>> the little before the storm before the fed needs to act and do something. >> this is the perfect time because things are so quiet. >> we have very accommodative financial conditions now. they will probably still be confident in tapering. >> typically the fed hiking cycle does kill the value trade as well. >> they have reversed policy. this seems to be a trickier time for them. >> this is bloomberg surveillance with tom keene,

lisa abramowicz, and jonathan ferro. tom: an extraordinary monday. we need to dive into the data check. forget about the theory of contagion, the 30 year bond plunges sharply down to 1.8431. jonathan: futures coming at -32. you have to start the morning off with china. tom: it is a contagion from ever grant and shenzhen. we talked about watching beijing. jonathan: interest you on bank loans, interest on dollar bonds due thursday. so far until today, it was incredibly concise property developers out of china. see that in the hong kong

session today. does that start to spread? what does the contagion look like? tom: the real yield at negative 1.3%. lisa, idiosyncratic does not work this morning, does it? lisa: how much will this have a real economic effect? the idea that this goes beyond a financial pickup that people can overwhelm with cash. the fact that you are seeing the flattening yield curve in the u.s., there seems to be a bleed over into slower growth and inflation for the path ahead. what does that mean for the fed? tom: it is a pendulum of surveillance gloom. full did over to wednesday. our special. jonathan: it is about the evolution of the language. no one expected a decision coming into this week. no one expected a decision on qe coming out of this week. i will see you in december.

going into tomorrow when you head over to bridgewater, they brought up this question coming into this year. for a long time, policymakers around the world have got what they wanted. this market has provided them with capacity to do so. we start to get a bigger push back. we have been conditioned to believe china can cope with it. when we speak to people who are experts in the region, how may times have they said china will deal with it? we will have a solution. what does coping with that look like? what is the solution? i have not gotten the answer to that yet. tom: we will have interesting conversations today. i want to say i will focus with ray dalio at zero bound. it is a summation that comes to the zero bound. jonathan: five basis points on 10s, much more so on 30's. we are -1.55%.

you see it in fx. commodity currencies getting knocked around. the aussie near the bottom of the pile. tom: when was the last time we had a bond bear market? price down and yield up in a persistent way. to multiple -- tumult in the markets today. i love your note, the summation of academics. you say the diversified portfolio structure of bonds makes this bond market and this bond bear market different. >> it could be different. i think certainly we have to consider the extraordinary circumstances that have brought us here. we have to keep that in mind. just relying on long-term constructs in the global financial market linkages, we

need to be a little bit in the wake of the pandemic and policy both monetary and fiscal over the past 18 months. jonathan: let's focus on china. property developers dominate the high bond yield. we have seen it start to bleed to other property developers. when you wake up on a morning like this, where are you looking for contagion beyond the property developers in china? >> it is interesting. the first thing i looked at this morning was the bloomberg report. another property developer was able to raise 2.5 billion by borrowing cash and selling a unit. as i read this, first thing in

the morning, i felt maybe the expectations today of broad spread contagion maybe overdone. clearly the impact on growth is there. i think the key point is i continue to believe this is not a moment like what we had in 2008. lisa: do you think it is a good idea to go in and buy the bonds of ever grant or other developers? do you think it is overdone? >> i think it is a bond by bond decision. i would not generically say go and buy the thing. it is important to -- the plan i want to highlight is in the midst of this growing sense of contagion that everyone is talking about, a significant

company was able to raise 2.5 billion in cash. that is important to me. lisa: the idea to me is important, the idea that it is time to start looking at when to buy the dip. analysts were saying perhaps do not buy chinese developers. can you keep betting on that, or are chinese regulators sending a different message? >> there has been a subtle signal change from the policymakers in china. a lot of that is already reflected in price and the expectations of the market in terms of the growth outcomes. i will continue to think that this would be managed. there is certainly a change in the policy, no doubt about it. that policy change, there is a

