>> the cpi and ppi reap or were positive but i don't it's any kind of game changer for the fed. >> the fed needs to keep expect tatian's -- expectations forward. >> that has to go back to inflation targeting. >> the historical data does not suggest the fed is terribly adept when it comes to landing the gently. >> we are not in recession now but it's coming and there will be a calm before the storm. >> this is bloomberg surveillance. jonathan: three hours of abuse

for taking vacation, good morning, this is bloomberg vacation -- bloomberg surveillance. futures are negative a half of 1%. that data out of china, downside surprise. tom: it's the quietest week out there. we needed china to give us a pick me up. they economic experiment fails. jonathan: the rally we've had in the equity market has been stunning. that's four weeks of gains now? tom: lisa and i covered that last week. it was the way the market was up.

it was a good trip around the continent. jonathan: retail sales, industrial production, ugly, unemployment in that country in china is not a pretty picture. lisa: 16-20 four-year-olds, the on woman rate is 19%, one and five test the unemployment rate is 19%, one in five people are out of work. they see a market that did for mark cleat --for my complete lack of transactions. jonathan: throw in europe as well in the global, me except for america, is in a difficult step lisa: how much can the u.s. remain in an exceptional spot? there was more constructive tone to some of the data with working families saying it's getting closer to their bear case being

a reality likely a recession in the u.s.. jonathan: the risk reward mates unattractive. lisa: they trimmed the stocks but they were still bullish. jonathan: i got excited for a moment. negative half of 1% on the s&p 500. the nasdaq down 4/10 euro dollar is one dollar two cents. --is one dollar two cents. lisa: weaker than expected economic information out of china, 8:30 a.m., august empire

manufacturing, the first read on the manufacturing activity after a cpi report as well as the ism data they came out over the past few weeks showing an upside some rise. small business optimism that you have not seen this based that things are going to get better. 8:30 a.m., i was watching this over the weekend stuff saudi aramco reported blockbuster earnings, record revenue step quarterly net income rose 90%. eight 30 a.m., they give their earnings call. how much emphasis do they make on the demand picture? they just don't have the supplies to meet the demand. 10 :00 a.m., the latest read on home builders.

how much will that stabilize? people are starting to have some qualms about buying houses. tom: it's a good week to read group and recalibrate for jackson hole in september. how many people have missed this bull market? jonathan: plenty. we have the chief affect stratus the joins us now -- strategist that's joins us now. >> i think markets are not

listening but they're not really hearing. there is a disconnect between some of the optimism and less inflation means we will get less from the bed but the fed is looking at high inflation anyway. and the labor market which is just incredibly tight. they really have nowhere to go and i won't be so prized if we don't have a fed funds peak into this month. it seems the message from the fed's it cannot so often at all at this point. tom: what is the message of strong swiss franc and euro-swiss breaking through.97? how does that stick out on a monday morning? >> it's a little bit about risk aversion. they want to get rates back into positive territory.

if they have to sacrifice to keep the rates down, that's not the problem. it's an extension of the china story from this morning step the u.s. economy might still be doing well. but don't worry about things that don't matter. there's just a world of trouble in the rest of the world. lisa: you say maybe this market is not listening to the federal reserve step will wednesday be a pivotal day in terms of fed meeting minutes? the 4% fed funds rate is a reality so will this be catalyst for some dollar strength and people here with chair powell was saying? >> i think the last fm oc meeting was about stepping away so they want to come back but not too hot.

they have a problem with the degree of over precise forecasting. it's a very chaotic global economy. they should take the facts as they are when they get them. i would be a little bit depressed about that they were still using fomc minutes to micromanage. i would be more encouraged if they came out, having seen the payroll data this month, if they came in at jackson hole say we have to get inflation back in box. we can only do that but putting some slack into the labor market. jonathan: that's been problematic. it looked like we were equating peak inflation with the fed

hawkish nose. i'm not sure you can do that. lisa: they say it's still a fed call and the more the stocks rally, the fed will have to step in and do something to cause this to reverse and how much of this will be the reality over the next few weeks? jonathan: is this a fed call now and do they have to respond to this aggressive rally in the equity market? >> i don't think the market helps the fed. the labor market where it is, inflation may trend lower over the next 6-9 months stuff the wristlet problem because is not going back under 5% easily. i think the fed messaging and the problem is they don't have a choice.

the inflation mandate requires action, more action in the market does what it does. as soon as the market thinks they might have done enough, that's how you look at it and you say no, they haven't. jonathan: did you enjoy the two london clubs beating each other up? >> it was great entertainment whatever else it was. jonathan: thank you. what a game. tom: it was great. what's so cool about it and we were talking about baseball, it's the second week of the season. you look at the collapse of manchester and nottingham the guy went from richmond over to west ham and it worked out. i look at thomas and antonio,

it's great. jonathan: he blends the fiction with the reality. tom: there was outrage at the end of the season. jonathan: still talking about tent lasso. -- about ted lasso. let's get real. lisa: i love this because it highlights this push-pull between the beers -- the bears and the bulls. they are looking at the technicals and how much do we end up with one or the other winning out? i keep going back to that. jonathan: lisa backs me up, we

are the best of friends. it's good to be back, thanks for the warm welcome. lisa: we are glad to have you. lisa: lisa goes on vacation wednesday. jonathan: futures down a little on the s&p 500, coming up, anne-marie has a new studio down in d.c., i'm told. i'm looking forward to this. tom: she is such a diva. jonathan: this is bloomberg. ♪ ritika: keeping you up-to-date with nusra around the world, in china, the central bank unexpectedly cut key interest rates and the people bank of china reported an economy that's been hurt by covid lockdowns. new data shows home prices fell again in july and industrial output and retail sales were weaker than expected and other u.s. congressional delegation led by ed markey is visiting

taiwan. china says it is fighting back by or --putting more military action around the island. the last visit by nancy pelosi led to unprecedented china military exercises. there is the worst energy downturn in years in europe. the rhine river is set to be at an extremely low level this week. it's an important river for the transport of fuel and other goods in the river is at a level where barges don't find it economical to travel. wells fargo has to shrink its vast mortgage empire. this is after years of struggles . global news, 24 hours a day and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120

countries. this is bloomberg. ♪

>> no one is above the law.

donald trump is not above the law and the attorney general is not above the law and congress has the powers of oversight and he needs to comply. >> the president is not king and i would add the former president is not king. everyone has to follow the law. >> don't prejudge what we don't know about. support law enforcement no matter what. jonathan: live from new york city this morning, futures are down by half of 1%. we are down about a third of 1% on the nasdaq. we've taken back 50% of the drawdown of the highs. tom: i'm not a fan of fibonacci retracement's.

it was a big deal we went through the 50% retracement. jonathan: crude is at 88, it's copper as well. a lot of red. tom: it's off of china and texas intermediate is stunning. moving on to what we learned about former president trump. i like with the new york times did this morning. they sort of move the story forward by talking to people that were actually in the offices. john bolton was scathing in the article was that he knew nothing about the shifting stories we

hear from president trump. on the desperation of the moment for various parties, what's next? >> when you talk about the desperation, you see republicans struggling to coalesce on how they will message this in a unified way. some temperament over the weekend from some representatives saying this needs to be justified. many of them who was in fbi agent said we should reserve judgment until we get more information. which you had over the weekend was the fbi and department of homeland security issuing a litan, letting long oarsmen individuals no and government facilities, people work in the courts that there are potential threats for what we are seeing now. you mentioned when there is more information.

