hackers -- turned hawkish. >> every time we get close to a tightening cycle, markets tend get aggressive. >> this is a bloomberg surveillance with tom keene jonathan ferro, and lisa abramowicz. jonathan: from new york city, this is bloomberg surveillance live. alongside lisa abramowicz, i am jonathan ferro. equity market 0.25%. lisa: are they going to make news with the taper? are they going to indicate a faster pace and a higher end target rate? jonathan: bank of america fund manager survey out this morning. that was a big discussion.

the equity market is at an all-time high. lisa: people are cautious but not bearish. they are trying to wait for a better sense of whether we should worry more about tightening too quickly or look at the facts of runaway inflation. in the meantime, they think everything is going to be goldilocks as long as neither of those outcomes comes to pass. jonathan: letting some air out of an equity market coming into the week with an all-time high. 142.43, lisa, get your head around this. lisa: i cannot. we are talking about the potential of runaway inflation and looking at sub 1.5% 10 year yield. you have people saying we are at risk of runaway inflation, larry summers.

how do you make sense of that? 8:30 a.m., we get ppi data. the expectation is for it to continue to surge. how much does this continue? how much does this get worse? the expectation is to hit the highest level in decades. does this matter to the fed, considering the fact that the labor market disruptions, as well as supply chain disruptions were previously thought to be ending? hunter mayorkas is speaking at the bloomberg tech summit. curious to see how he talks about cybersecurity in light of china. we heard some strong words from tony blinken from southeast asia. how much does he build on that? at night :00 p.m., this is going

to be important, china is planning to release a slew of economic data. the large expectation in the markets is that the chinese government will be forced to ease further. you see that bond deal going lower compared to the u.s., headed near the lowest levels of the year. people see a slowdown. jonathan: thank you. looking forward to the next couple of days. i should also introduce caroline hyde out of london. caroline, some technical difficulties. some of the studies around omicron pouring in particularly in london. caroline: i missed all your best jokes, but it is not a joking matter right now. we are seeing the effectiveness of the pfizer vaccine put to the test and it comes to omicron. there is not as much efficiency

when it comes to hospitalization. 70% are protected from hospitalization on two shots, but that used to be 80%, 90%. you seeing lines out side many a pharmacy in london, trying to get that booster. jonathan: central bank decision is over tomorrow, maybe the bank of england on thursday. is the pandemic over? i do not know. lisa: it is going to stretch out. some key information will be important. the minari data out of south africa does suggest that perhaps there is a lesson uriel and aspect to this variant of much does that cover the market view of the pandemic? that will be an important event. jonathan: markey, the disconnect

between inflation and what we are seeing -- 143.60 on tents. >> it seems to me that the bond market is not looking at inflation primarily because it. also, it reflects the fact that in a risky world, people are drawn to treasury securities. they are rather attractive. lisa: even though the fed is probably going to hike rates, even though larry summers is saying we are past the peak of encountering something with more sustained inflation going forward. margaret: they have talked and talked. what they have done is basically nothing so far. looking at next year, when we should have less treasury

issuance, it is almost irrelevant that they are going to cut back on purchases. the bigger impact the d last issuance last year. lisa: what is the trait here? are you buying long-term treasuries with the expectation that yield will go down? margaret: no. the equity market is of much better value than the treasury curve. 140/180 is not very attractive. they are still trapped at 1.25 for the next few months if the fed does begin to announce the tapering decision. caroline: you said you expect the fed to go slowly in terms of tapering, but what if -- if that seems to be the number one fear for every fund manager out

there. how are you hedging that risk? margaret: i am expecting the fed to not make a policy mistake. historically, their mistake has always been farming on the pranks telling banks not to make risky loans. they have learned from that they are going to err on the side of easing. they are going to keep rates low. nobody benefits from a big jump in rates. they are going to be very low. caroline: what then affects investment? are you starting to look at values? margaret: i think that the bond market, the best part still is the high-yield market those heels are down to record lows, but we are expecting defaults to

be only about 1% next year. as long as the fed is not dramatically tightening and affecting lower colony credits, you will get that extra income, but equities will still return more, even after a spectacular ear year. lisa: what is the historical analog given your decades in the market of this period? everyone says this is unprecedented. where are you looking for direct comparison and -- comparison? margaret: there really is not. in the past, we saw big cycles of easy, tightening, expansion, inflation. but the fed has made ever since 2008 to permanently keep

