>> it is demand driven inflation we are dealing with and that is something the fed can handle. >> the market is pricing in a specific outcome where we head into a mild or moderate recession. >> it may be a soft landing for the labor market. >> there is a lot of talk about recession rest but the problem seems much more gloomy in europe. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. jonathan: looking you had retail earnings in america. this is bloomberg surveillance on tv and radio.

futures down about .1%. walmart and home depot coming right up. tom: home depot is incredibly important. joe feldman reaffirmed a stunning call of strength at home depot with margin expansion. that is the kind of optimism that speaks to a resilient market. the equity market performance yesterday was critical. lisa: in the face of week -- jonathan: in the face of week data we squeeze out a day of gains. lisa: home depot reporting sales that beat expectations, $43.9 billion, and earnings-per-share beating on the headline figure. how much does this climb to push away the fear of a worst-case scenario, especially in the

housing industry that has been beaten up so much? how much does this give faith you can get resurgence in consumer spending with lower gasoline prices? jonathan: the big headline is reaffirming the outlook. we have seen retailer after retailer struggle to do just that. that is what we have seen home depot do this morning. tom: the numbers are up and the first thing i saw is comp sales 5.8% versus 4.6%. these are good numbers. it'll be interesting to see if the market reacts to this. i do not see it now. jonathan: wal-mart the big one later this morning. we will get that in about 60 minutes. walmart coming out and again cutting the outlook. we have seen that how may times from target? that seems to be the theme for retailers. tom: these are not equivalent. to help continental europe home depot is run like a switch --

like a swiss watch and walmart is run like liverpool. jonathan: is that your take this morning? i think lisa might have a deeper dive on the numbers. lisa: customer transactions were down by about 3%. companies are able to raise prices and sell more on a volume basis, on a dollar basis because of inflation so they see that pop in earnings. overall transactions are not climbing. this is classic stagflationary earnings where stocks could be the haven play. here is your bullish tilt. on the bearish side this does not scream incredible growth. jonathan: do not get too bullish too quickly. we are two minutes in. everything is relative. in 57 minutes we will get numbers from walmart. i will break down the market. down .2% on the s&p. on the nasdaq down .2%.

no real drama this morning. a summer tuesday. yields up about one basis point on the 10 year, 2.7987. crude $88.82. down .7%. jonathan: let's get -- lisa: we get earnings from walmart after the home depot report that did beat expectations. home depot shares are down 24% so far year to date. walmart shares down 8.4%. how much can they push back against the bloom and say we are doing just fine, we are re-assessing our biggest -- our business model in light of the shifts we are seeing demographically. at 8:30 we get july housing starts and building permits after the homebuilder sentiment index was just brutal as a lot of home builders are looking at higher mortgage costs as well as plateauing valuations.

how much do you see that bleed into a slowing of how many houses begin to be built? at 9:00, this is the read on the auto sector. how much do we get working through the supply chain, especially after you saw the empire manufacturing survey yesterday, really shocking. this is one that tracks the ism data closely and we saw a massive collapse in terms of confidence with what to expect going forward. how much does that bleed into the other industry sectors that have seen improvement? jonathan: it is shopping. payrolls everything is great, cpi soft, the fed needs to do less, than empire yesterday and everyone is confused and struggling with the idea of where we are in this economy. lisa: and then you get home depot reporting better-than-expected earnings and earnings in general better than people thought. you do not see the same sort of

margin compression people have been expecting. jonathan: that is the job of the head of u.s. macro strategy at m usc. what is going on in this economy? payrolls is one thing, empire manufacturing and other, what is the story? >> i think we are still reeling from the unevenness of the opening, the supply chain disruption, and the pandemic. you have that plus the stimulus and a lot of these crosscurrents which are sending the signal. these high-frequency indicators have been clear we are slowing down. we have dismissed the technical session in the first half. on a go forward basis we are seeing parts of the economy very sensitive to interest rates reacting quickly. tom: what you make of the fact financial conditions continue to stay easy? the bloomberg's financial

conditions index confounds the bloom crew -- the gloom crew. what does that signal? george: this makes the job of the fed much more difficult. the markets have taken the pipit up to the high point of monetary policy and are really thinking like just like they priced in hikes they will finesse the fed into easing in the next couple of quarters. what we are finding out is this will be a bear market rally. tremendous moves. we do not want to read too much into financial conditions, but if they do not ease, the fed's job is much more difficult. the fed is most likely hiking, at least 50. i think the risk of 75 is still there. it is still early days.

i think the fed will lean against it. lisa: on the flipside, you see commodity prices rolling over yet again today in the face of weakness in china. i go to alan ruskin at deutsche bank. they have been coming up on the side of a hard landing and he said the more optimistic soft landing scenario has been given a semblance of a chance, even if they continue to reaffirm their hard landing story for 2023. do you think this is a commodity story that is giving breathing room to the fed and to markets? george: the distribution of outcomes has improved for sure. it is giving people hope -- i think the probabilities have increased for a soft landing. i do not think it is the base case. i they we are seeing some sort of recession-like environment and the year ahead. i think it is too early to make

that call. jonathan: it is the weakness abroad that gets our attention. in china the data was terrible. europe wishes commodity prices were coming down. gas is going the other way. can europe avoid a recession, can china avoid a severe growth slow down, and where does that leave the theory the u.s. can engineer a soft landing? george: it will be challenging to have all the stars aligned in the way all of these major regional blocks can muster a soft landing, let alone growth. we still have massive savings, but the consumer is suffering. if you look at the overall consumer trends in the clear bifurcation happening at home. i think you will have a u.s. economy that has two speeds. jonathan: awesome to catch up. george can call this of mufg.

prices 10 times higher than the seasonal average of the last five years. the team at bloomberg breaking the numbers down. unreal stuff. tom: the demarcation will be emphasized by strategists. i thought the jp morgan note was incredibly nuanced, pointing out how europe is discrete and separate as he talks enthusiastically about many other geographies. jonathan: we feel the uptake in risk appetite is justified -- tom: the note was very carefully written. global inflation, not u.s., coming down. the keyword is rapidly. if we get an inflation dynamic, all bets are off. jonathan: at some point that clock will be right for the team over at j.p. morgan.

lisa: you can say the same thing about me. at the same time this is somebody who has been bullish no matter what, so to take this view is a good way to get a read on sentiment in terms of what flavor the optimism has come in right now the flavor has commodity disinflation all over it. jonathan: let me give you the flavor of the morning. futures down .2%. investor confidence in germany down. real wage data is plunging. capital economics on europe and germany, a recession is unavoidable. that is the take away. we need clarification from you. on twitter -- can tom keene clarify whether walmart being run like liverpool is a decor praise. -- is a dig or praise? tom: there is ambiguity there. after the sportsmanship we saw from liverpool, all bets are off. jonathan: you call it

sportsmanship, that red card? tom: what will happen to that guy? jonathan: it will be suspended for a couple games. tom: it will not be out for half a season? jonathan: we still do not clarification whatsoever. tom: they are not nottingham forest. jonathan: was it a dig or praise? anastasia and rosa -- anastasia amoroso. from new york city, a beautiful one. this is bloomberg. leigh-ann: iran is signaling it may be closer to a deal with the u.s. that could restore iranian oil exports to global markets. iran has told the european union 's response to the proposal for reviving the 2015 nuclear accord. the government expects to hear back from negotiators in the next two days.

the next prime minister of singapore is signaling the wealthy may have to pay more taxes. the deputy prime minister has told bloomberg the government needs to lead more in the direction of inclusive growth. in the u.s., the justice department opposes the release of an affidavit justifying at search warrant for documents at donald's home in florida. the search warrant has been released but the justice department says the affidavit include sensitive information about the investigation, including witnesses interviewed by the government. after a number of delays apple has set a september 15 deadline for corporate employees to be in the office at least three days a week. coronavirus delayed the plan several times. apple has also dropped its mass mandate in office common areas. global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. i am leigh-ann gerrans. this is bloomberg.

