>> if they are going to do 75, it's better to do it sooner rather than later. >> the fed doesn't have much reason to slow the rate of >> hikes. things will be much more challenging. >> we think the base case is knows -- is no recession. >> this is bloomberg

surveillance. tom: good morning, we are doing this on radio and television. thank you for your response to what we did yesterday and it continues today and i love lisa with all the peels. bank of america says look forward to the summer of vulgar -- volcker. lisa: is this the beginning? this is what people were talking about yesterday and a lack of understanding from the notes on wall street as to what was happening was it a lack of buyers were forced selling? when do we see something break? tom: the night uva beat duke, where did this language come from, it's on ladylike to call this cathartic. it's called a bear market.

kailey: it is and that begs the question of now that we fallen into a bear market, have we not yet seen what you actually need? futures were higher but they are well off session highs. it was not much of a convincing rally this morning. tom: we will get to that in a moment but lisa, i want to frame out the tea leaves i see now. there was an ugly last 12 hours. moments ago, pound sterling broke down into a new weakness of 120 -- $1.21. i would also point out that maybe what matters is that two year yield. lisa: it's coming off the highs we saw yesterday since 2007, real yields is what i am watching on the 10 year versus the highest levels going back to 2019 almost 0.7% yesterday after

being negative. you are seeing a little bit of conviction buying. i think it's important to know after one of the worst selloffs we have seen. tom: what are you observing different this morning than yesterday? kailey: underneath the surface of the equity market, we have to talk about the breadth of yesterday's selloff. energy stocks were among the hardest the kleins yesterday, only five stocks in the s&p 500 and did the day in positive territory. the selling yesterday tom: the vix is nicely elevated over the 30 level.

futures bounce up 11 and down -- and dow futures up 61. the two-year comes back three point 31% and the two-year spread is all over the place. we will look at that chart later. oil i think is underplayed. gold can't get out of its way. the dollar is very important right now. that's about it right now. i don't think i can save much more. we need a break. we need to calm down. lisa: we are watching regime change. we have revoked the era of low

interest rates in the face of higher inflation stop 8:30 a.m., u.s. ppi for the month of may. it's more important potentially than cpi because it could indicate how much more pricing power or lack thereof companies have and how much more margin pressure do we see. you see what you get. we are looking at a natural react seller because of energy prices and that matters. at 11:00 a.m., president biden is trying to shift the message again, talking about labor. he will be speaking in philadelphia, can he shifted away from gas? it's moving to an all-time high, well above five dollars a gallon on average across the nation. how does the fed get out from under this considering consumer

sentiment and what it's doing to long-term expectations? we are not going to play the fed parlor game all day. people are talking about a possibly 75 basis point rate hike at their next meeting. will that be positive or markets or negative for markets? right now, the yield curve is the flattest we have seen. this tells the story of possibly stagflation or recession. does the fed care about this? is it all about sending a strong message to congress? tom: it's just bouncing around a lot. look for our special tomorrow on the fed. deutsche bank will join us for ever fed special tomorrow and deutsche bank out with a

recession call. is your team under the desk? are people hiding under the desk this morning? >> i have to give my team credit because when we started this year, we said we would see a lot of volatility and cash might be king. it was the first time in my career that neither the bond representatives or stop representatives were excited about their areas. i think we are going through what we thought we would do in our conversations at the office. it's going a lot quicker than what we saw. lisa: is this the cathartic puke? you don't want to buy when people are scared but here we are and that's typically the best time to buy? >> we see what's happening with crypto which is having their

peak errant tease but there are too many ideas. we gained about 20% on the s&p 500. it was pretty poor volume. i don't see why we shouldn't do more damage than that with all the money that was pushed into this and so many people buying up so many assets out there. that has to be wound back and i think it might end up probably being a recession and probably maybe a couple more points on the downside on the snp. kailey: there is the idea that the market is giving the fed permission to move 75 basis points. with a greater side -- downside risk to equities, would that be too hawkish? >> we are not so concerned.

