Transcripts For BLOOMBERG Bloomberg 20240703

Lisa abramowicz and Annmarie Hordern i am Jonathan Ferro. Your equity market positive. 4 . We will proceed carefully just like this Federal Reserve ahead of cpi. Lisa proceed carefully although i do dont know i do not know where the bias is in markets. Yesterday everybody seemed to disregard ppi and we got a rally in bonds regardless. How is this leveraged because people want to have a bond rally . Jonathan what a turnaround over the last two sessions. We have dropped back in two sessions. To see the 10 year lisa kathy jones put it well. There is something technical going on. I keep going back to what it means for broader markets and an understanding of what this market is. It is the deepest most liquid market in the world and it is whip sawing around by 20 basis points, 30 basis points more in a couple trading sessions. Jonathan we are fortunate to have Annmarie Hordern with us to work on the latest on israel. Antony blinken landing in tel aviv today and the Israeli Defense minister warning of a difficult war. Annmarie they are talking about a prolonged war. Right now we are seeing prolonged strikes, airstrikes over gaza that has killed over 1000 palestinians, but you have this on the border. 300,000 conscripts have been brought up by the Israeli Government. It looks like they are about to go in for a Ground Invasion. Jonathan the u. S. Cautioning citizens against traveling to israel. The families of british diplomats are being told to leave. Powerful address from the president. Annmarie he was not even supposed to be at the meeting but he decided he wanted to make another speech. He called it a campaign of cruelty. The president also denounced anyone offering justification. He is getting high remarks from leaders of the jewish community, even republicans for the speeches he has been giving. Lisa the problem with this situation is it is a tragic thing, lets just say that. There is also an incredible amount of misinformation and conflicting signals. We heard about saudi arabia and iran having one of their first calls since they normalize relations. We know qatar is involved in this. How does this end . How long will this be . How may people are going to die . These are some of the tragic things we are grappling with. Jonathan we are trying to get clarity on some of the numbers. The state Department Said the death toll among u. S. Citizens has risen to 22. The broader price action and have cpi, we are further by. 4 . There is lived in the equity market. In the bond market want a run of gains. Yields lower. 10year back to 4. 57. Yields up by a single basis point. Lisa it is cpi thursday. 8 30 we get the cpi print. The expectation is for the status quo, although what we are watching for is goods reinflation and this will be key. If you strip out energy and food do start to see things to cup in a way that makes people nervous about where we are in this fight . Treasury department selling 30 year bonds. This might be the most interesting part of the day. Plunging the most since the march disruption we saw with Silicon Valley bank. If you wanted more input, we have fed speakers including atlanta fed president raphael bostic, Susan Collins at 4 00 p. M. They say the same thing. We dont know comment on the margins if the bond market does our work for us, we will let it. What you make of the fact that yesterday we get the Meeting Minutes and some are the rally in bonds and it is the same thing everyone is saying. Jonathan is a strong nod towards what was already happened. Does it stack up with what we heard from chairman powell . Lisa that is the massaging. Jonathan do you think there was some massaging . Lisa i can either confirm or deny. Jonathan Susan Collins had this to say. Likely at the peak of the tightening cycle. U. S. Secretary of state Antony Blinken giving statements to the press with Prime Minister netanyahu in the next 15 minutes. Will look out for those comments. Joining us as the lead equity analyst. Go into the cpi report, what are you in the team looking for . Sophie good morning. We are, along with everyone else looking for things to have moderated. That is the word i disliked passionately but it is one we keep hearing. That is the expectation broadly speaking. As you were just alluding to what i am particularly interested in is what the core read is doing because i think a lot of people get a bit carried away with that overall figure. That will not tell you the whole story. Particularly for me that one thing, if i had to focus on one thing it would be shelter costs. That is a word you used earlier, whip sawing, that has been quite a ride and it is such an intrinsic an important number to look at when we are trying to map consumer demand and consumer mood. For me shelter costs are already a big one. Jonathan lets talk about consumer mood. Lvmh, canary in the coal mine, really . Sophie i know. It is quite a difficult one. Lvmh q3 sales overall, you are looking at 9 uplift. By most standards people would say that is good going. When you look at the level of the slow down from 17 in q1 and q2, h1 overall was a 70 uplift, there a 17 percent uplift. There has been a slow down in luxury. We know luxury customers are some of the most resilient so if they are starting to think twice before picking up that ball of hennessy, what does that mean for less resilient consumers . That is a flashing indicator on the dashboard. Lisa a lot of people might agree with this and say there is slow in Consumer Spending but then they say we are still bullish because that is a perfect slow down and enough to keep things tamped down and has already been priced in. Where is the distinction for you of what has been priced in and has not been priced in . Where is the bias in equity markets into the cpi print . Sophie i think some corners of luxury to have further to fall. We saw a reaction for lvmh. I think there is too much excitement. Not all luxury names are created equal. They do not have the same prowess and strength going into this. Also travel, i have been quite bullish on travel. The way we have categorized travel spend and we know in the u. S. People are prioritizing experienced spending. That plays into travel stocks. Some of the bounces we have seen over the last six to 12 months is indicative of this idea we think everything is Mission Complete and will be smooth sailing. I think as we look into q1 next year we could see more of a dramatic pullback on load factors and margins and some of those big travel stocks. That is something i will be watching. Lisa a number of sleeper stories have gotten off the radar, including the ongoing auto workers strike which we have seen percolate to some of the most profitable ford vehicle manufacturing outlets. We are also talking about some sort of ceasefire in the strike bad words when it comes to what is going on in hollywood. That it is not over at all. From your perspective, how well is this priced in . How much of people understood some of these fights are entrenched and will lead to lower profitability in entertainment and auto manufacturing . Sophie unfortunately for me they are not fully priced in. We know on the auto side of things there are quite a few structural challenges to the sector. People are aware margins tend to be lumpy. There is not that much wiggle room anyway. There is little bit more leeway in a roundabout way. When you start trying to translate this into media and the arts i think there is a notion that it will get sorted, it will not matter. We will hear from netflix and this matters for stocks like netflix. They are nothing without their contents late. Consumers, as there feeling their income get eroded away and spending power diminish we are pickier about where we are throwing those dollars. For the streaming side of things i think there is room for upset. If the contents late is not perfect we are switching who we use. We have gone on quite a wild ride since the pandemic. That is something i would say is to be monitoring. Jonathan are all complaining about our bills. Sophie, thank you. Something we do every week, the price of hulu, netflix. Annmarie how do you feel up lisa how do you feel about that . Jonathan you want me to go on that rant as well . Tom is not here. We have Annmarie Hordern with us all morning. We need to talk about cpi and why this president , even though this economy on the surface looks ok, inflation is moving in the right direction, why that is not translating to any success in the polls . Annmarie it is not. It is a huge headache for this inflation for this administration. Inflation dogs them in the polls. The president continues to get poor remarks in the economy. 84 in this usa today Suffolk County poll talked about the fact that it is higher grocery prices, Higher Energy prices. 84 of these people are saying it is Consumer Prices going up. That is why they are not feeling this economy is doing better, even though the president comes out every jobs day and says look at this jobs market. It is not landing. Lisa there is this bizarre not understanding amongst the economics profession. They say inflation is going down. Still bills are going up. It is disinflation from a year earlier. Things are not stabilizing in a massive way. The recent memory of seeing the bill at a restaurant doubled, going to the Grocery Store likewise, seeing your Auto Insurance bill go through the roof. All of these things, it is jarring for people whose salaries of not kept pace. Jonathan the new york fed puts out a survey of consumer expectation. A large percentage of consumers, 12. 5 , versus 11 in the previous month, expect to not bateman among debt payments. Imagine being in that position. 12. 5 of the country worried about not being able to make minimum payments in the next three years. Annmarie and this is the republican talking point. Even though the rate of inflation is slowing, what republicans will tell you is a family is paying 700 more on their needs than they were prior. Jonathan is a massive problem. Amh will be with us all morning. Coming up at 7 30 we will catch up with Subadra Rajappa as we continue to beat the drum going into the cpi report. Inflation data in america a couple of hours away. Quite a move in the bond market so far. Tuesday and wednesday a rally on the 10 year yield. Here we are on thursday with the yield on the 10 year at 4. 56 . Live from new york city, good morning. Pres. Biden we are working on every aspect of the hostage crisis in israel. We are searching additional military assistant including ammunition come interceptors to replenish the iron dome, and we have move the u. S. Carrier fleet to the Eastern Mediterranean and made it clear the iranians, be careful. Jonathan be careful, the words of the president of the United States delivering remarks to jewish leaders. More remarks expected in the next five minutes. Antony blinken given statements to the press with Prime Minister netanyahu in tel aviv. Interesting reports on the Biden Administration. Officials leaving open the possibility of refreezing 6 billion in iranian oil money. This is become contentious. Annmarie they are getting not just republicans calling on them to do this but also vulnerable democrats up for reelection like Sherrod Brown from ohio. He is the chair of the Senate Banking committee and he says anyone who supports terrorism, we know hamas is backed by iran, should have consequences. You cannot unfreeze this money. It is sitting in qatar banks. Maybe they can make sure iran does not have access to it. Jonathan they keep saying a single dollar has not left that account. Joining us is the Senior Advisor at the transnational threats project. Wonderful to catch up with you again. As we understand it there has been a call between Mohammed Bin Salman of saudi arabia and iranian leaders. What you make of that call . Norman the call is rare and a first between the crown prince and the president. It is consistent with a couple of themes. Saudi arabia which seeks regional stability to ensure its economic progress has inside wideopen about iran. I spoke with many saly were leaders on this issue. I spoke with many saudi leaders. The International Community is working to keep this conflict from expanding and keep its other proxies from engaging in this war as well. Lisa given the read out and talk about how they want to unite for the palestinian aims and avenge some of the zionist policies, this is the language used by saudi arabia, im wondering how much there is this push pull of the middle east and the more moderate nations including qatar and egypt coalescing around that message even as they seek deescalation . Norman that has already happened and saudi arabia has been consistent in its public support for the palestinians and its private frustration with incompetence of the Palestinian Authoritys and its recognition that hamas is a terrorist organization aligned with iran. But the palestinians have legitimate claims to saudi arabia that must be reported. For saudi arabia not to adopt this position it would put itself at risk for iran or turkey stealing the moral high ground on an issue that is close to the hearts of many in the middle east. Lisa there is also talk of hosting irans foreign minister about to make a tour. Is that him also calling for deescalation . Norman no. He is close to the revolutionary guards. His position will be to encourage stronger support for the palestinians and pressure israel and the United States. It is likely he will be received by all of the regional actors. He is not a major Decision Maker but it will be part of the deescalation. Annmarie what about the political leader of hamas who is allegedly having political housing in qatar . Overnight there were a number of individuals and former administrations coming out and saying qatar should be expelling this individual. Will doha receive more International Pressure . Norman almost certainly. This is a complicated issue. Qatar is a valued partner of the United States. It hosts the air base which is our central focus in the persian gulf and the middle east. It has supported the administration robustly on iran and afghanistan. Qatar claims it does not support hamas but supports gaza and uses its relationship to pass messages and deescalate. Hamas has been present in qatar since 2006. It is without a doubt that other political leaders were in qatar and likely played some role in the planning, approval, and celebration of this most heinous act. If this were 9 11 and a country were hosting osama bin laden, how should the world respond to that and would we accept the statement they are just using that relationship to play mediator . This is complicated for the administration. Lisa there two questions that need to be asked. Do some of these calls and negotiations move us closer to deescalation . On the flip side, how much does it signal a percolating of the conflict embroiling more of the region . What are the chances based on the conversations you just talked about of deescalation based on the recent phone calls and discussions . Norman i would switch this around. Escalation will be a product of the drivers of the proxy groups in the area. Lebanese hezbollah has taken a lot of hits in syria. A war with israel would not bring it much and damage its domestic position within lebanon. There will be a calculation by all the proxies that there is a sweet spot. How much can they support hamas without being drawn into a conflict the damages there equities and by showing loyalty to iran in pressure since iran provides them with the training and Political Support to maintain their positions. This is a very complicated dance and therell will be a lot of different players to prevent escalators to prevent escalation and prevent the destruction of other proxies. Annmarie talking about a complicated dance, there is a headline that israel says 97 people have been confirmed as taken hostage into gaza. We talk about this precarious role qatar plays. You think cutter can make any headways do you think qatar can try to make any headway into getting hamas to give back the hostages . Norman it will try. When you look at the 97 hostages, you want to break that down by nationality. You can see china going to iran asking for assistance. You can see a variety of countries trying to use egypt, turkey, and cutter to get and qatar to get hostages out. When we had american hostages in the hand of an iranian proxy, that led to irancontra. We are in the early days of a complicated economic and world catastrophe and we should be humble at thinking about that where this might end up. The hostages issue will be the most complicated for the administration. Jonathan what you make of the conversations about a full Ground Invasion anytime soon . Norman the israelis will not rush into this. The issue with gaza is this is a small area. 25 by eight miles in size. 2. 