>> i think the fixed income market is open ahead of the equity market, u.s. equity market. >> equity markets are calling this right, more than the bond market. >> i would not be surprised by how fragile markets are that fed has caused to get them under control. >> market is pricing in an overhead funds rated you are going to feel it on the equity side. clicks -- the return cannot be ignored. >> this is berg surveillance with tom keene, jonathan ferro and we sever avoids. jonathan: i heard them by name. i told -- i was not going to speak to you this morning.

tom: do you like my bowtie? somebody on radio said i wore this for pharaoh. jonathan: no love for you. live for our audience worldwide, good morning, this is bloomberg surveillance. equity futures just about positive on the s&p. what a turnaround friday. would start there. tom: his clients pushing very optimistic into the end of the week, he resets over the weekend. i would focus on destruction sooner, china -- sunak, china. the markets are speaking volumes. jonathan: i agree. the u.k. has punched well above its weight. china doubly down. some real market reaction in response to that. chinese currency is weak and the equity market really struggled

overnight. tom: the funds flow out. 7.267 yuan was a big deal, 7.26 is even bigger. but given that heartbreaking -- i editorialize, that video we saw. to the markets tell their political step of what to do like the markets told liz truss would? jonathan: abruptly taken out, unscripted, disrupting the choreography. what is the choreography? that was it. it moves everyone except the man itself. lisa: he was the former leader with a very prosperous time when things expanded dramatically, this is somebody who had a more democratic type of rule. coming out, fighting it and going with it. what that sets up for, chance of the question, i don't know that market vigilantes will be heard

much. at least not right now. this is not necessarily an economy first kind of chinese regime. tom: our guest with us says he loves hong kong particularly as it comes out of quarantine friday. you wonder what an established entrenched hsbc dies or a western met does. -- does or a western does. tom: gdp does not get it done, a five plus handle in the models and the rhetoric, gdp coming in under 4%. jonathan: that is the good news out of china. lisa: the bad news is people question and it is a scratch in the head aspect that do not seem as coherent with respect to fed data. at what point is the administration losing credibility? the fact that they mention

stability and security more than the market business was critical to people who bought that set the tone. jonathan: let's look at the markets, good morning, equity futures unchanged. i will not forget the jokes. you are away later this week. tom: i have a lot of time off. took very little time. give me a week this year. [laughter] jonathan: yields coming for basis points on the 10 year. 12 consecutive weeks come out a run. tom: i'm going with it real yield, one point -- one point 60%, we sat about that 160 level to begin with. jonathan: we have spent a lot of time talking with the japanese yen and chinese currency as well. the bmis are not great out of europe, that is the bad news.

good news, a milder winter so far in europe and softening gas prices. lisa: that raises the question, what does that do for the ecb? i want a quick run through the week ahead because it's going to be a momentous week. the great decisions, the canadian rate decision and the canada and ecb rate decision. we are seeing weaker pmi's both in manufacturing and services. they have better stockpiles and energy. the 10 year yield is surging into levels people thought were unheard of in about a year ago. at what point do they say we can back off versus continuing to have to hike particularly with the euro-dollar and china trying to bolster the euro? this week and economic data in the united states, probably the last slew of data in the next two weeks before the elections. the first trade thursday and

then friday -- as well as the university of michigan sentiment read. how much does the employment cost index matter heading into the election season at a time would good news is bad news in the market view. what does that do to a federal reserve who made the following week? the tech earnings, it slew of them, microsoft and google to say, meta, facebook and others on wednesday, apple and amazon on thursday. up this may be the most important data point of the week, these companies, how much momentum they have and don't have and what it says about the economy perhaps more so than thanks setting the tone when earnings have not been great. jonathan: thank you. tom: jewel published this today, he rings down his view of amazon due to a weaker consumer prime debt -- day but does not change his high-priced target or the view up to 2023. maybe we will see that.

jonathan: the call that a tactical rally, tactical bullish call. short transfer the equity market up and he says that will not continue until we see capitulation on guidance for next year. tom: julian emanuel is into the derby now, publishing every day earnings view. the weekend searching for babies and the bathwater. he works for ed hyman. you're going to find someone at evercore isi. everybody is in the bath. jonathan: a good start to this morning. tom: [laughter] lisa: [laughter] jonathan: the correspondent joins us now i let's start here. the currency is weaker and equity markets performed poorly overnight. it's tell us how much the world changed for china over the weekend. >> we got confirmation of just how out-of-control president xi jinping is. you can argue is there any doubt? had two personalities and

bosses from shanghai, beijing, former colleagues and supporters of his in key positions. the government is now set up in place for the next five years. you have to say the economic data in the markets underscored, it was pretty bad or across-the-board, house prices, unemployment going up, trade going off in the markets taking as well. it is a good move for the government. tom: including the wonderful layout for the seven people of the bureau. -- politburo. what do we see sunday? enda: president xi jinping gave this, perhaps more up than one expected. but china is focused on building

its own technology and innovative industry, that was permeating through congress, it speaks to the idea of polarization that your desk when that will catch up on the sector. if you talk about do globalization, the banking sector has been ok. have been expanding and growing. things like tech sector, those in many fractured goods facing tariffs of the rest. sentiment toward china is in a great space. foreign companies continue to complain they can't make money. have to wonder if at some point the banks also started a review on china and they do look elsewhere. lisa: was there any sign that xi jinping would be willing to move away from covid zero policies anytime soon? enda: there was not. the story on china's economy has not changed, when will they pave it on covid zero? -- pivot on covid zero? you know the story about the control.

there are contrarian views where people are saying they have very experienced technocrats and this very unified looping could mean it comes faster and quicker and might lead to progress on some issues like covid zero. that is hopeful but it is out there. everbright are -- that. going to the npc in march, officials gathering to officiate at the office, you can't imagine major pimm is ahead of that but watch out for the language as to whether they are planning this. jonathan: awesome coverage to today, enda in hong kong. most people us over the weekend, does is make it more or less likely that they continue with covid zero. people say it is more likely he

will conclude. and is it more or less likely this leader maintains a confrontational stance beyond the borders. lisa: the same answer. they were deemphasizing markets, security, emphasizing the power of a nation abandoning some of its previous mandates. that is underscoring the fear you are jonathan: seeing in markets. jonathan:-- jonathan: weaker currency. tom: i have not done the math yet but it is a huge move that harkens back to 2015. we know there is an election in the united states and it is the only thing the polarized parties agree on is china. it is amazing. it is the one thing agree on. -- playground. jonathan: and the weekend will agree. dollar-yen, central-bank burning

through billions and billions of dollars, shattered the dollar-yen right now. it -- there was a matter with a call for 150. i laughed at the time he made that call. lisa: [laughter] jonathan: he message me last week about 1.49 and he was looking for credit and i said we are not there yet. what we are their nine guests. from new york city, this is bloomberg. -- we are there now i guess. this is bloomberg. lisa: i am lisa mateo. investors having their say on chinese president xi jinping's move to stop his leadership ranks with loyalists. chinese stocks fell in hong kong to the lowest in 2008, the financial crisis. investors are skeptical xi jinping and allies will seek the private enterprise. the u.k. come out rishi sunak

has taken a big step for becoming the next prime minister. boris johnson has pulled out of the race and rishi sunak won the endorsement of hunt. this is now a two-person race among conservative party lawmakers. the u.s., the u.k. and france rejecting russia's allegations ukraine is preparing to use a so-called dirty,. a statement from the three foreign ministers of the country called for conversations but the pretext of escalation. americans favor republicans over democrats when it comes to the economy and that is the republican advantage on the issue heading into next month congressional elections. according to the survey from abc news, 30% favor the republicans over the economy with 24% cussing democrats. 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. ♪

>> if the conservative party coalesces around rishi sunak and we get back to a more stable, fiscally credible policy coming through, we are going to settle

to yes the economic news is going to be bad, this will have a significant recession. that is not good for sterling because there is a rate hike preston but the volatility is not. jonathan: the chief ethics strategists. life from new york city, good morning. the price action on the s&p, equity futures positive by or than .1% on the back of a good week of gains on the s&p 500. slower, heading south negative for basis points, 4.1729, weaker, the dollar down. the name change, the new name effective immediately and a pivot to embrace cleantech. does this help your stock these days? tom: in a so sad i don't know where to begin. first of all, slumber -

