>> this is a currency and bond driven market right now. >> market currency are already pricing in rate cuts next year. >> we are heading toward a financial accident. >> the goldilocks outcome is off the table. >> i will be surprised if we moved to a bull market anytime soon. >> this is bloomberg:

surveillance with tom keene, lisa abramowicz and jonathan ferro. jonathan: from our headquarters in new york city, good morning. the futures down 1.8%, crude breaking down by 4.5% and a sizable bid into the treasury market. tom: we like to avoid inflammatory comments, but the last 20 minutes, plunge is the operative term, but correlation is over and things are tightly correlated this morning. a to 10 spread -- 82 tends spread. we've had a negative 10 basis points. historically, that is a big year. jonathan: tom, this is happening. treasury yields lower this morning. this is happening going into cpi tomorrow. tom: we will talk about it with

anna han. adjusting this morning, what is so important on the bloomberg screen, the launchpad, the correlated nature of this is extremely different than i we are--a week ago. lisa: it is hinged on the oil markets and the idea that you're coming out of the pandemic to a new crisis and how do you adjust? i keep going back to the heathrow story because it is an oil story and an economic growth story, how much do you have to curtail growth or economic momentum because of a lack of staff and high energy prices? jonathan: supply-side story. heathrow in the last hour announcing a cap through the airport, limiting daily traffic to 100,000 people through september 11 and it comes down to getting new recruits through training, security clearance, onboarding them. this takes a while. tom: let's remember, most of us

are traveling fancy class. there are some agony out there and i would suggest this is about individual stories heathrow has confronted where they said this can happen on our watch. jonathan: you should have seen lisa space. speak for yourself. --we says -- lisa's face. lisa: most of us traveling in fancy class, i don't know if i agree with that. jonathan: but selling tickets from the heathrow airlines, that's the supply-side story. you wonder not for america so much but for europe as we get deeper and deeper for this economy. lisa: and you were grappling with the same thing i was. if you constrain the supply you have of tickets, as the price goes up, does dan -- does demand processed or do you see a crash where people are not getting employed and they can't go buy

tickets? at what point deaths this -- does this even out and does it cause a bigger price shock before the fall? jonathan: cpi earnings, bank earnings friday. the futures down, we are lower about three quarters -- a move in crude, wti negative five percentage points and the euro-dollar, parity back to 100.22 -- 1.0022. lisa: and it does hinge on oil and gas prices, trading in tandem a little, and i'm speculating but with the price of oil and gas, there is a concern those prices are going to lead to a more significant issue for the euro, especially ahead of what we expect from a potential decision from russia on guest supplies. today we get any minute now the opec once the oil market report. how much they talk about the

supply and demand dynamic is confirming what we are seeing in the market, prices below $100 a barrel at wti and 101.81 brent. president of richmond tom barker will give a speech, talking about how much will come out tomorrow, in order to go 75 basis points in september, not the most important data point to watch, but looking forward to the inflation expectations on friday. the u.s. is selling this, i want to understand how much this demand into the treasury market, particularly the longer end, process. especially as you are noting we are seeing a collapse in the yield curve, down -10, the most inverted going back to 2007. jonathan: unreal. thank you. crude back to 99, down by 4.9

percent. what's call it negative five. -- let's call it -5%. tom: i would argue currency is part of the picture, tied into commodities this morning entered his is jump condition tuesday. i mentioned it before, these currencies, getting two opinions. one is it does not matter and the other is look at that, mexican peso, getting out near 21, em is moving with a strong dollar. jonathan: sam with the euro-dollar on twitter, the euro-dollar parity, brilliant. lisa: especially if you look at airline tickets. jonathan: if you can find one. if you're going heathrow to the continental. joining us is anna from wells fargo security, this volatility, this mess, do we need to get

comfortable and get used to it? will it stick with us for a while? anna: i don't know if you can say comfortable but it's going to stick around. a lot of volatility you're going to continue to see outlier moves, aggressive up and aggressive drops down that will persist until we see a sign from the fed that they are using off the gas pedal in terms of the hiking schedule. tom: it is brilliance, you can say forget about the probability distribution, forget about the center tendency, look at the tales. what does the left tail, the sweat of the left tail, the fear of the left tail, which does it look like right now? anna: in the context of what their thinking about, what have been the worst performers, what are they signaling? and we have this scenario and

