>> we are probably going to see persistent inflation. >> the real worry is not about this winters shortages but next winter's. >> for the most part, what we are seeing is the consumer is ok. >> people continue to have a pretty high cash coffer. tom: good morning. it is a friday on radio and television. today a special surveillance. thank you for your comments on

our coverage of the resignation of the prime minister. it is the bond market. it is unreal. lisa: they are connected. the bond vigilantes are coming out in force. yields around the world, u.s. or germany surging to multi-decade highs according to what we are seeing in some places or decade highs and how much does this reset expectations? tom: garth reynolds goes back to 1984 and you have lead on this. it is not where the yields are but the persistency of the lift. the midterms coming up. the persistency of the yield lift is the story. lisa: well said. we are seeing the longest consecutive weekly increases in yield declines in price for the

10 year treasury. how much does this reset the understanding of where equity valuations are? how much does that change because the yield equation doesn't give them the freedom? tom: there is this talk of powell and volker. we will talk about that in the 8:00 hour. what is so important is with the 10 year yields, the sort of edge of the historic volker moment's 1981 or 1982. lisa: the question is whether larry summers and bill dudley were right whether the yields could go higher than anyone thought was possible because the markets haven't broken and because the global nature of a selloff that has persistency we haven't seen in an entire generation. tom: if you are done, the

housing market is down on the 30 year mortgage. what do you use as yours? lisa: i am looking to take a page out of your book, real yields are speaking volumes. one point 76% on the 10 year, adjusted for the market expectations for tenure inflation. how much are we looking at something that is unsustainable. i was talking to investors saying that 1.5% was the line in the sand and we have blown through that and keep climbing. tom: thank you to anna edwards and i think we are going to go there within the hour. there is a group looking at a selected airline which has eight selected former prime minister supposedly landing at lhr right now. i don't want to say that is happening but that is what is

being said. lisa: oh, is it boris johnson? tom: george canning is not on that. lisa: he died in the 1800s and was the second shortest serving prime minister. this is u.k. specific and turmoil and brought in part by brexit and the energy crisis and inflationary environment. how much is this an example of how much we can expect of the bond market taking control at a time when governments are not used to not having their backs? central banks not going to finance the deficits by buying all of the debt issued. how much does this change the political environment globally? tom: let's talk with the collapse of sterling.

anything through one point one 00 is huge. the dollar back up. the yen at 1.51. the yield, as we have been talking about, i will go with the 10 year yield, or put 27%. lisa: today we are looking at the last slew of fed to speak before the quiet period. tom: thank god for the possible quiet period. lisa: we may get the possibly charles evans, the chicago fed but we will speak to john williams, the new york fed.

in off the record event at citigroup. earnings continued today. american express and verizon within the next 90 minutes or so the earnings have been some strong, some weak and this highlights the bifurcated nature of the physical goods market as well as services that continue like the flight carrying a possible former prime minister. in brussels, european leaders will be gathering to talk about the energy crisis. and we have seen the energy prices significantly, what do they say about the united kingdom and where their hands are tied? tom: the prices come in from the is derricks of a couple of weeks ago. everyone's weekend reading will be richard just starting with the politics of the united kingdom.

our real focus will be in bonds. steve major of hsbc will join us. marc chandler has written books and is a chief market strategist at bannockburn -- bannockburn global . when is the time for them to step in? do they do it in the quiet of their weekend or wait for the asian monday morning? marc: that is a good question. they did three things that made it less than successful. they continued to one the market they were planning to intervene. they did it unilaterally, with no support from europe and the united states and the third thing they did is by intervening

they did not signal a change in policy. we were telling our clients that the only thing worse than intervention was failed intervention and that is what has happened. if they do intervene it probably won't be as successful. they spent $20 billion to get maybe a week's nights with a pleasant sleep. tom: the word for rapid is convexity. there is clear convexity in the unraveling of japanese yen. do you anticipate a fourth quarter in 2023 of acceleration in these trends or can we find stability? marc: that is the million-dollar question. i think that fed policy as the market has it priced in near 5% of the 75 basis point hike in

early november and again in december and end rate hike early next year, i think inflation is close to a peak. here is what i am looking at, the annualized rate of cpi was over 10%. in q2 and annualized rate of cpi headline was still above 10%. in q3, it fell out to present. i am looking at inflation coming off. i know it is very controversial and people have gotten burned calling for this before but we are coming to the tail end of this historic dollar move in the bank of pan and pboc are basically playing for time until the market brings the dollar back off of the historic levels. lisa: does this mean that it doesn't matter what happens in europe this is entirely an fed story and peak inflation and the u.s. and it is not necessary to

see a material towing mesh turning around in europe heading for a difficult moment? marc: i agree with that. there are two drivers. policy come everyone knows about that. what is less appreciated is there has been a serious deterioration of europe's trade balance as well as japan's. there is another factor weighing on the currency is the most immediate is if the fed announced today we were done, i think you would see the dollar dropped shortly. tom: the 10 year yield at 1.70%. we have moved 88 percent in my study of 2.05% is somewhat of a normal 10 year real yield. where is your number on that? what is a normal 10 year real yield? marc: to tell you the truth, i

don't have a clue. [laughter] these things like real yields, you can't touch them. they are abstractions, statistical abstractions. when you look at the feds funds rate, we are still looking at eight negative real rate of fed funds. you can get a positive two-year real yield and we don't have that yet. this is a different cycle and because it is an unusual cycle, whether it is covid or supply or russia's invasion, i'm not sure these benchmarks are useful. tom: this is why we have him leading off because he does not have a clue and a question about that and he also moves away from the usual statistics and looks at a benchmark of 2%. lisa: i think that should be our

mantra, to tell you the truth, i don't have a clue. tom: where is pharaoh -- ferro? is he coming back? futures negative. we will speak of london. we are going to go to parliament. the quick battle heats up for a new prime minister. stay with us. this is bloomberg. ♪ >> ukraine's foreign minister said he talked with israel's prime minister about the request for defense systems. iran has offered to help but will not provide weapons. the european union has agreed to press ahead with a set of emergency actions to address the

energy crisis come after germany yielded to pressure from other member states to pave the way for a temporary price cap on natural gas. it sends a clear move to the market that the block is ready to act together. biden administration said to be discussing whether the u.s. should suggest some of elon musk's ventures with security. they are uncomfortable with his increasingly russia friendly stance. a fresh crop it -- profit warning for adidas. the sportswear maker said it expects an operating margin of 4%. the ceo has already announced he is stepping down next year. global news 24 hours a day, online and at quicktake on bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. i'm kailey leinz. this is bloomberg. ♪

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>> we've seen the power of the markets over the last few weeks.

i think chancellor jeremy hunt was getting on top of that and putting together a package that would've been reassuring to the markets on the 31st of october. what we mustn't do is anything that singles more chaos, instability and uncertainty. tom: from the time of theresa may, the former chancellor with a view on his party. there are many views this morning, to say the least. we say thank you to our team. i believe it was less chaotic yesterday. tom mackenzie is at westminster and picks up the pieces. i want to do civics 101, which i believe is in the united kingdom when you want you can change the rules. we are going from account to 20 mp's to get to five or six candidates, whatever, to 100 mp's to get to two or three

candidates. who decided the conservative party could change the rules? tom: that was the 1922 committee, mr. brady chairs that committee. they do have the power and he does have the power with that committee to change the rules in terms of how they select the leader of the conservative party. they have done that on a radically shortened timeline. we could have a new prime minister in place at the end of play monday. the deadline is friday in terms of when they get a new leader. the last count was that rishi sunak is leading. but boris johnson as well. he has cut short holiday to throw his hat in the ring. none have officially throw their

hats in. the key question is for the markets, what happens to october 31, when the new chancellor, jeremy hunt, had said he wanted to come out with the fiscal plans which will be checked by the budget responsibility, crucial for these markets. lisa:, which is it important for a lot of the members of parliament that they get a candidate that will -- how important is it for a lot of the memos of parliament that they get a candidate? -- the members of parliament that they get a candidate? tom: yields have come off and the pound strengthening. but today there is the volatility back. on the back of the ability to unpick that plan and to got night -- gut 90% of it, most say

they would like to see the chancellor remain in place. if boris johnson confirms he is running, we know there is deep animosity between the current chancellor hunt and boris johnson. if boris johnson takes the number one spot, there will be a question of the longevity for the stability for u.k. assets. lisa: how vulnerable is the tory party? -- torrie party? tom: he says it is not hyperbole to talk about the future of the conservative party given just how deep and entrenched these

