>> if it goes too far on its own, it would be -- the question would be what the fed would do. >> the fed is likely to cut. but every time the fed announces the market doubles. >> the fed might get us to a hotter language -- landing and the markets have not adjusted for that. >> if the markets rally, that is ok. >> i think the fed put is fairly back. >> this is "bloomberg surveillance" with jonathan

ferro, tom keim and lisa abramowicz. lisa: good morning, this is "bloomberg surveillance" from new york. good morning and welcome back. tom keene, jonathan ferro, and lisa abramowicz with jon and tom off. katie gets to do this with me. welcome. growth concerns creeping back very much through the holiday. katie: that might explain the bond market. i was fiddling around with some charts. the euro today chart looks like the one year chart. the 10 year treasury yields are flat on the year which is amazing. lisa: especially considering what people were looking for in terms of a recession and recovery. we did not get the recession. here the issue. nike comes out and talk about job cuts and 400 to $450 million of charges in order to cost cut across the board. other companies are falling in

tandem. is this idiosyncratic to the retail sector or does katie: this extend beyond? katie:if you ask equity bowls you would see that they -- they would say it is a video syncretic. to your point, we keep hearing this story from the retailers. you have to think that that means something when you add it together. try not, especially for nike's warning about macro concerns. that has been an issue for nike all year. lisa: this is the reason why, it is interesting that you are in the same place for the 10-year yield with a bumpy and not a straight line when it comes to stocks which have gained tremendously. are we setting up for something perfect that cannot happen? are we looking for some kind of strength in disinflation that comes together with a supply chain resolution that has already happened? this key metric, whether it

keeps coming in with the disinflationary tendency. katie: this is the last day that matters. the year ends at 2:00 p.m. today and it starts at 8:30 with the pce numbers. lisa: yesterday i did get a boost and everyone was trying to explain why. one person pointed to the data that came out in the third revision of the current gdp which shows you how much people are reaching for things to explain market movement pointing to the fact that inflation was revised lower from 2% to 2.3 percent highlighting that we are getting back to the goal quickly. people view that this is bullish.

is it bullish or does it signify an underlying weakness? katie: that is the thing. inflation has been falling quickly, much more quickly than the fed expected. it is as a precursor to growth actually faltering as well? you know, i know the point has been made that a soft landing looks like a soft landing when it starts but it also looks like a soft landing when it starts. lisa: you and i have been talking about this for hours and hours about how everyone seems to be a buyer and a bull. how surprised were you to see that equity funds had the biggest outflow since 2022, since december 2022 and the money piled into cash and everyone is talking about deploying cash and this is coming out from bank of america overnight. katie: i follow etf flows a lot and typically you should see flows follow a performance that has not necessarily been the case if you look at the bond funds in particular. it seems like we got another reality check when you look at where people are actually

putting their money. lisa: $20 billion from equity funds. eight: 30 am, personal income and spending and pce dip -- at 8:30 a.m., personal income spending and pca deflator. it is expected to decline further from 3.4%. isn't enough and does it confirm the goldilocks that people are celebrating. it is the last day. markets are closing at 2:00 p.m.. it is a little bit of softness.

if this another gain on the week that makes eight straight weeks of gains going back more than 2017? katie: you think of all the capitulation from the sell side. to the early treasury market close, why cant the equity market get on board. the bond market closes at the equity market is on a different schedule. lisa: the bond market has it right. katie: they usually do. lisa: everyone should follow suit and just take the time off. marvin low is doing the same. do you have an answer to that why the bond market tends to be to its own drum versus the stock market? marvin: i could not agree more. for sure we should start our celebrations a little bit early if we can. lisa: meanwhile we are talking about how treasuries are unchanged with a to mulcher west path. do you think that stocks are getting the message that

treasuries are sending right now? marvin: you know, certainly there is reason to be optimistic within the risk assets. it is a matter of how aggressively things have moved and the counterweights between loser financial conditions and ultimately the package that the fed will try to deliver with regard to inflation and growth. to a certain degree it pushes back against the financial conditions which have's loosened -- which have loosened as the 10-year yield comes down. katie: i want to talk about what we are seeing in the treasury market at the long end of the curve. lisa is saying you are seeing growth fears seep in and we are talking about the incredible move in the 10-year yields since mid-october. is that growth fears or foam of grab -- fomo grab for duration. how do you explain what is happening? marvin: for sure.

we talk about the left tail risk , the risk that there is significant selloff in bonds or stocks in the fed took that off the table. once they signaled that they were done with the hiking cycle we do not have to worry about the left tail from that perspective anymore. we are trying to figure out how much of this we want to buy. the inconsistency is that to think about rate cuts that begin in three months, within a quarter, the fed will at least from a market perspective to expect to start cutting. that only happens if bad things happen in the economy and i do not see that. it is definitely moving in the right direction. in terms of jobs cracking and inflation collapsing, it is not they are despite the fact that the fed is hinting that there are other things in the data and i would like to know what that is if it is true. katie: to your point on the

timing of rate cuts, i like this line. the fed cannot afford to cut and the need to hike again. why is that? marvin: sure. the credibility of the fed has been called into question all year. they have really moved with the tides as impressively as you can. the worst environment in my mind is one where they say that they are signaling all clear and mission accomplished and those inflation fears in the middle of the year whether bass affects start to wane and or the labor market remain stronger and wages remain stronger. they need to somehow put a tightening message and then they lose control of all of their guidance. in all other ways in which they are losing control of how this market has moved, they can tissue to put -- they continue to push back on the move. lisa: the risk is inflation

overheating rather than true weakness is that right? marvin: as far as everything i see, that is a concern. i think this balance sheet can's -- discussion that is making its way into the foreground is part of that. not only is the process in play, but if the qt process start -- stops early, let us say they coordinate the start of rate cuts with the stopping of qt with a massive balance sheet you have inflations concerns because the balance sheet is so big and because all of the reserves out there remain out there. lisa: how have you changed your view since the pivot? it seems like everyone is scrambling to reassess the baseline. how much have you actually changed yours? marvin: not that much. i have used the balance sheet discussion to guide me in terms of the thought process with

regard to what the fed should be doing versus what the data is ultimately saying. the fed should be getting their financial balance sheet order before getting to this phase of cuts. we have too much liquidity in the system and there are economic and inflation implications associated with a large balance sheet. i do not think anyone on the fmoc would consider stop -- stopping the balance sheet. katie: let us talk about how the fed talks about the balance sheet. consensus seems to say if they are cutting rates to get out of restrictive territory and get back to neutral that can continue. if they are cutting if there is a recession it becomes more challenging. assuming the first scenario where they are cutting to get back to neutral, how do they explain that to the american public? do they need to, that they are

running off the balance sheet in the background? marvin: they need to explain it. it is complex if they are on the one hand if they are cutting rates if they are trying to theoretically tighten. i am not in the camp that they would go down that route. i know child -- chair powell raise that instance that normalization would allow them to potentially continue the qt process. over what we have seen over the last two or three quarters is a fed coming to the conclusion that based on the number of the many who can say that you can do two things the opposite versus the very few, i think they will be linked at the hip. lisa: going into 2024, what is your highest convictions rate? marvin: i think they have moved too far. if i were to look at this i

would be concerned on the equity side. i do think that we have seen the best from a yield perspective for the next couple of quarters. and it is probably better you -- lower yield type discussions that evolve outside of the u.s.. we are seeing concerns pop up in europe and they justify what we are looking at. lisa: thank you so much for your insight, talking about the weakness and cuts that might be justified in europe. they are not saying that and you are seeing euro strength regardless of cuts. you are also seeing swiss strength. the swiss franc rose to its strongest against the dollar going back to 2015 with people gaming out that they will enjoy a stronger currency to bring down inflation domestically. katie: what does the signal mean coming from the swiss. growth fears might be getting pressed into the treasury

market. when i think about really rapid strength it is concerning about the haven assets. lisa: it is not necessarily versus the euro. this is a dollar weakness story as people game out whether the fed will cut rates. we shall see. and markets a bit of softness although unclear if we can eke out an eighth straight week of gains on the s&p, basically unchanged down a hair. and we are looking at euro strength crossing the 110 mark. this is interesting to see the dollar on the back foot into 2024. 10-year yields hovering around the 8.6 level and crude bouncing around the level of 75 to $74 a barrel on wti. coming up we are hearing from denny research. this is bloomberg. ♪ at pgim we can help you rise to the challenges of today, when active investing and disciplined risk management

are needed most. drawing on deep expertise across the world's public and private markets in pursuit of long-term returns... pgim. our investments shape tomorrow today.