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>> the fed funds rate should be going well above 4%, 4.5% to 5%. if that does not happen,

inflation expectations -- if that happens we will have a hard landing. jonathan: runaway inflation or a hard landing. that is the view from nouriel roubini. futures down .2% on the s&p. on the nasdaq down .25%. home depot a little bit softer in the premarket, the numbers seem to be ok. lisa: they look fine, totally decent especially with the affirmation of the full year outlook and they beat expectations on earnings-per-share and total revenues. there is still a decline in comparable unit sales and this is what i am watching. there are lots of other aspects of this but how much are the prices going up and people still managing to pay. jonathan: we get walmart later, 7:00 eastern time, about 40

minutes from now, then onto retail sales data tomorrow. tom: in the last decade home depot has been apple without the sex appeal, they are up 29% after the pullback we have seen in the recent bear market. that is extraordinary performance. i think it is underestimated. i cannot say enough about what they are doing. they are not representing retail. they are a different beast. jonathan: they are facing a different story compared to walmart or target. tom: or name any of the others. let's go to washington. it is a tuesday across america, not the first tuesday of november, but for the gentlelady of wyoming it might as well be. there is no other story in washington. annmarie hordern joins us. paul keenan in his article on congresswoman cheney tries to

get out to 2024 where she has a political presence. explained to meet where her presence is in the present republican party. annmarie: she is ostracized. she is a pariah of the republican party even though she had voted on a number of issues alongside republicans, whether it was against the inflation reduction act or abortion, these issue she continues to have a conservative record, but she has led the charge as the top republican on the select committee investigating january 6. she is a pariah within the party. she is a pariah in wyoming. it does look like the polls are pointing to the trump backed candidate that will take the seat she has held. the zeitgeist or the chatter in washington is potentially she could launch a bit for 2024. tom: there should become a democrat? annmarie: no.

she is conservative. tom: there are no democrats in wyoming. there are three of them and grizzly bears. annmarie: even if she was to do that, what does it matter? this was a state donald trump 170% to 27%. his candidate is likely going to succeed whether she launches a new party and picks up democrat votes. this is trump country. lisa: talking about trump country and the former president of the united states. the latest is the justice department has rejected or opposes the release of the affidavit in the search of mar-a-lago. how does that play in terms of the political narrative of what has been going on? annmarie: a lot of republicans are calling for the affidavit to be released. news organizations were calling for it. when they unlocked the warrant there was the potential they would get the affidavit.

republicans want it to show whether or not this rate was justified. the justice department is saying that could impact the investigation, it could also lead to witnesses that are potentially being used in the investigation, this is something we do not want to see. there is still a chance it could be released because ultimately it is the judge who release the warrant's decision whether or not they want to release the affidavit. it seems like with the justice department there is no alternative that can ensure the integrity of the government investigation. it does look like this is likely not going to happen, but there is a slimmer chance. they also said we will get a redacted version, but the justice department said it would not be worth it because there would be 70 reactions you would not be able to understand -- there would be so many reactions you not be able to understand the affidavit. lisa: what is moving the needle the most heading into the midterm elections considering

most people are pretty dug in on the respective sides? annmarie: it is a great question because inflation and gas prices dominated the summer and now you see gas prices starting to evaporate from the news headlines. they are under four dollars a gallon, much lower than a lot of places across america, and less of a concern into the midterm elections. you also have wind in this administrations back right now. they were able to get through the summer gun legislation. finland and sweden was a bipartisan deal. the inflation reduction act. these are all legislations. the fact they were able to get the price down, they were able to run on that. it will be both sides pointing out anything they can that they did not like over the course -- since january. for republicans they're going to lean into the fact that they

think this investigation was politicized. right now with inflation tempering, gas prices tempering, it might be harder to hit those concerns the way they were hitting may, june, july. jonathan: annmarie hordern in d.c. 3.90 five dollars is the average price for a gallon of gas. -- $3.95 is the average price for a gallon of gas. coming into summer jp morgan put out a releasing there was the potential for this to hit six dollars. there would've been a big problem if that is where we got to. $3.95 is not six dollars. tom: some may say we reaffirm it on the demand. what i would say is yesterday is critical. the equity markets were on fire pushing against the negative news that was flowing out and also commodities in nicely where you begin to frame $3.75, $3.60

on a gallon. jonathan: the day of gains in the face of weak economic data from china and elsewhere. lisa: everyone talks about quantitative tightening, about money being drained from the system, it has not begun. it has gone down marginally but their balance sheet is still close. this is their schedule and it will roll off as time goes on but it has been slow. when people talk about quantitative tightening is not felt the big effect just yet. jonathan: down about .1% on the s&p. from new york city, this is bloomberg. ♪

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jonathan: live from new york city, good morning. futures -.2 on the s&p, on the nasdaq down about .25%. those two up from the june lows. yesterday date of gains in the face of pretty weak economic data. empire manufacturing in new york and china, week data, week data.

-- weak data, weak data. up two basis points the two year. of a basis point. yields in off the back of weak data. let's look at the commodity market. i want to look at brent and gas in europe. brent crude is coming down, down 1%. gas prices in europe are not coming down. this is the benchmark for european gas. prices up by 8%. what you have to know about that number is that number is 12 times higher than the seasonal average of the last five years. that is what the europeans are dealing with. tom: what i would say in the bloomberg terminal, it is proxy.

it is very subtle. jonathan: pretty much everyone you speak to is on board with the idea you get a recession in the back of this year. investor confidence in germany rolling over. they said it is unavoidable. in a few weeks time the ecb will sit down again and hike interest rates 50 basis points. who wants to be them. tom: sterling cannot get a bid. not far from a 119 -- a 1.19 level. jonathan: it could get tougher into winter. tom: let's stagger forward into 2023 with rebecca patterson. she and ray dalio are focused on inflation and the hyperreality clocked in on the upper

eastside, a $15 number. those are mcdonald's french fries but inflation has had food and rent. rebecca: i have not had those truffle fries, those sound delicious. the more important point for your viewers and listeners is even though inflation may have, i think the market is discounting the fed sticks the landing and inflation gets back to the fed target quickly and without a recession. that is what is being discounted and it seems unlikely. either the fed will tolerate inflation higher than target or it will tighten enough that the inflation you all were just talking about is deeper than expected, which means earnings have to come down. right now we have puzzle pieces that do not fit. something will give, and we think it will probably be growth that surprises on the downside, even if we are not seeing it

broadly across the economy. tom: if i need to participate in the economy and the stock market, how do i hedge into 2023. if i want to be in adult, how do you structure a hedge on equities? rebecca: the risk we think is bigger than what we have had for decades is a prolonged -- and i'm using this in a broad sense -- a broad stagflationary environment, where growth is slowing, inflation is moderating from high levels and still staying high. in that environment if you go back to last 100 years, equities have done the worst, bonds have been neutral. your best assets to own be inflation linked bonds, called, and brought commodities. to answer -- gold and broad commodities. to answer your question of where

do i want to be in the stock market, you think about the companies that can benefit from inflation, they continue to pass higher prices through, you will look for companies that have interest rates to have to keep going up because the fed is continuing to push inflation lower, they will not have those longer duration cash flows that are going to be more sensitive to that liquidity training. as you mentioned before, quantitative tightening, the balance sheet runoff is just warming up. september you see the step up in the pace of qt. i do not think people are adequately focused on what that could mean for the markets. lisa: how has your view changed? i know bridgewater has been bullish on commodities as a hedge against the stagflationary outlook. now we have commodities falling significantly. how has that changed your view at a time the 60/40 is starting to work again and commodities has not? rebecca: when we were seeing the

stagflationary pressures more prevalent, you did see commodities providing good balance to a portfolio when stocks and bonds were not working. for the last six weeks we have seen an unwind of some of those trends as the market has discounted that we will get the goldilocks environment, that inflation will keep coming down, partly because of commodity prices, and the fed is not going to have to push us into recession. if goldilocks occurs, which would be wonderful for everybody, i agree with you, commodities might not benefit to the same degree they have been. you did not just want to look at the short-term. you want to think about the year overall and looking forward, where are we going even if demand is slowing. china they are trying to get a recovery going. infrastructure spending with increased demand for commodities. structurally, we are in the very early innings of a climate

transition and that is inherently inflationary. it will squeeze prices and that is going to keep a support under commodity prices that i think will help them continue to add balance to a portfolio if the stagflationary environment persists. lisa: the stagflationary environment could last three to five years, which is the reason why bridgewater has been so bearish in the traditional 60/40 allocation. how much conviction do you have? has bridgewater been adding to commodity positions? rebecca: i do not want to talk about specific positions. i would say our view on commodities has gotten less bearish recently. very tactical as we see slightly increased supply. i am talking not about tactical trading by thinking about a longer-term portfolio. if you are an endowment or pension you have to get the returns for your constituents, for the people depending on you.

you want to make sure you are not vulnerable over the longer term as you were in the first half of the year. we have seen returns for a lot of the institutional investors in not having that balance hurts them. jonathan: when we used to talk about long-term investments we talk about china and how it had to be a feature over the long-term. do you still have that view? rebecca: we think china gives a lot of important diversification for the portfolio. it is interesting how divergent china is from the rest of the developed world. we are looking at slowing growth, high inflation, central banks tightening. they are trying to get the recovery going, they have lots of room to ease. they are doing fiscal stimulus. when you look at what is discounted in chinese equities, i think it is valid there is a risk premium reflecting geopolitical risks and tensions, the possibility trade tensions escalate.

