>> i think the fed is going to be able to get inflationary pressures to subside, but at what cost? >> over the next three to six months we stop a lot of monetary tightening ahead of us. >> it may be some time. >> i don't see this happening anytime soon. >> this is bloomberg surveillance with tom keene, jonathan ferro and lisa abramowicz. tom: good morning, mr. pharaoh

is gone. we are here and lisa, we put our heads together and guess what, we are considering it. thursday. there's so much going on this morning. we'll go to london, lizzy burden briefed on the movable feast of the collapse of the british government, we are not there yet but there are reports coming. i saw something from scott moments ago. we've got to go over to the bond market, which two days in a row pivots to higher yields. lisa: this is frontloading thursday. jim bullard coming out yesterday with kathleen hays and saying they need to frontload. some say they're going to also continue after that. that two year yield, we are almost at 4.6%. we are pricing in 5% fed funds rate next year. this is a game changer for how far the fed can go and how much it can withstand. tom: jonathan ferro does not

like to do math, we're going to do it. a huge negative, 10 year real yield, a new high on the 10 year real yield, we have made it 88% of the weight back to where i was before the great financial crisis. we are getting back to what i knew as normal. lisa: and it is not just nominal yield. it is driven by the feeling the fed will have to have a higher base rate that it had and a higher inflation at a time when again, people gaming out. we heard from one bank yesterday, 5.25% fed funds rate, these are projections on wall street right now. tom: on pivot thursday, maybe corona will pivot, the bank of japan. the minister of finance will pivot. i woke up to a 150 hand. that is historic. lisa: you also saw the 10 year

japanese bond rate above the range. we are opening up to criticism, people are going to send this -- us gifs of people dancing or pivoting. it has been dragged under the mud. based on the idea that the fed is not going to associate with and them ark it is pivoting away from that. -- market is pivoting away from that. tom: on the chaos, it is more immediate for prime minister liz truss that it was. lisa: they are saying we hope she doesn't last through the night. that is one of the mp's, they hope she does not last through the night. tom: for those of you framing caution, our guests will join us. let me do the data, futures -12, the vix goes nowhere for six weeks, 31 level on the vix and

the yield structure, four point 58% -- 4.58%, oil not part of the story today. the dollar interesting with real pacific rim weakness. chinese stocks really not doing all that well. i don't know about you, but let's pivot to a brief. lisa: let's pivot to 8:30 a.m., u.s. initial jobless claims. curious to see if they take up. the actual line since the pandemic, it looks like someone died. when does it come back up and start to give a sense that there is loosening in a labor market that has been tight? the talkshow that is fed speak includes philadelphia fed president patrick harker, fed governor philip jefferson, fed governor lisa cook and fed government -- governor michelle bowman. jim bullard set a tone yesterday

that it is important to frontload but also to wait. tom: i'm going to listen to parker. he has a great concept with his business background of the manufacturing of the philadelphia region. with earnings coming off of procter & gamble yesterday, i believe american airlines up. lisa: let's talk about earnings, we do get american airlines. blackstone, i'm curious about that sale space and whirlpool. industrial companies i curious about. tom: that tool is this for snap, it will be amazing to see. lisa: snap-on? tom: is it snap or snap-on? lisa: it is snap, social media thing. tom: providing clarity. her favorite guest joins us, usually popular with the bloomberg surveillance audience, chief multi-asset strategist max. when does the gloom lift?

>> good morning. it is going to take some time. i cannot see rick's -- risk assets, equities forming a bottom before we see the correlation between race assets and rates turned negative. why is that? very simple. that would tell us the market is switching into proper recession concerns. i have listen to you guys just now. all we are talking about still is inflation. all we are talking about is are there going to be further upside surprises in inflation, in the u.k., we have seen the u.k. broadly in mind yesterday. it is still enough to inflict rural-based pain across asset classes and that is our positioning still. tom: julian emanuel at evercore does a daily note, he talks about forming be dry kindling of what could be able market. the market gets out in front of the econo babble.

is the market doing that now? max: it is not really unfortunately. we have an almost abnormal session with all things inflation. whether that is the claims day today, inflation expectations from the university of michigan, the survey for example. the problem we are facing now, if you want to jump on any kind of relief trade, goldilocks trade, the big issue you've got is none of those data can get in your way. cpi's, pc's, ppis, and fts -- nfts or claims. the risk reward on such a relief rally, a year-end relief rally is extremely poor. it is an extremely poor risk reward whether data can get in your way and smack your trade.

lisa: this seems like almost a consensus, bearishness on wall street, the expectation of downturn. there is bigger controversy on the long end of the 10 year treasury curve. some say it is heading higher because we are going to lead to an inflationary environment. then hsbc is saying probably not. are you bullish on the longer end of u.s. yield curves? max: i am not quite yet. i don't think we are quite at the point yet. we need to see a couple of things happening. one of them is, if we see certain parts of the yield curve move further toward inversion, we have two's tens are inverted, we also know that part of the curve is usually the worst of the common yield curve in signaling, the signaling effect in terms of recession. it is better if you look at three-month tens or the front end forward spreads.

those are still positive territory. we need to see them first at least flat until we can really play that sort of end of cycle recession trait. and we learn on the other hand, the reality is that heart activity data are still strong. but we all feel miserable, everything is pretty much doom and gloom and misery. that is based on pmi's and surveys and soft data. but the hard data are holding up well. that keeps yields still on the upside. we need to see that change that the hard data surprises start to converge toward the soft out of surprises that it is time to switch. lisa: given you have to recommend an allocation, is it 100% cash? max: absolutely not. we have just moved into maximum

overweight commodities this morning. we are concerned about not only the demand-side of things, for example gas to oil switching particularly in europe, so not only on the demand-side but also the supply side, fearing underappreciated supply concerns that keep us quite bullish for the next couple of months on energy. we do like value overgrowth in equities. we do like things like insurance, food and beverage. not only cash. tom: we have got to go but give me a brent crude price, fold your optimism. do we go back over 100? max: i think we are going to go back over 100, we have a 100 average q4. it will take some time. tom: max kettner of hsbc, with the pivot going on, lizzy

burden is scheduled to be with us if we can link up with her at 10 downing street. a research report, fluid on the earnings season with 20% coming in. oliver chen channeling what we talked about, what was the stock that went down 45%? lisa: ola plex. tom: he comes out with a research note on sephora and everybody watching, young girls know what sephora is, and he is robust on sephora and old-time and ought to be based on what i see coming in. lisa: there was a story in business week this morning about how wealthy consumers keep spending at accelerated rates. this is the diversions between the deciles, where the other -- upper dessau keep spending and these companies can increase prices at a rapid level. tom: way above. lisa: but how does that factor

into overall inflation when you have a significant portion of the population on its back? tom: i agree, you may be of two markets where you have cautioned of max kettner but also optimism of julian. coming up from london, lizzy burden joins us. this is bloomberg. lisa: keeping you up-to-date with news from around the world with the first word, i lisa mateo. liz truss' premiership is looking fragile after a day of drama in westminster. british leaders fired one minister over a security breach and two others resigning amid the common -- the fallout of a commons vote before agreeing to stay in their posts. lawmakers want her to resign. ukrainians being warned about rolling blackouts because of damage to the power infrastructure from russian missile attacks. president zelenskyy urging

people to use as little electricity as possible. he has said about 30% of ukrainian power stations have been destroyed since october 10. italy's berlusconi says they have forced russian president putin into an endless war according to an audio obtained by an italian newswire. the recording reveals the pressure on the right wing coalition that won elections last month to soften the stance toward russia. netflix executives battle it out over releasing more of its original movies and theaters. -- in theaters. wall street journal argues some think they are leaving millions of dollars on the table, showing select movies in theaters for a few weeks, while others feel it creates pose for the streamer service. --streaming service. global news 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i'm lisa mateo. this is bloomberg. ♪

tom: bloomberg surveillance, ms. abramowitz and tom keene, jonathan ferro on assignment. futures at -13, the vicks 31, yields higher, the yen prints 150, a week yen. but all eyes in international politics turns toward london. david will join us with his work from the bank of england and now dartmouth. in front of 10 downing street, history is made, our lizzy burden. there is so much speculation and the british press is a beast. let me go to the discussion of

this committee that makes the rules for this leaguer conservative party. tell us what the 1922 committee is thinking on a thursday. lizzy: the winds seem to have changed in westminster because yesterday it seemed as if the tory party was going to give liz truss a chance to cling on until the halloween budget. but since the chaos yesterday over the fracking vote, the resignation of the home secretary and another, there is massive call for her to resign. there are discussions of who is going to replace her. they are talking about rishi sunak, some are calling for boris johnson, saying he has the biggest negative anyone because he faced a general election. i don't know if you can hear the protesters, i don't want to --

the same guy we are yesterday calling for tories out. that is the fear. if they replace liz truss, the fear is there will be a general election. tom: 20 seconds in between protests and the gentleman intruding, what is the likelihood the prime minister will resign today? for the american audience waking up, is this immediate or is this something where she gets to the weekend? lizzy: i can only tell you the international press is gathering here making sure there on shift to cover it if the lectern comes out. mp's behind-the-scenes say there are hours to go. photographers keep shouting range rover because you've got ministers coming and going. you've seen the chairman of the conservative party. it seems the discussions are ongoing for who is going to succeed liz truss. it could be hours. tom: saving petrol in their

range rover's. lizzy burden in front of 10 downing street, we will continue to follow this story with the government team in london. the perfect guest for this morning, nothing like this ever happened in his wales in cardiff, david joins us, dartmouth professor of economics, former bank of england monetary policy committee member. i guess i want to avoid the politics. within the chaos of london, the commonwealth outcome for the people of the united kingdom, whether labor, tory, tory government, will england be poor and 12 months? david: i think so. there is a risk premium that has happened since the terrible budget. the financial chaos is what has driven the politics. you saw a budget that did not work out with the funding was.

