>> i think we are re-normalizing a yield curve if we have taken recession fields off the table. >> are still disinflationary, the fed keep going. >> sneak in a cut in december although that is going to be a close call. >> i think they can cut by 25 basis points in december but next year is rather uncertain. >> the objective has been to hold this soft landing and now we are going to have melting. >> this is "bloomberg surveillance." jonathan:: let's get you to the weekend. live from new york city, good morning. bloomberg surveillance starts right now with the equity market

picture shaping up as follows. equity futures on the s&p 500 down by around one third of 1% as we come into friday heading for the week of gains without a single down day so far this week. what would change that this friday? nasdaq 100 coming down by 0.5. ron kind of fireworks, check out euro-dollar. the euro-dollar with a 103 handle. just holding onto 104. 10429. the pmi's out of europe this morning are pretty awful. lisa: if you look at france, there pmi came in the weakest industry -- weakest since january. below all expectations. the question is, how much weaker can it get? george serverless had we remained bullish on u.s. dollar. only 30% price. jonathan: how much wider can spreads get? if you check out their front end

of the german curve this morning, down 10 basis points on the german two-year in the spread between the u.s. and germany back in september, 135. on my screen, 232. we are aggressively wider over the last month. lisa: at a time when people are pricing in a 50 basis point rate cut next month at the next ecb meeting, the question is, we forgot to talk about decoupling. people expected to happen. now the question is, how wide can that division get at a time where there is a secular and frankly existential question facing the euro region? christine lagarde put out, we are not keeping up with innovation, stagnation on the table. jonathan: listen to the conversations in europe and in the u.s. in europe, talking about 50 basis point reduction in december. the u.s., deutsche bank saying after december, the fed is on pause for the whole of 2025. why?

because of policies and the united states. we are still playing game of thrones. you know the names well. wall street journal confirming something anne-marie has been talking about all week, it is not a game of thrones, it is potentially game of moving thrones in washington, d.c. lisa: something we have been reporting for a few days and potentially this tie up which could see kevin warsh at treasury coming into the trump administration with scott bessent at nac and then when powell is up and exits stage left from fed chair in 2026, there may be warsh could go to the fed and scott bessent to treasury. but this is potentially one pair up. we are still waiting on the final decision from president-elect trump. lisa: this comes down to the same issue we keep talking about with the division between europe and u.s. which is all of these

candidates are going to some degree trying to placate donald trump and his wish for higher tariffs and and america first kind of agenda. how do they do that while keeping markets, to the point of deficits as well as potentially to the ideas that they have to put forward? jonathan: euro-dollar right now 104. we will catch up with dominic konstam of mizuho and speak to james lucier. we will catch up with dan greenhaus of solus alternative asset management about what he is not worried about tariffs. we begin with equities taking a bite out of this week. potential impact of a second trump administration being white. dominic konstam writing, "likely changes the dynamic around the fed commemorates come in the u.s. dollar. however, it will take time to be sure to what degree. obvious first-order changes are the term premiums should be higher on hairnet treasury supply." he joins us now for more.

good morning. divergence. how much can make expect between that u.s. and europe throughout the next year? folks a lot more -- folks a lot more. the impact on the dollar of the tariff policy and could be substantial. i would say believe it or not there's a lot of logic to the trump administration is likely to do on tariffs and terms of balancing that with the fiscal giveaways as well, the tax cuts. the key thing is to have a stronger dollar because the you basically pass the instance of the tariffs on the exporters and that doesn't mean a much stronger dollar versus not just europe but also asia as well. jonathan: you said there's a lot of logic. what is it? >> the logic is basically if you just have a stronger dollar, were terms of trade kind of deteriorates and the base -- were terms of trade kind of

deteriorates. the consumer in the u.s. will do well versus countries exporting to. if you bring tariffs, you transfer that to the federal government which is what trump wants to do. you give it back to the consumer through tax cuts. that is a nice sort of -- the only problem you have is politics around opposed up to the guys who are paying the extra tariff and not getting the benefit they would otherwise get from terms of trade improvement, are they getting the tax back to them? if you are a big importer in arkansas who does a lot of -- is on a pension or getting tips in a restaurant, then maybe you are ok. but if you are not getting those tax back and you are on the east coast, are not doing so well. it will be a political issue, redistribution issue. what you don't want is the dollar not to go up because and if it does not go up, basically have that really that inflationary trade-off. the dollar is the cleanest way

of playing not just the tariff story but that tariff-fiscal giveaways story. lisa: that explains why the u.s. gain is everyone else's pain. can we take this a step further and talk about how this will keep a lid on u.s. yields even with fiscal profligacy at a time when that sucking sound, as was talked about, is all the cash moving into the higher yield which is the united states? you can see global bond funds completely dominated by u.s. bond funds over the past week with money coming in. western europe come outflows from equity markets, u.s. equities saw huge inflows. absolutely gravitational force even with some of the concerns about fiscal spending. >> first of all, before this whole election thing, we have been in a world where yields kind of needed to come down, even in the u.s. i disagree with the edge of the

fed is not going to be cutting rates in 2025 irrespective. it will take a while to see the impact of these trump policies on the u.s. economy. meanwhile, we are in a restrictive stance and the fed will be bringing rates down. the question is, where do you angled the euro -- anchor the yield curve? comes down to how the u.s. decides to find the deficit. still going have a very big shortfall. how that funding takes place will affect along the end. meanwhile, the rest of the world is taking the burden of this tariff in terms of weaker growth in you look at europe and what promise they have, then obviously, there will be a sort of reach for yield elsewhere. if we have a steep yield curve, a lot of the foreigners will come back and they will be attracted to our yields again. right now we don't see a lot of foreign demand because our yield curves have inverted. so you will end up getting lower yields anchored initially by

short rate fight in the end, not going to come crashing to 2% or 3%. they might hang out at 3% to 4% for a while. that is the story i'm seeing initially and then in the future. annmarie: are you painting a picture where this is self reinforcing cycle while there can relatively be the inflation and growth while the rest of the world is just feeling a lot of pain? >> the worst thing you get have commit declaration from the tariffs. -- if they delegate strong, consumer will be insulated. you are not getting the gains the consumer will have from a strong dollar, or handing it to the federal government which is fine if they're going to hand it back. in a way you are exceptionalism is they are and the guys are going to pay the cost are those with big services. there is no way you can have a

protectionist tit-for-tat that is going to allow countries that run a surplus with the u.s. to disproportionally benefit. they are not going to do that. they're going to suffer. that is the whole game plan here. we have carried this for too long and we want to sort of get something back for it. annmarie: are you expecting retaliatory measures? >> a little bit. maybe they can do better if they can target specific areas. get more bang for your buck. at the end of the day, if you're running a very large deficit, there is a limit to what retaliation can really do from the countries that run the surplus. that is the problem. by the way, this great economic concept whereby you can redistribute staff around and everyone is better off together, that is absolutely true. the global economy is absolutely worse off because of this.

as an american first -- annmarie: in the first iteration, there was a massive bailout that american taxpayers pay for when it came to the farmers because of the trade war. when you say be more targeted, does that mean you expect the trump administration coming in to be more targeted about what they're going to go off -- go after in terms of tariffs? >> how they approach the whole tariff thing, if you combine it with china and the universal tariff and then again the giveaways fiscal fiscal, giveaways, can be important. ironically, you can see who imports the most by state and ironically, basically showed some of the red states were going to be hurt by the tariffs. you have to be careful you don't hurt the guys -- on the other hand, if it is all political and the swing states are going to be better off because arkansas will never vote democrat.

wisconsin can vote republican ongoing. that is the right political move. jonathan: that is politics. you talked about the imports of the u.s. dollar. is there a real risk that it undermines the dollar's position? >> i don't think so. as long as the fed is willing and able to lower interest rates on their front end. basically, -- foreigners are really buying treasuries. they are buying mortgages but not treasuries. they will buy treasuries if they can steepen that yield curve and in the end if you have a much flatter yield curve in europe and japan and what does this do? the ecb, how far can i take short rates? what will happen on the long end ? it will rally. in the end, -- the important thing for the u.s. i think, and this is where the fed chair replacement eventually comes in, you need to anchor the yield

curve lower by a short rate. whether they tell them to do that or the data falls the right way to allow them to do that in a credible way, either way, that you can always -- at the end of the day, you talk about the treasury, who will be the new treasury secretary. it probably doesn't matter if they're willing to increase the bill share and i imagine they will and will do it quite substantially and on that basis, you will end up with a relatively lower yield environment. jonathan: a much longer conversation about central-bank independence and how much cooperation there will be between these institutions. good to see you, dom. dominic konstam. equities a little bit softer on the s&p 500. levels we have not seen since 2020 euro-dollar. with the update on stories elsewhere, here is your update. put spread president donald trump has nominated former florida attorney general pam

bondi to run the justice department. the nomination coming just hours after former florida congressman matt gaetz withdrew from consideration for the role. bondi is a longtime trump ally. japan's corn inflation rate remained about the central banks target, coming in at two point 3% in october. the data supports the bank of japan's view underlying inflation remain solid and may lead to a rate hike in the coming months. japan's cabinet also approved the stimulus package totaling around $140 billion meant to support low income households, subsidies for energy bills come as well as investment into the technology sector. look at shares of cap soaring up more than 50%. the retailer boosted its full your outlook because wealthier shoppers are seeking value. the owner of old navy now see sales of 1.5% to 2%, up from less than 1%. cap telling investors the company's group -- trains are

growing across categories and the seventh straight quarter of gains. jonathan: more in about 30 minutes time. , searching for donald trump's perfect treasury secretary. >> the president-elect knows getting the right person is more important right now than getting the pick done today or tomorrow. jonathan: that conversation coming up next. good morning. ♪

jonathan: europe looking ugly this morning, the euro-dollar specifically. 1.03 briefly. pmi's, just awful come out of the eurozone today. we break down the individual

components in a moment. weaker euro on the screen. this morning, searching for donald trump's perfect treasury secretary. >> he ran an economic agenda campaign. in his opinion, this is one of the most important if not the most important pick he is going to make. so getting it right is important. the president-elect knows getting the right person is more important right now and getting the pick done today or tomorrow. jonathan: "the" report in donald trump is considering kevin warsh for treasury with an understanding he could later be nominated for a fed chair when powell's term ends in 2026. writing "we will likely see every trader in treasury whether it is washed or bessent, the one who doesn't get treasury will get nac. markets will prefer bessent in my view a serious financial guy who also speaks mega." that story, something anne-marie

has been talking about. did he select kevin warsh, it is the appetizer for the main event which would be fed chair for the -- further down the road. do you think that is reasonable from your standpoint? >> i do think that is reasonable and "the wall street journal" is reporting what a lot of people have been thinking for a while which is we have a very narrow group of people. we are looking at scott bessent was the front runner, warsh to be one of the other. it would be a compromise to put warsh in the treasury spot with the promise if he follows through on that promise 18 months later that he will rotate bessent into that position. it reminds me between james baker and donna ragan back in the reagan days. lisa: if you put an individual at the treasury who really wants in and again, his job at the fed, does not compromise how the markets view him as her treasury secretary? >> it does. that is why think the market

will be more comfortable with percent. that is not the way trump thanks. two key points, one is proximity and timing. lobbied, lobbied, lobbied that jon ferro needs to be treasury secretary and then someone walks in and says it has to be nice and he was like, ok, let's go with lisa. he also gets frustrated. he has a list of people he is not entirely satisfied with. i think that is what we are seeing at treasury. lobbying from let nick that the maga community that was not a hardliner. trump is frustrated. he is looking at other alternatives, maybe warsh is that other alternative for now. >> in your notes, bessent speaks maga. yesterday we heard from the been in war room really backing scott bessent. this is an individual who has steve bannon and steve schwarzman lining up behind him. who else in these names we are talking about has the maga base

and also individual on wall street calling president-elect trump is saying, that is my guy? >> it is hard to say. i don't really think mark rowen has the maga president. it does help steve bannon is coming out for bessent after elon musk came out against him and after howard lutnick came out against bessent as part of a contest to get that top job, which lutnick wanted badly. i will be surprised if he is satisfied with being commerce secretary. unless somebody comes in out of the blue, it will be one of the two. while i did say bessent seems to speak maga more fluently, warsh does have a long history going back to donald trump that might've had jay powell's job and trump is reportedly to warsh that i should have you instead of j.