i think a 1% move would be a big shock step 75 basis points versus 50 basis points, we are in the situation where what ever they will keep on doing, we find it interesting. the fed terminal rate is up to almost 4%. where we end this is very important. if you talk about ppi and cpi and how they come down because we saw money growth pecan february of 2021 and historically, 13 months later, it cools back down. it might come down fairly quickly but i'm not betting on that right now. that's what we really have to watch in the fed will keep going on and being data dependent and it's just a mystery to all of us.

kailey: art margin estimates still too high for the rest of this year? >> that's what we are concerned about. the news coming out of target is the tip of the ours bird. that's what might come next and more and more industries have to record a good second quarter. today it was all pe multiple contractions and we pulled out our earnings estimate. it could be at tough couple of months here. tom: good perspective to get us started this morning. let's go to your where german yields are out. look at italy and the dax but the italy piece is breaking out to new wide this morning. how about an underplayed story,

what is the velocity of high yield credit spreads? lisa: for a lot of the selloff we saw this year, credit held pretty well but no longer. the selloff has accelerated as a pace we haven't seen going back to march of 2020. we look at investment grade and high yield on the average yield you're getting are things we have not seen going back years particularly in the investment grade space, 5% on average in yield which is what high yield was doing not that long ago. this is a complete repricing so this is a regime shift. how do we readjust? tom: one of the issues is we are adjusting with a near 6% mortgage rate. julia coronado feature that yesterday and boom, 6%. kailey: people are saying it might not slow the actual purchase price that people

expect because of supply. what is it do if you get this? it's one of the many mysteries of the market step tom: i want to emphasize that there are certain tea leaves moving, sterling, $1.21 and it coin cannot get a bid, 21,000. stay with us as we have more data checks on bloomberg radio and television. ritika: keeping you up-to-date with news from around the world, president biden will travel to saudi arabia and meet the country's defective ruler. -- de facto ruler. the possible trip indicates he is driving for lower gasoline prices.

banks are withdrawing from handling debt. u.s. investors are being banned from scooping up assets. u.s. treasury office says they are not allowed to acquire them. the buying power of u.k. households fell the most they have in decades. the figures show how workers are failing to benefit from the labor market. it's been more than one year since a bloomberg reporter was detained. we will continue to do everything possible to help her

and her family. after showing negative covid-19 test results, as the city using a number of infections driven by transmission. global news, 24 hours a day and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. ♪

>> we've already had i and you have no idea how bad the announcement was friday. there might be an initial selloff on a 100 paces points, i think there would be a subsequent rally because the fed is finally getting aggressive. tom: the pundits are out in force on the mathematics we will look at tomorrow afternoon at the federal reserve. we will ignore a lot of that punditry and guesstimates. what matters is what the vice chairman and governors and president assad around that table. there are other tables in washington with lots going on with the resident in washington

and anne-marie joins us now. it's really clear, things that have changed, this malaise at the white house. to find what you see from that evoke camera perch you have near lafayette park. anne-marie: we saw the administration wanted to make a concerted effort to talk more at least on policy communication about the economy. they are getting hit hard in the polls about the economy and inflation is the number one top concern of american voters as they go to the polls in november and that's what they are trying to do. there are so many levers the president can pull when it comes to tackling inflation was that he will talk with the economy about the afl-cio and the white house will talk about building the economy from the middle class out.

they are not going to change any policy. we are still waiting on the china terrace and there is a sense it's a continuation of that malaise. lisa: maybe there will be a trip by president biden to saudi arabia. this is being reported by nbc from july 15-july 16 so what would he hope to achieve in that meeting that can help bring inflation down? anne-marie: this meeting would likely be alongside other members and saudi arabia would shake hands with president biden. the crown prince is the de facto ruler so it's pretty political because we know the president set on the campaign trail, he wanted to make saudi arabia a pariah state and now he has to go into the kingdom and setting

foot on that soil but it comes to the point that the administration has been recalibrating and a lot of capitals have stuff how will they deal with diplomatic issues? some people are becoming allies but in general they are becoming allies because of the war in ukraine. the administration wants to engage more with the kingdom and part of this is the price of gasoline where we are north of five dollars per gallon on average. saudi arabia has spare capacity, it is not enough to save five dollars gasoline and america stuff kailey: so this is just about the optics and doing something about high oil prices? anne-marie: but it won't just be about energy. we heard that from the press secretary and the white house but the people i'm talking to,

