>> this is a voluntary -- monetary policy appearing to move completely in opposite directions. >> the bank of england having to manage the cast the government has been creating in the bond market. >> what we had in u.k. really is the medic of what is happening elsewhere. >> for the fed, they are striving themselves in for this, expecting some increasing volatility because the world is uncertain. announcer: this is bloomberg surveillance with tom keene, jonathan ferro, and lisa

abramowicz. jonathan: grandma will expend what will happen yesterday. i've got no idea. live from new york city this morning, good morning, good morning, for our audience worldwide, this is bloomberg surveillance on tv and radio. later this hour, jp morgan kicking off earnings. should we start with yesterday? lisa: let's. jonathan: would you like to explain? lisa: people say it was technicals because they have no other acclamation for it. [laughter] some people saying it hit the point of a 50% retracement since the gains of the post-pandemic and that was suddenly a buy trigger for the algorithms. say what you want to do, it's a messy market. where's the compass for what is axley meaningful in a market that makes no sense? jonathan: jordan rochester with her quote at the top of his nose, if it doesn't smell right it probably is not. lisa: i love that. jonathan: that's how a lot of people fell at the close, the two-year, 450 in yesterday session. typically if you tell me where the bond market is i can guess where the equity market finished, that was not the case. yields responded in the way we

expected them to respond to the print. the equity market did not. lisa: the equity market was one of the only markets that did not respond in the way you would expect it to. you saw the dollar gain, continue to gain today anyway. although briefly dizzy stability in terms of the dollar globally which perhaps some people said could have been a trigger. i will not speculate. still you see in march the terminal funds rate, four point 9% currently priced into the market to give you sent how aggressive people are pricing in this federal reserve. i'm not sure where the optimism is where we saw this mass of u-turn and markets. jonathan: attention shifts this morning, we go through the bank earnings, retail sales later. we gotta talk about the u.k.'s well. the chancellor is on his way back to the u.k., i understand he might've landed in the last few minutes or so. the uk's prime minister, liz truss, is said to reverse some economic plans later today. never mind and a couple weeks time, this could happen later today. lisa: my favorite articles about

this are an explanation of one orders saw andrew bailey in the hallway and said "what's going to happen today?" and he just smiled. he kind of knew. how much did he win? who is going to blink, he did not blink, and in some manner he is actually forcing fiscal discipline on a government that did not want to adhere to what the market was saying. jonathan: we had down to washington in a moment to catch up with tom keene to get the latest book futures are negative by .2%, setting the tone early will be jp morgan and then we run to the earnings in a moment area that you got retail sales later. look at the bond market, yield coming today but on the week, for an 11th consecutive week, higher. on the session down for basis points or so. lisa: yeah, the cbi data was not a comforting -- not comforting for anyone, particularly with respect to core at the hottest level in 40 years. bank earnings very much in focus

not just for the banks but as a kick out to the overall earnings season how well our consumers hanging in and is this a good or bad thing your today? you have seen variants across the board in terms of which banks have performed. you see jp morgan down more than 30%. i want to point out, yesterday you so i massive gain in all of the shares, why? i'm not sure. try to make a narrative out of this, good luck. i will not do it. on the line, wells fargo down only 12% perhaps because it did not have as far to go. morgan down the -- morgan stanley done 20% and citigroup down nearly 30%. also today, september retail sales at 8:30 a.m., our consumer spending? it will be messing because what happened with the hurricane in florida. october sentiment index, it is mattering again. i expect this to be significant and i can see her face. jonathan: i'm just happy it's friday. lisa: i don't ever want to hear about the university of michigan survey again.

i'm curious to see whether you see it rollover a little bit just based on what we are seeing with respect to gasoline prices tick up again. today we have a bunch of fed speak. jonathan: i care about that's become a first reaction to cpi. lisa: yep, kansas city fed president, fed governor, and fed governor, what you want to see? jonathan: it has been hawkish on the board, i think it has been outlier but a lot of people had to catch up with his view in d.c. and i wonder if he pushes it further. for me, yesterday was not about the november decision, it was about the conference with chairman powell. could he lay the groundwork for a hike and now it will be difficult. how deceased at this age for december? they want a string of deceleration prints to give them some convincing idea that maybe we are heading back toward 2%. they are not getting it. lisa: that's the reason why you get nearly 5% terminal rate being priced in the fed's futures. how much will that go above that as you start to see sticky

components? did you see the sticky component of the cpi? that increase the most going back to the 1980's, so it is not just the temporary aspects. nice is the sticky aspects that will persist. jonathan: the administration now want to to include gas prices went through the summer and lesser they wanted to strip out the bits. lisa: and they emphasized the headline rather than core and earlier in the year they emphasized core overhead line. jonathan: politicians drive me nuts. [laughter] lisa: there is the headline -- jonathan: here's the headline out of the u.k., liz truss hold a press conference on the u.k. economy later on today. and washington, d.c., at the international monetary fund is our good friends tom keene. tk, the chancellor is no longer there. i know you had eyes and the governor a couple minutes ago. set the scene for us in washington as we look ahead to the u.k. and what is about to happen in london later. tom: without question the most interesting meeting since 2008. absolutely extraordinary.

time is short, let me paint quickly, i have the bloomberg on my iphone and i'm showing the managing director the imf the 11 basis point move in the 10 year real yield, the 1.69. she and her entourage were silent. as was before our discussion. as we do this, behind us was the chancellor setting up for his interview with the bbc which again moved the market is there before he exited across the atlantic ocean. that is the movement here, very fluid, we will speak with -- and his extreme expertise and gita gopinath will join us as well. jonathan: a final question before we catch up with you later on in the show, mohamed el-erian started the conversation this week and said we have a global problem that requires a global solution. do you get a sense we are heading that direction in washington? tom: this is the heart of the debate. i was having a beverage or by

choice yesterday and this was the key thing, the word accord from john lipsky. john lipsky does not see the element of accord necessary to get that global solution. it is a bremmer meeting, every nation for itself. jonathan: as always, good to catch up, tom keene and washington. we will catch up with tk later. we are not getting a global solution to a global problem anytime soon? lisa: nobody said we would get that until we would see the pain feet into the u.s. and right now it is helping when it comes overall inflationary pressures. jonathan: i'm curious about retail sales later. is that confirm the story of underlying strength? lisa: my concern is and this is somewhat nuanced this you are seeing the upper income individuals and household continuing to spend and spend even more. a lower income much more constrained. you are getting very different stories depending on which bracket you look at. jonathan: joining us now is the senior portfolio manager at offspring global investments.

first question, unfortunately, is the awful when i start the show with, what on earth happened yesterday? i margaret: think it was a typical short-term traders rally, even though the numbers were bad, you could look at and say here and there the numbers would suggest inflation is rolling over so maybe the fed will not be so aggressive. i don't think that is what the fed will do but i think that is what the market. and the market is really all about short-term trading swings, nothing about fundamentals. it is only about what is the fed going to do and handicapping that. lisa: how has your view changed over the past couple months as you get more of these short-term trading swings, get read after read highlighting the persistence of this inflation? margie: i think the market has been dominated by this very short trading swaying from companies from sectors back and forth reacting. it all comes back to the fed, people trying to handicap at the fed is going to do so it has not changed much. i think the fed is basically

looking at the unemployment rate, which looks terrific, so they feel they can continue to aggressively tighten, aggressively self secure, and things are all right because the unemployed rate is low. i think that is why the market will once again overreach. it is looking really at the unemployment still looks good and that is what they will focus on so no change. i think the fed will continue to be on this path for quite a few months. lisa: does this mean you are hiding out in cash? margie: no, i think basically equities still look attractive because, maybe one day the fed will say we have done enough here, let's stand back, compromise with inflation in the interest of growing the economy and the very strong dollar. that's has to be more than anything, that tells you the strongest economy in the world is manifested in the strength of the dollar so i thing the u.s. is a good place to be. if you are invested, you will be in the bottom which will come one day. jonathan: great to catch up as always, margie patel there of

allspring global. i think the first five minutes made sense. that's the thing about this market, if you don't like the price action, wait 60 seconds. [laughter] lisa: yeah, the explanations were fine, i read to the commentary and it was basically like this is technical, the algorithms don't know anything, this doesn't make sense, ignore, perhaps it is persistence, it shows there's money in the market, all the explanations were not listen to it. but that how do you position around that? how do you have a long-term view of short-term trading signals are not giving you information reliable -- that is reliable. what is the compass? i'd spent a lot of time thinking about that, does it come back to the dollar? is that the tail that wags the dog? jonathan: i think for a lot of people it is. the other question i have been asking short-term versus long-term is whether we have seen some secular shift away from the old regime to -- i use the word permanent loosely -- to a more permanent rate where you

have higher rates and higher inflation levels and there are people pushing back although you are seeing -- and not to get super philosophical -- the deglobalization. and this question of re-shoring is going to have a more persistent inflationary tilt that has not necessarily been factored -- factored into the low growth/low inflation environment and that is the key. that was philosophical. lisa: i tried. your 30-year-old yield -- 30 year yield is down. we catch up with chancellor of the early 1990's, that conversation next. >> keeping you up-to-date with news from around the world, i'm lisa mateo. germany's defense minister says nato allies must take russian threats to use nuclear weapons in its war on ukraine seriously. but should not let them disrupt international efforts to support the government in key. the russian president has warned any nation that interfered in

his invasion of ukraine would suffer consequences that you have never experienced in your history. this, it is widely seen as threatening a nuclear strike. u.k. chancellor left meetings early to rush back to the u.k.. prime minister liz truss's administration is preparing to and in a central part of its taxcutting agenda. she is come under pressure for her own party to restore britain's economic credibility after the fallout from their fiscal proposals. u.s. house speaker nancy pelosi said in a video shot during the january 6 insurrection that she wanted to punch president trump if he showed up at the capitol. a video released by cnn shows pelosi and her office as the capitol is about to come under salt. in the footage, she says "i hope he comes out, i will punch him out and i'm going to jail and i'm going to be happy." lawmakers want to question trump about the 2021 ride and are demanding documents and testimony about his role, the move coming weeks ahead of midterm elections that will

determine control of congress. global news, 24 hours a day, on air and on "bloomberg quicktake," powered by more than 2700 journalists and analysts in over 120 countries. i'm lisa mateo. this is bloomberg. ♪

