>> stops recovering from yesterday's brutal selloff. i am kriti gupta, "bloomberg markets" starts right now. ♪ kriti: when it comes to the s&p 500, it is up .5%. i would not call it a momentous rebound, no real conviction when it comes to the upside trade, at least in comparison to the almost 4% decline we saw in the nasdaq. a little bit of spring action, some technicals in play. the two year yield is getting everyone's attention. the intraday volatility is standing. the two year yield moving 21

basis points today. 379 on the two year yield. the 10 year yield, looking at 3.4, unchanged on the day. intraday volatility is what we are keeping our eye on. the dollar moving in the other direction, weaker today by .3%. the question is does it stay weaker or do we return to the -- case -- the bull case in dollar? there has been tension on inflation. we caught up with j.p. morgan on how companies are getting squeezed. >> profit margins have remained strong in q2 but if you strip out energy and transportation which benefits from lower energy prices, you see those profit margins have actually come in at -1% quarter over quarter and -6% year-over-year for the rest of the lower rate and market. they are led by lower profit margins and retail and health care and food. all the areas that find it is

difficult to pass higher costs onto the consumer. that trend will continue. profit margins will continue to expense problems and we will continue to see it reflected in spreads. kriti: let's get to the latest economic news. the federal reserve appears to me to next week and make the largest rate decision, depending on who you ask. joining us is michael mckee. we will start with the data we got today, the cpi number came in worse than the ppi numbers came in. walk us through where the inflation is actually heading. michael: it is mostly hitting and energy which is why the ppi headline went down and the cpi headline did not rise as much but it is also spreading widely across the whole spectrum of products. ppi is what people get paid for producing things. cpi is what you pay to buy them. ppi is not quite as bad, more in

line with expectations even though the numbers are higher than cpi. not really a good predictor of what is going to happen. i will tell you what has been happening, and this is a big deal, we are seeing on energy prices rise a lot. kriti: the food, the shelter, that is getting scary. i am curious what the. markets are planning to. if you talk about headline inflation number, 8.3%. ultimately it is the ppi numbers that get passed on to the consumer. why are the markets responding more to the ppi? michael: it comes down to what we saw in the cpi where the number of products rising at a high rate, greater than 4%, has reached 60% of components of the cpi. you take out energy and you still have a lot of inflation. that is a big problem for the fed which means as far as markets think, the fed is going to have to do a lot more to

bring it down. that means not only bigger rate increases next week and the weeks to come, but into 2023. the fed is looking at this point at somewhere around 4% as their ideal for a rates move. the markets have passed in 4.36 as of today by march next year because they think the fed will have to do more. the range in the red is where various fed officials thought neutral might be. now it might move up. you notice the top line, 5%. that would have an impact on markets. kriti: i will leave you with one last question, it was a question of the 50 or 75, now it is 75 or 100. there are more bets on 100 basis points. how realistic is 100? michael: not a very realistic. most people know the fed think

they would not do that because it would be disruptive to the markets. it is not something they have talked about and it is probably not necessary. even if you are going to 4.36%, you can get there. the fed does not have to be that dramatic. on the other hand, you never know when the phone is going to rain at a reporter's house and the fed is going to hit is something bigger. kriti: i take it you are not that reporter? michael: he has got my number. kriti: michael mckee never putting his phone on do not disturb. thank you. let's bring in the -- bring in george bory from all spring -- from allspring. >> i have not got the call yet but i am still waiting and hoping.

no cause just yet. what my cassette is a spot on and very consistent -- what mike said is spot on and very consistent. yesterday was a shock to market expectations. the bond market needing fully repriced quickly and much stronger than expected. as mike mentioned, it is the broadening of inflation trends that are the most challenging. what transpired is the expectation for tighter monetary policy has cruelly moved up. we think at least 4% to 4.5%, the upper end of the range. it is a very realistic and probable. clearly getting to 4% by the end of the year is not that challenging. what you have seen is the rest of the curve to reprice. 10 moved up dramatically -- to your yields moved up dramatically.

