period so there is a big chase going on. it is continuing now. jonathan: you were not bullish for the sake of being bullish so let's talk about your framework, the process. you have called your macro stability. what we have been experiencing over the past eight to 24 months, why are you convinced by that and what is the outlook for you next year? jay: i would say it has actually been three years. we have been three years since covid, volatility, the central bank response. we have had conflict and climate

issues so it has been a period the last three years of volatility. my view now as we are exiting that period and entering macro stability. all of that stuff is in the background. it is in the past, it has been priced income a discounted, and going forward, i think the outlook is pretty positive. the fed is done. we are moving from a rate hike cycle to a rate cutting cycle. we have economies doing reasonably well. the u.s. is growing this quarter at 2.5%, probably will grow 2.5% for the year. next year, consensus is 1.5%. it is likely it will be revised up as you talked about people revising up their targets. european equities have also been up seven weeks in a row. and then you have china struggling to get going on the traction front but still growing at 5%. i think the negative outlook on

things is just misplaced. they have revealed to have been misplaced by the market reaction. the market knows better than any one of us what is going to happen, and that is what it is forward-looking and why you in turn have to be forward-looking. when we did our 2024 outlook, we had four macro surprises. the first one was lower than expected inflation sooner than expected. that is already playing out in the market is reacting to that. another one is a return to macro stability with what it can present in terms of all of that money, well over $1 trillion that went into money market funds can now start to come out. that is why i think the market is truly going to take a pause and pullback -- surely is going to take a pause and pullback and that is healthy but there is money that needs to participate. all of that money that went into the money market funds provides

a nice cushion so i don't think you have to worry about a big downdraft in 2024. lisa: you have been enthusiastic about non-us stocks for quite a while including european banks. you were early to this party as well. now we are seeing that broadening out. how much more conviction do you have now than six months ago that that can continue? jay: great question, lisa. our framework has been simple. we believe in keeping things simple. lower inflation leads to lower rates, leads to a weaker dollar, leads to better outperformance outside the u.s. and good performance for commodities. our friday musings last week was tied up in real. the case to get real was to get real assets. we are constructive in urging markets, both debt and equity. they have been the huge laggard. no one is completely underpriced, completely

dismissed. we see big opportunities in e.m. or rather regionalization of supply chains. this fits into the framework. our framework is regional deepening, in gauging europe and the americas. we are finally starting to see the opportunity in investing in that with emerging markets, the americas, europe, vietnam, asia, beneficiaries of the regionalization process. just to finish on commodities, commodities are the one thing that have not participated. what is a better beneficiary of a weaker dollar and lower interest rates? commodities. if you want to buy something now, you buy commodities, oil, copper, gold miners. our two big bets for next year, emerging markets and commodities. lisa: just real quick, can you

say cash is trash at this point? jay: [laughter] cash is definitely a laggard, and that is what i said six months ago and everyone loved it. it will be a laggard. cash is up 4%, equities are up 20%. i would rather have the 20%. that is what will take money out of the money market fund and put it into risk assets as we returned to macro stability in 2024 and 2025 in my view. jonathan: very wise because when people call it trash, typically bad things happen. it was right to ask that question. lisa: let's call it diplomacy. i will say that his note -- i have to read the way it began. wow, one has to admit that external validation especially from a well respected source like the fed sure feels well. this is someone taking a victory lap after a stellar year. jonathan: well deserved. enjoy the christmas holiday. good to catch up.

on energy, when he had to say about the laggards, really important -- what he had to say about the laggards, really important. since the end of october, the s&p 500 is up some thing like 12.5%. energy stocks on the s&p down 2%. that is where the underperformance have been -- has been. lisa: that is because we had seven weeks of declines. we got a game last week for the first in a while -- first time in a while. at what point can you game out the trajectory when it is affected by supply people had not been counting on before? jonathan: producing more than 13 million barrels a day in the u.s. for america. welcome to this program. yields a little lower by a single basis point. 3.8997 on the u.s. 10 year.

crude is rallying. i can tell you the gases in europe too. we will build on this story with annmarie in just a minute. bp is pausing all oil transits through the red sea. we heard a similar story last week. the announcement following an escalation on attacks -- escalation in attacks on ships by houthi rebels. lisa: for of the five biggest container shipping companies have paused or stopped shipping through the red sea. oil tankers are not passing through there. what does this do to the price and the geopolitics? the u.s. is saying we have to stop this to keep shipping going. they cannot get an agreement with other middle eastern allies. this is a very difficult moment. it is pretty tenuous in the region. jonathan: it is no doubt important.

we will keep building on the story in five minutes. we will catch up with a guest on the nature of the war a little bit later. the markets will kick off the next hour on "bloomberg surveillance," about 47 minutes away. equities lifting again on the s&p 500 by a quarter of 1%. the run has been absolutely phenomenal. seven weeks of gains on the s&p 500, the longest weekly winning streak back to november 2017. encouraged by chairman powell. as for the rest of them, we will ignore them. the pushback, apparently this market does not care. more on that a little bit later. from new york, good morning. ♪ (sfx: stone wheel crafting) ♪