divisions are. rishi sunak and boris johnson are part of that entrenched division. boris johnson, who led the brexit campaign, you have the right wing parts of the party but grassroots in-line with force johnson. she su not is supported by the moderates -- rishi sunak is supported by the moderates. tom: to borrow from the beatles from a few years ago, maybe it is boris johnson to the rescue. how does he treat after the scandals with the labour voters who voted for him a few years ago. has he lost them forever? tom: that is a key question. he did come through with this

majority in the election that one over the forward -- former labour seats. members of his own party voted against him in a confidence vote. outside of parliament, the popularity of boris johnson has declined on the back of the scandals. he faces a parliamentary investigation. tom: tom mackenzie with our british team here on bloomberg.com/u.k. outside of parliament. we look at the litmus paper and it is not good. the sterling weakens. lisa: this is telling given the lack of certainty with the path forward. and what it will take to restore credibility to a nation that has seen a significant blow. whoever comes in next will be the third prime minister of the

united kingdom this year. it comes at a time when you have seen bond yields search to the highest in a decade and as the back of england is tightening at a rate that many are uncomfortable with, including some of the candidates who have been named to succeed liz truss. tom: tweet yesterday which was very quietly, prime minister truss shaking the hand of queen elizabeth the second. all he said was, this was seven weeks ago. that is how fast things have moved. lisa: that is white it was poetic that she handed in her resignation as 44 days as prime minister to the king, after accepting the prime minister ship from the queen. this upheaval in a nation facing a difficult winter cannot be overstated. tom: difficult interest seen in the bond market and foreign-exchange as well. the ramifications back to the

city and global wall street. i can report this morning sterling has broken down here we are -- broken down. any migration under 1.10. lisa: this comes with dollar strength and yields dramatically higher. to me that is one of the biggest stories if not the biggest story of this year. tom: and how long it takes to have a cup of tanning -- tang. this is bloomberg. ♪

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tom: we welcome all of you on write a, staggering into the --

on a friday, staggering into the weekend. an absolutely brilliant piece on what he calls the opacity of chinese data. he is being polite. he has a couple charts that are jaw-dropping on how the economic data structure of china is ugly different than what it was 5 or six years ago. equities week, our futures are negative. yield, yield, yield is the story. abramowicz is all fired up. one point 78% is now 1.6%. i am going to get a 1.10 on handle on sterling in a bit. 106 is a much weaker sterling. it is -- is it always good to

have somebody come into the studio who has a relationship, a ratio, and economic belief that is picked up by fred? lisa: [laughter] tom: when you have your name on the database of fred, you are on the brink of stardom. claudia sahm, out of michigan with all sorts of discussion and analytics on when a recession is a recession. lisa: she has worked in the inner workings of this body that has been at the forefront of global markets. where we are at with respective said speak, is it accurate pricing to look at a 5% fed funds rate and think that is what it will take and this will not torpedo the economy? claudia: at this point, anyone

who is talking about the first half of next year, there is a lot of false confidence. i would not be surprised how fragile financial markets are that the fed has to pause to put them -- get them under control. if nothing else, the u.k. has shown us how fragile to an event, a bad policy decision. i don't feel confident about what they are going to do in december, let alone where we will be by june of next year. lisa: it is not very instructive. there is a question about the consistency of the federal reserve. we talk all the time about fed speak and how much of it there is. the president has been reported to give an event to bankers. reporters were not invited. what is your reaction to this at

a time when people are looking to the fed for leadership? claudia: it is inexcusable. it is not an optics problem, it is an ethics problem. jim willard is one of the fed officials making a decision about rate hikes that will have effects on the united states, and they are having effects around the globe. the idea that he gave any private remarks to investors is outrageous, and he should go. jonathan: a tour de force in the telegraph on modern theory and its lack thereof. he tore apart the phillips curve. he tore apart the beverage curve , middle century london school of economics. is there a theory now or are we making it up as we go? claudia: they are following a theory that is so outdated. jonathan: what is the theory -- tom: what is the theory?

claudia: the phillips curve. i can see that in their logic. that is why they are waging a war on workers to get the labor market to " soften." tom: this is claudia sahm's wheelhouse. if the phillips curve does not work, what is the relationship of monetary theory to our complex labor dynamics? claudia: we can use the tools like the phillips curve, but there is so much supply driven inflation, the speed at which they -- they think they need to rates i next year. you cannot use that tool for that. they are not using it. they're trying to excuse away, it is all demand driven. if the -- the fed is being very impatient. it is hard to watch. tom: if we are after the fact,

what is the data we should look at, if we are ex-post. jobs claims look extraordinary right now. claudia: in a very unusual way, the fed has painted themselves in a corner, and said that it is all cpi. the consumer price index is the last place for lower prices. it is the last place it shows up. they will not stop until it shows up there. lisa: earlier this year you were talking about how we could see disinflation, we could see inflation rollover dramatically into year-end. we have not. services inflation has been a big driver. it is much broader. airlines are doing great even though their tickets are incredibly expensive. what have you gotten wrong with respect to the pace of the deceleration? claudia: what i have gotten

wrong is to look at the macro data. in talking to businesses now they have excess inventories. inflation is a business decision. what they say is the consumers are here. why would we cut back? i think the process of some of these apply disruptions, whether it is people coming back to work, whether it is getting the goods here faster, it is taking a longer longer, but when i talk to business owners, it makes sense. lisa: this is the reason the fed is not being as aggressive as they are. they waited too long in the past and that is the reason inflation accelerated to the pace that it did. if there is uncertainty about why it is not coming down more, there is a big risk to not raising rates essentially. claudia: we are not in the 1970's. there was a period of inflation

where the fed was asleep at the wheel. the federal reserve has gone in big this year. mortgage markets are showing us these are big increases and they are really fast and we know it takes time. we know the rental market, what is happening right now, those prices are coming down. the fed knows this, they are going fast and hard. tom: i was thunderstruck at the imf meetings, how the adults down there have a much longer timeframe, backed 30 or 40 years and they are looking at international dislocations. at what level is jerome powell, central banker to the world, driving the policy of all these different nations? claudia: sebastien: the fed -- claudia: the fed is in the driver seat. he is pushing the ecb to raise

its rates. the bank of england raised rates. they are going to make a bad situation worse. europe is headed towards a severe recession and the fed is contributing. claudia: what do they do -- tom: what do they do? they have a fed meeting. let's have claudia sahm come in here and have us a take. claudia: they need to slow down. they not going to. 75 is happening. 75, 50, 25 would be great, but i don't know. tom: is currency a value to you here? claudia: what a strong dollar does is it means it is cheaper for us to import goods, and we like a lot of cheap goods from abroad. we are doing better than in april. with a strong dollar,we are

importing disinflation and exporting inflation. that is good for us, but -- if we push the global economy into a severe recession, we will not withstand that. tom: massive inflation analysis, all of the different professors, and all of the rest of it -- services pullback or a goods pullback to disinflation or even outright goods deflation, which of those two is more important? claudia: broadly we say that the best cure for high inflation is high inflation. consumers need to get price-sensitive. they need to pullback. we have seen slowing in the growth of consumer spending, a rotation away from goods and back to services. it will be disruptive. we need to get back to something

that is a semblance of normal. tom: lisa says " would you ask claudia sahm about what the inflation warriors are getting wrong?" the inflationistas are deadly, line them up like ducks. lisa: -- claudia: the larry and deadly'were -- covid, delta, omicron, all the variants, then putin showed up. if you do not get the story right for the right reason, you will make very bad forecasts. there forecasts, set them to the -- the thing the federal reserve is doing is they are so afraid of these inflation expectations taking hold. people believe the fed is into fighting inflation, but now they are worried about them coming on anchored. you are going to take the global

economy over something we have no signs of. they move slowly. that is there big fear. claudia: you have -- tom: you have cats at home. your new cat, do you really name it pivot? claudia: no. tom: certainly one of our great experts. the measurement of the path to recession. we will continue. this is bloomberg. stay with us. ♪ >> keeping you up-to-date with news from around the world, i'm katie -- president biden has started aggressively pushing his debt relief program. multiple legal challenges including a lawsuit they are moving through courts threatening to halt the effort.

