Transcripts For BLOOMBERG Bloomberg 20240703

Good morning. John and tom have ditched me. Manus cranny is with us, which is a good thing as we try to understand how we can get past a bond market that will not let anything else matter. I want to talk about earnings and geopolitics and everything else. Instead, we are talking about a 19 basis point swing in the 10 year. All of a sudden, crashing down. Manus to bill ackman and bill gross have that much sway in the bond market . The bottom line is, that huge amount of volatility, the one thing that surprised me was why did the equity market it more of a bid on the back of a swaggering move . Was it reappraisal a bond risk . Lisa probably just ptsd. Last month and a half as chest impacted the equity market from the bond market. Hi they to stocks, low bit is tosca manoj offensive strategy when the bond market is moving this quickly because the defense stocks tend to be more bond sensitive and debt ridden. The Equity Investor doesnt know where to turn. Frankly one day is one day in the equity market will say lets see where the trend moves lisa . Are you saying that we are seeing the stock market have more rationality and more control and less volatility than the bond market . Yeah and this is been the story all year. Equities have another thing to hang their hat on and thats called earnings. In broader Economic Conditions and earnings have improved this year relative to last year. Equity markets can trade on that as well. The bond market impacts valuations and high debt stocks and high leverage stocks but not the market at large. The equity market volatility can remain relatively suppressed even when bond market volatility is so extraordinary considering the earnings backdrop. Lisa its shocking as we wait for earnings from the big tech names. When we take a look at davos in the desert, fii conference, tire commentary from the ceos there. It was surprising that suddenly they are striking a note manus manus that is pessimistic. It shifts when you hear from people like jamie dimon talking about 6 on treasury yields. When you go through the rollcall of who is there, you can find the bond trader. Ray dalio says hes more pessimistic on the Global Economy and noah quinn says we are at a Tipping Point of fiscal deficit. They are incrementally becoming more bearish. Lisa the state street ceo said there is a hangover market seems to have from the geopolitical events. How much do you see that . Are we seeing a tamper an equity valuation because of what is going on in israel . You see it mostly because whats happening with yields but oil prices are the proxy for whats happening in the middle east as far as the equity market. When oil prices started accelerating in july, it had an impact on the equity market in rotation and had an impact on Sector Performance and country performance globally. It is starting to show up and earnings as well so the oil users of the world are seeing earnings revision momentum turned sour. The Oil Producers of the world are generally experiencing a positive lift. Lisa we are seeing a little bit of a lift in oil this morning on west texas intermediate and crude. People look at this as a gauge of whats going on in the middle east. Its hard to really get a true read. A 19 basis point swing on the 10 year and 20 one points on the 30 year because of data out of europe. Talking about recessionary conditions in europe. In the u. S. , composite take it comes out. The future investment Investment Conference in riyadh is starting at 7 10 a. M. And jamie dimon will jordan will join us. Alphabet and microsoft reporting earnings after the bell and key to understanding how much more this equity market can rally given what a momentum builder these two have been. 55 gain for alphabet. Joining us now is shawn sulfus. How do you get away from the volatility in the bond market . I dont think you do. What you do is youve got to get through it. We recommend to our investors in times like these when the bond market sets the stock market balancing between gains and losses, look for babies to get thrown out with the bathwater. Think of your goal as beyond and is not in the day, distinguish or between a traitor and a longterm investor. There is plenty of opportunity here. Manus the biggest opportunity, a couple of guess yesterday said now is the time perhaps to be neutral on duration. They are thinking about adding duration. Do you feel more comfortable adding sovereign duration instead of corporate duration . We have a mixed view of that. At the longer duration, we think more corporate. At the shorter end, we think of the guppies. We are overweight equities, underweight fixed income. We think in this environment, its the end of free money is the normalization of Interest Rates, bond buyers are getting something in return for the money when they buy a bond and bond issuers have to pay for the privilege of borrowing money again. We are leaving a time of emergency liquidity to a more normal environment but its difficult because its a dramatic increase in Interest Rates. Its costly for leveraged investors thats not our venue. Manus the terrorism has been reached by the bond market on the equity market. When you look at this structure of the market that happened yesterday, it wasvirulent by anyones estimation. Perhaps the long and shortterm stabilizers of the market have been dislodged. How alarming was yesterday in terms of the moves . The 30 years was 21 basis points. Are the stabilizers removed or should we not worry . Ive been in this business for 40 years. Ive been through every boom bust and recovery cycle since 1983. We see this kind of thing, the one thing that seems clear is this is not a typical to see these kind of dramatic moves. With all the things going on within the market globally across asset classes, it is to be taken into consideration and its quite normal. We are right about where we should be in the process. Its uncomfortable but considering where we been from the financial crisis to the pandemic to the disruptions of supply chains and now to a geopolitical risk that is elevated to extend we havent seen in years, this is not atypical. One of the things that has changed is the degree of bond market volatility which is abnormally high. To you anticipate that to change going into next year and how is the volatility frame your equity Market Outlook . I would have to say when we look at this year, we came in overweight equities and underweight fixed income. In terms of performance, it hasnt been a bad call if you look at the s p 500 versus the Bloomberg Global treasury. It would seem to be the way to go in equities. We would expect Going Forward, we will experience less volatility as the Federal Reserve is able to extend its operations and working its mandate with nascent sensitivity in this hike cycle. They are being helped out by the long end of the bond market. We have seen the yields come up there. This looks like a process that is not comfortable but is one that should reward investors who are diversified and understand and can understand is and can withstand a certain amount of volatility. This is a transitional period. You are overweight on equities and i imagine its been frustrating given the lack of participation in the market. What do you think will catalyze better performance and more distribution of gains cross the equity market . Some of it will be structural. If you look at the case of some sectors, you will find better valuations in other areas but the area of technology is likely to be central to all of this. The fact that Technology Today is in a time of innovation. Its not just for technology, it affects the consumer and business and its embedded in the lives of business and the consumer. Advances in technology affect all sectors, all 11 sectors of the s p 500. If you do a year to date spx on bloomberg, you will see it got a year to date cyclicals have beaten the defenses. Consumer discretionary, Communication Services and im looking at bloomberg but its an eye at test but it hasnt done that badly. Weve seen Earnings Seasons that have once again outpaced expectations. Its not a robust situation, but its consistent improving resilience and thats what weve got to see. Thats got to continue but its a lot of factors working here whether its among the consumer or business or the fed, whether its the size of the u. S. Economy and its diversity. Its been a remarkable story so far. Lisa what is your target by year end . It remains 4900. When we put the 4900, we had had our target put in last december at 4400. We gave it a couple weeks and we saw what was going on. We raised our target to 4900, looking at six7 upside. And last i saw, it was around 17 and it is under observation. At this point, we will leave it at 4900. Lisa thanks so much. Interesting to see, clinging to the bullishness despite all posts hosts of tierney by the bond market. His commentary is interesting. The effective sectors performing the worst of the spp s p 500 is interesting. 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. I look at the financial situation, the fiscal spending which is more than is ever i am talking about the u. S. But it is true around the world. It is more than it has ever been with peacetime. This unedited feeling that Central Banks can manage this stuff, i am cautious. I dont think it makes up piece of difference whether the rates are going up 25 basis points or more. Be prepared for it. I dont know will happen. Lisa that would be jamie dimon, of Jpmorgan Chase in saudi arabia and we will hear more from him coming up in an hour when he speaks with david rubenstein. Right now, we are struggling to understand some of the geopolitical developments especially in light of markets that have been relatively sanguine. Crude is trading up the nymex. There is pretty fiery rhetoric and concerning discussion about the u. S. Losing its role on the global stage. Joining us is jennifer flinton. We are hearing about the myriad conflicts that they u. S. Finds itself facing and the inability of play. Fractured government to deal with it. How concerning. Of a fractured government to deal with it. How concerned are you . Jennifer i dont think there are anywhere closer to 217 then they were a few weeks ago which is the magic number to get a speaker on the house floor and with the volatility in the u. S. And the middle east and ukraine. This is the focus that the senate will take on in a supplemental tilt that the president sent to the senate last week. Every time we show this montage of faces, of who could lead, what goes through my mind is how do we go from a field of three last week to a field of nine four . 9 . Went did the newcomers need to do and say what do the newcomers need to do and say to commence the gop . Jennifer it is about bringing different factions of the gop together in the house. You have to conservative hardliners who want to stick to the previous fiscal levels in the appropriation bills and government level that has to be done and we dont have to pass a stopgap residues stopgap resolution to take us to the end of the year or they have to come to an agreement in Appropriations Bills and the senate is marking a different fiscal year than what the house wants to mark. You have to bring in the margarets moderates. Breaking those two factions together is going to be bringing those two factors together is going to be the biggest mountain to climb. The front runner is tom. From a risk perspective for us in the markets, is that the name that delivers continuity, constructor constructive government . Is that the name you are coal asking you are coalescing around . Jennifer the answer is yes and he has executed on getting legislation passed and he understands his conference so having someone at the helm like tom, or tom emmer would be a positive sign. What timeline are we looking at for the next potential Government Shutdown and how does the lack of speaker impact the timeline . Jennifer we are looking at november 17 and it is difficult to see a scenario where the house and senate come together on an agreement on how to fund the government Going Forward prior to november 17 because the house is in such disarray. We will likely have to see some sort of stopgap resolution passed by november 17 and the question in seeing where the republican, republican conference is in regards to electing a new speaker, what is the forcing mechanism . Is it the deadline or is it a supplemental bill for israel or for the rest of ukraine and and bill and the endo in the endo pacific . When you think about the uncertainty coming out of washington and Geopolitical Uncertainty across the world, how does this manifest in Financial Markets . Do we see this play out in commodities, where do you see the most profound trade to emerge . Jennifer we are in earnings season and it is difficult to know how this will play out and we are all in washington sitting on the edge on our seats waiting to see what happens in the middle east and it is hard to see how that doesnt take a predominant place in making decisions Going Forward for washington and i would assume that the markets will have a reaction. Lisa i was reading a column by the axios ceo. Never before we have talked to so many government officials who in a private are concerned about so many overseas conflicts at rest points. At once. Whether it is china and butting up with russia at a time to his voice u. S. Weakness and the fact that the u. S. Cannot get its own house of representatives together, how do you view the conflicts of all these things and how will it affect the u. S. Ability to respond . Jennifer in that same axios report, they were talking about the fact the white house is actively getting intelligence reporting to house members, to the big aid that also to the rest of the