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>> how close is the senate to any sort of deal on the border

that would then also allow israel and ukraine funding to pass? >> let me just say this, i have been communicating with negotiators by my colleagues and friends on the democrat and republican side, also with the white house, and i am very encouraged. i am very optimistic they are moving in a positive way. they understand the border is broken. jonathan: the border is broken, wide open some might say. that was the senator speaking on cnn talking but is a committee on a deal. -- talking about positivity on a deal. >> bp halting all oil transits through the red sea following an escalation of attacks on merchant shipping by houthi militants. annmarie joins us in washington. let's go there. how tricky is the situation going through the suez canal currently? annmarie: incredibly tricky now

that they pulled this transport through the red sea because now they will have to use more takers that will have to go around the horn of africa. the fact that they did this, the fact that this is going to create more issues for their supply chains, more issues for their fuel consumption, you have to imagine that they are very concerned. now, the biden administration is of course weighing what they could do when it comes to these attacks. do they directly go after the houthis? one source is talking that within the biden administration, there is debate about getting involved in a longer-term protracted houthi potential conflict. there is talk about a maritime consortium in the red sea. we have seen a lot of diplomacy within the region. the president's national was just in the uae. we also have today lloyd austin

in the region, and he will be going to israel. there is a lot of discussions from the white house and the defense department regarding what to do with the red sea and the critical shipping lanes. lisa: people have been talking about this agreement within some of the u.s.'s middle eastern allies about which factions to support and how to best counter the houthi militants. how much credence do you put into those stories? annmarie: i think at the end of the day because the saudis and emirates want to make sure it is a safe and secure region, they will support different parts of the faction in yemen, but at the end of the day it comes down to what the united states's plan is going to be in the region and potentially to get riyadh and upper dobby on board -- abu dhabi on board. lisa: you mentioned lloyd austin is going to israel with a new message to start moving to a new phase of war that is more

targeted with individual units that are much more specialized going in for select targets. how big of a shift is this and how urgent is this message and will it be heard? annmarie: already, the message has come from the white house to prime minister benjamin netanyahu and the israeli government that they need to start winding down this war. it was reported at the end of the year but mine is to the end of dust to the middle of january. when you look at -- to the middle of january. when you look at the reporting, there was a report of israeli killed hostages. now of the united states is on board for the israelis to start winding this down. the palestinian death toll now is north of 18,000 people. this is incredibly devastating and complicated for this administration as well.

lloyd austin will be there to be another voice to add the pressure to the israeli government. jonathan: let's talk about that pressure. is it building domestically within israel as well? annmarie: there is a lot of concerns within israel about benjamin netanyahu. this has been growing since even before the hamas war started before hamas's terrorist attack in southern israel. there has been a lot of concerns about benjamin netanyahu, where he wanted to take the government and their democracy with the judicial overhaul, and now there is a lot of concerns with the israeli people about how this happened any security concerns. there is a tremendous amount of pressure building on that government as well as people who want to make sure that about civilian lives not being lost, especially those israelis that are still in hamas's control in gaza. they want to make sure these individuals can come out alive and safely. jonathan: it is absolutely tragic. let's finish on this for the

president. how much are his own polls dictating how he approaches this for a conflict? annmarie: not sure if this is in the polls because the polls continue to show it is not foreign policy american voters are concerned about. it is the economy. across the board, whether it is inflation, interest rates, americans think former president donald trump would have a better handle on the economy. but when it comes to the youth vote, our polling has showed they want more to be done for the palestinians in gaza than what the u.s. government is currently doing. you have to remember the youth came out in pretty big numbers for president biden in 2020. will they do that again -- will they do that again come november? jonathan: the head-to-heads for the president do not look good. nikki haley ahead by six points, trump is up by 4%, dissenters is

tied -- desantis is tied. we discussed the arc of his conversation. initially, the white house push back the importance of these polls, are you hearing the same thing now? annmarie: of course they will push back against the importance of these polls. they will say we have 11 months still to go, they will point to the fact that everyone was talking about a red wave when it came to the midterm elections and that did not materialize. the fact is you are seeing the president doing a lot more fundraisers. he is sitting on a massive war chest they have not quite put to use yet, but that will certainly ramp up really as we turn after the christmas holidays. we go into iowa and new hampshire. all of that campaigning and where they decide to deploy that money states, that will start to ramp up. obviously for the campaign, it is challenging because it is not just one fluke poll. it is poll after poll after poll.

we talked about this after jay powell made his pivot. the timeline may be on this administration's side. inflation is coming down. unemployment rate is below 4%. potentially they will have cuts at the federal reserve next year going into november. jonathan: not connected in any way, shape, or form we are told forget thank you -- told. thank you. quite a change. you have inflation coming down, unemployment still around 4%, which is historically tremendously low. you have the federal reserve set to cut interest rates in many minds. the economy is doing well. you look at the polling, and the number one issue is the economy for republicans and democrats and yet we have a president increasingly unpopular, not becoming more popular by many measures. lisa: directly, they feel like president biden's policies have made them less successful and have hurt them personally.

more and more even democrats think that. with that half of voters say it hurt them for the overall election. the opposite for former president trump. how does he change this? is this a messaging issue? is this something else? is it a lack of a clear policy going forward? i am not sure what the answer is. jonathan: the federal reserve will want to stay clear of this whole conversation. we should be clear about that. at least they will attempt to. mark had this to say. "powell does not want to be combing. the bar for racing or the burn rate is pretty high, which makes you think it is maybe not a second-half story, perhaps it will be a first-half story." lisa: maybe that is what they want to get it out of the way. i was reading a number of stories about the youth vote because the difference between that vote and the rest of the population is shocking to me. it found there was this recent

harvard poll that found the majority, 79% of college students, 18 to 24, 79% think white people are oppressors and nonwhite people have been oppressed. jews is a class, 67% are oppressors, that is according to age 18 to 24. the ratio of democrats to republicans is among the highest at faculty at universities ever. there is a host of polls with different groups, both democratic affiliation and other affiliation that have the same feeling, there is a very big gap emerging. jonathan: that came out of this education system in the last decade. that said, bottom line, you are starting to see the measure of the measure. from new york city, good morning. ♪

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jonathan klein the equity market has been absolutely flying. the winning streak could be coming up -- coming to an end. positive by .2%. since the end of october, the s&p has been hired by more than 12%. the banks, the financials on the s&p 500 are up by more than 20. regional banks -- lisa, they are absolutely flying. lisa: r8 codes good for banks are bad for banks? they are good because they are

taking a tail risk off the table or because they are coming to the end of a tail risk? these are questions that we have to ask. jonathan: there was a big worry about what they were carrying and what it would mean for their future. now rates have come down. we sat down with me at the end of 2023. now i do not know anymore, going into 2024. lisa: i would like to understand more about how much of the debt is moving to alternative methods of financing. it is an environment where they have such big portfolios and have been hampered by concerns. jonathan: shaping up as follows.

