♪ >> this is a paul volckeresque type of situation where they are focused on getting inflation down. the thing is no longer transitory, it's very sticky and they are worried. >> there have been some signs that companies are losing momentum. >> we think there is a 50-50 chance of recession in the next few months. >> it won't be a massive recession. >> this is bloomberg surveillance. jonathan: live from new york city for our audience world wide, good morning this is

bloomberg surveillance on tv and radio. futures are down about a quarter of 1% on the s&p 500. a big day ahead for chairman powell. tom: they will talk about the dreaded r word, recession. in the last 24 hours, the conversation has shifted to gloomier. i would go to michael tran of rbc capital. he says the oil price can be swift, violent and un-for giving stuff can the economic data be swift, violent and un-for giving? jonathan: here is my word, dreadful. that's the last 24 or 48 hours. tom: they look at soft data and hard data and the part data is

catching up fast to the soft data. i look at all of this number one thing i see is the resilient oil price. jonathan: i'm'still running on central european time. we been getting these regional announcements of german inflation and then spanish inflation came out, absolutely surging step lisa: 10% which is unexpectedly high and pressuring the ecb to do something at a time when they're trying to calibrate how much they can do. how much of a potential credibility issue is there. mohamed el-erian talked about the whipsaw effect of them missing the boat and perhaps going too far, too fast and the opera to direction. jonathan: i read that piece this

morning, fantastic. that's the risk is that they are scared about what happens then they have to go again and that's the risk going into the end of this year. lisa: this is the reason why laura bester said they are concerned and she sees rates at 4% next year. does that lower the long-term rates for set them higher? it indicates a base rate that is higher. jonathan: has the market got in front of this? jp morgan cut price targets. they say our projections will come down but by side expectations only reflect the softer macro environment. tom: it's a power game. pmi mellon said her outline case

is from another time and lace, 12 times earnings. that's from my youth and i had less gray here than step it was that long ago. the multiples here are adjusting rapidly and i agree that the streak is out front of the sell side under earnings adjust. jonathan: they said they found a weakness in the energy names. tom: this is the story this week stuff $118 brent is what i'm looking at and you have economic data tomorrow. jonathan: looking forward to that. equity futures are down about 2/10 of 1%. the nasdaq is down about one third of 1%.

$112 for crew this morning. lisa: this follows on the concern about the fiscal market incredibly high even if you see some softness in the futures market will step it still early before the drama starts. that is when the market drama usually transpires. we are watching officials heading to nato in madrid with the summit they are having their including joe biden. how much they talk about finland and sweden and how much they talk about building up troops on the eastern front of europe in order to counter the russian threat. at 9 a.m., the european central bank panel in portugal including christine lagarde, jay powell and the head of the international bank will be moderating this. how much will they tried to get ahead of markets once it yen.

how much will they try to get ahead by giving a sense that we have a plan and we will stick to it and we know it's going to happen. they have already allowed inflation to get to a very uncomfortably high level. at 10:30 a.m. is when that is happening. the crude inventory route port, we got some gasoline inventories yesterday showing the depletion, they were softer than indicated in indicates an ongoing tightness even though you saw the five dollar threshold is come off, still near record highs. how much do we see people curtailing action and some signs of that yesterday but not totally. jonathan: thank you. joining us now is the ceo of fixed data. what is your number one question

going into the meetings later? >> what matters more, growth or inflation? we have a totally different cycle than we have seen in the last or years and even if we have recession fears, the central bank is in a tricky spot because inflation is way above target they cannot focus on growth as much as they done in the past. if you look at the market, we clearly had the recession as the focus the last couple of weeks and nevertheless, bond yields are close to their highs lesson for the last four years is as soon as there was weakening growth, you lows your eyes and by bonds. this cycle is different because it is an inflation cycle as opposed to a growth cycle. tom: i look at the path of elation. it's an esteemed panel that's

meeting later. to me, inflation has an easy path down, core comes down and then it gets way more difficult. where do you perceive the level of an elation where it really becomes heavy lifting for these central banks? >> i think we probably have a period where goods can in commodity prices will come down over the next year and that has not much to do with central bank policy. then the question is, if the wages and the services prices stay elevated, so that a drop in those other prices don't really get the overall in patient numbers down that much, then the central bank is going to do the heavy lifting and really get tight. don't forget, we are talking about the fed having overdone it

