>> right now inflation is job number one. >> data is a little bit softer but i don't think the fed is pivoting here. i don't think the market is pivoting. >> investors should recognize there's been a lot of ups and downs in this fast-moving cycle. >> the market already priced in a lot of damage. >> a recession is still the most likely outcome and i think it is too early to be calling a bottom inequities -- bottom in equities. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. jonathan: where did you lago -- where did july go? this is "bloomberg surveillance" on tv and radio. alongside tom keene and lisa abramowicz, i'm jonathan ferro. futures -0.2% on the s&p.

what a rally through the month of july. tom: it really is. ben laidler is going to give us tone against the bears, and as you know, reaffirming. i thought mike wilson's note with morgan stanley was fascinating. he reaffirms in a slowdown, guess what? at some point the earnings you declines. jonathan: the downgrades should come through fast in a recession. that is his point of view at the moment. we are dreaming, aren't we, going into the data? payrolls this week. tom: it will be a data-dependent fed. forward guidance out the window. we will see payrolls. you've got to pay attention. will the labor economy break? jonathan: over the weekend, neel kashkari of the minneapolis fed spoke twice, pushed back against the euphoria that somehow this fed paul's is coming soon -- fed pause is coming soon. lisa: this really is the key

pushback, that fed chair jay powell said we are close to neutral, getting close to getting that rate where it needs to be for this economy. looking at the real yield on two-year bonds right now, it is -0.3%. we still have negative real yields in the united states at the front end at a time when you have the fastest pace of inflation going back 40 years. jonathan: real yields topped two days before the equity market autumn. as soon as that market bottomed -- equity market bottomed. lisa: this is the conundrum in my view. we have earnings in some cases better than expected. how much does that matter when it is all about the fed, all about restrictive rates? tom: it is not. it is about corporations adapting and adjusting. that's what we have seen in the last six months. jonathan: bramo has things to say, tom. tom: i don't agree with this. it is about corporations adapting and adjusting given the slowdown at the end of the

pandemic. lisa: i'm sorry, but we will do price action. how much are we looking at earnings, but at the same time, the greatest rewriting of where we are in terms of fed policy going back for years? that is what we have gotten over the past month. tom: there's no question about it. jonathan: we are going on a road trip this august to wyoming. that is actually happening. that is one of the few things that will actually happen. tom: the ecb is after that. jonathan: -0.2% on the s&p. yields coming up about a basis point to 2.6 sides -- 2.6577%. larry summers over the weekend, jay powell said things that were analytically indefensible. what a quote. lisa: how much is that talking about where we are in terms of close to neutral? because that has been the biggest pushback.

though dudley categorically disagreed with that. that has been an area where people say you gave a dovish message to a market hungry for one, and you are totally mistaken in doing so. we will get a lot of data this week that will give us some insight, including u.s. july manufacturing. we are also getting june construction spending. the manufacturing is going to be really interesting, especially after the chinese data overnight that showed unexpected contraction in the factory outputs. how much do we see an ongoing grind and withdrawal from a sector that has been on fire since the pandemic, and how much does this bleed into some of the expectations for a downturn globally? house speaker nancy pelosi begins her asia tour. she will be in singapore. the big question is taiwan. will she be going there? she has not put it on the list. how much will this be a flashpoint, an unnecessary one that continues to put her in the democratic party in a real bind at a time when joe biden is trying to celebrate a legislative win?

today we have an earnings continuation after 56% of the s&p have already reported. we get zoom in show -- zoom info, but i am watching the shale space. devon energy, williams, and transocean reporting after the bell. how much does it really restart some of the production versus simply paying back at and being prudent, and just cashing in at a time when oil prices are as high as they are? jonathan: the day ahead, the week ahead gets bigger with payrolls friday later this week. we just got this from bill dudley, publishing on bloomberg opinion. "investors have become strangely optimistic that the federal reserve won't have to tighten monetary policy much further. this wishful thinking is both unfounded and counterproductive." tom: it is a short, sharp note. a particularly good summary for

those who disagree with dr. dudley. there's a whole school of thought out there that this is a fed that can thread the needle. he says there's no threading of the needle. this is what they have to do. inflation is the priority. jonathan: looking forward to catching up with bill later this week. it's catchup with ben laidler. best month of gains we had in the s&p going back to 2020. is this the real deal? ben: we have seen a classic climbing the wall of worry. we got super bearish. everyone was freaking out about an earnings collapse. guess what? it hasn't happened. that's not to say it is not going to happen. we are still in this race between a peak in inflation and what will probably be a recession. i do think the bottom is in. i think the question is still out there as to the sustainability of this recovery. a love that will depend on how quickly inflation starts to come down in the next couple of months. leading indicators, quality

