Transcripts For BLOOMBERG Bloomberg 20240704

This morning, good morning. This is bloomberg surveillance on tv and radio. All about the bond market out there allowing the u. S. Downgrade. Some half decent jobs data and the treasury announcing a ton of supply. Yields of every single day this week. This could the board of if we can on the bond market. 10year u. K. , japan, and germany. Higher by six basis points. I wouldnt call it dramatic. Lisa it is not dramatic, the slow bleed upward has gotten new focus as we reached levels that we havent reached going back to last november. You could talk about fitch and the downgrade yesterday but a lot of people view that as an excuse to catalyze the fears of the fiscal overhang of the new borrowing schematic from the u. S. Treasury department which is bigger than people expected. This general concern that if the economy is going to recover, maybe you get a soft landing, maybe no landing. Jonathan excuse to sell or a reason to sell . Lisa it was an excuse to sell for people who werent necessarily buying the rally because they believed in it, but because it was foam a. Fomo. It was an excuse for people to sell who couldnt really justify it from a fundamental perspective. Jonathan weve got a great guest so lets not waste any time. It is a little bit softer. Moving bond market, the call at six basis points on a 10 year. The data yesterday, weve got a u. S. Downgrade. The treasury supply seemed to be the story of the day before and yesterday as well. Lisa i would completely agree, and it really feeds into a broader concern of what debt the people have incurred during the pandemic. The bank of england will have to address that to some degree today. Governor andrew bailey, the inflation picture has been coming down but it is still the highest among the g7 nations at a time when we hear richie sunak telling his population just trust me, i can bring it down. Then it today, we got jobless claims at 8 30. Im actually most interested in ism services. Want to see if you see ongoing strength or if you start to see him cracking in the area that was supposed to provide some momentum. We do get tom barton speaking at 8 30 as well. Of course, apple and amazon. Remember, we were supposed to care about them most of all. This was supposed to be dominant story for thursday. I thought the earnings picture would definitely cloud Everything Else. Theyve gained about 50 , both of them. How much further can they run with the yield backdrop . Is the yield space the primary story, even amid a tech rally that has been unrivaled . Jonathan lets see how they set the tone going to friday morning. A fantastic line from Julian Emanuel. Throwing in the towel, upgrading ones view has been bad for ones p l. They top and august, september is a cell, october the panic sets in and then you buy. Year after year, who really wants to come back from the beach . What is it about august . The beach was boring. Look, if you look at it, the complacency sets in. People do actually go away, and frankly, there are problems that tend to get papered over and wait until september. It just so happens that we are in one of these environments where if you look back over the last year when yields have moved to where we are now, youve had equity market turbulence. Whether it was september with the u. K. Turbulence or march when yields peaked above 5 prior to the bank crisis, and here we are again. Should we really be surprised given the downgrade, given the excess supply and given the fact that japan is now actually going to compete for funding in the global Asset Allocation framework . Jonathan youve gone through a few points there. It is hard to strip out what is driving it and what isnt. The downgrade, the data, the treasury supply, the fact that the doj has tweaked yield curve control. Does it matter why we are here or just the fact that we are here . Do the reasons matter at all . Julian look, the longerterm picture is given the supply that has been announced, that is a reason to us that the rate of descent, should beget the economic slowdown, is likely to be lower than expected. But the fact is, when you think about it from an equity market perspective, from the bank crisis trough to a week ago, the nasdaq was an utilizing at 100 . It is just not a surprise. Lisa what you just said is that at this point, yields are making stocks queasy. That is essentially where we are at. This has been one of the Big Questions. Why have stocks been so resilient as yields slowly climbed upward . Have we gotten to that Tipping Point where yields shift the narrative at a time when people are still talking about Economic Resilience and because stocks to really look queasy even if the Economic Data comes in well . Julian from our point of view, this is a correction as opposed to an end of the run. And that is really because when you step back, even though we are looking for a recession over the next 12 months, the data doesnt support that here and now and if you look at the history of the stock market, it is very often the case that things keep going and going higher until your heart upon the recession. I would also point out that when you think about it from supply and demand, the public, who is a large holder of these stocks that have done so well, of these stocks that are reporting after the close today, doesnt have to feel forced to sell their shares as long as they have a job and the jobs market is very strong. Lisa are you saying we could see nothing that significant, nothing that really portends a shifting allocations or something a little more sustained . Julian not until the Economic Data start breaking weaker. To us, this is going to be, again, the seasonal, gardenvariety. A little bit too much buoyancy, a little bit too much of the hardcore bears throwing in the towel. Just wait for the pullback. Jonathan no names naming . Tom . Julian we raised our price target in june. Jonathan 5 , 10 , what are you looking for . One day of decent sized losses on the s p, so what are we talking here . Julian if you think about it, the history of this year, essentially the nasdaq, as we all know, started ripping at the trough in march. In june, when you got a 4200, that is when the participation started to run. That is when we turned more optimistic and move our price target up. It wouldnt be a surprise. It shouldnt be a surprise if we retest that level at some point. Jonathan buy the weakness where . What kind of pockets of the market . Julian this is sort of a barbell strategy. We are longterm believers in the power of ai to transform industrial society. You need to own those names. The problem is that when you have a correction like one we think we are entering, those are the most volatile names. That is where you could draw down 20 or 30 . We also think that the names that have been overlooked, the winners from last year, health care, energy. Those are the names that we think and the places that we think. Again, you want to go where people are not, and people are not there. Lisa where does the appleamazon earnings picture fit in . How important is that in deciding where to start looking or how to start hedging as you head into a potentially more vulnerable period . Julian to say that those stocks are not going to be important is thoroughly naive. But it is much more a function of how weve seen this entire reporting season, you can have a good report and your stock price behaves poorly. You can have a lackluster report and your stock price behaves low. It is all about the share price reaction. To us, again, if we look at the last couple of weeks, this probably a little bit too much exuberance in those things, so we wouldnt be surprised that you see a modest pullback but nothing cataclysmic. Lisa john asked me earlier, is this an exclusive cell . An excuse to sell . We are looking at this hope of Artificial Intelligence that cant yet come through in the earnings. It just isnt possible. Are you saying there could be that kind of reaction and that you would be looking to buy . Julian thats basically the story. When you think about the spend and the transition to a productivity bomb from ai over the medium and the long term, those budgets arent unlikely to really go into gear until mid 2024 and 2025. The intent is there, but again, you have to bridge the longterm thesis with the shortterm volatility. Jonathan have you seen tom bradys game, the shortfall . Julian goodness gracious. Jonathan what do you make of that, lisa . We are going to catch up with the Hedge Fund Manager who has made his push and championship football. Second tier of english football in the u. K. Lisa i have actually a lot of thoughts. Jonathan why Birmingham City . Lisa this is tom brady and im wondering whether they are going to come at with a documentary or a movie because that seems to be the Netflix Series of firming him. Honestly, this is going to be very much in the public eye because that seems to be the playbook. But whether he has thoughts about the dietary restrictions and things like that, he is going to weigh in on all of that. Jonathan i can recommend some restaurants. Lisa i dont think that lees talking about. Jonathan weve got a decent how to say birmingham and not birmingham. Lisa you will scold him otherwise. Jonathan we will do a little test. I grew up 30 minutes away from sin entered stadium. We will do a little test. Good to see you. I think its physical. Much more interesting football going into the lower divisions. Fantastic support for some of these clubs. Really tough to make it in the championship. Really tough to try to get that promotion. I wonder why out of all the leaks in english football, they pick that one, and i wonder why all the teams out of the league, they pick that one. Id also like to know the makeup the makeup of the investment. Is tom brady just along for the ride because of the branding or has he put significant cash into this venture . Lisa there is a playbook starting to emerge and we saw this most obviously with formula one with nascar formula one, excuse me. Theres also going to see this playbook that we see roll out where you take a team that has been relegated for a while that isnt very popular and you suddenly make it a movie star or some sort of tv star, and then it gets popular and you get ticket sales, endorsements. Suddenly, you can afford all these things. Jonathan the way i think about it is that it is easier to do that with a small cap than a midcap stock. I understand Ryan Reynolds with Something Like wrexham which is like a microcap stock. I want to know. Why something of that size in that league . Lisa but dont you think that could be the playbook. Jonathan i think it is better if you are the first in, and Ryan Reynolds was. We will have that conversation later. 45 minutes from the Bank Rate Decision as well. Good morning. The first time you made a sale online with godaddy was also the first time you heard of a town named dinosaur, colorado. We just got an order from dinosaur, colorado. Start an easy to build, powerful website for free with a partner that always puts you first. Start for free at godaddy. Com i strongly disagree with fitchs decision and i believe it is entirely unwarranted. The assessment is based on outdated data and fails to reflect improvements and a range of indicators including those related to governance we could have seen over the past two and a half years. Jonathan i think we love to know about the improvements on governance down in washington, d. C. That was janet yellen, many investors weighing in on the ripple effects of the fitch downgraded. James foley had this to say. It is possible the u. S. Dollar will be impacted more by the political actions than the announcement generates rather than from the announcement. Jane joins us now for a little bit more. Just walk us through that. The significance of what we heard yesterday to this market. Jane the significance in some respects is very huge. We are looking at a budget deficit that has been gdp despite the fact the gross outlook has improved relative to Market Expectations in recent months. We are also looking at debt that is really quite high, particularly when we compare that to prepandemic levels. The u. S. Is certainly not alone in that respect. There was a lot of pandemic spending, that fiscal policy that was pretty expansionary. That is one of the reasons we have higher inflation. But of course, the u. S. Treasury market isnt like other bond markets. It is the benchmark when it comes to safe haven. So you dont get that same sort of reaction to bad news that you would have elsewhere. You dont get people selling off bonds. But it has brought attention back to the fiscal situation. A lot more people looking at next weeks supply than they would have done otherwise. It is a problem because it is such a bipartisan political system. You can have this sort of data imparting the sort of discipline or policymakers that you would expect to see in other countries. And that is potentially a bit of an issue. Jonathan you mentioned the treasury supply. Did you sense that with the more important factor over the next couple of days . I think its part of the reason, certainly a lot of people looking at the increase in supply. Would that have been more of a focus if there hadnt been this announcement . Maybe not. Ive been looking a lot more at the refunding next week than i wouldve expected me to be normally doing, so i think the announcement has drawn lots of attention back onto fiscal policy, back onto the fact that the budget deficit in the u. S. Is too high and onto the fact that the bipartisan politics Means Nothing much is going to be done about that. It is a concern, and i think it does mean that this supply will be watched a lot more carefully just to see how the market absorbs of next week. Lisa i have to say this incredible irony that we are dealing with the potential for a further downgrade of the u. S. Or some sort of fiscal irresponsibility leading to a protest among investors, leading to dollar strength, and the likelihood that that is going to continue at least in the near term, how disruptive is that . How much do you pile on this train after a lot of people had abandoned it for months . Jane again, i think theres very different aspects to this for the dollar as well. The safe haven bid may be related to the u. S. Fiscal situation. But i think it is more to do with the resilience of the u. S. Economy. Look at the number that weve had. Look at a variety of Economic Data coming through, saying where is that slow that we are expecting the whole part of the first year in the u. S. That can be determined by just the word resilience . We saw so much Economic Resilience. I think now the market is thinking ok, maybe we cannot completely discount the risk of another Interest Rate hike. We certainly cant discount the risk of higher for longer Interest Rates, and on the others said of the coin, youre catching Interest Rates already by 50 basis points. Some of those cycles in emerging markets are more mature than in the u. S. And youve got this position in the ecb were actually, rates may have peaked, maybe coming even with the bank of england. The dollar story i think takes on a different context