to get really aggressive and the bond market is telling everyone a strong message. >> the flattening yield curve is suggesting it won't take much to break something. >> this is "bloomberg surveillance." jonathan: from new york city, for our audience worldwide, good morning, good morning. this is "bloomberg surveillance." equity market up 15 points. all-time highs into a big week ahead. lisa: the idea that people basically think their convictions are correct even though it so much could be upended if we get a surprise from the fed reserve. jonathan: the prospect going into q1 and a 10 year yield, 147. lisa: it is shocking if they

measured cpi correctly, it should be closer to 10%, not just closer to 7%. how much is the bond market wrong and influenced by quantitative easing and how much of the onto something in secular stagnation more akin to what we have seen in the past. jonathan: the bond market has been wrong for 10 years now. we have the bank of england and ecb coming up thursday. caroline: 20 central banks giving policy. we had hawkish sentiment out of that central bank many -- more than many. now tapping on the rate pedal as omicron hits this nation and we word about the variants worldwide. jonathon: around .3%, i lost my

voice over the weekend. yields coming in a basis point. on tens, yields earn a basis point. lisa: if tom keene were here the entire session would be discussing race cars or that would be the next three hours. if you are not a fan, you should be grateful. a big week ahead. not as big for economic data. the bank of england will release a stability report. a press conference. curious to see balance of risk and where inflation falls ahead of the bank of england meeting thursday. a couple weeks ago people were pricing in a nearly 100% chance of a rate hike. now it is at 40% because of the omicron variant and risks of downside to growth. today we get the opec monthly

report. interesting after the gains we have seen in oil, the biggest in several months, how much do they look and reflect with the iraqi oil ministry which said frankly the omicron variant has not affected materially demand? at 9:30 p.m., antony blinken will get a policy speech that may be a formal description of what the administration strategy is when it comes to the end of pacific. -- endo pacific. they are very concerned about the idea of supply chain disruptions. how much do they try to fortify that moving away from china and get some leverage in discussions with that nation? jonathon: you have some company. one wrote it in the final week of the year? caroline: -- lisa: just because

it is vacation time for you doesn't mean it is for everyone else. i think that you are right and i would say it goes to the end of the week and thursday is important in the wednesday is a big day. but a lot can happen of a little conviction. jonathon: i hope that made sense. futures up .3%. all-time highs on the s&p 500. the head of u.s. equity strategy joining us now. your year and next year 50-50. walk us through it. >> it all about. let me just tell you i

sympathize where your head is that. we are ready for it to be gone. most economic modeling is north of 5100. stop versus bonds, stocks are still the best game in town and models pointing to an 8% return. it is getting interesting with what is happening with pe multiples. if you see contraction on more aggressive fed,, that point you to down 2%. that would be the worst case scenario. the preponderance of the evidence on the economy and stocks versus bonds say to look at another good year. but i think we will have another good year but it will be harder. lisa: you outline how in the first half of the year you might

get outperformance of cyclicals and the bakken will be rotation back into growth. can you give us a sense of what that means in terms of ongoing bearishness in terms of economic growth you see in the second half of the year? lori: i am sure my economist is shuttering if he is hearing this, but what we are seeing is if you look with the economist forecast, to put 5%. that is not a recession by any stretch but a deceit of the ration -- but a deceleration. markets are forward looking and when we are in a hot economy, 4% is the number in place for next year. value small caps tend to outperform. you move back down to trend light growth, that is when large-cap, secular growers and the growth rate itself tend to outperform. we think at some point we will see markets start to focus on 2023 and be done with 2022.

once that happens we will be well into fed hikes and that also tends to be a trigger to get you back towards growth trades. caroline: you have a beautiful backdrop. santa is coming to your house. i am interested in the santa rally or the lack thereof. talk about the end of 2021. are you expecting the value to stabilize toward the end? lori: we have said in the very near term, if you are trying to trade now through december 31, stay balanced. omicron is a threat to the value trade. little bits of news we have been eating helps -- help stabilize value trade. the problem we have right now is that the fed in this more

hawkish tilt we are having to digest is a threat to the growth trade because that is where the expense of valuations are. when we are hiking, it tends to underperform when rates are rising. we are caught between a rock and a hard place over the next couple of weeks. jonathon: what we have seen pointed out is the expectations for high rates haven't translated into high-heeled. can you walk me through the relationship between fed rate hike expectations and multiples on the s&p that you expect through next year? lori: multiple question is a very challenging one and some of my peers in the strategy world are saying, fed rate hikes always produce contraction. i don't think it is that simple. the are starting to see the russell 2000 and the s&p, we have seen a very flattish move on the overall cap down numbers.