when do we get more information? >> we don't know. what you can see is that there is a bipartisan effort we saw that from senator warner and senator rubio. they are both in the senate intelligence committee and they asked for the information that was in these confidential documents. 11 sets of confidential, classified documents. they want to see whether the raid was justified that the democrats, it's about the gravity of the situation and the question of national security. we don't know if we will ever see the likes of this kind of information but there is no timeline. lisa: how much pushback is there within the republican party to

tone down the rhetoric substantially to avoid the threats from law enforcement especially because they are traditionally the party of law and order. > the democrats are taking every moment to pounce on that. they want to be the ones to protect lawn oarsmen officials. the spectrum is wide with marjorie taylor greene campaigning and fundraising on merchandise to defund the fbi and you have others much more tempered like we heard from representative fitzpatrick on sunday, talking about that both sides should withhold judgment until we get more information. that is the struggle right now for the republicans more than the democrats. lisa: both are using this information for the midterm elections. does this give a boost to the republicans versus the democrats

were trying to use this to rally people to the law and order side of things? >> what we have seen as they are using this as a messaging tool. until there is more information, it will be hard to see how the electorate feels. by and large, they are showing up on party lines and the republicans want justification for the raid. the democrats say it's unprecedented for a president to take home a 11 sets of highly classified documents. the polling is likely -- the democrats will have messaging that's based off of the fact that they do not want to see another president trump coming to office. for the republicans, it's going to be an attack on the democrats and the fact that they think this is a politicized version of

what the fbi and the attorney general+ are doing. jonathan: are you going to give is a tour of the new studio? annmarie: absolutely. jonathan: the studio is named after anne-marie. tom: hers death -- her desk is huge. jonathan: can we get some fed officials around that table? tom: i think we should do that. jonathan: thank you, it looks awesome. developments over the weekend, while. tom: that's the right answer, there was shock last week, just

simply historic and the question is the path forward. when you look at the washington post this morning with no articles on this on the internet, there is a mystery developing what's next. i'm leaning toward we will know tuesday or wednesday. jonathan: we are hungry for more details. lisa: without more details, it's hard to talk intelligently about this. jonathan: futures are down half of one percent and the nasdaq is down 4/10 of one percent. good morning for our audience worldwide, this is bloomberg surveillance. ♪

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jonathan: this is a snapshot of the market right now stop we are down a half a percentage point on the s&p 500 and down 4/10 of one percent on the nasdaq.

good news is good news. that's what this market has been responding to. whether the you think it's overreacting, that's a separate argument. lisa: except good news is good news for everything. there is some the conflicting signals going on. for stocks, is good news. jonathan: people have picked up on the inflation report. the fed has got more work to do. 2's vs 10's we are still in

dangerous territory. tom: the spread went up almost 50 basis points. it's come back to a -43 basis points and that would be headline making except we had the surge near 50. jonathan: maybe we have a snapshot with the gas prices coming down? brent crude is down and copper is down almost 5% stop china is just ugly. tom: people cannot take holidays. when you take a one day holiday, you extended across europe as jonathan did. lisa: i'm with the staycation. jonathan: the european work ethic to new york city --

tom: how was theac-milan game? jonathan: it was a good game. beginner jackson hole coverage, not a normal jackson hole this year. there's something else in the air and you won't know what it is until that wednesday or thursday when we gather on that truly extraordinary lake with the representation of the kansas city fed. peter hooper joins us from deutsche bank. i think neil shearing had a great note. he trotted out the aggregate supply and aggregate demand curve and we are not going into the vertical nature of supply but he says supply, supply, supply. can a supply shock be cured that can come to the rescue for chairman powell? >> supply shocks are always tough for the fed. up or down, inflation up but

contra to desperate contrary to this, our numbers are telling us it's become demand. supply was a factor last year. my colleague is the a nice job getting into the data in detail and finding that is this year has gone on, it's much more a demand driven inflation. that is something the fed can handle. tom: explain to error viewers and listeners white boy and demand is a bad thing -- what buoyant demand is a bad thing. >> the bad thing is what people feel at the grocery store and the home just about anywhere. access demand, when you have supply problems, it's really what's behind this inflation

fire we are dealing with now. our view for some time has been that this is driving us into a recession eventually and the that will have to tighten it up to deal with it yes, demand is a good thing but too much demand is really unwelcome at this point. lisa: how much conviction do you have that we have seen peak inflation last week? >> the market has rallied around the sense that headline cpi has come down. core cpi has continued flat but at a high level. the underlying inflation in the mean numbers continued up. yes, there is some good news out there but the market is ignoring at least several factors that are a problem right now step there's underlying inflation and inflation expectations and we had some good news from the new york fed recently but michigan

is up in the survey and professional forecasters are up substantially. our measure of the fence, inflation expectations to date is not good news and add to that, the labor market is still on fire. the last labor market report gives wage inflation that continues to mark up -- march. that's really a problem. there's been some good news out there but we are not paying attention to the serious news. lisa: there are many more for the rest of the world. there is consensus that europe will go into recession as they try to combat recession. do you agree europe is in a worse position than the u.s.?

>> might esteemed colleague, eric chief economist for europe has been calling for recession for a while. we see things turning negative the second half of this year into year, over all in negative for the year. the gas crunch is hitting germany and others very hard. the tightening of financial conditions as the ecb has gotten into the act and they are not going to back off from inflation. it's running even higher there than it is in the u.s. now. europe is headed for a downturn. tom: what are the ramifications of another 75 beats up in september. i guess we approached neutrality

because we don't know where it is but one of the ramifications in the country of another big lift in rates? >> you can be thankful that the fed is on the case in a way they should be. they are moving back to neutral and we will be somewhere in the neighborhood of the first half of next year and as we get above neutral, that is going to begin to slow the economy and we can deal with this inflation. the cost for the average u.s. household is going to be some pain on the job front. we are going into a recession. the effect of high inflation is something we have to deal with so yes, we think it'll be between 50-75 at the next meeting.

we think the risk is toward 70 five and that will get the fed back to where it needs to be sooner which is better news for the economy down the road. lisa: hsbc put out a note where it said one reason the terminal rate will not go as high as many expected is because of the amount of debt currently outstanding. it's just too painful and we have seen it with the market rates. how much do you see that as a constraining feature? >> i think it's overplayed. certainly, the household sector balance are looking solid, the banking sector is looking pretty strong. national debt is a problem and there will be pain as rates go up. we had to deal with the inflation problem which is a bigger issue. the recession is coming and we

think it's coming in on the milder side because household balance sheets are pretty firm. jonathan: great to catch up with you. steve major says there is a self-fulfilling, self-limiting element to it that the height yields will have to back away because of the debt you describe. tom: lisa: many people say they have conviction in the longer yields. the reason for the conversion and the reason it could go south of 50 basis points and get to 80 or 100 is akin to 1970. jonathan: are we excited about jackson hole next week? tom: i think it will be a snooze fest. some are excited that they

are not invited. jonathan: i hope they are invited because otherwise it's a convention for those are wrong. tom: there is a tradition which leans toward boring economic papers but it blows up based on events. lisa: it's not rude to say that the fomc has gotten a lot of inflation wrong so how did they present the counter to their views? how much do you see the back-and-forth on the academic research? where is the emphasis? the risk going to weekly now or the risk of 1970's on repeat and that will be a massive indication to markets. jonathan: i will be more respectable of you. tom: i just want to talk nottingham forest.

she's talking about the forest of jackson hole. i think the national sound --the detroit tigers should be relegated. it's exciting to see nottingham forest take out nick mohammed and west pam. jonathan: from new york, this is bloomberg. ♪ leann: china has added military patrols around tie went after another congressional delegation visited. ed markey is visiting in the visit came less than two weeks after the one by house speaker nancy pelosi which set off an unprecedented wave of military action around tie one and out vladimir putin is offering to expand relations with north korea.

he sent and message of congratulations to them for the liberation day holiday. north korea has been stuck filing military equipment for decorates -- for decades and they -- and that leads people to suspect that they could supply russia in the russia-ukraine war. brittney griner was arrested with a canister containing cannabis oil. saudi aramco has posted figures the biggest profit or any listed company. net income rose over two hundred 48 dollars, almost --rose over 248 billion dollars, almost double than a year ago.