there are other deliverables that this trip would have. it would be energy of course but also security in the region and things like defense in the region, economics, climate ambitions the administration has which we know that the crown prince has been trying to diversify his economy. we saw that last week with them taking on this brand-new golf tournament stuff this is something the kingdom is trying to do so there will be a breadth of issues to take on. tom: can we break opec-plus? can mr. biden or america or the allies break it? anne-marie: even before russia invaded ukraine, opec itself, countries and opec have had wars with each other and the cartel has the lived to this day step

there is a lot of talk about the death of opec and opec-plus but what the saudi's did the last meeting being the defector leader of this group was to walk a fine line with giving an olive branch in the administration has been asking for more oil, keeping rush on board to agree to this increase in production. how long can they do that is the question? tom: thank you so much. moments ago, sterling, one dollar 20 one cents, an indication of a slowing, me in continental europe. lisa: it comes after the labor market report that wages in the united kingdom fell to their lowest going back 21 years. it's eating away any gains you are seeing in terms of wages.

this speaks to the moment we are in. the nfib survey of small business came out at its lowest reading in history in terms of what small business owners expect over the next six months. this underscores the feeling of doom but in the real economy. tom: i saw the report last night and i thought the report was incredibly nuanced about the battle small business is having to fight inflation and still that in paul's that they can't get people to work. lisa: at what point will they stop trying to hire them? people want to see the release of pressure with increases but without price increases, people have that much less to spend on inflation-adjusted basis. how is the fed going to get ahead of this if they don't make a big move at the meeting and

recognize that we are seeing pain and the response is the opposite to what we would have done a year or two of go. tom: you are cathartic lee pressing my buttons because no central bank gets ahead of this. kailey: we try to do that as much as possible. tom: you are learning monetary history at uva in the bottom line is central banks cannot get ahead because they are data dependent. kailey: it keep pushing them farther and farther. we just a market is pricing 75 paces wait hikes tomorrow. we can both play this cathartic button pushing game. tom: we are thrilled to bring you claudia som, as futures

paid.

tom: good morning, bloomberg surveillance another day of market turmoil.

i just got a 120 print on sterling so what do you see. lisa: a lot of this has to do with the dollar strengthening and chipping away the gains of the morning. we had seen stronger gains in their meeting the snp up 1/10 of 1% stop at that point, the rate fear is not over. tom: d tally and paper is moving up. this is a treasured moment, the st. louis fed and it will be

good to speak to claudia som about her rule which is wonderful formula saying wait, let's look at jobs and guess the recession. we get away from the fed parlor game with real economics. claudia, the job market says there is no recession? >> that's correct, we have a strong job market and lots of demand for workers and lots of jobs. tom: do you see any indication of the market turmoil in the financial system could amend the job market? >> and financial markets and what the fed is doing in terms of raising rates, they both have the ability to depress demand and how much consumers can spend in the united states because they are the engine of growth and if they spend less, there is

less need for workers and it could lead to layoffs and that indicator is all about watching the unemployment rate creep up and that's an indicator of a recession. that's what we are looking for and it doesn't have to be a lot of weakening. lisa: where are we considering the fears of recession? >> i feel strongly that we are not in a recession today. the labor market is really strong and if you look at consumer spending, people are spending. > that's probably why we have inflation stop we are not in a recession now but that should be no comfort necessarily that we won't and up in one and what we are seeing in the last several days is what could easily turn into a celso -- self-fulfilling propers -- prophecy in financial markets and potentially among consumers.

we need to see things cool off some. if we cool off too fast and too much, that's where we end up in a recession stuff kailey: we heard from a number of people that it's the media or people coming out saying look at how bad things are and people get scarred and people get scarred in the inflation expectations go up. if you drive down the highway and see the gas prices climbing and go to grocery stores and see how much higher your bill is than it was be or, if you look at real wages on a weekly basis art -3.9%. , how do you get a sense this will be positive for consumers and it's just a messaging problem? >> i don't think it's a messaging problem. in the consumer sentiment in sought low numbers -- we sought low numbers and -- we saw low

numbers and that coincided with gas prices really starting to take off. gas and food but gas in particularly looms really large and how consumers think about it elation stuff they don't need the media to tell them what gas prices are. what's difficult is that it's really hard for the fed to get food and gas prices down and that's what people are concerned about because we need those. those are necessities and that's a supply-side problem, it's not the fed's problem. it is their problem now because they are about inflation but it's one that we shouldn't be promising consumers relief because of the fed rate hike. that's not where they have the lever. lisa: it may be a problem for the federal reserve is doesn't mean they are the solution stop it's not just about rate hikes but we will also look at the summary of economic ejections.

