>> green for the stock market and earnings left for the rest of the week. can the rally hold? i am kriti gupta. bloomberg markets starts now. kriti: let's dive right in the price action. you have a rally on your hands. the s&p 500 is just shy of 1% gains. mastec underperforming. the lot of those tech names reporting -- not reporting this week. you will see whether this is a low volume or indicative of gains. 10 year yield is 4.2 one, unchanged on the day. the treasury market is perhaps

taking its cue from the goes market across the ocean. we will talk about the u.k. looking at the bloomberg commodity index, as you start to see that brisk rally, it is showing up in the commodity space, too, perhaps not as large is the stock market but still up .6%. we are now at a 1.12. that rishi rally and a boost into the dollar. the incoming prime minister is where we want to go. he is facing fermentable headwinds with rising inflation, surging interest rate and addressing recent political instability. here is what he had to say. pm sunak: there is no doubt we face a profound economic challenge. we need stability and unity. white pledge that i will serve you with integrity and humility and i will work day in and out

to deliver for the jewish people. -- british people. kriti: let us had lived to downing street. give us the latest. >> you heard from rishi sunak saying the u.k. faces profound economic challenge. this was the first time he was speaking in public since the september leadership contest that he lost. he resisted the urge to tell us he was right all along. but it is a forbidding entry, more so because of the risk premium left by liz truss. it is not going to be plain sailing economically. he is going to have to choose between tax rises and spending cuts, which will not please the public or the right wing of his party. it is a fragile coalition of mps he is having to hold together and that got him into this position. i spoke to rachel reeves at the

labour party conference a few weeks ago. i asked her whether she conceded the compared to liz truss, rishi sunak was not that bad and she only smiled, so we look forward to the prime minister's questions in this week and i was under -- and i wonder whether the opposition leader will have a more difficult time with rishi sunak then he did liz truss. kriti: who can we expect for him to deputize? who do we have our eye on? lizzy: the key question for markets is whether he keeps jeremy hunt in place. we heard from his spokesman tonight and rishi sunak is not confirming hunt's position are whether the fiscal plan will go ahead on october 31 ahead of the bank of england decision on november 3. key questions that need to be answered, otherwise, rishi sunak

has said behind closed doors of that the tory party faces an eccentric crisis. it is going to be worked out the electoral map if it does not come together. crucially, he is going to need to reach out to some his rivals if he wants to show that unity. there could a consolation prize for penny morton, who dropped out of the race. boris johnson said he still has a lot to offer the party and i am hearing that he may promote mel stride, who was the chairman of the treasury select committee to position in the secretary. kriti: certainly not to watch out for. this is a historic day, not just because the u.k. has a prime minister but a lot of first for rishi sunak. he is the youngest prime minister and also the first nonwhite prime minister. as a fellow indian, there are indians will tell the world why

tenant -- can't you be like rishi sunak? he is also coming from the world of finance, which is unheard of when it comes to who is taking the prime minister's chair. lizzy: if we asian kids did not have the bar set high enough, it has just been raised again. it is significant. it is still wally -- is diwali and rishi sunak is a practicing is that a practicing hindu. but he was not elected by the general public. he was anointed by the tory party, but it still says a lot for the efforts david cameron made to diversify the party. labor has not yet had a female prime minister, let alone a nonwhite one, but it also has practical implications. there's been a congratulatory tweet from narendra modi already. perhaps this will help the u.k.

get a trade deal with india. but one polled, the word associated with rishi sunak is not that he is the youngest or nonwhite. it is that he is rich. it seems that that is still working against him. the image of him and his loafers and his ax hedge fund. in the u.s., that seem to work so well for donald trump, the dish people playing on his business credentials to getting into the white house. kriti: you spoken that free-trade trade agreement but there is also another intentionally when it comes to frexit relationships. walk me through -- brexit relationships. walk me through the intricacies. i believe there is a law that rishi sunak is starting to get past that could help veto the power of the house of lords when it comes to the post exit agreement.

