♪ >> markets are jittery about a slowdown in growth, jittery about the fiscal mess but could be coming our way. >> we still like equities, still overweight, but we will be more modest unless we get a pullback. >> dollar grinding back stronger story. >> as long as the public continues to put money into it, it will move higher. >> this is "bloomberg surveillance," with tom keene, and lisa abramowicz. jonathan: no interruptions or down points. good morning, this is "bloomberg surveillance," uninterrupted and live on tv and radio. i am jonathan ferro. tom keene taking a long weekend.

futures down 17. off the back of the biggest one-day pop in the s&p 500 going back to july. lisa: you know he is screaming at his tv now. trying to interject as much as he can. is there an entry point? yesterday's move was notable -- notable because it was a move. is this a sustainable reassertion of the reflation trade? that is yet to be determined. jonathan: let's get to bitcoin, down 5.5% off the back of headlines suggesting china will call every crypto transaction illegal. kailey: this is your entry point, tom. down 5.5%. there is a question of china's continued crackdown on cryptocurrencies, not anything new, but this more firm hardline

on transactions comes at an interesting time for xi jinping. jonathan: concerns about capital flight, on top of the news we had earlier this morning. a suggestion that regulators and officials in china are trying to take control over the funds of evergrande to make sure the houses that did not get built will get built. lisa: the wall street journal report that china was perhaps trying to figure out what the ramifications would be at a state and local level, the idea is they are trying to contain the fallout internally. external investors, if you accept losses, not a big deal. my question is dollar bonds coming out of china. jonathan: they say kill the chicken to scare the monkey. i like that line. on the s&p, negative 4/10 of 1%.

i'm still not used to saying this, back to 1.40. on the 10, 1 .40 45. euro-dollar gives me nothing, unchanged. crude gives me nothing, unchanged at 73.33. lisa: the 1.4010 year yield is notable because it is not rattling any others. two fed speakers i will be listening to, jay powell and richard clarida to. they will be speaking at a fed speak event and also listening. what will they say when they speak, about a balance sheet that m ko partners believed would reach $9 trillion by last year? it is $8.5 trillion. then at 10:00 a.m., u.s. august home sales. how do we see a deceleration in the face of higher prices and

constraints? there are huge market that -- mortgage debt purchases that could result in high rates. 3%, will we see them climb? president biden is hosting the leaders of australia, india, and japan, the first meeting of the so-called quad trying to form an alliance in the asian pacific region. this has everything to do with china. i suspect there will be discussion about supply chains and trade. jonathan: stock of the morning is nike, down 4.7% in the premarket. the numbers look like this. the outlook for fog year growth grows -- goes from double-digit to mid single digits. supply out of asia, vietnam specifically, for nike. kailey: this is not a demand issue.

the ceo, we would have had stronger results if we have more product available to can -- to serve the consumer demand which has never been higher. it is not a demand issue, it is getting the supplies. jonathan: what happens to margins and earnings seasons? that's the equity story. this is the bond market, 2, 5, and 10. it is fashionable to talk about 10, sometimes you might talk about two or 30. lisa: high-fashion. jonathan: your five year yield, the belly of the curve, we have added some weight to the belly. low 60's in early august, down about three basis points this morning, but we've seen a big move. i want to bring in darrell cronk. darrell, is that where this rate hike dance is playing out, in

the belly of the curve? i think you nailed it. -- darrell: today, 92 basis points on the five, that's a big move. you are pricing in global central banks, not just the fed on a tighter path. the ecb is curbing their purchases. the boe wants to raise rates and we could see some el -- dm banks raising rates again. what should not be lost on investors is the bond yield curve has not billed in much for inflation expectations. so as inflation remains stickier and we go further out, it will have to do that over time. typically, that is on the long side, but we are seeing it earlier at the belly. lisa: is it overdone?

