>> no doubt the fed is signaling that there is more to be done. >> they are keenly focused on price stability and reducing inflation. that does mean sacrificing. jonathon: it's not really about whether we are going to get semi-five or 100 in september. >> we could be looking at 3 million additional people out of a job. >> i think investors just have to hold onto their hats right now. >> this is bloomberg surveillance with tom keene, jonathan ferro, and leeson abramowitz. -- lisa abramowitz.

jonathon: equity features. strike on, strike off. it looks like it is off. tom: maybe that is because of president bidens charity. there is a staggering deal with wage increases. it has to be front and center. that is what we -- jonathon: that is what we need to discuss. lisa: this is at a time when you have a shortage of workers and employees really do have to step up. even now, at a time when people are warning of pretty dire circumstances should this strike go into effect. jonathon: we will catch up with the team in washington in washington about 10 minutes. we are all looking at the bond market, looking at stocks. 40 basis points higher on the two-year.

this equity market is still 7% or eight percent above the lows of june. can you work that out for me? tom: i can go there. i will say there is some incredible bond math. stay tuned for that in radio. this is creating higher bond markets. [crosstalking] there are some really cool bond math going right now. jonathon: i am going to walk out of the building. yields are higher right now by three or four basis points. i believe the two-year is higher by six on the session. lisa: 3.8162%. we are actually not pricing in

an effort? here. a: 30 am, we get a data dump from the u.s.. i am really watching retail sales. how much can we get a boomerang effect? this is what i'm really watching. people have extra money to spend on services for the winter. it is making it difficult for inflation to rollover because if gas prices rise up again, how much do you get a difficult scenario? i know it is complicated. remarks being delivered from maryland on the inflation reduction act. we haven't been hearing that much from janet yellen. i want to hear what she has to say about the u.s. economy. she was in the transitory camp. where are we now, especially with fed raising possibly 100 basis points? jonathon: 100 basis points in

rochester. lisa: president bynum will be meeting with vladimir putin for the first time since covid. i want to hear if there is anything from china to russia, any sort of put fetch of capitulation on vladimir putin's side. [crosstalking] tom: it is central asia and it is something that mr. putin would suggest is his territory from a previous time and place. america ignores this. it is actually a big deal. jonathon: where not ignoring it. [crosstalking] up 100 basis points. 100 basis points next week for the team. we stop there, but why.

>> if you look at the details, everyone was looking for peak inflation. the actual details that we are seeing is firms are raising prices, much more than what we would expect. with a rollover in gasoline prices, everything we follow say inflation will keep rising, keep rising. it was a strong number. we hadn't 82 basis points price. usually, the fed doesn't do anything if it's not priced in. we have this friday, a leak to the "wall street journal" and we will see what moves the market prices. [crosstalking] jonathon: as soon as the number came out, i turned to lisa and asked if she thought we would get one of those newspaper articles again. tom: am i the last to know about

this? jonathon: it happened last time when we shifted. [crosstalking] tom: jordan, i want to talk about 11517 after the fed meeting with the bank of england. how have you adjusted your sterling vector and the momentum of it, given what he has to do, given what chairman powell had to do. >> it is more forceful next week. we're looking at 50 basis points. i think short-term, whenever more is expected, you'll probably have sterling strength. but the u.k. is not suffering from the same problems america is facing, such as bigger problems with energy. [crosstalking] i think sterling goes to 110 by october. we could be talking a hundred --

a horrible 106 by year-end. tom: this is by november? >> this is when we get to parity. that is an important point we have been discussing. it is the massive plan from this government. they need currency. lisa: that seems to be one a lot of people are saying, given the recent inflation data and it is somewhat supported. we have had lower petrol prices, lower natural gas prices on their energy bills. this is the sort of boomerang effect i'm worried about. if they can lower prices, it actually encourages people to spend, creating a stickier type of inflation. you have higher yields and a bank of england that has to come out even more aggressively than their incredibly honest stance. >> they have forecast with gdp

negative in recession. many of the central banks are not forecasting recession. they are raising rates into this recession. again, very honest about that. but you are absolutely right, our energy bills in the u.k. at 1.1 have been 6000 pounds per year on average in january. now, we are at 2.5 thousand. when everyone to do with your electricity, you go do it. [crosstalking] it turns even more negative. the u.k. has trademarked the. you have 8%, which is crisis territory. i think over the next two quarters, the raising rates is softening the blow. it will attract foreign guilt investors. lisa: a pretty bold call in

europe, this 90 figure that has gotten a lot of attention, at a time when we are seeing it still hanging around parity. what gets us to a 90 level on the euro? >> that's the way it looks paired we have a big move in europe. we have a few things coming up. the big picture is, the trait has collapsed. the u.k. has things that europe needs. i think when germany starts rationing energy, it will become clear to everyone that, oh my god, the trade and german economy is going negative. paper, plastics, acrylic, metal, all of that won't be made. if the factory is turned off, where are you going to buy that from? from america and china. that trade story is the trigger for it. we will see phase 3 coming from germany or if you see russia cut off the gas supply.

next week, if the fed does do 100 basis points, it will change the dynamic from fed pricing. jonathon: this remind me of when italy shut down for that weekend back in the pandemic in 2020. it wasn't real for many people until that moment, when they saw it happening. you just said it. we are waiting for that moment. even though it is clear to us that europe is about to go through a very difficult time, we need someone to scream at us. >> it has been written about quite a lot in the media. i think what will happen is germany will get through the winter, people will be able to heat their homes, because factories have fixed this. it is recessionary. the german economic model is being challenged. all of these base models and goods are cheap, but you need a lot of them to render an economy. tom: they haven't given a

renminbi call. is that an important level for the government or are they waiting for eight yuan per dollar? >> where looking at 720, which is important over recent years. china is looking to slow down moves with the currency. the basis has been very stable. again, the dollar, yes. tom: should we look at the basket? >> no, i think we should look [crosstalking] jonathon: is it, for your end? -- year end? >> no. [crosstalking] jonathon: market strategist is

back with us next. [crosstalking] futures up. you are counting down. live from london, this is bloomberg. ♪ >> keeping up to date with the news from around the world. there is a tentative deal to avert what could have been a damaging railroad strike in the u.s. the labor department said that railroad companies and unions representing more than 100,000 workers came to an agreement after 20 straight hours of negotiation. the government says the deal "balances the needs of workers, businesses, and the nation's economy." the price of national gas rose again in europe today. they are deciding whether to ease up the energy crisis to curb prices. there raising $139 billion for consumers for energy companies

and earnings. the leaders of russia and china meet today for the first time since the invasion of ukraine. shortly before the attack in february, vladimir putin and xi jinping announced a no limits friendship. putin suffered many humiliating feats on the battlefield, so he should not expect much from xi jinping. -- and has been chief executive since 2014. one of the first big moves was a $50 billion takeover. that is now paying huge dividends, as natural gas prices store. that will be replaced by shells head of gas and renewables. global news 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in over 120 countries. i am angel phil scott now. this is bloomberg. ♪

>> i am really concerned about the inflationary policy that we see coming out of the biden administration. anybody who thought that this was going to be short-lived has

been shaken, because what we are seeing is a persistent result of bad policies, inflationary policy. jonathon: the republican from virginia there. live from london. this is bloomberg. futures up a little more than sir .1% on the s&p. on the two-year, we have been climbing for six straight sessions and getting these to come from a life in and around 283. number one, are we all looking forward to the vice chair on fed day or what? >> -- going into coming out next wednesday as well. lisa: it will be interesting. understand what the communication's, although i think they are pretty clear. jonathon: that is what i promise, too.

looking for the prospect of rates going down to 4.5%, producing a 20% negative impact. tom: those of the decisions people make every day. it depends on which end you are looking at. we make jokes about the s&p and the nasdaq, but each index is different to get you to that 20% statistic. jonathon: before we get to the consequences of higher rates, let's talk about prospects of high rates it doesn't feel that out there at the moment. lisa: it feels priced in. that's the amazing thing. it is priced into the fed funds rate. the 20% negative impact from here, from where they are, that is what he was saying. about 10% of that is because of the negative earnings impact basically, how much the economy would have to slow. many other people are raising

this issue. how do get that out? i think that will be the theme of discussions. [crosstalking] tom: let's continue here. the romance of american railroads. i lived the back end of it. the pencil value railroad dumped in new york city at the greenville railyard in new jersey. here's the story back in 1904. it's out the window today. jeff fitzpatrick in washington. -- jack fitzpatrick in washington. creed joins us first. what were they arguing about? kriti: it is about sick leave, about access to easier working conditions. this goes back to the rhine. you have working on the railroad all the live long day. these are very intensive 12 hour days that require you to be on-call, then show up to work with about 90 minutes notice. that's really what was at the

core some of these worker issues, in addition to pay, which it looks like they got. but one of the questions is still how to deal with things like sick days, coverage, all those things are up in the air. tom: brilliantly said. we really don't know what the social aspects are of this agreement. jack fitzpatrick, there are the political aspects on this agreement. did president biden lose this morning with his tentative agreement? jack: if the tentative agreement turns into a agreement period, that's a big win. it puts him in the uncomfortable position with unions, the risk of economic damage from the strike, less than two months before the midterms. it would have been very, very significant. rail officials have said it could be $2 billion in economic damage per day if there were a strike. an extended one would have been really bad. assuming that this does go forward and in is more than just

a tentative agreement, it is a bullet dodged by the president politically. lisa: what are the details you have given us about the 24% wage increase, as well as the media pad of $11,000. we have a sense of how close we are to be enough to avert the ceasing of any activity? i think the agreement is already up. kriti: that's the fear here. we are still waiting on the full details of the fine print. $11,000 immediate payout. that seems to be new in this agreement. there is always -- there is already a 24% increase in 2024 already discussed. going back to my point, the sick leave, the extra safety around working conditions, that is really what is at the heart of the matter remember, some of the damage is already done. you already have amtrak canceling a lot of their

long-distance train routes. you have oil shipments that are halted, grain shipments, even coming here to the rail yards. there are trailers of new vehicles that have been put on the sidelines because they have nowhere to go right now, because everything has been put on paul's first year that this strike will actually go through. jonathon: great work. thank you. kriti gupta and jets for patrick -- jack fitzpatrick with the latest. if you imagine the former labor secretary had a big play here in the conversation. tom: there was a voice on both sides. he has huge integrity. this is coming from south boston. in another time and place, the math of this is a stunning lived in wages, but also a change to powers. jonathon: it's a step further, a big moment for union power right

now, because more broadly, the marketing power has been up. for a president in the white house who keeps reporting to himself as a union guy, this is where we just discussed that. they could hold the economy hostage in a big, big way. the fact that it is not going in that direction -- yes, i hope it doesn't. as jack fitzpatrick says, that is a bullet dodged this white house. lisa: just to give you a scope on what that doll -- what that bullet would be, it is $2 million of damage every day. corn, fertilizer for these crops, it would stymie so many different industries. yes, it is a bullet dodged, but there is a reason why there is the presidential emergency power to come in and provide some sort of emergency response. president biden doesn't want to do that because he is prolabor. that is a reason why this is so incredibly awkward on summary levels. jonathon: it could have been a

whole lot more tense. [crosstalking] the rail strike was called after the queen's death. [crosstalking] tom: but the heritage here is a little bit different than america's. jonathon: union participation is just like in america. it has changed so much in the last few decades. [crosstalking] tom: back in the 1970's, there was fire. [crosstalking] [crosstalking] jonathon: this is

