i think the rally does have legs, there is a slow underway. i think it will take a while before we see a wider yield curve in a situation where inflation has come down. there is a fear in this higher for longer environment. the risk is that the fed is prematurely declaring victory. this is bloomberg surveillance. >> this is bloomberg surveillance, good morning. alongside lisa abramowicz, tk is away. he likes to take a walk in the

countryside. we need to to the wrinkle in the soft landing dream. lisa: is that supply or demand driven? if it is supply driven, what is that mean? does it create more of a hiccup because you have higher growth? is higher by the supply side. i want to know how it plays out? how do they signal that they're playing through? if you're trying to come up with the narrative with how high yields were going, companies with a strong dollar.

is it technical or something longer-lasting? you mention the dollar strength, eight straight weeks of dollar strength on the dollar index and now we see some pushback in asia. china and japan. they are two different responsive but highlighting the importance of why this rally is concerning. and it's a rally against other asian currencies. for japan, it creates the question of the end of yield curve control and for china, do they want to raise their currencies? what is their concern for not allowing the currency to depreciate?

sonali: they will talk and talk a little bit more. lisa: the boj did not work they are talking and talking and china is talking and this not working. into china, it doesn't seem like there is the nerve to do it. jonathan: in china, on the property side of things, do you see the rally? lisa: are you buying it? jonathan: it's not lisa: lisa: for me to buy. do you think it is longer-lasting if they step in. jonathan: we see something of substance.

over the past decade, if you have given china the benefit of the doubt, you have been rewarded over the long-term for now. >> there is a feel that you are pushing on the string -- lisa a: are you going to boost anything by lifting over the rate? you are dealing with a very structural moment in the chinese economy. jonathan: can they build more cities? maybe they can. equities on the s&p 500 look like this. equities down by zero. all of a sudden, a selloff in the trading market. curious one.

on friday, payrolls a little stronger. treasury rate still sold off. treasuries carry on selling off. it is quite a move on the today yield. lisa a: biggest move going back to july. historically, even with big moves, it is interesting. i am watching a question of whether pauses the new hike and whether everyone will be singling. the bank of canada meets at 10:00 a.m. and tends to be ahead of other banks. if they are done and give that rhetoric, could that shift? some sentiment may be fade? two :00 p.m., the fed's beige book. does anecdotal data confirm the strength we are seeing? do we see 6% gdp estimate reflected in the anecdotal notes that were hearing with patrick harker fulfill the fed? today, central banks speak.

also boston fed president and lorie logan, i love how they are trying to sound hawkish but the message is we are not going to commit to anything. things are uncertain. we do not know if we are done. jonathan: people start to think they are done. his central bank governors speaking today, trying to reintroduce some stuff this evening. the guidance has led people to believe nothing will happen next. lisa a: i was reading the report and comments. i was like, wow, we have a hot. but then further down, he said, i will not commit to a rate hike. jonathan: if the hawks cannot be

hawkish, what does that say? the data was terrible in germany. factory workers were brutal. it can be volatile month per month. going back to july, still a terrible reading of the german economy. that data point was hardly isolated or unique. lisa a: that is where i was going to go. it has been not just for factory workers but you are seeing services start to soften to an expansionary level, raising questions. jonathan: lori calvo sena, head of strategy at rbc capital markets. let's start with a move in truth. is that a wrinkle in the soft landing mood? crude getting back to $90? lori: there are so many wrinkles right now. on the one hand, the last thing consumers need at this one part

-- one point in time that is generating a lot of uncertainty is oil prices and gas prices. if we get the energy sector working, which i think happens as oil prices move up, this potentially sparks a shift out of growth and value into cyclical parts of the market. a wrinkle is a good way to describe it. jonathan: united airlines might have a problem. jet fuel prices climbing over 20% since the middle of july from 295 to $3.05 a gallon. those were her individual companies, particularly airlines. lisa a: and not just hurt but potentially pass it to consumers. these are the knockoff effects that could go higher with crude prices. do you see any challenge with the soft landing thesis and price action, whether on the heels of price action or because

there is acceptance of the goldilocks scenario? lori: what are the things we have been talking about the last few weeks is the buffers for consumers. there are far greater than people anticipated. i am still in the soft landing, goldilocks camp. if you look at the effective rate on mortgage, it sold out 3.6%. everyone talks about savings which got pulled down and is creeping back up. that is not the only buffer out there. we are benefiting as consumers from this era of low interest rates in things are starting to shift in the different direction but the buffer has been underappreciated. jonathan: an update from alaska air as well. fuel prices have increased considerably in the past few weeks. third-quarter fuel costs are now around a gallon of $3.15 to

$3.35. some people are pointing to the positive role wage growth we might start to get year-round and perhaps into 2024. consumer discretionary has been a large thing. i'm thinking of airlines and cruise lines as well. is that spending set to last until year end? lori: i would say, let's separate the airlines from the consumers. if you look at trends, they have been pretty peaky, suggesting earnings got stretched on that side. i would maybe put them into separate categories. we are still tracking the tsa and the covid high-frequency indicators. the are starting to see weakness on that. that is something to keep an eye on. they have too much stuff in their houses and want to get out and live their lives again.

there is still some tailwinds. will that slow down? if you look through a variety of our next calls, companies are saying mers are becoming more cost-conscious and pushing back -- are saying consumers are becoming more cost-conscious and pushing back. i would not see this as reason to panic, but as evidence for rationality. lisa a: there is a question, especially as we see alaska air and united air talk about higher fuel prices, how much they can pass that along. there is preston's activity increasingly showing itself. will this show itself in margin compression? lori: that is another hot topic we have been having. what will happen to margins next year active i have a tiny bit in my earnings forecast which stands in contrast to street numbers, anticipating expansion.

one thing we told people is as inflation comes down, companies will lose justification for passing through price increases, which impacts revenues. the flows through the market i have seen are not completely clear. there are stock offsets like management to cut costs in places. i will tell you i see in my model that there is evidence that as pricing comes down, as inflation comes down, it is a bigger hit to revenue growth in people understand. that is one of the new narratives we have to discuss. jonathan: the headline overnight, tactical problems with growth trade. what are they? lori: crowding, overvaluation, and earnings dominance eroding. it has been outperforming for good reason. we are staring down the barrel of a sluggish economy. it is a plain old-fashioned,

overvalued, crowded trade. jonathan: lori calvasina. thank you for the update. an update on the airlines. alaska and united airlines. draw in the truth on what is happening with fuel prices. they are getting higher. lisa a: which is not surprising given what we are seeing in the premarket. you are seeing it climb to the highest levels, going back to last year at $4.45. to underscore what lori calvasina was saying, can they pass that along or not do that anymore? discount airfare was coming back in the fall because people are not traveling enough, especially places like cincinnati to birmingham. jonathan: that is a big question for the federal reserve. do they eat it or pass it on? if they can pass it on, may be the inflation story is not over. lisa a: they have been able to

pass it along and everyone has been able to dismiss that. you mentioned role wage growth. if that continues, what point do you see role wage growth continue as well? jonathan: how many times have we been told that this quarter? the latest on this quarter. looking forward to a conversation with anna valenti -- an miletti later. future slightly negative. good morning. ♪ endless hardie® siding colors. textures and styles. it's possible. with james hardie™.

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>> we want to connect this inflation story. the thing we are watching is the

oil market. the reason that is important is because that is one of the indicators where we have seen inflation later down the pipeline. brent crude was one in 2022 that tends to be something to follow as a catalyst for we see inflation numbers tick off later in the year. jonathan: that is the chief reflect strategist at alpha simplex. we are down 0.2. wti is down 0.5%. brent crude is right now $89.50. wti at $86.24. a couple of days the last 15 minutes from two airlines. one is united airlines and the other is alaska air. they put prices on fuel. jet fuel has climbed 22% since the middle of july. they now see oil prices from

$3.15 to $3.25. alaska going farther. the question we will be asking all morning is can they pass that on or will they eat it? lisa a: a lot of airlines are not hedging anymore. there is a significant part of their expenses. how much does this challenge the story everyone is going on traveling? jonathan: if we can get the board of, united is up by 28% gains has faded the last few months which speaks to discretionary spending which has held up so well through the summer. lisa a: particularly international because business travel has not rebounded to the same level.

it has not shifted in response to people going back to work. have you seen the article around airline prices softened domestically? jonathan: i have seen not heard -- i have seen that repeatedly and i do not feel it. lisa a: because it is not international. jonathan: please, tell us the cities we do not want to go to. [laughter] lisa a: i was looking at reports and started looking at destinations. jonathan: you said birmingham, alabama. lisa a: no, i think the game is big. i am going down in flames. there was a measure in cincinnati. jonathan: i have never been. are you telling me not to go there? lisa a: and also cincinnati to cleveland. there were $20 fares. jonathan: are you saying people don't want to go there? lisa a: i am just saying less

popular routes are cheaper. let's move on. [laughter] jonathan: will, great to catch up. there is $90 crude to get us to talk again. i want to understand from your perspective, when the saudis and russians pullback and say that we are can do this and told year ends but will review it monthly, what should i read into that? will: they like to give themselves move -- room to maneuver the expectation is they will keep this in place until the end of the year. the oil market did react yesterday. he saw a decent bump in the first $90 bottle since november last year. the consensus in a of oil trade in singapore this week where there is a big industry get together is the market looks fairly strong the people are optimistic about demand growth. yes around the chinese economy

but there are also big pockets of strength. oil and gas has been strong in china as they catch up on trips they were not able to do during their very extended covid lockdown. people are optimistic. when you put this on top, too many people, it looks bullish. jonathan: this is at a time when u.s. oil production is near an all-time high, isn't it? will: yes. we have seen a lot of supply from different places. the u.s. is one. i has strong exports. venezuela. brazil as well. by think a lot of that supply is done now. they will taper off. the gains has extended policy action from saudi arabia which indicate strength from the market. lisa a: this sets up awkward conversations this weekend at g20 when you think of president

biden who of lisa m: fpr to try to of these prices not having the lever anymore. what potential outcomes can come from the fraught conversations through saudi arabia's leader and president biden, who are supposed to meet this weekend? will: it is offered for washington and complicates life. i do not think the saudis will fill that many. there has been a huge surge in inflation over last year which is not being acted. go back to years after the crisis for several years and no one got excited about it. they don't see this as a terribly high oil price. i think they would say, we are not that sympathetic. the other thing i would point out about this move is it was coordinated from the russians. a political perspective, -- from a political perspective, that really underscores.