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

>> they are projecting at the moment that the price in the fourth quarter this year will probably drop to about three dollars $.78. we hope that's true but it can be impacted by with happening globally3+. jonathan: we hope that's true and that was the energy secretary over the weekend. this is a snapshot of the price action, down a half a percent on the s&p 500 and the nasdaq is down 1/3 of 1%.

the data out of china is ugly. a downside surprise on a downside surprise and a rate cut in response to some of this. tom: i'm surprised equities are not down more. you mentioned a half a percent move on the dow. you would think these indices would be down 300 points. jonathan: we've seen a lot of it in china this year so far. tom: alan wald joins us now. thank you for joining us. should we get used to oil at 80 or 90 or are you in the school of thought that normal is much higher and we are on borrowed time? >> a little of borrowed time but

i think further current picture, higher is definitely a new normal. when you look at the changes going on in terms of oil production and new regulations and different corporate outlook toward increasing production, there is definitely a trend toward the dynamic response to the market with higher costs in terms of production, slower increases in production. we definitely could be looking at a higher basis in terms of oil. inflation often plays a role in that step jonathan: how durable will the decline be? we are less than four dollars per barrel -- per gallon.

do you have the feeling this will continue? >> you have to remember that there is an important component in demand. around this time, we see a slight dip in demand with school starting for large portions of the country in the summer driving season is coming to an end. what will give us a good sense of where things are headed for gas prices --as we hit the fall when refineries have to go into their maintenance season, i think we will get a good picture of whether demand is still strong. will refineries feel secure enough to do maintenance or will they feel pressure to churn out more and more barrels and put off needed maintenance?

that could be a factor for gasoline prices for the rest of the year. lisa: how much is the factor of covid zero in china? >> that would be a huge deal if china ended its covid zero policy. the market is always on edge if china is going to shut down. what will demand look like out of china and you get a sense of their import quotas. how much oil will they be importing? they could basically crush domestic demand. if you get rid of the covid zero policy, that will be telling for the market for the next year. lisa: how tight is production right now? how tight our supplies and how resilient is the market.

right now, we are seeing a cooling in demand so how low with the prices be if it wasn't for the tightness? >> we could potentially see prices down in the 60's if it weren't for that tightness but part of the tightness it's what's causing prices to cool down, the fact that they were so high and we did see some demands destruction and we are seeing signs of the global recession even if we get more data out of europe. that doesn't necessarily mean they will not need oil because prices are still so high. tom: the distinction to me in a report is the potential demand of the pacific rim. do you believe they will have

the boom over one-three years that will pop oil to a permanence of over one hundred dollars per barrel? >> i don't believe that's necessarily going to be the case. i think there is room for an economic boom there but i wouldn't say that going to cause oil to stay above 100 especially if you're looking at a major decline in european demand, seeing economic weakness in america. those could be contributing factors. when the middle of december comes, that's when the sanctions on russian oil will take effect step i think that would be telling for where oil goes in the next year and how well these things will be adhered to. jonathan: ellen w on theal

latest on oil. d this is bloomberg surveillance. the news out of china was terrible. a downside surprise. commodities just ugly this morning. lisa: it was retail sales, employment, every aspect of the data out of china and then it was the response. you talk about a rate cut, 10 basis points which is just window dressing. many analysts say they can achieve real momentum for real growth with monetary policy. this could be the end of zero covid. jonathan: what do you make of the move of 10 basis points? lisa: it's more of a signal that more is to come staff. jonathan: can we outlook on covid zero? tom: i'm biased by family

members in china but nothing matters but there garbage policy. it's bad medicine. johns hopkins and others are calling it that. they are legit medical pros saying this is not the way. jonathan: futures are down a half of 1% on the s&p 500 with about a quarter of 1% down on the nasdaq. tom: are you going away next week? jonathan: i'm going to jackson hole, wyoming. but i will be here.

>> the cpi and ppi reports were positive but i don't think it's a game changer for the fed. >> the fed needs a key expectation on where the next hike is. >> it's got to go back to inflation targeting. not average, but plain old. >> historical data does not suggest the fed is terribly adept at landing the plane gently. >> it's going to be the calm

before the storm. >> this is "bloomberg surveillance." jonathan: the band is back together and it's a beautiful thing. live from new york city this morning. good morning, good morning. tom keene and lisa abramowicz, i'm jonathan ferro. tom keene, the longest winning streak of the year so far. tom: we will talk football. we will talk jackson hole. but you are right, it's all about the equity markets. huge differences of opinion starting strong this hour. jonathan: there was a great quote on the program last week. the difference between a fair market rally and something more durable, hindsight, apparently. tom: i agree with that. i am watching the mumbo-jumbo going forward and i think a huge amount of that is how unloved this market was on june 16, june

17, and the easy money has been made. now what? jonathan: and this rally is hated in many places. lisa, she said get real. the risk reward remains unattractive. lisa: how much of this has to do with the fundamental earnings that were not terrible but have crossed the lowest fundamental outcome but not phenomenal and how much is this squarely about the federal reserve, p will piling into longer duration treasuries, yields coming down. easing conditions. completely antithetical to what the fed would like to see. driving a rally that is unsustainable on its face because the fed will push back and say no. jonathan: a tug-of-war over financial conditions, lisa, they go on to say that the fed is losing and we need to pull ahead to avoid conceding more ground. lisa: go ahead, tom.

tom: it's a huge deal. interrupt, lisa. the bloomberg financial index is really good math. this morning it sustains ever more accommodating. jonathan: you interrupt every five minutes, nothing original about that. tom: it's original. you can't go to jackson hole and be gloomy. you can go to the death canyon trail like every year, it's pretty hazardous. the trail is no small feat but the pro tip out there is not to pet the wild animals. if animals are going to be out there, look at the little bear. that's what she's going to do, ted the baby -- pet the baby griz. jonathan: are we going to have a family hike? tom: i think we should. [laughter] tom: bear grills on the set. jonathan: there is your promo. the future is down.

we should record it, sell pay-per-view, subscription. fight hike index. [laughter] if you are just to -- tuning in, the data out of china is ugly. crude, lower. copper, lower. lisa: i love it, that's the new martial art, trying to take a family hike with a bottle of tang. this will be an interesting week when it comes to retail sales on wednesday, softer in terms of some of the data but today we are looking at empire manufacturing of the month of august. it's usually the first initial read on what's coming on in the month of march. this after the earnings call after recording record profits. quarterly net income rose 90 percent to $48.4 billion. that's income as ap demand

continues to income for crude. because of what we are seeing with china, i keep wondering how much is this tightness in the oil market going to continue to drive prices higher or keep them where they are despite the lack of demand. we have the latest on the housing market index. how much does it start to stabilize as we see stabilization in decline? it really goes to the heart of the issue. mortgage rates are starting to come down even though the fed has backed away. how does it make sense? will it come off too soon as rent is rising beyond the pace the fed would like to see? jonathan: it's that tug-of-war. joining us now, let's get straight to it. david bianchi, your words, you think it is a bear market rally where we retest at lows later

this year. i need the why and what you should do this week. david: the huai is -- why is fairly simple. the economy is likely going to contract. the u.s. economy is the best show on the planet. our view is that unless you believe the s&p can be sustained at 20 or higher with the deceleration in earnings growth that we see ahead, no better than the inflation rate, it is not an attractive reward for the risk. there are things that investors can pick up here or there. our view is it might be a soft landing for the labor market, it's likely to be a she he year for gdp. risk assets are still quite at risk for a hard landing. lisa: what's your conviction considering that people are saying this but keeping their positions.

are you starting to sell riskier positions or are you staying where you are? david: we stuck with our position and we thought investors should keep cash at higher levels until we get past the awesome. -- autumn. you can go for many years without and then you get a few and i do think we get one more this year. from there i think the s&p can rally to 41 hundred, 4200 by the end of the year. but i am also still concerned that the longer-term outlook or the s&p is no better than inflationary type gains. tom: somewhat call it partition but i would take it to sector analysis wrapped around factor analysis and the fed wallet he that's winning right now. can you have a bowl market if only a little bit of the market goes up? david: well, you need tech to rally. tom: if i get it to rally into

