>> this quick turn from markets is fine and we still have growth, oh my god, the world is coming to an end, it has made the markets come down. >> this is much more about market positioning and economic data. we >> need to calm down >> a bit. this is very natural for markets. >> this will turn out to be more of a technical admiration. >> our number one highest conviction trade for 2024 was volatility. we are seeing it. announcer: this is "bloomberg surveillance" with jonathan ferro, lisa abramowicz and annmarie hordern. jonathan: welcome to tuesday. good morning. "bloomberg surveillance" starts right now. it could've been a whole not worse.

equity futures bouncing back by 0.4% on the s&p. on the nasdaq up by 0.4% also. it is goodbye margin call monday and hello turn around tuesday. the nasdaq 100 yesterday at the open was down 5.5% before going into the close. but the turn around in the bond market is absolutely staggering. on the two-year, 3.95 right now. yesterday morning at 8:30, 364.98, down 20 basis points. then we have this firmer than expected ism. this is what we closed. we enter that move this morning of three basis points at 3.95. the data was better than expected. we have some fed speak to your there was a real absent of fear with michael mckee and mary daly yesterday afternoon. we have a solid labor market. that is the take away from the

federal reserve. annmarie: we are slowing but we are not falling off of a cliff. mary daly yesterday, potentially the fed will go before september. not going to happen. we have confirmed that the labor market is slowing. they have confirmed it. it's important that we not let it slow so much that it tips into a downturn. she is setting the market up for september but she is not saying that the labor market has massive cracks and we should see the exuberance we saw the market. it is slowing but not falling off a cliff. jonathan: i started the program yesterday by saying let's take a giant step back. let's do that again. let's frame some of the moves we have seen. deutsche bank, "what a once-in-a-lifetime gse period could not do in 2024 with one bad by the related payrolls print for fuel giving us some ease period of time yesterday."

what would have happened if we had a negative payroll print? jim read of deutsche bank. everything that has happened since 1997, the bust of the.com boom, all of that. the pandemic that lasted about two years. what happened yesterday was phenomenal. dani: it is interesting to hear the language today. the boj made a huge mistake and that is what set off this cascading effect. i find that disingenuous. it was this perfect storm. the boj hikes. we had recession fears. everything came together. if anything it showed us when the economy is slowing, it does not take much for a rally to unwind. jonathan: we are more positive here compared to yesterday by half of 1% approaching one point

-- 145. a move of more than 10%. we will get to the size and scope later in the program. let's talk about this carry trade. i have had so may people talk about the carry trade. i got so many message on the bloomberg tyranny from people -- the bloomberg terminal on some people from the buy side. who was in the carry trade? what is going on here? how many people are in this? we had this from jp morgan overnight. the carry trade unwind within a speculative investing community is somewhere between 50% to 60% complete. is this becoming an excuse, a good excuse, a reason? what is this? dani: i think it is people grasping at straws. who knows the size of this thing? i have not heard any calculations as to how people are coming up with these numbers. you can talk about this backlit of end. you can look at futures. this thing is potentially bigger. it could potentially be people

holding longer-term contracts. this underlines the point. we don't know and a lot of people are unsure. there were people on friday who said that all the shorts were washout. then you get yesterday. i don't know. everything is saying something different. there is no clear answer. jonathan: futures fade a little bit. the s&p positive by 0.4%. coming up, we have plenty of questions and we will try to get some answers. erik nielsen of wells fargo and terry haines of pangaea policy as the world waits for harris's vp pick. global equities bouncing back. peter writing the following, "i don't see sounds of a bottom yet. while we are likely to get some tradable bounces, do not get too cute trying to buy this step."

let's talk carry trade. what do you make of that. is it a reason or a convenient can skews -- convenient excuse? peter: i don't know what currency they borrowed in but i since there are a lot of leveraged positions. people were fairly aggressive in the risk positioning. look at all of the selling strategies. they have done well. people have been piling into that. all those things are signs of froth, leverage. people are forgetting when things go up, it is my view it was not anything to do with technicals. on the way down, it is all technicals. the reason why we got to where we are with technicals and those are unwinding with a multitude of factors. the carry trade is part of that. it is leverage and option selling and people are overestimating where we are in ai. jonathan: we have had a lot of shocks and scares over the last decade.

2015 august, i think it was the chinese devaluation. we remember the december when the high-yield market completely froze up here in the united states. we can go back as recently as he asked year. we move on quickly. what is a good parallel for this moment we have been in over the last week? peter: since you mentioned 2015 there was a time there were high yields and getting destroyed every day. they launched a high-yield etf without energy. we need something that takes away the froth. when we looked at where it was really doing well, you kept having inflows until it got hammered. i have been watching this nvidia leveraged etf. i don't know why it continues to get inflows but it is. i look at that. i look at triple level qqqs. these are not the biggest etf's. i have not seen the risking. some people have had to take some leverage off but i have not

seen anything worth panic. all we have been talking about his do not panic, do not sell but maybe you should be selling because i think we will break through the moving average and that could create a vacuum. annmarie: i want to talk about after the knife hits the floor. if momentum turns and we get the sentiment that the rally was because of fundamentals and not mechanics, does that disappear and we don't get the same type of rally we have been used to? peter: i think it cells off. you mentioned momentum. momentum was the best factor all year. momentum starts to work very well. where we will really get exposed is the passive momentum strategy. every dollar that went to a qqq or an s&p fund, $.50 of that was going to just a handful of stocks. as those start rolling over and people want to take money out of the market, they will be taking out of the same 50 -- the same few stocks. that will propel this much lower. it will be scary.

if the stock just gets down 10%, i buy here. what people really mean is if the stock goes down for no good reason and i have plenty of cash, i will buy there. that is never what happens and that's why i think there is more downside. dani: if there is more downside, you saw what happens when correlation goes to one. basically everything felt. there was a flavor of the bond proxies doing ok. should this be a playbook for what happens in moments of volatility. peter: yesterday, like china at the start of the year, i have been selling. chinese stocks have not done that badly. they did reasonably well. on the bloomberg terranova, you have chinese brands making big roads -- on the bloomberg terminal, you have chinese brands making big inroads. i think it was down half of percent when the s&p was down 4.5%. energy was down so we will start adding to that. they are is a real risk of

geopolitical events going on across the globe. everywhere we look when we analyze, we have a team of generals and admirals who are retired. it points to oil supply shocks. abigail: when you look at buying into china, does that mean you think we are at the end of u.s. exceptionalism? peter: yes. it is already becoming that. some of these brands are creeping up. we have been talking about this but this transition where made in china where they made our brands and made by china where they have our brands. they have trade deficits to a lot of these countries because they have been importing the raw materials. china ink will be very aggressive. look to europe. that will be the weak link in the west. their economies are slightly more dependent on china and slightly weaker. you had a great interview yesterday with the solano ceo

and they were talking about pressure. china will start using that. you look at who is selling phones within china. . the chinese brands are doing better. they will start exploring that. . it will be this value proposition that may be the quality is not quite to our brands but the prices will be a fraction of that. for a lot of people across the world, that will be the determining factory. jonathan: can you develop an fx rate based on that? peter: not really. i would not trade the one. i would stick mower to the fxi and keep it on the equity side. jonathan: we have seen some real dollar weakness. i got just moments ago. what if the fed delivers on the rate cuts that the market is asking for? that will have big consequences for the fx market. for the broader economy and equities as well. this is where socked in has to say in response, if the fed were to deliver on what the rates market is asking for, the cyclical data such as the ism would rise into bund territory. what do you make of that, if

this market got what he wanted, where with the economy be? peter: we would see inflation right away because people would see the fed has the fed put. we are all there. you would see inflationary pressures. i think we would roll over. maybe stocks have to do well but it would be capitulation by the fed. there is no reason given how they analyze the data to give the market what it wants. we have to see more data. it would have to be such bad data. i think we will get weaker data. i think they are doing a lot of mezcal collections on some of these. then you get the data but we will need it because the economy is rolling over. jonathan: i have to ask the question. they are looking over the edge and they see this horrible shark that has written on it bad labor market. are we underpricing risk of inflation picking up in this country? peter: if the fed reacts i think

we will get inflation again. if not, it is looking quite deflationary. i have no idea why we use a we are. we can find a better calculation? anything that is contemporaneous about rent, it is coming down and we are basing policy off of that. auto insurance, i had some good discussions with people. that has been one of the big drivers of cpi was auto insurance. you start looking at everything else coming down. the auto index is one of my favorite. it is well off of its highs. we have this chance to get deflationary. it has been very simple. we had two bumps. we had a covid pump where goods were very expensive. they had all of this money. services took longer to play out because each state had different rules and individuals had different preferences. that bump played out and now that is starting to roll over. look at what you are hearing from the airlines and hotels. i think we are on a deflationary

period. people are tapped out of their money. jobs are starting to become hard. no one is quitting anymore. we are really at the cusp of real economic relief -- real economic weakness. jonathan: i imagine you want the price of one thing and that is dollar-yen. 134.63. we are positive on the session by 0.3% but that move is fading. we will keep an eye on that. stories elsewhere with your bloomberg brief. >> a u.s. federal judge has ruled that google illegally monopolized the search market with exclusive deals to make its search engine the default browser on devices. the ruling hands victory in the first major antitrust case against the tech giant in more than two decades. attorney general garland calls it a historic win for the american people while google plans to appeal. vice president kamala harris has

clenched the democratic nomination for president. the virtual rollcall vote wrapped up last night and the democratic national committee says the vice president won 99% of the delegates votes. now the question is who will join her on the ticket. she will announce her running mate today before kicking off a campaigning tour of seven battleground states starting in philadelphia this afternoon. she will formally accept the nomination later this month at the democratic national convention. at least one person is hoping for a vice president tim walz. jeremy growing league walt harris walls for $.89 in 2020 when harris sought the democratic nomination. he told the associated press he is willing to sell it and one dozen other harris websites for $15,000. this is not new for the new york trademark lawyer. in 2011 five years before hillary clinton selected tim kaine to be her running mate in the president to race, he purchased clinton-kaine.com.

jonathan: thank you. we will see her in a few minutes time. dani: if it is governor walz, why is it only going for $15,000? he can get a lot more for that. jonathan: you heard it here. up next, unwinding the yen carry trade. >> off of position metrics, we think that the carry trade unwind continues to whether the investing communities between 50% to 60% complete so we are not dumb by any stretch. jonathan: more on the latest from japan. good morning.

