♪ >> what you are going to see is higher inflation through 2022. >> inflation is effectively a creeping default. >> it is time for the fed to adjust. >> the bond market is telling the fed they are making a mistake. >> we think if i when they start to hike, they won't get very far. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. jonathan: cpi 90 minutes away. from new york city, for our audience worldwide, good morning. this is "bloomberg surveillance ," live on tv and radio. your equity market up 20 on the s&p, advancing 0.4%. the data just around the corner. lisa: evidently it is all priced in. yet, they do think it is priced

and even with the 10 year yield at 1.5%. jonathan: what does it mean for the federal reserve december 15? yields up to 72, a year to date high. lisa: the market still thinking it is temporary in order to let the inflation run off as the year goes on next year, which is the reason why yields have remained so low in the back end. does this persist, or do we start to see signs of real persistent wage growth and rent increases that suggest something different? jonathan: do you like the president lagarde hump that she is talking about? helpful, that one. we are looking forward to the ecb next week. later this morning, cpi. the estimate, 6.8%. kailey: it is going to come in hot. i think it is interesting to contrast what we are seeing with inflation in the u.s., what it means for federal reserve policy, a fed that is still

easy. in emerging markets, you are already getting the tightening. you were talking about brazil yesterday, how we were getting massive rate hikes delivered. we just got brazil's inflation rate for november, 10.74%, the fastest pace in 18 years. jonathan: they are set to go again in february, perhaps by another 150 basis points. lisa: when will it bring enough -- when will it be enough to bring people back into the country? you're getting yield at a time when the country has gone back into recession, and that has been one of the big questions for investors. one to earn that money, and yet they can't quite get it there. jonathan: the big moves this year have been in e.m.. is it dm's turn next year? increasingly that is the conversation we are having. lisa: the more interesting call recently has been that the fed will go ahead, and that the fed

will wait -- and that the ecb will wait to get that is one of the more interesting calls. jonathan: you are really excited about next week? kailey: just because you won't be here. [laughter] lisa: you will call in. we will hear your voice. it will be great. jonathan: futures advancing 0.4%. a tidy week of gains on the s&p 500 going into your cpi print at 8:30 eastern time. yields are higher by a basis point to 1.5128%. lisa: 6.8%, that is what we are expecting in the u.s. consumer price index. the idea of the fastest inflation print for the basic things we buy every day going back to 1982. the issue is underneath that.

what do we see in core cpi? used car prices are still accelerating at some of the fastest pace on record, even though they have already seen that rise. how much does that color people's idea of whether this is actually persistent and something other than temporary or a hump of inflation? at 9:45, southwest airlines ceo will join our own jonathan ferro. how much can the bridge the gap for employees who will just not stay in the seats with them? this is also a major problem for bank of america, as we heard from brian moynihan yesterday in an interview with david westin. how much are they able to address this, and how much does this disrupt some of the service? it is hard to get an airplane ticket sometimes. 10:00 a.m., we get the consumer sentiment survey. people are not feeling great about the outlook. we are hearing about how it

almost doesn't matter what the economic data means. if people don't feel good, that is not good. the issue of these higher inflationary reads, are they bleeding into deterioration and some of the consumer sentiment gauges? jonathan: this from goldman, downgrading southwest on inflation concerns, cost pressure. analysts making a move this week. kailey: the consumer seems to be worried about inflation. we see that showing up in retail sales and consumption data, and they are really confident still about their ability to get a job because there's jobs out there. people just aren't taking them. jonathan: there is a man that is bullish, darrell cronk. he joins us now. darrell: we think there's a lot of reasons to be bullish into next year. earnings growth is there. we have not even come close to the 200 day moving average for the entire calendar year of

2021. we think earnings can grow nicely. we think the bond market is probably pricing and too many hikes currently at today's level for 2022. just a lot of good reasons to think that the consumer is strong, they will spend into next year, we are moving from earnings psychodynamics to midcycle drivers. we will see a weaker university of michigan consumer sentiment today. this is the first print we're going to see with omicron inside that number, so it is the lowest reading on consumer sentiment according to the university of michigan since 2011 right now. lisa: do you also see a hump of inflation or a temporary inflationary push, some kind of trajectory that allows the fed to be less hawkish than the market is currently pricing? darrell: we do, actually. think about this. next year, you still have the

