>> the fed, and powell in particular, needs to get across a message that the job is not done. >> it is not just about what the ecb does. you have to take into account the market's inflation premium. >> the market desperately wants the fed to react. >> we are in the early days of recovering off micron extreme low. >> central banks everywhere will take what they can get. announcer: this is "bloomberg surveillance." jonathan: this economic data is not pretty. from new york city, good morning, good morning. this is "bloomberg surveillance," alongside tom keene and lisa abramowicz, i'm

jonathan ferro. tk, that data out of europe, ugly. tom: it is ugly everywhere. it is going to be interesting to see the data as chairman powell waltzes to jackson hole. what we see this morning in foreign exchange, can you imagine his speech if we get monday, tuesday, wednesday, thursday of this kind of market action? jonathan: clearly it changes because what we have seen the last month or so is an easing of financial conditions. it has certainly tightened up the last couple of days. here is a quote off the back of the european data. the data points to an economy in a contraction during the third quarter. that is what we are all looking for. tom: i would agree. i like the idea you devolve down to what is economic growth, because that is the end result of all of this. jan hatzius is here with us coming up goldman sachs.

number one thing right now is away from the strategist and all of that, is trying to get a handle on the interdependencies of the global economies. what does governor bailey sata chairman powell at jackson hole? jonathan: chairman bailey staring down a slowdown. did you see the pmi? lisa: stagnation over there. in the euro they are sliding toward a recession. the u.k. is already in stagnation. the question is how deep? hiking into pain. i have to reiterate what tom was saying. how much can the u.s. continue to diverge? how far can it go as you see all of this pain trickling out in european data? jonathan: what do you make of the market move? lisa: the bulls are getting more entrenched, the bears are getting more entrenched. that is my take away. he read the notes the bears are saying this is clearly a bear market rally, the bears are

saying we have seen the bottom, this is time to pick up thing on the margins -- things on the margins. tom: the theme here is chairman powell -- i mean, the shock of chairman powell pivoting or suggesting a pivot to jackson hole would be the same as man united beating liverpool. jonathan: unthinkable, but it does happen, tom. he never really did pivot. let's put it that way. tom: thank you. jonathan: they are looking from a shift lower down to a 50, 20 five, and hopefully a pause. that is the difference between the market and the reserve. the market is looking for cuts next year and the federal reserve is talking about raising hold. lisa: everyone is anticipating a hawkish message from jay powell and they are lining up their bets in anticipation of a hawkish discussion friday. at what point do we then get a

either rumor, sell the news activity when he comes out hawkish? jonathan: some of the kids were playing games, then he's going to come back after a long summer and do a speech. they are clearly cleaning things up. you tidy the house, don't you? lisa: is that us? [laughter] jonathan: market participants are like toddlers sometimes. on the nasdaq, up .1%. -- .3%. yields higher by 90 even a basis point in the last 24 hours on a 10 year. lisa, maybe we need to get used to this. euro-dollar breaking through parity. lisa: we did see that breakthrough actually closing below. a for the first time going back to two. you have reached that level and we are not going back. that seems to be the direction of travel. talking about the european pmi's, we do get a series of s&p

pmi's. at 10:00 a.m. we get u.s. july new home sales. in the united states and last -- i'm less interested in the time to duration in manufacturing and services in how much the housing market is rolling over. as we see the volumes take down we have seen an incredible takedown in the volume of transactions. i will point is that translate to lower costs, lower confidence, the whole sentiment? at 1:00 p.m. we get the u.s. selling notes. this to me is actually a particularly interesting option given the positioning. hedge funds shorting the front and at the fastest pace on record. ahead of the expected hawkish speech on friday from jay powell. this is the tail end of earnings season. the vast majority of u.s. companies have reported. however, we get the latest read on the consumer. macy's is reporting any minute

now. dick's sporting goods this morning. at what point do we get some sort of read on the consumer versus idiosyncratic stories? today it has been incredibly diverging, these retailers in terms of their fortunes. how much do you see diversions versus a cohesive message about how much momentum consumers can have any time of such high inflation? jonathan: thank you. the shot of that two just ridiculous. every time i see it. -- that two-year, just ridiculous. every time i see it. things start to look bad than the market sells off, i catch up with stephen auth. steve off is not saying that anymore. the chief executive officer for federated hermes joins us now. walk me through it. why are you so defensive this time around? stephen: it is different this

time. when you were talking about how there could be hiking into a recession in the u.k., what is causing the recession is the inflation. the banks are really in a tough spot here, where you have a very high, and i think stubborn, inflation problem, driven by -- ok, maybe temporary commodity price hikes, that is part of the problem, but underneath it all is shortages in housing, shortages in labor, globally. the pressure there on the court numbers is going to be there for a while. this idea we are going to get back to the deflationary period before covid that we experienced for 20, 30 years and was, you know, a big driver of markets, we think that is probably behind us and the markets need to adjust to a longer-term

something north of 3% inflation environment, 18 year yield in the 3% to 4% range. and valuations after this route -- this last rally, especially on the growth side of the equation, frankly stocks are overpriced. tom: got 10% cash, which is extraordinary. never thought i would say that about federated, that you are loaded up that much. it is a huge amount of cash to have on a long-only by side fun. i will the corporation adapt to this higher inflation regime? how do you presume that your top 40 holdings will adapt and adjust out the next three to five years? stephen: one thing we are overweight is dividend-paying stocks. those companies are pretty stable businesses. they have pricing power. i can gradually increase pricing

on their portfolio. they should have nominal sales that will go up with nominal gdp. and the stocks are not crazy priced. they are throwing off dividends of 3% to 4%. eating a return in cash is not bad. we happen telling our clients the days of 50%, 20% a year are behind us now. we have to be thinking about single-digit returns on stocks the next three years. i would point out cash is not as horrible as it used to be. when you were doing your three acts leverage to money market fund, i mean, -- tom: federated still that idea for me, just so you know. jonathan: i'm not sure how much money they are you for that. stephen: we think they will be paying 3% soon. that is not a bad return relative to bonds, where we think you probably still have price risk.

so, we are overweight gas, we are underweight bonds, we are overweight value stocks, and underweight growth stocks, where we think it is going to compress. it is defensive. it is probably not as ridiculously defensive as you think. if you are expecting a 5% to 7% return over the next three year, per year. lisa: sounds like you are incredibly bearish. you say we are underweight equities for the first time in a decade. it is the nature of the downturn in terms of what you are expecting versus a reallocation based on the first time we are getting real yields in a very long time? stephen: it is the rocky landing idea. we don't think we are in's -- in for some sort of crisis recession. there is the possibility, but we are looking at a rocky landing. we think real gdp growth in 1% for the first quarter.

we think inflation is going to stay high. come off the levels now but still stay high. the fed is not going to pivot because the playbook they are following is the 1970's, where the fed made the mistake of pivoting too soon. that led to a resurgence of inflation that caused volcker to have to tank the economy into a double-digit recession. i think that is the playbook they are playing. i am totally not expecting anything dovish out of jackson hole on friday. i think the rally has gotten a little bit ahead of itself. jonathan: awesome to catch up. stephen auth of federated hermes. with a different perspective relative to what we have heard for the past decade or so. tom: we talk to these guests time and time again, and that is a new stephen auth. jonathan: we will catch up with jan hatzius. we will do that in about 15 minutes time as we count you

down to the annual fed get together, where we were -- where we will hear from chairman powell on friday. a small balance relative to the move down we have seen over the previous two days. it is a cloudy new york city this morning. brammo, what did you do? lisa: thank you. jonathan: this is bloomberg. ritika: keeping up-to-date with news from around the world, i'm ritika gupta. there are signs that a recession and europe may be coming to pass. economic activity in the euro zone fell for a second month. august's drop was driven by manufacturing. the rebound in services like tourism almost ground to a halt. those gasoline prices in the u.s. have fallen for 70 days in a row. that is the most in more than 7.5 years. pump prices are averaging $3.89 a gallon after reaching a record high around five dollars in june. the u.s. once that russia is

about to launch a new round of attacks against ukrainian government facilities. ukraine is preparing to celebrate its independence day on wednesday. president zelenskyy says russia may try to do something particularly nasty. the u.s. government reportedly has recovered more than 300 classified documents from donald trump's office. that includes papers returned in january. a second set given to the justice department in june. some of the documents came from the cia and national security agency. shares of zoom are lower. results showed a transition from an essential tool to an enterprise is this platform. zoom reported the lower sales gain in its history -- lowest sales gain in its history. global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. i'm ritika gupta. this is bloomberg.