interest rates lower than ever. they have done that by throwing billions and billions of dollars at this market they like the situation. i do not think we are ever going to see interest rates move up into what we think would be the normal range. we should seek treasuries continue to have negative real rates. lisa: do you think the general pace of direction is downward? that we are going to seat zero rates in the next couple of years? margaret: real rates, i am not expecting any positive return. an increase in rates over the next year or two are going to be mild, not enough to significantly slow the economy and not enough effect nation we will seek more of the same -- reasonable growth with higher than expected inflation. a tax on society to get us

through this period. matt: thank you. this came from credit suisse. just a bit of work on the last four rate hiking cycle spirit over the past four cycles, the s&p 500 gained 9.5% in the 12 months prior to the first hike. the real damage from higher rates tends to occur later in the cycle. john says we are far from that point. lisa: maureen kelby seen a making a similar point. the key question to me really was will they continue to pump liquidity into the market and what if the yield curve gets a little flatter in little too soon because people are anticipating a policy error? we are not hearing that white as

much anymore, but that would be a game changer. jonathan: caroline, can you compare this cycle to anything we have seen? caroline: it is unprecedented, and overused phrase. not just in the u.s., but worldwide when we look at the ecb and the bank of england. we will see kathy jones later, who is already saying the bond yields have peaked. jonathan: we will also catch up with the head of research strategy at morgan stanley wealth management. down on the s&p 500. tk back in the hot seat tomorrow as we countdown to the fed decision or beautiful new york city. this is bloomberg. ♪ ritika: new study from south africa shows promise in the

fight against omicron. two shots of pfizer may offer 70% protection against ian hospitalized. that is maintained across age groups and in the face of chronic illnesses. the u.k. will use soccer stadiums as it opens up hundreds more vaccination sites. the new omicron. now accounts for 20% of cases in england. the estimated number of daily infections is 200,000. iran will no longer allow the u.n. to enter a centrifuge workshop. granting access goes beyond its agreement with the iaea did the latest european diplomat warned that time is running out for an agreement. antony blinken lashed out at china while trying to rally allies in asia. he criticized beijing's

aggressive action. he oversized u.s. efforts to deliver high-quality infrastructure and vaccines to asia. elon musk has unloaded more tesla shares for about $906 million. he is using the money to cover taxes. he is looking to get rid of 10% of his -- of tesla shares. global news 24 hours a day on-air and on bloomberg quicktake. powered by more than 2700 journalists and analysts in over 120 countries. i'm ritika gupta. this is bloomberg. ♪

>> open market, subsidies to

state run companies, denying exports, engaging in illegal, unreported, unregulated fishing activities. jonathan: antony blinken sending a clear message to china. with lisa abramowicz and caroline hyde, i am jonathan darrell. equity market down nine. going into the fed tomorrow, 1.4343. yields higher by a couple of basis points. a bit of negative follow-through from yesterday's negative ascension -- negative session. this line from senator manchin? you're just talking about different iterations. we are engaged. does that mean we are going

nowhere? we will talk again at some point? lisa: the headlines for people parsing through the noise is this might torpedo any chance of anything heading and before christmas. joe manchin wants some serious work done on a plan that has been seriously worked over for months and months. how does that tail into the i for gated nature of the lido credit party? is he the only one? jonathan: he is not the only one. joe, good to catch up good senator manchin, inflation israel, alarming, going up. joe: when heat walked out of his office yesterday to talk with reporters, he quoted his grandfather, who said unmanaged death makes us cowardly in our decisions. heat also gave another line. we are seeing things unfold that

allow us to prepare better, specifically mentioning the fed meeting this week. this is a senator concerned about not just spending too much, but also potentially risking the solvency of existing programs to care. he has been consistent on this. it does not look like he is ready to vote on anything. there is nothing to vote on. the parliamentarian has yet to rule. lisa: are we using senator manchin to paper over underlying disagreements in the democratic party? joe: you are getting somewhere. we hear frequently that there are democrats who say, i am glad he said it. he is representing moderate democrats, but when it comes to joe manchin or kyrsten sinema,

they speak for themselves. they have not budged. wheat follow their every move. if you go back to june, the conversation has not changed -- the topline number, concerns about inflation, the components of this bill. what it will look like is anybody's guess. lisa: what are you watching the next couple of weeks? we are headed towards a stalemate? joe: we are going to keep watching these conversations. they will keep meeting. this week, the senate still has to vote on the debt ceiling that appears to be a deal. it looks like that would get us through the next year. i am most curious to see what the fed fed says this week. senator from west virginia is keying off this inflation story, name checking jay powell.