lisa: just like game of thrones, the secretary battle going on on the one hand and the issue of the rest of the cabinet picks. yesterday matt gaetz withdrawing his nomination to become attorney general. what do you make of that withdrawal? putting aside some of the other cabinet picks and pam bondi who has been selected to replace him, what is your take away from how this moves the chips around in the battle to what you call a revenge cabinet? >> you take away is when trump gets bored, he starts reaching out in new directions. i think the reason he picked matt gaetz to begin with is too many of the establishment conservative federal society type lawyers he was presented with probably reminded him of bill barr so he wanted somebody different and that is how gaetz got it. pam bondi is a classic example of someone trump could be comfortable with given she is a floridian, she has been a staunch defender of his.

plus she looks great on television. she is a very attractive woman and that is something that trump likes as well. she was elected statewide as attorney general, the first woman attorney general of florida. i think from a maga perspective or trump perspective, she is a great pick. i distinguish the controversial nominees usually with gaetz, hegseth, tulsi gabbard, robert of could it -- all of these people are cabinet secretaries dealing with agencies were donald trump filled frustration or felt the deep state moving against him. you can say his controversial nominees are literally his personal revenge against those guys. i think the other cabinet picks are very exciting in that most of these people have no prior connection with the agency that would be running but they are there to shake things up and bring a fresh breath of air. i think the others are probably

great. watching now to see what pete hegseth can survive because a lot of people felt he would go before gaetz did. lisa: a lot of people are saying, what kind of experience to these people have other than being on tv? that is real experience so if you want to put ourselves forward for potential selection, go for it. there is this real question about the necessity of having spokespeople in these seats to really advertise what is going on. one of the big criticisms of the prior administration was people did not hear about what was going on quite as much. how is that the linchpin of donald trump's strategy? >> i think things have changed this time in that donald trump has had 3.5 years to sit around and do about the failures and disappointments of his first term. for many issues in the first term, there were really no decisions made until late in the

term. decisions about the tax reform looked like and an important for trump, decisions about the ev mandates, epa regulations, whether to stay in the paris agreement. in short, they were slow to make decisions and they had people who did not have the game plan when they went to the agencies. this time i think they may decisions in advance. a checklist of what trump wants to do and change. while we have good communicators in the role of top person at these agencies, i think this time there will be the number two, the deputy secretaries, the backup people who do have a plan and execute on and a checklist. they are going to take names. shoot first and ask questions later, figuratively speaking. jonathan: thank you, james lucier. if the president-elect is watching, good morning. we need lisa right here and the news conferences would be terrifying.

they would be terrifying. can you imagine what they would look like with lisa as fed chair? lisa: i'm just waiting for the vigilantes to march and washington, d.c. everybody get your packages ready. jonathan: the most dovish central bank ever. lisa: i would be worried about inflation. jonathan: lease is going nowhere. coming up, dan greenhaus. from new york, this is bloomberg. this is "bloomberg." ♪

we invent them, we design them, we build them. and one day, we have to let them soar. ♪ i'm always coming home ♪

jonathan: still just about heading toward when we could gains on the s&p 500. on the s&p, down one third of 1% on the s&p 500 read the nasdaq down by 0.4. the bond year, two year, 10 year, 30 year, down two basis points, the 10 at 4.39, the euro , german two year down by two basis points. the euro briefly 1.03. euro-dollar right now 1.0422 and the question on whether the ecb needs to reduce interest rates by 50 basis points next month.

lisa: to put this into perspective that the thrust has come there's a chance of point basis -- the point rate cut. the pmi data out of germany and france has altered the conversation to really necessitate a faster speed for the ecb. jonathan: we will catch up with the portuguese central bank governor one hour from now. arguably, they have been ahead of the curve relative to other officials on the governing council. under surveillance, let's talk about the data around europe. germany's economy expanding less than reported in the third quarter, the country statistic agency same gdp rose 0.3% in september, down from an estimate of 0.2%. exports are holding back growth. the picture really is not great. lisa: it is circular stagnation. christine lagarde, the head of the ecb, coming out and saying since last year, europe's

declining innovation position has come more clearly to light, talking about the draghi report almost. echoing the necessity for there to be climate and something to ignite competition but it is unclear how quickly they can get that back to the fore to stave off some of the sucking sound you hear of capital away from europe. what you are seeing in the flows this weekend toward the united states. annmarie: it is also saying what we have been talking about the technology cap between the u.s. and europe is unmistakable, and she is pointing to a geopolitical tension that will make the situation in europe more difficult. jonathan: let's turn to the eastern part of europe, talking about ukraine, and the latest with russia later on the program, so look out for an update. we need to talk about the is really prime minister benjamin netanyahu saying he will not back down in the war against hamas in gaza, coming after the international criminal court issued a arrest warrant against

him in a former minister. annmarie: basically rejecting it and they don't agree with it, saying the icc issuance against israeli leaders is outrageous. that came from president joe biden. and then incoming president-elect michael waltz went on twitter and basically said you can expect a strong response, so you see the united states going against the icc, and this is a remarkable moment because you also see how hawkish trump is going to be when it comes to making sure the united states stands behind israel. lisa: it also harkens to the breakdown of international agencies, where you are not able to hide that is sent and a coalescing around the stance. icc, hungary's prime minister inviting netanyahu, even though he should be arresting him. the expectation that he might

get the same in other places, but here is the question. what is going to be the relevance of some agencies in five or 10 years if you don't have some sort of gravitational force that their credos hold in the world. jonathan: increasingly losing relevance the last years and that seems to accelerate. let's turn to president-elect trump's search for treasury. he is leaning toward kevin walsh for the role with an understanding he could be nominated later when powell's term ends. annmarie: we reported that potentially, they saw this as a solution to what they were dealing with at the moment when it was howard let nick and bessette fighting for the war, bringing kevin warsh, who has been a voice in the transition of economic policy. he can take that spot for 1.5

years but scott bessette is still in the room with the president, somebody you knows well who has been on the campaign trail with him. the president has not made a decision. if he did, we would talk about it. he has not made one. yesterday, the transition team was preoccupied with what happened with the fallout of matt gaetz and having to move the conversation for a different ag eight days, with two ag pixar no secretary pick. jonathan: if this wall street journal story materializes, we have to talk about the conversation opened earlier this hour, how much corporation will be needed between treasury and the federal reserve the next two years? lisa: he said the likelihood that whoever comes in is a treasury secretary needs to frontload treasure issuance in the bill space, essentially not necessarily pressuring the long end of the yield, which is opposite of what we have been hearing. so it makes you wonder how

courtney did of an effort this is, so stay tuned until monday. jonathan: quite a tease. lisa: i feel like there needs to be a voice over everything. annmarie: you nailed it yesterday when you say donald trump is a producer. he is literally producing the picks. he would like them to be at a certain time of the day. you talk about the morning, potentially when a treasury pick, maybe they won't do it during market opening hours. jonathan: friday at 5:00 p.m. feels like a graveyard for news, but who knows. let's turn to the markets, the potential impact of president's policies include tariffs area dan greenhaus is not concerned. he got less worried about trade, tariffs, immigration than most others. perhaps there is a tinge of wishful thinking on my part, what i'm not as convinced those policies coupled with a tax cut extension is all about for the u.s. in the medium-term. good to have you back. dan: thank you. jonathan: is it bad for everybody else?

dan: certainly on the immigration front, it is bad for some people. the point i'm making is on the terror front specifically, i go dinners, conferences, you speak to people, and the tariffs are universally viewed through a negative lens, they are inflationary, they raise prices, they punish consumers. there is an element of truth to all of that. i think, a, we have seen this movie already. we had tariffs during the first trump administration and you would be hard-pressed to find in consumer data a meaningful reaction to it. goods, prices, which were in a steady decline stop going down, even though headline cpi showed no real influence, could surprise us, which did stop going down reverse course, but i don't think you saw meaningful negative reactions throughout the economy. part of the reason is a point i wanted to make witches if the currency adjusts, you can make a case, and i'm sure the trump

administration will, that there might not be a price adjustment and tariffs will be played by the -- paid by the exporting country. a bit of wishful thinking, but i think it is a divergence. jonathan: i think the deficit is a big focus, so the dollar is at the epicenter. if the dollar remained strong, a lot of people will agree that it could offset some of the pain. if you start to see some cooperation between a fed chair and a treasury secretary to keep rates low to accommodate the bigger deficit, is the dollar going to be robust or does it get sold? dan: currencies are a win or lose situation. in the intro tease, you talked about europe. i don't think the euro area is looking strong right now and i don't think that will be premature. jonathan: is that what we are seeing take place in golden

bitcoin more recently? dan: yeah, i think probably the deficit and the worries about inflation and around investing themselves in gold, somewhat bitcoin is a bit of a different story because this will be the bitcoin presidency or insert whatever phrase, he would like a cabinet level position focused on bitcoin and crypto, so i think there is a lot of enthusiasm and frontrunning in the sense and the bitcoin market, but there is clearly concern about the deficit. my rebuttal is the same, and we discussed this, i can find you headlines for 40 years of people concerned about the deficit and here we are 40 years later and we had virtually no impact whatsoever. lisa: there is a larger point, are there limits to this grand plan that everybody can see and that essentially would benefit the u.s. to the detriment of the rest of the world, whether it comes to retaliation or people saying we will stop financing your fiscal expansion because we have to do it back home? dan: listen, if you told the

current administration or incoming administration that the sum total of policies would benefit the u.s. at everyone's expense, i'm not sure they would care since that is not the desired outcome. this is the core tenant of the make america great again platform. are there limits westmark of course, but i refer to my earlier statement, is 30 trillion in debt worse than 25 trillion? sure, but show me the evidence where the market cares. listen, there is a limit, but i think in a standalone economy that is able to print its own currency, etc., and this is true around the globe, you have less external constraints in the u.s. fits into the former category. lisa: can this happen without inflation taking up in a meaningful way in the u.s.? dan:dan: let's define inflation. it is important for viewers and when we think about this, the

biggie man is to 9% level inflation, of course. i don't think that is likely at all. i don't think the conditions or anywhere in place for that level of inflation, if you told me it is going to get stuck and it is in the process of getting stuck in the 2.5 range, i think that is more than likely, that is probably your best case outcome. does the federal reserve, the treasury and the government of markets care about inflation not at 2% but at 3.5%? most of those categories don't care. and you have a lot of market strategist's come on here and when you told me we were going to get all these great policies or the policies would have great outcomes that inflation is going to be stuck at 3% or 2%, i'm not sure any market participants will come on and say that. annmarie: do you think the market cares about the face representing the policies and who will be the treasury secretary? dan: absolutely. there is not a person on wall

street right now not hashing out the different names. i don't necessarily -- i do not want to express a personal preference on air. annmarie: so you have one? dan: they are all great, qualified candidates and they would all be terrific. jonathan: i would say the same thing. dan: i welcome our open treasury -- i welcome or incoming treasury openly. kevin warsh appears to be the front-runner. i think maybe he is seen as the most down the middle candidate of all the people mentioned. but scott bessette and, was the favorite by the crypto camp. annmarie: howard is out there. dan: i'm sorry, you are right. i forgot it is 6:30 the morning, not 7:00. but all the people being discussed, i heard larry kudlow's name turnaround a couple of times, i think all of these outcomes would be pretty good for market.

