there is no mystery. the consumer is strong. >> this is about the labor market. >> there is enough support from the labor market to prevent u.s. consumer from rolling over. >> eventually consumers will come to the realization things are more expensive. >> this is "bloomberg surveillance" with tom keene, jonathan ferro and lisa ambramowicz. jonathan: live from new york city, good morning.

your equity market right now, totally unchanged on the s&p 500. if you're worried about the dates are, do not report it. if you're worried about the market, then sell a depreciate latest news out of china, we have seen these headlines before. chinese authorities ask you investment funds to avoid being net seller of equities. if you do not trade to come if you did not report it, then it is not happen and the answer is at least around the world, especially given the data they have been reporting consistently has been worse than expected so then i guess, in absence of it, people think it is gotten better. jonathan: expectations on wall street around growth on china has changed. jp morgan had a forecast growth of gdp a 6.4% this year. this been cut to 4.8 percent,

four handle for a six handle in a number of months. lisa: there are signs people's bank of china are starting to respond but it is not clear what they can do to generate confidence. i want to go back to the idea that they are not reporting the unemployment rate and i was looking at reports about how this is being interpreted. people even in mainland are saying we are not dumb. it is not positive for sentiment. we see what is going on. jonathan: the official line for those who might have just come back in from vacation, you will not receive youth unemployment. ultimately, this is the explanation from a national bureau statistic from labor statistics quote need further optimization, more research to be done with the students looking for jobs before graduation should be counted in latest statistics. lisa: if you try to come up with an estimate for the latest economy come what did you use? you gain confidence if you do

not use competency? do you use on the ground measures or do you, like apple, they are moving more of their manufacturing out of china. do you accelerate that with the building there is a clamp down and something that is not transparent and not available for the projections that necessary for an open business? jonathan: growth in u.s. -- data better than expected. is there such a thing as too much of a good thing? lisa: people were gaming out 5% gdp for the third quarter alone based on the retail sales. i was a good night jason furman who had estimates to that degree. -- i was looking at jason furman who had estimates to that degree. that said, there are people saying the money will run out but they're missing that for how many months? jonathan: months and months but it is not happen. lisa: people are going to have

to run out of cash, i assume, but balance sheets are good. student loans are coming due. these are some of the offsets people are pointing to that could keep assumption going. it comes down to labor market. everyone says unless the market breaks, this is how it will be. jonathan: the me let -- here's a price action on the s&p 500. just about unchanged come going nowhere. for four consecutive days, yields climbing on the 10 year. this morning down about 30. -- 3. lisa: target comes out in about half an hour. t.j. maxx at 7:30 a.m., curious to see whether they represent the positive gains we have heard yesterday to the data. so far retelling sector up 30%

year to date in terms of s&p far above what other people are seeing. this is been a place of strength. 8:30 a.m. building permits and housing starts. how long can we see this kind of upward momentum given homebuilder sentiment did fall off a bit yesterday? the shares are up 47% year-to-date. jonathan: going back to last summer, it is better than that. lisa: fed minutes, 2:00 p.m., they are coming out. i did calculations. since july 20 6, 10 year yield up more than 30 basis points. it has been focus on the long and at a time where there are suddenly more distant on the fed. jonathan: adjusting to see the two year reach 5% for a moment off of the retails -- it is interesting to see the two-year reach 5% moment off of the retail sales yesterday.

let's see if we see that theme in a minute. market conversations started with the investment director at invesco solutions. it is fantastic to catch up with you. underweight bond, overweight equities. what we through the overweight on the stocks. >> i think the premise behind the overweight equities, not that it is without risk, it is on the basis that inflationary pressures can continue to moderate and is that these into both supporting consumer spending power and grants the central banks federal reserve flexibility to stay up on interest rates, sees hiking, i think that is mixed resilient growth, moderating inflation, less noxious policy. that can continue to support equity markets to year end. jonathan: some people believe to

get inflation back to target, growth has to take a hit. ben: i think if you look at some of the key components to inflation, you look at good elements and we often refer to used car prices, look at supply change index, the fractures within supply change, that these into the idea inflation can moderate and you look at shelter component and lease measures such as levels of rent and again that suggests inflation k continue to moderate into year end. inflation forecasting what is happening in labor market and wages well undermine that view and energy markets as well but on balance there is enough of what we see in shelter and this prices to support -- goods

prices the see inflation move lower. lisa: where are you underweight bonds? ben: we believe equities are the go to asset class. it has to come from somewhere. bonds is a natural source of funding. within that, there is a risk that growth disappoints and maybe we get inflation risk committee lectionary risk. if you get deflationary shocks and equities get punished, we wan to have duration in that underweight component. the portfolio management nuance in that. what direction hedge against the underweight equities. lisa: i'm looking right now at the year-to-date returns and month to date returns. nasdaq leading down about 5% this month. is it a buying opportunity? is it a policy? is a reallocation

within the market come under the hood to different areas? ben: on balance, you would say it is a buying opportunity. the could be a more attractive buying opportunity in the coming days, months, but on the 12 month view we think 6-12 months that inflationary pressures can moderate and growth can be resilient. then these parts of the market would perform in that environment. not one for one between bond yields and loosely defined tech stocks but there is something to it. on the basis that biden might move lower the back of lower inflation, -- yields might move lower on the back of inflation. jonathan: look at credit, barely notice. 375 high yields spread. lisa: you get both sides of everything and the companies

have turned out the obligation so it looks like it is pretty good. jonathan: there's believe they will reduce interest rates before we get there. can you take comfort in that? lisa: me personally, i'm going to worry about everything and suggest how baptist have to get for the fed to cut rates and what does that mean for the credit component of some of the companies, maturity wall is further out but if things deteriorate before then, then maybe people will demand higher premium. jonathan: there is something always to worry about. this is the maturity wall out there in 2025, we know high-yield companies and markets will start think about it to. there is this believe that the federal reserve starts to cut interest rates in middle next year. we have seen posse start to shift, pricing a policy start to shift in a hawkish section, when do you think there is a less probable way of looking at

high-yield credit and ability some firms to finance next year with the idea being the fed will hold for longer than may be something? ben: i'm afraid you cannot strong army and to position of great anxiety. i will be of the mind that many of these businesses have done a good job in terming out their financial position, many debt obligations are not going to be so onerous is moving forward and as we get into 2024, i think when you think about mild recession type environments, inflation continuing to moderate, maybe they can at that stage next summer be something of a move lower on interest rates which would give markets and businesses some ease about the impending refinancing challenges that might lie ahead. lisa: what is your may potential risk?

what is your sense of what could be out there that can make you reassess? ben: the disinflation narrative reversing -- heaven forbid we have every player 2022 surprises to the upside -- we have a replay of 2022 and inflation surprises to the upside, that would be bad news for our strategy, for positioning and unfortunately, we are seeing signs of reviving inflation in commodity markets, wage labor market stay strong. even falling inflation is self giving about it own demise and supports demand and deter your acceleration come good prices were in longer and a bond markets move higher so that is

not and it's a vacant risk to the core view. -- is significant -- insignificant risk to the core view. jonathan: i was sure this quote with you. you to believe a period of below potential growth is necessary to call inflation or you do not. giving tailwinds from housing, motor vehicle, and resource consumption, u.s. economy is nowhere near below potential growth situation. he is concerned the fed is embracing the soft landing story to song. -- to sono. lisa: you mentioned neil and i was looking at his actual comes yesterday, he said i want to see convincing evidence inflation is on his way back to 2%. we could allow it to gradually get there over time, how gradually? what it matter how long cackle at what point does

it become embedded and these are the questions and goes to note at this point. jonathan: three days of talking about this, nonstop. tk sticky it was a bit of a break. hopefully, he'll be back for the weekend and into the next week to . coming up, on equity market created 20 minutes we get numbers from target just another flavor of what is happening in retail in america. ahead of walmart tomorrow. live from new york city, good morning. ♪ the first time you connected your godaddy website and your store was also the first time you realized... well, we can do anything. cheesecake cookies? the chookie! manage all your sales from one place with a partner that always puts you first. (we did it) start today at godaddy.com

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they're not saying get rid of david. the questions you're asking, is the immediate impact your performance, i would say no, having said that david has to earn his job every day and so i could go back in three months and meet up again to get the job done. jonathan: there was mike mayo speaking earlier this week on the future of goldman sachs eeo david solomon. fresh reporting this morning from the team this morning on the future of goldman sachs eeo and his possible successor. rising the following, as bitterness festers in the ranks, be impressed by colleagues to pick a side. risk being seen as an affable clone of the ceo. joining us now. the pressure this guy is under to pick a side, has he picked a

side? >> know, there's no outward indication he is breaking ranks of the ceo. it is clear as he does his listening tour he is listening to the frustration and acknowledging their frustration. the challenge is he is in a difficult spot. john waldron when he started was with david solomon in early 90's for the last 30 years he has climbed the wall street ladder right behind david solomon. now you have a situation where it is clear he was the presumptive ceo in waiting. he's the sole president of goldman sachs. if you were to ask anyone two years ago, john watch it was the most likely one, obvious one. it is not a that obvious anymore in the middle of everything we are seeing and a we hear inside goldman. jonathan: you mentioned this

this morning, how did you avoid being gary cohn? stuart kaiser it is a risk in corporate history -- anyone who has been a longtime number two and unfortunately runs a risk of always being seen as a deputy come at the same time melissa get with the criticisms are of david solomon are, it is not ceo from -- it is not at all the case. the core investment bank is done well. they have successes and therefore if you have to think john waldron is in strategy, it is not a problem. the criticisms about david solomon's personality criticism which have a major bearing but you did not hear the same thing about john waldron. seems to be more real like across the firm. lisa: you put it a recruiter say some people would choose loyalty over ambition but i'm think many people would choose ambition over loyalty.

i'm curious, what it means to have loyalty? how split is the firm? how much has david solomon lost the room? >> think about it like how sputum caucus. it might not be the majority, might not be majority of the group but it is a loud, vocal group that is influence across and the -- if you look across the ranks of the top 20 partners at the firm, not many of them will openly tell you they are completely with david solomon. there is clearly schism there and that is the challenge. lisa: mike mayo came on the suggested part of this disgruntled for a link within the ranks has to do with the fact that vestment bankers were not paid as well last year even though they were leading the firm in profit. does that ring

true to you? sri: constant criticism we heard about the media was will sponsoring goldman executives, all they care about is money but last week there was a magazine story about what is happening inside goldman sachs and the spokesperson of the firm mostly the one lashing out at the partnership saying they are all complaining because they are upset or that was the undertone of what he said. that is not something you share and i'm sure the partnership of the people who are upset will tell you it is not all about that. there was say it is not about that at all but the fact is yes, they're having strategy missteps. the market did turn and it bit into profits and it took a bite out of pay. jonathan: if no one likes this guy internally, how did he get the top job in the first place? sri: remember when lloyd was

stepping down, he had set up a proper succession. two racehorse -- at that time the assumption was it is always likely going to be harvey schwartz. everyone automatically assumed it was going to be harvey. lloyd and the board -- davis element was a surprise pick and he had had business success. -- david was a surprise pick and yet had a success. when he was named ceo it is not as if there was disappointment but the last five years, especially through the pandemic and as the markets have turned after that, it is clear the image about david solomon has been etched in stone and it is going to be hard to turn that around. jonathan: if you are running the bank i imagine you are concerned about how your clients.

