Oil and gas rally. Producing as much as 8. 5 cubic meters a day welcome to bloomberg markets. This is always a tough day. You have a human tragedy event and then you trying to figure out how to manage that. It is a difficult to understand. . Now into the world of uncertainty, which is hard to price. You get the classic reaction that we get today. The u. S. Bond markets are closed. You buy the dollar. You buy oil. This is the classic play. You sell stocks, so i do not think that weve learned anything today that is particularly useful. What comes next would be determined ultimately by how the israelis react, what happens next, and whether or not this remains symmetrical. Today i do not think it really teaches us anything useful. What comes next is hard to determine. We have an ongoing war with russia and ukraine and a series of supply disruptions. All of that needs to be put into the equation. There is a kneejerk reaction. That kind of dynamic, how long those trends really play out is a different conversation. How uncertainty will be addressed on earnings calls will be quite significant. Absolutely. We do not know it will be interesting to know whether or not the earnings change the result of this. There is increasing uncertainty as we tried to get a clear and easily quantifiable answer. I do not know where we go from here. Markets are terrible at dealing with uncertainty. How should investors react . Joining us now, what do you think . We do have bond futures up today. Stock futures were lower. The flight to quality is debating a bit. It is the normal reaction to this tragic unrest. We have this big macro trends going on. We had that blockbuster payrolls. There is so much risk, so when the actual cash market opens tomorrow, yields might be down a little bit. It will be very slow to reverse this trend of higher yields. If you take a look at the oil market, it gets really murky. What do you think . How should investors be taking this . It is a lot that i can agree with. I will point out one of the things that they did not talk about was the dollar. The dollar is a safe haven bid, but one of the other things in terms of yields higher, it actually is an official to the dollar. Either you had the safe haven bid here or you have the higher for longer. I think the one key component is a higher dollar both of those scenarios. That is probably negative for other companies. What i am looking at is, what are the banks going to say . The regionals are down. We have just gotten a slew of cuts on a lot of different regional banks. They increased j. P. Morgan they cut their price target for the regionals. You have the conflict that is something that we have to plug into this story. As we try to think about how the market will hedge, should we anticipate higher volatility . It is now starting to come back and i wonder what it looks like in this current environment . Could you hedge risk in this sort of environment . Stocks and bonds are moving in the same direction. There has been a lot of out of the money type of training activity and futures in the bond market. Basically people looking at the scenarios. For instance, the fed cutting. Those of the kind of scenarios where you might lose a little bit because you are taking a tail risk sort of failsafe, if you will. I think those are the kind of strategies that you can employee. By and large, it is still the same tack as before. The u. S. Economy is doing well and you have to deal with that scenario, Going Forward as well. In terms of a commodity basis, it is much more insulated. As we talk, the move index has picked up quite significantly from september. What do you think will happen . How does that relate . I do not think it can come down until we get to the inflection point. We have this unicorn of a yield curve steepening. It is quite painful. We have rates going down and that is causing pain. Lori spoke about term premium rising. But rising longterm rates should breed asset classes. A lot of people are saying it is hard to deal with. The economy is holding in, but you are seeing them raising red flags of, could this be disruptive . Long rates are starting to run more, and that can be troublesome. You think they continue to look through energy . It looks like we are going to stay there. Does the fed look through that . Or has it learned the lesson recently . Clearly they learned that lesson the hard way. They have been pretty clear that we have focused, but where this headline inflation can bleed in is in expectations. They have been calm, that you see some measures that are creeping higher. The fed does not want to see people for you i going to pay more for gas. It is not there yet, but that is where it could bleed in. It will be a much more precarious situation. Thank you for helping us unpack all of this. Coming up, more insight on the question of the day. The chief Market Strategist joins us next. The Federal Reserve speaking at an economics conference about monetary policy. Hired term premiums result in higher Interest Rates. If term premiums rise, they could do some of the work for us. If youre trying to get a view of the whole organizational Financial Health and youre trying to do that through multiple systems, that makes it very, very cumbersome. Its not just tech, its not just people. Its how they Work Together to provide that experience to the customer. As a finance organization that is what you want to do. This was the largest operational and intelligence failure in the history of the israeli government. It was not only incredibly successful but impressive. It could be you could not know in advance what might happen