It is almost jarring. Back monday. Alongside lisa abramowicz, im jonathan ferro. Tom actually dropped me a message this morning at about 4 00 a. M. , looking at the price action and this rotation we have seen. I think its got everyones attention. Weve had a fake after head fake. Is it real this time around . Lisa every investor we speak to says buy any dip. Buy the big tex stocks on any dip whatsoever the big tech stocks on any dip whatsoever. Now people are going back into them. You have to wonder what it would take to make people truly believe in the cyclical story. It has to come from the data. Data just isnt there. Jonathan i think you have to get a lift in treasury yields. That takes Economic Data and real improvement. That is where thanks stalled in early june. Lisa i will also say the reason why tom keene was messaging you at 4 00 a. M. Is because he doesnt want to actually move up on floor. If i had to move, i would also be procrastinating. Jonathan are you joking about this . Lisa no i am not. Jonathan tom is really moving a bicycle floor. That is where he will be moving up a single floor. That is where he will be the next three days. Lets start with the equity market and get you up to speed worldwide. Equities up 0. 7 on the s p, positive 23 points. Looking good this wednesday morning. In the fx market, eurodollar 1. 1769. 0. 67 , year up to ahead of cpi in the united states. We will bring you that later this morning. Joining us now out of london, chiefbevan, ccla investment officer. Is this a head fake, or something more sustainable . James i certainly think equities will grind higher because i believe the Federal Reserve and the treasury will continue to provide liquidity, and that has got to be good news for the Quality Growth Companies that have been taking the market ever higher. However, i would have two notes of caution. One was the Market Reaction to the news from russia yesterday that they have found a vaccine for covid19. Although it was early stage, the markets initial reaction was interesting. What we saw was the big tech stocks sold off, while bank stocks rallied. It was also the case that precious metal prices dipped and yields rose. I think this is a real taste of what will happen if the covid19 crisis passes by. Equally, i worry that investors have been very undiscriminating in terms of what they have been prepared to buy in this liquidity driven melted. It is the case that we can make sensible Investment Decisions on quality stocks. If you press me for where the s p 500 might finish this year , i might ber 2800ised if we get to this year and 3800 next year. When i look at the default atumes in q2 that came in 41. 1 billion, that is in comparison to the previous record of 39. 5 billion setback in 2009. While liquidity can stop markets in a credit crunch, they cant provide companies in trouble with cash flow. Sooner or later, those companies will be found out. That is why it is so important to through into what is going on at the company level, where it is achieving sufficient revenues to provide longterm access to the capital markets. Lisa i want to stick on this idea of liquidity versus solvency, liquidity versus the recovery story. It seems to me that you believe in a further rally in equities, yet it is going to remain a liquidity story, albeit with some progress on the virus front. How much can it remain a liquidity story to sustain this type of rally . Can it just be concentrated in the big tech names with the idea that they will stay solvent through this, even if you have those bankruptcies increase . Or do you expect there to be some sort of rotation to sustain that Going Forward . James what i have found very interesting is how we people, when challenged where equity values are Going Forward, is that the price earnings multiple for the s p 500 as an index is currently over 22 times. The average since 1960, 15 times. Therefore, on that simple basis, equity markets do a substantial markdown. Forgets that argument what has happened to bond yields. Bond yields have been cratered in the way we have described. Therefore, we can justify a much higher valuation for the equity market. If one is going to think about the fair valuation of equities based on a companys return on equity, cost of equity, and growth, then the tech stocks still look reasonably good value. I dont think this is the right moment to give up on quality growth. I worry that there are plenty of people talking about companies with high operational and financial hearing benefit financial gearing benefiting from an upset. Jonathan youve raised a really important point. Lets get to the first one on benchmark valuations through history. What is the effective way of doing that . James if you are going to look at history, youve got to be very clear about which portion of history you want to look at. I would say that the really important issue is to look at the connection between bond yields and valuations, and by extension, the equity risk premium. The Forward Return to taking equity risk relative to the current bond yield. I would say there, we are still looking at equities being cheap, hence my expectation that we can get to 3500 for the end of the year. Wrong if goes horribly bond yields rise very dramatically, and there is a selloff in global treasuries. But i dont see Central Banks and governments permitting that to happen because to get rid of the real cost of the debt overhang that is now around the next of the global around the necks of the Global Economic participant, the real value of that debt is run down. For me, the longterm losers are the bondholders. The obvious longterm winners are investors in good, quality companies, so long as they buy a decent Free Cash Flow that is sustained. Jonathan lets assume they can, particularly