>> global inflation keeps rising. >> the fed will lose its case to keep raising rates sooner than we think. >> we are leaning toward 75 because i am not sure that powell wants to do shock and all. >> the biggest issue is the strength of the dollar. >> when you are tracking the strong dollar it says that the fed should be hiking rates aggressively. >> this is "bloomberg surveillance." jonathan: what a messy market, live from london for our audience, good morning this is "bloomberg surveillance" on tv and radio alongside tom keene

and lisa abramowicz. that dollar a whole lot strong. tom: it is a correlated move with the dollar coming up with authority should -- ding authoritative on it. 200 business days of the year this is the five most correlated days and i heard it from fedex. jonathan: yields are up for seven straight days. that is coming up and morning about the environment. lisa: they are worried about the slowdown of activity and business confidence. to put the scale and scope for the two year deal. one full percentage point since the end of july. that is increasing by one third. tom: and now -- jonathan: and now we are talking about 4%. deutsche bank rates at 5% close to next year, that is the core. lisa: 4.9% but the market is priced in 4.5%. jonathan: summit up, marjorie -- mortgage costs, 6% average.

tom: we are not talking about the finance -- the fancy financial stuff. 6.2% on mortgage. here is the math, you have -- you need a much higher income to make a housing dream happen and you will not get it so you will rent. what will that do to rents? jonathan: what is it going to do to rents. if you cannot afford to buy, what will you do and what will happen? tom: moved to london. lisa: that is ridiculous. jonathan: we will have a look at sterling to see why he is looking to move to london. lisa: that is important. the rent picture, this will increase rents because people cannot afford to buy so it increases demand on the rental size -- on the rental side. jonathan: a moment of sterling -- a moment of silence for sterling. tom: we joke about it but this was not where sterling was when

you were announcing brexit. jonathan: and you were somewhere else having a drink. i am aware. we have talked about it. this took out the lows of brexit and the pandemic, we did that. we took out the lows of the last week and now we are talking about 130 -- 1.13 and we are looking at the bank of england, 75 from the fed and set to do it again. 75 from the ecb can we get 75 from the central bank around the corner? lisa: will that support the sterling responding to an economic backdrop that is cost -- that is questionable. this break is coming on black wednesday, 1992, the anniversary is today and it highlights where we are full circle. jonathan: do you not remember that? 1992? lisa: that is when the bank of england abandoned the effort. jonathan: what do you prefer to it as? tom: he did a great job on that.

he really is great on the data checks. jonathan: i am going to start with yields out of the front end. did two year yield went to 380 and 390 and a 20 year it will take out the highest of the year. dollars are stronger and europe on negative point 3%. futures down 1% on the s&p. lisa: there is a real reason why. when you look at real rates and real yields and i know that tom has been on this, it is climbing since the highest in 2018 and no big argument about why there should be a great deal of optimism. with peacockishness. today is day two of the vladimir putin and xi jinping meeting. well, yesterday blood mayor

putin said that he understands beijing's questions and concerns about the ukrainian invasion considering that they have not shown public disagreement. it is clear that china has had some problems with russia's approach and this raises questions. it is going to be a great interview. the finance minister is going to be joining us on television and radio. how do they deal with a dollar there strong? and the world bank raised this alarm. what does this do to the rest of the world? this is a huge concern and i want to hear how different central banks are thinking about this. 10:00 a.m. we get the surveys for the month of september. remember when it used to be university of michigan sentiment survey friday? jonathan: and we ignored it? lisa: we are ignoring it now but we are expecting to increase with sentiment getting better. is that a good thing? tom: jonathan: i do not think it changes.

lisa: if the sentiment improves does it give the fed more confidence? jonathan: claims at 2.13. lisa: dramatically lower. yes. jonathan: anyway. a long week for all of us. we will get on -- we will get along for the next two hours. we claimed the significance of the 1.13 and sterling. can we start there? >> thinking about that story before, the first thing that came to my mind was the current position of the u.k.. if you have a current account deficit, that is a debt. the u.k. deficit versus gdp is much worse than it was in 1992, but when you have a deficit you are really exposing your country to more of the whims of investors and if they do not

like the fundamentals that they see the currency will adjust lower. right now, that is something that has been happening to the pound for a while. they did not like the growth story or the brexit story and it does not like the fact that the tax cuts that are coming from the new prime minister could really push the public finances to a number that people does not like an sterling is vulnerable and it really exposes the u.k.. a lot of the story is on the scope but they are certainly selling weakness. one thing that we saw were interest rate hikes could not fall out of the hold. there were -- there was a 75 basis points move. some but not all. tom: a brilliant short essay going back to 1972 or 1974, the complete failed plan then.

is this chancellor of the exchequer going down in flames? jane: certainly the market is extremely skeptical. he has been talking about a growth target for the u.k. of 2.5% and no one expects that that could happen. we are talking about tax cuts that will give it a bit of a boost but what invents -- investors want to see his productivity and growth and potential, but not just a quick fix. investors are skeptical and that is what the government is facing and what the government today seems to be ignoring. lisa: it is eight sterling story and a chinese yuan story, put on the other cited is very much a dollar story especially for pricing in such high rates next year. what is your sense of when things break and when the stronger dollar creates weakness and becomes hard for all of the central banks and makes it hard for economies to get out from under it? jane: you could say that the

strength of the the dollar is pushing the world economy under a bus. we saw this for a long time in emerging markets with interest rate hikes trying to protect their currencies. you see, i do not think that is particularly logical because if you have a central bank what -- picking up interest rates a strong dollar is a byproduct of the policy so why coming on the other hand and say we are going to weaken the country. some time we were -- maybe we were talking about next year when the fed is confident that it has inflation under control. tom: but you are getting a feedback loop in the fed has to respond to it. jane: i do not know if the fed has to respond to it but in the primary objectives is domestic inflation and employment, should it address it? i do not know, that is another question that there is certainly a feedback loop because as the

rest of the world weakens people will buy the dollar. and absolutely. i think it is only going to break next year. you know what, we can come down on this and we have a handle. jonathan: let us talk about some levels. cable serving against the dollar 1.13. are you thinking of big moves from here, or it is doordash or is this kind of it? jane: we were thinking 95 on euro-dollar. we have the energy price crisis and rationing? is that priced and enough i think not -- i think not. the far right get in on the election? that is in a few weeks time. people are out there talking

about kharkiv and can we dismiss that? no. right now i think the dollar strength will stay until you can honestly answer the question what else are you going to buy. jonathan: for the best part of 10 years the foreign exchange was kinda boring and it is not boring anymore, not at all. great to catch up. what a moment. we have a serious conversation on parity on cable, not to say it will get there but the fact that it is part of the conversation in a way i do not think it has ever been a part of the conversation. euro-dollar at 95 and they say sure, i am used to those numbers. lisa: 90 gets people's attention. lisa: this-- tom: this goes back to 1992. the timeline back to where we are, lisa mentioned back to

2000. jonathan: i think what we are witnessing now is the end of the zero interest rate policy world getting absolutely obliterated in the last couple of months. jonathan: it is messy -- lisa: it is messy and will get messier. live from london this is bloomberg. >> keeping you up-to-date from news from around the world. the economy in china shows signs of recovery last month, industrial production and retail sales and fixed assets almost back to what is expected. the urban jobless rate fell. beijing rolled out stimulus measures to counter a slow down, still a property market slump and covid lockdowns weighing on the outlook. in germany the government began what might be a series of historic takeovers to revert a collapse of the energy industry.

they are taking control of russian and german agent -- oil refineries and they are looking to take over two other countries. 100,000 workers will decide if there is a new labor agreement with u.s. railroads or strike. they will vote on the deal reached thursday and the agreement increases wages and includes a compromise on six-day 60 -- six days. it is a potentially wearing sign for the global economy. fedex withdrew its earnings forecasts due to worsening business conditions. it pointed to weakness in asia and challenges in europe. it is taking immediate steps to cut costs including parking some aircraft and cutting hours and closing more than 90 office locations. 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. this is bloomberg.