>> our position has not changed, i would come up with the medium term fiscal plan on the 31st of october as i said earlier in the week, and there will be more detail than. what i'm totally focused on his delivery of the many budget, making sure we get growth back into our economy. jonathan: i guess if you've done 180 on the previous plan and you do a 180 again, your position has not changed because you just

go back to the old plan? lisa: it doesn't really work like that in politics, just to throw that out there. i think there is reputational damage along the way. jonathan: that's not what is trying to say. i was the chancellor and the last one he four hours. a chancellor landed back in the u.k. because the u.k. has had problems over the last couple weeks. the 30 year yield in the gilt market is down. prime minister liz truss will hold a news conference at 2:00 p.m. today, as reported, and this is the line that we get a lot of interest. the corporation tax will rise to 25% from 90%. lizzy burden outside of the bank of england and number 10 downing street in the last couple weeks for us. right now outside of number 10, let's start with number 10 and what is about to happen a little later. lizzy: it is a complete u-turn here. going back to boris johnson's plan to raise corporation tax from 19% to 25%, giving up one of the main planks of truss

onomics intended to boost growth and it became inevitable in the markets priced it in. of course he rushed back from washington in the early hours, it has been compared to when the greek finance minister left the deep -- left the g20 in 2011 though his allies have shunned that comparison. in the game of chicken between the chancellor and the boe governor, andrew bailey, it seems to be who blinks first. bailey looks like he can uphold his promise to end the bond buying program today, but we are expecting this press conference from liz truss later on and they will hope it will con the markets -- calm the markets. lisa: i was reading this and the financial times, people are petrified of the markets. how much is this a market-driven response where they are trying to call me market would enter bailey is backing away and give the government three days?

yes he was also giving perhaps pension fund managers three days but really it was the trust administration. -- truss administration. lizzy: absolutely. mark carney said bad policy would be punished by the markets and yet again they are having to learn that lesson. this may just be the second of many more u-turns because of course the government needs to plug a 60 billion pound whole and the finances according to the institute of fiscal studies estimate. she has already said this week she is not prepared to cut public spending, though there are hints efficiency savings -- at efficiency savings and we know that use of -- use -- euphemism means. even if they plug this freeze, it will not plug the gap. so there is much further to go. then you have to ask what is the point of having liz truss if she cannot get the central practices

of her plan through. it is reported that the -- whoever took over from her would have a seriously diluted mandate and they would be therefore pressure to call a general election. and by the looks of the polls at the moment, looks like labor would win. jonathan: thank you. this was a struggle to keep up with, isn't it? lizzy burden outside of london with us. i thought would be talking about the gilt market but the attention is firmly on the other side of london. lisa: yes because basically andrew bailey one and they will give crates to this. how much the end see yield come down and will this be enough? jonathan: we will see. let's catch up with a man who left a mess in the early 1990's, the former u.k. minister, lord norman lamont.

good to catch up with you. do we have a part minister in office but not empower? >> i did not hear that. jonathan: do we have a prime minister in office but not in power? >> that is a phrase for myself, a phrase i used to describe the position of the major government. i think probably we do have a situation like that because it is humiliating what has happened, it is a real mess. i hope that what is about to be announced well calm the markets but i am rather skeptical about it because it is only a part of the package needs to be reversed. i think you either have to have public expenditure cuts or all of the tax cuts will have to be reversed. it is really a very awkward situation and very humiliating situation. lisa: given you think perhaps a full reversal could but may not really give credence to this

administration, do you think there needs to be a new administration, new leadership to this particular parliament? >> i think that's up to members of parliament. what we really need is stability. mps need to be conscious of not just of the concern of whether it can recover in time for the general election but we need to remember this is being watched by the world and this is not a very good advertisement for the country. lisa: how concerned are you about the pound given the structural damage with respect to the u-turns -- can we even call them u-turns -- maybe switchbacks from this administration? >> i'm sorry? lisa: let's leave it there. i appreciate your time. seems like our connection has gotten lost area lord norman lamont, thank you so much. but this really highlights the concern at a moment where it is very difficult to really understand how they can restore credibility with the pounds, with markets that are incredibly

skeptical of their plans. jonathan: unfortunately we lost the former chance either because this is a man who lived in the early 1990's when sterling dropped out of the erm. question we have been asking is whether there will be scars on sterling denominated assets. we will have to bake in some risk premium, not permanently but perhaps for a period of time. maybe they have a u-turn but have they completely lost credibility even when they walk back out of their stuff, the bank of england needs to do more than it otherwise would've have had to do early november? lisa: is it the bank of england or this fiscal administration? i asked this because the bank of england, some people would say looks better than anyone in this environment. they did the emergency program to plug the gap that they have not u-turns on the quantitative tightening. they are continuing to go with the rate hikes. on the flip side, how much asked to be done in respect to policy? jonathan: this has been a mass,

the u.k. has been a focal point for the last month or so but we know we have a global problem. this has been a global story with the dollar has been immensely powerful and strong, yields climbing all over the place, and when i asked the question earlier this week, i had my own answer to it, what surprises you more, what is announced or how the market responded? for me it is how the market responded. to see this market this fragile in response to 45 billion pounds of tax cuts is pretty amazing. lisa: if you flip it on its head, how much is what just happened a symbol of the fact monetary policy makers are going to be able to inflict discipline on the fiscal authorities? jonathan: and we are seeing that this week, archery? in a big way. we will catch up with th head of u.s. bank of equity capital markets later this money. jp morgan stress around the corner. ♪

jonathan: here's some news for you from stephen swings for it of the times, the political editor in the u.k., i'm told that because a cartoon is being

sanctioned as chancellor is liz truss repairs to -- events moving quickly, number 10 not commenting, british politics absolutely brutal and severe and you are about to see some of the play out today possibly. lisa: especially with the finger-pointing of who takes the blame. can liz truss preserve her rain by basically throwing quasi-core tang under the bus -- jonathan: i'm told he is being sacked as chancellor as liz truss prepares to reverse the many budget. outside of number 10 downing street, lizzy burden. the headlines keep rolling in. lizzy: i don't know if you just caught the look on my face but this is a huge moment for liz truss because kwasi kwarteng is one of her close friends, her neighbor in southeast london in greenwich and her political soulmates.

over the course of the past 12 years, they have been joined at the head, they wrote together for tearing the -- together britannia unchanged, calling for tax cuts and regulation, the blueprint for this budget that today we find out she's going to announce that she's going to reverse huge swaths of and it makes her an extremely lame duck in office but not empower any of to ask how much longer she can cling onto power. the times also reported today the toys are going to change the rules so she could be replaced with penny morton. if either of them took over, they would still have a severely delayed mandate and they would be massive pressure for an election. jonathan: i would love your thoughts on what we understand so far. we started this reporting that we would get some u-turn from the budget and a couple weeks ago the fiscal announcement. can you tell me how much of that is going to get walked back?

is it just the corporate tax component or is it everything? lizzy: the financial times reports it would be even more of it because trust set in prime minister's questions that she would not make spending cuts, which would be difficult in the first instance because george osborne as chancellor picked most of the low hanging few to under austerity but also politically ugly in a cost-of-living crisis. there were speculations she would try to raise benefits in line with earnings instead of inflation to try to incentivize people back into work but again ugly because come on the main form of welfare, universal credit, 30% of recipients are in work and we are in a cost-of-living crisis. if you put the spending cuts aside, it leaves u-turns on the tax because. we've already had the massive u-turn on the top rate, then corporation tax seems to be the

next. then you have the rest to come today, but really, as i say, what is the point of having liz truss in number 10 if trusso nomics can't get done, but wasn't it always inevitable because she was the party leadership choice would not the mp choice because they wanted rishi sunak. what has pushed her to this point is the markets. as mark carney said, the markets will punish bad policy and finally she is learning that. lisa: can liz truss blame kwasi kwarteng entirely for this? lizzy: no because as i say, they have been joined at the head throughout. these are her ideas. you can see the roots of these ideas in her writings over the past few years. there is no surprise this is what liz truss wanted to do. she told us stay in and day out throughout the leadership campaign that, from day one, what she would do were tax cuts. and they have gone down so badly

with markets. the other problem of why this has not been able to have market credibility is because they have outcast tom scholar, the top civil servant of the treasury, they sidelined the office of budget responsibility, the fiscal watchdog, and throughout kwasi kwarteng's's time as chancellor, he has been almost flippant about the markets. member he said they will react as they will. the other ministers have said what is going on in the markets is due to the international context, the war in ukraine, fed hikes, dollar strength. anyone with a bloomberg terminal can see that there has been a particular effect on top. as i say, it is not just a kwarteng affect, it is very much a truss affect and that leaves

the problem even if she cuts kwasi kwarteng out -- out. jonathan: this bond market is back in a big way. we have heard it from a few guests including mohamed el-erian on this program and in the bloomberg business:. vigilantes are back and the vigilantes claimed a couple names already. lisa: and who is next? at one point will you see this imposed restriction in terms of how much debt, number of different nations sell. this comes a time when you have a lot of nations that want to plug fiscal gaps by selling that. i'm thinking of germany in particular so this is a real tension especially when some of these expenditures are considered necessary. jonathan: we have had the reports and we went the news now, don't we? we have had the reports from the times this morning that the chancellor will get sacked, now we need the news. i said to lizzie, i want to understand how much of that budget gets walked back. is it just one component of it, the corporation tax, or is it