it is strengthening his hand. it is likely this will bleed well into next year. can the biden administration afford to let this go beyond january? this is a midterm election year. caroline: that senator from west virginia is also focused on foreign policy. he says, we need to account for foreign policy challenges, russia being one of them. also china. it is interesting that we do at the same time have a lot of tough conversations out of the u.s. versus china with antony blinken. joe: you heard his remarks a couple of moments ago. joe biden walked into this with his recent video chat with president xi. malaysia, thailand, indonesia, these are relationships the u.s. is trying to rebuild. always, it is interesting,

whenever administration officials speak tough on china, they go back to the refrain we want competition not conflict. tenant did push back, but it is clear this is another brick in the wall, reaffirming where we are in southeast asia. caroline: certainly when supply chains are so dependent on that country. the house and the senate are going to be close to some sort of legislation, particularly focusing on human rights? joe: we will see if that sees the light of day. we are waiting to hear from the senate parliamentarian, which could send committees scrambling to rewrite portions of the pullback better plan. also trying to button not appropriations issues. jonathan: always good to hear from you.

the main story, lisa? how ryan reynolds put together that commercial so quickly. he spoke to a hollywood reporter and said, by pure luck, we have been talking to peloton. i met the ceo for the first time on december 3. gmail this right after the episode aired. we knew what to do. lisa: the fact that we are continuing to talk about pellets on -- -- about pellets on -- about peloton. -- we can move past the cardiologist's point. this question of the politicized asian of the federal reserve. people are watching the fed that much more closely, because inflation is becoming a political issue.

dan stanley said, although we agreed that it seems more politically motivated than data driven, this will be policy in the hawkish direction. the idea of this pivot that jay powell experienced does seem to be a direct response to washington. i am trying to square that with the idea of an independent federal reserve. jonathan: you do not think it is data-driven? i would say this is a man who has ignored some of the incoming data until recently. lisa: people look at the desert that they want and say that is going to fade away. right now, the data overwhelmingly shows inflation. what triggered a sudden about-face with the acceleration of the taper? it was a market about.

jonathan: they were told we will be filled before the holidays. lisa abramowicz, caroline hyde, i am jonathan ferro. a fit decision just around the corner. this is bloomberg. ♪

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this is a bloomberg surveillance. the outlook for next year. of all the outlooks, one of the most optimistic views came from j.p. morgan. he was -- he was talking about a full economic recovery. it reminds me of the notes i read 12 months ago. that seems to be the playbook for 2022. lisa: q1 of 2022 may look a lot like q1 of 2021. jp morgan has been bullish on china and goldman sachs. how much has already been baked in in this bifurcated recovery?

jonathan: futures coming 0.2%. the nasdaq down. that is the equity market, but it is about the relationship between stocks and bonds. 1.43 at the moment on tense. if you get to 2.25 on 10 -- on 10's.let us get to the curve , the yield curve. 2's versus 10's. we are back to 70. lisa: how much is this people pricing in an overly hawkish fed? i wonder what are people's positions on the federal reserve versus what is going on -- the

that is expected to soap? i am looking at how this dovetails into the dollar. all these bifurcated calls, how much has been baked in. abraham of citigroup has been covering this. abraham, can i get your sense of how many rate hikes have been baked into the dollar? how much is this front run anything the fed could do? abraham: we think there is more to come. if we think of the fat in the context of the other central banks, it is the one across the g10 spectrum where we can still hike. right now, we are pricing about 65, 70 basis points by the end of 2022. we think that could go up.

i would say over the next two years, another 50 basis points to go. translating that into currency, there is usually about a 3% appreciation. that is broadly our reference point at this point. lisa: how much is that the driving force behind the dollar versus lockdowns? you see the pandemic worsen in certain pockets. ebrahim: we really are thinking of interest-rate differentials driving effects only if they are undergrowth differentials. there are a number of reasons why the u.s. is outpacing the rest of the world. some are good, some are challenges elsewhere, including rising energy prices in europe once again, but there is also another reason. in the present context, the

dollar appeals because of u.s. outperformance, but because there are challenges next year with central bank tightening. there are remaining challenges in china. the two sides of the so-called dollars smile are appealing at this stage to investors. the dollar can also be a useful hedge. jonathan: i want to build on the right differentials. i want to understand from your perspective nominal rates or real rates as you compare them. ebrahim: it is an age-old question which i will slightly deflect. as an economist, i would like to say real differentials, but when we look at euro-dollar, it is a normal five year spread between the two. we tend to say investors eat

nominal, not real yields. however we deflated nominal yields to arrive at those real yields, those markets tend to be relatively liquid. there is really a black-and-white answer. for the time being, it is nominal. jonathan: did you just suggest that our measure of real yields is distorted? ebrahim: these are noisy measures. they are better in the u.s. than many other economies. we are grateful for what we have. lisa: -- caroline: data not always perfect. i am looking at gas prices hitting record highs. you made a small reference to the impact gas prices are having on european central banking policy. talk us through that. ebrahim: for us, there are two

