>> every central bank is competing with every other to bring inflation down quickly. >> there is a lot of confusion. investors are not sure how this will play out. >> we are finding real opportunities. there has been carnage in this market. >> the government is taking a gamble that the policies it is implementing are going to do something. >> this is bloomberg surveillance with tom keene, jonathan ferro, and lisa abramowicz. lisa: annecy end to a messy week. welcome back. my partners in crime tom keene

and jonathan ferro are off watching reruns of ted lasso together which is great because we have kailey leinz and damian sassower in the seat. it feels like something is breaking, a sea change in markets. kailey: i love the way our colleague john authers put it. this is a week that shook the world. each and every day some kind of market fiasco seems to have happened in terms of pricing assets. we have seen intervention to stem the weakness in the japanese yen for the first time since 1998. we have seen the fed say we will go farther and stay higher for longer than the market anticipated. after a 50 basis point hike from the boe yesterday this market pricing in a 50% chance they get 100 because of the fiscal policies in the u.k.. lisa: damien, your world is driving so much of this. people looking for something to break in the developing world. our thing starting to break? damian: if you're including

japan and my world than things are breaking. the money has to come from somewhere. he did not see the bank of japan hitting the fed swap lines. if yesterday's price action is any indication, i bet you have central banks selling treasuries. lisa: when we talk about currencies we have been looking at which currency pairs are breaking down and today the pound is front and center. it has been breaking down for the past few weeks, down to 1.11. this is raising a lot of questions as this administration of liz truss announces the biggest tax cuts back to 1973. what are you hearing this morning? kailey: i do not think it feels particularly controlled because this is a case of monetary and fiscal policy running against each other. she is talking about tax cuts at the same time they are talking about boosting spending, they have to issue get to do that. you are seeing a huge move in

gilts, up 50 basis points on the day. the pound, we had a breach of 111. the lows at 1.1077, levels we have not seen since 1985. there's not much policymakers can do to stem the loss of different currencies. lisa: before we get to the price action, i know you've been in this market for decades and i love your perspective on what the analogy is. what conversations are like, what the level of fear of potential opportunity and excitement there is. damian: i have long been on the record of saying intervention is a bygone conclusion. there will need to be intervention, whether it is unilateral or whether some type of plasma accord remains to be seen. the only thing holding back a coordinated intervention is that stronger dollar is bad for china so the u.s. has no intention of weakening it intentionally

because of that fact. europe and england and the rest are going to have to deal with that in the current environment. lisa: we are looking at losses across the board and i want to get a sense, kailey, jump in with what you are seeing. what i am seeing is in s&p down nearly 12%, going towards 13%. right now you are seeing it continue the losses. that is over the last couple of weeks, down pointed percent. the nasdaq down 1%. a brined, in particular the big tech stocks. lisa:'s valuation pressure in the face of -- kailey: it is valuation pressure. that is the reason we have david costin saying i'm putting my s&p -- lisa: when you look at some of the yields, you are seeing yield stabilize after coming off such incredible highs. i was looking at two year

yields. since mid august they have climbed about 1%, 4.18%. 10 year yields also climbing 1% going back to mid august. right now we are looking at 3.74%. what are we looking at today? kailey: we will see whether or not we get more substantial bond moves because we are going to get economic data. we will be getting the preliminary read for september u.s. pmi's. what we are looking for is contraction territory when it comes to that services and composite metric. 50 is what indicates expansion or contraction territory. the manufacturing still expected to be in expansion territory but lower. it speaks to the kind of softening we are seeing in certain areas as we are seeing policy tightening. on the subject of policy tightening we will hear from jerome powell speaking at 2:00 eastern. i wonder if his message is going

to be do you me now? are we on the same page because i said it at jackson hole and i set it on wednesday and it seems like the market is coming around to how aggressive the fed is thinking. it will be interesting to see how much he repeats some of the same language he has been using for some time and if he read rates that line it will beat -- if he redirects -- if he reiterates that line it will be enough. sunday will be critical for italy as they had to the paul's. the election watched across europe as it looks likely the front runner is the right wing giorgia meloni. she says she is going to be in keeping with mario draghi policy on the fiscal front, but given she has a history of being a euro skeptic there are a lot of questions as to what are actual policies will translate to if she does win the election. that will be something very closely watched by these markets. we have coverage on bloomberg. lisa: regime change across the

board. regime change leading people to wonder are people starting to break. are you starting to see things breaking? >> good morning. i would not say breaking. my point was going to be exactly the one kailey just made which is people are coming around to realize to stop looking for the fed to be your friend, stop looking for jay powell to say something conciliatory. he is not. this is a splash of cold water in the face of the market and we are back down at the levels that were freaking people out in june. we have done a full round trip over last fed meetings. this is all because of the weight the market interpreted the fed rhetoric. a big problem for me is when you have the market unable to price relatively safe assets like two your securities, what is safer than two your treasuries? if you get a not figure out a

way -- if you cannot figure out a way price two your treasuries, it makes it impossible to price other risk assets. damian: let's talk stocks. the world is cyclical and equities have historically performed well in the fourth quarter. we're are also going into a midterm year. they have performed well on the 12 months following the midterm. what are your thoughts on the impact of seasonal factors as we head into the fourth quarter? steve: -- steve: my first real job was just after the 1987 market crash. i am a person who keeps these in mind. the seasonals i am keeping in mind is the last time the fed raised rates and was trying to shrink its balance sheet, i do not know if they call it qt at the time, it was fourth quarter 2018 and that was a seasonal

problem because the markets attempted a nasty slamming of the brakes. i do not want to go quite so far as to say we will see that again , but the 15% or so decline we have seen the last few weeks has that smell to it. the problem with seasonals are they work until they do not, but i think there's a bit of psychology that goes on as people realize it is the end of the year, my performance is good, my performance stinks, i want to lock in whatever it is. that mentality tends to pervade now as well. kailey: if you look at actual fundamentals in the kind of multiple you can put on stocks, goldman sachs is saying about 15 is what is appropriate when you look at forward multiples given the kind of rates pressure they expect to see, where they expect the fed to go. on the earnings side, you also have the fed trying to fight inflation demand deteriorating in this economy.

that could hit corporate's on the running side. what kind of valuation you think we will end up with for the equities as a whole? steve: we are very much in flux. i think the lower valuation, when i saw the 15 comments -- that is the number i have been putting in my head. we have an interesting problem. we do not know what earnings will do get. we will find out over the coming weeks. they have to be slowing. the dollar has to be a huge headwind for the multinationals that make up the major indices and most of your money that is made and lost in the stock market is through multiple expansion. that is animal spirits to a certain extent if nothing else. to get back to lisa's original point, the animal spirits feel crappy this morning. lisa: the animal spirits feel crappy, analysis.

it is true. right now things feel kind of crappy. you see the money going into cash. damian: the whole pyramid is collapsing. the whole thing for me is the fed put really dead? i am not convinced. i think the fed blinks when things get painful. lisa: really? damian: what does it mean to get painful. that is what we want to ask our experts. i believe we will see it in apparel first and foremost. lisa: i wonder how much this has to do with how quickly unemployment rises, which is a really uncomfortable thing, not only heading into midterms but just in general. no one wants to see anyone lose their jobs and if that is what causes the fed to back away from rate hike and, it is uncomfortable. kailey: the politics of hurting the economy and the jobs market by fighting inflation are also incredibly challenging. that is what we are facing going

into the midterms and what a fed that is becoming increasingly politicized is dealing with. lisa: is a soggy morning ahead of the open. three hours and 15 minutes to go. the s&p down .8%. euro 97 handle versus the dollar. this is bloomberg. lisa m.: keeping up-to-date with news from around the world, i am lisa mateo. liz truss's government has come out with the most radical set of tax cuts since 1988. the chancellor of the exchequer also ease the duty on home purchases and that is likely to help homebuilders and buyers and he listed the cap on bonuses. in ukraine, voting starts today in four russian occupied territories on whether to join russia. ukraine and its allies have blasted the votes as shams.

antony blinken says "we will not allow vladimir putin to get away with that." hong kong is making its biggest move into the push to end its pandemic isolation. the city is scrapping hotel for inbound travelers in the next weeks. in the three days when they get the hong kong travelers will face restrictions on their movements. singapore has overtaken hong kong to become ages top financial center according to the global financial centers index. hong kong's covid curves has hurt while singapore has been attracting a number of high-profile events. new york and london had the first spots in the ranking. boeing has agreed to pay $200 million to settle the investigation into the 737 max safety issues. the former ceo will pay $1 million as part of the agreement. regulators say boeing and the

ceo failed to disclose problems with the 737 max which was involved in two fatal crashes. global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. i am lisa mateo. this is bloomberg. ♪