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city, let's do this all over again. welcome to the program. just a little bit of a bounce. we are up 0.5% on the s&p. bond yields pushing higher by five basis points. up much higher than this time yesterday morning. the two-year is up to 3.95. a slightly weaker japanese yen. 144.68 on that currency pair. unwinding the yen carry trade. >> we think the carry trade unwind is somewhere between 50% to 60% complete. we are not done by any stretch. so many technical studies suggest that once you get very large chart moves in short weeks of time, the technical damage that it inflicts on portfolios is not easily undone. jonathan: here is the latest.

the yen has taken a breather following the biggest rally since 2008. "the dollar-yen move has been quite extreme and probably done for now. looking ahead we see reasons why dollar-yen should continue to follow on trend after a short term retracement." looking forward to spending time with you this morning. i want to get to those comments from this morning that we think the carry trade unwind is between 50% to 60% complete. where are these numbers coming from? there is a lot of interest in this from people outside of this world. how big is this trade and how do we know how much of that has unwound? eric: there are lots of different metrics. the number we like to look at is the cftc and futures data. it is probably the most widely available. if you look at asset managers in aggregate positions, though some fallen 50% so consistent with

what we have heard. there are two ways to look at this. there is looking at it in a vacuum and saying if this goes to zero, you have another 50%. a better way of looking at it is are we actually going to see a real level change and recession concerns. all the talk about growth concerns, i have talked to a few investors with genuine recession fears. forecast have been marked off from the global economy working at consensus forecast for the last three or four months straight. if you have a genuine recession fear, if you start to see that in growth forecast's, that is when you can unlock the next leg of dollar-yen downside. i don't think we are there yet. jonathan: we spent time talking about the federal in this. let's spark that craziness for a moment. i want to talk about the boj. it was uncomfortable with dollar-yen on the way up. how comfortable is it with the way it is moving down? eric: i suspect they think it is moving too fast.

they have to expect this move would happen though. with these carry trade's, we know it is up the stairs and down the elevator. it is obviously disruptive for them. they want to see stability. the boj hike has probably exacerbated the move. i don't think they are worried about or feeling the need to step in here and react to this move with actual policy action. i don't think it will change the way they think about policy normalization going forward. they probably think it will stabilize. dani: you said it exacerbated the move. there has been a lot of commentary that it is the root cause of the rapid depreciation of the yen, that they made a policy error in hiking and the economy could not handle it. what do you make of that conversation? eric: it is hard to say it is the root cause. we have moved seven or 8% before the boj hike. a lot of the move happened prior

to the boj hike. it did exacerbate it in the sense that we had this kind of cross market correlation. everyone was in the same trades. that is really what characterizes this market as best as it can be. the extent we have seen the unwind in long japanese equity positions, the unwind in dollar-yen, may the boj hike has exacerbated that move. i would not agree with that characterization. dani: the unwind happens. what, if anything, could take the place of the yen as a carry trade? who's to say people do not carry back -- piled back into this thing given that yield differentials are still pretty high with the move? eric: part of the question or concern here is is this to an environment you want to be putting on carry trade over the next few months.

we had a level shift in the volatility environment across markets. growth, there was a lot of complacency around growth. that may start to change in the next few months. i don't know that this is the environment where you will see people rush back into carry trades. people are looking to take off carry. that probably limits the upside in dollar-yen unless we have a consistent seven months in a row a very strong u.s. and global data where it is evident that recession fears are unfounded. that may be tricky to see. jonathan: i have to ask you, do you have a favorite trade right now? eric: i am a little bit skeptical that we will continue to see this dollar weakness. looking at euro-dollar at 1.10. rate differentials have moved in favor of the dollar.

i think it is weakness of dollar-yen unwind. looking at buying the dollar, swedish krona is one of them. if we see that repricing in growth, that should weigh on these other non-dollar currencies. jonathan: thank you sir. erik nielsen. the euro against the dollar at 109.09. all this talk of a weak dollar and an aggressive federal reserve, "we don't think we getting could be real noise. the fed would need less than 100 k in august payrolls to consider a 50 basis point cut." mike farely is already there. he will join us later. dani: given history it is probably fair given the revised print in april was 108,000. we did freak out then and said

the fed will do an emergency cut but this time we are. jonathan: the federal serve -- the reserve decision, i know that is around the corner but it feels like a lifetime away. coming up, waiting on harris's vp pick. we will catch up with terry haines of pangaea policy. this is bloomberg. where ya headed? susan: where am i headed? am i just gonna take what the markets gives me? no. i can do some research.

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jonathan: live from new york city, welcome back. let's get to the futures. equity futures positive by 0.6%. on the nasdaq, up by 0.7%. on friday the nasdaq entering correction territory. the s&p 500 fell short in yesterday's session but still posting the biggest one-day drop in on most two years. to turn around equity market is small. in the bond market in the last 24 hours, nothing but small -- anything but small. it has been large. we are going through it together. 364.98. down almost 23 basis points. 19 minutes later, ism services coming in better than expected. business activity, expansion, the employment component, all good. certainly in sharp contrast to what we had last week. dani: we also got slows data which was also strong.

we getting credit conditions. tightening standards. when you ask about what demons were exercised in yesterday's trade, the recession 30 was helped by the data. the ai one, maybe not as bad as we thought. maybe the carry one has a little bit ago. it seems to be the answer. jonathan: let's talk about the carry piece. the first thing people are looking for, some wake up. this is basically everyone. dollar-yen looks like this. 144.97. a lot of people are waking up turning to this one just to gauge where things are in japan. dani: when does a 10% equity rally and a half percent rally in the dollar versus the yen disappoint? it disappoints when the action was so big yesterday. we are turning around but so many people were struck by the speed at which the collapse happened which has people rubbing their eyes saying should

i actually believe the turnarounds we are seeing? should i actually believe this went potentially the fundamentals could re-up this trade? if we get anymore more whiffs that japan is willing to hike more. jonathan: the nikkei had its worst day since 1997 monday. tuesday, the best day since 1998. dani: i know it was not as bad in the u.s. but you still have seen the big ai names whip around like that with so many people who love japanese stocks, with so many people who love usa i stocks. can you really have as high condition -- conviction? jonathan: they should love it anymore -- even more. global equities bouncing back in japan, the worst day on the neck a since 1987 followed up with the best day since 2008. futures rising just a little bit. if you are looking for data, i

have bad news. you will have to wait. we have a trade balance. you have to wait for jobless claims on thursday. 8:30 eastern is the next stop for this labor market. dani: it is a scary one given what this market has done. i cannot imagine anyone going into thursday saying i'm going to buy everything. i am curious to know what the price action looks like going into it. monday really showed us when the economy is slowing, it does not take a lot for a wily -- a rally to unwind itself. it does not take a lot for rally to get going. we are on the other side of that coin right now. jonathan: ignited by the daily, and the fight by the carry trade. as for the data, i will embrace good data as much as we seem to run away from bad data. we will find out on thursday. claims around 250. let's hope they come back in. if they don't, they get higher. do we get back into the recession most likely we saw on friday. dani: in the morning of

yesterday, this market is so offsides. we have rallied so much in the bond market. surely the bar is really high for a disappointing job summer for the rally to continue. gave that up yesterday in a stunning reversal. maybe the buying of bonds of much lower front wheel could still have more juice just by the very fact that it undid itself yesterday. jonathan: light on data and fed speak as well. we have heard from the san francisco fed president mary. this is what she has to say. the labor market is showing softening and the central bank could cut rates. how much they will have to cut depends on the incoming information. my take away was her assessment of the labor market. he used the word softening -- she used the word softening. sitting down with michael mckee on friday, we never want to overreact for anyone months numbers. this market has overreacted. people are talking about these cuts. i am not sure what the conversation was worth.

ultimately the federal reserve is not overreacting based on what we have heard so far. annmarie: also we heard from mary daly and she talked about the fact that companies are slowing hiring. we have not seen massive rounds of people being laid off. she said slowing but not falling off a cliff. when you look at the markets yesterday it felt like we were falling off a cliff. that is not the view right now from the fed. dani: one of the interesting things she also said that was not given a lot of attention but will disappoint the doves is employment and inflation are equal risks right now. there are a lot of people who say the inflation part is done. disinflation is coming into the window and it is employment you need to worry about. mary daly is not saying that. a lot of people are going to be disappointed by the fed's actions. jonathan: you said the doves will be disappointed. mary daly is not a dove. if that is where they are on the committee,. i wonder where the hawks are.

. look out for more fed speak later in the week. kamala harris officially clinching the democratic nomination to run for president. attention turning to the vice president's running mate. she will announce the pick later today. it is down to two. josh shapiro and tim walz. terry haines joins us for more. governor shapiro, governor walz. what goes behind the decision to choose one over the other? terry: basically what it is is a difference between a transformational campaign versus small. the reason i say that is harris is identified with the progressive wing of the party. it is one of the reasons why she was chosen with biden in 2020. what she needs is a governors from a swing state that appeals to much more centrist folders -- centrist voters.

governor shapiro. if governor walz is picked, what that will show you is she is trying to shore up her own party and her own base. that seems to be the small ball picked me. then it goes to trump and j.d. vance. dani: how much do you think the vice president is going to be moved by what is going on in the progressive wing of her party? do you think she is feeling the pressure? we had yesterday bernie sanders, call -- on a call. terry: people who are not in the middle of the pick tend to think what they need to do is be as loud as possible and that will affect the pick. at the same time what we really have to find out if the vice president herself is a really good politician because really good politicians say what do i do to win.

weak politicians say how do i shore up the base of my support. i think that is what you see in the shapiro versus walz pick. i think the bernie sanders of the world have less influence than they think. then they want to take it out on harris in other ways if they end up with shapiro. annmarie: when you look at the policy of these two men, can you get a sense of what they bring tomorrow voters in swing states who are not sure of who they will vote for? terry: walz is a darling of the progressive side. he has been touted by the progressive side of the party for the last couple of weeks. shapiro has a demonstrated track record of winning in pennsylvania, not only a really purple state when it comes to politics, but it is a state that is widely thought to be the

tipping point state in this particular election, that is the state that has the most impact and most ability to move the election in vice president harris's direction. for that reason what you will see here is a harris that is interested in winning and doing what she needs to do to bring the biggest appeal to centrist that shapiro is already appealed to or you will see a move to the progressive side. annmarie: at the end of the day, polling shows she has tightened the race. do you think it really matters who she picks as vp? terry: i think it matters hugely in two ways. i will insert the transformational point that i just made. it shows you that she is serious and she is emma hunt to win if she picks shapiro -- she is serious and she is in to win if she picks shapiro.