for how many months? they've been hiking for a couple of months. that's the discussion already. the tricky bit will be if they have to go to three and considering going to five and that's when the pain will be severe. right now, we're discussing about getting to neutral and a little above but not really tight. it's not a paul volcker cycle yet. lisa: to your point, laura master said the fed is just beginning raising rates. if they go a little above 4% next year, has the market adequately priced that in? >> no, especially last week and

we got to extreme went where the market was pricing significant cuts in 2023. essentially, the price would have a nine-month tightening cycle and then we will start cutting. obviously, the hikes are priced bigger than normal. nevertheless, we were pricing the hiking cycle that was going to be one year and then the cuts would start. that i think is questionable. i think we will have a situation where the services and prices will be sticking and it will be hard for the fed to switch to cutting mode. we might not talk about 75 basis points for ever so maybe a slower pace but this notion that the fed flip super hawkish to getting ready to cut within a year, that i think is too early.

i think we will push that out. jonathan: thank you for your view on things. the playbook has not really changed for the fed. there is some pushback against the rate hike being lower. what we are about to see in six months is as much as what we saw in three years in the previous decade. lisa: it's a big change in the face of a big change in inflation and this is the underscoring point that the fed has gotten it wrong. they thought this was going to be transitory and that's wrong step all of a sudden, how do they get ahead of markets that are doing the heavy lifting for them and if they do not follow through on this, is there a concern about the 1980's?

jonathan: there are some questions for the moderator coming up at 10:00 a.m. lisa: i'm excited. jonathan: futures are down 1/10 on the s&p 500, from new york, good morning. ritika: news from around the world, they say the central bank is at the beginning of raising interest rates to control in elation. she said she wants to see the benchmark lending rate at 3.5% this year and a little above 4% next year even if that puts the economy into recession but she doesn't see that happening step the price of basic goods is rising at the fastest pace in a most 14 years.

poorer families are taking drastic actions to make ends meet step they have to pass on some of the wording on u.k. food prices. prices are up 6% in the first half of the year. there is a major step on the way to nato membership. it all but ensures the military alliance will be knocking on russia's doorstep stop this sends a message to vladimir putin. a former white house aide describing violence during the presence final week. kaylee hutchinson gave the most gripping testimony yet in the hearing on the capitol riots. she says she was told the president grabbed the steering wheel of his limousine to drive him to the capitol on january 6. 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. ♪

>> in life, the progress remade together, we have agreed to support finland and sweden joining nato. what we get is the opposite of what he demanded that was for nato to close its doors. jonathan: the nato secretary of general, good morning, equity futures are down by about 2/10 of 1%, no big action here. crude is at $112. let's go back to the announcement from the president of the united states with a range of initiatives to military presence across europe. tom: i think big barely describes it. they supported the allied commander of nato. i take issue come i think the

tape is showing us a lot particularly off tomorrow's economic data. we have a weaker yen in the last 24 hours. jonathan: we will hear from jerome powell later this morning. then data friday, the ism manufacturing. that will set the tone for a long weekend. jonathan: stoltenberg with extraordinary comments over the weekend. maria todeo and anne-marie hordern join us now. in my study of european history, we've never seen a moment like this. how does the sorrow of russia adapt to sweden and finland in nato?

maria: you did your research and it's very good. that's insider information. going back to the summit, we are being told behind the scenes that this will be historic and it is a moment of transformation where we will see a lot of the language that sounds like the cold war again. nato is now expected to say russia is a significant direct threat to nato and europe and we will see more boots on the ground in eastern europe and china will be a big discussion but by the end of the summit, because back to the secretary general who says we will go from 30 members to 32, two countries,

finland and sweden that our undoing in real-time years of neutral policy when it comes to russia. if there is a take away from the war on ukraine it's that if you don't belong to nato, you are by yourself. tom: i'm going to go to my book of the year, putin's world. the establishment of the military and russia has to be livid over this, aren't they? maria: completely, to some extent, we see the fight on the ground in ukraine continues. it's not going well and when you look at the start of the invasion, the goal was clear, the russians say we want a new government in kyiv and we want to take away the weapons. the country has a lot of allies, ukraine. now you factor in the huge