to be blunt, there is not a matt gaetz level treasury secretary being discussed that is not broadly powerful -- probably palatable. jonathan: can we finish by talking about valuation constraints across the board? equities with the forward multiple north of 20 going onto the 2025 on the s&p 500 credit, goldman said this on credit, between now and year-end, investors will likely enter 2025 with the most severe valuation constraints in more than two decades. worth noting, that does not include the bearish. where do you see this coming from? dan: that is lofty. i had dinner with goldman last night and i was lucky enough to get invited. not to make his point for him, but you have high starting all in yields and credit, 7% plus for the broad index or so, it is a pretty good starting point, but to that by itself is

attractive for yields seeking investors of all stripes, but to take that overvaluation in the high valuation and equity valuation argument, and that's just to equity because most investors, the point is saying, why can't that go to 22? if we are going to earn $300 year, let's say the policies and been positive and you earn we hundred $10, and the multiple expense one term, i can get you to 7000 on the s&p next year pretty easily. in credit, you started 7% all yield, the defaults remain low and spreads tighten to near all-time heights, and you have double-digit return for credit next year, so i think a lot of this depends on how the economy performs. the number one input into every valuation model will be domestic if not global growth and as long as the economy holds up, i don't know why -- listen, valuations are elevated.

and a share of it is being driven by tech stocks being a larger share of the market right now but if the economy continues to hold up, you will see this brought in out. a host of the names, some of the best-performing are consumer focused, some of the energy space has done well. health care is having problems, but before that, there was a lot of opportunity, assuming the economy continues to grow and profits continue to grow. i would not spend too much time worried about valuations until it is time. jonathan: we will spend a lot of time worrying about valuations, don't worry. dan greenhaus at 645 time the morning, thank you. thank you for waking up. 30. minutes earlier iraq us. yahaira: bill wong's 18 year prison sentence could be reduced

till 11.5 years, after his lawyer argued the punishment was too harsh for the founder of the capital management company. his lawyer urged the judge to let his clients are 6.5 of the 18 years in home confinement instead of behind bars, and the judge said he would consider the request. the pennsylvania senator bob casey conceded to his republican opponent david mccormick in a race that was so close that it triggered a recount. mccormick was declared the winner by news outlets earlier this month, with the state ordered the recount because the margin was under half of a percent. it now seeds to mccormick, who before left bridgewater for more than one decade. directv is pulling the plug on its dish takeover. directv notified them of their intention to terminate it, after it failed to win the consent from bondholders for a key debt exchange. it would have created one of the largest paid distributors with a combined 18 million subscribers. jonathan: more in 30 minutes. next on the program, escalation

in ukraine. live from new york, this is bloomberg. ♪

jonathan: live from new york city, equity futures down by almost .30%. bond yields lower by four basis points. big downside surprises across the euro zone, not just today but across the board. zero dollar -- euro-dollar down to 1.04. escalation in ukraine, russia conducted another drone attack on ukraine this morning after using a new experimental intermediate muscle. putin called the attack retaliation, with the ukraine using british made missiles on territory earlier this week. your joined with more from berlin. what's the latest? >> we heard from the russian

president yesterday saying two things, one that this was explicitly retaliation on the use of u.s. and u.k. long-range missiles within territory and then, second, this is not an accident and this is happening now, this is the week in which we have heard a new nuclear doctrine from the russian president, saying he is ready to diminish the level at which it would be appropriate to strike back with nuclear force. this was a question on whether this was an intercontinental ballistic my soul, he traveled from the caspian sea into ukraine, at a time when it seems putin is ready to come to the table and a talk to president-elect donald trump cease-fire negotiations. it is hard to distinguish how much is an organic escalation and how much is both sides trying to get in a strong position to have a stronger hand at the negotiating table with the great unknown of donald trump. we heard from the kremlin this

morning saying that we are in no doubt that the current administration had the chance to familiarize itself with the announcement, and we should also say that we understand from the pentagon that the u.s. was alerted that this muscle was going to be fired minutes before it was launched. we should also say that this conflict has not moved markets widely over the last few weeks but that changed with gold up almost 6%. jonathan: thank you. one week full of escalation, to continue the escalation, the effects of the council on foreign relations joins us. welcome back to the program. let's talk about the prospect of some kind of deal and with a president-elect donald trump can brokerage one, is this making it harder or easier to broker a deal he takes power in two months? liana: the trump camp has been very unhappy with biden's decision to allow along strict

missiles into russia, but let's remember that this is a response from the biden administration, a response to a russian escalation , with north korean troops and russia who are fighting against ukrainian soldiers. the problem with vladimir putin in this situation is by now, nobody really believes his red lines anymore because he has to overstep so often, and the more he lowers the threshold, the more difficult it will be for him to uphold credibility. that is what he's trying to do now, uphold credibility with a view to a new trump administration coming in for potential talks. he would like to see trump as a strong nuclear superpower. annmarie: how often do you think we could see those talks once president trump is in office? liana: trump might be surprised that it is not that easy, aced on his personal relationship with vladimir putin, to get them to the table. there is no indication in the russian discourse or around the

kremlin that there is a willingness to make any concessions, so putin is on the advance and has the manpower advantage right now. if trump does not want to be the one who you loses ukraine -- one who loses ukraine, similar to how biden had a humility withdrawal from afghanistan, he cannot allow capitulation. it might be much easier to negotiate and much more difficult to negotiate for donald trump and vladimir putin that he thinks right now. annmarie: if they both know at some point they may be forced to the negotiating table, how bad is it going to get in terms of the physical more on the ground? liana: obviously, russia is trying to get the advantage right now, and they have all the means to achieve that, but with they would like, they would like to search the borderline in

ukraine, but this is the minimum gold up vladimir putin wanted to achieve. and it will be in the package at the beginning of next year and it would be difficult for ukraine to hold the line. jonathan: thank you, liana fo -- liana fix. it went from north korean troops possibly getting involved to what we have seen the past weeks. annmarie: there has been a tremendous escalation, leading up to a change of power, a transforming of power within the united states and what does that mean when you have president biden giving ukraine something they have been begging for? united states has been dragging their feet and allowing them to head into russian territory. at the same time, you have a president coming in who says i would like to end the war.

now you have escalation because everybody would like to go into this negotiating table with the best hand they can play. jonathan: so does it make it harder or easier for the president-elect to broker the deal that he might broker? annmarie: it depends on when he comes in, what is the status of the war on the ground? you have to look at recent polling in ukraine that shows among the younger generation that they are almost tired of this war. they are the ones going to the front lines. they are the ones losing their families, fathers and brothers. that might put more political pressure on zelenskyy, even more so than president-elect trump. jonathan: coming up, we catch up with mohamed el-erian, and then we stick to maya mcguiness -- machuines -- macguineas. looking forward to a stacked hour, still ahead. ♪

♪ ♪ ♪ something has changed within me ♪ ♪ it's time to try defying gravity ♪ ♪ ♪

>> we are still bullish on the u.s. >> we have seen massive outperformance from u.s. assets the next few months. we will continue to see this outperformance of u.s. equities around the world. >> i think trump is going to care as much about the stock market these next four years as he did the first four. >> this is "bloomberg surveillance" with jonathan ferro, lisa abramowicz, and annmarie hordern. jonathan: the second hour of "bloomberg surveillance" starts now. here is your price action on the s&p, down .10%, a marginal move,

lower on the s&p. mild lower on the nasdaq 100, down by 1%. a move lower on euro-dollar, 1.03 briefly, talking about levels we have not seen in almost two years on the euro against the u.s. dollar, 1.0420 and the why is bad data. lisa: bad data out of france and germany, pmi's, rabbit sector, falling deeply into contraction at the lowest levels we have seen since the beginning of the year, at a time where we had week mispriced in. now the question is, it is not just an economic issue but how far can the ecb cut rates at a time where divergence is back on the table? jonathan: we will have a conversation with any cb official in 30 minutes time from now. that is where the conversation will begin. a 50 basis point cut on the table next month and you have to rethink the process of

normalizing and start to think a whole lot more about becoming accommodative. is the risk now moving away from inflation moving towards disorderly disinflation? something deutsche bank has talked about for quite a while. lisa: we have a response to the ecb vice president and we don't feel it really matters and that is basically with the market has priced in and it is the base case for markets looking for serious action. jonathan: stuck between a rock and a hard place, the rock is the domestic european data, and the heart place is what is coming the next 12 months for the u.s. administration. and once we know who the treasury pick is going to be and what is it going to be? annmarie: we are hearing musical chairs. potentially an wall street

journal is something potentially reported on a solution to a problem could be putting kevin warsh, and moving him to the endgame goal, which is fed chair, and this is potentially one duo that we could see but donald trump has yet to make a decision. only $4 trillion of debt as individuals involved with, so he is taking his time. jonathan: this could be quite messy. we would basically have one, we would know who it would be. we would know who would go forward with this planet talk about it publicly, so we would put that extra weight on every single word that would come from the treasury secretary with the idea being that they would be in charge of monetary policy just around the corner. lisa: the line between the fed and treasury has gotten muddier over the years, especially with janet yellen to the treasury. think about it, you know it will

be the same person and ministrations at a time when strategies are so aligned. this is going to be in the history book at the time when people look at the was experiment and see how do you use fiscal dominance to exert pain on everybody else while continuing to consolidate the gains in the united states with tariffs and not necessarily allowing rates to go to high? jonathan: part of the reason we have golden bitcoin close to all-time highs. coming up, we will catch up with mohamed el-erian, we will speak to the portuguese central bank governor on a jumble rate cut by the ecb, and we will speak about the big spend needed to power ai. stocks inching a little bit lower and treasuries rallying and markets waiting for president-elect donald trump's treasury did. three frontrunners remain the same, scott bessette, kevin warsh, mark rowing. mohamed el-erian say that kevin

warsh's would be a strong choice for the treasury and the reserve. are you endorsing a candidate in the race for treasury? mohamed: of the four, the one i followed most closely as kevin warsh, for almost two decades. if you look at what he would bring to either or both jobs, first, a good understanding and knowledge of economics. you are talking about he was at stanford and m.i.t., he would make part of the policy experience and private sector experience. he understands the functioning of the capital markets. it is not often you find someone who can operate at this intersection of economics, finance, and policy. it is not often that you find someone who cannot only operate there, but can communicate well. i we do need much better economic medication. jonathan: i've said this a few times, it is good news that the

caliber of all the candidates is so high, given the current challenges that several years. as we look through 2025 coming what do you think the biggest challenges for the incoming treasury secretary? mohamed: i think it is maintaining economic growth. i cannot stress how important that is. it is important to deal with problems of inequality. it is in pro -- important to deal with the debt issue. the best way to address a debt issue is through economic growth. we are looking at a major transition, which is ongoing from all engines of growth to new engines, moving from the old model to the new model, and the treasury secretary will be the lead person and how we navigate all of this. lisa: if it is -- annmarie: if it is someone like kevin warsh and everybody knows his endgame is the fed, does that blur the dependence? mohamed: that line has been

