>> we have been looking for a significant enough slow into next year. >> theilpretty good. >> the news headline battles in between earnings and inflation. >> we are looking at an economy losing momentum faster than what we anticipated. >> this is "bloomberg surveillance." jonathan: live from new york

city for our audience worldwide, good morning. this is "bloomberg surveillance ." bramo is out of the building. she will be back next week. the downgrades are piling up. tom: we are all going to die. moments ago, the research piece of the long weekend, john of opco, i'm sorry, it is clear. he says consider the second half of the gloom of 1970, we went fr -90om -24% -- we went from -24%. i would say we are in a bear market. it has not adjusted yet. i'm just saying the gloom this

weekend was stunning. jonathan: it has been goldman. they are all revising their growth. tom: revising it. matt miller had a very important point, first one this year. matt miller said, is that about -- is it about the economics at the moment or financials, and are they on the same page? jonathan: which one is it? matt: right now, it is really about the economics. i have been watching closely ever since reading the notes last night, the atlanta fed gdp now survey and it shows we are in a recession technically. i was talking to gary shilling this recently and he said, we are not in a recession. clearly, if we have two quarters of retraction back and forth, this economy is not as strong as a lot of the economists think.

jonathan: we are not seeing something more broader. i understand the labor markets are back. i get all of that. this is the point citi is trying to make. 290 is their estimate for friday for payrolls. that is a clear slowdown in jobs growth. they go on to say we are also well above trend and clearly above recessionary levels. is this just a battle of semantics? does it matter? tom: i don't agree it is semantics. we have some very important analysis going on. one idea not discussed as the partition of the domestic economy dynamic. there is real gloom versus the complete uncertainty of the international dynamic as well. my answer is, you look at the mood and it is as gloomy as you can be. do you have the courage to step in amid this gloom and that is the point of debate we are in. jonathan: that is the view over at j.p. morgan.

his view is that things are so depressing the average investor is so negative that it is a low bar going into earnings season. credit suisse is on the same page and thinks we can get double digit gains in the back half. j.p. morgan thinks we can recover the first half losses in the second half. there is optimism out there and i think that plays against some of their own views which is that everyone is bearish. matt: i do not think it is a low bar going into earnings season. if you look at the analyst estimates, and we were talking about this with individual stocks and strategists. they still have not revised down their forecast. they still have not revised down their expectations and that needs to come. you have a problem when you don't listen to cassandra. cassandra was gifted with a vision of the future but cursed

by the fact that no one would listen to her. michael on twitter, his handle is @cassandra. he points out valuations came down in the first half and margins came down in the second. tom: have we booked her? jonathan: she is joining us later this morning. tom: abramowitz would never be quoting greek mythology. jonathan: mike wilson was super diplomatic. our experience is that high quality companies will admit the problems earlier and that is what they are looking for this earnings season. futures right now -.4% on the s&p. here it is. we have got to talk about this. if you are just tuning in, we have got a 102 handle on euro-dollar. tom: 20 seconds, how do i look at this?

i go to the bloomberg and triangulate to see what is moving and it is an ugly euro warning. i look at the trade statistics of imf and some of the major banks. the answer is trade-weighted might not be as grim as some of these payers, but boy are they moving in a challenging direction. jonathan: i at the chart up and wait to see how long we have to take it back since the last time we saw it. tom: you have to extrapolate out dxy. i know we have to get to david riley. jonathan: this is a lovely chat and then someone just shouted "guest" really loudly in my ear. david riley joins us now. i want to go straight to high-yield. pushing 600 basis points.

why does that become a problem for this fed? mike said it was a feature. when does it become a bug and not a feature? david: i think when we get to something like 800 on u.s. high-yield. at the moment, we are not seeing that much dysfunction or distress within the high-yield market. primary supplies have been crushed, but most of the companies have turned out they have pretty low financing requirements. the distress ratio, bonds trading wide at about 10% of the market. the fed wanted tighter financial conditions. that meant higher rates, lower equities. that is what it is getting. i don't think it is enough to make the fed blink. tom: you are known for great acuity on asset allocation and decision-making.