mainly because you are not dealing with national players. They started working on negotiation beyond the conflict. It is quite clear that they underestimate their adversary. Those were stunned guests reacting to the water. How should investors react . It is very much buying gold and certain bonds. It is the typical risk off scenario, but how do you think about it more medium turn . Catherine, how should investors deal with this . Flex it is an enormous tragedy. It is not too expensive. We have been looking at this, the technology sector, something that we have had for some time. I think this atrocity and perhaps ramifications that come with it involving other countries the middle east can increase the possibility and probability of a hard landing in the u. S. , as consumption takes a hit. This plugs into a wider matrix that we are trying to deal with at the moment. The difficulty that investors have faced is that bonds and equities have been working in the same direction. Today, we do not get that, but in a world where bonds do not upset stocks and sucks do not upset bonds, how do you realistically provide diversification in a portfolio . I would not wholesale discard this. It not work in 2022 for sure and it has not worked so far this year, but what i would tell you is that i think they are interesting right now. Riskfree assets are appealing at this moment, especially higher for longer, talking about how the fed is unlikely to cut. There is a good chance they do not even go 50 basis points. It depends on how severe ramifications for the economy. I still think that bonds should have a place in the portfolio and they are getting increasingly interesting. Lori logan said that so far the bond Market Movement has been orderly. It feels like everyone is waiting for a disorderly bond market. What is going to be the catalyst for that as we look at some of the risks, geopolitical or otherwise . It is hard to imagine that there is a falling a part the treasury market. China can put their trade surplus there. It is going to be hard to see and unraveling, especially when you see the u. S. Dollar. Until there is a substitute, it is hard to imagine that we will see a disorderly unraveling there. We see china buying fewer treasuries, so i think that could put upwards upward pressure in the coming years, but a disorderly unraveling is difficult to envision until we get to those riskfree asset classes. Question another way they have been trying to hedge risk. How are you going to factor that in . I think they are a tax on the consumer, which is already seeing higher rate. I think that is going to take a toll on the consumers going into next year. They are where we need to be positioned, going into next year , especially in this stagflation air he environment. Is it going to be Energy Stocks or the price . If we are going to see are we going to see it kick in . We are a big powerhouse, especially in energy. Most of the majors with regard to major oil companies, i think they are going to have an additional big year, especially with highyield prices. Do you buy defense stocks as well . One major conflict is ongoing and we now have another major conflict beginning. We are likely to see funding for those being rolled into one. What does that mean for different defense stocks . Should i be playing those names . Do you think they have further to go . I think they have come a long way already. You could add them to the portfolio, but i would be careful with kneejerk reactions. Stay firm with the allocation that one has created going into next year under the understanding that it has been augmented by this tragedy. Especially as pertains to how much other countries get involved. There is a high risk with regards to high inflation and a recession into next year. You are buying some push for the s p. Gold. Where else do you want to get defensive . Not to sound boring, but cash is very attractive. Shortterm treasuries, we could start looking at longer duration. Looking at treasuries, but defensive stocks, cash, i would even look at others. Look for that midcaps space is what we are recommending to our clients. Great to catch up. Thank you very much. How do you hedge some of these risks that seem to be growing right now . The main one in focus today, the israeli and mosques warrior. It is reverberating. Silicon valley is an area of focus. Huge ties. We will talk about that connection, next. This is bloomberg. Thanks to avalara, we can calculate sales tax automatically. Avalarahhhhhh what if tax rates change . Ahhhhhh filing sales tax returns . Ahhhhhh business license guidance . Ahhhhhh crossborder sales . Ahhhhhh item classification . Ahhhhhh does it connect with acc. . Ahhhhhh ahhhhhh ahhhhhh it is 22 past 7 00 on the west coast. Covering the top 10 stories. There is a tight relationship between what happens in Silicon Valley and what happens in israel. They have a very close connection. We want to walk through that a little bit. Ed ludlow joins us. How does it evolve in the middle of the conflict . It is a massive footprint on the ground for israel. 