conference and caucus in a bipartisan way, to get those members, though senators up to speed on the confluence of those factors. And what it means geopolitically. I think that over the next 34 weeks, there will be so many shifting dynamics internationally and potentially domestically that will force the hand of the republicans in the house to get it together. And move forward with a speaker, whether that is one of these eight, whether it is another member or empowering the current Speaker Pelosi temp. Speaker pro tem. Lisa have to say, how do you price in Something Like this . It is an existential risk to equities. Ultimately, the greater degree of war and geopolitical content conflict ut you tend to have, you see that as a inflationary aspect. At the same time, we have no certainty that we are going to participate considering what is happening in washington and we do not know what the path of spending looks like even for domestic spending let alone geopolitical support. The only real play in the equity market is through rising equity risk premium. We have seen that but you have to wonder how much of the bond market weakness is related to these concerns. We think of it as purely Monetary Policy dynamics and the components of supply and man can be jura by more than monetary can be driven by more than Monetary Policy. If you look at gold and swiss, they have outperformed b enter up until now. They were the more defensive hedge and we were slapped when we said treasuries were ahead so it was swiss and gold. jennifer the reason why golo customers have such long term success 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 . Lisa another day, what will the bottom market bring the bond market bring . Jon ferro and tom keene are off. We take a look at a market trying to bounce on the heels of maybe a little bit of a bond rally yesterday but not today and this as the session grows older shows volatility is the name of the making game. S p futures up 4 10 of a percent. How many guests this morning were trying to understand why we have seen such incredible volatility . You can throw any reason for this. The last clip we played of jamie dimon, does it matter we get another rate hike, no. There was a sense of exhaustion of steepeners and exhaustion of having tried to punch it up and it became exhausting. Lisa a lot of stock figures are trying to figure out when they can talk about earnings. When can we care about earnings and that is the key question . Gina that comes down to the bond market. This has been an interesting earnings season because we have 75 of Companies Meet expectations and that is above the longterm average rate and you are being the longterm forecasts. Analysts are a little too pessimistic. Price reactions even for beats have been waived below average. Have been way low average. Lisa we will talk about the politics of gm to parse through the positives of the earnings plus what we have seen in the striking situation as well as with labor negotiations. Under surveillance this morning, over in the middle east, hamas releasing two more hostages and cause and calls are calling for israel to rethink their round invasion their ground strike. It is hard to get your hands around some of the negotiations behindthescenes but what stood out was the ground operation seems to be delayed for a longer period of time and it is due to pressure internationally. Manus the pressure is macro. The greeks and the dutch and the french were coming. Will he build the narrative for cease fire . This is one of the if i can use the word criticism, it was one of the aspects that came from the gathering of the air of nations over the weekend, the coalition from the west had not been calling strongly enough for a ceasefire. The sea with the macro narrative is. Lisa Jennifer Flitton highlighting all of us as we watch everything that transpires overnight, this every night. One person suggesting the european region maybe in eighth recession. Deposit pmis at a three year low. Barclays planning to cut cost after its trade division missed estimates, the Third Quarter of the u. K. Bank reporting fixed income currency and commodity training declines 26 from one year ago and banks on one side. What you are seeing in europe is not unexpected. Gina it is not terribly unexpected. This really started to emerge this summer and i think in the banks, it is interesting within the european banks and all the banks to barclays and beat expectation so when there is a diversion to occurring between the continental european banks and the bank and in the u. K. , the banks in the u. K. Our expensing thanks something similar to the banks in the u. S. That is the source of stability amidst all the pmi weakness and at least the Banking Sector seems to be somewhat resilient. Manus the level of sophistication that you have are the access to movement to money very quickly, you what you walk down any avenue in new york and you are admitted you are able to pull up an app to any etf. It is much easier to hear and more part of this i case to move your money around in berkeley and barclays underperformed relative to estimates ended u. S. And there is only one vainglorious bank. He must be sitting back. [laughter] lisa maybe he will go shopping because it seems like what a lot of people are doing, her mace hermes sales jumping. How does this challenge the narrative that we are seeing a pullback by spenders at the top end which was basically what everyone was saying without vmh . Gina i was speaking about the difference between vmh lvmh has a wine and spirits business and that was the weakness in that quarter and we forget the diversity in the region. Lvmh had the drive from wine and spirits so the story is different is between different between luxury, arent they and are they. Lisa i am personally deferential to recycle over champagne to percent go prosecco over champagne. The International Energy agency was created in the wake of price spikes and geopolitical violence and we are facing a similar type of moment and joining us is the executive director of the iea. Even when you put out your report, how is today similar to 1974 . Thank. The main similarity is once again, a major geopolitical crisis in the middle east and once again, oil of market risk a major shop with a high and oil security is at risk. Especially for asian. There are some similarities between now and 50 years ago. Manus every time there is a moment of real angst and we are at the moment of war so it is not just angst, it is war between hamas and israel, the question is, the boundaries, the risk to iranian crude moving, the risk to the rest of the persian gulf from this israel, gaza crisis, how do you look at that right now and what is the risk of major escalation in your view and the risk of your market . Fatih if one or more oil measure Oil Producing or exporting countries are involved in this crisis, we have all the reason to expect the crisis view will go up now only in terms of production export but and cuts there is a major straight. Which is responsible, of one third of the global oil transit and the major part of the Global Nature transit. We may well see impacts in the oil and natural gas markets. I dont know how the geopolitical developers will go in the next days or weeks but this is high for the markets. Manus one of the narratives out there at the moment is you still have your unilateral cuts from saudi arabia and russia. It is 2 too soon to talk about what they would do in november and if there is a significant may well put out some narrative in regards to the unilateral cuts or acts before the november meeting . Fatih it is a good point and when we look at today, even before the jump to the crisis started, oil prices were around 90. Very high prices compared to why we have it . For two reasons, oil demand is strong. The point you mentioned, saudi arabia and russia deliberately cut the Oil Production and since the beginning of this year, we said, if you are going in that direction, we may see tighten oil markets which can be an major problem for the Global Economics and inflation. This crisis comes on top of the 90 oh oil prices 90 oil prices. If we see such a crisis and if you see deepening of this crisis as a result of other countries being part of this geopolitical crisis there, one possible option is the saudi arabia and russia changing their production policies and the conflict to markets. Gina can we talk about your longterm views on what will happen in the Energy Complex . We have this great World Energy Outlook report today from your organization talking about in the longterm Global Fossil fuel demand will be by 2020 will pboc 2030. Does that conclude that the financial tensions will use and what does that mean for the forecast by 2030 . Fatih the reason we see oil, we talk about oil demand to peak in the next five or six years is the following. There is a big move on the transportation sector, which is a big chunk of the global oil consumption. Electric cars. You look at them, two years ago, one out of 25 cars sold in the world was electric. Two years ago. This year, one out of five cars sold is electric and in 2030, with current investment plans, every second car sold will be an electric car. The second and most important one and i was surprised at that analysts dont see this. China changed Energy Markets in the last 10 years and it is changing now. When you look at the last 10 years, more than two thirds of the Global Oil Demand came from china only. Chinas economy decreased increase over 6 over the year. Chinese economic this has been the driver for the Global Oil Demand. Lisa i only have a minute left but this is an important point. Are you saying even that china is an economic boom, it will not increase the demand of oil based on changes in the economy . Fatih china may have a growth in the economy based on stimulus but the structure come up when you look at the structural [indiscernible] the household stocks, they come to a situation in decline, china would not need a major amount of energy so china will be the terminating determining the fate of fossil fuels and clean energy. Lisa fatih birol, thank you for taking the time at a Pivotal Moment we are watching on the price of oil to get a gauge on how potentially wide the conflict is read in the you in the conflict is in the middle east. We will speak with Jennifer Johnson and the former Prime Minister of jordan. This is bloomberg. The chase ink business premier card is made for people like sam, who make everyday products, designed smarter. Like a smart coffee grinder, that orders fresh beans for you. Oh, genius for more breakthroughs like that i need a breakthrough card. Like ours with 2. 5 cash back on purchases of 5,000 or more. Plus unlimited 2 cash back on all other purchases. And with greater spending potential, sam can keep making smart ideas a brilliant reality the ink business premier card from chase for business. Make more of whats yours. Longterm, i am optimistic but i am uncertain right now and if you are a ceo and uncertain, you tend to be cautious about doing significant things at the change in trajectory of your business. Lisa all the ceos in davos. That was David Solomon at the future investment initiative. You can see yields trying to hold onto a bit of a decline but not succeeding. 10year yield is 4. 85 . Euros softness after pmi data showed two straight quarters of contraction. I dont want to delay a great conversation coming up. A reporter is joining us sitting by Jennifer Johnson, president and ceo of Franklin Templeton. Lets pick up on the big debate on the health of the u. S. Economy and other angles. Thank you for making the time. We had jamie dimon come out strong and said there should be more more humility coming from the banks. I want to know where you stand. Jennifer i am concerned about u. S. Debt and the impact on Interest Rates. I think the bigger story is around, we have u. S. Debt that has gone from 9 trillion to 31 trillion and you have to have buyers of the debt and you have to have a a rate that is reason we price to attract that so that is a concern. You have a deficit that will have two that will add 2 trillion to the debt and i can weigh in on the economy. And that can weigh in on the economy. Do you still stand by that . Jennifer i think jay powell said they wont do that by november but they are watching the data so maybe they will do december and it will be data driven and maybe he will leave it for where it is and see how it plays out. The bigger story is around the 10 year and i think that is more of an issue around the u. S. Debt. Jennifer you have seen the volatility in yousef you have seen the volatility in treasury yields and prolific commentators including mr. Ackman. Do you think we will consolidate out the current levels . What will bring it down . If they go down from here, what will push them down . Jennifer there are a lot of things, i think the fed has done a good job on stopping hitting the brakes and slowing things. There are headwinds to slowing inflation. Oil prices are inflationary. Some of the Union Wage Negotiations are inflationary and so there are factors that makes it tough. Spending on things like renewable energy. Things like the chips act are pumping money into the system and that becomes a headwind to someone who is trying to tamp down inflation. Yousef one of the stories that has been trending on the terminal is 600 billion worth of client cash headed for the exit for some of the bigger investment funds. How does Franklin Drive amid a shift to more passive are you going to push this back . Jennifer anytime you have a full momentum market where you have Central Banks renting money and Interest Rates zero, the only place to go is every market and that pumps the equity markets up but today no one talks