-- post-brexit agreement. lizzy: the big picture is rishi sunak's in this position because he's brought together a broad coalition of mps, including the skeptic wing of the tory party. if he missteps on brexit or tax rises, he could disrupt that unity in the party. it looks like he is going to carry on with the path laid out by his predecessor, his trust -- liz truss. elephant in the room economically is that the u.k. is in an economic crisis. most economists agree it would be less bad were the u.k. still in the european union, but that is politically toxic right now. it is not something that either the conservatives or the labour party could even think about saying, but it remains the

elephant in the room. kriti: lizzy burden covering u.k. politics. we thank you. let's bring in tony travers from the london school of economics. tony, your initial take of rishi sunak as prime minister? tony: it is a first in a number of ways for the u.k., but he is a mainstream conservative in a conservative party. he will want to try to bring together a cabinet that is not just people who think like him. he will want it to be a broader cabinet to try to reinstate the party's reputation for good financial management and government. that was camper has damaged in the last few months. his first words suggested he wants to be a unifier and try not just to encourage the financial markets to belief you will get a but the u.k. electric

to try to get them to believe that the party is governing sensibly. kriti: what does that mean for his credibility as a negotiator? he was one of the early brexitiers, arguably before boris johnson. lizzy was talking about him negotiating a free trade with india, but given how many times the brexit deal has been reshaped, with the site due to his credibility with his european peers? tony: he european union leaders are not keen on brexit and do not like to encourage other eu countries grow near the door. having said that, they almost certainly what the u.k. to have a more stable relationship the year. i suspect rishi sunak, who was in favor of brexit himself, but

he is a moderate. although your colleague was rightly describing the factionalism inside the conservative party, and there are still problems with northern ireland protocol to try to keep goods flowing between britain and northern ireland, but against that backdrop, he will want to try to move on and build better relationships with the eu 27 that also keeping various factions of his own party in parliament together and waving in recent years. kriti: let's go to the cost-of-living crisis. there has been a massive market reaction off the economic damage that liz truss did with her economic pitch, the idea of more energy subsidies and tapping out when it comes to the public accounts, but what does that mean in terms of rishi sunak pulling a lot back when it comes to balancing the accounts? tony: he has already and the

announcement by liz truss that she was leaving office help in the sense that the pound recovered somewhat and the interest rates on the u.k. long has fallen back somewhat. in that sense, beginnings of the recovery from the mess made of the previous prime minister -- she is still prime minister -- she and the finance minister delivered a budget which promised higher public spending and tax cuts, leading to an enormous unfunded gap which had to be financed by borrowing. the market segment that, so that the cost of borrowing rocketed. the profile at one point -- the pound fell at one point. the dollar recovered but the dollar is strong.

against that backdrop, i think what rishi sunak will want to do is not only convince the international markets and the city of london of the sums at of and that spending is down and taxes may have to go up. i am sure he will try and sell this to get the economy back on an even keel coming to get growth going again, perhaps next year or soon after, so that there is some hope for the future and that his party will restore its reputation. if you look at opinion polls in the u.k., the opposition labour party is currently ahead of them. the moment, if you give the opinion polls, there -- if there were a general election tomorrow in britain, labor would wean easily. it will not be like that in one or two years when the election takes place, so it is convincing

financial markets that britain's government is back in time spent separately the electric, same thing, that the government is back in charge. kriti: a high bar for rishi sunak. 1.12. perhaps markets are waiting to see if he can deliver on high expectations. thanks to tony travers. mark: in the u.k., the incoming prime minister warned that the country faces a profound economic challenge. rishi sunak was flipped tory us in the race to succeed liz truss. >> i am humbled and honored to have the support of my parliamentary colleagues and to be elected as leader of the conservative party. it is the greatest privilege of my life to be able to serve the party i love and give back to the country i too much to. mark: the women was left clear

for him after the house of commons leader pulled out of the race. sunak promised to unite the nation and warring conservatives. in michigan, a teenager pleaded guilty and a school shooting that left four students dead. he withdrew his intent to pursue an insanity defense. he could get life in prison without parole. the case for a focus on the boy's home life and the alleged role of his parents. a 30's in northern france center needlelike storms tore up powerlines, leaving scores of people without a safe place to live. one person suffered late injuries in a storm sunday and some 150 people were evacuated according to the regional administration for pas-de- calais. strong winds also battered

belgium and the netherlands but no major damage was reported. global news 24 hours a day on-air and on bloomberg quicktake. powered by more than 2700 journalists and analysts in over 120 countries. i am mark crumpton. this is bloomberg.