what looks to be a case of recession, you have heard base case time and again, what is driving that? you're seeing these poor performances and broken stories here. when you have a situation that can persist, you can avoid that low momentum basket, two bottom fishing and avoid the high-risk basket and lean more toward the low volatility if you are worried about that recession. but you also have to think of this in context of inflation, what are the potential drivers that might bring inflation off? what are the extreme cases? and we don't see those relieving those at the cpi below a .5 for the rest of the year. lisa: inflation is a story people have been obsessing about most of the year, but now it is the strong dollar and with that does for the s&p. the company that drives about 30% of revenue from overseas,

how much is baked in and how much do you expect that to be a headwind during the earnings season for what equity valuations do? anna: i don't think it is fully faked in. i wish i could pinpoint a number but you bring up a great point. the dollar strengthening and that is coming from the different pace in which we are tightening monetary policy. what that does to earnings and margins under pressure, is going to add another weight to the u.s. corporate earnings season. i think that has caused volatility. people are worried, can we continue to grow earnings at the pace at which people are hoping for and what looks to be a slowing gdp growth, a weakening consumer? that growth is going to be derived confidence in equities and what dictates the direction. jonathan: a lot of this has been the energy industry and the

price of crude, energy and gas. today become the victim of the solution? if i'm expecting that gdp deceleration, -- anna: i think there are ways to be exposed to the energy market and play that carefully. looking at oil and commodities, we may be peaking here. that does not mean they're going to be rolling over quickly or strong enough that cpi comes out aggressively, but we think in many instances and cases, we may be seeing the top here. another aspect of that and where we might see some of that being hinted at is you look at how much the market believes the impact that energy has on cpi might be reduced if you look at breakeven. you can see that willing off from what has been above through to basis points down to maybe 370, 230, excuse me. 230 basis points.

that is showing you it is starting to weaken the impact and we're getting the signal that oil and commodity are reaching their peak. jonathan: awesome. at a hen -- anna han of wells fargo. lisa: you're seeing longer-term pushing expectations and near-term ones coming down, how much of that is bleeding into the belief that perhaps oil has already peaked or is near its peak because you will see a decline in demand commensurate with any potential decline in supply? jonathan: i promise i would bring you this from him, he has gone from max bullish to kind of max bullish. we increase the wake of government bonds in our portfolio. we focus on equities and commodities, serving as a partial hedge in an adverse scenario.

there is a super bullish tune. tom: some company as well, a gloomy week but some people are saying use this as an opportunity. jonathan: we will cap up with -- catch up with our next guest in a moment. futures -10% on the s&p, crew breaking down to 99, down 5%. this is bloomberg. ♪ ritika: keeping you up-to-date with the news, i'm ritika gupta. anchor concerns about the global economic slowdown. white house says opec has moved to reproduction if the move to the middle east is any precedent in saudi arabia. candidates to be the next prime minister, 20 members of parliament.

nominations will open and close with the first to be held on wednesday. the next prime will be announced september 5. limiting the recent travel chaos at heathrow. they will stop selling tickets to so much trouble, they will limit traffic to 100,000 people through september 11 and new recruits. one of the most dramatic steps, reducing costs. the company will quit building exercise bikes and treadmills at its own factory. the company had nearly 3000 employees this year and shares are down in 2022. human beings have seen distant galaxies more than 4 billion years ago in vivid detail. one of the best -- first

full-color images from the james webb space telescope. global news 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i'm ritika gupta. this is bloomberg. ♪

>> i think that ultimately the price of oil or the fed or the strong dollar will lead us into a recession, and when the recession hits, a 2023 event, the market will find the bottom somewhere between 25 and 40% below the peak of 4800. jonathan: great to hear from leon cooperman from omega family office. good morning, with tom keene and lisa abramowicz, i'm jonathan ferro. price action on the s&p,

negative on the nasdaq 100. yields traveling lower, down by eight basis points. crude with the 99 down by 4.5%. everywhere you look there is a headline. the euro-dollar approaching parity, unchanged on the session of the euro. the first oil market outlook for 2023, no relief for squeeze consumers. more crude needed from the group, even though most members are already pumping flat out. expecting global growth to exceed supply by one million barrels a day next year. tom: let's go through it before we get to joe mathieu. we've got a shutdown. the effect story in europe, the

