100. Yields lower. We will talk to anne walsh about the biggest missed price in the market right now. Can it compete with the european heavyweights . From new york, im alix steel with my cohost johnson. The Market Reaction and of itself is not a reaction, cpi data. The question is how that disinflation trajectory moves from here . Alix that is the key question guy that is the key question. Some believe it could stabilize from here. The market still has cuts priced in early on the exterior. May, the first price cut. Is that the reality of the situation or will the fed look at the risk of inflation reaccelerating and say we want to keep the policy of higher rates for longer . That is the question the market has to grapple with. The claims number is interesting as well. What is happening in the labor market is critical for all of this, but how much more news will begin on inflation, the core question that the market still doesnt have an answer to. Alix equities were telling the right story versus the bond market over the last six months. I wonder if that changes over the next six months . Guy equities cut during doug yesterday, you have to take that into account. Im a bit of relief here. Maybe a little bit of position unwinding. I dont think there is a clear narrative that comes out of this. Mike mckee will probably tell us this is a consequential but also completely inconsequential set of numbers. Alix thursday in august. Volume is up, but you can make the argument that you are putting on positions, going to the beach, check on it on monday. Guy it doesnt bode well for volumes tomorrow. The weather is nice tomorrow. We have seen the data. Is the summer of disinflation now over . Lets bring in birthday boy mike mckee and strategist simon white. You are the birthday boy, so you get the first question. Mike, lets talk about inflation , a different kind of inflation. The Inflation Numbers we see today, what does it tell us about the longerterm trend . We have seen disinflationary tendencies in the recent data. Is the delta changing, components changing . Many in the markets to believe there is a significant danger inflation reaccelerating from here. Mike i think you put your finger on it when you say is the delta changing . There were a lot of categories that showed inflation but the month over month change, percentage gains have gotten much smaller. It is not so much a question of things that went down, although a number of things like used cars and airfares did fall. But the inflation rates for most of these categories are falling back to where they should be or should have been in a 2 inflation environment, granting that before the pandemic we had less than 2 . This is about what the fed wants to see. Does it continue . Probably a month or two because there are still downward pressures on used cars, airfares. One interesting thing, and this would fit into your interest group, guy. Natural gas prices went up a lot here in the u. S. Because everyone turned on their air conditioners. They will start turning those off again and then maybe we will see other fuels rise. That will take pressure off once we get into september, october. You will see this for a little while. The question is what happens after that . Alix if the summer of disinflation is over, do we see more volatility in the narrative . Simon . Simon i am trying to think of something negative to say here. Alix you can do it. Guy it goes with the accent. Simon two things, the Inflation Numbers which i think you will see more disinflation over the next few months. Inflation is a very lagging variable, so its telling you about inflation you have already experienced. In that case, the market will be much more alert to signs of inflation reaccelerating, not waiting for the numbers. By that point it will be too late. That is why the commodity rally is interesting. Two thirds of Exchange Traded commodities have rallied in the last month. Oil has rallied. NonExchange Traded commodities rallying as well. If you look at the global food index, that has also begun to rise. The market is much more alert. When inflation was rising, it was dependent on what the fed would do. Now toward the end of the cycle, the fed is not quite as important as it was, so the market will need to look at other inflationary signs, not wait for the cpi data. Guy the conundrum that i face right now, when is the bigger threat for the market . That we get a recession or reacceleration of inflation . Are those two things distinct risks or is there a risk that the venn diagram overlaps . Simon i think the inflation one because that is not priced. If you want to get an idea of what markets are pricing, look at cpi fixing swaps, your best near guess of what the market thinks what cpi will be in the next few months. There is a clear disinflationary trend. Over the next year, inflation back to 2. 25, 2. 5. Study disinflationary trend. The market is not ready for a reacceleration in inflation. What happened last week was interesting in the u. S. , where you had supply concerns, basically inflationary concerns. The market trying to sniff that out head of any inflationary numbers. Alix only two things that can move the needle from here, material shift, a real acceleration in inflation or crash of the economy. We have priced in the hard landing, soft, you need something along those lines to have a dramatic shock. Guy at the moment the market is in the middle, it is comfortable, nice drink, watching the world go by. Life is good. But those two risks are kind of their. To simons point, there is an awareness that things could go sideways and we see a recession emerging. That is still being talked about. But the dragon that is inflation feels like it has been beaten right now. If you are looking for a gap in the market, that is where it is. It is so hard to judge because you are trying to piece together a lot of anecdotal evidence to form a single picture. I think it is really unclear, and it is the summer, and everyone is chilled out. September, october, it gets much more interesting. Alix the fed gets a skip for september but clearly the reacceleration of inflation is the bigger risk they see versus a growth crash, yes . I wonder how they view those two. Mike there are two more Inflation Report before their september meeting. This is probably the least consequential most important data release of the month. Things could easily turn around. But if we see the same kind of numbers before the next meeting, they can skip. But they will have to emphasize that they are not cutting rates soon. Guy how do they do that, mike . How do they get the market to believe them on that . Mike they will have to repeat it over and over again. I dont know if jay powell wants to bring it up in jackson hole, probably could. It is not until the fed starts cutting and the yield curve starts uninverting that we start to get recessions. The fed doesnt want everyone to think that they are cutting soon and the markets are beginning to price that in. The fed may cut next year if inflation continues to fall because real rates