when you look at the other side of the trade and you see potential weakness elsewhere. Lisa how much room do you see to run at a time when you do have the potential for a pause in the ecb . That is the general call at this point. They may be even stay there for the time being. Jane weve got to remember that the market has gone into this ecb and the bank of england which is really quite long on both the euro last week and sterling this week. That is really important because if you are going into a meeting long, obviously there is more scope for disappointment. Weve seen sterling today underperform a bit, maybe the market is just taking some of those profits. And that doesnt surprise me. A few weeks ago, people were very certain they would be a 50 basis points hike. Now the market are seeing more chance of a 25 basis points hike. That is because there are signs of weakness in the economy coming through, and the bank of england should be picking that up. We are certainly hearing from our corporate customers. Their customers are making different decisions because of the impact of inflation and the impact of Interest Rate on their budget. The bank of england should be picking that up and i think it will just be a 25 basis points move. Some of the long positions are reacting to that. Jonathan what is the bank of japan up to . Jane that is what were are trying to figure out. It is quite interesting that they are coming with unscheduled bond purchases. This is really allowing the market to draw more information and that exactly did they mean last week . To what extent was that just a technical move to help with the functioning of markets, or how far are they going to allow bond deals to push up . They certainly dont want a quick run to 1 , but they did say that immediately after the move last week. We know that there is a tolerance for some increasing yields, but not too far just yet. What we dont know is if that is going to change over time. Will they allow it to move up to 1 in three months were sixmonth month or nine months . Its very difficult to determine. What i will say is there is some positive Economic Data coming out on the way front in japan. We did have a recommendation from the government with respect to minimum wages and we see more data showing some tightness in the labor market. If the fundamentals are moving in the right direction in terms of moving away from this soft Monetary Policy, we all know it is going to be pretty slow. Jonathan we are all trying to figure out what the bank of japan is up to. It is clear based on actions in the last week or so, they dont want to take the elevator up. And each step is five to 10 basis point increments. 2 billion purchases. Five basis points to come in. Lisa is this the playbook, that every day they can go up about five basis points . The question is why did they set the target at 1 for 10 year yields if that is when they were going to come into by . What was the thinking in terms of setting that as a sort of benchmark and then penalizing people who want to bet on that benchmark . That is essentially what happens. If you were a trader in japan of bonds, if you start to really try to work out the valuation, you are just playing with fire. Youre just daring the bank of japan to come in. Jonathan technically the ceiling is still zero. But it is not rigid. They have not just come in at 1 every single day. Im still trying to figure it out. It has been a week and two days of action. Im not sure anyone really knows what its going on still. This is bloomberg. My cpa told me i wouldnt qualify for the erc tax refund, so i called Innovation Refunds. Their team of independent tax attorneys will work with your cpa to determine if your company is eligible. [whip sound] take the first step to see if your Small Business qualifies. Jonathan equities on the back foot. Equity futures on the s p 500, negative by 0. 2 . The nasdaq down by about 0. 36 . Equities down for the last couple of days, maybe we make it day three on the s p 500. Yesterday, the biggest oneday drop since april, the first drop bigger than 1 since the month of may. And the blame game is being played in the bond market. It is the longer end of where weve seen this move. The 30 year is up by six or seven basis points. Lisa, i do think we have to try to strip it down to what was driving things in the last 24 hours. Was it the supply, was it the better Economic Data that people care about . Was it the downgrade . Is it the boj yield curve in the last week or so or all of the above . Lisa it had been creeping higher. It wasnt a sudden Seismic Shift upward. Suddenly, people care about it and perhaps it is because we breached those thresholds. But it is also because of the supply. And i say this because on tuesday evening when the news really broke about the Treasury Department and what the plan was in terms of how much they were going to issue, you saw a pretty significant move in the 30 year yield. This was a direct response to the expectation of more supply at a time when the fed is not going to be buying, at a time when there are fiscal concerns and a time when there are the boj operations and a whole host of other issues. Jonathan what we thought was going to be about 733 billion dollars only back in may. Lets just finish on foreign exchange. The euro shaping up as follows. Negative by 1 10 of 1 . There was a feeling only months or so ago that may be the boe codes 50 and now it has been pared back to 25. I would say the consensus is around 25 . Maybe they could bigger than that. Lisa how much does this all have to do with home prices . How much does this have to do with the fact that people are getting really concerned about their Mortgage Rates spiking . Jonathan we are going to hear more about it. It is going to get worst based on how these mortgages are going to rolloff in months to come. That sort of bowed out maybe a little bit, but i dont know, 25 or 50. If they deliver 25, can they back away the same way chairman powell did or do they have to lean into the idea that there is more to come . Lisa a lot of people are talking about 25 and done from the bank of england which still has a 7. 9 headlight rate and shows just how much the narrative has shifted away from global rates globally. Jonathan the bank of japan waiting into the bond market for the second time this week to slow gains in benchmark sovereign bond yields, allowing for 10 year yields to rise to as much as 1 on friday. But its actions this week making it clear it wont allow it to happen too fast. Creeping a little bit higher in todays session. Lisa hello, confusion. Nobody really understands what is going on here. One fund manager over in japan said it is too early to tell whether they are focusing on the level or speed at which yields rise and if they are focusing on speed, what is that speed that is allowable . Is it five basis points, or is there going to be a new level where the levels matter and they dont want to raise rates all that much . But who is trading this . Who is playing this game of chicken with the bank of japan . Thats what i was wondering. Jonathan the boj owns half of the market if you can call that market. Today, something truly historic once again. Donald trump due to appear in a Washington Federal Court later on after being indicted on two charges of constructing conspiring to obstruct the 2020 election. Is the third criminal. For the former president. So look out for that conversation. I also wanted to squeeze in this as well. Going to be talking about this in about 15 minutes. Six time super bowl winner tom brady turning his attention to english football, investing in Birmingham City as a minority owner. Brady is investing in a secondtier Championship Club alongside tom waggoner who purchased a 45 stake last month. We will catch up with him in about 10 minutes. Lisa i want to understand the entertainment and a factors behind this. We know the tom brady is a genius behind marketing with a whole host of endorsements and products. How much that is going to be part of reviving a team that has been on the back foot for a long time, is this going to be a story of revival that will be represented in movies, Netflix Series . Jonathan i hope so for the local area and the longtime rival across town. I will disclose that i am a family of fans. Lisa so you are going to come with boxing gloves on . Jonathan everyone knows im an ac milan fan. Tom, good to see you. Tom good to be here. Jonathan lets talk about this bond market. Lisa and i spent the first 35 minutes of the show trying to work out what was driving things. Is it down to the supply coming out of treasury . Tom lets start with the boj, this really started with the boj decision last week. With the bank of japan has done is theyve reduced the Global Demand for sovereign bonds, and they are doing it slowly, as you mentioned, not letting that 10year rate to raise up to 1 . But that is the first step here to getting us to the point we are at right now where bonds are in turmoil. That reduces the demand service for treasuries, bonds. Then, you have the refunding announcement which came along i should say the fitch downgraded which came along tuesday night. That is going to also reduce demand for treasuries. Finally we get the refunding announcement with the treasury says they are going to upsize coupon auctions by 2. 5 billion per month, so it is a supply issue as well. Throw in some strong Economic Data and you are really getting a flight from quality at this point in time. We think thats going to be fairly limited because the longer this goes, the more its going to jeopardize the economic expansion, the financial markets. But for right now, investors are stepping back and saying were going to wait to see how far yields rise. Jonathan is there that demand waiting to lock in something with a full handle for 10 years . Tom we think absolutely there is. Theres an awful lot of plainvanilla funds that would love to step into by a treasury at 4 , that they want to see how far this goes because they are not delivered investors. They are more or less benchmark investors and they want to wait until things stop falling. Lisa the fact that they are waiting is telling. What are they waiting for . Tom the all clear signal would be a capitulation where you start to see shorts just absolutely getting squeezed, which is not happening yet. And you see sentiment really just turned completely bearish on treasuries. That would be the signal to step in. We can look at things like the cash market, whether or not certain instruments are trading. That is just not happening yet. That is telling us the shorts are not yet offsite. Lisa we do have bill betting against the treasuries saying that basically everything going on, he cant see the case for 30 year treasuries. That said, where will they settle out given this global backdrop . Its one thing to say there is more room to run for the selloff. Its another thing to say just Going Forward, its going to be a higher risk premium on some of the securities simply because of this backdrop. Tom absolutely. We have multiple time horizons because first things first, we have to get through a recession in the next six to 10 months which could easily push treasury yields lower. When we get through that on the others, you are looking at longterm demand for longduration. Again, beginning to deteriorate, so we are talking about treasury yields settling higher highs and higher lows into the next business cycle. So where should 30 year treasury self . Realistically, something on the order of 25 to 50 basis points north of 10 year treasuries which should probably start to sell around 5 in the next cycle. That has got to get through this recession first and the next few quarters, but beyond that, around 5 . Jonathan bob michele was talking about that exact same thing. We have this headline from bank of america just yesterday, about throwing in the towel on the recession call. And then you actually read the note. Further down the note, the real call is the wakeup call. Just 75 basis points to cut in 2024. 100 and 2025. You think about the kind of numbers we are coming back down to. That is completely different to everything weve seen in the last 50 years. Is that what you think we settle down . Tom what ive been seeing is somewhere around four, so we are raising the floor on the fed funding rate. I think the floor might be a little lower than that because inflation is going to come down to 3 and stay, maybe even go a little bit lower. And so the fed has some room to come down, but i dont want to split hairs. They are not coming down to 1 or 2 , they are coming down to something above 3 , in my opinion. 4 is certainly reasonable. Lisa how much have the events of the past couple of weeks changed your investing outlook in terms of higher benchmark yields and potentially more longerterm refinancing risk for a lot of companies that may have avoided having to refinance until now, but at some point are going to have to face it . Tom what this is doing to us is that the bill is coming due fiscally for the u. S. Government, for state governments and corporations who have had way too much debt and have been able to use cheap financing to keep cash flow going. The bill is coming due. What this means is we should have not only steeper government curves, but steeper credit curves Going Forward. When that happens exactly, you probably have to get through this recession. We are probably looking at higher borrowing costs for everybody from u. S. Treasury to apple. Are we underestimating how much this is going to bite . If you are coming off a twoyear fix, fiveyear, whatever it might be, your jump up and mortgage cost is going to feel, for some people, astronomical. If i think about some of the coupons that some of these companies are paying from debt they issued several years ago, when they have to come back into the market, the step up is going to be so severe. Are we burying our heads in the sand on this one and not really thinking through how large the step up and interest cost is going to be . Tom i think we are, in part of the reason for that is on the sideline for the last six to 12 months has been this surge of private credit which has been helping to facilitate the transition toward higher Interest Rates, particularly across the lower quality corporate portion of the credit space. That will not be there forever as a liquidity back stock and many of these companies are going to have to come to market at much higher rates. Thats probably not happening this quarter or next quarter but next year, absolutely. Jonathan good to get your thoughts. This is going to slowly bite and then all at once. Weve talked about this so much, so different to the United States. Lisa just welcoming. Jonathan real envy. His real envy. I wish. I wish. Lisa in a material way. I think this is asking exactly the right question. Are people accurately pricing in or understanding the implications . Can you price it in if it is that far out . They want to take advantage of a rally that seems to have legs, but longer term if we start to reassess that the fed and the ecb is going to air on the side of not raising rates higher, but keeping them net is levels for longer, that could be potentially more economically damaging than if they were to overshoot and have to retrace their steps. Jonathan id imagine that is going to hurt. Lisa just a bit ago, two years ago we were talking about average Investment Grade bonds below 4 all in. So if you think about all these companies you have refinanced, what is the premium suddenly that they have to pay in the era where money costs something . This is going to be a change for markets that might finally see some of the pain of getting back to normalcy. Jonathan bank of england Rate Decision about 17 minutes away. We will catch up with tom wagoner next. This is bloomberg. The first time you connected your godaddy website and your store was also the first time you realized. Well, we can do anything. Cheesecake cookies . The chookie manage all your sales from one place with a partner that always puts you first. we did it start today at godaddy. Com the chase ink business premier card is made for people like sam, who make everyday products, designed smarter. Like a smart coffee grinder, that orders fresh beans for you. Oh, genius for more breakthroughs like that i need a breakthrough card. Like ours with 2. 