yields are pretty stable given what we have seen the last few months. i have to say that even with the moves that we have seen, you have to think about this, and of psychodynamics late -- lead to a bull statement. we have not really seeing that, the two year versus the 10 year. they talked about this and it is important, the difference between easing and normalizing with a focus on real rates. a distinction without a difference. i think it is increasingly important. perhaps staying above let bite be considered neutral. you have to think about the curve responding differently. lisa: it implies that there is a longer timeframe.

they will extend the process and are not as worried about getting it under control as quickly as possible. they are prioritizing a soft landing. jonathan: israel pushing back against calls for a cease-fire. saying ending the fight would be a prize for terrorism. urging for a sustainable cease-fire, followed by the french foreign minister calling for a truce. lisa: a lot of it has to do with hamas putting down their arms. you mentioned that there is a lot of disagreement in israel itself and benjamin netanyahu is not a popular president right now and has views that are polarizing a lot of the population because people want the hostages to come home and

not dead. this is some of the tensions bubbling under the surface. jonathan: we are seeing the business consequences coming to the surface as well. pausing throughout the red sea. the announcement following attacks by militants. a similar announcement on friday. 12% of global trade depends on it. it will get longer unless they address it and address it quickly. lisa: not only because of the shipping and potential supply-chain discussions that we thought were behind us, but does u.s. get directly involved? do they send aircraft carriers to the region? who do they work with? these are all real questions at

a time where there are other fronts to the conflict that is going on in the world. jonathan: picking bit -- streaking game. you know the word, pushback. new york fed president john williams speaking to cnbc, saying those discussions are premature. writers saying cuts will not start until the third quarter of 2024. the markets are a little bit ahead of themselves in an interview. here is the quote. markets jumping to the end part meaning that we will normalize quickly. is that sufficient for you? lisa: i do not think it is sufficient for the market. what would it take for them not to cut rates, especially in march? this, to me is the real question. it seems like the next step will be a cut and that is what is

unclear. jonathan: how credible is the pushback after what we heard on wednesday? >> i think powell had the chance for pushback in his speech and he did not do it. for now, they will have to push back a little bit because it has been an absolute rally. the easing that has gone on could call into question a few things but i think inflation is on the right path, and they know it. i started to get a little bit weary of it. i was on the show last time with lisa and she said, are you adding while everybody else is cutting? i said, i think 2024 is setting up really well. i thought there would be a lot of companies pushing back on borrowing. they did not want to do it.

now they will be borrowing at five to 6% and it is a little bit more tolerable. the technicals will be very good. it is absolutely going to occur and with it, fundamentals are very good. lisa: are you going into late -- lower rated credit? >> i think it is all about your risk tolerance but certainly seeing upgrades in 2024. the fundamentals are very sound. i think you can go down. i think the sector is challenged. there were good returns, but there are some landmines. if you look at valuations, the financials are in the 60th percentile versus the industrials in the 10th percentile.

there is not a lot of value on spread, but there is a lot of value on yield and spread in the banks. lisa: is there a feeling that if they do, this all works out and if they don't, it starts falling apart? >> how many times do they cut in 2024 is what is important. it matters a little bit, but it is about getting that signal from the fed that they are going to be there, if they need to be. we were rate about the last mile, where they would fight to get inflation from three to two. now they are saying, we are going to get there, but we will do it at our pace. from a banking standpoint, that is good because they were going to take the brunt of it. jonathan: can we talk about the

wall of supply? >> the wall of supply, there is a fair amount coming due this year. but a lot of companies have elected to simply not rule that debt and pay it down with cash. because it is expensive to borrow, you are seeing less debt. it will be the lowest that it has been in five years. if the rates get low enough that other want to borrow, that is significant, but we are expecting to see a decrease in net supply. we are looking towards that, but overall, the one company i am watching for the signal, if you want a signal, it is microsoft. they did not borrow a dime from the investment-grade market. they have not turned it at all because it is too expensive. if they say we no longer think it is that expensive, you will see the supply.

jonathan: has the approach changed because of where rates are currently? >> i think so. they are both equity financed. incidentals that they would be borrowing and we are seeing a little bit of a balance there, but when debt is expensive, people want to borrow less. i would be concerned if we see the trend move the other way. for a while, they would have been kicking and screaming. but it does not look as bad anymore. lisa: i cannot believe tom is not here right now. he has been asking every single person and he is not here today. he is probably watching and incredibly excited. you think that could unleash a huge amount of supply that could be not as positive?

>> if i see that -- look at the coupons on a lot of these deals. people get to percent coupons and meta-. no one in the tech world issued at 6%. it tells you that the high quality company is no longer thinking it is that prohibitive. but that is the signal that we are waiting for. about 15% of 30 year debt has been in 30 year securities or longer. historically they have been as high as 30%. everybody forgets. companies cannot prepay this debt. rates have gone down and we are already into a lower rate. they have to be stuck with that for a long time. retail is finally getting on

board. it has been flattening credit curves. jonathan: i have cash and i need to deploy it, what are you telling people? >> until last month, it has been a good trade, but you have to find the next good trade. you need to crawl before you can walk. you have to go two to three years. it is really attractive in the high-yield market. we think it will completely collapse. go out to five to six year debt. jonathan: dave go. lisa: that sounded like a very prepared speech. you have to crawl before you walk. then you can push further.

it feels like therapy. jonathan: thank you. if you are just joining us, welcome to the program. positive by 0.2%. yields are going absolutely nowhere. a ton of fed speak. for many, it is year over. lisa: it has been year over for a while. the pushback could matter. we get core pce and suddenly nobody cares about the bank of japan anymore. what if they abandon negative rates and surprise everyone by throwing in the towel? jonathan: you get a different conversation. previously, j.p. morgan was right to say that it is pricing or mullahs asian.

we are not talking about and of cycle or recession and aggressive rate cuts. quite the opposite. the dream is that the economy remains ok and inflation continues to come down. lisa when we heard that from steve. even if we get a softer session, profits can hang in there. because consumers keep spending. if something shifts the narrative -- jonathan: the dream is getting more and more expensive. stocks are up on the s&p. on the conflict in the middle east, elliott. the latest in that war. this is bloomberg. ♪ what do you see on the horizon? uncertainty? or opportunity.