it is a bullish sign for the market. lisa a: what is the offset to this? a global recession? what can counter the move that seems to have legs since the middle of july? will: the economic backdrop will keep. well i said there was a sense of optimism that chinese demand was holding up fairly well, that is the key. if the woes were to spread more broadly and put a dent in demand, then we can see some pullback in prices. there will be a little incremental supply next year from different parts of the world. but i think the expectation is the market looks quite well-balanced. next year, i do not expect a big fall off in prices but there is a sub like to meet demand -- is a supply to meet demand.

not that much downside. there is a huge amounts of expectation. i don't think anyone expects it to get above $100. jonathan: there is clearly a supply side story on this but then i look to it is not just oil but iron ore as well. what is happening there? will: people are realizing the chinese economy is much more nuanced than people think. clearly, demand has taken a hit from the slow down in the property sector by was having a conversation with someone at the world's biggest minor last year and they point out they still expect to see -- biggest miner last year and they point out this look expect to see a higher demand. it is being driven by electricity demand in wind power and solar power. there is a lot continuing to

drive demand. for the could let -- correct focus, it is a bigger story than people might afford. jonathan: thank you. will kennedy. we will catch up later. will kennedy on the oil market. iron ore in its four-month highs. number two producer of iron or worldwide. compare this to the doom and gloom. you have a number two producer of iron or on the planet and the outlook -- of iron ore on the planet and the outlook looks good. lisa a: you have investment in the u.s. and europe so you are seeing increased attentional spending that could compensate for something in china but it is confusing. i do just want to bring this correction. i was looking at the story about the roots. it was cleveland to orlando and detroit to atlanta.

there were some also from mexico to central america for $115. jonathan: ok, you just don't like cincinnati. lisa a: my father was born there. it is not like i have anything against it. jonathan: deutsche bank coming up later on the fx market. the dollar is stronger for eight consecutive weeks and pushback from japan and china. that story is up next. ♪

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>> equities are little softer, softer, soft on the week. we are down on the s&p 500. on the nasdaq we are are -50.3. the russell struggling, down by 0.1%. in the bond market, yields climbing 50 basis points in two sessions. down a basis point today to 424. . to curious move in the bond market off of the backup jobs data some people say might lead to lower yields. hi yields on friday and high yields on tuesday. lisa: it was called goldilocks, the perfect report for the fed. people are now blaming supply, $36 billion in investment grade.

people are selling treasuries to buy the capitol to buy the debt issuance. there is something going on and it is different than real yields. jonathan: the rally in crude, reclaiming 90 briefly for the first time since the member last year. what you turn to the fx market. the euro, negative, negative, negative over the last several weeks. the euro is now slightly positive, clinging to 1.07. just the data out of europe, dreadful. i have set the sun many times. german factory orders are not pretty. lisa: stagflation. especially women talk about higher diesel costs, higher gas costs. we are also talking about higher rice and sugar prices. at what point does that challenge the ecb's ability to come out think truly hawkish instead of hawkish talk. jonathan: i wish that was a

bigger conversation at the news conference given that in the account of their last meeting they acknowledged that might be the situation they are in. they are considering having the conversation. then it was absent from the news conference. i hope this is something they have a conversation about. why is that something they think we can escape? lisa: have you heard christine lagarde's comments? they are the most noncommittal comments. we don't know what is going to happen, we are going to do what we do. can they afford to do that when the data is coming in so weak? can they afford to take that noncommittal stance when you see signs of stagflation mounting in the euro region? jonathan: single net mandate, does that change some things? do they? is it a dual mandate they don't have the following, any unwillingness to crash the economy to get inflation back to target? inflation is the number one job

and put the stuff is open to interpretation. the mandate was different to how draghi viewed it. lisa: the market is implying that there is it will mandate for the ecb, not just the federal reserve. they're not going to curtail momentum to such degree in order to get inflation back down. because not did say -- clause did say the importance of getting efficient down. jonathan: it is all about dollar strength, prompting authorities in japan and china to step up defense of their currencies. japan issuing its strongest warning in weeks. china issuing the strongest guidance on record. there's is a problem for dollar-yen as it gets closer to 1.50 and for the chinese currency at 7.30 against the dollar. numbers we have not talked about going back to 2007. lisa: really struggling with the

same thing which is weaker data in asia is good to get punished in the currency market. in china, the question is at what point is this beneficial in terms of exports versus not in terms of buying power? for the bank of japan, it seems unsustainable to keep yield curve control but they are seeing economic data. where do they place the priority at a time when they are trying to thread a needle and they have done successfully? i don't know. there is not a lot of conviction there going to follow through. jonathan: equities are is news. stocks are just a little snooze. the entertainment, the drama in the fx market and the bond market. crude testing the highest mark since november after opec+ leadership announced it would extend supply cuts through the end of the year. brent crude retreating a little bit this morning south of 90.

this after delivering double-digit gains over the last two months, a 20% move on to beauty i. that is -- on wti. lisa: we were talking about the atlanta saying they are facing sears increases in diesel cost. diesel prices have climbed more than 40% in the u.s. and europe since may just to give you a sense of how much that has been an increase. which raises the question of saudi arabia doubling down on cutting production, being bolstered by russia. is it just because they can? do they want prices to be $100 a barrel? what is the target they have? jonathan: the strategic midterm reserve is not available. there meant to be rebuilding. that is a complicated effort. lisa: they said they were going to be billed at $70 a barrel. we got to $70 a barrel and they did not rebuild. here we are.

that is a question. that is a question going into the election, how do you handle this? what are those conversations going to be like in new delhi? jonathan: i would go a couple of steps further, it is happening at a time when everyone is downbeat on china. pretty much everyone on this program. crude output in this country, in the u.s., is getting close to record highs again. crude output close to record highs, doom and cream in china and we are back to $90 on brent? lisa: i don't understand the oil market, why it with down so much. people are saying it is because of the financial position of the market. i don't understand what saudi arabia is doing. to your point, the fact that is not just boreal, it is in other commodities tells us this is more than supply and demand. jonathan: warnings from united airlines and alaska air the last

30 minutes. investors betting against an ecb rate hike, our quote "may be underestimating the chances of it happening." he calling it "a possibility but not a certainty. i continue to think that hitting our efficient target of 2% at the end of 2025 is the bare minimum we have to deliver." that meeting a week from tomorrow. alan ruskin joins us now. talk is cheap. japan is talking a lot. will verbal intervention work? alan: talk is cheap. they are fighting a strong dollar above all else. they don't really have control over the big dollar story. they do have some control over the yen. if they want to strengthen the yen, they have the tools. they freed up the 10 year yield to their latest cap period 65

basis points. they can let the 10 year yield drift up. the rate is between 1% and 1.25%. if we did see a 50 basis point increase in the 10 year yield, that would do it. that would do a lot more than intervention is going to do. lisa: we are seeing the 10 year japanese pond at 65 basis points which is shocking given where it is coming from in terms of how much it has crept up. what is the line in the sand for the bank of japan? it seems to be moving in terms of the yen. at what time is too weak? alan: lines in the sand are open to the market attack. we have consist of the scene verbal intervention in the 145 to 150 range. you would think if the yen is being singled out for weakness and remove above 150 than on those two conditions, some

intervention could be seen. it is going to need to see something different that we are seeing now which is the yen being singled out for weakness. in general, we are seeing a lot of other currencies. china is saying the same story in some sense. i don't think the japanese can say this is japan's story in particular. lisa: in japan, it is not a positive thing. i don't what to see a currency that is this week. in china, maybe they want a weaker currency. maybe it will help induce growth by increasing exports. at what point is a weaker yuan positive for china versus something they want to intervene with? alan: i think it is a positive. the authorities might look at it differently. thanks like national pride, they get roped into the exchange rate. if you look at the pure economics, china is facing

deflation in the asset markets, facing disinflation in the goods market. the exchange rate is a natural safety valve to allow for policy seizing you cannot enact anywhere else. you have interest rates extremely low. you have liquidity on the south side. exchange rates are a natural vehicle to ease up. jonathan: if there are benefits to that, why are they selling such an aggressive rate? what you think that is about? -- what do you think that is about? alan: it seems the authorities care a lot about their levels, vis-a-vis the dollar in particular. there are elements there where the weakness, they don't want the exchange rate to be another source of instability. it is something which the

markets can latch onto. it is very reasonable. they can try to control the things they think they can control for the time being. if the fed does cut rates in 2024, yet the basis for a weaker dollar and take some of the pressure off of the chinese authorities. lisa: do you think the dollar has appreciated so much that it is presenting some sort of stability risk more generally? how much further does it have to go to shake things up just because of some of these pressures in asia? alan: i don't think it is a stability risk. inflation and deflation are the stability risk. the chinese authorities have the capacity to manage some weakness to the extent that the external accounts are still strong. exports are pretty much doing

what the rest of asia is doing. they could be stronger. the current account is in solid surplus. that is going to cushion in -- cushion any particular weakness. i don't think they are concerned the yuan is going to drop is a bit asleep. -- drop precipitously. jonathan: thank you. three names to look at in the premarket, southwest, alaska, united, updates from all three. southwest getting hammered down by close to 6%. an update from them, they had seen third-quarter fuel costs at 265. noc fuel costs that 280 per gallon. alaska had to do the same thing, single costs of three per 15 to 2.25. alaska sing jet fuel prices climbed since the middle of july.

the question we are asking, have they got to eat this or can they pass it on? southwest with this headline, they expect solid profits in the third quarter in a four year. for -- in a four year. lisa: united airlines is that they are not lowering their credits of profits even on the increase of the fuel prices which raises questions around how much they can pass along versus cut cost in other areas, how much this points to the stickiness we keep talking about with increase in real incomes. jonathan: i imagine we will get an update from american and delta. lisa: i was looking into why we are getting all of these now. what is the impetus and the occasion for everyone to be updating oil prices other than oil prices are up? nonetheless, we would get others. jonathan: highs for the year,

even with what is developing in china. it is not just crude readying. just how bad our thanks? leland miller is going to join us. if you are struggling to get clarity on what is happening in that economy, this is the man that might give you some visibility. live from new york city this morning, good morning. ♪ ssibilities. to find your personal style. endless hardie® siding colors. textures and styles. it's possible. with james hardie™. hey corporate types. would you stop calling each other rock stars? you're a rock star. you are a rock star. no more calling co-workers rock stars. look, it's great that you use workday to transform your business. but it still doesn't make you a rock star. so unless you work with an actual rock star.

