>> stocks higher and yields lower. it is light ahead of jackson hole tomorrow. i am kriti gupta up. "bloomberg markets" begins now. kriti: on the surface, it looks there is little optimism in the markets but take a breath for a second. online volume is thin liquidity, not a lot of people are actively participating in the market. the s&p 500 up .5%. what is interesting to me is the cross asset picture. even though the s&p 500 is

finding optimism a little bullish on the surface, you are not seeing that across the board. you see deals down for basis points. 306 on the 10 year yield and with those lower, the dollar is lower as well. with brent crude, which i like to use as a better risk sentiment indicator, to back up with the stock market is saying, today they are not backing up at all. brent crude trading a down about .3%. markets clearly focused on chairman powell's comments from jackson hole, wyoming tomorrow. joining us with beautiful scenery on the ground, bloomberg international economics and policy correspondent michael mckee. you as always for joining us. what is the move there? what can chairman powell actually successfully delivered tomorrow? -- delivered tomorrow? michael: the mood is good and the sun has come out. the talk so far as the massive rainstorm he had last night. which blew all the -- down and swatted a lot of places in the park.

we are all in this untried now. wait to see if jay powell prevents -- he will say what he said before, the fed is vigilant on inflation and they will keep raising rates until inflation comes down. they will not be cutting rates despite what wall street may think. they will keep looking at the data to decide where they are and how far they have to go. the question is, does wall street want to listen at this point? kriti: it is interesting because it feels like there is such a hawkish tilt going into chairman powell's speech tomorrow. you talk about this yesterday, almost feels term and powell is set up to fail but i have to ask, what can you say in this arena where you have the data literally all over the place? do you focus on housing, labor? what is the metric german powell might point to tomorrow? michael: the one metric they will keep watching his inflation. that will be there driving force in terms of deciding what to do, which makes tomorrow interesting because we have the pce

inflation index for the month of july and that is the most important one to the fed. does it confirm what cpi said that maybe inflation has peaked? that will be a key number that comes out a half-hour before -- an hour and a half before jay powell speaks. that will be in the news. they are watching unemployment to an extent but the unemployment rate is so low they feel it can go higher without damaging the economy. for the fed, it is those two indicators. everything about the economy so far has been mixed. gdp revised up a little but still negative but most of domestic income which is the same thing was positive. it is hard to get a read on the economy at this point. kriti: let's talk about the other piece of the equation. it is about quantitative tightening as well and they have only ever done this once before and not to this scale. any changes this might not be a successful operation? michael: they do not really

know. they believe it will be because it worked last time and there is no reason it should upset markets. i say should because remember the last time we had the market eruption at the end of 2018 when the balance sheet got a little too low. they expect that could happen again but they know what to do about it. beyond that, they do not have any idea of what the impact on rates will be. it could be anywhere from negligible and maybe 100 basis points. they will have to watch and see. it becomes a bigger issue because september 1, they moved to the full allotment of rolloff , 60 billion per month in treasuries and 65 billion in treasuries. we will see if it has any significant effect or not. until they can measure, it will not be a big issue. kriti: michael mckee with a stunning backdrop. thank you as always. while traders away the key speech by chair powell,

there are questions about what the market reaction might be. stock market getting special scrutiny. listen to what the cio of lafayette college said earlier. >> this market obsession with respect to financial conditions is based on -- based on equities is somewhat misleading. from a growth perspective, from an economy like the u.s., what matters more is really the credit market and credit creation for the private sector. clearly that has certainly loosened up and that is something the fed has to worry about, but the question for the fed really is, has it loosened up too much relative to what forward-looking data is looking like? i think that is the question the markets have to debate over the rest of the year. kriti: joining us now is joe davis at vanguard. thank you as always.