italy's prime minister -- -- the coalition, which includes her brother, told president sergio that she is their candidate. she is expected to form a government. china has locked down parts of a central city, confining some of its 13 million people to their homes for at least a week. other major hubs are rolling out a policy. people are required to remain at home until no infections are reported for several days. hong kong showed the 2008 movie the dark night at an outdoor venue. it was based on direction from the hong kong office for film

and article administration. global news, 24 hours a day, on air and on bloomberg quicktake, i'm kailey leinz, this is bloomberg. ♪

>> i think inflation has reached the top. i think it is starting to come down. i think it may come down more slowly than people were hoping because of the stickiness in the shelter cost and the stickiness in labor markets, but i think the fed has had a positive impact. tom: one of my favorite people,

jonathan gray of blackstone group. if you were young and you make a lot of money, what do you do with it? this guide more than anyone i know on the island of manhattan is ponying the money to charity. great to hear from him. lisa, let's take a moment on that. this is a sensitive issue where in the modern age people with fancy money are cornering the real estate market in america. that is part of the blackstone question. lisa: this has been the story for a number of years. will there continue to be buyers as mortgage rates go up and prices come down, and how much will they raise rates? tom: raise rents. lisa: there is popular antipathy towards this. tom: we are watching yields,

lisa stunned by a 1.78% real yield. lisa: we are seeing a macro move. tom: that is the best phrase of the day. lisa: this is a macro move, dollars stronger, disrupting a lot of different trades. we are seeing that with the euro weakening. you can see this in the 10 year yield, breaching the highest levels we have seen going back to 2007. what does this do to reset understandings? sebastien galy, joining us on a macro move. how durable do you see the moves of today seeing new highs in yields, seeing new highs on the dollar, seeing the yen on the break of unraveling? sebastien: can we predict how high the fed has left to go? we do not understand the inflation dynamics very well.

over time people are looking at the different sub components, the different stratifications. the consumers are rich, they do not care. the ones who are poor, obviously, you cannot sell. others are left with an inventory they have overpriced. we have this big demand, which is coming in with supply, which is an issue. the middle income and the richard still doing very well -- rich are still doing very well. your real estate market is probably overly expensive, so there is not yet the moment where everything adjusts. on the corporate side, some corporates remain in a delusion. they think everything is doing well. ceo confidence has fallen a lot, but it is led by people who sell

profit margin products. we have not seen the big adjustment on the corporate side. when it happens, it happens brutally. that is the issue. we do not know when it will happen. it probably is already over time. lisa: how close are we to something breaking in markets before we reach that point? sebastien:sebastien: if you look at equities broadly outside of the united states, they are quite cheap. in the next 23 to six months -- 3 to 6 months it will be interesting for equity investors. there is still disbelief in america being a great will managed economy. it is not only for americans but pretty much everyone else. tom: sebastien, you wrote a

brilliant essay on optimism for the u.k.. you said to compare and contrast with italy is wrong. explain to us your optimism is the united kingdom extracts itself from political crisis. sebastien: one of the reasons you can get political instability is because you pander to simply one group and not the entire population. u.k. has a long history of being well governed. we have seen accidents lately but from the labor side and consumer side, there is a sense that there is a social contract in the united kingdom. you can see it all around europe, not everywhere, and to some extent in the united states. people believe the government eventually does it. liz truss actually resigned. no one.

pressured her -- nobody pressured her. tom: i got a day trade through the monday. will i go along sterling here? sebastien: what you want to do in fx in general is avoided. -- is avoid it. stay on the long position, that is becoming increasingly dangerous on the yen side. it has weekend consistently. it is difficult and unfortunately complex environment. it is becoming very dangerous. tom: thank you very much. sebastien galy, always better on friday. lisa, i use this word too much, but the swirl we have been through not only this week but the month, or maybe it is eight weeks, i use track here in this

forever month, 2022. i look at this screen and all i can hang on is the inflation yield. lisa: people will say " real yields are still negative." this is for what people are gaming out in markets for inflation for the next 10 years. people think the federal reserve will raise rates by the most above where that inflation rate will be for the next 10 years going back to 200 how much does this talk about what9 we have been discussing. ? people keep getting it wrong with inflation. we do not understand the stickiness of this. patrick -- tom: what did he say? lisa: he said the fed's anti-inflation policies are disappointing and he talked about how he expects rates to be

well over 4% by year end. this is the base case. tom: it is not the level of what the yield is doing. it will be the length of that. transitory is just gone. there is no other way to put it. we are getting comfortable with yields from 40, 50 years ago, which leads me to my theme for next year, which is the great zombie roll up. what do you do in tech if you are a nonprofitable company? lisa: you're seeing it in the share prices. it in the share prices. did you see snap? it is all because of you! all of these companies that blew up during the pandemic and expanded have been deflating bubbles over the past couple months. tom: the yen 151.3 is4 newsmaking -- \ stay with us.

this is bloomberg. ♪

>> we are probably going to see persistent inflation and yields are not overdone. >> the real worry is not just this winter but next winter. >> for the most part, we are seeing the consumer is ok. >> people continued to have a high cash offer. tom: good morning.

what you need to know. we will go to tom mackenzie in the united kingdom. it is an odd friday in the united kingdom after what we saw yesterday. we are going to try to steer through the next two hours. it has been secondary this week. it deserves to be the macro story, the 10 year real yield 1.78%. lisa: bond markets taking charge in a global economy. how much does this really tie the hands of fiscal policy makers that have gotten used to central bankers that will buy the bonds and bond markets that will give them cheap financing at a time when yields are searching -- surging. tom: as we go into the jobs report, november 2, and the fed

meeting, there is a dynamic here into that meeting we didn't seem to to three weeks ago. lisa: part of this -- seem two to three weeks ago -- seen two to three weeks ago. lisa: it not just the u.s., it is the united kingdom. tom: i look at the bloomberg index on the total return index, and there is when you center on, negative 18% in widening out every day of price decline in bonds. lisa: and a price decline that is getting levels to where they are attractive at the level of buyer is not coming in. how much is this to your point about how long rates remain at this level, a reset in corporate america with potentially

companies going bankrupt? we are not seeing that christ in and earnings have held in. -- we are not seeing that christ in and earnings have held in. climbing in terms of the dollar versus the yen. at what point do they step in? he saying it was 150 and then 145. how much do we keep going and update simply going to try to control the pace of the weakening in the yen versus the dollar versus outright support it. tom: american express comes in with a report. revenue up 23%. those trade off a little bit.

they see the forward guidance not so forward. lisa: the full-year earnings-per-share estimated to be $9.25 to $9.65. the estimate was $9.90. whether they could be cutting back, we have not seen it. tom: they claim, american express haven't seen changes in consumer spending. the next headline is, tom, stop spending. lisa: [laughter] tom: pictures negative. the vix above 30. it has gone nowhere this week. the curve in version less than the 10 year real yield at 1.77% on dollar strength. lisa: we are looking at a slew

of fed speak. the, yesterday about how the fed tightening is disappointing how it has worked and where the cpi has come in. we will hear from john williams, the new york fed. charles evans is expected to speak at 9:40 a.m. american express earnings just came out and in a half hour we will get verizon. we have one quarter earnings coming in and it has been hit or miss. american express hitting is interesting to me. i'm curious to understand, if spending habits are changing, white as having -- why is revenue coming in late? tom: total return per year, to put a 3%. i don't know what to do -- 2.8%. i don't know what to do with that. lisa: coming in less than junk bonds in terms of returns. how many have come on saint

utilities where the haven. we will be hearing from european leaders today. this is the second day of the summit in brussels talking about price caps. tom: what is important about this? lisa: number one, i want to see what they have to say about liz truss' resignation and how they are addressing the energy crisis. and i'm on -- want -- and i want to understand, what do they have plan for the winter after and after that? tom: tom mackenzie will give us an update in a little bit. your conversation of the day, the diversified portfolio. sarah hunt joins us. we would like to have him -- her on with the linkage of the babel and what do you do in the

market. how much cash do you hold right now? sarah: we would say we are holding higher than normal cash levels. maybe you are closer to five or 10. this is very difficult time in the equity markets because the volatility has been wider than expected. the biggest issue going forward is the earnings. we haven't seen that and it is coming. lisa: given that you think it is coming, i wonder how much chris harvey was ahead of the curve when he said the key downgraded banks to neutral because it offered a pop in the market that gave them a good exit point. how much are you looking at earnings to cash in or out of sectors you don't like on a strategic level regardless of what the earnings said? sarah: we are looking for more

consistency in trying to cash in or out. the banks have a tough road ahead of them, given the fact that we have an inverted yield curve. as much as they have had good numbers so far, that is why we are concerned about them going forward. if you look at every piece of the market, you are getting some good news and some bad. i think there is a lot of uncertainty between companies and everybody else right now. i don't see how that doesn't have to change before we get more comfortable with where valuations are. lisa: does this earnings season make you more or less bullish on riskier assets in the months to come? sarah: i think this goes back to, what are you looking for?

