Inflation Is Hot | Bloomberg Surveillance 09/13/2022


The depths of the recession which is
looming right now is probably going to end up shallower than the one we could
have feared. Also consumer as well.
Businesses are starting to at the margin rollover.
It's still very clear that the global economy
is in a very weak phase. We've been the most surprised to see
that the market is more optimistic than Vincent commentary.
Clearly now you know they have sent the signal that they are going after
inflation first and foremost.

This is Bloomberg Surveillance with Tom
Keene Jonathan Ferro and Lisa Abramowicz.
Do you think CPI Tuesday from London is a bit weird.
Well it is so good. You can see beautiful here.
But here is that's what we're doing from the city of London from audience
worldwide. Good morning.
Good morning. This is Bloomberg Surveillance alongside
Tom Keene and Lisa Abramowicz. Some Jonathan Ferro NIKKEI features
slightly positive here. Bit of a bounce again.
Four day winning streak into Tuesday. CPI just around a cold superior around
the corner.

We've got a grim wonderful girls.
Could choose to be with us in a moment with some really intelligent discussion
of inflation. But John I'm going to suggest this is a
different inflation report all looking lower but it is the magnitude that we
could see in a third. It's the last big rate brown I icon and
to the Federal Reserve decision next week.
And we don't have Federal Reserve officials we're actually gonna be
speaking and trying to color it in any particular way.
We're in the silent period. So it'll be interesting to see how
markets really react considering the fact that people are prepped for 75
basis points regardless. Last night over the third beverage John
said time you're in the silent period. This is the blackout.
How long it takes to sign. It wouldn't be the first time that we
had a big upside surprise on CPI.

And then someone kind of broke the quiet
period with a little bit of a leak into a certain newspaper decision.
I'm not saying that's going to happen certainly.
Well I'm not saying that's going to happen today.
I think most people looking for a soft print not a firm one.
So whether we see the Wall Street Journal article or not it seems pretty
clear that it's name the actual I could I could name also the reporter.
But there is a question of whether we're going to see any kind of reaction
because regardless of what happens 75 basis points seems to be baked in.
I think it's more interesting that despite that hawkishness which is baked
in in some markets you're still seeing that optimism pervade equities at a time
when there's so much sort of uncertainty and concern on the Friends America.
We're still mourning the death of Queen Elizabeth or King Charles will travel to
Ireland today.

John the Republic of Ireland ninety
point one percent inflation. This American reported a 30 is of global
interest without a doubt because it sets up the monetary policy story.
So I think we should build on something we've said repeatedly over the last week
or so. In fact the last couple of months since
Jackson Hole whether it 50 or 75 it's kind of not the story at the moment for
this capsule for this Fed. The story is 20 twenty three.
And all the pushback is saying against rate cuts from almost every single Fed
official on that committee Lisa. And then you've got the market which is
basically saying that we don't buy it. I've got to say Bank of America put out
a note this morning. I saw and I loved the title.
The title was How to Trade this Rally even if you don't believe in it.
And it pretty much sums up where we're at.
People are thinking we hate this.

We don't like this rally.
It makes no sense from a fundamental perspective.
But you lose not being part of this. But five percent over for DAX.
I know we're added to it this morning this way through some of the price
action for you. Equity futures shaping up as follows on
the S&P 500 equities firmer by four tenths of 1 percent on the S&P yields
back him by 4 basis points on a 10 year to 330 157.
Look out at the front end yesterday became very close to 360.
Then back to why.

And Lisa again this morning backing away
once more. Yeah.
We're seeing right now the dollar the best litmus paper.
I saw this at a note that I thought was really telling the best litmus paper for
the mood on inflation. And right now people seem to think
inflation will be softening and accelerating in that trajectory.
And at 830 AM the reason why I'm talking Eastern Time.
The reason why this is a global report is because it sets up the world's
biggest economy. And where the price momentum is it is
August U.S. CPI.
We are watching Core more than the headline CPI figure especially because
it's so well known about gasoline prices.
They've come down dramatically. So we're looking now at the headline
that includes that figure. But at the Reds at other aspects of the
world that are actually continuing to increase particularly even in the United
States today. Queen Elizabeth's coffin travels from St
Giles Cathedral to Buckingham Palace. We'll be tracking all of the
proceedings. This is incredibly poignant and it
really has affected a lot of people here because this also was a woman who for 70
years let us stage through eras in which women were not as recognized.
And I say this because she was thought of as a mother figure a grandmother

But she was also very powerful.
And it's really interesting to see some of the tributes pour in.
And at 1:00 p.m. the U.S.
is planning to sell 18 billion dollars a 30 year bond.
Here we go. OK.
This matters. It actually matters today.
Why you don't buy it at Matt Miller. You always know it's Matt Miller because
he's like clockwork. You know they're always going to sell
bonds. Who cares.
Some people buy them. It's not going to be disruptive.
But this matters because they're actually the roll off of the balance
sheet is starting to gain momentum.

So is there going to be a much smaller
pool of investors willing to swoop in especially as real yields rise to some
of the highest levels. It's not to say it matters.
I know I'm getting kind of like you know I'm just not CAC is with us going to
become matters chief ethics strategist at such Jeff Kennett's good.
She got decent sleep last night. Finally.
Oh my God. Maybe a few hours short.
Kate good to see you. CPI just around the corner.
Walk us through what you got a team looking for a little bit later.
Well you know I think Lisa put it quite well in the sense that you know the
headline is bound to come down. So so kind of so what the core I think
could be sort of pernicious because the main feed.
Sure of the US economy right now is that it is doing better than anybody thought
it would be doing now six months ago.

This cycle is persisting.
The labor market is still incredibly tight.
The ISE data is still incredibly robust. We know the Fed is going to slow it.
The Fed has to slow it. We just have to debate how much above 4
percent. They have to go to slow it.
And then we have to worry that if you have to slow it enough you get a hard
landing later. So so the narrative at the moment is
soft landing increasingly likely globally.
Partly this is what's going on in Europe.
But the difficulty for the US is the inflation data will show this in the
entrails is the more they have to slow the
economy with rate hikes. Now the more the uncertain and long lags
are going to come back and bite us in 2023.
ISE talking to our doom tell us this morning in London we were talking about
the makeup of inflation. The economists look at goods inflation
service inflation. You have a brilliant sentence in your
note this morning that we don't really understand the formation of inflation
and how we come about inflation this time around.
What's different.

Well I mean most of most of history
inflation is all about goods. It's all about you know it's wars and
pandemics and food shortages. And then it's kind of destruction of
stuff and rebuilding. And then we went through the the
post-war period rapid rebuilding in unionized labor without so much
globalization. Now we've got a diverse labor force a
very global economy.

We know we've got an energy crisis.
We know we've got some food crises. But we're we're we're sort of grabbing
at straws of what the 70s told us about inflation.
Trying to understand the 20 20s. A lot's changed in the ways that wages
are formed in the way that people work in the way that prices get decided.
So we know there's a lot of inflation now because there's too much money
chasing too few goods. There's too few people doing too many
services. So we have inflation now.
But how that comes back to target other than you whack the economy on the head
with a big hammer.

We're not sure.
Well you know a lot of people have said the US led inflation because they led in
fiscal stimulus. That then had people purchasing a lot of
goods at a time when the workers couldn't really sustain that rate.
They couldn't make the products so they couldn't actually serve them.
Now is it really shifting to Europe. Because I keep hearing about fiscal
spending plans whether it's in the United Kingdom whether it's in the
mainland continental Europe.

As you take a look at some of these
energy efforts to try to shore up household balance sheets heading into a
winter. You said that Emily Chang.
I think that's exactly talking about basically boosting some of that fiscal
spending while also cutting taxes while also facing off with a much higher rate
interest regime. How do you face this off with Europe
leading on the fiscal stimulus and potentially even more inflation.
Well I think part of it in Europe. But when we see what we see from the
fiscal stimulus is a program to protect people from the impact of a specific
energy price increase. So you're effectively giving people
money and giving some money to the people we import energy from so that
people's available disposable income holds up enough to not slow the economy
too much. Now I think in most goods and services
we're not going to crash and burn as a result of that because growth is going
to slow on Libya.

We saw in the UK already.
We have you know over 5 percent wage growth but we're going to have double
digit inflation. So we're not going to be spending
spending like crazy in bars and restaurants for the next nine months.
But yeah we protect the economies. We increase the chance of a soft landing
and that at a global level means we know we still have a difficult problem
because we're struggling to get output back up fast enough to cope with what
we've already done. Lisa mentioned the farm manager survey
from Bank of America earlier this morning.
Most credit trade love the US dollar. I think that was one of the most crowded
trades gone back to November 20 20 when it was all about being long U.S.
tech. The move we've seen over the last few
days. Kit can you give me an idea about the
durability of this move whether it's something you can get behind.
I think no.

I think it tells you a lot about
positioning. Sure.
But you know this was sort of a euphoric reaction to positive news from the
Ukraine. So Ukraine news is good.
But the difficulty for me now is that this is this is really good news with
higher volatility because both wings of the outcome of this
conflict are more likely as a result of this if that makes sense because there
will be a retaliation a reaction. So so it's not a comfortable environment
so that the dollar can weaken and we can sit here with people talking about soft
landing is negative for the dollar and rethink and take positions off says
we're willing to look through something which I don't think you can analyze even
as an amateur as anything other than a vol increasing event.
Get checks.

Good to see you buddy.
Obviously too long. Thank you.
Equity futures are positive this morning.
The dollar a little bit weaker once again.
And Lisa that's going to be the story for us going into CPI a couple of hours
away. Yeah the dollar is weaker as people
basically say that everything is priced in.
Right. So if we get a stronger practice at.
Things George survey is coming out and said this is it.
This just shows that the dollar has gone overdone and that the Japanese yen is
going to get back up. And you know you're going to see that a
little bit today.

You're seeing a little bit of yen
strength but we'll see. I can hear the doubt in your voice.
I just have to look at it. Honestly I think Kit put it beautifully.
The tail risk of Vladimir Putin actually waging a more aggressive inroad as a
response to potential humiliation is something I'm not hearing anything about
because how do you from price that end let alone gauge that out.
We mentioned a front page of the Financial Times this morning Tom and we
should talk about it. 3:00 today the chancellor.
It's firstly the treasury referring to them formally as a finance ministry that
they were perhaps too focused on balancing the books and now focused on
drugs focused on growth and power. So these balancing things.
Well exactly.

There a constraint.
Do you get the pushback from the media and for American audiences is confusing.
Is it trumping growth. Is it the growth that we are supersize
supply side advocate like Lawrence Kudlow talks about.
Is it growth like Dean Hubbard at Columbia talks about.
Do we know. I don't know if we know the quality of
the kind of growth. It is massive spending and tax cuts.
Yeah I think with the double digit inflation and perhaps more on the
horizon. So overdue for an investor in the game.
Well that's the question isn't it. Yes.
Right now positive for tens if you see who's doing on the S&P.
Let's see you down with the brands.

Your with Randy.
Slowly. It's a slump.
Unprompted from Lumberton. This is pulling back.
Keeping you up to date with news from around the world with the first word.
I'm Lisa Matteo. Ukrainian forces have recaptured more
than 20 300 square miles in the east and south of the country so far this month.
That's according to President Vladimir Zelinsky.
Now he said Ukrainian troops are continuing to push forward.
Meanwhile Ukraine is appealing for more weapons to build on its recent success
in Europe. Natural gas prices fell for a third day
to a seven week low.

The European Union is pushing ahead with
its market intervention plan to ease the worst energy crisis in decades.
The EU wants to cut power demand and cap excessive revenue of companies producing
electricity from sources other than gas. President Biden is trying to capitalize
on a sudden stretch of positive economic news.
His goal is to turn the Democrat's biggest political liability into an
election year selling point. The Democrats bid to retain control of
both houses of Congress have been boosted by falling gas prices and signs
that inflation may be easing. The latest inflation data comes out at
830 New York Times.

Goldman Sachs doesn't see China shifting
its Covid zero policy this year. In a report published today Goldman says
that stability will be prevailing narrative in the next lead up to this
next month's key Communist Party meeting.
Now Covid containment measures especially around Beijing have
intensified in recent days. And UBS plans to raise a dividend for
this year by 10 percent. The Swiss bank also expects share
repurchases will exceed a target of five billion dollars for 20 twenty.
UBS is returning excess capital to investors after calling off the one
point four billion dollar acquisition of U.S.
robo advisor wealth front.

Global news 24 hours a day on air and on
Bloomberg Quicktake. I'm Lisa Matteo.
This is Bloomberg. Inflation may actually rise further in
the near term. Why all HSC key components added to this
high number. Energy price inflation in the euro area
is spending at close to 40 percent. Illustrating the magnitude of relative
price changes in the recent period. Executive board member of the ECB is
about to novel and I have to say it's about Shery Ahn but it sounded rather
hawkish over the last couple of weeks or so going into a CPI print here
stateside. Futures are positive by half of 1
percent on a S&P 500. Yields are lower by 4 basis points on a
10 year swap at 317. Back in a way across the curve this
morning especially on as well after coming very close yesterday to 3 6 days
on a two year VFX market at dollar signs of weakness.
Again the euro's some strength.

Tom won at 168 on euro dollar.
It's really important John right now to go into the real you yield explosion.
We've seen to a positive point 9 0 and discuss that yields are pushing higher.
But at the same time that calculation is the break.
Even in the slope in the inertial force of various measurements of inflation the
so-called break evens is tangible. Did you see it is seen.
It has been so. But the real deal.
Inflation expectations. Just that.
Just rolling over. Oh yeah.
And how much is that really the story behind the dollar.
How much is that the story behind some of the risk appetite people seeing.
Maybe not. But I think it's directly linked.
You're going to start getting some sort of deceleration.
People talking more and more about some of the soft landing.
I haven't heard much of that.

I think the question is where does
inflation migrate to. We may get some of that this morning at
a 30. But the real question is what do you do.
It's 7 percent. What do you do.
It's 6 percent 5 overall headline inflation right now.
We wrap up the script. Joining us now Maria today in Brussels
on America and the efforts in Ukraine. Maria a spectacular article in The New
York Times this morning talking of a U.S.
defense attaché and how we are helping Ukraine with a tactical effort of their
response to the Russian invasion. From where you sit and with your
reporting how much is America and the other Western nations at war with Mr.
Putin. Well at war officially they're not and
they're being very careful to tell you are not belligerents here we're not
actively participating in this. But we all know of course that Ukrainian
forces use weapons delivered by allies who they say we have to do this because
this is a country that is being attacked.
Ukraine did not initiate this words defending itself.
And then of course we know that Intel has been key for Ukraine.
But Tom I think we should also remind ourselves that this battle is being
fought and and to some extent won by Ukrainians.
They have proven to be an effective army that has been well-trained since Crimea.
They took the lessons from the annexation of Crimea.
They have been now on the battlefield more effective than many thought.
And I think at this point in hindsight you do see that a lot of the early
estimates about Ukraine were wrong.

This is a professional army that knows
how to fight. There has to be an assumed bodies number
of bodies that Russia needs to hold territory or to re advance.
It's a ginormous number. What's your working number of the size
of the military. Russia needs to make this work for Mr.
Putin. Listen Tom to me that is the key
question because if you follow Russian media at this point especially after
what happened on Saturday they talk about how can we escalate.
How do we respond to this. And a lot of the talk now is OK.
We have to go from special operation to now full war.
And that means conscription. That means that you have to tell Russia
man you have to go and die for your country.
The issue here and this is why Vladimir Putin has been careful not to do this.
Is that when you're underpaid when you've had a month training when you
were 18 and you're sitting at home watching reality TV that looks like a

And then you're told get ready to go and
fight against a professional army in Ukraine.
Maybe that could spark social tension. And this is why Vladimir Putin has been
incredibly careful to shield the public opinion from that to say there won't be
conscription for the time being. Yeah.
Maria at the same time you are saying a preparation of NATO nations for more
conflict with Russia. And I think about some of the German
proclamations recently of their effort to become the military leader in Europe.
How is that going over both domestically and within the continent considering the
history considering that this is a huge departure from where they've been over
the past few decades.

Well it's a huge departure of course you
know the history lesson for a lot of Germans of course is that they do not
want to be a military power. This is a country that you know very
respectfully but still has major World War guilt.
It comes up many times in many conversations with German politicians.
This has been a U-turn. But I think a lot of countries neighbors
particularly in Eastern Europe will say I'll believe it when I see it.
And I also want to see the investment. This is an army that has been under
invested for a long time. They'll believe it when they see it and
they start to see money going into this army.
Maria thank you. Maria.
Today that out of Brussels on the latest with the war in Ukraine.
It's something we've talked about a few times Lisa.
Over the last couple of days is whether it actually makes a difference to policy
whether the sanctions would go away if we resolve this thing say tomorrow.

And basically in a nutshell no it won't.
Right. I mean that's pretty much consensus at
this point. Nobody thinks that everything is going
to be fine that natural gas is going to start flowing through Nord Stream once
again to Germany. Not likely however does it potentially
remove some of the tail risk. Right.
I mean that's I guess where people are talking about in terms of the optimism.
Otherwise I can't really understand what they're talking about.
And gas prices pulling back. Just stay a little bit.
Coming up a little bit later this morning we'll catch up with Andrew
Holland host the chief U.S. economist over at Citi.
As we count down to the CPI report in a couple of hours time Andrew Holocaust is
looking some where you can't dance. I'm counting down.
You've got a lot of more numbers than that sir.
That's it.

If you asked why I keep doing that count
to 75. Seventy five as well.
Andrew Holmes host is looking for the family so well in about a week.
Benjamin Navarro publishes moments ago his colleague in London.
And he says this is the Bank of England the day after the Fed that will quote be
forceful. Well but it's really not just about what
happens at the meeting next week.

And what you were saying that earlier John and Tom you were saying that it's
going to be what happens next year. Can we really find anything out.
Right. I mean this is the tricky moment because
of deceleration in some of the key inflation components doesn't necessarily
mean we're out of the woods. We're still talking about an 8 percent
headline number potentially. And with core at 6 percent you're not
exactly in safe territory. But I'm still counting ISE grooves
nearby. Chris.
Yeah. What is it you would like the breakfast
place. You want breakfast.
Yeah. But you know you've always told me it's
like the place.

I just I just saw you eat breakfast.
We just had breakfast. We could read breakfast on air.
The food here frogs was outstanding. The coffee.
We have to go home. The coffee is superb.
The coffee is good. I just say congratulations to the team
that put together this set. They did a great job yesterday evening
into early this morning for those young women to come to light saying just
fantastic. We're in a hugely historic part of the
city of London and this is Queen Victoria Street.
And behind us is a cathedral that matters to the world.
St. Paul's just a little bit.
Yeah. Very cool.
Live from London. From audience worldwide.
But Tom Keene is going to count you down to CPR to the second breakfast.
That's I was just passing by like. This is Bloomberg Markets sausage. Live from London.
Good morning to you. Counting you down to CPI cheese steak to
for a couple of hours away. Take ISE doing a lot.
Countdown clock for you. You might hear it again.
Ten. Nine.
What number you want now. Yes.
Since we take different languages each just positive because one has some fake
by four tenths of one percent.