subtle shift in policy reflected largely in price. jonathan: that is the financial risk. talk to me about the economic risk. is it different? >> it is early days to determine if it is substantially different. i would leave it at that. jonathan: why? why is it too early when we can see the property market and chinese gdp, can't we just make some assumptions that this is going to lead to slower growth out of china? >> our china economists think we have already troughed in terms of our growth. i continue to stand by that. tom: i look where we are. we have a reset for next year. you have been doing this for a few years. how far out are you able to look now with some form of confidence in setting up a spreadsheet,

doing a sensitivity analysis? can you get out to the third week in november, or could you wander into 2022? >> i think we have to wonder into 2022. unfortunate, we have the bond market, and that tells us something about the expectations about what the market is thinking on a go forward basis. certainly you can imply what the bond market is thinking and then layer on top of that your expectations of what policy is going to be. i will give you an example. if you look at what the bond market is thinking in terms of the number of hikes after the first hike. we can imply that information from the bond market data, and you can see that on bloomberg, bloomberg function msp1ke.

you can see the number of hikes the bond market is expecting. we get a glance of that. it is not going to be the same thing from the top part. we think there is a substantial deviation between with the top part is telling us and the pace of future heights versus what is the price in the market. we think the market will move towards the fed. we do have to think ahead. we are not just thinking about what happens next week. there are a number of things we can rely on to see what the market is at, what is ahead of us. i think it is important to be flexible as underlying data change. we should be willing to change our view ourselves. jonathan: it is a great function. access to the security is restricted by supplier. the supplier from morgan stanley. tom: he has not paid the bill. jonathan: come on, share.

it is a great function if you can access it. going into the fed decision this wednesday. let's get into the market. we are down 74. the nasdaq is negative 1.5%. yields 1.3057. tom: coming off the surveillance cursor out here, a true sample of trends starting at 5:30 am, we have yet to find a bid. jonathan: session lows. lisa: the fact that we are talking about 1.5% correction tells you a lot. jonathan: coming up on the program, bill dudley, the former new york fed president and bloomberg opinion columnist. do not miss it. this is bloomberg. ♪ s bloomberg. ♪

ritika: new findings out this morning could clear the way for vaccines. pfizer and beyond tech say there vaccine -- pressure has been on the rise in the u.s. cbs is going on a hiring spree. they claim to add 5000 employees during a national career event, preparing for a surge in demand in booster shots. cbs says it is starting to introduce drive-thru lanes. in canada, justin trudeau appears set to retain power today. projections based on national polling averages show that his liberal party is likely to win 155 of the 283 seats in the

house of commons. the opposition is expected to win 119 seats. france is still angry over that submarine deal after australia canceled a $66 billion agreement with the french between the u.s. and the u.k. french officials have been renewing macron's support for europe building its own defense capabilities. the evacuation of 5000 people took place on an island, news reports say about 100 houses have been destroyed. lava flows are moving toward the sea at half a mile an hour. global news 24 hours a day, on air and quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. ♪ 120 countries. this is bloomberg. ♪

>> at this point, we are starting to see the global economy reached an inflection

point where we are still expecting a positive outlook going forward, but it will not be the same vigor we had before. jonathan: from new york city, good morning. alongside tom and lisa abramowicz, i jonathan ferro. we are -1.7 2% on the s&p. yields coming five basis points on tens. the chief fixed income strategist. i don't like morning people or mornings or people. i love that sign. isn't it brilliant? lisa: are you trying to send us a message? jonathan: thank you. tom: are you done with your data check? i don't want to step on you. dow futures edging toward -700. we're on a stoop -- we are on a

two standard deviation move down. jonathan: tough start to the session. tom: we have a lot to talk about. a very gracious guest joins us with bloomberg intelligence. is this a correction? >> certainly not yet. technically we have only just moved off of our highs. i think we have weaker momentum than the price decline so far, which would suggest more weakness coming. frankly this is overdue. we have had some signals in the u.s. equity market with reflection to inflation and margin weakness for months. now you have this bigger risk off move, which is emanating from a more globalized source of risk, which is adding to the downside pressure. it is certainly not a correction yet. tom: you have all the parchment. what does by the dip mean to you this morning? >> not a lot when you have this

