9 jonathan: live from new york city, this is bloomberg

surveillance on tv and radio. futures are just about positive this morning. equities are at new lows yesterday. lisa: people blaming the united kingdom again saying they are part of what's behind this. the pervasive gloom you are hearing from everywhere and even resident biden saying a small recession is reasonable. it feeds into the gloom that has already taken hold. jonathan: the financial times reporting that maybe the tank of england has three days. this is a mess. lisa: it's a credibility issue. there was a note this morning that said if the bank of england reverses, it will be positive for the pound. the lack of credibility and consistent messaging in any cohesive plan, they don't want

to cap yields but they don't want instability to find the two. jonathan: it's not that messy this morning with futures up about 8/10 of 1% on the s&p 500 and the euro-dollar is unchanged. mohamed el-erian yesterday said the imf eating this week will be -- meeting this week will be important. tom: this is an extraordinary moment from the world bank and the imf and we will talk to their people. it's about the international monetary fund. it's without question the most important meeting and the most tense meeting since 2008. the data shows up with the yen going up $1.46 in many strategist modeling a weekend to $1.50. the united kingdom a complete

and total mess. there was one point yesterday where i looked at three british newspapers and they had three different headlines about what governor bailey will do. jonathan: we are looking forward to hearing from you later. the worry for me, i think the governor of the bank of england is overly concerned about contributing to fiscal dominance, the idea that they are focused on accommodating the physical effort of the government at the expense of tackling inflation and that's problematic. lisa: also the pension funds can remedy their issues. this creates the real rock and a hard place. they don't want to cap yields. they don't want to be facilitators for a budget. how did they do that at a time when they are on the ring of

financial stability concerns? jonathan: let's start with this global market strategist. give us a better understanding of what happens if the gilt operation of the bank of england ends in two days time? >> we will split from an energy crisis which the government has neutralized but in the process, they spooked the bond markets which is exacerbated by this self-inflicted misstep from the governor of the bank of england yesterday. this is morphing into a broader economic crisis. if you are a consumer in the u.k., looking at your mortgage rate which will probably reset in the next two years, looking at the doom and gloom that's coming, what are you going to do? you will do as little as possible and save as much as possible step economy is

barreling toward recession and the doom and gloom is back on that. it's hastening or broadening the economic precipice we are on the edge of right now. lisa: talking about the economic precipice, how does it change your view of the fragility and how close we are to the he print -- these impressions from a market perspective? >> the u.k. is half as extended and that needs to be resolved as soon as possible. they will continue to post bond yields higher step the world is watching.

-- it's not just a u.k. issue, it's going global. i think you need to know how high bond yields will go. hopefully, you need continued signs that inflation is easing. all the inflation indicators are easing but the headline inflation numbers are not and i think that is the key. the third one would be a less bad season so maybe just a reminder of how bad things are. they are maybe not terrible yet. lisa: does that mean you expect them to get more terrible? are you hunkering down with a significant portion of cash or are they creating the end of a painful cycle that will create some buying opportunities? >> i think the glass is

half-full. i think the fed will start decelerating. all the inflation lead indicators are falling even though the numbers are not. i think they are reaching the point there's a limit to how high bond yields can go with inflation leading indicators falling in recession risks rising. i am confident that companies can do what they did in the second quarter and show us that maybe things are not as that is maybe the market is pricing. that allows us to begin to dig ourselves out of this whole we are in now. jonathan: you talk about the earnings of the last quarter and this is what bank of america had to say on that -- what would you say to that? >> i don't disagree. it's more about the guidance and reported earnings and they will hang on in there but i think so

far, the forward guidance, we've had more people raising guidance than cutting guidance. we haven't even started yet most . it's a little bit better than you might have seen historically. i think it's all about the future and it's clearly darkening. large-cap companies have shown they are fairly nimble and fairly resilient. i think a large number of them will continue to do that. jonathan: let's talk about the guidance for next year. the forecast has come close to three for global guidance and heading toward to slowly. the picture is even worse for emerging markets. lisa: how much visibility will

these companies have on guidance which makes it the issue of how helpful can this be? we are already getting guidance. are we missing it? intel yesterday announced thousands of job cuts, their first big cut to their workforce going back to 2013. are we getting signs we are seeing real weakness in terms of the actions of certain corporate hires? jonathan: there is a new forecast and the forecast was cut down to 3200 from 4200. they acknowledge in the note it's still pretty early to make a big call with any conviction. the forecast is driven by the idea that the 12 month rebound off of extreme lows are powerful. it probably resonates with you. >> the sentiment is completely capitulated.

valuations have come town -- come down well below average. i don't think earnings will capitulate. i think the fed will decelerate the pace of rate hikes. we are not going to keep doing 75 basis points immediately. we will pause at some point in the first quarter next year. you put that together and i think the glass is half full. it's not all about earnings. earnings can be dreadful but it's a question of how dreadful. from here, the story flips and it will be more about valuations. bond yields peaked, valuations are below average is what i think we get some valuation relief. valuations have crushed the market this year with weaker earnings. i expect valuation relief coming up. jonathan: thank you. that's the constructive way to

look at this market into next year. lisa: do you think a deceleration of rate hikes is a catalytic moment for gains in risk assets? this is one of the key questions. ben made that argument and other people will say why? is there a cycle of slowing inflation or will it be something more substantial? jonathan: if there is a positive supply-side story to speak about that brings down inflation and allows the fed to back away, you can make the argument that is bullish. the defense pausing then it's a hard push to say that is bullish. lisa: you can seek new shutdowns in shanghai ahead of the party congress and factories idle, certainly in germany as they try to save energy. jonathan: we will talk about the policy response in a moment with anne-marie or dern in d.c..

then we will talk with the chief and dressed -- investment strategist at i capital. live from new york, this is bloomberg. ♪ lisa: china is doubling down on the defense of covid zero policy, strategy that has been a hallmark. for the third day this week, the influential people's daily newspaper regard it as strong support for the company's zero-tolerance approach to the virus ahead of a key communist party meeting that starts on october 16. gun control will tighten in the mass -- in the wake of a shooting. the government will revoke done

licenses it holders are found to be facing mental health issues. the crack comes after a former policeman opened fire last weekend at a daycare center in northeast thailand, killing 36 people including 24 children. intel is said to be planning job cuts, possibly in the thousands. they are trying to cope with weakening demand for personal computers. the layoffs could be announced as early as this month around the same time as the companies are quarter earnings. lbmh sales have dropped but the world's biggest luxury group benefiting from wealthy americans who are shopping in europe. the owner of louis vuitton and christian dior reported third-quarter earnings up 22%. global news, 24 hours a day and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i'm lisa mateo, this is

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>> i don't think there will be a recession but if so it will be slight. think about what has happened. we have done more and we are in a better position than any other major country in the world. jonathan: the president of the united states on cnn yesterday, a rough ride in this equity market with the s&p 500 down from the previous five days. yields on the u.s. 10 year are not changed. the gilt market, the two-year is

down a basis point. the 30 year is up 25 basis points now. it was for 99 at the end of september. the bank of england operation says it will end in a couple of days time step pressure is building maybe to extend. lisa: if they did extend, what does that mean for their credibility and in terms of the pound? it suggests the market dysfunction has not been remedied and these tensions have not dealt with the liabilities. it's going to be a problem for the bank of england. jonathan: up 25 basis points on the u.k. 30 year yield and we will keep you up-to-date on those moves. anne-marie or dern is here along

with maria tadeo. a month away from midterms and the pressure starting to build again. anne-marie: we heard the president talking about the fact that there will be no recession but a month away from the midterms, how can the president sit down and say to prepare for a recession? he said potentially maybe there would be a soft landing. it is ramping up for him now. they have four weeks in their issue is we have this spat with saudi arabia and how will they put a lid on gasoline prices. that's the biggest issue going into the election which is inflation. jonathan: it goes into next year. the biggest issue is being calibrated to tackle a near-term calculation. the policymakers in europe are focused and not making about

what the next looks like and the administration thinking about the midterms and not thinking about what the oil market looks like in 2023. anne-marie: welcome to washington, d.c. not only is it a huge problem in europe more than the united states but european leaders are trying to prepare their population. they are shutting down the lights of the eiffel tower. you have the finance minister saying i will be wearing turtlenecks this winter to make sure i start saving on heat. you have not heard that kind of rhetoric from this administration. they say we will continue to support ukraine which means higher gas prices and that will be the cost. the question is whether the american people want that or not stop maria: there is a need in europe to reduce the energy