5 cash back on purchases of 5,000 or more. Plus unlimited 2 cash back on all other purchases. And with greater spending potential, sam can keep making smart ideas a brilliant reality the ink business premier card from chase for business. Make more of whats yours. The fiscal trajectory is inserting. Were we a rich country we would have time to deal with. But we need to do some things even in the next few years to change that trajectory. And to do that it is going to take doing things on both the spending side and the revenue side. You cant do it with just one partner. You have to do it in a way that commands broader support for us. And you have to build that. Jonathan former u. S. Treasury secretary catching up with david westin from wall street week. I want to skip the markets for a moment to get straight to this conversation. Joining us in the studio, tom wagner. Good morning to you, sir. Purchasing Birmingham City. Weve spoken a lot over the years about americans getting into english football. Lisa and i were talking about how many leagues there are in the United Kingdom. Why this league and why this club . And if you are thinking of all of these clubs as opportunities to invest, what was it about something of this size and location that got your attention . Tom after a year of really looking at the landscape of english football, we were drawn to birmingham for a number of reasons. Englands second city, one of the youngest, most diverse populations in all of europe. It is a city on the rise going through a significant transformation. All of that made the city quite attractive. And 18 that had been underinvested for a long time, and frankly, to us, seemed quite a bit like a sleeping giant. It seemed impossible to us that you have the second city in england with a named team in the championship. So we felt there was a huge opportunity to make a difference. Jonathan that league is highly competitive, there it difficult to get promoted because you also have to face the teams they got relegated from the premiership to get back up the league. So why this league . When we think about english football, a lot of americans have been introduced to wrexham and what Ryan Reynolds is up to. You get that promotion, you get some more. Why this team and this league . Tom it is a team that had been in the middle of the table for a significant time. We felt there were substantial resources available. This isnt just about the mens first team. We have a spectacular academy, a womens team that we think is poised to be one of the best in england. And when you take all those things together, coupled with a very Large National fan base, we just felt that the team was underperforming in the club itself was underperforming from the perspective of treating the fans properly, being a real part of the community and embracing this incredible natural fan base that it has within birmingham. If we provide a product that is actually commiserate with the value of the city, we think there will be great things ahead for the club and beyond. Lisa i know you from a previous life when you focused on distressed opportunities and you came in here and said not distressed opportunities, turnaround situations. Im wondering at a time when there is so much investing in sports and football, if this is the playbook more people are following as middle east money kind of pushes everybody out of the top leaks . Top leagues. Tom when you look at the investment from sovereigns, it is very hard to compete at the highest level of the top tier in football but there is enormous opportunity to compete and Everything Else within football across all of europe, frankly. But i think english football was particularly appealing to us for the reasons i said earlier. It was really very much about birmingham and what we believed was a city that was going through a significant transformation. We felt that the club could play a big part of that. Jonathan youve taken a 45 stake alongside tom brady. Is brady just along for the ride for branding . Has he put real money into this alongside you . Tom he is not here for promotional purposes. Obviously today is all about having tom be very visible, but really what it is about is tom bringing his expertise following a 23 year career in the nfl which is highly competitive, as everyone knows. Where he had unparalleled success. You think about the fact that tom played in 10 super bowls, winning seven of them. Was only favored i think twice if i remember correctly in those super bowls. That is a pretty incredible track record. His level of excellence never really tapered off. It is about bringing those learnings to birmingham. Tom will chair the advisory board. He will have a significant role in health, wellness, nutrition and human sustainability. And he will play a role in how we think about player interaction. Lisa so will we get to watch what it means to have humans did better human sustainability on a Netflix Series . Tom well see. Those things would be fun and exciting, but the principal objective is to really bring what worked for tom, and having known him for a long time and witnessed firsthand what led to his success over a long time, these are legitimate activities that really do play out in a positive way, how an athlete performs. Jonathan we cant just let well see hang there. Either talks with anybody . Are there talks with anybody . Tom one individual really stands out as it relates to producing fantastic content, and that is stephen knight. If we were to do anything along those lines, we have to engage with him and see whether or not he were interested. He is a wonderful guy who has created some amazing content over the years. It would be really exciting if Something Like that could happen. Jonathan it raises the question whether content was something you are thinking about at the same time, and the same way Liberty Media did with formula one. Was that a consideration . Tom everything is a consideration. It starts with the product we are delivering to fans. It has to be something that is worthy of the city, the people, the fan base and their passions. And when we went into our first game, it was not consistent with what we felt the fans deserve. So that will be the beginning point. It is about an overall experience, and that experience goes beyond just match day. You want to provide enjoyment to the fans all the time so that they really feel a part of the team that can be proud to support the team and ultimately, part of that is drawing in fans from beyond simply birmingham. Toms involvement brings in a lot of attention. Having undefeated as our sponsor on the mens and womens team. First time the same sponsor has been on both the mens and womens jerseys. We have this connection with an l. A. Based streetwear brand. These bring a level of attention to the club that i think is demonstrative of how we are going to approach this, which is to do things differently. Lisa is the monetization going to come more from the content and the branding of it, or the actual ticket sales . Is the idea of a larger thrust . Tom all of it. In sports today, you cant be successful doing just one thing properly. You have to do everything properly. This is a business, to some degree, one that has a lot of passion behind it. But we have to think about getting every element of the business right. We have to think about promotion, about the product that we put out. Not just the tickets and the pitch, but what is available for the fans. Are there good pieces of swag that they would enjoy wearing . All of these things matter. And then you can think about partnerships. Commercial partnerships would be critically important. We are looking for the right commercial partners to be on this journey with us. I promise that corporations that step up and become a partner with us will have a long ride that they wont regret. Jonathan its early days, lets talk about defining success. Have you seen season sales picking up . Tom absolutely. The Stadium Capacity is what it is, but we are well ahead of where weve been in prior years. We are going to increase Stadium Capacity by roughly 50 with some repairs that have been long needed. A substantial number of additional seats, say standing going in which is something that the fans really want. There will be much better hospitality. Everything in that regard will increase, but ultimately the goal will be to keep people coming back. And that means that the map they experience has to be enjoyable match day experience has to be enjoyable. We will measure success on if we can make continued improvement. Everyone would like a spectacular season right out of the gate. We have a team that is perfectly capable of doing that but ultimately it is about keeping focused on the long bowls which is consistency. Jonathan lets agree now, i will get a camera, you get brady, and we will do a bit of content ourselves. Tom i would love to see that. Jonathan thank you, and good luck for the new season. This is very cool. This is really interesting, lisa, to see how this is going to develop. Lisa i think i just heard an invitation for you and stephen knight. Jonathan we will do that. Bank of england Rate Decision just around the corner. Lisa i think that would be great. Jonathan why not . Features negative here by a quarter of 1 . From new york city, good morning. Futures negative here by a quarter of 1 . Sleepovers just arent what they used to be. A house full of screens . Basically no hiccups . You guys have no idea how good youve got it. How old are you . Like, 80 . Back in my day, it was scary stories and flashlights. We dont get scared. Oh, really . Mom can see your search history. Thats what i thought. Introducing the next generation 10g network. Only from xfinity. When rates are rising in cyclicality is outperforming i think it is in message that the market is comfortable. Will people accept 4 10year . The cyclicals will remain in place. The Options Market in general is terrible at pricing political and geopolitical events. Announcer this is bloomberg surveillance with jonathan ferro, tom keene, and lisa abramowicz. Jonathan good morning, good morning. This is bloomberg surveillance on bloomberg. The United States is losing the aaa credit rating. A ton of treasury supply coming to the markets. Some confusing actions from the boj. This is from the boe 20 minutes ago. There was a feeling they might go 50. It is 25 from the bank of england. Looking at the moveon sterling. Slightly weaker off the back of this. Going through this decision outside the bank of england is lizzy burden. What jumps out to you . Lizzy this is what markets and economists had expected. There were doubts about 50 but after the cooler than expected june inflation print, they thought it would be 25. This is going to invite criticism over the banks reaction function. In this decision and the last decision they are just reacting to what happened. They are focused on the Rearview Mirror rather than the road ahead given you have a twoyear lag and policy. In policy. The last time you had a three way vote split which is what bloomberg anticipated was december. Megan green is replacing the arched of of course. Jonathan it is something that tom talks about the dissent and lack thereof. You have a threeway split on the ble. Lisa a. you feel the angst that nobody knows where inflation is going and how the bank of england has a projection of cpi ending this year at 3. 9 and then getting below the target in 2025 without recession. Still growing by 0. 5 . Lackluster but not exactly the same depression people were calling for. Jonathan we need you to explain this because in america we do not do dissent on the Federal Reserve. Can you explain what a threeway split is . What does that look like this morning . Lizzy we have got divided data in the u. K. The cpi print finally a downside surprise but inflation nearly four times the target. You also have hot wage growth in the u. K. Youre going to have a split in the committee over what the bank of england should do. Interesting you mentioned about the forecast because that has political consequences. Ending the year at 3. 