>> if you look at the environment in the u.s., it is encouraging. stocks reflect that. >> if you are printing u.s. earnings growth it will be hard to keep people out of it. >> sentiment is not overly enthusiastic, but bordering there. >> at these levels, it makes it hard to have a positive surprise in easier to have a negative surprise. >> at the same time, look at equities. that is where i look for opportunities. >> this is "bloomberg surveillance." jonathan: live from new york city, good morning, good morning. "bloomberg surveillance" starts

right now. 410 becomes 420 in the bond market. the 10 year, 4.20 56. is it the data, fed expectations, or the so-called trump trade? financial markets have a lot of trump priced in. markets may now be offside if harris wins. lisa: basically, buy the rumor, sell the news. everyone has said that the clear trade for whoever wins, in particular more so if trump wins, bond yields will go higher, that is getting priced in at a time when the data comes in stronger-than-expected and supports the idea that the fed cannot cut as much. annmarie: and potentially this is the trump trade. adam posen has been saying this for months, blanket inflation

because of tariffs with a fed in a hiking cycle. or the fact that the market is waking up to being two weeks away from the u.s. presidential election and regardless of who wins in 14 days, there will be a lot of for -- a lot of fiscal spending. jonathan: the risk is long. -- the list is long. upside surprise after upside surprise with the retail sales from last week. the note that i would make is that it's global. a double digit move. it's the same in germany. even in australia we saw i-16 basis point with. not -- basis point move. lisa: people getting over their skis when they thought they were going back to low rates. maybe it's the imf pointing out $100 trillion in debt outstanding. i don't think that is the case. some people attribute that but they say it every year.

there is a bigger concern here that this is a market and a world that is more fundamental larry -- fundamentally inflationary. this idea that we were heading back is being questioned. jonathan: some push back, "it is difficult to envision an outcome that would warrant another 25 points higher outside of a gop sweep." if you get the gop sweep, we price in a lot more and we talked about this yesterday, 50 basis points in two days. lisa: the argument being that it is not just a tariffs, it has to come with tax cuts and stimulating actions that could cause earnings to rise, the only way you can get it. otherwise people would price that weakness that could come with reduced trade activity. annmarie: at the congressional map, democrats have more seats to defend when it comes to the senate. yesterday, pennsylvania, the

bread-and-butter of this election cycle, jessica taylor came out with a report saying that they moved to bob casey's seat to a tossup. that was leaning democrat. 538, nate silver, moving pennsylvania for the first time since july two trump winning. it's marginal, this is the knife's edge, but there are little increments moving towards the gop favor. jonathan: these are the scores for you in the equity market. s&p 500, negative with underperformance on the russell small caps. the next stop for the equity market, gm or earnings later in the hour. lisa: do we get a different story? i find it fascinating that the russell 2000 is underperforming. it is the most sensitive to rates going higher. you wonder if otto manufacturers give a similar nod to the fluctuation in their business on

the heels of borrowing costs that are more or less accommodative? jonathan: looking for the numbers to drop, coming up we catch up with sharon bell at goldman sachs. terry haynes talks to us about the million dollar prize from elon musk. and kurtz talks about pricing in the so-called trump trade. equity market, stalling after climbing 20% this year. goldman sachs says the decade of big returns might be over, that they estimate the s&p 500 will deliver an annualized return of 3% in the next 10 years with 1% on the real basis. sharon bell joins us with more. welcome back to the program. walk us through what underpins the view of muted gains compared to what we have delivered the last 10 years looking out another decade? sharon: that analysis comes not from our london team, but the u.s.

strategy team, making it more compelling, because the u.s. equity market has done so incredibly well in the last year, as you pointed out. in the last decade it has been an incredibly strong performing market. the view is for lower returns. one, valuations are about the 95th percentile at the moment, so you are already paying a lot for the market. second, it's very concentrated, upping your idiosyncratic risk particularly. they think that the returns will be a bit lower. jonathan: how is that compared to what you expect from european returns? sharon: europe is in a bit of a different situation. the valuation is nowhere near a stretch. basically we were talking about its 90 fifth historical percentile. europe is in there, they are

long-term average at the moment, suggesting european returns could be long-term average over the next decade. the warning is that european return on equities, strong as it is in the u.s., is weak. we have recently downgraded earnings growth over the next year for europe. we only expect 3% to 4% over the next couple of years and we don't expect re-rating either. it's only going up 3%, 4%, giving you low returns, really. lisa: right now in the united states we are talking about pricing in a trump trade in the equity market and bond market. maybe that is part of the reason yields have risen in the united states and may be part of the reason we have seen that performance in the financials. is the trump trade getting priced in for european equities? sharon: this is a great

question. i do think it is a trump trade, putting yields up globally in the u.s., you are starting to see it priced into certain areas in the stock market. i feel that trump, especially any talk about increasing tariffs in the u.s. on global goods coming in, you are -- europe is a big exporter it to the u.s. and have benefited from large growths in open global economies. it's a negative for european equities in particular. european banks are doing well because of the good earnings and they are seen as stocks not linked to global trade, therefore not hit by an increase in tariffs. lisa: you have some specific numbers about how much you could see earnings decline in european

companies if trump gets in and puts out the tariffs that he has pledged to do. how much of a decline could we see in the overall equity picture in europe if some of these things go through? sharon: absolutely. 10% tariffs on global goods coming into the u.s. with retaliation from europe, shrinking global trade growth, we think it could take up 9% on the european earnings. that's huge. i just set it before, earnings per share growth, we don't expect low single digits. if you took off 9%, that was already quite a large amount. trump has also talked about tax cuts on european companies and a big chunk of their business in the u.s., benefiting from lower taxation. there could be some obsessed, but yes, up to high single digit on earnings. annmarie: what about the fact of

a threat of tariffs, with that hurt equities, even if trump didn't go through with his plan as he's promising right now? sharon: in fact, we think a lot of the damage is done through sentiment and uncertainty. once you know for certain, in many cases, it has already been priced in and the damage has already been done. i would expect that if you don't actually see 10% global tariffs and are just concerned about it, that could up the risk premium that people apply to europe with concerns over global trade. i think that a lot of it will just be a hit to sentiment. annmarie: if you are a european equity trader, are you more nervous about what china is doing with their policies or are you more concerned with the trajectory of the united states? sharon: i'm going to answer that by saying that i was much more concerned about china a few months ago.

incredibly weak economic growth, clearly overproducing, sending a lot of goods europe, pushing down goods prices in europe with competition for european autos. now with chinese stimulus coming through, maybe you have cut off some of the worst case incredibly weak china growth into 2021. i do still worry a bit about china. i do feel that you will see excess production in china of lots of different goods with lower goods prices in europe and inflation bringing it down. or the u.s., though, i worry about policy, of course, because we find out in not so long which way policy will likely go and global tariffs, i think hitting that trade is a big concern for europe. jonathan: sharon, always good to catch up on the u.s. versus europe. difficult session for europe. over and spain, negative by 1.2.

if we get the gop sweep, you have to imagine that some of those companies -- countries might be between a rock and a hard place. lisa: exactly. you have to wonder if this approach is the right one when you have these imf meetings and world leaders coming down to decry the deficit. should there be more focus on may be how they will support some of those industries in the region if that ultimately is one of their big challenges? jonathan: yeah, more headlines on innovation and less about finding tech firms in the u.s. lisa: exactly. looking at the potential for innovation, looking at all of these things you start wondering -- i'm a big deficit worrier, i say it, however there is also room for what are you doing on the others if you have some structural issues in key industries? jonathan: european equities, softer this morning.

here in the u.s., negative. here is your bluebird brief with dani burger. dani: shares of sap rising in the german trade. their biggest software company reporting a jump in third-quarter cloud sales, moving customers to ai tools and analytics with cloud revenue rising, a 20 5% increase from a year earlier. the backlog rose to 16 billion dollars. php going to trial over a damm collapse at a brazilian mine. they are accused of trying to avoid paying billions of dollars in compensation to those affected. the case will test how far they are willing to punish firms over environmental disasters far away. 20,000 brazilians are seeking $47 million. elon musk and tesla being sued by alcon entertainment. the studio says they used imagery inspired by the 2017 movie "blade runner 2040 nine"

after permission was denied. musk, tesla, warner bros. discovery, all listed as defendants. that is your brief. jonathan: appreciate it. up next, election days to weeks away. >> we must raise the minimum wage and hard-working americans at mcdonald's or anywhere else should have at least the ability to take care of their family and themselves in a way that allows them to actually be able to sustain their needs. jonathan: that conversation is just around the corner. live from new york city this morning, good morning. ♪ but home is also your body. i asked myself, why doesn't pilates exist in harlem? so i started my own studio. getting a brick and mortar in new york is not easy. chase ink has supported us from

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jonathan: equity futures, negative by zero .4% on the s&p

500. yields, a little bit higher. 420 on the u.s. 10 year. election day, two weeks away. >> donald trump does not believe that we should raise minimum wage. everyone knows that current federal minimum wage, $7.25 per hour, it must be raised and i think that hard-working americans, working at mcdonald's or anywhere else, should have at least the ability to be able to take care of their family and themselves in a way that allows them to actually be able to sustain their needs. jonathan: harris and trump doubling down on swing state voters. the vice president stopping in michigan, pennsylvania, wisconsin, trumpet making the rounds in north carolina. the polling, still incredibly tight. harris leaning over trump i one point nationally. let's talk about where this campaign is is taking place and

why the former president is spending so much time in north carolina. mike: i'm glad that you brought up the tar heel state. donald trump is devoting a lot of resources there. over the last two days, he will be making four appearances within about 40 eight hours. that signifies how important this is to his campaign. we talk a lot about the democratic blue wall of northern industrial states, but north carolina is shaping up as something of a red ball for trump. he was the winner of the state in 2016 and in 2020, but in the last election the margin was pretty tight when it came to his victory and democrats see the state as a potential pickup opportunity. trump has been crisscrossing the state with a rally scheduled there tonight, he will try to drive home some key points. one of them is on the economy, which we heard it again and again, if you don't like the economy now, why are you voting for harris to bring back more of

the same? he is also seizing on the recent natural disaster in western north carolina as a way to highlight what he calls incompetence by the federal government, something that he raised yesterday in his visit to the asheville area. annmarie: already today 15 million people have voted in early voting, but when it comes to the states ravaged by the hurricanes, how hard has it been for people to get out and vote? mike: great question. the storm had such a devastating effect on the region in terms of really just disrupting people possibility to access basic needs, to be able to get to work, they have lost their homes and livelihoods. hundreds lost their lives in these disasters. voting, you would think, would come after all the basics, but many people have really been trying to rally and get the polling places.