not until you get to the long end of the curve, the 30 year end of the curve, stays pretty anchored around 3.5%. one more strong inflation and you can see them move up. for now, bond markets are priced higher, expectations are for tighter rates. we will see what the fed delivers next week. we think it is 75. it is not 7 -- necessary to go 100. it is not improbable, just unlikely. kriti: the two year yield is at a 15 year high. as we talk about the hawkish and is continuing into november, december even with 50, maybe even 75 on the table later in the year, my question is how high can the two year yield ago? george: i think what the two year yield is telling us is not only does the fed need to

continue to move at a rapid clip, but rates will remain high. that is the message jay powell delivered back in august, this expectation that rates might be cut in the second half of next year that seems unlikely or at least not with the fed wanted to see priced in. they pushed back hard against that. you saw the expectation for fed funds to go up and the front end of the curve continuing to rise. with each passing strong inflation, the front end continuing to move up and move higher. it seems pretty likely. highest part of the curve is the one year curve which would suggest the fed still has some meaningful work to do between now and then. the market continues to in china that direction. kriti: a lot of those moves are driven by the breakevens,

inflation expectations which are. ebbing and flowing. i have to ask about the curve and version, does it matter that the 210 curve is looking at a -37 basis points? george: it matters quite a bit. we are firm believers in the predictive value of the yield curve. the financial conditions continue to tighten. it tells you that they are much tighter than they were and that they are restrictive. the question is how restrictive do they need to get? that is how the market continues to move towards a more restrictive stance. that will slow growth, that will affect the economy and change economic behavior. similar to fed funds, the likes between the shape of the curve in the economic impact can be relatively long. we all know the economy is like a supertanker ship. it is not a speedboat, it moves at a relatively slow pace. responsive to financial conditions, responsive to the

cost of borrowing but it takes a long time for those factors to start to meaningfully change economic behavior. the rate hikes we have seen over the last few months will not be impacting the economy in a meaningful way until the beginning of next year. as those rate hikes start to work their way through, the curve keeps steepening, that puts more pressure on economic activity. we do think we will have a hard landing. we think as we get into next year, the growth will start to struggle because of tight financial conditions because of an inverted yield curve and hawkish fed. kriti: when you talk about the hard landing, the lack of baked into it, or the housing markets and the changes you are saying there, the lag showing up at the same time as the fed policy. a topic for another time. george bory of all spring bank, thank you -- of allspring, thank

you. mark: the view ho director -- the w.h.o. director she did to an upbeat tone while urging countries to control the virus saying, "we are not there yet but the end is in sight." -- since march of 2020. queen elizabeth the second coffin has arrived in westminster hall. people paying their respects are being warned they could face a wait as long as 30 hours. crowds lined the route to see the coffin ringgit short journey to buckingham palace. king charles iii followed on foot by his sons and other family members. the queen will lie in state until the funeral monday. hundreds of thousands of people are expected to file past the coffin. the european union has a message

for russia, it is not meant to back down on right -- on sanctions. the -- addressed the european union in her state of the union speech today. >> i want to make it very clear, these sanctions are here to stay. it is not time for appeasement. this has to be clear. mark: she also presented measures to tackle the energy crisis, proposing a revenue cap to raise more than 140 billion euros. a u.s. senate panel will debate a bill today that will boost ties with taiwan and give it more military hardware to deter a chinese invasion. china reads the bill as another way to undermine the so-called one china agreement and move towards full recognition of taiwan.

the biden administration says long-standing u.s. policy is still working and the legislation will take policy out of the president's hands. global news 24 hours a day on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i am mark crumpton, this is bloomberg. ♪

kriti: this is "bloomberg markets." calm returns to the markets after the carnage from hotter than expected inflation. let's bring in amy lu silverman to perhaps make sense of the move. what happened yesterday? we know there was repricing the markets when it comes to what the market was going to do. in terms of the hedging, what happened? amy wu: i think it is almost a tradition at this point to blame options for something. with regards to yesterday's move, you can blame some of it

on derivatives, on what happens when you move to lower levels in a gap move so a lot of these options below where the market was -- and dealers on the other side have to sell stock to remain neutral. the exacerbation of moves can contribute to what we saw yesterday. kriti: what is interesting to me is how you work around that. it is not with the feel like it is the fundamentals driving the trade so much as it is finding a spot to camp out. where do we camp out? amy: it is a great question. i will say two things on that. when you look at options around options expiration, it is something that can cause a local minimum but never a global minimum. this is something my colleagues were speaking about today.

