>> there are several pockets of this country still suffering from elevated inflation. >> we know the fed has to slow it, we have to debate above 4%. >> it is 2023 when you look for inflation to come up further. >> if there is any doubt about 75 they are going 75. >> the fed will probably overdo it. >> this is "bloomberg surveillance" with tom king, jonathan ferro and lisa abramowicz. jonathan: live from our london -- live from london this is "bloomberg surveillance" on tv and radio. equities and futures bouncing back a little bit but yesterday

there was a one day drop on the s&p going all the way back to 2020. tom: back to the pandemic, let us call it the ninth drop in history. on a red zone and green zone basis it was a reset and maybe it is reset wednesday. far more than that is a way that we closed yesterday afternoon. there was no sense. jonathan: closed at the lows yesterday. yields higher, much higher and introduced some uncertainty not about next week, it introduced certainty about next week. uncertainty about what would follow in november and after that whether this will have to go a whole lot bigger. lisa: you saw people pricing in a rate hike coming next week, and then saying that in markets it is a 1-3 chance being priced into the market, a full one percentage point rate hike even

though that has not been on the table previously and then a 75 basis point rate hike at the following meeting. what does that do in terms of changing the equation very hard landing? jonathan: good morning. we will look at the inflation report. the fed used to go bigger which increases the odds of introducing the idea that they have to do more damage the economy to do -- to get inflation down. that was on twitter raising the likelihood that you will have to take unemployment above five to get inflation closer to do. -- 22. tom: a moment of silence -- of silence for those that nailed it. lisa: are we done with the moment of silence? also talking about larry summers he supported the 100 point basis hike, and jonathan came out saying they should do 25 because

i think they are overdoing it. tom: the distinction between bank of america and others. jonathan: they are looking for a recession here and said that the fed would overdo it and what happened yesterday was an inflation printed that will encourage the fed to overdo it. lisa: at a certain point is that by design? what does it mean to not overdo it if they are trying to get the unemployment rate up? what are we talking in terms of what is an acceptable amount of pain and what is unacceptable and when does is become a political issue? tom: we have a two year that looks like almost 380. at lisa: at what point do we bring it back to 4%. jonathan: looking at the price action just briefly. the euro is showing a bit of strength on the euro-dollar. the yields are higher and we are up another two basis points. lisa: so today is not ppi

wednesday. i will not say that -- i just want to say that. we are getting u.s. august ppi for august. it is technically, but do we care? the only way we will care about the number and this is my editorializing, if it comes in hotter than we expected we will stick with the narrative that we heard yesterday. if it comes in weaker doesn't move the dial? i do not think so. it is hotter than expected in here. 10:30 am we get the crude oil report getting the read on the u.s. inventories of oil and gasoline and i will also like to see what we will fall off, or if it has just been as released through and through. and then moving into this question in about covid zero. the chinese president is beginning a three-day travel, the first that -- since the

pandemic it and he will be in central asia and he will meet with vladimir putin and this is really interesting because it comes with a lot of talk about whether they will continue zero covid, does it signal anything that he is leaving the country. tom: you and i were of natural out having vindaloo last night. jonathan: we were just talking about whether we should bring a bear or someone. let us get to someone who is just right. the chief multi-asset strategist at hsbc. we all reach your notes, are you going to tell me what that means, but you have not been constructive of this market and i imagine you are not constructive. max: not particularly. if anything if we look at the number that strengthens this kind of positioning, unfortunately. i am delighted to see that you three are upbeat while talking bearish. i am not so happy so i am not

sure where at the end of this section we will feel a bit more bearish perhaps, look, i guess the point really that i would make is it is not really about whether we will get 75 or 100 in september. what is -- what it is about if we look ahead is that we all thought it would be 50 or 75 and then 25 and then zero, and then they have gone. the point is that what the number does is that that is opening the door to market pricing, not that it has to do it, but market price and saying do we need to continue doing 50 or maybe 75? for the next three to five months. where's the valuation report and support going to come from? it is simply not there. tom: do those rate creases diminish demand? max: not yet. tom: what is hsbc's asian

perspective. where does demand get diminished according to the textbook that everybody forgot years ago? max: that is the big issue because it takes time. when you look at all the numbers, we are seeing that we have industry that is feeding into manufacturing and now we are starting to see around three to five quarters until it seeps through into the labor market which feeds into a forward-looking accumulator. they were talking about that well into 2023 which is a big issue. the big issue with demand now is whether demand craters are not does not matter because broadly you have two scenarios. you have the scenario that you have now that demand is getting destroyed. earning and growth expectations will be proved to be way bullish, and that is bearish. on the other hand you say it is

not happening yet but that means that we will get more of it and it will come from inflation. tom: is this a bad news-bad news interview. jonathan: i think it is. lisa: it is good to have you on and talk about what that translate institute -- translates into what you are buying. if you start buying anything other than crawling into the blocker -- into the bunker it is sovereign debt. read you see the value in some of the yields? max: first of all what do you do right now? in an environment where real rates go up, you do is you due to the --? to the dollar. bonds do not do well, equities do not do well and you cannot do relative value trades. fx does not do well, nothing does not -- nothing does well apart from the dollar. you go into full voting rate notes and -- floating rate notes and shorter duration trades. the signal that i am waiting for

for the developed market sovereign, if i was a strategist, which obviously im, i would say the market is more convinced that growth is going down. that does not help us. the market signal we want to look out for is if the dollar and the yen goes up simultaneously. what that means is big time recession fears are taking over. lisa: i am glad that you brought up the currency in the dollar. we saw an attempt by the people's bank of china to strengthen the strongest relative to where it has been. the bank of japan says we are going to do something and not announce when and we are going to intervene maybe, we do not know? jonathan: it sounds like you do not believe them at all. lisa: do you get the dollar trade to lean into the yen because you arguments that they will do something? max: not yet, that could be the case for later in the year. imagine intervention already.

into perhaps the 100 basis points, imagine they do that. and basically they have this one silver bullet that they have fired for nothing. we do not lead into that just quite yet and that is something for later. if and when it happens, yen off of the dollar it means big safe havens and why? the market is really concerned about recession and that is when you go to market sovereign. tom: let us talk about another signal, you been bearish all year, what can make you bullish? max: nothing. i am german, there is nothing that can make me move. there are a couple of things. when you look at china's credit impulse, that is rebounding. perhaps at the beginning of 2023 that could get some cyclical tailwind and other things like sentiment and positioning on our measures was around 8% or 9% and in the middle of june.

that is around 40th percentile so we are not quite there yet. if we do positioning following from yesterday's drop following towards 10% which plays very much into the bullpen. tom: thank you. -- jonathan: thank you, a good friend of lisa's. incredibly bearish. lisa: it was realistic and he said it so cheerfully. jonathan: he has been right. lisa: this comes from a camp that was bullish on treasuries for years and have gotten it right. jonathan: we will be thinking about the japan call. lisa: it is just amazing how long can the job warns actually go. jonathan: it has to be the policy they are doing. tom: policy and politics, i would suggest nothing happens to japan until after the funeral. there will no way that they will

do anything with the emperor traveling. jonathan: we will catch up on the equity market situation and it was brutal yesterday. we are bouncing back a little bit at futures .5%. live from london, this is bloomberg. >> keeping you up-to-date with the first word. ursuline find a line -- ursula von der leyen will call for a step to stem the energy crisis coming up to rationing measures and higher taxes on energy companies and a key question is whether the proposal for a 5% reduction survives various negotiations. in the u.k. inflation has gone down slightly from its highest rate. the consumer price index rose 9.9%, a drop from 10.1% which reflects an almost 11% decline in the cost of gasoline. bank of england policymakers need to next week and are expected to raise interest

rates. the blighted administration is considering -- the biden administration considering to replenish the strategic petroleum reserve. two years ago the democrats locked president trump from filling the reserve. he called the trump proposal a bailout for big oil which cost the u.s. billions in potential profit. a strike could prevent american railroads from transporting farm products and other key goods and could cost the u.s. economy $2 billion a day. president biden is personally trying to break the logjam between railroads and labor unions. marty walsh will meet with railroad and union representatives today. queen elizabeth ii's coffin is at buckingham palace and they will be a procession through london to westminster hall where she will lie in state for four days before her funeral. members of the public will be able to pay their respects 24 hours a day.

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>> in this time it is wrong to ask eve extraordinary revenue benefiting from war and on the back of citizens as overall our

proposal would raise more than 140 billion euros for member states to caution -- to cushion the effects. tom: a target -- jonathan: a target on the back of energy producer. good morning 40 -- good morning to you, absolutely brutal. the s&p positive by .6%. this equity market a four day rally amounting to 5% higher. colliding with an expected inflation prints and the equity market cap lower. should i use the word again, brutal. lisa: they are raised to the rally you had seen to give you a sense of the brutality. jonathan: you seem happy about it which is concerning. yields are high. tom: the four days, they gave

the government four days and weeks. it is more about having a volatile inflation so something like david rosenberg said that she would never predict what it could be. what i would say number one research as well as a single sentence and the necessities that show inflation. that was the story. jonathan: is it a step down or the equity market that we are looking for, 75 to 50 to 25? whether the fed can deliver the sequence. tom: i am looking forward to our show. we are excited about washington, and joining us from france and there was always a reason to be in strasburg for maria. maria, what was the attendance of mr. putin about these meetings of european leaders, but is the putin effect this morning? maria: well, i think the fact is

that he has created or seen a war economy. you look at the language, that is in store for the european economy. that is about the instruction that becomes mandatory and solidarity from companies, and sanctions and folks that were very defined just into the antigen, and the market really cares about this. she made it clear that the sanctions will stay on and she has a line saying that vladimir putin is waging war in ukraine that also doing it on the european -- european welfare, market, and economic stability and this will decide between autocracy and democracy and if you asked me what that effect is it is a war economy for europe. tom: that story from

surveillance, and rights in "the daily beast" that putin wanted to be peter the great but wanted to -- but is more like milosevic she. -- milosevic has the dialogue change because of what happened to ukraine in the last 48 to 72 hours. maria: it has in it has to do with the ukrainian army and the advances that they made. i know i go on about this but the conversation russia has shifted over the past three days. i was struck when on russian television someone said perhaps we should stop saying that ukraine is a fake country and there is a huge debate about should we now declare a fullbore, is this conscription that it is always, if you are a russian man you are underpaid and have been to military training for a month and you've been watching a war like it is reality tv, do you really want to fight who a year ago were a