we have seen lines already very long and asheville in the state is making accommodations so that people can get absentee ballots sent to temporary addresses if they have been displaced and voters will be allowed to cast ballots anywhere in the state as needed if they have been displaced. they made some accommodations, but it will be difficult and it may complicate how the vote tally is conducted at the end. this is something we are paying close attention to. it is important to note that while the former president has been raising concerns, allegations, and accusations about the delivery of aid in the region, state and local officials have praised the federal government and have halted the false claims from the former president and his allies, claims about fema and the administration. jonathan: michael shepard, with the latest air from washington, d.c. to continue the conversation,

terry haynes of pangaea joins us now. some market participants believe that this is leaning towards a donald trump when. polls are still incredibly tight. how do you see things? terry: i'm still of the view that harris squeaks out a win, but what you have with her is a combination of split political congress with a republican senate and a democratic house, again with bare majorities. you have got a remixed status quo on policy, frankly. you know, i think that this is the time of the year where the markets, people get over their skis on a political result. in 2016, it was all about a completely blue washington and we know how that turned out. i would urge people to pull back and take a look at what is actually happening on the ground. annmarie: let's pull back and look at what's happening.

in pennsylvania, trump is in the lead according to 538 for the first time since july and the senate race has been moved to a tossup, prior leaning democrat. not good signs for harris in a state that is a must win for democrats. mike: no, they are not, but i think that what that is all about is about polling numbers. we should take those seriously, but not literally, as a friend of mine once said. we should also look at things that are intangible. like the turnout machines and the ability to bring people out. that is what gets harris to prevail, barely, in pennsylvania. 2000 16, democrats got surprised. 2020, they didn't get surprised and they barely won.

the harris campaign inherited their ground game from biden and it will be just enough to win there. annmarie: basically, a lot of trump is priced in. he goes on to say that this is not like 2016 when the predicting markets at him under 20%. today it's under 50% in a lot of betting markets. why don't you agree with what is currently being priced in? what are the polls getting wrong? mike: -- terry: the polling shows a very tight race, it's really down to turn out. it's a trope but also true when you got a neck and neck race. and i think that the intangibles on the harris side probably get her to enough votes to win, frankly. the way to put this in pennsylvania, since you used this as an example, turnout around philly and the blue suburbs overwhelmed the rest of the state, the vast majority of which is red.

trump is trying everything he can to pump up at red turnout, particularly people that don't come out to vote a lot. my own that is that -- bet is that methodical turnout will do better than scattershot work at the very end. lisa: anything in particular that you have your eye on that could change the race materially in the next two weeks? terry: two weeks? no. nothing really serious. markets will whip themselves up about jobs reports and a whole bunch of other things, but fundamentally people like to talk about these elections like they are technicians. one issue or another is going to matter and all the rest, but in reality 70% of these folks will already have voted and the people holding themselves back are not thinking about one issue or the other. they are thinking about who i want running the country in the next four years. this this harris person really

ok? am i willing to put up with another four years of trump? do i like four more years of trump? what am i going to be doing? people like to call these things existential choices, but that is the kind of basic choice that undecided voters are looking for. that is not easily charted. jonathan: terry, good to hear from you. closing arguments on the campaign trail for the next two weeks, donald trump is leaning into a simple one. is your life better now than it was four years ago? annmarie: this was the line that he should have used at the debate and he waited until the end to use it and now he tries to hammer at home. what you see is them going to the swing states. they have to go to where the constituents are. where was kamala harris? liz cheney, they think that this is someone who could tell republicans -- it's ok, you can vote for her. what i find fascinating is you had tim walz on "the daily

show," saying that liz cheney and dick cheney are giving permission to folks who want to find a reason to do the right thing, but we won't be implementing those foreign policy decisions. if you are a nikki haley supporter, that's the reason why you might want them to take that foreign policy. jonathan: what are you voting for? annmarie: jonathan: jonathan: exactly. equity futures on the s&p 500, negative by zero point 4%. up next, earnings from gm and a reaction from bloomberg and craig trudell. from new york, this is bloomberg. ♪ -we can make this work. it can help you reach them with confidence. no wonder more than 9 out of 10 of our clients are likely to recommend us. ameriprise financial. advice worth talking about.

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jonathan: equity futures just a little bit lower on the s&p, down .6 on the nasdaq 100. russell 2000, down by .8%. the equity market needs to process what's happening in the bond market, switching up the board. yields are higher through yesterday's session. just a bit higher this morning, the two year is up one single basis point. the focus on the earnings this morning, gm is just dropping, that is good news for general mortar -- general motors. lisa: when you look through, it

is a raise talking about $10 50 cents for the full-year adjusted earnings per share, the higher range from where they had initially been expected to come in. what is amazing to this is how different the tone is from european auto manufacturers and how even in china sales are improving in the second quarter working through their inventories and in the u.s., they are cutting costs and increasing revenues on ev production and are on track to generate profit from electric vehicles. it's a very different story from volkswagen and bmw. jonathan: call it 4% in the premarket. turning to our report out of london and craig trudell, walk me through what gm is getting right and what everyone else seems to be getting wrong. crag: the ev transition, they haven't been without their bumps in this process, right? for some time, gm was trying to

build up its own sort of dedicated ev and battery platform called altium. they brought in a long time former tesla executive to run that side of the business and he is making major changes. the product activity on the ev site is really ramping up and next year will be a busy year for them. i think that it is interesting that we are seeing a production and losses on the tv side as they have really continued to hit their marks and execute extremely well on the old-line business of making big pickups and suvs that have long made them a lot of money and continue to be the main source of their profits. jonathan: it's not just the product mix, it's the regional breakdown on china, in china. dealer inventory falling sharply. what do you think is going on in

the world's second-largest economy? craig: gm is really struggling, like the european names mentioned in china, trying to get their act together to recalibrate what the business is going to be going forward. in broad strokes, what they want to do is stop competing in this very competitive middle market there. they have a really strong business of low priced vehicles that does quite well. they want to try to move upmarket. it won't be without challenges. probably means lower volumes long-term. the outlook for international carmakers is really messy, given the geopolitical forces. it probably makes sense to sort of view the future in china as smaller and more strategic, which seems to be where mary barra's head is at. lisa: the perception of being

shackled to the point where a significant bulk of sales seven from china and that they are tied to that area, and at the same time the walls are not as high for chinese vehicles coming into the european region. in the u.s. is it fundamentally different and is that part of why they can make bold moves and incremental gains as it isn't an overall component of the rough news? craig: that's a spot on read to. here in europe you don't have the full-sized pickup market and full-sized suvs that make gm and ford so much money. you have much more of your business in the sort of smaller car midsized car segments. while there has been some traction in terms of more suvs that are higher-margin and these companies are not without high-margin business in the luxury space, even a full on

manufacturer like vw makes a lot of money selling audis and porches, it is more of a slog in those mass market segments where the chinese manufacturers have just made a remark -- remarkable turn in the last decade or so, making life difficult if you are a european manufacturer. lisa: how much of this a sign of beginning a cycle of new growth and how much of it is them managing costs more effectively and rightsizing certain businesses? frankly, they still face upward shift on potentially higher labor costs and a toggle during a time of transitioning technology in a time of production. craig: it's more so strong execution and keeping your business in order and being able

to count on those go-go days coming back. i don't think that gm is necessarily even counting on ev's being the way that they make money in the near future, they are talking about reducing losses there and getting to where they are on an equal footing with the business going forward and that being where they make a big source of earnings anytime soon. i do think that a key factor here is policy and the manufacturing tax credits passed by the biden administration and what the sort of outlook is for that business going forward. there is potential for major swings in the way forward for the u.s. market in terms of whether or not a stricter co2 emission limit stays in place as the biden administration has

implemented and whether or not the support is therefore this ev battery transmission. it has not been without its issues, but gm is expecting to generate quite a bit of money from manufacturing tax credits with these battery joint ventures in the u.s. spoiling up, potentially a significant disruption if the support goes away and if the co2 limits that have been put into place are eased back down as happened during the first trump administration. annmarie: that's what i wanted to ask you, what is the future of their ev market, how profitable could they be if those subsidies dry up and potentially a red wave where they would actually have to change the law of the inflation reduction act? craig: i think we have seen a somewhat universal dialing back

of needing to recalibrate expectations in terms of ev battery production. we have seen that universally across the major automakers, gm and ford in particular, we are out front there. if you look at those two companies and compare them, the amount of ev production in the works if you are gm is significantly more than ford. they have a lot more products coming to market. the potential for a 180 if you had to look at those businesses, it would be much more disruptive for general motors than for ford. jonathan: it up -- that market is up in the premarket thanks to the chevy silverado, in some ways. lisa: in the u.s., trucks have to be higher-margin businesses

and they have leaned into that. they are working on those plants and it's less dependent on that transition than, say, going out west. jonathan: the u.s., doing better. europe, not so much, falling for the first decline in more than two years. european automobile manufacturers saying that new car registration has fallen compared to a year ago. stellantis posted one of its biggest drops. check it out, registration plummeting 6%. lisa: is this an issue of execution, structural shift, or both. seems like that's what the company has been grappling with as they try to rejigger the framework. how do they come up with a plan, carlos taveras saying they had to come up with some sort of structure of incentivizing people to buy. making it cheaper for them to manufacture in that region or they would be permanently at a competitive disadvantage. jonathan: europe has too much

capacity, arguably the world has too much capacity. if the walls go up stateside, only one region will be able to eat the capacity meet with those tariffs and it goes beyond automobiles. if you think we would get an inflationary shock from a trump presidency, we will have a disinflationary shock from the rest of the world. lisa: this goes to peter scheer and his point he's been are credibly articulate on. the chinese game plan to get them out of what the malaise is that they been and is to produce for the manufacturer of the entire world. where will they go? if the walls are up for the u.s. that could mean disinflation but at the expense of industries that are homegrown. annmarie: that is why we see europe putting walls up with the negotiations around tariffs or places like hungary inviting

chinese auto manufacturers in to build in europe. why? at the end of the day, they have to save jobs, the issue that vw will have before they start closing doors. jonathan: i don't envy being a policymaker right now through 2025. it's really difficult. mary daly saying she doesn't see any reason to start cutting interest rates for now. fed officials favoring a slower pace of reductions. that things could change all over again in about two weeks. lisa: the truth is they are all saying the same thing from different angles. neel kashkari, talking about how he wants to have smaller rate cuts than the ones they began with. this is all basically different sizes from the idea. bold moves, moving incrementally, well above the

neutral rate. going back to what's neutral and how far they can cut, etc., like they are dancing on the head of a pin. economic data, that's what we are feeling. annmarie: that's why the jobs report is so important. what mary daly said is that we are on a path to 2% when it comes to inflation and that i don't want to see the labor markets slowing further. you had that exceptional report spurring concerns that the fed cut too much and doesn't need to cut more. if we get a weaker labor report, that will potentially swing and the other direction. jonathan: giving you the high on the low at the moment, highest 160, low was 75 from deutsche bank, by the way. governor wallace said 100 k, that's the strike impact.

