UK U-turn | Bloomberg Surveillance 10/03/2022
The market was already worried about global growth. It was already worried about U.K. fundamentals. Things are pretty unsustainable at the moment and it's all tied to policy officials raising rates. I would love for a power someone to come
out and say hey you know we're just cleaning up the mess made by fiscal policy. This is not the first time we've seen these kind of movements and they never seem to be fully priced in. And we have a bear market rally. Sure.
Absolutely. You know 8 to 10 percent in this kind of environment is not unheard of. This is Bloomberg Surveillance with Tom Keene Jonathan Ferro and Lisa Abramowicz. We get it. And we have listened life from New York City for our audience worldwide. Good morning. Good morning. This is Bloomberg Surveillance on TV and
radio alongside some Cade and Lisa Rabbit Sam Jonathan Ferro. We get it. And we have listen. We're not talking about the audience feedback and sitting around a desk Tom Mackenzie. We're talking about the chancellor in the UK. I got up at 117 to watch history mood in
a fractured group. Britain John. And all I can say is the excitement of last week falls right into this week. Can I just say around all the present news it's a huge week of us. Couldn't agree more. I think we call the UK a U-turn. I think that was a U-turn. That was a U-turn. That is really not a very face saving measure.
I mean how much does it actually give credibility to an administration that already has caused incredible turmoil in the markets. The question now is how do they follow that up with some sense of consistency some sense of stability some sense of unity among conservative policy. I'm so pleased you led with a market reaction for me. How the market responded last week is so much more interesting than the policy it was announced the week before it. So much more interesting. Jonathan Ferro. Some of it is real simple and I will do.
Yeah. Leader lest you turn your guilt right now. And yes it's improved a little bit for Prime Minister Truss John but it's right. And on a yield basis that support there's been very little make up of this U-turn. It doesn't get into the weeds too much
too quickly. But the number the Bank of England spent so far in the gilt market operation. Sixty five billion is the total of the package. I spoke to David Goodman over in the UK in our London team three to four billion. Sterling is the number so far. They haven't actually had to spend that much time yet on this market down with the intervention of Japan going through 145. But on the on the Britain LDA pension
crisis every adult I talked to says beware there could be more. And pretty much every now. I read over the weekend Lisa said the same thing for Genesee Fragility. Yeah. Financial market stability. Joel Weber. Everyone seems to feel like there's this whack a mole playing right now where there are nodes of instability and policymakers come in and try to you know just basically bandage over that for the time being. And then everyone seems to look for the next Band-Aid.
Matt Miller next problem the next node of potential contagion. Question Tidjane Thiam. Where's the Labour Party in all this. I think they let this play out. That's what you do. Just bite your lip. You just give them some more rope. Give them another give them another shovel to keep on digging.
Yes. What you do in something like this place out is a civics one or one. But we have a schedule of elections. Do you have a schedule of elections in the United States and nothing on the calendar right now. We know that it's gonna take place by
seven time time and it could happen before then but nothing on the calendar right now. Okay. Absolutely fascinating. I'm learning as I go folks and what we're going to do as far follow the mark.
Zero John to start the data. What do you mean. I think we got to stop at Credit Suisse. Lisa front incense. You talked about all these little farts we've got to put out. Credit suites is down by 8 percent in Swiss trading. We get an absolutely hammered Emma Chandra.
Yeah. This comes as the CEO says just wait. Enough time for us to be able to give you some sort of plan. And the market isn't waiting. So what happens.
How do they address this more quickly and how do they come up with something that's comprehensive John. At a time when the market is pushing back and they have a lot of issues. We were talking about whether this market could wait for the Bank of England on November 3rd.
You can have to wait for the credit slips. CEO until October 27 to Tom Mackenzie October 27. I looked at John. You do this in the BQ screen in the terminal for those with a terminal price to book zero point two one. Okay it's trading. I'm going to guess one sermons one eighth of JP Morgan. This is at a point where in America this
gets solved by regulators. And the mystery to me and I'm uncertain. Is it the Swiss regulators. Is it regulators in London. I just don't know. But we're at a delicate point where it
was in the new. Everybody knows it was in the news. Credit default swaps which I'm not a big over in blow out but where the regulators this morning has to do a cash call. They're going to raise capital. That's been part of the story. The story has been they might have to raise capital to instill the new strategic plan. What did they can wait until the end of October for 10000. I think it's going to be a lot more than
10K. If they do need to raise capital. Credit Suisse is down by about 8 percent or whipped through the rest of the market for your equity futures. Look a little something like this on the S&P 500. Futures are just about flat this morning
on the S&P. We are positive five or six points up a tenth of 1 percent yield to lower by five basis points on a 10 year to 377 45 brammer Eurodollar and 97 63 Emma Chandra. Yeah right. Now we are watching what happens in Europe especially as you get a slew of different finance ministers and leaders meeting in Luxembourg for the European Union to discuss what's going on with inflation what's going on heading into this winter with energy prices going to catch up a little later in the show with 3:00 today.
And one of the members of that you group ISE watching inflation. And we did see year over year if you take a look at the overall euro zone and this is just showing Spain. But if you look at the overall eurozone inflation it has reached 10 percent the highest level in the bloc's history. How did they counter this at a time when they're dealing with a very politically fraught issue which we also talk about later in the show Wednesday. I am so interested in how this is going to play out. Plus is going to meet for the first time in person since the pandemic potentially deciding to cut oil production by the most.
Going back also to the heart of the pandemic. How will this play politically at a time when you've got President Biden saying please do more please produce more we need to lower these prices in order to reduce inflation. Oh and by the way guess who may come. The Russian oil minister. And how much does that sort of play into the alliance there and create friction between OPEC plus and the United States and Western allies and also on Friday. This really is the big event. U.S. non-farm payrolls.
