>> i am hearing the markets scream two things -- growth scare, policy restraint. the fed may be late. >> when momentum slows, it slows quickly. >> there is a signal september will be the first cut, but i still think the fed will move cautiously. >> i do not understand the let's go slowly move. get back to normalcy quickly. >> this is "bloomberg surveillance" with jonathan ferro, lisa abramowicz, and annmarie hordern. jonathan: let's get your trading week started. live from new york city this morning, good morning, good morning. for our audience worldwide, "bloomberg surveillance" starts right now. just like that, the narrative

flips. we said if payrolls were the difference between the fed having time and running out of it, at 8:30 eastern time friday morning, there was a stampede to the other side of the boat. that stampede continues. equity futures on the s&p 500 negative by 2.5% pay the nasdaq down by 4%. the winner of july, the loser so far in august, the russell, small caps down 3.9%. that is the price action of the index level. single names, nvidia, microsoft, apple getting absolutely hammered. nvidia down another 9%, apple down 8%, microsoft down more than 4%. good news in the bond market to the bond market is doing what it is meant to do. it is rallying. we had a two year, the yield moved 50 basis points on the move last week, down another nine. the 10 year down three. we know how we got here, the data was weaker than expected. asset manufacturing, jobless claims thursday moving in the wrong direction friday my

payrolls definitely moving in the wrong direction. how vulnerable are we to this whole story flipping in the other direction? a look at the week ahead, i want to circle two things. the ism services read later on this morning at 10:00 a.m. eastern time, and i would like to circle jobless claims thursday. for all this talk of 50 basis point cuts, the fed delivering an emergency rate cut, we will put real big question marks around those stories. and we have to ask ourselves come and 10:00 a.m. eastern time, if we get a hot ism service, a good one, how quickly does this story flip in the other direction? dani: the concern is the liquidity squeezes so bad now, it is hard to know where reality is. if people genuinely think we will get a five cut in one week, because that seems crazy, listening to the most recent fed speak. the issue is even if the move is unreasonable, it does not mean it cannot become reasonable. if you have this feedback loop, people price in an emergency cut, the fed emergency cuts come everyone things that is a

recession, so they cause a recession -- that is the fear playing in people's minds. that will have to do with how long this selloff goes for. jonathan: we have to frame how quickly all this happened and how quickly things may be evolving k think about where we were at the start of july. july second, central portugal, chairman powell, because the u.s. economy is strong in the labor market is strong, we have the ability to take time to get this right. there payrolls report dropped august 2. are we sitting here and saying things have dropped that much in a single month? dani: the thing is this market was so built up around that. this is what i struggle with. what is reality in this market and what is just panic, and what is just selling? by all accounts, the fed in recent days has been very calm, not just in july, but the pressure. powell was very calm despite your analysts lobbying very dovish questions at him. you had goals we talking to mike mckee saying it is just one month, it does not make a difference. you have some any people looking at the jobs report saying

something about it looks weird. again, how much of this is shocks, people getting stopped out, then you have these odd market moves? jonathan: speaking of odd market moves, nothing, but what is developing in japan. this is a continuation of the story that started last week on the negate. we closed lower by more than 12% overnight in tokyo on the negate through the biggest one-day move lower since 1987. in the fx market, the dollar-yen we have gone from talking about the 100 60's to the 100 40's in a couple weeks. we are negative on the session by 2.8%. some vicious yen strength in this market pay the broader story looks a little something like this. equities doing badly, bonds doing better, a rally in treasuries putting yields lower by another three or four basis points on the 10 year. the dollar weaker across the euro stronger, reclaiming the 1.09 handle.

and to underline the fact we are talking about a growth shock here, we have geopolitical risk on the table, yet crude is still pulling lower. dani: it is remarkable, because oil had somewhat held up last week. it was slightly weaker, but at geopolitical concern made it go faster. that is when you say, out of all the things that can go wrong in this market come out of all the things we are worried about, it is clear the growth scare is front and center. that is an issue because you get this feedback loop going, especially with the yen. if you get the yen appreciating, rate coming down, the rate differential between the u.s. and japan tricks, then that appreciates the young even further. you got to ask, how does it stop? jonathan: it has taken life of its own and feeding on itself. coming up, we will catch up with russ koesterich of blackrock, earl davis of bmo, and nela richardson of adp on why it is too soon to talk hard landing.

u.s. growth concerns highlighting a selloff. russ koesterich writing we have been trimming risk since june. for the time being, the market is likely to treat bad news as bad news. russ koesterich, we got bad news friday, so let's talk about it. we want to take a giant step back, away from the drama, the frenzy, the hysteria, and go back to july 2. chair powell, central portugal. the economy is strong, the labor market is strong, we have the ability to take our time and get this right. if things change that much friday morning at 8:30 eastern time. russ: good morning. this is the right question. my simple answer is no, i do not think they did. this probably says more about market positioning than it does about how much the economic data has changed. just two things to consider. first of all, it was not that bad of a labor market report. it was only about a year ago that we thought the natural pace

of job growth for this, he was may be about 100,000 a month. we learned it was higher than that because of the increase in labor supply from immigration. the reality is we are still printing an average of 140,000, 150,000 a month. that is above what we thought was in trend pace just a year ago, so not an awful number. a soft number, not awful. in the bond market, particularly the short end of the curve, think about how much market expectations has swung around the last several months. we set of the year with the market convinced the fed would cut seven times. you go back a couple months, the market convinced the fed was not going to cut at all. now we have a narrative built up where they will do an emergency cut, or go 50 in september. a lot of these gyrations are more about market positioning than a change in the market data. jonathan: i went through the week ahead and circle two things, jobless claims thursday,

ism services later this morning. let's say a 10:00 a.m. this morning, we get a decent ism services print. do you think that is sufficient, nafta for the story the other where all over again? russ: probably not one number, but it would be a step in the right direction. you are also right to focus on the services number. as you pointed out, this all began thursday morning with a weak ism number. it was weak. that was the manufacturer read. we already had a pullback in the housing market. we know consumer softening, but this is a service letter economy, so if we get confirmation the service sector is holding up ok, it does not mean the economy is not moderating -- it is. but it does start to undercut this narrative taking hold literally within 72 hours that, suddenly, we have gone from a soft landing to an imminent recession. dani: given that quick flip, what distinguishes the difference between a selloff you want to step out in front of and

one you want to let run? russ: there are a couple things. first, we do have to look at the data. is the data confirming the market narrative? as you both suggested, the market move looks very extreme. positioning was extended. you have got to let that clear out. but you have already seen significant correction, and there will be part of the market where there is long-term growth that starts to look attractive. you have seen the nasdaq already correct over 10%. many ai things have corrected 20%, 25%. i wouldn't wade in with both hands given how much volatility until the market get something to confirm it is not as bad as it thanks, but a lot of the excess we were talking about a month ago, that are starting to get corrected. dani: if you think about the last time you had a market selloff to this magnitude, you have to bring up march 2020. in that period, tech acted as a ballast in the market.

that has not happened this time. is it different this time? has the damage already been done in this sector, when you see hundreds of billions of dollars in single stocks swinging around day by day? russ: it has remind people that a lot of these names, they ran a tremendous amount, the ai names, the semi names on the ai theme, which got very crowded. tech has -- first, it began in mid july, it was a funding source for the small caps. the narrative then was the economy is great, we have a goldilocks soft landing, rates are going down. listen to part of the market, small-cap, most sensitive to going down. but tech is also rate sensitive. in addition, if we start to think that, if nothing else, the economy is going to be softer, some of the tradespeople were running into in july, the small caps, their banks, some of the

lower quality traits, that does not make sense in an economy that is moderating. if anything, you will be more inclined to look for higher quality, regular consistency earnings. where do you find that? in a lot of the megacap tech names, and some of the health care names. i think you will get to a point, unless you believe there is a recession, where some of these names start to make sense again. jonathan: i understand you cannot do single names, so i will do a couple myself. jpmorgan down about 3%, bank of america down, citi down. tech's getting hammered. out of these two industry groups, you are saying to look to pick up the pieces in tech and avoid what is taking place in financials? russ: i would qualify that a bit. some of the large money center banks are interesting. some of the smaller regional banks, the regional bank index at one point was up 22% care that is a strange play to make if we think the economy is starting to soften.

i would not necessarily be bottom fishing there, but i think some of the megacap tech names, some of the high quality tech names, some of the pharma names i've been beaten up, these will offer good value. -- that have been beaten up, these will offer good value. we are still seeing tremendous capex spending. i do not think that necessarily changes. these stocks are a lot cheaper than they were a few months ago. jonathan: before you go, base case expectation for the federal reserve? it feels like a very long road to september 18, which is when the federal reserve next meets. what is the base case for you and the team? russ: i still think -- we talked about two to three cuts paid i would keep that as our base case. if the data soften significantly in the next few weeks, they have the latitude to cut more, given how high rates are, but i would not rush to assume that. it is when we see further deterioration in the data. jonathan: russ koesterich of

blackrock following wild moves in this market. worldwide into japan, the nikkei getting hammered. there has been big calls in the last couple days. we saw citi go to a 50 basis point cut call for september and jpmorgan do the same thing. dani: you also had goldman sachs raising the recession probability from 15% to 25%. about 25% is still not very high. that is where we have to coalesce around some of these calls. sure, they are for 50 or 25, but that is not something like an emergency cut. a lot of the moves this morning are just that, they are the sky is falling type of traits. jonathan: just off session lows. let's get an opportunity to update you with stories elsewhere. here is yahaira jacquez. yahaira: oil trading lower,

extending losses to a new seven month low. brent futures are now trading below $76 a barrel, erasing this year's gains, while west texas intermediate is now below $72 this comes as the market braces for a possible attack from iran and regional militias against israel in retaliation for the assassinations of hezbollah and hamas officials last week. cryptocurrencies are plunging this morning, bitcoin briefly traded below 50,000 earlier, the selloff adding to a more than 13% drop last week to that was the biggest plunge since the ftx exchange imploded. the u.s. strange traded funds for bitcoin suffered their largest outflows in about three months friday of last week. and there is a debate about the next presidential debate. donald trump said in a social media post that the previously scheduled debate, to be hosted by abc news, was terminated once president biden dropped out of the race.

trump presented a counterproposal to vice president harris to face off on fox news six days earlier. harris says she plans to be at the abc debate september 10. that's your uber brief. jonathan: thank you. up next on the program, the japanese yen sinking. >> if the fed's cutting, i do not think we can be above 140 year. if they're hiding the long way because of a serious low down, we can go to 120 and see where we go from there. jonathan: the dollar-yen gap closing 3%. live from new york this morning, good morning. ♪

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city, welcome to the program. equity futures, -2.8% on the s&p 500, down more than 4% on the nasdaq. the selloff continues on the russell. last week for the russell, worst week for the small caps, going back to spring 2023. march 20 23, we were talking bank failures in america. we want to talk about equities. stewart kaiser of citi, reduce exposure. our established view is to run long equity risk unless until the market shows long-term weakness. next up in this conversation, i some services at 10:00 a.m. eastern time, the one to watch. the bond market, let's talk about this monster rally at the front end of the yield curve. the two-year making a move of 50 basis points plus just last week after a 50 basis point move in the month of july, we are down

another 12. dani: this pendulum swing in the market has been constant and painful. rus skoesterich talked about it, that we were entering the year thinking six cuts, then we had no cuts. now we are talking 50 basis point cuts and an intra-fed meeting cut, 60% odds of that happening. jonathan: some of these consensus trades have unwound insect a vicious way, and the perfect example of that is dollar-yen. a break of 142, briefly. we are down three percentage points and seeing some vicious yen strength. a move of more than 3% on the market. the japanese yen sinking japanese stocks. >> if the fed's cutting, i do not think we can be above 140 next year. if they are cutting a long way, because there is a slayers -- a

serious lowdown, we can get back to 120 and see where we go from there. this is a function of where u.s. interest rates are. this is possibly the biggest carry trade we have ever seen, because the japanese kept still while the fed hiked and hiked and hiked. jonathan: the yen extending its rebound against the dollar as concerns that the fed is behind the curve on supporting a slowing u.s. economy, the move unwinding global carry trade's to markets around the world. jeremy stretch of cibc joins us for more. it's rare to see the moves we have seen in dollar-yen, down from 160 to 140 in a very small amount of time. talk to me about the path of least resistance now, what positioning looks like, and what the limits are to some of these trades. jeremy: good morning. it is an unprecedented state of affairs in the context of the move in those japanese stocks.