>> next year's planned increase in corporation tax will be canceled.

the corporate tax rate will not rise to 25%. it will remain at 19% and we will have the lowest rates for corporation tax in the g20. this will allow almost 90 million pounds a year back into the economy. lisa: shocking policy changes from the u.k. chancellor of the exchequer as the u.k. outlines how they will cut taxes the most going back to 1973 and also deal with some of the banker bonuses by scrapping them and raising a lot of questions about how this will play in the markets. the pound is falling out of bed. post 1985 weakness as people take a look at the prospects of foreign investors financing this nation. it comes as there is a wholesale flood into the dollar. the euro weaker versus the dollar. 9768. shopping at a time people are calling it to go to get a 95 or even 90. you are seeing the risk off tone

permeates through the end of the week. the 10 year yield, i cannot just get over this, 3.74%. it has risen from 2.5% and 1.6% at the beginning of the year will stop it has more than doubled at a time people will wonder what will stop it from going further. we have to talk about the united kingdom and lizzy burden has been covering this. this is a package that is causing the complete reset in u.k. assets and creating a reset and some of the social landscape of this nation. what sticks out to you in this vast plan put out by liz truss's administration? lizzy: the truth, a whole lot of our viewers in the u.k. got a lot richer. you have kwasi kwarteng scrapping the top rate of income tax, he scrapped the cap on banker bonuses, 45 billion

pounds worth of tax cuts. if you earn more than one million pounds a year you're getting a tax cut next year, which is twice what a typical earner earns in a year according to the resolution foundation. he is doing it while he is cutting benefits for people not doing enough to find a job in the middle of a cost-of-living crisis, all in the name of growth, which is a huge gamble. politically liz truss says she does not mind being unpopular but she has to be popular by the election in 2024 and it is an economic gamble as well. you talked about the tanking bonds, the tanking pounds. we spoke to the former bank of england policy maker. he is known as one of the most levelheaded bank of england monetary policy alumni and he says it will all end in tears. take a listen. >> we have had other experience

where chancellors have gone for growth. the example is the -- for growth in the 1960's. they ended in tears. i expect the same sort of things will happen. there will probably be a clear run on the pound and then the bank of england will be forced to put up interest rates to stabilize the exchange rate much as we had in 1976. lizzy: you heard from the former bank of england policy maker expressing his concerns about what this will do in markets. we just heard from kwasi kwarteng, he said markets are going to do what they do. he is going to go on with the jobs regardless. it isn't -- lisa: it is amazing he can see it is what it is when he is seeing the parents he

dropped to the lowest level since 1985. it breeds an issue for monetary policy. the market is pricing an 80% chance of that going 100 basis points in november. how do andrew bailey in respond to policy like this on the fiscal side? lizzy: what we heard from the monetary policy committee as they were leaving the door open. they said they would assess the impacts of this budget in their november decision. goldman had said before this budget they saw 75 basis points in november and december. i reckon you will see a lot of economists changing their calls today. there was such a vote split on the committee that it would not have taken a lot of movement to get a hike down the line. if you look at the guidance that came out alongside the decision, they said they are prepared to respond forcefully if inflationary pressures persist. now they are saying they're

looking out for inflationary pressures, including stronger demand. aside i at the treasury anticipating the inflationary impacts of the budget. damian: how are corporate and households reacting to this? are they a fan of liz truss's plan? i am curious to hear your thoughts. lizzy: you can ask the same of the many budget. we will have to see. the hope is the energy bailout for consumers and businesses will win the hearts of voters on that side while also introducing all of these measures that will hopefully boost the city of london post-brexit and the bankers come flooding back. thank you -- lisa: thank you so much for this. to your point, the social

response is fascinating. torsten bell put out this tweet i thought was fascinating. any of you earn one million pounds? you're getting a 55,000 pound tax cut, twice what a typical earner brings home. you know very well the social pressures that can arise in a circumstance like this. how much are people looking at the u.k. like emerging-market currency when you look at the pound? damian: when i look at the u.k. i'm thinking chile, the social unrest in other places. not to that extent but the path is there. the populist pivot we saw throughout latin america is now reaching europe's shores and reaching the u.k.. lisa: how much pushback, and we have been looking a lot of rate developing markets frontloading ahead of the fed, how much pushback is there socially to some of those moves? damian: it is interesting and

you are bringing up a great point. we saw a host of central banks move on the heels of the bed. the one that catches my eye is brazil. brazil was hiking rates ahead of the fed. in terms of the brazilian reality dollar cross rate it has not gone anywhere. the real is the best performing currency in the world this year. lisa: this has been the issue. richard clarida saying they are watching the rest of the world, not the u.s.. we will talk about that with the head of research for the americas and head of fx strategy at ages be securities. the s&p deepening some of the losses ahead of the opening, down 1.1%. this is bloomberg. ♪

♪ >> today we have lee lyons on the finish to a very difficult week. we look at what is happening with the expectations. this week alone, s&p futures are poised for a more than 4% loss.

the s&p down more than 13% or will be so far since august. the nasdaq down 4.3% on the week. russell also following. it all has to do with yields. jonathan talking about the front end very much so. it is very much about what is going on with deals a broadly. it is in the u.s.. you're seeing the yields continue to climb with the 30 year yield, three point 67% 10 year yield. the real issue is the united kingdom. we are looking at a british market with the biggest tax cut being proposed since 1973 at a time of rapid inflation and the potential now for a one hundred basis point rate hike. it really highlights some of the pain. kaylee: what could they do to

stem the bleeding? is a 100 point rate hike enough to support the pound? lisa: 4% in 10 year yields, 20 six basis points on the day. which brings us to the currency of the pound, getting absolutely hammered. trading like an emergent marking -- trading like an emerging market currency. at one point up to almost two, we are talking parity, we are talking 1.11, there isn't necessarily a sense of what is going to be happening. that is what people are getting concerned about. damien: a thorn in the side to all international creditors. that move when you look at fixed income curves in the u.s., is

there more to come? kailey: we could at the very least tried to, jesus strategies at hsbc securities is joining us now. one point 10 on the pound versus the u.s. dollar. is parity realistic? >> you look at the fundamentals, what i think is interesting here is the currency market has taken on a structural view. it is like 8% with the gdp. you have added on the fiscal deficit. you have that deficit story with the u.s. dollar, this is a u.k. story. you would be like this would be

good for sterling. it is bullish with growth. it is the structural parameters that are absolutely dominant in the u.k. market. i guess then we will have to reassess. the one thing i will caution on, don't get super excited and say this will go forever. we have to be mindful of this but we are headed in that direction. lisa: what is stopping it from going forever? it doesn't seem like central bankers will be the one to do it. we have seen the hikes. they are not supportive of the currencies. what stops that? >> i don't think there is a great deal in the way of dollar strength. one of the curiosities i've noticed is i've talked about it,

the question i tend to get is have we reached the peak? could this go another 10% higher? we have had are we there yet in this dollar rally. now we are getting the question, do you think we have the parody on the table? how low could we go? that could be a sign that things are getting a little exhausted. we have some ways to go on dollar strength. we have the three drivers to ever dollar change. damien: what should we make at the dollar yen at 1.43 here? >> japan is a peculiar case.

what's killed it this time around is the risk aversion combined with rising u.s. yields. the doj wants to expand on its monetary easing. we can expect the dollar yen to boil down to how ambitious are that? we will reach a point where the market will look at the yen and say if a global recession scenario is mounting, if you set aside monetary policy historically the yen has done pretty well. that doesn't feel particularly imminent. the pressure will move the dollar yen higher.

damien: it is difficult to read into some of the action yesterday. there are other countries that have been intervening in currency markets. can we expect some sort of coordinated effort here? >> that feels a stretch. we have the fed still battling inflation. coming up to midterm elections in the u.s. issues bite weakening the u.s. dollar. if you like the contagion relevant, you will keep quizzing central bankers about currencies right now.

it is a question of is it complicating your life in terms of managing inflation? those kind of questions will be front and center. it is difficult with the currency once again. lisa: there is no a 50% chance of being priced into futures with the bank of england raising by 100 basis points in november. what happens to the currency? does it strengthen or weaken even further? >> i think the pound would soar for at least two minutes. they did 100 basis points and it went absolutely ballistic. 20 minutes later we reversed and

now it is going higher. at the end of the day these currencies are no longer trading on those rates, dollar-yen is the exception. most currencies are trading on the best a global outlook. rate hikes aren't going to rescue you. from a currency perspective the euro-dollar relative to differentials on cable. that is why the dollar is overvalued. my perspective is this demonstrates the relative rate story is about global growth and risk appetite. lisa: how do you fight a reverse currency war? >> you cannot.