The high expectation the high analyst's projection is for three hundred eighty nine thousand jobs created. The low is about 200000 jobs. I'm watching the nature of those jobs. Are they part time or are they full time. Are we seeing a greater number of people coming into the market at a time when a lot of people are saying we need to see the unemployment rate go up to about four and a half percent.
That's the Fed's target in order to reduce some of the inflationary pressures. John is it good. No bad number for the market. We started early. I mean honestly how much are we looking for some sort of deceleration in the labor market to say to the Fed. OK maybe you don't have to go quite as quickly and maybe you can just hike and then wait. Lisa thank you. It's good news. Spent these two Cairo Friday. I know you're excited.
You taught me that. You taught me. John did that Monday ISE Monday matters. I said my day matters. I agree with you. I think there's some good stuff going on. But you know what folks. We'll bring you the data. The Carnell babbles through the morning. Looking forward to that cable right now standing against the U.S.
dollar. One eleven seventy one. Joining us from Birmingham is Glenn Beck's Lizzie Borden out of the UK. Morning Lizzie. Morning John.
Well I'm at Conservative Party conference and I'm sat here with Chloe Smith the secretary of state for work and pensions. Chloe thank you so much for making time for me. It's a wild morning here in Birmingham. This budget that the chancellor had announced was described as reverse Robin Hood.
At the one end you are cutting the top rate of income tax that has now been reversed. But at the other end the chancellor said he'd cut the benefits of people who were not trying hard enough to get a job. Are you not going to U-turn on that as well.
What is equally politically toxic. I think the key points about the growth package that the chancellor set out is that it is all about getting more people into jobs and getting higher wages. And in fact you can see that around us as a slogan here at the conference is painted on the stairs just over there that we want to be able to deliver more jobs and higher wages. Now the majority of the growth package set out was to be able to do that for example including putting money straight back into people's pockets through the adjustment to the lower rate of income tax. And of course that builds on the cost of living package and the energy price guarantee. Now my role is then to be able to help people into those jobs that that growth package will create.
And that to me is a real priority. So to pay for all your tax cuts to have any credibility in markets you're going to have to cut spending. The one thing that the prime minister promised yesterday was that she was going to raise pensions in line with inflation. We're in a cost of living crisis. Has the chancellor asked you to look at cutting benefits. The prime minister was right to talk
about the triple lock on pensions. That's been a commitment of ours for a while and that's been a clear public commitment already. Now naturally there is then also the decisions be taken about benefits operating. This is one for me in my role. I can tell you here and now what that will be and what the data that goes inside it will be because I have to wait for that data to come to me.
Now the key principle though that I want to take in approaching that decision is how we can best protect the most vulnerable in our society. For me this builds on those elements of the cost of living support that we have already been doing and delivering my department to be making payments to people. And there'll be more coming out very shortly that are supporting people at that time of real need. Why is it fair to guarantee pensions not benefits in a cost of living crisis. People need to plan now. And one of the other principles that I
really want to look at here is how we protect those who can't perhaps work to raise their own earnings. So for example that would usually include pensioners and it may well include others as well. These are the principles that I'm thinking about very carefully as part of that decision. But let me also say this as a party we are about helping more people into work. We shouldn't be writing people off and
saying that they can't work. We should instead be looking at what people can do rather than what they cannot do. So that's what the growth package is all about. And that's the golden thread that you see going through the other rest of the work of my department helping people into work and ensuring that there is an incentive to work. Okay. So you mentioned pensions last week. The Bank of England had to step in to
bail out the pensions industry from a systemic crash that was triggered by your government. Are you having emergency meetings with the pensions regulator and asset managers. And if so what proposals are being discussed. Well colleagues are having the right meetings of course with the pensions regulator with the Treasury and across my department as well. I can't give you further details than that but I'm glad that the Bank of England was able to take the action that they did last week.
And naturally we are keeping a very close eye on this situation because we want there to be a thriving pension industry in this country. That is an essential part of supporting people in their retirement. Terry Smith secretary of state for the Department of Work and Pensions thank you very much for joining me John. The question remains then what happens when the Bank of England's rescue package ends on October the 14th. Unclear if we're going to have the same issues for LG ISE. Hey Lizzie thank you. Looking forward to catching up with you
through the next couple of days. Lizzie Burton there at the United Kingdom. A lot of people describing that October 14th line in the sand. Lisa is somewhat of a cliff edge for the skill mark and perhaps even for this banker being within the government too. Yeah. How much is it going to have to be a response that we see from policy makers from Atlas Truss's administration.
We just saw a response from them. How much is it going to have to be that is the trigger breaker at a time when they're dealing with inflation and the Bank of England is kind of caught between a rock and a hard place. The city had this to say this morning. Some and acts walking back on a top rate
tax cut will mean two billion starting less out of a total of 45 billion cost for the next two years. His note was brilliant over the uproar of this politically. But the market pros are watching a lot of other data including the recent inflation seen John.
It's higher. Is it going to be higher. Is going to print higher in the United Kingdom the life of New York City this morning. Good morning. This is Bloomberg Surveillance.
Keeping you up to date with news from around the world with the first word. I'm Lisa Mateo. British Prime Minister Liz Truss has done a U-turn. She's dropped a plan to cut taxes for
the highest earners. Just 10 days after it was announced it's an attempt for trust to fend off from a rebellion from her lawmakers in her own Conservative Party. Chancellor of the Exchequer Kweisi Qua tank says the tax cut had become a distraction. Trust and courting will be helping to end days of market turmoil that followed his fiscal package. The price of oil jumped today. There are indications that the OPEC plus alliance may slash production by more than a million barrels a day to revive plunging prices. A cutback of that size would be the biggest since the pandemic.
