>> we heard a lot of talk of recession but we have not seen any indication in the results. >> we should not obsess over whether there is a recession, we should be thinking about what

the depths of it might be. >> i think the fed has to continue to tighten. >> i likely induced this rally. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. tom: good morning. back together after a lengthy holiday. so much going on. all of it in the jobs report. chairman powell is looking at the labor economy. jonathan: payrolls looking for something like $250,000. a dovish interpretation of what he said last wednesday got a lot of pushback. neel kashkari going into the weekend clear we have more work to do. tom: sodas apple computer. five or six or seven stories on an interesting monday. apple computer with free cash flow model for next year of $110

billion. they are broken need to issue more debt. jonathan: not quite. offering to fund more buybacks and dividends. they usually time it quickly. spreads have tightened a lot over the last month. let's be clear about that. this august i wonder what it will bring for this credit market. tom: lisa, what do you see? lisa: i see people do not understand the rally we have seen. we see companies starting to come back to the market after more deals have been pulled from this market. companies that were planning bond sales and decided not to going back to the heart of march 2020, of the pandemic, and before that in 2009. we are seeing a release in markets to allow the likes of apple to sell bonds to pay for dividends and share buybacks. tom: we talked about june 16, is

that is where you put the bottom of the market? jonathan: that is the loafer nasdaq and the high for yields. tom: the dow bottomed out at the same time. lisa, what has high-yield and ig done in this great equity bull market? lisa: high-yield bonds have posted their biggest rally in decades. it has been an incredible rally. you had both components working for the market. at what point has it gone too far? if we are headed into a downturn what you expect the default risk to increase? or is there still a belief the fed will cut rates quickly enough to allow this market to continue humming along and that is the conundrum? tom: some of the tensions over the weekend. i am looking at cnn and they are talking up there news of a nancy pelosi trip to taiwan. we have done a lot on that this morning. what are your thoughts on this? jonathan: that is the foreign

policy story on the moment but we cannot just focus on the national aspect of china's relationship with the rest of the world, we have to talk about china's relationship with china. the domestic data is not great. sub 50 on the pmi. we have heard about the mortgage boycott. we heard about covid zero. what does gdp look like in that country? how concerned are they about social unrest at home? tom: i agree with you. it will be interesting, november is like tomorrow for president xi when he has that party congress. jonathan: november for this market is about 10 years away. tom: the market pulls back fractionally, recalibrating to the bang up six weeks we have had. jonathan: we are down .2% on the s&p. yields up one basis point to two .65. if you want to look at dollar

weakness is out there. euro-dollar positive .1%. dollar-yen with a sizable move, .6%. tom: tony rodriguez joins us right now. there is a 60/40 theory in retirement planning. douglas kass sent me a great chart. the 60/40 model now is the grimmest it has been over 30 years. how do you recover in bonds if the 40 of your 60/40 has been a disaster? tony: good morning. the best news about the 40 is it has done a lot better than the 60. we are beginning to see the fact investors do need to have fixed income in the portfolio to offset periods like we saw on the first half where you get equities down double digits, even 20 plus percent when you look at the nasdaq. as we move forward in fixed income which had a rough first

half of the year, we do not think we will see those kinds of negative returns, but we do think it will be rough sledding. we are expecting modestly higher rates and quite a bit of volatility and probably more spread widening in the non-treasury sectors of the fixed income market. there are not great places to hide, but we think fixed income is likely to outperform the equity markets given that we think this recent rally we have seen across all risk sectors of the global capital market is getting a little bit ahead of itself. jonathan: how much has inflation protection cheapened and would you tell people they should have a second look? tony: we have seen breakevens fall. we think that might be aggressive. we think inflation protection is attractive. we think the core elements of inflation are going to be stickier than market

participants currently expect. i think that will keep the fed in the game longer than what is currently priced into the fed fund futures. our target rate will be above what we think the market is pricing and we think core inflation will be stickier and more persistent. that leads to an environment where fixed income returns will be challenging, volatility will be higher come in recession risk is quite high. lisa: over the past few days the story has been the two year yield. how much yields have come in on the expectation the fed will back away from some of their rate hiking, or what you think is the incorrect assumption they could cut rates soon. how bad you think the market has it? how mistaken are they in terms of how much the two year yield has come in? tony: we think the market is pricing in a fit put where we think that is well out of the