do investors care? sri: clients and the board. we have no indication that the board is out there saying what should we do about david solomon. we also note goldman sachs had comments from lead independent director say to his staff saying he is happy with staff performance and think it is that well so they have tried to signal that the board is behind david solomon. the question of clients gets riskier. we've had conversations with corporate ceos, private equity firms where they are increasingly asking questions about what is the mood about david solomon. they tell us their meetings with the goldman sachs people spent in what is happening inside goldman sachs and then moves on to more important constructive things they are therefore. there is some concern among

clients. if that grows, it is when you see a problem. there is no indication there is a real problem to david solomon's position as ceo. there is griping and dissatisfaction. that is not necessarily translate into david solomon not being the ceo. lisa: i was wondering how are the banks doing. we have seen yields go up. they are posted do better but debited -- they're supposed to go up, but they have done poorly. think america stocks are down a similar amount. jp morgan down 4.5%. jonathan: they've outperformed the sector, haven't they come under his 10 -- tenure? sri: goldman sachs has been well relative to peers.

behind morgan stanley this goldman sachs. jeffries bank has done better than goldman sachs back to that goldman sachs and jp morgan than the rest but the last two years, the stock has been stagnant. growth has been -- earnings has grown driven by the part of the form government management was not keen. they want us to look at consumer banking, asset management hoping to get a higher multiple. investors have not rewarded them for that and it is important because a key pillar of solomon strategy was to make sure this stock gets re-rated. the stec advanced tied to the growth in earnings from the part of the goldman sachs that is good at what it does from what makes goldman goldman, is a bank as a trader. jonathan: this speaks with mike mayo said, traders who felt like

they have not been rewarded for how they have executed. the more i walk away feeling like this is deeply personal and not strategic. sri: there is a strategy of to it and a place like goldman sachs will be point out, it is a firm -- their mistakes are magnified. jonathan: i feel the same way about red pens. lisa: i'm not superstitious. jonathan: do not use red pens. it is what teachers do. lisa: is a trauma from grade school? jonathan: i would not call it trauma. this is a bloomberg. ♪ ny is eligible. [whip sound] take the first step to see if your small business qualifies.

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jonathan: on the s&p 500, and. the story of the week. the s&p 500 slightly negative the last couple of days. the leak is still young but points for a third week of losses on the s&p 500. if we did close here, three weeks of losses would be the -- that paints a picture of how good 2023 has been. lisa: it has been led by the

tech shares. i was looking at what is leading the declines and it is the tech names. it is the froth built into the market the first half of the year being taken off and we keep hearing buying opportunity from a growing number of people trying to take advantage. jonathan: into the bond market, 10 year yield at a new high for the year at yesterday session, the new high short of 427. on the two year, had a snap of 5% them backed away -- sniff of 5% them backed away quickly. the 10 year down to 4.179, down about four basis points on the u.s. 10 year. i will return to the fx market. i know it is only wednesday but if we close here, five weeks of losses on the euro.

euro slightly stronger. we're positive by 0.1%. that talk about the earning so far this week. we've had numbers about home depot. target right now. the headline on target you need to know, they have cut the outlook for eps, new range is seven dollars to eight dollars. they had seen previously 7.752 8.75. -- 7.75 to 8.75. lisa: is going -- if they cut the full adjusted earnings, but they did talk about same-day services, growing about 4% led by 7% growth. there talking digital comparable shares. i'm curious to see if this is another kitchen sink, can they do that? jonathan: can you buy kitchen

sinks at target? you can buy everything else. target right now up about 5%. walmart coming tomorrow. your top story china authorities asking some investment firms to avoid being net sellers of equities as the markets drive lower. houses were told to reframe for a date from selling more on share then they purchase. they're not selling but they are trying to make sure people do not sell too much. lisa: at what point does this scare away foreign investors. there is a tension where authorities in china trying to lower back businesses that have been skittish because of increase mind they have been taken. if you do not have confidence of where they are going to allow share selling, how do you operate a business that is similar to how you do in the

rest of the world? jonathan: it is something similar 2016. i would ask, does it work? lisa: the issue is work in what way because does it work for market sentiment, no, does it work for at least not perpetuating bad news among population, maybe. is it targeted for a domestic assumption? versus international one that may be has less import at the time they are trying to triage given the numbers they have put out? jonathan: latest on china. the equity market down for four days about 4%. the account of latest policy meeting likely to show -- i think a lot of people are on that page. some pushing back saying the work is not done. they have been -- i'm picking on john williams just embracing engaging this conversation -- i

am thinking of john williams just embracing this conversation. once you start engaging in that conversation, are you sending a signal? lisa: they are sending a signal and the market is not getting get. they're getting the opposite one which perhaps the fed will be blind to persistent inflation that remains hot. there is this feeling that there is patience on the fed to wait. they can take a look at data as it comes in and can sit to september and even november and watch it percolate out -- without fear of policy error. does anyone push against that? is anyone saying no, now is the time to act if you believe inflation cannot come down unless there is weakness in the economy -- preeminent weakn ess in the economy. jonathan: are you trying to

scare me about bears? lisa: -- they do not want to hurt you. it on what kinds. they are fed officials. jonathan: you are to excited about this. like a child. going a vacation. the death toll from maui topping 100. only five victims have been identified. the cause of the fire is still under investigation but possibly power equipment the source. the stock hammered the last couple of days. lisa: it is such a tragedy and there are reports of people on the alan asked to provide dna samples to identify more people

-- island asked to provide dna samples to identify more people. the question of what this means for insurance policies, what this means for businesses that are going to operate in this high risk environments. you think about the floods, fires, hurricanes, you start big about insurance policies can a revote in, florida, and not have to worry about what is going to happen in these -- you start thinking about insurance policies in florida, getting revoked. jonathan: we have seen the growth figure, reckitt racial trope -- the record rachel growth, there is this belief that maybe think of them they need to go further, meet people from the outside looking in, including people on the inside focus on what is going to happen

to the housing market. can you run us through with the effective rate as of the average mortgage right now? in u.k. and how painful it is going to be the next 12 months as it climbs higher? >> that is a key issue for the u.k. economy and for the bank of england and i think the debate how long interest rates are going to stay higher for and mortgage rates, new mortgage rates up about 6% but given that most people now in u.k. our own longer-term fixes were previously more variable rate mortgages. that is feeding through slowly. we think probably around two thirds of those without -- with ossining -- outstanding mortgages have not refinanced since. it is clear more people will need to finance at higher rates than they have currently and it is bound to have indications for

the housing market. we think there is a third of 5% or so to go so which will have -- it should ultimately help to bring inflation down. lisa: 10% decline sounds like a lot and it is a lot for many people but i am surprised how tame it is relative about 30% decline in u.s. if you look at the price people paid relative to their income and how much it has gone out given the fact that cpi came in hot again, does it mean the bank of england has more room to hold rates higher even raise them higher than you thought without causing incredible amount of pain among populations? jennifer: i think it is quite a lot of pain even with wage growth as high as it is. inflation still higher and people are feeling the strain.

you can see that in consumer spending figures. the bank i think we need to hold rates high for longer than expected. the fed too. we think is more rate hike to come as u.k. and we think rates will probably going to stay at these levels for about one year. the bank of england has made clear it expects rates to stay higher for longer particularly stemming from the labor market. you know that the main issue has been the drop in labor supply which is made labor market tight suggesting some of the rage pressure will process. -- wage pressure will persist. before ultimately a recession brings inflation down and allows the bank to start cutting properly late next year. lisa: a highly said the beta who have been having for months now which is are we witnessing

longer variable lags or is this showing that rate hikes do not have the same effects as people expected them to on both grote and inflation. jennifer: i think a lot of it is about longer like and -- longer lag. to some extent, that these into less of an impact if it takes two years to see the impact of monetary policy tightening to start to hit real people then it may be by the time people need to refinance event rates are coming down again so i think the longer it lacked can also mean slightly less of an impact than we have experienced in the past, really remains to be seen how damaging the tightening cycle will be. what is clear is there is more pain to come even if rates are already at peak. jonathan: the base case in this country has shifted to a more favorable outlook. there is a belief that perhaps

you can engineer a so-called soft landing, get inflation back towards 2% without a recession. is the base case in u.s. they would need a recession to get cpi -- is the base case in the u.k., they would need a recession to get cpi back? jennifer: we agree with the view on the u.s. it is clear that the underlying core rates of inflation are coming down much less evidence of that in the u.k. as we saw in inflation figures. it is the case that u.k. has lagged by the u.s. and the same goes for the euro zone. we can take some reassurance from what is happening in u.s. but i think the situation in labor market, both u.k. and eurozone, a bit different. this continued tightness in labor supply which is very much a feature in u.k. is not the situation in u.s. where labor

supply is now considerably higher than it was during the pandemic. that suggests wage growth is going to need to be more action to bring wage growth down then there is from the fed to allow continuation of easing we are seeing in labor market. jonathan: what is constraining labor supply in united kingdom? jennifer: it seems to be long-term sickness perhaps related to long nhs waiting list which backed up during the pandemic so it is not just migration situation. some have depended on brexit but i think it is more about long-term sickness. until nhs waiting list come down it will continue to be a feature. jonathan: that is dark. jennifer, thank you. another example of working through post-pandemic normalization in u.k. it is

taken a wow. -- a while. lisa: dark is the right way to describe it if that is the main constraint and how much is that constraining labor around the world? i was looking through targets trying to understand why the shares are up and why since they have a negative outlook for the rest of the year, they had a stronger profit so maybe that is enough to avoid the worst case scenario. jonathan: bouncing back come apparently. we'll see if the move sticks. coming up shortly, ceo of hong kong exchanges coming up next from new york, this is bloomberg. ♪

>> we have been calling a shift made from china to buy china.

