>> welcome to bloomberg. i mark crumpton with first word news. the democratic led senate has gotten a jolt. arizona's senator kyrsten sinema registers as an independent today, days after democrats gained a clean majority in the chamber. her move will not affect the overall control of the senate next year, but it could complicate the party's agenda. she says she will not caucus with republicans. vladimir putin said russia may add the first nuclear strike to its military doctorate. his comments to reporters today came days after the russian president warned the risk of atomic war is rising. the u.s. and allies denounced

president putin for what they call "nuclear saber rattling over his invasion of ukraine." the cost overruns of the lockheed martin and 35 fighter jet, the pentagon's most expensive weapons system, will cost another $236 million to upgrade the cockpit computer that almost doubles the size of the original contract. first, the overrun is compared to the overall cost of the f-35 program. it added up last year from $968 billion to $412 billion. bloomberg has learned that tesla will suspend output in stages added shanghai factory later this month. a suspension will last until early january. tesla is operating its production lines and faces slowing consumer demand. global news, 24 hours a day on-air on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i am mark crumpton. this is bloomberg.

amber: i am amber, in for jon erlichman. welcome to bloomberg markets. tim: i am tim stenovec. we are seeing a choppy day of trading at the s&p 500, down fractionally with tech stocks outperform, higher by .1%. the russell 2000 small caps under pressure right now. investors now are dealing with conflicting economic data, hotter than expected ppi and inflation expectations in the short-term at the lowest level in more than a year. we will have more in a minute. meanwhile, yields moving higher.

the 10 year at 3.55% up by seven basis points. amber: i am taking a look at individual movers. the saga continues at carvana which continues to be volatile. we will call this a muted move. we are also tracking doc you sign. they have had a -- docusign. they have had a misfit year, but they are showing an optimistic forecast, bidding up the stock. lululemon, by all accounts when you look at the sales, would have sales that are envious of any retailer. double-digit growth in north america and abroad, but the margins have investors concerned as they see a huge surge in inventory. we are also tracking tc energy. bloomberg news is reporting that the company, which is struggling with the keystone pipeline currently shut down due to a leak, that was announced yesterday, potentially, looking at restarting a portion of it as early as tomorrow.

we will continue to follow those developments. tim: after we got today is ppi report, we caught up with morgan stanley. they told us what they are most worried about. >> it is a question of when inflation comes down, which i think it will, will it stay down? the big risk in my eyes for 2023 is what if all of a sudden inflation does not stay low or does not stay down nextdoes thad back into their tightening cycle from an already higher base rate? this is something the market is not pricing in, and this is what i am worried about the most. tim: let's get more inside with bloomberg international economic correspondent michael mckee and just met in -- jess. michael, hotter than expected ppi, but sentiments in the short-term coming in at the lowest level in more than a

year. how does that change things for next week when we hear from jay powell? michael: it does not change things at all. the reason they are doing that, slowing down from 75, is they want to see what kind of impact they are already number of moves have made will have on the economy because policy works with long and variable lags. one of the things they are afraid of is something like jim karen just described, and that is why they are insisting they are going to stay at a high rate throughout 2023, so if inflation were to come back, they don't have to come back into the markets and raise rates again. so, look for jay powell to tell us all that the fed is not done moving, but they are going to stay higher for longer next week. amber: can we look at this as a glass half-full?

the process of unwinding inflation is not going to happen over short-term. it does look like it has continued the trajectory, mike, or the story that the inflation peaked in march and we are steadily marching lower when it comes to price growth. michael: it looks that way when you look at the year-over-year numbers because we get into base effects with inflation so high earlier in the year and late last year, it brings down the year-over-year numbers, but it does not mean that we are going to end up seeing inflation drop as fast, perhaps, as some on wall street think. but it could mean that we have, indeed, peaked. that is what the fed would like to see. the big numbers moving today were food, what they call crude food. it was up 21%. if they cannot do anything about that, gasoline prices down 6%, if they cannot do anything about that, so they just have to take these numbers as they come. amber: tim: jess, take us into today's

trade because searching for direction is a term that comes to mind. jess: we definitely saw futures fall sharply when the data burst hit around 8:30, but if you are looking now, once investors started parsing what was in the report, you are looking at the s&p 500 mildly lower but they were still bright spots in great potential green shoots in the data. if you are looking out the services, the goods story, margins are holding up when you look at retailers and wholesalers. the big story earlier this year, especially over the summer, we saw the expectation would mean martyrs greater and that would impact corporate america's earnings and stock prices, but we are seeing margins holding up. a key focus is looking at the spread between ppi and cpi we won't get an update until the cpi data on tuesday, but that is something that bloomberg intelligence has been monitoring closely. typically, when you see the spread turn positive, and it is flat now, that is a good thing