we have the special pleasure of having you on this show because you can tackle it from any economic end investing point of view. connect the dots for me because i went on vacation for two weeks, i came back, and all of a sudden it felt like the gauge of success for the federal reserve was being judged i the stock market. do you agree with that scrutiny to you for that asset class? joe: no, but again i think it is fair to note the federal reserve once an outcome that is hard to thread the needle. they do not want financial conditions to the previous gentlemen's point to jest get too tight -- just get too tight. at the same time, we do not want the conditions we had over a year ago. they were showing signs of inflation even if they were not showing up in consumer prices. they are trying to thread this needle. they have to be a little bit less than happy of the easing of financial conditions but it is still within the zone i think consistent. it would not push one way or

another for policy. kriti: doesn't it show perhaps a good thing or characteristic of the stock market here that even with tightening of liquidity and with the massive rate hikes, the stock market reaction has not been something to panic about yet? you are seeing plumbing works. isn't that a gauge of success for the stock market and does it add to the bull case for it? joe: i think it certainly shows resilience in the economy. i think if someone had told me two to three years ago that we would have inflation close to 10% and you would have the stock market even at the level it is at, i would have been perplexed. i think that is a testament to the earnings growth, the growth going on, the robust nest in the labor market, yet we will have crosscurrents here. clearly some earnings projections in our mind is too high. it is inconsistent with the global slowing economy. i think that is going to be the telltale signs the next several

months. kriti: your base case is for a 2023 recession. we are six months or i would say four months away from that and even then i think a lot of the things will come in the back half of 2023. until we hit that recession, what is the stock market to do get in closer to the timeframe? don't the odds go higher and higher? corporate profits slowing more and more? joe: yes, though i think there will be time. there will be this crosscurrents, there will be increased fixation on how high the federal reserve needs to raise interest rates. that is a discount rate and discounting mechanism. at the same time, top-level headline, profit margins, and earnings growth. at the end of the day, the stock market is the lease leading in terms of the economic cycle, the fixed income markets, credit markets, yield curve, will give a more telling sign earlier sign of how deep the recession could be. kriti: i'm glad you mentioned

credit markets because i feel a lot of the macro correlations have been scattered recently, no clear message across the board about two that have been working in tandem is credit spreads and the stock market, that is when macro corres -- macro correlation that has remained in the test of time. why does this remain a bad thing with liquidity environments pulling down financial conditions? i'm not sure why that is seen as a negative. joe: it is not necessarily bad but it is also just to say the economy and where the federal reserve is, they are too accommodative relative to the state of inflation. more important he where wage growth is, clear evidence that anna terry policy needs to be sensitive to that and any market signal that as to economics is not necessarily helpful, it depends on where you're going

forward. i thing there will be crosscurrents. we will have likely a recession that is mild from a job loss perspective, in fact we started talking about the concept of job full recession, the inverse of the jobless recovery 20 years ago. output may fall more about the momentum in the labor market is considerable. kriti: something we will keep in mind week. joe davis of vanguard, think you for time. time for bloomberg's first word news with ritika gupta. ritika: ubs says the euro area entered a shallow recession buys energy prices surging. economists predict the 19 nation economy will shrink by .1% in the third quarter and .2% in the fourth. prices set records today in germany and france. for the first time in a month, global monkeypox cases have declined according to the world health organization. new cases around the world fell 21% during the weeks that ended

sunday. when dealing caseloads in europe offset a continued spike in the americas with growing concerns of a supply crunch for vaccines. in los angeles, a jury awarded the widow of kobe bryant $16 million in damages. over photos taken at the scene of the hell -- helicopter crash that killed her husband. others were awarded millions. global news, 24 hours a day, on air and on "bloomberg quicktake," powered by more than 2700 journalists and analysts in over 120 countries. i am ritika gupta. this is bloomberg. ♪

kriti: this is "bloomberg markets." i'm kriti gupta up. china is stepping up with more stimulus to stabilize its flowing economy, adding $146 billion of spending, focused on infrastructure. joining us is cameron crise. a cue for joining us. what is interesting as we gear up for jackson hole for comments from chairman powell and this divergence in monetary policy almost means concerning between the united states and china. how concerned should we be? cameron: i don't know if it is concerning. it is the obvious outcome of the

economic challenges each country faces. in the united states, it is the primary problem at the moment is inflation. that mandates a tighter monetary policy. in china, the problem is the reverse, it is an undershirt in domestic demand. that chronically -- there has been a bunch of households in that -- but obviously with the zero covid policy, even investment in that has been low. i guess the government is going back to the all-too-familiar low of trying to stimulate the economy with infrastructure spending. which i'm not sure what the marginal return of that will be given the property sector for example is on a somewhat dire strengths and there does not seem to be a demand for credit that you would get in a properly

