>> yes we are avoiding imminent recession, but we've got to look at what potential growth is going forward. >> you've got that strong dollar, you got a fed tightening, and you've also got global economic slowdown. >> we think we will see that slow down, but we don't think it is going to be that far away. >> the economy is not going to slow so much that you will see demand follow for cliff. >> i am not on the soft landing camp. i think we pushed too far. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. tom: good morning, everyone. thrilled you are with us on a tuesday before an important and

historic inflation report. you need to stay with us. our opening guest this morning says everyone, calm down. lisa abramowicz, calm down. lisa: thank you. i appreciate that. this has been the issue, especially as we get earnings from companies that are absolutely better-than-expected with a lot of momentum in certain sectors and consumers still spending. how does the fed get ahead of this, or do we see the cooling-off more rapidly? that is the bifurcation right now with the bulls and bears on the street. tom: kailey leinz in for jonathan ferro. i thought he was back from naples. i guess he is not back. we will try to get him back tomorrow. kailey: he's not coming back, tom. tom: he told me that a couple of days ago, i'm never coming back. thank you for joining us to start off the show this morning. to me it is the partition of david rosenberg, the giant of

toronto would say. there's many different parts of inflation that matter. kailey: and we will of course get a read through those different components yesterday. how much does the headline come down because a lower food and gas prices, and how much does everything else proved to be a bit stickier? crossing the terminal just now, the percent of business owners that reported inflation with their single most important problem, 37%, the highest since the fourth quarter of 1979. tom: that is good data that shows the spirit of small business. the separation from big business, i don't know what to make of this. some companies seem to be getting by. this morning, kailey talking about micron and others having. a tough time of it nvidia yesterday -- having a tough time of it. nvidia yesterday. lisa: all of these iphones or other potential devices people bought during the pandemic, personal computers, how much has that fallen off a cliff, but the

chips for other things are in demand? how much is it a composition issue is much is a demand issue? how do you get ahead of groupthink in terms of surging demand in certain areas in the post condemning psychosis we are living in? tom: the twos-tens spread is really the headlining idea. neil. i will talk about that later. -- neil dutta will talk about that later. did you fall off your chair? lisa: i fell off my chair because it was a shocking inversion. i'm good. i am not on a plane to capri, but i'm good. we have seen the s&p futures and frankly, nasdaq bouncing around nowheresville today. it all fizzled on the heels of nvidia. people are looking for tea leaves, and it raises questions about how much liquidity there is in this august when so many

people are on planes to capri. here's what i am watching in the day ahead. it: 30 am, u.s. nonfarm productivity. this will be really interesting because this is probably going to decline given the fact that you working people who are paid more and producing less. this is the stagflation we are in. this is not good for the fed. tom: productivity is a very complex and dynamic move, and you are absolutely right that it is what the pros are watching. they are saying productivity is dampened. we are not as efficient as we should be because of this killer inflation. lisa: and what happens as a result is eventually job layoffs and freezes. of course, tomorrow we get cpi, then ppi thursday and friday. university of michigan consumer sentiment. today president biden is signing the chips act into effect. it will be fascinating to see some of the commentary out of it, including micron's ceo who

will be joining us at 9:30 a.m. talking about how much this could support the u.s. chip manufacturing industry and how quickly it can get ramped up, especially given the re-shoring and on shoring up a lot of different manufacturers in the wake of some of the disruptions. today is also the tail end of earnings season. almost 90% of the s&p has reported so far. it has been largely beets. the bar is very low. norwegian cruise lines had some avis a rating recommendations from wall street. those shares down nearly 35% to date. roadblocks down 53% as we get a lot of our kids going back to real life. tom: the data screen this morning as we go to tony ross is really just churning along, waiting for the inflation report. red and green on the screen with the vix 21.56.

tony roth is the chief investment officer at wilmington trust. they care very much about thinking about out three years. when you look out three years, you say calm down about inflation. tony: that's right. even if we look out three days, we think this may represent an important pivot. specifically what we are focused on is core inflation in this report coming up. we all know the headline number is going to come down. in fact, the consensus is down from 0.72 0.2% -- from 0.7% to 0.2%. with get is going to be flat at 0.0%. we look at core goods. we look at apparel, used cars. we look on the services side,

airfare. there's a lot of evidence that prices have stabilized. consumer inflation expectations are dropping. when we talked to employment agencies, they are telling us that wage growth has slowed significantly. when you put all that together, it suggests we are at an important inflection point in the inflation story. there are things we can't control. we can't control the supply side as it relates to china, as it rights to energy with the situation in eastern europe and in the war. but those two areas are not core contributors at the moment. the other thing i want to mention is that the base affects are very favorable starting in october for the next five months. lisa: this picture you are painting is that you've got great earnings, or good earnings, better than the worst earnings certainly expected, and you also have cooling-off

inflation, which gives people conviction to go all into risk assets. tony: that is our base case, but it is not a conviction view because there are a lot of things that could go wrong. for example, we could have a spike in the price of energy and crude at any moment as a result of perceptions around the war. if we have a bad winter in europe and the recession in europe is deeper than expected, that could infect the u.s.. there are a lot of things that could go wrong in this particular scenario. we have never had inflation like this in modern times. as you said earlier, there are so many dynamics in the post-pandemic equilibrium that we are trying to reset that we could see different cycles out of services back into goods,

etc. that make the situation very muddy. the one thing we do have conviction in right now is growth overvalued because there's a lot of convexity in that trade right now. if we are wrong and we go into recession, value is going to underperform. if we are right, we expect significant recovery in those big tech names. kailey: essentially what you are saying is that inflation is going to come down, therefore higher input costs businesses are facing are going to come down as well. are you not in the camp that thinks the real downgrade to profit expectations, the erosion of margins, is coming in this year? tony: we do think that margin expansion can continue from these levels, but overall, not with significant acceleration. for example, we look at q2 earnings, what you see is that

overall revenue is up 12.5%, earnings are up 7%, but if we take out energy, actual earnings for the s&p is down 4% in the second quarter. so there are certain anomalies that are going on within the overall complex of the s&p. we look going forward over the rest of the year, we have to focus on the broader s&p, and when you do that, i think the picture is a little bit less rosy, so we are not quite as optimistic around margins going forward for that reason. tom: i think, very quickly here, i need to get to the end of the year. are you holding a lot of cash? are you gung ho growth quality as we are hearing from so many guests? what is the theme to get to 12/31/2022? tony: if we are right about the

inflation story, what we would expect to happen is a gradual we acceleration -- gradual re-acceleration of equity prices. when you look at the pricing power that companies have had, it has been pretty remarkable. you are seeing prices in revenue increase when unit volumes are dropping across the entire economy. back to that margin question, margins have done so well, they don't need to continue to do that well going forward and volumes can pick back up. we love that convexity that we see in the growth trade right now? tom: we are going to catch up on convexity in december to see where we are. tony roth of wilmington trust, what a great way to start the show this morning. we've got much more coming up, including an important conversation with our joe mathieu on events in florida. lisa: there's the search it went

over with respect to mar-a-lago, and how much that it's going to have a blowback effect on the upcoming midterm elections. tom: a shock to the entire nation. coming up, on the equity markets, thrilled to bring you anna han. stay with us. futures red and green on the screen. this is bloomberg. ritika: keeping you up to date with news from around the world, with the first word, i'm ritika gupta. a stunning development involving former president trump. federal agents searched his residence at mar-a-lago in florida as part of an investigation into whether he took classified documents from the white house when he left office. the former president said in a statement that fbi agents broke into his safe. he says he's been targeted to derail a potential run for the white house in 2024. taiwan accusing china of using the visit of house speaker nancy pelosi as an excuse to hold wargames in the region. taiwan is concerned that china will invade.

they coldly maneuvers a violation of international law. taiwan responded to the chinese drills by holding its own live fire exercises. they took place on taiwan's southeastern coast. the u.s. has announced another aid package for ukraine. there will be 4.5 billion dollars in additional direct aid and military aid from pentagon inventory. it includes antitank weapons and medical vehicles and supplies. semiconductor giant micron technology plans to invest $40 billion through the end of the decade to build memory manufacturing in the u.s. the company says the investment will create up to 40,000 jobs. micron will join the list of those joining government subsidies. carlisle founders reached a breaking point -- carlyle founders which they bring point with kewsong lee.