i think they will assume strategies to help the company sell their products globally. they'll be the quid pro quo. i have not -- i have a lack of faith even if the chinese companies do well. i'm way china would do things over time to her to foreign investors as they see fit. jonathan: that is the perspective -- it is fantastic to get his view on things on what is developing internationally. equity futures are just about positive but basically unchanged. 4.17 on the 10 year yield. the move we have seen has been pretty fast and much higher on the 10 year. lisa: a games out the idea of rates higher for longer but also the premium place on u.s. debt with increasing number of

investors to be pulling back on the margins and i think the sovereign investors whether it is saudi arabia or china. jonathan: let's talk china and hong kong. hong kong stock exchange missing profit estimates for the second quarter much luggage trading, slow pace of initial public offering raising questions about the future. joining us now is nicolas aguzin . it is wonderful to catch up with you. i have a pointed question for you. are you expecting the government to lower -- to boost trading? >> it is good to be here. you think we are most excited about is what we have been doing and making our market more accessible, lower costs. we cannot manage -- but we have been doing as we lowered the trading care of and for a lot of

our participants and what we see is the market is very vibrant on the derivatives side and a softer on the cash side. we are up 31% on a net income basis. jonathan: have you spoken to relevant authorities on the issue? nicolas: we are constantly talking to our policymakers about how to improve our markets , how to make sure we make it more vibrant, that decision is something they do themselves and they take into account the different factors in terms of the benefits, pros, cons, etc.. jonathan: if we could answer it you've had the conversation and whether you think it will make a difference? is that conversation taking place? nicolas: yeah.

we are not currently engaging in conversation. lisa: there's a larger question as you talk to clients and emphasize what you are doing, do you get questions around where you are not going to be able to control in terms of what authorities are going to do, whether it is limiting how much you can sell versus buy, or what kind of forget market parameters were put around share trading. nicolas: hong kong is a very international market. there is no restriction in the flow of capital. we are exposed to all activities that happen around the world and therefore, it is the same as most markets around the world. free flow of capital, access information, free access information, and we want to make sure we continue connecting east and west. that is our core objective and what we have been doing. lisa: how much are you seeing

companies and investment banks shipped to singapore which is something we hear about as alternatives to hong kong as it gets more connected to mainland china? nicolas: i do think during the covid period it was a challenging period for hong kong . at this point, i am not seeing a lot of that. on the contrary, i do see a lot of people that are returning with a new availability and being able to move around. we are seeing lots of this come in and more people come into hong kong, international bankers to seek here, financial companies, we are seeing this is a much more vibrant environment compared to the last two years. lisa: 10 years ago, international bankers who came to hong kong were from u.s., u.k., has the demographic shift

it? are you seeing more from other places that are outside of the main european and u.s. markets? nicolas: we are seeing people come from all over the world. i gave an example last year. we hired rc for fl -- we hired our cfo from brazil. people are coming from southeast asia, the americas, europe and so, the demographic continues to be very international. people come well over the world. jonathan: i want to ask another question if it is ok. we are reporting chinese authorities have asked some investment firms to avoid be a net seller of equities. are you familiar with the request? nicolas: i am not aware of any of that essentially our role is

to have robust transparent market in hong kong you can come in hedge exposure whether it is buying, selling, totally free market and totally available for investors to hedge their exposures whether it is short or so. jonathan: do you think those decisions undermine transparency? nicolas: again, i am focusing in our own market so our own market are very transparent, very liquid, and right now, our focus is to allow the markets to determine the prices. jonathan: does a first-rate shoe in many cases your home market is completed by what happens -- does it frustrate you your home market is complicated by what happens on the mainland? nicolas: our market is affected by geopolitics, it is affected by the global microenvironment. we have been trying to make sure

we provide even more tools for investors to hedge some of those positions they may have and it is why you see are of this business -- derivatives business had a record number, we traded 1.4 million riveters per day so the role we have is you want to be risk management center. for those people who want to invest in china, also for people from china who to invest around the world, and we think we perform an amazing service doing that. jonathan: there is a believe at the moment investing in china becoming more difficult because of lack of transparency. we have talked about youth unemployment rate and no longer being published. there are official reasons for that and there are reasons majority of people believe it is high and they did not want to report it anymore. this undermine the volume coming from your exchange?

nicolas: i think the world is massively under invested in china. similarly china is under invested in the world so what we see over time even though we may go's in some period's there are those, over time we will see more investments come into china because china represents 18% of the global gdp and we look at international funds, it is only about 1% to 2%, -- i do not think it is sustainable over time. what we see ebbs and flows macro situations and geopolitics by a factor bet on long-term and growth of opportunities, that is a massive opportunity so you may see part goes were volume goes down -- periods for volume goes up and down but at this time, if

i have to guess with the best think is a focus on medium-term, long-term and on long-term i do not have any doubt. jonathan: we appreciate the update. in a difficult position at the moment giving what is developing elsewhere. lisa: especially because there is a lot out of his control and people are saying about the dynamic that is causing an increasing number of businesses to at least raise questions where some of the investment banks in u.s. reduce their presence. the fact that it is not the mainland and yet clearly the increasing ties challenge that proposition. jonathan: your stock market this morning, it welcomes news. -- a welcome snooze. equities going nowhere on the s&p 500.

10 year 4.1797. from new york, this morning, good morning. ♪

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>> there is enough support from the labor market to come -- to keep the u.s. from rolling over. >> things are more expensive. >> this is "bloomberg

surveillance" with jonathan ferro, tom keene, and lisa abramowicz. jonathan: good morning to you all. alongside lisa abramowicz, i am jonathan ferro. eventually we see some weakness in the u.s. consumer. lisa: this seems to be the mantra and increasing there is a new feeling in markets that eventually is going to come unless there is a break in the labor market. that is the tension you feel in the bond market. jonathan: earnings season, are we starting to see signs of it? are we starting to see signs that may be the domestic demand is starting to tail off? lisa: it depends where you look. you look at coca-cola and pepsi and clearly people are willing to pay. other places, not so much.

at what point few people allocating---- allocating cash? jonathan: i know people who drink diet coke for breakfast. gross. lisa: are you trolling somebody who is watching right now. jonathan: maybe. lisa: you do you. jonathan: let's get to the price action on s&p 500. equities unchanged. yields down by three basis points on a 10 year. a new high for the year on a 10 year yield. the new high is about 427. lisa: we did get earnings from target and we are trying to understand the roof which is up. they did have a surprise profit even though they did see sales decline. t.j. maxx at 7:30 a.m. we get cisco on the tech side.

8:30 a.m., retailers, how long do they have pricing power? builders come how long can they keep building homes and selling them for higher prices? how much does sentiment fall off given that stocks are up 46% or 47% this year? at 2:00 p.m., the fed minutes come out and i am curious if there is comfort with this thing of waiting, whether we get more dissent among fed officials. this has to cause angst at a time when there is a belief or used to be a belief that back in the day, the lock inflation remained high, it would become embedded? jonathan: they are very good about covering it up every time there is a meeting. there is an obvious split. the new york fed person is -- he

is trying to say we want we don't want policy to tighten as assertions fall. when you embrace the soft landing, that is a different view than 12 months ago. lisa: which is why people are trying to game out if if is what you be higher. do we see that pushback percolate out more next week? it feels like maybe because at a certain point you cannot sit and wait. you get behind the times, just to get ahead. jonathan: joining us here in the studio, stuart kaiser. how long can goldilocks last? hsb was asking that question moments ago. they say disinflation is stronger than expected growth and many dm's opt for avis constance. -- for a risk on stance. stuart: that is a good backdrop

for rick scott assets. the issue we are having now is expectations. if you look at what happened over the last month, you had a solid earnings season but the average stock was unchanged on the day. you had a solid payrolls report, the market traded off. the market was flat. there is a lot of good news but he market has become calloused. jonathan: michael talk about this over at bfa. was a positioning and -- for risk assets in the second have. the fund manager survey. lisa: cash allocations coming down. put it into risk, why not? you might as well get the upside surprise if the economy is strong. jonathan: there was that pool of negativity feed on to drive tech higher after a brutal year in 2022.

are you sticking with that trade? stuart: it is a tough call. we still like tech and growth, we think that can work. we expect the labor market data to begin to weaken. last month has been tough for that trade, particularly because yields have driven -- yields have risen and that is impacted tech. also this expectation story. if your word about high expectations, that is acute in the tech space. you are fighting expectations and performance and higher yields. you think the economy can weekend and that puts a cap one yields, tech is a place you want to be. the past month has been a tough ride for us. lisa: can we talk about---- about cash on the sidelines? people say there is much cash on the sidelines. cash is great for people if they are earning 5%. at what point can we say cash on the sidelines is used up?

stuart: if you look at retail or money market balance is, those are up since last year. your clipping clipping a 5% coupon on that and not all of that will go into--. a lot of that comes out of traditional big accounts and not money market accounts. to release that money, what has to happen? you either need to get yields lower so that 5% is not as attractive or have equities perform as they are and you get a formal situation -- get a fomo situation. it is hard to dislodge that money. lisa: that what pointed do losses become self-fulfilling? at what point do losses spur a goldilocks and fomo feel? stuart: if equities start to move lower, that is going to dense sentiment. the s&p is not that far off of its high. last year in a high volatility

environment, the moves we have seen would not really register. july with the lowest realized volatility month since the summer to 19. -- since december 2019. one of the things we were worried about is a lot of folks were very defensive and hedging earlier in the year. that hedging did not work out. it cost a lot of money. the market is probably less hedged today than it was three months ago. if we do get some losses, the market is going to be more surprised by it were more disrupted by it. jonathan: let's finish where the negativity is now, in china. everybody who comes on this show is the downbeat by what is happening in the country. the data is bad. you will not see much on the youth employment site. the data physically led to a policy response by the central bank for the most policy cuts since 2020. this is typically the time to been in to chinese equities,

when people are downbeat is this that time? stuart: we are not there yet. we are cautious on china. two weeks ago, everyone was celebrating china exporting deflation. that ignored the flipside which is losing a global growth that close -- global growth impulse. i think this intimate issue is what is going to keep people out. for an investors, we are not happy with how they were treated by china. it is going to make money slow to reengage in that space. sentiment is hard to predict. the growth versus inflation trade-off has to do with what the market narrative is. two weeks it was a vision or, now it is growth narrative. we are being further cautious about putting money into china. the flows we have seen are more options based, high payout

stuff, limited risk. we have discussed this in the past, the evolution of the chinese trade has been fascinating and right now people are cautious. lisa: there is a question about whether or not to put money to work in chinese equities. there is another part of the readthrough effect for the u.s. for companies leveraged to china. i think about the fact that this wealth manager missed payments on several of its products. you are dealing with a housing market that does not see a light at the end of the tunnel. at what point does that have contagion that percolates outside of china? stuart: stage two or three of the china trade was i'm going to own europe and luxury goods. certainly those types of stocks would be under pressure given the lack of spending growth we are seeing in china. it is an impact. if you look at the foreign direct investment in china, it has come off.