what is cash right now? is it something to avoid? is cash something like an empty nest or is it actually an interest-bearing object? david: cash is an asset and offers a fair amount of option value for investors at this point in time. we are running above difficult -- typical cash balance across a lot of our strategies. inflation is eroding the real value of that. we want to be deploying that on behalf of our investors. at the moment, places i think there is value, and i know others have said this, up in quality and improve the liquidity of your portfolios. i think investment-grade credit is starting to look pretty interesting. we have seen a meaningful repricing across investment-grade. if we do go into recession, you

have a little bit of cushing coming from any rally you might get in duration. matt: are we in a recession now? david: it feels like we are. i think the u.k. is in recession. i think it is an open debate in terms of the u.s. obviously, payrolls report on friday will be interesting. jonathan: we used to have this old cliche in the market, you can stop panicking when policymakers start to panic. does the whole truth anymore? what does that mean this time around? david: i think what has fundamentally changed and we are all struggling with market participants and investors to adjust, is that in this pre-pandemic lowflation era, any kind of growth issues, we knew the central banks would come in and provide support. but they are not in that position to do so now because

inflation is far too high. they are worried about their credibility, second round of fed. i think the danger is that policymakers leave it too late to panic. by being backward looking, we end up raising rates too far and pushed the economy into recession. i think the fed goes meaning we above 4%. we are going to gay recession and people debate whether it is going to be a deep recession or not. who knows, but i would not like to be too aggressively positioned going into that type of environment. jonathan: that is how quickly this consensus has moved. heights to a long and shallow recession. matt: long and shallow. jonathan: i thought it was short.

tom: whatever. jonathan: we understand according to "the washington post," a second meeting could be with the chinese counterpart later this week. germany approving a bill for energy bailouts. matt: you heard robert, the green leaders saying that energy could be germany's lehman brothers moment. they are going to do maybe a $9 million bailout of unilever, or the subsidiary of the scandinavian natural gas company and passmore of the costs along the consumers. german inflation looks like it has turned over a little. but it is going to go right back up with that. jonathan: i did the walk of the newsroom and dropped by tom's desk to see what is on the bloomberg. what is there pretty much every morning for you? european net gas. tom: the biggest is to see jon

come through the newsroom and walk for my entourage. he has to get past like eight people. jonathan: are you admitted you have a bigger entourage than me? tom: i always have to have two more people than you and one less than abramowitz. have to have four less than abramowitz. jonathan: bramo is out, we miss her, but matt miller is filling in. crete. from new york, this is bloomberg. ♪ >> keeping you up-to-date from news around the world. in highland park, illinois, a 22-year-old man is being held in connection with the killing of six people at a fourth of july parade. dozens of others were injured. police believe the attacker opened fire from the rooftop of a building near the parade route. china and the u.s. have discussed trump era tariffs

president biden is looking to ease. there are reports that the president may announce a rollback of some tariffs on hundreds of billions of worth of chinese goods. the euro sank to a 20 year low against the u.s. dollar and fell below $1.03. it is down more than 9% against the dollar this year. british airways is scrapping more flights from its summer schedule. british airways has now reduced its timetable by 11% through october. the u.k. government has waived rules that require airlines to view takeoff or landing start or move them next season.

global news, 24 hours a day, on-air and at quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. ♪

>> overall, we are looking out an economy losing momentum faster than what we anticipated. right now, we have a recession called for the beginning to first half of next year. i think if anything, the data shows that timing could be sooner. jonathan: that is the sound of an economist about to downgrade their outlook. that is my interpretation. that is the senior economist from wells fargo.

