jon: welcome to bloomberg markets. matt: we are seeing the s&p moving up about 1/10 of 1%, 4405 is the level as investors debate the inflation print we are going to see on wednesday. we may see lower volumes until that comes out. 10 year yield down about 6.5 basis points, just under the 4% level. the two year yield under the 5% level. bloomberg dollar index about 2/10 of 1%, crude down about one dollar a barrel but trading up above 70 at 70 to 87.

what are you watching? jon: some of the energy stocks with oil on the move, some individual names we want to highlight pushing up another 10%. very rare to have ipo stories this year. interest in the company in the restaurant business at a time of uncertainty is getting a lot of thumbs up on wall street. analysts weighing in on their belief the expansion of this mediterranean cuisine business can continue. that stock is moving higher. a story with a canadian connection, novavax is in the spotlight today. they have reached a deal with the canadian government for these covid shots that ultimately were not going to be used, but 350 million dollars will come the company's way. some much needed cash for a company that has had a lot of

questions, that has sparked more than 30% stock move so far today. matt: we will continue to watch those shares. markets look cautious ahead of not only the cpi print we will look at on wednesday, but earnings season. big banks kick that off. this morning, the vice chair laid out new rules meant to protect the banking system. >> the changes would raise market risk capital requirements by correcting for gaps in the current rules. for instance, the proposal would require banks to model market risk at the level of individual trading, which will better affect the observation that correlation across risk can change dramatically. the proposal would require banks to use a standardized approach for hard to model risk, which is appropriate in light of the weaknesses exposed in the 2008 financial crisis when many firms did not have acceptable models for risk. jon: what has been the reaction

on wall street? sonali: there is frustration knowing their higher capital rules for the biggest banks. what we have to focus on is they want to change the rules around credit trading and operational risk. they will not be looking at trading overall, they are looking at it by level, which is a greater degree of scrutiny than they have given them in the past. this means that in the future, that would impact potentially the returns you get from risk tanking -- risk taking. when it comes to smaller banks, they are trying to expand rules across banks to ones with $100 billion in assets and more. they are looking to have them start accounting for unrealized losses and available-for-sale portfolios. this is what we saw get into a

lot of issues when we saw the demise of silicon valley bank and others in the banking system. a clear recognition there are things the federal reserve and other supervisors were not seeing. matt: supervisors did not do anything about it. it is interesting timing, it comes at the same time the fed wants to continue pursuing qt, you have a flood of treasury issuance and credit contracting. so what does it mean for financial conditions going forward? sonali: bankers will tell you if you put more rules on us, it will constrict lending. another interesting thing is the unknowns with interest rate risk. when michael barr was asked whether the calculus behind banking has changed, this idea you are bringing in more money from interest income to account for losses and bond portfolios, you had michael barr telling him the calculus has changed a bit

for some firms. they are watching that closely. meanwhile, you have other analysts like wells fargo recently calling it a nightmare on alm street. it is this idea that there is a mismatch for the asset pricing you are seeing in terms of deposit costs going higher and other costs tied to higher interest rates for banks. can banks be earning enough money to offset the costs of funding is a big question mark and it could take multiple quarters to play out. jon: we will be watching closely, inc. you. let us get more perspective on how the economic pieces come together and factor into the currency market. great to see you. when we are trying to figure out how far the fed is willing to go, you have to consider the

health of the banks right now. there is a lot for wall street to digest, what is your general take on the mood in the markets? >> sentiment is so important, especially in the foreign exchange market. the market is resisting the idea the fed gave us in june that any to hike rates two more times. they got one hike priced in. what strikes me is up there last thursday, we had all of the strong jobs data showing a strong job market. we had a spike higher in u.s. yields, but it did not translate to a stronger dollar. it is like a yellow flag if we were playing soccer. maybe we are at a turning point in the dollar higher interest rates do not support it, but on a day like today with softer interest rates are weighing on it. i think the dollar peaked major cyclical high last september and