2023, is that a bull market? i'm not sure it is. david: everyone would appreciate alternatives to the big tech names that have done so well. i am a macro minded investor. i like to find macro factors and i sector that into industry preferences. i would point out what i think is one of the most underappreciated macro plays out there, electric utilities. in a world where natural gas is an essential commodity and electrification of vehicles and where people want inflation protection with income dividends , utilities are the low hanging fruit in a risky macro market. jonathan: what's the correlation with rates? david: high but the reason it has done well is because 10 year have come off their highs from

earlier in the summer. so i'm not too worried about interest rates affecting utilities. however because of the sensitivity around technology stocks, i think that is still a relationship to monitor. jonathan: china is weak. europe is going into recession. everyone is on board with that theme. what does it mean for american markets? remember that conversation from 10 years ago? david: right, we are not supposed to use the word d couple but there has been a delinking between the u.s. and chinese economy and it's important to remember that this decade is very different from the past couple of decades past and while there are energy shortages and a risk of disruption around natural gas into europe, this is not a commodity boom from the demand-side. oil is already below $100 per barrel. i would pick your spots

carefully within commodities and pick your exposure to china very carefully. we like china tech for the long term at heart. jonathan: but david, that is brave. the regulatory call, you are not concerned about that? david: well, we are. as i said, for the long term and those who believe in peace and rational actors in china and the united states, tech here and tech abroad is very sensitive to rational policies. jonathan: takes a lot of faith right now, david. thank you. a trade for the brave at the end of that conversation. lisa: i love the way that he framed that. if you believe in peace, prosperity, democracy. how much are you looking at that kind of investing coming forward? even in terms of what the new normal will look like, replicating something akin to the old even in a place like the

united states. jonathan: the u.s. economy is in rough shape at the moment. tom: it's like a broken record on a monday morning, i believe that corporations will adapt. frankly. we haven't even addressed the massive legislation from the president. love it or hate it, whatever the politics is, in some form that's a fiscal stimulus. jonathan: we are drowning in a different kind of politics down in washington. tom: anne-marie is coming up in five or 10 minutes. jonathan: futures are down one quarter of 1%. we have taken out 50% of the correction of the year, the drawdown so far and we are getting a lot of pushback. [laughter] lisa: i [laughter] love the idea that hindsight is the only way that [laughter] -- i love the idea that hindsight is the only way to see that it's a bear market

jonathan:. future is down -- market. jonathan: future is down, the nasdaq is off. the yield is not giving me much, unchanged on the 10 year. from new york city this morning, coming up a bit later. up next, amh down in washington. this is bloomberg. >> keeping you up to date with first word news, i'm leigh-ann gerrans. democratic senator ed markey visiting taiwan, china saying they are fighting back by adding more patrols around the island. this after the trip from nancy pelosi, leading to unprecedented chinese military exercises. now there central bank has cut the interest rates and the people's bank of china is ramping up support after being hurt by covid lockdowns and a

property downturn with new data showing home prices falling in july and industrial output with retail sales greater than expected. members of congress putting pressure on the u.s. government to tell them what was in classified documents seized at the home of donald trump. intelligence committee leaders have made the request to the justice department and the director of national intelligence, asking for an assessment of potential risk caused by document mishandling. a wild shift when it turned out one out of every three homes plans to shrink their mortgage empire, wells fargo is no longer committed to ranking number one in the business after years of struggles over the banks reputation. global news 24 hours a day on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. i'm leigh-ann gerrans.

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>> merrick garland would not be

the president's lawyer, the vice president's lawyer. this is about the american people and doing what is right for the american people. the department of justice when it comes to law enforcement is independent. jonathan: that was the white house press secretary on abc over the weekend. good morning, alongside tom keene and lisa abramowicz, i'm jonathan ferro. off of the back of four weeks of gains, we have taken out 50% of the drawdown with 17% on the lows. it has been quite the run over the last month or so. yields are unchanged this morning and i will coming back to the commodities market this morning. it's pretty brutal. out of china, brent is down about 5%. wti crude is down. copper down by 2.5%. tom: we will cover that through the morning and through the week. retail sales are extremely

important this week. don't you agree that's the headline? jonathan: we have to look at x gas to get a feel for the underlying. tom: in the last hour with annmarie hordern, we mentioned department of justice and the uproar with the former president, but now i would like to take a different tack. what i saw in the zeitgeist this weekend, sleepy august, not as hot as the steamy july, discussions of civil war. give me the tone that you see in your reading and reporting of not a linkage of biden to lincoln but just this impending sense of where we are, maybe like the autumn of 1859. where are we right now in this nation with this percolation of a potential civil war? annmarie: i think you have to go to the friday bulletin that the

department of homeland security sent out to their teams. law enforcement around the country, saying they are seeing a spike in violent threats coming through social media and what you saw in cincinnati last week outside and fbi headquarters. -- an fbi headquarters. terms around militia and civil war. you can see it from the bulletin that the fbi and the department of homeland security is issuing to their department. the question is whether or not this continues to be an issue or starts to die down. tom: what is the power of the middle ground? i think we can talk about it in the democratic party, may be represented by the president. what is the power of more moderate gop? or have they just given up? annmarie: it's difficult, right? there's a big primary in wyoming

tomorrow. you have liz cheney, who the polls show is likely going to lose her seat to a very much president donald trump back contender. it's really a big divide within the republican party. you see that through a number of primaries we have seen amongst republicans around how far these candidates are willing to go in terms of showing guilty to the former president to get his backing and it is a kind of mixed bag and i think that tomorrow will be one of those highlights where you see a candidate who strongly supports the former president and questions many things, like the select committee that is trying to show his involvement in january 6. you have this division within the republican party and i think that what you are seeing in terms of what's going on in the search and seizure at mar-a-lago is they are struggling, right? as lisa mentioned, this is the party of law enforcement.

the party that wants to back and fund a law enforcement in a tricky and precarious moment as members of their party are talking about attacking and defunding individuals. lisa: amidst this soup, where you place international politics with representatives heading back to taiwan. not unheard of, nancy pelosi had been the highest ranking, but why is this in the mix right now as china says they are going to extend military drills? annmarie: analysts will call this virtue signaling back home, playing well into the politics ahead of election, talking tough on china. for the past year about 33 lawmakers that went to taiwan. you don't always hear about it, it doesn't always get the kind of coverage that we saw from

speaker pelosi with her ranking being third to the presidency and this trip is very much getting highlighted in the chinese rest because it is less than two weeks since speaker pelosi was there and we solve the blowback coming from beijing with sanctions on taiwan and live military drills that likely included firing ballistic missiles over the island, even into the japanese economic exclusion zone and today you have the chinese military talking about the people's liberation army preparing for war and they are now going to have more patrols given the delegation that's there. jonathan: what does taiwan think about this? annmarie: it's mixed. taiwan has two parties. the one that's in power is leaning towards the rhetoric of independence. the number of people in taiwan that really want to keep the status quo, they understand they are tiny compared to china and china is their biggest trading

partner and they don't want to see a war and what they would like to see is status quo. our reporter put it well a few weeks ago with speaker pelosi on the trip saying that the repercussions will not come to the united states, they will be faced by the people of taiwan. jonathan: just to build on that, this is not new but what is new is how china is responding, responding to the visits with much more aggression. lisa: it's surprising that we are not hearing more rhetoric about how concerning that is. how many articles have you read where china doesn't want a war, neither does the u.s.. there is still the talk of a summit. how do you place that over taiwan and the escalating military drills? jonathan: it's a complex piece.

the xi jinping reach exceeding grasp. tom: he's been more than vocal about it. australia has a unique position. rudd is a little different, he's got a real international weight and his jonathan: comment is important. jonathan:to be clear you are not speaking to the airline, qantas? lisa: no, he was speaking to the airline. tom: it's a species of kabbalah bear or an indian tribe. i'm not sure which. can we talk about menus when we come back? jonathan: of course. futures are down. this is bloomberg. ♪