these are our global market forces. you could try and moderate the impact. that might be there, tracking the dollar-yen on a sustainable basis. we can't introduce two-way traffic. i think that is maybe what other currencies or central banks will try to do with the currencies. they will talk about the exchange rate when setting interest rates. all of the things we tried, we will likely hear from the ecb and the bank of england. at the end of the day it comes back to the dollar and comes back to the fed, global growth, until they change or stop moving in the direction they are moving

currently, i think you will see the dominant dollar. lisa: thank you so much. the tone out here, a reason why you are seeing emerging markets but develop market currencies. other than the u.s. >> from the inflation story to the growth story, it has never been as smooth, this time it is no different. lisa: you asked the question earlier, where is the stopping point? it doesn't seem like there is one. it seems to indicate that is the case. kailey: we are looking at the 110 on cable rate. i get the sense in currency, it is just a loss of control on policymakers. the pboc tries to set stronger reference rates. pam tries to intervene but the yen is still weaker. i know i'm a control freak but

that loss of control makes me a little panicky. lisa: how do you reverse a currency war? how do you fight a reverse currency war. you cannot. that might be one of the quotes of the morning as we look at a market that was already in a world of pain. founder of net gl policy from new york, coming up. this is bloomberg. lisa: the last time the u.k. sought tax cuts like this, it was 1988, margaret thatcher was prime minister. kwasi kwarteng cutting taxes on worker pay and corporations. the goal is to boost the long-term potential of the economy. also cut property purchases and doing away with the cap banker bonuses. a judge in the trump documents case has issued the lawyer stays

within the course even if they think they are lying. he says donald trump's lawyer needs to back up his claim. japan is moving to revive its tourist industry in wake of the pandemic. the prime minister said a slew of covid border patrol will be abolished next month. visitors will be able to enter and japan will reinstate waivers. some of wall street's biggest banks see oil rebounding in the fourth quarter. j.p. morgan chase forecasting brent crude at $101 a barrel. coleman sachs targeting 125. brent is trading around 90 five dollars today. demand will keep prices elevated today. global news 20 four hours a day on air and on bloomberg quicktake powered by 20 seven hundred journalists and analysts

in one hundred 20 countries. this is bloomberg. ♪ ♪♪ energy demands are rising. and the effects are being felt everywhere. that's why at chevron, we're increasing production in the permian basin by 15%. and we're projected to reach 1 million barrels of oil per day by 2025. all while staying on track to reduce our carbon emissions intensity in the area. because it's only human to tackle the challenges of today to help ensure a brighter tomorrow.

>> i think we are now at a point where given the significant rises in interest rates and yields since the beginning of the year, the equity market is now focused much less on inflation and yields than it is on earning. lisa: comments from a professor at the columbia business school talking about how the focus is shifting. looking in the underlying earnings that we are getting. fedex yesterday, sort of confirming the fears people already had. kailey: we already heard from them about the deteriorating

macroeconomic picture hurting demand. saying we will try to cut costs to the tune of about two point $7 billion. they want to raise prices, raise rates. how does that work in a demand constructed environment? how do you exercise that pricing power in an environment like this? lisa: there is a social aspect here, too. dealing with inflation, dealing with concern that a lot of companies are going to deal with margin pressures. at the same time you have interest rates rising. the founder of pangea policy, we are looking at the united kingdom as a great example or terrible example at least as a reflection of the currency market and bond market in the case of fiscal policy trying to give more and focus on growth. monetary policy going in the opposite direction.

terry: for the first time in a generation we have a serious divergence between monetary policy and fiscal policy. there are a lot of reasons for that. the u.k. wants to simulate growth. they are very interested in making sure that its citizens don't freeze this winter. chancellor kwarteng's package that was first discussed was energy price caps to help get people over this winter. it will be very difficult. whether it is biden in the united states, the european union, european commission, we have this problem across the board. growth overcomes the risk of the problems. in the united states, it is really kind of the opposite. making sure that what you have

is particular policies that have the ability to be properly funded whether it is semi conductors or pushing green policies. it is a whole new world for a lot of people, that is for sure. kailey: if we could continue the conversation on the united states. at the same time you have policymakers in washington like elizabeth warren saying they are doing too much because they will raise the unemployment rate and hurt the american consumer. how do politics of inflation matchup against the policies hurting the economy to fight inflation. which of these is worse politically? terry: what you have is a situation where president biden and the democrats very much wanted the new fed.

five of the seven governors had to wait for six months to be renominated, reconfirmed. that cracked the time in which inflation started to dig in and become entrenched. it is bad timing for democrats, certainly. democrats wanted a much more dovish fed. the incoming fed was very good at keeping its cards close to the vest. they decided it was time to do their jobs that congress gave them. the first mandate here is attacking inflation. that is exactly what the fed is doing. fiscal policy are now complaining that they no longer have the freehand that they had before. that is true enough.

it will require the fiscal policymakers to think creatively. for the first time in a generation and not simply continuing to throw money at things. >> i know these are rough estimates heading into the midterms possibility of split. what is the best outcome for asset prices? terry: to be perfectly clear those are mayan, not yours. what you will end up with is that you will end up with very little changing in washington if it is 40% republicans, they have run up against a democratic president. if there is a split congress, you get very little done. as you have seen over the last

two years. it is very difficult for those folks to figure out between the progressive and the centrist democratic coalitions exactly what the priorities are and what they are willing to do. my experience has been sort of confused, do-nothing congress domestically generally are not bad for asset prices. i should also mention, regardless of outcome whether it be russia, ukraine, china, anything else continues as well. lisa: the mood right now to give you a snapshot from twitter, more stuff is breaking. paul mcnamara, who i know you are probably familiar with put out this that i cannot quote on air, he said everything is

bleep, but that seems to be the mood as you could see across twitter. damien: for me it will be about the plumbing, is something breaking. we all know this. i will be hyper focused on spreads in the short end. lisa: a lot of people looking at that to talk about things breaking. five-year yields, it looks as if they have risen in one day. it looks like it will be the most going back to 19 91. if you look at the case of an exit is from the bond market. kailey: i almost don't believe i am looking at an intraday chart. to damien's point, we really aren't seeing that blowout. we have heard saying

realistically that should be something like 750. what they seem to be getting in terms of messaging. if it's not showing up in credit, is there anything going on right now that will cause the federal reserve to blame? lisa: overnight he was talking about the recent flows, talking about how there is potential threats to liquidation events. through capitulation is when investors know what they love and own. futures down one .4%. the euro trading at a handle against the dollar. this is bloomberg. ♪

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>> every central bank is competing with every other to break inflation down quickly. >> there is confusion. i'm not sure how this is going to play out. >> there has been carnage in this market. >> it is all about the rate of change. >> the government is really taking a gamble with its policies it is implementing. >> this is " bloomberg surveillance."

lisa: a deepening sense of doom, bloomberg surveillance on bloomberg radio. i have heard tom keene and jonathan ferro have stopped watching ted lasso. we are lucky today, we have kailey leinz and damien sass hower. kailey: you call it deteriorating, some people might call it breaking. we are seeing a real breakdown specifically in the u.k. fiscal policy announcements from the government in the u.k., the five-year guild yield is up 40 seven basis points. these are unbelievable market moves. lisa: that is an important word, breaking. people have, unsaid until things

break the federal reserve will not blink, pause, they may not slow. does this count? kailey: i wonder what it is that is breaking. the labor market does not yet look like it is. is it the credit market that looks like it is breaking? at this point it doesn't really yet. it is concentrated in foreign exchange, government bond market. i wonder if the reserve is looking at it saying this is what we thought would happen when you understood how much we would tighten. lisa: you are not seeing credit spreads blowout. we still have people saying it is a great time to buy because you are getting yields. why has credit been so resilient? damian: that is a great question. it doesn't take a whole lot to move the needle there. after the price action we have seen the last few days you will see things slide. how far do they slide? lisa: this is a very important

point. perhaps things are not trading enough to get a true sense. people have been able to avoid triggers. what would be a trigger of a bear market unlike anything we have seen in recent history isn't enough to do it? damian: it will always be about the plumbing. i started my career in money markets. i'm looking at specials versus gc spreads. those of the things you have to look at to see if the plumbing is working properly. as you rightly point out, selling from retail investors and institutions alike, the credit market is about to snap. lisa: particularly when it comes to the united kingdom, they are down, they are continuing to decline. one point 4% on the s&p. the nasdaq is trading even more. we are looking at the united kingdom five-year yields, climbing by nearly 50 basis

points. half a percentage point, nearly four point 1%. the pound absolutely hammered, how much are we going to see about parity when people are talking about the biggest tax cuts going back to 1974? crude down 3%. brent to 87.73. people not spending as much. it is really bleak. kailey: what stops these moves in foreign exchange? what could stop the strength of the u.s. dollar? the answer seems to be nothing yet. on the day today in terms of what we should be looking at events wise, we will get a little bit of economic data in the u.s. what we are likely going to see is contraction territory again.