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jonathon: live from london, this is bloomberg. equity futures positive. if you're looking for riproaring bounce, you did not get one. climbing by four basis points on the 10 year. mike over at jp morgan has big things to say. he says that we think the odds of a 100 basis point move are

certainly not zero, are lower than one third. that last line got a ton of pushback. are we getting closer to the destination? lisa: some people might disagree. some drivers might be more excited to get to their destination. but are we getting close enough? if you don't go hard enough or go faster, do you get farther away? jonathon: that is brilliant, lisa. lisa: are you being sarcastic? [laughter] tom: doing what central banks gain, the second derivative, the sales forces up and down. there is no history they are able to do that. jonathon: raise two or maybe four, hold for the whole next year. tom: may be.

measuring for years. liz ann sonders has done a huge variant. she is joining us today she will reap -- she will rip up the script. let's talk about bond markets to the equity space how linked are bond markets for what we see day-to-day inequity market? >> only marginally so. i think the bond market may be especially in this kind of environment, but i think you can say this generally tends to have a more rational message about what is going on in the economy with inflation. i think the equity market can sometimes be a bit more irrational. the two have not been sending the same message. i think the bond market is sending the more appropriate market -- message. did not see the kind of weakness in equity market you would've expected when we recently saw trends really take backup.

i think the volatility associated with that will probably be greater with any upcoming blowout spreads with weekend. tom: watch what they do, not what they say. what is retail doing now, and for that matter, institutional doing on equity flows? >> in the past month or so, this is broad flows, not just within equities, but across all asset classes. this is not just specific to schwab. a big renewed interest in bond funds. over the past month, we have seen close to 45% of all inflows have been into not just broad bond funds, but government bond funds specifically. i think that is because you have yields and real yields as well. there is a bit of that caution, but also taking advantage of the fact that there is fixed income now. tom: that is really working out, isn't it? lisa: shouldn't we start now?

if we had started six month ago, it may be a different story. we talked about the call of a 20% decline in broad stock indexes. with the acceptance of a 4.5% fed funds rate, that is almost with being priced into the fed funds market. do you agree with this assessment with how much more that agree market has to fall to be coherent with that? >> the short and honest answer is i don't know. i don't know whether we have got another 20% downside. i'm not sure the fact that i don't know matters all that much. what shocked me? no. with had a retreat in valuations, certainly relative to where we started in 2021. but of course, those valuations have been artificially boosted by pandemic related plunge in earnings. we have a recovery in earnings

that brought valuations down to actually pretty reasonable levels in june. then, they popped back up again. inflation is a variable. now, we are rolling over into earnings estimates. that is putting a lot of pressure on people with valuations. you have high inflation in a zone right now that historically has only supported, on average, and multiple in the 11 to 12 range. i'm not adjusting when to go all the way down there, because inflation is on the move and the market can discount, to tom's point, the second derivative rate of change. but the sweet spot of 0% to 2% inflation in valuations, or you have traded on an 18 multiple or so, to just point out destination, there is a long way to go before even just the math allows inflation numbers to have a handle on them. the valuation story still suggests there is more downside, unless retreating inflation happens much more quickly. lisa: more downside that could

potentially be more dramatic than where we are at. how close are you from the jp morgan view, being told that 70% of the portfolio in ultra liquid axa -- assets are preparing for a better entry point? >> it depends on who you are as an investor. that might be an appropriate strategy to have if you are trying to catch shorter-term moves in the market. but if you are a long-term investor that has a fairly high risk tolerance, you don't need the money, you are not living on the income associated with what is generated from your portfolio, then i would say that you can take a more risk-tolerant stance. if you are a retiree, you have a nest egg, living on that, you cap afford to lose any of that. if you want to take a more defensive stance. it depends on what -- on who the investors, not mine or anyone else's opinion on what the market is going to do.

tom: we just hit 7.00 yuan per dollar. you go back to 2019, the level was 7.18 or something around there. with this quarter's earnings, are we at a point where fx recalculations multinational is a tangible distraction? >> the fact that the dollar has been so strong, the map suggests that we should have seen a bigger hit to earnings, but there were positive offsets. i think multiple hits are likely to come more to fruition once we get to third quarter reporting season, the dollar being one of them, the fact that we have the demand profile that is weekend, and at the same time you have labor costs and share revenues just profit margins two full percentage points lower than where they are now. i think just the beginning of this re-rating of estimates. we thought we had seen more in the second quarter, although

energy earnings were -2%. i think we will see more in the third quarter. tom: i have aged waiting for small-cap too. the idea is that small-cap, mid-cap, it is -- do you buy the theory? >> with some of the bigger small-cap indexes, not the least being russell 2000, that is where some of the zombie companies have been housed in living for a while. that is the rub. yes, you get that more domestic bias in general to them, but you also have a bit of a lower quality profile valuation because of the underperformance coming in and evaluation spread alone is supportive of small caps. i think we have to weed out some of those really quality companies before i think there could be a call that small caps are ready for a period of sustainable outperformance. lisa: before we get on with your morning, the tweets he put out

on twitter are always fabulous. i wonder if there is another pivot point data entry that we need to be watching for. for example, the cpi print was a pivot point for the markets. i don't mean that in the fed's way. what is the next one? what is the next most important data point? >> i think it may not be a data point, but what powell has to say in the press conference. the data that erected after the cpi report is that is going to be 75 or 100 we are still leaning toward 75 because i don't think powell wants to do shock and all in -- one week in advance of the meeting. i think it is more to jonathan's point earlier about how long it is going to take to get there. but importantly, once we get to that destination, are we going to go in and stay for a while? i think the pivot idea to go back to the fed meeting when the market was pricing in in june is that when we got to the destination, we would stay high,

then turn around and go the other way to rate cuts. i think the fed is trying to just put that completely to bed. anything that gives us a better sense of the level of aggressiveness that is likely to continue through at least the end of this year and firming up this notion that once we get there, we are going to stay there for a while, i think that is the next important message coming to the market. jonathon: we have been wrong before. [crosstalking] [crosstalking] jonathon: liz ann sonders, thank you. tom: we are in london. you actually walked what king charles walked yesterday. he is finally taking a day of rest after the agony of the last

number of days in his leadership of the nation. what can you imagine in that stuff that they were doing? that was a tough walk yesterday. jonathon: tougher anyone who has lost a parent. can you imagine playing that out publicly, walking behind the coffin in front of crowds of people, and at the same time, you still have a whole host of obligations, we have to go through the four nations that make up the union. tom: you talk about it. you guys actually did the walk. lisa: the way they put it to me yesterday about how it is an entire nations in the sizing with losing a parent. and, you have the pageantry on top of it and you feel the power of that. i think that was very well framed. jonathon: the losses deeply, deeply emotional, whether you support this monarchy are not. the queen will lie in state for the next several days. from london, this is bloomberg.

♪ >> keeping you up-to-date with news from around the world. americom bargaining with a tentative agreement to subvert a railroad strike in the u.s. after 24 hours of talk, companies and labor unions presented more than 100,000 people reached a deal. it is prickle infrastructure that transfers about 20% of long-haul cargo in the u.s. ukraine is solidifying control over territory they have retaken from the russians. that is according to president volodymyr zelenskyy. the biggest city was recaptured last week. ukrainian staff said russians

are targeting critical civilian infrastructure. top executives from about 20 leading global firms have committed to flying in for hong kong's financial summit in november. bloomberg has learned that ceos of morgan stanley and citigroup are prepared to come. attendance by many of wall street's chiefs in hong kong, ending its three day quarantine incoming travelers. economic growth has slowed so sharply in china that major banks don't think even a 3% increase is achievable. projections have come down steadily since march. the consensus in the bloomberg survey for the chinese economy extend 3.5% this year. it is the second weakest in more than four decades. the official data for all this comes out on friday. global news 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in over 120 countries.

i am angel fliss yana. this is bloomberg. ♪

>> have diversified our vast supplies. we have made the agreement with the national government. [inaudible] [indiscernible] jonathon: the european commissioner of energy there. live from london, good morning to you. we are down one quarter of 1% on the s&p 500. that is a turnaround in the last 10 minutes or so. the dollar starts to show a little more strength. euro-dollar negative at 9977. the headline over the last 20 minutes or so is that the dollar against chinese currency is now through seven. this dollar as a whole lot

stronger and yields are a whole lot higher. those two things are connected. yields up to .5 basis points. can you creep up -- can you keep up? lisa: that is the real session -- the requester in. not only that that is the real question. jonathon: big feature of the conversation this morning here in london. one page from the "financial times." there has been a count for bankers salary. if you want to pay samadhi a 2 million dollar bonus, you have to pay than $1 million salary. they haven't been able to do more than that since the financial crisis. europeans have an agreement on that. the chancellor having a serious look at getting rid of that

bonus cap because they want to be very, very proactive. tom: pointing this out in the article, this is fixed versus variable costs. you have less flexibility than any other policy in europe. what they need to do is go to a realistic policy and sell it to all of the united kingdom. if you make this reinvigorated with a rational american-like structure, it helps tourists, labor, everybody. jonathon: do you think they're going to see it that way? tom: i don't know. you are the expert on that. jonathon: i think the front pages will be very, very different. lisa: with everyone else flat on their back, that said, the sentiment of trying to get the city back up and running, making it competitive on an international scale, i understand that. tom: let's take a look at some numbers in this bear market.

