>> the fed is kind of entrance themselves and no matter what happens, we are going to do it. >> in order to fight inflation >> monetary alice he operates with a leg so we are waiting on those legs. >> do you see the market remaining volatile? >> we are walking a nice edge between a soft and a hard landing. >> this is bloomberg surveillance. jonathan: live from new york city for our audience worldwide, good morning, this is berg surveillance on blue --on television and radio. futures are negative 1/10 of one percent and this week it's all

about cpi. lisa: yes, cpi will be big. there was a brief moment as the key issue. how much will core inflation rise? will we get that year-over-year core reading even if you have peak inflation in the headlines? jonathan: on the earnings front, jp morgan kicks things off. lisa: the why will be interested in how much is this a currency adjust issue and how much is the dollar? about 30 percent of revenues

from u.s. companies come from international commerce and how much is that affecting domestic leaning companies? jonathan: the numbers that have come from global growth, three .1% for this year. just decelerate in over the next 12 months. europe is in recession this year and the u.s. is in recession next year. lisa: and then china over the weekend came out with some data that was negative. they reopened and showed some of their services data decelerated so even though you have a situation where perhaps the u.s. is hanging in there, the rest of the world does not have that note growth. jonathan: are we waiting on friday? lisa: yes, it's so simplistic. the more the connie moves, the

more we see. jonathan: the fed is backing up because of supply-side solutions . they need to damage demand and i think that's up a maddock. lisa: earnings are incredibly important in addition to cpi but -- not to undermine your premise but it's the cpi week but i think the issue with earnings, how much is the strong dollar impacting earnings in a negative way? when does that become a bigger part of the conversation globally? you want to see weakness but you don't want to see decimation of the economy where you have a lag effect of some of the rate hikes.

jonathan: and been bernanke issue -- and been - and ben bernanke is sharing the nobel prize. lisa: what is the political message from ben bernanke? what's the decision to have a high profile policymaker when a major prize in economics? i'm curious. jonathan: i wonder if it's premature. i'm wondering whether we should wait before we should dole these out. lisa: is the question of someone still active and present in the public discourse that becomes a more politicized prize. it is critically polarizing when it has it direct effect on economic theory and reality. jonathan: futures unchanged on the s&p 500. the u.s. treasury market closed

for columbus day and looking at a german bund yield down by about four basis points. the 10 year yield in germany is climbing for 10 consecutive weeks, ridiculous. euro-dollar is 97. crude had a monster really last week is down about half of 1% . lisa: we heard janet yellen speaking about how negative this was for the world and possibly for what happened in november. it is cpi week. i also think it's important to look at earnings. we have an incredible amount of speakers to day. fed speak includes the the chief economist at the ecb

speaking at nine :00 a.m. and the online ecb conference and i'm curious to hear with their take is and whether they start to price in recession. today, the 2022 annual meetings of the imf kickoff in washington. there will be a conversation with the managing director as the world bank --and the world bank president and i'm wondering how much things turn to the emerging markets. they are concerned about the face of these economic headwinds that hurt the lowest income nations the most. jonathan: they are going after him about climate change at the moment. lisa: i don't understand how this is becoming a distraction. he came out and questioned some aspects of climate change and

people called for him to step down and then he pushed back and that he said i didn't know enough. the whole point is, how political --how politicized these bodies are at a time of real change. jonathan: there seems to be some tension in the current administration. what's wrong with someone turning around and saying i'm not an expert? lisa: goes to the issue of politicizing bodies that have to act internationally. it is splintered and it's divided and it becomes a real challenge at a time when the needs to be some sort of leadership to handle the next prices. jonathan: it's kind of refreshing, when is the last time someone said they are not an expert in its? the equity experts -- 16 .5

percentage move on crude last week. why are you sticking with energy? >> good morning and thanks for having me. we have been bullish on the energy cache for several years in the earnings speak for themselves. this is what's been driving the market in terms of earnings. if you look at the valuations,, cheap as they have been for over 30 years on a pe basis. they are inexpensive versus the momentum they have and whatever pullback we saw earlier this year was for concerns of the global recession. that has to fight with the supply problem so you have to pick your side and we picked the supply-side. lisa: how much are you looking at small caps or small u.s.

companies? >> the strong dollar is a big conflict but it's the map that is the multinational companies that are strongest position. those are the ones you would phone heading into an economic slowdown or a recession step we like small caps and they are not exposed as you said to a strong dollar but that's basically an early cycle play. we are more in favor of large-cap stocks. there are still ones that are generating the highest profit margins and gushing cash even in the face of what's been a strong rise in the dollar. we hope the events in the dollar will maybe pullback some. the biggest concern with the dollar is what it's requiring the central banks to do, the tightening and their own economies are looking to potentially a severe recession and then i financial accident. lisa: this will be a tremendous

week with cpi coming out thursday in the united states and earnings kicking off friday. what will be the most important thing for you in terms of how you plan to adjust your allocations into your end? >> i think the fed with the jobs report is indicating they will probably continue hiking so the next thing to worry about is the cpi and the core part of the cpi where a third of it where prices in -- increase. there is lots of talk about recession and the housing market house prices coming down. indeed, the vacancy rate or rental or for home purchases is at a 40 year low. it's still very strong. cpi is externally important and it will be important to watch retail sales reports this week as well.

we think the consumer is extremely strong. over the weekend, the economy is weirdly resilient. it's not weird, people have jobs and they have money in their pockets and that's what gets us going as consumers is if we have a job. jonathan: thank you for being with us. are we doing the mets today? lisa: my sons were at the game and came home late and angry. jonathan: where they angry at the state of the world? lisa: how there was cheating. jonathan: there was cheating? lisa: there was a suggestion of cheating. there was time for it to wear off all. jonathan: so he was pitching so

well that all the mets fans assumed he was cheating. we want 10-year-olds to shape the narrative. that's encouraging. david rani the next hour with futures negative, from new york, this is bloomberg. ♪ lisa: another ukrainian city appears to be the most intense missile barrage since the opening days of the war. infrastructure was hit in eight regions after vladimir putin blamed ukraine for an explosion on a key bridge like between the russian mainland and crimea. ukraine hasn't claimed responsibility but it

commemorated the blast with a new postage stamp step there are steps to calm financial markets. there will be a medium-term fiscal strategy and economic for -- forecast on october 31, 3 weeks before he originally planned. in germany, advisory group is urging the government to subsidize as much as 80% of natural gas consumption for households and companies early next year. it would be part of a 194 billion dollars package in the german government will review the issue. the former federal reserve chair ben bernanke is one of three people to share this year's nobel prize in economics. the three were honored for their research on thanks and economic crises. the three will share a $900,000 award stop global news, 24 hours a day and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries.

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>> even chair powell has gone from looking for a soft landing to the softest landing let -- landing and that we are talking about pain and that is the

problem, that is the cost of the federal reserve.it not only has to overcome inflation but has to restore its credibility. i fear we have a high probability of a damaging recession. jonathan: the jets won over the weekend. lisa: my kids are giants fans. his comments were fascinating over the weekend. he said how avoidable this was, that the fed made an error that will be critically painful to potentially remedy that's way pushback about the politicization of fed officials. we have not seen the legacy of this particular policy with respect to monetary easing.

jonathan: there is the question that they might overdo it. lisa: people say the report indicates a quick cooling so at what point is there the push/pull of the weakening data around the edges of an economy that could allow the fed to move more slowly. they don't want to make the same mistake. jonathan: let's talk about the u.k. briefly. the announcement for the end of this month along their forecast. they rescheduled it for halloween. can you imagine with the front page of the newspaper will look like? it doesn't make sense to me.

it seems ridiculous. lisa: bringing it forward is spooky enough for the market. to wait that long and then to wait for that day, they are setting themselves up really you'll. -- they are setting themselves up for ridicule. anne-marie joins us now. what dreadful pitches over the weekend from ukraine and crimea. how is this administration responding? anne-marie: the pictures coming out of ukraine are devastating. a lot of civilians are being targeted by the missile strike. we don't have a statement yet from the administration on what we are seeing this morning from the ground in ukraine but what we can expect from president

zelenskyy, he was on the phone with the german chancellor. it seems like there will be an urgent gathering virtually of the leaders and how they will respond. ukrainians will expect to ask for more weapons. maybe they will ask for potentially another no-fly zone which we haven't heard about but it's a huge target for the ukrainians and an aim of theirs to ask for this win the war first began in february. lisa: why is this a major escalation and why does it matter? anne-marie: in terms of major escalation, vladimir putin had been brandishing the idea of using nuclear weapons. we heard over the weekend from the national security council and general kirby was their spokesperson talk about that there would be severe

consequences to do this. on the ground, it's almost a tit-for-tat. vladimir putin said it was the ukrainians who blew up his bridge that connects russia to crimea. we should note that this bridge is incredibly important to putin, not just tactically in terms of getting supplies to troops and crimea but also personally. in 2016, he said it's a historical mission for russia and a dream of his and in 2018 when the bridge open, he personally opened it by driving a truck down the bridge. then two days later, you have a barrage that we have not seen since the beginning of this war and the fact that vladimir putin has put in place a single general of operations. this is a general that led russian troops to syria when the absolutely destroyed aleppo.

