kriti: >> another down day in the stock markets and the dollar seeing new highs. welcome to "bloomberg markets." let's dive into the price action. the nasdaq hitting a session though, the s&p 500 down by 1%. take a look at the bond market and currency market. which is leading? that will be our question we ask our guests. the 10 year up as well as the two-year hitting 351. you see the three year hitting

new highs again. as the yield you higher, the dollar follow suit. the ripple effects are crucial. we will break that down and with a stronger dollar, you have the commodity move lower. brent crude trading at a 90 -- 92 to handle down 3%. earlier, we spoke about the dollar impact on the economy. take a listen. >> i think we should think about what does a stronger dollar do for the u.s. economy and take it from there. if you are a central bank struggling with high inflation, some of it from goods that are imported externally, you might think a stronger dollar is going to help bring that inflation down at the margin. it might not be the main force driving inflation pressures but the fed could use any help from any source it can get at this

point. a stronger dollar also is going to be challenging for the u.s. manufacturing and trade in general. it does foster the economy. kriti: joining us now for more is bloomberg international economic and policy correspondent michael mckee. i want to get to the point that she was making, the impact on the dollars when it comes to the federal reserve policy. we are at a time where it seems there is this race to currency strain when it comes to global central banks around the world. the federal reserve has the advantage. how long can that advantage last? michael: they can last for a long time. the old saying, it is our dollar in your problem. the dollar is responding to a number of different things including the strength of the u.s. economy and the fed's higher interest rates than the rest of the world. as long as the fed keeps raising rates, the inclination is going to put your money into than

united states because returns will be higher. the fed cannot worry about the rest of the world because it has got to worry about the united states. the rest of the world will have to live with it. kriti: i'm curious about what that means for the bond market specifically and a quantitative tightening that comes from the federal reserve. are they worried about the fact that two-year yields are hitting 351? michael: not particularly. at some point the fed will have to start losing money on its bonds rolloff because they will be rolling off funds worth less then when they got them in terms of the price. they would have to explain to congress but it would not make a difference because congress does not make money but they will keep the rolloff going for quite some time until there is indication they have gone too far. they do not know what the impact is going to be on the overall interest-rate, how much it will push it up if at all. kriti: which rings me to

tomorrow and with the trades will be tomorrow with roles or its specifically. is good news good news and bad news bad news? michael: mi at the fed or mi on wall street? kriti: you tell me. michael: if i'm at the fed, i would like to see the jobs -- jobless rate go up and job growth moderate, not fall, but moderate and average hourly earnings moderate. that would be bad news but good news for the fed. for the markets, good news will be strong and employment numbers and our bad news for traders because as interest rates go higher, the fed will have to do more. kriti: looking for numbers 281, quantifying that when talking about moderation, what does that look like? michael: we don't know. that will be interesting, if we got something in the range of what the forecast is, 298, and the list of numbers are slightly below that, because we have not

been in this situation before. prior to the pandemic, we were looking at average monthly gains of about 150,000 to 100 60,000. 280,000 would be a strong number but it would be slower than we had seen in recent months. still above what people had thought would happen in july. i'm not sure exactly at this point how you trade. probably a 281 would be strong enough for the fed to stay involved. kriti: bloomberg's michael mckee showing all of the curveballs -- answers for all of the curveballs i throw on him. running is now for the rate picture is subadra rajappa, head of u.s. rates strategy at sasha. what is good news here and what is bad news? what market reaction can we expect off of payrolls tomorrow? subadra: broadly speaking, the employment picture is strong regardless. even if we get anywhere close to consensus, i think at the most part, the bond market is probably going to keep bearish

momentum over the near term. the way bonds have changed right now, i think it is not just a u.s. story, it is a global central bank policy story, he meaningful selloff in bonds. i think momentum is probably going to continue to push yields higher. if you listen to chair powell's jackson hole speech, he did not even mention employment once. for the most part, to get anywhere near consensus, it is game on for the fed for the next meeting. the market is efficiently prior --'s officially price for rate hikes for the next couple years and also priced for quantitative hike as of the september meeting. i think the most important data point from here on will be the cpi in september, september 13. kriti: let's talk about the market reaction when we talk about the bond market relative to the currency market. it looks like they are moving hand-in-hand. if you put intraday charts up,