we are looking for companies that will grow dividends and have consistent earnings power through different cycles. this earnings season is it changing that. everyone is saying the consumer is great but there is a huge disparity in different places where people are spending. it is hard to gain ahead of time and know exactly where you are going to correct. tom: it is a new territory that we are going to some risk rate. what does the sarah hunt new regime look like if you get a natural real yield and risk-free rate? sarah: you have talked a lot about the fact that it is hard to price risky assets. i think historically speaking, it is not unusual to have rates

maybe not innate 5% to 6% but in the 3% to 4%. it will be an adjustment. the problem on top of that is we are probably facing a recession if we aren't in one and are concerned about mobile growth -- global growth. you have energy prices and food prices that are problematic. there is a lot going on. tom: do i buy apple this morning? sarah: we like apple. i think the market gives you opportunities to pick everything up cheaper and this is what we have seen so far. there are a lot of stocks that we see. apple is a lot more stable than tech. the whole group is being sold together, although apple has held in better than a lot of its compatriots. tom: sarah hunt, thank you so

much. let's digress to tech chat. at your house, do various offspring have lined up the next apple item that needs to be bought? lisa: no, in my household they have antiquated tech that they line up and have multiple screens. they have five screens and switch from screen to screen. i am a fantastic mother, as you can tell. tom: it is amazing this is really important with all of the stocks that are staples, like toothpaste. lisa: although you're not buying as many upgrades if the kids can go out and play with friends, when during the pandemic they couldn't now there is an alternative and you can say, get off of the screens.

tom: you are going down in flames. steve major in the next hour. stay with us. dollar stronger. good morning. ♪ >> ukraine's foreign minister talked with israel's prime minister about kyiv's request to have help with the drones. irani and -- iran has said they will help but will not send weapons. the european union has agreed to press ahead with a set of emergency actions to address the energy crisis, after germany yielded to pressure from other member states to pave the way for a temporary price cap on natural gas. it sends a clear signal to the mark that the block is ready to act together.

the biden administration officials set to discuss whether the u.s. should should subject some of elon musk's ventures to security reviews. u.s. officials are uncomfortable with what they see as his increasingly russian friendly stance and his plans to buy twitter with foreign investors. credit squeeze will aim to sell a tax fraud case on monday. they are in the final negotiations to reach an agreement that would include a fine but no admission of guilt. the size of the settlement is unknown and could fall apart before the court hearing. global news 24 hours a day, online and at quicktake on bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. i'm kriti gupta. this is bloomberg. ♪

>> a threshold should be achievable by erie -- any serious candidates.

threshold of 100 members nominating a candidate allows for three candidates potentially to come forward. tom: graham brady for the conservative party. he is the one making the rules. we welcome all of you on radio and television to a most interesting friday. lisa and i are trying to focus on bonds, stronger dollar, yen weaker, the yen is stunning but we must turn to the united kingdom. the bbc has just the esteemed defense secretary, ben wallace, he will not run. the major message for americans on this friday is, don't we wish in america we have the timeline of this race? wouldn't it be great to have a

midterm or presidential cycle that goes until 9:00 a.m. on monday. lisa: it is 9:00 a.m. on monday our time that we will find out what happens in terms of leadership. i don't think anyone in the u.k. would say they are in an enviable position. we have tom mackenzie at westminster. i am wondering, you are watching the mps come out with flags saying who they are going to vote for. who is the frontrunner? tom: the front minor remains rishi sunak, but also the person who triggered the pushback that eventually led to boris johnson being forced out and that has alienated him in large areas of the conservative party. we look to the conservative newspaper, 40 mps backing rishi sunak.

none of the candidates have officially confirmed they are in fact running but that is where we are and we are monitoring the mps putting their names out for the candidates. we could have a new leader of the torie party on monday. the official deadlines, friday the 28th. lisa: there seems to be an existential question of how much power he will have. tom cole these are politicians with policies being policed by the markets. that is being made more

important. there are guardrails a mound -- around the policymaking. there are polls that show an historically for the opposition labour party. you are dividing your domestic party and facing pressure from voters when it comes to the polls as you look ahead to the potential elections. tom: the sunak-johnson animosity , color the political reality these two face. tom m.: he said this is a personal dispute and they dislike each other personally. there was tension leading up to the ousting of a boris johnson. in terms of the policy agenda

and framework, the former strategist for johnson said he doesn't have an ideology. rishi sunak does. and that respect, he has credibility with the markets and has support with some factions of the conservative party, but is also a former chancellor deeply alienated parts of the party and grassroots supporters of the conservative party who continue to support boris johnson. the idea they would serve together seems unlikely at this point. if boris johnson does win, what happens to the current chancellor who has made some progress? tom: my head is spinning on this. johnson, who is his chancellor. sue not, who -- sunak, who is his chancellor? tom m.: for johnson, you can say

he will rule out rishi sunak. if rishi sunak wins, but a long way to go, who does he choose to be his chancellor? possibly someone to try to close the division. tom: my deepest sympathy is. tom mackenzie, thank you so much for coverage with this -- my deepest sympathy. tom mackenzie, thank you so much for the coverage with this. the timeline is shockingly short. a week from today, they will have a prime minister. i think monday 2:00 p.m. their time we will get clarity on that. lisa: what tom said there was the markets are in control. any conservative member who comes into the office will have to run their policies by the market, essentially, to see

whether there is enough stability in the response when the bond yields don't climb and you don't have further selloff in the pound before they are ratified by the public. this calls into focus this question about how tenuous the political system is at a time when there is historically low popularity for the tory party. tom: vigilantes are tangible, bond vigilantes, fx vigilantes, and the bank of england vigilantes. i don't know where governor bailey fits in. lisa: there will be increasing pressure to possibly pullback with the rate hikes saying we have your back with the fiscal policy and will not be spending a ton of money. at what point does that become a problem for markets as well. tom: bring that over to the fed and we will bring up the fomc screen on the bloomberg. i clicked on this and i go up a

long ways away from december 14, february 1, and then march. where are we march of next year? lisa: the market is saying 5% and we are going to stay there for a while. tom: what does that do to the dollar? lisa: that is what you are seeing, strengthening against everything and torpedo. tom: the team coming off of yesterday's festivities and fireworks in the united kingdom. a great lineup. leslie falconio will join us. it's even major will also join us. -- stephen major will also join us. stay with us. ♪

tom: bloomberg surveillance movers coming up. one is the government of the united kingdom. jonathan ferro is off we have had hundreds of emails. what is the likelihood of a ferro sighting monday? lisa: it depends on if there is a sighting of a new prime minister. tom: it is hinged on a new prime

minister he will be back with us. lisa: he will be back. tom: thanks to tom mackenzie at parliament this morning. this is a movable feast. ben wallace, the secretary of defense, as an american phrase, and the united kingdom has ruled himself out from running. features negative. vix more constructive. oil doesn't give me much love. stronger dollar. yen is the story. sterling took a run to 110. market movers, lisa. lisa: thanks for that. i have been looking at the tech names. we get the big tech on thursday,

amazon, apple. we got snap and snap chat has been on a downward trend, down more than 27% after reporting its slowest quarterly sales growth ever. they missed estimates. how much does this speak in the broader ad driven tech world and this is why you are seeing others selloff. meta down 6%. alphabet down. this speaks to why advertise if you don't have the goods to his cell, which isn't the case but if you really don't -- have the goods to sell, which isn't the case, but there are reports over night that if elon musk buys twitter, he plans to cut staff

by 70% here shares are down because this morning bloomberg is reporting that u.s. officials are questioning the deal and investigating some of the ins and outs of elon musk. tom: i read this wonderful reporting from bloomberg and this is really serious, really original. here is a guy who gave technology to ukraine, great, and i don't know the details and don't have an opinion, this transaction may be held up because that is a department of defense national security thing. lisa: it highlights elon musk as a polarizing figure and some who skirts the edges of what is ok, including on twitter so how much does this affect the likelihood of him taking over and what does that say about the job cuts because even before he was going to take over they had planned cuts? tom: verizon will start rate

