>> the economy and jobs market and the risk landscape is not exactly the same as it was several weeks ago. >> the labor market deterioration continuous, that could -- >> it's a very restrictive level right now. >> they are ridiculously buying the curve irrespective of what the capital markets are doing. they're finally looking into the fact more aggressive rate cuts will come in. >> this is bloomberg surveillance with jonathan ferro, lisa abramowicz and annmarie hordern. jonathan: live from new york city, good morning for audience worldwide, bloomberg surveillance starts now. what a week.

yesterday the best days for stock since 2022. it's been vicious. equity futures on the s&p 500 a little bit firmer. on the nasdaq 100 up 4/10 of 1%. last week the data was bad. this week the data was better. next week the calendar is stacked. august 13, ppi. august 15 retail sales a week later, jackson hole. lisa: if that's the data we have and we knew -- move to such a degree on claims, it's worrisome. we are down a half percent on the s&p 500 for the week. it shows you the risk is asymmetric going into next week. we rallied back to this point. if the data disappoints he could have that flip on a dime to hard landing or something else. >> economists talk about levels. talking about this what matters

is change. are things getting worse or better. i think it's a much harder task to tell people right now that things are getting better. waiting for chair powell and a couple weeks. fed chair donald trump in a news conference, i have a better instinct that in many cases people would be on the federal reserve or the chairman. annmarie: he says it's got feeling and given his past experience he knows where interest rate should be. we've been asking former trump officials on the record and behind what happened to that wall street journal report, the trump campaign was looking at potentially how trump would try to erode the fed. he kind of just said it right there. if he is going to be president he would want to exert more power on the federal reserve, the issue is the federal reserve gets their mandate from congress. lisa: if he was able to do it think about how helpful it would be. this is how you get it done

because presumably you putting tariffs, you putting tax cuts, the fed needs to hike you of a stronger dollar. the way is if you have a control over fed policy. jonathan: it's a good way of people to run away from u.s. assets. the first thing i did was pull up the wall street journal article which read as follows. and what do we hear from trump allies over the last few months? freezing cold water over that report. questioning the sourcing in the piece. annmarie: in the economics realm, jared bernstein coming out and re-releasing the report that the white house did after that wall street journal report talking about how it's so important to the fundamental economics of the united states that there is an independent fed so this once again comes back as an election issue. >> deep breath, let's go through the markets together.

equity futures up by 0.2%. in the bond market a massive turnaround in treasuries for the week so far. yields lower down three basis points. coming up this hour on the program we catch up with steve major of hsbc on the bullish case. trump and harris agree to debate. drew at metlife following the s&p's best day since november 22. treasury yields dropping after a week of wild swings. stephen remaining bullish writing ever so quickly the higher for longer narrative has collapsed. explanations range from the technical to the fundamental even the political. the bond market has moved to preempt the fed. steve, it's been too long. i'm going through year-end price targets. 350 year-end, 3% by the end of 2025. what is the big bullish case for treasury bonds.

steve: these forecasts were set, they haven't changed. i think the first wave of bullishness in the bond market we've seen. the bond market hasn't given up that much of its gains over the last week. it's pretty impressive, but i think the first wave is taking out the bearish view, so only one month ago we were talking about reflation trades of various scenarios around the election and the consensus positioning was for a bearish steepening based on opinion polls. when i look at it now i wonder where has all of that gone? a couple months ago people were talking about the case for keeping rates higher for longer. i think that was a flaky, fragile forward guidance. that's gone. the next rates is unambiguously down, of the question is how

much. if we get anything near 50 at the next meeting, of the market is price for between 25 and 50. then the market will set a price target of low yields. it could be that we get markets pricing in on year-end. the markets tends to lead the fed and i think you're seeing validation from that now. jonathan: how do you think about the destination, the path of this conversation. we've discussed that all week. what's the endpoint for this cutting cycle once it starts? steve: the muscle memory of bond traders and investors is 300 to 400 lower than the policy rate. that takes you down to at least eight two handle. i don't think the equilibrium rate has actually changed since the pandemic. we've done work on that and they

seem to think it's higher. if you think it's higher and you end up double counting. that's another part of the report there that i think it's double counting term premium so for me, 10 year treasuries should yield between three and four. having the forecast seems logical. i can't explain why other people do what they do but my suggestion is there some double counting going on. lisa: we think about the speed and depth of your rate cuts and where the level should be on treasuries, what is your northstar? this is trading every single piece of data as a northstar. steven: that might be part of the problem and we are being whipped around on every single cyclical data release and not putting sufficient weight on the longer run secular trend. by the way, if you look back at previous cycles you'll see it

was impossible to call the turn based on the payrolls data or the cpi. that makes me wonder why people spend so much time talking about it. you can only use the unemployment data with hindsight. so it strikes me everyone is trying to parse every bit of information to get an edge, but the truth is yields have been falling since october of last year. the front-end of the curve failed three times to break above 5%. we are entering a bull market for bonds here. we are having a good year this year. bonds are not supposed to be generating double figure returns. it's supposed to be the boring person at the party. the fun comes from all the other assets you talk about. so if bonds can generate five or 6% a year, it should be just enough.

what they're doing right now is offering the perfect balance in the portfolio in a 60/40 portfolio. all that's come back. no one's talking about that. >> you are welcome at our parties at any time. are you telling me though you're looking at a trend, are you basically telling me payrolls and cpi do not really matter? steven: when you go down this road you sound like a heretic and i'm eat a lot of people who gave me a few funny looks sometimes. can we not put things into perspective and context? the cyclical data matters but so does the number one structural and secular story. it's the more secular outlook that gives you your anchor. your anchor is your longer run equity real rate. if you think it's 2.5, the fed has a lot to do just get to equilibrium. the terminal rate could get below that. we think that rate is higher, i

don't know where they get their information from, but they are just describing the forward rate. and markets you need to have hopefully a view that is better than the falling rate. our view is yields will be lower . it seems to me others think differently. i can talk for other people forecasting. annmarie: you mentioned the market was tracking some of the polling. i want to talk about politics and a trump victory. the polling is much tighter so is the market pricing in a harris victory? steven: it's a great question for three or four weeks ago it was 65% in favor of the republicans i now it looks more like 5050. i'm sure you've got more precise numbers. if you take the probability of a sweep for the republicans down then you presumably move the

market pricing away from reflation trades, whatever they are. my guess is the reflation trade means curve steepening for bonds. it would be good for equities as well. if you move to 50-50, that's quite a big change. i think that was the butterfly wing that started to flap before all the other stuff that came with boj, fed, ism payrolls, a leverage trades, unwinds. all of this stuff it's a confluence of events in these last few weeks. but if you want to look back on what started the change, i think you hit the nail on the head there. it may have been those few weeks ago when the probability started to shift away from the reflation trade. >> what would happen if it shifted back, what would happen if donald trump one in november and was much more assertive about pushing forward with the tax cuts they had introduced in

2017, and rolled them forward. what if we saw summing aggressive on immigration. what about he would be more assertive about federal reserve monetary policy as well. with that challenge the secular story you've described, this massive tailwind for fixed income? steven: it might give us a cyclical bump. in the previous months, it couldn't be more different context to today. and a month ago i wrote about this reflation trade and the probabilities of the scenarios. if you want to think what the world would look like in a sweep scenario for the republicans, then i think you would have to agree the curve would be steeper , many of the policies like midterm inflation and there's all kind of risk premium to think about all the policies. the uncertainty around the steepening pressure and embarrassed -- bearish fashion.

that probability has fallen and that means the weightings are shifting toward soft landing or hard landing. and i think that kind of backdrop favors lower yields in the near term. in answer to your question about the secular story. we are talking five years ahead. i don't think even that would be disrupted too much. jonathan: this was great. i've known you a long time. i can say on the record you are not boring steve. we know that. steve, thank you. it's good to catch up as always. the 10 year yield down by three basis points this morning. steve is looking for 350 around 3% by year-end next year. >> one of the dead foot -- devils advocate's calls who says we expect more growth. we expect a strong economy and therefore yields should be at four and one quarter percent. the fascinating thing is it's not necessarily about each individual data point that comes in.

he went so far so say we are kind of missing the forest through the trees on string on payrolls and cpi. we've a neutral rate and for the fed to get there there needs to be a lot of cuts so the direction of bias is yields down. jonathan: do you hear that from fed officials that they're willing, ready even remotely prepared to validate what's promised to this market right now. >> it is night and day hearing commentators on wall street and the fed. they keep saying this refrain we have more time. things are strong we have time to figure this out, to let inflation play out. that's not a fed saying we are behind the curve. >> the fed president goolsby, schmidt, all of the last few days nowhere near where this market is at right now. maybe they're waiting for chairman powell to be the northstar for them and change all of this. right now they are not validating market pricing at all. equity futures on the s&p 500 positive by 1/10 of 1% holding onto gains with some stories elsewhere. with your bloomberg brief.

yahaira: microsoft said a group of hackers leaked to the rating rating government tried to breach the email accounts of campaign staffers is a wider effort to gain intelligence ahead of the u.s. election. but, be revealing attackers linked to the islamic revolutionary guard used a compromised email address from a former political advisor in an official attempt at a high-ranking campaign official. it follows the warning from u.s. intelligence officials last month that russia, china and iran who are deaf or recruiting people in the u.s. to spread propaganda. iran has denied the allegation. china's consumer prices rose more than expected in july climbing half a percent from the year earlier. bloomberg survey expected a rising 0.3 percent. the jump was largely due to seasonal factors such as whether leading concerns over weak domestic demand and boosting the case for more policy support. core cpi rose 0.4%, the least

since january indicating lingering weakness and overall demand. tsmc reporting revenue jumped 45% in july, accelerating its growth in the june quarter and bolstering hopes for sustained high-end chips. they are seen as a bellwether in ai demand. for the third quarter, analysts expect tsmc revenue to grow 37%. july numbers suggest the company may surpass those estimates. that's your bloomberg brief. jonathan: up next on the program, setting the debate stage. >> i look forward to these debates, i think it's important we have them. i hope she agrees to them. >> i'm glad he finally agreed to a debate time looking forward to it. jonathan: that conversation up next from new york city this morning, good morning. ♪

jonathan: live from new york, the weekend just around the corner braid equity futures on the s&p just about positive. yields lower by two or three basis points. 20 minutes into the program, haven't even mentioned dollar-yen. dollar-yen 147.20. that's a good thing for many of you i'm sure. under surveillance this morning, setting the debate stage. >> i just look forward to these debates, i think it is very important we have them. i hope she agrees to them september 4, september 10, september 25. and -- i think it will be revealing. >> i'm glad he finally agreed to a debate. looking forward to it. hope he shows up. i'm happy to have that conversation about an additional debate.

jonathan: abc news news confirming vice president harris and former president trump have agreed to a presidential debate on september 10. the two sides hitting the campaign trail in full force today. harris holding a rally in phoenix as trump aide stood montana. jeanette, this has been agreed, september 10th is the day. i just wonder from your perspective who is most at risk going into that? >> i think trump is a little bit more worried about his positioning since harris has gotten into the race and is now the democratic nominee so i think he's looking at this to try and have a similar debate as he had on june 27 against president biden. so i think there's more risk there. we are seeing since harris has gotten into the race is a lot more momentum on the democratic side. we've seen at the national polls 3.5 percentage point move from trump who had been up about three percentage points now harris being up just about a

half a percentage point in the swing states that matter for the selection we've seen a move of more than 2.5 points in harris's direction bring we now the 50-50 race where it could be very close by november and i think he wants to use that to try and re-highlight and be able to attack harris on some of the key issues. >> he also yesterday in his press conference floated to other debates. who was more at risk of having more debate time when it comes to not just on this abc news one trump was falling in -- floating nbc news debate. >> it is interesting. i think the june 27 debate was probably a bit of a surprise to many people. usually the incumbent president doesn't lose their presidential debate but that was quite a different debate that i think anyone was expecting. trump could be more disciplined in the debates as we saw on the june 27 debate but at the same time there could be different

reactions look what we had in his press conference yesterday where that could hurt him. if harris is on the defensive and he's able to get a lot of blows that could hurt her. they could be up in the air. we see that first debate and if that means we want more than one. usually we have three so i think trump sprang to go back to that additional mode. but that's a lot in a couple of weeks. right before the election so we will see what happens. >> we heard from harris yesterday, talking about the fact her team has scheduled or she's asking her team to schedule a sit-down interview before the end of the month. unclear if it will be scheduled for august or potentially september. there was also reporting they would maybe want to sit her down with her vp pick, governor walz. do you get the sense she is trying -- the campaign printer shield her from more direct confrontations with journalists.