number two, shapiro could help in a crucial swing state. number two, vice president can have huge negative impact on a ticket and how a ticket is perceived. we will all remember sarah palin who very quickly became a figure of fun and an anchor wing down the mccain campaign. dani: forgive me for being blunt but i feel like we are dancing around it with this idea that the progressive might not like shapiro. is there plain and simple anti-semitism in this party that makes josh shapiro an unlikely picture vice president? terry: i will welcome the direct question. there is not a lot of anti-semitism in the democratic party. you see some in specific parts of the democratic party. there is a large community of some mullions in minnesota for example -- somalians in

minnesota for example. here are some progressives who want a much more balanced view between israel and palestine in their own party. and more on some levels. i don't think the rank and file and the vast majority of democratic leaders are anti-semitic. they are trying to balance their ticket. frankly that is why shapiro makes more sense in a transformational campaign way than walz. he actually balances the ticket. dani: can we just say that the math of pennsylvania needs to be -- means that he needs to be the choice? terry: yes. it is a tipping point state, number one. it is considered the most

important state for whoever wins the election. the other reason is that frankly anywhere outside of philadelphia in pennsylvania, what you will have is you will have a very red republican pro-trump voting block. you have to bring as much turnout in blue philadelphia and greater suburbs as possible in order to balance out the rest of the state. shapiro brings that. it is another reason i would look for him. jonathan: i have to take it back to basics with a simple question. what does kamala harris stand for? you talked about her short time in the senate. we can gauge something from that. her short primary run. we can gauge something from that. i have absolutely no idea. we have had two weeks since witnessing one of the most historic things we have seen in an election in this country for quite a while with a sitting president dropping out of the race and we have not heard the

vice president answer a single question apart from a brief moment on the tarmac following the hostas exchange. when will we start to hear her policy preferences? terry: you will start to hear them at the convention. secondly, it is an advantage on a politician to be a shape shifter in some sense. she has certainly proven the ability to be that. i say that with no disrespect. she has weaved through a lot of different policy positions in a short time on the national stage. she has also had to be a loyal soldier to biden. she has shown no compunction about jettisoning more extreme positions and adopting more centrist positions in order to win. a perfect example of that since we are talking about

pennsylvania is the fracking ban which she was unapologetically for four years ago. i expect more jettisoning and repositioning to happen. jonathan: looking forward to it. terry haines of policy. he nailed it. liberal, shape shifter. she is everything the different parties of the party want her to be. maybe right now that is to her advantage. how much longer that can last, i don't know. before we dig deeper into the polls, we don't know what their platform actually is until we get to labor day and beyond. dani: i love what libby can truax said last week which was basically stay at the beach, have a cocktail. you don't need to know how to position yourself until after labor day. maybe we will get more insight into her policies. she is going on a huge blitz this week. wisconsin, nevada, georgia, north carolina, michigan. a lot of this will be to ramp up

support and get more dollars. i love that terry haines ended on fracking. she wanted to ban fracking. you have to win pennsylvania. jonathan: there is a speech in philadelphia later. dani: yes, with her vp pick. jonathan: it will not be a position we will hear much about. equity futures positive by 0.75%. let's get your bloomberg brief. yahaira: antony blinken says officials are engaged in intense diplomacy to avoid a wider war in the middle east. the u.s. and allies are working to head off the potential of an attack on israel, urging parties to refrain from escalation. to iran has warned it will respond after blaming israel for killing a top hamas leader last month in the iranian capital. elon musk's x is formally

closing its san francisco office. workers will be relocated to an existing office in san jose and palo alto. the move marks the end of x's history in the city where twitter was founded on most 20 years ago. tropical storm debby threatens days of rain along the east coast after slamming into florida as a hurricane leaving more than 300,000 without power in florida and georgia according to poweroutage.us. the governors of those states have declared emergencies and president biden has approved federal help. jonathan: thank you. up next, the good news. bonds doing what they are meant to do. >> yields at the short end will stay higher, if not, pricing higher from here. short on the yield curve from investors are buffer against the selloff in equities. jonathan: that is next. you are watching bloomberg tv.

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jonathan: after eight days of rallying, yields are up by five basis points on the 10 year. 383.71. if you are looking for a bounce in dollar-yen, you have one. it is a small one. dollar-yen, 144.83. we care by half of a percent. in the equity market, not much compared to yesterday. around 0.9% on the s&p 500. good news, bonds are doing what bonds are meant to do. >> the market is pricing a greater risk of a recession and declining rates than we would expect and yields at the short

end will stay higher, if not, higher from here. short-term interest rates from investors against a selloff in equities. jonathan: treasury yields bouncing back from yesterday, following better-than-expected services data. "we are late cycle, rising unemployment and recession will follow and therefore a defensive portfolios makes the most sense." james joins us now from work. let's pick out a couple of your trades. long-duration and long on the japanese yen. let's think about the last few days. we have come a long way. are you sticking with those trades? james: good morning. absolutely. i agree that just on a short-term basement -- short-term basis that the market goes overboard with the speed we

have seen these things move. technicals look a bit stretched and some consolidation is likely. if i were a bear i would be looking at the bouncing yields and saying that is incredibly disappointing relative to the preceding rally. looking further into the future, i think there is a mismatch between the value versus the likely destination for interest rates. also that is without factoring in the potential for weakness in the equity market as earnings multiples and earnings themselves have to correct to a more normal level. jonathan: let's pick out a piece of that, the rates call. what is the likely destination for rates? what are we coming down to and why are we so mispriced with a two year already down to sub for percent? james: a lot of people are working with the idea that the fed would ease back to three or 3.5. i think traditionally speaking

over a long period of time, the fed likely cuts 500 basis points when dealing with the recession. if we go into a recession, this idea of conveniently mind recession, that is not to say we have a crisis but a normal recession, the fed will respond quite aggressively. we know the fed is hypersensitive to financial commissions -- financial conditions. it is reasonable to see rates coming down even compared where the market is pricing them currently. dani: the market did come to the idea that maybe it was not a recession just with the flip we had on bonds. what do you make out the fact that equities did not flip? that equities still sold off not huge but still some 3% yesterday? james: i was not surprised by the balance in ism which triggered the reversal. we saw this earlier in the year. a massive miss on weather and it

is quickly given back the next month. the guts of the report would be weaker than the headline. that would not surprise me. equities and the lack of any meaningful participation speaks to how overly owned and how expensive that market and those trades are. annmarie: how far do we have to go for equities to reflect what you call this bond market? james: i am a little dubious of the narrative strand that talks about the need for a permanently more expensive equity market. here is a reason such as looking at long-term average earnings multiples. you could still be talking about 25% equity downside just to get back to a sort of average earnings multiple for the u.s. equity index if indeed we see earnings forecast and ultimately earnings coming down and there is a potentially bigger downside there. that is what i would call a

normal recessionary environment. jonathan: the last few weeks away from this chaos you talked about how little you believe the politics are relative to this market going into november. is that still your belief? james: while you were talking about that i was just thinking, i have not thought about the election. ultimately this stuff does matter. i just think there is a lot of wood to chop before we get to the actual election let alone inauguration in january and the congressional timetables for passing legislation. a new president can do some stuff with executive order. we have seen increasingly in recent years those executive orders being used more liberally to circumvent fragmented congress. sort of tax and spend policies will have to go through congress. it will take time if congress is split. for me this cyclical dynamic of what we see play out a vote of us, growth, inflation, they will be much more relevant over the

next 1, 23 months. maybe we can start to think about what january 25 looks like as we get cold november. dani: when it comes to the white house the president has a lot of power. when will you start paying attention to potentially that part of the policy if you do think maybe it is going to be a trump presidency? james: that is right. you go back a couple of weeks when when you look at politics, we have seen this rivers. if you go all in on a trump won, you will find yourself having to backpedal because we have had a bait and switch with democratic candidates. the uncertainty for me is high but it is difficult to feel confident or comfortable positioning for those things when there are multiple other events that can move markets. if we get to the stage where it looks like trump is going to

win, you have to consider what the impact of tariffs is going to be. even that, it is an unclear effect on a lot of asset prices because they are other aspects of trump's policy prescription which seems rather in congress and inconsistent. jonathan: thanks for the update. sticking with the long end, long-duration trade talking about how great the cyclical risks are ahead of the election. the good news this morning, things are settling down. we are positive on the s&p 500. we will see if it sticks. the lineup looks like this. alpha simplex, rbc, that is up next. this is bloomberg. where ya headed? susan: where am i headed? am i just gonna take what the markets gives me? no. i can do some research. ya know, that's backed by j.p. morgan's leading strategists like us. when you want to invest with more confidence...

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>> if the fed does not push against that tightening in financial conditions you'll end up slowing the u.s. economy by more. >> once they start to go they will be going in a series of moves. i do not see the need for a panicked rush. >> calm is important in a moment like this. >> we were talking about two or three cuts. i would keep that. >> the fed has the ability to cut. we are a good place from a monetary policy perspective. >> this is "bloomberg surveillance" with jonathan ferro, lisa abramowicz, and annmarie hordern. jonathan: the second hour of "bloomberg surveillance" starts right now. good morning, good morning. a little bit better.

calmer, if that is the word of choice. let's see how it sticks. up .9% on the s&p 500. the nasdaq up almost 1%. in the bond market, the two year yield at one point lower at than 20 basis points and finished higher on the session as the ism services came in better than expected. if you want to read in japan, there is a read of things. after five days of aggressive yen strength, low bit of yen weakness. the turnaround we have seen in the japanese equity market from the worst day since 1987 to the best day since 2008. dani: the irony is the best day since 2008 does not make up for all of the losses we have seen. this is where you get disappointed it only a 10% rally. does this shake the people who love japanese stocks?

a lot of volatility behind it. annmarie: then we speak to peter tchir who says do not be cute. he thinks there is more unwinding and downturn in this market. jonathan: a big lineup this hour. we will catch up with katie kaminski as markets bounce back. we will speak to henrietta treyz amend neil dutta -- and neil dutta on the case of a 50 basis point cut. stocks rebounding after the s&p 500 were stay in two years. katie kaminski writing "long-term equity signals remain positive but the magnitude of the selloff base bond -- may spawn more selling as investors ponder if this is a correction or a sign of an impending recession." what a wild couple of days in these markets. you are a student of history. where does this rank for you, the last few days in this bond

market? katie: i would have to say it is one of the biggest moves, not the biggest. march last year was a bigger move for us. what is interesting to me is trend signals have pivoted to long bonds. perhaps the long reign of the short bond trade is over and you are seeing everyone is trying to lock in those rates before we have the fed moving in the other direction finally. it was definitely a historic moment. jonathan: we have been told repeatedly about reinvestment risk. people have gone on the program and said to people you need to lock in the yield that is available now. once the rate cuts, you will miss out on all of this. are you saying that what we started see as cash migrate from money market funds to lock in yield at the longer end of the curve? katie: definitely. as you are selling out of equities people are saying let's lock in the rates while we have the chance.

what is heart about bonds is they are very convex. when they move they can move quickly. it is not like you have a couple of days to watch that move. once there is a realization that something has to be done by the fed in the fall, people react. the market selling off causes people to react. you will see instead of smooth moves in bonds aggressive moves and that is what we've been seeing the last three days. dani: to that point, i wonder how we should think about data releases. if this is a market that is long you saw yesterday a scenario where something felt like it changed that the market needed good news to save it, not necessarily been surprised by the bad news but needing to constantly be saved. is that how we will treat every day to print? katie: i think we have to be careful, the truth is a lot of weaker economic data has been coming out over time. what shocked me is you saw a

reaction in june but this time you saw a strong reaction, a much stronger reaction than you've seen in the last couple months, which could indicate we have hit some sort of trigger point where the narrative from worrying about inflation has shifted to worrying about weakness and demand, worrying about economic slowdown, which is a very different narrative than we had earlier this year. annmarie: you just saw a note after -- dani: you just saw a note after note talking about the systematic nature of the selloff, whether in bonds or equities. morgan stanley saying trend followers have more to go. much value do you put in those signals to try to define where the market goes? katie: the truth is positioning always matters in the market. that is particular the case in the equity markets. we have very concentrated positioning, extended trends

that have been very strong. a lot of conviction in those positions. when the sentiment shifts, when the trends change, that causes a lot of turbulence. i think that is something you will have to watch as people try to determine has this narrative really shifted? annmarie: when it comes to the u.s. dollar, where does it go from here? why is it so unclear? katie: the u.s. dollar has been really hard. sentiment has been shifting, secondly growth and the strength of the dollar based on the u.s. economy is in play. you also have the issue that the dollar has been very tied to the hiking and easing policy. right now it feels like which of these three things is going to drive the dollar going forward? it is not clear at this point. annmarie: does that also mean it is unclear where the yen goes even though we have seen a massive unwinding of the carry

trade? katie: this is a good point because the yen has been the most successful trend for the last three years. it has been very consistent. right now it seems to have been a pivot in that this particular narrative that has worked very well for the last three years may be over. it means the carry trade has to readjust. it means all currencies relative to the yen have to readjust and people are still starting to figure out what does that mean going forward? will we continue to see this volatility? jonathan: we have heard a lot of excuses and reasons for the moves we have seen. growth scare, unwind of the carry trade. when you look across asset do you get confirmation of real growth scare in commodities? katie: yes we do. what makes me nervous is you see a pivot in positioning the way you see in past recessionary or selloff traits. you see long signals and fixed

incomes, you she sort -- you the short signals in commodities. both of these are seen when you see a selloff, risk off trade and they tend to be profitable trades when you go into a recessionary environment. that is something to watch. if other asset classes are warning ahead that could indicate this is not over yet. jonathan: you like momentum and the momentum seems to be behind a disinflationary bust. is that the right thing to get in mind and is gold and outlier with that in mind? katie: i think right now, given the direction of the signals we do see deflationary tendencies. shorter signals in commodities may indicate weaker demand. you see long positioning in bonds. at the same time it suggests a risks off trade. for me that is something that is a real risk, a deflationary event while inflation numbers are trickling down over time.