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. ♪

>> what the data is showing us in the u.s. is that we are not seeing enough of a slowdown for the fed yet to call the quits.

they have signaled they will keep raising interest rates. we now think 50 in september, another 50 in november, and 25 in december before they are finished. tom: mark cabana with a sharp interview yesterday on the state of interest rates, the caution that bank of america has on equities and fixed income as well. we welcome all of you to "bloomberg surveillance" on radio and television. kailey leinz in for jonathan ferro. tom keene and lisa abramowicz. for our audience, it is without exaggeration that america is focused this morning on events in florida last evening. joe mathieu joins us. his wonderful "sound on" can only have one topic this morning. i want to go tovox, with a quick -- go to vox, with a quick and immediate summary of the judiciary of america. the justice department has a

process to do a search warrant, and if anyone is involved political, as clearly the former president is, this is a process that goes from holder on to barr and now on to garland. there is a history of what doj does. discuss that. joe: there is a process here, and that is why we are being careful how we want to characterize this. this was a search warrant approved by a federal judge with a very specific thing that they are looking for. we just don't know this morning what that is. it brings us back to january, if not earlier. the national archives took back 15 boxes of documents early this year that included the been uriel's dusty materials the president should not have taken from the white house when he left -- the materials the president should not have taken from the white house when he left. that is not uncommon. i want to make clear to people

that violations of the presidential records act have happened to administrations throughout time. the clintons have to -- the clintons had to give back furnishings that were originally pacified as gifts of the white house. some were calling it a raid. there were no battering rams. the secret service facilitated this search. the president was not there when it happened. nobody was taken into custody. the former president, excuse me. it will take a minute here to understand exactly what happened , but the department of justice now being called out by republicans. kevin mccarthy is already planning a committee to investigate this. they will have to tell us soon what they were looking for 100 days out from the midterms. lisa: the way you are characterizing it suggests this is perhaps a really routine kind of exercise for presidents that have left the office and is not necessarily anything out of the ordinary, but is being painted as such in a certain way. is that correct? joe: i don't want to go too far

with that. we have never seen anything on this scale, to see a search warrant conducted at the home of a sitting or former president. this is all new. tom: this goes back to adam clayton powell 30 years ago in my youth when i didn't have gray hair. the level of unprecedentedness here is extraordinary. is your reporting that the doj has to come out and state the why at the earliest moment? what is that timeline? joe: we don't know. there is a legal side to this and a political side to this. with regard to politics, i think merrick garland will be compelled to say specifically what they were looking for. there were protesters outside mar-a-lago last night. they will probably be there today. people will demand answers. kevin mccarthy tweets, "merrick garland, clear your schedule, we are bringing you in for investigation."

you can't put this one back in the bottle. the doj is going to have to close the deal on this area otherwise, they bit off a lot more than they could to, and the repercussions could be severe. trump supporters call january 6 the fed-surrection. marjorie taylor greene is calling now to defund the fbi. you will see calls like this from now until november until they clarify what they are doing. kailey: he put out statements last night, "my home is currently under steege, rated -- under siege, raided by a large group of fbi agents." does this help him or than it hurts him? joe: it goods. is there cross -- it could. is there crossover here with the january 6 investigation the doj is pursuing? we just don't know. if this is a classic donald trump and there is nothing to see here, he will raise millions

of dollars on this, and you will see if republicans take the majority in the house likely a massive crackdown. lisa: we have seen the democrats gained ground in some recent polls, highlighting a better than good chance they are going to retain the senate. how much conviction do you have in those polls on the heels of some of the legislation passed, as well as gas coming down? lisa: great -- joe: great questions. i think most political watchers have given up the house. that remains the case. there's a big question whether republicans can take the senate, and it has to do with quality of candidates. when you look at some of the concerns even republican voters have with nominees like herschel walker in georgia, these are seats that could have been easily flipped that may not be now because of the trump-endorsed candidates. it is very difficult to tell at this stage. the president today is going to try to make a case for the chip act and some of the progress they have made, but you already pointed out, there is one thing

we are talking about today. tom: this is like beyond watergate, quite frankly. the distinction of a search warrant versus what happened at watergate has to be kept separate. should we expect a statement from the attorney general? most attorney generals can't get away from the mic. joe: this is true, and merrick farland is a little bit different. the white house says it was not tipped off on this and it is very difficult to tell what is going on in merrick garland's head. will there be another warrant at trump tower? what did they have in that safe? is it one document, or is this something that might involve more communications that are involved with january 6? it is unclear of what the senses of what they were really there for. tom: listen to "sound on" on bloomberg radio later on tonight. i can't think of any other moment like this in history. lisa: the uncertainty around

this mix may cautious to even talk about it with too much detail. we have not heard about it from the department of justice. we've heard loaded political rhetoric on all sides, and right now this is the hot issue that distracts from the main issues facing the country economically and internationally, especially with the news overnight about taiwan and some of the exercises in washington preparing for that. tom: we will have to see. red and green on the screen here. the vix at 21.79. in the yield space, twos-tens stays sustained inverted, a stunning -44 basis points. 10 year yield, 2.79%. we've got good conversations coming up on the federal reserve and this inflation report tomorrow. this is bloomberg. good morning. stay with us. ♪

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>> i'm in for jon ferro, lisa abramowicz, tom keene. we were talking about the dollar, it is in a delightful churn. i would note that a stronger

yen. lisa: how much of this is the optimism that we are getting to peak inflation, earnings coming in better than expected, dull weakness giving a lift with some of the risk judgment. tom: and the bloomberg index showing more accommodation, less stress on the system. claudia writes about the stresses within the political economy. a former focus economist, always interesting even if you don't agree with her. a writer published yesterday with colleagues from dartmouth and he said, down, labor economy is not hot, hot, hot. wages are not hot, hot, hot. you say that may be right, but

worriers may be right as well and there may be a middle ground and we need time. you want to go out the x axis. how much time do we need? claudia: that is the big question. we are seeing a disruptive economy begin to heal. that is an important interpretation of the jobs report that we saw last week. we have a lot of hiring, strong wage growth. how else are you going to solve the labor shortage and bring workers back without paying them more? that is a piece of what we are seeing now. we see services becoming more a part of consumer spending. a lot of what we saw appears to be unwinding. they have to unwind faster than the fed keeps going with rate. so that is the big question if we have enough time. tom: the politicians have a

timeline, election day. we don't and you don't either. is this something that can be solved in quarters or years? claudia: to be fully solved is a solution over years. we are on track to be seeing some relief in the coming quarters. if we don't see it, we are going to a very weak recessionary claim next year. that will do a good number on inflation if we get there. but i think the path is healing that is slow and steady, pointing in the right direction. it gets us back to something like 2% in two or three years. this is not a quick turn. turning back the lights on, getting us back to normal, it takes time. lisa: the new normal is something people have been

talking about, especially with the participation rate remaining so low. this is why some say there's more slack in the labor market than it may seem. do you understand why so many people are still not going back to work? is it long covid, retirement, all of the above? claudia: there is good research, though it is preliminary, that long covid, just that piece could explain .2%, .3% of the labor participation rate. that is close to a fifth of the gap we have seen open up. so that is a piece of it. we know people still have care issues, the ability to be working. we see a lot of people unable to work as many hours as they want to because they get sick and have to come home. and then older workers that took this as an opportunity to retire. some would have retired a lot sooner. lisa: i bring this up because

these are sticky issues. you are not necessarily going to see the participation rate go up. when you talk about time, what is your fear that if the fed does back off or does not raise rates quickly to allow for the time, but it gets it wrong again when the framework is proven wrong or delayed? claudia: i think it is a matter of interpretation. interpretation of what is happening in the labor market is running hot. there are signs that demand is cooling all over the place. when they look at the labor market, they are seeing hot. not everyone. governor waller has expressed some views about the vacancy rate coming down without unemployment rising. that is clearly a correction of structural issues. so the fed is open-minded, as the fed always is. the main line has been looking

at the labor market, it is too hot and unhealthy and that is what they're trying to cool down. lisa: to that point, looking at the and fid, the small business -- and fid, the small business optimism -- an absence of hiring, but not necessarily businesses that are outright firing people especially if they had difficulty bringing people back after the pandemic. claudia: right. a lot of the jobs that are missing are part-time jobs. we've seen an increase in the multiple drop folder. we have seen people moving back from self-employment into being employees which is an unusual pattern in the crisis. the optimistic scenario is that the first place, if businesses see demand slowing down, which it is it it has been at an unsustainably high pace, when

they see it slow down they are going to go first to pulling job openings and they will learn, hopefully at this point, that if you fire a bunch of workers, it can be hard to bring them back. tom: we've got to go because of brakes, claudia sahm, thank you so much particularly on inflation and labor. it is a single headline that has been widely expected, not just a pipeline like nord stream 1 the rest. this is the mother of all pipelines, started in 1960, the largest pipeline in the world out of the sprawling russia, south of moscow. it has three legs, left you, lithuania, one across poland and the other across belarus and ukraine. lisa: we see oil prices climbing on the heels of this session high after a number of days of decline. they started picking up how much is this started to change the

calculus, and people start to take the idea of a reduced supply of russian oil and gas more -- down more substantially. that is the worst case scenario, if russia cuts the supply. how much can they get ahead of this in a time when there are clampdown's already? there were reports on how in scandinavia, there constraining for gas exports to the rest of the world because they are facing shortages they want to preserve for their homeland. tom: what is important, and a guest was on for the european morning, i'm linking this to costs in europe and the recession battle in europe as well. it folds right in. kailey: that is the gigantic question mark over the european economy. so much of it depends on this from russia for their economy.