blurred before, but if kevin warsh gets the job, he will be really careful as to what he says on monetary policy. he will respect that line. it is not clear that the president-elect will commit to a second step for kevin warsh. i suspect that he will keep his options open. i don't worry about that. i just look at kevin as someone as treasury and fed chair as someone who would do a good job. annmarie: we were supposed to get a pic yesterday. if we don't get one today, if this continues to drag on, we were reminded that gary cohn's pick came after escaping. is that in itself a market negative, given the fact we have other nominees floating around for the incoming administration and we don't have one keening for the market? mohamed: i thought gary's

interview yesterday was really good. he said two things. one, as you mentioned, he said, i did not find out a lot at thanksgiving. the second he said his look what we inherited them, including unanticipated element, given and compared to what the new team would inherit now, so i don't think it is a market negative. i don't think it is a market negative because there are credible candidates being considered or so we are told, so i don't think it is a market negative. i think it is the right thing to take time to make this decision. lisa: i thought a lot of you this morning when i saw the flows and i saw the outflows, the dramatic outflows from european bond and stock close, and i thought about your comment on the sucking sound of capital away from the rest of the world into the united states. are there limits to this? the fact that everybody else's pain is leading to u.s. gain

also leads to higher rates that the rest of the world will pay for. they will pay for that debt because of the attraction of interest rates. one is that balance out? do people get stick of this story -- sick of the story? mohamed: not at all. i thought about all three of you because when we talked about the global economy, and i put europe and the ugly, saying that there is an issue, saying that as post secular and cyclical headwinds come together, and today's pmi members are a clear reminder that there is a problem, and it is getting deeper. we know what the solutions are. but there is no political will to implement report, so the u.s. will continue to diverge, like you, i think divergence is a really important theme for the next 12 months. is there a limit? at some point, but we are not there yet. and the worst thing to sacrifice

is u.s. growth to get lower rates. the u.s. is the only engine of global growth right now, so you do not want to sacrifice only engine of global growth. what you would like to happen is for china and europe to get their act together and to transition to healthier and higher growth. lisa: i have to wonder how much this pushes central banks around the world to keep investing in gold and try to diversify away from the dollar because at some point, there has to be anger or a feeling of frustration that everyone else is at the whims of the u.s. in terms of whatever else or other kind of fiscal situation they would like to implement and that the fiscal dominance allows them to do that. how much do you see that trend and other asset classes continuing as people look toward a day that maybe could be a different regime with respect to the dollar? mohamed: this trend which we have seen now for a solid 12 months of trying to diverse away

from the dollar as a reserve currency and importantly, looking diverse away from the dollar system as a payment system, and a worry much more about the second than the first. the trend is there, and for reasons you have cited on the currency side, at the margin, and i would like to stress it is at the margin. people are looking to diversify away from the dollar to gold, the payment system is a reaction about the worry of weaponization of investment sanctions and trade, so that is ongoing. we have to keep an ionic. we are not anywhere near critical mass. there's nothing there to replace the dollar at the dissent of the system or to replace the dollar payment system. however, you do not want alternatives, as clunky and inefficient as they are, to gain momentum. jonathan: which is why we are seeing the dollar to -- depreciate against gold and bitcoin, but we have to

recognize what it is not doing against other currencies. we are facing eight weeks of strength for the u.s. dollar. the why is because the data in america has been decent and we are rethinking the fed's path. deutsche bank had this to say, growth is too fast, inflation is too furious, and our baseline sees a 25 basis points cut in december and goes on to say after that, we expect an extended pause, keep the fed funds rate above 4% in 22026. is that your base case, too? mohamed: my base case is the cut by 25. when they come to the next meeting, they have clarity on three things that will impact how they see the economy going. they will have clarity on tariffs. they will have clarity on immigration, and they will have clarity on where the budget is going. and they will gold off of that clarity as to go into the year,

and that will determine whether they do more or not. they are going to want to see things. first, tariffs will impact price behavior. you see this in the u.k. companies have gotten much more used to passing on an increased cost, so in the case of the u.k., marcus have said, the higher insurance contribution, we will call that a crisis, and the mark here is not as strong as it is in the u.s. so tariffs will have an impact on pricing behavior by companies. immigration will have impact on the labor market. of course, what they decide on taxes in particular, which will, ahead of what they do on spending, or they are looking to cut spending, will have an impact on issuance. the fed will have to step back and look at these things and then decide how they fit in to this big puzzle. jonathan: let's finish on the ward clarity, they might have clarity on tariffs and with the approach might be and how big a

tariffs maybe but maybe not on the effects. this is something you touched on earlier this week when you talked about trade flows, corporate pricing, demand supply and elasticity. how long does it take to get clarity on the effects of those tariffs? mohamed: the list goes on. it is a complex issue, and the media has simplified it. oversimplified. they will need time, but they will have a clarity on the direction of travel, and that will be important and how they think about what interest or policy which you do. jonathan: we appreciate your time. thank you. mohamed el-erian of queens college cambridge on the latest in the u.s. and beyond. wewill talk more about europe later this morning, catching up with an ecb governor councilmember in 15 minutes. with an update on stories elsewhere, yahaira jacquez. yahaira: large parts of the pacific northwest are without power after a major storm moved

through northern california and washington. a bond cycle killed two people and led to widespread flooding and rock slides. a flood watch is in effect for areas north of san francisco with dozens of lights -- flights canceled. conditions are expected to continue with another six to 12 inches of rainfall expected. meanwhile, u.s. securities and exchange commission chair gary -- gensler plans to step down. president-elect trump plaintiff -- they're into fire gensler. he has not chosen a replacement for the position. baseball's biggest stars have been crowned, aaron judge and shohei ohtani were awarded mdp once again. it is otani's third m.v.p. in four years after he became the first 50-50 player in history and help the dodgers win the world series. he is now the 12th player ever to win the award three times. it is judge's second time, leading the majors in most hitting categories this season,

including home runs and rbis. both players were awarded previously. jonathan: next on the program, the bond market taking center stage. >> notice the binding constraint for trump to be able to enact his agenda? i think it is a move on the long end of the curve, where we would be seeing possible concerns of a second wind of inflation. jonathan: that conversation next, live from new york. good morning. ♪

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for nearly 160 years, pnc bank has been brilliantly boring so you can be happily fulfilled... which is pretty un-boring if you think about it. jonathan: big rally in the european bond market this morning, down 11 basis points on the front-end of the german curve off of the back of weaker than expected data. about 4.39, the differential with a weaker euro and stronger dollar. euro-dollar at 1.04.

under surveillance, the bond market at center stage. >> what is the binding constraint for trump to be able to enact his agenda? i think it is a move in the long end of the curve where we would see possible concerns of a second wave of inflation bringing up the cost of debit -- government debt would probably be the thing that would cause donald trump to pull back on the reins and tell his commerce secretary and treasury secretary to do the same. trump 2.0, i think the bond market take center stage, where with trump 1.0, it was the equity markets. jonathan: republicans preparing to push donald trump's plan through congress, adding trillions to america's debt path, and pushing the treasury market to the top of the white house scorecard. the national debt approaching record levels in interest costs exploding, lawmakers need to consider substantial spending cuts and revenue increases to put the national debt on a more

sustainable path, from maya macguineas. maia is just now. isaac to the ears to the government efficiency, you say there were $700 billion of easy deficit reduction. where is it? maya: one of the great things that the committee can go after it is that in many budgets the past year, both republicans and democratic presidents alike have put forth a number of changes that are similar with each other, so that is a great place to start area there has been bite -- start. there has been bipartisan support. we know were the biggest savings are in the federal budget and they are not the small off-line items, and they are not getting rid of federal workers. although both should be done. they are in sensible health care reforms like medicare. technical issues that the experts have looked at for some time. learning how to do procurement. they are primarily in the health care area and the national security area. i would like to remind people that the defense department fails its audit every year for

you there are lots of ways to change things there. and there are ideas on how to change the accounting, computing and financial systems of government agencies, which right now are not even able to talk to each other. so while those talk about regulatory and bureaucratic reforms, the biggest areas will be in savings and the $7 trillion budget. annmarie: and "the wall street journal" this week, they talk about 500 billion plus an annual federal expenditures they say are unauthorized by congress and used in ways congress never intended. they cite the corporation for public broadcasting, planned parenthood, and organizations. with that get bipartisan support? maya: excellent question. i think there is something to be said by having outsiders who look at the budget with a fresh pair of eyes or a couple of fresh pears, but they are going to run into a lot of roadblocks because they are not familiar with how congress that's things done. yes, there is half $1 trillion in unauthorized funding the

federal government. much of that is because there is widespread support for the programs. the biggest unauthorized spending is veterans benefits, the area that has swept through congress and passed -- in past years of getting increases in bump ups. no one is going to step back from veteran spending that i could imagine, so they will bump into roadblocks there. many of the programs are unauthorized because they jumped to the point of putting them through the budget. the big question, as it should be, you cannot have outsiders saying this is what we are going at cut and house out. it needs to go through congress, and congress has preferences that will not align with the things that are being floated. lisa: if you make people come back to the office were government workers, will that save the money that is needed? maya: that's not the right way to do it. talking about having people come back to the office, the right policy. but what you would like to look at is which agencies are bloated?

the department of agriculture has more people than it needs to do the jobs it is by all accounts. and what departments, even with the savings, and with their literary reforms we are talking about, would knock at the same amount of savings by arbitrarily cutting people? we do not want to take elite acts to this but you would like to think about where the inefficiencies are within personnel that she do not want to take a meat -- you do not want to take an axe to this, but you want to think about where the inefficiencies are with personnel. annmarie: trump talked about how to fortify the irs on the tax gap, but when the biden administration try to make collecting taxes easier, republicans pushed back. what appetite will they have in this congress? maya:maya: that is one of the things i'm worried about. as a fiscal watchdog, we don't believe in relaunches. very few programs pay for themselves. tax cuts and spending increases don't.

putting money into the irs is one of the few areas where you could get multiple returns on what you put in, just because it needs more help so taxpayers know what they are doing and that there is enforcement in certain places. sometimes you talk about it in a way that sounds easier than it is, but this is a productive investment. i'm worried that rescinding those irs dollars would be used as a slush fund to offset other bump ups and spending. we have spending caps for this year, if they ever pass a budget for this year, which they don't be prepared -- they don't appear to be prepared to do, and congress trying to get around the caps, getting rid of irs spending is not the right thing to do in my opinion because it does pay off, but you see a lot of supports from republicans for rescinding those dollars. lisa: a lot of people on our show see the ultimate punisher and check will be the bond market. i'm looking right now, you have seen yields go up on the long end, but this has not been some sort of mass bond vigilante protest that has caused a complete change in the tone in washington, d.c. what would be required to sort

of get the attention of people in d.c. for eminent action in the bond market at a time where a lot of people say, well, you still see a lot of people willing to buy? maya: i thought the point your previous guest made about all eyes on the bond market, where as last time it was on the stock market, was an excellent point. there are real risks and concerns in the market that we have not seen.in past years i think if there are signs of inflation and if there are signs of that or those rates continuing a steady march up that are driven by concerns of the excess of borrowing, than it looks like we may be on track to go on and the administration will rethink some of those tomorrow. it has plans to do a lot of planning upfront, talk about savings down the road. that is not how you're are going to reassure markets. they should. those two together. so that the so-called bond vigilantes will understand that the policies that the trump administration is talking about will not add to the debt because

of that is what drives up even small ongoing increases in the bond market, i think you will hear more and more growing concerns about it. jonathan: i hope you get to speak to elon musk soon because i know you have tons of ideas. maya macguineas on the committee for a responsible federal budget. appreciate your time. i was tickets of blood by taxes in this country -- i wish they could simplify taxes in this country. i'm not doing deductions. why should i need to do a tax return? lisa: i could not agree more. make tax returns great again. the u.k. doesn't like that. who likes doing taxes? jonathan: nobody. ♪ the best ai assistant isn't one that knows the whole world. it's one that knows your world.