bramo is back next week. on the nasdaq 100, down .75%. euro dollar, sub 1.03. jordan rochester confirmed to join us in about 20 minutes. tom: his saxophonist will be with us. is there a bid here and the answer is no. i have not seen a bottom. jonathan: and there are two reasons. investor sentiment and net gas. unless you can see a turnaround in the latter, there are problems ahead for europe. tom: we did this with joseph matthew holding court on radio. incredibly important conversation. if this was president trump, he would be out on fox morning talk shows, screaming about a

stronger dollar. not the politics of it, but the fact that the former president was upset about the ramifications of a stronger dollar. what is the dollar policy of president biden? joe: i think it comes through the end of the policy on inflation. that is the conversation we are having first. i mean consumer prices specifically which is why we are back talking about something else donald trump a lot of time on twitter about, and that is tariffs and trade with china. this is apparently going to be unfolding over the next couple of days. to get to the story, look at where it began. the tariffs against china were implemented in a series of rounds. the first couple of rounds were about industrial equipment, transportation, then things like consumer goods were added after-the-fact. he said it listing tariffs on things like bicycles and

sunscreen. some suggest he could increase tariffs on the others. how that impacts inflation and the dollar is unclear. what we have heard from very smart people suggest it would be muted, .2% to .3% of a decline. matt: there are really two international issues we are focused on this month in terms of the biden administration. one is the tariff talks you have explained so well this morning. the other is the trip to the middle east and mohammad bin salman to ask for more oil production. what is the likelihood we really get something out of that? joe: did you hear the president when he was in europe, he was asked about this. he said i'm not specifically asking saudi arabia to increase production, but all of the parties who will be there, which sounds a little bit like tamping down expectations ahead of what is going to be an incredibly important trip, asking the

saudi's and others to open up the spigot. when you back up and look at this, you find just as many skeptics about that idea as you do about the tariff idea. all of these are biting around the edges to try to fight this inflation problem, just like the release, like so many other things this white house has done to try to build a wall here. we can keep putting bricks in this wall, but not everyone sees the actual result being what they want. tom: nikki haley -- and i don't want to get into inflation mathematics. i'm not going to go in it, but they completely screwed up the mathematics. the mathematics of your view of the administration's these are all teensy weensy little things. what can he do substantial to get away fromteensy weensy additive changes? joe: if i had the answer to that, i would probably be working for him. tom: maybe you will be.

it is a sweaty, hot july. matt miller says everything is fungible. is the staff at the white house fungible? joe: maybe after november. i don't think this is a white house that has the silver bullet that you are asking for, as much as joe biden once it -- wants it. the hope is you can create a composite effect with these smaller moves to actually have an impact on inflation. bloomberg has very smart people when it comes to economics. you know if we start talking about an actual recession, that may be the only thing close to a silver bullet. jonathan: great to catch up as always. we need to talk about this affects market. 120 on cable, sterling, 119.93. euro-dollar with a break at 103.

euro-dollar, a breakdown, sterling, a breakdown. tom: i don't know which one is a bigger deal. i would suggest most of the people we talked to are watching sterling. it is something that could really cause some social angst within the united kingdom. i think it is an important point. if you have week yen, to the japanese people care? if you have week sterling, that the british people care? if you have week euro, do the people really care? jonathan: if you are importing inflation right now, you care. matt: the germans care a lot. i would just say that the germans follow exchange rates much more closely than the brits or americans as far as i can tell. especially with the trade deficit story you pointed out, they are going to be looking much more closely. tom: farro pointed that out, i

was asleep. jonathan: if you are an energy importer and have a weaker currency, you are going to make -- you are going to have a problem. tom: you guys have lived the calendar. when does the change in temperature in seasons click in on the continental energy story? jonathan: that is one for miller since he lived in germany and i left europe a long time ago. matt: end of september, you can have temperatures higher than 30 and even up to 40 in berlin. that is celsius. jonathan: thank you, matt. tom: you have gone so euro, you are only thinking in celsius? matt: it is only into september when you get a cooling. jonathan: it could be july or august when the cold starts to kick in. tom: i talked to one of abramowitz's entourage. i cannot keep up. my goal is to go below 52nd

street this summer and maybe get down to rubies at coney island. she is in crete somewhere. where is that? the mediterranean? jonathan: it is a greek island. tom: she is out like some holistic epicurean, everything is fresh kind of restaurant. jonathan: are you naming the restaurant she is at right now? what is the zip code? if you put the zip code on tv. tom: if you want to send a postcard. [laughter] jonathan: do not respect anyone's privacy? tom: it is big, the zip code for the entire island. jonathan: how big is the island? i'm sure they can find her.