>> it is very important to understand that the houthis are

not attacking one country but the international community. they are attacking the economic well-being and prosperity of nations around the world. in effect they have become bandits along the international highway that is the red sea. the houthis need to stop these attacks and now. lisa: that was major general pat ryder addressing the red sea conflicts as voices try to get stability. insurance costs are rising and we are seeing a lot of shipping companies adjust their roots. this is bloomberg surveillance. i am so pleased to say that katie is alongside me. we are seeing softness to end the week. it is basically unchanged. we are looking at yields materially lower over the past two months hovering around 3.86%. crude, really interesting that crude has hovered around 74 to 75 borrow -- $75 a barrel. even if fact that we have had

disruptions, record demand and supply cuts and we have seen that persistent weakness. katie: crude is one of the more interesting stories this year and it seems to be predicated on supply. just yesterday getting opec drama with angola leaving opec. we will get into that one. lisa: especially given that this has the backdrop of the united states production which is going gangbusters despite what the administration is deciding not to talk about. i want to dovetail that into industrial policy into 2024. kim wallace of -- head of washington research joining us for the holiday party and spirit and thank you for being with us. kim: happy to be here. lisa: i know that you put out in outlook of what to expect and i want to start with industrial

policy hinging off the latest news of u.s. steel and some of the administration pushback to a japanese conglomerate purchasing the largest steelmaker in the country. kim: there is a lot of analysis that will go into the ultimate reaction from the administration. the committee of foreign investment will investigate. the -- this does not imply disruption to the production of steel in the u.s.. it provides is to combine no dust globally number four and number 27. the first question is the global market and will you review the deal of the national market and my sense is that we will review the global market -- global market. it is difficult to believe that if japan cannot close a deal like this that anyone can. lisa: do you think the biden administration has been consistent with policy?

talking about america first in some ways and unionization but not talking about fact that the united states is pumping a record amount of oil. kim: you can be as consistent as you can be as a policymaker in this environment. we started from a low point in industrial manufacturing. we gave away that pace in the 90's. reclaiming it will take some time. the report that the national economic council and security council put out in june 2021 quantified how far back the u.s. is. the president sought to make up a gap. this has been a bipartisan effort in infrastructure. so, we are way behind when it comes to infrastructure and chips and semi conductors. we have a long way to go. deals like this have to be

reviewed from all of those perspectives that we talked about. ultimately, what is best in terms of short-term supplies and longer-term building out of the industrial base. that is part of the proposal in the emergency supplemental or $60 billion for the defense industrial base and 3 billion on that to build more submarines. katie: you bring up chips because you bring up the u.s.-china relationship with a lot of tensions and a lot of that playing out in the semiconductor arena. you look over the totality, how has the u.s.-china relationship evolved? kim: it has stabilized, the optics are better against a backdrop of severe competition. across a lot of platforms and that will not change. we sought last week in critical minerals. it will not allow the export of processing technology for critical minerals and that is a

shot across the bow. we gave points for efficiency in the u.s. industrial base and it is hard to make it political. people will. but making up for the deficiency will require decades, not just years. katie: in the context of critical minerals in the news that we saw on that front and the u.s. steel and nippon deal. we talked about japan as a strategic ally and when you think about the arena of critical minerals and the competition going on, how important does that make japan and other partners? kim: the last part, potential other partners. there is no indo pacific strategy without japan and that goes back to my saying if japan cannot close deals and no one can. it is the other players. what we saw at the beginning

that did not get a lot of attention was a national security partnership signed between indonesia and the u.s.. the usn's defense technology and know-how and indonesia promises to send critical minerals, eventually. it is part of a sophisticated program. sophistication is important. lisa: you have gotten plenty of accolades for your research and view forward when it comes to politics which recently has been a black box of impenetrable predictions. i am wondering what you see as some of the biggest market related risks stemming from washington, d.c. when they are so hot on the table? kim: there will be four. the first quarter will be fiscal policy what does washington do about fy 24. that morse into -- morphs into the first and second quarter,

what is the result of the fed's business and how does it play out. normalization at this part of the cycle means tightening. normalization soon will mean the other side. that leads into my view concerns about liquidity. both official and private liquidity. it is the topic that very few people want to address to the public but something that pops up on a regular basis as a concern among traders all the time both official and private liquidity. that morphs into the back end of the year and elections. what that implies for the country going forward and policy in 2025. lisa: in terms of the market risk meaning that as liquidity tightens people are more focused on that and the potential deficit and inability on the u.s. to spend on those issues. kim: the issues around the federal home loan banks and the administration has constrained

the advances they can make. there is discussion about playing -- paying less for reserves and forcing that money out into the economy or somewhere else. as ut goes on -- qt goes on we have a lot of tightening. lisa: thank you for being with us. kim wallace of 22 v research. i am looking at the fed's balance sheet which has fallen to $7.7 trillion from a peak in april of 2020 22 $9 trillion which is some significant denying spirit $1.2 trillion of coming in at a time where they are also raising rates. it creates the issue, we understand how to game out the influence on markets from that decline? katie: the influence on market and messaging. veto -- we poke fun at jerome powell for his communication missteps. it will be an interesting and

challenging needle to thread. you are tightening via the balance sheet. how much does that truly matter? lisa: marvin was concerned that the fed will start cutting rates before they finish quantitative tightening. this has been one of the big questions going into next year especially at a time of deficit. there does not seem to be much were -- much worry coming in more than a percentage point. they have come in 1.15 percentage points since the recent peak of october. let us see if we can keep that going. accrued up 1% and $74 and $.69. julia coronado as we await the key cpi -- pce data. this is bloomberg. ♪

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lisa: two hours from the most important data point of the last trading week of the year. there is another week coming after this or so i am told. the markets are in stasis after a tumult u.s. cup -- couple of weeks. s&p futures flat but what we are looking at is hovering around the 4800 mark. the russell 2000 honestly has been the highest flyer and the most interesting of all of the pairs at a time where people seem to be shrugging off growth concerns. katie: that is playing off in

the russell 2000. the small-cap companies have been getting hammered. they have been the outperformer. i am really interested to see how the market changes in tube hours times when we get the pce figures. it is very much holiday trading conditions. lisa: we could get big moves at a time when we have seen some stability in the treasury market compared to recent volatility. the 10 year and 30 year seeing this persistent bid in as we assess weaker aspects of the market and i am wondering about nike. i am wondering how that could color perspectives. i would say the two year yield 4.3%, a market shift lower as people price out the idea of six rate cuts. we are looking at the lowest two year yield going back to may of this year. katie: the equity market is over bond. what you call the bond market?

the rally has been breathtaking. lisa: that is part of the reason why people are interested in the fact that we have seen divergence between bonds and stocks. i do want to finish on currencies because we are seeing dollar weakness. euro strength crossing the 110 line for the first time going back quite a ways. we got down to 106 for a while and we have seen strength. how much of this is because of european strength? the data is not coming in all that strong. but it is the dollar weakness story which could be something of a surprise heading into the beginning of next year. the euro was the strongest going back to july of next year. katie: it was exactly a week ago when we were sitting here with damien and he told us over and over again about the dollar smile theory. the dollar does well when things are good and when it is bad. if we are in the middle it means continued dollar weakness. lisa: we can talk more about

dollar smile coming up. dollar smile for christmas holiday. u.s. announced new plans to target banks that facilitate payments for russia's military-industrial complex. it is the latest move to restrict vladimir putin's ability to fund russia's invasion of ukraine. "we will not hesitate to use the new tools provided by this authority to take decisive and servant of action against financial institutions that facilitate the supply of russia's war machine." i have been reading a lot about the sanctions on russia, i do not know how effective they have been. all the companies that were told to get out of russia aurburn -- or were required to had to sell their amazing businesses and you know who capitalize? who took the mochachina an -- mochacino and sell it the same umbrella. katie: russia has been able to get weapons and that suggest

that sanctions are not as effective as they would like them to be. we are approaching the two year anniversary and it makes sense at this point that the biden administration and the treasury are really looking for more ways to make that pain felt. lisa: and maybe direct some of the money to ukraine because it is not coming from congress yet. nike shares tumbling and the company is looking for as much as $2 billion in cost savings after issuing a weak forecast. they said that sales in china fell short of expectations. the cfl added that there are " indications of more cautious consumer behavior around the world." shares are down 11.5%. uma, adidas and footlocker are falling. we always ask how much is a specific to nike or a particular slice of the chinese consumers that they sell to versus a real macro story and maybe that was

what patrick was talking about. katie: to the theme of the morning of the growth fears. you see a lot of competitors falling. adidas and puma suggesting that this is not just a nike story but in industry story. and when does that turn into something that shows up in the broader economic numbers. lisa: and maybe they are worried because there is nothing else to worry about. katie: i think it is december 22. lisa: this one caught my attention as parents read this with conflicted feelings. and $80 billion selloff of some of china's biggest names as the country had curbs on game at -- on gaming. they clamped down on practices that encourage gamers to spend more money and time online. it is the latest from the administration that has fought to curb date -- to curb gaming addiction. i have mixed emotions. on one hand i am not really for

censorship and i think you have to live and let live and give people the opportunity and on the other hand as a parent, you know, if someone just took away some of the games and prohibited them from engaging with certain platforms it would make my job easier. i understand that maybe i should just put better things in place. katie: it would boost productivity but you can see the surprise of these rules coming out in the share reaction. painful memories of 2021 and the last time we got that broad-based china crackdown on the tech center. tencent, that is its worst move lower and we will see that reaction. lisa: this raises questions about how much confidence you can have after it has underperformed in the u.s. even this unexpected interference. it raises a question on the commitment of xi jinping to the culture versus the economic backdrop. for a long time he has been trying to push the culture

aspect even at the expense of the economy. and there is a feeling that there is a little more of a push and pull but not much. it shows it is still the cultural aspect reigning supreme. katie: that is also why you are seeing a big reaction. it seems like the narrative that started over the past couple of months or so, everyone came into this you're expecting it to be a great year for china's economy or better but that is not the case. there is some talk that would force xi jinping's hand. lisa: we are two hours away from the key data point of the date which is core pce. joining us right now is julia coronado. what do you expect us to see at 8:30 today and how much will it matter? julia: well, i think what we are going to see is a consensus on the bloomberg screens is a little bit stale. we will get a flat reading on course pce -- core pce, which

will take the annual rate down to 3.1%. these are numbers that we already have a foreshadowing of from the cpi and ppi. even chair powell cited the 3.1% number. i think the market is largely sort of absorbing that information. nonetheless, seeing that codified in the official data, the annual rate will be 3.1%. but on a three-month and six-month annual basis we will be below 2%. the target. so really it looks like the inflation beast has been slayed and, again, not calling total victory, but the signs are that the of inflation -- are that the inflation dynamics have exited.

the things that you are discussing with nike and consumer fennec enis shows that consumers are back in control of pricing power, that pandemic wave of pricing power that the consumer -- that companies enjoyed is gone and now they have to often are -- have to offer consumers deal to part with their money which is good news for inflation and fed rate cuts. katie: the fact that consumers are back in the driver's seat, does that lead to deflation? i was thinking about the warning from the walmart ceo that we got, are we going to see retailers actually lower prices? julia: yes. we are seeing that on the good side. that was good foreshadowing from the walmart ceo. we have seen that in the data. we are seeing some reversion in price levels. not just stopping them going up, but they are actually falling.