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jonathan: this equity market rally is confronting a wall of doubt. morgan stanley saying get real. mike wilson of morgan stanley saying risk is attractive. four weeks of gains on the s&p 500, the longest week so far, taking out about 50% of the

drawdown in 2022 and i believe we are close to 17% of the lows or so. the message from the fed is we have more work to do and it looks like this. two year yield, 10 year yield, still negative, tom, by 40 basis points. tom: looking at the drawdown that you mentioned, looking at the draw up, the math is well-done. the dow doesn't do quite as well and the nasdaq from the bottom of june is up 22%. jonathan: you call it the media gloom, but it's the downside with the exception of mr. con of its. -- mr. jp morgan. tom: you know, there have been a couple of -- jonathan: it won't come until the beginning of 2023. tom: it was published moments ago, they made it clear that

this is a market for the bears, skeptics, and nervous. jonathan: that's a good way of putting it. i remember that and over the last couple of weeks we saw people getting the itch. the edge? price shapes sentiment, sentiment doesn't shape price. that's the bond market, not my line, tom. looking at something like this, we are down the downside surprise in china after data and before it came out there was the smallest of rate cuts. crude is lower, copper is lower. jonathan: that's london -- tom: that's london covered. what about chicago cover? jonathan: that's what we do. international. cross asset price action, single names. based out of london. [laughter] operating elsewhere. lisa: taking a look at the commodity complex, this is the story of the day with respect to

macro and micro. that rally and come back in the broad indexes, look under the hood. rio tinto, bhp crude, freeport mac moran, all down more than 20%. down 27% before today, even, since june 7. this has been driving this idea that peak inflation, perhaps if you have a fed put or call, you have an exotic put on the market and you can see it in the oil complex with major oil companies declining in the face of lower over oil -- lower oil prices today. a sense of those movers, exxon is down with chevron. between 8% to 14% since that time, giving you a sense of just how much you have seen things

come off a reverse for the first half of the year. how much is this driving sentiment and is this something that we haven't been able to predict to try to gauge out the price of oil? how much is that dictating the corporate mood in risk assets? jonathan: 5% down -- tom: 5% down in oil, credit suisse not gotten enough credit. they were forcefully optimistic and has done a great job in equities and fixed income, getting that post-pandemic rally right. leading the charge, the global head of fx strategy there, joining us now. part of the optimism is strong doubt. dollar gloom, not in order. >> for us the framework is the same as it has been for the past years since the fed made a hawkish tilt in june of last

year. what we are seeing at the moment is still clear u.s. outperformance when it comes to the likelihood of session risk but the truth is problems seem more gloomy in europe. how many other central banks do you know that are affecting rates? jonathan: is your -- tom: is your dollar resiliency about capital flow or interest rate differentials? >> it's a two coins side that is dollar favorable. it does bring money into the u.s. but we like it in terms of trade perspective as well. the high energy prices that are coming off now, they have done tremendous damage to the trade balances of many countries.

japan, korea, the european union overall, and it has caused a lot of damage in terms of trade it it is something that gets overlooked sometimes in terms of recession risk and where interest rates are. there are two prongs to it and for now that's not likely to change. if oil prices keep coming off, we might see that as a sign of change but if the reason they are coming off is a week demand globally, that is going to help the likes of china or the euro in the currency space. jonathan: you have got a target of 6.95 and do you feel better about that trade this morning? shahab: definitely. we thought there might be a kind of short-term correction once the heat died down a little bit around geopolitical risk over the past week. but clearly the economic data that remains is even weaker than

we expected to be honest, surprising most economists out there. the call for us still seems appropriate and as i mentioned, that was leased above all on a divergent story with all of the focus that we have had on u.s. recession risk the market may have taken their eye off the ball a little bit with what's going on in the rest of the world. jonathan: what is the character of this downturn in china and does it go beyond the covid zero policy we have spoken so much about? shahab: i think it does in that clearly it is a big part of it but once you look under the hood there is a sense that certain sectors are in trouble for different reasons. the property sector, there is an element of covid but there are other issues to deal with over leverage and once you create a

problem like china has with a weak growth dynamic in effect it's difficult to get out of it. you can see that in the numbers around the credit growth that we had on friday. it was weak. once the credit multiplier turns off it's difficult to reactivate it, that's what we are finding. i think that is where the chinese are right now. adding on top of that the ever present geopolitical risk story, seeming to be something that isn't going away anytime soon, it obviously also casts a shadow over the future, to. there are many different issues in play. lisa: amid all the gloom, why is it that the carry trade continues to do so well and will do that for the remainder of the year. will it become something more painful? shahab: i think areas of the market already in deep pain.

sri lanka already in the headlines and not in a positive way. countries like pakistan, kenya, they have already been suffering. the list of carry trade that you mentioned is definitely there. the larger economies have benefited from trade perspectives. the likes of brazil with high interest rates, the central bank trying to take control over inflation, but actually they are few and far between, the number of markets that have benefited from this flow. looking at the likes of brazil, mexico, south africa. i wouldn't say that the wider emerging-market space is doing particularly well. it's more of a benefit to inflow. it's a selective carrot that we are talking about here. jonathan: bringing it back to china, how should i respond to what they did with rates?

is the signal that the first play is more to come? shahab: the chinese tend to move in small increments when it comes to interest rate moves. you tend not to see them like we see in europe in the u.s., it really is the direction of travel more than the fact that they are here. particularly in a world where everyone else is leading high rates aggressively. for me that's the key take away and it keeps the divergent in play and that's the most relevant as far as it goes. jonathan: shahab jalinoos of credit suisse, quite a call. tom: i was thinking about that, seven you on -- yuan is really something but i'm not sure how manage that is. i go back and forth. jonathan: currency moves, that's

something you pay attention to. tom: yeah. it's been an evolution. get the chart up on u.s. dcny, it's been an evolution to deal with it. i go back to the front center thing, everyone else has dealt with covid. some good, some bad. we all have our stories, but china just stands out as getting it wrong. jonathan: i'm with you in the focus on covid zero but there is more than that going on. massive demographic issues and real real estate problems that won't be solved by covid zero. lisa: and there is this lack of willingness to throw support high leverage. the basis point move is tepid. there might be more to come but it does not signal a roaring all in like 2017. jonathan: one man who is awesome

on all of this, chief economist from the milken institute. we will be catching up with him at 8:30. futures down half of 1%. yields are not doing much. off the back of that, terrible data in china. $87 per barrel. from new york, this is bloomberg. ♪ leigh-ann: keeping you up to date with news from around the world, i'm leigh-ann gerrans. china has added military patrols after another u.s. congressional delegation visited taiwan. the visit comes less than two weeks after the one by nancy pelosi that set off an unprecedented wave of chinese military drills around taiwan. now the russian president, vladimir putin, offering to expand relations with north

korea, congratulating the kim jong-un regime for their holiday . north korea has been stockpiling pillory for decades leading analyst to speculate that they could pre-providing weapons for the russian war in ukraine. minutes for the last meeting a federal reserve policy makers may review of the inclination around rate hikes for financial markets that swing between 50 and 75 basis points. the latest jobs reports boosted the odds while cpi reports increase them. minutes released on wednesday. saudi aramco has the biggest focus on any listed company around those following oil rivals and high crude prices with net income rising in the second quarter, double what it was a year earlier. tributes are pouring in for the former co-ceo of deutsche bank. their death was announced on saturday after a five-year

battle with cancer. he transformed deutsche bank into a global trading powerhouse. he was 59. global news 24 hours per day on air and on quicktake. this is bloomberg. ♪

>> we debate how much china has held down u.s. inflation but it has been significant as supply chains are disrupted by china and other developments around the world moving from offshore to onshore, good luck in getting inflation down. jonathan: from exporting inflation to exporting deflation or vice versa, stephen roach there on the latest. futures are down half of 1%. yields are not changed and crude

takes another leg lower. guy's, down by 5% now. 8732. tom: and for brent the dip under 90 would be a huge deal. jonathan: a big turnaround on copper and gold. tom: that's right and i would note that gold is off $25, back again under 1800. jonathan: what do you make of that, tom? tom: china. china. it's like omg. china. let me ask the question, was this a surprise? >> it was because july was meant to be the month of recovery. china with the big lockdowns and the second quarter with growth back on track and getting momentum going.

