>> we are definitely seeing resilience in the u.s. economy. >> set policies showing up in full force already. >> i think it is a very delicate balance. >> we have not seen the worst of it yet. >> this is "bloomberg surveillance." jonathan: yields are up, stocks are down, tom is on a plane somewhere, all is right in lisa's world. lisa: you are going to pin that on me? jonathan: i'm jonathan ferro.

tk on the way back from london. futures lowered by .4%. lisa, in this bond market it is headline after headline. lisa: i'm looking at that two year yield. last year tom was asking, what are we on four year watch? we are definitely there. the highest level for the two year yield going back to 2007, headed to 4%. how does that upend a lot of projections of valuation? jonathan: how quickly it has happened as well. 12 months ago, 22 basis points. what a move we have seen. lisa: it is poised for the biggest annual increase going back to 1994, but we are actually poised to exceed that. how do we price everything else? you say all is right with the world, i'm not sure if you are talking about tom on a plane or stocks being down, but all is

right for bulls. everybody can take something home. jonathan: a man from jp morgan is no longer talking about upside. he was talking about limited upside. robust earnings and well anchored inflation expectations that should mitigate any downside in risk assets from here. we take the first phrase, robust earnings. what do you make of earnings now? lisa: right now we are hearing from companies a little less sanguine than what he is putting out there. ford saying they are going to take a hit on production costs because of inflationary pressures and thousands of vehicles they cannot finish. a number of companies are coming out with warnings that people were not expecting it feeds more into the mike wilson view of things. jonathan: real yields on a 10 year, going back to 2011 this morning that is where your competition comes from now for the equity market and elsewhere.

lisa: well-phrased. all of a sudden you can get yields. there is an alternative. at what point do people say i would rather get a 4% base rate and going to risk assets. net how much does that continue to confirm the jp morgan asset management view? that basically has cash. jonathan: i will catch up with michael later on. nominal and real yields at multi-year highs. on the nasdaq we are down about .7talked about how much higher yields are, by four or five basis points. and euro-dollar just about holding onto parity again. lisa: i'm watching japanese yen too, because tomorrow is the bank of japan meeting and that is the one holdout in the negative rates universe. today august housing starts and

building permits. in this builds on what we saw yesterday in terms of homebuilders sentiment we have seen the longest consecutive streak of declines in homebuilders sentiment going back to 1986. giving you a sense of just how much pain you are seeing in the housing markets, this is one of the most direct hits by the federal reserve. at what point does it eat into pricing? at what point does this feed into rental costs and how quickly is that -- and how quick is that transition i can is him? today the fomc meeting, i have been watching at two year yield. it is shocking, just the pace of increase. that puts you on pace for the biggest increases going back to 1994. but how much does this reset risk expectations? and how much are we getting some gleaming from that with respect to ford, fedex, some others that

have issued warnings? today president biden is traveling to new york city. the national democratic convention reception tonight. tomorrow he is giving a speech to the u.n. general assembly. after a cbs interview where he was talking about timeline, how much has he really bought into this polarized allied groups, right? this china/russia versus u.s. and europe? how do you reassociate a world post-pandemic that we have seen over the past 24 months? jonathan: that is such a new york complaint, and i am on board. lisa: it is awful. you can already see the streets blocked off. you can't even walk across the street. jonathan: just stay at home. thank you. futures down about .5%. if you were here, the traffic is terrible. greg boutle, bnp paribas, could not make it to the studio

because the traffic is so that. let's talk about this market and how competitive these yields are with the market. greg: this is been a story of the huge repricing in the rate complex and what that has done to valuations. looking ahead to the fomc, 75 basis points, whatever we may get, the house view is a 75, but we are going to see tightening into the middle of next year and then quantitative tightening continues in the background, and it is going to be a difficult environment for equity market -- equity multiples to expand. jonathan: you think there is a part of the market that still needs to read -- to reprice? greg: the problem we have for equities is we have twin headwinds. one is the repricing in pe multiples driven by the monetary policy environment, and the second now is the cyclical

headwinds both of you were talking about, in terms of corporate earnings. we are seeing some of these warnings come through. we're going to get into earnings season and we expect to see more. there are two headwinds. evaluation complexes going to put pressure on growth, but you have to be careful about cyclical stocks. lisa: everyone seems to be bearish. how much more downside is there or has this all been baked in? greg: we take more of a neutral view on markets. the piece we published last week was called kerry on trading ranges. we still think we can get some choppy moves. we have had a couple of 4% days around the cpi and jackson hole recently. we think that type of volatility can continue, but it happens in more of a range. that may be a wider range than what we have been accustomed to, but we don't think we are going to go through those highs we saw in august. we are also not convinced the

data is going to be bad enough it is going to take us down through new lows for the back end of the year. lisa: are you talking about the macroeconomic data or the earnings reports we get from some of these companies as they get profit warnings, but also with the still-resilient consumer? greg: obviously the two go hand-in-hand, but it is the corporate earnings we are focused on. we have had to view all year that the consensus forecast for earnings has been optimistic. we talked to our client base, asset managers. there has been this consensus that the numbers on the street look too high. as we look to 2023, the outlook that corporate's give, we think the expectation for flat margins year on year and healthy topline growth are too optimistic. we think it is too high.

if you think we will get more margin compression, we think it will be lower than that stuff these numbers are incredible. factory out put prices of 48% from a year earlier, up from 37.2% in june and you know the main driver is electricity and gas. 160 7% from august last year. the damage starts in europe. do we realize the damage that will be done in the months ahead. lisa: 80% of people in a recent survey said europe is headed for recession. they say it's not priced into european equities. not only do you see an increase in inflation but you hear around the continent about different companies closing production because they cannot afford the cost of it in their factories because they cannot afford the output. jonathan: greg, how to dish how

do you price this messy winter? >> it's incredibly difficult to price. it will be a difficult winter in your but in the u.s., there is relative resilience. in terms of valuation multiples, maybe putting numbers on is the wrong way to do it. equity markets are much more driven directionally by what's happening in terms of incremental data. when news flow and data gets work, the market tends to trade lower and vice versa. in terms of the outlook for europe, what would -- we would be looking for incremental improvement in the data or perhaps the data getting worse rather than valuations. europe has been cheapened under own for a long time we don't think that alone will be sufficient to trigger a rally. jonathan: greg from p.m. -- from

bnp paribas, thank you. are things getting worse at a lisa: pace you expect? lisa:that said, they are still getting worse and people are saying there's not exactly a reason to go into european equities. have people fully understood the ramifications of europe on its back, i wonder how much you can price in a global slowdown and it how that bleeds into the global backdrop? jonathan: 75 basis points from the ecb last week and the week before, it's all muddled right now. then you've got the riksbank out 100 basis points. lisa: raising the rates going back more than three decades. does this make a difference for

the federal reserve? they could raise by 1%. and they are late. they are way behind some of the others. jonathan: riggs bank will weigh in on this at 7:00 a.m. eastern time. an important conversation with the foreign minister next. life from new york, this is bloomberg. lisa: federal reserve policy makers a two-day meeting which is expected to end with another jumbo interest rate hike. the fed will hike its benchmark interest rate by three quarters of a percentage point for the third straight time step chairman pal is made it clear the fed is committed to curbing inflation sooner rather than later.

in japan, inflation has accelerated to the fastest pace in more than three decades and that reads headaches for the bank of japan which will try to explain why needs to continue its monetary stimulus when inflation is above its 2% goal. consumer prices including fresh food rose by 2% from a year ago. britain's new prime minster says a trade deal between the u.s. and the u.k. is unlikely in the medium-term. she will focus on alliances elsewhere and spoke to reporters while flying to new york for the annual meeting of the u.n. general assembly. they want to relax covid rules that made travel difficult. quarantine will be replaced with seven days of home health monitoring in hong kong. mainland china appears to support the changes. global news, 24 hours a day and on bloomberg quicktake, powered by more than 2700 journalists

and analysts in more than 120 countries. this is bloomberg. ♪

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>> i've been asked whether there

is enough weapons we have received and i always say that i will be able to say it was enough only after ukraine wins. until then, we will be asking for more. jonathan: fantastic conversation with ukrainian foreign minister, live from new york, good morning. futures are down a half of 1% on the s&p 500 and the nasdaq is down 6/10 of 1%. going into the fed tomorrow afternoon. are you excited to catch up with the former vice chair? the unscripted version? lisa: exactly. jonathan: is he going to speak his mind? lisa: you will hash out what is the reality versus what's put out there versus sanitized speech of what jay powell gives out.