12,000 people working in israel. The connection has been deepening. Think about the tower deal they had to walk away from last month. They were blocked by the chinese regulator. They announced in june it will be operational by 2027. The other, speaking to a lot of Tech Industry employees that live and work in israel, it is the idea of what happens next. Tens of thousands of people. Will they be impacted by the military strategy of what comes next in this war . To what extent has it changed over the last few years . The number of startups in israel have increased. Is that because many people have made the decision to move to the u. S. Already . How has the relationship changed over the last few years . There is a drop off of activity the shortterm. The number was down through the first part of 2023 and worldwide funding was down 39 . It has been home to cybersecurity and fintech, but also autonomous driving. I think the stock is down more than 6 to 7 in the session. It is u. S. Listed but its headquarters are in jerusalem. They issued a statement saying that operations are impacted. They have an investor day next month that had been due to take place in jerusalem. The data and activity contradict each other. On a per capita basis come israel attracts more dollars. They are a smaller nation with a hydraulic for town. Are other companies canceling events . Nvidia, the company of the year was due to hold its ai summit in tel aviv october 15 and 16th next week. They have outright canceled the event, citing safety concerns for those who were due to be in attendance. There was so much crossover of companies that have a footprint here. All of them are talking about what they should do operationally, next. You will be carrying on the coverage of this. Coming up and just 90 minutes time, we will talk about hedging, next. This is bloomberg. Alix we are an hour into the u. S. Trading session. Volume in that light. Bond market closed for the holiday. Abigail it is hard to talk about markets amidst so much horrifying activity, but the Way Investors may think about it whether or not the conflict in the middle east, whether or not it will affect the corporate profit outlook in the u. S. , overall, this chart suggests that from a macro standpoint, investors are not too concerned. However, beneath the surface, looking sector wise, there are areas that are rallying and falling dramatically on the third between israel and hamas. Defense sector having its best day since october of 2022. Having a better day initially then the start of the war in ukraine, which says that some investors think maybe defense contractors like Lockheed Martin are going to be stronger. Energy up to 2 as oil is rallying, up 3 to 4 on wti and rent route. Unclear whether iran will be pulled into the conflict. Hick moore of aberdeen saying that jordan and russia could be. If supply becomes tight in oil rallies, that is helping the Energy Complex right now. Discretionary, anything related to travel, airlines, cruise lines down on the fear that travelers will not want to travel amidst this conflict until more is known about the tragedy. Airlines down 5 , worst since march of this year. From the july peak, down 30 . Really getting taken down today by both rising oil and the idea that folks may not want to travel, plus some Major Airlines are cutting back on flights to israel. Brent crude, big surge on the day, up nearly 4 , three standard deviations higher. After some recent declines, wti crude is back above its moving average. If we look at some of the production out of the middle east, saudi arabia clearly the most. Lots of folks focus on iran. Production of more than 50 over the last year. Question is whether or not they get pulled into the conflict. The sense is if that happens that this conflict could escalate more. And that would help out oil and that Energy Complex. Guy absolutely. We will watch to see what happens next. How should investors react to what we have just seen . How should they plug it into what else is happening around the world . There are threats from a number of different areas for Financial Markets right now. How do you hate it . Hedge it . How should investors react . Complicated answer, i suspect. Not that complicated. For the first time in many years, you have shortterm yields over 5 . You have gotten inverted yield curve. Partners are not buying our assets. Youve got equity giving you normative yields and treasury. The odds are straightforward today. Everybody should have a treasury direct account. Alix you could also argue that treasuries are also super vile tile volatile. You have to compensate for that is 5 enough conversation . Vineer i mention shortterm treasuries. The build. I have been careful stepping out. Now is a good time to go to twoyear notes with a duration of 1. 5. Now you could argue one of the about the longest fiscal issuance going on. Risk is marginal. Investors should not extend duration right now, but even at 5. 25 , that will give you insurance and protection. We are looking at a geopolitical minefield. It is tragic what is going on, but i do not think this is an isolated incident. It will continue have. Cash happening. Guy if you have to earn equities, how do you hedge that risk . Vineer that is surprising right now. They are sort of below the 200 day moving average, which indicates a negative trend possibly developing. You look at equities, nasdaq is also low. Fixed income volatility is high, but equity volatility is extremely low. It is relatively easy to hedge, like one of your other guests was speaking about. Alix that was catherine rivera. She says 6040 is still ok. What do you make of the fact he stocks and bonds moving together . How long is out last . Vineer you are looking at a multiyear trend. People are not quite use to it. The correlation people have been speaking about was maybe two years ago. So markets, i think they literally created the breakdown in correlation. I think youre looking at possibly the five to 10 year period where correlations do not look like they did the last 15 years. They will require options markets. That is i think the reason for being a good more independent. Guy