cutting. lisa: when i was confessing my terrible parenting a viewer who begged me not to be named said in our house, we had to use going outside and playing with your friends as a punishment for not doing your chores. you are not alone. i think i should use that. tom: these kids today. lisa: [laughter] these kids today. tom: what can we say? we can say speak to leslie falconio. so much of this is the readjustment to the news flow we are seeing. are you in the year ahead review are still trying to get to the fourth quarter? leslie: a little bit of both. we are trying to understand the fourth quarter to really project the year ahead and one of the

interesting things is we look at what is happening in terms of the fourth order and how we enter 2023 is that we are seeing 10 year yields that we haven't seen since 2007. you have a large correction, particularly in fixed income that will set the tone for next year. tom: it is a yield structure back from another time and place. does that change your equity allocation are the factors that matter in equity that you finally have a risk-free yield? leslie: as a fixed income person, i look at the risk-free yield and what is being offered and how much that rate has risen and whether or not it is high-yield or equity, investors are compensated by the risk premium given we have seen the rise in rates. i think the fixed income architect is ahead of the equity market, particularly the u.s. equity market. there are pockets of vulnerability that have not

adjusted, high yields has been incredibly resilient with spreads of 490 or 500. you are at medium spread. we don't think going in forward that investors need to look at whether or not you are with your risk premium. tom: this is what you have been talking about that some parts of credit have moved and some you are shocked by the lack of movement. lisa: especially in the more leveraged companies hanging in there because they are less rate sensitive. one of the biggest consensus traits i've heard of is investment grade bonds. so many people love investment grade bonds because they have sold off to highest levels going back to 2009, and yet yields keep rising. what gives? leslie: it keeps rising this interest rates keep rising.

lisa: put spread? leslie: spreads also -- but spreads? leslie: spreads also. both have low leverage but as the fed raises rates and you have borrowing costs staying higher for a longer period of time, you really have to assess which sector you want to be in and where you are being compensated. we do think that ig, given the fact that it has widened out, offers higher yields. lisa: so are you really going into longer-term treasuries and some of the higher polity investment grade names and locking it in and saying, if we can get 6% yields, which is what you are getting on average in the investment-grade space come up hallelujah we will hang on? leslie: what you said is important. you have to look at value versus timing.

this is not the most liquid market and there is a tremendous amount of volatility. we are adding a bit of interest rate risk incrementally but we are in the fourth quarter and we believe in six months yields will come down and the opportunities we see on the yield and rate side but in the short-term you will have some volatility. whether it is investment grade or corporate backed spreads, we have not seen them probably in 10 years. lisa: we were talking about the u.s. but what about the united kingdom? leslie: the u.k. is a little too volatile. there is a lot still happening in terms of the u.k. and a falling knife you might not want to step in front of. we do think they are going to be a bit more of a contagion in terms of a potential recession in europe. tom: i want to back up and look

at the carnage that is out there for many clients, seeing price down and yield up, how do your clients who have a 10%, 15%, dare i say 18% loss in fixed income, how they respond to the idea of reallocation and making a new go of it? leslie: the performance in fixed income has been very visibly displeasing. the purpose of fixed income is income and you finally have a wider opportunity set we haven't seen in years to compound the income going forward. you are getting prices well at a discount if you hold. it is still an important part of a portfolio, particularly as a diversifier. when we think about the magnitude of rates we have seen in 2022, we do not expect to see the same magnitude in 2023.

tom: thank you very much. you can see these indices on bloomberg. our total return indices are really informative, particularly when you look across a set of them. the high-yield one hasn't moved like the others. when i say the zombie roll out, which is easy in equities, what does a zombie rollout look like? lisa: it is unclear. this is a debate i have going -- been going back and forth with. there is an argument, it is less rate sensitive but also on the spread side and people say, they are better capitalized and rated and have longer maturities and oh yeah, the oil sector is doing great and the energy sector is a

portion of it. then you have all of those who come in and say, they are getting it wrong. that leads to the question of, what does this credit cycle look like when you don't have a fed that will come to the rescue? if you see baseline rates 5%, this is a good point, and stay there for a longer period of time. tom: you can do this and i am enjoying the snap five-year, for your out convertible bond and enjoying it from down 30%. lisa: it has been dramatic. tom: people don't talk enough about the drop in the securities. lisa: even with the price decline, we have not seen the selling and you haven't seen what would cause the fed to come in or cause people to buy truly

on a discount sale. is this as bad as it gets? tom: no, as bad as it gets is a 98 euro -- 98 year austrian bond that jonathan got me into. this is bloomberg. ♪ kriti: president biden has started aggressively promoting his student debt relief plan. they have been working out kinks in the program. it will officially launch the website. legal chances are moving through courts threatening to halt the effort. a mandate from a coalition on becoming the first female premier. the coalition includes several and told the president that she is their candidate. they are expected to formally

ask her as early as friday to form a government. china has locked down parts of a central city, confining 13 million people to their homes for a week. others are rolling out virus restrictions, their commitment to the covid zero policy. they are required to stay home until no new infections are reported for seven days. hong kong officials stopped a screening of batman, one year after the law allows it. the dark knight was set for an outdoor venue and a notice said that based on a direction from the hong kong government office. global news 24 hours a day, online and at quicktake on bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. i'm kriti gupta. this is bloomberg. ♪

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>> what you saw ross do is very -- trusts -- truss do is to essentially trying to blow up the markets. the markets simply couldn't sustain them. tom: the professor from dartmouth with us twice yesterday and we really thank him for his perspective on his bank of england and the political uncertainties in london. four or five movables, we had to look at two or three and push them aside by a single headline

from the white house. this is according to bloomberg news, white house not aware of national security review for musk ventures. this has to be twitter and i guess we will have more on that coming up. lisa: we are seeing the shares pullback from the earlier declines, down 3.5%. our own jennifer jacobs tweeted the story out and someone responded and said it would be hysterical if they stopped him for overpaying for twitter and then elon musk responded saying, 100% with a laughing-crying emoji. that is his response. tom: also is sterling, a wicker sterling but it has rebounded -- a weaker sterling but it has rebounded. sterling is rolling over and we are not through 111 yet -- 1.11 yet.

lisa: leading into the forward economic view. american express saying they built more for charge-offs, provisions and increase their expected charge-off going forward. kallum pickering is joining us. how much art markets getting ahead of themselves with respect to how high rates this market can handle in this economy can handle and how pervasive this is. kallum: i'm wondering if the bond market equity market are worried about different risks good equity market is starting to panic -- risks. the equity market is starting to panic. if we get the loss of pricing power then we don't have to worry about inflation into next year. it is more like leave the equity market is getting this right

than the bond arc it in which case we should be looking to end the central banks look at rates. lisa: you have a good view into that and just how violent the response can be. can the central banks for to pivot given how jumpy bond markets are, whether or not they are right? kallum: that is an interesting way to look at it because it probably means the central banks are cognizant of this and don't want to go through the u.k. experience and have markets panic and throw up rates by multiple percentage points over the course of a day. you don't want that situation to happen. it may go a little further than you need to. it probably means europe we are getting there and the u.s. needs to go into next year. tom: berenberg

has just a fabulous team. let me take you and the united kingdom, is the surprise forward not from the fed but a blink from the ecb that has a war going on? kallum: the ecb doesn't have the same inflation problem to deal with that the u.s. has the u.s. has a stronger demand and prices are rising and are broad-based in europe. it is mainly the energy supply issue. to the extent europe is in recession by evidence of weaker demand, the ecb needs to raise rates until inflation goes down and then you can start to go down some of the fear and hold rates. i think we are probably quite close. i don't think we will get to 3% in the euro zone. tom: we are all focused on politics and certainly the zeitgeist was the separation of

economics and politics in your united kingdom. how does governor bailey respond to a nation staggering to 2 p.m. monday afternoon? kallum: we had announced with that active qt would begin towards the end of the year. the next bank of england meeting is the third of november. by that time they will know who the prime minister is and what fiscal policies. the prominent the bank of england has after all of the noise in the bond market reaction, it probably needs to meet market expectations, 100 basis points is probably what we get which is a doubling of the rate. i think after that 50 more basis points and then they will probably be done. by early next year, it will be obvious the u.k. is in a recession and you won't need to go further. tom: so the call on sterling,