It's coming in a couple of basis points.
We're down about four negative four basis points on a 10 year 331 on a 10
year. You're right.
All at once there are 161 positive four tenths of one percent.
Some dollar weakness. Michael Barr chat.
That is bullish Tom. Please come on.
Don't ruin it. Let me go with the quote.
He says this We maintain the progress stats economic data an investor
positioning got more important factors for risky asset performance than central
bank rhetoric. And the data appear to be increasingly
supportive of a soft landing. Soft landing.
The bust is a new phrase. It's the soft landing moment for I'm
hearing more about a soft landing than I am about a hot yes.
And that is because of the deceleration in inflation which is a reason why
you're seeing a little bit more dollar weakness a little bit more risk

The question is is the inflation
deceleration sufficient to really give people some sort of faith miss out on
the water colored man Governor. Well it seems Governor Wallace says no
I'm trying to be serious. You two are killing me.
Governor Wallace says OK Governor I want to basically said no.
I mean lost that. We thought he was pushing back.
Yes he's pushed back. Was it with great force against a number
of other parties. We should say John that this is a nation
in mourning. All of this nation a bit later today I
think with the travels today that's going to come in wisdom as we work
through the day and that it's going to hit one over the head on Monday when we
have a funeral service. Lizzie BURDEN of course reporting from
Buckingham Palace. A little bit of lightness in the last 24
hours as this nation prepares for a funeral on Monday.
We prepare for her funeral for Andrew Holland who is chief economist at
Citigroup if he gets the inflation call wrong.
He has been an OUTFRONT incredibly bold and a move to a higher interest rate

Andrew not so much.
How important is this CPI call this morning but how does it relate to the
CPI. ISE calls to come 30 60 and 90 days from
now. Thanks Tom.
I think that's really the key question here is maybe not so much what exactly
do we get this morning. And it's pretty widely shared
expectation that we're going to have somewhat of a softer print again.
And I guess we had a softer print for July.
The question is where is underlying inflation.
And if I look at for instance the Atlanta Fed has a great dashboard of
various underlying inflation measures all of those inflation measures
indicating above 5 percent inflation some of them about 6 percent inflation.
So I think no matter what we get this morning and we expect some distortions
from used cars and the airfares if you look through the underlying inflationary
pressure it kind of goes back to what you're talking about with.
Can we get a soft landing.

We have a really tight labor market.
We have labor costs that are rising. That's going to show through to higher
prices. Andrew do you think then we're still
underestimating the persistence of this story and the resolve of this Federal
Reserve. I think that's always the danger and we
went through that a year ago last summer when we saw some softer prints and I
think there was a lot of optimism that maybe we could be seeing inflation that
was actually transitory. And I think we just have to be really
careful about not letting hope triumph over the reality of the situation.
We all hope for a soft landing.

Certainly I would hope that's what the
economy can achieve. There's a possibility of achieving that.
You're going to hear Fed officials that emphasize that possibility.
But it is that it is a possibility. It is not a high probability.
It's a possible outcome an outcome that we hope for.
Probably not the most realistic outcome at this point.
Andrew I won't ask you to get out the crystal ball and tell me where inflation
is going to be. Twelve months out 18 months out.
But do you have a decent idea of what the threshold is for this Federal
Reserve to take a pause to look around and say perhaps that's enough.
So one thing that's been useful as we've heard from a lot of Fed officials we of
course had Share Powell speaking at Jackson Hole just being really crystal
clear about the resolve and the desire to bring inflation down.
But then how do you operationalize that. We heard from Vice Chair Brainard last
week saying I need to see several weaker print several softer inflation or prints
in Fed speak.

Several means more than a couple.
So we're looking at more than two months with July and August data we may see two
months of weaker inflation. So I think it's a series of weaker
softer monthly inflation prints and also very importantly that you see this broad
based. And I think that's part of the lesson of
the last year or more of inflation data is that you really have to look at what
is the breadth of the slowdown.

If this is just use cards if it's just
airfares that's not going to be sufficient.
We want to see is services prices that are at least not accelerating rents that
are slowing down at some point. We know house prices have slowed down.
So there are reasons to think that you could see softer readings as we move
into 2023 but clearly not seeing that yet.
I think way too early for the Fed to declare victory on this.
That said Andrew from your vantage point do you think.
I hate saying this.

I'm going to get pilloried.
But a soft landing looks more likely because of how much prices have rolled
over so much more than some people had previously expected.
Well I think the issue Lisa is really what we were just talking about is how
broad is that decline in prices. We're talking about certain categories
of goods and that's maybe not that surprising given that we had really
excessive demand for goods in particular.
And now that that demand is moving and shifting a bit into the services sector.
What I'm increasingly concerned about is upward price pressure for services.
Now we saw airfares that went up significantly.
Looks like we'll come off of those highs and we have come off of those highs.
Maybe we'll see a decline again in that category in the report this morning.
But that's really the question for me is are we slowing down in a broad based
sense if this is just gasoline prices.

If this is just certain goods I don't
know that that's sufficient to really say that underlying inflation has
slowed. And then even on the good side.
Remember we're talking about shortages of energy and natural gas in Europe.
We're talking about a potential railroad strike later this week in the US.
So there is still some really acute upside risks to goods inflation that I
think we should also be aware of. Based on your projections and these
granular components Andrew where do you see inflation ending next year.
Mean people are trying to game out the likelihood of getting down to a 6
percent handle hard hit percent handle by the end of this year.
What about 2023. Yeah.
No question will still be very elevated at the end of this year it really is
2023 where you look for for inflation to come off further.
When we forecast out that for far we see a path for headline inflation and
various measures of core inflation to get down into the 3 percent range.
I think that would be quite an accomplishment if the Fed was able to
return inflation which would still be above target but at least closer to
target around 3 percent.

The issue is that it looks to us that to
get there you will need at least a somewhat significant rise in the
unemployment rate. This idea that we're going to bring down
inflation and cool wages really if you look at Atlanta Fed wage tracker it's
running at six point seven percent. So we really have a lot of pressure.
And in wages it looks hard to us to see those kind of even 3 percent inflation
numbers without a significant loosening in labor markets.
And if the dynamics in the behavioral movement from 8 9 percent inflation of 5
percent some mystery let's say it's non-linear in some forms.
The linearity that was inverse invented by Alan Greenspan of a measured path
we've almost become unmoored by that. How measured are we right now.
How unmeasured is our response to inflation.
That's a great way of putting it.

Tom I think quite unmeasured in the
sense that you have central banks that are trying to do two things and this is
true in the US it's true globally where on the one hand or one component of this
is trying to just get policy rates up to a level that's more consistent with
where inflation is running euro area kind of basic back of the envelope.
You usually think policy rates need to get up around the level of underlying
inflation. So you're behind in that sense.
That's leading to larger hikes. But then there's a second issue which is
credibility. And you're going into these meetings as
central bank officials with markets looking for what you're going to do the
public looking for what you're going to do.
And it's the messaging as well as the actual policy action.
And I think that's part of why you've seen for instance from the Fed a string
of 75 basis point rate hikes.

It's yes it's to catch up to where
policy rates probably should be but it's also to try to send that message.
We had Chair Powell do that a Jackson hole through his rhetoric.
I think next week at the meeting we're going to see Fed officials try to do
that through their policy as well. Andrew Hahn host to City.
Andrew good to catch up on are you looking for 75 from the Federal Reserve
next week. The problem often and this is always the
case that you have a market focused on one thing and a policymaker looking at
another. The policymaker is saying look out to
2023 you're gonna keep rates up.

They're going to be persistent about
this. We don't wanna loosen prematurely.
The markets are just looking for the downshift from 75 to 50 from 25 to
pause. And let's face it.
Are they going to get a signal of a downshift and this news conference next
week. Well and if they do.
What kind of economic pain has to accompany that Morgan Stanley's concept
which is what could potentially cause I was going to ignore that caused the Fed
to move away from raising rates and actually lower them.
It would have to be economic pain that they see actually causing because it's
unlikely to see inflation really get down that 3 percent level in core.
That might make them a little more comfortable.
I mean my sausage roll now my second breakfast John this parlor game of
gaming rates.

And then we're also going to game at the
same time when we turn around and reduce interest rates.
This is a modern insanity. It's increasingly frustrating some but
it's happening. And ultimately that's what the Fed is
pushing back against. The Fed is trying to maintain financial
conditions to bring inflation back towards something that looks like it's
actually back towards Target. The problem is that every time you get a
sniff just a sniff of some kind of soft landing financial conditions start to
loosen again. The downside.
Yeah. And this is part of the problem.
And this is the reason why we had people coming out and saying it's game theory.
Right. Didn't Jonathan Gallup that we start
with. Yeah.
It was like you know it's game theory. You know the Fed wants us to believe
they're going to be hawkish but they're not actually going to be hawkish.
I find it interesting that over in Europe you've got the ECB still saying
they do not see a recession and everybody else is doubling down on it.
I mean BlackRock Way might be joining us from our she actually came out in shift
yesterday with a note and said yeah there's going to be a recession.
The energy costs are gonna cause a recession.
It's very very difficult for a policymaker to forecast a recession and
say those words out loud because there's something self-fulfilling about a
policymaker saying that.

In fact I think the only one that has
done it out of all the major central banks is the one right here.
In fact on the one just around the corner it's the Bank of England Governor
Bailey that Emily Chang down around the corner just about more than what really
every morning when you consider that the guy that came to me today.
Maybe he read the way you wanted it. You think Governor Bailey saw you.
I think he waved it. Yeah.
So did I see you in church. Did he.
Did he remind you that the decision is next week.
Not this week. Yeah he did go to the Fed which is
actually to get a sharp features positive six tenths of 1 percent CPI
just around the corner. Is.
Keeping you up to date with news from around the world with the first word.
I'm Lisa Mateo. Ukrainian President Vladimir Zelinsky is
claiming success for his forces in that counteroffensive.
The Lenski says Ukrainian troops have now recaptured more than 20 300 square
miles in the east and south of the country this month.
But Russian forces have hit Ukraine's energy infrastructure leaving hundreds
of thousands of people in the dark.

Inflation in the U.S.
probably slowed for a second month in a row.
But that's unlikely to prevent the Fed from delivering another jumbo interest
rate hike next week. In a Bloomberg survey economists
forecast an eight point one percent rise in prices last month from a year
earlier. The consumer price index comes out at
830 New York time. Bloomberg has learned that the Justice
Department has subpoenaed dozens of former President Trump's campaign
operatives and allies. It's part of an effort to collect
information related to the plot to overturn the 2020 presidential election.
A lawyer for one of those subpoenaed former New York Police Commissioner
Bernard Kerik calls it a fishing expedition.
The Twitter whistleblower who is warning of security flaws will take his case to
Congress today. Peters echoes testimony could further
complicate the legal battle between Twitter and Elon Musk.
Is trying to back out of a 44 billion dollar agreement to acquire the social
media company that goes. Testimony comes on the same day that
Twitter shareholders are also set to vote on the deal.
Global news 24 hours a day on air and on Bloomberg Quicktake powered by more than
twenty seven hundred journalists and analysts and more than 120 countries.
I'm Lisa Matteo.

This is Bloomberg. We're in the camp that inflation is
going to be felt great. They're going to raise rates by another
seventy five. Most likely in less than two weeks time
pushing the funds rate to three. That's in a six month period of time 300
basis points off to zero. The head of America's fundamental fixed
income a BlackRock making the point that we've done a lot of work in a very short
amount of time at this federal service.

They play catch up to bring inflation
back down. Equity features got into the CPI report
this summer. This morning that some of six tenths of
1 percent on the S&P yield to level by full basis points to three 17 on a 10
year. The euro's stronger dollar weaker again
one zero one seventy five on euro dollar summit by a half of 1 percent on that
currency. Pat full days of gains on the S&P.
It's the cheese states that they want to straighten out.
My four days of gains I believe is the longest winning streak gone.
Back to you. Yeah it's people saying it reminds
people a lot of July because there isn't a lot of liquidity and a lot of not a
lot of conviction.

And it's not very loved.
A 5 percent rally sell in that short rally.
Yeah I think it's a short covering. Yeah that's what's in the zone guys.
But it's got to be more than that John. But is it like June where you go up you
turn around come right back downers or something different this time and we'll
have to get around the hat around the year by this fellow was set off U.S.
gallery. Yeah well they may not.
Minneapolis resident who decides that perhaps this market shouldn't be right.
There's a lot of uber bears that are going OK.
That was harsh. Right now let's look at oil.
We do this through June.

Regina Mayor global head of Energy KPMG
steeped in all the game theory of her Rice University.
Regina I want to focus on the game theory right now of President Biden in
one chart. I just saw in passing which is our
so-called strategic oil reserve. And the proper scientific word for this
is the volume we have in reserve has truly cratered.
What does that mean for America. I think we've probably reached a tipping
point where it's time to focus on refilling the Strategic Petroleum
Reserve because it is at an all time low.
And I think we're sort of out of the woods from a U.S.
energy price pressure that was driving inflation and the things that I know
that politicians were worried about coming into the midterms and that was
the price at the pump. We see gasoline prices in the US
consistently go down and down and down. So I believe if anybody was taking my
advice it's time to start focusing on restocking our SPRO and getting a little
above where it was where it is today.

Can you get off the coup for us or slide
rules and KPMG and tell me how much a gallon of gas is going to go up as
President Biden restock set reserve are we going up 20 cents a gallon 52 cents a
gallon. What's that statistic.
No actually I think we're out of the woods on gas prices Tom.
I mean I think that you know we've done with summer driving season we've got
quite a lot of stock. Refineries are up and running again.
I'm less worried about what that would do immediately to gas prices.
I will say that what the administration did with regard to releasing fuel from
the SPRO was one of the key things that the energy industry will say made a
material difference in the summer peak season that when we saw gasoline prices
at their peak in June.

Virginia that's a story over in the
United States. You're in Portugal right now in Lisbon
and we're in London and the focus very much is on energy.
And it's a very different and multipronged concern because it's not
all gasoline or crude. It's natural gas.
It's it's it's some of the issues of nuclear energy over in France.
From your perspective is the plan that's coming to shape from the European Union
of trying to cap demand while also providing profits from the energy
companies to households.

Does this make sense.
Does it feel feasible to you. Police I think that the he's already
made quite a bit of progress. So we have seen European gas prices
drop. We're at a seven week low.
And it's 40 percent off its peak on August 26.
It's still eight times higher than normal.
But there are bright spots. Gas storage is up.
Eighty four percent right now. And it's slightly above where they would
have expected to be for the five year average.
The countries have been working on securing as much supply as possible.
Now they're looking at packages to reduce demand and to cap what that would
do to household income.

It's going to cost a lot of money.
There's got to be national budgets are going to be strained.
So it's got to be a lot of different things that that happen.
I would not say they're out of the woods because if it's a particularly cold
winter and if you see Asian demand start coming back in where cargoes of LNG are
priced up in a competitive way that's where things get really critical again.
So not out of the woods but the things that they have been doing in the near
term are having a a measurable impact. OK so Regina could you spell that out a
little bit of measurable impact in that we are seeing gasoline natural gas
prices come down significantly but is that impact going to lower them further
as they are still eight times higher than where they were a year ago.
Or is it going to just keep them here.

Keep it just sort of a persistent crisis
rather than something that is much more acute and immediately needing to be
addressed. Definitely.
We're not out of the woods. And I I think that the pullback in
recent days is probably over amplified with what's happening in Ukraine.
I think maybe there's a little bit of irrational exuberance about what
happened and maybe some people thinking OK the war might be over and we can stop
weaponized and gas. I don't anticipate that at all.
So while the measures are important and what I see the EU working on is a
comprehensive package because you have to work on both demand and supply.
No doubt it's having a material impact and it will have a material impact on
the economy. I'm hearing from some executives here in
Portugal that their energy costs are in some cases a billion dollars over.
Right. With their expected energy costs are all
of that is going to have a material impact on earnings competitiveness and
they're going to shut down factories because it's too expensive to run them.
We're already seeing that.

And we could see a whole lot more County
Prince of Windsor which in a matter of KPMG out of Lisbon Portugal today.
Lisa that's the problem for the Europeans.
We've gone over it repeatedly. You're gonna see a wave of industry
shutdowns as we go deeper and deeper into winter if they can't tackle this
problem. And I think it's unrealistic to expect
them to be able to tackle this problem completely fully this winter.
Whether they can next winter or the one after that.
So it's not just an issue of curbing demand in the near term and trying to
help households. Also at issue of how do you build out
the infrastructure whereas that natural gas is going to come from.
Anne-Marie yesterday was talking about how a lot of it's coming from the United

You have to really create new alliances
and new needs at a time when there's questionable leadership and a lot of
different places in the world. A new complaints to the U.S.
consumer has to carry on playing high prices for that gas.
And the Americans are exporting so much. What are the biggest complaints I've
heard since we've been here in London and we've spoken to energy experts.
Is the complaint around the lack of an effort to curtail demand in this
country. Oh we've had so far it's a big big
effort. I say all because it's massive from this
government to support people's ability to pay the bills but doing very little
to curtail the demand.

Pro-growth John it's pro-growth.
You just help them spend and then you also borrow lots of money.
And don't worry about budgeting the balance.
So balancing the budget. And that's basically been the theme that
we've heard. And a lot of people are saying it's
different than what's going on in Europe.
So it's different than any kind of economic theory.
John what does Tuesday look like after the funeral for this queen Suha.
How does the debate click in Tuesday. I think almost immediately.
I agree. We've got to hear from this government
and get some kind of statement on what's going to happen fiscally.
And then we'll hear from the Bank of England.
It's go go go. I mean I would John Tucker down to our
team coverage and team reporting here at Bloomberg Surveillance.
Our entire team has been looking at the freshly cooked sausages a pillow soft
white breakfast roll plus a generous dollop of each.
Is this a great way to price rises for the sausage roll.
Greg's pants.

I say you don't.
I mean they sell every week to me 10 million plus a seriously sausage rolls
my favorite figures. He's looking up Greg sausage rolls and
to figure out how to weave it into here. Fun to have to live with.
At least that's yours.
That's got to. The depths of the recession which is
looming right now is probably going to end up shallower than the one we could
have feared.