functioning economy with relatively robust demand. kriti: put that into the context for the federal reserve here. obviously we know the federal reserve has to cater to the united states economy but it is, to some extent, dependent on the supply chain issues you are seeing in the rest of the world as well. to what extent does it have to be wary of what you see in the ecb, pboc, arguably the doj? cameron: it is not so much what the -- what they are doing, rather why they are doing it. the issue with europe in particular is one of a massive, massive negative turn because of russian sanctions and what the impact has been on the european market, whether electricity or natural gas. you have seen a parabolic rise in the price of natural gas prices for this forthcoming winter or even for spot

electricity prices. the soap to put that into context, it is like the entirety of the population of the eurozone and the u.k. short gamestop january 2021 and everyone is short and is being run over. there has been press recently about the pain higher electricity prices are causing in the united states and that is certainly a legitimate issue but the problems europe is facing not only now but particularly in the winter with the prospect of heating bills is an order of magnitude higher, and that is obviously going to have negative repercussions for european growth, and that ultimately will have implications for the u.s. on so far as u.s. companies export goods and services to europe is reasonable to expect the profitability of that

venture or those ventures to calm under downward pressure. kriti: let's talk about the europe side of the story, i want to talk about fund flows. if there is this wall of worry for the rest of the world, which seems more than economic state in the states, doesn't that guarantee more fund flows into things like the equity market and treasury market as well? cameron: no one has -- is forced to buy equities. you can always not buy equities and sit on cash. that is one of the benefits of higher interest rates. on the short end, you get nominal return from cash holdings, the likes of which you have not been able to get for 15 years. from that perspective, it does argue in favor of perhaps the u.s. where you can have domestic

demand likely to hold up better in the u.s. than in europe and obviously china has its own issues as we discussed. you don't have to be in the equity market. if the prospect for corporate earnings on a broad basis, particularly earnings derived from the rest of the world looked poor, that would be an argument perhaps to sit this out. kriti: i'm looking at your column here and you talk about what happens if you do buy the dip every day and it turns out you crunched the numbers and spend most of the year losing money. i'm curious if that creates a base case, bringing the conversation full-circle, into chinese assets, given the amount of stimulus pumping into the economy. cameron: i think there is for foreign investors you know you will be at the back of the queue in terms of being affected. do you have an edge in terms of determining when the government

is going to be easy on chinese equities or chinese companies or when they will crack the regulatory web? obviously that has been a theme over the past 12 to 18 months. can you be totally constant that is finished -- confident that that is finished? maybe and maybe not. how much of the banking sector is vulnerable to deterioration, first of the property market and property sector. that is sort of not a terribly good looking situation, which arguably harkens back to the u.s. 15 to 16 years ago. kriti: a lot to digest. wish we had more time with you. we thank you for your insight. we will have more on the energy story, the stimulus story, all of that next. this is bloomberg. ♪

kriti: this is "bloomberg

markets." i'm kriti gupta. european energy prices continue to soar as the worst supply crunch in decades puts pressure on politicians to do more. joining us now is a bloomberg power analyst. thank you for joining us. this is an historic moment when talking about the energy crisis. massive kudos for you for diving into some of these power prices before our american audience that perhaps is not as familiar as what is going on in europe. walk us through what is driving this rally. >> sure. the rally actually started end of last year, so for context europe -- prices have tracked gas prices. at the end of 2021 when gas prices are increasing, so did these prices. this was first from the russian ukrainian war earlier this year and then we saw prices skyrocket . what had happened recently is an

interesting dynamics we are seeing is the decoupling of power prices from gas prices and we have seen power prices outpacing the rise in gas prices. for example, if we look at power prices that are meant to be delivered next year, if you look at canada 23 prices, for germany we are looking at a premium of around 60% compared to gas prices that were meant to be delivered. -- delivered next year. this shows it's a huge premium and shows how tight the market is. one of the major -- one of the few major driving tactics is europe has been seasonal low nuclear and eye droplets. we have seen low nuclear output from the front and that is creating any impact across the european markets. kriti: what does that mean for the average consumer then in europe? i believe there was a story that people in the u.k. cannot