anywhere from 40 to 100 k, deutsche bank is down. lisa: to a certain degree, it will be discounted or seen as a trend of massive deceleration in the labor market. it gets messy, good luck, have fun. that's a reason why a lot of them, mary daly in particular said that she is looking past this, she is looking at other factors like qualitative data. jonathan: the beige book, things like that, that's later this week, tomorrow, you excited? lisa: maybe wednesday? today? tear option? beige book jonathan:? am thinking. jonathan:that is how your brain works. let's get the latest from the middle east. antony blinken, back in the middle east with benjamin netanyahu as the defense minister is going to be meeting later today as well, hoping that yaya's and want just last week might open the way for a

cease-fire. very little sign of that just yet. annmarie: very little sign of that. it's the 11th trip into the region since the terror attack more than a year from now. they want to try to slow things down, two weeks out from the u.s. presidential election. does anyone think people get a cease-fire before then? what they don't want to see is the escalations getting hotter. already overnight, what did we see? israel overnight was attacked near a hospital targeting near a terrorist target, hezbollah, launching missiles back towards tel aviv. jonathan: things bouncing back this week, grinding higher, point 9%, approaching 75 on brent. a similar amount, with the update on stories elsewhere this morning, let's cross over to dani burger. dani: boats are pouring in, 15

million have been cast nationally. democratic voters are leading the totals. republicans are not far behind. 40% have been cast for democrats. 36 from the republicans. the cheesecake factory is being urged to break up, jcp having built a 2% in the chain, urging executives to spring off -- spin of three smaller restaurant brands into smaller companies. jcp told cheesecake factory that they would be willing to inject capital to help it grow. greg norman appealed to a deal with a tournament held at the deal if the country club in new delhi. it would see the venue posting an international series with 140 international golfers and 16

live league golfers. jonathan: still so sad that golf is divided. up next, deciphering the trump trade. >> if one candidate is talking about tariffs in another is talking about higher taxes, they are both attacks. what does that mean? inflation. not so much a trump trade or not. jonathan: big moves in the bond market that we will break down, next to new york. this is bloomberg. ♪

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jonathan: the morning of the interest rate cut from the federal reserve in september, the 10-year yield opening up at 3.64 and look at things now, 4.2, a move of 50 basis points

plus. another single basis point this morning. deciphering the trump trade this morning. >> if one candidate is talking about tariffs in another is talking about higher taxes, they are both taxes. what does that mean? inflation. that is one reason why you see yields moving higher. it's not so much a trump trade or not. all of it is putting pressure on rates in it something that we will have to deal with as we move into the months ahead. jonathan: traders are paring bets on the fed rate cuts and pricing in expectations for the u.s. election. split congress is one prediction, writing "democratic sweep would be the most negative outcome for equities, republicans bringing lower taxes, partially offset over concerns with the costs and inflation impact.

curt joins us now in the studio. you are wearing a fantastic suit because you said that -- you sit on fixed income in politics over the next impact. what are you seeing? >> is not just a bond market, you are seeing it in the sectors of the stock market that would tend to favor trump. a trump victory. his numbers have improved recently. the bond market is also telling another story, which is that the front-end of the yield curve has priced in more aggressive rate cuts than we thought with a growth backdrop that has improved. we have seen a bit of a bear flattening of the curve over the past month or so. i think that that move higher over the yields is more about a growth pickup then it is about anything related to concerns about inflation. so, if we get inflation leading

to higher rates, then i'm concerned. at a 420 yield on the 10 year, that is looking more attractive. lisa: you are not talking about trump winning? kurt: it's a growth backdrop. the election outcome is a secondary factor. polls are tight. this could go either way. for the battleground states are within a percentage point. this is not an election that has been decided. we still have a couple of weeks to go. because of that, it seems unlikely that the bond market and equity market would be pricing in today and more complete picture of how the election will unfold. annmarie: whether or not it is harris were trump, it could be inflationary. with trump, tariffs. harris, higher corporate taxes. both could be very inflationary

with a tax cut for people in the middle income. by when the bond market pricing that bond market? kurt: that that is missing a big element of what we are seeing in d.c. over the next two years, constraints on government. when you think about the senate and the house, if you get a united government, you are going to have very narrow majorities. the prospects for divided government under harris are quite high. the senate looks very likely to shift republican. so, when it comes to all the policy prescriptions that have been put out on the campaign trail, not a lot of them are going to get done. when it comes to personal income tax cuts and extending them, we will probably get most if not all of them. on the corporate tax side would you think about the current state of deficits and the debt load, adding another tax cut in the case of trump will be hard to do with the fiscal hawks.

if you have a divided government under harris, that is just a nonstarter. lisa: you don't think that what we are seeing in the bond market is a trump trade. are you saying that the market won't price in higher inflation if the -- of trump does win? could you see yields climbing significantly in the immediate aftermath? kurt: yes, there will be that knee-jerk reaction is there always is. we could get a steepener of the yield curve in the event of a trump victory, you could get the dollar appreciating quite a bit. even though it's already very expensive, you think about those reactions. i think that the market is going to get back to what is the foundational elements of the markets we are seeing today. that the economy is strong. that the fed is cutting interest rates into the end of next year and maybe even further than that. we have had strong earnings growth that will remain strong

into the next year. where are the concerns on the trump victory? it's on tariffs. the question is, how strong will they be? if they get more stagflation area the more that tariffs are raised, that cycles back on itself. if it becomes inflationary and bad for the economy, that might be a signal to the administration that they might want to do a deal or make some kind of adjustment. lisa: terry talked about the key tell being the dollar weakening in tandem after the election. do you see that as a possibility? if they get concerned about the u.s. deficit? kurt: deficits and debt are a secondary factor. they are not showing up and influencing where the bond market is headed. the principal direction is coming from the macroeconomy. it's coming from the decline in

inflation rates, the trend rate of growth in the economy, if you will, with nominal gdp that we are getting back there. i also think that it is possible that the dollar could weaken lightly because it is so strong right now. the longer term view that we tell our clients is to keep with the long-term and keep the focus on the strategic portfolio. make tactical trades if you can that make sense. for the most part, move towards strategic allocation. jonathan: that was great. got to do it again soon and before the election. two weeks ago. coming up next in our second hour, cameron, mary allen, torsten, and chris. from new york city, this is bloomberg. ♪

>> if the micro were murky we would focus on the macro. >> the base case is an economy that just softens up, doesn't go to recession, not even close. >> in the driving seat is that the economy is resilient. that has been on full display. >> that is not the type of economy that would get easing ahead, but the fed is committed and the direction is clear. >> calls into question the need for additional rate cuts as we

look to the november policy decision. >> this is bloomberg surveillance with jonathan ferro, lisa abramowicz, and annmarie hordern. jonathan: the second hour of bloomberg surveillance starts now with a lively debate about this, bond yields in america climbing by double-digit basis points in yesterday's session. the 1010-year moves to 4.20. on the front end of the curve come up another single basis point. 4.04%. the debate around the table is that the data or the politics? lisa: we have seen better than expected data, including earnings that beat expectations and companies have been rewarded. a significant portion has come from the real yields adjusted for inflation. they have risen almost 1.9% on the 10 year. if you look at how much is from inflation expectations, little bit, but this is a commentary on

people demanding a higher premium to a longer-term u.s. bonds in the face of a host of uncertainties. annmarie: maybe when you look at it you don't know the outcome of the u.s. election. it could be about the fed's path forward. if you look at the politics other parts of the market are pricing in a trump trade. the betting market, the financial market, they are saying that that could be the outcome. we are getting ahead of it. what does a trump trade mean? higher inflation certainly next year. potentially then the fed hiking. or you look at it and you say regardless of who wins they will be a lot more physical spending. jonathan: not just bonds, financials too. we would say what would be a lighter touch on regulation if it is donald trump, possibly, but the difficulty with the financials is the same difficulty that you have with the bond market. it is difficult to unpack. what about the fundamentals and what about the guessing game in the politics in the election that's two weeks away? on the financials come the earnings were decent. the data was good.

is it the politics, the data, or the earnings? maybe it's a mix of all of the above? lisa: how about just yes? people keep repeating at rbc capital markets that there is a sense that it is hard to distinguish valuations from the reality on the ground. it is very hard for people to bet against, considering that it's a two-pronged type of wager. annmarie: goldman sachs spoke to two individuals who i think are important for the democrats and republicans. the former chairman of the council of economic advisers under trump and jared bernstein, the current individual. extending the tax cut and jobs act and relaxing regulation should be the priorities and could be enacted quickly. then he goes into a host of reasons why there should be tariffs. jared bernstein, i would prioritize affordable housing and childcare. which i consider to be existential market failures. what does this mean? this is a ton of fiscal spending coming out of washington

regardless of who wins. jonathan: equity futures pulling back in the face of the move in the bond market. down much more on the russell, the small caps down by .7%. a bit of outperformance. a beat and a raise. general motors up. lisa: they really put out there the full year projection that was at the higher in of estimates between $10 and $10.50 per share. the question about how different the u.s. auto manufacturers are from european ones. is it because they are more isolated from china? or is this -- not a rejection, but their take on the ev transition, the pace they want to go, and how much they consider that to be a profitable area versus big trucks? jonathan: very big trucks, very profitable big trucks. coming up, treasury yields at the highest level since july.