-schlumberger was a romantic name, steeped in history going back to 1926. i go back to jerry, he took the name, american, and renamed it primerica. jonathan: you are still working through that. tom: i'm surprised. lisa: how much is this a guide -- altria, the former philip morris. industries are trying to rebrand, how much can they move away from their core is this at a time especially when that is needed now? even elon musk saying -- jonathan: and a time we are having a massive move for fossil fuels they are making got transition. lisa: that is right. how much is this a nod to trying

to get pensions, to justify the returns. just saying. jonathan: we will say this for another day. futures positive .25%, decay moves in the fx market. tom: a lot going on in the markets, the fx you can take the general picture and drill down, we are going to do that now on what maladies--matters to global wall street which is the follies of japan. joining us at our global head of fx strategy cannot bank of america securities. i want to go into some of the research i've seen on the quality of the piggy bank that japanese institutions have. the basic idea is the amount of reserves they have, liquid fundable able to move on a notice to intervene is actually fairly strong. what is the level that those institutions are almost out of ammo to intervene to drive the yen stronger? >> there are a number of

considerations, definitely in terms of the actual intervention by the minister of finance. however, it has not been very effective. but moving back to square run -- one, we are halfway there. there are a number of forces as well. at this point, the main institution would benefit and when the minister of finance intervenes -- the tail remains extremely dovish. we thought -- this is not a consistent not good -- message to market. tom: i race to the bottom, the yen 150. let's forget about the nation to

nation math. if it is a race to the bottom, weaker currencies, what happens if adxy breaks through to new pacific rim weakness? >> actually, particularly asian bonds they're not intervening. but this has not been enough to stop the dollar. things might be worse otherwise. but this intervention is just leaning against the queen. the truth is they forces remain in support of the u.s. dollar. this has to do with the fact that u.s. inflation has yet to peak. and headlines on this have been missed but it does not seem something that will be immediate. this is also affecting negatively their currencies. lisa: that is where i would go, this idea that we saw over the weekend in china it did not give much confidence they would be moving away from zero covid or

this idea we would be reopening in a way that was a throwback to five years ago. how much does that make you bearish on some of the pacific rim currency is on the entire region, let alone offshore u.n. which we content -- offshore yuan which weekend to levels we have not seen -- weakened to some levels we have not seen before? >> the director, it tends to be negative for other currencies. it also the cause on the outflow china is weak in this environment. they are exposed to china, and obviously -- they're more affected than by weakness. we estimated through this, about half of dollar strength has to do with this in china.

jonathan: wonderful to hear from you, from bank of america securities. a quiet period. no fed speak until next week. lisa: i almost thought that should be on my week ahead was the lack of fed speak. exactly. this is actually a big deal considering what we have heard of the past few days. jonathan: what do we think of the wall street journal report into the weekend? is it problematic that markets believe this signal in everything they right over there? the fed was burned. lisa: you are saying they but you're talking about nick. jonathan: yeah, it is hugely problematic that you can write an article going to the quiet period, basically select close of fed speakers already on the record but people believe there is more happening. lisa: they want some emphasis heading into the fed meeting. but this highlights a tension for the fed.

how do they signal they are willing to look at the data, showing a slowdown in the economy, that they are willing to be sensitive to the lag time it takes for some of these rate hikes to bleed into the economy while also convincing markets to state suppressed, for financial conditions to stay tight? jonathan: we have had the pivots come another step down. is this the step down? we talk about the step down in a moment. tom: we are stepping down. jonathan: have we talked about the yankees? does new york now support philadelphia? lisa: that is rough, i don't think so. too close to home.

just look around. this digital age we're living in, it's pretty unbelievable. problem is, not everyone's fully living in it. nobody should have to take a class or fill out a medical form on public wifi with a screen the size of your hand. home internet shouldn't be a luxury. everyone should have it and now a lot more people can. so let's go. the digital age is waiting.

jonathan: coming off the back of the biggest weekly gain on the s&p 500 going back to june, what a move to close out the week last week. futures this morning positive on the s&p, shaping up as far as .2% up. lisa went to the earnings, you will hear from apple and amazon and more later this week. equity futures on the nasdaq unchanged. bond markets in the two's and

30's, 4.63 at the highs. wild stuff in the tenure part of the curve, 4.17 71 on the tenure. as we have covered repeatedly, week after week over the last 12 weeks, 12 consecutive weeks, climbing on a 10 year maturity. phenomenal stuff. here is a snapshot of a bonfire of fx reserves. is what it looks like. dollar-yen 1.4934. we move. can i give a shout out to our next guest? came on the program in february, 115 on dollar-yen, he said 150 and here we are. tom: christopher, smarter than the average bear on the macro strategist. all i can say show me any literature that shows unilateral intervention works it is not out there. christopher, what is out there

is a desire for catharsis, a vix of 40 and eight other shades of it as well. it is not out there but what element of the market last week gave you a sense of catharsis? christopher: what i thought was most interesting about last week, it was a good week for stocks but what is the only sector -- tom: to me the real yield. >> with a relative high on the s&p was energy. this is what is interesting, on down weeks and up weeks, leadership really has not moved much. if you look at where the positioning still is and i would content there is still a lot at the top of the market, apple, tesla and microsoft, energy outperforming does not help that group. i am not sure a lot changed from a leadership perspective which is more important to us than whether the next 200 points are up if the leadership does not change. tom: the technical analysis,

does quality matter, whether small-cap or large-cap, profitable companies showing that even down the income statement? does that matter? christopher: that was the other message from the market last week. when you look at what did not move or did not rally, i would so-called the garbage. things like carvana, roku, names that have basically -- that were the speculative darlings of the cycle, thrown out. those did not move last week. the market continues to make this clear distinction between what is quality and what is not. ultimately, what would be bullish from here? the market disassociating itself from things like bitcoin, ark or ipo's would be a poster. if that -- that happened in 2002 as we came out of.com, the market had dissociated itself with a lot of the garbage from prior cycles. lisa: right now that headline is

roku and carvana are garbage according to chris. i don't know if that is that headline you necessarily want. the right now a lot of people think there is so much pessimism. we hear all of the bearish talk on this program and elsewhere and are sick of it. you're seeing that into the commentary and the options market. we are seeing people putting on less protection against the market dropping another 10%. what do you make of that? christopher: it is a great question, lisa. i am struck by a couple of things. for one, i think back to the late 2008 into 2000 nine, that feeling of capitulation was very different than this. i can remember not wanting to turn the screens on in the morning. i don't think we're quite there yet today. second i would notice, be careful -- or at least distinguish between what people say they are doing with the money and what they are actually doing with their money. i think the gap between those things is quite wide here.

flows for example are still aggressive into both equities and bonds. i am not sure that describes that cathartic or capitulate to a. we have support here for the next 90 days and they want to be mindful. we have essentially oscillated between 3600 and 3800 for the better part of last six weeks. i can get you to let's call it 39 or -- 4000 on the s&p. but this is still a downtrend. stocks rallying into downtrends are things you want to fade on the road. lisa: there is a breaking point at some point, a lot of people for see yourself like wilson, and you did call the yen weakening to 1.5 zero per dollar. how much is that going to be a potential catalyst? the question of what john called bonfire on central bank foreign reserves. how much is that the trigger? christopher: the language we

have used is very simple. the market is back in charge here. saw that in the u.k. over the last several weeks and i suspect we will learn that in japan over the next number of months. the story is $30 billion of intervention, i think that is what they report on friday. a 50% increase from the $20 billion of intervention we saw i think september 22. after the september intervention it took 14 trading days for the end to make a new low. that is our benchmark care. but see where we stand in two weeks, 152 again or 135? that is how we judge whether or not this is successful. what i see german 10 year yields at 2.50, u.s. tends at 4.20, japanese yen at 26 basis points, there is an outlier. an unsustainable path for the boj to remain on. jonathan: you said that is lower, this is smoke coming off the bomb.

about $40 billion worth at this point. it is ridiculous. we want to look at sterling as well, 113 18, rishi sunak, the former chancellor is getting public endorsement in the u.k.. we've been tracking them at bloomberg news. we verify public statements from more than half of the tory mp's. tom: this was at 9:00 a.m. our time. jonathan: perhaps we get a prime minister. tom: we change the language. jonathan: they change the language. yes. i -- the markets want to move on quickly. you mentioned one of liz truss, what is the next come from? is that a change in leadership for the boj that is set to take place anyway? what is it? christopher: i think that is a good place to start. we wrote something to the effect in february or march that the boj was going to have its 1992

boe type event. i also think the boe have another boe 92 type event but that is what happened over the last several weeks. i think ultimately this is heading toward some crescendo. japan is ground zero for that. keep in mind, cnh this morning is that 730, 7.31. the stresses in the chinese currency have not abated. i have yen at 1.50 and the chinese at 7.30. i am not sure that is the cleanest environment for macro risk. tom: what are the technicals of the 10 year real yield? call that gosar's call that catharsis and come back but we set about that 160 level. what does that look like? >> this is a little bit of a pet peeve. this idea that real yields are actually positive. i guess theoretically they are positive. tom: right but if you look at the two-year -- christopher: 10 year break,

right but if you look at the policy, the fed funds rate is at 2.25, for all intents and purposes for real people, it is actually quite negative. there is more work to do here before the fed really believes that short rates are offering a positive real yield. tom: was chris verrone our fed speaker today? jonathan: our fed whisper up. great call, buddy. a bear company. tom: that is right. a lot of this going on, people buying intellectual value. jonathan: back to our u.k. story. more than half of the tory mp's for rishi sunak. tom: i see this and the others, austerity. whatever happens, let's say it is prime ministers to