retail sales coming in weaker than expected, investments softer than expected, private sector lower than higher quarter . a big surprise on the export story with more. data points on real estate with new home prices, it's all run together and has forced central banks to adjust to the key interest rate for the first time since january. that move by itself turning out to not get game changer. it's not the price of money but the fact that nobody wants to borrow. it does speak to the idea that the chinese economy is growing much faster than expected. marking the beginning of a turnaround. lisa: how do you read the rate cut? i read one analyst who said that it is about how dire it is, that they don't want to fan the flames of inflation even though

it isn't as significant or severe over there but others say that it indicates they are just prepared to do so much more going forward. which side are you on? >> i think it comes down to the latter, lisa. despite everything that's happening it's there is no shortage of liquidity in the system. a drain on the money markets today and no shortage of loans available for banks and companies. the issue is that they don't want to borrow. what it symbolizes is that they are starting to call whatever they have available to them on the potential bank side, it's about what they can do in the money market to bring interest money off the interest rate borrowers. the big focus now is where was it from. will it come to covid zero? the health dividend, there won't

be a u-turn on that. what's going to happen on the real estate side of things. will it come in there on the unfinished property projects? i guess the money is flowing into that part of the economy. a lot said today that the july numbers were so weak that they are changing their view from the rest of the year beyond what was expected in the back half is already weaker. lisa: what about the social aspects? one in five members of the chinese society out of work. how significant is this for the people of congress heading into the meeting later this year? enda: obviously it's all important. nothing is more important for the incumbent party mandate and the social contract of economic uplift and jobs for everybody. so, when you have these young people facing long-term

structural challenges for the economy and potential long-term damage in the economy, it's not helped. it certainly is a bit of a crunch. china is not an outlier in the youth unemployment globally because of the pandemic, it's still higher than it was before pandemic. nonetheless, certainly mission-critical for the party is creating jobs at this time of year and i wouldn't be surprised if you see more of a focus on job creation now. jonathan: i want to go back to it, the central data from this morning, the finance response, the data coming out of china on friday, is this a liquidity trap? enda: it does go back to the money markets. they actually took money out and

that was lost in all the news. the problems are either more structurally linked to the covid europe policy and how do they back out of what they are seeing or are there long-term structural real estate stories? are they willing to tolerate more debt? and then your question, what happened to the whole inception story about china transitioning in their economy? consumers are clearly nowhere to be seen in the recovery. a lot of people are now saying that there is a risk of liquidity trap that we are seeing with the lack of credit data and many think that the second half of the year will be him. unless there is a major pivot by the authorities. jonathan: awesome as always, enda, great coverage from you and a team there out of hong kong. credit data out of china, that's

the bright flashing light for me . our most important signal. tom: i agree. the real estate up and down there has been there for well over a decade. the outlets that people have for investment within china have moved around to things, real estate and more real estate. that's how they got into this mess. we play up the abandoned cities and skyscrapers but the fact is that it's a mess. it doesn't obscure the fact that they have a medical strategy, if you will, that clearly hasn't worked. how alone are they and their cut -- there covid policy, now? even japan is trying to open up. jonathan: we call it the prospect of balance sheet. tom: answers will grill their way out. employing people through exports. -- grow their way out. x -- employing people through

exports. lisa: this has been the problem, how do you do it when you curtail growth and are not necessarily seeing a smooth run given the overhang of the mortgage market and everything there and perhaps what you see is a rockier end? what are the implications for global growth? sub three, can you imagine? right now it's looking potentially more like you have to game it out. jonathan: commodities down 5% on wti crude. coming up shortly, lisa hornby of schroders. just around the corner, equity is down .6%. from new york this monday morning, good morning to you. this is bloomberg. ♪

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>> i think the market is reacting to the positive sign that we have probably seen the pecan inflation. >> the -- the peak in inflation.

>> the key is to focus on 2 things -- valuation and earnings power. >> everything we are seeing is a return to economic volatility that used to be the norm. >> this is bloomberg surveillance with tom keene, jonathan ferro, and lisa abramowicz. tom: thank you for being with us on a. monday we recalibrate -- think you for being with us on a monday. we recalibrate. jonathan: weaker data out of china. a central bank response, a cut of 10 basis points. what can they do about it and are they confronting a liquidity trap right now? tom: the call of the year --

the wto calling for sub 3% growth. you have to believe in august, we are there. jonathan: directionally things have improved. we had a downside surprise on cpi. good news for this market was good news. 4 weeks of gains on the s&p 500. tom: the makeup of the earnings reports has been quite good. i like what julian emanuel has done. it has been a surprise. jonathan: you mentioned evercore. the fed watches over evercore. it is a tug-of-war over this fed, this market, and financial conditions. financial conditions have gone easier over the last few months. tom: let's go into that. help me here with financial conditions. the financial conditions went from 1 standard deviation to a

much better 2. lisa: it is easy. yes, you are seeing that across-the-board. how much do you say " this is full hardy," and how much do you say " this is a bear market"? in addition to the weaker than expected inflation data, the rolloff we have seen in commodities --how much pressure does not take off gains? you asked tom earlier why art stocks down more on this chinese data? at what point does it reduce demand from the commodity complex, which relieves some of the tension for u.s. companies? tom: 100% of our viewers think texts -- oil. why exactly is that a bad thing? chicago copper, 3.56, down

3%. jonathan: it is driven by weaker demand, and not weaker supply. this white house wants to see this carry-on. euro-dollar 1.02. futures are softer but i am with both of you. tom: the big 21 point0 -- 21.07. lisa hornby joins us, head of multisector fixed income at schroeder's. i want to go to a general sentence buried in your report -- the value was therefore a decade in bales and bonds. why is price cheap in fixed

income? lisa: i wrote that 4 or five weeks ago. when we look at bails there is better value than there has been in the last decade. in our view, the first6, 7 -- the first 6, 7 months of this year have been painful. jonathan: spreads have tightened aggressively. you have seen that. we are threatening to break 400. can you dissect that the rally for us? what has happened here? lisa: it is a few things. the main one for us, actually is

that people have a bit more certainty in the volatility scenario and what i mean by that is you run back 3 or 4 months ago, people did not know where the terminal rate belonged. there were lots of expectations out there, lots of various scenarios, and that led to extraordinarily high rates of volatility, and the subsequent impact on volatility. what i think happened was, not only did sentiment get so poor, but what happened was the said was perceived to do a slight pit it. they are willing to slow the -- pivot. they are willing to slow the rate down. people are comforted that the terminal rate is not 5% or 6%.

lisa a.: is not going to reverse some of the spread tightening we have seen -- is that going to reverse some of the spread tightening we have seen? lisa h.: i think so. it is positive for risk assets. we look at that credit suisse panic you for a -- panic index. it is back in positive territory. there was a massive swing in sentiment. coupled with the perception that the fed became more dovish led to the rally we have seen. i do not think that the outcome that the market has painted, the yield curve is inverted leads to a recession. it is basically the fed.