the data we are seeing is in part intended as we see the tightening policy. we will be hearing from the man himself, jerome powell for the second time this week. he will be speaking at the fed event. he will repeat himself, like you did in jackson hole at the press conference this week. we are going to fight inflation and ultimately it will be enough. finally, looking ahead through this weekend, sunday is the day to watch, it will likely be giorgia meloni who ultimately wins that with her far right coalition. there remains some serious questions around what government translation will look like compared to what she has been saying rhetoric wise.

a lot of concern around the euro zone considering she is somewhat of a euro skeptic. lisa: thank you so much. it is a morning of revision, week of revision for wall street across-the-board with goldman sachs slashing targets for the s&p 500. 36 hundred, it was previously 40 three hundred. pretty big revision. been out ahead of what we have been seeing. have you reset some of your expectations? >> we certainly have. we are calling for earnings next year to be flat year on year with this year and frankly we were below consensus. we continue to be below consensus for 2022. we/our target. it is one of those years that wednesday has ushered in the

emotional phase of this bear market. every bear market tends to have an emotional phase. it is that unemployment number projected to be for .4% next year where the rate of change, there is never not in a recession followed upon that change. all of that has the emotion to come in the market and subsequently have these types of revisions. damian: higher commodity prices, bond yields, they have been impacting u.s. equity earnings. a piece of equity earning revisions, are we comfortable with that? will this accelerate? julian: it is less about the pace then the uncertainty. if you look at estimates for next year, they range from one hundred 85 on the low-end to --

185 on the low-end to 255 on the high-end. when you think about it, you see the screen, everything is read today. that tells you uncertainty really is approaching those critical levels. lisa: we have been having the conversations for some time now that there is inflationary pressure. it will weigh on corporate margins. it has been ok to this point. why would things change now as we are seeing those inflationary pressures wind down a little bit? why is it now margin pressures will come through? is it an inability on the demand side? julian: if you think about this year, it has been very unusual that the sentiment data on the consumer side has been subdued worse than subdued.

because of the consumer internalizing the idea of inflation. the spend has been really quite reasonable when you think about it. that is about to change. frankly, conditions are really warranting a little bit more of a button-down type of attitude. that is where the attack on margins, the attack on volumes comes in. the story is this is part of the fed's catalyst. the question being are we in the process of potentially breaking something? kailey: this marks the emotional phase of the market, where do we currently stand?

is that kind of off the table? julian: it is not entirely off the table. what we think the fed may have been missing, it is our view that inflation is actually starting to come in, whether you measure it by breakeven, there is a disconnect between the fact that embedded inflation expectations simply are not there. in our view we think the data over the next couple of months will reflect that. it is going to happen --is it going to happen quick enough not to do 50 or 75? possibly not. we think that type of reckoning is out there in the future. that is the type of psychology that could stall or make any recession in 20 20 three a more shallow event. lisa: i just want to tell you that damian decided to wear his

yankees tie specifically for you and me because of our affinity for the mets. julian: aaron judge watch is just fine. lisa: thanks for being with us. it is a moment of reset where people downgraded expectations for what we expect from the s&p. i want to go back to that, making a know about how copper is down 4%. raising some alarms about what could happen in the global economy. kailey: the idea of command destruction if central banks take this too far. how are you going to know if you have gone too far? we can't, we won't know. that is not something we are capable of. if you have the central bank tightening aggressively, it is already too late. that means destruction of the economy. that is not good for commodity prices and prices of other

assets as well. lisa: sitting in that chair makes people vaguely catastrophic. it has something in its blood. eight :00 a.m., dances to keep -- 8:00 a.m., dan suzuki, weighing in. lisa m.: liz truss' government has come out with the most radical set of tax cuts since 19 80 eight. workers and companies will see taxes reduced. chancellor kwasi kwarteng eased the purchasing on homes. he released the cap on banker bonuses. vladimir putin wants to send -- spend far more on the military the next two years because of the increasingly costly war in

ukraine. defense spending is set to exceed next year's initial budget by more than 43%. hong kong making its biggest move yet in the push to end its pandemic isolation. the city scrapping hotel quarantine for inbound travelers starting next week. travelers will still face restrictions on movement. no going to bars. the special master in the trump documents case has ordered the former president lawyers to stay in the court filing whether they believe the fbi is lying. judge raymond theory is demanding donald trump's lawyers backup their claims that the fbi planted this during the search of the florida home. fedex is cutting cost and increasing rates. it is looking for two point seven billion dollars in savings to deal with slowing demand in a tight labor market. they suffered their worst day in

40 years pointing to economic conditions. global news 24 hours a day on air and on bloomberg quicktake powered by 2700 journalists and analysts in 120 countries. this is bloomberg. ♪

>> with a major energy crisis possibly coming, italy heads to the polls. bloomberg, your global business authority. ♪ >> the energy package for the six months from october is expected to be around 60 billion pounds. we expect the cost to come down as we negotiate long-term energy contracts. lisa: kwasi kwarteng, u.k. chancellor laying out proposals

from the united kingdom. it would only exacerbate the pain we are seeing with the pound across the board. we have been tracking all of this and she was experiencing money, money, money, behind a protester until recently when the police pulled him away. given the exodus of foreign money and inflation. >> it is a rich world according to the guy behind me referring to the chancellor's budget. we have seen the corporation packs rise, a scrapping of bonuses, a lot of our viewers will be a lot richer. at the same time, kwasi kwarteng has cut benefits for people he thinks are not doing enough to find a job in the middle of a

cost-of-living crisis. it is a huge gamble. she needs to be popular, every politician does by 2024. liz truss was chosen by her party. it is also an economic gamble. markets crashing in the u.k. as a result. now we are seeing trade pricing at 100 basis points in november. we talked to a bank of england policy maker yesterday. he warned us about this, saying there will be a run on the pound. kwasi talk to people in the parliamentary debate saying markets will do what they will. it looks like markets will have to crack on just as kwasi kwarteng goes. lisa: thank you so much for

being with us. julian emanuel is still with us. at what point does the rest of the world's problem become the u.s.'s problem? as the rest of the world grapples with the reported inflation of a major currency? julian: it already is. we know what the inflation numbers are and we heard from corporate america last week. there was one very key announcement that basically the recession is being imported into the u.s. from that perspective, we are at that point. the thing that is different about the last several days is clearly the fed has been guiding the market in terms of what it expects, what it wants, how it wants this to unfold. the last couple of days as i said earlier, entering the emotional phase, we are likely

at the point where the markets are going to start guiding the central banks. that flips the script. that frankly is the danger that you get into in september and october. ultimately for us will provide at some point the buying opportunity. damian: everyone is so bearish this morning. what is the upside risk to global growth? what is the market not seeing here? is china reopening, the crushing de-escalation, how should investors try to position for some of that? julian: that is the challenge. the tail outcomes on both sides are potentially large. the expectation is that zero covid will end at sometime in the spring next year. the news coming out of russia and ukraine has been more favorable. we don't know what that outcome could be. certainly pressures are beginning to build. as an investor, whether you do or don't use options, you have

to have option out he mindset, realizing that without notice you could get that kind of upside. frankly, that plays against the fact of sentiment is about as pessimistic as it gets, at a time of year where you do tend to see tradable bottoms. kailey: bank of america saying investor sentiment is as bad as it has been since the 2008 crisis. $30.3 billion of equities running into the safety cash haven. are we at the point where bearish is no longer actually bullish, it is just rate up bearish? julian: for a time. let's be frank about it, there has only been one bull market in 2022. that is the bull market for cash.

from that perspective, we need to see that moderate. we would say the initial signal, think about it, the fed chair has told you the base case is a recession. they are telling you the market doesn't actually believe in the persistence of inflation in the long run. in that environment you could make the argument that for us, long dated yields start to offer value. that is what we are going to want to see at some point. lisa: what is that trigger point to put a bow on all of this? there will be a buying opportunity, what is that trigger? julian: it is the typical, we will need to see higher volume likely move in the vic's towards 40. you spoke about this on and off, the credit market starting to internalize, a bit more stress

consistent with moves we are seeing in the dollar. lisa: thank you so much for all of the time this morning. i want to note that as we are talking i heard that john and tom have put aside the spurs and john has been tracking the market. he put this out on twitter with deutsche bank saying the market has already repriced u.k. terminal rates above 5%, the highest of any developed market country. that is perhaps why you are seeing traders pricing 100 basis points for a rate hike by the bank of england in november. say they move one hundred basis points, what real impact does it have? can it actually shore up support for the british pound? we saw the rate at 1.10 today because of the fiscal question. kailey: damian talked about the

developing market world. the united kingdom looking more like a developing market. when did it become a massive social issue? this idea of people saying something is not working for us. damian: i hope john is not carrying a big mortgage. it really comes down to the currency. it is all about the dollar. you could only deal with it. if you are ahead of the curve, this could look better than others. lisa: right now s&p futures lisa: right now s&p futures lower your dedicated advisor will help you create a comprehensive wealth plan for your full financial picture. with the right balance of risk and reward. so you can enjoy more of...this. this is the planning effect.