act, we have to assume austerity. maybe that is the word for the fourth quarter. jonathan: austerity. we going from this inflationary room to a disinflationary bust? tom: we are pulling away from the fiscal largess of the pandemic. you can debate this that and the other but it was a fiscal room and we are pulling back. that gets you to something a lot of conservatives, nation to nation, including the united kingdom, are comfortable with. lisa: here's the problem, you asked christopher the right question. where to the bond vigilantes, to the market vigilantes train their focus and what does that mean in terms of global fiscal spending if there is this feeling of pullback? you might not still get that disinflation for quite a while because of the physical goods, the need for them and the fact that we have not necessarily invested for many years in them. how do you get that adjustment period to a disinflation that

can right size and economy that is not going to get the physical spending boost? jonathan: i am struggling to adjust to the reality of 2022. if you told me months ago we would have this out of europe and the same week 75 basis point hike, i would laugh. lisa: you might still walk out of the room laughing. jonathan: go on. lisa: but this is a good point, the scenario has changed where we are getting that we can is not enough. it is raising the concern about the step down. how you get to some new level of appropriate -- jonathan: [indiscernible] lisa: how do you adjust to needing rates to be high for long enough, some papers say two to four years to have this effect on inflation. tom: i did a fancy chart of the chris verrone vector which is yen, when you get to 1.6? jonathan: we need to let him

back. tom: january of next year, you get to 160. jonathan: next week. tom: three months. jonathan: isn't it great? he is always listening. the dollar-yen, 1.4937. tom: i set down. jonathan: in new york, you hate the 30's but you hate the astros more. tom: absolutely. the yankees played baseball last night, their biggest failure, they are undisciplined. jonathan: i left it this morning. this is bloomberg. ♪ lisa: keeping you up-to-date with news from around the world with the first word, i am at lisa mateo. xi jinping's power grab in beijing has led to a historic

route in chinese stocks. equity said there or stay in hong kong since the 2008 financial crisis. the offshore you want for massive to the dollar for the first time ever. traders are concerned that his decision to suck his leadership team means policies that are not market friendly. in the u.k., the house of commons leader has been pressed to pull out of the race to become the next prime minister. rishi sunak has picked up public support for more than half of the conservative party members of parliament. they need at least 100 lawmakers to go forward to the final ballot. in baseball it will be houston versus philadelphia in the world series. the astros wrapped up a four-game sweep against the yankees to take the american league. go adelphia beat san diego 4-3 to win the national league title, four halves to one, game one of the world series friday night in houston. 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. ♪

>> what you see is growth below trend in 23, gdp growth below trend. policy tightening gets that rate up between 3.5 and 5%. policy tightening that raises and then holds because we have to keep the rate at a tightened -- tightening level two establish price stability. jonathan: the federal reserve bank of sentences go president come out live from new york city this morning. the price action, equities continuing gains on the s&p 500 briefly. up by more than .1%. yields coming back down on the 10 year, down by four basis points, 4.75 -- 4.1750.

9821, for anyone following the u.k., conservative party leadership race to be the next prime, we have a 100 mp threshold, 100 vote threshold to get a nomination. or than half of the conservative mps have stated their supporting rishi sunak. the other in the race for this. the content -- campaign team issuing a statement on support, they have more than 90 supporters. tom: there is no election here. so what happens after they decided there is only rishi sunak question mark -- rishi sunak question mark-- rishi sunak? jonathan: if it is only him he becomes the prime minister. boris is already gone. tom: i guess so. jonathan: it sounds like it was awesome. tom: we needed you here because

it was foreign to say the least. the general election could still be here. jonathan: that could be. it depends when the chinese dusty primitive start because i. -- depends when the prime minister starts it. tom: our guest is here, what is the symbolism that in texas, this is the only issue the republican and democrat parties share in common in washington? frame what we observed this weekend for a unified washington as they confront a third term xi jinping. >> good morning, tom. i would say for washington, for republicans and democrats, what they saw on display in beijing over the weekend will only reinforce the view that china is a force the u.s. is going to

have to contend with going forward. it was an impressive, carefully choreographed display of xi jinping's power at the 20th party congress. i think it is more likely to fuel and. security competition in the region. one reason is that national security replaced the economy as the dominant theme in the run-up to this weekend and his report to party members gathered in beijing. it is no accident that he held back at today's latest report on china's lackluster third quarter economic performance, the data, until the party congress wrapped up. what they saw on display was xi jinping consolidating his hold on power and the belief is that he is interested in pushing china's ambitions in the region

and expanding power. if only to compensate toward the erosion of -- the slowdown in economic growth in china. lisa: what does this mean about taiwan? peter: xi jinping was actually very careful on taiwan. on the one hand, he announced or made a reference to the fact that if push came to shove, they would use force there. on the other hand, there was an olive branch to taiwan, trying to integrate taiwan into the larger chinese economy. but the big story locally over the weekend there was what was happening at exactly the moment that xi jinping was strengthening his grip on power at home. japan and australia announced they were deepening defense corporation. this happened saturday. to counter xi jinping's glowing

-- growing preoccupation with power and influence in the region. it is significant because it follows on an announcement, a japanese proposal to develop a counterstrike capability capable of attacking an enemy's command and control systems in the military. that is a departure for japan that becomes policy -- if that becomes policy. most people think it will become policy in december. it is pushing the region more and more into a kind of insecurity lemma. lisa: if you were advising some of the big u.s. banks or a multinational in the u.s. trying to capture some of the business in the world's second-biggest economy, what would you tell them in terms of how big of a seachange this meeting, this anointment for a third quarter of xi jinping, how important it was. peter: i think it is significant. he reinforced his commitment to the state over markets.

for businesses, it will reinforce the need and desire to hedge their bets going forward, to look for other locations and so forth. for investment. i think the general reaction of the markets this morning that you are reporting on earlier, my point is in that direction. as i said to people, my students, when it comes to east asia, it is time to buckle up. a stronger xi jinping at home means greater insecurity and tension in the future. jonathan: one thing that you said, why does he care about the data if it is about the state over markets? is really that is not just for muster consumption but international consumption. why does he still care about the economic data? peter: i think it is just that we are talking about an event that is so carefully choreographed, the party congress. to have that come out, i think

it was supposed to be released a week ago. so during the party congress or at the beginning of the party congress. it might have been unsettling for some who have access to that information even if most chinese would not really have access to it unless they were provided it. i think it is kind of off note for where he wanted to take the party congress. jonathan: wonderful to hear from you. what a time. peter, thank you from the london school of economics. you wonder how much he is going to care about the data still to come. you go back to the old world where it is difficult to understand what is happening in that economy. lisa: especially if he does not care about foreign investment, foreign companies. if he is saying that her to keep the business here, to that point, will we cease entirely? jonathan: we spent years saying investors need to be allocated to the world's largest economy.

question now is whether they want to be allocated. tom: i'm not going to mention names but long ago and far away, a well-respected midwest u.s. company wandered into china through joint ventures. jonathan: i'm sure they have learned. tom: they have learned a lot. i have immense respect for people, including apple, who can do this. jonathan: you can see tim cook was at the formula one race yesterday. lisa: i like that. jonathan: that is tom on a monday morning. lisa: cliff notes.

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>> i think the fixed income market is ahead of the equity markets, particularly of the u.s. equity market. >> it is more likely the equity market is calling this right then the bond market. >> i would not be surprised that the fed has to pause to get them back under control. >> the market is pricing and over 5% fed fund rate. >> i think you get a hard landing and cannot be ignored. >> this is bloomberg surveillance. jonathan: anymore shampoo jokes

or are we done? tom: we are done. you go away and the guest quality is off the chart. really went after jim bullard. jonathan: you went after me, i heard. tom: i did not. lisa: a lot people wrote in and said, that product burned my hair off. jonathan: that is what happened in new york. it is the price action on the s&p, futures positive a third of 1%. we often start monday morning by saying big week ahead. tom: big week ahead, but there are distractions today. we will look at the united kingdom in the 9:00 hour. there is china we covered that. i thought peter trubowitz was great. it is about the markets and with the markets are saying and the vigilantes are out there across equities bonds. jonathan: i will be exhausted by

this u.k. story. i sat down with my producer this morning and said, do we have to cover this? partly we do. tom: i will -- apparently we do. tom: i want to save it for later. yet intervention failure and a set up amid the silence of the fed which will be interesting. jonathan: let's talk about futures, elevated by 4/10. shut -- shout out to morgan stanley quit making this short-term tactical bullish call last week and having this big move that continues this morning. jonathan: chris verrone was saying it could continue as well. i thought this story about how people are sick of the gloom. everyone is so down and things are not that bad. they are pulling back. there is one quote, the narrative is getting repetitive and traders are getting fed up. tom: s&p market cap, huge week

for earnings. can we remember within the recession gloom the statistic on the bloomberg survey for gdp, 2.3%? jonathan: the 27th, we can earnings from apple, likely 75 basis points. you also get the strategic reorganization we happen waiting for. tom: it is a big week. we are good to look at the markets as well. jonathan: look at the markets now. what are you looking for? tom: i do not have my handkerchief here. jonathan: ok. we will sort that out. futures right now up .5%. no idea where he is. futures positive on the s&p 500 by .5%. yields up 4.1 six after climbing for 12 consecutive weeks.