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>> i think this will go into the next year. since october 7, jihadists groups want to attack us because we are helping israel. our border has been obliterated. i will not help ukraine, taiwan or israel until we secure a border that has an obliterated. jonathan: that was lindsey graham speaking over the weekend. supplemental aid to ukraine and israel. this is important for many reasons. just look at the polling. the number one issue is economy. you see display on the southern border. a close second. a number to issue for republican voters. lisa: this is why it is the main sticking point getting aid. i go to that schism in the democratic party. does joe biden leading into some

kind of deal? jonathan: we know the obvious factions right now. you have democrats questioning aid to israel, republicans questioning aid to ukraine and a push to get -- there are to be of key deadlines on the horizon. trying to secure is some kind of spending deal. lisa: people are saying that russia will have a much bigger advantage if ukraine does not get the aid that they are looking for. jonathan: elliott, you have experience with this and it is valuable for us to lean on it. the door-to-door combat and the tragic loss of life and what

lisa in the last few days. hostages losing their lives as well. can you talk to us about the nature of combat right now and how on earth these things happen? >> one thing that is worth emphasizing is that it is difficult to overstate how chaotic this kind of urban combat is and how difficult it is to know exactly what is going on. in this incident where three hostages were killed, it is a tragedy. bear in mind the context in which it is happening and how they have been fighting for weeks, house to house, room to room in gaza. i fought the fallujah battle in 2004, and it can be difficult to know who is your friend and who is a foe. i had a friend of mine -- i wear

a bracelet for him. he was on a rooftop, and about 30 minutes before he was shot dead by a sniper, a group of individuals that we thought were civilians looked like they were trying to surrender. they were not civilians. they were insurgents who were trying to figure out where our men were. it gives you an idea of the types of conditions that they are dealing with. jonathan: accidents do not seem to mean anything. it is the loss of life that is important. there is pressure to be ending the war and quickly. how much longer can it go on for? there is an important distinction between time-based policy and condition based strategy on the ground. why is that so important to this conflict and where america stands on it?

>> we have seen in the past that this administration has gotten itself into trouble. we pulled up on a calendar's, not making sense on the ground. in the case of israel, the objective of the israeli government has been the destruction of hamas. if you pull out before the job is done, it is like having cancer and finishing your chemotherapy when you only got 90% of the cancer. it will metastasize and grow again. we have a saying, you do not want a gentle surgeon. you have to get the whole job done. you do not necessarily want to do it gently because you can do more damage than if you did it decisively. it is strange to see this juxtaposition of meeting this demand to be finished in weeks while see -- see a willingness

to let the war in ukraine to drag over -- to drag on year-over-year. lisa: are they a gentle surgeon? >> i do not think lloyd austin is a gentle surgeon, but i think what the administration is calling for is asking israel to engage in gentle surgery. i do not think israel is going to. i think there is a level of resolve that we cannot completely appreciate in the u.s., but there is danger, if they were to end the fight right now when it is mostly done but not all the way done, that this would be an even worse conflict as they fight months or years down the road. lisa: you can appreciate what it is in a region like that, where they are engaged in hand-to-hand combat. the civilians. this is one of the big fears, that the humanitarian crisis is

getting incredibly hard to deal with. is there any corollary to this moment where there could be some way of assisting civilians while continuing the campaign's? >> it gets down to the particularities on the ground. they could allow civilians to come back into the area and hopefully, we can start to see something like that, where israel has areas that they can control, but again, they should not be forced to do that before they are ready to do it, at the risk of having to go fight this fight all over again. we have seen images of the tunnels. hamas is determined to destroy israel and israel is determined

to defend itself to make sure that will never happen. jonathan: there is belief that the conflict will remain contained, but there are some cracks in their theory. foreign shipping companies think about pausing the use of the suez canal. i wonder how convinced you are that this particular conflict will be contained to where it is playing out right now. >> we have seen that it has not necessarily been contained. we have seen attacks on u.s. troops, but what gives me confidence is that if it starts to overflow into areas that are problematic, the u.s. and its allies have the capacity to quickly contain the conflict. the u.s. navy goes up against vessels from rebel groups and

the u.s. navy will win. but we do not want it to get to that point. we are closely watching these events in the region. lisa: how much has it changed the that this has been the first war that has been live-streamed? >> i think it is more tactical decisions, things that happen on the ground are immediately projected out to the entire world and have strategic implications. we saw that with the deaths of the three hostages and we see that not only in israel, but the ukraine war has been a social media war, as well as afghanistan. it has changed because as you said, these wars are on social media. jonathan: we appreciate the update. leaning on his personal

experience in iraq and elsewhere. incredibly difficult door-to-door combat. think about the objective. it has not changed. a tragic loss of life over the last few months. lisa: it does change the political calculus and it does change the groundswell of opinion. if this had been 520 years ago, would you have the same feelings? there are a lot of things like that going on. the court of public opinion seems to be a pretty significant one for hamas, and it is a question of how you deal with that. jonathan: joining us on this rally of the last two months. pausing by 0.2%. your 10-year, from new york city

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>> 75% of people had never heard a phone ringing. i did not they had never used a phone. they had never heard it ringing. today, 75% of the african people have a mobile phone. they use one. ok. we will do the same with the internet in the next five years. we will do it, as an industry, as entrepreneurs, all we need is the space, and we need investment support because we are the best investment case for this in the world. >> there is so much optimism in the markets right now.