where are we on sterling with that scenario? kallum: in that scenario, we are probably moving sideways but it will be volatile around the politics. rishi sunak is the market favorite and if he wins and becomes prime minister, the world is suffering from a major war in europe, the west isn't recession and so you hold dollar assets eared it is hard to see total markets risk on that coming out. we are all going to be weak against the dollar for a while. that is probably the story for the next year before the situation reverses. tom: kallum pickering, thank you so much. it started with murdoch and really questioning how you measure gdp in china and he said

a university of chicago paper that it could be half as much growth as we are actually seeing. i have a scenario out to think about over the weekend of finally waking up to the antiscience of covid and pushing back that is all of the challenges of a pacific rim slowdown which way do you go? lisa: that feeds into the idea that dollar strength will persist, op. cit. we heard from sebastian galy and marc chandler. where does that come from that forces the dollar into a -- that is the opposite we heard from sebastian galy and marc chandler. where does that come from that forces the dollar? tom: for those of you on radio,

this is lawrence the cat in front of 10 downing street, getting it done. the humor is tangible. lisa: [laughter] tom: we missed the walk of the cat back to the door. lisa: someone pointed out they put in airbnb sign above 10 downing street. that was another meme going around as they try to understand. tom: we will try to keep the reporting more distant from lawrence the cat. this is bloomberg. ♪

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>> we are going to find this will be a tougher environment than people think. >> markets are starting to price in the idea that whatever you

turn is going to happen, nobody is guaranteed there will be a new term around the corner. >> the reality is that data is strong. >> what we are saying about 2023 is we think the first half where we think we will be dealing with a recession. lisa: when does something break? welcome back. this is "bloomberg surveillance." jonathan is off running for prime minister. tom: [laughter] lisa: yield higher, dollar stronger and the rest of the world on its back. tom: you said the smartest quote is the fear of the break is what has it happened is we haven't broken. we are going to talk with alicia levine

. we have to lean into try to get to the asia monday morning, the yen rounded up is all you need to know. lisa: when does something break really paints a picture for japan right now. people were saying come when did they come in and intervene. they are not intervening. tom: i turned away to talk to alicia levine to talk about the sat exams and it moved while i was away. lisa: this is moving away with all the increases in yield and reset and aftermarket price in a feds fund rate. how much more can we possibly do? tom: i think we have the british distraction right now, but away from that, and you and i have been remiss but the data on the bloomberg screen has been the story of the week. can i mention that the bloomberg

financial conditions index has gone against fed chair powell against his movement, 1.80 10 year real yield changes the discussion for global wall street. lisa: it goes to the point we have been hearing from mike wilson at morgan stanley. he said expect a bear market rally because expectations are so low and earnings will come in and be better than expected because that is what they do and they beat the low bars. that is what we have seen in some companies but it hasn't been enough with american express coming in short as well as the shipping sectors. tom: i am more interested in verizon that has been a challenge and talking about cost-cutting in some form. we will see a lot more of that. lisa: we are seeing the weakness deepen. let's take a look at what is going down.

it has been heading lower throughout the morning. at one point it was trying to stay flat. you are seeing the euro continued to weaken. it is pervasive across the world with the pound, euro, yen. 10 year yields, on the cusp of 4.3%, could we see 4.5% by the next couple of weeks? tom: i am looking at the real yield and it has completely changed her hug you right the rear -- year and -- changed. how do you write your year end outlook? lisa: alicia levine is here with us from bank of new york mellon. alicia: we are not watching

anything break but we shouldn't be surprised. core inflation is now higher today than it was in 1982. forget the top line, it is the core. that is ultimately what central banks and the fed is looking at. what is amazing is the equity market shrugged it off and you would have thought there would've been a more dramatic reaction. i think we get something in the next few days to react. tom: you are hugely adept at the mathematics at the moment. i want you to correlate the bond dynamics to how you reset for equities in the next year. can you link the two beasts together? alicia: i think you have to link the two together. equities with the caboose and the bond market was driving the train, which i get teased about.

but it is true, because your multiples get compressed when yields and rates move higher. with the market is doing is pricing in and over 5% feds fund rate and you will feel it on the equity side. it is all one system and you don't have assets that trade on their own. tom: but if you go to some fancy space, is it non-linear from here in the dynamics of the bond market pushing stocks around. alicia: you are asking, has the work than done and we have enough multiple compression. the answer is the direction is still a volatile way but i think a lot of the compression has already been taken care of because if you think we are headed into a recession the first half of the year, you'll wind up with lower yields eventually and that in a weird way will support the market.

earnings season is coming in better than expected, in part because of inflation and a part because we had the financials report and they are doing well on the interest margin. the high consumer is spending. think about nordstrom, and travel, people are out there spending. it is not a total collapse yet. you could have stabilization have you have two-year yields higher. lisa: is the fed blinking and the two years get out of control? alicia: i don't think the fed links. it will blink if there is an event in right now the u.k. walked back from their event which walked back the event on the global market. they have really tracked themselves, because they keep talking about cpi, which is backward looking because they want to signal to the average

household that the fed is on the inflation job. it is backward looking. we haven't seen the effects of the rate hiking cycle for another six months. you have signs, housing is rolling over and you have signs of a slowdown but the fed's of their hiking with old data. lisa: we get some big tech name earnings next week. we have seen snap. that was concerning and has been very concerning for owners of meta, which has tanked. how much more do the tech bubbles have to burst at the time and they have devalued dramatically? alicia: high growth names when they stop growing, not only an earnings downgrade but multiple compression. to the extent u.s. stocks trading at 40 time next year, the tech names are high or but those names have not been driven

down dramatically. tom: if there is a factor adjustment into 2020 three and i am really bait on the zombies will be taken out in the new rate regime, what did the non-zombies do and which factors matter year for the profitable non-zombies? alicia: there will be a wave of m&a coming from the non-zombies, and cheap. you will have firesale of companies for ip. you can have m&a just for ip and some of those sectors. to the extent companies raise cash during the time of near zero rates, you should have some resiliency there. i think the credit cycle happens in the private markets, in the middle markets where they couldn't quite raise the cash. corporate america is flush with cash. refinancing there is not going to be the problem.

ultimately, the american consumer, looking at the unlimited data yesterday, the new claims data, we are at rock bottom. there is not a problem in the labor market. you have this weird push-pull and you have labor working and spending. lisa: alicia: --alicia levine, too short. the idea that the private markets. we heard from the harvard endowment and they said they outperformed what they actually expect to have done in retrospect because they haven't seen the big markdowns in the private orchids from some of their managers. -- in the private markets from some of their managers. tom: i can't emphasize enough the percentage of people out there that have never lived

sharp ratio, a legitimate risk-free rate into the risk reward calculation. lisa: we have lived by indexes and blanket buying. so now what happens when you get a credit cycle and assets that you actually have to look at. i thought the story was adjusting, apollo and jp morgan working on building out secondary trading of private credit because they are anticipating the same kind of thing. tom: are they going to trade bitcoin? kallum: i mean -- lisa: i mean -- steve major has been out front and will have a controversial call. i don't think he sees up, up, and away and perhaps the way larry summers does. tom: i will have a monologue on

that because where is ferro. lisa: this is bloomberg. ♪ kriti: biden administration officials set to discuss whether they should subject elon musk deals for security reviews. they are uncomfortable with a seat with his increasingly russia favorable talks. russia spoke to israel about their help with drones.

american express has slumped after it set aside more for bad loans that analysts expect that interest rates could hammer ability to pay bills. the european union has agreed to press ahead of emergency actions to address the energy crisis, after germany yielded to pressure from other member states to pave the way for a temporary price cap on natural gas. the european council president says it sends a clear signal to the market that the block is ready to act together. credit suisse will aim to settle a tax case monday. they are in the final stretch of negotiations with prosecutors to reach an agreement that would include a find but no admission of guilt. the size of the settlement is unknown and the deal could fall apart head of the court hearing. global news 24 hours a day, online and at quicktake on bloomberg, powered by more than

2700 journalists and analysts in over 120 countries. i'm kriti gupta. this is bloomberg. ♪