see that in cars and increasingly, outside of cars. we are seeing it in a broad range of goods. dot plot -- that does not mean brought inflation because service inflation tends to be the driver. mild goods deflation and services inflation leads us around 2%. that is the world we are back in. we might see a little bit during the holiday season more of the pressure on the price levels, so outright price declines in electronics and big-ticket items in particular, but they are coming from very high levels. there is room to fall. lisa: spending that thought forward we are also getting the university of michigan sentiment readings as well. even though we have seen an uptick, still a pretty depressed level taking a historical perspective. if we did see retailers lowering

prices on the good side and things getting less expensive, what would that mean from a sentiment standpoint. julia: we would probably continue to see the sentiment recover. we have had a conundrum of low sentiment and fantastic economic indicators. and that seems to be a uniquely u.s. phenomenon. and we can sort of wonder why that is the case. at the end of the day consumers have been spending. sentiment is always a very unreliable predictor of actual behavior, as long as consumers have jobs they will spend. how much and how much they lean into the holidays and etc. is certainly up in the air. but they are spending hiring is on track. so we still have the positive feedback at least in the u.s. economy.

there is more global weakness so global leaders have a little bit more weakness. we have been boosting the q4 gdp tracking as the data comes in again. and it still looks pretty solid. lisa: as far as headwind, we are warning about the potential weaker dollar. does that raise the specter of inflation which is essentially what is going on and such a strong dollar. julia: it has played a role in contributing on the ees thing in inflation. that is not the primary driver. the primary driver is the normalization of supply chain operations globally which looks very good with the caveat of what we have been seeing in the

middle east but overall, still a much smoother picture flow. in commodity prices, dollar weakness could put pressure. that was a dog that did not bark in 2023. china reopening and upward pressure on commodities and we have a new regime of globalization with upward pressure on commodities which has not materialized. input costs are subdued. supply chain pressers are fine. i do not see a resurgence of goods inflation should the dollar weekend. the dollar weakening seems to me to be tied to expectations for easier fed policy. and again the fed has some room. it moves so aggressively that they have more room to cut than some of the other global central banks. lisa: thank you so much and

merry christmas and happy new year. see you in the new year and thank you for your contributions to surveillance. julia coronado. she is talking about the likelihood of killing the beast of inflation. this is basically right now the consensus trade. the bank of america survey showed that 62 percent of respondents expect bond yields to fall. katie: mission accomplished. lisa: are you buying it? katie: at least 62% are. lisa: this will be the key question as we wait for the data. coming up javier on oil especially with angola leaving opec, what does that mean in terms of integrity of the oil union? this is bloomberg. ♪

>> on the margin commodity prices will be rising and there

are a number of indicators to lead us to that confusion. there will a lot -- there will be a lot of geopolitical headlines around hot in the world and that can help hedge against that. lisa: that is why he expects commodity prices to rise including some of the recent turmoil. oil expanding their gain as houthis expand their attacks and angola announcing its exit from opec. of yard loss saying that -- javier says it is more critical because it is more likely that riyadh will have to let the uae produce more oil. the risks might end up more dangerously in abu dhabi. xavier becerra is joining us. j --avier is joining us. it has been a while since any member state left the opec union. what was the reason for why and

why is it so pivotal? javier: angola has been having a fight about how much oil angola can produce in 2024. angola has been meeting its own open -- opec target level and saudi arabia wanted to reduce the targets. angola said it would not recognize a new part to -- the production target. ultimately yesterday it announced that it was leaving. at first you say this is not significant and irrelevant because angola is a small producer. actually, it cannot increase production whether it is inside or outside. but it is more interesting what it says about the partners within opec, and particularly those between the united rrb air minutes and saudi arabia. uae has been fighting an

internal campaign to get a higher quote. and i think they are not done and over time they will push for more production within the limits. lisa: if you zoom out this is set against the backdrop of the united states pumping more than 13 million barrels of oil a day. the increase has outstripped anything we have seen from the opec embers and raises the question have some of the cuts essentially subsidize the u.s. shale industry and forced the union to lose some of its market share to the united states? javier: that has been happening. you look at the production cuts implemented through the last year by saudi arabia unilaterally and opec in communication with themselves. they have served to boost prices at times close to $100 a barrel and that has been subsidized in the u.s. shale industry.

but perhaps more dangerously, what has happened over the past year is that u.s. shale industry has been growing production but making money and rerouting shareholders. this is different to what the industry was a few years back in the period of 2014 and 2015 where it was growing production. now it is doing both. it can grow production and pay shareholders. the longer that saudi arabia and opec he prices the way it are -- the way they are, the more the u.s. share industry will be growing. katie: when it comes to u.s. shale production and what we saw in 2014 the last time we saw a big episode of u.s. shale production strength you saw opec flood the market with crude to gain back market share. is there any risk we see a repeat this time around? javier: the market is very

excited. where it saudi arabia in 2024 will increase production and bring prices down and then regain control of the market. i do not see that happening yet. i think that the saudis are confident that the analysis of the market is rights and the demand will be strong and opec growth will slow down and therefore they will be able to start increasing production over time meaning the saudi and opec production. i think that is risky and i think that 2024 will be a make or break year. either the saudis are right and the slow down in u.s. shale growth will materialize or, therefore they have a problem and prices are too high and they need to change their strategy. we are going to see it, but it does not come until the second half of the year or 2024.

and i believe that the jury is out about why this scenario is more likely. katie: let us keep an eye on it. let us talk about opec membership. you point out that if you look over the past couple of years, indonesia, qatar and ecuador leaving opec and angola this week. to come? javier: potentially. there are a number of countries within opec where people wonder what they are doing their wear. -- doing there. thinking like that countries like the republic of congo and the equatorial guinea, i do not see them gaining much. looking at the membership of the opec-plus group, large group that works alongside saudi arabia. we saw mexico participating initially, and then taking more

of an observant status where it still participates but it does not take any production action. i would be keeping an eye on kazakhstan that has struggled to meet with any production cuts mandated by the group. but as i have worn in my column we have to be very careful about not rushing the obituary of opec. i think the three things to get completely wrong is to say that opec is dead. the death of opec has been exaggerated. lisa: the three most dangerous words in oil is opec and is dead. the three most dangerous words and investing is this time it is different. that is four words. i am thinking the conclusion must be underpinning what you say. if opec falls apart there is pressure not to cut production too much and there is a lot of supply pressuring prices for the

foreseeable future? javier: the focus in 2024 is supply. how much oil from the united states, brazil, guiana, and canada next year. i am more concerned about the supply for a source of instability for oil prices. the demand, i know a lot of people are worried about global oil demand. it is doing fine. we will get 1.1 million barrels a day. that is within the normal. we are coming back to historically what was normal. one million barrels a day plus of incremental demand has been the average of the last 20 years. the increase in 2023 of more than 2 million was the recovery of covid. we are back to normal but i do not think that global demand is weakening significantly. lisa: thank you for being with us. always wonderful to get your perspective and some insight and

whatnot to say. opec is dead, what not to say that. katie: i will put that on the naughty list. lisa: we were speaking yesterday with frank and he was talking about the merger and acquisition backdrop and how the medical consolidation that he expected was significant and we are seeing this. this just out from "wall street journal" that bristol-myers squibb is reaching out to buy a medical neurological development. they are paying for the schizophrenia drug. you might say i do not know any of those drug so what are the bigger trend? this is interesting to me. this is what frank was talking about. you need a bigger suite of drugs because any one of them needs to pull their weight and the generic cycle takes off the revenue quickly. you need a big pipeline and the way to do it is consolidation. you are seeing after a year that

has been solnament when it comes to m&a. katie: globally speaking falling below the 3 trillion mark for the first time since 2013. it will be really interesting when we see consolidation in the medical and energy space. we are seeing what that portends for 2024 especially if rates cut -- if the fed cuts rates in meaningful way. lisa: and why are they cutting, because people are feeling bad. katie: maybe you pool the resources and whether the storm. lisa: hug each other. coming up next eddie danny talking about the roaring 20's. he has gotten it right for 2023 and what about 2024 at the time where there is expectations for immaculate disinflation. we are seeing not a lot of immaculate for the s&p.

10-year yields 3.86%.

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when you show generosity of spirit to someone. and you want people to be saved and to have a better life, then you don't stop. the idea that we have saved five million people's lives, it's overwhelming. it's everything. >> if it moves too far on its own the question will be what more does the fed need to do? >> every time the fed announces because it's the market debt the cuts. the markets have to adjust to it. if the markets rally, that is ok with the rally.

this is bloomberg surveillance with tom keene, jonathan ferro and lisa abramowicz. lisa: 90 minutes until the most important moment of the week. katie greifeld is in. katie: i've been waiting lisa: for this call. lisa: i am so glad you are here. i'm curious to what you are looking for with core pce the most important data point of the week. katie: is it a continue march lower for inflation? would we see here? when we heard from jerome powell one of the most interesting things he said is that he does not expect the last mile of inflation to be that difficult and that was one of the themes of this year when you think of the economic community. we haven't seen in this slagged

to 2%. katie: what we are seeing right now is core pce around three point 46% and the expectation is for to come in at 3.3% down from february of 2020 at 5.6. can we get all the way down and it comes with the question does it come down with the continued strength we continue to see in earnings? katie: does that affect how people feel about the economy? people are still miserable. the sentiment surveys are depressed because the level of prices are still high. lisa: may be because we to social media. looking at horrible images. taking a look at markets right now we do see a range bound

stasis, 4795, euro-dollar at 1.1027. the strongest euro versus dollar going back to july. this is not coming because of european strength but in expectation that the u.s. will cut rates in the european region will not because that's not been the rhetoric out of the central banks? katie: you see the divergence from the fed, the ecb. how long is a sustainable before the ecb has to been to what the fed is doing? for right now it's been towards the benefit of the euro. lisa: you see a consensus trade and yields are coming in at 62%.