they are moving in sync. which is leading which? is the bond market leading the dollar or dollar leading the bond market? subadra: i like to believe the bond market is leading the dollar because typically what happens is the bond market prices in rate hikes and the dollar follows according to what the market is pricing in. you have seen a meaningful increase in yields in the u.s.. to me, what is interesting is yes we have a rate hike answered in for the fed but we also have a basis point rate hike for the ecb shortly before the fed meeting. and yes you are not seeing a meaningful trend in the euro into the ecb meeting before the fed meeting. for the most part, with the focus very much on the fact that u.s. economy is a lot stronger than global economy and so the

dollar is going to potentially remain strong for the foreseeable future. kriti: one thing that would be a major concern for the rest of the world, i'm curious what that means for some of the data and for the approach the federal reserve takes when it comes to looking at financial conditions, a big chunk of the movement has come from the dollar. is that something you are factoring into your thesis? subadra: absolutely. i think every component of financial conditions index shows the commission's tightening. you see a sharp correction lower in equities, interest rates have risen dramatically, credit spreads are widening. you are also seeing the dollar has strengthened and remains a strong. i think financial conditions across the board, every component, is showing the national commissions are tightening. -- showing the financial conditions tightening. the question is are they tight enough for the fed to pause?

i think the fed will keep staying the course. as long as the u.s. data keeps up, i do not see the fed thinking about pausing anytime soon. kriti: what does that look like? when we get to that point, you outline, what does that look like? subadra: it will probably be close to where we have -- the fed penciled in probably on 3.25% sometime in the middle of next year. the fed might either pause or hiked up in on how financial conditions involved and how they are the current time. if you look at the data, there are no signs a recession is anywhere near -- we are anywhere near close to a recession. for the most part, this is all game on for the fed as far as rate hikes are concerned. kriti: always a fascinating conversation. subadra rajappa, of societe

generale, we think you as always. a crucial time where labor cares about. now first word news with mark crumpton. mark: president putin will not attend saturday's funeral of kyle gorbachev according to the kremlin. he paid tribute to the soviet leader leader earlier today. he has shown reaction to the death, praising his role in reshaping 20 century history and noting they call his "romantic view of the west." it is unclear whether gorbachev would get a state funeral. russia is holding major military exercises with china and india. it is vladimir putin's way of pushing back against attempts by the united states and allies to isolate them following wing -- following the invasion of ukraine. more than 50,000 troops in 140 aircrafts and 60 ships are taking part in the war games and

russia -- in russia's far east. former president trump is accusing the justice department of criminalizing his possession of documents as they investigate the classified records at this or trump's mar-a-lago estate. the court filing seeks to bolster his case for a third party to review the documents. mr. trump off lawyers argue the act allows a president to take whatever documents he wants. in california, blackouts have been averted so far in the midst of a heat wave that could threaten the supply of electricity in the state through next monday. the state called off a power grid emergency last night as temperatures cooled. the concern comes as record temperatures attack grids across the state. 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. ♪

kriti: this is "bloomberg markets." looking at something that, i i chips and currencies. this is interesting. we know a lot of the world ship supply comes from the asian pacific region, from taiwan, from taipei, also from south korea.

this is my chart of the day, looking at the korean won depreciating, back to levels we saw in the global financial crisis and before that, the asian financial crisis. here is why that matters. samsung is a major heavy weight when it comes to the korean stock exchange. when you see the korean won depreciate, that means yen depreciates or the chinese yuan depreciates, meaning their exports cheaper are at a time where there is a lot of momentum for chips at this moment. that is a good thing for consumers in the united states, a lot of europe. it is not so great when it comes to a lot of these countries that then have to make more of them to meet the world's supply. south korea in particular year-over-year has declined some of their chip manufacturing and specifically their chip exports. that amplifies the kazen washington, bringing some of that capacity on shore. that is owing to be a big part of the story in chip stocks to date specifically.