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so now we're his “squad”. what are kevin's plans for the fall? he's going to college. out of state, yeah. -yeah in the fall. change of plans, i've decided to stay local. oh excellent! oh that's great! why would i ever leave this? -aw! we will do anything to get him gaming again. you and kevin need to fix this internet situation. heard my name! i swear to god, kevin! -we told you to wait in the car. everyone in my old squad has xfinity. less lag, better gaming! i'm gonna need to charge you for three people.

jonathan: still recovering from the idea that lisa enjoys taxes. i'm not letting that go. that is the most lisa thing ever. lisa: it is cathartic. jonathan: you enjoy the pain of doing it? lisa: you plug in the numbers and make them line-up. jonathan: line two on the s&p 500 here the nasdaq is down by .2%. your morning movers with manus cranny. manus: you are learning pretty much everything that you knew about the discounters this week. ross stores are saying that we will guide to the upper end. that's moving up in terms of the guidance. here is the shock headline, lower income consumer still feeling pressured but are able

to eek out marginal expansion. they don't have the discount as aggressively. $47 billion market cap compared to, look at gap, $47 billion to a billion dollars. the marketing presence of gap is so much more. think of old navy capturing seven quarters of straight gains in sales. they have raised their guidance as well. richard dickinson delivering on reinvigorating the brand, the merchandise, and jennifer hudson collaborating with them as well, and they only have a 10% exposure of their supply chain to china and that will be the stat that you want to go through. hospital stocks are under pressure. this is the personification of just one of them, but it encapsulates eight days of pain and uncertainty and the risk of a sledgehammer to health. there will be a shakeup. whatever way you talk or look at

it, hospital and pharma stocks are looking at a shakeup under the trump nominations of rfk junior and dr. oz. this is eight days of angst. jonathan: under surveillance this morning, president-elect donald trump is considering kevin warsh for treasury first and then the fed. trump discussed the a potential agreement with kevin warsh at mar-a-lago. ukraine saying that russia launched a new ballistic missile. president latimer zelinski said the weapon had the characteristics of an icbm. president putin saying that the attack was retaliation for ukraine's use of western missiles this week. apple is racing to develop a more conversational version of siri as competition with chatgpt and virtual assistants ramps up. sources tell us at bloomberg that the new siri is a large language model to allow

back-and-forth conversations and will eventually be added to apple intelligence. lisa: that is so dangerous. i know when we got alexa the kids immediately went to it and started asking questions. you like me? do you like yourself? when did you die? annmarie: this sounds existential. you're saying that this is a siri that can become a friend? great work by mark gorman who scooped this. rolling out in 2026. how long do we have to wait for this to come out? it is needed. i remember once i was asking a guest a question and picked up, i didn't even say siri. we need a better version. jonathan: what goes on in lisa's house is what we all want to know. lisa: you want to test the limits of the program, and now the limits will be that much widened. jonathan: eurozone pmi's contracted in november, feeding

concerns about the state of europe's economy as it faces down the prospect of higher tariffs from the incoming trump administration. joining us is a man who has a say, governor santino. we appreciate your time. it is important to point out that every official on the governing council has a different view and when people are questioning if the ecb is behind the curve, it is important to highlight that you are ahead of this data, anticipating it, and worried about it. we would love your reaction to this morning's economic data and if you believe a 50 basis point rate cut should be on the table at next month's meeting. >> thank you for having me. good morning from london. we have to take this data in the context of all of the information. to make a decision next month we will also have new forecasts. my first reaction is that this

data certainly confirms the appropriateness of the decision that we took in october and the profile that we now have four the protect of interest rates going forward. this is the appropriate message that i would like to send. we know that the challenges ahead, the euro-area economy is troubling to recovery. the most important is that inflation is on target. we need to move according to all these data. today's information goes along the way i've been looking at the european economy. it just confirms that we need to move in monetary policy. jonathan: how quickly move is part of the conversation, and

whether you should be constrained by 25 basis point increments are not. do believe that larger reductions should be considered a month from now? mario: well, we have been discussing that for a while. i'd rather prefer us to move gradual. gradual means steady and predictable steps. of course, if the data confirms that the risks to the downside and growth materialized. the numbers for inflation that we still are expecting this month go the same direction, we can certainly discuss and be open to discuss different steps, but what is more important is to send a message of we are doing our job, we are moving interest

rates in the right direction, and we will continue to do so as long as data requires. jonathan: as you know, and from listening to you and your colleagues, the focus has been on normalizing interest rates, which speaks to that gradual approach. when we look at data out of europe and we see germany barely growing, the contradiction is if you need to be accommodative. if we should be constrained by the idea of normalizing the moving at gradual steps or open to becoming accommodative and moving more quickly. what is the difference between the two for you? mario: we do know that we are still in restrictive territory. the interest rate is above the neutral levels, and so this means that the past going -- the path going forward will be to continue to reduce the level of interest rates.

we also know that the biggest problem in europe is investment. investment is certainly quite sensitive to the interest-rates. it will also be of importance for us to have the support of the economy so that inflation can remain at 2%. we don't want to go below 2%. for that, we need a stronger economy. it's the combination of those two that need to be on the table so you take a decision that so far brought us in a stable path, which is always important. 2%, and we need to make sure we continue that. jonathan: do you believe the biggest risk is above or below target inflation? i'm not talking about next month's data. i'm thinking of a medium-term

view looking out several years. what is the biggest risk? above target inflation or below target inflation? mario: the history of europe, the 10 years prior to the inflationary experience, was below target inflation. the fundamentals for the european economy didn't change much. in my view, we need to be concerned with below target inflation. the risk that we face today, from the economy and from shocks outside of europe, take us in that direction. we need to focus on not going below target in terms of the medium-term. because then we open up the issue as you are saying normalizing monetary policy. we were successful thus far to bring inflation to 2%. now, the job is a little different. it is like the last mile not

being a path from above the target but from below the target , and it's not easy. it proved not easy for the eurozone to bring inflation close to 2% before 2019, and we need to be very serious about it. lisa: how much do you think on a broader sense that the ecb needs to consider a dual mandate like the federal reserve where you are looking at employment as well as inflation? the growth backdrop as well as maybe there is going to be the bumping is that you talked about in the near-term path of inflation. the longer-term path, you see that risk as significantly to the downside when it comes to that disinflation? mario: i don't think that we need to discuss the dual mandate or the single mandate that we have. we just need to remind ourselves that inflation is variable. it is strictly connected with the way that the economy goes. by targeting inflation, we are somehow looking at the broader

set of data and seeing how it interacts with prices, the labor market, and certainly employment. the dynamism that the european economy had on the labor market is important. it is also our job to protect it and preserve it. that is not because of the labor market on its own, which is already important, but it is the path that it may have on inflation. we do know that an economy that doesn't grow, that doesn't divest, will not be compatible with prices at 2%. i always look at this in a more broad sense. for me, honestly, the thing of the dual mandate is intended issue. jonathan: you brought up shocks

from outside of europe and i would like to talk about those with you. the prospect of a change of policy in the united states following the u.s. election and if that introduces a new risk that you have to confront. if the tariffs go up in america and we are concerned about overcapacity in china, there is one place that will have to have another overcapacity and it could be another inflationary threat. that's europe. can yo talk about the risk it introduces into your outlook? mario: i agree with you on the way that you introduce the risks. the spare capacity that we see around the globe will imply to inflation. i see these shocks from an economic policy perspective as a wake-up call for europe. europe needs to move from the passenger seat that very often we see europe sitting comfortable, to a more leading role in the world. that will call for an increased role for the euro internationally.

we were discussing that in 2019 prior to covid. we may be facing the same challenges right now, so we better focus on the response that europe needs to do and produce to those challenges instead of discussing what is going on elsewhere. we do know that we need to move very fast if we are presented with these challenges. if i may, i can quote elvis presley and say to you that we can't go on together if those challenges from the outside present to europe challenges that europe cannot go along wit h. lisa: for the past few months the ecb terminal rate is expected to be 2.5%. by the end of next year, putting

aside elvis presley, if the potential external shocks and trajectory, do you think that it ought to be lower than that? mario: well, i don't see reason s for the neutral rate in europe to be much different from before this crisis. the fundamentals in europe are pretty similar. we have a more dynamic labor market that will certainly help bring in the natural rate up. it probably won't be enough given that many other factors, like productivity, that will still weight into that number. if we go close to 2%, probably below, it will be my best guest right -- best guess right now for the neutral to be, so we still have some ways and paths

to cover. and we need to be very much focused on that. jonathan: sorry, we appreciate your time. with a suspicious mind, mario centeno. a wonderful reference to elvis presley and a lot to take away from that conversation. lisa: the need to look through near-term inflation and that really this is going to be potentially a matter of how quickly, not necessarily whether they are going to be cutting rates. jonathan: next month is a big decision for the ecb. we could have a fed going on pause and ecb cutting basis points by 50 points. lisa: the theme of the day is divergence. this will be highlighted and we will see it in the currency. jonathan: euro-dollar around 1.04. america's energy needs are piling up. >> we need energy. we are prolific consumers of energy and we will run out. there should be an ai for america initiative with the government works closely with

the private companies and figures out a way to make sure that we are ahead of time. jonathan: that conversation is up next. from new york city, this is bloomberg. ♪

jonathan: equity futures on the s&p 500 are just a little softer down by .1% but recovering. in the bond market yields lower by two basis points, the 10 year 4.39. the rally in europe is even bigger than that. the front end of the german curve is down. more than 10 basis points. the euro-dollar dropping to one point 03. right now, 1.04, -.6%. america's energy needs are piling up. >> what we need is energy. we are prolific consumers of energy and we are going to run out.

one estimate is that the u.s. will run out of all sources of energy by 28 at our current growth rate. there should be an ai for america initiative where the government works closely with private companies and figures out a way to make sure that we are ahead of time. the power of this technology upends society in so many ways. economically, the way that we govern, the way that we read, language, etc.. jonathan: a critical chapter with donald trump's second term set to reshape policy and the buildout of ai infrastructure putting huge demands on powering it. " digitalization, the energy transition, and the digital power problem are massive challenges that require skilled capital and deep sector expertise to solve, but also present a huge investment opportunity to those with the ability to solve them." thank you for joining us. let's talk about the energy needs. how big are they? >> they are massive. if you take the data center

business in the united states and you say, how much power is required to power that? if you fast-forward two years to three years, we believe that if you aggregated that power, there will be as much power consumed by the data center in the united states as one of the top 10 cities in the world in terms of power consumption. lisa: how much building needs to happen to accommodate that in terms of infrastructure? raj: we believe it's $500 billion per year for several years. if you look at our own data center business, we have roughly $40 million of assets in the ground, a 110 billion dollar pipeline, but that is a drop in the bucket. there is not enough capital to make this happen, so we are working hard to bring that capital to bear. lisa: one thing people have been talking about when they come on the show is one of the big challenges to getting infrastructure for energy built is some of the permitting and other regulatory constraints. has that been your experience?