>> this has been a very fast campaign so it's only been three weeks. to some extent you might be trying to get her feet under her and make sure she knows what her policy positions are. so there could be some of that in part of the delay as to doing more these interviews. i think she's also having the momentum at this point so -- she is a better debater and better in front of the camera. so i think that does have the benefit for her. but there could be other factors that i'm not quite sure what they may be but i think this is something the trump campaign is trying to latch onto to try make that saying she won't show up in front of the press. she won't take questions. >> she's been vice president for four years now. is it a problem she doesn't yet know her policies? jeannette: it's as a vice president she is trying to tow the line of what president biden wanted right now we've seen that she is not taking necessarily the same positions she took as a

candidate in the 2020 cycle so things like fracking, she's trying to moderate her position on israel a little bit. i think these are things she wants to make sure she has really ironed out better because obviously we know in this new cycle people love to take anything you say and spin it. she also once make sure she has that messaging down. there's also a risk there that if she's not showing up in front of the press and not able to answer questions and talk about policies that can also be a risk for campaign as well. >> the vice president driving enthusiasm of the top of the ticket. how are house races evolving since by and dropped out and she stepped up? >> one of the biggest things we've seen is since biden got on the ticket harris is now the new nominee. we see the odds of a republican sweep drop quite a bit. they are now down to 32% this morning. you also have 25% odds of a democratic sweep and 25% odds of divided government in the

scenario of a democratic president, democratic house and a republican senate. what's interesting about this cycle is you could have divided government under either scenario. just as the margins are so tight right now in the house and senate. if harris is getting momentum, the democrats only need a net four seats to get the house and those receipts in states like alabama and there's one seat in alabama. there seats in california and new york and new jersey the democrats have an opportunity to flip this cycle so if she has momentum even with the presidency there still a possibility the democrats could have control of the house. on the flipside the senate looks like it will move to the republicans because you have senator joe manchin no longer running in west virginia. that becomes a republican pickup and then also jon tester is down in montana. you could see another pickup. there is this interesting dynamic where we could have divided government matter what.

so that's something we need to look forward to because it's going to have implications for what policies can be enacted next year. in particular talking about the debate -- taxes and the debt ceiling debate. >> fantastic as always. the vice president hasn't answered any questions so she approaches you and says what questions have you got and you respond by saying when you going to answer questions. what were they doing yesterday? >> you could've also said here is a question for you. ask a question. >> from new york, this is bloomberg. ♪ ♪♪ relax into a caribbean state of mind. visit sandals.com or call 1-800-sandals. say aloha to olukai golf. waterproof leather. breathable fabrics. spikeless traction. the most comfortable golf shoe in the game. grab your pair today at olukai.com.

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jonathan: we are on course for a fourth week of losses on the s&p 500. potentially the longest losing streak of the year so far. equity futures positive by .2%. nasdaq 100 up by .3%. the russell up by .4%. good news is good news and bad news is bad news based on the information on how the market is responding. dani: the good news was jobless claims that surprised the downside in a good way by 7000 people. we had the biggest rally since 2022 because 7000 people in the united states did not file for jobless claims. that says a lot about where the market is. we are trying to get a handle in the market will chop up and down

until we do. jonathan: the last few weeks you have learned more about the positioning then you have about the fundamentals. jobless claims, great example of that. dani: you look at what's going on with the yen. great. it's being calm. nothing is going on with the boj today. everyone is looking at every move with bated breath. because you have this volatility upset on monday more could be in store. other people celebrate the fact volatility has calmed down and maybe that's a fool's errand. jonathan: let's go to the bond market. i think it is stunning to talk about it again. two-year, below on monday was 365 on a two-year. kind of remarkable to see where the two-year was monday morning. dani: when people say bonds to their job, protected you on a

monday when stocks were selling off, that papers over the fact yields are higher on the week. you have a market that had a big convulsion. bonds get bolted. -- volted. this is supposed to be the boring part that doesn't move a lot. it didn't do that this week. jonathan: have any people have looked excited that their world was where the fireworks were for once. dani: the revenge of the bond nerds. the idea of bonds have been pricing in something worse for this economy for a while. you equity guys have been living on a hope and a prayer everything be wonderful and you're coming around to our camp. jonathan: feeling validated by the last few weeks. dollar-you, nothing -- dollar-yen, nothing happening here. the data calmed down a little bit. ism services as well.

the boj backing away from things took pressure away from this story, for now. dollar-yen is about the post a week of gains for the first time since june. that is how vicious things have been the other way. dani: we have seen ties we did not think were there. big tech sells off the same time the yen is appreciating. are they so interconnected? if there bad, do you see the yen appreciate? we need to ask those questions after a day like monday. jonathan: not just monday but over the last few weeks. if you're just joining us an update with the fed speak. jeffrey smith singly -- signaling he's not ready to support an interest rate cut. the labor market appears healthy. this is something that has come up a few times.

i have to say they all seem to be on a similar page. are we ready? it looks like it's going to happen in september. are we ready to validate market pricing? i will infer based on what they have told us. they are nowhere near ready to validate market pricing. dani: it's the conversation to have more fed speak in the mix. we are going to have rate cuts soon. perhaps the most dovish speak of all of them. her justification is if cp accused falling. the fed is talking about inflation. the fed is talking about getting down to 2% as the most important part of the dual mandate. the market has moved on from this. we care more about unemployment then cpi. the fed and the conversations is still talking about inflation as the guiding star. annmarie: mr. rosenberg said we might be in a recession. he says when everyone is discounting the fact that look what's happening with hiring, not firing.

thomas barkin says there is no hiring coming to firing. that is what we are seeing in the data and on the ground in his district and state. he pretty much sees this normalization. it could go either way. jonathan: there is a dual mandate here. the market has gone from focusing on price stability to is close of the labor market side of the mandate. the fed is balanced between the two right now. that is what it felt like with chairman powell and the news conference in the last few weeks. dani: the risk that many people will say is you can say we are not worried about the labor markets. hiring is not great but no one is getting fired. the risk is once layoffs start you are too late. it is like the beach ball under the water, when you let go it just shoots higher. that is when fed officials wake up to the reality. the argument goes they are far too late. jonathan: the self reinforcing process has started.

dani mentioned inflation. we need to talk about cpi out of china. seasonal factors like weather driving the rise. interesting to hear from a couple of economists, not just in the u.s. but worldwide. the reluctance of officials to loosen up fiscal. they were reluctant to do so until maybe 2025 when they work out what it looks like politically in the u.s. that is quite a take at the moment. consensus for many people watching the economy. annmarie: the council came up with a plan to boost thomistic demand. they were going to have to project fiscal stimulus into the plant. goldman sachs said we think china is holding back on the firepower. they might need the ammunition if is going to be a trump presidency and he puts up the walls, including 60% tariffs on all imports coming from china. jonathan: we still need to work out what harris's position actually is. what is the vice president's

position for trade worldwide? annmarie: we don't know. that was the point you were making earlier. she talks to reporters. what they want to ask is when will you sit down to ask the policy questions. i imagine she has been the vice president hunter biden and he will be a similar trajectory. they will keep some tariffs but no one is talking about putting up a tariff wall around the united states. jonathan: we are all hoping for a quiet end to the week but next week is busy. ppi, cpi, retail sales all next week. we are looking for the evidence of a soft landing. "given the equity market volatility they have prompted additional concern from high income workers we continue to expect a moderation in growth." drew joins us for more. let's get straight into it. why are you inspecting moderation and growth? -- in growth? drew: i wouldn't call it more

constructive. jonathan: i would say is more constructive relative to what we have in pricing and in the last week. -- in in the last week. drew: a guest yesterday said he's been unchanged. that is where we are. they will be this moderation growth. what people are missing with regard to the story is ours are continuing to fall. there's a limit beyond which you will start firing people. you are paying people to do nothing. we are seeing a lot of paying people to do nothing in the data. it's only a matter of time before companies have to justify paying those people to do nothing. calling the labor market healthy -- is the housing market healthy because no one is transacting? why would the labor market be healthy if no one is transacting and it? -- and it? -- in it? jonathan: how wide is the gap

between where it is and where it should be? drew: they should have an cutting month ago. -- months ago. the fact they waited now doesn't mean they can play catch up. they tried this before with rate hikes. they missed the bus. instead of gradually moving policy they decided to run after the bus on the skateboard and got hit and taken under the tires. they don't to do that again. at the same point, the weakness tends to gain momentum. i think what we have seen with claims, people are excited that claims went down last week, the average, if you get rid of the volatility it is still towards weakening labor markets. still towards more people filing an implement insurance claims when you look at it as a percentage of the population allowed to file for claims.

when you look at it that way, higher. that should worry everyone, including the fed which should be thinking what is the peak and unemployment we want to accept and when do we have to cut rates to get there? they have missed the boat if they were hoping for 4.5%. do they want the peak to be above five or below five at this point question mark dani: the trend is getting weaker. in my right that you only spec 75 basis points of cuts this year? you sound like you would want to be more dovish than just 75 basis points of cuts even what you said. drew: a month ago i was dovish. people were internally and externally, really, you believe in 75 aces point cuts this year -- basis points cut this year? it has kind of gone off the deep end a little bit. we have seen that reaction in the bond market and the fed funds expectations. people were exciting 125 to 150

basis point cuts by january. you see it in the ten-year. below 4% is not where the ten-year should be given the state of the economy and inflation and the budget deficit. what you can inspect from productivity going forward once people begin to harvest the gains of artificial intelligence. dani: in a world where the market is right, what does the economy need to look like to get 100 plus cuts this year? drew: you need the on a planet rate -- the unemployment rate fast approaching 5%. the rate doesn't slow down. you need to see inflation come down more than it will. we are not worried about inflation. i don't think the fed should be worried about inflation. you can count on the inflation rate going down. that is the trade they will make

as they approach the end of the year. they will be cautious, right? the pace of the slowdown is relatively moderate, even though we are respecting on up limit will continue to move -- unemployment will continue to move higher. annmarie: david rosenberg said the fed is ridiculously on the curve. he mentioned something you're talking about. hourly work is starting to fall off a cliff. he thinks potentially we are in recession. do you share that view? drew: i don't think we're there yet. i'm not sure if it's a question. we all worked together back in the day. we tend to look at the world for what it is. what it is now for an employee, are you going to your boss and asking for more money next year? jonathan: yes. [laughter] drew: when no one is getting hired or fired?