money. when you think about the last post global financial crisis where inflation was an issue, deflation was the bigger issue. the fed put could react quickly. as we sit here today with double-digit headline inflation and core inflation still accelerating that will be with us through the remainder of this year, we think that fed put is out of the money so the market is being aggressive, both in terms of risk asset response but also as you mentioned with the two year. we think we will see an increase in the two year, the curve will remain inverted and invert further as we move towards the end of the year. lisa: over the weekend i got a lot of hate mail from people saying you are ignoring the inflation data that it is rolling over, you just want to be bearish, you just want to say the fed is wrong. you are seeing signs inflation is starting to cool. even rents are not going up as quickly as they were a year ago.

how much does inflation have to go down to get the fed put back into play? tony: you would have to see core inflation back close to 4% with a clear trajectory to 3% by the end of 2023. in our minds we are looking at core inflation, those have been accelerating if you look at the one-month annualized, it is faster than a three-month which is faster than a six month. we are seeing an increase in the pace of inflation. we think it will be sticky or. the only way you can square the bucket response would be for this disinflation to occur. it will happen, but not until late 2023 to 2024 we begin to see substantial improvement in the core inflation metrics. lisa: how much work -- jonathan: how much work does the fed have to do between now and then? where they hand written letters?

lisa: in pencil? jonathan: tom and i get handwritten hate mail. lisa: i also get hate mail sometimes. people think i am too bearish. it is interesting people are seeing this decline in inflation , but this discussion of how quickly does that have to come down, whether there are stickier elements and tony was just talking about rent. the wall street journal had a story about how apartment rents have come down a tick. 9.4%. that is down from 11.1%, but really? jonathan: this goes back to tom's number one question. what do we go down to? from nine to what? how much work does the fed need to do in between? tom: let's say it is a staggering curve down. how many kinks are in the curve?

we go from nine to seven easy and then from seven to whatever, and then the whatever down to wherever we are heading is a complete mystery. jonathan: ism manufacturing later. then we get jobs. jobs openings could be interesting. to they start to fall back more in the way the fed would like to see them? and then we get ism services and later on friday is on the and payrolls. tom: you cannot lose money with apple. apple 2.8% 40 years out has gone from 98 down to about 77. that is called price down, yield up. jonathan: that has hurt everyone, including apple. tom: i loaded the boat on that one. jonathan: aaa credit, ton of

demand. i will take the hate mail on the weekend. do you want me to be the bearer of the week? lisa: i do not mind the hate email. i think it is constructive. jonathan: from new york. just send it all to tom. tom: you've got that right. ritika: shares of hsbc are rising. second quarter earnings were better-than-expected in the bank promise to resume its results -- h of pushing back by the call by at shareholders to split up. the architects of the democrats tax plan and drugs bill senator joe manchin's lobbying kyrsten sinema to get on board. joe manchin argues the measure does not raise taxes. kristin cinema has not released

whether she will support the bill or not. neel kashkari says the central bank is committed to slowing inflation to 2%. he told cbs the fed will do what is necessary to bring down demand. he says faster inflation is being driven by supply chain disruption and other factors. boeing is starting the week with the week with a double dose of good news. the aerospace company has averted a strike by machinist that would have crippled its factories. deliveries have been largely halted since 2020. global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. i am ritika gupta. this is bloomberg. ♪

>> right now markets believe the end for what the fed wants, lower inflation, they do not

quite understand what the means will be, tighter financial conditions. and our forecast we think the fed declares victory earlier. paul volcker did too. jonathan: that was vincent reinhart. he is not alone. this from bill dudley earlier this morning. he said this wishful thinking is unfounded and counterproductive. live from new york city with tom keene and lisa abramowicz i am jonathan ferro. picking up a brand-new trading month with futures down on the s&p. the nasdaq a little softer, down .2%. tom: surveillance correction. bob emailing in from the hamilton college near lake moraine and he says moody's has apple as aaa. you are correct, and i was also correct. s&p has it at aa+.