-- where there slavik brothers? that is why he shielded the russian population on a daily basis. can he sustain that? that is a real question. lisa: even if the conflict ends or ukraine makes a lot of inroads it will not change the policy. it really raised questions as the energy crisis moves global into how to shore up prices for consumers while encouraging fossil fuel companies to invest. i wonder how much that was behind the story reported on yesterday breaking the news, the white house is looking like -- looking at buying oil when it reaches $80 a barrel to refill the strategic petroleum reserve? annmarie: it would have to dip below for them to go after this and do this. part of the problem they have is that yes they were able to summer, they worked really hard with their messaging with the strategic petroleum reserve

releases, last week was the biggest release ever on record. right now when you look at the inventories they are the lowest they have been since 1984. they are thinking about how do we put stock back into it and entice the permian basin and javier was writing about this is week effect -- about there is a deceleration of growth in the permian basin which is what is going to be relied upon if you are concerned about potential oil price spikes in the winter when europe and the sanctions, and to play in terms of blocking off russian crude. if there is no oil price cap the way they envision it. they are really trying to make sure they can do a number of things, they would want lower prices for consumers and inflation is one of their biggest had ruins -- headwinds in the midterm election. they also want to tighten on fossil fuel producers and giving them a pat on the back to make

sure that they continue the investment because of course a lot of this shale producers need a higher breakeven point. all of this comes on the day of the inflation report today the president will go to detroit to talk about electric vehicles. jonathan: just briefly can you walk us through how the equity market was down by 4% and to see inflation coming in hot as the president did a victory lap with the inflation reduction act. annmarie: it was odd with hundreds of people and someone said that this feels like a concert and it did feel like a concert because there were performances. in the president even though he was talking about the inflation reduction act, he started by saying this is something i wanted to do while i -- when i entered office and saying that the name was obviously political spin and this really was just a smaller version of the bid -- the build back better plan but

he completely ignored the data. there was no mention of yesterday worse than expected inflation report at this event. and this was what republicans harped on with senator mitch mcconnell saying that the democrats were "tone deaf." jonathan: a strange moment. great reporting down in washington. they rather stay range -- strange moment in d.c.. lisa: it was an incoherent report and people are doubling down. jonathan: futures

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jonathan: my from london this morning. yesterday, a job killing all the way back to the -- 2020. yields are higher again, about two basis points on a 10 year. your 10 year still through.

it felt like we were going through 380. >> it felt like people were going straight. mike it seems to be catching up. jonathan: catching up. perhaps even bigger. it is beyond that. talking about the need and willingness to go further. we have to think about the damage that will do to the economy. tom: i will make it global. can you imagine? jonathan: yes. can you imagine? tom: i cannot. jonathan: it looks like the bank of england might follow.

tom: we turn our attention to the funeral of the queen. off the right shoulder, westminster hall. tell us about the path today. >> there is a helicopter flying overhead. it is eerily quiet here in westminster. later today, the queen's coffin will travel through the streets of central london to the palace behind me. it will remind many britain's of 25 years ago when the princes

followed their mother's coffin. the bells will toll, along with big bend. the queen's coffin will arrive at the palace of westminster until the funeral. she will lie in state and people will be able to file past it and pay their respects. it could be 30 hours that people have to wait. this is likely to be an outpouring of national grief, a scale of which we have never seen before. tom clientele is about the funeral on monday. this will be a gathering of world leaders. who else will attend?

>> the capacity is 2000 and it will be heads of state and boiled dignitaries. the invitation has been extended. of course, we will have to continue. it has also been a logistical nightmare. there are reports that they will have to come on foot because they will not be able to come in their helicopters and private gents. it is almost impossible to plan for. jonathan: thank you. it will be an emotional morning for many people. typically, that walk from buckingham palace and across

through whitehall both take, on foot, about 15 minutes. this procession could take something like 40 minutes. tom: it just seems to me that it is not doable. jonathan: and then she was talking about the weight. -- wait. 30 hours. you do not hold your position. it you have to keep moving. could you imagine doing that for more than 24 hours? lisa: people are deeply emotional about how close they felt to the queen and the loss that they feel.

tom: he is professor emeritus of the school of economics, but it barely catches the impact. what does king charles need to do forward to coalesce the u.k. across the many regions and ethnicities? >> [indiscernible] it was said sometime in the past

, the defender of faith. his main job is to keep quiet and have the strength that his mother did. he should not disturb the political balance and a. i hope that he will adjust govern quietly. lisa: i'm curious about your vision for the commonwealth, going forward, considering the

discussion and after the queen's death, it was said that she was the end of an era. do you think it is different from what was under her tenure? >> i think so. they share the responsibility of other commonwealth countries, but -- [indiscernible] she closed that door.

some had hopes. but i think it is very important . i think there will be an overwhelming importance to the u.k. jonathan: thank you for being with us. those events that we have been describing are about to start at about 9:20. it has been good to catch up

with guy johnson. we also need to talk about this market. equity futures are bouncing back but yesterday, it was brutal. that is inwardly here a lot. a big move through the bond market. absolutely surging as we start to reengage with the idea that the fed is not done. they will have to do a lot more. lisa: the question is not the credibility. it is not whether we will go back to an era where we will see inflation under control, it is what is required to get there. i thought that was the most notable shift.

jonathan: to bury it, they have to keep rates higher for longer. they do not need to change the script. they just have to repeat what he has been saying for the past month. tom: we had about 14% interest rate. it was a completely different environment. with that said, they have to use the x axis, which means that they have to articulate their path. i am in the camp that there is way too much communication. he has to get out and articulate the message. lisa: i can only think of that

one twitter user. jonathan: that was probably the tweet of the week. teachers positive. live from london, this is bloomberg. >> keeping you up-to-date with news from around the world. the justice department says donald trump is trying to have it both ways when it comes to the documents. the former president argued that the documents are personal property and covered by executive privilege. they want to keep using about 100 documents. in japan, the yen has rallied further away from the closely watched level.

the bank of japan conducted a so-called rate check in the currency market. as the move considered a precursor or an intervention? there are widening interest rate differentials. people will be allowed to remain in designated hotels. the move comes as hong kong prepares for several high-profile events, including a summit for global bankers. in germany, the government is open to the historic step of fully nationalizing the biggest national gas imported. an increase stake to about 50%.

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>> we have been bullish for her to be of use now. we have seen them led by uncertainty around demand. i think there is a degree of confusion. we still believe that the market will ultimately continue to grow . jonathan: so good to catch up with him just yesterday. if you want to take a look at crude, positive -- what did the reporting point have yesterday? coming end by $80?

lisa: as it falls below, it raises questions at a time when you would wonder why they are putting the floor in prices there. that is the speculation, or is it an attempt to appease oil companies? jonathan: what do you think about how politicized they have become? we have a special kind of relationship. much lower prices. there was some real pushback from democrats at the time. tom: it is nothing like what we are going through right now. some of it has some real uncertainty to it. we really do not know what will happen.

where is the strategic reserve? topeka? lisa: get on top of it, john. tom: the atlantic council talking about the effect of hydrocarbons on our lives. i want to get the discussion -- how does germany change their policy to a better oil outcome? how do the germans actually effect a policy change? >> thank you for having me. it is about we shifting the

energy system of reliance on energy forces, creating an energy system that is more efficient, looking at alternative supply. it is also looking at its industry one of the biggest drivers. that is my germany is suffering so much at the moment. so these are the things that germany would have to look at. tom: what is so important is that you say that and every american viewer and listener is saying they should get in uber with a chevy suburban. part of it is nuclear energy led by the french. do the french reaffirm an atomic commitment coming off of this crisis? >> yes and no.

they have always had robust support. take a look at the conversation starting in february when the attack started. it was about restoring nuclear power plants and it has gone on for six months. there has finally been a decision to extend. two to three month, and that is. in some ways, it has reinforced the value of reliable energy, but at the same time, they are still struggling with that. we are also seeing climate change and making it more challenging. we anticipate further climate change impact, but this is something that was unexpected this summer.

lisa: one on the biggest notes of divergence is how to incentivize energy companies to invest, at a time when they want to reduce prices and income to some of these companies. you have the european union with the aversion to do so in the u.k. what is the right approach? >> the state of the union address did mention addressing revenues and being able to take some of those back to the consumers. i think a way to encourage companies to invest is that they want long-term contracts.

15 years at the least, 20 years ideally. as they are looking at it and also meeting goals, i think there is a role for the government to be very clear about what these contracts will still be valuable. we will come in and mitigate some of the risk for you, but that is a way to drive more growth in the sector. they want that level of flexibility, but we are seeing company response to that providing responsibility saying that there will be reduced carbon intensity. we are seeing these new,

creative tools. but for the most part, they really want those commitments to drive. jonathan: here is the answer. two in texas. tom: i did not know that. any email -- jonathan: i think they knew that much. they said: there is a political question. you could argue that it is what it is designed for, to mitigate crises. the issue is when you get a crisis. you could make the argument that it is supported for retail

spending. that is possibly why we saw it. you could make a lot of connections there. jonathan: it could be in explanation. tom: there is a little tension here. jonathan: it has been a long time. looking forward to a major selloff in the market. since summer 2020. ♪

>> there are several pockets of this country still suffering from elevated inflation. >> we just have to debate how much they have to go to slow it. >> you look for it to come up further. >> they are definitely going 75. the fed will probably overdo it. >> this is bloomberg surveillance. jonathan: did you notice that

lisa walked into breakfast -- lisa: i am not sharing. jonathan: i am jonathan ferro. off the back of the biggest one-day fall, going back to 2020. tom: what i saw was an exceptional mention that it was a jump condition from where we were before the disinflation dance, but one exception is the way that we closed yesterday afternoon was not good. jonathan: i'm only joking. you talked about the reality of the situation the face of what this fed is trying to achieve. lisa: i do not that it is my

feeling here. there is a sense that there is a feeling of unreality. i think that is what people are looking at. it will matter if it confirms what we heard yesterday. i think that right now, people are on the hawkish bandwagon. jonathan: it is about what happened they introduced the risk that the fed has to go bigger for even longer. down to 25 and now there is a risk. lisa: this is the conundrum. if they get a reprieve, they have a better time with it but does that fed?

jonathan: how much damage are they willing to do? next week is interesting because we also get projections for the economic. we have had a lot of pushback against some of those forecasts. tom: believe this was mentioned. the idea that they are going to -- it really pushes against the mandate and they may be assertive, but they are going to be assertive over time. can we clear something up? i think it is important. we saw each other at breakfast today. i do the church hill english thing and you are doing some fruit pie granola.

lisa: i just get going a little earlier. jonathan: tom had a massive breakfast. yields are higher, up by about three basis points. talking about the front end of the curve. apparently cad in the last day or so. lisa: we are hearing from the chief economist who says that inflation is still way too high. we are hearing the latest from the rest of the world. does it matter? it will matter if it comes in hotter than expected.

is it comes and weaker, it will confirm things. we are coming off of such a high level and the bar is really high. crude oil inventory report. this is what happens if oil prices get too low. they will come in and they will buy. how much do we see this starting to abate and people using more gasoline now that prices have gotten lower? president xi jinping getting his first trip outside the country since the pandemic. how much does this signal a shift that goes beyond his personal travel schedule? jonathan: we will be watching it

closely. the chief strategist of blackrock joins us. you have been on top of the story for a while. you have asked a question, why? why is that the case? >> why do i think they are pricing in -- i think there is a lot of hold in the market that they would eventually come through and margin would stay elevated. that is unrealistic to expect that in this environment. a prevalence in europe. in that kind of environment, we expect margins to come under pressure and eventually, the current market consensus for

earnings growth, not only for europe but in the u.s., it will have to come down to meet that we are heading into a recession. tom: it is all very difficult. there is nominal gdp firepower. the economic animal spirit to affect the rate path usage. they have an interior structure to do higher interest rates. >> i want to pick up on something that we talked about. this idea of unreality. it is very different.

they are so much harder. one thing that we have not heard is some deep service to this trade-off. we will talk about what this means for the labor market. central bankers acknowledged and chose to lead with inflation. the politics of inflation will be prevalent, instead of the economics of inflation, which will become clearer as we entered next year, but right now, all eyes are fighting inflation. it is proving to be sticky and resistant. lisa: a lot of people would agree with you about europe.