nvidia is down because of compliance they have to do with some orders from washington. i want to get more perspective and bring in true expert on the chips sector. she joins us on set. the nvidia story is rishel, it almost feels like for so long the chips story wasn't supply chain issues, driven by manufacturing capacity. geopolitics was not driving the trade in the last year or so. now we have news from the government saying we will restrict some of these exports to china. talk to us about the difference that makes. paula: first of all, i think once russia creates -- all eyes went to taiwan and russia. people started thinking about it. in this case, in terms of the impact and what will happen is there is really money -- real

money at stake. you are looking at one of the fastest -- one of the bright spots in the chips space, which is high compute servers. for artificial intelligence, machine learning, and while the consumers slowed, and you see enterprise data centers slow, people are bullish on the outlook for any long-term demand for these hyper scalars and hyper-scale data centers. so the product we are basically banning in terms of exports to china are chips that go into that. that again is the growth spot. here is nvidia seeing weakness on the consumer side and for graphics cards. now they will start seeing weakness on the stronger what was considered more resilient segment of their business. kriti: hundreds of billions of dollars in revenue, that is

nothing for nvidia. it being a massive heavyweight in the s&p 500, so really a tough story for the chips sector. now i'm curious about the shutdown and china as well. this is a massive city that has a major tech area specifically. connect the dots. paula: you have tesla that has a presence there, texas instruments, apple has a presence there. the shutdown -- a lot of the -- many of the reasons why people move to china in the first place is because they dominate in the back process of chip manufacturing, which is labor intensive. when you have these lockdowns, it literally means people cannot go to work. right now, we have seen the supply chain balance out somewhat and this is going to disrupt it. kriti: it will disrupt its, cost more money as well for the end consumer. we have 30 seconds. can you talk to us about the

efforts from washington to bring the capacity back into the states? how reasonable are they? paula: i would say on that point that they are basically going to be duplicating capacity. we cannot build out capacity even with government subsidies unless we neither capacity or it will completely disrupt the entire efficiency within the chipmaking industry. kriti: it will be fascinating to see what new players and countries get involved in the chips sector if we do indeed cut china out of the picture. paula penkal, thank you as always. still ahead, the california he we've is disrupting the energy -- heatwave is disrupting the energy grid. it has follow for vehicles. all of that is coming up next. this is bloomberg. ♪

kriti: this is "bloomberg markets." lastly, california became the world's first government to effectively ban gas-powered vehicle sales by 2035. this week, the state declared a state of emergency to cope with a blistering heat wave. california energy regulators are asking residents to cut back on -- cut back. welcome. your first time, very exciting stuff. walk us through the impact makes it how feasible is it to cut this part out? >> thanks for having me on the show. i think california's decision to ask for this makes a lot of sense in context of how much demand there having for things like air conditioning. if you are using an ev charter, you are incentivized to power up when the grid is having less strain anyway, often overnight, or when renewable energy resources like solar are high.

i thing it makes sense in the short-term. over the long term, there will be more benefits to having ev on the grid but california will have to learn a lot of -- like a lot of governments to work with ev's overtime area kriti: isn't that counterintuitive? california's number pretty ambitious climate goal, for example electric vehicles have always been an interest. why cut back on that? >> i think it is understanding when ev's should be charging. part of the beauty of electric nichols is you do not have to charge them every day. according to our research, every two to three days ev owners run two to three hours so you are shifting from those peak hours. what you can do and what utility does in many cases is incentivized charging at different hours or they are asking ev drivers to think about when they charge. over the long-term, we will see utilities get more advanced and sophisticated with ev's and use them as a battery asset on the grid. so again right now, they might

be asking owners to cut back on this moment but it does not mean over the long term you need to -- on the grid. kriti: what does that mean in terms of charging infrastructure? i thing that is part of the ev story that has a ways to go putting it lightly. does this delay that process? corey: i think california and the country at large has been thinking about how to build the charging infrastructure. you have public charging and home charging and we are talking about consumers specifically charging at home. so california and the u.s. know they need to new more on charging and those grid enhancements. it is part of the question here, do we have a good capable of handling electric vehicles in the changing climate case? part of the reason why ev's are needed is because transportation is the highest in the sector. another key point is ev share of sales in california during the first half of the year before any of the policies knew and coming to 2035 have been in place.