we have seen aggressive reduction in position powering even before this week, so we had already seen yen shorts harder than last week, but those are clear now, so we have a much cleaner market perspective at this juncture. obviously, as your previous contributor suggested, if there would be aggressive monetary easing from the fed -- i was listening to dani, with market pricing in the sky falling -- i do not think this guy is falling. yes, we see a slowdown in the u.s., yes we see recalibration in terms of macro dynamics, by do not necessarily think we should be eating carried away with the pendulum effect and look at an intra-meeting 50 basis point move. we have cleansed markets. once we get back to the 140 handle, it is probably the extreme or a support point at this particular juncture as we reassess the macroenvironment. for today, services ism will be particularly instructive.

dani: if i can push you on the positioning point for a moment, then we can move on to some of that, you say that some of the shorts have been washed out, but is there more structurally riding on a short yen that we may -- things like people who are more structurally short yen? jeremy: that is true. when we get some market dislocations and see substantive market -- pockets of weakness in various sectors, clearly, we often have to see a position cleansing in terms of recalibrating those positions and dealing with particular losses. clearly, it has been the case that part of the funding, for the records surge in tech stocks, has been funded out of a cheap yen, so in a sense, there is an obvious dynamic in that regard. there is a story of a slowdown effect, which is the fed's

intention, but the market, as is often the case, is overflowing the situation in the near term. yes, we are seeing a slowdown. are we seeing a recession in the u.s.? i do not think we are necessarily there yet. in terms of those probabilities, we should remember that 25% recession possibility is 75% no recession possibility. clearly, there still some yen dynamics playing out, and that will continue to oscillate. dani: sometimes it is a -- good to get a reminder of how percentages work. so what stops it? what stops the sentiment down spiral? is it running out or is it data coming out strong? jeremy: i think the data will be particularly instructive. the start of the selloff was precipitated by the weakness on the manufacturing ism. manufacturing data is important,

but we should look at the huge influence of the services sector. we have seen weaknesses over the course of the last several months. the market is anticipating a move back into expansion and dynamic services ism. will that be enough to arrest the downtrend, perhaps not, but it will at least put an element of doubt in terms of this magnitude of recession risk, which has been amplified by that bond reading friday, particularly the uptick in unemployment and the sahm rule, which was mentioned in the press briefing last week. i think we will now be watching and waiting for not only the data. jonathan: we will catch up with claudia sahm later this morning. i want to get this quote -- the fed stepped on a nail. thankfully, they have not stepped on a bed of nails. what we are dealing with now is

a result of monetary policy being too tight. this means the solution is simple. the fed is at 5.50. it has a cushion. how easy is it to address the situation? jeremy: what we have seen is during the period they have been building in a cushion in terms of safety in -- the problem from the markets perspective is we just had a fed meeting and it seems like an awfully long way away. that is why jackson hole cannot come soon enough for the markets, because they would like to see recognition from the fed that policy easing is coming, but clearly, there is plenty of latitude in scope. in context of the fed pendulum, we are in a scenario that, at this particular point, markets are getting exercise not only

but the scale of monetary easing but the potential optionality of thinking the fed will be forced to move before the next scheduled meeting. the fed has latitude, but we need to see some commentary from the fed over the next few sessions. jonathan: that fed session in wyoming just a few weeks away. jeremy stretch out of that breaking news out of japan, the percent move in the young -- yen's favor. the nikkei, the biggest one-day loss going back to 1987. ♪ say aloha to olukai golf. waterproof leather. breathable fabrics. spikeless traction. the most comfortable golf shoe in the game. grab your pair today at olukai.com.

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jonathan: he knows drop this morning from the south side. plenty of thoughts. the team over in london, overly complacent, concentration remains tight, the vix does not know how to properly capitulate, and credit spreads are extremely tight can we continue to believe international equities will be weakening during the summer. down another 2.9% on the s&p 500. nasdaq futures down more than 4%. the russell is down by more than five percentage points. dani burger alongside me to work through this this morning. dani, last week, we were down almost 7% on the week, terrible losses, worse since spring of 2023. the russell was up in july. what has happened?

how has the pendulum gone from here to here in just a week? dani: there are so many people who after the fed started to talk about because were really excited about wednesday's decision and just jumped on. there was a big rally in the russell 2000 after the fed meeting decision. so many people went along the russell and just got smacked in the face. jon, the move looking at a vix that is at 50 right now, after it was stuck below 20 for so long, there are so many people getting hurt in today's trade, and you've got to wonder how many people are looking at the winter for the year and selling them because they cannot take more losses. jonathan: i'm not sure who is still shorts treasuries, because this would have been painful. the 10 year, the yield has been down, and you can make it day eight. we saw this develop in july, down 50 basis points in july, and then it just happened that last week delivered another 50 basis point move. 50 basis points on a two year

yield in a single week. that was the move lower last week, and we are down another 12 this morning. dani, 3.7541 on the two-year. dani: at least you can say bonds are doing what they are supposed to do, but that is creating this environment where we are pricing in a fed cut in the next week, which is kind of crazy because during the call we heard from the fed and that the fact that the data is not that bad. if you look back to other crises in the market, when the fed did step income, the difference that time was the selloff was about the treasury market. this time it is about equities. i don't think we can be as certain the fed will step in this time around. jonathan: think about the last big shock to the system in the last 18 months. you go back to spring of 2023, bank failures. what if the fed do? cut and then hike interest rates. they've got a question, they should want to insulate the labor market. i want to go back to the goldman call commend we will spend time on it later, ultimately, they

think it will take another jobs number like the one we got on friday before you start having a real conversation about 50 basis point moves in september. dani: the only argument you can have today is that the well the fact is so -- wealth effect is so back, they act like a recession is coming, so the fed has to step in. we could debate whether the fed stepping in would make things worse or better. if they come in with an emergency cut, the people freak out more. often you need more than one day have a big selloff to really say there is a wealth effect happening. jonathan: we had a big move in dollar yen. last monday, dollar-yen was down 1.5382. here we are now down 3% at 142.08. a move of 12.4% on the nikkei 225, the biggest one-day loss going back to 1987. how many people have come on

bloomberg, come on this program in the last few months and say i like japanese stocks, and we say what happens if they go to 140, 130, they say this is not about the currency. dani: corporate reform is happening in japan, corporations are stronger, the end is picking up, but if they look at the fact that the yen has been used for funding currency for so many trades, there is a systematic issue. if the japanese yen does start to appreciate, it is not just about the fundamentals, the fundamentals which, by the way, were based on a lot of forests coming to japan, not the strongest legs to stand on. jonathan: this morning, the global market selloff accelerates. concerns over u.s. economic slowdowns intensify. make cap tech names bearing the brunt, nvidia and apple seeing very -- mega cap tech names bearing the brunt, nvidia and

apple seeing very sharp changes. bank of america over the weekend saying, we see any selloff as an enhanced buying opportunity. we don't get the earnings of the month's end. dani: it is scary to step out in front of these right now because of how long people have been and the fact that they are still up this year. maybe not microsoft, but since 2022, this is an s&p that is still up from 20%. nvidia still of 830 3% from 2022. there are going to be people who are still long this thing and still sitting on gains. that's not something that the selloff at this moment can stop. there are plenty of people who can sell. jonathan: that selloff continues this morning. kamala harris expected to announce her running mate in the coming days. she had weekend meetings with arizona senator mark kelly, pennsylvania governor josh shapiro, minnesota governor tim walz as well. meanwhile, harris and former

president trump different over debate, trump called for a debate hosted by fox news. i think for the politics, you have to go back to friday. this could change the election. if that unemployment story continues going into november, then the democrats have got a bit of a problem. dani: yesdani:. you can use a corollary for this on the other things. when obama was seeking reelection, and the unemployment rate was really high, this was bad for obama, but the trend was down. we have the opposite now, the unemployment rate is not bad on its surface, 4.3%, but the trend is up. it is trading in the wrong way, and that will be an issue for this party. jonathan: we've been heading in the wrong direction. check out the bond market, treasuries surging. the fed could cut rates within the week. earl davis of bmo on this. the economy remains solid. the fed did not cut rates in july, but a 50 basis point cap

in september, it is possible due to a deficit. earl joins us now for more. i think you have to take a step back and do that repeatedly throughout the whole of this morning. what happened on friday, and that it change enough for you to move things we are seeing in this market currently? earl: yeah. the change friday is the fed has been alluding that now it is all about employment and not inflation. when we got the number that we got on friday, people ran to the doors. the door is only so wide. that is why you get this acceleration of the move. it has not changed for us. different time frames, yes. let me tell you about the short term. write it was a good day for us. we were long, overweight duration heading into friday, but not only do we cover that overweight, we started shorting the market now. friday posted the lows. we put on, let's call it 1-30

powermax short. today, 370 or better in the 10-year, we will put on another third, and then we are waiting for that extension of the selloff and we will put on our last third. we anticipate that will be this week. we have a high amount of confidence in shorting the markets at these levels for two reasons. one, obviously treasury supply. i was a bond trader for 12 years, and what happens in this type of markets, if you get corporations looking to extend their issuance of credit, of corporate bonds to 10 years, because they take advantage of this rally, the credit spreads are still historically tight. it is an excellent opportunity for them to get involved in the market. so what happens is they make deals come they agree with dealers they wan to lock in these treasury yields, and dealers now start selling treasuries to lock in these low rates. that's how they lock in low

rates before a bond issuance. tremendous opportunity to short the market, but it could extend. jonathan: we seen a ton of supply from corporate credit through the year so far already. what kind of numbers are you and your team thinking about? how much frontloading for the rest of the or are we about to see? earl: it is a great question. we have not thought of the exact number. this has been some pushback we've gotten from clients, and after a response, they are good with it. i do expect it to be more than the existing demands, which means your credit spreads will widen. this is the important thing to remember. when you have these risk off moments, what you have are people who historically invest in equities start looking to diversify that risk, and they like corporate credit as well, so they mix both of those two things. so we believe there will be additional demand that comes in with new corporate issuance. there is still trillions of dollars on the sidelines as well, and the economy is doing

well. tremendous opportunity here from an asset manager's perspective to still be selective on the corporate credit spread and go along. this is what we've been waiting for. we have had valuations for the past three months hit the trend, but it is at these moments that we added to credit, we added to credit as well on friday, and we will continue to do so over the coming weeks. dani: does that mean the slight spread widening we have committed i say "light," especially compared to other rest market moves -- have, and i say "sligth," especially compared to other risk market moves. earl: the reason why it will not get much worse is because a way to thank being long corporate bonds and mom carry is you are actually short vol. when vol increases because of what is happening, the equity indices are being rocked a little bit, what happens is vol