Also consumer as well.
Businesses are starting to at the margin rollover.
It's still very clear that the global economy
isn't in a very weak phase. We've been the most surprised to see
that the market is more optimistic than Fed commentary clearly now.
They have sent the signal that they are going after inflation first and
foremost. This is Bloomberg Surveillance with Tom
Keene Jonathan Ferro and Lisa Abramowicz.
Live from London from audience worldwide good morning.
Good morning.

This is Bloomberg Surveillance on TV and
radio alongside Tom Keene and Lisa Abramowicz.
Some Jonathan Ferro with equity futures positive going into the CPI report 90
minutes away. Tom Keene is counting down.
And how many different languages. I think it's way too much.
Was was good French. She was counting up and not down.
Translate to the rescue. How's that working out.
It's good Google to work it out. Well great.
I'm enjoying our more business focus today.
We pause here within the morning for the queen and it was serious events today.
We don't need to go into right now but it gives us the luxury of focusing John
and what we do on the data in 90 minutes at least.
That's front and center for all of us.

And a lot of people are wondering how
much of a deceleration we'll see on the top line which is the reason why the
core is going to be that much more important.
Basically the other non energy non-food costs how much are they increasing.
And I think Andrew Holland Harris put it beautifully where he was talking about
really it's all of the different components.
And until you see a broad based decline in at the pace of inflation it's not
only get the Fed's attention in terms of investor stories for twenty three the
pivot is a pause or maybe it's even rate cuts.
If you speak to some market participants need to work out a difference between 50
and 75 told they told us they talk about the totality of the data.
Do you think today's is the difference between 50 or 75 from this fellow.
I'm exhausted by it.

And you know John I was exhausted by it
months ago. I would suggest folks you look at the
makeup of inflation. I'm going to go back to block and tackle
which is goods service dynamics basic stuff.
The world of David Rosenberg. I'm not going to focused on the
financialization debate. Shelter.
Shouts of cost shelter. O'REILLY Sure absolutely.
Killer as Tom said. And they haven't really been rolling
over. There's some areas where perhaps they're
starting to plateau out but that's not enough.
When you start looking year over year at some 12 15 percent kinds of rate
increases you didn't you know.

I don't mean to interrupt as you see of
course. I would never do something like I don't.
ROSENBERG Subdivisions John the commodity market looks at all this
stuff. Yeah.
And the answer is one of things that I noticed is home furnishings.
Why does that's. I just noticed you know they had one of
the beautiful artworks we have. They look great on Bloomberg Radio and
in home furnishings was a stupid number. You know I noticed this morning going
into the CPI print the weakness in the U.S.
dollar again. Yeah.
To see standing back at 117 what a week ago we were looking at 114 113.
It's a big turnaround in the last what you're even seeing the Japanese yen
strengthened just a tag like that. I mean kind of is actually notable
considering it wasn't before.

I'll take kind of.
They'll take a hundred now. And basically this is a really a story
about disinflation and people getting excited about the potential.
Maybe we've seen peak inflation maybe. Perhaps.
What kind of futures look like this on the S&P 500 that positive.
About six or seven tenths of one percent.
Got it into the CPI report and a wrap about 90 minutes.
Yields to back head down low a negative four basis points on a 10 year to 315.
Bear in mind at the front end yesterday became very very close to 360 Lee said.
Then we backed away by a couple of basis points and we're doing that again this
morning. Again the disinflationary theme that
people's inflation expectations are coming down.
And we did see that also from the New York Federal Reserve survey of consumers
which also showed inflation expectations falling pretty significantly.
All right. We're looking today for the eight thirty
a.m. Eastern U.S.
CPI and for the month of August. In case you hadn't noticed as we've been
talking about all morning I am focused very much on the core of the non energy
the non-food costs.

How much have they really declined
plateaued. Which aspects of them.
We are going to be looking granular. We're also going to be tracking the
Queen Elizabeth's coffin which is traveling from St Giles Cathedral to
Buckingham Palace with all of the tributes pouring in and the royal family
ISE speaking and walking behind her. And at 1:00 p.m.
we get the U.S. selling 18 billion dollars a 30 year
bonds. I am interested in this even though Tom
is not. I'm interested because this highlights
NYSE demand was two speeches. It's happened before.
It'll happen again. He did it right.
And that is going to be his response to both.
And I will say this is a very interesting moment because the roll up
of the Federal Reserve balance sheet is gaining steam.
So suddenly do you get more concern on the part of investors about a lack of
fed put or a lack of Fed buying. And you know how does that affect their
involvement is key to a no QE. I think that that has consequences for
the fiscal conversation we're having here in the U.K..
Yes across Europe for that matter as well.

If you don't have that big buyer of that
balance sheet then how do you finance a lot of these fiscal spending programs
the same kind of rates that don't become feet that don't become infeasible and
kind of reach those thresholds you are talking about.
Are you looking forward to the auctions a little bit later.
Yeah I'm all over. The surveillance now was global.
I should point out. We're going to take the Netherlands.
It's around that time. Right.
They're really. Mahajan joins us now.
Senior investment strategist at Edward Jones.
Mona. Let's start here a conversation about
whether this rally we're seeing over the last four days or so is just a bear
market rally. We.
Back in the summer. What is the difference.
Yeah you know I think this rally is perhaps in part driven by the enthusiasm
or anticipation of the number we're gonna get at 830 AM today which is a CPI
print that will likely be below last month.
The headline Inflation as we all noted likely to come down given what we're
seeing in gas prices oil prices commodity prices broadly.
All eyes will be on that core CPI figure.
We all know that shelter and rent tends to be stickier.
But we are getting an offset from lower airline fares lower car prices to some

And so you know we're probably poised
for a decent number at eight thirty a.m. which you know the story really for 2020
to the rest of the year is what direction of travel will inflation go.
And the Fed wants to see not just one print lower.
They want to see two three maybe four prints lower once we get that and we
head towards year end. And the Fed can pause potentially in
financial conditions maybe start to ease and go in the right direction of travel.
That's when we think we'll get a more sustainable rally.
Until then we do think volatility more likely.
You have a huge advantage with your representation of Edward Dow Jones.
They are nationwide.

They are across the fabric of the
nation. How crushed are the clients.
Edward Jones. By this unimaginable a 9 percent
inflation. Yeah.
Look you know there are several pockets of this country that are still suffering
from elevated inflation. And think about the segmentation of our
retail clients. But segmentation of the population
broadly clearly those on the lower end of the spectrum those that are living
more paycheck to paycheck are feeling this 8 percent inflation still to a
larger extent. And that comes up in the grocery store
bills that comes up in the gas pump. But the good news is it's a very
tangible move lower over the last few weeks.
And we're seeing it in gas prices at the pump.
Even parts of your grocery store bill are looking a lot better.
And so I think a little bit of optimism and we're seeing that come out in the
economic metrics as well. When you think about inflation
expectations not being anchored higher in fact moving in the right direction
again lower. When you look at things like the ESM
prices paid index for both manufacturing and services rolling over pretty

When you look at even the supply chain
stress indices heading downward. So we think the momentum is moving in
the right way. Things like a cooling housing market a
potentially cooling labor market they will take more time to show up in the
inflation figures. But we do hope to see that towards year
end as well. So Mona are you all in a soft landing or
are you letting the vote on FTSE release the new phrase.
You know I think a soft landing right now.
I think we'll still depend on this is a still unprecedented Fed cycle here.
Keep in mind the Fed doesn't have a great track record.
Eleven of the last 14 Fed cycles ended in recession.
This one we're going up to a 4 percent terminal rate.
We're going in 75 basis point increments.
There is a lag impact from such a dramatic Fed rate hikes to the real

We do anticipate a slowing economic
momentum below trend for sure as we head towards your end.
But I think the probability of a full on recession still remains low.
If we do enter a downturn we still don't see the scope for a deep or prolonged
recessionary environment here in the US. Madam Mahajan of Edward Jones we've
heard that many many times not to soften up the short shallow part.
Mona thank you. It's always great to catch up with you.
Appreciate it. So this soft landing this whole argument
this debate got fuel from the payroll support a number of Fridays ago when the
participation rate climbed unemployment climbed.
Wages were soft.

The payrolls were still robust.
That's just one data point and a whole host of data points to make into this
idea that maybe it can be executed. But I'll say this and this is the
important part. This is about the journey back down to
what's what 6 5 percent on inflation the journey from 5 back towards Target which
is to is a very very different effort. And what this Fed is basically telling
you is that to convince us that we're on a trajectory back towards two and we
don't want to prematurely lose them forward we've got to get rates up and
then stay there and wait. And then even if we've got the itch to
think with that we've got to wait and then wait a little bit longer.
The fear right now is if they're going to go back to the 70s they will move too
quickly to loosen up financial conditions to loosen up financial policy
monetary policy and then you'll get a resurgence because some of the dynamics
haven't been healed.

And this really goes to this question of
understanding and inflation that is different than the 1970s but feels much
more pervasive and much more global that it hasn't long.
And this is what Mohamed El-Erian writes about I believe in the Financial Times a
number of months ago. So the risk of a flip flopping Fed chair
try not to get a flip flopping Fed chairman Paul is telling you he is
telling you that he wants to avoid that almost at all costs and not address in
Jackson Hole. Right.
A few weeks back I take great issue with the idea that American capitalism
American finance and the people of America can operate in a higher yield
environment. They can like the 70s.
No. Obviously that was terrible.
But to move up here to some form of neutrality and wait and monitor and see
what happens is certainly do the one argument against that.
And someone with you the one argument against it.
And I think this will resonate with least a little bit north and perhaps
here is that the debt load.

It's the debt load.
So the increase in the debt load particularly on the suffering not just
in America but worldwide. So the argument against that and I think
going back and forth with a number of strategists about this some people say
it is crippling. There is too much debt to really
withstand this. Plus you have a lot of countries that
are trying to borrow. Right.
And the flip side that debt is with nations.
It is not with households.

And that is a big difference.
And that's what is short and shallow idea.
Yeah exactly. Sure.
And the next step Scott Clement is going to join us from Citi.
In fact Brown Brothers Harriman I'll get that right.
He's going to join us from Brown Brothers the next day.
I am. I'm in the city in New York.
Thank you. That was the perfect segue.
Thank you. It features a positive by seven cents.
Then you've got to count stand in fridge tell to CPI sausage.
Oh. Oh.
Oh he's grunting. What.
What language. They speak in Venezuela as we count down
to CPI I might be more apt. Said he's still a real number.
Yeah. Let's be clear about that.
Even if it's got a seven handed today that's number two.
CPI just around the corner from London will be talking to New York.
Yeah. Let's just put.
Keeping you up today with news from around the world with the first word.
I'm Lisa Matteo.

Ukrainian forces have recaptured more
than 20 300 square miles in the east and south of the country so far this month.
That's according to President Vladimir Zelinsky.
He said Ukrainian troops are continuing to push forward.
Meanwhile Ukraine is appealing for more weapons to build on its recent success.
Bloomberg's learned that Germany will provide 68 billion dollars in loan
guarantees for struggling energy companies.
The money will come from a fund set up to help companies cope with the economic
hit from the pandemic.

Germany is at the center of Europe's
energy crisis and there's concern that there could be a wave of corporate
bankruptcies. President Biden is trying to capitalize
on a sudden stretch of positive economic news.
His goal is to turn the Democrat's biggest political liability into an
election year selling point. The Democrats bid to retain control of
both houses have Congress of Congress have been boosted by falling gas prices
and signs that inflation may be easing. At least inflation data comes out at 830
New York time. UBS plans to raise a dividend for this
year by 10 percent. The Swiss bank also expects share
repurchases will exceed a target of five billion dollars for 2022.
UBS is returning excess capital to investors after calling off the one
point four billion dollar acquisition of U.S.
robo advisor. Well front global news 24 hours a day on
air and on Bloomberg Quicktake powered by more than 20 700 journalists and
analysts and more than 120 countries. I'm Lisa Matteo.
This is Bloomberg. We are in sort of a tipping point for
now. Governments in general has been able to
mitigate the loss of the role impact of the rise in gas prices that may become
more complicated as we get into 2013.

These are trees.
Many streets are. Mark Zandi chief economist at AXA
Investment Managers. As we count down to the CPI report in
about an hour and 12 minutes we caught up with cities.
ANDREW HOLLAND HOST Only 30 minutes or so ago.
He's looking for a 75 basis point rate hike from this Federal Reserve.
At their meeting next week going into that CPI print and that meeting we've
got a rally in this equity market over the previous four days amounting to
about a five percent move on the S&P 500.
Right now futures are up by six or seven tenths of 1 percent.
He was a bit lower.

We're down by four or five negative five
basis points to 331 on a US 10 year 10K euro dollar.
Once again dollar weakness. It's on a one to one eighty two.
And I can tell you on Sterling we're looking at a 117 handle through much of
this morning. Sterling in America this morning as
well. Dow futures up over 200 points.
That's a good sign. So it's good stuff.
It's 20 degrees there as well. Will be interesting to see what the VIX
does at eight thirty right now. And most importantly Maria Tadeo is in
Brussels. And joining us here with a view of St.
Paul's Cathedral Lizzie Burnham joins us.
Phone from Buckingham Palace is the ceremonies for the queen.
Move forward. Lizzie I want to start with you.
It is the topic of the city this morning.
And this is a new chancellor of the exchequer and some would say a purge by
the new prime minister.

This is this is not equivalent in
America. You've got a first class guy out of
Trinity Cambridge in LSC Tom Scala who has been shown the door after 30 years
of civil service to this nation. Let's first start.
Why was Mr. Scalise shown the door and the trust
purge. Yeah he's gone all the way back to
Gordon Brown. Tom Scullin number one guy at the
Treasury. But trust is making a statement.
She says that she is taking on the blob the orthodoxy at the Treasury and the
Bank of England. She wants to get rid of the Abacus
economics. So as one government and one of missed
you want her to define what an abacus is just
as one former government economics economist put it to us it's a symbolic
computation. This is showing that there's a new ruler
in town and. It leaves a huge power vacuum at the top
of the Treasury at a time when you've got double digit inflation.
And Rory is. Yes you're dismissing Tom Scholar.
But what about all the other people in the Treasury who are the most employable
in the civil service who will now choose to quit if there a problem screw up your
opinion on this.

Well I think what Liz is explaining
actually started with Boris Johnson on his way out the door drumbeat that
parting speech about the Treasury and that role and the job they've got to do.
Feels like he laid the groundwork for them to follow on with less trust and
the new chancellor. But the thing about the trust quality
time relationship is that this will be actual alignment unlike sooner John

And this is going to be the closest
alignment since the Osborne Cameron days.
That's what trust wants. And surely that's a good thing when
you're in an economic crisis. Right.
We've been talking about what you wanted to say.
Well it also depends on how much you support your economy and at what cost.
And Rio today I'd love to get the compare and contrast with the European
the EU plan for energy versus the U.K. plan for energy which is to give aid in
the U.K. to households and just borrow to plug
the gap. Whereas in the European Union there is a
focus on curbing demand directly targeting the demand and taking money
from the profits of the big oil conglomerates.
How much is this gaining steam. When is this going to get passed.
What details to down. Well we're about to find out because
this is happening behind the scenes in a meeting led by sort of underlying as we
speak but I think you really hit the nail there.
It will be about taxation.

They want to call it a solidarity
contribution from some of this fossil fuel companies.
Also power generators do not use gas. And then it's a story about demand
destruction. And what they say here is that when
supply is tight but also very expensive well you need to do is use less power to
me. The thing to watch for here is the
percentage what kind of reduction are they're hoping to get.
And also the obvious question is how do you implemented.
And it's very clear that police is not going to show to your house to see
whether or not you're turning off the heat.
And this is a story about the big European buyers but also the big
European companies. So I'm interested to see whether or not
they want to play ball here and what is the incentive to get them to participate
in this demand destruction. And it's not just at any time of the
day. They say they want to see it at peak
times because this is when the bill comes from the highest.
I'd say it depends how long it goes on for before people start turning up and
checking thermostats deeper into the winter.
But who knows.

Lizzie the criticism that people have
leveled at this government is that this government isn't doing what the
Europeans are doing which is thinking about cuts having to mount.
They've come out with a massive fiscal intervention in the last week to
compliment that. Do you expect at some point that would
be some kind of policy to curtail demand around energy consumption.
It doesn't look like it. What this whole package is is an
targeted and not in any way asking people to turn off the lights as they
are in European cities. We've still got all this unnecessary
energy consumption. And that's the warning that Philip
Hammond the chancellor came on and told us about because really it's a blank

The U.K.
is energy bailout. You're having a blast.
Had a great column saying that it was you know it's the biggest short on the
wholesale gas and electricity markets with a hedge because it is a blank
check. And are documents that Bloomberg seen
say that it could cost 200 billion pounds.
So no that is the major criticism along with the fact that trust is ruled out
the windfall tax and it's going to rely so heavily on borrowing.
And perhaps it's not a one off given what we're hearing from the chancellor.
Well that's the other thing is that it's uncapped.
Right. They plan to do this in perpetuity of

We've been talking about this for a
while which is at what point do foreign investors save me out yields up you know
when they yields up and currency weaker. I wonder what this Bank of India
governor thinks as well going into the meeting next week.
We've talked a lot some about the 75 from the ECB the 75.
We might get from the Federal Reserve next week.
You've mentioned it some the day after. It's the Bank of England's turn.
And each nation culturally is different in the United Kingdom is radically
different to the structures of Europe and America.
It's a separate and discrete debate away from Powell away from God.
Is this just the beginning from this U.K.
government at least at the intervention last week around Dynegy.
Some people might make the argument that reduces inflation in the short term may
allow the Bank of England to go a little bit more slowly.
But if you are to believe what this chancellor is about to do along with
this prime minister with tax cuts and all the rest of it then perhaps that's
another reason for this bank having it's got a little bit more quickly especially
when you add onto that the unemployment figure that we got earlier this morning
which is unemployment rates falling in the U.K.
It's the lowest since the mid 1970s.

Now this sounds like good news but it's
because people are just really good. Yeah Marco.
That's fewer a smaller workforce getting higher wages because there aren't enough
people to fill the jobs. I wouldn't bring this up but I happen to
wander by Brown's hotel while I was eating dinner the night the night of
Brexit while John was doing 15 hours in a row on air.
True story floating around. So tell John we haven't talked about
works. Is this a nation affected by Brexit as
well as economic insistence on the fact going.
They don't have to talk about Brexit.

He doesn't want to do that either.
Lizzie thank you. Maria Tadeo thank you to you as well.
For about an hour away from a CPI report in America with futures up almost seven
tenths of one percent. From London this is Bloomberg. The inflation report in America 60
minutes away life from London. Good morning to you.
Futures are positive by seven tenths of 1 percent on the S&P 500.
A rally in this equity market continues to build over the last four days higher
by around about 5 percent. Horwich And this morning by seven tenths
of one percent yields a lot but backing away by five basis points to let's call
it 331 on a 10 year 330 80 on a 10 year low of a two year very very close to 360
in yesterday's session. We back away from that across the curve
yields are lower and the affects market once more.
This is the theme of the last week for sure.
All of that dollar strength still in that over the last year or so.
But backing off dollar soft.