everything? lisa: so another words, if they don't walk back everything, and the bond market revolts, they then have to walk back more and fear of losing more credibility in the process. jonathan: i suspect that is not the situation they want to be in. yields down 25 basis points on a 30 year to 429. later this morning, we focus on one thing, bank earnings. jp morgan is just around the corner. gerard cassidy joins us now from rbc capital markets. let's go there first of all to jp, what are you looking for for jamie dimon -- from jamie dimon's big bank? gerard: i think what we have to look for is obviously how are they doing in their investment banking and capital markets businesses? more importantly, since those numbers are then guided to buy many big banks and the investment banking business revenues could be down as much as 50% year-over-year, trading revenues could be flat to down, but it is the net interest margin. you have been talking about it all morning about interest

rates, they rise in the fed funds rate has been favorable to jp morgan and his peers as the margins have expanded. he the -- the other thing we have to watch is jp morgan, the rising long-term interest rates hitting their bond portfolio. this company has to take the unrealized loss not only from gap capital but the regulatory capital. that will be another focus point. and of course the reserve delta under current expected credit loss accounting, they will have to build up that this quarter. lisa: i'm curious to understand the context jamie dimon was speaking in yesterday when he said i don't know if it could be a soft landing, talking about the u.s. economy, i don't think so but it might. he said in a tougher session you can expect the market to get on 20% to 30%. what's the signal from these dire proclamations from the ceo of jp morgan? gerard: i think what we are seeing is obviously, based on history, this type of matchup

the fed would lead to a slowdown/recession as he pointed out. and we have some history back in the 1980's when inflation was like this and none of us have been in that market, trading in looking at stocks in such a high inflationary period. it is really unusual. the other thing unusual is what they did during the pandemic. i would like to say they through the economy offkilter with all of that stimulus and we are still offkilter. there are many crosscurrents going on. we see that with the economic numbers that we look at on a daily basis. jonathan: looking forward to breaking down these numbers for you. gerard cassidy, he will be with us there in just a moment on the jp morgan numbers. i think you asked about -- sk -- asked a brilliant question and i think you're right. is that just and independent thought about were going? lisa: that is key in terms of interpreting this particular proclamation, 20% to 30%

additional decline in u.s. equities you can imagine freezing up in the credit markets, in the ipo markets. you already see that to some degree. what does that mean for revenues? how can he generate enthusiasm to go out and do banking at a time where he is experiencing or expect into experience something quite negative? jonathan: my head is spinning this week, spinning just looking at the u.k. as well. guy johnson ran over to a camera for us in the city of london. great to catch up with you. let's just start with what you are expecting to hear at 2:00 p.m. local time later. guy: it will be a big u-turn. i do not think we will get the details, maybe we will get the details, today and exactly what the u-turn does look like in terms of the ultimate tax policy here. we had a pound responding to a tweet from the times suggesting kwasi kwarteng is likely no longer to be in post. it looks like his decision to rush back may have been to find

himself with an announcement he will be leaving. he clearly made a tactical error going to washington at this moment in time but i do not think -- do we have a well thought out economic policy that will be announced this afternoon? this was a government they came in promising massive supply-side reform and it has not been able to deliver that growth agenda. now what? it does not have a mandate for anything and we are unlikely to see a clearly well-thought-out plan this afternoon. they will not dare to do anything that is going to expose them to the danger of the ob are, saying this is problematic. they are knocking to go anywhere near that but i'm not expecting a clearly well-thought-out plan this afternoon. interesting will be the new chancellor. jonathan: i'm not sure who wants to be the chancellor and this government. the party is doing terribly in the polls and knives out for the

leadership right now. how quickly can this conservative party moved to change leadership? guy: changing leadership in the form of the chancellor, straightforward. in terms of theresa may, extreme hard. the british public will not tolerate -- it is unlikely they will tolerate another change at the top of the conservative party. that basically means you are left with liz truss in post as prime minister but with no authority. we could be in for two years therefore of chaos. this will make theresa may's term look well-organized and well-run. jonathan: you and i are going to catch up next time around the time liz truss will speak to the prime minister later 2:00 p.m. local time, 30 minutes or from the opening bell. you can hear from the prime minister. jp morgan numbers minutes away. this is bloomberg. ♪ >> keeping you up-to-date from

news from around the world, i'm lisa mateo. elon musk's space x cannot carry the cost of high-speed -- high-speed broadband for ukraine indefinitely, coming after an earlier to -- earlier dispute. musk says the starling terminals are using data as much as 100 times the amount of typical households. a week ago, he tweeted starling in ukraine had cost space x $80 million. twitter's lawyers tried again to learn what musk had told federal authorities who were investigating his attempt to take the social media company private. according to a letter unsealed in court, attorneys for twitter sought documents last week related to the musk investigation. by that point, he reversed himself on walking away from the $44 billion takeover, but he and twitter were still adversaries in court. global news, 24 hours a day, on air and on "bloomberg quicktake," powered by more than 2700 journalists and analysts in over 120 countries. i'm lisa mateo.

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jonathan: wall street earnings begin right now with jp morgan and a beat on investment banking with the numbers for q3. let's get to sonali basak. >> you're looking at trading revenues that blew through wall street estimates, very good news for jamie dimon and his employees i got promoted. the question is, is this jp morgan's one quarter of lighter than analyst estimates or are we going to see this follow-through in morgan stanley and goldman

sachs next week? jonathan: can you reconcile these numbers with commentary out of the c-suite at this bank? sonali: i can. this is at the end of the first court and things of gotten worse since then. we look at whether these numbers can be maintained in fixed income trading in particular. headlines crossing the wire say $1.5 billion worth of provisions, meaning they are higher than what wall street had initially estimated with analyst expecting. provisions this quarter can take higher in future quarters if they think the economy will get worse. so they commentary jamie dimon might have and jeremy barnum may have on whether this is kind of it based on their calculations of where the next year is headed, or whether those provisions can get worse. lisa: is this partly also giving lip service to the fact they have not passed on that much in terms of higher interest to their saving counts and deposits and they have kept a much bigger portion of the net interest

income given how much yields have risen? sonali: it is a tough spot to be in because lawmakers were asking them this a couple weeks ago, why aren't consumers seeing higher savings rates? credit card loans have been rising throughout the year so they are lending still yet they are also accumulating money. so they are in a rock and a hard place with that because lawmakers are asking for it. but they are still hoarding cash. jonathan: what would you make of this headline, they hope to resume buybacks next year? sonali: that's a big deal. there's a lot of concern about the buybacks with jp morgan, especially given all that concern jamie dimon has laid out about where they are in terms of capital positioning in the face of higher capital requirements that he calls arbitrary based on rules that are kind of made out of thin air. that is the best way to describe how jamie dimon is describing these regulations and why you see in equal parts the bank is talking to investors this weekend down in washington all week talking to lawmakers on the side. jonathan: the stoxx is up 1.8% in the premarket.

stay there because i know you will look at wells fargo numbers as well. gerard cassidy alongside of us. you had a couple missed look at these numbers, your thoughts? gerard: sure. and what is interesting, and we saw some of this report it, the revenue numbers are strong for this company as well as its peers. it gets back to the margin when you are not were just talking about, the spreads are doing well and that is what is really supporting the higher level of provisions they came in slightly above expectations. but that is the loan-loss reserve built up that base on this new counting the banks are doing this quarter. what the shows you is the banks can handle the build up a reserve because margins are better than expected due to the rise of short-term interest rates. lisa: how do you understand their -- how much you understand their fears of the future as you heard from j.p. morgan reiterating their concern about the next couple quarters. how can these banks withstand continuing profits and show valuations are little bit

underwear they ought to be? gerard: it is interesting because the fear of going into next year of course is there could be a real steep downturn in credit costs -- and credit costs could come in much higher than expecting. this quarter is showing us the banks can handle the higher credit costs because of spreads. as we go into the next quarter and next year, even as it does slow down as jamie dimon educates, aced on the core businesses of commercial banking, these banks will be able to handle these higher credit costs because of these wider spreads. lisa: shares are continuing to climb, up now more than 2% as people digest these earnings. how much are you looking at the banking side of things and the weakness we have seen in equities? the strength for the time being in investment banking with respect to jp morgan's results but this feeling that deals are slowing and will continue to slow? gerard: that is the real critical part today with the banks, the traditional banking

businesses of taking in cheap core deposits, not having to pay up for the deposits, and making loans, is the business that is working today. the investment banking and trading business as you pointed out have been we call year with the uncertainties in the marketplace we cannot count on them really being very strong in the fourth quarter or going into the early part of next year. the banks that have more traditional businesses of taking deposits and making loans are going to do quite well. the regional banks that do not have exposure to the capital markets are the ones that will probably be the leadership in the bank stocks over the next quarter or two. jonathan: what you make of the headline, the court included net investment securities losses of $959 million? sonali: that's a serious number and it will not be the only one you see. the thing about it, we have been talking about a, that is the end of the third quarter and things have gotten worse. not only jp morgan but especially morgan -- especially morgan stanley are going to have to answer questions about how

much worse things have gone since the end of the third quarter and what they will have to take in losses. these are market to market losses so what exactly will be other books. lisa: how are they going to be transparent? he talked about twitter, do you have a sense of the real commitment there, about what loans are on their books, in terms of what they're planning to start what they're going to hang onto in hopes of a better day? sonali: it's a great question because see your point, they cannot sit there and often name single names clients here but these are massive deals everyone in the market already knows about. so how they will handle the discussion around this is very interesting and, frankly, what is also interesting is the way the buy side has stepped up and said let us take your lows off of your books for you. [laughter] jonathan: i'm sure they would love some of the interest. lisa: for what price? jonathan: gerard cassidy, a final word from you. you are looking through to the rest of the banks today into next week, what is your take away? gerard: the take away is what we

were expecting, the strength of interest revenue growth due to the margin expansion is going to be able to cover up higher costs in other parts of the bank. you talked about the right out of the bridge loans, that number almost $1 billion was included in the total revenue numbers and they still beat on revenues. the strength of this net interest revenue, which we have nick -- which we have not seen in years, this can handle the higher cost of building up those reserves, possibly weakness in investment banking, and i think that is why the stock is up in premarket trading. jonathan: thanks for being with us. gerard cassidy of rbc. just a final word on wells. sonali: they also beat on a lot of metrics, including the interest income. but they missed on efficiency. will investors allow that to happen over and over is the question or is net interest income enough? jonathan: where are the storm clouds? lisa: wells fargo third-quarter

provision for credit losses, they came in above expectations, $784 million versus the estimated six point an trillion dollars. -- or perhaps even dropping them in the face of weakness, what is it due to some of the banks that is getting higher incomes on the net interest margins about are struggling with what is expected to be higher load losses and investment losses as well? jonathan: is there a hurricane brewing? lisa: the irony is jamie dimon says there is an everybody is cheering his results and saying you made so much money, yay. so try to score that one. jonathan: in the next couple hours, we talk about you tell real tail -- uk retail sales and then just a moment we catch up with an guess. this is bloomberg. ♪