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>> i that as we move forward we will find this is going to be a tougher environment than people think. i have been advocating this

might be the return on stock pickers and bond pickers. lisa: that was the president of beyond code -- bianco. weaker bonds across the world. it feels like things are starting to break around the edges with the japanese yen. tom: we will dive into this with steve major in the next hour. but to steal from ed ludlow, i can't say enough looking at the bloomberg terminal the critical breakage points on the bloomberg dollar index. short-term convexity on bloomberg dollar index, the yen breaking out with new law city towards 152 and sterling with

all of the politics going on is absolutely textbook short cable. lisa: how much is this really being driven by the dollar story and yen story? the u.k. has been a train wreck but not necessarily seeing, only isolated two great britain. tom: it is absolutely global. i have to stagger back to one statistic, twitter 1.81% on the two s -- u.s. 10 year yield. it is leaping up. lisa: we are talking about how quickly yields are moving on the dollar and real yields. tom: 10 basis points for the 10 year. lisa: at what point do we end up with something that is a game changer in terms of longer-term

expectations? tom: looking into foreign exchanges, the deepest part of elon musk's market is well, maybe it isn't going to work. another saying he may have another cash call to get this done. ed ludlow joins us on this. i think there are four must stories. which one matters for his ability to get this transaction done? ed: that they are reporting that according to sources his recent behavior and commentary around the war in ukraine about his brief threat to remove the starlet conductivity services -- star link conductivity services. they are thinking, we might take a look at this. a public service announcement, the white house said it is not aware of any review of elon

musk's security review or businesses. this isn't the first time. he leads the biggest private space. he went on to the rogan podcast and smoked marijuana. i am saying this discussion around elon musk's behavior and his security clearances. space provides services to nasa and the military and the pentagon -- spacex provides services to nasa and the military and the pentagon. say this is not behavior fitting for someone who has this level of security clearance. the issue is, we have reported things going well. bankers on both sides working and banks getting any for the debt call to come in. this comes out and throws the deal. lisa: this is a distraction. the twitter story has been a

story in itself but masks the story that they were planning cuts at the company before he got involved. this was a company that was struggling. you are seeing with not just twitter but the social media companies more proudly, like we saw from snap. ed: the shock is greater than we expected. without the softness in the advertising market was done with . after the war in ukraine and europe, we had the commentary from alphabet but the wording in the statement was specific, a pullback in spending by advertisers. they are decreasing budgets. why is it important? advertisers pullback spending because consumers are spending. lisa: people are probably not interested in tech as much because they are looking at markets and they see yields

moving pneumatically. this is part and parcel of potentially a similar story that the free money is over and tech will be reeling. ed: i tried to justify my existence in tech. look at the specific names, the one with the strong balance sheets. when you are trying to work out what to do in an earnings season and where it will hold up better, there is a thinking that of course apple will fare better. they have the cash to flex and they are smart about how they handled the economy global. there is some rumors about that being a good play dubai that theory? i don't know, -- that being a good play. do you buy that theory? i don't know. lisa: stocks and bonds on the move.

the dollar preeminent. tom: when a tweet says, give me a dxy quote, dxy of two 113.87. it was the same thing, they are watching swap lines which is the borrowing of overnight money, think friday, between major countries, including switzerland. it is confusing and advanced. critically the nations do not have available the ability to go out and borrow good jillions -- gajillions of money. the unknown of swap line i the imf and central banks. lisa: are you saying there is background -- backroom negotiations?

tom: i am not saying backroom but i am looking at the bloomberg terminal but there are indication something is going on. lisa: yields are higher and their is the dollar markedly stronger -- and there is the dollar markedly stronger. it has not come with the pervasive weakening in the currency as they stick by the yield. tom: their goal is control in the way you get control is saturday, sunday into their morning. stay with us on sunday. lisa: stephen major is coming up. ♪ ♪ - in the last two years, we quadrupled our team

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lisa: this is "bloomberg surveillance" on bloomberg television and radio. jonathan ferro is off. we are seeing markets on the move. stoxx lower. the s&p down 0.8%. weaker versus the dollar. yields really are the driving force. it is a dollar story but it is

also very much a yields story with 10 year yields at 4.32%. real yields at 1.8%. this is a market that is facing some sort of reckoning. they have gotten over their skis with how high yields can go. tom: we got lucky yesterday with david merritt who led all the brexit coverage. i thought was great yesterday to have them weigh in on the chaos. do you think we will get lucky this morning? lisa: without a doubt. tom: bragging himself back from hong kong, steven major joins us with hsbc and we are thrilled he could join bloomberg in our studios. forget about the market talk. what is the experience of living in hong kong under quarantine? steven: it is getting

easier and i cannot wait to go back because we are free now. there is no quarantine. i have done my time. tom: do you think they can salvage their relationship with western banks? steven: i think all of the moves are in place. tom: we are thrilled you joined us. you are someone who has said yields will stay down. we have seen a major adjustment. what is the new major on how yields finally cross lower and price higher? how do we get there? steven: don't you have a show called "real yield?" at least it is relevant now because you actually do have a real yield. tom: it is relevant because lisa is doing in and jon is not doing it.

continue, mr. major. steven: if you can get real yields anywhere near 2%, that covers gdp. if you are putting a portfolio from scratch without being encumbered by all of the carnage the last few months, if you are building from scratch, to present real yield covers gdp. we do not know where inflation is. it seems to be a good place to start building a portfolio with a real yield. lisa: let's put this into something that is very clear. do you see 10 year yields at 4.3% in the u.s. screaming by then because we will not see -- screening buy because he will not see yields like this again? steven: i would have been buying every week. that is why i am not a trader. the point is the valuations today show a very strong recency bias. i believe yields will keep going up but you can build a plausible scenario that there is a hard

landing and the yields should be less than 2%. the question is what weighting do you put on it. at the moment we are pricing the fed going to five and staying there forever, which does not seem plausible. lisa: i am really excited that you were coming on to push against what i am hearing is that there is a stickier, more pervasive inflation over the long-term and that the funds rate will not go below 2% anytime in the next decade simply because of the de-globalization or the localized globalization, some of the population trends or these other macro factors. steven: i don't think the longer-term picture has changed, lisa. demographics, wealth inequality. i think you can give me some arguments that may be under but not reverse it. i don't think you can reverse

the pre-pandemic trend. lisa: do you think we will see 0% rate in the next five years? steven: i think you will get a hard landing and the probability cannot be ignored. it is all about probabilities. the markets are pricing rates at five. the two yield could be 100 to 150 over the current money rate. in an easing cycle, it can be 250 through the money rate. that is not happening this week but sometime next year the market would not be wrong to repricing in an easing cycle. tom: steven major with us for this half-hour. you mentioned the breakages that could be there and dxy getting up near 114 is without question the focus of the imf. is there enough of the power in the foreign-exchange market to see dollar strong where there is

a swap line demand or a desire for swap lines even if i cannot get them, is that enough to make jerome powell link? steven: there are number of economies in asia where there has been tightness in the funding markets recently. looking ahead to year end, we had a fire drill with the u.k. what lessons did we get from the u.k.? fast moves are dangerous. it is not just the level, it is the speed. i would not be surprised if the fed was watching that very closely. was there a point a week or so ago when people were worried? at the moment what happened in the u.k. was not enough to distract the fed from its hawkishness. but who is to know if something spills into a market somewhere and it would be wrong of me to speculate but there were so many pools of leverage, so many areas that need to refinance and when the dollar is moving like theirs and the rates are so high

and the spreads are so wide, there will be some pain. i do not want to speculate, but you are right. the swap lines are being looked at because there is tension. tom: do we have good data? john murdoch with a fabulous essay on chinese economic data. do you feel sitting at your desk in hong kong that you have good pacific rim data? that you have good global data? steven: i think we are always struggling to catch up and we are all experts about ldi in the u.k. where we were not before. we can all quote numbers and talked about -- and talk about what happened. tom: i found a paper from four or five years ago from ldi that absolutely nailed what was going to occur. lisa: we are also experts in british politics. i am wondering as you talk about the speed and this is something people have been talking about,

what happens to 10-year treasury yield if japan abandons its peg or have some sort of failed intervention as we see almost 152, 151.9 on the dollar versus the yen. steven: we are trying to game this one out. with u.s. yields here, if the ycc was changed, it would have much less impact than where yields were one year ago. if japan had changed its policy, global fixed income could have been de-anchored one year ago. if they were to do it today, it does not matter so much because they will be adjusting into a bigger spread because u.s. yields are so high compared to japan. the bank of japan estimates the 10 year jgb will be around 80 basis points if there was no ycc. this is not black-and-white. there will be an intuitive shift. lisa: what you are saying is important which is we have