[crosstalking] jonathon: just making sure the sarcasm is a lost on anyone. tom: the bottom line is you have a piece of meat in new york and you want to bring him over to london, they have low incentive to show up. jonathon: you want to [crosstalking] make sure that meat [crosstalking] [crosstalking] isn't going to paris, the major european cities. i guess this highlights the difference between the u.k. and the rest. tom: this policy is labor proactive, as well as tory. jonathon: i am with you. you know what politics are like. tom: why do i show up for this discussion? in new york city, michael mckee is joining us. michael, i am sorry to go on like that with jonathan. very quickly here, retail sales includes inflation, right?

is it a good study this morning? is inflation affected? michael: we have to adjust on this mentally. the problem is it is not adjusted for inflation. each category would be adjusted separately. at this point, it is not going to be an easy task. we get a rough idea. at this point, inflation is running at about 8%. you can take that/percentage off your cost there. i did just talk to the boss. since you are in london, you're going to have to have your salaries cut. lisa: thank you, mike, i appreciate it. and thank you for being with us. there is a question about retail sales, whether we get a sense of how much people are diverting money away from the gasoline bill that they had previously been sending, now that they are saving a little but more than a month ago. are they putting that toward services? is there increased spending elsewhere? how much of a reading what we

get today? michael: you will get a huge range of services. today, bars and restaurants. people are more likely to want to sit outside and may be want to have a pint here in the u.s.. the question of whether they diverted money they would have spent on gasoline is an interesting one and not necessarily a clear-cut one, because it is also back-to-school time. we may see a rise in or by stores, general merchandise, and apparel, that is hard to separate out from where the money came from. but we also see that people still have big checking account, big money in the bank, and they have been using credit cards more. have they been making up for the gasoline prices or have they been spending some of the money that they weren't spending on gassy? -- yes? not an easy read today. jonathon: thank you.

sorry for having a go at you. i'm just sorry. maybe i should just apologize. tom: compensation is a big deal. a guy like you redoes the kitchen. if you redo the kitchen, it helps labor. jonathon: where on the same page. i agree with you. when you introduce a policy like that at a time like this, newspapers start looking like newspapers would look [crosstalking] in [crosstalking] jonathon: we are next to each other everyday. just wind up a little bit more. lisa: seriously? come on. [crosstalking] jonathon: it is good news, bad news.

and bad news, bad news. lisa: good news is bad news. jonathon: this equity market down to tense of 1%. lisa: if you get bad news, you're getting more of a slowdown. that goes to the earnings and the prophets coming down. at what point do you get back to the fed pausing or lowering rates, whether they're going to do that when they say absolutely not, and if that is going to help support equity markets. jonathon: they're going to keep barking anyway. [crosstalking] that is the situation right now her markets. that is incredibly difficult. futures down 2/10. tom: negative 2.0 standard. that is because of the power of corporations, the consumption spirit, with a nominal higher gdp, which i believe will jonathon: sustain somewhat. jonathon:do we have to crush

that? tom: there is a school of thought that believes we have to crush that. [crosstalking] we have a place. jonathon: you can have mine. [crosstalking] just to clean that up before you start sitting me abuse on twitter about having money for a place that i do not have. futures down to tents of 1%. -- 2/10 of 1%. live from london. that is not where i'm going. this is bloomberg. ♪

>> no doubt the fed is signaling that there is more work to be done. >> they are keenly focused on price stability and reducing inflation. that does mean pressing in real growth. jonathon: it is not really about if we are going to get 75 or 100 in september. >> we could be looking at 3 million additional people. >> i think investors just have to hold onto their hats right now. >> this is bloomberg surveillance with tom keene,

jonathan ferro, and lisa abramowicz. tom: our studio here in london, as we move to a funeral for the queen. on monday, we will have all that coverage for you. before that, coverage on what is going on in london. lisa, i think what we are seeing in the bond market, you have that extra ordinary move in yields. lisa: you are seeing a two-he year yield that is adjusting to hawkish market. it is priced into the market at 4.4%. now the question is, how do you price out the rest of the risk markets at a time when there still isn't enough in the market to keep the feds from hiking rates? tom: i can't do this with jonathan, but i can do this with the set. jon ferro on assignment in the next couple of hours. i want to talk about aggregates.

we have not broken down the newer price high yield. we are at new low prices on a summation of the bond market. it is a bear market. lisa: yes. it is almost actually technically a bear market of down 20% in bonds, which is unheard of from a historical perspective. but if you take a step back, this entire world has been fueled by debt, readjusting to the concept of rates that are way beyond what we ever thought was possible in the new reality of low interest rates, low inflation, and low growth tom: let's get to the brief here very quickly. somebody came up to me at the hotel and ask when we are going to have geoffrey yu on. we are thrilled to do that for you. current markets in equities and

bonds, it is historic this morning. lisa: breaking through the psychological levels, as china came out and continued to withdraw liquidity from the system and did not ease rates yet again, which is a big concern. we are also seeing a little continuation of weakening in the s&p, but currency is very much front and center. tom: you started on a retail claim on thursday. lisa: it is retail sales on thursday, but it is hard to know how much this will change dialogues. a whole host of other data, i want to see if we get any view into stripping out autos, stripping out gasoline prices. what kind of spending power is this? this really speaks to the cpi data we saw. it was services inflation that was picking up. janet yellen today is delivering remarks from maryland.

we are talking about tax code changes. we talked about the inflation reduction act and what is going be happening with that. really, i want to hear what she has to say about the trajectory of the economy, as well as the latest moves by president biden. we have not relied on her as much as in previous years. chinese president xi jinping is meeting with vladimir putin for the first time since the pandemic. that is an amazing meeting, after doubling down on their partnership, pretty anti-u.s. rhetoric. tom: interesting to see, to say the least. right now, on a quieter thursday, with king charles iii resting today, a funeral for his mother on monday, we speak with guy. still a summer move in london. -- somber mood in london. guy: certainly somber and it

will continue through next monday. the world is paying its respect. many leaders gathering here in london, a logistical nightmare in some ways, with security services here. but they will manage it i am sure that it will go off without a hitch. jonathon: then what? that is the big question here. lisa: we have been hearing a lot about not only things being close, but things are still happening. we are hearing proposals about some of the energy proposals from the trust -- liz truss, as well as cap on bonuses for bankers being lifted. how is that really shaping the conversation? what happens next week after the funeral? guy: next week is going be hectic until anyways. we are building up monday. but after that, things get really interesting for the u.k. we are interested -- we are entering a new world. it starts, i think, on thursday with the bank of a nine. are we going to get sunny five

basis points or 50 basis points? i feel the biggest challenge at the moment is that people are pulling in different directions. on friday, we get to see a budget for the new chancellor. he has talked about and liz truss has talked about this idea that we are going to produce 2.5% growth. jonathon: you say the target is great. how do you actually achieve that target? tom: for americans, it is extraordinary to see the price side coming out across the world. guy johnson, thank you so much. this is a joy, to have geoffrey yu with us. he is with us here at queen victoria street. i need you to go to beijing today, where they have seven yuan cnh, looking back to september 2019, 7.19.

for our listeners and viewers worldwide, one are the ramifications of the yuan moving without pause up to seven or dare i say 81? -- eight yuan? >> if you had any notion that the chinese was going to help the great story now, you can forget about that. they have a weaker currency, reduced spending power, and things are problematic. chinese growth here is domestic. tom: you and i studied this. this is a classic race to the bottom about how it just seems everyone is looking away. >> beijing is probably happy that bc is looking. the rest of asia is looking. a lot of asian central banks want to hike rates. they are seeing higher energy prices paid you look get korea, taiwan, even japan as well.

you have -- lisa: we have heard about this verbal intervention. yesterday, i had some skepticism about this. they're coming out saying, we can do something. we can do something any time, but we are equity tell you what that is. you buy any of this is having legs? >> the market is moving more seriously. i think what we are seeing is less assertiveness in dollar buying, but that doesn't mean the market is trying to turn around and by u.n.. ultimately, this is action. [inaudible] [indiscernible] lisa: aside from trying to intervene with buying more, just in baden two -- just abandoning the market. >> i think the jvd markets would be more severe.

other markets have been anticipating this at 125 or 130. you have a good figure all the way into that. that has been a cornerstone. when we look at the legacy years from now, is it going to be a key arctic -- eight chaotic and? -- chaotic and? tom: if it is not coordinated, it doesn't work. can japan affect and innovation in some way unilaterally? >> it is probably not going to do -- going to work. $120 billion worth of figures and it went right down not long after. coordinate, send the message. you have road central banks on one side. please do not try to take them on and do the math. tom: the former president mr.

trump, would be galen on television, saying this is un-american, not the way to go. some new level of strong dollar. should president biden be outraged over where the dollar is he? >> i think at this point, going back to the neglect, [crosstalking] that is probably the best way [crosstalking] [crosstalking] [crosstalking] >> looking from the fed's point of view, if you start tracking strong dollar, the fed should be hacking rates aggressively. lisa: geoffrey yu, stick with us. we will have you for the next segment. tom, this really is at the heart of the issue, with respect to the japanese and what would happen if they are forced to do something about appeared we have not really contemplated the disruption. tom: i would suggest that the

world of geoffrey yu is something everyone has to follow, even if you have no clue what he is talking about. lisa: it is slipping my mind, but there was a guest who said that one of the many things that would have to come together to get 5% 10-year yields would be japan abandoning the yield curve control. people haven't really considered the ramifications, the ripple effect, of damage. all these people are saying they are not going to do that. geoffrey yu once is to be a linchpin. how much can actually intervene in the face of a 100 basis point hike? tom: rachel from india, thank you so much for watching. she says, i don't care about pacific rim, tell me about the markers -- the markets. tom: we will continue this discussion from london here. we will be here through the monday services for the queen of

england. a huge anticipated gathering of world leaders. in the next half-hour, jim polson, good morning. ♪ >> keeping up-to-date with news from around the world. with the first work, i am angel. there is a deal to revert what could have been a damaging railroad strike in the u.s. the labor department says that the railroad companies and unions representing more than 100,000 workers came to an agreement after 20 straight hours of negotiations. the government says the deal "balances the needs of workers, businesses, and other nation economies." the biden administration today will unveil some of the plan -- planned changes for the internal revenue service. they include efforts to dramatically alter the capacity of in-person and a call-in

support services. congress approved 80 billion dollars in new funding for the tax selection agency past last month. the leaders of russia and china meet today in is pakistan for the first time since the invasion of ukraine. shortly before the attack in february, vladimir putin and xi jinping declared a no limits friendship. after suffering he million losses on the battlefield, putin should not expect much help from xi jinping. china has refrained from sending military supplies or financial support. the british government may do away with a cap on anchor bonuses. it is a controversial move that underlines the new government determination for post-brexit reforms for london. they remove the cap after the 2008 crisis, limiting banker bonuses to two times their salaries.

global news 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in over 120 countries. this is bloomberg. ♪

pres. biden: american manufacturing is roaring back. just a sign of an office that has only -- that has already created 10 million new jobs. unemployment rate is 3.57%, a

new 50-year low. but there is more we can do. the american people should have confidence that we are on the right track. tom: the united states fired up in the last 10 days or so. we welcome all of you to queen victoria street in london. our continuing coverage of the services for queen elizabeth, looking to the funeral here on monday. i do want to point out, as the president mentioned, unemployment statistics are under 4%. i wonder if that is a key thing to speak to richard clarida and about. lisa: yes. it is not what the fed wants to achieve, so it is a conversation that is not comfortable, because nobody wants to see people go out of work. we are also seeing strengthen the dollar. we are now back under parity for the euro, 99.77. i want to talk to geoffrey yu

about that. we see 90 for the euro >> is very profitable. >>i would be on the others of that. if we look at data right now, we are now basically more short in euro compared to the debt crisis and at global financial crisis levels. we are seeing european banks holding over each other every single day, existential risk. fiscal reports are coming up you're talking about windfall taxes. i don't think we are that. lisa: are you basically saying we have seen the weakest levels for the euro versus the dollar and it can only strengthen for here? >> i would say it is very difficult. i don't think we need to strengthen aggressively high to 110 or 115, anything like that. but we need to get to about half

as short as where we are right now. i think that is more than adequate. if you look at the ecb itself, i don't think things are that bad from their point of view. tom: i want to do a window into geoffrey yu research. you on the high ground nation to nation for years. i know we are going back and forth during break. lisa is talking the big figure of japan finance numbers and you go down to a guy here in japan. you take the action of the governor of the bank of japan down to a pack of ramen in tokyo. how do you do that? >> correct me if i'm wrong, but i believe you can still get ¥390. you can take a ¥500 coin and you could buy a bowl of roman. in some places, you can't do that anymore. people are noticing that.