The weaker negative against the euro.
Euro dollar positive six tenths of one percent.
Tom that's very close to John Tucker. How do we read when I say 40 to 100 as
RTX. I mean we've got so many you a million
miles away. Yeah.
We're not a million miles away. And I just I just wonder in the queue
for remember Q2 we're all gloom by Shery Ahn boom.
But then we rally tighter than then. What happened.
The pushback against going to ease financial.
Would you do it again. The fat.
And we're all going to be asking the question next week to see if Chairman
Pat pushes back.

And we'll ask a question something along
the lines of saying is this an unwarranted easing of financial
conditions relative to what you need to achieve to get inflation back to its
target. And I think the backdrop of everybody
being all balled up and then all all bear it up and then all pulled up or at
least more build up than they were buried up into place.
I mean now I know the positioning is light.
There is a lot of volatility. People don't love this.
And I love how bank Erica wrote that this you know how do you trade this
rally even if you have no faith in it.

Basically sums up where we are right.
Is it good news or bad news or bad news. Good news.
Mark Barnes with the switch. Things just good.
Let's do that right now. We are certain and it is good news to
talk to someone so soon. Mark Cabana head of U.S.
for its strategy at Bank of America writes brilliant very terse notes about
the moment ahead.

Mark what is the singular sentence of
your research note this morning that the Fed is probably going to overdo it.
We have seen them turn very hawkish with the labor market strength that we have
seen that has caused us to revise up our path for the Fed.
We now think terminal top of the range before point to 5 percent.
And we think that the Fed will try and stick to this higher for longer mantra.
But they're going to see a softening in the economic data and the tightening
that they're putting in today will risk overdoing it in the future.
And that's probably going to result in a recession an increase in the
unemployment rate to around 5 percent.

And even though the Fed doesn't want to
contemplate the notion of rate cuts in 2023 or 2024 the tighter they are today
the more likely it is that they're going to have to cut over that period of time.
And we're about to get a reasonably constructive CPI print.
Our economists are generally in line with the street.
We think that we're going to see headline CPI move lower on a month over
month basis. Core will be a little bit stickier.
This is the type of inflation that the Fed needs to see.
It's going to be the start of a trend lower in inflation and as we're seeing
the start of that trend. The Fed is sounding very very hawkish.
So again we do see risks that the Fed over.
Does it.

We do see risks that there is a
recession next year and we do see risks that that's going to be a continued
headwind for risk assets and markets more broadly.
Mark Mike A4 is penciled in that recession for next year.
Do you have a decent understanding of where the threshold is for this Fed to
pause. Right now it seems very very high.
And if I had to point to one indicator and one an indicator only I would point
to the labor market. It really seems like the Fed wants to
see a material softening in the labor market.
They're probably somewhat cautiously optimistic.
Behind closed doors that inflation will be moderating.
Certainly most economists anticipate this surveys of inflation expectations
anticipate this.

And the market the tips market also
anticipates this. But the Fed probably won't trust that
until they see the labor market soften more meaningfully.
And it certainly seems like the Fed is dead set on ensuring that they get that
labor market slowdown and they're going to keep rates as high as it takes in
order to get that. Again that just increases the risks of a
hard landing or a recession in the future to us.
But I do think that they're focused likely right now is somewhat singularly
on the labor market. Certainly that's where we have seen the
stronger data over the July intervening period over really the last month or
two. And that's probably what has caused them
to shift their tone and sound even more hawkish in relation to the last FOMC
meeting. Mark a lot of people are expecting the
CPI print to be constructive as you said to be lower not higher and to give some
sense that there is this disinflationary feel.
How much of that is actually due to the tightening in monetary policy.
So we think that a lot of it has to do with lower energy prices.
And I heard you earlier on this program talking about the very important
distinction between headline drivers goods drivers and services drivers.
And so we think that the Fed wants to see just a little bit more of easing on
the services side.

Lower we are lower inflation in
reopening sensitive or travel sensitive sectors in the economy.
That's what we think they're going to be looking for now.
No doubt the tightening of financial conditions that we have seen is playing
a part of the broad economic moderation that appears to be underway.
But really if you look since the last FOMC meeting financial conditions are a
bit tighter. But I wouldn't say that it's notable by
any stretch and I do worry that this is a Fed that wants to see even more
tightening of financial conditions in order to have faith that they will be
able to achieve their 2 percent inflation target.
Certainly we think that the risks are skewed and the Fed continuing to sound
hawkish and that continuing to be a headwind for risk assets.
Another way to translate this might be they want to see stocks go down a little
bit more.

Give them comfort that perhaps people
were buying their message. There is a question of how long it's
going to take for the full effect of the tightening.
To really be borne out in markets in the economy is something people have been
talking about that by the time they start seeing the effects it'll be too
late to really turn around too quickly. How much will the run off of the balance
sheet quantitative tightening which is accelerating this week really
turbocharge some of those effects. Yeah it's a great point.
Certainly you're right. We are seeing the Fed tightening really
kick into high gear here with broad based expectations for another 75 basis
point rate increase at the September meeting and the increase in the balance
sheet runoff up to the maximum amount where caps are.
Ninety five billion dollars a month.

Now to date we don't think that Q2 has
had much of an impact. And we are still somewhat cautiously
optimistic that over the next couple of quarters the Kutty impact is not really
going to be particularly heavily felt by the market.
And a part of this reason is because we do think that there's just excess
liquidity in the banking system. Banks are still holding a lot of excess
unwanted deposits or excess unwanted reserves.
And beauty does help them get rid of those deposits.
So the early stages of Q2 we just don't think they're going to be that
consequential. But by the time we get it the first half
of next year maybe. Q One of next year.
We do think that you're going to start to see more bank deposit competition
that's going to be driving short term interest rates modestly higher.
And that's probably going to bite a little bit more.
So again we do think that routine matters.
It's just going to probably take a little while before it really starts to

Ma'am I want you to help John Farrell
here. He's doing the real yield from LHR here
on Friday on the way out. I don't know if it's Terminal 5 or
Terminal 2 but it'll be a great view of the boy.
Fine throw airport. Right now we've got a nominal yield.
Moving into partial differentials to the break evens is stunning.
There's an inertial force to the break evens which borders on act of God.
What does that signal mean of lower break evens right now to your world.
It means policy mistake again. The Fed is tightening in anticipation
that inflation will remain persistent and they feel like they really need to
be aggressive in order to bring it down. But it strikes us that certainly the
tips market is not reflecting elevated expectation of runaway inflation.
If anything that tips the market continues to believe that the Fed is
credible in its fight on inflation.

And it's not just the tips market.
It's also inflation expectations surveys.
We saw that clearly in the New York Fed surveys three year ahead expectation
yesterday. Inflation expectations are declining as
the Fed ramps up their hawkishness. So what that is doing in the rates
market is it's causing real rates to rise and it's really that real rate rise
that matters more for the broad set of financial conditions.
Look if interest rates are rising just because inflation is elevated that
should have a fairly limited impact on broader financial markets.
But if real rates are rising that has a much more meaningful impact.
It packs a heavier tightening punch into markets more broadly.
And that is what we are seeing in the higher real rates rise than the greater.
The potential is that the economy starts to show signs of moderating and that
financial conditions will continue to be tight or that financial conditions will
continue to be challenged.

And again it seems like that's what the
Fed is going after. We do worry to some extent that the Fed
is going to go too far too fast. And we think that the two tense curve is
going to become more inverted as a result of this.
And again we do think that the more tightening they do today the greater the
risk that they will have to cut tomorrow.
And again it is somewhat ironic in this higher for longer mantra that the Fed
has been pushing for. But again this aggressiveness today
really increases the odds in our view that the Fed will be cutting in late
2003 or in 2020 for. Mark real yields higher than when you
speak to the rest of the team. Have you been surprised by say on the
equity side with Savita that this hasn't led to lower equity markets in a
material way. In fact they're rallying again and it
hasn't led to wider spreads.

Yes we have been somewhat surprised by
that. Now look a part of this may be due to
positioning a part of this may be due to an expectation that inflation will
moderate and that that will allow for the Fed to pivot a little bit sooner.
Kind of in a very similar to what we saw in the early summer and some of that
rate that equity market rally and credit spread performance.
And again if financial conditions continue to remain around these levels
then it just makes a risk that the Fed needs to feel like they have to tighten
by more and front loaded in order to try and get that sustained tightening of
conditions in order to slow the economy and to bring down inflation.
Hi Mark. Fantastic.
Just a bit of a clinic there as well. We appreciate it Mark about that.
Thanks America. Global research Lisa.
That's the tug of war between the equity market both somewhat.
This Fed wants to say that basically the more that equity markets shrug off the
Fed the more the Fed will get out of this group.
Yes exactly.

And that's basically at least what they
doing in the rhetoric may perhaps in the action.
Do you love this thing and tell us Great Britain was great.
Thirty or forty five minutes. I'm looking at the Bloomberg Financial
Conditions Index which the last couple of days has pushed against where
Chairman Paul wants to go. Jay Bryson chief economist is going to
be joining us later said look at the S&P.
Look at this. A man called Nails doing that
I think. Yes I was up 200 point
inches on the kind of seven tenths of one percent.
Not necessarily who I meant. Maybe I've got a funny name I could ease

This is. Keeping you up today with news from
around the world with the first word. I'm Lisa Matteo.
Ukrainian President Vladimir Zelinsky is claiming success for his forces in that
counteroffensive. Zelinsky says Ukrainian troops have now
recaptured more than 20 300 square miles in the east and south of the country
this month. Russian forces have hit Ukraine's energy
infrastructure leaving hundreds of thousands of people in the dark.
Inflation in the US probably slowed for a second month in a row.
But that's unlikely to prevent the Fed from delivering another jumbo interest
rate hike next week. In a Bloomberg survey economists
forecasts an eight point one percent rise in prices last month from a year

The Consumer Price Index comes out at
830 New York time. Work has learned that the Justice
Department has subpoenaed dozens of former President Trump's campaign
operatives and allies. It's part of an effort to collect
information related to the plot to overturn the 2020 presidential election.
A lawyer for one of those subpoenaed former New York Police Commissioner
Bernard Kerik calls it a fishing expedition.
Bloomberg has also learned that Buyer has quickly started the search for a
successor to CEO Bernard Bauman.

Now that raises the prospect that Fallon
could leave before his contract expires in 2024.
He has survived plenty of shareholder frustration and legal turmoil since
becoming CEO in May 2016. Bauman spearheaded the costly
acquisition of Monsanto which has been a huge legal headache.
Global news 24 hours a day on air and on Bloomberg Quicktake.
Powered by more than twenty seven hundred journalists and analysts and
more than 120 countries. I'm Lisa Matteo.
This is Bloomberg. There is a lot of momentum still in the
core. I think that this one reading is not
going to be enough to dissuade the Fed from a large movement at its next
meeting even if it is a bit softer. Take 75.
Stephanie Anderson director of economic studies at Brookings Institution.
She wasn't specific about being 75 five Holocaust City was thought.
He joined us in the last hour going into that CPI report just around the corner
830 Eastern Time which isn't too far away.
Some features a positive.

My seven cents.
I want the 75 basis points. That's a good statement on a buoyant and
strong America. Right.
If it remains buoyant and strong as you know and we've discussed it a million
times if unemployment starts going the other way a little bit more persistently
than I imagine the balance starts to change.
Change your dialogue here right now. This has been a day where we've moved
away from the ceremonies for the queen of England.
But we do so with King Charles the third in Ireland distance from Belfast
Northern Ireland. Dublin is one hundred and three miles
across the centuries. It is substantial.
Giving us perspective today on the watch in Paris and of course as Ireland's
Stephen Carroll joins us from Bloomberg News to discuss the moment for King
Charles the third. What did Brexit do to King Charles
Northern Ireland. Well I mean to the island of Ireland
Brexit changed the relationship across these islands.
Some would argue irreparably it had been a reasonably stable reasonably positive
relationship particularly since the visit of Queen Elizabeth in 2011 which
for many was a high point of Anglo-Irish relations.
It's hard to imagine that a monarch would have gotten up in Dublin Castle
and opened her speech in Irish with four words that were thrown up as the
carriage president and friends in a language which many had seen.
That of course historically the English didn't favour in their their relations
with Ireland.

Brexit changed the game because you now
have very different trade relations with the way that Northern Ireland functions.
They're a special place within the post Brexit relationship with European Union.
They're still in the European Union's single market trading rules with the UK.
Still a complex issue and something that we know that is trust as prime minister
has focused on as well. And it is a question now.
The question of Irish unity is back on the table since Brexit in a way that we
haven't seen before because the relationships have been semantics on the
island of Ireland.

This is a matter that is left to a
referendum referendum the discretion of the British government here in London
two grants in Northern Ireland. But it's a question being asked more now
than it ever would have thought have been started with the great Italian
University of Chicago loses and goes who's wonderful on American capitalism.
How do you define Irish capitalism. Well Ireland is a very close
relationship with America. If you think of all the tech companies
that are in Dublin it's the European headquarters.
They're just claims of DAX Dutch.

I mean if you ask them they say no.
You know the Irish government's argument has always been that they were
transparent about their low corporate tax regime.
Twelve and a half percent. And they say where do I go with you.
Did it like drift away. Minimum tax still minimum still.
It's still under way. It's a debate that they're hoping to
reignite at a European level now because it does seem to have gone off the radar.
They've been trying to package it in some of the major legislation in the US
as well. It's still an effort led by the NYSE in
Paris that they're trying to create the structure for this.
We know that France has been pushing very hard for it.
And it was a really big step for them to get countries like Ireland on board with
the idea of a member of minimum corporate tax and what possible donor
who was head of the Eurogroup the group of finance eurozone finance ministers as

That's something they had agreed on the
principle of both the profit shifting elements and the minimum taxation
element. But something that's still there isn't
political agreement everywhere about the whole argument.
The Alix Steel says you need a global deal for it to be affected.
So that one country can't try to outbid the others.
And the focus of this case today is on Northern Ireland.
Can you talk to us about the popularity of the monarchy in Northern Ireland.
I mean it's probably the one place in the United Kingdom where the monarchy
isn't necessarily going to be universally welcomed although relations
have improved significantly over the years.
I spoke about the queen's visit back in 2011.
This is Charles's fortieth visit to Northern Ireland of course only his
first as monarch. And it's interesting because it is the
first time that there is a Sinn Fein's is somebody from the Republican
tradition who is first minister designate.
There is no active government in Northern Ireland at the moment for their
own political difficulties.

But the idea of having somebody from
Sinn Fein who stood up in the northern I understand they last week and pay
tribute to Queen Elizabeth as the courageous and gracious leader.
Now the Sinn Fein didn't attend the accession events that was held in
Northern Ireland. They said that was people who were loyal
to the British monarch. But Michelle O'Neill the first minister
designate as meeting Prince Charles on the queen consort today in Northern
Ireland. And that's something that represents the
relations that are changed over the years and the troubles with respect to
the lack of government in the region. And the question around unity has been a
theme for us throughout the past couple of days.
Can this monarch be a uniting feature at a time when there is that kind of
skepticism. Or do you think that there will be this
feeling this desire for some sort of continuity enough to give people a
little bit different perspective. I'm not sure that really the queen as a
uniting figure ever held that much sway in Northern Ireland.
Although the efforts that have been made in recent years with the number of
visits being made by the queen to Northern Ireland had sowed the seeds for
a positive relationship there.

It is going to be a challenge for
Charles in the same way that. Relations with Scotland is a challenge
as well. It's he.
He is somebody that has a relationship with the place and I think that's
something that will stand him in good stead.
But this is a political matter that's really outside the realm of the monarchy
as well. David Cameron fantastic to see you in
person as well. Thanks for being with us.
We appreciate it. Thank you very much Tom.
Another phase in a sequence going forward.
Next Monday.

Well next Monday the funeral service Mr.
BOWDEN will attend. But I would prepare John besides the
hundreds of thousands scheduled to walk by the queen's casket.
I would prepare for something equivalent to what we saw in 1963 in the United
States. This should be an extraordinary turnout
of world leaders overwhelming overwhelmingly.
So Lisa you and I went through Westminster and on to the palace over
the weekend. Can you imagine how much B.S.
risk to pay on Monday. Because London right now it is packed.
It is packed. And they have brought in I think 10000
police officers to London and a number of troops as well to try to have crowd
control. And I love the article in The Wall
Street Journal about the Royal Guard saying please stop leaving Paddington
Bears at the palace. I think him palace because they're not
composed of all. And people think problematic heading
comparison Paris. I would I would say rather selfishly the
football is getting cancelled. A lot of these games are being

That's a few areas of the police resort.
Yes exactly. Mentioned the resources Tom a lot of
these football matches can't go ahead because it takes away.
So the public support it takes. I mean they understand something.
They would like to see these games go ahead.
So that's some of the fans could pay tribute to the queen because some
sporting events have continued. But the rules 30 mixed of course that
would delight them enough to squeeze and allowed the games going into the World
Cup. But you know there are more important
things. I mean I'm not complaining about very to
go to said games which may also factor into certain games.
Should I say anything about the absence. Absolutely.
Anything about CPI. So important that's just around a
corner. Is that my rights away.
Perhaps no inflation 8 percent whether it's 7 percent 9 7 probably is still a
big number. We're from our cabana Tom Keene the Bank
of America line. This is about passing away from the
financialization purchasing services and goods inflation and as IT services
inflation come in a little as Mr.

Cabana you mentioned would be a huge
deal. They would I think at the moment is
persistence and that is a story for the energy story.
That is a word we can use for the Federal Reserve as well and inflation.
How much of this will persist. And that's what we need to discuss.
Shouter at 830 Eastern and not only shelter but also employment.
When you take a look at the restructuring of the labor market how
much of that's going to be sticky with people demanding higher wages and not
coming back to the workforce as quickly. What is Scott Clemmens worth.
Brad Stone harassment. Not city city but it's inner city.
It's in New York. Fantastic.
You know trying to get it right just to make sure Scott Clemmens is coming from

Brothers Harriman is going to join us
very very shortly. We are 35 minutes away from inflation in
America looking for something in at around 8 percent.
The focus of this market will be on call month on month.
We'll get to that in just a moment. This is Belinda. In the last few weeks and really seen an
influx of risk on behavior it's possible that global inflation continues to push
higher. We're in the camp that inflation is
going to decelerate. Growth is going to decelerate.
The Fed is going to need to see a real slowdown in the labor market.
In a way we all just changing the timing of the pain.
This is Bloomberg Surveillance with Tom Keene Jonathan Ferro and Lisa
Abramowicz. Live from London from audience worldwide
I believe it's good afternoon. Good afternoon.
Now in London at least good morning to you stateside and Bloomberg Surveillance
life on TV and radio continue dance with CPI report.
About 30 minutes away with futures positive.
Twenty nine in the S&P up seven tenths of 1 percent to NIKKEI.
We build on this rally of the last few days.
So the rally is anticipating inflation.