when it comes to corporate margins. typically, that bodes well for stock prices over the coming year when you look back at history. that will be key to see if we are still seeing potential rate shoots when we look at that data. amber: thanks, jess menton, and michael mckee, for insight. let's talk more and bring in jennifer lee, bmo capital market senior economist. thanks for being with us. this is the warm-up show to the big show next week, when we are going to get a read on consumer inflation and the fed rate decision on wednesday. how are you thinking about that? do you think the inflation number could also surprise to the upside? jennifer: i think it is possible. i have got to tell you what i was thinking ahead of this morning when i walked in. i was hoping for a clear, unobstructed view of what the fed would do next week, and

unfortunately, producer prices, talking estimates still coming down but on the high side. the one year fell, which was great. the five-year was steady. it was not a clear view but everything is going to be centered on the cpi report next week. it is possible it will come on the high side. we saw that earlier this year with modest readings held by an upward price. i don't think we can take anything for granted with the cpi report and brace for something that is hotter than expected, but for sure, i don't think it will change the playbook for the fed. they have already said that will take more than one report to make them change their minds. amber: why don't you think this -- tim: why don't you think this will change the mind of the fed? if we get a lighter report, there will be two cpi reports and we are seeing a de-inflation when it comes to housing, highflying tech stocks, when it

comes to crypto markets. why does the fed need to see more? jennifer: i think it is because, not only the fed but other central banks, they have been burned before. it looks like a peak in inflation and then things start heating up again. the fed chair said last week "substantially more evidence on the inflation front" before they cool things off. he has already talked about that. historically, he would rather err on the side of caution and over tighten and under tighten. it will take a november reading that is better than expected. it will take us into the new year a few more months before we can call all clear. tim: thank you to jennifer lee. coming up, the world's most populous nation rapidly pulling back on covid zero policies. what this means for the health of people in china and the health of the global economy.

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>> we do not yet know how this is going to work out. is this going to be successful rejoining of the reality of the rest of the world? or is this going to lead to catastrophic delegitimizing performance of the chinese health care system? tim: this is bloomberg markets. i am tim stenovec with amber kanwar. that was larry summers on china's decision to abandon its covid zero stans. stephen engle explains the risk

of dropping the policy and a quick manner. stephen: while hong kong has served as a blueprint for china's opening up from covid, it is also a huge cautionary tale. when the omicron variant swept through this modern city of 7.5 million earlier in the year, the city's sophisticated health care system was overwhelmed. at one point, hong kong had the world's highest death rate due to covid. there simply wasn't enough space to put all the patients or bodies. some of the sick were put outside on gurneys, as body bags with the deceased stacked up in some wards next to infected living. wards were inundated. most of hong kong's nearly 11,000 total covid deaths happened between february and april of this year. like hong kong, china has a largely under vaccinated elderly population, but on a much larger scale, and china, too, does not

have the more sophisticated mrna vaccinations available. >> we have to remember that china has been protected from the public for so long that there has been no herd immunity in china, so this is going to start. this process is not going to be smooth. it will be quite difficult. stephen: with the sudden dismantling of covid restrictions, including mandatory pcr testing to enter public spaces, china is bracing for a surge in infections and deaths. more than 2 million by one estimate. criticism of covid zero is being concerned by concern that the rapid policy shift away from the all-out eradication of the virus is happening too fast and that china is ill-prepared, like hong kong was in march, for a health crisis of unseen proportions. stephen engle, bloomberg news, hong kong. amber: that was bloomberg's

north asia chief correspondent stephen engle. for more, let's bring in medicine mueller -- madison mueller. warnings abound about the approach china is taking on covid as they make an abrupt u-turn and forging ahead. what are the consequences of that? what is the modeling say about how bad this could be from a health perspective? madison: it has been a modeling that has come out so far saying deaths could top 2 million cases, could be in 5 million per day range, and it is amazing because there is not a lot of herd immunity, like we heard. vaccination rates are not really where they should be, so it is going from nothing so there could be a surge of cases. in the u.s., there was a stepwise approach to removing restrictions and lockdown measures, and we still had