the u.s. is not putting money in there for luxury goods. you could throw apple on that category. the domestic demand has been a headwind. it is a risk and i think that gets into this global growth narrative of when does the benefit on the efficient side it outweighed by the detriment on the growth side. lisa: -- jonathan: target is up by 8.5%. lisa: i don't get it. jonathan: if you told me the earnings before they came out and said guess what the stock price is going to do, i would say they have cut the outlook so that is not great. it would be like a second-quarter revote. lisa: this is where the expectations have been sent. those shares are down on the year. if they're not hemorrhaging money and throwing in negative news, i guess it is positive. jonathan: what can i move -- what can i learn from a move like that? stuart: you said target. if you said tar-gey, it would be

more terrible. -- it would be more understandable. lisa: they sell soap that goes on sinks, i can confirm that. jonathan: nice. good to see you. thank you, kind of. [laughter] stuart: every guest that comes on this show is like, thank you. jonathan: and i am kind of sorry. s&p 500 equities shipping up as follows. the bond market treasury yields post retail sales had a sniff at 430 again. backed away on a two year, reaching 5% for the first time since early july yields lower by a couple of basis points on the tenure, 4.18 in tenure. the equity market is negative on the s&p 500. coming up, we will checkup with joseph quinlan -- catch up with

joseph quinlan. at some point come sneaking in a little bit of football. messi, nine goals. do you have a subscription? you tempted to buy it because of what he is doing? stuart: no. jonathan: i thought about it. stuart: you treated the premier league schedule at all of the games on peacock. address me nuts. jonathan: it drives me nuts when i don't know where they are. that was like my public service announcement. lisa: don't people get bored if somebody is so dominant? isn't it an unfair fight? visited fair if there are rivalries? jonathan: yes and no. but it is fun watching one of the world's greatest players in the mls on sheet mode -- on sheet mode -- cheat mode.

the whole point of have big year was getting people like us to subscribe to mls and i am not ready. lisa: as a longtime watcher of football, isn't it highlighting the lack of competition outside of europe? i am being diplomatic. jonathan: that is changing. the saudis are making a push. if this country decides to flex its muscles with this sport into 2026, it could be huge. if it besides -- decides to flex its muscles. i would like to see more going into the world cup. hopefully we do. from new york, this is bloomberg. ♪

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we are hitting the lowest point in two years. at the same time, the pay for low-wage workers has grown at the fastest rate in two decades. wages are growing faster than inflation. that is bidenomics. jonathan: a bit of a pr talk on the one year anniversary of the inflation reduction act. janet yellen leading that effort in many ways. an op-ed in the wall street journal. " one year ago president biden signed the inflation reduction act into law. it pushes us forward into a net zero economy by 2050. over time, the inflation reduction act will drive down the cost of clean energy technologies which will boost their reduction and reduce emissions." lisa: is it a coincidence that president biden is in milwaukee? this is coming a week ahead of the republican campaign for the

primaries and the debate that will be held in milwaukee. you have to wonder. jonathan: they have been strategic about where these events take place. lisa: to send a lot of messages. jonathan: they have picked out politicians who have posted against this. lisa: people who were against this and benefited from it and people have felt the money in a positive way. they are try to go around. it feels like what you said. jonathan: i think you are on the money. annmarie hordern, our washington correspondent. it was something like two weeks. you are lucky, tk is not here. good for you for bringing that working -- that european work ethic. annmarie: it was under two weeks. jonathan: a week and a half? annmarie: 10 days.

jonathan: can we talk about where they choose to go to deliver these speeches? annmarie: absolutely. wisconsin yesterday, this is days ahead of the republican primary debate. we are good to have a flood of republicans going into their state, touching how they see the biden agenda working and how they feel it is not working in terms of the economy and advancing the economy forward. you just have the treasury secretary in nevada. these are key swing states democrats are looking at. the main issue the biden administration faces is that time after time, poll after poll, over half of americans don't think the economy is moving in the right direction and it is rising costs they are feeling. when it comes to the efficient reduction act which biden quipped he should have not called at that -- called it

that, less than 10% of americans even understand what it means. less than 3% understand. a majority do not understand what the tax rebates mean, how you can use them. they have a big pr problem and they realized that and they are trying to advance it today on the one year mark. also going to keep places like wisconsin, arizona, nevada to talk about it. lisa: when you talk to people in the administration, what is their frustration about getting their message across if people are focusing on price increases and a feeling the economy is not going in the right direction? annmarie: a lot of individuals talk about what happened with obamacare. the criticism was that president obama did not go out and sell this agenda. they are try to fix that with the biden administration. the rhetoric is not lending. when individuals are concerned

about basic needs, paying for groceries, those costs have risen, paying to pay for -- paying to put gasoline in your car, they don't want to hear about buying a brand-new ev and the tax rebate you can get for that. a lot of americans cannot afford an electric vehicle today. that is the mismatch, what people are feeling on the ground , especially outside the beltway, versus the rhetoric the administration is putting forward. lisa: this president has been one of the most union-friendly in history. the leader of the united auto workers is asking members to authorize him to call a strike as he negotiates with general motors and ford. what is the administration's view? when did they start cracking in terms of paying wage increases instead of celebrating them with workers gaining against

corporate profits they have lost out on? annmarie: i imagine this message from the uaw president is going to cause more consternation in the west wing that we have seen. we know the white house is concerned because jean sperling is going to be this liaison between the union and the white house as well as the big three auto companies to come to some form of consensus. biden is already vocally urging an agreement. you can see the white house is concerned about this. what you see from uaw is they are ready to have on the table that they want to get their workers to say yes. it does not mean they're going to strike, but you can have leverage you will walk out. tom is tough here -- time is tough here. we are in the middle of august where individuals will take vacations and subdue her is when

the deadline is. time is of the essence. when you see the white house, with a statement, they are concerned about this. there is a line that connect these stories. biden was to talk about electric vehicles. electrifying the grid is something that has caused anxiety with the uaw workers. jonathan: we are a week away from the first debate for presidential candidates in the republican party. how do you think this is going to play out on the debate stage? how do they get these unions on their side? annmarie: donald trump saw that window. he realizes the concern uaw workers have about electric vehicles and what they could leave behind when you see subsidies coming out from the federal government to help the ev industry. he bashed the biden administration and he is trying

to provide for the uaw workers. the union, although they endorsed biden, they have yet to say who they would endorse for president. every potential candidate, every candidate, stage in milwaukee is going to it to talk about this. jonathan: thank you and welcome back. it is good to see you. thank you. this op-ed from the treasury secretary is very interesting. i searched for the word inflation and it comes up 10 times. every time is when she just refers to the name of the bill, the efficient reduction act. the -- the inflation reduction act. the piece is not about inflation at all. lisa: this is like rubbing in because president biden said i should have named it something else. jonathan: and this article is not about inflation reduction. lisa: this bill was not about targeting inflation as much as investing in infrastructure.

even the president has admitted this. it could lead to some deficiencies, etc.. as they try to re-pitch this, how do they gain the upper hand at a time when there was a lot of pushback from opponents about the name and how it was getting through? jonathan: this is the rebrand effort. it must be frustrating you have to call it the efficient reduction act -- the inflation reduction act and not talk about inflation reduction. lisa: you are so dramatic this morning. -- jonathan: you are so diplomatic this morning. stuart: -- lisa: how do you dovetail your support for wage increases and at the same time talk about policies that union members feel are pretty antithetical to their

role? jonathan: i imagine the candidates next week will have a different definition of biden onyx -- bidenomics. lisa: and this will go back to the blue-collar anti-rust belt. donald trump, we saw those votes go away from the democratic party. at what point does that continue into a cycle where there is a different leader? jonathan: that first debate is a week away. good equity market is slightly negative on the s&p 500. the story of the month is what happened in the bond market, yields up and away, close to 4.20. up next, greg peters of pgim fixed income. ♪

jonathan: you know what the new hummel bragg is on wall street? -- humble bragg is on wall street? in mid-interview -- lisa: do you think that is what it is or how you took it. jonathan: i think that is the new way of establishing credibility. if you are at home, ask your financial advisor with the financial handle is. lisa: it makes certain people angry when they hear about what other people's mortgage rates are indicated that it might

alienate the client more than others. jonathan: i think it is a question of credibility. is it a to handle or a three? can they handle their own money? which i think is why tony slipped it in yesterday. i know you have a to handle, you have it written all over you. you are a to handle kind of person. tk, on the other hand. lisa: 11%. jonathan: equities on the s&p 500, equity futures on about negative. monday was decent, tuesday was worse. we are unchanged from the nasdaq, down about 0.06%. tame stuff in the equity market. nothing tame about the past month in the bond market. look at the 10 year, just south of 4.20 at 4.18. yesterday, just short of 4.27.

the intraday high for the cycle through four point 30 which is where the thirty-year is now. this is not backed away. yields are up. lisa: this is reversing what we saw earlier in the year. it is almost as if what happened with the banking sector disappeared. how much is this tied to fed policy and how much of this is tied to a feeling there needs to be a greater premium for the u.s. given the debt profile and the fact that there are a growing number of buyers diversifying away from the u.s.? i know this is angst that people have bedded down. jonathan: let's turn to for exchanges. -- foreign exchanges. the euro has a lot of exposure to is happening in china, 1.0918. sterling is stronger, down .25% for the dollar.