8 Million People. In this relatively small geography there are hundreds of miles of tunnels. No military has undertaken military operations in areas such as this in modern times and when they have undertaken operations, they usually respond by using thermo barrack weapons and destroying this geography. The United States and britain came close in iraq and syria with areas that were one third the size and buildings much lower to the ground. The civilian and military casualty likelihood for this war will be extreme on all sides. Hamas is prepared for this. Israel will not rush into this event but they are likely to do so after a significant air campaign which is already ongoing. Jonathan an absolute tragedy. Thank you for your insight. Former senior u. S. Intelligence official. 97 people confirmed as taken hostage into gaza so far. Till trying to get clarity. Annmarie absolutely. And to normans about how difficult gaza is for a Ground Invasion. You have 2 Million People. Unicef says half of those people are children. Jonathan expecting to hear from Antony Blinken giving statements to the press this hour. Two hours away from cpi in america. Going into a big bond market rally. Equities on the s p 500, four day winning streak, potentially five. Up. 4 . Is it possible to fall in love with your home. Before you even step inside . Discover the Magnolia Home james hardie collection. Available now in siding colors, styles and textures. Curated by joanna gaines. Nice footwork. Sman, youre lucky,. Watching live sports never used to be this easy. Now you can stream all your games like its nothing. Yes [ cheers ] yeah woho running up and down that field looks tough. Its a pitch. Get way more into what youre into when you stream on the xfinity 10g network. Loving this pay bump in our allowance. Wonder where mom and dad got the extra money . Maybe they won the lottery . Maybe they inherited a fortune . Maybe buried treasure . Maybe it fell off a truck . Maybe they switched to Xfinity Mobile on the most reliable 5g network. For a limited time, buy one line of unlimited, get one free for a year. Now i can buy that electric scooter im starting a Privateequity Fund that specializes in midcap. You do you. Switch to Xfinity Mobile today. Jonathan four day winning streak on the s p 500 could become five. The trading session arguably in the hands of the cpi report. S p positive. 4 . Nasdaq up. 4. Four day winning streak. You have to go back to midjune for a run longer than that. Lisa very few people are saying this is because of fundamental strength in the underlying economy. This is because if you get a blowup from the top of treasury yields lets go all in. Earnings estimates are going up. Jonathan a big move in the treasury market. A big unwind of what weve seen recently. Yields unchanged but just under 5 on the twoyear. We have to think about 5 on the 10 year. We went through 5 on the 30 year a few times last week. All the way back down to 4. 7068. Fed speak said the bond market will do the work for them, it has stopped doing the work for them. Lisa that it went haywire. At what point does volatility beget some sort of risk premium . If we have this sort of volatility that will be a problem for corporate Financial Officers trying to figure out when to get financing. Jonathan lets take it from the bond market to the fx market. The euro against the dollar 1. 0 621. The currency pair totally unchanged. Treading water into the cpi print. We need to talk about china. China is stepping in. We have a state backed fund of 65 million. It is not the size, it is the signal you send. Lisa especially because they just said they were open to more stimulus. Did you see that Hedge Fund Manager calling for chinese officials to step in, saying please, we need you to get in. This is been one of the linchpins of the chinese market, the reliance Market Participants had that they would be bailed out. At a certain point, if they even gave a signal they will act in that way how much does that edify stocks . Jonathan it sounds like my kind of market. Underwater. Not doing well. Lisa is that your plan . Jonathan that gets you in trouble in american. Antony blinken lanigan tel aviv as the death toll from the war rises. Blanket will meet with Prime Minister netanyahu before moving with other in the region. Tens of thousands of troops assemble and abase near the border of gaza. Amh, this goes back to what we talked about. The potential for full Ground Invasion at a time we do not have clarity on the number of pasta just in from which country they are from. Annmarie this is where you can see a lot of International Pressure come down on hamas or cutter who is trying to or qatar who is trying to lead the hostage negotiations depending on what country these hostages are. The president did say americans were taken hostage. Lisa this is such an important moment for 70 people and uniting passage and uniting passengers uniting passions on so many sides. Now you can see the casualties among civilians and you think about the escalation and that anymore people dying and it is horrific for anyone u. S. Humanity. Jonathan the market does not have a heart, the market has moved on quickly. The barometer of this is the oil market. You sought yesterday come as soon as we got reports that iran did not know about this crude starts pulling back. Annmarie the oil market will start to spike if iran becomes closer to this hostility and anything happens to the straight of her mood, that is when the oil market will start to pay attention. At the moment they are shrugging it off. Jonathan inflation data just around the corner. Fed president Susan Collins speaking recently saying the central bank can take more time to evaluate data because they are likely close to or possibly at the peak of the tightening cycle. The median estimate in our survey at 0. 3 , down from the previous read of 0. 6 . Lisa what we saw from the minutes was this more two cited risk, which we are hearing more and more about, the risk of over tightening versus not tightening enough. If you start to see goods were if you start to see goods reinflation, does that change the conversation . People think we have killed that beast. If youve not killed that beast what are you doing . Jonathan the conversation a few moments away. Apollo ceo calling on the bursary of president obama vania on the university of pennsylvania resident to resign wellknown antisemites and faux mentors of hate and racism. The university of pennsylvania did not comment on that letter. Lisa there has been so much pressure on prominent universities to come out with stronger statements than this blanket we are watching the tragedies unfold and we are concerned and our hearts go out to everybody. That has been the party line from a lot of these universities. There has been pressure, including bill ackman on harvard. The question is there a broader discussion around taking a stand and true free thought at some of the universities that have taken lines and tried to be very cautious catering to a lot of different constituencies . Annmarie there were these 30 student groups at harvard that wrote a letter that said these atrocities did not happen in a vacuum and laid blame on israel and larry summers, former president of harvard, said he was second that the Harvard University a president did not announce this the way they did prudence invasion of ukraine, the way they did George Floyds death. The president spoke to this yesterday and he said it is unconscionable for people to make excuses for these atrocities. Jonathan will try to make up will try to catch up with mark rowen of apollo later this week. Next off on this conversation is inflation data. Joining us is the u. S. To economist at barclays. What are you in the team looking for . Thanks for having me. On headline we are broadly in line with consensus. We think the monthly pace of inflation is likely to step down to. 3 from the solid. 6 we saw in august and what that means for the annual rate of inflation is it will take about a 3. 6 yearoveryear. The meat lies in what the core inflation number will show us. We think it will be around 2. 3 , bringing the annual rate of touch lower to 4. 1 yearoveryear. Really compared to what we saw in august, slate easing in price pressures but it is easing on the margin. Jonathan is this a sustainable trend . Im thinking about jim bianco who says the disinflation is transitory. What would you say back to that . There are parts that are likely sustained. I think the encouraging trend we have seen is the step down and rent and oer inflation to give you context, these categories account for about one third of overall cpi and 40 of core cpi. The fact that we have seen momentum in rent and oer inflation starting to step down as a very encouraging sign and we think this is something that can be sustained. We have already seen data on private indicators of rents normalized to those levels and we think the data is playing catchup to that. Lisa as inflation does come down then real wages start to pick up, especially of some of these labor negotiations are ongoing and able to win over concessions. If that is the case, what is the risk of reacceleration if consumers have more disposable income based on their earnings to go out and spend . Absolutely. That is the risk we have been highlighting. If we need inflation to come down what we need alongside that is in easing and labor market conditions. It is the tight labor markets that are propped up nominal wages and created an environment where we have seen a lot more Bargaining Power with workers. What we need is in easing in labor market positions. There are risks to the upside, very much. Lisa are you basically saying right now cpi might have less significance than labor market data especially if there is no surprise and what we get 8 30 . Lets not put it that way. I think the fed will be extremely interested to see what the inflation data will show us. The fact they have been emphasizing the totality of data is they will look at this data in conjunction with what they are seeing in the real economy, in the labor markets, and if they feel a lot of the slowing we are getting in inflation is not looking sustainable or it is materializing in categories which will be volatile jonathan new call from citigroup. They were looking for a hike in november. Base case now no further hikes. Andrew horst Andrew Hollenhorst at citi do you share that view . No. We still have a call for a. 25 basis point hike by the end of the year. Baseline is november but that could be pushed out. What has happened is we have seen longerterm rates move higher, we have seen a tightening in Financial Market conditions since the last fomc meeting. We also heard from a lot of fomc participants who acknowledged this tightening and acknowledges the review that the Federal Reserve will wait and watch. Having said that, we at barclays think it is a very fluid situation. We get points between now and the meeting in the early part of november. Will also be watching what happens to Financial Market conditions. Baseline is november but their chances they could wait that one out. Lisa when you say watching financial conditions have bond yields gone down enough to take the extra tightening off the table for the fed . How much do they have to fall from around the 5 level for the fed to have to do the work and not let the bond market do it . Theyve come back about halfway down to where they were a couple weeks ago. That is something they will be looking at. I do not think they have a number. I think the idea is to see whether this kind of a move upwards is sustainable. Should Financial Market conditions tightening in terms of yield staying higher or moving higher further, that is one of the key transmission channels for Monetary Policy and the Federal Reserve is likely to take that as a win if the bond market can do some of the work for them. Jonathan looking for one more hike from the Federal Reserve. A change from into hollen horst who has been pushing this idea a change from Andrew Hollenhorst whose has been pushing this idea. Base case now is no change. Change from Delta Airlines. A new range for alex for profits. The new range is six dollars to 6. 25. Previously they have seen six dollars to seven dollars. They have tightened the range to the low end. Guess where the blame is . Lisa fuel. We are seeing fuel prices. Expectations have already been lowered that much more based on some of the rhetoric because of some of the costs going up and the feeling that some of these airlines cannot pass along the price increases to consumers. Maybe they can more than they previously thought. Jonathan im not buying the fs story. We are told they are down. Lisa my take is if we are told it is down 10 you get 10 less legroom, breathing space, food. Jonathan hospitality, service. Lisa they are a bit less nice to you. I will not disclose what i am talking about. Jonathan Third Quarter numbers were betterthanexpected. This from the iea this morning. Amh, the pullback reflects demand destruction. Annmarie do you realize overnight we had a show of force . Prince bin salman sat down with alexander no mac with Alexander Novak for an interview. The last time they did that was with me. Jonathan adam wald of the Atlantic Council is up next. Explore endless design possibilities. To find your personal style. Endless hardie® siding colors. Textures and styles. Its possible. With james hardie™. I would say the baseline scenario is one in which israel occupies gaza. It will get ugly but the conflict remains contained to there and therefore the markets sing the baseline. That is why oil prices have not done much. The market seems to be discounting a massive conflict for now. Jonathan seems to be what is happening over the last couple days. It was speaking to Francine Lacqua at the meetings in marrakech, morocco. Tom keene on the ground in morocco. If youre just joining us, welcome. Looking out for cpi later. Yields going absently nowhere on the 10 year. 4. 