idea of the german slowdown. and then it got a war still going on in ukraine and the stew of this gets you to a point of crisis. jonathan: china is on the plate, i think it has to be. clearly we are facing the prospect of increased research and across the country and the commodity market is picking up on that. we talked about him at jp morgan, when he is looking for in the second half of is a rebound in the market, led by china. china is a big issue in a lot of people's outlooks. tom: the jp morgan emfx index, a solid index, has weakened by 47%. that is a stunning statistic and much of that recently. joe mathieu on bloomberg radio

had a good conversation every day and joins us this morning. i believe it is tuesday, about the only thing i can get my hands around this morning. the president, how much will riyadh be about oil talks? joe: it's pencil you ask. white house say it is more a trip about security and the president wrote about in his op-ed. everybody knows the president needs to get more oil pumps here, whether or not it will oil -- lower prices at the pump. but there is a different strategy here. he does not look like he is going hat and hand with saudi arabia. he will be asking opec producers to do their part and pump more. but if you think back to the abraham accords and the fact that israel has not normalized relations with saudi arabia, the white house presidency is an opportunity. that is what we -- they will try

to strike. the first u.s. president to fly from israel to jeddah and israel to saudi arabia, there might be talk about bringing saudi arabia into the fold. it means more as we have seen putin repairing a visit to the wrong. there are a lot of layers and it is a complicated trip for israel, saudi arabia and oil may be only part of the equation. tom: bringing that clear discussion back to domestic politics, what is that output? joe: it has to do with prices. there's not much of a point. from a diplomatic standpoint, a global peace standpoint, a security standpoint, that would be an amazing story to tell, bringing the israelis and the saudi's together. but it may not impact people in america in time for november. lisa: when you talk about

november, there was a poll by the new york times, it found that 64% of democrats want joe biden to step aside and let another democrat run. what if you heard about who the front would be to take his spot? joe: there is not one and that's why they have not talked about it, i don't think biden likes this conversation though maybe sometimes when he wakes up he thinks i hope this is the only term. but the new york times ran numbers on the republican side and show that ron desantis, the governor of florida, is running a good challenge to trump as a potential candidate in 2024. in his early to be running these numbers and when you think about it from a generic going standpoint, if you put joe biden against an unnamed republican,

joe biden leaves--leads those polls. you are seeing governors like gavin newsom i standouts, but -- lisa: it is interesting to think what this will look like, certain fiscal plans are hanging out. how much cohesion is there to get anything through if there is not necessarily a front runner of the party as evidenced by this poll? joe: until we get further down the road, it is in joe biden's interests to make it clear he at least could run for a second term. you will not get anything done here. so the president will keep his head down. the question is what happens to kamala harris? when is the last time we saw a sitting vice president not be considered for the job at the end of this term and we may start seeing more of her. we are seeing her tomorrow interviews and more media, i wonder if she becomes more

prominent and visible in this administration post midterms. jonathan: thank you, looking forward to the program on bloomberg radio later, at 5:00 p.m. eastern time. a big issue for us this morning, this at heathrow is fascinating. they have introduced a limit on passenger traffic through september 11, they are the airline to stop selling tickets. we picked up on this theme. albeit an extreme case, this is a useful illustration of how persistent expectations can lower demand but keep inflation high. you can limit capacity. what's going to happen to ticket prices elsewhere? lisa: people want to travel, go on vacation and see family. they will look for a place where they can get back ticket. if you try to constrain supply, it is only going to lead prices higher in the near term before

this effect of the economic follow-through takes place. it is a conundrum, highlighting the pain point. jonathan: how exceptional will it be through the rest of the summer and year? are we going to see other things like this? tom: there's no question in my mind. it's going to be wildly uneven and one thing is the polarity between what the united states is doing and the u.s. is distinctly different going into the third quarter. jonathan: the nasdaq 100 lower by .1%, not as bad. crude rolling over by 1.5%, 99 .40 on wti, this is bloomberg. .40 on wti, this is bloomberg. ♪