impacts. one is a gas prices are high. europe is one of the largest energy importers. that is relevant for currency. for the central banks, it is more of an open question. you want to look through some of the supply-driven increase in inflation that is showing up here. but you reaction to energy price increases. when we look at the upcoming ecb decision, we think they will focus on the end of the disinflationary period. but i do not think they are the dominant driver here. they just contributed to the end of the disinflationary. caroline: the dominant theme of your recent research is the dollars smile. but you do go through some other

risks. some being a china rebound, a dovish turn in the fed. how are you hedging that is? ebrahim: there is definitely a scenario next year that could see the dollars sell off. we came into this year thinking the dollar would be quite weak in the context of a multiyear bear market if the global economy holds up, but it is really about the chinese slowdown ultimately and a combination of factors suggesting that once we get to june and maybe beyond, markets have priced in the prospect of fed tightening. it is a combination of those and the french election that could set off more optimism in europe. right now, we -- the probability is growing for us next year.

lisa: a tale of two halves in terms of the front end and the back end, but what about the developed market and the developing world given what we have seen in terms of rate hikes in the likes of brazil. i do not want to mention turkey. are you starting to see opportunities in the developing world? ebrahim: it is similar. we think cautious out but the prospect of arriving at a point where you find value in emerging market. china is still flowing, the fed is tightening. interest rates have to eat. that is not the point we would get involved. but china may be bottoming with the stimulus rising, maybe inflation peeking in emerging markets.

that could be the time to get involved. we are looking at that closely. jonathan: always good to hear from you. central bank decision still to come. lisa, we asked rich some simple questions as he pushed this transitory argument. how would you know if you are wrong? he said at the turn of the year, we would have a decent idea of where we are. it turns out they were wrong it seems to me that the baseline is that inflation starts to flight in the middle of the year. from q1 to q2. that is what divides the people who think we are going to get a hike soon and is threatening a move in march and those who think the fed will wait. how they are going to transition from q1 to q2. lisa: what i am watching is

housing. and of people are saying that the lag effects are such that you will see a big pop in housing costs ongoing throughout the year. it should be substantial. i wonder how that is set by some of the more transitory elements, especially if supply chain disruptions do not get solved. jonathan: a lot of people are saying the same thing. we have still got this upside risk from rent. caroline: rent, many feeling that that is the imperfect part, but also help much as the dollar and up containing some of that inflationary pressure? we have a great note today saying maybe the dollar could do a lot of heavy lifting for the federal reserve. that could ease inflationary

pressures going into 2022. the same views from some of our gas coming up later in the hour. lisa: do we understand inflation? this is a dumb question, but -- not to be philosophical on a tuesday, the more i see these notes, the more you can argue what you want. people do not understand the balance sheet's effects on inflation, spending on inflation. you go down the list and people disagree. hard to get a call. jonathan: you know what i want back? i want the bramo column back. i used to read it religiously. i will read all five pages on what is inflation. yields up one basis point.

let us start lobbying lisa to bring back the column. this is bloomberg. ♪ ritika: in the northeast, officials are trying every tactic to control a surge of coronavirus cases. new york is requiring masks in all indoor places across the state. massachusetts is sending free test kits to its poorest areas. hospital admissions climbed 14%. joe manchin spoke with president biden but will not commit to voting on the agenda. he says he has engaged with the president and has growing concerns about rising u.s. debt and inflation. the committee investigating the january sex insurrection has voted to recommend that mark

meadows be held in criminal contempt. meadows has turned over material to the panel but will not testify under subpoena. he is invoking executive privilege. giant has agreed to buy rts kt, a company that creates digital products. the terms were disclosed after nike partnered with the platform that outfits characters in digital key items. global news 24 hours a day on-air and on bloomberg quicktake. powered by more than 2700 journalists and analysts in over 120 countries. i'm ritika gupta. this is bloomberg. ♪

>> a workplace which people want, you cannot open up to

omicron. companies are looking at the data just like public health officials. it would not surprise me if they started requiring a third shot. jonathan: that seems to be the direction of travel. alongside caroline hyde and lisa abramowicz, i am jonathan ferro futures down 12 on the s&p. breaking news on pfizer. lisa: two separate studies of the covid pill. they do seem to reduce hospitalizations. they prevent 89% of hospitalizations in unvaccinated individuals. however, they do not reduce symptoms in healthier individuals. how much do we start to pay attention to hospitalizations and not infections? when do we cross that threshold to treating this as a common cold? jonathan: always good to catch

up with you. how much closer are we to that ultimate objective, treating this like the common cold? >> every time we get a new tool to treat people, we get closer to that goal. the antiviral from pfizer has the tremendous ability to prevent people from becoming hospitalized. that is what flattening the curve was about, preserving hospital capacity. the vaccine is the best way to get there. we still have 60 million people eligible to be vaccinated. the antiviral does bring us closer. lisa: we are looking at the omicron variant and anecdotal data showing that perhaps it is less purulent. how much are we looking at that being a breaking point to the upside, getting us out of the pandemic? ebrahim: alt we are hearing of