♪

pres. biden: today is a win for america. we have reached an agreement

that will keep our critical rail system working and avoid disruptions to our economy. jonathan: the president of the united states, live from london this is "bloomberg surveillance." futures down one place and, down -- 1% down on the week and day. 3.4659 and the dollar off the back of yields which are higher. -.3%. pound sterling, 1.13 handle and it is rocking back at a 1.3 handle coming oliver from bank of america. i think he wrote this just for lisa. "yes it is fashion week with an inflation shock is not older." -- over." lisa: there is a feeling that people are waking up to the possibility of faster rate hikes chaz been the theme of the week and the impression and i feel like i am repeating, --

but the question is and i will just keep going whether we have fully priced in the weakness in erlang -- in earnings like we saw with fedex and the fed does set that. tom: this is about a growth scare coming off of the fedex announcement particularly for the international audience including in london. fedex is a foundational company on the spirit of america. it is almost a nominal gdp proxy and that announcement tilted this market. jonathan: which i know you follow super closely and we have all watch though rates snap higher and equities lower. mike wilson, mike wilson and morgan stanley. we move from the rates shock into the earnings shock and we have talked about whether the headline is the beginning of the story. tom: fedex down 20%.

let us do this and let us bring in the -- and let us bring in m&a -- emily wilkins. republican presidents understand the stock market and market in general is a huge political item. do democrats and this president care about the stock market? emily: biden does care. i think we see the stock market, that can go to a lot of different things. what presidents care about our what americans care about which is how much money are they spending, are they spending more money than taking in and are the raises matching up with inflation and that is not the case. democrats know that it is a problem. the cpi numbers are not good. they have been trying to talk -- they have been trying to avoid it by talking about unemployment and low gas prices. any help that they had that we would see inflation come down

really seems to be slipping away at this point. tom: into this difficult weekend and certainly in london we see the bank of england independence tested by the truss government. what is the independence that jerome howe -- jerome powell has and what is the strength? emily: president biden has been conscientious to make sure that agencies that have traditionally operated independent continue to do so. his predecessor like to get more involved in that regard. biden is trying to stay hands off and let me trust jay powell and let him do his thing. he did get reelected to the position with bipartisan support from senators. he is in a strong place as far as operating and what he is able to do. certainly there is a sense with congress and the white house that there is only so much they

could do to bring prices down and make major shifts. they can pass bills like the inflation reduction act but in reality a lot of this is out of their hands right now so they are relying on the fed and hoping that they will be able to provide that soft landing. lisa: this white house has a difficult message to sell especially after yesterday when they were celebrating unions and collective labor agreements and the idea of getting higher wages and on the flipside this concern about how high inflation is and to the point questioning whether the fed has to curtail this and what it really is in this. how is it being bourne out when it comes to union negotiations and the push for organized labor? emily: certainly there has been a shift in how labor is being viewed. you have a worker shortage and the advantages a lot of the times with the workers and unions. you have seen in starbucks and in the rail.

we need to make sure that we are putting in asterisk on the whole rail debate. yes union and industry leaders came to an agreement after a 20 hour session, but we are not done yet. the workers have to approve it. we have 12 different unions and 125,000 workers and not all of them will be happy. we already know that it does not have any sick days although it has more flexibility for a leave of absence if someone needs medical care. this is not exactly everything that they wanted and there is still a question mark as to whether we will face a similar problem in a couple of weeks if a lot of these rail workers do not agree to what was had by union and industry leaders. jonathan: thank you. the attention of the financial markets will return to d.c.. we will catch up with this man. i'm excited about doing this. we will get the fed decision and

straight afterwards you will hear from the former vice chair richard on "bloomberg surveillance" after the decision and we go one better. he will join us after the news conference. tom: very generous and very important. he has a former dean of columbia economics and he is a pro with tangible published research. they were on the high ground on the nastiness of a thing called the sde and authority on what they got wrong and what they need to do to fix it. jonathan: the brood -- the beauty of the last 12 months is that when you are a former fed official you tend to speak your mind a little bit more. lisa: that is the question. 5% interest rates and that they are five -- far behind, are we going to get that kind of conversation or will we get a more nuanced talk about restraint? jonathan: are you worried that

we might go in that direction? lisa: i am just telling you. tom: what you are going to hear is that they have one path and then data dependency. they have to wait. jonathan: we are talking about data dependence with which a bank. we will keep returning to his call. 4.9% on bonds next year. and as you pointed out markets are not too far away. lisa: that is a shocking thing. what are you doing? jonathan: it is down .9%. ♪

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jonathan: this is "bloomberg surveillance." yields higher on the 10-year by two basis point. two-year up for the seventh straight session. seven consecutive weeks. that is interesting to me. a time when, people lined up to say the highs in june were the highs of the year.

we want to take a nibble of the 10-year. we came close earlier. lisa: people saying it was close to the high are raising questions about can there will be and what the central banks will have to do to get back on the target levels of inflation. jonathan: the dollar stronger. a look at cable. 113. making the obvious point that will resonate with many of you. you cannot by fixed income because the fed is hiking interest rates. you cannot buy stocks. the on thing for people to buy is the u.s. dollar, staying in cash. tom: the people watching here worried about retirement funds, pretty you hide? the idea of scale. there is no place to scale to. you have few choices and that is it.

jonathan: everything we just said. it could be the other way, or you are worried about your head getting ripped off. sure. it is consensus. we think if you make new highs on yields, you will make new lows on stocks. lisa: putting things into a new regime where rates are going to be high. we have debt pinpointed to low rates. you cannot make these sorts of moves against the consensus kind of bet. tom: consider west texas intermediate at $79 a barrel. we are not there yet. we are getting there rapidly. something for the american audience. on europe and its impact on america, sandra phlippen joins us. thank you for joining us this morning. i want to talk about the rate flexibility europe has given a

dramatically different animal spirit. nominal gdp. i don't buy the template lagarde can do 75 beats. they are not the same economies, are they? sandra: i'm glad you mentioned that. what we are seeing in europe is an energy crisis that is still intensifying. what we are expecting to see in the coming months is a fall in real income that we have not seen in decades. you expect the contract of the third quarter and into 2023. a much deeper level than in the u.s. momentum is different. this is energy inflation driving the problem.

the room for the ecb and the arguments they are having is very different. that can result in hiking and there is no way around it. tom: this is my chart of the year, nominal gdp. for the u.s., europe, japan. europe is flatlined since 2009. is there a risk, even at a more elevated level of europe getting into a sclerosis of 10 and 15 years where it is not assumed they can get a late 1990's pop that will not occur? sandra: it's very complex. i think the risk we are seeing, we might actually look at a eurozone economy which is

getting into quite a recession. at the same time it is not going to have the recovery that we saw after covid. it might be a slumping period after that as well. all the danger around taxation and all that is coming to mind. lisa: you expect a deep recession in the euro zone and the united kingdom. what does it look like when it comes to the unemployment rate? sandra: unemployment rate has been rather low in europe, also in the u.k. one of the issues we are facing is an economy capacity constraints. if you think about the trade-off between trying to stop inflation will not causing a recession, if

there is any moment where recession is limited in terms of people being unemployed, it is now. at lease of the u.k. and the north of europe. in the south of europe it is different. that is always a concern that there is this periphery and different dynamics going on. lisa: how high can the ecb raise rates before it becomes a real problem when you watch the italian yields, the spanish yields, the greek yields? sandra: we think now that the 75 basis points in september has gone by, 75 in october and potentially another 50 in december, it will be around a rate of 2%. that will be the peak.

of course, the risks of the span widening is huge. tom: what is the strength of core europe series with regard to the ecb? how linked is germany to the netherlands, the austria, etc.? how tight is that linkage to a bundsbank heritage? sandra: in terms of ecb policy or the economy? tom: ecb policy. sandra: you can clearly see the hawks have taken over at the ecb. if you look at the distribution in investments, there's a lot going on. at the same time the arguments are going in the same direction.

this inflation situation is so extreme. there's no way around it. jonathan: sandra, wonderful to catch up. another 75 basis point move a few month ago. maybe the rate hiking cycle would add up to about 75 basis points and in one go. that is the change we are talking about. lisa: 25 used to be radical and now 75 is base case. people talk about 1%. others say you could break something. tom: like some of the conversations we've had in a couple of days. off the fedex announcement. we talked to sandra phlippen about the idea of a run rate, a sluggish gdp. everyone says we will see a lift. says who? jonathan: they are not forecasting a recession. if you want to talk about

overcome by events, overcome by reality. can you think of anyone not forecasting a recession apart from the ecb and the eurozone? lisa: no. the ceo of deutsche bank came out and said, sure, there will be a recession. the ecb says no, it's good. jonathan: the front end in germany has been the first of august, 27 basis points maybe on the first trading day on the german two-year. right now it is at 159 546 weeks later. -- five or six weeks later. on the bund as well. tom: a lovely friday around the wall street world. the pros worry about the rate of change and the rate of change of the rate of change. those right now are grim. i am more optimistic but the fact is the calculus is really

ugly. lisa: you could have predicted the tone he would take. it is not just the likes of preferring the central bank raise the rate only by 25 basis points. the world bank says this will break the world. they will be a global recession because of what is happening. where do you go? the reality says things are going along just fine. tom: how far away are the of tuber beatings for the imf? it seems like months from now. jonathan: this federal reserve meeting feels like it is taking months to get to. they are waiting for a couple of cpi reports, payable reports. we have to ask this question. is the fed being -- by a lagging indicator?