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>> we are working hard to become independent of this gas supply, and we are doing a lot of investments to make it happen. and we are doing and as fast as possible.

never such an infrastructure has been built in germany. jonathan: chancellor schultz has a lot of problems. i imagine being in canada is not one of them right now. problems are building up in germany and europe. lisa, just let it go, right? lisa: canada? [laughter] jonathan: it is still early. lisa: i'm not saying anything. jonathan: you can say whatever you want. lisa: i love those markets. jonathan: futures up a little more than .1% on the s&p. yields unchanged. lisa, got things to say? you good? lisa: i'm good. jonathan: takei, how are you? [laughter] -- tk, how are you? [laughter] what are you still doing out here? tom: i was going to take a

gulfstream and they would not let me because of the carbon footprint. i think all of us should fly in different planes. jonathan: on wednesday on the first flight with you and i'm on the second flight with lisa. lisa: trying to bridge the divide? jonathan: you get there and you don't get too jealous. lisa: i'm going to ride an elk there. jonathan: i'm pleased to know you will be dialed in on fed policy. tom: what we can do is waltz from west to east on 90 six st in central park. we can do that past the tennis courts. there has been a lot of walking done in the democratic party, and today there is an election in new york. joe mathieu knows the distance across central park says much about the democratic party. joe, it is nagler -- nadler and

meloni. what does it symbolize to mr. schumer and the future of the democratic party? >> he endorsed jerry nadler. look, this is why politics can be a dirty business. these two were allies, elected together in 1992. they were part of the senior leadership in the house. this would be like if you were competing against jon ferro on some other network, looking back on the days in which you cosa -- you cohosted "surveillance," and -- tom: joe, you are describing friday. what is the difference between nadler and meloni? joe: you have seen the ad. you can send a man to do a woman's job, and she has reminded people of her work as

the first woman to share the powerful oversight committee. reproductive rights as an issue. jerry nadler will say, if you get rid of me you are not going to have a jewish member of the delegation in an incredibly important part of the country here. the new york times endorsed him. i think we see where this is going to go, to see two incumbents who have been allies for so long, for 30 years, is remarkable. lisa: why is this happening? joe: it is all about redistricting. in the maps change sometimes powerful neighbors can find themselves in the same district vying for similar patches of voters. this is going to look a little bit different from both candidates here. lisa: ron desantis is running uncontested in a primary there. how much is this a scene in which democrats have contested

primaries and republican incumbents having much more power heading into this election? joe: it has been a bit of a theme. we talked about this over the course of the primary campaign. democrats have tried to prevent that from happening in a lot of cases. in some cases it is inevitable when you redraw maps. there is not a lot that can be done about it. lisa: one of the themes has been democrats are not losing as much as people thought. you have mitch mcconnell saying there is a likelihood the democrats will keep the senate, even if they have to give up the house. how based in truth is this, based on the activity in some of these primaries? joe: it is hard to tell when you start talking about polls, because the national polls are very difficult. particularly when you look at generic ballot polls that play well for democrats now, that does not jive with president's approval ratings and add up to what we are talking about with regards to inflation and so many other issues talking democrats.

-- issues dogging democrats. and you hear mitch mcconnell referring to canada quality he is talking about the herschel walker's, j.d. vance's, dr. oz's, who he does not feel a lot of confidence in. they are not the candidates mitch mcconnell would have chosen. that doesn't mean we do not wake up surprised on that next wednesday morning when they have all been elected. it is too difficult to tell. tom: wall street, there is a kickoff after labor day. should we be surprised to see biden administration changes in september? joe: september might be early. that might follow the midterms. tom: so wait for november? joe: just to keep from muddying the waters here, i think with the president is planning is a national tour. whether they put him on a train or send him on air force one you are going to be seeing him trying to make the case for

infrastructure and things no one is talking about here. all the while foreign policy surrounding this president as he spends more time in delaware here. it is a quiet period in washington, that they are talking about these plans for fall. jonathan: do these candidates want amtrak joe to stay in delaware? joe: it depends who you ask. ding on stage with the commander-in-chief is a big deal, but you are going to see a case by case situation. it depends on how -- on how well biden played in those districts in 2020 and what the economic straits are in that area. if we are talking about inflation as opposed to infrastructure, i won't say bill burck better, some of the accomplishments the president has made, he will be welcome. john fetterman in pennsylvania says he welcomes the president on stage anytime. were going to see different versions of that, and that is not a joe biden phenomenon. realizing his approval ratings

are deep in trouble here. that happens in midterms, were commanders in chief do not always help people running for congress. jonathan: joe mathieu, thank you for catching up. tk, what are we looking at now? democrats keep this senate but lose the house? tom: that is the zeitgeist. it is fluid right now. it helps to have someone like joe mathieu. i could never do what he does. i do not have the brain for it. jonathan: we will catch up with mark howard of bnp paribas in a moment. futures unchanged on the s&p. from new york, this is bloomberg. ♪

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jonathan: this equity market bounce this morning is struggling to hold. futures unchanged on the s&p 500. on the nasdaq, berry slightly negative. that is the equity picture. here is the bond market story. first day of august at the close. look at it now. yields up again by a couple of basis points.

not a million miles away, and the direction of travel of the last few weeks, yields higher at the front end. tom: this is important. any good moving average, the moving average that i use of the two year yield is demonstrably higher yield than it was in june. it is the sustained nature of the two-year move that is important. jonathan: but we have seen is the two-year start to break out to those june highs again. tom: but the moving averages above. jonathan: as that happens, the dollar strength starts to boil. we have seen that in the last couple of days, haven't we? euro-dollar, a break of parity. for the u.k. and eurozone, lisa, the data, terrible. manufacturing in the u.k. and europe in the 40's. the difference between 50 is

expansion and contraction, and that is solidly in contraction. lisa: we were expecting that weakness from europe. the confirmation of it in the biggest economies has gotten a lot of people concerned. i will say i should change my twitter profile to speaking emphatically about bad things that could happen. jonathan: it is a toxic brew, brammo. tom: very importantly sterling down to 118. we did not see a 116 and number of weeks ago. mark howard is senior multi-assets best supposed -- senior multi-asset specialist at bnp paribas. focused on fixed income right now. you and i are in the same camp. it is not about picking the moment as the media does, you look for a message of a sustained a strategy by the fed. what will be sustained about

chairman powell's speech on friday? mark: i think what is going to be sustained, tom -- good morning, thank you for having me -- what's going to be sustained is the focus on trying to squeeze out inflation to the extent the fed can. had to scramble to get caught up, which caused the markets to over correct on the downside through mid-june. we had a little bit of good news, a little bit of dovishness, and now i think he is going to set the record straight and say, don't expect a devilish pivot anytime soon. that is why we have seen the front and adjust over the last several days. there is not going to be -- anytime soon in our view. tom: you are an optimist. you showed the gloom floating around right now? mark: i don't know if it is gloom. your earlier guest had the right tone, which is that inflation is

a real challenge not just in the u.s., where we have seen it settle a little bit, but you guys mentioned yesterday what is happening in the u.k. and in many of the emerging markets. there is a real challenge and central planks -- central banks globally are going to be weighing against that. with the lag effect that is going to kick into corporate profitability. i think it is prudent not to expect the market to continue to rebound. we are going to settle in here. our target for the s&p is 4400 by the end of the year. we think it is appropriate for the market to have leveled off recently. jonathan: you and your colleague had the courage to buy some of that weakness in june. you always have to think about the story. then think about the price of the story. can you talk to me about the price of the story in europe now? we are all familiar with the story -- not great, is it? what price are way for a day of

the back -- terrible back end of the year? mark: definitely had a courageous call, and recently have started to moderate the call to be a little more balanced in the outlook. the european outlook, as you highlighted, is quite challenging, not just on the continent, but the u.k. just the last several days around power and energy prices there is genuine reason to be concerned of real stagflationary pressures as the year plays out. we believe the central bank will hike in september. that is a very challenging near-term mix for risk assets. but ultimately, you know, we do not see a major correction in european asset prices. but we do see a choppy road ahead. lisa: you talk about hiking into weakness and this has been a

theme in 2022. what is the trigger point for central bankers to stop hiking? this is what people have been debating as to the pivot and how jay powell may reiterate a hawkish message on friday. mark: i think there are several different things. it is not a linear line that you get to this point and they stop hiking. clearly the global economy is going through a downshift. you guys have not talked much this morning about china, but you did yesterday, and that is another variable i think is important. growth, globally, is going to moderate a good deal next year, and i think that is going to create a window of opportunity after the fed has hiked further in september, november, and december. probably by 25 basis points, those last two, this year. take a pause and let the contractionary impulse of the

monetary policy and qt play through to the real economy. that is when they are going to reassess. that is when we are going to see a pause in the hiking cycle. they may have to hike through, but i think with the negative impulse of global growth, china and europe in particular weighing in on usf -- u.s. export activity, as well as the strong dollar, that should create an opportunity for the fed to take a pause next year. lisa: where has the market not priced in the slowdown we are seeing, actually confirmed even by official data coming out of china? mark: where have we seen that preston -- that priced in? lisa: we hope we not seen that priced in? mark: you have certainly seen it in currency. i think it is fairly priced in. we have seen real stresses in credit. in china we saw equities have come off in the currency has

moderated. i think it is reasonably priced in. chinese markets are tricky. much more so than the western ones, because you do not have clarity. it is not just a fundamentally-driven market. you have incredible monetary and governmental stimuli and contraction that can go on. i think markets are fairly priced in china, reflecting the uncertainty. as the year plays out with their form we don't think they're going to -- we don't think they're going to let the economy collapse further. tom: bnp paribas has an absolutely unique relationship with china. i had the honor of meeting with bnp and government officials in beijing. it was a unique meeting. mark howard, does u.s. risk bleeding commerce to europe?