consumption. is that true as the discussion of price caps go into effect? there really isn't a plan to curb demand. maria: to be fair to european leaders, they feel this is the winter of the rupture with russia. this would be -- this will be the biggest test and you have to be able to weather the storm into next year. the story next year will be more complicated than this year. they are saying i have a near-term problem and i have to deal with that stuff they say we need to make sure we get ahead this winter. when it comes to the price cap, there is an active debate and they need something on paper and the commission has been given a deadline to come up with a proposal by next week. this time next week will add

onto the headache. there is real concern and you can feel it behind the scenes about what happens if the infrastructure suddenly becomes damaged or pipelines are mysteriously going down or there are explosions. it's dramatizing nord stream 1 and two so there is a real conversation not just how we secure this but how we keep this critical infrastructure safe and working throughout the winter. lisa: the subtext is vladimir putin and what happens with russia and the war against ukraine. president biden also called vladimir putin and a rational actor who miscalculated this war. is that the party line in europe as well? maria: it's difficult to second-guess vladimir putin. it's right to mention that there

intel was spot on how recognize that their day gnosis was the correct one and perhaps they were wondering how he could do this because there is no incentive to break up diplomatic relations to such an extent. they thought the response from ukraine wouldn't be as forceful but it goes back to the message from the president to be in it for the long-haul. the secretary general said this country needs air defense systems. tactics are changing from being on the ground to pounding ukraine from the air so that will be the key take away from this meeting, how to provide air defense systems to this country. jonathan: thank you both. on the energy story, i think this is framed as a one off shock. for many people in the energy market, it's a permanent shift away from russian gas.

when you calibrate a policy response to something, is it a one off event or a permanent shift? if it's permanent, you would have to imagine the policy response will look different to the one we are getting. anne-marie: in the beginning of the year, they thought would be one winter. what you see in europe now is an entire recalibration. greta thunberg told the german government you might as well keep nuclear on if it's running because better than coal. germany is spending billions to build lng terminals because they need to have liquefied natural gas. jonathan: is that a problem with teenagers shaping policy? these are big issues that cannot be resolved overnight.

anne-marie: they can't be resolved overnight and winter of next year and the year after will be doubly challenging stuff we are a net exporter in the u.s.. when you look at gasoline prices, even though in nevada, they are at five dollars per gallon, they are six dollars in california and the europeans will laugh at us. that is their norm. jonathan: i'm jonathan ferro, looking at a 30 year guilt yield up by 25 basis points. the bank of england said the gilt market operation will end this friday. live from new york, this is bloomberg. ♪

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>> live from new york city.

a few hours away from the open and we are still positive. nasdaq 100 is up .8%. there was losing streak going on. also yesterday, new highs on the two year yield. the two year america, yields work coming in with a couple basis points come up then down. 3.94. look at the gilt market, all over the place. up five basis points. we are here to discuss it today. the bank of england is trying to bring down inflation and financial stability is somewhere in between. how do you do all three simultaneously? >> you fail.

it is a paradox, and unachievable goal to do all these things at once. at the same time, financing costs are going up, there cannot be the same fiscal response on the other side. this is really a tri-lema. jonathan: these are the trade-offs we need to talk about. could you still have that and raise interest rates? >> they could not do that with financial stability. it no longer is about that. if they do not, it cannot be arranged so quickly that pensions will be able to get their books in order i've had -- in order ahead of what will happen. jonathan: i believe gdp is slated for the end of the month.

it is crazy. october 14, guilt operation ends. at the end of the month, we get the end of the forecast. and then we get qt that is set to start. >> it seems impossible. i want to raise the issue of credibility. there was three days and then they are done. what message are they trying to say about these discussions in order to say, they are fed up, take a loss. jonathan: on that governor bailey co., about having three days, two people not realize that they have three days? were they thinking he would say it would not end october 14.

some people are responding saying they did not realize that is wind -- that is when the operation ended. >> it sounds like an issue of a lot of companies hoping there would be an extension or central-bank input. there is a desire to wait this out, hoping this is a temporary location. jonathan: you have 30 year guilt , and it is up about 5%. joining us now is andrew slimmon from morgan and stanley. you think we can get a rally, give me the reasons why. andrew: i think we will have a rally at the end of the year but i think the market is having a hard time right now.

i think you need the two-year to come down before you have a rally, i think that will happen at the year end. i'm not sure if inflation prints will be good today or tomorrow what i note they will start to improve. so much consensus that they will be bad. they probably will not be good but the consensus is so bad it does remind me of q2. i think the market will start to anticipate that the fed's positioning in 2023 will be continuously untenable. it is going to be more difficult to bring down wage inflation. there is less of an appetite for that. i would not be surprised if you get your normal, and of the year

, midterm rally. the question is, where do we go until then? with the two-year at 4.3%, bonds are a very attractive alternative stop -- alternative stock. jonathan: for a long time, people have been rewarded to hug the benchmark. that needs to change this year. does it need to change next year as well? andrew: i think this is a big opportunity for someone like myself who is trying to drive out active management. top 10 stocks are expensive compared to the other 90. when i think about if we are in a recession, i don't think the top 10 reflect a recession. there are a whole list of stocks that are down 40%, 50%, 60%. that is a recession.

i would much rather oh stocks down a lot -- own stocks that are down a lot then huddle with a group of stocks that are still expensive. i think if the fed were to soften their stance, you can see the reversal of what happened this year. that is even if earnings do not turn out to be so good. what i do not want to own our stocks is still have high pes whose earnings are coming through. that seems to be stocks that are heavily weighted in the s&p. i am not but -- particularly bullish with s&p. lisa: perhaps some of the industries, you like home depot, some of these names that are tied to some of the pain we have been seeing in the housing market. how much of that is hinged on a

belief that there will be some sort of trigger of deceleration and the pace of rate hikes providing some relief, optimism? andrew: it is possible. what i can tell you is that if you look at the stocks the last 45 days, they have outperformed on a relative basis, the stock market. even though the rates have pushed higher. these stocks started to underperform. that was before mortgage rates started to lift. they say that people do a good job of predicting where we will go in the future and echoes back to the concept that what worries me -- and that goes back to the concept that what worries me is that people are buying defensive

and what it's -- and once you get to the bottom the worst thing is defensive because they will lag. you need to start to cube late stocks that you think are good and could have quite a move in the market or recover. i think some of these early cycle stocks are stern to show good performance. lisa: right now, people are not worried about finding a bottom of stocks. right now, they are wondering about financial dysfunction. you are sorry to see signs of a potential contagion. yesterday we saw the in u.s. stocks. do you think there is going to be some sort of inflection point and prioritizing that above tackling things at a certain speed? andrew: that is a tough

question. i know that some of the traditional things like high yields are not relative to investment grade, they have not screamed here on a relative base. i am more confident that pushing inflation down below a certain level by pushing unemployment up will become increasingly difficult for them to stick to that policy, especially when they have all these problems in other parts of the world. pressure will need to mount with the fed. the question is, will the stock market anticipate that? i am more confident of that than the contingent issue.

jonathan: morgan stanley has proved to be incredibly difficult. they felt that the federal reserve has had to slam on the brakes. there has been a long list of issues in the market right now. about 300 basis points, more than doubled year to date. that is a lot of timing in the market. lisa: it was a little bit of a shift in tone in terms of emphasizing particular issues. the push pull, the balance of

risks, including over tightening and not allowing the life affects to take place. there may be a shift in tone of what we are looking for over the next few months. certainly if there will be any relief. jonathan: there will have to pause at some point to what charles evans was talking about earlier in the week. i'm not sure if it as bullish as they are making it out to be. lisa: i agree. there is an issue of earnings proving the point. not exactly a rosy scenario. live from new york, this is bloomberg. ♪ >> authority say a leak in the

pipeline bringing russian oil to europe is probably an accident. a top official in charge of energy says he has no reason to believe it was an act of sabotage. they expect to know the potential because in a few hours. authorities are on high alert for any kind of sabotage with the nord stream pipelines. discussing how to better protect infrastructure, and maintain ukraine. this is in response to vladimir salon ski. -- vladimir and russia. sharp drop in industrial production was the main cause

and anticipate the economy will be lucky for a down torn -- lucky to avoid a downturn in the third quarter. global news, 24 hours a day, on-air and at bloomberg quicktake, powered by more than 2,700 journalists and analysts in more than 120 countries. i am lisa mateo. this is bloomberg. ♪