lisa: are they being emboldened by government also that is basically saying inflation is at the forefront. that's why i keep saying it consumer sentiment hangs in, doesn't that bolster them further? jonathan: if we get more strikes, consumer sentiment will not hold up for much longer in this country or anywhere. in the u.k., headlines moment ago, rail drivers for 12 companies on strike from october 1. we talked about how it will all pause in this country, then it is back. tom: thank you so much for bringing this up. yesterday, i believe it was, the first day i felt like the middle 70's in at least four years. poetic. jonathan: like wind and fire. tom: let's do different jams

when we come back. jonathan: they can happen in real time. floor manager ferro straightaway. we don't have the rights to that. tina fordham will join us shortly. this is bloomberg. ♪ >> keeping you up-to-date, this is first word. in ukraine, president vladimir zelenskyy said of mass grave has found. more information is expected today after a visit by journalists. president biden says the u.s. will give ukraine green as much as $600 million in additional weapons and ammunition. it will come from existing stockpiles. a retired federal court judge has been named as special master to review 11,000 documents seized at donald trump's florida

home. he has until november 30 to complete the review. the judge in the case has refused a government request to use documents with classified markings in a criminal investigation. in europe, new car sales rose for the first time in 13 months. registrations increased 3.4% in august. mercedes benz was among the best performance with a 16% rise. good news for many automakers may not last long. record inflation and unprecedented energy crisis threatened to discourage buyers. apple is counting on upscale shoppers to make the latest iphone a hit when he goes on sale today. the iphone 14 reserves the best features for the high-end pro models and cost at least $1000. based on preorders, the strategy is working. they have turned it into the most popular version. 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 lisa mateo. this is bloomberg. ♪

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>> i am very supportive of the idea of an oil price cut in general for russian oil. we are working on amending the sanctions package. that is required for the proposal. we know we have to be fast on that one. jonathan: the european commission president. equity markets healing a little bit but down by .75% on the s&p 500. yields higher on a couple of basis points a 10-year. a couple of things to pick out.

the front end of the treasury curve. 390 earlier on this morning. sterling at 113. lisa: yesterday tom said linda we play the 4%? the 390. it was one day. we are there. tom: we will give you more data today but i want to frame the 200 business days of the year. it is truly ginormous. yen has not moved. it is locked out of fear they may actually do something about their busted -- jonathan: they have to do something about that yield. tom: it ought to be 145 level. it's at 143. i think on this odd friday -- we

welcome all of you in a most somber week as we have the funeral of the queen on monday as well. international relations on the shanghai five. this could be a one-off conversation. tina, i will distill it into the shanghai five. then there is the moscow one. how lowly is vladimir putin this weekend? tina: it has been awkward for him. i think the image that captured it for me where the leaders of the shanghai cooperation agreement standing and putin standing on his tiptoes. tom: i do that all the time. tina: this is the leader who took his country into an invasion, massively miscalculated, and is starting to feel not only blowback and setbacks on the battlefield but

almost in copperheads of lee -- and comprehensively calls for his resignation. usually when a leader goes on to a foreign trip, is a photo opportunity, an opportunity to take some nice photos. putin ends up looking a bit apologetic. russia feels like a -- state the china. jonathan: can you think of the immediate policy applications of something like this? tina: it's important for market participants but not a game changer. diplomatic mood music. we are in an inflection period. there is a rebalancing. if you are turkey, certainly if you are china, but other countries not represented at the shanghai cooperation agreement like india, south africa, brazil, you are watching to see

what china does with russia, how russia affairs in terms of the costs imposed with this conflict. any kind of a sense of a new revival of the old cold war nonaligned movement is looking bad now that russia has taken such a basting. lisa: there is a sense of vladimir putin has been backed into a corner. what will the consequences be? will he go harder in other areas? what will he do to save face? what is the policy implication of that? what are the potential ramifications from his position currently? tina: this idea of an authoritarian leader with nuclear weapons being backed into a corner is a very concerning scenario. when we look at putin's past behavior, and he's taken russia into syria, georgia, and i ukraine -- in ukraine, he tends

to double down. most of the military strategist i have talked to don't think he is likely to use a tactical nuclear weapon, a t and w, or chemical weapons. we have seen all the shelling about a ukrainian nuclear plant. the risks of the accident are there. lisa: how concerning is that that there was some sort of meeting of minds about taiwan from russia backing china's vision of taiwan as part of that nation? tina: as we talk about hard power, soft power, all this terminology and focus here, the intent is to signal the powers assembled their support the china -- the one china policy,

including taiwan. behind-the-scenes a lot of military intelligence types think what china has taken away from the way russia has fared in the ukraine conflict is they need to move sooner rather than later in taiwan. that window of opportunity, if there is one, is narrowing. tom: you are one of the few that truly has a transatlantic understanding in international relations of the united kingdom. he's traveling to wales. how united is the united kingdom under charles iii? tina: you are here at a fascinating time. i have been here for 20 years. i have that think immigrants have of seeing things in more than one context, which is helpful. i'm an analyst. not a monarchist or anti-or anything else.

i see that the u.k. has something we don't have in the u.s. now. we have a low trust in all institutions, the media to the supreme court. only the u.s. military is trusted. you can parse the support for the monarchy amongst different age groups, but the majority of ethnic minorities support the monarchy as an institution. this played out during the pandemic where in the u.s. we had viral videos of people saying they will not wear a mask, it's a violation of human rights. they don't have that here. jonathan: we're just going to wear a mask. i live in the u.k. as well. tina: it's cultural cohesion. you have people queuing for the queu. it is totally not american.

that is what polarization will do. these are forces of nature almost. there will be changes as a result of this transition to king charles iii, no doubt about it, but not abrupt once. jonathan: i was in both london and new york for the pandemic. if i saw a mask in london i did not think democrat. here in london you just chose one to wear one or not to wear one without any political affiliation. tom: we will just bring the whole show over here. lisa: i never look back. ♪

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>> core inflation keeps rising. >> the fed will lose its case to keep raising rates. >> we are leaning towards 75. i'm not sure if paola wants to do shock and awe. >> pushing back into the strong dollar. the fed should be hiking rates aggressively. that's a problem in itself. >> this is "bloomberg surveillance." jonathan: that would be a great

soundtrack for the price action. equity futures down .7%. good morning. for our audience worldwide, this is "bloomberg surveillance" live on tv and radio. equities lower. the dollar stronger. yields higher on the front end. we had a look at 390 on the two-year. tom: i looked at the bloomberg terminal. out of 200 business days, this is one of the five that matters. it's a correlated mess. wonderful guests qualified to talk about the correlations going on. almost without fail, everything is coming together. jonathan: with real-world impact and consequences. mortgage rates at 6%. fedex comes out and says sorry, our guidance was wrong and the stock is down 20% in the premarket. lisa: how many more of these do we have to go?

you said earlier this is mike wilson's world. this is what he was predicting. look what they have been doing. is fedex the new norm as we look at the consequences of rate hikes? jonathan: we are experiencing the rate shock. is another shock up next? tom: the earnings shock will be a revenue shock. the bottom line is, inflation is moving. the real economy is moving. we don't know. you have a complete mystery in the last week about what revenue will be when it comes down to the income statement when you want to define earnings cash flow. jonathan: the equity market down on the s&p 500. a little better than where we were earlier. yields are higher by a couple of basis points on the 10-year. the dollar fading a little bit in the last hour.

not as brutal as when we first came into the office. tom: i got here on the u.s. clock at 6:00 a.m. jonathan: you're upset about the service at the hotel. tom: this is important. it's a metaphor for all of you in america. you stay in london, you have 213,000 claims in a restaurant that was sent to people there and they have two. jonathan: they said take some pastries for him and cheer him up. lisa: do you feel happy? tom: i'm holding a big tray like the waiters. it was great. jonathan: chocolate crust. futures are down 20%. -- .8%. lisa: stay tuned for dinner. today is day 2 of china and

russia meeting. i saw this. vladimir putin says he understands beijing's concerns about the ukraine invasion, basically acknowledging it is controversial, splitting these allies that made a pledge ahead of the pandemic. a promised to have increasingly close ties. i am fascinated. the finance minister will be joining bloomberg surveillance to talk about the ramifications of the fed's rate hiking cycle on the rest of the world. how does columbia respond? how do they continue to raise rates when they have to deal with inflation about 10% but also the consequences of a strong dollar and threats to their economy? at 10:00 a.m., we will get a sense of how they feel. jonathan: they are about to ask 600 people on the phone. it's a survey, isn't it? lisa: will it be a good news story if people feel good?