the bloomberg opinion on why one-party control is steamrolling voters. and explaining why he is still in the know-landing camp. we begin with treasury yields as investors reassess the outlook for monetary policy and fiscal fears grow two weeks out from the election. "10 year yields are moving higher because economic surprises and trump republican sweep odds are rising. we wouldn't be surprised to see a near-term jump in yields that could be reversed post the election." cameron, welcome to the program. what is the lesson from 2016 with regards to some of the moves we are seeing now? cameron: it is an important one. after this prize election of trump in 2016 you saw in over 100 basis point jump in the 10 year yield under two months. into 2017, you saw yields start to fade and trade lower, even as we were negotiating things like

the tax cuts and jobs act, which contributed to the overall deficit. we could be in a sell the rumor buy the news-type of scenario pricing and the potential of higher deficits, but the reality is that a lot of the policies that could contribute to higher deficits, like the extension of the tax cuts, don't get negotiated until we get closer to the end of 2020 five into 2026. lisa: regardless of who wins? cameron: that is correct. both candidates are talking about potential additions to deficits. they really aren't considering things like all-out austerity. there off -- there are offsets. trump's camp, offsetting the tax cuts through tariffs, harris is

talking about offsetting the extension of personal tax cuts through higher corporate taxes, but even with all of that you see this contributing to overall deficits, which means that we have to get used to to hire treasury issuance and higher deficits because neither party is talking about all-out austerity. annmarie: the interesting thing is that a lot of people suspect that this type of scenario with more physical spending and bigger deficits comes with higher yields, but also with more robust gains for a lot of equities. a lot of companies will maybe do better if there's less regulation, fewer taxes, etc. i see you shrugging. that is what i wanted to ask. how much is this the opposite? how much does it lead to the drop higher yields sucking investors into the violence space at the expense of equities there? cameron: a lot hinges on what the fed does in this environment. if you go to back to econ 101 classes, you would argue

that if you've highly stimulative fiscal policy you shouldn't have highly stimulative monetary policy, because you get inflation. what's interesting is, given the fact that you have high fiscal stimulus at the same time as an underlying economy that remains resilient, you are now having the fed talk about potentially hundreds of basis points of cuts to get back to this phantom neutral rate which would effectively be like throwing lighter fluid on a fire already of this underlying strength within the economy. it raises the question of, if we actually get these kinds of deficit blowouts, do you get as many cuts as the fed or the bond market has currently priced in? annmarie: is that potentially more for the market is reading into, less of the politics? cameron: potential he so. lisa's point about inflation breakevens is interesting. your sing and all-out confidence by the bond market that the fed

will be successful getting inflation back to 2%. although we don't see signs today that inflation is re-accelerating -- look at things like wages, oil prices, observable rents, none points to a minute re-acceleration and inflation. but we can't rule out higher or stickier inflation in 2025 given the backdrop of stimulative monetary stimulative fiscal into a stronger resilient economy. annmarie: tcjj, that needs to be hammered out through the year and it probably won't get done until the very end of 2025, but what about tariffs and implications for the bond market? cameron: that is something that can be done immediately and it could weigh on growth. we typically think of tariffs as a regressive tax, that it weighs on consumption. it is a question of, if tariffs across the board, not the kinds

of focused tariffs that we saw during trump's last term, but brought tariffs across the board, could it contribute to inflation? you're talking about putting tariffs on things that we can't produce in the u.s. things like bananas or fish, where we tend to import most of what we consume. that would be inflationary in the sense that it is a one-time reset in prices. does that catalyze a greater reflation area cycle similar to what we had out of the pandemic where it effectively acts as a supply shock? we have the biggest question where if you get tariffs and immigration restrictions, could you see a supply shock similar to the pandemic and thus the second wave of inflation? jonathan: we have to put money to work with that in mind. equities close to all-time highs. bond yields at the highest since july. what do you do now? cameron: a certain degree of

patience is warranted within credit markets which are priced for perfection and rod equity markets which we think are priced for perfection as well. there are opportunities under the surface where we see names that are trading at more reasonable valuations. we think that valuation discipline is probably the most important thing to have at this time, given the starting point of such extended and elevated valuations. it's coming back to the fundamentals of finding companies we like with strong balance sheets, strong free cash flow, but aren't being given big premium multiples because they don't have as exciting of narratives. we think you have to remain ultimately valuation disciplined. the market is not contemplating any kind of growth slowdown or any kind of inflation reacceleration, which we think could be two different polar risks into 2025. lisa: is this a polite way of you saying that you think goldman sachs is right that the annualized returns on the s&p

500 index level will be tepid over the next decade? cameron: it's possible. we know that lost decades happen within equity markets, but the biggest and host important message there is that doesn't mean to be un-invested. what we see in. the low returns is rotations and leadership that provide opportunities for investors. the 1970's was a lost decade, but the leadership shifted from the growth stocks to value stocks. a similar thing happened in the 2000's. there is opportunity of the volatility that can happen in a low return environment. there are a lot of ways to get to 3%. you could chop sideways for 10 euros. you could have a rally at the crash. or you could have a crash and recovery. it is incredibly path dependent. there is a marrying of the tactical that provides opportunities with the strategic even if you knew for certainty it would be 3%. you have to know what the tactical path will be. jonathan: thank you.

new age wealth on this equity market. your stock market is negative, session lows down by 0.5%. here is your bloomberg brief with dani burger. dani: gm, higher premarket one point 6%. the automaker reported third-quarter earnings that beat wall street estimates raising its for your guidance. there was strong u.s. demand for suvs and trucks that offset losses from the ev business and red ink in china. elsewhere, ge shares are also lower premarket, 5.6%. the company reported a jump in third-quarter profit and raised the forward guidance. they are capitalizing on maintenance businesses and an improved outlook pointing to ge's adaptive ability to a volatile environment plagued by supply chain issues. a day after the new york liberty won their first of you nba title, new contest is emerging in the leak.

according to the union, players opted out of their collective bargaining agreement two years before it expired pushing for more lucrative deals. if the two sides reach a deal it would go into effect in 2026. if not a lockout may occur that season. the union has a handful of priorities for negotiations including a cut of revenue, higher salaries, benefits for retirees and pregnancy. that is your brief. jonathan: mourn about 30 minutes. next on the program, the partisan divide. fmr. pres. trump: we have been through a lot together, haven't we? we suffered for four years. v.p. harris: we need to be able to have these good, intense debates about issues. that are grounded in fact. jonathan: that conversation is up next. live from new york, good morning. ♪

welcome to ameriprise. i'm sam morrison. my brother max recommended you. so, my best friend sophie says you've been a huge help. at ameriprise financial, more than 9 out of 10 of our clients are likely to recommend us. our neighbors, the garcía's, love working with you. because the advice we give is personalized, -hey, john reese, jr. -how's your father doing? to help reach your goals with confidence. my sister's told me so much about you. that's why it's more than advice worth listening to. it's advice worth talking about. ameriprise financial.

jonathan: two weeks from election day, this market gets more and more interesting. pulling back from all-time highs down .5% on the s&p. the interest at the moment is in the bond market. yields up another single basis point, 4.2056. lisa: we have been discussing how much has to do with the expectation for the results of the election and how much has to do with better than expected data. you underline the actual yield rise. you see inflation expectations and you see it in the extra premium, the real yield come over inflation expectations. jonathan: the two-year is up another basis point. under surveillance this morning, the partisan divide. fmr. pres. trump: we have been through a lot together, haven't we? we suffered for four years. for four years our country

suffered. v.p. harris: we need a healthy two-party system. we need to be able to have these good, intense debates about issues that are grounded in fact. jonathan: here is the latest. kamala harris highlighting the importance of a healthy two-party system but bloomberg opinion pointing out that 82% of americans live in a one party controlled state. steamrolling u.s. voters, writing that the shifting dynamic is discouraging voter engagement and into many places enabling the party in power to ignore perspectives outside of their base. in short, political choice is vanishing. welcome to the program. let's start with defining a one party controlled state and if it needs fixing, how do we fix it? >> one party control is when both houses of a state's legislature and the governor is under the control of one party. we are in the situation, as you

mentioned, 82 percent of the country is in a state controlled by a single party. this is the highest that we've seen in 70 years, in modern history we haven't seen this kind of lopsided control at the state level. it really does result in fewer people having their voice heard. it goes down to the point where there is a lot of legislation that is passed that, according to the data, and we look deeply into what is happening, there's are so many decisions that are made that meet only -- that only one party is voting on. there were 2000 pieces of legislation on big items that were passed between 2021 and 2024 without a single vote from the opposing party in states across the nation. so, this is really a lopsided situation. annmarie: to understand where we

are, can you walk us through how we got there? mary ellen: sure, a lot has to do with the fact that we watched gerrymandering happening where one party that assumes control wants to retain it. jiggers the map in such a way that it benefits its own party and reelects people. we watched as there has been a growing apathy among voters. when two parties do not compete it obviously suppresses voter engagement because there is -- because fewer people are competing for the same jobs. the thing that is stunning is the number of people at the state legislature level that walk into office with either only a primary or even more alarming with no primary and

walk in without competition. this year, 38% of all state party legislative seats will be filled without a challenge from the opposing party. really, that is thousands of seats. 2100 or more. that signals that we really have an absence of competition, which means that the super majorities have control of a legislature and can push things through. annmarie: i'm thinking of the south in big red states like florida and texas. when you look at what is happening, you are seeing some competition in a statewide senate race when it comes to texas. aren't the demographics shifting and that could mean more representation for democrats in the south were republicans in the north? you do see people migrating in different directions.

mary ellen: it is one thing to have an electorate that is blue and red, and another thing to have the state legislature. that's what we are seeing. in places like georgia that has two democratic state u.s. senators and a republican governor, the republican legislature there has been under one-party control for decades. that is reflected in the kinds of policies that they are passing at the state level. texas is another example. yes, there may be competition in these washington and congressional-related seats. in some places actually within the democrat -- within the governorship. when it comes to the state legislature where policies can affect people's lives, that is where the competition has disappeared.

that has an effect on people in many ways. states will be certifying the presidential election this year. states determine how much medicaid gets to people. health care decisions. broad decisions as it relates to education, obviously. we will be talking more about that if trump is elected, because he wants to push decisions back to the states, like abortion, as we have watched. yes, there is some competition and some of these big states, especially those growing in blue metropolitan areas, but we don't see that reflected often, especially in the south and their state legislatures. lisa: depose a hypothetical to get a better sense of the picture, are you saying that gerrymandering has made it to where even if there's a significant majority in the

population of the opposing party you would still see a single party rule that has been the same for a very long time and a lot of states? mary ellen: that is exactly right. once the party is in control, they can draw the maps to make sure that their party stays in control. the answer to this is to reward competition. when you elect to someone, when you have a choice between who is going to be elected, look at the people who are more willing to work with the other side. when they ice out debate, when legislative leaders shut off the mics and don't want to let others discuss an issue, and even more importantly when they don't hear the bills of the opposing party, that is the kind of thing that reinforces this vicious cycle. lisa: how much are we seeing

people vote with their feet? if they don't like the policies, can't they move to another state? mary ellen: there seems to be some sorting in that regard, but think about that. do we really want to be a state where if you happen to be in the minority party you have zero voice? geography should not determine destiny when it comes to a democracy. your voice, you should have a right to be heard. it doesn't mean that your party has to control everything, but there needs to be that bipartisan willingness. what our data shows is that it is increasingly less likely, especially in red states, that the policies that are passed have public support. we looked at -- there is a lot of data from some really smart

political scientists who looked at the kind of policies passed in red and blue trifecta states. we analyzed that and found 53% of the major policies passed in red state received the support of the majority of voters. blue trifecta states had the support of 77% of voters. jonathan: we have to leave it there. mary ellen klas. why he still sees a no-landing in america, next. ♪

jonathan: it about 60 minutes will set down with jill who will compare the united states to europe and we will talk about the different perspectives on the u.s. election. take a listen to seth carpenter of morgan stanley. in the u.s. the majority of clients doubt former president's resolve to add the tariffs he has promised. in europe london was convinced he should be taken fully at his word. different perspectives on tariffs in america. lisa: how much of this is because what people expect ramifications to be? a lot of people sing the ramifications will be a lot bigger for european countries if

the u.s. does put up the walls even to european allies. jonathan: i would agree that that is determined by varying degrees of fear about what it might mean personally. equity futures on the s&p 500 look a little bit like this. pulling back on the s&p, pulling back on the nasdaq. we are down on the russell, on the s&p. the fireworks are in the bond market. yields a little bit higher. much higher than yesterday's session by double digit basis points from 4.10 to 4.20. lisa: it is shocking to see how yields have bounced back to where they were before we got the july jobs report. we have retraced any of the expected deceleration of the economy, the need for the fed to cut rates aggressively.