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>> what we have seen in recent months is a substantial slowing in the economic conditions in china. because our economy is closely intertwined with the chinese economy, we are not and will not be immune from a slowdown in china. jonathan: the treasurer of

australia faces headwinds from that slowdown in china. from new york city, good morning. your equity market looks like this. equity futures are softer, negative by 0.2%. your 10 year, 4.2 420 -- 4.2420. we took today off monday, although it does not feel like it. the fx market, 1.0739. positive on the currency pair. some strength in the face of weak data over in europe, germany specifically. a hock on the ecb, the possibility of hiking a week from tomorrow. lisa: he did not really committed to anything but wanted to juice of the expectation that you could get a rate hike. it is unclear where we are in monetary policy. i think the bank of canada

coming out in three hours, it is going to be interesting. is hold the new hike and does that give people confidence? jonathan: you see the moves? they are cutting there. they are the original front loaders. lisa: cutting from 13% to 9%? jonathan: but double digits. it is not a different beast. leland miller, the cofounder of china beige book. everyone is saying the chinese economy is bad and that we look at a four month hi, crude, new highs for the year. how bad is it? leland: the discussion in q2 was are we going to see a big recovery or a mild recovery? the question has moved to is china collapsing? it is easy to discount that. china is not collapsing,

property is a mess, but most of the economy is chugging along. people let you focus in on one part of the economy which is property. you see problems across the economy. manufacturing is holding up better than we thought. consumption is disappointing but you have services doing pretty well. revenge spending basket is not too bad. this is not an economy doing particularly well but yet the contrast that with perceptions of how the economy is doing. there is no comparison that china is doing better than people think. jonathan: the focus is always on where the drama is. what is the relationship between the mess, the property market, and consumption in china? not just right now, but historically speaking. leland: if we take the big picture, it is intertwined because 70% of chinese households have had their

savings invested in property read if you see property prices going down, chaos across property, people worried, they are going to spend less. you have a bigger problem which is confidence in the economy. i think that is why the consumption sectors have not jump to the way people expect them to. the property thing is a different dynamic. it is happening because beijing is allowing it to happen. we have been talking about the fact that beijing wants to diminish the role of property as a growth driver of the economy. they are doing that. now that they're doing that, the market is saying this is scary, give us stimulus. this is a tough process. lisa: you said china is doing better than people think, is that in the short term with long-term? leland: i am talking cyclically. structurally we are in for a long-term slowdown. this probably sounds like i have

a proper sticker on it because i do. we set this for years when growth rates were up at 7% or 6%. the economy is in structurally undergoing a slowdown that will take it into the low single digits. that is not changing. coming off of covid zero, there is a cyclical bounce back, things are better than they were in 2022. as long as you don't have long-term expectations that things are going to get materially better and jumped back up to the old bridge growth or the old stimulus playbook, then you can manage this in a relatively sensible way. lisa: if markets are discounting mechanism and trying to look forward to subpar growth in recent history and a lot of policy ambiguity as far as where the government is going to step in and push different ways to balance for unbalance different industries, why would you have

any conviction to invest in an area especially when we hear about decoupling or people and countries moving away from china? leland: part of what we have done over the past decade is tell companies, be very clear on what you want to accomplish in china. if you think you are there because it is the growth engine of the world, you have a bad strategy. if you want to build up china operations to cater to chinese consumers and you are taking care of supply chains if they're not getting into mixed and not falling to geopolitics, that is a different story. there is a china growth story, just not the one people have been running on. it -- you have to be careful about if you are in china, what are your goals? five years ago people had big goals and they are not achievable anymore. jonathan: in china for china is a quote we have heard a lot of. i want to talk about was happening in china and the breakthrough we saw from huawei.

how key is that for chinese ambitions? leland: it is tricky. the huawei breakthrough is the idea that china can produce advanced chips. are they evading these controls? by the beating export controls? -- are they beating export controls? i think they have created an advanced chip that is scalable in some fashion. that is a big deal. the yields are reportedly not that high. they are throwing money at this to develop their chip ecosystem. the less -- the lesson is that input controls have too many holes in them and need to be bolted up but also that china can brute force some of this but not most of it. it is a difficult long-term strategy. jonathan: so much chatter about that over the weekend, including this story that xi jinping won't

attend the g20. what should we read into that not from our perspective but from their perspective? leland: there are all kinds of rumors that he is getting a lot of feedback at home that he needs to shape up. those things are possible to verify. the lesson here should really be that we can put ourselves in xi jinping's head because he makes decisions different than most people in markets would do. all we have heard the past few years is xi jinping would never do this because he would not kill the golden goose. covid zero did not break that mindset, i don't know what will. we have to be humble in guessing the intentions of xi jinping. he signals his blast on slow growth to economy, focused on building up china from a national security perspective, trying to insulated -- trying to

insulate it. i think try to guess what he thinks from day to day is difficult. jonathan: thank you ray much. leland miller there. people who try to get in xi jinping's head find themselves on the wrong side of the story. lisa: you can get every kind of narrative about what he is thinking and what he is trying to do and every single time you are probably going to run up short in terms of actions that are expendable. this is one yesterday, talking about banning iphones for certain government officials in certain government practices. they don't want to kill the golden goose and yes they have an integral relationship with apple. are they willing to sacrifice it in part to put forward their own industry? these are the questions that people say they would never do that, and yet that is what is

coming to the fore. jonathan: are we surprised by that given that some government agencies are bending tiktok? lisa: i'm not surprised, but they both need each other. apple china work symbiotically. if that is the case, why do you want to get a slap across the face? jonathan: do you think that apple needs apple -- apple needs china more than apple is china -- then china needs apple? lisa: i don't know -- veritable medic. jonathan: ann miletti is coming up. there equity market on the s&p, down by 0.2%. from new york, this is bloomberg. ♪

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>> they think the rally has legs. >> there is a slowdown underway but i do not think people are position for it. >> it will take a while before we see a flattering yield curve and inflation come down. >> there is fear in this higher for longer environment that yields go higher. >> the risk is the fed is prematurely declaring victory. announcer: this is bloomberg surveillance with tom keene, jonathan ferro, and lisa abramowicz. jonathan: good morning. this is bloomberg surveillance on tv and radio, alongside lisa abramowicz. i am jonathan ferro.

s&p, negative zero .2%. on the conversation this morning, $90 crude and the airlines have a situation. we have heard from united, alaska air and south west. lisa a: all the comments are that oil prices are going up and it is causing a significant increase in their cost. it is unclear how much they can pass to consumers. how sticky can this be in inflation? jonathan: united says they continue to expect solid profits in the third quarter and for 2023. lisa a: i am trying to square this with the idea of pushback, the idea of discounted fares. there is a question going forward of whether there will be real compression, not just for the airlines, but margin compression as a reason old higher commodity prices -- as a

result of higher commodity prices. jonathan: plenty from fed officials we heard of. including partner. one is the rate hikes on ice. then you have a move in crude. you wonder if this complicates again looking at cpi week from today. lisa a: is this from demand, people going everywhere that you are seeing increases in supplies -- in some prices, or is it the supply side? if it is supply-side, av the fed does not have to do any. maybe this is disinflationary because it will take money out of people's ability to spend. jonathan: two very different stories. i want to be specific. the federal reserve officials are talking about putting rate hikes on ice. the ecb is doing anything but.

two officials and speakers. the head of the netherlands spoke to us and said he thinks the markets may underestimate the chances of a hike a week from tomorrow from the. seconds ago, we hear from another ecb official saying that in september, the hike would be preferable to hiking later on. the hawks are going into this meeting, not to beating the drum and saying less hike, certainly opening the door. lisa a: you have seen the probabilities creep up. i think there is a 35% chance now that there will be a hike at the ecb meeting next week. are they actually considering a rate hike is this trying to push a market into being more restrictive so they have to do less? these are two different things and we have been playing this game for a while. he made a great point earlier, do they have to address taxation

directly? if they don't, do they have credibility? jonathan: let's bake them. lisa a: beat them? -- bait them? you should go. jonathan: that such a tom keene move. going to the ecb meeting next week. the euro up off the back of these headlines, just a bit i 0.2%. 1.0745, even with data from germany. in the bond markets, lower by a couple basis points. on the 10-year yield, 4.2420. lisa a: ecb hawks are pushing against a ground strength and developing markets around the world. that is, let us hold and see. the bank of canada is the next

one to likely do that. the expectation is for them to hold at 5% because growth is weakening. some measures of economic prosperity are expected to diminish. at 2:00 p.m., you get the fed's biggest book -- beige book. the forecast has come in around 6%. as patrick harker of the philadelphia fed actually leaving when it comes to data matters? was fed speak, andrew bailey speaking at 9:15. susan collins, boston fed president. then lorie logan speaking later. it is interesting how much they want to push on the hawkish tone, if not substance. does this move to pushing markets or people staying, show me, do not tell me, because i know what you are doing? jonathan: i think i might

actually read the bates book. lisa a: i do. tom keene does not. jonathan: i don't usually. i know you do every time it comes out. lisa a: you always say that they try so hard to make it interesting and it is not. jonathan: dallas manufacturing recently had feedback from major industries that makes it interesting too. i would be surprised based on what we heard from fed officials. lisa a: and based on what i heard from small business officials who say it will get harder. they don't have the same leeway to lever up. jonathan: are you going to talk more about friends and these businesses? [laughter] lisa a: moving on. it is the restaurant industry and some smaller businesses in new york city. and what happens if there is a falloff in certain areas or a removal of certain outdoor spaces.