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lisa: the big reset. as we look at what the implications are of a fed policy that is poised to get more hawkish, harsher, and unavoidably inflict plain that will mean some sort of a downturn. there seem to be consensus from jerome powell. more than 4% losses on the s&p

500. and nasdaq feeling the brunt of the pain, down nearly 4.5% right now. how do we deal with the idea of big tech? an economy that is deteriorating as well as valuations challenged by a higher fed funds rate? really we have a talk about the united kingdom, where the overnight action has been. the idea of a 50 basis point increase in 5-year gilts in england in one day. that goes to this question, are we looking at emerging markets? damian: the g3 is a threat animal altogether. if you look at gilts, jgb's, they are behaving more like emerging markets. frankly it is unbelievable. lisa: what we have seen in the two year yield, 10-year yield in

the united states is a withdrawal of liquidity. suddenly money earned something, so they are taking it out of other assets, which is why you are getting a price yield. 3.7866%, just a basis point. we have to go back to the pound and what happens when you get this loss of faith in a nation, fiscal policies. the pound dropping to new post 1985 lowe's. what happens if you hit parity? what happens if you start to get a real withdrawal of confidence to stem some of the pain from energy prices? kailey: and what will get in the way of further pound weakness? it doesn't seem to be dollar weakness, and it does not seem to be pound strength.

traders pricing in potentially a 100 basis point hike from the boe but hikes this far had not been able to get the job done. it is not just the boe but central banks around the world, including the federal reserve. lara rhame from fs investments is joining us to talk about that. been talking about how it starts to feel like things are beginning to break. would anything break that would cause the fed to have a change of heart? lara: i don't think so. more importantly, the new dot plots, keeping one rate hike penciled in for next year is a critical signal. in july, we saw markets quick to price in the possibility of rate cuts. the fed is indicating we do not have the wiggle room to pivot like we did in 2018. number two, this is a completely different macro backdrop.

at the end of the day, my concern is the fed is imposing labor market models on this economy they built during the 1990's when we had a lot more labor supply. nowadays, trying to see a significant shift and decline and impact in the economy that way, may mean a lot more rate hikes. kailey: that is currently priced in? what realistically are we talking about? lara: i am still in the camp that they go to about 4.5 and hold. there is recognition rate hikes take a delayed impact on the economy. once they see inflation making some deceleration -- again, important difference from inflation coming down from current levels and 2%. but some deceleration along with the pain that we have seen in financial markets may cause them

to hold. what they are pushing is this idea that there will be room for the " fed put" or for apparel to pivot like you did in 2018. i am still in the camp that they raise where they said they will, hold until next year, allow time to have their right hikes have an effect on the economy. damian: we talk about this peak hawkish this over and over. i don't know what this means. does that mean a deceleration in the pace of the rate hikes? what does that mean in your view? lara: fed hawkishness is the final destination of this rate hike cycle and we kept revising that off. the uncertainty is something that just needs to weigh on markets. there is a risk they overshoot. the fact that they were so far behind the ball on inflation this cycle has greatly increased

the probability that there is some kind of overshoot, that they do overcorrect for that. no doubt that that risk is very prevalent, one of the reasons why it has waited so much on financial markets, that we have not gotten to peak fed hawkishness yet. damian: you also say a soft landing for the economy may mean a hard landing for corporate america. explain that. lara: the margins that corporations have continued to push through, inflation has allowed them to pass those price increases on. the increase in commodity prices and input costs and labor costs have allowed them a comfortable margin. if we truly expect inflation to come down, if you believe anymore soft landing scenario, it has to mean significant margin compression for companies.

that is sort of the devil's choice we are having to make here. if companies are going to maintain the margins, you are going to continue to get persistent inflation. that is i think what we are seeing, this tug and pull. i think inflation will come down, maintaining those margins will be easier in some markets than others, but we are having to not only price multiples down, but to no correct earnings for the fact that margins will have to come under pressure as inflation tracks lower. lisa: if you believe in a soft landing scenario --do you believe in a soft landing scenario? there was an element of skepticism there. lara: you picked up on that. lisa: super subtle. [laughter] lara: i look at the projections and they seem almost fantastical to me. the possibility of a recession has increased in 2023. my timing has always been on the second half of 2023.

the reality is there is not a lot of excess demand right now to destroy. how your fuel, food costs are doing a good job of that whatout rate hikes. growth is already weak, and that is the situation where the fed is tightening into. we could face a more classic recession, not just two quarters of negative gdp growth. lisa: there are questions about what is happening next. are we heading back to a low growth, low yield, low inflation environment, post whatever downturn we can expect in the next 24 months? do you believe we will revert back to what became normal over the past two decades, or will inflation just generally be higher? lara: i believe we have seen the end of this great moderation period, where we can just rely and get complacent about inflation staying at 2% for 25

years. globalization plays a huge part in that. frankly, quantitative tightening right now is a huge fly in the ointment for the volatility we are seeing echoing around markets. on a long-term basis, a more volatile world. kind of the opposite of the last 15 years where traditional assets endlessly melted up. now persistently higher inflation means we have to focus on real asset alternatives. you cannot just chuck it into the big indices anymore. lisa: they are rain, thank you for being with us on a day of continuing gloom. damien, the withdrawal of liquidity, the potential for market dysfunction coming from less liquidity from central banks. every thursday afternoon at 4:30 p.m., i look at the fed's balance sheet.

say what you will about my social life. but it had gone down this past week. what is the ramifications of that? oh that have an outside effect that people are now waking up to? damian: absolutely. the credit markets will leverage that up. on the way back it is that opposite effect. for every one, the fx is pulling back fivefold. i don't think the markets are prepare for what could come as the fed begin to scale back the balance sheet. it is not just the fed, it is other central banks, pboc, boj. lisa: i have to say, the contrarian in me, the more that people talk gloom, i am starting to wonder, are we reaching the end of this loom and doom? why is that not a counter indicator, that people are

flooding into cash, canceling vacations, why isn't that enough? damian: there is a lot of risk premium. valuations have corrected, you are right, so you are looking at those areas. i am not going to start pontificating, but there are plenty of strategies that need money for investors this year. lisa: we all pontificate. that is how we operate. kaylee, are you hearing people saying it is time for stockpicking? we hear that every year but this time they are saying it's different. kailey: this time is different in a lot of ways because we are looking at a tightening cycle unlike one we have ever seen coming out of a recession that we have never seen. have we seen capitulation? i just wonder if capitulation

now does not mean that the worst is over, just that investors have woken up to the fact that things are bad. lisa: just one optimistic after another. futures down 1.3%. this is bloomberg. ♪ lisa: keeping you up to date with news from around the world, with the first word, i'm lisa mateo. in the u.k., the chancellor of the exchequer has outlined the most radical package of tax cuts since 1972. companies will have their taxes reduced in an attempt to boost a long-term potential of the economy. he also cut the stamp on property purchases and into a knowing for the caps on bankers bonuses. japan is moving to revive its tourist industry. the prime minister said the border controls for covid will be abolished next month. visitors will be allowed to

enter, and japan will reinstate visa waivers. the daily cap undo the daily cap on daily arrivals will also be ended. some of wall street's biggest banks see oil rebounding in the second quarter. j.p. morgan chase is forecasting $101 a barrel the final three months of the year. goldman sachs is targeting $125. analysts say low inventories and sustained them and will keep prices elevated despite concerns of a global slowdown. bank of america strategists say cash is king as inventor's estimate is the worst since the 2008 global financial crisis. the firm .2 data that shows cash had inflows of $33.3 billion while global equity funds saw outflows of $7.8 billion. bond funds lost nearly $7 billion, while $400 million left in gold. global news 24 hours a day, on-air, and on bloomberg quicktake, powered by more than

2700 journalists and analysts in more than 120 countries. i'm lisa mateo. this is bloomberg.