kailey: some of these reports show that the fed has given up. >> i don't think they will give up. the one lever the fed controls and what i look for is how fast do they want to push this to get inflation down? the past sep did not say it. if they want to percent, then yes, they have to turn this group. -- turn the screw. tom: claudia, can you explain all the fed pundits that central banks are always exposed and

data-dependent? do i have that right? >> absolutely, they are data dependent and the data that we are dealing with right now are fundamentally different than what the paul volcker fed was dealing with. tom: i think this is important. there is a lot of ventilating going on and people are scared of the vic's at 30. adults are saying that we've got to wait and see the data. lisa: fair enough and i'm glad we are talking about it. there is so much murmuring going on. kailey: investors are also looking ahead to the producer price inflation data this morning. are you in the camp that that is more important than the cpi data was? >> the fed is not going to hang

its hat on some nuance. the cpi was uniformly a bad read on friday. what one could hope for in the producer price index as we are starting to see some easing on the prices that are going into businesses, the kind of prices they are passing on because we have some very serious supply disruptions from covid and the war in ukraine. to avoid a recession, we've got to get some help on those pieces. it's not looking real encouraging. lisa: when we talk about data dependency, we are looking at data we have not seen in 40 years. we are looking at data that is potentially catastrophic for the lowest income in the united states and around the world. at what point does the fed respond to the data we are looking at right now rather than

parsing out the nuances and say we should act big and that's what their job is? >> the fed chair was very clear recently that they are looking for clear and convincing indications that inflation is coming step is not about jobs right now. maybe unemployment will rise with this comes down to what ppi looks like. they got burned last year on thinking the covid descriptions would ease that would ring prices down but that was not the case. the data are too hard to parse right now. all eyes are on big numbers. tom: thank you so much. i urge you to study the sahm rule. i've got sterling $1.21 in the

italy-german spread maybe one of the litmus tests. the difference between italy and germany is ever wider. lisa: even going back to the pandemic. the italian 10 year yields are higher than 4% which is the highest since 2014. we are looking at new levels we have not seen in years and have not imagined. i what point do they come in with some other program or allow the spread to gap out crisis? it could raise discomfort among the member states. tom: to be honest here, with futures up 12, is not that large of a bounce off negative seven. kailey: it's not convincing at all in futures were up more earlier in the future section but we have no given back a

large majority of the gains. not a convincing bounce in all which raises the question of whether we are done and the worst is over. if yesterday was cathartic, people are looking for the forced selling that rippled across the market. i don't think we have an answer to that stuff tom: thank you for listening in austin, texas. i got a wonderful email. as we continue to monitor the market place, the elephant in the room as this is oil which is not given back. it was supposed to go down but it has not stop kailey: even if oil prices come down, will that change the price of a gallon of gas because refineries have been in short supply.

lisa: it doesn't seem like the input prices will come down that weekly. we had crisis upon crisis and the ukraine war and the shutdowns tying up during the pandemic. how does the fed parse out nuance in inflationary headline numbers? tom: stay with us as we talk about ppi, the dollar is $1.05. this is bloomberg. ♪ ritika: keeping you up to date, this the first word. president biden and oval office meeting with kiki members of his test with key members of his candidate. with inflation at a 40 year high, the administrations looking show action. beijing has reported the highest number of daily covid 19 cases

in three weeks. it's the most since may 22. the nation's top officials are urging beijing to control the out rake as soon as possible. hong kong lobby group of fund managers is hurting just urging their incoming chief executive to put a restraint on funds. they represent more than $52 trillion in asset management. u.k. household buying power fell for the most in 14 years. it shows how painful it is and i workers are failing to benefit from cut rates. dry and windy weather is traveling -- is threatening california.

hundreds of people are leaving their homes and had been evacuated because of the fires there. global news, 24 hours a day and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. ♪