1.2737. wage growth, record highs, core inflation specifically looking pretty sticky. lisa: coming in hotter than expected. i was looking at data coming out and it showed prices down about 1% since november. at what point do think start breaking at a time when you have inflation hi, wage growth fueling it, and growth still hanging in there? this is the surprise for the bank of england. jonathan: they have to go again and again, longer than they had to. the top story is over in china, a chinese shadow bank has missed payments on dozens of products with no plans to make clients hold -- make clients whole. some of those property developers have been hammered by equity and debt. the equity market, a bit of a

struggle. lisa: do you remember where people thought the contagion in china could have ripple effects through the rest of the economy? dear remember where people were talking the housing bubble developing in china and it was a concern for global markets? suddenly it doesn't seem to matter. there is a risk of financial contagion that people are gaming out in china and the rest of the markets are shrugging it off. that is a fascinating isolation of the problems in china. can it last? jonathan: stuart kaiser said a couple of years ago you would welcome these developments. he thinks that is starting to turn. they are starting to lean into concerns of back growth. we are not seeing it in markets. mornings where you have this dreadful data out of china, we have not seen a bond market rally. over the last couple of months, if you put it, we have seen the opposite. crude's higher, treasures are the word and treasuries --

treasuries are lower. lisa: inventories are tight. this caused him to supply-demand fundamentals. at what point has china been isolated from global markets? at what point are people doing operation ostrich? jonathan: in china? lisa: i love that so i had to steal it. jonathan: you can write the check later. fed minutes at 2:00 p.m. here's a quote, let's see if this quote is in those minutes. "i want to see evidence that inflation is well down below 2%. i am not ready to say we are done but i am seeing positive signs." does he get a big stage in fed minutes later? lisa: he is saying everything we are hearing from chair fed powell -- fed chair powell is that there are positive signs but we are willing to wait. how long can they have patients? at what point are the moves in treasuries highlighting the fact

that people are worried about prolonged inflation? even a nod to a dovish pause. jonathan: target or tar-jay? they cut their outlook on the year, but that is driving the stock. targets up by 8%. i know you were looking at t.j. maxx. what jumps out to give? lisa: they raised their forecast , seeing same-store sales up 6%. the rays of the for your guidance highlights in contrast with target, it seems to justify the popular seeing with shares of 4.3%. t.j. maxx caters to people who are looking for discounts for deals. are we going to cure commentary talking about people trading down, looking for deals?

or is this a sign of the resident consumer continuing to go and spent? jonathan: greg peters a pgim trans is now -- greg peters of pgim joins us now. we have got perspective from different people, what is behind this bond market move? greg: i was listening before you came over to me and i have a very different narrative than the one you were just talking about. i think it is about growth. the fed has raised interest rates, inflation is coming under control. are they done? . . i don't know. there is probably some room left to move higher. this underlying growth element has driven the bond market in my estimation as it is about the shape of the curve. if you believe inflation is going to remain politically high , the economy is strong and

stable, the curve has to start to normalize. backend rates have to move higher as a consequence. to me it is about re-strengthen -- it is about the strength and economic activity and inflation remains above trend but it is the growth story. lisa: if you look at that implication, there is a broader market consequences. it means the yield curve is normalizing up, not down to 3%. that means we could have higher rates for longer at a time when this economy can keep chugging along despite rates where they are. can the credit markets sustain a 5% or 4.5% long-term base treasury yield? does that wreck some of the math behind the credit bet? greg: yes and no. i think the economy can handle higher interest rates. i think that is the mistake many investors have made, the

underlying strength in the economy and the ability to handle higher rates you are seeing vis-a-vis the consumer. there have been so many capital structures, whether it is in commercial real estate were in credit that have been built on the backs of extremely low interest rates. as interest rates remain at the higher level, a lot of those capital structures really cannot withstand that environment. as a consequence, i think we are in this stronger growth environment. at the same time, we will see above trend default and distress activity as a lot of these companies are unable to be a going concern with the high rate environment. lisa: one thing we keep hearing is investors leading into duration because you might as well lock in yields. 4.2% for 10 years looks good

relative to what you use to get. are you saying there is more normalization to be had if we are going to create a more flat were normalized yield curve? greg: yes, and that is what we have been saying and i have been arguing that the past six months. it is too early to lock in duration. if you believe the economy is entering a soft landing or no landing, that means rates have to move higher, not lower. the fed might modulate a little on the margin, take rates down, but not as much in the price. rates are higher, i don't see a rush to lock in duration. we are leaning against that and have been winning against that for some time. we are short duration. it is growth. jonathan: i assume you take the

position not because we are 10 to 20 basis points higher than we are? what kind of numbers do you think we can get to? greg: i don't know, there has been a big move already. the tendency will be for higher rates, not lower rates. we have been talking about this range of four to 4.5, but it is leaning against what is in the price. what is in the price in the forward space, continued rate cuts and a lower yield environment. that is what we are many against rather than making the call on what rates settle out. there is a tendency for ways to be higher that i think most investors are missing. the machine we were in pre-pandemic is gone. it is different and i think the rate regime is different as a consequence. i don't think investors have accepted that or accepted the reality that the fed also can

easily and readily cut rates like they did in the past. jonathan: what i hear is another way of saying away about the front end? greg: to a degree. i think cash rates are attractive here. that is inducing investors to take rates off of the table and not lean into it on the credit side of the aisle. there is tremendous opportunity across the global credit market. a lot of that opportunity is in allocation. whether it is front end type of credit, structured products, these are safe bets where you earn a truism out of carrie and you don't have to dip down into triple c or take credit risk. take what the markets are giving you. what the market is giving you is really quite attractive. we are externally bullish on the u.s. economy on a long-term basis. we are bullish on fixed income

as well. you don't have to take a lot of risk in order to be successful. that is the important message i want to live with. jonathan: thank you. if you are just joining us, good morning and welcome. s&p 500 is positive by 0.02%. we turn to retail and a moment. we will catch up with dana. lisa, we have heard from a few guests, blackrock's rick reed made the point greg peters made, those conversations, more and more people are having them. they listens to advisers, bodily front end,--is not trash anymore -- cash is not trash anymore. now they are trained to work out whether they should go for that on the curve and luck this in because people are starting to discuss rate cuts. greg peters takei aside in an

effective way. lisa: and implying that the market is coming around to his view. there are people thinking in the same way he is, maybe this isn't going away so quickly. if everyone is going long duration, why aren't yields going down? if everyone is saying this is any opportunity to buy, why aren't we seeing in the price action? that raises the question that what people are getting bored -- getting on board with high rates? jonathan: a lot of people are buying target. the stock is up 7.7%. dana telsey on dachshund this week. walmart coming up this -- coming up tomorrow. a wrap on all of that. coming up next on bloomberg, good morning. ♪

>> inflation is coming down, we have made progress. i feel good about that.

it is still too high. the good news is the labor market has remained very strong. it is a little bit of a double edged sword. are we done raising rates? i am not ready to say we are done. in terms of cutting rates, we are a long way away because core inflation is around 4%, twice of what our target is. jonathan: neel kashkari of the minneapolis fed. i am tempted not to say this, but the england women's team in the world cup, 3-1 against the australians, minutes away from completing their semi final and going to the final two place bank. lisa: i expect half of our audience is watching this game instead. jonathan: we are in the 90th minute and it is 3-1. we will see. i am not watching it, i am just looking at this course. i am doing my job. tk actually watches videos. lisa: you have standards. jonathan: i am just watching the

live score. dana telsey joins us now. great to have you any program. target is beating the lowballer because the stock is running hard. how the was that bar and how much clarity have you got about what is going on? dana: we'll have more clarity when they do the earnings call, but the change is the fact that the inventory levels continue to remain clean. when you look at the gross margin, it was better than expected. shrink continues to be an issue but it is all about essentials which is frankly much stronger than what you had with discretionary. it is a world of difference because you had t.j. maxx report better than expected numbers, talking about the strength in apparel and accessories. if you have essentials, that is what is selling. off-price is where the action is. lisa: before we get into the retail trends, i would love your

thoughts on more of what we are hearing with the social pushback and consequence on sales. if you look at target's earnings, they said last quarter profits took a hit as a result of controversy around pride month collections of items. we also heard this from anheuser-busch. how much is this becoming a theme? how much is this a potential threat for retailers that had not dealt with this kind of thing before? dana: we have seen it happen to multiple different categories of companies selling consumer goods. i think the care and concern about how you navigate this landscape is something new for all of the retailers. i think it is only going to continue to become more of a topic going forward. you can see these consumer companies even more mindful about what stance they take about particular issues. lisa: when you talk about off-price retailers really benefiting at a time when people

are being more discretionary, is that a negative sign for the luxury players? or is there plenty of money to go around? dana: luxury players are in a world of their own. they have a high end consumer who is less deceptive to being careful about their spent. there are magnitudes of luxury and aspirational goods depending on the price point. the comparisons year-over-year are challenging in luxury. while many of them, even european luxury goods companies are lower year-over-year, when you compare to 2019, they continue to be up. i think every level of consumer spend overall, we have seen a moderation. where we are seeing the allocation, it seems like one of the only places in discretionary. it -- if it is any of the events like taylor swift or "barbie"

where people are buying new items to wear to those events. jonathan: just to touch on luxury, different regions are performing better than others. in america, it has been disappointing. china allowed a tours to u.k. and united states. some people believe that my make a difference. i want your opinion on that. does the movie dial? -- that move the dial? dana: i think it is going to show an increase, i think it will help to drive demand. you need more than tourist groups to drive the needle but it should help the decline we have seen from those luxury players in the americas. jonathan: the theme i have tried to work on and i have not had much clarity, a year or two years ago we would see a lot of people embracing buy now pay later for entry-level luxury goods. what we have learned is that entry-level luxury at certain

firms has been hit. are the two things tied? do those dots line up to you? have we seen a bubble burst? dana: it has burst and little bit. when you think about the headwinds of rising interest rates, you have student loans coming up in october. the average household has $6,200 of expenses and you are going to get an increase of 3% to 8% on spend coming from student loans. there is less to go around. that is why there is the focus on essentials and a reduced focus on aspirational items. lisa: are you surprised we have not seen more of a hit to luxury retailers on the 1-2 punch of entry-level buyers stepping away and issues with china, whether it is restrictions or the idea of contraction we are seeing in certain aspects of the economy, why that has not had more of an

effect? greg: -- dana: so many aspirational players have added newness and product innovation. it has led to be able to have continued strength. it is not a world of equals. it is a world where essentially what is the price you're charging? there are promotions on these items. what are you seeing others wearing? what are you going to give up an order to buy that aspirational item? it is definitely the haves and have-nots in being choice for. lisa: what happens to all of the middle players, the middle tier that does not fall into bargain picking were luxury? dana: we have seen it be very challenging out there. you have sent retailers like gap. it was encouraging to hear american eagle talk about the pickup in july. we have seen retailers lower their inventory levels. i think you're going to see

inventory levels continue to complain because the lower cost to being a help to the margins, the leaner inventory levels. there is more margin clarity. the cleanliness on inventory to be the key to managing through this. you have to keep your balance sheet sound. jonathan: i have no idea how you listen to the call and conduct an interview at the same time but it is amazing. dana telsey there. i wish to get with you to tell us about stealth wealth. stealth wealth is going to hammer these luxury firms. people go to gucci because they want people to know that but gucci. you go to -- with no branding on the clothes because you know the clothing is good. what is gucci going to do when their value offer was basically the brand across the hoodie or the brand across the t-shirt or the logo? what do they do now? lisa: are you saying that it's cheapens their brand because it appeals to a certain aspirational player and all of a sudden everyone goes to stop

wealth? jonathan: they're going to have difficulty finding a better value offering where their value offering was just a brand. lisa: you are seeing that with -- celine, have you seen the price drops? i have seen some money margins. you start to wonder at what point is that what people are pointing to. that said, the dispersion you are seeing, at what point does that become more broad-based versus just ongoing desperation of the economy. the i that you have the idea that you have haves and have-nots is an age-old story. jonathan: i thought the electric team would take and it earlier, in the pandemic, that there would be more modesty. but then everybody got for stimulus checks. lisa: it was the opposite. jonathan: i got it so wrong. it has taken two years longer. lisa: what dana said about people dressing up to go see barbie, if you go see it you see

all of these people wearing pink outfits and huge dresses that they went and bought because you don't just have that shade of pink. jonathan: dress-up for the movie? lisa: you see everybody doing that. jonathan: when i watch it at home, do you will be dress-up? lisa: absolutely. jonathan: i will wear an inter-miami shirt. lisa: it is the same car -- it is in color. jonathan: do you remember that in the boring 20's? -- the roaring 20's? the england women's football team beating australia 3-1. ♪ >> welcome to a western and southern update. because our grass returned to his winning ways in cincinnati after he took out australia's jordan thompson. they were but then champion went out early in canada last week and will be looking to turn up