dollar strength is the story, but yen weakness too. tom: that is a summary of the pacific rim currencies. japan is a do syncretic -- idiosyncratic. if you break down from here, that is a huge signal of the race to the bottom in asia. jonathan: massive moves in foreign-exchange again. lisa: this is where the bond vigilantes or fx vigilantes in this cycle. it is a massive week. have the bank of canada decision wednesday. we have the ecb rate decision thursday. we could see that two year yield bumping up against the highs we have seen going back to the depths of the financial crisis at a time with this question of how far can the ecb go in the face of weakening data. this week, we get u.s. economic data. we get home price data. the first read on u.s.

third-quarter gdp on thursday. friday, we get the employment cost index and university of michigan sentiment read. how much does this matter not only into next week's fed meeting but also into the election? we have two weeks until the u.s. election. how much will this shape the dynamic and narrative? on the sunday shows, the discussion was about inflation and the economy, no more about the social issues, which gives a focus of where the electorate is. facebook on wednesday and apple and amazon on thursday. how much will these be the bellwethers driving the discussion going forward? we have seen earnings come in ok. they have crossed a pretty low bar. these will be the important names, more than a lot of what we have seen so far. jonathan: looking forward to it later this week and thursday.

big day coming up this week. joining us, the global head of macro strategy at wells fargo. can we talk about trading ranges on a two year at 20 basis points on a given day without economic data? what do you make of that? mike: the day-to-day vibe -- volatility has been mind-boggling. traders are whiplashed. the really -- it really has been wild to see and hopefully slows down soon. tom: is it linear or do you see a convexity where things are speeding up? is there a quickening that you can predict for q4? mike: nonlinear. you think about the 10 year real yield. it rose 150 basis points in a bit more than two months. it seems it is up to an area that i will call the right zip

code. 1.6% to 2% seems reasonable. german yields crossed over to positive territory in tens. i suspect it is going to slow down but volatility remains high. lisa: let's talk about the step down. we talked about the pivot and pause and now the step down. jonathan: we already discussed it months ago and now it is back. lisa: it is a thing. how does the fed communicate it is going to slow down without allowing markets to move ahead of it? some people argue the reason there is optimism in markets is because they are getting a sniff of the step down. do you buy any of this? mike: just a sniff. i think that is right. it seems obvious the fed eventually would slow down, yet the markets are excited about this. you put it in context. let's say the fed 75 next

week and followed it up with 50. is that amazing for risk investors? i would say not. the thing people need to focus on most is how long the fed keeps that fund rate high. we think it is going to be a long time, maybe a year. that is going to hurt equities and risk. that seems to be a little lost in the shuffle. people are too gung ho in trying to predict the next couple meetings and not thinking about the destination. lisa: you said you could see 5% fed fund rates for a year, possibly more. what does that due to the entire credit cycle predicated on pushing out maturities? those maturities start coming up at the end of next year. mike: it means this notion that you might have easy money come back fairly soon does not really work. credits probably take a hit with

respect to the faults ramping up, so it is not a positive in terms of credit, not a positive in terms of risk. when you think about incentives facing the fed, especially jay powell, his number one priority will remain getting inflation back into a box. that means boosting the funds rate a bit but also keeping it up for a while. jonathan: i want to pick up on this move in the gilt market. have you even got a call on the gilt market or are you throwing the towel in? mike: gilt market, we will take a pass on that for now and see how it plays out. something about discretion and valor coming together, i think. jonathan: that moves through the curve. twos out to 50. lisa: how much is that influencing the u.s. market? jonathan: that is how i feel

about the u.k. right now. we have a system that throws up storylines. i get it. we also have a system to deal with messes like the one we are facing. it has been funny for me to watch people traditionally on the left of the political spectrum endorse market discipline of the last couple months. has it been bizarre for you? lisa: right now you go or the wind blows. the wind is going if you do not follow that your economy will get tanked. mike: it is funny -- jonathan: it is funny they appreciate the forces of market and market discipline that weeds out bad ideas. it is so interesting to hear that from the political lisa: but how much is that going to infect a bar under -- broader swath? in the u.s., certain democrats who were for fiscal spending are coming out for reducing the deficit in the run-up to the election. jonathan: the other side of this view is people traditionally on the political right would endorse free markets and are pushing back against the

discipline of market forces. the political world is upside down in the u.k. tom: in the u.k., but a lot of other places as well. we are seeing this polarity of a group of people with inflation, maybe with technological skill, doing well, and another part of the united kingdom, of hungary, of sweden, the united states, and over to asia, saying this is not working out. one thing i would say, there is no election in the united kingdom, so i cannot comment on the turnout. here, every report is record turnout. jonathan: two weeks away. tom: can you explain why there is no election? who is voting for sunak? jonathan: the mp's and then it goes to party membership. do we have to do this every time? tom: it is bizarre. jonathan: it is parliamentary. the next general election, the latest that can take place, i believe early 2025 to dissolve

parliament in late 2024 appearance of the maximum term length of parliament is about five years. last election, 2019. the prime minister would go to the king and say, can you dissolve parliament? the king would say yes because he is not going to say anything else. then you would have a general election, but he is not going to do that. got rid of that fixed term parliament. tom: this is un-american. jonathan: precisely. lisa: that is why it is the united kingdom. tom: have you seen the tudor show? jonathan: what is it like? does it talk about the crown and stuff like that? moody day in new york and here. this bird. ♪ -- this is bloomberg. . lisa: the world's biggest oilfield services provider has a new name. it is now called slb. it is rebranding as a technology

company so it can go after more work in the clean energy space. alix steel sat down for an exclusive interview with slb's ceo. >> the energy industry is facing energy security and position and the future of the govern i's energy system. we believe we have a holds to play at scale. we have the expertise. we have the global footprint. we have the technology dna. >> slb will continue to operate its legacy oil and natural gas business. investors are having their say on chinese president xi jinping's move to stack with oilists. investors are skeptical that xi and his allies will seek a rejuvenation of private enterprise. club alpha -- 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. ♪

>> when i hear people talk about inflation, we have to change that subject. inflation is a global phenomenon. the european union, the british have higher inflation rates than we do here.

it is not about inflation. it is about the cost of living. jonathan: change the subject. that is the message from speaker pelosi on cbs over the weekend. good morning. here's the state of play in the markets right now. equity futures elevated and pushing higher. yields on the 10 year down by five basis points. data out of europe, not great this morning. the pmi's ugly going into the ecb on thursday. tom: really glad you brought that up. on the break, i was looking at the bloomberg footage. i have a chart that shows u.k. and u.s. pretty much the same and europe is a statistic over stricter policy. jonathan: if you told me 12 months ago we would have a week in 20 where we would have pmi's out of the eurozone with a 46 handle and be hiking 75 basis

points that week, i would not have believed you. tom: it is a massive outlier. when is ecb? jonathan: thursday. tom: it is a quiet day. jonathan: are you taking the day off? tom: the day before i have jury duty. jonathan: that is very american. tom: i had to postpone last time, so i got a personal note from the judge. be there. jonathan: what was special about wednesday? tom: that is the day they picked. i never get picked. can you imagine? jonathan: so he wanted you to cover apple earnings. that is good of you to do that. tom: annmarie hordern joins us, bloomberg yankees correspondent. she survived last night. let's get right to it. what i am fascinated by, turn out of america for this election.

in 2014, it was a 36% midterm turnout. it exploded in 2018 to 49%. it looks like it could be that or more garen who wins with a big turnout -- or more. who wins with the big turnout? annmarie: it is a good question and i am sorry you had to go there with the yankees, starting our monday morning off wrong. i will be rooting alongside the first lady with the phillies. if you are going to talk about the midterms already, seven point 5 million people have already voted in early voting, so that is interesting. we have seen the economy overtake the concerns and when you look at the economy over taking concerns and poles shifting, it does look like it is going to be in the favor of the republicans. the cook report says at this moment the senate is still a toss up, so that is where everyone is going to be focused

over the next 15 days. we will see some of that with debates out this week as well. jonathan: -- tom: which race are you watching? which is the senate race that matters? annmarie: georgia a nevada matter. these are places where in nevada there is real momentum to unseat the incumbent. there is also momentum potentially for the democrats in ohio, very republican state. it went for trump in both past elections, but you had joe manchin over the weekend with tim ryan trying to get people from the moderate left and also the moderate right to really come out and support him over j.d. vance. looking at ohio and pennsylvania , which john fetterman is taking a different approach. in the past, he has bashed joe manchin and wanted president biden alongside him campaigning.