actually afford energy. i was in europe literally last weekend the airports of rome and paris shutdown things like escalators, things like air conditioning for the very reason in the middle of the day in boiling summer. talk to us how this impacts the end users. >> for example, i live in london and in the u.k. we are -- our electricity bill is three times higher than 2019. this is said to increase further come winter. for example, member states that have higher exposure to gas in the u.k. more than 80% of households rely on gas boilers to heat their house compared to less than 50% in germany. member states like this who are more exposed to the energy crisis come winter struggle to procure more fuel for security as well. we will feel more pressure. kriti: walk us through what the government can do about this

across europe. >> there has been government measures at various levels, so from the european commission level, there has been a package that was announced earlier, march of this year. this package has energy security. what it aims to do is reduce russian gas imports by more than two thirds by the end of this year and there are other measures as part of the same package that diversify gas supply maybe from lng as well as increased renewable deployment and invites behavioral changes. kriti: a lot to digest like you said, and historic moment for energy across the board but specifically in europe. thank you always for your time and insight. coming up, we had back to jackson hole as investors brace for chair powell's speech. i wonder if it is too soon to claim recession.

the s&p 500 is still the green, a .6%. even the nasdaq is outperforming by the tuna .9%. does it hold into the close? we have answers with -- answers for you. stay close. this is bloomberg. ♪

kriti: all eyes on jackson home tomorrow, that in the meantime, bring a on the stock market. -- bullish optimism on the stock market. bloomberg markets starts right now. green and the stock market, up .6%. then liquidity, light volume the trade of the day. a lot of people saying this week should have been a one day workweek friday is the day

things could completely change. there is not optimism that all committee yields lower, down to the tune of six basis points and the dollar retreats as well. even when that week -- with that weakness, brent crude trading lower, down about .5%. the question is what are investors actually thinking about and expecting going into the jackson hole remarks? as we look ahead, we look to host of the retreat. esther george told us the importance of clear communication when it comes to ringing inflation down -- bringing inflation down for the fed's target. >> the chairman will deliver the opening remarks. i cannot tell you what is in there, but from my perspective, it is important that we are clear about the destination.

that is that we have to get interest rates higher to slow down demand and rank inflation back to our target over some period of time. >> let me ask you, are you willing to keep hiking rates if you see unemployment rising or slipping toward a recession? are you willing to stay on that pack if inflation is too high? esther: we have to bring inflation down. right now, unemployment is running below what most people believe is natural. the labor market is too tight. by ringing -- bringing demand down, we should see the labor market loosen up. we are already seeing some early signs of demand nodding off, that you are not seeing it fully in inflation data yet. there is more work to do. >> the general consensus seems

to be raise rates to a restrictive level and leave them there for a while rather than starting to ring them back down. what is your level? how long do you think they would have to stay there? esther: knowing the exact number is a process. i cannot tell you where -- where we are today is not restrictive. we still have high inflation. it tells us we have more room to go. we would bring those rates down quickly. i have seen that in some of the forecast it think we will have to hold it it could be over 4%. i do not think it is out of the question, but you will not know that until you begin to watch the data. >> the old adage was do not fight the that but how do you

think markets are fighting that now? how are they not listening to what you have been saying about have serious you are about taking on inflation? esther: i do not know what drives the markets but it is important for communications to clear. we want financial conditions to tighten on with the direction we are moving around all over this. it puts a premium around being clear and having resolved toward the end game. the end game is to bring inflation back to 2%. that is challenging. we are coming off an unprecedented period. the economy is still sorting itself out and there are global factors. a lot to think about, markets are thinking about that is even as we proceed toward the rate hike. kriti: that was esther george at

jackson hole. a follow-up on that conversation, joining us from the event is a michael mckee. i want to follow up on one of the key question you asked about unemployment. i cute -- i think you asked her how much unemployment is too much? this is only the backdrop of a place where a lot of people are saying the phillips curve does not apply. it feels like it does. push ahead to next week when we get payrolls. what are people at jackson hole expecting when it comes to the labor market? mike: we look at this report and the feeling is it is going to be very little different from the july numbers, but perhaps with a lower job creation figure. unemployment not expected to go up. if it does, it will rise slowly. how far? it was a bit of an unfair question to esther george,