the wrangling behind the scenes. jonathan: then after the news conference, he will hang out with us. lisa: i'm looking forward to it. jonathan: tk will be back in the building but today is travel day. i've got no idea when he left. i'm told he's going to make it. the latest headline on the u.n. general assembly, the eu commission president to meet the uk prime minister in new york tomorrow. lisa: maybe i want to hide because i think it will be rough. i'm curious to hear what that conversation will be like. the uk prime minister is facing it because her policies are incredibly controversial. jonathan: anne-marie is responsible for the coverage in new york city and is back in d.c. and is with us now. what about the interview with

ukrainian foreign minister yesterday? did you get the sense that he's confident the resolve on the contin will hold through a tough winter? annmarie: he is confident and he thinks europe understands the crisis and not just because of the war but he claims that even before this war started on february 24, you already saw natural gas and oil prices start to spike and he said putin was trying to play politics with energy and he had done so in the paso he believes europe will maintain its result because they also do not have a choice. it's going to be incredibly difficult. the fact that you see factories starting to shut down overnight. germany is extending credit lines. it's going to be incredibly difficult and painful for europe. that's a big question going into

the u.n. meeting. it's a sideline meeting and so much of that will be what's going on ukraine. will they get more weapons and ammunition? it's on the heels of this counter's -- offensive that was successful and is your going to be successful in maintaining its unity. they are bearing the brunt of this in their own economy. lisa: it's an issue about energy and how to shore up enough of it to keep europe up over the winter season. how much is their realization that this is getting desperate? how will the u.s. help this? anne-marie: the u.s. wants to quell the oil prices because this is the midterm election and this is a huge domestic issue.

the biden administration wants to make sure they are keeping a lid on those prices going into the midterm election. it's about what you fill of -- how you fill up your tanks and the cost for food but also electricity bills. this is the big issue in europe. the electricity bill and natural gas prices, i put this to the ukrainian foreign minister yesterday. electricity prices over the summer were quite high. this is the desperation europe will see and it's only september now. jonathan said the other day is what we need is a meteorologist because depending how cold the winter will be, that will affect how europe is able to deal with this crisis. lisa: with your conversations around these meetings, how much

do people think europe has recognized the situation they are facing? anne-marie: i think they have deeply recognized it. they know they are no longer going to be able to rely on russian natural gas anymore. even last summer, angela merkel was at the white house and they were still talking about nord stream 2. we are never going to see that come online and now we are not seeing natural gas with nord stream 1. you have the entire european situation starting to have different discussions and partners they normally would not have making more trips to those partners that they normally never would have liked nigeria, qatar, these are countries that could potentially help europe in this winter because they have liquefied gas but that's just this winter. europe needs to change its infrastructure to handle this winter but the winters to come.

germany shut down nuclear and will potentially keep more open longer and are building lng terminals so this is a tectonic shift in europe. jonathan: can you tell me how frosty the meeting between the president and the british premise will be tomorrow? anne-marie: we heard from the new prime minister that she doesn't see a short-term or medium-term trade deal with united states. you know better than anyone that this was a key issue for those brexiteers to go out and vote. the trade deal is not happening. the frothiness -- the frostiness has to deal with northern ireland. they want that agreement to stay in place of potentially this will be thorny. i wasn't so sure if the president was going to meet her on the sidelines but they will

have that meeting. jonathan: i never liked unga. lisa: it's kind of fun to say. i have not called about all day. jonathan: is that where you were going? lisa: i was what -- i was looking for a rimshot. talk about frosty relationships. jonathan: live from new york, this is bloomberg. ♪

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jonathan: live from new york city coming here is the price action in the equity markets. the nasdaq is down about a half of 1%. the poison comes from the bond market, the two year yield is up for a night straight session,

flying over the last couple of weeks, approaching 4%. we've seen the high on the year back on june 14. the scary change we've seen on the two year yield over the last two months, it was up 21 basis points. jonathan: lisa: it sounds like a horror movie. it's causing a complete reset of where to get value. it doesn't look so bad. jonathan: it's real yields the

highest since 2011. these are big changes happening quickly. lisa: you could get some real yield if you took some risk but nonetheless, it transforms the risk reward opposition. you hear that from j.p. morgan asset management. jonathan: we had a conversation at the start of the year and you laughed at me. great call. we are so close at 143. will the doj >> length? >>i think they have to. german trends are basically 2%. we sit here in the japanese

yields are 22 basis points are not sure how much longer the boj can sustain this total control. we like dollar-yen higher until someone breaks and i think that's the boj. whether that's 155 are another level, i think we are on a collision force that ends with boj raising cap on yields to get more in step with what we are seeing around the world. jonathan: have you thought much about how the dominoes fall from their? >> i think the initial reaction is you get your blowoff in yields but our experience historically has been non-yields tend to go up before things break. our view is that yields will remain stickier and higher and the consensus believes until

there is an accident and we haven't seen that yet. lisa: that comes with longer-term yields in addition to short-term yields. you are talking about the yield curve control being abandoned. what kind of downside are you looking at? how do you hedge against that scenario at a time when it can take longer than people can afford to take that position most of >> we say go slow and be cautious. where you see it is the impacted yields on what leadership framework of the market looks like. yields are up i look at that as a big message. you look at the top of the market in the big stocks, the one everyone owns, a lot of this is below where they were in june. you see the impacted yields continuing to hit tech and i

think that will remain the story . lisa: when you look at what will happen in the next couple of months, what is the downside here? people are saying there isn't the same kind of leverage and you are not seeing the stability in banks. what will break that? >> i think that's unclear. the consensus is that consumers are in better shape than they have in but the market will be the judge of that. i can show you plenty of weakness around the world that sick just to market might have a different engine of that. -- might have a different opinion of that. what's most important for investors is the debate on the street about revisiting the new

lows. a lot of important stocks already have. you talk about the top of the market, microsoft, google, meta is back where was around covid. a lot of big names are reflecting that risk. jonathan: is this unheard of when it comes to the equity market? >> earlier in the year, the most provocative and you can say is not that the s&p will go a ton lower. you can say that it won't make much progress for a long period of time and that's what people are embracing as you make the transition. at a minimum, when you look at the liquidity backup, new ipo's,

bitcoin, high multiple software stocks, those things will be with us for a long time. that remains our view. even if the s&p lows are in here, there's no new liquidity cycle in front of us. jonathan: we've just blown up a decade of qe forever and i struggle with this in understanding why 12 months of raising interest rates gets us back to where we were before. it's not just the fed, it's just about everyone except boj. why would it take 12 months to reverse 10 years of that? >> i'm with you. it's a little bit of a cliche,

the dollar value is negative yielding debt. the debt is down to about $1 trillion so if you look for regime change, there's no that are exhibit of it and that step lisa: is this a regime change when it comes to nominal yields or when it comes to real yield? will we see real yields continue to climb as people price in a different response from central banks? >> it's both. the thing about real yields, it's fashionable to say that real yields are positive or they are above 1%. not really. the fed funds rate is still well below the rate of inflation. in any practical sense, the fed funds rate will

overcome the rate of inflation. that's when the fed has done enough. lisa: are people position for what you are expecting of something breaking? >> when you look at what positioning looks like, there is a decade of residual positioning at the top of the market. whether it's market up or market down, that is less important but what's more important is this massive leadership change we have seen. i'm reminded in 2002 when the nasdaq bottomed in october, it continued to underperform for the next four years. you are priced low in nasdaq. i don't think you are priced low in relative performance. that is the big takeaway. leadership picture has changed

dramatically. jonathan: great call. thank you so much. we just had a 10 year long monetary policy experiment. chileans in negative yield in debt. trillions in negative yield in debt. are we to believe that after 10 years of that and when you blow it up, there aren't consequences that last longer than a couple of orders? lisa: especially the inflation which they said was not possible. people said inflation was dead. that's what gave rise to the whole monetary theory that you could print money and it wouldn't cause inflation. they said inflation was dead in

this era of low growth and older populations and this is what would happen and it was wrong on multiple levels. how do we reset at a time when there is a resilience built up over that decade of free money? this is something that is difficult to game out step the concerted effort globally of central banks. jonathan: forget might rant about the traffic in new york city. yesterday i was in an uber and he was getting angry about the traffic. i wasn't angry at all. lisa: you didn't rant about the yen. jonathan: i was quiet and peaceful, i'm a fantastic passenger. lisa: you didn't mention unga?

keep telling yourself that. take the subway. jonathan: i'm supporting the cabdrivers of new york. lisa: thank you for your service. jonathan: coming up, from the atlantic council, from new york, this is bloomberg. lisa: the foreign minister of ukraine is urging the west to send more weapons. he told bloomberg tv that ukraine went to add to its territorial gains into my russian forces any strategic advantage. he said it makes sense to supply ukraine because it can defeat vladimir putin and his army. in switzerland, they/their forecast for economic growth and significantly boosted their projection for inflation. gdp is expected to rise 1% next year.