they find the secretary of the treasury, they said more tax cuts are coming and that markets did not like it. we saw the pension funds collapsing. mortgages not being able to price products. that kind of chaos has caused the politics. i think it has caused the economics and it has caused people to be poor. -- poorer. they said it is not looking good on the downside and maybe the bank will not be able to raise rates as much as markets are thinking. this is apoplectic. i've never seen anything happen so quickly. the economists said they did not think liz truss had the shelflife life of a lettuce. the the lettuce is probably going to win but the british people will lose. lisa: it depends what kind of lettuce. david: they posted it. lisa: they have in life.

david: from tesco's. lisa: what is your thought come out you thought the bank of england should raise rates by 100 basis points in an emergency meeting in order to get credibility. they did not and they won in terms of markets moving toward them. what do they have to do next month to come together and understand an approach an economy that will weaken and plans that look more like austerity than anything else on a physical level? david: right. in a sense it is asking what is going to happen in the next 24 hours. we don't know. there are arguments on the one hand to say you need to stabilize the currency and worried about inflation. but actually data from yesterday suggests the u.k. has had peak inflation. the evidence is actually that the economy is going to slow. we don't know what is coming. we've heard spending cuts are coming. but that was yesterday.

on one hand they are strong to raise rates and the other to cut them. they are going to calm nerves, that is with got to do. tom: professor, what changes if labor takes over? in the mess of this, what happens if it is prime minister starmer? david: i think you are going to see things at the edges. if i was advising him, i would say you can't really do anything much to start with and the shadow chancellor said this. you got to get in, calm nerves, work out with the right strategy is. probably, they would probably on the first day impose a windfall tax on the oil companies and the ceo of shell has even said that is probably sensible. they may well go and impose a windfall tax on the banks. but i don't think they're going to move very fast. the chaos that is going on, i

have never seen anything like it. the political chaos is feeding back to the economic chaos and they are going to have to calm nerves and say we are not going to do anything stupid, we're going to pull back the budget, we are going to talk to the obra see what we're -- see where we will go. it made it clear that they will see them take stock. you don't want a situation where you are trying to catch a falling knife. if u.s.-made out the answer might be different. tom: comeback back in an hour. david blanchflower of dark red college -- dartmouth college, thank you. when the moving averages converge to a point, that is where we are now. 111.90 7 -- one point 1197 -- 1.1197. you pick your level on sterling where it goes week or dry. lisa: gets more complicated.

you do have yields coming down from the long end, positive from the bank of england. but you do see a pervasive weakening. perhaps not to recent lows but the pound has lost a lot of international clout. when you do have everyone calling for austerity, you do have this expected lower growth picture to matter what happens. what is the market calling for? what is the breakpoint? what are they going to lobby, the tories or anyone else come out to do? tom: it is a political battle, where is jonathan ferro? lisa: you keep mocking his disdain of the dow. he is on a well-deserved day off. have a great time. tom: we keep telling him things. --good morning. ♪

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tom: good morning everyone, bloomberg surveillance, following a number of key stories in economics, finance investment and politics as well. no it is not washington and the midterm elections. it is the chaos in london. we will continue with that coverage. i want to point out the yield shift, the yield curve static

here. but the real yield of two new recent recovery highs. 1.69% on inflation adjustment yield, that changes the dialogue for everyone including blackstone out with earnings in a bit. lisa: picking up on earnings, last night after the bell we saw alcoa earnings come out one of the oil -- excuse me, the metal giants. it came out disappointing, shares plummeting. how many more bellwethers to be have to have? you're not seeing the same demand for electronic goods that use metals, cars that use metals, from china. how much do we see that theme as we get earnings trickling out? tom: what is interesting is they were the first to report. out of pittsburgh they use to take huge pride in reporting early, now everybody has caught up with oco -- a cola -- with them. lisa: how many do you need to

see? tom: look at procter & gamble headlines. lisa: still managing to beat. but for how long? these are themes we're looking at understand where we are going? tom: returning 6.4% on the year, it has been a challenge. lisa: and how much has been a lack of investment when there's a shortage of real-world stuff? there is also been a shortage of housing. we get housing data that shows plummeting sentiment but prices hanging in there. at what point do we move on? our guest has been covering this all. the meaning behind some significant -- in the housing market. how concerned are you as we see yields rise and valuations of housing across the world plummet? how concerned are you about this being a note of instability

going forward? >> i'm very concerned but also i am not that certain yet of this being the start of a major house price correction. i think what you should realize, what we are seeing here is kind of a steep correction after a very steep rise of house prices. that could also be the air out of the market where depending on which region you are looking at, because this is all institutionally determined, but in a lot of housing markets, what you are seeing is that there is a huge shortage. price rises have been massive. that has been basically eroding affordability already before the war. then the interest rate rises translated to mortgage rate rises and that could be a trigger event.

however, shortages are still there. if there is a fast price correction of some percentages, that could also mean affordability comes back and that would mean transactions come back and there would be support in the housing market. lisa: but there could be a big concern, something significant that could happen and this is the imbalance people are looking at. looking out when you see yields rise to this degree, do you feel it is sustainable on a global asus? do you feel we are seeing the beginning of certain triggers that cause some violent and? -- end? sandra: there are numerous risks out there that could lead to a violent and -- end. you saw mortgage demand in the u.s. decline with 86%, that is quite shocking. i just mentioned our base case,

which is still a moderate correction. but you could imagine something much more severe. the way to think about is if you just take the mortgage rate rises in most countries between new mortgages now in six months ago, it is about a 4% difference. if you would assume people cannot afford higher monthly payments, especially not in these inflationary times, that would mean their lending capacity is decreasing 20 to 35% and if that were the house price correction will be looking at a disaster. tom: you have a beautiful distinction between the rates of change of the game in europe, across the atlantic to america. you talk about america leading softly, and a rapid deterioration within europe. how does lagarde and ecb adjust to that reality? sandra: i think lagarde and the

ecb are mainly focused of course on what is happening in europe and the nature of the problem are more severe in europe. but still, i think lagarde is mainly worried about inflation expectations at this point in time. and of course, how all of these shortages, even though gas prices are declining significantly, the real worry is now people are getting more aware. it is not only about this winter shortages but next winter shortages and potential. tom: unfair to you but i'm going to rebook the script, sandra of abn amro here, in brighton, they are giving a speech where he says we need a general election now. how would a general election now in the united kingdom change the

financial markets in the city? sandra: i think that could be -- well in the first moments, give more uncertainty, but in the middle to long run there would provide more certainty. because i do think the situation now is basically not -- now is not reassuring at all, but the problem i think that markets are digesting still is what we have seen in the last few weeks with liz truss is basically a situation where politics and financial markets and the bank of england are really not moving in the same direction. also eroding each other's credibility and does crisis is basically not solvable. i think markets are certain to praise and the idea that whatever you turn is going to

happen, nobody is guaranteed there will be a turn around the corner a week from now. tom: thank you, center with abn amro, we do see a weakening of sterling i would suggest off this idea. where is jonathan ferro? you and i don't know what we are talking about. it's like what? that is where we are. the answer is the telegraph reporting starmer in a public speech saying let's get a general election out there. i agree with ms. philippen that that would clear uncertainty. lisa: there certainly needs to be a changing of the guard and that is what we hear. it is not good for any party or political regime have so much dissent publicly with people calling for someone to step down. there is a larger take away over the past few weeks, that governments are constrained by what the market lets them do. tom: the electorate as well. lisa: and this is a new paradigm.

the idea that markets are in charge, popular support is in charge and they cannot make violent moves away from what they will be allowed in markets. this is a new regime foisted upon them. but the fact that money cost something and that has been a lesson from the united kingdom. they are not alone in that. it is very much a lesson for europe and the u.s.. tom: moving into the end of october, max kettner of hsbc was talking about the year ahead piece which people are talking about. what is different now is money cost something. that is a massive generational change for x percent of people watching surveillance. lisa: we heard that from senator warren with david westin. he was saying it is important to reduce the deficit and be cognizant of how much we are spending. it is a renewed fiscal discipline caused by where the market is. people are talking about reducing the deficits. at what point does that really push policy in that direction

and hold them accountable? i would argue the u.k. is a prime example. tom: i'm watching surly, we saw the yen go through 150 this morning. for those keeping score at home, through 11170 -- 1.1170, when you go out four digits, you say that is glad night and the tips. what you probably -- gladys knight and the pips. lisa: i get that, and you rounded up yesterday so i don't even know you. tom: but sterling is weaker today. lisa: earnings rolling out of the u.s., at&t the latest. people are turning to utilities as a bastion of safety when people pay their wireless bills. at&t did beat expectations. people will pay their wireless bill arguably before their rent.