three seats on the board of governors to fill. it is almost on assurance that the administration will fill those with doves. do you think been fed is going to drive this thelma and louise right off the cliff head of the midterms? we think that is doubtful. you are looking at an environment where gdp growth is decelerating. still above trend, but decelerating. inflation is decelerating. we just don't think that is an environment where the fed shows up every single meeting and decides they need to raise interest rates, which is what the market is pricing intraday. -- pricing in today. kailey: where is that going to leave the 10 year yield, given that we are going to face a potentially 5.8% cpi print? darrell: go back to 1982, when reagan was in office, and you had 7.1 percent inflation, but 14% yields. today we have 1.5% yields and 7%

inflation. what people forget is negative real yields are a very positive thing for risk assets. obviously we are at unprecedented negative yields. we have only seen this one or two times in history. you have to go back to the 1980's to find those. but those are bullish for risk assets heading into next year. jonathan: let's go back to the 1980's. 1983, looking back on the stock market of 1982 in "the new york times," "who would have thought 12 months ago that chrysler or winnebago or a homebuilder would not only whether one of the worst recessions ever, but then soar past the stock market?" what of the history lessons here? darrell: there are a couple. one is every time we get close to a fed tightening cycle, markets tend to get really aggressive on the idea that the fed is going to over tighten. we see this over and over again.

the only two examples i can think of where that wasn't the case was when paul volcker broke the back of inflation in the early 1980's, and when greenspan increased the fed funds rate in 1994. every other fed tightening cycle, the markets always get ahead of the actuals, when we end up tightening in the end versus what markets expect. we think that might be the case again this time. jonathan: darrell, great to catch up. darrell cronk weighing in on this equity market. your equity market up 17, advancing 0.3%. this go back to the conversation still building all week on this program. the sequencing of the federal reserve. there has been a belief recently that you just go from tapering, winding down by march, and then thinking about rate hikes. increasingly we have had a series of guests talking of the possibility of balance sheet reduction in between, that maybe that is the move after tapering. lisa: how much of this is

because we have not seen any material tightening in financial conditions in response to the front end? why do we have these rate hikes not translated into volatility and equities? we have seen a little bit of turmoil, but not anything truly frightening. perhaps that is giving the fed some feeling of boldness to go ahead with something more extreme. jonathan: we don't know how much tightening -- anything in this economy, given where inflation is and how deeply negative real yields are, and we don't know -- bank of america is bringing it up repeatedly. what about balance sheet reduction as part of the toolkit? lisa: people were always convinced the fed would go too far, too fast. now, basically, the market is saying we've got your game. you are going to come and if there is any turmoil. how much does that get shifted

when the fed finally acts? at what point does the fed have to disrupt that complacency and say actually have to address inflation and away way we haven't had to for decades? jonathan: that is the belief, and the belief still exists. kailey: i think it is not just where the median. is going to -- the median dot is going to move up to. it is not just about lift off. it is about the shape of the hiking cycle. jonathan: jim be uncle -- jim be uncle -- jim bianco of bianco research has thoughts on this. from new york city, for our audience worldwide, this is bloomberg. ♪ ritika: with the first word news, i'm ritika gupta. it is a legal blow to a man who has spent almost a decade fighting attempts to remove him from britain.

judges in the u.k. have granted a u.s. request to extradite wikileaks founder julian assange. the u.s. government has charged him with be in auch for -- with espionage for his role in leaking classified documents. the arrival of the omicron variant has triggered a global rush for booster shots. the u.s. has expanded access to teenagers. countries like the u.s. and south korea are slashing wait times for a third dose to three months. still, the world health organization has reservations. it says it is more important for those who have not been vaccinated to get their first dose. president biden has assured ukraine's president vallarta marilyn zelensky -- vladimir zelensky. president biden also told nato allies in eastern europe that he had not made any concessions during a video call with russian leader vladimir putin.

the price of oil is headed for its biggest weekly gain in more than three months. west texas intermediate futures have climbed more than 7% this week. the deepest fears over the new coronavirus strain has traders over the outlook for demand. elon musk is getting closer to his plan to sell 10% of his stake in tesla. the world's richest person sold shares this week. he unloaded $953 million worth to pay for taxes on 2.2 million options. later on twitter, musk joked about quitting his job to become an influencer. 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'm ritika gupta. this is bloomberg. ♪