increases, your credit spread increases, so we do anticipate it to be more. because we do not anticipate a recession either this year or next year, that will snap back and once the markets calm down. it is not immediate, and when it does snap back in, your still earning a positive on positive kerry. that is why -- carry. that is why we are not all in on credit, but we are starting to act come and we will continue to do so. dani: what distinguishes the difference between spreads widen, equities selloff, in the corporate have an impact, and having to respond to that, size one sector that can sit still through the damage? earl: it is a great question. so there are two sides to the coin of corporate bonds. there's investors and corporations that actually need to find their company -- fund their companies. when you get a tremendous

rallies, this is the type of market were corporate like to fix in their financing costs for the next 5, 10, 30 years. the reason why is, they see how high yields have been, you know, last year, even july 1, i think 10 year bonds in the u.s. for testing 4.50. now we are testing 3.70. 80 basis point is significant for a corporation. that is why they look at this site of the equation, and you know what? there will be a lot of dealers knocking the doors to highlight the benefits of this, and that is why they get involved. jonathan: we are trying to get an investor's take on the market, like yourself, how vulnerable the market is, flipping all over again. how are you and the team framing that data point later today? earl: yeah. i don't think it is vulnerable to flipping back, you know, but i'm happy you ask that question. the level in 10 years we see at the pivot point is 3.85, so any

yield below 3.85, we are better sellers, you know, underway duration. above 3.85, we start going long duration. the trend now is definitely lower, but we can see it going much higher as well before we ultimately. hit these lows that underscores one thing. our number one highest conviction trade for 2024 coming into the year was volatility. that means, and we are seeing it -- that means the path is more important than the destination. so having ideas to where the pivot points are, where you are underweight overweight is the key. that is why we are very bullish on output and fixed income and asset management. jonathan: earl davis, very smart, good to get your thoughts come as always, bmo asset management. he's long volatility. that's exactly what he's got on these screens right now.

let's get an update on your bloomberg brief, here's yahaira jacquez. yahaira: bangladesh prime minister sheikh hasina has resigned and fled the country. this according to local reports. she had been pressured to resign for weeks following violent demonstrations that have killed more than 100 protesters. the nation is shutting down government and private offices including banks for three days starting today, and mobile internet service has been shut off. the country will now form an interim government with the backing of the military. meanwhile, israel is bracing for possible attacks from iran and regional militias. this after the high-profile attack nations of hamas and hezbollah leaders last week. prime minister benjamin netanyahu saying over the weekend his country is in a " multi-front war against iran's access of people." amid exploiting tensions, the u.s. is moving a fighter jet squadron to the region and plans

to give an aircraft carrier nearby to help israel. still, the white house is urging netanyahu to redouble cease-fire negotiations with hamas. we are seeing shares of apple tumbling down nearly 9%, as part of this global text selloff. but we also learned over the weekend that warren buffett's berkshire hathaway slashed its stake in the iphone maker by almost 50%. this solved were buffered -- warren buffett's cash pile soar, still, urging apple investors to remain calm despite a delay in the company's much-hyped ai rollout. jonathan: i guess the question this morning is how much you would like to buy this morning off the back of this move. dani: i was thinking, what great timing for warren buffett. good timing for him, and maybe bad for others. jonathan: of next on the

program, the long odds of a soft landing. >> i'm hearing the markets claim two things, growth scare, policy mistakes. that's what i'm hearing. jonathan: screaming those two things loudly after the jobs report dropped on friday. you are watching bloomberg tv. ♪

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jonathan: good morning and welcome to the program. equity futures negative, 10 year yield down by 5, two year yield down by 13. the dollar is weaker come of the yen is much stronger. dollar-yen 1.4242. and the long odds for a soft landing. mohamed: i'm hearing the markets

claim two things, growth scare, policy mistake. that's what i'm hearing. the market now fully understands that the fed may be late and cutting. in the past, i kept saying there's no reason for the u.s. to fall into recession. i think people underestimated the lack of effective higher interest rates, and these are heading. . in a much bigger way now. jonathan: in a much bigger way. economic slowdown spreading worldwide after the july jobs report spread worries the fed went too high, too long. inflation continues to abate, and hiring increases modestly. the jobs market reminding us what normal looks like. mila richardson joining us now. good morning. are we confusing monetization was something more nefarious? nela: yes, and to answer that

question, i want to take you back to july 2019. the u.s. created 90,000 jobs. let's fast-forward to the present. 114,000 jobs some employment growing at 1.6%. this is normal. and the risk of over exaggerating where we are, which is definitely a cooler labor market, but the rest of going too far in our sentiment is that we will have higher expectations for a fed rate cut than we are going to get. the fed will not deliver us from 4.3 percent back to three points at -- 3.5% unemployment rate. if we think that going into that september cut, we are bound to be disappointed, the markets. jonathan: let's talk about a place you have confidence. do you have confidence we can stabilize at these kinds of levels, that we could deliver jobs gains, and we are not headed on this one-way track toward negative numbers at some point in our future? nela: i will give you an

insider's perspective, because i see about 25 million paychecks every month of every week, and we've been looking at the labor market in this really fine-tuned, granular way. what i will tell you is within all of this, hiring is different now than it was in 2022, in 2023. we are not just replacing workers in this labor market. remember that revolving door of the great resignation, remember how hard it was to work workers back into the space. remember how quickly they left once they got there. employers are not in that position anymore. they are hiring because and only when they are growing by and large. yes, of course, some people believe the labor market, there is leave, early retirements, but all that is real headcount growth, not just replacement hiring. so a very different space than employers were two years ago. dani: does that also mean labor

hoarding, keeping on and holding on to employees, for fear if they cannot replace them, that that is over? nela: i think it is too soon to say that. what we have seen in the data is that employees are not leaving as quickly as they use to come of that they are staying put, the turnover rate is not there. you can see that in the jobs report. you can see that in the qic's right. cliques now are back where they were pre-pandemic -- in the qui ts rate. quits now are back to where they were pre-pandemic. companies are tweaking their headcount at the margin to correct for what may have been a bit of a rambunctious hiring a few months ago. dani: i wonder when you look at a market, when you look at sentiment turning, is there a fear that corporate's are going to be more reactive this time around, that they do have, for a large part, a large labor force because of some of the over hiring they have done. so when they finally let people go, it's like a beach ball that

has been kept under water, and you finally release it. nela: let's go back to the data. let's go back to the labor force activity numbers that were kind of lost in all of that labor data last week. there are more workers, and workers are becoming more productive. in terms of a quick earnings perspective, having a more productive workforce is helpful to earnings. i'm in the camp that even minor tweaks, if you do see a reduction here or there, when we see in large-scale layoffs, they have typically been in specific investments that companies have made, and maybe they have pulled back from, but by and large, in order to keep growing, in order to make those earnings expectations, you have to keep your workforce, and you have to make sure they are productive. that is what we are seeing in the data. jonathan: there will be a big get together in jackson hole, wyoming in a few weeks time. the road to september 18, the next fed meeting, feels like a

long, long way away. nela: i think they are going to be able, these policymakers, to come together and take a breath. they've been so tactical, point dependent, very data dependent. now they can talk strategy, and this sets them up for a conversation they will need to have going into next year about the framework. remember that the current framework that we've been operating under anticipates a very different inflation scenario than we are in now. that framework, where we can let inflation be a little above the 2% target, up to 2.5% on average, anticipates a very low inflation rate, as normal. we are not in that world anymore. they have to start going from this data dependent, tactical maneuver in the monetary policy to a more large-scale, big picture, strategic framework. i think that starts in august. dani: is there anything this market can do, though, whether

wealth effect concerns, bond markets running away from them, that would make an emergency, make sense to you? nela: no. [laughter] not at 4.3% unemployment rate. what that does is set a precedence that i don't think the fed wants to deliver. are we saying that every time we see an unemployment rate below 4.5%, the fed is going to have to act? what is the framework? maybe if there is a strategy around that come a long-term perspective that we can reference, but if it is just a .2% move and a statistical estimate, then the fat is really backed into the corner, if you look over the -- the fed is really backed into a corner. jonathan: what is happening in the labor market and what the fed may or may not do in the future, the brilliant nila richardson of adp. this reflects what we heard from neil dutta as well, stepping on a nail, not a bed of nails, and respond to this, and interest rate reduction in september.

dani: you can even argue that it wednesday, in the fed decision, you have to remember cutting rates is not the only easing tool that they had. even just powell sounding more dovish was enough to get rates to where they are at this moment, with the help of some of the selloff at 3.8%. you can argue some easing has already been put into this market. they don't need to do an emergency meeting cut. you just need to some dovish at jackson hole, and that is enough. jonathan: i imagine there will be some speeches scheduled between now and the end of the close in the market. we will seek. coming up next, sarah hunt of alpine saxon woods, ed al-hussainy of columbia threadneedle, claudia sahm of new century advisors, we will talk to sahm about the some rule -- sahm rule. all of that up next on "bloomberg surveillance." ♪

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>> i am hearing two things. >> we have seen some market deterioration in the jobs market. >> certainly there is a signal that september will be the first cut but i think the fed will still move cautiously. >> i don't understand that rates grow very slowly. if the economy is back to normal, get monetary policy to longer quickly. >> this is "bloomberg surveillance" with jonathan ferro. jonathan: the second hour of "bloomberg surveillance" starts now. live from new york city this

morning, good morning. if you are in this market, you have not had much of a weekend after friday. 8:30 eastern time, payrolls dropped and quite literally dropped. a big downside surprised that upset a lot of people. 50 basis point cut in september. 50 basis cut in september from mike in jp morgan. the negative follow-through is real. equity futures on the s&p down by 2.7%. on the nasdaq, down by 4%. dig into the nasdaq. some of the biggest players on the planet dropping aggressively. big news from apple, nvidia, microsoft. nvidia down by 8.8% and apple down by 7.5%. the poster child for some of these tech ai names. dani burger, he says we are getting investors from around

the world asking if this technical market and historic run protect stocks is over. he says it is not. we view this as another white knuckle woman in a multiyear bull run protect stocks that need handholding. dani: no black suit yet. we are talking about timelines. if you are talking but the short-term, it is hard to step out in front of this when you have so many people that are long year-to-date and you have all of the short volatility trades put on. it is like picking up pennies in front of the steamroller. the steamroller has arrived by all accounts. the question will be how much longer it lasts. jonathan: the bond market, set up the board. this look at the difference between the two-year and the 10 year. dani jumped all over the bond market and said we are within one basis point of the yield curve disinvited -- disinverting. dani: my favorite thing about this is all of those people who said when the yield curve starts

disinverting, that is when you get a recession. there is some confirmation bias happening in this market because the data has not been that bad. the signal this bond market is giving us that there is an emergency coming, that they will have to step in, if the fed is going to do that, what are we doing here? what sort of framework are they working with that 4.3 percent in underpayment would mean an emergency cut? that would confuse a lot of people. jonathan: it is a continuation of what we saw in july. the two-year yield lower. just last week, 50 basis point move lower again on the two-year yield, aggressively lower compared to where we were only a few weeks ago, so how does that set us up in foreign-exchange? it means a ripper of a rally in their japanese yen. a massive move there. japanese equities, 12.4% move on the 225, the worst day of losses in japan we have seen going back

to 1987. what is the circuit breaker for this? a fed speech later or economic data? let's talk about the week ahead. what is the ism services index later this morning, 10:00 a.m. eastern time. the other is thursday. if these moves are about the move thursday to friday, can we settle things down if you get a decent read on ism services? what happens to the market if we don't? dani: i am scared for what happens if something is weaker. again, because so much of this feels to be in the crudity squeeze, i am questioning how much stronger data could stop it. you have to hope it stops it somewhat, but if a lot of this is yen appreciation hurting the tech trade, a more mechanical type of sotloff, it is unlikely strong data on its own can be the circuit breaker. jonathan: look out for that dated later this morning. we will catch up with sarah hunt