here in the united states. Havent they just fixed to the equity gain . Doesnt that mean financials cannot work in this regime . James when i think about financials, i would say two things. One is that we should not anticipate that the treasury yield curve in the pricing of debt in the marketplace are one and the same. I am absolutely aware that there are Companies Issued debt in the marketplace, yields that look way too low for the riskiness that they represent to investors. But nevertheless, there are record deals going through in the bond markets at sensible prices, whereby banks, if they replicate those yields in loans to customers, will be able to make returns. Is that i think there will be some real winners, and yet some real losers, within the banking sector. I think the muscularity of j. P. Morgan means that they will Grow Market Share with more pricing power. They have made some very significant acquisitions in recent years, and i think they have driven the efficiency gains of those acquisitions through, of jpm. A bull james i want to move forward to talk about lisa i want to move forward to talk about the election. I remember when we were talking about trade tensions. This saturday, the u. S. And china are going to talk about the phase one trade deal. They are going to assess the progress. China is still very much behind. How much does this factor into your trading at all . Does this factor into your investment theses, or is this more smoke on both sides leading to some protracted cold war that is already in existence . James i think it is a really important point. I would say one of the reasons a globalweakness is , i would observe that people are of the view that trade tariffs simply hurt consumers because if you are a Chinese Company exporting to the states, you get your money for the product. We all know that the china government has been subsidizing exports. The loser is the consumer, who has to pay more when the tariff is applied. On the capital account front, i think that team trump recognized that china has a huge demand for global capital, huge chunks of the cash generated by u. S. Quantitative easing ended up in china. That is the reality of the credit flows to china. The u. S. Is clearly going to look at this, and i think one of the things we can observe is there has been very considerable borrowing of dollars outside of u. S. , which has depressed the value of u. S. Dollar. End to to see either an the aggravation that has been escalating between china and the decision soutright the uncertainty is removed, the dollar has room to rally. I am not in the school of thought that the dollar is one way and one way only, being down. Nor am i of the view that the renminbi has any chance of becoming the global reserve currency. Jonathan james, great to catch up. Wonderful to speak with you. Good to hear with you, sir. Coming up on this program, jeffrey wright, Eurasia Group analyst. From new york city, futures up 24 on the s p. This is bloomberg. Ritika with the first word news, im ritika gupta. Joe biden is captain khan Kamala Harris is counting on, tariffs is counting on, harris counting on Kamala Harris ties to the Africanamerican Community and progressive record. Before being elected to the senate, she was californias attorney general. China wants to discuss tiktok and we chat at upcoming trade talks with the u. S. Bloomberg has learned the chinese will bring up president on the perspective bans products. A Virtual Meeting may take place this week. Billionaire media mogul Sumner Redstone has died. He turned his fathers drivein media chain drivein theater chain into a media empire. He had been in Failing Health for some time. It is a move that will make tesla shares less expensive, splitting shares in a five for one exchange. That has a stock rising today. Tesla is up 228 this year. Global news 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. Im rick kuchta. This is im ritika gupta. This is bloomberg. Theres no disputing that some of the actions taken by the trumpet ministration on china were long overdue. It is just back to how they are doing this. Jonathan that tension will bleed into the weakened does both sides sit down for virtual talks on the progress of a phase one trade deal. We are hearing that china wants to bring in wechat and tiktok into those conversations. For the price action this morning, positive Risk Appetite improves. Positive on the s p 500 by about 23 points, up 0. 7 . Rotation on, rotation off has been the story over the last couple of months. In the u. S. Tenyear, yields higher by three basis points. Jp morgan bid for five straight sessions coming into wednesday. This morning, up another 1. 7 . We are still down on the year by more than 25 , but certainly treasuries and the move we are seeing in the last few days giving these bank stocks a bit of a lift. Lisa jp morgan shares, without even todays rally, up about 9 in the past week. Youre seeing something similar for citigroup. The banks are ranked in order of size, and that is how big the returns are. The biggest are getting the biggest boon from the higher yield. Interesting to see how long this can last. Jonathan i imagine the last one he for hours the last 24 hours werent fair for senator warren, not the vp pick, and these bank stocks rising. Lisa i think thats fair. Jonathan lets get to jeffrey wright, Eurasia Group analyst. Kamala harris, vp pick. Does this do anything to make inroads . Think it probably helps somewhat with africanamerican democrats, who are a very important constituency for the party, but in general, President Trump is going to do all the enthusiasm for democrats. I thing as the campaign really kicks into gear, as you saw in the 2018 midterms, the negative partisanship, the feelings that trump inspires in the