>> i do think we are in what people referred to as a reverse currency war. the reason for that is every central bank is computing with the other to bring inflation done quickly. in the end, it seems like the only currency that will sustainably win the currency more is the dollar. lisa: the global head of fx analysis at citi. how do you find a reverse currency war? you cannot. that is what we are seeing this morning. kailey: everything is just about dollar strength, weakness in other currencies.

you are seeing that in the cable rate this morning. fiscal policies in the u.k. that the market is not taking kindly to. lisa: right now we are looking at 97.45 that currency pair. brent crude is catching my eye. down 3%, $87.64. how much will the reduction in activity reduce the demand for commodities? we are looking at someone who has reset their expectations with the rest of wall street this week, although not entirely because of the fed. steven englander from standard chartered bank is joining us this morning. what caused you to reset and raise up your expectations of a federal funds rate? steven: we still expect the fed to moderate the pace of hikes want to becomes clear the labor market began to topple over and

the economies could not hold a pressure. we expected that to happen around this time, and it has not happened, so we are stepping back. perhaps the side effect of lower oil prices is, paradoxically, by putting more money into people's pockets, it is boosting demand for core cpi type codecs, preventing those from coming down. there is kind of a trade-off between headline inflation and core inflation, with one going close to zero, the other staying elevated. in that world, the fed will keep on hiking. kailey: it seems we are all on board of how much the fed will hike, an idea of what terminal might be. but you think they will start cutting by the end of next year

by 25 basis points. that is not the message we got from the dot plots or the chairman. why do you think that? steven: once unemployment starts going up, the idea that you control the unemployment rate by controlling the flame underneath , is hopeful to say the least. we think, once it becomes clear that they have gotten on appointment going, they will say we don't need to go much further. then they say we are clearly above control, we don't need to be this far above neutral. we can be a little bit less above neutral. it does not mean dovish. basically our q4 forecast does not change all that much, just that they are hawkish and

modulating their hawkishness on certain stats. damian: the probability of recession at roughly 54%. can the fed engineer a soft landing, or has that ship sailed? steven: i think a soft landing is something that you want, not sucking that you would ever count on with a central bank. it is a way of making the hawkishness more palatable, but it is like discussions we had about escape velocity a couple years ago. it is so hard to grasp, the risk is -- you have to slow the economy down to bring inflation down. damian: if you recall, we were speaking at the hobbit club about china watchers, china-u.s.

yield divergence, the pboc's reluctance to cut rates because of capital outflows. could you share your thoughts on that? do you see the pboc continuing to cut rates with what is happening here? steven: when you make the case were having restrictions on capital mobility, being able to run your domestic economy independently from the rest of the world is the most powerful element of this. given the economy is soft, surprised on the downside, it looks like they mold need to continue to maintain easy money. i don't think they will be supersoft. i think the bias is still toward easy money there. lisa: a simple question for you,

would you bind the pound today? steven: no. lisa: [laughter] line-up? -- why not? how much more does it have to go? steven: they are willing to roll the dice on this. this will be the biggest experiment done. there is a real question mark about supplying a lot of fiscal two an economy facing supply constraints. i think the market is watching, digesting this. i would say the range of views, cross your fingers and light some candles. if it works, great, but no one really has confidence that this will get us going again.

lisa: 30 seconds. if lighting candles and saying a prayer doesn't work, where are we heading for the pound-dollar cross? steven: the bank of england, the markets are marking up with the boe is doing. it will be delicate. raising rates harshly in this environment could lead to more pressure on the currency. it is a very tough situation. lisa: steven englander, thanks for being with us. damien, like you were saying, intervention seems inevitable. what form does it take when it comes to the pound? we are seeing what form it takes perhaps with the japanese yen, but that is the tip of the iceberg. damian: i don't know the answer to that. you would think yield differentials have some thing to

do with it, but carrie is out the door. it will be about balance sheet reductions, the pace of that. lisa: the scope of the moves, you been watching them, and you are right to say, are we looking at the wrong thing? is this intraday or a weekly move? kailey: how often do we see a 50 basis point move on a gilt yield? it is absolutely astounding. lisa: 4.128% on the yield. copper, the commodities sector selling off in the face of potentially reduced demand.

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>> we are dealing with an uphill battle here with what is going on with the dollar globally. >> we are drifting toward global

recession and we are in a global bear market. >> in the background, corporate balance sheets remain healthy. >> earnings growth will slow but i think it is possible we could see higher equity prices. >> this is bloomberg surveillance with tom, jonathan ferro, and lisa abramovich. lisa: this is bloomberg surveillance on bloomberg television and radio. we are very lucky, kailey leinz and damian sassower in. it has been an incredible week i'm resetting expectations for the fed funds rate, how difficult it will be to bring rates down. kailey: i was speaking to max of hsbc earlier. on the one hand, you can say the data will hold up. that just mean central banks have to be more aggressive. on the other hand, if the data

starts to deteriorate, and growth goes down, that is also difficult for a lot of scenarios. a lot of pain on the screen this morning. lisa: the big question of the week is what has to break before the fed starts to take notice? it has not been the currency market, even as we see things unravel at paces that track what you been seeing in the past couple decades. damian: unemployment, credit spreads, that is what you need to look at for any signal on when the fed will ease up on its hiking campaign. it is a painful morning for most. lisa: a lot of people are talking about why credit has held in so well. you raised something, and i want to harp on it for a moment, this question about if things are trading with ease. recently they've been doing pretty well, but you are saying

there are signs we are not seeing the real-time pricing that reflects how people are reevaluating their positioning. damian: we will not see general collateral apprised in the treasury markets after yesterday's move. and we need to wait a few days, see where we are, but you are right. liquidity is everything. it doesn't take a hell of a lot to move markets when they are not trading very liquid late. the big thing for me is credit. how are leverage loans, spreads trading? lisa: equity traders, even the body and currency traders are saying they are looking at earnings. they want to understand how much companies are lowering margin expectations. we were just speaking about that with lorraine, -- lara rhame, what the guidance is in terms of the pricing power, growth power, and potential layoffs. kailey: when you have the likes of fedex talking about reducing

certain things but also raising prices on certain frates, how will you do that in an environment where demand is deteriorating? it is the pricing power question that will be what impacts corporate margins. something that morgan stanley had been warning about for some time. we have started to see the downward earnings revisions but not to the extent that we need to. lisa: we asked steven englander a simple question as we talked about these moves, would you buy the pound? he said no. right now we are seeing it at 1.10 versus the dollar. where does it stop? s&p futures declining 1.2%. the nasdaq down 1.3%. 5-year gilt yields, shocking. continuing to rise. 4.1%, up 54 basis points on a day.

this is something you been talking about, the pace of the movie is notable. kailey: and mildly alarming, and the new u.k. government doesn't seem to mind. when the chancellor of the exchequer was asked about this, he said the markets will do what they will do. it seems they are pushing forward with this fiscal policy that the bond market and currency market does not like. lisa: that will be what they will do to potentially stave of the pain in the pound. brent crude lower by 3%. people reconsider how much activity has to decline. joining us now is dan suzuki, deputy cio at richard bernstein, seeing real no upside. right now the world is coming to your view. are you starting to be more positive or are you feeling worse? dan: good morning, lisa.

i don't think there is any real reason to change the view. we are happy to be cautious here. we have been saying there are only two certainties for the foreseeable future, profit growth will continue to slow, probably surprised to the downside versus people's expectations, and liquidity will tighten. that is the worst possible combination for markets. unless you see signs that those things are resting course or stabilizing, it is hard to get bullish. kailey: do you think the market has appropriately priced in the fed? is the next thing going to be pricing in the corporate profit downturn? what does that look like? dan: that is a very good summation of my view. right now, for most of the year, people are very skeptical about

inflation, and they are skeptical about the fed's reaction to the situation. now people have come around to believing the fed. as you price in the next stage of the cycle, that slowing growth environment you mentioned, that will have a different impact on rates, particularly on the longer end. one of the big transitions that we will be faced with in the next month or so, next coming months, is that shift of a tighter fed, higher longer-term rates. perhaps a tighter fed going forward will mean lower rate because it means lower long-term growth, lower long-term inflation. damian: you have often highlighted the difference between an economic recession and profit recession. what sectors offer protection from a profit recession? what are your thoughts? dan: what we tell people is the cycle is driven by cyclicals. the stuff that will hold up

better when growth is slowing are those stable earnings growth sectors such as everything you mentioned, staples, utilities, health care. you are still going to go out and buy toothpaste in your meds, and that is why earnings will hold up on a relative basis much better. depending on how bad the snow don't get, you could still see negative price-performance, but it is a relative gain in that type of environment. lisa: perhaps people continue with that. the other issue is evercore isi, only one bull market in 2022, cash. how much are you still invested in cash like instruments as real yields continued to climb? dan: we have one of the highest exposures to cash and cash like