and how do they do that knowing you can be facing a deep recession in europe at the gas gets turned off? they have to respond further, inflationary forces on energy prices, it makes it impossible to do a monetary policy job. it's lisa: you mentioned the gas prices, oil prices and gas prices increase on the headline. but you see a major response and equity futures in the united states. how much is what we have seen in terms of resilience come momentum, how much has been driven by oil prices coming down dramatically over the past couple of weeks? tom: can we agree that recession worries have drifted away with the bengal jobs report on friday? i don't know where to go -- bang up drugs report on friday? i don't know where to go with that. lisa: it was a game changer for a lot of people.

it was -- if that is the case, how much does the fed have to go to bring down growth enough to get inflation lower, and how much is on the heels also of the idea that oil prices are going to be constrained but there's not going to be another shock? think the report was a game changer in terms of resilience, but i don't know that people are not necessarily worried. tom: i can tell you, west texas intermediate is 91 .54, updated two days ago. brent crude 97.60, up a little more on the shock of the headline that the major russian pipeline has been shut down as of august 4. equities pull back a little, red and green on the screen in one big one. we have time to get an update on

ign's distress, how are we doing in the spread market? lisa: this is why a lot of people have been pushing back against the distress. if you believe this is part of the court cash credit market -- tom: i do. lisa: people are able to come back into the market to borrow and investors are flooding into by. how much can this continue? people earn talking about -- are talking about this. with blackrock this morning, she was high conviction on this. how much is that continue? tom: it is a huge swirl. it will come to details tomorrow at 8:30. we will get it with mike mckee as well. we've heard from so many guests, core is what we will look at. kailey: 8:30 a.m. eastern time tomorrow, a little less than 26

hours. that's what the market has waited for. tom: another chance for the red sox to lose. probably what will happen. futures negative seven. stay with us. this is bloomberg. good morning. ♪ ritika: keeping you up-to-date with his rather world with the first word, i'm gupta. donald trump saying he's being mistreated by democrats who don't want to run for president, after federal investigators searched his home in mar-a-lago as part of an investigation into whether he took documents from the white house when he left office. he was in new york during the search. the u.s. is already in the recession and the fed will have to start weakening next year according to this guest. >> we believe we are in a

recession, two quarters of gdp decline is the beginning of the definition. three consecutive months of declines in leading indicators, which we have now, would suggest the same. ritika: she says it will state fully invested in the downturn and what she calls innovation. as many as 80,000 russian soldiers have been killed or wounded since the invasion of ukraine. the first time the u.s. military has announced the estimate of casualties. in march, they said more than 1300 soldiers have been killed and they have not released any other numbers. the 787 dreamliner is back after two years of disruption from manufacturing flaws. the shorter plane meets specification standards. 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'm not expecting a sudden increase in prices, but this winter, after november, the market is going to tighten quickly. we are still seeing a forecast of over $125. tom: we heard government couple of other people yesterday, repricing with the full oil. with demand we will get back to 120. it was a sure neri yesterday. lisa: especially after the

conference in china, adding to demand in a time of tight supply and cold months. how much does that remain the case even for the likes of goldman sachs, which ratcheted down the near term forecast but cap the long-term forecast? tom: they kept 2023 at a 120 level. they're pushing back against that at citigroup. kailey: it comes back not just to the supply and demand. china as well. if believe the recession is shallow, you still have restricted supply, but will keep prices elevated. tom: the news of a pipeline, the largest pipeline in the world, the venerable pipeline that stretches across russia. one leg of it through belarus and ukraine. it has been shut down. oil moved up 97.56 on brent

worth, even in the usa pulled back from flat to futures down -10. kevin was recently scheduled, head of oil research at clearview energy partner. it would be a nice lovely discussion of climate change and the legislation. but we need to rip up the script and we can do it with you, kevin. these pipelines, if we talk about them in the media like they're out there somewhere. but they are critical backbones to the continent of europe. kevin: yes, good morning. it is going west from russia. it is critical energy security in europe and a lot of this is watching this not only for the oil story, which people talk about first, but what it means for gas. it is cut off for russia, what

is it mean for russia? they are willing to flex their energy muscles. lisa: how much of this prices into a market that is hit by a decline in demand and to slow down by economic momentum? kevin: we should think about the iran deal, too. the downside from crude last week could be linked. it seems like it is tracking toward the closest it has been any while. demand up as well. we look at the numbers we see on a monthly basis, the weekly numbers. it is possible demand is not as weak in the biggest consuming country in the world. but we are talking about 1000 barrels a day, maybe 350,000 barrels a day in supply. 750,000 that travels over the whole pipe. in terms of magnitude, they will bring roughly two to three times

that us -- that upside in the market. lisa: how much of this is going to be a transition throughout the rest of the year and beyond with russia halting and putting back on these gaps in oil pipelines? how much is basically a base case that had not been priced into the market yet? kevin: in our view it has not been priced into the market and there are a couple to watch. one is tomorrow, the onset of the coal environment. don't think russia is going to sit there and just think is the market and we will be quiet about it. there is munitions on the bottom of the black sea, ruble payments that are not going through for gas and now payment problems according to the news reporter just saw. whether it is plausibly deniable or not, and the west clamps down on sanctions on russia, prussia clamps down supply to europe.

kailey: as for how this translates for the consumer pocketbook, we have seen gas prices come down every day for more than 50 days. is that sustainable? kevin: there are a couple of things that go into the gasoline prices. as long as the oil prices, which tends back up going to the upside, the second is refinery capacity has done a lot to bring inventories on stream. demand is weakening. you get more inventory and the prices go down. but that could also change. at any given time, there could be refinery outages. tom: you have such an international reach. let's take the domestic at clearview energy partners, their view on climate change and what we have seen with president biden and democrats in the senate and the house. bring it to europe. there is a war going on in europe. with the use of coal increasing,

is esg and climate change not dead but delayed within europe and how much? kevin: officially, the answer is no. long-term, the transition could never be stronger for europeans who want to go that route. but those molecules missing from russia don't have electrons to replace them in europe. so that heavier hydrocarbons, coal, is coming back on stream in july. they put out a third update on energy security and they said as of july 14, they got new rules in place, new laws that allow them to put the strategic reserves back. they are burning that right now. tom: we've got lockheed, a snooze on the pipeline, the right at the right time. kevin, thank you. it is amazing that our booking team does that, like there channeled into mr. putin at what the next announcement will be.

lisa: i want to channel something he said, this seems important as a read more details. how much is russia going to take out aggression against sanctions on the u.s. on europe by constraining oil and gas exports? they say this has to do with an inability to pay and transact because of those sanctions. how much of that is going to be the case increasingly into winter? tom: to quote the ruble, we look at the dollar ruble coming in -- it shows a sanctioned battle with russia and what they're doing. with the discussions of mr. putin and mr. erdogan' four hours as well. kailey: absolutely, it has been astounding. the impact on russia is not as

severe as when the first sanctions came in. is it a question of sending it other places like china? tom: intermediate up, $91 a barrel. brent crude $98 a barrel. gets my attention, we will have to monitor throughout the day. bring it back on track with a study of the equity markets, huge inflation report tomorrow. futures and negative nine fix, for jon, the dow up 10 points. it's bloomberg. good morning. good morning. ♪(annenough with the calorie counting,