we need to think about deflation and what that could mean. dani: and all of the asset classes we've been talking about the one we have not hit is credit and credit has been we are. in past crises it has been credit that leads to selloff. that did not happen this time around. you did see a widening of the credit spreads. 53 basis points in two days. that is where we start to get the fears does this muck up financial systems? is it too certain -- is it too soon to have concerns about the credit market? katy: the challenge with credit is these things are in small waves. it will not hit every asset class in every asset at a time. what i would say as you start to see information coming out that we could potentially have a recessionary trade and conditions could be too tight. that does not meet it has percolated into the credit markets yet, but it is something to watch.

as we know in past crisis periods, we see there is a few indications of those prior to the event so it is something you want to be aware of. just because it was not hit this time as much that it is not susceptible to more systemic issues should we start to see a recession or a deflationary environment. jonathan: appreciate your input. katie kaminski on bonds, stocks, foreign exchange. dani picked up on high-yield. i want to talk about credit spreads. high-yield spreads at the back end of july, 297. on a historically basis that is incredibly tight. very little credit risk in the minds of investors buying this stuff. let's think about the widening we have seen. we have seen 80 to 90 basis points of credit spread widening. i get that the levels are still low. in terms of the rate of change, the pace and the size of the

move in a few weeks, that is more than notable. annmarie: correct. you could say it is not a point where companies are saying this is too high, the cost of capital is too high, but when you get this volatility you have what you had yesterday. every single company that planned to go to the market to issue bonds backed off. there was nothing yesterday. it does not need to be a cost of capital, it just needs to be volatile enough corporate's cannot get refinancing or the loans they wanted. jonathan: if that starts to turn into a week or a month, then you have a bit of an issue and that reminds me of 2018. we all remember december 2018 when the high-yield market seized up. there were no issues whatsoever in the junk bond market in the united states. if you get a month of that the federal reserve has a role to play. the market is not functioning properly. a couple days of it is not a big deal the federal reserve officials and that is been

echoed by what waves heard from two of them. dani: that is why i think the interim meeting cut thing drove them crazy yesterday. usually when they would do an emergency it was something was happening the credit market. we did not see that yesterday. you do need a more sustained period. when we have seen the fed step in, you can look at covid, they started talking about buying high yields. that is where the problem needs to stem from. jonathan: nonmarket functioning issue yet, but it could change. things improved a little bit on the s&p. we are firmer .9% on the s&p 500. in the bond market, yields are higher. up seven basis points on the two year. on the tenure up seven basis points. let's get you an update on stories elsewhere. yahaira: shares of uber are up

more than 5% in the premarket. the company reported better-than-expected bookings in the second quarter, under demand for its ridesharing delivery services. investors had voiced concerns over uber's long-term outlook following tesla's announcement of its robotaxi in october. uber highlighted a thomas vehicle lighter ship -- ridership was six times -- a thomas vehicle ridership was six times higher than a year ago. sales for the quarter rose 27% as demand continued to climb for its ai technology. the company emphasized its work with the u.s. government and allies, including for defense and intelligent purposes. palantir has also expanded its commercial wing with sales rising over 30% year-over-year. the chicago white sox hit an unfortunate milestone last night, losing their 21st straight game. they are tied with the 1980 baltimore orioles for the

longest losing streak in american league history. -- with the 1988 baltimore orioles for the longest losing streak in american league history. they are on track for the most losses since the 1889 cleveland spiders who lost 134 games. that is your bloomberg brief. jonathan: thank you. up next, determining the democratic ticket. >> what she needs is a governor from a swing state that appeals to more centrist voters. we are about to find out if the vice president herself is a good politician. really good politicians say what do i do to win? jonathan: that conversation is up next. live from new york city, good morning. ♪

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jonathan: lots of notes dropping into the inbox from the sell side. here's the latest from barclays -- the fed is likely to recalibrate, not panic. "we believe last week stated will have the fed recalibrate to a soccer jobs market." there call 25 basis point cut every meeting from now to december. in the bond market the yields pushing higher on a 10 year come up seven basis points. in the equity market a low bit of a bounce following yesterday's big loss. a .9%. under surveillance, determining the democratic ticket. terry: what it is is a difference between a transformational campaign versus small ball. what she needs is a governor from a swing state that appeals

to centrist voters. governor shapiro is the transformational pick. if governor walz is picked is that will show you she is trying to shore up her own party and her own base. we are about to find out if the vice president herself is a good politician because good politicians say what do i do to win. jonathan: vice president harris expected to announce a running mate later on today with reuters reporting the top candidates are governor josh shapiro of pennsylvania and governor tim walz of pennsylvania -- of minnesota. harristown the official democratic nominee. and rita trace joins us now -- henrietta treyz joins us now. the decision. governor walz, governor shapiro. what you think is the deciding factor to choose between these two? henrietta: unfortunately i woke up this morning and restarted my

phone. i had such a vivid dream that walls was picked. -- that walz that. i worried i did miss to headline. the question is what state do you need? i think it is premature to count out mark kelly, a senator from the critical swing state of arizona, although there was a lot of attention on governor walz overnight and inside d.c. a lot of chatter around him. part of that comes from speaker pelosi signaling him out, but if you listen to the full interview she did with dana bash yesterday , she talks about all the candidates and has a good point about how these are all good options for kamala harris. the best case scenario is for the last two weeks we have had three to eight very prominent, relatively moderate or soft left leading members of the democratic party echoing their support for annmarie: kamala harris. annmarie:interesting you mentioned nancy pelosi.

she says she has not spoken to joe biden since he dropped out. everyone is very busy but she had time to make yourself available for an interview. you think schapiro or governor walz could impact whether kamala harris is able to win pennsylvania? jonathan: schapiro has 61% approval rating in a state that is purple and trump has had a lead in but kamala harris has wiped away his lead in the polls . i think of a .4% outcome is what it comes down to you need to consider schapiro. my concern is it fractures the democratic party. the biggest rift i've ever seen is between the israel gaza conflict and the prominence of that conversation threatens to usurp any other policy position or positive development on the moderate site you get from schapiro and his 61% of approval rating. his response to specific infrastructure needs in the state. his response to the attempted

assassination in philadelphia was exemplary. that gets crowded out with the internal strife in the democratic party over israel-gaza. annmarie: do you think what is going on within the democratic party and a lot of movement with progressives to make sure it is not schapiro on the ticket is anti-semitic? henrietta: the conversation about whether or not it raises anti-semitic issues is the problem. as long as we are having that conversation it does not matter if it is anti-semitic or not. you are saying it constantly, you're bringing up his religion, kamala harris's husband's religion, it keeps the conversation alive. one of the problems i have is you have severe unrest in the middle east and college are about to get back into session. you can see protests are up again. november is just 90 days away. the conversation is a huge problem within the party and it

is unfortunate schapiro exacerbates that but it is a reality. dani: you talked about one of the bigger risks. that is out of the hand of the vice president. if things kick up in the middle east. another, economic concerns, recessionary concerns. if those are more apparent, how much blame do you think voters will put on the vice president? henrietta: it is a big mistake for the trump campaign to come out and sees on a single day loss in the market and say this is kamala harris's fault, because as we have seen from the surge in japan that reverses the next day. we have been in this industry 20 years. how often does that happen? i think it is a mistake to tether it to the stock market. that is what trump likes to do. it continues to be the case the united states economy is the strongest in the developed world, low unemployment, rising wages. it will be hard outside of one day flashes for trump to paint the u.s. economy in a way that

is somehow exemplary and new while we continue to have 3% and lowering inflation and a continued steady stream of economic confidence that is very low but improving amongst democratic voters and moderate and republican voters mind. the delta between trump and harris on the economy is only five points, far different than it was a year ago with double-digit gains for trump in that situation. that has been largely erased. annmarie: when it comes to the economy and immigration, even if harris is starting to close the polls, when you look at the polling most voters say they felt more secure economically, when it comes to migrants they felt more secure under the trump presidency. how do she talked about the economy while also differentiating herself from biden, which when you see in the polls they laid the blame on biden and bidenomics for the rising inflation. henrietta: they absently did and

biden has taken a lot of arrows for kamala harris in the whole democratic party for the last three years in the last three weeks since he stepped aside. what is interesting is the perception in the polls that kamala harris represents the moderate candidate. you are seeing that in the flight of moderates and independents to the kamala harris campaign. that is surprising because the trump campaign has tried to painter as vertically progressive and liberal. it should not be hard to do. san francisco liberal, san francisco elite. there should be easy talking points. the polling across pennsylvania and other swing states suggest that is not how voters are seeing this. it will be an interesting dynamic. jonathan: we appreciate your input. maybe we will be talking to you in a couple of hours when we find out who this bp pic is. expecting news -- who this vp pick is. expecting news.

interested in the kamala harris crash. dani: you're saying kamala harris -- you are saying your candidate is losing. annmarie: the better argument would be a number of economists have come out and added more probability that because of the week jobs report we could be tipped into a recession. the kamala crash is not going to work. it looks like everyone is throwing spaghetti at the wall. i remain steadfast with what libby cantrill said. have a cocktail and wait until after labor day. jonathan: andrew hollenhorst looking for a 50 basis point cut in september. the title of the piece, "it is not just one data point." "a range of data confirm what the rise in unemployment rate is signaling. the u.s. economy is at best at risk of falling into a recession and at worst already has."

he goes on to say data is likely to confirm the continued slow down and that is why things are 50 basis points in september. up next, rbc's gerard cassidy on his outlook for banks. from new york, this is bloomberg. ♪