It is quite a sense of magnitude as the
word here. What kind of magnitude do we get in the
headline data. The core data.
But John I would go beneath the headline data.
I will go right away to the David Rosenberg world of goods and services.
That dynamic is critical of the media as we often do.
May well go with the headline year over year fake at least.
So that's often the baker fake out. That's why they go with that number.
The market moves straight to Tom's point very focused on month over month core
inflation just to get an idea about the more recent trend.
I think you can go even further than that.
It's not just going to be the headline core number.
They're going to be looking at housing they're going to be looking at wages.
They're going to be looking at to Tom's point services.
They're going to be looking at the granularity of each component and the
stickiness in different sectors because that's going to possibly be more
interesting than even the headline either number.
And when they take in the totality of the data because that's the word used
and gone into effect decision next week.

Is it going to be 50 or 75 for money
Dennis to wound up top 50 or 70. I'm going to wake him up even further as
he's there and he starts getting it 75. I mean pretty much everyone is saying
that Fed officials came out. They said it's 75.
I mean if they came out at 50 that would be viewed as incredibly dovish even
though it's a massive hike from any historical perspective.
And that's what the market is focused on.
Some. Some participants anyway.
The potential for a downshift from 75 to 50 to 25 and then to the next year I'm
going to move on let's say it's 75 whatever down to November and into 2023
of the guesstimate of where neutrality is.
I'm going to editorialize. We have no clue what it Michael Barr
site of Bank of America on the estimate of next year might gape an eye for it at
Bank of America is not saying recession for next year.
Mark Cabana is talking up rate cuts. But rate cuts after the fact because he
thinks the risk now is the Fed takes it too far.
He's talking about unemployment having to rise.
And this is sort of the conundrum because if you get rate cuts it's
because there has been pain that you haven't necessarily seen priced in.
This is the Mike Wilson view over at Morgan Stanley.
Here come the earnings revisions downward.
That's going to be what drives the next leg lower in the S&P because of exactly
this data could be revenue revisions lower because if you do get a vector of
inflation lower all of a sudden a normal 4 percent growth that's up 7 percent
growth becomes five point six percent.

And that's a marginal move in revenues.
The only counterargument to that I don't mean to just cause trouble.
But you are probably going to see margin compression if you start to see wages
continue to go up. Basically consumers pushing back on
those prices demand destruction because of the inflation which we see.
And I'm going to focus this morning Mrs. Keyes visiting with me.
And you know she's over at the Tower of London.
What have you got for me. What is she doing.
If I get out a room for you in trouble I think I mean thought sounds like you're
in trouble.

Check out the prices to what is in the
CPI report. No idea where the Dow is.
I'll tell you where the S&P 500 is. Much in the Dow is take 28 on the S&P.
A good seven series but not to the Dow. It was almost I mean that's as far as
I'll take. You mentioned my BOVESPA and that May
2nd. I mentioned J.P.
Morgan a market clinic which plays him on the team basically saying we can
achieve a soft landing. It's much more about the data than it is
about hawkish central bank rhetoric which you make of that.
Really. Yeah sure.
OK Marco Cole out of it. You can laugh because he's the perpetual
bull. I can laugh but at the same time you
could argue that I'm perpetually bearish on my outlook.
So you know it takes one to know what.

And I'm not saying that.
Well I mean it's not that I'm bearish. It's just that you know it's not
realistic. I'm realistic cold and a little bit of
you know skepticism of the common party line.
I see. Say dies in 90 days.
Not about me moving on. The point is really though about a soft
landing. It's not just him.
A lot of people are showing that it's looking more likely because of this
deceleration in inflation.

As long as you keep it going precisely
what percent level. It's never about whether things are good
or bad for markets is about whether they are better or worse.
And based on the incoming data over the last month or so that we can make the
argument that getting better and not worse.
And it is multifaceted. It is airplane tickets.
It's also some of the surge that we saw in cars coming off.
Now the question is services. Now the question is are these other I
think the big question socially linking into all this mumbo jumbo due to her
spinning. Oh thank you.
So. Oh you are.
Is real estate. Real estate real estate.
It's a huge part of her monthly. But I love that you it what we're
talking about. My early game out with and I just I'm
calling the rich and corporations that shall tell the nation that life is.
I was bullied on the world's front.

Lonely this.
Yeah. Bullard is front loading it to get out
front of whatever comes our way. And this is an America that will adapt
to these shocks. I can say you Scott Clements has things
to say. He's going to join us now the chief
investment strategist at Brown Brothers Harriman.
Scott what are you looking for in 25 minutes.
I think we're going to get further evidence that inflation actually peaked
in June. And I think I think it was Lisa who put
a finger on it right at the top of the hour.
That's what's really important is the ingredients of the report more so than
the headline. Are we continuing to see relief
particularly on the goods and services front in addition to what we're
anticipating is more relief in food and energy and we're seeing that in the
underlying commodities markets. Probably more important than any of the
numbers will be the narrative the Fed wraps around it because that'll provide
some insight into whether or not the Fed is contemplating dare I use the word
tapering in November and December to step back to a 50 basis point 25 basis
point hike with a view towards being done with this tightening cycle by early

So all the English majors are going to
pass the Fed's commentary next week probably more so than the econ majors.
Look at the numbers on the top line. Scott I know Brown Brothers Harriman
took a meeting at the length or in a hotel in the Regency England and it was
the same debate in the 1930s as it is now.
You can't pick the bottom. But when you do go up you always have
too much cash. Are we overburdened with cash right now
as we invest for two thousand twenty five.
Well our clients are pretty fully invested in cash although although I
recognized that investors in general are very long cash for longer term investors
I would consider that a contrarian indicator doesn't work on a day to day
basis. But in terms of unspent fuel or dry
powder or assets on the sideline characterize it however you want.
I think that is fuel for the markets as and when the narrative begins to improve
and we actually get some increasing relief on inflation.
And if we get increasing confidence that the Fed is closer to the end of this
tightening cycle the beginning there is plenty of cash out there to put behind
that improving sentiment.

So are you bullish.
Lisa I would say we are. But you have to take it out of the
context of a longer term view. That's not a statement about September
returns or even you know between now and the end of the year.
But we are looking around a lot of opportunities in equities that have been
unfairly pushed down with the rest of the market particularly in the first
half of this year when it was sort of a risk off sell everything that's not
bolted down. So I hesitate to use the old cliche but
I'm going to use it anyway. I do believe that we're in a stock
pickers market and there are plenty of opportunities for people building
portfolios for the long run. That's an investing comment.
That's not a trading company. Can you tell us what stocks you pick and
scope. We keep those a firm secret Jonathan
although I will say that we're finding a lot more opportunities in the mid-cap
and small cap domestic space.

I'm going away do that economists thing
and wave my hands and say in general those smaller companies are more geared
towards domestic economic activity. We have more confidence in domestic
economic activity than outside the United States.
And they are less exposed to the strength of the dollar which I think
will be one of the big stories this third quarter earnings reports begin to
come out. Scott wonderful to hear from you.
Scott Clements the Brown Brothers Harriman.
That final point. Yeah.
Small caps is an important one. What are the two things you want to
avoid internationally right now.

Until more recently.
Once the strength of the dollar that translation effect back from a foreign
currency back into the U.S. and the others.
Just the weakness associated that with the revenue generation abroad anyway.
The difficulties in China. The difficulties in Europe.
Yeah. And add to that Laurie Covid has been
out front on this from RBC Capital Markets saying that these have been the
stocks most beaten up and they are the first to start recovering even in a
recession. But before the next cycle.
So that's the other reason why some people are saying it's not always the
way isn't it. Stock pickers market and you asked for
stock picks and you can't get any. It's always about active management.
Tom Bradley was more John Ben Lulu with a brilliant summation of the failure of
active management. It is stunning the math where the more
you hear about these homes based on the moment wherein the argument is this is
the moment and maybe things have changed.

If you believe.
Let's just say. Let's just take the mechanics of the
index based on the large weighting on the S&P 500 growth.
And if you believe that real yields are going to be a persistent feature of this
raise rates next year some people will struggle to make things this way.
You want to think. This is important if you're running an
index fund and you're working it off the Dow.
There's some interesting peculiarities there.
OK. What's Thomas trying to tweak you just
to translate. Because.
Because because because. John you're trying to tweak time because
you know that this is his third rail is active management.
And the whole question of that. I do think that to your point factor
investing has been catching.

Just sort of we've heard the both of you.
Right. Because there is let's make sure we're
getting along. Just trying to play that you know
conciliatory part. You guys are on the same page
co-dependent. You know some of it has to be allocated
to the town. How much money is the Dow.
They got to it. Yeah I don't adhere to the Dow
situation. Tell me how you do it.
I'm great. You know for those you're in radio.
John and I are just sitting on the other side of St.
Paul's Cathedral.

That's all there is to it.
It's is positive. Seven tenths of one percent.
We're going to talk about OPEC's latest report with Christine Malik of J.P.
Morgan very shortly. CPI is 20 minutes away.
Let's cut through the. You have today with news from around the
world with the first word. I'm Lisa Matteo.
We'll get the latest inflation numbers for the U.S.
less than 20 minutes from now. Inflation in the U.S.
probably slowed for a second month in a row but that's unlikely to prevent the
Fed from delivering another jumbo interest rate hike next week.
In a Bloomberg survey economists forecasts an eight point one percent
rise in prices last month from a year earlier.
Ukrainian forces have recaptured more than twenty three hundred square miles
in the east and south of the country so far this month.
That's according to President Vladimir Zelinsky.
He said Ukrainian troops are continuing to push forward.
Meanwhile Ukraine is appealing for more weapons to be built on its recent

Deloitte is forecasting that U.S.
retailers will see slower sales growth this holiday season because of
inflation. The consulting firm expected a four to
six percent increase in holiday sales. Higher prices are expected to drive more
consumers online to search for deals. A Chinese made single aisle passenger
jet designed to rival Boeing and Airbus could be certified by the nation's
regulators this month. That's according to local media.
Certification would clear the way for the C 9 1 9 to start commercial flights
some 14 years after development began. And UBS plans to raise a dividend for
this year by 10 percent. The Swiss bank also expects share
repurchases will exceed a target of five billion dollars for 2022.
UBS is returning ISE capital to investors after calling off the one
point four billion dollar acquisition of U.S.
robo advisor wealth front. Global news 24 hours a day on air and on
Bloomberg Quicktake powered by more than twenty seven hundred journalists and
analysts in more than 120 countries. I'm Lisa Matteo.
This is Bloomberg. Essentially shift its viewpoint from
inflation can't just be better than expected inflation has to be on an
absolute basis lower.

And we think that sheer power and others
have had a chance to reset expectations away from 2 percent can be really
helpful. Commerce show this afternoon account
decided to pay for exhausted all up here.
Lisa happy show. Eric Friedman chief investment officer
at U.S. Bank Hang Seng.
What's that. Just in case it's positive seven tenths
of one percent on S&P 500 with CPI just around a corner 20 minutes away.
Yields are coming down low in negative 6 basis points on a 10 year just to break
a three thirty three.

Twenty nine eighty five.
And once again what you're witnessing this morning is what you've seen over
the last few days which is some dollar weakness.
Dollar index down a half of 1 per cent weaker dollar euro dollar positive a
half of 1 per cent one at one seventy two.
I think cable tum in at around 117. Crude positive one point six per cent in
our lives from close to back to 90. Markets churning urn again as John
mentioned earlier I believe it was John mentioned the monthly inflation data
will be of great interest here in a good eleven minutes as well.
This is not only our conversation of the day but our conversation of the week on

If you have a fear of one hundred and
fifty dollars a barrel it has been outlined in a blistering 100 page memo
by Christian Malak global head of energy strategy at JP Morgan Securities.
Oh a good six months ago. Yes the price is cut away from those
fears but the underlying fundamentals exist.
Christian Mary like the decrease in hydrocarbons that we've seen is it just
simply an Asia and a Covid flat on their back ups.
In some ways is a sort of a this is a two pronged story.
You have on one hand a slowdown through lockdowns and some bump in us in terms
of the trajectory of demand.

This will pose Covid of Reno
normalization. On the other hand what you're seeing is
a lot of volatility and uncertainty continue to exacerbate the supply
outlook mean that most companies that ought to be investing in future
production particularly the majors are not.
So since we're kicking the can down the road in terms of a tightening of the
fundamentals in the meantime potentially just in enjoying course probably the
best word but ultimately taking advantage of some of the slowdown that
we've seen visiting China and some of the impacts of inflation.
Christine when we spoke with you last time we spoke about your report talking
about the inability for a lot of oil producers to actually produce enough oil
and that boy really had not counted in that potential shortfall.
We're just getting some headlines for pack with Saudi Arabia telling the
nations that produce oil that they increase production up by more than 11
million barrels per day basically showing their ability their capacity to
increase output. Does that give you any confidence that
he said anything to change your view on that front.
Absolutely not.

In fact it probably consolidated our
view because what you have is effectively Saudi and sometimes other
members of the JCC essentially subsidizing through adding barrels into
the market. The oil price.
But ultimately that is a limited amount of reserves.
Right. So we were literally keeping their
powder dry through the sort of spare capacity.
We do believe Saudi can go north of twelve spoke with two million barrels.
But the reality is that we can't just rely on OPEC's in Saudi to provide the
marginal barrel because what you then have is U.S.
shale slowing down counts council falling because of logistics supply
chain issues. It's amazing.
Pre and post Covid. It's like you've dismantled it.
Few things have gone rusty. Put it back together again.
And it's just not as effective in terms of supply growth from shale.
And then you left with everybody else a non DCC non US which is
the majors the overseas and they're doing everything but investing in oil.
And that's particularly because of all the uncertainty not just about the front
end volatility of the price but social tax windfall tax giving cash back.
So oil CapEx has never been as far back in the queue.
So that leaves more reliance on Saudis to ultimately fill the gap.
But the message I think around the future is that it can't be just opaque
that on the right or will fill in the deficit when needed.
And this is part of our super cycle thesis.
In the end we're going to see a structural deficit that can't be managed
well or met quickly enough through short cycle barrels.
So does anything make you question your super cycle thesis at a time when you've
got Morgan Stanley and you have UBS moving away from some of their previous
forecasts and actually cutting their near term outlook for crude prices.
Are you doing the same or are you doubling down and saying they're missing
the boat.

Yeah I think we're probably in the
latter capital doubling tripling quadrupling.
I mean we've been bullish for two years now.
And we've just all we've seen is this observation particularly led by
uncertainties around demand. I think there is a degree of sort of
confusion as to where demand will ultimately emerge or trend to over the
medium term. We still believe that demand will
ultimately continue to grow 200 700 million barrels by 20 30.
And the issue is this.

If that's right and we have a shortage
of all fuels and we're back to the same issue which is where how do we fund how
do we meet this energy deficit in the future.
You can't be coal. We can't be gas.
We're maxed on energy. It's got to be through certain wind.
And then when you've gone through that we still have a major deficit in oil
which basically means that we're going to see a repricing of oil significantly
higher. And so we still stand by our IBEX case
950. Christian a question that speaks of the
moment I've got a ways to go here but I think we have to speak of the continent
of Europe in the hope of prayer of finding energy in the next 12 months
next six months maybe even the next six years.
Maybe it's away from your remit. But do you have an optimism Europe can
succeed in staying warm this winter.

I think ultimately where we're okay for
this winter and that's because we've had Nord Stream on we've had we have got gas
storage up in 90 percent a recast capacity is roughly 85 percent.
We've got the flex time. The issue is not this winter.
It's into next winter. And then we start to debate well how do
we actually structurally fix this. That this long term supply issue of
energy. We can't just provide quick fixes and
kick the can down the road. So if anything I'm more concerned about
as we go into the second half of 2023 how we manage particularly as China
comes back.

I think in some ways China has appeased
this deficit this crisis in Europe by virtue of having lockdowns.
If you have lockdowns ease China re-emergence as a marginal buyer of an
energy then we will have deficits in Europe and energy that can't wholly be
met through through gas unless we have gas to oil switching which is clearly
bullish demand for oil particularly through an exchange which is why we
struggled to take numbers down on demand when all we can see is more real demand
for foreign oil particularly as it's still the cheapest fuel relative to all
other. Kristen I was just brilliant.
Just to have you break that down the bullish thesis that with Christie and
Malik that JP Morgan Securities are we going to have to face another winter if
this is basically the argument he's laying out for all of us and some you've
raised this a million times a credit to you.
Can you imagine the energy crunch in the world if we didn't have Covid 0.
Yes absolutely.

Can you imagine how hard this might be.
You know I rarely sell a sell side report but I've read every word.
Lilly sits on my coffee table at home in the walkup in the basic idea is its 100
page JP Morgan essay whether you agree or disagree with that.
It's a global essay and its global dynamics away from the Soap Opera of
America the soap opera of Europe. Well we get to the reality the reality
of CPI in just a moment. Five minutes away the CPI report just
the radical ways we have CPI.

I the.
This is a chip four and a half minutes away not someone for 30 show.
Thanks for that. 20 features positive for seven tenths of
one percent he estimates. He notes that six basis points three
twenty nine forty seven on a ten year and he affects market or weaken dollar.
Stronger euro. You're right Dalton.
What I out in 69. It's a casual encounter.
This is Bloomberg. They CPI report in America just seconds
away coming into equity futures positive.
Three quarters of one percent on the S&P 500.
Yields are lower by six or seven basis points on a 10 year.
The dollar is weaker. The euro stronger.
Euro dollar one at one sixty eight. Waiting for that CPI reports come out.
Standing by is Mark NIKKEI. Hi Mike.
It is coming out. It's a little bit higher than

A tenth of a percent rise for the month
of August. And the headline number which is more
than the flat reading that we had last month in less than the zero point one
negative reading that was expected pushes the year over year rate to eight
point three percent. The forecast had been for eight point
one percent. So we're a little bit higher.
We'll check into the details and see why that is the core which matters more to a
lot of people rises six tenths of a percent.
That is double last month and double what's expected pushes the year over
year rate to six point three percent from five point nine percent last month.
The expectation was for a six point one percent move.
So some bad news on inflation here but it doesn't really matter because
everybody was kind of expecting the Fed to go 75 anyway.
Quick look at what some of the increases come from.
Food is up eight tenths of a percent.

