>> 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 abramowicz. jonathan: for our audience worldwide, good morning, this is bloomberg surveillance alongside lisa abramowitz. the equity market is down 23. live on tv and radio, putting itself together as the week progresses. lisa: it's the idea we are getting some inflection. why is there suddenly conviction reflation. jonathan: yields were lower wednesday and aggressively higher on thursday. kailey: we were talking about how any back of central banks would be bad for risk assets. jonathan: the good news is the

chairman of the federal reserve held everyone's hand and guided them toward the decision and they recognized what will happen in november. lisa: which they said they were ready to do. he gave the market plenty of notice and going into that fed decision, everyone expected the fed was going to do exactly what it did. jonathan: just a note on this, the chinese saying it's illegal to trade crypto so is this a broader part of the crypto story? lisa: this all goes to this question of how they contain the risk that seems to be percolating as a result of the regulatory changes and another big company, a chair that has been arrested by chinese officials. is it really in isolationist

event or it is it something bigger? jonathan: that is not a big move for bitcoin, nothing. ritika: lisa: what does it mean to not have transactions in china for toe assets? jonathan: what a week, down 22 on the s&p 500. yields are breaking out on 10 with yields down a basis point. do we need to rethink the commodity trade given the shift in china. lisa: the idea of a slowing trend and what that means, maybe less demand over there but on the flipside, you have the figure infrastructure push. are we still talking about infrastructure in the united states? jonathan: we do have to talk

about it. tom will talk about it every day next week. i don't disagree. if a strategist says they will buy anza things get bad and the treasury market, that tells you everything you need to know about this moment stuff lisa: and the fact that we are getting whipped around by political navigation. jonathan: patrick armstrong joins us now. is it higher or lower for this equity market? >> i think it will continue to be higher. i think qe will slow down but not stop over the next nine months but it will be tapered. i think we have a bumpier grind higher potentially. you saw $1.3 trillion with the fed yesterday and you have negative real yields at -.9% and very significant earnings going forward for the next few years

with double digit earnings growth. kailey: people were saying there was a reaffirmation of the reflation trade with higher yields and higher equity prices. has there been some shift or was it choppy as people try to make sense of the headwinds and tailwinds? >> there is a change in inflation expectations and a change in what the treasury has for the yield. the fed is buying 120 billions of bonds every month and that will slow down. the path of the 10 year yield moving higher is a slightly less negative real yield. you have to incentivize buyers to take those treasuries if the fed is not buying them. kailey: you mentioned that real yields have gone higher. you talk about three pillars

that support equities, real yields which are still negative, liquidity which will start winding down, and earnings growth. when you look at companies like nike and fedex over the last week, how nervous does that make you? >> i am avoiding the companies that are selling to a consumer they can't change their prices that they will have bottlenecks that the world is experiencing. your best probably staying away from them long-term. short-term, you might have some hits to the margin. those companies are being forced to have a margin freeze. they are able to charge whatever they want, other companies. the semiconductors, you have heard they cannot produce as many cars as they want.

it affects televisions and refrigerators and there is a chip shortage in the companies that reduce the machines that make those chips, they are set for years of pricing power and very strong demand. jonathan: how long will these conditions persist? how can you reconcile that position in the equity market with another call on monetary policy? do those things back up? >> on monetary policy, we've got the indication that interest rates will be coming that is the chairman's call and there will be a massive turnover in the fed over the next 18 months. i think the tapering will happen. i think that's in the cards already in the interest rate hikes are a pie in the sky. i think those rates will only happen if the economy is very strong and we have inflation,

hopefully it comes from demand rather than the bottlenecks i'm talking about. it even has some pressure and monetary policy. the fed has a good handle how to deal with that. a strong demand led inflation is something the fed is equipped to deal with. lisa: this is an important distinction, do -- to bet on supply disruptions lasting a long time but dealing more bullish generally on stocks indicates you see an acceleration in other areas putting wages to offset those stagflationary trends. what do you have to see in the data to confirm that view. >> you need to see higher wages and people coming back to the for -- back to the workforce. the survey shows a massive boost for american companies filling job vacancies and that's the biggest problem right now.