october and we are working our way lower gradually. jon: let us use this week's inflation print as an example. based on what we see and what it tells us about where rates may go, what might be the currency reaction, in your opinion? marc: cpi will be the last -- strong base effect that is driving headline inflation from the highs we saw last year. maybe we get something in the low 3% handle. second half of the year's tougher comparison, starting next month. we get that data in august. last july, cpi was flat. we might be seeing rising inflation, especially in q3 from the base effect. we look at what happened last year, take it off of the 12 month comparison. the dollar is going to be headed lower and at that moment in time i think we get weaker economic

numbers. look at what the fed said in june. despite the staffed forecasting a recession later this year, the median dot was for 1% growth in the economy. it looks like we will achieve that in the first half of the year. stagnation is coming in the second half. matt: what do you think caused this in the first half? everyone at the beginning of the year thought the dollar was going to continue to drop after it reached a peak on the bloomberg dollar index. why has it held in this range so firmly? marc: a lot of people were expecting the dollar to continue to climb. the market had to reassess the strength of the economy and the persistence of inflation, the market was pricing in a fed cut. that is what helped the dollar.

just today, i think you had it on the wire that the san francisco fed president who is seen as a dove came out and endorsed, saying she things a couple more hikes are necessary. matt: how important is monetary policy against the backdrop? we focus so much on the fed, because this is the horse race that we can see on the terminal. at the same time, the federal government was dumping trillions of dollars of fiscal stimulus into the economy. how much can monetary policy move the needle, compared to that kind of demand boost? marc: i take your point that the policy mix is what i try to focus on. the best policy mix tends to be stimulating fiscal policy and

tight monetary policy. almost like what the short-lived u.k. prime minister recommended, that is the same policy under reagan. cutting taxes, boosting defense in social spending. the same thing happened when the berlin wall fell, the bank was tightening monetary policy, the german government was expanding fiscal policy. that helps explain why the dollar has been so strong. i look at the measure in they have the euro and the yen, the most undervalued in my career. matt: interesting. jon: i was going to ask about that, in terms of your thoughts on the currency flows if there is less desire for the dollar -- i am here in canada, it is not like there are people piling into the canadian dollar. marc: we will see what happens. shortly after the cpi u.s.

reports on wednesday, the bank of canada meets. they had a conditional pause, they surprised many people in the market by hiking rates in early june. it is a question of whether they hike rates back to back meetings. i against it. the market has a slight leaning in favor of it. canada had a really strong full-time employment, but wages fell, unemployment went up. the last gdp print was stagnant. the market does have a hike for leed discounted by the end of q3. matt: it is fascinating to look at the screen and see that the euro is more than 50% undervalued. marc, thanks for coming in. coming up, how instagram threads could bring in serious cash for facebook owner meta.

some see $8 billion in annual revenue over the next two years, this is bloomberg. ♪

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jon: this is bloomberg markets. time for the stock of the hour, meta is in focus. the stock has been back and forth now that threads has become the fastest app in history, 100 million users in the first five days. they are forecasting meta could generate another 8 billion dollars in revenue a year by 2025, thanks to the success. let us bring in caroline hyde, who has been tracking it.

great to see you. they have not turned on the advertising tap just yet, is that correct? sonali: and they will not -- caroline: and they will not until they have clear sight of one billion users, he put that in one of the early threads. they seem to have some clear sight of getting to growth trajectory, 200 million users is what mark mahaney thinks we will end up having, double of where we have gotten in the last five days alone. 200 million, that is just shy of the entirety of twitter users when we last got the public numbers this time last year. so we are getting critical mass, you are getting maybe a trajectory towards $8 billion per year in terms of revenue. put in context, this company rakes and 150 billion for the annual revenue of 2025. they have got to switch on the advertising and wait until we

get growth numbers. matt: it is amazing how quickly they have grown, especially compared to uber, which took years? hundred million users. even chatgpt, which took months. caroline: at least two. matt: why is it so successful, considering the fact it is not at all differentiated from twitter? there is zero difference between the two. caroline: maybe that is one of the reasons. maybe people wanted exactly what twitter serves, but run by different people. they felt the stability of ownership has taken away from their experience, many who want to twitter, but run differently. people are waiting to see with the new ceo brings in terms of stability, but it is so easy. the numbers are growing so quickly because these people are