maybe a little bit. in the midterm -- darrel: maybe in the midterm. if i am buying on the yield curve, i am in the five to seven, at most 10, but five to seven kailey: kailey: looks really cheap. how attractive do bonds look to equities now? darrel:darrel: i still think they are unattractive. the fourth quarter which we will start next week is the strongest by far for the s&p 500, and usually tax on 4% to 5%. interestingly, when you have years with limited drawdowns like this year, the biggest draw down is 4.2% in february and march, this week we got a 4% drawdown. the only years like that are 1995 and 2017. both had white-hot fourth quarters. investors could be underestimating how strong the

finish to the year could be. those worries you talked about, margins, that is a 2022 story. i would be careful about underestimating the return in the fourth quarter. lisa: what do you make of costco limiting toilet paper purchases and nikes slow down because they did have the inventory, the fact that these issues will be persistent? how is it 2022 if it is very much here and now? you are starting to see it now but i don't think it is darrel: -- darrel: you are starting to see it now but i don't think it is a q3 or q4 issue. if you look at the ppi data at the producer level, that continues to soar even though the cpi is that a two-month low. you are seeing inflation push through early on and the demand will be there. it is just a matter of whether we can stock the shelves net

operating margins on the s&p 500 are at devotee percent today, the highest they've been -- 17% today, the highest they've been and a long time. i don't think that derails the bull market. jonathan: just a wrap up of fixed income, 1.4% on 10 year yields does not a tantrum make. try that at 2%. some people looked at the price action and saul, here we go again, 2013 -- saw, here we go again, 2013. darrel: i don't think it is a taper tantrum. we've not priced in and inflation -- there is a key of 1.45 and if we break that, there is not much in the way of 1.45 and 2%. we could move yields and steepen the curve quicker if we break with conviction at 1.45 i'm not sure it is a taper tantrum.

it is about when and where do we price in sticky inflation? jonathan: spurs on sunday, could you pick a team? darrel: i'm taking arsenal. jonathan: that is kind of appropriate because tom would pick the spurs. let's get to this bond market. how long it is going to take to get used to this 1.4080. don't want to make it too dramatic but the breakout is titrating. chairman powell spoke at the end of august lisa:. lisa:to call this a taper tantrum -- this is definitely not a taper tantrum. but the idea that the path from 1.40, 1.50 to 2% is actually short if we get to recapitulation, that is notice

-- notable as we get the hawkish tilt of central banks around the world. jonathan: do you think norway and the bank of england played into this? lisa: yes, and some headlines out of the ecb talking about inflation being stickier and ending purchases sooner. you saw a move up in yields after that. jonathan: really choppy trading week. evergrand fears started to trade. we are up on the week on friday. yields coming in a couple basis points after the explosive move higher in the 10 year yield. lisa: it was, relative to everything else. jonathan: this is bloomberg. ritika: china's central bank

says cryptocurrency related transactions are illegal. it is the strongest move against the industry. the website indicates cryptocurrencies including the coin are not fee at and cannot be speculated. -- fiat and cannot be speculated. the influential sister of north korean leader kim jong-un says her country is willing to extend talks with south korea. it wants the south to persuade the u.s. to decrease sanctions. missile tests were designed to show they would keep their arsenal active during sanctions. an investigation opened into market abuse by each cutie. the company eqt --. the sale of shares that follows

the revision. the european commission has confirmed that trade in tech with the u.s. will go ahead as planned. according to draft kimmons, the e.u. and u.s. will discuss documents -- global news 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i am ritika gupta. this is bloomberg. ♪

♪ >> the white house, the house, and the senate, have reached

agreement on a framework that will pay for any final negotiated agreement. so the revenue side of this, we have an agreement on, ok? thank you. framework, agreement of a framework. jonathan: the framework. anne-marie to translate some of this shortly. alongside kailey leinz and the soprano let's, i am jonathan ferro. futures down 21 on the s&p. thank you to the team at bloomberg for getting -- 1.4148 is where we are on the 10 year. mohamed el-erian writing people that you have to tell people the spurs and tots are the same team lisa:.