because no fed official is going to say it does not matter if people lose their jobs, but we art below 3.5%. we are below what people think of is the natural rate of an ointment -- unemployment, they think it is somewhere between 41% to 4.5%. there is room for appointment to rise without a major impact on the economy. kriti: a lot of people are looking and saying inflation has peaked, but does it matter what subcategories are doing? rent has not he. wages -- has not peaked. wages have not the. -- not peaked. mike: the problem with the rent is that it is measured in terms

of housing. what do people think their house would rent for? people only sign once a year or once every two years, so it takes a long time to get into the prices and takes a long time to fall out, even if prices start to go down. the said us that will be part of the equation for a wild. it is a bigger weight in the cpi. we will see what impact housing has on the pc and whether it pushes them up more than expected. wages would start to go down if we start to see unemployment rise or even stabilize and enough people get jobs. kriti: something we will keep an michael mckee, we thank you. let's get more insight.

joining us is brett ryan of deutsche bank. i am going to do what michael mckee did to esther george. i am going to ask how much unemployment is too much? brett: from the fed's perspective, that is one thing we are looking to hear from chair powell -- what is the role of labor supply constrained in their inflation band-aid? before, you headed estimated around 4.5%. however, now with lower foreign workers, less legal immigration, that could be closer to 5%. we want to hear chair powell direct that tomorrow. do they think labor is higher relative to the prior cycle? how much pain they willing to take in terms of the trade-off between employment and

inflation? kriti: how much are they willing to take, how much pain? can we talk inflation, there are estimates that it will go to 3% or 4% next year. isn't that concerning, the case? -- the pace? brett: the fed has a job to do. as george said, inflation is job number one. they want to see evidence. it is not just getting to three. is going back to 2%. as michael noted, the stickier portions of inflation are going to remain for some time. they need the fed to get real rates into positive territory in order to bring down inflation over time. the market has certainly come a long way since the july 27

meeting. expectations have risen to 3.8% for next year, up from 3.3% in the wake of the july meeting. the peds's messaging has started to get through, but there are upside risks to this. there's the other thing we want to hear from powell's risk management strategy around this. when you have a tight labor market, you cannot look through supply driven inflation charts. a tight labor market with rising inflation expectations means they cannot have the luxury of looking through supply charts. the second part is risk management. as esther george had noted, when you have inflation expectations

rising and unemployment is low, the risk of doing too much, you err on doing too much. if you repeat the mistake of the 1970's, that is more costly down the line. kriti: walk us through the economists thinking. what they do ultimately gets to terminal rates. how do they decide how long to stay at it? brett: that will depend on the inflation outlook. he said the details we want to hear in terms of the fed's reaction function. what do they need to stay in terms of how fast and health are inflation has fallen to get back to target? they are that number one is going to be core inflation prints. the second part economic activity. they want to see growth go below

2%, that they want to generate a soft landing. financial markets are going to be a factor. it's going to be a combination of things, but at the moment it is clear that they are going to need to get real rates higher and state there were some period of time, which president george also attacked about. kriti: brett ryan, senior economist at deutsche bank, we thank you. mark: president biden has set the state for his first political rally today in the final stretch of the midterms. he is looking to prevent republicans from taking control of congress. the dnc event in a d.c. suburb will connect, the coast -- will

pick up the coast-to-coast tour to help democratic candidates. dr. anthony fauci says he expected the u.s. would have moved past the covid pandemic after the first year of the biden administration. he spoke with david westin. >> i thought after yet another ear -- year, we would have covid behind us but that is not the case. we have got to get more people vaccinated and roosted, but we are on the threshold of getting covid to the point where it is low enough that we cannot have it disrupt the social order. mark: he spoke three days after announcing he will end a more than half a century career as a civil servant this december. the u.s. and china close to a deal to enable academy regulators to travel to hong kong to inspect records of

chinese companies in new york. securities regulators in china are making arrangements for companies and accounting firms to transfer working papers and other data from mainland china to hong kong. global news 24 hours a day on-air and on bloomberg quicktake. powered by more than 2700 journalists and analysts in over 120 countries. i am mark crumpton. this is bloomberg. ♪ how will your business adapt to change? you could hire an office full of peyton mannings. what's up, peyton? good morning, peyton. hold for peyton. they'd huddle.... welcome to the peytonverse. such a visionary.