>> it seems like the market is in for a bit of a consolidation. >> i think 4800 is a real scenario here. jonathan: the barriers have been absolutely crushed for the last few months. good morning. alongside lisa abramowicz, i am jonathan ferro. a seven-week winning streak on the s&p 500. for financial markets, christmas started at the end of october. lisa: i thought you were going to say, let's get ready for the weekend because it seems like that is where people are right now. we are seeing new all-time highs . people are feeling euphoric around every asset class.

where is the pushback? think a prayer for the bears. does that mean that there is a downside risk? jonathan: what bears? what bears are left? lisa: exactly. jonathan: growth is still ok and the fed is cutting rates. is that right? lisa: basically. there might be a blowup for a little bit, but this is what we heard earlier this year. is it going to be the same kind of repeat that we get year? jonathan: the price target is painful.

revising the call for next year that he only made a month ago on s&p 500. i keep saying it. we have next year's gains. lisa: they see no reason for it to stop. they came out and said, we do not think you are going to get that big of a gain, but what is to stop it? if the fed has shown a willingness to normalize, surgically cut or whatever you call it. the bottom line is this, if the fed is prepared to cut rates, they can maybe not make it. but what is to stop the feeling that they are on your side, if you are a market participant?

jonathan: trying to push back. we heard from williams. it is the selective hearing of this bond market that we have heard for more than a month. when you get the pushback, brush it to one side. when we start to think about what will happen with inflation, they are still saying, if this continues, we can consider doing this. i think the disinflation will be as early as march to cut interest rates. >> the things that changed was disinflation data that came out strongly showing that price pressures were alleviating. the big reason i am focused on

that particular area is that these are the kinds of risks that might have a bigger impact. right now we see the fed responding to it. jonathan: the equity market looks like this, positive by .25%. foreign exchange, the euro is just a touch stronger. with us around the table, the global market strategist. good morning. that is what you are looking for, but what is it? >> 2% growth, 2% inflation, and

4% unemployment. the way we get to this relatively benign outlook is we have had five consecutive quarters of trend growth and we are looking at six. really getting to a normalization. if you look at inflation, it is starting to decelerate that we are seeing some measures in the real economy that show that. you see core goods deflation with gas prices coming down. it is true that lending conditions are tight and the risk is not entirely off the table. we do not think those things can necessarily push us. look at the dynamics that we are seeing today. look at the unemployment rate and look at the job gains.

we are definitely seeing something that looks like post-pandemic normalization to get back to a regular economy. lisa: how can you say there is that much more room to run? >> i think we want to temper expectations a little bit around the equity market. i feel like this valley has caused some reluctance because we have completed the trifecta of upside surprises. esau the avoidance of a recession and we have seen them coming closer to the fed's 2% target. we are also thinking about cuts. lisa: does it concern you that there are no bears left? they have been put to the side, shamed and rejected.

isn't that concerning, given that you want a certain degree of naysayers and descent? >> i would not say that we are overly bearish, but consent -- compared to other estimate, there are three things that we have to think about for the equity market. there is not a lot of catalyst for the rest of the year, but when we start to hear from eos again, they were saying, we are seeing a gloomy outlook and we will see constraints on revenues. i think you will continue to hear that in january. we have seen an extraordinary amount of rate volatility and an underwhelming amount of equity volatility. the multiples, we have had this macro hyped multiple expansion, so we could start to see that we have all the macro news in front of us.

jonathan: we should be very clear about that. starting to see it brought in out. is there something to hold onto? >> in some ways. if you have inflation decelerating and rate coming down, that tends to be good for growth. we want to be careful around the magnificent seven, given the overvaluation of those stocks, relative to history. about one third of the index but about 20% of the profits. people think all the prophets are coming from the next seven, so we think a little bit about the broadening. think there is a little bit of support for growth in general. you do see with a lot of these companies, ample cash on talent sheets. you also see that there is still growth versus value and more spending on r&d so that future

growth will be achieved, but you see so many other areas of the market that are beaten-down and the tailwinds are not there for them. if you look underneath the surface, there is a lot of quality in those sectors to be had for investors. jonathan: seeing record highs in france and germany. talk to us about international a little bit more. >> you are seeing some progress. if the fed pauses and starts to cut before the ecb, that will provide additional tailwind for the dollar. that is a benefit, but we have to think about a countervailing force and growth differentials in the u.s. versus outside the u.s. are likely to favor the u.s. it self.

certainly, it is broadening out. a continued rally in japan. you could see a sentiment rally. lisa: do you expect these stocks to underperform? do you expect s&p to underperform? they do not have much room to go. >> the macro environment is relatively supportive, if you think about where growth and rates are heading. i would not bet against them, but i would diversify to an extent. jonathan: it has not done that much compared.

lisa: we are looking at laggards. every year, they say they underperformed and this is the moment. jonathan: would you call it a relief rally? >> i would say that you have seen a rally. we are a little bit cautious. if you do have an economy that is slowly, even if it is positive, we are coming down from trend growth. also, if you think about some of the debt dynamics, it is great to see cuts, but we will still be above 5%. about 38% of the index is floating-rate. in the s&p 500, about 49% is

beyond 2030. the higher for longer, even if it is not as high for as long, it is still at the baseline that we will be operating on. it could be troubling for debt service. jonathan: the difference between cutting rates and vacating policy. here is the market for you. just positive by 0.2%. the conversation, without a doubt is on rate cuts. cutting interest rates and easing policy. this was about normalizing. that is the word you should be looking at right now. lisa: they are cutting rates. it is the question, if they are cutting to stimulate. writing income explaining why

banks benefit from rate declines, talking about how there is an increased will equity and increase in capacity. physically, why rate cuts can be good for banks. exactly, until it is not. there is like a glide path. jonathan: former new york fed president on his latest column. the headline, jerome powell's pivot is a pretty big gamble. we will talk about that gamble in just a moment. good morning. ♪