i think about is a fairly unlikely scenario, unless there is a big downturn. lisa h.: are -- lisa a.: our bond markets trading around -- are bond markets trading around in the oil market that is in flux? lisa h.: i think that is one part of it. oil came off, and we saw a big drop down in headline cpi. to us that is a bit more concerning. yes, there was may be a little bit of moderation, but the sticky core of inflation is still running 6%. that is the real challenge. you got to get core inflation

down to a more reasonable level. jonathan: listening to that, sounds like you think -- lisa h.: i think it is too early to be discounting fed cuts. i think it is too early to be discounting the fed has pivoted. i do not think that has done yet. i think they moderate their t case. -- moderate their pace. i do not think we are getting there, but the market is pricing in this very specific outcome where we head into a very moderate or mild reception. the fed is able to stop hiking and start putting. that seems historically unlikely. they do not stop cutting unless

unemployment is much higher than where we are today. i think the market is getting a little too excited. jonathan: a bedtime story to help the equity market follow sleep at night, that is what that is right now. lisa abramowicz, this -- deutsche bank had a great piece on this heading into the weekend. may be that is what we have seen. i think you can equate peak year-over-year inflation with -- will inflation remained sticky into year-end or not? that will reintroduce this debate on whether we can really price out terminal pricing./ lisa: some of the wage

increases we continue to see should be a good thing but, perhaps a stickier inflation rate going forward. jonathan: great cuts seems to be the take away. what are you seeing in fx? tom: what i am seeing is a search for joy. we had job joy, we had cpi joy, and to rear form -- and we just need to find the next economic joy. what i see is a real sense of risk out there, witnessed by euro swiss. it is back to 2015. we are getting there on euro swissie. jonathan: i cannot decide whether that is depressing or not. lisa: like someone who has not

taken in our vacation time. jonathan: we can arrange that. tom: i'm not taking time off! i don't have a life! jonathan: how american of you. on radio -- heard on radio,, seen on tv, this is bloomberg surveillance. >> with the first word news i'm leigh-ann gerrans. another u.s. congressional delegation, this one led by ed markey is visiting taiwan. china says it is fighting back by adding more patrols around the island. this visit comes two weeks after the one by nancy pelosi. in china this central bank unexpectedly cut its key interest rates. the economy is being hurt by covid lockdowns.

industrial output and retail sales were weaker than expected. members of congress are putting pressure on the u.s. government to tell them what was in classified documents seized at former president trump's home. a bipartisan request has been made to the director of national intelligence. they ask for an assessment of potential risk caused by the documents' mishandling. i ran's foreign -- iran's foreign minister says there could be deal a there could be a deal in the next few days -- iran's foreign minister says there could be a deal in the next few days. after years trying to avoid costly probes.

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power tools index analysisand -- and index analysis to grow your practice and make better use of your valuable time. the difference is bloomberg law. >> this year we will be lucky to see 2% to 3% growth in the chinese economy.

well there be a course correction on the economy are not -- will there be a course correction on the economy or not? jonathan: risk off! the former prime minister of australia. said with so much hate! the nasdaq 100 down. i have been terrible the last few months. deal this down 2 basis points. a bit defensive out there. data out of china ugly. tom: the nuance here is important the defensive part is in commodities. jonathan: -- tom: i am watching sterling 120. 86, which bears watching.it

may be idiosyncratic to say the least. senior fellow at brookings, definitive on presidential history and the decades. i want to go to one of your colleagues who has written a timely piece on which you are an expert. whatever our politics, are we ready finally for a third party? >> my dear colleague bill posed an interesting question, but i think he also answered that question. we are not ready for a third party. third parties do not succeed in american politics because of the basic structure of american politics. we have winner take all systems picking up a couple seats here or there, coming in second, coming in third like you would in a parliamentary system gets

you nothing. the real effect of third parties historically is to detract from one party or the other, and historically third-party movements have been incorporated into one of the major parties. that is it. it will not work. it has never worked. jonathan: -- tom: you are an expert on the sprawl of our history. here is someone who can actually tell you what happened in the 4 years before grover cleveland's effort. has it ever been this divisive in the country? elaine: we had a civil war. it does not get more divisive. we are in a period of extraordinary divisiveness. it even has aspects of violence around it, which is frightening, but we have been through these periods before and survived, and

hopefully we are not headed to a civil war. lisa: you have three different prongs right now dominating the headlines. you have on one hand gas prices going below four dollars and the inflationary environment cooling just a tad. you have the social issues with the abortion ruling and the latest bombshells around trump and the papers confiscated from mar-a-lago. what are you watching most closely or what could impact most significantly the midterm elections? elaine: the most important thing i am watching is the intensity of the people who are appalled by the supreme court abortion decision. we signed early indication of that in kansas where, on a referendum, there was presidential level turnout, and a 20 point victory for the pro-choice side. there is a lot of pent-up anger

about this, and we will see it as these midterms rollout. the economy was already baked in. if you were a republican, you thought this economy was terrible. if you were a democrat you thought it was bad, but did not think it was joe biden's fault. trump supporters love donald trump no matter what he does, taking state secrets home, they will make an excuse for it. the new factories the abortion decision. i think it is going to have a lot more energy for the democrats than we ever thought. lisa: work that forward, moving towards the midterm elections, how do you think that will shape the outcome in a way that is unexpected? elaine: i think it will help the democrats keep the senate. the combination of the abortion

decision and the republican choice of sound less and great candidate -- some less than great candidates. the two i am thinking of is dr. oz and marshall walker. the combination of the energy around abortion and some poor choices probably work well for democrats keeping the senate. i think the democrat will still lose in the house, but i do not think it will be a tsunami, i do not think it will be a 63 vote margin in the house. i think it will be a narrower margin. jonathan: i appreciate your perspective. elaine kamarck there. tom: is that a bad thing? jonathan: i think it is a good

thing for this white house. tom: i agree. i got to be careful here, because while you were gone on your one-day holiday that turned into a week, the level of gloom i have never seen. from strategists, guests. jonathan: was there tension? tom: there was tension! of course we didn't. can you explain manchester united? translate this for the american audience. here is this venerable firm. i have never seen the essays on man u. jonathan: it is about the ownership of the club. the players are not performing

and they have a really tough game against liverpool. that could be 3 losses. jonathan: this equivalent to the yankees being in last place? tom: the blazers is focus is. we can call it a company because this one has been loaded up with debt. it spend a lot of money on players. jonathan: -- tom: is man u and liverpool a darby? jonathan: it is not a local darby. anyway, futures are down.

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jonathan: a little bit of economic data in america around the corner. good morning to you. futures are negative. a we are down a third of 1%. that is an ugly number. >> we don't normally give the empire index, a lot of screen

time but it has collapsed. at this is the first major manufacturing indicator that comes out and it is down to 31 .3. that is a collapse of 42 points it fell. only 12% of respondents indicated the conditions improved during the month. shipments fell 49 points. even employment fell, still positive at 7.4, but that is a very low number. prices fell, but this is the second largest drop in the empire index in its history, right behind what happened when the pandemic broke out in april 2020. kind of a tertiary index, but it is a very interesting drop. jonathan: the bond market heard

you, mike -- equities are doing ok still, but certainly a reaction in the bond market to some of this. mike, the regional fed manufacturing readings have been rough for a time now but the last couple of months, how do those stacked up against other data points? michael: the isn numbers have remained in positive territory. it suggests manufacturing overall is slowing down. even the ism numbers have come down some. we get philly fed later in the week and that will garner a lot of interest. lisa: how much of this is being distorted by the inventory build, the fact that a lot of

companies and retailers have needed to hold onto more to avoid the kind of disruption we saw immediately after the pandemic started. michael: it is hard to put it on the inventories, so it is not the centerpiece of what has been happening with inventories. inventories are not come down. still some bad news there that will have to be worked through. jonathan: yields are lower, that is for sure. we are down about 5 basis points to 278. ugly -- no other way of putting it. tom: making even more important the retail dado we will see later. my key is that it is a tertiary piece, but the

magnitude of that move is jaw-dropping. right now we are ripping up the script. we can do that with the william lee. we will talk with him about the empire statistics. let's take advantage of his encyclopedic knowledge of the pacific rim and china. dr. lee has worked at the international monetary fund. bill lee, i wanted to go to the console on foreign relations -- console on foreign relations. how does beijing and their leader in beijing, how does he look within giving the grim data of the day? dr. lee: it is called a circulation strategy. you want to have the domestic

economy become the main focus for china. so much has collapsed within china that they domestic economy is nowhere to be found especially in the private sector where the only stored wealth at the middle class had has completely collapsed. they had a year of declining realty prices, so the rest of the world has collapsed. export numbers are nowhere to be found. china has nothing to hold onto. tom: how does xi prosecute logistics to shanghai or chengdu? how does china get the message out? dr. lee: bright know there is a tension between the central government and the municipal governments. right now the only place for revival is to have municipal governments do infrastructure

building and started pumping out fiscal policy. every municipality is so indebted, they cannot do it so the only thing xi jinping has to say face is to have some prayer of saying " we will have a revival in the second half of the year." these numbers today have put that to rest. there is no chance of that. speaker pelosi has slapped him in the face. it will be something very hard for him to recover from. jonathan: are you describing a balance sheet recession in china? dr. lee: for sure in the private sector. the only source of savings for the household has been real estate. with the collapse of the real estate market and huge youth unemployment, it is very hard for households to have a positive outlook for the future and start buying things like consumer and durables.