how do you compensate and still pay the higher overhead? jonathan: these are your friends in cincinnati? lisa a: i thought you said he would give me a pass. [laughter] jonathan: henpecked when he and global investments. ann milletti great to catch up with you. lisa and i were talking about higher fuel costs, something like 20% since july. you're asking the real question, whether they have to eat it or pass it on? you think consumer tolerance is there to pass on higher prices? ann: it will be tough. the consumer has taken on a lot. they have gotten a little relief but there is a lot of consumers that think they have not seen as much relief as they need. remember, travel is something you can cut back on. we tend to see that, but also, we have seen corporate travel

come back and corporations have a limit too with budgets. if airline prices get too high, you might start to see corporations pull back on their travel spend as well. lisa a: there is a lot of question about higher oil prices and what this does to equities? is it supportive in the sense it drives up energy equities in particular, or is it depressive because you will see more depression around the areas with prices? ann: you hit the nail on the head. it is a double edged sword. for energy stocks, it is a positive in the near term. that has been good for most energy companies this year. we have seen more discipline, which is something we talked about before, in u.s. producers. that has been good. however, the higher the energy price goes, the more difficult this is on company price margins

and is an input to so many companies so it will be a challenge. one of the questions we are asking yesterday, does energy drive the economy or does the economy drive energy? what comes first? the chicken or the egg? because there are fewer suppliers in the market today -- you and jonathan were talking about this. a much tighter supply market. the price is a much tighter control. the only good thing about this is the saudis really do not want to see prices go above $100 or stay above $100 too long. they know this does damage to demand and do not want to do this either. there is a fine balancing act they are trying to create. whether or not they are successful will be interesting to see. lisa a: if you say this is a

controlled move in response to a specific price bogie that saudi arabia has, what are we looking at in terms of understanding the prices over the next sessions? we have seen heals up over the goldilocks information. and we are seeing real gains coming from interest rate drivers which used to be interest rate sensitive and now are not. will that be the de facto even if everything is not working? ann: it is a great question. it has been a little head scratchy for some investors. when you look at what has happened so far this year, it has been frustrating for some of our investment teams as well. but earnings growth has come from the big, concentrated tech names in the cap tech space. it does start to diversify a lot more and goes down cap. we have been talking.

on your show, i have mentioned small-cap and big cap. that is a space where we thought the market would diversify. that did start to happen in late june and july, then pull back in august, but we think that will continue to happen. i do think other sectors will be more attractive when we look at what earnings rebounds will happen. there is reason to be concerned that you will see more earnings pressure on some large cap tech names. jonathan: small caps got hammered yesterday. down by 1.2%. thank you. ann milletti. that was tough for small caps yesterday. lisa a: if you see homebuilders? slammed. a lot of people said that was because of the rise in row rates. it was the worst day for them since october 2022.

jonathan: great line from richard bernstein. performance on the small caps versus the russell 2000 continues to stretch. we should hope this does not continue because the situation is dire, we are not that bearish. my first question, is that a hope or a strategy? [laughter] lisa a: that is a good question, especially as people say ai will do everything, cook your meals, clean your homes, and drive you to practice. this is the reason people keep going into it, even as you have people saying it is a big bubble and nvidia is leading the charge. at what point do you have a reckoning if the earnings are delivering even as you see molly performance in other areas? jonathan: certain investors have said, a big bubble, i will have some. lisa a: i am all in on the fomo trade. jonathan: massive gains.

lisa a: this is the question going forward. i thought it was interesting. really yields going up used to be a killer for tech. suddenly it is the haven. and you have rate areas going down. jonathan: futures negative zero point 2%. in 45 minutes, david leibowitz -- lebovitz of jp morgan. he said the contrarian play short bonds on nobody's sum, sticky inflation and in 2024. in his move -- you, that move is contributing. lisa a: we are hearing from more people. katie kaminski. it was contrary and couple months ago. increasingly, it is not, which is why you have not seen yields come in dramatically on the long

yield, even though you are talking about reality. jonathan: what is consensus? i am glad you asked. a decline in conflation -- a decline in inflation leading the fed to cut rates, because it is becoming overly tight to maintain restrictiveness. that is the consensus apparently. lisa a: a lot people are looking for that. jonathan: from new york, good morning. . ♪

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home, it received its fair share of attention in the past -- the press. but august was a busy and productive month for me and my staff. i have the same message. there is too much government and too little being done to boost the economy. jonathan: that was senate minority leader mitch mcconnell returning to the sent after the summer break. freezing for a moment. he said i meant to many kentuckians that said there is too little done to boost the economy. he said there are too many politicians that are too old in washington, d.c. on both sides of the aisle that will not retire. lisa a: we would hear more about that from mitch mcconnell today, probably. there is a meeting of republican members who will come together to ask him about that. and give a chance to respond. what will he say?

is it up to him to decide whether he's apps down? or is this something the senate republicans can push? jonathan: annmarie hordern in washington, d.c.. that he really address concerns about his health over the last few weeks? annmarie: it was an eight minute floor speech and he talked about the particular moments that happened in august, the 32nd freeze. but there was a 22nd freeze as well in july. it isn't comfortable that this was played out in public. which we heard is from the congressional physician who said this has nothing to do with a stroke or seizures. remember, he fell earlier in the year and suffered a concussion. potentially, this is him still recovering from that. but it is an elephant in the room that will likely be discussed with senate republican members meeting.

what we heard from senator flume, who is a top contender in the -- excuse me, senator john cornyn, and other top contender from texas. this is something mitch mcconnell wants to address and be more print -- transparent about. he had a meeting behind closed doors with his colleagues and will be more transparent about what is going on with his health. we only got a step into that window. -- do not -- jonathan: do not believe your lying eyes. who are these doctors that say these presidents have clean bills of health when we can all see there is something wrong. not just republicans, but democrats too. dianne feinstein. who is giving the clean bills of health when we can see something is not right? annmarie: it is the top

physician, brian moynihan. i do not know him personally. i think senator mcconnell >> team -- senator mcconnell's team will be as transparent as they can. it did not have to release the doctor's note but they did. the point you are bringing up is, obviously everyone is witnessing these moments. whether it was diana einstein being to vote yea, after she was confused. public sees this and they want more answers. there is also a lot of polling to the upside of individuals and voters who want to see term limits enacted or age limits or mental acuity tests, because there is a concern that we are living in more of a geriaocracy than a democracy. lisa a: if mitch mcconnell's

leadership is questioned in any way, what does this mean for negotiations having to do with budget and government shutdowns later this month? annmarie: the address this yesterday and there was a key moments before he froze up in kentucky, right before the episode happened, where he set it would be a big mess. the government runs out of money september 30 and needs to either vote on a continuing resolution, because it does not look like they will get all the appropriation bills from house and senate and go into a conference in time. there is another issue that will potentially be linked in one bill. supplemental funding. mitch mcconnell spoke about this yesterday, because when you see a divide among public and about aid to ukraine, with the white house is asking for is more than $40 billion. some will go to aid to ukraine, which mitch mcconnell says we

need to vote on for national security purposes, but also disaster relief for florida and maui. this will be a show down not just between republicans and democrats, a between the house and senate. mitch mcconnell has always been one of the individuals who can maneuver the sin and makes sure the bills he wants passed get to the finish line. lisa a: without him, who touch -- takes that role? what does that mean in terms of government shutdown? annmarie: there will potentially be a government shutdown whether or not mitch mcconnell will be the leader. he does have a succession plan, although he does not talk about that in the open. but there are three johns that are talked about that could fill the role. no one has publicly, despite --

excepthawley, said he cannot do this job. some officials are saying, we do have a lot of faith in backing mitch mcconnell. intentionally, they want to see this through to the end of the election. mitch mcconnell, whether you like him or not, is a very successful legislator. he has immense institutional knowledge. his super pac is the biggest when it comes to money, so he is prolific and it comes to raising for the gop. there are no out and open call for him to step down but this is potentially something we need to watch. these are serious health concerns. jonathan: four johns potentially. nobody needs that. [laughter] lisa a: are you making an announcement? [laughter] jonathan: amh, crude is $90 a

barrel. lisa a: the senator from london. [laughter] jonathan: that could work. jet fuel starting to pressure airlines. that could complicate things. annmarie: john sullivan spoke about this yesterday when he was on the podium. he was asked because you have saudi arabia, an ally of russia, cutting. the cutting is prolonged and we saw brent crude go to $90 a barrel. gasoline prices already inching toward four dollars a gallon. this is a huge concern for the administration because we are going over people driving season, post-labor day, and you see prices go higher. this is a huge concern because americans are continuously worried about high inflation and give the biden administration poor marks when it comes to the economy. this is something that has been the bane of existence for the biden administration last summer.

going to the fall, it will be a headache. jonathan: thank you. to amh's point, it is very to have gas prices where they are at this type -- this time of the year. lisa a: the husband wrote concern going into the election season. -- that has been a role concern going into the election season. what does this mean early next year and even more importantly, during the election? it will be a big issue. jonathan: i have had shingles. super severe. i have had a mild case of shingles and as you get older, it can be risky. so, i remember where i was and i do not -- and i was not trying to run the government. if you do not know where you are because of shingles, are you fit to be in the senate? lisa a: i have her nikki haley talking about the need for a

competency test. there is research around whether or not it is constitutional to do this? will there be a push by a lot of standing ranking members that are already older to in-state different measures that could put a check on this? jonathan: washington, d.c. finding itself on the wrong side of the mood of the rest of the country. the rest of the country would like this to happen based on polling. lisa a: are we looking for another john as a leader? jonathan: know. from new york, this is bloomberg. ♪