they are going to have a debate tomorrow evening. that would be a seat that democrats could potentially pick up. the senate is going to be where it will be interesting. for the house, i think it was put well this morning, talking about the fact that it is not that the republicans are going to win the house but how many seats they gain the majority by. lisa: we heard the democrats trying to spin inflation around the economy but not a lot of republicans out there. why have they fallen silent on this issue? annmarie: i am not sure they have fallen silent, but they have been talking about this for months. it is part of the general campaigning for them. they are leaning into crime. for democrats, you have seen the shift. and speaker pelosi says we have never said it was just about abortion. it was always about both. some polls were showing that abortion was starting to resonate with voters, but i looked last week at the new york

times poll. for me, that showed the economy is so front and center and top of voters' mind. 26% say the stock market's top of mind and 18% say inflation. only 5% is abortion. that was the momentum that democrats had behind them from the summer going into the fall to really maintain these votes and get out the youth vote and at the same time also fund raise. jonathan: wonderful to hear from you. i am sorry about the results. i do not get how a yankees fan supports the phillies after that. you hate astros that much? tom: i had a big discussion on this last night. there was a great tweet out that was a map of america read except a little orange in the bottom of texas. that is sort of what you will

see for the world series. jonathan: because they cheated years ago. tom: that will be why. jonathan: amh was there. she walked away depressed and upset and tired. do want to talk about spurs and newcastle? tom: when i saw the game, you can see they do not have the fire i would expect. jonathan: now people are calling for his head. football is ridiculous. thanks to annmarie hordern. tom: i had more questions are her -- for her. we will do that tomorrow. are the new owners the difference? jonathan: i would not say they went crazy the same way manchester city and chelsea did when they got their newly found wealth years and years ago. they are clearly building something. there is more to them. top four this year might be a stretch, but they are there now.

are we done with sports yet? tom: it was good. only 12 people turned off the tv. five people turned off the radio. jonathan: why? the markets up now .5%. who is the impostor who only said good morning wants -- wants -- once? what a week ahead, and ecb rate decision, loads of earnings, and a sprinkle of economic data. no fed speak until next week. this is bloomberg. ♪

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♪ jonathan: coming up the back of the biggest weekly gain on the s&p 500 going back to june. we had some weight to it this monday morning. the rally continues, on the nasdaq up by about a third of 1%. morgan stanley made a short-term tactical bullish call on this market last week, saying this could continue until we see companies capitulate for 2023 on eps. will be start to see that bearishness come through?

that is when this market starts to roll over. until then, this equity market helped by a move in the bond market must we have had the calls for a pivot, a pause, and now a step down. except we did this about a month ago and then the cpi talk blew it up again. the fed right now is at the mercy of the next cpi print, only a few weeks away. that is how big the intraday range was on the two year. right now, 4.45, let's call it. on the 10 year, down seven after yields climbed for 12 consecutive weeks. i will show the u.s. and u.k. bond market stories. i want to go to foreign-exchange as well. the bonfire of foreign-exchange reserves lower overnight. how many gaps like that have we seen.

they are whistling in the wind, struggling to contain that weakness. tom: what we know goes back to any number of ace academics. unilateral intervention never works. that is where the japanese are now very lonely. jonathan: another movie of the same ending. there is the cross asset price action. lisa: we were talking about when eps pitch happens and the possibility of 2023 downgrades to the outlooks. we are already getting those downgrades when it comes to what big banks are saying about big reporters that are upcoming, including facebook. bank of america downgrading is outlook for the company because advertising concerns on the heels of snap. those shares lower by about 8/10 of a percent ahead of the

market, fedex lower today even after the pain and downgrade revision because wells fargo says there is more to come or this comes after. down 1.3%, but alibaba shares down 12.2% in premarket trading after a host of pain if you look at if you going back five years. it has been carnage on the heels of what we saw over the weekend with respect to the party congress. how positive is this for markets, particularly big tech, as we move toward an era where they want to prioritize domestic policies even at the expense of not importing ships from the united states or even taiwan and at the risk of isolating themselves further and making them inhospitable to foreign companies? tom: we can do it in earnings and the chinese story as well.

i'm introducing my concept for 2023, the great roll up. you will see a roll up here, a zombie roll up. the companies that cannot show solid profits, what do they do in a new yield environment? lisa: good question. tom: i your silence. jonathan: that is because she is gone, tom. you know this. what are you up to? tom: i thought she was going to come back to me. it is like passing in midfield. it works out. let's save ourselves with demons saps our. i have to go back to imf. what is the knowledge a pro like you has of the liquidity of the emerging markets, of their reserves, of the tools they have given the dollar shortage >> you hit the nail on the head. we are talking but the asian

dollar index. the philippines reserves are the lowest since 2020, thailand the lowest for seven years. reserve coverage is not good. if you look at china, reserves are down 7% year to date, nearly the three trillion dollar mark which is the psychological level , declining productivity. tom: south korea can go to jerome powell and get this fixed. can those nations you just mentioned to do the same? damian: nope you're in that is what is impacting their coverage ratios. you still have export numbers out of china that were horrific. the amount in their system -- they just cannot print any more money. near money coverage ratio is probably the best because you only get real-time data from the official governments themselves. let's step back here.

we saw bad equity data and gdp data. unemployment in china rose. you look at exports and new home sales and prices, down 12%. real estate investment down 15% year-over-year. it is demographics and declining productivity. jonathan: fed officials keep throwing around this term, front loading. it is a trick. they are playing catch-up. the real front loaders are in e.m. can you talk to us about how actual front loaders are performing? damian: why is the u.s. not getting involved in the strong dollar narrative? you need to have some sort of intervention here to protect those reserves. you are not seeing that. everyone keeps asking. the only thing i can hang my hat on is perhaps china. if they do any sort of currency intervention with japan, that means the you want -- yuan is

going to rally off the back of that. jonathan: i look at japan and you have to wonder sitting at the treasury, why would we do any type of coordinated response to help what is happening abroad with a are still doing yield curve control? damian: they have to adjust that policy and they can be a they can do a lot of things. we will know more about what they intend, but if they just sit by -- this is going to go on and on. i agree with you. there is more to come. we have columbia this week. we will see if central banks start to tap the brakes on the tightening. i imagine they will. they are technically in recession now, so things are not good for e.m. i struggle to find a list line for emerging markets. lisa: even if they try to

support their economies, that is not going to draw foreign investment back. damian: foreign investment is a different story. i do not think you see any sophisticated institutional investor willing to take on geopolitical risk. look at sovereign credit default swaps across the planet. it is safer to sit in cash. lisa: you said you were surprised the u.s. has not played ball with any of these discussions. why would they? basically this is helping the united states in a disinflationary kind of way. damian: is it? is the fed making decisions in the best interest of the u.s. economy if they send the rest of the globe into recession? i do not think they necessarily want to that, but what more can they do? that is what we are confronted with. i believe the u.s. needs to get in front of this. having the dollar as the world

reserve currency in a world like this may not be in the u.s. economy's best interest. jonathan: i want to talk about how dm has looked down his nose at e.m. for a long time. we have had a joke about what has taken place in places like turkey. are you expecting the same kind of backlash in developed markets toward central banks that we have seen in emerging markets? damian: i think we are seeing it. this stuff about reserves declining is because of the dollar and strength relative to other currencies. for me, this is about dollar divergence and there has to be a way to mitigate that volatility. it is that uncertainty driving everything. tom: you can go to the bloomberg terminal and dip into damian sassower's world.

98 to 63 since september. jonathan: pick out the old 30 for the treasury issued during the pandemic and see how that has performed over the last couple years. similar performance. damian: they are struggling out there. jonathan: i hear it is nice there. damian: i have never been. for disclosure. jonathan: beautiful. you should make it down to colom bia. tom: which country should our viewers and listeners focus on? which is the country? damian: given where we are today, the philippines are an interesting test case in what is going to happen to an asian economy whose reserves are deteriorating and currency is at an all-time low. is the u.s. want to bill -- bailout the philippines? he is not inspiring confidence

in foreign investment, so where are we? tom: this is dangerous ground. you are killing me. jonathan: thank you. tom: a loaded question. i think philippines is an example as well. each story is different but the same. philippines at 58 is unimaginable with massive domestic harm. they break out to 60. damian: did i say philippines? i met -- i meant to the phillies. jonathan: do want to talk about the phillies? damian: i hope they be the astros, of course. jonathan: everyone hates the astros, don't think? tom is going to spend the rest of this morning talking over me or nord me, which is what we often do -- ignoring me, which is what often do. tom: it is monday.