it is -- jonathan: that makes monetary policy impotent, doesn't it? where does that leave the global economy? dr. lee: the only place monetary policy can have a play here would be regulatory policy. they would have to ignore all the holes in the real estate sector and say, " go ahead and build!" china is not going to do that, because the regulatory sector, the real estate sector is in such bad state. lisa: what are we looking at in terms of gdp growth or china? dr. lee: i here to handles going into the rest of the year. china has to have 7% or 8% for the rest of the year. lisa: has the rest of the world economy factored that in, the likelihood that you could see a two handle for chinese gdp

growth? i think -- dr. lee: i think that has gotten out. they cannot publish it because they would be banned from china, but the notion is among the investors of the world -- i think there will be more work to be done for china to regain its investor status. lisa: what about asset pricing globally?

empire index. how much are we looking at a global recession, pitting off china? dr. lee: that is the one sector most affected by globalization. we would expect any kind of slow down in china that affects the global supply chain to kill the manufacturing sector before anything else. that is not so surprising. what will be difficult is how the rest of the global economy will adapt its supply chains in a way that takes china out of the picture. jonathan: you said something moments ago -- i will paraphrase -- that certain things cannot publish things because they will be thrown out of the country. if things start to deteriorate more, bill where i look for reliable -- bill, where do i look for reliable data? dr. lee: my colleagues are restrained. i am lucky to be at milton, where i am not constrained. it will be hard to find intelligence out of china outside of private sources. jonathan: that is tough. these dynamics, these issues we

are talking about are things we typically associate with a balance sheet recession, which is what bill was talking about. tom: it can be a balance sheet recession. you see the lack of clarity on data as well. i am in the camp that it is more than an economic analysis. it is a unique time. i did see that 3 of us traveling shanghai in november. jonathan: will we be able to talk about what is happening in that economy? bill lee does not expect to get real insight from his colleagues. tom: that has been known for years. jonathan: how problematic is that? tom: i think that dr. lee is speaking the reality that is unspoken.

i personally experienced it numerous times in china. lisa: there is a larger question though. our economists looking at u.s. -- are economists looking at the u.s. factoring in a 2-something gdp for china? because -- that i think is a bigger question for markets. jonathan: manufacturing is brutal. off the bark of it, features are still lower -- back of it, features are still lower. negative for basis points on the 10 year. lower on the front end of the curve as well. coming up, looking forward to getting the seat back from bramo '.

victoria from? is going to -- victoria fernandez from? will join us -- victoria fernandez from cross mark will join us. >> keeping you up-to-date with news from around the world, i'm leigh-ann gerrans. china has added military patrols around taiwan after another u.s. congressional delegation visited. beijing said it was fighting back against the delegation led by ed markey. the visit from nancy pelosi set off an unprecedented level of chinese military drills around taiwan.

they have sent a -- north korea has been stockpiling artillery for decades. that has led some analysts to speculate that they might provide weapons to russia. mother's updated -- moderna's updated booster targets a new covid variant. i generatest a good responsys against the latest variant. aramco followed other big oil rivals, showing -- global news 24 hours a day on air and on bloomberg quicktake powered by more than 2700 journalists and analysts,, i'm

leigh-ann gerrans this is bloomberg. ♪

>> what i think the market wants to see here is it wants to see 2 things. it once to see the inflation genie going back into the bottle. it wants to say some deterioration in the market. tom: the inflation genie is back in the bottle because of oil. oil is plunging well below four dollars. lisa, that gets your attention. lisa: especially after the chinese data with the bi -- with

bill lee of the milken institute just coming on. it is -- tom: let's parachute in at a perfect time, analyst at bloomberg intelligence running all of our equity coverage. the last 10 days i have been shocked by the amount of gloom in every interview i have read. is sentiment is still gloomy? >> it is difficult to measure. one of the things that has surprised the consensus all year this year is the degree to which the investor is willing to persistently invest. it flows into the equity market has been significantly stronger than many have expected. one of the indicators you find

usually as the market is following, flows are negative, and that is a confirmation of very negative sentiment. we have missed a this entire cycle. we have learned some lessons from the last cycles, where the investor has taken money out at the exact wrong time, struggled to get back in, and really miss timed it. tom: i want to move away from sector analysis and bull and bear analysis to factor analysis. we have factors out there that will allow a part of the market to be only like even if the rest of the market is there -- bear-y like? gina: value stocks, the long end

of value relative to the short end of value has outperformed tremendously. quality is closely linked to low value. quality stocks tend to be the -- that reflects a new inflation outlook and rising interest rates. what is attractive to us is still momentum. momentum stocks are doing well relative to other families. it is very messy as we contend with this environment of peaking inflation. lisa: so many people are looking at the fed and saying it all depends on what will happen with interest rates. the gains we have seen are off the heels of this ratcheted expectation for how high yields

can go. how much can we attribute that to the rally? gina: i think it is entirely due to interest rates frankly. even though profits are somewhat resilient long-term, this is a group showing the greatest negative estimate revision in the s&p 500. those that are more communications focused, though stocks are producing the greatest negative estimate revision in the s&p 500. at the same time, they are we inflating the entire of the market in favor. of these groups is related to the outlook for interest rates, and some pullback in expectation. when we looked at this back in june, the stocks were inordinately cheap relative to their long-term average. they are now somewhat expensive, trading on a handle.

this is a group that is somewhat expensive. if the fed does move to the degree that the market is anticipating, we would expect this to trade somewhere close to 15 times forward earnings. that is a far cry from where we are right now. that would probably create some downside pressure. lisa: what is the next pivot point? gina: the next pivot point is the next fed meeting. people are expecting somewhere between 50 and 75 basis points over the next meeting. there are a lot of folks who think the fed will not hike pre-midterm election. there are a lot of folks counting on economic data deteriorating following labor day, and that causes a pause for the fed.

will that actually happen is a huge question mark. the fed appears to be getting frustrated with the amount the market has traded since the last fed meeting. they have very strong -- the fed is guiding us to inspect them themselves. tom: i have 30 seconds on a monday , no one is watching. why is q3 any different? gina: the biggest difference going into q3 is a lot of that resilience was due to the commodities ace. we have seen commodity prices pullback tremendously. there has been a lot of rotation out of the commodity trade and

price capitulation income entities -- in commodities. we have a lot of inflation volatility to contend with in the second half as well. tom: lisa, down five dollars on oil a barrel. will we get under $3 for a gallon of gas? lisa: this administration they expects oil prices to -- this administration expects oil prices decline. tom:21 -- what an interesting monday, setting us up for retail sales on wednesday. stay with us. this is bloomberg. ♪ >> welcome back to a special western and southern update from bloomberg tv and radio from tennis channel. i'm jeannie mejia. the stars of the wta tour head

to the final stop on the way to new york. just 2 wins needed to secure the number one ranking for the open, but they 21-year-old could potentially run into nick curios in the quarters. rafael the doll returns for the first time since wimbledon. on the women's side, look no further than the first round clash between serena williams and emma raducanu. the winner recently announced she will retire from tennis after the final major of the year. i'm jeannie mejia. -- i'm jaime maggio.

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>> equity futures are lower. the countdown to the open starts right now. >> everything you need to get started for the opening of u.s. trading. this is the u.s. open with jonathan ferro. ♪ jonathan: live from new york. we start with these big issues, 50% out of a bear market hold. >> the market is a little optimistic. >> it is