>> the real issue is we need to do more. we need to see that. leaving inflation where it is, there is a chance it does become embedded in the economy. >> the fed president is not

returning any time on hiking interest rates. good morning. five days of losses, yields are just a little higher. 3.9 637 for the 10 year. you see this headline from earlier. the japanese 10 year, the bond has not treated for four days. talk about a broken market. a bargain -- a broken mess in japan. lisa: we are seeing that the relief valve is in the yen and you sought the yen weekend to levels beyond what we see during an intervention. it wellpoint does this limit fx reserves when they are planning for a pretty long haul? jonathan: truly historic.

joining us from d.c. on what is shaping up to be an historic week, tom keene a special guest. tom: the special headline, the bank of england governor, andrew bailey, an annual membership meeting, and conversation with tim adams at the institution of finance. we begin today's coverage with his deep experience with the bush administration. give are starting your day with us. what was it like yesterday when governor bailey reset the global debate? >> thank you for having me. i think we will hear today that

they are serious about it being time to reverse the policies we have seen and move onto a new normal. tom: stanley fisher, 5, 6 years ago talked about searching for neutrality and some of these bankers desire for stake. >> i don't represent zombie banks. but yes, some the companies will go. this is the way cycles work. for far too long, we have achieved liquidity, and abundant amount of liquidity. we need to redeploy those resources and assets in constructive ways.

tom: would you suggest that politicians have power here, was the power politicians have? >> they want to go both ways, they want to get rid of it as soon as possible they want to do it in a painless way that does not create disruption. central bankers probably have the toughest job right now. tom: 15, 17 years ago, it was said that this will spend the timeline. why are we in such a hurry to bury the economy in a long recession? >> i think there is a sign of catch up. i think some of it is bringing back reputation of being tough. i think they want to prove a

point. tom: can they stop and pause? >> they can. i do not know that they will. there is a lot of turmoil around the world, gasoline prices, i think they are adamant about moving ahead. tom: belgium, years ago, there were transactions across borders. to look for transactions and accommodations within the institution of national finance? >> risk assessments are an important part of what we do. we constantly talk about risk. we see weaknesses in the system and how our institutions create it with each other. tom: i will go with it but the

reality is selective regions, book values are -- to use the phrase -- flounder back. what is it in the region of european banking? >> they are pretty soft. . means nothing different than monetary policy. you need brussels and them to consolidate capital. a large capital market market in u.s. helps jp morgan, b -- bank of america. you need banking consolidation and the capital market. tom: what does the biden administration need to do to solidify american leadership,

other than to generate a strong dollar? >> i think they are trying to do it in multiple ways. one is the climate transition. there is near-term affordability concerns. tom: are you going to make headlines today like he did with governor bailey? >> indeed. tom: thank you so much. if you could do back-to-back with christine lagarde what you did with andrew bailey yesterday, that is a threat. jonathan: what have they gotten common, president lagarde and andrew bailey? did you get the same feel from governor bailey, you have three days? lisa: i saw that on twitter that you put that and i figured you were highly skeptical.

basically, england is not going to be able to hold firm to something and will have to eat their words rather than threaten to undermine credibility. this is a different scenario for one reason. that is inflation. as you get inflation creeping up, it becomes difficult. with the u.k. post for its second monthly contraction in months, and will wait are they forced to accept higher inflation longer? jonathan: they are worried about the perspective of a flip-flop that they back away too early and then have to go high again. lisa: it is incredibly messy. frontloading is being called, do you frontload or go gradual? jonathan: i am a cynic. from new york city, this is

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>> had you explained to markets in the public that you have to resolve inflation if you are

slowing down rate hikes? >> they got out of control in know we need to get it under control which will be a process. >> we have not really seem that compared to what is happening in the u.k. >> this is "bloomberg surveillance," with tom keene jonathan ferro and lisa abramowicz. jonathan: i am jonathan ferro alongside lisa abramowicz. lisa: i am concerned about financial instability and this question of, is the market going to go through the windshield market. they are slamming on the brakes like we have never seen. jonathan: in trying to come back

in at the same time. it is like putting the accelerator down and the breakdown simultaneously. 30 year gilt yield down. lisa: i hate that kind of driving and i always feel sick and so i do with this market. that is the fear. you cannot have your cake and eat it too. that is the conclusion with financial stability concerns while still grappling with the highest inflation in decades. the biggest take away is the science of inflation and there are single -- similar signs of trading in other markets as well, including the ecb where they will have to deal with the italian, spanish and greek yields. jonathan: can you believe it is only wednesday? lisa: no. jonathan: i thought yesterday was wednesday. lisa: and earning start on

friday. jonathan: and cpi tomorrow. we are up by 22 points. the euro is just a touch stronger .90 716. lisa: today we are looking at ppi. we have seen it come in gradually over time. this comes 8:30 a.m. will it matter? perhaps not as much as cpi. we will see what is cooperating or not what the fed will like to see. this to me maybe one of the most interesting aspects of the day. is a lot of big investors pull back, people in the united kingdom trying to liquidate.

all of these sellers see real yields climb and then at 2%, we do get the meeting minutes. how much do they speak of the meeting of duality. there is the risk of letting inflation become a kind of feeling. we will also get fed speak. this includes -- to date reiterate the slight shift in tone, emphasizing the other risk of moving it away, or you do not fully understand the consequences until six month later? jonathan: to be have another week of this before the quiet period? lisa: are you counting down? it all matters. jonathan: i am with you. lisa: is it giving influence or

adding to the confusion? jonathan: tom keene was clear with the message that the worst is yet to come. tom: this is the question set to 2008. i can only say that the international data points overwhelm anything going on in the united states. we will go to guy johnson with what we see for yields. these are two leaves in the wind. we will speak with abundance bank. jonathan: and you will speak to a central banker from the current ecb. i wonder what that decision will look like at the end of the month. tom: i think the ecb is front and center.

he is going to do the same thing today with lagarde. explained to me the degrees of freedom that lagarde has lost in the last two weeks? jonathan: they are looking for a 75 point basis hike. tpi, what does tpi mean? a recommendation tool. lisa: take a look at were they are with telling yields right now. the highest since 2013, continuing to climb. when do they step in, when do they have to use it? this is not a tool they want to use. jonathan: i look forward to your coverage this week. tom keene down in d.c. over to guy johnson.

p.m. qs, they are back. guy: they are. the government is making sure we protect our economy. i will pause for a moment and think about the implications. if this is way looks like, i wonder what playing fast and loose with it ultimately does. it is a challenging environment for the prime minister right now. i suspect this will be a feisty prime minister question. jonathan: i want you to frame the importance of his comments yesterday. what was special about what he had to say, yesterday in washington? >> it was a reiteration. a lot of people are making claims it was a communications error. i could see the reasons for that.

he has, once again put himself into a position where he has very little flexibility. i think that is where the issue lies. there is also the s&p report about the potential for the extension. i don't know the veracity and what things were said. if that is the case, they are doublespeak. lisa: i am struggling with this on. let's say there was potential for an extension. why was there a more concerted effort to offload the problems in the first place? guy: i think there has been and i think there has been an effort

to raise collateral ahead of the friday deadline. the way the bank of england has structured this process is very different to qe. they were price agnostic. and they would buy as much as you wanted. here they are basically trying to manage the process. this is not about the rate. they are trying to slow the rate of change and avoid the turmoil. they acknowledge that rates have to go higher. that has made this a less useful product for the markets that i think were conceived when they were first announced. you go from five, down to four and then we are back to five again in terms of the yield. i think it has taken a few days before the market curve that's its arm around this. this is not the bank of england

banking -- buying everything you want to sell them. they will buy it and be choosy of what they buy. they are not buying everything. i think i has been a less useful product. they are running out of time. i think it reinforces the idea that there is still a long way to go. maybe not has -- not as much as been unwound is because the market is looking for more time that will not be delivered. i think it is huge amounts of confusion. lisa: i feel for guy essie tries to parse through this. this is young trying to explain policy that is a paradox. they are allowing and an easing or unwinding and will find inflation using similar types of tools in terms of raising rates. it is mind spending. jonathan: i can see where they

are sensitive about the dominance of the fiscal dollar. will they accommodate what this government will do. when they first came up with the gilt market, they were accommodating what fiscal markets would decide to do. i think this is why we are seeing this kind of language from governor bailey. since i get from him and the way he spoke yesterday is a man who is sensitive to the idea that they might be contributing to its. lisa: there is an argument that central banks health offset a lack of action from washington dc over parliament and this is a question on if central banks can pull back and stop giving fiscal policy makers a pass and risk financial stability and disrupting things to such an extent that it perils the basic

functioning of capital. jonathan: the gilt market is of a certain size. no one wants to monetize the gilt market. it seems to be big enough. they just do not seem to buy enough. lisa: that is basically what guy was saying in a much more diplomatic way. nobody is going to sell into it if they will have to solidify losses. jonathan: guy johnson, a good friend of mine, of us, of us come of the show. live from new york, this is bloomberg. ♪ >> >> russia knows about the

nuclear war. there is some posture we have not seen any changes in the nuclear posture of russia. we will remain vigilant. >> meanwhile, to air defense systems to ukraine to appease the linsky in the fight against russia. authorities say they believe a leak in a pipeline bringing russian oil to europe is probably an accident. the top official in charge says he has no reason to assume it was an act of sabotage. the pipeline operator says they expect to note the potential cost in a few hours. european authorities are on high alert for any type of sabotage or energy since the destruction