jonathan: who were the other disco companies? i believe it was microsoft and johnson & johnson. i can see lisa typing away. lisa: it is taking a minute to load. j&j and microsoft. good job. jonathan: i can take the week off. i am so done. tom: you have any more data? it is a no news monday. we are kidding. 10:00 the ism. and then a lot of data christian doing to august 10. win thin joins us. finally, a dollar breather. is that it for strong dollar? win: no. the simple answer is no. i know the dollar bears will come out. they have been very quiet.

it is mostly about -- basically europe is heading to a recession once sooner than the u.s. will. as an fx analyst, if you are bearish on the dollar, what is the other side of the coin? eurozone, u.k., china, japan. all have the same issues as the u.s.. i think the u.s. economy is much more resilient than these other economies. we have consolidation. we have data that will set the tone. tom: i want to talk about china. john and lisa have mentioned the domestic disquiet in china. how does that rebound to the pacific rim? win: the china situation is so

complicated. we know before this last downturn china was trying to juggle a lot of balls. maintaining growth, maintaining national stability, and then covid hit and it has been cloudy. in the past, once growth starts flowing china steps on the gas and steps on the accelerator. they have been very circumspect and making a much more targeted approach. that is because they have seen excesses. social unrest related to the -- the bottom line is china matters through, but the reliance on china as an agent of growth through asia is no longer there. to answer your question, i think a lot of the economies depended on mainland china, hong kong,

korea, singapore, i think they are all in for a rocky road. the good news is the fundamentals are strong. for equity markers i think it will be a tougher road ahead for emerging asia. lisa: and based on that and some of the weakness we have seen on a fundamental level, there is a question of why it has delivered some of the best returns if you take a look at carry trade's executed in euros. they return something like 29% this year because of the deterioration in the euro. how much longer can that kind of trade continue based on where the euro is? lisa: that is a good question -- win: that is a good question. if you use the dollars -- i think the yen was propped up for a while but that is a big figure move.

the fundamental outlook is awful. the market is dial back. ecb down from several weeks ago. that is reflected not only the ongoing slowdown risk but also a risk of energy shortage in the fall. it is handcuffing the ecb's ability to tighten. it becomes parity early last month. i think the trade is still in place. i think em is still dicey. when you have slowing global growth and a possible global recession, tight global liquidity traditions, it is -- it is risky.

jonathan: win thin trying to catch a falling knife. our member talking about the swissie 10 years ago and it was like putting your hands in the blender. it was that ugly. when it comes to the federal reserve the debate is divided, but when it comes to europe it is one-sided. i do not know a single person who believes the ecb can go that far in the window for most people seems to be getting smaller and smaller. tom: i was upset this weekend because the u.s. newspapers we all read are trying so hard to do softer news stories. they bury there is a war going on, and that is what they are dealing with in europe. there is a war going on. the petrol crisis for sweden and the united kingdom, brutal. that is the correct word. jonathan: energy prices on the continent could get a lot worse.

tom: i think it is a completely different analysis. you talk about rent worries. nothing compared to what they are dealing with in europe. jonathan: nowhere near. they have not had the snapback to recovery america has had. tom: that is technology overlay. we have the technology overlay. they do not. we are down .2% on the nasdaq. your euro-dollar story shaping up as follows. positive on the currency pair. fruit down to 9570 on wti -- crude down to 95.70 on wti. hello august. this is bloomberg. ♪

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jonathan: tons of economic data this week. the eisai manufacturing data out later. pmi, ism, jobless claims, and onto friday payrolls. futures one third of 1% lower on the s&p. on the nasdaq down a quarter of 1%. brilliant columns on bloomberg opinion. this just ahead from mohamed

el-erian, "illustration of the adage that the market is not the economy." in this from bill dudley. investors have become strangely optimistic the federal reserve for not have to tight monetary policy much further. he goes on to say this wishful thinking is unfounded and counterproductive. tom: i am sorry. i am speechless after headline i just saw. you have to help me translate this. jonathan: i have not seen it. tom: pepsico to take 8.5% stake in celsius for $550 million? is it that a crypto company? jonathan: it is a fitness drink maker? lisa: it is a competitor of tang. tom: they could have bought tang.