about market beta being passive. The day tesla was added to the s p 500, market data became more risky and we dont talk about that and now you sit here today and you have a market where you look at it and say it is up 13 most of that is because of seven stocks, the magnificent seven. The peak of the. Com, 10 stocks accounted for 70 of the market cap and today that is 32 so you are higher from a concentration. Usually does not end well from that and from a return standpoint, the top five stocks have a key ratio of 49 and the rest of the market has a key ratio of 14 so those are different from a risk scenario and that you have to navigate Interest Rates and figure out the impact of rates on different companies. Yousef that warns its own debate and i want to get your meetings in saudi arabia, talk to me about the opportunity set here and where you can lock in additional wealth growth. Jennifer one of the reasons to be here is because Franklin Templeton is a global company. You come to fii, you can be clients from asia and u. S. And africa and europe so it is of great place to convene and efficiently meet with clients that i attend to think but i tend to think a lot of innovation coming out of the region with energy innovation. What you find is a mentality of multiple generations thinking about how do we position ourselves for generations and a recognition that some point, there is a way we have to diversify the economy and you see initiatives like in saudi arabia where by 2030, they won 50 of the energy coming from renewables and una said by you any uae yousef we are closely monitoring what is happening with the israel and gaza conflict. It is a human tragedy. In terms of the capital markets, to what extent will that take away from some of the ambitions that the goal has as an investment destination longerterm . Jennifer it is an absolute humanitarian crisis. It is a terrible situation and difficult to watch it unfold and it is awful. If it stays contained, it probably wont have longerterm impacts other than tremendous impacts in areas of israel and gaza. As long as it remains contained, i think it doesnt slow things down and places like saudi arabia and the uae are motivated to come to our a resolution. Yousef closing question on broader strategy, you have been inquisitive. What is next on the purchase list . Jennifer we have been open about the fact that we think the last area we would love to fill is infrastructure. The spending on infrastructure, whether it is Energy Transition or updating infrastructure across the globe, so many of the developed markets have aging infrastructure is a great opportunity and thats the last area we would need to complete our product capabilities. Yousef best of luck with your meetings over the next couple days, jenny johnson, ceo of Franklin Templeton. Lisa great interview and really interesting to hear her talk about how it is the budget deficit that is causing yields to whip. You are saying earlier that all the sudden, this is underscoring the idea of this is not a haven the way it has in been in the past. Gina it is confusing and a daiquiri market which is already in a confused state when it comes to bonds. Correlations between stocks and bonds have flipped into bazaar territory over the last three years. We are more sensitive to movements and bond yields and the directionality of yields is important but the volatility is incredibly important for the equity market under pinnings. And to have this uncertainty from a geopolitical perspective and operational perspective where the u. S. Government creates uncertainty for the equity market that you normally would not have considered this but the two asset prices are closely correlated and our fates are tied. Manus this is the point we touched on yesterday, the structure of the bond market has revocably changed as it revocably changed has it revocably irrevocably changed. Jamie dimon said he doesnt care about the next hike but he does care about the potential for more steepeners to buy this which goes back to his narrative. Lisa he is now mom and i talked to people and they say you can focus on whether you can get another 25 basis point rate hike but if you look for things to talk about, there is something that or you can spend your time doing. We are running out of time, to this again because we love having you on. Manus, you are not going anyw e ere. That has always been the speculation, we have some fabulous conversations including the cfo of General Motors at a time of strikes and higher labor costs. From new york, this is bloomberg. Explore endless design possibilities. Find your personal style. Endless hardie® siding colors. Textures and styles. Its possible. With james hardie™. I think these higher Interest Rates are starting to bite on this economy. Fundamental, technical elements have driven yields beyond where they should be. We have to see more repricing of risk assets reflecting the higher rate environment. As long as the economy continues to grow, we can afford Interest Rates at this level. Rates are rising because we are seeing supply come in and scare those bond vigilantes. This is bloomberg surveillance. Lisa can we focus on earnings . We are keeping our eye trained on bonds. This is bloomberg surveillance. Tom keene and Jonathan Ferro are off. Luckily for us, manus cranny and cameron and gina cameron are joining us for the hour. Its a morning of angst when it comes to whether is the bond market or geopolitics. I think weve seen so much of this volatility. Is it going to stay around . Have we seen the local peak in yields and can we get relief or is this another selloff in the move ever higher toward the 5 . Lisa that seemed to be what happened yesterday. The fact that people are blaming bill and teds excellent adventure, i will get all sorts of heat for saying this but there is a question whether bill ackman was closing on bonds. Do you buy that . Manus maybe the market deal listen to bill ackman and bill gross. There was a steeper trade for the past number of sessions. The market wanted to test 5 and punch it and go through it and what you have is a recalibration. Thats my personal take. How much of this is being oversold in or overbought and resistance to yields . Lisa at this point, there is a question of treasuries and their ability to act as a haven asset. His underpinning the angst of the moment. We have geopolitical tensions which are truly raising serious concerns about the ability of the u. S. To respond. Weve learned that treasuries are no longer that haven. They eventually will be. Some of the reason weve seen the upward movement if weve had a buyers strike. The data has not been that bad so people look at how much safety they need. If they worry about the data, thats when you see people step back in. Manus bill ackman said theres too much risk in the world to remain short on bonds. He went on to talk about growth and said the economy is slowing faster than the data points two. You pointed to the atlanta fed data yesterday. With so many geopolitical risks out there and so many unknowns, maybe this is part of the bill ackman narrative but we cannot attribute them having delivered the longer and treasury. Lisa a bunch of people are looking at earnings. Cameron he gives us an indication of where the growth will be. There was an interesting sign about the beige book and the consumer. How much will we see that show up in the earnings we have . That will show up in the big tech names which have been benefiting from the better consumer and the better cyclical environment. What if that starts to slow down next year when estimates are forecast to have 12 growth next year . Lisa its confusing out there and equities are getting a little bit of a bid after yesterdays turmoil which did not see equities get rewarded as much as yields plunged, as much as 19 basis points on the 10 year. The 10 year yield is marginally higher but this is interesting, the fact that they started the day lower after the plunge yesterday and am shifting higher. Who knows what will happen at the end of the day . Crude is up 0. 4 . We are getting negative rates on the European Economic outlook but we get u. S. Composite pmi data and we get and we have the future Investment Conference in riyadh. We will be hearing from jamie dimon of jp morgan in conversation with david rubenstein. We should have been talking about earnings but we are talking about these macro concerns like the bond market and alphabet and microsoft are reporting earnings and they are the big winners this year, delivering 55 and 37 returns year to date respectively. At what point can we turn our attention back to earnings . People want to get back to those fundamentals. When can we care about earnings again . Good morning, i think we are caring about earnings currently because thats one of the factors i think investors are feeling nervous about. Its not just Interest Rates are oil prices but also will we have a fourth consecutive quarter in which we see s p 500 earnings decline . We are not really seeing an upward move in these earnings forecast for the Third Quarter and i think this will be a pivotal week for that to take place. Cameron manus good morning to you, where are we most at risk in this earnings season with a little bit of big tech today and gm remove their bidens because of the strike. Where are we most at risk in this earnings season . Good morning, the at risk would be where the greatest expectations are. Consumer discretionary is inspected to see 50 rise in year on your earnings. Communication services is up 27 so very strong advances there. Conversely, the bar is set so low that you are reminded of an old adage that rarely do you injure yourself falling out of a basement window for energy as well as materials and health care. Some areas are expected do very poorly and could therefore end up surprising to the upside. Manus i did an interview this morning with some backtracking on the beige book. The guests said he found a weaker consumer. Is this where we see the lights go on in terms of perhaps the constraint on the consumer or is that a 20 for realization . A 2024 realization . Retail Sales Numbers show the consumer is holding up. We expect, despite strong expectations for q3 gdp, a 5 or more possibly that we will slip into a softer mode in the Fourth Quarter of this year and first half of next year. I would tend to say that whatever concerns you have on the consumer are likely pushed out into the new year. Cameron as you look to next year, our earnings estimates too high or too low . The numbers remain fairly constant for next year at 12 with a sequential upward move starting in the Fourth Quarter of this year through each of the four quarters of next year. By the end of the year, we are expected to see all sectors in positive territory with five of them posting double digit increases. I would tend to say that because these numbers have not really changed, they are at least where analysts are willing to leave them for the moment. Cameron as you go into next year, given youre talking a better earnings are things like energy and health care which were left behind this year that you could see a leadership rotation next year . Thats certainly a possibility. What i have found is the adage of let your winners ride continues when you move from a positive year to a new year. Last year, things were quite different. You want to rotate from first to worst, meaning you go from those groups that held up the best during the market to clients as in 2022 moved to those that were beaten up the most which were Communication Services, Consumer Discretionary amtek, the bestperforming groups this year. For next year, you might see in improvement of those groups that underperform but following a good year, you tend to let those winners ride. Lisa how much can you have conviction at a time when 10 year yields are bouncing around . When you think of a pingpong ball, the first drop is the greatest surprise. Each successive drop is lower and lower. These concerns have been with the market for quite some time. My belief is they are having less and less of an impact on the overall market. The s p 500 is down a little more than a percent with all of these headwinds ahead of us. Why is it the market is not reacted more to this . I would tend to say that investors are looking for any glimmer of hope to start and end of the year rally. Lisa is that bullish or bearish . Are they understanding the implication of 5 yields . Some of these Companies Still have very low financing cost left over from the pandemic era. Because this higher yield situation has been with us for a while, 525 basis point increases over a year and a half certainly has been a record pace. I would tend to say that because the market has held up so well that investors expect some sort of slow down but certainly not a collapse. I would say prices lead fundamentals and if we start to see in improvement in those prices, fundamentals are likely to continue to improve in 2024. Manus so drop and not a collapse in terms of the biggest risk perhaps being the Capital Movement from Bank Balance Sheets to elsewhere. How concerned are you that there is something a little more malevolent coming down the pike like we saw in the springtime with the bank runs . I would say the regional banks are still going to have their challenges. Expectations are for about a 26 year on year decline in earnings for the Third Quarter. Thats expected to last into next year. Yet we started the quarter with the large banks expected to show less than a 3 earnings increase and other earnings gain is forecast at 16 . The behemoths are doing quite well and are holding up the banking universe. I would tend to say that typically, banks are doing well in the first year of a bull market which is not the case this time around. It is a bifurcated situation with the large Banks Holding up well pricewise whereas the small banks really are underwater. Lisa sam stovall, thank you so much and talking about jp morgan, jamie dimon schedule to speak at any moment. We are seeing a bit of a lift to the market with bonds trying to find direction after a tumult to us period with s p futures up 0. 