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>> we are waiting for an eminent recession, but we have to look at this going forward. >> can have the strong dollar, you got tightening and the global economic slowdown. >> we think we will see the slowdown. we don't think it is that far. >> it will slow so much we will see demand something. >> i'm not for the soft landing, we have pushed too far. >> this is bloomberg

surveillance with tom keene, jonathan ferro and lisa abramowicz. tom: good morning, jonathan ferro, tom keene and lisa abramowicz. it is a bull market, a bear market rally, it is unloved. lisa: unloved to the biggest degree potentially in history, as far as the bearish views and what we have seen in the market. not cooperating with that, at seven shift in the market tone on the heels of that headline about a pipeline from russia to europe getting suspended in terms of the oil imports. how much does that change the landscape after we have written on this decline in gas and oil prices for the past couple of weeks? tom: brent crude up 97.80, we will have to monitor that. we are looking at their inflation report. let's summarize. there is the topline number and

the core number and i hear pros talking about the core number. kailey: on the headlights, gas and food are more volatile and they should be coming down, but it becomes about the stickier components. that will decide how quickly the federal reserve is going to be able to take its foot off the gas pedal. i pity talking about the potentially 100 basis point hike in -- 100 point rate hike in november. tom: we go to the two tends spread -- twos intense spread. what is the spread you are watching? lisa: it is inverted across the board. i was watching the spread that had been widening for a while and then contracted at a record pace. this is one area that the fed looks at themselves and say we are all fine, but now it is getting closer. all of these indications, it is a big picture view saying it is

going to be a deceleration and possibly a downturn. the jobs report to not confirm that. some earnings have not confirmed that. how do you parse that out with the pessimism of a fed that is forced to act to curtail inflation? tom: let's look at the data soleus of 10 water over to the briefing board. there's a lot to brief on. for those of you on bloomberg radio, i can't emphasize enough how things come up on tv in a banner form and then just stunned to see the spread, -45 basis points. it is massive, rapid inversion. extraordinary. the two-year yield is seven point -- is 3.23%, in the green this morning. the dollar is turning and oil, the russian news is a big deal. brent crude reaching up 97.89. we will watch the more

continental europe price of brent crude, up at dollar, 91.7 as well. we do the briefing with lisa abramowicz. lisa: thank you. the most underrated economic data point of the week is this one at 8:30 a.m., the productivity for the second quarter. it is a measure of how effective people are in their jobs so you are seeing people are getting paid more because of inflation but producing less for a variety of reasons. we saw that last quarter and the expectation is to see it again. typically that means that later on there will be job phrases and layoffs as companies try to trim costs because of the lack of productivity. that comes ahead of ppi tomorrow, thursday and university of michigan consumer sentiment friday. it will be interesting to see the discussion from the semiconductor chief executive officers, president biden with chips buying back in 2022, we do

have the ceo of nikon coming to speak to us after the fourth quarter earnings. how much can we bring online to curtail additional disruptions? i want to hear the mix of what kind of chips they are making and what it -- where the says. we've had about 90% of s&p companies already reporting. cruise lines, roadblocks. norwegian cruise lines for some wall street analysts have been left for dead. we see rejuvenation in terms of production. tea leaves into the consumer discretionary spending. and i put that after a drop in 53% because during the pandemic that is what the kids were doing. tom: it is on my computer, i don't know what it is. is it a kids game? lisa: it's a whole ecosystem. a metaverse. tom: so is bloomberg

surveillance. joining us is the equity strategist at wells fargo. she has been writing about what the pros write about, but it has not done enough. short covering. it is when you bet on something and oops, i got that wrong. you covered your tray to get out of the negative turn. what is the -- are there more people that need to go hoops, i got it wrong? >> there's the other side, if you shorten it and get your way it's a good time to close out the trade. but i think you miss context, especially with the rallies next week and that voracious risk appetite last month, we will see more people going oops. might have had that wrong. the payments become too much of they have to close the trade at a loss. with that happening i think it is a reflection of what we have

had, trader confidence with markets going higher and potentially if we are going to see the economy can remain resilient even in a tightening market scenario, it staves off the risk appetite nursing -- we are seeing. >> how much are we going to see the fed coming in and saying you're not cooperating, we need to tighten? how much is the fed going to stop it if it goes too far? anna: the interesting thing is the fed might take that as a way to be more confident about continuing to hike rates. equity things this is a large part of household wealth. consumer spending will weaken and that can put the economy that snowballs back, contracting faster than we intended. for the fed right now, it might be easier for them to continue

to attack or bring under control the inflation issue, while keeping somewhat of a slowdown but still spending so the economy can get through this. maybe that is part of what is also built with some of the confidence in the market and why equities are grinding higher despite the recession. we are seeing positive views that perhaps equity can go higher and a tightening environment. kailey: let's talk about where that leadership would be coming from, especially in the context of the inflation data we are get tomorrow, what is the hot or cold mean for growth stocks? anna: if it is cold, it will be a boost for growth stocks. maybe we will see a little bit of the curve come down, to match more expectations. but if it comes in hot, if

particularly core cpi suppresses the outside, for us at wells fargo we expect a higher consensus. but even higher, i think you will get the recession fears stoked. and when you expect the fed needs to play catch up and catch up the recession to come back or not as shallow as hoped, that will put even more rally and more people that had growth exposure to the portfolio. tom: tell me what the physics of quality is. people are tossing around quality like they know what it is. what is quality to you? anna: there are a lot of ways to measure quality but i like to look at a multifactor approach. a large part of quality can be the return on equity. capital, cash. but important as well, leverage can be a big aspect of quality. what is interesting is with this type of environment, you can see credit widen and become more

expensive. but in the last six weeks or so, we seen credit compression. usually that is not as painful. i don't know how long that will last but rather than the low-quality approach, we like a high-quality or mutual, particularly down. we think it is not expensive to be high-quality as we would prefer that. tom: thank you so much. anna han from wells fargo, always brilliant. we have to wonder back, 98.01, up a dollar 80 on brent crude. it was a joke down from 110 to 103. you've got to go 104 is where we are going. lisa: i find it interesting how thinly traded these markets are right now. and the lack of liquidity more broadly at how quickly things

can turn. we don't have a lot of details at the suggestion of this is causing a shift in the market to a more tentative tone. that highlights the august moment we are in, a time of great uncertainty. one headline can really shift perception before we have details. tom: there is a lot of liquidity. what is the lack of liquidity? do you see it in the bond space? kailey: i think it is cross asset classes. it is august liquidity. so many in the market seems more pronounced. we have not talked about this yet, the ever bowl at jk market -- at j.p. morgan says to buy commodities, because they have lagged to such an extent of the last month and a half, we are seeing this play catch up. tom: the bloomberg commodity

index, one 30 and it pulls back. maybe it is the time to find commodities. coming up, our guests will join us on the allocation of his portfolio. this is bloomberg., good morning. ritika: keeping you up-to-date with news around the world with the first word, i read it up. i development involving former president trump, his residence in mar-a-lago was raided by federal agents. trying to see if he'd took classified documents from the white house when he left office. the former president said he is being targeted. another aid package for ukraine, billions in military aid.

it includes artillery, ammunition, medical vehicles and supplies. keeping china from using the visit of speaker pelosi to taiwan as a wargame in the region. they're concerned china will invade. it would be a violation of international law. taiwan -- and south korea, one of the heaviest rainstorms years has taken a people, six missing. -- eight people, six are missing. a semiconductor plant plans to invest $40 million 30 decades to build manufacturing in the u.s.. it will rate up to 40,000 jobs, a new law president biden will

sign today. 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. this is bloomberg. ♪

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>> so much of the supply chain goes through the taiwan stream.

when we look at what the precedents are of 1985, 96 and you add in these tensions, we had this impacting the real economy. now the economies are more integrated. tom: joyce chang on china and the pacific rim. also on the state of america's budget as well. she had wonderful reports from jp morgan. we will drive back to what is only one story in america for our international audience, america wakes up shocked and galvanized about a search of president trump's residence in mar-a-lago by the fbi. joe manchin -- joe mathieu gives us a brief. it is a rambling essay comparing

mr. muller of times gone with mr. garland. do you presume anything we will see from the attorney general will be through the courts this time and not rational hearings? joe: that is a great question. what we saw yesterday would lead us to believe that is the case. but we may not find what they were looking for for some time. the two questions we have are what were they looking for, what did they find and what that might result in in terms of terminal charges, investigations or otherwise. we can answer the second question without answering the first. this is a months long operation that was going on and a violation of the presidential records act. but we have seen the national archives go back through material through the administration but we have never seen a search warrant executed on a scale we saw yesterday. it got us wondering what exactly

merrick garland new and who approved it because they had to see what they were looking for on the presumption it was on the premises. everyone is asking, what are they going to tell us what they found? the fbi or doj may not tell us anytime soon. but political warrants -- but they had a warrant, so that means trump likely knows what they were looking for. we have heard from him. he could tell us this morning. if this is an abuse of power, tell us what it was. tom: describe the review of the attorney general of the president, a story of our lifetime, from robert kennedy and his brother to john mitchell and richard nixon. how do you perceive the independence of the attorney general from 1600 pennsylvania ave? joe: this is something the administration looks back on, they say they are different than the trump administration was. when you have trump pressing

attorney general, plural, to look at different investigations they thought were worth their time. the white house found about it -- found out about it supposedly on the news. the fact they were not tipped off on a search of a former president home, summing it has never happened, it's a concern. but it is true. it is like when you ask cabinet secretary's about the fed. lisa: love the reference. to that point of the independence, a lot of people see this as bad for president biden but if you want to talk about the legislative wins and the gas prices going down, do we have a sense of the urgency there was to take that time into this now amidst other political action? joe: i don't think so. there's so much we don't know that it is impossible to answer. but your point, trump will raise money on it and his supporters will as well. members of congress who support