degree of risk intolerance. the small-cap index down 2.5% is a pretty significant signal. just an outright route. you wait for the risk clears in the clouds dissipate before you move in. when you are looking at stocks that are just barely off all-time highs, it is difficult to get that gumption to move in. the other thing no one is talking about is the fact that we are on the cusp of a fed taper. tom: jonathan and lisa have been talking about it. where have you been? gina: even though we have talked a lot about infrastructure, all policy levers are likely to move more hawkish, and that is something the market will have to continue to contend with. carol: the reason we keep asking is this a dip to buy is we have not gotten further than a 1.5%

drop is everyone jumps in and buys the dip. there is so much support from a fed that is expected to be relatively dovish this week and fiscal help that will probably get past with something. gina: while some things have been on the horizon, it would be hard to argue they have been catalyzed over the past couple weeks. we have been talking about margin risk on the s&p 500 since may. it did not become a problem until the last couple weeks because it did not show a downward estimate revision until the last couple of weeks. people have been talking about risks from china emanating out of the tech sector and regulatory risks where we have seen bubbling risk in the real estate sector. that has been the predominant risk the last cabal weeks. we have been talking about a lot of these risks, but not all of them were catalyzed until the last couple of weeks.

you go through a process of absorption. the other thing to consider with tax policy is analysts never put tax increases or decreases in their estimates until policy actually passes. even though we know it is coming, it is not an estimate. it ultimately gets embedded in valuations after the passage of the reform. it is similar with taper. we have not seen markets react to fed changes in the balance sheet until the changes start to occur as opposed to when the fed starts talking through those changes. even though we have talked about it, it has not been reflected in the price. tom: you are acclaimed at wells fargo for having the courage to stay in the market. you have prodigious technical chops along with your fundamentals. how do you measure catharsis? how do you study the emotion and the blood on the streets where

you say you can find the bids this morning? gina: it is always in the technicals. tom: i'm going to stop the show. what you just heard there is the single most important reason to get smarter in technicals. it is always in the technicals. gina: it is always in the technicals. it is always in the percentage of stocks trading above or below their moving averages. every major low in the index is at a point when you get to 2% of stocks moving above their moving average. you have got to see momentum dip closer to 35 or 30 on a 14 day rsi. every bottom, you cannot tag a valuation multiple. you cannot tag an earnings estimate decline. what really matters for crating bottoms is a complete washout

and sentiment. you have more bears than bulls in the market. lisa: what are you looking to buy gina: we are that gross space. -- growth space. i think this is a critical point to really consider who is going to lead the economy post-pandemic versus who led the academy post great financial crisis? most likely it will not be the same cast of characters. this is something tom and i were talking about a few minutes ago. the investment universe is incredibly levered to the big five tech stocks continuing to lead markets. that is a big signal that it is not likely to be the same space.

we are likely to be surprised by new leadership in the next several years in different investments. jonathan: where does the leadership come from? it is a big question. it is an important one. at 9:40 eastern time, we will catch up with microsoft of morgan stanley on that important note that is getting a lot of attention this morning, the potential for a 20% move lower. tom: mike wilson is articulate about a banded range, which begins to get down to -10% correction, or let's call it -18%. i work in standard deviations. for mere mortals, it is great to look at that as a percentage move. jonathan: looking forward to catch up with mike wilson under this morning. we are -1.76% on the s&p 500. we are down 2.60 on the nasdaq

100. much much lower on the small caps on the russell. we are lower more than 2%. futures lower and the yields lower. we are down five basis points on tans. from new york, this is bloomberg. ♪

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jonathan: risk aversion this monday morning. good morning. alongside tom keene and lisa abramowicz, i jonathan ferro. we are down on the nasdaq 100. much more so on the russell. into the bond market, yields lower five basis points, down to 1.3090 on the 10 year. dollar stronger across the board. into crude, wti 70.50. the risk very much focused on evergrande. it is focused on this market. tom: stay with us. we will do more data checks. the dynamics of the present

immediately into the long-term. william dudley, the former president of the new york fed with a timely essay this morning that gets us to wednesday. far more gets us to the new theory. i want to go back to berkeley. i have always had such a respect for the interesting faculty that shows university of california berkeley over other institutions. every app surround a theory of belief and behavior. that wraps around the strange word credibility. what is the character of the fed's credibility and a time when we are making it up as we go? >> there is the risk to their credibility because inflation is higher for longer, and inflation expectations are starting to rise. they sort of bound themselves. they are not going to raise