i just thought of crypto. jonathan: is that what you wanted to cover it? you thought it was crypto. tom: they will now -- they will no doubt do a better job than i did. i just went down in flames. jonathan: he tried to drag me down with you. tom: we tried to get bramo involved. stephen links profit into our economy like no one i have ever met. stephen, you are the guy i want to talk to. late in the earnings surprise and a six-week bull market with chairman powell's economy. take the profit and tell me what it means about our economy. stephen: the one thing i heard from comments earlier about july and the stock market is not the economy, a month is not a quarter. we had a quarter past where

there were still lingering strength. you will see employment gain in the month. we are decelerating from a high level of production and employment gains. the fact that profits are up 6.5% over the past year should not be a surprise. there is a bit of a squeeze going on. costs are lower in the value chain going up more than the top line and we will have a weaker period of profits in the year ahead. if you are worried about appearing resistant, i would not get too excited about that being the terrible period like that is all over with now. when it comes to chairman powell , but one thing i would take away that is little more positive in one of the reasons for investors to not jump out of the window was the fact there is some recognition it is not going

down the way they expect. if you look at total home sales, we are down 26% in sales from the peak if you combine these figures. there are plenty of signs there is interest-rate impact, the leading edge knocking the economy down. tom: we are hearing from others, avoid the cyclicals and such. tell me how technology bet is a noncyclical play. it is what you want to be in given where we are now. steven: there are some technology cyclicals and there are others. i would put advertising spending in the cyclical category, personal computers, home electronics, this sort of thing. tech services, cybersecurity, enterprise software, these things much less cyclical. i would look at it and say we

have had a sizable drop in long-term interest rates already. what are we talking about? 3.5% down to 2.75%, but the signs are there we have a low level in long-term interest rates and for the bulk of secular technology area we are probably going to have a fairly high level trough. a lot of the risk, the idea commodity prices can go up forever, the economy can have an inflationary boom, we have a fight back. those are the areas we think will be more vulnerable. a little bit adrift towards high-quality growth, which we can understand. i do not think it is that moment where we can say the profit outlook is improving. lisa: are you basically saying energy companies have seen peak a little bit adrift towards

high-quality growth, which we can understandvaluations and ito lighten up? steven: we did renew rate overweight in oilfield services. we are not seeing the entry like natural gas lng, some of the things we are in short supply because of the war in eastern europe are poor investments. the valuation is not too troubling. the idea we are not going to suffer into the commodity space because of a close rate -- because of a growth rate is too much. we have taken down some weightings and think a harder lending for the economy will be felt throughout a lot of cyclical economies. lisa: jay powell spoke a lot about being data dependent and we discussed a lot on this show, what does that mean, what data are they looking at. can you give us a sense of what happens if the labor market data comes in higher-than-expected? what kind of effect that would have on the equity markets.

steven: it means the federal reserve is unlikely to be kind to the equity market. it is not there to protect investors, it is to protect labor markets and get us to a lower level of inflation. i would say some of the signs we have seen, being data-dependent is a lot better than the federal reserve being overconfident in the economic outlook in what we have seen with unemployment insurance is up 70,000. that does not happen when the economy is growing at its potential, when the economy is growing strongly at trend. we do not get rising unemployment insurance. the point we are already expecting declines in the labor market is pretty far off. i would say the way financial conditions have tightened, the way the lags play out, it is quite possible we are facing job

losses on a net basis over the course of 2023. if it will be data-dependent and looking at inflation issues, some of the inflation issues are lagging indicators. price inflation is closely linked to wages. it has little to do with inflation and the past year. unfortunately, those things are going to show some strength. the federal reserve will come around and say the fuels out of tank for inflation. how far do we want to push this? must we crush the economy and get ourselves into easing cycle? is that the approach we need? tom: how flexible are corporations given what you just laid out and given all the worries everybody has, particularly lisa abramowicz? how flexible are corporations to adapt? steven: it is a great question.