prices, inflation breakevens, but that is really the question that will determine the sustainability. tom: i looked at system for -- at the september of 2018 when ben laidler made one of the all-time great calls on the equity market. then there were six, 7, 8 reasons not to be in the market. what is the key reason now to be in the market versus the 47 ideas of gloom that we've got this morning? ben: markets are forward-looking. that is what we always forget. that is what we forgot in 2018. that is what we forgot in march 20 20. wall street is not mainstreet. we are looking six to 12 months ahead, looking to the top of this fed cycle, looking to potential he some interest cuts, looking essentially to the consumer and corporate's outlasting this inflation scare. again, there are risks around that, but if we see inflation

peeking in the next couple of months, i think markets are going to keep moving ahead of that. earnings, we've had 0.5% of 2022 earnings expectations in the last month. this is not capitulation. the story right now is the consumer, corporate have been very resilient. if inflation does peak in the next couple of months as those lead indicators tell you, to borrow the hackneyed phrase, i think we will get through the deal. lisa: the tiff tom and i were having, about whether this is about the macro or companies having to adapt to the realities they face, which is the more important factor? how much more pain from here we see, or whether we trade sideways. will it be inflation rolling over or just the individual companies and what they report? ben: only two ways to make money in market come evaluations,

which have crushed this year, all about inflation and the fed discount rate, and earnings, which have been rocksolid, down 0.5% in the last month or so. if those numbers keep hanging tough, which i think they are going to, then we survive. but your average recession, that is your downside. that is what the market was very afraid about. that has been the relief so far. now what we are looking for is can that relief continue. that doesn't need the macro. that leads to inflation fears to cool and a validation of this expectation that the fed takes its foot off the pedal. jonathan: i think word in the deadly calm today that jumps off the pit -- the dudley column today that jumps off the page to me, counterproductive. something this fed needs to push back against. ben: the fed hates this. the market was doing their job

for them. it was tightening financial conditions, mortgage rates going up, etc.. that has all reversed in the last month or so. i would fully expect every fed governor worth his salt to be out there trying to talk this market down. i do think the bottom is in. i think there's more upside than downside. this is a u-shaped recovery. we will bounce around until we get the validation that inflation is coming down. i don't think this is a v. this is a u. but i do think the bottom is in. jonathan: ben laidler of each tour of -- of etoro. bill dudley. "the fed must respond, most likely by pushing the economy into a recession." tom: let's be honest, it is monday. it is summer. we have broken the heatwave on the east coast. we are all feeling better.

actually got below 59th street this weekend. the statue outside rockefeller center. jonathan: that is how far down you got? tom: near sachs. it is a no news monday, but friday is a serious jobs report, and that is what matters to dr. dudley. does the labor market crack, or do we get wage inflation? that is the fear over and -- fear overlaying the need to get back to 2%. jonathan: just a slight deceleration, something around the 200s. lisa: that is going to be the most important figure of the week. initial jobless claims have increasing importance because that seems to be the datapoint's federal reserve is most keyed into because that was the one they highlighted was still resilient, and the reason why they couldn't -- they could continue to raise rates as quickly as they wanted to. jonathan: i'm looking for the manufacturing data. china was not pretty.

tom: a lot of people are like, why does that data this morning matter? jonathan: two weeks ago, we had a negative pmi manufacturing. we need to look out for the ism to see if it confirms that. services later this week, manufacturing today. tom: crystal palace, arsenal, august fed. jonathan: i knew you wanted to do that. tom: it is so much better than in america. they just start playing. jonathan: congratulations to the england women's football team. winning the european championships. we've got to go. we are down 0.2% on the s&p, down nine points. this is bloomberg. ritika: keeping you up to date with news from around the world, with the first word, i'm ritika gupta. the architect of the democrats' tx, climate -- democrats' tax, climate and drug bill joe manchin is lobbying kyrsten

sinema to get on board. she has the power to sink it. china's economic rebound remains fragile. factory on nativity unexpectedly contracted in july. property sales continued to shrink. covid outbreaks have led to more government restrictions hampering the economy. the bank of england is expected to step up its fight against inflation in the coming week. on thursday it is likely to join some 70 other central banks in raising interest rates by 0.5%. that would be the uk's biggest rate hike in about 27 years. shares of hsbc are rising. earnings were better-than-expected and the bank promised quarterly dividends next year. hsbc is putting back -- is pushing back against lobbying from its biggest shareholder to split up. 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.