it is not so clear in the u.s. it is not as consistent, in terms of the messaging. >> the markets are moving very quickly. yesterday was a genetic selloff. we believe that more needs to be given back, to properly reflect that we should be looking at early recessions. we think that it is to some extent fully reflecting the earnings. income parallel, there is an aversion to the growth story, which is why we prefer credits

over equity. this idea of reality, we also believe that the fed is here to acknowledge. we will pay attention to the economic forecast in our assessment. this is in order to bring inflation back down. we could be looking at additional people out of a job. it is currently not being talked about. this trade-off that we are looking at. we think that markets will reach out to that in time. jonathan: fantastic as always. was that a big reality check? >> a reality check when it comes

to the rate path. it is the earnings recession story and how deep that will go, and what sectors will experience that the most directly. it's sort of exacerbates the trend, communicating. jonathan: the bank of england is the only real major central bank right now. lisa: fair enough. many people are saying there is a soft landing scenario. jonathan: looking forward to that one.

tom: it is important to talk about what actually happened. jonathan: looking forward to the conversation. this is bloomberg. ♪ >> keeping you up-to-date with news from around the world with the first word. china is facing its biggest drop in demand in decades. chinese demand will decline this year. much of it is blamed on restrictions imposed and part of the covid zero policy. keeping up the pressure on forces. ukraine border guard services says the army has be taken a town miles from russia. russian troops have been seeing withdrawing. google has lost the first round in its fight.

judges upheld the vast majority of the commission's argument that they cut the fine. google is accused of imposing unlawful restrictions of android mobile devices and operators. there could be a prevention. it could cost the u.s. economy $2 million a day. president biden is trying to break the jam up. they will meet with representatives today. queen elizabeth's coffin is leaving buckingham palace to go to westminster where she will lie in state until her funeral. 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 am lisa mateo and this is bloomberg. ♪

>> the stock market does not necessarily reflect the state of the economy. the economy is still strong. any fracturing is good.

i think we will be fine. jonathan: going to be fine was the message after the inflation report. that was the president of the u.s. yields are higher by three basis points on the 10 year. back on equities, yields keep pushing up. holding onto. t. -- holding onto parity. tom: it was up. it changes the decision for everyone out there. jonathan: markets really started to fall apart. and now they cannot back away.

lisa: they have priced in more of a slowdown. tom: it is an ongoing industrial dispute. this is since 1989. michael mckee, let me begin with you. i thought we were strike free in america for over 30 to 40 years, yet we must consider railway strikes. >> we must consider them. this is a hand grenade rolled into the scenario talked about yesterday. 100,000 railway workers, including union specific.

they could walk off the job starting tomorrow, and it is almost impossible to overstate the damage that would do to the u.s. economy. most of the farm products moved by rail and it is almost harvest season. food prices went way up in the cpi. one railroad is not accepting new cars for shipment across the country as of today. and we have been short new cars and prices have been rising. there is an inflation problem and a recession problem. this could really screw things up. jonathan: talk about the politics and how you expect wall street to engage. >> we are going to have a big meeting this morning with the rail carriers and union representatives to try to get an

agreement. washington seems somewhat calm, but there are always last-minute deals. the white house is throwing up contingency plans and looking at what emergency power the president would have to enact to make sure that the flow of goods could continue. one of the problems is that you see certain goods already stopping. ammonia is needed for fertilizer and to -- it is also involved in hazardous, explosive products. you are seeing these companies stopping some of these goods. what they want to do is that they needed an agreement by friday because politically, this is not a good look for the president.

he is wanting to be the most pro union president ever. lisa: this is the delicacy of the dance for the white house. secretary walsh has been a big proponent. does this hit them in the labor union? will they talk about some kind of financing to get this through? what is the solution? >> they want to be seen as prolabor, but they also need agreement, and they need it quickly because you want to make sure that the goods are not being stopped from loading. it is a tricky one and people see them in the press coming down the line in the middle. they will be putting pressure on both sides. tom: let's cut to the chase of what matters to those of us on the east coast. it is about moving america's

stock. does this affect the northeast passenger trains nationwide? >> it does. right now amtrak has already suspended some long-distance service because they use the railroad tracks. we have heard from northern california and they are going to shut down if the railroad shuts down. this is a pretty big deal for everybody. tom: thank you so much for the brief. john, let me cut to the chase. why do the trains in the u.k. run so much better than america?

jonathan: i think we have experienced a seamless transition from one to another. i was reading a story about canceling flights. it is to ensure silence over central london. tom: ok. let's paint a picture of this. coming in and overshooting london, coming around. and you turn around and you get a rockstar view of london. am i right? legally flying over buckingham palace? jonathan: everybody is coming down at 6:00 a.m.

anyway, getting a little too personal. lisa, 9:20 eastern time. an emotional procession will begin. the gates will open and the coffin of the clean will be followed by the royal family. all the way through whitehall and all the way to westminster. we will be following that for you. going into that opening bout with equity futures just about positive. live from london, this is bloomberg. ♪

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jonathan: good morning. futures just about positive by a few tenths of 1% on the s&p 500. equities up by seven points. yields higher four basis points. we were just on the euro-dollar, still positive by points 25%, but things have started to develop the last 30 minutes or so into the same direction we traveled yesterday without the velocity. that was the first time i have

said that. lisa: i just want to point out if you look at two-year yields, they are at three point 8%, so right back up to the highest level we have seen. jonathan: that is the poison in this market right now on the front end. tom, you said it a million times, the real yields. tom: i want to touch on that quickly. you take the nominal yield, you take out whatever inflation component you are using, and you end up with that inflation-adjusted yield. jonathan: and that is what this fed is trying to achieve, get real yields out, get inflation back down. tom: now ed al-hussainy joins us. he has been a huge value for us, and interest rate strategist at columbiathreadneedle. i want to look at the spread

market but get away from the 2-10 spread, the difference between the 10 year and the two-year. which is a spread that gives you the most information, given the turmoil in the moment we are in? ed: to your point, perhaps one of the most important spreads are the steepness from the yield dollar curve on the front end, so in other words, expectations between with the fed will do between now and the middle of next year. what has been happening as we are frontloading heights, raising the terminal rate, in other words, the high watermark, and we are pricing the fed to stay there for longer. all of those are tightening conditions. tom: we had a bloomberg chart last night that had a terminal rate that read somewhere out there, i believe, a 4.33%. let's not guess what that rate is going to be, but at what level does it become harmful in terms of price down, yield up?

ed: it is tough. the current level of deals that are priced on the front end, to your point about 4.25% to 4.50% by the second quarter of next year, they are starting to damage the economy. no doubt. you can see that in the housing market most prominently, but there is a lot of damage that is in the pipeline right now that we will see hit the economy. to the extent that that starts to materialize, we will see the front and start to stabilize over time as that long end gets to about 4.5%. lisa: ed, we have been talking about what we are pricing in right now, more hawkish fed, as the two year yield climb to the highest level since 2007. are we seeing corporate debt price and the revenue and profit slowdown that blackrock was

talking about and morgan stanley is talking about? that perhaps this selloff yesterday really was not meant? ed: i would say there are two things happening in credit. one, the underlying corporate balance sheet stress remain solid, despite the marginal slowdown in the economy. in the high-yield space, we are starting to see on the margin, low-quality companies experiencing refinancing issues, but by and large, credit markets have behaved in an orderly way, so to the extent we are tightening national divisions, credit spreads are wider across investment and high-yield, it has happened in a more orderly way than the moves and equities. lisa: are you seeing opportunities within the space? we are seeing yields to a place where we are getting close to the highs in the 10 year yield. that is a dangerous thing to say, but i am wondering if we

are getting to that place where we are starting to see value again and duration? ed: duration is very interesting. i think we are early in terms of seeing value in duration. the 10 year yield has moved plus -100 basis points every six weeks to eight weeks, so volatility has been exceptionally high. if you take a step back, what is happening here is the fed is putting a lot of credibility in play on the front end of that curve. if we look at inflation expectations further out, they are at year-to-date lows, to tom's point on 10 year breakevens, and as this process plays out, as inflation starts to cool and as the economy starts to slow progress of the into the middle of next year, -- progressively into the middle of next year, they yields will look exceptionally attractive. tom: forget about spreads and all the rest of it, the hedging and such, retail out there on

radio and tv now with bloomberg surveillance is going, wait a minute. christ down, yield up mon -- price down, yield up. month after month. what happens if we look at the total return aggregate te indices? what happens will be breakdowns in your price lows fixed income? ed: there have been significant outflows in the retail space given the drawdown. the drawdown has been exceptional this year. two pieces of good news on the horizon. in terms of the yield increasing, we start out with 10 year yields at 50 basis points, year-and-a-half ago. to the extent that yields are rising, yields rising from 50 basis points to 1% do a lot more damage than yields rising from 3.5% to 4%, so the pace at which

the drawdown is happening is decelerating. if you take a step back, the income component, whether it is from high-quality credit or treasuries, now is a lot more access. you have a lot more cushion as the retail investors come into the market right now. tom: i believe 79, you got a monthly statement loss, their monthly statement loss, that was child's play compared to where we are right now. the people that own those. lisa: fair market bonds is not something people here about when they talk about 10%, 20% of the drawdown. let's go global. this past year, there has been this search for yields. the u.s. was the hidden spot. a lot of that money was coming from japan. we heard overnight about the possibility of abandoning -- or not abandoning, but -- tom: nailed that. lisa: to support the yen with

concern of what is going on. how closely are you watching that situation with the systemic import of that currency and the entire japanese market? ed: it is important, both in terms of what is happening in the european rate and japanese rate markets. it could spill back into u.s. rates, generally the long end of the treasury curve. no doubt. at the same time, in the grand scheme of things, the fed strategy in the domestic inflation story here dominates by far, and, so, if you are across market investor looking at u.s. rates, european rates, and japanese rates, u.s. rates in my mind continue to offer the best value in a risk-adjusted basis right now. tom: ed, critically, you are not doing the fed dance, but what do you expect next week? ed: the fed signaling there is

more work to be done, so to the extent they had a terminal -- the median terminal rate was 3.15. that probably moves higher, probably 4.25 to 4.5% by the end of 2023, and likely they start to incorporate a slower economy, so higher unemployment into their forecast. jonathan: thank you. we were just going to new york into the studio. tom: tom is not there, let's go. lisa: [laughter] jonathan: a thread in a needle -- columbiathre -- columbiathreadneedle, thank you. tell us what you really think. lisa: they say they are trying to drive the yen to a stronger place. they are saying they will intervene if things get out of hand. they are not going to warn or give details, but they are going to do it. what are they going to do?

abandonment? i mean, i'm wondering, do they have any -- exactly, what is the threshold for them getting involved? are they just trying to throw this out there to scare people away from shorting? jonathan: as i keep saying, like a disorderly dissertation. lisa: it has been for a while. jonathan: it is highly intuitive. we cannot explain it. everyone else's hiking by a lot, and the bank of japan is not. they are also doing something in addition to that, they are capping 10 year yields. i believe it is 25 basis points on a 10 year. lisa: are they going to abandon that? if that is the case, what happens to the japanese bond market? who is going to be in their pricing, considering a stagnant has not been market as long as it has? jonathan: he threw is the worst airport -- heathrow is the worst airport. tom: the taxes that you pay in fees? jonathan: what about jfk?