jonathan: coming up on the back of a week of losses. negative about 20 points on the s&p. we have talked about the downgrades building for the economic outlook. take your pick, all of them for the outlook, chop, chop.

citi believes the fed will keep on hiking. the consensus is down from 390. they point out that is not recessionary levels for them in this labor market. some of you may scream back yet. the bond market has been responding to weaker growth. ism manufacturing in contraction territory. we have not seen that since may 2020. we open up this morning with yields higher by three basis points. tom: the distinction to me here is we had shifts in the curve last week and this week we have dynamics in the curve. jonathan: are person some of the moves that we saw. you may have a look at the difference between twos and tens. the curve is getting flatter this morning. tom: there is a difference

between flat and inversion. jonathan: right now just two or three basis points. euro-dollar, a breakup 103. you have to go back two decades the last time we saw this. citi making the point that risk sentiment is one, the second is natural gas. if you don't believe it will start to turn the other way in europe, get used to this chart. tom: euro came in at 1.06 a year ago. we are in between the span of euro. jonathan: 1.15 is the high of the year, i believe. jordan roach know tomorrow will be catching up with us later on. he has been waiting for this one

to head toward parity. let's get you some single names with kriti gupta. kriti: as we see that euro-dollar drop and weaken, natural gas prices showing up in the stock market. that hedge has been working well. occidental, exxon, devon energy all hire. those names have more exposure to american production. it is that oil story in the face of stronger dollar that continues to be key. as you see, it has ripple effects across not just the oil and commodity names but other multinational companies that have that exposure to a broad. the common thread is all of their businesses have this massive exposure to china, europe, bringing those profits

into the state and turning them into dollars. that will have an effect on the bottom line. you can see already they are weaker this morning. tom: greatly appreciate it. second half of 2022 with mark cabana, head of u.s. rates strategy at b of a. i will go short right now. linor is lifting. i am old enough where i still care about the re-month libor. when is the significance of the short-term trust market showing higher yields? mark: it could mean tighter fed policy or a worsening of credit. we think it is more of the latter. the fed policy kicking in, causing overall front end rates to increase. that will have a tightening of financial conditions, especially

if you are a floating-rate borrower. the fed is trying to slow the economy down, titan borrowing rates, and li is abor. tom: your fixed analysis now? it is a floaty great britain. mark: if you are an investor, you want to be in a floating fixed instrument, if you are a borrower, you want to be fixed. we think the curve will invert twos and tens, you will see the fund rate invert to the five and 10 year point in the not-too-distant future. that is what the fed is trying to do to get inflation under control. jonathan: let's think about where this fed funds is heading. some have brought their expectations in, not brought them out. where are you? mark: the terminal fed funds

rate will be at 4 to 4.25 in the first half of next year. 3.5% by the end of this year, and then keep going in the first half of next. that will be dependent on economic outlook, but as you were discussing, we think the economy will slow. but with the labor market this type, we are skeptical that we are in for an immediate recession. we are well above the breakeven for jobs growth. our team is at consensus. 3.25 by the end of the week. with the labor market that strong, some of these discussions about recession will have to be pushed out. matt: with a terminal rate that high, wouldn't financial condition be way too tight? i spoke with gary shilling over the weekend. he reacted with shock and aura

when i suggested that the fed could go to 4.25%. mark: it depends on how resilient the underlining economy will be. we are not looking for eminent recession, global slowdown, but not eminent recession we. we think the economy can withstand higher overall interest rates. we are not seeing that in the market today. it has priced in cuts starting in the middle of next year, continuing through 2024. we are not there yet. we think we need to see more of a labor market slowdown in order to guarantee the fed will be changing course. matt: how far out do you think spreads will go? what should we be looking for their? mark: we think financial conditions have to brother start tightening. they are already seeing some response from tighter financial conditions, in terms of things slowing.