5563. Just like he said, this is what crude is taking the temperature of. The prospect that we get a more broader conflict in the middle east. Lisa is not just crude but that is the linchpin everyone keeps looking at. It is also natural gas given qatar role in the fact that russia is offline right now to a lot of the region. You are seeing the response in that market. Jonathan 86. 75 on brent. Saudi arabia is crown prince discussing the war between israel and hamas with i romney leaders. Adam wald with iranian leaders. Ellen wald joins us. How rare is that . Ellen this is pretty rare. It reflects the fact that pretty quietly this past june saudi arabia basically allowed the iranians to open their embassy in react in rihad. It signaled they are willing to slowly pull back from iran is the worst enemy of the people to now we have embassy and we are having phone calls. One of the interesting things i saw in that statement was the one calling for a palestinian state. That is something Mohammed Bin Salman seemed to have been willing to give up on in exchange for a defense pact and help with obtaining Nuclear Power from the United States. The question is is that deal completely dead now . Lisa was this call and the readout a deescalation move or eight of fact on escalation in terms of a hardening of lines . Ellen i see a little more on deescalation because any kind of conversation between leaders like that that did not contain any call for the destruction of all of israel is probably more deescalation than escalation. Lisa how closely are you watching the national gas complex in light of what we are seeing in light of some of the supplies being cut off in israel with the prospect of qatar being involved as well . Ellen that is a huge issue. Not only was one of israels gas fields supplying regional players in the middle east, but some of that gas was being liquefied and exported to europe. It is not just the middle east we are talking about. I think also when you combine that with the shutdown of the baltic pipeline, that has caused european Natural Gas Prices two. At the same time a lot of these countries say our gas stores are ready for the winter and we have also seen a massive increase in lng shipments from the u. S. To europe that has helped alleviate the lack of russian natural gas. Yes there is cause for concern, but there are definitely other options out there. Annmarie when it comes to iranian exports, they have been exporting more, especially to china. Do you think they are actually going to double down on iranian exports because it seems like they are turning a blind eye at the moment . Ellen that is the big question. How can they double down on this . Any kind of doubling down or tightening of sanctions is basically saying we are not going to do anything unless the United States is prepared to actually stop iranian tankers in the persian gulf or out of the persian gulf and commandeer their oil or they are willing to stop other tankers that they suspect are carrying iranian oil , there is not much teeth to this because sanctions enforcement and sup on the buyer. It can take months and months to prosecute. It is not any kind of disincentive to iran. When china is the main buyer, and china is the main buyer of iranian oil by far right now, they are not going to take u. S. Sanctions that seriously unless the u. S. Really goes after china in a hard way. I do not see that happening. Annmarie so is this an enforcement issue or the need for fresh sanctions . Ellen what more sanctions will they put that will do anything . The enforcement issue is the issue. No one should be buying iranian oil and 1. 5 Million Barrels a day is going to customers, most of it china. Unless they are willing to enforce it physically, i am not saying a blockade but to stop the ships and take the oil, there is not much teeth to this. Lisa you have been studying the middle east for a long time and youve been tracking all of the conflicts over the years. Given what we have seen this particular conflagration, the tragedy on the ground in israel, what is your optimism we will get deescalation and we will get some resolution in the near future . Ellen i am not very optimistic. This is really bad. For israel it was an incredible shock to the system. They are not going to stop. It would take a massive event to get israel to stop or reach some kind of deal to deescalate. This is not going to end. There is going to be a lot more loss of life and destruction before this is over. Annmarie secretary blinken is in tel aviv and will go to jordan as well. What comes to mind is this normalization between israel and saudi arabia. Are those conversations stopped . Ellen i think they are stopped as of now. Saudi arabia discussions with iran have demonstrated that that has pulled down. There is a lot of speculation this attack was in response to saudi arabia saying we are giving up on this palestinian two state deal. We want this defense pact and we are willing to recognize israel in exchange. Im not sure that was that likely to begin with given the fact that while Mohammed Bin Salman is running the show the king is the ultimate arbiter and he is vehemently antiisrael. I did not think we would see a saudi arabia and recognition of israel while he was still alive and technically the king of saudi arabia. He would have to abdicate or die for that to happen. Im not sure that was totally in the cards that i cannot see it happening now without starting a larger regional conflict. Jonathan thank you for your input this morning. Ellen wald of the Atlantic Council on the tension in the middle east. The high of the year for brent crude was 97. 69 at the end of september. Right now 86. 63. I go back to the iea monthly market report. This quote supply fears gave way to deteriorating Macro Economic indicators incited to destruction in the United States, going on to say demand destruction has hit emerging markets higher as currency affects have amplified the rise in fuel prices. That story about foreignexchange and the commodity market is what we have been on over last couple of weeks. Lisa and ed morris of citigroup has been on this. Given inflationary pressures elsewhere people will not use as much gas. That is what this statement seems to be suggesting, which raises two questions. One, is this a natural limit to where the rally can go, endoscope, does this mean we are going to lec Higher Oil Prices accelerate some sort of downturn rather than be ok, be accepted in a more inflationary world. Jonathan if crude is lower because of demand destruction, is that good or bad news for the president of the United States . Annmarie it is complicated. They obviously want prices lower , but how does that reflect on how the economy is doing . Lisa they are between a rock and a hard place right now. You had the geopolitical tensions they will say as little as possible. Jonathan joining us shortly is Michael Shall of market field Asset Management. Inflation data about 94 minutes away. Equities higher. Your 10 year yield unchanged. 10year gilts right now 4. 56. From new york, this is bloomberg. The power goes out and we still have wifi to do our homework. And thats a good thing . Great in my book who are you . No power . No problem. Introducing stormready wifi. Now you can stay reliably connected through Power Outages with unlimited cellular data and up to 4 hours of battery backup to keep you online. Only from xfinity. Home of the xfinity 10g network. The risk to our view is inflationary pressures return and that can be a function of geopolitics. When things move this quickly over short. Of time, there are unrealized short periods of time, there unrealized losses and stress. Still more weakness on the consumer. Talking about uncertainty, the drives of the term premium. We are not going back to what we call the new normal. This is bloomberg surveillance with tom keene, Jonathan Ferro, and lisa abramowicz. Inflation data 19 minutes away, live from new york city, good morning. For our audience worldwide, this is bloomberg surveillance on tv and radio alongside lisa abramowicz, im Jonathan Ferro. Together this morning with bloombergs Annmarie Hordern. Your equity market on the s p positive by. 3 . S p 500 we have been higher for four consecutive sessions. Lisa we have been talking about how much that is driven by suddenly and the bond market we get a rally. It is notable during these periods of time, bonds and stocks traded in tandem completely. Again and again, even though people said it would be revenge of the 60 40 would not so much unless theyre both going up and that has been the story. Jonathan the fed said thats good for now. For now. Lisa essentially the bond market has given up some of its increase in yields or loss in valuation it experienced last week which called for some of the fed officials to come out and say bonds, you are doing the work for us but what if they are not doing the work anymore . Does that change the calculation . At the end of the day, does it matter . Does one rate hike matter that much from Market Perception at a time we deal with pieces. Jonathan it seems to have contributed to a monster bond market move, move of more than 20 basis points lower on a 10 year yield. We said a few times over the last couple days, too far twopart ed speak in one part risk aversion. The latest on israel hamas war, potentially weeks and months to come, annemarie, Antony Blinken alongside the Prime Minister of israel, what you looking for today . Within 24 hours we had a huge change of Israeli Government this entire political system different. This is no longer right wing government. It is remarkable to see then yahoo and dance forming a government together. These individuals do not like each other so you see israel rally behind the flag and Benjamin Netanyahu coming out with Antony Blinken. This is another moment like biden did yesterday and the day before that shoulder to shoulder. That will be the market, we stand with tel aviv shoulder to shoulder. Lisa this comes at a time where people wonder how far it will go, what other nations will get embroiled and where is tony blinken on that. It has been unmitigated support let alone the side of whether the house can pass true Financial Support for this average. At this point, as a it percolates, how far does ago with Lindsey Graham having fiery words. Is that the view of the common place a time where people are hoping this doesnt escalate into a massive conflagration. Jonathan its almost impossible to process the human tragedy over the weekend and that we are expecting to take place in the weeks and months to come. I was able to catch up with policy, i have no idea whats going on. You wake up to news stories like this one that we just had a phone call between mohammad bin salman of saudi arabia and leaders out of iran. Its remarkable. You would normally not see these two get on a phone call together and following this you will have the Iranian Foreign minister make a golf tour. He will be visiting a lot of these arab nations, visiting lebanon, but another said that will be to try to stand support for the palestinian. Comments from Antony Blinken that at some point next few minutes lets turn to the price action, equity market four days of gains could become five, higher hereby 0. 4 . Deals unchanged, for once, because this move has been monster moves. Either direction. Last week we were talking about yields higher double digits, now we are talking about yields lower, double digits. Lisa which raises a question have we got a wash out of the technicals and focus on fundamentals. Are the fun of mentals the hard numbers which are comforting after Everything Else . 8 30 a. M. Time, uscp and jobless claims. We get a sense of how much we are disinflation, maybe people feel it in their paychecks or certainly the grocery bills yet but could we be coming down or are we going to see goods reinflation and this is the key for so many people. 1 00 p. M. U. S. Treasury selling 20 billion of 30 year bonds. Yesterday, 30 year yields dropped most going back to the march as phoebe issues. We are talking about incredible volatility. How much do you go 20 billion in an auction off to see if maybe there is this less pricesensitive demand and feds meet today, Rafael Bostic at 1 00 p. M. , the boston fed president at Susan Collins at 4 00 p. M. And Susan Collins it 4 00 p. M. Jonathan can you imagine of the bond supply came last week . Lisa it would be a disaster. Jonathan timing was good. A week for the issuance with the firming we seen in the bond market so far. Around the table please to say michael schill, ceo of market at the management. Good morning. When i go back to this question in the last hour i think it is worth asking you so we can have a broader conversation about it. Disinflation we have seen over the last few months, is it transitory. Transitory . I think so. Jonathan why . You have this excess demand and constricted supply and that created a lot of it took a long time but who it was transitory inflation. Now you have transitory deflation. You see demand is still there for physical goods. And youve seen ppi stocks back into positive territory and cbi will follow because. I would stress it is not going to be a wave anything like as powerful as what we saw in 212022. I think it will stop cpi getting into the twos and staying there. Jonathan is it a mistake to sound like we might be done then at the Federal Reserve . My view i said it last time i was on, it is about the long end of the curve another short end. They have boxed themselves into a corner. I dont care if it stops it 550 or 575 because of you look at the range of longterm yields, the 10 year was 350 in may and was knocking on 5 a couple weeks ago. I think that is the question. I think the fed has done what it is going to do in this monetary cycle. I think it will step away. I am of the view at some point time we are not there yet but he will see some form of yield curve control brought in to stabilize the bond market. That is not this week lisa . Lisa lisa yield curve control in the United States . Does that mean you will hold rates high or they will accelerate quantitative easing or accelerate purchases . At the end of the day, Financial Stability is this unspoken mandate on the Federal Reserve and they talk about employment inflation but when things come to ahead, Financial Stability is not the one. We saw taste of this this time last year when the guilds market briefly dislocated. Im of the view the fed does not have things under control. Certainly not in control of the fiscal policy of this country and fiscal policy of this country is reckless in the extreme. And i think, at some point in the foreseeable future, youre going to have disorder at the long end of the curve and i think that will be important enough it becomes something the Federal Reserve gets involved in. Lisa is that would equity buyers are banking on, that essentially when they say and come out and say stocks can handle bonds where they are, yields where they are, are they saying because if they get out of control the fed will step in regardless of what is going on with inflation . No. I dont think they are thinking about it. I think the people spend an awful lot of time worrying about Monetary Policy in the initial term and their is the fed feeding into this, they are constantly out talking and hinting maybe we will do this, maybe we will do that. The sort of general sense for the Federal Reserve wants to get out those and it is somehow in control of things it is not in control of. I would argue it had no effect on inflation. It is totally lucky inflation went away. It did not go away because of what the fed did, in spite of what the fed did. Jonathan supplyside rebalancing . Michael absolutely. Jonathan do you think that wont be sufficient to get inflation down anymore if we see the bulk of that . Michael i think weve seen the bulk of it. The long end of the curve may have its own form of discipline. I said before that effectively nothing that happened for the last october to this august really transmitted to the long end of the curve. That is no longer true. If transmitted 75 to 100 basis points are tightening to the long end of the curve. The question is really what happens next. Jonathan typically selloffs can become selflimiting because you start to worry about a slowdown. What i hear from you is you think the budget deficit is a Financial Stability risk and it will have to respond to. Lets run with that. Where does that leave the dollar . Michael the question is whether this is you need to the United States or whether it is something of a global malaise if it is unique to the United States the dollar get significantly weaker, if there are a host of g7 countries running similar deficits and falls down similar paths, then it is hard asset story. Lisa do you foresee a certain trigger for the fed to step in and justify additional purchases at a time where inflation is expected to be hot . Michael i dont think theres a magical yield number. I dont think 5 or 5. 