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>> 2023 looks like it will end up being a substantial reduction and inflation without a big

increase in the unemployment rate. that is the golden path that i talked about, but we are still above the target. i still caution everybody that it is not done, so the data will drive what will happen to rates. it is still too early to declare victory. jonathan: warning that the inflation fight is not over. fed officials pushing back. former new york fed president bill dudley calling powell's movements a gamble. powell has emphasized that the fed must dish the job. the more weight he pushes on avoiding a recession, the greater the risk of failing to control inflation of market, getting an unpleasant surprise. it promises to be an interesting year.

let's start a conversation there. why is it so risky? you had an extra week. what was that bill? >> i think he has been pleased with how the economy has performed. prospects for a soft landing have gone up. what i do not understand is why they would add fuel to the fire. stocks are up quite a bit and bond yields are down. the index leads by a full percentage point. to me, i'm worried that the fed will not finish its job. jonathan: do you think he is seduced by the idea of the net landing? >> that is certainly what he is trying to achieve.

i think they are thinking about how to think about logic policies. inflation is coming down. policy is not so tight. look at the gdp now for the fourth quarter. there was a 5.2% growth rate. they need a lot more accommodation. lisa: do you think jay powell understood what he would do to markets? >> i think -- i hope he understood. i think that it is true. but as we said earlier, this is a forecast. if the forecast is not materialized, the profits will not materialize either. the market might be getting ahead of it does. powell thinks that the fed will

be cutting rates in 2024, but it could be possible that inflation could be more stubborn. lisa: chair powell had a chance to push back against the easing that we have seen. he had a chance to say that this is problematic and moves counter to our goal. he did not. you are saying financial conditions still matter. is it becoming inflationary to see financial conditions easing as much as they have? >> it provides impetus to growth. it could make it harder to achieve inflation. does the economy need more fuel or to grow faster? no, it is already very tight. i'm not sure why you would want

to put more fuel on the fire. jonathan: can't you discount it and say, it is not as important as it was? >> they had pretty sturdy growth, but it did not generate inflation pressure. the question is, is that going to continue in 2024? that is an important question. we could see that growth. jonathan: do you see reason that it will not? >> there is reason to believe that it was a catch-up. you opened up immigration again and had a surge into the last

last year. working age women are entering. i would be very skeptical. lisa: there seems to be a acceptance among fed officials, particularly jay powell. are you saying that it is due too early to say? >> i think a lot of the pressure was transitory. it was due to the pandemic. now we have opened up the economy. all of that price pressure goes away. it is more about pressure on resources and the labor market. the labor market is still pretty tight. if the economy grows above the pace, all that will increase rather than diminish. the real question on my mind is,

is the monetary policy tightening like the fed thinks it is? by easing financial conditions, it makes the policy less restrictive. lisa: some people have speculated that they want to avoid making any moves in the second half because of the presidential election. you buy into that? >> i do not buy into that. they understand that if the rate increases with the political cycle -- a politicized the fed and puts them in the middle of the debate. the best thing they can do is ignore the political cycle and do what is best to obtain their objectives. jonathan: we have heard remark clarifying remarks over the weekend and the financial times. how does that work? these interviews are scheduled well ahead of time.

is there someone on the board of governors to sends out a message to get everyone on the same page? does that ever happen? >> the answer is yes and no. when he speaks, you have to believe. but other fed presidents -- that is not choreographed. that is them operating on their own. they are part of the core group. i think they are pushing back a little bit in the market is running away from them. when the story is not really completed yet. remarks last week were all about how we think things will evolve. we have to see if they actually evolve that way. jonathan: on the gamble that he

thinks the -- that he thinks they are taking. it's lisa: the idea of who to listen to. i guess they were saying, can you calibrate this rally? and he was like, ok, i will. jonathan: what was the chair doing, talking about it? lisa: this is exactly why they did not listen. people do not know why they should this intuit. it is clear that it is something in the discourse, if data cooperates. but you cannot really put the genie back in the bottle. jonathan: went to the minutes look like right now? lisa: it is important that we are being vigilant. jonathan: we are looking at it and saying, where is it coming from?

next up, a lot of questions on basically what was chairman powell doing last wednesday and how credible is the pushback since then? that is what has been happening for the last seven weeks on the s&p 500. equity futures are up here by .25% on the s&p. in the bond market, yields are going nowhere. three point 9090 on the 10 year. we saw that three times already this morning. the pushback is only as credible as the data behind it. the data is absolutely terrible. this is bloomberg. ♪ rude. who are you? i'm an investor in a fund that helps advance innovative sports tech like this smart fitness mirror. i'm also mr. leg day...1989!

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what i am watching -- treasuries had their best weekly performance since march 2020. at what point do people wake up to some of the same concerns from earlier in the year, like the budget deficit and who will buy this debt. a lot of that is pushed to the side but on the physical side, there are still questions about the tumultuous january. i want to get your take on what the timeline is. is the senate back in session trying to get things done before the holidays? a lot of key deadlines coming in the next four weeks. annmarie: your guess is as good as a lot of senators at the moment. i think most people are gravitating toward the fact that they have made some progress when it comes to this comprehensive deal for ukraine aid in lieu of more broad security and also potentially

attaching immigration provisions. what will they be able to vote on it this week? that is the big question as chuck schumer called senators back to try to get a deal done this week. he said there will be a vote this week, but mitch mcconnell and james lankford said there will not be a vote this week, in a private letter to their colleagues. that remains to be seen if we will get an 80% chance of a deal in principle. tensely by the end of the week, there could be an outline of a deal. alejandro mayorkas -- part of these negotiations over the weekend but could there be a vote? this leads into the new year, where things get even more complicated with potential

government shutdowns. lisa: is anyone talking about reducing the deficit at this point? annmarie: people talk about it, but are they acting on it at this moment? no. the house has left. mostly it is in the house were these deals should be originating, but when it comes to the deficit, the republicans maintain that they want to lower the deficit, which is why they want these topline numbers to be lower going into the appropriations debate. all of this will accumulate the first few weeks of january, the first part of that latter approach to keep the government open is january 19 and then february 2. you will hear a lot about fiscal responsibility come the start of the new year. all of these problems are being pushed into 2024. lisa: going back to the border

control issue, what are the main contours of the disagreement between democrats and republicans and within the parties? annmarie: it is not the fact that the president has talked about having a more secure border. republicans by and large real. this comes down to asylum provisions and her role provisions. asylum, who should be granted asylum in the u.s.? should those wills be tougher? once you enter the u.s., how do laws reflect the fact that individuals can work until they are called before a judge? it is all about asylum and parole. this is where the crux of the debate is that. republicans have made it clear that if there is no broader security package that includes provisions in asylum and parole, than they are not going to allow ukraine aid to go through. lisa: thank you.