♪ >> that data is by definition backward looking, and so won't

capture some recent price movements, particularly in the area of energy. so these declines are delivering most importantly some benefit to consumers and some benefits to consumers on a go forward basis that won't be reflected in the data. jonathan: is it fair to call this a spin attempt before the data comes out? that was brian deese, director of the national economic council on in d.c. lisa: how are they going to position this if they try to push through more stimulus at a time when we are seeing the fastest pace of inflation in 30 years? it is going to be an interesting one. jonathan: futures up 15, advancing 0.3%. yields higher to 1.5128%. spoiler alert. i am going to give you warning, and once i say it, i'm going to give you two seconds to turn the volume down. "sex and the city." ok, let's go. kailey, they kill off mr. big,

and they do it on a peloton. peloton clearly pretty unhappy about this. kailey: they says they weren't aware this was going to happen. this was a market moving kind of story. you are seeing peloton down the better part of 3%. and analyst at bmo market says it maybe won't affect sales, but peloton may be losing control of the narrative, which was one of its strongest points. jonathan: i love to analysts are writing about this. bmo saying, "although unlikely to affect sales, it does indicate peloton is losing a degree of its storytelling, perhaps its greatest achievement to date." lisa: this on twitter from one watcher, "mr. big deserved better than death by peloton." jonathan: my producer is so unhappy with me right now, so let's talk about something else with jack fitzpatrick. i thought that was a fair warning.

jack: i took my earpiece off. jonathan: come on, jack. let's talk about the effort down in d.c. to avoid the debt ceiling drama. have we avoided it? jack: we are about to avoid it. the key vote has happened. they came up with a lengthy and convoluted solution to this, but there is a two bill process to end up increasing the debt limit , and it does appear to have a glide path to getting that done before any deadline that could happen in the next couple of weeks. the senate voted yesterday on a bill that would actually create a carveout to its own filibuster . effectively, 14 republicans in the senate voted to preemptively block themselves from filibustering a forthcoming bill to increase the debt limit. , kratz say they plan to use -- democrats plan they -- democrats say they plan to use that the next time they have to deal with

this so it is not as politically dicey. there could be potential rule changes because neither side really wanted to get in too much negotiation over this. it was more process concerns. really, the key vote has happened. they got 64 votes when they needed it, and we are looking for next week, the actual debt limit increase bill to sail through, and it will only need a simple majority. lisa: after all the tension of this year, are we headed towards a drama free december in washington, d.c.? jack: all things considered, yes. there is not a shut down. that went by without very much drama. the last few years, we have had a potential government shutdown deadline the few days before christmas, and they took care of that a couple of weeks early. the debt limit issue took care of itself a little more smoothly than a lot of lawmakers even thought it would. the big question is whether the reconciliation bill, the

social tax and spending bill that democrats are trying to do, can come together before the end of the year. but that is not necessarily a true deadline. yes, the child tax credit expires at the end of the year, but considering the size of the bill, if they make progress and are aiming to get something done in january rather than december, that is not a major collapse for them, so it is a little bit of a smoother december than a lot of years. kailey: on that reconciliation package, the argument against that kind of fiscal spending is often used is that of inflation. can we expect the likes of senator manchin to use today's cpi print as ammo? jack:. republicans -- jack: yes. republicans have been leaning into that. i don't know exactly what senator manchin is going to say, but he has repeatedly pumped the brakes citing inflation concerns. the debate in washington over that gets a little bit muddled. democrats have insisted this is supposed to be paid for over a 10 year timeframe.

it is frontloaded so that it would add to the deficit in the first five years, around seven hundred billion dollars or 800 billion dollars. a lot of economists -- around $700 billion or $800 billion. a lot of economists point to this as adding to inflation in its first year of enactment, but politically, yes, the story has been inflation criticisms have made it a little tougher for the build back better act, and this report will probably continue to do that. lisa: the fact that we are in a drama free december possibly is amazing, considering some of the rhetoric over the past few months or get what has been the genesis of this sort of -- past few months. what has been the genesis of this sort of rhetoric? jack: i don't think it has been a move to the middle on both sides. democrats are trying to save some amount of focus for their

reconciliation bill, which clearly is not a move to the middle. if you talk to republicans. so they kicked the can on government spending to february. that was a much lower priority, and they have not even started to negotiate it. there was not a series of tough negotiations on the debt limit. the defense authorization bill also just doesn't seem to be somewhere where anyone wants to use it as leverage for anything. i actually think the focus on the reconciliation bill has made democrats and may be some cases republicans averse to picking fights when that is the main fight, and that could come to a head maybe this month, maybe january, but without on the horizon, nothing else seems quite as big, and there was no need for a major fight over something like government funding, which was really a smaller deal than the main reconciliation bill. jonathan: thank you, sir. jack fitzpatrick down in d.c.