i think higher wages, reduce margins, increased spending power for the american consumer but i am confident there will be higher wages and that will provoke higher demand. kailey: i'm sure you heard why we have to care about washington, d.c. do you care at all when you make investment decisions? >> i have almost written it off. kailey: thank you. >> you can only ring the bell so many times. it gets addressed when it needs to seems to be a bit of an overhang but is never been an event that's been material. jonathan: patrick armstrong chief investment officer, you are singing from the same strict -- script. lisa: it's hard to take it seriously because it's a game of axman ship and whoever gives up first. some people say could be an

issue because nobody wants to call chicken first. jonathan: considering how constructive people work about the big effort we could see materialize in washington with this administration and this congress. lisa: what's the bigger risk, $3.5 trillion land getting past or the $550 billion bipartisan infrastructure agreement not getting past. people are not even thinking about that right now. jonathan: it's a headwind or a tailwind as you get pass the tax hikes. lisa: exactly. jonathan: i am just here to ask questions. the s&p is negative a half of 1%. why do you believe i want to stay out of trouble? get in trouble with who?

who am i getting in trouble with? kailey: you like to provoke good discussion and that's important. jonathan: thank you very much. at 1 p.m. eastern on bloomberg tv, and in 20 minutes, we will catch up with the chief u.s. economist. from new york, futures are a bit softer to finish the weekend is the same conversation on two issues, the federal reserve and we will hear from chairman powell later and china and ever grand. i have no idea if you will hear from ever grand or at all in the next week. this is bloomberg. ♪ ritika: china says all

cryptocurrency trades are illegal. they indicate all crypto currencies are not fee at currency and cannot be circulated in the market in the market and the statement says all crypto related transactions provided by offshore exchanges will be put on freeze. the russian natural gas producer executive has been arrested in florida related to tax charges. he was charged with a decade-long tax failing of failing to report $40 million in income. the ceo of the agricultural giant says think should dissipate in time. he said supply was being disrupted from labor shortage to the impact of climate change and the u.s. is urging customers to

provide information on sales of chips. the goal is to alleviate bottlenecks to identify patterns. the u.s. is set to begin covid-19 booster shots. millions of americans could start that as soon as today. the cdc remarked -- recommended people for boosters over five years old who received the pfizer vaccine. global news, 24 hours a day, powered by more than 20 700 journalists and analysts in more than 120 countries. this is bloomberg. ♪

>> this is not china's lehman moment. there is not major contagion risk here china has the tools to

deal with this. jonathan: that was an important conversation to focus on the shifting rope model in china to a lower trajectory perhaps with high quality so catch the whole interview bloomberg.com on. it has been choppy this week with equity futures down 22 and yields come in one basis point after yesterday's big move. let's head over to hong kong. can we start with the crypto decision out of china? what does it mean to say the crypto transactions are now illegal? endo: it's the most explicit move yet on crypto. there is a headline in that but

it must be said that chinese authorities have been fairly nervous toward crypto for some time. they have been enforcing restrictions and earlier test because of the underworld related to crypto and the lack of transparency and the demand on energy stuff china is trying to pursue this green energy component. a move like this wasn't totally unexpected. jonathan: do you think the chinese are concerned about capital flight? endo: they were concerned with capital inflows last year. they opened up their bond markets with hong kong and there was a surging record demand by chinese securities. last year it was inbound money but there is no doubt that china is always concerned about outflow ability of what might

trigger money leaving the country. recently, they just opened up another big bond connector to lead china to come down to hong kong. that would indicate they are not too worried about capital outflows just yet step it's always on their menu and that's why they keep it tightly controlled. lisa: is there a sense that chinese regulators will formally say they are changing their stance and welcoming international flows into the nation? endo: they have been taking steps on this in recent years. some of it had to do with the trade war with the u.s. but some was in their own interest. they have been gradually opening up their bond market to foreign investment. they have been taking money but there is no doubt they have no

intention of releasing their grip on the capital accounts with strict controls that remain in place in terms of money moving in and out of china. the yuan has been stable but has taken some pain over the last year or two but they haven't made any moves to weaken it. they are welcoming foreign money to some extent but they are also saying in terms of capital accounts, they will not let go anytime soon. lisa: any reaction to the pboc actions in the last couple of months? endo: to some extent, the pboc has its own can indic this its own coming occasion channels to china but at the same time, but they are keeping a fairly steady course. more recently, there is a view

that perhaps they have been quiet in terms of where the economy is headed and things are slowing down more than

jonathan: ever grand is down by export 1%. any kind of potential social unrest in china is viewed as an existential risk to the chinese comet's party. when they address a situation like this one, is no surprise that they are looking to make sure those buildings that have not been built get built before those bondholders get paid. lisa: they understand what kind of social unrest there could be by.