i will take you back to the fact that we are still in this cutie world and tapering is coming. the fed -- this qe world and tapering is coming. what that should tell you is we should have a flattish pe multiple. it is when you get into tightening, that is what the history is telling us is the cause. lisa: this is a really important point and goes to the idea we heard out of seth carpenter from morgan stanley that the fed is not willing to go to quantitative tightening because they do not understand the effect on markets to the same degree. has that had a bigger effect in propping up valuations and on the flipside would have a bigger effect on the downside if they start to withdraw the quiddity and rate hikes or anything else? lori: let's go to my desire and

-- for this year to be over. in december 2018 at the end of the year, i thought i could take vacation and we had a downdraft. a lot of portfolios were ruined in that last half of the year. what we were dealing with were two threats, threat to growth in the trade war and tighter fed and quantitative tightening. it is not in my base case but that is a dire scenario that frankly will keep me up at night on some of the nights where i am letting my mind race. at the end of the day, quantitative easing, tightening is a tool. since 2014, the year-over-year trend in the fed balance sheet is dovetailed nicely with the year-over-year trend in the pe multiples in the market. it is having an impact. i sympathize with those who say they don't understand what it will do, that the fed has propped up pe multiples to the

balance sheet. jonathon: magnificent and always. -- magnificent as always. lori calvasina on the equity markets. lisa: we all want the year to be done. i wasn't arguing for a prolonging but suggesting weird things can happen. jonathon: take away the liquidity. lisa: i'm not saying i don't want the year to be over. jonathon: lisa abramowicz, caroline hyde, tom keene act with us next week. equities all-time high up 16 on the s&p, advancing .3%. this is bloomberg. ♪

leigh-ann: i'm leigh-ann gerrans with bloomberg's "first word news." boris johnson saying the country faces a tidal wave. the prime minister set a deadline for the end of the year for the countries booster vaccination program. the number of new omicron cases almost doubled on sunday from a day earlier. a new study says that to doses of the pfizer vaccine reduces antibodies to omicron. they say it increases the risk of covid infections. another finding emphasizes the

need for booster shots. in kentucky the death toll from friday's tornado may be less than feared. at least 50 people believed to have been killed. more than 1000 homes destroyed and 14 people and others in the midwest. foreign minister's from the g7 have warned russia that moscow will face consequences. european allies considering sanctions that would target russia's biggest bank. vladimir putin has denied he has any intentions to invade ukraine. this is bloomberg. ♪

>> these extreme weather events will have to spend more time in

preparing for. we are trying to build a resiliency, build our recovery efforts. the infrastructure bill that was passed in congress will help us to address some of these needs. jonathon: the governor of arkansas, one of the state hit by tornadoes over the weekend. from there exceeded, good morning. tk back with us on the fed call wednesday. futures up 18 on the s&p, advancing 4%. a big story of last week, the follow-through into this week. let's talk about it. peloton, here comes a spoiler. you must be living under a rock. up 2.83%. peloton making a comeback over the weekend.

how did they throw this together? take a listen to this. ♪ >> to new beginnings. >> to new beginnings. you look great. >> i feel great. >> should we take another ride? life is too short not to. >> and just like that the world is reminded that it strengthens your heart muscles, reduces fat. jonathon: did they throw this together almost immediately or did they know? lisa: i don't know. jonathon: did they complain they didn't know what the peloton would used for? lisa: i think they threw it together saying, we want to emphasize our message that this

is part of being healthy. the fact that we are focused on this and the stock moves around shows how vulnerable peloton is. if the storyline can affect its shares as much as they did on friday, that tells you a lot. jonathon: this is the story that got me out of bed this morning. i wanted to bring this story. i will go straight to the bailout over the weekend and we will get serious. why should low tax states subsidize high tax states? how does it make sense to increase deductions in the build back better bill at a cost of 275 billion? that from bill ackman. walk me through how that is shaping up down in washington. >> that gives some difficulty for democrats on the salt tax. it does come across as politicized, just as it did in