"sex and the city" fans, i'm not done yet. a peloton spokesman said it knew its product would be used in the show, but not the storyline, adding it was not to blame for the cigar smoking character's fictional demise. the fact that we are having this conversation, the spokesperson has to respond to it, the analysts have got to write about it, it is ridiculous, isn't it? lisa: do you watch "sex and the city?" jonathan: i was very cement that samantha was not going to be in this series. just really heartbroken. lisa: and how do you feel about mr. big and the death by peloton? jonathan: well, we share the same name, don't we? we had to wait until the end of the whole thing to find out his name is john. [laughter] lisa: so it all comes back to that. jonathan: that's what it is about. it is about a connection. lisa: it does tell you a lot that this is what we are talking about on the day of the cpi print because it is an important market story for peloton.

jonathan: i just want to do bring it up because why not? lisa: it's friday. jonathan: up 17 on the s&p, advancing 0.4%. it is business-critical. [laughter] lisa: of course it is. jonathan: from new york, this is bloomberg. ♪

hey, angie! you forgot your phone! hey lou! angie forget her phone again? yep. lou! mom said she could save up to $400 on her wireless bill by switching to xfinity internet and mobile. with nationwide 5g at no extra cost. and lou! on the most reliable network, lou!

smart kid, bill. oh oh so true. and now, the moon christmas special. gotta go! take the savings challenge at xfinitymobile.com/mysavings or visit an xfinity store to learn how our switch squad makes switching fast and easy this holiday season.

♪ jonathan: lisa is still on the peloton story. reading about it all morning. [laughter] what are you learning? lisa: basically, the response from peloton is that mr. big had an extravagant lifestyle. he drank too much, he smoked, and basically, if you do exercise, you will be healthier and you won't die in the manner of mr. big. jonathan: they killed him off. the killed bond off. kailey: spoiler alert. jonathan: come on. if you haven't watched bond i now, don't blame me for that. futures are up 0.4% on the s&p, advancing on the nasdaq, up 0.3%. up 54 on the russell. looking up to catching up -- looking forward to catching up with jonathan golub of credit suisse, looking at 5200 for the

s&p 500 next year. looking at the bond market going into cpi, looking for 6.8%. how would we respond to a downside surprise on cpi a little bit later? twos, 72 basis points, in and around the highs of the year. up about a basis point on tens. that means you've got a slightly flatter curve. mike schumacher yesterday talking up a basis curve that is 40 basis points narrow. he is looking for 1.62% on twos. switch up the board and finish in foreign-exchange. kit juckes of socgen says the bears are hungry. the bears are getting a lot of the u.k. -- a lot out of the u.k. right now. lisa: i read that note. it seems like another -- it seems like every day, there's another reason to kick the can. you are seeing that translate into the pound. how far can they go at a certain point? jonathan: all the way down to

1.32% right now. on the session, just a little bit weaker. that's the cross asset price action. let's say good morning to remain -- to romaine. romaine: the market is waiting for that data on inflation. inflation fears have already trickled into the markets. you see people rerate and reprice some of the names. you have tesla, the fourth highest in the s&p 500. nvidia, the third-highest sales ratio in the s&p 500. savita subramanian at bank of america had a great note talking about the real earnings yield and the erosion we could see not just on a 6.8% print for the month of november, but more importantly, how long that persists. how long does it take us to moderate down to 3% or 2%? keep an eye on some of these names penning on what we see at 8:30. at j.p. morgan chase, some of the lowest multiples out there

in the large cap names. a few individual stories, we did get earnings out of oracle that were found in all. that transition to the cloud appears to be picking up steam. they also announced an increase in their buyback program of about $10 billion. a new $10 billion buyback program over at broadcom and a beat on their most recent earnings. peloton, jon invited me over to watch the new "sex and the city," but apparently you've given it all away. jonathan: i mean, you said that. i didn't say that. you might want to talk to peloton a little bit later and follow up with them. looking forward to "the close" this afternoon on bloomberg television. i can't stop reading the endless notes on all of this. about an hour from now, we will get cpi. bonnie wonka true -- on he won't trickle -- bonnie wongtrakool