tom: i love it. lisa: now we can beat them because laguardia asked nice. jonathan: i agree, laguardia looks better. tom: ok, i'll go there, but i'm sorry, the trains in europe somehow do it better. cannot just state the wonderful time we are having here? jon, the vindaloo that we had last night, that bread. i had never -- jonathan: where did you get it? tom: down by the river. jonathan: was it good? tom: i cannot taste it. i don't do that. jonathan: would you like me to recommend somewhere for you? tom: yeah. jonathan: something high-end for you. lisa and i will go somewhere else. we will be joined shortly for

mastercard -- with mastercard. talking about the housing market and where it has gone too, just wow. live from london, this is bloomberg. ♪ >> keeping you up-to-date with the first word news, plans are laid out to raise $140 billion to address the biggest energy crisis in decades. they would come from capping revenue from power producers. the proposal is just the start of what is likely to be a fraction of the recession in eu nations. the chancellor's administration is ready to inject more capital into universe to increase the stake.

they lost $12 million in the first half of the year. the biden administration is considering whether to replenish the petroleum reserve. when oil goes below $80 a barrel. two years ago, democrats blocked former president trump from filling the reserve at a fraction of the price. chuck schumer called the trump proposal a bailout for big oil. that cost u.s. billions in potential profits. u.s. job growth is expected to slow this decade as the labor force ages. that is according to the latest projections from the bureau of labor statistics. the report shows 45% projected annual growth rates is half of what was recorded in 2021. 9% of workers are expected to be 65 years old. roughly triple the share three years earlier. global news, 24 hours a day, on-air and at quicktake on bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. i'm lisa mateo. this is bloomberg.

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>> to bring inflation back down to 2% over two years, we could be looking at 3 million additional people out of a job and also 2% contraction, which is not being talked about with the trade-off we are looking at in this environment shaped by supply constraints. jonathan: i don't see how that could hurt, wei li, global chief of blackrock. up a little more than .1% on the s&p 500. the biggest one-day move lower going back to june 2020 on the s&p 500. we talked a lot about the

two-year, and could we reach 380? tom: this is critical. jonathan: that is why we are seeing this equity market well over. tom: we saw sterling go down. weaker sterling is something where we are not there yet. every day, every year, every week, surveillances buried with hundreds of books, and we go, yeah, yeah, yeah. and it is not oil but it is javier blas with an incredible splash on the trading of oil worldwide. the theme of this trip on hydrocarbons, is no one willing to pay the cost? the social cost of where europe, america, asia are? when did we start paying the cost? javier: we are beginning to

start to pay now. is this is in europe have paid it already because they don't have price gaps that households have in many european countries. businesses to medium enterprises have been responsible with high electricity and gas prices. we have seen a lot of companies reducing and shutting down in countries like germany, and how governments are going to have to start paying those costs because they are going have to bailout, not just families, but they are going to bailout entire economies because the current electricity prices, and nothing really works in countries like germany. jonathan: you have seen the european commission and countries, do you think they have confronted reality? javier: they are beginning to, but the business sense in europe that they are doing a lot and that the world is behind, i keep saying to myself, we are only starting to do enough to keep things rolling, and i have

absolutely no insight whatsoever on what is in putin's brain, but i know one thing, it is a very pleasant day in september and sunshine in london. we are not in winter yet to read we have difficult months ahead. i would say -- we are not in winter yet. we have difficult months ahead. i would say that in mid-september, no way. jonathan: is the worst of it just about the prospect or duration of this story that it could be longer than a single year? javier: it is a combination, but one thing that is important, a lot of people in the industry, when i talked to ceo's in europe, a lot of people plan for a few weeks to have a couple of months of high prices. we are in month number seven, and probably we have another 16 through the enter of high prices and the propensity that you are

mentioning, if prices come down a bit, someone reminded me -- i tweeted a year ago yesterday, that german electricity prices for the one year ahead have surpassed the 100 euros of a megawatt an hour. that was like amazing, an all-time high. no one could really think, 100 euros. we are at 500 now. even if it does come down, it is not going to go back to what one day was normal. 100 euros was already double what it was normal before that. we have 10 times more now. lisa: there is a question about how to support the buildout, the quick buildout of the resources. this speaks to jon's question about the length of the crisis, whether it will be this winter or the winter after. we see in europe, and aversion from taking money from the big oil companies in fear of cannibalizing their investment.

the european union is taking a different approach, which is right? javier: well, my colleagues would probably say the european union is outright than the u.k., but at the end of the day, everybody is going to look at how to pay. the question is who to tax, the companies or families? they will spend 5% of the gdp over the next months supporting the economy through the crisis. that is going to be borrowing money, and they are going to have to pay those taxes in the future. it is a question of whether you tax everyone or tax companies who have benefited from high prices. lisa: so if you got it from that side, which i know a number of countries have started to do, how much activity has to get taken off-line? how much production of factories has to be put aside and delayed? javier: when you look at electricity in particular, about 10% to 50%, so we need to reduce activity of roughly 10% to 15%,

and that will not sound like a lot, but that is reducing the gdp activity hugely. i don't know thought as possible. the u.k. and european union are going to do an interesting experiment. they're going have to do that without the market signaling and the demand, it is going have to be government. and we are going to see every company lobby telling them that mine is more important than everyone else, so spare mine. and then what? i don't know how they're going to do it. jonathan: what do you make of germany and the crisis, with germany at the epicenter and their approach in 2010 and 2012, with germany on the outside looking for the referendum? javier: i will have to for one moment forget that i come from one of those countries. i will try my best.

but putting aside that, i think germany has been very slow. the european union has been very slow in recognizing the magnitude of the problem. before global warming, a year ago, six months ago, two years ago what is coming, how is it possible that only today it has been announced, and these measures will not be approved for another two weeks or three weeks? that is mesmerizing. jonathan: this is out of character. you are being very diplomatic about the situation. tom: yeah, and very quickly here, your book is about treating. trading -- trading. trading every once in a while is about tail risk and loss. the commodity risk to wall street firms worldwide, when you look at independent firms, trading risks right now, are they exposed to leverage? javier: they are exposed to leverage because the market is moving a lot. so far, what we have seen is they are doing fantastically well.

some companies have made in six months what they usually make in a year. this is a fantastic situation for independent commodity traders. tom: what about major wall street firms? javier: they are taking risks, but so far, they have been on the right side of the risks. they are making a lot of money. jonathan: javier blas, good to see you. coming up, sam stovall, cfra, on the equity market rally about the face really quickly. from london, this is bloomberg. ♪

>> the main feature of the u.s. economy right now is that it is doing better than anybody thought it would be doing now. >> we all hope for a soft landing. certainly, i would hope that.

what the economy can achieve, there is a possibility of achieving that. you will hear fed officials emphasize that possibility. >> the fed wants to see two, maybe four lower. >> we do see risks there is a recession next year. >> 75 is on the table in november. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. jonathan: there goes the bounce. live from london for our audience worldwide, good afternoon, good afternoon. this is bloomberg surveillance, live on tv and radio. i'm jonathan ferro, alongside several whitsun tom keene. -- alongside lisa abramowicz and tom keene. tom: as lisa mentioned during the break, it is correlated, but it is sticking out like a sore thumb, the 10 year yield to a new high-level, 1.01, positive yield. that is a change for everybody listening and watching on bloomberg. jonathan: let's bring it to

two's. lisa, 370. and then we just made another one. lisa: we are watching this because honestly, this has been the direction of stocks in the opposite direction. two year yields has climbed southerly to 3.8% and keeps climbing. the pace of move has been jaw-dropping. the pace of resetting the understanding of what the fed do has shifted. jonathan: that cpi print four hours or so ago has disrupted the narrative around the step down from 75 basis point hikes to 50 to 25. every single note i read from every bank in question, he is looking for 75 next week and the potential of another 75 in november from the fed. it raises questions on how much more they have to do, and, more importantly, the risk assets, how much more damage needs to be done to the economy to get inflation lower. lisa: we make fun of this good news is bad news conundrum, but,

really, what this means is the more momentum there is and people spending more with their ability to withstand higher prices, making them higher, it causes the fed to have to slam on the brakes that much more dramatically. that is the problem. tom: on the announcement moments ago, what you are going to see from lower end corporations, comcast with a share buyback offer of $20 billion. this is the economic challenge. as you mentioned, the brutal moment we are in. corporations are looking at persistent revenue and cash flow. where do we invest? we are not sure. let's by their shares. jonathan: how much business will actually get done? you see the banks, going into earnings season, the are basically telling you, investment banks and revenue are not growing at all. lisa: jp morgan said it was down 60%? making it revenue at a time --

tom: we are not going to do this back report anymore? -- the spac report anymore? lisa: to your point, you are seeing companies buyback their shares. there is not a level of corporate america -- gloom in corporate america that much is it elsewhere, but do they have to get gloomier touching their mandate? jonathan: we never think the spec dusts? whenever you see a celebrity on television promoting some kind of financial instrument, kind of run. we get the same pictures from the same firms. just going to throw that out there and then flip the switch to the price action. lisa: [laughter] [indiscernible] jonathan: we have got things to say. yields up five basis point. 3.46 on the 10 year in america.

it is the two-year, now out to 3.80. lisa: where we headed? do we stay at 4% if that is where the fed says they are going to go? what does that do to earning estimates? that is the question. jonathan: happy to say that chief investment strategist at cra is here with us. -- cfra is here with us. sam, how do you approach a selloff like the we had yesterday? sam: i would approach of the way tom seems to be approaching it, that is, when life gives you lemons, make whiskey sours. lisa: [laughter] sam: you know, history tells us that whenever we have had a 4% one-day decline that we usually see it down about 1% the day after. that has happened about two, three times, but then we sort of trade sideways for the next week, as well as the next month

before resuming an uptrend three months down the road. basically, you know, i think investors just have to hold onto their hats right now. tom: i have been dying to talk to you about a concept i heard maybe 10 days ago, which is a lot of ideas out there in common stocks, you cannot get scale. you cannot buy a countable number of stocks. do you at cfra find you have a number of good ideas, and then it is hard to find other good ideas? sam: well, i think what you are finding is as time goes on, you find there are fewer and fewer companies on which you have solid conviction because what our analysts do, they are looking six months to 12 months down the road. they are not really looking for the next couple of weeks. yeah, they take a look at the change in economic projections, earnings forecast, also

momentum, and sometimes that list tends to get trimmed as a result. but we still have a solid count of stocks that we regard as being five-star or strong buys. lisa: how do you reject this idea that we are going to see an earnings decline that has not yet been placed in? this is what blackrock was saying and what morgan stanley put out there, that basically with the bond market is reflecting his work that the fed is going to do that will essentially crimp the activity of a lot of companies. sam: i think it is a logical assumption that that is going to happen. traditionally, in bear markets, associated with recessions since world war ii, we have seen a one third trimming of the ratios, but since the market tends to anticipate the end recessions by almost two full quarters, we have to inocencio wait two moreuarterinto the bull market before we get

earnings. right now we have already seen reductions and estimates. two, three earnings are expected to be up to .4%, but on june 30, they were expected to be higher by -- .4%, but on june 30 -- 2,4 %. now we are looking at 6.8% for this year versus 8.9% at the end of june. next year, 7.4% growth versus 8%, so we are already seeing a reduction in forecasts. jonathan: i would love to squeeze in more of a focus as lisa digs deeper, financials. yields are going up, rates are climbing, how has it worked out? energy now and focus for a lot of people. the fed is set to crush growth, and that is the fear that a lot of people have with the hike in interest rates by 75, 75, 75, do i want to belong energy and financials? give me expectations off the back of that cpi report.