a recent survey from back of it america expected yields to go nowhere and you see that in the data today. here is what were looking at 8:30 pce core deflator. this could hinge on the disinflationary narrative. new home sales and inflation expectation, does sentiment begin to pick up? sentiment has been depressed but does that shift? oil prices have come down but if you look at the mood with markets, it's making people feel more in the holiday spirit. katie: it's better for the

economy when we see sentiment pickup. it's been an unreliable predictor of behavior. lisa: which is why jonathan ferro dismisses it. markets are closing at 2:00 p.m. stock traders can sit in their seats until 4:00 p.m. joining us now is someone who has gotten it right all year round edward yardeni talking about the roaring 20's. what keeps you up at night considering you've gotten things right? edward: i've been sleeping pretty well. i do worry about the geopolitical situation in the middle east, the fog of war. you never know how things unfold when a war starts. we have a fairly contained localized war in gaza and the risk is a becomes a regional war

and affects the price of oil. so far, the price of oil has been telling me there is not going to be a regional war going on here anytime soon. lisa: is the risk in your mind that people are not bullish enough considering everyone has been upping their expectations for end targets? were catching up to it really quick it's not even the end of the year? edward: i was talking about 4600 and that was not bullish enough, we are already about that. now i'm looking for 5400 next year and more people are talking about over 5000. for 2025i'm talking about 6000. i think i'm bullish enough. i don't think things could get better than that. that's on the top end of the scale. in the near term, everyone seems to be too happy.

in terms of sentiment indicators. i don't lose sleep over it but i do watch it. katie: with only a week or two left of 2023 is that why you have not boosted your estimate for this year? edward: i don't find to my forecast that much. we are only a week away so what's the point of getting cute about it? i am talking about 5400 by the end of next year and 6000 after that. that puts me in the bullish camp. lisa: if i had to put out these forecast i would revise on september 30 -- december 30 at the nail it every time. 6000 is a staggering number for

2025. what is the work they could you there and how do you project that with the degree of confidence? edward: on a short-term basis there are diehard hard planters. i've been talking about a recession and i think we will have rolling recoveries. we are starting to see a rolling recovery in the housing market. as far as retail merchandise we have a lot of inventory piling up. in addition to services. i think commercial real estate will be in a rolling recession but beyond that, i think there will be a recovery. that's the way i look at the business cycles. most importantly, i think we

have a significant labor shortage and companies will use technology to increase productivity dramatically. right now we are averaging 1.8% and by the end of the decade we will be looking at 3.5, 4.5%. which sounds delusional but that's the way productivity cycles of common the past. lisa: i know anecdotes don't tell the whole story and nike is cutting workers and they are working down their inventory but they are expecting weakness. does not contradict your optimism about the recovery? edward: i think a lot of forecasters have missed the past couple of years and the attitude that the only way inflation will

come down as if we have a recession. you mention the phrase immaculate disinflation and that is what we have had. the reason for that is the chinese and europeans have done us a favor. they had a recession. china has been exporting depression. i think the united states will benefit from property depression and china in terms of having low inflation in europe starts to recover from it shallow depression next year. katie: the reversal in the bond market has been stunning. you've worked on deficits in the

demand for bonds and it sounds like the bond vigilantes were reappearing. why do deficit concerns fall off the radar? edward: that's my point of view for many years, i don't care about the deficit until the bond market cares about the deficit. supply has not been the problem. we had this brief period where bond vigilantes started to move based on physical excesses. we saw this monstrous think piece in the 10 year bond yield and here we are back below 4%. there is an expression don't fight the fed. maybe also don't fight janet yellen because she cleverly cut back on the supply of long-term

bonds and notes and issued a lot of bills in the bond vigilantes said we can live with that. meanwhile the big story is how inflation has come down. the consensus has become we can have immaculate disinflation. chairman powell indicated we may actually get it. lisa: everyone let out a collective cheer. edward yardeni have a wonderful end of the year and thank you for everything you have given us through the year in term of insights. i'm looking at the forward-looking expectations baked into the fed on future and break even rates at 2.31% when you look at five years. that shocking. katie: we will get a read on what consumers and people think about in terms of inflation

expectations at 10:00 a.m. and the university of michigan released from one year and it's year. the one year is a 3.1 percent, thus the expectation. lisa: if you're just joining us you can see a range bound market. 4790 five, basically flat. we have joe quinlan from bank of america private bank as we parse through the gains of 2024. i think the consensus is we will get to disinflation. it will be study, accompanied by bumps. it will trot forward and moved to the next phase of the cycle. katie: you think of this

time last year everyone set a recession was coming in 2023 and bandying about the idea of a soft landing and then it turned into a meme. now it looks like a real possibility. lisa: which is why kim wallace said the most interesting things so far in terms of the lack of liquidity is the balance sheet keeps coming down. katie: definitely a huge thing to watch. lisa: we will be speaking with michael sheppard in washington, this is bloomberg. ♪ ♪ (sfx: stone wheel crafting) ♪

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>> our countries together are

committed to a liberated ukraine to stand on its own with the strong military, economically democratically. that's why this budget request is so critical. lisa: that was antony blinken speaking in denmark. he highlighted the need for more ukraine aid this comes as the u.s. announces sanctions on banks funding russia's military complex. this is the latest from the biden administration. michael sheppard is joining us from washington dc. i want to get your sense about how much this move to sanction certain financial institution is a makeshift way to try to bridge the gap between congress funding ukraine and the new year? >> the timing looks to be more

than a coincidence. congress left town without passing this critical funding package that the president asked for in october. it would have been 60 billion to help fund the war effort and they could not get it done. there were disputes over the border and that has held that up until next year. where that has left joe biden is to look at away to go after russia and slope putin's role as he is gaining ground. lisa: do you get the sense that there is a critical mass to get additional aid passed for ukraine in the new year or will this drug out beyond what ukraine can handle? michael: what we are seeing is lawmakers saying they will take it up in the new year before

leaving town chuck schumer told reporters that it was a difficult issue to get agreement on. it's not just ukraine aid. the support remains high on capitol hill and the american public, they still support ukraine's war effort. the trouble is people are worried about border security. they will have to get this done when they get back january 8 with 10 days before another big deadline where they have to enact a funding package to avoid a shutdown. lisa: when it comes to the border you mentioned that has been a hurdle when it comes to getting this ukraine eight past despite broad support. how high is that hurdle? when congress comes back, what

do those negotiations look like? michael: part of it boils down to who blinks first and who will give ground? republicans are sensing a political advantage. when you look at democratic cities they have been inundated with new arrivals come of people seeking shelter, asylum. it is costing those cities a lot of money. new york reports a deficit of 7 billion. the pressure is real and is being applied to the biden administration. the republican measures are being called too restrictive and harsh. katie: those restrictions will be complicated if the government shuts down. this last year has been defined by the deals that have been shut

down last minute should we expect that? michael: it's already last minute. by january 8 they will have no time on the calendar to get one of these spending packages through. they will have to put together something very quickly on the fly and it runs the risk of upsetting some of the hardliners , and they will hold mike johnson's feet to the fire. if he does not meet their demands on policy he could be in trouble. lisa: we've been talking about ukraine and the eight there. when it comes to israel, how much is their dissent within the president's own party as we head into the new year and the president's own ambassadors have been encouraging israel to take a different tack? michael: on israel, we see the

administration putting pressure on regimen netanyahu to ease up on gaza since the attack on october. what they are saying is heavy-handed with far too many civilian casualties. they are backing a resolution calling for a cease-fire and this escalates and echoes caused by the administration directly with all the diplomacy we have seen from antony blinken. it is a reflection of misgivings within bidens democratic party over giving additional aid to israel at this time. lisa: i want to bring you a quinnipiac poll. the poll found support for sending financial aid to fund the war is quickly

deteriorating. in december 45% said more aid for israel and that's down from 54%. how does biden handle this issue? michael: when the queen of quinnipiac poll came out it showed it could be an area of vulnerability within his own party. it does not mean voters are less enthusiastic as the president as a whole to the polls if this conflict last that long. we are a long way away from the election. katie: i'm sure it's all we will be talking about next year. donald trump seems to be the gop nominee. when do we see other gop hopefuls drop out?

michael: the first big test is next month. january 15 we have republicans first nominating contest in iowa and that will be a test of trump efforts have paid off. he is looking to put distance between him and the next two, second-tier candidates, that there is no way for them to catch up. nikki haley is gaining ground in new hampshire which has the second nominating conference on january 23. if she keeps a close or pulls off an upset that could change the state of the race heading into the third primary in her home state. lisa: bloomberg's michael sheppard, thank you so much. wonderful to see you happy holidays. coming up next, deborah

cunningham. as i was thinking about the political season next year, i'm curious about which scenario is going to end up being the driving force? it almost always comes back to the economy and domestic issues and it will be a different scene on that front. lisa: you think about the average american voter. katie: the economy tends to trump most things. it will be fascinating to see in the conversation around third-party candidates. it's happening this cycle when you think about the likes of robert f. kennedy, jr. and the gop nominees, nikki haley has been gaining ground. lisa: but she is still dwarfed by donald trump. i think it's interesting with robert kennedy, he is pulling

voters from trump and biden and it significant. not a small amount of voters. how much of this is protest voting? it seems like there's a lot of anger out there right now? katie: when you are at the ballot box, thus the only thing that matters. the polls at this point, how much did they actually portend for the actual result? lisa: we will see that anger with the consumer sentiment poll at 10:30 a.m. basically we are seeing a quiet market. 4796. the euro at 1.1. ♪

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i'm a little anxious, i'm a little excited. i'm gonna be emotional, she's gonna be emotional, but it's gonna be so worth it. i love that i can give back to one of our customers. i hope you enjoy these amazing gifts. oh my goodness. oh, you guys. i know you like wrestling, so we got you some vip tickets. you have made an impact. so have you. for you guys to be out here doing something like this, it restores a lot of faith in humanity. hi, i'm katie, i've lost 110 pounds on golo in just over a year. golo is different than other programs i had been on because i was specifically looking for something that helped with insulin resistance. i had had conversations with my physician indicating that that was probably an issue that i was facing and making it more difficult for me to sustain weight loss. golo has been more sustainable. i can fit it into family life, i can make meals that the whole family will enjoy. it just works in everyday life as a mom.