5 . Something that people have not been talking about are the regional banking stocks. They have gotten hammered and they are trading near the lows going back to march. Are we missing the forest for the trees . Has the crisis been averted . Cameron the first thing to consider is slowing loan growth. The other part of it is the Balance Sheet. As yields have gone up, they have that hold to maturity loss that continues to swell. That is allowing them to push out having to recognize the loss because the btfp program during the Bank Collapse expires in march. How much longer will we be able to push off the reality of the Balance Sheet issues . Lisa are we seeing things break too slowly . Manus we are used to these cataclysmic things happening in front of us over a night or over a weekend. This is coming out on multiple fronts. People are saying you will get a second wave of inflation next year. You are shaking your head . Lisa not another thing. Will it be an existential tuesday . Manus its only tuesday. Lisa this is something we been hearing about. David rubenstein said some of the forecasts from central bankers a been 100 wrong. The chase ink business premier card is made for people like sam, who make everyday products, designed smarter. Like a smart coffee grinder, that orders fresh beans for you. Oh, genius for more breakthroughs like that i need a breakthrough card. Like ours with 2. 5 cash back on purchases of 5,000 or more. Plus unlimited 2 cash back on all other purchases. And with greater spending potential, sam can keep making smart ideas a brilliant reality the ink business premier card from chase for business. Make more of whats yours. Hey corporate types. Would you stop calling each other rock stars . Youre a rock star. You are a rock star. No more calling coworkers rock stars. Look, its great 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. The Federal Reserve will have to raise rates higher which will probably mean we will have a soft or hard landing by 2025. Thats the only way i see we are arresting this but i dont expected anytime soon. Lisa the blackrock Ceo Larry Fink as people tried to grapple with the idea of reinflation next year. We have been talking about this. Manus cranny and Cameron Dawson are with us. We see a bit of a lift and markets and we see earnings coming out. Its been catching my eye, everything has been beating. Cameron much better than expected. Its looking at the consumer better than expected, industrials betterthanexpected and we just got sherwinwilliams that raised guidance significantly. Thats a housing related stock. People are spending more on their house so clearly the consumer in these earnings is holding up better than expected. Summer confirming that better retail sales we got in september. Manus do you think the story about excess savings running off his we are overplaying it when you look at the Wealth Report we looked at yesterday . Is the excess savings narrative dropping so aggressively is folly . Cameron i think its a fading tailwind but its not a headwind. The consumer Balance Sheet is healthy. Manus the debate as it turns into a headwind next year. Cameron if you look at Consumer Credit cards as a percentage of the disposable income, they are back to their 2019 levels. Its gone up a lot and consumers are using more debt but its not nearly where was during the great financial crisis. Its been growing for the last seven years. The consumer Balance Sheet is still healthy even though at the margins, its deteriorating. Lisa there is a Bigger Picture question about composition. We talked about yesterday and its been said that the fed policy rates have affected lower income individuals and smaller businesses disproportionately. You have seen this again again so when do they start to have a bigger impact on the overall general narrative or can you see the does this dispersion continue with the overall averages chugging along . Cameron the thing they have in common is that they tend to have more of that floatingrate debt. Its figure companies in a income people were able to term out there debt with 30 year mortgages were issued already your bonds. The larger borrowers of not been pinched by higher Interest Rates. Small caps and micro caps are underperforming so much. They have more floatingrate debt. Manus i thought we were supposed to go over a significant debt cliff. We havent made a huge deal about anybody messing refinancing yet but if you look at debt costs and you look at the returns Going Forward, surely that begins to impinge as well. Cameron yes because eventually you have to refinance the debt. If you look at the Corporate Treasury market, or Corporate Bond market come a lot of them have average yields that are less than the entirety of the treasury curve. Eventually, you will have to refinance at these much higher rates and thats the reality of higher for longer starting to bite. Lisa this is what everyone thought. To me, there has been a sort of overhang. In 2015, we were talking about beer goggles. Everyone said they are looking at the world with low rates and anything can look you do for when you look at desk and look beautiful when you look at low rates. When you look at low rates. Thats really the surprise. How much can companies survive by relying on investors to force them to stay afloat so the investors tone get totally slammed with losses . This is what you been seeing at refinancing a decent rates. Cameron i think we are just starting to see the pinch come through. We been through this for almost two years and thats an extended time. You can push up the refinancing is much as possible. We are also condition for the fed to cut rates quickly. The fed is telling you they will not do that. Its the reality setting in that ive delayed refinancing as long as possible and now i have to face the music. They are facing much higher rates. Lisa how have you shifted your views the last couple of weeks . Cameron we have been underway to ration for the year thinking there was this floor under Interest Rates because of the higher for longer and upward by his two Interest Rates. Now we are started to see a world where the risk reward simile looks better. If you take a 100 basis point higher in yields, at least you have a higher base yield offsetting some of the losses. For longterm investors, were started to find interesting and compelling opportunities within treasuries and munis. We are not going full overweight to ration duration but we are finding opportunities at the margin. Manus you are in good company. You have blackrock and alliance. What goes through my mind is not just the fear of being left behind. Cameron we dont want to be too cute with the timing. We are longterm investors. If you think of asset liability matching manus if i said its a dramatic shift or incremental . Cameron its incremental. We have not made this call tactically that we have seen a peak in yields. We see the supply and demand issue where we know we have higher deficits and that is increasing supply at the same time demand is falling. Qe is not here to save the day. We will have to see how data emerges and we have this big unknown about the bank of japan and potential changes to yield curve control policy. What could that mean for treasuries into next year . Lisa could that have been underpinning the wild moves of the last couple of days . Cameron you can track the ownership of treasuries by japan which is going up slightly. They have sold more so i dont know if thats necessarily it but its the fear they could be less buyers on the margin. Lisa when you talk about how your legging in on the margins, is it out of equity risk . Cameron you have to do it in a tax efficient way. If you are selling equities with big gains in going into bonds, that may not be the best trade. Weve been saying if we have dividend income, instead of reinvesting into equities, we will reinvest into fixed income. If you can get your same return at less risk, maybe you should do that. How unrisky is along bonds . Manus 10year year paper doesnt actually look too bad at 5 . Lisa many people are saying that. Manus you are back in general historical norms. Many people out there are flummoxed by rates at 5 and paranoid at the risk of 5. 5 . When i took my First Mortgage in 1994, it was at 7 in the u. K. I have lived through seven and 15 and it was free money. Lisa these conversations, they kind of bugged me a little bit. No offense but the world was so different than. Prices were different and they were more adjusted to a 7 rate. How much to the prices of assets change the scenario when you have high prices backed by low rates and then youve got to deal with the rate going back to where it used to be . Cameron you were able to see house prices go up 20 coming out of the pandemic shut temp simply because the average Mortgage Rate did not reflect that because Mortgage Rates were falling so much for the average cost of paying for that mortgage. Now when you add high prices to very low Interest Rates, thats where becomes unaffordable. Lisa you can come back at me next time. Manus you are torpedoed. Lisa so many people come on here and say you werent around. Come on, its a different scenario. Coming up, a conversation fresh, warm hot dogs when im not selling hot dogs, i invest in a fund that advances innovations like robotics. Fresh, warm hot dogs, straight out of my torso one for you, one for you. Oh, youre a messy one. Cool, right . So cool. Anyone can become an agent of innovation with invesco qqq, a fund that gives you access to nasdaq100 innovations. Hot dogs fresh, warm hot dogs before investing carefully read and consider Fund Investment objectives, risks, charges, expenses its an amazing thing and more in prospectus at invesco. Com. When you show generosity of spirit to someone. And you want people to be saved and to have a better life, then you dont stop. The idea that we have saved five Million Peoples lives, its overwhelming. Its everything. Lisa welcome back to bloomberg surveillance. Tom and john are off. Manus cranny and Cameron Dawson are here. That of a pop in the market and maybe today will be the day that earnings will take the narrative over from 10 year yields. That has been the narrative for months now. S p futures are up 0. 6 with 10 year yields marginally higher. 4. 87 percent and crude is popping by 0. 5 . Euro softness, hamas releasing two more hostages as a potential Ground Invasion by israel into gaza is delayed. John kirby saying a trade that u. S. Officials are in talks with israeli officials about a possible offense a but would not dictate terms. Emmanuel macron is the latest world leader to visit israel. In his meeting, it seems like there is a shift in tone from the u. S. Government as well as other governments around the world, trying to push for delaying or putting off a Ground Invasion indefinitely to try to get some of the conflict under control. Manus they have moved to a Holding Pattern since last friday. Lets see what emmanuel macrons narrative is. Whether its a ceasefire or the gathering of the arab nations in egypt over the weekend or perhaps saying there was not enough every discussion around that. We seem to have shifted into a Holding Pattern that has had a significant impact. The u. S. Side is pushing to tell us what the strategy side is and tell us how you see gaza. Lisa there has been a question about how to understand the signal from the noise in this conflict at a time when u. S. Government officials have raised the issue of imagery, some of which is manufactured in some is not, the battle of information. What are you looking for to understand what we are dealing with at a time in a fastmoving conflict and one that could have influence over assets and everything else. Cameron the best signals will be from oil and gold. Oil prices moving higher will be an indication that it could be a broader conflagration. Gold moving higher would be a signal that flight to safety bid if. Any of those go lawyer, it lower, it could be that issues can be contained and we can get toward resolution. Lisa there is the issue of the u. S. Ability to respond. House republicans are trying to get their act together on a vote for new nominee of speaker of the house. Multiple rounds of voting are expected to take place behind closed doors with tom eme ofr minnesota sending to be the favorite. It seems its important for some sort of resolution to this leadership at a time when the u. S. Needs to respond to a Government Shutdown and a budget deficit thats climbed by 1 trillion this past year. Cameron thats probably one of the reasons youve seen this uplifting yields. There doesnt seem to be any appetite for budget restraint. Even the Congressional Budget Office which tends to be more aggressive on assumptions has the deficit only improving to 6 next year as deficit to gdp which is high in a world where gdp is projected to remain strong. What happens if gdp were to weaken and we have a recession and you have the countercyclical measures kick in . Where is the deficit go then . Manus the deficit funding is part of the Biggest Issues in the bond market. A lot of guests talk about supply only talk about the mountain of supply to the bond market. At some juncture, if you dont have the natural buyers and natural bulwarks of the bond market that a been there for 10 years, thats when your risk changes from the supply side. Lisa especially if you dont have the price insensitive buyers. Cocacola is raising its full your outlook citing stronger performance despite price increases and other consumer pressures. Price changes across a range of products and packaging increased by 9 . Analysts were expecting a price makes increase of 6. 