is there a place where france can be opportunistic and get a marginal edge in china? mark: my good friend and colleague george sohn is on the ground and watching the flows day-to-day, but i think china is a global player and they have bilateral relationships with all of the leading trading partners, including those who have financial institutions. i'm not sure it is a regional opportunity or risk you friend right now. rather it is market market, product by product. it is in the best interests of global players to support trade even though there are tensions and frictions. the one belt, one road initiative and variants of that create opportunity for european institute since -- european institutions, and african, and that is going to continue to be

the case. but certainly their form to be periods where one country or one institution finds itself on the back for temporarily. but the leading global players will remain committed to china. jonathan: i want to pick up on something you said. i'm interested in their language we use to describe china. they will not let it happen. that implies they have the -- a greater degree of control of the situation. that it is up to them. to what extent do you think they have control over some of these dynamics taking place in this economy? mark: it is not just the ability , but willingness. that is why i phrased it that way. there are certain circumstances like the housing and property markets where they have the ability to pump things up, they have the ability to insert capital and stabilize financial institutions for construction companies by orchestrating the workouts of debt. don't do that in the west.

we don't do that in the u.k. or europe. that is one example where they have -- clearly in the currency markets as well and given the importance of export activity for them, they have the ability to maneuver their currency to support key sectors of their economy. in the use the regulatory switch rather aggressively too. they have the ability to support domestic exporters at the expense of other players. i think they do it more frequently, which in my opinion means they are more likely to intervene and support growth and other priorities. jonathan: good to catch up. mark howard of bnp paribas. brammo, that is an important dynamic in china. if they face some form of liquidity trap, not allowing things to happen -- it may be out of their control. lisa: especially miller yesterday was saying they have not put that much stimulus into

the market. jonathan: we will build on some of this conversation around china. we will catch up with tina fordham in just a moment. futures up .2% on the s&p. this is bloomberg. ritika: keeping you up-to-date with news from around the world, is the first word. u.s. says a nuclear deal with iran is closer than before, big caps remain. a spokesman says iran has appeared to drop some of its open nonstarter demands." biden administration continues to review the eu's latest proposal curbing iran's nuclear program. hedge friends -- headphones are -- the group is placing shorts on a key overnight moves in line with the fed's benchmark. that will benefit if jerome powell effectively rules out a dovish pivot when he speaks at this week's symposium.

the price of u.s. natural gas rose above 10 million -- $10 per million for the first time since 2008. that extends a rally driven by concerns that global stockpiles are not enough to meet winter demand. in the u.s. well retreats are -- reduction has grown only modestly. life expectancy in new york plummeted by three years in 2020. the cdc says that was the biggest decline among all states in the first year of the covered pandemic residents are expected to -- the 15th highest life expectancy in the country overall. overall u.s. life expectancy plunged in 2020. the biggest drop since world war ii. global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. i'm ritika gupta. this is bloomberg. ♪

>> we are seeing increasingly downside risks to the european economy. naturally, what is going on with the natural gas situation is a contributing factor. we are targeting 97 on euro-dollar. we think there is strength to come for the dollar. jonathan: that is not a horn looking for that weekly euro. from new york city this morning, good morning. futures up just a little bit. i've got to get used to quoting this. tom: you look at it you are like, wait. jonathan: where is the other number?

there is more euro weakness out there and more dollar strength, tom. tom: there is. it's get to this, because i think it is so important. it is a better way of what we are doing in the markets. sterling, 117.62. tina fordham joins us right now, founder and chief political strategist at fordham global foresight. i look at where we are, and the bombing in moscow and all of that, and there seems to be an unraveling. in our world it is energy prices. in your world it is something like miss maloni with very austere tendencies, like what we see in hungry. how unsettled is europe, given the energy price overlay? tina: tom, you have highlighted some of the themes that are

interwoven, really, in the global political risk outlook, where the high energy prices are being driven by the continuation of the russian invasion of ukraine. plus the long-standing kremlin policy of intervening in european politics. it is not illegal for european political parties to take funding from other countries, and furthermore this is long-documented. viktor orban's connections to the kremlin. a party in italy saying perhaps sanctions against russia are not working. while policymakers are rightly -- are rightly focusing on the inflation outlook, the attention , these cracks are really concerning.

the september elections in italy are going to put the prime minister and office who is uncomfortably close to fascist tendencies, and with connections to russia. tom: shock of the pricing is so tangible. my reading of history here -- and it may be 1938, you can pick your point of gloom -- but the fact is this pricing leads to international relations and political adjustment. what would you suggest that adjustment will be? tina: at the first level that is going to lead to enormous household distress. i see that through the lens of what is happening in the u.k. with the leadership conference for the tory party and the talk about energy price caps. we are talking about highs holds when toppling -- households quintuple and in their energy bills.

over 1000 pounds a month for electricity. it is a shock that is not going to be able to be absorbed. i think there is going to be mass non-payment. if you look at the dynamics of the tory leadership contest it is about getting those conservative party voters. it is a different platform. this government is going to be reactive. in contrast macron has been more proactive, saying it is your patriotic duty to do with it and we have to say -- to stay strong. i think europe's resolve when it comes to supporting ukraine will continue, but there is going to be a lot of pain. this going to hurt, and you asked what that policy responses going to be. people look at the pandemic and they are going to expect government support. how we get there is hard to say, but the public will not be able

to absorb price increases of these proportions. lisa: you went where i wanted to go, which is you said resolve will remain strong to support ukraine and the european people will continue with that. when does that fray? especially as power costs rise and there is a course of people saying perhaps some of the measures taken against russia were as penalizing to the western nations as anyone else? tina: it is always a question, right, what is the alternative? there is no going back to russia as an energy supplier. those days are over, and the substitution of supply is already happening. we are, however, looking at a very difficult picture here, one people are not used to. in the old days you had a fireplace and you could chop firewood. now it is a central heating, which means people are going to

have to turn it off. it is going to be incredibly difficult. what you do see in europe is an increasing sense that ukraine has to win this conflict. and there is not going to be a back from that. what i'm trying to say is maintaining that position of support and the sacrifice it is going to entail for households means you have to accelerate the green transition. you have to keep those nuclear power plants going, which is a huge turnaround for german policy. and that is happening quickly. not enough to alleviate pain this winter, but i think quickly enough -- and again we cannot go back to russia as an energy supplier. jonathan: these are huge, huge changes. tina fordham of fordham global foresight. tom, i want to pick up on that.

i think we are struggling collectively to process some of these numbers and moves. and we have not even started to think about the so-called second-round effects of all of this. yesterday we talked about citi's forecast of inflation in the u.k. that just feels like a number we are throwing out there. tom: i totally agree. jonathan: i would go a step further. i think we have a relationship with a barrel of oil in the same way we do not have with the gas price. tom, i don't think we understand what that actually means for the european consumer this winter. tom: this is really important. it is part of what we are doing at bloomberg and the invention of "surveillance" and all of that. by definition we are removed from all of this, if the second round as time moves on, things change. where tina comes in and others

in international relations is trying to look to the past and a ghost of the past and say, what is different this time? that brings an urgency to the fourth quarter of this year we have not seen in ages. these are parabolic moves. jonathan: huge moves, lisa, and complex issues. lisa: they are trickling out beyond the euro zone. gas in the u.s. also surged. it is becoming global. how diversion can these economies really be? jonathan: next, jan hatzius of goldman sachs. this is bloomberg. ♪

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>> the fed needs to get across a message that the job is not yet done. >> not just about what the ecb does and fed does. you have to take into account the inflation premium. >> the market desperately wants the fed to react. ask we are in the early days of recovering off of an extreme low. >> central banks everywhere will take what they can get. announcer: this is "bloomberg surveillance." jonathan: brammo has things to say about goldman hq.