border that russia and finland share that will now be nato compatible and a member of the nato alliance. the situation looks very complicated. lisa: is there a discussion about how much to build up troops on the eastern order as it is coalescing against a similar threat? given the fact the u.s. has 10,000 troops in poland and a whole host of other states and germany is coming in as well, how much more is there to go? anne-marie: the president just announced a slew of endeavors that will bolster that eastern flank including headquarters in poland and a continuation of an upgrade in romania. the washington post talked about the fact that the heart and center of nato is shifting to the east and shifting north.

going back to how worried the army is, they are incredibly nervous with finland and sweden joining the alliance. jonathan: serious issues but i'm so distracted now. have you booked a table for friday? anne-marie: maria has and she is the host. jonathan: she's paying. thank you both. maria looks very annoyed. has lisa counted accurately?

tom: a major shout out to madrid. as i spoke to the prime minister of's pain atdavos, maybe the best museum in the world. jonathan: you brought that up to the spanish leader? tom: yes, i did. it was another life stop jonathan: it's my fault for taking us off the rails. how do we get to boulder, colorado? futures are negative 2/10 of 1%. yields are down about a basis point. francine will have a good time later on alongside president

lagarde and chairman powell and i think it will be fascinating. they called them the transitory trio. lisa: that's really good. tom: i've been working on a chart which is the inflation-adjusted real wage in america. it really shows the challenge that chairman powell had with the collapse of the economy at the beginning. i'm going to cut him some slack. lisa: the transitory will go down. jonathan: i look forward to your book that your cutting them some slack. futures are down, this is bloomberg. ♪

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jonathan: live from new york city this morning, good morning on tv and radio, this is bloomberg surveillance. max kentner is bearish and is

expecting a sharp growth slowed down. underweight stocks and underweight high-yield and overweight sovereigns. let's talk about that, your 10 year yield over the last couple of days is coming in a little bit higher. data is not great. we talked about manufacturing data and the richmond fed data and that pmi. tom: we are looking at the first quarter today with a negative statistic and there was a fabless publication on the linkage of dollar to recession guessing. he makes clear there is no correlation or guesstimate you can do but the deutsche bank fed is the next big move after we go into the recession and the weaker dollar off of the

recovery out of the bottom of the recession. jonathan: morgan stanley things we will see that recession ready soon in europe. the yields came in in germany by a lot more than one basis point early as morning because the regional cpi breakdown we got, we are coming in a whole lot softer and spanish inflation shot higher into double digits. euro dollar is unchanged on the session. tom: i don't have a strong feeling there but there are many other people looking for stronger dollar-euro but i'm sorry, the fragility of pound-sterling on a tick by tick basis is tangible. jonathan: this panel is interesting.

if what they talk about is over the fx channel, that's what i would predict. president lagarde would like one and bailey wants one. tom: i predict a weaker pound sterling. steve schiller is taking notes. what have you changed? we have this panel today but really the economic data tomorrow, how does federated tweak the 60/40 allocation? >> significantly, we have been sellers since last september. we took the opportunity with last week's rally where the growth popped about 10%. we are at 1% overweight in equities, 61% equities which is the lowest overweight we have had since 2008-2009.

we have been one of the most bullish shops on the street for the last decade plus. we are as low in our allocations as we were then and we are underway almost every major category in credit and that's only the third time in the last 15 years. tom: ok, underweight, translate that stuff does that mean going cash? >> it does to a certain extent. our neutral allocation of cash at 60-40 is roughly 3%. almost a triple letter in cash funds. there will be a time to buy longer dated treasuries. i think the rally of the last

couple of weeks and treasuries is still coming. i think you will have upside prices to inflation. we would look to add on treasuries as we selloff more and i think you will want the longer dated treasuries as you get into worse growth periods, but right now, cash is king. lisa: put on your federal reserve dovish hat. you think they are in the midst of the biggest policy error going back to the 1930's. what exactly is their policy error? >> i think it's understandable how we got there. i don't think it's malfeasance but when you woke up in march in interest rates were zero, inflation was 0% and the fed was the buying bonds, that has no