as this market saga continues. we will speak to claudia sa hm. look out for that conversation later this hour. and ed al-hussainy as traders ramp-up bets on an emergency fed rate cut, which i have to say a lot of guests so far this morning are pouring some freezing cold water over the possibility of that happening. global starts selling off on concerns the fed is behind the curve. sarah hunt writing this, the totality of the data teams to have shifted, and that was a certainty last week. sticking the soft landing now is being called into question. sarah joins us now for more. what changed at 8:30 a.m. eastern time friday morning? sarah: i think it started to change thursday, and friday confirmed the fact that they weaker. the ism numbers were week of the manufacturing site and you had a payrolls report much weaker than people expected. there was a lot of controversy

of how easy is it to interpret the data and whether or not the model makes a lot of difference. when the numbers were high, nobody worried. now that the numbers are down, people are starting to worry and you are starting to beer the conversation again like how strong was it all year and how strong is employment? it reinforced the fact that you had week ism numbers. jonathan: seven percent move lower on small caps last week. tech is getting hammered this morning. banks are down again. is there anything about these moves that you want to pick up the pieces anywhere, anywhere at all? sarah: the place that people who want to pick up the pieces is technology. you had a guest on earlier this morning that made the point that the small-cap trade and the bank trade did not make sense if you thought the economy was going to get weaker so i would say that is also true in one of those, what else can we buy trades as opposed to we need to be in the sectors right now. what is happening in tech as you have not had a correction for a long time.

we did a complete u-turn after january and july -- january to july. it is a very fast correction and a very strong correction when people were not expecting this much drama, but you have so much happening. there are so many different mechanical pieces underneath that it is hard to parse them all out because they are not obvious. it is not one thing like earnings were terrible. they were ok but it is a lot of different pieces. dani: even if tech is the trade, some of that huge enthusiasm we had over ai, is that done in a market where you need to worry whether the fund will cap next whether the fed -- whether the fed will cut on -- or not? sarah: you had a lot of companies in the 2000 selling to customers that did not have money so they were financing their own customers it was a whole different situation from what is happening right now.

people are putting in capacity because they are not sure exactly how they will use it but they are pretty sure they will find a use for it. is it as fast as people expect it to be? probably not. it always changes. i don't think that goes away, and the companies spending on this have a ton of money. it is not like they are in trouble in any way, shape, or form, but the timing was always going to be i need to know immediately what is going to happen, and that is not the way it is playing out. that is part of what you are seeing here as well. dani: the moves i huge. you get again 100 billion dollars plus move for a single name like nvidia. does that make it hard to stomach and hold onto the ride? sarah: it is one of the reasons why you are not supposed to look at your portfolio every day but we do anyway because that is what we do for a living. the problem is you have a lot of large numbers with these tech companies. the earnings move fast for nvidia in particular because people were scooping up the

chips and able to charge higher prices for them. when things settle down, what pricing can you get? amd all of a sudden is becoming a player. the earnings were good and they were like, yes, look out for us. there is a lot of moving parts and those things swing around a lot. jonathan: we will catch up with ed al-hussainy later this hour. he draws a distinction between the fed cutting to become less restrictive and a fed cutting to become accommodative i am trying to work out where we will be in september. are we cutting to normalize or address a growth stock? they are two different things. i wonder how different it would be based on the decision we get in september. sarah: that is part of the u-turn. if the fed had cut last week, which i argued they should have at least 25 basis points, the amplitude of this would have been lower. you still would have had a directional downtrend but i don't know if the amplitude would have been high and part of the problem is that is what they are moving towards, and now the growth scare is making that

shift to maybe they are cutting because they have to. that is where the 50 basis points is a push because i don't think they want to look that worried about it in september. if there is a growth scare, we have been trying to position for slower growth anyway so it is not like that is going to change our allocation too much. but in the end, this quick turn for markets and perception and investors from it is all fine and we still have growth to the world is coming to an end has made all of the markets come down. everything is coming down right now, so i think i don't think people were expecting the amplitude of the change. jonathan: are these rate cuts worth buying or rate cuts i should sell? sarah: that is a tough one too. i was thinking about this in the green room. the question about rate cuts and what happens with rates when people are piling into treasuries as a safety trade, it stops becoming about rate and it starts becoming about safety so it almost doesn't matter in the near term because people are piling into treasuries because

that is someplace to put money. i don't know when that flips back to we care about what the fed is doing and that is why i am buying bonds to i need to buy bonds because it is safe. dani: if the fed does what the market is saying in the interim meeting fed cut, what would be the reaction? sarah: unfortunately because they missed the opportunity last week, the reaction would become a what are they seeing that we don't see? that is what they don't want to duplicate that is what markets don't want to have. two weeks ago or a week ago everything was fine and now you feel like you have to intervene. 25 basis points is not a huge cut. people were worried if they win 25, they would expect to keep going. that kind of concern i don't really understand. i think the fed has more power than that but they get trapped in the perception and that is part of the issue. jonathan: i want to make sure i walk away with the right impression. do you think the pendulum swings too far in the other direction right now? sarah: absolutely. jonathan: in stocks or bonds?

sarah: both right now because the bond is a panicked of where will i put my money, and the stock is, the world is coming to an end. when does the knife stick and when does it stop falling? there have been a lot of really levered trades underneath all of this. the yen, everything else unwinding we cannot see, and that is where it is hard to figure out, where does that stop? i think this is an overreaction but i don't know when the overreaction stops because i don't think the underneath is as bad as it has been the last couple times the market really had problems. jonathan: i am trying to figure out where we are at the moment. we asked this question a few times over the last few weeks. if we trigger the sahm rule, w00t this market behave as if we are in a recession already? would the market begin to behave like we are in a recession already? this tees up the data.

that's a get ism services that is strong. are they fixated on the view that we are in a recession and it embraces weakness and ignores strength? how sensitive we are to strong data and weak data. sarah: how much of this is underlying mechanical trading problems and how much of this is a reaction to the data? it started as a reaction to the data and then became its own problem and that is the problem of highly levered trades. when they go against you, the forced unwind is not what things people want to do but what they have to do. the data can help slow that down possibly come of it is not as much reacted to data as margin calls and issues underneath that on the financial side, so i think the data would help, but bad data could make it worse. good data might make it a little better but i don't know how much that will stop this. this has to stop on its own because there is some coming

down a forced something and i think that is where we are right now. jonathan: forced buying of the japanese yen as well. sarah: absolutely. jonathan: dollar-yen right now, 14273. with your bloombergtechtv brief, here is yahaira. yahaira: former president jimmy carter is holding out to vote in the november election. the oldest living president told his grandson "i'm trying to make it to vote for kamala harris." carter who turns 100 on october 1, has been in hospice care in georgia for over a year. early voting in the state begins october 15. hurricane debbie made landfall in florida as a category 1 storm with wind stopping 80 miles per hour. the storm is expected to push as much as 10 feet of water and land and bring heavy rain. the white house said president biden ordered federal resources to help the state. goldman sachs economists raising their odds for a u.s. recession

in the next year from 15% to 25% after friday's week jobs report. a chief economist noted the risk is limited and the fed has room to act quickly if needed. he also thinks the economy continues to look fine overall. the team predict the fed will cut rates by a quarter point in september, november, and december. jp morgan and citi are calling for the fed to deliver a half-point cut in september. jonathan: thank you. up next on the program, big tech leading big losses. >> the reality is tech is also rate sensitive. if we do start to think that if nothing else the economy will be soft, some of the trades that people run into in july, that does not make sense that an economy. jonathan: up next, live from new york city this morning, good morning. ♪

jonathan: here is a quote. last week's equity market downdraft in our view likely provides opportunity for another rally. no change from the team at oppenheimer. we will come back to that know a little later. down 2.8% on the session. down by 2.8% this morning on equity futures. this was an ugly one. we are down to five basis points. 3.7397%. wti, $72.27. big tech leading big losses. >> the reality is tech is also rate sensitive and in addition,

if we start to think that if nothing else the economy will be soft, some of the tradespeople will run into in july, that does not make sense in an economy that is moderate. you will be more inclined to look for higher-quality revenue consistency, earnings consistency. you find that in a lot of bigger cap tech names. jonathan: a lot of you are looking to pick up the pieces. some people are taking the other side. the global stock selloff continues ignited by weaker than expected economic data. we get the ism services index coming up today at 10:00 a.m. eastern time. a week july employment report does not make a recession. financial markets reacted friday as though it does, but we believe that report was a whether impacted anomaly and not representative of the strength of the u.s. labor market. ed joins us now for more. thank you for joining us to go through some of this.

what about friday tells you that is the anomaly and not the start of a new trade? ed: i think to a large extent the friday sellout had more to do with the carry trade unwinding the japanese central bank and the finance ministry indicated they wanted to see somewhat tighter monetary policies over there, and apparently we never appreciated the scale of these trades. just happens that all of these things came together on friday. i think the markets had the sahm rule scare that the un-appointment rate is going up a little bit and the next thing it does is go up a lot but history shows that only happens when you get a crunch. that is conceivable that this trade unwind becomes some sort of a financial crisis that in turn leads to a recession, but that is not where my thinking is at. the other issue is geopolitical

risk. everybody is kind of nervous about the potential for a wider war in the middle east. jonathan: crude selling off which speaks to the overarching concern of bank growth in america. if that is your view on things, go through things right now in equities and bonds. do you think we have overdone it in equities, stocks, bonds, or both? edward: i think we have overdone it and a lot of it is the forest covering of these carry trades. it is hard to assess how much more of this we have to go, but these traders move awfully fast and we are seeing that in this vicious selloff on a global basis. the fact that it is a global selloff has more to do with the carry trade then a couple of numbers here in the u.s. suggesting the economy is weaker. dani: you talked about one of the risks you are not worried at this moment come of the risk that the selloff gets people to think that there will be a

recession, act like there will be a recession, and a recession happens. at what point do you get worried about that risk? edward: i am worried about it now. when you see these kind of selloffs, you wonder what you are missing. this is very reminiscent so far 1987 when we had a crash in the stock market that basically all occurred in one day, and the implication was we were in or about to pull into a recession and that did not happen at all. it had more to do with the internals of the work. i think this is the same thing going on here. i think a lot of this a lot has to do with the carry trade unwind and it is conceivable that it could feed on itself and create the worst scenario where everybody hunkered down and says there must be a recession out there, but i don't think so. i think the labor market is still in good shape. i think the u.s. economy is still growing. i think the service economy is doing well. i guess we will see very shortly

here, but all in all, i think this will turn out to be more of a technical aberration in the market than something that turns into a recession. dani: i hate to hammer on the bearish base case because i know it is not yours but if it is conceivable something like that could happen, the kind of feedback loop could happen, is it conceivable the fed does a 50 basis point cut or even an emergency cut? edward: absolutely. this is turning into a global financial panic, and i think we can expect the central banks will respond to it. i think their initial reaction will be to try to lower concerns about the u.s. economy and to push back on it against the idea that they will move 50 basis points, but another couple days like friday and this morning's future selloff and i think the central bank will be going into the mode of providing liquidity,

and that could very well mean a 50 basis point cut. jonathan: do you think they are in a position to activate the fed perm. if the fed does that, we would like to see inflation starting with risk assets. they are caught between a rock and a hard place in terms of being able to be aggressive. how constrained do you think they are? edward: i do think they are constrained at all -- i don't think they are constrained at all. it has the potential for causing -- pushing the u.s. economy into a recession and they can move quickly. they could move before the next meeting. i don't think they want to move that because they will signal that they are getting panicky but the markets are panicky enough to have an impact on the fed thinking. jonathan: ed yardeni, thank you, sir. a distinction between what he thinks is an unwind and some

fundamental growth stock triggered by the data last week. dani: there is this threat it feeds back on itself and it causes a growth stock because you have people pricing an emergency cut and therefore the fed does an emergency cut and we panic and think and act like there will be a recession and then a recession happens, but i think the through line with everyone we have been speaking to is that as a threat but the threat is kind of in the background now, that the data has been strong. there is a selloff in part mechanical and it could get worse, but this is not it, this is not a recession right now. jonathan: after friday i would say this is not just a fear of going into a recession. the market started to behave like we were in one already around this sahm rule. i cannot wait to catch up with claudia on her sham rule joining us in five minutes -- sahm rule joining us in five minutes. price action and risk assets will cast a final vote on how

far the bond bullishness is able to extend. this market is casting its vote right now pretty negative. on the s&p 500, we are lower. on the nasdaq we are now. on the russell, aggressively lower. from new york city, good morning to you all. ♪