rates until they hit 2% inflation. if inflation expectations get unanchored, that will push inflation up even before we get to maximum sustainable employment. tom: take us back to the social economics of brad long and the other young turks out at berkeley. we are making it up as we go. what is the theory that you would propose to maintain this valuable credibility? >> i think the fed should be more flexible in terms of when they are willing to raise long-term interest. if inflation expectations become unanchored, that is a problem for actual inflation. the current regime where they don't do anything my turnout to be too late. lisa: how concerned are you

about recent consumer confidence surveys that show consumers expect inflation to be above the fed's expectations over the next three to five years at a time when this is also dampening their optimism? >> the new york fed publishes a household survey of expectations about inflation, and the most recent readings point to the three-month inflation expectations are up to 4%, which is essentially double. lisa: how concerning is it for you, the idea that consumers don't always get it right? this signals a credibility issue beyond markets for the fed. >> it depends on if people trust the fed. if people trust the fed, inflation moderates. if people do not trust fed, inflation expectations stay high, and it will push up

inflation. lisa: do you think the market could have a problem or disruption if the fed does not signal tapering soon enough? >> i think the fed is going to signal tapering pretty soon. they are making progress toward their goals, setting up the notion of tapering at the next fomc meeting. tom: what is the effect of the u.s. dollar on all of this philosophy and calculus? we are different with the u.s. dollar. how does that make chairman powell's press conference different on wednesday? >> having the dollar as a reserve currency allows us to attract foreign capital on attractive terms as long as we have credibility. if people start to doubt the feds commitment to stable inflation, then the dollar would start to weaken. people might start looking

around for substitutes to the u.s. dollar. tom: you have been a great optimist on this. within the body of the william dudley work, i take it back to goldman sachs. you have been a great optimist on the institutional strength of the american system. do you maintain that institutional strength is there with a fractious washington? >> the thing we have going for it is we have a deep and liquid capital market. the fed has been adjusting inflation expectations. we have credibility with the rest of the world. as long as we don't mess up our economy, people will continue to use the dollar as a reserve. tom: we have got to get back to the markets as they are challenged. futures -81. we will wait and wait and wait. allan meltzer of carnegie mellon, timberlake and the

georgia school, when in doubt wait. >> i think it depends on what the risks are. i think we will see this week the. plot -- the dot plot forecast. that may reduce the concerns. jonathan: we have faced down risks out of china many times on the fomc. i am thinking summer of 2015. how are you processing that, digesting it at the moment? i think your experience is valuable on this particular topic. >> the federal reserve certainly understands china is an important player in the global economy. if china has a hard landing, it would have serious consequences for the united states. at this point it is premature to reach that conclusion. the chinese have tried to

tighten things before. when it starts to affect greater growth and employment, they tend to ease off. i think that is going to happen. jonathan: how do you think the chairman will approach that issue in the news conference this wednesday? >> i think he will say we take the world as it is. i don't think he is going to make a strong statement about it. lisa: do you think if there is a 20% drawdown like some are expecting, what does the fed do? do they not taper at all? >> obviously of things happen in a way that change the economic outlook in a meaningful way, then we will adjust course. at this point, they are not going to react to small-market moves and further tapering on that basis. they have to change the economic forecast. that is why the summary of economic projections this week is important. it will tell you what the fed thinks about how the economy is

likely to fall in 2021 and 2022 and 2023 and 2024. lisa: the stakes are higher. how much does a nearly $9 trillion balance sheet tie their hands going forward in terms of how much ammunition they can deploy? >> there is no limit on the size of the federal reserve balance sheet. they can make it much bigger than it is now. there is no actual limit on how big it can get. tom: you have been very vocal with the public responsibilities you have had over the years. i value the bloomberg opinion essays. what is the great research mystery now? if you are lined up with people like vincent reinhart of the time of greenspan, the young phd's at the fed? what is the research idea for

you that there is immediate and further study? >> how tight is the u.s. labor market? the number of job openings is at a record level. is the labor market loose? tom: you went right to my third round. i'm going to go there. do we have a clue what the overlay of technology is on our labor share and labor dynamics? >> the labor market is obviously changing in a pretty rapid way. the covid pandemic accelerated that. i think it does raise questions about the level of uncertainty we have with the labor market and how the labor market is unusual now. jonathan: we have got to leave it there. important topic of conversation. looking forward to that news conference wednesday. bill dudley, bloomberg opinion columnist and former new york fed president.