♪ >> fiscal and monetary possibly your -- policy appeared to be moving in opposite directions. >> the bond market is back. >> what we had in the u.k. --

>> for the fed, they are strapping themselves into this. they are expecting increasing volatility. >> this is "bloomberg surveillance." with jonathan ferro, tom keene and lisa abramowicz. jonathan: this is "bloomberg surveillance." we will get into jp morgan in just a moment. retail sales are coming up and we have a process. lisa: especially given the strength we are seeing from certain components of the population and the weakness from others because of inflation. messy. jonathan: this is the word of the week. lisa: it is the word of the year. i was looking through cpi components, what was the biggest one? jonathan: shelter? lisa: no. outside of shelter, it was health care costs. specific corners of pain as

people try to figure out how to live. jonathan: services versus goods, one is fading and the other is getting sticky. lisa: the sticky aspects of this inflation are persistent. how do we game out what happens next year? we heard from banks it will get ugly and they are doing just fine right now. squaring that message will be increasingly difficult at a time where they are making incredible profits. and they are not passing along the interest costs to the savers. jonathan: can i say word of the week and word of the year and apply it to the u.k.? lisa: please. jonathan: what a mess, you will hear from the prime minister later this afternoon at 2:00 p.m. there are rumors suggesting these chancellor's about to get sacked. we have been reporting we will get a u-turn. i'm trying to figure out what kind of u-turn we will get. he said you have three days and now he is some kind of hero. you have the bank of rate

decision and the qt set to kick in later this month. lisa: as i hear this, can they do anything other than to announce today a full rollback of everything proposed and say we are going to spend more time to unleash something that is cohesive, well thought out and comprehensive. until then, we will not make major changes, can they do anything except that without having to walk it back later? jonathan: no drama in the equity market. futures up 4/10 of 1% on the s&p 500. tons of drama in the bond market. yields in the u.k. are lower by 25 basis points. yesterday in the u.s., aggressively higher, a two year briefly through 3.50. jp morgan behind us, more banks still to come. lisa: jp morgan shares are up

nearly 2.5 percent after reporting better than expected earnings on the interest margins that compensate for a lot of the losses in other places. they beat fixed income. we heard from wells fargo, their shares up more than 2% at premarket trading. citigroup, how do they parse out the fear of what's to come with what is going on right now, which is profits? that will be a political discussion as well as one that can perhaps give some guidance as to where we are in this economic cycle. at 8:30, we get retail sales. interesting to see how that breaks down considering some of the weakness we have seen in certain areas. the resilience in cpi people willing to spend. i can feel john sighing, being like i hate looking at this thing. you are absolutely out of the building at 9:59 a.m. i am curious about whether we do get some sort of deterioration here, simply because gasoline

prices are starting to rise again in addition to all of the gloom and doom here from everyone. i know i could be part of the problem there. we get a slew of fed speak today. i hear you are interested in it today, which i guess is a new one. esther george, lisa cook and chris waller. how do they spin this at a time when people are ratcheting up their expectations with what the fed has to do with rate hikes, given the -- priced into the market is 4.5%. -- 4.5%? jonathan: it is not raining on jp morgan this morning. the stock is up 2.4%. the take away from these numbers from jp morgan, what is the number one talking point for you and the team right now? >> he raised his net interest income by $3.5 billion. where is the regulatory concern there?

deposits have slowed to 3%. is there more wiggle room to them lending at a greater fate in the face of a worse economic environment? jonathan: the buybacks are set to come back, potentially set to resume early next year. what is left this hour? how many more bank earnings do we have? lisa: it depends on if you include 8:00 a.m. but we have two. jonathan: ok. i want to start with the rates story. can we start with the two-year yesterday? through 450, really powerful move. have you rethought where the fed funds are going to peak next year? >> the markets -- it is hard to know for sure. it is fairly volatile. i would say 4.5 to 5% makes sense which is what they told us in the projections. it really depends on the trajectory for inflation going forward.

if we do see persistent inflation and also persistent underlying strength in economies, especially the job market being resilient. the fed will continue to raise rates aggressively until they see the need to slow down. i don't think that's this year. lisa: a lot of people earlier this year were getting bullish on longer-term rates. there seems to be a rethink of that of late. not only because of where inflation has come in but internationally, the contagion effects of the entire world unraveling. zero rate policies that have been in place for more than a decade. has that been true for you as well? are you changing how how you expect yields to be able to go in the long end? >> i think the u.s. is in a different spot than the u.k.. you have a situation in the u.k.

where i would call it a crisis of confidence. all this with u.k. tensions and margin calls. the u.k. is positioned differently from that perspective. broadly speaking, the 10 year curve tends to see good demand from pension funds in the u.s. as well as globally. also, it tends to be a safe haven asset. you are going to see a decent amount of demand for the long end as we start seeing perhaps a meaningful showdown in the u.s. as well as global growth. -- slowdown in the u.s. as well as global growth. that is why we see a scenario where global bond yields continue to rise. i think treasuries are going to continue to form relative to bonds. what you are going to see is a

narrowing of that spread between the bonds and the treasuries. lisa: i'm curious about the effects of certain events and what that means for investors, and japan for example. in the u.k., places that might sell what they can, not what they want to. what they can sell is treasuries. how much are we going to get the ripple effects of that for a longer period of time, creating disruption in a liquid market? >> that's a good question. we saw what we believe was some sort of an intervention coming from japan. when the dollar appreciated, the yen depreciated. we saw a reverse rate we believe that was an intervention coming from japan. global central banks in india and south korea --

yes, there is some selling of treasuries. but it is really very small. it's not going to have a meaningful impact in the treasury market to cause yields to rise meaningfully. all of the selling you are seeing is leading to poor liquidity in the bond market. you are seeing the feds not actively buying treasuries here. that is constricting to poor liquidity conditions if anything in the bond market. jonathan: i wonder how much of that dynamic will play out in the u.k. today as we are reporting over itv. i tv news joining the times of london. the chancellor will be removed. a u-turn from the government, a new chancellor, is that enough? >> i don't think so.

it is easy to destroy credibility. it is a lot harder to build credibility back. the ministration will have to work to build credibility back. it is the first step of many they will have to take. it is not an easy task from here on. whoever else replaces the chancellor will have a hard job going forward. it does not make it easy for the bank of england. you need to see the governments and the bank of england work closely to restore confidence. jonathan: thank you. much, much harder to rebuild credibility. very easy to lose it. lisa: the pound is declining versus the dollar, even on this. it is not exactly a reprieve for a political regime that has seen an incredible tumbled.

there is a question of what it will take to restore credibility and what it will be, as you mentioned earlier, a risk premium built into the pound for a long time as a result of this. jonathan: we will catch up with guy johnson in london in a moment. later, jim colson. looking forward to that conversation. we are up on the week. i checked this morning. just about up on the week. it has been crazy. if you ask people to guess, they would have no idea. lisa: rightly so. jonathan: from new york, this is bloomberg. ♪ >> keeping you up-to-date with the first word, i am lisa mateo. bloomberg has learned liz truss plans to hold a press conference today, announcing plans to reverse arts of her economic strategy. this follows weeks of market pressure to explain how she will pay for her program. a protest in recent days on --

instead of raising it as previously planned. the pound erase losses against the euro. the times is reporting kwasi kwarteng is being sacked in preparation for the economic policy reversal. it is not clear who will replace him. downing street is not commenting at this time. germany's defense miniter says nato allies must take russian threats to use nuclear weapons in its war on ukraine seriously. but should not let them disrupt international efforts to support the government in kyiv. vladimir putin has warned any nation that interferes in his invasion of ukraine would suffer consequences you have never experienced in your history. his comments widely seen as threatening a nuclear strike. chinese sensors have taken the step of restricting the search term beijing on social media. it comes after a rare public announcement of president xi jinping.