that is a real thing. it should be discounted in the valuation of those stocks. even when you account for that, earnings growth projected by chinese stocks is close to zero. if they can get a modest recovery going, modest earnings growth, 1%, it does make chinese stocks look attractive to us. jonathan: what about the risk china becomes the next russia? what i mean is they make a move on the international stage in a place like taiwan there's international pressure to move away in the same where there has been in russia this year. i reflect on the last 10 years and 70 people were upfront about the risks around the russia story -- so many people were up front about the risks around russia. when it comes to china do you have to take account of that, that companies would have to move out? rebecca: we try to manage geopolitical risk like we would financial risk and economic risk in every position we have.

one thing we are trying to do is make sure no single exposure, whether it is a company, a country, and asset class could do undue harm to our portfolio. china will be part of that and it is an important thing in the headlines. it is certainly not the only geopolitical risk. of course we are watching it and we want to make sure our risk control, the portfolio sizes are going to take those things into account alongside financial related risks and economic risks. with every country, every position we have. jonathan: is a complex moment. rebecca, thank you for your time. rebecca patterson of bridgewater. it is not just the economics, it is the geopolitics. tom: she was eloquent on this, the pressure to quiet money, whether the individuals listening and watching this morning or endowments in more traditional money.

there is a thing called the endowment index. it is an intelligence index on the bloomberg and it is up 6.2% per year over the last 10 years. totally acceptable. at least 100 if not 200 basis points below where you want to be. jonathan: things are getting harder on that front. in a moment we will catch up with richard haass. i think china will be a big feature in that conversation. the weakness at home with the economy and the pressure to double down on the nationalism abroad, and at home for that matter. you wonder if that is the direction of travel for this leader. lisa: on both sides. you have xi jinping trying to get the narrative away from the economy and in the united states you have increasing number of congress members going to taiwan and there is a fear they could tiptoe into a more severe altercation. jonathan: richard haass coming up in just a moment.

futures down .2% on the s&p 500. in new york city, i'm jonathan ferro on this tuesday morning. good morning. this is bloomberg. leigh-ann: keeping you up-to-date with news from around the world with the first word news, i am leigh-ann gerrans. in wyoming today republican congresswoman liz cheney is in danger of losing her seat to a primary challenger backed by donald trump. the daughter of the former vice president dick cheney's vice chair of the committee investigating the january 6 the right at the capital. her anti-trump stance has made her now cast in her own party. bloomberg has learned the trump longtime cfo is in talks with new york state prosecutors to resolve tax far charges and avoid a trial. the company is accused of conspiring to avoid income taxes by giving some employees homes not reported to tax authorities.

even if settled, the trump admitted -- the trump organization would face fraud case alone. in the u.k. rishi sunak is threatening to shake up the civil service if he becomes prime minister. both rishi sunak and his rivals have promised reforms to the civil service to appeal to conservative party members suspicious of some of those workers. bloomberg has learned credit suisse is facing further delays in getting approval of some of its operations in china after a number of senior managers left. the swiss bank lost nearly half of the senior post management at its center in china over last month. global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. i am leigh-ann gerrans. this is bloomberg. ♪

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>> so much has collapsed within china that the domestic economy is nowhere to be found. right now the rest of the world is the only hope for china, that has collapsed, because latest data shows the export numbers are nowhere to be found. china has nothing to be holding onto. tom: -- jonathan: on the edge of bramo yesterday on the global economy. lisa: i thought it was interesting how he said growth would be below 3% in china, but no analyst on wall street will say that. jonathan: absolutely not. here's a snapshot of the price action.

futures down .2%. a mild move lower. yields unchanged. we had home depot numbers early this morning. we get walmart in about 12 minutes. tom: looking for that. chinese renminbi out to 6.79. weaker remember the off the economic challenges. this is a joy on radio and television. richard haass, the council on foreign relations, we celebrate his new book on american citizenship. we look for that in january. i am told the movie rights have been sold. brad pitt scheduled to play richard. the bill obligations and 10 habits of good citizens. i feel strongly we need to switch to what you built at the council of foreign relations. with elizabeth economy and david sachs you a definitive on china.

nobody has done it better than you on your website. i want to synthesize all you and your experts have learned about how this president of china gets from nancy pelosi to the party congress. richard: the challenge is what has worked for china for the last three or four decades, not just for xi jinping but for his predecessors and the communist party, has been the deliverance of high levels of economic growth. that was the basic bargain with chinese citizens. you do not worry about political rights but we will give you an improving standard of living. the problem for the chinese is that because of everything from their own economic mismanagement to covid to supply chain issues, you name it, the leadership cannot deliver that anymore. the question is how do you justify a country of 1.3 billion people being run by 90 million,

which is the communist party. i think a lot of observers are concerned that increasingly the substitute will be nationalism. that explains the overreaction to the speakers trip. tom: what i see as we are all looking through the rose-colored glasses of having to have read 800 pages of johnson spence years ago. the fact is the economy -- elizabeth economy has written like no one on the fragility he may face at the party level. how fragile you believe he is as he goes into these meetings? richard: i do not think he is all that fragile. if you think about the anticorruption drive, whatever impact it had on corruption, it also had an enormous impact to removing any opposition to xi jinping. my sense is not a 100% complete coordination, but he will get that third term. there may be some limits on his

leadership but i think it is a safe bet. the odds are high he will get a third term in conceivably more than that. jonathan: you have been a leading voice and it is important to go over what you have said. political legitimacy through nationalism and not economic stability. i wonder what you think that looks like to the next couple of years and what we need to be wary of? richard: it worries me. china has established a much more muscular baseline against taiwan. what they have been doing in the last few weeks, which was being developed over the course of months and years, it was not a spontaneous response, far too elaborate and large. that has become the new normal. we are seeing a higher level of exercises. more encroachments into airspace indices based. china has been building up its military for years. the lessons from the ukraine more as they will build up

certain types of conventional forces and also nuclear forces. they will conclude the reason the united states has not gotten directly involved is because of russia's enormous nuclear arsenal. watch china's nuclear expansion. it will be robust. my sense is they will increasingly fill out their military strength, they will demonstrate it in the hopes of intimidating others. ironically it could have the opposite effect. china's foreign policy will be heavy-handed, and what they are doing is increasingly turning up the level of alarm among its neighbors, above all japan. to some extent taiwan. australia, obviously the united states. that is where we are. lisa: one speculation has been it will not turn into a hot war in the near term but you will see china isolate taiwan, not allowing exports or imports at a time when taiwan is the main

exporter of semiconductor chips. this is a major risk to the global economy. how realistic do you see that as an outcome that could happen and what is the u.s. response? richard: we are already beginning to see certain economic sanctions against taiwan, and taiwan, japan, and south korea have made a terrible strategic error and allow themselves to become overwhelmingly dependent on their need to export to china and their need to import from china. this gives china enormous leverage over its neighbors. one of the real challenges going forward is whether china's neighbors begin to reduce their trade dependence on the mainland. as you suggest, we also have a race in the semiconductor world whether we can reduce taiwan's centrality by increasing our own capabilities and that of others. my hunch is that is a project of years, not months. jonathan: we need to continue

this conversation another time. you have been a leading voice and i've followed -- i've followed you for the last couple of weeks. this'll be something we only to pay attention to. richard haass of the council of foreign relations. this story is not going anywhere. we keep bringing up multinationals both had one foot in china and one foot in the united states and try to satisfy a progressive consumer base and appease a dictatorship abroad. that will be very difficult, more so in the months ahead. lisa: i wonder how much we start to see companies moving away from china quietly? they do not want to say we are leaving our mainland exposures and production because they would incur the wrath of the communist party. you are seeing a decline when it comes to exports to the united states. that is underneath the data. i wonder how much that continues. jonathan: richard said it.

china's goal has been to maximize the dependency of others on them and minimize the dependency of them on others. we have seen people write about this. this story is not going anywhere and people were was font eventually. tom: that is the model for export/import. i go domestically as richard haass talked about at the beginning. there sold bargain is the politics with the people, we will employ you, leave the politics to us. if that is not broken it is breaking. jonathan: walmart numbers just round the corner. we will break them down on bloomberg tv and bloomberg radio. ♪