people want their phones and we live with that every day. tom: pricing power from procter & gamble yesterday, all of your living in on tv, and nato. what is left of the telephone of my youth, flat for 10 years. not acceptable. lisa: fair, but you are getting a little bit of a pop and they are maintaining what they have had. they are not necessarily losing to the same degree. tom: less than they used to. lisa: exactly. and they are losing less on a relative basis. tom: am i supposed to buy an equity in the gross yield of 7.1%? lisa: a lot of people say it is attractive when you have the risk another stocks. others saying it is important to look at multinationals outside of the u.s. that can have the reverse effect of the dollar headwind. that is something people are going to think about. tom: a full day earnings, julian

emanuel mentioning 20% of market cap already reporting. it will give coverage in the coming weeks, including the tech overload. next week we get a massive tech overload. red and green on the screen. lizzy burden is a 10 downing street and sterling 1.1197, stay with us. lisa: keeping you up-to-date with news from around the world with the first word, i am lisa mateo. officials in china are said to be debating whether to reduce the amount of time people entering the country must spend in quarantine. they are considering setting it to two days in a hotel and five days at home versus the current seven days in a hotel and three at home. the covid zero policy of the country is leaving it isolated from the rest of the world. hong kong is reportedly looking to allow vip bankers who test positive for covid-19 during a gathering next month leave the city via private jet. about 200 people from local farms including banks, securities companies and asset

managers are set to attend the two day hkma summit. they may be allowed to isolate in hotel rooms. australian unemployment stalled in september while the jobless rate held steady, a result that reinforces the reserve bank decision to slow the pace of policy tightening. employment advanced by 900 people in august, try of the forecast by economists. unemployment held at 3.5%. sales have surged as luxury shoppers in china returned to storrs after pandemic actions eased, snatching up broken and kelly handbags. -- broken and kelly -- birkin and kelly handbags. more producers of luxury goods remain immune to the wider squeeze of spending. global news 24 hours a day on air and on bloomberg quicktake powered by more than 2700 journalists and analysts in more

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pres. biden: my message to american energy companies is this. you should not be using your profits to buy back stock or for dividends. not now. not while a war is raging. you should be using record-breaking profits to increase production and refining. tom: the president speaking on hydrocarbons yesterday, x number of days before and always critical midterm election. market notes, housekeeping to keep you advised through the morning. the yen 150 two hours ago.

149.78 is a weaker yen. oil not a story, we will get to that. i stand corrected cannot up a dollar. futures ingrained don't give us any love at all. and chris from tahiti says thank you for watching in micronesia. price up, yield down and from a 5% level down to 3.87% on the 30 year british guilds. lisa: i am busy watching the livestream of a head of lettuce and seeing whether it outlasts mistrust. tabloids in the u.k. have a livestream of a head of lettuce from tesco and they want to see if that will outlast liz truss' prime ministers should. there is a betting system with people betting on the lettuce. tom: a movable story, let us go to the movable desk let us go to lizzy burden outside of 10 downing street.

you and i saw something yesterday both of us have never seen, a white house, a wall street oil strategist. lisa: one of the most stunning things i saw yesterday was the lighthouse -- the white house putting in oil floor in an attempt to shore up confidence by oil companies so they would invest. what does this say to the rest of the market in terms of how closely they will be intervening at a time when it is unclear what they can do on the key refined goods? kevin is joining us. what did you make of the rhetoric out of the white house? kevin: morning. let me back up and asked the question about where we are in market democracy. markets essentially allocated by pricing scarcity. democracies allocate power through popularity and scarcity is not popular. something has got to give. you could ask are we looking at

markets as they were, and the answer, you refer to this, is no. we call it an age of intervention but on the supply side there is not a lot but governments, especially the government of the united states can do because it does not have an oil company. it is trying to send a signal to the companies out there that there is some demand that the government is willing to provide and therefore a floor on prices. not obviously going to convince when the price is skewed $20 to the upside of that floor. but it could have potential to persuade if that free hedge stays on the book long enough for companies to use it. lisa: none of this make sense unless you view it through a political lens. gasoline prices have come down dramatically and the real problem is in diesel. you're seeing those prices remain high and stockpiles fall to the lowest levels in decades. there is real concern we will not have enough heading into the winter. what is your view on why now and what could actually be done and how perilous the situation in

the diesel stockpile related's? kevin: will the european union is supposed to block imports of russian products. one thing that is always short, one thing we did not see is a project export. were talking out this yesterday but you down. tom: lisa grilled us yesterday on the export question. explain the ambiguities of a u.s. exporting hydrocarbons versus the u.s. saying we are done with that. kevin: we have been essentially exporting products on a net basis for more than a decade and going gangbusters with diesel. calling for the essential moderating part of balancing the market. inventories are low in the northeast. more than 60% below the five

year average for distillate fuel. that is a concern for policymakers going into the risk of shortage. tom: i look at the price of oil and i'm beginning to ct lives of china capitulated on quarantine and travel. in your clearview model, is the idea that demand comes back in asia and what does that do for brent at 93? kevin: if we look at the the chinese demand, let's back up, brush and fossil fuel exports, with decades. if you come on the demand side strong with china you will tighten markets a lot. you might argue inventories are still below the five-year average for stocks. there is still room but opec just cut. lisa: real quick. i want to link this into what we are seeing europe. you're talking about the

potential for control. where could we see the price of diesel? how could we see the price of natural gas increase if there is some sort of export ban or somewhere inventories are right now? kevin: we don't think we are likely to see a natural gas export limit. the white house has been clear about trying to support allies by providing supply. in terms of new plants, getting through the regulatory process, but prices at home, maybe you sort of put the brakes on. 10% of distillate in the u.s. is exported to europe. significant but not dominant from our export portfolio. we export zero gasoline. it is really the political meter so many people watch. more than half of our gasoline goes to mexico. if there is exports on hydrocarbons with large, particularly fuels, other parts

of the world could be a lot sooner. tom: kevin book, thank you. american oil $94 at brent crude. not far from 100. we have many pivots today and one of them is continuing news flow out of the united kingdom. brady is with this. not strange but foreign, 1922 committee. the committee that makes the rules if a prime minister comes or goes, how many votes are needed, how do you get to one candidate, 2, 5 and he has walked through the door of 10 downing street? lisa: the clock is ticking. i will just say you are seeing the metaphor of the head of lettuce on twitter letting up the screen as people say it looks like it is going to win. how much are we looking at the last hours as lizzy burden said of the prime minister ship, but

what comes next? the economy is facing a difficult moment. right now the tories are flat on their backs but there is not a clear leader. to receive boris boris johnson come back? -- do we see porsche shots of comeback? tom: is not our territory, but i will say that is not in the zeitgeist. it is about former chancellor rishi sunak and others talked about as well. i would say it is 7:00 wall street time, the dialogue has changed for lizzy burden just in the last 60 minutes as well at 10 downing street. we are following that story and higher yields. futures green now, futures up 11, too much optimism. we've got to speak with chris harvey.

>> i think the fed is going to be able to get inflationary pressures to subside, and at what cost? >> they are not at levels where one can say we can declare this. >> over the next six months we have monetary policy tightening ahead a bus. >> it will be time before we get dr. bates. >> i don't see to percent rates coming back anytime soon. >> this is bloomberg

surveillance with tom keene, jonathan ferro and lisa abramowicz. tom: good morning, tom keene, jonathan ferro and lisa abramowicz, mr. ferro on assignment. there is a shorter movement of a number of different stories and we are not doing politics 101, but there we are, it is a movable story at 10 downing street. lisa: it seems like the clock is ticking down on liz truss'prime ministers ship and she is getting to the end. jade knowledges wednesday was a difficult day and no kidding. she is under incredible pressure. she is going to evidently be meeting with graham brady. she has been asked to meet with him come out the member of parliament for west. all these questions around what happens with britain when it is facing incredible inflation, high rates as an economy heading downward. tom: the markets are important and then we will go to lizzy burden at 10 downing street.

strolling down 1.11, now took 1.11 -- now 1.1250 is different. the turkish lira, they cut their participation rate. erdogan doing 101 economics, a new level. lisa: i like that. the unconventional monetary policy getting absolutely hammered, the relief valve we have seen when it comes to japan as well. the weakening continuing to watch the front end of the u.s. yield curve, which arguably is pressure on everything. tom: can you ring 5% on the two-year? lisa: i think we can. it's like want to stick for two years? i don't know. what people are talking about a new regime that has been moved up and how is that exacerbating the political woes around the

world, in particular the u.k.? tom: brent crude four dollars - - -- brent crude. 149 78 on the end, everyone watching the ministry of finance. the euro does not give much, .98. the ecb meeting is october 27. lisa: something like that. tom: the swiss franc, we have not talked about that. some released -- relief for the swiss government. sterling is moving around and can keep score of that. futures up 11. lisa: let's talk about what we are looking at. the u.s. initial jobless claims, two bc they took up that so many fed members are looking for, but perverse reality and softening economy is what they're looking for. we get philadelphia fed president patrick harker, watching that closely. fed governor lisa cook, fed governor michelle bowman among

many voices. we will get earnings, we did just get blackstone. american airlines snap and whirlpool all after the bow. snap and whirlpool in particular, how much do we get the feeling that the s&p -- we are in a good phase? if you take a look at alcoa, those shares down almost 11%. a bellwether. tom: am i right that each company is a different story? i don't see a holistic vision right now. lisa: the pressures are holistic. fx pressures are among them. but the pricing power is different depending on who the customers are and how essential their goods are. tom: recalibration in the equity markets here at 37.19, christopher harvey joins us, head of equity strategy at wells fargo.