probably not. they will give the fed more ammunition to say things -- tom: i don't know about these surveys. i don't think they work. you will say they are driven by -- i don't think they look as good. jonathan: it is so great to have people alongside us. andrew sheets just dropped by from morgan stanley. andrew, good to see you. andrew: it is nice to be with you in person. this is an equity market that is still dealing with a real crucible of challenges. we are into the thick of a disappointing earnings revision lower. that's a key vision of my colleague echo wilson. i think this is a period where it is difficult for the fed to set anything other than hawkish given the upside prices to inflation. it is too soon to get anything real development in terms of

changes in china policy and what of uncertainty in the european energy policy into winter. we think it is still too soon with rates rising, especially on the front end. investors should stay cautious. we think cash will outperform a lot of assets. tom: there's a brown university a fabulous traditional of differential geometry. it comes down to calculus. are you frightened by the rates of change right now on the second derivative as well? andrew: the biggest change i think the market will have to adjust to is investors over the last 12 years have known mostly rates of zero or less than zero on cash. tom: it's like physics without gravity. andrew: i think we are getting used to gravity. we are seeing a large adjustment. if you think that the s&p having an earnings yield of about 5.9%,

one to five-your corporate bonds at four per 9%, that's in a north -- 4.9%, that's an enormous convergence. that is a shift we have not seen for 12 years. that's the adjustment that is truly different and the market will have to make some adjustments for. lisa: there's a difference to the downside and risk assets and something breaking and something becoming a systemic issue. one does something break as we take a look at that pace of change? andrew: i think that is such a great point. the fact that stuff is good and not breaking means the fed can and likely will do more. you see banks with healthy balance sheets. the low rates of the last two years allowed a lot of americans to refinance into the low 30-year fixed-rate mortgages. there largest liability is almost immune from the rate hikes.

that strength means the market is sending the fed signals that you can keep going. we have not hit the point where it is disorderly. lisa: can they get up to the deutsche bank call of 4.9% on the fed funds rate and still have things be sanguine enough to give them confidence that they can stay there for a while? andrew: we don't think rates will get that hypo we think the skew is able press higher and go for longer. i think the fed is having a real challenge in hockey terms trying to skate to the puck. we don't know exactly what the delay between a rate hike today and the impact on the economy will be. i think the market was hopeful we would get relief in inflation with head in the right direction and that would buy the fed sometime. it is clear the sticky core inflation cannot pivot yet. jonathan: anti-gretzky. is that what that was? tom: get the spelling right on

that banner. saw gretzky do this. he was playing the buffalo sabres. he did exactly what you said. jerome powell is no wayne gretzky. andrew: i think what you are dealing with is, if you ask economists, there is not agreement on what the agreement on the rate hike is on the economy. there is divergent camps theoretically. there's a camp that her this last year that the fed can never hike much because there is so much debt in the economy. versus companies and households have turned out so much debt at superlow rates that the sensitivity is lower. it's a real question that we don't really know until it makes contact with the economy. jonathan: we came out of the last crisis in 2008-2009, everything that year, high yields. do you sense that kind of story in reverse?

we have not fully capitulated on the low interest rate world? that we think this is an anomaly and we are going back to where we were before? andrew: i think the real rate is an interesting debate where it is quite low. in the u.s., the eurozone, the u.k. they have not gone back to the pre-gse level. i think there is still room for the market to readjust, especially as you see a healthy household, healthy balance sheets, more capital expenditure that can point to higher neutral levels of interest. jonathan: i point out the deutsche bank call. the amount of pushback i got on that call. people wonder whether we can actually live and a 5% interest rate world anymore. lisa: basically people have turned it out and the fact they are coping with it gives uncertainty that maybe we have gotten less rate sensitive and allowed the fed to go further is

underpinning the reality of what people are pressing in. jonathan: can you explain gretzky to everyone? tom: everybody knows i know less about english football then jonathan. how do you know gretzky skated to where the puck wasn't? jonathan: his daughter married a good golfer. i reverse engineer different golf and then back and i psaki. that is how i did it -- into ice hockey. that is how i did it. i reverse engineer different golf ties hockey. -- to ice hockey. it takes a lot of work. futures down 20%. -- .8%. guy johnson just turned up behind the camera. the pound sterling the weakest

since 1985. strikes will be back in october for the railway. and the 30th anniversary of black wednesday. lisa: 1992. jonathan: guy johnson a few minutes away. live from london, this is bloomberg. ♪ lisa: keeping you up-to-date with the first word, i'm lisa mateo. the economy in china showed signs of recovery last month. industrial production, retail sales and fixed asset investment grew faster than expected. the urban jobless rate fell. beijing had rolled out stimulus measures to slow down a property market slump and covid lockdowns weighing on the outlook. in germany, the government began a series of historic takeovers that try to avert a collapse of the energy industry. regulators are taking control of russian oil major german oil refinery. germany is nearing a decision to

take over un -- the white house is calling on republican governors' efforts to shift migrants out of the states cruel and shameful. ron desantis flew dozens to martha's vineyard off the massachusetts. greg abbott of texas sent buses to washington near vice president, harris'-- kamala har ris's home. a potentially wearing sign for the global economy. fedex has shown its forecast. they pointed to weakness in asia and challenges in europe. fedex is taking immediate steps to cut costs, including parking some aircraft, cutting hours and closing within than 90 fedex office locations. 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 lisa mateo.

this is bloomberg. ♪

>> i think of the fed will 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.

i think the fed will lose its case to keep raising rates. maybe sooner than we think. jonathan: that is the hope for the equity bulls. live from london this morning, good morning. we are down .8% or .9% on the s&p 500. we are in mike wilson's world from morgan stanley. he was looking for the corrections to come from earnings scares and here is one. fedex and the premarket. i think you can use the word crushed in the premarket. here's the quote from the ceo. things are moving quickly. we are swiftly addressing the headwind and the speed at which conditions shifted. the fedex ceo. are we going to see more quotes like that in the coming weeks? tom: that consumer has been acting -- the bulls are trotting

out. this is important folks. through the day, this is a different friday. jonathan: is that the kind of thing that spokespeople? -- spooks people? tom: and there is. we rarely get to sit with guy johnson. you guys have known each other for years. there is so much going on here. away from the funeral. this is a united kingdom, jon. jonathan: we had a show together and we broke it up so i could come to work with you. [laughter] the 30-year anniversary of black wednesday. what a moment for pastor sterling at the bank of england. guy: we are below we are then --

we are below now everywhere then. down to 1985 levels. it has been hit incredibly hard here. you look at the sales number, the consumer hit a brick wall ages ago. it has now hit the brick wall, gone through it and is hitting another brick wall. it is really rough out there. some describe as a crocodile. you see the value of goods give up because of the inflation but the consumer is being hit hard. 50 basis points rather than 45. tom: a scathing amount of growth initiative. what is the labor opportunity here to respond to what appears to be a crisis? guy: the election is a long way away. in some ways you need to characterize it in that way. the labour party will make much of this. but what they do differently is

the interesting question. [laughter] that is the difficult to figure out. -- bit to figure out. there are some big internal elements to it as well. lisa: we talk about when the bank of england hikes rates by 75 basis points. does that lead to support for sterling or lead to a further -- another brick wall? guy: yes. it will cause -- it will not cause the currency to be supported the way it would have done in isolation. given what's happening with the fed and 75 basis points, that is the starting point. u.k. economy is clearly in a lot of trouble. you have got the fiscal and monetary pulling in different directions. next week we will have the

chancellor laying out the 2.5 percent growth rate and how do we get there. fantastic, lovely. we will have a strike that will start. the bank of england rate decision. none of this is positive. lisa: what is the reason for the strike? are there more coming? what is the goal and some of the tensions that highlight what the energy situation, the inflation situation for the broader economy? guy: we want more money. there is a pain condition element as well. it's a bit like the real strike just averted in the united states. there is clearly a wage element to it, but we want more sick days, we want to manage how guards are provisioned on trains. there's a host of issues. tom: is there a parallel -- i

believe it is 24% less in american compensation over five years. are we going to see that kind of jump in rail labor wages in england? guy: unlikely. they can distribute some of that money to labor. the u.k. rail network is a little bit of a mess if i'm being honest. it is not managed in the way it should be managed. it is theoretically private but effectively public. as a result of which it is because i government -- because quasi-government. you will not see those kind of numbers. jonathan: is it the budget? is it a fiscal response to all of this? is it the bank of england next week -- week? guy: the biggest struggle is the bank of england. the near-term currency issue, i

think it is a factor. jonathan: is a getting more concerning? guy: it is imported inflation. we pay for our energy and dollars. -- in dollars. that does not see the are concerned about that. if you want to fix the economy, there are massive supply-side reforms that need to be introduced. when need to think about the relationship and develop their relationship with the eu. all that is necessary. are we going to get any of that? unlikely. i'm more interested to see how the bank of england navigates an incredibly difficult decision. 50, 75? how much do you need to slow a car down? at the moment it is rattling badly. jonathan: what do you make of the big bang 2.0 and the city of london? guy: and has to go further than getting rid of the wage gap. it sends a signal.