2017, when you had republicans reducing the deduction, democrats looking to increase the deduction and it does track along red and blue state lines, the and the other one, i am not sure what bill ackman reports as income rather than capital gains, but the talk is to stop someone, probably like him, from benefiting at all. maybe it is not to surprising. the latest discussion to avoid the attack line against this is it is a major tax cut for the wealthiest people is to limit who would actually benefit from that. senator bernie sanders wants this around 400,000 or $500,000 by your income. whereas bob menendez wanted to be closer to about a million dollars. those are the major attack lines. this is important to a number of democrats and that is how it got to the house in the initial version and it makes things difficult to point out that this

really is basically a tax cut for blue states, essentially. lisa: i love how you point out the bill might be more effective at a capital gains point. the salt tax deduction issue we saw over twitter, how likely is it from your vantage point that the democrats will come together with anything before year end, considering that -- said the year is over come thursday? jack: even if the year doesn't end until new year's eve, it is looking less and less likely they can get this bill across the finish line entirely by then . i say that especially because democrats on both wings of the party, moderate and progressive, have downplayed the importance of any suppose it year-end deadline. keep in mind the child tax credit does expire at the end of the year and that would at least delay those deductions by mid

january. if they did get something done in january they can make it retroactive. the fact that we are hearing from democrats and downplaying it saying it doesn't really matter and if we get it done in january it will be fine seems to show there is no pressing for hard deadline this year and looking likely to take at least into january. caroline: john was obsessing over ryan reynolds. the president in front of jimmy fallon saying they ignore polling numbers. talk to us about the president and his popularity. this is something the united states needs to get a grip on as well. jack: omicron is difficult to predict as to how it will predict the president's poll and this is someone who campaigned on trying to get back to normal and defeating the coronavirus.

if you look at the president's pulling, -- polling, it took a dive likely related to the afghanistan pullout but seems to not be the only thing driving his lack of popularity but broader economic factors. a lot of the political discourse is dominated by inflation and the pandemic. omicron does not seem to be great news for him and seems that basically the honeymoon ended in late august with the afghanistan pullout and there are a series of other issues that have been weighing on his popularity since then. jonathon: always good to catch up with you. i joke about the number one stock to watch in the premarket. apple, very close to $3 trillion market cap. lisette it was five minutes ago

we were talking about $1 trillion. come in at 2.94 on the close and then another 1%, 181.45. lisa: i think about dan who has been out front being the biggest bull and now he seems much more mainstream and challenged to up his forecast to be the biggest bull on wall street saying demand is still really strong. anyone thinking demand was falling away or fling themselves. jonathon: caroline hyde, what a run for this company. caroline: up 200% since the onset of covid. it was a safety trade but at what point does it still become the safety trade or do we worry about supply chain issues? it was weird two weeks ago we were wringing our hands. jonathon: up 1.1% good with caroline hyde and lisa abramowicz, i'm jonathan ferro. tom keene back wednesday for that fed decision.

s&p 500 up 16 points. yields are calm this morning, unchanged on a tenure at 14769 -- one point 4769. this is bloomberg surveillance." ♪

jonathon: all-time highs on the s&p 500, an important week. equity markets advancing weight 3%. -- advancing .3%. an important conversation, reach out to the team at deutsche's, the relationship to rates and multiples are just how close has it been and what does it mean we talk about higher interest rates from the fed. for all the talk you and i are having, still at 66, 10th at 147. equity market at a record high. lisa: of the rise we see at the

front and. why has the stock market remained so sanguine about the rise we see at the front and? jonathon: multiples hi because rates are low or is it a classic early stage of recovery where higher rates are priced in? that is what deutsche's made in their research. lisa: lori singh 10 year yield tame. how much is that the real driver of risk appetite and not a front end? jonathon: let's do this for the fx markets. tilted heavily towards a single currency. the dollar 96 .83, just off the highs of the year, very close to the strongest levels we have seen through 2021. how much divergence do we get from the fed to everyone else? lisa: this is why i think