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>> difficulty of balancing financial stability. you see in that eurozone, in the u.s.. it is a difficult trend. the later you believe it, the

harder it gets. jonathan: that was just yesterday on this program. u.k. is focused on equity futures with the s&p trying to bounce back from five days straight of losses. now six tents of 1%. three point 9596. liz truss is not planning on u.k. public spending reductions. i wonder will that will get us. will tax cut so go ahead? lisa: they are suggesting that they will mitigate some tax cuts or not make them as deep as expected. you're right, at some point it is not working. you're seeing that in the gilt market with foreigners fleeing the market.

the administration has to take notice. jonathan: that is tough. lisa: i feel for them. they are between a rock and a hard place. how do they manage financial stability with an unstable fiscal picture? jonathan: they make a harder for themselves. lisa: by interfering at all? what do they do? jonathan: not offer a permanent guilt operation. something to sit on the long end. get out of this mess. lisa: they were hoping it will not come to that because it is an extremely messy message. it is a messy consequence on the market. if that is a consequence, do they get the reduction in inflation or will yield to be

permanently higher for longer? jonathan: we are joined from the chief investment strategist at knight capital. i will ask this question of you. what does it mean for capital markets with this mess playing out in the u.k.? >> i think it is a warning sign and we should not assume that because we are in the united states, we are moot -- immune from it. you had virtually zero interest rates around the world and that means that certain leverage accumulated in certain places. it is not on the corporate side but leverage has accumulated across government balance sheets. if you think about the united states and the fact that we were running 82 point chile dollar budget deficit and the fed was responsible for financing one third of that, now we are reducing this deficits but there

is no fed, there are people who are stepping back with banks not being as involved. i think this is a real risk that we should think about. what happens when we are financing at 1.4% and now it happens or someone has to reset and be done at 4%? i'm not saying we would be followed soon but fiscal policy makers have to be extra careful about how they manage money deficits. lisa: i was looking at a bloomberg study yesterday at exactly that point, pointing at how much higher interest expenses will be for the developing world around the globe because of this regime and because there is not the same physical constraint embedded in a lot of these communities. at wellpoint have stock investors in the u.s. appreciated this last -- this lack of fiscal impulse?

>> i don't think we are there yet. we are saying that higher interest rates will hurt multiples. i think now, if anyone is paying attention, they cannot deny that we don't have a set of circumstances that point to a recession. whether it is mild or severe. you will get interest rates, yields, demand expectations and things like blue -- new business that are coming down, you cannot deny that this is a risk -- recipe for a recession. the reason why they are not prepared for it is because of the multiple state. we probably need it to go down 13 or 14 times to say that it is not priced in and we are in a recession. by the way, we have to look at the earnings estimates and those seem to come down by 13% with a

typical recession. we are halfway to cutting those investments but we are not there yet. equity investors will likely need to see the s&p go down to truly price and the cert -- the circumstances. lisa: on the flipside, people are trying to go into longer dated bonds and tragedies. it has been a pay trade as they go higher. where do you stand on this as we are getting deal since the financial crisis but there is an inflation series we have not seen for decades. >> it is a very complicated trade, too risky to have a high conviction on it right now. if you look at the shore and curve, you can allocate their.

there are two challenges, at least. if you look at liquidity, it is at the worst level since march of 2020. if anyone is trying to move any size would have an outback -- outside impact on the treasury market it stands to go higher. if we are headed to a recession, yields should move lower than the long end of the curve. you also have to consider the demand supply. we now do not have the fed, the banks and we have foreign-exchange reserves that are being run down across the world. you don't have that demand and also, currency adjusting to terms that investments were not as attractive as before. i worry about yields moving lower because they are priced in

during a recession. that is why i believe it is a risky and complicated trade and there are probably other ways to measure recession than that. jonathan: thank you. anastasia amoroso from anna cap -- from capital. we are finding it difficult to get to the new destination. lots to talk about today. finally reaching an equilibrium. it will be a difficult journey. lisa: especially when is not just central banks. it does not make sense. japan is a huge elephant in the room here with respect to purchasing treasuries. jonathan: i'm still trying to work out what bank of japan looks like post-corona. lisa: i think they want the same thing. i think they are curious about it.

it will be messy. [laughter] jonathan: this is bloomberg. ♪

jonathan: new low on the s&p 500 for 2022 in yesterday's session, 3568. the price action on equity futures trying to bounce back on the s&p, up by .75% on the nasdaq 100, up a full percentage point.

we have taken out almost all the post vaccine gains of 2020, almost all of them. lisa: when you put in money and take it out, where are we now? how located go? that is what they were talking about. how much have we priced in with respect to downturn revenue and inflation? jonathan: this round in the bond market has contributed to this. the two-year softening by basis points a year ago now at 430. now about 435 on the highs of the year, the moment, yields basically unchanged on the session, 10 year still i do get highs around 4%. elsewhere, the gilt market giving all the attention for the wrong reasons. now up by 16, 4.95. it is not over, might not even be over friday when the gilt market expiration ends. right now the governor of the

bank of england is pushing back. the prime ministers well. the governor of the bank of england is saying you've got three days, a couple of days from thursday and friday. in the prime ministers saying with questions in westminster and parliament that she is not planning u.k. public reductions either, going to this fiscal announcement at the at the it of this month. lisa: i keep going back to at what point central bankers have no other choice, not to impose discipline necessarily on policymakers but by pulling back and seeing this is on you and we cannot support it because we have a mandate to fight inflation and that will be our priority. will they do that? jonathan: did you read the piece this morning? it is a list of recommendations of what they think they should do. also a suggestion for the debt management office of the u.k. so something to talk about. the gratuity of the u.k. is something like 13 or 14 years in the gilt market. on the back of this fiscal plan,

in the front end, what is happening in the long end, it sure as you up a little bit. the bank of england can come have some pet of permanent operation on the long end. if you are going to do qt you can do that too. but as long as you have done something in the front end and raise rates, reconsidered how you're going to take interest rate increases. lisa: incredibly smart and i understand this taking shape from a market perspective. i cannot understand from a political perspective because it goes to them offsetting a plan by the prime minister. jonathan: it is not a policy response. they are thinking of the worst option right now. taking this apply to the u.k. for a lot of places. lisa: and that will happen with cpr in terms of inflation later this week, tomorrow. friday, we search some of the earnings particularly with big banks and now you are seeing specific companies. divergence in terms of which companies can pass these prices,

if they have seen a higher price at which can't. they are going to be cutting thousands of jobs, potentially the first massive jobs cut program going back to 2016. there has been a well-publicized feeling of how much pain these companies have been feeling. intel shares are down nearly 50% year to date. more than 50% year to date. they are up slightly in premarket trading. our chipmakers a to leave for the rest of the economy? -- are chipmakers a tea leaf for the rest of the economy? jonathan: i think we start to see this across a range of industries, from too much inventory, fedex seeing a sharp slope into the season. and the primary reason people pull back on expert tatian's, labor, which we got about an hour ago. talking about maybe you stick in q2.

bank of america making a point of guidance next year for the. how optimistic can you be when global growth is set to accelerate more? lisa: on the flipside, to give optimism for people who say they are not about to fall off a cliff, you did see them upgrade the forecast for their warnings -- earnings. despite the fact that they raise prices for consumers, they're able to pass prices on chips. is this a sign of weakness because people are downgrading what they are buying in terms of food amount or is this strength? how do you assess these out with long-term projections? jonathan: when you look at inflation coming down over the next 12 months, there is one pocket of the inflation story. each company includes price at the same time but the wage story is sticky for the rest of the year, which screams smaller margins. there is the potential for margin recompression.