we are getting to thursday. jonathan: you have the day off wednesday. from new york, this is bloomberg. ♪ >> keeping up-to-date with news from around the world, i am lisa mateo. xi jinping's power grab in beijing has led to a historic route in stocks. the offshore you want -- yuan fell for the first time ever. traders are concerned that xi's decision to stack his leadership team of loyalists means policy that is not market friendly. rishi sunak has taken a step toward becoming the next prime minister. force johnson pulled out of the race and sunak received her doors -- endorsements from more than half of the conservative members of parliament. penny mordaunt is being pressed by her campaign team to withdraw

from the race. she needs support from at least 100 conservative lawmakers to go forward to the final ballot. a new report from the national association for business economists shows more than half of those surveys said a recession is more likely than not will another 11% said we are already in one. the data also indicated and easing in labor market tightness with higher employment over the past three months but wage hikes weakening over the next three months. in baseball, it will be houston versus philadelphia in the world series. the astros wrapped up a sweep of the new york yankees. philadelphia upbeat san diego hearing -- philadelphia beat san diego. 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. ♪

>> you have not seen the big adjustment on the corporate side. when it happens, happens brutally. that is the issue. we do not know when it is going to happen. we do not know how much. it is probably already over tightening. jonathan: one of the best macro strategist. equities picking up on the s&p, up by .8 percent or .9%. yields lower by six basis points. data out of europe really not great this morning, pmi's in the 40's. looking for a 75 basis point hike. euro-dollar negative a third 1%.

the tweet of the morning comes from james. meanwhile, lisa is playing the part of the mayor of shanghai. that is good. i think that is good. what you make of that? tom: you know -- jonathan: would that make me xi? tom: he was in washington and i had the honor of interviewing orville schell and jonathan spence on the shift then. that was a conversation -- two conversations of optimism. it is gone. jonathan: the optics of what took place on a weekend not lost for anyone. was that meant to be the message, that the euro is over? tom: it is his messaging but what is important is the associated press lined up seven members. these are not -- there is one

guy you could say is an academic. the rest of them -- there is no sense of international relations or even domestic relations of the chinese empire, the domestic empire. jonathan: something a few people said, top level experience. tom: at the federal level. it goes back to the city state concept of japan. it seems like the new guy is the former mayor of shanghai. jonathan: there is the weakness for you, moved to levels we have not seen before. tom: i think damien brought it up, that the chinese unemployment rate was a statistic that caught my attention. how do they move forward with a 5% unemployment rate and you believe that number? the answer is no. jonathan: how reliable is the data? tom: there is this morning, 7.26, which is stunning.

equality that is very timely into this week with quality that makes profit. how important is profit in 2023? >> it is with a focus is for investors. it is not so much the profit of the third quarter that will be watched here but the outlooks for the rest of the year and 2023. investors are waiting for the other shoe to drop. we are starting to pick up a different trend. some companies look like they have been risks in the sense that expectations have moved lower, but in this economy of recession risk we are seeing is by no means uniform. there are companies serving industries with shortages while others are suffering. tom: which factor will matter in

2023? which will avoid loss and possibly participate in gains question mark joanne: i think it is going to be less broad factors and more company specific dynamics. you have some areas of the market doing well, like the travel area, while others are suffering as some consumers tighten budgets because of high inflation. look at a company like t.j. maxx, likely to pick up consumers as folks go out and do some bargain-hunting. it is not uniform. you have to dig into the profit outlooks of companies. lisa: there are entry points that are better than others. are you looking at companies that have been beaten up or at resilient companies that perhaps could hang in for longer? that is the conundrum right now as some people lament the overlay of gloom on everything.

joanne: it depends on what sort of investor we are handling. some of our clients are older and retired. they want to continue to get some higher income that we are trying to delivered through specialty portfolios. if you can lock in higher dividend yields, even 6% or more , they can ride out volatility and get past this crisis. eventually, we see growth investors look beyond the crisis . what is really going to happen in three years, nothing at six months or 12 months? if you are a growth investor, you want to look to resilience and quality and secular growth trends. maybe it is a company like texas instruments, still dealing with shortages with strong market demand. lisa: how much do you pay attention to the noise that is getting louder when you have to stick to her guns and have a thesis about a specific company or area? joanne: i like the stick to the

guns freeze you used. the day-to-day noise is high now. it is disturbing for a lot of investors. for some folks that are retired, we like to give them the dividends instead, let's focus on that. from our perspective, the data and noise is a distraction. really have to dig into the fundamentals. we are looking at macro economic risks and potentials and also looking at quality companies with strong secular and markets. even in this period or stocks are traded off so much, look at palo alto or lockheed martin. these are companies with resilient growth ahead of them. when you look to the three-year horizon, these are stocks that will help the portfolios of our clients. jonathan: wonderful to catch up. it has been too long.

building on the work of morgan stanley on the earnings outlook, i want to bring in a quote getting a lot of attention. last week's calls met with doubt from clients, which means there is still upside. falling inflation expectations in the absence of capitulation from companies. we often take the mickey out of the equity market calls looking for that pause from the federal reserve. equity market bears have been looking for deterioration of earnings for a while, so who will be right first? do bears get this earning guidance that rolls over and the way they have been talking about? lisa: what counts as earnings guidance rolling over? we have seen underperformance if you look at the percentage of beats this season so far with 20% of companies reporting versus the average over the past five years, so when will it count as capitulation in the eps?

jonathan: companies adjust. tom: look at the revenue dynamic and income statement. what percentage of companies are in that universe of decent revenue, decent free cash flow? it is small. jonathan: a third of the s&p this week reporting. tom: it has to be 20%. jonathan: coming up, tony rodriguez. this is bloomberg. ♪

>> we have not seen the big adjustment on the corporate side, and when it happens, it happens brutally. >> besides what the fed is doing, it is the earnings reset. >> i do not think that the fed

blinks. the fed will blink if there is an event. >> we are facing the possibility of the fed going to 5% and staying there forever. >> this is bloomberg surveillance with tom keene, jonathan ferro,. -- jonathan ferro and lisa abramowicz. tom: we welcome you on bloomberg radio and bloomberg television. we are focused on the market with a lot of other stuff going on. jon, equities left. jonathan: -- jon, equities lift. jonathan: equities lift. the fed hikes 75 this week, then 50, 25. tom: i agree with you that the

cpi print is way more important than the jobs reports to come at here. november all of a sudden here as well, jon, you mentioned pmi's in europe. there is a tangible slow down in europe. jonathan: can you imagine six months ago if i told you pmi's will hit 40? the pushback from politicians will get louder and louder. prepare for the political backlash to what the central banks are up to. if the central banks send us into a recession it will be more than senator warren that you here from. tom: it is about actions of central banks forward and what

that means for the economy in q1. lisa: on the flipside, you have people saying you can have more economic pain then you like, but if you pivot too soon and do you start to lower rates, that will allow inflation to carry on, so you will not kill inflation but you will feel economic pain. that is the warning you are hearing. how much pressure is there on the others? let's not have a repeat of the 1970's. tom: the 10 year real yield is stuck. it is in the zip code of where it should be. jonathan: massive ranges. on friday we had a -- tom: what is it today in the united kingdom? we are waiting for the next hour for that. jonathan: to see who the next prime minister may or may not be.

you can find out at 9:00 a.m. eastern time if it is rishi sunak who has gotten past that 100 vote threshold. he will come out and address you personally. futures are up 7/10 of 1% on the s&p 500. we are down by five basis points. i keep going back to this because it is just phenomenal -- 12 consecutive weeks. tom: 1984. jonathan: that is the last time that happened. tom: 98 to 63. on the break i did the u.s. 10 year. jonathan: close to 4.20. tom: tony, can you say as you published in your note, that we can get a 10 year yield that comes in with the yield the

lower? >> we think that by the end of the year, we should see some adjustment to the 10 year. we are expecting rates to come down. that is driven by what we are expecting to see in terms of the economy. we will see a third-quarter printed that will be pretty healthy. as we head into 2023, our view is the most likely outcome is a recession in the u.s. as the market begins to price that in, both to rates and risk assets, what we will see on the rate side is a decline from here. jonathan: are you willing to say that the intraday high is the high on they year? tony: i think there is a high probability that will be true. you cannot say that with certainty.

our expectation is we will see some moderation in inflation. it has been surprising to the upside month after month. some of the leading indicators will start to show through in the data and if that begins to happen along with this economic weakness we are expecting to see, it will be clear at the end of the year. you can say we have seen the high in the two-year. if it has not been the high, it will be extremely close to that high. lisa: that is a pretty bold bet. let's translate that into what that means in terms of risk appetite. is that a positive or a negative, considering that for much of the past decade any kind of down side or reset lower has been a positive for risk? tony: i think it is not a positive for risk assets.