the swiss raise their outlook for inflation by almost one percentage point. president putin vowed to defend taiwan with u.s. forces of china invades and it's making a u.s. policy change explicit. the president's comments on 60 minutes did not mean the policy toward taiwan had changed. the remarks are being seen as a reversal of decades of so-called strategic ambiguity in which the u.s. refused to make its intentions clear. hurricane fiona expose the fragile puerto rico power grid. 3.1 million people were out of power. they are dealing with the bankruptcy at the power company. ford has joined those warning about macro economies in the economy. they say inflation is pushing

supplier costs $1 billion higher in the coming order in the expected adjusted earnings to be well below what they recorded last year. global news, 24 hours a day and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. ♪

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>> i think they are caught between a rock and a hard spot where it started at jackson hole and continuing that message and someone has to step back and say we need to be careful. i think howell will have to let some of his inner dove come out. jonathan: what do you make of that? lisa: except it's about protecting the economy from thinking too much and not unleashing the animal spirits of people.

jonathan: anne-marie is very quiet. lisa: she does not have her microphone on. jonathan: she is laughing but she is quiet step futures are down a half of 1% on the s&p 500. we are softer, lighter, lower and negative but yields are higher. we are getting closer and closer to 4% this morning on yields. when the global economy recovers, credit to tom who brings this up. can you imagine the economy if china was back online? lisa: is this a headwind or a tailwind to the global economy? you can get more activity from

china but you also get a dramatic repricing in oil prices considering demand has been falling off the cliff. how much does that change the scenario and how much is that a possibility near term? jonathan: a good friend of this program over the years, what would happen china dropped covid zero? >> i think we would see an explosion in prices. we don't have enough supply of basically anything at this point but oil would be the number one. right now, we are seeing that the global spr releases have moved over, the fact that we have a supply deficit right now, there is an increase in demand and we see what they are predict the, 3% global growth and that's basically with recession in

europe and possibly in the united states. we see that next year and we will need an extra 1.5 million barrels per day in global oil anyway and there is absolutely no indication we have spare capacity anywhere. we are looking at investment which is too low to replace what we need for our current demand let alone to accommodate growing demand. lisa: said the fpr release is taping over the deficits and allowing prices to go down so if the u.s. were not releasing millions of barrels of oil to the market, where would crude prices be? >> i think they would be higher. it's hard to give an exact number because a lot of the tapering is the result of the

paper market as opposed to the physical market. plus, we keep seeing fears of recession causing prices to go lower. there are some positive indicators that we may not see a recession. we have all of these issues in terms of supply chains. we are seeing that across the board. we are in a place where we are not sure if we're going to end up in a recession or not. increases in the industry and that could send us into recession and might be a good thing inflation wise but could cause oil prices to go down. on the other hand, other countries are heading toward recession and that puts the pressure on global oil demand so we are in a place were certain

things are covering for the fact that we are technically in a supply deficit and if those things go away, we could definitely see a higher oil price. on the other hand it could be lower. lisa: putting aside the macro economic guessing game and looking at the fundamentals, does the decline in rise make sense? >> i think it does make sense because we saw such high incidences due to speculation over the geopolitical situation and other issues and we are now seeing a backing off of that. the $120 per barrel was too high for the supply/amend situation and we are seeing that back off. it depends on what happens in december with russian oil and if

that takes any off the market. jonathan: do you think we have been rethinking about capex in the oil area? >> not at all, i don't think we have seen enough of that. jonathan: thank you. thanks for letting me know. those numbers are amazing, 750 billion dollars in 2014, too little too late. lisa: and it's everywhere. you look at that shale match, some of the most productive oil patches are basically used up. they cannot get as much so they are not producing as much and are not investing as much and debt investors are not going in because they got burned in 2014.

the political question is the uncomfortable incentivizing of fossil fuel companies at a time when these governments want to move to greener energy and how do you do that dance? jonathan: unga. the conflict in ukraine has certainly intensified the effects of the energy crisis. even if the conflict stop today, the crisis would not end. that's a big problem for europe and beyond. lisa: we are just getting a headline and germany is trying to nationalize one of their gas companies which is a solution in germany in particular. what kind of investment comes with that? how do you have a free market at a time when the only solution you may have is to take governmental control? jonathan: it's a terrible

situation. futures are down 4/10 on the s&p 500. yields are up for basis points on the 10 year and due to year yield -- and the two year yield is absently fine. -- absolutely fine. it was 20 basis points months ago. from new york, this is bloomberg. ♪

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♪ >> we are definitely seeing resilience in the u.s. economy. the labor market is still strong. >> i think probably as usual. >> i think it is a very delicate balance. >> i think we have probably not seen the worst of it yet. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa

abramowicz. jonathan: yields flying over the last couple weeks. good morning. for our audience worldwide, this is "bloomberg surveillance" on tv and radio. t.k. back in the building tomorrow. futures down 0.4%. the s&p down 0.5%. we said it repeatedly the last ever that it is a reset in the bond market. lisa: a complete reset with the banks having decisions and all raising rates with the exception of the bank of japan. everyone is talking about regime change, fighting inflation, and you are seeing that through the market. jonathan: what gets your attention more so, the level or the speed of change we have seen the last few weeks? lisa: it is both, but the speed is shocking. the highest level yields going back to 2007, it is already there, but the speed, three percentage point increase. how much work has the bond

market done for the fed? it seems like the fed does not think enough, which is the reason why they are saying 100 basis points could be on the table during the meeting. jonathan: all the way back to 2011 on the tenure. lisa: we still don't have positive real yields. this is a faction because this is gaming out what real inflation would be when you talk about a 9% or 8% cpi rate and getting 4% or 3.5% of tenure does not look that great so the question really is, how much more do you see that increased if people start to think inflation will stay high for longer? jonathan: we both get the pushback. i get pushback from people who say for percent is not enough, have to go higher than that, and there is another camp who say it is too much, the economy cannot operate with a 4% fed funds rate. totally opposite views right now. lisa: how much of it is decided by where you are?

how much are the people outside of the u.s. saying that? in the u.s., people saying it is not about the rest of the world but the united states. we just don't know. we are at a moment in economic history that is hard to create a roadmap for. jonathan: fed decision just around the corner. let's wait for the price action. lower on the s&p. nasdaq down by 0.4%. yields higher by 4 basis points. the two-year year, 3.96% and pushing 4%. crude lower. as we said repeatedly over the last couple days, just about holding onto parity on the euro-dollar. lisa: we are talking about the right decisions coming up again. one of the questions, how quickly is rate policy transmitted into the economy? the one place to look for that is the housing market.

housing building starts and permits for the u.s. come after yesterday where the homebuilder sentiment is declining yet another month, the longest streak of decline for homebuilder sentiment going back to the mid-1980's. it shows the pace of the decline at least in this one area. again, i go to this question because a lot of people do not have debt. consumer debt lower than they have been traditionally permitted corporations have plenty of cash, which raises the question of what it will do if the fed raises rates to combat inflation. today is the beginning of a two day fomc meeting. the two year yield continues to climb. 4%, 4.4%, what do they say, how do they pushback? today, president biden will attend a reception tonight and tomorrow he goes to the united nations.

jonathan: i will get annoyed about it. i prefer we say the u.n. general assembly. lisa: i want to understand where the camps are in terms of allies and the policy with respect to china because his rhetoric has gotten so harsh recently with respect to taiwan, taking a different stance than prior presidents. how does it translate to a changed approach with china? jonathan: just say it repeatedly . lisa: like why are you guys doing this to me? jonathan:jonathan: thank you. the president meeting with liz truss tomorrow in new york. liz truss will be pretty busy, the british prime minister, and will hit the ground running in a big way this week. the bank of england rate

decision we will save for later in the week. we have anna han.wonderful to catch up with you as always. you have to give us one reason to be bullish here because everything is so gloomy. anna: things might not be as bad as feared. one of the biggest things we are watching is conference season. we want to see how corporate earnings and outlooks are going, but it was not so great so far. hoping to see if the margins and growth computer out for the rest of this year and being not the worst news, that can be one of the things. on top of this, the tail risk assets will be european energy prices and how midterm elections go this year. lisa: we talked with chris about a lost decade. how many people you speak to have thought through the concept of a lost decade of profits, gains for u.s. stocks? anna: that is a great point.