on the one hand, it is going to be domestic pressure at the end of the day. madame yellen on the phone will be talking to tokyo. tom: i knew the answer you were going to have me. are we going to see the fed domestic pressure stay in london and all the united kingdom with 114 and 113 sterling? >> i think people are stealing -- are seeing it already. if you look at relate -- real wages, there is good correlation. one of our markets this week has basically limited the amount so people can buy items. people are starting to hoard them. [crosstalking] tom: this analysis is so important. we have fancy, fancy people in a

bloomberg. lisa: it is a pack of ramen, go to the grocery store. it is how they set their prices. if they said that much higher, people will feel it, and they are feeling it all around the world. the response politically has been to make markets and little less free market. we have seen that consistently. you could argue that jgb is no longer a market. having you as a market participant in the np market practices that are increasingly adopted by policymakers who find the market inconvenient right now. >> you go to the least bad option, so to speak. let's go to the energy cap in the u.k. it was an energy market framework, the energy price caps heading into this crisis. as we know right now, assuming they implement taxes, they are basically going to cap energy prices and not pass on those prices to clients, as a way to

call back some of the prices. underway out, what is the point? tom: coverage right now of the fed meeting on wednesday. we do that with radio and tv. you and i know the math of dynamic general equilibrium theory. i would suggest to the former vice chairman and everyone at the fed, all that fancy talk is out the window. what is someone to worry about in the real world? >> how do you condition the household, how do you condition a business to adapt to this new anti-market reality, as we are talking about? if that framework to longer works, automatic adjustment and inflationary expectations but how can he have rational expectations? how can you be rational when

people make these policies? tom: i am so angry about it. lisa: just a sort of put a bow on this, a hundred basis point rate hike table? >> i don't think anything is off the table right now. 100 basis points has the chance find next week. it is probably the s&p. lisa: really? [crosstalking] >> they have shown inching, way ahead of the ecb. they're all expectations out the window. they can support the frank. they want the frank to bring down inflation. tom: with the complexity on a strong swiss franc, how does that factor into the wild relationship [crosstalking] [crosstalking] what does it do to kind of sweet the share price? >> i think the financial services companies in

switzerland with prior management and the discretionary model is much more viable. you just go back to the good old days. tom: a love that we are in a world where you can answer that question and not get fired. lisa: geoffrey yu, thank you very much. it was a pleasure having you. tom: we are going to talk much more about eclectic views. coming up, dartmouth bubble with u.s. relationships and the bank of england. david blanchflower on a weak starling. good morning from london. ♪

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tom: bloomberg surveillance this week from london with our wonderful team. we're here to get this done every day. we will continue strong for the week. i will be here monday for the funeral of the queen. i am honored to do that. and that edwards, lisa and john will head back to get prepared. lisa, we are talking about james taylor.

that was the trio back then without standing statements. powell, an outstanding trio. lisa: so who was the singer of the three? they are a mile apart because they are arguing that there is no need to double down on rate hikes. keep it where is in some people have proposed cutting rates. the idea here is this concern that the fed will stymie economic activity at a time when it is deteriorating. and it is a real debate. tom: the market checked this morning is very subtle. a lot of other data today that mark mckee will bring us. what is important here is the nuance. week sterling, that gets my

attention. what are you looking at in the markets? lisa: the chinese yen, a psychological bridge of weakness against the dollar. that sets the tone as people reset their understanding of how far the fed is willing to go and how long. how much momentum is in the economy to allow them to do that. tom: joining us now is david blanchflower professor of economics at darthmouth college and formerly of the bank of england. david blanchflower thank you for joining us. you are nuanced. you don't have to deal -- don't raise rates, there is more to it. describe your stance here. david: i was looking at gdp growth yesterday and since 1991,

there has only been a few periods with negative growth. all of them has been part of the recession. 2001, 2008, 2020. the u.s. appears to be in a recession. at the start of the year, the u.k. is probably in recession now too. in 2008, inflation was 5.6%. by august 2009 it was -2%. we had two months of zeros on the cpi, if you get that continuing forward you will get to .3% inflation by next june with every expectation that the number will be lower. my view inflation is tumbling very fast. in those circumstances, forget

the rhetoric, you would be cutting rates. the bank of england's forecast, in 2024, there is a probability of being below one and a 25% probability of being negative. tom: what we're are looking at and working on our models from another time. volker's 79-81. we can utilize those models given the multiple, huge impulses of a pandemic? david: that's a fantastic question. i teach a class called pandemic and financial crisis. a war followed by a pandemic

followed by a financial crisis and then inflation and high unemployment. what are we seeing in the past years? a financial crash, pandemic and war. that is the reality. anything since 1945 tells you nothing about how the world is. that is the reality that we have to look back at the. where there was a crash, pandemic. we have had crash, pandemic, supply chain shock. a shock to the housing market. the reality is that we should look at history. we are looking at the history of inflation, what happens after the blackout. that is what you need to look out. lisa: with all due respect, a lot of people are looking at their rents. they are looking at how much it costs to go on a trip and stay in the hotel or go on a plane

and these are the things that are anecdotal that are not saying that inflation is slowing down and that next year, people are still spending on these items. what are your concerns? how high of an inflation rate would you be able to tolerate over five years that would allow you to say that even if it only gets down to 4% we are still winning? david: the reason we have inflation, over the past two months we have had no inflation. everything has been driven by base effects. no one denies that inflation hurts people. the evidence that i have written about, one percentage in unemployment, increased pay by 10 times more. inflation plummets, we will see it plummet to zero within nine or 10 months unless there is another war. unless there's another wave of

the pandemic. the reality is that inflation disappears, unemployment doesn't. you are creating a situation that is wears. it is true that inflation hurts people but the question is, is the solution that you are creating wears. undoubtedly that is true. it takes much longer to get rid of unemployment. unemployment hurts everybody despite with the rhetoric says. the evidence is completely wrong. lisa: there are a lot of people who say that unemployment is not a goal but it may be a necessary side effect. if it would rise a little bit, those are the projections we are seeing. people who have savings who have not gone back into the labor market because they don't have to. how do you push back against that? this labor market is not nearly as tight as people think and unemployment could rise much more considerably than they are counting on?

david: if you go back to september 2008, this same discussion was going on. the fed said all we care about is inflation. we don't think a recession is coming. unemployment went to 10% after they said nothing was coming, there is no recession. the reality is they miss the great recession so how can we trust them? unemployment is going to rise and if you look at the labor market, the employment rate is 7 million jobs below what it was in 2000. you can't trust what they say, they missed it last time. they said it was all about inflation last time and unemployment would to 10%. caused by the fed and the conversations happening. tom: david blanchflower from darthmouth

college. that course that you taught about supply-side economics. about four people signed up for that course. tell me about trumpian supply-side economics. david: i have written about trump. supply-side goes to growth. give corporation tax cuts, that is all very well. none of it will have an effect on the ordinary person who has to pay their bills. all we have heard from the boss of the treasury, raise the cap on bonuses. this will be the only anti-populist government you have seen. it is weak, the supply-side is

all very well. the reality is, what are you going to do by christmas? tom: i have observed a blanchflower lecture. i was in the front row. thank you so much. next time we will talk about football. lisa, what is you here? lisa: the fear of the wrong symmetry of risk. the asymmetry of risk in this is something jay powell talked about. the asymmetry of risk to runaway inflation is more perilous than potentially stymie the economy. danny was saying that was wrong and there is a greater fear of the unemployment rate growing high enough that it would not come back down and cause permanent scarring.

that is underpinning a lot of this discussion. tom: if you look at the jobs report from the first week of october, will we be back in new york? what is so important here, the elephant in the room, that the labor market has not moved in they have to wait for that. lisa: this is a big misunderstanding and markets right now, how tight is the labor market? a lot of antidotal evidence says it is buried. this is the question mark of the day. tom: my headline said amazon is raising compensation for the drivers into the holidays. jonathan ferro is on assignment on this thursday. coming up retail sales may be more important, but coming up it

is vitally important. michael mckee will join us. from london, this is bloomberg, good morning. ♪ keeping up to date with the news from around the world. angel: a marathon bargaining session has led to a tentative agreement to avert a railroad strike in the u.s.. the labor department said after 20 hours of talks, railroad companies and unions representing more than 100 thousand workers reached a deal. it would have frozen critical infrastructure that transfers 40% of supplies in the u.s.. ukraine is solidifying control over territories previously taken by the russians. he meets with troops.

russia is again targeting civilians and structures. top executives from about 20 leading global firms have agreed to fly in for hong kong's economic summit. ceos from morgan stanley and citigroup are prepared to come. attendance by many of wall street's companies are dependent on ending the three-day quarantine for incoming travelers. in china, economic growth has slowed so sharply that major banks don't think a 3% increase is achievable. it has come down steadily since march the consensus is the chinese economy will expand 3% this year. official data for august comes out friday. global news 24 hours a day on air and on bloomberg quicktake.

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>> we are trying to see some easing of goods inflation and more should, given what you see. supply chain issues are easing, there is still a lot of inflation there. tom: michelle meyer with an incredibly important set of data. i can't say enough about that. go back and listen to michelle meyer on youtube. she is an expert on rental and homeownership housing. what we heard from michelle meyer was the consumer is there. they have not walked away yet. lisa: she has an upfront view on that with the data from mastercard. they are not walking away,

meanwhile rents continue to go up. to spot -- onto the funeral of the queen of england. we will have coverage of that. right now, some interesting bonds. the truth is, lisa brown almost had a complete tantrum saying if we don't talk credit tomorrow she is going to get on the next plane out of heathrow. we are pleased to have you with us. perhaps i should've had a tantrum yesterday because we were having these fabulous debates on set between people who think that credit is pricing in some sort of downturn and others saying not even close.

there needs to be a lot more work done. danielle, i love your view on where we are. danielle: i appreciate you and tom having b. i am a bond geek just like you and i have to say that credit looks as attractive as it has for many years. i see an opportunity to get equity returns and fixed income markets. lisa: can you elaborate on exactly where? that is a bold system. there are 10% return plus in credit. danielle: our diversified income fund has an average yield of over 10%. the way we allocate that fund is into our highest conviction opportunities into the credit platform. that is in the public and private markets. 75% of our fund is in performing

, stable high generating private credit and the other remai nder are in markets dislocated by rates in have yield similar to private credit. lisa: the promise of equity like returns, the warning bells go off. what kind of security measures are you taking? danielle: our founder howard mark penned over 25 years ago. our approach at oaktree's fundamentals of the companies that we lend to. fundamentals for the broader economy has weekend. there is a reduction in stimulus, quantitative easing

has ended and we are seeing these rates higher and this creates a challenging market for credit. the quality of the credit market is much better than it was heading into covid especially the high-yield market. we are thinking defaults will be lower than expected by most in this next economic cycle. tom: you have to have a really sharp insight, one of howard marks heroes is daniel fuss of lumen sales using credit upgrade. are you assuming that we are going to see bob markets turn outside of the zeitgeist because credit quality upgrades? danielle: i hate to forecast anything because nobody knows. the best that we can do is pick high quality companies that are

offering us attractive income and hold those for the long-term. we really are trying to construct a portfolio that does not stick to market movements. we see value today. tom: are you betting that we will see credit quality improvement? danielle: no, i'm not. i think we have seen some fundamentals weekend. in the senior loan market, income is a double-edged sword. that increases the interest burden that these companies have been the senior loan market as compared to high-yield bonds is not as strong of a market from a quality perspective. it is important to prioritize credit selection. broadly, credit will see some downgrades. if you can focus on individual companies and credit, there is

an opportunity there to be had. lisa: how do you get scale when you are investing in individual opportunities? danielle: in public markets, we have a large toolkit at our disposal. we invest not only across high-yield but in niche markets like convertibles, corporate assets, clos. on the private side, it is directly sourcing loans from private borers. also, interacting with equity sponsors where we have strong relationships in leveraged buyout. tom: daniel foley from oaktree was talking about the challenges of guessing and gaming the market.

what i could not get out of her is that no one is looking for a credit improvement right now and that is how you get that total return. lisa: the reason is because howard marks does not make market calls and he is the founder of oaktree. what he is trying to do is measure the risk and understand which risks are being mispriced in markets and basically, this is been an argument that certain credit, certain stocks have been thrown out with the bathwater. how much of that did get thrown out with the market shock? tom: this is a data check right now. help me out lisa. off of the reset that we saw off the last

economic data. we are waiting for what we are going to see here. lisa: it is hard to see what could shake the markets the same kind of way that the cpi unless jay powell comes out with a tattoo of a hawk on his arm. tom: coming up, jim paulsen will join us. we will continue to monitor the markets with michael mckee with important economic data. from london, stay with us. this is bloomberg. ♪

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>> the strong balance sheet, the consumer is still out there spending and they are navigating this inflation environment. >> we are already seeing a reduction in forecast.