do expect things to be expedited in a material way? should there be withdrawal of some of these regulations? raj: it is the right question. there is a lot of constraints to building it out. there is affordability, security, is there enough growth?if you look back historically, power hasn't been a growth business.it has been relatively flat for the last 20 years. we now think there will be 2.5% growth per annual on power and one third from the data center business. the industry needs to respond. part of that response might be easier permitting. part of that response might be more investment in renewables, in natural gas, maybe nuclear coming in. the industries in the process of responding. what gives me hope is that everyone in the country wants this to work. this is one area where the u.s. has a competitive advantage. democrat, republican, north, south, everyone is trying to align to make this happen and solve this problem, so it gives me hope we will get there.

lisa: you had a statistic, infrastructure has gone from 1% of the private asset sphere to 25% in the last couple of decades. when i think of infrastructure spending i think of airports and toll roads, look for the -- laguardia airport. yes, it's gotten nicer, but is the majority of the infrastructure largely the energy space and anything related to digital? raj: if you look at how capital is being invested, it's roughly a quarter of the digital space, probably a quarter in energy, including supporting digital, but there is a whole electrification business broader than digital.there is asset leasing, transportation . the typical airports and toll roads may be less than 10% of what's happening in the industry today. and therein lies the interest. why has infrastructure gone from 1% to 25%? if you can invest in infrastructure with great assets and long-term contracts to protect capital, but expose

capital to sectors like power and digital that have a ton of growth, you now have the potential for tremendous risk return profile. protect capital regardless of what happens in the macro, but be able to generate attractive equity returns by all of the growth that's there. that is what has driven the infrastructure. annmarie: do expect more deals like microsoft and restarting three mile island, restarting this nuclear plant? we have never seen a restart like that. raj: i do. nuclear specifically will take a while. this is the beginning of a lot of permitting and capital expense.nuclear might be part of the solution in five to 10 years. i think in the near term there is going to be natural gas-fired power, and massive buildout. this will be a renaissance of investing in power including renewables, wind and solar, power transmission, distribution. nuclear would be part of it. not just a three mile island-type project, but small nuclear modular reactors.

that is probably solving the 5-10 your problem not the 0-5 your problem. lisa: the follow on to that question, how much of the money -- and i know that this is sensitive and you can't disclose who your investors are -- but how much are you raising capital from big tech themselves to actually invest on their behalf to get some of these projects started? raj: they are traditionally not massive funders of us. frankly, they only have -- their capital problem is not substantial. they have tremendous capital, but when they are partnering with us they are not giving us capital or looking for capital. they are mostly looking for capabilities. our ability to be a solutions provider to come to microsoft, google, and the hyper scalars of the world, and say that we have land and permitting, we have power capabilities -- we have been one of the largest power investors in the last 20 years and one of the largest data center investors in the last 20 years.

those capabilities to give them a high level of certainty that we can deliver power data shell when they need it is incredibly value and that is what we're trying to do. jonathan: this'll be huge for years to come. lisa: the idea that we talk about american exceptionalism, the whole show has been europe, things are rough. the u.s., such growth, it's incredible. you have to wonder, who will be financing it and how much of that is going to come from the energy sector? jonathan: mohamed el-erian said it, capital rushing into the united states. lisa: outflows from european bond and stock flows and inflows into the united states. jonathan: thank you. raj of kkr. coming up, the third hour of bloomberg surveillance. ♪

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>> i think that we are re-normalizing the yield curve. it has taken recession fears off the table. >> as long as components and drivers of inflation are disinflationary i think the fed keeps going. >> they probably sneak in a cut

in december although that's become a close call. >> i think they go ahead and cut by 25 basis points in december but next year is uncertain. >> the objective has been to hold this soft landing. >> this is bloomberg surveillance with jonathan ferro, lisa abramowicz, annmarie hordern. jonathan: the third hour bloomberg surveillance starts now. the opening bell about 90 minutes away. on the s&p, the nasdaq, and the russell. the s&p 500 is a little softer through most of this morning. the s&p 500 recovering but lower by one 10th of 1%. down .2% on the nasdaq. positive on the russell with a bit of a rally in treasuries. a much bigger rally in europe in the bond market and a weaker euro off the back of that. your-dollar, 1.04 10. we talk about it through the morning. the word of this morning is the vergence. weakness in europe and better data in the united states.

lisa: i have to be honest, i feel a bit guilty that we are talking about the pain of europe and these pmi's and contraction, and then we are saying look, it will be the golden era and we are going to see so much building and investment, etc. what are the limits to that divergence? that is what people will be testing and how much are we overstating one or the other? for now, front and center is the fact that europe has a problem with secular stagnation and stagflation where the united states -- annmarie: this is years in the making. you've said it a million times. america innovates, europe regulates, china replicates. it will be worse for europe when donald trump gets elected. the portuguese central bank governors said, we are going to be dealing with shocks from outside of europe. how much more difficult and challenging is the european environment going to get when the united states puts up tariff walls? jonathan: computing issues in europe at the moment, but the dominant one is the shock

outside of europe. how big these tariffs might be, and how it will lead to a disinflationary impact on the european continent that they will potentially have to grapple with. lisa: at a time when potentially china will be trying to export their goods to someone and they won't be able to get them to the united states. they will be exporting cheaper goods to europe, and that will create the downward trajectory. christine lagarde came out and was talking earlier today and said, since last year europe's declining innovation position has come more clearly into light . the technology gap between the united states and europe is unmistakable. the question is, how do you invest at a time when you're trying to come a basically, protect the fiscal picture? it shows the difference of the fiscal dominance of the united states's ability to borrow of strength. jonathan: germany is at the heart of this with the german model that has failed on three key fronts. energy security, broader defense, and economic security. across the board.

relying on america for defense, a big crack in that. relying on russia for energy, demolished over the last few years. relying on china for economic security compromised by that repeatedly. the list goes on. lisa: which is why when you see the german ecb members it is a bit ironic that they are the ones who are the most reluctant to lower rates significantly at the ecb at a time when people are talking about weakness and the need to potentially stimulate, not even get back to a neutral rate. mario centeno saying that he sees the neutral rate as around 2% or below at a time when the collective view on the ecb is about 2.5%. jonathan: the story has changed so quickly it is ridiculous. in the summer we are talking about chairman powell getting very dovish, 50 basis point rate cuts and a big dollar long build up. we were going to be dollar short. here we are talking about

building up dollar long for a bunch of reasons. lisa: there have been a number over the last 24 hours talking about how much of this is europe and how much is the united states?the answer is yes . it is both. better than expected data out of the united states and weaker than expected out of europe. the question is, what policies would put into place in the united states and how much will we make good on the expectations or then some? deutsche bank saying that only 30% of the trump trade has been fully priced in. talking about he expects more euro weakness to come. jonathan: it's not that the united states will not be without its challenges. whoever will be the treasury secretary will fa big challengesce -- will face big challenges. the list is about four people deep. there is the prospect that the president-elect gets fed up with this and throws out a completely different name in the next few days. we will potentially get the name today. yesterday we were close. the issue was with matt gaetz

stepping aside they had to deal with the attorney general. you had 280 nominations in eight days and yet to have one treasury nomination since the election. everyone is waiting. the caliber of these names is so well-known. also, they are being backed by big names like steve schwarzman for scott bessent. mohamed el-erian talking about how he likes kevin warsh. there is a lot of momentum going into this for whoever donald trump likes. jonathan: this quote yesterday, i think that this is important, the issue in selecting a treasury secretary isn't who can enact changes but who can manage the market response and volatility that could undermine those changes? that is a focus for all of us in the coming years. coming up, the risk of higher inflation, we will catch up as consumers prepare for holiday shopping, and we will speak about the odds of a december

pause. we begin with equities declining and bond yields falling. looking ahead to next year, a legitimate worry is that inflation expectations could rise, keeping long-term bond yields elevated and eroding confidence in the federal reserve. ed, welcome to the program. is there any sign in financial markets developing? ed: the fed is always a key story. the key story is that the officials still believe that the federal funds rate is restrictive and needs to be lowered. the last word that we got on where the fed funds rate should go to get us to nirvana is 1.9%. i think that we are in nirvana now. isn't nirvana down and unemployment rate of about 4% and inflation at about 2%? we are there. i'm wondering if they are going to stimulate the economy that is already pretty hot?

lisa: you talked about the melt up and consequence if they keep stimulating the hot economy. we talked earlier to cameron dawson a new edge and she said that she sees a choppy path where you see gains in equities or potentially a bubble percolating up. that is something that you talked about. how much do you see that as more likely given the fact that you believe that there stimulation into an already hot market? edward: when the fed lowered the fed funds rate by 50 basis point september 18, we increase the odds of a melt up from 20% to 25%. we are still using 55% as the subjective probability for a lowering 2020 scenario and the remaining 20% -- i think that i'm adding up to 100% -- the remaining 20% is for geopolitical risk, debt risk, tariff risk, bucket for everything that can go wrong.

if the fed keeps stimulating, and again with the economy doing quite well, some of that liquidity is going to pour into the equity markets. we are seeing money market funds up to $7 trillion. there is so much liquidity in the system. for the fed to say that the fed funds rate is restrictive when the stock is at an all -time record high, real gdp is at an all-time record high, i'm scratching my head saying what planet are they on? lisa: at the same time, someone could say that they are risk of heart -- record highs but this is an expanding economy and the earnings have been outperforming considerably and they show a lot of promise. we see a lot of investment in artificial intelligence, data centers, technology. how do you draw the line between a bubble and something makes sense based on the growth? edward: it is a totally subjective assessment. maybe not that much, because i

think that we can look at the charts and see the valuation multiples. i wish that warren buffett would tell us why he is raising so much cash. i think that it has everyone jittery. he is just doing it. one of the explanations is that he is concerned that everything is too expensive and he doesn't see anything that is worthwhile. in the meantime, some of his assets are overvalued and he's raising cash. he is the founder of the buffett ratio, which is basically the s&p 500 divided by the s&p 500 at revenues per share. he was uncomfortable in the past when it got to 2.0. it is 2.8, an all-time record high. on the other hand, less concerning, is the pe. but not that much less. the pe is at 22. during the tech bubble of the late 1990's it got up to 25. tech and communications services

accounts for 40% of the market cap of the s&p 500. the mag seven is about 30%. there are a lot of areas where valuation is stretched, but you're right. we are rooting for -- i don't know what to call it other than an earnings-led melt up. i believe that the earnings are not going to be going strong thanks to productivity, and that will help a lot to get the bull market going without searching valuations further. lisa: we talk about the stock market being one barometer that president-elect donald trump will be looking at. the bond market is the ultimate check. i wonder, at what point do you see bond yields are starting to impede some of the euphoria that you are observing in equities? edward: look, you can look at the charts. last year, we had a mini debt crisis when the bond yield went from 4% 5% from -- from 4% to 5% in three months.

we found a lot of buyers at 5%. that is conceivable again and we will get everyone focused on the potential for a debt crisis. i think the trump bought some time on that by setting of the department of government efficiency with elon and vivek ramaswamy. we don't know if they will take the deficit problem and finally solve it. annmarie: we have seen task forces like this in the past. you think that they will be able to solve some of our fiscal debt issues? edward: i didn't say that they would do it. i said the trump bought some time. we don't know for sure. elon musk, if you haven't read the book elon musk by walter isaacson, it is a must-read, especially now. he has a great track record of cutting costs. he is obsessed with cutting costs. the only problem is, it is one thing to do it in a company where you can hire and fire

people and tell them what to do. when it comes to the government, there will be a lot of political pushback. jonathan: there might be some bond market pushback as well as bond vigilantes, the term that you coined a long time ago, might make a big comeback. that is a big focus for you, i know. lisa: yeah, but at the same time, and this is the constrant to bring it back to the divergence between the u.s. and europe, at what point does the pain in europe cap yields in the u.s. because people are going to be coming here for higher yields? it is truly this question that we have been asking and exploring. jonathan: let's get you an update on stories elsewhere quickly. bloomberg brief, with uehara hackers. yahaira: jp morgan is being investigated by the u.s. treasury department for his relationship with the hedge fund that is said to be part of the network overseen by an iranian oil trader. the probe is in the early stages while the agency examines if the firm complied with all the rules and regulations.