kriti: this is bloomberg. a historic drought swept chinese markets as fusion pang moved to stock leadership with loyalists. the temple is seen today with the golden dragon having its worst day since 2013. joining us now is tom orlik and ed ludlow. tom, you have built your career studying china. your initial take on this shakeup? tom: a couple of big takeaways from the lineup we saw emerging the end of the 20th congress. the first is it is clear we are entering a period of a man world in china. any man who could get anyone who

could be considered an independent voice or a successor to xi jinping is missing from top leadership. the second big takeaway is the exit of the economics professionals. chang, yang, ching -- all the names considered to be economics professionals, probe market reformers -- pro-market reformers, all these names missing from the list of people who will form the next central committee. the assumption is that they will be stepping down from frontline leadership. there are -- those two points together, considered by single man rule and the exit of economics professionals has been driving selloff in the markets. kriti: and, it is not just chinese adrs we are seeing pain in, we are seeing it in some of

the electric vehicle makers as well. china is the are in octave occasions. ed: tesla is an interesting case study of what we are seeing play out in markets in china. if you think about the assessment of what xi jinping will do in balancing ideological parity against the growth of the economy. we see tesla cutting prices in china. it speaks to what the fear is. this is an economy that is slightly weaker, demand is weaning on the consumer side. the latest data showed a softness in retail sales. from a policy perspective, looking at the appointments xi jinping has made consolidation of power, the question is what will policy be? it looks likely that unlikely that over zero is going anywhere. 6% of production is coming under shanghai.

it covid zero continues, how is that impact the operation of this business? this is what the market is trying to take a read on. what will xi jinping do to advance private enterprise and technology? it looks like not much. his focus will be state enterprise and advancing in the ideologies which he set out over recent months. kriti: tom, we checked about market reactions connected in the stock market but we are seeing it in the currency market is low. at the same time, you are seeing record weakness in the japanese yen and the doj intervening last friday -- boj intervening last friday. tom: when you have a major shock to the economy, investors look for a way to express their view on it. living in the sense in which movements in china tech stocks

coming in the hong kong equity market, in the one -- yuan, are all being driven by that covid factor and the visceral reaction to the lineup leaders and party congress and what that means for risk views on china. at the same time, there are global factors which are losing all exchange rates -- the stronger dollar, driven by the fact, is a factor is pushing both the chinese yuan and three japanese yen downwards. coming back to add -- ed's comment about covid 0, 1 interesting thing we see in the new leadership lineup is that the guy who runs shanghai has emerged as china's new permit or, the number two on the standing committee. shanghai was the city at the center of china's covid lockdowns this year, the two-month lockdown hammered

consumption and production at some of the biggest companies. reading the tea leaves, but it seems to signal is that she's in is firmly -- xi jinping is firmly in support of that policy. kriti: certainly something we will keep our eye on. tom orlik and ed ludlow. still ahead, a slew of tech earnings. how are investors positioning? this is bloomberg. ♪

kriti: we have got a rally today but perhaps low volume, maybe a wait and see mode ahead of big tech earnings, which brings me to how well-positioned are investors when it comes to the broader market? over a quarter of the s&p 500 is

made up of just five names. we are looking at the hedging costs on the s&p 500. they are still declined by about 10%. as people are headed in to those tech earnings commit they are not that hedged. there has been some hesitation to hop in the market, preventing a full out sustainable rally, a sustainable bull rally. this is important when it comes to how people are using options contracts. they are only using them to hedge or pull out of the market. whether that continues is going to be a part equation. looks like people are not using options the way they have been for the majority of the year. that will be a question. do they look at those tech earnings and then reposition? for now, we are looking at a rally. stick with us. we are going to dive into all of this committee nasdaq making a touch, the 10 year yield unchanged. or bloomberg markets ahead.

