the economy is running on fuel. they are not looking to tip the market into a recession. there is more work to be done to ensure that we remain on a disinflationary trend to 2%. we are still an environment where the dollar is the safest haven. this is bloomberg surveillance with tom keene, jonathan ferro and lisa abramowicz. lisa: we have a correction in the nasdaq. good morning from new york. this is bloomberg surveillance.

tom and john are both on a cruise together. i am joined by manus cranny and damien suss our. manus: you will get a lot of guys side notes. where do you want to go for defense? let's go long with amazon. >> i think the street has 65 vibrating and one hold rating. lisa: i was looking at some of the flows and there was the biggest inflow into tech stocks for the past week in the past eight weeks. it feels like i the dip underpinning everything. maybe this excuse to sell

everything yes it's geopolitical . manus: when we came in here on monday morning we ratcheted by 15 basis points. look at the shorts on treasuries and they are building again with open interest bond treasuries. they are rebuilding short positions. damien: rate differentials are the name of the game. we have a lot of central banks meetings coming up, we have malaysia, norway. in emerging markets they've been in front of the fed on cutting rates. lisa: they have been ahead of the developed world banks. we will get the pce figure.

how much is not going to give a green light to the fed to never hike again if you get any kind of disinflation? damien: janet yellen's comment speak volumes that she is trying to say this move in the long and has nothing to do with supplier physical deficits and everything to do with the stronger u.s. economy. manus: just in a conversation with josh she said i agree with the treasury secretary. there is absolute conviction in the u.s. growth story. lisa: you said you don't buy it and a lot of people would agree

with you. to set the record straight, there is this question that she is hocking her book and she said that yields could come back down and nothing structurally has changed to have yields be higher . everyone i talked to says that's not true and it ties back to the tech story in addition to a whole host of shifts in spending. does she matter that she is coming out and talking about her book when everyone else shrugs it off? damien: the buyer of treasury has been the fed, the banks and offshore buying. it just has not been a supportive factor. you see these auctions failed. it's a supply and demand issue. manus: there is a very good note

from paul donovan and he talks about the u.s. consumer. when we go to write history the opening sentence should be in bold, never underestimate of the hedonism of the consumer. they are spending their savings. lisa: what we are seeing in markets is a bit of a lift in equities. it is down 10% from its peak the summer. s&p futures are under 4200. 10-year gilts are marginally higher but a massive decline on the heels of a strong gdp.

there is not a lot of logic in these moves. crude prices are climbing as fears of escalation. what i am watching for today is personal income and core pce. don't get in between an american in a cash register. damien: it seems a far cry from the 2% target. there is still some would to stock. and if it's 3.4, three point five it doesn't really matter. the market will just be focused on what the fed does. lisa: president biden is meeting a chinese minister later today. we will talk to you about this

later. how important is it to understand the readthrough when it comes to the middle east and china? manus: the iranians are here in new york and already there has been differences within the u.n. , china, russia and iran taking down some of the measures that were being put forward on the right of israel to defend itself. lisa: we will have lael brainard talking about the recovery. talking about whether they buy the lift coming off the u.s. consumer. from your perspective, taking a step back. is this a buying opportunity after a selloff even though there are still all these headwinds? >> we think it is a buying

opportunity for the market broadly. tech stocks had a nice correction. they are still down, if you look at the top 100 they are down 20, 30% off the market hikes. we are still in of bear market overall. we still have not reached those highs again broadly. valuation why is they've been corrected 50%. tech stocks were overweight stocks. on wednesday, that big down day and we are still underway at large-cap stocks. but that is where we felt the most vulnerability. that is why we have been underway. we are legging into the market

particularly until large-cap growth. manus: when you are at maximum equity allocation. how did you decide to differentiate on wednesday. was a progrowth and the top seven tech stocks? steve: we are being very selective. i put this a couple of ago, we look sector by sector and there are winners and losers emerging in this new world that we have moved into which does stay up 5% treasury, union wage demands, etc.. you have to look for your winners and losers. we like some of the value type stocks.

we reported good trends last night. among the magnificent seven we like google. we like stocks across the market. we like fedex, the transport in general look good two was, some of the bank options are washed out. it is very dark and it's always darkest before dawn. what people forget is that things don't have to get better for the markets to go up after they are sold off this far. manus: you correct us, you have skin in the game. it doesn't feel as if it were the most aggressive selloff. but normally you feel something more brutal and it doesn't feel like that. steve: the market commentary is

about the rallies off the low from october. we are still in a bear market. it is still down 15% off the highs back in 2019. nominal gdp has gone out another 50% by 2024. earnings were hundred 63 and 2019, we have 150 for next year. stock eats nominal earnings. there is a digestion. period. it will translate into earnings. the earnings season this

quarter, the first of quarter and four. we will see where we end the earnings season next week. we are looking for earnings to end up at 230, the market is at 222. but i think we will have a good fourth quarter. one thing about the consumer. it is not the consumer it's the consumers. the perception of income and the economy is jobs times wage growth. we had almost 2 million jobs created in wage growth has been quite substantial. when you at that together in the household net as a lender to the economy. especially the aging demographic is making money off these higher rates. there are winners and losers

with the consumer. damien: have you ever heard the phrase defense wins championships? we have a period of high rates but if i wanted to take a defensive position in equities, how would you suggest i go about doing that? steve: we like staples here. look at the coke earnings report? there are stocks eating nominal earnings. we like that space here now. one reason that people like large-cap tech stocks is that they become defense because these earnings are spectacular. they have giant moats around them and a layer of growth ahead. cash's defensive although we have finally taken cash down to

neutral for the first time this week and 18 months. lisa: canceling tom's pond. i will have to tell them not. steve, thank you for taking the time. we have seen this. people are playing out of cash. damien: maybe they will buy this step in equities. manus: always selling something. lisa: coming up, sarah hunt can give some love to the emerging market space just for damien. for you. oh, genius! for more breakthroughs like that- i need a breakthrough card. like ours! with 2.5% cash back on purchases of $5,000 or more. plus unlimited 2% cash back on

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>> there are no active efforts right now to evacuate americans from the region. other than what we are doing in israel providing charter flights. we are not parking ships off the coast and getting ready to send marines there. lisa: that was john kirby, he will speak later today along with lael brainard as they give the latest state of play on what is going on overseas and how the

u.s. is evolving the situation with respect to troops. right now and markets you can see a little bit of a lift as we get a sense that maybe it's not clear we can ds delete -- de-escalate this. tom and john are off today and i'm joined by manus and damien. things that are happening outside of the israel, gaza fear of war. there were attacks in syria for retaliation. manus: antony blinken was warning the members of the u.n., be on watch. if you escalate this there will

be repercussions and iran has escalated the war of words. they said the u.s. will not be spared in the israel/hamas war. lisa: trying to understand it is one of the most difficult things. kim wallace is trying to help us do that. he is head of washington policy research and i want to start there. what do you make of the strikes that the u.s. called retaliatory in syria. kim: there is no monolithic power in the middle east, iran is one of the many state actors. there are a lot of militias and groups that work at their behest . it's difficult for anyone spokesperson to speak for all of

the elements in the region. from the u.s. side, the message for a containment has been strong. i perceive that there are many more stakeholders interested in containment than spreading this conflict. mostly for economic reasons. manus: it is a fine line for everyone to walk. mike braun has been there biden his been there in a troop of european leaders visiting israel. is that why it feels like we are in some kind of a pause? it feels as if an all-out ground assault may not be as huge as originally planned by the israelis? what do you make of this pause and quasi-de-escalation?

kim: were very strong words coming from israel and since that time, calculations for what it would mean to have an all-out assault on gaza and whether a regional conflict could be contained if there was an assault on gaza and the cost to israel and allies for that operation given where gaza is has sobered a lot of military planners especially in the u.s. and increasingly in israel. damien: the u.s. and europe have shown solidarity with israel. the united nations itself, it seems like israel's ability to interact with those players is deteriorating by the minute. what do you think the position on u.s. republicans and

democrats are with israel? kim: i will try to address them a little at a time. i am in the camp that sees a lot of interaction in the world in those relationships are changing. it goes back to his speech sullivan made last june. the u.s. does not always have to have allies as partners. or that our partners will always be allies. members in the global south are flexing their muscles geopolitically. i don't see anything unusual about this. in israel's case there is a case international about the government under netanyahu and his stature at home. those of those complicate war planning and execution. damien: you point out the

american war machine is back up and running. u.s. defense spending rose since 2019. 1.6 billion to fund israel and ukraine. do you think with mike johnson that has a chance to get past? kim: i think it will pass but in what form and when? we will have two or more supplemental bills and the timing of it. there is momentum in the senate. the appropriation committee will mark up the war supplemental funding of tuesday next week. the most surprising aspect to me of the request from the president, is that 55 billion is dedicated to the defense industrial base investments.