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jonathan: if you are rights in, i don't think you are liberal enough to run the seat -- to win the sea in new york. they don't know my politics. lisa a: you were talking about being the fourth john in the republican congress. [laughter] it is true. nobody knows you. jonathan: s&p futures down. look at this. keep laughing. it is rude. negative zero .2% on the a tough day yesterday on the russell 2000. small caps getting hammered. down by 0.1%. the 2-year yield, 10-year yield and 30-year yield all down. two-year yield -- the 10-year

yield at 4.2381. a really busy day for corporate issuance in yesterday's session, pushing across the curve. there are days when you see on slick september you get tons of support for the corporate side that kicks around the market. it was a rally on crew that got everyone's attention. lisa a: especially a shift that has to do with this increasing -- i don't want to say consensus, but less contrarian than it used to be. if you think the fed will use every excuse to continue its hold, all of a sudden rate start cribbing higher in the face of that. jonathan: crude looks like this this morning. 3.90 for the first time -- going $90 for the first time since september. jet fuel prices have gone up 20%

higher since the middle of july. united with a warning of higher costs, and a warning from southwest and alaska air in the last 90 minute. lisa a: would you fly the same routes if the prices were 20% higher? will this drive people's travel liberal there still be the desire to get out there? -- peoples travel lower or will there still be the desire to get out there? i don't know. and reducing the number of flights going out to? prices. jonathan: will be revenge spending continue? we were getting told by domestic airlines, focused through earnings season that maybe things were flagging and they had to soften airfare. internationally, i have no idea. a lot of people are seeing things on italy, greece, france. they want to go on vacation. didn't we get this in the

consumer confidence survey? didn't they say their intention? i cannot work out whether they would spend the money on vacation or if they just want to. lisa a: there has been stories of cruise liners getting pushed back. they are mobbing reports that are getting out of control which i agree with. jonathan: i could not agree more. are you trashing cruise lines? [laughter] lisa a: i am not trashing. but they have set foot traffic is so high. jonathan: as they should. i hate when a cruise ship comes up. have you seen that? a beautiful pork, a great, fantastic view. then this massive tank with a hotel piled on top of it pulls of an spoils everything. lisa a: if people like cruises, all the more power to you. it is just an issue of whether people can keep doing this and

whether they can keep jacking up prices. jonathan: the vice finance minister for international affairs of japan saying, if moves continue, the government will deal with them appropriately without ruling out any options. the question would be, where are you going to do about it? lisa a: which is why he did not see much of a move. it was very short-lived. my favorite was a story that said we jumped from a level four on an intervention scale to a level six or seven, and markets don't care. that is telling on where people think the markets will be. jonathan: pushed back in japan and china. on best the government is preparing more stimulus. evergreen closing of 83%. making it the largest again since enlisting in 2009.

developers still reeling from deeper financial problems. lisa a: my favorite part is, is bad news so that it is good? over in china. is this looking at the fact you can have a default across the board in the majority of developers in china and that is being viewed as a positive because there is no way the chinese authorities will let this happen. that highlights how much people believe china has been beaten up. so maybe it is not as bad as people are expecting. jonathan: where disappointing data from germany. plummeting nearly 12% to start the third quarter with factories. a difficult day for germany. yields higher off the back of hawkish ecb speak. the dax is lower off the back of week data. what to do with this? lisa a: germany is in a tough

spot and everyone would agree with this on the fact that their factory orders are down, probably in part because of china. at the same time, services not coming back. diminishing. where will the growth come from at a time when germany has continued to push into china? he saw the shift in tone recently -- we saw a shift in tone recently, saying maybe they will not rely on them as much. that is new. how much is coming from the government? jonathan: there has been a boom in mercedes. there has been competition domestically in china. german manufacturers had it their own way all the time but that seems to have changed. there has been an increase in any factories over the last decade or so. lisa a: they are between a rock

and a hard place because based on where they are, they cannot change without torpedoing the economy. jonathan: the head of fx and monetary policy at bc he joins us. sonya, i want to talk about hawkish fed speak from two officials. sonia: good morning. let me quickly state that as a passionate sailor, i agree that cruise ships are an abomination. [laughter] but moving to the ecb, we have seen a lot of division in the council. for a long time, during covid and the last year, we saw a counsel. we are near the end of the rate hike and you see hawks and doves positioning themselves. i would not really count too much on what individuals are saying simply because they are

spread in the council and talking which is what we saw this morning. the ecb is split on what to do next week. it is 50-50 on what the market is pricing in on whether they will heighten one more time. we do not think they will but there is a risk because we have high price inflation. we have a lot of weakness in the economy. lisa a: how much are they watching and focusing on the euro and the foreign-exchange mechanism when you have commodity prices going up, a stronger-than-expected u.s. economy, and the euro is again struggling to climb out? sonja: obviously, this where of environment, in terms of inflation outlook, you do not want to export markets. i do not think we have to worry about the level of the exchange rate in the euro zone at this point of time.

we have been trading 1.10 plus or minus for a while now. i don't think it is something the esc be -- the ecb is concerned with. it would have to be aggressive. i think we are miles away from this. lisa a: why is there a push toward hawkishness? or hawkish rhetoric? when people have priced in a rate next week. are there conditions that euros are not tight enough despite what we have seen with yields? sonja: i think it has to do with something else. figuring out when to stop the rate hike cycle is always really tricky. it is a lot more difficult now than the past because of these spheres we have had the last year with incredibly high inflation. they are trying to strike a balance. on one side, they should signal the end of the rate hike cycle. at the same time, do they really

want to keep the door open for additional tightening? they do not want to shut the door. the compromise could be still quite hawkish rhetoric combined with we will wait and see what happens. that is the most likely outcome next week. jonathan: how much can i read into what is happening with central banks like europe? with reducing interest rates? some companies led the typing cycle before places like the b and federal reserve got going. do you think they are leading the cuts as well? sonja: there are a number of countries in latin america that are cutting rates, but they did start early. i do not think that is a signal for anyone else. it does confirm that we are seeing the turning point in global monetary alice. -- monetary policy. i find it bizarre that we are focused on whether or not the

ecb and fed will tighten one more time, because ultimately that will not change any thing. why are we so obsessed with this discussion? probably, we would be talking about potential rate hikes next year but that is not seem to be happening. jonathan: some people are talking about the potential for that to develop. neil dutta of ren matt considering the possibility things pick up. feels like things are a little more split at the federal reserve. is it at the ecb? sonja: that discussion is not happening now but will happen. when it starts to happen, it will take some people by surprise. i will say this will also be the case in the u.s. while the market is focused on cutting rates next year, it is not something that will happen. i think this is what people will

start focusing on rate cuts in the winter which will create a lot of volatility in the market. that is still very much in the pipeline for next year. not early in the year but more toward the middle. jonathan: thank you for the update and your love of sailing and hate of cruising. sonja marten of dz bank. if you are tuning in, welcome to the program. s&p futures -50.2%. -- negative by 0.2%. lisa a: are there cruises more acceptable than others in your view? jonathan: no. lisa a: what about some to -- jonathan: one caveat, river cruises. smaller, less disruptive to your surroundings. lisa a: you think the other ones are not submission -- are not

sufficiently environmentally friendly? is it because you are looking at one cruise in particular in alaska? jonathan: i would consider doing a river cruise in all my friends on the boat with me. [laughter] that is as far as i will go. i want to go back to the view on the bond market. jim beyonca from beyonca research. no recession, sticky inflation in 2024. isn't that what sonja marten was talking about? lisa a: basically. increasingly on the margins. what happens if you get the reek celebration. what happened with the increases we have seen not just in oil but beyond? particularly with iron or and food. will it prompt further moves the extra that will change the

market? that can be a road game changer. jonathan: amh writing writing river cruise. -- writing ryan river cruise. i like the idea of the fjords. lisa a: fjords are beautiful. it is hard to get to places. i will try to drum one up and see if i can pick one out of the jet stream. jonathan: kevin book of clearview energy partners, next. ♪ ♪ explore endless design possibilities. to find your personal style. endless hardie® siding colors. textures and styles. it's possible. with james hardie™.

>> at the end of the day, we have had this bearish onslaught of russia news and china name. what has not gone down and screwed. cruise bottomed. i think brent crude is on its way to $90. look how energy stops after a -- energy stocks have regained a flag of leadership. jonathan: a week ago, chris

verrone talking about crude getting to $90. crude to $90 in net yesterday's session -- in yesterday's session. a 20% move up on oil. lisa a: is this just because saudi arabia coming out -- or not just because, this is not insignificant -- cutting production? or is there more? i keep going back to leland miller. germany's economy is doing ok but not as well as it was expected to. jonathan: oil production in america. 12.8 million barrels a day. and we are seeing prices like this. lisa a: a record amount of production feeling supplies at a time when there has been speculation that maybe people are using less gasoline because of electric vehicles and that is why oil demand is not going up as much as it should.

it does not make sense. there is not a cohesive narrative underpinning what we have seen. jonathan: kevin book joins us now, managing director of clearview energy partners. what are we doing with 12.8 million barrels of oil a day? kevin: it is reaching for the skies because some biggest producers in the u.s., of -- in the world, other than the u.s., is cutting supplies. i think traders are finally starting to take saudi arabia seriously. analysts on saudi arabia were heard to the barrels as a lollipop. it is starting to feel like a sucker with long-lasting effects. jonathan: talking about monthly reviews, are you saying in the monthly review that nothing will change? kevin: nothing has changed so far, a caveat that leaves room for opportunity. the kingdom is wary of crushing

economic recovery wherever it may occur and stalling the economy globally. right now, there is room to run. from the start, if you look at $75 a barrel and work backwards from the elasticity effects, it looks like it should be a nine dollar or 911 50 cent per barrel cut back -- or $9.50 per barrel cut back. lisa a: how much is this driven by the fact growth is not as bad as people previously expected in places like china and europe? kevin: demand is always important in the second half then the first half. my colleague points we are looking at around a 4.2 million barrel ahead of supply deficit which will be pretty enduring. there is a lot of demand in china and a lot on jet fuel which increases the risk if there is a hiccup, but does not

change the overall dynamic when looking at seasonal effect. lisa a: there is a question around with the bogie is for saudi arabia and russia. is there a says they are trying to get oil prices to a specific level for they will start to try to balance out there supply versus demand? kevin: there are two separate things that need to be taken separately. it is aligned with the kremlin as a matter of business, not politics. if you look at the kremlin, they figure out revenue is equal to price times volume. the differences are one country funding a war and another engaged in a very sophisticated and elaborate negotiation towards expanding the abraham accords. i don't think the kingdom is looking to blow up the opportunity, difficult though it

may be an with many steps to come. jonathan: how important is it to refill the spr and how likely is it we will do this anytime soon? kevin: the energy department made it clear there is not much interest doing it at this price level. how important is it? that is a matter of opinion and perspective -- and perception. someone say the spr is never needed. i have testified at least six times on the hill that it is an insurance policy. i would be in the camp it is worth refilling and should be done as soon as it can be affordably. jonathan: as she testified, we don't have the insurance policy, so how vulnerable are we? kevin: we have 300 50 million barrels in the spr still which is not trivial, -- 350 million barrels in the spr still, which

is not trivial. we have economic risk but this is also a mess to producers that they do not take up the slack and bring the market into alignment, the u.s. would undercut them and take away their premium. lisa a: how awkward does this make the meeting of president biden and bahama thence along -- and mohammed bin salaam next week? kevin: the economic oil trade remains the dollar. the political currency of oil prices remains laying. the challenge for the white house is not just internationally political but also domestically political. the white house has to blame overseas domestic producers. this complicates things. we subject sullivan specifically avoid blaming the kingdom as he and former -- we saw jake

sullivan specifically avoid blaming the kingdom as he did previously. we also have alliances with the white house climate agenda, probably not wanting to blame them ahead of things in dubai. maybe later on the plane and more room to talk. lisa a: given there will not be more action that comes from these discussions based on the willingness to place blame, what is the offset and offramp for oil prices going higher? why will he not stay at these levels and go higher from church -- from here to the near future? kevin: american drivers are pretty resilient. you can see this. we estimate you are talking about some 600 plus gallons from the year through july by the average driver, more in red states than blue states so there are economic politics to that.