the federal reserve basically looking at this huge scope of profit, hoping it will come down in corporate america. lisa: this is the opposite of so many years where markets were better in the economy. they're trying to shift that and have the economy do better than markets at a time when you are seeing sticky wage growth as larry summers was saying. jonathan: and chief u.s. economist at high frequency. we look at the data entered house that the data is ok. do you think that? >> thanks for having me. -- certainly not a contractionary down -- but things can vary quickly change. we have seen a difficult pattern. we are taking some comfort in the fact that the labor market is how it is. but with the fed, the policy really aiming at softening the

labor market, that is going to be the next thing we see over the coming months, a slowdown. what we need to figure out now is manufacturing, at one point do you go from positive to negative? lisa: let's stay on wages. larry summers in a conversation with citigroup yesterday said he would be watching wage inflation carefully. he thinks that is stickier than people appreciate. he said you cannot become a low-inflation country with a height wage inflation and wage inflation is looking pretty high in the united states. do you think there is an underappreciated risk of a wage spiral? rubeela: we don't see a wage spiral right now. we do think the risks are stacked in that direction. just because we are not seeing the supply come back. but i don't think that policy right now is directed at bringing demand down to match

supply. whether the fed will be able to do that remains to be seen but we have seen aggressive moves so far. it is a way on demand, advance of labor. i do think we don't really see that dynamic playing out right now but it is certainly there. lisa: he said he thought the neighbor of the neutral jobless rate post-pandemic will be a lot higher, about 5% rather than 4% people have been looking at. do you agree with that? rubeela: fed officials -- he certainly thinks they will be higher or and exits just because of where the dynamics are in the labor market. but with the market trajectory, i think -- with the rate and a

50 year low, 3.5%, higher, there needs to be an adjustment. jonathan: as you look at what is playing out in the u.k. right now, is there a lesson for the fed? rubeela: absolutely. the lesson is they are elevated from natural. but if you have from fed officials there saying markets are functioning. have an eye on what is happening abroad and in global markets. but we do think there is a risk of the financial risk into policy decisions. for now, the u.s. market, the global market, these are isolated events. there is a risk of a spillover but you are keeping an eye on it. we don't think risk of contagion , global emerging markets, it is unfolding right now. jonathan: thank you, repeal of ricky of high-frequency -- rubeela farooqi.

we are seeking the prime ministers questions in london and we are waiting to hear from the bank of england. saying a significant monetary response is required. november 3 is the meeting. a significant monetary policy response is required. slower demand growth will cool wage growth in the u.k.. characterizes tight labor markets pushing up growth, mixed blessings for the united kingdom. wonder how the government would see it. i think that line also captures -- almost captures everything wrong with it right now and the way the bank of england would like to see. lisa: pretty much the government wants to see lower rates, people fully employed, an economy that is strong but they want inflation down. that is an incoherent reality according to a lot of policymakers. that is interesting, what i saw the headlines, that significant monetary is required. the question was, to what? are

we talking about inflation or the disruption of financial stability. that is also a problem is there -- they are dealing with both at the same time. an incoherent battle they are fighting. jonathan: volatility, any word. market volatility underlines the need for credibility. on what, getting inflation toward the target? the incredible amount to make sure they can maintain financial stability? credibility on what? lisa: for credibility they will have the same message next week. that is the other issue, they are changing according to the data. what are they targeting and if they start to target financial stability at the expense of inflation, to your point, is it an issue of backing the market and backing market activity above anything having to do with inflation, and what does that do interactively the guilt tire? -- in terms of leaving yields higher? jonathan: they are trying to

work inflation -- that is the mandate. ultimately, a line in the sand to establish there are no blurring lines here even though we could all have a nice blurb. lisa: at what point are they going to have to come out and say these are incongruous congress and we have to justify inflation? jonathan: the gilt market operation might and friday but maybe another one monday. had to backtrack, it is different. lisa: i like that. jonathan: futures up, from new york, this is bloomberg. lisa: keeping you up-to-date with news around the world with the first word, and lisa mateo. the u.k. economy shrank and expect to be in august for the second time in three months, raising the possibility the country is now a recession. office for natural -- national statistics said the drop in industrial production was a main cause for the decline.

well on track for its first significant contraction since the financial crisis of 2008 according to a report. reports published today finds a 22 is likely to result in a nominal drop of more than 2%. researchers called this year a turning point for global wealth amid signs that a meaningful reversal will follow. and older and cheaper classes of diabetes drugs increase the risk of developing dementia. a study shows people who took a diabetes drug known as tbc have a higher risk -- tbz have a risk of developing dementia. most common kind, all timers disease, is a target for pharmacies looking to develop therapies. 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.

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>> i think there is a sense of catch up, so we want to make up. some of it is just going back on reputation and confusion. there is concerned some may be better, institutions have lost some of the reputation as being tough. you heard from andrew yesterday he wants that. jonathan: they all want to prevent. a great conversation with tim adams, president and ceo of the international institute of finance. they cannot tell you what you think. lisa: -- they can narrow tell you what they think. --jonathan: they can now tell

you what they think. tom keene. tom: my view of this theme of the international monetary fund and the international command is the force of the iff chairman. but far more than the president, it is noted as well. we begin in one hour into the moment. he taught a course at the blue school chicago central bank, what is the fact right now for jay powell? >> the fact is central banks are in a bad situation. they have started late in raising rates. you could see already some trends breaking the price level. since late 2000. they focus on the inflation rate, elements that have gone up

strongly and now the central banks are doing a test to catch up with reality. there is some risk in that. i now if you monetary policy as an independent risk factor. i think monetary policy has a way to go. i don't believe the current inflation rates will come down. there are -- tom: there are so many ways to go, do we need to abandon the 2% level? it is something traditional economics is comfortable with but part of a dilution to move from a 2% level of inflation toward a 3% level, is that appropriate? axel: that would close the credibility of all central banks if they were to do that. they would be dead on arrival. what you need to do is reestablish credibility of the 2% target and running just below

10%, that is a difficult task. central banks would be completely misguided if they were to question the target now. let's get back to target and that will take them at least two years. tom: we are diving into this with professor weber. anymore. you can look at a theoretical concept, the beverage curve which krugman talks about from even farther back as well. central banking is hinging on a link between inflation and employment. should that, or do they need to squeeze down to a focus on inflation? axel: long-term, what matters is the amount of debt in the economy and how it is accommodated by central banks. the downstream of the fed and monetary policy matter and in the long run, inflation is

determined by factors like how and commented have -- accommodative our central banks? the need to look at outsourced grows, inflation. it is within the economy. but long-term, we have to look at the economy. tom: how naive are we about qt? qb, qt, how original is it and we don't know what is going to happen? axel: central banks have a massive balance sheet. all the central banks of the world. if you look at the last 10 years, the extension to the tune of 25% of gdp globally has been accommodated by an expansion of central banks down of roughly the same amount. so this position of government

debt did not have to be held in the market. it ended up in another government balance sheet by the central bank and we have not seen the interest impact or the long-term inflation impact of that liquidity having to come down -- come from the market as opposed to another source of government funding. long run cannot central banks need to bring the balance sheet down that will put pressure on debt and government to consolidate and long-term we cannot continue to run deficits and 100%. tom: you look at short-term, medium-term and long-term analysis. it speaks for itself. is the short-term path here to just extend things out, ease up on the raising of interest rates at an appropriate point and use time to heal the wounds of the pandemic and expansion? axel: i think you need to start doing a u-turn.

these are changing times. tom: have we had a u-turn? axel: i think they have started to raise rates late and chair powell said at jackson hole, but will keep adding until it is done. it is not done so next have to raise interest rates and they have to reduce the balance sheet. tom: how constrained is ecb? how constrained is meta lagarde -- madam lagarde here? axel: the policy is more likely to take a hit. it has weakened the euro and increased price pressure for the citizens. we are closer to war and more dependent on china. tom: is it true when you are teaching, you give out no a's or b's? were you got tough? axel: i was not.