let's get to your breaking news from wells fargo, simply you go a little tepid on the banks. what did mr. dimon get wrong? >> he did not get anything wrong. we have been thinking about downgrading for some time. it just is not fit. we want to reduce our exposure to cyclicality, we want more defensive assets with those and banks did not fit in there. it was more of a macro issue than anything else. if you look at how banks are reporting, look at the numbers, performing in line with the market, we thought this was a good time to step off this trade. nothing that we really don't like about the banks, but we do think it is more of a market form. sentiment and the macro sentiment going to be an overhang and we don't want to fight back. lisa: does this earnings season matter? is it giving any forward look at what is going to happen or is this going to create a

revaluation that can make you double down more effectively on your thesis? chris: absolutely it matters. we are looking for forward guidance, how the consumer is holding up. we are looking for margins. for the most part we are seeing the consumer is ok. there is fear about the consumer and what we think the consumers doing and what is happening with the consumer. they are being pulled further and further on a ledge but they are not there to shed. markets are under pressure and they have continued to come under pressure but they have not cracked the way people thought. the issue with forward guidance at this juncture is you are not going to get a ton of looking forward guidance. that comes at the beginning of next year. when people talk about numbers coming down, they are early. you are not going to see those numbers come down if and when we go into a recession because that is a 2023 thing. you are not going to go on a limb and start talking aggressively about 2023 right here right now.

we are hanging from companies, things are ok. tom pointed out, you are not being saved by the broader market. but if you have underlying fundamentals and good trends, you are being awarded and that is important. lisa: we have been talking about the yield lift we have seen on the front end of the curve, gaming out what a 5% year, two year yield looks like. how closely are you as an equity investor watching for some sense of how much you need to bring down valuations when cpi around the world keep performing to the upside and surprise on the upside? chris: when we look at the yield curve, we look at indications of where the fed is going to go. the front end has been a good indication of whether the fed is going to get more hawkish. the front and pop-up, it will be more hawkish. we look at the 10 year, that is more about -- if you see the front rise, the fed won't stop because they are following what

the front end is doing. but the valuation is more about the 10 year at this point in time. the 10 year caught up what is happening over in europe and the gravity and the gravity it has on the 10 year. tom: i want to talk about a factor nobody talks about and give a nod to the person who owns the london school of economics. that is profitability. out 18 months, 12 months, there will -- will there be a partition between profitable companies and those nonprofitable? chris: we think about profitability come out when we think about quality, we think about balance sheets, r.o.e., r.o.i. c. we think about profitability and profit margins. it is important for our quality factors and the way we characterize quality stocks. is it going to be important? absolutely. we think we are going into a higher quality environment. some of those companies that were more profitable should be

more rewarded by the marketplace. we have seen that year to date. there is a duration component to some of these things but we look at profitability and we do think it is going to be influential on stock pricing, something we are placing focus on. tom: i year end target, 2023, help me. chris: we have not. we think the first half will be sloppy. that is when we think numbers come down and we will be dealing with recession. what we want clients to do is on these rallies, we want them to reposition. we want them to get longer momentum because that is a more defensive strategy. we want them to barbell momentum with some of the names which have seen some good reports, some stocks. but we have not put a 1223 number out yet.

tom: chris harvey with wells fargo. liz truss called for a meeting but i don't know what that means. we are looking at the follow on to our conversation yesterday with scott kirby of united airlines. you look at american airlines and i don't know the nuances. i don't know who is serving the best beverage of my choice. but what i see is american airlines telling me they are back to 2019 business. lisa: another major u.s. airline coming out and beating expectations, shares popping after the came out. but this highlights how much people are willing to pay for tickets. people are wanting to travel regardless of how much you have seen inflation increased the cost of that. also notable that american airlines is on track to reduce debt levels by $15 billion by 2025. this feeds into a theme of a bank of america fund managers

surveyed were the highest proportion of investor surveys said they would like to produce to use their cash to reduce debt bone invest in capex or buy back shares. the fiscal discipline is something we are seeing not only for governments but also corporations. tom: now we go to what matters. reporting off our london desk in paris on a small stock called hermes. they have the birkin 25 bag in togo leather crossing $7,242 and they are reporting you can nudge it over a thousand dollars with price increases. lisa: my favorite is you look at me with the handbag, but you are more interested than me. with respect to these pricings cannot a goes back to luxury goods being able to up their prices and sell just as much because you are seeing a real divergence, an even bigger divergence between upper and lower income houses.

you can see that with hermes. tom: opening on madison avenue in new york, they will open a new store in shanghai. interesting as they look forward to asia opening up. there is too much optimism. come back. this is bloomberg. lisa: $8,000 for a handbag, what are we coming to? keeping you up-to-date with news around the world with the first word, lisa mateo. ukrainians being warned of rolling blackouts because of damage to the power infrastructure from russian missile attacks. president zelenskyy urging people to use as little electricity as possible. about 30% of ukrainian power stations have been destroyed since october 10. videos burtis goni -- italy's berlusconi says they are forcing putin into an endless war. that is according to audio obtained by a italy newswire.

that shows pressure from the right-wing coalition to soften the stance toward russia. liz truss looking fragile after a day of drama at westminster. she fired one minister over a security breach two others resigning amid the fallout from a chaotic comments vote before agreeing to stay in their posts. conservative lawmakers now want her to resign immediately. australian employment unexpectedly stalled and september. jobless rates held steady, which reinforces the reserve bank's decision to slow pace of policy tightening. employment advanced by 900 people in august, well shy of the 25,000 gain forecast by economists. unemployment held at 3.5%. cargo volumes at the port of los angeles fell for the second month. the numbers were down 22% from a year ago, the lowest amount for

september at seven years. the head of the nation's busiest container port says the outlook remains soft for 2022. global news 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i'm lisa mateo. this is bloomberg. ♪

>> we did not have a full

briefing of the package the night before. to be fair, we had some breathing on the -- briefing on the event on the things they thought, but we did knock at the normal briefing we would get for budget. tom: quoting the latin, bank of england deputy governor, an interesting guy teaching at the university of western ontario years ago, a hugely prestigious school in the western hemisphere. and now the bank of england. futures ago green up 16, dow futures up 184. the vix has been static for six weeks, 30.79. it ought to be 29 or 28. it is not. we will get to the yield story in a moment. for those of you waking up in america, it is different in the united kingdom than it was yesterday and certainly within the chaos of 10 days ago. guy johnson is a student of this and joins us from london this

morning. in your briefing this morning, he made clear something has changed in the economics of the politics and chaos. what is it? guy: what is happening here, and we won't always see what is happening with liz truss, we might be entering the endgame there. but what you are getting here is a divorce between the party pantomimed that is taking place in westminster right now and what is happening with the politics and whether or not liz truss'advisor will replace her and who will be the chancellor. you got relative stability in the markets today, a pop in the pound over the last half hour or so i don't think it is substantially enough to merit the raising of an eyebrow. you've now got basically stability, macro stability which allows may be the endgame of the politics to unfold. what we saw last night, the

chaos in parliament, the aftershock of that is being felt. graham brady is now inside 10 downing street, the guy who determines the rulebook has to -- how leadership challenges are mounted or not mounted and we are watching potentially the endgame unfold. lisa: how messy could this be and what does it mean for markets? you are seeing a little stability in the pound but if we start to get a general election or some sense of boris johnson coming back, what does it do to that stability? guy: i think it is hard to tell. the best case scenario here is that you either get rich you should knock -- rishi sunak taking over or you get hunt taking over. or hunt remains as chancellor.

that is what the conservative party is craving flsa. are they prepared to go back to boris johnson? there are those within the party who would like to see that happen. but it may be the moment for the great men. we so that if you do is go about. you are seeing that becoming a reality. they want stability and credit. i am not sure boris johnson would bring that back right now. we are potentially 2.5 years away from a general election. lisa: how much does this change for the whole landscape? if you are looking for a technocrat after a drew the debate over russia and helping households, what does it look like in terms of depths of a potential downturn in the face of double-digit inflation, rates that are going to be higher and a pound lower? guy: you are going to have a recession in this country. probably a fairly neat one.