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>> we are going to do everything we can to try to avoid a recession, but we are committed to bringing inflation down, and we will do what we need to do.

we are a long way away from achieving an economy at 2% inflation, and that is where we need to get to. jonathan: neel kashkari, the minneapolis fed president, over the weekend. every dedicated fed watcher is basically saying the same thing, that the fed has to push back against some of this price action. teachers right now softer, -0.2% on the s&p after a really strong rally after the last month on both the s&p and the nasdaq area the nasdaq just a little lighter , down 0.2 percent. yields up about a basis point, 2.6559%. euro-dollar middle of the pack in g10, positive 0.3%, 1.0257. tom: there's finally a real dollar weakness. you don't see it in some of the em currencies, but nevertheless an interesting tape and becoming more interesting off the data we will see on august 1. it is august 1 in singapore. it is the evening, of course.

annmarie hordern knows this, or bloomberg washington correspondent become us -- washington correspondent, because they speak of the house and the united states navy, the seventh fleet in the indo pacific led by the uss reagan, the tippecanoe and oil kind of ship that refueled etsy. how is the -- refueled at sea. how is the united states navy helping speaker pelosi on her trip? annmarie: the question is whether or not the speaker will go to taiwan. overnight, kyoto news in japan is citing taiwanese media that says speaker pelosi is set to visit tomorrow evening. of course we have not heard that from the speaker's office. they released a statement over the weekend detailing the itinerary of this trip. there was no mention of taiwan. again, the foreign ministry in

china was asked about this, and they said they would not sit idly by. it has become a quite tense moment if the speaker was going to taiwan, and obviously there's political risks for both beijing and washington. tom: the niceties of this, it is about geography. taiwan is 245 miles long, and the niceties of this is to the u.s. ships go up the west coast, the populated side of taiwan, or do they go outside to the east side of taiwan. is the speaker aware of how the pentagon is having to adapt to her plans? annmarie: the president was pretty frank when reporters asked him about this. he said the military does not think it is a good idea for speaker pelosi to go right now. tom: can they overrule where? annmarie: the white house

cannot. the white house says this is the speaker's prerogative, or travel plans. but obviously she's going to be in touch with the military, and they are going to do everything they can when there's high-level united states officials traveling around the world. one thing that is interesting over the past year or so, there have been more incursions into taiwanese defense space. there has been more intercepts. "the ft" had an interview with general milley talking about this. the chinese military is now saying that the taiwanese strait is not international waters. lisa: there have been reports about how much the chinese military have been built up over the past decade, but it is unclear that taiwan, even if aided by the u.s., could win, if

china were to invade. how much does this way on taiwan, if they even want speaker pelosi to come? annmarie: it would be a huge statement what many in taiwan want, which is independence. but you bring up a point, i don't think there's many people who want to see another massive conflict already when the world is dealing with russia's invasion of ukraine. when it comes to taiwan, of course, this whole year we have seen this white house where the president make statements and the white house have to walk it back, most notably in may when he said they would send weapons to taiwan. some of that had to be walked back. it comes at a critical time because it is difficult for xi jinping in this moment to potentially not make some sort of dramatic movement. he's pushed a little bit by nationalists, suffering

domestically, and of course in three months, he's going to get this precedent breaking third term, so it is a critical moment for him, and a lot of this could be deflecting, but it does risk potential errors. jonathan: thank you. we caught up with isaac boltansky last week on this, and he said lose-lose. the team at btig calls it lose-lose right now, whatever decision the speaker makes. tom: i have always felt over the years, even before nixon-kissinger, that it is so far removed, so complex, and so unknowable that she is intruding in this around maximum uncertainty. that is the only thing i can say. there's so many different levels of uncertainty. jonathan: one thing we got to do is not just talk about the foreign policy. we've got to talk about what is

happening domestically in china. there are many people who believe president xi is doubling down on tension abroad because what is happening at home. what is happening at home is not a great situation for the chinese president. manufacturing over the weekend was sub 50 on the pmi. we've heard of the so-called mortgage boycott spreading. that is a tough situation. covid zero, and china we are living in 2020. it is 2022. many things domestically are putting this leader under pressure. lisa: especially because, talking about the factory output, that was the official data which is usually massaged. when it comes to the mortgage issue china is facing, they are looking at about 1/3 of the overall debt attached to these homes not performing and problematic. this is becoming a serious issue for the banks. this is becoming a serious issue for the economy. people are really struggling to understand how china is going to

address this. jonathan: we have to think about just how stable things are at home. tom: elizabeth economy has been out front on this. can't say enough about liz economy's book on this. he's far more fragile than the homogenous view we see on him. this goes into the september meetings of the party. jonathan: ed morse is going to join us a little later, the global head of commodities research at citi. he was looking for a move lower on crude. we got it. he's potentially looking for a bigger move in this one. $96.90 on wti. from new york, this is bloomberg.