so you can imagine the scenes that will be coming out of ukraine in the next few days. jonathan: they said the last thing over the last week but they are disappointed in opec, what options do they have? anne-marie: midterm elections are coming and gas prices remain top of voters minds. there is not a lot they can do unless they tap the spr again but those supplies are low. politically, you already see senator blumenthal writing an opinion piece that they will offer bicameral legislation to stop u.s. arms sales to saudi arabia. potentially, the response may be toward saudi arabia in particular unless the u.s. has

weight in terms of oil. the wall street journal reported that maybe there will be sanctions on venezuela. it's not a huge tool to use but it probably not what they wanted as their first primary tool in the toolbox. jonathan: thank you so much, or in crude $97.31. we haven't seen any fallout from the oil market last week, have we? lisa: she was talking about possible repercussions from saudi arabia by the united states. we haven't necessarily seen a price surge in crude. there is a question whether there is some reality to the decline in demand that we have not seen. is this also the alliance with russia? wonder how much that is playing

into the back drop? jonathan: if you are opec plus and you are looking at these warnings to economic growth in the u.s. and world wide, doesn't make sense to fall back on out but? lisa: how much is the spare capacity the real story? they just don't have the ability to pump it and they want to save it. jonathan: futures this morning slightly negative, live from new york, this is bloomberg.

jonathan: live from new york city this morning, here is the price action. slightly negative on the s&p 500 , the nasdaq down about half a percent. last week with the three days of losses, just about grinding out a week of gains. treasuries are closed for columbus day move a look at the german bond market.

yields have been climbing higher. the italian 10 year is $4.74 in the spread between the a time and in german 10 year. lisa: this shows how dramatic the turnaround is for making a negative yield regime important. jonathan: is the euro starting to trade on spreads? it's just about holding onto 97. lisa: if the ecb is concerned about financial stability in

italy enclosing that gap, then perhaps they won't be as aggressive in terms of how much they tighten. it might be supportive from the euro but what does the ecb -- but does the ecb have an effect on yields? jonathan: there might be a problem in the weeks to come and the u.k. already has one. the latest moves from the bank of england in this bond market. lisa: the boe is pouring in an entire bottle of booze into the punch bowl before taking it away. we are still getting the end of the long-term bond buying program. it's double the amount of the daily auction but does this stop

this if nobody uses it? people have but the maximum has been $40 billion. the more interesting thing is they put this new short-term funding facility into the works which is set to expire on november 10 which allows banks to draw down more cash and could take the form of corporate bonds in an effort to get the cash instead of having to do a fire sale. jonathan: do we have a better sequence of events now? >> october 31 is the day that qt is supposed to start. top buying bonds this friday,

there is more hope considering the budget has been moved up to the 31st in the fiscal event moves there as well but it could be a day of extreme volatility if the boe is starting to do qt on the same day we get the budget. lisa: how much pressure is there to move the budget up to october 15 come around the time of the expiration of the current on purchasing program? >> it's a huge pressure considering it's a bond market that continues to sell off. the long end of the curve is retracing since the boe stepped in so the market is still worried about what happens after friday. if they have to wait until the 31st for qt and budget and considering they meeting with other central banks like the imf and the pressure will be on. jonathan: thank you so much.

the 30 year is up by 14 basis points. lisa: this has not really ended the crisis. people are talking about how there is a massive trade that still being unwound with it tensions that have matched their lives and are being upended, how much can they do this as an -- at an easy pace? it's about how you control it from a financial stability standpoint but i don't understand the difference, frankly. jonathan: your thoughts on what we got from the bank of england earlier today? >> they have increased amount they will buy. that's a nominal thing.

the bank has spent $5 billion so far. they are trying to asked wage as many people as possible. they've sorted out the gaming of it. october 31, this is right where qt is active there is a big gilt auction and then the fed and the bank of england will have announcements so it's a terrible week to start off. lisa: how much is the bank of

england setting the tone for what will happen at the european central bank. perhaps we are backing off from quantitative tightening. >> i don't think the ecb will take much stock in this. they will stall as long as they possibly can stuff lisa: what is the difference between prices declining and a financial stability risk? >> i think the fed needs to pay more attention to the volatility the fed has got to be very

careful, announcing hikes as well as qt timing. clearly, the sensitive nature of the u.k. market shows you this is a difficult situation. i hope they understand that this is part of their mandate. jonathan: you said they have to bring what the markets want to see? so what does the market want to see? >> they want to see cuts to what they expect stuff are the numbers believable?

they've got to do something which is sustainable and shows with they can do this year but next year as well. they need to show they have a plan. jonathan: some of the announcements the chancellor made have been riddick you'll step -- have been ridiculous. >> the announcements would be great passed a years time. there are more things that need to be done. there are discussions over the tax hikes and national insurance

rates. it's $250 billion to refinance next year. that cost is going through the roof. bond markets need a bit of respect. jonathan: for 75 on the italian 10 year. lisa: you have a government that wants to do more but has been constrained but not only the european condition but with respect to the bond market. jonathan: when does the ecb look

to do something about this? lisa: maybe the bank of england is not looking at that situation as can legally analogous. do you get quantitative easing and monetary policy tightening check out what is the other option right now. we heard the idea of targeted buying. does italy have more leeway because of what germany is doing with their borrowing? jonathan: pimco will join me later. i wonder if they been buying gilts over the last month. lisa: do you catch a falling

knife? jonathan: if you stepped into gilts when they were down, that's a good thing. lisa: depending what kind of policy decisions there are. jonathan: futures down about one third of 1% on the s&p 500. this is bloomberg. lisa: in ukraine, russian missiles struckkyev appears to be the intent just the most intense missile barrage since the beginning of the war. energy facilities were among the targets in the attack came after vladimir putin blamed ukraine for an explosion that damaged a key bridge to crimea. it was meant to symbolize the annexation of the region. ben bernanke will share this

year's nobel prize in economics. they were honored for their research on the economic crisis and the nobel prize committee says the three improve the understanding and the role of banks as well as how to regulate financial markets. the bank of england has expanded its emergency steps in the bond market will stop they are designed to broaden purchases in the boe started the bond buying last month after market turmoil caused by the government. a megayacht licked -- linked to one of russia's richest men has docked in hong kong harbor step the yacht is tied to a man who was sanctioned by the u.s. and the you a following the russian invasion of ukraine. global news, 24 hours a day and

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>> with the federal reserve inflation mandate, understanding where energy prices are going, where prices and commodity prices are going it's important to us. jonathan: neel kashkari, the minneapolis fed president. checking on the price action, negative. yields are unchanged in the german bond market stop they are higher in italy by four basis points. talking about the spread between germany and italy stop we are

trading higher. you have to go back to 2013 to see the italian yield in a spread this wide. lisa: this comes on the heels of a number of escutcheon's from officials. one official said he sees two consecutive meetings of significant rate moves. jonathan: remember the euro crisis at the peak of that. we had the whatever it takes

speech in 2012. lisa: how much do you look at these comparisons as valid continue -- based on how much debt has been issued. it's the idea it's different to have a 7% yields today than in 2010. lisa: i wonder whether these are unique issues in europe. kailey: particularly around the jonathan: maturity profile. jonathan: when does this kick in? lisa: maybe central banks can afford to go higher. jonathan: when you are focused on your with the low growth of years to come, you wonder how viable those models are with 5% interest rates on debt.

lisa: especially as you have to plug the gap from the energy crises these nations are facing post jonathan: you said you are not a big believer in the opec oil cuts. >> i think they will only see 1.2 million barrels of cuts. you will see saudi arabia cut staff united ever -- arab emirate same thing but a lot of but is an opec that are on -- under producing and they will not at production further. russia is about 1.3 below. nigeria was about 800,000 barrels below in angola was