this is a communication device. to your point, a lot needs to come next if you're going to see the city of london becoming more -- yeah. tom: what do jamie dimon and jp morgan what? guy: in some ways they are getting what they want up front. it makes the pay a lot more flexible. tom: should guy just move over one chair? jonathan: you are still not happy. tom: i am in england. i am not happy. jonathan: i'm not happy. you love it here. ♪

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jonathan: live from london this morning, good morning to you. equity markets down .8% on the s&p. the dollar moving this morning fades. that faded just a touch. yields higher by a couple of basis points. check out the two-year over the last five years. this chart is deep, deep valley.

crust, cratering in the pandemic and yields coming out of it and surging through 350 in june, 360, 370, 380 and briefly this morning for a heartbeat, 390. lisa: we have seen such a huge reset in the two having yield and nothing commensurate lows we saw back in june on equities. why not? what is the distinction between now and then that people are seeing? that's a question we should ask. jonathan: more than 6% off the lows from june. more than 40 basis point off the highs back in june. you have to make new highs on yields, expected net new lows in stocks -- expect to make new lows in stocks. tom: cash flow generators have

done better. for those of you on radio, you have to know negative 20. jonathan: corporate earnings can be frustrating. maybe a new guide. you can say whatever you like. when it is fettig talking about things like speed, things happening quickly, that will spook people. i have spoken the people. it spooked people that own the stock. lisa: there are so many different aspects of commerce in fedex. jonathan: guy came to set and said need to look at dhl and royal mail and the european names. that story at a fedex is spreading into europe. tom: and over to asia which we have hardly touched on today. there are some big challenges today.

with most important brief of the day, subadra rajappa joins us from the french franc society. thank you for joining us. when you look at the derivative mathematics of what we have seen in the last two days or two weeks, one of the telling story about the rates of change in fixed income? subadra: it is stunning. if you look at a chart, we have gone from 20 basis points to close to 4% right now. the rate of change has been absolutely stunning. what i'm looking at is the message you are getting from the bond market. take a page from facebook's motto. move fast and break things. that is what the fed is about to do.

if they do go along the path the market laid out, they will have to break things ultimately. that is what the curve is suggesting to us. tom: i will gopro on you right now. of all the different spreads, the one across all the yield curves, the two-year and the 30-year bond is in a place we have literally not seen in a lifetime. what is the importance of the level of inversion of the two's and 30 spread? subadra: it's at levels we have not seen in two decades. to me what the message there is that the market ultimately, if you look at the 10-year and beyond, is looking at the potential for a slowdown in growth. perhaps a hard landing. to specially if the fed hikes

rates as aggressively. he looking at a fed funds rate around 4.5%. that is before the cpi. the repricing higher has been quite dramatic. that would mean there is potential for a hard landing. tom: let a control room we have. eight to spread short. -- a 230 spread short. who else does that? jonathan: what am i, ba? lisa: the bond market is a safer place for us. maybe not. weighted we stop with two's and 10's?

are we going to break something? what does post-breakage look like? an inflation rate and yield interest rates in an era where we are not talking about zero yields anymore? subadra: at the next meeting given how dramatic the yields have risen i would be looking to hear from chair powell on what they think their policy path will be. in my view the market has gotten a little ahead of itself. powell might have to talk to market away from the ledge. yes, they went to rate hi -- raise rate hikes. beyond 4% to make sure they are not breaking things as they are raising rates. it's a balancing act between was happening on the -- they are looking at a variety of metrics to see the effect of

higher interest rates. they will have to figure out what the lag is and how to act now. so that it does not break things over the longer run. lisa: does that mean buying two-year bonds? subadra: buying? not necessarily. the fed is not going to be buying bonds anytime soon. lisa: sorry. i'm wondering whether it's a good opportunity. if you expect the fed to push back and give the market assurance they are not ahead of themselves? is there an opportunity in short-term debt? subadra: there might be. the question is if you want to enter the trade now closer to 4% yields start looking very attractive. you will see a steepening between the three-year and the

10-year part of the curve. it has potential to move higher. i would be tacitly positioned for the 10-year steepening over the short term. tom: it is a friday. no one is listening are watching. what do you do with the 60-40 allocation and bonds? -- in bonds? i look at the total return index. 60-40 is getting absolutely crushed. subadra: absolutely. all assets are very collated right now -- correlated right now. the dollar continues to tighten. at some point when you have seen a significant move in risky assets the best place to be is in bonds. yields are looking very attractive across the curve. even in the long end yields of that risen as much as the dollar

on the front and, you will see consistent demand from asset liability management and pension funds for the long end. that sort of trade is here to stay. it makes sense. you're looking at a longer-term verizon, you probably want to be long bonds especially when equities are performing poorly. jonathan: we have to leave it there. subadra rajappa. it's a game changer here guys and you know it. what we spoke to j.p. morgan asset management, how big was her cash allocation? lisa: 70% liquidity. jonathan: 70% liquidity. 390. i'm not willing to take the duration of 350 on 10. at the moment they will people that buy at 350. i would be nervous.

seven weeks of consecutive gains on the 10-year yield. they thought we had seen this peak inflation story and then month over month inflation accelerates again. it makes people nervous. lisa: you have not gotten yields for so long. that is why the likes of oaktree are seeing equity-like potential and credit -- in credit. i wonder whether other people are saying you can get yield if you sit on it and get those returns. tom: this is so important. so much of what we do at bloomberg and surveillance is fancy probiotic talk. individuals looking at the price of an individual bond, pick the bond. it is the >>'s 10 --- greg's

10-year bond. you mentioned the mortgage market in the u.s. i got on a gulfstream to come over here and i wasn't looking at a 5.8 5.9% get. now it is 6.2%. that is no different than when somebody's bond statement. we are there since yesterday. i'm trying to keep up with ferro. lisa: trying to get some price cuts. tom: america bought the island notre dame is on. jonathan: valid point. in the united states, it's like the conversation we've been having all morning. deutsche bank talking about 5% interest rates and 6% mortgages. the pushback against that, they continue will pushback.

can we live in that world? lisa: the housing market is not leveraged to the degree it was ahead of the 2008 crisis. you don't see the sudden fisher like we did last time. -- fissure like we did last time. tom: what am i going to do with 24 sheets? [laughter] jonathan: live from london, this is bloomberg. ♪ lisa m.: keeping you up-to-date with newsom around the world, i'm lisa mateo. in ukraine, president vladimir zelenskyy says a mass grave has been found in a city russian troops abandoned last week. more information is affected today after a visit by journalists. president biden says the u.s. will give ukraine as much as

$600 million in additional weapons and ammunition. it will come from existing stockpiles. i retired federal court judge has in named as special master to review all 11,000 documents seized at donald trump's florida home. they have until november 30 to complete the review. the judge in the case has refused a government request to use documents with classified markings in a criminal investigation. shares of uber are lower. the company has shut tenant turn a flash messaging while it investigates a cybersecurity bridge. a hacker claims to have access to sensitive data. the number of inbound containers arriving at the busiest u.s. ports fell by the most.the early days of the pandemic officials at the port of los angeles say imports fell 17% in august, assigned consumer demand could be starting to moderate. 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 lisa mateo. this is bloomberg. ♪

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>> they want -- a win percentage rise in inflation. you should not trust what the fed says. they missed it last time. they said it was about inflation last time and it wasn't. on employment want to 10%. jonathan: former bank of england monetary policy member. how does the central bank convince the public it is a price worth paying to get inflation lower? for our audience worldwide, this is bloomberg surveillance. we are down 20% on the s&p 500. yields a touch higher. the 10-year back to 345. had a little bit of a move to

390 and came back out again to 388.19. euro-dollar term negative. a touch of dollar strength. tom: have not even mentioned gold at $1700. this is one of five in the 200-day business year that is extraordinary. can you imagine another fedex shock on a friday? jonathan: that is kind of what we are grappling with. is this the beginning of something bigger? tom: exceptionally timely. i hate ben emons. he writes beautiful notes. he joins us now with a preview to richard clarida joining us i'm wednesday, the former vice chair the fed. you know his history. up, down, sideways.