OPEC plus meets Wednesday in Vienna. Another defeat for Russian forces in Ukraine. Several thousand Russian troops withdrew from the strategic town of Lehman over the weekend. They were outnumbered and increasingly encircled by Ukrainian forces. Lehman is in the Donbass region when a four annexed by President Vladimir Putin in Brazil. The presidential election is headed for
a runoff on October 30th. Voters will choose between President Jaya Bozo Neto and his leftist rival former President Luiz Inacio Lula da Silva. Lula had the bigger share of votes on Sunday but fell short of the absolute majority he needed to win. And shares of Credit Suisse fell to a record low today and the cost of insuring the bank's bonds against default climbed to a new high. In a memo to employees new CEO Ulrich Korner said Credit Suisse has a strong capital base and liquidity position. He will announce a turnaround on a plan
October 7 27. Global news 24 hours a day on air and on Bloomberg Quicktake at least. Mateo. This is Bloomberg. All of you who are looking for a pivot. Be careful what you wish for because
this pivot only happens. You have an economic accident or financial accident and the journey into an economic and financial accident is a very painful turn. Mohammed al Shery Ahn just absolutely fantastic. Three last week gonna get through some of this market carnage over the last couple of quarters as well. A flight from New York City this morning. Good morning. The price action shaping up as follows
on the S&P 500 relatively unchanged after three consecutive quarters of losses on the S&P. The longest quarterly losing streak gone back to 2009 features right now up a tenth of 1 percent a year or two lower by four or five basis points 378. I make it about nine straight weeks nine consecutive weeks of 10 year yields climb A.K. nine weeks let's up. And this is the underplayed story this
morning. There's lots of other distractions including what Lizzie BURDEN just talked about in Birmingham. But you're absolutely right. It's about the technical construction of
yields here there and everywhere is an aside including in Japan where the 145 Yang John were almost back to that intervention point. And again that's linked into their yield manipulation. A lot of that going on. We're going to now this Birmingham. You've got this Birmingham Birmingham which teams are from Birmingham Aston Villa and Birmingham Aston Villa Dani Burger City. Yeah. Would you rather Birmingham Alabama was
erm bombing. Let me help Birmingham which needlessly Birmingham. We can do premier accents in the next commercial break as well. What else has he has. That's not what Lewis even understands closer to what I might have had if I'd state that a little bit long. But you've become posh my cousins.
I wouldn't have become posh. My cousins have a bit of a booming accent. It's safe. Okay. There you go. Got those. That was the clinic that I want to show you John right now. Before we get to Lauren Covid. Seen a decade per year return aspects way out.
Does Russell 2000 John aspects up 12 percent per year Russell 2000 up 9 percent. The small caps underperform. Do you think the return assumptions need to shift lower for 10 years. Maybe they're shifting right now. Let's do that right now with Kelvin scene of RBC Capital Markets. Laurie is it small caps time.
Hi. Thanks for having me. Tom and I think it is if you look at small cap relative to large cap I'm just pull up the R T Y against s VIX on your Bloomberg. We've been in sort of a trading range all year on the relative trade.
And if you look at small caps we're basically at historic valuations on both an absolute and relative valuation. We've already priced in a big spike in jobless claims and typically you want to buy small caps when the unemployment rate starts to tick up. So you want to keep that in mind as we look ahead to Friday. But I will just say this small caps have really been orphaned for quite some time.
They are more domestic and we are hearing a lot of interest in small caps even from people who are very bearish on the market overall. I'm so overweight and we feel very good about that call in the turmoil we're in including low GDP will there be transactions in combinations of combined small caps into midcaps. It's interesting Tom. I mean we have been combing the transcripts among the big cab companies for commentary about it. And we're not seeing it picked up yet.
I wouldn't say it's necessarily eminent but I do think that when you're in a sluggish growth environment and I think that's the price we have to pay for a short shallow recession if indeed that's what we end up getting. I do think companies will try to go out and buy growth. And you know we find that a lot of small cap companies are also much better run than they were in the past much cleaner balance sheets much higher quality management teams. So we think the asset base is more attractive than it may have been in past cycles as well. Laurie is overweighting small caps a fight to lose less or actually to get returns that are bigger than some of the negative returns that we're seeing across the board and broad indexes. I think it's a great question Lisa.
I think that depends on your time horizon in the short term as stocks search for a bottom. I do think it's unlikely that small caps will start going off while everything else is still going down. So it may simply just be that you lose less on the bar on the way down to kind of find that absolute bottom. But at the same time I will tell you Lisa when you talk to people who have done small cap for a very long time and you go back and look at the history the pivots back in the small caps tend to be pretty sharp. So I do think it's an area where if you really kind of wait around and try to pick the bottom in the market you're going to miss the chance. You do tend to make a lot of that outperformance in those early days in the trade.
Right now we're looking at thirty five eighty five and close on Friday for the S&P 500. Your target for your end is 40 200. What's the trigger. What's the pivot point that gets us up there. Is it just the bear market rally that we heard about from a number of analysts. I think that's one thing you can look at. I mean we actually found if you look at
the S&P 500 this year in 2022 it's got about a 72 percent correlation with how stocks were trading back in 2002 which was another period of kind of painful normalization after a big market shock an initial rally. And so if you sort of go through that playbook there is a fierce talky rally. And then you gave most of it back in the first quarter. That seems like a plausible way for things to turn out this time around as well. I think also Lisa we're about a month
out from the midterm elections. Go back to the summer. I started really getting an earful from a lot of investors about how that would be a potentially positive catalyst for markets. So we do think that something on investors radar and if you look at the generic congressional ballot after several weeks of seeing the polling data kind of shift back in Democrats favor we actually saw the Republicans pull ahead of Democrats in the congressional generic congressional ballot data last week. So things are starting to shift a little bit more market friendly way in the latest data there. We just wanted to squeeze this in. Nike FedEx Apple Tesla missing this
morning. What are you learning from corporations about how quickly this downturn is coming around. Well look I think what we are learning John is that we are starting to see some companies rip off their earnings Band-Aid.