these markets feel oddly at the moment despite what is being thrown at them. Do they become disorderly . Vineer very quickly. The treasury market has been extremely illiquid for the first time in maybe 20 years, the fed is selling. Other Central Banks are not buying. But they are probably in that period. Emerging markets are not going to wait for the fed to finish selling. The fact that the fed is not providing liquidity results and possibly treasuries becoming illiquid. If that does not happen, things could get illiquid quickly. When the treasury market becomes a liquid, everything becomes a liquid. Treasuries are foundational. Alix does that risk it take us off landing in off the table . Does it disrupt other Financial Markets in a deeper way . What does that do for us yet chest . Vineer if you look at the playbook again, moving Central Banks do not say anything initially because now longer rates are coming up. Things get disorderly. They start achieving their inflation objectives. Most people need a decision based on the longterm rate, but it gives them an excuse to pivot. Yes, markets get disorderly, things start falling apart but when does the fed pivot again . Enough already, lets get back in depend on Financial Markets. You cannot function with Financial Markets going down. Alix we love chatting with you. Definitely come back. Coming up, the big mover in the market is oil. The attack raising worries about global oil supply. This is bloomberg. Explore endless design possibilities. To find your personal style. Endless hardie® siding colors. Textures and styles. Its possible. With james hardie™. Old school hard work meets bold, new thinking, to help you see untapped possibilities and relentlessly work with you to make them real. Alix coming up, Rebecca Babbitt at 1 30 p. M. New york time. This is bloomberg. A critical question of whether we will achieve peace with study arabia. This pushes the is really arab complex into a different place. It could lead to reconciliation between muslims and jews. The critical factor will be how israel emerges. Do we emerge as a vector . Is a victor. Alix that was the israeli minister of Strategic Affairs speaking earlier. The role of the saudis in iran Going Forward will be key to the oil market. Chevron ordered to shutdown natural Gas Production in the mediterranean. We want to get more insight on all of this with ed. The way we view this event comes to the oil prism. How do you think realistically held markets will be affected . Ed it would be an indirect impact and a longterm impact in all likelihood. We have certainly the big israelu. S. Deal, which has multiple aspects to it recognition is one of them. A saudi commit and according to the wall street journal to reduce the cut level of production to make prices lower for consumers. A lot of things on the nuclear side. There is a risk that the saudis will be not reducing production as a result of all of this. There is a risk that there is going to be more stringent sanctions on iran, given that hamas is now admitted that iran was demotivator for the attacks. Unlikely that we will see a further loosening up with the sanctions on iran. I suspect the u. S. Will make a more difficult for them to export more. We will see the u. S. Pushing, as we have with the company you are talking about on the gas side working with venezuela to increase output. The socalled fragile five will be seeing a big push to accelerate their own production. That is iraq, libya, nigeria, venezuela. Guy given the fragmented nature of production, do we need to have such a high value attached to risk when it comes to the middle east . What do you think that number is currently . Must be more today than it was on friday. Ed we have seen that was nothing else happening other than the events in hamas and israel. The prices up by 7. 5 . That is not a large jump. Even if we look back a couple of weeks, prices have gone down more than they have recently gone out. It is not the kind of response you would expect after a big event. Alix to that point, we had seen double digit increases in natural gas rises, particularly in europe. I am wondering if the real story is about gas, less about oil, particularly when you overlay what is happening in ukraine. Ed certainly, at the israelis showing down Gas Production largely because of the vulnerability given the outbreak of conflict. Coming at the same time that the lng strikes are resuming in australia. There has been a Global Impact on natural gas, but the Natural Gas Storage situation is very high. We are entering winter, which is expected to be mild. That is a blip to headlines on the storage side. We are seeing a lot of flirting inventory of lng going into further inventory as we get into the winter season. It is premature to say that something significant is happening on either the gas or oil side of the moment. Guy yes storage may be full. The spr is not. How much protection does the spr currently provide the u. S. . Ed a lot. The u. S. Is unusually large as a producer of oil and natural gas and the largest producer of lng at the moment, largest exporter of combined crude oil and petroleum products. That export position has increased significantly. We are expecting u. S. Production to grow by another 300 thousand or 400,000 boroughs a day. We think growth next year will be between 400,000 and 500,000 barrels a day. That will play significant role in keeping prices lower for longer. Alix it was refilled a bit but we are low. 40 of learners supposed to be. The administration is nothing to give. Is that wrong . Ed you have over 300 Million Barrels and can export a lot