thursday will be interesting. not only wednesday with the fed meeting but the ecb and how much they confirm divergence and pushback? going forward, one of the only risks that seems to matter to investors is a policy error by central banks and that is confirmed by bank of america study that came out today saying basically the highest conviction that this is a major concern, not covid, recession, equity market correction. i wonder what is that policy error. robert rosner at morgan stanley a senior economist, and wonder what is the biggest potential policy error for the federal reserve at a time when there is a polarized debate and whether it is moving too soon or too late. robert: x, lisa. -- thanks, lisa. the concern is our central banks going to withdraw accommodation to quickly. as long as the fed is still

purchasing assets and qe is ongoing, whether they are tapering or not, they are adding accommodation. we have seen chair powell acknowledgment and federal reserve. this is an economy that simply does not need additional accommodation. so the view right now is that we are likely to see reduce the pace of purchases and double pace of tapering at the upcoming meeting and get them out of the game of adding accommodation put her and then they have to wait and see. that is why we think they will take a second and sort of take a stock on what is going into the economy before they get into raising interest rates. lisa: a lot of people have been wondering if they will talk about the balance sheet and saying arguably that is the biggest risk. what is your view on how likely they will address possibly starting to let the balance sheet roll off at some point in

the near future? robert: it would be appropriate to start talking about policy options for the balance sheet. it is much larger than it was in 2014 or 2015 when they last ended the qe in the last cycle and raised rates. but there is a lot of uncertainty about what it means to reduce the size of the balance sheet. the federal funds rate is a well tested tool. they have a sense of what he means for the economy when they raise interest rates how that affects growth, inflation. that is a bounce that policymakers have to weigh, do you reduce the balance sheet sooner and potentially run into consequences like based on 2018 and 19 where they went too far or today keep the tools that they know work closely like the federal funds rate to tamp down on inflation. jonathon: in one camp there is a group of people that believe the

federal reserve is building in flexibility through next year depending on what the data looks like. there is another group who believe the winding down of qe, acceleration of the taper is about building us up for a straight line towards a rate hike. how do you draw a distinction and what is guiding you? robert: it certainly could be either or. the optionality is to open up the space but the fed does need to tighten policy more rapidly than anticipated and ending the taper sooner opens up that optionality. i don't think they are mutually exclusive. what it comes down to is inflation. our view is that inflation is likely to moderate, particularly on the good side and the supply chain that we are seeing light at the end of the tunnel that inflation does sequentially slowdown moving through next year. especially in the early part of next year.

that will take the pressure off fed policymakers and give them space to take time after the end of the taper to take stock of how the economy is evolving and assess what next steps are needed for monetary policy. if the data surprises us and it remains from for longer, then policy would be the key to the optionality approach is get the taper done sooner, watching the data and let the data on inflation dictate what policymakers do with interest rates and with the balance sheet. jonathon: if you want flexibility, do you need to outline what the sequencing of policy is now much earlier, by this week? robert: that would be appropriate and i think it is important to remember as we were getting near the end of the last taper in 2014, the fed put out the policy normalization

principles and plans, which laid out rod brush strokes on what that would look like and how the fed would operate the balance sheet, hold no more reserves that would be needed over the long run. all that, and that would be appropriate to see that conversation coming together, perhaps at this meeting or perhaps at the january meeting, but certainly they are going to wrap up the taper in march over the next few months it would be appropriate to get more information on that conversation to see how policymakers see this coming together. jack: -- caroline: we will want to see what the updated information is. we are paying too much lip service to it today, but at the weekend he was working about how really inflation is at the moment what to we make shelter and we factor it in enough?