>> it is demand driven inflation we are dealing with. that is something the fed can handle. >> the market is pricing a specific outcome where we head to a very moderate and mild recession. >> our view is it may be a soft landing for the labor market. >> there's a lot of talk about u.s. recession risk but the problem see much more gloomy in europe. >> the rest of the world, there is world of trouble. >> this is bloomberg surveillance with tom keene,

jonathan ferro come in lisa abramowicz. jonathan: a cheery opening. for our audience worldwide alongside tom keene and lisa abramowicz, i am jonathan ferro. futures -.25% on the s&p. home depot earnings about an hour ago, walmart numbers in a minute. tom: maybe they are delaying. there like the big banks. they said 7:00, but -- jonathan: what did you make of home depot? tom: they are doing what home depot has done forever. there we go with walmart. revenues better than the estimate. comp sales 9.5%. ex gas, up 7%. the first look at an outlook for the back half of next year. they maintain their outlook. i do not know what the outlook means. jonathan: these retailers have

had to cut their outlook. they come out with their outlook and then they cut it. walmart coming out and maintaining their outlook for the back half of 2023. lisa: you are seeing a pop in the shares ahead of the market open. how much are we seeing companies across the board lower expectations again and again as they revised lower before they put their earnings out, and then they cross that lobar in order to give a better sense. if they affirm their projections back to 2023, how solid is that? what will change between now and next month? jonathan: what did you make of that, that they come out with an outlook and a few weeks later seemingly they cut it? lisa: i view this as trying to hedge against the liability of being accused of lack of transparency. they will be over transparent. they will say things are looking ok. i wonder if investors take the forward guidance as less solid

than they have in the past. jonathan: that was diplomatic. stocks up a little more than 2%. futures down .25% on the s&p, on the nasdaq down .25% also. yields unchanged. 2.70 932%. in europe soft investor confidence out of europe -- out of germany. in europe gas prices are higher but crude is lower. $89 a barrel on wti. lisa: how much does that support retail sales tomorrow? how much is that supporting the momentum we get from projections from retailers including target? today we did get home depot around six, walmart just crossing. year-to-date the performance has been dire.

what we see in home depot is you see an increase in revenue across the board. you are not seeing an increase in traffic. how much is this an inflation story? walmart saw a lesser loss in terms of earning per share gains or earnings-per-share year-over-year performance. this is better-than-expected. they are dealing with a very difficult moment, especially with the types of things people are buying, which are shifting quickly. at 8:30 we get july housing starts. this follows a massive plunge in builder sentiment on the heels of where we are seeing mortgage costs. do we see housing starts slow down as a result? this is the push pull in the housing industry. how much does the lack of supply end up propping up prices. i am looking for a sense to confirm what we saw in the empire manufacturing survey. the second biggest in terms of

empire manufacturing data. do we get a confirmation of that in the auto sector, especially ahead of the next ism rating. jonathan: notice how the pandemic breaks the chart. every single chart we have. lisa: right now we are seeing volatility get close insert metrics. jonathan: a decent day ahead. i do not want to say a big day ahead, i do not want to say a big week ahead. we have some fed speak, some fed minutes tomorrow. tom: i think a lot of it is the earnings season, what the stock market is doing. yesterday was crucially important for the stock market. buried in the walmart release, it is not a clumsy release but there is not a lot of clarity. two inside baseball things. walmart, their gross profit rate , the margin was down 132 basis points, 1.32% as well.

i love the language as well. this is a new phrase. wage investments. jonathan: d one day write an article on the press releases you like and do not like? the style? the graphics? tom: usually if the form in the style is not there it is because they are trying to hide something. what i want to see is a trend towards clarity, particularly the big banks. they are dramatically clearer than they were five or six or seven years ago. i will be honest. with the power bloomberg we talked to these people and they want to know how to make it clear. mostly speak english. jonathan: let's speak english right now with anastasia amoroso. the s&p up from the june low, and the nasdaq up close to 23%. when we stop calling this a bear market rally? anastasia: may be right about

now. i think the market does not move materially higher from here. 4300 will likely be a resistance. the biggest take away is maybe we do not have to retest the lows we have seen of 3700. the reason i say that, there is enough that has changed fundamentally to justify that. the reason why we were back at 3700, we worried about the fed depressing valuations and worried about the types of cuts we need to take for the next 12 months of earnings. as we look around today, as inflation is easing, it is giving the fed more wiggle room. perhaps they do not have to depress those valuations because even if they hike 100 basis points, that is already priced in. tom: the continuum of the inflation curve is a complete mystery. maybe it is a glide path to 2% or 3%. if inflation in the u.s. and globally comes down more rapidly

than the wisdom, what does that do to your stockmarket call? anastasia: it crops up significantly. we were just talking about home depot and walmart. this would be the type of stock i would not be bullish on in this environment. if inflation does ease up and consumers have more wiggle room in their budgets to spend on things that are not just essentials, that props up that sector. if inflation eases up and the fed eases up as a result of this , we can expect more from technology shares. i think that is a very important dynamic. in order for us to materially break above 4300 and for us to work our way higher, we need to see earnings revisions turn the other way around. the reason i say 4300 seems to be the cap is because it is based upon the $240 of next 12 month earnings and a multiple

around 17.5 times. how much more are we willing to pay? the fed would need to ease up on policy a lot for us to justify paying more. how much can economy accelerate to justify higher earnings. i do not think that is the outcome right now. lisa: do you think it is too cute to believe that that will push back against easing and financial conditions we have seen over the past few weeks? anastasia: yes. there is so much talk about it. if you look at the easing of conditions most of that occurred in equities. if you look at the goldman sachs financial conditions index it has eased up but it is off where it was at the beginning of the year and it is roughly at a 20 year market. the second thing i would say is i think fed chair powell has outlined a pretty good reaction function. first of all he said you want to

be little more cautious as we get to neutral. they also want to be a little more cautious because they did know the tightening of the system acts with a lag. there is more training in the pipeline. let's see how that plays out. the third part of this reaction function is if inflation continues to surprise to the upside we will do more, but if it does not there is a case to do last. to tom's point we are chipping away at more and more pieces of the inflation puzzle. i think against all of that the fed can let the financial conditions ease up a little bit and still do less going forward. jonathan: lisa, did you hear what i think i heard? chariman powell did a good job. i think a guest just said chariman powell did a good job. lisa: she is not alone in thinking that. some people think the ambiguity is the way to go. jonathan: anastasia amoroso of i

capital. chariman powell is doing a good job. tom: i believe all of the central bankers given a historic medical event are making it up as they go. jonathan: are you just being nice to your friends ahead of next week in jackson hole? tom: before the chairman gives a speech, and i am on a plane before he gives a speech, i cannot renumber the schedule. the fact is he and i will be at the pioneer grill and they have -- it is like a full english except a full wyoming. chariman powell and i will dig into it. jonathan: you are flying into jackson hole and you are leaving before the chairman delivers the speech. tom: michael mckee is the expert on the schedule. all i know is there is an eight foot grizzly bear and you waive as you go by. jonathan: a family photo in front of that grizzly bear. appropriate for this program. tom: mckee tried to interview the bear wants.

it was 2:00 in the morning. jonathan: i do not want to know how that night was going. mike bell of jp morgan will join us later. bank of america pointing out we are no longer apocalyptic lee bearish. there you go. lisa: i love that. jonathan: will do this in a moment. we'll catch up with annmarie hordern. this is bloomberg. leigh-ann: keeping you up-to-date with news from around the world, with the first word news i am re--- i am leigh-ann gerrans. iran is signaling it may be closer to a deal with the u.s. that could restore iranian oil exports to global markets. iran has sent the european union its response to the blocks proposal to reviving the 2015 nuclear accord. it expects to hear back from negotiators in the next few days. singapore's prime minister warns

the u.s. and china may sleepwalk into conflict over taiwan. he spoke in an interview with the bloomberg editor-in-chief. >> we are starting to see a series of decisions being taken by both countries that will lead us into more and more dangerous territory. you could easily see near misses, accidents happening around the taiwan straits, around the south china sea. it has happened before. leigh-ann: tensions between the u.s. and china remain elevated. on monday beijing announced new patrols around taiwan following the arrival of another u.s. congressional delegation. shares of home depot are lower. the home improvement chain reported customer traffic continued to decline and customer transactions were down 3% from a year earlier. home depot's comparable sales and profits did beat estimates. global news 24 hours a day, on

air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. i am leigh-ann gerrans. this is bloomberg. ♪

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>> supply shocks are always tough for the fed, but contrary to the view that supply is the driving factor, our numbers are telling us it has become demand.

as this year has gone on it is more demand driven and patient than we are dealing with that is something the fed can handle. tom: peter hooper -- jonathan: peter hooper of deutsche bank there. here's a snapshot of the markets. futures down a little more than .1. no drama on the s&p or the nasdaq. yields up a couple of basis points on the 10 year. crude unchanged, $89.41. i promised you the note from bank of america. every month they do the global fund manager survey. they asked the questions. they say the mood is no longer apocalyptic lee bearish. they go on to say the following. sentiment is still bearish, with the cash levels where they are at. too bearish for the immediate reversal of the bear rally. a lot of bearish and bearishness in there. lisa: basically people are not

positioned for this rally to continue. that is leading people to believe it can continue for longer because people have not thrown in the towel. i love the idea that apocalypticly bearish does not mean bullish. 6.1% to 5.7% -- still the most crowded trades they see as the long dollar. the biggest tail risk was protracted inflation. to me this is the big shift in sentiment. it is are we seeing a true abatement of inflation or are we seeing ahead flight driven by commodity action. tom: -- jonathan: where does it go? tom: the smartest mathematician i have heard of this is the mathematics expert anastasia amoroso and she said here is where we are, and may be we will not retest the bear market lows. take what anastasia said in english and all of his other

apocalyptic stuff and everyone will rationalize up 70%. jonathan: the good news is we are no longer apocalypticly bearish. tom: what is important, there is still a huge amount of statistical negativity. jonathan: for good reason. some of the data points are still not pretty. tom: are we done? annmarie hordern joins us, washington correspondent. she would not know a bear market low if it hit her. in the blur that is out there, there seems to be a tendency written by a lot of experts on the espionage act. it is of another time and place, world war i. i think we will learn more about it as we go. i like with the new york times says about spies and unauthorized leakers. help me with the legal effort everyone will need to frame a law that is 100 years old.