already on instagram. this is not chatgpt trying to get people to do something totally different, it is instagram importing you to a new app. 100 million is still phenomenal. the fact it is so easy to switch on and navigate and understand, people have like that. it is not as efficient as twitter, you cannot find your community quite that easy. that made people like the fact it is something they know and love. it is a baby, things will be born. he will likely get the polling and spaces. matt: they will copy twitter even more closely. caroline: they were explicit it was copying this time. jon: it is fascinating to watch. helpful breakdown of the latest in social media, we are going to take a quick break. when we come back, closer look at what the market has been predicting about inflation. doing a pretty good job, as it

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matt: this is bloomberg markets. at the highly anticipated u.s. inflation report comes out on wednesday. we have been looking into what the market has been telling us and how it has been. thanks for joining us on set. everybody was following over themselves last year when we got the 9.1% cpi print to point out the fed was behind the curve and this is so horrible. it has not worked out that way and the swaps market told us it would not.

>> there is a piece of the $30 trillion government bond market that has been consistent in its perspective on inflation, which is to say it never believed the fed was behind the curve. it believed the fed was the curve and the curve was essentially -- if you looked at two years to 10 years, the breakeven rate in the bond market -- inflation would accelerate coming out of the pandemic significantly. in some cases, the most since the 1980's. it would abate in the ensuing eight years. the swap market has looked at inflation month by month, there is no other indicator we can look at to get that kind of precision -- thought market said

-- swap market said inflation is going to be less than half today or this week. if you looked at every month since then, it has been very consistent. somewhere below 3.1% to 3.1% and it is whatever economists now pretty much says is going to be the figure on wednesday when we get the report. jon: i feel like your story not only highlights the value as an indicator that you get from the swaps market, but perhaps there are other indicators that are less reliable going forward. matt w.: here the difference. the bond market is useful because it is the most reversed, broadest collection of people with convictions and their fortunes on the line. they are taking what they

believe and their money with them and saying this is what i think is going to happen because i expect to make money from it. that is the virtue of the bond market and that is why people like me would say why is that not more relevant or accurate than some of the smartest people around, only because it is one of them against millions of people who are making bets on all kinds of scenarios. matt: your column quotes a lot of important bloomberg strategists or technicians. david wilcox said even if the fed started raising rates earlier, it would not have been a game changer in terms of bringing down inflation, which made me think of a related question. how much does monetary policy really move the ball, especially against a backdrop of federal

government that is dumping trillions of dollars in fiscal stimulus, a pandemic that changes the mix of consumer preferences and demand that source? -- soars? matt w.: monetary policy is important with psychology and perception. if people in the market believe the fed is serious, which they had to believe when the fed started tightening credit in march 2022 and has been doing so rigorously ever since, the fed was serious about making inflation retreat. that much, we know. that much is in the market. the other part is the fed has two mandates, one is fighting inflation, keeping inflation stable at 2%. the other is maximum employment. the fed was criticized this time last year for waiting until it

dead, but it did so until employment got back to the pre-pandemic level. that has created a great cushion , if you like for employment we have today that is -- has prevented us from sliding into a recession, which could have been the case if the fed accelerated credit tightening early in 2021. matt: everyone is talking about a soft landing, trying to give the fed the credibility it has earned over the last year. great having you on the show, thanks for joining us. i think it is a really fascinating column, i hope everyone goes and checks it out on the bloomberg terminal. imf miller, this is bloomberg. ♪

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romaine: cautious optimism to start the week. we are kicking you off to the close here on this monday afternoon. the s&p 500 still searching for direction after three days of being in reverse. battered by concerns about lopsided economic resiliency and the fed persistence on raising interest rates. five of the 11 sectors in the red, dragged down by rate sensitive areas. some of the bright spots in small caps on the discretionary side, leading amongst household companies after earnings top estimates and haynes leading a rebound in small cap