we will be catching up with you throughout the week and weeks to come as we understand how much we will end up with another shutdown. right now, markets, everybody is trying to understand just how dovish jay powell is, especially given pushback we have heard from colleagues at the fed. how much has your view changed since last week? kathy: it has not changed much, to be honest. we were expecting rate cuts to unfold in the middle part of the year with may is our exact forecast. that is always tough to tell but we had the fed funds rate going down by the end of the year. the difference for us is we had baked in a mild recession that unfolds in the middle part of next year. what surprised me was how open and transparent jay powell was.

it does not surprise me that they were talking this summer about rate cuts. they did not go into it and the timing, they did not discuss that, but if you look at the dot plot, they added another rate cut for next year. but i was struck by how dovish his comments were. that fed the markets. lisa: people might argue he was just being transparent about what they were thinking. he did not see an easing of the financial conditions is a concern for prolonging this cycle. do you agree? do you think financial conditions are less important at this point? kathy: i think financial conditions are very important, but what he has set in the past, at least the recent past, makes sense. we will have projections, conducted monetary policy that we see vast, and markets will do their thing.

eventually, that will be reconciled. most recent was reconciled in the fat but now we have the markets running far ahead. there is some risk to that if inflation does not continue to go down. on the other hand, you could say that what the financial conditions are doing does help ensure a soft landing and maybe that is ok. the timing of it, whether they cut rates in march, does seem premature to us but also reasonable and it could come in may. lisa: let's talk potential scenarios. i am struck by this story about the red sea shipping channel that accounts for 12% of container shipping activity in the world. with the blockage and the fact that you have more and more container companies stopping transit through that passageway,

are things like that on your radar to be a supply-side shock for could get reinstated once again? kathy: that is a great point. we have seen that movie before. we know it can have large ripple effects. whether supply chain or some other shock, they can play havoc with the expectations that the markets have and also the. what we have seen is overall supply chain are in healthier shape and domestic demands activity is slowing. we may not get the mild recession we are forecasting. even if you get a soft landing, you will have slower road. that takes pressure off inflation. china is struggling and their domestic demands, it looks like they are pushing out their goods onto the global market. that only reinforces de-

placement -- deflation in the good center. lisa: the pushback does consist -- continue from other fed officials. austan goolsbee saying he does see significant improvement on the inflation front. but he was surprised by the market reaction. do you think people are over there is these with the number of -- over their skis with the number of rate cuts that could, and potential economic pain? kathy: i think both. we are forecasting essentially with the markets of christ in by year end -- essentially what the markets have priced in by year end assuming 5% unemployment. if the fed is successful in pulling off the soft landing, i would make the case that we would get less rate cuts.

the stronger and more resilient economic activity is, the more cautious they will be on inflation. things are going the right way, but the last thing they want to do is seat stalling on inflation. economic activity, one thing that is not talked about a lot is that if inflation continues to go lower, that means companies lose pricing power. that hurts revenue and topline, and less they can make it up in volume. if growth is slowing, i do not the that. you still have some profit margins pressure as you look into 2024. lisa: his weakness being that's coming from savings being spent? or are we seeing or cracks in the labor market that people appreciate you -- that people appreciate? -- than people appreciate?

kathy: the savings has largely been spent. we whether the 2.1 trillion dollars as consumers. if you look at cyclical portions of the labor market, especially in the service sector, you are seeing slowing. where jobs came on the service side were health and education. that will not be affected by interest rates and cyclicals as much. as you strip that out, poor private service jobs are down to 22 thousand. we are seeing slowing. the fed sees that. now they have gotten close to possibly pulling off the soft landing. they can get reedy and say, at one point, we would have accepted a mild recession, but now we have to consider both sides of the mandate, employment and inflation. lisa: his core pce important coming out on friday? kathy: absolutely.

we have already gotten cpi data for november. there should not be a huge mistreat. but if it surprises, i think that changes things. it is always important, core pc, but i do not anticipate it changing the momentum of what we are seeing in the marketplace. the bulls are out in both the bond and equity market at this point. lisa: thank you for being with us. stay close. we see a lift to markets to start a potential 8th straight week of gains throughout the market. yields higher, 3.92%, but the s&p, after seven straight weeks of gains, up about 45 percent in early trading. we are talking with kathy of nationwide about the different potential risk scenarios going into next year.

we have not talked about the deficit and some of the politics. do you see that as having any material impact on the economic outlook at a time when a lot of people have continually shrugged off the turmoil in washington? kathy: that could be some exogenous shock on the political front. there is still a lot of dysfunction there, but in terms of the fiscal front, what we expect is very little easing of fiscal policy, even if we have a rough patch. politically, that could happen but also, they are trying to decide with the spending will be fort next year. there is pressure, especially for the republicans, to reign in the deficit. it is not talked about as much is that the pressure is coming from entitlement spending, which is persistent. and also the fact that interest

rates, even though we have come off quite a bit, they are high. if discretionary spending, that continues to be squeezed, excluding the pandemic. they may continue to try to squeeze that war. the one area that probably does not get squeezed is defense spending, with multiple wars going globally and the fact that we need to replenish our own arms. that is probably one area where we could spend. lisa: thank you. going forward, we will be speaking about the situation in the red sea. kevin book joins us to parse through a massive corridor from everything from oil to container ships. this is bloomberg. ♪