that conversation has been overlooked because of the hostilities in the regions. it will be paid attention to in the long-term how the u.s. is able to enhance its productive capacity to fight multi prep wars. their ability to do that has been hurt by israel and ukraine. attached to that is the inability of the u.s. defense bays to respond quickly. those are lingering from an investment standpoint. lisa: how surprised that you haven't heard more from senate republicans to using their influence when it comes to house republicans? kim: part of the problem is

likely the senate republicans don't have a lot of influence. that relationship does not execs. -- exist. as matt gaetz has proclaimed, they feel that they are in the ascendancy. we will find out how mike johnson manages the factions of this party. whatever he promised the moderates to get support and how that plays out in the supplemental but more importantly the exploration of the continuing resolution that expires on november 17. lisa: kim wallace, thank you for taking the time. damien: 106 billion on top of the chip socked in inflation

relation act, can we afford to spend all that money? manus: the message to the world is that you can afford to spend, you will support ukraine and israel. you will support the pushback against taiwan. lisa: at the same time there does seem to be a bit of a bind between the u.s. relationship with china. we will talk about that coming up. we are already talking about the inflation data coming out. we will be joined by rubeela farooqi. this is bloomberg. ♪ ♪

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lisa: welcome back, tom and jonathan are off today and i'm joined by manus and damien. in the markets we can see a grand selloff. a correction we saw in the nasdaq. s&p futures are up .5%. semi-, the story yesterday out of the ecb, there was nothing

shocking. and that was a win for her. damien: when manus says grand i think about evergrande. manus: he just goes straight back to etf's. this is the problem with china. damien: my fear is that no one is talking about what is going on in the south china sea, how u.s. destroyers are coming close contact with chinese boats. people think the relationship between the u.s. and china is improving. lisa: let's get to under surveillance because that is that is what we will be discussing and i'm glad you brought that up. amazon rising in premarket training -- training. third quarter revenue and cloud

computing fell just short of projections. demand for ai will boost the unit in the future and this is what i was looking for. some sort of discussion about how new of discussion about how new technology and the cloud computing footprint go hand in hand. you can use your customer base and get more cloud. even though they missed on cloud sales, no one cares. manus: if they had reported a few days earlier it could have been more brutal. it was enough to keep the goblins at bay in terms of cloud. damien: i was pleased to see operating commitment improve in those job losses counted for

something earlier this year. it's amazing how sentiment has shifted. lisa: and the value of cost-cutting. president biden said to me with a chinese minister today at the white house. this could pave the way for a meeting between president ching john p and by the next month. xi, at the same time, have relations improved and that was the question you raise? damien: we have a work conference coming up at the beginning of next week. what we are expecting to see is how they handled the debt problem and they will issue more special bonds. this is extended from the property market into the financial sector.

basically, what we are talking about is a credit crisis in china. lisa: it does strike me that just the idea of having a discussion is such a big when compared to the tit-for-tat and lack of communication over the past few months. it seems like the market is reading at that way but i take damien's point, what are you hearing from people when it comes to this kind of softening? manus: if china carries through with that stimulus policy will be good for everyone on the global level. it's about the flow of money. it is already left from china and there has been a d investment from chinese bonds in the story is getting harder and harder to sell. damien: i think it was bank

lending and the three components of the index. he was marginalized under president xi and it's indicative of what is going on in that market and how under control and no longer free is a once was and property rights have been called into question. lisa: we have to move on to our story about the great economist. she stays up too late but she does get things done. arrows tore surpassed $1 billion. she is one of few entertainers who have raised that status. she added more than 4 billion to the country's gdp and made it into the beige book. the economic read through, notes

from companies that have some association with her just highlights how much economic cap this person has. manus: some of the country she visited, it wasn't just in the u.s. but in parts of asia as well. this woman gives girl power a whole new meaning. damien: have you been watching the beckham documentary? taylor generated more than emerging-market countries. she still has 89 more shows to go globally. think about that. lisa: just the changes she does, clothing changes.

joining us for taylor economics is rubeela farooqi. how long can discretionary spending continue? how much are you looking forward to the pc report we will receive? rubeela: we are looking at the trajectory of the consumer, what is sustainable and what is not? we don't think that what we saw the third quarter is sustainable. core services and housing, this discretionary spending and travel. they are not collapsing, our base case remains. there will be effects of quality tightening that will make it through more widely to the

economy but we don't have an indication of eminent collapse and that has to do with the strong labor market. it's adjusting but it is still very tight, strong and demand. that is something the fed is wearing a bow because an upside risk to inflation. manus: we see deals in the auto sector at around 25%. to what extent is the u.s. consumer relying on their savings, to sustain the momentum? the u.s. consumers will go right to the end of the road before they pull the break. they will put it on credit cards and dip into savings.

rubeela: the savings portion of it is very important. if you look at checking deposits , these things are very elevated relative to the trend prior to the pandemic. the consumer is dipping into savings and racking up credit card debt. wages are slowing but they are still rising. people are making more money, but they are still spending. how long can this be sustained is where we don't have any visibility. we thought the effective tighter monetary policy will affect the economy but it will take a long time. they have benefited from refinancing.

they seem to have a buffer that is supporting a strong level of consumption in the activity. damien: that disinflationary impulses saving here in the u.s.. my question for you is, do you believe the fed can achieve a soft landing? rubeela: we still think a soft landing is most likely in we don't think recession is in the cards. we are basing this on a strong labor market. you're talking about this inflationary and, overall it is decelerating. we are normalizing on that front. it is this core services, we feel housing will soften and there is demand for bond asserts -- blockbuster movies.

we think monetary policy will affect household but there is no imminent risk. we are still watching the labor market and looking at the clearance numbers. if that continues that will be a signal that the demand for labor is easing and that will have an effect on households and how much further they will go in terms of spending. lisa: do you agree with janet yellen that the reason why guilds are higher is because of economic momentum and has nothing to do with the deficit? rubeela: i think that's a combination of factors. is not just the positive momentum of the economy. we have supplies cycle concerns. we have the growth picture and we are looking at demand from other central banks. i think it's a combination of factors that is driving else.

if the supply is a big factor will drive even higher end of growth is maintained at this level. that will put upward pressure on yields and that is something you can just isolate into one thing is a combination of factors. lisa: the diplomacy there was just fantastic. rubeela farooqi thank you for joining us. damien: it sounds like the u.s. economy is doing just fine. lisa: it wasn't just what we heard from janet yellen. yesterday, rich clarida was talking to tom keene and he said it's a good chance that the fed will have to hike more. if you believe there is strength in the economy, our rates as

restrictive as they may seem considering how much they have risen over the past two years? manus: it has changed, there is a change in the consumer, saving rates and helicopter money that was never there before. we need to look at what a long and variable lag is. what he is interested in is the shape of the curve. the curve steepening is what the hope -- the fed hopes for. damien: if you want to talk about one area with rate differentials in southeast asia. the asian real yield, singapore, taiwan, thailand. these rate differentials are getting wider in the wrong direction for them and how will they compete for offshore funds? lisa: there is a belief that

when the u.s. catches a cold that the emerging markets are catching the flu? damien: they caught a flu. they are seeing fx declines in places like nigeria. you don't hear about it but for me, that is when i am focused on. things are breaking but nobody knows when. lisa: coming up, amazon earnings are driving the shares higher. but manus made a good point earlier, we lost a bunch of steam heading into earnings. maybe some of the potential pressure was lifted. this week we get apple. from new york, this is bloomberg. ♪

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>> for the past couple of quarters there are all kinds of words about e-commerce slowing,

it's getting better. amazon is in the second, third position right behind espn. nba is the next package up for grabs. lisa: that was michael nathanson parsing through the earnings earlier in the week from the text phase. i do want to talk about a number of other companies that have reported earnings. there was a time when everyone was talking about how incredible revenues were from higher oil prices. it's a little different tone this time around. there is a mess on both sides. shares of exxon are going nowhere after they boosted dividend payments. chevron is dropping after missing refining issues. manus: if you look inside the chemical business, it has dropped by 70% which could be an

indicator of what's going on in the world. we talk about strong gdp but if your chemicals businesses dropping that since a red flag to me. i may have stumbled over my words. damien: i don't know what we are going get out of some of these merger calls. i think the focus on investors will be on that. i think we need more clarity on that. lisa: people think about geopolitical instability and it will be a direct read the road to energy makers. when people are spending on close, amazon does well. that is what we experience yesterday. i want to start with you, we are basically learning that microsoft is taking the lead

with cloud computing and amazon and google are falling behind? >> i am a big fan of microsoft but i don't think they are leading. i would say that the generative ai frenzy. amazon is the biggest cloud out there. they have more revenue than anyone else. that is the reason why there relative close -- growth rates are not so strong. but yesterday's call was positive. before that, the stock was flat and it was the positive language of the management team that cloud quantum will be here for a while. manus: who has the strongest client offering and who will win the biggest market share? anurag: revenue was 90 billion compared to microsoft is 60