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>> six months from now, if rates are still 5% plus, we will be

having a much different conversation than now. >> the fed will have to be more aggressive, raising rates higher and keeping them higher for longer. >> the fed is not cutting rates until march of next year. >> it's like putting thread into the needle and the eye of that needle is shrinking. announcer: this is bloomberg "surveillance" with john keene, -- tom keene, jonathan ferro, and lisa abramowicz. jonathon: i am jonathan ferro. your market totally unchanged on the s&p 500. retail players, anything but unchanged. the likes of tj max out early this morning. we have heard from target as well. target is a curious one. a miss on the top line, a beat on the bottom line, a cut to the outlook. it is flying through most of this morning. lisa: how much of this is where expectations were? they were slammed earlier this

year as others did well. they actually did eat out a surprise profitability in the quarter. jonathon: after a series of upside surprises from retail sales this time yesterday, it sparked and brought back that conversation of no landing. are we having that conversation again? lisa: that is what greg peters basically said. what does that mean for yields? we normalized up, not down. there is a question here about how to read the nuances, whether we can read in that this will be a no landing, that it is something that does ultimately have to come down with some sort of pain. at the same time, it seems like that is what the data is screaming. jonathon: next week, we will hear from a load of fed speakers. people want to know if that rate cutting cycle will begin next year and whether they should

lock in their cash savings to longer dated bonds. i have heard that the pushback from ray peterson last hour is basically saying, don't worry about it. people are underestimating how long rates are going to status line. you can pick up 5% no problem and not worry about reinvestment risk down the road. that is an important debate away from fixed income. if you are at home, he had this big bowl of savings, getting 5% on it, are you worried that that 5% disappears a year from now? lisa: we are hearing a real split for people going in and saying that yields art -- that rates are going higher. the fed says they are data-dependent. at what point do you see inflation expectations just go up? in other words, the more dovish they get, does that just create a more upward tilt if you believe the growth is there, if you believe momentum can continue? jonathon: that's the danger of

embracing the rate cutting story too prematurely, too early. room rates may be pushed higher and you don't want things to tighten. you have to reduce the nominal rate. i get it, it makes sense, i understand why you might want to talk about it. but whenever you bring up that conversation, you are sending a signal. and i think that's what you're getting at. lisa: to push this to where we are going to see in 30 minutes, we will get building permits. mortgage rates are the highest since 2000 or 2001. this deceleration is enough to bring down inflation, yet mortgage rates are going up. this goes to the conundrum that i want to hear from federal reserve officials. do they worry about airing on the side of not being hard enough, in terms of -- nine -- jonathon: can you imagine working on the residential side of things? lisa: you have seen the layoffs

in terms of mortgage brokers. jonathon: it's at 7% and a percent. who wants that? lisa: i wonder if they are extending mortgages because they are lower and they have a capital, and it is easier to move capital. jonathon: the s&p 500 just about unchanged. a bumpy month for august. positive by 0.06%. the market yields lower by a couple of basis points. 4.1914 on the 10-year. joe quinland joins us now. wonderful to have you back with us. a bump in the road in the equity market, is that a bump that you and the team want to buy? joe: we do, but selectively. we think are more bumps coming through september and october. we want to be position for recovery. i think next year we talk about economic recovery. yes, we are selectively, on a qualitative basis, buying the

dips. lisa: with aldi respect, covering from what? joe: the narrative is going to shift from recession to the fact -- to that of no landing. i think things will pick up in the second half of next year. we are not there yet. we have to see goods and manufacturing pickup. just talk about the housing problem. i think we are going to shift the narrative to the u.s. picking up steam into q2 and q3 of next year. lisa: is the recovery trade different when you have rates north of 4.5%? in other words, do higher yields in the face of inflation that may remain higher than it has in decades go toward challenging the traditional thesis of buying cyclical stocks? joe: that will be a challenge, for sure. remember, right now, money market funds are sitting at about $5.5 trillion.

there is a lot of dry powder out there for equities and fixed income, in our opinion. you'll start to see that rotation. we clearly have to see the fed cut rates when it comes to recovery. i think that will give short-term cash the chance to come back to equities. jonathon: work with me. someone has got to pay the price for the pandemic. people talk about how strong balance sheets are of consumers. people talk about how strong corporate balance sheets are as well. someone subsidized a good chunk of that. that someone was fiscal authorities. treasury has got to issue a lot more supply. are we starting to see the treasury market paid a price for that over the last month? what is curious for a lot of people, you have had this backup in yields on the 10-year. but credit rates have stayed at, really tight. people have been able to go out and refinance, lock-in low rates longer.

i am wondering whether the risk this time if the individual, the group of investors who have to pay the price for the last couple of years, are in the treasury market. joe: we are going to see some of that play out. now you have to widen the global lens a little bit. look at deflation in china. look at outperformance compared to the rest of the world. i think there will be underlying demand for our treasury. having said that, yes, our interest payments and debt continues to rise. that will weigh on the market sentiment as well. at the end of the day, you are right, we have to pay the price. a lot of that flows overseas. but at the end of the day, you still want to own u.s. paper right now and into next year that takes us through the funding cycle. lisa: i want to pick up on something you are saying, the

idea that yields come down next year as the fed cuts rates. how do we get both a recovery trade in the fed, who sees the reason to cut rates, even though there isn't a great degree of weakness? joe: i think it will come down to earnings. they have to really accelerate. my colleague is looking at around 8% earnings growth next year. if we get anything above that and we can push higher with equities, you can have the bank cutting rates. that sets the stage for the rebound in the u.s.. we overlay that with the dynamic nature of the economy, the infrastructure spending, the green revolution, you name it. there will be places to put money to work, even with the fed cutting rates, and we will work through the cycle. lisa: what terminal rate structure are you looking at that keeps you bullish in stocks? how high can rates go before you to concerned that maybe there is a different thesis this time around for stock valuation?

joe: the good news is we are at the end of our fed rate hiking cycle. i think we will look a lot here. the key is this. how long do we stay at these terminal rates? that is going to be the issue. i don't think we will come down very dramatically. the longer we stay at 5% plus on the fed funds rate, more stress build out there, more questions we have to work through. it's not that we can't work through it, but we see that the longer we stay at these elevated levels, the risk remains and we have to be cautious. jonathon: joe, thank you for being with us. joe quinland of merrill and bank of america private bank. here is the latest from citibank. this is on the economic side of things in the research division. yesterday, solid retail cells shows growth not only holding up , but growth away from service consumption. minutes out today at 2 p.m.

eastern time may mention the possibility that sustained extension will provide a longer period of higher policy rates. lisa: it is sort of what we are seeing priced into the market a little bit, resilience is this line that a lot of people are pushing back on. is this acceleration? will we see services go down to goods or goods go up to services? andrew is coming out and saying that we see goods go up to services, not the other way around, in terms of how much spending there is. jonathon: i think i bring up neil every single time. the world is just coming his way. i have no idea who will be right ultimately, but just the conversation is shifting toward him again. lisa: and he talked a lot about homebuilder sentiment, the revival in certain goods sectors that had gotten beaten up. this rolling recession shows that the underlying theme is strength. that is what is perhaps, to greg peters point coming keeping yields elevated on the long and.

jonathon: i don't think we have had confirmation that joke -- that powell will speak next week , but he has not confirmed. lisa: you are trying to push this conspiracy theory. jonathon: no, i just expect him to speak. i think he has enough data left to wait and not say much at all. lisa: if he confirms that rates can stay higher for longer, it is what he has been saying all along. it just has more residents this time around, maybe you may see market reaction to something that has always been the status quo in the fed for the past couple months. yet, this time, it seems believable to markets. jonathon: if you believe you are at an inflection point and it could go one way or the other, is that the right time to double down on any message, whatever that might be? lisa: what if it is not an inflection point, just that we are going to hang out here? what does that mean, though? i want to dig into what that means. jonathon: i would like an

explanation of that. how are they dependent on that data? what data? if you are just tuning in, welcome. the s&p 500 totally unchanged, positive by 0.03 percent. coming up, watch out for this one. nicolai tangen --carl riccadonna . shortly, up next, nicolai tangen of the norwegian wealth management group. this what is going to be fascinating for later. lisa: they account for an incredible proportion of global shares. they have been incredibly active because they have to own the index. they are basically in certain stock markets. to hear how they are trying to maneuver will be interesting at a time when you kind of can't avoid a market that is tied to the global economy. jonathon: if you are running a sovereign wealth fund, like this individual is, and he has said this before, you have to be

really specific. back in the spring, he talked about the bad apples. need to be very careful about the bad apples coming from the svb failure. i want to understand what that apples were there. then, we can get into the weeds around where they are cross asset right now. i would also like to know, the boj and japanese bonds, they own a lot of those, too. i want to ask someone who owns japanese bonds, what is the reason that you would hold that fixed income, that security? lisa: and if they have to trade them, do they call up the chairman and say, do you want some bonds because we can sell them to you? just give us the price because you're going to do it anyway. jonathon: that's the flavor of conversation coming up next. from new york city, this is bloomberg. ♪