i gave out a's and b's. there was not a textbook from which you could teach financial crisis in 2011. tom: is there a textbook now? axel: there are tech specs now. tom: some assurance from the chairman of these two international finance, you and i would have some quality b's. jonathan: i'm not sure. getting breakfast ready, you have a bank deutsche bank before our next guest. go on, tom. i think he is gone. -- our next -- break before our next guest. go on. i think he's a major policy reset is becoming moregone. urgent on the u.k.. the treasury in the u.k., moments ago, no time to reverse text measures announced in september. lisa: this is where the rubber

meets the road for the bank of england. out of the point there, do they say we are not going to facilitate the spending, we are not going to come up with a circuit breaker, this is on you and we are going to fight inflation, that is our mandate? if they get that, yes there is market dysfunction that is what he was saying, in order to bring down debt and inflict discipline after decades of central banks. jonathan: you saw what he said, they want to be tough. i think jay wants to prove a point. lisa: to who? jonathan: -- lisa: he has been interviewing them all, but to who is my question. jonathan: precisely. this is bloomberg. ♪

>> in the u.s. markets they are still functioning, the liquidity is here. >> they are looking for

liquidity where they can find it. >> just keeps weighing on investors. >> the financial system is not a shield. >> this economy, they are under the wheel. >> this is bloomberg surveillance with tom keene jonathan ferro and lisa abramowicz. jonathan: trying to bounce back from the equity market, live from new york city this morning, good morning. for our audiences on tv and radio, this is bloomberg surveillance. several aides, new lows in the equity market and highs in the bond market. lisa: looking for a moment where central banks are somewhat tied in terms of a response. it was a take away from when we saw the united kingdom grapple with a question of how the program is going to be and the market pushback causing them to cave. jonathan: we talked about this, particularly between efficiency and policy.

within the last couple of weeks, we've got a conflict between reserving financial stability and addressing inflation. the bank of england is trying to address that. lisa: at the heart of the conflict is the question of what the policy responses the physical world. how much can they coordinate or diverge from what they are seeing with politicians, they want to see the economy do well, they want to see wages rise, they want something that cannot be achieved without some pain and how much discipline do central bankers have to keep going at a time when they have the extra financial stability concerns? jonathan: it is the policy dilemma of 2022. yields are up higher than 30 year, 15 or 16 basis points back to 4.93. reached 5% earlier this morning. future policies of about 24, the s&p up seven -- .7%. yields higher by basis point,

3.9596. back down friday. lisa: it will be a wild week. we got cpi, the price index for the month of september. there is a question of how much deceleration there will be particularly in oil prices, opec saying they are expected oil demand to come down to justify why they are cutting production. 1:00 p.m., the 10-year note, who is going to buy that? one of the key questions you see central banks ask. japanese investors come out u.k. investors, where is the supplier? can they do price discovery after a decade where he not exist? they should be able to get fed meeting minutes coming out to parse through some of the guidance or get the same message, inflation is number one. you cannot have a steady labor market or economy without some sort of price stability. is that going to be a full month, will there be a sign for people to hold onto and plead

that this could mean some deceleration rate hike? then we get the fed to -- for the issue. bill, michael, michelle. we will hear these fed officials speak and will they come out with a willingness to push back against fiscal policy makers? it will be a question at a time when you have heard axel weber talking about the need to cut debt in order to make this a more sustainable central bank backed market. jonathan: they want to be tough. i think andrew wants to prove a point. lisa: just prove a point to marcus or to policy makers in terms of what is and is not feasible when it comes to financing? jonathan: great interviews this morning. let's talk about the line from tim about an hour ago, they want to be tough, they've got to prove a point. tom: the toughness from tim here

at f -- iif. they are focused on tomorrow's cpi number. we have not made enough of the importance of that number tomorrow to the international community. we are driving forward with someone who knows 11% inflation. the netherlands will speak on the central bank. jonathan: they will push forward potentially with a 75 basis point interest rate hike. tom keene coming up with the fed central bank governor. joining us is the head of micro center for north america. we, we had this with individuals. doing well over the last 10 years, post gse, waiting for that moment to see when can i buy again, i want to get back in. the last decade has unique. do you think we face this in

certain parts of this market? >> i think we have to accept that potential. even as interest rates stop and hit lows to 70 shares, 70% in some areas, the market still defaults to optimism. any better news, the fed is going to pivot, that means we can start vying. it comes from the condition last year about 2008 to 2020. central banks always had your back. whenever a market sold off, we saw policy, restarted qb and anything was a great buying opportunity. this is different. in that period, but will target inflation and above target inflation, that is not where we are now. this idea of this, we keep seeing it. let's fight inflation first and

then worry about that. that 12 years was all about cutie, the balance sheet of $4 trillion up to $27 trillion. that does not mean we are going to see that over the next 10 years. lisa: putting in perspective, moments ago he was talking about how the s&p has given up almost all the post-covid games. how far we retracing? to be go back to levels seen before some of the monetary stimulus, before the regime and you are talking about? or is this finding a floor to create something new we are closer to than perhaps further away? lee: i don't think we are going to go back to 666 on the s&p like march 2009. honestly when you look at long-term valuations, we are still above the long-term average. this is the most challenging

fundamental backdrop in 40 years. 40 years ago, you had valuations way below the long-term average. it is very easy to see these losses continue. i think we still have not factored in the new regime we are in. there is a hope of interest rates, inflation swaps. there is a hope inflation comes on quickly, the fed starts cutting toward the end of next year and that is going to underpin the next rally. we are not going to get that monetary stimulus we have been used to. we have to look ahead at least a few years and the next from axel weber then. this is a different era. it is about reducing debt we have seen over the last 12 years. jonathan: some of what you said or what jamie dimon said and giuliana on cnbc, the potential for the market moving lower. they also talked about the pain with the tightening but you did

not get it in the previous 100 basis points. what makes it that much more painful? lee: you are restrictive territory. we can argue when neutral is, i think it is real rates rather than nominal. i'm not sure where we are we can say we are neutral. but neutral is around 2.5, 3%. we are now just around that so now we are going into restrictive territory. i'm not sure the next matters more than the previous 100. they add up together and it is a cumulative process. but for me, the fed is not done. look at the data, look at payrolls. we've got the cpi tomorrow. even if we got the consensus, it is 5% year upon year if you add that up. that is nowhere near where the fed wanted to be. against that backdrop, how can the fed have this benefit pivot when we are adding 270,000

payrolls. the others are drops and we are running toward inflation this month that potentially 5%. jonathan: you want a strategist that has decline in the catch. can you tell me, is that message you are conveying, patient and wait for this to pass? lee: 100%. i'm an fx strategist primarily so i'm quite happy with cash. that is the place to be without a doubt. stop trying to look for the pivot. you got to ride this out for at least the next six months. maybe toward the end of q1, start of q2. if we start to see payrolls falling and we see consistent .2 or below on the cpi, we can start having a conversation. we are not there yet. jonathan: always a vested interest somewhere. thank you. lee ferridge of state street will be market.

i like cash. [laughter] lisa: i like what you said, do think it is with constitutional equity -- jonathan: he is a portfolio manager, it is hard to make the argument you should just be in cash. something they otherwise i guess would not want to do. lisa: how many people come on the show and talk about their pay to stay invested and he is is basically saying i'm still trading. but yeah. jonathan: much more to the bearish voices i'm thinking about this month. perhaps for the last 10 years or so, on a podcast they talked about retail investor, we hear all the time with is over the long-term i love stocks because they reward you over the long-term. and he turns around and said something i have not heard before, he said ok, you are basing that on 120 years of u.s.

market history that should not happen to be the time with the u.s. rose to be a hegemonic power and all these great tech companies came as well. is that a big enough sample of data to make the assessment for the next 10 years, it is going to be great because that last 100 work. -- work. -- were. lisa: and points to a change -- and the globalization of the world. jonathan: always scratching their heads and having empty conversations. lisa: i feel really sad. but it is a fair question. how do you get new parameters for a world where central banks are more constrained question mark -- constrained question mark -- constrained? jonathan: a central bank governors. this is bloomberg.

lisa: keeping you up-to-date with the news around the world, i'm nancy mattea -- lisa mateo. president biden accusing a kingdom of allying itself with russia, the saudi brigade and u.s. lawmakers are clamoring to punish riyadh. president biden believes the u.s. should rethink the relationship with saudi arabia but administered officials, the plan to retaliate is unlikely to materialize until november's midterm elections. while on track for the first significant contraction, great financial crisis of 2008. that's according to a report by -- 2022 is likely to result in a nominal drop of more than 2%. researchers call this a turning point for global wealth amid signs of a meaningful reversal to follow. 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.