they have a tolerance of a four handle gdp growth. what does that look like and what are the ramifications for the rest of the world? everyone relies on chinese growth as the marginal indicator of expansion. jonathan: they move further and further away from the growth target of yesteryear. kailey: i was just reading the note from this morning and they say the market is pricing in the kind of growth we are unlikely to get given what china is doing and that makes the expense of u.s. stock market very vulnerable. what happens in china could be felt here. jonathan: it's a conversation we have to have in years to come but there will still be opportunities with lower growth but high quality. what are your proxies? do you have different kind of china proxies now as the growth model shifts more in the years

to come. lisa: does it mean higher costs for goods? that will shift with this new model. jonathan: manufacturing needs to get up the value chain in a big way. tom keene is focused on the social issues around this ever grand story. equity futures are down 25. heard on radio, seen on tv, for our audience worldwide, this is bloomberg. ♪

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jonathan: live from new york city, looking to guide you through to the weekend. equity futures down 21. yields are aggressively higher than yesterday session and are unchanged now. the turnaround of the week is in the bond market.

can you make sense of the bond market wednesday into friday. lisa: i don't understand it and everyone tries to give it a narrative. the one correlation is as we got word in europe about a little more of a hawkish yield, there is more of a shift yesterday. jonathan: the first thing i did was got back home and logged onto bloomberg and saw that securities were online. it was predicted. they said this is what i think will happen with the news conference, a focus on the dot s because i think they will shift. there is a lot of treasuries that need to be taken down. the tapering story will be more aggressive and she was right.

whether that sticks, i have no idea. we have added serious weight in the last month and that's where this delicate rate hike is playing out with a little bit more to fives and out. lisa: i like you coming home and immediately logging onto bloomberg. it's the right move. she was initiating a long on the five-year note because you thought it was overdone. jonathan: let's talk to the barclays chief investment economist. do you think we have priced in hikes too quickly based on what you heard in the fed call earlier this week? >> given -- good morning and thank you for the question -- given what you heard, no, i think you are hearing hawkish rhetoric out of central banks,

the fed giving you the signal on taper, the bank of england signaling tied it -- tighter monetary policy. we can debate whether is the right policy and how inflation will play out but given the communication, no, i think markets have been right in terms of absorbing the message that the normalization of policy has started, the great exit from these emergency policy settings has begun. they might even be accelerating. jonathan: what will they do and what won't they do? what will they do for the next couple of years? >> for the fed, step one is get to taper. there is a high bar not to taper given jerome powell's comments. next year opens the door and whether they walk through that door or not, we don't know. we need to see we inflation will be in the bank of england has

set up a situation where the market is rising in about two hikes over the next year and they may have a small majority to deliver those early next year. it's probably a coin toss whether you get a hike in the u.s. next year. it's a split right now on the committee. the fed would argue that we might get started but three years from now, we still think we will be below neutral. it's a blend and that's what i think a steepening in the yield curve made a lot of sense. we may get started sooner than we thought we would but we still think it will be a gradual cycle and the neutral rate, we will not touch that over that full forecast from the fed projections. that's why you can still argue for a steeper curve? lisa: i want to get more collaboration on the great exit starting.

we have not seen any major moves in markets in response. can this state or is there a cumulative effect by all the central banks taking a similar were more hawkish tone at the same time? >> that's a great question. there probably is a day of reckoning at some point. we all -- when that ship turns globally, historically, you will get volatility. in your previous segment, you talked about downside risk to china growth. we think mexico will do 25 basis points tightening next week. there is a lot of potential ship turning in the way that's coordinated globally. it reflects the nature of the shock which was a coordinated pandemic shock. we are past the v when we got

the sharp snap back and growth could be moderated globally going forward but that's not always a great recipe for markets. it's about the speed of that removal against were market expectations are but so far markets want that and it hasn't been destabilizing and we will have to see whether that balance can be maintained. i was worrying about this last night, worrying about the higher yields around the world leading to lower foreign buying of treasuries and what if there is not substantial yields. >> it's a scenario that i think we have to be aware of and see if that plays out. that would mean you will get more tightening, more of an effect on gdp per fed tightening because you arguing that you are arguing that rates should be higher. lisa: let me talk about the

consumer. in the last couple of days, we have heard about supply chain issues. kailey: cosco last night said we have to raise items in our shelf up to 4.5 percent. to what extent is the consumer still going to be able to tolerate that if we are not getting significant wage inflation? >> i would argue that i think we have enough ammunition in the pipeline for the consumer to keep spending going despite what could be potentially higher prices on some goods. we still have a lot of excess savings on household balance sheets and we still think there will be a lot of employment growth. income generated from labor markets is not just where wages are but its total employment. from an aggregate perspective come i think there is enough momentum to keep household spending clicking along at reasonable rates even though there are underlying price pressures that we did not have