this market is down 78. we are down 1.8% on the s&p 500. priced shapes narrative. right now we have a single morning where we are down and down hard, -1.8% on the s&p 500. tom: we have the narrative and nuance of the bloomberg terminal. there are important nuances, including inflation-adjusted 10-year breaking -1%. you know i go to euro swissie, and i see swissie strength. i'm going to call it fractional. there rt leaves here showing consolidation and not contagion with the linkage of this verse is idiosyncratic moves. jonathan: if you are worried about china, where do you go in europe? the dax is down almost three percentage points. lisa: where do you go for safety

and equities? i was looking at the nasdaq, down almost the same as s&p in premarket trading. even though you have bond yields down, the idea of the safety stop and equities not performing that way. tom: you go to bitcoin. jonathan: what is bitcoin doing? tom: it is on fire today. jonathan: amazon down in the premarket. i think that is the point lisa is trying to make. tom: who is coming up in the next hour? jonathan: mike wilson of morgan stanley, chief u.s. equity strategist. looking forward to that conversation in 60 minutes. looking forward to the conversation. from new york, this is bloomberg on radio, on tv. this is bloomberg surveillance. ♪ ritika: the fate of president biden's economic agenda is

largely in the hands of house speaker nancy pelosi. just to find a way to keep the democrats moving toward her goal. she has an agenda that includes the president's multitrillion dollar tax and spending bill. she will have to find a way to avert a government shutdown and treasury default. british prime minister boris johnson is heading to the u.s., his first trip out of europe since the pandemic began. his most radical relationship with president biden is that a delicate juncture. it has reinforced the idea of a special bond ahead of an upcoming global climate summit the u.k. will host. the u.n. general assembly returns to manhattan this week. many new yorkers are less than enthusiastic. hotel and restaurant associations are expecting only a moderate economic impact.

it will investigate all allegations of corruption after a report by an india news outlet that the e-commerce giant has begun an investigation with claims of bribery. amazon is looking into accusations that legal fees paid by the company have been used as bribes. the new universal studios theme park in beijing is an instant hit. grand opening sold out last week within 30 minutes of going online. global news 24 hours a day, on air and quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. i am ritika gupta. this is bloomberg. ♪ this is bloomberg. ♪

>> with an infectious disease, it is hard to stop transmission

without vaccinating children because they continue to spread it. everything we know about the biology of sars-cov-2 suggests these vaccines would likely be effective in children, but this is the first data. it is important to figure out the right dose. we need to look at all the data provided in the trial. this seems like an exciting develop. tom: we are going to look at the markets in a moment. futures negative. the vix down a solid five basis points. we are going to get to that in a moment. a short conversation now with an important author and supporter of biden pandemics. i love the cover of your book, deadliest enemy where you have me coughing at grand central station on somebody 14 feet

away. to quote from your book, where are the black swans and red alerts of this pandemic? what do you see coming? >> i think there are two factors that are going to be key. just what we as humans do in terms of uptake with the vaccines. this morning we ourselves writing this news from pfizer with regard to the dosing data for five to 11-year-olds and the fact that hopefully soon we will have a vaccine approved for that group 12 to 17-year-olds are already approved, and in this country only half of these kids are vaccinated at this point. we are still seeing outbreaks at schools occurring because of that. one of the big questions is going to be not just to we have enough vaccine, but will people take it? if they don't, we will continue to see tremendous activity in this country. as of this morning, over 70 million americans who could be vaccinated are not. that is more than enough would