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jonathan: the bounce back from yesterday's losses picking up a bit. up 1% on the s&p 500. on the nasdaq up 1.1%. in the bond market, the turnaround started yesterday morning. unlike the equity market, those moves yesterday morning to not hold. they turnaround of the back of stronger-than-expected ism data. yields ended the session higher. up another seven on the two year. the turnaround from 8:30 absently phenomenal. we are sitting here together, we have the yield curve making big shifts lower. the two-year down more than 20 basis points. we both sit here and say wait for the ism and we'll see if the data confirms or denies. dani: talk about whiplash. a lot of it comes down to what katie kaminski was talking about, this is a bond market

that is now long. the risks are asymmetric to stronger data. we have all whipped up these recessionary fears and yesterday was a taste of what happens when data comes in and surprises up to the upside. we have all gotten concerned about the labor market. we have a lot of quiet throughout the week but next week, talk about a big week for data. the risks are very high for another whiplash session. jonathan: cpi data just around the corner. let's talk about citi who came out with a note moments ago. "keeping a 50 basis point cut in september likely in a potential inter-meeting cut on the table." a deceleration of the economy which is not just one data point, andrew says, range of data. at best we risks falling into a recession come at worst we have. annmarie: i understand his position. mary daly and austan goolsbee

yesterday saying it is one data point and we do not react of one data point. mary daly talking about the idea is equal risk between inflation and unemployment. once they have their head around that maybe they can get to 50 basis points but they sound far from it. jonathan: they are the doves the committee. the doves on the fomc right now are not screaming let's go 50. i think the sentiment from morgan stanley is revealing. they believe it is 25 unless we get a sub 100,000 print in the august jobs report. that is latest on the bond market. i want to go to foreign-exchange briefly and give you a sneak peek at the fx market. what you see on the screen is a weaker japanese yen. dollar-yen over the previous five days, move up 6%. the biggest five-day move back to 2008. absolutely whipsawed in such a

vicious fashion. dani: so may people want to know is this over, has the knife fallen? part of that centers around the carry trade. you have this big unwind to the carry trade and all of these consequences. those trying to pin down how much further bigo, it is tough -- a much further we go, it is tough. even if you've unwound 50%, do you undo the rest of the 50, do you stay there? all of the numbers are difficult to grapple with. in the meantime you want to touch the japanese market? jonathan: there's a lot of this going on in the fx market. under surveillance, top stories. the government getting a win in the first major antitrust case against a tech giant, the judge saying google illegally monopolized the search market through exclusive deals, sink payments to make its engines the default option on phones and browsers block competitors from succeeding.

we see a lot of this and will probably see a lot more. annmarie: we also have the second part of this, what does this mean in terms of penalties, what is the doj looking for in terms of penalties? the remedies google will need to make. this 286 document, what the judge said is google is a monopoly, pinto and that set a lot of the direction of travel. dani: they cannot pay them anymore. we saw from the documents there is $20 billion in 2022. what a coup it would be for google if they cannot pay them anymore but apple and introit decide to keep them as the default browser. as a user i would be confused if i opened up my phone and suddenly duck duck go is the search engine that comes up. jonathan: don't you instantly choose google? i choose google and if it defaults to bing it goes back to

google. it comes down to who mix the better product. i want to talk about the commodity market. crude lower. lower in the face of this. united states and allies hoping to avoid a wider war in the middle east. the biden administration moving additional forces to the region as concern grows over a possible iranian attack on israel in retaliation for the killing of top hamas and hezbollah leaders. interesting to see the scare takeover the commodity market and almost parked the real risk we all have to confront in the middle east. annmarie: it is a real risk because we've already seen one of our airbases attacked by iranian militia west of baghdad. you had blanketed getting on the phone with his g7 counterparts saying the attack could have come as soon as yesterday. yesterday biden met with his national security team and axios is reporting he is told it is still unclear when iran and

hezbollah are likely to launch an attack. you've seen the u.s. move squadrons into the middle east, you've seen them keeping the aircraft carrier. they want to maintain some level of deterrence and some level of defense because they are expecting. iran's new president said for sure there will be a retaliation. we are not sure when and we're not sure the magnitude. jonathan: let's draw a distinction. we talked about the timing. we know the nature of the attack we are anticipating? annmarie: not sure. potentially what we saw in april, it will be similar. directly targeting to send a message to israel. jonathan: i want to talk about treasuries, retreating after a major rally that saw two-year-old -- that saw two-year yields fall below the 10 year for the first time. as the bond market makes the major move the banks have been all over the place. in four sessions we've had jp morgan lower by close to 10%.

in four sessions we have had bank of america dropped by more than 11%. talk about some of these moves, gerard cassidy of rbc capital markets joins us. we would love your initial reaction to the summer moves we have seen to the large-cap megabanks on wall street. it has been pretty brutal. gerard: it certainly has been very volatile, no doubt about it. what is interesting to me is the underlying fundamentals for the banks are still strong. the second quarter results were good. the senior loan officers survey came out in loan demand is actually picking up and the banks are easing their lending standards. as you pointed out, if rates are coming down, that will help solve one of the problems the industry is confronting, which is commercial real estate refinancing. it is interesting, the volatility. we understand that because of

the volatility in the markets. if you are confident you are not going to a hard landing, these are good buying opportunities. jonathan: we have to get into the rate story. when we had rates superlow all we had complaints. are we now saying we need lower rates for these banks to perform? gerard: what would be very beneficial is if the front end of the curve could come down slowly. as you can recall, the funding costs for the banks are peaking. at the same time the flows coming off the asset side of the balance sheet. think back to when they were purchasing loans in 2020 and 2021. they were purchasing bonds at less than 1%. while those bonds will be playing off over the next 12 to 24 months, they will be going into higher yield securities even though the funding costs have started to come down.

if you start to see a steepening in the curve that is also positive for the banks. dani: i am talking about another side of the business. m&a. this m&a renaissance many of talked about and how it will support their business. if we have more days like yesterday, if there is a more volatile market, if this is a market were credit spreads are starting to widen, will that comeback be as forceful assuming he think it will be. jonathan: it'll be interesting because -- gerard: it'll be interesting because the pipelines we were building up it was more confident m&a was coming back. if this volatility continues throughout the second half of the year it makes it more difficult for that environment to pick up for the investment banks. that being said, lower rates will make it more attractive to do deals because the cost of funding will come down. there will be obviously negatives with the volatility, but the positive could be the

lower cost of funding helps do deals that could not have been done with the higher interest rate environment of three to six months ago. dani: how do i evaluate a bank like goldman? any of these banks. the ones that have been pivoting to not investing on their balance sheets but other people's capitals, building up this private asset business. is this a good environment for them or a bad environment? gerard: it is quite strong. you look at their trading results versus their investment banking results. i know the investment banking results always grab the headlines, understandably so because it always big news when a big deal is announced. the real driver of revenue is trading and volatility brings on more trading. you might recall when russia invaded ukraine, that porters trading revenues were very strong -- that quarter's

revenues were very strong for all of the investment banks. if the volatility continues into september, we could see very strong trading quarter for these big banks. annmarie: dani brought up m&a. i would like to get a sense of how you think these banks are going to perform or sectors are going to perform based on how we will sit -- based on who we will see in the white house next year? gerard: it is a good question because under the trump administration when they were in office from 2016 to 2020, it was a very favorable regulatory environment for banks and we expect it should -- that should trump get reelected the favorable environment will come back and there'll probably be more m&a. even under a harrison ministration, assuming she is the democratic nominee, we will still see a better environment. the reason is the regulators understand that the banks can do

deals and make cost-effective decisions and drive those economies to scale. at the same time, be very supportive of their customers. that is what they have demonstrated in the past and the future. we expect m&a from the banking industry to pick up in 2025. if this volatility continues that would put a dark cloud over m&a for the near term. dani: we have to get there first. and i wonder if we park the volatility to the side, the attitude of these financial institutions at the moment. we have to hurry up and get deals done before the election or is it we will just sit back and wait until after november? gerard: i think it will be, depending on the deals come i do not think anyone will rush to get anything done before the election. these deals have to be well thought out. obviously there are discussions going on outside of the banking industry and the traditional m&a

market and it comes down to does it make sense. one of the interesting parts about m&a is the sponsors, the carlyle's and blackstone's of the world, they are portfolio companies. they had been reluctant to sell them because valuations were not at levels they recall in 2021. i think the markets until very recently and this volatility disrupts it come up until recently the markets were capable of handling volatility, it was the sellers that were unwilling to sell. jonathan: top picks this morning, what would you buy after the recent selloff? gerard: i would say bank of america looks very attractive. j.p. morgan also looks attractive, as does goldman sachs. jonathan: quite a correction in the last few days. gerard cassidy of rbc. down more than 11% on bank of america in four sessions.

let's get you update on stories elsewhere with your bloomberg brief. yahaira: u.k. chancellor of the exchequer rachel reeves has declined to allow increasing the capital gain -- has declined to rule out increasing the capital gains tax. she says difficult decisions will be taken to fill a budget blackhole. ai darling nvidia is dealing with engineering issues according to people familiar with the situation. the company's upcoming ai chips will be delayed due to design flaws. the delay could be three months or more, affecting customers google, meta, and microsoft. google says -- nvidia says it does not comment on rumors and production is scheduled to in the second half. boeing executives are back on capitol hill today facing the most expensive hearing yet about

the fusillades blowout back in january that exposed multiple quality lapses at its factories. the national transportation safety board is spreading the questioning over 20 hours today and tomorrow. since the accident boeing has named a new ceo and agreed to buyback at suppliers spirit aerosystems and has pleaded guilty to a conspiracy charge from two previous 737 max crashes. that is your bloomberg brief. jonathan: thank you. up next, the fed staying cool, calm, and collected. >> we have now confirmed the labor market is slowing. we will make policy adjustments as the economy delivers the data so we know what is required. jonathan: that conversation up next. neil dutta just around the corner. ♪

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jonathan: stocks on the s&p 500 up .7%. a bit of a bounce following the losses of yesterday. yields higher by five or six basis points. the yen weaker this morning. 145 on dollar-yen. the fed and fed officials saying -- staying cool, calm, and collected. >> we have now confirmed the labor market is slowing. it is extremely important we not let it slow so much it tips itself into a downturn. we will make policy adjustments as the economy delivers the data so we know what is required. if we reacted on one data point we almost always be wrong. jonathan: fed officials acknowledging softness in the labor market by following well short of endorsing emergency policy changes. neil dutta writing "the time for

debate is over. the fed needs to recalibrate policy now. our calls the fed delivers a 50 basis point cut in september with another 50 basis points spread across the two meeting. going more in september makes up for not going in july." neil dutta joins us. i said the fed has been cool, calm, and collected, some watching might say complacent. a note following payrolls is important. you said they stepped on a nail, not a bed of nails company went on to say this is easy to fix. why is this so easy to fix? neil dutta: thanks for having me on. it is easy to fix because there is nothing structurally wrong with the u.s. economy everything that ails the economy as a function of tight monetary policy. no one is talking about how troubled asset relief program, no one is talking about a resolution trust corporation. i think that is important to keep in mind.

what we are dealing with is a function of the fit keeping rates too high and that means lower rates can be the solution to what ails the economy. i think for the fed, it is important -- they talk about not wanting to make one data point too important, but it feels like that is what they are doing. you see this with the debate between 50 or 25 in september. if the jobs number comes in strong for the august reading we go 25 but if it does what it did last month, we go 50. that is ridiculous. we know the revisions to the numbers are negative. whatever the number is it will be weaker in hindsight. the unemployment rate continues to march higher. we know the momentum of the economy is weak and we know there is asymmetry with respect to how firms deal with bouts of market volatility. higher market volatility spooks

them a lot more than lower volatility makes them feel good, typically. i think -- they need to get on with it. the longer they wait the more they will end up having to do. not only will they have to go 50, but they will go at least 50 more in the final dose to meetings of the year. that is how i am thinking about it. i do think the markets will respond reasonably well to lower interest rates. i think that will help stabilize the economy. michael: you have been calling -- jonathan: you have been calling to this for a while. i hear you loud and clear on what you think they should do. you think they are dependent on that jobs report in august? neil dutta: it seems that way. look at the wall street journal. they had an article talking about how the next employment report will basically determine whether or not they go 50 or 25.