>> growth expectations will be prudent, way bullish. >> the domestic inflation story here dominates. >> this is bloomberg surveillance with jonathan ferro and lisa abramowicz. lisa: good afternoon, this is london. this is bloomberg surveillance. on bloomberg tv and radio. jonathan ferro is off. tom keene is very much with us. i am looking right now toward retail sales to figure out whether we get a confirmation of the robustness of the economy that will lead the fed to be more hawkish. tom: michelle meyer from mastercard, from what they say about the american consumer. lisa: we are pushing against it.

what the fed has to do to get inflation under control given that consumers are not getting the message that they need to stop spending so much. tom: to me it is not a behavioral aspect. we will talk about this on wednesday when we speak to richard claire, the former vice chairman of the fed. they have a simple tool into your point, i don't see a stick. we have not seen that. lisa: a lot of people discount that 30%, what people are looking at is not just 75 basis points or 100. they are looking at the possibility that rates could go

up to 4.4%. we are saying that prices to the market right now. tom: life goes on. moments ago, the pbf people, they are going to buy sigma for 20 billion dollars. i have no idea what sigma is. all i know is that life goes on. lisa: into your point, capital markets are opening having been closed for the bulk of the year and that is notable especially when you have futures that are down .25%. tom: you do the data check, but i'm going to start with sterling under 1.15. the prime minister morning this queen, celebrating this new king. i am sorry i have one eye on bloomberg. lisa: and we have another eye on

our energy policies that is coming out next week. we are also seeing a 10 year yield that is getting priced in. the yield of 3.45. i am watching two year yields, sustained in this feeling on how high this could potentially go. tom: we have to get 390 to play that game. lisa: you can play whatever game you want. we are seeing that yield rise and what it infers. the question that i have is ultimately what kind of earnings has to come along with the 4%, 4.5% benchmark the fund rate. someone who has been concerned about these ramifications, jim what is your view on with the market grappling of 4.4 rate for

the fed next year. jim: 4.4 is not in the market, i don't think it is. i think that would be way over doing it. the risk is now that it does overdo this. i think much of the bond market is pretty good. the 10 year yield has been good for months since may, and this 3.5 area. the fed puts it at 3, 3 .25. if the fed is going to manage monetary policy on the basis of what was the hottest report of the last 30 days, i think they will make a big mistake. to me, there is a lot of contractionary fours from past economic policies already in the pipeline that have lagged effects on the economy and

inflation in particular that will continue to put downward pressure on inflation well into next spring. if the fed would do nothing from here, a tremendous drop in money growth, a big rise in the dollar, massive rises in bond yields. all of that is still working its way through the pipe putting downward pressure. i think the fed will make a case to keep raising rates. maybe sooner than we think. lisa: hold on a second there is a lot here. there's a lot here and we have to start unpacking some of it. we have to start rejecting the idea that there is a pivot. there's this question of what would be the ramification if the market is right. if the fed fund rate does get to 4.45 how much could it affect the equity markets? jim: by the time we got there,

it would cause things to stop. quite frankly if we stop the tightening, i think the market would come out of that ok. i think multiples would expand, we are on that. if i could just point out for an equity investor, when i look back tom, from 1940 we have had seven major inflationary peaks. over 6%, and of those seven, the stock market bottomed coincidentally with the peak in annual inflation and everyone. it isn't about when inflation comes down its when it peaks. right now, the market low is june. i am not sure it is not already working its way back up.

tom: we have the backdrop of st. paul's cathedral. as you know, the last time the minnesota twins one, was in 1710 with christopher wren. if you go back to 1710 and queen and gloom permeates in the system fixes it. explain how the corporate system and adam smith microsystem affects inflation. jim: money supply has fallen from plus 25% from march 2021 to -3.5 today.

it is now 4% of gdp. the dollar has risen 20% in the last year. free-market yield started to go up in 2020. my point is, there is a lot of timing that is done not by the fed, fortunately they did is long time ago which is why inflation is already rolling over now. if i was the fed, i don't think we do anything on the inflation front. the supply side is starting to show signs of improvement as well. we created a lot of jobs this year but we have done it with a fresh new supply and the labor force which mean wage inflation has not risen. tom: one final question, if we could, michelle myers of mastercard, james classic jp morgan, james paulsen are saying that the zeitgeist is wrong, wrong, wrong. how does jay powell deal with

the zeitgeist and you saying look at the consumer, look at america? jim: i don't know, he has a tough job. i guess i would hope that the federal reserve realizes that despite the facts of these policies, i don't think you keep raising rates until we get to 2% inflation. it makes no sense whatsoever. we are clearly at peak inflation and coming down across a wide array of different measures. the fed could slow down his rate hikes and i think they will. ultimately, they can create a recession if they want to. if they take rates up high enough. i agree with michelle and others that these balance sheets are really strong, with a lot of

excess buying power. there is a lot at stake of course, i do think they could still create a recession if they want to. tom: jim paulsen leuthold weeden capital management, llc. the former vice chairman of the reaction function, you get an inertia force of raising rates. you have to have the courage to go, i don't think so. the question is, how far away are we from that i don't think so? lisa: we found someone that was kind of bullish. tom: we get this so-called catharsis. lisa: they think the fed is not going to go as far if they don't have to and i think that's a big distinction here. tom: in 19 minutes, important

economic data arrives a while. pound sterling at 1.15. stephen schork next. angel: there is a tentative deal to avert what could have been a railroad strike. railroad companies and unions representing 100,000 workers came to an agreement after 20 straight hours of negotiation. the government said they balance the needs of workers, businesses and our nation's economy. the leaders of russia and china are meeting in uzbekistan for the first time since the invasion of ukraine. lateran putin and xi jinping. after suffering humiliating losses on the battlefield, putin

should not expect too much help from xi. the biden administration will unveil some of the plan changes for the internal revenue service. they include efforts to bolster the capacity of in person and call support services. congress approved 80 billion in new funding for the agency and legislation passed last month. the chinese yuan dropped under the dollar level in the first time. the people's bank of china has taken steps to strengthen the yuan but all it is done is slow the decline. 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 angel feliciano, this is

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>> the fed is signaling that there is more work to be done. the rate is 3.25, probably moves higher to 4% by the end of 2023 and very likely, they start to

incorporate the higher unemployment into the forecast. tom: i thought this interview was great about the multiple dynamics when they do risk rates. how many times they do it, it is not a one single static analysis. there are a lot of dynamics here. lisa: when it actually starts to inflict the pain. i am just watching right now the two-year yields. 3.85%, that upward trajectory. they are going to play that game. tom: we are not there yet. we have markets on the move. the current version that is happening. a 10 minute call where michael mckee steps up with urinalysis.

on oil, jet fuel, david, we will have coverage of queen elizabeth and it is a metaphor of how hundreds of world leaders will descend on london by airplane. the united states airplane business is booming right now. >> especially here tom. the entire i-95 corridor, jet fuel is an extremely important analysis of what we do a natural gas, oil. tom: what does it look like for the bottom? we are watching current oil prices, i believe i saw 87.

bring that over to what it means to our listeners and viewers in the distillate market? stephen: we are looking for a little bit of relief. let's keep in mind, that is a good price for both the consumer and more importantly the producer. they can draw more and bring more product to the market. the problem here is the distillate market. we are going to see significant upticks in demand as we bring in the crops we had last spring. then we transition into the winter. winter poses a scary proposition. when we look at heating oil stocks, and pennsylvania, new jersey we are at or near all-time lows.

as we are in the natural gas market, we are in a precarious state. we simply have not enough product in the market that cannot protect prices for homeowners from spiking because of the amount of barrels we have on the market right now. lisa: in the base case, a normal winter based on where we are in the provisions people have made, what kind of pricing are you expecting on some of the major oil benchmarks that you look at later this year? stephen: currently we are in the lale and man. in the northern hemisphere we are going into the turnaround season. they refuel to get ready for the

winter season. we have a pullback in crude oil prices back into the mid-80 to high 80 range. we think the modeling is exactly where we think the price will hold for the next two months. $85 to $95 is the marching order for the next two months. the transition for the holidays jet fuel will pick up. that is the next potential catalyst that gets us back to $100 for oil. lisa: how much does this have to do with ukraine, russia and the war that they have waged that they appeared to be backing off a little bit. we see some of the troops leaving the region. stephen: oil prices were spiking

before russia's invasion into ukraine. i think there was a lot of doubt in the past four or five months, can ukraine pull this off? the headlines we have seen indicate that we might start to see and into this travesty. i think that is determining to the psychology of this market. tom: the philadelphia phillies have been an active god since the all-star break. they have 15 in the road. is this the one september since time began where the phillies do not crater? stephen: never say never, but if you are a betting man and follow the trends, bet against it. sorry philadelphia.

tom: it is the same with the fed game. you think you have it all figured out. the facts change. look at baseball and the phillies, that is what happened. lisa: you are not wrong. you raise an important point is that the narrative right now is peak hawkish. what happens if we get a weaker report? what then is the response from the fed and that is why we are trading so aggressively? the retail reset does seem to be incredible strength and spending. it will reiterate that there is plenty of momentum in the fed can afford to be more aggressive. tom: i think lisa is right about

the two-year. what is the rise in the two-year to 4%? lisa: the reset of the cpi. people talk about the decline of peak inflation. tom: we are thrilled to say, i believe we will all be in new york for the fed meeting. on market economics, michael mckee is how will your business adapt to change? you could hire an office full of peyton mannings. what's up, peyton? good morning, peyton. hold for peyton. they'd huddle.... welcome to the peytonverse. such a visionary. game plan... you go. no, you go! and call audibles... double our investment in omaha! omaha! omaha! omaha! or you could use workday. omaha. the finance, hr and planning system used by over half of the fortune 500.

