tricking. it is october -- the 31st today? halloween. i am going as yield curve control, is what we are trying to do. mrs. keene said, is that a diet? she wore black today. i went with a sort of gray motif. but it is inspired that you went as toxic brew. lisa: i was inspired. i had to dig deep to find it. but yield curve ambiguity -- i do not know what that means now. tom: jon going as the head of -- of the next head of chelsea football. maybe it was manchester. in the western world, we are looking at one thing. the act in japan. this is not funny. lisa: what did they do? created more ambiguity about what 1% as a band was, increased their inflation forecasts for this year and the year after, then they put this out from governor wade up. uncertainty is -- from governor ueda. uncertainty is high. tom: they have to adapt what is out there, and it is a busted theory. we will be hearing a lot of this into the fed meeting. is it tomorrow? i am working the three day work week, so cut me some case. we will rebut the script here. we have to do that, with euro area third-quarter gdp -- the word is there. contracts. lisa: your area third-quarter gdp on it psychically dipped 0.1%, contracted -- eyro area -- euro-area third-quarter gdp unexpectedly dipped 0.1%, contracted. this is good news for christine lagarde. tom: with the fed meeting and the imports of apples earnings, we will touch on that imports as well. lisa is buying all the macbooks for the fam. lisa: actually, i did have to go to the apple store. i will -- i've been giving you grief for your prognostication about apple, and i had to pay for all of these instruments and the things he had to get for it. it is the bank of apple. [laughter] tom: ferro just emailed in. he is not in brazil. i saw he just made it through immigration. lisa: from your cruise? tom: he might move to florida. let's share data for you. green on the screen and more green on the screen as well. the vix at 19.35. two-year-10 year, 4. 82. we went to the real yield yet? it is giving me a nice number. dollar, and we go to the yen here. 151 dollar-yen, a weaker yen back 40 years. and euro-yen -- i want to slow the show down. i'm gasping here -- too many baby ruths. this is serious. we are making jokes, but this is his arming to global finance. lisa: i want to get a sense of what some of the important indicators are today. u.s. employment index, the drumbeat to what we get friday. do we see disinflation of wages, especially after what we saw with the uaw the past couple of days? secretary of state antony blinken and secretary defense lloyd austin trying to argue for more money. the split between senate republicans and house republicans key, especially with the new house speaker. 29 companies reporting earnings today. before the bell, we hear from jetblue, caterpillar, pfizer -- the question over whether there was a bubble in health care ring the pandemic -- and amd. tom: trying to give you a smarter coverage on earnings, not only looking earnings but looking at revenue dynamics. we will look at that today, and of course, apple. right now, back in israel, oliver crook joins us for a brief. really distressing to see the headlines overnight. can i state this morning, in new york, that there are battles in tunnels? oliver: well, it is a complicated question, because a lot of what is happening in the ground offensive, which we understand is expanding, is the israelis are not being transparent about what the mechanics of what is happening are. we have to watch closely from the idf and the comments they have made, and what they have said is they are continuing to expand around northern gaza, not just in one occasion but in a number of different locations. they say they have been killing dozens of fighters coming from tunnels, so you have to assume that will be part of their game plan there. they say more than a hundred thousand people fled to the north. this is part of the ground they laid bisecting gaza, focusing most of the fighting in the north. they also updated the hostage figure, 240. they say they recovered a hostage, an israeli female soldier, who is in good health and good condition, and who they were able to get some intelligence from. but it is a new dimension to get new impetus for escalation. lisa: syria, lebanon, yemen our new friends, although they are not in extreme forms of writing it. how do you reconcile non-escalation with fighting in these places? oliver: this is the question. in syria, the israelis have been striking. so, too, have the americans. that is one place to look at. lebanon, we talked about a great deal. we talked a little bit less about the west bank, where we understand from sunday to monday, six palestinians were killed by israeli forces in terms of skirmishes, but a really important story about the skirmish in the southwest of saudi arabia, with yemen, the houthis, that killed four saudi arabian soldiers. now there military is -- now their military is on high alert. tom: oliver crook in tel aviv, thank you so much for the early-morning brief here. now to consider the finance and investment of where you are into the fed meeting and eurozone. a portfolio manager for blackrock joins us now. you are beginning to write up a year-end report. it will be 17 pages. what do you do after page 2? i am fascinated how you construct a view forward to 2024. >> i hope it will not be 17 pages. no one will read that p of this has been an extraordinary year. it is not just the fact that we have seen a resilient economy, which we think will continue, has been the move in rates, rocket -- market resilience with the move in that rates, and success in a small group of companies that have defined the u.s. market much of 2023. tom: bill gross started in pimco a few years ago, literally clipping coupons. folks used to take a bond and cook the coupon, and you would get your interest payment. are we clipping the coupon forward 12 months, or are we total return? russ: i think it is part of a total return. we think about what we have been doing in the fund, we bought a lot of bonds of the last few years, bought a lot of credit in 2021 and 2022, when spreads were wide. we have been holding that. it is not the i think right now that you want to pile into any particular area, but looking at the short end of the curve, there are opportunities. if you are thinking about building in a 6%, 7%, a percent yield in part of the portfolio, that gets you part of the way to the goal, and that is not and we have been able to do since before the financial crisis. it is a different way of thinking about the portfolio versus five years ago, when we will -- you were getting nothing on the front end of the bonds. lisa: how do you think about it in other places where growth is less certain? russ: we are still underweight bonds, underweight duration. that is partly a function of the fact that there is a lot of uncertainty about the fed, but the main concern on parts of the bond market, particularly the traditional part, is the premium you are getting. that is as much to do with the supply and changing demand dynamics as it does about inflation of the fled, so you -- of the fed, so you want to be cautious on bonds. equity side, we are close to home, close to our benchmark. i do think you have an opportunity, if events do not erupt in the middle east, for a year-end rally. but right now, everything we are hearing is idiosyncratic risk. so taking your spot, looking for the part of the portfolio that align with long-term themes rather than just buying lots of stocks. lisa: you said something very interesting there, that this has more to do in the bond space with supply than it does inflation dynamics or growth, at least in the u.s. yesterday, we got a net our estimate from the treasury that was slightly lower than people were expecting. part of the reason people are saying you see a bit of a bid in bonds today, how much is that the entirety of the story behind the yield move we have seen in the u.s.? russ: i do not think it can attribute it to one factor, but you are right to point it out. it is an interesting story, because five years ago, nobody was paying attention to these releases -- i should not say no one, but it was not moving markets. as you point out, this is likely to move markets going forward, because if you look at the move we have had, people worried about how much of a premium you need to open the long end of the curve. tom: is this a time for active management, or do you shelter out in passive portfolios index funds? russ: there is always a role for passive. by think this is an opportunity for act. i will go back to the fact the portfolio will probably look different than it did in the post gse world. in that world, you can take two allocations, u.s. equities and u.s. as, put them together, get remarkably better return. now, you need to think more about stock specific risk. tom: thank you. russ costa rica -- russ ko esterich of blackrock. breaking news here, which was widely anticipated by ecb authorities. euro-area inflation to its lowest level in more than two years. the economy strength. i will editorialize and call that "stag-disinflation." lisa: what i find interesting is the euro is gaining versus the dollar on this report, which raises the question, what exactly are people looking for? are they looking for growth through invest in a currency, invest in a nation, or are they looking for just some sign inflation is coming off the boil? the fact that that took preeminence in terms of the response of markets was telling. tom: you had the brief today, the eci index, wages and benefits combined, and i do not know what that number will be, but if you establish a disinflation vector in the wage package of america, that gets your attention. further disinflatoinay trends. lisa: wages have not really led through all of this. they actually picked up more over the past year than they had. what i find interesting is they continue