when you look at the options link that happens during expiration, it is often a negative a vast majority of time. the week heading out is positive. it does contribute to the global minimum. the second thing i would say is there has not been as much attention to demand, you see this panic in market. for some people, they're using the opportunity to sell volatilities. and if you look at what there is to camp out in, people are using these two fund yield pockets like energy and elsewhere. kriti: i also have to ask about the cross action here. when you see hedging, perhaps it is pulling out of the equity markets completely. are you watching the volatility that is happening in the bond market right now? amy: 100%. 1 -- that has been handed to

look out is the move index versus fixed. they look at one month of volatility in treasury compared to equities. the s&p has been doing a lot of catch-up. it was in the netting at percentile a week ago and has dropped to the 84th because of the equity of the volatility has been catching up to at the bond market volatility has been saying for a while. kriti: let's start with bond volatility, or end with bond volatility. is that going to be the leader or the laggard when it comes to equity volatility? amy: i think it is good to be the leader. when you look at different cycles, in particular one where rates are rising and we are trying to question the path of where rates go next, rate volatility often leads what he volatility. it makes sense this is happening because the ratio was one

reflect for a while and we are finally saying that catch up. usually september and october are strong months for the vix to rise. i think catch up will happen. earnings season and conferences, those will kick that into high gear. kriti: something we will be keeping our eye on. amy wu silverman, we thank you for your time. we are seeing a massive pop in one particular name. netflix shares are up to the tune of 3% on the session coming on headlines reported by the wall street journal, according to some documents that netflix shared with added buyers. netflix is estimating their ad supported tier will reach 40 million viewers by 2023. we know this has been a major concern about whether or not that would be a dealbreaker. it looks like according to preliminary predictions, netflix

is telling their at executive to expect you have 4.4 million unique viewers worldwide -- 4.4 billion unique viewers worldwide. 40 million unique viewers at the end of 2023. netflix near session highs. this is bloomberg. ♪

kriti: this is "bloomberg markets." a key government witness in the case against trevor milton told jurors he made a hundred thousand dollars from a 2020 short-sellers report. joining us from the southern district in downtown manhattan, it is eric ludlow who is following the case minute by minute. walk us through the significance of this witness. >> this was the first witness who was a contract engineer who

in 2016 worked with trevor milton to build the nichola -- nikola 1. onstage of that year, milton exaggerated the capabilities and progress, it was missing key parts. much of lackey's testimony was talking about that. he had cross examination by defense this morning and it emerged he participated in hindenburg, short-sellers report published in 2020 and he received a $600,000, some of the profits from the short position hindenburg health. the defense quizzed him about this and he told the jury he gave information in exchange for a share of those short profits. kriti: what about the arguments

from the other side of the court case? ed: we are in the early stages but the prosecution argues and hopes to convince the jury that trevor milton who is facing two security fraud charges, two accounts of wire fraud, not only that he made misrepresentation and lied about the company's technology and business progress, but he has to demonstrate that retail investors out of the stock because of those statements made over a period of time while nikola was a public company ni -- public company. nikola was the poster child for these ev companies. kriti: walk us through the broader significance of this trial. you mentioned it was the poster child, but give us a little more elaboration. ed: going public allows the company to put up documents

about what they hope to do in the future. less strict rules than the traditional listing. the defense will argue that milton believed what he was saying, he was not misleading anyone. he was talking the company up, that was his role. it is a warning to investors who want to invest in companies that went public by a spac. without when milton was indicted in 2021, that that would happen. nikola quickly reached a civil settlement which they are now paying. kriti: ed ludlow walking us through that. we are now looking at nikola shares, up 10% in the session. coming up, we will speak to evan brown of ubs asset management about an inclination to reverse -- on the interest rate hikes. that is something the bond. market may be pricing in.