jonathan: down about .25%. massive gains last month. big month for the market. not so great month for the economic data. reinforced by the communication that we got from chairman powell last week.

this morning, up about a basis point. the fed president from minneapolis pushing back against this idea that the fed might be done sometime soon. how will the bond market respond? based on the development of what is happening in the bond market, it looks a little something like that. four straight days of dollar weakness. the euro is looking stronger. tom: it is a little bit of a leaker swiss. -- a weaker swiss. the variance of the triple

leverage all cash fund. no, i looked at it. folks would sell tickets here and there. i could not pull the trigger. june 18. could not pull the trigger. cannot do it. 22.3 two. this is a joint. a commodities research at citigroup. i want to talk about demand responsiveness or demand elasticity. are the dynamics of less demand in the u.s. the same as a dynamic and germany or singapore? >> absolutely. they are worse than they are in the u.s.

compound that with the high-priced and there not seeing any high demand. it is just -- prices are too high. the continued strength of the dollar and the sheer high price is deterring people from using the cards. tom: do you think demand clicks in? >> there is definitely one level where it kicks in. china is a large user of jet fuel and have shut down international travel. so yes, we do expect a year from now more significant jet fuel demand.

we think gasoline and diesel are likely to remain weaker. lisa: why are we not seeing inventories building more? questionnaires seeing them build. another problem is that when we look at the second quarter, most of it took place in china. we'll demand was down about one million barrels a day, maybe more. we had inventories building. actually stock building. up around 700,000 barrels a day. one month after the other. it is unevenly distributed. we are seeing an inventory built

west. the u.s. has been in this bizarre position. three or four different markets. we are open market. we cannot export from the gulf coast. we can exports europe and other places. turning away from russia, companies have had them turning to the u.s. the data had u.s. exports that were at a record high. including well over 4 million barrels a day. we are having this continuity in the market of pulling oil out of the u.s., but there is definitely weakness on the inventory side.

prices have gone down. when it comes to crude come at a faster rate than deferred prices. we are seeing them come out. it is getting lower as people are abandoning commodities for other assets. lisa: one of the reasons the oil picture has been so complicated is because of how it hinges on whether the russian oil can move around more consistently or not at all. how much do you change your parameters? how do you change your base case ? >> we do have that as a contingency and we think that the bigger risk is not a change in the economic situation

globally, but rather we understand the fragility in some countries. how long will that last is a bearish factor in the market. we are seeing that iraq has not had a government since the elections of last october. the parliament was occupied twice by protesters. the likelihood in iran and iraq is not exactly zero, so there are bullish factors hanging over the market. tom: i apologize. moments ago we had the headline that aramco will take up the global products division. we are the only ones in media

that used a can of valvoline in a car that we were first allowed -- discuss the synergies of a giant like aramco with something that is so absolutely iconic in america. >> cannot speak to the synergies. i can speak to a company that we have noted. it is a wash in cash and under pressure to spend it. there are market niche is. i think it has to do with the extraordinary cash flow and position looking for good investments to make. tom: is this the future of a

future of washing cash? >> the question is how long will they be awash in cash? a significant amount of the profitability does not come from the price of oil itself but other things in the market, particularly the strength of the product markets. china has a massive role to play in it. they were building inventory. at the same time, they have cut out exports of product and diesel. they were exporting diesel. lisa: what is your base case for how low prices could ghosn the

next six months? >> seeing rent in the mid 80's from year end and continuing on that path into 2023. lisa: how much does that alleviate some of the pressure? people have pointed to an increase in consumer sentiment. how much does that continue to edify this bullishness that we are seeing? this has been one of the linchpins for one of the reason optimism. jonathan: we have -- this time around next week, we are looking for that again. how much more broad this story