49 , below half where it was at the start of the year. It is rishi sunaks number one priority to halve inflation by the end of the year. He will be popping the champagne oh, he does not drink the diet coke. Lisa a. the u. K. Still has entrenched inflation, serverside pressure, expected growth, unions that are striking, a situation that a lot of say will leave inflation stickier. Lizzy you paint a really difficult picture of the u. K. Economy and it is. But there are those on the committee, few of them now, who say you have done all of these rate hikes. You need to wait for them to take hold. How all you can say there is a twoyear lag and then wait a year and be impatient for them to take hold . That is the doves argument but they are not winning. Jonathan seems to be getting noisy at the bank of england. Wonderful work as always. Over in the squaremile if you are watching in the u. K. , or listening, at 7 15 eastern the u. K. Viewers will have continuing coverage of the bank of england and governor bailey News Conference. In the u. S. We carry on with market coverage. There are nine voters and one voter to hold. We are looking for 50 basis points. Lisa a. megan green, who just joined the board, she voted for the 25 basis point hike. This is the split that highlights the lack of consensus we feel on the fed but has not gotten represented in dissenting votes. I wonder when you start to get this percolate out. What this means for the bank of england is they are at a threshold where people do not understand the trajectory of inflation. Jonathan tom would be obsessed with the dissent. Lisa a. you know what he would say . Jonathan what would he say . Lisa a. everything over there is better. What is it like being there . Jonathan do everything better. [laughter] sree joins us now, City Research economist at aberdeen. Lets start with your reaction to the latest decision from the bank of england. Sree thank you. We were expecting 25 basis point hike today. There had been debate before hand and it is interesting to see the three way split. There are a lot of justifications for that but what has really shifted is the activity data is more sluggish. What the bank of england and other Central Banks face is a clear tradeoff between tackling inflation and managing growth. In the u. K. , the growth picture has been sluggish throughout the year. That is a key overview. Going forward we expect there will be another hike the next meeting. Another 25 is going to be needed. Inflation is very sticky and it is that International Comparison that is very interesting. Even though we had downside surprise in the last print in june, Core Services are still sticky. This pace of deceleration is a little too slow in comparison to other countries. That is a key problem for the bank of england. You can understand that threeway split. Jonathan can you help me understand the difference between what the u. K. s experience, what the eurozone is going through, and what we are witnessing in the American Economy . What is the difference between the big three . Sree i think one of the issues this applies to one of them. It is tightness of the labor market but the u. K. Has slight variation. Wage prices have accelerated even though headline inflation is starting to roll over. There is good news on the horizon in terms of energy and food prices. These are starting to decelerate. But the u. K. Labor market is tight. Part of that has been covid related. There is a higher portion of longterm sickness being reported as one of the reasons, but also lack of migration. There is friction in the labor market that move the system. Lisa a. do you buy the assessment that the bank of england came out with that we are going to get inflation below 5 in the United Kingdom by the end of this year and below the 2 goal by 2025 . Sree i think that will be challenging. What is necessary, unfortunately, is recession to trigger that deceleration in Core Services. Perhaps headline inflation there is a good trajectory on the horizon. Food prices, which had been sticky in the u. K. , that is starting to decelerate as well. It is the Core Services issues, wage pressures, industrial action, all of this is a heady combination. That will make it challenging unless there is a recession that helps trigger further deceleration. Jonathan there is a phrase we here at all three central bank it is sufficiently restrictive. We heard that from chairman powell as well. We are hearing that from the u. K. Is there evidence based on what you are seeing that they are sufficiently restrictive . Sree i think we are close to the terminal rate. We expect another 25 basis points but from there it depends on the data they are datadependent but it depends on how much the Core Services decelerate. It does not seem like they are restrictive enough. Until the recession materializes that policy restriction are still feeding through into the economy. Jonathan wonderful for you to get in front of the camera and respond to this decision. This from the bank of england moments ago. They want to make sure the bankrate is restrictive for long enough to return inflation to the 2 target. How many times have we heard that the last week . We are having this debate as to whether we are sufficiently restrictive. Lisa a. i wonder if that is the playbook. The idea is to get a sustainable level where you can keep it there without having to cut rates and triggering something. Jonathan and the effective rate carries on climbing. We are negative 0. 5 . If you just tuning in, welcome to the program. The s p 500 is negative 0. 2 . Coming up around 8 00 a. M. Eastern, John Stoltzfus on his bullish s p 500 target. And then at the bottom of the hour james zelter of apollo will be joining us. Looking forward to the. Lisa a. very much so with the yield space and how much that is changing any scenario for jims jim zelter. John stoltzfus saying we are going to hit an alltime record high. Jonathan doesnt matter why they are high or just that they are high . Lisa a. it matters as much as is it sustainable . If it has staying power, it changes the risk reward dynamic. Jonathan you should worry if yields are higher and defenses in the equity Market Structure outperform. And then the outperformance came from staples, utility, health care, on a day when yields were up. Lisa a. chris, do you want to tell us something . Jonathan what did he know that we did not . Lisa a. definitely warning signs. Jonathan if that continues, you have an issue. Is it more about the bond supply coming . Lisa a. how many people are going to say, when that happens we are going to be buyers. That is what we are hearing. Jonathan we are seeing it this morning. From new york city, good morning. The chase ink business premier card is made for people like sam, who make everyday products, designed smarter. Like a smart coffee grinder, that orders fresh beans for you. Oh, genius for more breakthroughs like that i need a breakthrough card. Like ours with 2. 5 cash back on purchases of 5,000 or more. Plus unlimited 2 cash back on all other purchases. And with greater spending potential, sam can keep making smart ideas a brilliant reality the ink business premier card from chase for business. Make more of whats yours. I want the American People to know i had no right to overturn the election. On that day President Trump asked me to put him over the constitution, but i chose the constitution, and i always will. I really do believe that anyone who puts themselves over the constitution should never be president. With regards to the substance of the indictment i have been clear, i hoped it would not come to this. Jonathan scathing words from the former Vice President and 2024 president ial candidate. The former president set to appear in a Washington Federal Court after being indicted earlier this week on charges he conspired to obstruct the 2020 president ial election. That will take place at 4 00 p. M. Eastern time. Annmarie hordern joins us in washington, d. C. Set the stage for what we can expect later today. Annmarie security is gearing up for the former president s return. He is currently in bedminster at his golf course. He will hear the charges against him. Four charges including conspiracy to defraud the United States. Potentially there are other things we remain to be seen and whether the president is going to make a pit stop like he did in miami. Will he do that in washington to get those spontaneous moments in the media where he thrives . But he will be here at 4 00 p. M. In the Nations Capital to hear these charges against him. At the moment, these are the most serious when you look at all the indictments the former president has faced. Jonathan we heard the allegations a second ago. How significant are the words of his own Vice President , mike pence . Annmarie i think mike pences comments were significant. You also some mike pence actually start to troll the trump team saying trump and his crackpot gaggle of lawyers. Many of them are known as Co Conspirator one and two. But this was another interesting line. You have trumps lawyers talking about that trump just wanted mike pence to pause the voting to make sure they could do their investigation. Pence that the American People deserve to know President Trump and his advisors did not just ask me to pause. They asked me to inject voting. Essentially to overturn the election. He is basically lining up with what jack smith and the special counsel is alleging. Lisa a. these are two current president ial candidates duking it out in terms of the rhetoric. It raises the question of where the money will end up going from big corporations, from wall street, at a time when there is a circular firing squad in some areas and others fighting to get the diehard trump voters. Tim scott, the senator from south carolina, holding fundraisers with a host of wall street figures. How much does this highlight where the momentum might shift . Annmarie a lot of the big donors are on the sidelines. They want to see who can start to potentially rise in the polls. When you look at the polls trump is crushing the field. We saw that with the New York Times poll. Desantis is the closest at 17 . There is a lot of hope for these bigmoney donors to put money into desantis. They started to really ratchet that back when they saw missteps in his campaign and now theyre looking for who can break out. That is why the debate is incredibly important in three weeks in milwaukee. You bring up tim scott. An incredible fundraiser in terms of the names he is about to bring to the hamptons august 9. Let me tell you how much money it will cost. It is going to cost in the thousands. Hosts need to contribute 10,000 per couple or 5,000 per person. You are talking about gary cohn, governor bill haslam. These are some big names and potentially they see a path for tim scott who, at the moment, is low in the polls, but people seem to like what he has to say and the story he wants to tell. Lisa a. we have been talking about bond yields and we have been talking about the importance of the debt profile and increased issuance from the treasury for markets. When it comes to the president ial campaign how much more do you expect to hear about fiscal sustainability at a time when we know it is politically dead in the water to say you are going to cut Social Security or make amendments to the entitlements . Annmarie we have already seen some divergence between the republican candidates when it comes to Social Security. You have the former President Trump saying he would never touch it. You have others saying that at some point we have to look at how we are going to structure this to make sure it does not go unsolved. You have heard from individuals mike pence and desantis like pence and desantis not impacting individuals now who are about to receive it or currently receiving it, but those in their 20s and 30s. When you are running for president and you want votes in the Republican Party from those that are in their 50s and 60s and 70s this is an interesting line that you need to walk. You need to be careful because we have seen the pushback. But there are individuals talking about it and the economy is going to be a major talking point for the republicans. That is what many of them want to talk about and they constantly pivot when you ask them about things like news of the day, a trump indictment. They constantly want to pivot to what they say issues people are talking about outside the beltway. Lisa a. is there any more response from the Treasury Department since the fitch downgraded because of the selloff we are seeing, because of the increased issuance . Annmarie the Treasury Department say this is outdated, it is arbitrary, it should not have happened. Janet yellen spoke yesterday. She repeated all of this. She said fitch is relying on outdated data they should not be using. The one interesting point i keep coming back to that fitch pointed to lender their report in june and you heard Richard Francis talking about yesterday is he mentioned the debt burden the u. S. Is facing. He also mentioned the Political Polarization and directly spoke about january 6. If there is going to be growing polarization in washington, d. C. , can we expect more downgrading . Jonathan thank you. The latest down in washington, d. C. Going through the invite list and the host tim scott. Stan druckenmiller, quite the list. If we tried to host, you do not get the couples discount. Lisa a. that seems to be the way he will raise money and it does not seem a problem to people. Was not a problem for you . Jonathan crowdsourcing for an invite. Lisa a. is that right . If you crowdsourcing or an invite, would be to talk to tim scott or to talk to the people attending . Jonathan talk to the people attending. Lisa a. im curious to see where wall streets money is going to go. It has been a pause in terms of where they put their humph. Jonathan he is an interesting guy. Jim zelter is probably thinking, please do not talk about that. [laughter] we are going to talk about the bond market and apollos earnings. Lisa a. we can ask about it. Dont worry. I got this look. Jonathan tk would. Lisa a. we are not going to ask but how do you feel . Jonathan tell us about westhampton. There is a News Conference that starts in a couple of minutes with governor bailey. We will bring you headlines from the bank of england. They hiked 25 basis points. Sterling off the back of it stays weaker against the u. S. Dollar. We have this unusual thing in the u. K. The dissent and it was the threeway split. One voted for a hike, one voted for a pause, and they wanted to go 50. From new york city, this is bloomberg. Back in the day, sneaker drops meant getting online to wait in line. Now with xfinity mobile. We get the Fastest Mobile Service and can get the freshest kicks asap. I got this. Save hundreds a year over tmobile, at t and verizon with the best price for two lines of unlimited. Nice job, little sis they grow up so fast. Im a fan. From xfinity. Jonathan one day drop since april on the s p 500. Trying to bounce back and struggling to do so. Equities on a losing streak, 0. 3 . The nasdaq down by 0. 4 . We have been looking forward to apple earnings. Making up close to 17 of the s p 500. The attention has been fixed on the bond market. Yields creeping higher again by six basis points. Looking at new highs for 2023 on the 10year yield. Just going back to october pick your poison. Is it the Economic Data better than expected . Or was it the amount of supply out of treasury . Or the boj not having a clue . Lisa a. my gut says it is not the Economic Data and the reason why is this has been led by the long end, nothing front end. This is not about fed policy. This is about longerterm supply dynamics. Longerterm who are the buyers going to be at a time when the bank of japan is reducing the desire for International Developed market bonds . These are major factors. Jonathan it was not like the cyclical market did well yesterday. It was highly defensive, risk aversion, staples, health care, they were the outperformers. Lisa a. the things you stock in your basement. This is what we heard would be the clarion call for some shift in momentum. We will get the chance to ask whether that is the case at oppenheimer. Jonathan i want to finish on foreignexchange. The euro at 1. 0932. Sterling is negative 0. 