>> the markets are performing incredibly well. there is a ton of liquidity in the market, a lot of transparency and the processes are operating incredibly efficiently. you can't look at the daily moves, invest for the long-term if you are a retail investor. tom: no doubt, she is interested

what happens with trading for retail in the coming months. we welcome all of you on radio and television worldwide. will digress with futures up. it is fragile and no dollar strength this morning and sterling is $1.21. our definitive coverage of asia has been led by stephen engle. he is seeing modern hong kong change any set them the out going chief executive carrie lam. >> despite some skepticism and cynicism about hong kong's future, i remain very optimistic and confident of its future.

one of the reasons for my confidence and optimism is hong kong's unique strength. hong kong has a high degree of autonomy to conduct its internal affairs especially in the international arena. we can set up their own economic offices and could enter into agreements on free trade and taxation and investment protection stuff i want to finish my term by regan -- re-emphasizing importance of conductivity and hong kong's status as an international student -- international city. >> is the damage already done? >> if you look at the past two years, hong kong was ranked the world's number one in terms of normalcy, that's when other countries and places were

imposing the stay-at-home permits and lockdowns and close to the airport and so on and we were by and large operating normally. since the fifth wave hit us hard, in terms of the number of deaths >> 9300 deaths. >> so we got extremely cautious and because of the transmissibility in the mildness of this virus, other places are opening up so bike harrison, i'm the person that believes in relativity so everything is relative. when things are opening up and hong kong is imposing quarantines, it weakens our position as international city. mind you, during my term, while the daily cases were still quite high on the 25th of march this

year, i already announced the gradual opening up in terms of social distancing and we have done some relaxation. in terms of coming into hong kong, i lifted the ban on nine countries and i reduced the quarantine period and made other adjustments at the airport so it's hitting people to come back step prior to the first of april and for almost two years, the daily arrivals at our beautiful hong kong international airport was a few hundred and now it's back to over 3000. i hope that gradually, we can progress on this path of normalcy. tom: stephen engle is in hong kong. carrie lam will pass the baton of hong kong leadership to john

lee. i am fascinated by carrie lam as someone whose father work on ships and grew up poor to a guy who was a police officer from day one for the chinese government john lee. how abrupt will the transition be? >> you could argue from the other side of the coin that could it be anymore tumultuous addo the last -- out of the last three years? they allowed more than 9000 deaths when they had 1.5 years to prepare for that so that was one of her regrets. she said she regrets getting

more people back. you turn the page to john lee and he is a lifetime police officer, the former head of security. he was her deputy and he was the only candidate that was endorsed by beijing to be her successor and she only served one term. out of the four previous chief executives, not a single one of the past 25 years has made it through to terms which they are allowed. is a difficult job serving two masters, beijing and hong kong. she acknowledge that in john lee has a clean slate and a police background but will it be more of a police state? tom: we have to get back to the markets but good to catch up. carrie lam leaves as the leader of hong kong. we see the shift on the pacific rim and the shift now and i

guess we could center on a japanese yen of substantial depreciations. lisa: did you see what they did overnight? they actually bought a record amount of bonds in order to suppress yields back to the yield curve, ¥2.2 trillion worth of bonds. this just shows how hard it's getting for them with certain hedge funds betting against them and trying to short them. the policy divergences showing up in ways it can and you are seeing the dollar is reasserting its strength technically but we are not getting away from that especially as people try to come into the dip. tom: from the market turmoil of yesterday to today, there is green on the screen but it's remarkably fragile. it is kailey: and we saw that over the last couple of hours where we fallen off the highs of

the session stuff that doesn't seem to be much conviction across any asset clays -- classes. the dollar is stronger and the yen has been fluctuating overnight. it's at its weakest level since 1998. tom: maybe one of the international indicators is italian paper but to look at u.s. markets, it's simple, i looked at bloomberg total return indices and bonds yesterday had a bad day. lisa: they got absolutely hammered. particularly the credit space. at what point does the fed taken notice of that and that reads a bottom? this does that create a bottom? tom: i'm at a loss for words. lisa: tom keene, speechless.

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>> if they are going to do 75, it's better to do it sooner rather than later. >> the fed doesn't have much

reason to slow the pace of rate