investments as we have had in the history of the firm. a lot to be said about the safety and income, being able to capitalize on this short rate environment we are in the midst of. right now we are in a barbell between that cash position, which is high, and long-term treasuries. if we are right about the growth outlook, how the market will have to interpret that growth outlook, you could see meaningful upside in the areas that have gotten crushed this year, particularly at the long end of the curve. lisa: can you give us a sense of what that means in terms of the biggest cash allocation in the history of your fund, progression over 2022, how you build not holding? dan: we have held a decent cash position for a while in cash like positions, certainly has increased over the last three months. over our multi-flagship

portfolio, probably 70% or so is in cash and cash like investments -- 17% or so is in cash and cash like investments. you can capitalize on these higher rates that the fed is providing. lisa: dan suzuki, thank you. fascinating perspective. you are not alone, a lot of people are going into cash. bank of america put out some flow data this morning that showed basically the only thing that got flows was cash, everything else got outflows. including credit and gold. kailey: equity funds saw outflows of $7.8 billion. inflows of cash, $32 billion through wednesday. bank of america says this shows inventor -- investor sentiment is the worst it has been since 2008. everyone is feeling bearish. when does it become a

narrative that it is not bearish but actually bullish? lisa: i am looking at real yields on the 10 year treasury adjusted for inflation expectations over the next 10 years. you can get into an argument about whether they are accurately priced in. however, in this construct, we are seeing real yields up 1.7%, the highest since 2011. really bumping up against this point where you are getting paid for the first time to not really take risk. damian: rising real yields, negative risk assets. you are getting paid, finally. i have gotten a lot of emails this morning comparing sterling to the turkish lira. that is not a good comparison to be making. lisa: they were the one central

bank that just seems to defy economic logic. some arguing that perhaps there is something similar -- not saying that that is happening -- but some of the plans may defy economic logic in the united kingdom. futures down by 1.2%. this is bloomberg. lisa: keeping you up to date with news from around the world, with the first word, i'm lisa mateo. in the u.k., liz truss' government has come up with the most radical set of tax cuts since 1972. workers and companies will see their taxes reduced. the basic tax rate will be reduced and the richest tax rate will be abolished. >> we will have a single higher rate of income tax of 40%. we will cut the basic rate of income tax in april 2023. that means a tax cut for over 31 million people in a few months

time. lisa: also ease the stamp duty on home purchases, which will help buyers, and listed a cat on bankers bonuses. in ukraine, voting starts today in russian occupied territories on whether to join russia. ukraine and its allies have blasted the boats as a sham. u.s. secretary of state antony blinken said we will not allow president putin to get away with this. japan is moving to revive its tourist industry in the wake of the pandemic. the prime minister's has a slew of border controls will be abolished next month. individual visitors will be allowed to enter and japan will reinstate visa waivers. the cap on daily arrivals will also be ended. hong kong is making its biggest move yet in the ending of quarantines. travelers will still face

restrictions on their movements. among them, no going to bars or eating at restaurants. global news 24 hours a day, on-air, and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i'm lisa mateo.

>> the fed wants to wrap up or get close to the end of the cycle by this year so they are frontloading, after years of telling us about the dots, they are telling us about the guidance. they have two meeting to turn things around but that is not enough. something may have to break. lisa: that is the question today. the head of microstrategy at

mufg. tom keene and jonathan ferro are off today. luckily with us we have kailey leinz and damian sassower. very much in focus are the markets. as one person put it, the markets in freefall. we are looking at the s&p not in a freefall, down 1.2%, but certainly the pound is in freefall. brent crude very much also getting focus, which i find interesting, down 3%. 97.71. you are seeing a complete reset when it comes to wall street projections for the s&p. there is a doubling down on oil prices, that they will go higher later into the year. julian lee joins us now. what do you make of that, that

people are not capitulating to the idea that a lack of demand induced by recession will truly cause protracted lower oil prices? julian: the banks are looking at the physical supply demand balances and are seeing what is essentially a tight physical market. the view is that chinese demand will come back at some point, and when it does, there is not the spare capacity to boost output to meet that growth in demand. inventories are already low. they were drawn down very heavily last year. they will continue to be drawn down less heavily but still drawn in the first quarter of this year. some small builds perhaps over the second and third quarters. but that has done little more than to keep things stable. it is this market tightness,

which a lot of people do not think is being reflected in these headline futures market prices, we have the saudi oil ministers this week, a number of other people saying really the market has become disconnected. what the banks are looking at are the physical signals and they are worried about shortage next quarter and into 2023. kailey: you talk about the recovery in the china demand, to what extent would that mean a softening elsewhere, in europe or the u.s., where jerome powell basically said a recession is indeed likely? demand destruction in those economies, doesn't get out balanced by a recovery in china? julian: this is what some are building into their forecast. i am a little skeptical. on the one hand, we have seen no

signs yet of china easing up on its covid policy, really opening up. we are still seeing rolling lockdowns in cities in china. the other thing that people need to start looking at is how china is so connected to the rest of the world. if we got recession, which seems almost inevitable, get significant slowdown in consumer spending, that will have a hit on chinese exports, and therefore on chinese manufacturing. that, i think, starts to raise questions about how much of a rebound we can expect to see in china, if everywhere else in the world is slowing down. damian: the world oil outlook out on tuesday. many believe opec will cut production if prices continue to decline. do you see the potential for continued production cuts?

julian: i think they are focus on the price at the moment. they are pushing this narrative that the market is disconnected, that somehow they have to get a better reflection of tight physical markets into the futures prices, but it seems very onto me, if you are arguing the physical market is tight, your response is to take physical supplies out of the market. that seems nonsensical to me, if you want to balance the markets. that is a big if when it comes to opec-plus. what i think they want is higher prices. at the moment they are uncomfortable with brent at or below $90 a barrel, i think. the one thing i would say, they are falling so far short of their output targets at the moment, but even if they were to

cut target by a million barrels a day, and no suggestion they are looking at anything like that, and if they were, to distribute that among the groups membership in the same proportion they been doing so far, most of them would not have to make any physical cut at all because they are so far adrift of those targets anyway. lisa: you are talking about the physical versus the paper market . i'm looking at the physical market for gasoline contracts in the u.s., tracking the past three months. it dropped for 90 days straight and now is starting to climb a little bit. how much will that have a ramification, how much do you see that creeping up in real markets that people use every day? julian: i think we are perhaps a little while out of this period

of falling consumer prices. certainly, if you look around europe, we have the problem of a very strong dollar, that we are importing oil and oil we are trading is priced in dollars. if you start converting that to euros or sterling here in the u.k., the stronger dollar is making that more expensive for european and british customers. we have not yet seen that come through in britain but we may well do these falling prices as things begin to reverse. lisa: thank you for the time. we are watching the markets having a difficult morning although the s&p is reversing some of the losses. damien, on a day like today, how much do you watch playing into the fear, how much do you pull

back? usually when there is blood there is an opportunity. damian: there is no sentiment indicator i like more than put call options. if you look at dollar-yen, pound dollar, you might get a sense of the cost for hedge protection in this market. that may give you some semblance of where you might want to be. lisa: talking about hedging, the vix, 24.72. not screaming the same way that it has been. coming up, janice eberly of the kellogg school of management. we will get a big picture of how we can expect a seachange this week. this is bloomberg. ♪

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>> this is bloomberg surveillance on bloomberg television and radio. kailey leinz is in. we are looking at the -- activity is stemming from the u.k.'s proposals.

liz truss has pledged to borrow a lot of money to stave off some of the energy costs for household. we are looking at the pound at 110, plummeting to the lowest since 1995. yields are dropping and s&p futures are down 1.2%. this has got my attention all month long, just the case of the increase. we are looking at a 4.2% for year yield. just a shocking pace here. >> since the start of the month of september it has been a 100 basis point move. the movement we are seeing in bonds around the world -- what you are not seeing is the ripple effects in credit.

you are not seeing as much lisa: lisa: bleeding there as55 jonathan: you are not seeing as much bleeding there -- you are not seeing as much bleeding there as expected. lisa: the yield started the year at seven point 6%. they are currently at 4%. what does this do to be in -- the entire investment thesis? >> that $62 billion lost 4.5 dollars billion in market value -- $4.5 billion in market value. that is a scorcher compared to

what we saw in february. lisa: that is the market. then of course there is the economy. it is a perverse incentive that the faster the market deteriorates the faster the fed can pivot. the economy is not deteriorating fast enough. it is uncomfortable or economistss -- for economists to be looking at that. she is currently dean of finance at the kellogg school of management and she joins us now. jen everly, thank you for being here. when you look at this backdrop of the markets, what is your fear about how this translates to the economy? >> great to be with you. there is a lot of market turmoil. the fed's initial announcement

was not a surprise. it was surrounding messaging that included the fed's willingness and expectation that rates would be above 4% by the end of the year. and stay higher for a longer period of time than they had previously conveyed. that increases the likelihood of the downturn and potentially the severity of a recession. that is what has created the volatility in the market because it puts a lot more pressure on the supply side of the economy and what we might see looking for on the real side of the economy. lisa: the message from the federal reserve is " we will look at the unemployment rate rising, and tolerated until the job is done."