joining us now. what are you looking for? bonnie: it is a big number of importance to the market, but also probably big in magnitude. the number could be insensitive -- could be consistent. we see some of the covid related sectors remaining high, as well as probably over the next couple of months, but we expect after that that the numbers will come down. you will see some of the bottlenecks and supply chains start to work out. you will start to see some of these covid affected components come down, so our call is for inflation to peak over the next quarter and then normalize. lisa: is there anything in the data we are going to get in about an hour that could change that view of that inflation curve that does trend downward next year? bonnie: i don't think you are going to see it in this morning's numbers. i think we will have to see how the numbers trend over time. we do expect it to remain

elevated for a little bit longer, but we are all going to have to see how the data evolves. i think it is anyone's guess as to how it will, but our educated guess is that it is going to come down. lisa: everyone has been saying for months we have to wait to see the data. when have we seen enough data to know whether our faith is correct? bonnie: we have to say things like wage growth -- we have to see things like wage growth and how persistent it is going to be. without wage growth, you are not going to see sustained inflation. you will not see producers pass those costs on to consumers, so i think that is one key element. i think with the supply chain bottlenecks, the rearrangement of supply chains which we don't know exactly how long it will take for those to resolve, so i think we will have to see some progress on that. i think finally, one area we see risk is in rental prices, so we do think those will remain strong, given our view on the housing market over the next year, but again, that is

something that we have to see the prints to really get confidence in that forecast. kailey: if your base case is that inflation will be moving more on a downward trajectory, at the same time, rates are likely going to move on an upward trajectory. how do you position a portfolio for that kind of environment? bonnie: our base case is that rates will not rise dramatically . we think the economy is going to continue recovering in that growth will actually moderate, but we are not going into recession, but -- into recession, so rates will remain in this range. we recognize that there is a range of outcomes that can happen around that view, and our approach is really to construct diversified portfolios based on fundament of value, and don't necessarily need our base case to come to fruition to perform well. so we had a lot of trades only portfolio that don't need higher rates, but could benefit from higher rates. for example, we do like bank

loans. we think the spreads are attractive. we also like bonds that are issued by banks, financial institutions. we think that is the sector that is perennially underrated by credit rating agencies, and it is very strong from a liquidity standpoint. we like the regulatory environment for banks, which is actually very good for bondholders. we also like bonds that are investment grade rated in the energy sector, where those lenders -- sorry, those borrowers have been very disciplined about their balance sheets. they are focused on cash flow and stability, very good from a bondholder perspective. kailey: what about the geographic makeup of a portfolio? we were talking earlier about brazil, with 10.74% ablation, the highest in 18 years. it does not seem like it is making a material difference. what do you think of e.m. debt specifically?

bonnie: we actually really like e.m. debt. e.m. debt is a market that has been challenged during covid, but it presents very deep value right now. it is really attractive from a relative value basis. those real rates are very attractive versus developed markets. fundamentally, they are in pretty good shape, relatively speaking, to whether -- to weather some tightening of financial markets. so that puts them in a much different position than they were in the last taper, and i think versus commodities, which have been really a bull market recently, e.m. looks very attractive. jonathan: what do you make of the conversation at the moment on sequencing? is it rate hikes after the taper is complete, or do we move towards balance each -- towards balance sheet reduction? bonnie: clearly the fed has delineated all of these things and made no promises about what they are doing because they are trying to preserve optionality,

so we do think they are going to be looking at those decisions with different lenses. the taper is a little bit easier , has a slightly different metric, whereas i think with further tightening, they are going to start really looking more at the other side of the mandate. right now it is about inflation, but they have not dropped the employment side of the mandate. they are still playing -- still paying really close attention to that. i think progress will review did take -- will really dictate what the next steps are. jonathan: thank you for waking up so early in pasadena, california. we really appreciate it. this from citi. a strong core inflation read, they look for 0.7%. it should confirm chair powell's decision to retire transitory. they go on to say, this is something you flagged earlier in the program, inflation expectations also bear watching. breaking above 3% would garner attention. lisa: people have upgraded their