lisa: 60 minutes until the most important data point of the morning. and markets, a quiet day to start the week or to end the week i should say. russell 2000 a little bit of a lift of 0.07%. in the bond market, i'm watching

this closely to understand, can we end the year this much higher at 3.85. katie: sit and write where we started is pretty amazing, not the case with the equity market. lisa: the bank of america survey showed 62% of fund managers said they expect bond yields the fall. this is the consensus amount and that is what you are seeing. katie: we have millions sitting in money market funds. lisa: it depends on rate cuts which is why were watching the euro versus the dollar. we have 1.10 versus the dollar

at a time where they're expecting the u.s. to cut rates more aggressively than the ecb. katie: if you take a look at what the market expects, the same amount of rate cuts coming from the ecb and fed but they expect the ecb to go first. lisa: it could shift given that people tend to be toggling between the two. core pce due out in an hour. predicting the index would fall from 3.5 and it may bolster expectation of fed rate cuts after data thursday suggested the economy is cooling. we saw that revision downwards in terms of pce.

what is the balance of risk and markets? is it an upside or downside surprise? which is the most disruptive given how much rate cuts have been priced in? katie: it feels like everyone rushed to one side of the boat. it's very heavy at this point the positioning that's been put on. the bar is pretty low for some big moves. lisa: just make sure it's december 22. thanks for that. since tesla joined the s&p he said pressure from shareholders limits company's efficiency. keeping spacex private has allowed him to take more appropriate risk.

he said the company should not be taken public and they have to. he has spoken about twitter and how it is nice it's not public. katie: i would bet so. there are some really interesting pieces in here. elon musk does not like passive indexing. the comments on staying private that has been helping him with twitter but to go public, there's a lot of homework that goes along with that. you have to give out your report card four times a year. not every company wants to be in that position. lisa: how much is this griping about the fact that shareholders can be a pain in the but or being held accountable versus

remaining private? if you can have a longer term view is better than short-term fixes for shareholders. katie: think about the ipo market. a lot of companies have agreed with the logic and applied it to themselves because there are companies in the pipeline who don't want to come out yet. lisa: especially with valuations. the fda ceasing counterfeit units of ozempic from the supply chain. they are asking wholesalers to check the box. demand for the product has been soaring. they expect shortages to continue next year. the off market ozempic found there were side effects but they were in line with side effects

from more on brand things. are there going to be people to go into alleyways to find ozempic? katie: everybody wants to get their hands on ozempic that is constrained. this fake ozempic work? lisa: are we going to advertise fake ozempic? essentially it seems it has the same side effects but this raises the question about barrier to entry and how much companies will follow suit with similar drugs. we saw those from delay lily to are trying to get in and how people are indicated for it. katie: there is basically a gold rush going on. a lot of drugmakers are trying to come up with their response to ozempic because it's been one

of the stories of 2023. that nai. lisa: so we can be skinny and outsourced to computers. deborah, thank you for being with us. i want to start with this idea about cash on the sidelines. we have talked about this before and how cash on the sidelines will start flooding into risk assets. have you seen any evidence of that? deborah: generally speaking, people are trying to allocate and close out their books in a normal fashion and there may be some surprises with cash inflows or outflows. ultimately it is not a great time in a normal situation for what i would call reallocation.

we have not been experiencing or seeing that type of market shift at this point in cash flow out. katie: i want to get to what happens at the start of next year. you said ai and ozempic have been the stock market stories of this year but i want to add the rush into money market funds. about $6 trillion sitting in money market funds right now. where is that coming from? is that investors saying look at these high yields? or is that people taking out of bank deposits and shifting into money market funds? deborah: i think it is coming in from the bank deposit market. when you look at what has shifted from deposits it's been 1.3 trillion and a trillion has gone into money market funds.

it is hard to follow where cash goes but from what we can tell, 80% of that is coming from the retail deposit market where rates from a banking perspective did not follow short-term rates. in the last quarter, a little more of the cash flow from institutional customers and that has to do with the flattening of the yield curve where the shorter end of the curve is no longer as attractive as a product that has a late average maturity like a money market fund. i would expect to see more of that trade in 2024. katie: potentially 80% of what we have seen come into money

market funds has come in from deposits. how sticky is that money because it feels one of the assumptions we see belongs to the equity market or risk assets and will return their benefits coming from bank deposits the logic doesn't make sense. deborah: there are some risk assets and there is a hiding place. until they see their entry point is more palatable. but that's not the bulk of what we have been seeing. maybe that will pick up again in 2024 but it is not been what we've seen in 2023. it's come through the deposit market with the likelihood of that being sticky. the other thing that makes that a sticky trade is we as well as

the market, and i don't think anyone expects the fed to normalize at zero. the expectation is the normalization as 3.5 depending on how inflation plays out. that keeps retail trade in the market rather than in deposit. lisa: do you retract the idea of cash on the side by its flooding into the markets once the federal reserve has cut rate next year? deborah: i don't reject it but i don't think it's all coming out of market funds. i think cash comes out of deposit products. some goes into direct markets from that mode and i believe there will be some that comes out of money market funds but i don't think it's the vast majority of what will fuel the

markets. the risk asset markets. lisa: are you seeing money come out of short-term until -- into long-term? deborah: we're starting to see positive cash flow in those products but it is trickling. it is certainly not any kind of a flood. katie: deborah cunningham, thank you for being with us. we appreciate you being with us and that's what we've been hearing from a lot of people. there's a lot of cash out there but is being put to work. you can see markets are doing much today. the s&p futures are low whereby

.09% at 4794. did you see that jim gorman said markets will take off once they start to cut rates. everybody doesn't know the cost of financing but that changes of the fed starts cutting rates. katie: it depends on the market you are talking about. it makes sense for dealmaking, the equity benchmark level, it's already priced in at this point. it will be interesting to see what the catalyst of 2024 r. are. lisa: i just love this from james gorman. he said the banking system has become much safer leaving their

own stupidity as the biggest threat to banks. katie: they will find some way to find their own lives difficult? lisa: you can see that in march it was the mismatch of -- they are actually paying something. coming up at 8:30 the key economic indicator of the day and michael gapen. right now, a quiet market as we finish one of the last weeks of 2023. this is bloomberg. ♪ tor in a fund that helps advance innovative sports tech like this smart fitness mirror. i'm also mr. leg day...1989!

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>> over the summer we saw a dip down and airline traffic

domestically and we saw that domestic airlines focus. in december, the numbers have come off a little bit. people are waiting until later because christmas is on monday rather than the middle of the week. you see people getting ready to travel rather than traveling. lisa: leading into the christmas holiday on monday and new year's eve, a lot of people going on vacation. this is a personal issue for me. i am always gritting for the worse. katie: i hope you were not flying southwest last year. lisa: but i once caught the last plane out of jfk and that was after being delayed for 24 hours with the nine month old. katie: but you got out.

lisa: it was dramatic. i want to get a sense of where we are, what kind of disruptions we can expect and how people are paying for their travel? brian kelly who did advise i get rid of my points and spend them. what do you expect in terms of this particular holiday season? will we see another southwest episode? are people going to have a deeply uncomfortable experience? >> things are looking really good. during the thanksgiving holiday we saw the most travelers ever and things were pretty smooth. the biggest factor seems to be weather and there are no major weather patterns that could disrupt our weather traveling pattern. i'm expecting smooth sang.

there were relatively low delays and cancellations. i think this will be a good holiday traveling season, especially better than last year. lisa: international faces some headwinds with strikes we've been hearing about in the u.k. and europe, is not on your radar at all or handwringing as people have to find something to worry about if they're not eternal optimists like yourself? brian: any time you travel to europe you have to worry about strikes. it is much different than here in the u.s.. in spain, there will be strikes with the iberian ground stop. we saw the euro star suppresses strike, they're not even selling trades today. overall, there could be some german train strikes but hopefully, no widespread strikes. katie: how should travelers

think about that? if they have a european vacation booked, should they be thinking about insurance? brian: what most people don't realize is when you use of premium corporate credit card, platinum chase, capital one venture, those cards come in with built-in perks. i was traveling in puerto rico and my flight was delayed 10 hours by united for a mechanical reason. united gave me $800 in gift cards and american express refunded $500 for me to get a hotel. always go to your credit card company for compensation. if you are traveling to europe, there is e.u. 261 compensation. if there is a flight delay they are mandated to give you compensation.

go to the airline but generally there pretty cheap. the only time i recommend insurance is a mega trip, of cruise or safari. people who could get sick abroad. but in general, your credit cards protect you more than you realize. katie: maybe you should read the fine print. with what you are seeing where people are going, are they going abroad? or is that within the country? brian: most of the travel growth is international. i was looking at the deals and searching from new york and the best travel deals were in miami and orlando. in two years ago they were $2000 each.