nobody calls them the tots. that is the one and only tom keene jonathan:. jonathan:the regular audience knows this but i am sure we should have a disclaimer. let's get to annmarie hordern. a story in washington came out from the bipartisan policy center, a new piece of analysis on when the debt limit may be breached. october 11 to november 4, is that new? annmarie: we were waiting on that date to know the exact date we reach the debt limit, and this puts congress on call that they need to come to an agreement before october 15. then you really start playing with fire if you have the bipartisan policy center saying this is the range within october 15. we are going to reach that limit and we could go into a technical default or face what we did in 2011, a credit downgrade.

this puts a crack timeline on congress. jonathan: you heard from the majority leader. what was he saying? annmarie: he's talking about a framework for tax policy so the house ways and means committee and the senate finance committee agree on the items going forward. it is a framework of those potential tax policies, an agreement between the two. this is all the details we know about this "framework" from an aide saying it doesn't include the top line number. but both chambers agree how to go forward in terms of their tax policy for their spending bill. lisa: it's an agreement of a framework of a possible deal that may get proposed. are we moving farther away? jonathan: it is a framework, carry-on. lisa: he didn't specify and

clarified even further, how far are we from getting something done? annmarie: this moment, although vague, is important. this meeting between schumer and pelosi and treasury secretary yellen, what it is is they are getting both chambers to agree on the tax policies so that you don't have the bill going back and forth. this is really important for a lot of individuals in the house lighthouse moderates who want to know what senator manchin and senator cinema are willing to vote on so they don't have to take controversial votes and it goes to the senate, and the senate votes it down and it has to go back to the house. this is a moment where they have found some sort of agreement. we just don't know the details. lisa: the quad, the first in

person meeting of the indian, australian, japanese prime minister. why is this important? annmarie: it is on the heels of their first meeting that was virtual and this is in person. for years, depending on which way the wind blew on the domestic agenda of countries, we saw a wavering of the quad kevin rudd, the former prime minister pulled australia out of the quad. now you have scott morrison, the prime minister not just coming in person, but also signing up to the australia-u.k.-u.s. packed on nuclear submarine defense. i think this just elevates this group and also what they want to do, which is containment in beijing. they will not mention china, but that's what this group is about, economic and security agenda, this alliance about containment with beijing. kailey: the biden administration

has warned companies operating in hong kong about the risk of doing business. given everything going on within china, do you expect the administration will have to pay attention an issue similar warnings? annmarie: it is a potential that we will be watching. we also have the commerce secretary in an interview overnight talking about how she wants to lead a delegation to china to have these conversations when it comes to business, because even though she does not agree of china's always fair practice with the united states, the economics say the united states have to do business with china. also on the heels of the fact that we had the president and xi jinping have a call recently. jonathan: i just had a question from a subscriber -- if the debt ceiling would need to be passed through reconciliation, does

that mean the major bill would have to be passed by two? annmarie: that would be one way of doing it, or they can vote within the reconciliation just a debt ceiling proposal. i think they can do it still via reconciliation. it is a good question because doing it via reconciliation, instead of passing the bill, which the senate has voted for quite sure, which means on monday they could take up this bill that links the debt ceiling and the stopgap funding measure. they would have to go back and it would take longer, but it will have to be done by reconciliation if the senate does not pass this bill, and we know they will fail. jonathan: annmarie hordern, thank you. the news that came out five minutes ago, lawmakers facing a deadline between october 15 and november 4 for the debt limit to be breached.

lisa: i feel like it is a bit of a circus. jonathan: i don't think you will get hate mail. lisa: it is a manufactured event that we don't have to deal with and it is taking hold of the debate jonathan:. jonathan:the perfect illustration of how ridiculous this gets is when you speak to a fixed income investor and ask what would happen to treasuries if things got dicey. they turn around and say, we buy them, and that underlines the whole issue. it also emphasizes why many people in this market do not care. lisa: if they default, what would be the impact to the credit rating? it will be a technical default, not that people won't get their money. it defies logic and is an irritating discussion when there are a lot of real issues. jonathan: i'm going to talk

about it all morning now. from new york city alongside kailey leinz and lisa abramowicz, i am jonathan ferro. tom keene will be back on monday. yields come in a couple basis points 1.4131. you will hear from chairman powell later on today. ♪