billion and google around 24 billion. amazon is clearly the leader with the biggest networking footprint. manus: this is been a brutal week, they lost millions of dollars in market cap in these most beloved in stocks in the u.s.. as we go to close the week there was a brutalized area of stocks. these tech companies are raising prices. how does that play into your thinking? >> on the retail side amazon has done a great job of maintaining their share and growing at. you are seeing them push forward low prices especially deals on prime days and that's driving

consumer. we expect them to push the pedal on prices even more and that will drive consumers to their platform allowing them to gain share over competitors. manus: with advertising revenue growing, we were able to get a lead on the prime video ad? poonam: it will take time to build. the bulk of that revenue is coming from the retail side. advertising is a much more profitable business than retail or cloud. as it scales beyond 50 billion which it is trending towards. the addition of the as you're talking about is icing on the cake. that will also help build revenues and allow customers to

choose if they want the ad or content without as that they'd have to pay for. damien: what are their primary takeaways from third-quarter performance? anurag: if we are not close to the bottom we are a quarter or two away. that sets up well for a big rebounded 2024. there was this fear about what will happen at the beginning of next year with geopolitical conditions getting worse. but amazon comments have given us hope that things are not as bad as people are making it out to be. lisa: it makes an important differentiation between the cloud and ai space. and if people are willing to invest in ai programming that could make money. do you feel amazon was rewarded more than google?

anurag: you have to remember that most franchises are going to work with this technology in the next 24 months. i am not saying one will win over the other. they will all get their fair share of revenue from clients. the client -- the problem is on the others. i am fairly confident that over the next 12-24 months all three will see benefit from generative ai. manus: who will be able to deliver the best margins? the margin jumped by 13%, who is that 30% or is that where the aspiration is to deliver stronger margins? anurag: one of the things we have talked about.

think about all of these three companies, not in the long run. they have the potential to grow operating margins up to 40%. if you look at processing companies, they reach maturity stage and it's a highly scalable business once you go through the cycle of capex you don't require money. we are confident that all three will have great margins. frankly, alphabet is still losing money but there is a lot of things that go into that. lisa: what is the take away we have gotten in terms of consumers in the u.s. and their hedonistic tendencies? poonam: there will be clear winners and losers and we think that the consumer is focused on

value and that trend is not going away for the holiday season. inventories are not as high as last year or so it will depend on their ability to bring product into drive demand and keep prices low. lisa: thank you so much for being with us. i can see you are laughing at me for my hedonistic comment. manus: there is amazing wine shop in mayfair called hedonism. lisa: welcome to fridays. there is a question about how much longer people can spend and how much money they have to spend. this idea that what we got from coke, they can raise prices and increase revenue. damien: we should have asked about full prime day.

i wonder how that went with amazon? i wonder if we got a new readthrough. manus: when is fall prime day, i need to get into this american calendar thing. damien: you need to ask my wife because she would know. you will get nfl on sunday morning. manus: i keep clicking it for whole foods. lisa: we will get pce data at 8:30. we will speak with sarah hunt from alpine sites. -- alpine snow woods. we will get her perspective, next. this is bloomberg. this is bloomberg. ♪

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>> the economy is running out of fuel. >> the fed will not tip the market into a recession. that was the bad case in this situation. >> to make sure we remain on a disinflationary trend back to 2%. >> we see the dollar in a safe haven. >> this is bloomberg surveillance with tom keene, jonathan ferro, and lisa abramowicz.

lisa: good morning. welcome back. tom and john are off today. i am really happy to say i am with manus and joining us is sarah hunt. chief market strategist at alpine saxon woods. welcome. it's been hard to digest everything. sarah: yes and i heard you earlier so i will jump in on oil right away. it's not a huge surprise you see fluctuation in the prices but between growth next year and other factors there's a lot to digest. lisa: we will dig into that later. and we have a general geopolitical look. right now the story is that we had stec -- tech stocks with the buying movement of people waiting for something like this. manus: it is sorting the wheat from the chaff in the big seven.

do you do that with who has the best client? do you put it on netflix raising prices? how do you differentiate in the 200 billion in the market cap but, i hate this phrase, by the dip. sarah: it's interesting how negative the reaction was versus google and everyone else. the ad business was doing well though and the commentary around it was not as bad as meta-commentary around that. in the scheme of things there's been an even reactions. it depends on what is going on in the day as well. microsoft had a great reaction and then sold off. lisa: it seems to be the theme for me, headed to the end of this week, even though there was a great deal of volatility it was strengthen in a band of

10-year yield. it seemed like it was pinging and honking between 3.8% and 3.4%. is that enough to let people know this is volatile and we are not breaking into something astronomical. i be that is where people are settling on the margins. sarah: i would love to believe that is true but i have concerns. as i start to look at what is happening with interest rate payments with governments globally i think people will start to get concerned. i think you have a lot of treasury issuance coming. and the fact we are doing qt rather than qed the big buyer in the u.s. is not there. there is concern on the supply side. i would love to see yields stabilize but i think there is possibility there could be more volatility. manus: so using that america could have an existential moment like the italians and greeks had. i am not saying that, but i'm

asking the question if the funding does matter, what could you have in the bond market 2024? sarah: that's a big question. without a concern of a plan to do something about it you will see issuance raise. you will see concerns about how much the government has to pay out the debt amount. all of a sudden interest rate payments will learn and it will be a bigger part of the budget. thus the problem. lisa: we will develop this conversation coming up. let's look at where markets are trying to create stability. s&p futures up .4%. the euro leading lower 1.055 after yesterday's press conference with christine guard. seems like a dovish pause component -- compared to jerome powell hawkish pause. that is how it was received. and 10 year yield at a stasis as it has been in the morning and

then in the afternoon it is 4% in right now it is 4.85. crude prices are up about 2% on the heels of geopolitical risk. 8:30 a.m. we have core pce and personal income spending. i'm curious to see whether the spending we have with consumers has bled into an inflationary pop. it feels like everyone believes that we will not get inflation even though we have strong risk spending. sarah: i also find that difficult to believe. and you see that coming down on the ticket stuff because the pricing power is strong. on tesla side there is that tv issue there as well. pricing is coming down but apple raised their prices, netflix raise prices and kicked a bunch of people off so they have to be subscribers. manus: we are still drinking coca-cola, but with netflix i did not notice to be honest with

you. you do not notice the incremental changes at times. lisa: we will see we have president china -- president biden with china prime minister. we will see how much of a softening of ties this is. manus: you made a point earlier with the rest of the geopolitical stage at that anxious point once you have the debate about higher rates. this trade relationship can have an impact in 2024. that is what is going on in the background. this is as we hear that he has passed away and he was a vanguard of what is going on in the economy in china. lisa: it comes at a time where emmanuelle at ever cry, and others are saying this puts a damper on valuations. it is tough to get to a headline

level at a time where you have this fog overhanging things. how much that -- how much does that give you a pause versus what you know so you cannot trade around it one way or the other. sarah: when you have all the burials -- very -- variables going into 2024, it is hard to predict. but a lot of them go toward slower economic drop. i think that you see some of the things, some of the excess spending we did not expect to continue. continuing longer. the tail on the stimulus is longer than expected. now you see with coca-cola, at some point, you say i'd will trade down or i will do something else. i think that will change and slow things down. we do hear from national economic director speaking about the u.s. recovery in the peotter institute. does she double down on this idea that we heard from janet

yellen. the reason that we go higher because the economy is good? no, because of deficits. manus: yellen has a different job these days and a different title and consort of language. it is her job to defend where the administration is at the moment. when you think about the last three guests, they are not convinced that it is not deficits. that it is a significant part of why we have a ratchet in yields and the state in the longer. has the fed lost the control of the curve? go figure on a friday. lisa: and we've heard from the likes of janet and others that are arguing this is nothing to do with deficit but how strong things are. sarah: i find it difficult to believe that, it would be nice, but it would say if we are strong we could outgrow the deficits but i am not sure we are they are. that is a tactic i think they have to take. with ping longing in the yield

every time you have a flareup there is a little bit of safety. was that yields coming but down from people buying bonds in the safety or something else? it is tough to say because the economy is so grave. lisa: one said he was taking money out of cash and putting it into risk. he sees the selloff as a opportunity. do you see it that way because you're trying to poke holes in the way the market is moving right now. sarah: i think the market moving down has helped. it was difficult to say a couple months ago that we can do that. but things have come down and it does help. manus: in a week full of volatility, with bonds, check, equity, and there is a note from bank of america saying $2 million went into tech. the biggest addition in eight weeks. navy i am wrong with the phrase