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tom: jonathan ferro is on assignment this morning. most of us wish michael mckee was here so he could explain richard clarendon's economic data. here is michael mckee. mike: our cup runneth over with numbers. retail sales premier number is

up .3% and that is much better than the .1% decline expected. better than the flat reading from last month. the x autos numbers down .3. the control group which is what everyone follows in the economic data is flat at zero. last month, is to reside down 2.4 from .8. this isn't a particularly great report, but it's not a bad report on the face of it. it is not telling you that the economy is super. a lot of this may be dependent on the amount of service station work or spending that was done. service stations were down 4.2 percent and gasoline prices fell. jobless claims, look at the skies, 213,000.

the number last week was revised to 200 18,000. jobless claims are going in the other direction. the job market is staying very strong. one million 403,000 continuing claims which is down from 1,000,473. the empire manufacturing number rises to -1.5 but it was -31.3. a correction there. business is better. new orders are up and shipments are up in the new york's fed measuring of manufacturing. it shows a big price and prices paid. the philadelphia fed, their reading falls to -9.9 from positive for. i mean from positive 6.2 which is pretty good.

what's pretty good is the prices fade, 28 down from 31.6. that is to regional feds that companies are paying less and charging less. we get the import price index that falls 1%. that is after a 1.5% drop largely due to oil prices. also a sign that maybe inflation is beginning to get arrested and all of these are backward looking numbers. but they are better on the whole than perhaps we expected. tom: we need more data. lisa: mike, thank you for the incredible doubt. there is more, industrial inventories will come out around 9:15. we are looking at the price reaction, on the large and the

bad news is good news. s&p futures have losses down 1.5%. the euro gaining a little ground over the dollar. what are you looking for mike, when it comes to retail sales not coming in as robust as expected? will that be enough with the fed meeting next week? mike: it is not going to change anything next week but in term of the longer outlook, the difference gasoline prices have made. this is also the back-to-school season and taking a look at clothing and accessories category it is up only .4%. general merchandise .5. so money went to other areas but whether it comes out of savings we don't know. the services number is up 1.1%

which is a reasonable gain for that. people spent a little more money that they weren't spending on the pump on other things. tom: michael mckee, thank you so much. we are data dependent. kathleen bostjancic oxford economics usa fromoxford economics usa the rhetorical debate is the strength and spirit of the american consumer taken an aggregate. the haves and the bottom of the wrong -- wrong in middle-class lot on the back. what is the state of american consumption? kathleen: thank you tom and lisa happy to be here with you. looking at the numbers, it looks like we have lost some momentum with the consumer overall.

that aligns with what we are thinking, we will see less ability to tap into savings. you talk about the different codewords, the lower and middle class have extinguished their excess savings. it is the upper income households which are less likely to tap into that. the key going forward in the mix of everything, if we are correct, we think the labor market will start to slow. that will hurt income and it will slow consumer spending. tom: how do you slow the labor market jacket lisa: right now we are looking at a labor market that is incredibly strong.

the unemployment filing suggests that there is not much slack in the labor market. what is your sense of how that is going to change? kathleen: you are correct, we are in a tight spot. they need to tighten it more because what is going to happen if the labor market doesn't weekend as we think, and we think that will happen, the federal reserve will have to do more. they need to bring wages down because the service job wage growth is driving the services in the cpi report. tom: this is something that drives listeners and viewers nuts, we want an institutional government policy to diminish wage growth? is that what we really want? kathleen: it doesn't sound great but at the end of the day, it is too fast for the economy's own

good. pre-pandemic, wages were running 3%. now we are at 5% and we don't have the productivity to go along with that. that is what leads to slower unemployment growth. tom: from across the atlantic and that is x minus him trade. this trade devolve into the fed discussion? kathleen: it plays a minor role. we are still a closed economy. we will see not gone effects from other countries. it is really a confidence. not necessarily a direct attack.

if you look at european export, it's a small percent of our gdp. the bigger issue for the fed, and they will talk about it is to strengthen of the dollar. that is good news of bad news. it helps bring inflation down, bad news it hurts multinational countries and bringing their earnings back to the u.s.. we will have to pull back on hiring. lisa: i want to go back before we let you go to the philosophical point. if we get unemployment higher which is by design with these rate policies, it will become entrenched and it will become a bigger loss for the economy the just leaving rates low for longer. what is your view? kathleen: no one wants people to

lose their jobs. the worst outcome would be if we remain elevated long-term. it gets in the way of business decisions and it puts pain disproportionately on lower income households. they are seeing much higher inflation rates. it is a little bit of pain in the near term, hopefully it is a mild recession. but it does look like we will go into recession. it will take a mild recession better than having inflation linger on. tom: thank you so much kathleen bostjancic from oxford economics. it was quiet in london yesterday. the symbolism, i think jonathan ferro, it was just brilliant. it was a quiet day today. king charles resting south of

london. his private residence, if you will. certainly, king charles needs that day of rest. an announcement made about a reception for visiting state leaders including president biden. look for that on sunday before monday's funeral. the present list of world leaders coming it is humbling how important this queen was the people around the world. lisa: she was in abbasid are in such a major way for not only a nation but an ideal for many years. the honor being paid to her, it is well deserved. tom: we will see the emperor of japan there as well. david merritt is joining us as well from westminster. right now, we will continue with

his economic report. but we see some dollar strength? stay with us, this is bloomberg. good morning. angel: keeping you up-to-date with the first word. a marathon bargaining session has led to a tentative agreement to everett a railroad strike. the labor department says that after 20 hours of talks, railroad companies and unions representing more than 100,000 workers have reached a deal. a strike would have interrupted important infrastructure. economic growth has slowed so sharply in china that major banks don't think a 3% increase is achievable. for attractions have gone down steadily since march. the consensus is for the chinese economy to expand 3.5%.

the official data for august comes out on friday. top executives from about 20 leading companies have committed to flying in for hong kong's financial summit in november. ceos from morgan stanley and city group intent to come. it is contingent on hong kong ending its three day quarantine for incoming travelers. adobe has agreed to buy sigma valued at $20 billion. it is the biggest ever takeover of a private software company. sigma allows customers to collaborate on software apps that they are building. 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 angel feliciano, this is

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tom: from bloomberg surveillance in london, we continue our coverage of the remembrance ceremonies for queen elizabeth. we will have coverage of the funeral monday morning. in the 12 noon hour roughly, in london and in the early morning of new york. our coverage will be there as well. jonathan ferro is on assignment. joining us now is someone who understands one of the great engineering marvels of america is in pennsylvania. he is the senator from pennsylvania patrick joseph toomey

there is a place where the norfolk southern railroad makes a loop, a turn. and this is the pennsylvania railroad, on the railroad strike the president suggested that it is union america. is it union america? >> it is good news that we averted a strike that would've cost a billion dollars a day. it was described by the white house as a temporary thing. sen: toomey: this would be pretty devastating at the strike went forward. tom: bitcoin, crypto and the frustration over what the fnc

has done. he was thunderstruck at how slow regulators have been in the united states. he is defensive on crypto. have they been too slow? sen. toomey: i think the problem is the sec is not sharing the framework that they are using. virtually all crypto tokens are securities. reasonable people can disagree with that. he does not go on to say how we would apply the existing frameworks that we use to regulate crypto. these things aren't have any applications. he has not provided clarity on

that. i think congress should step in and provide guidance. crypto is sufficiently different. if you want to argue that these are securities, you can make the argument but they are different from stocks and bonds and therefore, congress should step in and provide a framework. i am working on that but it will be hard to get done. chairman ginsberg needs to give us much more clarity as this applies to regulations. lisa: i know that you are retiring from the senate, do you plan to go into crypto? sen. toomey: i have no plans whatsoever, i have no commitments, i have no offers. i am not pursuing that out of office. i have a big job to do and then come january or february of next year i will start having those conversations but i've no idea what they will be about. lisa: we have the s&p showing a

lot of resilience of the economy, so much that the fed would have to go high with the fed rate hikes. are you comfortable with the unemployment rate rising to get inflation under control? sen. toomey: let me say, i am not convinced that you have to have significantly higher unemployment in order to get inflation under control. but the feds first job has to be a stable dollar. we don't maximize employment over the long haul if you don't have a stable dollar. they made important points that all the tightening occurring outside of the fed. that will go a long way to diminishing the pressure on inflation and i am hoping that they have the ability to tighten

at a time when the economy is still very strong. the labor market is strong. tom: are you ok there? lisa: i'm ok go ahead. tom: you did one of the toughest things of the world which is run a restaurant. it is tough stuff. there is a restaurant in allentown, pennsylvania. people running restaurants are getting hit over the head with inflation, with fixed costs, with variable costs that are becoming fixed costs in the labor conundrum. what is the action we could see from the washington to assist rookie restaurants in allentown? sen. toomey: the most important thing is to end this volatility.

some companies will be able to pass on price increases and deflation will not be that big of a problem. a lot of companies can't do that in the small restaurants are a great example. people can choose not to eat out. people can eat at home. these small businesses, mom-and-pop businesses, they are the most vulnerable. that is why congress should stop throwing gas on the fire. they want even more spending, that we should not do. the fed has to stay the course. that is the best outcome for everybody working in our economy. tom: senator toomey, thank you for joining us. what you said that was so important is not the aggregate effective inflation. apple computer, they can deal with it.

a small restaurant is getting absolutely hammered. lisa: it is the fear that some people have raised about consolidation in big business who have bargaining power with suppliers they will try to reestablish supply lines that will be more effective. the reason why some people would argue small-cap stocks have underperformed because of the resilience to some of these things. tom: ms. saunders focusing on the profit quality of small caps. i would go with equity markets after wednesday of next week, we do a fed meeting. let's say we get 75 basis

points, then what? lisa: do they start to price in higher rates, lower growth? when did they pull a bank of england tight move where they factor in the pain or will they just push back and say, you are just wrong. tom: there is a swirl of market data as reported by michael mckee. coming up, from london, stay with us. this is bloomberg. ♪

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>> this is an extended edition of "bloomberg surveillance," with tom keene, jonathan ferro, and lisa abramowicz. lisa: struggling to hold onto the balance, from london

worldwide, this is a special edition of "bloomberg surveillance." jonathan stepped out so it's special because it's just tom and myself. but it's been a morning of a slew of economic news. tom: the team did a great job cooking us through the thursday and what an eclectic set of opinions that we have. the fed met to work off and say flat out they are wrong and the idea that consumers are remarkably buoyant. lisa: i love the idea that people are in a robust debate about the fed being able to take its foot off the brake. core inflation showing it's a hot economy. tom: i was taught, and i well may be wrong, but the weekly high-frequency data has value.

