>> the u.s. election has not had the sticking power because there is no conviction. >> on the other side of the election we will continue to grow. >> tariffs create a lot more uncertainty around growth. >> this tech battle will continue no matter who wins the battle with china. announcer: this is "bloomberg surveillance" with jonathan ferro, annmarie hordern and lisa abramowicz. jonathan: good morning for our audience worldwide. "bloomberg surveillance" starts right now. equity markets on the back foot

and bond yields near the lows of the year. equity futures negative one quarter of 1% -- 0.25%. fireworks in philadelphia. >> she has no policy. >>'s plan is to do what he has done before which is to provide a tax cut for billionaires and big corporations. >> what they have given to china is unbelievable. >>'s next big court appearance is in november at his own criminal sentencing. >> in springfield they are eating the dogs, the people who came in, they are eating the cats, they are eating the pets of the people that live there. >> the president of the united states inside of a violent mob -- incited a violent mob to attack our nation's capital. >> i practically took a bullet to the head because of the things they say about me. they are the threat to democracy. >> donald trump was fired by 81 million people. clearly he is having a very

difficult time processing that. jonathan: what can investors do with all of that? equity futures down 0.75%. a bit of underperformance from the small caps on the russell right now. we are down by 0.5%. on the margin, is that the market casting its vote? lisa: it seems like on the margin there was an unwind of the trump trade. it means bitcoins. it means small caps lower. it means questions around taxes and regulation and how much that can hamper the bottom line for a number of companies. on the margin, yes. on the whole, did it move the needle? even the wall street journal said kamala harris won the debate. whether or not that has a lasting effect with undecided voters, unclear. jonathan: there were two objectives coming into the debate for many people on the religion side. one, when you hear all these permits is about what she is going to do, ask her why she has not done any of it, while she is

sitting in the current administration. failed in the first we waited to the end of the debate to address the second. lisa: i was stunned that he waited until the last year to stick you have been in power for the last year, why haven't you done it? vice president kamala harris painted donald trump as the incumbent, not herself. when he was given this moment to really go after the current administration, how they have really wavered on immigration and their changing policy stances, he was given the layup and he said first i want to correct or on the size of my rallies -- i want to correct her on the size of my rallies. jonathan: taking the bait. the stories moving on to the market. we focus on cpi. the last big data point going into the federal reserve meeting. perhaps a difference between

down 25 or 50 next week. lisa: we should stay on the some people. i was trying to get excited about cpi and say this to be the game changer when the federal reserve decides between 25 basis cuts or 50. most expect this to be a negative report. only 20% risk off. the bias of risks is that this will allow the fed to write off inflation as one of the pots of their dual mandate. jonathan: let's talk about the bond market. we have a two year yield at the lowest of the year. the 10 year yield is down every day in september. seven consecutive trading days we have not had a single session in this month where the 10 year has traded higher. the demand has been absolutely massive on both sides of the atlantic. lisa: there was an option yesterday of three year treasuries and it was bid up. you saw it traded through the initial selling price in terms

of yields where they were lower. what we can see right now is people are looking at inflation and saying we expect over the next 10 years for it to be the lowest since the beginning of 2021. that is what you are seeing from the 10 year breakeven rates. the market is saying wait a second, all those people saying this is a new neutral rate, not so fast. jonathan: yields down two basis points. the 10 year yield, 3.62. the bigger picture a little softer. we are down on the s&p 500. the dollar is weaker. euro-dollar one point 1040 -- 1 .1040. crude, after getting hammered, we are in the 60's, 67.48. lisa: here's my question. is the decline in oil prices a feature of the soft landing for a bug in the soft landing? does it end weakness elsewhere

or is it a diss inflationary pressure that will allow the fed to continue to cut rates without seeing that recession? i don't understand why we are seeing oil prices rollover when you have the potential disruption, when you have ongoing recovery, something does not work in this equation. jonathan: here is your line-up this hour.. cameron dawson seeing more downside risk to growth. heidi crebo-rediker of international capital strategies following last night's debate and michael darda at 8:30 eastern. let's go to pennsylvania well david gura -- where david gura is standing by. good morning. david: good morning. when i think back to the last conversation we had, we were talking about donald trump's surprising discipline and that is the biggest contrast i can remark on from what we have seen then and now.

this debate started with the question about the economy, a question to kamala harris. are the americans better off than four years ago. she did not answer expressively. that was a moment for donald trump to respond and to lay into what he had been talking about. inflation, the state of the economy, issues that could be tied to her. he did not go there. he talked about immigration. i thought maybe he was on message. we knew he wanted to talk about immigration but it was something he went to over and over again over the course of the night and talking about conspiracy theories, bringing up an answer to any number of questions, any number of topics. there were missed opportunity after missed opportunity by the former president. by no means do i think this was a great night for him. he did not get to the economy. he did not tie kamala harris to joe biden until the end of the debate and did not establish for people what he set out to do going into this, that is the level of continuity, that a vote for kamala harris would be a

vote for to the term of joe biden in office over the policies are not that fundamentally different. he espoused so much here that would make people more concerned about his focus on the job. it is something he will have a hard time repairing in the coming days. these candidates will try to carry this momentum going forward. kamala harris is going to north carolina, a crucial swing state, coming back to pennsylvania. donald trump is going to arizona and to los angeles. he will have a press conference in california, something he has hit the vice president on over and over again as she is not taking questions from the press, she is not sitting down for interviews. i struggle to think that will be something that will resonate with voters going forward after the performance last night. jonathan: david, great work. david gura of bloomberg. david calling it a missed opportunity. a question about whether he will get another opportunity. futures down one quarter -- 0.15%. cameron dawson with this to say,

"we expect volatility to continue as normal seasonal headwinds in an election year are amplified by house arrest positioning." good morning. cameron: we have to be careful about ascribing too much narrative and short-term price action to what is going on politics. markets are volatile during this lead up into election always. regardless of harris or trump winning. as we move through this tougher stretch, we have to appreciate the fact that valuation positioning, sentiment, expectations for growth are all extraordinarily stretched in july and august so it sets us up for volatility. lisa: there was a narrative of the trump trade earlier in the summer and it was part of why we saw such a boom in certain sectors of the market that people perceived as having a greater advantage.

is there such a thing as a harris trade? is there analysis to be done to have a scenario in place after the election? this is where -- cameron: this is where we rely on people extra teaches -- str ategas. oughts have gone up and you can expect that continue -- the odds have gone up and you can expect that to continue going forward. lisa: a lot of discussion about oil. what do you make of what we are seeing right now? is this economy falling off of a cliff or are oil prices allowing this economy to soft land more easily? cameron: it is concerning and it raises questions about exporting to china and demand in china being weak. if oil prices continue to fall, it raises questions about u.s.

demand overall as well. we don't really want to see oil prices fall but no, we don't want to see them rise. if you see oil prices rise, it is one of those inflation variables that could cause or exacerbate the inflation story that gives the fed less will room. oil being flat is the best scenario. if it falls off a cliff, that raises bigger questions. dani: what worries you, will follow more or potentially going higher? cameron: the downside risks for growth are higher than the upside risk for inflation, meaning that you are not seeing a lot of pricing power come out of companies. if you look at wage growth, there are no signs that wage growth is picking up. the quits rate is a good leader of wage growth which means that this economy i be able to digest higher oil prices than the economy we had a couple of years ago which means that if growth weaken, there are a lot of expectations that are too high, a lot of valuations that are too high.

jonathan: sun ceos agree with you. we are one month away from the big financials on wall street and it is conference season right now. goldman's david solomon, -- what are the banks telling us at a time where we have investors telling us to buy the financials? cameron: i would be most concerned of jp morgan or goldman sachs started talking about pain in credit issues within corporate borrowers. we have seen pain within lower income borrowers, some that have bigger auto loans. we have seen that for quite some time. delinquencies have gone through the roof and that is notable given the fact that we are still in a relatively strong labor market. we are still seeing income growth. we are still seeing job additions. to see that kind of blinken c rate, to see what they are saying -- that kind of delinquency rate, to see the low income consumer struggling in this environment, and across the

board like people from walmart, this economy has too extraordinarily different cohorts. the low income consumer makes up a lower portion of spending which means they have not drug down the entire u.s. economy. jonathan: jp morgan down yesterday by 5%, at one point number more than 7%. cameron: there is still an uptrend that should be respected. we have to be cautious knowing that if you have pockets of credit weakness, that could be an issue. but we continue to see people like j.p. morgan being the crown jewel of the banking system to be the best in class which suggests it can be a weakness. lisa: given all of this, we just had the election and the bumpy road in october, is there a place you can hide no matter what happens in washington? cameron: we would be cautious about tracing defensive too much. utility staples, healthcare. you can choose names in that area but be very valuation disciplines. what you tend to see following the first cut is that utilities,

staples, healthcare does outperform but flows have gotten extreme so one preferred way is to say that we like all sectors but the highest-quality portion of those sectors. dividend-paying names with great coverage, strong cash flow generation and could balance sheets that can weather the storm no matter what happens in washington and in some ways agnostic to what happens in the economy. jonathan: good to see you. thank you. cameron dawson of newedge wealth . lisa: i'm glad you mentioned ali financial. the borrower is struggling with high inflation, the cost of living and more recently, a weakening employment picture. this is what is really pressing for the fed as well as investors trying to get their head around what that means. jonathan: it is not a pretty picture. equity futures on the s&p pulling back by 0.15%. with your bloomberg brief, here is dani burger. dani: secretary of state anthony

lincoln has signaled the u.s. will consider ukraine's use of western long-range weapons against russia. he confirmed moscow has received shipments of ballistic missiles from iran, the deepening involvement by toronto in the war. the u.s. opposes ukraine using long-range missiles. officials have cited concerns about escalation. warren buffett continues to sell shares of bank of america. a filing shows berkshire hathaway reached $229 million over three days through yesterday. the average fetched on tuesday was among the lowest reported since he began shrinking the stake. still just over 11% of total shares. taylor swift has thrown her support behind kamala harris. the superstar announced her endorsement last on instagram just minutes after the debate wrapped up. swift called harris a steady hand leader and says she believe the country can accomplish more if led by kamala and not chaos.

she signs the endorsement, taylor swift, childless cap lady. jonathan: equity futures pulling back just a touch. coming up next on the program, competing visions for the u.s. economy. >> i will cut taxes substantially and create a great economy like i did before. >> donald trump's plan would make the economy worse. mine would strengthen the economy. jonathan: we will have that debate next on the program. live from new york city, good morning.