buy the dip, it is not a real thing, it is a real thing, i know, but do you think you will see a second sweep of money after the correction over the next couple weeks? sarah: you could. we been conditioned to buy the dip. manus: knee-jerk response. sarah: there's been a history of that being a good idea. but what we do with the stays up here. are they buyable immediately? if he goes on dip right now it -- they are more viable if you have dry powder. but i think you want to be careful because you could have more trading then disaster. lisa: i want to finish where we began where you came in excited to talk about oil. you been on the energy stocks. do you start to fade at this point given how much they've moved upward this year and the potential risks from this morning. sarah: there's an old adage

saying they are eating sardines rather than trading sardines. they move around. but having a position to trade around long-term is important. i think you will have a tailwind on carbon. i continue to believe that. that it introduces a lot of volatility. if stocks come up commence or attlee, there is nothing wrong with taking chips off the table but it is not something you want to ignore for a while and we were doing that for a while that hydrocarbon would not be part of the economy. lisa: do you think that there is a reflection of how much geopolitical risk is rising or falling on the given day? manus: i think it is amazing with this amount. on the week oil is dying, there are new tensions. you have a tight market, inventories are lower, they cut their production by 2 million barrels, we can talk about

compliance all you want, it's not a tight market. i think something unfortunate will happen dramatically on the geopolitical stage to accelerate through 100. it will take a great deal of human misery to change the narrative. lisa: right now we see oil with a lift. 2% with a down week, one of the first in a while. it is pairing the losses. yields marginally higher but a quiet-essent field. and we are up 4.8% -- the s&p futures up 3/10 -- .3% paring gains from earlier. there's a question about the pce data we get later today and i wonder how much you read into that to understand how sticky inflation is and how much more

the fed will have to go. does the fed pce report matter more than others? sarah: everyone has mattered more than others because they are the one coming in front of us. you want to know what is happening on the ground even with the backward looking data. yes, it matters. but the consent of costs coming through is where you see the wage for higher oil prices moving through. there are some areas that are inflationary that even if some are coming down you see areas where wages and cost input is going up. that makes an argument for where the fed goes more difficult now. manus: you have given me a clear impression that you are doubting what you're told. skeptical of where the markets are, cautious going forward. so the camaraderie to that is how concerned are you with a significant uplift in inflation in 2024 that we are all blind to

at the moment, perhaps. we are talking about it but hoping it will not happen. sarah: the possibility as they are. it depends if the economy slows enough. if the fed gets what it wants, things slow down, you may not get as big of a jump so i think we are slowing down. so i think with some of that it means that higher could longer could stay which could be an issue. lisa: you're sticking with us for an hour. coming up we get visa shallot of morgan stanley wealth management of how to play the dip. was it a correction? in new york we see strength to start perhaps a friday it may be a little bit more calm.

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>> frankly the record over his time in the congress has been hard edged message that will not create bipartisanship. we will see. he said good things and i hope he follows through on those. i hope the new speaker follows on the trajectory and does not serve simply the hard right of his party as he would reflect. i want to give him the benefit of the doubt. lisa: that was senator of maryland beginning with joe mathieu. talking about what, leader mike

johnson will be considering what little people know about him. it's an important conversation where the debt in the united states has played a big role in the market. joining us is isaac boltansky director of policy research at btig . can he find a consensus within a fractured party? isaac: the simple answer is no. there's a lot of people breathing a sigh of relief. there is someone with the gavel and we can handle people's business. but when you step back you've got to see the house republican caucus is deeply fractured. it's not clear how well they will be able to govern going forward. there's no sense of bipartisanship on capitol hill and i think people are downplaying the risk associated with a prolonged government shutdown. that is still distinctly

possible, we are nowhere, nowhere close to where it comes to funding the government and dealing with these requests. lisa: there's a lot to unpack but a lot of people pushed back saying with us having to speaker it will be less likely to have a government shutdown. are you disagreeing with that? isaac: well the unknown right now is how much they knew -- power the new speaker will get. i sense when you look at the specific issues and hone in on things like ukraine funding for you take a step back and you look at the fact that we have not even agreed on spending levels, it is incredibly difficult to believe this group will be able to easily avert a shutdown. my base case is that we will see a shutdown later this year.

i do not think it will be a massive market moving event, but i do think getting the gavel to speaker got -- speaker johnson has eased fears and that is unfounded at this point. manus: the president wants money from congress across ukraine, israel, supplemental spending. how contentious will this be? how much of a flashpoint will this be? will it all become joint? is there a great anticipation of this request? isaac: first and foremost they have not agreed on basic funding yet. we are not at a point of agreement yet. that will be the fight the next few weeks. when we dig into supplementals, we will have over 100 billion different asks. there's clearly political support for funding israel, supporting israel in the battle with hamas.

the 14,000 -- $1400 is likely to get done. there's more money to support the u.s. border. i think that is bipartisan. on ukraine, it will be tougher. this is something that new speaker has fought against in the past. last night he suggested there is a way to move forward on the funding, but there will be conditions attached. no one knows what the conditions are, but you put it all together and i think there is a way forward on the spending package but i think we will have to go through the same type of pain we were saying before with speaker mccarthy when he lost the gavel. manus: how long do you think the speaker lasts or do you think he is there for the duration? isaac: one of the things he will have to do trying to get rid of the motion to vacate which pulled kevin mccarthy out of the chair. i think he has a decent runway to get into the first quarter next year based on the minimum.

and there's a focus getting to next year as a reminder the budget cuts will go into effect if the government does not pass the appropriation bill. that's the date that a lot of people have circled on the calendar trying to make it to that point. sarah: how do you deal with the fact that the interest of the government has to go up. where does that fall into the budget? no one talks about it, but it is on the rise. if we cannot cut where we want to do how do we do the spending we are compelled to do? isaac: that's one of the most frustrating parts. we were not talking about real issues are the 33 trillion in debt. or the 2 trillion deficit we were running this year. we were not talking about the $700 billion that cost busier to fund our deficits. so i remain deeply disheartened because we do not have those

conversations. and broadly, no one cares about the deficit when they are in the majority. they only care about the deficit when they are in the minority. until we see something that shocks d.c. to the point where it is forced to think about the debt and deficit differently it will be status quo, business as usual. sarah: how do you for someone to take a look at their own balance sheet and say your payment next year will be double what it was this year and you could not afford it this year. why is that not part of the conversation? nobody wants to not spend because everybody has a million things they want to spend on nobody is dealing with the elephant in the room, no pun intended, because we have spending that has to come through on this. i find that frustrating in general. how do we get to that conversation? isaac: you should run for

office. come down here and figure it out. we will have a real fight with this with the trump tax cuts expiring. trillions of tax cuts coming in 2025 from the expiration of the truck tax cuts. it depends on who is in power. so the next one to understand who is in the elections. lisa: how much is janet yellen's idea the mainstream? that the higher yield in the u.s. will not be a reflection of the deficit but how strong the economy is. is that the main idea and belief and washington d.c.? isaac: it is the hope of many on capitol hill. i don't think there's anyone who has a firm feel for where the yields will go and especially not on capitol hill. but it is the hope that everything will fix itself because our politics are so broken they are unable to fix

the problem. they hope that is the direction is going but nobody has a firm dealing of where they are. lisa: hope is not a strategy i just keep thinking that. thank you for being with us. sarah, you sound frustrated and you reflect the frustration of people in the market who say we see this problem coming toward us and no one fixes it. sarah: this is the idea of solution to debt is more debt. it does not matter when interest rates are zero, at batters when they are not. that becomes a bigger problem than it would've been if we had the original projection which is like the rates up and then go down. they do not have to worry about it. manus: the italians have upped their deficit, the chinese have upped their deficit funding, i'm not comparing those two economies, but there is that. we saw what happened with that before when rates and a pile of

debt collide it is called the european debt crisis in the early 20112013 period. lisa: raising the question of if the u.s. does enjoy a different scenario because it always has. you see other economies are doing the same thing. the dollar has not gotten weaker that much. relative to this. manus: that's u.s. exceptionalism, haven't you read that? lisa: it's in the books somewhere on my table. coming up we will talk about that. bmo capital markets said treasuries were screaming by. and the technical selloff is continuing. then, now, has he changed his tune? that is coming up. endless hardie® siding colors. textures and styles. it's possible. with james hardie™.