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>> when we work affected by the botanic -- pandemic, -- we are facing global challenges again and more endorsement. we should react with the same principles. we will see. jonathan: the deputy prime minister of spain. you notice there, i love having him on the program, but he always asks better questions that idea. lisa: you both to great. -- jonathan: than i do.

lisa: you both do great. jonathan: tim adams this morning. lisa: he said he would do our jobs. jonathan: do you think tim adams wanted to be an anchor on bloomberg surveillance? tom: there's no question, the gentleman from kentucky can get it done. i thought at the weber was smooth as well. what we heard from the leader. jonathan: a lot of what we are experiencing now was more than 10 years ago. to watch you go down, it is difficult to get back out of it. tom: from the ultra-accommodative to where we are now, it is historical. this is a once in 40 and 50 year moment for all financing global wall street. if you are part of global wall street, this is rare. if you speak to anyone with economics, chapter 23 of the textbook is on finance and

bonds. the governor of the central bank, truly an expert, and economics and the fixed income space including yields at 5%. thank you for joining bloomberg. i'm going to first go to the ecb question. can you explain how the ecb can become more restrictive, raise rates 75 basis points with a nominal gdp construction of the continent? where do they have the animal spirit to withstand ever a higher interest rates? >> to answer that question you have to first look at where we are in terms of the starting point. we are way below neutral. it is still accommodated so i think it is no regrets. but we have to at this accommodative phase and your question on how we should go into the territory once we get there, we will cross the bridge once we get there. tom: right now it is

accommodative, however you want to phrase this as well, what happens next after that presumed rate increase? klaas: our president has two very clearly, we are in the phase of lowering rates. nobody knows where it is but we are at least seeing more significant hikes before we enter the range of plausible estimates for neutral. that will take us into next year and i hope with the current uncertainty in the market and the bond market volatility, i hope you don't mind. tom: i don't know if i'm cut out for 2022 either. i don't know where the calendar for this year as well. i started with long ago and far away. it was a core, let's call it the

netherlands, the constituency wrapped around another ecb. in this crisis now, is the ecb more unified than it was in 2008? klaas: we are unified. if you look back over the last few years since the pandemic, decisions have been made with high degree of unanimity. we are clear about our mandates. inflation is way too high. tom: 11%. klaas: 17%. 10% in the other area and more important on the inflation trends, they are pointing in the wrong direction. core inflation almost 5%. we are determined and we understand this will require further efforts from our side. it won't go away with a little bit of slowdown on the economy. it will require continued effort from our side. tom: i have to go with you to

your bond expertise, linking it to a greater economic system. the idea of yields coming up and prices coming down in the united kingdom, making headlines this morning, it will be another country next. these are nonlinear functions. how close are we to a second derivative, and acceleration were people like you lose control? klaas: that may not be the case. that is responsible policy. as long as policymakers keep doing the responsible thing, bond markets can be in control. but it does put a premium on responsible behavior. bond markets have become more sensitive to sustainability issues. that puts the burden on our fiscal authorities to also continue to pursue responsible fiscal policies for the medium-term or inflation and the sustainability at the center of concerns. tom: is there a textbook on qt?

was there anything about qe and qt when you were there? klaas: no. of course we learn from the experiences of all the central banks. they managed to move it into the background very quickly. i think it should be predictable and gradual. in little bit boring. janet yellen called it watching paint dry. that is how you see such a program. we can take that as well and i would be more than happy to do so. tom: it is not for governor bailey, he is making it go mentally in the last 24 hours. one of the lessons you learned from the nexus of bank of england and politics in england? what have you learned about? klaas: monetary and fiscal policy being a crossroads, that is a dangerous cocktail for

overall markets. that is the first i will say. secondly, and is a little bit -- it is extremely long days. we in the area like the u.s. have bonds over foam majority and we think we can do this by rolling off existing bonds, less than full reinvestment. it is naturally a smoother process. tom: my colleague loves premier. -- vermeer. you are having the mother of all shows next year. can you support the show? klaas: by all means. in their right museum. tom: -- central banks is

suggesting we need to be in amsterdam next year. jonathan: i buying that. there's always a trip involved. lisa: he is on a road trip bidding for another road trip. suggesting there was a vermeer show. jonathan: i would love some more detail on that. lisa: to be honest, that point being majors there from the central banker was the same we heard from axel weber. when it comes down to physical policymakers -- physical policymakers. -- fiscal policy makers. jonathan: paint drying. give me a break. lisa: boring.

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jonathan: cpi comes out tomorrow, 24 hours away. seconds away, cpi. equity shaping up tomorrow, s&p 500 positive by .1%. else coming in a couple basis points on the 10-year, 3.9268.

0.4%, a survey meeting estimate 0.2%, year-over-year. 8.4 -- food and energy month over month. . a sickly in-line. we have been looking for 0.2, year-over-year, food and energy, 7.2 below 7.3 we are looking for. let's get to mike mckee to break down this data. i first question for you as the data simmers and we look at the cpi, how relevant is this data? mike: it is not particularly relevant because the cpi does not see the direction of cpi. the middle man in the way. but it does tell us about inflation pressures in the pipeline and telling us there are still inflation pressures in the pipeline. it is not going to make anybody happy. cpi is the big number of the week. it will probably not change the

mind of anyone at the fed unless there is a major surprise. they are locked in on the idea of 75 basis points in november but it will give us breakdowns of where inflation is still heavy. that is going to be important to the way the fed thinks about what it has to do. it has to be able to -- it has to make sure that monetary policy will have an impact. gasoline prices, things like that. lisa: a couple of conversations i've been having, there is a growing fear we have not seen peak inflation. certainly court will continue to gain. talking about cpi. given these numbers coming in higher than expected, and your conversation with the iif and imf, how is that -- much is that a pervasive worry? mike: they are all over here in washington and they all feel it will be a long road before you

get inflation back down to target. that does not mean we have not seen peak inflation. it could come this month and might have already happened. but it is not going to go down very quickly at that will be the important thing. that is the argument fed officials make. got to get our target rate up to a restrictive stance and keep it there. if we get up and start cutting we will see inflation stay high and not go down. that will be rewarded with the markets coming next, whether this month or next month, it will be about how long. jonathan: how sticky would a story be? mike mckee, thank you. can forward to coverage throughout the week alongside tom keene. we all have a bias, being in new york, story august year-over-year, the greatest data. we were up in august 19%. the rent 19% higher. the national number was 12%. lisa: the neighborhoods got your attention. [laughter] jonathan: the overall number is

pretty big. lisa: it speaks of his concern that even as mortgage rates go the highest for the first time in years, 6.8% average rates on the mortgage level. you're getting soft is in the purchasing market but on the bright side, it will force more people to rent rather than own. that is what you are saying. the stickiness feeding into cpi is persistent. jonathan: how many times does that come up? lisa: hold on. there is another argument. echoing what will bernard was saying. how much emphasis will this be on the ambiguity of lifetimes. how long it takes for tightening we have already seen to make its way into the financial system. and into the economy i should say. this is going to be the pushback. not that you can pause because

cpi is coming in. we can pause because we have not yet seen the impact of what we've already done. jonathan: that was 45. i promise. you could? -- good? lisa: conrad if you want to save me. let's start there. do you see that as a reasonable argument, that the lifetime is so significant that it would make sense for the fed to posit the risk of them causing a huge recession outweighs the risk of the tightening to have done already, insufficient to combat inflation? >> i think the question is very important. unfortunately, the fed did not consider that on the other end of this when we were heading into this inflation problem. we had some signs inflation was picking up and they waited too long. they did not appreciate the lags of their prior accommodative policy.

does not mean we should ignore the fact that there are lags on the other side as well. but it is too soon to consider that. i think it is helpful that the fed is starting to consider the extent of policy and terms of real policy bids. tomorrow we will get ppi but the last cpi report based on ppi, we had a real policy rate of 5%. to me that is not a tight financial policy. it is less easy than several months ago with the fed the grades higher and some of the inflation rates on the headline coming down a bit, but it is still easy. can we get a percent ppi inflation in 20 where we got all of this, the rate was 1.5%. best -- is policy tight enough to bring inflation back down to those kinds of levels, and we need to start considering wag. the kind of inflation rate it is -- flag. that is the kind of inflation rate this is. jonathan: you are asking whether

it is kind it all. are you saying we are so operative? -- not restrictive? conrad: i can't look about and say it is a restrictive rate. the issue is we don't really know where it is and we have different ways of assessing it. thing it relates is one way to do it. the other is looking at some measures we are seeing but i think are relevant for inflation. inflation modeling is fictionally difficult. but if we look at some of the things they give us clues that there is inflation up-and-coming, business surveys for example. last week we had the survey, 60% still seeing which prices come out level 50 prior to covid. the this week we got the survey, 50% of terms still -- firms still raising prices, in the 20's prior to covid. these are worrying signals on

the inflation front and a sign that policy in a broad sense is tightening. in the perspective of the sectors, what is happened in the housing market, i think conditions there have gotten very tight more broadly speaking, even if people look at things like financial conditions, we are not suggesting we are purely tighter than where we had financial conditions in 2019 and a different inflationary environment. now it is tight enough to bring inflation down, not tight enough to 18 price stability. we don't have prices for those yet. jonathan: for the conversations we are having, nobody knows where it is. but would you propose --? conrad: that is difficult. the only way we really look at that is not in terms of inflation potential wage pressures. -- but potential wage pressures.