he has a recent exit from the fed. he will toe the line but who do you want to listen for about this fed in the fed meeting? bed: i would listen for -- ben: i would listen for a bullish-hawkish fed. hawkish on inflation. as you have been analyzing this morning, rates are getting pretty restrictive here. you reach the level at some point there is a breakage. the fedex numbers show it. you want to know about bullish-hawkish. the price matters more than the risk of unappointed at this point. there is no trade-off or the fed at this moment between employment and inflation. tom: help us with a gas in the press conference of how chairman powell will identify a new

x-axis. how far will we go in time to readjust on wednesday? ben: i think they will project out in 2023-vanke 24 what they think -- 2023-2024 what they think it will be. calibrating at the moment. could be 4.5%, could be 5%. could be higher. the other thing is that the economic rejections will skew towards downside growth over time. if that is in recession territory, those of the edges into that meeting. i think rich will highlight the recession risk on the horizon. lisa: it seems like the asymmetry risk for the fed has put inflation at the forefront. the asymmetry of risk that inflation becomes -- it

undermines their credibility. do you think it has more balanced? the fear they get too far as more relevant. rates heading as high as they could. the dollar moving as strong as it is going will torpedo the global economy. ben: i think inflation expectations are moving the right direction the new york fed survey was encouraging. we will have to take note inflation uncertainty is really hot. the moving down to the average. low expectations can stay anchored. they do have a credibility problem. it seems to be moving in the right direction. it requires additional 7500 to 200 basis points of rate hikes to get the shortened expectations. lisa: do you buy the argument

that right now this economy is less interest rate sensitive than many imagined even though there is more debt than there was the last time we saw a rates at these levels? ben: no, i don't. from the housing market that is where the fed policy is showing the full force already. you think of debt outstanding, it is substantially larger. if you raise rates to a level, you're getting a third deleveraging corporations. it is a highly sensitive -- interest rate sensitive economy. jonathan: ben emons, thank you. both bullish and hawkish. are they being emboldened by a lagging indicator? what's inspiring them as a tight labor market and claims back to yesterday at 213. lisa: people question for how

long. we expected quite a few -- quantitative tightening to accelerate. the fed balance sheet rose. the amount of assets rose. $8.3 trillion. this is crazy. it went up. jonathan: what are you doing? that's very distracting. tom: you guys are gallivanting around. everybody is starting to publish in this maelstrom. citigroup just put out a piercing note that says it is time to underway financials. -- underweight financials. clear here at a somber moment with the queen's funeral on monday. global wall street is writing. jonathan: that was a consensus

position in this equity market at the start of the year. the fed was going to go on a rate hiking cycle. here we are with the rate hiking cycle that we did not foresee at all. now we are talking about 3% to 4%, maybe 5% next year. lisa: deal activity has fallen off a cliff. there is the concern that fedex and companies are knocking to be spending as much. that's another recipe. jonathan: much, much lower this morning on the equities market. yields were higher. the 10-year rolling over. now basically unchanged at 344.56. tom: we pause for a momentous moment were some of thank me for my soccer knowledge. jonathan: it did actually happen. tom: let's do this now. for those of you that don't follow this, this is a reason to follow jon ferro and english

about. mann city, it's the day shaquille o'neal turned up in the nba. he is 6'10"? jonathan: is it old-school goalscorer. manchester city. someone who likes to play inside the area but can break from the back as well. it's awesome. lisa: that someone actually come up in thank you? that is wonderful. tom: he says the two of you have been gas lighting this entire trip.

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>> the u.s. inflation number was horrific. >> valuation story suggests there is more downside unless a retreat from inflation happens more quickly.

>> the worst outcome as we see inflation elevated medium to long-term. >> if there was any hope chinese demand was going to halt the growth story, you can forget about that. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. jonathan: live from london for our audience worldwide, good morning, good morning. this is bloomberg surveillance on tv and radio alongside tom keene and lisa abramowicz i'm jonathan ferro. at the epicenter of this move, earlier yields higher, that fades. fedex front and center. tom: fedex down 20%. a seriously important stock america and global wall street follows. what i would notice with the nasdaq down 1%, the trend continues. you wonder where we are 2:00 and

3:00 this afternoon. jonathan: fedex down 20% in the premarket. we asked the question, is this the beginning of a sequence of events like this one? lisa: it is the pace at which they saw the change in the outlook. you pointed to this earlier, the speed, the speed we are reprising the hawkish nest at the same time companies might be rethinking how robust the economy is. it brings up mike wilson. the bulls see the idea of that weakness once the fed takes their foot off the gas, is that possible? tom: jim polson in the opening and others pushing against some of this toxic brew. jonathan: they are asking the questions on whether the fed can

keep-the way it is. to frame that, matt for setting of deutsche bank is looking for something at 4.9%. the amount of doubt on this fed's ability to get there, that is where the debate is. can we live in a 5% fed funds world? lisa: there is also the understanding of the lag time the rate hikes will take to fix the economy. if we do not know what the actual effect is and if it keeps hiking, if there is a punch where people see the weakness and the ramifications of the policy. jonathan: yet they are emboldened by a lagging indicator. this raises the question. the fed getting lulled into overdoing it. jonathan: is an interest rate financial is asian analysis. when does the fed look at the real economy? jonathan: 6% mortgage rates.

are we there now? tom: can you imagine 6.2% based on the trend we are at? lisa: if we do not get prices to come down for houses, then the affordability crisis. the ball is is this the point they want to bring the froth off of this market? jonathan: let's digress -- tom: let's digress quickly. sterling goes to 1.10. jonathan: it is our currency, your problem. maybe that is what the fed is communicating. i think the big conversation, whether it is fedex, whether it is the market, mortgages, what price do we have to pay for this federal reserve to get inflation lower? i do not think we have realized the price we have to pay. they have optimistic forecast of

unemployment creeping to the high 3% or maybe 4% or something closer to 5%. lisa: we just don't know. a lot of it has to do with whether these factors cooperate in the cpi report did not cooperate and now we have a two year yield bumping up against a 4% level. jonathan: alongside us, dan morris will join us. that equity market is down 37. let's start where we started with many people. wanted you by this? -- wouldn't you buy this? daniel: we need to see the second shoe dropping. pes on the nasdaq going from 33 to 20, all well and good because we need to get to a reasonable level, but we know by looking at consensus earnings estimates those have not adjusted yet, and if we look at the recession scenario for next year that is not particular compatible with

the 8% or 9% you're on your earnings forecast. tom: yesterday or the year before i got the feel of the 1970's. you write about in your research note. you say the wage price spiral is here. identify that. daniel: the headlines yesterday were the strike averted with railroad workers, but it is worth noting that part of that deal was a 14.1% increase in wages now. we have only had 8% year on year inflation. if you are that railroad worker, what are you going to do, where are you going to spend it? that will push up demand and inflation. you do not see the same level of unionization across the economy. it does highlight the challenge the fed faces in trying to stop that process. lisa: do you disagree with

subadra rajappa when she said perhaps the market has gotten ahead of itself in the fed will have to push back on how aggressive people are pricing the fed funds rate? daniel: the market is now ahead of where the fed was at the last dot plot but it is ahead of where we expected, we expected them between 4% and 4.25%, and we are there now. we've got about 4%, we are in the right general area. now this debate is how long does it stay there in the market still has the fed pivoting, maybe spring of the following year, that is more what we think is going to happen. there is still that adjustment will take place. jonathan:, has asked the right question all week, where do we hide? daniel: we need to think about time frames. the dollar has been the one safe haven.

if you look at the support you have for the dollar they are probably still in place. if there is good news, you are at 3.5% on treasuries and we did not see a big increase from here. we are at the level on treasuries where yields are stable. at least we are going back to a negative correlation in the price for equities and fixed income that makes a lot of the portfolio managers feel more comfortable. tom: bnp paribas is thinking about this. on twitter, saying we have been doing the math like we do not have gravity in physics. we are getting the gravity back. does that clear out the zombie companies, the zombie banks, the zombie manufacturing shops and the others? daniel: what makes it difficult

to assess and the implications for the consequences of the pandemic. we saw from the lockdowns that the response of government was like nothing we have ever seen before and we are starting to see hints of that with the energy crisis. government starting to do much much more, but what that will do for companies, that is an open question. if they were doing this, where is that money coming from? we will have to look at government debt levels. jonathan: we start to treat g10 countries, is that what you're are trying to say but not saying ? are you getting closer to saying that? daniel: we are already seeing it idioms. current account deficits in ems are driving the deficit. it will be a larger consideration in the future. jonathan: for the u.k. right now or in the future?

it looks like right now to make. dan morris, bnp paribas. very diplomatic. it feels like we are there now. tom: the analysis suggests we are not there but we are attending there rapidly. the analysis of the optionality institutions is narrowing fast. lisa: i cannot get over that tom calls me the uber bear. tom: we go way back. [laughter] lisa: i think you will see a lot more volatility in affects because that is where some of the difference in economic growth trajectory will be expressed. how violent do things get if japan -- to me that is the wildcard -- if they are forced to abandon that. tom: into the weekend, and sunday night in new york opening in asia, japan is front and center. lisa: i would agree.

tom: i wonder what the monday would look like. lisa: you do a great job being a therapist. tom: they said we do not have tang in london but they have tang pico tea. jonathan: what does that taste like? tom: it is tough to digest. jonathan: i think you have a commercial agreement with them. tom: i don't. it is just brown. jonathan: you should negotiate that. tom: is like orange flavored tea. jonathan: i wondered what you were drinking. futures .9% on the s&p 500. we will catch up with the columbia finance minister very shortly. futures down on the s&p and debate warning from fedex that may be cuts are in our future

across a range of companies. fred x -- fedex in the premarket is down 20%. live from london, this is bloomberg. lisa m.: the pound has fallen to its lowest level since 1985. sterling drop as much as 1%. the latest hit to the currency was data showing british retail sales fell at their sharpest pace in eight months in august. since the start of the year the pound is down 16% against the dollar. in germany the government has begun what may be a series of historic takeovers to try to avert the collapse of the energy industry. regulators are taking control of russian oil and german oil refineries. germany is also near new position to take over two other large gas importers. china has imposed sanctions on

tesco american business representatives over the sale of missiles to taiwan. the penalties were being leveled on the boeing ceo and the raytheon ceo. the missiles were part of a 1.1 million dollars u.s. arm sale to taiwan. more than 100,000 workers will decide whether there is a new labor agreement with u.s. railroads or a strike. they will vote on the deal reached on thursday. the agreement increases wages and includes a compromise on sick days. a timetable for the voting has not been released. it is a worrying side for the global economy. fedex has withdrawn its earnings forecast due to worsening business conditions. the delivery giant pointed to weakness in asia and challenges in europe. fedex is taking immediate steps to cut costs, including parking aircraft and closing more than 90 office locations.