it will be unpleasant. it may be required his wealth of the u.k. go through this. i was joking with marcus ashworth, you need to get through that, you need to calm the situation. they be at technocratic government is ultimately the way to achieve that. it is interesting the comparisons being made with italy. tom: comparisons being made with italy and maria tadeo sent me a note on the interesting italian politics of berlusconi being visible at coming back. what is boris johnson doing? my knowledge is the crown and anthony eden and are not very good at it. -- i'm not good at it. is johnson part of the dialogue of tories in the 1922 committee? guy: there are some that would like to see him back. there are some that would like

to see his cake is him return -- cake-ism return, the positivity. but in some ways it comes with instability. that is the challenge. the tory party has experienced and continues to experience much volatility. i suspect they would want that to stop. i'm not sure they would get that with boris johnson. i don't know where he is. i have seen tweets of him on a caribbean beach. i can no longer guaranteed. lisa: eating lettuce. guy: i'm sure he is watching with great interest but he has a bank balance to fill. tom: help our audience at 7:23 new york time. it happens? -- what happens? guy: to be honest it is unclear. the fact that sir graham brady is inside 10 downing street speaks volumes. i don't think it was the resignation that was the

catalyst. i think it was the chaos in the house of commons. liz truss clearly has no authority. you need some buddy to run this government. in theory it should not be the chancellor but it looks like it is. you have had ministers quitting last night. more importantly you have the chief and the deputy chief appear to resign and on resign. -- un-resign. it was chaos and enough is enough, people want change and they hope they can get to the end of the month, does not look like it will happen. tom: a terrific and knowledgeable brief, guy johnson from our studios at queen victoria this morning. we will try to get back to economics, finance and investment. with bramo we can do this on yield. in my right that we have seen a shift and yields up, not so much dynamics in yields? lisa: exactly, across the entire

curve. basically people are seeing the likelihood of inflation remaining high for a longer period of time. i keep going back to this. markets are pricing in a 5% fed funds rate. tom: you say that? lisa: yes. we are pricing that in as a base case. how much has that been adopted into the broader market, especially considering that after that there are still cuts priced in the fed is going to have to back away even though they are saying we are going to hold it for a while. tom: bloomberg 7.20% 30 year bank you'll -- rate mortgage. this port -- this is bloomberg. ♪

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tom: thursday, bloomberg surveillance in one hour, claims that seem so secondary today. read in green on the screen. futures are up nine. yields, more exciting early on, they come back a little but .4%. new york crude, up 2%. in the currency space, a turnout after the drama of the weekend, 150. in the equity markets it is about earnings. lisa: we have about 20% of the s&p, what is catching my eye, this is the aluminum producer that signaled a loss in this quarter. they posted a loss and they highlighted that higher costs are crimping their margins and

falling prices. this is the problem with the time of inflation but quickly deteriorating demand. you see that in china, around the world for computer devices. at what point does this act as a bellwether where we see strength in other areas? tom: american airlines a completely different story. lisa: those shares are up nearly 3% after reporting more than expected earnings. we saw this with united, delta, alcoa is flat on its back with a 4% decline. tom: i don't know what to make of this. lisa: elon musk talking about an economic downturn in china, a lack of demand there. he talked about different supply chains and how they were different -- difficult for him.

right now, the take away is that they are being punished. tom: on tesla, talking about margin erosion there. i honestly don't know what to make of it other than when i watched the baseball playoffs, everyone is selling electric vehicles. lisa: the competition, that's exactly the point. some of the subsidies are affecting. tom: we will turn to gina martins adams and her team. right now, we're are still watching the united kingdom. for global wall street, it is about good, ample liquidity.

deborah cunningham has been with us. she is chief invested officer and we are thrilled that she could join us this morning. when you go into a meeting at 10:30 this morning, what is your first statement to your team on the liquidity of the market? >> the liquidity of the market remains good. it is one of those things that it is not being tried or tested right now. there's a lot of cash on the front and despite the fact that u.s. savings are down from their high points. they are up a little bit month over month and people continue to have a pretty high cash coffer. in addition to retail, you have industrial firms with a lot of cash on the front end of the market. from an investment perspective, a lot of people have moved on to the log and the market.

they moved into liquidity products. because there is a lot of cash in this market, you have ample liquidity. there is no real issue there. lisa: where is it coming from, the flows into the united states? are they all domestics are how much is coming from overseas taking advantage of the dollar and rates? deborah: we are being impacted from the slower markets in the global economy. a lot of our strength in the liquidity in the marketplace is homegrown. i heard you talking about the u.k. issues and some of the things happening in europe from a heating perspective. all those those are huge issues causing volatility in the global markets, in the u.s. it has not come through as much. earnings, despite the fact that alcoa is down you have a lot of

companies, two thirds have come in beating estimates. there is cash on the homegrown bases to be used in keep the market highly liquid at this point. we still ask every day, when is it time to extend? the euro -- yield curve is higher and steeper. we still have to ask, when is the time to extend? where is that trend going to stop? lisa: do you see any sign of it anytime soon? deborah: not really. it is being driven by inflation and sticky types of inflation like wage inflation, goods inflation, supply chain disruption. we don't see that changing in a very short fashion. the fed is on a path that will continue into 2023 and doesn't start the downward turn until

2024. tom: should our listeners and viewers consider the path of the two year yield to be smooth, quiet, linear or does it get lumpy and ugly and nonlinear as you migrate to 5%? deborah: lumpy and choppy is a good way to describe it. you have one year, two year and three year right on top of each other. that is an anomaly. i don't know if it stays that way for a long. of time as we move towards higher rates, 4.5, 5%. tom: on single-point duration, are you coming in duration, do you come into pickup that yield? deborah: where not extending yet but we are way off of our lows from a duration standpoint. we are basically medium at this

point. lisa: we heard about the federal reserve buying back, treasury department excuse me, buyback to help with some of the functioning of the liquidity in this market. with this actually serve as some sort of calloused -- balast for years? deborah: the long end of the market has been saturated with supply while this short and of the marketplace, two years and under, particularly one year and underwear money markets can buy. they have had extra low supply with a huge amount of demand. it would not mean necessarily changing the amount of securities, treasury securities in the market and depleting them but rather, having more supply on the front and where a lot of

the cash continues to reside. tom: deborah cunningham, here on the quiddity and yields. we mention 4.5, up 7%. it is still a shock to say that. the short-term use to be ios and there is a lot of things that ira jersey tries to explain to me. lisa: right now, i am looking at oil prices. how many people that come on the show and said they're very concerned going into this winter with stockpiles, the spr has been drawn down to the lowest levels going back to the 1980's. there is not the same kind of lever to be pulled. what does that mean for the inflationary push heading into the years end? tom: i'm not trying to be political in any way.

but what we heard from brian deese yesterday about gaming the strategic reserved and then on election day brent crude is 100. lisa: how much pulled that they actually have over it? it is also the distillate market. i keep talking about diesel, diesel has gone up significantly in people need for tracking of all the goods and heating homes because a lot of them are fueled by generated engines. how do you end up in a tenuous situation? tom: you are beating brian dees to a pulp yesterday and all i could think about is that they need a cup of coffee from steve schork and the stork report. three major airports in 20 million people with heating oil and you focused on new york harbor. lisa: we don't really have the

tools to deal with it. tom: why would you expect them to have the tools to deal with it? lisa: here we are, the litmus tool is heading to the gasoline stations. tom: let's look at predicted news where there are any number of stories that are dynamic. we have yet to speak of claims. it is weekly data. it has been a little elevated but not that elevated. is that the right analysis here? lisa: we have not seen true weakness. higher number is better for the fed, worse for the economy. ostensibly in terms of people losing their jobs. i saw a report that there is a significant number of people were working several jobs to pay for inflation. how does this data capture that? how do you capture a bifurcated

work force that has changed? this is one of those things that i keep reading about. is there more weakness in the market then we are actually observing? tom: looking at housing coming out later, cleveland, ohio, up 8.5% in ohio from a year prior. lisa: in terms of prices? they are not going down. even though the mortgage rates are the highest since 1990. tom: housing data at 10:00 a.m.. stay with us, this is bloomberg. lisa: keeping you up-to-date from news from around the world. officials in china are said to be debating whether to reduce the amount of time people entering the country must spend and 14. they are considering setting it to two days at a hotel in five days at home.

the countries covid zero policy is leaving an increasingly isolated from the rest of the world. hong kong is looking to allow vip bankers to test positive for covid-19 leave the city via private jet. 300 people from global firms are set to attend the two day hkma summit. infected guests may be able to isolate in their hotel rooms. malaysia will hold its general election on november 19 with the prime minister's party looking to capitalize from the polls. a total of 220 two parliament seats will be contested. aluminum giant alcoa is adding to the worries of the global economy. they posted a loss for $60 million with significantly lower prices and higher cost and raw

materials. aluminum has fallen by half since march. hermes sales surge. third quarter revenue rose 24% excluding currency swings and topping analyst estimates. producers of luxury goods remain immune on the wider squeeze on spending. global news 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i am lisa mateo, this is bloomberg. ♪