annmarie: part of the problem is the fact that what we know so far is it involves this potential use or rather the fact it went against the espionage act and issues of national security. i think until we see the affidavit, if we ever see it, there will be a lot of questions regarding what they can use in terms of bringing a case against the former president. lisa: we were talking about how energy prices have underpinned some of the optimism you are seeing in markets as this feeling of disinflation starts to percolate. today's latest disinflation remove is the increasing feeling iran will sign some sort of accord with the u.s., bringing that supply back online. how close is that? annmarie: they have been trying to do this for 18 months. while iran has sent a response,

it was supposed to be the "final text." that the iranians have a response which likely looks like it includes changes. that does not mean this is the final text. we heard from the iranian foreign minister yesterday, which a lot of people in the oil market said that looks positive because he said we have made a number of changes to get a number of changes back. it looks like the iranians were giving in to negotiate. at the end of the day they are coming back with changes in the u.s. state department is saying what can be negotiated has already been negotiated. they are at a standstill. this has been going on for 18 months. while we are "close" to a path forward, not exactly sure we can believe that until it is finally done.

lisa: how much is this kind of accord part of the plane of this administration to bring oil prices down further as they have been saying over the past few weeks? annmarie: at the moment the ministration is very happy. you can look at all of their tweets and all of their messaging when it comes to gasoline prices. if there was a nuclear deal and you were to see more iranian crude on the market, that would help into the winter months when the eu sanctions on the transportation of russian crude are going to start to bite. also they have to take into consideration more chinese demand if they start coming out of some of these lockdowns and start easing up covid zero policy. before oil prices dominated, a lot of chatter in the west wing, there has always been an idea to reengage and get back into the nuclear agreement. the president joe biden was campaigning on this.

they think this is a path forward to stop a nuclear iran. oil prices play into the factor now because it is timely, but they always wanted to get this deal to the finish line. the issue is how much political capital this administration wants to use at a time when iran says they have nothing to do with the recent attack against salman rushdie, but there was a fatwa against him in 1989. there was a plot they wanted to kill john bolton. there is a lot of sentiment right now that does not look so friendly on iran. this is going to be difficult for the iranians to try to get anymore out of the united states given the political environment. jonathan: emery hard-earned in washington -- annmarie hordern in washington. we are down every day since the middle of june and here we are in the middle of august. lisa: it is notable when you

drive around and it is like a billboard advertising inflation, every gas station has come down. university of michigan no one is talking about anymore because it has gone down. jonathan: we get back to the old days when it that much. it was something we talked about but something we did not really talk about. home depot -.7%. tom: joe feldman just point out his note before the conference call, he notes operating margin expansion. jonathan: lisa will run through those numbers in just a moment. walmart up 3.6% in the premarket. retail sales tomorrow. from new york, this is bloomberg. ♪

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jonathan: we are still bearish, just to bearish to expect immediate turnaround in this market rally. don't ask me to repeat that. futures, negative zero point 06% on the s&p 500. the nasdaq, negative just a little bit.

what does that mean for the market going forward? just south of 4300, the close yesterday. very precise stuff. off the bat, it has been pretty weak. bank of america is still rates up and profits down, and that is going to be toxic for this equity market and the bond market. the expectation is maybe we get another big move for the meeting, the city looking for another 75. there is something to get your hand around. off of that basis points. your 10 year operant two basis points. a little bit more inversion. something like -41, 42 basis points. commodities, just briefly

talking about what is happening in europe. gas prices are still climbing. if you missed it in the last hour, i will give it to you again. or we are right now, 12 times the seasonal average of the last nine years. tom: i'm glad you bring this up because i am more focused on the stock market in the u.s., but i believe we would say it is evolving quickly. jonathan: yes, and i would say that the fate around the fed is around the ecb and the european economy, very one-sided. some real weakness in the european economy. calling it unavoidable in europe leading to a recession at the back end of the year. tom: you are a fountain of wisdom. jonathan: i am, on the ecb.

[overtop] -- over talk] jonathan: why does she insist on going? tom cole and that is just what you do. some stupid, overpriced, taiwanese latte at the end. jonathan: he sound upset about this. tom: the ceo of starbucks, i called her up yesterday and saved her. lisa: literally anything else. i love it when i am just wondering whether everyone still realizes we are still alive. yesterday, the investor took a stake in disney, shares of almost 8/10 of 1% out of market.

zoom plunging after changed from a neutral to a hold. basically, saying that there isn't that much in terms of prospects for growth. fascinating story, one of the fastest-expanding real estate companies in new york for a long time but hasn't really made money and we now see shares lower by 11% after the company said yesterday they are really struggling given where the real estate market is, facing massive job cuts. the story of the morning is very much in the retail sector, so let's take a look at that home depot share split, because that is what we are seeing. home depot shares down after reporting better-than-expected earnings that really got peoples' attention. you're seeing an increase in transactions, in revenue off the heels of inflation, giving

people concern about how long it is going to continue. walmart, a very different story. profit, a very low far. saying we had expected earnings-per-share to go down 11%-13%, now it is going to go down 9%-11%. shares on the heels of that walmart projection target. tom: let's get right to it. i was making jokes about it, but there is no joke about the challenges for christine lagarde. if i believe in a weak euro, mi more focused on the dollar dynamics andeuro-dynamics of jerome powell or christine lagarde? >> more importantly you're focused on the global growth story, like ecb, the fed, which one should we be watching? ultimately, you should watch global data, but in the near

term, you want to focus on the energy for europe. we are still dealing with a massive -- across europe that is we getting the growth story, weakening the european impulses. what that does is put the pressure back on which relative central bank would be more on the short-term and still lends to a stronger dollar. maybe pushing loeber in the next couple of weeks, but again, the biggest tensions for the eurozone is the global economy plus the european energy shock which is still rippling through the economy right now. jonathan: this is messy. do you think the ecb can keep hiking? mark: i think they have to. they have to stabilize inflation expectations. even as the euro is part of tightening the inflation expectations, it is reducing

credibility. they basically came in and they are going to use the currency to get ahead of the curve, but the ecb still has to use the euero as -- euro as an anchor. i think the euro is probably even a little bit stronger than most people but hope a part of this is the ecb still has to anchor rates and keep rates relatively high because a weaker euro actually create more inflation. jonathan: that is if you believe higher rates lead to a stronger currency. that has not happened with the bank of england. why would it with the euro? mark: a big point is relative expectations. the market was very bullish and basically, the growth story deteriorated so rapidly in the u.k. that the bank of england is

not going to deliver. 50 basis more priced in than what they are going to deliver on. for the ecb, they out-performed a little bit over the last couple of months. again, you do have what i think are important for the reserve currency, reserve managers. looking at europe with negative interest rates is not very appealing for central banks and allocation-holders. there has been more disappointment on the u.k. side. the bank of england has more room to price out what was priced in earlier and the ecb is kind of maintaining what they should have done and maybe over-delivered. lisa: the calls that you have usually are spinning away from the dollar, i've noticed that. they are not having to do with that. how much of that is by design? the dollar is going to be somewhat divorced from some of

these other fundamental characteristics. mark: what is interesting is that the peak u.s. inflation -- we are seeing less volatility. we are seeing volatility come out of rates. the market is kind of -- the mexican peso looks relatively upbeat and some latin american currencies look upbeat. that there is that little narrative that is happening right now where we are kind of evolving out of peak inflation into something that is not super bearish, but people are exploring too much risk premium to where we would a carry. we are still in the same trade, too much idiosyncratic risk in the euro zone. we do like selling euros because we've got a country that has pretty strong fundamentals, extremely cheap in the way we look at norway compared to the macro story. we can kind of run past the

dollar and look for some idiosyncratic risk which is another interesting story when you look at equities and how things are evolving in certain parts of asia. i think we could explore another regime change or at least another shift in the narrative. with twice way through -- with the peak dollar coming in 2023. jonathan: you said that a few times over the last few months. where are we now? lisa: 101 point 28 after a complete round trip. i thought it was interesting to add to this inflation story in the u.s., the dollar actually gain quite substantially. jonathan: did you see the data out of the u.k. this morning? real wage growth in the u.k. big drop off, super negative.