donald trump, marjorie taylor greene, matt gaetz, this will be a new cause to make with the cpac crowded. in aversion to federal law enforcement. but joe biden is assigning the chip act today. he has semiconductor ceos at the white house. that was the story this white house wanted to tell. kailey: it strikes me we are having a conversation about the state of the american democracy when you have a former president's home being searched in unprecedented fashion, the u.s. trying to defense democracy in taiwan but things are getting more intense. it is becoming more difficult as you see china wrapping up activity around the island. what is the policy stance right now of how the u.s. would like to respond to china's behavior? joe: there is no policy change. there was difficult to say in

the time leading up to nancy pelosi's trip. no change in the one china policy precedent for this trip. but we have seen china proved to the world, including the united states, that they can block a that island without invading it and leave it cut off from the world. i would have massive economic results in the united states as i'm sure you will discuss today. tom: look for that discussion on sound on with joe mathieu tonight. it's at 5:00 p.m. on radio. here as well. let's get back to the inflation. we have barely talked about the guestimates of inflation. we don't know. lisa: a number of important data points came out yesterday. cleveland fed came out and said some people would argue it would indicate a higher headline cpi

than estimated by most -- wall street. what a lot are inferring from this, it is about 9%. the new york fed put out a routine survey of inflation expectations of the next one to three years and they certainly have fallen. of computing tea leaves on the ground. tom: should we have an at home? lisa: absolutely not. tom: are we on chapter two or three of 14 chapters? even now cast. lisa: it's a question, are we effervescent? tom: do we blame the atlanta fed for now cast? kailey: you can if you are looking for someone to blame. but i think her point about yesterday, it makes friday's numbers interesting.

we know the fed is paying attention to the inflation reads. so if those expectations also come down, is that a good sign for chairman powell adco? -- and co? tom: will say. what do we do with a 46 basis point move? we are not there yet but we are grinding there. lisa: and how can it come down with a two-year yield if you see robust earnings and consumers are still willing to spend? something has to give. tom: wells fargo tempting -- dipping toward more robust as well. futures -12, stay with us, this is bloomberg..

tom: good morning, bloomberg surveillance, i want to get into this check because we want to get to greg peters as quick as we can. futures -10, -16. a break from a flat level down to some deterioration. there was a headline out of the shutdown of the massive pipeline in southern russia.

over parts of belarus and ukraine, it did move to oil. $98, brent crude. there's no question. the dollar not giving me much action this morning. the bond market, which we will get to any moment. -45 basis points which is extra narrow. on the equity space, here is the bonds expert. lisa: i've been watching one area with close attention. semiconductor is harsh. we have been talking about a time when we are talking about the resilience of apple and big tech, the lack

of demand for personal computers to other devices. almost 4% ahead of the open, 2.1%. on the flipside, you can find the optimism, all the optimism you want because why? i don't know? it is revenge of the meme stocks. bed, bath & beyond, since the middle of june has gained almost 90% as you take a look at how much the share prices have increased. at what point are we looking at, you know, turning? at what point are people saying these guys are left for dead? tom: let us give a little

history here on one of the great, great surprises over the last 20 years. they were those guys over in new jersey and in her childhood, they owned a piece of the rock and they would show you gibraltar and they would credential it. that is the way it was. with it, they became truly one of our best, most opinionated bond houses. these are people managing bond money, investment-great credit, and also, of course, debt. but more than anything, they have done it absolutely second to none. lisa: greg peters is joining us at a time when the wind condition in markets has been longer-term bonds. you have had a fascinating view on this oscillating between conviction and not so much.

where you stand on an area that has been a haven amid near-term concerns about inflation? greg: the bond market has just reflected the new reality after russia invaded ukraine. we are still experiencing this inflation surge, and the thing that we are focused on is, like anyone else, the rollover. i think we are kind of missing the bigger question on the table: what is next? we were talking earlier, and the markets are entirely too comfortable with this notion that it is going to be a straight line down right to the mandated dump. i still think there is lots of room for volatility and lots of room for moving higher and lower and credit spreads -- spreads to

be much more volatile. lisa: that is exactly why want to go, this conviction that people will have if the fed goes to that 2% target. you can see this also in breakeven rates that have actually come down. diva expect that to change? as people start to see a cooling off of some of the inflation data, you get less of the inversion and it ends up being bad for markets, yields going higher as people start to question the dead ability to get things under control. grade: that is a good question. there is a high probability that the rate that has already been put into this market allowed the change, isn't as high as it normally is. the unprecedented nature of it all. but i do worry about that. i worry about the flipside of that where rates to come down,

-- not rates, inflation rates come down. the markets get too excited over that. then there is a victory in the middle of the battle and i think that is where it could really come in a meaningful way. lisa: it is what it takes to get inflation down. there is a narrative out there that is looking resilient, and land softly while the big so. but if the data is stronger, the fed has to be even more aggressive to get a handle on demand, and therefore a hard landing is inevitable. greg: that has kind of been my narrative all along. i felt this underlying strengthen the economy is really quite robust, at least not as poor as many thought.

to me, the stronger the economy, and this is a very strong economy and lots of different respects, requires the fed to be more, which leave the risk of a wholehearted landing higher than lower. i know it is a perverse way to think about it, that is kind of the line that i have. lisa: it could also get the terminal rate to a higher level. what is your expectation about how long they are going to be able to stay there. this market is still betting that the cuts are going to come next year. greg: the cuts in the marketplace last -- next year seem a little -- to me. that is where i really disagree with the markets. once again, it is about the past. my suspicion is that you are not going to move in a straight

line. those cuts that are being priced in the market next year are unlikely. lisa: given the lack of conviction about a specific trait that will be consistent the a winning trade and given your expectations that there is going to be more spreads widening, where is the ballast? greg: i think about risk-neutral themes, looking at investing rid of corporate's, seeing a lot more value in the move here and the u.s. we see a lot of value in a high-quality structure that we do really well in an environment that is hyper recession risk. if you believe that these investments that you have will be that front-end, fixed income.

lisa: obviously tomorrow, can you talk what happens? greg: the markets setting up for a lower trend. it is a risk off type of environment. just one caveat i would like to make, there's not a lot of informational content coming through the marketplace, including a lot of investors. let's not read too much into what happens over the next couple of weeks. i think september will get a much better read on the true market direction. tom: thank you so much, greatly

appreciate it this morning. lisa, the new slow on the shock of this search of the former president's residence. i want to make clear that bloomberg has this reporting, and i'm not sure of the timing. nbc moments ago saying that the search was very much centered on materials of the national archives. the national archives, of course, much more when you walk out those stairs. it is about the records of our presidents. lisa: wetherbee get a full report from the department justice, still unknown. also unknown, the urgency. specifically, the department of justice will need to have some sort of urgency to deal with that, and what would that the? if they are able to go on of

investigations. tom: the attorney general is in a unique position within the cabinet. one of them has been what i would call sort of a collegial visibility. the general statement. they are out there, they are visible. can we say that about the president and the attorney general? lisa: i think there will be a lot of discussions about how to place this. the significance is that it was coming at a time that president biden would like to be taking a legislative victory lap. tom: what a distraction. lisa: the democrats had been gaining speed when it comes to maintaining the polling, and how much does this distraction take air out of the room at a time when they needed it? tom: merrick garland, the former judge, also a case for the

former attorney general of the united states of america. it is truly an historic day for america. i don't want to oversell it, but inflation tomorrow, helping out with renaissance macro. -10. this is bloomberg. ritika: donald trump is portraying himself as a political victim today saying he is being persecuted by democrats after federal investigations searched his home at mar-a-lago in florida into whether he took classified documents from the white house when he left office. the former president was in new york during the search. an ending emergency jobless benefits can impact unemployment. the federal government provided in benefits during the pandemic

to many who would not otherwise be covered. and a comment from bloomberg tv. an advisor was among -- being considered to shore up the economy. >> for them to be -- even before they have passed -- >> would you do that? >> -- consideration. ritika: stocks have gained -- taxes -- russian soldiers killed or wounded since the invasion ukraine.

the first estimate of casualties. russia said more than 1300 soldiers have been killed. 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. this is bloomberg.