that this is not a troubled america. lisa: good news being bad news, s&p futures are down at 39 ta. on the margins, right? not catastrophic. the nasdaq is down a bit more. that's the theme. the nasdaq selling off disproportionately. 12 180. the yield space is what i'm watching, the two year yield is grinding higher. nonetheless, driving curve inversion from across the board. lower on the day, important economic data across the wires. you are right. unemployment data, michael mckee, what caught your attention? michael: let's run through the numbers. retail sales on the headline basis rose but the core going

into gdp did not. it has been revised lower and has four locations for third ep at this point. all of this is being framed by the federal reserve. taking you back to jay powell at jackson hole, they said that the decision at the december meeting will depend on the totality of the incoming data and the evolving outlook. what is the totality of the data? tom, you were excited by this. the lowest since may, going down to suggest strength in the labor market. -1.5. those indexes reported big drops in prices paid. import prices for all.

this is what we care about. retail sales, flat as i mentioned. that's semi-positive as it suggests maybe things are slowing. that's the fed's job. does that mean a jump in wages and salaries? that was the question raised by jobless claims. earnings were up. -60%. that's negative financial conditions being looser. at it all up and maybe you make the case for 75. does it make a case for 1%? that's much harder to make, i think. tom: our heads are spinning. you are in charge of economic data. what economic data if any does chairman powell actually use to make the forecast for the wednesday meeting?

michael: it's interesting, they will be looking particularly at the inflation data that we have gotten but that most of it backwards looking. empire in philadelphia today is more contemporaneous around what companies are seeing. so, they cannot really base their forecast on the august cpi. that is older data and they have got to figure out happening. if the economy is starting to show signs that prices are going down. that would influence how far they want to go. tom: michael mckee, thank you so much. interesting looking at the caricature now. global equities senior research analysts. she joins us now with an exceptionally cogent research note that describes the many nuances to this market. when you look at the mantras that you mentioned, one of them,

folks might point out is that we are growing older. thank you for that, i didn't know that. but as i look at the nuances of the research note, it's what do i do with cash. does cash have value now? >> thank you for that, tom. great to be here. the mantra to give context is a nifty acronym we created to talk about the big things that excite us. massive affluence, the world is getting richer. and there is -- nt isr new technology. --nt is technology. r is restructuring. a is aging. we have continued to deploy a month -- amidst macro uncertainties. but where should you put your cash?

if we could just go back to einstein for a second, even he said it. the most powerful force in the world is the power of compounding. buffett has frequent he said it's the investor best friend. put your cash in a place where it will continue to compound. high quality companies that have the wherewithal to survive the turbulence that is inevitable. that would be my reaction. lisa: we have been having a debate all morning about what the fed can do is its role of torpedoing the dynamism in those companies. it has been lower on the one hand but they said they really don't have to do much, they can sit where they are and others say they have to go much further. what's your base case? michael: -- ananya: base case is that ultimately we look for companies that can take these various macro variables and live to fight another day at a starting

point, right? these companies have pricing power. no matter where inflation falls, if it's out of control you want companies with pricing power. that usually comes from having a strong position in the economic value chain. being self funded with clean balance sheets and copious amounts of free cash flow. that's almost the starting point. in some ways it indemnifies you against a various range of outcomes possible out there. in terms of looking at the recent data, it's not as impossible as a general base case that we still sort of sale through this with, you know, a few bruises generally intact as far as economic outcomes go. we just came off a week of very strong conferences. investor conferences where most investors have been surprised by the optimism of management teams focus on cost-cutting. not a lot of them are focused on missing revenues or having existential crises.

but that seems to be the base case today. lisa: what's the argument for selecting these companies and getting it all right versus getting three point 8% from a two-year, real income for the first time in a long time? ananya: if you invest in a company that can compound the capital it takes in, you should do well above the opportunity costs of investing in a two-year . part of that is looking at companies that have the ability to continually compound earnings that have all of the characteristics we have just been talking about. a big part of it is also looking at companies with sensible valuations. at some point in the turmoil, you will find things that are prized for outcomes that are not so bearish as selloffs continue. they are almost, buying them at

the right time is a tried and tested recipe for outperforming the two-year at any point in time. tom: looking at the mix of investments in the mix around the uncertainty where part of the invesco act is the short term around the one year, cheerleader, five years. i like what you say about quality equities. what about all of the bonds? what you do with quality corporate bonds and the mother of all bond bear markets? ananya: well, i focus on equities. good question as far as what bonds do. what i would tell you as an equity investor is that as you look at the balance sheet out there, most corporate balance sheets are pretty healthy to the point you made earlier this morning, right? consumers are healthy, corporations are healthy. most companies that had a bout with covid are refinancing their

opportunities. from the equity point of view when you think about that, what we worry about is that that will take on the company and believe equityholders empty-handed. we don't worry about that. tom: right. thank you so much, ananya lodaya from invesco, greatly appreciate it. bonds as well from one of the great bond houses of america. invesco. we need to talk about something today that has to do with newtonian calculus. the rate of change in the rate of change. something that matters to the global wall street. i'm sorry we haven't talked enough about it this morning. the inversions right now are breathtaking. lisa: the size and scope is just traumatic. the two-year deal being the most versus the 30 year going back to the year 2000. the five year versus the 30 year

is an benchmark, inverting the most since around then as well. these metrics are all telling you that right now the fed is going to have a policy change. tom: what is the ramification of the spread coming down with a vengeance the negative or you basis point and the unimaginable breaking through. that cup of coffee that we had a -60 basis points. what does that signal in a fed meeting? lisa: a nine month to 12 munch recession. typically that's the readthrough . from a fret -- fed perspective, is this by design? we are also seeing a downturn, as they say, they are willing to do that by lifting rates. tom: this is important. i don't talk to mickey. folks. lisa does it all the time. you suggesting governor bailey as the chairman of the fed will model recession? i don't buy it.

lisa: i don't know if the fed can afford that kind of honesty but how much of the projection starts to reflect a lot lower growth than previously? tom: just for a cup of coffee here we had sterling under 115. we had a history of the chinese yuan weaker this morning. and within the quiet of the equity markets, down negative eight points, what's that about? is a lot going on. jonathan: coming up we have particular -- lisa: coming up we have particularly a lot going on with julie fields from mccain anderson resnick talking about some of these big debates we have been discussing. tom, i find it really compelling, this question. we heard this from jim hallstead. the fed not going further. being positive for stocks. letting the effects take hold. can they afford to do that politically?

tom: jim saying ignore the fed talk. lisa: fun london, -- from london, this is bloomberg. ♪

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>> don't forget, middle-class built america and unions tilt the middle class.

why am i so prounion? for you to get to go through the apprentice program in another trade, you have to have four or five years, like going to college. you get paid a bit and not a lot, you work like hell before you are certified. lisa: president biden speaking from detroit. more economic data from across the wire. back to michael mckee. michael: looking at the totality of data, industrial production where the economy is, it falls by 2/10. half a percent gain with capacity utilization. compared to 80 .2%. manufacturing 1/10 on the month. auto production, despite what joe biden saying, one of the reasons manufacturing slipped from the gain in july. they mentioned the reason the

headline dropped so much is the big drop in utilities. i thought it was hot in the month of august. lisa and tom, i think maybe people didn't have to run their air-conditioners around the country as much. lisa: thank you so much. we did get a deal on the railroad side. negotiators reaching a tentative agreement after 20 hours of talks. better pay with improved working conditions, peace of mind around health care costs, all hard-earned. we have anne-marie mortar here. >> it took 20 hours of straight negotiations. also, the president phoning in on these discussions. remember, this is incredibly close to him. yesterday he was introduced by a union labor worker in detroit saying it was the most pro-union president we have ever seen. it could have been catastrophic

for his presidency ahead of the midterm elections if there was no agreement. we should note that this is a tentative agreement. it's open language when it comes to medical leave. a wage hike effective immediately. 20% over five years. according to the national carrier conference committee, and it seems at this moment that is a gray area. this does extend the cooling off, which basically means you cannot go on strike. there will be no strike on friday. getting the labor unions to sign off on this. not a done deal just yet. all things look go. jonathan: what do republicans -- tom: what do republicans think of this? i haven't gotten a straight word from anybody. annmarie: they handled it yesterday by putting legislation to the senate would basically be a vote on the agreement that the

presidential board that president biden set up, the contracts in the agreement said you should potentially accept as one of their, their advice basically was both sides should accept it, it was struck down, the senator sanders objective to that -- objection to that. republicans, it was a way that they were gear -- playing it out. republicans were the ones that put the legislation on the floor to avert it and would have blown back. right now there isn't much that they can say because at the end of the day there was a tentative agreement reached. jonathan: annmarie hordern tom: -- -- tom: thank you very much. julie biel doesn't look at the midterm elections, she looks at the mid-capitalization of equities with small-cap.

looking at the mid-caps small-cap towards small-cap, if everyone sheer leads and it doesn't happen until that happens, then it is boom, small-cap takes off, are we there now? julie: i don't think we are there yet, there are still so many contrary indicators. but the fact that employment is strong gives the fed the most amount of room to be able to raise rates pretty proactively. they have to after all of the most recent. it's important to keep in mind that quality mid-cap names have demonstrated that they can be resilient. lisa: this is really -- tom: this is really critical, folks. you just heard from a grizzled pro. she's not brittle -- grizzled, but you get it. [laughter] amazon, bristol-myers, it's quality. how do you determine in an

income statement if small-cap is already? julie: i think what's really -- is quality? julie: i think what is important is to look at durability. we look at the last financial crisis. some of our companies have financials going back 30 years and we can see how well they did. how well are they able to reduce costs in a downturn? are there a lot of variable expenses? are these mission-critical stocks they can't get rid of? those are the types of businesses that can really met -- really weather the storm. you can't tell that this one went through financial crisis. lisa: real quick, as you stick with us, how invested are you? this is sort of the tipping point of people who are bullish versus bearish when you say that we are not quite there yet in terms of recognizing the pain. how have you arranged for that?

julie: we don't try to forecast of the macro. that's pointless. were you able to predict pandemic or the war? we beget -- believe in the concept that it is time, not timing. we try to find these durable businesses that do well and good times and most importantly protect you on the downsides. we stay invested. we don't make major wholesale changes. we don't have a lot of macro strategists coming in. it's too complicated to predict this stuff even without a war or a pandemic. lisa: julie will stick with us and tom, she was practically reading from your hymnbook, playing the fed parlor game. tom: it's the 9:00 hour in new york, julie, great to see you. lisa: we will speak more with

her coming up on how to identify those companies for size and scale. michael joins us in a bit. the ceo here of capital advisors joining us around the opening bell. got about four minutes until the opening bell and we are seeing deterioration continuing with s&p futures down 5/10 of 1%. it really is driving off the short-term yield with nasdaq futures down even more. it's amazing to see the gains in four days evaporating like that. this is bloomberg. ♪

lisa: this is bloomberg.com -- is "bloomberg surveillance" and we are looking at the interior rating equities into the open. we are just opening now in the s&p. the nasdaq is now down eight tents sub 1% and it is really driven by the yield story. -- .8% and it is really driven

by the yield story. people are expecting a hawkish return from the federal reserve. joining us now, our own abigail doolittle. abigail: one bright spot is the rail stocks. union pacific is up 1% after the department of labor earlier this morning said the rail companies reached a tentative deal with the union. it's a reason to think it will stick. a relief rally today, mostly to the downside other stocks. in california amazon saying they are keeping some prices artificially high. investors not liking that. pledging down 13%.