expectations for short-term inflation. the more they have downgraded their expectations for long-term inflation, the average consumer somehow buying into the flattening yield curve, does that start to change? do they see this as something more persistent, especially if they start getting paid more? jonathan: one to watch a little bit later. here's another. "bmo research discussing a character's demise on the reboot of sex and the city. if this is the state of equity analysis, it should be the last straw with a few remaining index investing holdouts." just a quote on passive investing. kailey: the passive versus active debate continues. with peloton, i think this story becomes more prescient because there have been safety concerns with the treadmill, for example, so all of that maybe is just a narrative that builds on itself. also, any world that, in theory, is reopening more, in theory

peloton is not going to be the darling of the market that it was during the pandemic. so all of those kind of combined. jonathan: do you think they will think twice about providing programs, movies with a peloton at this is what is going to happen? do we need confirmation of the story first? kailey: maybe a signed contract of exactly how it is going to be used and what the narrative is. maybe no one will die next time. lisa: there's no bad publicity. this is the bottom line. jonathan: using this is good? lisa: this is the instagram generation. if people start to look at this and say i might die on a peloton, maybe. but people are talking about peloton. honestly, they could spin this. [laughter] jonathan:jonathan: up 16 on the s&p, a 0.3%. i promise not to discuss it again. 45 minute away from cpi and america. good morning. ritika: with the first word

news, i'm ritika gupta. the biden administration is seeking to downplay inflation ahead of a data release that is sure to show a surge in consumer prices. the white house says the consumer price index won't reflect recent price movements in gasoline and natural gas prices. according to a bloomberg survey of economists, the cpi print probably increased 6.7% from a year ago. the number is out at 8:30 a.m. new york time. the coronavirus crisis is threatening the holiday season in the u.s. the number of cases and hospital admissions are rising, and most victims have not been vaccinated. there are shortages of beds and staff to care for patients. in 12 states and washington, d.c., the rate of admissions has climbed 12% from two weeks ago. in china, the central bank has taken more steps to limit the yuan. it is fixed at the weakest relative to the estimates since

bloomberg began publishing be forecast and 2018. that comes a day after banks were ordered to hold more foreign currency, a move that puts pressure on the yuan to weaken. the provider of stock and news puts -- and news photos has agreed to a deal by neuberger berman. it values getty images at $4.8 billion, exuding that. a spanish court has ordered santander to pay andrea orcel. the court ruled the offer stands as a valid contract. orcel is now ceo of unicredit. i'm ritika gupta. this is bloomberg. ♪

♪ >> gas prices will go up until

supply comes down. you have seen it mitigate a little now. the real one is wages because you are at full employment now in the united states. wage growth is strong. that is hard to get out of the system or harder to mitigate. jonathan: always enjoy hearing david westin sitting down with brian moynihan comedy chairman and ceo of bank of america -- brian moynihan, chairman and ceo of bank of america. equity futures advancing 0.3%. yields higher to 1.5094%. with the chart of the day, let's get to kriti gupta. kriti: we have to talk about the other part of the equation, freight costs rising, commodity prices rising. those real wages turning negative for much of 2021. for our radio audience, all you need to know is that going back to 2008, there's been a lot of green, a lot of growth in wages until you hit 2021, where you see a lot of red on the screen.

people just aren't getting paid in line with the rise as you are seeing in inflation. it is resulting in strikes and unionizing. the best example over at starbucks just yesterday, where three stores in buffalo, new york decided they needed to unionize. this really begs the question, does this lead to things like automation? whole foods, mcdonald's, even nestle starting to automate some of those lower wage jobs. at the core of it, it comes down to the fed. is there dual mandate actually helping or hindering the economy when it comes to that support, and will they at some point have to tighten and lift off? in turn, does that mean that discourages hiring? that is the real question at the crux. jonathan: thank you. lisa, that is the issue this administer asian has at the moment -- this administration has at the moment. lisa: higher prices are not leading through to higher quality of life. how do they bridge that gap? you are seeing sign that

inflation is starting to hit wages, but can it hit quickly enough to change the scenario? jonathan: for the cpi report, we can turn to bloomberg's cameron crise. 6.8 percent the median estimate. what is the playbook for this one at 8:30 eastern? cameron: get ready for fixed income, at least, to move, and possibly equities as well. we are so used to the labor market being the primary driver of market movement in the economy, but if you look through last year, both the equity market and fixed income have reacted considerably more to cpi releases than they have two nonfarm payroll releases. the standard deviation of moves on the december 2023 euro-dollar contract, for example, fell five