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

>> on cable our target number is 1.09. people are talking about parity. do we dismiss that? no, it is not our target.

there are still nasty numbers to come. i think the dollar strength will sustain. jonathan: the fact that jane foley cannot dismiss the prospect of sterling hitting parity tells you a lot about this moment. that was jane foley just moments ago. live from london, this is bloomberg. down 1% on the s&p 500. yields unchanged on the 10 year. the dollar stronger. euro-dollar -.4%. i will keep promoting this. next week fed decide state. we'll catch up with matt lose eddie of deutsche bank -- matt luzzetti of deutsche bank and richard clarida. at the moment it is our currency, your problem. when does it become our problem? tom: the scale of that is

something richard clarida has worked on at columbia university , always affiliated with columbia university and most importantly out of yale university the minister of finance for columbia joins us now. there is so much to talk about, minister, but i have to go to larger and to reach back to stan fischer in 1998 through the prism of columbia economics and foreign-exchange see anything like an international upset that we missed in 1998 and in 1992? >> thank you. i am delighted to be with you. let me say i do not think the same kind of crisis in 1998, it was very much and emerging-market crisis, a global crisis. the slowdown, particularly the

inflation and the increasing interest rates, which is very heavily. tom: very importantly, i look at the limitation of price increase. we see it on india and their challenges for rice. in the united kingdom we see it and columbia and others talk about at. given the speed of information and the transfer of finance, can cap be effective in 2023? minister ocampo: the main problem we are getting from the global economy is inflation, particularly the effect it has had on interest rates. both domestic interest rates in columbia as well as the interest rate in capital markets are very high. of course inflation is hard to fight due to the dimensions of inflation.

for a specific country it is very possible to fight that inflation which contains a supply of inflation. central banks are good at managing demand inflation but less so in managing supply inflation. lisa: there is a great concern that when the fed hikes rates as much of the market is rising in it will create problems for the rest of the world. i wonder if you are taking a look at the dollar market and saying we cannot raise money in that at affordable rates. as at the situation as you look at your financing needs? minister ocampo: capital markets are very expensive for emerging economies today. for the time being, our international financing is coming from multilateral development banks and official institutions. so far we've not found this year to be bad for capital markets. we hope things normalize in the near future and we will go back

to the market. we expect to raise about $1 billion in private capital markets next year. lisa: what does it mean for things to stabilize? does it mean the dollar stabilizes? doesn't mean inflation stops accelerating? minister ocampo: it means the long-term interest rates for the u.s. start to fall. they were following before the recent announcement of the fed that they would likely increase interest rates again in the next meeting. before that they were following and also the rest margins for emerging markets were also falling. the situation has changed. we hope when inflation stabilizes in the united states the interest rates for the u.s. start to fall. tom: you've been one of the

great voices of columbia prep time and the stereotype in america is of civil unrest in columbia. you've moved beyond that with the new government and your participation as well. can you describe the stability in columbia and what it means for your tourism? 70 people have gone. describe the tourism future for columbia after decades of real unrest. minister ocampo: let me save the peace process that took place five years ago has been fairly successful in generating peace in several parts of the country. the current government is involved in other negotiations that we hope will be successful and they turned to peace in many parts of the country.

that has affected the boom of tourism. we hope it will come back when the economy fully recovers because the world is still depressed, although it is recovering. in columbia we hope to have a new boom of tourism. jonathan: we appreciate your time. we are lucky to catch up with you. the minister talking about some of the problems we have in the world. you forget that in em they have done a lot of work already on the rates side before the fed got started. lisa: their rates up to the 8% or 9% level, raising rates to offset some of the impact. i was struck by the fact he would rely on some of the international agencies for financing rather than tapping the dollar market because things are too expensive. tom: damian sassower's team

working on this, leaking foreign-exchange to the bond dynamics of emerging markets. it drives forward this is not a normal imf meeting. i cannot tell you what it will be. it will be an important conversation for our international audience. jonathan: we might be there. tom: probably nice there. jonathan: are you thinking about staying? bramo has converted. she is thinking about staying. she is super hyped up on london. futures positive. this is bloomberg. ♪

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jonathan: our next guest sees a 75 basis point rate hike from the fed next week. and then rate cuts in 2024. we will get to that in just a moment. equity futures another like lower, down a little more than 1% on the s&p 500. this happened since the tenure rolled over, does not -- is basically unchanged.

dollar stronger. dollar strength is stepping through much of this morning. tom: an important conversation in preparation for richard clarida joining us. richard clarida is known -- it is dynamic. general equilibrium theory. in the middle of all of that is still casted, it means things are moving rapidly. seth carpenter from morgan stanley knows decidedly it is a stocastic 2022. what is the process or path to get to calmer times and cal mer markets? seth: that prospect will require a lot of luck. the fed are feeling their way to

how far they have to raise the federal funds rate. they want to be restrictive and they want aggregate demand to slow down a lot so the underlying inflationary pressure starts to ebb, but what they do not want to do is intentionally cause a recession. getting to that point will require luck. tom: how you respond to the idea that the inflation impulse has a certain effect on the public, but the jobless impulse has a much greater effect? seth: i think they are both very important. their labor people have lost their jobs, it is very difficult, it creeps their spending a great deal. we do not have any meaningful rise -- if you look at the last jobs report, that was superstrong. so far that has been ok. the inflationary side of things hits the pocketbooks of everyday people. the rise in gas prices was

painful. that is starting to come off. the challenge for the fed will be if gas prices come down and people go back to spending more or they have they been hit hard enough in the pocketbook? jonathan: we spent the whole summer trying to think with the threshold would be for a pivot or rate cuts. i wonder what is it about 2024 where you think this threshold will be breached and the fed starts cutting? seth: i will own upfront the uncertainty is huge. we have said for many years lower for longer is what central banks are doing. now it is higher for longer. what the fed is trying to do is feel their way to where they can write in the economy without causing an outright recession. that is the reason they go to restrictive territory, not so much that things crash, but they hang out there as the economies close down. that is what we have as our

baseline. getting traction and they wait for things to slow down. tom: equity futures just moved to new lows for the morning. jonathan: that is the story so far and the story many people are grappling with four participants in markets is whether these are sufficiently tight financial conditions for this fed to achieve its objective? do you think they are sufficiently tight? seth: very hard to say stop one of the most typically sensitive sectors is housing and we have seen a strong rollover and housing. consumer durable goods spending is holding up, so it is not clear things have bitten yet. you are talking about equities. my colleague mike wilson points out this probably needs to be a lowering earnings projection, and that makes sense. if the economy is going to slow down enough to get inflationary pressures under control you have to expect earnings across the

board to be lower than they are now and we are not there yet. lisa: i like your call for 4% for almost a year. i wonder if people are underestimating the pain of holding rates at a level like that rather than missing the boat and raising too far and coming again, which seems to be the projection. seth: there is underestimation, but even greater underestimation is what happens if getting rates to 4% is not enough, what happens if they hike to 4%, wait there, and the economy just proves to be strong enough demand is there an inflation does not come down. i think the point there is not really upside to economic growth. his other things slow down and inflation comes under control or they do not slow down and the fed hikes more until they slow down. lisa: john and tom make fun of

me -- take a look at the fed balance sheet and where it is if they promised quantitative tightening. over last week at rose even though they are supposed to be accelerating quantitative tightening. when do we start to feel the effects, when does it start to matter for markets? seth: you and i can bond on thursday afternoons. that was a big part of my job, the statistical release, nerd alert. there is a challenge with getting qt to show up on the balance sheet. some of the way they are selling their mortgage backed securities holding on a forward basis. just give it a couple more months. treasuries are coming off the balance. over time the mortgage backed security will go away but it does take a long time. tom: i look at adxy, i look at korean wine unraveling through

the week. help us into the asia morning. what is the gamesmanship morgan stanley sees? they have robby feldman in tokyo who is iconic. what is the gamesmanship you see on the bank of japan and the ministry of finance into their monday morning, our sunday evening. are we close to action? seth: that is a great question. our baseline view is not from the bank of japan. you have the governor whose term is up in the first half of next year. he has been committed to being easy with policy to try to get inflation up. now it is working. clearly the yen has gone on a tear against the dollar. finally they are starting to get some traction with inflation. tom: what you read and listen to

from robby feldman? you have the advantage of dr. feldman in tokyo who is iconic. what is robby's twist? seth: he is fantastic and everyone should get the opportunity to read his work. he is all about legacy and the amount of time and effort put into this policy to try to get inflation -- japan has lost decades. what does it mean when you talk of the deflationary spiral. there is the sense with the governor it is critical. jonathan: can we wrap things up with fedex? it is such a big story for everyone. it is contributing to some of the nervousness around the equity market. the stock is down almost when he 1%. this is not a small company. it was a 50 billion dollar company or a $60 billion at one point. they are talking about speed.