it is hard to see that in the past we saw one of the shortest we sessions and now we are battling one of the highest inflations. how long can that persist? what has been the engine here has been the strength in the labor market, the strength of the consumer. and how long that stays resilient in the face of persistent inflation will tell us how much we can recover or gain back from the lost earnings we have had. lisa: but that said, when you start talking about real yields, a nearly 4% to year yield, we start talking about earning income, it presents a competitive story to equities for the first time in decades. how much does that change the equation, raise the bar, even if the consumer has money to spend? anna: that is a great point because when you look at earning yields on the s&p 500 or who has

a higher dividend yield in their dividend pays for corporate versus what you can get in the fixed income market, it begs the question, how much of your portfolio do you want to allocate to u.s. equities versus some of the more steady eddie things? that is weighing on people's minds, which is why corporate earnings are so important. as real yields rise and mortgage rates got higher, that is what they are thinking about. jonathan: one thing you and chris have said over the last week with regards to the fed is the decelerating path can be a positive for stocks. what kind of pushback did you get from clients when you told them that? anna: i think the biggest pushback actually was in the reverse. the first was the market was pricing in the bottom sooner than we thought about and that has come out of the market, but now that we are thinking that things can slow down, of course the number one argument will be

more inflation, continue rationing higher, and perhaps what we saw as the biggest component that might come down, maybe that component does not come down as quickly. that is what worries people. if that does not come down come if we continue to see high eight handles on the cpi price, do they have a choice? we will have to remain hawkish, maybe continue on the 75 basis points path. a lot of us think that is unlikely so far. we think the terminal rate is closer to 4 but quite shy from getting to five to the end of 2023. that is something we are thinking about. jonathan: next question is from market watch. trucking lawmakers stock buys as trading looks unlikely before the midterm elections.

they are referring to speaker pelosi and senator cruz. this got your attention and mine. what did you make of this? anna: i think it brings into focus midterm elections. there are a lot of hot topics we will be discussing, and it will be quite polarizing. not only are we talking but congressional trading, but now we have president biden in new york where the hot topics will be taiwan and china get a lot of things going around in the midterm elections that can bring things to the equity market. right now, you see a massive shift in polls. first we saw the democrats had a stronghold in keeping this in a majority, but that has declined. a change between who the potential ruling party will be can impact equity market but our view is it is underappreciated how much the gop has the chance of taking the house and senate. jonathan: thank you from wells

fargo. brilliant. it was good to catch up, and thank you for making sure this got my attention. based on democratic lawmakers's portfolios. to me, i find the makeup of the funds more interesting to be honest with you. lisa: i agree. it brings into focus if you cannot beat them join them because it looks unlikely they will bad trading of stocks ahead of the midterm elections, so join in, see what they know. jonathan: the federal reserve still not fixing it. lisa: this is the amazing thing about wall street. if you will not fix it, they will not weigh in morley, but i will join you. i can track your stock holdings and maybe we will win together. jonathan: do you weigh the portfolio to crude? can you park your politics?

are you able to do that? lisa: you lean in. you should try it. who is picking better stocks? this would be a great index. jonathan: great fund depending on who runs what committee. the -- not saying it works like that. we are down a third of 1% on the s&p. from new york, this is bloomberg. >> keeping you up-to-date with news from around the world, i am lisa mateo. policymakers begin a two-day meeting that is expected to include a big jump in rates. it will hike by three quarters of a percentage point for the third straight time. chair jerome powell has made it clear he is committed to carving inflation sooner rather than later. in japan, inflation has

accelerated to the fastest paste in more than three decades -- pace in more than three decades. they will try to explain why it needs to continue with monetary stimulus when inflation is above the 2% goal. consumer prices rose 2.8 percent in august from a year ago. britain's new prime minister says a trade deal between the u.k. and u.s. is unlikely in the short to medium-term. she says she will focus on alliances elsewhere. she spoke to reporters before the annual meeting of the u.n. general assembly. germany is closing in on a deal to naturalize a gas giant. berlin is aiming for an announcement this week. germany has working i historic take over to prevent a collapse of its energy market. global news 24 hours a day on air and on bloomberg quicktake, powered by more than 2,700 journalists and analysts in over 120 countries. i'm lisa mateo.

this is bloomberg. ♪

♪ >> the world has a lot to do

with the finance and investment from the public and private sectors get desha sectors -- sectors while ensuring the world does not slide into a recession. jonathan: antonio guterres, the u.n. secretary general, live from new york city. t.k. back with us tomorrow for decision day for the federal reserve. futures down on the s&p and nasdaq, down one third of a percent. some drama in the bond market. yields up on the 10 year. 35395. it is almost like a countdown for 4% or a countdown to 4% on the two-year at the moment. the two-year up another three basis points. lisa: you can categorize it as a risk asset. jonathan: i think so, a wise man

once said. lisa: it is a wise point to raise especially as the pace of increased just keeps going. jonathan: nine sessions and we keep climbing. to share this quote for you, it is about the dot plot and the summary of economic injections, essentially pointing out they think the meeting will be 4% to 4.25% with a sizable number for 4.5% to 4.75% in 2023 with no cuts next year. that is the way they can push back from the rate cuts. lisa: do you like that? i hate it. it is ridiculous. basically just putting something out there and then the facts change and they decide to redo their estimates. what is this? these are dot plot cupcakes in the newsroom. jonathan: is that what they had on the prince side? lisa: yes. jonathan: nice.

you want to communicate dovish policy for longer and flatten the curve several years, the dot plot was useful for that. lisa: it is the saying that forward guidance is dead. i am sorry. done with my rant. jonathan: we are on the same page. nancy cruz aim to track lawmaker stock buying. don't know how i missed this yesterday. this was a market watch. anne-marie is back with us from d.c. to new york city. what is this about, and why have they still not addressed the congressional trading issues? >> it will not be addressed before the midterm election to quote senator markey. what we should discuss as part of this is the analysis last week by the new york times. i will beat some of it to you. at least 97 current members of congress or families bought

assets that overlapped with their work. i will give you two of the examples. not partisan here. senator tommy tupper bill, republican from alabama, on the agricultural committee, even admit he is investing in cattle prices. then you have represented lovin thought from california,. his disclosure statement disclosed he sold but when shares one day before a house committee on which he sits released damaging findings on the company's handling of its 737 max jet, which was involved in two fatal crashes. this is getting a lot of publicity of course, but the issue is you have 97 members of congress who are involved in this. what is the likelihood you will really move on this legislation? lisa: what about the pushback from voters? how much anger is there that they are getting an edge and you

can track the edge with etf's? the fact that you can create something where you can potentially join them in their wisdom or knowledge of what will happen, how much public pushback is there? annmarie: at the moment, there is not a lot of public pushback. what you see trucking in polls and what people want to vote on are the economy, the border, the two big republican talking points. for democrats, it is the like of what is happening now with the former president and his issues after the mar-a-lago raid, getting all of the national security documents, abortion. these are the issues that obviously are tracking within the public, but i think many americans probably feel the same way you two do, which is, how would our viewers feel if i was able to trade oil contracts given the fact that i talked to a lot of people in the oil industry? we would never be allowed to do it. the big question is, why our

elected officials who have sensitive information? lisa: how much transparency is there around what their holdings are and how they trade? how quickly do we learn about them? annmarie: later in disclosures, not in real-time. lisa: so they have time to get out of it. annmarie: ahead of the bad news. at that point, it is a news story. lisa: what do you thing about this? jonathan: i think it is a massive problem. the policymakers we expected to do more when it came to institutions like the federal reserve, at the same time preaching with the fed should and should not do, they were doing what they are doing. we are all uncomfortable with it. most journalists would tell you and she did a great job of it there. it is amazing. absolutely amazing. lisa: it is amazing. as we head into the midterm election, what is the latest view? we heard some people including

anna han saying republicans are making inroads in the house. is that what you are hearing? annmarie: they need six seats and they are boosting up on the advertisement campaigns with big money, making sure they can flip the house. the senate is the one where there is more of a question mark. you had senator mitch mcconnell come out and say it is about the caliber of the cabinet. potentially some of these a bit more fringe individuals really backed by the former president and some of his acolytes getting pushed into this big general election. when you look at the senate race over the house race, this is a wide variety of people. so there is potential we will have this lame duck because it will be split and of course the white house will be democratic, so legislation will not be able to get done except for big ticket items. obviously, they need a stopgap funding measure so that things like foreign policy where

everybody can line up on, whether it comes to taiwan or money to ukraine, that is the only place you will see individuals cross the aisle. jonathan: thank you. love having you in new york city. lisa: taking the subway. jonathan: taking the subway. deliberating solo. lisa: come on. it is not that low. jonathan: it is true. you have not seen it. lisa: i trust annmarie. jonathan: you have seen it when we were in london together. how she behaves when she gets out of the car. [laughter] lisa: like rage in the other room. jonathan: i got bluetooth and blast music with my speaker. lisa: that is not who this is. jonathan: i am telling you. [laughter] ♪