there is adaptation going on but there's probably not some planning for some of the massive deterioration in demand. they are going to be a little flexible but i do not think we can avoid some loss in profits in the coming year. jonathan: can i get a sense of how confident you are? where you think the next 10% move is? do you have a degree of confidence around that? steven: coming up with answers is different from knowing. we knew an exogenous shock would not have the same effect on the business cycle. i think a great deal of the inflation we have already experienced does not have a life of its own. i do not think forcing supply and demand down together pure is this problem. i do not think we feel confidence where the federal reserve stops and sees that so we want to air on the side of

caution. it is not a period when we can say the economy it is at its weakest point, that i am sure. jonathan: steve whiting of global city wealth investments. coming up, we'll be catching up with david leibowitz of jp morgan along with julie beale. that is coming up on bloomberg tv. tom: you probably dive into this transaction of celsius and pepsi. jonathan: what have you learned? tom: riley, thank you for emailing. she is addicted to this garbage. they have kiwi sparkling celsius, they have celsius heat. have you ever had this stuff? lisa: no. [laughter] jonathan: it is a lot of caffeine and ginger root and fortified with german beer. you might say vitamin b and vitamin c. tom: i was just talking about

this. congratulations on the transaction. it shows the entrepreneurship. i think a natural for meat would be celsius take an uber. have your beverage while you are taking the uber. jonathan: i've no idea where we are taking this. tom: you take the uber instead of fitness. jonathan: brama has issues with this segment. lisa: would we be having this discussion if you do not think it was crypto? there are acquisitions that are interesting. the idea we are finally seeing activity in the capital markets is interesting. the rally we saw is giving way to the apple transactions, to the acquisition, that is a fascinating development. tom: john took a call on the

break, i wonder if he was taking paper down? jonathan: what are you implying? why are you doing this? i might not be back tomorrow. you're happy with that, i know. this is bloomberg. ritika: keeping you up-to-date with news from around the world, this is first word. president biden is isolating at the white house after testing positive again for covid. he has a rebound case that is seen in people who take the antiviral drug paxlovid. the white house says the president is not experiencing any symptoms. in eastern kentucky the death toll from massive flooding has risen to 28 in the states as more fatalities are expected. rescue and recovery efforts were slowed sunday by four more inches of rain. about 400 people have been rescued by national guard. google, general motors, and verizon are among 68 companies

backing affirmative action and upcoming cases in the supreme court. the companies have filed a brief with the supreme court in a case on programs that are being challenged at harvard. these are the first affirmative action cases to come to the court before conservatives gain a majority. apple is testing the bond market with the sale with money that will be used for a purchases come purposes, and put them share buybacks and dividends. the longest part of the offering is a 40 year security that may yield 150 basis points. pepsico will pay $550 million for a stake in fitness energy drink maker celsius as part of a long-term distribution agreement. pepsico getting the equivalent of 8.5 ownership in celsius in the company will also nominate a director to serve on the celsius board. global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. i am ritika gupta.

this is bloomberg. ♪

>> it is going to make inflation worse. they have a corporate tax increase that will make this recession we are in worse. all of the spending is unnecessary and will exacerbate inflation and it will not reduce the deficit. tom: face the nation on cbs. that was mr. toomey of pennsylvania talking about the moment at hand and the domestic debates we have. sometimes we get lucky in your scheduling and we do that with william cowan, chairman and chief executive officer of cowen group. he is the former secretary of defense. back to nixon and kissinger on

china, he among the few is on the high ground. maybe mike mansfield in japan would be somewhat the equivalent. we are honored to have you here today. his speaker pelosi making the right decision if she travels and lands in taipei and greets the taiwanese people? >> what we have to do is understand what our policy towards china is and what our strategy is. we have taken a one china policy as far as the last 50 or 60 years in the question then becomes what is our strategy for implementing that? we make a decision or want to have any kind of positive relationship going forward and if so how do we get there? what happened with speaker pelosi's trip is she has raised very high expectations in taiwan, high anxieties in china. i believe how we deal with