4 . The bank of england raising Interest Rates to a 15year high. They warned the fight against inflation may require tighter borrowing times for longer. Members of the mpc were split three different ways. There are nine members on the mpc. One did not want to hike, eight wanted to hike, two wanted to go 50 and the rest wanted 25. Lisa a. i want to understand why. Why some of them wanted to stay, why some wanted to raise 50. Is an idea of theory . Or is this an idea on the sustainability of rates at a certain level . That will increasingly become the question. Is it because they believe rates are sufficiently restrictive or do they think they need to go more or less based on inflation . It is a subtle difference but it matters. Jonathan you mentioned the mortgage market. If you take the effective rate it is close to 3 . That is going to climb higher as those fixed rate mortgages and they have to go back to the bank and get a new mortgage. When you refinance you are not getting a percent, youre getting close to 6 . Lisa a. this is where tom said some really profound things. If we talk about a fed that does not cut rates, if a bank of england that does not cut rates, that is what people are not prepared for. Jonathan to get some answers to these questions you will get answers at 11 00 a. M. Andrew bailey sitting down with bloomberg. The boj is confusing. Wading into the market to slow gains. The central bank tweaking the yield curve control in the last week. They have come in twice in the last week with yields nowhere near 1 . They are trying to manage the pace. I am not sure about the destination but certainly trying to manage the pace. Lisa a. at some point it will become about the level and not the pace. These are the uncertainties of the central bank that has clearly made a major tweak after no tweaks and negative rates for a very long time. It is leaving a lot of people wonder what the implications are. I keep going back to the. Who is going to bet against the arbitrary target . Where is the free market going to say, we will play ball with you. What kind of traders are actually doing this . If i were a trader, what i have the stomach for this . Jonathan the free market in japan. [laughter] lisa a. they own half of the market. The market does not trade some days. His left to trade . Who is left to trade . It is an incredibly strange dynamic. Jonathan here is another one. Former secretaries weighing in on the fitch downgrade. Paulson saying the physical trajectory is concerning. We are a rich country and we have time to deal with it but we need to change that trajectory. His successor saying you want to move the system to act before it is late and hard. Those comments coming from wall street week over the weekend. Joining us is jim zelter, co president at Apollo Asset Management. Record profit at apollo and i will get to that in a second. Alarming to get your views on what took place in the last couple of days in this bond market. How did you and the team respond to that yesterday . Jim good morning and pleasure to be here as usual. Certainly, from a macro perspective, i do not think there is anything new in this message of warning of our fiscal situation. I think the Bigger Picture is the news in the last 24 hours in the last few weeks you have been discussing. There is a higher cost of capital around the globe. As the market gets more comfortable with a higher rate environment, obviously, inflation has been stubbornly high but there will be a higher cost to capital. Whether it is refinancing rates or the high yield maturity in a couple of years, companies are going to be confronted with a higher cost of capital. How that impacts the economy, the transmission mechanisms, it is still an interesting environment to put capital to work. Lisa a. do you buy this idea that when you get that maturity wall in two years, if rates are not materially lower, you could see a real shakeout . Jim i think i do not want to say it is the likely outcome but when we think about the outcomes the next 24 months, it is our view that financial conditions are tightening. It takes a while for the impact of rates based on our economy being so services and consumer driven for that to really filter through and have a broader impact. But i would say when we look at our purview and the business that we have ground financial conditions will and are getting more challenging. They are getting more challenging in england and parts of europe. They are going to get more challenging in Certain Industries in the u. S. That is how we think about the world in 2024 and 2025. Along with the evolution of how capital gets provided, certainly, the higher cost of capital in tighter financial conditions will be the base case. Going back to our business i was last on in april. It has changed dramatically since april. It is really more of a business issue but our company has had a resilient and tremendous record quarter. We have positioned our business to do well in higher rates. There was skepticism years ago that this is a golden time for private credit. Between private credit and our alternative asset business we are very excited about this success and resilience. Lisa a. one thing in the private credit world that has been happening on the heels of those banking failures has been a shift into consumer credit. Consumer loans are not being provided by an increasing number of institutions. Jim it is a small part of the business. We have 16 platforms and 4000 people out there every day providing capital to companies. For the most part we are more of a corporate and industrial lender. We have small parts of our business that are in the mortgage space, the Residential Mortgage space, home improvement, but that is a small portion of our business. I think one has to be appropriately cautious as you are engaging in the environment i described. Consumer pressures are probably on the rise the next six to 12 months. We have small exposure. It is one where we are making sure we are top of the capital structure with the highest rated counterparties. He saw other firms have large concerns about their consumer business and we have to tread very carefully in this transition of tighter financial conditions when you talk about the consumer in the u. S. Or u. K. Jonathan i want to talk about a deal you have done, a deal you brokered, and one not yet done. Talk about carvana and how that came together. Jim we had been an investor for several years and we think there is a lot of great attributes to the Business Model and what they are trying to pull together. It is a very large market. It is not a concentrated market. It is very dispersed. As we got more involved that company, as they grew, they did take advantage of the low cost of capital provided by the high yield and bond market. In the last 12 months as the world has changed and the cost of capital and the impact on their Balance Sheet and financial conditions, they realize they would be better off pursuing their longterm growth by having a less levered Balance Sheet and were equity. We worked in a concentric manner with other bondholders and arrived at a situation where it is a winwin. The company gets to execute its Business Plan in a less levered structure, bondholders get paid down, equity gets raised. I think that is a precursor for what you are going to see on companies that have healthy upward trajectory opportunities. There is capital for companies to deleverage and equity ties Balance Sheets equitize Balance Sheets. That was a playbook for how to appropriately and constructively delever the Balance Sheet. Jonathan some of the less healthy companies, yellow. Can you walk me through if you are in talks about providing fresh cash and what those talks look like now . Jim yellow is a company that the fortunes of its business have changed. It is one it is better that i do not specifically talk about it but we are in dialogue to allow the company to fulfill a process to deal with their constituents, to deal with their lenders, in a thoughtful manner. Jonathan out of respect i will not dig too deep. Jim zelter of Apollo Asset Management on a record 1 billion profit following earnings released earlier this money. From new york city, welcome to the program. S p 500 0. 26 . Coming up, and forward to the. There is a new seat for tom porcelli at pgim. More Economic Data going into payrolls tomorrow. The estimate is 200,000. That drops at 8 30 tomorrow morning. Coming up, we will hear the thoughts of adam posen and whether these lags are long and variable or, as bill dudley said, they are supershort and have already hit and gone. Lisa a. adam posen was one of the first to say this fed is going to accept an inflation rate that is higher than the 2 target. I am curious to see whether he is saying the world will come to his side and agree with him at a time when you can argue about the lawn and variable lags either way. Inflation has been sticky. Jonathan until we settled down to 3 or 4 and they make the decision you do not want to hammer the labor market. Lisa a. that is not worth it in an election year. Just saying. Jonathan political. I was not going there but ok. Futures negative. From new york, this is bloomberg. The chase ink business premier card is made for people like sam, who make everyday products, designed smarter. Like a smart coffee grinder, that orders fresh beans for you. Oh, genius for more breakthroughs like that i need a breakthrough card. Like ours with 2. 5 cash back on purchases of 5,000 or more. Plus unlimited 2 cash back on all other purchases. And with greater spending potential, sam can keep making smart ideas a brilliant reality the ink business premier card from chase for business. Make more of whats yours. Aa is the second highest rating. It is not a low rating. We were just saying we do not think the underlying fiscal story and the governance is compatible with aaa anymore. Jonathan Richard Francis standing by. Cutting america to aa . Some controversy around that. Other people just shrug their shoulders but we did have a move in the bond market. Yields up, treasuries down. Softer off the back of not just that decision but better Economic Data. The treasury supply, which is worthy of a mention, that got announced around the same time we heard from the likes of fitch, and then this maneuvering around the bank of japan and yield curve control, which we are still struggling to make sense of. Lisa a. you put that together and it has turbocharged a move that was already underway. I find interesting the shift in the bond market after this downgrade was opposite of 2011. That is important. Yields higher, bond price lower versus everybody piling into treasuries back in 2011. Jonathan the growth backdrop in 2011 was brutal. Lisa a. exactly. Jonathan it was just totally different to what we are experiencing currently. Looking at sterling, the bank of england with the rate hike 25 basis points. Sterling a little weaker coming into that decision. Weaker on the others as well. With us now is adam posen, president of the Peterson Institute for international economics. I think you know where lisa is going to go. I have set that up for you to dig into. Lets start with the bank of england. You get the feeling these hiking cycles are coming to a close. Adam i feel confident the hiking cycle is coming to a close. The fed and likely the euro area , i remain less persuasive that we are at the end in the u. K. The bank of england has been saying in the last three prints and the latest ugov survey fits that narrative. As far as Monetary Policy, we are a little higher but it is going to come down in due course. It is a legitimate point of view but i think there are reasons why inflation is going to persist higher for the longterm in the u. K. And the risk of upside on an inflation is still bigger in the u. K. Than the u. S. Lisa a. you said you think this is the end of a rate hiking cycle for the Federal Reserve. Maybe not the bank of england. It seems as though a growing number of people are coming around to what you were talking about,. That th fed is going to allow that the fed is going to allow a higher rate. Are you more convinced this is the reality we are heading towards . Adam thank you for raising that and yes, definitely. Whether the fed acknowledges it after a few years of saying to percent means 2 2 means 2 , i would rather say openly this is what they are doing and raise the target to 3 . I do not think there is any stomach on the fomc majority to grind the economy down that last bit to get employment up an additional amount to get from 3 whatever to 2. 5 . Lisa a. what does that mean when it comes to the threshold to cut rates . One of the Big Questions we have is people are safe the fed is going to cut rates and they have conceded this before inflation gets to target. Will they start cutting rates even if it is clear that inflation is going to stay around 3 , 3. 5 . Adam i think they will be reluctant to do so, as they should be, unless they raise the target and acknowledge that is what they are doing. If they are still committed to 2 and they start cutting before inflation is down, unless you have a really obvious shock like the spring of 2020 or russia invading ukraine, you are not going to be able to justify it. It is interesting that the forecast for inflation is that they cut rates toward the end of 2024 when they are not forecasting inflation to be back at 2 until late 2025. That is hard to swallow. Of course, it is easier to swallow that. Jonathan there is one man sensing that maybe these lags are not long and variable but supershort. I do not know if you read the piece by bill dudley but thoughtprovoking. There is considerable evidence that lags have shortened, meaning the economy has found nearly all the impact of the feds actions. I wonder if that comes up on the committee. I would have no idea but if it did and you had the opportunity to contribute, what would you say . Adam i think those pieces are insightful. I am not convinced of his argument that things were shorter. You would also then have to say they are softer. But i am convinced of the need to push back on the narrative that the fed is at high risk of over tightening and lag effects are yet to come. That topic is definitely in the committee and should be. Lisa a. go ahead. Adam i would just say that we already have the surprise that the forwardlooking Residential Construction market which usually is the most Interest Rate sectors and Consumer Behavior in terms of durable goods has not shown Monetary Policy affect. My view is that the impact has diminished not that the lags have shortened. Lisa a. if you look at that right now and you end up with inflation staying high, the fed poised to cut before inflation goes to their target, how high could inflation go or stay longer term . What is the consequence to allowing a drift in target at a time when people are feeling inflation and it is affecting their sentiment . Maybe not what they are actually doing. Adam fair enough. This is why a lot of people, including people like the coauthor with bernanke, are opposed to raising the target. The reason to raise the target is we are looking at a more inflationary period not just over the next year but Going Forward. Larry summers gave a great speech a month ago talking about the mediumterm in the u. S. The idea we are going to be spending more on green investment, more on defense, and then that is also going to happen in much of europe, china, japan. This is something that is probably going to drive up long rates half a basis point, 75 basis points, if we are sustained at expansion in deficit. You were talking about this at jackson hole last year. There may be a sequence of energy price increases, be they shocks or deliberate policy i would hope for both but then how does the fed accommodate that . Going back to where you started this conversation the 2 inflation target was a good guess. But even at the time there was debate talking about whether you needed to be able to grease the wheels by having a slightly higher inflation target so that you were not up against the real zero bound, which is people get fired instead of cutting nominal wages. For all of those reasons the inflation target should be higher on the merits. It would be better to make that clear. Is this going to lead to drift . That is why people are reluctant to do this. It is a real concern, but my view is if you successfully and credibly take inflation down from 8. 