sam: historically, what you find is that consumer discretionary, technology and financials are underperformers. we need a hefty inflationary environment, which is what we saw back in the 1970's. we are looking at financials that are trading at a slight discount to their long-term pv ratio, so about 5% discount, whereas energy is trading at a 55% discount to its average pd over the last 20 plus years, so i would tend to say, things are done more on a relative basis. right now, on a relative basis, investors are gravitating toward the defense of consumer staples, utilities, as well as the inflation hedges of energy into a lesser extent materials. jonathan: sam stovall, thank you. the other one we have heard recently is the small caps.

and the effects that basically the domestic strength is going to uphold some of lisa: lisa: and the effects that basically the domestic strength is going to uphold some of it. we have already seen so much pay and value. jonathan: and then foreign central banks after the prince, we got the inflation print, quickly shifting to the ark it fallout, and -- the market fallout, and they said this was the worst news for other central banks. tom: the rest of the world is a key thing. i'm worried about ecuador, 1992 of mexico, and another number of items in the past. there is a certitude now that em is different this time. i do not buy it for a minute. i check every morning. you just never know where it is going to be. you can think is hard as you want, and you never get it right , about which is going to snap. jonathan: how much work do the central banks have to do to

stabilize the situation domestically? tom: the people of indonesia, a generalist nation, god opec energy in between -- odd opec energy in between this, and mostly it is a social mandate that we don't hear from western banks. jonathan: you have debt issue s on the one hand, and that is what markets were speaking to yesterday. if you want to call that [indiscernible] it is a little bit too close. it is a conversation i do not want to have, but other people have it. lisa: the question is whether it is the fed's world and they are living in it even if they raise rates, a half to make the decision to match the fed. that is what we have been seeing in the currency price. jonathan: what is coming up next? tom: politics. the politics of america. we had three primaries yesterday in new hampshire and others.

now what for the republican party? lisa: i was going to say. private equities. jonathan: equities down. from london, this is bloomberg. lisa m.: keeping you up-to-date with news from around the world, with the first word, i'm lisa mateo. china is facing its biggest drop in oil demand and more than three decades. according to the international energy agency, chinese demand will decline by 2.7% this year, mostly blamed on restrictions as part of china's covid zero policy. ukrainian troops are keeping pressure on retreating russian forces. they said the army now has retaken a town two miles from russia that was seized on the first day of the war. russian troops have been seen withdrawing. a strike set for friday could prevent american railroads from transporting farm products and

other key goods. it could cost the u.s. economy $2 billion a day. president biden is personally trying to break the logjam between railroads and labor unions. the labor secretary will meet with railroad and union representatives today. google lost most of its first round of the fightto overturn the eu's record $4.3 billion antitrust fine. judges upheld the vast majority of the european commission's arguments, but they cut the fine to $1.4 billion. google is accused of imposing unlawful restrictions on manufacturers of android mobile devices and mobile network operators. hong kong will quit moving travelers with covid to isolation hotels or quarantine camps. instead, they will be allowed to remain in designated quarantine hotels. that marks another easing in the city's travel policy. it comes as hong kong prepares for several high-profile events, including a summit for global bankers and an international

rugby tournament. global news, 24 hours a day, on-air and at quicktake on bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. i'm lisa mateo. this is bloomberg. ♪

>> if there is any doubt at all about 75, they are definitely going 75. we thought they would be stepping aback november to 50 in november. at this point, you would say 75

is going to be on the table during november. jonathan: and maybe beyond. that was the chief economist for wells fargo. i think we are all looking for a bout up after losses yesterday. you are not getting one. briefly negative the last 30 minutes. right now positive about .1% on the s&p 500, only up by two or three points. aggressive losses yesterday. i think it is a one day -- the worst a loss going back to june 2020. we are up five basis points on the 10 year to 3.4624. we have had six consecutive weeks of yield climbing, not just the 10 year but the two-year, as well. lisa: we were at 3.80 now at 3.81. just an incredible rise, and then correlated and commence or drop in the s&p and nasdaq. jonathan: 3.80 plus. tom: continue to watch the data

dependent, but certainly watching foreign-exchange as an international measure of where we are. this is the most interesting time to speak to the gentleman from rice university with chemical engineering. all sorts of efforts in private equity and venture capital. he is a governor, a republican from virginia, glenn youngkin, joining us this morning. governor, i cannot think of a time to speak to someone as pro-business and pro-innovation, dealing with the republican party that wants to bomb rob portman and the rest back to an antibusiness time. how antibusiness, anti-youngkin is the republican party? gov. youngkin: i don't think the republican party is antibusiness. in fact, republican governors all over the country have been leading the recovery coming out of the pandemic.

that is exactly what we have been doing in virginia. we have got taxes down. we are open for business. we are seeing great announcements from companies. we have a lot of open jobs. that is one of our biggest challenges, getting people back to work. i'm concerned about the inflationary policies we see coming out of the biden administration. see the ramifications of that yesterday, which is anybody who thought this would be short-lived, has been shaken because what we are seeing is the persistent results of bad policy, inflationary policies, fuel price is up, and virginians and americans are feeling it in their wallets, and they have to make compromises as a result. tom: you have an iconic company moving from chicago to greater washington, d.c., with entrepreneurial companies, such as your announcement today on an innovative company, and on a wage basis, they are competing with amazon, who is lifting compensation for drivers in hundreds of thousands -- and

hundreds of thousands of employees. is there a wage spiral in virginia? gov. youngkin: there is a real wage inflation challenge. these wages are growing, but not as fast as inflation, and the cost of living. i'm really excited about the new companies that are coming like plenty unlimited we are announcing today, which will build the largest indoor growing facility in the world, and we will see them right here in virginia. they are going to compete for talent. this is why we have to get people back into the labor force. we have seen labor participation drop substantially in virginia. we were up near 67% prior to the pandemic. unfortunately, we are in the 63.5 percentage now. we need to get people back to work. these next-generation kinds of opportunities will pull people back into the work was, but we have got to stop all of the underpinnings that have occurred since they have stayed home and

get them back to work. lisa: governor, the indoor vertical farm that youespousingn agenda more commonly associate , make things more modern with respect to the carbon footprint. do you find yourself walking up against a stereotype when trying to have a more modern approach that brings in more young workers? gov. youngkin: not really. agriculture is virginia's largest private industry. and, technology is one of our fastest growing sectors. to bring agriculture and technology together in the commonwealth of virginia makes perfect sense. we have absolutely become the hub. with today's announcement with plenty, which will build a 300 million dollar facility outside of richmond, 300 jobs, and are announcement two days ago with arrow farm -- aerofarm, we will

have the second and first largest growing facilities in virginia, and beingstalk is expanding their facility, so we are bringing together our agriculture routes and technology future, and forging the way for an industry of the future. agtech uses far less natural resources, has higher yields, and a great product. i think this is part of the future of agriculture happening here in virginia. lisa: real quick, i remember speaking with you when you had your private sector with infrastructure and plans are looking for. i'm wondering now that you are in the public sector, if you been surprised by the partisanship that prevent certain things from happening or if you have been surprised the other way? gov. youngkin: i do believe investing in infrastructure broadly is critically important. to facilitate growth. we are seeing capacity issues across our infrastructure. you're still rated d as a

nation. we have to address that. we are doing it in virginia. we moved up substantially in the rankings of infrastructure. our port is being deepened and widened. our connectivity and broadband is taking a huge step forward. this is the kind of progress we must make. we are doing it both with government but with public-private partnerships. and i think investing in infrastructure will continue to be one of the great challenges and opportunity for virginia and the nation. jonathan: one step closer to asking about the interest. we are out of time. lisa: you are in luck. jonathan: we have are not of time, but next time, we would love to have a conversation. governor glenn youngkin of virginia, thank you. lisa: he is really interesting. and when he was at carlisle, he was really big on investing in infrastructure. tom: i think an important conversation is ok, but can you

find common ground with democrats and the american disgrace of childcare? you know, you could chitchat about how to get people back to work, yet, we are living in a medieval age. we are living in a medieval age of childcare in america. lisa: i think it is a big issue. you want me to comment on that one? he has been very vocal about education. jonathan: futures are up .1%. live from london -- tom: i'm tom keene, what do you want? jonathan: this is bloomberg. ♪

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jonathan: lisa said it, cpi wednesday, are we going to get cpi data and a couple of seconds? up .2% s&p on the. yields are higher -- up .2% on the s&p. michael: the core rises by .4,

more than the .3 estimated. that is excluding energy, and we also take on trade services, and equivalent of retailer margins. you have a .2% rise, same as last month, same as forecast. this leaves us with a final demand year-over-year and a .7%, down from 9.8%. the core, 7.3, down from 7.6. and the core with trade services, 5.6 from 5.8. so some significant changes for the better on the ppi side and the producer price i. contrasting with what we saw -- price side, contrasting with what we saw on the consumer price index. maybe everybody can get a little happier today. jonathan: maybe just a little bit or not quite. thank you. equity futures a little bit higher, up by .2% on the s&p.

yields higher by five or six basis points, 3.40 on the three 10-year. lisa said it when we open the show, basically, this data point is the concerns about yesterday. i knew just ignore it and look ahead. -- and you just ignore it and look ahead. lisa: i stand by it. tom: shall we start the countdown clock to retail sales tomorrow? jonathan: you should go in the line circulating london right now to see the queen and countdown. tom: i could stay there. we will bring that to you. please stay with us in the next hour and through the weekend and monday, as well. right now, this is an honor because i can give you a story about how economists become stars.

one day, a girl failed out of boston university and said, wow, does she know housing. michelle meyer joins us now after years at bank of america, and an expert on your mortgage and rent payment. let's cut to the chase, how bad is it, how bad and how persistent will the housing inflation be? michelle: thank you for that wonderful intro. i think the big challenge for the housing market is affordability, and that comes from two factors. one is the home prices increased an extraordinary rate across the country the last two years, running in double digits for the major metropolitan area. by our metrics, and we looked at home prices relative to income growth across those measure areas, about 65% of the country is considered overvalued. so you have that, coupled now

with this extraordinary increase of mortgage rates, and that has created a huge drop in the housing market. as you know, it has been falling steadily since the beginning of the year. tom: multi-families to the rescue, that always happens in the cycle, can long time -- multifamily come to the rescue in national, but ask multifamily, are we getting more units? michelle: we certainly are. they are still running above what you would consider breaking a rate, particularly for multifamily. it takes about one year from the beginning of the project to completion, on average, once construction starts. so we have a lot of projects with what is happening, and now you are starting to see completions, so you are starting to see projects enter the market in a bigger way, so you still have supply hitting the market in the multifamily space. that should help because you

will have some conversion from owning to renting, given the affordability string in the housing market. but look at the owners equivalent and rent, it is accelerating further, so there is still rental pressures, as well, as far as affordability. jonathan: what can rate hikes do about that rental price pressure we are seeing build? michelle: i would argue that transmission for monetary policy is quite apparent in the housing market right now and will be increasingly in the rental market, as well. these are interest in said of sectors and the fact that the fed is increasing as rapidly as they have, for reasons that are quite clear to contain prices and inflation, and that increase in interest rates has slowed down demand of housing. in turn, it will put that downward pressure on home prices and home price appreciation, which spills into rental inflation. that all takes time.