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jonathan: good morning, time to squeeze out another dave gains for the s&p 500. still about 6% higher than the june low.

right now, up another two or three basis points. highs we haven't seen since 2007. you've got to go all the way back to 2011. the bond market is absolute poison for what has been developing. can you get bullish here on a two year yield? to capture that story, the two-year over the last 3, 4, 5 years. during the pandemic almost one vertical over the last several months. five months ago we were at 20 basis points. something like 21, 22 basis points. now, 4%. lisa: and are we here yet?

is this where we stopped, or do we keep going? when do we have a sense of how close we are to finishing the meteoric rise? >> it is not just about whether we finish the rise, but whether we stay there. some economic projections, they convey that part of the story. lisa: we understand the ramifications? you've been asking these questions all day. do we understand the ramifications on the economy at a time we haven't seen yields like this going back? jonathan: i don't think we have. we are blowing up 10 years of unprecedented monetary policy. think about it. also corporate as well. we are moving away from that.

this idea, walk away from that, throw it out. difficult to believe. lisa: which is why we are talking about a lost decade. what does that mean in terms of the appeal of cash-like instruments? do you go back to a stock cutter argument for the you think it is ok to hold out for something more liquid? >> with fedex last week, we saw more of this. >> that is what i'm watching for, really looking at what happened. share prices go down by 4.4 percent as people try to game out what this means, falling onto fedex, and they are all

slightly different. again, how much is this a beginning and how much of this is an idiosyncratic shift between other companies? i'm sorry i had to do this, but it is kind of an amazing story. the story is the chief operating. jonathan: at a college football game. lisa: a college football game. it is a company that caters to vegans and people who don't want to eat meat. there are a lot of questions about this. jonathan: no longer a vegan? lisa: you could debate the culinary meaning behind this, but a lot of people are looking at this as the shares are up, the shares have been absolutely

decimated as people read the condition for this company. jonathan: i'm not sure what connection there is. lisa: did you notice i didn't even try? but it was a fascinating story, i felt like we had to put it out there. jonathan: kathy jones is here to weigh in. well, she's not. we all want to know, the two-year approach, disease speak volumes, either one of them for you? kathy: i think it is unsustainable to have the fat hiking rates very rapidly. we see in housing market decline. at some point it will have to shift or we will go into a deeper recession.

i think there is a deeper and deeper inversion of the yield curve here. jonathan: this ultimately has to be a call on the economy. we have any idea what the fed is willing to go through? kathy: we did mention pain for households and businesses last time. there is a willingness to let it continue and worsen, particularly to see unemployment rise. i think they want to see labor conditions not so tight and they want to see wages that are down. 5.2 percent year-over-year, it is not a lot, but we haven't seen a decline and if the comfort zone is closer to 3%,

that is probably what they are willing to tolerate. the question is whether risk assets can tolerate that sort of pain. lisa: do you care about the dot plot? kathy: well, we have to. but it is a moving target. i'm not going to take it too seriously. it is a tool. the fed will show them but it is a moving target. lisa: kathy, i ask because there is a question at the credit ability of the federal reserve, the credibility that they are actually coming out with -- versus just following the market, doing what the market has dictated. how much has that shifted your view and how much volatility is going to be at a time when the fed is not leaving anymore? it is apparently following much more. kathy: the fed actually

following the inflation data. we know that monetary policy works, so they should get in front of it and say we are on top of it, we are taking action, a rapid tightening cycle. i know that what we're doing will make progress in the future, reacting to numbers coming out today. deeper slowdown in the economy, we are seeing this all over the world. that means it is even more of a problem for people who are looking at what the fed is saying versus what the fed is doing. lisa: you were saying it is a good time to go into --. how much conviction do you have that we have seen some of the higher levels for longer-term treasuries and a time when you are questioning whether or not

we are actually only in the recession for where stash if we are headed for once. kathy: right now we are in buying the 10 year bonds here. i do think that is unsustainable. in the marketplace, liquidity isn't what it needs to be. we have pretty positive that this is the time to start taking advantage of that. you can lock in for percent-5% yield without taking a tremendous amount of duration risk. the alternative is some of the other asset out there. jonathan: kathy jones at charles schwab on market. won't be the first time you hear that this morning. if you are lucky you have, fortunate enough to have access to bloomberg terminal, get a

quick forecast at the bottom of that page. the pain that we are talking about here, that the chairman of the federal reserve talked about, do you think the forecast will begin to capture this? 3.7% this year. 2024, 4 .1%. it is of course, painful to get that number out there, but there's a lot of people also looking at the situation and see more pain to get inflation back toward the target. lisa: and if they don't, what does that mean about the credibility, about how much people trust that they are communicating the reality of what they are looking at? the reason this is the session right now with the fact that cpi came in hotter than expected it highlights that there is perhaps more momentum then people had expected because they are not

seeing the deceleration, the stickiness of rent, the stickiness of higher wages, the stickiness of medical bills, the stickiness of grocery bills. they have to see to celebrating in a way that is only going to happen with that pain and you have to see them communicate that in some fashion. jonathan: they are forecasting a soft landing, aren't they? the things they are wrong, things they are going to get a hard-line projection. the next set of projections, the forecastle have to capture that. we've got a whole host of guests. increasingly, the consensus is the landing strip of soft landing is like this. you sent yesterday. it is like landing on a picnic like it. it is all a blur to me. someone said it, it wasn't me. but ultimately, the fed is

projecting a soft landing. lisa: it takes a great deal of luck, right? and they are not getting that luck. they are not cooperating when you look at the gas prices. gasoline prices have come down dramatically, but how long can that last? jonathan: landing on a picnic like it. lisa: unlikely, or impossible? jonathan: i think it is impossible. unless you are tom cruise, maverick. maybe he could do that. lisa: let's get into the fed here. jonathan: 8:30 eastern time. looking forward to that. this is bloomberg. >> keeping you up-to-date with news from around the world, the president of turkey says russia should return occupied territory to ukraine as part of a peace treaty. he said he had very expansive

discussions with vladimir putin last week. since putin has showed him that he is willing to end the war as soon as possible. hurricane fiona has exposed puerto rico's fragile power grid. the effect the entire u.s. territory. the power outages are dealing with a bankruptcy that has no clear end in sight. president biden's vowed to defend taiwan if china invades is making a u.s. policy shift. the president's comments on 60 minutes did not mean that the policy for taiwan had changed. the remarks of being seen as a reversal of decade of strategic and acuity in which the u.s. refused to make its intentions clear. morgan stanley will pay u.s. regulator $35 million over data security lapses. the sec alleged that the bank failed to secure the personal

data of millions of customers when it wipe hard drives and service. morgan stanley agreed to set up a case without admitting to or denying the allegations. 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.

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jonathan: breaking headlines about ukraine and russia. anne-marie back in the studio for us. one of the latest? >> we're hearing from moscow they are going to have the special election in september 23, this is according to the state-run bd agency in russia. i spoke to the ukrainian foreign minister yesterday and he mentioned this. he said it is the only region right now that pressure has full control over, so it would make sense. this is really a play but russia

does. they are going to just say that these individuals want to be part of russia. we've seen for months russia really trying -- paint territory where they are gaining ground. it is not just about the election, also about introducing things. we have seen it a number of places and now they are doing it in wuhan. jonathan: it is a stretch that this could be one way to russian leader claims to accept these session operations, these so-called special operations? lisa: i think that is out a lot of people with you this. he has remained that he is in this special operation. obviously ukraine, the western world, all of their eyes are viewing this as a orbit intentionally back home, i am not going to see a lot of pushback, but a little bit of individuals talking about the fact that we should be calling this a war. it is a war right now. this is the individual that back

in february floated the idea of recognizing wuhan as separate entities, and the president when in and said he could have a special operation. that same individual recently said we should call this a war. that could potentially mean having to go through conscription, having to spend more on money. potentially, putin could use this and he could claim that his "special operation" was a success. jonathan: maria tadeo can join us now. let's get your take on all of this. what is the significance of these headlines in the last 20 minutes? maria: look, jonathan, these are bold moods coming out from the russian federation. how did russia respond to the gains made by the ukrainian army that has been an embarrassment for the army in russia? you are now seeing potentially this referendum happening which

of course, ukraine will never accept. they say this is part of our territory in ukraine, they will never accept what they think is a fake referendum but also there have been rumors now for weeks and russia that they would have to ship from special operations. remember, vladimir putin said these are professional soldiers. it would be no conscription. we move slowly because our soldiers are professionals, they do not want to hurt civilians. of course the reality is very different but it does tell you about the boots on the ground in russia and what they are risking for the russians. you never know with the reaction of the people is going to be. there is a big difference between a war on television. he told pack your bags, you're going to ukraine to fight, and the other one is you really believe it could be anywhere near a peaceful resolution. this has escalated.