jonathan: equities software this morning. we are down 0.25%. underperformance on the small caps and the bond market. bonds and yields lowered by two

basis points. competing visions for the u.s. economy this morning. >> everybody knows what i will do. cut taxes substantially and create a great economy like i did before. who will have higher prices is china and all the countries who have been ripping us off for years. >> the best economists in our country have reviewed our relative plans for the future of america. what goldman sachs has said is that donald trump's plan would make the economy worse. mine would strengthen the economy. jonathan: the latest this morning. a 60% tariff on china. harris is outlining what she calls an opportunity economy, boosting government spending and pledging to raise the corporate tax rate to 28%. joining us now, heidi crebo-rediker currently at international capital strategies . welcome back to the program. going into the debate you mentioned that this could be a major point in the campaign. walk us through how major this

might turn out to be. heidi: i think without overstating it, this debate was probably the most important moment of this campaign so far. just before i came on you cited the taylor swift endorsement which i have to say i thought was fantastic and could move the margins on people actually showing up to vote. kamala harris had some real downside coming into this debate. she nailed it. she managed to get former president trump to take the bait every single time. he was fired by 81 million people. the world leaders are laughing at him, talking about how the u.s. military called him a disgrace. i am happy to get into some issues about the economy but a lot of this was about the presentation and the theatrics and how people got the feel of

kamala harris versus former president trump. lisa: if you think she did so well, why is the campaign saying they should have a second debate? heidi: i am not sure. i would say leave it where it is right now. i think maybe they want to make sure she showed she has game and she is ready to go at it again. there is a potential for overconfidence here. this was a win for her. she had him talking about people eating pets and killing babies. she might want to leave it there. lisa: let's talk about some of the issues you mentioned. you have done a lot when it comes to economic state war craft. terrorism was on display yesterday. how does kamala harris go after trump saying that they are taxed when this demonstration kept trump's tariffs from his prior

administration on and they are continuing right now? heidi: i think the conversation during the debate got modeled on is it a tax -- got muddled on is it a tax or a tarrif. tarrifs as a tool are here to stay. it is whether they are used strategically or across the board. people should be concerned about the 10% to 20% across-the-board tariff on all countries which has huge implications for usmca, various treaties we have in place as well as foreign policy if we are going to start slapping tariffs on your friends and allies in this kind of environment when you need friends and allies. that is a very bad place to be. when it comes to china, the use of tariffs, particularly where

it comes to steel and aluminum, when it comes to the overcapacity on ev's, those are areas where i think the biden campaign is on solid ground in implementing and keeping those tariffs on. i think it is a matter of strategic versus not. i don't think people generally, the voters out there listening to this last night, understood that these tariffs would actually mean that they would be paying a lot more when they go to get their retail goods. i think that was not as well communicated as it could have been. lisa: donald trump did note that the biden administration has left those tariffs on. they have not removed them on their time in office. there was really no response to that. i wonder how much that will be a salient point going forward. heidi: i don't think that was the big message coming out of

this debate. the debate was not meant for the vast majority of the population. certainly not necessarily the business community. it was for a small group of voters that we all talk about and are targeting. this issue will not be front and center. the implications for inflation moving forward and whether goods will potentially increase in price as a result of new tariffs should be an issue. again, i don't think it was well explained. i don't think it will be a major issue for the rest of the campaign. lisa: one thing that i wonder about is how the business community is listening to this and what the takeaway is at a time when it is policy-like and

all of it is about character. given all of your experience in in investment banking, what do you think people are listening to and what did they hear about their prospects for business going forward? heidi: i think the targeting of small business and the opportunity economy is quite positive. you are going to have a lot of the business community looking at the fact that 2025 is a big year for tax and whether or not we see the trump tax cuts actually rolloff or get renegotiated, it is one way or the other, a big year for tax. for people paying attention to whether corporate and billionaires are paying taxes, their fair share, or whether or not that will fall down to having working ordinary

middle-class people pay more tax, that will be a key differentiator. again, this is going to come down far more into tabletop issues, kitchen top issues, groceries, gas. jonathan: we will come back to those issues in a moment. we appreciate your time. heidi crebo-rediker of international capital strategies . the vice president cited research from goldman sachs. i will share some of that in just a moment. stay tuned. up next, rbc's gerard cassidy.

ow! uh oh. you, ok? no... i mean yeah. -just hit my melon. -yikes! should we see a doctor? i can't tell a doctor i slipped on a toy. i'm a triathlete! i had a concussion. most happen doing ordinary things. sometimes the tough thing to do is to get help to prevent serious damage. i like your sensitive side. don't mess with your melon. if you hit it, get it checked.

jonathan: stock market softer. we are down 0.75%. underperformance on the russell. the small caps down by 0.55. i promised you an update from goldman. this is what the vice president said. goldman sachs said that donald trump's plan would make the economy worse. mine would strengthen the economy. goldman on trump. "we estimate that if trump wins, the hit to growth from tariffs and tighter immigration policy but outweigh the policy." new spending and extended middle income tax credits with slightly

offset lower investment due to higher corporate tax rates. that is the outlook for the economy. the outlook for earnings, goldman, rbc, across-the-board, the outlook for earnings on the s&p 500 under harris, not great. lisa: which is why we have to do scenario analysis. what does it look like depending on who wins given how big the trump trade was earlier this year. this great chart highlighting the probability, if you get a full democratic sweep, a republican sweep. you get a lot of what you hear about. tax cuts on the trump side and additional taxes and spending on the harris side. then you look at the likelihood which is the same across the board because it will be split. this is what a lot of people are banking on. jonathan: it is difficult to process but it plays into the idea of a bit of risk aversion going into the event itself. let's go to the bond market. two year yields, down one basis point.

the 10 year at 3.62. 70 consecutive data yields falling on the 10 year. you can make that six out of seven. the trend is absolutely clear. this is not just isolated to the united states. we have seen some big bids for a lot of supply on both sides of the atlantic. we had an issue out of italy just the last 24 hours. last week, an issue out of u.k.. we saw last week in the united states, corporate debt in america, two very busy days. we saw a lot of demand for that too. what is going on in fixed income? lisa: people are giving up the idea that the new neutral rate is higher. people are looking for rates to be lower. people are looking to the ecb to cut more than the federal reserve. people are looking at the likelihood that there is not a great alternative at a time where you have this risk aversion to stoxx.

-- stocks. $39 billion or 10 year notes being off shed. we start to really challenge the idea of where the deficit matters in terms of these other aspects. jonathan: it is getting interesting in the commodity market as well. brent falling into the 60's yesterday for the first time since 2021. brent crude back in the 70's. wti 67.54. things have become bearish quickly. we have at price cuts from morgan stanley and goldman. citibank set prices good average 60 in 2025 and that the market looks oversupplied unless opec-plus pulls back. $70 is the estimated breakeven price. that is what people thought before it might be for the selloff in crude. we have gone above or rather below and beyond that situation. lisa: it is something we have to keep asking.

are the declines in oil prices the future and a soft landing? this will allow prices to continue to just inflate in a way that is fed friendly or does this indicate that there is true ritika is -- true weakness in this longer trajectory. that is the anxiety underpinning this move that is also going along with iran -- iron ore and copper. not just in china but other analysts as well. jonathan: a lot of analysts pointing out the difference between the fiscal -- physical market. bank of japan board members signaling a rate hike is still in play. the comments heading -- that of the next boj meeting or the central bank will hold rates steady but most believe that another hike is in play. lisa: i wonder how much they have an eye on the yen. they will not let this go especially if conversions

continue. if they get a reversion down to their gdp growth expectation, they are trying to signal even if the data does not cooperate, we are a new regime. come back. not tourists, but people who want to invest in japan. i think people have tourist fatigue. have you seen greece and the pictures out of santorini? jonathan: france has been done for a while. basically done. i am joking. kind of. not really. dollar-yen, 1.41 at the moment. elsewhere, nippon steel sent its vice president of washington to boast for the takeover of u.s. steel. here we are in philadelphia,

pennsylvania. we have this situation playing out and it is not a big feature of the debate last night. why? annmarie: i was shocked that they were not asked head-on about this given the fact that this is pennsylvania and this is what everyone says the election will come down to. you can see what nippon steel is trying to do. they are trying to shore this up. if you see the correspondence and the emails between the union and nippon steel that the washington post has gotten a handout, this work should have been done months ago, if not, years ago. when does the review hit the president's desk? will it be before or after the election? lisa: the fact that it was not part of the debate, doesn't that highlight that this is not the red beet the people think it is? can you imagine if abortion and immigration and things like that, there would be, nippon steel needs to do more to deal with the unions.

less of the messaging that these other guttural issues have which speaks to whether that will be allowed after the election. annmarie: it is tangible right now. this is a deal on the table right now and they are both going after rank and file union voters. i am surprised no one brought it up. jonathan: i think the absence of this conversation says more about the moderators. lisa: this is an accusation of the wall street journal where basically they said kamala harris won and she was helped by the moderators. that was the main argument. other people saying they were fact-checking. there will be a question about what the role of a moderator is at a time when people -- and what is the purpose of the debates. jonathan: those questions will continue to be asked. let's go to the banks. a major feature of the selloff yesterday. jp morgan leading stocks lower after the president warned that earnings expectations are too optimistic. the comment sending shares

following the most in four years. this after u.s. bank a big break from regulators on new rules. gerard cassidy joins us now. i know you believe there is a major difference between adjusting and interest income and adjusting your outlook based on deteriorating credit conditions. did we get one and not the other from jp morgan yesterday? gerard: we did. it is important to point out that jpmorgan chase has been telling investors for over 18 months now that they are over earning on that interest income because the balance sheet with asset-sensitive meaning that as interest rates with higher, they earned more that interest income which is major for jp morgan. they have been advising investors that if the fed starts to cut rates, they will be negatively impacted and that is what they pointed out yesterday. they also say credit is holding

very well. jonathan: let's explore one issue. the outlook for issue -- interest rates. why did it take dan pinto telling people that low rates will not be good for earnings for people to understand that low rates will not be good for bank earnings? gerard: they will not be good for his earnings because jp morgan is asset sensitive. not many banks are in the position that jp morgan is. you might member when they were raising rates in 2022 and 2020 three, bank of america was lagging because they had a very large portfolio of fixed rate bonds and that was holding them back. arguably if rates will be coming down, bank of america now is going to benefit or the bond portfolio will be less of a dragon revenue versus jp morgan -- less of a drag on revenue versus jp morgan. lisa: i wonder when rates were

going up and big banks did not have to pass along that data. now you have the reverse where people will say they will put money in money market funds to get some income. at the same time banks are earning less on longer-term loans. how much is that what we will see for the foreseeable future? gerard: it is going to be interesting because initially what we are likely to see is when the fed starts cutting rates, any loan or asset tied to the fed funds rate, that would come down and the deposit costs lag but the costs will be coming down if the fed will be cutting rates 100 to 150 basis points by the end of 2025. what should happen is that the asset yields and the cash flows coming from the bonds that were put on the books in 2020 and 2021 in fixed rate loans, they

will roll over higher-yielding assets. you will actually see the margins improved for almost all the banks next year due to this dynamic of lower funding costs and the asset yields will benefit from rates and the cash is coming off a few lower yield assets. lisa: i would argue it is not even goldman sachs. it is ally financial who came out with a worrisome propmaster -- worrisome outlook in terms of how they were falling in terms of their ability to repay loans. how much is that this ally specific and how much of that is something you are starting to hear on the margins with other institutions? gerard: it is a really good question because you get to the heart of the matter for banking. credit is critical. when you have credit deterioration, that leads to lower stock prices like you saw yesterday with ally.