the fed is still plenty to cut rates. what is interesting is this is a market grappling not only with election risk, not only with the citi u.s. surprise index coming in at the highest level since april, but also the prospect going forward we will end up with is a gift gilly higher neutral rate and what they thought a couple months ago. jonathan: go back to when the fed cut interest rates 50 basis points. the 10 year was at about 3.60. that is a big repricing of the yield curve after fed easing and the promise of more. this market is not being driven by fed speak. it is being driven by the data, the expected date of one year out based on what may or may not happen in an election two weeks ago. lisa: especially when you had earnings and consumers can keep spending. it is soft landing or bonnet we've been talking about. maybe we have to ask -- it is a soft landing nerve anna --

nirvana. jonathan: i want to finish on foreign-exchange. the dollar of the back of the high yields. euro-dollar coming close to breaking down to 1.07. under surveillance this morning, shares of gm rising in the premarket. the automaker delivering upbeat. the company at eight we remain on track to reach our 2024 ev production and profitability targets. that stock up 1.1%. lisa: what struck all of us was this divergence between u.s. automated factors and what we heard from the european one. it is a stark difference. what i want to here is what kind of growth is there. how much of this is u.s. auto manufacturing sector ready to rip versus cutting costs and being disciplined and executing where they can. it will make the difference between a potential stock that can gain and an entire

industrial sector or may be you guys did a good job, what you have next quarter. annmarie: especially as the battery-powered models continue to lose money for gm. you have mary barra saying the company is working to make tv's profitable as quickly as possible. how much more difficult will that be if you dial back some of the subsidies consumers can get when it comes to purchasing electric vehicles. jonathan: the destination for government officials is still the same. they want a full transition. they have had a massive reality check about how long it will take to get that. automakers are saying your goals are so unrealistic not make them and you have to admit we cannot wake them -- we cannot make them. you still need to provide more state aid and if he did not willing to shut a lot of factories across the continent. lisa: which is the reason why the world bank meetings they will come out and say deficit, deficit.

at the same time auto manufacturers are saying you need to spend more to support us or we will have to close plans and that will mean losses of jobs. it is a double edged sword between a rock and a hard place. jonathan: gm and the premarket up 1%. mirsky raising its food -- m aersk raising its guidance, citing higher freight demand. it expects the red sea to remain safe well into next year. annmarie: we are a year into this conflict and still you do not see the regular flow of trade going through the red sea. now they are going around africa and that is why it is so expensive. maersk does not have a timeline because the u.s. government does not have a timeline of when they are potentially not going to have vessels hit by houthis in the red sea. that is an underappreciated story for this global economy and the impact of what that story means for inflation.

jonathan: this is not something you can provide a timeline for. this comes down to policy. you are provide appropriate deterrence in the region or not. annmarie: the deterrence is there right now. it means basically u.s. men and women are predicting what kind -- are protecting what kind of vessels are able to go through the red sea, russian and chinese. not western vessels. they are too concerned they would get hit. they're the ones paying the costs and going around africa. jonathan: that is the latest on our situation in the red sea. i wish we spent more time on that. the u.s. continuing to put pressure on russia, the u.s. sanctioned a new are to lng export facility last year but stopped short of sanctioning other plants. treasury yields continue their climb on inflation expectations. torsten slok of apollo saying

tailwinds are increasing the likelihood the fed will have to reverse course at its november meeting. torsten slok is with us around the table. when you say reverse course, do mean pause or start going the other way? torsten: i mean pause. jonathan: share the tailwinds with us. torsten: most importantly, when the fed turns dovish financial conditions begin to ease. this is been a strong tail wind the september meeting. underlying the growth outlook we also had the chips act, the inflation reduction act. those are strong tailwinds that continued to provide support to construction. we have a lot of spending on data centers, on ai. i have not meant anyone saying i will not build a data center because the fed raised rates 25 basis points. this is a structural force. at the same time we have the

highest level stock markets are rallying, credit markets are tight. at the same time consumers are strong. overall the tailwind in the form of what will the outlook look like for the next several quarter continues to not be surprising why we are getting 254,000 jobs, why gdp growth in the second quarter was 3% and atlanta growth was 3.4%. you begin to ask the question where is the slow down, and as we've been debating before is monetary policy restrictive and if it is so restrictive wise the economy doing well? jonathan: they don't believe it is restrictive, they believe it is sufficiently restrictive. you have your doubts? torsten: it becomes a bit of a semantics of what exactly does it mean. a long time the argument was with the fed fund rate at 5% and we are supposed to go to 3%, that must imply that we have very restrictive policy. the incoming data across the

board, if you look at the daily data for how many people go to restaurants is still strong, how many people fly on airplanes. daily data very strong. retail sales strong. the number of people who are at the moment spending across most categories of consumption and so on and the retail sales report last week are also very strong. it is not even the case there was a slow down last week. it is still the case that things are chugging along very nicely. lisa: you are seeing in talking to different executives that they're not planning on hiring mass groups of people and they are allowing attrition to shrink their workforces. you are seeing signs there is evening out in the labor front and that seems to be the big concern for the federal reserve that sees that as a slower moving ship. why do you think that isn't enough to create a landing? torsten: if you look at the survey of the announced job

cuts, that is still very low. the answer is there is no increase in mass layoffs. in the jolt survey the layoff rate, meaning the percentage of people who lose their jobs is 1%. total employment in the u.s. is 160 million people have a job. layoff rate means 1% gets involuntary laid off each year. that has been flat. there are a lot of worries and a lot of things on the horizon including the election and other things we can begin to think about. the bottom line is the incoming data continues to show the economy is doing just fine. jobless claims, we had hurricane issues. look at the next nonfarm payrolls report. it is an area where the fed will basically have to reverse course and begin to stay on hold. lisa: are you completely discounting the next jobs report? torsten: i think the pain trade for the market is if it is a lot

better. everyone is expecting it to be bad. if everyone is protecting it to be bad it can be the economy slowing down. imagine if that comes in at 150 or 200 than the markets as may be are not that bad. taking the totality of the data and what is going on still tells me we are in the know landing scenario. it is difficult to argue monetary policy is restrictive. jonathan: how anymore months of this do you need for the federal reserve to come around to your view? torsten: i think the next employment report is important but everyone is expecting it not to be bad. it will not take much more than a little bit better than expected. jonathan: what is bad? you said 150 might be the pain trade? torsten: hamilton institute and brookings have been quantifying what is the level of employment growth now that we have had so much immigration, and they said we should be more like 200,000. the question is if we get 150,000 that will certainly be

below that. if you correct for hurricanes i would say of the report would be 150,000. that would be below 100,000. the totality of the data that comes in justifies wide long rates are going up. lisa: john asked a question about potential re-inflation. even as people see all of this robustness they see prices continuing to come down and that will be enough to justify some of the fed moves. when you take a look at the panoply of potential policy we could potentially get, when you start talking about manufacturing more in the u.s., when you start talking more about tax cuts, how much does that actually feed into inflation. what are your models looking at? torsten: what is most important is how much does it support gdp? if you look at it from the broader perspective the trump tax cuts that are running out by late 2025 become very important. that is still quite some time

away. the story is still we still have tail wind from the fundamental reasons why the economy continues to do so well. what becomes important for inflation is if this easing that is being signaled by the fed begins to mean we still have more job growth and more wage growth which are very important drivers of housing demand, that means 40% of the cpi is housing. if that begins to re-accelerate we could have the risk inflation begins to move higher. that is why we are watching very carefully what is going on in the housing market. there are a number of indicators suggesting more signs of life which could begin to be the problem that inflation could move higher. annmarie: is that just a vicious cycle? people think the fed will cut more so they start to look at may be getting on the property ladder, may be going out and getting construction done on their homes? torsten: the fed has been signaling that now rates are

going down. the pivot in december last year was certainly after saying rates are going up for several years. the key drivers of housing demand are three things. mortgage rates are little bit up. the disc other factors are wage and income growth and of the same time job growth. wage growth and job growth still doing fine. it is not surprising we are seeing the housing indicators show signs of life. annmarie: you have seen the bond market. some people saying this is down to a trump trade. do you believe that? torsten: if we look at the term premium from the san francisco fed and the new york fed they been going up quite a lot. it started going up exactly after the last employment report. in that sense i would say most of the rise in the term premium, meaning most of the rise of why it people are now betting higher rates and why is oil curve steepening is because of this issue people are looking at from the business side it seemed a

lot stronger than what we saw before. there a lot of people squeezed out of the short view, meaning the economy is going down and therefore rates have to go up. there a lot of people beginning to come to the conclusion that may be monetary policy is not as restrictive as the fed has been seeing and as the market has been target cell for quite some time. lisa: in your scenario, your look at the world as it is, does that mean where rates are, even if they go to 4.5%, you could see a sustainable rally and this is a less bond sensitive equity market than a lot of people think? torsten: i think corporate earnings are doing quite well. the key issue is the real level is higher. that means private credit will give high yields, fixed income will be of high yields, and investors and asset allocations come the key message is we are not going back to zero. structures put in place when interest rates were zero will continue to be vulnerable. companies that have earnings

continue to be attractive on the debt and equity side. the reason why that is important is that means for equities is this discussion about small-cap into large-cap will dominate the debate because small-cap will continue to be vulnerable if rates are higher for longer because if i had a company with no revenue or no earnings, when my debt costs go up i would stay higher for longer, of course i would get in trouble before other countries -- other companies that have earnings. it is about investing in companies that have earnings and that is why those parts of the private equity world where you invest in companies with earnings generally tend to do a lot better. jonathan: this was a clinic, it always is. we have had a healthy debate on this topic. torsten slok of apollo. with an update on stories elsewhere -- here is dani burger. dani: strategists are out with a warning that exposure to the s&p 500 have reached levels that were followed by 10% slump in

the past. the team says positioning risks are rising. the s&p 500 is up over 20% so far this year. norway is 1.8 showing dollars sovereign wealth fund returned $76 billion in the third quarter. those numbers reflect brought equity gains of declining interest rates. norway's central bank added 4.5% on stocks and for perdue percent on fixed income investment according to a statement this morning. russia and president vladimir putin are playing host to the country's biggest gathering of world leaders since the invasion of ukraine. leaders of 32 countries and a host of organizations will join the summit today. members are split on the direction of the group and interests as a counterweight to western countries. there debating less reliance on the u.s. dollar. that is your brief. jonathan: more from dani in

about 30 minutes. up next, room to run for the banks. >> the amount of liquidity in the markets is phenomenal. the banks have plenty of room to lend. jonathan: live from new york, good morning. ♪

jonathan: the equity market rally stalling a little bit this week. down yesterday a little bit, down this morning a little bit. down .5% on the s&p 500. under surveillance, room to run for the banks. >> the fed will continue to ease and cut rates between now and the end of next year. the amount of liquidity in the markets is phenomenal. the banks have plenty of room.