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♪ jonathan: are you not entertained? my greatest impression of russell crowe from "gladiator," but it has been an entertaining week. on the week, just about positive on the s&p 500, -16. down 1/10 of 1% on the nasdaq. the first day since 42 days ago that we had a move of more than 1% on the russell. the point of tension for all of you, the tension in china evergrand. evergrandis a penny stock facing issues. it is -11% at the close and hong kong. evergrand is negative on the

stock, the bond deeply depressed. we will see what happens with the $85 million payment. we have had example after example that the focus will not be on dollar bondholders. we had clarity on what will happen with the local currency bonds in the dollar bond, and we are finding out where the priority lies, making sure the buildings that have not been built get built, and the regulators and officials, that's what they want to do with the funds that evergrand. lisa: what does this mean for international investors in china who say they are trying to liberalize but their actions say something different? jonathan: let's talk with leland miller. is that lehman question mark not the right place to start. bitcoin, -56 percentage points as china says it is illegal to have a crypto transaction. define crypto transaction, as

kailey has pointed out. it is a really important week for investors looking to china and people in china looking out of china, capital flight might be an issue. 2, 10, 30, yields shaping up as follows, down a basis point or so. 1.4148. 1.9 240 one, coming in a few basis points. look to the belly of the curve. we have some weight over the last month and that is where the delicate rate hike dance is playing out, in the belly of the yield curve. lisa: and testing peoples beliefs that the fed will able to raise not once. jonathan: that's the cross asset price action, yields aggressively higher yesterday, a little bit lower this morning on

10 and 30's. morning movers with romaine bostick. romain: stocks are moving on the china announcement. that applies primarily to domestic residents and cross -- cross-border transactions. you are seeing that on some of the u.s. listed stocks. lower in the premarket, as well as marathon digital. we had seen some -- we had seen this crackdown earlier. the crackdown on mining had taken the wind out of marathon. it kept financial groups from transacting. other restrictions placed on financial institutions in july, so the rhetoric they are getting out of china and beijing seems to fit. it is not clear how much is new

or whether it is a ramping up of rhetoric. microstrategy's -- a defect a hedge fund for cryptocurrencies, moving up in the premarket. overnight, nike earnings were relatively good with regard to sales. the problem is that demand is there and supply isn't. the big number in transit, the inventory number, $6.7 billion. that is a flat number normally. you want to see flat inventory levels but nike is flat because everything is still out in see. footlocker, under armour, lululemon, this is having an impact on countries -- companies that source overseas. it is not just about vietnam where they make the materials but the port congestion. where is tom. does he have something to say? jonathan: looking forward to the close. leland miller joins us now.

we've got to have an important conversation that i'm sure has frustrated you through the week that everyone almost exclusively have been overwhelmingly focused on whether this is a lehman moment or not. you think there should be a bigger focus elsewhere. where? leland: you have to say this is not china's lehman moment. there is not major contagion risk. china has the tools to deal with it the real signal is what there was a de-risking of the financial sector, much tighter conditions. the property sector had been in the midst of a de-risking for the last six months or so, which has created this much lower growth, much less access to capital. this is a paradigm shift for china's model. i think they see the end of the

growth -- of the financial model, there is too much risk and too much use of financial capital, good money chasing bad investors should look at the medium-term trajectory, which will be most -- much lower. jonathan: i've seen numbers in the low fives next year. what do you think? leland: 2022 will be difficult because you had the olympics -- no way they will allow that into the party conference that is held twice a decade and he will report -- appoint himself president for life. 2022 is hazy and the way they want to handle the run-up. we are looking at numbers. they can keep them higher for longer but they will have to truly downshift. we have to talk about full percentage points going forward in growth, because they will not have the property sector driver and will not be able to snap

their fingers and transition from investment to consumption, because they are not doing the construct -- the structural reforms necessary. lisa: can the chinese framework handle the growth rate after hinging itself on the 7%, eight percent growth rate? leland: it is capable. there has been decades of zealotry around the idea that you have to have a gdp target and meet it. if you just expected slower growth, investors, commodity firms, everyone was thrown for a loop, but china embraced lower growth. it would stop the debt buildup. capital could go to production. it would be extremely important and i think that's why the party is doing it now. the true risk is that foreign investors haven't gotten the memo and they are not expecting what is coming.

