mark: i am mark crumpton with first word news. french president discussed ukraine's battle advantage in military aid in a phone call with baltic leaders. president zelenskyy says forces have recaptured or than 2300 square miles in the eastern south, but russian forces hit ukraine's energy infrastructure, leaving hundreds of thousands of people in the dark. china's president and vladimir putin will hold their first in-person meeting since russia invaded ukraine, according to the kremlin.

on wednesday, xi will make a stop to unveil his infrastructure plan. the foreign policy mission has become a focal point of the u.s. and its allies, which in june announced plans to raise $600 billion in financing to lower income countries have an alternative to chinese cash. president biden and other senior administration officials remain engaged with the unions and freight rail companies and last-ditch efforts to avoid a strike that could disrupt the u.s. economy weeks before the midterms. close to 125,000 workers could strike. rail operators in unions face a friday deadline to agree to a new contract. public health officials and l.a. have reported what is -- in l.a. have reported what is believed to be the first fatality linked

to monkeypox. they say the person was severely immunocompromised and have been the hospital. the cdc says the u.s. has the most monkeypox cases globally, almost 22,000. 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. >> welcome to bloomberg markets. kriti: i am going to start bottom up when it comes to the board, let us start with the oil story. we are getting headlines president biden is looking to potentially fill be strategic petroleum reserve, buying oil at $80 a barrel.

the spread is getting wider and wider, you see the commodity lower, down 7/10 of 1%. you look at crude futures, still down on the day. matching what you see in the risk rally. let us get back to the stock story, down 2.8% the s&p 500, the loss is worse when you look at the tech heavy nasdaq. bonds are no exception, 10 year yield up about six basis points, two year yield up almost 20 basis points. at the end of the day, yields up strengthening the dollar. you are seeing it up 9/10 of 1%. jon: the easy targets within the broader stock story today, they have certainly been the big players from the technology world and the nasdaq 100 in percentage terms. something your weaknesses come through names like meta -- like meta. and for companies that have

specifically bearish news, we talked about this today, we see more sizable drops. this is a great example of a stock of 33%, it deals with subscriber struggles. it is not just tech. we have companies like eastman chemical that are sharing outlooks due to demand weakness, getting hit to the tune of 9%. kriti: really no exception. we got the reaction from the cpi report, which is driving a lot of price action. david kelly spoke to bloomberg tv saying it was a bit much. >> i think we are overreacting. it was not good news, it was worse than expected. i think financials are overreacting. the problem with the 10 year treasury near 350, that is ok. but the assumption it is going to get worse, i think it is wrong. jon: so, david kelly seeing this

as an overreaction. let us bring in mike mckee for more analysis. mike, the comments you made as the news was breaking this morning was the idea of cementing the rate expectations going into next week. i suppose we had a little wiggle room in the markets heading into the report this morning before we got to reality. mike: that's all that was necessary. we went into this morning with the markets at about 60 basis 66 basis points in terms of a fed move. they really priced in more than the fed doing 75. but there was little chance that wouldn't do a 75, given the situation. given the fact they want to get interest rates up higher to be somewhat restrictive on the economy before we get things out of control.

it was the core rate rise, double what was anticipated. 6/10 instead of 3/10 that sold the idea. that is why people have been talking about, may be the fed is not making enough progress. david kelly disagreeing, but a lot of people thinking with the core rate rising, the fed still has problems. kriti: mike, since we got the report, we had a couple of analysts update their calls. they are calling for 100 basis points next week from the fomc. is that realistically back on the table? mike: i do not think so. it has been years and years since the fed did 100 basis points. 30, 40 years. that was back in the day when they were targeting the money supply. at this point, i think 100 would be an awful stretch, given it would seem like the fed is panicking, it would push markets in a very unknown direction. we do not know how people would

react to something like that. the fed does not really want to do that. you see a small chance being priced in of 100 basis point move compared to 100% chance of a 75 basis point move. that said, the fed has always raised its benchmark rate above the rate of cpi inflation, in order to tamp inflation down when they go into tightening cycles. we are nowhere near that. the fed still has a ways to go, just not all at once. kriti: michael mckee, the chief economic correspondent, thank you. let us get more insight from the head of advisory solutions. welcome to the show. i will put the question to you. 100 basis points. do you find the logic? >> i do not think so. if there was any reason, it would be to chop the markets a little bit and perhaps ease the pain and pressure to be something else later in the