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jonathan: so there is plenty of bearishness out there forget here is the more constructive view from oppenheimer. we know with the fed funds, monetary policy officials have dry powder to manage the landing. he think there is an opportunity to buy this market. this market is still selling off. we are down on the s&p 500, negative on the nasdaq, off on the russell 2000. the small caps all over the place. dani burger with me throughout the morning. we were down on the russell last week. dani: with all of these moves and small caps the most of which it is painful because you had so many people come out and say now is the time to buy small caps if the rally can sustain itself even with the broader market,

people coming out and calling for 6000 on the s&p 500 and even more when you look in the future, that just happened. i know hindsight is 2020 but maybe you can look at it and say that was the top. jonathan: some people still calling for some of those numbers and that has not changed since friday for those numbers. i want to take you to the bond market. we were on a four-day winning streak on the two-year, a seven-day winning streak on the 10 year, and you can add to that. the two-year down 15 basis points to 3.7336%. dani identified this earlier in the session. look at the difference between the two-year and the 10 year. we are down to a single basis point. dani: we are so close to this thing on inverting. you have to bring it back to jay powell himself talking about the sahm rule and the ivield

curve saying it is different this time. they are just statistical normality. they don't actually tell you anything at this moment. it goes back to the panic of this market and the panic of some people in powell's press conference being dovish and being extremely calm. this is not a market that is,. jonathan: p word is not a word we use loosely in this program but with japan, this is what you can say panic looks like. think about everything that happened between now and 1987, and yet this was the biggest move since 1987 on the japanese benchmark. dani: on what, the boj hiking? you have to scratch your head and saying this is an audit move but it gets less on when you think about all the people. all of the people who piled into japanese equities, all of the people who were just glom in on to this carry trade. what happens when it unwinds?

it may not be fundamental but it certainly has a mechanical feel to it. jonathan: dollar-yen down for five days. that is a massive rally on a single currency. there is a lot of trades that build on top of that that developed over the past two years or so. under surveillance this morning, the global stock some of ignited by weak payroll data continues today. big tech leading the drop. apple, nvidia in the premarket lower and lower aggressively. nvidia down by 11% in the premarket. you have to wait until the end of august two good earnings from this player. dani: that is why russ started us off with this that was the tone. sure, these are names you want to buy and a lot of people have been waiting for the selloff in order to buy them, but can you jump in with both hands this morning? perhaps you can because the losses could get worse but it goes back to the dan ives of the

world saying there is still value here and i want to belong these stocks but it does not mean they will not be more pain. jonathan: it looks and feels and sounds like a growth stock. check out the commodity market to confirm that. you have all of this tension in the middle east but crude is lower on wti and crude brent. this is what is happening with crude. dani: it will be a vicious move if something does happen because it is hard to make the argument that you should be selling oil if there is more geopolitical angst and if there is something that like escalation, because that had been the big fear of this market. if iran retaliates in a way that is not just like july 13 were essentially can block all of the missiles coming in and it is no big deal and you carry on as they were before. if that happens and you get more volatility, oil is another asset class that will be swinging from huge gains to huge losses. does that feed into the market volatility all over again?

jonathan: that is the middle east and the commodity market. let's pause and sit on this. i know many of you have heard this phrase in the last few weeks, in fact for the last few months we have been talking about the so-called sahm rule. the rise of the on appointment rate triggering the sahm rule. claudia sahm herself saying this, i don't look at this and big picture say we are in recession, but i look at this and say we are not headed in a good direction. claudia joins us now for more. you are famous if you were not already. i think you know that anyway. great to catch up with you. i want to take a beat and sit on this for a moment. tell us what the sahm rule is, what you want it to be used for, and whether you think it is applicable in a labor market like this one? claudia: so the origin of the indicator is a proposal to improve fiscal policy, put it on

autopilot, automatic stabilizers in a recession. it is a rule that says in a sense that the policymakers need to do something. it may end up playing out that way, but the idea was to look at the historical record in the united states and find the pattern, the unemployment rate increases at which in the past the u.s. has been in a recession , months into a recession. this is not a forecast. just trying to capture and yet it is absolutely true that it does not have to be that way this time. if we look at all of what we know about the u.s. economy, right now it is very unlikely we are in a recession and yet a really important question is, where are we headed? those changes in the on appointment rate that the sahm rule picks up on, they do not look encouraging. they are headed in the wrong direction and that momentum

could get us in trouble. dani: for all of the people out there talking about your name, talking about the sahm rule, using it as an excuse to sell and say the fed should be moving soon, what do you say to those people? claudia: calm is important in a moment like this, regardless of what indicator data points you are looking at getting the fear does no good, and this was trying to give a simple summary of one piece of the u.s. economy, the labor market. very important. there is a lot of complications right now. this balance between calm but take it seriously. there is slowing in the u.s. economy and we have seen that. the point is to keep the slowing from pulling us in reverse. we are not there yet. usually in the sahm rule by the time it triggers we are past that point so there is this opportunity. the federal reserve has a lot of place to ease. we come into this in a position

of strength broadly speaking in the economy, so that is really important for weathering a storm like this that has many different contributors to it today. dani: i did not mean to use your pun as a segue but i want to in terms of the storm and weathering it because on friday there was a huge debate when the numbers dropped of people saying, don't believe the numbers you are going to see because they will revert quickly because a lot of it with the weather. a lot has to do with hurricane beryl. the bls comes out and says there is noticeable impact. which side of this do you fall on? whether the numbers we saw on friday are something that can somewhat reverse because it is a whether impact. claudia: it is an indicator that the sahm rule should not be designed to overreact to one month's data. it looks across months. pattern it is responding to is a gradual increase, and gradual steady increase in unemployment over the past year. so there is that.in terms of weather affects, there is the

ability to look at geographic data to get a sense of where the effects are. they take those statements very seriously, and i agree with them for a lot of reasons that the unemployment rate was not affected. the labor force status was not affected. being unable to work because of the weather does not flip you out of being employed to unemployed. it gets technical and that. that one month, it was a big surprise. but in the context of the year as a whole, even moderate slowing and this increase in the on appointment rate has been in the past consistent with early in recession so we might not be there but we are getting uncomfortably close to that situation. jonathan: you have worked at the federal reserve.

you know better than most how that institution operates, how slowly it can move sometimes. how do you think it will respond to this data? not just friday but thursday as well as we go to jackson hole. claudia: on a day like today when the panic word is looming large for many people, the fact that the federal reserve is slow-moving and deliberate is a good thing. the last thing we need is them joining into that energy, that emotional energy. they are watching it very carefully. the market functioning, these are all -- the reason we have the fed is to make sure that the markets keep functioning. monetary policy came later so there is this aspect of them being diligent. in terms of them looking at friday's report and changing dramatically their views on a september rate change, i think that would be unlike them and i think it would be premature. they are pointed in the right direction and have some time to

get there, but they are slow-moving particularly when it comes to the economic data. jonathan: how do you imagine they will frame the first interest rate cut? will it be framed as a midcycle adjustment, the process to normalization, or the first after taking more accommodative steps given what is developing? how do you think they will frame it given what we know so far? claudia: september feels like a lifetime away right now. if they can cover the fed likes to move on the path it sent out. the path it set out has been to normalize interest rates because inflation is normalized and everything is planned in that direction. i think they want to keep to that narrative and to that path if they can. the last few days have called into question whether that is appropriate number will be appropriate at that point. for the fed, it is very deliberate and can be

slow-moving, but when the facts change and it gets its mind around it, it will move and will do what it has to do. we are in a position right now where they have the ability to do quite a bit. that is notable. dani: both citi and jp morgan have changed their call to see two consisted 50 basis point cuts from the fed. what difference does it make moving 25 or 50 in september? claudia: it all fits within the context of that moment. for someone changing to 50 point cuts, particularly consecutive ones, that is a pretty dire outlook for the economy when we get to that point for intervening. that is not what my baseline is. i don't think that is where the fed's is. looking at the data and where we are at, clearly if we were seeing large moves like that out of the gate, there is a real

problem, but we saw some big moves out of the gate in fighting inflation in 2020 the other direction and the fed will take its policy to where it needs to be to the conditions in the economy. jonathan: we appreciate your time. fantastic to speak to you personally. claudia with the sahm rule that has been butchered by a number of people over the last few months but setting the record straight on where she thinks we are at the moment. dani: i got to wonder how annoyed she is that everyone is using her name like a pun these days. so many sahm puns out there. the idea of moving 50 basis points consecutively would mean something bad happens, does the fed really want to do that? the data is not trending in the right direction, but it is not horrible. does that signal the fed knows something we don't? the difference between 25 and 50, it goes back to what you

said. i want to go back to the central question we have been asking on this program for months. are we witnessing a welcome calling or an unwelcome deterioration? quite clearly this market is casting a vote on what it thinks the answer to that question is after friday. dani: does the internet matter? is this the fed that will have to respond to things deteriorating if the market runs away from it and has issues like the wealth effect, meaning people really pullback and business decisions are being made because of the equity market? jonathan: this is the old adage that the markets can shape the events that they anticipate. that george soros stuff. if this continues, sure. it is a show me moment. that starts at 10:00 a.m. eastern. the calendar for the data session right now for the next week or so, two big data points for me. ism at 10:00 and jobless data on thursday.

dani: it was a show me moment and it did not do enough. you have to wait a while for nvidia. in the meantime, our imagination can run away with itself with investors who are impatient on ai really showing up, investors who are very long ai and it is an easy place to sell when there is a liquidity crunch. jonathan: nvidia earnings at the end of this month. here is yahaira. yahaira: vice president kamala harris is getting ready to announce a decision on her running mate. according to people familiar with her plans by the vice president met with at least three possible running mates yesterday. arizona senator mark kelly, pennsylvania governor josh shapiro, and minnesota governor tim walz are possible choices, including andy beshear, pete buttigieg, and jb pritzker. harris plans to kick off a tour of seven battleground states tomorrow in philadelphia, and her running mate is expected to join her.

mars is considering buying a company and what could be one of the biggest deals in the consumer industry this year. that is according to bloomberg sources. they spun off from kellogg last year as part of a restructuring and includes brands like pringles, cheese it, and pop tarts. the deal would link those brands with snickers, m&ms, and skittles. shares have been up 12% this year with the company valued over $21 billion. it is day 10 of the paris 2024 summer olympics. today's event include the finals and triathlon, gymnastics, surfing, and track and field. team usa is in the lead with 72 medals. host nation france has 44. china is in the lead with the most metals -- medals. jonathan: yahaira will be back in 30 minutes time. up next on the program, it is the path, not the destination.