the worst kind of move. it speaks to what people feel in the economy. tom: what is interesting here, i think the media grossly conflates and all of these economies look the same, and they don't. so when you tell me the real wage in england is challenging, i think that was in the 1930's and it wasn't pretty. jonathan: the energy story is not pretty and the u.k., not going to be pretty in europe. i mentioned the ecb, september 8. tom: it is good. jonathan: you taking that day off as well? you taking some time off finally? tom: i made the decision to not take off a lot of time this summer. jonathan: why is that?

tom: i can't do the waiting in line for four hours again. jonathan: not interested in that? tom: i am thinking about a cigar store. can you see me on a black flag? jonathan: i can see you hiking, tom. it is going to be a great time. from new york and wyoming next week, look out for those. tom, we have to go. futures town. this is bloomberg. critic of -- leeann: walters lowest expectations, earnings announced three weeks after the retail giant covered a separate

forecast for the second time. inflation is causally -- causing travelers to spend more on potential goods, general merchandise which is usually more profitable for walmart than groceries. in wyoming, liz cheney is in danger of losing her seat to a primary challenger backed by donald trump. the daughter of former president -- vice president dick cheney is investigating the rise of the capital insurrection. her anti-trump stance has made her unpopular in her own party. -- will halt production for care and maintenance. it has been operating at a reduced rate because the following energy prices. 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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>> the fed problem is they don't have a choice. the inflation mandate requires action, more action. the market does what it does. assuming the market think they might have done enough, you look at it and you think know, they just haven't. jonathan: awesome to catch up with a chief strategist yesterday from new york city this morning with tom and lisa abramowicz. futures down i just 1/10 of 1% on the s&p, a long road still the september 21 fed meeting. still got another payrolls report, another cpi report which comes september 13, and we've

got next week, so a lot still to come. tom: bloomberg is the front of economics as we moved to jackson hole. he tries to move forward the debate on the bank of england. we will take an international take on jackson hole. today, we do so with one of the most gifted people in modern economics. the massachusetts institute of technology, he has years, even decades of federal reserve and we are thrilled that he is with bloomberg economics. he joins us this morning. it is a think take this morning on the present and the past. negative future as well. thank you so much for joining us. i want to get back to arthur burns and i have trouble with the comparisons. i think most of them are out of

tune, but that paper he did in belgrade years ago, the english of central banking was crushed. he gave that speech. i've crushed are you going to be in 23, 2020? >>'s speech was from the soul. it was an anguished cry, and it is now recognized as deeply mistaken. the audience on the day when he gave that speech was paul volcker. he understood central banks could control inflation. we are living in that legacy today. it is not going to be easy going forward, but much easier than it would have been had it not been for paul volcker. tom: does jerome powell and his

team, do they understand that part of inflation matter? >> absolutely. they are looking at the full package. the fed has to take responsibility for delivering overall and lucian that matches the 2% objectives over the medium term. they are well aware that there are going to be some stubborn components like to rent pieces that you .2, tom. lisa: at what point do they say we understand that this is a little bit sticky in certain areas, so we are not going to target 2% over the next three years, we are going to target 3%? >> i don't think they are going there. powell is bound and determined to deliver 2%. he means what he says, he says what he means. 2% is the objective, that is what i expected to deliver. jonathan: you've done this great piece, future recessions, this

bibliographic that has frost and snow over the federal reserve, thunder and lightning, sunshine and rainbows. we certainly don't have sunshine and rainbows over it right now. given what we have experienced in the last couple of years, when you look around the world at the moment, the bank of england particularly, whether their independence is going to be threatened. >> i think the longevity of their independence will depend on how they respond this current situation. great institutions, even great institutions make mistakes. really good ones make fewer mistakes, but the best among them learn from their mistakes. they adapt appropriately going forward. i think that is what we are in the process of witnessing. if they succeed, i think their

independence will be secure. if they fail and don't deliver low and stable inflation over the medium-term, we could see an institutional threat. tom: there is a piercing debate you have lived over the decades, now a fed governor as well. who is right? >> it is like a great mystery novel, nobody knows the answer right now. tom: david, it is just tv and radio, nobody important is listening. who is right in this debate? >> i don't think we can say right now. they have history on their side. they play correctly, the kind of moves that they anticipate have never happened before in history. the weakness in their argument is that covid-19 at all the

economic dislocation that he has with the company have never happened before. tom: nicely said. we've got to get dr. wilcox some media training here. david wilcox has got to loosen up and say -- is right. jonathan: i don't think that works for him, tom. i am sure that is the media training that the pr provides. it is a radical prediction which you don't necessarily believe. threatening central-bank independence. in the united kingdom i think it is a conversation for the last 12 months and certainly in the minds of many. i'm not suggesting they failed, but that some people think they have.

tom: these are threats in more beleaguered economies. there are many way more beleaguered than the u.s. jonathan: chairman powell has been accused that they did not make that pivot earlier because he hadn't secured a second term yet. lisa, that is problematic to say the least. lisa: especially because if we delay, it does make a material difference in terms of how quickly nation can pick up speed. longer-term trajectory, how much does the fed -- the borrowing cost of a nation in the last of fixed -- lack of fiscal stimulus. it becomes very concerning heading forward especially if there is a dated turn because there is not the monetary policy to really counter it.

jonathan: what happens to that? lisa, they are meant to be independent. independent of political pressure and the mood of the country. meant to make hard decisions. lisa: right now the hard decision is hard and that is what i want to hear from them. how are they more worried about runaway inflation or torpedoing? that is something right now. jonathan: looking forward to the coverage next week. can we stop calling them brave? what is brave about hiking interest rates? just stop that.

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>> the fed was perceived to do a slight pivot and said that they are willing at some point to slow the pace down. >> it is likely to be shakier and shakier for gdp. the risk assets are still quite

at risk. >> the market is ignoring at least several factors that are really a problem right now. >> i think that the market is already on edge. is china going to step down? announcer: this is "bloomberg surveillance" with john keene, jonathan ferro, and lisa abramowicz. tom: good morning, everyone. tuesday, elections across america. we look at that this morning. five more amendments to opinions by strategists. the are beginning to see what we saw with anastasia earlier. deutsche bank published moments ago. everybody tweaking their call of an early and middle august. jonathan: isn't that what we are doing here? the s&p 500, up 17%. i think we just market to market. bank of america, i love reading

that piece every single month. apocalyptically bearish, but we are still bearish. tom: on the equity markets, saying maybe we won't revisit the bottom stair. with the energy action that will need to be taken, maybe the euro won't weaken as much. but the strings that the tone of the moment. equity bonds, that is the measurement of the apocalyptic level. it is out there, and i am sorry, it is really what we're talking about. jonathan: a less apocalyptic tom keene about resiliency in america. the weakness everyone is expecting, it is not going to come anytime soon. i think more and more people are getting on board with that after

that blowout jobs number we had friday. tom: i believe it was jp morgan. the jobs report over the cpi report as well. and lisa, it is in the micro data. they actually did better than good. lisa: they passed a very low bar, let's put it that way. they have downgraded the expectations and they did better than that. they are expecting earnings-per-share to decline over the year, but not as much of the previously expected. let's be clear. nobody has been calling for the apocalypse except for perhaps a couple of people on the bridge. i am not going to go there. but i am not saying that the apocalypse. there is a sliver of a soft landing that people are seeing with this inflation of commodities prices, and that has really shifted the mood away from apocalypse -- apocalyptic

leak bearish. i can't say it, either. tom: what we do without you, lisa? we are going down in flames year this morning. help us with the apocalyptic conversation. jonathan: there is nothing apocalyptic about it. nasdaq down. yields are a little bit higher by a couple basis points. this morning, it has bounced back. $90 on a tense of 1%. you will find it wherever you lurk. gas prices headed in the wrong direction, higher. 101 .29 on the euro-dollar. tom: moments ago, the spread was -39 basis points. that is a long way from the gloom. jonathan: that was wednesday

morning on the bloomberg. -50 eight wednesday morning, the lowest session. lowest of the year, i think. you have to go back to the early 2000 for that kind of inversion. tom: they really want everyone to lean forward and listen to michael ballack, global market strategist for jp morgan, and he is more than aware of what they're doing to jp morgan. mike, i understand there can be nuances between strategies, but you people have an incredibly optimistic pastor reduced inflation. how do you do assets? how do you invest if you believe in a really nice path and rapid path of disinflation? >> i should lay out. we look at the view here from

asset management, our view is actually that inflation is going to slowly come down but not as some people think. also, the wage growth is going to stay strong. that is going to keep core inflation at least above target. jonathan: when does that leave corporate profits? if cpi missed, plus weekly demand, is that bad news for corporate america? >> i do think the bigger risk at the moment is for corporate because there are a couple of good indicators telling at the moment we are not in recession, we have strong payroll growth, and you've got the fact that it looks like we have probably seen a peak in inflation.