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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. jon: welcome. the digital age is waiting.

kriti: we have it rally on our hands. some green on the screen. about-- up about .8%. how much are people positioning ahead of tech earnings? bond market, not a ton of action. a bit of volatility earlier in the session perhaps calming down. the cable rate is going to be significant. even with a new prime minister in the u.k., we are still at

1.12. the jury is still out about whether sunak can rescue the economy but a bit of strength when it comes to the dollar. we see a bit of strength in the bloomberg commodity, up about .4%. jon: as we look at some of those movers, within the industrials part of the market, you are still seeing investors gravitate toward companies that offer defense, literally. lockheed market -- martin has been higher on the day. mus about apple's new pricing has given a vote of confidence to spotify shareholders. on the other hand, we have tesla with price cuts in china and those shares under pressure. we have been clutching the dramatic reaction in many of those u.s. listed tech companies out china. kriti: speaking of china,

earlier, we caught up with professor peter tribble wets. >> what they saw on display was xi consolidating his hold on power. the belief is that xi is the underlying -- is interested in pushing china's ambitions in the region and expanding power. if only to compensate for the erosion, the slowdown in economic growth in china. jon: shining us now is shery ahn. -- joining us now is shery ahn we have seen such dramatic reaction to all of this. shery: a lot of anxiety over what this actually means. we saw the golden dragon index

fall 19% today, on track for the worst day ever. we had already seen a brutal year in chinese stocks and this is getting worse. investors are trying to figure out what the priorities for xi jinping will be. even if they figure out those priorities, the want to stick around when they are seeing an economy that is starting to slow down. we have seen xi jinping make some of those economic priorities clear during the party congress. we are talking about dual circulation and common prosperity. it comes to common prosperity, we have seen how that was used to to rein in tech giants like alibaba and others all losing at least $10 million in value. what does this really mean investors need to line portfolios with the parties of xi jinping are closely than ever. kriti: that certain .30 weakness you are seeing when comes to the offshore yuan, how much worse can it get?

shery: we have not seen this level ever since we started seeing the offshore unit traded in 2010. you're seeing onshore falling trade 14 year low against the u.s. dollar. the expectation is we continue to see a slowing economy in china. we are talking about the released gdp data showing mixed recovery. we have the hawkish federal reserve comes who not thing this whitening u.s.-china yougov driving outflows. the pboc just this weekend ending events trigger study yuan fixings. during that party congress, authorities wanted stability in the markets. we have that fixing around 7.11. now they fix it around 7.12. that is higher than expected but still this gives an indication of where the yuan is headed. the fact that the pboc continues to listen monetary policy does

not bode well for the chinese currency. kriti: something we will keep an eye on. shery ahn, we thank you as always. joining us now is stephen parker, head of advisory solutions at jp morgan. let us pick up where sherry left off. how concerned should we be about china? is there a geopolitical risk premium? steven: what is interesting is it has been a chinese issue. we are not seeing contagion and other market, even around asia. that would be unthinkable to previous years when he sought news like this. when i talk to our emerging-market portfolio managers, they have had a cautious view on china for a wild, primarily because of that regulatory uncertainty as it relates to markets. they are not ready to move into the region yet because they are finding compelling opportunities in other asian markets. jon: let's build on that.

what are the kinds of existent would build confidence for investors to give it a second look? stephen: the thing we are going to meet looking for is a shift in terms of policy that relates to both rated her corporate policy and policy earned stimulus and economic growth. in particular, some of the questions right now are around the lockdown policies and how seriously that is going to continue. if you start to see a reversal in sentiment around in the direction policy to from is more market only, rarely coming there is a lot of pessimism that could potentially unleash a wave of buying in the country. kriti: let's talk about the u.s. market. we had an exciting week last week, the best going back to june or july. the s&p 500 rallying to the tune of 1%. is that sustainable going into these tech earnings? stephen: in the near term, you