400,000 barrels per low and they will not cut further. a lot of the other countries are happy to stay where they were. they are going to do their best to state where they are. i would expect to see the saudi's cut and the uae cut. lisa: given the lack of spare capacity, why are prices not hire? >> demand is the issue here. the problem is not supply them of the problem is demand. the dollar is higher for starters. the higher the dollar, the less dollar it takes to buy a barrel of oil. the china situation is very negative for opec. that's a big piece of the demand puzzle that's been taken off the

table. until it comes back, you will him -- we will not return to $130 like in march. you also have the globally connie on the brink of global recession stuff that's a demand event. cutting barrels will not make a big difference there. lisa: the party congress in china will a cough and people will see that the zero covid because he could be lifted in some fashion. what happens if you see a pushback about how unsustainable that all is he is? >> when you see that headline, that will make price go up a little bit. we would probably -- if china is on the way back, that's a big move in the right direction and we will probably see the market trade toward $100 but i don't see it returning to $130.

that's a big piece. that would be big demand construction and would be positive for the market step above and beyond that the fed likely to eat -- create by 75 basis points, they are purposely pulling back on the global economy. it's going to leave a mark. jonathan: thank you as always . bank of america friday -- no pivot. lisa: this is the message from every single central bank and wall street bank out there, saying this will not give the fed any ability to move away from the rate hiking plan. at what point does a go back to

the conversation of how are they going to go much further then perhaps they need to in order to rein in an economy that will not show the cop -- consequences for a number of months if not longer. jonathan: does the market data overstate the economy? the labor market numbers are robust. lisa: that's why i wonder if warnings will be the main event. we see this in a number of different sectors. we see forward revisions and there have been revisions dam word on wall street but have they been enough? if they come in more rapidly, how does that feed into the narrative especially when there is an ill it -- this inability to pass along the cost you had seen in previous months and

quarters. jonathan: it still goes back to the dollar story. lisa: 30% of goldman sachs earnings derived from international sales. rbc put out forecast as to how much profits will decline. jonathan: futures are down by a third of 1%. live from new york city this morning, good morning.we will have a chat about the european bond market with yields climbing higher. this is bloomberg. ♪

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>> the fed has kind of entrenched themselves, kind of like no matter what happens, we're going to do it. >> yes, monetary policy operates with a leg, so we are waiting on those legs. >> we expect the market to remain volatile. >> we are walking a knife's edge, different between a soft and hard landing. >> this is "bloomberg surveillance." jonathan: i think we start every

week saying, big wheat coming up. it is a big week coming up. good morning. this is "bloomberg surveillance." i am alongside lisa abramowicz. i am jonathan ferro. features doubt about .3% on the s&p. a big week coming up. lisa: it really is a very big week. cpi and earnings we also have the university of michigan sentiment. we also have the imf. all of these meetings are sort of tapped off by the end of the week, this expectation of what is going to happen with the bank of england. still, there is this feeling, a drumbeat into something monumental for year end. jonathan: here is a quote from last week, volatility up and down. ultimately, fundamentals prevail. lisa, it could take longer than

we would like at the conclusion. lisa: the other conclusion is this has been building, what he has talked about all year, and now other members of the wall street analytics community are getting on board, saying the same thing, and you are seeing on the ground evidence that he is -- that they are correct. you are seeing it across the board, in sectors and retail. how important is apple going to be later this month? we will start to understand it is not just semiconductors but a demand for small electronic device story. it will be huge for a company that fulfills a big proportion of the overall index. jonathan: how many times have we played the game with apple on earnings day and they knock it out of the park? lisa: you think they will pull it off? jonathan: not saying that, but just looking at the past.

lisa: we have seen disappointing earnings and earnings guidance and incredible punishment in the stock market. we have seen incredible moves in these names. are people building in the expectation that they will surprise to the upside? what happens if you get a big name in the index that plunges massively in one day? jonathan: the worry i have is around the fedex's of this world because of how quickly the cycle seems to be moving slower. they saw on their communication, they seem repeatedly surprised by it. when a member of wells fargo came out months ago talked about the first of 2023, and then we got this news from fedex, everything moved quickly. lisa: what about the banks? especially if you do not see a

deceleration of core inflation, which could happen, particularly looking at the rental component unit of this cpi reading. jonathan: what about base case on wall street -- why do we still see things like 40% chance and then you have this analysis on equity market, but if we go into recession, why is it not the base case? lisa: good question. and what does it mean in terms of how did that recession is? somehow that is not part of the discussion anymore. the other aspect is sort of the other side of the question. you are seeing sentiment deteriorate dramatically, but when you look at positioning, people are still bullish for equities. it really has not coherent in the same way you would expect given how bearish it has been. jonathan: down about .25% in futures on the s&p. treasury market close for

columbus day. german bond market basically unchanged. not unchanged in italy. euro-dollar, 96 handle, 96.94. lisa: is it energy? is it what they have to do with respect to italian yields and easing? a lot of questions on the day where you have sort of thin trading, at least with the bond market closed in the u.s. we are looking at a host of fed speak today. when there are not other events, there is fed speak, including chicago vice president at 9:00 a.m., and another one at 1:00 p.m., leo brenner, which i'm interested in what he has to say about some international concerns. the dollar will be a theme into earnings. there will also be discussions out of the ecb. we hear from a chief economist

at 9:00 a.m., and online ecb conference on monetary policy. you're asking about recession as a base case -- when is recession the base case for the ecb considering it already is for houses across europe and across the u.s.? who does not think there is going to be a recession in europe right now? jonathan: i think it is bizarre. seems to be what banks want the data to be, but i guess i feel like if it is not what they think it will be in two years time, then there will be a failure. and there is the self-fulfilling aspect of it, thinking they can shape the events. i understand that, but at this point, base case, base case is a recession. lisa: we can talk more about

this. the imf annual meetings are kicking off, imf and world bank, in washington, d.c., later this morning and throughout the week. jonathan: the chief investment strategist at bluebay asset management joins us right now. i have a 10-year spread at 2.55 on my screen. talk about the ecb. >> i think it is problematic for the ecb in terms of speculation around the cpi. once we get to spreads closer to sort of 300 and yields closer to 5.5% on the 10-year, i think we are a little ways away from that. but kind of key is going to be the italian budget at the end of this week. hopefully they have taken a bit of a lesson from the experience of of the u.k. government, where

i think they will see the huge credibility crisis and the u.k., which was ultimately the trigger for the selloff in yields, spilling over into other markets. u.k. pension funds and ldi investment. i think the key takeaway hopefully that policymakers in rome are taking is this is an environment where the bond market will have to come back, and it will be unsustainable, at your peril. jonathan: the old playbook was to get to these levels because the ecb will step in and stop them from going any higher. i we putting that in the trashcan? are we doing something else now? >> i think in terms of the so-called eurozone periphery, i think the ecb does really kind of take out the kind of extreme.

i think they have indicated that they will and are able to intervene to prevent that kind of sort of extreme event and some kind of self-fulfilling liquidity crisis that drives up spreads to unsustainable levels. but i think we are in a race where we have gone from a situation where there is a search for yield and then the government could spend, could borrow without any considerations for the bond market. i think the u.k. experience as a wake-up call that we are in a change regime, kind of gone back to a situation where macro policy does matter. and whether you have got sustainable public financing -- how are you going to pay for this longer and? lisa: what will the euro response be? will it weaken versus the dollar

strengthened at the ecb comes out with some sort of cohesive plan to control spreads? >> i actually think that the euro will weaken on that kind of scenario because that potentially also means the ecb will have to kind of step back, if you like, in terms of either the pace or the end point for its rate hikes. there is also the debate on quantitative timing. i suspect the ecb do not have an eye to what is going on in terms of the periphery, so i would be surprised if they choose to go down the route of actual quantitative tightening, so actually actively running down their balance sheet. at the moment, they are investing in bonds they hold, and that is providing them some flexibility where they can lean against the market while continuing.

jonathan: do you think qt continues for the federal reserve through next year? >> excellent question. i think the fed itself -- i think the constraint in terms of qt is what actually happens in money, short end bonds and money markets and to the u.s. what is the sort of level of reserve that a sample for u.s. banks? frankly, the fed does not know where that is. i don't know where that is. i wouldn't be surprised if the level of reserves is higher than the fed currently thinks, so that does mean an earlier end to qt. i do not think they will bring qt to an end earlier because monetary policy tightening. jonathan: david riley of bluebay

asset management, thank you. futures down .25%. coming up, seem up at -- a member of morgan stanley. live from new york city, this is bloomberg. ♪ lisa: keeping you up-to-date with the first word. vladimir putin is threatening more attacks against ukrainian infrastructure after russian missiles struck kyiv and other cities today. the missile barrage was the most intense sincerely does of the war. the attack came after putin blamed ukraine for an explosion on a key bridge link between a russian mainland that crimea, but ukraine has not explained responsibility. but it commemorated the blast for the new postage stamp within hours. in the u.k., a chancellor is taking steps to calm financial markets following turbulence, announcing medium-term fiscal

strategy. it is more than three weeks before originally planned. in germany, an advisory group is urging the government to subsidize as much as 80% and natural gas consumption for households and companies early next year as part of a $194 billion aid package. the government will review the recommendations and issue a decision in the coming weeks. shares of rivian are falling. they will recall about 13,000 ev's delivered after discovering a minor structural effect. the former federal reserve chair ben bernanke is one of three people to share this year's nobel prize in economics. they were honored for their research on banks are the three will share an $885,000 reward. 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. ♪

>> markets countdown in europe. the european close, real-time numbers, real-time analysis, weekdays.