lisa: how are you going to put that on tv? jonathan: good morning, good morning. alongside tom keene and lisa abramowicz, i'm jonathan ferro. futures up .1%, and it is all about the data in europe. tom: looking at the terminal, we are going to review that route the hour and throughout our trip to jackson hole. i want to go to the great divide of america. this is something jan hatzius did years ago. macy's just out, and buried in it is the comp sales. negative point -- -2.9%. bloomingdale's, up 8.8%. that describes the divide in this nation. jonathan: markdown promotions. inventory, aged inventory. these are big problems we were hopeful target had worked their

way through. at macy's it seems like they have just started. lisa: they beat expectations when it comes to sales, however when it comes to their forecast they ratcheted things down because of the expectation of consumers slowing down purchases. how do you get ahead of such a quickly moving kind of consumer sentiment and the post-pandemic reality? jonathan: they have had to cut their guidance this morning. futures positive on the s&p. macy's just about positive as well. if you take a look at the bond market, yields unchanged, they are just north of 3%. but the move in foreign exchange, you have to get used to it, haven't you? it is a clean break of parity in the last couple of days. lisa: i keep thinking about jordan ron chester. 95 is the next target. what we are watching today, 9:45 a.m. we do get pmi's out of the u.s. and services.

at 10:00 a.m. u.s. july new home sales. how much activity in the market is deteriorating on the heels of higher mortgage rates? at 1:00 p.m. the u.s. is selling 2-year note. this is fascinating to me, as people position for a hawkish speech from jerome powell. you are getting something from cash. we have been hearing that at 3.3 percent. however, what is the risk of the fed going much further? we were just talking about macy's. we have macy's that just came out, those shares up. they did beat on the sales, however they downgraded their forecast. we also hear from dick's sporting goods after the bell. how much does were -- how much does macy's mean going forward? what does this say about a

consumer, where there is the expectation that it is a temporary resilience? jonathan: up by little more than 2%. joining us now we get really lucky. jan hatzius, chief economist at goldman sachs. china, gdp forecast at goldman now 3% for the year. europe base case for everybody, they into recession. where on earth does that leave the u.s. economy? jan: i think the u.s. does not have quite the same degree of headwinds as both china and europe. in china you have zero covert policy and the property market downturn, which is a multiyear development. in europe you have the gas issue. there is nothing quite to the same degree we have in the u.s., but it is going to be a slow growth environment. the fed wants below trend. that is why financial conditions are where they are. it is tightening pretty aggressively. and you have the fiscal drag.

plenty of headwinds, but i think it is not quite as bad as in china or the euro area. jonathan: i do you expect chairman powell to navigate that this friday? jan: i think you will be bouncing between two things. one, i think he will lay out a case, as he did in his last press conference, for slowing the pace of increases. we had two 75 basis point moves. our expectation would be, barring data surprises, that the september move is 50. i don't think he will be specific about the number, but i think he will be saying there is a risk of over tightening, and therefore it makes sense to go a little bit more slowly than these outsized increases. at the same time he will make clear that the job is not yet done. inflation is too high. they are committed to bringing inflation back down to 2% i

think it will be a balancing act. tom: there is a mix here of themes, and one is what we saw from macy's, where bloomingdale's and the have's do well, and macy's and the have-nots are struggling. are we getting our x axis wrong right now? do we need to look out three years or five years of elevated inflation? jan: i think a year from now, two years from now inflation will be much lower. there are some drivers -- commodity prices are clear. the sector in general, i think that is going to come off a lot. the risk is on the services side, where we have seen less of an indication that things are slowing, especially rents are still growing quickly. i think that is going to be well above normal into 2023, and

maybe even beyond. i do think they're going to be improvements, but not everywhere. tom: should we have a more nominal gdp, nominal inflation analysis? the have-nots are getting crushed minute by minute. should we switch to a more nominal study? jan: i think what you are suggesting is we look at the distribution of incomes and spending. you clearly see some big differences there, and i think macy's versus nordstrom is a good example. you can look at real income. there has been a much bigger pullback at the bottom and in part because the port was so much more important there. and in part because at the bottom end you see more of an impact from gas prices and inflation generally. at the margin the drop in gas

prices is helping at the bottom end, but that is only a small part of the previous deterioration. lisa: there is with physical goods and bit of disinflationary pressure. is it enough to achieve a soft landing? have you improve your forecasts about what the fed has to do and the outcome in the u.s. economy? jan: i think it is certainly helpful, and we have continued to be in the soft landing camp, in part because of the expectation that some of the goods pressures were debate. the most important -- would abate. most important is the labor market. that is something they need to pull off, and we have seen some encouraging indicators. in particular the decline in job openings, which is probably still underway. we will probably see significant declines there. that is starting to bring the

labor market into better bad -- better balance. we still have a large gap between jobs and workers, but at least we are moving in the right direction there. lisa: you think that the market right now is not reflecting what still has to be done from the federal reserve in order to achieve that? this is something we have heard about throughout the morning. the theme has been that stocks need to break up -- need to make up -- need to wake up to it. are the accounting for the pain? -- are they accounting for the pain? jan: it does not look too low. it is 3.5 or more. i think that is sufficient relative to our forecast. maybe even a little bit more than sufficient. where i would disagree more with market pricing is, the pricing for significant rate cuts. i think that certainly could happen and would happen if you went into recession, but i think

a slow growth environment where the fed is trying to squeeze inflation lower, i think they will be resistant to raise cuts. i think those cuts are probably somewhat excessive from a market-pricing perspective. jonathan: it is a raise and hold strategy, and the words of mary daly. do you have any idea for how long? is it too premature to have that conversation? jan: i think it could be a couple of years. jonathan: really? jan: if you get to the mid-3% or higher you stay there. while inflation will look better a year from now i think it will still be significantly above the target, and ultimately they do want to get down to pretty close to 2%. jonathan: that is totally out of consensus. how much pushback from clients do you get when you bring that up? jan: i don't know if it is as out of consensus in terms of what forecasters are saying. i think there are quite a lot of

forecasters and fed officials -- you just mentioned mary daly -- fed officials who are saying this is a reasonable baseline. tom: the bottom line here is simple. this is the scene with jackson hole. jonathan: this is the difficulty. 3.5%, if you are going to hold rates at that level a couple of years, when does this landing fit into that profile? jan: i think that is a soft landing, kind of. if it was not a soft landing, if you went into a recession i think you would get cuts. but if the labor market continues to adjust, inflation gradually comes down, and the fed keeps the funds rate relatively high, you know, i think that is a soft landing. jonathan: absolutely fascinating. jan hatzius, great to catch up as always.

tom keene and lisa abramowicz. with things to say, and not at goldman hq. could you imagine, lisa? 3.5% for a couple of years? lisa: yields were below 2% not too long ago. jonathan: the markets need to readjust to different ways then you are suggesting. lisa: we could have a discussion. this is a fascinating one. jonathan: futures unchanged on the s&p. this is bloomberg. ritika: keeping up-to-date with the first word, i'm ritika gupta. gasoline prices in the u.s. have now fallen for 70 days straight. a that is the most in 7.5 years. pump averages are averaging the dollars $.89 a gallon. -- $3.89 a gallon. there are signs that a recession in europe may be coming to pass.

august's drop was driven by manufacturing. consumers have been hit a big jump in both energy and food costs. the u.s. ones that russia is about to launch a round of attacks against ukrainian government facilities. ukraine is preparing to celebrate its independence day on wednesday. president zelenskyy says that russia may try to do something particularly nasty. credit suisse is focusing more on wealth management while it is making cuts to its troubled investment banks. the swiss bank is reassigning advisors to its private banking international unit, goes after high-network -- high worth individuals. global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. i'm ritika gupta. this is bloomberg. ♪

>> things are a real mess. there is no growth momentum anywhere in europe. the only place i can see any before the end of the year is the u.s., and even then it is going to be patchy. i think the u.s. is going to

avoid recession quite comfortably. jonathan: i needed that soothing music before ian shepherdson turns around and says things are a real mess. tom keene, lisa abramowicz, and jonathan ferro. futures basically unchanged on the s&p 500. difficult days for the last two days on the s&p 500. nasdaq futures up around .1%. in the fx market, euro-dollar, we are down another .1%. it is four days of euro weakness, and more week data out of europe this money. tom: we need to pause on this. great and are seen -- greg anderson is using -- well, jon, i don't even know what to pick here other than stealing had a difficult 3:00 a.m., and now euro is challenged. jonathan: we need to pick up on

the conversation we just had with jan hatzius of goldman sachs, who told us the hurdle for interest rate cuts next year is higher than most people think. he also proposed the idea that maybe you get to 3.5% and stay there for two years. that is something we have not discussed in a material way. tom: i've been talking about the x-axis. it is not my job to opine on this. i think it is one outcome that has to be considered at the minimum. as you and i said, this has just got to be the core theme here at jackson hole leading up to the chairman's speech friday. thursday it is you me, grizzly bears, lisa. jonathan: the market bear alongside her. tom: we could get a photo of her next to the eight foot grizzly bear in the lodge. jonathan: we will make that happen.