5 to 3 , you are credible enough. Jonathan always wonderful to get your insight. Thank you. Looking ahead to jackson hole in a few weeks. We will see adam over there. Do you remember that morning . It was freezing. I cannot begin to tell you how cold i was. Lisa a. you almost fell off the chair. Jonathan i was that cold. And there was adam posen in shorts and a shortsleeved shirt. Not a care in the world. Lisa a. do i remember. Jonathan no shivers, nothing. Lisa a. i was sitting there in awe wondering what kind of superhuman talent he had to generate internal heat at a time when it was 40 degrees . Jonathan and speak about Central Banks. [laughter] i dont get it. Lisa a. it is beautiful. Jonathan but it is freezing. It is just stupid tv stuff. John still does, oppenheimer, bullish. The first time your sales reached 100k with godaddy was also the first time your profits left you speechless. At the counter or on the go, save 20 with the lowest transaction fees and keep more of what you make. Start saving today at godaddy. Com to finally lose 80 pounds and keep it off with golo is amazing. And keep more of what you make. Ive been maintaining. The weight is gone and its never coming back. With golo, ive not only kept off the weight but im happier, im healthier, and i have a new lease on life. Golo is the only thing that will let you lose weight and keep it off. Who loses 138 pounds in nine months . I did golos a lifestyle change and you make the change and it stays off. soft music we know the fiscal trends in the u. S. Have been bad, and will continue to be bad. The trend in yield is up right now. There is a lot of public debt coming, and you dont really need to chase it. You look to earnings it is sort of exuberance all around. I think the policies are in place, long and variable lags are biting. They will hit. This is bloomberg surveillance. Jonathan it was not boring, that is for sure. The start of august. Live from new york city this morning, good morning, good morning. This is bloomberg surveillance. Alongside lisa abramowicz, im jonathan ferro. Tk out today. Hopefully he is going to be around for jobs day tomorrow. The estimate at the moment, 200 thousand. After the close later, earnings from apple and amazon and we have hardly talked about it to this morning so r. Lisa i joked that nobody cares about it anymore. At this point where does it fit into all of these split narratives that are driving bond yields higher and causing a bit of week is in some of the areas that have been bid up this year . Jonathan monday, tuesday, wednesday, thursday, pick your poison, we have gone through the long list. Better data, adp, downgrade from fitch, extra supply coming out of the treasury, japan looking dazed and confused. Then you have yields up and everyone just sitting there making up their own stories about what is happening in the bond market. That is the last 24 hours, right . Lisa i love your descriptions of the bank of japan. Operation ostrich and dazed and confused. Jonathan i have been so critical, i know. When i think about them seriously i think they view the inflation left of the last couple of years. Definitely to the Federal Reserve, the bank of england, the ecb. They see it as an opportunity to reset Inflation Expectations higher. We have gotten to the point with their Monetary Policy where people think it has been that way for a long long time. The question we have to ask ourselves and you ask this question too is the bank of japan tweaking policy to stay devilish for longer or is this a baby step toward being tighter and raising Interest Rates . I dont know. Externally moves the one thing we can say with some confidence as they are uncomfortable with the pace of the move in the jgb market so far. Lisa the fact that one of the ballasts of the treasury market is now in flux just raises yet another question mark. Who are the buyers going to be Going Forward for u. S. Debt load that increases in the Treasury Department is planning to increase the auction sizes Going Forward at a time where the interest expenses are also increasing . You put this question about japanese buyers and the question about whether they will want to come into treasuries if they get yelled at home, you raise questions about china ownership, which has been falling off a cliff, you talk about the potential for inflation. All of a sudden you have a toxic brew. That could potentially shift yields higher. Jonathan tk would love this. Lisa i did that for him. Jonathan if you are listening, tom, im sorry. Cant do anything about it. [laughter] jonathan a touch lighter, down by 13 points on the s p. In the bond market yields are higher by five basis points. We have wanted to do this conversational week. It is great to have him with this in the building in new york. It is John Stoltzfus, chief strategist at oppenheimer. Good morning two. Jon morning. So nice to be here. Jonathan so excited to see you. I want to give you credit first, because the original fully 400 price target was done yourand last year. John the summer 12. Jonathan you are bullish and right to be you were bullish and right to be. Tell me why you are even more bullish. John a period of transition, no doubt about it. Fears of toxic brews and things like that when you have changes. The overall thematic is we would say it is an and to free money and it is a good thing. We have been as a result of the pandemic reached a period of free money both on the largess of two administrations in terms of providing liquidity, and then the Federal Reserve as well. The fed falling behind the curve and all of that. But the good news is the economy is showing remarkable strength if we look at the gdp. Based on all that is happening. Corporates are navigating through a transitional period remarkably well, with quite a few sectors still showing good growth. Then on top of it the consumer and jobs are remaining remarkably resilient. With the resilience we see and this transition when we say it is a good thing, free money is not a good thing. If money costs enough so that corporations have to pay for the privilege of borrowing money and bond buyers get something back, cd buyers get something back, this is a healthy environment. It is bad for memes, it is bad for cryptocurrencies, we think, ultimately. It is also bad for highlyleveraged players, and they will bemoan what is going on, and you will hear from them all the time [laughter] [laughter] what a bad thing it is. But it is a good thing. Jonathan we have heard it. Lets go through some earnings later. Apple and amazon. Ample on the s p 500, more than 7. 5 of the s p. You getting 10 of the s p 500 later. You say the move in yields higher is a good thing. We know you today a lot of this has been multiple expansion. It is the relationship between what is developing in the bond market and the multiples we should be putting on some of these names . John the fact that the multiples are up there, they are still not up to nearly 24 times that we had in 2020 on the forward multiple, the average fiveyear multiple of the s p 500. I think it was 2020 when it hit 23. 9 or something. This is going to happen in a period like this because the market is looking forward the next six months from here. And we think expectations are that we are going to see continued resilience in earnings. A lot of that comes in from the utilization of costcutting, through additional technology. It is not the dream ai that is up ahead, it is the ai we have today, it is the robotics, and a willingness to move towards it by many corporations, and the need for it. The other thing on multiples is when you look at the landscape, you have concerns about Social Security. And where are people going to put their money . It should be likely depending on their needs and directives, tolerances to risk the old disclaimer. They are going to have to look at equities for the medium to longterm returns. Fixed income is a great diversifier. Now with the yields we are seeing this is healthy, we think. Equities traditionally have been the place where you get your gains to prepare for retirement, at retirement, and during a retirement, when one may live longer than one ever expected one may live. Lisa this is a longterm case for equities. In the shortterm, to get to a new record at a time when there are a lot of people decrying the higher yields and you can say whatever the motivations are yes, maybe they are leveraged and talking their own book. Shocker. There is a question about at what point higher yields challenge the case for significantly lower gains this year. John ive been in this business since 1983. When i came in people were still saying the rally from august of 1982 would not last and it was going to be the end of the dollar and the end of the equity markets. Instead we had a phenomenal bull market that came out of that. At that time yields were much higher than they were at a nominal basis. Inflation was higher as well. Equities found ways for profitability, and the stock market moved higher. I can remember speaking with clients and urging them to buy equities, and they would insist on buying fixed income. I said, look out for the callabi lity on the corporates. I was right. That gives me hope here. When we speak to people about mortgages and people are bemoaning the 7 mortgage. My First Mortgage was 10 . My bosses was 16 . His boss someone had a 22 mortgage. We all lived through it, and the fed has been remarkably good. It can make mistakes. It is not infallible. But the fed has been remarkably good at taming inflation, and also during that period we had deflation, or disinflation that came up, it is remarkably good overall over the longterm, if the leadership is good. Lisa does your bull case lose some of its luster if the adam posen world, we were speaking with adam posen about the idea inflation may stay around 3 and the fed may tolerate that. Does that change your bull case . John what doesnt. When we think the target of 2 we often wonder, why does the fed want to go back to that . We can remember when economists just a few years ago were bemoaning seems to be the operative word of the day they were bemoaning the fact that growth was at 2 , inflation was at less than 2 , and they set an economy the size of the u. S. Needs 3 to 4 . Be careful what you wish for. 4 , we dont want to look at 4 , we can remember during the greenspan era when the target was 4 henry said, gosh, if we could get inflation down to 4 we will sign up for life, you know . Everything is relative. We hope we can bring the oldtimers in this market a a sense of context to all of this. In that sense that is what keeps us bullish. Jonathan being wrong is hard and sometimes part of the job. We would have these conversations last year and i would ask things like, one of the lessons you have taken from the year so far . When you are right, one of the lessons you are learning now as you work through your process . What are the kind of mistakes you can make extrapolating things out too far too soon . What are you learning at the moment . John that is a great question. We have learned especially over the course of the last few years is, anything can happen. Anything can create a catalyst for bears and skeptics to take profits without formal without fomo during a period like this, driven by technology that can underlie 11 sectors. But you have to be careful. You need to be diversified across market capitalizations. You want quality. You want representation in fixed income at the short end of the curve for an equity buyer like myself. If you are a bond buyer you can go up within corporates, probably tuesday mtn range. To the mtn range. These markets are highly prone to rotation and rebalancing because of the technology, the communication. Not only within the markets, but by the Federal Reserve itself. Jonathan what a journey. The last couple of years have been nuts. John stoltzfus of oppenheimer. It is good to see you in person. 4900 price target on the s p 500. Credit where it is due. Had a 4400 price target last year looking out 12 months to this year. Equity futures on the s p 500, if you are just joining, we are 5. 3 . Yields are higher by six basis points. Looking forward to hearing what tom procelli of pgim has to say about this. He joins us in about 20 minutes time. Tom is going to join us to break down what he is doing and what he is seeing in this labor market, with jobless claims just around the corner. Lisa im excited to speak with tom about his new role. One viewer wrote in to let me know there are still traders in the day gb market. And they know some of them, and it is very difficult. That some people have made a job of simply buying things and turning around and selling them to the bank of japan. Jonathan that is basically the job. Lisa that is literally what the job is. Jonathan likewise with etfs. Lisa can you imagine how wide those markets are as they try to came out what levels checked levels the bank of japan is going to step in . Jonathan have a look at the size of net interest margins in japanese banks. Compared to u. S. Banks and think about what they could do if we started to get some rate hikes from the boj. Which is why equity markets has been picking up. Lisa japanese banks to bet there are going to be higher yields there . Jonathan people seem to like Japanese Equities this year. Hearing it more and more. Maybe banks based on what we have seen, sure. If that is your call. Make calls. Equities a little bit negative. From new york, this is bloomberg. However you see fit. Rosie used part of her refund to build an outdoor patio. Clink dr. Marshall used part of his refund to give his practice a facelift. Emily used part of her refund to buy. I run a wax museum. Let Innovation Refunds help you get started on your erc tax refund. Stop waiting. Go to innovationrefunds. Com you really got the brows. Inflation will continue to fall over the coming months. That reflects the fact that it is working to bring inflation down. Our job is to make absolutely sure that inflation falls all the way back to the two percent target and stay slow. Jonathan can make it sound boring in the process. Andrew bailey, bank of england governor. As in hasnt that been the mission of everyone of them . Make it sound dull. Lisa because theyve got nothing to say. I dont know what to say. They are not on a trajectory they can spell out because they cannot agree. The bank of england was at least transparent about that lack of agreement. Jonathan governor bailey said this. Will not judge what the path of rights should be. Thats kind of the job, isnt it . Lisa [laughter] thats exactly what they are supposed to be. They are saying data dependency. Which raises the question, what is the data . Then we have a couple of elements of data and the market has not responded that much. People are not sure what to look, so they are making up their own minds. Jonathan we will act on rates based on how the data turns out. That could have been lagarde, that could have been power, but it is bailey this morning. You heard what adam posen said, maybe they are not done. Lets run through the price action. Sterling is negative off the back of that decision, 5. 