>> i think we are headed for a collision of some kind or other, and we have just got to manage that collision carefully. and i think the sooner we start managing for some slowdown, the

better we are going to do. jonathan: larry summers there, former treasury secretary, on wall street with david westin over the weekend. live from new york city, good morning for our audience worldwide. futures down by about .2%. u.s. bond market closed for a national holiday, columbus day. 10-year in germany 2.20%. euro-dollar 96.99, negative .5%. lower, lower, weaker, weaker. lisa: it is because of what is happening in italy and ecb living away from some tightening . certain yields in italy, spain, portugal -- or is this because of the conflict between ukraine and russia, escalation in that war? russia attacking kyiv overnight. jonathan: good news on gas

storage out of germany, some high numbers. looks like they have storage to where they want it to be going into this winter, and we have to hope that it is not a brutal winter. next year though, it will be tough. lisa: you made an important point, that they have filled their storage tanks with nord stream gas with natural gas from russia. what happens when that gets taken away? especially when other methods of energy, including nuclear power plants in france, are not producing as much as people were hoping for? jonathan: let's get to annmarie hordern in d.c. there has been talk about potential phone -- potential for nuclear armageddon. can you tell us how this has played out in washington over the last few days? anne-marie: critics will say if

you make huge remarks about the fact we are potentially on the edge of armageddon when it comes to these massive nuclear powers, why are you doing it at the home of a murdoch for a fundraiser during a midterm. when we heard from admiral kirby over the weekend, the national security council spokesperson, he said nothing has changed, the president has not seen any new intel, he was just remarking on the state of play. but his language was much more aggressive and it was in front of a crowd, using hyperbole. but at the end of the day, the u.s. does not want to get to that point, and jake sullivan has always said putin has brandished the tactical nuclear weapons, has said he would do anything potentially to defend russia, and they always saw this as a concern. admiral kirby over the weekend said there watching it closely but nothing has changed the u.s. posture.

lisa: what has changed with respect to the u.s. willingness to provide other military gear to ukraine, especially after some of the recent incursions, the latest being the attack on kyiv? annmarie: the ukrainians really want air defense missiles. at the end of september, there was an interview president zelenskyy did, and he said those are coming from the united states. but the delivery of that, ukrainians need to be trained, and that takes months, not weeks. in this is something they need right now when they see this barrage of missiles over kyiv. i spoke to the ukrainian foreign ministry this morning, and they are seeking for more of these types of air defense missile systems from the international community, and they want the international community to label russia a terrorist state. lisa: even as all of this happened, we heard over the week and president biden, actually on friday, announcing the banning of certain cells of

semiconductor and chip technology to china, which some people say is the biggest escalation between these two nations, what some are calling an economic war, up to this date. do you have a sense why now and how much this changes the backdrop? annmarie: officials will say they want to cut china off now from being able to expand not just their chips, but if implemented in a very harsh way, this could affect everything across china's economy. this could affect their military capabilities and technologies, could affect the manufacturing of electric vehicles, smart phones, and the list goes on. officials said they want to be able to blunt china's power as an economic and military menace. this could potentially be seen on the heels of what we saw over the summer with china having these military drills after you saw speaker pelosi go to taiwan. obviously, this is a huge blow for not just china but also the

semiconductor companies, like nvidia, that all their shipments in these technologies come from china. jonathan: and then there is baseball. annmarie: let's just say poor lisa. on twitter, deepest apologies to you, mohamed el-erian, but there is a lay one team to root for this season. lisa: what are you doing. annmarie: the mets are going to get to this great point and have this momentum end them, and then blow it. that is the mets. jonathan: the mets down in d.c. more next hour. lisa: thank you for that classy tweet. jonathan: mets are going to mess. what is wrong with that?

what happened? they were doing so well. lisa: it is really all about the year. -- the ear. grease, a firmer grip that allows them to make the mets look terrible. six thinning. my boys came home as night and were furious about the ear. did you see the ear? did you not see his ear? i am not an expert. jonathan: ok. just checking. all right. i'm sorry for your loss. lisa: i will rub it in for you

when milan starts losing. jonathan: personal and all over the place, always the case. seems like. these two milan milaning. jonathan: futures unchanged, not too bad now. lisa: the mets almost made it. jonathan: what about 20 years ago? lisa: mets were pretty good. jonathan: great in the 1980's come in 1990's, 2000's -- 2010 just went really wrong. from new york, this is bloomberg. ♪

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jonathan: live from new york city, good morning. equity futures on the s&p 500 slightly negative, down .1% done a little more than .1% on the nasdaq. bond market, treasury market closed. we will look at the german bond market for you. 10-year at 2.19. about 12 months ago, i think the

10-year was a negative territory. comparing to italy, the spread is 2.53, a problem for the euro. euro-dollar is negative. ecb meeting, month end, october 27, looking potentially for a 75 basis point move on the euro. euro-dollar 97, -.4%. lisa: i am trying to understand the response of the euro and moved by the ecb, hawkish. it should support the euro in the traditional book. does it apply anymore? jonathan: higher rates for the ecb, higher bund yields into recession. that is a problem, isn't it? lisa: i am watching the single name space, semiconductors. talking about some sort of restriction on american technology and china.

u.s. companies, i find this interesting, it is not just the chinese semiconductor companies that will struggle, it will be fewer exports. applied materials, shares down a little more than 1%. this just adds to a year that has been the worst year for semiconductors going back to 2008. you could see the worst annual loss on record. you can see a 40% decline on these stocks. this is the philadelphia semiconductor index. how much does this speak to broader pain with the rights -- with the likes of apple and other companies, stories affected by international policy that have been double down upon by president biden.

how much does this feed into downward positions the s&p targets, even for some of the biggest bowls on wall street. jonathan: seema shah joins us now. nasdaq today, always look up -- lisa: even when it is down. jonathan: down today, we would be screaming and shouting. even if we are down. >> opportunities. jonathan: is that going to be your story while you are here? quick's honestly, i think there is worse to come for the market, unfortunately. we talk all the time about inflation and growth, but then you add these geopolitical pressures, it is difficult to

find anything to be positive about at the moment. a lot of these things i do not think are priced into the market either. earnings season will be really interesting. we are expecting to see weakness now. a lot of the narratives, just generally starting to feel the pressure of potentially kind of back into next year. a lot to be concerned about. jonathan: you say it is not priced yet. what is it priced? >> i still think the recession is not priced. they keep switching every few days. but i think the market is coming to terms with the idea that rates will go higher and will stay that way for a long time. i think the market is still playing around with this recession. a lot of people still thinking a soft landing as possible. we think it is unlikely. with a recession. lisa: which aspects of the market are not sufficiently priced? people look at retail and might

look at semiconductors and say recession is priced there. where is it not? it does not fully appreciate the depth of this downturn or recession. >> i think there are segments of the market which have struggled, and semiconductors have been one of them. the latest news suggests they could be even further down. so valuations at this stage are constructive but will not tell the full story. the same as the last five to 10 years, we have known valuations are expensive, but it is not necessarily mean markets will go down further. lisa: i was reading a piece of research over the weekend talking about how if you look at some of the aaii sentiment, it looks bearish of people say things will be terrible. but if you look at positioning, they're still pretty invested in equities, still fairly bullish in terms of their positioning. what is the trigger to wash that out? quick's i am not sure if you will see a washing out.