jay powell has also talked about how it is the totality of the data. what if core inflation comes out soft in the next report for july? i think there is a reasonably good chance of that happening given what we know about the deflation in cars, the cracking and housing rental inflation, the ongoing weakness in housing services. there is good reason to think we will get another. on core inflation. now not only is the employment figures weakening, but core inflation is converging onto 2% more rapidly than they thought about the -- after the first quarter. it is also about the outlook. what is the upside case for why employment will pick up? we have the weather bounce back? it is crazy. housing is slowing. the number of new homes sold that have not been started, that is down over 30%.

that will bleed into single-family residential construction. it is unlikely we get the kind of inventory investment rebound we got in q2 in the back half of the year. that will weigh on manufacturing and total hours worked in manufacturing already slowing over the last three months. the fact that the labor markets have slowed means incomes are slowing which will take some of the upward momentum out of consumer spending which the fed has been optimistic about. it is not about just waiting for the data come out, it is about thinking what the outlook might be. in my mind the data already justifies a 50 basis point move. the fact that the on employment rate is up to 4.3%, that is 30 basis points higher than where they think it will be by the year end. you put that into a standard model you get an additional 60 basis points worth of rate cuts. it is not about just the data as it has come in. it is also about the economic outlook. i do not think there is really a

right tail for growth. i think the distribution of risk is skewed to the downside and i think it is important for the fed to neutralize downside risk by monetary policy. dani: mary daly yesterday saying risks are equal between employment and inflation. that does not sound like a woman that is ready to cut 50 basis points in september. neil: you are right. i think the fed has rolled up late and trying to get on the right side of the eightball. what is happening in markets -- leaving aside the unwind of positioning, the big move and yields happened in the two days following the meeting. why? the data was weak. this is really about them -- it is not about them knowing something the market does not know. it is about them realizing something the market and most investors already know. that is why i think you are at this point where if you get bad data, it will lead to bad market outcomes.

anything at this point that looks weak in terms of the economy will feel these bets that the fed is behind the curve. markets already know that the risks are not balanced. whether they say it or not is another matter. jonathan: just waiting for the fed to catch up. neil dutta, appreciate it. he has framed this perfectly. going into the fed decision, you have to ask yourself what is the greatest risk? that unemployment goes higher or inflation re-exonerates. for neil the risk is clear that is the former and not the latter. dani: framing it what would accelerate inflation and having a hard time with anything that would get you there. the issue comes is the fit behind in all of this? neil is talking about the wall street journal, they are deciding between 25 and 50. you had jay powell who would not even say a september cut was happening. there is a hilarious point in

the press conference where he says something like a cut would not be political, not that we are going to cut. jonathan: how quickly the conversation changed. at the start of july, chairman powell is in central portugal for the ecb get together and he is talking about a strong labor market being a reason to wait. a month later you get the jobs report and the conversation changes so quickly. as a change that much for the fed? we will wait for more fed officials to hear from them. the third our bloomberg surveillance is up next. we will catch up with jim caron and michael feroli of jp morgan. mike looking for 50 from the fed in september. all of that is up next. ♪

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>> this quick turn from markets that it's all fine and we have growth to oh my gosh the world is coming to an end has made all the markets come down. >> it's much more about market positioning, more than how the economics have changed. >> we all need to calm down a bit, it's a process and its natural for markets. >> i think that this will turn out to be more of a technical aberration in the market.

>> our highest conviction trade for 2024 was volatility and we are seeing it. >> this is "bloomberg surveillance," with jonathan ferro. jonathan: absolutely brilliant fantastic lineup of guests in the last 24 hours. long volatility coming into 2024, it has worked out big time . that goldman sachs asset management they said deep breath, stay calm. bouncing back this morning. let's see if it sticks. i keep repeating that. up .8% on the s&p 500. yesterday down three full percentage points on the s&p 500. the biggest one-day drop going back to 2022. switching up the board, giving you a flavor of things, the two year is back after dropping into the 360's yesterday, a remarkable turnaround from where we were. up five basis points,

approaching 4% all over again. talking about the data and taking stock of where we've been , thursday we had ism manufacturing, the wrong kind of read on that data point with jobless claims higher than expected and payrolls putting gasoline on the growth scare. coming into yesterday, we were all talking about the same thing , look out for ism services. it comes out better than expected. bond market turns around, equities sort of ignore it. i found the divergence interesting. bond market recovered in terms of yields coming back into positive territory with equity losses staying. dani: saying but at 3%, down then more than we have seen in quite some time because the equity market has been chugging along. but we have been talking about this, getting a vic's that goes to 50, equity futures selloff or percent and everyone around the

table said be calm. everyone in the market was for the most part calm. have we really had the capitulation moment? probably not. annmarie: you brought up what andrew said this morning, he isn't calm about what the economy said this morning. at best falling into recession, at worst already has. he's not just talking about 50 basis points in september. he's talking about the fact that there is potential for an intermediate cut on the table. could the fed move? what kind of data with the fed have to show in the next few weeks? jonathan: you would need to see massive moves in the market becoming disorderly. we talked about that briefly reflective on the experience of 2018 and on top of that the data would have to absolutely collapse. on thursday and friday and on a couple of days of price action, i find it to be a massive stretch and i think a lot of people agree.

dani: what would that do to the yen and market credibility? the whole thing that whiffed it into a frenzy? if the fed cuts, presumably the carry trade online, whatever the rest is, you get appreciation with stock selloff. jonathan: a massive feedback loop. that growth scare back into the growth, etc., it's been repeated. the good news in japan is that dollar-yen is higher. which was interesting because a few weeks ago that was a problem and they were uncomfortable with the higher move. i don't know where the boj is on all of this. dollar-yen is positive by half of 1%. reflecting what's happening in the nikkei, japanese equities are all over the place, down yesterday, worst day since 1987. today higher by more than 10%. dani, you touched on it, the

unwinding carry trade, how big is this? how much should be unwound? how much needs to be? the carry trade, unwinding in the speculative investment community is somewhere from 50% to 60 percent complete. that conversation we had overnight, i wish i was a part of it, i have no idea where these numbers come from and what it means. dani: see tse data said it was pretty much done and then you get a day like monday, so you have the carry trade itself trying to understand what was connected. we understood that pretty quickly, that it was connected to big cap tech. which is another reason we don't fully understand. in trying to decide if it's over , you try to need to it -- you have to kind of know those things. jonathan: coming up, invesco and

negativity on the u.s. dollar. mike for oli on why he thinks the fed is going 50 in september. beginning with top stories, stocks rebounding from a three day moguls -- three-day slump, calling the selloff a correction rather than the start of a bear market, calling the magnitude not unusual but the speed is, and as long as we have a soft landing it's a reset of prices on buying opportunity, cautious but patient. jim joins us now. cautious, patient, did we learn more about positioning the end we did about fundamentals in the last couple of days? jim: absolutely. the market has a lot more to do with positioning over leverage in some cases, volatility, more than economic fundamentals. you were just talking about it on the show. the carriage rate is going through. we have other crowded positions.

we have to recognize that the markets were in low volatility. the vix just a month ago was somewhere around 11 or 12. 24 hours ago it went to 65. effectively that's a significant move that causes people to de-risk quickly. the low volatility allowed people to build crowded positions and get rewarded for that. i think that what stops it, this is always the question, when a semester -- asymmetry starts to appear with more upside risk over downside risk on balance, where is that on the market? it's hard to say. it's like you were saying, many of these positions need to get unwound. yes, we might have a brief bounce back today, but it might only give people the opportunity to sell again in order to get their positions and volatility more squared. even if you look at the put call ratio in the equity markets, we

are talking about moves -- you said it earlier, 87 for the nikkei, and then 2008. this is like the stock market crash of 87, the financial crisis of 2008, these of the moves we are having today and i don't think the economic fundamentals justify 1987 or 2008. i think that what people are looking at is they are looking at these moves and extrapolating from them a fundamental economic story. the fundamental component of this is very slow moving. yes, things are slowing down. yes, policy rates are high in the fed is likely to cut rates this year, but i don't think it derails where we were before. i think that this is somewhat overdone. it doesn't mean we can't go down but if it does, we are still more of a secular bull market. this is the start of a bear market and we will be looking at opportunities to add to risk.

in fact what we are doing at morgan stanley investment management is we are grading on a list. we want to shop on sale and find the positions we weren't able to get into that have run away towards those high prices that might be looking interesting and on sale. so, there are opportunities out there, but you have got to be cautious inpatient and not do it all at once. jonathan: let's unpack that, what has been on sale that you have dipped your toe into? jim: well, one of them has been the nikkei japanese equities. we were long on that. we got long that in march of 20 23 and have been writing it up quite a bit. like anything else that goes up, with some of that setback these were things we started to take a look at. other things, like the semiconductor stocks in those sectors, they start to look relatively interesting to us.

looking at factors, think about quality. we like to think about buying quality at a reasonable price. these are balance sheet factors. high quality factors. interest, things like that. it's just looking more attractive today. here even if we want to broaden out and diversify from large-cap to big tech, i think that there are some good segments of the market with some good quality factors out there that actually represent, you know, that could actually represent that opportunity. what i think is overdone, though, is a bit of a move in the interest rate markets. i think that bond yields have priced in a fed cut going down to 4%. maybe even 3.5% depending on how you want to look at it. the bond market has moved quite aggressively. even if you look at the bond

market from point-to-point, start of the year this year, 10 year treasuries were at 4% on january 1. today they are at 385. clearly there's been a yield in between and it's come back down, but point-to-point the bond market is relatively steady. it's giving you a nice little coupon with returns around 3% on fixed income. that's ok. that's kind of what you want. the point there is that most of this right now, most of these returns are coming from the yield move lower and i think that that might be on the overdone side. we might fund more equity positions by selling some of our bond positions because interest rates went down so much. dani: we are in the secular bull market for equities with bonds moving to 3.5, what's more reasonable, jim?

what's a nag -- analogous to what you have seen on equities? jim: i think of it as a range trade. the 200 in the s&p 500 represents the beginning levels that you would want to start to think about buying. the reason i say that is because i key everything off of what i believe is a level that is more fair for equities today if i look at the s&p of 5350, roughly 19.5 pe. 19.5 multiple on .275 earnings going forward from 2025. so, if i think about the overshoot that we recently had that went up to 5500, 50 600, if you think about that symmetrically it tells me that the downside from that center actually starts to look relatively attractive.