>> the issue we are having now is expectations. if you look at what has happened over the last month, you have

had a reasonably solid earnings season, but the average stock was unchanged on the day. you had solid payrolls report. the market traded off. you had easy inflation in the market was flat. there's a lot of good news out there. but the market has become a little callous to it, which is not hopeful in our view. jonathon: your equity market more broadly looks like this this morning. on the s&p 500, futures unchanged. a welcome snooze after the events of august so far. the nasdaq has been a difficult one. congratulations, well done. you won 2023 so far. in the bond market, yields are lower, going against the grain of the last four days or so. it had four straight days of yields climbing. lisa: and a real reset. i think you called it the no landing. jonathon: we went from soft to no to hard, to soft again. lisa: people are gaining out if

we have growth at the levels we have seen. jonathon: can we sustain this, returning 10% in the first half you? -- half? lisa: this fund is something that has to own a lot of the broad equity performance get the key is where they adjust and wear on the peripheries they invest as well, whether it is real estate or some of the other alternatives as well. jonathon: let's get to that now. i am pleased to say that the owner of these funds joins us. nicolai tangen, you talk more recently in the last three-month or so about the bad apples following the collapse of that svb. how many did you find in the last cory? -- last quarter? nicolai: we continue to find them. we have been out of india. we have been out of a swedish company which went bad. we have a whole team who is trying to navigate this and make

sure we are out of the biggest trouble. lisa: in the latest quarter, you got a 10% return, although you dragged down a little bit from estate investments and infrastructure assets. how do you view your investments, particularly with renewable energy, infrastructure at a time when there seems to be a shift away from that and toward oil and gas? nicolai: we got into a dual mandate a couple years ago. we were slow in the beginning because prices were too high. everybody was chasing the same project. we went really slow. i think it is more attractive now. i think you should expect pace to increase a little bit. lisa: what about real estate? how concerned are you? have you been selling, trying to shift away from that? nicolai: no, we have not been

shifting away from that. i don't think we have seen a lot of the damage on this area now. we have had rates increasing already. we have seen high vacancy rates, the covert effect, banks having troubles. i suspect that we may have seen a lot of the bad views now. we also have exposure and the logistics side. those continue to perform really well. lisa: you said you think a lot of the carnage has already happened. can you elaborate at that -- on that at a time when people said if the mortgage rates really percolated into valuations, you would see 30% declines, and some capacities more gekko -- more? do you think that is already been priced in or shrug off because of strength? nicolai: we have for sure taken some pretty big write-downs. there's already quite a bit of damage in there. jonathon: the concern now, as you know, is in china.

we caught up in dallas, i believe. we were talking about the boom that everyone expected. that has not materialized. now, they are exporting, seemingly, disinflation. you work through the funds right now. how exposed are you to some of these things? and have he had a pullback in any way, shape, or form? nicolai: we have relatively small investments in china. but you are right, the boom has been less than we expected. the only thing we can see from that is there is pressure globally on the back of that. jonathon: could you give me some detail on what exposure you've had in china, what that is? nicolai: we are between 3% and 4% in china. if you add in korea and taiwan, we are at 7% or 8%. jonathon: do you see a lack of transparency when they talk about youth employed -- youth unemployment? does that concern you? nicolai: i would not say that

any particular number on that has scared me. but we are an extremely transparent fund. generally, the more information we can have in the world, the better it is. lisa: there's russians about the global allocations and views on traditional haven assets. i think about not only, with respect to sovereign debt over in the east, but over in the west as well. people have been talking about the deficit in the u.s. and how that could potentially cause difficulty, indigestion, among buyers. is that a problem for you, a concern for you? have you started to shift and diversify away from bond holdings? nicolai: no, we have not shifted anything on the back of this. lisa: i looking to understand this and have conversations with policymakers? do you look at credit, interest rate hinged assets? nicolai: we have big teams who

look at this and are in continuous conversations with policymakers and so on. but we have not made any changes. jonathon: nicolai has done interrogation training, you know that, don't you? lisa: [laughter] are we doing interrogating? this is useful. nicolai: you know that theory, the shorter answer on average is more truthful in the long run. jonathon: very true. they don't lend themselves to fantastic conversations. i will do my best to get a bit more out of you, if i can. the year so far, as you know, has gone from soft landing 10 no landing, to hard landing, active soft again. do you think we can somehow escape the inflationary threats of the last year without economic downturn in the united states? do you subscribe to that or are you in the camper you expect rates to stay higher for longer? nicolai: i think they will stay higher for longer.

we have been saying this for a long time and i still continue to believe this. one new thing is the link between climate and inflation has become stronger. we have recently seen the climate impacting harvests, prices such as olive oil and coffee, all these kinds of things. but the new thing is really that the change from global warming to global boiling is that there are parts of the day where you cannot work across the world. productivity in society is increasing. that is a new inflationary pressure. the link between climate and inflation is stronger than before. jonathon: insane, it for a long time, you know that has been true. they have called it a siesta. is this outside of the traditional places we look in europe? in italy and the south of italy, this is true forever, for as long as i have known. where is this a new development?

nicolai: in many countries. we have seen hot -- heat waves across europe. july has been the hottest month we have seen. it is not called a siesta anymore. jonathon: what's it called now? nicolai: global boiling. jonathon: so, from your perspective, what have you changed? nicolai: i think you just have to be more conscious about inflation and understand that it may be here higher for longer. jonathon: we will leave it there and go on in the future. nicolai tangen of the norwegian sovereign wealth fund. the productivity and inflation story from here, he has been pretty clear on this on to her he think higher for longer is where we are going to be. lisa: and that returns will be more muted going forward. it will not be a straight line as it has been traditionally. is a challenge to understand exactly how to game out some of these new trends in a more material way. they have been trying to do that at the same time that they have to be fully invested. their goal is to diversify away

from oil in norway. jonathon: i'm going to go. all yours now. [laughter] coming up, sarah hunt. looking forward to the conversations around opening bell. the themes will continue around things like higher for longer, whether we are shifting back toward that so-called no landing, which is not really a thing, but elton you -- it ultimately means the fed has to go further. and whether you have to worry about reinvestment risk, entering china into the mix as well. lisa: can we come up with new nomenclature, new phrases? the new normal, i guess that's not new. i will have to think about it. jonathon: i'm excited for tomorrow morning. [laughter] lisa: i will unveil my new stage. jonathon: from new york, this is bloomberg. ♪ manage all your sales from one place with a partner that always puts you first. (we did it) start today at godaddy.com

lisa: just moments away from the latest housing data at a time when people are wondering when will the resilience and strength in aspects of the u.s. economy and? what we are seeing now is not a lot of drama after several weeks of losses. just to give you a sense so far this month, the nasdaq is down 4.9%. apple shares are down 9.5%. today, little change. the s&p is a little soggy as this grows older, ahead of the open. we are still in that 1.09 range on the euro-dollar. we are at almost 4.22% on the

10-year. right now, we are getting housing starts and building permits. what they show is, surprise, strength. coming in at 1.4 5 million -- $1.45 million. we are also seeing a bit of downside surprise on building permits. this has been an incredibly hot area, gains in stocks rising about 47% or something so far this year. we take a look at the revisions, a bit of downward revision to the prior month for housing starts. a bit of upward revision for building permits. too much a wash. what we can see is this ongoing, continued focused on creating inventory at a time where there is at your stasis in the housing market. why would you leave if you have a less than 3% mortgage? that has been something that has been a theme.

we did see retailer strength, particularly t.j. maxx, as they cater to the offbrand market and continue to gain disproportionately. it raises this question, what will it take for this strength to come down? will it come down naturally, a sort of immaculate disinflation, or will it take higher rates or some sort of disinflation? carl riccadonna has been talking about how he expects inflation to come down, which it has, this year. there will be relief for the fed to move around -- to move away. carl joins us now. what is your take on the resilience, starting with the housing market that we continue to see there? carl: as we look at this morning's numbers, i think when the housing stories -- housing starts tell you one story and permits tell you a different one, permits other ones you have to trust.

the housing data has been in a pretty sour environment for the last several quarters. the pace of decline is slowing. but with affordability as low as it is, mortgage rates hitting new highs on a daily basis, almost, i think these are some real constraints going forward. of course, the inventory shortages that you highlighted are supporting activity, especially encouraging new instruction. but even yesterday, in the homebuilders sentiment survey, we saw that buyer traffic, perspective higher traffic, is extremely low and homebuilders sentiment is to climbing for the first time this year. lisa: extrapolate that into retail sales. are you saying that it cannot continue to have the same kind of robust gains in consumer spending we have seen? carl: i see significant headwinds emerging for retail

sales more broadly in the back half of this year. as we dissected yesterday retail sales data for yesterday, and maybe amazon prime day help support the numbers and whatnot, but as we went into the details, it looked like discretionary spending was particularly strong. the sporting goods, hobby, leisure, restaurants and bars, all the things you would spend on if you have extra cash in your pockets, those categories where the strongest in the report. things are on a solid footing in the month of july, at least. but as we go into the back half of the year, we note that labor activity is slowing, income generation from labor activity is decelerating as well. we have student loan payments resuming in october. there is questions of whether people will immediately jumping -- becoming back into paying those were not. with the average price tag of $100 billion, it could have significant consequence even if it is not fully felt in the initial months. you have a potential government shutdown coming in the back half

of the year. and also, all those excess savings generated during the pandemic have been getting spent at a pretty healthy clip. we think the excess savings will be fully exhausted by the end of the year. as we look by income quintile, we can see the lowest three quintiles, a significant share of the population, have basically exhausted though savings already, which should mean more price sensitivity among consumers, which caps on the inflation side, but also a slower pace of consumption as well. that is as of july, but something where watching for in the back half. lisa: people have been saying this for a while, then you see house after house push out their forecast for recession. maybe it is not happening as soon as we thought. can you give us a sense of what gives someone conviction that it will eventually happen, even though month after month, everyone had expected some of these consumers to run out of cash by midyear?

now it is end of the year. what does it start to shift to, maybe this is sustainable? carl: i think that as we see new data coming in, there has been more resilience in the labor market and an lot of anticipated earlier this year on jobless claims. we have had a few false starts, where they started to back up. it looked like maybe there was some deterioration in the labor market, and the numbers came right back down and whatnot. there's those canary in the coal mine moments, proving to be false flags in the past. if we look at the broader trend, we do see it slowing. as normal gdp growth decelerates, as payroll gains decelerate, this does change a lot of dynamics in the economy, including corporate profit trends, which as corporate profits decelerate, that has implication for both capital spending plans and also hiring plans. you still have a tightening of

financial conditions or lending conditions for the banking sector that we can see showing up in the fed survey, that banking surveys, bank earnings, etc. there are problems that are becoming pretty intense headwinds in an economy that is slowing already. this has been problematic for forecasters already. i don't think you're supposed through the recession call away. it is kind of immaculate disinflation. i am still skeptical that we will really be able to pull that off because monetary policy, as we know, is a really blunt instrument. kind of the nesting the landing to have no contraction is something quite unprecedented. i would be surprised, given that the speed with which the fed tightened policy, if we can nail the landing giving uncertainty over lags and impact. lisa: just a sort of underscore what you're saying, do you think right now bond markets have it wrong with a four .2% yield on

the 10-year? do you think people are getting over their skis in terms of how high rates can be and how long the economy can be strong? carl: ultimately, those longer data yields will be inflation trends. if you think there is a persistently higher inflation trend over the longer run, you can make a case for 4% or higher on yields. we do think that we will see some witty impressive cooling of inflation pressures over the next several quarters. we think inflation will be back to target by the end of next year. i think may be part of that higher inflation for longer camp may have to revise some of those estimates. as we see the economy decelerate, labor softening, a lot of these inflation categories moving in a favorable direction, the rent story alone is a big factor for the inflation profile. that is coming down. that is a very big component of the cpi, the inflation basket

that is decelerating. you have goods prices showing further signs of moderation. the real question will be the labor market dynamics. if we do get softening of labor conditions and wage pressures coming down, i think that might alleviate some of those inflation concerns. that could factor into where this is heading as well. i don't think they are getting the story totally wrong, but maybe assessing it as being a little too hot at the moment. lisa: real quick, what is the one question you want answered next week by powell and jackson hole? carl: i'm curious about structural changes in the global economic outlook, the degree to which this might be setting the stage for changing inflation targets and things of that nature. the symposium that is put on by the kansas city fed, which is notoriously hawkish, this may be a way of kind of chopping down the strawmen before they can get any firm anchoring. rather than saying there are

structural changes and we should change the target, these are the structural changes, but these are the reasons why we don't think we should be changing longer-term estimates progrowth, inflation, or inflation targeting. lisa: thank you so much for being with us. as always, looking for little market reaction to housing data as people see it consistent with the theme we have been hearing with relative strength and resilience, albeit slight cooling around the margins. we've been talking all morning about a fresh report on the future of david solomon and has possible successor. it is something of great interest to the wall street president. they wrote, "as bitterness festers in the ranks this year over solomon's leadership, waldron is being pressed by colleagues to pick a side, be his own path to win over disgruntled executives, or risk being seen as an affable clone of the ceo." sonali basak joints me now.