already done a lot of the work to reduce the shock value of how quickly the moves can be. does this mean reversely that you end up with yields higher for longer because there is not some sort of trigger that causes some sort of monetary policy to step in? steven: hire for longer? that is a good one. the opposite of lower for longer. lisa: exactly. we saw that for a long time. steven: when you have had a once in a century pandemic and all of the other supply-side shots that we have had, we should not expect a return in the space of a year to what we had before. it is a multiyear process. i think that three to five years out we were in 2019. tom: you will be with us for the entire half-hour which is really great. we are thrilled by that. john emails and says, soccer talk. he says he has paid for four games in the last 10 days. give us an update on west ham

and english football. steven: i was lucky. when i was in the u.k. i saw five games in eight days. it is just fantastic. the quality of football is getting better and better every year. it is amazing. it is such a privilege now to go to games. tom: that is what jon ferro says exactly. ken starr players be good coaches -- can star players be good coaches? steven: i think the step into management is difficult. how do you motivate and manage these multimillionaire players just because you happen to be a player yourself? management is a particular skill. the guy that runs ford does not have to be an engineer. you see someone who was not

really a player, but he is one of the best managers of all time. i think stephen gerald is an interesting case study. tom: was that enough soccer talk, lisa? lisa: i am looking at yields which have been on the move. tom: we miss john. steven: it is so obvious that this is not interesting to her. tom: you have no idea. with that, we will come back with stephen. i'm sorry. i have velocity on dollar strength. lisa: 113 come almost at 114. i will just say i think it is awesome. it is a foreign language to me. you have to be following it. if you are not, it is hard to know. i am following the bond market. tom: it is a foreign language to me. i just fake it. lisa: do you want me to fake it? i think people would cry. right now we are watching the s&p lower by 0.8%.

you can see the yen really close to 152, 151.93. this is bloomberg. ♪ >> with the first word, i am kriti gupta. the white house is unaware of any security review for elon musk ventures. intelligence officials were weighing in on the possibility of using tools to review his ventures like the twitter deal and spacex. president biden has started promoting his student debt relief plan. the government has in working out the program. a white house event will officially launch an application website. multiple legal challenges including a lawsuit from republican led states is moving through courts to halt the effort. china has locked down parts of a city confining 13 million people to their homes for one week.

other major hubs are rolling out virus restrictions as well reflecting the commitment to its covid zero policy. residents in high-risk areas are required to stay-at-home until noon new infections are reported for seven days and they get moved to medium risk. giorgia meloni has clinched a mandate on the path to becoming italy's first female premier. the coalition includes her brothers of italy party, former premier matteo salvini's lead and told the president that she is their candidate. he will formally ask her as early as friday to try to form a government. slower sales growth during the third quarter. the company's brand is said to be held back by covid-19 restrictions. the ceo told analysts the brand revenue from the mainland declined during the quarter and the situation is still not back to normal. global news 24 hours a day on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in over

120 countries. i am kriti gupta. this is bloomberg. ♪ returning to the office, we need our paranormal services to be more versatile. flexible working needs flexible technology. i know a group who can help us. not those new age shamans again. i'm talking world-class business experts. data geeks, strategists, tax advisors, the works. i do like data geeks. what about technologists? 40,000 strong, baby. who are these people? it's ey, believe it or not. can they help us build remote ghost-to-cloud tech? oh yeah. they've invested over $2 billion dollars in innovation in high tech data and analytics. the best of both worlds. that's our motto! actually, that's end-to-end transformation. we'll be able to hit our projections both fiscal and astral. and we'll have the tools to be more nimble wherever we go: home, tombs, caves, catacombs, you name it. this company sounds great. what do you think, agnes?

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>> i would not be surprised how fragile financial markets are that the fed has to pause to get them under control. u.s. financial markets are in a good place right now but if nothing else, the u.k. has shown us how fragile to uninvent, a bad policy decision. i do not feel comfortable about what they will do in december let alone where we will be by june of next year. tom: she is a former fed economist that describes the economic conditions. she is controversial. she is with us today and not only that, she has her own russia -- her own ratio of some

measurement of recession. she is a splash academically and linking it to all of the punditry we see. we welcome you to "bloomberg surveillance" on radio and television. some quiet moments with steven major of hsbc and very un-quite time. -- unquiet time. things move and they do not level. they do not plateau. they turn around and reverse. what is the event that will allow some of the carnage i see on my screen to reverse? steven: that is right. it might even be a bimodal market. you have one mode with the strong recency bias and another one that prices in an event. the fact that the median number of months between the last hike and the first cut based on the

last seven years of data, four months. the mean is eight so it is skewed because of the 2008 period. look at the numbers. once they have hit the peak, the market is not wrong to be looking to the other side. what is the event? if the u.k. event of fast-moving yield and disruption somehow infected, affected the u.s. financial markets and i am talking about money markets or mortgage markets, swap lines, all of this stuff, who knows? that makes the fed think twice about going all the way to five or above. tom: the anti-science of monetary policy japan. everyone knows this. what are the ramifications to the steven major world when they

capitulate on ycc in some face-saving form and you get yen 152 over a couple coffee? -- over a couple of coffee? steven: because of where yields sit today, they are so far above. i imagine the japanese curve would flatten. it would be a bear flattening because the curve is so steep. in global fixed income, that is not going unnoticed. if you are sitting in germany, you can switch from your local market into jgb's and pick up yields because of the curve steepness and the heading because japanese rates are below zero whereas the ecb and the fed are hiking. there are opportunities here for global fixed income from the divergencies. tom: to go to your arch thesis, as a manufacturer -- as they

manufacture pseudo-inflation, will they have a move back to dis-inflationary trends, which is some form of de-inflation? steven: i think so. from a japanese perspective, if you have waited 30 years, couple of months does not do it. that is the kuroda approach. we do not know who his replace that will be. they will not be in place until next year. it is just speculation on our part. i feel very much that is all we are doing. we are trying to game it out anyway. tom: now we dive into the world cup coverage. we are doing this without jon ferro which is unfortunate. you have a global mandate. you will be in the middle east. i guess you will attend the world cup. can you explain to mere mortals like me how we see a good product with 86 degrees on the field? steven: it might be a slow game.

it can be completely different. i will see some england games. i'm lucky enough to get tickets. i think it will be a strange world cup. it is going to be surreal. in that kind of heat, it will be cooler than the summer obviously but the games will be slower and more measured. it will not be as crazy as the premiership because you have seen how fast they play in the premiership. you have seen it yourself. tom: i have a 110.80. this morning, down to 110.87. it is important for you to come under politics but under the pressures that governor bill lee faces. steven: i think he has been pushed into a corner. it does not help that the bank of england was hiking at a pace less than the fed before the events in downing street. the bank of england's role is

interesting because they are a buyer of last resort. i think the gilt market has calmed down a lot. one of the big differences between the u.k. and the u.s. is that things can happen quickly in the u.k.. all of those fiscal proposals have been abandoned. tom: could you belong on 30 year guilt this morning? steven: you can look at it. i'm interested in how guilt compares to equities. there will be a lot of fun managers looking at those relationships of bonds versus equities. it is the same in the u.s.. there is a point where you have to start favoring bonds and the risky assets. ultimately for the bank of england, they have the qet and the que. they have to work with the dmo

on patents of issuance. i think the worst is passed and we will see a period of calm. tom: the period of calm will come after 2023. a theme for 2023 that we might see written by hsbc. steven: i will not fund the research. [laughter] tom: did you hear that? i did not hear that. steven: we have not even sat down. we are pleased to get to the end of this year. [laughter] tom: steven major, thank you so much. greatly appreciate it this morning. he is with hsbc and this is what we try to do to bring to the conversation on this in settled times and decidedly unsettled times as well. i have one minute to summarize what we have seen this week. it is absolutely extraordinary. please stay with us through the weekend as we stagger to the asian morning 7:00 p.m. sunday in new york. let me go to the deepest market, for an exchange. you can see that with dxy near

114 and 115 on that major trading index series. that would be extraordinary. euro does not give me any information. sterling is weaker against all we see monday morning. thank you tom mackenzie outside parliament with 110.93. even dollar canada looking 138, 139. oil is not part of the story today. equity futures a little bit of weight to the tape as we stagger 30 minutes to the open. please stay with us through the morning. this is bloomberg. ♪

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lisa: the countdown to the open starts right now. >> everything you need to get

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