the big divide between the markets, saying rate cuts go in 2023, and some people like jan hatzius saying hold up. we might be holding for a while. lisa: it is the good and bad resilient economy. it is resilient in that you avoid a recession. that is that the fed could keep those rates longer without torpedoing the momentum. tom: we will have to see on this. right now futures a little bit elevated. right now quickly, joe mathieu from washington. moscow straight south of the crimea is 100 miles. all putin cares about is odessa, which is 360 miles. trying to relate this with president biden in washington. all of a sudden what has changed is crimea is discussed. that was unthinkable two years ago. joe: this is true. we are seeing this virtual meeting of delegations from 40

countries. i imagine putin thought this was said and done, there is a lot of concerned about tomorrow we are going to be talking about independence day in ukraine and what that might mean for bridget brink. remember the ambassador to ukraine? our diplomatic presence in the capital could be very much at risk if vladimir putin, to the point of president zelenskyy, could try something unusual in attacking the capital city on what is a day of celebration for ukrainians. this is a very touchy situation as we look across the rest of this week, remembering that this is the sixth month mark tomorrow. this war is six months old. we were told that kyiv would fall in three to five days when it began. we are reading stories here on the terminal of the russian military bogged down, and a ukrainian military inspired by

the effort to protect its homeland in a remarkable way. is this going to be something we are talking about six months later? that could bring a different wrinkle to the crimea story. lisa: we all hope it gets resolved sooner. joe, we have been talking about the resilience, and tina fordham, the persistent feeling in europe as gas prices rise dramatically, as the pain is born at home. is the same true in the united states as a lot of the sara for joe biden go out and take to campaigning? joe: it is for now. the question is how long can this last? when does the war fatigue set in? when does the question about sending billions of dollars supporting the war in ukraine? it's surprising there has not been more of an isolationist view from congress, but the biden administration has held true to its promises so far for the people of ukraine. we are are we going to be post

midterms -- where are we going to be post midterms? the reaction here in the united states could be very different from what we see in europe. jonathan: joe mathieu, thank you. looking forward to the show later. gas prices, -- that stat on gas prices is amazing. 70 days and still going? lisa: it is still going, and you have seen that falloff, even as you have seen natural gas, vaseline come down for 70 straight days versus natural gas surging. jonathan: if we called at petro we would not get confused. lisa: that is un-american, jon, i'm sorry. jonathan: all right. i've upset both of you. lisa: we call it gas. a gas station. you call it petrol station? tom: where is my interns? can we get some therapy for those two?

they both feel vulnerable. lisa: in all seriousness, in the u.k. do you call it a petrol station? jonathan: yes. lisa: that is so long. it is gas. jonathan: ok. tom: can i parse one hatzius. this is stain is not a static sustain. if we come down and it is totally unacceptable for lawrence summers and anybody at the fed on the other site of the debate, it is 3%, or 4%, or 5%. that is the then-what. jonathan: you have raised this a few times and i agree with you. we are talking about a fed pivot because we have seen inflation north of 9%. it is a big change. lisa: this is the reason why people say there is no pivot. basically his implication is that this economy is a lot less

interest rate-sensitive than people thought. that it can withstand a 4% interest rate for a prolonged period of time without getting torpedo. this goes against the conventional wisdom. i find that fascinating. jonathan: does he call it petrol, though? lisa: no, he doesn't. absolutely not. is this what you are going to die on, petrol? tom: we are pivoting to the huckleberry pancakes at pioneer grill. jonathan: i've got to go on a diet, tom. tom: they are low-cal. [applause] -- [laughter]

jonathan: the s&p hundred down about three points, 4%. 0.04% on the nasdaq 100. the contribution from the front end of the bond market, 287 at the start of august. getting the close to yesterday's highs. yields up by a couple of basis points. the prospect that the fed rate

could hold on 2.5%, people looking at and talking about rate cuts, not saying anything about it. tom: bloomberg intelligence and economics adamant. john of stanford university was forceful with bloomberg a number of hours ago saying look, we have got to normalize at any cost. jonathan: the questions. one, how resilient is this economy? two, how tolerant will this fed be of any weakness? how high is that hurdle? tom: that hurdle going back is a political hurdle. i'm sorry, this will get to a

point where politics will invade the discussion. jonathan: not just yet. tom: not yet. jonathan: with the number we just had a few weeks ago, that was a very different picture. tom: i am watching. jonathan: let's look at foreign exchange. the title is -- tom: it speaks to the power of the u.s. dollar. jonathan: it is wrong. 99.5, morgan stanley yesterday saying maybe 95 over. tom: i am genetically going to go to analysis on this. certain economies are actually doing pretty good here. with that said, maybe we do what

we always do. the yen has not weakened yet. jonathan: sterling, just about unchanged. tom: is that the cost of your work? jonathan: basically that. lisa: if you want emerging markets to take a look at that, they have been all over the place. a little bit of a rebound today. amc got hammered yesterday because people were saying the huge declines were not because they were lumped in with the meme stocks, but their bankruptcy over in the u.k. as well as more importantly preferred shares starting to trade. a little bit of a rebound, but not much.

zoom shares down 11.5 percent after downgrading a sales forecast yesterday after the bell. in terms of earnings today, we just got dick's sporting goods, and we are seeing the expectations as well as raising their forecast even though they actually came out and downgraded the forecast, people were expecting them. to me, that is fascinating. even as they say it is going to get worse from here, they report after the bell. tom: short term paper in the short-term market was either commercial paper analysis or live analysis. i want to start with the gloom that is out there on bloomberg surveillance, and the joke we

make is that is a toxic loom. what are we going to learn from the short-term trust markets? what is the toxic brew you see right now in short-term paper, or is it all calm? >> i am not sure about a toxic brew. the front-end of the market has clearly had some significant challenges, seeing a lot of the leveraged loan markets, a lot of different headwinds going on in the front of the market. that has made for a really challenging liquidity market more broadly and going forward, some of the big things on the front-end of the market, it has come to the shape of a curve. that has been a real challenge for economists, for pretty much everyone involved. tom: when i mentioned toxic

brew, did i cause your baby to scream? >> 100%. tom: i cause a lot of babies to scream, lisa. lisa: a lot of people are screaming about the potential for interest rates. when you talk about interest rates and how high they could go, perhaps not hiking rates north of 4%, but at 3.5%, has this economy become less interest rate-sensitive than many thought? winnie: that is a great question and i think a lot of it comes down to the shape of the curve in terms of interest rate sensitivity. especially when you look at the corporate credit market, right now, we have very flat curves.

from a financing perspective, that is actually very supportive. the company has the maturity that will roll over into 10 or 30 year debt. but not nearly as significant if you are receiving that with more two-year paper. i don't think you can overestimate the vulnerability of the economy in corporate america to higher yields and general, but there is kind of a nuance in the story. lisa: the nuances where i'm actually curious. there is this belief that you are going to be in the same cycle this time around. because maturities have been pushed out, because companies have too much cash on their balance sheet. are you going to see pockets of really serious distress as you see interest rates at a higher rate for a longer time? winnie: i think that the cycle is probably going to look a

little bit different. we do have an expectation, not from a gloom and doom perspective, but definitely closer to normal of the long-term default rate. one of the things that we are observing is there is not really a pocket of stress in a specific sector, it was energy for much of the past eight years and telecom at one point. now what we are seeing is these specific pressure points when there are companies that just got their balance highly leveraged, some sort of specific catalyst about business that has been problematic, and the past few years, all of those ultra low borrowing costs really buy a lot of time in a challenged economic environment.

tom: quickly here if we could, you are legendary at wells fargo, ig, the stress, and all the rest of it. do you make a 10 year credit call? do you have a vision of where a 10 year yield will be at the end of the year or up 12 months? winnie: we do make estimates for the market mostly because you have to have that to forecast for the credit market is going to go. we have a 3.4% a year in forecast, with a very flat curve, and we did expect that the fed is going to hike rates to that 3.5% by the end of the year. curves will say they are flat and then we do have the fed kind of staying on hold for an extended time to assess the policy tightening an actual economic conditions. jonathan: thank you, working through some complex issues.