will probably seek more volatility coming into this month. pessimism was off the charts and fund managers are sitting on levels of cash we last saw during the financial crisis and retailers have moved into money market funds. the bar has come down. early earnings numbers seem to indicate that results are not as bad as expected. companies are able to translate some patient -- pricing pressures through to the end consumer. that could be a potential catalyst times of volatilities could remain hyper inflation is still a primary concern for investors. for policymakers, with the fed is going to do remains top of mind. we are in a wait and see mode. we are building a shopping list because over the next 12-18 months, we think this is an attractive level. jon: i would love to get some perspective on that list but it

has been a complicated year for fixed income. i imagine you have to look at both of those juggernauts? stephen: i spent my entire career on the equity side. i have never been excited about fixed income but that view has changed. with the repricing in markets, you are getting compelling deals for investors. total returns look interesting. more importantly, you've got enough in high-quality fixed income even if rates move higher from here, you are protected because of the income component. on the other side of that, if inflation begins to roll over and will be construed and slowed down, that is a recipe for rates to reverse and you would look at total returns and historically would have thought of in equity markets. kriti: something that cap my dear is what you specifically said that you are still assuming the normal amount of risk that you traditionally would. we are in an environment where liquidity is continuing and the

federal reserve is being aggressive. what does that do to far risk? stephen: went with look at risk and portfolios unexpected return in volatility, we think about things like var that tends to be a shorter-term measure, we're talking long-term only talk to clients, when we think about the signing return expectations and how we think about risk, their thinking in terms of asset allocation decisions. today, we are in line with normal levels of risk and equity markets and have been opportunistically adding to risk and fixed income markets, marveling that with higher quality fixed income that offers densification. kriti: but you are not concerned about liquidity? stephen: we are not. when we look at liquidity, that tends to be a shorter-term arcade issue and it they may be an opportunity to take advantage of dislocation card what we start recently is that investors are in a cell first, christian

leader when it comes to -- seel first, ask questions later when it comes to concerns. policymakers are seeing and perhaps learning from some of the u.k. policymakers that we have to being shipped and focus on liquidity more -- that we may have to shift in focus on the quiddity more. jon: stephen parker, it was nice having you back. coming up, a profound economic challenge for brittany. catherine bernard brings us to discuss the new leadership in the u.k. as rishi sunak will become prime minister tomorrow. this is bloomberg. ♪ this... is the planning effect. this is how it feels to have a dedicated fidelity advisor

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have the support of my parliamentary colleagues and to the elected as leader of the conservative unionist party. it is the greatest privilege of my life to serve the party i love and give back to the country i owe so much to. kriti: that was rishi sunak, who will officially become prime minister tomorrow when he needs king charles. he is the youngest u.k. prime minister and a former wall street man who worked for goldman sachs. let us turn to catherine barnard , professor at cambridge university. thank you for joining us. i want to start with right sentiment comes to rishi sunak.

he was one of the early exitiers before boris johnson. a proposed law would give them the power to override the brexit deal. where does rishi sunak fall into this? prof. barnard: good question. this law does sunsetting. two point -- 2500 pieces on the statute book. sunsetting means turnoff on the first of december, 2023. rishi sunak said he would turn it all off within 100 days, which essentially means in january. liz truss says she wanted to turn it off by the end of 2020 three, but what we have learned since all of the shenanigans of the summer is that the markets want u.k. to be a stable place and not to be making radical

decisions. the interesting question is whether rishi sunak might decide that this legislation goes too far, too fast and that a positive is needed or some sort of reassessment so that all of this legislation does not just get turned off automatically. jon: catherine, it is such a long list of to do's for the incoming prime minister who warned of the profound economic challenge the u.k. is facing. how does he address those concerns when the credibility in the market story have been front and center? prof. barnard: the starting point is he is seen as a safe pair of hands and a man of integrity can -- integrity. he is seen as the man who will get things done. he is a brexitier, but unlike liz truss's predecessor, who was

a remainder and had to keep showing her brexit credentials, he does not need to do that. he is more pragmatic than ideological. he may have a bit of space to try to start rebuilding better relationships with the eu. the crucial issue is will what happened with the northern ireland protocol bill. that is the part of the withdrawal agreement that essentially means northern ireland stays in the market for goods and stays in the eu customs union. the party in the northern ireland islands not like it because the effect is to have a border in the irish sea. liz truss tried to turn this stuff off. the eu is happy -- unhappy about the u.k. reneging on its commitments under the northern ireland protocol. will rishi sunak pursue that bill?