markets may be a little too optimistic if they are rallying on the view that a step down to 50 basis points is going to be helpful to risk assets. we will see a step down to -- in '23 you will see one or two more tightening's, but the fed will stay at that level through most of 2023. we still think that risk assets have a little more weakness to price in for that weakness in a macroeconomy we are expecting next year. lisa: how big of a difference is it between a 5% fed funds rate that they keep for a year? is there a significance in the bleed through to high bond issuers? tony: you get well north of 5%,

and inflation proves to be even stickier at a higher level than we are expecting. that will be a negative bleed through for risk assets. whether we up with three quarters to 5%, i do not think that makes a huge difference for risk assets. there will still be some better entry points as we move through the balance of this year. jonathan: we spoke to mike schumacher earlier this year about swings in the bond market. you have guilt down. what do you make of that? the intraday swings not only an gelt, but in treasury as well? tony: obviously the guilt story has some interesting characteristics, particularly on the political side. there is a tremendous amount of

economic uncertainty on the growth front so that drives some of the volatility. you have some impaired liquidity in the markets. you are seeing investors on the flight to safety move. you see central banks seeing less of a central player as they move towards quantitative tightening. that reduced liquidity creates an environment where this volatility is something you will see for a couple quarters. jonathan: thank you. damage done in the bond market and damage done elsewhere too. tom: i am hearing too many guests rationalizing through b lah blah blah. i looked at spx, which i never look at. you look at a better index like the spx with better math and for

them to get to one arbitrary resistance level is a 7% move. the spx has to go up 7% just to get to resistance. that is how bad it has been. jonathan: on the damage to price in bonds, that is ultimately the point you are trying to make. tom: i am as guilty of this as anyone. when it is in your portfolio, it is price. jonathan: i mentioned the 30 year treasury. have you -- if you look at the performance of that in the last 30 years, it is what tom is talking about. lisa: tom, is your point that it is going to foretell more pain to come because people see their portfolios and withdraw? is it that cycle? or is it that people are misrepresenting the scope of the pain? tom: john tucker opens his

envelope and we opened the tucker 201k. it was a joke. now it is not a joke. lisa: it is stocks and bonds in tandem. there has been no hedge. that is why people have been flooding into cash. at one point that turns around and hauber robust that turnaround will -- howell robusta that turnaround will be is the -- how robust that turnaround will be is the question. jonathan: from beth stanton here at bloomberg, fantastic on fixed income. the 30 year treasury sold in may 2022 just traded at $.50 on the dollar. that speaks to what you are saying, tom. brutal. futures on the snp up 8/10 of

1%. live from new york, this is bloomberg. ♪ >> keeping you up-to-date with news from around the world, i'm lisa mateo. the world's biggest oilfield company schlumberger has a new company. alix steel sat down with an exclusive interview with slb's ceo. >> energy security, energy affordability, and energy transition at the same time to build a d carbonized energy -- decarbonized energy system. we have the dna to participate. >> slb will continue to operate

its natural gas business. investors are having theirsay on president xi jinping's -- having their say on president xi jinping's efforts to -- in the u.k. house of commons later penny mordant is being pressed by members of her own campaign team to pull out of the race to become the next prime minister. rishi sunak has picked up public support from more than half of the conservative members of parliament. the u.s., u.k. and france are rejecting russia's allegations that ukraine is preparing to use a so-called 30 bomb. a statement from the three countries' foreign ministers said that that claim is a

justification for russia to use force. i'm lisa mateo. this is bloomberg. ♪

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>> i think the gilt market has calmed down quite a lot. one of the differences between the u.k. end of the u.s. is things can happen quickly in the u.k.. all of those physical proposals

have been abandoned. i think the worse has passed us now. jonathan: i love steve. steve major there. from new york city this morning, . --, morning from new york city this morning -- from new york city this morning, good morning. the pound sterling,. unchange. tom: lisa abramowicz and i had a book club. it's missed to say the least.

penny has 90 votes penny has 90 votes. from where -- she is 10 away. jonathan: it will be interesting if she gets 100 and hence a runoff with rishi. tom: does party leadership have a voice in this? jonathan: not yet. let's start there. what happens at 2:00 p.m. local time where danny is? >> that is when the voting of the conservative mps stops. it does not mean we will get an announcement right away. it could come at 2:05. it could come at 2:15. we will learn if penny mordant has the 100 vote threshold. she says she has 90, but publicly we should say it is just 28.

jonathan: before we even get to the party membership, i understand there will be this indicative vote of mps if it is down to 2 candidates. is this basically to say, " we have to work out if you have the ability to govern before we go to the party membership to vote"? the indicative vote is not binding. imagine the awkward position that penny mordant finds herself in if rishi gets more than half of the votes. how do you form a stable government if more than half of your mps are not backing you? it could lead to a awkward situation. lisa: how important is it that we have a sense of who the chancellor will be for whoever becomes the prime minister? >> for markets it is hugely important.

it just seemed that jeremy hunt is favored to stay in, especially if rishi sunak won. what we want to see from a chancellor is orthodoxy. they want a safe pair of hands. at the end of the day, how much can a chancellor enacted given the structural problems that face the u.k.. tom: i guess there is some jockeying. " if you support me, i will make you secretary of state>" is that is what is going on? is she saying to so and so, " i will make you education secretary"? tom: i do not have any insight -- jonathan: i do not have any insight into what goes on behind closed doors. for what is interesting to me, if we get to candidates and one is penny mordant, the other is rishi sunak, and you get this

and to get event vote that says to the likes of penny more donn -- penny mordaunt, you cannot govern, you could have this situation where you get the likes of penny mordaunt winning that vote and not having that ability to govern the party within parliament. tom: we can do this with dani burger, with her experience on the cusp of a civil war at the university of virginia. rishi sunak is a different guy. his grandparents came over. this is a smart kid who worked at kurt he's curry bar in south hampton to make it into school. his story, how does it resonate in england, in britain, and

wales, scotland? jonathan: people are focused on the wealth he has now, the wealth his wife has. i wonder how complicated it would make it for this prime minister to implement another round of massive austerity. how much pushback will that prime minister get? >> it would be extremely unpopular. jeremy hunt in throwing his support behind rishi sunak said this is about the short-term. they might need to take unpopular decisions. austerity, higher taxes, less spending -- it would be unpopular. that brings them into a bad position the next time a general election rolls around. this is a very polished individual. penny mordaunt is seen as

someone who might pick up more of that firebrand type support. jonathan: wonderful coverage as always, dani burger over in parliament, over and london. lisa, are you excited? lisa: there is a broader topic. there was a new york times article comparing the mp system and the voting for the new prime minister to the primary system in the united states, and how it leads to the potentially more extreme versions of parties, because they are voting amongst themselves. there is a question about what that does overall, and whether you get markets coming in and changing that dynamic. tom: how does labor respond to all of this? jonathan: we are getting deeper and deeper into the weeds. the differences between the labor, the u.k., the u.s. is a difference of degree.

the sharpest contrast is how the west cannot get it together and president xi has tightened his grip on power. tom: in america it is the one thing everyone -- without exaggeration, it is the one thing republicans and democrats agree on. jonathan: we are more likely going to be talking about what happened in china in 10 years to come then what is happening in westminster right now. from new york, this is bloomberg. ♪

jonathan: adding to the gains of last week, the largest gains to the s&p since june, the s&p upper 1%, fading just a bit. it yields are lower, down by about two basis points now to 4.349. in the fx markets, negative a third of 1%. tom: what has not moved this

morning as the euro. jonathan: it is not just the euro though. dollar china, dollar unh -- literally levels we have never been at ever before. tom: it is the shock of who the makeup is. it is -- is it institutional money exiting hong kong? jonathan: the question going into it, and it is lisa's question from earlier on, do the events of the weekend making it more or less likely that president xi sticks with covid zero? tom: thank you for staying up into the hong kong evening to brief us. i go to ecgo and there is a raft

of data coming out this week. i look at it and it mostly shows a resilient economy. looking back, are you surprised where we are right now with 30, 40, 50 lines of ecogo data not that bad? lara: no, because our economy has so much good data. are we really in an expansion? we are pretty early in an expansion. we have so much monetary stimulus thrown at us. tom: you have been a student of this for decades, going back way before you showed up on wall street. so we get a 5% 10 year yield for whatever reason. is that the end of the year as we know it? we used to live that way. lara: it is not the end of the world as we know it. it is a continuation of what we

have seen. the volatility in the treasury market is so extreme. we could be there in the next 10 days. at the end of the day, what we are now looking at as the fed moves later this year, markets are still tripping over themselves to try to look around the corner, and it is causing these wild swings in expectations. we are stuck in this higher volatility world. with the economic uncertainty, it is crushing these traditional asset classes. lisa: this is the concern of some people, the lag effects of the policies being implemented today. do you have a sense of the difference between when inflation will affect the economic momentum side of things? lara: this is to me one of the critical questions i get asked. it is " what do i think the fed

should do versus what are they actually doing?" the time has come for them to take a slower pace of rate hikes and wait and see what shape the economy is in, but the reality is with housing and other sectors feeling so much growth, they have really heavily impacted that. how much of this is driven by supply? i'm not talking about supply chain disruptions. those have ebbed. what i am talking about is labor supply. higher services costs, higher services inflation is driven by higher wages.m concern -- wages. my concern is that the fed is using models, they love their phillips curve models, and they are using models that were built when things were very different. lisa: what does that mean in terms of what they should be

doing in terms of employment? lara: it means that they may have to raise a lot more to get businesses to let go of workers. it means that the risk of a policy overshoot is higher. their estimate of narrow has always been a moving target, but today it may be lower given people can work remotely, geographies are more fluid and the fact that we have this more constrained participation rate. tom: chapter 23 of any good econ textbook is about the markets. do you suggest that the fed is looking at the markets when i look at bonds? that is better than a lot of others to be blunt. i am fascinated if this fed -- the phrase is blank. not that they will blink, but they will become aware that a