of that. The spr option is still very real, but the government may be reluctant to do so on the evening an election year. We are seeing even as oil prices are going up gasoline and diesel not going up as much. We have seen a collapse in diesel and gasoline. We have seen a reduction in their prices, which means that the inventory bill that has begun on the product side is likely to continue. That is the number that the u. S. Government is looking at. It is looking at where gasoline prices are. They look like they are going down. Guy do you think the u. S. With its allies can crackdown simultaneously on Russian Oil Exports and enforce sanctions more heavily and iranian exports and enforce sanctions more heavily both in some ways have been given a pass in terms of exports. Do you think without a significant price rise we can see both of those countries having a temper trading environment . Ed i do not. I think the price gap has been more than modestly exaggerated. It is not working right now. The questions are happy about that. There may be less excess buying by china with russian oil pricing at a market level. That is a different issue from what is happening in the middle east. It has happened because of the tightening of exports with russian testing the price gap. They have shown that the price gap is difficult to impose on russia. I would separate the two and say they had a policy of keeping russian oil flowing. That policy in a way has backfired, but we have seen a big release on the diesel site. With that release, which the reason they cut diesel exports was because there was a better price in the International Market and they were unable to build inventory. Now they built the ra. The cell is coming back. Diesel prices on a global basis are going down. Alix guy great to catch up. Thank you for your time. Coming up, how big banks and traders are reacting to the israelihamas war. That is next. This is bloomberg. Alix a look at how wall street is managing thinking about reacting to the israelhamas war. Managing volatility and uncertainty is key for wall street. What are you hearing . Sonali first order effects are oil price moves. You have to under on who has been up double digits taking to twitter focusing on shortterm versus longterm effects. The idea is that the shortterm would not be as drastic but longterm effects could be meaningful. He says the market will have to beg for more saudi supply, which he believes will not happen. These moves on Higher Oil Prices have gotten under on himself off the heels of poor performance this year. He has been rebounding from a negative view to be more positive on the year, only down 15 . Then there are the second order effects. Earlier, you study fixed start to spike but not saw the vix start to spike but not that much. It is above the average for this year but below what you would have seen for the four year average, which means it is still pretty low. We are still seeing Capital Markets activity trying to steepen the market. If birkenstocks specs higher than 19, all of a sudden you have more trading activity starting to be impacted. Guy normally in these scenarios, gold would play part in the reaction function. You buy gold as a safe haven. That in some ways continues. Is gold now competing with cash . When you can get cash at 5 , is that the ultimate theyve haven . Sonali lets look at gold. You have seen gold muted this year. It was popular coming into this year, but did not see massive moves in gold. Today, you are seeing a tech higher. The bond market is closed today. It is hard to know the direction of travel. Treasury futures getting the left. Do Interest Rates start to get materially higher on this uncertainty . In the home market is talking, does this start to complicate the central bank hiking cycle . We have already heard from two said officials talking about the work being done itself in the bond market. Are you when to see more pain in the bond market is other inflationary pressures come to the surface . Guy great stuff. Thank you. For the last few years, cash has yielded nothing. Gold fields nothing either, but maybe they compete with each other. Best reaction in the german 10 is the most obvious comparison. We are down 10 basis points. Is that a real number . Of course. Is it a number that is enduring . We will wait and see what happens there, but certainly you see a classic riskoff mood day, albeit useful. The impact these stories have on markets is less and less with every cycle it seems that stoxx 600 down. Energy stocks in focus, defense stocks. That is an obvious reaction. You buy the bond market. Obvious reaction. We see what is happening with the dollar as well. We are seeing a 2. 5 bid on that. All of this is the obvious reaction. What comes next is what will matter. When you automate sales tax with avalara, you dont have to worry about things like changing tax rates or filing returns. Avalarahhh ahhh guy monday, the ninth of october. Lets talk a little bit about what we are seeing in markets today. The horrific events of this weekend obviously continuing to reverberate around the world. Lets talk a little about how markets are reacting. As you could expect is all i can say at this point. You have a risk off event. Stocks are off. Defense stocks being bought. Airlines being sold. None of this really tells us much about what comes next. That is the critical question now. Where do we go from here . We have seen the impact of the conflict in ukraine. Are we seeing another one of those manifest themselves in Global Markets . We do not know yet. That is the action in equities. You see the reaction in the b