no one will put their hand up. that is the part of the equation people are missing. it still affects the dynamics of the labor market and will affect the dynamics of consumption. jonathan: everybody should do that. drew matus, good to see you. let's get an update on stories this morning. yahaira: the u.s., qatar and egypt are calling for a new round of cease fire talks. the latest effort to end the war in gaza. israel said it will send a delegation to the top schedule for next week put hamas did not respond. officials say a deal is closer than ever, even as the region races for a new iranian attack on israel. pramod global saying it will cut 15% of its workforce, amounting to 2000 jobs as it prepares for his merger with skydance media. they reported earnings that beat estimates after his stream division, like disney, swung to

its first-ever quarterly profit. like warner bros. discovery, they took a second quarter impairment charge of $5 billion on its cable networks, marking another sign of weakness in traditional tv. former president trump says president should have more say over interest rates and monetary policy. it goes against the long-standing tradition that the federal reserve is independent of political actors. trump telling the media that the fed has been a little too early and a little too late moving rates and he would have better instincts than those of the fed. powell pledged not to let all it takes influence his or the fomc's decisions. that is your bloomberg brief. jonathan: i want to pick up on that story. do we go back to that wall street journal story of april? trump plans the blood the fed's independent -- blunt the fed's independence. is the former president saying

if he comes back at office he will offer an opinion about where policy should be. annmarie: these are the most direct comments we have seen him talk about fed independence. the word he used yesterday was gut. the fed gets it wrong. they tend to be late on things. maybe he gets a little early. there is a gut feeling. i believe i have that gut feeling. jonathan: we will try to have more opinions on this throughout the money. the turning point for soft landing. >> i think we are either in a recession or about to confront one. i am deathly not one of those people that says you it is different this time. jonathan: that conversation is of next. you are watching bloomberg tv. ♪

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jonathan: i don't want to jinx this. this is what i calm -- a calm summer morning is supposed to look like. the bond market yields a little lower. 395. people were freaking out about dollar-yen. this is how you want it going into the weekend. 147.14. the turning point for soft landing. >> i still think we are either in a recession or about to confront one. what is tried, tested and true is the on up limit right. the --the unemployment rate, which is up 90 basis points. you go into recession 100% of the time. i'm not one of those people that would say to you it is different this time. jonathan: is it different this time?

the full slate of economic data had next week, headlined by the cpi report and a double dose on thursday with retail sales and around of jobless claims. paul donovan writing the following. "equity markets have been meandering. the unwinding of more speculative trades should have included, allowing fundamentals to gradually reassert themselves." paul is with us for more. i'm happy to talk about fundamentals with you. walk us through how much stress there is in the u.s. consumer and whether you can identify whether it is migrating from low income households to middle income households and maybe further. paul: it is the middle income household that is critical. that is the consumer that really is behind the growth. the bottom 30% of income distribution matter. socially, politically, but they don't have the spending middle -- middl -- spending

firepower. very low fear of an employment. you have a job. you are not losing a job. you are seeing increased female participation. what is critical here is women are taking jobs paying above average earnings. moving up in quality. they are giving childcare providers more ability to take high-quality jobs. that is enhancing household spending power. you are in a low inflation averment if you're a middle income household. remember the nonsense of cpi and the absurd of session with it. cpi overstates the cost of living for middle income households. all of this is beneficial. it means the middle income consumer will continue to put a pretty solid performance. dani: i love the phrase you have set for a while. not to short the hedonism of the american consumer. that has played out correctly. i wonder in your view what does it take for that to deteriorate?

paul: the thing that would cause me concern, the one thing that will stop you guys going to the shopping mall or spending money don't have on things you don't need, the one thing to come to an end is a significant fear of unemployment. fear of an employment is --unemployment is not driven by 10 point layoffs. fear of unemployment is when either you are seriously concerned with your permanent job will be taken away from you or friends and family are in fear. we are not getting that at this stage. the fear of an employment is what we have to look at. that is job losses for permanent workers and more widespread, not geographically concentrated. dani: you are talking about seeing friends and family losing their job and the fear of that. if the market had more days like

monday for you have a data print that is not really representative of the overall economy but you have more things like that, is that enough to have that feedback loop you're talking about? can the market do that job? paul: no, i don't think so. here's the thing we whisper about. financial markets are not as important as they think they are. in the real economy it is not the large lifted companies that dominate employment. it is the mom-and-pops. it is the small and medium-sized's insist that dominate employment, that dominate things like job security and so forth. the market going up and down, yes, you have to remember most, can stem own a lot of equity. the equity they own is indirectly held through a 401(k) or something similar. the fluctuations of the market don't immediately lead to correcting behavior on the part of the consumer.

house prices are a lot more significant in terms of affecting consumers. otherwise, the ups and downs of the market, the wild swings we saw earlier this week, very limited feedback loop at this stage. annmarie: i want to ask about china. we had inflation tick up slightly. the issue is demand. do you think the chinese economy needs of monetary policy approach with potentially cutting, or do they need to pump fiscal stimulus into the economy? paul: my view here is that it really needs more on the fiscal side. it is not really a credit constrained economy. what we are seeing is an unwillingness to spend. this may be fear of an employment --unemployment coming through. youth unemployment is quite high. the excitation is it is probably higher than the official numbers

for trade. there is also concerns about rebuilding savings post-pandemic in the absence of a particularly robust welfare state. in that situation i think easing the cost of credit has a fairly limited impact. i'm not saying it's zero but it's not the main driver. what you have to try to do is boost consumer demand through consumer confidence to give people a greater sense of security about their economic future. annmarie: do you agree with colleagues that potentially china is holding back and waiting to get the results of the u.s. presidential election? paul: i'm not sure that is necessarily the case. i think china is going to try to achieve its growth targets because china always tries to achieve its growth target. in that situation we are getting this stimulus, a little here and

there, a bit of an easing of credit conditions. that is to try to maintain on the official numbers about a 5% growth rate. the thing is, if president trump does come in and wins reelection and puts in 60% tariffs and is not just a bargaining tool that would be very disruptive for the china economy. the universal tariff would also be very disruptive to the china economy. that would require additional measures. that is such an extreme situation. the u.s. would probably end up in recession. they have a compounded problem. that would require separate measures. i think china will focus on its 5% domestic target for growth and achieve that independent of was going on in the exciting

world of u.s. politics. jonathan: it will remain exciting for the next several months and maybe along time. paul, thank you. paul donovan of ubs. the fear of high unemployment has not gripped this market, this economy yet. dani: the market thinks is more important than it actually is. it always is. i love his you of the american consumer. you are spending money you don't have. on things you don't need. that will continue until you see your sister, brother, parents lose their jobs. jonathan: bethel personal to me too -- that felt personal to me too. coming up next, anastasia amoroso, congressman trent hill, and debra netschert and meghan swiber. futures positive. you are watching bloomberg tv. ♪

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>> we've moved away, is there an overheating to people really questioning how we think. >> it is still not a base case for us yet. >> i think we are still in a recession or about to confront one. >> i don't think we are at the point where things are tipping over the edge where the fed will start cutting 50 basis points. >> overall the u.s. economy remains. >> this is bloomberg surveillance with jonathan ferro, lisa abramowicz and in reordering. >> start going to the beach

already. things are better, equity futures on the s&p 500 going nowhere on the s&p were positive by 2/10 of 1%. let's see if it sticks but to take the temperature of where things are, nobody is talking about dollar-yen. basically unchanged on the session. you can put our hats together and hope it remains that way. things get busier next week so let's get to the calendar. cpi, ppi, retail sales, this stage is set for a very interesting speech from chairman powell. lisa: you have to assume for this market it is retail sales because if we are worried about a downturn in the economy, a consumer considering what we've heard from earnings retail sales will be the most important for us but the noise from the fed is still inflation. >> last week we had bad data, jobless claims, payrolls, the unemployment taking higher once

again. the boj hiking interest rate suggesting the bar was low to go again. data is a little bit better, jobless claims lower. we saw ism services better as well. expansion is where we wanted to be. the boj backs away which is ingredients for them to settle down. >> that data was tier two data. it was jobless claims. not to say that they aren't important. , but it is usually not been northstar of data. if you listen to stephen major none of it should be your northstar. we are going to head there, therefore you should be buying bonds. annmarie: looking at what mott -- looking at what mohamed el-erian is saying. expedia comes out they have better than expected results but say they are seeing the softening demand. the ceo said in july we saw the softening demand. what they are saying is potentially less people will be getting on planes and booking hotels. jonathan: delta, united,

american, all said the same thing. lisa: travel numbers are high. how may times did we sit here before a holiday weekend saying it will be records at the airport. so for the airlines to turn around and say we are struggling i think was whiplash for a lot of people. it could be what apollo is talking about, that business class and first class are still doing fine so all airlines are reflecting is a bifurcated economy. jonathan: we are seeing that elsewhere as well. checking on the scores on the s&p 500 just about positive on 2/10 of 1%. this week has included the biggest one-day law since 2022 and the biggest one-day gain since 2022 monday and thursday two very different sessions. lower by three basis points. coming up this sour catching up with anastasia following the s&p 500's best day since 22.

cons been french hill on whether the president should have an influence on fed policy. and megan's wiper of bank of america -- megan swiber expecting volatility. the right kind of downside surprise on jobless claims. markets may be getting sufficiently close to pricing and current recession reits and pullbacks may be buying opportunities especially if the recession is averted. anastasia is around the table. good morning. let's talk about the evolution so far. a little bit more conservative through the back end of the summer coming into july. where are we now? >> in may we wrote this piece where we talked about the reasons for optimism and the reasons you want to buy the pullback we had. coming into july we wrote this piece saying we had a stellar first half of the year but you run the risk of the second half and it's not like we were calling for those to materialize but if you thing about alexion uncertainty on the list, slow

consumer, that was on the list and the potential disappointment from ai and the hype we've had there. we checked a lot of those risk factors so now when i look at the markets you talked about the dollar-yen, the reason the u.s. market doesn't seem to care is because for us the biggest risk is the recession and how do we price in a recession. this is why something i was thinking about, the markets reflected the recessionary odds. the bloomberg consensus forecast about a 30% probability of a recession. this arranger estimates. one of the models looking as high as 50. the jp morgan model looking at 33%. when you size that relative to the market, the pullback before the bounce back reflected a 30% probability. so we are at this 100 day moving average to fully reflect some of the worst forecast for the recession.

