Your equity market slightly negative on the s p 500 for the second or third time this week, waking up and looking at china. To the data and commentary around that economy right now. New loans extended on chinese banks ranging to the lowest since 2009, there are concerns about what is developing in the worlds secondlargest economy. Tom you look at the income statement dynamics and the Balance Sheet statement dynamics. I agree. I believe i mentioned this the day before. The flows on the Balance Sheet in and out are what matter. This is fbi from us to them off a cliff from them to us. Maybe not a cliff, but it is down. Jonathan the data dropped in the last hour. The response clear from many on the south side. Stop gin weighing in. We will see. We have not seen it. Lisa what kind of stimulus when they are concerned about debt load in local governments . If they want to move away from leverage and create a more sustainable economy, how do they stimulate the economy where you look at these local Government Debt piles that one Goldman Sachs estimate has a 13 trillion outstanding. Tom this is important. I mentioned this earlier, i got heat for it. Federalism in china is different than here. It is not like a federal government with capital. It is always devolved to the cities. The critics will say it borders on an organized structure, whenever. If shanghai gets a focal point, my Knowledge Base is, there has got to be more than just shanghai involved. Jonathan to get to the president s comments at a fundraiser yesterday evening. With this to say, chinas economy is ticking time bomb and referring to leaders in the communist party as bad folks. I thought at the time, the administration was sure was trying to shore up ties with the chinese government. That is not going to help the cause. Tom i will put out an article in the Foreign Affairs magazine from eight months ago that goes to what the president is alluding to. We need to be delicate. There are things we can and cannot say. There is this because of how did mr. Xi become mr. Xi . How did the leadership in china become who they are . Jonathan you are censoring this, is that what you are saying . Tom they are in my ear saying, tom, shut up. Lisa joe biden did not shut himself up. Does this fly with the Economic Policy they are trying to do . You are trying to tow this line between trying to prepare live relationships and communication to avoid some error. Then, bad folks, ticking time bomb. It is not going to go over well. Jonathan can i share this line with you that the president shared with potential donors yesterday . China is in a position where the number of people who are of retirement age is larger than the number of people of working age. If you are in the business of correcting politicians, you would be busy. We had to write in the story this morning, a statement that was not only incorrect but off by hundreds of millions of people. You wonder, politicians Start Talking about the economy, where do they get these ideas from . You cannot reconcile with reality. Tom this is the heart of the matter. They are playing to the domestic audience of the United States of america. The china people we talked to, they are looking at far more than just three cities on the pacific rim. I had an offspring once. I said, where are we going . He mentioned some city i could not pronounce. Jonathan are you losing count of children . Tom i am talking to cash flow. I am talking, are we going to some city i cannot pronounce . He said, it is one of their 14 pittsburghs. That is china. 14 pittsburghs. Jonathan lets turn to price action this morning. Equity market s p 500 negative by 0. 1 . Heading for a second week of losses on the s p, the longest weekly longest longest weekly streak since may. Yesterday, yields up and away. Even after that cpi print, it was about San Francisco fed president pushing back a touch. That issue at the longer and, the 30 year auction softer compared to the 10 year and three year. Lisa selling at the highest yield going back to 2011. The latest read on inflation, 3 00 a. M. , u. S. Ppi input prices for a lot of companies. It has fallen off a cliff, going to zero until now and is expected to take upward particularly with the increase in oil prices and Commodity Prices. Mohamed elerian was great on this yesterday. 10 00 a. M. , university of Michigan Sentiment survey. How much does this rollover as a result of Higher Oil Prices . 12 00, world Agricultural Supply and demand estimates come out. An hour later, rate counts from the acre hughes rate count data. I want to understand whether we are reaching an Inflection Point upward with wheat. How much does that become a persistent story in the backdrop huling a little more inflation of the very bad kind . Jonathan dan morris joins us now, chief market strategist. Is it too early for this fed to declare victory . Oh, my. Yes, definitely. We do not see any possibility for the fed to be cutting rates until next year. That is under a fairly benign scenario for the outlook on inflation. There one they are going to want to see a trend in the headline figure for inflation. Tom there is a global view, a u. S. View that people are comfortable with right now. We are not believing the good news of disinflation. What do we have wrong in our interpretation of disinflation is in place . Daniel i think what is notable with the cpi data we got yesterday, which was about as good as you could hope for it was around expectations, but i did look at the core figure. When we have monthly core core inflation above 2 for three months in a row, that is encouraging. The market should have reacted more positively. It is notable that with stocks with nasdaq, you did not see any bounce. What is driving tech stocks has been the x rotations for policy rates and inflation. For us, it is good news has been priced in, growth is going to slow whether or not we get to a recession and i think that is what we need to price into u. S. Equities. Tom where to invest now . Take the oh take the econo babble from august and. Daniel we are optimistic on u. S. Rates both nominal and tips. If you look at the level we were at a week or so ago when we got above 4 , over 2 on real yields, we thought that was attractive. Those sectors, it is starting to come down. We think there is more potential there. We have got to price in more inflation or more growth. You are at levels that are historically like historically high. We think the outlook is on a risk reward basis most attractive. Lisa i wonder what your take is on the price action past couple of weeks. We could be poised for the first back to back losses on the s p going back to may. You can see the biggest potential back to back losses on the nasdaq of the year. Is this a recent moment or is this basically the one drawback the people are going to get that everyone is going to swoop in and by . Daniel i think that would be a bit too optimistic. I think a lot of it is how the markets or where x rotations were at the beginning of the year. Now that the market swung to be more optimistic about the outlook into a soft landing narrative when you have had 40 gains in the nasdaq, it is hard to see that continuing from here. We are expecting subpar performance or u. S. Equities, for tech stocks and are looking for potential out of asia and china. Lisa are you selling aggressively on margins when you look at where the gains are in anticipation of what you expect to be a tumultuous end of the year . Daniel we have already going underweight on the u. S. I do not think expectations are to increase the underweight. I think we are happy with that right now. The overweight we have in china to materialize and given the data we have had recently and may not come immediately, we are still optimistic that will materialize by the end of the year. Jonathan Pricing Power in america and labor power. Where do you see that Pricing Power sector to sector in the United States right now . Who is going to be able to get margins to hold up and expand in the next year or so . Daniel that Margin Expansion you can see in Earnings Growth or consensus estimates for Earnings Growth. We are not confident that is going to come through. We think the risk is that doesnt happen, you do not see many sectors able to push again those price increases on the consumers. You see the contraction in margins and those assessments start to come down. I think it is the set it is the opposite scenario is more likely to happen. Jonathan good to catch up. I bring that up after the mess we saw yesterday. Gm coming off the back of its worst day of the year so far, the stock hammered this morning just about positive in the premarket but one to watch. Lets go through a few. 46 percent wage increase, the restoration of traditional pensions, costofliving increases, shorter working week and a retiree benefits. One analyst said these names right now in the penalty box until this is resolved. Tom that famous bloomberg surveillance phrase, there is absolutely no alternative. We heard that at the Renaissance Center in detroit. We were there for the upset of the Auto Industries steve ratners cars are was there on that given day. There was a labor shift there from my childhood and 170,000 teamsters, down to something that was lower wage. The unions want a jump condition back to what they remember from their fathers and mothers. It is as simple as that. Jonathan these brands now need to compete with tesla. Tesla was up yesterday as they were getting hammered. We are all familiar with the why. Lisa the story is, basically they have been cutting back expanding and have been not tied to unions. They have pushed back more aggressively. Elon musk has come under fire from that, including from the president of the United States. We have General Motors and ford talking about 80 billion of cost for each of them if the uaw comes through with asks. We heard this yesterday from people who came on the show. Victoria vern and as said, i am not going to go for a company that could come under pressure from the unions. Jonathan out of how did these brands compete . Tom they compete. It is like disney world, where this strategic gauze, does it work . I am seeing in the zeitgeist eeev is 7 of the auto public. Ford and gm and the rest of them including the european bankers have to figure out, how do you do the labor construct to make profit with your holders demand given the seismic technological shift that is a complete mystery . Lisa how do you get workers on board because they are not happy with the electric vehicle policies . Tom the income is cratered. Lisa have we reached a point where labor still has power because of the declining working age population . Does that because a ranking in margins that we have not seen yet that people are not going to account for . Is this a name by name story or broader . Tom i did not live it, you did not live it. John, you lived it. The midlands of england was autonation. It is appeared. Why did it disappear . Jonathan the coventry was the detroit of the United States. You can book you can blame a lot of things. A lot of people would say collaboration. We can also talk about evs not been great. Did you see the new Cadillac Escalade . Give me a break. Electric, green, good for the environ it. Lisa yet the size of a building. [laughter] jonathan from new york, this is bloomberg. We are at a watershed moment in our economy. I am not just talking about the flight fight against inflation. Inflation will gradually make its way down. It is not a data point that says victory is ours. There is still more work to do. That is committed to resolutely bringing inflation back down to its 2 target. The Federal Reserve has a dual mandate from Congress Pretty first is to foster stable prices. Inflation has been too high. And bring it back down to our target of 2 . Jonathan fred president s agree on one thing, there is more work to do. Whether you believe the means more Interest Rate increases are holding them there for a longer period of time. We will see if the fed officials take effort views on that. Equity market s p 500 index, this rally faded going into the close on the back of the inflation data. Equities up. It started to fade as mary daly started to speak. A soft tissue on the 30 year maturity out of the treasury. Three year went well. 10 year went ok. 30 year not so good. Yields up this morning, down a touch on a tenure. 4. 0 9 on a 10 year. The euro at the moment, 1. 09. In europe, i am looking at china. The data from china this morning, not painting a picture of an economy that is riproaring on right on fire right now. Tom i am going to get to euroyen. The global head of g10 at Standard Charter with all sorts of economics on the American Economy and the distant ration witness yesterday. Jonathan steve, wonderful to catch up with you. In foreignexchange, why is the euro not weaker given what is happening in china . High thick the market once to sell i think the market once to sell dollars. The market is pretty long dollars. I think most investors think the inflation is disinflation is in the bag. I think they are waiting for the Economic Data to slow down, so that the fed hikes go out of the picture. The prospect of cuts come in. One more thing this does not happen all the time. This is a relatively rare situation. Right now, the u. S. Is a highyield or and Market Sentiments is risk off. We have to see some action on the yield side for the the market want to do to resume. Tom you go to six month annualized, yesterday there was an interesting idea of where to look for the rate of change of disinflation out there. The key question for listeners and viewers is, when we move, does it take forever to shift to a disinflationary central bank, or will it be to use the economic phrase, suddenly . Steven suddenly in the sense of the lord, first slowly, then very quickly. I think the fed is not about to give order until it gets clear the u. S. Economy is slowing again and they feel comfortable writing the phillips curve. If they see sign the inflation the economy is weakening, then rate cuts will quickly calm into the picture, not slashing them down to zero but 25 year, 25 there. Right now, they do not see the upside as mary daly said to declare victory. Even if they are right, it is not going to help them. If they are wrong, it would be catastrophic. Lisa last week, everybody was talking but political and fiscal risk. All of a sudden, that would matter for currency traders. Is it . Steven i think she was right to downgrade the u. S. Is different from 2011. 2011, we came out of the fiscal debt crisis with a strong fiscal deal that limited spending. This deal in may enshrines most of the spending we had during the covid period. It is not just owing to go away. The combination of the absence of a mechanism to arrive at a fiscal outcome, plus the settings that are looking in a wrong direction the u. S. Is not going to go bankrupt, it is always going to pay its coupons, but whether pair it with a weaker dollar or higher inflation is the question. Lisa some people are to beating the recent rise in yields to this idea of Political Risk and fiscal uncertainty or fiscal largesse when it comes to the debt. Other people say it is a story about the bank of japan, money flows, not necessarily coming in the same way from that economy based on yield curve control. Maybe being tweaked, maybe being abandoned. Do you agree with that . Steven i agree with the first, not the second. There is nothing meaningful in the bank nothing meaningful the bank of japan has done in terms of limiting close they are putting into the market. Basically, all they have done is yield go up a little bit to market rates. If you look at the way the long end has been trading, given there is no real shift in expectations with what the fed is doing, this is risk premium and risk premium concentrated way out the curve, which tells you it is not specific, immediate next week, retail sales will be a problem. Something that says we are worried about the distant future, now we are pricing it in. Tom i want to shift over to a traders are looking at this weekend, which is, take out the dollar, euroyen is extraordinary. What are the ramifications for japan for the pacific rim if we see euroyen breakout to a weaker yen . We are at the precipice of the weekend. Steven i think the yen spills over. It will have an impact on korean won, an impact on china and a few other currencies. I think there is a bit of puzzlement as to what good a weaker yen is doing japan. I think it sets the tone. The market would like to sell dollars against the asian currencies. We think towards the end of the year, that is what is going to happen. The risk environment will improve, but it is hard to do as long as the yen against the dollar, yen against the are pushing against these levels. I do not think the markets are getting to sharp at this stage. I think it is more they are waiting to see some signed there is stabilization and maybe a move back. Plus, an improvement to the risk environment. Then, the dollars selling would resume. I do not think it is going to happen over this weekend. I think it will take time. Jonathan two triple confirm, do you think the fed is done here . Steven oh, yeah. There is a risk to cut faster in the marketplace once the data starts sliding. You say, what is the point of labor market that is weekend if inflation is coming down . You do not caught cut very far, but you might throw in the token cut in q1. To show your heart is in the right place. Jonathan will it change from 12 months ago . Steven yeah, but you know, they have come off their hawkish tone. Nobodys talking about that second hike, they just i think what they are doing is to be sure they are not sounding too dovish prematurely. I think everybody says, it is a failure to commit not because the data is justified. One las