we are seeing huge increases, united airlines is flying straight to christchurch, new zealand. new flights to tahiti. there are travelers making those big trips. japan, huge increases in that type of travel. and when it comes to lodging, we are seeing 125% and authentic lodging. i think travelers are sick of paying for cookie-cutter hotels and willing to shell out for luxury experiences? . lisa: are they looking for discounts or is this a seachange? or people will pay out for these

unique experiences even if they don't buy a shirt to accompany it? brian: discounts are happening domestically. the domestic airfare market are struggling where the premium cruise lines launching, tons of new exclusive ships. i just went on swan hellenic to greenland. that was an incredible experience. people are shelling out for unique experiences in that sector of the market cannot grow fast enough. and even domestically, in part travel, disney continues to see growth. dollywood just increased prices. people want to take their families not just to a beach vacation but they want to go in experience the mattel theme

park in arizona. that's what we see more and more. katie: you are the points because so let's talk about the news that broke this week. the department of transportation is in the early stages of looking into frequent buyer programs and checking if they have engaged in deceptive practices when it comes to those programs. what you make of that? brian: a lot of time there are changes that happen overnight and it can be said that airlines are banks these days. they are selling their frequent flyer programs to banks. there needs to be a consumer heads up. if you have this loyalty program that is essentially a bank where you are creating your own currency. you should give consumers notice

when you make negative changes. delta and american express rolled out punitive changes to their credit cards, increasing fees and there was huge consumer backlash. mostly to delta on that one. does the government need to regulate loyalty programs but having more consumer protections are good for everyone involved. people are getting sick of the moving of the goalposts. lisa: and waiting for line at the lounge. thank you brian kelly, the points guy. we all envy his life. with his bespoke experiences and iceland. katie: he said he's going to japan? i was going to go to the olympics in tokyo but then covid

happened. i've never been to japan. lisa: this is indicative of where we are out because a lot of people are looking for those experiences. coming up looking towards the key indicator coming out and 35 minutes, core pce the deflator indicator. the balance of risks right now. if we can an up side surprise or a downside surprise? katie: if you think of the upside surprise in the conversation we had with martin lowe saying it's a credibility issue for the fed. if they are going to cut they don't want to hike again. lisa: in the markets were not seeing a lot of activity because there's just not that much going on. things could be upended in 35

minutes. the europe gaining at 1.1019. ♪ (sfx: stone wheel crafting) ♪ the biggest ideas inspire new ones. 30 years ago, state street created an etf that inspired the world to invest differently. it still does. what can you do with spy? ♪

i'm a little anxious, i'm a little excited. i'm gonna be emotional, she's gonna be emotional, but it's gonna be so worth it. i love that i can give back to one of our customers. i hope you enjoy these amazing gifts. oh my goodness. oh, you guys. i know you like wrestling, so we got you some vip tickets. you have made an impact. so have you. for you guys to be out here doing something like this, it restores a lot of faith in humanity.

>> it is hard to find that person who is bearish. >> the bullishness has a wider

window. >> 2024 is going to be good for the market. >> the risk is the recession the market is expecting does not happen. announcer: this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. lisa: good morning and welcome. jonathan ferro, tom keene, lisa abramowicz. tom and jonathan are off today. we are getting the key inflation data this morning. katie: you look at some measures as julia coronado was telling us earlier. we are already back to 2%. when it comes to the headline numbers not quite there but we have come a long way.

lisa: yesterday people were picking up that in the third quarter revision it was pretty esoteric. however, the price index revised lower at 3.3%. core pce came in quarter over quarter at 2.0%. already hitting that target at a time when people had this enthusiasm. could we see more of the same today? katie: and how much is the risk that we see too much of a good thing? the fed has been successful in engineering inflation down more quickly than they expected. you think about the bearish case becomes may be they get over their skis and we come down further than we thought. lisa: or it is because of growth concerns, which is the reason people are focusing on nike

saying they are expecting to take $2 billion of cost cuts and making that through cutting jobs and expenses. the latest quarter there was a $400 million to $450 million charge. down 11%. we are seeing a commensurate move in footlocker, puma, and other retailers. this goes to the core of is there more weakness under the surface that we heard from the likes of patrick harker? katie: it is interesting in terms of sign posting where we are. you think a year ago i think when you had all those big tech companies cutting jobs and getting rewarded in the stock market. shareholders wanted to see that cost-cutting discipline when it came to the business. now we are in a different part where people are worried about that slow down and this is bad

news. lisa: not that worried. katie: true. lisa: it is not really keep me up at night. markets not doing much and why should they? it has been an incredible couple of months. what we are seeing is lack of action ahead of a key metric on inflation. euro 1.1023 versus the dollar, the strongest since july. 10-year yield 3.85. pointing to the fact we are ending the year where we started but it has not felt that way. katie: no, not at all. i feel like this summer felt like a year in and of itself. that big trip up to 5% on the 10 year yield. everyone was worried about the deficit and treasury supply. just the supply of bonds coming to the market and quietly, all

of those were quieted. lisa: it comes at a time of shifting winds from the treasury department, from the u.s. government, as well as the expectation of disinflation. joining us is joe quinlan, head of cio market strategy at bank of america. thank you so much for being with us. i want to start with how much you have changed your view going into 2024 on the heels of the great fed pivot. joe: well, i was more constructive on the market before the fed did it. and i am nervous talking to clients. we are still cautious and constructive on the markets in 2024 but maybe we have pulled forward some of the gains. we still see a good economy, good earnings, and more upside deeper into next year. lisa: what makes you concerned considering the fact we do not have the risk of the fed staying

overly hawkish for a prolonged time? and we do not have signs the economy is slowing down much. joe: that latter point is key in terms of the inflation outlook. maybe we have an economy that has a mind of its own and keeps plowing ahead. we could revisit this idea that the fed is going to pivot and go back on pause and that could be a head fake. this economy continues to surprise to the upside. 2%, how adamant is the fed going to be to get there? katie: i want to talk about how you position a portfolio against that backdrop. i see that your sector preference is for energy and health care. two sectors that are in the red this year.

energy after two awesome years. health care had a rough year last year. when it comes to that preference is it as simple as buying the laggards of this market? joe: not really. health care has some value given the pullback. energy we like. i think something the market is not really focused on is the geopolitical risks. whether it is europe the middle east, asia. you want to be more defensive, u.s.-centric. we are seeing money come into the u.s. assets so we are playing more defense, but as this economy proves resilient on the upside we are going to lean more to cyclicals as we go deeper into 2024. that is going to get a better breadth for the market.

katie: the conversation has been this non-reaction to the geopolitical issues in the world. which specific commodities are you looking at when you say own hard assets? joe: copper, nickel, cobalt, the renewable sector. the market responds to what is happening in the middle east but a lot of people do not realize we are the largest oil producer in the world, 13 million barrels per day, 2.5 times what we did in 2005. our energy sector is very dynamic. it is a global leader. a lot of demand for our products in europe and asia. we think long-term that is the place to be. you get the dividends, the share buybacks, and the upside for any geopolitical risk. lisa: next year it could look a

lot like what people expected for this year. i am curious about your view on u.s. assets. you prefer them over international ones. we are starting to see weakness in the dollar. do you think that is going to be short-lived? do you think the dollar is going to strengthen again as you see the other nations and the european union be forced into cutting rates? joe: we talk about the dollar and, to me, let it slide against the euro. it will be very good for the big cap in the united states. i am not worried about that now. we look carefully at the emerging markets. in europe, it is more scattered. you want to buy the luxury brand leaders, the renewables, insurance companies, life

science companies out of switzerland. i hate to say this but when it comes to dynamic nature of earnings growth, innovation, all roads lead to the u.s. that is our -- when we build portfolios that is where we start. and then we look at other parts of the international markets and more sector specific and momentum. katie: let's stand the u.s. and talk about the bond market. lisa and i have been marveling all morning. the 10-year treasury has been a round trip. how are you thinking about the bond market and the level of 10- year yields? are we around fair value or is this an overbought market? joe: great question and something we talk about with our clients. the round as been quite dramatic -- for the round trip has been quite dramatic. that traditional portfolio has been more of a conversation but

when it comes to the bond market or money markets in general we are seeing for the first time clients want to get out of the money market. they are having that conversation saying, hey, we should be more in equities. how should we position? one of the key messages we are seeing with our clients is we have this excess cash. we want to get into equities. how do we do it? money market funds is going to be fodder for fixed income and equities over the balance of 2024. lisa: joe quinlan of bank of america, thank you for been with us. happy holidays as you head into the new year. right now, we are not seeing that much reaction but the caution around the edges seems interesting. this is the reason why. if we get a downside surprise, is that going to be more of some kind of impact on the markets to the core pce rather than upside surprise?

in the sense there is not enough bullishness. that is crazy, especially coming from someone who tries to find the skepticism. but it seems like it is percolating. katie: there feels like this skepticism even though we have seen the broadening out that a lot of people said they wanted to see before they really felt good about this market. we have seen that but then you think about all the money in money market funds. a good portion of that is safety. and then you think about gold. gold hit a record high and it feels like no one talked about it. that the last couple of weeks. there is a bid fairhavens even with this -- for havens even with this market. lisa: you are trolling half the audience. the s&p is basically flat right now. we are looking at just below

4800. really? you are going to do that? is that your pitch? katie: i am more than half joking but when people start describing bitcoin as digital gold, it did start to make more sense why people were so obsessed. lisa: but it also took some of the volume away. i feel like gold is one of those things that the gold bugs wake up every time there is some sort of threat and sometimes it works and sometimes it does not. it has been a hard one to wrap my head around. katie: i like to think about the psychology of different asset classes. bond traders are classically pessimistic. they are doom and gloom. that is the stereotype. than anything about gold bugs and it is different. you start to get into conspiracy theories and i found that fun. lisa: the armageddon trade. katie: yes. lisa: one thing that is not the armageddon trade, this was interesting. tesla's designer said the cyber truck's design gives it an edge

because it makes it funky. katie: i was thinking a literal edge. [laughter] it looks like if you brushed past, you might get a scrape. lisa: if you parked it near a city on the sidewalk or the street -- katie: can you drive it over the bridge? they are so heavy. lisa: have you driven one? katie: no, i would love to. they are hysterical. lisa: not what they are going for. coming up at 11:40 a.m., really important conversation. lael brainard, director of the council of economic advisers, joining bloomberg television to give her outlook on the economy, the budget, inflation, and some of the latest comments having to do around u.s. steel and its acquisition by nippon. this is bloomberg. ♪