401(k) has become a 201(k). lara: this is another key concern, which is that recently vice chair brainerd commented on margins, which remain healthy. if the fed is looking to slow the economy down in the looking to spread some of that pain to the labor market, they are increasingly looking to spread some of that pain corporate margins. it is, not a good supportive outlook for equities into the beginning of next year. in the other question i get asked so often is " have the markets is seen their bottom?' markets do not have it priced in. tom: i look at the priced in part. what we do after the november 2 meeting. i want to get on to november.

at some point they have to respond to the markets. lara: they would say they are not responding to markets. they would heavily argued they are responding to the structural lags in their policy going to the economy, but tomato, tomato. tom: that is the second time i have heard that this week. lara: every time they talk about backing off their aggressive pace, markets start pricing in rate cuts. you're talking about how the fed has trained markets over the last 15 years to expect a rally at any time. this is what they are having to beat markets up about right now. they are having to put into place a permanently higher trajectory, or at least a multi-year higher trajectory because inflation will not fit into their 2% package. it may come down, from here but

it will stay really elevated. this is the final line the fed is having to walk, and it is causing them confusion when they are communicating, it is adding to bond market volatility, and all of this is weighing on sentiment. lisa: damian sassower said all of this is leading to the strong dollar torpedoing a lot of developing economies. do they have to offset some of that pain while they combat inflation? lara: i don't know how they can, lisa. i think there is this other issue. the fed knows that unilateral intervention is not particularly effective. if they wanted to weaken the dollar at all, it would be a huge change from these unspoken stronger dollar policy that we have maintained for all this time. at the end of the day, they are

more focused on what they can control. they do not feel that the dollar fits easily within that sphere. to the extent that there blunt instrument can control financial conditions, they see what damage they have done in markets, and they believe it is part of their move into restricted territory to get control of inflation. jonathan: we are all struggling to transition to it, market participants especially -- transitioning to a world with the distortion. tom: laura rh -- lara rhame comes from credit suisse, so she is focused on the market linkages here. i recall when the 10 year yield was 5% decades ago. the basic line i am hearing from the gloom crew is that the world will end as we know it.

i am not buying it. jonathan: on friday -- i heard that about 100 basis points ago in june. here we are 100 basis points later. lisa: it is hard to game out the highs, and i admire tony for actually making a call. the more important thing he said was ultimately if they stop at 4.5%, it does not matter if they keep it there for a year, 2 years. it is a reset. it is not the world coming to an end, but it is coming to an end as we know it. jonathan: isn't steve major laughing at that, the prospect of staying at 5% for the year? lisa: he thinks that is implausible, that it would torpedo the economy. he thinks the demographics will reassert themselves.

the flipside of that is a whole host of other issues. you will get higher rates for longer. that is a game changer. jonathan: i thought you said the drinking population and not the shrinking population. lisa: would you like to tell us what is going on in your life? [laughter] tom: tomato, tomato. jonathan: who said that to you? tom: i cannot remember. it is like you and me. you say marmite, i say marmite. jonathan: i don't hear a difference. tom: there is no difference, that is the point! i have not heard the good news. jonathan: gas prices in europe are lower. tom: but is that bad news is good news or good news is good news? jonathan: good news is good news! if the weather stays.

lisa will write a column about the whole thing, no doubt. jared watered from bank of america is coming up -- jared wouldar -- jared woodard from bank of america is coming up next. from new york, this is bloomberg. ♪ >> i'm lisa mateo. xi jinping's power grab in beijing has led to a historic route in chinese stocks. equities had their worst day in hong kong since the 2008 financial crisis. traders are considered -- worried that xi's decision to stack his government with loyalists means more unfriendly policies. rishi sunak's has made another

step towards becoming prime minister. boris johnson has dropped out of the race. penny mordaunt is being pressed by members of her own campaign team to withdraw from the race. she need support from at least 100 conservative lawmakers to move forward. a recent poll says that republicans -- voters favor republicans over democrats on the economy. 38 percent of those polled the favor republicans on the economy with 24% trusting democrats. credit suisse has agreed to pay $234 million to settle a case. under the terms of the agreement, credit suisse made no admission of guilt. powered by more than 2700 journalistss and analyst, i'm

lisa mateo. this is bloomberg. ♪

>> the new government has got to outline a clear growth plan. liz truss's growth plan was based on the single proposition. you cut taxes. it does not matter whether that is credible or not credible anymore. tom: the former chancellor. tom pharaoh -- jonathan ferro and lisa abramowicz are appearing for announcements. lisa: jon ferro is preparing for british announcements. they are going to announce it, but it will not be the most important thing that happened

today. tom: send me -- we have no clue what will happen at 9:00. right now we are going to get a clue here on the equity markets. chief equity strategist for bloomberg intelligence. it is a profit monster. they are above where they were in 2019. i thought margins were supposed to contract. >> they are contracting for most of the s&p 500. tom: needles in a haystack -- this came up earlier. damien was watching, but you weren't. what percentage of the spx saw profitable revenue, profitable margins, profitable cash flow? >> we are talking 20% of the s&p 500 index showing actual margin

expansion on a year-over-year basis, almost all of the energy or commodity. some selected materials, companies are still showing expansion, but the vast majority is showing margin compression. on an operating margin perspective, you are talking 6 of nine sectors. lisa: michael has been saying you will get the decline when you get the capitulation in expectations. i do not want to call it the seaward, but we have gotten some downward -- the c word, but we have gotten some downward turns. >> your earnings capitulation happens right after price bottoms. price bottoms are made on sentiment not, on --

if you look at long-term history, let's be honest, this cycle is nothing close to any cycle we have seen in recent past, so why would it operate perfectly in line with some playbook? what you are seeing is analysts focusing their efforts on the quarter to come, not on the longer-term outlook because the longer-term outlook is so uncertain in an environment in which inflation is just now slowing and has been so much more robust than any time in the last 40 years, inflation coming down is having some material impacts on the outlook. even though we all believe we are in or headed for recession, analysts are forecasting that inflation dynamic to work in the form of a margin low. lisa: i thought that is where you were going with this.

how can we lead to margin recovery at the federal reserve are pushing to, have margin compression is that is what everyone wants to see? gina: they do feel the pain but they have felt it less than consumers. they felt it more this year and will feel it less than consumers next year. let's take financials as a microcosm. financials' point of greatest pain is when the yield curve is at its steepest deceleration. the yield curve is in or mislead inverted -- enormously inverted. what does that do for financials' margins? financials margins probably expand. if energy costs come down into 2023, polar opposite of the experience of 2020. company is reliant on imports

will experience some margin easing. companies cutting costs of labor right now will experience better margins in 2023 because of that dynamic. going into 2023 corporate earnings will get creamed. corporate earnings have suffered significant degree of slow down in 2022. the question is how much will they slow down in 2023? i think this is really contrary to the narrative that is running around the market right now. it is what we see in analyst expectations. there has been recessions in the past aware earnings have only fallen at a single digit pace. jonathan: what it -- tom: what is the pricing power dynamic look like right now? gina: it is extremely variable

by industry and sector. you cannot talk about the s&p 500 as one big -- tom: do you have to talk about zombies? gina: you have to. you have such distress in the industry cycle, which is behind this distress with semiconductors. there is a tremendous amount of margin pain and inventory access. -- inventory excess. we have seen announced layoffs. we have seen a lot of these retailers talking about how much labor they need into the holiday season. you have seen tech companies laying off people. you are starting to see this in the segments. the interesting thing is they

are offset by this unique dynamic of services industries finally getting some traffic. services industries get some traffic this year. that provides some support for services industries. suddenly businesses are traveling again. you got business travel coming online again. jonathan: -- tom: that was depressing. lisa: maybe not. if they will see margin expansion, may that pain has been in. it is a counterintuitive play. tom: i want to talk to you about alpha and beta. gina martin adams and her team, i cannot say enough about the service. look for it on the bloomberg terminal. it is on the equities side and the debt side in corporate america.

what a monday. what an odd mutton day. -- an odd monday. lisa: in a strange week. the bank of kennedy decision is a front runner to what happens next week in the fed. 2 weeks from the u.s. election and a total regime shift in china. tom: it may be a regime shift in the united kingdom. perhaps a prime minister in the united kingdom. good morning. ♪

>> markets countdown in

jonathan: live from new york city this morning, good morning. adding to the rally from next week -- last week, we will go stateside in just a moment. it looks like rishi sunak is the u.k.'s next prime minister. >> everything you need to get set for the start of u.s. trading, this is bloomberg of the open with jonathan ferro. ♪ jonathan: live from new york city this morning, good morning. we start the morning in the you needed kingdom -- united kingdom.