15% are fully better electric and 3% are plug in hybrids. california is making the shift and consumers like electric nichols but it comes with different charging behaviors that they will have to grapple with. at the utility level as well. kriti: so from california to the rest of the united states, it is the poster child of some climate change and then you have my home state of texas for example which has already been having its own issues with the electric grid, alarms that have currency mining's and he waves of its own. what lessons do we take from the california story? corey: i think over long period of time, you need policy makers both on the kind of charging infrastructure side but also on the grid up inside. electric vehicles are coming, a bunch of states will be following this california policy of hitting 100% ev share sale by 2035. you see the administration for example at the national level

seeking the plan process of thinking about where they are building charging infrastructure. we will see federal dollars start to roll out over the next couple months after about a year of planning and submitting plans. really it will be a local, state, and national effort to make sure the grid is ready. but there are so many benefits if everyone can get this right working together. if you have additional renewable energy resources, you can store them in electric vehicle batteries and discharge them. again, a lot of studies around that at the national level have been underway as a result of the infrastructure bill passed last year. a lot of work to do on ev's. it will only be more exciting but given the climate change moment we are in, there is not necessarily a normal we will have to grapple. until it is in policymakers will have to be aware. kriti: and taxes as a whole other conversation. corey cantor, we thank you as always. let's get a market check.

we are seeing the s&p 500 down .6%. they are not at session lows, they bounced off of them. it is not exactly their what the market is responding to. perhaps jitters ahead of payrolls. more coming up. this is bloomberg. ♪ so... i know you and george were struggling with the possibility of having to move.

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jackson's residents have been waiting in line for water. the city's water system partially failed following a flood. authorities blame deferred maintenance. president biden wants to provide support. officials in pakistan concerned about the spread of waterboard diseases now that the water from monsoon rains is starting to recede. some doctors said they were

seeing patients traumatized but are now treating diarrhea, skin infections, and other waterborne ailments. the team of u.n. inspectors working at a nuclear plant held by russian forces in ukraine even as showing a friend their mission. ukraine's president met the team this week. their aim is to safeguard of biggest plant in europe. ukraine's estate power company sent russian shelling led to the shutdown of one of the reactors. list trusts made a couple of promises in her final pitch to become the next prime minister. truss was out introducing any new taxes for energy this winter. the next prime minister will be announced monday.

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. jon: welcome. kriti: in just the last 30 minutes, some big changes on the stock market. we started the hour at session lows. now you are seeing a downspout. the s&p 500 only down .6 percent. but to me it is all about the bond market. we were seeing the 10 year yield up in the two year yield up 3.5%. you see the dollar following. with that stronger dollar, the

ripple effect is in commodities. jon: as we look at some of the individual rivers, and we will watch to see the balance off the valleys today, there is a cautious tone. we have seen that in commodities under pressure, exxon off close to 2%. oil around 11%. gold struggling in the face of that stronger u.s. dollar with the fed hangover fenton center. cash front and center paired walmart and bucky that trend -- walmart bucking that trend. then to have got the chip challenge outlined by nvidia today. those which -- those shares up 10.5% him kriti: some major ripple effects in the broader benchmarks. ahead of friday's jobs report,

we talked about what the fed is looking for in the data. >> the thing is the labor market. we are seeing supply and demand. the fed does not necessarily want to see the unemployment rate go up. that is not what central banks want, but in this instance, we keep hearing about a type labor market and a market at unhealthy levels. we are trying to figure out how can the fed orchestrate rate hike cycles where there is still positive growth and unemployment goes up but not by much. jon: let's get from more insight from jennifer of the more capital markets. what is the fed to do? how are you thinking about the strategy from here. nvidia the -- jennifer: i bring