if you would like a weekly dose of jp market -- jp morgan optimism, inflation will resolve on its own and a stronger second-half recovery in china, in combination with still very low investor positioning, create positive. tom: moments ago, it is a hawkish month. they are adamant that a combination of the mystery of the dated to come should be aggregated together. if got inflation on september 13. the road to september in that meeting is still a long one. lisa: i have a question for you. are you trolling marco or the bears? this is a real question, not whether you are trolling him or the others, but he is so

controversial. he is the consistent bull and his view has not been very range-y in terms of volatility. he has just been very solid in the camp. jonathan: i am not here to say that anyone's forecast will be wrong or right. by definition, it is just a forecast. different processes. tom: they are northwestern, they both sound very vulnerable this morning. jonathan: the strongest second-half recovery in china. inflation will resolve on its own. that is controversial. one of the most bearish and the most bullish curves.

lisa: stick to your narrative. jonathan: futures unchanged on the s&p, basically unchanged. 99.23. this is bloomberg. >> keeping you up-to-date with news from around the world, the u.s. says that it is closer than before. gaps still remain to monitor some of its demand. the biden administration seeking ways to review the e.u. demand for nuclear program. record debt at the federal reserve, the group has collectively place for a key

overnight rate. that position will benefit if fed chair jay powell effectively rules out any dovish pivots. and the u.s. natural gas rose for the first time since 2008, driven by concerns that global stocks are not enough to meet demand. -- cut its covid outlook for the four year. [indiscernible] global news 24 hours a day on air and on bloomberg quicktake. powered by more than 2700 journalists and analysts in more than 120 countries.

>> i would disagree more with market pricing for significant rate cuts. >> i think it took me a couple years. maybe even a little bit higher. i think it will still be significantly above the target. >> goldman sachs, the chief economist, catching up with him earlier this hour. the markets shaping up as follows on the s&p, positive 1/10 of 1%. yields basically unchanged, down almost a basis point. the trend over the last couple

of weeks, picking up on that little bit more a little bit later. four days of weakness for the euro. the pmi out of europe this morning, not tremendous, not terrific, pretty ugly. and not just for the euro zone, but for the u.k. as well. tom: right now, large country index, pretty good for the chart. >> because of that, perhaps leaning toward the euro. that really seems to be what is driving the entire market. going back to 2007, we are also looking at the slope of the last time you saw this kind of acceleration in the dollar. it is not just about the stronger dollar, but how quickly is moving higher. what is interesting here is that

those are the two times we saw significant commodity pressure, which brings me back to the europe story. it really is all about the natural gas, and then in turn, driving the dollar higher and higher. it works the other way around, too. tom: thank you so much. the character of surveillance is simply we want to talk to the best people we can find, and we are honored when they come on on short notice. stephen englander joins us. let me cut to the chase. one of the character, the nature of this historic about of weakness? stephen: i agree that it is largely the natural gas story. there is a rather global story

about what fed chair powell has done to the involved. jonathan: has the ecb got a role to play here? steven: like greek tragedies, the economy is weak. when we talk about supply chain disruption, they talk about not being able to keep their homes. that is really weighing on the sentiment. the u.k. inflation numbers last week, i think people in the market would say what can the ecb do about it? markets are really punishing the central bank for having an inflation problem that is really ambivalent about how they are going to approach it.

jonathan: what is the optimal way to approach this situation the u.k. is in at the moment? the situation the ecb is in? steven: it is a very tough situation. the central bank, they want to try to smooth their response. i think they will probably hike less than they should. next year when the energy situation is more clear, and will probably give the euro some legs in 2023. this year, they are proceeding very cautiously. tom: people of the u.s. worry about when they get their equipment, but europe is worried about how to heat their home. at what point did the u.s. start to experience something more similar to the european angst?

this goes with the idea of divergence, how far the u.s. economy can ever -- steven: so far, it is a particular commodity, natural gas. we might have to pay more for energy, but we are going to have it. the european situation, it is a very cold winter. it is accommodation based on the supply curve. it is not a baseline, but certainly is a risk. lisa: what does that mean for how disruptive dollar strength could become if they can escalate beyond what people are currently expecting? steven: we see different things differently but obviously, like everybody else, they don't have that kind of closure.

again, oil prices going down, natural gas inflation is a desire for them. and then you have currencies like mexico, brazil, where interest rates are high, so there is a buffer against that. i think if the fed is hawkish, we think it is going to be limited. there's different circles of currencies that will respond differently, and in some cases, the strength. jonathan: higher or lower, weaker or stronger? steven: i think the risk is the downside. jonathan: mustn't to catch up.

this is important. not just about the u.s. economy, but with the corporate profits will hold on in europe. the recession in europe might not cause a recession in the u.s., but it would strengthen the u.s. dollar further, and that is the issue here, isn't it? what the economy will do. tom: i defer here to someone like julian emanuel, but i agree, no question. lisa: how much have we really got through the secondary effects of the european recession and the diversion? to me, i wonder how you gamed that out. tom: i am absolutely dazzled. i want to do soccer tuesday here

with jon. the united kingdom stops for soccer tuesday. i want to go like a week from now. if nottingham has to play? that is unfair. jonathan: that is news to me, thanks for sharing it. i am reluctant to watch anything football anymore. i will keep that focused into the weekend.

>> the job to bring inflation back down to the 2% goal is far from accomplished. >> we do have inflation in the second quarter. >> some volatility through the

end of the year. >> is going to be a little bit choppy in terms of markets. >> markets are not always rational. "bloomberg serveillance: early edition" "bloomberg serveillance: early edition" announcer: this is with john keane, jonathan ferro and lisa abramowicz. -- tom keene. on radio, television, on the way to jackson hole. jon ferro, it is august. this one is different. jonathan: never mind, winter is coming. the euro zone at about 49. that us of economic data already and these central banks are hiking it. >> markets on the move. which data front is that? jonathan: i think we are both on the same page on that front.

they don't sound that big anymore. just around the corner. tom: that photo shoot as they waltz out of the lodge against the vast anchorage -- acreage of the bloomberg tv set. jonathan: we some music. tom: what are they meant to talk about? jonathan: what are they going to talk about? the fact that they to get inflation under control. talking about 18% on inflation in the u.k. in january. i don't think we even know what that means, 18% for numbers like that. it is ridiculous. we want to talk about natural gas in europe up more than 40% in a single month. i don't think we really, fully understood.

tom: what made sense is this is the jackson hole that has not crushed 80% inflation. lisa: which is the reason that the market is going to be hawkish. with inflation where it is, it is ok in the lower income families and it has been pretty consistently. how high they can hold those rates, to me, if they go to 3.5% and they hold it for a couple of years, what does that say about how much resilience there is in the economy and what that does to completely reshape the markets over the past few decades? tom: jamie dimon, we are going to do this quickly on the data. a rebound of the dow, negative six yesterday. futures right now are up.

jonathan: on the nasdaq of just 1%. what did you do yesterday? i was james norman and you were van dyck and i was screaming at you not to call this down. tom: it is the signpost for america. we will do it quick. oil, a rebound, $92. soon, j.p. morgan asset management, he synthesizes the j.p. morgan view. it is real simple: you say america is the place to be. state the case for an enduring investment seen in america. >> a morrison leaned economy to the geforce central bank that we have been talking about for the past couple of minutes. also, if you think about how much is at stake, as far as what

we have to do, which is investing the capital market space, i think the notion that markets have to move on a material amount we think is misplaced. why is that? 1, 10 year treasuries are down 3%. two, there is not imminent using pricing anywhere. 100 basis point of heightening right in between now and the end of this year, and 140 basis points of tightening between now and the first quarter of next year. also, think about how difficult this year has been. it is because there has been over to hide. fixed income is in a very tough place. we think those days are over. why? because gas prices are down 20% from june. that is not the only thing. you have airfares down.

the biggest drivers of inflation , the market is saying the same thing. tom: they yankees are down as well. jonathan: if that is the case, what about the equity market? >> it comes from the part of the market that were completely up this year with great. just to throw another dainty reference in year, yogi berra, the great yogi berra, he was talking about the fixed income market. he would be saying just about the fed raising rates doesn't mean rates need to rest. that is because fixed income is back to where it should be. it is balancing a portfolio, investing in the equity market. i think there is more comfort now, which is very different from what we saw in the first six months of the year when the bloomberg aggregate index was down almost 12% at the worst

point. the worst year ever was 1994. down 2.9%. so i think that the environment for investing looks so much more supportive than it did in the first six months of this year because of this year, fundamental ability to manage risk. tom: just to underscore your point, are you saying that people think that markets have gotten ahead of themselves and that financial traditions have loosened too much, have gotten way too cute about it, and that this is ok? philip: i think so, lisa. the financial conditions index obviously off the types. however, they should be off the types if inflation peaked in june. you can't overstate the

effective gas and commodity prices and how much pressure that puts on the federal reserve. jonathan: what do you think they are coming down to? >> we are at 8.5 now. by the end of next year, 2023, if the forecast is right, 2.5 and 3%. heading in the right direction. there is no victory declared hear from the federal reserve. they will continue to tighten. we just don't think that the pressure of them becoming more and more hawkish, after every meeting, if the same as what it was in those were the chaotic moments. tom: let's say that goldman sachs is correct and the fed did not necessarily raise rates as high as some people feared, but holds them for a long time, possibly years. how does that change your narrative, your e thousand growth equities? >> that sounds like a really brasilia economy to us.