>> in fact, global slowdowns despite the fact that the u.s. economy is slowing as well. the u.s. economy is going to slow, the dollar is going to slow. the reality of the dollar does well with the european economy is under pressure. tom: no one has put more resilience on the dollar. he the reaffirms how difficult it with the to see a weak dollar. some of the catalyst here was oil news out of russia.

rounding up to $98 per barrel. lisa, we've got to go back before we drag ourselves over. -45 basis points. the ability to be more inverted. lisa: what is the ramification for a federal reserve that has to hike rates to such a degree faced longer-term expectations? that is part of the unknown. tom: the time is defined how many islands you can -- right now, chief emerging markets and strategist. i look here at the emerging markets and i say in the business, you partition them and you focus on a category. which is the group that the audience really needs to focus on? >> can you comes front and center just because of the elections.

kenya has a history of having a bit of social unrest around election so it is a good thing that we are not seeing a lot of that tom: a frontier economy? damian: they are all facing trouble and they are all moving out along the frontier. they have all rally pretty big on this move over the better part of the last two weeks. for me, my goodness, i think there is more to come. the real question is what is interesting, how they have completely underestimated the u.s. treasury ability to turn its following. you are not seeing them crying out about other asset classes. the spreads are rising far more than we have seen because you would see a lot more treasuries. we are just not seeing that yet. that change is probably due to the tax revenue, the worst since 1969 in the u.s. but how long is that going to last? lisa: there is still one area

where you are seeing some pretty significant spread widening and that is home developers. this comes as china ordered a surprise audit of a $3 trillion trust industry which is one of the financing negative's for a lot of the home loans. how much are we watching a slow-motion train wreck when it comes to the housing market in china, that they are trying to kind of management also allow a little bit more? damian: it is a 200 billion dollars market i am talking about and it is off the reservation. i think really, when you talk about the trust industry and how they have repackaged a lot of these developer obligations in china into investment products for high net worth or for local chinese assets to own, yeah, that is $70 billion that they need to basically make payment on before the end of this year. $70 billion. good luck on that one.

i think a lot of these products are going to peel the paint here. certainly, they are overdue. lisa: the subject of our big takes three out on the terminal today, the chinese property debt market and how it basically is owned by debt. why isn't china doing more about it? damian: i don't know how much they really can do. the reality is what they are doing successfully is trying to limit the contagion from spilling over into the banking sector. all banks are being encouraged to help them out, but at the end of the day, right now, it is the patrol sector that has been taking over these unfinished properties. with china, you pre-finance your purchases of homes, right? they basically are pre-funded, and the homes are not yet ready. they are unable to do that. they are not stepping in. it is getting really bad. you saw logan basically

restructure the bonds. you saw greenland basically needing support from two large shareholders. there is more to come in china and certainly the property sector that u.s. investors want to stay away from. lisa: how much will that bleed through beyond china? when we first started talking about federal grants, we were all talking about contagion. are we still talking realistically about potential contagion? damian: absolutely. it has been beginning pretty considerably, and you still have some good data out of china. the highest on record this weekend. the interesting thing is a lot it is being driven underneath the surface by autos. when i say autos, the great wall of china is one of the biggest manufacturers.

the experts from russia are 22% year-over-year. russia and china trade is something we need to keep a close eye on. tom: how is mexico doing? we haven't talked about it much. give us an update. damian: the next can peso over the long-term should benefit from reassuring, you would think. they are going to raise rates on thursday probably by 75 basis points. because they track the u.s., i think so. you see the latin american complex really raising rates. there is one emerging market you need to keep an ion because they are ahead of the curve. they've been paying the front-end of every emerging-market of priscilla is one where you will be have to be mindful of the fact that they were a first mover, they tighten rates fairly significantly. tom: listen to you.

what does received on the front-end mean? damian: it means you want to buy -- tom: two-year brazilian? damian: 23, 24. i would say that is probably where you want to be. tom: are they going to trade judge? what are they going to do with them? damian: that would be very upsetting. damian: have you watched the documentary? tom: i have not. damian: phenomenal. you have to watch it. tom: he was a miami whatever-they have in our. lisa: nailed it, tom. tom: these interns don't understand. can you understand we don't book

yankees fans? i never remember their names. i just name them by the school. it is like northwestern. well, we do get some from vanderbilt. lisa, help me here. lisa: we're looking right now at the losses deepening. this really does come on the heels of that headline with respect that russian pipeline. go ahead, you can keep talking about your teams, but i want to see how much this dips after yesterday's reversal. from new york, this is "bloomberg surveillance."

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>> there is a lot of work to do. >> they are behind the curve still. inflation is still by far the

biggest problem. >> everything we are hearing from the fed is be patient, we won't see the numbers on inflation come down. >> the fed can probably do its job to get things done in terms of bringing out inflation. >> by the end of the year, we are not talking about inflation anymore. lisa: from new york city for our audience worldwide, good morning, it is bloomberg surveillance, live on bloomberg tv and radio. not just today and yesterday, kailey leinz is very much in the seat, we appreciate it. i do want to get a sense of how much of this is a data-dependent art. we are seeing each data point. tom: what is important is beneath the headline data, numbers matter more. that is what we do today with productivity and complexity. lisa, i would really venture

that tomorrow we have really got to parse out the nation data, not just look at the headline numbers. lisa: you made a great point earlier when you were saying that the jobs pay outnumbered that we got on friday were kind of name changing, and i would agree. a confirmed this idea that a recession was not imminent in the economy. how much is that print potentially game changing as well? tom: it can be either way, and we are seeing those different opinions on the desk. what is interesting to me is not so much that headline, but the makeup of the service dynamic vs. the goods dynamic and the major supplies for the optimist. lisa: and that is what a lot of people were kind of expecting, this roving inflation.

maybe moving away from washing machines and going toward rent. how much of this is some of the dispersion in earnings? it has been all over the map in terms of the optimism or pessimism. kailey: resilience which doesn't necessarily make it great, at least it is something in that has provided some amount of support to the equity market. but you have plenty of people saying looking forward into the rest of the year, that margin pressure is going to come in later on this week, and that continuing to be a persistent pressure. my question is if inflation is still running hot, doesn't that just mean that the fed has to be even more aggressive in order to actually get amanda now? does that mean the economy is too strong the policy doesn't have an immediate effect? greg does not by the idea that the fate is going to be able to cut rates next year because of the transition of disinflation.

give us a sense of how good or how bad the earnings were. how much is this view? lisa: you have most companies beating expectations on average by about 4.4%, but we have to keep in mind that a lot of that came from energy. obviously, energy companies have just been blowing it out of the water in terms of profit. earnings have actually been down, not out, something we have to consider. >> talking about oil prices, they are up about 1%, very much driving a lot of the action we are seeing today. we are seeing equities continue to deepen as we move ahead. tom: the curve back in 1998, i would put that in the category that it bears watching. lisa: especially because of the trend that we have seen. how much is that underpinning the optimism, the decline in gas prices, and the fact that we have seen a cooling off in oil, one of the major components for

a lot of the headlines? right now, let's turn to somebody who has been tracking this all. talking about the potential optimism or not heading into the rest of the year. you think a recession is already baked into the price. what makes you confident about that, even the resilience that we have seen in the valuations? >> there are some many things to say here. if you look at the 25% decline, everybody showing a 91% tax recession. what is going to happen for the rest of the year is going to be determined by what happens. everybody does these analogies when they talk about earnings. if you look at 66-82, each and every one of those times the market bottomed.

and during that time, earnings actually peaked and rolled over. think about the producer prices, you just made. the most important thing to think that is cpi and a do think that is the peak. tom: you've been very good at avoiding the cliche, the mother of all cliches, to buy quality. we are in search of what that means, i have no clue. but what i do know is if i have a three year hold on a cautious northwestern mutual you, i could parse quality growth versus quality value. which is more attractive now given a short term of three years? >> quality value for sure. value as a factor, think about value. i think about things like the s&p 600, which is quality small caps. i think the best part of the market this year. not large caps, not mid-caps, all he small caps.

i tom: need to interrupt, this is so important. we've got a partition where growth has reigned supreme. what is the catalyst for quality value to begin to catch up? >> the differences in valuation, valuation is not a short-term metric, but a longer-term metric. you had an extremely odd market in 2010-2020. earnings on the technology side were only gaining. i think that is shifting, doing a bit better. think about the possibility for interest rates to continue to rise in the 10 year. i don't think we are going back to a time when you wake up each morning and worried about deflation. every economic cycle has at

different leadership because it is unique. going forward, is a look toward quality value, just given the cheapness. the economic environment shift, i think we are going to have a mild recession. there is another side to that, and we have already priced in, i believe. you think about that economic perspective, i think you want to stand value. lisa: you're running contrary to what we heard from some of our prior guest talking about growth is going to be a winner either way. let's talk about whether or not you are finding value in the bond market. you said yields are going higher. does that mean you do not want to be a buyer of treasuries at the moment? >> from the standpoint of what my clients need to hear, it serves a purpose against all the different kind of outcomes that could be averse to what is actually the best case. they need to own the near-term liabilities. i think people are going to demand more risk premium to the

upside. i think that has to move higher, back at 3.5 percent-4% over the coming year or two. that is not a reason not to own bonds, but certainly i do find more value in equities at this point. lisa: one thing is humility in the face of things shipped. if there is something of a factor -- if things shipped. how important is that to you? >> we certainly want to stay nimble. i don't think the opportunity for me is to try to out-traded traders. i manage individual investors and they should focus more long-term, but certainly we make shifts in the shorter-term. we have owned commodities for the past couple of years. things like that i thing that we

do on the opposite side of the equation. i think that is important for any listener to think more about how you have these different exposures longer-term and you can make shifts and changes around that longer-term objective. tom: greatly appreciated. dow futures, -47. lisa, bloomberg intelligence with a whole set of ideas, a curve inversion. they go down, they invert, they are ugly, and they flip back. lisa: how do they slip back? is it that people expect the fed to cut rates or hold off on the rate hikes, and that leaves a longer and higher?