. this is bloomberg. ♪ pst. girl. you can do better. at least with your big-name wireless carrier. with xfinity mobile you can get unlimited for $30 per month on the nation's most reliable 5g network. they can even save you hundreds a year on your wireless bill over t-mobile,

at&t, and verizon. wow. i can do better! yes you can! i can do better, too! now you really can do better! switch to the fastest mobile service - xfinity mobile. now with the best price on two lines of unlimited. just $30 a line.

mark: welcome to the bnn and bloomberg audience. i am mark with first word news. a looming strike against freight rails means thousands will have to find alternative forms of transportation. this at a tough time for amtrak and transit agencies after ridership plunged during the pandemic and is yet to return to normal. after two weeks of lockdowns officials in china will begin easing the curbs. seven districts, which have had no new cases, will see life gradually return to normal. six other districts will remain under lockdown and

undergo another round of mass testing. this as infections taper off with only 35 new cases reported tuesday in a city of 21 million people. a typhoon made landfall on china's eastern coast today, bringing storm winds and heavy rain as a barreled toward shanghai. the storms packing gusts up to 95 miles per hour. it is the biggest typhoon to hit the region in a decade. major container ports in shanghai have suspended operations ahead of the storm, liquefying national gas imports also shutting down. the united states has taken steps to make sure financial aid for afghanistan does not fall into the hands of the taliban. the u.s. will put $3.5 billion in the country's central bank reserves under the control of the swiss-based oversight board. most of the money will be set aside until the board decides

afghanistan's central bank has implemented money-laundering controls and has gained sufficient political independence. 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 mark crumpton. this is bloomberg. jon: i am jon erlichman. welcome to "bloomberg markets." kriti: i am kriti gupta. we are seeing green on the screen when it comes to the equity market, up 5/10 of 1%. all the action is in the bond market. the two-year yield up after falling 21 points yesterday. 378 on the two-year yield. the 10 year yield unchanged on the day.

the bloomberg dollar index is dropping. weaker by 3/10 of 1%. this is a reversal of yesterday. whether it stays is going to be a different question. over to you. i want to mention a red head crossing the terminal. magdalena anderson is stepping down as the votes are coming close to being fully counted. she says the conclusion is clear. she is seceding to the populist leader in sweden. we will give you updates as we hear the final tally. right now, it has indeed been a close election. jon: we certainly will provide updates. in the markets, we have seen sector wide strength for the energy sector. as for individual stocks, you got different outlooks from different players. on the one hand, starbucks providing an encouraging longer-term outlook which wall street has seen as well received.

on the others, concerns in the steel market with new core to the tune of 10%. we will continue to watch the tensions within the u.s. rail industry. more on that, coming up. in the meantime, an analyst with a cautious view on several names today, csx and union pacific both down. the macroenvironment and how that could impact businesses outside the rail industry. we are watching that unfold. kriti: we talk about the rail industry. we will have our eyes on the rail transport. we are seeing a bounce in the equity markets today. we caught up with sam stovall who says investors need to ride out the storm. sam: history tells us when we have had a 4%, one-day decline we usually see a bounce of 1% the day after. that has happened two out of every three times.

but then we trade sideways the next week and the next month before resuming an uptrend three months down the road. i think investors just have to hold onto their hats. jon: historical context from sam stovall. let's bring in just who has been tracking -- jess who has been tracking the markets. yesterday with the biggest stocks slide and in both cases, the market has the opportunity to chew on separate forms of data. what have you been hearing? jess: something that i think goes under the radar is when you are looking at the spread between ppi and cpi. historically, when that narrows or is in positive territory, that is optimistic when it comes to corporate margins. looking from a year ago where the spread has come down significantly and in august it is down under half a percent.

last year it was -3%. and left strategists are looking toward the spread to see if that will give indications of peak inflation before we see that funnel into cpi data. kriti: at the end of the day the question is, what do we need to get to a sustainable turnaround in the equity markets? specifically growth stocks. walk us through what you're watching. jess: the big thing coming up in my conversations -- and i was talking to michael mckenzie about this -- and it is the question of whether this is the beginning of the end of the rate hiking cycle? or is this the end of the beginning? as we saw with what was happening in the selloff yesterday and the repricing of expectations, a lot of fed speakers heading in with expectations of maybe we will see 4%. now expectations well above that. even if the fed gets toward the terminal 4% at the end of the

year or next year, that is well below where inflation currently stands. historically, if you are looking at what happens, the fed typically hikes until that is above safe cpi. the question is if it will be enough to get to the end of the year. kriti: jess menton, thank you. giving us all the insight we need. joining us for more on the conversation is the one and only evan brown, head of multi-asset strategy at ubs. thank you for joining us. what do you make of this equity turnaround and the action we saw yesterday? evan: i think when you look at the full context as bad as yesterday was, it brought us back from last week. the market was excited about lower inflation. in the end, we are back to where we started. what we are seeing is the