they say the economy looking better. we could see better lending in commercial and industrial lending as companies start to build up inventories in the commercial banks will be beneficiaries of this. jonathan: the big banks rallying on the back of earnings. "we see many banks capable of catching up to the leaders as their third quarter earnings have been solid and more important their outlook for third quarter and early 2025 is positive." chris joins us. major banks on the s&p 500 up 25% in 2024. in your opinion the recent move, there's been some debate on the program about this, is it about the earnings or the politics or a little bit of both? chris: i think it is more about earnings. earnings are signaling credit is much better than anticipated. if you go back to spring of this year there was a lot of credit fear in the banking system about another failure like we had in

2023. that is completely in the rearview mirror and the industry is in a much better place. credit problems very much under control. the signals for fourth quarter will stay low on losses and the fed's recent cut gives a lot of flexibility for problems that exist in commercial real estate. i think we are in a good spot. now we have the acceleration of net interest income and net interest margins. it'll be interesting to see of the fed does pause, by think overall we are in a very good spot. lisa: do you think regional banks are ready to start accelerating their lending? we are wondering about the state of the economy. have we got to the point where yields are low enough to be major lenders to a lot of the small businesses in their communities? chris: i think we definitely are. i think banks around the diet the last 18 months to give themselves capital flexibility.

now that is behind us. going forward demand will pick up. for back to go from 2% to 3% growth is very important, particular when it interest margins are starting to inch up. i think lending will improve but the paste next year it the no lending scenario could be quite possible. lisa: do you have a sense of the risk appetite of some of these banks? i like that you talked about no landing. if we have banks in a re-accelerating their lending mechanisms into an economy that looks pretty good, don't you start to look at a re-acceleration and perhaps even inflation levels and benchmark rates staying at this level for a longer time? chris: i think it is a real scenario. it is one of the reasons i've been loath to cut my forecast for the fed. i think the fed funds will be slowed to 4.50 and 4.25.

there is little bit of steepness in the yield curve that is healthy and if anything the cost of funds has rolled over. right now you want more volume. i think the risk appetite is incrementally better. it will not be dramatically higher but it will be better than it had been. jonathan: let's make sure we finish on top picks. what are they? chris: i like when to trust wtf see, and also w al western alliance which was penalized on friday. jonathan: thank you, sara. -- thank you, sir. let's compare and contrast notes. we came in asking if it is the data or the politics. torsten slok suggesting the data . a conversation there about the banks. is it the earnings or the politics? it is the earnings according to chris. lisa: he is talking about the

likes of western alliance, which is one of the most beat up stocks. this looks like a fundamental story was the overlay of people looking to make a definitive statement about the election we have to deal with for another couple of weeks and have to make something sound smart. not to be skeptical. i think there's a lot of that. all of these analysts have to talk to clients about the election and come up with something smart to say. this could be at. honestly do we know anything about how will shake out? jonathan: the number one question i have is how quickly do you think it will take to get a result? lisa: i hope it will come right away. annmarie: 40 days. this could be weeks. jonathan: may be longer. live from new york, this is bloomberg. ♪

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>> if you look at the environment in the u.s. it is pretty encouraging. >> if you're printing earnings growth like we are printing it

will be hard to keep people out of u.s. equity markets. >> sentiment is not overly enthusiastic but certainly bordering. >> with these valuations at these levels and makes it hard to have a positive surprise and mix it easier to have a negative surprise. >> look at equities. that is where i look for opportunities. >> this is "bloomberg surveillance" with jonathan ferro, lisa abramowicz, and annmarie hordern. jonathan: what a move to start the week in the global bond market. the double-digit move on the 10 year yield in america. in germany a similar amount. in australia a move of 16 basis points. a global selloff the global market. yield stabilize close to 4.20 on the 10 year. 4.05%. yields up two basis points. lisa: we parse through weather has to do with u.s. election or economic data. there is a larger question that the supply of debt coming online is significant in the economy does not seem to be falling off

a cliff thanks to the u.s. mainly. it raises the question about whether we are permanently in a higher rate market for a longer time in the big question is how much influence that has on their asset classes. annmarie: torsten slok said look at the term premium, that has been rising since the middle of september. jonathan, you brought up neil dutta earlier. his line. working assumption that global markets a lot of trump price did. the election is just 14 days out. if you have any idea on how you think this is going to go you will start to add to these financial markets. jonathan: i am pleased you brought up neil dutta because he has a bit of a different view compared to torsten slok. he points to the anxiety and the labor market which is something you appointed to as well as a sign the selloff of q4 through the end of q4 is not as good as some people think. lisa: if you listen to what

companies are saying, that is the reason we will be listening to the beige book, we will be picking out nuggets. they are not saying they are looking to hire. they're looking for people to leave. your hearing about cost-cutting, still engaging with tossed -- with cost cuts. this is not gangbusters. it raises the question of should you start to see layoffs? should there be any stock or concern going forward? jonathan: and the equity market, close to session lows. the s&p 500 down .4%. on the russell we are down .6%. catching up week -- coming up we catch up with -- we begin with bond yields reaching the highest level since july as investors

scale back rate cut beds and consider a donald trump and but -- election win. "while it may be months before we know the fed is able to cut rates fast enough to resuscitate weak areas of the economy, the bifurcated age of the economy brings risk. there is less room for error when only a fraction of the economy is healthy." brent joins us for more. last time we had this conversation we were debating whether the fed is too late. now people are saying maybe the fed was too early. what you say back to them? brent: investors are way too optimistic investors will cut rates in a neat way. there is the possibility they cut rates too late. they don't know and we don't know. there is the chance the fed has cut too early already in inflation pressures are coming back. the narrative was the fed would cut rates and everything would be well and it would alleviate

interest on the economy. the fed cut rates and the 10 year treasury's 60 basis points higher which is pushing mortgages higher and is made housing more unavailable -- more unaffordable. jonathan: you are cautious last time around. slightly more bullish on small. as that changed? brent: at some point we have to get back to equilibrium. how we get that longer-term has been the question historically. i think the irony is there are opportunities in small it mid-caps because they are interest-rate sensitive. who doesn't know that? i could say stay in quality for a while. what happened in july when we thought the other side was coming? there was of roaches rally in small and mid are not historically cheap. that is what investors should -- look to valuations which should value more that is why we are

suspicion -- that is where we are positioned. lisa: if there is a risk of a note landing and inflation beings stickier than expected and frankly longer-term yields rising of the fed cuts more, why going to the more interest-rate sensitive stocks that do better when you get more fed rate cuts which do not seem like they would be in the offing given some of the better-than-expected data and their performance we have seen in bonds so far? brent: at the end of the day the fed knows how to get inflation down, how to stem inflation overall. we saw what had to happen back in the 1980's. to me it is what happens next and what is not priced. if you look at 1999-2000 when the market was concentrated is saw -- they had already priced in the fact that it was likely we would have a recession that is where we are at right now. i think thinking beyond the next

three or nine months, that is where i want to be positioned. lisa: one thing you keep saying is valuations. that is one of the main drivers given how high valuations are in large caps. why is the argument not valid with investment grade bonds were spreads are tight and valuations are full? brent: i agree longer-term interest rates are likely to be higher but i think the path is lower at some point because i think you will have to have a recession to clear the deck of all of the abnormalities in the economy when you have the haves winning quite a bit and the have-nots not. this is where we want to have treasury data. i think there'll be a flight to quality like in july and that is why we want to be positioned more so -- not so much out on high-yield. investment grade high-quality is still the place to be as you think about the reality the fed

will only be of a cut rates in the last week if they do see a recession on the horizon. annmarie: i have to ask about your advice for positioning in of the election. you like the small caps. you think that is a trump trade on right now because of policy or economics? brent: i do not want to overweight the election too much. i don't think anyone knows what the outcome will be. it is certainly in the background. the more important thing is the economic cycle which i keep going back to the unemployment rate has risen but it is still low. where will we find the people to fill the supply of demand re-accelerates? no matter who wins they are likely to preside over a recession in the next four years and preside over a market of large-cap stocks that are historically extensive that does less. that is where investors should

be optimistic on the other side where things were cheaper and when when he gets the other side of whatever lives ahead. annmarie: we are all looking forward to getting to the other side. when it comes to the idea of your recession call, put the policy of whatever administration we get next put the u.s. in that direction or do you think that will happen regardless? brent: i think it is likely to happen regardless. you have a really unbalanced economy. the economy is being pushed higher by higher income and middle income consumers who had a wealth effect at their tails. if you have debt and do not own a house you probably not feel as confident as what will happen going forward. there are still risks out there and that is are we are asking as investors pay attention to those risk and stay diversified which does tend to pay off at the end of economic cycles which is still out on the horizon. lisa: it sounds like you agree

with this call we heard from goldman sachs and that cameron dawson at new age seem to agree with that equity returns are probably pretty muted over the next decade or so. you are basically trying to shift things around on evaluation basis with that expectation there is not going to be a massive acceleration. is that correct? >> 100%. valuation tends to matter. i think about the regime change likely to occur. every economic cycle back to the 1980's has had new market leadership. the prior leaders have become the next cycles laggards because the economy changes in those asset classes are priced for perfection at the end. how you transition from what worked in the past cycle to what with the will work in the future is the difficulty of tried to plane the positioning. at the end of the day valuation

does tend to matter. i've been doing this for 30 years. it gets loudest at the end of an economic cycle where people are really tempted to concentrate. eventually that becomes a losing strategy and that is why want investors to stay diversified and think about the reality that asset classes do not die, they just go to sleep. that is why i think there will be new winners and whatever comes in the next months. jonathan: this was thoughtful. brent schutte of northwestern mutual. equity futures just obsession lows. with an update on stories elsewhere, here is your bloomberg brief with dani burger. dani: secretary of state antony blinken is making his 11th trip to the middle east since last year's october 7 attack. he has had to meet later with benjamin netanyahu in jerusalem and the defense minister in tel aviv. anthony blinken has been trying to engineer a cease-fire between israel and iran backed militants for more than a year.