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kriti: this is bloomberg markets. let's look at a stock that is all around -- palatine. it has been a whirlwind week. more signs that a comeback is

still far off. joining us now is our resident in-house expert on all things stock. 24 hours ago, we were talking about college funds we bond and then earnings hit. >> it has been a wild ride. looking at the earnings report, it forecast the week outlook and posted a loss of about $1 billion. that goes to show how many problems they are having when it comes to sales. this comes a day after they announced this potential plan with amazon, broadening the scope of bikes and accessories that people can buy on amazon. but its stock is down 70% this year, at nearly 20% today. this turnaround plan is going to be a struggle.

as we move out of the pandemic and as consumers are shifting their purchases, it was one of those pandemic darlings and now it is not. they will struggle with turning it around. kriti: a lot of these companies are having issues. we talk about this with big tech names but tech adjacent names also, which have that element of tach but are not quite apple, microsoft. what will it take to cross that, that it had to deal with in 2020? jess: the big issue now is the slowdown. look at subscriber growth. last quarter, it had close to 3 million connected. that is up 27% from a year earlier but still flat from the prior quarter. how exactly do they try to expand subscriber growth when in a lot of people are may be back to jim's and trying out other

classes around other people. that is going to the sea. -- be key. kriti: bed, bath & beyond has turned into a retail of death route -- retail favorite, now getting lending help. jess: bed, bath & beyond is in exclusive talks for a of credit. it is close to 400 million dollars. it has been burning through cash. then ryan cohen completely got out of of the company. recently, more than 400% from july alone and a lot of it had to do with the option that ryan cohen had been buying. people were talking about it pushing up at stop, but we are -- stock, but we are beginning to see it unwind. shares up 5% today but often

those highs from a month ago. looking to see how this company is still grasping for cash right now. even looking at data for retail stocks, you can see more retail investors moving away from that stock, from its peak on august 17. when that starts unwinding, you see money coming out of other corners of the market. kriti: a lot to digest. it goes into the macro base as well. still ahead, inflation has severely impacted businesses and consumers.

kriti: this is bloomberg markets. today's number is 8%.

that is how much shares of coney are rallying today. cody announced it is rolling out price increases to deal with inflation. we spoke with its ceo. >> i seen as an increased desire to shop beauty and the more premium parts of the business. we are concerned that at the end of june, people are shifting from eau de toilette to eau de parfum. this is a good sign. they are looking for quality, even if the price is higher. this is something we are seeing and we do not see any sign of slowdown. >> even for the mass consumer?

not just the luxury consumer? >> yes. i do believe that today, whatever is the channel where you are selling products, there is not a story of expensive or less expensive products, there is a and desirable or not cool and desirable. in macro distribution, if you are cool and desirable, even if your commanding a higher price, people shop with you. they are looking for items that make them chic. caroline: have you been able to weather this inflationary headwind and increased price points? do you think you will have to continue to do that? sue: during the first half of 2022, we did a low single-digit price increase. at the moment, we are doing a second price increase, mid single digits.

but we have put a lot of work into the company to make sure we absorb all these increases. we have been activating resilience plans, business continuity plans. we also do local sourcing to avoid transportation. the result is that our growth margin, which is a great indicator of the profitability of the company, has been growing near 400 basis points. in the middle of this inflationary drop, this is a fantastic performance. caroline: do you think inflation headwinds are coming down a bit, like gas prices falling? or are they still elevated? sue: we have seen some things falling, some accelerating. i do believe that we have to be ready, whatever is the scenario.

of course, if things go down, it is great for consumers and going to be great for us, but if things continue in the same direction, we are ready to implement new price increases and ready with resilience for whatever is the situation.

mark: vladimir putin has ordered his country's military to increase armed forces by 100 37,000. he did not explain whether that would happen with a draft, upping volunteer soldiers, or both. the kremlin has said only volunteers take part in what it calls the special operation in ukraine. the cost of french power hit a new record as its nuclear feed