so, today it would look like we are above that. but like i was saying earlier, with a rally in the market, it may give some of those positions some of the opportunities to sell with strength and it could push prices down but that is where the asymmetry begins, 5200 and 5150 in the s&p 500, i believe that the upside potential for markets relative to the downside he went -- downside, even with a deeper connection to equities, it comes more symmetrical in that is what we are looking for at this point. if i thought we were in a secular bear market and i thought this would be the start of something big, i wouldn't do it. i would think the downside has more room to go. but in my view i think that the economy is cooling, not collapsing. yes, you know, earnings might start to slow as forecasts come out and unemployment rates rise

on strength from the consumer and that will certainly be a bit of a drag, but you know, in many cases i think that the jobs market is going to marine relative strength. the people who were bearish on the equity markets are the people who believe that the unemployment rate is going to 5% or 6%. that we are going to have this major adjustment higher and there will be this big layoff spree coming through. right now, layoffs are actually not showing meaningful acceleration. yes, temporary workers are not being rehired as quickly and there is softening of the labor market, but it's good for the fed, it lowers wages and wage inflation, keeping that down, but i don't think it is necessarily an overall collapse of the market. i view it as normalization and we have to draw that distinction . is this a significant negative change, or are we just normalizing?

i think we are more or less normalizing at this point, but there will be overshoot on the downside that can represent buying opportunities. jonathan: yet here we are and i want to squeeze this in, i think it is so important, you say that we have learned more about positioning than fundamentals and i think a lot of people might agree with you, but i want to reflect on what another jim said over at deutsche bank, jim reed, what a once-in-a-lifetime gmc could not do and a liquid august day with one band payrolls print for fuel did with some ease over a certain amount of time yesterday, what would have happened if we had seen a negative payroll print? i wonder how fragile this market actually is. you are saying that this is just normalization and nothing nefarious, but what happens when we do have to confront something nefarious? how unstable are things, jim? jim: that's a good point.

material deterioration, yes, something bigger is going on. but if i compare that to many of the crowded positions likely still out there, look, we could have another 5% to 7% downside correction. it's not uncommon to have a 10% correction in the equity markets. this is a kind of normal thing that happens on a regular basis. but that, i think that kind of misses the point. i mean if we start to get something in excess of a 20 percent correction, that is typically the signal where a bear market might be starting and there might be something bigger taking place. but right now, when you look at corrections of 8%, 10%, 11%, that's roughly what we have had over the past 48 hours, let's say monday to friday, this isn't something that is, that is overly unusual. i think that we as investors need to be patient and take it

in stride a little bit and i keep going back to this. ask the fundamental question, is this the start of something bigger and a bear market, is that what's happening right now? will there be absolute collapse at this point with sudden stops in economic activity? is that what's happening? if not, i think the bull trend is intact and we need to find places to buy. jonathan: jim kern, there, his view on what's been happening and where he wants to be. up next, morning calls and we catch up on the state of the tumor with all of her chen. that's just around the corner. ♪ ... (speaking to self) about our honeymoon. what about africa? safari? hot air balloon ride? swim with elephants? wait, can we afford a safari? great question. like everything, it takes a little planning. or, put the money towards a down-payment... ...on a ranch ...in montana ...with horses let's take a look at those scenarios. j.p. morgan wealth management has advisors in chase branches and tools,

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target from 28 to 24 sudden growth acceleration because of persistent demand for ai solutions with a second call from morgan stanley lowering a price target call, removing amazon from their top pick list following "disappointing results come go with td, and raising a price target on walmart from 80 to 75 with oliver chen saying that positions had to momentum across leading retail tech ecosystems. oliver is in the studio with us, good to see you. oliver: thanks. jonathan: is walmart winning and everyone else loses? oliver: we get excited about walmart because of his offense of and defensive. defensive, everyday low price on groceries is a key strategy but there is a lot happening to compete against amazon, including digital marketing, advertising, and marketplace models.

thinking about technology and the basics of retail, basics like curbside pickup, that's a low beta defensive idea in a choppy market. dani: as people tray down, how big of a threat are names like temu? oliver: great point, consumer discretionary has been in recession for over a year. temu is spending a lot of advertising and its impact amazon. consumer discretionary trends are negative at walmart and target. but it is a smaller percentage of total, walmart is 60% food. watching that, that's been happening. target is more vulnerable and less expensive, 13 times relative to walmart. but there is a revolution taking place. ultrafast fashion and what these new business models are doing

something the entire retail industry is watching. dani: do they have the capability to catch up to that, going week by week digging up what people tell you to wear? jonathan: walmart is getting more fashionable, doing movies, upgrading fashion with a huge opportunity to sell you more than just a basics, underwear, and fashion. they are also upgrading private labels like better group -- better goods, the cauliflower crusted pizza, we were just looking at that. we have seen them intensely focus on merchandising, with higher household income customers and we see that in our survey data. you don't even have to go in the store. on the market place you can get apple products and burberry got us. we are seeing this entire transformation with merchandising getting more competitive and walmart really rising to the occasion. annmarie: if walmart is taking these higher end consumers,

where are they leaving to go to walmart? jonathan: they are taking -- oliver: they are taking share from many places. trade down is occurring is customers think about in depreciated value. what is happening generally and supermarkets is quite fragmented. the most pressure is that local non-national chains, but others. jonathan: is the stress migrating to high income earners? we are seeing some stress on luxury and i don't think it's just execution from gucci, it seems to be broad. what are you seeing? oliver: lvmh is a $90 billion company but china and that property market, those customers are so important. the other factor correlation is the tightness on s&p 500 performance. negative headwinds from the wealth effect on the pullback will be something to watch for sure. and we have seen weakness in

bridal trends. we are cautiously optimistic, however we are out this morning with a note on retail reset and we like structural long-term growth opportunities on a pullback, including lvmh, elf beauty, and ulta. jonathan: i'm thinking about some consumer companies pivoting to premium over the last few years. that's all we heard about. which companies will be called off side? the demand is not there. who's vulnerable? oliver: well, the gucci brand is a brand in transition and we have talked about this before, stealth wealth, quiet luxury, the no logo trends are really working. there are winners and losers. we are most excited about lvmh, dior, and louis vuitton. they spend 10 billion on marketing and it really matters. arno really protects friends for the long term with very little discounting.

gucci is a brand in transition, so we are hopeful. cartier, we are not recommending richemont, but hard luxury has been more timeless. thinking about timelessness is a key factor of what new generations really care about. annmarie: do you like lvmh because there is service component with hotels? oliver: i do think the future is experiential and it's beyond just collecting stuff. the core of the business is fashion leather but service in these fabulous stores that are much like churches around the world to these brands is part of the magic. luxury does have to be emotional and offer you really that post purchase prepurchase transaction , being very special to overpay a lot to pay for great stuff. jonathan: are people not getting married? what's up with the bridal trends? oliver: it's been a tough

compare for tiffany. it happens, people will love each [laughter] other and get married. jonathan: thanks for that. oliver: but younger generations are just generally getting married a bit later. it's something we are watching. in many ways they express love around travel and other things. jonathan: very true. oliver: the blueberry poundcake at costco. jonathan: that's another way that people show their love. people will still love each other, thank you, oliver chen. ♪

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jonathan: after yesterday, you want to hear his people say that people will still love each other. oliver chen, just moments ago, i don't know if you want to remind if you missed that, but the good news is that people will still love each other. s&p, positive. nasdaq, up three quarters of 1%. this is your bounce in the bond market. the unwinding move started at 10 p.m. eastern time all of the better -- following the better than expected ism monday with yields up on the two-year, close to 4%. it has backed off since then. four basis points. turning to foreign exchange, you will want to know where the dollar-yen is, so here it is. up by 4/10 of 1%. you heard that phrase, carrying trade a lot over the last few days. we are still trying to work out

how much of that is left dani: dani: to unwind. jp morgan says we are 50% of the way there but other people will have various figures on where we need to go and it makes people nervous in this market because you can have a 10% bounce, but it doesn't go anywhere that it needs to go to undo the biggest fall since 87. >> all of that in 24 hours. i thought jim at morgan stanley was great moments ago, making the point that we have learned more about positioning than fundamentals. if you agree, fine, but what did we learn about market stability, resilience? the moves are so big, so large. i keep going back to what's happening in japan. if we can say that this is the largest move since and then say something like 87, which is notable for japan in the late 80's, but to sit here and say that we saw something take place in japan on monday that gfci couldn't do, that the pandemic couldn't do, that all of these events of the last 20 years

could an engineer, but we sought off the back of one hike of the boj, some bad data and a federal reserve that might cut at some point in the next month or so? dani: part of the problem is we got used to a world where the economy was growing and missteps could happen that you could paper over by saying everything's alright. if you are on the flipside, it gets harder to paper over in the same goes for corporate with the punishment we have seen from corporate earnings. things are slower, you are more likely to get punished for it as opposed to another environment where maybe you could look over it. jonathan: we have seen some very cappy moves in this market, for sure. kamala harris set to announce a running mate ahead of a rally in philadelphia, her first stop in a seven city tour. reuters reporting that it's down to josh shapiro and the governor of minnesota. it would be off -- awkward if they are in philadelphia and

it's not shapiro. annmarie: that's why everyone came out when she said it's pennsylvania, they said it means shapiro, her campaign said don't read too much into it, she is hitting a number of spots this week. but i imagine it would be awkward for governor shapiro if he gets shrugged off in the big unveiling of her vp's governor walz from minnesota in hearn -- his hometown. jonathan: i'm so pleased you picked up on the issue, what's holding it up? this felt like the clear favorite for like a week. you asked the question of anti-semitism on the left. what is behind this decision? annmarie: you have seen this very left progressive base get whipped into a frenzy with nicknames like genocide josh. how can you look at that and say that there isn't anti-semitism in there. terry haynes made a good point that it is perhaps a balancing foyers to kamala harris with

someone who is pro-israel, but does that imply that harris isn't pro-israel? it comes back to what you been talking about, we don't know where she stands. annmarie: she has tried to differentiate herself from biden when it comes to what's going on in gaza, but democrats don't want to give a reason to progressives to have protests on the street outside the dnc in a few weeks and it goes back to what steve said, they don't want to have a repeat of the late 1960's when the convention failed and there was chaos. and to dani's point, is she the moderate that people think she is or is she left? jonathan: we don't know, that's the answer. is it the kamala harris from the primaries in the senate, is that who we were talking about? always just a shape shifter trying to get elected and run for highest office? which one is it? annmarie: fracking, you can't win pennsylvania if you are on

the record saying i will ban fracking. the campaign said that this is what she said in the primary and the campaign said no one wants to do that, she's not thinking of doing it. i'm pretty sure that anything she said in the past that doesn't belt -- bode well for today, her campaign will back away from. jonathan: shape shifter. annmarie: as of now. jonathan: let's get to the earnings, shoot -- shares of uber are trading higher in the premarket with better-than-expected gross bookings, continuing throughout the week without -- with disney and warner bros. discovery due out tomorrow and we have decent earnings. dani: we certainly do and it bodes well for the consumer if people are willing to forgo transportation and take uber instead. one of the things in the earnings is that their ad business is doing well. exceeded a run rate last quarter. sorry, do we have to have ads and everything?

netflix, wilbur, it's like everyone has given up on everything and said we will show jonathan: you a few ads. jonathan:have you noticed how many political ads we are getting going into november as well? just getting up on the politics, this is what we know so far from ap, the vice president deciding on a running mate. do we have the details? annmarie: doesn't look like we have a name, but she has actually decided. i wonder if they are reporting this now or if she made the decision this morning? yesterday a lot of people on twitter were talking about these massive suvs leaving the governor's mansion in minnesota because he was going to a campaign event. one thing to watch out for, the second someone is tapped, before the world knows, secret service will know and they will see heightened security around that individual. jonathan: look out for that, that's the headline from moments ago, vice president has decided on a running mate, but we don't know who the running mate actually is. we will keep that update for you

when we bring it to you. from mary daly, acknowledging the labor market is slowing, looking at that totality of information on the jobless claims data. christina, good to see you, it's been a wild couple of days. >> crazy. jonathan: have we on round -- unwound the story yet? >> i don't know if we have fully cleared through it, but broadly through the markets we have seen a gushing of equity credit currencies and that's been a positioning story. to the point of jim earlier, it's not the fundamentals of the friday payroll report. yes, we are seeing some slowing, we know that we will see some slowing, but this is much more about positioning. we are cleaner. is it the end? not sure. jonathan: let's go with that word, cleaner. if we are cleaner, what would you like to go into following the storm?