>> one hour to key inflation data that could set the tone for next week spend decision. good morning. this is "bloomberg surveillanc " ," a market trying to claw back after yesterday's significant declines. a lift to the market, the market is fading more the time goes on. s&p futures up .25%. a sick stability in 10 year yields. stability in the morning, it is quickly anything but. manus: 5% on 10 year going into bond yields.

below five blips, it is harder for you to decide. equities under pressure, the consumer is strong. the data is strong. the consumer is spending in the united states of america. the ramp has rolled over during the past hour. nasdaq futures up .7%. lisa: for some people, it was comforting for part of this week. we saw declines in oil prices which means there is fusing of tensions, that is the market rate through. this morning, seeing a lift when it comes to geopolitical suggestion. this morning, israel carrying out a limited rate in gaza. u.s. military launching strikes in bases in syria believed to be used by affiliated groups. mike johnson saying additional aid to israel and ukraine will be taken up in the separate

measures unlike the combined 106 billion dollars asked by president biden. there is a question of how accurately oil can gauge geopolitics. every morning, it seems that is the litmus test in markets to understand whether we are escalating or de-escalating. manus: get is a measure to use. >> it is a measure to use. there are things that go on with that. the harder thing is right now because have excess capacity in saudi, there is thought if things get worse there is an outlet. when oil prices surged the last time, we were both at maximum production and did not have a lot of storage. we have low storage, but are not at maximum production. oil is one of the things people look at. lisa: we will develop this story more. on the geopolitics side, there

is a question whether israel is putting off its ground invasion temporarily or whether there is a split on whether or not to do the same kind of in ground operation it previously had been talking about. manus: there seems to be a significant shift from language, intent. this week was clear that there would be a significant push by the israelis. one can say there seems to be a correlation. biden, macron, a whole l ist of leaders going through the polarization. lisa: exxon missing on earnings per share but raising its dividend thanks to a surge of cash flow. a slump in profit due to refining weakness. essam -- chevron announced plans to buy hess.

you are talking about how long-term this is a good play. at this point, what are you looking at in terms of future tieups and the idea of how much there has been already in this space? >> from a size perspective, it is not a huge surprise to see companies coming together. the timing coincides with that rise in interest rates. you have issues with funding certain things you did not have a couple of years ago. all of a sudden, companies that are able to more cheaply. oil companies have got more discipline, but not a lot. service prices have gotten higher. it is not a huge surprise. when it is looked at as an industry on the wane, it is not a surprise to see the iman day activity. the timing of this -- people are saying, why should we do this now? lisa: the tech space, amazon and intel earnings giving boost to

equities after the recent selloff pushed the nasdaq to its lowest since may and the s&p on the brink of correction. having fallen 10% since its june peak. amazon saying ai could lead to tens of billions of dollars for its web services. intel higher this morning and improving personal computing market. i am wondering how much of these are the same stories and how much they are very different. manus: it depends whether you are putting your hat on for the next round in the big seven on the cloud. watch and listen to your voice when you talk about the expression. tens and billions, or billions in terms of the actual earning potential from ai and amazon. it is amazing how we are drawn to the future, he in earnings and margins. we had our bloomberg analysts on and they talked about margins. it is a rich story lisa: about the future. lisa:citigroup this morning came out and said it is granting

access to its coders for chatgpt. chatgpt writing reports on wall street more. joining us next, someone who is not chatgpt. the head of rate strategy at bmo strategy. i am curious, whether you think this is the new normal in terms of yields bouncing around by 10 or more basis points everyday. our people going to get comfortable with this? >> we have seen an increase in realized volatility further out the curvy on that is what makes this unique in terms of where we are in the voluntary -- monetary policy cycle. we know the fed is going to remain restrictive for an extended period of time. chances are we do not get another court -- quarter-point hike from here. two year yields are anchored around 5%. that means any expression of risk on, risk off, fight the

quality of the reversal -- all transpires in the longer end of the curve, which means the curve is nothing more than a directional trade for the time being. i think that volatility is going to persist until we have a clear inflection and direction of the real economy or we simply have a repricing to a higher rates plateau because we have supply on the horizon and as we saw yesterday -- u.s. consumer continues to drive the economy forward. manus: let's anchor in on the word supply. it is a fascination by all three of us. a greater mind than mine, janet yellen, says this spike in yields is not to do with the supply. that is a political statement. rather than the markets obsession, which is there is no qt, the banks have a problem and we have got a supply problem. have we got a serious supply problem to the point where it re-energizes yields to the upside in 2024? >> we are not going to get to 6%

in 2024 based on supply. if we see another extension of the selloff, it is going to be because there has been a fundamental shift in the way that the market views term premium, the way the market views the sustainability of higher inflation and the way the market views the fed response. if the fed revisits or revises its inflation target, that will be the one thing that could bring us to a sustainably higher rates plateau. now, that does not mean inflation is necessarily going to come down over the course of the next two or three months. it does mean as long as the fed's framework is in place in the fed is behaving in a way that gives investors confidence that breakevens will remain contained -- keep in mind, we are at 2.50, not 3.50 --keeping the fed in play is the best thing for the longer market. manus: i can't imagine what bonds will do on the day they decide to revisit the 2%

inflation target. i am going to leave that for other people around the desk. i'm interested in term premium. you have either got to arbitrate as you have got to arbitrate either it is rich enough for you to slay a bond vigilante or not. your answer? >> not yet, but it will get there at some point. i think we are going to see the peak in 10 year yields over the course of the next two or three weeks. the logic there is straightforward. wednesday represents a unique moment in market history, first time that i am comfortable saying that trading the refunding announcement is going to trump trading the fed decision. all that matters at this moment is supply. we get the funding information monday afternoon and that will rule through to whether or not the treasury is looking at the amount of term premium further out the curve and if it is not where they want it to be, instead utilizing the bill

market. we should get some greater context if not next week, then through communication in the following couple of weeks. >> if i think about that statement, i look at where we have been the last decade. why weren't they turning things out when there was no term premium, when you have these very low, long-term rates. now, you are at a situation where you have higher rates across the entire curve. i agree there may be some interesting information from that. what do we do with that information? if they come in heavy on bills, is that saying we are going to wait so by the tenant year where it is or -- what does that mean for trading? ian: if we look at what has happened since 2018 in terms of the average maturity of outstanding treasury debt privately held, not what has been bought back -- we have seen a huge drop in average maturity following the initial points in the pandemic because to fund all

these programs, treasury market dumped a ton of bills into the market. that has since been reversed as the has to some extent taken -- as the treasury department has taken advantage of that lack of term premium. now, as we see this ongoing increase in average maturities, the fed is up against this reality of, it is going to cost us more conceptually if we want to go out to tens, 20's and 30's. from a practical perspective, we need to figure out as we trade the market whether or not that pendulum has swung too far in terms of term premium. even if you look at something as simple as the new york fed's ach model term premium, we are in the mid 127 range. in the last spike, we got up to 330 five basis points. it is important to keep in mind that was largely run in lead. with the curve as flat as it is, that is what is making it an

important question for the market. should we stay in to's or go out? lisa: you said trading the refunding agreement is going to trump anything that it says and the fed decision succumbing wednesday. what is the trigger point not refunding agreement that can cause true market dysfunction? ian: market dysfunction will be less likely than a clear signal that the -- the treasury department is targeting further coupon option size increases at the february refunded. everyone expects november 2 see increases. it is an open question whether or not we see that in february and if the treasury department gives us guidance. i think that would trigger a more significant selloff. that is when 5.10 in 10 year yields starts to make sense. lisa: thank you so much. about 20 basis points away from that at this point, we are

seeing 10 year around the 4.8 6%. if you are just winning, and sanpete steadily losing momentum . futures up .2%. 41.63. coming up, sf investments as we try to understand the cpe, the pce, the inflation, the personal consumption expenditure index. what ian said was fascinating. basically, if the fed decides to sell a greater number of long duration treasuries in the february meeting, that could trigger a selloff unlike we have seen so far. >> there are so many variables going on right now. the other one i am thinking about is michigan sentiment coming up later today. we had bad numbers last time. there is so much that goes on. there is that information, market information, economic information. it is difficult to parse where you want to sit on that curve.

i find it challenging. manus: we had hard data yesterday in gdp. we get more data today on pce. versus that michigan soft data, who is in front? or, do you look at the exxon numbers and that tells you something about the real economy? lisa: it is a confusing brew. yesterday, you saw strong gdp come out, the strongest in two years. there was a bit too treasuries. to try and get a signal and get the market right, go add. coming up, chris on the banking sector. the one consistent place of weakness in the regional banking sector. near the lows sense the march crisis. ♪ marter. like a smart coffee grinder, that orders fresh beans for you. oh, genius! for more breakthroughs like that- i need a breakthrough card. like ours! with 2.5% cash back on purchases of $5,000 or more. plus unlimited 2% cash back on

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>> the next cycle is going to be investment baking lead and means in equities, we are fixed income

business. we restructured. it is a cop five business and investment banking is going to lead the next cycle. lisa: morgan stanley's incoming ceo in conversation with sonali basak and with the former ceo sitting alongside him saying, enjoy it. in markets, a bid to the tape. a quiet morning as we reassess the geopolitics. yield moves, earnings, a lot going on in ahead of key economic data in the u.s. the regional banks, especially as we talk about the big banks and the successors to that -- so far year to date, the bk x -- kbw index is down 25%, close to the lows we saw during the crisis back in march. joining us now is chris merrimack. i know you have been bullish on the banking sector. i want get your take on what you

make of the selloff that has persisted. >> i think there has been some continued struggles about the fears of credit quality getting worse in 2024. there has been passive outflows against the banks. i have heard folks shorting the kr x and k r e that go along with the nasdaq 100. to some extent, the banks are not sexy and not doing anything from a perspective that causes investors to dive in. most of the fund flows has been to other growth areas and other areas that are avoiding anything economically sensitive and perhaps recession prone. lisa: have you gotten less bullish on this area? we have seen underperformance versus expectations particularly in the regional space. >> the stocks have an opportunity to trade back to 47 on the kr e. can we get investors to pay attention to what really matters, which is cash flow?