if they were not imminent in the backpack -- back half of 2023, that means that this race between inflation going over is won by the growth in the u.s. economy. if you look back at the last cycle, even if you have below trend growth like you saw in the last cycle, that is a really supportive environment for growth stocks. what you can have is a retest of that anxiety from early in the summer when commodities prices were spiraling in laois and out of control, which puts a ton of pressure on long-duration equities. jonathan: before we go, you can squeeze in the yankees. take a dig at the red sox if you want. tom: >> lisa is right, it is not the mets, but both stocks are slowly becoming new york. tom: my childhood.

it is very important to understand. jonathan: it is ok, tom, to feel vulnerable. they are rebuilding. let's get to the markets. 1/10 of 1%. rates will have to climb a little bit more. ultimately, looking to save. richard bernstein on the show last week pushes back against that.

lisa: also people pushing back against that, and capital group. the number of investors who say that this is different, it has a longer shelf life because it has structural changes. perhaps a shifting globalization. how does that play into the thesis of rates not having to rise even if the fed could go back to what we had once known? jonathan: the gdp crisis to get inflation back down to 2%, 3%. lisa: a lot of people are saying it is pretty significant. that is the larry summers types right now, to be honest. a lot of people say wait. jonathan: a toxic brew. lisa: toxic brew. tom: i lost focus. jonathan: gas prices in america.

17 straight days. 70 straight days. tom: i would watch sterling like a hawk. jonathan: thanks for sharing. tom: somebody give me a mirror. ritika: keeping you up-to-date from -- with news from around the world. the most in more than 7.5 years. stock prices are averaging $3.89 per gallon. that is after reaching a record high of around five dollars in june. views of the recession in europe may be coming to pass. stocks driven by manufacturing. almost ground to a halt. consumers have been hit by big jumps in those energy costs.

the u.s. government has purportedly recovered more than 300 classified documents from donald trump since he left office. the times says some of the documents came from the cia. in malaysia, a 12 year prison sentence after losing an appeal and a trial in a scandal. macy's has cut outlooks for the full year. second-quarter earnings lower than expected. global news 24 hours a day on

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>> we are talking about how to see decoupling in the energy bills, the normal household things, over 1000 pounds per month for electricity. it is the shock that is not

going to be able to be absorbed. jonathan: if i don't arrive at jackson hole airport on wednesday evening, without that music playing, if you are not there to pick me up, i will be very disappointed. tom: this is coming out of the jackson hole airport, you get a third of the way, halfway to yellowstone national park. but we did the horseback thing and we were tired by the time we got there. jonathan: the budget cuts for this one, big horse back to the hotel airport. tom: the interview of the day as we keep you informed on the standard charter and the currency market, the real struggles and agony of europe

and hydrocarbons, on what has been unspoken. natural gas in america as well. stay sharp, there is some spread out in the march and april called widow maker spread, which is the estimate of how low inventories will be. how low will inventories be when the widow maker spread matters? >> and saluted. that spread right now in the month of august, there is a cool signal that the market is moving throughout this entire bill, because this is a problem. below normal, well below the estimate.

that end of the spread, it is a big problem for our electric heating bills. natural gas prices tripled over the last year. crude oil stocks were below normal, which is a problem for people who heat their homes with oil, primarily in the northeast. the market is short. tom: are we going to run out of jet fuel? one of the use of fuel in the united states. our viewers and listeners supposed to say it is going to be like europe? >> not quite like europe, but we have certainly said enough people trend toward natural gas. europe is very short on natural

gas. back at the start of the summer, we had the export facility that went down 20% with natural gas. that facility coming back partially in october, i could put further strain on u.s. inventory going ahead. right now, european gas prices have the equivalent of 470,000 barrels of crude oil. tom: let's get lisa in your. lisa: that is exactly where i was going to go. when the facility went down, that actually lower prices in the u.s. now people are expecting it

because of what is going over to europe. are we pricing in a full closure in terms of the next pipeline and a look at flowing from russia europe? stephen: i want to put a caveat out there for the spread and commodity markets. highly traded, highly speculated on. an ongoing hedge fund in 2006. traditionally, mathematically, statistically, in march and april, relative to labor contract, we should keep an ion that.

the lack of survival in the united states is keeping the back end of the spread very high. a likely high-risk summer. jonathan: just quickly, i saw the headline from opec-plus yesterday from the 70's. i had no idea what they were talking about. can you translate it? stephen: what they were saying essentially was the actual market, there were trading with the futures market. they came out yesterday with a pretty hawkish build even higher. that really caught the market

off guard. interestingly enough, that headline came out about two hours after the other headlines arranging very favorable terms, which again, they were not very happy about. anytime you hear a dovish headline. jonathan: just quickly, i never know what to do with those headlines. i feel like we have been doing this now for months. stephen: i am still skeptical, maybe it is a little bit of hope

. but probably, we will see a deal. jonathan: i find all of this very, very difficult to understand. tom: surveillance archives, this is a great image of kathleen hays and michael mckee moving from the airport of past wyoming on their way to jackson hole. jonathan: are you driving? tom: kathleen, she is driving. tom: kathleen, she is driving. what if you were a global bank who wanted to supercharge your audit system? so you tap ibm to un-silo your data. and start crunching a year's worth of transactions against thousands of compliance controls with the help of ai. now you're making smarter decisions faster. operating costs are lower. and everyone from your auditors to your bankers feels like a million bucks. let's create smarter ways of putting your data to work.

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jonathan: live from new york, good morning to you. futures positive 1/10 of one person on the s&p. yields higher by three basis points, 3.0. call it 3.05%. if you look at foreign exchange, the dollar stronger against the euro. tom: there is a way to this. -- weight to this. jonathan: we saw that yesterday.

i think by the end of the day, we had a move that was almost four percentage points. tom:tom: for those keeping score at home, i would also focus on dollar-yen for what it has done, which is that it hasn't moved. exceptionally strong conversations today on goldman sachs. we continue now with stephen. stephen were should a -- stephen causing a massive macro view including gdp in america. steve, when you talk to dominique, are we in recession? steve: i would not classify it a recession. to me, two quarters of consecutive negative gdp reports implies your any recession.

the problem for people is going to be this is a very shallow, very long recession. it is not going to be the typical recession environment that we have seen since 1990. viewers are going to be the typical inflation cycle that we experience. it is a very different cycle, a long shadow. tom: this has been the scene for the day. if you have --, does that mean the real message from jackson hole will be a more sustained view of interest rates strategy, and not the full dish miss of when the rates come down? steve: that has exactly been our call, but we are basically looking at dynamics. the question we are still debating is 4% were something north of 4%. i think we have to get to at least 4%. we were pricing 3.5, now we are

pricing something in between. i think we will get to the 4% and hopefully that will be the end, but it may not be the end. jonathan: take a listen to what he had to say. >> where i would disagree more with mike at pricing is the pricing for significant rate cuts. i think it took me a couple years. the mid-threes or maybe even a little bit higher, because i think it will look a lot better a year from now. i think it will still be significant the about the targets. jonathan: what do you think of that? >> i think we are going to keep on moving higher than that. nor do i think we are going to hold it for several years. there is clearly an argument to be made that we are going to hold through 2023, but where we go in 2024 is a very different animal altogether. you have to look at what is

happening in the country and what is happening with supply chain-related issues. you have to look at the demographics and the labor market environment. it is the kind of work we will be seen from a stronger currency supply chain easing up vs. the wage-related pressures that are being dominated by the demographic issues, in particular, the reduction in the number of workers from the millennium -- millenials to the generation-z. we may end up with the federal reserve has to sustain interest rate on a longer basis and we could be here for some time. but again, the starting point is still an open book. lisa: for the fed raising rates beyond 3.5%, what is the end target and why? is this something lower over a longer term? steve: the real question is how does this labor market dynamic play out? you can make a very, very strong