they were an outlier. let's go back to jp morgan. they reiterated that their credit card delinquencies are not changing and many other banks that have credit card portfolios have indicated that the credit losses are cresting and the delinquencies are starting to come down because the challenges have been with the lower fico score borrowers. ally i think is an outlier. investors need to watch carefully. so far, other banks havevn us ae consumer is really going to be weaker. yesterday's news for ally was a negative surprise absolutely. jonathan: you gave us some close about where you think the road is going and what the future looks like. we will talk about where we have been over the last 12 months. slight outperformance from jp morgan. the stock price up by 40%. bank of america still higher by 30%, something like that.

are you suggesting we could see real outperformance from banks like bank of america versus jp morgan? gerard: i think you are right. jp morgan has been a bellwether. it has been a fantastic stop to own as he just pointed out. even though we had the selloff yesterday. if the fed really does move as aggressively as the futures market is calling for between now and the end of 25, jp morgan could be the laggard because of the way their balance sheet is positioned and these other banks could do quite well like bank of america or the regional banks like pnc or f/3rd. what you will see is that the banks who can lower their deposit costs quickly will benefit on the margin. at the same time, credit remains resilient. that will be the key factor of credit that you are talking about. jonathan: it will be a massive factor.

a big family dough earnings. gerard cassidy of rbc with where he thinks things will go over the next 12 months. warren buffett has been selling quite a lot of bankamerica stock over the last 12 months. lisa: he's not talked about life. some people say he wants to get ahead of capital gains taxes. he has been very quiet about it. i believe you no longer owns more than 10% and does not have to report his real-time sales of the shares. some really interesting machinations. jonathan: some interesting calls from gerard as well. let's get an update on stories elsewhere with dani burger. dani: israel has proposed giving hamas's leader safe passage from gaza in exchange for the group freeing hostages and dividing control of the strip. doubts about the two sides ability to reach a cease-fire have been building. israel said its military probably killed an american

turkish citizen by accident, prompting the u.s. to call on its ally to make fundamental changes to how it operates in the west bank. apollo is working on his first etf. it is teaming up with state street on an offering that will include private credit investments. the etf still leaves -- needs regulatory approval. blackrock and invesco are looking to make private assets more accessible to individual investors. shares of gamestop tumbling 9.3% in premarket trade. the retailer reporting a fourth of falls it report them to unexpected profit. gamestop shares continue to be buffeted by gamestop traders. in june the company amazed -- raise more than two dollars after a stock influencer returned to youtube inspiring a stock rally. the company has a market cap of $10 billion. jonathan: thank you. stock influencer's. we used to call them outspoken

hedge fund managers when they were always around. lisa: they were. they really wear a tie around their head. jonathan: up next on the program, the final piece of the fed's puzzle. >> i think they have the room to do some frontloaded action. we have seen the real fed funds rate creeping up. let's get that back up again. jonathan: the cpi report just around the corner. that conversation coming up next. good morning.

jonathan: stocks down zero .25% on the s&p. yields continue to fall across the curve. 3.6254. the final piece of the fed's

puzzle this morning. >> i am in a base case that the economy is ok. i think they have the room to do some frontloaded action. we have seen the real fed funds rate creeping up. let's get that back down again. but then they will have time to recalibrate in the new year especially with new policy coming on board with the presidential election. jonathan: u.s. treasuries rallying ahead of the august cpi report dropping in less than two hours. the final big data point before the feds big decision. michael darda saying that the labor market is losing momentum but the payroll growth is still positive. there is likely no sense of urgency on the fomc to frontload rate cuts on september 18. michael joins us now for more. welcome back. the first line just read, analysts are basically too optimistic. the one i picked out was no orders in the ism. can you walk us through our new orders from the ism is so

important and how it shows us where things might be with corporate earnings projections? michael: absolutely. the new orders index coming from the ism has actually been a pretty phenomenal leading indicator for everything from foreign earnings estimates for the s&p 500 to capital spending trends. it is a cyclical proxy for demand. yesterday we got data out of small businesses, the nfib index which showed the earnings index plunging in a starlink way. this is taking shape against the backdrop of analysts expecting s&p 500 earnings to grow more than 14% over the last 12 months. that just seems awfully high. in a scenario where there is an unexpected recession, analyst estimates tend to be 30% too high and that seems to be your average bear market. even in them a scenario where

there is no downturn out there i'm of the economy is decelerating -- where there is no downturn, the economy is decelerating. we have an inflation report. if inflation is moderating, where is the pricing power to deliver these high earnings expectations? where is the topline growth coming from? the response is it is simply fantasyland of sustained high productivity growth. that is the bull case and we will see whether it comes to fruition. jonathan: let's explore fantasyland little more. there is a phrase we have heard a million times on the program, it's different this time. the yield curve typically associated with an economic downturn, it's different this time. the move we have seen after lower unemployment, people are saying it's different this time. they are taking comfort from the supply-side story. how misplaced do you think those conversations are given what you have already told us this morning? michael: you hit all the important points, no doubt. it is a risky story.

the storyline is simply that jobless claims are still low and drop growth is still positive so don't worry about these other forces and factors, in particular, the move up in the unemployment rate from cyclical lows. that is something that is unprecedented outside of the economy moving into contractions. it is always possible that it is different this time. but if the view is soft landing story intact, that backdrop as to make somebody increasingly nervous or at least should make someone nervous. on the productivity story, a lot of this relates to the upheaval associated with the pandemic. we had eight quarters where productivity was negative between late 2020 and late 2022. at that time nominal demand was booming by double digits. you have really strong demand and contracting supply, what happens to prices? they go straight up. as those distortions have

unwound, we have had a nice pickup in productivity growth so it is not totally fantasyland but it is probably temporary. what is happening here is some people are extrapolating this recent temporary recovery in productivity out way into the future based on a lot of ai hype. if that proves to be disappointing, then risk markets will stay choppy. lisa: i want to take it further into something you mentioned earlier saying that analyst 12 month earnings forecast tend to be 30% too high. you said most bear markets are usually about a 30% drawdown. bring -- putting aside recession, do you see a 30% headline risk in s&p indexes? michael: there is significant downside risk, recession or no suresh in. the s&p 500 is right around when he went times extremely

optimistic for earnings estimates. even if those estimates end up not incredibly inaccurate, that kind of multiple historically would be associated with exceptionally low 10 year forward returns, close to zero, even negative. from these levels, even in a good story from the business cycle, we have to expect much lower future returns and unfortunately what seems to be happening is investors are looking at the last two years of a straight up and to the right s&p 500 and consuming that will go on forever -- assuming that will go on forever. there is some starlink economic -- startling data out there. they quoted a gentleman in his late 60's. this is the stuff market tops.

not ongoing bull markets that are still intact. lisa: isn't there a fed put? isn't the fed going to cut rates dramatically? michael: there is a fed put but the question is is the fed put out of money. yes, the fed will be cutting but if they are cutting and they are behind the curve, you can still have a business cycle downturn, you can have profits that disappoint. jon mentioned the belly of the yield curve just inverting just prior to the last four recessions. a lot of financial market upheaval going into those downturns. here we are again. maybe it will be different this time. the risk is the fed cuts rates but they are behind the curve so they end up having to do more than is anticipated. the consensus view is we have already priced in a lot. a lot would be a word you would use if you think the business cycle stays pretty steady. in an actual downturn, the fed

will be behind the curve and will have to cut more. one statistic, bond market inflation expectations have collapsed by 70 basis points since the spring. that means real policy rate, it would be like the fed doing almost three 25 basis point hikes at a time when payroll growth is slowing and the economy is softening. even a 50 basis point cut which is very uncertain, i don't think they will go forward. i think they will start with 25. it will only partially reverse the passive tightening in monetary conditions. that is the real risk set up here. jonathan: michael darda, we appreciate it. we will catch up with mike wilson of morgan stanley, libby cantrill. you are watching bloomberg tv.

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>> we are seeing an elevated rage growth but not wage growth that will trigger another bout of inflation. >> there are reasons that inflation could be stickier and the fed is focused on that. >> the next few months, the pace of inflation will get more difficult. >> it has underappreciated the level to which will all have to live with higher inflation. >> i don't think the inflation buggy man is totally gone. i think it is under the bed for

a while. announcer: this is "bloomberg surveillance" with jonathan ferro, annmarie hordern and lisa abramowicz. jonathan: if inflation is the boogie man, no one is talking about it this morning. good morning to you. pulling back by 0.25% on the s s&p 500. the russell is recovering slowly. if we look at the bond market, that is where the headlines have been. yields lower by one basis point. the two-year down one basis point as well. 10 over the seven consecutive sessions. lisa: this is partly due to what the fed will do but also due to the fact that no one is talking about the boogie man. you are seeing inflation expectations fall off a cliff. if we get confirmation of this at 8:30 in 90 minutes time, is there is a sense -- is there a

sense that there is a weakness driving this or is this being driven by something that is still a wonderful nirvana that can support everything. jonathan: the commentary from the financial state, the move in crude, possibly speaks to weakness. there is a difference between what is happening with the olio market and the paper market. -- the oil market and the paper market. annmarie: that is the fear that is percolating out right now, this idea that maybe we are seeing something different. it is not just in oil. it is also iron or, copper. you are seeing this pretty broadly. there is a bigger fear. an increasingly tenuous labor market picture to highlight why they are seeing consumers not paying their bills on time as much. jonathan: we are coming off of

the back of a big debate in pennsylvania between harris and trump. people are describing it as a list opportunity for the former president and an outstanding question, will it be the only opportunity that he gets to have a debate the cycle. annmarie: we are still waiting to know whether or not he will agree to a second debate. kamala harris said they are happy to have another one so potentially in october we will see one. you nailed it. it was a missed opportunity for the former president because kamala harris made him the incumbent. his best line to use against a sitting vice president to try to tether her to joe biden which many people want to move away from, it became his last sentence of the entire debate. in 3.5 years everything you are talking about, why didn't you do it? lisa: now the question is how much will this debate matter and at what point is there a trade on the heels of this at a time where we are staring into the sun, staring into the abyss, trying to figure out something in a crystal ball that nobody has.

pick your poison. jonathan: good luck basically. cross asset talked about stocks and bonds. let's go to crude a little more. 67.19. it is a rebound but it is lower in the past week by two percentage points. on the fs marks -- on the fx market, the dollar a touch weaker. we will catch up with robert casey of signum global advisors and we will speak to tom michaud. we begin with our top story. we are waiting to hear at 8:30 eastern for how much the fed will cut rates. mike wilson of morgan stanley writing until the bond market starts to believe the fed is no longer behind the curve, growth data reverses course and improves materially or

additional policy stimulus is introduced, it will be difficult for equity markets to trade with the more risk on tone. good morning to you you. i want to pick up on that quote. i want to pick up on a line that focused on. the difference between fed funds and the front end of the yield curve, how important is that? mike: that is the signal we are getting. the bond market is a good indicator of where the fed is relative to what they need to be doing. in 2021 the two-year got ahead on the upside. it is the same picture. people are complaining. they say the stock market is behaving fine but that is not true. internally, defensive stocks are doing extremely well. i think the stock market is taking its cues from of the bond market is saying. it is not saying hard landing yet. it is saying growth is continuing to disappoint. since april, i would say that the data has been negative in

terms of growth data. labor data has been much worse. how has the equity market dealt with that? ? it has pivoted from quality growth to quality defensive. we made that. in making that is a classic cycle behavior. -- we made that pivot in may. how is this going to end? we don't know. jonathan: either the fed cuts aggressively or the labor market starts to improve quickly. if you have a base case, do we get one or the other? mike: the fed could get ahead of the curve but the problem, they are constrained by two things. not inflation. inflation is over as far as i'm concerned. they beat that. what the issue is now is the currency market. if they start cutting aggressively, the yen dollar relationship will create some stress. they have to be careful with

that. we have looked at this. when the fed starts a cutting cycle with 50 basis point as opposed to 25, the chance of a soft landing goes down and they know this. they don't want to signal that. they are in a tough spot. they are in a difficult spot. they have done a good job of trying to navigate this challenging, different environment we have been in for the last several years. now the market suppressing them -- now the markets are pressing them. how are the markets reacting? how do they behave after they done what they are going to do? lisa: the vibes? whether they actually work for the market or not. before we go into quality growth and quality differentials -- quality defensive, you said something about the currency differentials. do you have a sense of how disruptive the ongoing long trade for the dollar will be down the road? mike: i don't have a specific

level but they are trying to defend the low 1.40's level. if we start at 1.30, that could cause some stress in other markets. mike: you talk about shifting from quality growth to quality defensive. i struggled with these monikers quite a bit simply because what does defensive, what does growth mean? where does nvidia fit into this? what is the tax rate go given the fact that it is so inflated in terms of quotations and timing. what does that mean to you? lisa: defense is very classic. defensive sectors whether it is utilities, healthcare, things that are positively correlated to bonds. they did not trade well up until april. it was really the quality growth stocks. what has really happened is the ai dream has taken that luster off. i really gauge that by what semiconductors are doing. semiconductors at large.

a lot of stocks have come off. we have cooked the entire ai theme. does not mean it is over. it is not going to change productivity in the short term. that is a long-term story. with that theme gone, the market is looking for a new theme on the growth side. there is not one so it hungers down into defensive high-quality assets until we get the next thing, whether it is a bad outcome or a positive outcome, they were hideout in these areas. annmarie: you said inflation his over -- is over. will the markets are pricing in 50 four say we are cooling down faster than the fed was expecti ng. mike: when i say inflation is over, i mean the rate of change is over.

where inflation is not over is the price level. the price level is squeezing businesses and consumers. it is like a vice. i don't think it is over. the hot number is pretty bad. i am not expecting that but if we got a hot number today, all the fed will stay behind the curve. they are kind of stuck. if we get a soft number, then we go back to our old thesis which is pricing power is gone. we need to thread the needle here a bit too. rake evens her at 2% now. what are we talking about? it is not like these things stop on a dime. there is a risk of under sharing on the downside that is good for bonds and bad for stocks. that is how the markets are trading. once again, they will do something next week to try to manage the situation and they will signal for more 25's, not 50. the balance sheet is probably

the bigger wildcard. do they talk more aggressively about ending quickly? that is the case. that is where we could be surprised to the upside. is there more liquidity from other sources? lisa: after next week everyone will be focused on the election. goldman sachs and rbc talked about how earnings will be higher under the trump administration. we think that is his tax plan rather than harris who is calling for 88%. how do you view next year earnings growth based on these two proposals? mike: assuming that the economy is in a soft landing and they can -- by the way, i think that risk is still on the table. that is way more important than the outcome of this election in the next six to 12 months. let's assume we are in a soft landing. the markets are safe. we think basically trump is progrowth, bad for bonds and good for stocks. that is how we would look at it. last night when a debate was

going on, the markets with it in favor of harris and the stock market futures traded up a little bit. i think the stock market is pro-trump. the stock market has treated better when his odds go up and vice versa. jonathan: bonds are good under here is and stocks are bad under harris -- bonds are good under harris and stocks are bad under harris? mike: it is really texas. texas is the one thing that requires congressional support. -- taxes is the one thing that requires congressional support. taxes is the issue. trump is talking about cutting. harris is talking about raising them. jonathan: lisa was knocking on the door. utilities are up 20% this year. it feels like everyone is getting whatever they want from utilities. what are utilities? mike: that is a very interesting

question. we agree. we were one of the first ones to talk about utility as an ai beneficiary back in march. . i think this got overdone to be audience -- i think this got overdone to be honest. here is the interesting thing about utilities. giving balance sheets are typically not great. you have to be very careful with utilities. if there will be a hard landing, these things will start trading poorly. if utilities start trading really poorly, that is a bad sign. that would be a sign that we are getting closer to a potentially hard landing risk. that has not happened yet. if you look at things like low volatility parts of the stock market or defensive, they have gone almost parabolic. they start to some of hard without a stock market rally, then i get concerned about hard landing risk. that is not my concern today. jonathan: interesting.

mike wilson of morgan stanley. equities down 0.25%. dani: people familiar st. nick on steel sent a senior executive to washington to boost its case for the $14 billion takeover of u.s. steel. president joe biden lock the merger. kamala harris and donald trump have also criticized the deal. hurricane francine gained strength and caused some offshore oil platforms to be shuttered. it will make landfall in louisiana but it will likely miss the major export plants. the u.s. weather production centers as storm surges in some areas can reach 10 feet. after making landfall the system is forecast to move across the mississippi on thursday. lvmh is in talks to become a major formula one sponsor. people familiar said rand -- some brands may see their locals permanently displayed.

it could be worth reported $150 million annually. it is a blow to rolex which has been the official timekeeper of f1. jonathan: thank you. i'm not sure if anyone is listening. lisa: you want them to either sponsor it or you want them to own it? jonathan: i want them to own it. i will see what they think about that. lisa: and the beautiful uniforms. jonathan: everyone wins. up next on the program, trading blows on the debate stage. >> the american people want a president who understands the importance of bringing us together. >> she's going to do this, she will do that, she will do all of these wonderful things. why hasn't she done it? jonathan: why did he wait so long to say it? that conversation. up next from new york city, good morning.

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jonathan: one thing not getting much coverage this morning, the cpi report that drops in one hour. if you go back six months, may 4 months it would be the only thing we are talking about and it is not. it feels like the central bank has moved on and maybe for good reason. equity futures right now on the s&p 500 a little bit softer. over by 0.25%. on the 10 year, 3.6254. trading blows on the debate stage. > the american people want a president who understands the importance of bringing us together. >> everybody knows she is a marxist. >> donald trump should not be telling a woman to do with her body. >> i am not in favor of an abortion ban but it does not

matter because this issue has been taken over by the states. >> people start leaving his rallies early out of exhaustion and boredom. >> she will do this, she will do that, she will do these wonderful things. why hasn't she done it? jonathan: kamala harris challenging former president trump to a second debate. we have eight weeks remaining until election day. trump saying on fox news earlier he is less inclined to debate again. robert casey writing this, harris had a very good night, she did not land any knockout punches. this will be a close race. harris carried herself with great composure and created a stark comparison between her policies and those of trump. robert, good morning. you said she had the edge. your base case is harris will win this election. did anything change overnight? rob: i don't think about change. how voters feel yesterday into

today, not a lot different. harris introduced herself to more voters, voters who maybe didn't know much about her, maybe did not turn into the democratic national convention. in that sense harris proved once again she can be on that stage, she deserves to be on that stage even though she did not win any primary votes. this was not a debate to change people's minds. jonathan: you get to fly in air force two but without the baggage. the former president seems to be a poor job getting people to realize there is baggage. where is he falling short? harris it is easier -- rob: it is easier to make that case against joe biden than kamala harris. do i think it is a very successful attack line against kamala harris? yes and it is one that trump made last night. she is essentially an undefined quantity. she had done a better job of

defining herself than trump has done of defining her. lisa: some individuals will start voting next week like in pennsylvania. trump says he is less inclined to debate harris again. kamala harris came out and said we want a second debate. what benefits her having a second debate if you and many others would say the market has her saying she won this one? rob: that was a decision by the harris campaign to say immediately after that she is ready to go again. she wants to do it again. she does not think it is a fluke. she is happy to stage on any stage -- step on any stage at any time. i don't think trump is eager to get back on the stage. there is a lot of back-and-forth about the rules and the anchors and the moderators. it will be hard to come to an agreement for the second debate. the harris is saying she is ready to go again. annmarie: taylor swift did come out after and endorsed kamala

harris. the reason i'm interested about this is because everyone said 500,000 people, does taylor swift actually move the margins? rob: she moves the margins marginally. it is not a huge change to the race. it is the single most important celebrity horsemen in this campaign certainly, may be u.s. presidential history. that is because the taylor swift base is largely white suburban women, young women. these are the voters who could decide the election. there are voters motivated by abortion and other issues. for taylor swift to come out in support of vice president harris, it can only help her, although maybe not that much. lisa: just to build on something they were talking about, essentially this is just a turnout game more than anything else. rob: it really is.

between now and november there are not a lot of things that will likely change the election a lot. we talk about october surprises all the time. the data does not show that october surprises change voters minds a lot. between now and november the question is can kamala harris sustain her momentum. at the convention she did not get the bump that they would have liked in the past week. she have seen some polls that are not quite as positive as the past month. coming out of the debate and this is the sprint to the finish, can she sustain the momentum necessary to turnout democrats across the country? she is helped by issues like abortion on the ballot. as long as she does not stop her too, -- stub her toe, the momentum will turn out for harris in november. lisa: there is the assumption that there will be a divided government and that no one will get their agenda fully through. what gives you the confidence

that there will be a case at a time where it comes down to turnout, then more turnout for one candidate could mean more down ballot races that people win as well? rob: absolutely. a blue wave under a harris campaign is more likely than joe biden's campaign because joe biden was such a drag on senate and house races for democrats. the senate map comes down to a few particular states that trump will win by 30 or 35 points. i am talking about montana in particular. if jon tester cannot win that seat, if so many republicans take west virginia following joe manchin's departure, that leads us to a 51-49 senate in favor of republicans. that is a divided government. as good as democrats feel about the presidency, as good as they feel about the house, it is the senate math that is not an democrats favor and i think republicans are probably able to

flip montana and other states. jonathan: there is a low probably the outcome, we could say but if we got a sweet, would that be terrible for futures in america? rob: i think that would be a problem. there are not the moderating forces in congress that there were in the first two years of the biden presidency. a blue wave tempered by joe manchin and kyrsten sinema. there would not be those voices in a new congress. under harris, the models suggest that harris policies at large would not be quite as a deficit negative as trump across the board. with that being said, a blue wave without the eight very moderate senators who are willing to stand against the party, that would be negative for equities overall. jonathan: thank you. robert casey of signum.

if we get a blue wave, that for stocks and good for bonds. lisa: essentially more focus on revenue raising, focusing more on the taxes than the tariffs that you have seen coming out of both camps. how much can people take this seriously before you see the whites of the eyes of one of these outcomes? jonathan: with great difficulty, especially given experience. remember when it was sell in then quickly buy. up next on this program, we will catch up with tom michaud of kbw, this is bloomberg.

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jonathan: equity futures on the s&p 500 a bit softer down a quarter of 1%. the nasdaq down one third of 1%. the s&p 500 posted a two day winning streak for the first time since august 19. beneath the surface, what mike wilson of morgan stanley was talking about, look at energy and financials. they got hammered. financials, the bond market, the 2, 10, 30 year, the 10 year is down for a seventh consecutive session. there hasn't been a single day this month where the 10 year yield has finished the day higher.

3.62 17. jp morgan said that the problem was interest rates. one said credit. which one it is will be important for how the straits over the next 12 months. lisa: industries,. poor jp morgan. everyone will cry. no one will think that that's a bigger story. if it's a credit quality story, that is based in soft landing versus hard landing and has a different more pernicious implication for the market. jonathan: i mentioned energy trading poorly yesterday off of the bank of commodity and a downdraft over the last week or so. prude up 2% on brent and wti. rent in the 60's for the first time since 2021. 70.68 this morning. we are going through some of the commentary from some of the trading houses, the oil players in the past week. the chairman yesterday, we

are producing more oil than we are consuming in that balance seems to worsen over the next two years. that speaks to the divide between how poorly the paper market is trading versus the physical market right now. annmarie: we are in september going into the fall and winter. we are past peak driving season. at the same time, traders are concerned about china. we have seen this before across the commodity space. this would percolate when that data would come out of china. the concern is the landing in the united states and our economic data we are seeing stateside. jonathan: on the oil markets, we are doing to 20 minutes. under surveillance this morning, traders awaiting u.s. cpi in one hour time. a bloomberg survey calling for core pi rising 0.2% in august following similar advances in july. no one is talking about it for good reason. it has been so subdued compared to where we were the last few months.

lisa: it is over basically. not where prices are but in terms of change. when you look at fed's funds futures as well as breakeven rates, you're seeing that in the lowest levels going to 2021. the key question to me, and we've asked this before, at what point does a downside surprise have a bigger implication for markets because it is on the heels of something that is not just year over year, but something more deep and speaks to weakness that we are hearing about from the likes of ally financial. jonathan: what is the difference between 25 and 50? does this close the gap for the debate a week away? lisa: is a rate cut perceived negatively by markets? talking about his big question is not if they cut 25 or 50, it is what is the response from markets? does that indicate people see this as getting ahead of the problem are catching up to a

problem that was bigger than they previously thought? jonathan: special coverage on that decision come the cpi report dropping in under an hour. antony blinken set to travel to kyiv after russia received shipments of ballistic missiles from iraq to help its were in ukraine. the biden administration was imposing sanctions against iran. are those sanctions working? annmarie: no. i don't think the sanctions about asset freezes or restrictions on the national carrier are going to change whether or not iran will provide russia with this lethal weapon. what is interesting is the timing of the visit given that for months ukraine has been asking the united states to lift this barrier, to go after jets parked in russia. i spent time in ukraine the summer. that is something they have been asking for. maybe with iran sending ballistic missiles to russia they will finally loosen it up. jonathan: it is an alliance that has arguably been strengthened in the last 12 months.

lisa: you wonder why people are looking for another bogeyman other than inflation? here's something else on the front burner, the unseen catalyst. jonathan: the latest in the middle east. a far more important story in america today, u.s. leaders headed to new york city for today's 9/11 commemoration. the ceo of -- turning september 11 into a national day of service and remembrance. tom, good morning. kbw headquartered at the world trade center of those years ago, you lost your co-founder. a big rebuild. talkbout that. tom: there is no chapter in a business school book about what to do when that happens. it comes down to your core values, the culture of the firm, being able to push the rock up

the hill more every day, which is what we did. it was we. it wasn't me. it was we. you have to understand the spirit around you which will tie into 9/11 day. it's the goodwill and energy of resilience was enormous. frankly, we had a key meeting in the days after 9/11 where we said that the firm was not going to end this way. we were going to do two things. everything we could do support the families of 9/11 and rebuild the firm. by rebuilding the firm we would be able to help the families more and collectively do it together. at the time we had 220 four employees. we are not a big company. we were able to pollute together because of that community. -- we were ready to pull it together because of that

community. jonathan: when you say rebuild the firm, i sense that that job is not finished for you? can you talk to me about that and how the work of 9/11 day plays into the overall effort? tom: sure. the story of 9/11 is not over. we keep turning the pages and writing the story. one thing is we all said we would never forget. i think everyone's definition is different. now that we have had 23 years and you say what does never forget mean? it means you want to think about those killed that day. more importantly, what their families have done to carry on his remarkable. there are organizations that could do good work. we help standup 9/11 day. it commits congress to make 9/11 a national day of service. we believe it is the largest day of service in america. today, in 21 american cities with 30,000 volunteers, 500

corporate sponsors, we will pack 9 million meals for those food insecure. we have teamed up with food banks around america. we are growing at a double-digit rate every year. it's a chance to honor those who are killed by remembering the goodwill and resilience. this is a step forward. i personally don't want to happen is to have 9/11 be two paragraphs in a history book one day. over one third of america is too young to remember. as someone who was standing on the sidewalk that day and watched what happened and the aftermath and was on the phone with some of the spouses who called and said have you seen my husband or wife today, that is something i will never forget. it is something we have to remember as a nation as we move forward and deal with big challenges. lisa: the missing posters and quietness in the city, people think it was less than 23 years ago for those who were there in

terms of its poignancy and tragedy. i wonder how you think it transformed the new york city, wall street environment in a significant way? it was a seismic break in a trajectory that had been going one way and then took another turn. tom: new york, the nasdaq stock exchanges will recognize 9/11 on their openings today, which i know the community is grateful for. this happened in the heart of the financial system. the stock market did not open for a week. we had to put our books and records back together again to understand where we stood. communication lines were severed. what it took to get the markets, the economy, the financial system, and start the healing process was remarkable. it goes to show how the collective community can rebound when needed. we have to remember that more. the nation's divided on many

topics 50-50. we need to remember that moment. there is no color identification or affiliation. this is one group coming together to do the right thing. jonathan: you mentioned the moments of silence. we respect them on bloomberg, the first of which is in about an hour. we will do that in about 60 minutes. it is fantastic to see the rebuild effort continue and your firm thrive. where there moments on that day, the aftermath, weeks, months, years where there were doubts about the future of the financial center in new york city. to see you come together this week is important. dominating the headlines over the past 24 hours, it is conference season, everyone coming together for the barclays conference. to get the not buy or sell. the bullish case is that revenues reflected in the second

quarter for net interest income taken some of the heat off the yield curve. revenues for the typical bank will start growing. i would say that the majority of the banks at the conference this week reiterated their net and interest income guidance. with regard to credit that is the biggest boogie man in the closet. we had ally financial, which was down 17% yesterday, start to talk about consumer loss patterns being worse than expected. we have heard it from some of the others. this is going to possibly put the market in wait and see mode on soft landing versus hard landing in that has had a big impact on the banks. that's a factor. as a group, we think you could still see negative headlines. we have -- that doesn't mean we don't like any stocks in the group.

we have shifted from banks that would do a little better at higher rates to banks that will do better at lower rates. we upgraded to stock this week that we think will probably grow earnings by 50%, per share, over the next three years. we have identified those companies. the other thing this morning is there is a big potential bank merger being talked about in europe with union credit owning 9% of commerce bank. there is a battleground with banks and nonbanks. scale is a required necessity to allow banks to compete with nonbanks.you are seeing the consolidation wave continue at the same time. lisa: a headline said that germany was not aware of it before it was announced. we can talk about that in a bit. you talked about a question around the actual credit quality. what does that mean for when the fed cuts rates materially? they will be more or less

willing to extend credit at a time where there are real questions around the credit worthiness of these consumers? tom: it is woven together. if you want to know the answer to a single question, soft or hard landing, for it was a hard landing the fed would say geewhiz, that would support 50 basis points now because there is a lag period when you move rates. the channel check on credit quality in the commercial space, even commercial real estate from this conference is benign. the credit statistics are better than average. not even average, better than average. it is isolated to consumer. the bulls could argue that this is a soft landing. i don't think it's clear that we are headed to a hard landing even though we are talking more about the consumer. it argues for 25. i think it would send a sense of urgency that may spook the market more than not. jonathan: did you walk away from this conference feeling better or worse about financial

conditions? tom: i felt like we need more time to hear how this plays out. if next quarter is worse the market will believe that a trend is underway. given all of the surprises we've had in financial services, investors are inclined to wait and see. it's a lot to do with policymakers as well. we had the capital rules announced, which were generally cut in half plus or minus. the reaction cannot always be beat on the banks. banks are only half of finance now. if you beat on the banks you are encouraging nonbanks, so they have to partner with the banks. i think the banks all in all have done an excellent job navigating the covid and post-covid world. jonathan: when you say the banks are only half of finance right now, can you give us the example on mortgages?

tom: going into the global financial crisis, banks made about, of the top 10 originators in the country seven were banks. today, only three are banks. banks did not forget how to make a home mortgage. they started to make home mortgages, but they really don't do it anymore. the policy reaction was so severe it's not economic. the next question should be, are we in better shape that regulated entities not making a mortgage? that doesn't mean mortgage companies are regulated, but they don't have three regulators like banks. they only have one. are we in a better place? i think the answer is no. we have to stop being as aggressive as we've been on the banks and their needs to be a partnership. there has been dysfunction in some of the agencies. we have an interim head at the occ, that is destabilizing.

we have a transition at the fdic at an important moment in time. this is not about politics. this is about getting the banking system right. the banks are also dealing with that. jonathan: you are a good man. thank you, sir. my thoughts are with you and the team today for sure. let's get an update on stories elsewhere with dani burger. -- dani: plans to enter talks with the lender[inaudible] a takeover that would reshape europe's banking landscape. jonathan: i think we have a microphone problem. we will catch up with dani in 30

minutes or the end of an era for campbell soup. the company announced plans to drop soup from its name and rebrand as the campbell's company. the ceo said the decision is made to retain name recognition but better reflect its portfolio. campbell's has acquired multiple snack brands including goldfish, and pepperidge farm. mcdonald's is moving closer to completely removing human cashiers from its shops. people familiar say that is rolling out a new format where order stations can take cash and give change. the bulk already have digital kiosks but only accept card payments. human workers are not going away but the new model essentially removes the need for cashiers. we've been replaced by robots. lisa: this was largely expected. this is the most basic of the replacements. it still hasn't gone off as much as people thought. you can imagine that this will be the path ahead. jonathan: you can see where it's

going, of course. next, fracking face-off. >> i will not ban fracking. i have not banned fracking as vice president. >> fracking, she has been against it. they will go back to destroying our country and oil will be dead. jonathan: oil trading much lower. that conversation, next. ♪

jonathan: crude bouncing this morning, wti up by 2.5% trading in the 60's, brent crude in the 70's. brent crude up by two point 75%. fracking face-off. v.p. harris: i will not ban fracking. i have not banned fracking as vice president of the united states. i was the tie-breaking vote on

the inflation reduction act which opened new leases for fracking. mr. trump: fracking? she has been against it for 12 years. if she won the election the day after they would go back to destroying our country and oil would be dead and we would go back to windmills and solar, where they need a whole desert to get energy. did you ever see a solar plant? jonathan: vice president kamala harris touting the u.s. energy boom during last night's debate. donald trump with this to say, pointing out harris' change of position in fracking in pennsylvania. questions around energy policy looming over the markets. we're joined now for more. a big difference in the way this market is trading. we talked about it through this morning. the physical market is doing one thing. walk us through what is happening there relative to how we are pricing things in the paper market over the past week. >> first and foremost, we are concerned about hurricane

francine making landfall today along the gulf coast. the refinery epicenter. we are seeing reactions on this event. at -- assuming we come through unscathed, we are looking at a physical market that appears to be relatively tight. the oklahoma terminal complex where you make a delivery on the paper market fall in the last 15 to 16 weeks, 11 in a row, a decline of $18 million, 40% of seasonally adjusted norms. we have seen a significant drawdown in the physical market being reflected in the paper market in the spreads when we look at the differential over a given time period. we are looking at a clear premium being paid in stock or get, clear that it's telling us

the physical market is way too tight and not enough supply as we go into the fall turnaround season. lisa: you're basically saying that the decline we have been seeing in the contracts around oil simply at this point is a head fake. but you will see some price spike as people realize the physical dynamics at play? stephen: good question. the driver the past two weeks has been an incredible amount of futures contracts and wti contract and brent crude contract. we have seen the number of speculative shorts, mainly hedge funds, selling a lot of oil over the past two weeks. and we've seen a lot of selling by the bullish funds. i.e. they are getting stopped out. we have bearish headphones establishing shorts -- bearish hedge funds establishing shorts.

bulls trying to get out of their positions we see a bit of a squeeze in the market. i think we are overdone. keep in mind that essentially, yes. this is most likely a head fake. we are going into september, october, the weakest months for demand of the year, but setting up the base that will set the foundation for a rise when demand picks up in the latter part of the fourth quarter. annmarie: with the physical market being tight, what is the floor? stephen: based on our modeling, quarterly modeling, we are wiped out at the bottom well below our first standard deviation which came out in the beginning of the quarter which was $72, $73. the next bottom number is around

$67, that's the second standard deviation for our models. for me, $67 is our floor in the market for the next month or so. jonathan: appreciate the updates. stephen schork. it is almost overwhelming how quickly things have gone bearish. we've had revision from goldman, morgan stanley, fears about growth in china, if that is misplaced or not, fears about being oversupplied in 2025. lisa: this goes to the heart of the question, is it supply or demand? at what point are people overestimating or increasing their expectations of a demand falloff in tandem with some of the weaker data we've gotten economically out of the u.s., europe, and in particular china? jonathan: triple digit crude and inflation being too high. lisa: gas prices have fallen off

of the cliff. even in last night's debate there was a question about the eminence of some of these points at the same time you're seeing oil prices decline is such a great degree. jonathan: a: 30 eastern, look out for the debate when cpi drops. in the third hour of bloomberg surveillance, a snapshot of the price action, equities recover slowly. still lower by little more than .1%. in the bond market the rally continues for the seventh consecutive day on a 10-year maturity. deals lower by two or three basis points, just above 3.60. from new york, this is bloomberg. ♪

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get more difficult. >> it is appreciating the level we will have to live with structurally higher inflation. >> i don't think the inflation bogeyman is totally gone. it is just under the bed for little while. >> this is bloomberg surveillance with jonathan ferro, lisa abramowicz, and annmarie hordern. jonathan: this was the biggest data point on the planet. 12 months later, tumbleweed. hardly talked about. equity markets shaping up as follows. equity futures down a little more than 1/10 of 1%. the russell, small caps recovering turning into positive territory. a: 30, u.s. inflation on data. morgan stanley put it best. for the team, the story is over. lisa: if you look at where breakeven futures are, it is over there too. roughly 48% of investors surveyed said it would be a mixed market reaction to what we

will get in 30 minutes. maybe rightly so considering that the year-over-year comps have left us with a low rate of change for inflation. what will be the biggest surprise for market, upside or downside? jonathan: this is a key caveat. mike wilson talked about the price change story being over but the price level story wasn't. that is why you see this so still. politically charged on the campaign trail and the debate yesterday evening. annmarie: trump immediately went to the price change level that goods are average 20% since biden took office since we saw the acceleration of groceries. this remains top of mind for american voters, which is why it's interesting he wasn't able to prosecute the case on the sitting incumbent on the stage with him. he waited until the end of the debate to say, what have you been doing about it, you had 3.5

years? even moments where he could went into other things like immigration, he said first i want to talk about and correct everyone about the size of my rallies. that's the deficit he have on that stage. it wasn't able to lean into the things that benefit him. jonathan: a big debate in new york city. while street having a big debate at the barclays you financial services conference.do have a problem with interest rates coming down or credit quality? ally financial, we keep going back to it, problems in the atuo loan book for consumers. -- auto loan book for consumers. lisa: not necessarily a corporate issue, but this to me is high inflation to the point that you were saying, hi absolute level, leading into consumer ability to repay their loans, cost-of-living, and a weakening employment picture. this is why people care more about the labor market than inflation because

prices are higher than they were in 2020. are people being hired and getting the price increases in their income salary that they were before to keep up with that? that's the question ally financial is talking about. jonathan: futures recovering a little bit. the bond market rally continues for seventh consecutive day on a 10-year treasury yield. coming up, citi on my tariff on tax policy is the most relevant. and why 50 basis point rate cut could do more harm than good. and reacting to cpi data. we begin with the top story, scott krone of citi writing tariff and tax policies have the most relevant impact to u.s. equity fundamentals, although it's premature to analyze with high confidence, our conclusion is that higher corporate taxes pose a bigger risk to earnings than do tariffs.

scott joins us for more. a range of scenarios. you have to attach probabilities to each individual scenario. what is the base case for you and the team and what you advocate for speaking to clients? scott: the base case is tight to call which is one of the outcomes of last night. without weighing far into the actual debate, from our perspective what matters from an equity market perspective it what impacts or influences fundamentals going forward. from our perch nothing has changed. you have two different approaches for how to navigate economic conditions from here. with trump, as we saw in his first term, tariffs become an important solution for many issues. with tariffs, what we think you get is something that conjures the post covid timeframe. whereby you see the cost of goods from many elements, the ability to pass through prices

or price increases resulting from tariffs for others that begins to muddle the fundamental picture. on the others, when you start talking about raising the corporate tax rate from 21% to 28% right now, what does that do? the back of the envelope math, if you look at consensus earnings expectations the 2026, when we presume that such policies would be implemented, consensus right now would say, and is very early, pull percent growth in 2026. in both cases our focus is read through the fundamentals. for both candidates, our initial, ongoing take is that they are both at the margin equity negative. jonathan: we have no idea how campaign promises translate into legislative reality, but we have to explore scenarios nevertheless. you explored one. it is cleaner to analyze what harris is suggesting. you go from 21% to 28%.

a clean lift in the tax rate. trump is proposing something less clean. how do you investigate that one? how do you analyze any of that? scott: i think that we probably are thinking that we give the chances of even lowering corporate tax rates pretty low. we are still looking at a backdrop. the deficit situation heading into 2020 five and beyond is where it is projected to continue to increase. ok? funding the deficit will be an ongoing issue. when you start talking about extending the trump era tax cuts , that is an immediate negative to the deficit. current cbo projections are based on the presumption that the trump tax cuts expire. the starting point for all of this discussion is circular.

where we come out on this is that we are going to have this ongoing issue of funding the spending that both candidates seem fairly compelled to continue on. they are not seeing much discussion on how to control spending from this point. not many votes at this point. what it does for us as it keeps the ongoing focus on we have to at some point address the revenue gap that comes with funding the deficit in relation to your approaches. whether it is approaching higher or lower corporate tax rates are finding other means via the tariff approach. all told, you are right. it's a bit of a jumble and it puts a lot of pressure on whether or not you control both houses of congress. the base case is we are still looking at most likely a split congress in the case of present harris. less clear in the case of president trump. a lot of moving parts to navigate.

at the end of the day, what we do is we put the election circumstance out there as a tail risk for u.s. equities. in the meantime, we have other issues. soft landing or not, which is an ongoing debate with many clients. at the same time, you have ai fundamental tailwinds supporting many other aspects. part of this is putting the election outcome in context versus other forces in the equity markets right now. lisa: let's talk about the force coming out in 21 minutes, cpi. at one point it was a big data point. now it's not for markets that have discounted the threat of an increasing rate of change of inflation in the near term. how much do you see the biggest potential threat to markets as an upside surprise versus downside surprise? scott: that's a really good question. be careful what you wish for. our view, generally speaking, has been that the inflation circumstance has many root causes, but among those was the navigation of the covid

circumstance where you essentially shut down the global economy and took the time to restart it. if we had been surprised to the negative, that period of time has been longer than expected three years ago. in any event, we are here now. you have to remember inflation, for all of its issues, has probably been an equity positive from a fundamental perspective. what you've gotten with higher inflation was a tailwind for revenues, which has played through down to earnings. we start talking about the impact of lower inflation. with it the opportunity for the fed to pay that off of its hawkish narrative. what comes with that is the transition period where we will be more focused on some of the tailwinds that we thought we had for equities over the past two years. maybe migrating down a different path, right? at the end of the day, there is a dual-pronged approach to think

about inflation. i think we all structurally want to see it come down to a more contained level. at the same time, we have to appreciate from a fundamental influence it will be a mixed picture for the next several quarters. lisa: you make a fascinating point that the increase in the rate of inflation was a boon for a lot of equities and equity valuations in terms of the prices that were being put on different things. what is the breakeven rate? i'm not talking about expected inflation in the future. the actual inflation rate for it to be neither difficult for companies when it comes to pricing power or difficult for them when it comes to some of the margin pressure? scott: that is also a really good question and it is an ongoing debate internally and externally. what is the new are expected neutral rate for the fed and how does that influence broader activities? the way that we thought about and are modeling it, to be honest, is that we are comfortable with an inflation

rate in the 2% to 3% range. with that does is we think that it negate some of the issue that we had during the post dfc timeframe when the fed was trying to engineer inflation. we have forgotten about that time because of the covid and post-covid circumstance. trying to engineer inflation has its own issues. try to contain it has its other set of issues. we are comfortable in a 2% to 3% inflation range. we think that gives policymakers room, gives companies fundamental room, but how that translates into a bond market response is tricky and that is another topic in the markets. what are the bonds pricing versus what equities? that comes back to what we would argue is that in equity land we are pricing in the self-limiting circumstance. you see that in earnings expectations come in valuations being paid.

all told, what i would say is that we are entering a transition period. we have elections as a tangential issue. all of this sets up we think for more volatility over the short to intermediate term, but ultimately as we get further into a fed easing regime, as they can begin to respond to more signs that inflation is "contained," we think that is ultimately a constructive backdrop for u.s. equities. annmarie: if we can come back to the election and the composition of congress next year, our corporations taking solace that the senate will likely be republican so there won't be the blue sweep that would potentially be the worst case scenario for corporate earnings? scott: it is hard to say with one view on that. because of the lack of conviction on whether you have a

sweep for either candidate, and the likelihood of a split congress, i think with that is doing is keeping many investors at bay in terms of how you discount election influences. we are still in an uncertain time so we get discussions on the election outcomes and potential impacts. it's difficult for investors and probably for corporates to establish a traditional strategy premised on an election outcome at this point. there are so many moving parts that need to unfold. you are preparing for it, but at the meantime you are running your fund with what you know in front of you. that is, as i described, where we are with economic condition, getting to a fed pivot, and in the meantime how you want to manage against the ai tailwinds that seem to be unfolding at the same time. jonathan: well said. reflecting on the debate of last night looking ahead to cpi at

8:30. in many ways, for once, bond investors have it easier. it is not about what will happen, it is about what won't if harris wins. you don't get the extension of the tax cuts. that is bond positive. that is why so many people are saying out loud, what happens on the others? i have no idea. if you have a blue sweep and you present someone with a blank check, are you telling me they won't write big numbers on it? lisa: that is what a lot are assuming. but if they write big numbers, will that be a positive or negative? will it be positive for bonds and negative for stocks? good luck. jonathan: i think it's pretty straightforward. if you're going to take the corporate tax rate from 21% to 28% and you have the ability to do that initially stocks selloff. if you talk about fancy big programs and lots of spending, things could change quickly. this is why we have no idea on the equity side. on the bond side, divided

government with harrison control, no extension of tax cuts. lisa: most projections on wall street would say the actual deficit would be smaller under her, marginally, then a trump administration longer-term. it looks different depending on the composition. jonathan: it could change literally overnight depending on the results and the acceptance speech. we saw that in 2016. let's get an update on stories elsewhere with your bloomberg brief. dani: the spanish prime minister pedro sanchez broke with europe, calling on the eu to rethink the additional tariffs on chinese ev's. he is currently traveling in china and said at a press conference it's important to find a compromise adding we don't need another war, in this case a trade war up your the upcoming tariffs on chinese-made ev's could be blocked if companies representing 65% of the population vote against the measure. apollo is working on its first

etf teaming up with state street on an offering that would include private credit investments. the etf please regulatory approval. it joins firms looking to make private assets more accessible to individual investors. the battle between disney and directv is trudging on. disney, which owns the abc network, offer to reconnect the feed for directv customers to watch last night's presidential debate. directv said that it would agree only if the channels would say live through next tuesday so that customers could watch the emmys and monday night football. the offer was rejected. jonathan: more later this hour. next, the morning calls and sonali basak joins us with an update on the financials. first, 23 years after the terror attacks of 2001. friends and family gathering at ground zero to remember their loved ones. also expected to attend is

president biden and vice president harris together with the former president trump. we will have the first of six moments of silence beginning when the first airplane crashed into the north tower of the world trade center.

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♪ [vroom] [train horn] [buzz] clearing the way, [whoosh] so you arrive exactly where you belong. jonathan: one hour and 10 minutes from the opening bell. futures pulling back. seven consecutive days of yields falling, the 10-year down three basis points. 3.61 42. i said this earlier. we have not had a single day in september where yields have closed higher on the 10-year. lisa: there has been a one-two punch of the data being ok but weaker and a fed saying that we are going to cut. the question is, how much?

jonathan: let's turn to his morning calls. jeffries is upgrading williams-sonoma to buy from hold and raising its price target from 156 from 148. saying that the retailer is outperforming industry growth while cutting back on promotions. the stock is up by .4%. bank of america cutting its price target on ally financial to 37 from 46 and keeping a buy rating on the shares. saying yesterday's selloff was overdone. the third and final call from goldman, cutting morgan stanley to neutral from buy and lowering the price target. analyst saying that the bank has less room for recovery than its peers and its investment banking division. trading lower. sonali basak, good morning. a few days at the barclays summit, it got gloomy quickly. sonali: you have banks telling

analysts you are being too rosy. don't expect records anymore. net income interest guidance from j.p. morgan set off a wave. at one point jp morgan yesterday trading at the worst level since the middle of 2020. did it deserve that after saying what it did? at the end of the day, the biggest problem is not only net interest income. you see this not only in the morgan stanley call from goldman. investment banking won't be evenly distributed. the rest of all strata starting to become compromised. goldman sachs going down 10%. goldman is the king of the castle. what is going on with these wall street businesses? lisa: one thing with investment banking revenues, everyone can cry a lot over that in terms of the bonus pool. when it comes to consumers that cannot pay their bills, that is where people's fear lies. how much did you see that as a theme or an outlier?

sonali: i would say that i'm more surprised that it has been a theme already. not only has the consumer been weakening over consecutive quarters, you only have another month until the next earnings cycle. this will play catch up quickly. what is it going to take in terms of rate cuts to get people to borrow again? the average apr on a credit card is almost 25%. mortgages above 6% aren't going to move out. people in homes so before percent. the consumer is more maxed out on credit card debt. you and i talk about this all the time. if you are bank of america or jp morgan, your fica scores are higher than other firms, like ally financial. you have 750 to almost 800 for many types of credit products over at bank of america. the lower that you are in that fico spectrum more naturally you will be stretched, even if you see inflation coming down and rates coming down. lisa: about seven minutes until

we get cpi. we have been asking this question for the better part of three years. rates go lower, is that good or bad for banks? we got a motley answer yesterday. what is the readthrough on people you speak to? sonali: i would watch bank of america. as banks go lower their rollover is getting better by the tens of billions of dollars per quarter. that is the one bank where you saw the pain less than others in yesterday's trade. the big ones, jp morgan making that net interest income, it is the credit card business. we are talking about consumer. if you are a corporation you won't have the same story. people have been chomping on debt like nothing is wrong. delivered low market -- the levered loan market is open. but the market is not as open for the consumer who wants to get a loan. jonathan: the answer is, it depends on who you are.

we are the same thing early this morning. lisa: it depends where you make your loans and your deposit and this, that, and the other which is why financials have been a complicated trade. jonathan: look for sonali basak alongside matt and katie. cpi dropping in about five minutes. mike mckee is around the table. a brief preview of what we can expect from inflation data in a moment? michael: pretty good at forecasting cpi, ppi, etc., they're looking at a .2% gain in headline and core that would put us out a base effects basis headline number down for the year and the core number would be unchanged, which is basically a message to the fed that whatever you want to do is fine. jonathan: 25% or 50%? michael: 25% or 50% is fine. jonathan: we will speak with some economists.

reacting to breaking cpi data. the inflation data drops in five minutes. equity futures are little bit softer. check out the bond market. the rally continues from the front end to the long end. from new york city this morning, good morning. inflation data is up next. ♪

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manus: just seconds away from inflation data. alleged -- last cpi print going into one week from today. a single move on the russell, the small caps, no drama. the scores at the front end of the curve still falling. the two year, three point 57. good morning, mike. mike: we have an issue on the

inflation side. on the year-over-year basis that pushes core to 3.2% which is what was forecast so the base effects come into play on an annual basis and does not matter that we had faster inflation. on a headline basis cpi 2.5%, a big drop from 2.9%. we will take a look at the three month six month moving averages are and what the components of all this hour. jonathan: yields higher at the front end by three basis points. a suggestion from many who were looking at this move that this is the difference between 25 and 50 at the federal reserve. the 10 year up two basis points. the dollar a little stronger. the dollar-yen unwinding. equities pushing back on the s&p 500 by 0.6%. lisa: usually bonds are the best indicator. the most interesting asset class. the one you should watch. this reaction is interesting because the idea of a 50 point rate cut

being taken off the table is negative for equities. that is the only assumption i can possibly imagine at a time when some people were saying that disinflation would be a bigger risk to stocks. jonathan: there would be a bigger belief that this could constrain downside risks. that is the way we will be seeing this this morning. equities down on small caps, the russell down by 1%. that makes sense if that is what you believe. we will see one week from today. >> it does that make sense if you believe this is a gauge of the fact that demand is not falling off a cliff and the economy is not struggling and people are spending and you see real wages pick up. you can pick your narrative. right now the narrative is the fed put might not be as strong as it was to her to believe what you are saying is being priced in. this is a confusing moment.

it highlights how the reaction function of market is not clear. the reaction function of the fed is a little bit more clear. although unclear on the magnitude. jonathan: yields still rising. the 10 year just bear in mind before today every single day in september 10 year yield has brought -- has dropped. it is up by two basis points. we have had a big rally in fixed income. mike mckee, we are screaming -- what is screaming at you? mike: new car and used car prices not really changed. used cars down more than one person. rent is up 0.5 percent, an increase from the prior months and it is so large as a component of cpi that that is what the bls has pushed up the core. the motor vehicle insurance number of 0.6%.

still rising. airfare is up 3.9%. on the other side we have energy commodities like gasoline down 0.6%. you probably knew that. there has been a big argument in the political world. food at home is flat, grocery prices are flat. grocery store prices are not rising at least according to the bls. i am sure you have people at the checkout counter saying it is still so much more. lisa: especially the computers checking you out. the housing component is significant given the fact that there are people who challenge whether this is a lagging indicator or an accurate reflection or be how much of this has contributed to the stickiness of inflation. how much of this is associated with what you are seeing in the data. mike: if you take housing out of this, you probably have a very close to flat cpi for the month. that is what the fed will do.

they know they are not affecting that at this point. it is supposed to be coming down. if you look at the rest of the world, the rest of the world does not do housing like the u.s. does housing and cpi. you can make the case that undermining inflation which is what officials at the federal making, underlying inflation is still coming down. lisa: how difficult would it be for jay powell to gain consensus for something like a 50 basis point cut? mike: it would be harder for him to do that. part of it is image. the optics of what you are doing. if you have to explain it and try to convince the american people, they don't focus enough on this stuff to really buy it and listen. the easy story to tell is the 25 basis points. we are seeing inflation come down. the economy is still good. we can start the cutting cycle now. it does not look like there is an emergency in the economy and it does not look like inflation will go shooting up again. jonathan: michael mckee, thank

you. very marginal stuff. the wrong side of upside surprise. the median estimate in our survey, 0.2. the overwhelming majority of economists were looking for 0.2% in the survey. the market reaction, equities down by almost 1% on the russell and the small caps. at the front end of the bond market, the whole yield curve is shifting higher by four basis points on the two year and the three year -- on the two-year year to 3.64. the dollar buying a centrally more japanese yen, as if you needed anymore dollar-yen. steven ricchiuto will join us for a little bit more. let's get into it. is this noise or news for the federal reserve? david: it is more noise than news in the core number that was expected.

if you look at the 3.9% jump in airline fares that were down last month. given the number of people traveling, it is amazing that we do not have more airline inflation. we got a bump in tobacco prices which are pretty volatile month-to-month. outside of that it is on track. we have been talking for a long time about how the economy and inflation is cooling too slowly. now it is room temperature. 2.5 percent year-over-year really is not a significant inflation problem. shelter is going to take a while to come down from here. even on things like auto insurance, 0.6%, it is coming away from a year-over-year gain. i looks very well controlled. we are seeing gradual disinflation and it is gradually coming down out of the system. unemployment, the cpi inflation, add those together, 85% of the

time over the last 50 years. it is a good economy. i don't think it calls for drastic fed action. i would be happy to see 25 basis points. jonathan: does this reinforce the case that we get 25? i know you would be happy but would be happy but we do expect it? david: yes i do because the fed must be aware that if they go aggressive year, they are in danger of undermining consumer confidence and the economy is doing exactly what they want to do, settling in a softer slower expansion and that is what they want. that is what they want. they have to gradually return to normal interest rates. lisa: this is an interesting moment. david kelly and boogie man will agree --david kelly and steven ricchiuto will agree. steven: we did not follow the overall concept of 75 basis points.

i think it has been counterproductive. the reality is one where it is a healthy economy. that goes against the point that i cannot get into the inflation numbers and say this is going nowhere or it is room temperature. taking out the household component of this, the rental component, i think is wrong. if you look at the dynamics of the rental market, we were worried about the build of residential real estate. it is all being used up. i do not think rent will be something that comes down. i think it is indicative of the fact that the economy is fun mentally healthy. 4.2% unemployment rate is low. it is a healthy economy. the fed should be moving people's expectations back from these large rate cut discussions into a much more gradual approach at getting back to neutral and begin the debate over what is neutral.

the number of two point 75 is to love -- the number of two and three quarters is low. lisa: initially understanding it is not the correct move that will stick, does it make sense that it will be lower but taking 50 basis points off the table? steven: if i have the possibility of the fed overstimulating, i will have more inflation. if i have more inflation, guess what? i will have better earnings. when i have a stronger economy and better earnings. as jonathan was talking earlier in the market is doing is saying ok we have a really good economy. we know we can get this level of earnings. if they will really push this thing with three 50 basis point cuts, we will have an economy that will accelerate in 2025. . i could think about raising my earnings numbers, not cutting them. annmarie: when you talk you some

of the economy is doing well. should there be a rate cut? steven: you have reached a point in the cycle where inflation has come down to a level that you can begin the process of normalizing rates. the real question is where is that level of neutral rates? this is the debate that really matters to me because i think the neutral rate is 4%. a 2% real return, a 2% inflation target, 4% fed funds rate. the market is thinking 2.5 to three. that is much too low. if we get to the subsidy level of interest rates then you wind up pushing the economy. this is where the fed is not doing its job. the fed really wants to believe that we are going back to that post financial crisis, pre-covid period of low interest rates. i do not see is getting there because that was a unique period of time where we had a debt

overhang, bank three structuring and massive tax increase. jonathan: that is something we heard from torsten slok. david, what you think about neutral? david: i would say 3.5% to 4%. if you look at the 50 years before the great financial crisis, the federal funds rate was 2% above corp. cpi inflation. if we end up with two present inflation, i have no problem with a federal funds rate above 4%. i fit -- i think the fed's long-term project will go up. i think they should gradually move rates down to that level because we are suffering today from the aftermath of interest rates which were way too low between the great financial crisis and the pandemic and that caused an enormous inflation home prices and other asset

prices. the carrying cost was zero. there are a lot of crazy bets out there. a lot of americans are locked out of the housing market right now because home prices are too high giving the abnormal mortgage rates. there is nothing wrong with the economy fundamentally. it is basically on the right track. should not have an active policy either. you should not be restrictive. you should get back to neutral and neutral is less than five-point 25, 5.5% of the federal funds rate. they should go slowly because there is no need to upset anybody here. just gradually go back to neutral. jonathan: bond market still falling. yields up by 10 basis points. on the 10 year, up by four basis points. the 10 year just turning negative briefly. we will see if that sticks. steven ricchiuto, you touched on the differences between now and 2019. the difference between where you think neutral is and where the fed is, anywhere between 100 and 150 basis points. why are they still in the two's?

they do not want to signal where things are or do they truly believe this is where neutral is? steven: i think the policymakers you are looking at our political economists. getting back to that low level of interest rates allows them to do things that they would like to do. it allows them to try to great an environment where they can try to rebalance income distribution and try to grow the employment rate and grow wage and salary and make up for the shortfall that was created by the covid inflation. this is their underlying motivation. i cannot argue with the motivation. i can argue with the tactic to get there. i don't think the aggressive adjustments or the fact that we have to get to lower levels of rates are going to do it for them. i think they are better off doing it very gradually to allow the economy to adjust, allow the economy to move on its own basis , not based on policy stimulus. this is a fed that wants to add

policy stimulus in 2025 when there will be less fiscal policy stimulus and then we have a new president with a new budget and we will have fiscal stimulus in 2026. they will try to choose the economy as long as they can -- juice the economy as long as they can. jonathan: i am not sure if i should be happy that you guys both agree. thank you guys. inflation coming in harder than expected. we are seeing a selloff in bonds and pullback of equities on the back of this. lisa: we were talking about the 10 basis point move in yields and that sounds like a lot but based on recent moves it has not been that much. i wonder if this is the new normal. , without some clarity, if this is the kind of move that we will see on an ongoing basis. jonathan: he was back to see some notes that say 25 instead of 50 -- you expected five instead of 50?

it certainly feels like that's the base case as this market prices out the more aggressive tone that we have seen over the last month. we are up by nine basis points on the two year. let's call it 360, 370. we pause for a moment of silence being held throughout the city of new york and across this country and around the world in were members of the september 11 terror attacks -- in remembrance of the september 11 terror attacks.

jonathan: 40 minutes away from the opening bell.

pulling back by 0.75% on the s&p 500. a little bit on the small caps with a selloff in the bond market. the 10 year higher by four basis points. the dollar is stronger. dollar-yen dropped to 1.40. it is now back at 1.42. we had some data 20 minutes ago. cpi hotter than expected. 0.3% month over month. food and energy are the culprits. abramovitz -- apparently the difference between the fed going 25 and 50 one months from today. a couple of things to watch for, the agenda tomorrow we will get an ecb rate decision. u.s. ppi data and another round of jobless claims. on friday, the u.s. consumer sentiment report as well. mike mckee is still with us. our economics and policy correspondent.

the cpi print going into the fed decision one week from today, there is a feeling that this shifts away from 50 and shifts the conversation toward 25. mike: it was not definitive so it did not make a real case for 50 basis points. i want to talk about what we were talking about earlier with the impact of housing on this and if you take housing out how inflation has really come down. you look at the 12 month rates and we talked about that 2.5% for the headline, 3.2% for the court. that includes inflation one year ago. you take a look at the six month moving average and it is 2% for the headline and 1.8% for the core. if you look at the three month, the most recent three month moving average, 1.1% for headline cpi and 2.4 present -- 2.4% for core.

inflation has really dropped. if you look at how pce is five basis points lower, the fed is in a good position to cut. they can point to those numbers and so we could do 50. lisa: right now the market is saying they will not. the market is saying they will go 25 basis points because they can go gradually and not spook anyone. is there any data between now and one week from now that could change this picture? the consent -- sentiment survey, anything that could tip the difference? mike: i don't think so. we saw the new york fed numbers on inflation expectations. they did not move really. the michigan expectation numbers with some move all that much -- would not move all that much. that would be the only thing that could derail it. with these things -- kind of numbers, we don't think that is what the fed will get.

food prices and gasoline prices have gone down. annmarie: are you calling it? mike: i did that on jobs day. risk-averse they are in the process of managing risk and they would rather do 25 and see what happened rather than do 50 and have some sort of surprise where they have to backtrack. at this point it is likely to be 25 unless there is something we don't know about which gets to that argument of what do they know that we don't. jonathan: not much. there were two chair powell's. one suggested that the labor market is strong and that's the reason to wait, reason to be patient. the chairman powell in wyoming sounded like a 50 basis point chairman. which one do we hear from next week app that inflation report? mike: i think more the 25 basis point chairman, wunderlich stressed confidence that inflation -- one who expresses confidence that inflation will come down and they can continue moving.

we look at what chris wallace set out if we see further data showing the weakening -- said about if we see further data showing the weakening of the economy, that will be on the table for a while until we see all the data ahead of the november meeting. jonathan: we will hear more from jackson, is that fair? lisa: what i would like to see are some of the people who are calling for 50 basis points to make things accommodative right now, austan goolsbee, for example, chicago fed president, if you dissent that would be a valid way to represent the people have different views in the fomc committee. jonathan: for the members you are looking for to dissent next week? mike: the only one that would be a possibility would be mickey bowman. she has been fair on that. . she is a fit governor. we have not had a governor dissent since 2005. it would be seen as a big deal so she would have to really feel like it would be important to make the case. jonathan: 19 years since a

governor dissented on the fomc. lisa: this is the issue. they clearly disagree with one another. what's the problem? ? why not represent the views in something other than commentary to highlight, we are not sure so do not read too much into this. we are just humans. jonathan: this bond market keep selling off. yields are higher by seven basis points. what jumps off the page for you? lisa: i want to see a response to the fed will not cut by 50 basis points. jonathan: coming up tomorrow, we will catch up with mohammed el-arian. from new york city this morning, on september 11, time may pass but we will never forget.

the moment i met him i knew he was my soulmate. "soulmates." soulmate! [giggles] why do you need me? [laughs sarcastically] but then we switched to t-mobile 5g home internet. and now his attention is spent elsewhere. but i'm thinking of her the whole time. that's so much worse. why is that thing in bed with you? this is where it gets the best signal from the cell tower! i've tried everywhere else in the house! there's always a new excuse. well if we got xfinity you wouldn't have to mess around with the connection. therapy's tough, huh? -mmm. it's like a lot about me. [laughs] a home router should never be a home wrecker. oo this is a good book title.

matt: we've got about 30 minutes until the start of trading. katie: two of the biggest stories and markets this morning our last night's presidential debate and this morning cpi print. markets clearly responding to the latter. you are looking at pricing with about 30 minutes to go until the opening bell. the s&p 500 down about .2%. the nasdaq 100 fact unchanged in the futures market. the 10 year yield is up a little bit. the real action is in the two-year treasury yield, up of course about six basis points to seven basis points right now as traders pay her back their bets. right now we are price for about 29 basis points of