operating cash flow for most banks is down 10% from the august estimates free third-quarter earnings. i think the other 90% of ppm are is strong to allow banks to earn through the cycle on credit issues and anything that comes their way. their capacity to absorb losses is extremely good. that is one of the reasons stocks have opportunities to do better. i do not think we will go back to where we were on the kr e pre-silicon valley. we have to get through this recession discounting the market is doing. manus: we are obsessed with the recession discount. it has not come to roost yet. good morning. provisioning has been on the low side of this reporting season. of course, if there is no dramatic slowdown and no hard landing, that is all justifiable. do you think 2024 is going to be marred by an increase in -- a material increase in provision,

and if so, where does it hurt the most? >> i think the provisions will arise in 2024 primarily because i think charge-offs will blow up. we have companies writing off 15 to 20 basis points of charge-offs. going back to 30 or 40 basis points for most mid banks -- midsized banks is normal. that will cost provision to rise. generally, most banks are going to set aside reverbs -- reserves to build confidence. they are counting on -- cecil has led banks to limit reserve growth this quarter. to some extent, it is driven by limited balance sheet growth and the moody's forecast a lot of banks use has pushed out the recession. that has tamped down reserve calculations. manus: the consensus is jp morgan keeps getting bigger. it is this juggernaut that swallows everything and moved

everything out of its way. you have listened to the conference calls, you have listened to a couple ceos. who is under the most pressure in the banking sphere? who do you think is under the most pressure as a ceo at the moment? >> there are banks that have capital ratios that are depressed when you take the mark to market for all securities, both for available for sale and available maturity. that issue has to be resolved. to some extent, banks will work out their issues on their own because securities will start maturity -- maturing in 2024 and 2025. we do not have to see that policy change for the marks to get better. we think some payoffs of securities coming due at maturity will help. the pressure is on the regional banks who are going to have these new fed accounting rules which basically means capital ratios are lower than reported. even though it is phased in over a three year period, the markets perceive they have to on those

capital rows today. we have to fight through that. the good news is banks are profitable. there is no changes happening on some of those major items like common and preferred dividends. the attitude for investors should be better than it is. i think the pressure is on regional banks where the definition is changing on capital. i think they will work through it, but that continues to be the pressure point at the moment. >> does that mean we have to extend the etf the and do you believe they will extend that? >> we do not have to extend it. it would be nice to extend because it takes one issue off the table. the use has been limited. it is hovering around 109 billion for weeks. the banks have used it. some may renew if given the opportunity. if they do not, i do not think it is a big problem. it would be nice to do that, it would nice to have fdic insurance reform. i am not sure the fdic is going to go there.

that would be my thought on that. >> it sounds like the regional banks have a maturity profile that is not as dire as i think some of us were worried about. i think about some assets sitting there. our regional banks stuck ike utilities where i am in a flat yield curve so i do not have a lot going on, i do not see a lot of growth ahead of me and they do not have diversification of money center banks? >> i think diversification is very good. you have office real estate area limited, even commercial real estate is very limited. with the cni space, there are banks that provide a great service for that. the economy is healthier than i think for some realized. even if it changes the ability for companies to earn through is good. what we see happening is less balance sheet growth, but more turnover of loans in low yields, renewing high yields. a new loan today is going on the books at 8%.

that is attractive and going to cause the mix to shift on that margin. we think margins may bottom in the first quarter if not sooner. that will help stocks catch a bit of the bed. lisa: final word on the idea of the succession at morgan stanley. is it significant in terms of the direction of that bank, or do you think it is going to be a continuing of the guard? >> the investment baking business is the highest margin business of these large, international firms. it did not surprise me he was the choice. i think his leadership inside the company has been well thought for a long time. it seemed to make sense. to some extent, they want to put the best foot forward. they picked up a lot of new customers from the first republic failure in april and may. it seemed to be continuing the push on the investment banking engine. lisa: chris merrimack, thank you so much. sarah, i am curious from your vantage point whether you heard from him there made you feel

more optimistic about regional banks. >> it did. i would say there is a perception especially if you do not follow only banks that there is big banks are good and small banks are in trouble. to the extent there is more to that regional baking strength -- clearly, it is going to be more diverse because there are different banks all over the country. the fact there is less trouble for them if the pdf be is not renewed, that is good news collectively. it did make that group more interesting. manus: for a moment, there was a glimmer in your eye. i have had fund and equity managers that would not touch base with a pole. after that conversation, you look at big and small banks. at what level of exposure do you want? >> we do have some exposure to financials. to the extent you want to look at some regional ones, they have

good dividends but also balance sheets that are less problematic . there are companies that spend more time investing in the types of real estate that seem more troubled right now. the issue is -- i do not disagree loans will be at higher rates -- we have to reprice assets for people to take out a mortgage. you have to repress a home at 8% were pricing at a 3% mortgage and that has not happened yet. lisa: it is the whole story of higher rates should be good for banks. it just has not been so far because of the other concerns. thank you for spending the hour with us. sarah hunt of alpine saxon woods. wonderful to get your thoughts. coming up, half an hour until we get key pca -- pce data. manus: drumroll. all of the estimates are for incrementally lower, the trend is in place. the fed will be happy. lisa: i am curious if ian is right. not necessarily having anything to do with that. next, lisa of morgan stanley

wealth management. this is blue -- this is bloomberg.

some things are going to break. everyone is looking for reasons to sell everything.

5% yields in the geopolitical situation is compressing valuations. i think we are going to see further instability playing out over the course over the next few weeks. >> this is bloomberg surveillance with tom keene, jonathan ferro and lisa abramowicz. lisa: it has been a week, welcome back, tom and john are both off today. manus cranny is in. we are all trying to parse through some of the rubble we have experienced and part of the issue has been what's going on in the tech space. we are talking about the correction and the nasdaq. manus: it is a gruesome reality

200 billion was wiped off the attack and you're almost forced into a situation where something was 10, 15% higher you must reevaluate and must ask yourself the fundamental question if i want to be long and i want exposure why would you not buy the dip? lisa: that's definitely been a tone, losing steam. >> are these moves short-term or are we finding a new normal. when you think about re-engaging the stocks at these levels, historically returns have not

been good. lisa: there is this instability, a feeling underpinning this market there is a lack of understanding what the paradigm is. we are all waiting for the pce report that gives you a sense of inflation. we don't know where were going back to you. manus: the conversation we had was clear. he talked about where the bond market goes next and where the market goes will be defined by treasury funding not so much the pc, the data or fed. lisa: the pce may not help. there have been disconnects between those reports but the

process may be sloppier than we expect. lisa: you are seeing do, do do with s&p futures up .1%. the euro is losing steam against the dollar. it was amazing how boring christine lagarde was. that was exactly what she was looking forward. 10-year gilts creeping higher as the day goes on. we start, and then we get less comments a day goes on. >> something that makes me think that this selloff has more room to run is because it has felt pretty orderly. we get to some big numbers, we rate -- weight and re-consolidate.

manus: that's orderly? lara: we saw huge swings back in the day. lisa: it's reframing volatility. we did see a correction the nasdaq and we are heading into a period where we see restructuring. have we sold off enough? >> we are not interested in

getting in unless you are a trader. what we tend to point our clients to his being long-term investors and our perspective has been that we will continue to trade in this bear market range. which is where we have been for two years. people have to pull out their telescope and look at where we have been. you look at the s&p 500, we were here in 2021. this is a traders market. we don't think we break out of this range of somewhere around 4200, 4500 until the middle of next year and that is when the fog clears on whether or not we will see growth re-accelerate or we are going to see probabilities of recession increase. we have been in the camp where we will be on that second

scenario where growth disappoints. look at the quarter gdp. we are doing nominal 8%. lisa: you said this is a traders market with equities. is it a traders market for bonds? you have been bullish on bonds when there is a feeling that the selloff has legs and is fundamentally driven by how much the uss of finance. drew: our perspective is that we are within 15 basis points of a peak in rates and having clients embracing this market some of these coupons with the potential for rates to reset creates a double-digit return with a third of the volatility.