it is immediate. i would argue that transition is already underway. lisa: on the housing price side, but on the rental issue, i want to bring up the fact that rents are still climbing, and faster than expected. as we have seen from the cpi report yesterday. there was an argument that the higher prices go one houses, the more people are forced to rent. the less affordable it goes, given the high mortgage rates, where is this potential for an overshoot? at the same time, people who were able to handle inflation are feeling all the more pain. michelle: look, these are certainly some of the challenges in terms of finding that ultimate equilibrium in the economy after seeing imbalances in terms of excess stimulus. i think the adjustment is happening, but it is not complete, and in the interim, yes, you have seen that some are

leaning to renting, which is increasing demand for rentals, when there is still some lag in terms of getting supply into the market, but it will come. frankly, one of the ways it will come is in terms of normalizing inflation and rental inflation through the demand side. in a sense of weakening the broader economy, to clearly the labor market. you have a bit of an income shock, and then naturally you see that see through. and that is because chair powell has been saying clearly, which is that they are keenly focused on price stability and reducing inflation. that doesn't mean [indiscernible] lisa: but that leads to the question of how much pain needs to be inflicted or how much will be inflicted on the economy based on the right cycle being priced into the market and away way we are not anticipating because of the lag time because we are not seen it in some of the metrics. what is your sense of how likely

hard landing and rescission -- and the recession's significance is? one michelle:, you are michelle: seeing relief on the supply side with a drop in energy -- michelle: one, you are seeing relief on the supply side with a drop in energy goods, and more should come given what you have seen from container costs coming down, supply chain issues easing, but the demand side, there was a lot of inflation. so, for the fed, that has control over the demand side, it does give them that type of push to continue to raise interest rates and cool down the economy. to your point, it is taking time because the starting point has really -- was really high. as we have been talking to you all the last few months, the consumer is healthy. a strong balance sheet shows consumers are spending, and they are navigating the inflation environment. tom: you have been brilliant on

that, and you have done all the research with mastercard to figure that out. jp morgan is pushing against it like no one i have ever seen in the decades he has done this. help us as a consumer, how gloomy is the consumer? michelle: from our data, we are looking at are spending, for august, there was an acceleration in the year-over-year growth rate of consumer spending. and even controlling the movements in gas and oil, etc., so the underlying demand as it accelerates, we will see what the retail report shows tomorrow, but it looks like we are speeding up. retail thursday. jonathan: michelle meyer, thank you. tom: we will give her credit for it. jonathan: mastercard. tom: i feel so informed. this is the brutal reality and a brutal fact, jp morgan and michelle meyer at mastercard are

saying that we continue to talk about the consumer. every seat on the airplane is taken. it is booked. jonathan: that is true. and a lot of people are on board with that. they are saying that because things are resilient, the fed needs to do more. one account on twitter, he said, the fed will break it until we make it. think about that. yes, we can talk about the same thing at the same time, but two issues. you have resilient economy, but also, inflation needs to get down. lisa: the more resilient the economy, the higher inflation will remain in less there was something to bring you down. jonathan: we are hoping for a soft landing. lisa: which is the reason there was a narrow path to a soft landing, but it is the reason people are getting bearish because things are so resilient and so good for the consumer. jonathan: that is why we are seeing the two year yield at 3.80. onto retail.

act normal. -- back to normal. tom: we are going to survive. jonathan: thanks, tom. tom: this speech from the president yesterday was foolish because it did not address the immediate report. he could have scored major points talking about inflation question a huge part of america. jonathan: his team, what are they doing? a celebration with the induction reflection act -- inflation reduction act on a morning like that. lisa: it is because of gasoline prices, now gets a little trickier. jonathan: coming up as we count you down to the opening bell, we will talk to oksana aronov from jp morgan, and what do you think

of that? tom: i'm just saying, life goes on. jonathan: we will take a break. from london, this is bloomberg. lisa m.: keeping you up-to-date with news from around the world with the first word, i'm lisa mateo. the european commission president laid out plans to raise billions of dollars to rein in the biggest energy crisis indicates from revenue from a lower cost power producers. it is just a start of what is likely to be discussions among the eu nations. inflation has gone down from the highest rate in four decades in the u.k. with cpi rising 9.9% last month from a year ago, a drop from 10.1% in july that reflection almost 7% decline in the cost of gasoline every bank of england of england policymakers meet next weekend are expected to raise interest

rates by 50 or 75 basis points. comcast is doubling its share to buyback program to $20 billion. the parent of nbc universal is taking advantage of the shares, having lost one third of their value this year. comcast has already bought nine billion dollars of its stock in 22. global tech investor softbank is reportedly considering the launch of a new giant startup investment fund. according to the wall street journal, it is part of a plan to rebound after the core performance -- poor performance at its two earlier funds. it has been hit hard. it posted a loss in june. and how to than expected u.s. inflation data caused jeff bezos to fall $9.8 billion esther day. it was the largest climb on the billionaires bloomberg index. elon musk's net worth dropped by $8.4 billion. a portion of america's are just billionaires fell by $93

billion, the ninth worst daily loss ever. global news 24 hours a day on air and on bloomberg quicktake, powered by more than 100 27 journalists. i'm lisa mateo. this is bloomberg. ♪

>> we think that the fed will try and stick to this higher for longer mantra, but they will see a softening in economic data and the tightening today will risk overdoing it in the future, and that is probably going to result in a recession. jonathan: the risk of overdoing it, with mark cabana, head of u.s. rates strategy at bank of america. that team, they are calling for a recession in america. we have more fuel for that off the back of the how to than expected cpi print, that kept equity markets down with higher interest rates from the federal reserve beyond september and may be more in november and beyond. good morning. just about up .1% on the s&p, nothing can compare to the move

lower yesterday, down on the s&p by the most since june 2020. tom: monitoring this carefully, through the foreign-exchange space, i am watching sterling carefully. right now, joining us on a phrase that is simple, how to invest. it is not to lose money. david rubenstein is with this, cofounder of carlyle group and author of "how to invest." it is a great concept. maybe what is important here is we talk about distribution until risk, and all the other mathematical blabber. the foundational issue is how to invest, how to make money over the long term is not lose money. how do you avoid losses in investment? david: if you are really investing, you probably will not be able to avoid losses. no great investor has been able to avoid losses at some point. even warren buffett has lost money on investments, so have to be in the game and recognize if

you are reasonably good at it, you will probably make more money than you will lose money. i try to do is interview the best investors in the united states, and talk to them about their secrets, how they got where they are, what they would recommend to other people who want to be investors. tom: part of this is a definition of short-term. how short is short-term for the different chapters of your book? david: for some investors, they are trading daily. but for people who do what i have typically done, private equity, it is a longer-term investment hold, three years to five years. people like warren buffett are holding almost forever. generally investors who put money to work are trying to get some good rate of return somewhere between a three year and five year period of time in the growth capital areas. lisa: were you surprised what the pulmonary said in terms of their investing secrets and their mantras? david: i don't know if i was surprised.

i've known many of them over the years, so i spent time with them before. generally, what they would say is that you have to take some risks, and the great investors are basically going against conventional wisdom. the conventional wisdom will say to sell, and the great investor will say now is the time to buy or vice versa. the most common mistake they felt all people make is when the markets go up, people tend to get in.. when the markets go down, they sell. and the great investors do the opposite, when markets are in trouble, can argue now is a good time to invest. you will not see the results for two years to three years if it is successful, but people like skilled investors are buying things now at the bottom of the market or close to the bottom of the market. lisa: how has investing wisdom changed or investing belief, as we've seen a complete change in technology, with a lot of it done more quickly, margaret huizinga in many ways you can get in and how people can trade -- democratizing in many ways

how people can get in and how people can trade? david: everybody can participate now, and one of the big changes is that the rate of return was always the most important thing. the highest rate of return you could legally get was what people wanted. now people worry about things like est. that was not a factor 10 or 20 years -- psg. that was not a factor 10 or 20 years ago. esg factors are important for a lot of institutional investors, as well. tom: in the next hour, we will witness the queen of the united kingdom with her coffin move through the door of westminster hall. it is an ancient, ancient oedipus. it is ancient -- it is as ancient as the magna carta. please explain your view as one that helped the national archives, please explain the

reach of the time of the magna carta to westminster hall in the time of queen elizabeth? david: there are versions of it from 1219 total 97 to give people, and the wealthier people at the time, not the average person, the benefits of trial with juries, no taxation without representation, the habeas corpus, things like that. interestingly, the magna carta became less significant in england for a while and became more significant in the united states because when our charters were drafted with the 13 colonies, they typically had the rights of the magna carta put into those charters, so in many ways, revolutionary war, which was against england, ironically, was based on the premise that we had the rights of the magna carta. many people in this country believe they had those rights because they were guaranteed in the colonial charters. some time, the magna carta became much more significant and

this country than it did in england. tom: david, we see a united kingdom with a changing of prime minister, and, clearly, a growth across strategy. is there any time in history were growth at any cost works? david: it produces inflation typically, so you have to be careful about any type of growth. i think the british economy has real challenges now, more than the u.s. economy. i think brexit has had some impact on britain that is not as favorable as people like. also, the global economy is not as strong as europe would like. i think the european economy is behind the u.s. inflation is probably as high in the u.s. and growth is much less likely to go forward than it is in the u.s. the bush economy has real challenges now. -- the british economy has real challenges now. jonathan: david, fantastic to catch up with you, as always.

david rubenstein. tom alluded to the point that recession will begin from buckingham palace and that was done in less than 20 minutes or 30 minutes time. tom: tell us about as a child united kingdom, and what the mall means? what does that symbolize to kids across the nation? jonathan: that is the road to buckingham palace, and often what you would see is it is lined with thousands and thousands of people on this special day for celebrations. today, it is arguably both a day of celebration of the queen's life but a day of mourning. what will happen in about 25 minutes or so time is between the queen making that way one final time down the mound will go through a parade, onto

whitehall, along to westminster, and lisa and i did this walk together sunday morning. it could take about 15 minutes, but this will be a lot slower. this will be followed by the royal family. it will be a deeply emotional moment for this country. tom: and from what we are seeing, what the british press says about the length of the lines to observe the queen. jonathan: she will lie in state until monday morning for the funeral service. live from london, this is bloomberg. ♪

announcer: this is an extended addition of "bloomberg surveillance" with john ferro, tom keene. jonathan: the countdown to the

open begins. 30 minutes from the opening bell. futures trying to deliver something after a brutal day of losses in yesterday's session. i am jonathan ferro. tom: there was a real up to it but it is highly correlated and it is sobering everybody up. shifting to what kind of landing? the question is, between us and the fed, is the retail sales -- jonathan: will it make a difference? lisa a.: how much does the fed have to step on the brakes? this is a market looking to the fed to reduce the momentum to engineer some type of slow down.