robert: it is a critical part of the inflation outlook so i don't think we can spend enough time talking about shelter inflation. we talk about what has been going on with supply chains and how that has been pushing up supply chains and we think that policy is likely to hit 4.5% in the november print. it is very elevated. go back to the economic projections the fed putting out, we are likely to see substantial upside. we look to next year, even if you maintain a view that supply volumes are likely to ease, shelter prices firming and firming prices overall is what will very likely keep inflation above 2%. it will not keep us at the 4% range, but will keep it through next year even if we are on slowing trend overall. caroline: what about trends the

economy overall? i'm thinking about the whiplash in the united kingdom about the back of england that seemed hawkish a month ago and then now back from market expectation because of omicron. i am reading that the prime minister of the u.k. talking about how at least one person died of omicron how much of a headwind is that to the economy and could we see reversal in the hawkish tone coming from the fed? robert: we cannot totally erase omicron from the economy but we have to look at where the economy is positioned and our view is that it is fairly well positioned to move to the headwinds and the consumer has had a strong foundation. we look at delta as a guide and we might see shift in the composition of consumer spending towards good and away from services. we have seen throughout delta it can put a dent in job growth.

but the position of the economy remains strong. we are tracking a roughly 8% annualized growth in the fourth quarter. we know the economy is likely to moderate off of that growth. we don't think it will do so in a way that will really deter the fed, particularly as the fed is focused on the medium-term. i don't think there is anything recently to dissuade them from the notion that we may see near-term effects from the virus on growth in the winter. to a certain extent that was to be expected that we would see a winter wave. if it is worse than expected, they could adjust. on the other side of that, temporary pullback is likely a shark balance to be prepared for. jonathon: robert rosener of morgan stanley. the prime minister yesterday

with dramatic words expecting a tidal wave of omicron infections. at least one person has died in the u.k. from that variant. caroline: anecdotally, i've never known so many people with covid as i do now in the united kingdom. it is up to you whether you still want to travel or whether you are so going to go to any christmas eve events and going to restaurants. it has real impact on the economy and clearly the prime minister is worried about it in the u.k. jonathon: still waiting on the picture from the people who matter before we set policy and what they are worried about and how contagious is it and how deadly is it? we are getting a picture slowly but not the full picture. lisa: can the bank of england remain on hold despite inflationary pressures? it is a motley picture compared to the statistics. jonathon: goldman thinks they skip this week and maybe convene

in february. maybe the year ends wednesday or thursday. lisa: no, unlikely. jonathon: all-time highs in the equity market. from new york city, this is bloomberg. ♪ leigh-ann: i'm leigh-ann gerrans with bloomberg's "first word news." the u.k. prime minister says the country is in a race between the vaccine and the virus. plans for all for booster vaccinations by the end of december. they said there is no certainty that the government will be able to stay open. the biggest airline in the u.k. asking the government for economic health. new travel restrictions disrupting the peak of christmas season for a second year in a row. british airways and lion air among those. mass for emergency.

chuck schumer insists the senate will pass the two trailer spending package before christmas, but time is running out as democratic moderates will not be on board. a delay in the new year could hurt momentum for the democrats. -- has agreed to an all-cash deal at $6.7 billion. it includes treatment, dermatology and cardiology. the company -- in premarket trading. global news 24 hours a day, online and at quicktake on bloomberg, powered by more than 2700 journalists and analysts in over 120 countries, i'm leigh-ann gerrans. this is bloomberg. ♪

>> if it becomes necessary to get another boost, then we will just have to deal with it.

i am hoping that the third shot of an mrna and second shot of j&j will give a much greater durability of protection than just the six month or so we are seeing right now. jonathon: dr. fauci on the vaccine effort in the united states. from new york city, the morning. your equity market up 11 points on the s&p, the biggest week of gains going back to february. a gain of 3.82% on the week, a monster week. yields at a basis points. crude coming in at .5%. the focus right now on the pandemic. prime minister boris johnson saying omicron represents 40% of covid-19 cases in london and by tomorrow will become the dominant strain. joining us is joshua sharfstein at the bloomberg school of public health. let's start right here -- trust.