as investors we think about the buy and hold on these bonds is a good value proposition. i think here to there is a lot of volatility and that means you have to be a trader if you're going to be in this market looking for returns on the month or on the corner. manus: i think that's one of the most honest interpretations. there is the other side which is you either view you have to build some kind of defense. i'm drawn to your view that you want real assets in gold. are you actively adding more real assets if you are not convinced on pure equity? lisa: we are encouraging people to add real assets. one of our themes has been the

equity markets are just not pricing real risk premiums. one of the things that has been heartening to us is the fact that not only are we getting higher real race but that there is a term premium that suddenly people realize that in a new interest rate regime where the fed is going to be data dependent there is lumpiness and uncertainty over time about how that data is going to come out. add in all the geopolitical dimensions to what is going on. the dimensions of dysfunction in washington dc and we are rolling into an election year where the headlines and developments are going to be extraordinarily volatile. our view is that real assets

things like real estate and energy assets could really be a source of protection and stability. manus: he thinks the peak in rates could be in the next couple of weeks and what part of the bond market would you like to add to if you are adding real come oddities what would you add in duration? lisa: we are finding value and 4, 6 and seven's. we are looking at investment grade corporate. we are taking the treasury yield and spread, we believe there are

quality balance sheets that could service these coupons. we are enthusiastic that the middle of the curve could produce double digits returns. lara: i am curious about this reaction to geopolitical events. usually we would see u.s. bonds plunge. it's does that represent a more fundamental reassessment of treasury as a risk-free asset? we are going into this government shutdown which has historically given us lower yields and we shrug it off. will this time be different because people are fundamentally reassessing the dollar. lisa: this is one of the issues

we talk about with our clients all the time. it is our sense that something fundamental is going on in the appetite for u.s. treasury debt is different this time. clearly the market is readjusting to not having the fed as surprised and sensitive buyer. you look at what is going on among japanese investors. they are facing the realities of tough currency and hedging costs to buy treasuries and the size that they have been buying over the past decade. the geopolitical dimensions, historically china has been a big buyer given their trade balance and foreign currency

reserves. there is a lot of complexity and allowed to question about why we have not seen that flight to safety manifest as it has in u.s. treasuries. i do think this is something we need to watch and study and think hard about whether or not something is changing and whether the u.s. treasury market is vulnerable to geopolitics for the first time since world war ii. lisa: lisa shalett from morgan stanley. the s&p is up .24%. is there a potential that treasuries are not havens us they have been potentially? lara: we are getting shadowed

tightening coming from everywhere outside of what people are expecting the fed to do and it's a wet blanket over the broader market. we are positive going into the opening. manus: why would you take significant risks on your book two months before the end of the year? lisa: but it is considered to take risk on treasuries on your book. i think that is the fundamental insecurity about people who previously saw this as a asset. coming up we have annmarie hordern on the geopolitical space. this is bloomberg. ♪

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hamas is using people as human shields was harsh is taking hostages. was harsh is dropping in on a music festival. there are thousands waiting to leave gaza writ large and thomas is preventing them for doing it. lisa: that was john kirby and he will also speak today on the

latest state of play in the u.s. role there. welcome back this is bloomberg surveillance i am a long manus cranny and i am so glad to say i am alongside laura rain. i want to get to the geopolitics because we are expecting a meeting with president xi's ambassador with president biden. there is a lot to unpack here. can we take this as a signal of some sort of softening of the ties between the u.s. and china? annmarie: this looks like a romantic for abide in and president xi sit down. the fact that biden is going to show up, shake his hand it feels like a softening in terms of the

dialogue. the fact that there is dialogue says a lot. i would also note that gavin newsom had a red carpet welcome in china. he has not set down with a u.s. governor in 6, 7 years. that also said to me that down the road this could be someone we need to know. lisa: there is a question of whether there will be discussion about china's position in the middle east to try and support the u.s. and its effort to de-escalate this conflict.

you have these two conflicts in the world, russia and ukraine, israel/hamas. the united states and china are on the opposite ends of these conflicts and that's what scares the intelligence communities around the world. what other power struggle could there be? this is where the concern is, u.s. and china have taken the opposite ends of this conflicts and the fact that they are discussing china could put their thumb on the scale when it comes to pollutant and iran? this is not only china and the u.s., this is china, russia and iran. a trifecta on that side of the world.

what could shift for china? annmarie: one think the u.s. could pressure china or the chinese could do is they could say to putin and the iranians we will slow down our buying of your petroleum products. manus: or there could be a tightening of the screws on iranian exports. annmarie: but those sanctions have not gone anywhere. but they have turned a blind eye to the sanctions and that is why iran is able to make money. and he was the buyer, china. all of these commodities, china is buying up. manus: the iranian foreign

minister is here and he is warning the united states you will not be spared if the israel/hamas war spreads. these are aggressive statements. how seriously you should those statements be taken. annmarie: a lot of it has to be fiery rhetoric. there has been a lot of backlash on even given him a visa and allowing him to enter the country. we have seen in the past, allow people on visas. this is fiery rhetoric and it comes on the heels of u.s. attacks in syria.

but what comes with the strikes? is it u.s. military personnel? military facilities? lisa: looking at what is happening in the house how will this impact those. very soon we will be in a wave of concern about the shutdown and the funding for these foreign conflicts. annmarie: there is a brand-new speaker and he has a brand-new learning curve and he was at the white house yesterday. they were talking about the potential of a government shutdown. this individual has said he's up for a continuing resolution with conservative values. put that aside there are also

national security concerns. he was a sobering reality in terms of the conflicts happening around the world but he went on sean hannity and he says he wants to separate the funding requests coming from israel and ukraine. he wants 14 billion for israel but where does that leave what is going on with ukraine? that will be harder for this republican led house to vote for. the republicans have a slim majority in it make it even slimmer. george santos is appearing in a court and long island. if they lose that seat their majority becomes razor thin. earlier this morning they said this is not a speaker who has any chance of bringing together

both sides. does this make it less likely we get a shutdown or more? we are about 5.5 minutes away from key economic data, how important is it? lara: it's already baked into gp three data. the last report was more friendly and the fed has made such a spotlight on this little sliver of services inflation and i feel that could come back to bite them as it is risen again. lisa: i love how inflation feels like an unruly child.

manus: she said it won't be as unruly as a brief. you started the show with inflation is disinflation. lara: i think it will be stubbornly high. lisa: which might be part of the reason that yields are where they are. tony rodriguez, and rob sanderson of loop capital coming up. ♪ it's possible. with james hardie™. the chase ink business premier card is made for people like sam, who make-

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manus: it is bloomberg surveillance. we are waiting for the pce data. we are waiting for the personal spending. will it be a disinflationary role of the dice? mike: we have about four seconds until that happens. we could get a little more disinflation. here come the numbers and we will start with the inflation numbers coming in hotter than anticipated. of .4 percent, the core comes up

.3%. about what was expected. we see the pce headline number at 3.4 down from 3.5. in the core at 3.7. all of those things were expected. all of the people who dive in those numbers will be up in a second. spending is up .7%. manus: that strong on the back of that gdp. mike: this is within gdp because it was the third month of the quarter they anticipated this would be fairly strong.

the question now, do we continue to see spending happen because of incomes are falling behind, that would suggest there is a pullback ahead. i am not the only expert here. manus: your first take? lara: we continue to see inflation coming down but it's still unacceptably high from the point of view of the fed. the conversation as we go into next year, the options continue to narrow because of inflation stays where it is and is going to take a long time for it to get closer to two. there room to maneuver will be narrow. we know that from the gdp numbers we got but the spending

by the household house to find every expectation and is accelerated so much in the third quarter. mike: the savings rate comes in at 3.4%. people have been watching that to see if the american consumer will run out of money. but before the pandemic, people spend what they make. they don't dip into savings the way people tend to think they do. if that is the case there is more of a case now for a slow down. people don't have as much to dip into and they're not making as much. manus: she said americans are more likely to spend right to the end. i want to bring you an idea from ubs but side when you go to

write the history of 2020, do not bet against the hedonism of the u.s. consumer. i want that understand from you, the hedonism of the u.s. consumer, is it real or does that run out of mileage? lara: that is a colorful weight of put it but that's what the third quarter felt like. between the headlines about the concerts, people seem to be looking for the next experience and looking to pay whatever is required to get it. this issue of savings has gotten so complicated because we have excess savings that accumulated during the shutdown is that now

pocketed in the fourth quartile? we know that savings has run out for a lot of the lower strata, the other 75% of us not in the upper quartile. we just see strong job growth that reinforces the foundation of the household and this rear acceleration is unexpected. mike: in terms of year hedonism example. services went up .8 while goods went up .7. goods seem to be still going good. .8% gain for service is pretty strong. people were spending money on the third quarter on all sorts