>> the dot plot is predicting that it will be a disinflationary year in 2023. that calls for further moves in 2023, we take that as consumer

sentiment, we could take that and move that into 2022 for the december meetings. tom: the doctorate from indiana university led and informative debate. bullard has talked about frontloading, regime change and the rest. you look at where rates have gone and you have to look back and say, what did bullard get wrong and the answer is, not much. lisa: he has been on top of this which means the frontloading is getting some traction. 18 days, 16 hours and 27 seconds until election day in the u.s.. we have not talked enough about it. we have a few weeks left at a time when the polls are moving so quickly against the democrats

. and then it seems to be evaporating. greg, thank you further making me take a look at this clock. how quickly are these polls moving against the democrats? greg: there's been a shift in hispanic voters to republican voters and the abortion issue is in the middle of the pack. you have to conclude that oh right side is likely in the house. tom: i am suggesting that the gentlelady from hawaii exiting the democratic party is a huge deal. forget about the libertarian angle. our moderate democrats going to exit the progressive democratic party postelection? greg:

they have a huge identity crisis. you have bernie sanders who is itching to run again. we will see about elizabeth warren. there is a place for moderates in the party but this will be brutal postmortem. why did we lose? and what about joe biden? this he announced for 2024? tom: give the republicans credit here. what did they get right in the past 4-6 weeks. lisa: i don't know if they got it that right but they certainly emphasized it. that will be the big issue. the fact that joe biden is perceived by the public. tom: i think this is really important. tell see gabbard's --tulsi gabbard spoke just a few days

ago. greg: barack obama says we have gotten infatuated with all these niceties. it is not just her, a lot of democrats feel the party his beard off the cliff. lisa: this speaks to the shift we have heard in tone and turns of exports to the european union and support for ukraine. there has been a subtle shift heading into the winter where the u.s. is saying we want to protect ourselves. how much will that feature in an election but in the political zeitgeist? greg: this is a story to watch for western europe. could the resolve in the u.s. could fade a bit? many trump republicans running for the senate are now openly saying, we don't want to give any more aid to ukraine. if the star's catch on, that could send a signal to vladimir putin that if he waits long

enough you might get what he wants. lisa: it's not just the republicans, even the democrats, we heard from the white house they may restrict exports of diesel, natural gas because of what the u.s. is facing to lower prices for consumers. how much is this becoming of bipartisan pressure in the face of inflation? greg: you are seeing protests in paris as well. i would quote margaret thatcher, this is no time to go wobbly. this issue will be a big one in washington after the first of the year. tom: our global audience would ask the tradition of a beleaguered president is to turn to the vice president. it has been radio silence on the vice president, give us some feedback?

lisa: there has been a consensus that, let harris is a disappointment. gavin newsom, he has problems in san francisco. there will be a real vacuum for governments -- democrats. tom: which senate race is greg valliere focused on. i will give you a sleeper, that's in nevada. the democratic senator is in trouble. if she loses it makes it tough for the democrats to have any chance of taking the senate. lisa: used to have the clock appear, give me the number. 18 days. tom: he is with agf investors with the brilliant morning note.

i read it every morning. greg valliere think you so much. -- thank you so much. we have three or four major stories to get you through the bloomberg morning. i will go to where i have always god which is to see the 10 year yield at 1.70 percent. 1.70 percent. that dominates everything. lisa: that is the highest if it stays since 2009. we keep creeping to post 2009 highs. people were saying 1.5% on the real yield was enough to torpedo stocks. we have seen somewhat of a rally. how does that become a game changer? when do you reset zombie

rollouts? tom: with the risk-free yield coming back. 1.7 zero coming up but one point to his new high. with this new math, the old math of my use that is when the zombies disappears. lisa: we seen that in the equity market but not credit. right now, you are not seeing the same kind of spread widening uc and other places. tom: credit deterioration? lisa: does that start to change. you see yields underperform because of the rate component, i don't know. tom: two point 05% for the 10 year yield rate. the vix above 30, 30.73.

we will soon be in london with guy johnson and lizzy burden. this is bloomberg. ♪ ♪ 202 pounds on golo.'ve lost

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>> the u.s. economy still looks a little overheated. >> i have not seen enough evidence that there has been any kind of break in the way things of function. >> the consumer, as we all know, has been the workhorse of the u.s. economy and you have to watch deterioration there. >> the u.s. will join the recessionary crowd in early 2023. it's a matter of time before we see consumer spending come down. >> this is bloomberg surveillance with tom keene, jonathan ferro and lisa abramowicz. lisa: this is bloomberg surveillance, jonathan is out on a well-deserved day off.

tom, political turmoil in the face of market regime is the mood of the morning. tom: sterling 11253. as guy said, it is within my exhaustion of watching the soap opera, new political theater for the united kingdom. lisa: this on the heels of market regime change. this comes with the yield story that only seems to be accelerating with yields going up. cpi surprising to the upside in the u.s., u.k., canada. tom: the other thing is to look forward 18 days to the election. and greg valliere is saying we will see the same turmoil about inflation. lisa: a real concern about inflation and fiscal discipline. at what point do we see some

sort of peacock us and us? peak yields? 5% baked into market expectation for fed fund rates. lisa: housing data here at the 10:00 hour with the mortgage rate seven-ish, it is a changed world. 10 year yield 1.70. lisa: 1.7% the highest level going back to 2009. this is the reset, the great reset people been talking about. dollar strength moving giving the stabilizing developments in the u.k.. tom: yields are breaking out, he continues to see the same trend people are completely resetting their expectations.

we did see a decline in gasoline prices. there has been a stabilization then an increase. crude right now is higher. 87.33. we are of fear -- far cry from 67. tom: i won't pin that on the department of energy. i can't give you a technical path to 100 on brent, no one is looking at that. lisa: there is this great reset and i am glad we have jim bianchi long as we look to earnings but what this means in the yield space.

jim, how much do you start to look at a 5% fed funds rate. jim: that could very well be the case. the historical example is the two year yield peaks above the terminal rate. if the terminal rate is 5% is should go above that. if it keeps going higher, you reset the two-year higher. it comes down to inflation. is it persistent? yes there are signs that it is peaks and inflation is coming down benefit stalls out around 3.5, three, 4% then these yields are appropriate. if it's on its way back to 2%, then the yields are too high. i fell in the camp that we should see insistent -- persistent inflation. tom: all of us have led the judd

taylor great moderation. you and i remember 14% annuities, 10% double digit yields. we don't have a collective experience of going the other way. what the corporate profits do if we move the other way to a higher yield regime? jim: we don't have any experience going the other way we have structured a lot of the financial market on the assumption that we would stay with low, stable rates. and no inflation, liability driven investment being the headline right now. there's probably more to come. as we move forward we will find this will be an even tougher environment than people think. i am thinking of advocating something i haven't heard in a long time, alpha. instead of just buying the

index, you have to pick individual companies that can survive this environment. not all will do well. tom: you were 15 years old when boston won. the overlay on that is transactions and combinations. merger 2023 may be the outline. lisa: with this new environment there is going to be an opportunity for companies to pick up other companies that are not position for it and companies that will strengthen. we will see the dispersion of returns be much wider than it has in the past. it will not be enough to say by industrial, you had to figure out which industrials to buy. this is a big change from the last 20 years. lisa: because of the new regime change in yields as well as a

broader economic shift. i have been really struck by what is going on in the high-yield bond space. it is been so resilient. people seem to say companies are doing just fine, they have enough cash. this cycle will be less dramatic than previous ones? do you agree? jim: i agree to some extent because remember the high-yield space is mostly industrial companies, energy companies, those companies are doing well. the stock market is more of a place like growth companies like technology companies, those of the companies that are struggling. that is helping the high-yield space. large nominal growth, when you have high inflation, these companies will see their bottom lines go up. whether they can beat the inflation rate is another question. their growth rates will continue higher. tom: what does that mean for bonds?

if i am a bond person clipping coupons, bond people don't have that advantage of the bright lights of nominal growth that corporations have. jim: for a bond investor it is all about rates and moving yields higher. this is something new, we have yields that we have not seen before and we will continue to see yet and that should be the focus and that is where the focus is, on how your rates. lisa: before we let you go, i am curious about whether we see a loss intact. i understand what you are talking about with specific bonds and stocks doing well. on an index level, will we see meandering returns for equities because of this fiscal discipline that change the value proposition? jim: that is my fear that it is

a post-pandemic economy that needs to change for the new world. it's a work from home world, the supply chain still needs work. you have to figure out what we are doing in china. for the next several years it will be a complete restructuring from what we have seen. that means the indexes sideways, great opportunity within stocks and bonds. i will emphasize that is not what it was in 2010, 2019. the indexes sideways but there are opportunities within it. lisa: jim beyond go, thank you so much. tom: this is the greatest, to the bulls out there when they hear people talk about the coming the last, that is the precursor to the reformation of

the new market. you have to be kidding me. lisa: you could say this is gloomy but when you take a look at tech valuations are where they reset to based on the nominal and yield rates are currently. it is hard to see index level cased the same way. tom: the major insight from jim beyond go which is you go back to stock picking or alpha matters and we see that in the earnings. united airlines launching on all cylinders and now alcoa is out there saying maybe not. lisa: people are saying stock and bond picking but it is challenging. every time the index seems to outperform. will this really be different and if it is, what happens to etf's, the thesis that has

transformed investment management. tom: we will take a look at the toxic brew of the last decade. claims, i don't know which way they go they may show us tilting towards the toxic brew. lisa: if you keep this up. i will give you a dissertation. tom: if you start doing a monologue people will drive off the road. the vix is a rocksolid above 30. stay with us from new york, this is bloomberg. lisa: keeping you up today from news from around the world. liz truss invited key conservative lawmaker grant brady for talks at 10 downing street feeling the sense that her premiership is near collapse. party chairman jake berry was also at the residence.