the other side is where we are getting supply. it would be difficult to say this from the white house perspective but a certain amount of realpolitik is under work. sanctions leniency on venezuela could be crafted ahead of the election to induce democratic reforms. this looks like another source of barrels. and may be a certain amount of pragmatism in raising the price cap on russian barrels to other countries. there are have -- are heavily censored countries where the white house can pause touch. jonathan: do you like cruises? i want to know. [laughter] kevin: i like cruising in the car on a hot summer day. not food and booze on boats. lisa a: you realize you are making me want to defend the cruise industry? jonathan: the is so on brand. [laughter] lisa a: you know that is how i

think so now i will start looking for arguments. . jonathan: i want to bring up the doll -- the dollar-lira. we are down on the currency by zero so that is in the turkish favor. president erdogan of turkiye says we will reduce inflation with tight monetary policy. that is new. lisa a: i just want to the profile of the new central bank governor which is a young woman who came from wall street to leave the central bank. i wonder what influence she is having over president erdogan in a reformed way that you have to follow conventional monetary policy to have a conventional monetary outlook. jonathan: the headline from just moments ago. i would not say it is surprising because of the last couple months but is surprising

relative to a couple years ago. lisa a: president already one -- president erdogan's change in rates. suddenly seeing downgrades to the rates. what is this? jonathan: i used to sit down with the central bank governor of turkiye and say they have the hardest job in banking because these were highly credible, intelligent individuals in that seat and you know what they wanted to do but knew they could only go so far. it was a tough seek to be in. the dollar-lira at 26.76. david lieberman is coming up --david lebovitz is coming up next. ♪ let innovation refunds help

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>> we have an unsustainably strong economy so. >> yes, things are slowing but they're not collapsing. >> you shouldn't be underweight equities in the cycle. >> look at the price all summer, it has continued to go up and yield. >> bad news is good news when it's just a little bit bad. >> this is bloomberg

surveillance with tom keene, jonathan ferro and lisa abramowicz. jonathan: mohamed el-erian writes in, no river cruise. that's the last of the cruise talk this morning, good morning for our audience worldwide, this is bloomberg surveillance on tv and radio. tk has the day off and he will be back tomorrow. lisa: i love that quote of a little bad news. you could have something that softens the outlook for the fed but not enough that you get the hard landing. you have growth but you have the fed that cuts rates. that's -- that was the narrative a couple of weeks ago but it seems to be shifting a little bit on the margins. jonathan: his $90 crude good news or bad news? lisa: it depends, it seems people are trying to parse who is good for and who is bad for. it makes it complicated for the fed and the airline industry is

highlighting that this morning with the increase of costs sides to diesel and crude. how much does that end up getting passed along to consumers? jonathan: let's look at the airlines in the premarket. southwest is down by about 4%. the note we got from southwest was interesting. essentially, they are saying the same thing, fuel prices are up but southwest also said they continue to expect solid profits in the third quarter. to your question, do they eat it or pass it on? are they telling you what they are going to do? lisa: if they continue to seek robust profits, they will not downgrade their full-year forecast. does that mean they will pass along? united cut the number of flights it was going to be operating domestically out of newark in part because there was less demand so you just reduce supply and increase prices. we should see this kind of

activity rather than seeing a discount. jonathan: i thought we are getting lower fares domestically. lisa: they did talk about $20 fares but i went online and look for a couple of different routes. jonathan: these are cities that people don't want to go to? lisa: that was your line. the less popular routes. jonathan: that's another way of saying cities people don't want to go to. lisa: there is a question of some of the domestic cities in the routes there and whether it's the mid states in the u.s.. you were just trying to start trouble. jonathan: maybe my destination is ohio. futures on the s&p 500 are slightly softer,tk is away so we have to go a little bit crazy.

yields are little bit lower by a couple of basis points with quite a move over the last two sessions. 16 basis points higher. tons of supply from the credit market. i will speak about that at 9:30 a.m. you cannot overlook the move we've seen in crude oil with a 20% move from mid july to where we are now. a bit softer on the session to $86.45 on brent. lisa: how much further can ago if you have some sort of unilateral resolution in saudi arabia that they want to get prices higher? you don't have the spr, the strategic petroleum reserve. if you don't have that potentially coming in as something, cleveland to orlando was one of the routes. jonathan: i love how you keep digging around this. lisa: i was looking at routes to

certain other places. jonathan: places you like to go, yeah. lisa: they were still very expensive. jonathan: david leibowitz will rescue you. he is from jp morgan and it's good to see you. let's talk about the recall in the soft landing with rude back to $90 just shy of -- with crude back to $90. >> it creates a tension between the growth story and the inflation story its attention for the federal reserve. on the one hand, we will see headline inflation which is what central banks target besides focusing on core. you will see the headline inflation number begin to move higher. the higher energy prices and the resumption of student loan payments in a savings rate that is dropped relatively precipitously and we wonder if the consumer is beginning to bend but not as a surly break. this creates attention for the fed. they want to make sure they get

rid of the inflation that's been generated over the past couple of years but they are trying to do so without causing a recession so their job is infinitely more difficult. lisa: how important is it as to what happens with the extra oil cost for the airline industries? if you start to see them pass along to consumers, does that shift the conversation at the federal reserve in a way it wouldn't if it eats into margins? >> the airlines are interesting because they've had pricing power all along. people reengage with services and put goods off to the sides, the airline said we been able to raise prices. i don't know why you would change that in this environment so i think they will continue to raise prices to defend their margins but that will create an inflation problem. at some point, the consumer will need to make the decision to go on an extra trip were hunkered down? lisa: do you sense a shift from this consensus around the soft

landing to suddenly something more of what if the fed does pause and they have to hike rates again next year and those rate cuts that are getting priced in our off the table? are you moving to that side? >> if we take a step back at the start of the year, everything was going well, europe avoided a recession and china reopened that had a good first quarter and the u.s. data was better than expected and everybody got this warm and fuzzy feeling that it was going to be ok. what's happened more recently as china stalling out a europe showing cracks particular in manufacturing and an inflation story that is not resolving itself. i'm not sure we have more clarity on where we will be 12 months from now but you are seeing investors begin to entertain the idea that maybe a soft landing is not a guarantee and i think that's what's causing market volatility. jonathan: we spoke about this

yesterday. we have had this growth rally year to date in the face of a series of upside surprises in the u.s. economy. what is that about? >> somebody said that to me yesterday. jonathan: because they listen to us. >> exactly, the issue with buying growth in anticipation of slower growth is we had the ai boom over the past few months so valuation is offsides. if these were 10 multiple points cheaper on the big names, we would be more interested but given where they are trading, it's a difficult case to buy risk assets at a valuation when you see clouds on the horizon so we are leaning more into value and more defensive names in a big part of that is the price we are being asked to play to hold those assets. lisa: we are looking at energy companies, will they become more popular?

>> there have been a number of false starts over the years were people get excited and then it falls flat area i think the underlying business is from an operating perspective are in much better shape than they were five years ago. if you get the tailwind of higher oil prices, you get the margin expansion and you have this focus on returning cash to shareholders. than energy could be a bright spot in the short to medium-term. that's what makes this markets are difficult to figure out. we are talking about a slower growth environment potentially next year but we are tied unmet energy companies and airlines that have pricing powers which side of the trade you want to be on? do you want to lean into the soft landing or do you see clouds on the horizon and maybe want to be more defensive? lisa: other people at your firm have been talking about the yield curve at 3% and everything going lower. are there any shifts or arguments now within the team

about this idea that you could have higher for longer and maybe these higher and longer-term yields are here to stay? >> the dispersion across the research community of wall street is nearly identical to the dispersion abuse we have internally. lots of people are in different places. i think what the fed would like to see over time is a positive real yield curve that slopes upward. i am in the higher for longer camp. maybe they will go back down to 2.5% in the type -- in this type of environment. i think we need to be prepared for environment that the rates stay higher for longer but that's not a bad thing. that allows markets to differentiate between winners and losers and that hasn't been the case for the last 15 years so this could be a better environment for value and active management and fixed income. a world of maybe feels more like the environment we are in prior to 2008. jonathan: we have just had a

record potentially, 217 consecutive weekdays in oc and 07 and the yield curve was inverted and yesterday was the 216 so today's 217. i can't believe it's been that long. lisa: especially considering that people used to say this is a sure thing for recession. jonathan: what do i read into that? >> we know all the of the economic models broke during covid, forecasting is not as easy in this environment so what you see is this very wishy-washy behavior. it's 40% of professional forecasters saying we are going to have a recession now everybody things we will have a soft landing. we need to recognize jonathan: five times this year. >> the unprecedented nature of everything going on, we don't

have a playbook for that because we haven't seen a fiscal response like we sought to covid in decades. jonathan: this was great, thank you. lisa: bob michele said there was no disagreements. jonathan: it's a disagreement about people who take cruises. it's the same about airlines. lisa: that's not what i said. jonathan: you would go with that. lisa: let's just go with that. jonathan: welcome to the program, your s&p 500 is negative but 0.2%. we have a favorite of lisa richardson. lisa: i cannot wait to hear what she has to say in terms of those real gains you are seeing in income. i think this is one of the developments over the past few months. it goes beyond just a temporary boost in spending because of what's happened in the pandemic.