is there anything you look at on your dashboard that would resonate with what fedex is experiencing? can you see anything like this? seth: one of the key points with companies like fedex's we did see this massive surge in spending. the sales report did not make you feel like it had unwound completely but at some point we will see that consumer pullback from as much consumer spending as had been going on in physical goods and that will have ripple effects across the economy. retailers but also companies that do a lot of shipping. jonathan: seth carpenter of morgan stanley. good to hear from you. seth mentioned mike wilson at morgan stanley looking for the next shoe to drop, earnings warnings. to see fedex down 20% and warning about a rapid change in the business environment.

maybe the regional fed pmi's back some of this up? lisa: it has been messy and inconsistent and go to this question we just heard from seth carpenter that if we start to gasoline prices lower, what happens to consumer spending? do people keep spending more in other areas? do they feel lighter or do they get more cautious? we are not getting a clear sense of that from companies. jonathan: talk about how global some of this was. enough to spook you, the fedex move? tom: i think you can link a domestic image like fedex into the global view. i would go to asia. we are locked out. i believe you can say a general statement. they are still on lockdown and i'm fascinated to see how the imf readjusts asia. are they negative gdp? that would be stunning.

tom: -- jonathan: 2% on chinese gdp growth? tom: i am not qualified to make that decision. lisa: there is a question of whether people want to be the ones out front. we got some data from china overnight and it was better-than-expected. what i thought was interesting is the chinese yuan did not strengthen versus the dollar. it continued to weaken even though we saw better-than-expected data. either people are buying it or it is not enough to make people feel optimistic about growth. jonathan: coming up, the outlook for the fed, not even a week away. greg staples will talk about the bond market, have we finally seen the highs of the year in this bond market in yields? and james athey of aberdeen has some things to say about europe. he is perhaps in your camp,

lisa. we will hear from him a little bit later. live from london, this is bloomberg. lisa m.: keeping you up-to-date with the news from around the world with the first word, i am lisa mateo. a retired federal court judge has been named as special master to review all 11,000 documents seized at donald trump's florida home. the special master has until november 30 to complete the review. meanwhile the judge has refused a government request to use documents with classified markings in a criminal investigation. the white house is offering state and local governments $1 billion over water years to fight cybercrime. as part of an effort to beat back attacks from criminals who have targeted everything from gas pipelines to meet factories. the money comes from an infrastructure bill passed last year. shares of uber are lower.

the ride-hailing company has shut down internal slack messaging following allegations of a cyber security breach. a hacker claims to access sensitive data. in ukraine president zelenskyy says a mass grave has been found in a city russian troops abandoned last week. more information is expected today. president biden says the u.s. will give ukraine as much as $600 million in additional weapons and ammunition. the eight will come from existing stockpiles. as more companies returned to office, many employees feel they have no chairs. according to a survey, almost 80% of remote workers think they would be fired if they said no. nearly 60% of employers say they would be ok with them resigning instead of returning to the office. global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more

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>> the major problem we are getting from the bubble economy is in laois and, per particulate the effect it has had on interest rates. -- particulate the economy, -- central banks are good at managing demand inflation but less so in managing supply inflation. jonathan: the minister of finance and public credit for columbia, fantastic to catch up with him about 30 minutes ago. tom: what is important is he said it is not 1998. there is a lot of fear about the crisis. you mentioned this earlier this week. you can get a whisper from the

past, but this is new, and the new part is coming off the pandemic. nobody suspected this. jonathan: we need to shift over to bramo, just turned away from here. lisa: are you good? jonathan: checking on the markets, all is right for the lisas of the world, down about 1%. we are traveling together. we are sharing a plane. yields up on the 10 year to 4650. equities lower. down 1.2% on the s&p. yields higher. not a million miles away from 3.50. jonathan: we will get to the market opened -- tom: we will get to the market open in the next hour and we are thrilled to be here for the next hour of the week in london. i will be here for the funeral.

a bloomberg opinion columnist joins us with a broader discussion of the moment we live in. marcus, you and i have been through any number of crises. what is different this time besides that we are coming out of a pandemic? marcus: i was on radio earlier talking about the 30th anniversary of the sterling going out of the exchange rate mechanism. this is a different crisis for sterling, but a wider global crisis. the strength of the dollar is causing real pain. you heard about fedex earlier. that is hard in europe and also the u.k.. a very volatile number but the consumer has hit a brick wall in the u.k. and they are probably already in recession. tom: i want to channel steve

roach and his great work on monetary and fiscal policy. if we assume that unlike 30 years ago we have a much more floating-rate dynamic fx system and financial system, does that mean that given a crisis will we see more abrupt moves in asset prices? marcus: probably less. the only real likelihood of encouragement will happen in japan. that is not the best news sterling could have. energy use going up will benefit the euro, the yuan. at the moment it is all about the dollar it makes it very hard. it is at least liquid. what i worry about is with quantitative tightening in too much interest rate hikes from the fed we start having problems with dollar liquidity. that is the thing that has saved

us through the pandemic. open exchange rates are great thing. painful but not sharp -- the swiss national bank was real pain. lisa: to that point, and you mentioned japan might do intervention to strategist strengthen -- to try to strengthen the japanese yen, what are the consequences if they do that. it is not necessarily begin -- a time where there is not that much liquidity. marcus: the bank of japan has controlled the interest rates and the bond markets, but it cannot control the currency at the same time. it will have to sell u.s. reserves, u.s. treasury bonds. the net effect to the bond

market in the u.s. should be bad. china and japan are huge source of u.s. treasury bonds. currency will have a knock on effect into the u.s. market as well. currency -- rarely works. the japanese had a bad experience. the only way to do it is with the time turn in the favor and then push the retreat much harder, but to try to draw a line in the sand and defend currency is a full's game. lisa: what is your conviction level for peak yields and the longer end. we are seeing -- but not necessarily with any real reliability. we are seeing yields go upward for the 10 year. what is your feel for how where near we are peak longer-term yield? marcus: nowhere.

it is a great time for short end , maybe some of the better quality junk were lower end investment grade credit. i would not have touched long end. there was no sign of a bottom yet. i that we have a chance going to high end yield. i did not have any convictions nor does anyone i speak to that the bond market rally is necessarily close. jonathan: marcus, thank you. that is the only thing i have conviction about that no one has any conviction. we had a 50% move on the dollar index this year. lisa: you put it well earlier when you said there was this feeling long ago, people would say yields would rise and then they got sucked back into the reality of the low yield or text. are we putting that on opposite right now? is that where we are with yields

and inflation the highest it has been in decades? jonathan: will remember out of the financial crisis there was forecast after forecast about higher rates this year or the next year. lisa: inflation never materialized, which is arguably why the fed made the error. inflation had already been deemed dead. jonathan: sowing the seeds for the mess we are in right now to some extent. i'm try to figure out whether we have totally capitulated on we cannot live at 4%. i do not think we have. the moment i put out the call from deutsche bank that they are looking for something close to 5%, tons of pushback. cannot live with 5% fed funds. jonathan: the conversation early this morning -- tom: conversation early this morning, where is the catharsis? we are used to that? where does vix go after the fear of 32, 33? it is not happened.

there is a vector to it, there is an impulse to it unlikely down catharsis. jonathan: right now we are down 1.3%. tom: do you like that professional analysis? omg lower? lisa: omg lower would get a response. tom: i agree with that. jonathan: great to see you agree with each other. down 1.3%. this is bloomberg. ♪

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>> this is an extended edition of bloomberg surveillance with tom keene, jonathan ferro, and lisa abramowicz. jonathan: live from london, good