has gotten over the last few months is concerning for some people. tom: for me, the rent dynamic is the most important makes. -- mix. the weekend was exhausting. you take that amount of time off and it does not really click in. the stress does not fall away until something in the vicinity of cocktail hour. jonathan: you have adopted the fool culture -- the culture of the u.k. impressive. futures on the s&p, down .2%. we are about .25%. pulling back from a pretty tasty value. quite a rally of the june 16

blows. a lot of data coming up this week. good morning to you. this is bloomberg. >> keeping you up-to-date with news around the world. china has warned that its military would take action. that is if nancy pelosi -- they said they will not sit idly by. her itinerary did not list taiwan as a stop. biden is isolating at the white house after testing positive for covid. white house says the president is not experiencing any symptoms. the death toll from massive flooding has hit 28.

about 400 people have been rescued. pilots at the german airline -- there could be another round of cancellations. second quarter earnings better-than-expected. they are pushing back by the largest shareholder. and being remembered as the greatest winner in the history of basketball.

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>> there is no conceivable way that 18.5% interest rate and an economy inflating like this is anywhere in year neutral. tom: a lot better. jonathan: he was pretty blunt. let's be blunt about that. on the nasdaq 100, down .25%. a ton of economic data this week. next week, we get cpi in

america. a lot of people are wondering if the speaker of the house will go to taiwan. nancy pelosi is expected to visit taiwan as part of the tour of asia. i stress that it is cnn reporting and that is the latest i have heard. tom: we rip up the script. she has been fabulous with us on the ukraine war. i have to turn to this. earlier, the pentagon has to adapt to this with u.s. and the seventh fleet, it does harken back to a different time and place, but our biggest trap is no stage or history.

what is the distinction of 20 about china, the u.s. and taiwan? >> the way that i look at this is that one of the byproducts of the pandemic was that both china and russia looked at the u.s. and europe and really made the conclusion that we had been weakening. that we were open to testing our boundaries, our willingness to defend western, long-standing security relationships and alliances. i think that the white house has been pretty bold and wanting to push back on vladimir putin. we have seen this with the eventual move to arm ukraine, the same thing with apparent moves to visit taiwan.

a lot of people will see it as a provocation, but from my own perspective, looking at politics through a security lens, continuity will be very important for endorsing resolved. tom: does the u.s. have enough material, and i forces, enough military on the pacific rim? >> at the moment, to fight a conflict? that is a different question than what is happening here. it is different choreography of putting your money where your mouth is. both sides have increased the number of patrols. they have a strong presence in asia. it has not changed as a result of the ukraine conflict.

lisa: china has warned that their military will not sit idly by if nancy pelosi had to taiwan. >> i think it will be an intensification of what has been evidence for the last several months. u.s. intelligence has been warning that they believe that china is closer to making a move on taiwan and the next 18 months and it has been for some time. it will come as a surprise. the war in ukraine might prompt china to take a rest. the signal coming from washington and the supreme court about the strength of the u.s.

resolve and democracy are being watched very closely to see if washington can respond to numerous threats. lisa: how much does the u.s. view china as having a more advanced and complicated role if there is an altercation versus a weekend -- weakening xi jinping? >> kind of telegraphing to china that the u.s. is ready and is willing to engage in conflict. neither side is wanting to do that. that is clear, but china has always wanted to be the regional -- the u.s. going back over a

century has said that they do not expect -- except the notion. that is what they have in common. jonathan: where did this potential visit come from, from the speaker? >> this was before nancy pelosi had covid. it would be reinforcing that continuity of u.s. positions. i see it as an almost necessary move because canceling it would have given the appearance that the u.s. is not willing to stand up to its own positions. jonathan: we still do not know

about the public type -- public itinerary. the latest reporting indicates that it will happen. i can only offer you the expectations. within this piece, they go on to say that they are expected to stay in taiwan overnight. it is unexpected when she will land in taipei. tom: it goes to kissinger, which was a profound shock. let's envision pelosi and some kind of moment. he made a point about a semiconductor factory. the answer is, it is an extraordinary moment. i thought it was featured

beautifully. jonathan: we are down about .25%. pushing back against this dovish interpretation. two basis points. 67 this morning. tom: does the speaker matter anymore if there is no guidance? jonathan: this is about the reaction function. we might hear a little bit more about what the fed thinks.

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>> right now, inflation's job number one. >> i do not think they are pivoting right here. >> investors should recognize that there have been a lot of ups and downs. >> the market already priced in a lot of damage. >> recession is the most likely outcome. jonathan: coming off the