trust fired one minister over a security breach and two others were heard resigning after the fallout of a common spoke. chinese chipmakers extended gains today. in a series of emergency meetings with lenny semiconductor. french president, emmanuel macron has used a vast track to push his budget. this came after the bill was debated in the national assembly for several days which should became clear it would not secure enough votes to pass. your morning caffeine kick may soon cost less. vietnam, the biggest grower of coffee used in instant coffee

and espresso. says it will be a larger yield than in previous years. netflix battles it out after releasing more of its original movies and leaders. some argue that netflix is leaving hundreds of millions of box office receipts on the table. global news, 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. i am lisa mateo, this is bloomberg. ♪

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>> wages are going up and that is not a bad thing. if a kids caught up in a price spiral that would be bad. making sure we have monitored policy in a restrictive stance so that we are not inducing reflation, -- inflation. we are trying to get it down. lisa: i want to bring this to you, scott reporting that there will be some sort of statement from downing street at 1:30 p.m.. that would be in about 10 minutes plus or minus over here in new york. how much is this going to be what jim bianca said.

tom: my basic take is that the british are way more abrupt about this than the americans. things happen faster over there than they do in the media managed washington. lisa: this is ben warp speed even at a faster pace. this has been revolutionary in terms of its speed as well as the fact that it is, on the heels of market movements. the market has just discipline the political regime in a way that we have not seen. tom: sterling has launched but moved from sterling weakness up to some real sterling strength well above recent resistance. 1.127. good morning on bloomberg radio

and television. we will double barrel this as we look to the u.k.. lizzy burden is it downing street. we have claims in america. what we will do is keep kathy here on claims. guy johnson is in london. what is your statistic to say that claims has shifted? is it 230, 220, dare i say 250? what number matters to you? kathy: happy to be with you and lisa. it is not so much the level but the changing claims that we have been looking at. certainly if we get a long increased this morning we will

have to dig through a look at the state data although there is some delay in that reporting. as we go forward we anticipate claims will gradually increase even if we get into recession because employers have had such a hard time finding skilled workers. they will not immediately let them go but probably pullback on new hires. lisa: does this mean jobless claims don't matter? kathy: they certainly matter, we expect not to see a big one up in previous research. we will have to see how that plays out, that is the thinking right now.

tom: i want to show you some film here, we have 10 downing street. they are bringing out a board and rollers and there it is. it is always a sign of change within the united kingdom government. we will have more on that with guy johnson. kathy bostjancic with the change in the labor economy. kathy: i think we are going to see a net job creation continue to slow. i think there is enough uncertainty with corporate america about what is coming that they will hesitate and be more cautious. let's be realistic, the peaks we saw after the covid recession was not sustainable.

it was filling in that large gap that we saw after the covid downturn. there is this uncertainty that will get corporate leaders cause a bit. lisa: given the pace of how quickly the market narrative is moving, is there anything in the underlying economy that gives you a feeling that we can in recession now or head into a rather deep one based on the pricing of certain stocks and some of the guidance we are hearing from wall street analysts. kathy: certainly the market as a leading indicator, along with yield curve with the inverting traditionally that is been a of recession. it doesn't tell you much about the depth though. even if the yield curve inverts further, it does not tell you it will say we will contract to percent rather than 1%. if you exclude the great

financial crisis and the covid downturn, the average post-downturn was about 2%. kathy bostjancic oxford economics from she is going to stay with us through the job claims. but we will head over to london now as they are setting up the podium and preparing for that statement. tom: this is not liz truss. we make jokes about it but this is really serious for this nation. i'm going to go past theresa may and david cameron. i am exhausted by this. can you imagine the cross-section of people in the united kingdom? it just like nixon for four years. lisa: consolidated into three days. she proposed a plan, got slapped

down by the market and her fellow tory members and they are expecting her to resign. what comes next? and what kind of physical leeway do they have given where we are in respect to inflation? tom: guy johnson has said that we have separated the economic battle from the political battle. sterling 1.1279. they are now tweaking the podium. they will lineup the podium. we will have a serious conversation with guy johnson in a moment of british history. lisa: there was talk of parity and we are further away from that. 10 year yields 4.1%.

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lisa: we are awaiting u.s. data

but we are more awaiting what is happening on 10 drowned -- downing street. potentially, liz truss stepping down. tom: there is a zeitgeist out there. guy johnson is with those. claims out that 240,000, the constructive number from 228, down to 214. i will call that not jerome powell friendly. equity futures lift and yields here, yields pullback a little bit. 4.56 and the two year, and the tenure is 4.1088. let us regroup, jonathan ferro did nine hours on brexit and how much of this moment and the

moment of theresa may go back to this arch debate of the united kingdom extracting themselves from europe? the post frexit turmoil will be a discussion for the history books in the covid pandemic. her agenda was to cut costs and to cut taxes, increase costs and cut taxes. the prime minister quote is about to resign. that is according to sky television. guy, we will stay on 10 downing street. guy johnson, if the prime minister resigns, what happens next?

that we do not know. how this process unfolds, it's probably just being decided inside downing street. you have had this meeting taking place, you have the deafening -- deputy governor and there. , sir greg brady in there. they have been working out how this process is going to unfold. it is not just the 2022 rules, other rules need to be altered as well. i don't know but the process is going to look like but it is clear, judging by the shot we have is that something is about to change. tom: come along with us for this historic moment in london, england. guy london -- guy johnson is here to report. we make a lot of jokes, it is too bad that jon ferro is off

today we look forward to his perspective in the coming days. claims at a higher yield railed up to 1.7 percent. separate from that is the economic seer of stronger sterling and more stability for the next united kingdom government. lisa: more stability for now which goes to the question, what comes next? for all intents and purposes, over the next 2, 3, four weeks will the u.k. be run by a technician, the jeremy hunt. tom: now the door opening at 10 downing and the prime minister walks to the podium in silence. let us listen. >> i came into office at a time of great economic and international instability. families and businesses were worried about how to pay their bills.

pollutants illegally -- putin's illegal campaign has affected our whole continent. i was elected by the conservative party with the mandate to change this. we delivered on energy bills and cutting national insurance. we set out a vision for a low tax high-growth economy that would take advantage of the freedoms of brexit. i recognize though, and given the situation, i cannot deliver the mandate on which i was selected by the conservative party. i therefore have spoken to his majesty the king to notify him that i am resigning as leader of the conservative party. this morning i met the chairman of the 1922 community, sir graham brady who agreed there will be a leadership election to

be completed in the next week. this will ensure that we remain on a path to deliver our fiscal plans and maintain our economic stability and national security. i will remain as prime minister until a successor has been chosen, thank you. tom: liz truss returning into 10 downing to piece together a fractured government. our guy johnson in london. lisa, your thoughts at this moment? lisa: she will be the shortest ever serving prime minister. she is stepping down. at a time of incredible turmoil she accepted the prime minister for the queen and handed in her resignation to the king. tom: we welcome you to an

extended version of bloomberg surveillance. we look at sterling 1.172. i will go back to every movie that judi dench has been in and we really must have to go back to the 1820's and 1830's for a moment. is that the historical perspective britain has. artur recent labor saying enough, let's move on in the present? guy: the tory party would desperately like to move on. theresa may has set a record, there is some historical perspective here. i don't know what the rules are going to be governing this

process. is not just the committee rules, budget by the rules need to be changed as well. is this going to be decided within the parliamentary party of the conservative party? all of this will have to go back to the grassroots. that could be an elongated. in which the process unfolds. in theory, was trust will remain prime minister. i expect policy is making on the huff. lisa: how much is this really being driven by the tumult of a post exit united kingdom? guy: i think it is been driven by that. brexit was meant to resolve problems in the conservative party. we can say clearly now that is not been the case. the pandemic has taken the u.k. to a fiscal position that was

very different to the one we enjoyed in 2018 and 2019. a number of things have changed here and what is clear as a result of the pandemic and the inflation generated post-pandemic is the market tolerance for a big shift in policy is relatively limited. tom: i want to go back to what prime minister truss talked about which is this distinction of members of parliament of her party and the people of the conservative party. how far apart are they? in america, we have liberals and conservatives far apart from their elected official but how big a sack canyon between the mps in the people? guy: right now, i don't know. let's put it this way, the parliamentary party did not vote for liz truss.

the grassroots party voted for liz truss. my understanding is that the parliamentary party would like to keep this within the parliamentary party. there are reasons why, and get a hint of the next prime minister from that. lisa: 1922 officers are meeting at 10 :00 a.m. eastern. how much of the setting up for a general election and can get you give us historical perspective of this in general? guy: they will not want to general election. the polling is abysmal right now. you would see an almost complete wipeout for the conservative party judging by the current politics. they will be playing for time and they don't want to have that happen.