terminal rate being priced in at 4.4%. that is pretty meaningful. we are getting into restricted territory. the further you go, we continue to go this way with them very resilient in market data. that is going to be more of a problem for everyone. jon: as people are trying to digest how long rates have to go up and stay higher, what that means for the economy and how the market reacts. i was talking to one money manager who talked about the fed about, oh, they have no choice. they might just have to go longer in that turning process to get to the other side of this. communication from the fed from here on out, what are you going to be watching for in what they communicate to the market? evan: i think what is most important is you look at their thinking on if the terminal rate -- sorry, the neutral rate that

they expect, is it higher than the neutral rate over the long-term? because of distortion related to covid, supply chain and the like, they need a higher rate in order to get inflation down. in the short-term. if they are starting to raise that bar -- and it is not that they have yet. you have president williams come in and say the neutral rate is 50 basis points. but if we have structurally higher inflation, that is a whole different story. that is what i have been hearing from powell. kriti: what does that mean in terms of what the fed actually needs to achieve? i feel a lot of the conversation around the 100 basis point idea of hiking in september is that they have to go into restricted

territory and do that in a big way. is that really necessary given the progress or the tightness we have seen in financial conditions? evan: i don't know if it is quite necessary. the urgency we had before with the fed tightening was a big issue of inflation expectations. what we have seen, especially from market-based inflation expectations, those are at a reasonably comfortable range. you don't have to worry about the fed moving credibility. 75 i think -- [indiscernible] -- i don't think it really matters that much, but it is the guidance on where inflation takes you. we are very data dependent going

into the end of the year. where is the labor market? kriti: evan brown of ubs, always a pleasure. we thank you as always. coming up, growing concerns that the potential rail strike could make inflation worse. what the government has planned when it comes to this strike. this is bloomberg. ♪

>> we have plans for storage in different places throughout the united states. we would use trucking as a backup. but as i said earlier, we want to encourage everyone to work this out. i think rail not only for our

industry, but many in the u.s. it is critical. kriti: this is "bloomberg markets." i am kriti gupta with jon erlichman. you were listening to toyota ceo about the looming u.s. rail strike. 125,000 could walk off the job if a deal is not reached by friday. joining us is joe mathieu. the rail sector has avoided strikes because washington intervened. are we going to get that lucky this time? joe: it is a good question. from the white house's perspective, they are personally involved and a have made that clear, including labor secretary marty walsh, but also pete buttigieg. karine jean-pierre has been pretty consistent in her messaging, urging parties to stay at the table, negotiating in good faith.

but they also said a shutdown is "unacceptable," and that is coming from the most humanly union from the demonstration. congress could also get involved and that is maybe where you are pointing. there is a precedent. hoyer says there is precedent for congress. congress does have history. it has been a while but 1991 congress acted to shut down the national rail strike less than a day after it began. they want to let the parties work out their options and continue to negotiate. but if we get into friday, this could be a different looking story. jon: all of the players in the industry have to take measures to get ready for that. we will be receiving or headlines on how they might try to control inventory. on the subject of a possible

emergency decree by the white house, where is that line at which they say they have to go further to try and show this is an issue that is so challenging for the economy, the worries over supply chain, etc.? joe: it is hard to tell where that is. we have asked repeatedly to the white house, the press secretary -- it came up today on air force one. this is a big deal. i think once we start moving into friday you will start hearing more. but the white house has tried to allow the parties to continue their talks and let marty walsh and pete buttigieg steer them out of the more difficult areas. it is not lost on the white house how brutal this would be to the economy, and specifically, supply chains. just a day after joe biden stood on the south lawn to celebrate the inflation reduction act. this would undo most, if not all, the progress made.

i would not expect them to stand by. kriti: let's talk about contingency plans. the last major strike happened in 1991 and only lasted a day. nevertheless, the white house making those contingency plans. bnsf railway controlling inventory levels. their parent company is berkshire hathaway. what are the contingency plans this time around? joe: to the extent that you are hearing about them publicly is all we know. this is going to come down to alternative modes of transportation. but there is not an alternative for every rail line, particularly when you consider the manufacturing links. getting things across the country from port to warehouse. there's is also the tourism aspect and the biden administration is coming off a terrible summer for air travel, delays and cancellations. the alternatives are not great either. this is something that needs to be worked out with these unions.