so when i look at that set up i say we are sort of in the strike zone of getting close to pricing in the recession based on what we know today. but especially if we avert a recession buying within destroyed zone that seems reasonable. jonathan: a lot of people obsessed with asymmetries. we think about how this market is more sensitive. is it more sensitive to better or worse data. next week is a big week for economic data. anastasia: if you would've asked me a week or two ago i would've said definitely more sensitive towards data because that was one of the things we are worried about in the beginning of july, this disconnect between elevated earnings and an economy that was clearly slowing but now that that has been negative for months and now that we've priced in these greater odds of a recession, i would say the market is probably good to be more sensitive to any sort of positive surprises.

we might see that maybe not from retail sales early next week they're expected to be sluggish but we might see that from payrolls data going forward. there are a lot of opinions out there but if you look at the numbers, the 4.3% unemployment rate, a lot of that has to do with new entrants into the labor force. but specifically in july it's the layoffs. i think some of that may reverse and their estimates out there that look at what payroll creation might have been had it not been for hurricane beryl that hit texas. we are likely geared for that positive surprise in the coming months. >> listening to talk of all the data we have. we are literally swimming in it right now not to mention that it's also earnings season. the talk from companies, some of it the consumer has been a bit down. earnings growth is really strong. something like 10% for the quarter so far for the s&p 500 globally the best quarter.

how do you square that together? anastasia: earnings growth for non-mag seven companies is surprising to the upside and expected to pick up in the back half of the year. i think that's maybe the underappreciated story by the market. i'm not in a recessionary camp. but i do think some of the companies that are sensitive to interest rate cuts like financials, like real estate, they may be benefiting from that as we progress through the years so i've seen some upside to the non-mag seven earnings. lisa: when you have a day like monday where mag seven cells off do you not catch it? anastasia: most people were sufficiently overweight or market weight the mag seven. were most people are underweight is the defense of trade or the rotation trade. i will come back to semiconductors in a minute. but i do think in an environment where the economy is slowing you

want to step into sectors like utilities for example. you want to buy bonds specifically municipal bonds if you're hiring the consumer. you want to buy the rotation trade like real estate and regional banks because i think people start their rotation and short-circuited. i think it's the right place to be if the fed is cutting rates. that brings it back to semiconductors. people are probably sufficiently overweight semiconductors but if you look at the pullback in valuations we are getting close to the lows we've seen in the last year in the earnings expectations for ai semis in particular still going up. it's a great set up. >> is utilities back to being a bearish play because at one point it was in ai trade. anastasia: it is definitely a defensive trade. there's absently still the potential for ai upside and the fact we need to almost double our electricity generation capacity in order to service the

data center and the ai opportunity. it is back to being the defensive trade. the fact it has a yield higher than the market, it does have economic resiliency and when we look at how utilities in particular have performed they held up better than most sectors going into the first rate cut and coming out of it. i think a lot of people are paying attention to that. this is a two way market now. there's risk to the upside and the downside and that's why a lot of investors are looking at this barbell approach of defenses plus some risk. annmarie: talking about how good news feels like good news and bad news feels like bad news but you said if we get a good employment report with that mean bad news for the market potentially some people saying maybe that irks the fed a little bit? anastasia: i don't think so. that brings us to the second part of the mandate which is inflation and were looking for the cpi number next week to come in at 3.2%. as long as that inflation trend

is intact which is still agile progress towards 2%. if we get a stronger labor market i don't think that negates it. the fed realizes the real interest rates are high. they are tight and so with an economy that's generally speaking slowing they have a lot of room to cut interest rates so why not start a little bit. is it 50 basis points for several consecutive meetings, i don't think we can make that call right now but i think the start of the rate cutting cycle regardless of jobs is here. >> thank you. good to see you as always. equity futures doing ok this morning, no real drama. with an update on stories elsewhere in your bloomberg brief. yahaira: japan has issued its first-ever mega alert after a 7.1 magnitude earthquake occurred on its southern coast. several injuries have been reported in addition to limited damage to buildings. right now the country's bullet

trains are running at reduced speeds and some semiconductor factories have halted production . the prime minister calls off a planned trip to central asia as a precaution following the warning. the government is urging -- advising citizens to be prepared that major earthquakes could continue. several towns in western russia have been evacuated after an attack by ukrainian drones on military airfields sparked a fire. nine people were injured and public transport was halted in one city. it's part of what's become a nearly weeklong advance into western russia by the ukrainian army with troops reporting 22 miles deep into russian territory. donald trump and kamala harris appear to settle on at least one presidential debate with both candidates agreeing to meet on september 10 with the debate hosted by abc. trump said he agreed to debates on fox, fox news and nbc

according to anonymous campaign official bloomberg spoke to, harris will not agree to the fox news debate and will only agree to future debates if trump shows up to the abc one. that's your bloomberg brief. jonathan: up next on the program, fed chair, donald trump. >> i feel the president should have at least say in that area. i feel that -- in my case i've made a lot of money and was very successful and i think i've a better instinct than in many cases people on the federal reserve or the chairman. jonathan: can you imagine? the conversation up next, this is bloomberg. ♪

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jonathan: a karma take for you this morning. equity futures up by 2/10 of 1%. euro-dollar totally unchanged.

if you're interested we are going nowhere. negative on the currency pair by about 1/10 of 1%. less richness coming in the bond markets, yields lower by four basis points. under surveillance this morning, the fed chair, donald trump. >> the federal reserve is an interesting thing. he's tending to be a little bit lighter on things pray to feel the president should have a say. i feel that strongly. in my case i made a lot of money, i was very successful and i think i've a better instinct than in many cases people on the federal reserve or the chairman. >> donald trump using a mar-a-lago news conference to express frustration at the federal reserve. a boss journal report in april sing trumps allies are drawing up plans to blunt the fed's independence. a report trump team has pushed back on repeatedly. joining us is republican congress and french hill.

what is the former president talking about? rep. hill: great to be with you. i think every president in the modern era has certainly resized the fed and lashed out trying to add more control over the fed. but since world war ii, having fed independence is important. we want to have price stability, that's their mission. i wish they open only focused on price stability, but nonetheless that is their mission. over my time in public life i've seen presidents try to influence the fed through moral suasion by calling them over to the oval office like jim baker and ronald reagan and alan greenspan in 1984. but, the bottom line is the fed -- fed chair appointed by the president and the senate confirms that position. thousand semiconductor major oversight. there is contention there.

annmarie: we heard from jared bernstein from the white house -- chair of the white house counsel of economic advisers who tweeted this saying history cannot be clear regarding the lasting and damaging inflationary consequences of ignoring this lesson of reversing the hard-earned progress of the past half-century. so you agree with the white house the fed should remain completely independent? rep. hill: i agree with the record of history that the fed should be independent, that's a central bank tenant. the fed -- the central bank of a country should be independent of the fiscal authority or the legislator to protect price stability. since world war ii when we had an actual treasury representation on the fed board, that's been done informally through the appointment process to make sure the president is pleased with whoever the chair is. in the senate confirmation process. there have been times during

tension where thorough been white house meetings with the fed chair's or white house influence, richard nixon famously tried to influence arthur burns during the 1972 election cycle with jim baker and ronald reagan anecdote i just mentioned. structurally it's maintained its independence. lisa: let's talk about some fed policy. -- annmarie: let's talk about some fed policy. singing wood bench live a better gut feeling. he said chair powell tends to be lean on things and gets things too early or too late. he says he would have this feeling that potentially he would be a better fed chair because of that. do you agree with where the fed is right now or do you think they should be cutting? and if so do you think it would be political to take this cut in september? rep. hill: chairman powell says they are data-dependent and i think that's good. but i think the way to avoid these kinds of fights without

much assurance of what works from the other is out of rules-based monetary policy. a so-called john taylor rule, we worked together on the white house staff in the 90's. the so-called taylor rule would make a range of mathematical recommendations on the targeting of short rates i the fed as opposed to it being just a group of individuals on the board of governors deciding that or as jim brent refers to the phd scale. some others want to go back to a gold standard. a rules-based standard would have a range of guidance to the fed of when to cut and how much to cut. that would take some of this instinct out of it. lisa: congressman, given that and this is a criticism other people have said that the fed needs more of a framework. they don't have reliable framework at this moment. is that something that should be

mandated in for the fed? >> i would like to see a rules-based framework and when chairman powell was before the committee. i asked for the status of the reassessment of their very famous decision in august of 2020 in the middle of a pandemic to just let inflation run a little hotter than 2% knowing that they could rein it in which i think is a strong presumption that i don't know if is based in fact as we've witnessed since 2021. so i think that is an opportunity for the fed to reassess using a rules-based framework for the monetary policy. jonathan: this race has changed a lot since we last spoke. can you talk about how you see things evolving right now when it comes to the issues i think the impression people have but, on this program is we are not

really talking about them so much. it feels like we are talking about the vibes and the improvement we are seeing in the democratic ticket since the sitting president dropped out of the race. i know you are very focused on immigration. can you walk us through the things you are concerned about and do you think the former president is doing a decent job across -- of prosecuting the case? rep. hill: let's start there. to win this election and it's a great opportunity for president trump to be reelected, i think his policies are much more in alignment where my views are on the economy and national security and particularly border security. we have to stay focus on the issues and get off some of the personalities here. let's focus on the issues and i think president trump and his vice president nominee jd vance focus on the issues of national security, the border, community policing, inflation. they win hands down. on the border, what i most

concerned about the horrible biden policy of open border is not just the millions of people he's allowed in the country that we don't have a full instinct of what to do about or how to handle it and swapping our border patrol system but the number of terrorists, people on the terror watch list in this country and we've asked the intelligence committee chairman, we have persistently for months asked for this administration and the fbi, homeland security to tell us where these people encountered on the terror watch list are in this country. what has happened to them. we think about the millions of god a ways, how many more people are in the country we do not know about, that we did not encounter? i find this very concerning in light of the comments about the trump assassination attempt and continued rainy and -- influence in the country on assassinations

and the recent philadelphia discovery of an isis network that was operating in the country haven't come across or open border. lisa: if you're so concerned -- annmarie: if you're so concerned about the border why did republicans ditch the idea of the legislation circulating starting in the senate with lankford when it came to border security? rep. hill: we passed hr two which is the preferred vote for house or pup inside immigration reform and border security. we got it passed and sent it to the senate, there was no action on it. senator lankford did good work trying to find consensus in the senate, but he was still facilitating thousands of people, undocumented people coming in the border. he was not taking the concrete steps we did in hr two. that's the key difference for speaker johnson, for house republicans. and that's why that bill did not proceed in the senate. >> good to catch up.

i say this every single year. we have to make it happen this winter. thank you sir. congress and french hill of arkansas. on the latest in this race. thoughts on the federal reserve we need to pick up on. could we see some changes here? annmarie: i think when you hear them talking about this he says historically we do know the fed has to remain independent. so he agrees with the white house there think the fed should be more focused on inflation right now. lisa: talking about this idea there needs to be more of a rules-based framework for them i think a lot of people would agree. a lot of people of looked at what powell has done. he's not an economist, he's a lawyer. he doesn't have a clear direction and where he wants to go. it would be interesting if they mandated something like that. a lot of people like the flexibility of the fed so having a clear framework versus mandating grade that's two different very conversation -- two very different conversations. jonathan: the address we get

from chairman powell in a couple weeks time. given how thick quickly things have changed rated equity markets on the s&p 500 shaping up as follows pre-just about positive. up next on the program, looking deeper into the booming trade market. we catch up with debra on why the growth is only getting started. that conversation around the corner. from new york, this is bloomberg. ♪ why do couples choose a sleep number smart bed? can it keep me warm when i'm cold? wait, no, i'm always hot. sleep number does that. during our biggest sale of the year, save 50% on the sleep number® limited edition smart bed. shop now at a sleep number store near you. something amazing is happening here. more companies are turning to mac. (♪♪) from finance to fulfillment, cdw supports mac integration across your organization.