demographic argument that the labor market stayed tight throughout the entire year, and therefore it offers a sustain higher level of interest rates going forward. the question always is going to be what level of that the sustained act? but a quick return back to the near zero interest rate environment that we have been anticipating is going to require some kind of event to unfold in the economy. when you look at the underlying credit quality of the economy in general, there are some pockets where we are concerned, but in aggregate, the balance sheet are still very healthy. lisa: what is your rate that you're penciling in here? how has that evolved? steve: it has evolved a lot over 2022, but i do think 4%, when we get to 4%, we will pause for a time. whether or not that could go higher to hold that level on an ongoing basis, that is what i am

looking at. tom: if we have got china with some part of growth, the dynamic of exports minus imports, how does that change in what does that mean for chairman powell? > that comes right back to the currency story because supply chain dynamics, who have a slower global gdp environment because what is happening in europe is creating a wider gdp output cap globally. you have a strong currency allowing us to import those products on a more competitive basis, which will end up dampening domestic inflationary pressure. we end up with services dominating over the goods portion of the equation. whether it will get is quickly at the fed would like to see back to their target or not, i think it will get there probably in a 24. i don't think it will get there in 2023. tom: a look at the bloomberg financial conditions index the united states, for europe, and

going back over 30 years to the first time they diverged so sharply. obviously there is the war in ukraine. what does baylee say to powell or powell stated bailey on this immense transatlantic divide? steve: i think the situation is the reverse of what we experienced in 1970 word federal reserve chairman came back from the imf meeting and was forced to change monetary policy abruptly and because one of the worst macro recessions and inflation recession the in our history. i think all of the problems on the currency side of the equation are really european problems. and europe has to addressed interest rate. we can't fix this problem for them. that is pretty much the same message that paul volcker got in reverse when he came back from the imf meeting in 1979, which was basically you have a problem

with your currency, that is why your currency is going down. you have to fix your problem. you have got a problem, you have to fix it. jonathan: this is a different kind of fx war. this is a big problem for europe and it is kind of strange because 10 years ago, this is exactly what they did. now they have got one at a time where they are weaker. lisa: absolutely. how much does that affect the u.s.? this is something that you kind of discussed earlier in terms of the idea of how much of a pressure will this be on the balance sheets of companies that had to deal with that headwind from the stronger dollar? jonathan: the multinationals are going to have a problem, aren't they? tom asking the important question, governor bailey saying

economic weakness right now any more pronounced way than chairman powell is. and governor bailey, you've got him forecasting something close to 13%. steve, isn't that the bigger difference right now? the u.s. navy able to take some very, very small amount of comfort from this idea. europe and the u.k., it is still in that future. steve: this comes down to the way that you remember we broke the back of inflation was not just with monetary policy the supply-side revolution failed. by breaking the back of labor, we did a lot in terms of changing the labor market dynamic which was our problem back then. again, you have to push the blame back to not central bankers, a central bankers have to push the blame back on politicians and say you have to correct what you done from a

policy standpoint that has put us into this position, and it is your responsibility now to take the steps necessary. you can't expect central banks to solve all the worlds problems. jonathan: thank you, sir. looking ahead to the meetings later this week in jackson hole. coming up, chairman powell. looking forward to that as well. tom: i don't know what to make of it. i just think that the market is here. where is sterling? where is the euro in 24 hours? where are they in 48 hours? you are going to tell me they are going to have a normal dialogue? i don't think so. i don't want to oversell it, you and lisa have a wagon train alone, but, jon, you get to wyoming and the bugs get less.

but you know, the bottom line year, we are teeing ourselves up for some market moves in four days to make this speech possibly more interesting. jonathan: as lisa said, you are importing inflation. europe and the bank of england and the ecb, they can't buy one right now. the other complication that it's really complex when you think about it this way, can you guarantee a larger rate hike but actually lead to a stronger currency? or are we now just trading growth differentials? lisa: right now, the weakness does not have anything to do with ecb policy. the national gas price has surged more than 100% in the past month. jonathan: we are talking about

horseback riding. john hancock investment will be joining us. j.p. morgan asset management, to guide you through to the opening bell. jonathan: could you do that thing where you swing on the lasso? tom: i can't do that. jonathan: i am a good hula hoop. [over talk] jonathan: four years old, wanting to go to italy dressed as a cowboy. tom: spurs. lisa: relive your childhood dreams. jonathan: i think people would be offended by things like that.

futures unchanged. given the 50 seconds left on the clock, i'm not going to do that. we've got about 50 seconds. tom: i've got pivot. i'm sorry that gloom is out there and i am listening to the bulls. jonathan: i have given you the bullish. from jp morgan. tom: that is one yield. i think there is a sense of -- jonathan: what would be like tomorrow is the music used on the promo. lisa: i like the music, they just keep playing it hoping that we will stop. tom: jon, for the music from

jackson hole, i voted for nickelback, i got nowhere. maybe try burrito brothers? jonathan: from new york city, this is bloomberg.

>> you had the choice of backing a brilliant car designer or an ambitious, slightly crazy entrepreneur elon musk. you made the wrong decision. but tesla did very, very well and so did the electric vehicles. tom: one of my most favorite people on the planet, his name is john doerr. as a conversation with david rubenstein, i really can't say enough about that. john doerr, now well over 1000

dealing with the challenges. what i find so interesting, david rubenstein, is this is a guy that has lived a gloom of the young turks in silicon valley and now they have to make a generational shift. what did he say about the challenges of a generational shift in arotech wonders? -- in our tech wonders? david: he was an early backer of google and amazon and as a result he has been able to make recently the largest dip in san francisco, 1.1 million dollars to create a sustainability school as the result of his very smart investment decisions during the internet era. now he is focused on climate change. he is now making investments in all kinds of companies that will likely have some impact on

climate change. tom: i am absolutely fascinated. this shift in amazon, the shift in google. how did he address this generational challenge of people who think they are different? david: clearly people in silicon valley who get money from hundred perkins have large egos and think they are going to change the event. in some cases they do and in some cases they don't. he spent an enormous amount of time trying to figure out how he could help these companies. that is what he did with amazon and google. now he is doing the same with climate change. he is motivated to do this in part because when one of his daughters watched "inconvenient truth," she said 200 generation

screwed up the world, what are you going to do about fixing it? that motivated him to actually do something about it. lisa: the past year, we'd seen admit the reversal in the average greenification of the energy supply. it was urgent -- eight reversion back to coal, fossil fuels. we keep talking about the willingness to invest even more when there is russian about the importance of fossil fuel. david: his view is we don't believe have a choice. the planet is not going to be survivable if we don't make changes in the way we generate energy from. he doesn't recognize that because of the war in ukraine, many people have set climate change is something we can worry about in the future and we don't have to worry about removal right now, that is not his view. he has a very elaborate plan how

we can convert our efforts now from carbon to renewable sources. lisa: that has been since that a lot of people have been trying to discern especially with the focus that hasn't always delivered in terms of the return. where does he look for the returns to come? david: remember, he is looking to back small companies. when he backs a company, it is going to take five or six years or so whether it will be apparent if it is going to work or not. but if we keep doing what we are doing, the planet is not going to be survivable. tom: on the day-to-day grind of david rubenstein over the years,

why doesn't europe have a john doerr? why doesn't asia have a john doerr? why is it just about america that we have a john doerr? david: clearly america's more entrepreneurial i think than asia and europe. we have a much bigger venture capital world then europe or asia. i think he is a personification of what our venture capital world can do. john doerr is probably the best-known of the venture capitalists in the united states, but you are correct in pointing out there are not similar people in europe or china. tom: thank you so much, congratulations. moments ago, steve was calling a

published zero. dominique hoskins doesn't mince words. is this a fed for the front room or will they find some form of steady state? lisa: it is hard to know. you love the fed gaming assets, trying to go back and forth. but the longer term rate is the important thing. how much are people looking at a fed that can give much beyond 3.5%? at what point do we see that terminal rate being unsustainable vs. something that is needed for the inflation that we have? tom: what is credit saying about

this debacle of the last two days? lisa: we seen a pretty significant selloff in high yield. there has been this pivot to higher-quality, but perhaps there is not going to be the cycle of yore. however, if you get benchmark rates that display alternative, what is the incentive to go into a company when we could see a prolonged recession? what is the argument for over-leveraged companies that have to grow into the capital structure? it becomes a lot more difficult. tom: major shout out to get ready to go to wyoming. the me a data check here to

stagger into the 9:00 hour. a nice elevation now, very important. 27 basis points, well worth watching. the euro, 0.9926. stay with us. this is bloomberg.

>> this is bloomberg the open with jonathan ferro. jon: live from new york, we begin with the big issue. >> you're going to see more headwind. europe is going to face some very strong headwind. >> the data are not great. >> the data was disaoiin