36 months ago. we are still comfortable with where the u.s. consumer is. kailey: you still have a persistently low labor force participation rate and you are seeing the additional benefits roll off but you are not seeing the subsequent increase that many were expecting when you remove that incentive not to work step what do you make of what's going on the labor market and how structural these issues are? >> this is literally the big unknown for the u.s. recovery. does the participation rate rebound or is it a permanent exit from the work force? i think there is a lot of factors restraining employment and restraining a return to the workforce. we cannot really parse it all out because there are a lot of moving parts. i think the number one important reason that is destabilizing labor markets is fear of infection and infection risk. that's been a well-worn wheel at

this stage of the pandemic but if you look at where hiring came off in the last employment report, all hospitality and all retail. other than that, hiring was pretty good. if we want to understand the structural outcome in the labor market, we have to get a control on the pandemic. it's simple to say, hard to do but i think that's the driving force. jonathan: we've got to get you out of the basement. >> we are actually back in the office three days per week. jonathan: do you do monday at home and friday at home? is it a longer weekend? >> it varies depending whether we see people face to face which is happening again. it's whether i have interviews with my friends on bloomberg or not as well. jonathan: thank you, great to catch up. people are just trying to make this work step work from

home/work from the office. i hear similar stories out of london as well. you try to make it work. lisa: i want to clarify that it is not a metaphor that he has to get out of the basement. he has actually been in the basement for the bulk of this time. we want to sort of clarify that point. what is the new paradigm in terms of working in the office? i hear more people going back to the office. they are glad to be out. jonathan: they want the kids back at school. the cleveland fed president is the text of a speech out this morning. she says conditions of a lift off by the end of 2022. there is a split on the fm --

fomc illustrated by the dots. she supports the fed tapering in november. after liftoff, we need accommodative policy for some time. this is why i say there aren't really any real hawks on the federal reserve. what divides the doves from the super doves is whether to go at the end of 22 and from there, there is almost universal agreement to keep the rates quite shallow if they can. lisa: we have not seen an inflation acceleration over the past few decades and what jonathan: jonathan: will change that? this was fine. -- this was fun. tom keene is back with is for monday. when does matt miller get married? lisa: next friday. but he leaves today.

congratulations matt miller and have a wonderful wedding. to your beautiful wife who i thought you were already married to. i don't know what this is. i met the wife about 10 years ago. from new york, this is bloomberg. ♪ ritika: the influential north korean leader says the country wants to resume talks with south korea under certain conditions and it indicates it wants the u.s. to relax sanctions. the statement comes days after north korea conducted muscle test which some experts say was meant to show it would keep its arsenal active while sanctions stayed in place. the people's bank of china is going all crypto related transactions illegal. it indicates all cryptocurrencies including it going are not fee at currency and cannot be circulated on the market.

it's is all crypto related transactions are illegal. democrats are facing deadlines and funding the government and the deadline and infrastructure agreement. they are trying to rebalance legislative work with finalizing bills that contain president biden's economic vision. the senate holds a bose monday and i how spending bill that extends the debt ceiling all staff this is bloomberg. ♪

lisa: this week has not been boring.

what a week, i feel there has been a reset of sorts and yet people don't know exactly what to make of it kailey: kailey:. this is the longest week i have had a long time and i was off monday. i feel it was at least 13 days long. it seemed everything exploded when i was off monday. ever grand tank the market and by wednesday, things were looking fine even after a hawkish turn from the federal reserve. lisa: there is stuff that is happening that is genuinely real so why do we have to era about the debt ceiling. we got word from the bipartisan budget committee that we will potentially run up against the debt limit. ira jersey will be here to tell me why we should care.