5 . If you are just tuning in and you want to hear what bond market is, yields are higher by seven basis points on a 10 year. Lisa, new highs for 2023 at the long end of the curve. Lisa the murder the move has been at the long end of the curve. This is the story of the moment. At what point does it undermine Risk Appetite in a material way . We were just talking to John Stoltzfus, who is still making the bull case. Hear from other people that say this starts to pressure things. Jonathan i moment in washington. We were obsessed with what was happening with the bond market, for good reason. The legal issues surrounding what could be the two front runners for the president ial race next year of the president , former president donald trump, and then you have the business dealings of the president s son mixed in elsewhere. It is a bit of a mess. Lisa the legal issues are not analogous in any way, but what we are looking at our two candidates that have a lot of hair on them. Someone who come in with a lot of baggage and they have haters, and they have their stalwarts, and this is come together in an incredibly popular election nobody wants to see. That looks like it is what we make it. Jonathan this afternoon the team of balance of power at 4 00 4 00 p. M. Eastern time will be responding to the former president donald trump, expect to it to face new charges. The latest this week that he conspired to obstruct the 2020 president ial election. Joining us now is Elaine Kamarck, senior fellow at brookings and former Clinton Administration official. Talk me through what you will be looking for in the weeks ahead. Elaine later on today i think we will see trump being indicted. It will be historic, and it has also happened twice before to this same man. That is not going to be any big deal. I think what im going to be looking for in the weeks to him in the republican primaries . Remember that the primary system in america is unlike any other election in american politics, because it is a sequence of elections. I will bring you back to 1984, 1 of the first candidates i ever worked for as a young woman was walter mondale. He got a whopping 49 in the iowa caucuses. Everybody else was way behind him. But there was a young man named gary hard who got 17 . And gary hart became the winner of the next primary, new hampshire, and went on to give mondale a run for his money through the entire nomination system. What happens in the nomination system is, somebody emerges as the alternative. And my guess is and i will go out on a limb and make a prediction is that somebody is going to emerge to be the nontrump candidate in the republican primaries. Trump can lose the republican nomination. Remember, what is going to be happening is, as these primaries are going on the court cases are going to unfold. We are going to be learning more and more about trump himself, and what he did particularly in the runup to january 6. Lisa if that happens and there is another candidate that emerges, what does that due to bidens chances of getting reelected . Elaine biden is in trouble if there is anybody but trump. Biden has low approval ratings. There are a lot of doubts that stem from his age. I dont share those doubts, but people have them. If we had what we are calling in washington a normal republican, if there was a normal republican who would win the nomination, i think biden stands a chance of losing. As it is, remember that trump has effectively been on the ballot in 2020, 2021 with those Georgia Senate races, and 2022. Every time he has been on the ballot either in person or as a representative of some trumpendorsed candidates, he has lost. Being indicted three times may hold onto his courtroom supporters, but it certainly is not expanding his number of voters in the electorate. So, i think trump is basically in trouble, if not in the primaries, definitely the general election. A normal republican, different story. I think then the race becomes more about the incumbent, as it usually is. Lisa do you think the democrats should be talking more seriously about another candidate other than biden to possibly step in be there just in case there is this dynamic you are predicting will transpire in the Republican Party . Elaine no, i dont think so. It is awfully disruptive for a Political Party to throw over their current president. Look at the republicans in 1976, when they tried to do that to president ford. It is very disruptive. It hurts them in the end. I think democrats say, look, joe has done a pretty good job, the economy is in pretty good shape. We got through covid. He is handling the ukraine masterfully. Lets just stick with this guy, he is solid. I think democrats are going to stick with him. Again, it is a lot easier for him to beat donald trump that it is for him to be a normal republican. But democrats are definitely not going to abandon the president. Jonathan can we reflect on 1992 for a second . Who should fear the prospect for a Third Party Candidate more . Elaine biden should. There is no doubt about it. Trump has, from the minute he came down that escalator he has adopted a policy of just sticking to his base. That is all he does. He has never tried to expand that base. That base is old, ok . Trump voters are older than the rest of the electorate, which means of course there are fewer and fewer of them every succeeding election. That is an old base, and i think in 1992 we saw how damaging a third party could be, and in this coming year i think a third party can be very damaging to biden because people kind of looking for an alternative might decide. Also, remember how small the margins for democrats are. They were extremely small in those races that democrats pick up in 2022. They were extremely small in the races that gave biden the Electoral College 2020. And so, any third party is apt to her biden more than trump. To hurt biden more than trump. Jonathan Elaine Kamarck thereof brookings. Lisa, a here more of that. That prospect you get that Third Party Candidate. Lisa and it would probably hurt President Biden. It depends on who it is and it depends on who will and it depends on who is on the others of it. If President Biden will not be facing former President Trump, then who will it be . Will it be someone who is more competitive in more traditional ways . We are going to talk a lot about. Jonathan three weeks away, the first debate for president ial hopefuls. While the president or not . Some suspicion that maybe he might. Lisa since im sitting in this chair i should say, you know, they just do it better in the u. K. , it is shorter. That is what he will say. But we have a long time to drag this out. Jonathan futures slightly negative. From new york, this is bloomberg. Ans for you. Oh, genius for more breakthroughs like that i need a breakthrough card. Like ours with 2. 5 cash back on purchases of 5,000 or more. Plus unlimited 2 cash back on all other purchases. 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I have people come up to me all the time and ask me, does it really work . And all i have to say is, here i am. It works. My advice for everyone is to go with golo. It will release your fat and it will release you. Lisa all focus on bond yields this morning, especially on the heels of what we saw, which was the basis points of moves in just days. We are looking at Andrew Hallman horse saying this is one of when financial conditions start to tighten. We are moments away from the latest Economic Data. The unemployment claims. They have come in like repeatedly with a strong job market underpinning some of the moves. Now with some of the numbers, michael mckee, our correspondent. Mike . Mike everybody is clicking on the jobless numbers, so they have not come down yet, so thats do nonfarm productivity comes in much better than expected. Up 3. 7 after a 2 decline in the First Quarter. Unit labor costs for fall, they rise just one point 6 , down from a 4. 2 increase in the First Quarter of the year. Still waiting on jobless claims numbers to come in here. They switch to this all distribution by computer, so everybody clicking at the same time, or it could be that the department of labors computer is filing or something. Lisa having a bit of an issue. As we take a look at the nonfarm productivity there is a question about what higher productivity will do to some of these costs Going Forward, as well as in general employment. Mike the productivity numbers are key for the fare, because we have seen average Hourly Earnings rise in mcginley as productivity has fallen. If productivity is rising that brings down the danger of wages and people can make more money without the fed having a problem. He was the jobless claims numbers. 227,000, that is from that is revised from a week before. The ongoing continuing claims, 1,700,000. That is up, so a slight increase in continuing claims, and a slight increase in initial jobless claims. A sickly telling you nothing has changed in the labor market as far as the layoffs business goes. We are still at extremely low levels, and the fed is going to look at that and say things are still pretty tight. Lisa which is a reason why perhaps you are seeing some fuel to the move we have already been seeing. Just taking a look quickly. Initially on the productivity numbers he did see a dip in two year yields. The idea being Going Forward inflation can moderate, even with a robust labor market. They have retraced that a liniment that a little bit. 30 year yields, which we dont quote on a regular basis, because of the move Still Holding near session highs of nearly 4. 3 . This really highlighting the move we have seen more generally. Just quickly, how much in this newly datadependent centralbank world does this sort of underscore this feeling that this move in the bond market could continue . That there is protracted strength that could fuel inflation . Or doesnt not really tell us anything . Mike i dont think it tells us as much as what people might think. A lot of this was driven by the increase in supply we saw, and the fact we have had people sort of in the bond market like a coiled spring with the inverted yield curve, waiting for some signal things are going to turn terrible. I think tomorrow will be much more telling when we get the jobs numbers. Then you have something really to hold onto. One interesting thing just crossing the wire a short time ago, tom barkan said, yes, we are going to have a slowdown, and we are going to have a recession someday, but it does not look imminent. He made an interesting point. This recession has been called for for so long and we all joke about that that companies have prepared for in ways they do not usually. Recession usually comes on as a shock. Them in this case they have reduced their inventories, they are streamlining costs, and their holding onto workers without maybe hiring more. So if we do have a recession it could be short and shallow, he says. Lisa that is fascinating. Stay close, please. Well catch up with you in a little bit. As we take a look at some of these numbers, and which will matter and how quickly things can turn over, im excited to bring in tom procelli. Tom procelli has been off for a bit, and now you are in a new seat, chief u. S. Economist at pgim. Welcome. You have had some time off. Tom i have had some time off. Lisa you look incredibly rested. Tom i feel it too. It is all the yoga. [laughter] lisa buddhist reflection. You had previously been talking about how the fed was probably sufficiently restrictive, to use their words, and did not need to hike further. They have hiked further. People are talking about maybe they have not hiked enough and there is momentum underpinning some of the inflation and the market that previously had been underappreciated. What is your view . Tom first of all, thank you. To be here. To be sitting at pgim. It has been good so far. It has been awesome. Great team. Look, i think that my view in that regard has not changed much. In so many ways i think the fed was fighting yesterdays war on inflation. Inflation is softening. I think we need to make a distinction between and i think powell lay this out perfectly, which i have not said many times. I think he nailed it. What you want to see is inflation slow credibly and sustainably. Those are his words. I think that is where we are going. So, i think the construct around that is, does that mean you have to get to 2 . I think the answer to that is, i dont think we do. I think that is the ultimate objective, but i do not think that is a roadblock to the fed cutting rates at some point. We can still see a scenario that the fed is cutting rates, sort of sooner than later. It is not necessarily this year, but i could see a scenario where the labor backdrop is slowly deteriorating, which it is right now. Jobless claims notwithstanding. If you get toward the end of the year and if the feds forecast for the Unemployment Rate materializes and if there inflation forecast materializes, that might enough for the fed to say, we are going to take back some of this aggressive accommodation. If they did that it could be fuel to the fire from an economic perspective. You could wind up having a good 24. It is an interesting thing we have been kicking around. Jonathan there is something you said that builds on what adam posen was talking about. That inflation may be ok at 3 , and the fed may even verbally acknowledge this. That they are ok with this and not willing to compromise the labor market in order to get inflation down to the prior target. Are you expecting that to be explicit by the Federal Reserve . Tom i dont think they can say that especially. All of a sudden it throws into the if throws into question the inflation target. Lets be clear, the inflation target is literally a finger in the air. It is no literature that says 2 is the number. The narrative is i can see a narrative involving this way. It is easy to say that you are going to beat inflation when the Unemployment Rate is sitting at the lows. I think it is a completely different dynamic when the employment rate is starting to drift higher. That is a scenario we could easily see play out over the course of the coming year or so. That is how the fed is going to be able to justify, look, the credibly and sustainably idea, it is happening. We have to start to worry about the other side of the mandate, the labor mandate. And we can easily start to take back some of this tightening. I think that is how the narrative i dont think it has to be this big, weepy become ahead, we have to cut. I think you could be, we are going to cut because we want to extend the cycle. Lisa there is a larger question here about what that means for interestrate sensitivity and whether we are in a new paradigm where there is not necessarily the