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jonathan: two hours away from the opening bell. s&p totally unchanged after major volatility in the last few days. we are going nowhere. nasdaq 100 positive by .04%. if you switch and push into the bond market, two-year has been all over the place. massive range, huge range. something like 40 basis points. 4.03% is where the two-year yield. yields coming in a touch on the 10-year. down about three basis points. in and around 4% to end the week. encouraging relatively to the doom and gloom on friday coming into monday. dani: it's important we look at what the encouraging data is.

as a whole thing, jobless claims low statistical significance. this is a really noisy piece of data. looking at this one the expectation was for 240,000. we were less by 7000 people. 7000 people in america did not file for jobless claims and we decided the recession was over. jonathan: basically, and moved on. we will do it again next week. if you don't like it, i don't know what to say. we will do it again. it's amazing to see how much weight people were putting on the weekly payrolls, weekly jobless claims. it was treated like the new payrolls friday. jobless claims thursday. do you think that will be the case we give things calm down enough to say that is not the story next week? dani: i'm concerned whether this is we are searching for a new paradigm. we don't know where we are yet. in that sort of environment you have a volatile market on every data point, or is this just the summer, or because it is august

and liquidity is really bad and so we are swinging around? it is hard to was between the two at this moment. jonathan: we have all headed to step back repeatedly this week. i have lost count of how may times i said let's take a big step back. are things getting worse or debtor? neil data suggested it's getting worse. the economy is more or less operating at the fed's year end 2025 expectations over a year ahead of schedule. the federal funds rate is over a percentage point higher relative to the sep. we get an update to the sep in september. like the gs is -- suggestion from bill dudley this week on the show, it might be upside by anywhere up to 100 basis points plus depending and whose opinion you trust. dani: that is what you get the commentary they should be cutting 50 basis points. they can catch up if they are willing. that is the big point of this.

even of the market is ahead of them, the fed feels so far away from the conversation. susan collins this morning said she's looking at inflation. in order for them to cut inflation it needs to come down. the market has moved on to employment. the fed continues to say we have more time and there is no rush. jonathan: 147 on the currency pair. we can move on from dollar-yen this morning or for the next five minutes. donald and kamala harris settled on one presidential debate. the candidates agreeing to a september 10 meeting on abc, with trump offering for the debates on fox news and nbc. harris will decline the fox event and only agree to of the debates of trump actually shows up on september 10. are we still debating about the debate or moved on? annmarie: both. we are not debating about the abc debate trump backed away from.

he agreed to it with biden and other democratic party flipped their ticket. he's back on for that debate but he says we need more debates. he already debated biden. he wants to do more -- two more. harris does not what to going to the fox news territory but potentially after september 10 maybe they could go to another one. jonathan: pretty down the middle. what are they worried about? annmarie: not sure. if she's going to be president it's more challenging people in the other side of the table like autocrats, like dictators. jonathan: if she has momentum right now, which i guess she thinks she can pick and choose. donald trump is trying to put pressure on the media to put pressure on her to do more. more debates and more interviews. i found the lemons really quite vague. kathy agreed to it an interview before the end of the month or just saying we will schedule one before the end of the month which could mean we get one after the end of the month?

annmarie: what she said is they will be -- they told her team she wants to schedule something before the end of the month. does that mean the scheduling is being done before the end of the month or the interview is being done before the end of the month? it was unclear to me. they are feeling some pressure from the press corps and the republicans like j.d. vance going over to her press corps saying why she not answering any questions. as a journalist obviously i want more debates and interviews. i want to understand policy. if you are a political strategist, why would you not to take every win you are getting if your kamala harris? show two events where you know what you will say, the carrots -- crowds are cheering and you don't have to answer policy questions. jonathan: an update on the latest in the middle east. the united states, qatar and egypt calling for a new round of cease fire talks in gaza. there was no response from hamas. the u.s. saying a is closer than ever as the region braces for an expected iranian attack on israel.

this is the problem for a lot of people like us on the outside looking in. it is like these two opposing thoughts simultaneously at any given time. the prospect of the war could escalate, could spread across the region. there's the prospect of a cease fire. altogether that is the focus. annmarie: that is why you see potentially the white house putting urgency on this cease-fire agreement. if they were to get this over the finish line potentially it holds back lebanese hezbollah and iran from retaliating against the assassination of the hamas leader. that is why we could see this urgency. i got on the call with the u.s. official yesterday. it was weird. coming from joe biden saying the agreed on this date, august 15. that date is just to sit at the table to talk about these gaps that remain. it doesn't mean next thursday we are getting a deal. jonathan: let's take a beat and a moment to get you up to speed

on some sector news. individual name news. paramount joining warner bros. in down value on his tv networks. the company seeing sales of the networks fall 17% where the streaming business posted its first-ever quarterly profit. that is why the stock is up by something like 5.6% in the premarket. eli lilly posting is best day in the year after inching ahead of novo. debra netschert expects growth to continue. "thanks to a significant ramp and manufacturing capacity uptake will increase dramatically in 2026 to 2028." deborah is here to give us details in a way i think we have been lacking over the last two weeks. welcome to the program. for many people, and i speak for myself when it comes to novo

versus lily, i don't know the difference or what the drugs are at the distinction between the companies. can you help us with that? what is the distinction between those firms and the treatments they are putting out to market? debra: thank you for having me. it feels like they are part of the same conversation nightly. they are thought about as one company. eli lilly is more of a diverse company than novo. they have a huge business in diabetes and obesity. as everyone knows. they have been incredibly successful in oncology, immunology, and are launching a new drug for alzheimer's. because of the sheer size of the diabetes and obesity business a lot of the rest of lily does not get talked about. the main drugs are marketed for obesity. monjaro is marketed for

diabetes. novo is more of a diabetes here play. -- pure play. they had a long tenure in diabetes with a big insulin business. they have ozempic for diabetes. they have will go beat w -- wygovie, there obesity drugs. dani: one of the big criticisms of novo was you have the drug that comes out and allows people to lose weight but you have a problem where people are losing muscle mass. they are almost becoming less healthy because of that. who is at the forefront of addressing that issue? debra: i think the jury is out whether or not the muscle mass is an issue now. lenny longer-term data on obesity which we don't have. the one thing that you should think about is, we focus on the long-term. if you look at the long-term data from diabetes we are not

seeing any adverse events related to this difference between muscle and fat loss. we just need more time and more data to see whether or not this is a long-term issue with these drugs. dani: the adoption and addressable market for these drugs is really big. since the 1970's, the united states has had an uptrend in obesity rates. are we about to see a wholesale societal shift were for the first time since the great depression obesity rates are going to start the fall? debra: it would be great if we could see that, because there is such a large downstream effect of obesity on other body systems. one of the most interesting things about the gop's is -- glp's is the number of diseases they're having an impact on. cardiovascular risk reduction. we have seen an impact on liver disease. we have seen positive impacts on sleep apnea.

we have seen positive impacts on kidney disease and cardiovascular diseases. as time goes on and the glp's are adopted we will see the downstream effect take place. the thing to focus on a since the obesity meds came out we have been supply constrained. lilly and novo will be exiting 2024 with significant more supply than they had before. dani: you say utilization is not even close in terms of percentage of these drugs in the market. where you see this going in terms of percentage of the next five to 10 years? debra: significant they higher than we are now. we are only in the single digits when you think about obesity. we have a long way to go. jonathan: there's a lot of people trying to develop second derivative trades around this story. for you and the team i wonder

with the process is you go through to develop those trades. we have had everyone from the snack business all the way through to the airline business talking about the savings on fuel costs of all things give the average passenger loses weight. how are you thinking about the second derivative trades? debra: when we think about the second circuit o -- derivative trades we are looking at drugs that can move forward. not really be similar to where we are now. the obesity market is going to be incredibly different and segregated in lots of different ways in 10 to 15 years . there will be different types of drugs and administration profiles and duration and timelines in which you take the drug. for people that need to lose different amounts of weight. they will be a lot more options if you need to lose 25% of your body weight or 10%. there will be a drug for you.

there will be a lot of combination drugs for patients who have comorbid conditions. we are paying attention to companies that are going to be able to move forward and find a differentiation. the thing that is interesting is even lilly on the second quarter call talked about the amount of r&d they are doing, that novo is doing. neither company has stopped developing drugs and r&d. they are still pedal to the metal to develop the next best thing. if you look at what's happened with supply and just the sheer number of clinical trials, a newcomer into the market is going to need to spend a significant amount of money on both r&d and manufacturing to really play. it is not only about develop a drug that has weight loss that is better. it is what else does the drug

do? how is it different than what we have? is it more tolerable? is the administration profile more favorable? also, can you develop a really broad based reprogram and afford to develop a broad phased program to demonstrate efficacy across as many diseases as both lilly and novo have and are continuing to? can you build manufacturing and scale it up and build supply to be able to be a meaningful entrant in the market? jonathan: that is not easy. i am pleased we got to make this happen. no doubt we will be talking soon. debra netschert. bmi, height relative to weight. standard definition is 30. more than a third have a bmi over 30. i think we know the addressable market is massive. what i heard is how difficult it

will be for others to compete. when you talk about winners and places like ai, a handful of names potentially. it feels the same way in this sector as well. dani: that's exactly what i was thinking. the innovation economy, the things we are trying to address take huge amounts of spend, huge amounts of research. if you are an investor looking at this market saying how do i play this? you keep going to the same names. there's a reason behind that. it's in order to keep spending have to have the cash to do it. if you are just a pull yourself up by the bootstraps startup, you can't do that anymore. jonathan: that is why novo quickly became the biggest company in europe. now an update on stories elsewhere. yahaira: microsoft set a group of hackers leaked and iranian -- from the iranian government try to leak the accounts of presidential campaign staffers as part of an effort to gain intelligence ahead of the u.s. election. become a revealing they are linked to the islamic

revolutionary guard and compromised people addresses for formal political advisor and a phishing attempt on a high-ranking official. they came after warning that russia, china and around her recruiting people to spread propaganda. iran has denied the allegation. china has a new richest man as its thriving e-commerce sector continues to gain ground around the world. kellen wang's net worth climbed to $46 billion. the 44-year-old's staggering rise was fueled by changing shopping habits and intrigue loophole allowing timu's smaller packages to enter the u.s. do you-free. -- duty-free. team usa making a comeback

against serbia and men's basketball. steph curry helped push the team to the gold medal game against france. as for the count, the u.s. continues to lead in gold medals and total medals, followed by china and australia. jonathan: massive game saturday afternoon. coming up, the bullish case for bonds. >> the consensus positioning was for a bearish steepening. look at it now. where has all that got? the next move in rate is unambiguously down. the question is how much. jonathan: that question next. this is bloomberg tv. ♪ ♪ where ya headed?