how must -- how much trust is there with the politicians in is caring the population. who should we trust and how long do we have to wait to have data that we can trust russian mark -- can trust? >> unfortunately, there is some percentage of the population but most people realize this is a new variant like delta was a new variant and will have to respond accordingly. lisa: given the fact that omicron is slated to be the dominant strain, will a booster shot considered to be required in order to be fully vaccinated? joshua: that is becoming a distinct possibility. with each possibility coming out suggesting good news, which is with three shots of the mrna vaccine, people have a

reasonable degree of protection from omicron. this is not complete escape from the vaccine, but the third dose seems to really help and that may in fact maintain policies on what is considered fully vaccinated. lisa: you see in the united states, a survey of companies shows that nearly two thirds will mandate vaccines for their workers whether or not there is any sort of overarching law about that policy. how have you seen the discussion changing among private corporations to get the third shot as part of the requirement? joshua: i think the recognition right now is that to have a safe workplace people want, you really can't open up to omicron and doing things that are necessary to prevent this virus from getting into the workplace and spreading and wreaking havoc on companies is a priority to

prevent that. i think companies are looking at the data, just like public health officials are looking at the data, and it wouldn't surprise me if they start requiring a third shot. the third shot is very safe and protects against omicron. it is logical we could get there. caroline: you talk about on the workplace but wreaking havoc on travel plans as well. prime minister johnson saying the flow tests. everyone is testing every day using the lateral flow tests being given out on the streets are at your nearest pharmacy. how is it extinguished itself when airlines are pushing back and the hoops you have to go through and the price tag. what else could they go through? joshua: they could be doing auntie jen testing as well -- antigen testing as well.

it is really important to have testing but integrate testing into our lives and pcr testing isn't that great because you have to wait an entire day. even if you are negative, something could have happened in the interim. the antigen test's offer the opportunity to do things quicker. i don't think we have figured out travel how to integrate it into our routine. not too many years ago we integrated all the security stuff into our routine. we have to integrate testing into our routine and we are in a rocky phase while that gets worked out. caroline: this is what everyone from an individual perspective words about and prime minister johnson saying he declines to rule out new covid -- before christmas. it is an important economic movement for spending and consumer sentiment. how likely will we be to see

further lockdowns? joshua: i don't think we will see full lockdowns unless there is a situation where there is an incredible surge in hospitalizations paired we don't have evidence that omicron will cause that. we will have to see -- hospitalizations. we don't have evidence that omicron will cause that. we will have to see what kind of restrictions might be necessary but we will probably see limited and targeted policies to reduce the spread. again, it is the uncertainty that gives everyone anxiety. but we are not in march 2020. we have vaccines that provide protection and we know a lot about the virus and we can find it and test for it. i don't think people have to be worried about a replay of next -- last year. jonathon: how long do you need to conclude that this is less

deadly than previous variants? joshua: i think a strong argument is we need to see how it behaves in different populations. when you see london when it really does become the dominant variant, looking at what happens to hospitalizations is a good view for the united states what the likely outcome is. a highly vaccinated population, getting omicron spreading around, does it make people sick and we will find out soon? jonathon: thank you for catching up. joshua sharfstein of johns hopkins. the prime minister was asked three times would he rule out further restrictions before christmas and refused to address the question. lisa: so much is unknown. it is going to take so long to figure out whether this is a less deadly strain. we don't know that. this could be the circuit

breaker for covid. if it is not deadly and something that causes cold like symptoms and then people get it and get the immunity and they don't go to the hospital and get sick. that to me is a key issue. jonathon: caroline hyde, the prime minister singh omicron has become the dominant strain -- the prime minister singh omicron will become the dominant strain tomorrow. caroline: so many industries don't want to see tougher policies in place. the airline sector in the u.k. saying we might need more economic help. jonathon: travel stocks legging in europe, negative by .3% on the stoxx 600. the s&p up 13. a lift in the equity market. we delivered one of the biggest week of gains, going back to

february going into fed decision week. all-time highs. lisa: it doesn't feel like it. jonathon: i am with you. it has been so volatile. the equity market back at a record. from new york city, heard on radio and seen on tv. this is bloomberg. ♪

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>> it is time for the fed to adjust. >> every time we get close to a fed tightening cycle, markets tend to adjust. >> the flattening yield curve is suggesting that it won't take much to break something. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. jonathan: it is fed decision week. from new york city, for our audience worldwide, good morning. this is "bloomberg surveillance ," live on tv and radio. your equity market up to 12 points on the s&p. what a week to have a record high of the start of this week. lisa: i was looking at a bank of america credit survey for the month of december, and it showed that the top risk was a policy era. not covid, not a market sel