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jonathan: if you were looking for a bounce, it is not a great start to the week. the s&p, negative half of 1%. muted price action on the nasdaq. a little bit of a bounce off the

lows in the last 20 minutes or so. the bond market picture reflecting the equity market story. yields come in lower. down aggressively yesterday too. a cpi print tomorrow and we hope for the third straight month that we may have seen a mechanical peak in year-over-year inflation, 8.8% is the estimate. tom: the core matters. jonathan: that is expected in just a little bit. tom: larry and had a great tweet about that. we have to stay on global wall street in the currency market is not as upset as it was two hours ago. jonathan: a bit of a bounce and parity on euro-dollar. i want to focus on commodities because it has been a break this morning. brent down by 3% or 4%. just a little bit of a move off the lows in the last 20 minutes or so. the move on copper, down by 2.3%.

goldman sachs, a big revision lower on their price target. they think that come in the next couple of months. global growth concerns at the epicenter of this market. bram o said it earlier. markets betting against inflation and on slower growth. tom: we need to be flexible, that is all there is to it. you have to be creative. you go from geneva into the not the main airport but it is good enough for crete. jonathan: are you lisa's travel agent? on a serious point, i wonder what is going to happen with these airlines in heathrow. if you introduce a passenger cap, did they intensify some people with cheaper tickets to cancel? to they have to move people around to make sure that all the flights that are flown are full? it'll be interesting to see what

they do. tom: more importantly, american airlines just saw second-quarter revenue up 12%. the seats are full and we are paying jay norma's dollars. they are meant -- ginormous dollars. they are minting money. jonathan: i'm all ears. asset price action. let's get to bramo. lisa: this is the wheezing -- the reason why i'm going to skip the flights and just drive. gap shares, i am focused on budget movers, including gap after they fired their chief executive officer. she had come in in 2021 -- in 2020. gap shares down nearly 50% year to date and down almost 6% in premarket trading. what will it take to turn around a company that has struggled with concept and a lack of consumer demand. bed, bath & beyond, another

laggard in the retail space. shares down about 2.10% -- down about 2/10 of a percent. how much could a new person revive a retailer in such a different and difficult environment? amazon, they have their prime day which i'm only mentioning for tom. does anybody care about this stuff? is it basically just a marketing ploy? tom: i've never done it. jonathan: you've never done prime day? tom: no. lisa: have you? jonathan: sure. tom: the bet here into earnings is what are they doing to right size a cause that bezos put out as he was going out the door. lisa: a lot of people are probably participating in prime day. jonathan: 100 tablets, dishwasher tablets. usually they do a nice offer. lisa: i thought you were talking

about ipads. jonathan: thanks for reminding me. lisa: anytime. i'm also looking at a number of potential winners, even amid this very difficult situation. pepsi in particular came out, upgrading for the second quarter in a row, their expectations for profits. peloton up a whole 1% after saying they were going to move their manufacturing of their bikes and other supplies to other partners and not make it in-house. american express -- and jon, this goes to a store you're talking about -- morgan stanley downgraded their expectations for the company because of consumer spending and a pullback away from oil and gas. that bank of america report you're talking about, about card spending. jonathan: a ton of price target cuts. lisa, thank you. tom: what did betsy do? jonathan: cut price targets on a

ton of financials. still priced in with the price targets at the moment, some decent upside for some big names. building on what lisa said on the consumer situation, the new york fed put out there june consumer expectation survey and short-term inflation expectations are up. medium-term are down. home price expectations are lower, spending expectations are lower. just across the board, not what you want to hear. tom: extraordinary to see on the amazon prime day, i'm looking at solid bowties, down for to -- down 27%. kathy jones with us, chief income strategist at charles schwab. as the great story that we are going to be with prices up and yields lower? kathy: i think the time to move into more duration has come and

we have suggesting that for a while now and when you get 10 year yields above 3%, especially at a time when the fed is tightening and the economy is under a lot of stress, i think that safe haven move -- is the way to go. tom: a wonderful discussion on the tail risk out there. we rarely talk about tail risk in the bond market. i want to go there right now. how uncertain is the determination of what price will do in fixed income now? how malleable are the tail risks of the bond market? kathy: it is a great question. the question is where in the bond market are we talking about? we see a lot of tail risk in credit, particularly lower quality -- even in the private debt market, there is a tilting