even diplomatic of the russian federation is out of the question. this is still a war. lisa: and that raises the question that perhaps a potential to claim victory for vladimir putin, we just heard maria say that he could be viewed as an escalation of conflict because the ukrainians will not accept this. is it viewed as an escalation, or a potential endgame to the conflict if russia could say we have a victory and can walk away? >> as maria makes a point, there is no way that ukraine would accept this. it is not just from wuhan, the special elections in both the individual entities and obviously like crimea, this will obviously be very fixed, not an actual election. it will be viewed potentially

for putin as a success and then he could even use that to get conscription of russian soldiers because that would then be russian territory. but ukraine would not accept this. i don't see this as the endgame, only that putin can claim as a success and as maria said, it was quite embarrassing that ukrainians had run and now they are moving back to the south. this is certainly viewed in my eyes as escalation. >> how much confusion is there among european allies to really support ukraine in combating this escalation in the next couple of months? >> again, i think to into that question you have to put yourself in the psyche of the ukrainian people and the ukrainian government. if there is something ukrainian officials repeat, is that they are not going to give away the territory, and they also pointed to the international borders,

that they would declare a victory. they will view it again as escalation. a lot of this specifically if the conflict back in february with the old tricks, the idea of -- out of the question for the european union. and you heard this from the head of the european commission last week in a speech that is very belligerent. we are going to stand with ukrainian people. there are just one thing that she repeats all the time. they would consider a state referendum is another demonstration of what in the eyes of the european union is russian topography. jonathan: anne-marie, perhaps you can respond to this. you've heard from the russian leader. with almost a nod to the concerns that china had about the situation, how do you think that plays into this? >> i think you could take us to beijing and say this was a

special military operation and i am successful. that is what he is going to do for any allies he has now. it is north korea, and obviously take it back home. but it was also a rare admission that he was making president xi say basically we know that we put you in this difficult spot, and you probably have some questions about what is going on. jonathan: two of the very best on the story, thank you. the kremlin is moving hastily to stay annexing a region for ukraine it's forces still control. lisa: i think it is really important to get the context. ukraine will not accept this. it will create more redlines and more motivation to combat but we are calling in air story sham votes.

i do wonder some of the european allies they saw a very difficult winter, how much unity there is to provide that support ukraine. jonathan: the yuan general assembly, isn't it? lisa: at a certain point, how much is this the energy summit? jonathan: we will continue to provide coverage of the story throughout bloomberg tv and on bloomberg radio. we will stay on top of the markets, too. with features down and yields high about five basis points. the 10 year in america, 3.64. this is bloomberg.

♪ >> u.s. economy is going to have to endure elevated interest rates to tackle inflation.

inflation is the worst problem here. >> long-term inflection, disruptions. >> any sort of clarity at this point. it is going to be weaker. announcer: this is bloomberg surveillance with john keane, jonathan ferro, and lisa abramowicz. jonathan: bond yields are still climbing. good morning, good morning. this is bloomberg surveillance live on tv and radio. i'm jonathan ferro. tk back with us tomorrow. going into that fed decision, equities down half of 1%. the yield higher, much higher. lisa: bond yields, they are going higher still. a broken record not fight you, but just in general. i am not saying you are a broken record. one study over the past couple

of weeks, at what point do we reach the end? we think of some of the slow bleed on the others and equity valuations that have been dramatic. that really is interesting to me, that resilience, that lack of a complete collapse. jonathan: if i sound like a broken record is because we have had nine straight days. i'm happy to be called a broken record. it is fine. lisa: it is not that you are a broken record. carry on. jonathan: just around the corner on a normal yield. there really yield on a 10 year. the real yield perhaps in 2011. lisa: i have been a broken record on this. at what point do you seek an alternative to equities? we are going to ask our next guest about this but we thin sharing about this idea that you actually can earn something and at what point does that create that last decade in equities

because people are fine heading in their and collecting coupons? jonathan: we've asked the question a million times. if we are 50 basis point higher on the front end and still 6% higher from the low and the equity market, does that open up a retest? let's face it, it is not difficult to say that anymore. lisa: i would agree. the question is where it is going to come from. some of the stories are specific and we keep going back to this. i know that tom, if he were here, would say i can't believe you would call it meta-, it is facebook. but it has been a complete evisceration of valuation. they are worried about a business model, worried about bringing forward revenues from an era where we are already seeing low rates completely abandoned presumptions. jonathan: we've spent a lot of

time reading research on the south side. i know you read as much as i do, perhaps more. not talking that upside potential, but talking about limited downside. the earnings expectation should mitigate any downside in risk assets from here. it is not just a conversation for the bulls, but it is about limited downside risk. lisa: is this the most constructive way for you to raise the question of whether this is the most bearish market? given the fact that he has been difficult for so long. maybe. i do think about what the potential for accidents are periods's i think that is perhaps what he is responding to. there is a fear of something when things move this quickly, when you have a complete reset of some of these presumptions. a lot of people are keeping their eye on japan and what

happens if you have a bond market that has not been a market for decades. jonathan: 25 basis points at the upper end of yield curve control. on this program, signaling that he things maybe that could break. when we all ask is what the dominoes are. can you imagine they step away from yield curve controlling in the last week or so? lisa: i keep going back to a couple of different charges. that is the trigger, that is the difference. people are saying even five. that is where you start to see a deal. that is when the figures start to come into play and suddenly those ford investors have a reason. jonathan: half of 1% on the s&p, on the nasdaq.

yields are high by five basis points. this get straightened lisa, the head of equities and capital markets. alicia, how big is the risk as we are heading back toward something like 3400? alicia: i think it is 50% that we go there simply because the equity market has really been following the bond market here. as 10 year yields move higher by 25%, that is our trigger for another move lower from here. if 3900 couldn't hold, that last vestige of support, there was a lot of supply and a lot of trading previously technically. we are now seeing it kind of clear that there were bond yields up and markets are going lower. and really, for good reason. the path of the market is

high-growth and tech stocks with evaluations will come down as yields move higher. it is a neat little equation. unfortunately, it is playing out another downside. but as you say, the june 17 low is not that far away from here. jonathan: are we pricing in the weakness -- lisa: from the likes of ford, the likes of fedex? alicia: in an interesting way, your conversation about having this conversation change, it is our view if the waiting equity market can climb out of this hole that it has gotten itself in his for estimates to finally come down and for realistically the pricing to slowdown in growth, because even now, even now estimates are holding in there. the s&p is something like 17 times.

if you take energy out of it, it 19 times. that is not a cheap market and it is not a market reflecting growth. that has to happen and i think if you realistically reset growth expectations and earnings, then you can begin to bottom. until that happens wholesale, i think we're sort of stuck in this purgatory for a while. lisa: this is the part of the conversation where is all about rates and what we're used to seeing for a long time, and so you have to come up with a call, more than the fed can potentially do. do you have a call on that? is that something that you want to gain out, or is there some sort of relative trade that is being a little more insulated from those macro gains? alicia: great question. the risk is absolutely more hawkish and is here simply because if you think about that

cpi credit was pretty devastating, and for the terminal rate on the fed fund, that likely goes higher. if that goes higher, multiple things could press further, but that hasn't happened yet. there are some spots where we are seeing peak hawkish in us, but it is the earnings that are going to move the market. and the reset of where we are going in this. in the end, this is a short duration market, it has been a short duration market. even in equities, not just in bonds. each of these are fine. some staples are fine. safety is fine. we love real assets. we do think we're any regime change where inflation remains higher for longer and rates remain higher for longer as well. all you have to do is listen to some of the workers strikes

going on. these are huge wage increases. there is a change for the economy to let that go forward. i don't think we are going back. you have yields on the 10 year by high-growth, lower tech stocks. we are still in that short duration world. to your question, not on the long end, but on the short end, they certainly are doing better. whether the two-year is reflecting inflation on real basis, it is not, but it is sure a lot better than the equity market. jonathan: statistically, it is so well put together, when you start thinking about this for longer, we are talking years. 5, 10, what is it? lisa: i look at things and they picture ways.