however, if you look at most of the other data, they are starting to flash warning signals that we are coming out of a turning point that we tend to see before a missing growth slowdown. across the board, you've got weak consumer confidence, weak housing activity. all of this points to a world where actually, i think it is too soon to say about recession. lisa: so are you less or more bearish than you were a couple weeks ago? mike: i wouldn't use those words, but ultimately i think that those markets over the last few weeks, i don't think that is going to last. if you look at some of these indicators all over, you look at job openings, hiring, consumer confidence, those are hard to

get. these indications are all over. the majority of the macro data that i look out is pointing in the wrong direction. i would say that the market has been rallying and so that probably won't last. unless you believe that the market already knows that a recession is on the way and is looking through that. of that would be very unusual because historically, the market has not question the stocks rising. lisa: it sounds like you have quite a bit of conviction which makes me wonder if you are partially selling into this rally and holding a lot more cash, or if you're basically viewing this as cautionary and not buying it. mike: my view is to be neutral on stocks because of higher energy prices, and now we are starting to see a lot of that

weaker economic data all over. as we seen in these last few weeks, you do get is pretty strong bear market rallies, which can make it very uncomfortable and tempt you to get caught off guard. i think we are in a place where we do have recession, the fed and central banks around the world are going to cut. broadly neutral on stocks and bonds at the market. -- at the moment. and when we actually find ourselves with a significant hit to corporate profits, with growth slowing down and unemployment rising, that is the point. tom: very quickly, i want to go back to the beginning where we put the underscored how parts of the big bank and disagree with other parts of a big bank. how do you look at the strategy

research that look for a path of disinflation? mike: we take all of the different opinions when forming air views. where it is helpful is to bear in mind that there is disagreement, lots of different opinions out there. one possible deceleration of inflation, we get a stock landing that inflation runs down, wage growth can come down without getting to recession. that is possible. i don't think it is the best case, but that is one reason why i would look to be more neutral on stocks. but as i said, in my mind, the most likely scenario, if you get wage growth down to a level consistent with inflation, it is going to require far less power,

and that is when the unemployment rate rises. jonathan: terry diplomatic. tom: wonderful. jonathan: jp morgan asset management. tom: i think a lot of listeners don't understand. they just think it is jp morgan. that was a beautiful walk-through of how different rights of a major bank and all of the major banks can disagree with each other. they agree to disagree. jonathan: different views. tom: yeah. jonathan: walmart's ceo is speaking right now. lisa, we might have seen more middle and long-term shutters according to the ceo. lisa: which is a benefit for them considering the fact that they want the higher margin items, not just the grocery items. how much are they going to compete with amazon? we didn't even talk about a paramount plus purchase by walmart to try to get subscriptions up.

tom: -- mustard at walmart is $5.83. jonathan: you tune into paramount plus for italian football. lisa: are you getting the walmart inscription? jonathan: i don't know what that is. i would have to have walmart prime? do i get free italian football? i will try. walmart is up in the free market. from new york, this is bloomberg. leeann: keeping you up-to-date with newsom around the world, the european union said a proposed blueprint for reviving the 2015 nuclear deal, it is consorting with the u.s. on a way ahead. iran appears to be seeking further changes if there is an agreement that would free up a

round-trip for oil to global markets. singapore's prime minister warns that the u.s. and china macy's working for conflict over taiwan an interview with bloomberg editor-in-chief. >> we are starting to see a series of decisions being taken by both countries that will lead us into more and more dangerous territory. you can easily see accident happening around taiwan for the south china sea. it has happened before. >> tensions between the u.s. and china remain elevated. on monday, beijing announced news following the arrival of another u.s. congressional delegation. 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.

>> the thing about corrections, we've already had a sharp one this year. they come in pairs, bunches. i think we get more this year. from there, i do think the s&p

can rally to 4100, 4200 by the end of the year. jonathan: looking for a retest for most of the year, later this year, that ultimately rallying toward 4100, 4200 on the s&p. futures down not even 1/10 of 1%. the nasdaq, down 0.02%. yields up a basis point, a little bit more than that. euro-dollar negative a quarter of 1%. some really interesting numbers out of walmart. some really interesting headlines. they have canceled billions of dollars in orders according to their cfo. they go want to say they have provide more store-print goods. more middle and high income shoppers. they are the kind of headlines you see when things are getting a bit more tricky in the economy. tom: there is no question about

it, i just did a quick scan on the internet, we make a joke about it in america, but the fact is it is two dollars-something at walmart, the equivalent at whole foods. it is a really interesting conundrum, but it is the micro decisions that are made every day in retail. jonathan: it is getting ridiculous and you know it. tom: it is. the same action we saw at 9:30, 10 we are thrilled to bring you the optimistic. forced at gunpoint to look at the glass as half-full every morning. he is also expert on retail. brian, who wins in retail in the next 18 months to two years?

of the different segments, which is your strong buy? >> we saw a very strong report from home depot today. i think the home-improvement category is a winner. i also tend to think names like nike are very broad positions here. another category i've been recommending for a while is the auto parts category. i mean, the commonality across all these is consumer demand dominated by really strong, highly-functional good-operating companies. lisa: let's stick with home depot for a second. if you are so optimistic that it

is doing well, why are shares down more than 26% after the earnings report? brian: sure. it is no secret there are a lot of market concerns about a forthcoming recession in the united states. that is what has been happening with the markets. the conversations we have with our clients every day, whether a recession is coming, i think the market right now is very much continuing to take the view, despite a lot of signals otherwise, that recession is on the way. that is the case with home depot. you look at the backdrop of markets. if you look at home depot results, there is strong result on the last couple of years.

overall, it is very un-suggestive of any type of economic downturn or recession. lisa: in fairness, though, walmart, even though they be expectations, they are talking about millions of dollars of canceled orders, a number of headwinds. they have downgraded their forecast in the past few months in addition to the likes of target. at what point do you see more headwinds than you're making out in terms of the consumer not being able to spend as much, given the high price of basic staples? brian: a great question. two very dominant retailers. home depot, given what they sell, home-improvement products, they are dealing with generally-speaking a higher income. more insulated economic pressures.

walmart is different. walmart tends to cater to lower or middle income, more susceptible to economic pressures. i think that is one big difference between these companies. now, you can look at home depot or other companies that are serving these generally more affluent types of service. we start to see real job issues more from the consumer spending standpoint. overall, there is some weakness out there. jonathan: can you finish up at the correlation is between house prices and home depot profits? we are all expecting the housing market to take a little beating.

brian: what i think about other theories macro-factors. what happens is this: if i am a homeowner, my home has appreciated in value, i view that home as more investment-worthy. if we were to know or if i were to learn that home prices across the united states -- dramatic fashion, that would be big for home depot, no question. i don't think we are seeing that right now. as of the last data, home price appreciation is very much intact. jonathan: i bring this up because we have some housing data in about five minutes. brian on the latest with housing and home depot and retail.

so important. house price appreciation, people invest lisa: lisa:. and a straight trajectory upper over the past few years, peripheral evidence that is very much changing. we saw that data yesterday. the data that we are going to get in a couple minutes. jonathan: just around the corner, ready in the studio. we will do that in just a moment. futures down on the s&p 500 with tom keene, lisa abramowicz and jonathan ferro. heard on radio, seen on tv, this is bloomberg.

jonathan: the data any minute. i've got to bring you this, and message: bloomberg. i'm surprised i haven't heard you guys mentioned the central game changer. the unit is available on ios, so there you go, if you want that on your iphone. futures right now down 1/10 of 1% on the nasdaq.

some stunning economic data. >> surprising but not surprising given what has happened housing overall. we are seeing builders react to that. we have seen confidence levels fall dramatically. that is down 9.6% from june. building permits and 1,674,000, down 1.3%. it is suggested the building industry is pulling back. now the question becomes going forward do we see a decline in hiring in construction, especially construction that would lead into those employment report that the fed is watching? housing completions are 1.1% above the june number, 3.5% better than last year. there are still homes being finished, but it doesn't look like they are going to be starting as many going forward

because we expected a good weather month like july but we would have seen a lot more holes in the ground. jonathan: equity futures still down. if there is a segment of this economy that the fed can address, is it this one right here with interest rates? tom: that is the point. i noticed that the pullback on a cyclical, sequential sequence over 20, 30, 40 years, it was terrible. is that thinking of the economist that this is going to be terrible like 2007, 2 thousand 8, 2009, or is this just a normal pullback? >> you look to those first for reaction when the fed starts raising interest rates, -- or even cutting interest rates, and that is what is happening.

we are seeing housing starts in home sales, but the question of whether you go too far or not is kind of hard to say because we don't know what the overall demand is. graphics play a big role in that. we have to keep on where we are. we are still building houses, still completing houses, so we are not going to see too much of a decline in the side industries like home depot. still strong because people are still buying. less traffic as the construction numbers start to fade. people are still going to fill those homes that have been constructed. lisa: this is by design, isn't it? the fed is ok with what they are seeing even if the planes that we saw an homeowner sentiment, even with the cancellations increasing. this is all exactly what the fed is hoping for.