this could really prolong what we've already seen. jonathan: all these headlines about cuts in tech the last 12 months and then we didn't see it area lisa: they were getting hired like everyone else. has that shifted? we saw that with the jolt surveyed. everyone used to discount that back in the day and now it's the key forward-looking indicator for what's going on. jonathan: inflation expectations. lisa: i enjoy that. >> i never got a phone call from mitch. lisa: do you know anyone who got the phone call? >> i don't know anyone. lisa: if you've got the phone call, call in and we will patch you through. my father was born in ohio.

i have family in ohio. jonathan: sure. lisa: i'm talking about routes of airplanes. jonathan: it's tied with virginia. lisa: in terms of the amount of presidents? jonathan: that's what it's all about. uniting the country. from new york, this is bloomberg. ♪

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lower prices for consumers at the gas pump in the united states. the price of a gallon of gas for the american consumer is not a question of which company is doing what. that will be his ultimate metric whether we are succeeding or not. jonathan: that was the national security advisor. i have no idea what that meant. aren't gas prices higher now in this country? lisa: they lowered it for a bit now and now it's going back up. jonathan: it depends on what the saudi's and the russians are doing. shouldn't i care about it? lisa: i was looking at the gasoline price level in the united states and it is near the highest levels going back to later last year. it was higher but this is unfortunate heading into a season that typically is not a driving season. we will get toward one end it could potentially shoot higher. jonathan: that did not sound

like an individual who prepared anything. lisa: did you see any strategic remarks? this is a tricky political issue and now we are setting up for an election season where the spr has been drawn down significantly and is unclear what levers you can pull except for a downturn. jonathan: remember that fist bump? lisa: and we heard there will be another one. jonathan: when will that be? lisa: it will be in the next couple of days with the g20 emitting. -- meeting. maybe they could repeat. jonathan: the crown prince should probably offer one. lisa: what if he offers this and it's not reciprocated? jonathan: maybe you don't do that. i can't believe we are having this conversation. lisa: let's move on. jonathan: the director of

economic policy research joins us now. we need to talk about the potential for a government shutdown. congress must act before the end of the month to avoid a shutdown. how avoidable is the shutdown? >> i think the shutdown is quite avoidable. i've never really been in the camp that we are going to see a shutdown because i believe speaker mccarthy would look at the potential for a shutdown and realized it's harder to turn the government back on than it is to keep it open. i'm concerned about the ability of congress to create an offramp if they did shut down. 35 days shutdown was in 2018-2019 and that shut down would be trying to compete with for political purposes. it's an exercise to let air out of the balloon. that gives speaker mccarthy a

lot of impetus to reach a deal on a short-term agreement. that's what he's been saying since late july. i think we will see a short-term kick the can approach which is what he did during the speaker vote and the debt ceiling negotiation, just prolonging the inevitable. republicans are not going to vote for spending cuts at this time. lisa: why is it the house is not back in their seats until next week even though the senate is back up and running? this is the week where the year restarts. >> exactly, the senate is up and running and they are ready to go guns blazing into three separate small spending packages. they completed work on all 12 appropriations bills was the first time they've done that since 2018. each measure is more bipartisan than the next. they are marching in lockstep and the important dynamic is

minority leader mitch mcconnell's health issues. i think that will give them incentive to do the 89 level and higher for those three spending bills and the war in ukraine with the supplementing -- with a supplemental spending bill. the house will come back with just a litany of things they will need to address. they are way behind. lisa: we are heading into election season pretty soon. on the democratic side, how much of a headwind these higher oil prices we been talking about affect them like they did last year? >> i spent every election cycle looking at when voters bake in their forecast for what the u.s. economy looks like. at the very earliest, you're talking about march/april of

next year before voters start locking in their opinions on the economy. right now, the potential for ups and downs on gas prices is impactful day today but we are not going to vote for another 18 months or so. that gives the biden administration quite a bit of time. the understanding that inflation is high and gas prices are high as something you see in the public discourse all the time whether it's true or not. you see number one hit songs about how gas prices are high. that is baked in but i don't know that this particular blip is something we need to stress about. jonathan: should we stress about the relationship with saudi arabia? >> i think you will see a lot of discussion of foreign policy but saudi arabia will not be the number one topic. it will be china and after that it will be russia and ukraine. those of the headlines now but foreign policy is something

american voters don't pay attention to when it comes to elections. for investors on gas prices it does but when it comes to actual voting, that's not why they turn out. jonathan: at the next debate, you will see a lot of candidates for the republican side on the stage september 27. you have said they will declare energy dependence and more production in the united states and that conversation is happening at a time where oil output in america is very close to all-time highs. is that something this administration chooses to celebrate, ignore or whisper about? >> they sort of walk that fine line. more people have been arrested at the border than we've seen in years. it's that difficult dynamic for democrats where you've got to work with environmentalists, labor unions, business,

free-market economy advocates, the business roundtable. they try to walk the line so they say different things to different audiences. as i said before, watch their actions, watch what the administration actually does to bring it back to china, where are the u.s.-china tariffs? are they the same rate as they are under trump? they are. are they going to stay that way? will they hold hands and start working groups? sure but will we roll out export control restrictions that have never been seen before? yes. lisa: i want to finish up and you mentioned unions and the push we've seen from president biden. he will be discussing today some of the avoidance of the warehouse and the shipping strike that didn't happen and celebrating the union over

there. do you think this will be an effective push for him in terms of reelection? >> i do think that getting the labor unions back in a democratic circle is critically important. you want to see that with steelworkers and autos and dockworkers. any labor union they can speak to is where you see the administration spending their time. they are trying to get as many labor unions as possible. that's where you see the bleed into the trump camp. i think that labor is top of mind for democrats and it always has been and it is for very specific cabinet secretaries and that white house and i think that will be a sustained effort that they will pursue. you will see that as a dichotomy with environmental groups. jonathan: thank you for being with us today on the latest on the united states.

the politics of washington, d.c. in the next hour, barry bannister on why he thinks we've seen the highs already for the year in the s&p, richard bernstein on why he thinks you will see a rally in the cyclicals and amanda lyne as we see an explosion in corporate credit issuance to kick off the month. that's just a tease. lisa: an explosion is coming. jonathan: all of that good stuff. from new york, this is bloomberg. ♪

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>> we are looking at a little softness, perhaps driven by the move in crude and concerns about what that means. expected data out of europe, germany in particular lower by about .2%. mrs. bloomberg surveillance and we have been talking about oil prices that had reached the highest levels going back to november yesterday. in her from southwest, united and alaska air. they're concerned about increase in prices. delta came out with their message, nothing to do with oil prices, saying that tom brady is joining the airline as a strategic advisor. michael mckee is joining us for economic data. do you want to comment on it?

mike: i thought i was your strategic advisor. if you want to fly delta because tom brady has a contract to give speeches for them, that is good for them. lisa: we are getting some data, lesser. michael: it does not incorporate the oil prices we have seen but it comes in higher than last month. the previous month, june was revised down to -- probably not a a lot of impact on gdp but we will keep an eye on what happens in the months going forward because oil prices are obviously going to make the deficit worse. with headlines from the boston fed president, sounding slightly more dovish than she has, saying the fed may still need to raise

rates but maybe not in september. quote from her speech just breaking now, i expect we will need to hold rates at restrictive levels for some time and while we may be near or at the peak for policy rates, further tightening could be warranted depending on the incoming data. patients will give us -- patients will give us time -- as the effects of tyler posey continue to work through the economy. she is not a voter this year but she is a well-known economist. she joins the parade of people saying we don't have to do anything in september. i think you will get the markets to the point quickly. lisa: are there any hawks left on the federal reserve? michael: beretta messer thinks we need to raise rates again -- loretta messer thinks we need to

raise rates again but she is not a september person necessarily. with the cpi data next week, if it comes in as expected, the core dropping, the fed is locked into not doing anything. lisa: we spent a lot of the morning talking about your conversation we had with you and patrick harper. he said editorial data -- anecdotal data may matter. -- do you think this will be more telling in terms of the real-time indicators of how much higher rates are percolating through the economy? michael: it will give a better picture than we have had lately. you will get views from around the country in the different fed districts. patrick harker said he is getting anecdotal reports that's

it is slowing down. that affect people like loretta who thinks we might do more? what is the balance of strength and demand versus supply? do we start to see it out of balance? it was interesting this morning, i saw some analysis of the atlanta fed gdp, which is at 5.6 or 5.9. everybody says that is not going to happen. steve stanley said we could get 3.6, which would be extraordinary. lisa: steve matthews of bloomberg news came out with a story today where he basically said the fed officials are poised to double their growth forecasts on the heels of some of these prints and in light of what we are seeing, you can castigate it how you would like, with the atlanta fed gdp seems to show there is not a robustness that had not been seen at any point over the past couple of years.

what does this do in terms of the balance of the probabilities of how much they could potentially raise rates? michael: it is too early to say they have to raise rates more than another toy five basis points which was their forecast. we'll get a new forecast as of september 20. but does suggest they've gotten the forecast for the economy wrong through the fourth quarter and mesh the language doubles the forecast. they will go up to 1% and we were just talking with the possibility of 3.6. question is what happens in the fourth quarter because you have set a high bar, a high starting point and there are still people out there looking at the strong data and saying maybe that means contraction in the fourth quarter. you can keep rising at that rate. lisa: tomorrow we can talk about barbie and oppenheimer and how

that boosted the beige book in philadelphia as well as taylor swift. michael mckee, thank you. joining us is someone who always has incredible insights, willow catching up with her at jackson hole. the chief economist at adp with a real insight into just how much ammunition firepower a lot of consumers have. throughout the morning, jonathan and i were talking about this income increase we are seeing across the board. i'm wondering, how much is that going to fuel the next wave of consumer spending in a way that maybe is not being fully appreciated? >> good morning, good to see you. real wages going up is a great thing for workers. but it is important to provide context. the thing about inflation, i know this sounds very obvious, is that prices generally go up, but when it comes to core inflation, they don't come back down.