trust any central banker right now. we are having a strong jobs report with the economy but it means the federal have to keep tightening further. if it is a weak figure that we see tomorrow, that is good news but the fed would have to ease up on the brakes a it. tough call. we are looking for 250,000 jobs to be created. i am more interested in seeing what happens to the revisions and whether or not we will see that -- last month and whether or not that had any staying power. kriti: from an economic perspective, is higher unemployment actually a good thing? jennifer: right now, it would

not be too bad. higher unemployment is not good broadly speaking, but it is what the fed is ok with seeing right now, not too much higher, that and have to break the imbalance that chair powell keeps alluding to he was saying last friday that there is way too much demand and not enough workers. jon: we have been trying our audience and the expectation is we get ready for payrolls friday. the august jobs report expected to bring 298,000 jobs, which would create decline from the previous month but still a somewhat robust jobs market. jennifer: 250,000 has been our

view. it will be below the average we have seen over the past year. we cannot expect 500,000 jobs to be created every month, but slower growth is going create slower demand for workers. at the same time, we set earlier this week that there are still over 11 million job openings, almost twice the number of unemployed americans. kriti: that will balance out. the disconnect that you are seeing in the labor market, how does the labor market pull that together? how does that get fixed? jennifer: at some point, the number of americans still on the sidelines are going to realize that the jobs that we have -- if

you have five jobs available to you and you pick one, you are going to join the labor market. so you are already seeing the number of initial claims starting to climb. we are just trying to get all those unemployed fully employed. that would help the labor market trip -- market. jon: watching the s&p 500, we have seen the bounce off the lows i've down days. tomorrow, if you were to see a weaker than expected jobs report, some might see that as an encouraging sign short-term but it -- does it change the story from seeing rates cut last year -- next year? jennifer: even if is a week number, one month does not make a trend.

more important for the fed what happens for the august cpa report, coming out september 13 that will be more critical. kriti: jim turley, we thank you -- jennifer the, we thank you. coming out, they knew region of china gets shut down and what it means for the chip industry. this is bloomberg. ♪

kriti: this is bloomberg markets in what appears to be a blow to

china's economy, another city blocks down. this could affect electronics, the auto supply chain. underscore the importance of the city when it comes to the globe. tom: it is a city of 21 million people and accounts for 1.7% of china's gdp. a lockdown fear is not the same magnitude of impact as in shanghai. chengdu is not that important but it is significant and underscores the ongoing risk to china's economy and the global supply chain from china's covid zero policy.

yesterday, shanghai locked down, today, chengu. who will it be tomorrow? jon: we see it in the commodity market as well. you were covering industrial profits in china. how would you characterize the state business right now? tom: the chinese economy is facing severe shocks. we have talked about covid zero, the lockdown in shanghai and in chengdu. the real estate sector is adding an additional drag, the consequences of years of overinvestment and overcapacity. and the international environment for china remains challenging, with the u.s.

increasingly regarding china as the rival and making it more difficult on issues like access to semiconductor technology. all of these things weigh on china's growth. you mentioned week industrial profits and threatening to make on the chinese economy into 2023. kriti: i am going to steal alix steel's question -- when does the zero covid policy end? tom: the consensus remains that china gets through its crucial political meeting in october. that is when xi jinping is expected to be appointed for a third term. then begins the uncertain process of exiting from covid zero. that said, there are significant

uncertainties. we have not heard anything from china's leadership on planning the exit from covid zero. neither have we seen china make the moves it would have to make to minimize the public health costs of exiting covid zero. we would expect them to move to a large number of mrna vaccines to give its covid naive population maximum protection but they have not done so so far . that raises questions about what the plan is and when the eventual exit from covid zero will take place. jon: when it comes to sentiment, which sometimes can be tangible, but there are ways to measure how much the market focus will be on sentiment? tom: there are a couple of things the market is going to