democratic base, i think is going to be enough motivation. So harris is really a tick to do no harm. Shes a pretty safe pick. You start with somebody who is not going to hurt you, and she certainly does that. Lisa given that she is in line with where joe biden was going, or that seems to be the party line, what does that mean in terms of the u. S. International policy . I say this ahead of trade discussions between the u. S. And china, and increasingly hardlines from President Trump that he will probably be campaigning on. Harrissi dont think selection changes much. Trump has tried to attack biden over china. For them so far because the own thing voters really care about right now is the coronavirus in the economy. With somehink comes political help for the ticket. I dont think she brings a whole lot of policy heft or changes to the place that biden was already in on policy. Biden has a very welldeveloped operation from his years in the senate and his time as Vice President , so i think her influence on Foreign Policy is probably going to be pretty small. Maybe on some domestic policy areas you see her impact. Lisa we really dont have any kind of agreement, stalemate in washington when it comes to the second round of fiscal support, even as we have an Unemployment Rate that seems to be stabilizing about that 10 rate. Do voters in general, from what you can tell come of you President Trump is doing what you can tell, view president doing what is right . Jeffrey i dont think that voters in general are paying close enough attention to understand the machinations going on in congress. I think basically, the longer they go without a deal, the more it hurts trump. It is generally a very simple equation. The incumbent is on the hook for the economy, whether that is fair or not. You can say that democrats are holding out, but ultimately, trump owns the economy, and the longer it goes without additional fiscal support, the more severe this downturn is going to be. I think regardless of who blames who for what, trump is on the hook here because hes the president. He owns the economy, for better or worse. Jonathan jonathan do you still assume we get a deal done in washington before the end of the month . Jeffrey maybe not before the end of this month. Theres a good chance now that it stretches into september, but i think theres a good chance before the government funding deadline, which provides another mechanism for congress. Jonathan what are the signposts that might change your calculation and say theres a chance we wont get a deal . Everyone we are speaking to around 1. 5s a deal trillion. What would change that for you . Trumpy i think if decides he doesnt want a deal iymore, which is possible, think that move would be against his own political interests because he really needs fiscal support for the economy right now. But we have seen him make moves in the past that were not in his own interest, and it is possible that he gets so frustrated with pelosi and schumer in the way they have tried to handle this negotiation that he walks away from it. I think that is the most plausible way that you dont get a deal. Jonathan jeffrey, great to catch up. Jeffrey wright there of Eurasia Group. Special coverage of the Democratic Convention starting monday night on Bloomberg Radio and tv, and then the Republican Convention kicking off. Full coverage of that as well. We just cant get round the table and have a conversation, never mind striking a deal down on capitol hill. Lisa wall street expect a deal. I am trying to understand. People are saying there is going to be a deal. A deal in september is not the same thing as a deal in two weeks. Ainre is a material p the longer this goes on. Markets will start pricing and even a late deal, which will have economic consequences. This is a new wants, but it is an important one. Jonathan maybe it needs to show up in the Economic Data, but i dont see any sign of this and the equity market at the moment whatsoever. The president made his announcement over the weekend. You might have expected a little bit of chaos on capitol hill. Didnt really happen. The issue is, how do you even quantify how much more economic damages done each week that goes by . Jonathan i think kathy jones of Charles Schwab put it nicely. The policy mistake is being made. The deadline was effectively the end of july, and here we are in august. Lisa people are saying the Federal Reserve is going to come in and just do more if the federal policymakers do less, fiscal policy doesnt come in. That seems to be the best we are seeing, with some of the higherquality names continuing to rally. Jonathan coming up on this program, anna han, wells fargo equity strategist, and Michael Mckee on the Economic Data. U. S. Cpi and around 40 minutes. We will bring you the data live. Equity futures up on the s p 500 0. 7 . This is bloomberg surveillance. ,onathan from new york city this is bloomberg surveillance. We are live on bloomberg tv and radio. Tom keene is away. He will be back on monday. Alongside lisa abramowicz, im jonathan ferro. With your Economic Data in united states, here is Michael Mckee. Michael we are looking at Consumer Price index. It comes in double what had been anticipated. Up. 6 . That is performance similar to the ppi yesterday. Excluding food and energy, also a. 6 rise. We were only expecting a. 2 rise. Pushes the yearoveryear number to 1 . That is up from. 6. A significant jump in the last month. The rate goes up to 1. 6 . A significant increase over the past month. Taking a look at the breakdown of some of the numbers, the gasoline index accounted for a quarter of the monthly increase 2. 5 e headline number, up for energy itself. Gasoline up 5. 6 . Food decreased. 4 . Food at home down 1. 1 . Reflecting the fact more peopl