>> we have been on this camp that we don't think long in duration across most markets, and i think that case holds and we don't want to be involved there. the extreme of the rally has been too much. certainly, we were on the wrong side of that given how much we have run, but when you think about the front end it's -11 on the carry and a lot of that duration was carried out levels. so, where we want that? we think that there is value in inflation and a breakeven lagging in the move and it can play in both cases if, in fact, you have weaker growth in the recession, not what we are calling for. we think that the australian bond market offers value and broadly we think the dollar should be weaker and there is value in currencies. dani: to this point, if the yen is not your carry trade now because of all of this, realistically can anything take

that status as a funding currency? >> i think the popular funding currency out there was the end trade in china. i think that japan as a whole is not just on the one hike. they are doing it in 15 basis points. i think it is the totality of positioning with nikkei bringing back to 1987 type moves in the nikkei and whatnot. it is a part of it that we have gone in the last 10 years the u.s. has had full cycles and only now in the last six months has the boj hiked 25 points when the fed has had multiple cycles? you have finally had this engagement into the japanese market, shorting rates, finally getting long the nikkei, it explains part of the extremity. dani: two year point, 25 basis points, people are already

calling for it with a real cycle starting, is there offsides that we have to discover for something that we haven't had in a long time? >> i think that it has been so unfavored, because of the carry status, you make up for it elsewhere. we have a focus in emerging markets. looking at those fundamentals, there is still value. you have things like mecca being blown out in large part because of these cross yen positions. things have overshot. our people falling over themselves to get back into these carried currencies? i don't think, yet, but do i think that six weeks out we have stability? i do. annmarie: you said that we hadn't seen the carry trade, but when will we know? >> i don't think we will know until it's over. there's an emotional market, so

where are the levels and what can we do? same thing with equities. when is it over, is this extreme? in the last three sessions they've been calling for cuts. is the world ending? equities as of yesterday were still broadly up 10%. i'm not an equity expert by any means, but it seems that you are still having a reasonable performance, year to date. jonathan: i'd love to have a chat about what's happening with credit spreads. a few weeks ago sub 300, now approaching four. we were talking about those issues that had stepped to the side over 24 hours, but how many suppliers are going to come into the market for issuing supply in the next few days? what will it look like? will they lock in the yields now as things gap wider? >> with market volatility there will be a quieting of supply and

people waiting for the calm. knock on wood today it seems like we have more than the last few days. again, my particular focus isn't credit, but when we look broadly at thinking about it, the health of the overall high-yield market when we look at companies and names is a much healthier post-covid basket after all of that refinancing that went on. so, you had high yields that were exceptionally tight and have repriced a bit, but there's a lot of this panicked with people talking about things falling out of bed to, but in reality the high yield is still trading at 100 four. february was a 98 handle. i think that when we put into context where we are, i don't think that -- i think there is a lot more panic in the market. jonathan: levels versus change, some of them are pretty decent. christina, good to see you.

it's always the change that gets the headlines. we have seen some big change in the last few days. dani: vicious change is enough to spook suppliers. to your point it's not enough to say that it's falling in, but it is enough to do some damage. we still need to grapple with that lasting damage. jonathan: the world is not ending and like oliver chen said, people will still love each other. with your bloomberg brief, you hire a. >> officials are engaged in intense diplomacy to avoid a wider war in the middle east, u.s. allies working to head off that potential for an attack on israel, urging all parties to refrain from escalation. tehran warned it would respond after blaming israel for killing a top hamas leader last month near the capital. tropical storm debbie threatens days of rains and floods on the

west coast after slamming into florida as a hurricane yesterday. 300,000 people in florida and georgia are left without power according to power outage u.s., with governors in both states and south carolina declaring emergencies and joe biden has approved federal help. germany in a semi final with a men's basketball team entering the knockout stage against brazil with plenty of action in track and field, saint julie is looking to follow up a win in the 100 meter final with gold. the u.s. is tied with china on top of the metal table, 21 golds, while the u.s. has the most overall with 79. jonathan: up next for the program, setting you up for the day ahead and the argument for 50 basis points in september. michael verrilli, that

conversation is up next.

. jonathan: 43 minutes away from the opening bell, scores look like this. equity futures are positive by 0.3% but we have to keep an eye on this, sailing just a little bit with three or four basis points. falling a little bit in dollar-yen, 154 .54. backing away with a weaker japanese yen. nothing like the trend we have seen recently, but we are unwinding some of that move this morning as we head closer to the open. counting you down to the opening bell, your trading dollar he is as follows, vice president harris speaking in philadelphia with her yet to be named running mate and tomorrow, earnings from

disney and warner bros. discovery. then another round of jobless claims and we hear from the richmond fed president, tom barker. all of that to look ahead to. plus j.p. morgan saying he thinks the fed will cut by 50 basis points in the september november meetings followed by 25 basis point cuts at every meeting thereafter. from a risk management perspective we think there is a strong case to act before the 18th. michael joins us for more. great to catch up with you, been far too long. let's get into the call. number 50, i want to talk about the bit before that. risk management perspective, a strong case to add before the 18th. explain why. i think mike: -- mike: i think that even as of last thursday the fed was behind the curve. i don't think they will cut in this meeting unless we get a bad jobs report in early september.

but right now, i think, you know, if risks are closed to balanced, it should be close to neutral, so that would be 100 basis points lower from here. i don't see why you would want to take your time getting back to the place where you can better address risks to inflation or employment, should those risks materialize. dani: there's been a lot of conversation about this, should it be an emergency fed cut for 50 or 50 again? what should they be doing with qt and all of that? mike: i think that qt is on a separate track and decisions on it will be mostly determined by liquidity conditions in the interbank market. i see that discussion occurring on a mostly separate track from where we are now. dani: fair enough. let me give you devil's advocate for why we shouldn't go 50, they've been talking about this for sometime, just before friday

the narrative was that this was a soft landing and that the totality of the data of gdp growth at 2.8% had strong showings of people at airports with retail sales being strong and the labor market not slowing to the point where it could become nonlinear, so there is no rush to cut and no rush to cut and a big way. why is he wrong? mike: policy is restrictive and that's appropriate, but right now i think inflation risks are coming down and employment risks are rising, so you want to get back on sides and take your time to get there. i don't think that's optimal given what we are seeing again, inflation and employment. jonathan: this call is independent of what we get from the august jobs report? mike: claims matter but you would have to have a pretty nice turnaround with the activity

data that we cede to make a case for going slow. appreciate that update, michael. over there jp morgan, we had breaking news. annmarie: cnn reporting that tim walz has been tapped, the governor of minnesota, to be the vp running mate for kamala harris. an individual with an interesting background, former congressman, former teacher, former governor, and an effective communicator. he was the one that first said that trump and j.d. vance were weird. the kamala harris campaign and gen z really drunk -- jumped on this. he's the individual she's chosen to be her running mate in november. someone she thinks can potentially bring in moderate, independent voters. this was someone the progressives wanted because they didn't want to see governor shapiro on the ticket. jonathan: not confirmed by the

campaign just as yet, but the latest from cnn, when we get an update from the campaign we will share it with you. let's talk about the decision, if this is the decision, between going with him or governor shapiro, and then talk about how it is an advantage when you look at the electoral college map going into november. by this guy, why not governor shapiro? annmarie: for someone like governor walz, he is seen as someone who can effectively communicate to rural america. he has rural american charm. a few weeks ago there was a video that went viral of him wearing a military style baseball cap, ammo cap, with a springsteen t-shirt, but didn't look like he was trying to placate. look like this was who he is. he speaks normal to america. i think she thinks this is someone who can help with the rust belt, even though minnesota is blue. governor shapiro would have been a pure play for pennsylvania and

this evening she is kicking off her rally in pennsylvania but it will be with this man, 2.5 hour flight from minnesota to pennsylvania, he will be flying over it and joining her, not governor shapiro, potentially awkward. dani: when we knew that trump chose j.d. vance, we had all these things we could say about trump and his policy and what do we know about walls? -- governor walz? annmarie: when he was in congress he was able to win a very red district. he governs to the left. but he will be talking about things like all children in minnesota going to public schools having breakfast. things like this, everyday concerns for americans. things that he has worked on in minnesota that he is going to want to talk about on this ticket. jonathan: so, this is all signal to start talking about substance and policy, getting away from

campaign rallies and talking about sitting down and communicating your views on key important subjects for the economy, foreign policy, and a range of issues. we will start the get some of that from the campaign? annmarie: we hope. there is no longer an excuse to not put harris in that setting. she's going to be talking to her own voters at rallies, not just journalists who try to nail her down, because we have seen her shift and flip a number of times. this week they have a blitz across the united states. then it will be the dnc convention. after that it's time for her to hammer out and discuss where she sits on these policies jonathan:. jonathan:we'll see. to confirm, this news coming from cnn, governor tim walz tapped as the harris running mate. not coming out from the campaign

just yet. if we get confirmation from the campaign, we shall bring it to you. that's the latest on the political front. markets into the opening bell, if we could reset and check out equity futures? last time we look at this, the mood was fading just a touch. one third of 1% on the s&p with bond yields higher by three now. likewise, the move in foreign exchange, dollar-yen, when this program started, it's now back to 14460. dani: you would hope that if the big selloff was zero, people were coming in in force and it gets to the fears out there that there's not an understanding of how you even measure these types of things and how they unwind. so, the balance isn't huge, but has something shifted in the sentiment? are you more likely to sell or buy bonds? is there a data point around

what you should be doing? jonathan: it's a bit of a back room -- vacuum for fed speak. not much data over the next couple of days but we will get jobless claims without much fed speak schedule between now and the next week. cpi is one week away. tomorrow, your lineup, nouriel roubini, michael dawda, mohamed el-erian, and the disney cfo, hugh johnson. quite a lineup for tomorrow morning. for new york city, good morning. this was "bloomberg surveillance ." ♪

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matt: waiting for marcus to bounce back. i matt miller. sonali: katie greifeld is off today. "bloomberg open interest" starts right now. ♪ matt: coming up, they crucial moment for the kamala harris campaign. cnn reports she's tapped medicine to go to -- minnesota governor tim walz as a running mate. global stocks stabilize for now as some investors brace for more volatility after monday's massive selloff. earnings abound for caterpillar. sale ms. for the billion-dollar lifeline -- miss for the billion-dollar lifeline. as you can see we have a little bit of a bounce back. it is fairly