to disinflate as much as people say, especially with the strike in detroit? tom: for global or street, take out the dollar. euro-yen standing over a span of 30 plus years. a 161 euro-yen. we will talk about that through "surveillance" this morning. on radio and television, this is bloomberg. ♪ >> how concerned are you that japanese buyers in particular, big corporate debt buyers in the u.s., will pull back, especially with some of the adjustments we are expecting? >> we think the risk is moderate, but the return on head -- hedge spaces is not good, so we need to watch that, see if the flows on an unhedged basis continue. tom: andrew sheets always good, global head of credit research at morgan stanley with a piercing conversation yesterday. jon ferro on assignment. he is back in the country, good to see that we hope to get him here in the next couple of days. what are you going for halloween? lisa is going as a toxic bre. someone emailed asking you we trick-or-treat together? no, it's too much. you take manhattan. lisa: you take, what, brooklyn? how often do you go there? tom: i want a couple years ago. the bridge was broken then as well. [laughter] the vix, 19.137. jon ferro highlighting the dow jones industrial average as a benchmark worth watching as well. the dollar flat. let's go through those levels. the yen, 151 rounded up here that is stunning on dollar-yen. the euro -- let's look at the chart of euro-yen. this is what the adults look at. or those of you, lost in translation, pick the maroon carpet. the euro-japanese yen is a depreciation of the yen of a stunning 40% from 2012. the dollar trade weighted, including all other indices, up 46%. dollar strength, as president trump used for screen about. we are living it now. a brief from mark mccormick at td securities. i want you to actually to our audience why a superstrong dollar from running 12 and a super -- from 2012 and a super weak yen is disturbing? mark: it shows the massive divergence in central banks. one of the things you can unpack as there are certain currencies that care about growth, certain currencies that care about commodities, certain currencies that care about different central-bank functions. the thing the yen cares about is the 10 year ports. the euro cares about the two-year point in the curve more than the 10 year. if you take the combination of what we had, and this is one of the most important things in fx, japan is also a massive importer of energy and other commodities. you take the commodity story and the rate fragile story, and take the aggressive bear steepening in u.s. curves this summer, and you have a tri-of things that will weaken the yen. tom: to the trifecta, i mentioned this with vice chair clarida -- is that tomorrow? lisa: yes. tom: the fed meeting is tomorrow. my people just weaved me. i will echo what i talked to professor clarida about, which is something has to give here. when something gives, what is the instability our audience should be worried about? mark: in the context of the yen, it is the currency itself. there is an interesting policy mix, where fiscal policy is quite favorable in terms of growth. also inflation. the boj is expecting higher inflation to be more sticky than markets are looking for. they also basically said we do not have a cap anymore. it can go above 1%. i think they are trying to synchronize them a bit, which have been u.s. yields rising, which would contain the weakness in the yen. but this is not a policy mix that is coherent. it is no longer sustainable. a big thing is chain -- things will change, change up properly. but the move we had overnight, where there is no longer a 1% cap, is quite a significant change, but it will take time for this to work through the market. again, the thing that needs to break is yields need to be higher, yet needs to be stronger. it is just going to take more time, because we need to see a peak in the u.s. yields story, which is not even about the fed anymore, it is more about supply and demand or 10 year bonds. lisa: this is a big mismatch -- mishmash. do you have a sense of what the response from the bank of japan is, what they are looking at? we were talking about some of the capacity -- opacity they put forward. mark: obviously, most central banks, it is common language at this point. they care more about currency movements. the yen has not been as volatile. the report came out this morning, they did not intervene last month. i do not think there is a redline, per se. they are doing what everyone in the market is doing. they are very confused about the drivers, confused about the actual themes in the market. fx has become challenging for many people. the line in the sand is loose fiscal policy, loose monetary policy, the weakest currency on record, it deviated from longer-term models by magnitudes. so what you are looking for is the pressure points that will cause these things to break. a big part of it is u.s. data needs to rollover, u.s. yields need to come down a little bit, and the boj, one thing we are on a consensus on his we are looking for them -- right around the way to negotiations, we suited -- we should see higher wages. as a result of higher wages and higher nominal rates coming up, we should see real rates in japan move substantially in their favor versus the u.s. next year. lisa: there is a question of slowly or all at once, and you are saying it will be all at once at some point. how disruptive is this going to be at a time when so many people are talking about japanese flows suppressing yields globally and keeping things a little bit more in sync? mark: that is a big component, because, since the summer, since the boj opened up the yield curve control, the suppression they had on it, we have seen term premium rise across the world, u.s. 10 year rise, so there is a blowback happening slowly behind the scenes. a lot of people make the point that the 10 year yield has now advanced above fed x vacations for 2024, above u.s. data trends. it is no longer affecting the correlations we saw in july. i think the boj and the fact there moving out of it -- obviously, quantitative tightening is a component as well, but the boj has the ability to kickstart rises in u.s. yields as well. tom: i have to review this -- i did not do this. ring up that board. yen, 151. weak, weak yen. two year yield on above 0. 10 year yield almost 1%. i talked about this years ago. like, let's go to toronto dominion bank. you get up to 142 and it gets fixed. is that where we are heading, where the system just fixes itself? mark: no, i think the system is quite dynamic. we brought on variations of if and models, trying to understand what is going on in the market. the ins driving a weaker yen are fundamentally based. they make a lot of sense. the commodities story behind the scenes is important, especially from the hand over to last year, because it eliminates the trade surplus. that is fx. essentially everything we talk about everyday is trying to predict the balance of payments free. for the yen -- the balance of payments. before the end, nothing is stable. the dollar-yen should be 140 five, based on rate differentials and equities and risks. markets are looking for a trend to trade, and dollar-yen is the only thing that makes sense right now. tom: if you only understood half of that like i did, he is mark mccormick of td securities. can i talk about the greatest act campaign ever? lisa: please. tom: i remember when halloween changed. it was kids, fun, all that. and the people out in colorado invented elvira, and now -- there's a survey of the three top things for halloween. kit kat bars -- duh -- m&m's -- peanuts is what i like -- and coors lite. think about it. coors beer changed a holiday in america. lisa: to take it from kids going around and getting a candidate to parents sitting there and getting drunk as they hand out candy, is that what you are saying? tom: i'm tom keene of "bloomberg surveillance." who's with me? the queen, lisa abramowicz. ♪ ♪ explore endless design possibilities. ♪ to find your personal style. endless hardie® siding colors. textures and styles. it's possible. with james hardie™. tom: bloomberg surveillance. and they said is it really yield curve control? and i said yes. lisa: how has your outfit change for this. tom: yield curve control is good but i go is a japanese boy band and everyone understands what i am doing. it works out. futures at nine, we are under 20, and we have serious news. i will try to get this before we go under surveillance. i'm sorry, everyone is fighting a last -- the last war and everyone is shifting attention. two macbooks in the last 24 hours. she ordered the new toys. lisa: [laughter] let me tell you those are expensive and all the different plugs they charge for everything is expensive. tom: i'm here on bloomberg surveillance with the queen of halloween. lisa: operations in gaza are expended. a military spokesperson saying tanks and vehicles are moving through northern gaza looking for hamas and engaging with the combatants. this is as the humanitarian crisis versus -- worsens. more aid will be allowed into through -- in through egypt today. the humanitarian catastrophe is deeply upsetting. it is something we are watching unfold in real time, in pictures, on social media, and a lot of it has been cut out. and there's been a loss of electricity. there is a -- opacity about what the situation on the ground looks like. tom: and i read every word of robert gates a secretary cia in -- we talk about that later. but the immediacy of what you think i think and everyone thinks and expanding into to a broader frontier and more, it is what oliver crick said about yemen and saudi arabia overnight. lisa: we will follow this story for quite a while. the bank of japan easing its grip on long-term government bond yields in a modest tweak. it says it will take a easing approach on yi
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