do i have to pay attention? >> we do because of the extreme tail risk that exists for me debt ceiling being breached. if the government default on our debt, we don't know the ramifications. we also don't know if that will lead to a significant risk off event. lisa: hold on a second. going forward, in the past, we have not seen any material risk off event at least not in treasuries. >> that's because the congress has always raised it in time before the government actually had to default on its obligations. we don't know what the ramifications are if they do. it's such a small event but it has such massive implications of the government does default. the u.s. government has not defaulted on that since the

civil war. in that time, we are the reserve currency because we carried debt and have a very deep and liquid bond market but we don't know what happens if congress were to delay payments on some of their obligations. why take the risk and that's way congress needs to raise the debt ceiling and raises sooner rather than later. my model shows october 26, we run out of money and people's around then might not be fully repaid and that can be problematic stuff that's why it matters but it's such a small chance it will happen. lisa: it's a hypothetical scenario in the event that congress doesn't do its job. let's talk about what happened to treasuries yesterday. what if we suddenly get a double digit basis point move on the longhand? >> a two+ standard deviation

move. it happened for the better part of three years outside of the big moves in march of last year. i think there was a realization that the federal reserve, even though it might liftoff in 2022, i think that's optimistic on their part. even if they do, they will hike very slowly and let inflation maybe run a little bit hotter than people think and that should mean that yields should be higher in the curve should be steeper. the knee-jerk reaction on wednesday was a little bit pessimistic in that regard. that's one of the reasons why we saw the big selling yesterday. some of the risk off moves coming out of china might not be as bad so that's another adjustment in the markets thinking and vernacular. lisa: so get out of your crystal ball with the treasury market. do we stay above 140 from here?

>> we probably have seen the lows of this cycle and when i say the cycle, i mean this year. one .1% on the 10 year treasury. our thinking is we will reach about 168 year-end and next year meander higher in 10 year yields. i think we will see more curve steepening this year and the front and is still pretty peg but 2022 is when we see flattening of the year curve -- of the yield curve when the front and starts to meander up. lisa: does the u.s. treasury market have to rely more on domestic buyers is global central banks move toward hawkish rhetoric? >> i think a little bit. the foreigners now only on about 30% of the treasury market. they had own 45% six years ago. it has been domestic investors

that have been absorbing most of the additional treasury supply over the past half decade. in august, we saw a massive jump in demand for 10 year treasuries from arner's and that bid went away this past month and it was domestic investment funds that bridge that gap and those were the biggest buyers ever in the 10 year reopening last week. lisa: ira jersey, thank you so much as always. we don't have enough time and kaylee was talking with someone about why he is so different from stephen major who sees the 1% treasury yield as a more likely possibility and he's been right for years. this is one of the biggest conundrums on wall street. do you go with what has worked in the past or do you say this time is different as we move toward a new regime flush with kailey: cash? kailey:it's an excellent

question and steve major has been proven right on most occasions. everyone said we were going to 2% but we got lower treasury yields. if you can predict the bond market now, you are smarter than i am lisa: stop lisa: nobody can it'sanom yesics -- it's guessanomics. this has been one of the most interesting weeks the last few months as far as market volatility. we got the biggest to dave move in the s&p going back to march really tells you something. kailey: we got a 1% move to the upside which is the longest streak in something like 18 months. 220 four trading days without a 5% pullback and we haven't talked about the possibility of a correction today but that

narrative has been building. lisa: i do talk to some people who say i think the dip happened and it's over. you might wonder if that's what we just experience and it was a small dip. you seem to be matching with ira jersey every time you guys are on together. i want to turn our attention to something that was sad and i want to pay tribute to someone very special a bloomberg who recently passed away. >> this past week, we lost a colleague and longtime member of our family, robert chin. he helped make us what we were today, expanding bloomberg television's footprint globally as part of the team that launched btv in france, germany, italy and spain. if you wanted to get something done, you just need to tell rob that need to be done and he said

it couldn't. and it was done. he never turned away anyone asking for help. for those of us who knew him, he was someone you could always count on to make work and life but interesting. we will miss you, rob. ♪

jonathan: good morning. wrapping up a copy week. 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 for rep -- with jonathan farrow --ferro. jonathan: from new york, we begin with a resilient market or a complacent one? >> i haven't seen this level of complacency in my career. >> not necessarily complacency. >> a much more resilient equity market. >> a little bit more worry and market. >> we have some concerns. >> there is the buy the