25 will get the fed jumping up and down. It is more the oddly functioning of markets. You can have an odd market with the tenure at 5 , a disorderly market with the tenure at 5 . I think the quality of this, the aftermarket response post auction matters a great deal. It wasnt the yield in the u. K. Was so high this time last year but it was clearly a disorderly market, clearly massive for selling of the Institutional Community and that is when a central bank wixom quickly. Jonathan and fiscal policy risk was at the epicenter of that. I can hear people screaming at home listening to this, do i buy stocks or sell . Michael in the shortterm, theres an investable market rebound here. I think there are portions of the equity market that are doing ok. Jonathan is washington listening to this . A lot of people are but it does not mean they will react on it. Jonathan the privilege of acting recklessly seems to have been lost. Is the whole thing moodys is talking about, governance that is not going to direction it showed that is concerning them. Lisa if any of these officials are looking to the stock market for validation of their concern, we hear these incredibly do me and gloomy sentiments and investors after investors say stocks are goodbye for now. Jonathan budget deficit a Financial Stability risk this fed has to respond to and commend yield curve control and unique to america. Can you imagine the dollar weakness off the back of that . We remember to sterling what happens to the u. S. Dollar if that starts to materialize . Lisa the key is if. We have seen a global issue and what we hear from tony dwyer that basically higher rates are bad because this is an entire world leveraged to low rates and it is not just a u. S. Centric issue. Jonathan welcome to the program, the s p 500 firm or by 0. 4 . In the bond market, some calm stability. 456. That is not the calm you expect to stay i imagine. Is this the base case for you now . At some point, i dont think it will happen this year but i think at some point we are going to have a period of real instability and of some of the longterm funding people have taken for granted. I look at Something Like the municipal world, i do not see how they manage themselves through the next two to three years. Jonathan these are huge calls. Michael it is and it isnt. The world will go on. There will be ways of operating that became normal over the last 15 years i wont be possible the next 15 years. Jonathan if you are just joining us and miss some of this, we will make sure to post the full interview on bloomberg. Com and bloomberg terminal. Thank you. Thoughtprovoking stuff. Just an update on the News Conference with been waiting for the last hour or so, secretary blinken alongside the israeli Prime Minister, then News Conference beginning in tel aviv. Right now. Certainly is. He is there to bring a message to say the u. S. Has israels back. Pretty significant moment especially given israel has a complete shakeup of their government yesterday. Lisa net yahoo has not been the most popular president. A lot of people are not happy with his regime in any way shape or form. At the same time the feeling of anger is overriding that, the feeling of need to Jonathan Jonathan protect the nation. Jonathan more on the News Conference in a moment, joining us shortly, on the way forward, the prospect of escalatory moves abroad and dysfunction here at home. From new york city, good morning. J. P. Morgan Wealth Management knows its easy to get lost in investment research. Get help with j. P morgan personal advisors. Hey, david ready to get started . Work with advisors who create a plan with you, and help you find the right investments. So great getting to know you, lets take a look at your new investment plan. Ok, great this should have you moving in the right direction. Thanks jen. Get ongoing advice; and manage your investments in the chase mobile app. Ill succumb before you as a husband and father of young children. It is impossible for me to look at the photos of families killed such as the mother, father, and three small children murdered as they sheltered in their home. And not think of my own children. Jonathan absolutely brutal over the weekend. Looking at live pictures right now, hearing from u. S. Secretary of state Antony Blinken, giving statement to the press with Prime Minister Benjamin Netanyahu. A really difficult moment over in the middle east. Lisa the images and stories are tragic and anyone who is watching and hearing about everything going on has got to be deeply moved. It is hard every day to come in and say what is the price of money and yet that is our job but everyones thoughts and feelings are with what is going on over there. This is a huge so show support, having this meeting with Benjamin Netanyahu which had a proper relationship with this administration and this goes on to a what biden said yesterday, he came out and said this is a campaign of cruelty. Also he said it was unconscionable. Some of the reaction by individuals around the world to justify this massacre by hamas over the weekend. Jonathan unbelievable and tragic scenes over the weekend. Much more on the News Conference with u. S. Secretary of state Antony Blinken giving date statements to the press, that alongside a Benjamin Netanyahu. If youre just joining us, welcome, your market looks like this into cbi later this morning. One hour 13 minutes away. Equities higher by. 4 on the s p. The bond market, yields going nowhere. 456 on the u. S. Tenure at the moment. Likewise in the fx market, doing nothing at all, 106. 18. Lisa doing nothing after incredible volatility as we have been talking about and it raises this question, has this been positioning or has it been fundamental . The reaction in markets to cpi we get in about an hour 12 minutes, it will be very interesting. Jonathan joining us ahead of that is the director of Economic Policy research of theta partners. Welcome back to the program. Lets start with the escalation potentially abroad and talk about the dysfunction at home. Are we getting a speaker anytime soon . Thats a great question. Our problems seem petty compared to the atrocities on israel but i do think the outage i need d. C. That you never waste a crisis is something that is bearing out. The speakers was something when we went into this we were predicting could be days if not weeks long so i do not think anybody should be particularly overwhelmed by the ideas de scullys, the republican from louisiana, did not immediately have a kumbaya moment on the house floor. They are trying, it is my opinion, scullys will be the next speaker. It may take through the weekend the house is on the letter votes could happen at any time. There will be messy drama that is what you get when politicians become celebrities and that is where we are now but i am hoping the operation in scullyss office has been around for a decade and they will unite with jordan and some of the Mccarthy Team behind him and be the only candidate capable of getting to it. Im overjoyed it became evident quickly jim jordan did not have the votes. That has always been the case, in january and today, so the faster they move on from jordan is a good sign. We are going through the growing pains of accepting his place. Lisa he can only afford to lose he can only afford to lose four votes and the never scullys camp is over a dozen. How does he shore up those votes . Ironically the same strategy Kevin Mccarthy deployed in january, you have to horse trade. As were members are supposed to do for their home districts, twist arms, hold out your vote for as long as possible. I do think the war in israel is helpful in making these petty issues look small. There is a robust effort to pass legislation can then condemning hamas but minority leader mccarthy, they have a senate bill to otherwise condemn the attacks of israel. They want to pass legislation so when youre holding out for a small rules change in conference, you look like youre holding up progress and not being an ally to one of the best important nations present biden is actively being overt about supporting. I do think the atrocities of israel, if there is any Silver Lining squeezes out republicans and those 12 neverscullys never steve scully servers. I weaken a sea of repeat of multiple rounds like january with Speaker Mccarthy . Henrietta i think it is theater. You would be wasting an opportunity to make a spectacle of yourself and i dont think you can bank on that. If anything the last 10 months, House Republicans have showed us that is what they enjoy so i would not start off by predicting a smooth sale first police here. Lisa if you like a tenuous moment on many levels, there are two fronts the u. S. Is getting actively involved in, ukraine as well as israel. Im curious about whether democrats are going to try to strike deals potential leaders and come in to fortify this and make this less of a house battle within the republican party. Henrietta i have been waiting for that kind of momentum all year. As a former senate staffer, i am shocked how behind the absent the senate has been. Hopefully majority leader schumer did cancel his trip to asia and is coming back now. Im optimistic Ian Mcconnell will become more of a presence in d. C. It is time for the senate to step in. House is constantly in disarray. We had a strong leader in past decades and now we do not and that is really bearing out right now. We need leadership from the senate to come in, put their foot down, be the grownups in the room, and say it is time to get to work. We have probably another week of this dysfunction. Be mindful dissent is not in session so there is no adult in the room and the charades the House Republicans are going through right now can they be last another two weeks but after that the war in ukraine, border security, aid to taiwan and israel, is going to become something they cannot that cannot be avoided and they will pay a political price for not acting. I think they will want to act which will let them choose the speaker. Lisa so you dont foresee a november 17 struck down because there is such a level of urgency and level of heightened important importance that there will be enough adults in the room . Henrietta this is a new instant dynamic. With 80 odds there will be a parcel shutdown. Things Like Department of labor where we get our Economic Data may be shut down into november 18 but i do think the crisis in israel and crisis in ukraine and issues of taiwan and the border crisis create enough political momentum to pass at least one, maybe even three, appropriations bills. I think that is what pete people are annoyed at scullys about, saying we need a defense appropriations bill, 860 billion dollars, a state foreign operations bill because there are foreign operations that need to be funded, and the lease we can do is couple those with aid to israel at two ukraine, or to secure the funding, and taiwan. It is a bill i think cannot pass and i put 60 odds on it which is probably optimistic but been there before bank and that is how i operate. 60 we get a parcel shutdown and that is pretty optimistic versus expectations. Jonathan lets finish on the international story, something delicate, this administration wants to protect support and strength as annemarie suggested Standing Shoulder to shoulder with the Israeli Government and israeli people. We are talking about one of the most densely Populated Areas on the planet. Israel is talking about swiping out hamas after the massacre that took place over the weekend. Inevitably, we are going to see significant loss of civilian life in the days and weeks to come. How durable with their support be for the Israeli Government . The Israeli Government i think is acting in a way by combining forces as you were talking about moments ago that are unprecedented. You are seeing a tremendous amount of diplomacy that in these early stages is wrapping its arms around israel. I think President Biden has been clear about this, it is designed to create this aura of extraordinary support, whatever you need while in the early throes of this so in the future, and the days and weeks to come, you are able to exercise restraint and say maybe this is too far, maybe we can find an alternate avenue. This is along the lines of ukraine, not to make them complete parallels but the way you create alternative off ramps via sanctions, via different kinds of munitions and military advancements, i think those are things that by embracing israel now so close to the chest the way the Biden Administration is doing, especially contrasted trump saying they didnt do the right thing here, i think that is going to pay dividends in the future. Henrietta treyz of theta partners there. More ahead. Ou see, at pgim we can help you rise to the challenges of today, when active investing and disciplined Risk Management are needed most. Drawing on deep expertise across the worlds public and private markets in pursuit of longterm returns. Pgim. Our investments shape tomorrow today. Is it possible to fall in love with your home. Before you even step inside . Discover the Magnolia Home james hardie collection. Available now in siding colors, styles and textures. Curated by joanna gaines. Jonathan 60 minutes away from the cpi report in the United States of america. The market shaping up on as follows, the s p firmer by. 3 . Also up. 3 on the nasdaq 100. Four days of gains on the s p, potentially making it five, the fate of the equity market today at least, potentially in the hands of the cpi report around the corner. In the bond market, twoyear, 10 year, 30 year, what a move the last week or so. 5 briefly a couple times last week, breached the level and then moved to the downside and broke it again. 471. 