some say he has already agreed with the right wing of the tory party to do that and carry on with the, but it would be madness went with the country needs more than anything is stability and not a trade war with the eu. kriti: what can we expect when it comes to the cabinet? there is consensus that he will keep on jeremy hunt. what else is the economy in the market looking for? prof. barnard: the government of all talents would be a good start. a broad range of people drawn from parts of the conservative party. that was one of liz truss's failures that she only brought in her own supporters and not already led to an amount of disquiet. i think he will look wide and drop from all parts of the party to try to get off on solid footing -- draw from all parts of the party to try to get off on solid footing. jon: appreciate it, catherine

barnard, professor of european employment law at cambridge university. coming up, california's economy poised to overtake germany's spot over -- after steady growth. we will speak with matt winkler next. this is bloomberg. ♪

jon: this is bloomberg markets. california's economy has proven relatively resilient. now the state is poised to overtake germany's number four spot in the economy. for more, let us bring in kathy winkler. great to have you with us. an extensively detailed piece that you have authored at a time when there is a narrative about the business climate in

california, you hear about caliper leaving the state. what did you find? matt: there is nothing new about the timeless narrative of earthquakes, fires, droughts, homelessness. chief executive officers fleeing to texas for a regulations the that regulation free lifestyle. what is new is the continuation of a trend, the golden state dwarfs the 49 other american states and has for quite some time. in his sleep brazil and france. it -- it has the resilient and plants -- france. this point on, which is the year of the pandemic, california has been on a tear. that is why it is now poised to become number four after the u.s., china, and japan, overtaking germany this year.

the reason is the trajectory is most transparent in the divergence between almost 400 companies that are publicly traded in california. it has the market value of at least $1 billion. there are counter it is a dichotomy that has widened dramatically. corbat california revenues and market capitalization are up 140 7%, 117% respectively. germany can barely muster 41% and 34% by comparison. corporate california is such a catalyst for the u.s. economy itself. that has been a long-running story. all this data that we have in front of us, most of it is about all the companies you have heard of and then some in california

have done quite well compared to the rest of the world since 2020. and better than the rest of the country. there is not an industry where california does not lead the u.s.. the one everybody should know about is agriculture, forestry, dishing and hunting merit -- fishing and hunting. the next closest state is maybe iowa or texas at 11 billion dollars. it is significant. kriti: when i think of california, i immediately think of silicon valley. y laid out the alphabets versus the deutsche's telecoms. how much longer do you think that growth can last given the environment that maybe some of these growthier names are turning to work value names? matt: what is it the most

significant thing about california is that two thirds of corporate california is between your ears. if you do the same comparison with texas, two thirds is in the ground. california is a 21st century economy. it is all about innovation. their top three industries art technology, hardware, media, and software. that is a group of companies that continue to innovate, but something else is going on that is equally prominent and that is that california is a leader in renewable energy. that is the fastest growing industry in germany as well but it is going much faster in california. , change, fire -- climate

change, fires, droughts, earthquakes will only visit us more frequently. for california to be in the lead in renewable energy it's very promising for investors. kriti: matt winkler editor-in-chief emeritus of bloomberg news. you never really forget your first beat. fantastic story. i encourage everyone to check it out. the s&p 500 is still in the green. but it is off of session highs, up about .8%. the bond market not doing a ton. bloomberg dollar, you see a bit of strength, a move driven by a reversal of what you are seeing in the pound and that strength feeding into pressure on brent crude, down about .3%. stick with us. the clothes is next.

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>> the most crucial moments in the trading day, this is bloomberg markets, the close, with caroline hyde, taylor. >> we kick you up to the close two hours left in another day of resilient trading amid turbulent geopolitics. romaine: this is the weekly focus more on the fundamentals. this is still a macro story. >> the fundamentals have not been that bad for the quarterly earnings season. it might be getting better