even from today, we are expecting further declines. but the question that keeps coming up around the u.s. in the last week, but when will the floor come? when can i start buying? people are trying to figure out the timing to increase exposure. if we look at historical bear market cycles, the average downfall is 27%. if you are down 27% and you do not think this will be likely gxc, -- gsc, we're almost halfway there. jonathan: what about europe, how much do they hate that market right now? >> so much but i understand that. i agree with that perspective. it is a challenging time, and what we are starting to see in the u.s. is they are understanding that in europe, the situation is considerably worse. and there are so many things we

cannot predict. no one in the world can't predict -- can predict what is going on, so despite european valuations being so cheap, it is probably not the time to increase your exposure. jonathan: you talk about the persistence, particularly around rates, that we could look at this for the next 12 months or so, and in europe, we could be living with this for more than one winter, maybe two, perhaps longer. when do you start to think about the u.s. in that respect? 10 years ago, we talked about the u.s. decoupling with the mess in europe. would you say that is still the case? >> to some extent. one thing we are starting to feel is that in the u.s., there is this belief -- but whatever european tensions there are, whatever the energy situation is, there will be leakage into the u.s. in europe, you are seeing this

huge substitution to natural gas. there will be repercussions to the u.s., as well. i think the u.s. does come out than europe but certainly not completely comfortable. these two everyone i know is going to europe for vacation, including tom keene who is over in europe right now. we're hearing about the negative effect from the strong dollar on u.s. companies, but that is because things are on sale effectively from european industrials. when is the currency differential a good thing for europe the way used to be five years ago when the currency was reversed? >> i think you have seen some of that this summer, which is why you have not seen contraction. there have been benefits for the weak currency, and that will moderate a little bit from the downturn. from the investment perspective, for the u.s., it is some of the reasons we have been overweight large caps. mid-cap exposure to domestic is

significantly higher to large-cap. that will continue to outperform. lisa: one theme we have heard is it is starting to look attractive to go into longer dated bonds. how much conviction do you have around that view, both in the u.s. but also places like europe? >> we have increased our exposure to long dated bonds significantly in the last few months. a couple reasons, one is we expect recession to hit next year. you should be down pressure on yields in that environment. in europe, they are raising rates but also pushing down the long end or at least trying to. at some point, there will be some kind of success or relief. if you have to be anywhere in the yield curve, i would rather be in the long end. jonathan: in the gilt market? >> i do not think you want to be in the u.k.

we do not foresee what was going to happen in the gilt market. generally speaking, the u.k., their works -- there are serious concerns of the fiscal story will not improve. there are certain parts of that story that will stick to. looking at a longer-term horizon, the u.k. has a worse inflation problem and a worse growth problem. if i had to pick one or the other, i would pick the u.s. jonathan: what would you want to unwind? >> everything. i would go back to serious fiscal policy where they are trying to balance the budget. in the u.k., physical balancing is a hallmark of fiscal policy for the last two decades. to walk away from it now is difficult. in two or three years, who knows, trickle-down economics could work. lisa: in the u.k. right now, if you ask about the gilt market, do you feel like everyone just

sighs and looks at you like, please disappear now? tom: some have made a tremendous amount of money from the market. yields dropped by 100 basis points in one day at one point. lisa: the reason why the long end is getting some conviction, because they believe eventually central banks will step in for that because of structural issues. jonathan: at some point you have to believe bonds start behaving like bonds into an economic downturn. lisa: people have gotten wrong with that is again and again and have changed expectations for how high yields go. so there is a feeling of being shaken a bit after a world of zero rates. jonathan: zero confidence in a high volatility world. seema, thank you. enjoy ringing the bell. you press a button, right? >> yes.

jonathan: seema shah, just go in with your own balance. from new york city, this is bloomberg. ♪ lisa: keeping you up-to-date with the first word. russian missiles hit kyiv and other ukrainian cities today in the most intense barrage since the early days of the invasion. vladimir putin threaten further attacks, warning that the action would be harsh after he blamed ukraine for an explosion that damaged a key bridge connecting crimea with russia. ukraine has not acknowledged it was responsible. ben bernanke and two u.s. colleagues share this year's nobel prize in economics. in bernanke and his colleagues were honored for their research on banks and economic crises. the prize committee says the

three improve the understanding of the role of banks and how to regulate financial markets. the bank of england has expanded emergency support to the u.k. bond market, taking steps to support gilts, and started bond buying last month after market turmoil. semiconductor stocks across the globe fell today. new u.s. limits on china's access to american technology added to a disappointing start to the earnings season. china says the measures are unfair and will also hurt u.s. companies. a tight labor market is pushing more businesses to hire jobseekers who have served time in prison. the wall street journal points to recent data from the society for human resource management foundation that shows 46% of professionals say they hired people with records more often than a year ago. about 600,000 people are

released from a federal state prison every year. 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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>> what we are seeing is that the dollar is causing a lot of problems globally, in emerging markets and elsewhere. so it was a case to be made that if you think you are getting benefits from a strong dollar, that this reverse currency war is kind of playing your way, you're probably fooling yourself. >> that from standard chartered. good morning, lisa abramowicz and jonathan ferro. tom keene back in a couple days. s&p 500 slightly negative, down .2 percent. yields up almost a basis point in germany, 2.20%.

96.94 euro-dollar, down about .5%. that is the weaker euro. lisa: how much is because of the conflict between ukraine and russia and the acceleration? and how much is because it feels like the ecb is even more between a rock and a hard place in the federal reserve not able to tighten as much and credit concerns about peripheral yields? you see that with yields rising today. jonathan: and we will see that again in two weeks time. let's go over to maria. maria: we are joined here by the dutch deputy prime minister and finance minister, sigrid kaag. today we have to talk about ukraine. what we saw this morning is potentially a country that was blitzkrieged almost by russia. when you see that not just as a politician but as a european,

how do you respond? >> it is horrific, the indiscriminate shelling of innocent civilians, real violations of international law, and i have heard the commissioner speak of war crimes. my heart goes out to the people of ukraine. there will will not be broken, nor that of nato and the european union. we need to stand firmly with ukraine, particularly even more so in the face of such cruelty and such were violations. maria: does it mean sanctions crescendo? that weapons were -- will materialize and cash? books militarily, financially, all support, there is the european front and nato allies to make sure ukrainian government in ukrainian people get what they need in order to

withstand these atrocities. maria: what they want is air defense systems and russia printed as a terrorist state. -- russia branded as a terrorist state. there is the food crisis and energy bills, when you look at this, how do you respond economically? how do you alleviate pressures, if you can? >> we do need to alleviate and also invest in support our own citizens. they cannot be that the outcome of this work will be that our population is suffering, that they feel there might be a loss of support for this effort to support peace and security and international law. we need to make money available and have the right support packages, as we have been doing, each country in their own way but also in a coordinated matter so our own populations will continue to get through winter.

maria: you mentioned the coordination, and that leads to my next question. there has been a lot of debate in europe about national measures, but not everyone has the same fiscal capacity. not a secret germany created tension with this 200 billion euro package. so there is a joint response. from the dutch perspective, how do you look at this? >> we also recently announced a generous additional package in support of households and small to medium term enterprises. it is desirable by the ecb or imf. if you support, do it tangible and targeted. i also acknowledge that the purpose of every country, the fiscal space is different, and many countries have undertaken similar measures and you cannot compare them one on one.

but there is a formal meeting in prague of prime ministers to see what we can do together and how we can take a longer-term view because this crisis will be with us for quite some time. maria: the market, however, is looking for recovery responsys but also joint action or actions backed by the european union, aaa rating. is that something you would contemplate? >> for the netherlands, we have said there is a lot of money available in different funds created for other crises, recovery funds, and it accelerates the energy transition. there are billions and billions of funds available that have to be reallocated. let's look at it and think of a joint action. we also call for national action, the same way we look towards debt sustainability, not just for our own country but the

euro zone as a whole. maria: there will be another point of debate here in the euro area, which is the idea of some countries will not get to 60% in a long time, and there has to be euro security. is that doable? >> 60%, it is a matter of -- let's focus on the netherlands and spain and see what are the pathways that can be worked out at a national level and also look towards reforms required that have been lacking. in moments of crisis, we need to keep our eye on the ball, think long-term, but also make sure that when you agree to a debt reduction pathway, you need to make sure there is effective

oversight. if one does not align with the agreements set, there are other measures. it is a balancing act. maria: and as we see some yields jump across europe, minister, thank you some much for your time. good to see you on bloomberg tv. jonathan: thank you. wonderful work, as always. maria tadeo there. should get the number on the german gas story. up over 7% as of october 10. they talked about the oversight of economic matters. and when it comes to the absurd foreign policy made by countries like germany that many other european nations have to pay for, as well, this goes missing. i just think it sounds a little bit hypocritical sometimes compared to where we were 10 years ago and mistakes were made on the periphery.