photos criticizing his covid zero policy are circulating on social media. it comes days before he outlined his vision for china and the communist party, in which he is expected to secure a president defying third term. 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'm lisa mateo. this is bloomberg. ♪

jonathan: all eyes on the u.k. over the last couple of weeks. that conversation will continue later. we are looking for a news conference from liz truss at 2:00 p.m. local time, 9:00 at new york city. the news conference could be a statement. we have no confirmation at all. all we have is reports the chancellor would be on his way out. could be getting sacked according to the itv news station in the u.k.. lisa: the treasury department

over in the u.k. is not responding to a request for any kind of response to this. there is a response in markets. there is an expert tatian they have to do something and something dramatic. what it has to be in order to restore confidence is unclear. jonathan: we hear from jake -- heard from j.p. morgan a little earlier. sonali, the stocks are up 2.5%. talk about the provisions for credit losses. sonali: one point total -- $1.2 million across the bank. they are growing loans and that interest -- net interest income. it is more than $3.5 million higher, excluding markets, and that is significant. provisions will come as loans grow. lisa: how important is it in some of the earnings calls, i'm sure you will be listening in on them, to give some since of how

much are these investment losses? sonali: what's interesting is a reporter from bloomberg news has reported it will be $500 million worth of losses. if spreads blowout more, it could be a lot more. i've heard estimates as high as $1.5 billion. morgan stanley was leading that one. there are questions about the cost of doing business. are you going to be earning fees that will be above those losses as you consider future deals? that will be the key question as we head into the market. jonathan: j.p. morgan up in the premarket. guy johnson in london joins us now for more. you tell me, what does the next couple of hours look like? guy: for a statement or

potentially questions being taken, i would not want to answer questions if i was theresa may. we will see if it is a statement, what is contained in the statement, a couple of sources are speculating the chancellor could go. who will replace him? liz truss is looking at a cast of characters. she will be looking for some buddies. she will be looking for somebody that is going to engage brain before mouth. that is going to be basically giving a sense of stability to this from an economic point of view. what this government tries to achieve, it will be interesting to hear what liz truss talks about here, is what is the objective now? this was meant to be a taxcutting supply-side reform of governments. that is gone. lisa: engage brain for mouth. jonathan: we are blunt in the

u.k. lisa: and i like that. there is an issue as they try to form what comes next of how much they have to do. do they scrap the entire thing and have a carte blanche to begin again? or do they have to come out with something that seems cohesive, even though it is clear that perhaps this came rather quickly? guy: there will be nothing cohesive or well thought out. there is no plan, lisa read plan a is gone. plan b will be muddled through. all of the plans they have put in place, there is no dash for growth anymore. that's gone. what replaces it? are we not looking for growth anymore? no planning reform, no immigration. all of these things are off the table. you wonder whether the u.k. economy will limp through for another couple of years. can the u.k. economy afford

that? lisa: can you talk a little bit about the visuals of kwasi kwarteng being at the imf and having this discussion, the imf has been vocal about what they think about this fiscal plan. they coalesced around andrew bailey and seemed to support him and not the kwasi kwarteng budget or the liz truss budget. how much does that play into what is transpiring now? guy: it is hugely important. not just the officials, lots of rabbit sector people will be piling the pressure on as well. -- private sector people will be piling the pressure on as well. inflation seems to be something of a problem. you bring up the bank of england and we need to talk more about this, they credibility is enhanced for andrew bailey. he is still left with a series of substantial problems. i don't know whether we will see stability on monday morning in the gilt market.

is it logical to proceed with qt when you have so recently been supporting the gilt market? do we need a statement from the governor that they are going to postpone, i don't know for how long, qt? and is that compatible with still raising rates to fight inflation? it's a mess. jonathan: you mentioned it at the long end, i wonder if the opportunity is available for the governor to clarify what part of the curve qt would be more operational. something steve major suggested earlier this week. as the bank talked about that, discussed that at all? guy: not that i am aware of, maybe the discussion is happening behind closed doors. it is a tightly sealed operation. so, i don't know is the answer to the question. but, it does seem -- there are -- it does seem a little illogical to have done what you have just done and in some ways

to be supporting the pension industry and then be effectively selling data gilts back into the market. you could sell front end. there will be more demand for front-end at this point as well. that is to stevens point. maybe that works, logically. i don't think the ink of england is out of the woods by any stretch of the imagination. jonathan: we might get a new chancellor so let's talk about it briefly. what are the names? what are we going back to? guy: if i was looking at a list, i would look at former chief secretary to the treasury. i would think about the name, barkley for instance. if you think about mr. hammond, you need that gray figure.

that might be unfair to philip. but, you need that kind of accountants approach to this. accountants will hate me for this. but you need that kind of -- engage brain before mouth kind of person. jonathan: guy johnson, thank you sir. i know where guy is going with that. you need someone who has been around in westminster for a long time because they need credibility fast. lisa: and they need someone who doesn't do a u-turn -- i don't know if we can call it that. do you call it a u-turn when you have turned and turned and turned? jonathan: unchanged. isn't that what chancellor quark -- kwarteng said? from new york, this is bloomberg.

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jonathan: live from new york city this morning. s&p 500 and the nasdaq after a vicious fall yesterday --

reversal yesterday. market futures up by one third of 1%. news from the bbc that kwarteng is out as the chancellor. kwasi kwarteng is no longer the chancellor. that is the bbc, times of london , all saying the same thing, this chancellor is out. >> is this how they want to message it? that they want to get some communication to markets, to population? we want someone who has done this before. jonathan: guy said we want an accountant and we were reminded that liz truss is an accountant. i want to run through the bond market price. two's, tens, 30's. the two year, four point 42, coming about four basis points. sonali basak, morgan stanley out

right now. sonali: we are seeing equities come in, almost a little bit below expectations. more than what you saw. keeping their lead in that business. you don't see this much from morgan stanley, they did miss slightly on the top line on total revenue from the bank. trading business does not help. the question here is how they will be marking these losses. right through the statement to try to give you a better sense of what you can expect from those provisioning issues you are seeing when it comes to the investment banking business. revenue down 55% from a year ago. >> morgan stanley shares lower by 8/10 of 1% in the immediate knee-jerk reaction. this highlights the gap between j.p. morgan, citigroup, bank of america, morgan stanley, goldman

sachs driving bigger portions of revenue from the investment banking, deal action, what is going on with markets. what does this say about the larger story from that perspective versus idiosyncratic execution stories? sonali: the ceo of morgan stanley likes to think of this as a balance, when one business is not doing well the other will. all of wall street had that balance, it is eroding. what happens then? for morgan stanley, you have net revenue wealth management. $6.1 billion in line with expectations. it is rising compared to prior years. again, there are some serious issues when you think about the future here in the next couple of years of what investment banking looks like. the cost of doing business here when fees are simply eroding. jonathan: mr. goldman continuing to repurchase $2.6 billion worth of shares. what did we learn? sonali: morgan stanley has been

the most attractive. they have more flexibility, they are also the richest of the big six banks when it comes to price ratio. they have a little bit more room on valuation to fall if there is bad news than jp morgan, which is trading more cheaply. goldman will be the million dollar question here. goldman has been flirting with book value or below the last couple of months. is there room for goldman whether it is on trading or other businesses, is there something people will see in the business models that will allow them to cycle a little better or worse? jonathan: the ceo saying the company continuing to distribute a healthy dividend. capital return programs on morgan stanley ongoing. it doesn't sound like a major hurricane is coming. i'm not being snarky. look what the banks are doing with capital returns. still giving money back to investors.

it is not like it is falling off a cliff based on the way they are acting. lisa: i'm going to go out on a limb and say morgan stanley and goldman sachs ceos will not have the same tone as jamie dimon. they will want to give confidence that deals could get done. jp morgan, i will be a little cynical, might be more interested in having regulatory oversight removed. regulatory provisions crimping their balance sheet expectations as well as buyback programs. how much is that part of the storm? jonathan: are you suggesting this is a lobbying effort? lisa: it doesn't make sense based on the on the ground action. i wonder what the motivation is to talk like that if there is an evidence. sonali: you think the main street problems don't fall into investment banking but they do.

they beat on fixed income trading and they are more resilient than the next bank we will see, it is citigroup. are they going to be hurt by the currency fluctuations -- jonathan: ken leon, it is a tradition to catch up with you on earnings morning on wall street. let's start with jp morgan and morgan stanley, your thoughts? ken: they are very different banks, different stories. jp morgan, so much regulation, capital buffers, they cannot buy back stock and they can't tell you what recession will mean for the bank. we are seeing net interest income. if you are a bank analyst, you like the wave of higher rates. jp morgan results more than anything for the third quarter.

morgan stanley, we have a different narrative. directionally, they don't have a consumer bank. they are the largest wealth management firm. directionally, james is looking to them, it appears like blackrock, charles schwab, these have multiple stocks. you have recurring revenue in the stable parts of morgan stanley, which is wealth. investment banking obviously is the more cyclical area. you never get rewarded if you have a great quarter. morgan stanley has the right course. it went 0-3 in terms of equity and debt underwriting. they were all down significantly. that was no surprise. lisa: is wealth management what used to be based on returns? one shop saying 60-40 per folios have hit a 25% peak loss over the past year? ken: absolutely.

it is much more dynamic than a static conversation. morgan stanley has its largest share in advice given. with the e*trade acquisition, it is number two in fidelity behind the 401(k) in the workplace. they have the digital platforms to get the early millennial investors. this is a dynamic area for growth and wealth. james gorman was way ahead of the industry. jonathan: gina, joins us from bloomberg intelligence. the earning starting to pour in. they have not been that bad. take your thoughts on the banks this morning, please. >> i think they are very consistent with your thoughts. beating very low expectations. banks and the financial sector are expected to be the worst of the worst.

down for a second consecutive quarter. expectations are looking at double-digit pace of decline for much of the sector this quarter. that is plenty -- pretty low expectations and an easy bar to beat. the s&p 500 has gone from a point of expecting 10% earnings growth in july 2 expecting just over 1% earnings growth on the index for the third quarter. clearly, we haven't seen that slowdown. we pressed in a significantly greater than probably will emerge in the next few weeks. lisa: do you think that will be a rallying call or will people say we are seeing these cracks in real time. we haven't filtered through these companies yet and hang tight because the pain is coming? gina: depends on what they say about the outlook. it is a difficult time to forecast earnings. what you have are tough comps

off of easy comps off of tough comps. 2020 was an earnings crush. then you had them surge in 2021. coming off that surge in 2022. distinguishing how much of this is cost versus a slowdown in economic activity on trend is really challenging. the reason you want to rely on company guidance is they are the only ones that could tell us what is likely to happen in 2023. how much of this is a comparison. versus a true economic activity is a huge question mark. financials is not my area to watch this season because i think expectations were incredibly low. the area much riskier going forward will likely be tech, mega cap stocks, discretionary stocks. expectations are still a little high.

expectations in 2023 are probably too high. lisa: given that we will be hearing from the banks, perhaps they are not necessarily the main bell winners this season. what are you looking forward to, talking about the mortgage losses, credit provisions, and the expectation for a rockier road? ken: there's no question about it. the resilience of the bank, their ability to have capital buffers and higher rates. some of the -- that will offset some of those concerns. we haven't talked about factors, something where it is the punch unexpected. whether it is coming from anywhere in the credit markets or anything related to rest. jonathan: have to leave you there, thanks for being with us. ken will join us a little bit later.