increases in cases. in this situation, we are going from zero to 100. there is not going to be a lot of protections in place to stop covid from just spreading throughout the country. tim: we understand the consequences from an economic perspective of covid zero and have seen that play out the last three years, but what are the economic consequences of a health care system being overrun and potentially millions dying? madison: right. the thing is, it is millions of people dying but also infections. infections sometimes have a bigger impact on the health care system if it is sending people to the hospital and they are getting overrun. staff are overworked. that is an enormous strain on the health care system, and that is what we saw happen in the u.s., too. especially during omicron. right now, the variants currently circulating are not as

lethal, we think, but, they are very transmissible. so in an extremely populous place in urban cities and throughout the rest of the country, it will just have anna norma's impact on the health care system, and it is hard to prepare for that. we do not really know how much of an impact that is going to have. amber: what about the political consequences? we know there were protests to allow greater freedoms, but the communist regime, part of why people accept it, they don't have much of a choice, but it is there for you, there to support you, and if they see the health care system is not there, how much damage does that do politically? madison: yeah, i mean it is hard to know because this is something that people have wanted. they have wanted -- the economy

has been hit so hard by this. we have seen the protest people want these measures to be repealed, but, you know, what i have been seeing from reports is that there is now whiplash. they are going completely to the other side versus removing these in a way that is more of a stepwise approach, and this risks, i guess, sending people in the opposite direction with distressed, anger, and fear about rising case counts in infections, death and disease. it is a scary situation. amber: thank you for bringing that to us. when we come back, we will look at the metric that says the s&p 500 is having the worst year

since 1974. 48 years ago. details coming. this is bloomberg. ♪

amber: this is bloomberg markets. i am amber kanwar with tim stenovec. stocks in 2022 are on pace for their worst return since the financial global crisis but one metric shows it is the most bearish year for the s&p 500 since all the way back to 1974. joining us to explain his bloomberg's tatiana darie. thank you for being with us. what is this metric? it has been a long time since we have seen it this bad before. tatiana: exactly. we know the stock market has been terrible this year, by one

metric known as the hit ratio, meaning how often we have seen gains versus daily losses in the s&p 500 during the trading days in any calendar year. that metric plunged to 43% this year, the lowest in nearly five decades, and the precedents really earned that grade. if you look back to 1974, that was a tough time for the stock market, a very big selloff. if you look at other times when this ratio was below 50%, meaning when we have seen more losses than gains in any given year, that also indicates that recoveries on average take longer than selloffs. if you apply that math to this year, we may go into late in the year for the stock market to see any sort of recovery. tim: i looked hard for any bit of good news, which is fantastic -- good news in this column,

which is fantastic and i recommend people check it out, is there any good news we can take away from this? tatiana: if you take the contrarian view, meaning if you think well and think we have gotten to bearish year, try to look for positive use, and i guess you can hang onto the health of the consumer and still bet on the american consumer that spending will continue and soft landing will continue and inflation will fall and the fed will have to pit it without looking into a recession, but at this point, where things stand with ppi data we got today, that looks highly unlikely. amber: it is interesting to look at this data point because there have been market downturns before, but they are swifter. they are short and sharp to the downside. what this is telling us is it has kind of been a meandering walk lower. not big outsize move, but 1% here and there, a lot more this year. tatiana: exactly.

if we look at the average decline this year, it has not been small. it has been bigger than what we saw in 1974 and screens among the top 20 steepest average daily declines in the whole history of the stock market. so, that is just more to speak to the bearish narrative and really the poor sentiment in the stock market, but have we rationally priced in all the downsides and most of the impacts of the upcoming recession if the consensus is right? i am not sure at this point. tim: thank you to tatiana darie for joining us this afternoon. quick check of the markets, the dow down .2%, the s&p 500 down .1%. the s&p 500 is down .1%. the nasdaq seeing a little green. a big thank you to everyone for joining us this afternoon. for amber kanwar, i am tim

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mark: keeping you up-to-date with news from around the world. this is the first word. sam bankman-fried said he is willing to testify about the collapse of his crypto empire before congress. in a series of tweets, he said he would be limited in what he could tell a house panel on tuesday because he doesn't have access to all of his data. meanwhile, the senate committee is working on trying to get him to appear. vladimir putin says russia may add the first nuclear strike its military doctorate. his comments to reporters today came two days after the russian president warned the risk of atomic war is rising. the u.s. and its allies denounced him for what they call nuclear sabr