now we seem to be having a very different conversation. lisa: it will be interesting whether this time around when there is a desire for lower yields in italy, when there is some desire to perhaps loosen up the budget, whether they will be a bit more open on the part of the german members of the european project. jonathan: do you think the spanish might have something to say about whether you should outsource economic security for china and to russia, defense for the united states? lisa: i am sure they will have something to say, and you are already seeing pushback with respect to german popularity from the block. jonathan: from new york, this is bloomberg. ♪

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>> the fed is on a wrong way -- one-way freight train. >> they are going to continue to raise rates. >> we have not seen a

significant tightening yet. >> the fed is lagged because they have to wait for the body of evidence to come in. >> end of the year, we think that is when the fed will stop and pause and look around and assess its situation. >> this is bloomberg surveillance with tom keene, jonathan ferro and lisa abramowicz. jonathan: some bank earnings. life in new york city. good morning. for our audience worldwide, this is "bloomberg surveillance." tom will give you the promo in a few days time. i'm looking at equities down 2/10 of 1%. for s&p. yields are up in a way. lisa: it goes back to what we were talking about, the idea they move forward, the u.k. treasure every and the bank of england. their plans to extend some of the support for the market and then to release some of the projections early.

will that help? and the fact the market is pushing back and suggesting they be not is a problem. especially for the petro plants. jonathan: this is what we all wanted. i can't complain much. we wanted it to come before the bank of england so the bank of england could put it into their own broadcast -- forecast. on halloween, we get a budget from the u.k. together with the office of budget responsibility. then we hear from the b.o.e.. lisa: what does the market want? because if this does not get delivered the way they want, the markets will not respond well. what they want is to push out some of the expected support the administration has said. even as the administration comes out and says they will increase support. for example, with inflation-adjusted pension payments, how are they going to pay for it, given the pushback

has come? jonathan: the fed will continue to be tone deaf and keep hiking. they want fiscal discipline. what is funny about the situation in the u.k., they have been widely criticized by everyone about the policies the chancellor came out with. in 12 months time, when many of these economies are in recession, some of these policies will be the policy that a lot of people -- policies that a lot of people are pushing for. lisa: some people say in 12 months time, there will be more appetite for it. other people say yields will still be high. you will still have high inflation. perhaps not. this goes to the heart of why some people are saying this recession, this downturn may not in that quickly. this is the morgan stanley view of things. because of this lack of a fiscal response that we are expecting,

based on where yields are. jonathan: a lack of any response typically, and we talked about this, you would have some form of countercyclical circuit breaker. we can't because of what guy johnson called febrile markets. where does it come from? lisa: some people say a productivity shock but a lot of people don't have good answers to this. that is why you are hearing more of an l-shaped recovery. that raises this issue of how much people can get confidence over longer-term returns. in equities and it is the reason why bonds are looking better to people. jonathan: let's go through the price section. you choose at -2/10 of 1% on the s&p. yields up by a basis point in germany. crude down half of 1%.

$92, after a monster rally last week. the euro-dollar, 9696 -- .9696. lisa: the pain, is it because of the acceleration or the exacerbation of the conflict between ukraine and russia? is it russia and italy? is it the prospects of a difficult winter? what margins will cause this to shift one way or another? jonathan: toxic crude. the financial conditions timing, we are looking at companies that are struggling to get the finance they might like across the economy. vichy, we have talked about policies role, do you think something else is going on? >> absolutely. it is right for us to talk about the policy perspective.

it is important to see what else is happening. at the same time as monetary policy is tightening, policy by banks is also tightening. what we took away from the stress test is effectively a capital call on some of the large banks. that translates into very substantial treasure on the assets the banks hold. the banks will have to either do less of what they are doing or choose to lend less to focus on some sectors. do something else, all of which translates to greater liquidity and less ability for the banks to step in when they need to diss intermediate during market

circulations. lisa: how much is this offset by all of the private investors? all of the big firms out there that are not banks that have emerged as primary lenders? >> it is a little bit of an offset but not a sufficient offset. a large number of these private funds, nonbanking and lending, ultimately -- in the form of cycli -- a lot of them require banks to have the leverage. that is again a major challenge. we are seeing that in every market that relies on bank participation to provide senior leverage. you are seeing it stay sticky and stay wide. jonathan: there is another element to this conversation. given what you said about the

banks inability to step in, who is old and the bank when it gets really bad? who has this exposure? we have just unwound about 10 years, a decades worth of stimulus in some cases. zero rates, negative rates, it is all gone. the bond market bubble is blown up. they are trying to work out who is holding the bag. where is the leverage? >> it is a hard question to answer. we found out from two weeks ago that this type of dislocation could translate into forcing a policy you turn from the fiscal side and to some extent on the part of the monetary policy side . all that points to potential for an accident. it is certainly high. lisa: is this bullish or bearish

for credit? on one hand, it is bearish because it could lead to a widening of spreads and a lack of lending. on the other hand, it signals policy response that right now seems like it is not on the table. >> it's not on the table. on the margin, spread, we are looking for premier to get wider. i want to distinguish between spreads and yields. the front-end is showing attractive enough yields that in a world of broadly bearish -- across the board, -- jonathan: does cpi matter this week? >> probably not. if our expectations hold, it is on.

-- 75 is on. jonathan: 75 seems to be the take. lisa: there is no dissent around the margins. there is a shift in tone away from the fed needs to go incredibly aggressively. an increasing number of people agree that the feeling is that things are moving much faster or more quickly than the data is suggesting. i am hearing this from more people out there. jonathan: i wonder if we see this on the committee anytime soon. they've all been sharing the same speech over the last month or so. whether we start to see that dissent start to grow a little more and show up in the minutes and elsewhere. lisa: we are hearing a cohesive message, perhaps to try to regain credibility. we will speak with bill dudley. he put out a column that said

the fed made a mistake and it needs to acknowledge its policy errors, which is the cause of the reason they have to go as hard as they do in terms of tightening policy now. if they are more transparent, it may regain the credibility they need to make the steps necessary to bring this economy in the right way. jonathan: explain why they had to do 300 basis points worth of timing in six months and possibly 400 basis points in nine. bill is also asking to convey more clearly the amount of pain people should expect in the economy as well. it is difficult to issue a mea culpa and say there will be a lot of pain because of what we did. those two things make it more uncomfortable for this fed. lisa: perhaps it will achieve the outcome they want. it will achieve the outcome they want more quickly than if the outcome still doesn't by they

have conviction in what they are doing. jonathan: bill dudley, falling at the new york -- formally at the new york federal reserve. a conversation is coming up shortly. live from new york, this is bloomberg. ♪ >> keeping you up-to-date with news from around the world. vladimir putin is threatening more attacks against ukrainian infrastructure after russian missiles struck he -- kyiv and other cities. the bras -- barraged with the most intense since the early days of the war. it came after putin blamed ukraine for an explosion on a bridge between russia and crime area -- crimea. ukraine commemorated the blast with a postage stamp. taking steps to calm financial markets. he will announce his strategy and economic forecast on october

31. that is more than three weeks before he originally planned. in germany, an advisory group is urging the government to subsidize as much as 80% of natural gas consumption for households and companies early next year. it will be part of a $194 billion package. the german government will review the recommendations and issue a decision in the coming weeks. it's another sign that north korea is preparing for its first atomic test in five years. kim jong-un says he launched a new ballistic missile and simulated tactical nuclear strikes during recent military drills. he calls the exercises a severe warning to the u.s. and its allies. ben bernanke is one of three people to share this year's normal -- nobel prize in economics. bernanke, douglas diamond and philip dybig will share an