amount of stress and i think the tail risk is pretty high. treasuries, obviously there are some and i don't think it is immense anymore, simply because we have had such a massive upward shift in the yield curve and we've got the fed tightening. that combination typically will flatten the yield curve, invert the yield curve, so that probably diminishes some of the tail risk in the long end. lisa: you are talking about -- moving to being a bull when it comes to risk assets. when you look at his notes, it is very nuanced, saying that is not pricing it is much risk right now as stocks. would you agree with that? kathy: i don't do stocks, so i can compare the two but i think credit still has a ways to go in terms of pricing in recessionary -- a further deterioration in

credit quality and credit performance, both domestically and aa. the high-yield thread has moved and we begin to move another 150 basis points as we get into a pretty sharp downturn which looks like that is where we are heading toward the second half of the year. lisa: which sounds like it could be controlled or uncontrolled based on the pace of it. we could start to see real market dysfunction that could get the fed's attention. do you see corporate being vulnerable to that type of fissure he was talking about? kathy: the problem and corporate credit is a liquidity issue. it is a very low credit quality and we could run into some problems and access to the market would be difficult for low rated but in the investment

grade space, but we worry about is liquidity, because the dealers are not holding as much, a lot has moved into the private market. if there is a dislocation, it is simple the inability for the market to get the liquidity it needs to get the price and yield right. we could see some problems. we are not anticipating it, but it could certainly happen if they deteriorate quickly. jonathan: kathy, thank you. kathy jones of charles schwab. we are down for tenths on the s&p with positive 1/10 of a percent on nasdaq. the distance between the two year and the 10 year, it is -10 basis points this morning. tom: it is real simple. it is back to the great financial crisis. i'm not comparing the two on a single situation. it is radically different. the fact of the matter is this bears watching. the 10 year yield, 47 of the

spreads. the answer is, the two year yield is higher than the 10 year yield, see you go through zero and down you go and the amount is a huge deal. 10 basis points of inversion is a different story than three basis points of inversion. jonathan: when you're willing to accept a lower yield on a longer dated maturity than a short-term maturity, that typically signals some kind of problem. lisa: and as you cited earlier, it is a question of how we get there. is it going to be gradual, controlled, or is it going to be violent? is it going to be something significant when it comes to the market and economic disruption? as thomas been -- as tom has been talking about. jonathan: jordan rochester went looking for that move to parity. we are basically there.

he is factoring in dollar strength and more. we will catch up with him next. i am jonathan ferro. this is bloomberg surveillance. ♪ ritika: keeping you up-to-date with news from around the world, i am ritika gupta. opec's first outlook for 2023 has been released and suggests no relief for the global squeeze. members already are falling far behind the volumes needed right now. in the u.k., retailers reported another drop in sales. record high inflation is keeping consumers from spending on british products and services. in shanghai, there are fears the city is getting back into a

lockdown little more than three weeks after exiting a two month ordeal. it is the fourth day in a row that case numbers have been above 50. two more rounds of mass testing were triggered in shanghai. the eu gave their final approval today, recommending that -- the nation be allowed to begin using the common currency. it is the first euro newcomer since 2015. pepco raised their outlook for the second quarter in a row -- pepsico raised their outlook for the second quarter in a row. consumer demand remains resilient. their north american food and beverage business remains strong during the quarter. it is the first time human beings have seen a distant galaxy cluster in such vivid detail. president biden unveiled one of

the first full-color images from the james webb space kit telescope -- james webb space telescope. global news, 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i am ritika gupta. this is bloomberg. ♪

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>> when you look at how much the euro has overshot in the past, we have a range anywhere from nine to five in the current environment. that sort of range is not unthinkable. jonathan: the global head of fx research at which a banks. seemingly everybody on board with the story, looking for a weaker euro. good morning. tom keene, lisa abramowicz and jonathan ferro, looking at futures with a bit of a bounce. yields lower by seven basis points on the day. crude at $99, down by 4.57%.