force them into a position where they are hiking aggressively into a slowing economy. i think with a missed is the longer term structural change in the economy. we were in this new normal sub 2% rate environment for a decade. just-in-time inventories are no longer because companies are reorienting their supply chains. the chinese population is set to declined 20% in the next for years and the u.s. population of the said to go from 2% growth to 8% growth in that same time. and you've undermined the three pillars for the short run of globalization. the free movement of goods peak with the trade war. the free movement of people peaked with covid in the free movement of finance may have beat with this economic war with

just may have peaked with this economic war of -- with russia. you will get more inflation per unit of growth and that's a different world. lisa: people would agree on this in the short-term but in terms of what happens next is the question. there was a belief in the market last week that the fed would ease off on rate hikes when they saw a dampening and some of the growth expectations, the underlying economy. we just heard from lauramester of the federal reserve and she sees the fed funds rate over 4% next year. is the market mispricing that? will the turmoil confirm your dovishness? >> i think the market has contorted itself and it had complacency multiple times over

the last six months worth looking for peak inflation and hawkish in us. if inflation goes from 8-7, that's not a victory lap. you need to get that number down. you have to get close to 2%. the fed has done a lot of work in order to do that step you've got service price inflation operating about 9% and wages are high step for that to come down, unemployment needs to rise and i think they will have to go for some time. if they do slow, i think they are slowing because it's abundantly clear we've got a significant decline in growth if not an outright recession. tom: how fast is the employment dynamic changed? >> we've done a lot of work on this as it our recession dashboard step there is a series of indicators we look like there

is no perfect formula but there are guidelines you can look at and understand. on average, you can go from the cycle low in claims to a recession in a couple of months and we had a cycle of low three months ago. there is no historic relationship between how strong the labor market is coming in in terms of how fast it can deteriorate. it's a fickle friend to rely solely on a strong labor force and we make find that the excess inventory we have in this cycle was employment in certain sectors and we have seen the tech guys say we over hired whether that's amazon or meta or some of the other folks. this idea that you will get through this but only making job openings disappear, that's a comforting thought but it think it's overly optimistic. jonathan: to hear this from you

is quite something step lisa: you used to make fun of me about mike snark -- my snark. jonathan: to hear that is really something. lisa: they are seeing a new paradigm. that's the reason why the historical perspective was important and they see a shift that perhaps not has been fully recognized or maybe it has but too late. tom: every time i hear the word paradigm, on my radar goes up. i don't think it's a new paradigm, i think we are coming on -- out of a once-in-a-lifetime pandemic and institutions will manage in some form of successful outcome.

jonathan: we've got the establishment view around the table. they've made a massive mistake. tom: i think they were handed a horrific pandemic. frankly, as they say, the death rate of this pandemic has crept up a little bit. it's sobering to see the deaths come up. lisa: it was a very complicated time. no one can deny that people thought inflation had died in the past decade and everyone was wrong. suddenly, people were talking about printing money and helicopter money and you just wrote out the window?

jonathan: they were given a tough hand without a doubt we all misread what would happen in 2020. it's not about 2020, it's about the fact that we have 7% inflation in this fed kept doing qe and were so slow to respond to it and that's what we are talking about stuff how does that happen? tom: if they get 25% in elation, then what? it will be extremely difficult to contain it. jonathan: futures are down about seven, from new york, this is bloomberg. ritika: keeping up-to-date with news from around the world, the pressure is building in the central bank to raise interest rates and the first time in more than a decade step inflation has force their hand.

it dashed hopes that inflation is abating. the european union is announcing the end of internal combustion engines. they want to eliminate carbon engines by the end of 2035. the wife of supreme court justice clarence thomas has declined the january 6 committee to testify. emails have indicated her efforts to prevent joe biden from taking office were more extensive than previously known. about confidence has been given to the ceo of disney.