spokespeople with jp morgan, the u.s. treasury, and the firm involved declined to comment. adani group shares are rebounding after $27 billion of the conglomerates market value was wiped off. u.s. accused them of bribing officials to secure solar energy contracts. the conglomerate denied the allegations are the euro falling to its lowest level in two years after euro-area business activity unexpectedly shrink in november. the euro has recovered a bit against the dollar, but still, traders are raising bets that the ecb will cut 50 basis points to boost the region's economy. the euro is one of the worst performers of g10 currencies over the past three months as the risk of tariffs under the trump administration remain prevalent. jonathan: more from yahaira in

30 minutes. coming up, the state of the consumer going into the holiday shopping season, next. ♪

jonathan: one hour and 13 minutes from the opening bell with the s&p 500 down by about .1%. morning calls, first up, initiating coverage of nike with a buy saying the ceo transition is a positive catalyst. the stock is up by more than 1%. jp morgan raising its price target on ross highlighting the company's favorable position heading into the holiday season. the stock is up by 7% this morning. finally, raising the price target on gap pointing to another solid quarter. that stock is absolutely renting. -- absolutely ripping.

gap in walmart nursing higher end consumers coming to them for value as target c-suite getting sales and inventory piling up -- sees weakening sales and inventory piling up. compare target everyone else. what went wrong? dana: 48% of target sales is discretionary. they had elevated promotions and higher costs 90 didn't work. walmart, 60% of their sales came from essentials. discretionary, the gap is gaining some momentum. look at t.j. maxx, they are gaining momentum too. the value shopper where there is a style and product is working. jonathan: is there an execution story as well? what is target doing right? dana: a couple of things. richard's phrase was perform all you transform. one thing they did right was the consistency of looking at the product and elevating it to

today's times. look at the wide leg jeans. at old navy come the kids business is important. they weakened in the quarter given the weather. i think that off-price value, and where there is newness and innovation, consumers are going. you have that with what is happening at gap and old navy. lisa: i want to get into policy and all of that, but what is newness and innovation right now ? launches? limited-edition? wide leg pants that are going to be in style for another six months maybe? dana: typically denim cycles can be three years. lisa: sorry, i take it back. dana: no worries. what about the closed-toed shoes at birkenstock? they're buying sandals and closed toed shoes. there's a lot in footwear. the new colorways are interesting. you marry the product with the physical space. look at the remodels that are

opening. if you walk lower for -- lower fifth avenue the cap remodel has colors and punch. abercrombie, they expanded the men's area. the new on store. we have newness in product, in channel, and you need to have value. lisa: maybe target just needs a new dog and they will be fine. jonathan: it is more than just the dog. dana: it is probably more than just the dog given some of the performance. lisa: there is a question about how expose some of these retailers are to the potential of tariffs, especially if their whole rebirth depends on the ability for fast goods that can get manufactured and brought in. dana: when we had tariffs the first time everyone went to diversify out of china. it is happening again now. the one who talked about the most is steven madden. taking a percentage of goods from china down from 50% to 25% hopefully in a year. gap said on their call last night less than 10% of their

goods come from china. what else are people going? mexico, africa, vietnam in terms where goods are going to be. the end result, and the national retail federation talked about it, is if we have these tariffs you will have an impact to consumer spending that can approach nearly 80 billion dollars. what it requires in the apparel area if you're going to have increased costs passed on to the consumer can be price increases of low double digits. that is a concern across the board. annmarie: are retailers talking about coming back to the united states? what president-elect trump is talking about is a carrot and stick, putting up walls but at 15% potential corporate tax rate if you produce in the usa? dana: no. some mentioned some items coming back to the usa but it's mexico, vietnam, and africa. the labor costs are lower. you have the labor to be able to make the goods. and the expertise. that is the reason why everyone is in china.

there is no china like china in terms of the expertise of how they make the goods. it will be a problem into big topic of discussion throughout 2025 if the tariffs are enacted. annmarie: we also have the ports. the deadline is january 15. we saw target overshoot when they were building inventory. you see retailers having to build up inventory because they are concerned that there will not be a deal in january? dana: they are watching carefully. only target has been the one that called out the increased inventory that they are building. i don't have others. you are still seeing inventory growth less than sales growth. tuesday is a major day. you have the mall retailers reporting on tuesday in addition to burlington. you have 10 reports on tuesday and we'll hear more about what we've heard so far. i'm not seeing inventory pileups except for target calling it out. jonathan: what did they get so wrong? how do they step on such a massive inventory landline? dana: target?

the way that they are planning as opposed to everyone else. it is surprising they stood out so much. walmart reported the day before. it was the other areas of business that also accelerated the growth. jonathan: when the numbers drop we reflected on the same thing. he reminded us of spring 2022. this isn't the first time that we seen this movie, which is why some investors were spooked by it. it's like they haven't corrected for the mistakes they made a few years back. is that a fair or unfair criticism? dana: we may have corrected for the mistakes that they made, but looking at the macro landscape they acted faster and may change quicker than others while others are basically saying, it takes time to enact some of these initiatives. no, i'm not seeing others do that. jonathan: they overcorrected based on the lesson that they learned in 2022? dana: yeah. it seems like it's too advanced compared to everybody else. you have to look at this holiday season. with a compressed season of five or fewer days promotions are

happening. i don't know about your email inbox, but mine -- jonathan: full. how much does the five days change things? dana: huge. people still shot the last 10 days before christmas, but it's going to make the retailers hit the dial on, let's ante up the promotions. lisa: i wonder if target is a warning shot in terms of competing on the innovation and less on price. value also has to come with something new. i wonder how much walmart is exerting that pressure, because they can compete in a way that no one else can because of their product mix. is that the take away from some of the recent earnings? dana: part of it, but look at what walmart is doing. when doug mcmillon said that their highest growth came from some of their upper income consumers, the $100,000 household income, they are taking that share from the targets of the world. also, look at the growth of tjx.

even some of the luxury items that they have, they are scattered about in select stores, but it is a driver. annmarie: is gap copying that? yesterday they said they are making inroads with upper-middle-class wealthy patrons. dana: part of what gap is doing, look at the collaborations, with influencers. they are getting in the conversation by stepping up and saying, we are part of the brand halo that is out there of other brands who want to be and reach a wider audience of consumers who have a wider income level. jonathan: the top pick this holiday season? dana: on value, tjx. newness? i think that birkenstock will continue to drive sales. jonathan: i can't stand them. then and crocs, i can't get on board. lisa: i like birkenstocks. annmarie: that tracks. doing your taxes in

birkenstocks? lisa: i will out myself on that. i think that they are very convenient. i only own one. jonathan: with socks. dana: it is so specific, it is such an era. jonathan: that has a three year cycle too? a busy few weeks of shopping ahead of us. up next, tiffany and troy. from new york, this is bloomberg. ♪

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jonathan: equity futures on the s&p 500 just a little bit softer. we are down by not even .1% going into the opening bell. with your morning movers, here is manus cranny. >> just to build on that conversation you just had, we kick it off with ross. understanding the migration away from target, you're going back to flat on this at the moment. this companies with $47 billion. they are upping their guidance, and again, the lower income customer is still feeling pressure. when you go to buy your essentials and discretionary items begins to split up. we will have a look at gap. it is about capturing market share. you have a number of issues, but we are up 21%.

four consecutive quarters of sales growth. richard dickerson is doing something right in terms of product, merchandising, reinvigorating some of the brands. they only have a 10% exposure to china on the supply chains. i thought we would finish off with microstrategy. you have bitcoin toward $100,000. this stock is down 16% yesterday. why? because the original evangelist behind this stock, citroen research, they are shorting the stock. they say you can play bitcoin in a multitude of ways. they were an evangelist, they say it is the only way to invest, but the stock is becoming detached from some of the reality. they say use this as your heads to short against bitcoin. come on, 100,000, jonathan. i can see you in the crocs and socks. jonathan: i don't know about the crocs and any of that stuff.

let's turn to the economy. fomc minutes coming on tuesday as the debate over a december skip continues. tiffany wilding of pimco writing, while recent data could have the fed considering a pause in december and/or adjusting its rate path higher, think the broader trend is toward lower policy rates. pleased to say that tiffany joins us for more. let's talk about the trend. you believe the broader trend still holds and we are heading toward lower interest rates. tiffany: yeah, well, i think if we take a step back from -- we obviously had a big election event, but if we take a step back from that and take a look at where we have been over the last four years, we have been in a unique period for global economies. the pandemic itself, the fiscal policies that supported it, the recovery from that him and we are getting back to normal. you can see that if you look at inflation trends. in the u.s. we are elevated, but

we are a stones throw -- other economies are much closer to normal in terms of inflation. if you look at the labor market it is also normalized by a bit from those acute labor shortages. against that backdrop central banks should also be moving towards some semblance of normal. think they have a lot of room here to continue to gradually reduce interest rates across a range of economic scenarios. although uncertainty, political uncertainty, could slow that pace down, we think ultimately there is a gradual pace down, and we view the prospect of hikes to still be relatively unlikely. jonathan: let's park the hikes for a moment. you said there is still a lot of room. underpinning that statement i assume that means neutral is lower than we are. how much lower do you think it is? tiffany: you know, we have argued that neutral on a real basis is probably around 1%.

around the develop markets kind of a 0% to 1% range seems reasonable to us. if you think about that in nominal terms, so adding inflation, if inflation is 2% to 2.5%, that suggests 3% to 3.5% neutral nominal interest rate. we think that is where they are going. within that context, you know, again it seems like a gradual path lower is still very reasonable. having said that, though, we think they will adjust their forecast for 2025 somewhat higher. we are looking for 3.8% from them, and that is because the economy has been doing well. when the economy is strong you don't have to lower interest rates as fast. nevertheless, they want to make sure to stick that soft landing and they don't want to overdo it. that gradual path lower makes sense to us. lisa: talk about a neutral rate on average in developed markets. i wonder how much we could talk about these averages anymore

given the fact you are seeing this massive -- massive divergence between u.s. and europe and the expected neutral rates are somewhat more different, at least according to some models, then that kind of range lets on. how are you thinking about that in terms of developed markets having a very different picture ex-u.s.? tiffany: i think that's right. in europe the models have suggested that other countries, including europe, have had a lower neutral interest rate and the u.s. for some time now. that "marriage" is not -- wedge" is not anything new. it is why the ecb in terms of the terminal rate on their hiking cycle, they got to a higher place than the u.s. they have accounted for that. when we look across the developed markets we do see more weakness, more underlying weakness, more subpar growth in those markets then we have in the united states.

but interestingly, inflation has come down a similar amount around the developed markets. and that is because the u.s., despite its stronger growth, has also had a stronger supply-side response after the pandemic. we have been able to increase productivity much more than other developed markets. we have been very exceptional at that and also have been able to maintain some higher growth rates in investment, specifically r&d and research, ip-type of investment that tends to continue those productivity trends. overall the u.s. is looking pretty good versus everywhere else in the world, nevertheless as inflation has come down it still gives room for the fed to kind of get on that gradual easing path. lisa: one thing a number of our guests have been talking about is the base case next year of solid growth and a really expanding economy, but without inflation remains the same after the election, but the tales are getting wider.