we are still looking at the higher prices from the consumer perspective. and where you have seen the wage growth is predominantly low-paid jobs. so that is about $5,000 over the course of a year and a half of double digit wage growth for the sector. $5,000 after-tax, it doesn't by a lot of oil, higher rent prices and medical care. you have to put it in the context of the consumer household budget. lisa: it is important to look at it that way. especially in light of oil prices, gasoline prices and diesel. how much is that going to crimp budgets in a material way at a time when there already is heightened awareness of price sensitivity because of what we have seen and the levels we've gotten to? >> oil prices going up complicates the narrative for

the fed. it is the part of the economy we thought we have had under control, the higher oil prices was not going to spill over into transportation costs, goods production. but it has risen again and we know that even if the oil prices go down, they are always there, not quite asleep and they could peak up in terms of consumer budget. we are back to school, work and commuting. as oil prices are not going to be something that consumers can start around even if there is more remote work than the needs to be. lisa: we are talking read this in light of some warnings from airlines, the energy prices have increased dramatically, not shocking considering what diesel has done. how much can they pass this on to consumers that are already started to push back? >> that is tricky. consumers may have overdrawn their revenge travel and going

into the fall there is less of a holiday travel season. that is also a concern and it is also very hot. in terms of energy costs, even late into september and much of the country, air-conditioning conditioning is driving up energy costs separate from the airlines, part of the overall consumer budget picture that allows for that wiggle room for travel. if you are paying higher energy costs at home, it is harder to make room for that last minute fall season travel. lisa: people are actually air-conditioning less and i wonder how much it is to save costs. i digress. a lot of people are looking at the friday jobs report and saying it was goldilocks, it gave the fed a free pass to remain on hold and then bond yields rose. they rose friday and again

yesterday. the people saying it was technical and people saying it was because maybe the fed would pause and there would be a re-exhilaration. how would you describe the elaborate -- the labor data we've been getting, is it really goldilocks? >> we are in a labor market that is in some sense goldilocks. we are seeing wage pressures start to decline and moderate. we are still seeing solid gains. but in the overall macro picture it is a fragmented market that has seen a lot of turn and continues to see elevated turn. within all of that there is a lot of inefficiency. so i think the fed's job now is much more complicated. when inflation was superhigh, it was easy to know what monetary policy was supposed to do. they're entering this period of fine tuning. they are tweaking with the terminal rate should be, may be 25 more basis points, maybe 50, maybe apposite september.

there is the spectrum of choice depending on what data you are looking at. look at the labor market, there is an argument to go stronger and an argument to pause. it is a matter of where you are putting the weight. are you putting it on unemployment, wage growth, that is something the fed will have to feel out. lisa: what happened to the white collar layoffs people were talking about? nela: they never happened. jobless claims are still quite low and this is still a solid labor market even though the unappointed rate went up to 3.8% in the last report. or people came into the labor market, not necessarily because people were -- companies were laying off. we still see solid growth across sectors. even sectors that have struggled, like manufacturing. services are still seeing strength. if you are looking for bad news on the economy, i encourage you

to look elsewhere. labor market is not the source of it now. lisa: which a lot of people are saying is the reason why it will be ongoing strength. we are seeing the potential for the federal reserve to increase growth expectations. initial jobless claims tomorrow, and early next week, small business optimism survey, how much do you start to see smaller businesses experience distress or not in terms of anecdotal evidence? you are seeing the s&p lower by about .2%, now .3%, deepening losses ahead of the opening session. a bit of euro strength and reprieve after weakness, 1.0739 and 10 year yields lower, 4.24% after the selloff we saw in treasuries. nela richardson is with us from adp. tom is off, people going back to

school, i've got kids going back to school. do you have a sense of whether back-to-school spending is going to be as robust and fruitful for the stores and less so for the parents as people inspected? -- expected? nela: we have seen consumer spending stay strong, but our caveats. the savings that were built up during the pandemic because of relief payments, it is starting to weigh in. there are also higher interest rates so putting that spinning on your credit cards is going to be more expensive than it used to be. really what we're looking at is seeing through the fall it into that holiday shopping season where there is more optionality about what you buy, kids need clothes for school and you can change the labels but it is hard to change the growing children.

they still need back-to-school clothes. but you get more discretionary around the holiday shopping season when 20% of retail sales show up in the economy. i would be curious to see how those higher interest rates bite back consumer spending. lisa: always a pleasure. be the holidays will be a time when you concert cutting back. coming up, a senior analyst for bloomberg intelligence on some of the shifts in oil. ♪ ♪ explore endless design possibilities.

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>> gary gensler's decision of engaging this regulation by enforcement rather than getting clear laws, he knows they are not clear. he just likes the lack of clarity so he can go after anybody and make up the rules as he goes along from bullying. that is not the amerco way. lisa: that was the cofounder and executive chair speaking with ed

ludlow, here more of that later. 12:00 p.m. in new york, 5:00 p.m. in london. we have been talking about the airline industry and the response to higher energy prices in general for labor, operations. what does this mean for prices, in terms of winning demand heading into -- waning demand heading into the fall and winter season? joining us is the senior analyst for bloomberg intelligence. what you make of the announcements from southwest, united, alaska air about higher energy prices and not necessarily factoring into profits this year? george: we weren't refreshing our models yesterday and we had been watching prices during end of the summer. we were creeping up and it was becoming clear there was no way they were going to make consensus earnings for this quarter.

it is of the companies starting to war in the markets that things are not going to be good as we all thought. coming out of the second quarter, earnings were good, especially for full-service carriers, united, american and delta. we thought it would be a great third quarter for them. fuel prices, about 50% since then, it really crept up on them. pricing power, a lot of the tickets were already locked in because they were sold for summer, leisure travel typically has a longer lead time. i don't think there was much room to move on fares. we have been busy looking at our models again, taking a lot of the numbers down. this was trying to get the markets to focus on it, things are not point to be as good in three q. lisa: you think the reaffirmation of full-year forecast from united, a similar tone from southwest is not totally accurate, this is the

first step to downgrading earnings? george: i would be surprised if they can hang in there. i just don't see pricing power for the airlines. when we look at our models for three q, what we are seeing is yields are slipping, synonymous with fares, a very leisure driven recovery for the airlines. it has been leisure bounce back and we think the fares can continue. we don't see it coming back. higher labor costs for the full year to go. lisa: how many airlines have hedged oil prices? >> not many. southwest has a decent hedge. they have been hurt less. we see small amounts of hedging at alaska and jetblue.

the rest is don't. lisa: there was a number of stories prices are starting -- domestic flights, one characterization. how much is this isolated to domestic travel in the united states and how much is this a broader softening that extends overseas? george: a lot of them built in pricing for this summer. everyone i talked to went to europe for vacation this year so everybody saw the strong dollar and booked overseas flights. i think three q look better for the full-service carriers because a lot of those tickets had been sold. once you get past the summer season for u.s. carriers, the demand is is not going to be there. and the strength that it is right now. fares will soften and we have already seen the domestic starting to tell off.

some of the consumers not as well healed. they could not afford to pay the higher prices and in three q they were started toward us about yields and seeing some weakness in that demand. for overseas carriers, when we talk to people in europe, even the european carriers were seeing demand from u.s. consumers. one interesting thing i've heard from european travelers is the cost of dinner in new york is really expensive. so there is not that much value of into the side of the atlantic. it was putting damper on demand. fares were really high and capacity was leading into -- but if the capacity stays, just keeping fares.

lisa: you're getting it on both sides. there is a question, it has been taken back. what is the latest of the thoughts turn back? is this an issue of people not traveling or companies not showing out for business class? george: we are trying to figure out what is really going on. it seems like those industries are pushing hard to get back into the moment. we have seen between six and five and 75. we hear from the consultant

industry, they are not going on-site, they're working from home. some of that maybe because people are back in the office, consultants are a big part of airline spend. so once we start to see it return to office, then i think we are going to figure out if something like the consulting industry goes back to working at it companies prejudices -- at a company's premises. if the consultants go to companies that we are working for and seeing money, when may never see business travel go back to what it was in 2019. things morph and there will be other business travel. we've got time before we get back to 80 or 90% of 2019 business travel. lisa: i want your take on a controversy on bloomberg surveillance about why certain

groups by certain airlines have been discounted. there was the story about $20 fares from cleveland to orlando, detroit to atlanta. flights from mexico to central america. why do airlines discount certain groups more than others? george: everybody likes to think that united and delta travelers, spirit, frontier -- business travelers for the spirit and frontier -- you feel like they are hurting fares in the market, you may abnormally lower your fares to even loss levels just to try to drive them out of your marketplace.

it is all about competition. lisa: any travel coming up soon? george: i will be in london for the transport traders -- always a great conference. lisa: porch ferguson of bloomberg intelligence, thank you for being with us. coming up on bloomberg tv at 2:30 p.m. eastern, the chief executive officer of oaktree capital at a time when there was -- is an increasing amount of money going into private capital, it comes as there is suddenly a renewed appetite by companies to sell debt. we are getting word of yet another debt sale on the salute that we saw, the barrage of corporate debt sales yesterday that some people say was kicking around the treasury market. there is a $3.7 billion offering for the bio coming out. it is also high-yield. some $40 billion of debt sold yesterday, the expectation is it

could surge to the highest level. company start to grapple with how we deal with higher rates for longer, whether we lock them in. we are seeing crude come down after yesterday, hitting the highest levels going back to november. we are seeing the cut from saudi arabia, russia, percolating into the feeling that the u.s. and the china economy is not as weak as we thought. $86, north of the $80 front on crude traded on the nymex. we are also seeing yields basically going nowhere. 4.24%. this is bloomberg. ♪

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jonathan: live from new york, good morning, good morning. your equity markets slightly negative. the countdown to the open starts now. announcer: everything you need to get started with u.s. trading. this is "bloomberg the open" with jonathan ferro. jonathan: live from new york, coming up, more fed officials putting rate hikes on ice as asia pushes back against dollar strength. crude sitting near the highs of the year. we begin with the big issue -- a new challenge to a soft landing. >> commodity prices are rising. >> higher oil prices. >> spike in oil prices. >> crude and gasoline prices might be a market-based measure of dem