of things. lara: if you look at consumer confidence it is well below where i was before the pandemic and that is despite strong growth. manus: consumer confidence may be battered but spending goes on unabated. lara: when i am not here i am the mom at the grocery store and i have one bag of groceries that cost me $95. this idea that year-over-year inflation is coming down but the sticker shock is a very real and present pain point. manus: and coca-cola and netflix and apple tv is raising prices. we are moderately immune. you will still order a coca-cola in your netflix movie. mike: looking here to see if we

have super core. that is the one that the chairman of the fed says he likes the most. we will see if that number is calculated yet. lara: it was the cpi number that had risen the most since about a year. i think it will be a key piece of today's repor 485 is where w0 year government bonds. there is a flat, unknown entity within the bond market. let's check in on equities at 4.1% -- .41% we just had bmo saying that the next week will

define the endpoint for the bond spike in meals. new york crude 1.93%. when personal income rises at .3% the estimate was for .4%. the takeaway is the core price index rises to 3.7 in line with the estimates. mike: the rate of inflation is slowing down but not as fast as people would like. so laura's point about being the mom at the grocery store. prices go up at a slower rate but they don't come down. so you are paying more for a lot of staples and they will stay at that price. they are still experiencing

inflation even if it's not as bad as before. manus: what happens to the view in the market that we will get rate cuts into 2024. does that debate change? lara: the fed has to continue to reign in rate cut expectation out of the future occur. i feel like this is the deal with the devil right now. if you would've told me that we would have gdp of 5% said the fed would not cut rates but futures markets are not pricing in another rate cut. the only way it works if we get a draft tire and long-term yields. markets have 75 basis points of rate cuts priced in. if the fed stays on hold there is room for that rate to move higher.

manus: the top line is that pce is out of a four month high in consumer spending picks up. it does not leave them the optionality to be dovish. mike: they can sit on this because they forecast in september that we would see pce core at 3.7 at the end of the year. manus: and we are there. mike: most economists think that we will comment below that. the fed could argue that is targets her head. you had a great note this morning on how we are starting to see more impacts from higher fed rates. that is slowly getting into the economy and we should see more. the fed is probably going to sit there and say what we are doing is working, inflation is going down and we don't have to go up

more with all this uncertainty out there. lisa: unless inflation is a 9% there is no emergency reason to raise rates. do your point, they have the time and this increase in long-term interest rates is the reason they can be patient and that will continue to pump the brakes on activity. when i look ahead next year and my forecast is for slower growth. i think these higher interest rates have increased the risk of inflation. i think it has to be a soft landing. i still think there is a very real risk of recession. but the reasons we say it's a mild recession means you could end with sluggish growth. manus: what is the next piece of data you will hang your hat on?

we have university of michigan. mike: i don't think that will move the needle a lot but we have data next week, ism and jobs by the end of the week. the fed meets on wednesdays so they won't have the jobs figures. but to get an idea of where they are going to go. there is less than a 2% chance they will do anything on a wednesday. the question is what happens in january and the jobs report will contribute to that. manus: for our listeners and viewers, if you are just joining the program hears that stock on the markets. we had been higher on these equities. s&p is up, avoiding the brutality of the correction you had in the nasdaq. the euro declines by .25%.

christine lagarde was able to have a press conference without any backlash. the pce is the highest level in four months, but the volatile components raises .3%. crude is up 1.89% as we see additional geopolitical risk overnight with targets being hit in some of the proxies. the market is still down for the week over 2.5%. at the end of an hour of analysis, your closing thoughts? lara: i think this is a week where we are winding down.

today is a day of digestion. we have a lot coming down the pike. we have employment numbers, the ism numbers. and while nothing is expected at the fed meeting, a press conference makes us watch the tv with the intuitive patient -- with anticipation. manus: mike, thank you very much. that was the first in-person meeting have had with mike mckee in america. it was very exciting for me. good morning from new york, this is bloomberg surveillance. ♪ at pgim we can help you rise to the challenges of today, when active investing and disciplined risk management

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>> we are seeing its go up and most advanced countries. part of the increase in yields is simply a reflection of the strength of the economy. the notion that the interest rates will be higher for longer. it is perfectly possible you will see longer-term yields go down. nobody really knows for sure. manus: janet yellen speaking to peggy collins.

why these bonds have gone -- this week. i want to start the conversation with you lara, listening to the treasury secretary is not because of the dead but because the u.s. is so strong? lara: i think it's the deficit. the treasury auction sizes are enormous. they are not going off quite as smoothly as when they were engaging quantitative easing. and of course, we continue to see the data ripping and a very strong pace. altogether, it's hard to break it apart but the deficit is a component. manus: we just had bmo saying that the next few weeks will

define where the peak in terms of treasury funding and not the fed? lara: i don't think it's done and i would argue is not a three-week event. i think there is room for this to continue to move simply because markets are so attached to rate cuts in the coming year. as long as the data stay as long as they are the fed will have to push as hard. manus: marcus ashworth is a bloomberg columnist and he has watch these markets with me for a long time. the next battle on the line is the fed with the market. how does the fed pushback at the rate cuts in the market? >> i don't think the fed is as important anymore.

whatever powell says is not having as much of fact. there is a dynamic of supply driving yields higher. however, we saw this week we had 5% in the 10 year and rejected it. i am of the opinion we may have seen a turn in the markets but the fact that stocks are down and bond yields are down are important. the dollar keep strengthening. when you put those two together, you have seen where the trends are ended some important to notice. there is a trend tour -- turn in yields and equities are turning down as well. as we come into the fourth quarter we will see a lot of strong third-quarter gdp. maybe that was the last peak and we got through october without a crash.

for the moment, stocks are looking pretty weak. lara: could there be another interpretation of the fact that powell's comments have not elicited market reactions because he is implicitly blessing this move higher and interest rates. if they wanted to really move the market and impact markets and how to do that. the fact that he is choosing language that keeps these trends in place implies that he may not be that displeased with the tightening happening in the long-term with the dollar and real interest rates? marcus: what was so equivocal in my mind if this bond yield moves that the long yellow it will be similar to three growth rate

rises. i got the impression that he was enough already without saying that. he doesn't want to get into rate cut arguments going into next year. i think that is where the market is going to turn to next. i don't think you want 10 about five. lara: at the end of the day, the data are going to continue to be a real focus. this strong employment numbers we got last month, what would you think would take to swing him in a hock's position -- hawkish position. marcus: i don't think anyone knows what is going on so let's

not get too clever. i think powell has admitted he doesn't quite understand it either. it is confusing, the economy is much stronger than the market expect good. -- the market expected. yes, if we still get these big numbers on payrolls and on retail spending and consumption, maybe he does have to go. i think the fed is done in the ecb has probably hiked too much and the bank of england thinks they're done as well. i don't see any rate hikes coming unless the economy continues to keep surprising. manus: when you look at the data we got this morning, core pce jumps the most in four months. i'm surprised there is not more reaction in the bond market.

do bonds now, with the geopolitical conflicts, there are multiple global threats, do you think at some juncture bonds do what they are supposed to do and act as a hedge which they have not. marcus: markets should be a hundred points lower in yields if there was any logic left in the world. nasty inflation numbers don't help. geopolitical issues don't matter until it does. i think the markets will react, china has always been a big buyer.

that is what the bond market is trying to contend with and no one will step forward into the safe haven trade. i think there will be a sharp downturn in yields. i am probably clutching at thin straw stairs. manus: that is what living in the balmy british weather will give you. i leave you to the british autumn. that is everything that this market should be doing and it's just not. we try to philosophize about it but i will end with a closing thought. is there a risk we should have at the tail? lara: this is the time and the cycle went outlier risk come in and amplify volatility.

this is the part of the business cycle where you start to get really nervous about multiple black swan events accumulating. manus: the inflation story of 2024 will be key as well. lara: inflation in 2024 will be one of the most defining trends. that can upset the apple cart of everyone assuming things will go back to normal and the genie is back in the bottle. manus: what's normal? what is the normalization of rates to 5.5%. lorraine from fx investments. things will be back to normal on monday. you will have tom, jonathan and

lisa and feel comfortable. at 10:30 darren woods joins the team for a conversation on bloomberg. ♪ ssible to fall in love with your home... ...before you even step inside? ♪ discover the magnolia home james hardie collection. available now in siding colors, styles and textures. curated by joanna gaines. the chase ink business premier card is made for people like sam, who make- everyday products, designed smarter. like a smart coffee grinder, that orders fresh beans for you. oh, genius! for more breakthroughs like that- i need a breakthrough card. like ours! with 2.5% cash back on purchases of $5,000 or more. plus unlimited 2% cash back on all other purchases. and with greater spending potential, sam can keep making smart ideas- a brilliant reality! the ink business premier card from chase for business. make more of what's yours.

>> from new york city, i am lisa abramowicz. a reprieve after the selloff that led to a correction in the nasdaq. the countdown to the open starts now. announcer: everything you need to get set for the start of u.s. trading. this is "bloomberg the open" with jonathan ferro. lisa: coming up, an ugly week for markets. amazon providing a