it is going to be difficult to act like it is not happening and people will feel an interruption either way. jon: thank you very much for this update. bloomberg's joe mathieu. you can listen to joe every weekday on his program "sound on" at 5:00 p.m. eastern on bloomberg radio. let's keep this going. joining with more context is rebecca ray, serving as senior labor department reported. thank you for your time today. maybe we could dive deeper into the issues that have been holding things up as far as they stand right now. what can you tell us? rebecca: so, two of the unions that represent roughly half of the 125,000 workers involved are really saying what is on the table our quality-of-life issues. they are asking for specific sick days designated. separate from the time off already given.

they also say some of the requirements, such as being on call, where they have to be within an hour of home or report within an hour and a half, is really affecting their quality of life on days they are not working. coming out of a pandemic i think their argument is -- designated time to have sick leave and get medical care but also because of these scheduling requirements that they are missing out on life events. they are not able to attend weddings or children's graduations. the company maintains these workers have up to five weeks of paid time off a year that they can use to attend appointments and the sort of things. as you mentioned earlier, the white house and labor department are paying extremely close attention.

labor secretary marty walsh has been in meetings with the parties since 9:00 a.m. the most recent update said they are prepared to staff the table throughout the day. whether that means this afternoon, later tonight, into tomorrow morning is yet to be seen. kriti: walk us through the actual compensation talk. i believe my understanding is the negotiations, there is a promise of a 24% jump going into 2024. that is the largest increase in four years. why is that not enough? rebecca: i think the unions would say the fact this is the largest increase in several decades -- they went through the pandemic delivering essential and necessary goods throughout the united states without seeing a pay raise. not even for cost-of-living. they say when you look at it over the actual time they have spent without a raise, the cost of living increase cancels out

the raises included in the deal. yes, everybody loves to see an immediate increase. it does not resolve the things they say are keeping people away from the industry, which they say, in the long-term, will affect the future of the industry. if you cannot keep enough people working in the railroad, eventually it will not exist. kriti: rebecca rainey walking us through those labor issues. thank you. tuned in for a special coverage. i will be in the field tomorrow. we will talk about the rail strike as we count down to thursday midnight into friday. that is going to be the key time to decide, is what washington is doing enough? jon: no doubt we will watch your coverage closely. as we roll through this hour we are going to talk more about news on the technology sector.

twilio the latest to announce job cuts after they had sizable growth in their words "too fast." this is bloomberg. ♪

jon: this is "bloomberg markets ." i am jon erlichman alongside kriti gupta. it is time for what it is worth. twilio announcing it will cut 11% of jobs as part of a restructuring after rapid expansion. when we talk about these technology companies, we have seen this in canada as well with shopify, the ceo had to offer mea culpa. they were watching the market grow but in this environment you are seeing it, not just a technology, but the auto sector,

banking industry, these reality checks. this is something the fed will be watching. we have a tightened market. kriti: we know this is something that, to your point, started in the tech space. silicon valley pausing the boom they had. a lot money on their balance sheet which they were able to hire only to reverse the price action. jon: on the flipside, the markets seem to receive that news well. when we talk about deterioration news like this can protect the bottom line performance. we started this half-hour with commentary from san stovall who is of the belief we will not reach previous market lows. perhaps the earning power stays relatively solid through this downturn. we will have to watch closely. kriti: cost-cutting measures be rewarded. can you ride these inflationary times? something to keep an eye on. for jon erlichman, i am kriti gupta. this is bloomberg.

♪

mark: keeping you up-to-date with news from around the world. this is the first word, i am mark crumpton. in sweden, the prime minister is conceding defeat and says she will resign early thursday. the announcement comes as the opposition will score a victory in one of the closest elections ever in the largest nordic country. anderson became the first female premised are less than a year ago and led sweden to join nato following russia's invasion of ukraine. the ukrainian president visited the newly recaptured city today, the latest sign ukraine's counteroffensive against russia is beginning to succeed. speaking during his visit to the city, president