73 on the 30 year, yields creeping higher by a couple basic points. Last two points, yields aggressively lower at the long end of the curve. Lisa why, because a fed official singly might be done . Because there has been maybe some sense we are reaching some peak or this is positioning washout and we can have a cleaner read to the cpi print . I think the way the market is removed is moved is interesting because if we climb back to highs with the cpi report, we can get a sense of how vulnerable positioning is. Jonathan Morgan Stanley said july the fed is done, that was the last hike. Andrew at citi thinks that is new, he think they are done too. Lisa he was surprised by the idea they see the bond market doing the work for them. He was surprised at some of the tone that has come out of recent fed officials in light of the selloff we have seen. In treasuries the past couple days, i should make a clarification. At a certain point, and we keep talking about this, when does that take away the restraint fed officials are banking on for the bond market to do for them . Lisa lets turn to foreign exchange, i can confirm tk is chasing down president lagarde to try to catch up with the ecb president later this week. Euro, 106. 19. We are unchanged against the dollar after reclaiming 1. 06 the last few days, after looking at 104 the previous few weeks. Lets get to the latest this morning under surveillance, u. S. Secretary of state Antony Blinken giving a News Conference with the israeli Prime Minister moments ago, Antony Blinken saying at least 25 american citizens were killed in hamas attacks. Later today, he will meet with the president and other leaders in the region. He pushed they push for diplomacy as human a tearing supplies and power are cut off to gaza, Israeli Energy minister vowing to continue the siege and tossed it is taken by hamas are released. That is an update to the number we got yesterday and the number is still climbing. 25 now. It was 22 in terms of the americans killed but there are americans that have been taken hostage and that is what makes this possibility for Ground Invasion of gaza so difficult and Antony Blinken talking about the percussion needed to harming civilians. There are 2 Million People in this very dense, small strip in gaza. Lisa how do they isolate hamas and hamas leaders when they have been talking about using people as human shields . When they talk about hiding in schools and hospitals and other places, this becomes a perilous moment on both sides but if you what you are seeing from the civilians is the u. S. Making a massive show of support and joe biden incredibly fired up after talking about the intelligence they have seen. Jonathan after a tragic loss of life and that continues. The latest in washington and United States. Congressman Steve Scalise emerging as the republican pick to be the next week at the house special speaker of the house, he cannot afford to lose more than four gop votes to win against unified democrats. It is unclear when the key vote will take place after the president the stirring of Kevin Mccarthy last week. Mccarthy has his office, right . So in the house for Kevin Mccarthy. I thought he took down the sign. Lisa its a feeling he is hanging in the wings. He told his colleagues not to nominate me but he is probably playing chess. I think it is a game of chess, dont nominate me but please do. It probably is one of the worst jobs to have in washington and although it was nice to see henrietta thinks this might be come to an end, im not so sure. You had last night George Santos of new york tweeted i am a never skill use, he has not reached out to me. The issue is whether or not when you think about these individual players, the issue is he can afford to lose four and the backroom dealing, there is more delegates that vote behind closed doors than on the floor because he was you have u. S. Territories like puerto rico, guam, it is going to be very difficult for him to get to 217. Jonathan i was shocked santos was still around when i saw the latest story, still going. He has a number of executives whatever you have to say about his indictments and legal peril he is in at the moment, he has a vote on the house floor. There are individuals like him that are never scullys. I dont see how this gets wrapped up quickly. Jonathan what does that even mean. It means we will never vote for him. Jonathan where does that come from . They will not vote for him. Americans everyday see the sausage made im just upset they are not bringing the cameras back on the house floor so we can see really the conversations up close and personal. Lisa this is not a sausage made, this is a sausage dissected and disturbed it around the world room and dissected again. Jonathan it is pretty ugly. Uaw wrapping up pressure on ford, nearly 9000 workers walking out of a highly profitable drug factory on wednesday, the surprised surprise move takes aim at the higher price pickup trucks, the strike between workers and carmakers began a month ago. They are pulling other card. And not on a friday at noon. This has been shawn fains playbook, coming out at 10 a clock a. M. On friday and says i will have a Facebook Live press conference and tell you all the things, and raises the question, or we getting to the end . Is this something that is far more damaging than a lot of people think. Jonathan it sounds like the latter are not the former. If we were getting closer to an agreement, would you pull the card . Lisa they have to be running out of money to provide workers. This is the expose of option to the to go to. Why take it out now if you are still building . Jonathan thats a story for later this morning. Joining us is the head of u. S. Rates strategy as stocked and. Great to catch up with you. Inflation data an hour away. What are you in the team looking for . Looking at a. 3 on headline and point to encore. It could be two points which is the consensus. It is really a lot of uncertainty around rent. We saw rent moderate meaningfully and our expectations are they will continue to moderate but if we dont see that, we see a reversal, that could take us 2. 3. Broadly speaking, i think the concern for the markets is around the how the fed will respond on more broader circumstance for higher long and yields, is the fed done hiking rates . The question for the markets is how long they keep rates high for longer. Lisa what you make of the whipsaw action the past week . It is hard to know exactly how the positioning was. I thought a lot of positioning had gotten cleaned out in the sharp selloff we saw. Geopolitics is always quite tricky and, unfortunately, even though the situation in the middle east is volatile, the market has gotten use to the past events like these and the reaction is it is perhaps going to be moderate. So i would not be surprised if tenure yields stay between 4. 25 and 4. 75 until we get some sort of clarity on the situation in the middle east. Probably speaking we see fair value around 4. 25 so the runup we saw to 4. 75 percent and 4. 8 . 50 of that is more technical than fundamental. Lisa put that together. If that is more technical and will play down back to the 4. 25 yield, on the 10 year, does that put that put the fed on the table and not necessarily see the bond market is doing the work with them . That is a good question because in some respects we have been talking about this for a year or so because we have said frontend Monetary Policy is blunt and the transmission mechanism is broken in this cycle so the rise of the long and yields if anything was doing the feds job i tightening financial conditions, raising Mortgage Rates and corporate borrowing costs were going higher. In some respects come and yields coming down to 4 , you will see a reversal of the trend and the fed having to switch gears back to suggesting perhaps tighter policy, perhaps delivering another hike if the data continues to remain strong. It is this tough balancing act and that is why you heard from the fed saying risks from here on our more balanced on the policy front. Jonathan work with me, do we have a better understanding of why yields were higher based on why they are lower . [laughter] not really. Over the longer run, the market is based on fair value. Perhaps some technicals that are going to be driving yields higher. We saw a variety of technicals that drove big yields higher. We had an unwind of physicians as well as some technical reasons in the long end and futures market that drove long and yields higher than people would have anticipated. So we are trying to see if we can establish a new range between 4. 25 and 4. 75 and that is where i see yields staying for at least the remainder of the year. Yet next year is a different situation because the data starts to turn and i think it will see the trend to lower yields in the early part of next year and towards perhaps the middle of next year when we are expecting the u. S. Economy to go into recession. Jonathan do think it is fair to say what we have seen the previous few days is more of a positioning story built up over the previous few months . It feels that way to me. I do not see really any big fundamental drivers. Term premium has risen dramatically. People. 2 the supply picture being skewed relative to demand. I would agree with that argument but, ultimately, i think with the u. S. And treasuries, treasuries are a safe haven asset and treasuries are going to trade more in line with fundamentals over time. This might be the beginning of a secular bear market. It is hard for me to know but i think you will see a lot of growth spurts in the bond market before we embark on the secular bear market the next several years. Thank you. The latest on the bond market shaping up as follows, your 10 year yield, 4. 56. A blowout jobs report. As far as im aware, we are trying to work out what yield controller ashford yield control is in japan. What changed . Lisa you need to buy bonds. There is no issue to this, maybe you can say it is risk aversion but as you heard from person after person, you are not really seeing that inning flee in other asset classes. Maybe oil a little bit but not enough to justify this type of jonathan cpi just round the corner, your s p 500 on a fourday win streak, potentially making it five. S p positive by 0. 4 percent. Counting down to cpi later this morning, coming up at 8 30 eastern, as soon as the number drops, Michael Mckee will break it down and we hear from the chief economist at wells fargo reacting to the cpi data, just round the corner. Lisa i am most curious about the market response when the axle numbers will be interesting but there was a period of time when we saw that incredible runup in yields, down in price where every upside surprise hotter than expected trend would lead to a massive move in markets. Has positioning washed out enough to not have that reaction will be a towel. Lisa we ignored ppi, didnt we . Lisa we did. People says not as relevant, theyre not that tied to cpi. It befuddled me that it was completely ignored because it was hotter than expected. Jonathan Michael Schell of market field earlier this hour said disinflation was distant was transitory. Hes not alone by the way. I heard the same from jim bianco at bianco research. So sees Economic Data turning out. Neil daughter, talks about the same thing. This is what he is looking at too. Lisa and in ppi you got confirmation of the nodes of that, this idea you got goods reinflation and the signs of it in this data. If that is the case, doesnt that confirm this transitory inflation story excuse me, disinflation, sorry. The word transitory. You can use transitory for different dynamic now. Annemarie, have you heard about fuel costs . I have. Jonathan the author of that report joining us next. Equities up by. 3 . Inflation data in the next hour. Explore endless design possibilities. To find your personal style. Endless hardie® siding colors. Textures and styles. Its possible. With james hardie™. In my view, this transition to a patient approach, taking the time to holistically assess information was warranted for a number of reasons. In particular it reflects the fact we are likely very near and perhaps at the peak for this tightening cycle but the risk of inflation remaining persistently high more closely balanced with the risk of slowing activity more than needed to achieve price stability. Jonathan are we there yet . Susan collins speaking out in the event at Wellesley College on the path forward for the Federal Reserve. Perhaps they are done. Andrew hallman horse of city thinks they are. Inflation data around the corner, coming into it we look like this in the equity market, equity features higher i zero one to 4 . Deals unchanged on the tenure, 455. 84. More on that in a moment. An update on the airlines, we had Delta Airlines coming out with earnings earlier this morning, a b for three q, for cute toward the low end. The stock likes what it hears, up by 2. 8 . Any update on the middle east, ba flight 165 on its final descent into tel aviv airport when it decided to turn around yesterday or the Company Spokesperson said the pilot did not feel safe enough to land as there were sirens going off. We have got airlines including american airlines, delta, others also spending flights in the last couple days to israel. Also emirates are canceling flights to and from tel aviv until at least october 20, last flight departing from dubai thursday. This is something. I know those that are trying to catch flights and it is not possible at this moment. Lisa the only ones operating on a predictable level are taking conscript back to the army and for the first time in 41 years, they will fly on a saturday because they dont normally fly on a saturday to bring back people heading to fight in the israeli army. Jonathan joining us as the Senior Equity Research analyst over at jefferies. Lets start with the story, how disruptive is this for the airlines currently . It is disruptive but it is manageable. We have seen from Delta Airlines that they cut israel through october but i think we will see that change and schedules be trimmed into the rest of q4 and how long the conflict lasts but it is manageable from a risk perspective that it is 5 of capacity for delta so not a needle mover and traffic market rebounded to other european cities. So obviously a sad situation what is going on there is the carrier that is flying because they do have eyes or equipment on their aircrafts. For delta it is a financially manageable situation. Lisa theres a question about larger risk aversion to travel, there have been other conferences canceled or postponed in qatar and other laces in response to potential violence and disruption in the region. Is there a sense this could make any kind of dent in some of the revenues or appetite to travel at a time of incredible unease . I think it might pull back International Traffic a little bit but we expect that. Two q and q3 are the biggest. We will see that pullback in q4 so the airlines already have that built into their capacity plans and travel my get rerouted to Holiday Travel and Leisure Travel my get rerouted to other cities. In terms of corporate, more u. S. Focused, delta did see an improvement this quarter, the first time they noted that, corporates been stuck at 80 recovered mostly in the u. S. Im talking but we did see some improvement go back to work. Not sure how much Corporate International travel is to the mid east and that region, delta has specifically, we think it will be a manageable risk for u. S. Network carriers in general. Lisa the delta results put to rest biggest fears at least for now that higher oriole prices would seriously impede profits. It also raises questions about how much they are unable to pass along some price increases to the consumers. What did you learn in terms of the reality on the ground of how airlines are managing fixed costs and ability to keep airfares elevated . I think into today delta sprint would be in line and it is in line to cut the guidance lightly and they did. I think as we have other Network Carriers and especially the lowcost carriers through earnings season, this delta prince will come out looking better. Delta did cut the low end of its guidance but one of the factors to highlight is it generated 2. 7 billion cash flow here to date and they narrowed guidance to 2 billion of cash for 3 million prior due to higher maintenance and fuel. I think we are seeing the impact of that. Delta does have a longterm target of billions of dollars billions of dollars of cash generation. We could see those trimmed because of what is going on with higher fuel prices and maintenance expenses coming in higher too. How much more difficult will it be for airlines to hedge for potential future spikes in jet fuel as they see this tragedy unfold in the middle east . None of the airlines out of southwest currently have a program. They do it through other ways. Through delta, we highlight 55 of revenues are from other services such as their delta tech ops network which is a unique feature they have that is differentiated and helps lower maintenance cost. They have the Loyalty Program with amex as well so they have other Revenue Streams and drive revenues from premium customers so they try to hedge it in that way rather than direct. Can we finish on Loyalty Programs . Changes at delta, how are those changes working out . I say i wish i could use a Skymiles Club because i never have time, im consulate running around. And fashion is kind of taking a step back saying we will revisit the changes because of the feedback they have gotten but making it more difficult to earn those points given they have such a high Loyal Customer base. I think they do have a reliable Ontime Network and part of that comes from their of her other Revenue Streams. I will work out if they lose customers because the change theyve made. To think they might. Might . I dont think so because they will get me to where i need to go so it is ok for me and they have such a Loyal Customer base. That is what is resulting in these changes to begin with is they have too many Loyal Customers that they are making the tears more difficult. I do not think they will lose customers. Perhaps the swap of delta and united but they are not going to move to a different tear. Jonathan my colleague tom keene would say we need the bramwell because lisa has views. [laughter] lisa this isnt necessarily people getting loyal, it is people getting an american x press card. If you get the card and then people who are flying dont access it unless they spend about 1 billion in ticket costs, you have to wonder why someone would stick with one airline rather than go to any airline that offers them the best fair that gets them to get to where they need to go. One thing to remember which we have not talked about his there has been so many fears of Airline Capacity with fuel going higher. Capacity is still tight the market with certain city fares. Its not like you have tons of options. You usually have one to two to pick from so that is why airlines have been successful gaining pricing so far, especially we see that in the international areas. I think that is why they are stepping back because they dont want to lose a Customer Base to the other carrier potentially but i do not think you will see a massive shift. Jonathan basically they dont have to worry about based on what i just heard. Sheila of jeffries on the latest of delta. If you want to get into the labs, good luck to you. I saw the line to the skyline feeling sorry for everyone flying delta. No thank you. Lisa will you stop trolling me. Jonathan i do fly with delta which is rare if i do and i never get in the line. I never go in the lounge, i just find a local cafe somewhere in the terminal. Lisa moving back to the u. S. The last two years i am unimpressed that the lounges in america, service in america, lounges abroad are much better. Thats why i remain a gold member at british airways. Jonathan compare and contrast the lounge at heathrow, the shopping available at heathrow. To jfk and standards are so low you get excited about the quality of the restaurant. Lisa they have really nice josh oh come oh come on. Jonathan Higher Quality is amazing. Lisa for some of the did not know what look oriole was, you got there and felt like you go to port authority. My father refuses to pick me about laguardia. Lisa even now . Even now. Jonathan the way they were building it out is ridiculous. He used to have to take an approach to get a taxi. Lisa that was ridiculous but there is infrastructure run airports and cities away the u. S. Completely lacks. You can land in heathrow, and to be in Central London in 20 to 30 minutes. That does not exist in new york city. Jonathan you can be at Central London for jfk and our 20 minutes in rushhour hour traffic. [laughter] its great to get to manhattan. Jp morgan will join us shortly, that conversation on the corner, equities positive by 0. 4 percent. Cpi data, inflation in america in the next hour. At ameriprise financial, our advice is personalized, based on your goals, whatever they may be. All that planning has paid off. Looks like you can make this work. We can make this work. And the feeling of confidence that comes from our advice . I can make this work. That seems to be universal. I can make this work. I can make this work. No wonder more than 9 out of 10 clients are likely to recommend us. Because advice worth listening to is advice worth talking about. Ameriprise financial. Nice footwork. Man, youre lucky, watching live sports never used to be this easy. Now you can stream all your games like its nothing. Yes [ cheers ] yeah woho running up and down that field looks tough. Its a pitch. Get way more into what youre into jennifer the reason why golo customers have such long term success when you stream on the xfinity 10g network. Is because we focus on real foods in the right balance so you get the results you want. When i tell people how easy it was for me to lose weight on golo, they dont believe me. They dont believe i can eat real food and lose this much weight. The release supplement makes losing weight easy. Release sets you up for successful weight loss because it supports your blood sugar levels between meals so you arent hungry or fatigued. After i started taking release, the weight just started falling off. Since starting golo and taking release, ive gone from a size 12 to a 4. Before golo, i was hungry all the time and constantly thinking about food. After taking release, that stopped. With release, i didnt feel that hunger that comes with dieting. Which made the golo plan really easy to stick to. Since starting golo and release, i have dropped seven pant sizes and ive kept it off. Golo is real, our customers are real, and our Success Stories are real. Why not give it a try . Whether it unravels or the momentum in the economy changes, that could be the equivalent to another rate hike. I dont think we need to increase rates anymore. Currently policy is restrictive at putting downward pressure. We are likely very near or at the peak for this tightening cycle. Maybe we can get inflation all the way back down and avoid a deep recession. That is what i would call a soft landing. This is bloomberg surveillance with tom keene, Jonathan Ferro, lisa abramowicz. Jonathan getting a ton of messages about airport lounges. For our audience worldwide, this is bloomberg surveillance on tv and radio. I am Jonathan Ferro together with Annmarie Hordern. Tom keene in morocco. The data 29 minutes away. Price action up. 4 on the s p. Cpi just around the corner. Lisa how much will this market swaying on an upside surprise . Where the bias at a time people are saying it is not one inflation print, it is a slew of them. Jonathan and the bond market rally continued. Yields lower. Lisa this is raising the question, do we have any sense of what drove yields higher based on what drove them lower. It was a great question and the answer is absolutely not except as a positioning squeeze. If that is the case, what information are we bleeding from a bond market that the fed says is doing the work for them. It is a big data point for the president of the United States. Annmarie this administration continues to get poor marks when it comes to the economy and when you dig into some of the numbers it is about higher gas prices, higher food prices, that is their main concern even though they will tout a hot labor market. People are not feeling it. Jonathan that is the main domestic concern for the economy. Lets talk about concerns on what is happening internationally. Secretary blinken alongside Prime Minister netanyahu. The death toll climbing. Days later we do not have clarity on the key issues. Annmarie we do not have full clarity but we know secretary blinken standing alongside Benjamin Netanyahu given the full throttle support of the United States but he did say the dole the death toll is at 25 american citizens. This is weighing heavily on the white house. Lisa the death tolls will be rising dramatically in the coming days, and there is a question for markets which try to be coldhearted and look past what they do not understand. There is a question at what point are they forced to pay more attention if there is escalation . We have heard that escalation type rhetoric out of different places. People are watching this closely saying we cannot care about yet but at some point it might make more of a difference. Jonathan the war in its sixth day. We are going down to the Inflation Report. The market shaping up as follows. Equities higher one third of 1 . Four day win streak into thursday. Five days would be the longest winning streak into june. Move slower, 4. 5584 after threatening to going into the four 90s and beyond off the back of a blowout jobs report on friday. We started the week talking about the bad things in the world over the weekend for obvious reasons. It meant we did not talk about the payrolls report on friday. Lisa maybe it obscure that and forced more of the flight to safety. If you have a better than expected jobs report, if you have what we are experiencing yesterday with ppi strongerthanexpected, goods inflation yet again. Can the narrative switch on a dime considering the fact people have been jumpy with their positioning. Jonathan the two year still around 5 . With us to discuss is oksana aronoff. You wanted high yields. Were they high enough . Oksana i found it fascinating that on friday we were pushing for. 90 on the 10 year, we got a monster beat on jobs, we had week treasury auctions, and today we are seeing this rally though nothing changed. If you look at this latest move at the long end that has been relentlessly higher until the last couple of days, what has happened . The fed only hiked 25 basis points since may. To answer your question, what is driving that . It is a lot of technicals, it is the fact we have this tremendous fiscal deficit spending we are trying to finance at the time the fed is selling come our largest holders are selling, banks are not adding to our treasury holdings. All of those things are continuing to create pressure at the long end along with the fact that we do not have a aaa rating anywhere. Depending on how the data will move and we are seeing an inflationary trend with the ppi, that can absently snap this rally back. Lisa does that make you like bonds or not . Is this enough . Oksana it is not enough yet. The 10 year even at its highest point was priced for a 2 inflation world. Remember the 10 year has to reflect growth less inflation plus the longterm premium. If we go by growth plus inflation we are not where we should be based on that basic math. I would not be surprised if the 10 year does cross 5 . The geopolitical events unfolding, to the extent they in golf additional players and other countries can change the rhetoric. No question. If we focus on the u. S. In the u. S. Rates as a reflection of the economic underpinnings, we are not yet at fair value on the 10 year. Lisa there is been a sense in markets that the recent test of 5 yields seems to only edify that the risk asset market is solid and can withstand a higher rate regime. Do you agree with that . Is that what we have learned, that if we get stability at 5 everything can get along . Oksana that is what we have seen. Spreads have stayed tight. Spreads have tightened since the events in the middle east. Stock markets are higher. I think the passage of time with the higher cost of capital will take its toll on corporate Balance Sheets. We are seeing a default cycle underway. Defaults in the highyield space have tripled since the beginning of this year from incredibly low levels. We are now pushing 3 on defaults and the drumbeat will continue. There are a lot of companies that should never made it past 2020 but did and will have their come to jesus moment, lets call it. When it comes to corporate Balance Sheets or consumer Balance Sheets, we are also seeing cracks in the lower income consumer has not made its way to the top 50 . Until it does i think this market is underestimating or the typical bond investor is underestimating the strength of the consumer. There are trends underway. To the extent commercial real estate will grapple with the issues, any sector of this market that depends on cheap financing will struggle. As we live in this higher cost of capital world. That will happen with or without a recession. That is really important to recognize, whether we go into a recessionary backdrop or not, there will be a repricing. Jonathan timing is difficult but we do have some information on the maturity profile of these companies. What is the window for that . Oksana in the highyield space we have a spike in maturities in 2025, another in 2026, as we go through the next six to eight months, timing is difficult. We never know what the Tipping Point will be. When it happens, the perspective is that is what caused it. It can happen in a month or three to six. Jonathan i will ask for a time into price. That was the time, give me the price. What kind of spread widening are you and the team expecting . Oksana the longterm average spread in junk rated debt is above 500. We are not even fair value at this point. The longterm recession averages about 900. If you believe in the recessionary backdrop you should not be in these markets. That is not enough compensation. You have visa paying you 6 and in a world where cash is paying you that much. Because investors are seeing these generally higher yields, this is attractive. They are not recognizing the actual compensation for the risk they are taking on in that sector is minuscule. Oksana lisa we were talking with michael shoual earlier this morning and he was saying a repricing that is disorderly could spur that. Do you buy into that idea . Oksana i think any yield curve control, i do not know whether we will be in a world where it is implemented but it does not address the inflationary underpinnings. You cannot control what is going on in the economy by putting an artificial cap. If Central Banks have learned anything it is that meddling in bond markets and artificially manipulating yields ends badly. I would also say to the extent that a slow down is in the cards , because certainly this soft landing has dominated the conversation and it seems to be where we are headed. Soft landing is not a destination. Youre always trending. We agree that generally at this higher cost of capital the trend will be decelerating eventually. We think it will be later than most expect. Where we disagree is we think the fed will be a very muted player whenever that deceleration does arrive. With inflation above their target their hands be very tied and they will not be able to deliver the aggressive cuts that i think investors associate with slow down. Looking back to the late 1990s is an instructive period in our history to see that, where inflation was around the 3 mark and the fed funds rate was 4. 5 to 6 despite the asia crisis, the russia crisis, all these bad things. Jonathan it is an interesting point. Inflation data just around the corner. Welcome to the program. The s p 500 is firmer. 4 . Bond market lower a single basis point. Inflation data about 20 minutes away. The latest on the israelhamas war entering day six. We had a rare call between the Saudi Crown Prince and iranian leadership and now hear from the Iranian Foreign minister. Annmarie he is talking about this active resistance was entirely palestinian. This individual is doing a regional tour. He will go to a lot of gulf states. Any gulf state in conversation with israel, he will make them feel uncomfortable. Iran will be behind the palestinian cause in iran is the main backer of hamas. There is no hamas in terms of how they get their weapons and manufacture this stuff without iran. Lisa the fact they are blaming it entirely on the palestinians and continuing to say they were not involved in the orchestration of the attack and the details and the fact that early reports in the New York Times coming out with this reporting they were surprised by the timing of the attack, which is the reason there has been resistance to pitting it entirely on them. Is this them leading into that . Jonathan is a question we have asked. Is this a distinction without a difference . What is the official response from this administration . Annmarie this administration has to walk a fine line between wanting to implicate iran directly and not. They cannot go out and say iran is off the hook. I ran fully backs hamas. That is why they are able to exist. Jonathan oksana, it is good to see you. Inflation data, 20 minutes away. We deployed the Worlds Largest Aircraft Carrier to the Eastern Mediterranean. We boasted the presence of u. S. Fighter aircraft in the region and are providing other support. We continue working closely with israel to secure the release of the people taken hostage by hamas. We are pursuing intensive diplomacy throughout the region to prevent the conflict from spreading. Jonathan that is the latest from Antony Blinken speaking alongside Benjamin Netanyahu in tel aviv. Joining us is the former white house fellow and u. S. Marine corps veteran. Always wonderful to catch up with you under difficult circumstances this time around. We have talked a lot in the last week about a key distinction. The fact that hamas is financed by iran but that iran was unaware of the attacks that took place over the weekend before hand. Is that a distinction without a difference from your perspective . Elliot i think the distinction certainly matters. This is not to say that iran is not complacent in this. The fact that iran is trumpeting the notion they were not directly involved in planning this attack, the way i interpret that as they also do not want to see a wider spread of this conflict into the region. I think that is an important distinction. Annmarie is that this how iran protects itself on the International Stage to ensure it continues to sell its oil to places like china so they fund their proxy groups and then are able to say we did not know about it . Elliot absolutely. That is their ammo, it is how they operate. This is a moment where emotions are running hot and leaders in israel and our own country need to make clearheaded decisions and there are two questions. There is a question about what to do about gaza and what to do about hamas than there is the question of what to do about the a radian regime that sponsors terrorism. It is important to keep those distinct because if they are conflated you run a higher risk of this conflict spreading outside the borders of israel and gaza and becoming a regional conflict. This is happening at a moment where we are seeing in places like ukraine the rise of authoritarian actors that includes iran, russia, and china. Annmarie overnight there was a phone call between Mohammed Bin Salman and the iranian leader. Do you think the United States pressured the saudis to tell the iranians to stay out of this as well as make sure hezbollah stays out of this as well . Elliot that is the message the u. S. Is sending to include the deployment of the gerald ford Aircraft Carrier to the mediterranean. I think that call is a positive development. Any time you have a crisis like this the more communication you are seeing between sides is a tool to deescalate the crisis. I am glad to see that as a development. Jonathan i do not think we know or appreciate how bad things could be in the coming days and weeks. There is talk of a potential full ground inflation on one of them at full Ground Invasion on one of most densely populated parts of the planet. You have the experience on the type of urban combat that might be coming. Can you describe what we could see play out in the coming weeks and months . Elliot i fought in the fully should battle in iraq in 2004 and that was house to house, very intense urban combat. I think that is what we will see going on in gaza. Those images will be very disturbing and there will be a lot of suffering. Palestinian people are going to suffer, the israelis will continue to suffer, and that is going to change and challenge the political calculus. In the weeks and months ahead, i think everyone should be bracing themselves for that type of violence and trying to also keep this conflict from spreading. Itll be very difficult. Jonathan described the potential shifts in the political calculus. How durable is the support for allies in the Israeli Government given what you expect to play out . Elliot from this moment forward as the offensive begins, support starts to erode. For the israelis it is critical that whatever they do with regards to hamas it get done expeditiously and that they continue to the best of their ability to maintain the high ground while respecting the laws of warfare, reducing Collateral Damage and civilian casualties as much as possible. Those are very difficult things to do in the type of house to house, block by block urban fighting the israelis will see in gaza and a group like hamas want to put Israeli Soldiers in positions where there are civilians in harms way. They will want to create images that will he wrote international support. There are tough days ahead. Lisa i am curious what you are watching to understand the escalation. We have heard reports of missiles being lobbed over the northern border of israel with respect to syria and jordan. How much are you seeing signs of escalation there versus this conflict being contained to the gaza region . Elliot what you just indicated are the types of signs i am watching. The clashes that were occurring on the northern border with hezbollah are obviously concerning. We want to watch those. The positive developments we have seen have been how vocally the Iranian Regime is saying they had no part in planning this. That is a positive development. The dialogue between the iranians and the saudis is a positive development. Right now this is about nations sending one another signals and it is important to keep in mind groups like hezbollah, hamas, nations like iran are not a monolith and will sometimes act in ways that are contradictory to each other. These are fraught days we are heading into and those are some of the signals i am watching to try to make sense of this myself. Annmarie hezbollah has said to have thousands of thousands of missiles. How much can the iron dome sustained . Elliot i think we have seen the limitations of the iron dome. There is not one technology that will secure a nation. Security comes by putting together different technologies into an integrated defense. What we have seen in this attack is that certain israeli and international preconceptions that would result in security were proven wanting so there is a significant reevaluation of Israel Security going on right now, and that will continue long after this war is over. Annmarie we know the u. S. Is sending over more interceptors for the iron dome. How quickly does Congress Need to act to make sure they can continue to fulfill those requests . Elliot we are sending over more interceptors. The israelis are also able to go into their stores to replenish those. In some ways this is analogous to ukraine. It is more you need to replenish the back end to make sure the type of supply we provide in israel and ukraine is sustainable. In recent years we have seen the u. S. Militaryindustrial base challenged in ways it has not been for decades. This only solidifies the importance of reinforcing our military Industrial Production facilities in the u. S. , which we are already doing. Jonathan thank you for your service and thank you for being with us. Elliot ackerman, marine corps veteran, former white house fellow, and coauthor of 2034, a novel for the next world war, bruce a reminder of what we might have to look at in the days to come. Annmarie the president did say he did have this conversation with Benjamin Netanyahu to make sure they are abiding by rules of war and Antony Blinken almost reiterated that today. The precautions that are needed when youre dealing with a place like gaza, how dense it is, and now half the population is children. Lisa and when you have leaders who have a history of hiding behind civilians to have some of the images that are going to be coming out that also makes things that much more catastrophic. Jonathan without a doubt. That is the story at the moment. The state of play between israel and hamas. We turn to the Financial Markets and Economic Data. The cpi just around the corner. Michael mckee will break down the Economic Data. We will catch up with jay bryson from wells fargo. Cpi is up next. Get help reaching your goals with j. P. Morgan wealth plan, a digital money coach in the chase mobile® app. Use it to set and track your goals, big and small. And see how changes you make today. Could help put them within reach. From your first big move to retiring poolside and the other goals along the way. Wealth plan can help get you there. J. P. Morgan Wealth Management. Hi, im jason. Ive lost 228 pounds on golo. So when my doctor told me i needed weight loss surgery, i knew i had to make a change. Golos helped me transition to a healthier, sustainable lifestyle. Im so surprised just how crazy my metabolism has fired up. I have a trust in golo cause i know it works. Golo isnt like every other program out there, and im living proof of it. announcer change your life at golo. Com. Thats golo. Com. Jonathan inflation data in america just seconds away. The cpi report just around the corner. On the s p 500 equities elevated. 4 . Yields are lower, down four basis points. 4. 5297. A lot lower over last couple of days. The Inflation Report with bloombergs Michael Mckee. Good morning. Michael the numbers come in a little bit hotter than anticipated with cpi up. 4 . The forecast was. 3 . That is down from. 6 the month before. The core comes in up. 3 . Yearoveryear unchanged from where it was in august. The core 4. 1 , that is down from 4. 3 in august. Relatively good news. We will look at what the numbers break down to. Let me pass along the jobless claims are still confounding. 209,000 on the week. That is not what was expected by analysts looking at these autoworker strikes and thinking some people might be off work. One million 702,000 for the overall numbers of continuing claims. Or people on the jobless rolls staying on the jobless roles but neither one move significantly. At this point i would say this is fed friendly but does not beat you over the head kind of day in terms of what you think they will do. Jonathan it is a slight upside surprise on the headline number. It wakes up the bond market. The two year yield is higher seven basis points. Was below 5 , now north of 5 . Big moves on the 10 year over last couple of days. Yields lower more than 20 basis points. Yields with a little bit of a lift. Thats called 4. 60 on the 10 year. Yields higher. Fx euro against the dollar looks like this. Euro negative against the dollar. Had to reclaim 1. 06. Yields up, dollar stronger. I will finish on the equity market. Equities rollover as well. We were positive. 4 , now up not even. 2 . You have to think about where we have been and what we have doing coming into this. The smallest of upside surprises on the headline number, just enough to wake up the front end of the curve. Lisa the way you are praising this is correct. I am surprises thought a bigger reaction. Last week any upside surprise would be a huge increase in yields. Is there a signal from that . Have we blown out some of the rep the leveraged positioning. The Biggest Exchange i am seeing on the currency space. Cpi jonathan cpi the smallest of upside surprises. What you make of it . Michael the interesting thing about the number is much of it is energy and much of that was gasoline, breaking a string of lower numbers. The 2. 1 half of what we saw upper ppi and the rest was in housing. That is one of the disappointing aspects of this. Shelter up. 6 after being up just. 3 in august and owners equivalent rent up. 6 . We have been anticipating that housing would start to push down on inflation and contributes to overall inflation for this month. Not particularly good news. Used cars fall. We are looking at food and beverages up, not a whole lot. Apparel falls. Used cars fall and airline fares up. 3 . Some of the usual suspects. Lisa you set up, right . Lets be honest. Jonathan tom went on assignment and they saw him coming and they raise the price of tickets. Lisa maybe this is the reason for the muted reaction in the bond space. I am curious whether what you are saying is most elements are decelerating when it comes to inflationary pressures and those that are not are just lagging behind. There is a feeling this is a disinflationary report . Michael it is kind of a disinflationary report. It is a little bit stronger than was anticipated. There were some who thought we might see a real downside surprise to the core but that did not happen. I take take what you can get when you get it but i do not think this moves the needle for the fed. They are watching the data and now there other things geopolitically. Let me look quickly at jobless claims. No real information about the uaw strike. We do not see michigan goes up 400 additional jobless claims. Not a big one. Indiana up 300. Ohio is down 1500. Some of the areas where the strikes are underway we are not seeing people file. I think it was chris waller who said yesterday it is an amazing labor market. Jonathan 209,000 jobless claims. Michael mckee, thank you. Headline inflation slightly hotter than expected. 4 month over month. The previous rate, 0. 6. Core cpi, strip out energy and food, all of the stuff you like to use. 3 is the median estimate in our survey. The smallest of upside surprises , enough to wake up the front end of the bond market. 5. 06 on the two year yield. Up four basis points on the 10 year after dropping more than 20. We are dropping more than 4. 60. Lower on the session on the currency pair. We had reclaimed 106 very briefly. The Currency Pairs negative one third of 1 . The s p 500 positive. 1 . On the open in about 30 minutes we will catch up with greg peters of pgim and speak to sarah malik and troy gayeski of fx investment and pushing ahead to tomorrow, looking ahead on the Bank Earnings tomorrow morning. Lisa i forgot. I remember that. It seems so off the radar. There is a question about whether this is enough of a disinflationary effect to give people confidence that inflation at the disinflation we are seeing is more than just transitory. What is your thought on the cpi print that did come in hotter than expected . Jay i will use a phrase and john is familiar with it, this is kind of a damp squib. I do not think it will change anybodys view of the economy. I did not think it changes anybodys view at the Federal Reserve. I think may be in play, it keeps the possibility of another rate hike, probably not in november, but in general it is what most of us assumed was going to happen. Lisa a damp squib, i had to look it up, it means an event not as exciting or popular as people thought it would be. The fact that we got an upside surprise with ppi and the smallest of upside surprises, are you surprised we are not seeing more reaction and markets responding to wind blowing in another room over the last couple of days . Jay we had a tremendous backup and yields over the last few weeks. I think the market is just trying to find its equilibrium. I do not think this was big enough to change sentiment all that much. If we wouldve printed another. 6 on the headline and. 4 on the core, i can see much more of a market reaction. Given all of the price action we have seen over the last two weeks, in some sense it is not that surprising. We have not seen a bigger reaction. Lisa what it does highlight is something you and sarah house have been speaking about, the final mile and how difficult it is to get inflation back down to 2 . How much does this edify how difficult that battle is given the fact we are seeing signs goods inflation is starting to reignite . Jay for us it boils down to services. Services represent more than 60 of the overall cpi. I dont know with the super core was. That has been running, we have been getting numbers on that. The last mile to get us down to 2 on a sustained basis, that is tough. That is why the fed will remain restrictive for quite some time to make sure that does come down. What you have to do, and we said this in the minutes, the fomc minutes, you have to have sub trend growth for a while to bring that down to 2 . I am afraid that is what will be looking at over the next few quarters is sub trend economic growth. Annmarie the report also talks about the index in the gasoline index. How difficult is the current geopolitical environment make the fact that gasoline has the potential to rise to make the 2 that much harder . Jay it is interesting. If you look at what is happened since late september, gasoline prices have come down significantly. What is going on in the middle east will probably stop that decline. If things heat up over in the middle east then you Start Talking about potentially iran going offline in terms of pumping 3 Million Barrels a day. That is obviously going to put upward pressure on oil prices and that would arrest the downward trend we have seen in the last two weeks in terms of gasoline prices. Annmarie do you start to consider that and put that into how you are thinking about the next year or so . Jay the way i would characterize that is that it an upside risk. At this point given how fluid the situation in the middle east is, i do not know if we would try to factor that in right now. We would come up with some sort of point estimate in terms of our view of inflation over the coming year and we would say maybe the risks are skewed to the upside. We have to keep an ion going on. Gasoline represents a small part of cpi. Only 6 . You have to see a significant increase in gasoline prices that would have a Lasting Impact on the overall rate of inflation. Lisa j bryson of wells fargo. Thank you for joining us. We did get cpi data a touch hotter than expected mostly driven by the noncore, food and Energy Prices coming in at 3. 7 versus a headline expectation of 3. 6 . I want to note we are seeing more of a pop in the 10 year yields up close to four basis points, five basis points, 4. 61 . S p futures basically flat. Michael mckee here alongside myself as well as Annmarie Hordern. Mike, are you finding anything else to give a sense of what the underlying trends are that could indicate whether this disinflation is transitory . Michael the underlying trend is good on the super core that jay mentioned. We have it up just a seven basis points during the month of september. That suggests we are still seeing progress coming down although we did see shelter costs going up a little bit. You take that out and Service Prices are definitely disinflated on a three month basis. We are looking at progress underneath Everything Else at this point. That in itself is good news. Interesting to see what happens with shelter because the expectation had been it would start to decline and we seen house prices go up since there is no inventory on the market. That may be putting pressure in the other direction. Lisa i did see a story about how new york rents are starting to soften, they are actually coming down. Any hope they will go to an affordable price dampened. Annmarie i did not see this but it is contrary to what people tell me about what it is like in new york. When i told them what my rent was in d. C. They were shocked. The report says shelters largest contributor, accounting for half the increases. This is the major problem as people deal with higher food prices, now higher housing costs. Lisa coming up we will parse through how to respond and how the market is responding and what to expect. David kelly of jp morgan Asset Management joining us. And markets you see of a bit of a selloff in the bond market. Stocks doing nothing after getting a slightly hotter than expected cpi report. Reat that you use workday to transform your business. But it still doesnt make you a rock star. So unless you work with an actual rock star. Hi, im ozwald. Hello ozwald. Pam, you are a rock i wasnt going to say it. captivating music the first law of thermodynamics states that energy cannot be created or destroyed. but it can be passed on to the next generation. we are closely monitoring how the situation evolves. It is too early to say. We have seen up and down of oil prices. We have seen some reaction on markets. Very clearly this is a new cloud on the horizon for the world economy. Lisa that was the imf managing director in marrakech where she is alongside the world bank as well as International Monetary fund at their annual meeting. Tom keene will be there. Will be catching up with him tomorrow when he does host an awesome panel and im sure he will be trying to catch up with a host of luminaries. Jonathan has gone to prep for the 9 00. I am here alongside Annmarie Hordern. We are pleased to have you here on a date that is pumped with uncertainty on the drumbeat of the catastrophic life the catastrophic loss of life and families in the middle east. It markets a little drama after a slightly hotter than expected cpi print although you are seeing s p futures rising a touch, up. 2 . Yields still higher. 10 year yield still up 3 . You can see a pop through 5 on the two year yield. I want to point to specific stories i am watching in the corporate space. Ford, we were talking about this potential for further profit losses after another strike target, this the very profitable plant in kentucky which manufactures the super duty versions of fseries pickups. This is the wildcard and they did it before. Annmarie what i was struck was the timing of this. We were not expecting this this morning. Our analysts saying one ford failed to go higher sean fain said if there is not a better offer youve just lost ktp. Ktp is like the crown jewel. Lisa this is the 20 raise their going to be given. Delta did come in with a forecast on the lower end of expectations. Those shares up 3. 4 . Not as bad as people expected. Prices are going up just a touch. Walgreens came in with a worse than expected forecast for 2024, talking about costcutting, which is interesting because this is what people are looking for. When will losses to margins end up in people losing their jobs or other trimming around the edges after already having cut so far. We want to parse through what the response has been to the cpi report. Joining us is david kelly at jp morgan Asset Management. I want to get your thoughts on whether the cpi coming in hotter than expected moves the needle anywhere on your radar, even a touch . David not really. On the cpi i think it was close to being exactly on expectations. The one thing that seem to be stronger than people expected was hotels. Hotel rates had fallen 3. 6 in the prior month. It jumped 4. 2 this month. That was one of the things that pushed up shelter costs. There is not much else going on. Looking closely at the price of gasoline. Even though crude oil prices are holding at higher levels we have seen refiner margins crashing down in the price of a gallon of gasoline is . 19 lower than it was a month ago. That bodes well for a better reading for october cpi. I think we are on track for a yearoveryear headline cpi being a 2 or less in the Fourth Quarter of next year and the consumption also being a 2 or less by the Fourth Quarter of next year and that is one year ahead of the fed target. Overall this report i am still very optimistic that inflation is coming down up we have this expanding uaw strike. I think the continued chaos in washington makes it possible we could have a Government Shutdown in november. There are still plenty of weights on the economy. When we look at inflation, i still think it is coming down. Annmarie when you look at the report it still feels like status quo. How much harder will it be to get to 2 . Lisa i do not think it david i do not think it will be that hard. If you look at the core cpi it came down to 4. 1 and corbel keep coming down over the next few months. As i said, i think the energy story is getting better. I think the economy will grow more slowly in the Fourth Quarter and next year. The last thing is shelter. We know as the government reports lagged reality on the ground when it comes to negotiating rents and we are not seeing any increase in the actual rental market. We are not seeing any increase going on a new car prices since the start of this year. We think that will push away Transportation Services and shelter costs and that is where our forecast of 2 inflation is coming from. Lisa does that make you bullish or bearish . David slightly bullish. You have to pick and choose. The overall u. S. Equity market is not cheap but it is bifurcated between the top stocks. The rest of the market is looking like a pretty good value. I will also say the bond market is a pretty good value. If inflation gets down to 2 than a 10 year treasury at 4. 5 seems about right and we could get capital gain when we trip into recession in the next year or two. Lisa we have been trying to wrap our head around some of the whipsaw action we have seen in 10 year treasury yields and 30 year treasury yields. We had softer than expected auctions, today we had one on the 30 year. There has been a question on how much is technical and how much is a lack of certainty on what the ultimate inflation paradigm will look like. Does this volatility make this market less investable or more investable . David it is disconcerting for investors but if you are a longterm investor just look at the prices and dont worry about the daytoday action. A lot of this is whipsaw. Over the course of a year or two years it will diminish. There is something important going on on the fiscal side. It looks like this fiscal year or last fiscal year came in at 1. 7 trillion. You add in the fact the fed is returning bonds to the market and the federal government is having to borrow 2. 5 to 3 trillion every year from Capital Markets and that is an enormous lift. That does suggest that when longterm yields come down they will not come down to 1 or 2 . There is a floor to how low longterm bonds can come down. By bonds for income, by them to diversify your portfolio, but do not expect a capital gain for bonds because there is a limit to how far rates could fall. Annmarie when you look at the fiscal trajectory of the United States, you see the dysfunction in washington, the fighting is about a small sliver of the u. S. Budget. Can we ever deal with the Fiscal Health of the United States and still we start looking at the Defense Budget or things like entitlements . David it is not just on the spending side, it is on the tax side. The reason we have big budget deficits is because we had two huge wars, two major tax cuts, and we have had a pandemic in a Global Financial crisis and the government just poured money at the problem and we did not pay for any of it. The reason we have budget deficits is because politicians treat us like children and we accepted. I completely agree with you. What they are talking about is a complete sideshow. You cannot deal with the budget deficit without raising taxes or defense or medicaid. You simply cant. We need to have tough discussions. I think we will be looking at rising deficits or rising debt and very high deficits for many years. Lisa david kelly of j. P. Morgan Asset Management. Thank you for being with us. We did get the hotter than expected cpi print. We are getting a muted reaction in markets. Our focus has been what is going on in the middle east. Tony blinken meeting with Benjamin Netanyahu and currently meeting with the israeli president. We have also heard from iran saying the palestinians acted alone. What are you watching for today . Annmarie i was looking at Antony Blinkens comments saying israel has the right and obligation to defend itself but he also said that how they do this, how israel does this matters. He is talking about how difficult a Ground Invasion into gaza will be and how that will look. Lisa and we heard about it earlier from someone who is been part of some of those types of ground operations. This has been bloomberg surveillance. Coming up at 10 00, Ralph Schlosstein of evercore amid a fraud moment geopolitically and economically. Its easy to get lost in investment research. Introducing j. P. Morgan personal advisors. Hey david. Connect with an advisor to create your personalized plan. Lets find the right investments for your goals okay, great. J. P. Morgan Wealth Management. Jonathan live from new york city, good morning. The smallest of upside surprises on the Inflation Report. The countdown to the open starts right now. Announcer everything you need to get set for the start of u. S. Trading. This isbloomberg the open with Jonathan Ferro. Jonathan coming up, inflation data coming in little pots or sending bond yields little higher just as fed signaled they might be done. A lot depends on the data