they are going to want to put in a democratic government here. they're looking for stability and a. of time in which the pantomime of what we have seen over the past two days can be forgotten. tom: what is the percentage of people either mp's or the parties saying boris to the rescue? it just seems so apparent that is one solution. guy: within the parliamentary party i would've thought that number was relatively small. i saw a tweet from nadine noris that i have seen -- not seen many of us. within the political party representative and parliament, i'm not sure the boris johnson administration was emblematic of

stability. tom: guy johnson us with us if you're just joining in with us. lisa braman's -- lisa abramowicz is here. joining us now, john micklethwait and a student of the economist. i will go to a single sentence from your colleague in crime. you have written so many books, there are no parallels in british history. what is the parallel this morning? john: i think he is completely right, there are no parallels in you have to look to places like italy and the faster number of prime ministers there. it is one of those moments where it is possible to feel quite sorry for liz truss.

as guy is pointing out, everyone else's lost even more. the conservative people have lost a great deal. the labor party, their inheritance if they do take over will be immensely more difficult because there is less room for things. we went over the edge when you go over the edge it takes a long time for the markets to forgive you. you can see the tory several road back on quite a lot of the more extravagant promises they made. the market still doesn't trust that much. technically, she is the shortest . you are looking at places have been perceived for more rapid turnover of leaders. lisa: you say the u.k. has gone over the edge with markets which

is a pretty dire tone and understandably so because of what we are seeing in markets. it is a general election enough to begin to restore some of the credibility, the stability? is germany hunt the want to do it or is this something that cannot be righted for months or years to come? john: guy johnson is completely correct, nobody in the conservative party wants an election because it's like a football match where you are losing five-zero. at the moment they would get trials. it would be like turkeys waiting for christmas. that's why you're parked in one area. the less the conservative party fall so much people will ask for an election. it depends on what the market

does in the way british people are perceived in the world. you did see a fairly robust reaction to germany hunt coming in and taking a more grown-up approach to what things you can do. it is very difficult, once you have lost that basic trust to get it back. if you look at what germany hunted, he renounced not just the stuff that the market stated of top rate tax cuts and other things like that. he took it into much heavier territory, he renounced the energy price cap which the markets had forgiven britain for earlier. once you lose that trust, you lose that ability. the tories are back to an earlier position. it is very hard for any government now to do much outside of fairly wide parameters. if you look at what labor wants to do, and what the tories will

probably do in the next few years is probably similar. tom: we have a headline, the leadership of france saying that mr. micron, once united kingdom can -- once united kingdom to return to stability as soon as possible. david merritt joins us here in the resignation of the prime minister. i am sure glad to have you with us. how much is this resignation linked to that day would brzeski -- brexit occurred? >> a lot of commentators are looking to that moment in 2016 when the ks -- chaos started to push in. we have had three other prime minister forced out of office

and it is mentioned there from the french president for the need for stability. we all lived and breathed it, the followed twists and turns. the after effects are still being felt. many commentators talked about the extremity of the moves in the u.k. markets in recent weeks. they linked it to the fact that britain was untethered from the european union, make that more exposed to some of these effects around inflation. that is one lens on it. the remainder voters so have a large voice in britain. it will be fascinating to see who emerges from this leadership contest. will we see someone who wants to re-forge connections to the european union if they can end

the infighting in the conservative party. brexit has not gone away. it remains an open argument in britain and you see the effects of that. lisa: you are asking what the leadership will be? jeremy hunt is taking his name out of it. how much are we looking at a u.k. story and how much as we were hearing from john micklethwait, does this represent a sea change where governments cannot get away with certain policy because of the interest rate regime and the bond vigilantes coming back? david: the bond market will absorb this extra debt, they probably would have gotten away with it. there was this a massive amount of spending to supplement energy

bills. but they borrowed money just to cut taxes. if anyone thinks in any g7 country, that they can borrow to that level in the market will take it. britain will be the example of why they can't. tom: our extended coverage of the resignation of prime minister, liz truss. we will continue to give you market data was sterling at 11263. guy johnson us with this, david merrick with their wonderful experience on the british system and of course john micklethwait with us. i want to speak to the middle ground, that means the liberal democrats. is there a middle ground in british politics? john: it's occupied by jeremy

hunt. he seemed to be the most likely compromise candidate. you would talk to people at house of parliament, he seemed to be the person that the right of the tory party had forgiven for resisting boris johnson in the election. the trick over the next few days will be to get somebody who most of the parliamentary party can unite behind. the middle of the politics is occupied by jeremy hunt on the left and kieran starmer. he is not done much to detoxify. he has denounced anti-semitism but he has not moved the party substantially to the middle. for the moment, i'd don't see the liberals are portable with

the picture at the moment. tom: the way i report this from new york, mr. sunak is a financial guy. do they want a financial guide to run the show and help get us out of the chaos? david: they want someone competent in that list is jeremy hunt and sunak who could justifiably say i told you so. he did actually tell them that if they elected liz truss this is what would happen and it has happened. in politics, the rewards don't go to the person who said i told you so. i think him, jeremy hunt, there are some other people who they can bring forward.

john snaps as a person they can bring in. i went to the tory party conference two weeks ago and it did feel like the end of the second term of a two-term american president visiting the white house. the tories have been in for a long time. a lot of people who got them into government like george osborne, they've gone bad. there is not as much talent now. it's like the second term of the white house. lisa: liz truss saying i cannot deliver on the mandate of which i was elected by the conservative party. guy johnson in london parsing through all of the reactions, all of the headlines. he was saying, he was out. jeremy hunt is not in the running. guy: you wonder if hunt could be

persuaded. you do wonder, if the situation were to develop if he could be persuaded to occupy that role. i think i could be an interesting development. we will see ultimately what happens here. as john says, the bench is not deep at this point. they don't have the talent they once enjoyed. they enjoy a very limited room. as johnson said you are now tinkering. you can't make big, bold moves. you can't make the kind of changes that liz truss tried to do because you have been warned off those moves by the market. whoever comes then, be at the next incarnation for the tory or labour party. the room to maneuver is limited and less they start thinking

about pulling bigger livers. -- levers. recent history would dictate those are very difficult and dangerous levers of pole. tom: david merritt, he was mayor for eight years and secretary of state, leader of the conservative party and prime minister with an enormous electoral victory. i am struck that we have not heard from boris johnson even if it was a fatherly word in the time of crisis and can you get them on the phone? david: they were trying to track him down, i think he's in the caribbean. tom: i will get there right away. david: he has made no secret of the fact that he would love to

make a comeback. the implosion of the truss project so soon. we had as ministers come out and say there is only one person that has a mandate from the british public. he wanted huge majority in 2019. he should be brought back to steady the ship. lisa: is there really that much support for that? he would be happy to step in and take back. people are seeking stability. i did point out the poetry of liz truss accepting the prime minister ship under the queen and her resignation into the king just days later. how much are people seeking stability even if it comes in the form of boris johnson? david: the death of the queen was a huge watershed moment for

britain as well. putting into this idea that may be boris johnson can provide that. he was a person to vote conservative for the first time. through a series of misstep he was forced out of office. he still does command a lot of loyalty from a big faction of the party. it is not enough to bring them back. but people are grasping around here for an answer to this problem of how do you govern an ungovernable conservative party. tom: let's look at the wake-up call of the conservative party. i look at the wake-up club that is ensuing right now, lessons learned from theresa, maybe from prime minister johnson. lessons learned from truss is

this the wake-up for the conservative party? john: johnson it's a big beast in this. it's not what he does, but he did do one thing uniquely well. he managed to knit together the working class, the socially conservative vote with the more traditional, free-market, southern votes. those two are largely in conflict most of the time. they are reaching a. where they need to refresh. there is a reason why the conservative are the most successful party at rebranding

themselves. the party of posh conservativism under howard mcmillan, cameron was so turned back to managerial conservativism. he did pretty well until he did not do well on brexit. we are trying to mend these breaches. i agree very much with guy johnson, if jeremy hunt wants to become leader saying that he just not want to be leader is the best way to get it. lisa: how do we gain trust in the city, i would love your thoughts on what the tumult is like among the financial players and concern about the pound and

borrowing costs and whether there is a feeling that there can be a retention of some of these financial firms that were threatening to leave post-brexit? >> the city has looked on in horror in the past two weeks. maybe truss was pro-business and would listen to the city and its concerns. there are trying to turbocharge the city post-brexit. all of that is in tatters. we have a premium on u.k. government debt. the reputation for bread nasa financial destination has been shredded. i think will be a long time for that to come back. conversations we have had with banks and investors in london in the city they are in rage about the chaos that has ensued from this government. investors around the world,

people have called the u.k. on investable and that is completely the fault of the conservative party. tom: we welcome all of you on world wide television radio. bloomberg u.k., they are on top of the story. the resignation of the prime minister of the united kingdom. we have said that too often over the past few years. it is truly chaos in great britain. guy johnson joined us from queen victoria street with the john micklethwait. jonathan ferro is off today, but lisa abramowicz is here and we bring back the gentleman from the dartmouth bubble. lisa: how much are we talking about what has been watched.

we