that what you are seeing is a greater risk of both a real super-acceleration or potentially a hit to growth from some of the policies. how do you look at things, given that there could be some pretty transformative policies put into place? tiffany: yeah, i mean, so we would agree with that, that the tail risks on both sides of the distribution have gotten wider. there is going to be a lot of -- as we go through 2025 we are going to get more certainty around the policy picture. you will have the tax cuts and jobs act, which will need to be renegotiated. many of those provisions will expire at the end of 2025, so congress will be going through that process. think there is some potential for them to legislate some tariff hikes, maybe on china, or try to do others within that. of course president trump will be negotiating, and there is going to be a lot more trade policy uncertainty. how all of those things impact

the economy is complex. you know, i think the real question is, do we have an increase in business sentiment and competence as a result of things like the regulation and more certainty around the tax legislation? or do we have businesses that are may be a little less confident because they are more uncertain about trade and trade policy and how that is going to shake out? you will have to continue to monitor this as we go through the year next year to see which one of those effects is bigger. lisa: which do you think is the more likely risk? a re-acceleration in inflation or a bigger hit to growth? tiffany: well, so we see the most likely -- for a more extreme reacceleration in inflation, of the type we think might get the fed to start thinking about rate hikes again, that kind of level of reacceleration, getting the core pce rate back to 4.5%, that is historically more consistent

with another supply-side shock, an energy shock. so that, the increasing geopolitical risks, for example, which drive energy prices higher, those would be the kinds of things we would be looking for. in terms of the u.s. economy, you know, certainly we are back to a better place in terms of demand versus supply. it would take a lot more domestic demand to really start to overheat the u.s. economy. so, i think overall in terms of inflation, you know, i think we are still pretty confident that we are getting into that two-point-something zone. it is good for the fed. absent a global supply shock we expect inflation to be around there. that doesn't mean it could not be sticky above the target, but we think these pandemic-level inflation rates are behind us at this point. jonathan: i'm going to ask you a

really annoying question. please forgive me. is there a payrolls number that would change your view on december? and i don't think that is a judgment on you, tiffany, at all. we know how hyper-data-dependent they have been. is there a number in mind that might change this conversation for december? tiffany: i think there is more. the reaction to a lower number, a weaker number from the fed might be a little bit more pronounced. we had a noisy report in october. you had hurricanes that hit florida. you had boeing that had a strike. we will get some recovery in payrolls in november after those things have normalized. so, the payroll report itself should be stronger as a result of that if we get a weaker report it could be a bigger reaction, but if you get some rebound in strength i'm not sure it moves the needle that much. on the others, the unemployment

rate, i think that will be potentially a bigger swing factor. if we get another .2% increase in the unemployment rate like we did ahead of that september meeting, the fed stands ready to react to that. they have been very clear that they are prepared to cut interest rates pretty quickly if they see a weakening in the labor market. jonathan: tiffany, you are one of the best. tiffany wilding of pimco on the latest on the u.s. economy. i will keep going back to the calendar. december 6, the payrolls, december 11, cpi, and a week later the federal reserve. lisa: i will give you a number. 400,000. jonathan: did you find it interesting i said give me a number and tiffany started talking about week is? -- weakness? lisa: that is not where people's minds are right now. we are looking at a have potentially the unemployment rate drops back down or if there is a sign of reacceleration that could do it. it is not just the employment number. jonathan: let's cross to troy

gayeski. last time we caught up you said it is not difficult to imagine what it would take to get higher yields from here. we have higher yields. 4.30% on twos. could you imagine higher from here? troy: 100%. you look at the curve it is still inverted, which as you know is a very unusual circumstance. what you were discussing before, as the fed brings the front end to 3%, the 10 year fed funds is 300 basis points. sometimes even higher than that. as you go through this cycle it is logical to see a 5% or higher 10 year. that doesn't even address this to mend -- this tremendous supply-demand imbalance we are going to have. we are going to issue treasuries, assuming we don't have a major shock to the economy where the treasury has to get much more aggressive at issuance. that is 73% of all of the supply

that has been issued that is owned by the public. treasuries have the worst flow of any major asset class. on the demand side last i checked the fed is still tapering. not only are they not buying, but they are reducing their ownership percentage. it is going to take a major shock to cause them to do qfii anytime soon. -- q e anytime soon. the chinese don't have the current account surpluses like they used to. we see a naturally's deepening curve. -- naturally-'s deepening curve. the sooner they get to the lower end of that 3.5 percent range, the steeper the curve will get. i don't understand why people still talk of duration. in terms of a profile, not attractive. jonathan: i'm not in a position to offer a forecast, but i can make the crown observation. we have come close to 4.50% .

is there any signal in that for you? troy: we are in a 30-year-plus bond market. within that you had ranges depending on weather in 2002, or when the fed unleashed qe. the same goes for a bear market. as you know we briefly hit 5.0 zero, but along the way there are many ranges. i think we will have more trading-oriented managers, as well as consultants trying to trade those ranges on the way back up. that can provide support. i think it will take more fed cuts to push the 10 year before -- above 4.5% as we steepen further. fixed income is the definition of return pre-risk. it is just hard to get excited about. lisa: what is interesting to me is right now you are not seeing yields at this level.

do you see things differently? do you think it is or will if he gets over 4.50%? troy: that is a great point. that is also a function of where multiples are in markets at any given time. we inflated backup to a recent high of 22.6. if you look at the russell, it is up to 28 times forward earnings, which is borderline insane. in a constrained valuation regime there would be less impact. but as you back up that curve, it makes further multiple expansion very challenging, and we could have these mini repeats where higher yields are causing compression. which has really been the case since the end of 2021. they have been caused by higher yields, like we had last october. lisa: i have to say, i get that.

the p/e ratios do look like they are extremely expensive, and an evaluation argument is coming up. then we hear things like what tiffany wilding was saying from pimco. the equity is actually growing at a faster pace in some industries than the price of the shares. i'm thinking of nvidia, which is the poster child of that. why is that not a convincing argument, to sort of put you off the concerns about valuation? troy: look, we have always said valuation is a terrible indication of the short-term, but a very good indicator of long-term performance. investors should own u.s. market-weighted cap indices. the question is, can we grow operating margins next year by 8% and will there be a reacceleration to lead to earnings growth? that is going to be challenging. we are not knocking equities, we just know that valuations make

gains more challenging. back in the day you would complement that with international or small mid-cap. but now because you have so many choices and alternatives, like private equity, and you are enjoying 13% revenue growth, there is better choices in your asset allocation as you fade some of that recent strength or you do not allocate more into an overweight position u.s. equities already. most investors have been driven to overweight u.s. equities by the tremendous performance you have seen. but you are going to get revenue growth, you're going to get -- revenue growth. just have to be realistic about what the return forecasts are. annmarie: a lot of this was priced in, in terms of what trump plans to do. the trump trade was priced in. what can you see as the material impact that is not priced in right now, into the equity

market? troy: what we have been waiting for on the liquid side of our business is for merger to come back. it has been a challenging period. there has been a lot of government intervention. that said, even during peak intervention, when you think forward our view is that mega cap is going to continue to be challenged for acquisitions. mega cap attack. there is going to be continued pressure to block those deals. however, in other industries, airlines for instance, those will more than likely be allowed to go through. so, mergers should not necessarily boom, but come back strong. i think just as important long for the health-markets is the ideal market is not going back to 2021 anytime soon. but you will see much healthier ipo activity. those are also very good for private credit, because a lot of the opportunities we are seeing

now are financing upcoming mergers, as well as potential acquisitions. without corporate capital activity it gets much harder to generate attractive returns in certain strategies, so we are very optimistic that that is not priced in, for instance, in wells fargo at 13% every day. there are still some pockets of opportunity. jonathan: final word. pick a treasury secretary. got a name in mind? troy: no, it is interesting, because it is contrary to the trump we love easy money policy, right? but it does seem like there is a consensus, and it is really interesting. you guys have done great reporting on this. the natural evolution from treasury secretary to fed chair over time. we don't have a preferred candidate, but it seems like he has been gaining steam. jonathan: troy, appreciate your time, sir. troy gayeski of fs investment.

an update, here is the yahaira jacquez. >> citadel founder ken griffin said he would consider selling a minority stake of the hedge. speaking yesterday griffin said he would consider selling to the firm -- to affirm similar to sequoia capital. he said, that is going to push us to be better at what we do in our business. meanwhile, bitcoin is closing in on $100,000, event -- driven by expectations of friendly u.s. regulations and growing investor interest. we are currently trading around $97,500, coming as donald trump's transition team held discussions over whether to create a new white house post dedicated to digital asset policy. the crypto market has gained about $1 trillion since the u.s. presidential election. apple is working on making seery more conversational. according to people familiar with the goal, the goal is to

keep up with chatbots that are better able to hold ongoing conversations and respond more click. apple plans to use more advanced large language models. the company is currently planning to release the new siri as early as spring 2026. jonathan: have a wonderful weekend. next, setting you up for the day ahead. you are watching bloomberg tv. ♪ ♪ (♪♪) (♪♪) 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.

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jonathan: live from new york city, 36 minutes away from the opening bell. equity futures doing ok. a rally in the bond market. 4.39% on a 10 year. he was the trading diary through

the next week or so. today we get s&p global pmi's and consumer sentiment. tuesday consumer confidence, new-home home sales, and fed minutes. wednesday durable goods. and another round of jobless claims before we get the u.s. holiday, thanksgiving. all eyes on merrill longo -- mar-a-lago. donald trump's list for treasury secretary. annmarie: the potentially get a decision as soon as today. the thinking was this become yesterday. greg valley a talks about this, that the departure has two major implications for trump. one being that it stalled the delivery of this treasury secretary we have been talking about for days. the wall street journal picking up on our reporting earlier in the week that potentially there is a duo at play. you pick kevin warsh for treasury before he goes over to the fed in 2016.

but we need to remember this is not over yet. and scott besson has the support -- i was listening to steve bannon yesterday and steve schwarzman. it is a pretty big swath of people backing him. lisa: i'm going shopping. jonathan: you are going to gap? lisa: i'm going to go check out the new styles at gap. jonathan: take a deep breath. it has only been a little more than two weeks since the election. all four names are of a high caliber. let's see what we get. lisa: it is the holiday season. we can focus on other things too. annmarie: we have two ag's in two days. lisa: i'm not sensing the same thing on this pick. coming up, david beyonca, mike wilson, frances donald of rbc. from new york city, thank you for choosing bloomberg tv. have a wonderful weekend. this was "bloomberg surveillance." ♪

it's our son, he is always up in our business. it's the verizon 5g home internet i got us. oh... he used to be a competitive gamer but with the higher lag, he can't keep up with his squad. so now we're his “squad”.

what are kevin's plans for the fall? he's going to college. out of state, yeah. -yeah in the fall. change of plans, i've decided to stay local. oh excellent! oh that's great! why would i ever leave this? -aw! we will do anything to get him gaming again. you and kevin need to fix this internet situation. heard my name! i swear to god, kevin! -we told you to wait in the car. everyone in my old squad has xfinity. less lag, better gaming! i'm gonna need to charge you for three people.

matt: thank god, it is friday. we may actually have a treasury pick. 30 minutes until the start of trading. i matt miller. katie: and i'm katie greifeld. bloomberg "open interest" starts right now. matt: coming up, we are poised for pmi's. s&p futures are paring losses ahead of u.s. manufacturing and services data. it is out later this hour and we are going to do everything we can to make it exciting. the retail value play, gap and ross stores see strong resorts as wealthier shoppers hunt for deals.