year. 75 is where we will end up. i do not think the fed is looking to surprise markets. so, 75 is probably the right call. it will be interesting and important to listen to the messaging at the press conference in see what they are guiding the rest of the year. jon: we have not talked to much about it yet, it is the economy go from here -- where does the economy go from here? we are looking at what your expectations might be for stock market performance, depending on those scenarios. by what i saw in your work, there is a pretty wide range of s&p 500 performance we would see in those two scenarios. august through it. steve: -- jon: walk us through it. steve: in the soft landing, a lot of the pain is priced in. i think you will see modest upside from perhaps 5% to 10% over the next six to 12 months

if we get a soft landing. in a recession scenario, i will caveat by saying i do not think a mild recession is that big of a concern for markets. i think a mild recession is somewhat priced in. i think you are probably looking at 5% to 8% downside in a recession scenario. the question on people's minds if you are talking about a meaningful so often a queen markets is, are we looking at a deeper recession in which the fed will be forced to continue tightening into? that is not the base case, that is not where we see it playing out. i think we are close to valuations as we see more downside from here. kriti: i am curious when we talk about why they don't want -- the idea is to be restrictive, to hit what you restrict financial conditions. why not surprise the markets to the tune of 100 basis points? steve: there is already a lot of uncertainty in the markets right now. the fed over the last decade has made it clear they are not

looking to shock markets. they want to be transparent, deliberate and gradual. things have changed a bit, we might need to be more aggressive. but i think 75 is already pretty aggressive. as you heard from dr. kelly earlier, while today's print was not great, there are positive signs on the inflation front. in particular, some of the areas front and center for consumers -- think gasoline, used cars, travel. those are headed in the right direction. that has the ability to stick with what the market believes, continue moving in the direction of tightening, but waiting to see how those things continue to play out. there are positive signs on that front. jon: at the end of the day, investors have to make real-time decisions. what would you say is your deepest level of conviction when it comes to placing money to work in the market right now? steve: i am an equity guide by background, i will say high-quality core fixed income is a compelling opportunity. that is probably the first time

i've said that in may 20 year career. -- my 20 year career. you are getting an attractive level of yield now. in the past, what we have seen over the last couple years with yields so low, there was little to no protection from upside move in rates. it is not the case anymore. you are getting paid to wait. in the near term, where there is opportunity to let some of the volatility play out, see with the fed ends up, how inflation continues to move, high-quality core fixed income is someplace we are focusing on with clients. kriti: does that mean the macro hedge of oil, wheat, etc. is dead? steve: i think some of it will be in play for diversification. the way we are thinking of it, this is another high conviction opportunity through the industrial sector and equity market. while there is a cyclical component to that, which will

certainly be boosted of growth begins to resume, there is a lot of secular talents related to what you are talking about. they need to build infrastructure, builds energy infrastructure. food security. all of those things are long-term secular opportunities that have come home to roost and what we have seen in markets this year that should be a long-term talent for industrial stocks. kriti: something we will keep an eye on. if parts of the cpi like food and shelter that are still rising. steve parker, we think you as always. -- thank you as always. coming up, we will have more on today's market selloff. the s&p 500 down two point 9%, more pain in the nasdaq down 3.6%. read on the screen across the bond market. talk about where we go from here. this is bloomberg. ♪

kriti: this is bloomberg markets. we are seeing a selloff in the markets, let us continue the coverage following the latest cpi report. joining us now is tatiana. there is a lot to not appreciate and be a fan of and the cpi report, is there any good news in terms of an 8.3% rate? tatiana: all aspects of the cpi report have been pretty bad, there is a silver lining. it is elected the entirety of the cpi basket, the 260 items and items that have been rising to 4% plus above the fed rate. that has decelerated from the mid 70's to low 70's, we have a chart to show you. share of items that are going

above also decelerating, so perhaps a little bit of news this is a broad-based increase in our moderating. still, as other measures have shown, not to the speeds and not as the fed would like it to be and still high compared to pre-pandemic averages. jon: helpful context, especially when we had the comments from david kelly arguing there was an overreaction. coming in, the s&p 500 rallied more than 5% in the previous four sessions. let us take a step further be on the equity market reaction. you've been covering what is happening in the credit market. give us a sense on what some things experts have been telling you in recent days. tatiana: a look at the credit markets, credit risks have spiked today. that is on the back of the trader repricing expectations. the terminal rate has gone up 4.3 percent early next year,