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♪♪ relax into a caribbean state of mind. visit sandals.com or call 1-800-sandals. jonathan: equities just about ok. slightly negative. no real drama here. we are down .1% on the s&p.

we are down about four or five basis points on the 10-year. under surveillance the bullish case for bonds. >> one month ago we were talking about reflations trades in the election. look at it now. i wonder with all that has gone. the question is how much it is down. the market tends to lead the fed. you are seeing validation of that now. jonathan: treasury yields lower after a wild week of swings. meghan swiber writing, " our 10-year rate forecast to 3.7 5% by the end of the year and more curve steepening." welcome to the program. if you're looking for the 10-year to drop 20 basis points, what is at current steepening come from? meghan: when we look at how the

curve evolves historically, when we get these bigger steepening moves on the yield curve it happens weight observe a notable uptick in the unemployment rate. we're looking at scenarios around harder landing. we are looking at the curve to steepen but we have to be mindful here about what economic scenarios we are taking into account when thinking about the yield curve. it is very much a hard landing-soft landing-no landing dependent. jonathan: when i hear that the 10-year is lower and the steepening, it must be coming from a bull steepener. an aggressive move at the front end. you must be looking for a big move in the federal reserve. is that right? meghan: not exactly. our house case is that the fed will deliver 225 basis point cuts this year. -- two 25 basis point cuts this year. at some point this week less than half of what we saw in the market pricing and terms of the degree of cuts. we can be looking at seeing the curve steepening involved.

what we are going to see a challenging environment for as well is thinking about the supply picture at the back into the curve. deficits are only going one way. a lot of the curve steepening we anticipate is not so much coming from the bull case but seeing more of the steepening pressure coming from the tens and 30's. dani: maybe this week was evidence for that. you get a 10-year and 30-year auction and neither goes well. did we add a lot of bonds leading up to it? meghan: it is twofold. what we saw from a number of different investors was everyone was very much so calibrated in the soft landing camp. what's involved and that is looking at trading ten's in 400 to 450. the more sentiment data pointing this picture of maybe there are some risks around the soft landing caused a pretty decent bid for duration.

people came into the market and said maybe this 4% level is not below we can get on 10's. maybe we can see duration outperform. we had a strong fight to treasuries -- flight to treasuries at the end of last week and started this week. we saw a little bit of a lightening up in terms of that conviction and duration on some of the war positive data we are seeing. a bit of a whiplash here for the rates markets. dani: when did we start worrying and when we get more auctions like we did this week? meghan: this is the tricky dynamic. when we have rated conviction in the heart of outcome there is no absence of demand for treasury securities. treasuries play this incredibly important risk off role in portfolio allocation. when we think traditionally about what insulates us from large equity drawdowns, it is nominal treasury rates. if we settle into more of this soft landing probability, that

the man becomes a lot more conditional on the yield levels we are thinking about. the very important question is what rate level is the fed going to cut at the end of the day? we had the market pricing fed getting to below 3% this week. that is well below what we are expecting from our house call. jonathan: can we stay on supply. we have noticed shifts since november 2 a lot of t-bills. -- to a lot of t-bills. meghan: we heard that treasury is now thinking about considering this higher bill share going forward. t back, the group that advisor es treasury said you wanted target between 15% and 20% of bills. what we seen, the retail investors, everyone was to be in bills. everyone has increased their bill holding share.

we see strong inflows of mutual funds and why whitney? that -- why wouldn't you? that is still yielding the highest. treasury has recalibrated. we can see the bill share remaining above 20%. on a go forward basis treasury is saying that bills are elevated versus what we have been looking at relative to longer-term history. they have an appetite to keep that bill share higher. that doesn't mean they are not going -- we are seeing expectations for deficits, for the fiscal year 2026. alexion >> coming -- election risks coming in higher. treasury is saying we will be tactical with our issuance strategy. we don't want to oversupply the duration component. jonathan: i have this number for next time. where you see the 30-year yield? meghan: relatively range bound

to what we are looking for. it is more of this story for greater potential and appetite for the rest of the yield curve to rally relative to that part of the curve. that is where we are going to see the greatest demand for duration coming from. to buy the 30-year part of the curve you are thinking about pensions. longer-term investors. we have this interesting thing in the rates market where when yields go down the funded pensions also go down. they don't have the same appetite to buy longer-term duration. jonathan: every thing else rallies a little bit. perfect. meghan swiber of bank of america. coming up, bankim chadha, david mericle and dirk wiler of citi. all that is coming up next. ♪

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>> the economy and the jobs market and risk landscape is not exactly the same as it was several weeks ago. >> market deterioration could create a downward spiral. >> the fed right now is pretty far behind. it's at a restrictive level now. >> they are ridiculously behind

the curve, irrespective of what the capital markets are doing. >> the market welcome to the fact that more aggressive rate cuts will not come with a weakening economy. >> this is "bloomberg surveillance" with jonathan ferro, lisa abramowicz and and record turn. -- annmarie hordern. jonathan: let's see if they have anything else to love over the next few months. equity futures on the s&p 500 totally unchanged. let's get to the weekend with futures going nowhere on the nasdaq and likewise on the russell. the opening bell about 90 minutes away. we are looking ahead to the month ahead. ppi next week, cpi after that. next week is packed. then it is off to jackson hole with chairman powell addressing not just jackson hole, this country, but the world as well. addressing markets when fed officials do not look like they are scared, worried, no sense of

urgency. they are talking about whether to go 25. dani: one crowd he is addressing is the bank of japan. you know the deputy governor will be listening with baited breath to see what happens. the fed has a different conversation going on. they are talking about the idea they have more time. the labor market is not people being let go. that gives them time to wait. if you're waiting, are you too late by the time the layoffs start? jonathan: if they did this would be even more wilder and vicious and volatility that we've already had. you take stock of the data, it is a tale of two different weeks. manufacturing last week, payroll data, soft services this week, jobless claims data much firmer. how balanced are things now? annmarie: when you look at the services data, what companies are actually saying, it is normal. it is not great.

it is just leveling out. they talked about how there are some concerns and it comes to these companies about how consumers are waiting on the sideline until after the u.s. election. then you hear the earnings calls and you do hea corp.r corporations -- you do hear corporations. the disney cfo says think they will come back to us. jonathan: paul donovan made it simple. when it comes up unemployment if you fear unemployment, you behave differently. there are a range of opinions about where we are now. paul is taking a more constructive view of things. others think the process has started. the fear is starting to set in. companies are identifying that. they go to protect margins. that can cut costs and labor, so on and so forth. have we started the process yet? dani: you feel the pressure from companies. that is when you look at cutting. even if we are just in a

scenario where people cannot get a job at the moment. that is something that does slowly grind sentiment. if you cannot find a new job, of course that will hit your sentiment. it is the whole frog in the boiling pot. i we just now turning up the temperatures and it will start to boil at some point? jonathan: the heat going up in the last month or so. equity futures pulling back by .1%. things pretty stable out there. the bond market rallying in touch. 10-year on 394. dollar-yen basically going nowhere. coming up, we catch up with bankim chadha as stocks rally. david mericle on the odds of a u.s. recession. derek weiler from citi saying don't blame the carry trade. the s&p 500 leaving behind a week of volatility and building on its best day since 2022.

bankim chadha staying focused on the earnings have remaining positive. growth has continued to pick up indicating a broadening out across stocks. the gap in growth between mega caps growth and tech and the rest has shrunk. good to see you. bankim: good morning. jonathan: what do you a spec from earning season? -- expect from earning season? bankim: a little weaker than we expected. what we expected is not always the most important thing if you look at it from quarter to quarter. we have gone from an 11.5% year on year growth rate in the first quarter to 11%. earnings are volatile. things don't move in straight lines. i would say overall growth momentum is basically hanging in . one thing to keep in mind about that 11% is that it's actually average growth outside of

recession. it is neither high nor low is the way i would put it. i would say more important is what's been happening under the hood. coming in earnings we have an equity market that is positioned very long coming entirely from overweight positioning in mega caps growth and tech, and average or below average, underway positioning in the rest of the s&p 500. positioning tends to follow and aligned basically with earnings. if you look at positioning for the mega cap growth in tech stocks, you know, the market was essentially positioned for a riproaring earnings growth to continue. keep in mind the fourth quarter of last year we had 40% growth . the market is positioned for that to continue, if not accelerate.

the consensus has been looking for a slowing in growth. so far -- nvidia has not reported yet. we have slowed from 30% to around 28% to 29%. that is a pretty significant slowdown while earnings growth for the s&p 500 has sort of hung in at 11% despite this big slowing in growth of mega caps growth and tech. if you look at the rest, earnings growth has picked up at the pickup is modest. the gap is shrinking. most of this ranking is happening from one side or disappointment. we were expecting a slightly bigger acceleration. if you take the rest and divided into two, energy and materials, one of the reasons for why earnings growth has hung in. we went from -when he five% -- -25%.

it is normal variation hanging in rather than a big pickup. jonathan: the last few months have been ridiculous. you have to go back a few months when it was good news and bad news. we were talking about the prospect of an interest rate hike. that was the story of bad news is good news. now that has switched. goodness is good news and bad news is bad news. even the last six weeks, let's go through it together. we had a rotation at the expense of tech. a broadening out that included tack. then risk aversion given by bad economic data. another risk aversion driven by the unwind of the carry trade. what is this? banky: i think the one thing to keep an eye on is all this started basically with an equity market positioned very overweight. pretty lopsided. you fast-forward the tape. as of yesterday's close positioning is gone from the

tippy top of the z score band close to plus one. the 96 or 97% top. positioning is below average. the market is underweight equities. that is very constructive for the market going forward. it does depend on the catalysts and the like. under the hood it is positioning and tech that is still on the high side. it is aligned with the earnings growth we just got in q1. the fundamental reason basically for the pullback, positioning was too high relative to earnings growth, and the rotation that needed to happen. that driver looks like it is pretty much done. now it does depend on what

happens on all the other fronts. i'm not going to list them. it's only four days. dani: it's healthier now, the positioning on mega cap tech has come back. we have finally had some sort of drop in the equity market. it is normal to have a 5% drawdown. how healthy and normal is it to have the biggest company in the s&p 500, nvidia, one day lose $130 billion in market cap and the next day gain $150 in market cap. this is a healthy market by that measure? banky: you will have an issue never there's a new technology or something big happening. if you think about growth rates for companies, the question is how long that cycle is going to last. the earnings growth is slowing from 500% to 400% and 300%. those are unbelievable growth rates.

the market, yes, we will have volatility because it changes the entire outlook depending how you think about the cycle. we dani: dani: have been talking about the data -- annmarie: you mentioned nvidia. is that the data point we should be focused on? binky: the anchor for equities is earnings. you can deviate from time to time for earnings are absolutely very important. we have gotten most of the earnings. i don't expect the broad picture to change very much. jonathan: favorite sector right now? what you like? binky: financials and consumer cyclicals. i would say financials have to price in the new hire rates regime. we don't know the probability of that is going into recession but i would put my money on that we

are not going there. both of those are supportive. we are at a point in the cycle, this unusual cycle but if you have a scorecard of the things that happened and the things that need to happen still, long growth has not picked up. it typically lags economic activity for a while. 2022 was a while ago. it is still playing a role. we have basically long growth yet to come. jonathan: can i jump in quickly? you are thinking this cycle we are still do another pickup and growth? -- in growth? binky: absolutely. it tends to overlay with the ism's. where are the ism's? it is one of the data points you mentioned. i would argue it is totally a disconnect from 220% gdp growth in the last quarter -- 2.8% gdp

growth in the last quarter. yesterday was at 2.9% for this quarter. long growth will come back. number two, we just had one quarter of pickup in capex. typically you have a pickup in capex. i can go on. there is a long list of things i would argue. jonathan: the cycle can continue much longer binky: binky: than people think. absolutely. jonathan: we are pricing in aggressive action from the federal reserve. binky: yeah. in my outlook for equities it is not figure prominently what the fed does. jonathan: what is the price target on the s&p for you? binky: we had a range coming into the. the top of the range was 5500. we are still there. it's very possible the s&p goes

higher basically. the year-end is a pointed time. we are still in the midst of a pullback. if you think about the calendar, we have the presidential election coming up. the market tends to focus the month before. we have an important --the market pulls back by 4% or 5% typically. we have early voting starting in a month. does that change the issue? of course we have, you know, severe geopolitical risks in the middle east that we need to be watchful about. both the election and geopolitical risk, the question is are they going to alter the business cycle? it's only altering the business cycle if it alters the path of

equities. if you look historically either has done that most -- neither has done that most of the site. jonathan: bnky chadha of deutsche bank. the opening bell just around the corner. let's get the bloomberg green. yahaira: donald trump and kamala harris appeared to settle on at least one presidential debate with both agreeing to meet on september 10 in a debate hosted by abc. trump said he had also agreed to debates on fox news and nbc. according to an anonymous campaign official, harris will not agree to the fox news debate, only agree to future debates if trump shows up to the abc one. para not global think it will cut about 15% of its workforce amounting to about 2000 jobs as it prepares for his merger with skydance media. the parent company of nickelodeon and mtv reported

earnings that beat estimates yesterday after the bell after its streaming division like disney swung to its first-ever quarterly profit. like warner bros. discovery, paramount took a second quarter impairment charge of $5.9 billion on its cable networks, marking a sign of weakness in traditional tv. a large majority of economists see only a quarter-point decrease in interest rates coming in september. that's according to a bloomberg survey. the finding is at odds with calls from some of wall street's biggest banks for a jumbo cut at the next fed meeting. nearly 4/5 of respondent protected they will trim rates to 5% to 5.25% at december 18 decision. most of the restricting a larger reduction. officials have pushed back on the need for aggressive actions. that is your bloomberg green. jonathan: we will hear from yahaira in about 30 minutes time. of next, morning calls as we count down to the opening bell.

that's one hour and 14 minutes away. we will catch up with george ferguson as a new ceo of going walks a production floor. that conversation is coming up next. ♪

jonathan: as we get closer to the opening bell we are pulling back a bit on the s&p 500. down a little bit more than .1%. in the bond market yields continue to fall this morning. 394.55 if you want a dollar-yen check. a slightly stronger japanese yen. the currency pair moving basically in line with the moves and risk elsewhere, particularly equities. we are not seeing the big move this morning. morning calls. raising the price on eli lilly because of exceptional leadership and expansion and

manufacturing. the stock is up 1.2%. will research upgrading, saying the company is well-positioned to the benefit from changes in the macroenvironment. the stock i down by about point -- about .6%. general dynamics to overweight, highlighting strengthening demand for defensive products. boeing's new ceo taking over, pledging transparency in a bid to turn the company around. they are facing a new scandal. nasa wanting to starliner my not be of the ringback two u.s. astronauts -- not -- might not be able to bring back two u.s. astronauts. let's talk about the new crisis. what is happening with this expedition? >> it seems the capsule that boeing built is having problems with thrusters. there's a debate now between

boeing and nasa whether or not it is safe to have to bring the astronauts back from orbit. if you don't get the overall reentry right it can be catastrophic. i am sure nasa is being very conservative, as they should be, talking about potentially bringing the astronauts back with the spacex capsule in february. boeing has had problems with the capsule before. they had problems with the initial adopting a while back. it's been a burr in their saddle. it's been indicative of the challenges the company and engineering quality. dani: it feels like it's two different things. the things you are saying are linked together. if we are not talking about 2025 when the astronauts are coming home, it is more reputational damage for boeing.

more damage than maybe the white house needs to look into and the congresspeople on capitol hill. george: it is. i think the country wants a strong boeing. they are part of the defense establishment. they are part of the space programs. you don't want single vendors -- in this case a selected boeing and spacex to be the vendors for capsules going to the space station. when you have one breakdown you lose a redundancy. the faa is already looking into their quality challenges in their factory. annmarie: if the new ceo walking the factory floors, what is he going to be most focused on the next six month? george: it has to be quality coming through the factories. some reports we heard at of

spirit aerosystems for the second quarter was spirit built at a rate of 31 months and built 93 737 fuselages. the number they got delivered to washington to the manufacturing of airplanes was 27. that rate is horrible. that is spirit aerosystems but that will become part and parcel with boeing and that's part of the problem they've been having. it is really about improving quality in their factories. that is number one. they can up throughput, improve cash flow, improve their perception of quality with customers. i think it is getting back to a stronger engineering culture which is indicative of what you have with the capsule. jonathan: massive challenge ahead of them. the stock is just about positive in early training. george ferguson a bloomberg intelligence. the latest on boeing. the opening bell about one hour and seven minute away. a reset for you. equity futures coming in just a

little bit by a couple of -- .1%. this comes from bank of america this morning. wall street painfully has stopped boj hikes. wall street's next goal is bossing the fed into big interest rate cuts. real rates for small businesses are too high. big cuts needed to avert a hard landing. strangled by 5% yields that breathe more easily with yields at 3% to 4%. the call from b of a. dani: he goes on to talk about the idea that maybe we are not fully done with this thing yet. maybe there's more pain to come. talking about the market pulling the fed, i come back to the interlink between u.s. stocks and the bank of japan. even what we are seeing today. i can't help but wonder if we have this backwards. the idea that it was the yen appreciation that set off u.s. stocks. the carry trade is just a low volatility trade. what if we were in this new

environment where every time you see volatility in the stock market it scares people out of the carry trade. every time you see the vix spike up you see a problem with the yen. annmarie: j.p. morgan sessa stocks remain more at risk for severe declines because the fed is not showing urgency. stocks don't just go up with a say equities are no longer a one-way upside trade. increasingly, to set a debate on growth and downside risk. that has been the point of this week. jonathan: up next, david mericle and dirk weiler of citi. really pouring freezing cold water over the prospect of a 50 basis point interest rate cut in september. we will get into the reasons why. for dirk, "we don't think the unwind was a reason for the u.s. equity markets one." -- market swoon."

dani: it's about the u.s. economy. that is the issue we have seen the equity markets play out. do we get ourselves tied up in psychology that we think there are links so there will be links? jonathan: that is how the week has played out around the japanese yen. the view on the market from goldman sachs and citi. you are watching "bloomberg surveillance." ♪ where ya headed? susan: where am i headed? am i just gonna take what the markets gives me? no. i can do some research. ya know, that's backed by j.p. morgan's leading strategists like us. when you want to invest with more confidence... the answer is j.p. morgan wealth management

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jonathan: equities on the s&p negative by a quarter of 1% on the s&p 500. on the nasdaq 100, down by .4%. losses building a little bit but it's been calm her this morning. it is not a big catalyst. there is no big data point, no big earnings, not a lot of fed speak. if you take stock of that this week, fed speak, a real lack of urgency about cutting interest rates anytime soon. it sounds like 2025 and that's basically it -- it sounds like 25 and that is basically it. the boj backed away from the prospect of hiking interest rates soon. earnings. consumer weakness. we sought in disney but nothing new. no information this week at all. dani: that has allowed the market to basically come back to

where it started. equities after these insane swings are just down as of the close yesterday half a percent. we did -- did money even happen? it feels like we are back to square one. this is where you get people concerned. we are offsides now for a weakness that is heavy in data and we could flip right back to being nervous about the economy. jonathan: for a lot of people alongside some of the moves they felt like monday happened. they are still feeling it. bruised and battered over the last few days or so. monday definitely happened. two-year dropped to 365 . we are 40 basis points higher now. down about a basis point on a 10-year. down four or five basis points so far. we will check on the dollar-yen. last week, 146.81 at the moment. down a quarter of 1%.

in line with the pullback in risk in the equity market. the correlation still ticks. not a big move we saw earlier this week. dani: i find the interplay so interesting. that's why i'm excited to talk to dirk weiler of citi. it is not the yen moving equities. people using the end to fund trades in tech. we can tell how big it is or who is doing it or how long they will continue doing this to get people throwing stuff out there. we are halfway done with the unwind, three quarters of the way done. jonathan: who knows? dani: nobody. jonathan: it is like the weather. which way is the wind blowing? former president trump saying president should have more say over interest rates and monetary policy. he told the media he may have a better instinct. powell has pledged not to let

politics influence his or the fomc's decision. if donald trump comes back into power, does he have a different plan? annmarie: there was a report in april that they were looking at plans potentially to blood some of the fed's powers. every single someone related to the current trump campaign lawyer former official would come on the program or behind the scenes and would ask where the report came from. everyone threw cold water on it. now the president's think i think i should have influence because i for better sense of the economy and a good gut feeling. we heard from coal donovan -- cole donovan. these retro policy proposals are not serious. if they were, the market taking this seriously, you would see movements in the market. everyone is viewing this as potentially just rhetoric. jonathan: this would damage the u.s. economy. you have a real problem on your hands of people started to believe. you have to really change things

for people to start to believe this. if they believe we have to politicize central bank decisions all over again, go back to that world, you would see big moves in foreign-exchange. dani: i don't understand what people are not taking this at least a little seriously. everything trump said to have a weak dollar to yesterday, look back to his first term. he appointed powell and said he did it because he expressly wanted a republican in charge of the fed. maybe they did not play out as he wanted. maybe he thought powell would listen to him more. this is not a new idea from hand. -- from him. jonathan: it did not happen yesterday with kamala harris. opportunity to ask a question about asking questions. annmarie: she rips off her sunglasses, which she got from me. will you answer a question? jonathan: what happened yesterday afternoon? annmarie: there was pressure growing on the republican side

and the press corps. every journalist is asking for her sit down interview. they are not going to yet. she wants to introduce herself. i don't think you see her sit down until after the dnc. jonathan: why can't the press understand this? you build on each other's work. when you have opportunity to ask questions the person follows up. you stay on topic. what is that never happen in washington? annmarie: it happens with some press corps. it happens with foreign policy. jonathan: the rest of them, i never see it. if the vice president came over and she says, what have you got? the first thing you say is when can we ask questions, do an interview? that's ridiculous. annmarie: i did speak to someone in the trump world yesterday. i sent the quote about his feeling of the got in with the fed thanks. they said what is kamala harris think about the fed? i don't know yet.

jonathan: hopefully someone asks. august rates plunging in the u.s., hitting the lowest level since may of last year. freddie mac says the average fixed loan is hovering around 6.47%. racist topped 7% early this year. mortgage rates for the consumer the focus of the next week or so. . david mericle raising the odds of a recession adding the fed has room to react. "we have increased our odds to when he 5%. we see recession risk as limited not only because the data looks fine overall but chairman powell emphasized the fed has room to cut." david joins us for more. welcome to the program. you guys poured freezing water on the prospect of a 50 basis point cut in september. it feels like the economy and data we have had so far this week has moved you away. how dependent the september

decision between now and september 18? david: the august employment report will be very important. the july employment report will turn out to be a bit of an outlier. the weak job growth number, the unappointed rate increase, we will not see the august report look as we. maybe? job growth will be close to 150,000. if that's right, the fomc decides the right calibration is 25 basis points. we think 25 basis points points at consecutive meetings to start, a little faster, they were planning before. they were planning quarterly. that would be one step up in the speed. to get two steps up in the speed to 50 basis points, you would need to see a worse data than we have seen so far. historically the fed has only done more drastic things like enter meeting because. there was either some sort of crisis going on or what jobless

claims were much higher than they are today. in both cases he felt like you needed to act aggressively right now in order to stop things from getting worse rapidly. i don't think we are there now. jonathan: how have your thoughts evolved about the destination? what is the endpoint for interest rates? david: we continue to think 3.2 5% to 3.5%. that is 100 basis points above where the hiking cycle stopped last cycle. that is different. this has been one of our core house views going back a decade plus. neutral is not and never was quite as low as the conventional wisdom held last cycle. we were dealing with the aftermath of a lif -- of a financial crisis. there are long-lasting headwinds that are separate from monetary policy that hold the economy back. things like private sector deleveraging and disruptions to financial and fiscal austerity

those were not permanent. they lasted for years but not permanent features of our economy. now we are learning it is not as devastating to have these higher interest rates as many people thought coming into this hiking cycle. gradually over the course of its framework review the fomc will discuss the issues. my guess is they will wind up being content with stopping higher than they stopped last time. dani: what changed after the friday jobs report? not a huge recession risk but you opt it to 25 -- upped it to 25. what happened? david: now the unappointed rate is up enough that it did not feel right to say that twelve-month recession odds are just the historical unconditional average of 15%. that is where we had been for the last year. last fall we went down to 15% because we felt like the inflation scare is behind us,

the regional banks carries behind us. there are things that can go wrong. i did not really see any wrist that looked particularly elevated. -- risk that looked particularly elevated. we are still on the optimistic end of the debate. our 25% odds are lower than consensus, lower than ever perceive investor sentiment to be. the growth forecast for the year at 2.3% in q4 is very much above consensus. dani: the fed is optimistic. barkan said we have more time. layoffs are not happening. it is just a slowdown in hiring. is he right? do they have more time? david: it's difficult at the moment to disentangle labor demand and labor supply. we had a huge immigration search that peaked in the back half of 2023. job growth should have gone up and it should be coming down.

we sadly have enough workers entering the labor force every month to create the 250,000 jobs a month we created in 2023. that is a lot of it. it is difficult to know in real time what is too weak of demand, especially given all the uncertainty about the level of emigration. i would agree things don't look so problematic that they need to be aggressive. what i would say is they ought to be. i think they will err on the side of caution if you get additional negative data. i'm not concerned at all about inflation staying too high. if there is a concern about the labor market, if we get a weaker august employment report then i anticipate i think they probably would be more aggressive. jonathan: david, good to catch up with you. david mericle on the latest on

monetary policy from the federal reserve. looking for a 25 basis point cut in september. we do not think the carry trade on the wind was a major reason for the equity market swoon. dirk, if it wasn't there, what was it? dirk: good question. ultimately you were supposed to go with the occam's razor theory. the most simple explanation is everyone was in the soft landing camp until friday. people were questioning the relief, thinking maybe it is a hard landing after all. you do two things. you sell equities or reduce risk to some extent. at the same time because u.s. rates are falling, dollar.-yen goes straight down as the strongest correlation for a long time.

you get these effects as consensus traits, the carry trade and equity trade being undermined by u.s. data. that has caused both of these things. that is the most simple exultation at most likely excavation. the yen has something to do with the selloff in japanese stocks. that is quite clear. the main reason for japanese stocks outperformance is a higher dollar-yen. you are also questioning japanese outperformance. on the s&p is an old-fashioned case of worries about the hard landing going up. jonathan: i have to ask whether the tail starts wagging the dog and enough people believe dollar-yen is that important in america. is that the current regime? dirk: there were lots of

questions about the carry trade from equity investors. they think it is unlikely that f x is wagging the global equity markets. equity guys are open to the idea. it is certainly the case the focus on dollar-yen has increased a lot. in the end what is going to happen is that we will not be able to figure out whether it is a soft or hard landing for a while. citi's in the more bearish camp. we are looking for a hard landing. the soft landing proponents say the way to get to the soft landing is early in markets affect cuts. that means u.s. rates will not make it back to where they were before friday. even with the soft landing. the dollar-yen will not make it back to where it was before.

yes, we have a different handle now for dollar-yen and the yen could stabilize. i think markets will move on from the focus on dollar-yen over time. dani: you should have talked to the boj. they could've had this talking to. they thought it was squarely in their hands. i know it is a while away. does that mean we get to september 20 the boj has a decision that we shouldn't be worried if they hike rates? dirk: historically, dollar-yen depends more on u.s. rates because of more volatile. if you think it serve a by the difference between japanese and u.s. rates, -- if you get the hikes they take precedent for a few days. the boj matters a lot for

dollar-yen and japanese equities. the hurdle for japan has increased considerably. the issue is that we get more fatcats then we were thinking -- fed cuts then we were thinking -- than we were thinking and dollar rates will be behaved. dollar-yen is a fairly important for inflation in japan. it's one of the major contributors. if that is not a worry anymore, fundamentally the boj will not be under pressure to move. they also moved partly because of political pressure where it became an issue for the government. that is all gone. that is important. the second issue is that there is some blame that will be passed around.

if the equity market in japan crashes, you hike rates and you think twice before you do it again. we had these comments -- we had the -- we had these comments along those lines. the fed was in easing cycle. i think there's a debate whether it's a hard than he or soft landing. by u.s. hard landing, the boj would probably not get another hike in. with a soft landing it is more debatable but they would be more careful going for. annmarie: citi thinks there is one trade that can be squeezed by the unwind and global carry, and that is the yuan. where are we with that unwinding? dirk: very good question. if you look at our flow data to try to understand how much of the carry trade has been unwound, the key question --

what you find is the higher yielders, mexico and brazil and so forth, they have been cleaned out tremendously. that happened in june after the mexican election. that is not a concern anymore at this stage. on the funding side, mostly asian currencies, the cleanup has been much less -- people added to the trade even after the mexican election. interestingly i don't think fx investors were positioned for a higher dollar-yen. that was. back significantly after the interventions -- paired back significantly. it's been the most popular trade in fx on the long dollar side. the reason is the combination of

kerry and trump trades. -- carry and trump trades. also having come down as well. there we see meaningful positions. we still think that going into the election, once the trade comes back, which is sort of dis-of tiered -- disappeared for a while given what was going on. people will again be happy having long dollar positions. positioning cremains and overhang and we might clean that up first. jonathan: let's do this again soon. is it the dog or the tail? dani: is not even an animal. it is just a messy bolo things rolling around impacting itself.

an unidentified object. the moves did not because market moves but the moves are impacting the boj. if that is where we are -- basically because the market moved the boj cannot act. the boj has a small window. they can't move when the fed is easing. from what i'm hearing the window never existed. as long as we think there is a chance of a recession, sorry boj. you can't hike because this is what happens. jonathan: can the federal reserve cut? we just exacerbate the pain and dollar-yen? dani: and equities selloff and is more restrictive. it is a mess. annmarie: it's an amoeba. jonathan: an unidentified mess. let's get an update on stories elsewhere. yahaira: the u.s., qatar and egypt are calling for a new round of cease-fire talks. the latest effort from the biden administration to end the war in

gaza. israel said it will send a delegation to talk next week while hamas did not respond. officials now say a deal is closer than ever, even as the region braces for an expected iranian attack on israel. the federal reserve could soon begin easing interest rates if inflation continues on its downward path. according to boston fed president susan collins. she added the labor market remains strong even though the latest jobs report came in softer than inspected. she inspected interest rates to be lower in the next two years but she stopped short of providing a precise outlook for the timing and pace of easing. michael hartnett of bankamerica says volatility and global financial markets has yet to reach the levels that would signal worries about the hard landing. he wrote in a note that while investor feedback is frazzled, expectations of fed rate cuts mean a preference for stocks over bonds and has not been

ended by the market route. he's taken a neutral tone on stocks this year after remaining bears the rally in 2023. that is your bloomberg green. jonathan: thank you for this morning and have a great weekend. setting you up for today and a sneak peek of next week. from new york, you are watching bloomberg tv. ♪

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jonathan: the opening bell is 36 minutes away. equity futures slightly negative. down by about .3% on the s&p 500. the rally continues in the bond market. yields are lower by five basis points. 393.41. on the 10-year, we talked a lot about dollar-yen. is it important? dollar-yen, 146.70.

just a little bit of yen strength going into the weekend. the trading diary for today and a look ahead to the calendar for next week. vice president harris on the campaign trail in arizona. donald trump heading to montana before an interview with elon musk on monday. tuesday, atlanta fed president raphael bostic. wednesday, the latest cpi print. thursday, retail sales and another round of jobless claims. more fed speak through the week from a select host of federal reserve officials before jackson hole the following week. next week is all about the data. dani: kind of scary. the best thing this week was get jobs on friday. last week it shut everything down. go away, go to the beach. we ended up back where we are. how volatile will be be next week? it's a pendulum swing from data pointed data point and we live exactly back where we are. i don't know and things are uncertain. annmarie: with inflation coming

down as the potential trend this was supposed to be a moment for politically the white house to triumph. we are finally in a place where things are normalizing. this is one of the top issues. how difficult is that when everyday you have people coming on the program talking about growth scarce and the r word, potential recession? jonathan: things have settled down. lisa's back next week. i will be away from the desk for a week. i will catch up with you soon. up on monday, neither richmond of adp, terry haines, tony despirito, and james foley. all of that is still to come. this was "bloomberg surveillance ." ♪ ♪ where ya headed?

susan: where am i headed? am i just gonna take what the markets gives me? no. i can do some research. ya know, that's backed by j.p. morgan's leading strategists like us. when you want to invest with more confidence... the answer is j.p. morgan wealth management ♪♪ ♪♪ ♪♪ relax into a caribbean state of mind. visit sandals.com or call 1-800-sandals.

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matt: futures edging lower. i am matt miller. >> "bloomberg open interest" starts right now. manus: a turbulent week in market draws to a close with debates on what is next for stocks, bonds and central banks. the week ahead brings economic data as investors search for signs of resilience in the largest economy. and riding the ai wave. chipmaking giants, dmc sales, growth stages a comeback. what it means f