>> you are likely to test western redlines but they will not seek a catastrophic

coalition. hundreds of air defense missiles with an array around yemen, but they are going to seek tests against our fortitude. lisa: we have this ongoing impasse between militants that vowed to continue to attack container ships as long as they can in the red sea which leads to key shipping routes that account for 12% of global trade. welcome back. we are looking at markets that are very quiet ahead of a key indicator, core pce, that comes out in 13 minutes. s&p futures nudging into the green. euro versus the dollar, 1.1024. softer than expected yesterday after the third quarter -- third

revision of the third quarter. it sounds esoteric but people were saying this is why markets moved. honestly, everyone has been talking about the potential headwinds next year. one of them is what of oil prices go up as well as ukraine/russia war. and then the issue of the potential blockages in a key shipping route that does not have an easy solution. katie: we are talking about supply chains once again. you would hope that some of these companies, these shippers, would be better prepared. of course, after what we saw in the pandemic, some big implications when you think about the state of the flow of goods around the world. lisa: just understand the risk scenario and how this might get resolved. nick wadhams is joining us, he leads bloomberg's national security team. can we start with the state of play?

we have learned of a coalition of allies to try and prevent this. what is actually going on, on the ground? nick: in the last 24 hours there has been a quieting down. we have not seen any more who strikes because so many ships have diverted to go around the southern tip of africa. they're trying to bring together the maritime coalition whose goal is to protect ships passing through the red sea and are we going to start to see disbanding to route back through despite the danger from the houthis? they have no sign that they are going to let up. we are looking for some statement of confidence or intent that would signal shippers are willing to go back through the red sea. lisa: so far, that is not happening with hundreds being

rerouted away from the suez canal into much lengthier passages to avoid this threat. there was a story in the new york times that caught my attention about the potential for the u.s. to sell arms to saudi arabia. this being a potential you scratch my back, i scratch yours for their assistance and help negotiate with the houthi militants. do we have a sense of where the negotiating chips are to get more middle east partners on board? nick: great question and it is such a complicated dynamic. you have a situation where there is a cease fire however tentative between saudi arabia and the houthis. the u.s. may be looking to reward saudi arabia for the fact that cease fire is, to some extent, holding. we will send you these offensive weapons on the condition you do not use them against the houthis. saudi arabia is so central to

all the u.s. plans in the region. the continued hopes for normalization talks with israel. conversations on what happens next in gaza. efforts to get the palestinians on board. they need saudi arabia for basically every major strategy they have in the region. this is sort of a nice carrot for the government saying, we appreciate your support. we are going to need more ahead so here is something you can have that you desperately want. katie: you mentioned the importance of saudi arabia. how worried is the administration that this could spell into a broader regional -- spill into a broader regional conflict? nick: that is what they say is their overriding concerns. there is the fate of the hostages and the civilian casualties and the concerns about how israel prosecutes the war in gaza but the bigger fear for the u.s. is how do we keep

this thing from spreading? you have hezbollah, you have the houthis backed by iran, and the u.s. is afraid this will spread further. saudi arabia completely essential to u.s. plans to tamp things down. maybe there is back channel conversations that are had with iran. maybe there is influence saudi arabia can exert on other players that can influence iran. it is all part of the u.s. effort to keep things relatively calm and the feeling is they are not sure how to do it. you get back to that houthi issue and the fear that more houthi attacks could pull the u.s. into a broader conflict. katie: bloomberg news reported this week the u.s. is considering military strikes against houthi bases. what is the idea on may be the u.s. could actually go on the offense? nick: what we are going to have to see is what happens when

ships start routing through the red sea and what intelligence the u.s. is gathering about houthi intentions. everything that has been done so far has been determineds, defensive -- deterrents, defensive, shooting down the drones, but they are not going after those drones and ballistic missiles in yemen itself. doing so would represent a massive escalation and feed fears of a broader war. but there is some talk within the administration that if you want to neutralize this threat to shipping, you cannot just play defense. you have to go on the offense. that is something they are certainly weighing. we are going to have to see what shippers decide and whether they will put ships in harm's way. lisa: as we head into an election season we hear about domestic threats stemming from what is going on in the middle east and thinking about some of the rhetoric that the border

issues are deeply related to this. we are at heightened risk of terrorists coming in through the borders or other types of attacks. based on your connections with people in the intelligence community how much of validity is there behind those concerns? nick: the border situation is a great question. my sense is that they are in pure panic mode about how to stem the tide of migrants coming in from the border. it is not so much a question of concerns about terrorism. that is a concern that is raised by some people, particularly among republicans. the biden administration do not see that as much as a major threat, but they are planning to send secretary blinken to mexico in the coming days as president biden announced yesterday. they really have to figure something out with mexico and are finally getting to the point they realize they need to do something about this.

how they are going to be able to achieve that is the big question and that is something they do not have an answer to. lisa: nick wadhams, thank you so much. happy holidays. have a wonderful new year. this really is the year where we are ending on a massive geopolitical bang in the wrong ways. frankly, next year it seems that is one of the big questions keeping people up at night. not because they can trade around it but because of humanity issues. katie: it is a tricky moment for the biden administration. there is two hot wars going on in the world and then you add what is happening to the red sea. the potential to exacerbate one of those wars and the fact that next year is an election year. there is a lot for joe biden to keep an eye on. lisa: especially given the fact there is disagreement within his own party and his own cabinet on how to handle these things. it is not easy. we are dealing with two proxy wars. one with the wrong, one with russia, a lot of questions around how the u.s. wants to get

involved. will it ignite a broader war at a time when there is difficult nuanced dances going on with middle east partners and enraged rhetoric? it really is quite a moment to delicately walk. katie: and a delicate dance going on with china. the second largest economy in the world. 2023 we did see movement on that front, normalizing that relationship, but that is top of mind for a lot of citizens and investors as well. lisa: but even more important, inflation. coming up, we are talking about that core pce deflator. we are pleased to see michael gapen is going to help us parse through those numbers and understand the disinflationary hopes and dreams. are they coming true? ♪

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lisa: we are seconds away from the last important data release of 2023. it is exciting, core pce deflator. we are going to look at the key metric for the fed heading into the set up. people have no reason to trade ahead of a key economic data point. what is interesting is the lift in crude. up $74.42.

the pce deflator month over month went down. it declined 0.1% versus the expectation of being flat. that means year-over-year the pce deflator came in at 2.6% rather then the expected 2.8%. year-over-year you are looking at 3.2% versus the expectation of 3.3%. a good downside surprise for those looking for disinflation. what you can see is markets like what they see around the margins. not a massive reaction. s&p futures unchanged but confirming the disinflation that we have been talking about and seeing in the other indicators. looking at the two-year yield. not seeing a lot of activity which may be gives us a sense this was kind of expected and baked into the pricing. katie: perhaps it was priced in. interesting to not see too much

of a reaction. we will see how these numbers settle. two-year yields back to unchanged on the day. you look at durable goods orders. this is preliminary for november. a big beat, 5.4% actual. the survey was expecting 2.3%. certainly a surprise. you are watching the market try and digest all of this and s&p 500 futures moving lower right now. lisa: durable goods orders is one of the key components here. not only are they almost twice or more than twice the expectation in terms of the magnitude of the increase but the prior month was revised upward. it was lesser of a negative than originally reported. across-the-board the disinflation but still economic strength which sets us up for this question of can this continue? we get this disinflation with ongoing strength -- personal

income 0.4%. personal spending increasing 0.2%, a touch lower than expected. downward revisions on personal spending for the prior month but personal income increased more than expected. pretty much people are being responsible. they are not spending too much. they are ordering more goods, get inflation is continuing to come in. katie: with that in mind it is interesting to not see a positive reaction to these figures. we are talking about small moves but you look at futures on the s&p 500 and we are down 0.1%. we were unchanged heading into this report so it is interesting to see these narratives get parsed. lisa: what gives? let's ask about question of michael gapen. what is your reaction given the fact markets seem to be put off by consistently disinflationary data? michael: i think the markets -- good morning, first of all.

thank you for having me on. i think markets had priced this in already with the cpi data and the ppi data. we can make a good projection of where pce should come in. we did expect the headline to be down. this number was not a surprise to us and if you do the implied cpi forecast from market prices, they are looking for pretty soft inflation over the next three to six months. . the markets had largely priced in this member. they are looking for about twice as many cut this year. this was a status quo number. katie: the durable goods orders -- lisa: the durable goods orders not so much. i wonder if on the margins there is anxiety that it seems incompatible that we get ongoing, better than expected growth while still seeing that disinflation everyone has been

hoping for. michael: there is a limit to that. so far the narrative is that the economy can cool, growth can remain moderate, but away from recession. and we can experience both moderate growth and disinflation at the same time. that is our view. that is the fed's view for sure and why they shifted to a more balanced outlook. but there is a risk to shifting to a devilish stance now -- dovish stance now. markets have reacted quickly and financial conditions have eased. maybe you jammed things up too much and do not make as much progress as you want. we think the fed is in a good spot. rate cuts are coming but too much easing in financial conditions could mean inflation

is stickier to come down or rises a little bit and puts off these rate cuts the market is expecting. katie: let's talk about the magnitude of the rate cuts. 150 basis priced into next year. a big gulf between that and the dot plot. when you take in totality what we learned today when it comes to pce, personal income, spending, and durable goods orders, where does this land in terms of what the market is expecting? do those six rate cuts look justified at this juncture? michael: i think the inflation data certainly support the idea the fed can start in march. assuming the dataflow trends the way it has with a lot of evidence of disinflation and modest growth but cooling economy, we think rate cuts can start in march. we would say curb your

enthusiasm for 150 or more rate cuts over the course of the year because we do think inflation will be a little slower to come down. we agree on the start, earlier than later, but our view is you get about 100 basis points of cuts. the market may need to reprice some of these. katie: maybe that process back to target will be slower than expected. compare that to what we heard from jerome powell last week. he said he was reluctant to say the last mile of this inflation fight will be more difficult. is that your expectation or does slower than expected sort of imply there is pain ahead? michael: i would agree the composition of the dataflow we have been seeing suggests we can enjoy modest growth and disinflation and it suggests the last mile might not be overly difficult. that does come from supply side effects on goods and services