need to hear in order to shift to the more positive view on china. both are hard to deliver. the first is a credible plan for how to exit from covid zero. the second is how to draw a line under the slump in the property market. that will require significant stimulus, much more than the cute basis points of rate hikes which the pbc has been stated. it will also raise questions about rich real estate developers go into bankruptcy under which survive. jon: great to get your analysis. we want to stay on the china theme. a different thread we have been watching is chipmakers under pressure and nvidia sending

warning signs about new rules regarding artificial intelligence ships. stacy, always great to have you. what was your reaction to this news? stacey: it was not great. sounds like the companies were taken by surprise. this is coming on the heels of what was not a great earnings report last week. it probably would have been better to have it a couple of days before instead of after. people were getting the feeling that the numbers had come down and you have this further headway. the risk itself -- in terms of the risk itself, the impact is

low double digits, 10% or 11% of their revenue, not trivial but not necessarily devastating but even if nvidia can get some of this back, you will have to fully discount china revenues going forward. there is no conviction that those revenues can at some point get all the way. even discounting escalation, you add more uncertainty onto a story that was already shaky because of some of their other businesses, so it was not a great thing that happened yesterday. kriti: are you seeing more restrictions when it comes to business with china? consumers in china, but also producers, days that build the case of for more domestic

production here in the u.s.? the ship sector get on board? stacey: chip manufacturing is happening in china but what is going on with nvidai has nothing to do with that. those chips themselves from nvi dia are made in taiwan but the supply chain goes through china. all of the boards are assembled there. even for folks outside china, and not of the products they are eventually shipping to the u.s. or europe go through china. we went through some of this a couple of years ago with the sanctions. there was a move to start to recode a supply chain's -- relocate supply's outside china. my guess is that will continue. it is going to get harder to do business. jon: we are awaiting numbers

from broadcom as well. i would love to get your perspective. the topline story was expected to meet strong. down the road, there is a vmware deal. stacey: i think they will be ok, fingers crossed. there backlog is strong. as of last quarter, there is semiconductor backlog was $20 billion. one, deliberately has not been to everything -- broadcom deliberately has not been shipping everything people have been ordering. -- be watching if that backlog starts to pull in. the biggest thing we are watching is there commentary tone, specifically around data, hyper-scale, and enterprise.

sometimes art mixed. broadcom is fairly credible. they will tell you what they are seeing. if they say the paper scale is still strong, that is positive. if they say things are starting to leak my people would take that as indicative of what is going on. kriti: we are seeing a dollar they get stronger and stronger, hitting a record high today. how much of that weighs on chipmakers bottom lines? stacey: not a lot of direct impact from currencies. almost all companies are priced in u.s. dollars. u.s. products get more expensive but do customers buy less? or do they put cheaper parts in to make cap for differences? there will be some cost impacts.

but that is actually a positive when the u.s. dollar is getting stronger. i do not worry about currency for my coverage directly. it is more what is indirect. for european or asian companies, currency movers can be much bigger. jon: appreciate your time, as always. we get ready to watch those broadcom markers and to see the market react. a drop in some price pressures. the details next. this is bloomberg. ♪

jon: this is bloomberg markets. our number today is 52.5. in the ism report, materials and

declined for a fifth straight month, a welcome sign of easing inflation. earlier, we heard from the chair of the ism survey committee. >> the were on this path in december and january. then russia invaded ukraine and it flipped around because of patent energy. the biggest headline is what happens to the energy petroleum barrel costs in the fall. jon: certainly, we will watch commodity prices, which have eased, but as we get ready for that jobs report, a lot of fed analysis. kriti: we have been calling it a peak in inflation but how long will commodity pressure state down before you see a buildup in commodities again? that will be crucial. volatility is strong.

92 on crude. it is wild to see the impact, a lot of that coming from the dollars strength. the s&p 500 down .8%. this is bloomber

matt: keeping you up-to-date -- mark: keeping you up-to-date with news around the world, pollens from firm -- poland will seek reparations from germany for the nazi world war ii invasion and occupation of the country. party leader announced the claim after the release of a report on the cost of years of nazi germany occupation, 82 years since the start of world war ii. president putin will not attend the funeral for mikael gorbachev.