before percent yesterday and up from 3.9% at the beginning of yesterday. they are coming to the sense speakers have been hammering home that rates have to go higher and stay there for longer. higher for longer is a nightmare scenario for credit, because a lot of them are dealing with worse credit quality than many years ago. on particular corner of the market -- that could be the canary in the coal mine -- goldmine. kriti: you see the pain of the credit market and equity market. is there a negative when it comes to what they are responding to? tatiana: the idea of higher rates. we see that in the terminal rate, the fed going higher. in the hope for a fed pivot or soft landing have been dashed,

that is weighing on it. fed fund futures, we will see that the rate is expected to fall below 4% by the end of next year. that is not what some speakers have a big item for. nonetheless, the market is rising. that is telling you the risk of recession is growing. the yield curve is telling the same story. we will see if the fed is in a position to pivot if we hit that. jon: no doubt, helpful insight. tatiana darie of bloomberg markets live. for more analysis for terminal users, you can type mliv go on your terminal to dig into what tatiana is talking about. coming up, we speak to ed rosenberg of american investments on what is happening in the etf market as we watch market uncertainty. of course, reactions to u.s. inflation numbers. this is bloomberg. ♪

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jon: we have been watching this continued market selloff admit the latest inflation data. the s&p 500 on an intraday basis is not quite at its lowest level. nevertheless, we kicked off the half hour talking with mike mckee about what the expectations were versus actual inflation reality. after seeing markets run-up over the last few trading days, we talked about the advance of 5% over the last four days. some of the easiest targets have been many interest rate sensitive talks. technology is a good example. the s&p is down almost 3% on the trading session. in technology, we've seen the nasdaq 100 under more weakness today.

kriti: i was going to say, the margin of the move. 8.3%, that is not that big of a move from last month. how much longer can we stay elevated levels? jon: certainly for a market that has been so sensitive toward certain pockets of investing, the dollar is a great example of that. the willingness to jump back in on the headlines of stocks. let us get more perspective. ed rosenberg has $202 billion of assets under management. nice to have you with us. i mentioned reluctance for investors to step into stocks, we got survey data from bank of america indicating there is a majority of sizable invested professionals that are sitting on the sidelines. when you look at etf flows, what have you been seeing? ed: it has been interesting.

they are muted this year compared to last. we've seen a lot of volume into u.s. equities this year. if you look at the flows, it is about 60% of all flows are going into equities. 80% of that is going to etf's. what is interesting is, it has been clients taking losses in mutual funds and shifting those to etf's to rebalance the portfolio as time has gone on. kriti: let us get perspective on today's selloff. the s&p 500 is down 3%, seeing a lot of pain. does that mean more etf investments or less when talking about intraday flows? ed: it is dependent on what the advisor wants to do. when the cpi numbers came out, it was a little bit of a shock. it will depend on their reaction. today will create more opportunity for investors to shift their portfolio,

especially of funding has been at a loss. the market is down this year. the last three and a quarter weeks have been faithful. -- painful. what that means for investors is the ability to reset their portfolio, go from a mutual fund or closed end fund to etf and really reset the portfolio as you get to year end. jon: i wonder what happens to growth as an etf category, which had been so popular for so long. bloomberg intelligence put out a deep dive on the internet related stocks that are seeing valuations so much lower than where they had been the last five years. ed: we have seen a shifting from speculative growth to what i would call quality. if you look at quality, it has had about 5 million flows this

year. to be fair, there are a lot of definitions and how you go about it. when you get into companies that continue earnings process through these types of markets, continue to be good companies that products continue to sell, that is the type of growth we've seen people shift into. we have a product that has taken in in the last three weeks $65 million alone. it is $280 million fund. that is a large percentage of growth. it is more on the quality side. that is the type of conversation we have been having with advisors around that type of growth. kriti: certainly something to keep our eye on. ed rosenberg, thank you. watch etf iq mondays at 1:00 p.m. eastern with matt miller.

the s&p 500 still tumbling, down about 3% on the markets. nasdaq taking on a change just shy of 4%. stick with us. this is bloomberg. ♪

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