and a $20 billion acquisition of stigma, a collaborative software deal that they think will be a big positive. the stock falls as investors try to figure out what it means for the numbers. lisa: kailey leinz joins us now from new york with more. kayley: seems that some of the millionaires have caught the gloom bug, maybe from you, ray dalio saying that he sees interest rates needing to go to 4.5% to 6% and he did the math and said that would equate to about a 20% plunge in equity prices because he said the high rates will bring down credit rough and spending. in the private sector and the economy overall. eerily similar warning that we got from jeff dunlop.

he's worried about the fed overdoing it and damaging the economy. we could see stocks dropping again by mid-october. it's pretty aligned their, tom. a lot of bearishness out there. the guide here is the performance of the s&p 500 sessions in the past. oxford economics took a look at that. that is in line with other sessions. 34%, severe downturns as an example. it's more for that. jonathan: kailey leinz -- tom: kailey leinz, thank you. getting away from the fancy people, it can't be found. the dow is down. we were good three hours ago.

lisa: i do want to bring breaking news, roger federer, that tennis champion, saying this season will be his last. he had been writing a memo, a letter to his tennis family and beyond those that on twitter. saying that he has worked hard to return to full competitive form and he knows his bodies capacity at 41 years old, i must recognize when it is time. tom: i remember when he stunned the tennis world, a young thing out of switzerland, beating a guy named sampras. who is that guy? he's been doing it for his entire career. who is this guy? he doesn't win in clay, doesn't do well at the french open. lisa: he broke the mold of big serve and it was the end of tennis.

tom: truly it was with pete sampras, who is this guy with his philanthropy. continuing our dialogue here, things are sliding. michael purves is with us. ceo of capital advisors, continuing with julie deal with us as well. michael, i've got to talk about this gloom that is out there. what does it signal to a grizzled equity guy like you? michael: look, i think there has been a wide range, a chorus of bearish views. not just from those guys come about from others there. to my mind the economic data we have been getting has not been fantastic but it has not sort of spoken to the oh yes we are clearly going into a recession and i think there is another

case i'm partial to, we are in a high nominal gdp world that is really chaotic and there are some recessionary trends and it doesn't necessarily have to mean gloom there. if you look at forward earnings estimates so far, you have seen it worn out. those really retained healthy levels after a massive surge like this, that's pretty unusual . i think it is, it's pretty, if we do go to 6% on the 10 year, yes there's no question you will see economic implications and probably more pe contractions. tom: julie biel, you have got to respond to michael on this, he like me responding to unique gdp. is that an anti--- animal spirit that is enough to support

revenue change? kailey: you have -- julie: you have to ask the u.s. consumer. they are still driving two thirds of the economy and we are coming into the critical holiday season where that activity actually happens and of their wages are not keeping up with inflation. so i remain concerned that the consumer is on shaky footing. particularly of housing roles over as it is the binary source of health for most average americans. it's pretty concerning to me why they would be out there continuing to spend. we talked about the u.s. consumer staying on the side, but we are u.s. consumers, to. business owners and managers. confidence isn't as strong as it could be and it will only get weaker as we go through the year. lisa: we have been talking a lot about how obnoxious the good news bad news paradigm is and we

hated and everyone saying it's kind of true. are we in the bad news is good news good news is bad news paradigm? or is that too simplistic at the moment? michael: i don't think that is the best news -- the best lens at through which to look at the market. printing off the june cpi, it was arguably worse in many respects but the market reaction was benign and the main print, it was a pretty ugly reaction likely experienced this week. -- like we experienced this week. you have to contextualize it for the level of equity risk premium coming in. way too low this week coming into may. but it was actually pretty healthy coming into the june printed there. the other condition also. looking at the price reaction in equities and bonds back in may

off of the main print that we got this week, the technical position and absolute level of the treasury yield was really vulnerable, looking at a fresh high with a report that sort of confirmed we were opening a new range of 10 year interest rates and all interest rates, right? for equities in 10 years, that's what i focus on. suddenly is not an idea it's a tangible reality. i think that was part of the problem. you need to read how the fed is coming into the print. that's really important. lisa: from your perspective, julie, looking at certain companies and the weaknesses we see, how much conviction is there to invest. would you reward a company for investing in growth later on or is that a warning sign for you that they are not recognizing some reality?

kailey: i -- julie: i think not all investments are created equal and when we meet with companies we talk about their return when they look at marketing and r&d. following the technology businesses you could say that they were spending hand over fist without any kind of real parity on what the return on investment was going to be because all they were chasing was revenue growth. now that the mindset is about durable, profitable earnings, that's different. again it's helpful to have history and talk to companies to see how they are measuring the productivity of their investment . i think that great businesses are able to invest in downturns and further solidify competitive positions. depending on the investment it depends on the quality of how they are thinking about it. tom: in the time that we have left, michael is going to continue with us. i'm watching in real-time second derivative complexity and the

two year yield. bring it over to the equity world. the fact is that literally, lisa, john and i were break to break, half-hour half-hour in the bloor of london, -- blur of london, the two year yield is walking away from us. what does that actually mean i should do with the equity space? julie: that kind of rate volatility motioning higher, you just have to be more thoughtful about valuation and you have to be really confident in the level of fundamental earnings, right? discounted at higher rates, they will be worth less. that's the critical focus in you see a time and again. tom: well, does that signal that we get what michael purves calls the boy and nominal gdp? the x axis of take gdp stunning us to continue forward?

is that part of the mix of signals? julie: yeah, i think that's possible. it's really possible for that to be the impact of it. the thing is it's hard to tell. but it can't turn around quickly . we have seen it happen before. of housing roles over, for example, there will be a major pullback and demand that will be powerful. lisa: julie biel, thank you for being with us. michael, you are sticking with us. europe, the hurdles coming in the energy crisis. it's been a huge story for us here in london. people grappling with the prices that keep rising. tom: we knew it before but to see it here is shocking lisa: and that question -- shocking. lisa: and we are seeing it here it was speaking about it. how much do you control the

market to make it more palatable for consumers to do with the tangible reality that there isn't enough gas. tom: this thing with richard clarida and, 2 p.m. wednesday afternoon, mark your calendars. we will be with the former vice chairman of the fed to this is a different richard. as a public official he had to really tell a certain dialogue, a certain set of adverbs and adjectives. i'm fascinated what he thinks is the response to higher inflation. not now, but into november, december, and the next year. lisa: i just want to ask if neel kashkari has a bloomberg terminal on his desktop. [laughter] tom: this is the former devo columbia economics. he's not going there. -- dean of columbia economics.

he's not going there. [laughter] lisa: from london, with tom keene, this is bloomberg. ♪

>> it's very important that we send a clear message that we take care of household and businesses but at the same time we are not getting any discounts to russia. sanctions are here to stay. we stand by ukraine as long as it takes. lisa: the big issue, energy crisis in europe. todd and taylor joining us now. because, starting with you. we have heard a number of efforts to cap prices. what's the latest on the plan from the eu? todd: it's the new talks with norway to cap the price of gas

as norway is not an you member -- eu member and it is the latest in the waves of reforms that eu is trying to put in place to stabilize the market. on top of yesterday's plans like a windfall tax, with a cap on the price of power produced by non-gas non-coal fire generation. ahead as well as on fossil fuel producers. interestingly targets to reduce power demand at peak times across the eu as we head into winter. managing the risk of blackouts across the block. lisa: we have seen the negative effects in terms of driving down the prices. what's the latest in the thinking about how much further it has to go?

taylor: this really tells the story in the data. massive dollar strength has been the theme of the year continuing today. plus the pressure it is putting on commodities with crude, copper, even gold changing on the day with concerns about the slowing economy as you get a lot of the fed moves pushed forward, contributing to some of the dollar strength. you are in europe, lisa. i do the chart for you. a volatile rise this year with a big outperformer here when you think about the u.s. net gas contracts. really seeing some pressure there on energy prices over in europe. year-to-date, take a look at the bloomberg energy spot index. huge, agriculture, seeing the ripple effects of rail strikes that have been mitigated. but really sort of the industrials in the precious metals are on the decline here today.

concerns led by a slowdown in europe and how it ripples back to the u.s. lisa: thank you so much. this is the pressing issue for so many in europe trickling out to the rest of the world. michael purves is still with us. that's the big question, how much do we roll off these headlines in energy and this top-down effort to lower prices and how much of it is due to demand destruction with a consistent disinflationary force? michael: it's one of the questions that is hard to answer but the supply-side answer here is that it will probably be very tight for a long amount of time if you look at the behavior of how corporations are reacting to this. sure, they play ball with policymakers.

in some form or fashion. but there are a lot of structures to support it. it's hard to imagine a lot of rises staying, going back to the level that we associate with rico had. i think that is going to be sort of one of those reinforcing factors of why currencies like the euro and the yen, very hydrocarbon vulnerable relative to the dollar are going to stay in a weaker longer position. tom: that's right where i wanted to go, michael. we can celebrate until the cows come home but the bottom line is you have one of the great calls here on adxy, the pacific rim currency complex, the yen. it is a purpose chart that is absolutely grim. what kind of path is this? if adxy goes out to weakness, at some point institutionally those

nations have to break. michael: yeah, well you saw you on that anchors the index getting through today. one of the interesting things about the chinese currency is simply that in 2021 it was one of the few major currencies that rallied against the dollar. you could look at the range and it told you the story. the differentials were actually favoring the one. that was last year. if you look at inflation in china, it's starting to accelerate. it had been extraordinarily low. who would have ever thought you would have 8% cpa -- cpi and the u.s. and 2% in china. the trend is starting to turn relative to chinese inflation there, underscoring the weakness. that of course has a knock on effect to all sorts of ems and equities with edit. tom: i know your favorite is

black pink, but let's talk about korea. i have bailey talk about it. i'm a second delivery basis and considerate and unwind. what are the ramifications for your currency call on the korean won out of bed? -- yuan out of bed? michael: this may be changing but if you look at options pricing, it's not that dramatic. every currency ball has been in a different place this year relative to last year. it's not really signaling my gosh shocks, we might be looking at a slower motion weakening as opposed to what we associate with august of 2015 with shock evaluation in china. it really kind of had massive ripple effects on risk assets

around the world. lisa: michael purves, thank you so much for spending the time. that really to me is the underplayed story, the currency story of the asia-pacific region. particularly that weakness you are seeing in china being driving it. and the allowance by authorities to let it get weaker. i think that was notable today with the withdrawal of liquidity. tom: going back to that 2/10 spread on the rim, he was like look, this is what i observed. he did bet on time and say that six months from now. he just said that this is a structurally weak currency. looking at the radio, cny, cnh, i use cn i because it's old-school but the bottom line is we are here. it's like today is a big deal when you look at asian currency dynamics. lisa: you are talking, the more

you talk, the more markets go up. i have to say. i have- [announcer] imagine having fuller, thicker,

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>> from the financial centers of the world, this is "bluebird mark," -- bloomberg markets," with alix steel and guy johnson. lisa: here are your crops --alix: ercot -- economists revising terminal rates as investors worn of an impending stock crash. does it mean disaster for equities? retail sales are on the upside as we can eat and buy cars with no collapse in consumer spending. we will break it down with craig fuller. hey, old friends.