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>> the fed has kind of entrenched themselves. no matter what happens, we are going to do it. which i think is broadly the right message to be sending. but they should still be thinking with a little more

nuanced about what the data will say. i think they have gotten themselves into a corner. which is probably a good corner to be in. jonathan: the former fed governor weighing in on this situation. they have been tone deaf and no matter what the data is, they will keep hiking. lisa: which is why they are making a policy era on the front-end and on the back end, it is the accusation for a lot of people who think they will have to make a policy error because of the errors they made not raising rates. jonathan: hard to look through. lisa: and this question around whether we have seen peak inflation. some people are questioning that premise, we get some spike in prices heading into the winter. jonathan: bond markets closed, equity markets not doing much. lisa: trust the bond.

jonathan: what did he say? lisa: you need to respect the bonds. respect the bonds. [laughter] jonathan: germany up by three or four basis points. your-dollar, -- euro-dollar, .9 699. here is one from bill dudley. the headline of his latest piece, the federal reserve owes the world a mea culpa. the former new york fed president and a good friend of this program joins us right now. let's start there. a mea culpa, what do you want that to look like? bill: the fed needs to explain to the world what went wrong? why are we having basis rates of 400 percentage points? it is evidence the fed was

late. the fed made a couple of mistakes. they basically tied their hands and said we cannot raise rates until a whole bunch of things happen. they made some forecasting errors on inflation and on the tightness of the market. doing a mea culpa is important to build the fed's credibility for the future. if you don't want to admit error, how can you be confident the central bank won't make a whole other mistake next time? jonathan: do you think they can do that and do something which you asked them to do a couple of weeks ago -- a number of weeks ago which is to be more open about the pain this country and economy will go through? i wonder if they do both. you said harbors credibility, do you also think it creates questions on whether it should retain its independence? bill: you don't want monetary policy to be politicized. you will have even worse monetary policy than we have had

the last couple of years. lisa: on the flipside, there is an increasing course of big names saying the fed is moving to make policy error on the other side. by raising too far, a deep recession is not an inevitability but will be a consequence by them -- of them raising rates as much as they are expected. are you sympathetic to that view? bill: you have to do a lot to catch up. if you do that, you may not notice you have done more than is sufficient. it will push unemployment rate up significantly and will likely be to -- lead to recession. i think it is in heaven will at this point. lisa: we made stakes, and by the way, we will necessarily make a mistake on the other side, titan into a hard laden -- tighten into a hard landing.

bill: i think they won't say they will tighten on purpose. i don't expect them to say that. they have endorsed the notion there will be some pain involved. what the fed has not done is asked how did we get into the mess in the first place. that is the part of the message they need to send to the markets to build credit in the future. jonathan: in june or may of 20 between one, you were making the point -- 2021, you are making the point -- that would mean going six months earlier than they did. what difference would six months have made, do you think? bill: i think the advantage of going earlier is he would not have to go as fast. you have more ability to assess the effects of your action. given the long legs of monetary

policy, this increases the risk they overdo it. if you spread it out over time, you have more time to assess the impact of your actions. lisa: you have talked about how you could see a peak fed funds rate north of 5%. right now in the market, we have a nearly 4.7% terminal rate for next year. where have you changed your view on where you think the fed has to go in order to bring in inflation and honestly address some of the flaws of the previous thinking? >> i don't think the peak in rates has to be higher, i think it has to hold it for a long period of time. i think the fed's strategy is not just to keep hiking regardless of what is happening in terms of the real economy. they want to go to a restrictive policy and hold it there until they see clear signs that it is bringing inflation down and generating more slack in the u.s. labor market. jonathan: wonderful to catch up.

great read. bloomberg opinion almost, bill dudley. lisa, it is a tough one. he is not the only one saying this. if they come out and issue a mea culpa and say they got it wrong, can you mention how many warrants are out there as the economy rolls over? lisa: agreed in terms of additional rounds of stimulus, it may not have gone to the efforts that perhaps really helped ignite the economy but simply gave people money to spend at a time when the economy was not open. lots of discussions that might be superseded i someone looking to blame someone. this is why i asked, what is the economic benefit to coming out and saying we were wrong and we will be wrong again because we have to create some sort of stability. this is the rock in the hard place and the reason why policymakers do not usually come out and say we are heading

toward a recession and it's our fault. jonathan: i understand the argument it enhances credibility and to trust the process, you have to believe the people in control understand they have made mistakes so they don't repeat them. it makes perfect sense to me. it is more two-way that you also invite a lot of criticism about a path forward. lisa: the one argument is if there is more credible he, perhaps the more -- the market will move more in tandem with what the fed is saying and you may get a more accurate readthrough of policy. jonathan: i understand. down 2/10 of 1%. from new york, this is bloomberg. ♪

♪ jonathan: cpr in america coming up later this week. then it is on to friday with j.p. morgan in focus. this is what the action looks like on the s&p 500. slightly down, 1/10 of 1%. euro is back higher. the spread between italy and germany this morning, through 250 basis points.

the italian 10 year up by four basis points. the euro is weaker by one third of 1%. euro-dollar, .9713. lisa: at what point does this become a difficult moment that requires more extreme intervention and what could that intervention be when all responses are called into question in a new inflationary regime? jonathan: hard to compare the bond markets, apples to apples, not quite. it gives you an idea of where we are versus where we were in the summer of 2012. lisa: how much can this particular debt cycle withstand a 6% rate? i get your point that a lot of nations have pushed out maturities. is that good enough? jonathan: resilience. you see that everywhere. more resilient than it was. lisa: was it resilient or

delayed? jonathan: jill joins us. let's start with the key differences of what we face now and what we faced back then. >> at the time, we had massive deficits. you had an issue with the government and the way the economy was working in the south of europe. those countries have done a good job reestablishing proper external position. the other big difference is we have different instruments. the big issue we had in 2010 and 2011 was there was nothing in the arsenal that you could use to stop this. we did not have an ecb, which after that, is proven. they were crumbling to find institutional solutions in a matter of a month. we can rely on those mechanisms

if things get to a point where we need to use them. the market knows it. it is one of the reasons why we have not seen a lot of contagion moving away from italy and affecting other countries in the south. jonathan: the came out with ont. it never got activated and never had to be used. then someone came up -- this summer, they came up with tpi. when this tpi start to become a real consideration? i'm trying to wonder, what is the threshold when that starts to kick in? gilles: they have never been clear on this and they don't want to be clear on this. i'm talking about the ecb. it is not just a case of the level of the spread, it is the speed at which things are. so far, it is fairly contain. the biggest issue with tpi is not of a technical nature. it is political. the way tpi has been designed,

it is definitely not something that would protect government's against their own mistakes. that is the issue. if you could come up with a situation where the market is punishing a state for things which it has not even done or announced, then tpi is fully there. if they are doing stuff that is triggering a rational reaction by the market, gpi is probably not the right instrument. so far, the news we have from italy is the new government, we don't have one yet, they want to be prudent. if they don't make a big announcement that would make the ecb nervous, they could benefit from tpi. there is a relationship with the market that can build with that. lisa: i can hear your voice in my head. it is very loud right now. he is saying ok, they will talk

about political risk and the peripheries, what about the fact germany is the biggest risk to the entire european economy? what's the answer? how is this situation different, both the political considerations and from distinguishing from the euro crisis of 2010? considering germany is one of the biggest problems, biggest downside risk to this? gilles: germany is the biggest risk to the macro story and they have the widest policy space. they still can mitigate a lot of the current pressure they get from gas prices with the billions they are about to spend. in this case, yes. it is quite negative over the last two or three quarters. we know they can deal with this

on their own forces. which is not something we have in other countries. that is the big difference. lisa: you have to wonder how much higher inflation will be for a longer period of time, given the fiscal response in germany and that the political pressure from the peripheral regions will say if you guys can have such a big fiscal response, we can too. you are just going to let us suffer as we finance your deficit by bringing down the cost of your financing through a weaker euro? gilles: a key issue there i think is whether all of this triggers another round of -- in europe, which is what we need to see. when we were in the pandemic, we ended up with debt mutual is asian. -- mutualization. i am surprised we have not seen more to deal out with the follow-up -- deal with the fallout of the ukraine war. it takes so much time to get to

the right solutions. but, i am convinced that if we get to a situation where we will see bigger cracks appearing, you will see this further movement. you will see the e.u. provide support to those countries. it is not done to deal with the fallout of the ukraine war. but i have no doubt we would get there. jonathan: let's talk about the cracks right now. the mystery for many of us, the ecb. they were not forecasting a recession. how on earth were they not forecasting a recession? gilles: you don't want to be the one validating the market expectations of a recession. you probably don't want to add to the general bleakness by coming up with a very scary