2 and volume still increased by 2 . This really highlights where we are, that companies are passing along price increases and they are still increasing the volume of sales. Cameron that is important because in other companies, if you raise price, you given up on volume. The fact that you can keep hiking price and continue to have volume expansion shows you the consumer is absorbing those prices. Its the guidance about next year can they continue to raise prices . What does that mean for Revenue Growth and what does that mean for margins . Manus we talk about to mend destruction inside the oil and commodity market. You look at nestles and they are raising prices on chocolate and coffee. Netflix raise their prices. Are you seeing the tailwinds turn into headwinds the next six months in Consumer Discretionary . Cameron we are seeing things like tesla cutting prices with means consumers can still handle the lower ticket items. The most important ratio to watch is equal weight Consumer Discretionary versus consumer staples. That will sniff out a turn and the expectations for consumer growth. You equal weight to remove the impact of amazon and tesla. That tells you the consumer is still in an uptrend. Lisa looking at the other stocks, looking at verizon, shares are popping. Some people at this desk has helped the profitability. The shares are up for present and General Motors shares are up 1. 7 . They were up 3. 5 after beating earnings but they withdrew guidance because of some of the strikes. We will speak with Paul Jacobson of gm about that shortly. Its interesting to see how the response to this is decent but muted. That has been the overarching response. We will see what we get after the bill with microsoft and google. To understand how this is playing out beyond the u. S. , Damian Sassower joins us and we are talking about the volatility of the treasury market. How much do you see the spill over happening in the developing world . Dm catches a cold and the rest of the world catches the flu . Its like anythingmanus says is complaining about the price. You have to look at the price of oil. You havent really seen as we seen before, oil prices spiking and it takes some weeks for it to filter in two oil. Whats interesting is when oil prices go, so go credit spreads in the u. S. And that includes emerging markets. I am focused on that because outside of that, things look kind of ok and emergingmarket assets. You look at the debt thats coming up in the next five years, it looks manageable for the majors. In places like argentina and vietnam and ethiopia, things will get a little tight for sure. Netflix, tesla, what are you complaining about . Manus lets keep everybody on track. Lets not have an antiirish momentum. You name a number of bigger risk. The oil market has been incredibly well behaved in light of some syrias geopolitical risk. There has been constraint with some serious geopolitical risk. When you look at emerging markets, oil could get to 150. As you look at credit on an escalation basis, what kind of where is the most at risk, who is there when the tide goes out . The asian currency is already flipping that and they are oil importers. A lot of their Central Banks are reacting to inflation finally. Indonesia had a surprise hike the other day. When oil rises, you will see that effect Southeast Asia the most. Commodity currencies in general, oil prices are not correlated as in years past. We got some better than expected data out of china. They are just not reacting the way weve seen in years past and that gives me a cause for pause. Cameron we see the better data from china and yesterday, we had the shanghai index closed below its october, 2022 low. What drives that higher . Youre talking about Foreign Investment in chinese equities . I will not go there. I think demand for anything thats nondollardenominated in these markets will be that much more challenging even out of the middle east. Weve seen the move and safe havens in swiss francs. We have to look closely at the japanese yen. If i look at where things are not moving as quickly, the japanese yen stands out as one where if you are looking for a safe haven and one that has followed the masses, you have to look there. Lisa you say you wont talk about this but then you talk about this. There was some interesting stuff over the week. Lets be honest. Xi jinping made an unprecedented visit and on president visit to the peoples bank of china saying he cares more about the economies were raises the question about stimulus. Do you buy into that or say im not going to go there and its not investable for me but maybe for other people. If you want your analysis go elsewhere . I will defend this. Zero is not the right exposure to have to china. You have the flexibility in your mandate to go to chinese equities and credit and chinese highyield credit. Probably not me. For the reality, its probably not zero but it remains to be seen what it should be. It seems like a trade on a rebound of chinese growth. It seems directional and something that doesnt seem like its got the sustainability for multiple quarters to play out. It seems like a trade to me so thats how i would play it. Lisa thank you. I appreciate that. Its difficult to game out was going on. What we are seeing is a bit of a pop in markets on the heels of u. S. Earnings. S p futures are up 0. 6 . There is a question about what you do when the stories are coming out of china and the question of jesus thing going to of g jinping going to the peoples bank of china but fundamentally changes the economy were u. S. Companies are moving out of hong kong. At a significant pace. How do you play it checkup cameron we usually have up policy of not catching falling knives in a regulatory environment. There is a point were something gets so oversold and so unloved and on investable that it starts to look interesting as a trade, not necessarily as a longterm investment. Anything has to be done in a risk managed way because we see this great uncertainty from a policy perspective that frankly i dont have an edge on. Manus last year, lack rock was with me and they said we can live without with only a little bit of china. Go through these moments of change in markets. How important is it because we are in the put cusp of disinflation in china, how important is that for the world in terms of what happens next in china in terms of stimulus . Cameron its mostly important for cyclicals. Everything feeds into that ecosystem. Last week was significant and machinery stocks started to trade poorly despite the idea that the pmi will be recovery early next year. Lisa some have said maybe it will not make as much of a difference to oil prices. Coming up next, Paul Jacobson of General Motors will talk about withdrawing guidance as a result of the strikes. The biggest ideas inspire new ones. 30 years ago, state street created an etf that inspired the world to invest differently. It still does. What can you do with spy . The chase ink business premier card is made for people like sam, who make everyday products, designed smarter. Like a smart coffee grinder, that orders fresh beans for you. Oh, genius for more breakthroughs like that i need a breakthrough card. Like ours with 2. 5 cash back on purchases of 5,000 or more. Plus unlimited 2 cash back on all other purchases. And with greater spending potential, sam can keep making smart ideas a brilliant reality the ink business premier card from chase for business. Make more of whats yours. The bottom line is weve got cards left to play in theyve got money left to spend. Thats the hardest part of a strike. Right before a deal is when there is the most aggressive push for that last mile. Lisa the uaw president speaking last friday, indicating we might be reaching the last mile. We are focused on the auto manufacturers at a time of uncertainty. We have a fantastic guest with us to understand the implications of the labor negotiations. Paul jacobson is the cfo of General Motors. Your reported earnings early this money and Beat Estimates the you withdrew your 14 lien dollar profit forecast because of the uncertainty due to the strikes. Do you think it will materially affect the outlook given the con turns just the contours of the negotiations now . Good morning and thanks for having me. Before i start to my would like to give a big thank you to the entire gm team for an outstanding quarter across the board including the employees that are working every day in producing highquality vehicles our customers love. Its a strong testament to everything we are going through now. When we made the decision to withdraw the guidance, it was based on not wanting to speculate on the length or scope of the strike. This is been a very different uaw leadership strategy. Its one weve adapted to but at the same time, given that we dont want to speculate where the next plant might be outcome we thought the prudent thing was to withdraw guidance despite the fact that the underlying business was performing at the top end of our range prior to this. We will provide an update with investors as soon as its over but we are so focused on making sure we function every day. Lisa can gm make a profit with a 25 raise for workers . We need to strike a balance. We said from the beginning we want to reward our people for the quality work they are doing at each and every plant each and every day. Thats a testament to the demand weve created for the vehicles we are producing which is the best portfolio in gms history. What weve also got to do is major we sign an agreement that allows us to compete in the global marketplace. When we look at the pressures and challenges on the ev profitability and some of our foreign competitors, we got to make sure we can continue to price our vehicles and produce our vehicles profitably which gives the cash to invest in the next generation, not only the models but the plant refurbishments and transformations we have to do. We have to be up to strike that balance of rewarding are people by making sure we are able to invest in our future. Lisa does 25 allow you to strike that balance . I think it does but we will not sign a deal that doesnt allow us to be competitive. There are obviously challenges that the team has responded to weatherby covid or the Semiconductor Shortage or supply chain issues. The team has been remarkably resilient and i think this is another challenge but one we can rise to. I believe we can still hit our goals. Manus youve withdrawn the guidance but im curious to know if you were withdrawing guidance, is there a risk of anything to do with dividend. Dividend and buybacks were reinstated after a twoyear hiatus so is there any court there . Our Balance Sheet is incredibly strong right now. We have about 50 billion in total liquidity available to us. We went out and got an additional line of credit about a month ago to make sure we are prepared. While the team is working at the bargaining table in order to find a teal, we got to make sure business continues to run and we make these estimates and fulfill the commitment we made to wear shareholders and we continue to do business as usual the best we can. The strong Balance Sheet will enable us to do that. Manus as i was getting more familiar with the dynamics of this strike, to close the strike feels and deliver on pensions is a british thing. Do you have a number you have to contribute to the defined pension . Is there a number you will have to make good in restitution to the pension to make this deal good . Are defined benefit plan which has been frozen for quite some time is funded very strongly right now and we feel good about that. They participate in defined contribution plan. We contribute 6. 