another news organization reporting the chancellor is out. kwasi kwarteng sacked as chancellor after the many budget turmoil. that was sky, the bbc a few minutes ago. then it was itv and the times in london before it. lisa: this is a circus. they can't -- this can't be how they want the communication to go about. jonathan: it is a messy circus and they need to clean it up. stephen stanley joins us coming up. live from new york, this is bloomberg. ♪ lisa m.: nancy pelosi said during a video shot during the insurrection that she wanted to

punch donald trump if he showed up at the capitol. it shows her in her office as the capital is about to come under assault. she says "i hope he comes, i will punch him, i'm going to jail, and i will be happy." lawmakers want to question trump about the 2021 riot. it comes just weeks ahead of midterm elections that will determine control of congress. twitter's lawyers tried to learn again what elon musk told federal authorities who were investigating his attempt to take the social media company private. according to a letter, attorneys for twitter saw documents last week related to the mosque it -- musk investigation. he walked away from the $44 billion takeover. a new turkish law mandates jail time for what authorities describe as spreading false information on digital platforms. the measure was proposed by the governing ak party.

the people there now face jail terms of up to three years if found guilty. media groups and opposition parties have described the bill as censorship and a move to stifle critics and head of the election. global news 24 hours a day on air and on bloomberg quick take powered by 2700 journalists and analysts in 120 countries, i'm lisa mateo, this is bloomberg. ♪

>> i don't mind the fed getting back to normal. they said they didn't want to add to uncertainty, they are adding to uncertainty. we are trying to get back to normal but then we will stop because we don't want to kill the economy for inflation value. jonathan: great to catch up with david kelly yesterday. live from new york city, good morning. about 43 minutes from now we get u.s. retail sales in america. i believe you get citi earnings.

we will need to focus on the u.k., sterling breaking through 112. down a little bit more than 1%. sterling is a lot weaker. can't find a rally right now in the last couple of hours. yields are lower by about 20 basis points on the u.k. 10-year. reports continue to pour in that he is out, the chancellor will get the sack. we have heard from sky, bbc, itv , times newspaper. we still wait to hear from liz truss. lisa: this doesn't instill a lot of confidence. unless they could come out with some sort of conclusion or clarity on what they plan to do. guy johnson saying that will can't happen -- will not happen. how do you give direction to a market that is looking for one? tom: the u-turn, how much do you claim from the u-turn?

let's say they go back and remove the whole thing. does bank of england pricing return to that day? that is a real question. i think it will be tough to unwind a lot of the work, the damage that has been done. lisa: i agree. it brings back into focus where we are in terms of it is not just a u.k. problem. we have the cpi that was hotter than expected. dollar strength, the fed hike more than expected. the world moves even if they are doing a u-turn. tom: the chief economy analyst, stephen stanley, do you expect to pivot any soon after yesterday? >> i'm sure they would love to. it is not in the cards. inflation becoming more entrenched. underlying inflation right now is just very troubling. i think it will be a while

before the fed gets inflation under control. lisa: did yesterday make you rethink the rate the fed would get to in this cycle? stephen: my estimate was already about 5%. i'm sticking with that for the moment. certainly some upside risk to that. i definitely think we will see another 75 basis point move. i thought they would slow down to 50 in december. certainly, if the inflation numbers over the next couple of months come in the way the last few have, it is not clear to me that they could step down from the 75 basis point hikes. lisa: what do you make of the discussion that we are overlooking the light effect? housing tends to operate in a lag and there may be a decline in the next six months that has not fed into the data. we will get it even if the fed

does not raise rates as aggressively. what do you say to people who are arguing that perhaps the fed is overreacting? stephen: the research suggests the lag is about 12-18 months. realistic scenario is rent and owners equivalent rent will continue to accelerate until around the middle of next year. that is a long time for the fed to say trust us, we have this under control. the other point would be if it was only about shelter cost, that argument would be very powerful. we are seeing inflation very hot. in many cases accelerating across virtually the entire list of categories within the cpi. shelter is one story. it is not the only one.

unfortunately, the data are pointing to a more systemic issue. wage pressures are pushing into prices right now. the risk is the fed has talked about -- the longer inflation is high, the more people get used to it and incorporate it into their plans. that is why the fed is in a hurry. they are trying to cut that off before it gets set in stone. jonathan: how many times have we sat here and said they have more work to do? lisa: how much are we catching up to the bill dudley version of the world? jonathan: we are there. lisa: we are there in terms of the market expectation including jason furman on twitter saying it is higher than what the market is expecting because of the sticky components rising. jonathan: always wonderful to catch up with you. rumors in the u.k. are all over the place. we are onto another one.

the latest reporting from the bbc news site political editor, a group has been holding discussions and decided the following. the sacking of kwasi kwarteng will come out next week and call on liz truss to resign. these are serious people, the pm will find it difficult to survive. my source tells me liz truss has made a mistake if she thinks her outgoing friend has no place in the parliamentary party. he is outgoing, friendly, maybe that is his problem. the drama i think a lot of people assume does not end today. lisa: i'm looking at the pound hitting new session lows. this isn't exactly creating confidence in leadership at a time when that is kind of needed. jonathan: what comes next? i've got no idea. the only thing i know based on reporting is we are set to hear from the prime minister later

this morning, 9:00 a.m. new york time, 2:00 p.m. local time. we have understood over the last day or so, they are set to walk back some of this stuff. how much of the u-turn we actually get? i'm not sure. lisa: talking about the politics of all this and we thought we would be talking about the fact that bond buying is ending today. we will not have that from the bank of england, albeit in a different manner than people expected. jonathan: crazy time in the u.k. we have numbers from jp morgan and morgan stanley. about an hour, 60 minutes, could you predict citibank based on what we have heard from jp morgan? sonali: they have a tough job because they are so much more global. we want to see how much that is actually impacting them. it is amazing. if you look at morgan stanley, they have their compensation costs in line. jp morgan headcount is up.

jamie dimon is talking about significant headwinds. they are still investing. maybe the bankers are not making as much as they were a year ago. they are still getting jobs. jonathan: morgan stanley down in early trading. lisa: tell us the future, please. is this a crystal ball that we could put our hands on it? equities underperformed, fic trading outperform. seeing illiquidity in markets. thanks are acting in the traditional function. jonathan: do you remember the former president in saudi arabia ? i still don't know what that was. what was that? lisa: we love it. jonathan: the first deputy manager of the imf sitting down with tom keene, coming up.

>> the market is focused on one thing, inflation, rising rates, and nothing else. >> we haven't seen this beast in 40 years. >> growth has to come down a lot if the fed will contain these inflationary pressures. >> you can't deny this is a recipe for recession. >> what gets us back is that firm foot on the brake pedal from the federal reserve. >> this is "bloomberg surveillance." jonathan: good morning. what a morning for news, this is "bloomberg surveillance." alongside lisa abramowicz, i'm jonathan ferro with sonali basak. this news just drops according to a person, kwasi kwarteng leaves the u.k. government. the chancellor is out. lisa: the question is, who is

next? we are getting some reporting on who could be the successor. i will get my words out. how do you rebuild the trust in an administration that is really in peril. jonathan: some reporting from the times. the former secretary may become chancellor. is that the direction this government might be going in? lisa: that is the reporting, what does that mean for liz truss and her survival at the helm of the party? is this the predecessor of kicking her out? is this the beginning of more political turmoil? jonathan: based on the reporting we will hear from the prime minister potentially at the 9:00 hour in new york city, that is 2:00 p.m. local time. based on reporting of the last 24 hours there will be some form of u-turn from the announcement some fridays ago. how much will it be?

i don't know. lisa: is it simply cleaning house? that seems to be the suggestion. jonathan: need to get the latest on wall street as well. citibank reporting. sonali: fixed income trading has fallen below expectations. james frazer addressing the fixed income business saying it is in line with where they were a year ago. it is an extraordinarily competitive business. this is not a great sign that she is holding on strong to and being competitive with. investment banking fees have fallen below expectations. revenue has fallen in line. jonathan: reconsidering what the geographic footprint needs to be. we knew we were going in this direction. should things have reset right now enough that the stations have been made where citigroup -- the bank wants to be? sonali: they have gotten out of

a lot of businesses. she has really shrunk this bank in a significant way. in the face of a lot of political headwinds. let's take this inconsideration. they still have regulatory headwinds. there is a reason they are trading below book value. regardless of what is happening. lisa: what about loan loss provisions at a time when this was in focus at jp morgan? we heard about that at wells fargo. morgan stanley was surprisingly light. sonali: citi is in line with expectations. provisions going higher. citigroup's provisions now in line with expectations because their lending appetite is less than jp morgan? what is their appetite to take on risk in this environment is the question we will have to hear when the cfo speaks to journalists?