Food at home your grocery store up 7
10th and energy. This is the one that was supposed to be
the big wildcard. Gasoline down ten point six percent.
It was up 44 percent on the year last month.
Now it's only up twenty five point six percent on the year.
New cars are up by eight tenths of a percent.
That is probably one of the disappointments in this number.
Used cars fall a tenth of a percent. There was a forecast that they would be
down as much as 1 percent in this index. And so that is another disappointment.
While prices fall they do not fall as much as the wholesale price index had
suggested. And then shelter the the rent component
that everybody has been concerned about that keeps rising keeps rising even
faster up seven tenths of a percent after a half a percent move last month.
And on a year over year basis shelter costs up six point two percent.
So we are a long way from saying that inflation is conquered and has peaked.
And so the Fed has still more work to do.
Obviously cements a 75 basis point move.

Mark McKay doubling down on that going
into next week. Mark McKay thank you.
Seventy five and some might argue changes the tone of that news conference
with the Fed chair as well. Let's have a look at the equity markets
lower by more than one full percentage point.
We were firm and now we're negative by one point thirty five percent on the S&P
500. Yields are higher on a 10 year back
through 340. That's going to bring back the
conversation about whether we have actually seen the high for the year on
the 10 year. But the work we're doing at the front
end of the yield curve right now. Bank slicing through 360 yields much
much higher at the front end of a curve. This raises a question not for this
meeting coming up next week but the meeting after the meeting after serving
share point from earlier. Do we go down to 50.
We go back down to 25 or do they stay at 75 basis points.
I mean this really changes the discussion at a time when a lot of Fed
officials are saying they want to keep rates probably close to 4 percent for a

We haven't really factor that yet.
If you wanted to see a persistent and convincing string of economic data some
inflation prints to back off rate hikes then we just got disruption.
That said a strong data point for this Federal Reserve to see month over month
core pickup in the way it did. Again some.
So it's going to change the conversation next to scope and scale.
Know the real yield came just within four decimal points of 1 percent on the
real yield here which is to me a sea change to see a full percentage point of
10 year real yield. We had a six hundred point Dow swing
from basically plus two hundred being sent around 400.
It's a huge shift a huge disappointment. What was the landing that we had earlier
this morning. Soft.
Soft. That's very nice I think.
I don't think anyone's talking about that right now.
What we've heard from Fed Chair Jay Powell from vice chair Lael Brainard
from Mr.

Wallace the governor over the Federal
Reserve. What we've also heard from Jim polite
repeatedly. What are they going to say.
This is exactly what we're talking about.
This is not about Fed officials. This is about a narrative shift in
markets markets catching up to what the Fed is looking at.
And that will be the discussion through the remainder of the day as they pass
through this data and say what were we getting wrong.
We assumed you would see disinflation and we are not.
And I think that is what's going to drive the trading action.
So equities down. Going into the opening bell about an
hour away we're down by one point three percent on the S&P 500.
We talked about that move for the front end to the yield curve through 360 on a
two year.

That's a fresh high fresh multi-year
high at that as well for a two year yield in America and the Treasury
market. And it sends up by six basis points
through 340. Jay Bryson standing by the chief
economist over at Wells Fargo. J just initially your reaction to a much
much hotter CPI print. Well I think you know Mike nailed it
earlier. I mean if you there's any doubt at all
about 75 they're definitely going 75. And then you know at least I think you
had a very good comment there as well. What does this mean about November.
I mean we thought they would be stepping it back to November to 50 in November.
And at this point you would say 75 is certain to be on the table there in
November. Jerry how do you take this data this
financialization shock over to the real economy.
What does this a 30 numbers signal about potential slowdown in economic growth.
Well you know I think what you're looking at here is there's two things
that's going on with the inflation right.
One is that inflation is going to continue to eat into nominal income.
And so what we've seen if you're looking at real disposable income year over year
at least in July it was down three point seven percent.
And so you can't continue to have consumer spending grow if real income is
contracting like that.

So that's the first problem with
inflation. The second problem is it puts the Fed
into overdrive. And if they're in overdrive sooner or
later they're gonna make a policy mistake.
And if we're talking 75 75 75 so far as the eye can see they're going to make
that policy mistake and potentially put the economy into recession which is what
we think is going to happen early next year.
Why did almost all forecasters get this wrong.
Well there's you know there's there's a bunch of volatility on a month by bunch
sort of basis here.

We were above consensus but we weren't
at zero point six. You know I think the big thing here
that's really pushing a lot of this and this is why it's going to be hard to
bring inflation down in the near term is the shelter component.
You know the way they treat shelter the way they treat housing and here comes in
with a long lag. And we all know what's happened over the
last year or so. Housing prices have exploded.
How many came into the CPI. Relatively slowly.
It's coming in with a vengeance. Now the problem is it's going to
continue to come in as well. And so that's going to keep the CPI
inflation rate elevated for the foreseeable future.
Jihye Lee many Fed officials have given us the impression that what they wanted
was two or three softer inflation reports to rethink the trajectory of
rate hikes as Lisa mentioned and you alluded to it.
Do you think this really disrupts their ability to say in November that we need
to go a different direction.

Well yeah I think.
Well obviously we've got a lot of data coming out between here and in November.
So you know what. We'll see.
Right. But you know if they want to see two or
three soft prints in a row we've just reset the clock back to zero right now.
And so you know 75 obviously is on the table.
I think in November we'll see what happens to the real economy that we will
have you know two more employment reports between now and then.
That'll be key.

So if you do see slowing in the real
economy maybe it backs off. But right now we haven't seen a lot.
Tremendous amount of slowing in the real economy.
And that keeps these supersized rate hikes in play.
Jay can you tell me where you expect to see unemployment by year end and at the
moment this fetish you know is very very focused on the one side of the mandate
bringing inflation lower. We're all trying to work out whether the
two sides of the mandate come into more conflict as we get closer to year end.
So our our view John is at the end of the year you're looking at the
unemployment rate saw around 3 7 or so.

So I think that's still a very very
tight labor market. Now as we go into early next year and as
we see you know the deceleration and then a contraction in economic activity
I think that's when you see the unemployment rate start to move.
But if we're still at 3 7 or the say we're still below 4 percent you know we
saw a 3 handle at the end of this year. I don't think the Fed is slowing down at
that point. What does this say Jay about the
inertial force of supposed disinflation.

I think we're talking about getting to 5
or 4 4 percent inflation out there. But do we blow that up today and say
simply our path is to get to seven or six point nine percent inflation.
Well Tom I do believe that you are going to continue to see.
So our view that inflation starts to recede next year is predicated on our
view that you do have a recession. If you do have a recession then what you
do see is goods prices will definitely start to decelerate as well service
prices as well. You know the good thing is there's
anything that's good here is that we have not seen inflation expectations
become quote unmoored.

That's a that's a word that the Fed will
you know uses all the time. And so that's a good thing because if
that does become unmoored then that creates its own dynamic as well.
People start to pull forward their expenditures which pushes up inflation.
They asked for higher higher wage increases as well.
Fortunately we haven't seen become unmoored.
But if you continue to start to see you know continuously prints like this then
you do start to worry. But that happened for all of you on
Bloomberg Radio Bloomberg Television Dr. Jay Bryson where this was Wells Fargo
here a stunning inflation report. John is that the right word.
You can call it that. Something's happening.
Upside surprise some stunning inflation report.
Futures turn around and I'm doing the math in my head.
John help me out here. 2.5 percent.
Flip flop in what we see on the Nasdaq 100.
And wait that's a point.

Four percent.
This disrupts the idea that this Fed can back away anytime.
St. Thomas a bit of rain.
Well I'll go with disruption or just to say that we're going to rip up the
script and come up with a whole new dialogue.
We do that with Michael McKee. Dive into the inflation report a little
more. Michael what is the distinction between
service dynamic and goods dynamic. Well right now it looks like services
are starting to pick up some speed here. Zeus is less energy rise by six tenths
of a percent. That's after four tenths last month.
Now services are up six point one percent over the year.
So we are seeing service prices start to rise and you could see it in a number of

Interestingly education tuition college
tuition it's time for kids to go back to school.
And that was up half a percent a fairly strong increase for that category.
So yes you would know something about that Tom.
We're also seeing motor vehicle insurance up one point three percent.
That's been an ongoing issue. And airline fares fell four point six
percent but they had fallen seven point eight percent the month before.
So we're losing a little of the benefit from that.
So you are seeing services rise. There was one thing I did want to
mention. Somebody asked me this morning if we
could mention this because it matters to senior citizens.
The Consumer Price Index for urban wage earners was up eight point seven
percent. We'll have to see what the net the
average numbers come out to be. Once September's numbers come in.
But that will lead into the Social Security cola.
And if you're looking at an eight point seven percent increase it's going to be
pretty big. That from London.
I'm in London. And Mickey's look at my NIKKEI you're
going to hear from.

I said right to have you write that down
for us alongside Jay Bryson of Wells Fargo.
I'm going to tell you that I'm focused on this market that month over month
coal production at point six percent. When we were looking for point three.
It's much harder than anticipated. And you can see how the market's
reacting to all of this. Equities negative realty rolling over.
And you know it's really punching higher at the front end.
A two year lease set back through 360. When was the last time you could say
that. It's been a while.
It's been close to the highs that we've seen this year.
Those at the highest levels going back as some 2007 2007 more than more than a
decade and more than. Yes.
Well this is data. We're living data dependence.
Can I just say.

But one more thing. I was just reading and the reaction that
people were saying and the number of people saying the likelihood is 75 basis
point rate hike just like we were hearing from Jay Bryson is growing in
November not just September in November. So all of a sudden you start saying this
is the greatest to the Fed funds futures.
That's a new level of time. You're asking the right question.
It's not a band next week. It's about what happens after that.
Yes it does. And of course some of that comes back to
economic growth and it comes back to the tealeaves.
All of us in economics finance and investment glean from the short term
bond market when we do that right now.

IRA Jersey joins us.
Chief U.S. interest rate strategist for Bloomberg
Intelligence. IRA what should we watch in your space
your world. What will give us the signals off the
shock report. Yeah I think it's a two year yield that
you guys were just highlighting and the fact that we're at levels where we
haven't been since before the global financial crisis back in 2007.
You know the the fact is is that we had continued to to price for the Federal
Reserve to continue to hike interest rates.
The question still is how high do they go and then how long do they hold them

And I think you know a lot of the data
from this report and you know it's always just one report.
But when you get one report again and again and again that tends to look at
things like core service prices continuing to grow as quickly as they
are then you know the Federal Reserve has to worry that that inflation is
going to stay well above their 2 percent target for a long time in fact.
You know I think you know some investors that I've been talking to are
questioning whether or not they can actually keep that 2 percent target as
their as their guidepost that maybe they need to be at two and a half percent or
3 percent or have some range between you know 2 and 4 something like that.
Because because we're in an environment where it's very likely that inflation is
going to stay this high or well not not this high but above 2 percent for
several years. And that means that they're not going to
ever hit their target unless they unless they hike interest rates more than the
market's pricing. And that's the item opposing view of
perhaps targeting 3 percent rather than 2 percent.
But they are not doing that right now IRA.
And we are hearing from Fed officials talking up a 4 percent Fed funds rate as
a likelihood early next year.

Middle of next year.
How mispriced is that in markets right now.
And do you think that that's realistic. Well the market's getting there.
So the markets priced for four around the upper band to be about 4 percent.
And I think in my view is is that the upper band eventually will be at around
four and a half. So.
And Bloomberg Economics of course is even a little bit higher than that.
And certainly you know directionally I think that the market needs to start
pricing for somewhere above 4 percent in terms of in terms of the Fed funds rate.
We're not quite there yet when you see to your yields of around 375 390.
That's that'll be a signal that we're finally there and we're getting there
and we're getting there quickly.

John for CIBC World Markets in Toronto
they focus on shelters we've talked but they also add medical care as part of
this core service that we think goes back to this persistent thing.
How much longer is inflation could remain at these kind of levels.
IRA can you talk to me about this move. We're seeing it.
The two you picked up on it let's discuss it with basically at 370 now on
a two year yield. We're not far away from it.
IRA how much upside do you think there actually might be on a two year based on
where it is now. Yes.
Our year end target is 390 and that's predicated on the idea that the Fed's
going to hike to around four and a half percent and then in 2024 start to cut.
But you know you get another CPI printer too similar to this.
And we'll have to rethink that view and a pretty big way.
I think you know two year yields are going to certainly be much more
sensitive to to what the Federal Reserve is doing than say the 10 year yield.
And I think the important bit is is that eventually the 10 year yield is going to
really lag behind.

We we're already has for about almost 2
percent over the last year. But but I do think that that the 10 year
yield eventually will start to rally a little bit on the idea that look the Fed
has to hike a lot more than they want to and we're going to have a hard landing.
So so the yield curve will just invert more and more.
What will you listen for from the Fed. How do they change their dialogue off
this report. To me it completely vindicates what
Powell was talking about in Jackson Hole.
How do they move forward.

Yeah I think that's right.
You know I don't think that they really have to change their narrative very much
at all. The Fed's been pretty consistent.
The market just hasn't believed them or large parts of the market have believed
them. Look all the investors that that we've
talked to you that I talked to you are in two camps.
One is the Fed's way behind the curve. They have to hike a lot more.
They need to go 100 basis points at the September meeting and then and keep
going to you know 5 6 7 percent. And then you have another group of
investors saying the Fed can't go much beyond 4 percent because they're already
going to be pricing in for a recession and a hard landing and all these other
things. So so you have this very bifurcating
view where where everything centers around maybe what we're pricing right
now. But but you have these two very
disparate views. And and as people shift from one of
those views to the other you're seeing these these very big moves in markets.
And liquidity has been pretty poor as well because of structural issues going
on in the Treasury market.

So you're going to continue to see these
10 15 20 basis point moves on a pretty regular basis as well as the sentiment
shifts so so significantly. All right.
Jesse Flint very intelligent. Sandra thank you.
I think some people might argue going into that Fed meeting next week that the
chairman should just take the speech from Jackson Hole Wyoming bring it out
and just read it again. This is it isn't I.
You know we're live in this and I think we're hugely biased in New York John and
maybe even biased in London as well. No but I mean in New York we're living
this rental by selling reality. A lot of the time.
How do you substitute that if I like it. I think Budweiser and it goes up.
I can substitute your two miller champagne of bottle beers.
How do you substitute your rent. I take it a step further.
Lisa brought this up. I remember.
Was it a month two months ago you brought out the mortgage costs.

So when you say a lot of people are left
with no option other than to rent it. Right.
This is sort of counterintuitive because if you get higher costs to buy you would
think that that would tighten the labor market or tighten the housing market.
And then that would reduce housing costs.
Right. But in fact it increases the cost of
renting. And you're seeing that across the board.
It is a different week here in London. We've had a pause today in the services
for Queen Elizabeth and it's allowed us to actually catch up with members of our
wonderful London team. One of them who you've heard often in
America on Bloomberg Radio Bloomberg Television is Marcus Ashworth to say he
writes for Bloomberg opinion barely describes his market excellence with
service at Barclays over the years. And 14 other institutions I have
forgotten about been merged into oblivion.
Marcus wonderful to catch up with you today.
What does this stunning report mean for Governor Bailey who the day after the
Fed meeting has to adapt and adjust to this central banker in the inflation of
the world.

I mean I saw his report first thing I
thought was out for America but double ouch.
The rest of the world we know the dollar is just going to is killing everything
and it's now killing even more. And you know two yields up well which to
my mind is one number. We can look at these data and think that
no one can measure of inflation properly.
Someone said central banks open up to that fact.
So let's not get too focused on one report.
Nonetheless it does look pretty unfortunate everywhere going one way and
expecting a Fed pivot. But there was enough ammunition.
At some point there would be reason to have a fed.
But that's just been swept to what's a reality check.
Yeah it's a reality check. When you know power given that to us
Jackson Heights like now is a data proving it.
And that's awful for the UK. It's even more I think of the euro than
real let alone emerging markets as a this.
It's a very bad Brit.

Well because the US are going to overdo
it and they're going to break something and we're going to break is the rest of
the world. Well let's talk about it.
Let's talk about the bank around the corner on Threadneedle Street the Bank
of England Tom Rice. The question are we at that point now
where we can just call it what it looks like it is which is a little bit of a

It's like the reverse of the ethics war
we had maybe 10 years ago. Is that what we have.
The only good thing about the UK is that they're not making the most stupid
mistake ever trying to fiscally tighten under really since that's gone away.
This this new government is going to unwind everything he did in the last
sort of a year or so post furlough. We're going to get a very big fiscal
stimulus which is what's needed. We should've never had the timing to
start off with. So that's the only good thing going.
I think the UK in that sense Sterling is already really cheap.
In that sense yes they can hike. I don't think they need a hike quite so

Then perhaps other central banks do
because the consumer hit a brick wall in February in this country.
I think therefore we can consider tightening was the first one to active.
That probably comes this month or next month.
That's that's going to be a quite a big giant release from a 115 83.
And Sterling is a wow show. It's not 114.
And that's the good news. It was threatening to break through one
or two thirds. It was where we are right now.
This bond market rally is where I think we both want to go right.
There are five basis points on a 10 year at 340.
We've all got that long list of people who said we've seen the highs of the
year. I wonder if they have to rethink that
because the highs of the year on a 10 year about 10 basis points now on a two
year already through them. As you were saying before we are through
those highs and we are now at the highest level going back to November
2007. Even on an intraday level and this
really raises question from the international perspective about whether
some of the other central banks are only hiking to keep pace with the United
States and not because then their economies necessarily need this.
Marcus I do wonder from your perspective whether it is probably going to be
viewed as a mistake or you're going to see a reversion to rate cuts more
quickly in Europe in the United Kingdom because there is not the strength to
back it up and the weakness will become more pronounced quickly.
Well I mean the pain in the U.K.

Is as it's somewhat softened by this big
fiscal packages coming in Europe. I really worry because you know we've
got so much problems coming through on the on the German economy in particular.
And the European Central Bank seems got the zeal that at least 75 basis to
exactly. To keep up with the Fed.
And that's the problem. I think the rest of world's gonna be
broken at some point. That will feed through the US economy
and they might stop. We're out of time.
30 seconds.

Credit Suisse your expert.
What if they breach five euros for whatever per share.
What are the ramifications. Well I think Credit Suisse is just what
it's good. It's private wealth management.
And one or two other things I think I have to go back to core.
Get rid of the risk culture. But you know intrinsically it's a decent
bank. And I don't think we'll be bought out.
So there's no eminent premium of fortunate Swiss francs.
Take his francs. Oh you can.
You love the Swiss see and the SMP. I don't want you to keep it.
You go to the McDonald's and think about what they've got to do.

And B the Bank of England we've all
discussed it haven't we. The ECB has got 75 feds about to go 75
looks now. Don now it's next week day after
Thanksgiving that they've got to do the same thing.
It's the summer of 75. And that was Citigroup which is 75.
Yes I see that. Yeah.
That Holland House. Yes.
I think was a Mr. Sonali Basak.
A small. No isn't it.
No. This morning it was a couple of weeks
ago. And now that this is summer of 75.
I think that's about right. Jennifer O'Neill was in that movie.
I read it. She was OK.
So we're certainly going to book for the price action and the market.
I just I just get back. Inflation came in 25 minutes ago hotter
than anticipated. Month over month.
Core is where this market was focused. Month over month call came in with a big
upside surprise. That means equities lower without 2
percent on the S&P. We continue to deteriorate.
Eurodollar turn around negative three quarters of 1 percent as a weaker euro a
much stronger dollar.

Talked a lot about the moves across the
bond curve. Tease out tens turns up by six or seven
basis points 342. Why should two you now.
It's 170 287 370 170. I mean I'm very comfortable with one
handle for a long time then two. And now it seems three is the place to
be 370 and IRA Jersey if Bloomberg was talking up 390.
Yeah it's beyond 370. Well if you think about a base case that
markets are pricing in that you're going to see a 4 percent add funds rate and
they're going to hold it there for a longer period of time.
Well it makes no sense.

John 700 Dow points most of that in the
last 20 minutes. Where are we at 3 p.m.
4 p.m. today.
So it's important that we're going to ask Christopher Amani of Lafayette
College. He's going to reset alongside a statue
at the bank. David Kelley of J.P.
Morgan Asset Management taken off what's gone on for so long.
I've learned some more at specific times particularly around the time he mentions
Dow points.

And how many points.
Seven hundred. Thank you.
Once your huge moves look at the NASDAQ you mentioned earlier.
Huge big move lower in this equity market.
We'll break it all down for you in just a moment.
Upside surprise on CPI America. That means a big downward move on this
equity market. The count actually open just around a
corner. We've said five minutes away.
This is Bloomberg. This is an extended edition of Bloomberg
Surveillance with Tom Keene Jonathan Ferro and Lisa Abramowicz.
Live from London for our audience worldwide counting you down to the
opening bell. Good afternoon from London.
Good morning to you stateside waiting for that cash open with equity futures
dramatically lower down by 2 percent on the S&P 500 negative by two point nine
on the NASDAQ T.K. off the back of a much much hotter than
expected CPI report in America with global ramifications.
There's no question about it.

Let's go to the states room to go to
Annmarie Horden and what the White House response to this will be here in the
half hour. But John I really want to emphasize how
many people got this wrong. And one lone voice a Jackson Hole nailed
it. Chairman Powell if s we've got work to
do and everybody else has followed him on that Federal Reserve.
This market though some participants Lisa ignore it that fed communication
waiting for that soft landing. Some of the data recently spoke to that
this data point did not Dani Burger.

And that's the reason why I find it fascinating.
The knee jerk reaction markets is as dramatic as it is.
People really have believed that the Fed had it wrong and that they were right
and that there was just disinflationary tilt and you were going to see real
inflation slow much more than it actually has.
This raises a lot of questions about what's an assumptions and how much
further this selloff has to go to Tom's point.
It will be very interesting to see how the White House response to this because
the month over month numbers have come in much hotter than anticipated.
We talked about the front page of the newspaper game with the headline
numbers. Wall Street was looking at month over
month call. And you said even within month over
month core you need to go deeper. Doesn't speak to a story that's fading
anytime soon. No it came in double where people had
expected it. If you look at month to month core
inflation and what comes to their White House this response is comes at a
difficult time when President Biden is now about to campaign on the fact that
they're getting inflation under control and people are less worried about
inflation is pointing to gasoline prices.
This flies in the face that I wonder if he's rewriting some of those speeches.
Him ISE whoever's writing this speech that is often the case.
Oh any administration as you see someone else equities down yields up his tools
out to 10 year 10 year yield is much higher year to year.
Well I'm not gonna get used to 370 on a two year Tom Mackenzie.
Can you get used to 370.

No I cannot.
In moments ago a massive moment for these markets.
In the years that we've been doing this the 10 year real yield at one point zero
zero. It is John the signal that for those of
you that are on global Wall Street John explain why one point zero zero 10 year
the real yield why that's toxic for risk assets and those kind of levels remind
me of why we were in late 2018 where the equity market.
Let's face it. Collapses.
Some people might not like that word and yields spread some credit later.
They were much much wider than where they are now.
For years there was no alternative.

Now there is an alternative because
you're actually getting yields an income from some of these instruments.
And that I think is the big takeaway from real yields climbing.
Mark McKay is going to join us now to break down some of this economic data.
Mike this wasn't the number. Many people were looking for.
No. Some people were thinking that way on
Wall Street. But let's go through some of the numbers
that are making you so gloomy this morning.
The month over month CPI comes in at one tenth of a percent which is higher than
the negative tenth of a percent that had been expected.
So we see the headline fall to eight point three percent from eight point
five. But the core is the one you're talking
about was up six tenths of a percent. Last month was three tenths.
The forecast was three tenths. So we see the core rate rise to six
point three percent from five point nine percent.
I'm guessing Joe Biden will not be talking about the core rate this

What moved in the indexes.
Well you could see there gasoline kept its part of the bargain.
It fell ten point six percent. We knew that that had gone down quite a
bit. But food has not reversed.
People were thinking when the commodities started to fall in July that
we would see a drop in food prices. We don't we certainly don't see a drop
in shelter prices. Owners equivalent rent is up.
Used cars were down a tenth of a percent.
But on a wholesale basis the expectation was they might be down as much as one to
one and a half percent.

So that's a disappointment.
And apparel prices no sell off of inventory there.
They're still rising two tenths of a percent on the month.
Now just few months ago you had Irish jersey on who said that the Fed is going
to be determined to get up to restrictive territory.
And as we watch what's happening in the futures markets and people are price
again 75 five now for the September meeting and a possibility of 75 for the
November meaning you could see here that the Fed in the past has always raised
interest rates above the level of CPI both CPI at core.
And you can see all the way over on the left on the right there.
They're a long way from that.

So we need inflation to come down or we
need the Fed rate to go up before you're probably going to see much success at
bringing overall inflation lower. Mike very quickly here if I was having a
beverage of my choice in Jackson Hole for without any selected Fed presidents
what would they say is the distance to neutrality.
Is it November. Is it in the next year.
When is the when I'm getting to neutral generally the feeling has been they want
to be there by the end of the year and that gives them two more meetings to do
it. So then you have to define what neutral

Some of them think three and a half.
Some of them think four or a little above.
So that gives you a wide parameter of possibilities for raising rates over the
next couple of meetings. Tom I can also point out that you
probably helped because obviously supply not keeping up with demand with those
beverages of your choice. Alcoholic beverage is up nine tenths
during the month of August. I can tell you that's a true story.
My McKay thank you. As I sit there with a pot of tea and
Tums on martini number four as is often the case around dinner not breakfast.
That's impressive.

Drinkers around dinner not breakfast.
Christine Romans is with us of Lafayette College the CIO.
Christina you've got to respond to this one for us equities down and down hard.
I think I've got the S&P off 2 percent granted over the last four days.
We were up about 5 percent. But your thoughts on what we got 35
minutes ago. So I think Jim Powell basically laid it
out from a policy standpoint and you focus on that nothing has really changed
that much in that you know. Inflation is high and they will continue
to tighten. And if you are looking for a pivot you
have you know the last few days and probably last few weeks you turbocharge
your expectations and you'll probably be giving all of that back.
The bottom line is the Fed is looking to get it to 4 percent or higher.
And they will get there either this year or early next year.
The real question for the market is one how long do they stay at that terminal
rate north of 4 percent and will they pivot because of something breaking.
I think that's what we are dealing with.

Kind of looking at this month's number
contrasted with the last months. No we did.
We didn't have as much of a reason to be as optimistic last month and this month
probably if we projected too much is probably not too much of a reason for us
to be that pessimistic. Inflation is slowing down but not at the
pace that the Fed is comfortable with. And that's what the markets have to deal
with. So what's your sense of when it is a
good time to go into to go into debt to go into duration.
To start saying we have seen the highs and the 10 year because we are going to
get up to 4 percent or beyond.

And that's going to lead inflation to
get under control to get more of a sense of that.
Now with a CPI print well I would say that both the Treasury markets and the
credit markets are probably a lot more vulnerable than the equity markets for
the very simple reason that we really don't know at what level the Fed is
going to stop and how long they would stay at
that level. That's really not a very conducive
environment for owning owning credit assets or for that matter owning safe
assets. I think there will be a time but it
certainly is not today. Equity markets at least you can make a
case that the valuations have come down. And you know if we are not in a
recession and probably don't get into a recession it probably may not be such a
bet that such a bad bet given that the upside in the bond markets you don't
have that at the moment. Well the question a lot of people say
that stock and bond markets have been moving in lockstep and that when bonds
sell off so do stocks particularly big tech which has driven a lot of the

So what's your pushback to that to say
though equities still can be a haven at a time when debt instruments are at the
precipice of volatility. Well if you look at the last few weeks
you know equity markets did reasonably well despite bond markets selling off
almost 30 odd basis point rise in rates and probably higher than that by now.
And equities equities held up reasonably well.
So I'm not saying equities are not vulnerable what I am seeing.
However given the potential upside from any change that may come in the
environment equities you can capture that upside in bonds you have it's far
riskier. Kushner Very importantly and this is to
institutional Wall Street. We are going to see new lows in price
for the various Bloomberg aggregate indexes.
What's going to be the blood on the streets institutionally of new lower
bond prices with higher yields.

Let's so you know I think from from a
longer term perspective as Lisa had indicated before we really did not have
much of a choice other than owning equities.
And that option is being created. At some point you will get to term
another rate. At some point the Fed will pivot.
And therefore I think bond assets may not be at their at their lows just yet.
But from a longer term perspective bonds are becoming much more viable asset
class than they have been over the last five 10 years.
And that is you know that is really good for the institutional work.
You know if you kind of go back what the world wants is a good bond with the high
enough yield.

If they didn't get that they don't care
about equities. And I question that.
So we'll be getting closer to that. We're getting closer to Chris I've got
to ask you this we're getting close to the Fed next week.
I was going to say 75. I get that.
Can you tell me what you think the forecasts are going to look like next
week. Because we didn't get the new refreshed
summary of economic projections. What kind of shape do you think that's
going to take. Well so you know perhaps have been a bit
more optimistic than there should have been.
And you know a lot of commentators have kind of chided them for that.
And I think that would probably still be true.
The real question is what do they do over the next few meetings and how
quickly do they get to the permanent rate that they are striving for.
And I think if today's data is any indication they would probably hurry it
up because right now the economy is in good enough shape where they can take
that take that risk and the economy can pick that punishment.
So my expectation would be that a rate increase.
The expectations have to be brought forward.
That's what the Fed wants to do.

They want to get to the terminal rate as
fast as they possibly can. And then hopefully of all there whether
they will be able to hold that it is a separate question altogether.
Cristina thank you. Christian Amani that of Lafayette
College of the Back at this higher than expected CPI report and going against
the Federal Reserve next week. Got to squeeze this because you know
someone's asking. Now quiet period.
No Fed speak. No Fed speak.
I think it's. What do you think they might we might
know something. You know one particular reporter at The
Wall Street Journal they basically say saying you know honestly what are they
going to say that they haven't already said hey.
I mean they have been very deliberate and they have been very vocal and united
in saying we're going to hike rates and you people have chosen to ignore them.

Not something that somebody's economic
projections that we get next week. Are you expecting to see inflation
adjusted higher growth lower dots out there for and for a whole lot will
manage the message and we'll all be vector based and they'll do it with
growth gradual approach which they do. I want to look at that right now which
is under no circumstances John. Here now one hour after this following.
Forty five minutes after this. We've seen a very good Dow 800 points.
We're going to hit it down negative 1000.
Here we're going to get a VIX out. Two big figures.
The aspects of course is what institutional Wall Street's looking at.
These are markets on the move this afternoon.
The S&P 500 down by more than 2 percent. The Nasdaq 100 down by two point nine
percent. Going into the opening bell 17 minutes
away. Just a moment we'll catch up with FLO
Bank CIO SD work on some of the price action and we'll speak to AMH down in

On what the White House might have to
say about this. This is Bloomberg. We are 32 minutes away from the opening
band in New York City and equities at down and down hard negative two point
thirty five percent on the S&P 500 on the NASDAQ 100 down by three full
percentage points after a hotter than expected inflation report in America.
Joining us from Washington now Flynt DAX Amiri AMH.
Let's talk about it. How is the president going to respond to
this one. Well it's kind of an awkward moment
because at 3:00 p.m. later today he's going to be gathered
with members of Congress his cabinet environmentalist mayors to talk about
this historic legislation the Inflation Reduction Act which is massive
legislation. They decided to call it Inflation
Reduction Act for a reason.

They knew this was going into the
midterm elections going to be one of the biggest issues.
This of course has money going towards a climate change a 50 percent corporate
minimum tax to make over a billion dollars the corporation and lowering the
cost of Medicare. But how much is the president gonna be
able to stick that message with the fact that inflation today is higher.
I imagine the one piece of spin that they're going to want to really grapple
with is that they worked all summer to try to bring gasoline prices down from
where it was at the June peak of over five dollars a gallon to now just under
four dollars a gallon with three dollars and 70 cents.
That was the one bright spot of this inflation report.
But obviously just less than two months away from the midterm elections
Republicans are really going to harp on this.
And I'm really which party is advantaged by sustained inflation.
That would be the Republicans going into the midterm elections right.
Because they're the ones that can say look inflation is not coming down.
It was not transitory something that this White House.
Something that the Treasury down the block from me had told us it would be.
So it's the Republicans that want to make sure that this message is top of
mind of voters of consumers higher food prices higher electricity bills.
If you look at the inflation for your gasoline is coming down but natural gas
and electricity is higher higher rents.

All of this is being eclipse that you're
not getting the wage gains. And that's their biggest problem.
But the one thing the Democrats do have with some wind in their sails following
the strike down of Roe v. Wade is that this is now a live issue.
We saw that in that congressional district that swing district in New
York. We saw that in Kansas.
And there was a recent Wall Street Journal poll that said yes overall
economy is number one for voters to go to the polls.
Number two was abortion and women's health care reproductive rights.
And number three was inflation. And Mary thank you so much.
I'm sure there'll be a reset down in Washington D.C.
as President Biden tries to double down on the message.
It's a little cloudier after this latest data.
Of course the message is a little cloudier in markets as he DAX CEO of
Flow Bank. Joining us now we are seeing Nasdaq down
two point nine percent a reset of the idea of a disinflationary tilt that we
thought would take hold but didn't.

Are you rethinking any of your positions
today. Well it was never going to be a straight
line down. We have a number of inflation data
points that are still showing that disinflation is happening.
Clearly the core print for today was not fantastic.
And we're seeing the disappointment in markets especially because we had that
expectations in the last couple of days that really ramped up and boosted
markets from a positioning perspective. We still have PPA tomorrow.
We have the Michigan numbers coming up at the end of the week.
We had inflation expectations in the last couple of days showing guys that
those have come down quite sharply as well.
So I think that this inflation trend is going to continue.
But for today it's definitely going to be ugly.
John we're getting in the numbers right now.
Peter before has one of the isolated incidents health insurance up 24 percent
year over year services.

Services is the distinction without a
doubt. With that in mind got this tug of war
between financial conditions and what is happening with the DAX would have a
fetish responding to it. And investors who are hoping all of this
goes away and next year is smooth sailing.
What's your message to people who still doubt the resolve of this Federal
Reserve. Well there wasn't going to be a pivot
and there clearly isn't going to be a pivot anytime soon.
I think Jackson Hole dispelled that idea completely.
Anything that will anything close to a pivot would just mean we're going to
stop hiking and that happens at some point in 2023.
And how many more percentage they get in before that.
That number is going up of course for the November expectations rising as
well. But the Fed isn't going to blink.
Inflation is gradually coming down slower than anyone would like but their
result is going to be very firm. So where do I hide.
Just as simple as my head is. This report wasn't what I expected.
Where do I hide to drag myself into 2023.
So I think it's a bit too early to say that the entire end of the year is going
to be bad.

I think at some point we are going to
have some improvement in markets for the time being.
It feels really like the dollar is a great place to hide.
The Swiss franc you were talking earlier about the Swiss National Bank coming in
with those hikes. So Swiss franc probably is another place
to hide. But you're you know you're making
something in cash and I think loving it. A lot of investors are going to be happy
to sit in cash and wait for the picture to improve hopefully over the next
couple of weeks. As they thank you ISE to ask that a flow
bank told me the money question. Where do you hide when equities sit down
and you it's up. Interest rates are getting battered and
that's what we're seeing on trends on to is at a message just a moment ago from a
blip in terms of subscriber. That guy goes Goldilocks.
Remember off the payrolls report. I said I sat that looking at that one
specific data point.

It spoke to that same the inflation
report. Just wipe the floor with that idea
because this Fed has got a whole lot more work today.
I keep thinking that what I wrote Jersey said a particular quantitative
tightening picking up that we weren't going to see the effects of that until
early next year. Would all of a sudden.
Banks are going to have to go out and actually pay people more to put their
deposits with them. And at what point do we get more and
more people just parking their money in there in their checking accounts because
you're actually getting something for it suddenly.
What does Kutty fit in here. You know this is the question.
It's accelerating right now.

This week it actually is starting to
accelerate. So as I wrote was saying we haven't
really seen much effect of it yet. Will we start to see the ramifications
of that the withdrawal of liquidity from the financial system more sustainably
early next year. Can we get the yield curve up to tens
and 30s. Because every time I check I noticed
read a little bit higher. Yeah 370 for close to a two year.
And what are we now for. Five basis points away from the high of
the year and a 10 year. Yeah.
After many people for the last several months through basically the whole of
summer said the June 48 tie. That was the high for the year and a 10
year. And here we are staring down the barrel
of a fresh high. Yeah we're going to look at yield curve
inversion deep yield curve inversion a reinsertion after a better lesser
inversion that we saw a couple weeks ago.
343 tell was this bad news.

This loser was this was bad news is bad
news on this front that is out. I will say it on a math basis.
People tell me interviewed interviewed convexity in bonds.
Does it matter. I would look for acceleration and lower
prices. No one believes it's there to stay in
market negative. That's to say I believe prices are
lower. Is that is that works.
And there is a second derivative. Everybody is going.
No bonds are different. It's been tell me we've set the price
loss on bonds this year. It's home to our listeners and viewers
is tangible. They're not doing fancy pants spread
market stuff. David Kelly if they're watching the
management I'm not sure it is. You can ask.
David is good hour. Our viewers and listeners are certainly
down 700 points in the swing. They're watching the Dow but some
they're allocated to.

That would be accurate.
Very good. OK.
Well something that we can't get to their family.
Oh yeah. Jihye Lee. Live from London for our audience
worldwide this is Bloomberg Surveillance on TV and radio.
We are seconds away from the opening bell.
That is your opening fan in the United States of America.
Equity futures going into that kind of show but getting absolutely hammered
down by two point eighty five percent on the S&P on the NASDAQ 100 down by almost
three. Any affects market at dollar a whole lot
stronger snapping back euro dollar just about above Paris 8 1 0 0 20 to negative
1 percent on that currency path. Yields are flying up by 7 basis points
on a 10 year to 342 73 and a two year through 370.
You've got to go all the way back to 2007 for those kind of levels.
That's the Cry Cross asset price action with some movers at the open.
Let's get to Abby. Hi Harvey.
Hey John. Well we do of course have this very risk
off day bearish tone for stocks that S&P 500 heading to its worst day in about
three weeks.

It has everything to do of course with
that hot CPI report hotter than expected.
That means yields are higher as you were just outlining.
And the big big key driver the dollar as you were just mentioning stronger up
about nine tenths of one percent the best day since two weeks.
That is pressing stocks overall. But those yield higher is really
weighing on big tech in particular Apple and video both lower as yields higher
means the valuation comes into question. But you can see J.P.
Morgan Chase banks not benefiting from yields being higher.
That's because that yield curve is coming in because the big action is on
the short end.

So that is really weighing on the banks
overall. And then we even had a reversal in oil
lower on that hot CPI print because of that dollar shooting higher that has
pushed oil lower. We also have the energy sector lower.
What's so interesting about this John is this reaction felt knee jerk but it's
holding on for an hour. Let's see if it makes it through the
first half hour of trading or the trading day overall.
Will it stick. Abbi thank you.
Grandma if I'd said see you at the start of the year that yields would be where
they are that the Fed would get Fed funds rate to where it is and higher
again next week perhaps by 75. Most people assume that's the case.
Wasn't a big consensus tried to get along the financials.

Look IBEX.
Yes. And we were talking about this
yesterday. Right.
That this has been the trade that can't seem to work because it's accompanied by
the prospect of weakness. That has to be engineered by definition
particularly in the labor market in order to achieve a decline in that
inflation. Of course the yield curve contracting.
The overwhelming consensus right now in the fund manager survey is that growth
is not going to be tremendous. We can talk about that fund managers
survey right now with Candy Line. Hi Kelly.
Hey John. Yeah.
The title of this fund manager survey released says it all.
They titled at Lame is a Rob because they call it super bearish.
A record 52 percent of investors surveyed are underweight equities and a
record 62 percent are overweight cash with cash levels moving up to about six
point one percent global growth expectations.
Also right around an all time low 72 percent expect a weaker economy next
year with the most people expecting a recession since May of 2020.
Now typically that level of bearishness is actually bullish.
And Bank of America reads these results as a signal that the short term pain
trade is up for risk assets.

Michael Hartnett saying the S&P could
rise to forty three hundred but he then expects the index to fall back and he
remains fundamentally and patiently bearish.
As for the most crowded treats perhaps no surprise once again long dollar is
topping the list. 56 percent of investors gave that
answer. That is the most extended position since
long U.S. tech back in November 2020.
Compare that to just 10 percent who answered no too long commodities and
your stuff long ESG short treasuries and long growth stocks in there as well as
for the biggest tail risks inflation fittingly today.
Given that hotter than expected CPI report is number one followed by hawkish
central banks. Interestingly a global recession moves
this month from the number two spot to the number four smart spot topped by
geopolitical risk.

And you also have a systemic critic of
Ben making the list as well. John Miserable.
Thank you. Just in the in this fashion for anyone
who didn't know how to translate that home sometimes you know counting down
even better you look like a guy that resembled Hugh Jackman as extraordinary.
So on a serious note serious note that bearishness.
Does that explain the previous four days and is it dated after the data point.
We got about an hour. I would suggest it mentions two managers
fighting for their careers to the end of the year.
This is brutal. And again I'm going to watch the bond
space. You're going to see a breakthrough of
the total return aggregates of Bloomberg Price lower.
We have never seen this before. David Kelly joins us now to talk about

The chief global strategist at J.P.
Morgan Asset Management. David we've given everyone the
opportunity to respond to the data so far.
It's about an hour old now. Your response to it.
No it's it's a little warmer than expected but I'm not going to call one
tenth of a percent of an increase in prices a heart inflation report.
What's happening is it's cooling there just a few hot spots.
Are there problems in getting all the inflation to come down but the cooling
trend is there. I think markets overreacting to this in

There's a big chunk of inflation.
That's CPI 32 percent is in shelter and that's up seven tenths of a percent.
And that's really what's driving a lot of the underlying
resilience of inflation here. But a lot of that is you know owners
equivalent rent. It's a very
almost a mythical concept because nobody actually pays only equivalent trends.
Are there parts of inflation hanging on. But I think I think it's really
important to recognize the economy's cooling here.
And a lot of the things that pushed up inflation are cooling off also.
So we shouldn't you know we shouldn't get messed up by the fact that it was a
little higher than consensus here. The the big story here is inflation is
actually coming down.

David that is convenient for a lot of
the bulls. And yet the story that people are seeing
right now is that the hope was we would see a much faster disinflation that
would get the Fed not perhaps raising rates as much as they were saying.
How can you lean against this. What parts of the market are most
overreacting. From your perspective.
Well you mentioned financials and I think that what's going on is people are
assuming that this will make the Fed a bit more hawkish and I think that's
true. I mean I think that
the Fed will now have more of a reason to go 75 basis points next week.
And I think that's what they'll do. I think the ECB obviously just did that.
I think the Bank of England will do the same.
But I think the Fed will also leave the door open to a smaller increase in
November maybe 50 basis points maybe 25 basis points in December because what
they are going to see is inflation continuing actually to cool because
that's actually what's going on.

I think we'll get about two tenths of a
percent in the September read. Energy prices are going to be down month
over month in September. Also I think we'll see the airline fares
come down a bit more. I think lodging will come down a bit
more. We've got a big increase in tobacco
prices. No reason why we get that two months in
a row. So I just think we're overreacting to
this. Yes it wasn't good news on inflation.
It was worse than expected. But the big trend here is coming down.
I think you know financials are overreacting.
I have no problem with the 10 year treasury up near 350.
I think that's that's OK.

But I think the assumption that somehow
we're not dealing with inflation or is going to get worse I think is just
wrong. What about big tech Dave.
I mean David we're looking right now at three point one percent decline on the
Nasdaq and it's been a knee jerk whipsaw lower that has had legs.
Do you push against that. No not necessary.
I think you'd have to go stock by stock because the issue is there were a number
of things that were overvalued based. If you ever assumed a normal level of
real interest rates and we are getting back to a more normal level of real
interest rates and that is negative for far of large cap growth stocks which you
know which you're standing at very high valuations.
So I do get that.

And I don't know.
I think it's really more of a return to rationality and of the pricing in
markets and that's no harm. But overall I I I'm actually positive
the equity markets. I'm glad to see so many people bearish
because I think that that sets us up to do a bit better over the next few
months. And where do you see among corporate
earnings were really before the gaming of what corporate earnings are doing.
Let's get out front with you. How are corporations adapting to
America's inflation. Well it is it is difficult.
And the last year we had a spectacular year for earnings.
This year it would be lucky if we get a get out with a net or end the year with
a positive an operating earnings year over year.
I think it could be negative next year.

I think we're going to see an inflation
or an earnings squeeze. I mean.
I mean the reality is you've got this growth in wages that is real.
Companies can either positive or not. I think they can find it's hard to pass
it on. And I think that's going to squeeze
margins next year. So I do think that whether we have a
recession or not we could end up with negative earnings growth next year.
David like everyone out there on my cell phone I have a real estate dump of
whatever geography I'm looking at. Doesn't everybody go out today and mark
down the price of their house for sale. Yes and it takes a long long time for
that market to clear but the reality is the average mortgage payment on a new
home has gone up by 60 percent in the last year.
And that really that one I do really blame the Federal Reserve for.
They kept rates so low for so long that it caused a.
Gem prices and now we can't deal with.

I don't think there's enough people to
buy homes when you push them the average mortgage rate or my average mortgage
payment up by 60 percent in a year. John I think this is just absolutely
profound. I can't say enough about sector to
sector in inflation the different elasticities are out there on
homeownership and Howard downs over the rent multi-family nationwide.
Every region is different. Guess what.
This report is a game changer. Core inflation came in after than
expected. And shouters are one of the stickiest
parts of the report when it comes to inflation.
And David I appreciate what you're saying that things might be getting
better perhaps not worse. But when you think about what the Fed
will do not what they should do. David can you talk to me about what you
expect they will do.

They've laid out their reaction
function. They'll top.
They've told us how they respond to incoming information.
Tell us what you think that means for what they will do.
Well I think what they'll do is they'll go 75 basis points next week.
But I do think that in the press conference and perhaps in the statement
they will acknowledge the fact that inflation has cooled somewhat.
But but they'll say you know two data points are not good enough to two to
cause a trend.

So they'll have some caution there but
they'll put in enough doubt in there to give them the space to only go 50 basis
points in November. So I think I think they want to set to
set it up that way. They want to.
They want to put in a hawkish move but give themselves the opportunity then to
put in a more dovish language without being labeled as being soft on
inflation. But you know again I was focused at this
shelter thing.

Yeah it's a long lagging problem a
problem in inflation. But if you think about it how does
higher interest rates help deal with the shelter inflation problem.
I mean if it stops people from building houses how are you gonna bring down
rents. So it's probably you know the very the
one thing that that they're most worried about or the building is keeping
inflation high is the thing that that they can fix the least by pushing up
interest rates go democratic. If J.P.
Morgan Asset Management is going to be sticking with us perhaps that's a
question least if at a news conference next week.
At the end of the day they've told us the data their response to this is it is
hotter than expected until they turn around and say yes but this is the party
the inflation report and we can't really do much about it.
And we're not going to do anything.

That's not where we're at.
That's not what they're saying. And that's the reason why people are
Shery Ahn a price in a higher likelihood of a 75 basis point rate hike in
November behind the September September meeting.
And this really speaks to what the Fed is probably going to signal which is
everything's still on the table. It's not coming.
Know it was 20 minutes of Bloomberg Financial Conditions Index has shown a
more accommodative statistic. It's screaming that we need more rate
rises out into the future. The S&P right now is negative 2 percent
on the Nasdaq 100 is down 3 percentage points for about 1/2 minutes into the
session. Yields are much much higher.
We had the pushback from the Federal Reserve after the rally of June and July
from mid-June into July and on to walk east.
And then I imagine we think we're all preparing for the push back again at
next week's meeting after the rally of the previous week or so maybe in their

The market will start to hear a
tealeaves. They've been putting out their areas to
be where we're at right now because it seems like they won't have to guide the
market anywhere if today's moves. Well let's do it.
That's the whole point of setting out a very clearly clearly communicated
reaction function. It's that you shouldn't be out there
talking all the time. You just have to lay it out and say this
is it. This is how we respond to incoming
information. What did I think of the Credit Suisse

Oh that is the lie.
I think it was something like you can't they can't say that they're not going to
hike rates because the market's accommodative and then they want to
change their goal. Yes some sterling goes through 114 three
bedroom four bath Beaufort Gardens Knightsbridge a nice like 16 million
dollar baby shower. And I think you know you I CAC and
Thursday when separate floors of course good definition to work up equities down
3 percent on the Nasdaq 100. That's an expensive kind of walk up sell
on the S&P 500. We're down more than 2 percent.
The conversation continues. This is Glenn Beck. Receive hopeful signs of progress on
inflation as the price of gas.
We said when I was doing making deliveries.
Guess what. He's down a dollar and 30 cents since
the storm in the summer.

He continues to place your knees in
July. He said last spring on our top economic
priority was to bring down inflation without giving up on all the gains
American workers made last year. But there's more to do.
There's more to do. That's for sure.
That was yesterday. We'll hear from the president a little
bit later this afternoon after a hot CPI report showed that David Kelly disagrees
with JP Morgan. But most people call this a hot CPI
trend in the United States of America.

Twenty minutes into the session equity
is lower by 2 percent on the S&P on the Nasdaq.
We are lower by more than three percentage points.
AMH down in D.C. I'm afraid we hear from the president I
believe at 3 p.m. Eastern Time.
Yeah that's right. And he's going to be talking about the
quote Inflation Reduction Act. And we have a time when inflation as you
say Jonathan and most of the street believes is hot right now.
And it did come in worse than what was expected.
And what the president has been leaning into as you just heard him just
yesterday talking about the fact that they are seeing inflation starting to

He's trying to lean into some of these
better economic data points. The one bright spot in this report that
the White House is certainly going to spend so much.
What the president said yesterday is the fact that gasoline was above five
dollars a gallon in June. And right now it's hovering around three
dollars and 70 cents. This is good news for this
administration. Just last week we had the biggest draw
down selling in the SPRO since the SPDR came into fruition since we had one in
its history. So this is the work they've been doing.
But at the same time how much is he really going to have to sell this point
when you have core inflation higher when you have food higher when you have rent
higher and the timing couldn't be worse because obviously we're less than two
months away from the midterm elections.

Well and we have seen 90 consecutive
days of decline in gasoline prices which really is the heart of what you're
talking about Anne-Marie. But how much further can they really go.
Because we were talking earlier with Raghida Meyer of KPMG and she was saying
you know talking to how low the inventories have gotten and that they've
got to start rebuilding which will probably create the opposite effect.
Yeah I was listening to that interview. And what her concerns are is what I'm
hearing from a lot of people in the industry which is also you need to start
refilling the SPRO.

So that could also be good for U.S.
oil companies. But I think a big question about that is
at what price is the U.S. going to be willing to start buying oil.
Right. They would want to obviously try to fill
it up at a much cheaper price. And the other big question of course is
that this SPDR release they have and it's been a slow drip in terms of how
they do the draw downs but it ends in October.
So there's a big question of do they slow it down into the winter or is there
going to be a potential another tap of it.
Annmarie Horden thank you so much from the White House lawn this morning on
Bloomberg Radio on Bloomberg Television. We continue with David Kelly of J.P.
Morgan. David I want to go to my chart of the
year which is a comparison of Japan Europe U.S.
animal spirit the nominal GDP.

If we get a slower disinflation if we
get an elevated disinflation. How does that change the difference
between real GDP and that inflation component.
What does that mean for the businesses of America.
Well I think both are going to come down.
We're going to get a revision actually to the last five years of GDP data.
We're going to get that at the end of this month.
And it could take away one of the negative quarters we got earlier on this
year. I think growth might have been a little
stronger at the start of this year but it is slowing down.
And so we're you know I think over the next year next 12 months we'll be lucky
to get 2 percent real GDP growth.

I'd say closer to 1 percent maybe add
another 3 percent for the GDP to pay. So you're talking about about 4 2 maybe
a little over 4 percent nominal GDP growth.
That's a lot less than we've been seeing in the last year as a nominal GDP growth
is slowing down. What that means is lower revenue growth
for companies and that is going to be tough for companies to deal with.

And that's why we're seeing a lot of
revenue and earnings downgrades. And we just had a note from Jonathan
Gold of our Credit Suisse come out and track those downgrades and how they've
come in at an accelerating pace. He's still bullish.
You've expressed optimism consistently. And I think that this is an interesting
what's going to be and I hate to use this word but the pivot point from
market participants to get more confidence in a rally that is not loved
in clearly is quick to reverse on a day like today.
Well I think at some stage the Federal Reserve will feel comfortable enough for
the progress we're seeing on inflation and scared enough about what's going on
with the economy that they'll signal that their next move is going to be less
dramatic than the last move.

And as soon as we go from a 75 basis
point rise to a 50 basis point rise and people will begin to figure out that
that this is you know that the Fed's going to have to turn here.
But the broad I mean longer term do you think that this economy can actually
operate with the federal funds rate above 4 percent.
Because I don't I think that longer term there just isn't enough demand in this
economy after years of very low and low interest rates.
Well you know I think that this level of the dollar this level of mortgage rates
they will tend to slow this economy down.
So I think the Federal Reserve going to have a very hard time holding the
federal funds rate above 4 percent if they decide to push it there.
And that's something else they have to think about.
They don't want to be cutting rates next year.
The market's actually pricing that in that they're going to overshoot and have
to cut.

They don't want to do that.
But if they go too high then they'll have to cut next year to stop the
economy from going into recession. David Kelly I've got one final question.
You said this was an overreaction. If it is what would you buy right now.
I would. I think I would be a little short the US
dollar right now. I think the dollar is surging too much
of this. And I think I would be buying financials
and probably tech. I mean I think that I think if rates
long rates come down a little bit because people figured the Fed is
eventually going to crack here then I'd want to get ahead of that trade.
Democratic thank you. If JP Morgan Asset Management just laid
in the other white home we'd like that different view.
It was do with an equity market down 3 percent NASDAQ and down 2 percent on the
S&P Mark Gurman.

That was a trot down a small street in
Boston from 40 years ago. David Kelley at Putnam years ago.
Down the road was the legend Phil Caray of Pioneer Funds and David channeled Mr.
Kerry. And trust me John it was Mr.
Caray where he talked about declining revenue growth given this cycle.
That's what I'm watching for in the earnings season in the next year.
The world changes when you move away from the bright lights of inflation to
borrow from Phil. Correct.
An equity market is softer and less. So we've got to talk about a bond market
that's softer too. You know it's a much much higher.
2S and 30. This is quite a move off the back of
this inflation report on a two year.

Now you can say the equity market
perhaps not in over Korea. Overreaction because we were up 5
percent over the last four days. So maybe we've taken some of the heat
out of that move. But see yields up 17 basis points on a
two year 373. Ninety two on a two year yield in
America the highest level going back to November of 2007.
What's coming clear is that the debate is about whether this economy can
withstand 4 percent interest rates for long enough.
That might be one the bag yet might be one of the big dividers between bulls
and bears because people might be able to say the Fed can hold them there for
longer than perhaps you think.

And that is a bearish case.
The bullish case is no they can't. They'll have to reverse course very
quick. I think you frame that debate perfectly.
Not just today but over the last several months.
Lisa we just say thank you to the same again.
Thanks again to this beautiful set with this absolutely beautiful backdrop here
in London. We'll be here through the rest of and we
will be here tomorrow as well.

To see if this equity market all is
supposed to be tough on the S&P with RTS percent on the Nasdaq 100 with negative
three full percentage points. Life from a beautiful London for our
audience worldwide. This is Bloomberg..

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