on the heels of a whole host of reporting, what has the responsibility like? what is the support for a john madden -- a waldron led that she -- sonali: his loyalty and intense drug has been a hallmark of his personality. this tension to break with david kind of goes against that. you have not seen john break with david, but you have to remember something interesting. when investment bankers came and took over the top of goldman sachs, the traders dubai in large love john. he has won the hearts of the inside of the firm largely, as well as the client base. we even included this in our story as well. it is his style, his down to earth-ness. you think of people saying john

waldron is blue-collar, from the midwest, down to earth. that is what they are relating to, relative to his more abrasive style. lisa: he is trained to keep that popularity as he moves toward a pretty tumultuous time. if you like this is a topic of discussion because it is a slow summer. is that all what's going on? sonali: it's kind of a story under the surface brewing for months. with so much pressure on data -- on david to look at number two, remember that john waldron has been in charge of data. we are halfway through the third quarter here. they really need to figure out this consumer business. they need to bite the bullet and figure out how to make these changes in order to save themselves from another tough quarter. we are going to come back from labor day and very quickly head into another earnings season. goldman has to put up better results than they have been putting up the last couple of quarters. they all know that. that is largely under john's party, as well as david's. lisa: if you're just running the program, we are seeing a bit of reversal in s&p and nasdaq

futures. the s&p lower by about 0.1%. sonali basak, you talk about plans. this is curious to me. we have seen increasing numbers come out with succession plans recently. there has been a changing of the guard in the post-pandemic era, particularly in private equity and a lot of different ones. we see that at goldman sachs. is this a natural progression of things? sonali: the question of john taking over one day, whenever that would be, they have lost a lot of people. what becomes of the existing partners, like mark and jim? there is a lot of heated competition in terms of taking the top spots of these jobs. he look over and morgan stanley they have not yet named a new ceo, even with james gorman saying he will step down in a year. you are watching james gorman also try to make that as smooth as possible and retain whoever

might not get that top spot. you are seeing a changing of the guard. it is not easy and often messy. it also leads to very material changes in how these businesses may operate moving forward. lisa: it is a changing of the guard, perhaps the change of environment, in terms of interest rates and where they will end up. sonali basak, thank you so much. as we try to reimagine, reconfigure investment banking in an era of significantly higher rates, that is something a lot people been talking about. coming up, we will dive into the housing sector. skylar olsen of zillow joining us to talk about how long housing prices can stay put even with mortgage rates where they are. ♪

>> when we think about the headwinds of rising interest rates, you have student loans that are coming up in october. the average household has $6,200

of expenses. you are going to get an increase of 3% to 8% of spend coming from student loans on top of that. there is less to go around. that is why this is a focus on essentials and a reduced focus on aspirational items. lisa: china understand some of the strength we have seen in retail sales across the board. t.j. maxx, to some degree target. that was the chief executive officer and she's just -- and chief research officer at chelsea group. we are already five minutes away from the opening bell here. we see a little calm deteriorating as the session grows older. not a lot of drama, just a slight softening after yesterday's softening, after what we have seen over the past couple of days. it is really led by the bond market, yields higher across the board, particularly on the long end. not a lot of drama today, but how far we have come is dramatic.

we have seen a 25 basis point move in that 10-year yield this month. we have seen already one basis point moves upward in the 30-year yield as people came out higher for longer, how long this economy can sustain higher rates. one of the big question marks has been the housing market, which we have seen hang in there. the ramification of higher yields is less mobility. all of a setting, inventory is scarce and pushes prices even higher. how long cannot go on and where does that leave rental prices that have been one of the main inputs into headline inflation? joining us to discuss all of this, skyler olson, --skylar olsen of zillow. this is been a huge mystery. are you surprised we get a different message from everyone about where the direction of rent seems to be going? skylar: not at all. this is an incredibly challenging space to do research in. rent is not public record. when you hear data out in the world about what's happening to

rents, it is a lot of research shops like zillow forming data from our rental listing market. zillow has a massive and diverse rental market, from single-family to multifamily. when we report on rent, what we are doing is tearing the same listing -- is pairing the same listing with the home price index. looking at that kind of formation, we have rent slowly trending down and actually hitting negative in a seasonally adjusted way and we are looking at the course of seasonal patterns. that is also what that data set looked like back then. it is such a hard space to do analysis. that said, i think we are noticing softer pressure than pre-pandemic. that should be a good sign for general inflation to continue coming down. lisa: just to build on that point, this is been one of the main reasons why people say

inflation will in-flight lower because rates are coming down. the owners equivalent rent will also continue to be a real tailwind for this inflation trend. i can see you are crossing your fingers there. how much do you buy this? how much do you buy this is sustainable versus just a cooling down after the includable -- incredible runaway of seen over the past couple of years? skylar: it's interesting that you say sustainable. rents and how they change over time is going to matter a lot for the supply picture as well. for a while, we had seen multifamily permits continue in an elevated space. we have seen that hold down as well as completes have finally been delivered in multifamily buildings. we have such large rates of -- rates of buildings under construction. it takes a while for that to be delivered. over the last couple of quarters, that is when we started to see an elevated

number in the space. but then, we saw permits come right back down. in terms of how long we see soft rent without going into a recession, there is so much uncertainty on that in. i don't know. we could see it stabilize again at just a steady and slower pace as opposed to falling. lisa: moving from rents to home prices, i'm curious what you are seeing in terms of how people are purchasing home properties. are they encouraging -- are they incurring a mortgage rate of 7% to 8%, or are they buying with cash, buying from the developer, staying away from previously occupied homes exactly because of the mortgage question? skylar: all of the above. from the research of zillow home loans, we know that more than half of buyers are buying down points. that is probably your first and most obvious strategy. we have also seen new-home sales perform so well. you can see people turning to

that kind of inventory, while new listings falling into the market remains close to one-third below where it was pandemic. i think what we are watching and observing, talking about home prices, is enough fundamental demand getting creative, making it work, pushing forward. if i took the most recent seasonally adjusted month over month growth in our zillow home value index, that analyzes out to a pace of 7% nationally. that is pretty darn strong. it has everything to do with a pullback in that supply-side as well. lisa: how sustainable is this? this is something we were talking about with a guest a couple of days ago. they said, when you take a look at the affordability for homes for the average individual, it looks less and less affordable, especially with mortgage rates where they are. in order to bring things back into balance before we pandemic,

you have to see a decline in some of these valuations. why have we not seen that? if it is just supply and demand, is that sustainable or is there something unhealthy about this dynamic? skylar: this idea of sustainability also flows through, what are the market signals that pull people in and out? the reality that i am seeing, and we are very sensitive king about the inventory side of that picture, operating a for sale marketplace. that is part of our forecast. when we forecast out new listings, that is a challenging picture. if rates remain high, our forecast also maintain this pace. if we think about what that means for affordability, i think there are a few things. one, i almost never show a drop -- a graph anymore on mortgage payments without showing you the difference if i a 10% down or

20% down. some people will take much longer to lower that loan to achieve affordability. some people still also think rates could come down. there might be consensus that it could come down in the years to come, but the path that it will take there, as we've seen over the past couple of weeks, is clearly incredibly uncertain. just all comes back to supply. for prices to come down, competition would have to ease up. there is simply too much of that fundamental demand moving forward to make it work and no supply entering the picture. lisa: there's a theory that if rates or to come down, and we are seeing them at the highest rates since 2001, if they do start to come down, you will see inventory loosen up. people might be more willing to sell or to buy a new home and move out of their old home. do you think that counterintuitively, if rates go down, we see housing prices go down as well, because there is simply more supply? skylar: that is an interesting idea.

honestly, for housing prices to come down a little bit, i don't think it would be bad for the whole system. we are sitting on top of record amounts of home equity. when i think of what's going to happen, i think you are right. i think rates don't even have to come down too much to unlock some of these would be sellers. we ask every quarter existing owners, do you intend to sell over the next three years? consistently, that was 16%. over the last two quarters, that popped up to 19%. almost one-quarter of existing owners want to sell their home in the next three years. i don't think you say that if you are deeply, deeply locked in. we also saw from that survey that owners with mortgage rates above or percent are twice as likely to fall into that group. a bit of relief could unlock supply. it is something i certainly hope for and i think would be a very

healthy injection into the market. lisa: just 30 seconds is all i have left. i'm just curious, do you think housing prices can sustain where they are if rates remain at these levels for five years? skylar: we know, i think they should get softer. the inability to continue to bid, at the very least if that is the reality, we would see a much, much lower homeownership rate. i'll put it that way. lisa: skylar olsen of zillow, thank you so much for been with us. one of the key drivers people look at as surprising strength in the u.s. economy, counterintuitive strength i would add, is what higher inflation rates would do to property prices. coming up, the deputy secretary of the u.s. treasury as the biden administration does a pr tour. you see a bit of softness as we look forward to what higher rates mean for earnings. this is bloomberg. ♪

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jonathan: i think we are hoping for a quiet summer's morning. good morning. slightly negative on the s&p 500. the count down to the open starts now. announcer: everything you need to get ready for the start of u.s. trading. this is "bloomberg markets the open" with jonathan ferro. jonathan: live from new york, fed officials unwilling to declare victory. secretary y