lisa: do you know how they are pricing risk at a time of liquidity when private markets are largely believed to not have been marked down in any significant way? leaving some of the illiquid assets on their books with some questionable valuations? sonali: the important thing is you could take losses if you are making much more money. in order to generate more fees, they are not taking them disproportionate across the business. value at risk have been taking higher -- ticking higher. jp morgan showed us the biggest share of that risk being taken on. wouldn't you love to see citadel securities numbers? the market makers are making this because they have bigger problems at hand is still a critical question. jonathan: we have the right kind of volatility because they often

complain. sonali: super important, this is only until the third quarter. things got so much worse since then. the tone i heard from bankers in summer was pretty sanguine. they are working at the top of the house everywhere. jonathan: down by 2% early for citi. ken leon joins us. what is with the move down? what stands out for you? ken: for citi it is a multiyear turnaround story. consumer banks outside the u.s. it is the -- going into next year it is still a transition period. citi is trading at low valuations to the peer group for those reasons. they do have a regulatory risk that wells fargo had. it is improving. citi has to send million --

spend millions to upgrade its regulatory systems. lisa: how do you do this with market conditions at a time of incredible volatility and business mixed with different banks? ken: what we haven't spoken about this morning is that the large banks have increased headcount. we have seen in the capital markets that normally by september or october you will be talking a very healthy pipeline for the fourth quarter. it is not likely to happen this year. then the hard decisions have to be made whether you need to cut back some staffing in the capital markets. particularly in areas of investment banking. jonathan: ken leon there. here's a very classy letter from the now former chancellor, kwasi kwarteng. dear prime minister, you have asked me to stand aside as chancellor, i have accepted. just want to get to this letter,

we will get the announcement of the budget. important now to emphasize governments commitment to fiscal discipline. the medium term fiscal plan is crucial. i look forward to supporting you and my successor to achieve that. we have been colleagues and friends for many years, in that time i have seen your dedication and determination. i believe your vision is the right one. it is an honor to serve as your chancellor. i wish you well. whatever you think about the policies by this chancellor the past few weeks, that is a classy letter. lisa: a vote of confidence saying liz truss should remain. indicating there would be a second or third chancellor. saying i still believe in what we are trying to get at. very classy. also confirming he is exiting and putting it squarely on liz truss. jonathan: we could head over to number 10 downing street, the

reaction on the ground where you are? lizzy: the other thing that strikes me is kwarteng refers to her vision. kwarteng is liz truss' political soulmate. how much is really changing? that is why the reports from the times and telegraph is that she will replace him as chancellor with jeremy hunt. he finished runner-up to boris johnson in the 2019 leadership contest. he has previously been foreign secretary, health secretary. this would be seen as a sign of liz truss reaching out over parts of her party, something she has not done up to now. that is perhaps why she has had such a difficult time getting trussenomics passed her party.

lisa: are there people running through the holes of parliament with piles of paper throwing them up? what is the mechanics of this morning that has been incredibly messy after an already messy 48 hours, etc.? lizzy: the irony is after kwasi kwarteng was so flippant about the market saying they will react as they will, blaming all of the guilt moves on international factors. it has been market pressure that pushed for the corporation tax u-turn that we are expecting to announce at the press conference later. the markets when that news came about yesterday priced it in. we would expect a massive selloff if they did not go ahead with it. now we are expecting even more u-turns to be announced. a little bit excited there, there was a car pulling up.

there is both the financial pressure and also the pressure from the party. a very dangerous member of the conservative party put the pressure on liz truss to put the top rate on income tax. it became inevitable that liz truss party would not let her pass these measures of tax cuts when they are so unfunded through the house of commons. the pressure mounted too much. jonathan: let's finish on this one. i think it is the next step here. this party is not doing well in the polls at all. i know that. is it enough to get rid of the chancellor? as you say, in that letter by the chancellor, these are liz truss' policies too. how long can she stay on? does this party go after her next? lizzy: first of all, you may

also see the sacking of the chief secretary to the treasury, who we interviewed just last week. he was supposedly the brains behind the top rate of income tax cut. you may also see the business secretary going under the chop. he reportedly disagreed with truss over earnings instead of inflation. can liz truss survive? what is the point of having this woman in 10 downing street who can't get her vision for the economy past the market or her own party? there are reports her own party is looking to take her down as well. jonathan: this won't be the final time we catch up with you this morning as well. chancellor kwarteng has been sacked. coming up later this morning, no doubt leading off with the imf star and what is taking place in the u.k. over the past month.

from new york, this is bloomberg. lisa m.: keeping you up-to-date with the first word. kwasi kwarteng has confirmed he will step down as chancellor. the times is reporting jeremy hunt is in line to take over after the position. liz truss expected to hold a news conference later today expecting to reverse parts of her economic strategy. that u-turn follows weeks of market pressure to explain how she will pay for her program. attention focused on whether liz truss will cancel plans to freeze corporation tax next year instead of raising it as previously planned. kroger has agreed to buy rival albertsons at a deal worth an estimated $24.6 billion. the company say investors will receive $34.10 for each share in albertsons which includes a

special dividend. the company plans to sell as many as the hundred 75 stores through spinoff. -- 370 five stores through a spinoff. 24 hours a day on air and online. i'm lisa mateo, this is bloomberg.

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>> for the fed, they are strapping themselves and for this. they are expecting an increase in volatility. i don't suspect the folks at the fed -- the evidence of something that is not working to the point where they are worry about it -- worried about it. jonathan: live from new york city, we are about 12 minutes away from retail in america.

cpi, 24 hours later in this market. we were down 2.4% at one point on the s&p 500. we close the session up about 2.6%. the yields are lower by about three basis points. 3.8789. they were absolutely ripping higher, right through the curve. lisa: given the whips, the lack of logic behind it, there is not a cohesive theme driving activity. people point to issues driving with algorithmic trading. it indicates a jumpiness that makes this market prone to a much bigger move. jonathan: the chief investment strategist at loophole group joins us now. at one point, this market had given back 50% of the post-pandemic rally. then we ripped off the bottom yesterday, what happened?

jim: i don't know either, jonathan. i would say a few things. market, bear markets don't generally end under conditions that make a lot of sense. usually the news is horrifically bad. you feel helpless and there is no solution to the problems you face. the market starts going up for no reason whatsoever. that is kind of the case in most of them. do you think march 23, 2020 when the market dropped 35% in 23 days that it all of a sudden took off. anyone really thought that was it, it was over. same thing in march of 2009 when it finally took off. it took a long time to convince all of us perhaps that maybe it is behind us. it often takes off when it doesn't make much sense in the

news is still horrific. often times it is when the news is as worst at is -- the news is worst as it has been. could be the type of things that start a new ball or it could be a dead cat balance on an oversold market. very oversold market the last five days takes temporary bounds. i don't know either. i would say one other thing. it is somewhat interesting to me that we sit here in the s&p 500 now, it is the same level it was at the june lowe's -- junethinke rate hikes by the fed. curve. a lot of hawkish talk. increased recession fears, increased fears and the market has not gone down. it might say something about how lust out --lushed out this

market is. we have terrible sentiment on wall street. not much better sentiment on main street. we have a fed or chemist rating -- orchestrating monetary policy that is not sustainable. lisa: this is where i wanted to go. i remember the last time you came on and you said it was partly because the fed was going to pause and people were overzealous about expectations. have you rethought that at all given the cpi that we got yesterday? jim: they are not going to pause this month. you are exactly right. pretty firm going to 4.5. i think they will be forced to. i think that is what the market is thinking as well and why it is hanging in there. one other thing to think about, the two year swap, the one year,

the fed will go ahead and do at least 75 in early november. look what is going on with the five-year, 10 year, 30 year. those are below where they were before the report came out. two days of back-to-back inflation reports. what might that imply? it might be that the fed does not been -- blink. maybe the bond market blinks. if there is a bad inflation reports, the charge to move the fed rates even higher, you might start to escalate recession fears over inflation fears. that will bring bond buyers in. i will start buying bonds at 4% on the 10 year. jonathan: do you want to buy stocks when that happens? jim: that is the question. i think you do. the fed might stop because it could no longer raise rates

across the curve. they are thinking the policy will create a recession. it brings buyers into the place. that could stop the fed, too. i think the stock market is washed out. it wasn't only the stock market that blinked yesterday, it was the bond market that said no, i know the fed will do what it's going to do. yields are done going up and the stock market is done going down. we will see if that holds. interesting over the last couple of days. jonathan: that means they will have to cut because it is so bad. do you see where this is going? lisa: the dovish market. jonathan: you are killing me. lizzy: the mortgage -- jim: the more aggressive they get, the more you will bring recession fear over the primary fear. let me say, i recently put this out early this week.

i looked back to 1948, we have had 12 recessions. how much had the market pre-forecasted a recession coming in the past? the average median decline in the stock market prior to the first month of this recession starting was about 5.5%. we are down 25%. we are down five times more than the average market decline prior to a recession. there is a lot of bad already booked in the stock market. we could have a recession. i'm not sure the market has to go a lot lower. a deep one in 2008, 2000, certainly it is going lower. we are heading for more of a mild recession. maybe that is priced in already. what really matters is if a rate structure stops going up, i think the stock market starts to look a lot better as well. jonathan: a constructive view,

thank you sir. the less bearish view on this market. lisa: as gina martin adams was saying the earnings are coming in suggesting there is something going on and we have priced in much worse. the flipside is if things get bad enough and they have to go more harshly, there will be economic damage in the meantime that would be a scenario that would be difficult to digest. it is a very difficult thing. jonathan: did you see what bank of america called this? said it was a hug for the bears. coming up, first deputy managing director of the imf. lisa: i don't think they are giving much hugs. jonathan: from new york, this is bloomberg. ♪

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jonathan: u.s. equity sales

numbers come out any minute now. mike mckee brexit out -- michael mckee breaks it down. michael: they are flat in the month of september. last month they were up .2%. you have a point -- a .1% gain. retail is up a healthy .4%. he autos, gasoline, the things that are coveted in other areas of gdp. looks like a healthy gain of 4% -- gain of .4%. let's take a look at what moved. tessa lane is likely to be down. gasoline stations were down 1.4%. that is not as bad as the 5.2% decline the prior month. looking at motor vehicles, down

.4%. gas and motor vehicles are dragging that headline number down. food is up .4% on the month. health stores up .5%. general merchandise is up .7%. general stores, .3%. retailers decline in august but rose have been percent -- rose .5% in september. a fairly wide range of solid gains in retail sales. economists have been pointing to numbers from the major banks showing people still have significant deposits from last year's stimulus and still using credit cards to buy things. right now the consumers are hanging in there, also probably a function of the fact that job growth is strong. jonathan: futures basically

unchanged on the s&p 500. yield lower about six or seven basis points on a 10 year maturity to 3.88. reaching for 50 yesterday. -- reaching for pfizer yesterday. lisa: what it does make sense with is the import price index that declined more than people expected and this idea that we are getting imports for cheaper in the u.s. because the dollar is stronger. that has a disinflationary effect. i wonder how much that will play into the calculus in terms of the push pull of how the fed goes. jonathan: i could not make sense of yesterday, i want to make sense of it today. you can't define the data based on an intraday move in the market. lisa: no. i would agree with that. jonathan: michael mckee joins us again. i want you to back to this and set things up for november.