for this coronavirus to keep burning. will we take the vaccine? in our race to get vaccine to people, will we continue to seek new variants develop? these are the game changers. they will increase transmissibility or even the ability for the virus to evade vaccines. this could be a game changer. lisa: the news this morning was that pfizer is getting closer to seeking emergency authorization for the vaccine for younger children. how big of a factor are these kids in transmitting the virus and perpetuating the pandemic? >> we are seeing a tremendous number of outbreaks in schools throughout the u.s. and throughout the world. as of last week, 1800 schools in this country had been closed for

an average of eight days at a time because transmission was so widespread. if anyone knows about respiratory viruses and how to spread them in communities, the best way to do it is to create a viral flu season in kids. that is what we look at with influenza. you take it home to mom and dad and older brothers and sisters. it is very important. we want to get our kids back to school. it is a challenge right now with this virus out there. we want to stop community transmission. it is a challenge when you have kids that cannot be vaccinated. this is a huge issue. it is not just enough to have a vaccine. lisa: the point you just made is a big one. given that we have incomplete vaccination, it is turning into a petri dish for the virus to adapt itself. do we see any adaptations that

are particularly worrisome on the horizon? >> we don't see anything right now. the variants that we are looking at right now that are outside the scope of delta, mu is one, delta is still the king of the hill. it is so transmissible that it beats out these other variants. that may not continue into the future. this is why getting the whole world vaccinated is not just an ultra stick effort. it is a strategic effort. if we want to stop variant development, it is not just this country. it is around the world. africa, less than 3% of the population has access to the vaccine. we have ongoing uncontrolled transmission. a variant anywhere in the world today could be everywhere tomorrow. tom: thank you so much. we welcome all of you to bloomberg surveillance, radio and television. we are watching markets with a

significant move. nowhere near our correction on the s&p 500, but 4.5% down is not the 2% of a number of days ago. lisa: the idea that we have not seen any persistent selloff in any one day, i think that is important. the idea that the deterioration continues. there is a little bit of a floor starting to form. how much is this evergrande? how much is it people long looking for an excuse to get some weight off? tom: maybe 26 or 30 minutes away from the market opening, buy today. futures -73. dow futures -627. -1.8%. the vix goes up to 25.89. we had a 26 level moments

ago. i am watching 30 year bond as well. they are hinged off the massive bond supplied of the last number of weeks. lisa: the idea that it does not matter how much debt you sell, people will still buy it. even apple shares fell lower despite their big ted lasso win. this highlights how there is not the same degree of safety in the stock market that we heard people talking about earlier. hide out in the safe response, it is not working today. it is back to bonds. it is back to the basic hedges people have traditionally used. tom: if we go down, get a legitimate drawdown, the idea of what goes down less and then rebounds once you have a catharsis, certainly the last number of times that has been

the tech stocks to the rescue. lisa: i wonder if people are selling those first because they are the easiest to sell given that so many people want to buy them. liquidity is a curse in the drawdown. is it an opportunity on the others? you were talking about this before. 30 year bond yield, taking it on the nose. much more so than the other maturities. what does this mean about the fed response? does this mean they are more dovish? does this mean more accommodation? i cannot figure out what the application is. tom: looking at the spread with some stability. inflation 10 year real yield into a -.99. the equity markets will have much more on this through the morning. i know taylor riggs preparing a data-driven close as well. we will see if we can find a bid. i want to draw global wall

street's attention to an interview with michael wilson of morgan stanley, their chief u.s. equity strategist. i believe that is slotted for 9:40. lisa: i think so. tom: this is bloomberg. stay with us on this day of market tumult. ♪

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jonathan: what a messy start to the week. 30 minutes to go. equities futures down 75 on the

s&p. the countdown to the open starts right now. >> everything you need to get set for the start of u.s. trading, this is bloomberg: the open with jonathan ferro. jonathan: from new york, we begin with the big issue. a big week starting with big losses. >> a series of catalysts right now. >> the question is catalysts. >> the perfect storm. >> debt ceiling, this massive stimulus. >> what happens at the fed meeting? >> the fed is in a difficult position now. >> a lot of risks overhanging. >> it could be messy. >> we are going to see a midcycle correction. >> markets are really