where reemployment has really helped increase services outputs. we are getting a supply-side effect. core goods have been falling for six months. we will see if shipping issues change that narrative. otherwise, the last three to six months worth of data suggests it is more likely than not we can get down to 2% consistent outcomes without needing to generate significant pain in labor markets. it would be a great outcome for the fed, the average u.s. household, and the average u.s. business. it would be a great outcome for the economy. katie: i want to talk about that more. inflation has been enemy number one from the fed's perspective for the last couple of years. as we continue to get this marge lower when it comes to these figures, does the fed's focus shift? do they start paying more attention to economic growth, the labor market, etc.? michael: i still think

inflation, bringing inflation down is the number one goal given where it has been, where is, and the fed's internal consistency about, hey, we really control inflation. we determine long-run inflation outcomes. it is in their blood, so to speak. i think that is issue number one. but a very close issue number two is, hey, i think we can soft land this economy. we do not need to generate as much pain as we thought we might have had to do six to nine months ago. we should keep an eye out for that. it does make an argument that one of the reasons why the market as so many cuts priced in is both of those cases, moving to a more balanced reaction function in an environment where the economy is cooling and inflation is slowing, increases the odds you are likely to get rate cuts. i think the market is lessening. lisa: what is the gap between

weakening that is good and weakening that is bad? i ask because i am trying to understand the language at the cfo's office at nike when they said the demand is cooling faster than expected, revised down their expectations for sales, talked about cutting jobs. is this something that is an idiosyncratic business overlaid with a weakening economy and a good sense? or is this potentially something bad? michael: i think i would put that narrative probably inside the rotation story away from goods purchases back to services. the goods side of the economy, the manufacturing sector, has been on the edge if not in recession for some time. at least in terms of production and inventory, adjustment and so forth. the good side of the economy is reacting in part to that rotation story. what still looks pretty solid is activity and employment on the services side which is two

thirds or more of output. to user phrasing, good slowing and cooling is about the rotation story, the end of the covid reopening. things should naturally slow down anyway. we need to provide an environment to do that without tamping on the brakes too hard. there is a fine line between slowing we think should happen as a result of an unusual pandemic driven cycle and, oops, we have the policy setting calibrated incorrectly. we have to back out more quickly. lisa: does anything about the services inflation concern you given that it is running above what you would expect for 2% consistent inflation? michael: shelter and the structural issues in the housing market without a lot of supply and inventory and available homes to contract for sale or purchase. the shelter story. shelter is moderating. it is coming down but more slowly than models would've

suggested. we think there is stickiness. even non-shelter services inflation has been sticky. this is where we would say curb your enthusiasm. we have inflation for pce coming down to around 2.5% by the end of this year. market applied pricing is closer to 2%. it is easy to see how a sticky inflation path could mean these rate cuts are realized. lisa: happy. thank you for being on with us. the market is trying to figure out how to respond to a downside surprise when it comes to inflation. more disinflationary than expected. kind of bouncing around between gains and losses but right now to the upside. 4802 on the s&p. what we heard from michael gapen is what andrew hollenhorst is

talking about. he put out a note saying that the slowing is largely due to goods, services inflation, and wage growth running faster than 2% inflation. december pce will be stronger but the fed will proceed with their plans to cut interest rates. this is the debate. are there certain factors that are going to roll over as the year progresses? katie: great question. one we are going to be grappling with for quite a while. it is poetic that you look at the two-year treasury yields and they are unchanged. that gets back to the point that michael gapen was making. this is a pretty status quo number overall. you toggle with the details but overall, this is consistent with what has been priced in. lisa: a lot of disinflationary hope in this raises the question of whether people have priced in that hope entirely across the board, including stocks, where you have sen an incredible

rally. what i am hearing from renaissance data is that core inflation right now is below 2%. this is what people are looking at. cora pce analyzed for the last six months is 1.87%. katie: maybe we will get back to worrying about the fact inflation is too low. that would be very 2018, 2019 of us. lisa: that would be a throwback. we are not thinking about that as much as getting to the end of the year and figuring out how to reset for the next one. coming up, adam pickett of citigroup on his 12 trades of christmas. this is bloomberg. ♪

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more of continued improvement. they are going to need to see sustained improvement before they are willing to take more action. i think the market should expect that it is going to take a while and more sustained improvement before the fed does anything. lisa: that is not what markets are expecting. that was the former dallas fed president but people are banking on a marge rate cut after a disinflationary data comes out one after the other. we are firmly pricing in a 77% chance of a rate cut coming at the next meeting. that is where we are at. you cannot really see much action. it is all priced in. katie: the s&p 500 -- not a huge reaction when you consider this is pretty good news. but maybe it was all priced in. lisa: if you missed it, we did

see a personal income right in line with expectations. this really was the main course. we saw a negative 0.1% decline month over month in pce deflator. the core deflator came in lower. i think it is important to note that not that we are seeing no weakness but it has been isolated. nike shares lower 11.5% after saying a were planning to cut costs by $2 billion in the face of weaker demand than expected. talking about job cuts and other expenses they hope to slash. footlocker and dick's sporting goods in the u.s., puma falling in tandem. this question of, ok, we have already seen the recession. is it ongoing? are we recovering?

is it china? is the u.s.? these are the questions people are trying to parse through. katie: do think about the ripple effects of maybe nike has idiosyncratic issues that are specific to nike. but then you think about footlocker. it relies on nike products for revenue. one chain's problems has widespread effects. lisa: especially because they talked about paring back some of their models. having a scarcity kind of situation to ignite the interest. igniting interest is how to position for a year that promises to be tumultuous and we have already seen one-sided buying. joining us is adam pickett, head of global macro strategy at citi. how did you come up with certain payers heading into the new year at a time where markets have moved quickly and in one direction? adam: great question.

one of the key themes that is going to take us out of that directionality is thinking about where the divergences are going to come in. you have had a one-way move in duration but picking certain spots within the central bank stories is quite interesting. looking at places like australia on the more hawkish side and pairing it up with the u.k. on the dovish side, scandinavia is a good bold case as well. we saw divergent guidance versus the bank of japan we rethink buying swiss versus yen makes sense. if you do not want to be too directional, we think that is a good place to start but we have got a lot of interesting stories going on with the u.s. in the fed. katie: is the fx market the way

to play that idea? this divergence you are seeing in different developed markets versus bond markets? adam: we think so. we think there is additional stories around the oil dynamics in norway and the swiss versus yen. the big part for the swiss is the influence on the currency has got nothing to do with rates. for the yen it is a boj story but medium-term there is a story there. we think there are other influences that help the central bank divergent story. gold is another nice one for the fed to take you away from the pure rate dynamics. katie: let's bring this conversation to the u.s. and to the u.s. equity market.

looking at your 12 trades of christmas i am looking at trade number one. that is playing an expected slowdown in the u.s. consumer. what is the best way to do that? adam: for us one way we think is a useful way to insulate yourself is to think about these high-quality names, still thinking with a growth tilt. these guys have very high quality balance sheets and high cash to debt ratios and pairing that up against the smaller firms. even though there is a lean toward the consumer slowing down, we think wealth is exceptionally elevated. it is around -- it is up around 35%, 40% and that skews toward consumer discretionary which has a nice mix of growth and

topline, high-level spending power versus the russell. that can be the best way to play that theme of we still have strong spending numbers as he saw today but lower quality firms are going to be caught up in the credit cycle and the ultimate longer-term slowdown. lisa: i want to point out you are multicultural. you could have come up with a more sidyik piece, the eight trades of hanukkah. i wonder if this is a good time to be trading in markets that are of thin liquidity when people have already gone home? adam: we joke a lot of the airhead forecasts are stopped up by the end of january. the year ahead moves have already happened in the span of a few weeks. for us, one of the themes that can still run in a popular trade is something like the steepener. we like twos.

the twos tens profile still has further to go. the sharpe ratio of getting into that trade six months before the fed cut is as good as the twos tens. liquidity is thin. being patient and creative with the construct over the trade makes a lot of sense. lisa: are more people in the office this year given how much volatility there has been? adam: absolutely. i have a good friend of mine that will be in on boxing day and we will be staffed over the christmas period that is not normally the case. a lot of money to be made. definitely a lot of interest. lisa: thank you so much and happy holidays. good luck. adam pickett of citi. interesting to hear they're

going to be more people in the office at a time where we have become accustomed to incredible volatility. katie: you are smiling because you are off next week. lisa: i am but i have enjoyed this. thank you for being with us. are you here next week? katie: i am here next week working until the bitter end. i will be doing my best lisa, tom, or jon impression. lisa: all three at the same time. katie: maybe i will switch every hour. lisa: a skinny tie, a bowtie. katie: may be a nice blazer. lisa: the sky is falling sign and just march around. what if? [laughter] it has been quite a year and i will say it has been really frontloaded. what he said about the idea the beginning of next year has already been brought to this year which sets up some interesting potential moves heading into the very bitter end. katie: you think about all the

things that were projected for 2023 and the things we spent time talking about that we were not last year to bring it back to the equity market. ai has been the thing to talk about. weight loss drugs have been the thing to talk about. those were not necessarily on my radar last december. lisa: what are we talking about next year? katie: i shudder to think. lisa: very important data point but what it did was confirm what markets had already been pricing . 4807 on the s&p. the euro versus the dollar, 1.1028, the highest levels since july. a little bit less of a bid into treasuries. coming up, a conversation with the lead economic advisor to the president at 11:40 a.m. lael brainard at a time around

why people are feeling bad if the economy is on a good trajectory. this is bloomberg. ♪ introducing the disney princes collection from blendjet. six enchanting designs inspired by some of the most beloved disney princess characters of all time. blendjet 2 is portable which means you can blend anytime, anywhere. recharge quickly via usb-c it even cleans itself. just add water, a drop of soap, and blend. make your princess dreams come true. order yours now from blendjet.com.

lisa: city, i am lisa abramowicz. the countdown to the open starts now. >> everything you need to get set for the start of u.s. trading, this is bloomberg: the open with jonathan ferro. lisa: coming up, disinflation