i'm not sure what is left. go through what this fed will be sitting on when they next meet. michael: the one big piece of information we will have is gdp for the third quarter, the first estimate of that. right now it is looking good. atlanta fed had us at 2.7% growth which is a rebound from the two quarters of contraction from the first half. you have a strong job growth, healthy gdp, you have consumers still spending. we still have inflation. it does suggest that you probably have to do more if you are the fed. does that mean a higher terminal rate? hard to say. doesn't mean they will go faster? they are locked in for .75% in november but they might do another in december. two parallel stories from this. they may have to do more.

they may be able to get a soft landing if they can get some movement on inflation. jonathan: good to catch up. mike mckee breaking down the resale -- the retail cell numbers. things are breaking down in the u.k. we are hearing from the times again that jeremy hunt will be the u.k.'s chancellor. chancellor quatrain was sacked. we are set to hear from the prime minister potentially at 2:30 local time. that is the latest guidance i am hearing, about 9:30 in new york. i know i -- i know in d.c. it has been as busy as for us. tom: you are absolutely killing it. you have led the coalition of this historic moment for the united kingdom and i'm sure you will continue to do that with guy johnson in london. it is an a historic meeting, any

number of topics to speak to. gita gopinath of the international monetary fund. just a few days ago -- your research capability says what is the best first practice for this fractured government in the u.k. what is the best first step for them to get to some form of new stability? gita: it is a pleasure to join you here. we are following the developments in the u.k. and there are issues we don't comment on. we hear there is some recalibration likely to happen on the policies but we don't have any details. we will see what comes next and then we will be able to comment more. tom: we will get much more from the managing director i'm sure as well.

this is how quickly things are moving at the monetary fund -- international monetary fund. released within the hour is a read on how countries should respond to the strong dollar. gita gopinath pulling an all night drawn this. what i see is you speak of amplification leading to instabilities. can the strong dollar amplify the world's risk of instability. gita: when you have sizable movements in the dollar, it has a sizable implications for the world economy because it is dominant in trade and finance. the important thing to keep in mind is there are fundamentals driving these rumors. the differences in the path of much a policy, there is an issue of high prices in countries. this is going to be a bit of a

rocky ride for countries that they will have to adjust to it. they have to use their own monetary policy tools to keep inflation in control. tom: we are going to speak about emerging markets, let me stick to the major countries and look at the yen experiment. jonathan ferro is transfixed by yen 147. what is the counsel of you and your chief economists to the japanese to extricate themselves from their unique yield curve control experiment. gita: there are fundamental reasons for that particular divergence. japan has decided to keep the course of raising interest rates while the fed -- leaving interest rates alone while the fed decided to raise interest rates. that is one of the primary drivers of this difference. the fact that the yen has lost

value relative to the dollar. over time, monetary policy will have to figure out the best course because of developments in japan. given the diverging trends, currency movements will look like they do now. tom: if japan capitulates to a moral -- to a more normal monetary policy and yen goes strong, 1.48, 1.50, what will that do to the pacific rim financial system? gita: we have to look into that and see if it happens in a disruptive manner or an orderly manner. we have exchange rate movements all the time. when you have movements in exchange rates, the problem is when you have funds or banks that are borrowed in multiple currencies and have not sufficiently hedged themselves. those skids affected. if you have hedged yourselves --

tom: we are going to ask one more question. i did a careful read of this blog -- folks, this is the read of the weekend. i will have it on the website. nowhere do i see that you are at the plaza court. how does a pro like you respond to the media silliness back to 1984? what do you -- how do you respond to people saying we need another plaza court? gita: that is not where we are. when the plaza record worked -- plaza accord worked, it was because there were other kinds of fiscal and monetary policies and so on. i don't think we are going to have a plaza accord. tom: i am fascinated by how people's time from his back 40

to 50 years. what is your observation in the meetings here? gita: there is clear recognition that inflation is stubborn, it is persistently high. i do think central banks are careful to not stumble along the fact that maybe this is going to correct itself automatically. there is agreement on staying the course. the second piece is about making sure monetary policy and fiscal policy are staying consistent and growing in the same direction. everybody is concerned with financial fragility in the sense of what could be lying in the dark corners. tom: gita gopinath, they do so much. she is the managing director -- first deputy managing director in new york. lisa: so important to hear

fiscal policy tightening to help monetary policy. u.k. 30 your guilt, yields down 4.4% after reaching 5% days ago. coming up, we have more from the imf with our very own tom keene. this is bloomberg. ♪ >> keeping you up-to-date with news around the world. tough talk from nancy pelosi in a video shot during the january 6 insurrection. the house speaker said she wanted to punch president trump if he showed up at the capital. video released by cnn shows nancy pelosi in her office as the capital is about to come under salt -- under assault. she says i hope he is going to come, i will punch him out, i will go to jail and be happy. republicans are demanding --

senators are demanding documents about his role. elections in the coming weeks will determine congress. rafael warnock and herschel walker are deadlocked in the georgia race just four weeks before the election. the candidates will face off in their first and only debate in savannah. neither has managed a breakout in the little contest. georgia is a crucial stint in the battle for control of u.s. senate. chinese censors have restricted the search term beijing on social media. it comes after a rare public announcement of president xi jinping. rumors about his strict covid policy are struggling on social media. it comes days before he advises vision for china at the congress which she is expected to receive a third term. kroger has agreed to by

albertson's in a deal worth $24.6 billion. in joins the two largest u.s. operators of supermarkets. investors will receive $34.10 for each share in albertson's which includes a special dividend. the company plans to sell as many as 300 for the five stores. . this is bloomberg. ♪ this... is the planning effect. this is how it feels to have a dedicated fidelity advisor

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>> the most important task, to secure our economies is to win the fight against inflation. that means were central banks to show the resolve necessary. lisa: at the imf, georgieva

speaking. at 10 downing street, cortan reconfirming her commitment to the energy price guarantee and what she says will go down as one of the most significant inventions of modern times. we will see more later today about how much of their plan has been pulled back in response to market volatility. let's head back to washington, d.c. tom keene with a special guest. tom: i believe we have an important press conference at the 9:00 hour. we will review that television and radio as well. right now in these unusual times, any unusual interview with raghuram rajan, former governor of the central bank of india. he has provided two magnificent books of the era. he defined the crisis of 2008 and 2007 with faultlines in "the third pillar."

"the third pillar" has been prescient about the changes of america, none of which we could talk about for there is only one topic. the topic is the strong dollar, what it means for our bloomberg surveillance audience, and you with great financial sophistication are watching cash in international overnight lines calls while plans in nations that don't have those instruments available. tell us your view of liquidity. raghuram: this is a phenomenon across the board and reflected in the u.k. the central banks flooded the markets with the most liquid asset on earth which is central bank reserves, tens of trillions during the pandemic. now that we are drawing that cash from those markets -- what happens when we withdraw that cash?

thanks -- a lot of people depend on that cash for final settlement. that cash is shrinking and things are getting tight in financial markets. you look at every measure of liquidity, it is off the charts. it is back to a march 2020 levels in the u.s. think what happened in the u.k.. you have this pension funds and you need to make margin calls. they need cash but no one is willing to lend them that cash. what do they do? they sell assets. you see the interest rates go up. the problem there was government action. you can think about accidents waiting to happen across the world, including for emerging markets. tom: let's talk about others like the u.k. that have swap lines where there is confidence to go to the central bank of the u.s. is that system working now? or do you have a fear we could

fail with more sophisticated nations? raghuram: the federal reserve has made commitments to a number of countries. it is the countries outside that system which has bigger problems. when they need the cash, what are they going to do? they're going to sell their stock. that creates a price impact in the markets. they are managing. if there is a big demand for cash as under the u.k., you must sell. tom: people at these meetings make clear their looking back 40 and 50 years. is em different this time? is it more prepared for the crisis? raghuram: it is more prepared because it has both reserves. it has seen this story happen again and again. the big em's are prepared.

these mother e.m.'s, nausea -- the smaller em's, not so. higher fuel and food is hurting him a lot. many are on the brink. not so much liquidity, but they cannot service their debt. tom: lisa emails in and says you have to ask about the pacific rim. very simply, the bank of japan has an original experiment which is not taught by randall crosson. it is original. week yen -- weak yen. at one point we will see yen go 1.48 to 1.48 in a heartbeat. what is that due to indonesia? what does that due to china? raghuram: any volatility in

asset prices creates a problem somewhere. wendy yen strengthens significantly, it probably helps other countries a little bit. the problem to some extent is people who have borrowed in yen and thinking this is easy money, we can repay it effectively. a bigger problem is for people who are hoarding jgb's. think what happens to them. the bank of japan has to move off of its yield control. how does it move off? it is riding a tiger. you have to step off in small steps. but they know they have to get off it. what happens to jgb's is a big price fall. tom: time for one more question, unfortunately. they are riding a tiger as their

tiger holds their party congress in china tomorrow. how does china fit into your view of pacific rim and india given their unique covid strategy? raghuram: i think they are hurting themselves. the question is how do they move off when this is so close the associated with president she -- president xi jinping. india is benefiting a little bit. the real question is what happens to china after this. how do they find a way to move off of this? how do they buy question vaccines and started vaccinating the population with effective vaccines? that is the big question because they cannot continue this strategy forever. tom: i appreciate it. former reserve bank president -- reserve bank governor, raghuram rajan.

lisa: it has been an extra ordinary day in washington. it has been an extraordinary day in u.k. jeremy hunt has been named as the new u.k. chancellor. this is after the previous change that exited after 38 days making him the shortest serving chancellor to leave the office. we are seeing a bit of stability in the pound, but still a bit weaker. in a broader sense, markets have rebounded ahead of the open. who knows by the end of the day because things tend to swing around. yields lower on the heels of some of the recent economic data. coming up at 9:30 eastern, we will hear from liz truss. this is bloomberg. ♪

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jonathan: i feel like the next hour should be a therapy session for market participants. good morning, stocks are up, the content 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. tom: -- jonathan: