>> the market overall is a little vulnerable. >> there is significant downside risk, recession or no recession. >> sessions come from policy errors. >> markets are waiting the impact of the progrowth policies at the end of the year. >> balanced risk looking into the next multiple years. >> bloomberg surveillance with jonathan ferro, lisa abramowicz, and annmarie hordern. jonathan: good morning, good morning. your scores look like this on the s&p 500 on a three-day winning streak, make it four in yesterday's session, looking to make it arrive this morning. equities up by .2% on the s&p.

last week on the s&p, the worst week of the year. this week on the nasdaq is the best of the week so far. just -- best of the year so far. the two year yield is down by six basis points, 3.57 83. we have a meeting next week finally balanced between 25 and 50 and all it takes is a few comments from former fed officials and the weight shifts back towards 50. lisa: normally commentary reflects the shift in markets. to hear bill dudley, who has supported 25 basis points before in a meeting, come out and say that there is an important argument towards potentially cutting by this amount. i think there is a strong case for 50. i know what i'd be pushing for. at the same time you get an arti cle. it is the most undecided meeting

in years. annmarie: bill dudley says it is basically up to chairman powell to see how much more support he has for being aggressive. if he is able to get to that consensus, what he said, talking about how he is concerned about the labor market, could he potentially go for the 50? at the same time, you have outliers at citi. he saw inflation data and said, actually, it's going to be 25. jonathan: ppi came in a little hotter than expected. jobless claims still subdued. four week moving average. here we are having a conversation about 50 all over again. lisa: you should keep using the totality of data and that is nice and meaningless and that is what we are learning. i'm not blaming you. it is the totality of what data? the upcoming data that you haven't seen? is this an insurance cut which is what we've heard?

that seems to be the fear. do they want to get ahead of the labor market that is the preeminent concern? or are they vaguely aware of inflation that is still out there? jonathan: you're super fired up about this. people getting bullish in the last 24 hours. maybe that is what has got bramo started? evercore dropping for the hard landing. raising the s&p 500 forecast of 5750. we are talking about 50 more. people on the street are getting more bearish as well. lisa: this is the ultimate key question to me. if the federal reserve goes by 20 five basis points or 50 basis points, what is better for this market? most say 25 basis points. the hint of 50 basis points is reviving hope of a soft landing because this is a fed that wants to get ahead of this at the same

time that nvidia is feeling enthusiasm and nervousness about not getting enough shipments. jonathan: you need a weekend. in the bond market the rally resumes. yields are lower across the curve, down by two or three basis points on the 10-year. in foreign-exchange, 1.10 90 one euro-dollar. coming up this hour, match kitchener of u.s. bc saying don't pull the plug on risk. and donald trump pledging note tax on overtime. and union workers at boeing walk off the job. looking out to 1.3 trillion dollar rally going into the federal reserve decision next week. max writing, we don't think it's time to pull the plug on risks. q3 earnings expectations also don't look challenging to beat. that is the equity call. i want to get to the credit

call. you moved that overweight from max overweight to slight overweight. what is that shift about? max: when we look at high-yield, it is not like it is bearish. valuation-wise it looks a bit more attractive. it is part of the story around valuations. high-yield spreads around 3.20. there's not a lot of spread tightening that you can still see. at some point it gets around, ok, is that still the best place where i get to carry or are other places better? where perhaps you get higher carry with similarly short duration and it looks a little more attractive given how much has been priced in since april, similar to the fed. when we look at it from a total return perspective and high-yield, if you get 10 to 11

cuts priced and by the end of the year, if you get a few priced out comparing high yields to equities, long equities now do you care if they cut 10 or 11 times by the end of the year or seven or eight times by the end of the year? not really. that is not the tail risk anymore. the tail risk, september and october of last year, was they won't cut at all or they may have to hike. now it's maybe they will do four or five, but they will be cutting. for high-yield it matters because the front end of the curve goes up. jonathan: can we get them to e.m. more? max: i think in e.m. valuations are more. if you look at year-to-date they are flatish. there have been index composition changes, of course, but from a valuation perspective there is more juice left compared u.s. high-yield.

we are at the stage where it is not bearish, but much more bullish on the other stuff. you are harvesting the carry, where is the carry best across the asset classes? lisa: how much of it is a revive of the fomo trade? max: pretty much. we were saying in 2021 that it is all pretty much a yolo world. you could argue that that is what we are seeing this week. we could also sit here at the end of next week and you talk about 1.5 trillion being wiped out. if we had this chat last friday we would not be that upbeat. we would be like, is this a recession? are we closer to the end? the start of a bear market? what are commodities trying to tell us? now, yolo. everything is great.

this is how much it shifts in a week. lisa: we were having the conversation about 25 and 50 basis points. i wonder how much you were rolling your eyes. i am curious if you are seeing a market that is likely to selloff in response to a 50 basis point rate cut or respond with a cheer and yolo? max: they had the chance and last few weeks to say they're uncomfortable. they are so comfortable with a disinflation picture, look what happened since april. a super cool down and all of these components down. we could cut higher, we could start more aggressive. now, with jackson hole, they said we are attentive to growth risks more than inflation. if you start with 50 now, with what jon was saying with the

totality of the data -- not making fun, of course. jonathan: it is not my language anyway. why are we blaming me? it is chairman powell. max: look at store retail sales data, it has been picking up. jobless claims. weekly consumer confidence data. electricity output. the dallas fed. the gdp from the atlanta fed, 2.5%. it does not currently warrant it. if you go 51st the risk is the market will say -- if you go 50 first, the risk is the market will say, what you know that i don't know? lisa: can't the chairman clean that up in his press conference? max: he could, but with jackson hole they missed the boat. it was with jackson hole that they could have said it is

really because of inflation. it is because of disinflation that we are so comfortable with why we could be cutting more aggressively from the start. that is why we could rush out of the gates saying we could cut 50. growth has been wobbly but we are comfortable because of disinflation. they missed the boat on that. annmarie: i have to ask about the u.s. election. how concerned are you about the risks tied to november? max: not a lot. when you look at 2025, people talk a lot about the u.s. election. i'm not sure how much people have positions on. when you look at our convictions, they are not particularly tied to the u.s. election. what we are missing looking into 2025, there is the debt ceiling issue moving. the treasury has made it clear, that we will have a stock up to pay that down. that could at least be perceived

by the market as temporary stimulus, similar to q2 of last year which is pretty good. in 2025 there are a couple of tax cuts from 2017 expiring. that is independent of the election, we will have to deal with that. there is a fiscal cliff awaiting us, perhaps the second half of next year when negotiations start. there will be something looming independent of the elections. jonathan: europeans are willing to do you risk from u.s. assets ahead of that? are they concerned? max: not at all. if anything we have seen in the past five months the opposite. we have had a long europe trade into april or may. long europe come along japan, a bit of diversifying. u.s. outperformance come is that kicking off? we look at all of the activity data. when we look at the high

frequency data it is strong in the u.s., the fiscal picture, the fiscal support. we have to be supporting more. where it is happening is in the u.s.. if anything, you have the french elections and there were concerns around that as well. all of that really led the inflow picture back to the u.s.. jonathan: it is good to see you in new york. futures are positive on the s&p 500. let's get an update on stories elsewhere. dani: boeing factory workers have walked off of the job in the first strike since 2008. members of its largest union which represent over 33 thousand employees voted overwhelmingly to reject a contract offer and walk off the job. the offer would have way -- would have raised wages and lowered employee health care

costs. union members expected a greater increase. both parties have expressed interest in getting back to the bargaining table. house speaker johnson will likely need support from the senate to avert a government shutdown this month. house republicans rejected the stopgap funding bill. the deadline is september 30. former president trump has vocally called for his allies in the house to reject a continuing resolution unless it includes a separate hill requiring proof of citizenship in order to vote. nippon steel and u.s. steel sent a letter to president biden on the japanese company's proposed takeover signed by both company's ceo's. nippon still has been mounting a last-ditch effort to muster support for the $14 billion takeover attempt. it still faces widespread political opposition in the u.s. and of the presidential election in november. jonathan: next on the program, another rally, another tax cut. >> as part of our additional tax

cuts, we will and all -- end all taxes on overtime. i think it's going to be great for the country. jonathan: in two months there will be no taxes left. from new york, good morning, good morning. ♪ you founded your kayak company because you love the ocean. not spreadsheets... you need to hire. i need indeed. indeed you do. our matching platform lets you spend less time searching and more time connecting with candidates. visit indeed.com/hire

is it me... or is work not working? at least, not the way it could work. your people are buried in busy work. and you might be thinking... can ai make it all work? it can. on the servicenow platform, ai transforms your entire business. because when your people work better, everything works better. so, let's get to work.

idris elba works here? mm-hmm. ya, he's super nice. jonathan: live from new york city, equity futures on the s&p 500 firm or by .2%, bond yields, -- under surveillance this morning, another rally, another tax cut. fmr. pres. trump: as part of our additional tax cuts we will and all taxes on overtime. do you know what that means? the people who work overtime are

among the hardest working citizens in our country. for too long no one in washington has been looking out for them. it is time for the working man and woman to finally catch a break. that is what we are doing, because this is a good one. i think it will be great for the country. jonathan: donald trump looking to turn the page from tuesday's debate to end taxes on overtime wages after 40 hours a week. the trump campaign moving to california where the former president will hold a news conference at a private fundraiser. jennifer, how long before we see a rally with the vice president and she opens with, we will end all taxes on overtime? jennifer: she followed him on the no taxes on tips, so we will follow this closely. she has pointed to a department of labor regulation under his administration. she wants to move more to the regulatory side than the tax cut side, so we will stay tuned.

annmarie: what we have heard from the trump campaign and what was copied to some extent by kamala harris, is it will be just extending the 2017 tcga tax cut law, ending tax on social security, no tax on tips, lowering the corporate tax rate to 15%, no tax on overtime, now jd vance's expansion of the child tax plan. this smorgasbord of cutting taxes, what can actually get done in 2025? jennifer: you are right. there is a huge amount. 4.5 trillion by the time we get to it and negotiation of the provisions expiring in 2025 in tcha. if trump comes in and he has a republican trifecta, a majority

of republicans in the senate and house, that allows for the reconciliation process to happen. that will not be simple when you have $4.2 trillion on the line and a lot of aspirational promises. when you have divided government, trump or harris in the white house, it will be much tougher negotiations in trying to get some extension past 2025. annmarie: what is your base case? jennifer: i have to know the makeup of congress, but the likelihood of the senate is it will be a republican majority. the politico report has given a lean republican to montana. we know that west virginia's consensus is it will be republican. you have 51 there. these are slim margins. we will see if republicans can add, possibly ohio and maryland.

possibly michigan. we will have to see. even if they get to 52, 53, you're talking about a tight negotiation. the house, republican or democrat, it will continue to be tight margins. eating things done in those tight margins is difficult -- getting things done in those tight margins is difficult. tax will definitely take up the oxygen in the room next year. annmarie: they are still debating if they can keep the government open until the end of the year when you look at the makeup of congress. when trump talks about this, he says it's about giving blue-collar workers a break. this is something he ran on in 2016 and 2020. will it still land a punch this time around? jennifer: this time around, what is affecting voters most, and what we are seeing in the polls, what we have consistently seen over this year, is fundamentally the issue driving folks to the

polls is the economy and how they feel in their pocketbooks. the tightness. any promise of relief is what both of these candidates are trying to reach working-class voters with. lisa: i was looking at the bond auctions the day before and day before. it seems the market isn't taking these proposal seriously. jennifer: these are aspirational promises. that is what elections are. if i had my way, and we know that is not how government actually works. there is a checks and balances. it is a negotiation with congress. you have priorities of both of these candidates. they will go into any negotiation with these. the leverages with those have the mandate. if there is a strong win on

either side you will have the mandate going into these negotiations. lisa: i love how you frame it. a wish list. i wonder what sentiment we are getting that goes beyond taxes? former president trump posted a video to x and bracing digital assets saying we are embracing the future with crypto and leaving slow, outdated big banks behind. he has had rallies having to do with crypto. do you understand the wish list item of crypto in his sphere? jennifer: it has been an interesting year in this area. there has been legislatively hard work. the technocrats on the hill have been trying to create a digital asset market structure, but they have had pushback from the sec. i think what trump is trying to -- jonathan: i think we lost connection. jennifer: what has been doing in meetings with top crypto --

jonathan: carry on, it just cut out for a second. i'm sorry to distract you. just for a split second. carry on. jennifer: what you have seen him do is be open to the crypto space in a way that you have seen with a number of republicans on the hill. they have been trying to create a market structure. he is trying to tell these folks, i'm going to be the president for you. i'm going to put in an sec chairman will allow for this in the united states. they need that regulatory framework to take hold. jonathan: thank you for your thoughts. apologies about the glitch on our end. thank you very much. i think no one takes it seriously for now. the base case at the moment is divided government. if you get divided government the tax bonds expire. if we wake up and someone has a

sweep, fixed income takes things more seriously. lisa: it is important to recognize the market isn't taking it seriously so we can't get a check on the response function. to jennifer's point, the idea of taking some sort of conclusion from the wish lists of what they want to do in terms of what direction things will be going on is important, especially when it comes to issues like crypto, fannie and freddie, and other issues. annmarie: she mentioned the senate. it is looking like the republicans will flip the senate. the political report talking about montana is leaning republican. if it were to be harris in the white house, and you have the democrats controlling the house potentially, that is serious gridlock. it cannot be progressive policy proposals. there will have to be serious negotiations and debates. jonathan: i'm not sure where that leaves equities. where does that leave stocks? jennifer: there is a sense --

lisa: there is a sense going forward stocks and bonds will move in opposite correlation. what is good for bonds is bad for stocks. the proposal from harris is going to be good for bonds and bad for stocks. flip it around on the other head. if it works out that way we will see. in the past, bonds and stocks have moved in positive correlation over the past few years. we will see if that shifts materially. jonathan: based on current proposal you would have to think this market would treat a blue sweep horrendously. blue sweep, we will have conversations about taxing unrealized gains as well. lisa: at the same time you hear arguments that next year if there is a blue sweep you could get a physical proposal that could bolster things. on the flipside you get the negative stuff upfront with the red sweep. you can see the arguments being made. it is all wish list at this point. annmarie: if it is a blue sweep

market would question where are the centrists in the democratic party? kyrsten sinema and joe manchin will not be there. there is the propensity in the senate to do more than they were willing to in the past. jonathan: two more months of this. boeing workers walking off the job for the first time since 2008. this is bloomberg. ♪

jonathan: four day climb on the s&p 500. equity futures positive by .2%. nasdaq 100 up by .1%. the russell on a decent run. front end of the yield curve down for a second consecutive day. we are negative by six basis points. why? not the economic data. jobless claims pretty subdued. this is about the fed speak, for the former fed officials speak. in the last 24 hours. lisa: three items that came out. the first being the wall street

journal writing a story putting emphasis on the 50 basis point rate cut, which is unusual. markets have coalesced around the idea of 25 basis point. right now the market is pricing in a 50-50 percent chance. a real-life meeting without necessarily a real conclusion and it comes with rhetoric that doesn't really match the market sentiment but people are going with that because you know some thing i don't. jonathan: it's been a year since the two-year yield did not drop on a chairman how speech -- powell. lisa: can he move the committee towards his view? we heard from chris waller. he was open to a bigger move if the data warranted. we talked about the totality of data. you mentioned inflation is not dead. we saw upside surprises on housing costs.

people are saying it's in the right direction. it seems like it is a tossup but it is odd with the emphasis on a couple of articles over the past couple of days. jonathan: yields pushing to the fx market. dollar-you and down by .9% -- dollar-yen down by .9%. the dollar bull run has come to an end. gradual weakening to the dollar to 150 in euro-dollar. 132 in dollar-yen. this is the important piece. a a soft landing and a harris presidency in a divided government. there's a lot hinging on the idea we have a divided government in november. lisa: that would be dollar weaker and create a bit of strength for the euro. we talked to different strategists, three different views. morgan stanley talks about parity. love management talks about this

is an ecb cut more significant than they are saying because of the weakness. pick your poison. either a harris presidency or germany. jonathan: trump back in the white house is dollar ripping? lisa: he wants dollar weaker but that's what people are expecting. jonathan: former new york fed president bill dudley saying there's a strong case for 50 at the fed meeting next week citing a slowdown in the u.s. labor market with vista jobs greater than challenges to inflation. going into the july meeting will dudley my the arc meant they should be cutting t -- made the argument they should be cutting then. lisa: how much do you jeopardize the communication tactics by saying we are catching up, there's a risk to the market were not recognizing? bill dudley had supported 25 basis points. there was not a lot of daylight between july and september as long as the path was clear. jonathan: the facts of changed.

lisa: back in july. the facts of not changed from july to september. how much are you giving the wrong signal the markets by cutting 50 basis points? that's the discussion around 25 versus 50. does it matter if you started in july or september, or is it a signal you are on the path? jonathan: we can talk about this all morning. there is a lot of nuance here beyond just 25 or 50. you can achieve the same through a 50 with a 25 a leaning heavily on the dot plot for guidance. what comes out of the news conference, blood comes out is equally as important -- what comes out is equally as important as 25 or 50. you can have 25 and signal this is the first of the street. the journey back towards neutral. lean that direction heavily. that is a dovish 25. lisa: i like the idea of heavy lifting with the dot plot. can they cut their expected benchmark rate while also not

necessarily moving the growth forecast? they will be signaling it is not because of weakness. they are cutting much more significantly. jonathan: the main event is next wednesday. donald trump leading to a limit taxes on overtime pay. it would boost take-home wages after 40 hours a week. he is bowing to cut mortgage rates to 2% despite having limited influence over the federal reserve. let's park the mortgage argument. tax cut after tax cut. i joked i'm waiting for kamala harris to come, say the same thing but that is what happened last time. why would net happen this time? annmarie: she might get asked the question about the policy proposal and agree those that are working overtime should not be taxed. she can say simply yes and then technically she's copying donald trump. a lot of this might not happen. it is the oprah winfrey election of tax cuts. it is on everything when you look down the list. expending -- extending tcga,

lowering the corporate tax rate, no taxes on tips. we are talking about trillions of dollars in it feels like spaghetti on the wall to get people out to vote. will it happen? a lot of this likely not. lisa: arguably it won't happen most likely. have we ever had an election where people took the proposals less seriously because none of this would happen? that is what the market is saying, which is notable. why not say that if no one is going to cross check and say we believe you and we are expecting it? it seems like everyone is saying it is nice you have to say this to cater to constituencies. jonathan: the overwhelming base case is gridlock in washington. it has contributed to the bond market rally. we have a different story in this market. lisa: people don't believe there will be material change. you can't trade what you don't know but no one's taking a truly seriously yet. jonathan: let's turn to boeing.

factory workers walking off the job for the first time in 16 years. it halted production at the seattle jet hub after memos of the international association of machinists and aerospace workers rejected a contract offer with 96% voting in support of a strike. siddharth philip joins us. walk us through what happened and why is this is happening. siddharth: boeing -- the last time had a strike was 2008. they have been working on a new wage deal, the first time in 12 years working on something and clearly new deal that would get their workers a brand-new deal in terms of being able to get higher wages and essentially get -- they talk to at how they have been hit by inflation and working towards getting a brand-new wage deal. for boeing, they are in the midst of a crisis. they are trying to get out of

this position for a while where they have been burning cash ever since the alaska incident in january when the plug fell out. boeing is in a tricky spot. they are hoping to make the problem go away by offering 25% over four years and they said that is the best we can do because of our position. the workers said no thanks, we want more. jonathan:jonathan: do we know precisely what the number is? lisa: they were talking about 40% when they begin negotiations. there's a lot of anger about plans to cut an annual bonus. they were hoping to restore pensions. hoping to get better health care. that is the position where they would like going to take them. annmarie: the last two strikes were in the 1990's and 2008. a lot of what panelists are saying means this can go into mid-november.

i say that because there is an important political calendar as well. siddharth: exactly. everyone is watching to see how long the strike will go. the union and the company are desperate they trying to make this happen quicker than the 50 days it took in the last couple of strikes. any sort of stoppage of 50 days is estimated to be $2.5 billion in terms of affecting cash flow. for boeing and for the workers everybody wants a deal to be done. it is dependent on whether or not boeing can get to where the workers want them to go in the workers except what they offer. annmarie: this is a brand-new ceo. how much of a blow is this for him? will investors understand this was the cards he was dealt? siddharth: investors will understand. boeing has been telegraphing this negotiation was coming up at the start of the year.

this is something that was expected but at the same time everyone is inspecting the new ceo to be able to quell the issue and make sure boeing can get back on track, get production going. this will stop production for boeing. the 737 max, their biggest cash flow generated will basically be coming to a grinding halt or close to a halt. that means for boeing. boeing is in a more precarious position. lisa: it was right here, the workers of the company? how much is this part of the problem and the reason you've had these lapses because workers have not felt reported interleaving versus taking advantage of a situation? siddharth: i think it is a bit of both. workers in the aviation industry are very highly skilled workers. very focused on quality and essentially the industry is highly regulated. the workers feel they have been given the short end of the stick. essentially the company has been struggling and they have been

hoping to get a pay raise and talking about how they have not been given adequate pay raises with inflation. essentially they have had to work on this current deal where they lost their pensions, they've had worse health care. they are hoping to restore some of those benefits. they are in a good position at the moment. boeing really needs to build airplanes. if they can't, it's a big problem for them. jonathan: 2008 was the last time they did this going into somewhat of an economic downturn. lisa: this is the peak in terms of -- exactly. we talked about this before. you wonder if they are late to the game if they are trying to squeeze a company that is squeezed out right now. jonathan: good to see you. bloomberg's siddharth philip. an update on stories as for this morning. here is dani burger. dani: the chinese

government is raising retirement since 1978. men's will increase to 63. women's from 55 to 58, from a report from the government. the changes are set to take place over 15 years. it will likely slow the decline in labor force but it does risk angering workers who are already dealing with the slowing economy. vice president harris raised $47 million in the first 24 hours following her debate with donald trump. that amount coming to nearly 600,000 individual donors. it comes on top of the $361 million she raised in august, more than double the $130 million that trump pulled in. trump is seeking to close the gap with a series of events scheduled today in california. people familiar say openai is releasing a new model capable of performing some humanlike reasoning tasks. it is known as strawberry. it will solve multi step problems including complicated math and coding questions. it is still unclear the timing.

the release could be available to some users as soon this week. that is your brief. jonathan: thank you. up next, a bond market looking for an anchor. >> we have excessive data point dependence. we don't have a dominant economic view so we get swung all over. jonathan: live from new york city, you are watching bloomberg tv. ♪

jonathan: the four-day winning streak on the s&p 500. we could make it day five. quite a bond market rally over the last few weeks. we are down three basis points on the 10-year. two's down six basis points. a bond market looking for an anchor. >> we have excessive data point

dependence. we don't have a dominant economic view so we get swung all over. we will continue with this volatile world until we restore either a dominant economic paradigm or restore the power of foreign policy guidance. jonathan: former new york fed president bill dudley making his case. there's a strong case for 50. i know what i would be pushing for. it is up to chairman powell to see much support he has for being more aggressive. joining us to discuss is cayla seder of state street. welcome to the program. cayla: thanks for having me. jonathan: what are you leaning towards? cayla: towards 25. i i think it is a valid case for both sides of the coin. 25 and 50. jonathan:'s there a stronger case for one or the other? cayla: i think 25 because it gives more optionality to speed up the pace of cuts if they need to. the last thing they want to do

is overcut and be in a tighter predicament. lisa: take us inside the state street headquarters. everyone agrees that 25 is the most likely in the wall street journal drops in the financial times front page. the fed considers 25 or 50. it seems more on the edge them with the markets were projecting. bill dudley comes out. how much do you say this seems like a signal? cayla: at the end of the day we have to look at the level of data that we have. the claim stated this week. initial claims signaled the labor market is an ok spot. when we look at the cpi data, you have to look at core. the housing component as well. they gives trepidation about is inflation really under wraps. lisa: this is the argument we hear from people which is why the market coalesced around 25 basis points, which is why people were so surprised to see 50 was squarely on the table. has the totality of data changed

in terms of the reaction function after jackson hole? cayla: it is still data dependent. because we have that data dependency and the data we have gotten since jackson hole really hasn't screamed recession, that make the case for 25 instead of 50. jonathan: the yield has dropped a lot over the last few weeks. down to about 358. twos versus tense is positive seven basis points. that's a relatively new point. you are looking for the potential for a bear steepener. cayla: on the short end you have a case where you have an economy that is still ok. you have strong gdp forecast. maybe we need to take some cut expectations out. on the long end you have concerns around recession as well as fiscal concerns that are

a bit longer term. jonathan: let's get to the fiscal concerns. does the election make a difference? cayla: i think it does for the bond market. equities are little bit more nuanced. in the past we have seen the initial knee-jerk reaction kind of reverse. i think the fiscal question is going to become a concern regardless of who is in congress and who is president. annmarie: what is your base case at the moment? cayla: tough call. fortunately i'm not are go to political expert. however i would say i think that is why in the equities space we are really focused on what is happening on the monetary side of things. annmarie: when it comes to what happens with policy next year, you have kamala harris talking about a 20% tax cut and donald trump as low as 15%. you look at all these notes, they are saying this means for the s&p 500 it will be potentially good under a tax policy of donald trump, less so under harris.

then you add things like tariffs. some analysts will say if there is a trump presidency it will be inflationary and the fed may have to hike. if there's a harris presidency, she will lean less hearted to tariffs in the fed may continue on a cutting path. how do you put these different potential policy objectives in one place ahead of the election? where do you hide? cayla: when you take in the fiscal side of things in the monetary side and look at what is driving markets right now, there's a lot of variables. because there's a lot of different variables i think have to lean on the side of slightly risk-averse. what i mean is we are not as risk-averse as other cutting cycles. however, you know, i think it means this is not a buy everything situation. in the summer we saw small caps rally we were questioning that. why is that the case?

simultaneously, i think we can see an environment were equities do ok but we need to be selective. going to places of quality. that is where we want to hide because of uncertainty around the elections, monetary, hard landing, soft landing. lisa: you talked about utilities in your note. we talk about whether that is defensive or growth because of how tight it is to the i i revolution -- ai revolution. cayla: it's in a sweet spot where it can benefit from some of these ai trends. you have some of those defensive qualities. i think that's actually a good thing right now. it's a little on the fence of both but given where we seatac going in the pool and makes utilities a little more attractive than years past. lisa: would you say that right now the bigger risk to markets is inflation than some of the hard banding discussions? person after person has come on

in said they are not worried about runaway inflation. this feels like a market that's gotten overly complacent with the idea it is truly dead. cayla: i think it would be a mistake to ignore both sides of the dual mandate. a year ago or two years ago and there was an emphasis on inflation is because inflation was extreme and the labor market was really tight. as we have gotten closer to balance, you know, the degree with which you can really focus on one of the other shifts and you need to keep both in perspective. the case to only focus on one is much different now. i think you really can't forget about the inflation component. we saw that and a report this week. lisa: if you see that, pc inflation is the bigger risk, that would seemingly suggest that bonds are in a worse position now and stocks are in a better position. we have seen stocks do really well with inflation and with pricing power.

wouldn't that arguably be bonds bad, stocks good on a tactical basis? cayla: it is nuanced. nuanced is the word of the week, of the month. within the equity space it comes down to concentration and where you want to broaden out. what i mean is that on dips we like tech. when the market is at highs, that's an opportunity to shift into defensive spaces. at the end of the day avoiding some of those cyclical places within equities makes a lot of sense. jonathan: good to see you. thanks for coming on the show. cayla seder of state street global markets. you can feel the tension in the research on wall street. the difficulty calling the market. ed hyman, burnout economist on wall street -- renowned economist for decades, very difficult decision to raise the forecast. history and experience say stick

with the hard landing outlook but he's looking for a soft landing and offers a bunch of reasons. he offers 10. allow me to go for the augments for a soft landing according to evercore. on opponent claims are low -- unemployment claims are low, inflation is slowing and lifting real incomes, a solid consumer income proxy, advancing corporate profits boosting employment, fed funds likely to be cut next week 25 or 50, global short rates declining, housing still ok and you have this massive ai built. you put that together and he's abandoning the hardly any call. lisa: most people are. the only person is andrew hallman horse who is leaning into this hard landing and talking about the need for the fed to go more aggressively. the key question is less who was right. we will not know for a while. fewer and fewer people are

talking about inflation at a time when rates are making a really dramatic historic rally. that has to come back on the table a little more as you talk about long-term the destination, they question the fed has not been willing to address. jonathan: you mentioned andrew. your week ahead looks like this. later this morning at 10:00 a.m. eastern, consumer sediment numbers. then we hear from the presidential candidates over the weekend. on tuesday, retail sales data. the final piece of information as the two day meeting kicks off and concludes on wednesday. for andrew, if that comes in soft, you're looking at a finely balanced decision, that's enough the tilt in one direction versus the other. lisa: andrew probably has -- it seems like jay powell really does want to cut more aggressively because they feel like they should have cut in july as well. a key question. we keep going back to it.

if there is weakness, why are we not seeing it? if there is weakness, why are we not hearing it from the retail ceos that say that say the consumers are hanging in there? discretionary spend and competitive edge? jonathan: jobless claims still subdued. a big takeaway for many of us. equity futures pushing higher by a quarter of 1%. the four-day winning streak on the s&p 500 and the friday, looking to make it day five. on the nasdaq 100, up .1%. how performance on the russell small caps up by .8% off the back of this rally in the bond market this morning. , the second hour of "bloomberg surveillance." stephen auth, josh wingrove, sharon miller, and vishwanath tirupattur. all that still to come. from new york city good morning. from new york city good morning. what does a good investment opportunity look like?

at t. rowe price we let curiosity light the way. asking smart questions about opportunities like clean water. and what promising new treatment advances can make a new tomorrow possible. better questions. better outcomes.

>> it's a very strange economy. a lot of the strength we had has gone away but it hasn't really been replaced by any obvious weakness. >> the odds of a hard landing have tipped higher but not terribly high just yet. >> the fed must be aware if they go aggressive here they are in danger of undermining consumer confidence. >> the market has moved expectations for a larger more aggressive 50 basis point cut next week. i would argue it was never really on the table. >> at some point volatility spills back into the real economy. the only thing keeping the labor market going is the labor market

-- keeping the economy going is the labor market. jonathan: a four-day winning streak on the s&p 500, looking to make it five. good morning to our audience worldwide. the second hour of "bloomberg surveillance" starts right now. some real outperformance on the small caps. derosa looks like this, up by point 75%. -- .75%. nasdaq 100 heading towards its biggest weekly gain of the year. even with hotter cpi, with hotter ppi and even with jobless claims staying subdued, the data so far does not scream let's go 50. it says i think we are going 25. lisa: maybe people have other ideas which is why the market is now pricing in an equal chance of 50 versus 25, the first time going back years since we have actually seen a live federal

reserve meeting. he pointed to the data being ok. two-year yields are down more than a full percentage point from the end of june. it gives you a sense of how far we have come down as people reset their expectations for the fed and the nation. jonathan: i think we are at seven consecutive meetings the two-year has rallied in the yield dropped on a fed decision day. chairman powell likes to out-dove where the market is. lisa: that is what bill dudley's words carry so much weight. does the fed chair have the ability to convince the rest of the members to go more aggressively? that is why the wall street journal and the financial times article has got people's attention. he started talking about the idea of insurance cutting to get ahead of potential weakness. annmarie: when dudley came out and said it's up to chairman powell, it feels like powell wants to go there. can he bring the rest of the committee along? why don't you just get started?

dudley is starting like neil dutta. get on with it. jonathan: he has poured freezing cold water on the idea if you go 50 you are signaling something bad. he doesn't approve the message at all. lisa: if you believe that, you should give ultimate confidence to the rest of the markets. he doesn't believe that and argue that i argue i don't know the market believes it either. coalescing around 25 basis points and equities selling off. an interesting knee-jerk move. our giggly -- how much is that supporting the fact the market is looking for bigger moves? jonathan: we have a leave meeting -- live meeting to look forward to. we give you a snapshot of the bond market rally. 10-year yields are lower by three basis points. the lineup looks like this. stephen auth on why the fed needs to cut by 50. . josh wingrove on how small

--sharon miller . looking ahead to next week's fed decision with the call to go 50 or 25 basis points finally balanced. they need to cut by 50 next week but probably won't. if they don't, the next six weeks of data will likely push them to do so in november. for sure, we are entering a prolonged cutting cycle. steve, it's been too long and good to see you. steve: likewise. jonathan: let's talk about your call. a massive week protect this week. you like the small caps more. walk us through why. steve: we think the groundwork of this bull market we have been in and tachy shifting underneath our feet here. i look at the five big things. you have got the fed entering the cutting cycle. we have been on a hiking cycle. the economy is clearly softening. the labor market is softening.

it had been tight. inflation is coming down. we are closing in on the fed's target of 2.5%. the yield curve is reconverting. we can go into that if you like but it's very big. that is happening under our feet. the yen carry is over and reversing. it didn't happen in one day. it will unwind over several months. that was supportive of tech. the relative earnings growth of the tech sector versus everything else is reversing. you add all that up, all the factors that have light underneath this bull market in the new economy, you have this election coming. that potentially -- we know if nothing happens that rates -- taxes are going higher. probably the regulatory regime will get even more difficult. we will see.

it depends on who will win the election. jonathan: the big tech call, things reversing, the yield curve and the politics. can we start with number two. the fed funds right now is that 550. two-year at 360. unless the spread closes, even with the federal reserve getting aggressive or the labor market data coming in better than anticipated and the two-year climbing, the market will struggle. we reconcile and resolve those differences. do not agree with that? steve: i don't always agree with mike and he tends to lean bearish. i tend to lean bullish, but i kind of agree. we are in a difficult environment. the fed, as usual, this fat is behind the curve. they were behind the curve. we were out there in 2021 with other saying they have got to get going. they are way behind the curve. they waited a year and they had a lurch at that point. 75, 75, 50. now they are looking at everything with the rearview mirror. the inflation numbers are

already at where they need to be. the labor market is really soft right now. the main sectors are in a recession. the china economy is in a recession. europe is probably close to that, whatever you want to call it. the fed is way behind the curve. they are probably going to 20. i agree with neil. the market isn't this stupid. the market knows the data. they are not going to be shocked if the fed does the right thing. i disagree with that. i don't think they will. this fed tends to move slow. they are watching with the rearview mirror. by november it will be obvious they should have cut and they will probably do 50 in november. i keep asking my people where we getting to? we are getting to probably a fed funds rate of 2.5% to 3% on the cycle. we have a lot of cuts in front of us. the 10-year is about where we

are going to get. the inflation rate stabilizes that 2.5% and you're back to having a 1.5% risk premium, which bond investors need both to alleviate concerns about the fiscal and because they just figure it out you can lose 20% in bonds. it was assumed he couldn't back in 2022. that puts you at 4%, 3.5%. we are kind of there on the 10-year. that's the inversion. but will happen is the short rate is now coming down. instead of being the short rate 100 basis points above the long rate, it will be back to 100, 150 below the long rate. that changes what works on the market. the tech stocks don't need financing. they are cash flow generators. everybody knows that story. it is the old economy that finances themselves short. the asset heavy businesses.

they have been getting pummeled by these high financing rates. the housing market has been pummeled, the auto market. that this week with ally having trouble. when rates come down it will really help the old economy stocks. that is why we are calling for this great rotation. lisa: we have been trying to wrap our heads around betting on the economy before the dip. that is what the likes of you believe in the great rotation are calling for. we should go into the areas that will benefit from the remedy to a problem that has not been fully revealed. how do you reconcile that? steve: the great rotation actually isn't of value in small-cap. half of value is defensive. there's a little bit of diversification in this call. our dividend fund as an example is up 18% year-to-date. it's all happened since this rotation started at the beginning of july, literally. there is some defense.

you are right. that is why we put out that piece this week about the two r's. given how the fed is behaving so slowly that they could put us in a recession, not a rocky landing , that hurts the cyclical call. which is in the value rotation. it's either a recession or a rotation. we are still on the rotation. you are fair to bring that up. that is the issue right now. lisa: what would you have to see to say maybe move away from the little r of rotation to the recession call if the fed only moves by 25 basis points on wednesday and then you start to see the data continue to weaken? steve: they will do 50 in november. they have so much room to go i think they can avert a recession. i am nervous for sure given how they are managing things.

they might surprise me and everybody else -- not everybody else. the market is almost a 50 next week. i think that would be a wonderful outcome. then you see the rotation trade rip. annmarie: can we talk about the politics? steve: love to talk about politics. annmarie: how much is the small caps trade tied to a trump presidency? steve: the politics helps the small caps. he is an old economy guy if you think about it. biden-harris, new economy folks. if you get a trump sweep, which is not obvious here but if he did that would certainly add fuel to the fire. he's going to cut regulation. regulation disproportionally hurts the smaller companies. the compliance costs are the same despite your revenue basis. it will help the small-cap trade. it will help the old economy. it will get more of a tax cut. that helps the old economy

stocks. absolutely. annmarie: when you think about the tax cuts, you mentioned tc j expiring. you said you can't put any weight on those tax cuts coming back into play. we flipped back up to higher rates. kamala harris has said she doesn't want to raise taxes on those making under $400,000 and also was calling for 28%, which is higher than the rate in the 30's. could you start breaking in some of those scenarios as a base case regardless of who wins? there will be some provisions. steve: that's right. i agree with that. it will probably end up somewhere in between. on the small-cap trade, most smaller companies are paying taxes based on high income tax brackets. they file as individuals. she is for sure going to raise those taxes if she can. what the market doesn't fully grip is that this is a tax hike

that's on autopilot. is usually the case you go who wins the election, you have to have a majority, maybe a tax cut. annmarie: they expire. steve:. , they all go up. now we are negotiating which ones don't. she leans more towards let them all go up. that will be hurt trump card, if you pardon the pun. he always likes them where they are. -- obviously likes them where they are. it looks like montana is red and probably in a divided government but very tight margins. someone mentioned this morning it is not clear. i think the market will have to digest that. it is not clear without headed. jonathan: steve, good to see you. it's been too long, which i think is your fault. steve auth, thank you. equity futures up 5.2%.

stories elsewhere with dani burger. dani: chinese authorities have banned pwc for six month and levied a record fine of $62 million over lapses in its work auditing evergrande. pwc approved the account even though the developer had inflated mainland revenues by nearly $80 billion from 2019 to 2020. pwc said the talk except desktop executive will step down. shares of adobe trying to find its footing. down 8% in the premarket trade following sales outlook that disappointed investors. investors were eager to see the software company which is known for programs created for professionals to make money from his tools. adobe has focused on him limiting ai into features and products -- implementing ai into features and products. the broader sector has seen as vulnerable to start arrivals and taking businesses from

traditional companies like adobe. gold at another record high. a weekly gain of almost 3%. it's been boosted by expectations about a why inspected decision from the fed to cut x week. gold buying from global central banks and strong haven demand have been helping the advanced alongside shorts getting squeezed. that might have contributed to the metal's rise in value. jonathan: $2568 on gold. a big feature of the move over the past year. lisa: it's a structural shift. people forecasted to continue. thinking about china in particular and other countries who would like to diversify some of their fx reserves. jonathan: up next, attempting to settle the debate about the debates. >> i believe we owe it to the voters to have another debate. >> we have done two debates. because i was successful they will be no third debate. jonathan: that conversation is

up next. live from new york city, good morning. ♪ ♪

♪♪ ♪♪ sandals jamaica sale is now on, visit sandals.com or call 1-800-sandals leaving you lost. you need to hire. i need indeed. indeed you do. sponsored jobs on indeed are two and a half times faster to first hire.

visit indeed.com/hire jonathan: equities positive by 1/10 of 1%. we have one yesterday from deutsche bank. lisa, we got another one. lisa: michael purves moving from the call they had last december. 4800 to 5800. this is a bit of a catch up. jonathan: it is leaning bullish. in the bond market the rally continues. yields down by two or three

basis points. under surveillance this morning, tenting to settle the debate. >> donald trump and i had our first debate. i believe we owe it to the voters to have another debate. >> she medially called for a second debate, which means she would like a price -- prize fight. there will be no third debate. jonathan: trump and harris hitting the ground running with a busy schedule following their one and only debate. from holding rallies and fundraisers in arizona, nevada and california. harris honing in on swing state voters with a return to pennsylvania once again today. joining us now is josh wingrove. no debate or debate. josh: my money is on no debate right now. as we know with trump nothing is final. he can always change.

you talk about yolo and fomo, trump was going anytime, anyplace with biden. he wanted a million debates back then. the first one set in motion and brought in harris. the result is harris say won. we're waiting to see a voters agree. i know it is harris fading trump --baiting trump. we will get the vp debate. annmarie: not to go into full on scenario analysis but if kamala harris cannot and said i'm willing to do a debate on fox news, would trump show up? josh: that's a good question because trump did float fox and nbc as options. fox much more fully to conservatives typically. extremely from the uncertain corners of fox news. harris would have the calculus to make. she has not paid interest in the

past to do previous offers -- to previous offers to do fox. sean hannity was announced by trump as the debate. the harris campaign laughed it off is not a serious proposal. if she was to say that i think trump would consider it from the territory. she has shown no interest in it. annmarie: let's talk about where harris is going, pennsylvania. she continuously goes to pennsylvania. i take that they don't think they are winning that state right now. josh: pennsylvania is increasingly the ballgame. how to get the other 19 electoral college votes? pennsylvania has 19. she would need pennsylvania or some combination of other states , nevada plus either north carolina or georgia would get her there. those are traditionally less blue states although some polling has are competitive or even leading recently in north carolina.

you will see both of them in pennsylvania. we have been talking about what harris has done. a lot of the polls are up. fundraising is way up. she's has more enthusiasm through certain blocks of voters. joe biden is from pennsylvania. the other side of the coin could come in to play. even with all the concerns about his age and debate performance it could impact things in northeast pennsylvania where he's from, or can harris put together a coalition by driving to philadelphia, the suburbs and holding the line throughout much of rural pennsylvania which skews more republican, that kind of thing. we will see them both in pennsylvania all the time. that is putting a lot of eyes on the issues of pennsylvania, including the deal we have been talking about. lisa: there's a question around how much harris's plane catch up after not selecting josh shapiro as her number two.

is that how you read her tours of pennsylvania? josh: her picking walz was about him having broader impact rather than picking one guy to deliver one state. harris seems delighted with walz. i do want to leave the impression they have second thoughts. if they lose pennsylvania and can't fill it in with one of the other scenarios like north carolina and georgia, the monday morning quarterback question after the election will be could schapiro have won this for them. they'll have a lot of questions leading into 2028 whether governor schapiro would run. he would be a clear candidate if he saw the nomination -- sought the nomination. it always feels like more and more things can change so much. six month ago, the war in gaza was impacting michigan in particular.

now michigan is looking like it is in pretty good shape for the democrats. no one knows entirely. things can change quickly. will he have 53 days until the election. lisa: and will they change for nippon steel when the election is over? josh: if they get an extension. the timeline is the big question for them right now. there was a big meeting this week. the vice president flew to washington for meetings and people have been reading the tea leaves. right now there are not a lot to read. joe biden has pledged to kill it. our reporting is that he plans to block it when it reaches his desk. as of wednesday it had not reached his desk. we have not had an update since then. click question is whether an extension will push it. otherwise people think that deadline is coming up pretty quick. it seems -- is an extension

granted and it carries on past the election and it's a different environment. harris is echoing biden's position to have u.s. steel remain domestically owned. trump has outright pledged to block it. jonathan: it would be nice if we had a sequence of questions on that on tuesday night. if harris loves the debate so much now, what is she a interviews? -- why does she hate interviews? josh: i'm anytime, anyplace. they are going to do more. they announced yesterday either consistently -- constituency or local battleground states. she will talk to the national association of black journalists next week. trump went and it was an explosive interview that cost a lot of head scratching -- caused

a lot of head scratching. we will see how far that leads. right now it is three interviews she has done. one national interview. jonathan: not a lot at all. josh wingrove on the latest. one interview. that's for the pathetic. lisa: you should be answering questions if they were not necessarily answered during debate. annmarie: with a human shield of governor walz. there needs to be a one-on-one interview. jonathan: sharon miller up next. ♪

hi202 pounds on golo.e lost so the first time i ever seen a golo advertisement, i said, "yeah, whatever. there's no way this works like this." and threw it to the side.

a couple weeks later, i seen it again after getting not so pleasant news from my physician. i was 424 pounds, and my doctor was recommending weight loss surgery. to avoid the surgery, i had to make a change. so i decided to go with golo and it's changed my life. when i first started golo and taking release, my cravings, they went away. and i was so surprised. you feel that your body is working and functioning the way it should be and you feel energized. golo has improved my life in so many ways. i'm able to stand and actually make dinner. i'm able to clean my house. i'm able to do just simple tasks that a lot of people call simple, but when you're extremely heavy they're not so simple. golo is real and when you take release and follow the plan, it works.

jonathan: two hours away from the opening bell. a four day winning streak on the s&p 500. this could be day five. the worst week of the year feels like a year ago and it was last week on the s&p 500. lisa: driven by nvidia. we are 1% away from the all-time highs of the s&p 500 with a series of upgrades. they are playing catch-up with the market that is now being supported by both the soft landing and the federal reserve expected to do it again to do what it takes to support the labor market that is resilient.

jonathan: a strong bid once again this morning. yields lower anywhere from five to three basis points. down three on the longer end on the 10-year. two-year at 359. a couple of articles at bloomberg, the journal, the ft quoting fed officials on the prospect of a 50 basis point cut in the market saying don't want to be on the wrong side of that. lisa: that shows how balanced -- i hate using this language, how finely balanced market feels like the argument actually is and people don't understand with the fed's reaction function is in terms of trying to get ahead of some sort of weakening that has yet to be seen and whether they are data-dependent and the sense they would like to see that weakness first. that is the ultimate question. if they go 50, we will be grateful. if they go 25, they have to say don't they have more down the pike. jonathan: it is not just about 25 versus 50. it's about the message of the

news conference. you can go 25 and achieve the same thing going 50 by being dovish with the forecast and the dot plot and guidance -- in the ford guidance -- forward guidance. lean heavily on that kind of guidance. the most hawkish thing they can do next week, if you heard the chairman powell we heard at the start of summer and not what we heard in jackson hole at the end of summer, you have problems. since portugal, only around june or july he was coming down and saying things like the labor market is strong. that gives us time. we can be patient to get this right. that was the communication coming out of the federal reserve. if you say that next week on wednesday when the market is very focused on the others of the mandate, that's a very hawkish 25. lisa: that means the 25 basis point cut could come with a significant equity selloff if you take a look at the statement of economic projections.

they start to right size their unemployment rate at the end of the year closer to where we are now. on the flipside, a dovish central bank could be one signaling another 100 basis points rate cuts later this year. you are correct in saying the details matter. jonathan: is a three-part act, not just the 25 or 50 you are seeing in the statement. it is the guidance you get in the forecast if they call that guidance. maybe they won't. there's a lot to get through next wednesday. the dollar is a bit weaker today off the back of the move in the bond market. two-year is lower. weaker against the japanese yen. negative by 0.7%. the u.s. and u.k. are lifting restrictions -- considering lifting sanctions on using

missiles to strike deep inside russia. vladimir putin says it's considered an act of war. annmarie: they are discussing using ukraine deploying british cruise missiles but they would have to use the u.s. navigational data to use the missiles. putin says if you're even using nato navigation, that's an attack from nato on russian soil. this has been a debate for months. i remember at the nato conference biden was asked about this and i got back from ukraine. you are the ukrainians pushing for this. biden said no. if they have the ability to hit the kremlin, they couldn't allow something like that. the ukrainians say we are not trying to hit anything besides russian facilities where their jets are, taking up ukrainian soil. it's a big debate but potentially we will see some movement on this. jonathan: it is want to watch. the latest out of china. set to raise the retirement age for the first time since 1978. top lawmakers endorsing a plan

to raise the retirement age from 60 to 63 ferment. women from 50 to 55 to 55 and 58. lisa: what happens when you have them -- expect them to work forever? jonathan: by thought the same thing. lisa: they are just playing catch-up. at what point are we all working until were 95 with the help of ai robots? jonathan: politicians and the west don't want to deliver that message. lisa: social security can start paying until later on is something we have heard briefly introduce and that was political dynamite. not exacted what people wanted to see. annmarie: nikki haley said she wanted to raise the retirement age. she said where we are is way too young. we need to shore up social security. that clip was then turned into a trump advertisement in iowa to remind people why you should be

voting for the former president. guess what? she stopped talking about it. jonathan: not popular. the wall street journal reported donald trump's palace one another run at ending u.s. control of freddie mac and fannie mae. if he's elected in november, former officials from the trump administration and bankers have been discussing plans regarding the mortgage companies since the spring. that's from the wall street journal. that is why the business owner report shows cautious optimism from small and midsize businesses as the fed prepares to cut interest rates. sharon miller of bank of america writing, "rate cuts -- this easing of the expense environment may create cash flow capacity for expansion or investment opportunities." sharon gets to join us on the program. welcome to the program. the amount of insight you and the team have across one in every three small businesses in america. we are worried about stress starting to build. weakness materializing.

what do you see in the businesses you cover at the moment? sharon: you are right. we cover 3.4 million small businesses in the u.s.. we are the number one lender to small businesses across the u.s. we have a lot of insight into what is happening.in most recent survey we found cautious optimism from our clients. they do expect their revenues to increase over the next 12 months. we know that servicing, as you said in the opening, will be reduced. we do expect that rates will be cut. our economist he would bank of america. 25 basis points in the next fed meeting. jonathan: they have the confidence. they are just waiting for small reductions for the federal reserve over the next few quarters? sharon: they are. we see demand in the marketplace now. i'm not saying they're waiting entirely.

there is good growth across the small and midsized companies sectors. they are watching that. as we see rates come down that will improve their cash flow and certainly consumer demand. lisa: i was reading the report and was shocked you put out. i was shocked we saw such a sanguine sentiment that people were expecting to continue to hire, continuing to expand. they had a positive outlook for businesses. how do you reconcile that with the rhetoric we hear every single day? it's on the razor edge of turning negative. sharon: we help -- bank clients from startup to $50 billion in revenue. you are more nimble and able to really think about your business, your growth. you can pivot easily. bigger corporations may have

more of a hard time doing that. that is a competitive advantage of the small to midsized companies. we see that come through in the data and in our conversations we are having everyday across the desk from these clients. lisa: what was striking was in the market it seems inflation is no longer a significant concern. we heard a couple of days ago from mike wilson at morgan stanley that it is dead. inflation is no longer an issue when it comes to what you are seeing in bonds. 68% of small business owners say they have raised their prices over the past 12 months. on average by 12%. they are talking about inflation as a more pressing concern. how do you understand whether this is really a small-business issue or maybe we are not giving enough credence to how much ongoing inflationary pressure there actually is? sharon: there is ongoing inflationary pressure. it is a sticky issue. we continue to hear that. that is the number one concern

of small and midsized companies. you have seen price increases because of all the pressure there. i see it as a concern. we hear it from business owners. we do feel as we go forward and the cycle begins to ease a bit that will take some pressure off. annmarie: given pricing pressure how difficult is it for these small companies to keep up with the bigger players? sharon: i think there is some difficulty in keeping up with the bigger players. they also have a competitive advantage. as supply chains have improved and as businesses have expanded and they have gone more online, gone more digital, they have more reach and scale that they might have had before the pandemic. what we are seeing our expansion plans for small and midsized companies. they are competing. certainly, they benefit from the

downswing impact of wealth from sergeant -- larger corporations. annmarie: they are preparing for these rate cuts. when you talk to clients what is their number one concern in this economy? sharon: the number one concern is inflation. right next to that is hiring and making sure they have the right skilled labor, the right employees to go into their business to work. those of the concerns we hear every day. we are in an election year cd here that as well. -- so you hear that as well. we have a doing this report for the last 10 years. in each election cycle ec concerns -- you see concerns no matter who wins that there is certainty so people can be forward. that is what we're are hearing this cycle as well. after november, people will continue with their plans. jonathan: talk about how things have changed since march of last

year given the banking stress in the country. have your clients changed the way you do business? are they worried about where they place their cash and want to put it with a bigger institution like bank of america? how much has changed? sharon: we are the number one small business bank in the u.s. we are very proud of that. we have been for the last four years plus. we continue to stand clients in good times and bad. everyday we work to attract new clients and to retain the clients we have. this is our mission. this is where community meets business and that is what we do at bank of america. we want to be sure we are there for our clients. we have the capabilities they need, whether it is to transact internationally, to be able to have expansion in their business, to get a loan, to provide payments for merchants.

all those different areas we are able to help our clients. we want to make sure we are there for them whether it be our online tools, capabilities to manage cash flow. we are investing based, we hear from clients and what they need. jonathan: we are thankful you make time for us this morning. thank you for joining the program. sharon miller of bank of america in the small business situation. we need to get into this. you were surprised to see there is still confidence we have this expansion plan ready to go. we are just waiting for a reduction in interest rates and that we can start making a move. inflation is the biggest concern for corporate america. lisa: this fluid the face a lot of assumptions of a lot of people in the market in terms of the broader economy and the broader s&p 500. the question how different this particular sector is from the rest of the universe. there were some nuggets. yes, inflation is the number one concern.

when it comes to ai we talk about adoption and how quickly it will be ruled out. 37% of small business owners plan to use ai in 2024. that's a 12 percentage point drop from last spring. the question about the use case and whether it is getting diminished as time goes on. jonathan: that is a big stockmarket story for the next 12 months. let's get you an update on stories elsewhere with your bloomberg brief. dani: the biden administration has moved ahead with major tariff hikes on imports from china. they include a 100% duty on ev's 50% on solar cells, 25% on materials like aluminum and steel. the terrace will go into effect on september 27. china has valid retaliation against the actions, claiming the success of its ev industry comes of innovation, not unfair government support. hedge fund millennium management is looking to raise between $7 billion and $10 billion of locked of client cash by asking

clients to make pledges that millennium can tap over time. they have been moving to make more stable capital that it's able to access for longer. ecb president christine lagarde said the central bank may consider another rate cut as soon as next month. she spoke in budapest at a of the the ecb cut rates by a quarter-point. she said in october rate cut would be warranted if the economy suffered a major setback. the guard -- lagarde indicated they will remain data-dependent and are leaning towards waiting until december for the next move. that is your brief. jonathan: more from dani and 30 minutes. divided over rate cuts. >> the market has removed the aspect tatian's for a larger more aggressive 50 basis point cut next week. i would argue it's never really on the table. jonathan: that conversation is around the corner. the decision is a week away. ♪ ♪

investment opportunities are everywhere you turn. but at t. rowe price, we're letting curiosity light the way. asking smart questions about opportunities like advances in healthcare. and how these innovations will create a healthier world tomorrow. better questions. better outcomes.

jonathan: equities positive five .1% on the s&p 500. yields down two basis points on a 10-year. two-year a little more than that. 359. divided over rate cuts. >> with this lingering uncertainty on evenness in terms of the disinflationary trend, this underscores the fed's need to remain on a patient, as we embark on this -- patient, tempered approach. the market has removed the affectations for a larger more aggressive 50 basis point cut next week. i would argue it was never really on the table. jonathan: the market reintroduced at this morning. investors questioning whether

the fed goes 25 450 at next week's meeting -- or 50 at next week's meeting. vishi tirupattur says a 50 basis point cut is not the table because our regency's heightened risk that the slowdown will be more than our baseline assumes. good morning sir. you have seen clients and can we start with this massive bias to buy for sovereigns and corporate to like worldwide. what is behind that at the moment? vishi: two things are behind it. one is the value proposition between stocks and bonds. the second is we are heading to rate cuts and it is global. it is the u.s., the ecb. we expect to see more -- the path ahead for a lot more rate cuts. that basically makes rate cuts

happening in a time when the u.s. is not a recession. break cuts are happening when it is decelerating but around 2% growth. that looks pretty good for credit. the main focus is coming from the path ahead for lower rates. the economy looks good. jonathan: let's stay on credit. dip, rip. why the dip before the rip? vishi: the technicals come from seasonally september, the uncertainty associated with that. as the markets are resolving the 25 or 50, what the fed will resolve for us, one problem i see is the value between credit, corporate credit and other parts of credit we look at, other

products look relatively cheap at this point. if you look further, it looks like a pretty good path ahead for credit. lisa: there was a note talking about how there's a lot of forward buying of credit. to build on what jon asked, where is the cash coming from to buy these bonds? mohamed el-erian said this is the cash on the sidelines coming into credit and duration. vishi: the money is sitting in money market. the idea it will flow in one big swoop, i think that is misleading. it will take time. when it does move it will move towards the high-quality fixed income rather than jumping into stocks. there is some of that. there is what i would consider in the u.s. a bid for insurance companies. in scarves -- insurance

companies are selling annuity products that sit on the balance sheet. the asset sit on the balance sheets of insurance companies. they need a treasuries plus 200, 300 type of product. that bid is insatiable. the sales of the annuity product have more than tripled in the last two years. that is a big positive technical. lisa: a lot of private investment firms have been offering this. we have talked to apollo about that. i'm curious from a broader perspective how much what we are seeing in credit and duration is a technical trade more than a macroeconomic call. we were talking to bank of america about how inflation is still the preeminent concern for a lot of small businesses. we see in the data this week cpi, ppi, great. it did not surged to record highs but on the margins creeping up a little bit our upside surprise in certain

places. how do you reconcile the macro signals versus the reality right now? vishi: definitely there is a positive. the fundamental story for cutting is short. the macro story, the fed is cutting at a time when the growth is still pretty decent. 2% growth. decelerating but not falling off the cliff. the fed cutting in the time but not falling off the cliff is constructive for credit. if you look at data from 1948 to now, because we have data because i'm a geek, basically what we see is if you look at excess returns and credit and you map that with a gdp growth rate, credit does best when economies are neither too hot or too cold. the 1% to 2% gdp growth rate is the context in which credit does the best.

we are in that sweet spot. annmarie: you are maintaining a short dollar-yet. do you think the carry trade is over? vishi: it is difficult to say it's over. it is difficult to assess how big it is. i don't know if it is over or not. we think the yen is more driven by the direction of the u.s. rates, particularly the 10-year --two-year treasury. we expect to see the yen drop further. annmarie: and the boj, do you aspect of the hike? vishi: our base case is a 25 basis point hike next year in january from the boj. the market is assigning somewhat higher possibility we will see more than that. the policy divergence, boj hiking while the rest of the

world is cutting, that makes this, regardless of why it's happening, the dollar-yen. jonathan: i hope we talk more about the massive dollar long accumulated over the last two years. underpinned by u.s. exceptionalism and the equity market. underpinned by the fact this is where the income has been. yield rates of 550 and the u.s. versus what's available in places like china and japan. whether the dollar long needs to be unwound and what sparks that. is it 50 basis points, 100 basis point? we can park the carry trade language. a bunch of headphones are doing something in japan that influences something in america, something bigger over the last two years. how vulnerable are we to a big unwind of that? vishi: i don't think we are that vulnerable. -- vulnerable.

dollar investment has shifted medically away. american exceptionally stands. that case is very much there. we have growth differential. meaningful growth differential. we are decelerating but the rest of the world is decelerating much more. if you look at china, the prospects don't look that good. then you have the idea there will be cuts. the rest of the world is cutting as well. you put those things together and we think the dollar as a reserve currency holds. periodically you hear the dollar as the currency, we reject that. jonathan: vishi tirupattur. rebalancing growth differentials will be harder than some people make out. lisa: that is why people are looking for the carry trade bogeyman. jonathan: the third hour of "bloomberg surveillance" is up next. ♪

this is clem. clem's not a morning person. or a night person. or a...people person. but he is an "i can solve this in 4 different ways" person. and that person... is impossible to replace. you need clem. clem needs benefits. work with principal so we can help you help clem with a retirement and benefits plan that's right for him.

let our expertise round out yours.

hi, i'm jason. i've lost 228 pounds on golo. so when my doctor told me i needed weight loss surgery, that's right for him. i knew i had to make a change. golo's helped me transition to a healthier, sustainable lifestyle. i'm so surprised just how crazy my metabolism has fired up. i have a trust in golo 'cause i know it works. golo isn't like every other program out there, and i'm living proof of it. (announcer) change your life at golo.com. that's golo.com. and comes with a lifetime transferable warranty. the process is simple. give us a call to schedule your free gutter inspection. if you decide to move forward with the project, you put nothing down at all.

833 leaffilter or visit leaffilter.com today. >> the market overall is a little bit vulnerable. >> there is significant downside risk, recession or no recession. >> recessions come from policy errors. >> the market is under weighting the progrowth policies in the

beginning of the year. >> looking forward into the next multiple years. >> bloomberg surveillance with jonathan ferro, lisa abramowicz, and annmarie hordern. jonathan: the third hour of bloomberg surveillance starts now. good morning, good morning. we had some weight to this rally on the s&p 500. we are up another .2%, leaving behind the worst week of the year so far on the s&p and adding weight to the best week of the year on the nasdaq 100. nasdaq 100 futures look like this , posited by 0.02%. the russell is where your outperformance is. small caps up by one full percentage point. fixed income, that two year yield is down by four basis points. 3.5991. let's call it 3.60. looking ahead to the fed decision on wednesday. 25 or 50. jobless claims yesterday coming

out a tiny bit higher, but no drama. still subdued. take the totality of the data, 25. this happens. the 13th member writes an article in the wall street journal and all of a sudden we start to query if the bias is to go 50 and not 25. lisa: there was an article at 1:00 p.m. yesterday and the wall street journal that talked about the two-sided debate about 25 or 50. some officials suggest they would like to speed up the pace when the economy seems like it is weakening further. alternatively, this caught people's attention, some expect if they see weakness coming up they ought to make the move now when rates are further stuff from there destination. you will get a 50 basis point rate cut. i real question if this is guidance were a reflection of the debate being headed markets. jonathan: i think it's highly problematic. i've said it before and will say it again. it is difficult to get a read on certain articles by certain authors on if this is coming from the fy mc or the author and

the people that they cite directly. when you don't know the federal reserve has a problem. the federal reserve has a problem that has accumulated over a long time. 2022 for example, we were expecting a 50 basis point hike. we got sentiment the friday before and expectations clip tire.all of a sudden we get an article almost sourced directly from the federal reserve towards 75. for this whole cycle under this leadership, we have waited not only for fed speak or economic data, but for an article from the wall street journal to give us what is going to happen on wednesday. i don't think that anyone at the federal reserve thinks that that is how you should run monetary policy, and i would agree with them this morning. lisa: there is a real question now, and i think you're correct in terms of is this or not, it is interesting to say that this echoes what happens in 2022 when there were questions around how

much they would hike rates. this article put together the 75 basis points that they came through with. pushing back this morning, i said that this is the opposite because it introduces uncertainty. we don't know if this is a steer or reflection of debate in markets. is that the way the ford guidance is being operated? jonathan: it is not the author's fault. the author is the envy of the world when it comes to financial journalists with his access to the federal reserve. this is the federal reserve's problem. it's a big problem going into a big meeting. lisa: if you want to signal something, do it in a speech. if you want to steer the markets, do it directly. if you want to do it through second channels and it's not clear you're giving people an outsized degree of power to influence the market and potentially the fed's power. you are right. this is something that they traditionally did. here we have a situation where it is introducing more uncertainty.

annmarie: maybe a journalist can ask jay powell about this at the press conference. if you want to go someone with credibility it is doubly. why don't you just get started is what he said. i take dudley's comments with more weight than leaning towards 50. jonathan: bill has been making this comment for a while. if you're upside, let's get a move on. the point that bill dudley made around interest rates is important. 25 instead of 50 because you are worried about the signal, why cut interest rates at all at this point? that's a valid one. lisa: it is highlighting the lunacy of some of these arguments. if they cut by 50 basis points may be the market would extrapolate 150 basis point. why not cut by 50 at every meeting? you can come into a lot of scenarios. the fed can do a lot with the stitching. is not just about this particular move. it is going forward, where the balance of risks is.

jonathan: wednesday is a three-part act. the decision, the forecast, and a news conference with chairman powell. futures firmer by 2%. the bond market, yields are a little lower, down one basis point. on the two-year coming down three basis points to about 3.60. foreign-exchange showing the little dollar weakness against the euro, 1.1 zero 80. more against again, down by .6% this morning. lisa: it will be a two-part act next week given that we have the fed conference on wednesday and bank of japan rate decision. how much are they going to lien on how dovish jay powell is to decide if they need to hike or signal a hike or leave it be? jonathan: on this program, saying that the s&p can still climb into year end. william stein on the divergence among chipmakers. and saying that tech is one of the greatest growth stories in

history dot dot dot, because he has things to say. the biggest weekly gain going into the federal reserve meeting next week. looking for the rally to continue. u.s. exceptionalism continues. the rotation started with a soft headline cpi print for june. it is a healthy broadening of the rally bringing our year-end forecast to 5700. good morning. this week has been about big tech, not of the broadening out, not about other sectors. at times financials and energy have struggled. why is the bet on big tech? >> we are starting to see the beginning of the rate cutting cycle. whether we get 25 or 50, the point is we are starting the journey. as we see more loosening of financial conditions, that will be helpful for equities broadly. one reason tech has done so well, setting aside the ai

focus, it has been because of the free cash flow they've had. the fact that their earnings have been expanding so quickly. when we look ahead to the remainder of the year and into 2025, we are looking for the earning for s&p to be 2025. 15 percent earnings growth in 2025 up to 280 to 290. 5700 is right. that is the upper end of our range. assuming that we don't have a recession and see a soft landing you can even see markets higher. the other thing to remember is that september is usually a tough month for markets. on average markets fall 1.2%. the broader market not just the nasdaq. then you have an almost 3% rally in q4. looking at where we are now, that sets us up nicely for 5700. jonathan: the financials, jp

morgan came out and said the analysts expectations around that interest income are too rosy, so everything comes down. jp morgan had a terrible day that day based on the path for interest rates. the auto loan book isn't great. what was your take away, particularly from the barclays financial conference this week? sinead: the path of rate is important for net interest income. we are of the view that we probably see 25 next week, but undoubtedly between 75 and 100 by the end of the year. what those two contrasting comments are focused on is the impact on the consumer. the reason you're seeing deteriorating credit quality is the lower income cohort have been feeling the pinch, not only from higher rates but the cumulative effects of inflation. at the margin as we see rate

cuts, that will relieve a little pressure. when we look across various segments of the market, you've got the upper income cohort performing well with balance sheets that have expanded. it hasn't really changed since 2019. they have been insulated by 2.5% to 3% mortgage rates. the lower income cohort -- we focus on the 2.5% cpi read year-over-year. looking at the cumulative impact and individual segments like food and energy you are in the mid-20 for the camilla of impact over four years. -- cumulative impact over four years. putting that together is not surprising the auto loan is seeing pressure. lisa: you can have a weakening economy, a rotation toward some of the more economically

sensitive stocks that will be susceptible to shifts, financials in particular. you are projecting a gain of 13% to 6300 by the end of next year. what will lead that if you have questions about aspects of the cyclical market and concerns about the resilience of a whole cohort of consumers? sinead: by the time that we get to the end of next year we will probably have seen somewhere in the region of 150 to 200 basis points of rate cuts. that is automatically going to help with some of the more sensitive sectors. let's think about the economy broadly. look, realistically market participants have been finding it hard to believe that we are going to see a soft landing. you have seen that in the market reaction to softer data prints. when we look ahead to 2025, we think that the economy continues to expand. in addition to an upper end of

2% this year, we see a similar level of growth next year, which will underpin sectors more broadly. if you look at one sector that has not done well this year, relatively speaking, it is consumer discretionary. as you see rate cuts you will probably see that do a little better. broadly, when you look at earnings across the board, 2025 into 2026 is when you have to start to see investment in ai impact productivity and earnings. that is the other tailwind we expect. lisa: it is interesting the shifting story around ai. can you get a 13% rally in the s&p 500 in the next 14 months without participation of some of the big tech stocks? sinead: they are a huge component of the market. if we expect the s&p to be at those levels, the tech sector is going to play a significant role.

jonathan: we have to leave it there. appreciate your time, as always. sinead colton graham. as we said, a three-part act. we will get some forecasts and a news conference with chairman powell shortly afterwards. lisa: which is consistently leaving dovish which is why bill dudley's comments got so much attention. jonathan: is he the 13th member? futures on the s&p 500 -- don't worry, we know you are not, maybe you would like to be, i don't know. bloomberg brief with dani burger. >> strategist at bank of america are expecting stock markets to trade sideways until more clarity on the u.s. labor market. he wrote that a clear direction for jobs will "resolve the autumn ambiguity." stock funds have the largest out flow citing e pfr data.

investors continue to pile into cash. the new york times out with a report that the miami dolphins owner stephen ross is talking with pe funds looking to sell a stake in the team. besides the dolphins the transaction would include a stake in the miami grand prix and hard rock stadium. ross is looking to sell as much as 50% stake in the assets. firms in conversation include partners with a valuation above $7 billion, according to the times. week two of the nfl season is underway and the buffalo bills are riding high after easily handling the dolphins in south florida. concerns are high for the dolphins qb after he left the game with a concussion after first down. that is his third concussion in four years. jonathan: that's not great. thanks for the update. more from dani in 30 minutes. the morning calls and william

stein of truest on the outlook for chips. that is around the corner. this is bloomberg. ♪

jonathan: 25 versus 50 remains a close call. articles in the financial times and wall street journal keep the prospect of a rate cut on the table. 25 followed by 50's in november and december. the story is not over. next week week enough retail sales on tuesday could push the fed to cut 50. we want to see the back of this meeting next wednesday. lisa: i couldn't agree more given that we are getting most of the economic data relative this week.

retail sales is the new michigan sentiment survey. jonathan: price action looks like this. coming down to basis points on the 10-year. the front end of the curve down four. a break of 3.60 just about. lisa: to me, this hinges very much with 25 or 50 and if the market can a strap late an additional 100 after that. the key question is how much people are under weighting the possibility of the ecb saying hold my beer given the fact that their economic outlook is negative and they downgraded it further. jonathan: the federal reserve, if they deliver the kind of guidance the ecb do, can you imagine the reaction? growth profile in america is better than europe. inflation is in line. europe versus the united states not apples for apples.meeting by meeting, 25 will not tell you

anything about next time. we will see you next time. the federal reserve sang 50? what about next time, and the one after that? talk to me about the destination. where are we going? lisa: if the fed did what christine lagarde did you would see a massive selloff and equities led by those small caps that might be the ones that get a biggest boost from the rate cuts. jonathan: futures outperforming. morning calls, cutting modernity underweight from neutral with a lower price target from 70 from 88. saying quarterly results are not a surprise to the upside. second call from rbc downgrading halliburton, 37 from 44, citing disadvantages and a tepid environment. the third call, bnp paribas downgrading micron technology to underperform cutting the price target to 67. this morning, the stock will underperform and -- underperform in artificial

intelligence. divergence growing between intel and nvidia. william stein covers semis and ai for truest. william, the divergence you are expecting, the theme can you build it out more? william: certainly we have a view that semis are in an upswing in aggregate. the end markets and products are seeing very divergent trends. for at least a year we have seen broad-based markets, like industrial and automotive, drag. for folks or just looking at companies that serve those end markets, we are at a downturn at the bottom. those who are focused on ai names, you are seeing tremendous growth. in aggregate it means that we have been in an upturn in semis

for a year and a half is good. it is a story of haves and have-nots with ai-focused companies led by nvidia doing well and fundamentals drop. lisa: i wonder what you make of the recent volatility in nvidia shares. we saw a comment from jen-hsun huang saying that people are feeling anxious and nervous. there are emotional conversations about getting deliveries. that was enough to boost stock by 13% in a couple of days. what you think the signal is from the volunteered he and shares of such a massive stock? william: i think that it's maybe an over discussion. that's the best way that i can describe it. an over discussion by investors who aren't sure and perhaps not long-term enough in their thinking on the trends that are so powerful for this company. ai is one of two major trends that nvidia is experiencing. the other is a shift away from

serial compute to parallel compute. it's a bit of a technical issue, but the application is ai. the demand is very strong. we think that it will remain that way for some time. we think that the return on investment opportunity for companies to build out the systems is very robust. that is where the discussion tends to focus. we are spending billions of dollars. are we getting anything out of it? are they going to stop spending next year somehow? our checks for some time have reinforced that 2025 will be a strong growth year for nvidia not just for this parallel compute for ai, but also the cpus that nvidia is delivering into that market. it is a big new opportunity for the company. that ramps in 25 as well. lisa: you can feel anxiety that there has been such the over performer.

more and more investors talking about rotating portfolios from nvidia to diversify that how much can you push back priced in. how do you reconcile anxiety speaking to clients? william: the most rate forward thing is to not look at the price chart and look at the pe chart. someone said to me the stocks exploded. if that exploded earnings have gone to saturn. the earnings growth has been tremendous for this company. what you've seen in the pe action for much of last year, pe contraction despite a massive run on the stock. that is the thing that i would focus on.

certainly there is growth embedded in the outlook for this company. the pe multiple relative to the growth is really nothing. jonathan: well said. it was good to catch up as always. william stein of truest on the latest on the semiconductors. i believe in jerome powell, the case of 50 is stronger. neil is sticking with it. if there's a higher risk of rising unemployment, rising inflation, the policy rate is well above neutral, a larger front move makes sense. the high end of the tendency range to nutro's 3.5% and a 50 basis point move with key policy and a restrictive setting. if the fed is offside maybe 100 basis points is time to get a move on. my words, but the sentiment is the same. lisa: if they do that i'm curious how much they will address the neutral rate, how much they discussed the destination, the second part of the act of the economic projections when they come out.

how much they elucidate the fed's framing of where they are going. what we saw in jackson hole wasn't a lot of discussion. maybe 3%, who knows. there wasn't necessarily much of a focus on naming what the destination looked like. jonathan: chairman powell did something clever in jackson hole. set a threshold for them which means that they are constrained. basically said we don't want to welcome any further cooling in the labor market. everyone will abide by that. sitting around the committee in the middle of september and next week at the decision, that a look at the labor market data and make a call. have we seen a cooling and labor market conditions and is that desirable? yes we have and no it's not. we should do something about it. lisa: how much is the question. that is why the debate is between 25 and 50.there is a question of if this will spook the market. fewer are talking about if this

will be a negative signal to markets. you have to imagine that at some point there is a question of whether it is too much weakening. when you start worrying about inflation again? jonathan: you think that is what gold is reflecting this morning? lisa: i do. the feeling that this market is baking in an overly complacent feeling about inflation where small businesses are saying that is the preeminent concern and housing costs remain high. jonathan: new all-time high for gold. coming up, from new york, this is bloomberg. ♪

♪ ♪ with so much great entertainment out there... wouldn't it be easier if you could find what you want, all in one place? my favorites. get xfinity streamsaver with netflix, apple tv+, and peacock included, for only $15 a month.

jonathan: 60 minutes away from the opening bell. s&p futures positive by 0.2%. last week feels like ancient history. the worst week of the year on the s&p 500 i'm going toward a week of gains. on the nasdaq 100, the best weekly gain of the year so far. people are downplaying the importance of nvidia and this big rotation. the ceo of nvidia with a few words. lisa: people have been trying to move away from this. they cannot get enough. we just heard from will stein is their earnings are keeping up with the stock price. the question about whether the

rotation will continue in a more significant way, not in terms of underperformance but outperformance of small caps. jonathan: outperformance on the small caps this morning. the russell 2000 up by 1%. let's get you some stock movers with manus cranny. manus: we have moved off the buy the dip. five years ago we started the show with the prospect of a deal between unions and management. that unfolded overnight. 33,000 machine workers going on strike. 25% is the pay deal on the table. this is a company burning through cash. we have gone from the euphoria of monday morning the reality of that strike coming to bear. if they go after the average strike, 50 days, 3.5 in terms of the additional cash. they can afford that on the credit outlook. we started with the ecstasy to the agony of boeing. if you want to go beyond the

mag-7 and understand who is eating into the pie, it is oracle. the stock was up 14% at the close last night. 20% for the five days straight if we finish at 6.4% today. vigorous guidance again from this company that they are making inroads. guggenheim with a price target of $200 on this stock so the momentum is with oracle. what do you not want to hear from the guy who runs all the innovation around ai? this is what has happened. the ai guidance here, use the ai. it is not about monetizing ai. that is not what the market wants to hear. the market does not have the patience for get used to my ai. the market wants to adopt, use and monetize and that is not what we heard overnight. morgan stanley with 6.60. jeffries are still there with $700. it is not the guidance in terms of profitability.

it is the ai delivery story. jonathan: language matters. thank you. not a pretty chart this morning. a pretty chart for nvidia, up by almost 16%. $400 billion per month this week. isn't that awaiting -- amazing? lisa: you said words matter. use, not adopt. boom, a 16% rally with nvidia. jonathan: that is nvidia. let's talk about the moves over the next week. a busy slate ahead with retail sales and the fed decision. tiffany wilding of pimco saying we are going back to pre-pandemic conditions. developing economies look like 2019 than at any time in the pandemic. the question is why our interest rates still well above where they were in 2019? tiffany joins us for more. what did that conversation sound like at pimco this past week?

tiffany: the bottom line is interest rates are coming down. the fed has been clear about that. jay powell at jackson acknowledge the fact that monetary policy now probably does not reflect the underlying conditions in the u.s. economy. if you look at the labor markets, we don't think the economy is in recession but nevertheless the recent loosening in labor markets suggests the possibility for overshooting on that side. in that vein the fed should be focused on moving policy rates back to neutral. the question is how quickly they get there. they will probably revise down. their own estimates for the right path in september, we are looking for a 25 cut but they will do a sequence of cuts here. jonathan: what do you think neutral is? if they revise the paths down, what is the path to? tiffany: great question. the fed believes it is between 2.5 and three on a nominal

basis. ultimately that is why they will get there but not overnight. they will not move the policy rate overnight because they are not sure where it is and when you are not sure, you want to go slowly. how slowly is the question. it is about balancing risks. you don't want to take economy into recession because policy is too tight. a reasonable baseline for them is to write down a median rate path of 3.5 percent by the end of 2025. it could be lower than that. that is the kind of case over the next several meetings to see how the economy responds and then they can reassess and make the further decision from there. lisa: we have been talking about 25 basis points or 50 basis points. before we get into the guessing game of how do you interpret the tea leaves, i am curious how you will be gauging the trickle through effect to the real

economy of whether they cut 25 or 50. how do you understand how that is being deployed in the real economy? tiffany: a 50 basis point cut, if they end up doing it, it suggests to us that they are more worried about downside risk to the economy and they want to more quickly get to neutral. we have said they have achieved a soft landing. now it will be about sticking that soft landing and keeping it going. the question is about how quickly they know they need to get to neutral, how quickly do they get there. we still think a 25 basis point cut is reasonable. we don't think the economy is in recession right now. the labor market indicators are worrisome certainly. we have had this big surge in immigration that is blurring the picture with some of those indicators. there are a lot of things they have to take into consideration

here. 25 with a sequence of cuts seems reasonable to us. lisa: what i'm trying to get at is what will be the implementation of lower rates? will you be looking for a significant uptick in small businesses borrowing? will you see increases in consumer borrowing or reduction in delinquencies as borrowing costs go down? what are the signs that this is working at a time where the efficacy of monetary has been profoundly questioned as rates went up and now the question is how quickly will it be implemented on the way down. tiffany: if you look at the household sector, we have been talking a lot about this as well. households have not felt higher interest rates. many of them have low rate mortgages that they have locked in. the household sector probably will not feel a lot of it unless you have new homebuyers or first-time homebuyers. where i do think it could be

potentially helpful is in terms of housing because -- housing supply. we have all known we have been in a period of under building relative to population growth over the last decade post-pandemic or more. that has resulted in supply demand imbalances in the housing market which suggests that as you have rates coming down, you can have real residential investment that picks up. that will be helpful for the economy. we think housing investment subtracted one point -- 1.5 points from the quarter. getting back to some modest growth is probably helpful. you can certainly get that as you have rates coming down. lisa: i'm glad you mentioned housing. there has been a debate on what will happen when rates come down. will people start moving and more supply will come into the market and costs will come down or potentially billy see housing prices go higher -- will we see housing prices go higher? tiffany: in terms of moving and

existing home sales, when people move usually move from one house to another. in terms of the aggregate supply picture from that, yes, you get more turn -- churn in the market but it should not increase by that much the overall supply of homes. what increases the overall supply of homes is new building. that is really the key, building has been slow and sluggish this year because interest rates are elevated. many lenders say the economics make less sense with higher interest rates. when rates come down we think building will accelerate somewhat. that is ultimately good for the economy. it is good for the supply-demand imbalances. eventually hopefully that helps to moderate housing prices although we don't think that they drop. housing prices will probably be

in the 5% range. that is not necessarily a bad thing for the economy. lisa: just circling back to what lisa alluded to, some of the tea leaves like the wall street journal or the financial times, if the market knows the fed is going 50 basis points, will that impact retail sales next week? tiffany: if retail sales next week or, much worse than expected -- if retail sales next week are bad or much worse than expected, that will add to some probability. the broader range of data over the last month or two, labor market data is important. labor market data that we saw, it was not great but it was not terrible either. it does suggest that labor markets are slowing. i think the federal reserve wants to understand what is going on a little bit more.

this is the lead we have gotten over the last couple of months. it has been more pronounced than people expected both in payroll growth and the unemployment rate is picking up. they probably look at that and say we are a little bit concerned about that. if you are concerned about payroll growth and the labor market slowing, you would expect consumption to be slowing as well. they probably will be looking at retail sales and those consumption indicators to confirm or deny whether the labor market slowing is having a broader impact on the economy. jonathan: we appreciate the update. tiffany wilding of pimco. looking ahead to next week, the retail sales going into the federal reserve decision, 25 or 50. beyond september is important. we cannot overstate this enough. when we sit here next week and talk about september rate decision, we will have a conversation about 2025. very limited information about policy in washington.

when we sit here for the next meeting on of over seven, we will have a much current picture of what -- for the next meeting on november 7, we will have a much clearer picture. the next 10 years could be a much different conversation. lisa: how often has the fed moved ahead of policy being passed versus this is just enough it? people say that fiscal could change it because it could be inflationary. this is the reason why this is potentially one of the bigger risks being built into the market is the balance of risks and how much this market has moved past inflation maybe before the proof is shown. katie: when it comes to fiscal policy like tax cuts, that will be a long debate. when it comes to tariffs, that could be almost immediate. i go back to what mike schumacher said earlier this week which is basically if you get a harris administration, the fed could cut more because she will not put up the walls as high as donald trump but if you get donald trump in the white house and he puts up the walls

immediately, potentially we are looking at a fed that might have to recalibrate and start hiking again. jonathan: we could have a very different conversation at the federal reserve next meeting after this one of september. running us now to discuss is troy gayeski. good to see you. welcome back to the program. let's talk about the federal reserve. what is the base case for you and the team? troy: we came into this year thinking two to three cuts. early on we thought there would be six and then the inflation data came in hot at q2. it is almost a certainty that we will get three cuts. clearly the labor market has often. there is no doubt about it. inflation is much more under control. that is the right policy response. we think about credit investors like ourselves or originators of private debt, we are more than happy to trade off some degree of incremental income to further reduce the risk of a recession going forward. that is where we are in the

economy and it will be an appropriate response. to your point before, it is about next year and the year thereafter where there is much more uncertainty. jonathan: much more to play for. i want to get to the quote from tiffany wilding just moments ago when she said this and i would love your reaction, to have the market economies look more like they did in 2019 than at any time since the pandemic, why are interest rates still well above where they were in 2019? what is the best argument for that? troy: when you think longer-term , arguably the biggest reason why we should have more sustainable inflation going forward than we did pre-pandemic and particularly post gfc world, is a much globally tighter labor market. it gives places like japan and china a working age population. the u.s. labor market has gotten more structurally efficient.

that is reason number one. reason number two is this reason to desire onshore production. we are going through a period of protectionism. we can debate that however it is certainly not zero unless we have some type of shock that is unforeseen. lisa: here is the question right now of how much we can really count on inflation continuing to diminish. i want to build on what you are mentioning. how are you countering the assumption in markets that inflation is dead in terms of more contrarian investment that push against that? troy: i don't think we are arguing that inflation is dead. it is just that we made significant progress and the balance of risk is much more symmetric in the labor market than inflation.

in terms of countercyclical, there is nothing specific there but we have to look across markets and find areas where there is more efficient pricing. if you look at most spread products where it is high-yield bonds or levered loans or even private credit, spreads will be tight. they are tighter coming into -- they are tighter than 2022. you still have an attractive yield. you look at public markets, the markets are pricing a 22% probability of deal breaks in each individual deal on mergers. historically over 10 to 20 years it has been five. we are trying to identify efficiencies like that that we can take advantage of in our liquid strategies. lisa: how do you focus on the illiquid strategies? let's go there because this is one area a lot of people do not want to get caught in because a lot of these deals have been

broken and we have seen a very different ftc under lina khan. how do you have confidence to get the deals done now given how politicized so many of these deals are getting? troy: that gets back into pricing. let's say markets are pricing around 12% or 13% probability deal breaks and historically they were between five and eight, it would be a different story. as an investor you are trying to look at market pricing versus empirical data. we are not going to say it is an overreaction. it is just presenting itself with a very attractive theme over the next 12 to 18 months. at this point regardless of the outcome in november, that looks like attractive risk reward relative to other strategies out there. jonathan: good to hear from you. as always troy gayeski. thank you. big deal for this market, the

changes in washington. katie: he thinks lina khan is doing a decent job when he looks across the current biden administration. we have asked lina khan to come on bloomberg a number of times. i have met with her privately in the past. we still welcome her appearance. jonathan: still no appearance? katie: still no apparent. jonathan: disappointing. vice president kamala harris also facing pressure, not exactly vocalizing her support for lina khan. lisa: we don't have the clarity on what this merger policy will look like or what the ftc will look like. people are wondering whether we will see a surge in mergers to be completed after the election. jonathan: at the start of the conversation at the beginning of the year, bank of america made this point about the deal flow being held up by the fact that we don't know what kind of deal gets through washington. that is the problem. lisa: kroger's and albertsons

are part of the problem. if they are looking to compete against walmart and amazon and they are being held up and creating more expensive groceries, that creates an issue at a time where you have a lot of banks that will potentially look to merge and other sectors that are looking for a certain academy. jonathan: the handbag transaction? what was that? katie: that was with capri. jonathan: do you remember that one? katie: groceries are a problem. airlines are a problem. jonathan: sensitivity around luxury goods, i could get my head around. lisa: clearly you don't have handbags. you should just try a little bit more. jonathan: entry-level luxury down in washington. lisa: this is why people are having trouble understanding what deal could get done. jonathan: to your bloomberg brief with dani burger. dani: united airlines has announced a deal with spacex where the company will power their in-flight wi-fi.

united is the first major carrier to use the side light system, becoming a customer for star link. the airline said it will begin testing the service early next year, rolling it out in 2025. the end strengthening for a fourth consecutive day to 140 versus the dollar, the strongest level of the year. traders told us hedge funds are in the options market putting bullish bets on pears like the aussie and swissie. the bank of japan signals that more rate increases will come as the yen advances versus the dollar since the end of june. surveyed by bloomberg say the fed is likely to cut three times this year, each by one quarter point. only a few of the economists surveyed anticipate a larger point reduction at the november-december meeting but respondents do think policymakers will pursue a more aggressive rate cut path in the years ahead. that is your brief. jonathan: thanks. have a great weekend. up next on the program, just

around the corner. from new york, this is bloomberg.

jonathan: counting you down to the opening bell. here the trading diary. the calendar, at 10:00 a.m. your consumer sentiment data. at noon donald trump holding a news conference as kamala harris prepares for a rally in pennsylvania. on tuesday, retail sales and the fomc meeting begins. on wednesday, it concludes. a chairman powell news conference on wednesday. on thursday, another round of jobless claims. on friday, a rate decision with the boj. with us, michael mckee.

what do you make of some of the recent commentary and the shift back toward 50 with the federal reserve? mike: i am not sure exactly. we had stories in the wall street journal and the financial times yesterday that suggested it is a close call. i don't think anyone would argue with the fact that it is a close call. the bottom line question is did jay powell call and tell them what they will do? i don't think so. both stories were ambiguous about it but it does raise questions in people's minds. maybe it loosens up the market a little bit. we are still a long way away from wednesday. we have retail sales coming up. you were talking about that earlier. that could be something that pushes the fed one way or another as well. lisa: do you think that the fed welcomes or pushes back against the fact that people don't know whether certain things or

articles are tea leaves or whether they are reflecting the market discussion? mike: if they are leaks from the fed it is a deliberate effort to steer the market and we saw that in june of 2022 when the wall street journal pushed a story and the fed does not like to surprise markets. in this case you have a situation where it will not be a surprise if they do 50 or 25. it is just that we have not in so long had a meeting where it could go either way, where what they do matters as much as what they say. katie: how much focus besides jay powell is everyone else looking at stories like this when everyone came out and said it would be 25 basis points and now there are whispers of maybe it will be 50? mike: i don't know that they pay a lot of attention to it. if it were a leak from somebody,

then that person would be paying attention to it. this is a day, the friday before the meeting when jay powell speaks to everyone and takes the temperature of where they are. katie: that would be the perfect day. mike: that would be the perfect day if that was his goal. but i think each one of them comes into the meeting with their views fairly set about what they will do because they have to make a decision. the bank presidents have been sitting with the economists and people in their banks and making a decision. jonathan: the first live meeting in a long time. michael mckee, thank you. i'm sure everyone feels the same. rbc, bank of america, the ceo of pimco, all of that next week. thanks for choosing bloomberg tv. have a wonderful weekend. this was "bloomberg sureveillance."

(♪♪) (♪♪) what took you so long? i'm sorry, there was a long line at the thai place. you get the sauce i like? of course! you're the man! i wish. the future isn't scary. not investing in it is. nasdaq-100 innovators. one etf. before investing, carefully read and consider fund investment objectives, risks, charges, expenses and more in prospectus at invesco.com

katie: stocks trying to had five streets days of gains. 30 minutes until the start of trading, i'm katie greifeld. sonali: matt miller is off today and bloomberg open interest starts now. katie: 50 versus 25, economists split on how the fed will communicate next week's policy action. boeing shares are sinking as factory workers walk off the job for the first time in 60 years. sticker shock, we speak to the ceo of spartan nash as consumers across the nation grapple with increasing grocery bills.