or is it the other way around and they say ok, and see it in the short term? tom: -46 basis point. .46 percentage points different. you get paid more with a two-year yield than a 10 year yield. tom: this is an historic moment, and we can't say that enough. this is a big conversion going back to the year 2000. we are dealing with an economy that is dealing with near-term inflation and the belief is it is going to go back to 2%. that is what you are seeing represented in this yield curve. how we get there is something up for debate. tom: you wonder whether people move. tom: i am sure it move the bond market as a whole. the question is if you get a bad inflation print, do you actually see yields going up?

it will be interesting to see how it shakes out. tom: this move on they yield, 2.36%. stay with us, this is bloomberg. ritika: keeping you up-to-date with the news from around the world. federal agents search president -- former president trump's residence at mar-a-lago in part of an investigation into whether he took things from the white house when he left office. he said in a statement that fbi agent broke into his place. he said it is about to run for the white house in 2024. more aid for ukraine, $1 billion more in a. the package increase is on artillery and medical vehicles

and supplies. nancy pelosi a pretext for war games in the median. he called the chinese military a violation of international laws. -- taiwan -- a semiconductor giant plans to invest $40 million in the end of the decade read -- high mortgage cost -- 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. this is bloomberg.

lisa: the traditional wisdom that the democrats will leave the house is probably right, but

the margins there do count and i think air view is that they can lose may be as little as two seats or as many as 50 seats. tom: really quite good yesterday. too short conversation. of course, all of it in washington to the election, the first tuesday of this november, we actually had her first meeting yesterday on the coverage. the messaging that election the morning after. it is the moment after the fbi, under search warrant, not a raid, but i surgically armor president's residence. we are honored that the gentleman could join us. you and i remember, this isn't

watergate, is it? >> no, it is not. last night was a trifecta for trump, three victories in one evening. number one, he is on the front page of every newspaper in america. number two, he gets to play the martyr. number three, the republicans are looking pretty unified. if you look at the quotes are everyone from kevin mccarthy to obscure house members, they are all outraged that this happened. i think it is a victory. tom: if democrats, independents, and republicans assume that the attorney general will at some point voice or act or begin the judicial process, does that get in the way of our electoral process this november or a november 30 months from now?

>> to the extent that it might affect voting, but i don't think legally it will. he will appeal and appeal and appeal. the key, as always, is moderate voters. the moderates decide they have had enough, that could make a difference. right now, i think that this is a plus for trump. lisa: to much does this change the dynamic heading into the midterm elections? the democrats gaining ground on the heels of lower gas prices. greg: that is really intriguing. you've got gas prices coming down, biden having a pretty darn good summer. it is possible that maybe the democrat losses will only be five or 10 seats in the house. maybe the democrats will keep the senate. but i can't see the house staying democratic. lisa: greg, these are the same

terms as president -- president biden second two years of his first term, he will not be able to get much more legislation through. how do you cite some of your client the terms they can expect in response to a downturn, what they can expect in terms of debt reduction and some of these other issues? greg: it is going to be a pretty weak agenda in the last two years. there's not much left that they can get done. for my clients in the financial world, that is a good story. gridlock is a good story. they don't have much to worry about. i don't see any new taxes coming for a long, long time. i don't see any big spending coming for a long, long time. the biggest crisis is geopolitical, a lot to worry about there. lisa: on that point, this is the u.s. where we are talking about the home of a former president being searched for documentation he may or may not have taken from the white house.

at the same time we are expecting in a couple weeks a review on the insurrection at the capitol. that to me looks like a democracy very much in some form of crisis. how does that play when we are trying to defend democracy in taiwan? greg: it is a good point. trump, chorus, breaks all of the rules. and i think it will happen again. i would just say that trump is still alive politically and i would have guessed a few months ago that he would be finished. he's not finished, you can't underestimate this guy. lisa: and what about the other potential republican candidates? is there realistically anyone could beat him if he runs again at this point? greg: maybe desantis, you can't rule him out. after liz cheney loses neck tuesday she will probably go to new hampshire and see how things look for her. there can be a dozen candidates, but if trump runs, he will clear

the field. tom:tom: thank you on short notice for joining us on this most historic day. again, a search warrant by the fbi of a former president, this is an mar-a-lago. much more on this. i know david westin is putting together a balance of power that we will see on tv and radio at 12:00 noon. i want to get back to inflation because we can partition it anyway we want, but i have and then's respect for the cleveland fed and the way they calculate core cpi around 16 parameters. we've gotten economics down. lisa: what happens in markets if that comes in well below expectations? where is the balance of risks right now in markets?

tom: it is an important question. let's say it goes up to 9.4%. i think the headline data, there is an assumption for that, lisa. lisa: i don't know. i think if it really picks up, that is a shocker because we been talking big nation and there is profound questioning of the fed framework when it comes to understanding inflation, that that might change the narrative completely. kailey: if inflation is transitory, realistically, is that where we are at right now? that is the case, that is what that looks like. tom: i think we are going to go to core analysis. i don't mean to push against the idea, but i would like to think the markets will not look at the headline data. i would say, critically, headline data in the united kingdom and continental europe is more than important analysis because of the immense utility.

i don't detect that utility pain in america. lisa: i would agree with that. that has been a huge driver of some of these shocking numbers which is been high inflation for so many years. i do think the other interesting factor is what happens if it comes down 8.7%? how much does that have to go down the other way to pave the way for that many people were confident in a couple weeks ago? tom: you're going to want to stay with us, an important conversation with the head of u.s. economic research here. the future is very mature now, futures -10. stay with us. this is bloomberg.

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tom: jon ferro is off, kailey leinz is in for john, lisa abramowicz and tom keene today. productivity coming up, we will look at that data as well. we will see what we see. a curve in version of 46 basis

points, that is really quite something. we've got numbers. >> unfortunately, they are not good numbers for the economy. that does not change with the fed thinks about things, but of course, what you are taking in is that index of output divided by hours worked and you end up with a 4.6% decline. the final number in the first quarter, down 7.4%, that was the biggest client since 1947. this is the biggest one year over one year decline since the series began, they say, 1948. u.s. labor costs up 10.8%. that is not going to surprise a lot of people who were doing hiring. in the first three months of 2022, 12.7%.

a little bit of a decline, but still faster than what is anticipated. at productivity number does match what was anticipated. small optimism we saw earlier this morning, after many, many months of declining, it actually went up a little bit. 89.9 from 89.5. those who think that the u.s. economy is going into recession, one of the few people who think that things are terrible, he had a little bit more optimism out there. tom: to pivoted tomorrow, what is the tone right now? lesser inflation or greater inflation then survey? >> there seems to be a bit of a lean toward greater inflation, but i am not sure here. the now cast has people a little bit scared.

the question is food and other prices that have worked their way into the cpi. tom: thank you so much, incredibly important day tomorrow for chairman powell as always as they look at a report on this inflation affecting all. right now, outside of u.s. economic research, what is important is he writes with a stiletto knife in hand, slicing and dicing the zeitgeist that is out there. i love the way you go after consensus. what does consensus get most on right now? >> the consensus right now is to take inflation, maybe the fed backing off. i think that is probably a mistake. lisa: you think that is a mistake, that the fed is going

to keep going and that inflation has anyone beat? >> there she is, tom, my arch nemesis, now my best friend. look, at the end of the day, i think things change. the fed basically told us that it was going to push the economy into a recession to achieve its goals. now it is going to be very challenging to achieve a proper ending. you sort of view these kinds of words to basically demonstrate how difficult it is going to be. the last employment report was a knockout. essentially, we have inflation significantly above target, and we knew labor costs were up a

lot. during the pandemic, prices have actually been falling in the labor cost. despite the fact that price inflation is so elevated, financial conditions over the last couple of weeks, they have been easing. to me, that suggests that the fed has a lot more to go. i think the die is cast for a 75 basis point move, and they need to leave it on the table. lisa: what does that mean for equities? in terms of corporate resilience in their ability to adjust, why is this time different, this moment different? neil: equity markets, when you think about it fundamentally, it is different by three factors. interest rates, actual and expected earnings, and the risk. the move in july, the 9% burst in the s&p 500 last month, that

was entirely driven by low interest rates. the economy is not out of the woods. we are going to see residential investment contract in the third quarter, capital spending coming down because growth expectations will soften. inventories will likely be more negative, so you will see an inventory liquidation of some kind, we are assuming. that is a lot of negative for gdp growth and earnings. if interest rates are going up and earnings are coming down, it is hard to be optimistic about the equity market. and of course, the equity market is one way that that has to slow the economy down. 0 lisa: obviously the ability lisa: to retain profit margin is on the ability to have the consumers tolerate those higher prices.