forecast. i guess that is part of what central banks usually do. in the u.s., the fed has taken a lot of time for saying yes unemployment would have to rise to get inflation back under control. in europe, the central bank very rarely wants to be at the bottom of the distribution when it comes to the forecast. lisa: sure, except there is a credibility issue that central banks will go through. casual observers would say you put a plus be together and you get -- a + b together and you get recession. they are saying it equals beautiful things. gilles: diana: -- gilles: they don't deny the risk of the recession. we did not have a super rosy message coming from the ecb. they are in a complicated position. that is a big difference with the u.s. inflation in europe is not our

fault, to summarize. we have the ecb which is forced into a tightening, to keep inflation expectations anchored in a situation of massively adverse -- it is not easy to explain. especially if we have spent the last 20 years, not just in europe but in the u.s., explaining to stakeholders in the economy and markets that central banks have your back. this time, no, sorry. central banks cannot have your back because there is an inflation issue. there is an inflation expectations issue. central banks are not going to be your friend. it is incredibly complicated to explain, coming after 20 years of monetary policies which have been extraordinarily conflated. jonathan: they will have to confront this at some point. they are talking about interest rates. this is the economic situation we are look at whether they

forecast it or not. the numbers show this economy is in recession. gilles: yes. my point is i think there is already a debate at the ecb, which is for now, not having a direct impact on their decisions they agree on the idea that their monetary stance -- you bring it up and this is where the differences appear. some will say i don't care, i will continue hiking as long as inflation is there. some will say once we have brought our policy rate to the range, let's stop a while. there is an alignment of doves and hawks that say our stance was far too conflated to start with.

in the meantime, they will keep at it. jonathan: are you feeling the pain of euro-dollar parity personally? gilles: i've been in new york for two days and you feel your coffee is much more expensive. jonathan: it is a shock. lisa: it's so great for me, everything is on sale. jonathan: for americans, it is a fantastic time. everywhere i went in the summer, i heard american accents. i know you're going down to the imf meeting. enjoy. even though it might be gloomy. you read my mind. lisa: it was very loud. jonathan: it's apparently very easy to do. lisa: that point you have made is well taken and it is an important one and the biggest difference between the euro zone

crisis between 2010 and now, where is the crisis? it has changed. jonathan: in a big way. coming up on this program in the next hour, we will catch you up with andrew of pimco. live from new york city, good morning. this is bloomberg. ♪.>> keeping you up-to-date with news from around the world. the most intense barrage since the early days of the invasion. vladimir putin threatened further attacks, warning the action would be harsh. that came after putin blamed ukraine for an explosion that damaged a key road and rail bridge connecting crimea with russia. ukraine has not acknowledged it was response will for that. ben bernanke and two colleagues share this year's nobel prize in

economics. bernanke, doll -- douglas dimon and philip were honored for their research on economic crises. the three improved the understanding of the role of banks and how to understand financial markets. the bom has new steps to support guilds beyond this week. they are designed to broaden purchases. the b.o.e. started last month after market turmoil caused by the markets unfunded tax cuts. u.k.'s financial watchdog is asking questions about private messaging service use. that is after u.s. regulators handed over more than $2 billion in penalties to some of the world's largest banks. the financial conduct authority has asked a number of banks about staff exchanges through texting and aflac whatsapp. global news 24 hours a day, on the air, on quicktake, powered by more than 2700 journalists and analysts in more than 120 countries.

i am lisa mateo. this is bloomberg. ♪

>> we do expect the market to remain volatile. these rallies we are seeing, we continue to expect them to fade. the fed remains determined to bring down inflation. they have been clear to us that they will not blink. lisa: nadia lovell speaking with us on friday. we got some news later that day where you had president biden come out and announce some potential restrictions on semi conductor and chip technology being exported from the u.s. to china. the big fear is where are we

headed in an economic war based on semi conductor space. mandy covers the semi conductor space for us -- mandeep covers the semi conductor space. this is being viewed by the market as a negative. how much is this a negative for u.s. earnings and how much is this a broader negative that has not yet been realized? >> they preannounced last week and the focus was on weakness in the client segment. which is the pc's, where we think there was a pull forward. what remains to be seen is what happens to the data centers, which have held well. we have already seen about 20% negative revisions on the top line. that will trickle down to the bottom line. that has already transpired in terms of estimate cuts. lisa: the semi conductor space

in the united states and beyond has suffered dramatically this year, at least with shares down about 40%. how much has yet to be realized with an escalating conflict between the u.s. and china? >> we have seen a similar situation with the tariff war's in 2018 and 2019. what could potentially happen is similar to huawei. there will be a company at the forefront of this that could suffer. we don't know who that could be. they want to restrict access to software that chinese companies used to design supercomputers and their latest chips. as well as the equipment. once that happens, it limits china's ability to go to the latest process which is what they want to get to in terms of self-sufficiency around semi conductors. how that translates to nvidia or outlook remains to be seen. lisa: what kinds of retaliation

could we expect to see from china in response? mandeep: look at nvidia for example. they have about a 25 to percent revenue exposure to chinese customers. -- when he 5% to 30% revenue exposure to -- 25% to 30% revenue exposure to chinese customers. that will trickle down through there are chinese customers that will be impacted and that will have a cascading effect in terms of what that will do down the line. lisa: how significant of a deal is this? when i read this deal came out, i thought it was a big x galatian -- escalation of what we had been hearing all year, how did you view it? mandeep: china is trying to create their own supercomputers. they want to be in the lead when it comes to the latest ai and the latest servers that they can design. that is where this particular

ban was focused on. they could impose a certain ban on a u.s. company. if things escalate, you will see a dire situation where u.s. companies are impacted in terms of their ability to do things. lisa: you're talking about the guidance we were hearing from the semi conductor companies and beyond and how negative the forecasts are. how significant is this for the broader pc, the broader smartphone industry that could be foreshadowing what we can expect to see from apple and google and everyone as they report earnings? mandeep: this earnings season, we expect more negative revisions following the earnings. we have already seen in anticipation. you are going to see more of that. with chips, there are certain pockets that are still seeing very strong demand. we are still in shortages when it comes to auto chips and more or less on the datacenter side

when it comes to high-performance computing. smartphones, pcs, that is where we are seeing the real deceleration. you will see inventory wrap downs which is what we saw with amd before. lisa: has this been priced in? mandeep: i think with amd it is. stock is down over 50%. it is in anticipation of that weakness. the stock continues to go down. more or less, it is pricing. at the same time with chips, the pendulum always swings extreme. this time will be no different in terms of the boom and bust we typically see. chips are a cyclical sector and that has not changed. lisa: we are hearing more with specific companies building up boundaries in a different place. upstate new york is the latest place where one will be built. how much more on shoring will there be as this becomes the

epicenter of ongoing conflict internationally? mandeep: chip manufacturing is asset intensive. you need to build the cap overtime. that is why they are getting money from the u.s. government and other governments. it takes time to come online. it will be 3-5 years before we see manufacturing happening. bottom line is if you get to a point where you have capacity and the utilization, that is key, if it is over 70% to 80%, that is when it becomes good business for intel or any buddy based in the u.s. lisa: how much more inquiries do you get now than in the past? i get that because it is the telltale sign, this is the area to watch. look at how significant this is, look at the move here. this indicates what is to come. how many calls do you get? mandeep: we get a lot of that in the sense that everyone wants to

know what is the worst case scenario right now. that is how the markets work. even though it is a low probability outcome, they want to know. lisa: what is it? mandeep: in the case of apple, we know, over 98% of their goods are made in china. even though they are trying to move stuff out of china into vietnam and india, it is still, the worst case scenario is extreme. lisa: going forward, which company are you most focused on in terms of a possible surprise? mandeep: nvidia trades at the highest multiple, 10 times to 11 times sales. everyone thinks they will do well on the data sector side. you will see a cloud phase. -- cloud digestion phase. they will pare back. they have been spending above capacity for a while because the demand was so huge in terms of

digital transformation and post-pandemic events. they will cut back and then things will resume. when that digestion phase happens, nvidia is at the forefront of that exposure. lisa: thank you for being with us and good luck with those worst case scenarios people are looking at. i can sympathize with that. coming up, wendy cutler, managing director at the asian society -- vice president and managing director at the asia society. from new york, this is "bloomberg surveillance." ♪

jonathan: three-day losing streak coming into monday. futures just about positive. 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: live from new york, we begin with the big issue. >> corporate earnings. >> look for guidance from cfos. >> investo wt