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>> i wouldn't be surprised if growth was below 2%. but it won't actually have it down to negative territory. jonathan: that's the san francisco fed president. we've heard the same story from loretta mester. we heard a similar story from john williams of the new york fed step growth is expected to slow to 1.5%. they are not going to forecast

the recession, are they? tom: i thought it very responsible. 900? jonathan: the open takeover. looking forward to it. tom: this is your conversation on the state of the black sea down to the mediterranean. julie norman has a number of abilities on u.s. politics. the foundation is her academics on the arab spring and she joins us this morning. it's off the radar of america, and congratulations to the washington post for writing it up a couple of days of go. from tunisia to cairo and back up to odessa and coming in from ukraine, it's not working now.

how urgent is the upset in tunisia? how urgent is the pending upset in egypt? >> it's a good question. unrest in tunisia has been there since the for this current crisis. in egypt and other parts of north africa and central africa, we are seeing the impact of prices going up around the world. some of those areas where it's a day-to-day struggle to get food for many people, increasing food prices is literally causing extreme food insecurity. in some places, it's too much of an issue. fertilizer is going up which is important for growing locally.

tom: they want to protect the flow of wheat so what is the to do list for president biden and others to assist in the movement of agriculture products out of odessa? >> this is the big focus for the g seven over the past few days and that's one reason why they invited several other countries and try to ensure there be some kind of resolution but at the end of the day it will be hard for western powers to ensure that. as the crisis goes on, it becomes difficult for ukraine to be able to harvest the wheat and have her -- and agriculture and the cost of doing so is rising. they are trying to look to other areas to shore up that supply why there is a fast decrease coming out of russia. lisa: how much political

pressure is on the nato members to remedy some of these issues whether it's protecting nato nations are helping to get wheat to countries in desperate need of it? >> it's a big issue for the u.s. and all the countries we are hearing, talking about the tough decisions. as we know, domestic connie's are hurting and everyone is seeing prices going up and everyone is skittish about recession. even if we hear about increasing readiness troop numbers in nato and trying to push weight behind ukraine, it's still very tricky among nato members. even in the u.k., there is resistance because of the domestic pressures that people are feeling. trying to increase spending in these areas while trying to protect the domestic economy is

a tough balance for any state to hit right now. lisa: especially given the political pressures since there is contention about the way people are feeling about inflation. how much extra support has president biden got from the social issues that have galvanized the number of democrats versus the antipathy represented by the poll numbers based on inflation and economic backdrop? ♪ >> the poll numbers for biden are low. it's not only among independents but also losing favor with democrats as well. that's largely because democrats in the whole country are feeling the effects of inflation and the economy. at the end of the day, that's were many voters will vote going into november. obviously there is the supreme for ruling is something that joe biden and democrats will lean

into to mobilize their photos and try to push more on mobilization but for many voters, the economy will still be front and center in november. jonathan: thank you for your perspective on global politics. euro swiss is coming close to parity this morning. tom: it is strong swiss franc and everybody is piling flows. the weaker statistic from 105 plunging down to 104 and we plunged down to 1.00 with a leg down this morning. that would be a shock. jonathan: we had that earlier this year in the first quarter and getting close to those levels again and it speaks to the difficulty in europe right now step

lisa: there is a 10% spanish inflation rate so how long can this push the ecb president? how much will we hear about that to day. perhaps they can frontload some of these rate hikes? jonathan: a big move at the ecb and the door is open for many people to get going maybe 50 basis points and maybe the doors open for that later. tom: what's sobering is portugal. no one really saw this coming. when is the next snb kind of surprise? we try to measure out and think what the probabilities and outcomes are and then out of the blue which is what we got from the swiss national bank.

jonathan: christine lagarde talks about optionality. if the inflation data that leans in that direction, i don't think they will have much choice. tom: i go to something i think people understand which is degrees of freedom and they are running out of them rapidly and that's what happens with double-digit inflation. jonathan: we will get headline data from germany in about an hour. looking for a downside surprise on germany. we will get to that story a little later with futures negative a quarter of 1% this morning. this is bloomberg. ♪

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>> this is a volckeresque type of federal they are clearly focused on getting inflation down. >> the whole thing is no longer transitory. >> there has been some signs that the economy is losing a little momentum. >> we think there is a 50-50 chance of recession in the next 12 months. >> if there is a recession, it