are we overestimating the resilience of the u.s. consumer? neil: consumers have an enormous ability to take on higher prices. look at how much savings. the entire group of consumer spending was driven by lower savings rates. lisa: but that can't last forever, right? neil: bingo. i would be cautious on stocks. i guess that the equity markets are trying to work here. maybe a lot of people were thinking the way i do about commodities sold back in june, but this isn't over yet. that is my view. i think one of those reasons is because we are not done yet. you think about the rest of the world, i don't think the dollar strength is over yet. the u.s. economy holding up better than many of its major trading partners.

tom: if we get a debit inflation, if we get whatever the real economy will give us, that is still a sustained, nominal gdp. let's go with that optimism. can we say that we agree to agree? i think we can say that this is rare. lisa: breaking news. tom: it is going to be because -- as optimistic. can corporations adapt right now? neil: they are going to adapt, but that is going to wire some pains to the economy. if you think about the first half of the year, to me, for business economics, the most interesting thing is this reconciliation between the fed that has been rising very robustly and output has not. we have seen a big drop in productivity. the question is how do companies

reestablish productivity? that is going to require some combination of slower hiring, fewer hours worked, raising prices. tom: is it going to come to the rescue again? technology, is it over with? neil: it takes time. what ways are productivity going to come from? lisa: look, i mean honestly, this is the issue. a lot of people are looking at financial conditions index, and it is actually the least height, the weakest it has been going back to april. and it makes no sense. you alluded to this, and this is where i think we agree, is that that is going to look at this and say i don't think so and they are going to push back. when we get that pushback?

neil: it could come after september. we started to see it particularly in the regional fed presidents. they will try to be hawkish, but they sound nebbish in the process right now. it is too soon to be pricing in cuts. well you shouldn't be pricing and that all, so why even give that sort of language? what this basically needs to say is that we have a singular task of bringing inflation down and we are willing to do what it takes in order to do that. there are no cuts coming. tom: thank you so much. what i am impressed about, there is a point out there somewhere where you sort of forget about birthdays, like you don't celebrate them. i mean lisa, you were not there,

everything is a three ring circus when lisa has a birthday. lisa: where are we going with this? tom: it is someone's birthday and they are not vintage, they actually celebrate their birthday. lisa: is this your way of saying happy birthday to kailey leinz? tom: we are saying happy birthday today to someone that actually celebrate her birthday in a normal, rational way. kailey: thanks, tom, there is nowhere else i would rather be on my birthday. that is all i can say. well, here we are. we will be celebrating a birthday talking that semiconductor chips, and i'm really excited for this. speaking to us from washington,

d.c. after announcing a $40 billion investment over the decade to really try to ramp up production in the u.s. tom: what is great about this is i can call kailey lisa or lisa kailey. >> keeping up-to-date with news from around the world, this is the first word. donald trump is portraying himself as a political victim today, saying he is being mistreated by democrats who don't want him to run for resident. authorities searched his home at mar-a-lago in florida as part of an investigation into whether he has classified documents from the white house tf manager -- says the u.s. is already in a recession in the fed will have to start loosening sometime next year. >> we believe we are in a recession. two consecutive quarters of real

gdp decline is the beginning of that definition. three consecutive months of decline in indicators, which we have now, but suggest the same. >> fully invested during what she calls innovation. an ending emergency jobless benefits has a significant impact on boosting employment area criticism in the democratic program, the federal government provided enhanced benefits during the pandemic and increased -- that would not otherwise be covered. and boeing said to review delivery after they were disrupted by manufacturing laws. the faa says boeing has made the necessary changes to ensure the plane meets safety standards. 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.

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>> i think we pushed too far, i think we're seeing consumer rollover, inventory build. when people realize we are going to have to pivot, the first reaction, the reality is going to hit like, we have to be very careful. what are future earnings going to look like? tom: yesterday, peter tchir. the new slow driving up to the inflation tomorrow has been extraordinary. this way, that way, the other way. but also all of the measurement and all of the gauges. kailey leinz here, jon ferro is

off right now, lisa abramowicz for 9:00. we really wonder what we are going to see from washington in the 9:00 hour driving toward open balance of power" at noon -- "balance of power" at noon with all we have seen in presidential and judicial politics. right now, we touch on a really important study by the founder of bloomberg news, matthew winkler, a former editor-in-chief. mr. winkler, you are dead on. of course runs a few numbers of wealth management this morning. you and mr. winkler really go after the servitude of sending indicators. i genetically dislike them, i don't trust them. give us a reason why seven indicators are something we must be wary of. >> well, historically, humans as

a species are very bad at not only predicting their own future behavior, but at understanding exactly what they are feeling and why. probably the best example of this is the black friday surveys begin every thanksgiving telling us what people are going to be spending on holiday shopping, and they are always off by a magnitude. when things are going pretty well, they broadly overestimate it. and when things are going poorly, they wildly underestimate it. people don't know what they are going to be doing, thinking, feeling three months from now, and it turns out, they really don't know how they feel today. the questions that are asked, how they are phrased, the actual language used has a substantial impact, often skewing the results. lisa: and talk about how

partisanship plays a role in this as well, because if you are a republican not in favor of the democratic presidency, does that make you think of the economy realistically is worse inherently? barry: that was matt winkler's point. we talked about on this show repeatedly why you should never let your politics influence your investing. politics is emotional, investing the be some of the rational and probabilistic. but it turns out that lots of folks change their view of the economy depending on whether or not there guy is in the white house. once there candidate loses, they immediately drop. by the way, this isn't specific to democrats, republicans. both parties seem to do it, that as matt winkler showed us yesterday, it is a little more intense on the right than it is on the left. but you could probably say that about a lot of things. lisa: obviously sentiment is pretty dire. when you take a look at the

payrolls report on friday, do you see the economy in dire straits, in recession? barry: so, we see an economy that is going -- that rate of growth is slowing down. but you don't have consumer spending at the levels. you don't have a wage gains at these levels and intercession. that is not to say it recession isn't out there somewhere whether it is next year, next order, we really don't know. but generally speaking, this is a pretty robust recovery and economy and when we look at the two negative prints of gdp, there are very technical reasons for that. some of it is trade, some of it is inventory buildup. a lot of it is in real terms in the inflation-adjusted. it looks like we are subtracting, but nominal terms, we are spending dramatically.

ribbing on what winkler wrote, i said let's get into the specific university of michigan text going back to 1978. you have to ask the question, is this economy worse than double-dip recession, the 9/11 terrorist attacks, the.com implosion? this is silly. tom: we've got to move on to another topic here. your wonderful point is that the same economy as those other important dates is just a broken down. we are almost where we were in 1982 and in 2000. we are seeing an inversion and frankly, a pretty normal greater yield. what does curve inversion signal

to investors? is it something they should worry about, or just monitor? barry: both. you have to pay attention to it. what you want to look at when the curve inverts -- because not every inversion automatically means recession -- you want to look at data and duration. is the current inverting deeply and for a long time? the one counter to that is when you are starting from zero and the fed raising rates rapidly, you can't help but invert the curve, it is just the nature of going from zero to one order in six months. the fed is the driver of the version. that said, this is one of those things that has a 97% track record. there have been a couple of shallow inversions that did not reach her at -- lead to insatiable and yield curve inverts, you should pay attention to it. it means that the odds of a

recession over the next 12 months is increasing. tom: we've got to leave it there, thank you so much. so glad we did that. i am just not a giant fan of these indices, sometimes confidence indexes will get my attention but as a general rule, so much noise. but no one has ever called me and said what is my sentiment right now? >> that is fair, but with references to consumer sentiment tom:. tom:who calls? kailey: i don't get calls, people text me. tom: for surveys? kailey: i don't get calls for surveys or text messages. maybe you won't be paying as much attention to the consumer sentiment data that we got friday, but we will all be paying attention to the cpi data tomorrow. this time tomorrow, will be 25 minutes until cpi. one conversation we will be

having will be really interesting depending on whether it is hot or cold, but the reaction is a bond market that has been absolutely confounding for the better part of two months now. tom: there is, 47 basis points. the call of the summer. that velocity, the -40 basis points. i can't believe i'm saying that. we are almost there. there will be an extraordinary bloomberg surveillance tomorrow wrapped around an extraordinary inflation that affects all of the nation. these are unusual times. will we see double-digit inflation? this is bloomberg.

lisa down and we will get: you into the countdown to the open that starts right now. ♪ >> everything you need to get ready for the start of u.s. trading. this is bloomberg, the open with jonathan ferro. lisa: we begin with the big issue. >> i look at inflation expect