kailey: china was supposed to be opening its financial markets. does this run counter to that? leland: it does, and there is a major conflict. xi is doing a major rectification contract to show that the contract has changed between the party and the people. the party is not focused on growth for growth's sake but is there for distributing wealth and making sure everybody is happy and rich. there is a major domestic focus that conflicts dramatically with the idea that if you make capital markets hospitable to foreign investors lisa:. if the regulators and china managed to avoid contagion risk within the population but allow the bonds to default, is there a larger message that it is dangerous and unpredictable to invest in dollar bonds going forward? leland: absolutely.

the risk has shot up. could they be any clearer in signaling where the parties are? if you are investing in dollar bonds, you are somewhere in the middle to the bottom of the party list for evergrand and overall. the idea that these are low risk investments, you have to crank up your risk profile because you don't know how deep these crackdowns will go. jonathan: i imagine we will be talking about this issue for a while, leland miller, china facebook ceo. there is two ways to look at this, the risk through the financial channels, have a chat about lehman. you have to have the other conversation about the changing growth model in china, a shift away from property, and this is a symptom of that. it could be an accelerant as

well. lisa: the idea is what is the international ramification if it is a closed economy? this comes when international investors are trying to pour money into this country, looking for higher yields. now they've got them in space. what kind of risk are you adopting to look at a country in such flux? jonathan: it doesn't mean it is a headland -- headwind for all markets. small caps and europe might mean another to the commodity super cycle. kailey: china is such a huge driver for industrial metals, copper and iron or. it is their broader push towards decarbonization, there crackdown on steel production, all of that makes a difference. jonathan: michael k five will

join us later. let's set up the price action this friday morning, a bounce back wednesday, thursday into friday. friday a touch softer, down 17. was that the man and my head or lisa abramowicz? what was that? kailey: she's clearly been practicing. lisa: did you cough or say "go to cash"? every talking about 20,000 or 50,000 on the dow? [laughter] did we do it? jonathan: this is bloomberg. ritika: china's central bank

says all cryptocurrency related transactions are illegal. it is the strongest move against the industry. the website indicates all cryptocurrencies including bitcoin are not fiat currency and cannot be circulated on the market. a statement says crypto related transactions including services provided by offshore companies the residents are listed. india plans to overhaul its military are gaining life. india's move comes as the u.s. and allies strength and allies strengthen defense cooperation against china. apple may have to redesign its iphones to use u.s. d.c. charging ports aimed at cutting waste for people with multiple devices. they want a single charging port

for all mobile devices. -- teaming up in a european factory venture worth more than eight million dollars, to secure the price of electric cars. the biggest luxury car maker will take a 33% stake in the auto manufacturer sales company. investigating the january 6 riot at the u.s. capitol, several subpoenaed. with a deadline to produce the documents by october global news 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. global news 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. -- i am ritika gupta. this is bloomberg. ♪

♪ >> the fed said it is going to let inflation run, but it is running at a furious clip.

the fed has got to be at least somewhat concerned or perhaps a lot concerned. that's why we had the subtle change in tone yesterday. jonathan: mike schumacher of wells fargo securities. here is the price action. equity futures a little bit softer, down 19, -4/10 of 1%. yields break out through 1.40 to 1.4017. yields in about a basis point. a feedback on hyper convexity. lisa:lisa: you can joke but he is listening. jonathan: no doubt. dollar 1.1718. stand out has gotta be the bond

market, the 10 year yields, had a discussion about the belly of the curve breaking out. lisa: and in one day, the biggest one-day move going back to february on the heels of, is this a tapered discussion or a move away from easy post pandemic policies from central banks? jonathan: dave wilson, let's talk about buybacks. dave: s&p, dow jones came out with second-quarter numbers yesterday so we are talking about a lag. two things jumped out of the report. one is the total for the s&p 500 of about $199 billion. the first quarter last year, that total was about $199 billion. in the second quarter last year, they were down 55% so now it may back the entire decline so we