i am not a credit spread expert here, but we think we are probably only halfway through the tightening of financial conditions that need to take place in order to get inflation lower, for the fed to declare victory. we are still cautious on that risk backdrop. tom: michael rosenberg and the team at bloomberg invented the bloomberg financial conditions index, picked up within 14 days by the imf as a key barometer. it is now at -1.2 standard deviations. at what point do financial condition data titan to where it changes the beliefs that our central bank? there has to be a tipping point where they change because the facts change. mark: we get asked a lot where the fed put is, in terms of how far down can they peak in equity market.

we don't that we are there yet. we have long argued that it can be 30% down, but it could be close to 40%. but i don't think that is when a central bank cares about. they don't care about how far equities have fallen, how wide credit spreads have gotten. they care about the reaction function for businesses and consumers. when do they really start to dial back? when do businesses say we don't need that capex, we don't want to hire that person? when can the consumer say i don't want to buy that car or take that vacation? we are starting to see some signs of that already, but we think there is still a fair amount that needs to happen in order to see that diamondback inactivity. it will look like a pretty notable slowdown or recession, but we got there we are quite there yet. we will probably get there, we think, by the fourth quarter of this year or early next year. jonathan: isn't that the

horse has bolted indicator, isn't that light? mark: they need to be convinced that the consumer and businesses will be diamondback. we have seen sentiment indicators that are very low for the balance of this year. you have not seen that response function yet. if you were going to be looking at forward-looking indicators, sentiment, you would have already that we are in a recession. may be we are but probably not especially with the labor market is strong. the central bank need to see that diamondback of activity. central banks typically overshoot. they either ease too much or tighten too much. that is probably with the fed will be doing in the cycle, but they need to see that adequate slowdown. thus far, we are not convinced that they have. tom: mark cabana of b of a. only halfway through the tightening of financial

conditions. ultimately, what matters to this fed, you probably will not find it in this market. tom: what i heard was go out the x excess. -- axis. there is a complete focus on the short-term. i will let you define what the short-term is. if you go out three years, you have to change because things get washed out, corporations adapt. can we even go out a year right now? jonathan: you are touching on the heart of the issue between the economy and the market. you have a more constructive view of the economy. mark is making the point, i agree with you. for that reason, the funds needs to go higher, financial conditions need to tighten more. tom: martin feldstein 101.

you go down, the facts change, you come back. jonathan: we are in crete apparently, the bramo family. >> keeping you up to date with news from around the world, i'm ritika gupta. 22-year-old man is being held in the deadly shooting at a parade in highland park, illinois. six people were killed, dozens more wounded. president biden mark the fourth of july holiday imply noting the u.s. has made great strides but has also taken a few steps

backward. he says americans are worried about divisions within the country and describe the economy as growing but without -- not without pain. the crackdown is part of the forthcoming online safety bill. semiconductor stocks are trading at bargain prices. micron technology gave a disappointing forecast. intel set the macro economic environment is weakening. people in china have largely escaped the consumer inflation afflicting other major economies, but that may be about to change. the government has started a campaign. wholesale meat prices are at a six month high.