the u.s. maintains that the killing of hamas leader last week may open the door for breakthrough, even though hamas leader's and benjamin netanyahu have vowed to fight on. early voting is underway and states across the country. more than 50 million votes of ra been cast nationally. democrats have been leading in the early totals but republicans are not far behind. 46% of ballots have been cast for democrats, 36 for republicans. walmart will start delivering prescriptions to u.s. rooms in as little as 30 minutes. the retail giant announces new service that will be available in 49 states. customers receive their medication in the same order. it is a direct challenge to amazon for a bigger slice of online spending. that is your brief. jonathan: up next, the morning calls plus david mckay of rbc on u.s. canada trade relations and what is in store beyond 2024.

from new york city, this is bloomberg. ♪

jonathan: equities down on the s&p 500. opening bell one hour and 15 minutes away. yields coming in by a single basis point after moving out by double-digit basis points in yesterday's session. up to about 4.20, we are down to about 4.18. bernstein will name atop retail pick, anticipating e-commerce profitability growth. the story for that stock is up .06%. your second call is from td callan, lowering his price target on walgreens, expecting

eps to continue to follow next year. finally wedbush reiterating its outperform rating on gm after earnings, setting its robust delivery numbers. donald trump doubling down on his trade policies. telling the wall street journal he is committed to upholding the usmca. the agreement of her renewal. rbc ceo weighing in saying it would be inflationary for america to make everything so by america cannot be a go it alone strategy. that is a big talking point for both economies. what you think the u.s. and canada can work closely together beyond 2024? david: you start with the history. the longest undefended border. a balanced trade. 34 states in the u.s., canada is the number one trading partner.

you take out energy the u.s. exports more goods and services to canada and canada exports the other way. energy exports balance that trade. you look at the long-standing relationship, you look at supply chains. canada has a challenge and america has an opportunity. you have to think about how do we become more relevant to the largest economy in the world, fastest growing economy. you can put a business lens on it. canada needs to do a better job of aligning to what america needs. america needs canada to produce more energy, and unduly for america before for its key trade partners. america needs canada to be more involved in overall security. canada can play a much bigger role in the arctic. resources, minerals, all of that. when you think about the relevance of our economies, the

integration of our supply chains, and natural resources we have, the people resources, america cannot go it alone because it is challenged and meeting the demand of its economy from a human resource perspective rate mineral perspective. canada could help tame inflation in america. jonathan: how big is the spread between everything you said which just made sense, and the policies coming out of current a minutes rations north of the border -- out of current administrations north of the border and south of the border? david: america will choose who they want to run their country. there are common policy issues any government in the united states or any government in canada as we go through a similar election next year. fiscal deficit. will not learn -- we will not enjoy long-term policy as we look at our fiscal deficit. we have to manage this. you talked about markets trying

to adjust the amount of debt coming through and how we will float that debt. we have to get control of these deficits. we do not need that stimulus in the economy. lower rates will stimulate further business investments. from that perspective we are looking policy that aims at stabilizing and reducing that deficit. regardless of who is in power we need that policy change. annmarie: how desperate is the business community in canada for policy they know will stick. you talk about energy in my mind goes to keystone. three administrations started and go of this one project with executive orders. why would any business in canada want to make decisions about doing business in america? david: that was one project and everyone was disappointed we were not able to conclude that project even though it was so close to coming online.

at the end of the day -- we are therefore exporting to asia. that helps america as well if we can secure an energy security for all trading partners -- we can help trading partners whether it is japan or south korea or others who have a need for their growing economies. we will go through bombs through the road. this is a long-standing relationship and we will overcome any obstacles. we have to work together integrating supply chains and leveraging resources about the democratic process and hourly for democracy and the long-standing partnership can flourish to the benefit of both sides. annmarie: how are you looking at trade under harrison trump? matter who wins there will be a

review of usmca stop david: i think when the facts are put on the table and 34 states, many of them red states, we look at canada as the number one trade partner. we will have disagreements on the fringe. i think wisconsin was an area of disagreement. we see the benefit to both nations and we have to keep that front in center -- we as business leaders have to give the strength the need for this at the core. lisa: how much are you yourself continuing to expand in the u.s. or is that done? david: we have a fantastic u.s. operation, top 10 capital markets player, number six and wealth distribution. we have a commercial bank in a private banquet city national

and we believe we are serving america and rigidly through our capital markets institution -- growing each franchise, whether is number investment bankers -- we put a significant amount of our balance sheet into the u.s. and are growing our commercial operations into corporate. to your question, north-south connectivity. we understand the needs of the supply chains that are integrated and therefore we are continuing to build a greater transaction banking and treasury management to help growth in both economies. we are investing in america. jonathan: he really hundred -- lisa: you really understand the cross border. how much hesitation is there for companies to lead into expense and -- to lead into expansion

cross-border given the uncertainty. you see that in practice or is it the opposite? david: we see it in practice. we see it in capital markets. we've not seen the pipelines come to fruition. we see it in cross-border clients where if you are thinking about making investments you need to know the rules around the returns and therefore you are hesitating. you want to see the policy in action and therefore as businesses we have to keep advocating for balanced policies that meet the needs of everyone. we are looking at a k shaped economy. businesses and large corporate's are feeling a little bit better. they are hesitating a little bit at the margins. small businesses are struggling with inflation and supply chain and therefore you are seeing a different perspective on investing between large corporate and small corporate. you are seeing the same thing on consumers. the top 20% of consumers are

driving the economy. 40% of consumer spending comes from the top 20% of consumers. the bottom 60% are struggling to make ends meet. lisa: can you give us a sense of how much you expected transactions and other types of investments to come back online after the election regardless of who wins? could you give a sense of what type of volume after there is some degree of certainty? david: your sink capital markets, m&a advisory pipelines build. we are seeing that in our own pipeline. we are seeing more capital markets activity. it is a combination of lower rates, pent-up demand from sponsors and trying to move some of the properties they've been sitting on since the pandemic. you see the rate environment being more constructive comey city uncertainty of the election slowing things down but you see the pipeline moving slowly.

it portends to an year in 2025. jonathan: house the housing market in canada since we last spoke? david: the housing market is stable. construction is way off given interest rates. the listing ratios are going up. yours in slow resale activity and slow construction activity. the demand given the amount of immigration we have, you are still in a situation of excess demand oversupply. we are short 3 million houses in canada. we are building 250,000 to 300,000 houses a year. we have a tenure backlog on supply and we are concerned about how fast we will build. that lends to stability in prices even when demand drops. jonathan: it is the time of year when americans start to threaten to move to canada. one half of the country, anyway. david mckay, appreciate it.

your equity market on the s&p 500 is negative one third of 1%. bond yields stable. lower a single basis point on the 10 year after the selloff yesterday. the smallest of rallies this morning. 4.1857 on 10s. from new york, this is bloomberg. ♪

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jonathan: equities trading a little softer. monday, lower. tuesday down by 0.4% on the s&p. on the nasdaq down 0.5%. the russell and small caps down by 0.5%. let's get your morning movers with manus cranny. manus: mary barra delivers a couple of key meshes which is doing everything we can to stop the bleeding. she reaffirmed the guidance, it is about doing what we do best which is about building big trucks and selling them whether it is the gmc model, the chevy

silverado, this is what they do. high-margin products, reaffirming the margin, the cash flow. this year, $14 billion. they have said recovery has begun at detroit. cash flow up by 19% in the quarter. it engenders the story of buybacks. this is mary barra gripping at the big issues at gm and delivering the road forward and you have general electric aerospace, this was up 191% for today. just to put this in context for you. the guidance for this year, the commercial engine business, the overall structure that they have. it is the infancy of independence for them and the ceo says we are in the midst of a heck of a year. think about the supply chain issues around the aerospace industry. you begin to understand, lighter on the sales numbers is what is knocking the stock this morning. i will leave you with a thought from kimberly-clark about kleenex and toilet rolls.

it is very exciting when i do this. the sales will the inventory buildup in the retail side. proctor and gamble with the same issues a few weeks ago. i will leave you with that thought. i just want a gmc pickup truck to drive through those cobblestones in soho. good morning. jonathan: manus cranny, thank you for the update. manus cranny mentioned it. kimberly-clark, png, those consumer facing companies not doing too well. lisa: i have to check the stockpile of toilet paper and find out where that is in terms of the pros and cons. it weighs this -- it does raise questions, is it still one sector of the consumer that is only getting a certain brand that is cheaper. honestly, that is one area that i have always actually -- jonathan: where is this going? lisa: i have always shelled up for good toilet paper. jonathan: thanks for sharing. i am not sure why you felt the need to share that.

the conversation was not going there but thank you. let's go to the bond market. 10 year yields look like this, down about one basis point. on the two year, stable around 4%. let's talk about the difference between lisa and the rest of the world. no, the u.s. bond market and europe. the market is him is exactly aligned with the fomc dot plot. conversely, the same uncertainty does not exist in the euro area. it seems that investors have made up their mind. let's go to giles moec for more. the ecb is going to cut interest rates and the ecp is saying the same thing. we are data dependent. is the market in charge? giles: at the moment, it feels like this. what is really interesting is no matter what the ecb has been saying over the last month, what the market has been expecting for the ecb to do in the next 12 months has not moved. it has moved by a few basis points which tells you that

markets came back from their holiday recess and started thinking that if the european companies are not doing well, not doing well at all at the moment and inflation is coming down much faster than what the ecb was expecting, so they will cut and cut in a fairly steady but quick pace. no matter what the ecb says about we are going to take our time, we will look at the data, one meeting at a time, i think the market has made up its mind. it is a dovish shift that we had in terms of tone by lagarde. jonathan: we have talked about the european economy many years. the word that has been repeated is dreadful. there are varying degrees of dreadful we talk about the european economy. outside of europe, how bad are things in the european economy? the pmi's suggested that things were terrible. are they that bad? giles: i would not use dreadful. i would use mediocre which i

think would describe it better in the sense that there is no real short-term risk of a proper recession in the euro zone which was hovering just above a flotation line. there are some countries doing very well. the southern countries are doing ok. spain is doing well. we had issues with the core of the eurozone. germany has been in and out of gdp contractions for two years. france is having its own problems. i would term this as mediocre because the biggest issue we have is that although we have exactly the same dynamics as the u.s. in terms of wage growth being perfectly decent, outperforming inflation, that should generate enough purchasing power to support consumer spending. it is not happening because people are saving too much. that is the big difference between the u.s. and europe. lisa: it raises the question about whether that is true from a policy perspective. in washington, d.c. allow people are worried about the deficit. i will be going to worry about the deficit with them but there is a question about whether the