it is going to have to be harsher than previously thought. jonathan: i wonder what these will look like next week. are we going to see higher employment baked in to get cpi where they wanted to be? tom: and do they change between what we saw yesterday? my answer is they do. jonathan: we are going to look forward to that. right here on bloomberg tv and radio. futures just about positive on the s&p and nasdaq. we are positive on the s&p and nasdaq. lisa has been all over the bond market. it is not just about the 10 year, but the two-year yield higher. 379 at the moment. mike mckee has a lot to say. we need to talk about the data yesterday, today and tomorrow. mike: the producer index, looking at that you might think things are not too bad.

it fell to 8% as anticipated. it really piles onto the headline cpi story from yesterday that you're talking about. if you look at what is happening with cpi, there is one line that should scare everyone. that is the number of categories that are seeing inflation above 4%. that is the purple line. that is 60% of the categories in the cpi seeing inflation above 40%. the white line is the number of categories moving toward zero. you see, as you were saying, this fed probability move up. we have now priced in for march

almost 4.4%. you can see at the bottom where we are going next month, this month rather, and where we go from there. i have to conclude by pointing out everybody has an opinion about what is going to happen. larry summers said the fed needs to cut by 1%. jeff gundlach said they need to raise only 25 because they have gone too far. elon musk says they should cut 25. who is the fed going to believe? tom: frame retail tomorrow. i know there is an inflation issue. with the enthusiasm for the consumer, we hear from mastercard and citigroup and others, all this talk of the fed and the money side of the business. that is up against a buoyant consumer. is the consumer boyette? mike: it is going to be interesting to divine that from

retail sales tomorrow. you had the issue of, did people have more money to spend when they were spending less on gasoline? and you people want to buy goods instead of services? we do have this retail sales report encompassing the back-to-school season, so there might be some news. but the housing collapsing. another drop in mortgage applications today. what is happening with furniture, appliances, building materials? are those going down with the rest of housing? it will be interesting to see this tomorrow. jonathan: thank you. mike mckee breaking down the data. we are looking at 75 next week. that has quickly become consensus. lisa a.: that is a game changer from where we were months ago. the question is, are they going to hold their?

fed officials said we are not going to cut rates next year. if they hold rates at 4%, can the economy withstand that given the amount of debt and how much people have gotten used to zero rates? tom: i would suggest you would clear out zombie companies. we had zombieization. is that a word, jon? jonathan: it is today. [laughter] it raises the question on why credit has been so resilient. tom: i am going to look it up. jonathan: zach, can i begin with high-yield? why are you seeing signs of resilience in that part of credit? zach: it is surprising when you think about the move in risk markets. the odds we think there is bad

news priced in, and you can look at the wall of maturities coming up, and you're not seeing a lot of maturities that will need to be refinanced. from a fundamental perspective, we think there is more flexibility for some of these high-yield issuers van we have had in past cycles -- than we have had in past cycles. is the consumer as resilient? can it remain buoyant over the next couple of months? we think there is a decent chance although the base case is spreads widen. lisa a.: i want to double down and get you to explain because we heard something similar earlier. a slow down is already being priced in as you have the like of jp morgan saying, actually, they have more to widen. they have to recognize the pain stocks surprising in other markets.

what kind of slow down our credit spreads implying? zach: i think you are seeing an implication of potential gdp. i am not quite sure you could say recession is priced in yet, and we are not calling for recession. we think you will see a growth slowdown. that will have an impact on the economy but it is tough to balance fiscal and monetary stimulus the past couple of years that is still floating around. we see indications there is money to be put to work. had a big reopening after labor day. that is something we have been talking about for months, but all of the cash on the sideline. i think there is counterbalancing factors. i think there is a slow down in pricing. it is hard to say how much at this stage. lisa a.: how long would've rates have to stay high before it

became a problem? i say this with respect to what you were saying about the maturity wall, how will take years before these companies have to refinance. what is the time they have, the breathing room? zach: i think that is about a year, year and a half. if you have rates moving even higher, still, that is a problem. you are not going to wait until the end as the maturities come through. they get reified. the fed would take this up to 4.5% and hold it there for the whole year, i think that is when you get problems for the economy and for credit. tom: at creditsights, you look at what corporations are doing.

as rates go up what type of sweat to cfo's have? are they breaking out in a cold sweat? or are they pulling it in? zach: i do not think the cold sweat is here yet. it comes down to the story that maturities are not significant in the next year or two because of the opportunistic refinancing at low rates we have had the past couple of years. these corporations, especially higher-rated ones, have more flexibility coming into this time of economic headwinds. tom: are you monitoring the debt issuance, particularly for equity share buyback? zach: that is definitely something we monitor and is cause for concern that there is too much issuance to do buybacks. but i think given the clarity around tightening, perhaps not the exact degree, balance are being shored up and

considerations are being taken less lightly. that is not something that is keeping us up at night yet, but definitely factors into the overall outlook. tom: you can see how diplomatic he was. nailed it. jonathan: being very diplomatic. tom: exactly. nailed that. jonathan: congratulations on the new seat. good to catch up. zach griffiths of creditsights. constructive on the markets? lisa a.: certainly more than other people. it goes back to the theme we have been talking about all morning which is, just how deep is the slow down to get inflation under control? well, that is what equities suggested yesterday. he was clearly putting that out there. jonathan: oksana aronov will join us in a few minutes. i will suggest she is not constructive.

lisa a.: i am curious what she has to say about these other issues, such as fundamentals that look good, the fact they don't have a maturity wall, and this was the other point zach mentioned -- there is so much liquidity that has not yet been drained. is this the place we talk about -- you know our moment. [laughter] jonathan: we have touched on this earlier this morning. you think it is different between now and late 2018? worse or better because we do not have a central bank anymore? lisa a.: and quantitative is tightening. people are still buying things. yes, they are, because we do not have the withdrawal of liquidity. when that kicks in, does the conversation change? [laughter] jonathan: looks like goldilocks.

chairman powell have to read the same speech choice, three or four times. yields are climbing. the 10 year and two year through 380 this morning. oksana aronov will join is long sameer samana. the queen is set to move from buckingham palace to westminster hall. live from london with equities higher, 70 minutes from the opening bal. ell. this is bloomberg. ♪

pres. biden: the state of the economy is not reflected by the stock market. the economy is strong, unemployment low, jobs are up, manufacturing is good. i think we are going to be fine.

reporter: what about the inflation number? pres. biden: i am not worried. jonathan: president biden brushing off inflation concerns after a surprising upside. for more in d.c., annmarie hordern. people thought that was clumsy. the message we received from the white house at the same time. annmarie:annmarie: it was quite awkward. greg calling it tone deaf. as markets were crashing and hundreds of people celebrating the inflation reduction act, james taylor was singing rain and fire. at the same time, there was no mention at all of the inflation data that had come out that morning, which was worse than expected. for many, it was an awkward

moment. one said to me, did anybody look at the calendar to match up you are getting this inflation data and have this other celebration? that was quite awkward. and in the president later said in the day he was not worried about the print. tom: the most depressing part is knowing you are not sure if it is fire and rain or rain and fire for james taylor. when that song broke i was at the university of colorado. thunderstruck by what james taylor did with the guitar. why was james taylor at this event? what is the messaging? jon mentioned this earlier, the clumsiness of the message. how do you drag the songwriter from martha's vineyard into an event at your white house? annmarie: what is interesting, and given the fact i stumbled on his song, the administration was

not exactly going after the youth vote. it really has to do with his moves on climate. he spoke about that. the fact about climate change and that was his message as he was giving this performance. he wanted to make sure there was this legislation to enact big money going toward climate change. the president is going to take that message to detroit at the auto show to talk about electric vehicles and the tax breaks that can go to ev's. this is part of the transformation of energy. another awkward moment, the white house's biggest metric on the economy has to be gas prices. that is what ron was tweeting about this morning. right now, it is in a much better place than it was in june. jonathan: i will go one step further. i never heard the song. lisa a.: you have never heard the song? jonathan: i have never heard the song. annmarie: i am less embarrassed now. lisa a.: i will sing it. jonathan: i look forward to that. lisa a.: at the break. jonathan: annmarie hordern,

thank you. is it a good one? lisa a.: you want me to do it? should i? [laughter] jonathan: we have special team coverage with guy johnson in london. what are we going to see as the palace gates open here in london? guy: any second now. can see the pictures coming from buckingham palace. a procession that will take the queen's body to westminster. there will be a ceremony that will last around 20 minutes. after that, at 5:00 p.m. this evening, the gates will open and people will be allowed to pay their respects as she lies in state. some suggestions that the line could be reaching 10 miles long. they are preparing for as long as 10 miles. the british public want to pay their respects.

lisa a.: lizzie, you have them watching the scene. what is your sense of how much the crowds have been assembling? lizzie: they have been queuing up today and overnight despite the rain and the warnings of 30 hour long queues. people are jovial. they seem to be making friends with each other, asking, hold my spot, so i can grab some food. they are desperate to pay their respects and show their affection for the queen. i think it is poignant that we remember boris johnson's tribute to who he called elizabeth the great. it is unlikely we will see national grief like this or that you would have a british monarch reign for 70 years again in our lifetime. this is history. tom: guy johnson, the last number of days we also have a

united kingdom, including king charles yesterday in northern ireland. in westminster hall, we have seen this. the judiciary history, including the gunpowder plot, is extraordinary. how unified is this nation around the imagery that king charles is trying to construct? guy: he is building on his mother's legacy. he wants to use that legacy to launch his own reign. understandably, it is a long and gory history that queen elizabeth has been able to generate. and a lot of goodwill goes with it. i don't know yet. it is too early to tell. we will see what happens ultimately as the story develops. how he handles himself over the first few weeks and the months and years. i think it will be significant. at the moment, we are still in the afterglow of the

elizabethan era. we do not know what comes next. that must be shaped and that is going to be a difficult job for the new king to achieve. i think it is going to be difficult to generate the same kind of love and enthusiasm that the queen has been able to produce. jonathan: the king's auxiliary taking the queen's casket onto whitehall. from there onto westminster hall. typically this would take 15 minutes to walk? this will take a whole lot longer. guy: absolutely. that is a gun carriage from the auxiliary. the royal auxiliary will also be firing a shot for every minute it takes. i think they will be firing a number of rounds. i think this will be a slow process. a process that is a recognition

of her legacy. there are people that want to see her. this is about pomp and circumstance. it is about legacy. it is about wanting to show our appreciation and that is going to be measured in some way here. this is a long, drawnout process. the news of the queen's death, her funeral, it is a drawnout process and that is recognition of her impact not only on this country but the world. ♪

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[bell ringing] lisa a.: keep going. [laughter] jonathan: not going to sing until the opening bell? unbelievable. nasdaq up 4/10 of 1%. closed almost at the lows of yesterday session. the fx market stronger than the

u.s. dollar and yields higher three basis points. twos this morning 380. tom: you are correct on the standard deviation but the vix did not pop. it was like, 27ish. we did not collapse. jonathan: am i getting a song? [laughter] joining us now is abby. abby: better that you are singing then me, lisa. cannot believe you have not heard that song. apple and microsoft is higher on the day after the worst day from microsoft and apple going back to september 2020. occidental petroleum popping up with oil.