same kind of sensitivity, and rates can be higher for a longer period of time. Is that kind of what you are saying . Tom one of my prior bosses loves to build the story about how they knew that the fed cut rates, right . It was not as simple as looking at your bloomberg screen. You had to go to the fed, you had to get one of the age reports, you had to do this analysis. This happened over the course of multiple days. Why do i highlight that . In an age where fed officials relentlessly have a microphone in front of them, this notion of Forward Guidance is real. The fed can impact the term structure much further out. In that context i think the deadly peace that a lot of people were talking about, i think that is fair. I think that the economy feels the effect of this much quicker. I would add one other thing that is really important. Maybe this is blunting the blow of this. You thing about corporations, corporations are sitting on a mountain of cash and they have turned down a lot of their debt. You dont have that impact right now, and a think that is an important idea. I will be quick on this. It is an important idea because when i think about labor and the possible deterioration, and goodness we got that productivity number, because productivity has been poor. When you think about the hoarding idea, and mike mentioned this i think the hoarding idea could come back to haunt the labor backdrop. If you have hoarding taking place as productivity is not performing well in the context of companies ability to pass on prices which is diminishing, all in the context of consumption which is pretty soft, to Companies Due to the do to defend Profit Margins . It will go after labor. It is an interesting idea that is not being talked about enough. I think companies probably have deflected some of that because they are sitting on a mountain of cash. It is an interesting idea. Lisa that is fascinating. As we take a look at when that recession does come to pass, everyone seems to be pushing out their expectations of that. Have you as well . Tom our call is that we do not suffer through a recession. That it is more of a we are calling it week weakflation. That is what we expect over the coming year. The risk is what i have just highlighted. If companies decide, ok, margins have compressed enough, we are going to have to take it out of somewhere, that is a risk to the labor backdrop. I like our view that things are probably going to hold in there and not go through the recession line. I would say one quick thing if i can. It is interesting, this idea of recession and it not materializing. One of the things we have talked about again, this is a view we have at pgim. It is sort of a midcycle slowdown dynamic, like 19941995. That is something we have been talking about it my prior job. I think about that today, and for some of the recession calls out there, about some of the things that were in recession. Consumer spending on goods was in recession. Housing was in recession. Capex was down in two of the last four quarters. There were sectors of the economy performing poorly. It just did not conspire at the same time. It is an interesting angle on that. Lisa tom porcelli, wonderful to catch up on you. Tom porcelli of pgim fixed income joining us. We are looking at a bit of softness following on the biggest daily decline yesterday, going back to april. S p lower by about. 3 . Michael mckee, our economics correspondent, has been plowing through the data, as well as the productivity numbers, which i think might be more interesting than the unemployment claims, frankly. Mike, what is the latest . Mike what we are looking at is kind of a turnaround with growth stronger than expected and wages starting to flatten out. We are seeing unit labor costs drop. That is going to be the most important thing for the fed here. They are not seeing a wage price spiral. It is interesting, because tom mentioned the mini rolling recessions we have had. Tom barkan making the same point, say maybe that is what we get instead of an overall recession, because, he said, the pandemic is still with us. Not the disease so much, but the impact on the economy, which nobody can quite hands around. Quite get their hands around. Lisa i found interesting his comments about economies preparing for the recession was telling too. They are trying to examine the ways in which this time is different. Mike you look at todays ceo survey, and they are more optimistic about the Third Quarter and Fourth Quarter than they were. Maybe people are beginning to think, even if we get a slowdown, we are going to be ok. Lisa if that is the case there is a question longerterm about where inflation does settle out. Michael mckee, thank you. Coming up, we will have much more, including discussion around apple and amazon. They are reporting earnings. They account for about 17 of the s p, just to give you a sense of how significant they are. Essentially the nasdaq, as we all know, started dripping at the trough in march, and then june when you got to 4200 on the s p 500, it is when the participation started to run. That is when we turned more optimistic and turned our price target up. It would not be a surprise, it should not be a surprise if we retest that 4200 level at some point. Lisa potentially bearishness, but that will be a buying opportunity. That is the tone we are hearing, certainly from Julian Emanuel albert at evercore. We did just get the unemployment claims, as well as productivity numbers. It did not really move the dial, other a lot of people will be scrutinizing this for tea leaves as to what we get for the jobs figure we get tomorrow. S p futures lower by. 3 percent. Im still watching very much tenyear yields. 4. 1 4 , up now seven basis points as people parse through the supplydemand dynamics and some of this betterthanexpected data. We have also been getting a series of earnings. I want to run through some of the themes we have been hearing through the lenses of some of these companies, although the stock moves are more reflective of what the companies have done your today right now we see tripadvisor shares lower by 1. 7 . Mgm resorts lowered by 6. 6 . Both of them beat across the board. This to me is important to highlight. They showed increased revenues, increased profits relative to expectations, and yet they are being punished based on their performance, although trip highs are is down on the year. Mgm perhaps people are worried las vegas is not going to come as much as as much of a revival as expected. With respect to Consumer Spending, zillow, shake shack, etsy, warner bros. All of them lower on the day. Have we built in too much enthusiasm about Consumer Spending and how long he can continue to go . This comes with a number of beats. They are getting punished for not beating by more. Not having even better expectations. The story a lot of people are looking for is, what has been baked into amazon and apple . Their report after the bill. Amazon is up 52 your today. How high our expectations . How high are the desires to see something said about Artificial Intelligence, about amanda continuing to increase . With apple i am curious, given qualcomms earnings they gave disappointing projections at a time where there is a question about the recovery in the smartphone sector, as well as demand in china. Joining us now to talk about what to expect and how to understand it is anurag rana, our Senior Technology analyst. Thank you so much for being with us. When you take a look at apple, how much are you looking at the smartphone cycle and how much are you looking at apple as the juggernaut in a market that is completely dominated by the iphone . Anurag if you look at it from apples point of view he doesnt really go up and down in terms of cyclicality in the smartphone market, because it is a higher price point product. People who buy that really do not change their buying habits. That buy it when they needed. This is going to be a very boring quarter for apple when it comes to iphone shipments, because next month is when the next iphone is going to be launched, and that really spurs the big upgrade cycle that will come in the december quarter. From our side it is going to be a bit boring when it comes to apple. What we really want to hear about, is have we seen a rebound in the Services Business checkup that is where some of the growth is. Overall im not expecting any major surprises on the upside or downside for apple. Lisa has too much been baked in, with respect to some sort of Artificial Intelligence announcement or new product . Is this something that cannot really meet the expectations stock rally has given it . Anurag i dont think there is an ai story here, in the sense that they are not going to be launching a new product. Its going to happen with apple is a lot of their operating system will have new enhancements, which they have every year. That will have new capabilities. Something like live transcription. When you ask siri questions it is going to get smarter over time. That is a natural progression of product development. We are not expecting any ai announcement from apple or amazon. Lisa and amazon people are looking very much to cloud spending at a time where there were questions around that with microsoft. How much are you looking that at that specifically to understand how much companies are willing to spend to build our Cloud Services at a time when there have been conflicting signals . Anurag we are not expecting clout to be strong or rebound. We think they may guide to Slower Growth next quarter. We said that, probably mixed quarter could be an area where we see the bottom of this growth rate and we can start looking for a rebound over the next 12 months. It is a factor of easier comparisons, but when it comes to cloud usage i think we all know that i. T. Spending has been slowing down for some time. Microsoft, i think partially the reason the stock had the reason the stock had a negative reaction was people were seeing were expecting a rebound in those sales. Lisa how much is there other business doing well at a time when we are seeing questions around the Delivery Services . Im thinking about uber, which their down spot really was the freight. This issue of packages not being in the same kind of number they used to be. Anurag shopify reported last night and showed really good growth. I think amazon should report a similar number in the sense of growth rate compared to last year. Given as big as they are, the size of the growth may not be close to that, but frankly speaking from amazons point of view the investments they made during the pandemic on shipping will start to see benefits. We are already starting to see benefits in some regions of the country, but shipping is going to be a big differentiator for them over the next two to three years. Lisa blood people are paying close attention to everything amazon and apple have to say, in large part because they are such behemoths in the indexes. The account for a significant portion of the total and there is a question, especially as you say everything is going to be pretty much in line. What is going to move the needle for the entire market in a meaningful way . Anurag i would say the entire tech market has been fueled by a lot of optimism around ai and what it could do. But frankie speaking these two companies are not taking part on a lot of those discussions, largely because microsoft has a close relationship with openai and chatgpt, because it runs on microsofts back in. Before amazon they need to come out and talk about what is going to be the best strategy in terms of allowing people to build more ai applications on their platform. From apples point of view they have to tell people that they are not going to see anymore supply chain hiccups in the next three months, which is obviously the most important quarter going into next year for them, the Fourth Quarter of calendar year, this year. That is the thing we are looking for to make sure there are no problems for the new iphone pro or promax when it comes out, and people can buy it at the right time. Lisa what are you expecting to hear from apple about china, at a time where they are looking to that for expansion and we are the opposite story from qualcomm . Anurag i think last year was a point where they had really bad sales in that area because of some covidrelated stuff. This year we think there should be a rebound there because the numbers were so low in calendar Fourth Quarter of last year. We should see a rebound over there. From a Chinese Consumer point of view, people who can afford to buy an lv bag, they are the ones buying the new models. The rumor is that the promax will have a phenomenal camera, and our analyst in asia thanks that is going to be a big growth driver for the chinese smartphone market, from the hiring point of view. Lisa these last two Big Tech Companies will wrap up the entirely of the fang stocks. What is going to be the big takeaway as we assess their earnings as a whole . Anurag for me the big takeaway is the ai story is real, but its going to take several years to play out. Its not going to be that in two quarters you are going to see massive revenue upside. Amazon is the big example, because they are perceived to be the biggest beneficiary of this. With that rally in the last six months the stock was only down 3 , 4 after earnings. People are getting the point that it is going to take time for that revenue to be recognized, and i think that is the big story. Lisa anurag rana, thank you for taking the time. Anurag rana of bloomberg intelligence. I want to bring you a headline, that saudi arabia will extend its voluntary cut of one Million Barrels per day through september. This according to spa. When you take a look you do see a spike upward in brent, up 1 . We are looking now at 84. 05. Food is up 1. 2 , 80. 47. Saudi says voluntary oil cut can be extended and deepened, raising questions about supply and demand. Coming up at 11 00 a. M. , an interview with andrew bailey, bank of england governor. We will also be keeping track of oil prices in response to some of these latest disclosures from saudi arabia. This is bloomberg. With your hearing, if you start having a little trouble, youre concerned that its going to cost you money. To this day i only paid what i had to pay for the device. When i go back everything is covered. Theres so much youre missing by not having hearing aids. Well find you a hearing aid that fits your lifestyle and budget at one of our over fifteen hundred locations. Call miracle ear at 1800miracle and schedule your free, no obligation hearing evaluation today. The chase ink business premier card is made for sam who makes, everyday products, designed smarter. Genius like 2. 5 cash back on purchases of 5,000 or more, so sam can make smart ideas, a brilliant reality chase for business. Make more of whats yours. Jon treasury yields higher every day this week, and this morning. Futures software, negative by 0. 3 . The countdown to the open starts right now. Everything you need to get set for the start of u. S. Trading. This is bloomberg the open, with jonathan ferro. Jonathan live from new york coming up, the bond market hitting turbulence. The