are back to pre-pandemic spending. what's also notable is just how much overall -- how much of a role bigger companies, in terms of buybacks played overall. the 20 largest spenders accounted for about 56% of the total. put that in context as the dow jones did. he looked back five years, 39% of the total for the top 20 out of the 500. you go back 10 years, you are talking more like 29%. buybacks have become increasingly concentrated just like arguably the market itself when you think about the waiting of the biggest companies within the s&p 500. jonathan: an absolute monster on the s&p 500 for buybacks. here's a move we need to talk

about, bitcoin. negative by six, seven percentage points, just north of 41 k. kailey leinz, it is illegal to transact in crypto in china, that's the headline. kaylee: take that as you will. is that mean you cannot trade it? is this just an extension of what china has been doing crafting down on mining steadily over the last several years, or is this something else and is the timing something we should pay attention to? jonathan: joanna ossinger leads our coverage on cryptocurrency in asia. what's happening? joanna: china has put out another statement saying cryptocurrency transactions are illegal, but the question is, what does this actually mean?

it doesn't look like they are actually making crypto illegal in the way illegal is for instance. china has done these before but have not necessarily had a complete widespread effect. we will have to see. definitely, cryptocurrencies are rattled. lisa: what's the motivation of the regulators in china? joanna: it is always hard to tell. they could be looking at systemic issues to say, looking at ever grand and there could be issues. there are concerns about retail investors getting hurt, but they have been steadily cracking down, whatever their motivation is, steadily cracking down and making these increasingly strict

statements about what they want with crypto. kailey:kailey: that is the trend globally, even in the united states or the u.k., thailand, a lot of places are looking at it as the crypto factor has become increasingly large and important. can we conceptualize how important crypto is to china? joanna: it is an issue because they have and minors but there is still a lot of mining going on with it going and there are a lot of holdings there. it probably, a lot of data are showing -- with some of the holdings numbers, but they are pretty significant. it is tough to tell sometimes where people are, but something like this will rattle the crypto market overall because people don't like to see the extra level of regulation.

jonathan: joanna ossinger, thank you so much. you cannot get away from the broader story, the context, to see that headline on a morning and a week where we had these concerns of what would happen next. lisa: it highlights the difference between the chinese economy and market and the united states market, how much they are trying to manage some of the ramifications from allowing this company to default . it is pretty aggressive on multi-fronts and to see how well they are doing that eliminates some of the -- i almost dread saying this -- the lehman moment kind of fears. jonathan: why? lisa: they are saying it is not a lehman moment. i feel like i will put myself into -- jonathan: we have a

sophisticated audience. credit suisse dumping ever exposure on risk fears. they did this before this happened. here is the lead paragraph -- credit suisse wants the top underwriter of evergrande sold down its entire exposure to the troubled chinese company. a series of banks have come out to disclose, a bit of transparency, credit suisse has been in the middle of every single bad episode we've seen more recently, but not in this one. lisa: you have the likes of hsbc trying to walk back and say they do not worry about that exposure . credit suisse was in the middle of the blowup this year, and lisa, you've made comparisons.

credit suisse made a huge mistake with the former but maybe not with the latter. lisa: two saying -- to be clear -- and not saying this is an art tagus event -- why do we have to compare this with a catastrophe in the past? jonathan: for referencing, we always do this. it is not 2000. why is the exercise helpful? it might anchor emotions but do we have to have extreme benchmarks to decide whether something matters? is that journalized or the sell side? lisa: it is human nature.

>> markets are jittery about a slowdown in growth and jittery about the fiscal mess that could be coming our way in the next 40 days or so. >> we like equities but we will be modest in our overweight stuff >> as long as the public consistently believes in the market and consistently puts money into it, i think it will continue to move higher. >> everybody is wondering why u.s. equities are hanging in there. >> bloomberg surveillance with tom keene, jonathan ferro and

lisa abrz.