If you go back to the summary that is something investors were telling me they really needed to see happen to get comfortable with buying markets. People said you know we want to buy stocks around 15 times a year the market around 15 16 times P. But we just need a little bit of certainty on that. We need to see the numbers come down. You know we'll see if the early reporters turn out to be a harbinger of what's to come in the actual reporting season.
But I do think you know kind of getting those earnings expectations down is something that we really need to see. Laurie thank you. Awesome as always. Laurie Campbell senior of RBC Capital Markets. Earning season unofficially kicking off
with JP Morgan as you guys know October 14th. So Lisa a lot happening on October 14th. I was about to say that sort of correlation or causation that the Bank of England is going to possibly end their intervention on the same day that if a worker reports earnings I don't know. You didn't find the stage was set
deliberately. No I'm just. They were just playing around. But it is going to be really pivotal. I don't know how much JP Morgan's necessarily going to be the harbinger of what's to come. And if Nike and Tesla might be even more
of a harbinger at a time when people are looking at the on the ground supply chain disruptions of making stuff not just financial markets and the engineer as you would say the physical world the physical what Tom said call it deliveries to Mr. Tesla. And that statement I think could have happened maybe 20 months ago maybe before that. We're still talking about the same thing. Supply chain disruptions. And here we are the only only 26 really important to take this supply chain thing and pull it out further. RTX axis gives you more uncertainty and particularly in the United Kingdom where they're hugely constrained by supply and demand dynamics and it folds into Brexit all that.
I just. John I'm just saying the x axis goes out and this is due to October this week. So we're pushing out the supply chain problems and bringing forward the earnings issues. That's not great for earnings season going into that next month. But it did Michelson say that light at the end of the tunnel is really a freight train other steam coming earnings. Oh great. Thank you Lisa.
That was a smart move. Chris. Hello October hello. Q4 is the price action this Monday morning. Good morning see you on the S&P 500. Leaving behind a monthly loss on the S&P negative 9 percent on the S&P 500 in September. Ugly futures this morning positive two
tenths of one per cent on the S&P on the NASDAQ 100 down a little more than a tenth of 1 percent yields last month to year up 79 basis points in a single month. Your bond market looks like this right now sees tens and 30 your two year yield to lower by nine basis points to four 1857 on a 10 year let's call it 377 DAX six basis points. Would you believe it. Last week Sterling the best week since
March 2012. I mean seriously really bad but numbers are numbers. Sterling's here right now from 1 to 350 a week ago to just short a 112 time at 111 970. Jonas massively and determine. And I got to 111 97 now and yen I'm
buttressed right up against innovation intervention point one forty five. Oh no. I was a developed nation. Currencies are working this morning. I don't think the volatility is over. Let me be clear that I really don't. In fact I think that was the story of what happened in the last week. I don't think it was the policies announced by the UK that debatable. We can have that conversation.
But the fact that this market was so fragile in response to the NASDAQ the fact that the Bank of England had to come in with a gilt market operation I speak think speaks volumes and its lessons for us all to learn. Abigail Doolittle Manchester United this was not a great weekend day for was pretty febrile. I think that was the gilt market. Let's talk about that later. Right now we're in Zagreb Michael Crowley who wrote an essay as he always does weekly prospects widely read from JP Morgan on Friday after that tumultuous week.
And he said guess what. This Friday matters for November 2nd. We need to get from the data this week on the jobs report on Friday after November 2nd where a federal decide. Bruce Kurzman joins us now. Chief economist at JP Morgan. Bruce I usually go global but I got to go domestic today. The Fed will decide how close are we to a Fed that will decide what to do over the next number of meetings.
Well I think the basic message of the Fed is telling us is that they're committed to creating a softer labor market pushing the unemployment rate up. That the picture on inflation has been concerning enough and that they really want to gain control over credibility here. So unless we get a really big downward surprise here I think we're not only on track for a seventy five basis point move on November 2nd but further big moves in the next couple of meetings after that. So what is your rate get out to. I mean the game here the parlor game is three and three quarters for even up to 5 percent. How does that what does that mean for the Bank of England.
What does it mean for the Bank of Japan. What does it mean for the Bank of Indonesia. Well I think the Fed is we would see it goes up to the mid fours. And stopping at the mid fours in our forecast does require to see a material slowing in job growth over the next few months which is in our forecast. But obviously we haven't seen yet. I think the Bank of England story is really going to be dependent on how much the government gains credibility. We think they're on track for getting
rates up at least to 4 percent probably more as we go through the next few months. And as you're noting there's a number of other central banks in GM that have wanted to slow down maybe even stop here. They've been using f ex intervention. They've been using their rhetoric. But with the Fed moving with the volatility we're seeing in markets it's harder. And we've obviously been backing off of what we thought was some kind of moderation going on in the central banks.
Well Bruce that really raises the question of what point the dollar becomes the US's problem not just the rest of the world's problem. What's the trigger point for the US starting to respond for the US's sake not just out of some charity for other nations that are really struggling in the face of the greenback. So I think the big issue here is does the Fed get the kind of controlled moderation in labor markets and growth. Does it see inflation come down. I think on the inflation story the
dollar rises combining with what we think is a fairly significant fading in both commodity and supply chain pressures. We think we're set up for a pretty decent drop off in goods pricing here in the next few months. We've already started to see it on energy. And I think the economy actually shows
resilience here. It looks like it's tracking 2 to 3 percent growth in the current quarter. So I think you have attention that the Fed will get a benefit here on inflation. I think in the next few months. But it may not get the job market. It may not get the growth number that gives it the comfort to stop.
In which case the concern is is not so much that I think the dollar is itself a drag in the near-term. But the Fed keeps going in a way that it doesn't pay enough attention to the lags and therefore the economy slows much more sharply next year. Let's realize the risk here is looking at six 12 months down the road not where we are right now. And this really speaks to the column that Paul Krugman wrote at the end of last week in The New York Times where he basically said is the Fed breaking too hard. The risks have moved too possibly.
Yes. Do you agree with that view. Well I think before we ask whether the Fed is breaking to art we want to ask is the Fed intending to break things. Because if you listen to Paul if you listen to some other speakers they seem to be preparing us for a significant slowing in job growth and perhaps a meaningful rise in the unemployment rate. So I think yeah there is a risk that they move too hard because they're I think concerned about seeing results and not paying the kind of attention to the lags in the monetary transmission mechanism. But there's also a concern that the Fed
has decided that it's it's much more appropriate to risk a recession here than keeping inflation unusually high. Bruce none of this is in the textbooks. It's sort of the Krugman textbooks the make your textbooks a chasm in textbooks with the survey data on Friday. I have a three month moving average of non-farm payrolls of two hundred eighty six thousand. That's job formation. Is J.P.
Morgan saying that will break that that will slip down to some appallingly three month moving average of say one hundred and sixty thousand. Well we have a three hour forecast for 300000 job games on Friday. So clearly that's a pretty strong number even if it's a moderation. I think to get the Fed to pause you need job growth to slow to at least 100000 month over the next step two or three months.
That I think is a hard one to get confident in. And that's that is what's based on our forecast that the Fed the first quarter sees that and is ready to pause. And I think that's the key issue here both in terms of getting the Fed to pause and also the concern that if they don't see that and they keep moving that they go further than they actually need to. Bruce we've got to expand on that. That's a stunning number. I have a run rate back decades of one hundred and fifty thousand and maybe you come up to 200000 per month for non-farm payrolls is a healthy normal America. You're saying we've got to get down to one hundred thousand one hundred thousand.
Then another hundred thousand to make this fed blink. Well yeah I think if you want to have an economy in which the unemployment rate is moving in a controlled way to roughly four and a half percent unemployment rate which is what I think the Fed is telling us you need job growth to be a soft one hundred thousand may not even do it. But I'd say 100000 is probably the kind of number the Fed needs to see to be comfortable to be thinking about pausing. Bruce this goes to something that you flicked at earlier.
Do you think that it's inappropriate for the Federal Reserve to be targeting the unemployment rate at a time when the jobs market has dropped dramatically changed post pandemic. I think it's appropriate for the Fed to be targeting a softening in the labor market. I think it's appropriate for the Fed to be paying attention to what's happening in the inflation process wages salience inflation expectations. But I think it's also appropriate for the Fed to be forward looking which is to recognize that there's lags in the process that they're getting a restrictive policy in place. And the difficult call is do you stop on the tightening before you've gotten everything you want to see in the data.
That's really the the tough call that they're gonna have to make here at some point. I think somewhere in the range of 4 4 and a half percent seems perfectly reasonable to be pausing but they may not have the labor market outcomes at that time that makes them comfortable to do so. Bruce this is the question isn't it. I think you just framed it perfectly. How can you be forward looking if you're chasing a lagging indicator. Exactly.
And you're also being uncomfortable by the fact that inflation is persistently high that you're worried about salience in terms of the lagged inflation affecting price and wage setting. So it's really I think important to be forward looking but it's really hard to be forward looking. Bruce CAC of J.P. Morgan.
Bruce wonderful to hear from you sir. Thank you as always. How could you be forward looking when you're chasing a lagging indicator. And if you're being emboldened by the labor market data are you guaranteeing a ton of damage to be done in the not too distant future. And maybe we're seeing some of that play out already.
Do you know how much I flunked leading contingent and lagging. How did you get exams. How did you get home. I just don't believe it. I just I just I get the science behind it. The PGD Wangari of it. But things change you know. I mean something's lagging becomes coincident something this leading you know etc.
This cycle is moving quickly. Amah Kris Harvey of Wells Fargo came on the program with us a number of months ago and he said the weakness you're expecting is probably not gonna come into the first half of 2003. Then in the last couple of weeks Lisa we turned around said you know what's happening much much faster much much faster than I thought. It wasn't credit to credit to the team for actually just coming out and saying get you seeing is somebody corporations. It's happening quicker than I thought.
And Lori Covid said the ripping off the Band-Aid with the earnings results and what they're looking forward to. And is it ripping off the Band-Aid or is the scene just moving so quickly that they're readjusting and they're going to have to keep readjusting. And that's why I think that the earnings season this year is going to be this next quarter is going to be probably the most important data point at least when it comes to risk assets and the road ahead. There are a ton of Fed speak in the last week or so. Most important line you can read the nuance between all the different speakers the officials.
I know that's the spot. I get it. I participate sometimes often via Shep Rein. It said this. We're committed to not pulling back prematurely. I think I. So you need to know right now from this fact and basically what Paul Krugman wrote in this is the reason why he spurred so much controversy. The risk that the Fed is moving too slowly to contain inflation has declined while the risk that high interest rates will cause severe economic damage has gone up. And that's the asymmetry that people are
looking at. This is going to go to when we go to Washington for IMF meetings. And I believe we're going to quiz our imposing on us. Are we doing as a mental ballet to get out to where we impute a new higher inflation level from 2 percent where 3 percent Posen is the new 2 percent. So what this exercise is they're saying
no. Pretty pretty aggressively. Pretty much every single offering. You said she said it's premature committed to not pulling back prematurely. Premature. Want to stick with us. What would happen if they started flirting with 3 percent.
I think it will be harder to get to 3 a grade. It would make it even harder to get to 3. They're not going to do that because what fair market participant in that flirting with the idea returns on its own hurdles. The new to I'd be like okay tracking it back to 5 percent which is the reason why they're not going to do it. They'd have to announce that in Birmingham. I think that was nice. You should go to the Conservative Party conference with Lizzie Burton next year.
It's like I can go right now. I'm going to leave and leave right now. I'm dressed to go peaky blind date. Did you bring that. And did you like this prop. I don't wear my judo. You don't wear them. It's that got razor blades in the CAC. Yes it does too. Joel Weber. They're over here.
Where did you get that from. Actually it's a secret. It is made by fashion people. God. I really don't know if you've been watching me. No. I mean kill with that component.
Oh is that what I sort of. Okay. All right. Okay. That was lost. How do you say Liverpool.
I gonna do that later. All right. From. This is Glenn Beck. Loving the left Tom Keene keeping you up today with news from around the world with the first word. I'm Lisa Matteo. It's a humiliating reversal for British Prime Minister Liz Truss.
She has now dropped the plan to cut taxes for the UK's highest earners. Just 10 days after it was announced the move was Truss's attempt to fend off a rebellion in her own Conservative Party. Chancellor of the Exchequer quasi car tank says a tax cut plan had become a distraction. In a tweet he wrote We get it. And we had listen. According to a new forecast demand for European natural gas will slump next year. The IEA IEA says that high prices will
result in European consumption falling by 4 percent in 2023 after a record 10 percent decline this year. But supply restraints will keep markets tight even as demand slows global news 24 hours a day on air and on Bloomberg Quicktake powered by more than 20 700 journalists and analysts and more than 120 countries. I'm Lisa Matteo. This is Bloomberg. The 45 he wrote quickly became a focal point of discussion. There were lots of concerns. I listened to people I spoke to spoke to
colleagues spoke to people in the country and saw the reaction and felt the best thing to do was to not proceed with the abolition of the 45 day rate simply because it was just drowning out the other elements of the plan. British politics is absolutely brutal sometimes. That was Chancellor Quantock speaking earlier this morning. Good morning to you. Has the price action elsewhere in the S&P 500 building on the losses of September the fares out there big time that that might continue on S&P 500 futures just about positive by a tenth of 1 per cent a year or two lower by six basis points 376 44 yield much higher over the last couple of months. We had a little look at 4 percent last week. When I look at Credit Suisse we're
having a little look at 360 366 credit suites down in Swiss trading by almost 8 per. Tom as we await this strategic plan from the CEO at the end of this month the strategic plan of the end of this month how do they get to the end of this month. Let's talk about this for three seconds here with David Harrow who we've talked to for years as a major shareholder. Do they do a new cash card to sell out to Deutsche Bank. What is the the best guess of what they'll do. The focus is going to be on divestitures
and asset sales and maybe America. They were talking about bringing the first Boston branding back. Maybe some would be tough luck. We'd be talking about this investment bank. I think I remember going over to see Brady Duke and in Zurich Switzerland maybe tell you I never did having that conversation with him then and was still having it. Now I would say it's a 20 year workout. I became familiar with the struggle with their acquisition of Dunstan Lufkin Jenrette who had a close relationship with them. It's been decades but here we are on this Friday with Bloomberg reporting over the weekend. And you wonder where we'll be next
Friday or under force. Was Frank's drama the pressure on this bank building and building and building a building. The longer they wait the more difficult it is going to be to get out from underneath this. I mean if they try to raise equity
considering the fact that their equity valuation as of Friday was about 10 billion dollars if they start to raise four billion dollars in some sort of equity sale which is what some are saying that they might have to do how much they have to pay up at a coupon payment of some sort of deferred or something like that because talk about dilution. What does that do to the market cap. This bank is a third of what it was in spring of 21. So well there it is and will continue to
file as was agreed to in Zurich and also in London I should point out as well between in Luxembourg. Sebastian Gallo joins us right now senior medical strategist Nada Asset Management. Sebastian I'm gonna go to one sentence there.
It can be the us can be erm any other country. You say inflation will plunge. Why. Yeah. The way you look at it is we had this big surge in demand particularly from the US a big search a big issue in terms of supply chains. Some of it is because of low investments for a long time as was the Covid-19 and that's create an enormous surge in inflation. Everybody gets excited because it
becomes a consensus trade and people are very fearful of it because it's just spectacularly unhelpful. The question happens when demand slows down inflation is very high. Well one of the reasons is so high is because of markups are insanely high everywhere. People have been gouging prices for any goods like Coca-Cola.
Good as are a can or something of that nature. And it's too expensive. And as demand cools off eventually these markups fall very brutally. And another issue is that some of these
guys have been overpriced so much that there's actually no demand for it because it's oriented towards weaker households. Right. You go to target and likes and they just don't want to bite. And so the real cool down. I mean Sebastian to be simple here. If I get the galley plunge.
What does it mean for U.S. dollar. Everybody's got a one way trade to resilient and strong dollar. Is that the trade to Q4 and into next year.
No because as the Fed bears he continues to hike and inflation eventually face much lower than expected. It's pretty freaking awesome for U.S. equities. So you actually want to be long. Of course the Fed interest in to a pause. That doesn't make much of a difference. You're talking with 25 50 basis points difference. It still gives you that long dollar trade and still remains a consensus. It just becomes a U.S.
equity oriented type of trade. So once inflation comes down only in the U.S. but also abroad where you're going to see basically a bit of relief rally in fixed income as well as in equity. Lisa that's the massive international economic ambiguity many people would say. Gold doesn't know what he's talking about. Well.
And other people would say he's dead on here. We're going toward a situation Sebastian where a lot of people are talking about the nodes of contagion. We're talking about the UK as one example. And what happened in the gilt market not necessarily being an outlier. When you're looking at the potential
vulnerabilities in this market what's the next area of concern that you're watching. Well if you look at what happens in an environment where people are looking for consensus traits there are bullish traits. There are very few left. There are a bearish traits in which you end up as people going out with a lot of stories for example on cat issues which are still completely unwarranted. These are regulators is sitting within the bank and you are also sitting on people trying to create a phenomenon a bearish phenomenon like a which is on the top of a hill and it gets very exciting. The reality is is a bit different to financial stability has become very strong post 2008. It is very weak before and that is in
general and bull market but also in China India and the like. So if you look at a financial stability issue it might come from a sovereign yields. And we see that maybe in emerging markets but also in developed markets. And we saw that for example in the UK
with a gilt curve a rising very substantially and questions in the European periphery and then in the centres of course in on Italy and Spain as the pain economically of high inflation is too high can they sustain these high level of debts. And the answer is quite mitigated. So it's quite difficult going ahead despite just call it which is on top of a hill and atmospherics. I loved that. We didn't write that down. Well I was yeah. I was writing down a couple of things that he had said. Thank you sir. Put that question galley there. I have no idea. Asset management which is on a hill.
Well there are people who are hoping for some sort of catastrophic systemic event. And this idea that there could be some sort of washout catharsis of yours. I'm not rooting for that. Come on. No no one wants to see some sort of meltdown. But you do hear this feeling that maybe the you know what is it called thieving. I think so. Writing down the black swan trade et cetera that there just isn't the trigger breaker. The Fed can't be it and policy makers
can't be at the way that they have been over the past few DAX what the Bank of India last week had to be it. That was that big call last week. And that gilt market operation has the latest in the UK. The prime minister has confidence in her chancellor. There are just things you never want to say. You know as a bank you never would have to call up investors and say our capital position is really strong you know. And as a spokesperson for the prime
minister you never wanna have to go out there and say I have confidence in my chancellor but that just things you never want to have to say. Maybe not now but you know maybe end of October. We need to coverage again in London. We'd like to go over this. The witches of what circling on the top of the hill is just like waiting for a pound your coins from like a year ago. This is another more poetic way of saying no. It's a potential contagion. Knows a potential contagion. No.
They were so good there. They could do. They opened for Annmarie Horden Lincoln Palmer. Nice good memories of that 1970s to have any memorabilia like they opened for. What was it called. Cathartic puke. Cathartic bones of contagion. Is that heavy metal. Cathartic. Cathartic puke is pretty heavy metal
probably followed by James Taylor. I don't know James Taylor. I know. And I was that fine when done right now. Fired and went to do I keep going. Ding ding. And bankers. Yeah losers. And they're sticking with my clients. Tell me that they're sticking with most of the plan. Let's face it it's just the top income
tax bracket that they were gonna count that they're not going to cut any more. I mean folks we're exhausted with our great team from last week and we got through the weekend with his non-stop frankly. And here we are. Well as the day is continued into Monday
morning good morning to you all. Your equity market just about positive on the S&P 500 as we kick off Q4 kick off Q4. With equity markets shaping up as follows only S&P 500 futures just about positive up a third of one percent up 11 points. Sunny S&P yields lower 7 basis points 375 64.
Coming up Dan Skelly of Morgan Stanley. This is pulling back. The market was already worried about global growth. It was already worried about U.K. fundamentals.
Things are pretty unsustainable at the moment and it's all tied to policy officials raising rates. I would love for like power someone to come out and say hey you know we're just cleaning up the mess made by fiscal policy. This is not the first time we've seen these kind of movements and they never seem to be fully priced in.
And we have a bear market rally. Sure. Absolutely. You know 8 to 10 percent in this kind of environment is not unheard of. This is Bloomberg Surveillance with Tom
Keene Jonathan Ferro and Lisa Abramowicz. Hello cue for a live from New York City for our audience worldwide. Good morning. Good morning.
This is Bloomberg Surveillance on TV and radio alongside Tom Keene and Lisa Abramowicz. Some Jonathan Ferro futures just about positive on the S&P. T.K. leaving behind an ugly Q3 ugly Q3 and many people saying it continues into Q4 and it's hugely dated dependent. And this is the mother of all data dependent weeks. The other thing is we need a roadmap of how the esteemed British government gets back from Birmingham to London. Now that's only going to London room nights.
Yeah absolutely. Kevin at the small take you take a plane or a train. You take a train. Train. He's taking train up from New Street
down to Houston. Very good. If that works out for you I'm not sure how much that costs anymore. Anyway the strike might just keep going. No I think we Tom Keene.
OK. That's the feature of last week. Jim Bianco of Bianco Research. High volatility Paul. Liquidity financial stress. That was the bond market. And that's the reason why you're seeing the concern at trickle into all the other markets because that is the full faith and credit.
And that's what we were hearing you know just now from Sebastian daily gayly this idea that if the risk is in the sovereign debt complex how does that trickle out to the rest of the market that is used to relying on low yields and gains in the sovereign market to fuel some of the gains elsewhere. And if we aren't coming into recession Lisa Tom a bomb's going to behave like it. Expect bonds to behave Dani Burger. Not as simple as that. And we're gonna have to watch. And the volatility in the U.S. market is tangible in the demon says or we say it's incalculable. John I want to go to the United Kingdom
and Washington. Standard deviation in the basic idea here is how much is trust made. Back in the last couple days she was negative six. Standard deviation I think if she's made
it back to Swedes is the mantra endlessly difficult to strip out the Bank of England's action in NASDAQ and speak to the team in the UK here at Bloomberg on the bank having a David Goodman and CO. I think it's fascinating to see the bank having to come in. Announcer 65 billion sterling operation. Lisa but only have to spend something
like three to four. Just gives you an idea of how powerful central banks still are when they do start talking about stepping back in. Okay. So now the question is will policy cooperate so that they don't have to spend that. Because the fear is if they actually spend all of it by the end date of October 14th when this plan to exercise is going to be over then what does it become a spiral where they have to keep fuelling it. And still there is this loss of confidence by international ISE Street question of last year some last week rather.
Can these banks these central banks do something about addressing financial instability and at the same time do something about bringing inflation down. Theoretically you can't do that. What they have to do is maintain credibility which is a baloney word. I mean the chancellor this morning is
trying to maintain credibility I believe but they've got to maintain credibility and that is sell the message. Maybe we'll see that this week. Then a quiet period this week to let people speak this week. What the Fed Reserve will have from Williams a little bit later.
Janice Brown Brammer is going to go through the Fed speak and you might not have actually held off on some of the Fed's picks. I figured everyone just knows everyone speaks but they're going to say something and give us some Fed speak. No no. Go ahead. I mean I a due tomorrow. We're have a lot of fed speak really ready pumped up this week. What exactly is it going to do to change the market dialogue right now.
Honestly I think you won't fight. You're fired up and fed speak. It's just I actually give it a lot of thought this morning. Should I talk about all the Fed speak or does it even matter anymore.
Because right now unless they come out and they say we are now more concerned about financial stability we're more concerned about some of the weakness that we're seeing overseas. What difference does it make. Wants to know will you include the bond auctions in the press. Yeah that's something that's going to work. That's going to take cocaine. Let's wait for the price action for
selling S&P 500 and beyond. Credit Suisse to that stock in Switzerland is down about 7 per cent right now. We'll pick up on that story a little bit later. Futures up four tenths of one per cent on the S&P 500 after last month delivered an ugly loss on the S&P. We were down about 9 percent the third
straight quarterly loss on the S&P longest losing streak and back to 2009 ugly know to lower by seven or eight basis points on a 10 year 375. Annalisa euro dollar euro dollar negative a quarter of one per cent 97 78 Dani Burger. Yeah you know I think it's important to say that right now we're looking at the possibility of a 97 78. And what we're looking at is the fact that we're not seeing any roll over in inflation even though you are seeing this hawking up of the ECB rate hike and more aggressively hiking rates at that still 10 percent year over year CPI for the euro region. And today and tomorrow euro area and EU finance ministers are going to meet in Luxembourg are on Maria Tadeo is there with them to talk about what to do about this especially because you are seeing slowing growth. How much policy can they really come out
with. What would a price cap to oil to gas to natural gas actually do to it to lower some of the inflationary pressures. Wednesday OPEC plus meeting to decide potentially how much to cut production. This could be the biggest cut in production going back to March 2012.
The peak to the heart of the pandemic. Also notable to say that plus is meeting for the first time in person since the pandemic onset. There is some speculation some questions around whether the Russian oil minister is going to join them. And you are seeing a popping crude today although you have seen a real steady downtrend as people get more concerned about a slowdown in economic growth. And on Friday that is the key event.
U.S. non-farm payrolls. The high expectation on Wall Street is for three hundred eighty nine thousand the lowest around 200000. How much does that really matter unless we get down to what we were talking about earlier up a potential 100000 print for several consecutive months as a brisk been were saying would be necessary for the Fed to pause. How much has the unemployment rate really need to go up for the Fed to take a second look at some of their tightening plans. John Williams at 310 and Bostic at 9 at 5:00 this morning. Thank you sir. Thank you very much. Doubling down on the best seller you
know in the studio with his telling the head of market research and strategy at Morgan Stanley Wealth Management. They watch the Fed's speech say I don't know. No don't watch it. I just can't speak. You know I know I sort of glance at the headlines in the Anna Edwards. I'm with John for when I move on. You know I'm sorry. I mean it's like the Beige Book.
You don't read the Beige Book. No I never have Rich yammer on. The late Rich Cameron was brilliant. It really was fantastic wasn't it. Beige Book. He called the Orange Book. That was valuable. Like you actually learn something.
Let's learn something from Dan Scott again. Fantastic. You're notoriously bearish through much of 2022. It's worked out almost perfectly. We're all wondering now for you what are the preconditions that you want to see the checkbox. Check check check check check to add
equity exposure. Sure. And good morning. And by the way it's great to be in studio all together and having the band here back together. This is a dog who's been to this dance for too long. I'll change my chair to John Taylor Riggs here.
Question. You know look we've done a lot of damage obviously in the third quarter and last month but notably we're we're still trading around the June lows. But notably all of that work has been rates right. We haven't seen the earnings reflected yet. And so talking about Fed speak I think investors want to hear management speak really at this point and really kind of throw in more of a towel. So no one is earni