>> the number one highest conviction trade for 2024 coming into the year was volatility. that means, and we are seeing it, the path is more important than the destination. jonathan: we are getting a lot of volatility right now. that conversation up next. from new york, you are watching "bloomberg surveillance." ♪

jonathan: equity futures negative, new session those actually. down by three .2% on the s&p 500. the rally and bob continues, down seven basis points. on the two-year, 3.73%. the distance between the two year and the 10 year now just a single basis point. under surveillance this morning, it is the path, not the

destination. >> a lot that we see at the pivot point is 385 so any yield above 385, we are better sellers and underweight direction. above 385, we start going wrong direction. it is our expectation that we will test that and underscores one thing. that means, and we are seeing it, the path is more important than the destination. jonathan: we are definitely seeing it. treasuries surging. we are down another 14 basis points on the front end of the curve. ed al-hussainy writing there is an uncomfortably high probability we entered a recession in the united states. the fed will have to act faster including ahead of the september meeting. ed joins us now from more -- for more. i want to talk about the nature

of the rate cut cycle you are anticipating. do you believe there is justification to move before september 18? ed: yeah. look, particularly a financial conditions continue to tighten at the pace we are seeing at the moment, the answer will be yes. jonathan: how much more tightening would you expect and where would you need to see it? another 5% to 10% in equities, 100 basis points in high yield? what would constitute the financial missions that the fed would have to say it is time to go and we cannot wait around? ed: yeah, it is really a difficult judgment call. that cannot be the base case right now, but as financial conditions deteriorate particularly in the form of liquidity and credit from a that is something i have my eyeballs on. liquidity and credit, liquidity and treasuries. we saw a violent move friday.

we see a couple more sessions like that, the participation in markets comes quite important. dani: it has been equities, bonds. does that give you any comfort? it has been credit that screams for a while until the rest of the market realizes. ed: i think the credit picture this entire year has been very positive. it has been a very low volatility part of the market. it has not responded to some of the ups and downs in inflation we saw in the first quarter of this year. it really reflects that the underlying effect on the corporate side are good but at this stage, we have priced in a very good credit moving forward, and we can see that get infected from what we are seeing on the rates on the treasury side. dani: if that happens in the fed is forced to move because you have the undo tightening, how convinced are you that this

stops some of the unwind we have seen and is not something that causes further panic? we ask, what does the fed know that we don't? ed: it is a really difficult balance because ultimately the mandate for the fed is to reduce the risks to the real economy. acting a little bit faster i think buys them insurance the deterioration of the labor market they are currently seeing is not going to become more widespread, is not going to accelerate to the end of the year and into next year. that will be the primary mission. the volatility in credit and equity markets is in many ways secondary to that. from that perspective, i think the case for acting, whether it is an intervening cut or just a more accelerated easing cycle signaling all year, the case for that is quite strong. jonathan: i was reading your notes and you focused on something important i would love to develop with you in this conversation. the difference between becoming less restrictive and becoming

accommodative. how important do you think that discussion needs to be? how central should that competition be going into the september meeting? ed: i think it is critical. it is part of the conversation they will have at jackson hole at the end of this month. that meeting or that conference is going to focus on the efficacy of the monetary policy transmission. from my perspective, monetary policy has been quite effective and the risks are at the moment that it has been to effective given the slowdown in the labor market we have seen right now. the conversation around taking monetary policy into more accommodative territory has to start this year in my mind. jonathan: forgive me for asking for a number again, but what kind of levels are you thinking about in terms of interest rates this year? down in the low threes to become accommodative? ed: i think we have to put fed funds on a trajectory to about 3.5%. that to me is a really nice

bogey. at the moment, the markets are pricing about 100 basis points below the dots for 2024 and 2025 in terms of the fed forecast made in june. i think that is appropriate. the risks in my mind are skewed to the fed having to do a little bit more and frontload the cycle to stabilize the outlooks. the more insurance you take out my frontloading the easing cycle, the more room you have i think to take stock of the data at some point next year. jonathan: interesting. enjoyed this. ed al-hussainy on the need to get accommodative with this federal reserve and get accommodative quickly. we have different opinions out there but they are in line with the direction of the market the last few days. dani: it definitely is but if you look at other central banks that were accommodative quickly, it did not help them today. the ecb cut in advance and still you see a pushing them to cut more. still the equity markets are falling. on a day like today, is having a

more accommodative fed enough? jonathan: brutal morning and session so far. we just took out the low on futures for the s&p 500. we are down by 3.4% on the s&p 500. the valley in bond continues. we are dropping by 15 basis points on the two-year. on the 10 year, we are down seven or eight basis points to 3.71%, 3.72%. dollar-yen at the moment lower for a fifth consecutive session on dollar-yen. we are down 2.6%. coming up in the next hour, the third hour of "bloomberg surveillance" coming right up with lindsay rosener, andrew from citi looking for a 50 basis point cut, and stephen stanley. all of that and more coming up next. ♪

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>> generative ai is one of these themes that has durability. >> what we have heard this earnings season is capex needs to go higher. >> is there overinvestment in any sector? not really. this is why we are still in a soft landing. >> we would consider fading the

rotation and continuing to emphasize higher all of these stocks. >> i did not see a huge rally between here and year end. >> this is "bloomberg surveillance" with jonathan ferro, lisa abramowicz, and annmarie hordern. jonathan: the third hour of bloomberg surveillance starts right now. your opening bell is 90 minutes away. here is your price action. session lows on the s&p 500. down across the board. on the s&p down more than 3%. on the nasdaq down almost 5%. we have told you about single names. big tech, big players on wall street. let's go to the tech names. nvidia down 13%. on apple down 8%. check out the rally in the bond market. the two year yield dropped by 50 basis points. we are down another 15 today.

3.7275. i have set a number of times we need to take a step back and think about where we have been and talk about where we are now. i use this quote earlier this morning from chairman powell. cintra, portugal, july 2. "because the u.s. economy is strong in the labor market is strong we have the ability to take our time and get this right." have they run out of time? there is a payrolls report that shows 114,000 payrolls, unemployment rate of 4.3%. we get into that this hour. i want to talk about the week ahead at how much things could change. the ism later this morning at 10:00 eastern time. later on the week, jobless claims. much of this started on thursday with jobless claims and ism manufacturing spooking the market. the market was already spooked,

more spooked friday morning. where will we will be later this morning? dani: it started with economic weakness and the data coming in but now it is transformed into something else, it has transformed with all of these longs and shorts in the case of the yen that will get unwound. we were talking to sarah hunt earlier who said it will help but it will not stop things. it will not as a circuit breaker and the question is what can act as a circuit breaker. is it the fed doing emergency cuts, nothing seems apparent at this moment. jonathan: japan is blaming the united states, united states blaming japan. a feedback loop between dollar-yen and japanese equities. just to bring up the board. the nikkei 225, if you miss this, the close on the nikkei 225 -12.4%.

if you asked me have we exhausted this move going into payrolls we have unwound a lot of it, then you have another 2.8% move on dollar-yen on the session so far. these moves continue and they are equally vicious this morning as they were last week. dani: if you are wondering what it was like to trade in 1987, you're getting a trade -- you are getting a taste, that is how about the selloff has been. are we in a position we get strengthening of the yen and therefore you get people going into bonds that shrinks the differential between the u.s. and japan which then appreciates the yen and goes back around on itself. what makes it so hard -- that is what makes it so hard to step out in front even if you have a fundamental view that tech is a good buy and the yen should not be appreciating as much is it is it is hard to make the case that house the time for the trade. jonathan: this feels like a freight train over the last week. coming up come the lineup looks like this.

we'll catch up with lindsay rosener of goldman sachs. bets on an emergency fed rate hike. dan ives will be joining us on why he thinks there is a buying opportunity. in andrew hollenhorst expecting the fed to cut interest rates by 50 basis points in september. we begin with the big issue. global stock selling off as investors boost the odds of emergency fed rate cut. lindsay rosener says "the market has swung too part of your growth stock in a hard landing. one payroll report and a higher tick up in report does not mean the fed has the will or ability to help the monetary policy channel. we are serving to dip our towing into adding risk." lindsay joins us for more. we can take a breath. i think you are the perfect guest to work through this methodically will stop let's

start with the data on friday and then the market call. why are you so unconvinced by the growth scare the developed off the back of the data last week? lindsay: what is important is we are not scared or unconvinced with what we saw on friday. what we do think is it is a data point. it is showing labor market weakness or softness. we have been a trend of normalization and you'll will have soft prints along the way. that is ok for the market. the fact that we have the vix on 50 and an unemployment rate at 4.3%, which is not terribly shocking in itself really still feels like an overreaction. obviously the market is reacting to the psalm role being triggered and nervousness on what is happening in global markets but it does feel to be overdone and friday was one print. we want to see more data to get

a bigger picture. most importantly, the fed has the ability to cut. they have a seat if you meant of room if they are to cut so we really good plate -- they have a significant amount of room if they are to cut. jonathan: let's turn to the market call, starting to dip our towing to adding risk. brief some life into that call. where would you like to add some risk? lindsay: as we spoke the last time i was on the show, we have been very low in terms of the spread risk we have carried interactive portfolios. that is because spread valuations have been at the tightest levels of the past 10 to 15 years. we have been waiting for an opportunity for spreads to widen because we felt like where assets were priced was not justified for us to have more risk. now that we have widened a bit we think it is time to start. we want to lead into high quality from the beginning, so whether that is investment grade

, particularly in the u.s. as opposed to europe. the other things we find interesting to watch but have not found the right level yet is high-yield, in particular the area of high-yield we have like to this year has been double b and single b's. that is the area close to unchanged on friday. today is a different story. it is not about adding ccc's, it is about staying up in quality, whether that be investment grade or top of high-yield. dani: i imagine there a lot of people in your shoes who say i want to buy things like nvidia or credit but at these prices it does not make sense. all of a sudden you get a window like today where the prices start to come back down to reality. for those people it we frightening to jump in on a day like today where it is so negative. what you make of the timing of doing that? do want to jump in the moment it starts bad or you need to see it play out more? lindsay: it goes back to the

principle of dollar cost averaging. that is the smartest way to play markets. we are seeing two days of volatility. it is starting. we want to lake into opportunities as the prices make sense and spreads widen. what is important to us is taking a breather as jonathan suggested. looking at the big picture. what are we seeing? we are seeing corporations and a strong spot. balance sheets are fine. we have no clip of maturities. we are not seeing a default cycle pickup. from an equity perspective, may be little bit overbought. we have now backed off from there. the market is getting into a healthier zone. markets do not move in a straight line up. we have to understand these drawdowns and retracement's happen and this is why from an active management seat where we

are we want to have a steady hand of the market where it makes sense. dani: one of the things we'd also gotten used to was the huge growth numbers some of these stocks were putting up. the magnificent seven and nvidia growing 200% and a quarter when it comes to their earnings. given what we have seen from these hyper scalars is it fair to say that is also over that is part of the reason you see what you see today? lindsay: let me give the cap yacht first that i am a bond girl, not an equity girl but i am happy to take the question. on the equity front you can call it what you want, ai euphoria or true excitement what could be a new industrial revolution? now we are getting to the point we have to shift from excitement and speaking about what is going on to seeing the data and seeing the output from companies. that is some of the softest and retracement we are seeing in equities.