do you buy that narrative or do you think unemployment could reach a level where the fed has no other choice -- >> jerome powell said at jackson hole that things have not changed. what has changed is the quantitative method so there is less room for interpretation. the quantitative method reflects the message to the economy that the fed and markets had some optimism that the supply side would make -- that has not happened so far. the fed message is clear -- they cannot and will not wait for the supply side to move favorably. they are acting aggressively now. that gives us this exposure.

the fed is not going to be a shock absorber. what will happen on the real side in commodities? energy and in housing for example? kailey: if i could just ask about the inflation target first, when the chairman said we will get the inflation down to target, is a 2% inflation target still realistic in this new world or will the fed have to change his definition of success? janice: they are focused on that 2% target because that is what they committed to end that is what is in their mandate, but the inflation process, and the transmission of monetary policy through to inflation relies on a much slower cadence of households pulling, back on auto purchases on housing purchases, firms pulling back on

investments because they are more expensive. that moves in a slower way. they are not thinking they will get to 2% immediately. >> the 30 year fixed mortgage rate is at the highest since march of 2002. building permits are down. how bad can things get in the u.s. housing market? janice: the market is acting in a counterintuitive and counterproductive way to the inflation story. housing costs are an important part of inflation indices that we use and they are the biggest part of a household's budget. the way to bring those costs down durably is to increase the

supply of available housing, so to have more construction, more building of homes and apartments for people to rent and to buy, but the increase in costs increases the costs of real estate and the cost of building and construction. the higher interest rates in this market can actually be counterproductive because they are reducing supply, and that puts upward pressure on prices, price -- prices, not downward pressure on prices. it is a reminder that bringing inflation down in a market like housing takes a lot of time the market to cool off and normalize. it is not just about monetary policy, which we should also remember, wanted terry policy is

powerful but it is not a -- monetary policy is powerful but it is not a swiss army knife. we have to build homes, continuing to innovate, investing in our productive capacity, so we have a strong economy that is set for growth going forward. lisa: given how much bond prices have gone down, how much yields have risen, how much can the united states and other nations throughout the world invest in a way they need to given the punitive costs? janice: there is having productive projects, good ideas going forward, and i think we have those. at the other part is the finance thing. it can be from other sources,

including cash on hand. the rising costs around the world, you saw central banks move in concert yesterday to raise rates. they are facing the same inflationary pressures we are facing in the u.s.. some of it is also the relative value of the dollar. you mentioned the movements in the currency market. that is very difficult for many economies to manage and to deal with because the higher value of the dollar increases the cost of their imported goods as their currency falls. it also increases the cost of their debt if they have dollar-denominated debt themselves. that puts extra pressure on them to raise rates and not let the u.s. get too far ahead of them. lisa: thank you so much, janice eberly, former economist at the

treasury department. emerging markets local debt is at a 68.3%. u.k. -- the u.k. is not behaving like an emerging market. it is much worse. >> we have to look at a over a longer period. lisa: kaylee, what a market. this has been a great reset ahead of what is likely to be a difficult winter. kailey: for europe and for the u.k.. the fiscal policies they announced today are to help the consumer navigate the difficult winter in part. you have to borrow to do that because you are cutting taxes. that is why we are seeing a table rate at 1.10. lisa: coming up we speak with

the chief market strategist on a day when a lot of currencies are falling out of bed. this is bloomberg. ♪ >> keeping you up-to-date with news from around the world, in the u.k. chancellor poors a quieting has outlined the most radical package of tax cuts. they will get there -- he also cut the stamp tax. he is doing away with the caps on bankers. an authority threatened to cross through anyone who engaged in illegal gatherings. this comes after a week of protests following the death of

a woman detained by the morality police. japan is moving to revive its tourist industry in the wake of the pandemic. the prime minister said fluid covid border controls will be abolished next month. individual visitors will be allowed to enter. the cap on daily arrivals will be ended. some of the biggest banks see oil rebounding in the final quarter. goldman sachs is targeting 1.25. analysts say sustained demand has helped prices elevate. apple music will replace pepsi as the presenter of the super bowl halftime show. the name has been on the show since 2013.

apple may have paid as much as $50 million per year for the deal. global news, 24 hours a day, on air and online, powered by more than 2700 journalistss. this is bloomberg. ♪

♪ >> democracy is a constant work in progress. it is never done. my approach is whatever democratic government is willing to work with us, we are working together. lisa: ursula von der leyen speaking ahead of italy heading to the polls this friday. this is bloomberg surveillance. i am lisa -- i am kailey leinz.

lisa abramowicz is out to do the -- the yield is up for basis points on the day -- 4 basis points on the day. the rate is at 110.76 at this point. the euro is currently trading at 97.52 to the dollar. we want to go now to rome. maria is there standing by. what is at stake in this election as it looks like the far right will ultimately be the one to claim victory? >> this is the story of a highly

anticipated election. the country is now shifting to the right. the italian condo me is that a debt story. you have an election in one of the biggest economies in the euro area having in the context of war -- the war in ukraine. there is a conversation to be had about sanctions and where is the war going? it is funny but on the day like today, you mentioned the u.k.. when you look at the italian right, they want to do tax cuts too. perhaps, a taste of what is to come. the only difference here is the european money -- >> my question is how our

markets looking at maloney here? are they looking at her as a far right radical? will it be business friendly or not at all? maria: it is a very good question. alone he has run a very smart campaign that i would say at times is a bipolar campaign. when you listen to her talk to the italian public, this is a woman we know would not go down well in some of the most progressive democracies in europe. italy is a member of the eu but also a nato member. this is where she has been very smart. she has reassured that the intellects, the possibility that italy could crash out of the euro, that has played no role in

this campaign. when it comes to ukraine, she says nothing will change. this is a campaign that runs on two different legs. t -- is this the italian maloney or the business friendly maloney? kailey: we heard a very diplomatic take about recognizing the democratic process from ursula von der leyen, but what is at stake for other countries in the euro zone? 2 i'm -- maria: i'm not sure she was being diplomatic. the way that was being perceived in this country is that ursula von der leyen is getting involved in the election. many think this is a gift to the campaign of maloney.

i'm not sure that comment has gone well but we will have to wait and see for monday for that reaction. very different political systems, but they have to find a way to work together, particularly where there are are billions of euros at stake. kailey: italy heads to the polls at sun -- polls on sunday. i'm sure maria has thoughts on the champions league, but we will let her get back to work covering italy. talk about the number of curveballs europe has been thrown over the last 6 to 9 months. you have any energy crisis you have to deal with and you have an ongoing war in the eastern part of the euro zone. it is a very difficult picture

and that extends to the u.k.. damian: the yields are not reacting. that has to do with the level of yields. they need to be a little more contained relative to their peers. for me how much -- for me -- for me, how much are we going to see? kailey: for the currencies to, -- too, we have to keep in mind -- this week's on the less than six central bank meetings. 4 currencies are down on the week. hiking doesn't work! that is the lesson we are learning. damian: one currency that is up is the brazilian real though. they have been way ahead of the curve. the markets are awarding them.

kailey: you can always trusted damien to have the hot take on emerging markets and on sports betting. you can catch him and i at 7:00 p.m. eastern and catch the lineup ahead of all the games this weekend. we will be talking to a former wide receiver for the cowboys. he made a big bet on the cowboys last week and made $37,000 on it. in terms of market action, it does not seem like investors are betting on anything other than the dollar this morning. the euro at 97.54 against the dollar. damian sassower and kailey leinz in new york. this is bloomberg. ♪ >> i'm bridget condon. roger federer well say goodbye to this or after his final match in london. the 20 time champion will team

up with roughly on the doll -- rafael nadal. federer won many titles in his illustrious career. the 41-year-old now plans to retire -- announced his plans to retire last week following knee surgery. it will take place in the city where he lifted a wimbledon trophy 8 times. you can watch all of the action live on the tennis channel. our daily coverage starts at 8:00 a.m. eastern.

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lisa: on vigilantes back. i am lisa abramowicz in for jonathan ferro. markets are readjusting to a new hawkish tilt around the globe with the s&p lower 1.4% into the open, poised for a more than 4% decline on the week. the countdown to the open starts right now. >> everything you need to get set for the start of u.s. trading. this is "bloomberg: the open" with jonathan ferro. lisa: