>> i think it is hard to make a bullish case right now. >> we do not know what is going to happen. >> as long as the dollar in yield continue to move forward, investors need to brace themselves for more pain. >> some of this volatility is a reaction function to the problem central banks are happening -- having. >> this is bloomberg

surveillance with tom keene jonathan ferro and lisa abramowicz. jonathan: congratulations. you made it to the end of the third quarter. good morning. this is bloomberg surveillance. equity futures positive .7%. another messy quarter behind us. tom: another messy quarter. the acts of foreign affairs magazine, 2022 was his fault. look where we are in this derivative story in the united kingdom. it is absolutely front and center for mobile wall street. the bloomberg financial conditions index for the united kingdom is not reversed, it was moving down this morning to new levels of restriction for the nation. jonathan: we have got a lot of problems to deal with for the global economy and global

markets. three straight porters of negative return for the s&p 500. i did not realize this. you have to go back to 2009 to see a streak that bad. lisa: when it comes to bond losses, the flipside is, there is no place to hide. stocks are selling off. the nature of that selloff is continuing to change. overnight, we have had a number of earnings. they have not gone far enough. that was the message we got last night. going forward, the earnings are going to be front and focus. jonathan: going to wait for price action. lisa is going to go through the day ahead. futures positive .7% on the s&p. can we get a strong finish to a rough, messy third quarter? yields lower by nine basis points on a u.s. 10 year.

what a range we have seen in the global bond market this week. lisa: how much has this been driven by the united kingdom? we have seen the pound ratchet back some losses. the dollar in expectation for possibly -- liz truss and the prime chancellor holding an emergency -- at the office of budget responsibility. they had postponed the report from obr saying there were other aspects from proposed labor not willing to release yet. people are getting more optimistic that perhaps the worst case scenario will not pass 111. august personal spending, the u.s. data coming up at 8:30 a.m. core pce deflator, this is the feds favorite metric to look at to get a sense of trajectory,

especially at a time where this is the area that may be stickiest going forward. eurozone seeing 10% inflation for the first time, this shows you how difficult of a problem this is. president biden liver and remarks on hurricane ian recovery -- delivering remarks on hurricane ian recovery, which will cost somewhere around $100 billion. jonathan: we will catch up with annmarie later. a poll from yougov, labor with a 33 point leave over rolling conservatives. this has been described as the biggest leading -- by any political party since the late 1990's. tom: i took the liberal democrats to labor, i guess they

are not conservative. it is the -- stunning the gap. jonathan: joining us now, andrew griffith. fantastic to catch up with you. we understand the prime minister is meeting with the obr today. should the forecasts from the ob are be published before then? andrew: the key thing to take away, the government, the obr and bank of england are working in a coordinated fashion, each doing their respective jobs. the bank is doing its job on monetary policy and market conduct. the obr is doing its job on forecasts, bringing the forecasts when they are ready to wrap in recently announced government growth plan. the government growth plan which has features about energy protecting households and businesses, how we are going to go forward on energy security,

building clean energy going forward. supply-side based in the u.k., it is a growth orientated plan. what you have seen the last week in each of those -- if each of those players do though -- do their job. you have seen a lot of coordinated activity. jonathan: i have seen a mess. you came out last week with a mini budget, the bank of england to follow up with unprecedented intervention to the bond market. why weren't these forecasts published alongside the mini budget last week? andrew: there was an imperative to act this time last week. it is tomorrow that energy prices would have gone up across the united kingdom. real uncertainty for businesses and households.

it was right to do that then. there is a lot of detail and how the u.k. government sees growth going forward. that would not have been available to the obr to factor into their forecasts. we are still waiting to announce over the coming weeks, plans for infrastructure, the housing market, some deep seated challenges that probably all of our major economies have with growth. it has been a busy week, but each of those players are doing their job in a coordinated fashion. lisa: how concerned are you about the increase in borrowing costs with some people citing a 10.5% mortgage cost at a time with the bank of england is tasked with offsetting a proposal that has not been put out but the market is responding? andrew: rising rates are a concern. we have seen that going into last week, i think you have seen more tightening in the u.s. that is happened in the u.k., as well. we have seen acres out of europe

today indicating they have got the same issues around inflation . what the energy package measures do is reduce the headline rate of inflation, that is something that is going the other way to the transferral. lisa: there is this discussion about not releasing the obr report earlier than the november 23 deadline at a time when the market is moving. why not just release it earlier to give people a sense of what is going on? andrew: my board wanted me to release my figures as early as i could, but they also wanted them to be credible, to take the time to reflect the information in a fast-moving world. i would want to have a review on that. you have to recognize there is a balance between velocity and being able to wrap in inflammation -- inflation. the growth plan itself is a 40

page document, some of that detail will be released over the coming weeks. jonathan: it is not for you to decide how long the obr needs. we are reporting now that you haven't thought to accelerate the watchdogs eco-forecast at all. that is our latest report according to officials. why haven't you asked them to accelerate it? andrew: i talked about how there is a lot of different data. people have heard the headline measures that have been widely recorded, perhaps less so with plans with infrastructure, the plan for immigration, housing. these elements, important elements in the growth plan are how are we going to finance the fiscal announcements made last friday? i think you've got to look at it as a package. when the chancellor asked the obr to report on the 23rd of november, it was in contemplation of taking into account the whole of that package. jonathan: have you asked the ob

r to bring forward those forecasts as soon as possible? have you told them you want them at the end of november? andrew: the chancellor will read out his meeting in due course. in the meantime, do not lose sight of the fact the fundamentals here were strong coming in. we started with some of the lowest debt to gdp in the g7. the economy is still growing. tom: andrew. i am sorry to bother you. as we speak, the bloomberg financial conditions index for the united kingdom is a negative for standard deviation. you have seen seven standard deviation move in the blended guilt price move. you have a derivative disaster. you are the city finished her. what are the regulators going to do to amend the derivative shell

game that caused the bank of england to bailout the marketing industry of lbi? andrew: you will be aware about the independence of the regulators. as city minister, the regulators have their jobs to do. tom: how -- andrew: in a competitive environment in which --- tom: on a seven standard deviation move, it blew up. fine. what is the united kingdom do off of the scandals of 2007, 2008 to finally control the natural greed of the derivative business? you are at the heart of this as city minister. how do we finally get our every eight year derivative blowup fixed? andrew: the bank of england is taking the actions they need to in the market right now. in the long-term term, we look at getting the right regulatory

structure, the shared objective on ourselves and the bank and credential regulators. one would always look at wherever they are at throughout that point in the regulatory structure. that is not the focus today. the bank has made its judgment in the markets. to your point earlier in terms of politics, we need to communicate how this country is going to grow, what is going to give people the confidence to invest, the confidence to hold the currency and the ability for the government to -- tom: two mr. ferro's questions earlier, what do you need to do this friday evening to give confidence monday that the different experts are advising the truss government of the outcomes of their

reaganomics-like policy? andrew: i wouldn't accept that characterization. what you need to know and the markets need to understand, we are working. we have seen a number of coordinated announcements from the governor of the bank of england over the course of this week. i have spent my time meeting investors, talking to regulators, talking to the financial markets. these are volatile times. we are seeing that in every market. there is a different speed in pace, but there is a macro trend we are seeing. some things we are tasked to do is bring forward supply-side reforms to improve the uk's energy security situation. the aberrant here is the strength of the u.s. economy, the strength of the u.s. dollar as a function of your greater energy -- tom: i want to make this clear, i believe the minister just told us it is our fault the u.k. has

blown up. i think that is what i heard. jonathan: we do not have time for that. andrew: that is not what you heard. we have got a job to improve our energy security. if anyone thinks a macro issue that flows in part from putman's invasion of ukraine and -- jonathan: if you can wait there, we will come back to you. this is bloomberg. ♪

>> navigating the economy toward a more sustainable path resuscitate's a downshift in the pace of economic activity and the labor market. for now, we see a deep recession, the kind we had in the 1980's or the great recession. that is not warranted jonathan: that was mary daly, the san

francisco fed president. months ago, -- moments ago, we caught up with andrew griffith. we bumped up against a heartbreak, a commercial break. he could not complete his thoughts. tom: what were your thoughts on that? jonathan: we can wrap up his thoughts another time -- tom: what i got there was complete lack of urgency of the moment. i know pound has recovered. seems to be a complete understanding by the british government of the urgency here within global wall street. jonathan: what was clear from that interview is they are trying to address the optics,, across as a united front, coordinated. that is not how it played out over the last week. typically, you have a budget announcement. alongside would be independent

forecasts from the budget responsibility. that didn't happen this time. then what would happen is the bank of england would go november 3 and provide monetary policy, that is not what happened. there is nothing coordinated about this. you've got the budget, the massive market fallout and unprecedented guilt market intervention for the bank of england. it is still not clear when we get those forecasts. we are confirming now they are preparing the forecast for the november 23 to glow along with the fiscal statement. here is the timeline. october 14, the guilt market operation ends. november 3, a november bank of england rate decision. lisa: the bank of england has to respond. if they raise rates in the meantime, they cause real pain,

real changes in spending habits of households at a time where the details are not out. is that the policy they have intended? jonathan: futures up .8% on the s&p. coming into a strong finish to a messy third quarter. tom: a shocking interview of the city finance minister of london. -- is observing britain, observing these crises from a prism of value, equity investment. how do you study the british economy, how do you pull this global wall street to what is a clearly massive derivatives failure? >> we are learning a lot more about lbi and how this works. it is another micro input into -- macro input into a micro forecast for companies, we are overlaying currency moves and

what that impact might be on revenue and costs for our companies. tom: do equities in the united kingdom enjoy the repricing and revalue we see in gilts? christopher: there are bargains throughout europe, it is probably too early for us to do much there. we are looking for companies that, in some cases, u.k. companies that are selling abroad and benefiting from price competitiveness given the move of the pound. one of those would be be audio, that sells a product that is not going to go out of style. lisa: as you watch the fast moving internationally and the u.k., europe and china, how much do you think has been factored into u.s. multi-national companies and their earnings, not only from the strong dollar but the deterioration of the

backdrop of other regions? christopher: this is not the first time we have seen these kinds of movements. they never seem to be fully priced in. we thought we would see a lot more earnings weakness in the second quarter, that turned out not to be the case. the u.s. consumer was more resilient than we thought. we are bracing for announcements and earnings cuts, as we begin to report the third quarter in the next couple of weeks. we will see. that is an important factor, along with the overall multiple, which we are still trying to determine for the market. lisa: everyone is pretty bearish right now. are you able -- a bull? christopher: i am adjacent bull. we have been through this before. i want to echo larry summers view, it feels like 2007. if you held on through that period, we did well in the

equity markets. we did well relative to other strategies. it is about finding the right business models, the right business sheets and write managements to make it through to the other side. jonathan: great to catch up, sorry it is on the short side. -- of bank of america, bearish all year put out a note this year. the trade of 2023, how is this constructive, shorter dollar, small cap in cyclical's. what do you make of that? lisa: it makes sense. if you believe that things are moving as quickly as some earnings would suggest and peripheral data, granular data seems to suggest, if we get a pause or downturn next year, you can start to expect and price or

word your recovery, which might be what they are looking for. mike wilson was talking about where we are in different economic cycles, the stock market as a forward-looking instrument. 2024 could potentially be better than 2023. tom: --mentioned the huge liquor complex of the united income. from sterling, a high of down 6%. dollar from a high down 23%, that shows the distortions we have upcoming starting october 1. jonathan: we have got to reflect on that intervention we had the last couple of months. the ecb earlier in the summer, facing down the prospect of hiking interest rates and had to do something about containing bond yields. we are seeing that play out in the u.k. this week. the boj has had to intervene in the fx market. china is threatening to do the same. we have got to restart and think about what this cycle is going

to look at -- look like. does it involve qt? lisa: will it involve quantitative easing? bullet leave certain bonds trying to hike rates? we have shifted from tightening into pain, tightening into a weaker economic cycle. to trying to spend, do fiscal spending to support households while also tightening to combat inflation. we have seen this in germany with that 200 billion euro plan for energy prices. this is the tension merging into the fourth quarter. jonathan: the policy is in conflict all over the place. that has been the theme so far this month. yields are lower by 110 basis points. we are at 369. this is bloomberg. ♪

jonathan: what a quarter it has been. good morning.

friday, we were poised for a third straight quarterly loss. for a streak that bad, go back 2009. yes, it has been that long. 368.42 on the u.s. 10 year. monday morning, all time low in that session. have you ever seen a range that wide in a single week? tom: what amazes me is how the other data does not correlate with a pound-sterling rebound as reported by the media.

the other data does not correlate with crisis over for the minister we just spoke to. jonathan: we've got a band-aid. tom: well said. jonathan: mid-october, people describing that as a cliff edge. this bank of england is targeted and limited in time. the next move on the monetary policy side is mid-november. lisa: what does the threat to financial stability look like? issues with long dated investment plans for pensions but on a bigger scale, does a buyer strike start to reassert in the debt market as big nations try to finance fiscal spending through debt markets that aren't changed? jonathan: you are thinking

germany. massive package on double-digit inflation. tom: it got buried. culturally, it is unimaginable. jonathan: it is happening. tom: in germany, christian scholz joins us. i have to ask, before you and i read the financial stability volume from imf, which will be published in weeks, does citigroup feel europe has financial derivatives risks of the u.k. and what is being alluded to in the u.s. when you have dutch schemes doing derivative strategies and german schemes -- this is a risk to madame lagarde on the continent? christian: the european systemic

risk board yesterday issued for the first time, which admittedly wasn't long, a general warning. it is very general but clear we are worried. pockets of various markets europe and beyond, energy derivatives, we know there are issues, also bond market, equity markets, volatility is a major risk. tom: how does that change the prism for the ecb launching their meeting end of october? christian: the meeting is fairly safe. the risk is ecb is going to hike. the question is 50 or 75.

you better act gradually to prevent major volatility. big shifts in the dovish direction don't make much sense if governments come out and support the economy in massive ways. lisa: how much are you ratcheting up longer-term inflation outlooks? christian: in the short run, they will lower headlines. price caps will reduce inflation by two percentage points in germany. in the u.k., they are lobbing off six percentage points with price caps. this is an allusion.

they increase the demands for energy and wholesale prices. someone eventually will pay for that. this will lead to higher inflation down the line. we are heading for lower peaks in inflation or lower inflation next year but higher inflation for longer. that poses a challenge to central banks, a credibility challenge. lisa: are you talking to .5% inflation in the euro region until '25? 44% inflation -- or 4% inflation by 2030? christian: we are still heading for recession in europe. that may be milder if this fiscal comes in.

it may be harder because of financial tightening central banks are driving at the moment. i still think there is a prospect whereby core inflation gets '25 back to target and the central bank, in a controlled way can sit this out. they have to hike but not massively beyond neutral. the risk is expectations de-anchor. reduce price caps, therefore the risk adjusts, with wage growth for example. but you cannot dismiss that risk. people will see if they use more gas, prices will go up and sooner or later they have to pay for that. is it spot inflation or general tricky nests about institutional

credibility? tom: you go to the heart of the matter brilliantly. this is the difference between germanic economics and u.s. you are suggesting central banks can amend 3, 4 years of patients in stable policy, where the technocratic u.s. are trying to fix it in two meetings. is the x-axis of the u.s. central bank flawed for you? is germany and ecb doing it more correct? christian: i think the u.s. has a more straightforward problem to resolve. there is excess demand. the economy is overheating. the fed has to regulate down. the government can help. the fed knows what it has to do. the ecb can't fix this problem on their own or if they try,

they will make it worse. they need the support of governments. governments can raise supply or help raise supply of energy and therefore lift supply overall and bring inflation down. the government needs support for that. they don't need low costs. in an ideal world, central bank and government would talk. government would support supply and central-bank would move gradually, in a controlled fashion. neither europe nor the fed can solve the problem in two meetings. my perspective, the u.s. has a more straightforward job to do. jonathan: bnp paribas on the ecb, they think they can go another 100 basis points.

they think the ecb can go 3%. do you think that is achievable? christian: i think, what i would do, put the ecb in tightening mode, and an economy which is three percentage points smaller than pre-pandemic trends, which is heading for significant recession -- that feels like taking it too far. governments are trying to prevent that recession, shelling out money to households, the likelihood it will have to go that way to get medium-term inflation down. the chances of something like this are growing. i still expect recession to stop the ecb. jonathan: they are not forecasting one are they? just yet. a lot of people are laughing at the ecb forecast now.

the deutsche bank ceo is talking about the depths of recession. tom: i will cut some major slack. we are moving real-time. the headlines here from your u.k. what does the prime minister do to get to friday afternoon? i am baffled. jonathan: the u.k. government will work closely with a dutch watchdog. this is about optics. unusual meeting one week after a budget. typically you would come out with those things, some forecasts. it was not sequenced that way. lisa: or for them to have all

the info at hand to come up with this projection. some of the markets are pretty uneasy. tom: is ob are the same as congressional budget office? jonathan: i wouldn't know. it is an independent body that provides forecasts for the government. tom: i think so. jonathan: matching u.k. and u.s. knowledge together. beautiful. this is bloomberg. ♪ >> hurricane ian has picked up speed, on a path to hit south carolina. north of charleston, heavy rain,

potentially deadly storm surge. florida is struggling to recover. entire communities were wiped out and homes were flooded on both coasts of the state. in the u.k., the prime minister is under pressure to cut spending to win back the confidence of investors. we project the cuts may need to exceed the infamous austerity drive of 2010. markets have tumbled since the trust government last week. more pressure on the european central bank to keep raising interest rates aggressively. the eurozone has recorded its first-ever reading of double-digit inflation. consumer prices rose 10% in september from one year ago, the fifth straight month the figure has exceeded the consensus. shares of nike lower today.

they reported inventory surged. discounts have hurt profitability. higher freight costs, the foreign exchange effect hurt their margin in the latest quarter. global news, 24 hours a day, on air and on quicktake from bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. i am lisa mateo, this is bloomberg. ♪

>> we are focusing on delivering the growth plan and making sure energy inflation will be protected. without growth, you will not generate income to pay for public services. that is why the budget is absolutely essential. jonathan: the chancellor of the exchequer. good morning. equities up .6 on 1%.

yields coming back by 10 basis points. we were poised for another weekly advance on 10 year yields in america. tom: this goes to real yield, this friday hugely eventful. jonathan: she is guest hosting. tom: you didn't know that? lisa: i didn't know that. jonathan: i've got to go. tom: a little friday. jonathan: victory lap into the weekend. tom: i want to say thank you to everyone listening and watching worldwide who heard jon ferro's questions to the minister 20

minutes ago. the basic idea was wall street was a public service. this goes back to our rudy giuliani interview of two years ago that was outrageous. jonathan: is there a difference between policy? you can have a debate about u.k. policy. it is the approach. there is a reason why institutions are shaped the way they are, why there is a sequence of events supposed to take place. it is to avoid stuff like this. the u.k. government this morning has tried to reshape the optics by constructing that meeting with the obr, respecting the independence of the boe, all those things. that is not how things have played out in the last week. tom: from the moment it was known jane would speak with us,

112-110 handle. i rarely do this. i have to get exceptionally narrow, right down to the function and technicals with sterling. give us your key support and key resistance levels for cable? >> that is really difficult to do. 104, certainly capable, remains really vulnerable. what happens when the boe takes away this extraordinary support of the gilt market? the problem is still there which is what is this government going to do in terms of fiscal policies? you have the boe hoover ring up -- hoovering up debt left over from the pandemic. that is a credibility issue. tom: explain the efficacy of

foreign exchange analysis now when i look at fancy ratios and fixed income spreads that are grim. this foreign exchange me what is going on? jane: i think sterling has been saying all year fundamentals are grim. sterling has been the performer all year. the boe has failed to turn in around. that has been the case in spring. that tells you investors don't like what they see. they don't like what they see even more because of the budget last week. even if some measures -- there is no sign the government wants to do that. there is a dirty stain on the credibility of the boe and this government. the government is talking necessity of budget to improve growth.

many people, subsidies on energy, will be taken away in terms of higher mortgage payments anyway. gult in the pension portfolio, no wonder. lisa: u.k. has unique circumstances in some ways but in others, not so much. we are seeing fiscal spending in the euro region trying to grapple with a difficult winter. the u.s. faces a different picture. is it engaged in the same fiscal band-aid for problems that have longer-lasting problems? jane: the market is already worried about global growth and u.k. fundamentals. that is why the timing of this budget was so bad, for failing to read the market conditions. it accelerates the safe haven

for the dollar. i don't think u.s. fundamentals operate on the dollar in the same way fundamentals operate in the u.k. on sterling. the dollar has its own set of fundamentals. it is a huge invoicing currency. mass reserves, deposits are huge. when there is crisis, uncertainty, people need dollars to cover liability, pay invoices, cover dollar debt liabilities depending where you are. the dollar operates to its own fundamentals. it is quite distinct from the fundamentals of the u.s.. jonathan: jane foley, good to catch up. it is a difficult moment for global markets. massive struggle to normalize,

not just pushing interest rates higher, but this week, for me, it has been a big week. to rethink what is achievable with balance sheets, the ecb started this. they told you immediately, yes we will hike but we will have to do something if we spike too much on the periphery. i wonder how long before the fed has to reconsider its balance sheet? tom: 100% agree. i have been watching real yield. for certain this friday, every single general counsel of every defined-benefit program on the continent and across the u.s. is reviewing their liability driven strategy if they have one. people like simon wilson, taking

a massive victory lap because they have the courage to say we are not going to do that. jonathan: it is exposed to real vulnerability this week. the band-aid expires in mid-october. let's see if it does if they move gilt quickly. where have you been? futures up a half of 1%. euro-dollar negative, .6%. crude, $81.44. what was it russell crowe said? are you not entertained? lisa: [laughter] jonathan: you have never seen gladiator, tom? we have to fix that. this is bloomberg. ♪

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>> it is hard to make a bullish case now. >> we don't know what is going to happen. there is more vol in the markets. >> as long as the dollar and yield continue to move upward. >> volatility is a reaction

function to problems the central banks are having. >> not at the risk of financial stability. announcer: this is bloomberg surveillance. jonathan: i am proposing a four day trading week. if the volatility calms, you go back to five. lisa: it will always be a little volatile. jonathan: of course. brama looking for a four-day week. doing your work. brutal. up and down. another quarterly loss. tom: the media is so tangible. hardly focused on the end of quarter. i just looked at sterling, in

the last hour, it was jane foley's fault. we are nowhere near resistance. there is no support technically. jonathan: it is a breakdown. tom: if i had to go to binky, 25 years old, shaking, going in front of chada, i don't know where i am. jonathan: binky will join shortly. apple got hammered yesterday on the idea consumer spending will be a tough story worldwide. facebook out with freezes to hiring. not layoffs. you can't sack what you cannot hire. lisa: saying meda will be a smaller company in '23 than it is today.

the semiconductor space flat on its back, macron yesterday downgrading expectations further than expected. -- micron yesterday downgrading expectations further than expected. in the u.k., larry summers said these are the preconditions. jonathan: it has been messy this week. futures positive. yields lower by nine basis points on the 10 year. sterling weaker. lisa: the intervention in terms of how they are trying to support currency, jane foley saying she doesn't know what could stop the dollar rally.

we're hearing reports the budget meeting was 48 minutes long. we are waiting on what emerged. it matters for how much the boe will have to raise rates and for people refinancing mortgages at a time when they are hearing reports, 10.5% mortgage rates being cited. we get a university of michigan sentiment survey at 10:00 a.m. we are looking at core pce deflator. how quickly that pace is taking effect. do we see some sort of rolloff

in how high inflation is? 11:30 a.m., president biden talking about hurricane ian. the recovery cost in florida will be estimated $100 billion. this is the third most populous state in the u.s., a huge amount of people migrating their during the pandemic, post-pandemic. it is a disaster zone in a lot of areas right now. jonathan: we will continue with updates through the next couple hours. back to the markets. you still at 4750? binky: that is what i'm looking for. jonathan: how do we get there in three months? binky: basic thesis.

i would agree given where we are midcycle. there is no case for equities based on the valuation of earnings. what one should keep in mind, is what we have seen over the course of the year, is the fed providing guidance to a full rate hiking cycle, which is in my view, given 4-5 of them ended in recessions, it is forward guidance to a recession. if we have a situation where growth is slowing, with the fed's guidance, equity position has been falling faster than growth has been slowing. if you break up our positioning measures into two parts, one that is tied, based on what is happening from an economic fundamentals point of view and earnings, what you see is discretionary equity investors are positioned now for 47 in the

ism. what we got the last three months was 53. there is potential for a squeeze. i would argue a much bigger potential for a bigger squeeze would come on the systematic strategies. if you look -- tom: [indiscernible] binky: it is a question of systematic strategies, positioning, equity vol. tom: i got two ways to go here. i have to go to the one that matters. deutsche bank said recession before anyone else. i know you are focused on getting it done. are you suggesting at the heart of your bullish call -- binky: i wouldn't say that. yes, we are looking for a recession next year.

exactly one? is it going to happen here and now given equity market positioning? i am calling for bear market rally number five. bear markets have plenty of rallies. on average, three off of new lows going 10% or more. we saw that prior to the pandemic, on average, five bear market rallies of 15%. you just have to be tactical. we have this cloud. lisa: i remember a couple months back, you put out a forecast, we get a recession and a hard landing. 3200 handle on the s&p? or on the high end closer to 4750 or 5000.

seems like the worst case scenario is unfolding and many more people are pricing in a hard landing. what makes you stick with the higher end range? binky: it is then a if-then-else and what happens when basically? coming through the middle of the summer, seems to us, recession was more imminent than happening next year. depends on what you believe a recession is. i think a recession is about corporate risk aversion. if you look at simple measures of ceo confidence, in the middle of summer, some were below the lows at the time of the pandemic, which is all the way down there. really primed for corporate risk

aversion, when we thought the commentary on q2 earnings would say corporate is pretty clear they are not cutting anything preemptively. that suggests the recession happens later. that leaves us with the issue of what is going to happen over the next 3, 4 months. i would also point out, if you look at the measures of ceo confidence, there is at least one available on a monthly basis, and confidence axley went up in august and up again in september. it is doing what consumer confidence is doing. the fed hiking cycle will end the recession. the question is timing. the house view is around the middle of next year. that still leaves plenty of time in between. jonathan: if we go to 3000, i am

right. if we go to 4750, i am right. binky: it is a question of when. jonathan: not for me to say your forecast is wrong. you are saying we can rally back toward all-time highs before year end? binky: that is correct. if you look at big corrections in the s&p, generally, the levels we are talking about now, where we are, you only see basically in recessions. in a few cases when we fell by as much and did not actually go into a recession, the market regained its prior peaks in about four months. that is something to keep in mind. is the recession happening? more imminent? is it getting pushed out? ceo confidence, commentary,

whether you look at labor market data we got yesterday, all that is saying it is postponed a little. jonathan: american football. deep in the field, what is it called? lisa: a hail mary. jonathan: this feels like a hail mary until year end. tom: do you know who doug flutie is? jonathan: who is that? tom: that is a guy you need to study. jonathan: hail mary. i will check it out. binky, thank you sir. you wanted a bull. tom: delivered. [laughter] tom: signed and sealed. jonathan: this is bloomberg. ♪ lisa: hurricane ian taking aim south carolina, the wind picks up 85 mph overnight, expected to

make landfall today near charleston. ian caused catastrophic damage in florida where it came ashore as one of the strongest hurricanes to ever hit the u.s., flooding towns on both coasts and flooding entire neighborhoods. an unknown number of people are still trapped in their homes. the british prime minister won't change course on the government's unfunded tax cuts following talks with the budget watchdog following a week of market turmoil. the chancellor will deliver a medium-term fiscal statement november 23. in brussels, european union energy ministers have backed measures to fix the natural gas prices including goals to reduce power consumption and agreeing to tap windfall processes of energy companies. there is frustration more has not been done. vladimir putin set to annex parts of ukraine today after a referendum condemned by the u.n.

and called a sham by president biden. russia plans to sign treaties to absorbency 4 ukrainian regions. global news, 24 hours a day, on air and on quicktake from bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. i'm lisa mateo, this is bloomberg. ♪

>> we are bearish european natural gas january-february, charting below 100 megawatts per hour. through this winter, prices were moderate. jonathan: very much not constructive long-term, jeffrey kerry. if i have never heard of doug flutie, i am told -- tom: correct. jonathan: futures up on the s&p, yields lower nine basis points. if you missed it, couple hours ago, we had inflation out of europe, double digits, 10%. next ecb meeting, october 22.

germany, double-digit inflation. tom: slump friday, there is no bid on euro in the last hour. sterling is tangible. our interview with prime minister truss. right now we speak to minister today on brussels, about the event of the week. maria, it is the only question i perceive this weekend as people stop me on the street. who is going after vladimir putin? maria: i thought it would be prime minister more than minister. [laughter]

it is a difficult question. the europeans say we are not fighting this war. we are supporting ukraine. this is a country being attacked on the battlefield. the europeans know in one hours time, vladimir putin will announce he will annex four regions in ukraine, paving the way for more sanctions on russia. it is unclear what type of sanctions. europeans have done everything they could. the one issue they can't is gas and energy. there is huge frustration that prices are not going down fast enough. tom: has this dialogue changed with the italian election? the politics of hungary and other east european nations? are we having a different conversation on sanctions and vladimir putin then we had on

february 25? maria: there is a different conversation but it is on the mega plan germany presented yesterday. 200 billion euros. to finance and cushion the impact of this crisis for households and families. behind the scenes, today in brussels, there is frustration at the germans. the idea that they are disrupting the markets, breaking away from solidarity and unity in europe because they have the money to do things other countries are not able to. the conversation is not so much about sanctions. it is more about whether germany is going at it alone or will it stick with european countries? lisa: the way europe is configured now, they are proposing to borrow money to plug the gap in the energy system now, for households, companies and beyond. when we look at u.s., and the spending on infrastructure, to

recover, the situation in florida now, the disaster, where you need to rebuild, how much the u.s. has capacity to do that given projections? >> they don't have a choice. this is a natural disaster. a defining moment for the governor ron desantis and president biden. there was a great analysis this morning in the post this morning that showed how this can shape a presidency. it is crucial to make sure the federal government is seen as a helping hand to opening the tap for whatever is needed especially looking ahead to a midterm. on germany, in this more secure fiscal situation, i am struck by the german economy ministers comments this morning, taking a direct call to places like

norway, u.s., which are now starting to fill the gap, where germany used to get cheap russian gas. others may say at the expense of other european countries. now basically telling those countries europe should be a negotiating power, making sure those countries are not exploiting these skyhigh prices. in the u.s. now, they are making a lot of money in terms of sending over fossil fuels to europe. lisa: what is the pushback from the u.s.? is there a response? is there a willingness to do that for an alliance to try and keep europe in a bitter situation -- in a better situation during winter? annmarie: the u.s. said they want to help europe. they are shipping tons, the most ever on record of l&d to europe.

there are supply and demand issues. these are companies. i would be surprised if the u.s. doesn't put pressure on companies especially when europe is in a vulnerable time and they don't have a choice. jonathan: tk, you are never going to win maria over. not happening. you are going to keep trying. not working out. michael mcdonough if you put this together. if you want to spend $2500 per month on a house, that would cost $476,000 for that same monthly payment in 2021. that is how much interest rates have changed?

tom: 37%. culturally as well. decline in value. i don't understand this market. hsbc analysis of the mortgage payment, floating annual 3500 pound increased to 5000 pound increase. jonathan: once the mortgages are done with, you get a big step up in interest payments. 20% of the mortgage market and the u.k. is variable-rate. -- in the u.k. is variable-rate. futures positive on the s&p. this is bloomberg. ♪

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>> my one half of 1% on the s&p on the nasdaq up .4%.

on the russell small caps up .6 and on the quarter on the nasdaq. a third straight quarter of the clyde. where's since the first quarter of 2021. i had no idea about this. the longest quarterly losing street since from 2009. that is the equity markets story. the bond market is all over the place. 36069 look at pounds sterling, 10350. now back to 110 71. what a range. tom: there is some resistance. you can make a chart but what is important on the weekly chart,

there is no support. there is soup. it is indeterminate and that tells me it is based off every single headline that we see from the trust government. you may get low liability in derivatives but it is mostly the trust government news flow. jonathan: lisa, with thoughts that they accelerate that economic forecast and that doesn't seem to have happened. lisa: not only did that not happen, but the reporting is they did not even requested. you have to wonder, are they thinking like that or are they hoping it will pass. jonathan: we will see. lisa: meanwhile, the thing i am looking at from the macro picture is some of the specific names that reported low earnings, nike caught my eye.

their inventory surged by 65%, well beyond what people expected. margins came in more difficult for them. they have all of this stuff they can't sell. they had to discount it aggressively to get it out. those shares are down 10% today. it has been a bloodbath in the retail sector. they haven't kept pace with the shifting trends in shopping as well as people buying less stuff. nike stocks down. adidas is down 60. under armour down 63%. nike is doing its best in this incredibly different -- difficult moment. early next year, michael hartnett was talking about has

this completely stripped valuations. when we start to understand the scope of the downturn. tom: the restructure for q4, restructuring your life. this will pour into the equity market. marvin, when you take the strategy enfolded into the investment strategy, what is your to do list on the first business day of october. marvin: i think you are still trying to assess how comfortable you feel with the path laid out. if you are getting comfortable with that, you can talk about some of the bottom cushioning we have been talking about. we don't think there is a great deal of uncertainty. you still continue to look at the shape of the curve from a defensive position, the dollar

strength making its way around the world. that is something that will continue in our view. tom: we have seen central banks blank in the last number of days. in all of my reading, when i see the word hope that usually means danger. what is the hope for the central bank of the united states? what we hope jerome powell does? marvin: we hope they stick to the script they lay out. in the u.k., they start the qe again. it really does show how challenging and environment it is. building in the market the way you used to because of this inflation. i think that we really need the fed to stay with inflation.

lisa: you can still see a 4700 level because of the bear market rally. are things that volatile that you can see that kind of move? you can see rallies of the significant magnitude that would give you an opportunity to sell? marvin: 47 feels pretty aggressive to me. it would be a repeat of the seller environment and i don't think we will get anything like that. could we have a bear market rally? eight-9% is not unheard of and it provides you an opportunity, i think u.s. stocks in the long-term are part of your

portfolio. between here and there, there seems to be a lot of volatility around it. the fixed has crept up but it is not act concerning levels. you haven't had that ailing of capitulation even though you have had the volatility you've seen. lisa: you said we haven't seen a capitulation yet. around the margins, it feels like something is happening that is different now than a couple of weeks ago. we saw the biggest withdraw from bonds on record. we saw losses unmatched in recent history of nearly 18% so far year to date. are things starting to crack in credit? marvin: they absolutely are. we know the yield market as well as anyone else, we are still a ways from retesting the wise and those wives did not reflect the recession the way we typically

define it. it is starting to crack. reality is coming into those markets at a time where they were able to talk through it. if that reality does set in, there are more losses that will come into the market. tom: everybody on global wall street, if we calculated the leverage of 1998 that we observed, and i guess is a comfort to the ratios we are talking about in the last few days of three to one leverage as well. is the leverage out there within the financial system to give andrew low upset at the massachusetts institute of technology that would upset marvin loh at state street? marvin: i am not looking at from that perspective, what we learn

from pension funds, these are strategies that potentially evolve over a decade in an environment that was very much geared towards lower interest rates in a more stable environment. there is nothing obvious to me relative to what we have learned over the last few decades. unfortunately, the financial crises we have face. jonathan: thank you for being with us. it has been such a log year already. but his story for the third quarter. futures tom are up .2 in the sterling is weaker. i have to say, this market has been all over the place. tom: david blanchflower is busy on twitter.

thinking of him in the millions in florida. the government says that they will use the opr scrutiny. what a load of rubbish not going to happen we will let them hide this stuff, appalling. jonathan: that is heavy on opinion, november 23 i wonder if this new budget if it includes spending cuts in a big way to offset some of this. i wonder how much more painful this could become in six weeks? tom: i urge everyone david stockman, i read of 40 years

ago. this is so been there, done that. it is shocking. that is why i got upset with the minister. jonathan: when you have boris johnson on his way out and he talked about the treasury and holly like to balance the books and they are focused on that anon growth. the first thing that they did is fire the top civil servant of the treasury. this is how the dominoes started to fall. he said they were run like of finance treasury. if you are going to blow up orthodoxy, that will unnerve a lot of people. tom: i don't want to be rude, but i will be rude to you. if this had happened under prime minister johnson? jonathan: under prime minister johnson you may have your own idea of what policy should be.

that gentleman did not blow up the approach the same way this government has done in the past couple of weeks. i am looking forward to that speech about policy, we can have a debate about this policy. to blow the approach, to say we are going to do this without the opr beside us. that kind of stuff has been messy. you see how it plays out in the markets. from new york, this is bloomberg. lisa: hurricane ian's winds have picked up speed and the storm is set to hit south carolina. it is set to come ashore with heavy rain and the potentially deadly storm surge. florida is struggling to recover as hurricane ian made landfall

as one of the strongest hurricanes in the history of the u.s.. homes are flooded on both sides of the state in the dental has not been confirmed. there is more pressure on the european federal bank to raise rates aggressively. they had double-digit inflation. prices rose 10% from a year ago and the six straight months has exceeded the consensus. over in china, bloomberg has learned that regulators told the biggest state rate bank to provide financing for the embattled sector. a property slump has been weighing on the chinese economy for more than a year. in brazil, the president traded insults and their latest debate before the election.

lola code when the first round of he gets more than 50% of the votes. shares of nike are lower today. the show giant reported that foreign exchange affects hurt their growth margins of the fourth quarter. 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.

>> if you see usb you grades rise to the extent that they have at which the speed they have, at some point, even the fed blinks. jonathan: live from new york city, equities fade.

not even .1%, guilds are lower by almost 10 basis points. euro by .7. inflation coming in hot, hot, hot. double-digit cbi. they are saying there is a risk of expectations the anchoring on inflation. that means the ecb has a lot more work to do. tom: how does that theory work with inflation at 17.1%. this theory work here sort of like the seven year deviation. jonathan: we have seen that in the u.k., i am not saying it is

starting to turn. tom: we will continue to monitor is through the weekend as well. equities, bonds, currencies and hydrocarbons. an expert on this is regina mayor kmpg intl. global head of energy thatkmpg intl. which barely describes her military experience. what are you watching in the oil and gas market? when you begin your day, what is the thing we need to focus on right now? regina: when i think about what is happening in europe, because that is where there's a lot of tension i'm looking at re-things every day. what is the natural gas stock supply look like? what are the prices for natural gas in europe? and what are the weather

projections? today, tomorrow and this coming winter. european gas stocks are at 90% of normal for this time. they were at 60% over the summer. the eu has that a great job of rebuilding that stock. short-term prices are down 50% over there hi. they are still higher than last year but cut in half by the summer. we are hoping that the weather stays in our favor. near-term optimism but those are the things i look at. lisa: what about longer-term? regina: if you look at just this week alone, i think the market has a lot of jitters. because of downward price pressure with recessionary concerns and the strengthening of the dollar. we worry about demand because the market got worried with what

happened with the pipeline. those pipelines were not serving europe. but the eu has done a great job of reducing the pressure on gas. the added threat will create outward price pressure. those recessionary fears and the rampant inflation, some analysts are taking the average. i would not have expected that three months ago. lisa: stinking on the energy story, we heard from our correspondent in washington dc about how they have increasing calls from europe for the u.s. to lower prices to give them some assistance through the winter. do you see that is a realistic outcome that the u.s. could cap prices in some manner? regina: the paper the eu issued

about an ing transfer. the markets are transparent. hydrocarbons have been trading the way they been trading for a decade. i don't know successful that will be given the volatility we have been talking about. i do think that the government's are interested in having unified policies to protect their electorate and secure energy supplies through the incoming winter months. tom: the netherlands was 17% inflation in the hydrocarbon part of that is 114 percent. unimaginable numbers. what are the ramification if we get 90 days of 17% inflation in the netherlands? regina: i am not an economist but we are seeing major price escalation copper that is happening to a lot of senior

executives across europe. their energy costs are through the roof. that cost has to get translated back to goods and services and that goes to consumers and that drives some of these crazy inflationary numbers that we are seeing. until we can drive that energy cost down, they are making short-term decisions as a demand management response but we will see a lot of upward pressure on price given the energy costs. jonathan: regina, thank you. regina mayor kmpg intl. tom: it's a litmus paper, global wall street and you see it with the euro giving way so weakness. sterling on the cost of

weakness. dxy baltz up when we think about revisiting the 113. a 114 would be grim jonathan: to see double-digit cpi, should we let that slide? a double-digit cpi in germany. lisa: 10.9 percent, 10% across the euro region at a time where they feel as if they have to support households and give them some physical assistance heading into the winter. this is a deeply uncomfortable moment in the shift we have seen and yields. someone asked me why is the bond market more important than the stock market? when you have a problem with the biggest risk in risk-free assets that is when crises happens. jonathan: a massive speech why

fixed income is more important. i don't think you are finished there at all. that's just bond market rumor, let me run with it. that is been the problem in this market. we are all talking about recession, the bond market is not giving a bit. given the recession we talk about in america, high interest rates and all of the above, which you expect us to have a two hand on the one? lisa: the seachange where you have central bank selling their assets, it is a difficult moment. jonathan: jim paulsen is coming up we are looking forward to that.

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>> if this financial dysfunction gets bad enough, the fed will have to blink. it will probably start in 2023 when the u.s. fed cycle eventually comes to an end. >> regardless of the dysfunction, they will continue to raise rates. >> the tightening will have to be consistent for the next six months. >> by the end of next year it will be closer to where it wants to be without pulling the economy into a recession. >> this is bloomberg surveillance with tom keene, jonathan ferro and lisa abramowicz. tom: good morning on an extraordinary friday, the contagion starts at 10 downing street over at the bank of england. jonathan: i am very aware that the audience is smarter than i am. i know we will get there again.

huge moves in the bank of england stepping in with the market operation. that is a band-aid. you have an expiry in the middle of october, let's see if it expires? tom: so much reading for the weekend. i don't want to derail the opening. let's go to what is happened in the last hour and london, this affects global wall street. jonathan: there was some hope we would get some independent forecast to go along with this bunch. we will get those forecast, until we get an update to the budget in late november. the timeline is as follows, the 14th is when the operation of the bank of england is said to him. november 30th is when we get an npc decision and the end of november is when you get the full fiscal statement from this government. two months is a long time for a

market. tom: the week sterling, we will get to that on the data check. when we look in the bond market, what have we observed in the last 24 hours? lisa: credit is suffering. there is a different tone in the credit market in this is notable. we have not seen that for a while. we saw the biggest outflow from the biggest orbit bonds on record. the third biggest, we have an ongoing deterioration an evaluation. they don't want to be exposed to this market right now. one of the slowest months of bond sales for a decade. at least, that is the bank of america expectation. this matters. when is the bond market or the credit markets going to crack? they are cracked. tom: a chart with the derivative spread. let's go there, this is a chart

i did a couple of days ago. the second rate of the derivative markets which lawrence summers is mentioned, only one shot in 20 years did we go up to standard deviations. this was a guaranteed sure thing in mayfair. the green circle is comfortable. and then down we go for standard deviations is where we get sweaty and we are at seven standard deviations in the certitude dress away. jonathan: my favorite restaurant is in mayfair, london. tom: every time you see deviations blowup, there are moments out there. jonathan: they have margin calls

on trade. people had to sell positions, the most liquid decisions they had were guilds. let's go back to what i said at the start of the program, the bonds just make things worse. that is true of the story so far, this goes back to what we were talking about. the risk this year, it has not been in equities or credit, it is been in risk-free assets. we are all struggling to get our hands around it. lisa: these leveraged instruments that we have not fully appreciated. if those prices go down, we have to post more collateral. what you do? you sell the risk-free assets. tom: this is david golden one arena and, from august 2007. sterling with the new weakness down from 110. jonathan: double-digit inflation

in germany this week. equities, holding on. holding onto .25%. tom: jim paulsen recalibrated into the fourth quarter this morning. what is the value of cash right now? jim: it is nice to see cash giving a positive yield. i don't think it is the right asset to be in right now. i think things are pretty unsustainable at the moment. it is all tied to policy officials raising rates. in this country, the 10 year yield is going straight north while commodity prices are collapsing, the ism prices for service and manufacturing are falling. while inflation expectations in the bond market breakeven.

the dollar is simply out of control on the upside is a reflection of yields. something has to change. it has gotten too extreme. probably what changes is rate stop going up soon and if that is the case, i think the stock market is going to have a good rip yet. i don't think you will be pleased by putting too much in cash. having some in cash, a bond market that is yielding something and the cash market that is yielding something, asset allocated or in individuals an opportunity to diversify risks. jonathan: what is that call option on a rip? what is the pocket of the market you want to be president? in -- you want to be present in. jim: i look at this like coming out of her session. i would look at early cycle

stocks. the consumer discretionary sector. it has been most harmed by inflation. it destroys not only their operations by squeezing their margins, but the companies confident space. as it rolls over, those stocks will come back to life. i look at growth stocks particularly small-cap growth. my favorite tilt would be toward small caps which of held up remarkably well in this last draft in the stock market. i think i would have some exposure there. i also think that there are cyclicals beyond the consumer discretionary like industrials and so forth. i also think there could be a play on the dollar. i think the dollar is too high, it has to come down. i don't know if i would have broad-based international debt,

but emerging markets excluding china. lisa: nike is down, should you buy? jim: i don't have any particular preference to nike. lisa: i don't mean to put you on the spot. you are viewing this from a big picture since. the point i was trying to make was the risk to the downside waiting for the fed to blame. things are not breaking, financial stability is holding in the u.s.. jim: i think we are getting close to a blank. we could get a really weak economic report. we could get a really good inflationary report. more likely, something breaks. you guys are bringing up things this morning that are starting to show some cracks in the foundation. right now, if something breaks in the u.s., a systemic problem, there is more downside risk in the stock market.

i think the private balance sheets of the united states in households and corporations are very solid. they are very liquid. the banking industry is squeaky clean in this country and the chance of a systemic balance sheet breaker low. i think something breaks but if it is not systemic it will cause a pause in the tightening cycle across the globe and that could be a positive here for the stock market. jonathan: can you make that final point, you have the stage. jim: i just want to make one point, chairman powell wants to channel this volker moment in the actual volcker moment, the stock market after that in 1980

1, 19 82 fell by 27%. we are already down 25% in this country. even if we are having a powerful moment, volker had a volker moment after inflation. i don't think the two are comparable and they don't need the same approach. jonathan: we will continue this conversation at another time. the issue many people have at that view, why is it bullish if the fed stops because of financial stability concerns? why is that bullish? there's a difference between a fed pause and a fed cuffing. if you tell me the fed will pause, the right way to frame that is that the fed will not be cutting interest rates and the recession.

is that bullish? tom: it is original. that is the word i would put. i will say to simply as i can, what always ends up happening is you accrue permanent inflation into the economy and that is the price the middle class pays. the fancy people are protective. jonathan: from new york city, on the radio and tv. this is bloomberg. lisa: with the first word i am lisa mateo. hurricane ian is taking aim at south carolina. it is expected to make landfall north of charleston. it cause catastrophic damage in florida. the storm flooded towns on both coasts and wiped out entire neighborhoods. an unknown number of people are believed to be trapped in their

homes. british prime minister will not change course on the unfunded tax cuts. after a week of market turmoil. bloomberg has learned that the chairman will think of a plan of delivering a fiscal statement on november 23. and brussels, energy ministers have thought of measures to help with natural gas prices. there is frustration that more has not been done. vladimir putin is set to annex parts of the ukraine. that is after a referendum condemned by the united nations and called the sham by president biden. china has formally certified its homegrown aircraft. certification for the c 919 would mark the end -- it will

only be allowed to fly within china. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. i am lisa mateo, this is bloomberg.

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>> it looks like the committee is expecting a fair amount of additional moves this year. i think that was digested by markets and does seem to be the right interpretations. jonathan: another way to put that is that the federal reserve , president messner spoke yesterday after the recession. she said the recession would not change her plans. lisa: citigroup put this out this morning. a soft landing most likely in the u.s.. the fed will have to tighten conditions enough to lower the equity market. the fed is confirming that view and saying that is part of it and they are not backing away from a slow down may cause. jonathan: that is the objective right now.

in the equity markets we are up .2 5%. yields are still lower by eight basis points, 3.7% is your guilt. tom: crowds in moscow, this is mr. putin walking through gold doors and he is speaking to the assembled on the annexation of ukraine. an expert for us with great experience annmarie horton. he was behind him on this? is it the military behind him or is it a nostalgia for a new soviet union. annmarie: it is him, he is making all these decisions. he is surrounded by officials and the government. this is all putin. this is something he dreamed of

doing. many thought he would never do this because of the repercussions and blowback. especially given the fact that they spent 20 years trying to integrate themselves into those global financial markets. he then went for it like he did in 2014, he is doing it with these four regions. we should note, what he is laying claim to today in the speech. it is 15% of land in ukraine. that is the biggest claim of occupation of land that we have seen since world war ii. the biggest question right now surrounding all of this, is putin selling this to the russian people at the same time independent polls are saying the mobilization effort is not working. these men do not want to fight this war. you see a mass exodus of these reservists. the biggest question right now, he is laying claim to these

lands, this he means that they are taxed? will he revert to using tactical nuclear weapons. tom: the images of leaders of his operative cabinet including mr. lavrov. i look where we are, what is the response? it is echoes of 1938 and 1939. we learn lessons there. what can be the response of secretary blinken of the president? annmarie: we already heard the president say the united states will never, ever, ever say that this is russian territory. you are going to hear a ton of that kind of rhetoric today. whether or not it is the president or jake sullivan. all of the questions will be about this moment and what is happening right now in russia, this landgrab and you rain.

from the secretary of state. they made it very clear that putin, if he does go into as nuclear arsenal there will be consequences. there is angst in european countries. you think of poland, what they are concerned about is not so much if he uses nuclear weapons but if there is an accident at the biggest nuclear power plant in the area. what is that mean for the surrounding areas in these countries are incredibly nervous. lisa: we talked about what people within russia deal as this goes on. it has gotten more fraught at this moment. do you have any sense of what the pushback is like internally of whether people are starting to say this is going far awry? annmarie: there is pushback, there are protests that have happen.

people get dragged off to jail in you see this max exodus, a brain drain and a drain of men of fighting age leaving the country. there has been an absolute spike of how to get out of russia. you hear stories of people grabbing anything they can and walking across borders into estonia or any place that offers them refuge because they don't want to get that knock on the door. you also see this huge issues in countries like georgia that have a build up on the borders of people trying to leave. in terms of the morale, it is not there. part of the reason is because putin promised the russian people there would be no conscription. and yet, once again he has lied. jonathan: you are in a class of your own, thanks for appearing with this. russia's leader signed documents on annexation.

as we wait for that speech to begin in the headlines that come from it. tom: as i mentioned of the show, this international relationship is moving in real time. i don't have any punditry to add to it other then we need to apply our cutest minds to it -- most acute minds to it. jonathan: jeff currie mentioned about the winter. lisa: i wonder how much the u.s. can provide them what they are looking for. where are those resources going to come from? post 22 there will be a rearranging of the energy dominance of the nations that have the clout in the energy sphere and it is unclear what it will look like. russia apparently seems to be excluded from that. not with respect to oil and gas

but in respect to steel and other commodities as peopled figure out how to get around going to them. jonathan: coming up tom porcelli rbc capital markets llc from we live in a nominal world. that may be true but economics is created real terms. tom porcelli will be joining us very shortly. tom: is someone doing the real yields later this afternoon? jonathan: none of the people at rbc know about this. lisa: you are going to do it alone. you will come on a do it by yourself. jonathan: from new york, this is bloomberg.

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jonathan: live from new york city this morning. fascinating headlines coming out of russia. the russian leader signing documents of annexation today.

the collapse of the soviet union was a national catastrophe, we heard that from putin this year. russia is not trying to restore the soviet union. one discussed result of the referendums, , russia will not negotiate about next territories. how will that be received by the ukrainians? tom: the ukrainian take is that they won't negotiate with putin. a number of days ago, i would respectfully suggest that this is history in the making. this is 18%, 11%, just shocking. jonathan: 0.3% for august, year for years 6.2. we were looking for 0.1.

pc core in a 0.6, up from 0.1. that is over -- month over month. your thoughts? lisa: exactly what the fed does not want to see. just like the unemployment numbers. you are seeing a stickiness in the core inflation metric that they watch more closely. you can see that the reaction is downwards when it comes to stocks and bond yields taking up on the front end. you have to wonder how much this challenges people that thinks the fed can afford to pause and afford to say we will see the weakness and struggle through. jonathan: they are chasing their tails and emboldened by an active indicator in the labor market. inflation is still hot and

financial risk is bubbling away in the background to the point where the bank of england had to intervene. tom: that is the derivative story and i would look for every general counsel to say, let's get the news out right now. anybody doing this ldi derivative strategy as well. let's march forward here, we have been extremely busy half-hour. jonathan: we will catch up with mohammed, jim emanuel of evercore. tom: right now, tom porcelli , chief economist. we have a technical difficulty with mr. porcelli

. i was going to go into his wheelhouse of wage analysis. there are under 220 thousand unemployment claims. what do wage dynamics do among slow productivity. jonathan: i read the first couple of notes. tom: you read his notes, i did not read his notes? jonathan: there is a saying in economics that we live in nominal world. but we know right now is that the volume of goods in spending, in real terms has been an continue sinking. lisa: this is what people up and saying that you see people spend on services, but that is why you are seeing the likes of nike and many other companies seeing inventories filled because people are not spending and he is making the argument as are other people, you are seeing a lot more softening.

the fed does not have to be as aggressive. it will take hold. you will see a natural effect play into it. if you can expand out the x access. what is the other side of that? these are uncharted territories. jonathan: people are asking right now, the labor market, jobless claims still look rocksolid. if the fed is waiting for that to break for the back off, do they risk waiting too long? what tom porcelli has said, what if earnings get dinged up that the volume of spending is declining and maybe gets work. the central banks around the world slam on the brakes. it seems pretty clear that net value add will get worse from here. that is the conclusion. tom: as we move into the fourth quarter of this year in an attempt to recalibrate.

tom porcelli joins us from rbc capital markets llc . it was not in the textbooks of eddington and columbia, how do we have claims showing a fully employed america? tom: jonathan, i am happy to sit by and listen to you speak my words. that was beautiful. jonathan: i can do this podcast. pay me the word. tom: i can do that. i will also thank you, i am waiting for my invite to the real yields. i love that laurie is going to beyond, she is my favorite. one day i'm going to be waiting here for that invite. jonathan: i'll take that call anytime. the point you are making is an important one so allow me to reframe it from my perspective.

you think this will be bolden by labor market data, do they risk going too far? tom: don't you find it interesting that when people talk about the labor market and how robust they think it is, they always go back to the report when most data, they are up 20% off the lows. the movement is what matters. if you look at the labor differential from the conference board, that has deteriorated. look at average weekly earnings, it is slowing. it is starting to slow mere 7%. there are indication that the labor market is starting to process and deteriorating and we

get companies that say they are freezing hiring or they will lay people off. it is important to know, at some point companies -- if you look at profits. profits in real terms. people have a hard time with this i don't know why. profit in real terms are flat. nominally, they are running it routine percent. if ingested for inflation they are flat. if the volume of spending continues to slow, what do you think will happen to earnings? when that shows up, the volume is finneas down, we know they are flat. we look at the landscape today, we feel comfortable raising rates but it is deteriorating

now. lisa: i appreciate what you are saying and you were talking about how the job market may not show the pain to the degreed of other aspects of the market. it doesn't feel like the fed is paying attention to earnings. they are not paying attention to stock market numbers. they are looking at inflation, can you see a case where inflation is delhi, the employment market is not showing a real deterioration that you can make an argument that the fed should pause or lower rates? tom: i love this question. on some level, i would love if powell came out and said, we are claiming up the mess made by fiscal policy. why did we generate this

inflationary impulse? at a base level, we shut down a healthy economy. we gave people a lot of money creating a pent-up demand scenario. we dared people to go spend all in the context of supply problems. what'd we think was going to happen from an inflation perspective? here's the thing, once we burn off a lot of that pent-up demand and once we burn off a lot of that fiscal stimulus put in place. you have this deteriorating labor market that we were talking about. you see a case where inflationary pressure can start to process the evening. that is what we expect to happen in 2023. jonathan: we will continue this information another time. tom porcelli on the latest. maybe they are emboldened by lagging indicators and not lose too much pace. a question i would ask and

someone smarter than me said, you camp fire what you can't hire. a big struggle has been hiring enough people. what have we seen from the big tech players like facebook, meta , they are freezing hiring. so many people are in that place. i wonder if this labor market down turn looks like? lisa: you see this with the likes of amazon.com raising salaries to attract people even though things are slowing. there is this divergence between what of fully employed america looks like and what a fully employed corporate america looks like. the prospect of a downturn at the same time, let's be clear. the fed is not just looking at the unemployment market they are looking at inflation. if it lay shin remains high, it's hard to make an argument that they can keep their foot off the brakes to try and fight

it. jonathan: coming up in the next hour, we will have this conversation with matt horn back from stamford. he doesn't even know he's coming on later. futures are unchanged on the s&p. from new york, this is bloomberg. lisa: keeping up-to-date with information from around the world. hurricane ian is coming ashore north of charleston today with heavy rain and potentially deadly storm surge. florida is struggling to recover after ian made landfall as one of the strongest hurricanes ever in the u.s.. entire communities were wiped out and homes were flooded on both coasts. the exact death toll has not

been confirmed. vladimir putin is speaking on the annexation of parts of ukraine that russian troops control. he says he won't negotiate the next territories and he called ukraine to stop fighting and start peace talks. russia held referendums in the four regions in those votes were called the sham. more pressure on the european central banks to raise interest rates aggressively. they just recorded their first reading of double-digit inflation. that is the sixth straight month he inflation number has exceeded the consensus. new car sales are expected to rise in the third quarter. a deteriorating market for used cars suggest there is trouble ahead. the resale market indicates where new car demand is headed. used car giant carmax said used car sales dropped 10% in august.

shares of nike or lower today. they reported that inventory has surged. higher freight costs, markdowns hurts nike's margin in the fourth quarter. global news 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i am lisa mateo, this is bloomberg.

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>> these price caps are going to reduce inflation. this is an illusion because what these things do, they increase the demand for energy and increase prices. some investors will have to pay for that. tom: that was christian shulz on the annexation of ukraine and folding into hydrocarbon.

we began our show this morning with the blistering conversation with the representative of the trust government. thank you for your comments worldwide, which particularly from the united kingdom. i close out with someone who is an expert on derivatives, marcus ashworth. i want to go to nicholson in 2018. they absolutely nailed this. they call it peak ldi. pension funds have been adding derivative exposure given the high level of edging, it can only continue for at least another three years. we are approaching peak ldi. we know this, you knew this at

manchester economics a million years ago. we experienced it in 2007, 2 thousand eight. why are we screwing up derivatives again? marcus: both pension trustees and pensioners are seeing the pressure of the actuarial rules work in the u.k. boasting pension funds to take evermore fixed income protection if rates go down. the irony is, if interest rates and yield rise that means they can make up where the pension will be. everyone has scrambled to get appeal. tom: this afternoon, into the

weekend. are they in the same boat? marcus: i will be bold and say that it is a nasty moment. the bank will continue to be around for the next two weeks. it's only been 10.5 billion so far. that is the maximum. i think what we need to do is sort out the overleveraged. it can work but not to the extremity and leverage they have been putting it through. tom: and that is like 1998. lisa: the full faith and credit, risk-free assets not being risk-free and being at the epicenter of losses and forcing sales of risk-free assets to post more collateral creating

that spiral. are there any other places away from the united kingdom where it looks like a become a problem should the losses in the bond market become severe or sudden enough? marcus: germany has already moved, to a repo squeeze and made it very difficult to borrow. that is what has happened in the u.k.. ironically, you can't borrow yields to short. next week, when we get a new quarter in new markets there may be a second goal of this. it should be fine. i think people understand that the immediate prices over but we have a longer time of exposure for that. there is a real problem with the u.s. treasury department. they can't borrow risk-free

assets. it is very difficult. you have to look at in europe and very much in the u.s. as well. lisa: there is more traditional leverage which are companies that have borrowed money and need to refinance and find themselves locked out of the market or prohibitively expensive to refinance. you have seen that in europe even more than the united dates. how concerned are you about credit risk and the inability to refinance a pockets of europe? marcus: they have had two years to drink heavily at the trough of free money, if they haven't got their financing in order by now, they should not be in business. that is a problem. they need a bit of credit instruction but i don't see a management problem in europe. i don't think there is a huge

issue there. it will be tighten some. what we have to move away from is the zero rate mentality. for a long time, that had been a much bigger problem. the plumbing can get gummed up real quick. if you borrow, you have to pay up, that's the market. tom: marcus ashworth, brilliant as always. lisa, i have 14 ways to go to close out the hour in what i would suggest is boy, we have a lot of data next week. where are we a week from this moment? 20 minutes after the jobs report. lisa: we got two data points this week, point saying that the

fed has more work to do. jobless claims came in lower. the core pce metric came in hotter than expected. seeming to signal there are problems here and read speakers coming out that a slowdown what cut it. they want labor market destruction to some degree and they want to see inflation come down. they are not seeing either of those things which poses a huge problem for them. tom: it is fascinating the moment we are in in this third quarter. i did not expect this at the end of the second quarter. on the derivative mess, i went back and looked at youtube videos of efforts for liability driven swap trades from two years ago, four years ago, five years ago and they are charming in their marketing certitude. this is a huge, embarrassing story for the derivative business. once again, the water ran out

and people were wearing swimsuits. lisa: when you have risk in risk-free assets. the instruments you posted as collateral are the same insurance you have to sell to create more collateral creating a price spiral. the main mechanism of the global financial market. tom: we give you the best voices we can from the global, american ramification of what is going on in the united kingdom. futures are up seven. there is just a churn in the market, sterling with a little bit of a lift11074. stay tuned for reports about putin and russia. this is bloomberg, good morning.

jonathan: 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. jonathan: