CPI Preview | Bloomberg Surveillance 11/10/2022

CPI Preview | Bloomberg Surveillance 11/10/2022

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You look at the midterms, the market generally does better after that. I just don't think that this time that's going to carry much weight. It really doesn't help the near-term picture in the near picture in the near-term risk is about Fed deflation. Inflation has already peaked. I think it is getting gradually fall. We are still racing. Ahead on all cylinders are an incredibly strong jobs market. Markets have not adjusted to this new fed.

This is Bloomberg Surveillance with Tom Keene, Jonathan Ferro and Lisa Abramowicz. It is CPI Thursday light from New York City. From audience worldwide. Good morning. Good morning. This is Bloomberg Surveillance on TV and radio alongside Tom Keene at Lisa Abramowicz. Jonathan Ferro.

Equity features just about positive T.K. the data a couple of hours away. I think every voice we had there in our opening said the election does. Let's move on. We're not going to move on Annmarie Horden or join us here with some of the follow up of the midterm. But, John, you are right. It is CPI Thursday. It matters and it really matters to get to the next CPI and then that important Fed meeting to get you through the rest of the year.

I was just going through the dates on December 2nd for payrolls, December 13th for the next CPI and then the Fed Reserve, December 14th. Good you. I'm thrilled if you just take every single day off that those data points land on some.

That's basically it. Year over, year over. But that's important here. And we do it with a data screen. We'll get to the data check here. But it really shows the important tension that we've got today. We will start strong with Michael Pond, expert on how inflation links into the fixed income market.

How does it link into the equity market? I don't know. I'm going to talk about crypto, too. So 830 Eastern Time, I think you have one screen up here to try. And then, Brahma, you have another screen up just looking at what Crypto is doing, looking at what's happening to Bitcoin over the last couple of days. Really? I can tell that you're being sarcastic and they are looking for me to be. What was disingenuous about any of them? Good luck.

Where do you want to start? We don't normally cover the crypto markets in as much as we are not covering crypto. The bleed through to the rest of markets is significant at what you're seeing right now is a crypto meltdown that's really taking all of the speculative money or a lot of oil out of an asset class that really grew up in the zero rate industry. So in the zero rate environment, how much are we seeing that really the triggers breaking off some of the areas that were really fostered by the environment that we'd been in over the past year? The Dow, Sajjan, to join and I'm going to talk to her about Sequoia. They take a marked down to zero and whatever this latest blow up is, and I'm fascinated of how someone as venerable as Sequoia is caught up in this. If you're James Diamond this morning and you look at it a bit, died down 75 percent from the show Glow, what do you do? I think you're saying can we replay the clips that were from a couple of years ago when I said I told you so, I said that Charlie Diamond, quote, Right now, you know, we don't need to hate mail this morning, folks, but I think it's like it's like pre-emptive Jihye Lee David Westin, like it agrees on China the three of us agree on. But Doug Roll, suspect, if you've lost just as much money on Facebook over the last twelve years, there should be fat face dog with a 70 K on bitcoin.

12 months ago? Yes. And this morning is 16. It's brutal. It's going to be a lot of pain out trading range of 10000.

Have no idea. There's no. To me, there's no technical chart. This is an out of body thing, an out of body experience. Again, like the midterms. I want to send Matt Miller a bouquet of tulips. I think that'll be appropriate. I'm going to wait through the price

action. Equity futures on the S&P off a quarter of 1 percent. But catch you lifts futures up a quarter of 1 percent. Yields unchanged just north of 4

percent. Let's call it four point one per cent on a 10 year euro dollar. Ninety nine 44 were negative seven tenths of one percent crude. Eighty four eighty nine, some back in the 80s were down by one percent again this morning. That's been a whole lot softer over the last week playing off of the China story, which we don't have much information on this morning, I would say. But I would go to the Bloomberg terminal, John, and say the two year yield in the United States is my proxy for what we see at a. And it's just an easy number to grab on

to. It's not the benchmark 10 year, the 30 year playing off of a mortgage and all that, but it four point six, one percent. That's my barometer for what we see after that inflation report. The data promote two hours away. Yeah. Let's get into it. Eight thirty a.m. U.S. October CPI. We also do get jobless claims.

Really? That's going to take a major backseat. How much do we see a slowdown and how significant is it? Are we really going to be looking at the headline number? The expectation is for it to go below the 8 handle to seven point nine percent year over year. How much are we looking for core CPI to decelerate month over month and how much comfort can we actually get from this? I'm curious to see, particularly given the gasoline increase in prices that we've seen. Adding to the headline figures at 1 p.m. yesterday, Tom, you laughed at me when I raised the 10 year option. The 10 year auction moved markets. Arguably, it was one of the. Auctions for the past year, if not more, your notes.

Why people don't know. Some people saying because of risk off kinds of feelings both within stocks. Some people pull some people from blaming crypto. Some people saying that the meltdown in FTSE was causing people to liquidate their treasury holdings in order to meet margin calls. And so there wasn't necessarily the same kind of bid behind the tenure. So it was really interesting.

And market moving today as 1 p.m., we get the U.S. selling 21 billion dollars of 30 year notes. And I'm curious to see if there's the same kind of risk aversion in this auction as there was yesterday and today. Let's get into the Fed speak. Philadelphia Fed President Patrick

Harker, Dallas Fed President Laura Logan and San Francisco provide President Mary Daly. Cleveland Fed President Loretta M.. Kansas City Fed President Esther George. Among those speakers, what can they actually say, John? Given some of the inflation data that we've seen and given that they're all coming out now post the election, which evidently didn't matter, according to the intro, how much do they really indicate that they're ready for a step down at a time when markets are not being overly disrupted by the somewhat hawkish prognostications today that they should just start? LifeLock Tom Keene they should just start. I'm actually not a bad idea. Guy drops and everyone gets their say. Well, will be the cumulative voice today of the Fed. They're going to address cumulative. Remember that? We'll see.

I guess it depends on the taste. Joining us now is Michael Pond to talk about. So they had a global inflation market strategy at Barclays. Good to catch up with you, sir. Can you walk us through, Michael, what you expect a little bit later this morning? So we're expecting another strong print on CPI led by the shelter component Lisa mentioned energy that's likely to be strong as well, but a little bit less strong than the September reading.

So core CPI rose point six in September. We're looking for point for print. Now that's still a 5 percent annualized rate, but that's much stronger than the Fed would like it to be. And we'll keep it on that hawkish mantra. Michael Pyne, you are truly expert at this. What is your x axis look like? What is the how long is this a 5 percent inflation? Well, as you know, a time when you work in more than two dimensions, so it's not just X and Y ISE season. And and MS as well.

You know, we've got to look at the shelter component. That's going to drive today's print. The shelter component should be very strong, rising. Another point, seven, maybe even point eight on a month by month basis. That's well above the normal rate. What we know, though, is the rental market in real time has slowed slightly, quite significantly. The CPI only picks up up with a lag. So but today we'll get another strong shelter reading.

Beyond that, we do expect to see some weakness last month, that quarter commodity reading. So the core goods reading actually came in fairly soft, rising, almost almost nothing. Basically, a flat reading that could continue continued to come in soft. We're seeing come off, but is well off their peaks. Commodity futures, shipping rates are down. You mentioned the dollar while it's flattened out a bit.

The dollar is much stronger than it had been. That, too, should put downward pressure on goods prices. So there's a lot of reasons to expect that core goods prices, especially used cars, could actually be in deflationary territory in the near term.

Well, because of that shot, the reading overall core is likely to remain strong for the next several months at least. So regardless of what the reading is Michael Barr, the derivatives of how people traded are interesting. How are you thinking about how you will use the input of this data to determine a call to figure out what's valuable and what's not? That's a very good question. So again, we're looking at the overall

reading, but we're diving into the details. If an off consensus print is due to one category, that that is a big outlier. The last month, for example, we had a 45 percent month over month increase in food, ad businesses and schools. Now, that was all because, you know, the free lunch that was offered during the pandemic was thought, hey, so if we get an outlier like that, the market should dismiss it because the Fed isn't really going to care. But if if we get a strong shot, they're reading what that means, because that tends the trend is that the next several prints will be strong as well, early as the market will expected to be.

So. And that keeps the Fed on on this hiking cycle. We're looking for another 50 basis points in December. As you mentioned at the top of the hour, there's a lot of data yet to be seen. So this this downplays a little bit this CPI, because we get another one ahead of the mid-December FOMC as well as another payroll report. But no doubt about it, this is a really important CPI report. Mark Crumpton, Barclays.

Michael, thank you. What do have to say? The most important since the last until the next. The next one's not too far away. CAC gonna get a reserve.

That's true, John. But I think, you know, to not make fun of it, the cumulative set of data here is important. And one thing I'm noticing in terms of inflation is how much the stuff on sale right now all of a sudden retails coming in show at the grocery store this week. There was more stuff on sale than I've ever seen.

And I'm wondering if, you know, Blanchflower was out on Twitter yesterday or this morning and can't remember with David Rosenberg saying, look, the disinflation, it's here is a great. You addressed the story at 1/2 months ago. Now we've got a new problem. And isn't that the shift really away from goods and towards services? Yes. Having a different conversation. I think that's the problem. But he did it shifted in the last 12 Michael Barr when all spherical geometry on a sphere with three dimensions, blah, blah, blah.

But the answer is he went back to real estate. How do we treat real estate at eight thirty this morning? Rent mortgage. Was problem? I don't know. You saw what happened with Redfin yesterday. What do they cut? 13 percent of the staff. What does Redfin do? Seriously? Are you serious? No idea. And they close their home flipping

business. It's an oh, they're the home flip page. They had one home flipping. They closed that. But they've got other kinds of valuation services that from a larger perspective. He notice this? Yeah, I think so.

Yeah, absolutely. If when you flip a home, how long do you own it? Well, actually what they'd normally do is they will offer to buy your home on the spot with an eye buyer and then they. But it's for a lower price than you only would get it. The bigger point that I was trying to make is. The Fed speak will be interesting from this perspective after this. What do they do if it's a softer print? Do they back away from the rate hiking cause? And does that leave people thinking that inflation is going to be more entrenched for longer? I mean, talking about the derivatives of how people trade, what potentially will be unleashed at either one soft print won't get it done.

No. Another one zone, another one. And the risk for the Fed is that you get the next print is firmer and you reset the conversation again going into the Fed. It's good. It keeps us from posting that on repeat.

Futures up a quarter of one percent. You can sidetrack us or Monegan. You. I know you're probably going to join us from JP Morgan in the next hour. Looking forward to that. Equities up by quarter of one percent cent one eye on crypto, the other right on CPI data at 830 Eastern Time, two hours, 20 minutes away. Keeping you up today with news from around the world with the first word. I'm Lisa Mateo. Control of the U.S.

Senate comes down to three races where votes are still being counted. Each party needs to win two of those states to secure a majority. Georgia, Arizona and Nevada are still in play.

The race in Georgia is headed to a runoff next month. Neither Democratic incumbent Raphael Warnock nor Republican Herschel Walker received 50 percent of the vote. Hurricane Nicole came ashore on Florida's east coast today. The first hurricane to hit the U.S. in November in almost four decades. It's now weakened to a tropical storm. Forecasters warn it could dump up to eight inches of rain.

Bloomberg's learn that crypto exchange FTSE dot com has told investors that without a bailout, it would need to file for bankruptcy. FTSE co-founder Sam Bank and Freed said the company faced a shortfall of up to 8 billion dollars and needed four billion to remain solvent. FTSE rival Bonanno had agreed to buy the company but walked away after conducting due diligence. Meanwhile, U.S. investigative regulators are investigating a new Twitter. Owner Elon Musk has emailed his staff for the first time and warned them of, quote, difficult times ahead. Must wrote that there is no way to sugarcoat the message about the economic outlook.

He also said remote work will no longer be allowed and employees are expected to be in the office for at least 40 hours a week. Global news, 24 hours a day on air and on Bloomberg Quicktake, powered by more than twenty seven hundred journalists and analysts and more than 120 countries. I'm Lisa Matteo. This is Bloomberg. Our intention is to running it has been our intention regardless of what the outcome of this election was. I think everybody wants me to run, but we're going to have discussions about it and I don't feel in any hurry one way or another. The president of the United States life

in New York City. The votes still being counted. Equity futures going into CPI shaping up as follows on the S&P 500 positive by third of one per cent. Yet it's unchanged on a 10 year 4.0 9 8 1 per cent and up not even a basis point.

Any affects market Eurodollar ninety nine 45. Have you seen the front cover of the New York Post this morning? Trumpeted. They've been having fun. So it's a picture of Donald Trump as Humpty Dumpty. It's reached Trump de Dumpty and it reads as follows, Don. He couldn't build a wall, had a great fall.

Can all the GOP men put the party back together again? The people we've heard so yet. I don't think we have him. We have not heard the hurricanes here hit Florida. Yesterday when I flew back, the Gulfstream was down. And when I flew back, there was a pilot hitching a ride to try to get to Orlando. It was that I'm having a lot of people call for him to delay the announcement. Yes. A make on November 5th like delay into the Georgia passed the Georgia election and the president of South Reference yesterday.

If you watch that news conference, but in no news conference he talked about if he were to announce he was going to run, he'd went into the new year. So maybe we have to reset things until the new year. We were sober saying thank you to Annmarie Horden, who was a beyond generous with her time on her trip to Washington. And we could do a two hour conversation this morning, but she doesn't have the time and either, I guess, the urine and inflation. Thursday, Emory, let me cut to the reality here and it goes back to the song. It is seared in our brain from the great Broadway play, South Pacific Ballet. Hi, may I call you?

It is calling world leaders what will be accomplished in Bali. Coming up here in the coming days. Well, the big really ticket item for this G 20 is, of course, going to be the fact that we are expecting President Biden to sit down with Xi Jinping, and it's an interesting moment because of course, Xi Jinping is off the heels of this president breaking term and he has all these loyalists behind him. And President Biden, though, is going

into this meeting much stronger than many would anticipate. And last night, he saying he also plans to run for re-election. But the deliverables is going to be challenging. Right, because this relationship is really straining at the moment, whether it's Taiwan, whether it's chips. That is going to be interesting. But one thing that might start to cool down the temperature a bit between China, United States, is the fact that President Vladimir Putin is not showing up to this G. 20. So potentially the issue of Ukraine between China and the United States.

It will be discussed, but there won't be as much concern around it with Putin not showing his face, even with a Republican House and who knows in the Senate. This is a president who travels, what, 1000 miles from Singapore? Happy, happy, happy. How does the election change a Biden in Bali? Well, it's not just Bali, right? His first stop is going to be Sharm el Sheikh and Egypt is going to be talking about climate change. And what we saw from this election is that the youth vote is still incredibly important. Those are individuals who vote for voted for him as well for president. And I think that is going to give his administration a little bit more really to lean into the climate change talk, even though they're obviously still concerned about higher energy prices. So this puts Biden and his team in a

much stronger position to talk about these types of subjects and also meet with adversarial leaders with this new, more moderate Congress that we're looking at the likelihood of in Washington. There is one area that everyone seems to agree on, and it is China. And heading into this meeting with Xi Jinping, what's your sense of how much pressure there is from Congress to not only crack down on some of the trade relationships with China, but U.S. companies that do business in that

nation and basically setting parameters for that? Well, this administration and as you said, Lisa, it's really a bipartisan topic in Washington, D.C., you'd be hard pressed to find any politician that does not want to go after China. So there is going to be really a consensus of this administration. I think speaking for United States as a whole, going into this meeting, this is why it's going to be very difficult for them to be any big deliverables, the president said last night.

A question from our very own Jenny Leonard about China and about this meeting. He said there will be no fundamental concessions. So what can they really come out with? Maybe a joint statement or ISE statements about that. They want to see peace on the European continent, maybe something about climate change and how they're still going to put those negotiations back on the table, because remember when the House Speaker Pelosi went over to Taiwan, China ripped the carpet under the United States when it came to climate talks and also some military talks. And now we have Kevin McCarthy, who's poised to be the new speaker, also telling reporters that he would love to lead a delegation there. So there's not really much I can come out of it because of where the relationship is right now.

How difficult is it for this administration to take a leadership role in climate change when they're trying to also send a message that they're not opposed to the fossil fuel industry? It's been incredibly challenging. They've wanted to call these assets stranded outside, stranded assets. President Fighting campaigned on the fact that he wants to get rid of fossil fuels. He wants to be a climate president at the same time. He also cannot have gasoline prices north of five dollars a gallon, which is what we saw in June, which is when we saw his polls really precipitously drop. This is something that is very difficult for this administration to square because they really want to read it, lean into the renewable story and the transition, the transition at the same time, they recognize they need these fossil fuels and they need them now more than ever, because after this G. 20.

December 5th is a key date to watch if this oil price cap is not done. It could potentially be challenging for buyers to buy Russian crude and we can see shut ins. And if Covid starts to ease up in China, we are going to see crude prices spike. Yeah, AMH down in Washington, tremendous

work over the last couple of days, as always. Emery, thank you. So there are two potential bailouts on the table next week. The obvious one is between the president, the United States and the Chinese leader, Tom. That's the obvious one. The interesting one from from my perspective is actually whether he makes Chancellor Shultz or not.

I think that Shultz going to Beijing was controversial. Yes. The Europeans very recently have been complaining about the so-called Inflation Reduction Act. The irony, of course, is something else for the Europeans. It's about state. And I wonder what that's going to look

like in the coming weeks and months. The tension potentially between the Europeans and the Americans, the other foreign policy to watch as the foreign policy, as you mentioned, with Mr. Trump or The New York Post, the DAX, the foreign policy discussions within the Republican Party and the foreign policy discussions postelection within the Democratic Party, what kind of tone can Biden set with the Democrats to say, hey, we got this right, where did we get it wrong? That introspection there as well. I didn't hear that in the news conference. I did not hear that in a news conference. Nothing ahead. Yes.

There was an article in The New York Times today, a young reporter. Nicholas, find those. It is brilliant. And what the Democrats got wrong on crime. Brilliant. Really just kind of got over the finish line and the rest didn't. Right.

I think it's it's complex here. And of course, in my right, we wait for December. Do we have a date in December for Georgia? I think it is the success.

Yes, it is the success. The bloodshed is not over. Not yet. We can say we're election central from New York. This is pulling back. Live from New York, CPI states are two hours away. Going into it. The price action equity is up a third of

one per cent on the S&P 500. Futures push in just a little bit higher. The three day winning streak on the S&P snapped yesterday, the decent day of losses actually on the Nasdaq. We try and bounce back as well, up a half of 1 percent in the bond market. Two year yields about 20 basis points below the highs of last week at about 460. Want on a two year this morning.

Gilts trying to bounce back as well, up three basis points, your 10 year, four point one per cent, your euro Eurodollar. The pain still to come in Europe. How many times we talked about this, we've had the tightening cycle. Let's talk about the consequences.

Ninety nine, 53 to on euro told me I only got six tenths of one per cent scope and scale magnitude. We're talking about inflation here. And we'll do this for Sarah House in a moment. But John, over there, it is a magnitude more urgent given an act of war in Ukraine. What can they do about it? What can they do about the war? The criticism is going to build even more when growth starts to roll over time. What can they do about it? Well, I go back to the headline of the month. We don't have time, not a recapitulation, but Governor Bailey with a stretched out two year recession.

I have never seen that ever. If if if they deliver what's priced in the race market and they're trying to push back against that, they're trying to walk much more, I think more of a delicate dance over the bank, giving to the maybe the Fed Reserve by mandate, maybe. I think they're worried. I think you can really sense they're worried about the growth backdrop in a way that this Fed reserve is not.

Next year is going to change when the dual mandate of the Federal Reserve is in conflict. Different picture. And when that starts, I think, Lisa, we have a different kind of tension over in the Fed. Did you see what Charlie Evans over the Chicago Bears did? He has to say that. And in the exit and in his exit interview, basically he's going to leave his can give up his post in January. And he came out yesterday in a speech

where he talked about the fear that the Fed was going too fast and that if the Fed is too aggressive in overshoots, that they could struggle to get inflation above 2 percent over the long term like it had been. So going back to the same regime. Right. You don't hear this from anyone else. I think it's interesting, Jonathan Ferro, as he exits the Fed that he sounds this note of incredible dovish ness that is more sensitive to these balance risks and sophisticated freshwater and Carnegie Mellon and all that. But what's important there is the history of the 40s into the 50s where you went from rampant post-World war to inflation down to true, John. We should go to a true deflation with early ISE.

Now, you just have to ask them for their assessment of the risks around policy right now. And when they tell you that the risks of doing too little outweighs the risks of doing too much. That's an implied commitment to overtime. Yes. It's in the language of the Federal

Reserve. That's a commitment to. Well, sidekick. Well, you know, it's there and it's the history and, of course, the skeleton of the Bank of Japan. I'm going to say 15, maybe 20 years ago as well.

A good conversation to begin with. Sara House, senior economist at Wells Fargo. Sarah, we love as we have Michael Barr down from Barclays with the fixed income dynamics of today's report. And now we're really going to drill down. What part of the headline inflation will you study first? So when I'm looking at in terms of where it comes in versus the overall consensus is looking at a few pockets that I think we see some decent disinflationary forces gathering. So I think autos will be a big one today, not just used, but vehicles get right that we have have seen inventories pickup there. And I think a lot of pricing constraints

on the part of the consumer, too. But also, of course, shelter that really sets the tone for not just what inflation does in October, but what it will do in the months ahead. So I think those are two of the key categories to dissect, real deferred dissect. Will the Fed partition or do they just look at the two statistics that come out? No, they'll partition it. So in addition to just the headline and core, so they do like to look at various slices and dices of the data. So whether that's the median CPI, which I think gives you a nice just clean, clean look at, and I'll turn the measure of the core, whether it's the sticky, the flexible CPI that we get from Atlanta. But I think one of the things you've

seen is a lot of questions over do they do they discount shelter? Given that we do see that rental price pressures are certainly coming down. But we saw in palace press conference after the last meeting that, no, he is very much looking at shelter, which I think will be important as we think about what this means for near-term Fed policy. If Fed officials had a life blog and were discussing a CPI print as essentially perhaps you could say they are in terms of just how many speakers we have today. What would you be looking to understand from them after the CPI print? So I think I'd be looking at some of the short term vs. versus more persistent forces of inflation. So what we're seeing in those areas that

can move pretty quickly. So things like travel services, prices, those those reset the orders, which we which we already mentioned, but some of the more persistent ones. So whether that shelter but also some of the more mundane services. So what we see in some of the medical care, like physicians or hospital services, what we're seeing in tuition and child care, home insurance, auto insurance. And so I think some of that dissection of which of these categories have longer momentum, more scope for for catch up and which ones tend to move and reprice more quickly. So we've been talking about how the election doesn't matter and how we're kind of beyond that now.

It's all about CPI. But would you completely agree on this? And yesterday I elicited groans from myself when I started talking about debt ceilings and the potential for some sort of risk or brinkmanship heading into a default. But I am seeing more and more notes that this is actually hugely concerning and could tip the scales in terms of how deep the recession is, just simply because of spending cuts and because of the uncertainty fueling even higher yields in the 10 year. What's your view on the importance of these types of tit for tat in D.C.?

Well, I think the fact that we will have it looks like very likely like we'll have divided government with the Republicans at least taking the House. It does mean that there won't be any major fiscal packages here in the near term. But I think that does mean that the potential depth of upcoming recession, it could be even deeper because you might not have that agreement over over fiscal support.

Now, if it's deep enough, you might see some bipartisan help. But I think particularly given the inflationary backdrop, some of the fears of how much fiscal policy contributed to that. I think overall we get a pretty muted response from the fiscal policy sector come that next downturn, which leaves monetary policy as as really once again, the main lever for for for supporting the economy. Sir, in ninety nine point eight to 5 percent scuse me.

I've got election details in my head, ninety nine point eighty five percent of our audience on radio and TV look at headline inflation. There's no core. There's no Dallas Tremaine. Walk us through again why animals like you, like the chairman of the Federal Reserve, don't look at headline inflation. It's nonsensical. Well, we do look at headline inflation, both us and the Federal Reserve, because that does have a meaningful impact on consumers ability to spend in real terms.

But the core and various cuts of it are so important because that gives you a better sense of where inflation is going, how quickly it it might come down. And while there's very likely that we'll see directional improvement in inflation, one has one has to be careful about losing sight, that it still remains a long way back to the 2 percent, I guess long way back to 2 percent. Where are you modeling that? We we pause, if you will, on a core inflation basis. We're 5 or 6 ish. Do we pause at 3? Do we get stuck it for? So we believe that you can get core CPI coming down to, let's say, roughly three and a half percent by by the end of next year, but that's still well above the Fed's target. We hit adjust it for their 2 percent, you know, 2 percent been really focused at the piece to flatter we forecast out through 2024. And even then we don't get core core

inflation moving down to a 2 percent consistent levels of inflation. I think that's going to be an important story over the next year or so is that there is a lot of disinflationary forces here in train. I think we're likely to see some pretty market improvement over the next 12 months or so, but squeezing out that last little bit of inflation to get all the way back to 2 percent, that's going to be a much harder ask.

So it's not just about supply chains, but it's also about what we're seeing in terms of the labor market, the wage cost pressures that we continue to see and the fact that, sure, inflation expectations haven't necessarily broken out of historical ranges, but they're at the upper end of that. And so we're still overall, I think, in a very elevated inflation environment. Does the conversation change jump when we get down to four? Do they start to tolerate something different? I don't know. Going to signal that.

Now we know that. Does that change in a year's time? I mean, I hope the governor of the Bank of England was listening to that because that's where we're going. Governor Bailey, your questions? I would say the U.S. zygotes now.

John is all focused on one month out, three months out, you know, three meetings on and that. And Sarah House and Andrew Bailey are way out Sarah House there at Wells Fargo. Lisa, I'm pleased you brought up the midterms. I caught up with Morgan Stanley, Microsoft yesterday, and he talked about the importance of the midterms potentially taking on increased importance over time. And I've been asking this question. I know you have as well. We have to ask ourselves, what is the optimal policy mix now and what do we think the optimal policy mix should be in 12 months time now? I think if you asked people they want the Federal Reserve to deal with inflation and they want fiscal policy just to not get in the way, standard the way, we don't need a UK situation here in America. Fine.

Is that going to be the story 12 months from now? Is that the optimal policy mix in 12 months? Well, some people are saying that actually the gridlock that you're going to see in D.C. is going to cause a deeper recession, actually. And because exactly to that point, over the longer term, the lack of fiscal response and also the fact that you're going to get cuts in spending. Right. You are actually going to get cuts because in order to not default, in order to meet that debt ceiling limit and because of the aversion to raise it, people are going to cut costs, which is going to lead to an even less visible.

Politicians are going to cut corners. They're going to be budget cuts. Yeah, I just don't believe we're going into an election. The election starts now. Humpty Dumpty promptly dumped. You know that. It's starting right now.

Just to be clear, I'm not going to cut class. Just tune again. Tom referencing a front page of The New York Post this morning. This is raising an important question. So right now, the consensus around the economy is short and shallow. If we get a recession, actually think when it comes to the policy mix, it raises questions about duration and maybe not depth so much if you don't have. I agree that circuit breaker from fiscal policy or from monetary policy, this downturn can go on for maybe longer than you think. You said that Surveillances said that

all year. I'm sorry. The X axis just goes out. I will give you this. Not from me, but from Robert Dent, a former Fed economist who works at No Europe, who wrote, instead of fiscal support, we're expecting debt limit volatility, governments shutdown volatility and potential spending cuts.

And it's the reason why he sees the unemployment rate going up to six point four percent in a recession lasting about 15 to come. So just to give you a sense of how people are shifting that they do a crime bill. Is someone going to vote against that right now? I think so.

What kind of crime bill would they do? I don't know. They'll make it up. They're going to do something to show that they're interesting at the moment. When you speak to people in fixed income, the state level finances. It's a very different situation compared to what could happen at the central level.

They could loosen the purse strings. Yeah, they've got the cash for now. For now. Features up four tenths on the S&P. That was fun, wasn't it? Let's good. They do OK. You're fantastic. As a way to lecture central from New York. This is pulling back. Always a good time keeping you up to date with news from around the world with the first word. I'm Lisa Mateo.

Figures out today are likely to show that U.S. inflation moderated only slightly last month, and that's keeping a fifth straight 75 basis point rate hike on the table for the Fed's meeting next month. Economists forecasts that the consumer price index will show a seven point nine percent increase on an annual basis. The CPI comes out at eight thirty a.m. New York time. President Biden says he still plans to

seek re-election and will likely make it official early next year. The president spoke after Democrats avoided worst case scenario, congressional losses in midterm elections. Now, he said the final decision on running again depends on his health.

And discussions with his family. Meanwhile, British Chancellor of the Exchequer Jeremy Hunt is considering whether to impose the top income tax rate on more. Britain's Bloomberg's learned hunt is thinking about lowering the one hundred seventy two thousand threshold at which that 45 percent tax rate is paid. Al Hunt and Prime Minister Ricci soon CAC are looking for more than fifty seven billion dollars of spending cuts and tax hikes. It was the largest single owner art auction in history in just two and a half hours Wednesday night. Christie's presided over the sale of just over 60 artworks for an unprecedented one point five billion dollars.

And they came from the collection of late Microsoft co-founder Paul Allen. Among them were works from Lucian Freud, Gustaf Klimt and Paul says on global news, 24 hours a day on air and on Bloomberg Quicktake. I'm Lisa Matteo. This is Bloomberg. Right now, we're at a higher interest rate environment to try to bring inflation back down. Financial markets seem to believe that

inflation should fall back down towards our 2 percent target over the next couple of years. I hope they're right. I know that we're going to do what we need to do to bring inflation back down. No. Kashkari that the Minneapolis Fed president, his words, any talk of a pivot, it's entirely premature.

Price action looks like this on the S&P 500 equity futures positive, four tenths of one percent positive on CPI data. That is about an hour and a bit away now and 42 minutes away. Some yields unchanged on a 10 year 4.0 8 8 5 percent on a 10 year euro dollar, negative six tenths of one per percent just in at around parity over the last couple of days. Ninety nine, 48 and crude from the 90s back to the 80s, again, 85, 37 and a half of 1 percent. The rumor mill in China still in

overdrive. And Chinese officials tell them seemingly pushing back against this idea, they're going to reopen and drop CAC. Yeah, that's sort of where we are right now. It could change from time to change

today. I mean, I really don't know where we are as we go to Bali. Annmarie Horden again will be in Bali with the president. And she allude that the president of China may be there. You wonder if they'll meet. I guess it's like anticipated. Anticipated?

Is it right? Is that the right word? The right word, I think into next week. Well, we'll see. Course a long ways away and will be interesting there. And of course, one of the themes in Bali with G 20 will be climate. It was one of the themes in the election may be below the radar of crime, immigration, inflation, the economy of America. But nevertheless, it is always with us. Michael Regan joins us now, administrator. Yes.

Of the Environmental Protection Agency. But far more from the backbone in the fields, the hills of North Carolina. He's got an understanding of the value of climate to our cells. Michael, thank you so much for joining

us from COP 27. The problem with these interviews is we tend to go big and broad. I want to go narrow. And it does go to the president's back and forth on hydrocarbons, on oil, on net gas and also on methane emissions from oil. Take us into that little narrow window of methane emissions and what can be accomplished. Well, thank you for having me, and you

know, the president has pledged that we'll continue to move forward to reduce global warming, to reduce these emissions that cause global warming. He never pledged that we would get out of it immediately overnight, but he pledged that we could work our way out of this. And so I think when we talk about methane in particular, the conversations that I'm having with the oil and gas sector, with technology providers, with, you know, the U.S. Chamber of Commerce, is that we see an opportunity to deploy technology to reduce methane and actually save the loss of gas and gas products while saving the planet and protecting public health. We know the technologies exist. We know that there are advanced technologies and business models. Right, just to reduce the methane. And so EPA, whose job is to put some

rules of engagement in the role so that all companies know and can make these longer term investments. How does EPA job change with the election, including a big Republican win in your North Carolina? I'm fascinated how the oil and gas industry that has a GOP bent will change and amend coming off this election. Well, you know where the president has had a historic two years and passing historic legislation with the bipartisan infrastructure law, the Inflation Reduction Act. You know, resources coming to EPA to help with and enhance the regulations that we are required to put in place by law.

So I don't think the elections will change the fact that EPA has legislative authority or authority provided by the legislature or Congress to pursue the reduction of greenhouse gas emissions, to protect public health and protect the planet. We're going to continue to move forward and do our job. But the resources that flow from the from the Inflation Reduction Act just help with that public private partnership to pursue these reductions. So we're not solely reliant on regulations alone. How complicated is it right now,

Michael, to be with this mandate to reduce emissions at a time where people are prioritizing fossil fuels in light of some of the shortages? In light of the war in Ukraine, is it perhaps taking some energy away from what you're saying or making it more difficult to argue your cause? You know, if it's a speed bump, right? I mean, I think we find ourselves in this position where many countries are overly reliant on fossil fuels provided by, you know, countries like Russia at a time, whereas this is inconvenient and we are seeing that this unprovoked war with Ukraine is causing pain globally. If we were not so dependent on these fossil fuels, if we had made the proper investments in clean technologies and energy efficiency and more domestic opportunities, we would not see the price volatile volatility that we're seeing internationally. So it's a wakeup call. Right. Number one, it is very inconvenient, obviously. But number two, it is really forcing all of us here at COP to think through how we continue to double down and invest in alternatives to fossil fuels. Michael Reagan, thank you, sir.

Michael Reagan there have the EPA, the president, the United States will be in Egypt tomorrow. Tom, what a busy schedule for the president over the next week. He checked him in answer to the chiefs Wednesday. It's exhausting. I don't care how cushy Air Force One is. This is a lot of miles.

And I believe that under Cambodia even as well, I think that's scheduled. And you just he's going to show he's going to come back for it's always going to come back to a Georgia election. I mean, that's a sure thing. He's going to celebrate the holidays, which is which is a good and wonderful thing. But I agree, it's an exhausting trip and we'll see how consequential that Georgia election might be. Another piece of news. I wanted to draw your attention to Elon Musk in his first e-mail to Twitter staff.

Ending remote work. Ending remote work. How quickly that story's changed. So a year ago, 18 months ago, we were talking about the death of the office. I'm sure, Lisa, you've had similar conversations. I've been speaking to people in the

market who runs, say, trading desk or a division within a bank, an asset manager who has said that all of a sudden people started to come back to work the way. Let's just say job security has been replaced with a little better job insecurity over the last few months. We've talked about this, right. How much is an economy that perhaps isn't as hot? Perhaps that's going to drive more people back to the office to make sure that they get that face time or make sure that they're seen as essential. But it's also the bosses want to see them back. They're like Elon Musk for a long time and they've wanted that for a long time.

And now they can exercise that power perhaps a little bit more when the balance of of power has changed a little bit. Elon Musk isn't really making friends there. He comes in. He cuts half the staff. He says don't work from home anymore, throws everything up in the air. I mean, can you imagine some of the morale there? He did one of the spaces, things in other spaces.

The gates are kind of like them, a tune into them sometimes. He was down one of them and he was being interviewed some about advertising on the platform of the changes we could get. And you can see on spaces who's listening.

I can tell you some pretty much every single brand under the sun was there listening to that conversation with Elon Musk yesterday. There is a ton of uncertainty about where these advertisers want their brands to be and whether Twitter is still a platform for them. I remember when Tesla was a failure and everybody mark this guy down as buffoon and boom, all of a sudden it was a success. Can you do that pixie dust with with Joel Weber. The problem is, is that his message is not cohesive.

It's not clear what his ultimate goal is. I mean, was he giving a better sense to advertisers yesterday? I think it was somewhat confusing. Can you repeat the act? I'm I'm with you. That's the big question. Lapham, New York CPI one out 34 minutes away.

This is Bloomberg. You look at the midterms, the market generally does better after that. I just don't think that this time that's going to carry much weight. It really doesn't help the near-term picture in the near term picture in the near-term risk is about Fed. It's about deflation. Inflation has already peaked. I think it is going to gradually fool. We are still racing ahead on all cylinders with an incredibly strong jobs market. Markets have not adjusted to this new

fed. This is Bloomberg Surveillance with Tom Keene, Jonathan Ferro and Lisa Abramowicz. CPI data 90 minutes away live from New York City this morning.

Good morning. Good morning for our audience worldwide. This is Bloomberg Surveillance on TV and radio alongside Tom Keene and Lisa Abramowicz. Some Jonathan Ferro equity futures are just about positive on the S&P up a quarter of one per cent.

T.K. The data 830 Eastern side Joel Weber Eastern Time. We'll go beneath the headline data. And John, inflation, you just partition out.

You've got a partition out real estate. I mean, we've heard in two loud sounds this morning show. Okay. Excuse me, folks. Is called shelter, not real estate.

What's in the Koran? I was just DAX. Oh, are housing whatever it is. You know, I looked it up the other day. Exactly. Thirty three. I know, John, it's already 3 percent of the pie.

I mean, 30 peoples from 33 percent nationally on average and shelter. From Delaware this morning. Very good. Okay. I'm gonna you get the data and then you

get the Fed LifeLock straight afterwards. Who is not speaking today? Well, Fed Chair Jay Power for one, Lael Brainard for another. So the people who actually perhaps are central and who might disagree with each other, actually, in terms of how quickly the Fed has to go, not really saying we're not getting the leadership necessarily still. Whether you start to see a growing number of Fed officials talk about the risks of the overshoot and what they could do longer term to the economy and potential inflation may be interesting just because we started to sit around the edges from the likes of Charlie ISE. Isn't that why they're slowing down anyway, or at least implying suggesting to us that they will slow down? Yeah, I mean, the, you know, cumulative lags that all that stuff. Sure. At the same time, if you hold rates at 5 percent, there is a cumulative effect of that that people haven't really fully gamed out because it's impossible to do so. The debate here.

And for people watching who aren't the sophisticates, John Farrow and shoulder. The bottom line is there's a group of people saying we're super restrictive, we're restrictive. Are we? And that's the debate. And to me, it's people ignoring the elephant in the room of CPI. They're ignoring. I mean, I'm making a joke about it. But you're right, John.

They're ignoring shelter. They're ignoring selective food. Can we do that? 1 or 2 percent of our audience is saying that's nuts. They're looking at inventory over at retailers and saying, look, goods disinflation is starting to appear. And other people are saying, well, hold on a second. That was the story of last year. You seeing a shift is stickier. It's broader. It's gone to services now.

That's the problem for this Fed. They're constantly chasing a tail. So, yeah, I agree with the Expos chasing the tail. And after this report, in the next report before the Fed meeting, they're going to be ever more exposed. And behind it, when you're talking about why this matters. Why?

What's the difference between holding at 5 percent for two months versus a year? I want to put this number on it. The Bloomberg Barclay's Aggregate Index for the United States that is top rated debt of governments and corporations stands at twenty three point six trillion dollars. If that resets at another level, what does that do to an entire nation's in terms of borrowing costs and in terms of abilities to show? I'm gonna throw this out there because I think about things a little bit differently sometimes. I don't think the end of hiking is the same as the end of tightening. Correct.

I think if you pause at 5 percent and the economy rolls over and you don't cut that Fed's is getting tighter than you think the Fed's going to get in that well, just inflation's coming down. If growth is rolling over and they don't like the Senate or they don't cut a move, that Fed's going to tighter. And that's why I back around this idea that maybe we've seen sort of like peak fat pig fed for me. And I think for others, too, is if you have a recession and they're not cutting interest rates, that's when you gonna feel some real pain. Tightness is a relative game. I think that's another way of saying it in the relative game changes into a weaker reality. All of a sudden, the Fed's position

carries a lot more weight to do nothing rather than just continue to tighten. Nicely put. The market looks like it also was set. Brand equity futures up a third of one per cent. Look for shelter later. You it's unchanged. Look, 10 year, Lisa, about four point one per cent on Ten's this morning's euro dollar. Stronger dollar you weaker euro.

Euro dollar ninety nine 44. All right. Eight thirty a.m. we get that U.S. October CPI. We're expecting it to be seven point

nine percent, which is coming down on the headline figure from the eight point two percent. Does that matter? Is it really going to be the month over month in the ex energy and food that people are going to be passing through? And then, of course, people dismiss this as not as important as the next one that we're gonna get in December at 1 p.m., we get an auction, U.S. selling 21 billion dollars of 30 year

notes. Tom always dismisses this. However, it is important to note that yesterday's moved the market broadly. It moved equity markets because it did not go well. Ten year yields were much higher in the end sale than people had been expecting.

And a lot of people were wondering why a whole host of reasons we can get into throughout the show and today. Let's talk about the live blog that John labeled as such. Fed speak, including Philadelphia Fed President Patrick Harker, Dallas Fed President Laura Logan. San Francisco Fed President Mary Daly. Cleveland Fed President Loretta Master.

And Kansas City Fed President Esther. Can't wait. The lighted some. It's like a who's who of Fed speak. It's not you don't say out of control and control, out of control. This think it's very dense. Let's just say it.

Yeah, exactly. Do I want to hear from five Fed officials or do you want to hear from Phil camera? I want to hear from Phil. That's what joins us right now from JP Morgan Asset Management portfolio manager. Phil, let's start here. When do we stop calling this a bear market rally and start calling it a bull market? At what point do we do that? Yeah, not yet, John. So I think first all happy CPI day, which isn't really happy this year because it's been a recurring nightmare for investors as inflation has been very, very slow to come down. It's caused terminal rates to jump.

It's caused the dollar rally. It's caused the equity markets to fall. Right. So it's been a recurring nightmare all all year. And I think that's the reason why we're still underweight while we're feeding some of these rallies and why we don't think that the rallies have much legs, at least through the end of the year. Because as I keep telling people, it's like Groundhog Day.

There's a terminal right problem in the equity market. In other words, we have no idea when the Fed is going to stop. And they mentioned last time, you know, maybe we'll pause and maybe there's a lag effect to all of our are tightening. But that's besides the fact if we continue to get sticky inflation, there is no Fed member that wants to go down in history as losing the fight on inflation.

And that's why we're cautious on the DAX. Every behavioral action I've ever seen from a central bank coming off Bank of Japan to 20 years ago. The real yield one point six five percent translate a higher real yield because they move to some form of terminal rate over to the equity market. Why should stock pickers or index buyers worry about a one point eighty five percent real yield? Yeah. So it's the opposite of the teen trade.

Remember last cycle there is no alternative cash rates and zero negative real yields helping mega cap stock names, helping the cap weighted S&P 500 index do really well. It's the opposite of that Dow. Now there are a ton of alternatives, Tom. I can't believe how much I'm talking about things like cash rates and T bills and a 4 percent risk free rate. And that just raises the barrier of entry into all of those asset classes that did so, so well when Pease went to the moon in the last cycle because there was no alternative. So cash for us is a nice alternative. We have 10 percent of our strategy in cash. That's the most we've ever had in the

store, in cash. And also in the front end of the curve, with the Fed jacking up the yield curve and the front end and gone by 75 all the time, there's really high quality credit where you can get a 6 percent yield. Can we sit on this for a second, Phil.. 10 percent of your portfolio, the highest all time. Can you give us a sense of how you've

built that over the year and why you could see it going even higher? Yeah. So I think even higher, Lisa, would be in a world where the Fed would have to break the back of the economy in order to get inflation back down to their targets. Right. That's to be determined. That's a tail risk for that would be even higher. And I would say, you know, summer ish is when we started to build that up. Remember when we got that CPI number for May and then the Fed had to call The Wall Street Journal and say, we've got to do a 75 basis point hike.

So that's when we started to. That's when we started to raise rate raise cash in the portfolio. We've kept it there. And again, I can't stress enough. That was trash in the last cycle. The opportunity cost of holding cash was so high because rates were at zero. And now, again, it's raising the barrier of entry into every other asset class. If I consider it a risk free rate at 4 percent.

So when you talk about potential more downside risk in equities, how much you looking at the potential for triggers like Bitcoin and FTSE collapsing and other types of events that might seem peripheral but that do have forced selling on the other side of them? Yeah. Lisa, this all comes down to sentiment. Right. So folks are seeing things that they presume to be safe. Right. As as the bottom is falling out.

That's going to drive sentiment. Same thing when we talked about the U.K. a couple of weeks ago. Right. That didn't necessarily affect the U.S. because it was a very specific thing that was h

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