basis points just in the 30 minutes after a cpi release. it is kind of obvious, i guess, but if we get a higher print come expect yields to go up quite a bit because, let's face it, the market isn't actually pricing that much tightening from the fed over the coolness of the cycle. lisa: they have brought forward traders, their expectations for rate hikes, pretty dramatically. we have seen yields at the front end really jump higher. how much has the equity market ignored this verse is absorbed this? is there a way to judge whether there has been a similar lead through to equities with rate hike expectations baked in? cameron: i think it is fair to say the equity market has ignored it almost entirely, given that we did the round-trip backup almost to the highs in the s&p and the nasdaq in particular. i think the reason is that so

much of the equity market market cap and the leadership of the equity market is in these mega cap technology stocks. they are very richly valued. essentially, they are discounting earnings into the distant future. the fact is that while the market has ratcheted up near term rate hikes expectations, they have not done anything with expectations further out the curve. so we are essentially pricing the fed to go more or less to 1.5% by the end of 2023 and then nothing after. no risk whatsoever price for movements above 1.5% after 2023. think you could argue that, for the equity markets that we have come the rates market will need to price a larger magnitude, the risk of a larger magnitude cycle , of rates going to do percent, 2.5%. what would happen to the market

fed funds rate at 3%? i shudder to think. kailey: does that mean the real catalyst is not the cpi print today, but the fed decision, and more importantly, the fed guidance in the dot plot? cameron: i think that is probably right. let's face it, this year has demonstrated, and we have seen cpi ratchet up much higher much more quickly than anyone was expecting over the course of the year, and we have had an adjustment in fixed income pricing, but it has been relatively modest relative to the move in inflation. i think part of the reason for that is the fed guidance. the last dot plot had rates at 1.75 percent for 2024. i think if you see that move considerably higher, that might be the thing that jolts market pricing a bit. for now, the private sector, for better or for worse, thinks that the long-term neutral interest

rate in the united states is below inflation, and it is kind of the fed's job to discourage that notion, if indeed it should be discouraged. jonathan: before you run, i promised you for your appearance would give you 30 seconds on west ham. your 30 seconds starts now. cameron: well, we are in dreamland. i am sure most of you don't know who west ham is, but it is a plucky soccer team at the east end of london that is traditionally underperformed, but has sort of found magic and is riding high. imagine the cleveland browns on the cusp of the super bowl. it would be that sort of analogy to the u.s. jonathan: good luck over the weekend. good luck to west ham. [laughter] enjoy the weekend. cameron crise, thank you very

much come on his beloved west ham and this inflation report. lisa: i love it. tom keene is off, and you are saying to all of the guests it is because of you. jonathan: it is. he emailed me. lisa: you come on, and then i guess we'll have to talk about football. jonathan: steve mager of hsbc said the same thing earlier in the week, and i said you can have 30 seconds on west ham. lisa: so anyone else who wants 30 seconds. jonathan: choose your sports team. [laughter] we are super inclusive here. lisa: especially when tom is not here. jonathan: i saw tom yesterday downtown. lisa: how was his birthday? jonathan: it was nice. kailey: south of 59th street? jonathan: well south. downtown. piece of advice. if you are on a school night and you've got work the next night -- the next day, and tom doesn't, don't go drinking. [laughter] i knew that from experience already. but when you get the message up to a clock p.m., come to the

restaurant, i am thinking he's going to wind down lunch a little bit. no. anything but. lisa abramowicz, kailey leinz, and jonathan ferro. tom keene back with us next week. still celebrating his birthday. he will be back for the fed decision. from new york city, this is bloomberg. ♪

mom, hurry! our show's gonna start soon! i promised i wouldn't miss the show and mommy always keeps her promises. oh, no! seriously? hmm! it's not the same if she's not here. oh. -what the. oh my goodness! i don't suppose you can sing, can you? ♪ the snow's comin' down ♪ -mommy? ♪ i'm watching it fall ♪ watch the full story at www.xfinity.com/sing2

♪ >> inflation is getting close to peeking. it doesn't mean it is going to go away overnight. >> we know that there are some secondhand effects on inflation. >> the game is to stop a wage five -- a wage spiral. if the fed wants to stop inflation, they should hike rates. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. jonathan: cpi just around the corner, 30 minutes away. from new york city, good morning. for our audience worldwide, alongside lisa abramowicz, and jonathan