we are in the stage of cap x. there has to be investment to do all of this ai. as we have that investment, that can be a drag. the idea we snap our fingers and ai works in every use case is happening in the here and now, that is not how a new technology like this will work. the market has to have some patience and the jitters around whether the fed goes or whether ai is working today, we all to calm down and understand this is a process and this is very natural for markets, whether that be new creative technologies or how we move from different parts of the economic cycle. jonathan: i want to pick up on the word process and think about the september 18 fed decision. a conversation about whether the federal reserve needs to get accommodative or less restrictive. there is an important distinction between those things. what are you expecting in

september and beyond? lindsay: let me answer first, we are not expecting an emergency cut. while the market does not feel today, it is not in emergency mode and does not necessitate a fed acting from emergency perspective. september is not very far away although we are all enjoying the summer september is coming. they will have the opportunity to do what we see fit. there is a likely opportunity for them to go 50. on the way up in rates we have a host of 75's and 50's. it is not strange to think they could go more than 25. i think as the data, and we will get three more important data prints between now and september 18. let's see how they unfold and the data will dictate whether the fed goes 50 or 25. in our mind they will be going into september. there is more of a decent probability that they do go 50

to get us in the right motion or get things started. for us, that is the volatility we are seeing. there is a baton being handed off. the baton was with the fed thinking about two they have enough confidence for understanding inflation moving in the right direction? now the baton has been handed to market participants who been trying to figure out is the fed going to react and how significantly? and that kind of transfer of the baton as it is in real life it can be dropped, it can be shaky. it is what we are seeing right now in the vix and moving spreads and the flight to quality rally we are seeing in rates. jonathan: calm and collected. great to catch up with you. lindsay rosner. to her point about the baton being handed off. the calendar looks like this. august 14, cpi reports.

september 6, another job report, september 11, cpi report. september 18 the federal reserve decision. at the moment looking at this price action it feels like a lifetime away. dani: if you have fed officials coming out. austin goolsby was talking to mike mckee on friday and was very calm, saying this was one print and we do not react to one print. if it is in the markets hands how much will it matter if we get more fed speak saying we are calm, things are ok? if the market is running way with this narrative it might need to change in order to calm the market. they might need to say we are ready to act because the market is doing what it is. jonathan: equity futures down 3.7%. rally at the front end of the curve is picking up. the yield move is lower 16 basis on the two-year. 3.72. what a move at the front end of the yield curve.

let's take an opportunity to get you up to speed with stories elsewhere with your bloomberg brief. yahaira: israel is bracing for possible attacks from iran and regional militias following the assassination of hamas and hezbollah leaders last week. prime minister benjamin netanyahu saying his country is in an "multi-front war" against iran's axis of evil. the u.s. is moving a fighter jet squadron to the region and keeping aircraft carrier nearby to help israel. the white house is urging benjamin netanyahu to redouble cease-fire negotiations with hamas. kamala harris is expected to announce a running mate very soon. according to people familiar the vice president met with at least three possible running mates yesterday. mark kelly, josh shapiro come in minnesota governor tim walz. other possible choices include kentucky governor andy beshear, transportation secretary pete buttigieg, and illinois governor jb pritzker.

harris expects to pick up a store -- a tour of seven battleground states tomorrow and her running mate is expected to join her. hurricane debby made landfall in florida earlier this morning is a category 1 storm. heavy rain and powerful winds could create storm surges topping 10 feet in areas north of tampa bay and into the panhandle. coastal georgia and south carolina could see as much as 30 inches of rain beginning tuesday as the storm slows and moves east over florida. that is your bloomberg brief. jonathan: thank you. up next, we will get you morning calls, check out the price action come in catch up with dan ives on wedbush and while he thinks this is a big opportunity. that conversation is up next. live from new york, good morning. ♪

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jonathan: this just in. mike wilson of morgan stanley. "of the bottom line is the consumer has been weakening. risk reward remains unfavorable at this stage. he says it is hard to argue that many stocks are cheap if earnings position do not turnaround in a definitive manner." the latest call from morgan stanley. price action is not pretty. down almost 4% on the s&p 500. yields lower by nine basis point on the 10 year to 3.6950. on the two year, now down 18 basis points. 3.70 on two's. dani: and we are just a basis point away from the yield curve on inverting. this liquidity squeeze makes it hard to grasp onto reality of what makes sense in this market, doesn't make sense to price in

an emergency cut? because the price moves are unreasonable does not mean they cannot become reasonable. jonathan: everyone has an opinion but this feels like it is taking on a life of its own. let's see if it's changes later on when we get the ism freight at 10:00 eastern time. morgan stanley lowering its price target on disney from 110 to 130. taking a more cautious view of disney's parks business. next up jp morgan lowering its price target on target to 153 from 165, keeping a neutral rating on the shares. the analyst saying the boiling of the consumer backdrop continues, the water is heating up. bank of america maintaining a buy rating on shares of nvidia and keeping the company on its top sector pick ahead of earnings august 28. the analysts saying any selloff is an enhanced buying opportunity. the stock is down 14%.

dan ives of wedbush agrees is a buying opportunity and says "we are getting inbounds from investors asking us if this technical market is over. it is not in our view. this is just a white knuckle moment in a multiyear bull run for tech stocks that needs handholding." dan ives of wedbush joins us from japan. let's talk about this. why do you think this is a buying opportunity and what would convince you to change your mind? dan: this is the biggest task we have had. what i would need to see to be u.s. bullish fundamental breakdowns. we did not see it from earnings, we are not seeing it in terms of what the demand outlook looks like over the next six or nine or 12 months. as long as that stays, that is why i believe it is a buying opportunity for the high-quality large-cap themes that we like to buy in these types of periods.

jonathan: you are in asia. i want to know who is buying the stock in what they have been leverage to? how much of the tech trade is leveraged what has been developing in dollar-yen? how much do those things have in common as they unwind before our eyes this morning? dan: i think there's a lot in common, we are seeing it online. here in tokyo, a lot of nerves we are seeing in this market. we will see the ripple effect. in terms of what that means for tech stocks going forward, my view is fundamentally this is a once in a 40 year cycle in terms of where we see this iai revolution playing out. the stocks are going to get crushed. when i look at names like microsoft, names like oracle come in a video, palo alto --

nvidia, palo alto. in 24 years covering tech, these types of panic period, they handholding has proven to be the right course for those types of names. dani: the lead in today and see what some have categorized as a sentiment shift, that the bar has changed for these ai names, you cannot just promise you will see monetization. you need to deliver. that sentiment change has been highlighted by elliott management, saying they do not believe in the hype of ai, that will not be successful. i know you believe in the fundamental story but if the sentiment has changed how challenging does that make it to be able and hold on through this bumpy period? dan: i would say the conversations over the weekend and today is a lot more nerve-racking than it was even two weeks ago.

going through that period, it is not just talk the talk, it is walk the walk. show me the results and the numbers. those that did, would say microsoft second have growth, apple. now this is going to be a moment for tech the next six to nine months to show those results because in this type of market, this type of risk off, investors will head for the elevators with any sort of sniff of bad news. dani: they'll make a lot of people uncomfortable that they wait to hear until the 28th of this month from nvidia. what is the bar for them? dan: i think the bar has gone down over the last few weeks. what i see here in asia, demand has not been the issue. as long as enterprises continue to lineup for ai, we saw issues

in amd they are starting to gain more share than this story will stay well intact. just like we saw on microsoft going to these numbers, going into this nvidia print, this will be one of the most watched prints in a decade relative to the nervousness we are seeing in between these fed meetings. jonathan: i noticed the beige, i was looking for black. i have a suit ready for you in new york. dan ives of wedbush, bit more somber in tokyo, japan. a bit of a difference in the conversation you are having in the conversation he is having. he is talking about earnings, you are talking about multiples. dani: there's a big difference. that is part of the reason you can say the fundamentals are great. you can still sell the thing because people have been trading more on a vibe than a tangible thing these companies are delivering. if the sentiment has changed and

we are not willing to wait for companies it is harder to say i am willing to buy these things on crazy high valuations. jonathan: negative on the s&p by 4.5%. the opening bell about one hour away. we will catch up with andrew hollenhorst making some headlines. and to publish a call for a call for 50 basis point reduction in september. stephen stanley taken the other side. that conversation is up next. ♪

jonathan: keep saying take a breath but nobody seems to be taking a breath. this selloff continues. a snapshot of where equity futures are. down 4.5% on the s&p. down almost 6% on the nasdaq. on the russell down 5.5%. a number of hours ago people in europe were thinking about the u.s. coming in and buying this. it is not happening. dani: it is certainly getting sold. the volatility story is getting worse. the vix and 15 minutes went from 50 to 60. this is the kind of trade when you picked up pennies in front of the steamroller. jonathan: they vicious unwind of big trades, including in japan. i want to look at the two-year and the 10 year.

the difference between the two was -50 basis points at the end of june. now a single basis point. down 10 basis points on 10 year, down 18 basis point on the two-year. we wake up monday morning buying even more of it. down aggressively. dani: we are and it is kind of the only thing this morning that works come the only thing you can find safety in common that is when you get to this thing is what my seeing is a signal to where the fed will go next or is it the only thing i can buy is bonds? i have to pilot to this trait if i want to see any stability in my portfolio. jonathan: a lot of calls for big moves from the federal reserve on september 18. a 50 basis point call from andrew hollenhorst. i want to turn to japan. the moves we have seen in japan, think about everything that has happened since 1987.

if you've been around the market you can go through all of these events for the last few years. we have just seen the biggest one-day mover since 1987. they'd shots and markets of last 30 or 40 years and here we are looking at this move. dani: so many people offsides. so many people so bullish this market. that is where you get a day where you have to start -- you have to talk about positions getting cleared out. you have to talk about margin calls. how much further can it go. perhaps this is some of the weak short-term hands getting cleared out but how many are structurally short the yen and it takes one month or two months to understand your losses? does that mean we've not seen the totality of the pain. jonathan: this relationship between the united states and japan is just one dynamic. it is interesting the japanese

will be blaming the knighted states for the move in the united states will be blaming the japanese. we have seen dan ives establish that link from wedbush. neil dutta writes in, "what is funny about all of these is u.s. yields led -- it is the u.s.. dani: if it is the u.s., how does it stop. if we see yields move lower that will do this feedback loop where you see appreciation in the yen. regardless of what side it is you still have a boj that height. use of a boj that wanted to see strengthening in the yen. jonathan: you get mary daly later today from the san francisco fed. the calendar for the fed speak and the data is quite light. the one you're looking for is