>> a safe area for shipping for a long time, but now it is

beyond what we have seen. there is huge risk concern. we see a ship that is related to israel or any part of the conflict. lisa: that was the frontline ceo in response to the attacks in the red sea, which has led to a host of container shipping companies, as well as bp coming out and saying they are halting red sea voyages. this is bloomberg surveillance area in addition to the left to the market, some of the names underneath, there was this acquisition of united states steel corp. for $14.1 billion. this does create the world's second largest steel company outside china and raises questions about ownership but

also is a lifeline for u.s. steel after it lot of speculation about what would happen with trouble with finances. those shares up. bp, how many companies are going to stop shipping goods through the red sea in response to these houthi militant attacks. those shares up in tandem with oil prices. kevin book has been covering this, trying to understand the implications. he joins us now. can we start with trying to understand how important this red sea passage is for shipping? kevin: it is 8% of global lng, 9% of oil and petroleum products, and enormous amount of

energy goes through the red sea. lisa: what is the potential consequence? if these attacks continue, how much more time is required to ship things through alternate routes? how much more oil will be used for those shipping routes? kevin: it is relatively insignificant compared to supply impact. two aspects to this. the first is the additional latency introduced by going through the suez canal and around africa. that, dispense -- depending on the speed of the ships, you could have anywhere from 10 days to two weeks, even longer. the second is capacity constraints on the suez canal. to some degree, the number of ships that move through is one aspect. also the size. the suez max tanker size is the maximum size tanker you could move through the canal.

the limitations in the capacity introduced an additional pension supply. lisa: crude traded on the nine max is up 2.3%. is this appropriate in your view? do you think we could see a bigger pop in oil prices simply because of supply constraints that could come from prolonged shipping passages? kevin: we thought it was significant when we wrote about a week ago. we thought it was on the market was not present it in. as for the magnitude of the increase, at the numbers i gave you would be staggering. if that supply was disabled, we would see double digit moves in the oil price. it lot of this depends on decisions that actors make. there is a lot of players in this. questions about whether the saudi's will continue to ship through the red sea and whether they believe they are at risk of attacks the risk tolerance of

other players and the evolution of the task force that the u.s. government is working actively to stand up to other players in the region. the last variable is the question of whether or not the eisenhower carrier striker, which moved into position potentially to strike the who these, risks a different kind of escalation. lisa: what is the appropriate price for oil? kevin: the that we sell pressure to the upside a week ago. we are seeing it now. we think there is room for more. lisa: what kind of response would be the escalatory -- d e-escalatory? there is a group trying to deter houthi militants. what are you looking for to relieve pressure? kevin: it depends on the root cause of the problem. the houthis seem to be doing

something similar to u.s. sanctions. initially, they were targeting anything with nexus to israel. for that matter, cargoes going into or out of israel. the of casting that more widely now. that kind of thing might potentially take pressure off. the maritime task force, to the degree that it can provide security for tankers in the region, might not eliminate the risk premium but could keep it from rising. lisa: a lot of people are discounting geopolitics, saying u.s. is pumping record amounts of shale and gasoline prices on average in the u.s. are three dollars. how much does u.s. production offset potential geopolitical headwinds that could cause prices to rise? kevin: two things -- one is the

prolific production here, in guyana and brazil. that has buffered prices. we cannot overlook demand weakness in china, but the other side is that the supply question that you get from spare capacity from opec producers is usually something else that can come to the rescue. in this case, that supply question is less available. part of the supply could come from the same points we are discussing today. we may see more risk showing up in price perceptions as we go forward, but we have been sleeping through serious potential supply risks for some time, very reassured by production. lisa: this is the reason why some are wondering what are they getting wrong? how much of this is that the demand-side is offset by the increase in electric vehicles and alternative sources of energy? kevin: everyone million electric

vehicles on u.s. growth is only about 30,000 euros per day of demand destruction. that is not showing up that much. we see bigger numbers in china and bigger displacements but still that is not changing the demand picture. demand is going ahead. a lot of folks would say that maybe predictions of a plateau or a peak this decade are premature. there is immense appetite for crude oil still. liquids generally. supply risks still matter. lisa: people have been talking about ranges heading into 2024, ranges that oil could move within, given the need to not lose money producing oil in the u.s. and the desire for saudi arabia to make a certain amount per barrel. what is that range, given risks and supplies from the u.s.?

kevin: the idea that there is the natural flow are established by physical breakevens has -- fiscal breakevens has hopefulness to it. there is two active wars going on in energy producing and consuming areas, with risks venezuela as well. with that in mind, it is odd to look only at supply-demand balances and assume the world as it is today will be how it is in the coming year, but if you look at that, you see supply outstripping demand. it looks like there is still weakness. with opec-plus clamping down, the incremental plopped down is not enough to stem it in the near term. but this is where geopolitics comes in there is alignment of incentives here for iran and the

other folks aligned with iran, the idea of higher oil prices is not a bad thing. it is a talent. -- tail-wind. lisa: thank you for being with us at the time when oil prices are getting a left after more than a month of losses, given the fact that people have seen production from the u.s. offset concerns from supply cuts and potential disruptions. right now, you are seeing a lifted markets, maybe we 8 -- week 8 of a rally. 4783 as people parse through economic data and to see a soft landing. oscar. austan goolsbee thing the market got over its skis.

coming up at 1:00 p.m., blackrock's rick rieder. from new york, this is bloomberg. ♪ you can't buy great conversations or moments that matter, but you can invest in them. at t. rowe price our strategic investing approach can help you build the future you imagine. t. rowe price, invest with confidence.

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jonathan: let's get your trading week started. this equity market still rallying. the countdown to the open starts now. >> everything you need to get set for the start of u.s. trading. this is "bloomberg: the open" with jonathan ferro. jonathan: live from new york. coming up, equity markets delivering seven weeks of gains as in officials attempt