ecb or the fiscal ministers of europe in general should be more focused on reducing the deficit or more focused on trying to still relate an economy that is losing its leaders of growth -- levers of growth. giles: i don't think we have much of a choice. even out of all the pressure that we have, we have an experience in europe not so long ago in the u.k. suggesting that if a country goes too fast, the reaction from the market is quite quick and painful. we should never understate the impact of the this trust -- liz truss episode on policymaking. my view here is if we are lucky and i think we might just be lucky, there is this change of tone from the ecb. i think they are more ready to

prove a good dollop of accommodation that could offset the impact. we should be able to stay just above the flotation line. the biggest issue is that europe looks at the u.s. at the moment where it is ok, just put billions of dollars into the system and it will do the trick. obviously it helps. if you look at the structural forces of the u.s. economy over the last few years, you have had this explanation in productivity. it has nothing to do with the ira. this is the product of corporate choices, investment in r&d and softwares that happened 10 years ago. by being overly focused on the need for additional stimulus, we are losing the sense that if you build a sound and proper

business environment for your corporate sector, you might get the productivity gains we have seen in the u.s. and we are completely at the moment focused on the big side of the equation. it helps but it cannot be the entire story if you really want to lift potential growth in europe. we still have sources of rigidity. 15 years ago it was obvious to everyone we had to reform. now we are talking less and less about reform and more and more about pouring billions, an interesting shift. lisa: you are talking about how the liz truss moment hangs over. you are seeing yields rise over the past few weeks with the u.s.. do you believe that the divergence between the u.s. and europe can truly grow or are they tied at the hip because of these dueling priorities in europe? giles: it cannot grow because it

is the curse of european financial markets in the sense that there has always been this dominance of the u.s. market. if growth in the u.s. remains strong and inflationary pressures come back in the u.s. and we have long-term meals coming up, there will be some contagion to european yields even if our fundamental situation is not consistent with higher yields. this is always been a problem. as long as the european financial market remains dominated by the signal strength of the u.s., we will always be at a disadvantage. when the u.s. is doing well, i'll visit that is good but at the same time, it is usually detrimental to financial conditions in europe. we are a bit in a situation now, we should not overstate the case. we are talking about german yields between 2.2 25 and 2.5. we can survive this.

french yields, 3%. we can survive this. it is not a situation that calls for alarm. but yes, normally we should be expecting even lower long-term yields. we are not having them. yes, the situation in the u.s. explains this resistance. lisa: can european exporters sustain a 10% tariff rate from the united states? giles: i would define this as unpleasant but probably manageable. there would be a cost to gdp growth in europe. that is obvious. there are different estimates. the biggest issue for me is the knock on effect from a 60% tariff on chinese products for two reasons. one because you could have a very detrimental impact on chinese demand itself which would have a knock on effect on the world. second, it will incentivize chinese exporters to focus on the european market or to try to compete even harder with our

products. if you throw into the mix the fact that one possible reaction of china to a terror would be to allow the currency to fall faster, then we would end up at a disadvantage again because you would end up with the euro and the u.n.. i really think the biggest issue is the tariff on china. jonathan: everything you said screams this inflationary shock. each and every one of those three coins. giles: it is interesting how it has moved from an placement is too high -- inflation is too high or inflation might under shoot. there is the sense, if you look at the list of arguments, the list of upside risks to inflation, one month ago they were talking about trade disruptions, a.k.a., trade tariffs as it could be a source

of inflation. now it is about, it could actually be a negative impact on demand and that would actually be just inflationary in europe. the debate is changing in europe which is the reason why the ecb is really going to probably cut 25 every meeting until the middle of next year. jonathan: smart as always. thank you. giles moec of axa investment managers. the number one point is we have overcapacity in china. we know they are exporting the overcapacity to the world. it is a major just inflationary shock. the additional points, the currency channel and the other one, the europeans will have a big source of demand, china, because they will be weaker off of the back of it. just feeding into the dis-inflationary narrative. lisa: it is the reason why the ecb has been so behind the curve. the focus is on combating inflation but if the worry is not having inflation that is high enough, that changes the

trajectory of potential rate cuts. jonathan: euro is just about unchanged. it was rolling over as he was speaking. with the ecb cutting 25 basis points every meeting for the foreseeable future. let's talk about the bond market. shaping up as follows, big moves higher worldwide. it is a really important point we have to make. it was not just a u.s. move, it was global. it started in america with the move on the 10 year of 4.1838. saw similar moves in germany and australia. 16 basis point moves on the 10 year in australia. lisa: it is fascinating because you are looking at a global bond market. really europe is going to be subjected on some level to whatever happens in the u.s. if yields go higher, even if they are placing -- facing dis-inflation. how much can you see the divergence widen? jonathan: joining us now jitania kandhari of morgan stanley.

good to see you. welcome back to the program. over the last few months we have had one conversation. i will go back to what it sounded like a few months ago. the yields were peeking. the rates were too. world's were going to decelerate. a few months later, we are turning it on its head. where are we now? jitania: at this point we are discounting the trump trade with inflation and yields picking up. i would offer three perspectives that are a little bit different from what the market is saying. one is when trump came in power in 2017, that was a big surprise. today there is a 50% chance that he will come. the reset post election will be less than 2017. second, with all of this inflation getting discounted in the market, it is important to note that despite all of the trump tariffs since 2017, the export prices coming out of

china are the lowest compared to any other market. yes, there is excess capacity. there is adjustment mechanisms there. it is important to keep in mind. the last thing i would say is even when tariffs were enforced on japan in the 1980's and 1990's for pretty similar reasons which was automobiles and semiconductors, the yen took the brunt of that adjustment to offset the tariffs. i think you have to read outside of the obvious and what the consensus is thinking. we are not really positioning one way or the other. to your point, yes, growth has been much more resilient than people expected. lisa: you said you are not positioning one way or another but are you looking for dislocations that could emerge on the heels or ahead of the election that could be good entry points or selling points for overall theses that you have that are independent of the election? jitania: absolutely.

we are studying the impacts of the policies. one is how does the deficit get funded between the two presidents. one is two tariffs. the other two taxes. trying to understand that landscape. it is still within the margin of error in terms of the 50-50 chance of who comes. it is just being very nimble, the ability to act. i think the biggest transmission from an asset allocation perspective is how this manifests in the dollar and how that view translates into u.s. versus ex-u.s. because the dollar impacts the international market. definitely keeping all of the outcomes in mind to act but not positioning one way or the other. lisa: when you look at the outcomes for the dollar, it looks like the dollar is higher under both, at least in the short term. what about the long-term?

jitania: long-term, we talked about this line time -- last time. the dollar is expensive but it is not an emerging market currency that moves up and down 30% in one shot. it moves within a 10% to 15% band. you can have countertrend rallies in the u.s. dollar and the growth and rate differentials in the shorter-term determined that. that seems to be now favoring the dollar. the longer-term path is an international allocation given the expensive dollar view that we have had. jonathan: you are advocating for a bigger allocation to ian equities. is that fair? jitania: i think we are looking at pockets of the world international and e.m. the market cap of apple today is larger than the entire market cap of the u.k..

the market cap of nvidia is larger than australia. the market cap of the maker seven -- mega seven is larger than the entire european market. there are dislocations, financial ecosystems we are trying to capture and be invested in. some part of it is emerging markets. some part of it is in pockets of europe, canada, japan. we have a pretty wide spectrum of applications across different countries. jonathan: you used a word, dislocation. some people might say it is a fundamental rationale. 3100, not even 1% is information-technology. 20% is financials. some people might say it makes a lot of sense that we see these big companies in america and small caps elsewhere across europe. why is that a dislocation? jitania: i think the focus is so much on the mega seven and following the trend there that a

lot of these different pockets of the markets are beginning to see some fundamental momentum. if you look at even things like the industrial pockets of europe, the domestic side of u.k. looks really interesting to us given where we are in the economic cycle and multi-policy cycle and also the fact that a lot has been discounted in the u.k. markets post the whole brexit issue. seven pockets of the markets are dislocated but also have a fundamental driver to unlock and to catalyze a move in those pockets across the world. jonathan: good to hear from you, as always. jitania kandhari of morgan stanley. just to get you up to speed, we rolled over from the opening bell, 41 minutes away. equity futures by 0.5%. with your bloomberg brief, here is dani burger. dani: a federal ban is now in

effect that prohibits the sale and purchase of online reviews. the ftc issued the rule in august but the agency can now seek civil penalties against those who knowingly violate. the rule yellow cards -- bans reviews and testimonials from those who did not engage with the business or product. elon musk and tesla are being sued by el conde entertainment. the studio says tesla used imagery inspired by the 2017 movie "blade runner" at its recent robotaxi event after permission was denied. they allege that tesla did not reach out for permission until the day of the event. tesla and warner brothers who hosted the event are listed as defendants. the nike solution will be a fixture on pro basketball courts for years to come. the nike reviewed its partnership with the nba and w and to serve as the merchandise provided until 2037.

mikey will oversee the design and manufacturing process. financial details have not yet been disclosed. that is your brief. jonathan: thank you. up next, we will set you up for the day ahead. from new york city, you are watching bloomberg tv. ♪

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(♪♪) 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

jonathan: 36 minutes from the opening bell. equity futures down by 0.5% on the s&p 500. the bond market stable after yesterday's selloff. 4.1897 after breaching 4.20 to kickoff the trading week. 10:00 a.m., francine lacqua sitting down with president christine lagarde.

do not miss that conversation on bloomberg tv. tomorrow tesla and boeing report. thursday, another round of jobless claims. s&p global pmi's. earnings from ups, southwest and american airlines. on friday, u.n. sentiment. lisa: i want to see other earnings in particular with ups because that used to be a bellwether. the earnings will get more interesting at a time when the other data is messy. at a time when people are talking about hard landing, soft landing and confused about the election, i want to hear from the company executives. annmarie: kamala harris is sitting down with nbc, former president trump in miami and north carolina today. it is the final push. one of the latest promise is going to be 14 days out? jonathan: i am looking to the part of this program where lisa will tell you more about her

toilet paper preferences. lisa: i think a lot of people would agree. there are small luxuries in life but you can go forward even if you are a student and that was one of them for me. jonathan: just to clarify, there will be no bonus parts on the big podcast later. tomorrow, we will catch up with invesco, bny wealth, senator thom tillis and frances donald of rbc joining us tomorrow morning. equity session lows on the s&p after a big selloff to start the trading week in the bond market. your 10 year at 4.19. from new york city, thank you for choosing bloomberg tv. this was "bloomberg surveillance." ♪

matt: we could see the second day in a row of losses after not having seen such a run in 30 sessions. 30 minutes until the start of trading. i am matt miller. sonali: i am sonali basak. katie: and i am katie greifeld. "bloomberg open interest" starts right now. coming up, setting your kids up for financial success. we will speak with mellody hobson of ariel investments about her new book. matt: bank of england governor andrew bailey shares his thoughts on how to navigate the biggest risks in the global economy