you also have the banks higher. jp morgan has been up earlier with yields highly. we would be remiss if we did not talk about the railroads. there is the possibility of a strike if a deal is not struck i by friday. that would cause higher shipping costs. the railroads are down, including union pacific. jonathan: thank you. we're going to turn to the inflation story. the biggest declines in more than two years on the s&p 500. kailey leinz has more. kailey: yesterday was brutal. tom: brutal. kailey: the likes of the homebuilders, technology, the big laggards on the day. this morning they are seeing the smallest of rebounds. still very small. the homebuilders turning negative as is the case for retail stocks.

obviously, even the gains of today we are seeing for technology does not do much to unwind yesterday. the homebuilders down 7%. retail and apparel down 6%. tech down 5%. crushed, brutal, whatever you want to call it, it has been tough going for the stocks since we saw inflation become elevated in may 2021. for obvious reasons. the homebuilder decline of 21% goes hand-in-hand with the idea if inflation is high, the fed has to raise rates. that means mortgages go higher and housing demand cools. we have seen that in the economic data. for consumer discretionary and tech stocks, that is because those stocks command higher multiples. when you command a higher multiple and rates are rising, that value of earnings going forward that your prices based on is devalued. that is why we are seeing vstoxx coming back down to earth -- seeing these stocks coming back down to earth.

the two-year yield is up 300 basis points or more since the year started. 200 for the 10 year but it is not just nominal, it is real yields. we are close to 1% on the real yield. jonathan: 300 basis points year-to-date. thank you, by the way. tom: this is really important. no one is prepared for the simple breakdown in price of the bloomberg aggregate total return index. we are not there yet, but close. jonathan: that is phenomenal. lisa a.: especially considering for years people were saying this could not withstand a 25 basis point rate hike or 50 basis points. we are climbing quickly and seeing a shift as people expect more. jonathan: compare and contrast this cycle to the last. how much they did over three years and how much they have done in six months. lisa a.: frontloading but when

do we see the effects? how long does it take to trickle into the economy? jonathan: frontloading or delayed? lisa a.: who was that? bianco? tom: it was brutal. [laughter] jonathan: i agree. jp morgan's oksana aronov joins us now along with wells fargo's sameer samana. oksana, let's start with you. oksana: for the global aggregate bonds are right up there with equities. equities are down 17.5% and global bonds down almost 50%. nobody could've expected this.

i hold with it was too early to get into bond risks. i know the preferred mantra, as it relates to credit, is that the maturity wall is still out there. it is not breathing down anyone's neck. however, it is important to remember half of all high-yield maturities occur two years before the maturity wall materializes. happy to talk more about that but as stress continues to make its way through fundamentals and profit margins, we are seeing that in the leverage loan space with elevated defaults and downgrades. we're going to continue to see the credit markets catch up to the reality. tom: i am going to suggest this is original territory. when we break down under a negative 16%, -18%, what will be the action of those debtholders? we have never been here. how will they respond to the simple price declines?

oksana: how do you think they will respond? how have they responded in history? tom: i am interviewing you. you're not interviewing me. [laughter] oksana: we have seen this play out before. investors do not typically like to set on losses -- sit on losses, particularly losses in the most bulletproof part of their portfolio. investors sell at the worst possible time. that is going to be the capitulation point which we have not seen in the credit market. credit markets are pricing below any recession and we are staring at, if not already in, recession. one of the areas that gets talked about a lot is the fundamental strengths of the corporate market. i think that is present. however, if you look for the trend, you see profit margins have remained strong in q2. but if you strip out energy and

transportation which benefits -- [no audio] -- rest of the lower rate markets. they are led by lower profit margins and retail and health care and food. all the areas that find it difficult to pass higher costs onto the consumer. that trend will continue. profit margins will continue to experience problems and we will see it reflected in the spreads. lisa a.: next time we have zach griffiths on we will have you together so we can get a tit-for-tat. sameer samana, i would love to get your take. we heard earlier from zach griffiths sang credit spreads have already baked in significant slowdowns. where do you stand on this? do you agree with oksana that they have to why did more?

there has to be an inference of greater pain into the credit market that there is currently? sameer: there is fair value and where the fed has to take things. they always take things beyond fair value because things are overheating from an inflationary standpoint. you can have fair value being overshot. that said, i think credit spreads do not believe in the reality that is ahead of us. the fed is going to take interest rates higher by year-end. everybody is on board with frontloading now which should me the slow downs next year, which we expected for some time, credit does have one more shot. that being said, there are emerging pockets of opportunity and we will have more commodities. oil is in the low 80's not long ago. energy equities are a small percentage of the overall benchmark. we think there is attractiveness there.

consumer discretionary and housing are still sensitive. lisa a.: given the carnage that tom and oksana have been talking about, where do bonds fit in your portfolio given what we have seen with the 60-40 this year? sameer: you are getting paid to sit and clip coupons in the short and. --short end. if you overshoot to the 4% or higher, we would see that as a longer term opportunity to have that balance in the portfolio. we believe the fed will get data back down to 2%. jonathan: if they do get inflation down to 2%, what matters is damage done. how much damage will they do to

the labor market between? sameer: it could easily bleed into 2023 or 2024. unfortunately, the fed -- unemployment will only take up slightly. we have not been in that camp for some time which is why we remain cautious. we are underweight in emerging-market, developing market, we are fading in the consumer sector. we are in a defensive posture. i think we will get opportunities to get more aggressive. jonathan: sameer samana, thank you for catching up. oksana's going to stay with us. hbc was pretty bearish. lisa a.: people can accuse us but this is reflection of what we are hearing from people. which is why it is surprising

the reaction yesterday was as violent as it was. the prospect that the fed was not lying when they said they were going to raise rates until inflation comes down. jonathan: the four day rally in cpi. tom: i take issue with the idea it was a panic. it was a reset back to where we were. it is different. that said, the way be closed yesterday afternoon was ugly. jonathan: ugly? tom: it was brutal. no question. james taylor was this american economic association -- he did a concert. taylor has the j50 going and he goes in and says, >> ♪ get the inflation call right ♪ ♪

the diminished chords were something. jonathan: there was a guitar in each room on the floor. [laughter] why are they on the floor? why are they not in the stands? tom: there is always another reason. jonathan: i never understood. tom: what is the next guitar? he said, we cannot talk about the d45 margin. it has to be in the house. lisa a.: i have seen it. it is pretty impressive. it is passion. jonathan: it is his passion. [laughter] james taylor never made it for me. tom: that is interesting. jonathan: was not my thing. tom: interesting. [laughter] [crosstalk]

tom: do you know acoustic traffic? jonathan: no. tom: are you serious? jonathan: we could talk about in the break. tom: james paige?

>> it is wrong to receive extraordinary record revenues and profits, benefiting from more on the back of consumers. we will raise more than 100 billion euros to cushion the blow directly. jonathan: ursula von der leyen at the european commission earlier today. she went on to talk about -- lisa a.: do you want to do this? jonathan: i am joking. tom: ursula von der leyen is the former defense minister of germany.

[crosstalk] she is truly encyclopedic on the military ability. jonathan: oksana from jp morgan. we have a lot of guests on the program and they approached europe as follows -- not if there would be recession, but how deep it would be. oksana: europe is dealing with issues that the u.s. is somewhat insulated from. we talk about energy. european gas prices are on the rise again. without a doubt, there is a lot of focus on how deep that recession will end up being. we are seeing investors underweight. equities are majorly underweight, european specifically. much less so in the u.s. they are essentially flat. without a doubt, the issues

there are much more significant. we are seeing higher spreads, more elevated spreads, lower returns. absolutely. tom: what is your visibility into 2023? i am fascinated by the september reset. it is too early to talk about a year end review, but do you have any view as to how to invest in the 2023? or are you making it up as you go? oksana:oksana: i will tell you one thing. i take a lot of issue with what the market is pricing in for next year, which is nothing other than the fed making a u-turn and becoming accommodative. it is quite clear to me that the fed is going to pursue its aggressive stance and eventually become neutral, but not accommodative. that is not what our prices are reflecting. someone earlier mentioned the 2015, 2018 hiking cycle which was benign. inflation at barely 2%, higher

on appointment, and we still had lower credit spreads after the last hike back then. we are in the high 500's. today, one sunday talks about fair value and credit, what is fair value? it is below the 20 year average. forget the 20 recession average. i think there is a lot of complacency still being placed into the market and priced into this market. we need to be focused on high quality loading rates, floating-rate preferably, and wait for the capitulation point. that will be my tipoff to get more aggressive. lisa a.: just to put a bow on this, how much of your portfolio is in cash-like instruments and how long have you been building that? oksana: we came into the year defensively positioned and we have been building it throughout the year. yes, we have been trading and taking advantage having yields

at the front end. but as far as more strategic allocation to longer-term risk in the interest rate driven or credit driven markets, we have tried to stay back and actually build liquidity. we have arrived at around 70% liquidity, which is focused on the high quality floating-rate structures. we think that capitulation point will happen. we are just starting to see markets reckoned with the reality the fed means what it says. with the reality that higher cost of capital is not great for fundamentals. this is important to understand. we don't need to see a 2008 more dramatic recession. we just need to see defaults start to move toward historic averages of 3.5%. right now, they are at 1%. and to see the spreads widened dramatically. jonathan: you need to let us know when you're ready to put

that cash to work. oksana aronov with jp morgan. tom: she is on the edge of the cash flow. jonathan: that is pretty bearish. that is a lot of cash. lisa a.: 70% liquidity. at what point do they get the conviction to deploy? jonathan: lizzy burden is coming back with us. lizzy: the queen's coffin making its way to westminster hall. it is approaching whitehall. this is the queen sharing her old adage.

she needs to seen to be believed. the coffin going to arrive at westminister hall and she will lie in state until monday when the funeral happens. people are going to be able to file past and pay their respects. they have been queuing for days despite the rain and the warnings of the 30 hour queue. the king is going to begin his reign with the sharing of the national outpouring of grief. you have got this king flanked by his children, his siblings on foot behind the coffin. it really is a symbolic moment. it brings back the memory of when william and harry walked behind their own mothers coffin 35 years ago. tom: the imagery is as you would

expect. we are seeing generational imagery. this is the first time we have seen the generations of her descendants together. i think we are having some audio problems. tom: we have lost lizzy. jonathan: it is quite the moment for this country. the queen's coffin making its way to westminster hall followed by the royal family, including the king. as i mentioned this morning, this walk from buckingham palace through the arch, whitehall tunnel to westminster would take 15 minutes or so? this is taking about 50 minutes. giving everyone the time to pay their respects as the queen makes that final journey. tom: i think for some, particularly in america, and including myself, we do not know

how all of this bureaucracy is all compressed under the square-mile. jonathan: whether they are going through whitehall tunnel they are the offices of government. the buildings you are so familiar with. lisa, we did this walk together on sunday morning. it is the final journey of this queen to westminster hall where she will lie in state for five days. it is the opportunity for this country to pay its final respects to the late queen elizabeth ii. ♪

announcer: from the financial centers of the world, this is "bloomberg markets" with alix steel and guy johnson. >> it is 30 minutes into the trading day. here at the top stories we are following. investable or tradable? trying to recover from the worst day since 2020. we break down if this is a market you can invest in. however you invest, we will talk to the expert universa investments' mark spitznagel. a losing railroad strike.

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