4 before an employee has contributed anything. There is a good balance across the retirement plans. We think one that is favorable and weve been able to adjust the business to make sure we can put into the calculus Going Forward. Anything we do for retirement goes into that docket. We need to be able to compete in the global marketplace. Where we spend our money is not necessarily as important as how we spend it. We are trying to strike the balance as to whats important with the uaw. Manus if you had elon musk in front of you and you talked about prices, you probably wouldnt have a nice conversation. How brutal has his price cuts been for your plans for next year in evs . When you look at what our average transaction prices have done this year, they have been remarkably stable. Thats primarily the internal Combustion Engine portfolio. Evs do work to try to disrupt regular vehicles. Its one weve been competitive with. If you look at our ev slate, weve kept the pricing very stable and why would delivering and low quantities, we are expanding rapidly. We have a strong order book we are fulfilling and customers have stuck with us through this. In the Third Quarter, we produced about 2x the number of the vehicles as we did in the second quarters we are growing rapidly and pricing has been stable and our customers. Have stayed with it lisa do you think the prices of vehicles will go up because of the strikes . We have seen some tension and when you look at the inventory levels, there is a little bit of challenge. We saw some increases in the used car market in particular leading up to the labor stoppage. We are watching that closely. The consumer has seen a lot of pressure on Monthly Payments as a result of higher Interest Rates but we try to strike a strong balance with that. It starts with having Strong Demand for your portfolio vehicles. Gm has a very good to mend book. Lisa how much is demand starting to wane . You talk about Interest Rates going up and taking out loans and subprime auto loans are seeing delinquency at rates that are unprecedented going back to the 1990s. How does that impact demand Going Forward . We havent seen much of an impact on that demand. Its been pretty consistent so when you look at our average transaction prices, they are up yearoveryear. Wholesale volumes are up about 2 in the Third Quarter and had been up about 3 year to date. We are moving the vehicles despite Monthly Payments going up and prices have gone up. I think thats a strong testament to the product we have. We have to watch that and make sure we are running the business to be resilient. Thats one of the things we have to strike in the labor negotiations. We got to strike the balance of making sure we are rewarding our peeper while balancing the need to compete in the global marketplace. Lisa can the u. S. Truly compete with china when it comes to ev production and sales . When you look at what tesla has done and you look at the infrastructure we are building not just in the battery joint ventures but in the raw materials, we believe we can be competitive with china. Our vehicles weve got now, customers love them and we think there is more to come from the General Motors team. Lisa Paul Jacobson, General Motors cfo, thank you for being with us. Final word on how much you are looking at auto manufacturers . Cameron it will be an important indicator about wage pressures and margins going into next year because the labor market is still very tight. There is negotiating power for labor so if you see that, you have to square that with Pricing Power companies. That starts to fade come your cost could still go up and yet you will have less ability to pass on the increased cost to your customer. Lisa are you buying automakers . Cameron no. [laughter] manus that was brutal. Cameron we are longterm quality investors. These are great franchises but we care about Balance Sheets a great deal with lower leverage in high Free Cash Flow and high return on invested capital. Lisa come back soon and thank you for your insights. Coming up, we will have words from j. P. Morgans jp jamie dimon which has been delayed. We will also speak with Deutsche Bank. 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 higher Interest Rates will bite all corners of the economy. Bond market is helping the fed slow the economy. First quarter year we have a mild session. If you look at equities it has yet to reconnect a higher rate environment. This is bloomberg surveillance with tom keene Jonathan Ferro, and lisa brenneman. Lisa thank you for joining us from new york city. John and tom both off today i believe taking a cruise together in cairo. Right now we are looking at a situation where we are wondering if we can stop focusing on what we are seeing in the bond market and look to earnings. It is good to have you here. Matt it is great to be here. Thank you for having me. Lisa it feels like yields have taken on a narrative of their own. Even away from the data. Matt with the steepening weve seen in the curve the last weeks and months has driven everything. We saw the 30 year yield near 5. 2 and the rehearsal reversal that we saw yesterday driving central bank policy. The fed said it is an important driver for why they will not raise rates next week. And why they are concerned about raising great further raising rates further. So it will take time to see if this is sustained or a blip blimp. If the dirty work is being done by the bond market at 5 on the long end of the curve are they uncomfortable if the yield retraces more materially than we saw yesterday. Matt yeah. They talk about the substitution in terms of rate hikes. But in the sense that it eases financial conditions especially with the backdrop of data we had the last couple months, it is giveandtake the fed has to manage. Lisa it seems like yesterday everyone was talking about the wild ride and today we can look more at the earnings that are coming out better than expected. To your point earlier, it is a good one, wind we worry about the reacceleration of inflation . And 2024. We had a conversation with the gm cfo. He talked about the pricing of electric vehicles being stable. But hes paying or for his labor when the deal is done. Or more for labor when his deal is done. Lisa and they do not know when the deal will be done or what it will look like but he said it they will be profitable even with the 25 increase in wages for uaw workers which raises the question is there more to go . Not just with auto manufacturers, but elsewhere. Do you see that in terms of wage pressures . Matt yeah. There over the summer it seemed like the fed was getting more confidence. Quit rate coming down, Unemployment Rate edging higher. Things were looking positive. Theres a tremendous amount of uncertainty for the last data. Jobs report was strong. Retails surprise to the upside. Cpi report stronger than expected. I do think we are entering a couple months worth for the bond market perspective you see more elevated inflation then we see the last several months. The question is does the real economy slow enough to keep the fed at bay . Lisa and stocks are up if you want to look at the data. And they will have to look at this confusing brew and try to make sense of it every day makes sense of why people are sticking to their guns and looking at day today. Market volatility has been much bond market volatility has been up. 10 year yield inching higher at. 4 . Baby steps. Lisa to me this is basically stagnant but the day is young. Euros softer versus the dollar. I think it is interesting in light of what we saw overnight with the economic data. Europe in a world of hurt headed into the meeting thursday. Matt europe is under more risk. The gas tanks are full going into this winter which is different where we were last winter. But if you look at the eurodollar there is resilience in it. The euro indoors. We will see what Christine Lagarde has to say which may underpin euro. Lisa and head of investors solution is at emi mellon Wealth Management will have to answer that for us. How much are investors looking to europe as a potential weight of resilience amid the confusion with the u. S. And debt profile or the point of weakness where the consensus sinead very interesting question. Hard to look at europe as an area of resilience. Willie we know when the economy is firing on all cylinders we are at a 2. 5 percent region but we are far from that now. Germany flatlined the last couple quarters. The thing about the u. S. Economy that has been remarkable is the fact that growth is so resilient. When you translate that into a currency environment, it is unsurprising the euro is weakening as market start to realize that the ecb cannot continue raising rates because the economy is stagnating. It is a pretty unimpressive picture. When you look at the currency weakness, there is more to come probably. The argument would be, shameless plug, this show comes on before your show. Lisa [laughter] all right keep going. Would you agree with the policy error in europe . Is there anybody in policy making a mistake at the moment the fed or the ecb . Sinead interesting question, but when we think about policy error the ecb raised rates in 2008. This time around is very different because they have to get inflation under control. The biggest problem is central bank has is when asked Inflation Expectations are unanchored. Were not in that territory yet but we are likely to see more pauses compared to the continuous hikes we are seeing. I do not think we are in that territory yet. Ok if we step back we see violent moves at the long in 30 year and 10 year cascading lower. I walked in this morning and i thought why are equity markets not more on the back of that . Thats a question i have for you. Why is there not more of a equity kicker a significant move in the bond market. Sinead there are many things happening with equity markets and earnings are in focus. I also think that weary in the midst of a regime shift where we more volatile fixed income markets. They have for the last two decades been home or calmer. Were going back to the past where we saw volatility in the bond market. Thinking about the euro, the market has been pressing this constant rate cut cycle from the fed. It seems to be reluctant to price out for the ecb, is that what is needed from a driver for the year lower . Theres a big economy in terms of how the market has been in terms of the rate cutting cycle. Sinead the ecb operates differently to the fed. The inflation mandate is different they have the 2 or lower mandate on inflation meaning they are slower to change trajectory. Having said that, the ecb has never been in this territory before. As we see weaker data, weve had that in terms of the pmi data this morning. We saw in the u. K. , and the euro zone, Market Participants will look at the slowing data and move ahead to the central bank weakening the currency. In terms of, im looking at your positioning, you are mutual neutron equities, you favor the u. S. On international exposure, with that in mind, when you see the 8 drawdown to now, does that reflect enough of a reaction in u. S. Equities lower to the higher bond yield. . Sinead we are longterm investors. When we look at the trajectory of equity markets we look at 3, 5, 10 years. Yeartodate, we are probably, as surprised as most were that u. S. Equity markets behaved so strongly in the first half of the year. Even yeartodate when you take into account the losses in q3 there is still positive territory that is driven by seven major names. The recalibration indeed or the magnificent seven. As we think about the trajectory for equity markets from here, we are constructed of constructive on earnings. Theres a little bit to come down in 2024 earnings expectations. Weve not seen a walk down so far but we think rockets markets have started to price in different expectations. Lisa ok thank you so much for being with us. Sinead colton grant of bny mellon Wealth Management thank you. I did not understand the ecb reaction function and how Christine Lagarde will message anything this thursday. Matt its a perfect environment to wait and see. The feds mantra is proceed carefully and you will hear that from the ecb as well i think. And the market may focus on the Balance Sheet. Do we get indications on the changes in qt as we look ahead . Thats an Important Development as we think about the bond market and what is happening on the long end of the curve. Central banks are waiting and seeing theres a lot of risk out there and theres nothing pushing to mesh pushing to move urgently. Lisa and we might see a recession unfold based on the pmi we got overnight with the euro 10628. Covering and the 106 level even after people were calling for parity. S p futures hanging out around the half percent upward gain. 4261. And four point 87 for but 10 year yield. Im glad youre here 4. 87 percent for over 10 year yield. Matt we are not looking for crafting reports but in terms of thinking about summarizing big groups of tech, looking through fed communications, it could be a useful tool as we look ahead. Looking at things like titles it could be helpful in terms of guidance and reports at the moment. It is something we are looking into. If you look at the research, they are very bullish on how ai is likely to drive the economy. Something we are looking into closely. At the moment it is not something that is helping us. Lisa i think it will be a leading thing. I see my kids using it all the time. Matt i was doing research for today show. And its a repopulated my page with a wrath of information. And it ticked me off immediately when you do the Proper Research but i am definitely out of a job with this. Lisa it is an issue of will this be an efficiency metric that will remove interns. What did interns do anymore . Hold on the second of a have a job . Matt yeah there will be some substituting. Absolutely. Lisa coming up next we will not speak about this. We have dr. Omar alrazzaz former Prime Minister of jordan. An important conversation with the tensions overseas. From new york, this is bloomberg. I need a breakthrough card. Like ours with 2. 5 cash back on purchases of 5,000 or more. Plus unlimited 2 cash back on all other purchases. And with greater spending potential, sam can keep making smart ideas a brilliant reality the ink business premier card from chase for business. Make more of whats yours. In the u. S. We see millions of Cyber Threats each year. The ink business premier card from chase for business. That rate is increasing as more and more businesses move to the cloud. So, the question is. Cyber attack as cyber criminals expand their toolkit, we must expand as well. We need to rethink. Next level moments, need the next level network. [speaker continues in the background] the network with 24 7 builtin security. Chip . At t business. Iran continues to support hamas. In some cases they are actively facilitating the attacks and spurring on others that want to exploit this for their own good. We know irans goal is to maintain some level of deniability but we will not allow them to do that. Lisa that was John Kirby National Security Council Spokesperson as a conflict in the middle east continues to escalate in certain pockets. The key question being winded we get further escalation still. And bring in some of the other regional actors. This is a person who has insight in the geopolitics and psychology in the region. It is written to get is opinion on the matter. Omar alrazzaz former Prime Minister of jordan currently a lecturer at harvard. I want to get your take on how far things have escalated and whatever the chances of things turning into a full fullblown regional war from your vantage point. Dr. Omar thank you for having me, yes, things do not look good as far as i can see. We all live in a global world, anything that happens today anywhere in the world can escalate regionally and eventually globally. That affects everything. That affects the economies of the different countries, especially in Uncertain Times like these. The problem with the approach to the middle east and the palestinian israeli conflict has been ignoring it. It is assuming that it will go away. It is assuming that if we create economic links between israel and countries in the region, they will see their mutual benefits and somehow, or somehow the palestinian issue will die. This did not happen over the last 4050 years and its not going to happen area what needs to be done is address the cause issue. That can be utilized by iran or others, regional powers. The cause issue is that there is still no to state solution. Theres been commitments over the last 40 years toward the solution. The u. S. Supports are to state solution where palestinians and israelis live side in peace and harmony. On the ground, nothing is happening. People in the region are really supposed really frustrated. Palestinians have zero hope and this creates the ground for what we are seeing today. Lisa at this point with where we are right now how do you go about creating Something Like that where hamas is the leading institution over gaza and has a real dominant position in society . Dr. Omar well, the first step is to deescalate. Make sure that humans are not being used in this conflict. Innocent civilians. The lack of food, water, medicine is a major issue. Israel has started to allow small shipments and needs to be opened up. The civilians cannot be used as a part in this game. That is very important. Anybody who has captured this process, civilians should be returned and i think also this has started the first challenge is to deescalate and the second is to start addressing the fundamental issues here. The palestinians need a state of their own. Whoever you are negotiating, they never truth and the Israeli Government is what we have is a right wing Israeli Government and that tends to be want to control all over west bank and gaza. U. S. And western pressure, these sides can sit on the table and talk about the ultimate issue of sustained palestinian state. Without that we will get an explosion like we have seen. Good morning. I reflect to the weekend. During the summit, they said that Ministry Solutions do not work. And macron is they calling for a Peace Process between the two and a hold of settlements on the west bank. Do you see this narrative building for a ceasefire . Do you think theres any real possibility of a ceasefire or do we have to live through some kind of invasion first . Dr. Omar i think a grand invasion would be a catastrophe because there are still over 1. 5 million civilians in gaza. Whenever they moved to southern gaza, they get bombed in the process. A ground in Asian Invasion will not help the issue. It will convince people in the region that this is a onesided view from the u. S. And the western allies that they see israel as their only ally and they support it matter what. They give it the green light to carry out what could be seen as a cleansing. And war crimes. And that is what he was talking about. Lisa as a lot of people would say israel left gaza in 2005 and hamas had a opportunity to roll. You say that to should come together to come up with a solution. You cannot choose the government. If you have an entity that is designated to a terrorist organization and has a goal of killing the other people, do you negotiate a solution . Dr. Omar first of all we cannot say israel left gaza. They surrounded gaza with an iron iron wall and control the exit and entry into the region. It is the biggest open air prison in the world. I think these types of, this becomes a Fertile Ground for extremists on both sides. Lisa but out of respect, egypt also blockaded them. There is not a willingness for other regions others in the region to open up and offer more assistance either. Dr. Omar let me distinguish here between opening up to the liver assistance and what israel and other western countries have been pushing for. Egypt to open up to absorb a wave of Palestinian Refugees into egypt. The first one, the entry into the gaza from the egypt side was opened until recently, the time it was bombed, and that is when it closed. The idea that egypt or jordan said it should accept more displaced refugees from palestine into jordan and egypt, that is the palestinians do not want jordan and egypt do not want it and it is not fair. It is part of the, if i may say in a double standard, why should palestinians leave their homeland and become so desperate . Thats been the case for many palestinians living in refugee camps in the last 4050 years. It is not egypt and jordans responsibility. Ultimately, yes, you may not like your enemy, but you have to sit at the table. Whoever it is. And by the way, is ray they had the Palestinian Authority in the west bank and they have weekend that Palestinian Authority. Why have they not negotiated a palestinian state in west bank. It does the opposite. It arms the settlers to continue to evict palestinians out of their homes and land. So, i really, without pressure on israel, from the u. S. And it allies, israel, is specially this government, will continue to do what it is doing and it will not lead to peace. Its going to lead to escalation. Lisa thank you so much for being with us former Prime Minister of jordan. As we try to understand how to resolve a conflict right now that does not seem to be in a very good place. From new york, this is bloomberg. Anagement 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. Explore endless design possibilities. To find your personal style. Endless hardie® siding colors. Textures and styles. Its possible. With james hardie™. Hi, im jason and ive lost 202 pounds on golo. So the first time i ever seen a golo advertisement, its possible. I said, yeah, whatever. Theres no way this works like this. And threw it to the side. A couple weeks later, i seen it again after getting not so pleasant news from my physician. I was 424 pounds, and my doctor was recommending weight loss surgery. To avoid the surgery, i had to make a change. So i decided to go with golo and its changed my life. When i first started golo and taking release, my cravings, they went away. And i was so surprised. You feel that your body is working and functioning the way it should be and you feel energized. Golo has improved my life in so many ways. Im able to stand and actually make dinner. Im able to clean my house. Im able to do just simple tasks that a lot of people call simple, but when youre extremely heavy theyre not so simple. Golo is real and when you take release and follow the plan, it works. Its an amazing thing when you show generosity of spirit to someone. And you want people to be saved and to have a better life, then you dont stop. We have been able to reach over 100 Million People impacted and affected, and at risk of hiv. The rocket fund takes all of the work that were doing, all over the world, and looks at the most effective ways, to get resources to them, to get services to them. The idea that we have saved five Million Peoples lives, its overwhelming. Its everything. Lisa about an hour ago we had the u. S. Open. We see a lift persisting through the recession as we have earnings outperforming. Tom keene Jonathan Ferro off, maybe together, may be alone, i am very much in. And then we have Deutsche Bank joining me. And the future is up. 6 at 4265. Yields player sit. Quitessent. We see in the currency space a bit of dollar strength. It is more of a euro story rather than a dollar story with pmi coming out stronger than expected. Crude all over the place. Are we escalating or deescalating . Hard to know what is going on. Crude will work through that. I want to catch up, weve been talking a lot about what is going on in the middle middle east, there is so much disagreement. How much does that underpin the discussion . As an outsider, someone who just arrived in the country, you look on the world stage a disemboweled, not disemboweled, but a weak moment for u. S. Politics. You have money and it is delayed but it is presumed it will come. This is a country politically that is really pushing against one another in the capital. Not necessarily the rest of the country. Ive not been outside of the new york outside of new york. Lisa it is everywhere in the country. How much is there dealing with this issue with the dragon economically . Matt im not sure if it creates a big economic drag. When november 17 comes up, the drag is limited. We estimated at 0. 1 growth per week. The bigger debate for markets is where does the speakership and up . Where does the Government Shutdown debate in terms of physical judgment, does it lead to cuts in fiscal spending when we look ahead . The market is focused on supply and and environment with a lot of stimulus with a good economic backdrop. Key changes to fiscal spending over the year will be a key driver for markets. Lisa we did not know who the speaker of the house will be but someone who covers that every day we have our reporter in washington. What is going on, are there eight, 9, 7, are there new interests into the field . Annmarie great question. Last night they left the forum, the House Republican conference where the fish fresh faces were able to pitch what they would do when they get the gavel and then the whittled it down to eight individuals. And coming out of that, it seems to be in individual that is leading the pack, tom emaar, part of the leadership. He is third or fourth in the leadership line. He has a lot of whip and support from the caucus. When he goes back in, there will be ballots probably 23 it will be because you have to get a majority behind closed doors and then the individual will be the Republican Caucus nominee for speaker. This will be the fourth one. We had Kevin Mccarthy, steve scalise, jim jordan, and he will be the fourth nominee. We will likely get the name today. The question becomes, can that individual get to 17 votes 217 votes on the house floor . That is what has made this process difficult. Even if an individual has a majority of their conference if they cannot get to 217 on that floor, they cannot become speaker. We been here before with the previous candidates. And steve scalise, but does this one have the numbers, where is he fiscally . We have a conversation from Deutsche Bank and what the markets want to know is who is the speaker, if it is him, how fiscally tight is he . Annmarie great question. If it is someone like tom emaar, he is seen as more moderate or someone the democrats could work with. That is why punch bowl news this morning is reporting there is a chance some democrats may vote present or may not show up to the vote to make it easier if tom imre does become the nominee. Theres going to be a house for vote to help him get and clear the line of getting to 217. The Biggest Issue this individual is going to face is, of course, november 17, we have another threat of a Government Shutdown. Remember, it was former speaker Kevin Mccarthy who put a continued resolution on the floor and it ended up costing him his job. Will we to another situation like that . We should also note that tom imre is leading candidate right now but someone else potentially could pull it through. They both left yesterday saying they will make calls. Kevin heard said he did not come here to be number two or number three he came to be number one. And he becomes for the next point of the process is that if they do put a continued resolution on the or, will they be ousted on the floor, will they be ousted . And november 17 will be the pressure point. There is the boat to give more power to the current speaker pro tem patrick mchenry. Its chaotic and theres a lot of different avenues that can happen. If someone tells you they know what will happen nothing they are lying. [laughter] as we look ahead to get a speaker elected this week, how to different outcomes impact the resolution of the Government Shutdown next month . Do we think the republicans are looking to put volatility behind them and coalesce around keeping the government open and thinking that is politically damaging to go through a Government Shutdown next month or should we expect volatility bleeds over into the actual policies as we look ahead as well . Annmarie you can expect a lot of volatility emanating from capitol hill. That has been a serious place of volatility throughout the entire year. President biden had it cut had to cut short his foreign trip at g7 he was supposed to go to australia. So you can deal get that deal with the United States hitting the debt ceiling. And real fiscal calamity. What i would say is terry haynes of pangaea has said the more chaotic this is, the longer it gets drawn out, the closer we are to november 17, the likelihood that we will have a stopgap funding measure go through will be easier because the republicans will recognize we wasted a ton of time bickering amongst ourselves trying to get our house together. We have to keep the government open so we can move along and get down to the business that many in the Republican Party want to see which is passing appropriation bills. Lisa thank you so much for your insights. I am sure we will be here tomorrow at the same time talking about how there is no house speaker. And joining us is matt from Deutsche Bank. And in perspective how do you look at this and understand what drag this will be . We do not know how much fat is in acting how much that is impacting yields. Matt absolutely a lot of what we see with the physical outlook and the budget outlook has been known for a long time. I think the market has known you will have this big supply demand balance in the treasury market for a long time. And the question is what kind of catalyzing event brings it to the forefront for the market question mark that is what we as we look at for the market . That is what we look at and next week will they show they are taking into account the market moves. That will be an development. From the fed perspective communication is limited at the moment. They are tweaking qts in response to the bond market move but that seems unlikely. That is only an environment where they are seeing a lack of market functioning. Significant illiquidity, absent that, i think the fed is willing to lean on autopilot for qt at the moment. Everyone is trying to understand what is driving this year policies and the bond market as we see. Everything turned around yesterday. There is a story this morning, the deficit is the whited whitest it his widest it has been since 1915. This is the reality and there is no buyer as we discussed this morning in qt, qe excuse me. When you read that kind of step, unit need to understand the size of fiscal deficits in this country. If you do not have qe, does this get worse . Matt i think one of the most striking charts when you look at the budget deficit and Unemployment Rate, typically theres a nice relationship between the two and historically we run large budget deficits with the economy. It has been very anomalous on that perspective with large budget perspectives. The unemployment late rate has been low. It helped put steam into the economy this year. And there is real gdp growth or q3. As you look ahead, you are right. Some of the price insensitive buyers that we typically think of, Central Banks are not they are. Banks are likely not there with their portfolio. You rely more on buyers, the household sector, hedge funds, and it leads to greater implied volatility. And larger moves. It suggests that higher yields are needed to make the market clear. Lisa what happened to the concept that was held high in economics that more that lead to lower rates . Matt yeah. More debt can coincide for lower rates for a period of time until it doesnt and i think that is where we are right now. Lisa how much are you concerned about a reacceleration of inflation on top of this russian mark you have biz, it has not worked, and easy cocacola passing on 9 increases, is that surprising . Matt when you look across there are anecdotes on both sides. You hear a lot that Price Sensitivity is increasing. When you look at the surveys, there is evidence of that. And i think it is very idiosyncratic where it is not pass through. I think there is a backdrop where inflation could form and it is well known items. We have cpi picking up. Use car prices and prices are going to be picking up over the next several months. It creates an uncomfortable environment for the fed if the economy does not flow. Does not slow. Who is more uncomfortable the fed or the treasury . Matt thank you it is not crisis, but it is chassis. Matt they may decide next week that at the long end of the long end of the curve there is a greater term there. For the fed, i think we were all hopeful as we got through the summer months that everything was trending in the right direction. The labor market was moving in better balance, growth was slowing, core pce inflation was 3 annualized change. We were hopeful that we could get it back down to 2 . The comfortable part for the fed and where there is greater risk you can make a lot of progress getting down 3 inflation but that is where the progress stalls out and unido weaker labor market to go and you need a weaker labor market from there. Lisa you have a concern from wages. We spoke to the cfo of General Motors, are you seeing that as a sign of a peak in terms of labor market power are the sign of more to come . Matt my take is that it is the sign of a peak. When we have the broad maker data people are quitting their jobs at a slower rate than they were 15 months ago. Expectation from Small Businesses have mostly normalized. The backdrop is one in which where labor demand has come down, Unemployment Rate has picked up, labor supply has ticked up a good amount and it lead to better balance in the labor market. You still have pockets taking place in highly unionized areas. You have wage increases spilling over to price increases but probably the labor market is showing evidence of overcoming the odds. Lisa that is the feeling from a lot of people. Reports that wits are coming down. Did you get some of the messages where when you look at the notices, these are the data that people are pointing to that show signs of softening that gives you a sense of how unreliable the major data points are. We get a major data point at 9 45 a. M. And in the open, in the next hour bob elliott of unlimited funds, and mandys you of sebo and Collin Sebastian of bayard come through and say yes we are moving to earnings and focus on those yields. More on that coming, from new york, good morning. lies ahead of me seems impossible to face a lovely day lovely day lovely day lovely day a bank that knows your business grows your business. Bmo. 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. This is a big week because historically this is the week, the third week of earnings season tends to be where you see earnings expectations move higher. If that does not happen this week, i think we will be challenged at the year end rally Going Forward. It is all down to this earnings season. And that is officer raymond jaynes. And they let me in charge of his could be tricky for 15 minutes. Joining me is Mandeep Singh it is a relief to see me rather than the other three isnt it . And part of magnificent seven, i will deliver it today. Talk with me about alphabet, whatever way he would like to look at it, are they more immune because ive got to advertise on the platform relative to that is the consensus. Do you believe that . Mandeep yes. The divergence in expectations also. Meta is expected to grow 21 , google. As well. When you parse through their data the resilience will likely be good. They are not losing any share to openai and youtube. The 10 is a low buoy, you should expect some upside they are. Clout another big segment for them. We used to get very obsessed, with what happens with cloud and amazon with alphabet. How has that grown and where cannot get to . How important is it . Mandeep yeah you have amazon, microsoft, and google that makes 180 billion in cloud revenue and they were making north of that this year. And it has decelerated 1820 , the growth. Everyone is looking for acceleration next year because these companies are buying all of nvidia cpu and if that does not translate into real data, we have a problem. But so far the story is that they will provide the capacity for generative ai and that will be reflected in 2024 numbers. And that is prickly important to amazon as well. Amazon will be a lovely insight into how strong we are or are not on the consumer side as well. Mandeep yeah amazon is the largest player in the the public. It is about 45 and microsoft is the second big player. In the case of amazon, everyone is thinking they are behind in the generative ai race. The other two are ahead, but clearly, they are the largest player in cloud. If anything is generative ai, it will it celebrate the shift to cloud because you can only do ai trading on the cloud, you cannot do it on pride prima. You have the magnificent seven. You print those two letters and you are off to the races. Mandeep the 2024 guide is important. That is where you see companies that guide to the lift from gpu revenue on the cloud. That is where youre going to see the multiples and the estimates go up. So far, its been a huge investment. Everyone is hoping 2024 translates into revenue. If i talk about microsoft, it is interested in all of the aspects we touched on with a little bit of ai, and a great dara deal apply. But for them the hardware side is there as well. Where does microsoft fit into magnificent seven . Mandeep they had the open early ai or ship. And that help them establish iterative ai leadership. I think the pc side is still weak and you see a decline in the windows revenue. Clearly that has not changed everyone is calling for a pc bottom this order but we do not know if that will be the case. And next year it could be microsoft takes a bigger hit. Mandeep microsoft has a lot of applications softer revenue. If they dont add the copilots to really complement that, if theres actually real destruction for iterative generative ai would say that microsoft is at risk but no one doubts that office will continue to be strong because they added the copilots and that will be a nice add on to what we already have from the office suite. Europe is under pressure. We can argue about a recession technique the. China you can debate whether they have 5 growth or not. It is tough in china at the moment. With those two global markets, very much under pressure, who is perhaps the weakest link in the magnificent seven vicariously exposed to the china story . Mandeep i would say apple. From a revenue perspective, 20 percent revenue and supply chain exposure is huge. There is a big risk that lies with apple. Other ones are somewhat insulated because they do not have a lot of revenue exposure. That is where the internet names like alphabet and meta, they have no exposure at all. Clearly apple is the one to watch out for in terms of the geo revenue in mosher. Exposure. Thank you so much for stopping by. That is Mandeep Singh on all things technology. We have met from Deutsche Bank rounding out this three hours. We covered the globe, but it is interesting when we talk about tech, and you go back to your report as to whether you are using generative ai, what i want to pick on is pick up on is the china conversation. We are so centrica in the United States and europe and u. K. And different geographies, perhaps have we spent enough time in the past three hours talking about china and the risks . Matt yeah i think certainly it is a big driver of the u. S. Global economy. It is less so, tends to be a driver of the u. S. Economy. We think about the beta from china growth to u. S. Growth it is a zero growth up to 20 . Not harbored by the states. Matt when you look at the u. S. Economy, 20 consumer is domestically oriented. And particularly in the current environment where services is a big driver of it. That said, you had several speakers over the last couple weeks highlight the Global Economy is a key risk factor. I would lean a little more toward the potential lag effect in the Monetary Policy kicking in, the tightening of financial conditions, and those being key drivers for risks out there to the downside. No doubt, fed officials are taking notice. It is staggering. Mortgage rates at 8 , buying a new carb will cost you more this time around. New car will cost you more this time around. At what percent does the Mortgage Rate kick in . With property sales, i understand, a lot of people already loaned their property at 2. 5 in the last few years. When does it matter when we have Mortgage Rates at 8 . Is that a long variable lag . Matt it is very long variable lag at the moment. It has impacted housing activity. We see mortgage purchase applications at the lowest since 1995. We see home sales that are collapsing. But at the same time the household Balance Sheet is effective from this because are insulated from this because people locked in 30 year Mortgage Rates at 3 . And it has an effect on other parts of the economy because of that people do not want to sell their homes. There was a lack of job supply you have job needs in different geographies that people will not move to. There are knockdown effects. Theres an impact, but the key channel of transmission onto the household Balance Sheet is not as powerful as i think it would be. In terms of the actual, keep going into until they break something. That is a narrative that comes through. The fed are trying to tell us they will see carefully. Jamie dimon does not whether it is 25 bits bps or not. Is he right to not be concerned . On the margin i am no phd economist, but on the urgent 25 basis points will not make or break the economy, is it . Matt i agree the debate that we have in several months is will the fed will more time or not, that is a good outcome for the economy and soft landing prospects. It does not have a Material Impact on economic outlook. Where i think the risks lie are that several months down the road you have a lived in inflation. Thats the biggest risk of all of whether there is a Second Coming of the brutality of inflation. Matt not that we saw last year but to a level that is uncomfortable for the fed particularly if you have a backdrop of strong growth. And i think the fed debate is not if they go one time or not but a debate of how much further they may have to go. The bond market is doing a lot of work or the fed right now so the market is not it is ringing forward some of the risks. Three months down the road i think we could really see that. Ok very plentiful plate to choose from. That is met at Deutsche Bank. Our guest this morning rounding out this. Tom and john are somewhere on a cruise i have Good Authority lisa could not take much more so she let me to rounded out this tuesday. There you go you have a small bit to equities. Why is it not stronger on the drop in yields russian mark are drip along after a brutal day yesterday. Good morning from new york. Up next. This is bloomberg. So, youve got the power of xfinity at home. Now take it outside with xfinity mobile. Like speed . 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