the first thing that they expect to react to come up rising interest rates, this is what they are looking for. the question is how far does it go? do we see something like 2007 were not only the industry fell off a cliff when it restarted, they couldn't find construction workers because they have found other jobs? the last couple of years with integration being curtailed, it was even harder to find construction workers, so now they are prioritizing the work, the business falling back. jonathan: thank you. holding up just -1.3%. some mortgage applications data, then mike mckee is going to break down details for us. tom: right now, the chief economist in ernst & young, we

are thrilled he could join us. one of the great debates we are having here is the optimism seen out of part of jp morgan this morning on inflation coming down faster. that buttresses up against your good analysis of a rescission or lack thereof. consistent, profound, and pervasive. is our inflation present state, prophetic -- persistent, profound, and invasive? >> we were just talking about the housing slowdown. i don't think we're in that type of environment. they are generally still healthy in terms of wealth levels, in terms of leverage at 20 year lows. those are good conditions entering this type of environment where there will be a slowdown by interest

rate-sensitive sectors. that is what the fed intends to do. the housing sector alone is not enough. it wants the broader indicators and hopes that inflation follows suit. the key theme on the inflation front is going to be that headline inflation and core inflation. core inflation is likely to show more persistence going into next year. jonathan: you just went through the central household balance sheets. is the same truth from one group to the other? >> i do think we are going to come out of this with ak-shaped recovery. we have to be conscious of the flack -- fact that inflation is not affecting everyone in the same way.

lower income families could be disproportionately infected and their ability to spend and constraint. inflation is still going to be a concern and a constraint on spending overall but it is not going to affect everyone in the same way. what we are starting to see is that there is this weakening in home sales which has already occurred over the past six months. that is getting through to homebuilder sentiment. i think there is further to go to the downside terms of housing activity, but that will take place over the next few months. it is not over yet. lisa: so what are you looking for in order to determine how deep the downturn will be? we talk about soft landing and hard landing and it conflates this idea of a slowdown that is probably expected to cost -- across the board. when are we looking at?

>> we are in this unique environment where businesses that we talked to are still talking about hiring workers. at a slower pace, but they are still talking about hiring workers. we recently hosted a roundtable and one of the key indicators is how companies are reacting to the expected slowdown in economic demand. they are looking at initially slow hiring rather than perceived acid layoff. slow hiring, then strategic hiring, then strategic layoffs, and then more broad-based layoffs, but what that means in terms of the potential for consumers to get new spending that that should support household income going forward. the same is true for business investment. businesses are still looking to build resilience and that is another encouraging sign in terms of this potential recession being milder than the

prior ones. lisa: at least for the middle class and the upper-middle-class middle class and the wealthy, but not necessarily the lower class. you are seeing the cutbacks happening more there because wages are going up much more quickly. one of the longer-term consequence that you are talking about? >> one of the key consequences of this k-shaped recovery is a different approach to labor going forward, and approach to which labor is viewed as much more valuable than it was pre- covid. there are difficulties to find the appropriate labor, to train them, to pay them. they're going to be strategic when it comes to each sector they are working, sectors seeking the more severe slowdown in economic activity likely to be the ones that transition more faster-paste from this reduced

hiring process toward more massive layoffs. both higher inflation and higher interest rates and a different talon gradient affect the response from consumers and their ability to navigate through this period of uncertainty. but my key focus right now is what is it they are doing? we know there is a consumer slowdown underway. that will be key in gauging whether we do end up in a recession and how severe that recession is. jonathan: awesome to get your reaction to that data. first of all, you are hiring before you get the big layoffs. now the latest market in the last 24 hours, in line with slowdown and hiring expected. not just apple, but we are seeing elsewhere. tom: i am really glad to bring

this up. i take great issue with conflating contract-based with full-time employees. there is a huge distinction. what is so important, any small business people watching, you layoff people while you are slow while you are hiring in other areas. i really question the apocalyptic angle. lisa: there is nothing apocalyptic about this. tom: i think jp morgan will hire a jillion tech people this year. lisa: you can carry on, but i think it is really important to note that you have seen jobs be a lot stickier at the high-end. you're not seeing it on the low-end. that is all. jonathan: just signing up for bloomberg right now.

coming up, this awesome conversation. we have rallied $.17 on the s&p. looking forward to that at about 9:30 eastern time. in new york, this is bloomberg. >> keeping you up-to-date with news from around the world with the first word news, in wyoming today, republican congresswoman liz cheney is in danger of losing her seat to a primary challenger endorsed by donald trump. the daughter of the former vice president is vice chair of the committee investigating the rise at the -- riots at the capitol. the trump organization's longtime cfo is in plea talks to

avoid a trial. the company are accused of conspiring to avoid income taxes by giving employees perks that were not reported to authorities. even if settled, but trump organization will still face the full case. one of your of's largest -- europe's largest smelters has been operating at a reduced rate because of falling energy prices. american airlines has a market will emerge that can cut transatlantic travel times by half. they has faced --. the planes will not begin carrying passengers into the end of the decade. united airlines and japan airlines have also committed to buying them. 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.

>> that would be a huge deal if china ended the covid zero policy because essentially, the market is on edge. is china going to shut down? if they do get rid of this policy, i think that will be quite telling for the market, especially for next year. tom: the atlantic council senior fellow with the caution seen yesterday from china. $90 per barrel. we will pause now for our american audience to confront numbers that i'm going to suggest, lisa, are unimaginable.

natural gas, one of the benchmarks of continental europe up 1577% on a moving average study three weeks after the invasion. 727% annualized. lisa, please. lisa: this is what john was saying. right now in europe, natural gas prices are 12 times higher than what they normally are. tom:tom: and that makes for standard deviations being useless. the social consequences, senior executive energy editor for commodities. what all this numbers mumbo-jumbo means to people in the netherlands where the people of the czech republic. >> well, it means two things.

most importantly, that without significant help, they are going to find it very difficult to keep their homes, you can't afford that to change by a factor of sevenfold, that makes it unaffordable for most households. and whether there are going to be enough jobs for people. one thing we saw today is in the netherlands, it is just not affordable to run it with these energy prices. that is what they are dealing with and factories across europe. the german connection across 500 euros, that is five times what it was a year ago. tom: does the energy team

dovetail the economics team of simon kennedy at bloomberg? do you believe governments will come to the rescue of retail and quite frankly, as you mentioned, industrial? will: i think they will have to. there have been rebates from different countries, different companies. we've probably only seen the beginning. here in the u.k., the opposition leader yesterday balance sheet of a state. it will be up to the new british prime minister to decide what they want to do but we will see more and more of these things and the burden will be borne by the balance sheets european states. lisa: in the meantime, we have heard more and more about natural gas companies, natural gas utilities switching to oil, to coal, to other fossil fuels

to try to help produce enough electricity. how much can we see the ongoing divergence that we have of oil prices going down really dramatically while natural gas prices spike? will: there is a real divergence which is a bit jarring but i think it looks like wider worries of the economic slowdown in some ways caused by the power controversy in europe, the slowdown in china as well. it is worth noting that i've always talked a lot about the difference between what they want to pay today and in the future. for the last few months, a suggestion that you would normally expect that at the end of the summer. it does seem that the oil market

is down, but that is not reflected in the european energy markets. lisa: picking up on crude oil, how much are we actually seeing others beyond what is normal for seasonal changes? >> there has been some weakness on the seasonal basis that did have some impact on demand. we have seen some weakness in covid restrictions and now people are worried about the direction of the economy. but we have seen a lot of counterbalance. people are flying a lot. again, demand will be driven by the switching europe away from natural gas sources of energy.

i think the picture on the month is mixed. as you say, there are pockets. tom: thank you, that is something we have to follow day by day. apocalyptic, it is a word we made jokes about this morning, and i'm sorry. it is apocalyptic when you look at those charts. lisa: it is game-changing. not just avoid recession, but a deeper recession at that because of how high natural gas prices have gotten. we see that out of germany, it was really brutal. tom: i think this is really important. governments are going to come to the rescue. it is unthinkable they won't, and then you essentially monetize or disk allies. -- fiscalize.

lisa: now you hear about governments saying you can't eat your pool fully on these days and you have to keep things at this temperature. this is important because it limits some of the commercial activity. tom: the industrial impact in continental europe. futures -12. flat. i would note the dollar strength this morning. stay with us on bloomberg radio and bloomberg television. good morning.

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jonathan: for our audience worldwide, we are negative about a quarter of a percent. the countdown to the open starts now. >> everything you need to get set for the start of u.s. trading, this is bloomberg, the open with jonathan ferro. ♪ jonathan: live from new york, whipsawed by economic data. >> the data has been fascinating rate -- lately. >> cpi numbers and the