questioned the difference between the types of wage pressures and inflation. it ignores the ability to pass on inflation that might come from a tight labor market into inflation. i think the labor market is tight and we are seeing wages receding. we will get a measure from the atlanta fed is much more useful come their median wage measure will come out. last week we saw a 5% increase of average wages and median is more like seven. so the labor market is putting a pressure on wages and that i think is part of the story along with things like this ppi report beating through into inflation. we still have policy that is not yet tight. i think we will get to tight policy and you're right, the fed is officially going to -- we don't know what point. our feeling is that policy around 4.5% is going to look difficult given that inflation

is probably still going to be elevated in the early part of next year and we will be at 4.5% on the fed funds rate early next year. but what is going on in the financial markets, the conflicts between financial stability and inflation, we are seeing it most notably in the u.k. where you get this situation where markets are expecting the bank of england to raise rates by 100 basis points in that meeting and they have resumed qb. -- qb -- qe. the central bank can do it, or they are forced to do it. jonathan: there are two different consequences for markets. thank you, conrad of breen capital -- brean capital. starting a new bond buying operation out of the bank of england. somewhere in between, we were

meant to start qt. lisa: which is still on the schedule. it is impossible. what conrad was saying was on the way to tighter policy, what happens if you have a financial stability problem? what is the response if you are trying to get to tighter policy? his argument is you need to keep going and we are not there yet but we are getting closer. jonathan: is that the end goal? this way we called it a dilemma yesterday. you can support growth, you want to bring down inflation and preserve financial stability, can you do all three things? difficult to do. most people concluded by saying no you can't. you have to accept high inflation for longer. based on the committee kitchen for these guys, they may not want to go there. lisa: high inflation for longer is not necessarily a good thing for the stock market. that is something people are grappling with as well. if you look at the earnings, strip out monetary policy, one

is the negative effect purely on inflation? jonathan: if you look at the markets the way i just have. futures coming over, cpi tomorrow, about .1% on the s&p. next, victoria green of private wealth, the financial research, wells fargo, and from new york, this is bloomberg.. lisa: keeping you up-to-date with news from around the world with the first word, i am lisa mateo. meeting in brussels today to discuss how to better -- and maintain support for ukraine. >> the war cannot be won but there will be -- and -- changes in the support for russia. but we will remain.

lisa: the u.s. is speeding up shipments of two events air defense systems to crane, in response to the president's please for more weapons in the fight against russia. tightening gun-control after a mass shooting that left about two dozen preschool is dead, the prime ministers as the government will revoke gun licenses from anyone facing mental health issues. this came after a former policeman opened fire last week. taiwan most people including 24 children. eight giant cargo jet, going to the ground shortly after took off. a video shows a black plume of smoke coming from the 747 undercarriage. it did land safely at a boeing facility in charleston, south carolina. it is the most trapped flight in the world. according to the data from flight radar, more than 10,000

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>> central banks are in a tough situation. they have started this late in raising rates and now central banks are doing big steps to catch up with reality. there is some risk in that. monetary policy is an independent risk factor. i think monetary policy has a way to go. up lisa: axel weber speaking with tom keene at washington, d.c. at the iif meeting, different conversations of times of incredible change where

people are reassessing the role of monetary policy in an inflationary world. right now what we are seeing is that any upside surprise when it comes to inflationary, the latest ppi, not considered a major indicator. that knee-jerk response was a stocks lower off the highs of the session and bond yields higher. you see a little retreat, s&p futures up about .3% and you are seeing the euro declined versus the dollar, 97.06. you are saying crude -- .9706. and they are expecting to meant to be lower because of deceleration. this had to washington, d.c., tom keene with another interview. tom: a nice update come out what was really important for ppi, is important, the united states cpi numbers tomorrow. it will be the iif and

international monetary fund. tomorrow we will call the offices of international monetary fund for important interviews. right now we go all-american come out we go to the art institute of chicago. there is the old training room of the chicago commodity exchange. something from another time and place. it is the cftc, associated with the midwest but much more with what to do with instance -- incidents. the cft commissioner is here. can you -- have you visited that room in the back of the art institute? >> i have not. i'm looking forward to it. tom: must go to the back. >> i'm headed to chicago in november. tom: let's add to your list the

discussion everybody wants to have, which is bitcoin. i refuse to believe this is a sophomore turf war between krista johnson and my good friend gary gensler. how can you get along on what to do with bitcoin and -- >> a great question and a necessary one. a $2 trillion asset selloff will come sharply into focus. for my perspective, institutional investors and retail investors. starting with the latter. we have to think about the reality that retail investors have suffered losses in light of the crypto winter. we couple this thinking with the bank of new york's announcement yesterday. this is alexander hamilton's bank founded at one of the oldest in the history of the nation. on its platform it will serve not only the traditional financial product but

cryptocurrency. suggesting that in the near and not distant future they will be investing in this as well. ethan: the -- tom: they kept from commissioner johnson my thoughts on bitcoin. we will not go there. there is a guy named diamond -- dimon going both ways on bitcoin. excuse me jamie, but something like it is a fraud and we need to learn what to do about it. helping banks on this is a fraud versus this is what we need to do. kristin: let me explain what the cftc is already doing. we are working to the fullest extent of our authority to insure against fraud, market manipulation, any use to retail customers who are heavily engaged in this market. that a close first of their kind

-- first of their kind bitcoin and cryptocurrency asset management fund and the first of their kind, and decentralized economy. tom: bitcoin, 60,000 down to 20,000 as well. the little guy, this is generational, they believe in bitcoin. are they believing in a derivative instrument and product of the cftc, or are they believing in maybe a financial asset under sec 34, 36? is it an s.e.c. province? or is it a derivative thing? kristin: the question is about the security, the definition of a security. [laughter] tom: and issue 1b. kristin: what we are asking is

what qualifies as a security. there are two bipartisan bills in congress working diligently -- senate staffers working diligently to capture an answer to this question. it is a wonderful question that is reflective of the history of the financial market regulation in our nation. tom: why can't you two get along? why can't the sec and the cftc work on this dubious thing, 60,000 down to 20,000? kristin: i'm going to say we better get along. for the sake of those investments earlier, we walk that path. we have done it before. i have had a great today to engage with his office and other commissioners of the ftc -- s.e.c.. we are in agreement that he wants market integrity and to protect the customers engaging. tom: you came with an entourage of 20 people, typical of the cftc. don't ask her about the

politicians. but let's talk about politicians. all of the rich guys doing bitcoin, they usually have 40 gazillion dollars and another have a gazillion dollars. are they buying off the american politicians? kristin: i can only tell you what i know, which is chairwoman of the senate egg -- agriculture committee, we are neighbors in many respects, i believe she is engaged in expanding the agreement of cftc over spot market transactions for the purpose of ensuring the regulatory gap that exists now is closed. tom: 30 seconds. what happens in the retail investors and bitcoins bait -- great support, 19,000, goes down to 15. one of the ramifications? kristin: the ramifications are significant because those of the most critical in my opinion in

our market. our task is to ensure protection of investors and the market. whatever we have to do. tom: thank you so much. kristin johnson on section 12, item two. kristin: 1933. [laughter] lisa: a wonderful interview, thank you so much and great recitation of the different permissions and subtexts. coming up on balance of power on bloomberg tv and radio, the former u.s. ambassador to nato will break down what is happening internationally in markets. we are seeing a retreat from earlier gains but trying to recoup after yesterday. a brutal session in stocks. this is bloomberg. ♪

jonathan: five days of losses on the essen you 500 and a new low, good morning, the count down to the open starts 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, next up is cpi. >> we are heading into cpi this