>> the one risk i am really worried about is liquidity risk. we are starting see markets locked out of funding. keep a very close eye. issuance in june was low. companies were either unable or unwilling to refinance themselves. jonathan: that was mohamed el-erian. good morning. lisa is on vacation. futures, -.7 the s&p. euro-dollar, 10298.

sterling against the dollar, so-called cable, 120. 11989 is the low of the session. tom: let's get to it right now with jordan rochester. he has not been alone but way articulate about the case for weaker euro. i mentioned earlier martin feldstein of harvard who noticed when you get weak euro like 1995, 2001, you get a stochastic response. it is down, week, and turns around. does this have th same feeling? jordan: you are kind of on the money of the nonlinearity of euro moves. i can explain why it has moved

but it has been nonlinear, much faster than expected. people looking for normal macro drivers, they didn't have that. it was norwegian gas flows. i don't think euro is a buy at all. i think we go to parity, could even break a ready. the moves will be nonlinear because of gas supplies. as we get to these levels -- breaking key levels back to the french election. periods of strong euro weakness. we are in no man's land out. jonathan: if we are nonlinear, does that suggest mr. putin can drive your lower? jordan: he already is, and he can do more. i mentioned gas. the move today, german electricity prices, record highs for the one-year part of the

curve. german consumers are paying record prices. whoever is buying at the next year. that will affect consumer contracts. that is a squeeze for european consumers. recession risks puts the euro lower. norwegian workers have gone on strike. 13% of supplies are turning off this week. we don't see an end date on those strikes. jonathan: this headline crossing the bloomberg that it could shut 56% of gas. what is your call on euro-dollar? i know you are looking for parity. to what extent is that a call on european gas prices? jordan: a little bit like that. that has been the primary driver of the volatility today. a few other factors that feed into that view.

we are looking for a u.s. recession in q4 of this year. euro does not strengthen when we have recessions, especially with the paris feel risks we have in spain and elsewhere. europe's main trading partner is china. china is going through a covid business cycle. we just had another wave of cases, more lockdowns announced in the past 48 hours. the export for germany are being weighed on by gas prices, making manufacturing less competitive. seven times more expensive, that is how much more expensive they are that america. europe's main trading partner, china, is in a state of slowdowns. matt: you have a lot of problems in your island nation there that the people on the continent of europe had. plus, you have brexit flaring up

again with the johnson government throwing out agreements that they may just one year ago. how much worse can it be for the pound? jordan: we are short sterling, looking for 1.18. the cable could lower. in terms of the risk of reasons, the bank of england is less hawkish than others, making the yield less attractive to foreign investors. the deficit is getting wider. the u.k. is facing similar problems to europe, with a key difference is that u.k. has brexit. the u.k. raise taxes. the energy subsidies that the johnson government announced not cover everybody. it didn't do much for the middle classes and higher, so you are seeing a consumption squeeze.

markets are looking at that but i don't think sterling has the premium for the fta to be suspended. i don't think that you will see the eu issuing sanctions or anything like that. that is why the market is ignoring it. i agree with the market there. who knows what could happen in these markets, but sterling would be even lower than118. that is why i don't think it will happen. jonathan: some big calls. jordan rochester out of london. matt miller, from the german economy minister, not ruling out intervening in gas prices. tom: how do you do that? jonathan: i would love to know, but that is essentially the statement that's been made. matt: it is also the opposite of what we been reading. with the bailout and a lot that

just went through, we expected them to let higher cost to be passed on to the consumer. i am not sure how he would intervene. the interesting thing that doesn't really matter, this is contrary to his party's raison d'etre. they want to reduce the use of fossil fuels. higher prices should be good for the greens. jonathan: one hell of a reality check about how you go about doing that. we have a netflix call as well. tom: we are getting into earnings season and they are adjusting. he goes a little weak and says it is the new streaming. paul sweeney is the expert on this. streaming wars are here and it is not happening. this show "stranger things" is

not going to save netflix. i believe they go to a neutral. this weekend, she wants me to call it 12. i don't know, they are in indiana. jonathan: can i just remind you how dreadful the price action has been for netflix? tom: full disclosure, where is the profit? jonathan: featured down .8%. good morning. this is bloomberg. ♪

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>> if anything the fed hikes more than what you have price to the market. >> given the fact that volatility is so hot and liquidity is so low, we are

cautious