jordan rochester looking for 95 by the end of august with more pain to come for that currency pair. tom: it is about bringing in the experts and all we can say is jordan rochester is nuanced and different. to talk to all the people, read their research, it helps us collate around this shop that we had -- shock that we have. jonathan: do we bring in jordan right now? tom: bring him in. jonathan: where did you get the extra downside on the euro-dollar? jordan: good morning everyone. in terms of why we think the euro carries on, the risk is the gas flows but also the global recession story building up. most analysts have just realized the euro can keep heading lower and there was a bit of a fight on the south side communities

when the ecb turned hawkish and now it is quite clear that gas flow is dominating and the reason it goes to 95 is three reasons. the first is the gas flows. there was a high chance that operations do not resume in what we are seeing is a fundamental macro story. euro-dollar is heading lower because european imports of gas, buying whatever they can from the u.s.. they are throwing money at the wall to make sure the eu achieves the 80% gas storage aims. they have a lot more to do and that is until that target is reached. the second reason is china. the covid business cycle, telling us that shanghai might be going into lockdown again. that is the biggest trading partner for the euro area and the third one is recession risks.

the u.s. raising rates the way they have and the ecb is going to raise rates in july, september, october and so on but we are talking about rate cuts next year and i find it interesting how there is so much fed cutting prices that the curve is inverted. it is the next story and it is not all about gas flows. tom: moving from -10 to -11 basis points. david fogarty over at the big german bank, makes it clear that at some point, we have to step in. using euro as a proxy, are we anywhere near on a 0.95 where institutions will step in to staunch the dollar strength? jordan: it is definitely possible but unlikely. so when the euro was invented,

there was fx intervention and that was authorities and around the world stepping in to help support the currency so that it did not spur a eurozone crisis. there was a joint effort and at the same time, inflation was not as much of a problem as it is today. right now, every central bank around the world to much once a stronger currency. it helps tame inflation. that is why we are seeing the lights of the s&p who have for years fought the curve and tried to not have a strong or currency and they are pretty much asking for one. the euro zone do that by rate hikes and that is the main way they could possibly do that but as i said earlier, the growth story is much bigger than just the rate hikes and what is going on in china. fx intervention is being talked about in japan as well. the authorities say the move is a detachment from fundamentals where others say it is quite in line with fundamentals. that is the same with the euro.

german exports have now become very uncompetitive and the cost of electricity and energy in europe is roughly around six times higher than in america, so to make a piece of into factored equipment, you are paying six times more in electra city costs. need a weaker currency to help you out. lisa: i want to tease out the potential cases that you lay out . 95 is the most likely that you see and by mid august. you said that a 90 print it actually be reasonable to look for over the winter if we do get a nord stream one cut off if russia does not restore the gas supplies. at what point do something break, at what point is there a level at which you start to see a contagion that perhaps is not linear. jordan: 90 to 95 is nonlinear. what breaks? credit channels will be much

more the area where things break and the drying up of consumer demand. at least to a dovish central bank, that would mean a low euro, so i think the exchange rate is the release valve and i don't think it is going to be what causes that stress. it is coming from the supply and demand side of the equation. when we get to 95, we are kinda basing that on the nord stream one flows they be going back to 40% of their capacity. 90%, that is the scenario were nord stream one does not come back online and the euro does not get enough gas storage and the german manufacturers get there -- they expect that at 5% if we have gas rationing and outside of covid, that is one of the biggest economic shocks ever seen, so that is a chrysler --

that is a crisis. jonathan: we are rationing flights at heathrow, basically putting a passenger limit on airlines through september. what do you make of that? how important is that story to you? jordan: it is the summer of discontent. for a lot of people, this is a personal story for their own lives. maybe this will disrupt my flights. on a macro scale, it is going to lead to a summer of discontent and it could lead higher wages more broadly and that makes things tricky for the central banks looking at rising wages and they should be raising rates, but they are all seeing economic crises building up in the future and the central banks are in a really weird place, the need to raise rates and tame inflation but they are looking at negative growth. that summer of discontent just keeps central banks in a weird place. jonathan: jordan rochester, of nomura.

tom: in europe, there are all these micro stories and i like what he said about little flyers this morning. to go to the other side of the world, out on twitter from bloomberg, writing on property bonds. i don't know anything about this in china but we are underplaying the stresses of china. jonathan: could not agree more. we talked about that a few times. the prospect of more covid restrictions. wti, down by 4.6%. coming up, jim polson. looking forward to that. from new york, this is bloomberg. ♪

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>> underlying