taiwan is a very big bright red line as far as the chinese are concerned and i think they will respond, not militarily, i do not expect that to take place if she should go to taiwan. i think they will find a way to respond in their own fashion that will inflict some harm upon us. a tough decision. the military indicated this is a dangerous time for us in the region and she will have to take that into account. tom: in the arc we have of our relationship with china, and with taiwan, there have been assurances, six assurances over time. you were directly involved in that. how strong are our six assurances to taiwan? william: the assurances are inconsistent. with the passage of the taiwan relations act we said it would

help provide for the defense of taiwan. since that time president biden has said we will defend taiwan. that has caused great confusion in terms of not only china but also our asian allies. all of those in the asia-pacific region are now concerned what does that mean? are we prepared to go to war with china over taiwan and will they be with us. we have to get more clarity in terms of what we are prepared to do. does it just help provide defensive equipment or go to war should china try to attack taiwan? this confusion needs to be clarification and that is something speaker pelosi at the administration has talked about to the military. i think during this trip she needs to talk with all of our allies in the asia-pacific region because they have a lot of state in terms of what we will do and what we will fare to

do should there be a conflict. lisa: as tensions continue to escalate between china and the u.s., is the u.s. dealing with the weekend or embolden xi jinping then perhaps a few years ago? william: i think he is much stronger than he has ever been. he will not be contested in the so-called election coming up, and i think the chinese will regard this, even though we have tried to persuade them that this is something we do, we defend democracies and human rights, they will see this as pointing a finger in the eye of xi jinping. when we talk about redlines, going back to redlines with russia, going back as early as 2003, our current cia director wrote to the bush administration saying russia will see any moves on the part of ukraine towards nato or the eu as a redline they

will not allow ukraine to cross. that was 20 years ago. i think from my travels in the region, china will see this as a redline and they will find a way to take reaction to the united states that will impact negatively upon the u.s. and our allies. it is one of those issues, the chris christopherson song, is that going up worth the coming down? we will have to decide if ratcheting up the tensions with china is worth coming up after that? what will be the relationship? what do we want dashboard we want to follow a policy of decoupling? can we pull our economic engagement with china out or if we pull out will european allies pull out? will southeast asian allies pull out? these are all issues tied up with our relationship with china. it is not easy.

it is complicated. lisa: do you think this trip by nancy pelosi is advisable or a grave mistake? william: i do not know the answer to that. i would think one option would be to say she will visit taiwan at a later time. she may feel she is compelled to do so now. understanding what the risks are, i think it will be complicated because of expectations being pushed by republicans and democrats to go. i think the administrations have put up a warning sign without telling her not to. the decision will be up to her. there are certainly grave dangers involved. tom: william cohen, thank you so much. we look forward to speaking to you again, particularly on the u.s. military in a fractious 2022. william cohen, former secretary

of defense for the united states. extraordinary how it has multiple fronts for our military. lisa: and how this is the ratcheting up of tensions people do not want right now in terms of another geopolitical point of tension. i think what bill is saying in terms of whether a military altercation or ratcheting up of tensions escalates the decoupling of the u.s. and china is a fascinating point that speaks to the economic place we are in. does that end up leading to a long-term inflationary push as the u.s. brings more activities back home, and we are seeing companies that come out with reassuring plans getting rewarded in the stock market. how much does that become a theme in the next 12 months? tom: right now the headline coming out. the speaker of the house to land in taiwan tuesday night and meet lawmakers wednesday as well.

she will be in taiwan. that is just breaking. much more on that across a bloomberg through a most interesting monday. we also have to go back to yields a bit elevated, with an incredible economic data flow this week. jonathan: how much is this -- lisa: how much is this an expectation of pushback from fed members who are starting to speak saying do not get too excited, it is not like we will start cutting rates tomorrow. tom: the vix with a large dip, 22.76. 22.76. ♪♪ this... is the planning effect. this is how it feels to know you have a wealth plan that covers everything that's important to you. this is what it's like to have a dedicated fidelity advisor looking at your full financial picture. making sure you have the right balance of risk and reward.

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jonathan: leaving behind a monster month of gains. futures fading, down about .6%. the countdown to the open starts now. >> everything you need to get set for the start of u.s. trading. this is "bloomberg's: the open" with jonathan ferro. ♪ jonathan: live from new york city, we begin with the big issue. >> the notion of a coming fed pivot. >> a pivot everybody i