in the short term, they are notoriously difficult and you never move money since 1932. we likely are coming out of the election and it could be sustainable because we will get to that nastiness heading into it. terrible seasonality now, better seasonality by the end of the year. we are optimistic for how this year can stabilize and move higher. but moving forward, i think we have to have a more intellectual view of where yields can be and where the market is and where we can grow. one of my favorite things to do is just look at the s&p for the dow in a decade to see the change of where capital is being allocated and what the growth companies are. and i think you can make a good -- a good case that that is where the risk is here.

honestly. jonathan: one of the best. wealth management. tech stocks down. that is for sure. lisa: what does that mean for total return for the s&p, nasdaq? jonathan: precisely. this is bloomberg. >> keeping you up-to-date with news from around the world with the first word, i'm lisa mateo. federal reserve policymakers will begin a two day meeting that is expected to end with another jumbo rate -- jumbo size interest rate hike. it is benchmarked by three quarters of 1% for a third straight time. jerome powell has made it clear that he is committed to curbing inflation sooner rather than later. in japan, inflation has accelerated to the fastest pace

in more than three decades. it will try to explain why it needs to continue with monetary stimulus when inflation is about the 2% goal. and exporting fresh fruit in august. britain's new prime minister says that a trade bill between the u.k. and the u.s. is unlikely in the short to medium-term. she says she will focus on alliances elsewhere. she spoke to reporters for the annual meeting for the u.n. general assembly. bloomberg has learned that germany is closing in on a deal to nationalize a gas giant. they are aiming for an announcement this week. germany has been working on that takeover of three large gas importers to prevent a collapse of the market. morgan stanley will tell u.s. regulators of a fine over data security lapses. the sec alleged that one of the units failed to secure the

personal data of millions of customers. morgan stanley agreed to start the case without acknowledging or denying allegations. 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.

♪ >> from the federal reserve, it

is becoming a policy. jonathan: the wells fargo international economist. many foreign central banks making decisions early this morning. sweden with a 100 basis point hike. swiss national bank later this week, the bank of england later this week. from new york city this morning, good morning. she came back with us tomorrow morning. tomorrow, the federal reserve decision, futures down. -6/10 of 1% on the s&p. on the nasdaq, down. the 10 year yield of five basis points. cafe talking up why you might want to buy the 10 year. >> which follows a live discussion earlier in the yield. a lot of people saying that eventually, they will be in recession. it certainly calls -- caused by a confluence of events.

what i find interesting is the krona is the weakest since 2001. some of these moves are not necessarily being active in terms of supporting the currencies. this really has been a fee that we've seen in britain and elsewhere. -- theme. jonathan: here are some calls for you. europe and sterling, 96 on euro-dollar. on sterling, 1.11. mark, i see people itching. would you suggest they do that and how do you suggest they go about doing it? >> it is a great question because i do think we are slightly transitioning through narratives and i would absolutely not say what we see in europe and even norway building currency and continuing lower. i do think we are getting to a

place where we can collectively look at emerging market currency and see some value there. likely because interest rate volatility is starting to peak. while we are still kind of exploring the rate which is now at 4.5 a week from now, what we are seeing as we saw a very significant amount of tightening financial conditions and pre-tightening of volatilities over the past year. what we are starting to see, data prices are starting to improve. starting to see a little less volatility come through, and people like any interested in more emerging markets like mexico, brazil, indonesia, even india. the global commodities will also be interesting for some of these currencies. jonathan: how much work have the central banks offered currencies? how much work have they done before the fed even got started? mark: in latin america, they

kind of have to frontload. race real rates much higher than they would across the u.s., but you are getting a very real pickup these places. you have not had the same stagflation environment in mexico and brazil. latin america has been a little bit more inflated than every other country in the world. in asia, is all about the easing of financial conditions. they are dealing with inflationary pressures for the u.s. has, which is tightening of the financial conditions. in europe in general, it is dealing with basically an implosion of financial conditions that have been dropped on. everyone around the world is operating very differently and that is creating a lot of this interest in different currencies in asia, europe, and the americas.

that question made me think about how much work certain nationstate in advance and how much some are doing now and how ineffective some of that will be, given the fact that you still do see the krona continuing to we get despite the recent rate hike. and you see the euro continuing to really work with that charity and below levels. how much are rate hikes going to be counterproductive to strengthening currency because of the damage they do to the economy? mark: that is a great question because part of the credibility lost for the european central banks is not entirely therefore we are dealing with an external shop that comes through. essentially, importing a massive energy bill that is a one-off temporary. so break even in the euro zone and u.k. and we don't have a good liquidity for sweden, but inflation expectations across europe are continuing to surge.

the central banks can't raise rates fast enough in the short term. the concern is that again, now we are getting fiscal stimulus, a tremendous man in the u.k., in the euro zone, and that is how effective for real rates within the u.s. moving to the highest level we've seen. basically close to 2%. right now with the markets responding, europe's central bank just can't keep up with the inflationary shock that has been imposed on them. the fed is doing a better job not because they got more credibility, it is just that they are handling domestic inflationary pressures which is basically a result of the fiscal stimulus and the folks who have lost the labor market. i think what you are starting to

see, the bank of england is lagging the most and with inflation expectations, they are just not where they should be. jonathan: we will hear from the bank of england this thursday. mark, something to think about. we are starting to think about the yield curve this morning. yields higher at the login -- long and. -- long end. a bit of a break at this morning. lisa: yes, it is interesting to see this kind of activity at a time when people are talking about recession, saying that the front is going to cause pain that is going to lead to a new reality of lower inflation. this is a new regime. she is recommending real action.

you wonder whether people accurately price that into the some of the market evaluations because we are seeing higher for longer, not lower for longer. jonathan: get a better idea of how long we're going to have to live with this for how long would it take? lisa: the fact that you are seeing the long a dries is enough to suggest. -- long edge rise. jonathan: we are down a tenths of 1%. coming up, --. this is bloomberg. ♪

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jonathan: economic growth is just seconds away on the housing sector, that industry in america. futures down on the s&p. another on the nasdaq, down by a tense of 1%. an unexpected turn, a start to

the month of august rose by 12.2 percent after falling 9.6% the month prior. it looks like they may be trying to get some more stuff in the ground before the housing market completely dries up. building permits requests the idea that is going to. they are down. a big drop in what vendors think is going to happen or are planning to make happen compared with the big rise in what they are making happen. it is also august, so maybe the last weather chance for them to get things still to completion. 5.4% drop below july. the number of houses being finished is also falling. right now it is a picture of an industry slowing significantly. that comes at the fed has to

raise interest rates and mortgage rates above 6%. jonathan: no big change out the back of this. of two basis points. your equity market down seven tens of 1%. mike, the fed and chairman pal talk about the totality of the data. mike: it is the cpi report that is going to be most influential. we are seeing some drops and some indications that maybe we are seeing some inflation. in report today said arend prices have started to slow. in the long run, that will help. for right now, they are going to move 75 and get the same message

in jackson hole. continue. lisa: your question allegedly, the end of the news conference tomorrow after jay powell speaks. if you were to grill him, how much are you focus on the bond sheet and what they do with mortgages that they have? mike: is an interesting question being talked about more and more in the markets. they want people to focus on the idea that they are going to get going on rates. a lot going on. there is the fear that made you beer not going to be able to restrict the balance sheet as far end as much as they thought they were going to, and that they might have to sell off some mortgages because that this point, nobody is selling and nobody is refinancing. those are questions that may be the road a little bit.

jonathan: looking forward to it. every time he joins us, he likes to get a chairman to ask where -- get a question to as chairman pal. joining us is megan greene. megan, i think it is really about the economy and how much it is to get growth below potential and get inflation lower. his 4% it? >> know, i am not going to have the data here showing. they certainly will probably by the end of this year. i think they are going to have to go higher in the beginning of next year but that i think they will pause. i think they will slow down the rate hikes. coming into a rate which we don't know exactly where it is, we do know we will probably switch to it now. i expect a 75 basis point hike later this week. i expect another 75 basis point

hike later this year for the end of the year. an extra hike in the first quarter of next year. i don't think they will continue at 75 basis point. they are already going to be in restrictive territory. >> we talked about the last time and how long it takes before this actually starts to slow inflation. from your vantage point, is it too slow, are they going to far based on just trying to do something now? >> that is a question, lisa, in terms of what the fed is doing as we take a more global perspective. most central banks are tightening pretty significantly. the bank of england will be tightening pretty aggressively later this week. but there is a question about when you have a coordinated tightening to create some. and i do think the slowdowns could be more significant than many in congress are expecting.