-- >> all we are hearing about is mostly milder cases. that is reassuring, because we have not heard anything different. in the u.s., only one case has been hospitalized. it is difficult to extrapolate to the rest of the world, because south africa is younger, has different comorbid conditions. we want more data on unvaccinated people, but it does seem that for the unvaccinated, it be the same as delta, but if it is more transmissible but just a little virulent, it may be a wash. lisa: we have been talking about how the two course does does seem to have some preventative aspect against omicron in terms of how ill you get, but not necessarily infection.

people are saying the booster is important. you said you did not get a booster. have you changed your mind? >> i have not. i do not have any comorbid conditions. a booster will just kick a breakthrough infection down the road with these first generation of vaccines. if you have a high risk condition, not the j&j vaccine, those people should be boosted, but that is not going to prevent omicron from hitting our hospitals. what is going to prevent that is first and second doses. people are protected against severe disease with a two dose regimen. that is what we need to be emphasizing. if we continue to boost to prevent mild illness, i do not think this ever ends. maybe there will be a second-generation vaccine that gives us different protection and that will change the

equation, but right now, i have not seen anything that changes the equation for healthy people. there are a few of us focused on hospitalizations and not preventing mild diseases. caroline: i sit here in the u.k. and see the absolute focus on booster shots, perhaps over and above getting the unvaccinated vaccinated. how does that had out in the u.k.? robert read was saying the reason is to stop transmissible to, but does that not work for your mind's eye? >> the best way to stop spread is still going to be to get the unvaccinated vaccinated. it is not a surprise that this variant arose where vaccination rates are low. everyone in the u.k. eligible for a booster got booster, you

would still have an omicron problem, still have hospitals busting at the seams. this is about reaching the unvaccinated. many policymakers have been up, but boosting is of less value than first and second doses. they have recalibrated the focus on cases, because they have even up on the unvaccinated. i worked in the hospital, that is all a deal with i do not deal with boosted people or fully vaccinated people i deal with people who lack first and second doses. if you want to end this pandemic, we have to get first and second doses around the world. caroline: what have been the most effective ways of doing that barring making it illegal not to? >> the only thing you can do is talk to them one-on-one and tried to figure out what

misinformation they swallowed. offer alternatives. be they do not want mrna. you could direct them towards j&j. there are ways to work with people, but you have to sit down and do it. it is not me on television that gets people vaccinated. it is saying, what are your concerns? let us go through the ingredient list. it is just like if somebody is making a purchase. you go through all of their questions and then at night them appropriately, but we did not do that. we did a lot of pontificating. that did not move people who are annexing hesitant. jonathan: thank you for your time and your perspective. on the situation right now and hospitals in america, we are still struggling to understand the scale of hospitalizations from omicron, trying to get a picture into the u.k.

people misspoke about what was happening in the u.k. a couple of times. lisa: we are still fighting delta. that is what should all ship is talking about when he talks about emergency rooms bursting at the seams. that is a variant that we do know is vit -- virulent. i was struck by hospitals rubbing their vaccine mandate for workers to keep operating. jonathan: caroline, what is the update in the u.k.? caroline: turn thousand cases a day -- 200,000 cases a day, about 20% omicron. by today, we were saying it would be the most prevalent variant in london. it does feel as though people

are starting to get nervous about what happens ahead of christmas. my sister is expecting a baby. what happens? jonathan: the u.k. is where everyone is looking at the moment. your equity market down on the s&p. this is bloomberg. ♪

>> we are seeing more fed numbers becoming more worried about inflation. >> the economy has been overheating from most of the year. >> the fed has turned really hawkish, really aggressive. >> every time we get close to a fed tightening cycle the markets tend to get really aggressive. >> it won't take much to break something. >> this is bloomberg surveillance with tom keene, jonathan ferro, and lisa abramowicz. jonathan: from new york city for our audience worldwide, good morning, good morning. this is bloomberg "surveillance" live. together this morning with caroline hyde. tk is back with us tomorrow. lisa, just pulling back further from all-time highs. lisa: you keep seeing that the year will be over and people are tepid in