10:00 eastern time. then you have to go to thursday for jobless claims. under surveillance this morning, berkshire hathaway its taken apple by 50%. also paring back ownership of bank of america last month. a second quarter selling spree sending warren buffett's cash pile -- the right question to ask is how much of that is being deployed of last couple of days? dani: if you're looking to deploy some cash may today is the perfect day or maybe as a day where you want to log off and go to the beach and close your eyes and see what happens in a week because it could get worse. we have heard that from multiple people that you are not sure it is going to end. from warren buffett, hats off, the timing is impeccable. jonathan: there someone sitting on a trade right now coming back from the hamptons listening to this. a lot of taps on the shoulder and get back to work. dani: maybe half off the train -- maybe hop off the train and get on the train that goes back

to the hamptons and call in sick this week. jonathan: jan hatzius raising odds that 25% from 15% but adding the fed is plenty of room to cut. goldman sachs calling for 25 in september and making the point that to call the 50 you have to make until the next payrolls report. if we get another one like that it looks like they will change their call. dani: austan goolsbee saying we need to see more evidence of a labor market slowing down. the market is not acting that way. one month has been enough. does the fed speak need to change tone? jonathan: the disco year is now 20 basis points lower which is why out. 3.69 on the front end of the curve. the calls on the federal reserve have been wild as well. traders have been boosting the

odds for an emergency fed rate cut within one week. friday's disappointing payroll print continuing to rally treasuries on fears the fed is behind the curve. joining us is andrew hollenhorst and stephen stanley. andrew, you are out with a big call in friday, 50 basis points in september. goldman sticking with 25. why are they wrong? why is now the right time to make the call? why are you convinced with fridays data? andrew: we came out with a call in september -- that was just after the jobs report. the p think is not that the employment rate rose to 4.3%, it is we now have four consecutive months were the unemployment rate rises and accelerates. if the fed is trying to get a soft landing you have a lot of momentum upwards and the unemployment rate you need to stop. if you're trying to stop that slowing momentum that means raids should be down neutral,

below neutral. where is neutral? 50 basis points in september is just getting started. basecase they do not to the emergency cut but it is possible. jonathan: what would make it happen? andrew: are further selloff in risk assets. they cannot be just about the tech sector. it has to be credit spreads widening. those are the things that can get the fed to move early. dani: stephen, you are skeptical they could go 50. why? stephen: first of all, the key thing for the fed is inflation. i do not think we've gone over the hump on inflation. we have had four bad numbers, two good numbers. i did my forecast for cpi and i got .3% for core cpi. i don't think the fed will be coming dramatically in that environment. andrew is right about the unemployment rate but if look at

the totality of the labor market data is not signaling the unemployment rate is giving us an accurate signal of the labor market. dani: is the trend not concerning? does that not enough for the fed to step in? stephen: household survey is a very noisy set of data, a very small sample. if we were saying dramatic pickup in jobless claims, if the jolts data were supportive, if all of the other survey data we were supportive -- we were seeing was supportive of a dramatic weakening in the labor market i would be more convinced. as it is there is a lot of noise in that number. jonathan: i want to pick up on your point on inflation, it is important and is has hardly been talked about. we have the next print of august 14. peter tchir says if the fed does anything that looks or smells like they are ready to embrace the fed put.

their call between a rock and a hard place in terms of being aggressive. why do you disagree with that? andrew: there are medium concerns about inflation but in terms of the near term you have financial conditions tightening rapidly. if the fed does not push against that tightening in financial conditions you will actually end up slowing the u.s. economy by more. what they are dealing with now is risk management where there are some concerns about inflation. cutting rates this or a priced into the market. that will not cause equity markets to rally. they need to overdeliver to get equity prices to stop selling off. jonathan: months ago we had people at asking if we would hike again. how much of a clear site do we have now? andrew: i think the clearest

evidence is from the labor market. that has been our guiding light throughout the cycle. if you look at the jolts report the hiring rate has consistently been following, but long below pre-pandemic rates -- the hiring rate is lowest we've ever seen outside 2008. it is harder to get a job at a restaurant. jonathan: check out this move in the bond market. two year down 20 basis points, the 10 year down just 12. look at the difference between the two. there is a positive sloping difference. the difference between the two is now positive a single basis point. dani: there 70 people that have said when this happens this is a recession indicator. it is the uninversion that

indicates the recession. do want to take any indication from this at all? stephen: i would like to let the dust settle. to jonathan's point before, what we need is more data. we get the i seven on manufacturing today, consensus looks above 50. that would change the way they were thinking a little bit. jonathan: you think it would put this story to bed? one of the problems with this week is the calendar for the economic data is light. only two points to play with. is one strong ism services print sufficient to put this to bed or is the move this market will enjoy strengthen and praise weakness. andrew: it seems like an awfully strong panic mode this morning. we will see. jonathan: this is what everybody has to confront, how sensitive this market will be to incoming

data, strong data in week data alike. andrew: is a difficult moment for the fed. you have the market that started responding to the economy, now you will have the economy respond to the market. it raises the probability we are in a recession or we could bid be. dani: can we get an intermediate if this snowballs? andrew: i do not think this is enough for an intermediate cut but that could be something we put some probability on. dani: any probability of that for you? stephen: not unless the world absently falls apart. jonathan: you're not impressed by these calls. you think this is the panic that is over quickly. is that a fair characters asian? stephen: the fed will be easing soon, more likely than not september rather than november. once they start to go they will probably be going in a series of moves.

i do not see the need for a panic to rush. jonathan: with they still call this a midcycle adjustment or what they tell us they are on the path to normalizing? stephen: i think it is a path to normalization. whether that leads to accommodative or not remains to be seen. jonathan: how do you think they frame things? andrew: i agree with stephen that they will see this as the need to normalize policy rates. it might move to a need to move to accommodative. we have heard from jay powell, they think rates are restrictive and that is my broader point. why would you be restrictive when the equity market is selling off and the unemployment rate is rising so they will be working to move rates down to 3%. dani: if we want to live with the scenario that the fed should do the least damage, is hiking aggressively before december not them doing damage and saying we are worried about something? andrew: that is exactly what

they need to negotiate. you heard that tension with chicago fed president austin goolsby not wanting to sound like they are of responding and not wanting to spook the market further. the sentiment is shifting and they had to respond to that. dani: that is why i wonder why there cannot be something bigger. we get conditions tightening more than they should which gets a bigger reaction from the fed. stephen: this is been one of the problems for the fed's financial conditions have been easy. they raise rates and talk about how policy is restrictive. if you look at broader financial conditions they have all been very easy until the last few days. now we have to weigh deterioration and risk assets versus the big rally we are seeing an interest rates. they are certainly cognizant of that. the underpinnings of the economy are solid and the one problem

this economy has is fed policy is supertight that is something that is very easy to fix. we will see whether that comes fast or slow. jonathan: chairman powell agreed with you. do think if they have the information to hand on wednesday we would've seen a different decision? andrew: i think we would've seen a cut on wednesday if they knew this was going to be the jobs report. jonathan: andrew hollenhorst of citigroup and stephen stanley of santander. what a you an update on price action. i want to start in the bond market, not equities. bonds here, yields are lower 20 basis points. we have a two year before the 10 year for the first time since the summer of 2022. as we talk about bonds, equities are near low, down nearly 4% on the s&p.

if you thought that was over on friday you're waking up this morning scratching your head and you have a big headache. dani: during the asian trade people were waiting for europe to come online and then the u.s. to come online. instead you've got a 12% drop in japanese equities, the biggest since 1987. we are grappling with the side effects of that, how may trade stacked on top of each other, how many trades were. it just keeps leading through. jonathan: the fed is not ready to step in based on the officials we've heard from. we heard from austin goolsby. mike mckee sat down with austin goolsby. he said give me more data. there is none of the tannic and their voices compared to the panic we are seeing in the bond market. dani: you have a market pricing

in an emergency cut. there needs to be an emergency for emergency cut. what is the emergency this morning? equity selling 5%? it needs to be bigger. jonathan: let's get you in on stories elsewhere. yahaira: oil is following equities lower, extending its losses to a new seven-month low. west texas intermediate is trading around $72 a barrel while brent futures are trading below $76 a barrel, erasing this year's gains. this is the market braces for possible attack from iran and regional militias against israel in retaliation for assassins of half the sand last week -- we are also see cryptocurrencies getting crushed. bitcoin dipped below 50,000. we saw a 13.1% drop since last week. meanwhile, spot -- scott bitcoin suffered their largest outflows.

candy giant mars is considering buying a snack maker and what could've been the biggest deals in the consumer industry this year. kellonova spun off from kellogg's last year as part of a restructuring. the deal would link those brands with more staples like skittles, m&ms, and snickers. jonathan up next, we will set you up for the week ahead and the day head as well. that is up next. you are watching bloomberg tv. ♪

jonathan: the opening bell is

about 40 minutes away. on the s&p 500 down more than 4%. not a typo. does not need correcting. that is where the market is. in the bond market yields are lower 11 basis points to 3.69. on a two-year 3.67. unbelievable price action. we start with 10:00. the isom services data, one of the biggest data points of the weekend. how vulnerable is this market or will it just be reinforced by weaker data all over again? fed speak picking up in san francisco fed president mary daly. thursday results from wrote -- from uber and rivian. thursday, another round of jobless claims plus more fed speak from richland fed

president tom barkan. mike joins us from more. we are light on data and fed speak but let's talk about the data we do have. ism services at 10:00 eastern. given where the market has been, how important is that data point? michael: it will be important psychologically. if we got a bad number -- the first contraction in month. if we get another contraction people will be opening up the windows and hoping to drive out -- the idea that the labor market is falling apart. and you have to wait for jobless claims. that will be the only other number that will matter this week. they could fall. if they fall, that everyone jumping out their we reaching

for a parachute. jonathan: andrew hollenhorst is looking at 50 in september. mike for early of j.p. morgan for 50 in september. i am sure there is another part of this that is bugging you come intermediate calls. you have been around the federal reserve for a long time. when you see those things in markets what is your reaction? michael: the fed does not cut rates because stocks fall. the fed does emergency moves when the stock market ceases to function or the bond market ceases to function, when people cannot make trades. right now there is no sign of that. they do not have to worry about the fact that you are losing money because you got out over your skis. dani put it well that the fed would cut rates in an emergency but what is the emergency? one and a half days of bad equity performance? there is a lot of signs things could get better from this in

the sense that your balance of the wealth effect but you also have gasoline prices falling, you have mortgage rates falling, you have stimulus in the markets already from the reaction to all of this. they do not want to get back into the business of the emergency cuts in going to zero in the fed put. dani: he spoke to austin goolsby on friday -- you spoke to austin goolsby on friday. is or any chance a market of reaction could change the calm tone from the fed? michael: it would have to be sustained in really deep and really threaten a wealth effect issue or threatened corporate confidence so companies want to start laying off people. recessions are psychological events and we have not seen that from anybody but the equity investors at the moment. if it spreads to a broader economy the fed might want to do something like that.

they will wait and see. in january we were pricing in six rate cuts. now we are pricing in six rate cuts again. the fed has not changed its view for the year. jonathan: markets change a lot. michael: markets change all the time. jonathan: dani asked a question, think it is the right question. we were surprised on friday to see this is not about the hurricane. how whether impacted this labor market or how it did not? michael: somehow the whether impacted the labor market, whether it was the hurricane or not we do not know. there were over 400,000 people who cannot go to work because of the weather, and if you add that back in would make the numbers different. a lot of people working part-time because of the weather. the bls says it was not about the hurricane. we do not have any data that would argue.

we have the texas unemployment figures and we will see if they bear that out. at this point there's a chance we could see a snapback in the august numbers when we get them in september, which is another reason the fed does not want to panic. remember, the error band for jobs is 130,000. this could be -- july could have been a negative number or could have been over 200,000. jonathan: we will see where we are this time tomorrow morning. tomorrow morning feels like a long way away. 10:00 eastern time as the next stop for the market, ism services. the big data point about one hour away. tomorrow katie kaminski, jim caron, tim sits oris, and christina company. this was bloomberg surveillance. ♪

♪♪ ♪♪ relax into a caribbean state of mind. visit sandals.com or call 1-800-sandals.

matt: we have seen the biggest drop in futures since the covid pandemic begin. katie: bloomberg open interest starts right now. ♪ sonali: a manic monday for markets. the global selloff is intensifying with the nasdaq 100 and said for its biggest opening drop and than four years. matt: japanese stocks at their worst day since 1987 with the topics and the nikkei entering the bear markets while the yen searches on the unwinding of carry trade's. katie: goldman economists raise their odds for u.s. recession in t