the housing market in the u.s., higher rates of the housing market. credit cards as well. we had a lot of aggressive rate hikes. that is a lot for the economy to digest. pretty much everywhere but china is hiking rates now. >> a lot of these companies are taking the time to push out their maturity so they don't have to borrow in the near term. you do see a lot of people with fixed-rate mortgages would lock in the levels for the low rate and are not going to be that effective. is there a problem with transmission? if there issue with the fed being able to raise rates much higher than people is the thought and that has completely changed the expectation for how high rates can remain over a longer term. >> i would also say adding to

that is the massive tax buffer built up over the course of the pandemic. among households in aggregate and also among corporate. it's going to take a while before we see the realpage again for consumers and companies on the basis of higher rates. it is a question more of psychology than economics. we don't actually have a great answer. is it enough for them to know, or do they actually have to experience a recession? we don't have a great answer for that. that should provide a bit of a buffer to hike aggressively before pitching us into a recession. next year it is a bit later than some other economists are calling for. jonathan: you've just been to europe. how bad is it? >> europe looks a lot worse.

europe will be in contracted by the end of this year. the second quarter outperform expectations. the third quarter, the southern european countries, the last quarter of this year i think is going to be pretty unruly with high energy costs and i think europe will be intercession early next year already. lisa: how much are u.s. companies going to be exposed to slowdowns not only in europe, but you also have written a number of pieces about china and some of the problems there. >> i actually think china is probably a bigger deal for u.s. companies than europe. not just because part of the slow down is driven by zero coven policies that i think president xi will have a hard time with them. reasons. that is causing all kinds of

daiquiri closures that will continue to impact businesses. we also know that china as a huge market for u.s. businesses and a huge growth in global demand. bloomberg consensus has chinese going by 3.5% this year. that is a hard landing certainly. a lot of that stimulus will be pushing. i think confidence will be low. i don't think that will really kick in until next year at some point. but i think the slowdowns being underestimated in the market and the impact on u.s. companies pretty significantly. jonathan: thank you for that, we appreciate it. not alone on that front. on the bloomberg terminal, 3.5.

5% for 24. i can't get to the end of the markets. a lot of people on china for this year. lisa: there is this speculation that we heard of what got inflated, because they don't want to incur the ire of congress in china. how much can they typically are -- how much can they pivot? to open up more to the world, and mainland china is ok with that. i wonder if that is something like a petri dish and i am trying to figure out what it would look like to move some of these restrictions and open up a little bit more at a time when there is a lot of social angst in uprising about what they've been doing? jonathan: how much of a change with that be, monitoring people at home? lisa: a pretty big change. it is a pretty significant thing

directly stay in a hotel and not leave the hotel for days and have people cater to you and then get a certificate at the end saying i've completed by quarantine time. literally, i actually get a certificate. that is what they are doing. i survive quarantine. well, here we are. what would happen if they actually eliminated that? jonathan: a commodity market. saudi aramco looking at these problems going on for a whole lot longer. lisa called i wonder how much we are pricing that in at a time when we really the end of the year. you are right to say that. jonathan: can you get to the end of the year? lisa: i can't even get to next month, are you kidding? jonathan: jp morgan.

tk. views on the future and a better time. futures down. isn't that a favorite line of his? from new york, adapting and adjusting. this is bloomberg. >> keeping you up-to-date with news from around the world that the first word, the president of turkey says russia should return occupied territories to ukraine as part of the peace treaty. russia said he had a very extensive discussion with vladimir putin last week. putin has showed him that he is going to end the war as soon as possible. hurricane fiona has exposed puerto rico's fragile power grid

with a blackout that affected the entire territory. puerto rico's electric power authority dealing with a bankruptcy with no clear end in sight. the nasdaq is making its first major push in the crypto. the second largest stock exchange will initially offer company services for bitcoin and institutional clients. the nasdaq would be competing with cryptocurrency coinbase. in china, tesla's shanghai factory has finished upgrading production lines so it can produce over one million vehicles per year. the shanghai plant accounted for half of deliveries last year and went to extraordinary length to keep the factory running during the covid lockdown. the federation of the swiss watch industry said experts increased 15% to $1.8 billion in

august, the fastest pace in six month. the most popular shipment included the relatively cheap omega's -- watch. global news 24 hours a day on air and on bloomberg quicktake. powered by more than 2700 journalists and analysts. this is bloomberg.

>> to see unemployment rise, i think they want to see labor conditions not as tight and they want to see wages slow down. that sort of thing. lisa: some of the big questions kathy jones at charles schwab. going back to 2007, really bumping up against that 4% level. equity futures with 40 minutes

to go. really, the nasdaq seeing more significant losses. the s&p down 7/10 of 1%. 10 year yields reaching the highest level going back to 2011. the housing market very much in the forefront. mortgage rates have been climbing so significantly. there is no one better to speak to this than jonathan miller who spent decades studying the industry, the president and ceo of morgan stanley getting is a deep dive into what is happening on the ground. and we are talking about the pain, we are talking about what it means to have mortgage rates 6%. are we underestimating the demand in the housing market? >> absolutely. before the fed was raising

rates, bidding wars and most of the market or parts of the country were in the neighborhood of 50% of all transactions. southern california was two thirds of transactions. it is just much more muted. i think the narrative is that you can hear crickets and that is not the case. it is just not what it was, and what it was wasn't sustainable. lisa:lisa: the market in connecticut for example very different than the market in phoenix, arizona, san francisco. how much are you seeing rising prices in some areas, particularly the sun belt, where other areas are holding it in more significantly? >> i think the chatter on pricing is more about asking prices than wholesale price

declines throughout a region. in aggregate in these regions, because inventory is so low, even with the increases that we've seen, there is a fairly firm underpinning. i am not saying that we are not looking at some sort of price decline by the time the quarter is out or sometime in 2023, but of diet -- i think those are corrections to the error because the market was wildly overrated on the demand side. the inventory was literally obliterated. some market might have 200 listings just before the federal rate increases at the beginning of the year. now, there is 50. still 75% below. lisa: we pushed back, seeing the

-- drop off a cliff. a lot of times that is a precursor to price drops that are more substantial. it really is a matter of where people are willing to transact. hundreds of dollars a month. at one point does that housing slow down into something materially in price? lisa: >> >> typically, and an average of about a 15 month line between sales correction and some kind of price decline, i think what many people get wrong in a market different like this is the external event, activity falls, inventory rises and because there is more supply, prices correct. but housing prices are on the downside. they take longer to fall than they do to rise. and we are in that discovery period right now.

what is different is that supply in general is still relatively low as compared to historical norms. lisa: jonathan, you were talking about how just because rent increases are slowing down doesn't mean you are going to see a decline in rent. you have talked about how rent is typically pretty sticky. does that mean that the transmission that can end them is going to be largely ineffective at bringing down some of the base cost like rent, like housing prices, that people are imagining is the case? jonathan: right. housing is about 30% of cpi and it is almost equivalent. any kind of correction in housing prices is going to have very limited impact on inflation because it is almost equivalent rent. effectively what has been happening here is you have the

slowdown in the sales market largely because of the loss of affordability or the spike in mortgage rate. mortgage rates are literally double what they were at the end of december, and you are pushing those people into the rental markets. we see rent elevated, which makes me worry that the fed is going to be longer than we think. lisa: how high can mortgage rates go, in your view? jonathan: who knows? it is funny, about a year ago, i was basically saying that rates should be in the fives. that would be a more normalized market, may the sixes. i was skeptical of leaving the sixes, but i still think there

is some upward movement going forward. barring a recession, the idea that the fed is taking a baseball bat to the economy is something that has to factor in housing. i'm not sure that is going to be effective just because of the rent calculation. writing rent, keeping rent high. i think that a rising rent is not falling rent. and the only thing that is going to bring rent down is going to be some sort of --. lisa: 20 seconds. and we overdone the trend, or is that going to continue? jonathan:jonathan: i think it stays where it is. we've been working from home too

long for this pattern to go away. lisa: jonathan, thank you so much for being with us. i always love speaking with you and your insights in the housing market especially as so many people say this is the best example of a fed policy, of tightening policy, of higher rate. casting a little bit of cold water on that and saying actually, it hasn't slowed that much. coming up on "balance of power," congressman chris van hollen, democrat from maryland as we count down to the election. tomorrow, the general assembly. tomorrow, the general assembly. from new york, thi what if you were a global bank who wanted to supercharge your audit system? so you tap ibm to un-silo your data. and start crunching a year's worth of transactions against thousands of compliance controls with the help of ai. now you're making smarter decisions faster.

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jonathan: the countdown to the open starts now. >> everything you need to get started with u.s. trading. jonathan: live from new york, we are counting down to chairman powell. >> right