will rise but they would just cut in proportion to that, not because of a problem with the economy. They have to walk that fine line. You are seeing already that financial conditions have eased. That has started that un inversion of the yield curve. The question is how they keep that from going farther. We see the possibility of inflation rising again, particularly in commodities, particularly in energy. The fed cannot do anything about those. Alix expectations and sentiment. They do look at that in terms of inflation expectations. Mike fiveyear forward is already pressing an uptick in inflation. Alix thanks a lot, appreciate you both joining us. More insight into the question of the day, is the summer of disinflation over . A Market Strategist joins us next. This is bloomberg. Good night hey corporate types. Would you stop calling each other rock stars . Youre a rock star. You are a rock star. No more calling coworkers rock stars. Look, its great that you use workday to transform your business. But it still doesnt make you a rock star. So unless you work with an actual rock star. Hi, im ozwald. Hello ozwald. Pam, you are a rock i wasnt going to say it. It is going to be a roller coaster. I think we are seeing the downside now of that roller coaster. We will see a way up as well, so maybe the roller coaster is a story that comes out of this for the next few months. It is unambiguously great progress over the last month. Alix reacting to this mornings cpi data which brings us to the question of the day, is the summer of disinflation over . Joining us now is Kathryn Rooney vera. In some ways it feels verily really binary. It keeps on going down or up. What do you think, is the summer of disinflation over . Kathryn i think disinflation is continuing through yearend. I forecast for core pce are 3 by the end of 2023. My concern is that inflation becomes, takes a smile visual, and that is that we get a reacceleration in 2024. The atlanta fed put out an estimate for 3q of 4. 1 . I have 1. 8. 4. 1 is potential double growth in the u. S. If we get numbers even close to 4 for 3q after two and change, real wages positive and higher, plus Consumer Confidence robust, 3. 5 percent unemployment, redhot labor market, that is still strong. I think it is very unlikely that we get Service Sector inflation in a servicebased economy sufficiently contracting to get to the 2 core pce part of it. Next year, 2024 is going to be, the fed has to choose. Do they have a strict interpretation of their dual mandate or do they change it . Guy i hear what you are saying, and they have to figure out how to deal with these cuts currently priced in. To what extent is the market broadly priced for that . How big of a shock would that be for assets . Which assets would react the most in that kind of environment . Say the fed sticks with the idea that inflation is not going in that direction. How big of a market adjustment do we need to see, and where . Kathryn the best trade right now is countercyclical portfolio policy, preparing for the worst. Right now the markets are pricing in the best possible scenario. Generally that does not play out. There will be kinks in the road. 100 basis points around their of cuts next year is unlikely to happen. Inflation could be sticky around 4 , could we accelerate, or just not come down to 2 . The heavy lift will be core pce going from four to two. Last week on bloomberg, i recommended naked puts on qqqs. It has worked out well. Cash is doing good. Gold. Even short duration tips make sense to me. Real yields, 3 , nominal, 5 . If inflation remains sticky around 4 or is not 2, you get a nice return from tips. About 7 . That is another way to protect portfolios right now. Alix this also brings into question the long end of the bond market for example. Hedge funds are volume. It sets up a premium increase that we have not really seen. I wonder in terms of the long and if we are in a dicier spot when it comes to potentially the disinflation ending . Guy in some ways longterm Asset Managers have to hold that stuff so they are buying that for a reason. Elevated term premium story is an interesting one. I was listening to ira talk about this earlier. You get these phenomenons early on, driven by supply, but normally you would expect the market to steepen in a completely different way. You expect short rates to come down. We are not seeing that. It is just confusing as to what is happening here. Kathryn, what is the long and telling us end telling us . Kathryn if you look at the pushpull on the 10year, you have a big supply going out of treasuries, the japanese yield curve control going away, expanding the ability for yields to rise. That incorporates repatriation of capital. That is negative for the 10year yield. On the flipside, the fed coming to the end of its target, peeking inflation. There is a push pull of their. The recommendation we had was on steepeners, worked out well. However, if you have the perspective that i have, which is that there is a real chance of inflation reacceleration, you will want to be careful and play the opposite, flattener. You can pay fixed, receive floating. The markets are discounting a continuation of disinflation. Ive never been a believer in immaculate disinflation. It doesnt make sense in a consumptionbased economy with strong employment, real wages finally turning positive. Alix you mentioned called earlier. Is that a strong buy commodity call if we are going to prep for that acceleration . Kathryn i wouldnt go through the whole commodity complex. I dont think china will come with this massive stimulus that we have seen in the past, so it is more on a play of inflation potentially surprising to the upside. I like having that safety net, cash, gold. Guy, the previous guest mentioned how certain sectors i think it was mike mckee. The economy starts to contract after the yield curve has bottomed out. Thats correct. If the yield curve has bottomed in terms of inversion, you want to be long defensive, staples, health care, energy. Guy all of this is happening at the same time as the government continues to support this economy, continues to pump money into the system, continues to provide an economy backstop that is totally different to when we have seen for a while. The goal is to keep the economy going, looks like it wants to do that for a while. How does that change the narrative . Kathryn a lot of people compare the ratings downgrade to 2007, and there are similarities, but what is not similar is the trajectory and debt juncture. Ratios are more comparable to emergingmarket names but still enjoy massive Investment Grade ratings. Why is that sustainable . Because we have the u. S. Dollar, the sovereign reserve currency of the world. There is no substitute. Until there is, we can keep the party going. China will continue to support treasuries. I do think there will be a hard look. The fiscal situation merited the downgrade. It makes no sense in my perspective for the u. S. To be running in your neck percent fiscal deficit when we have this full employment. We need to be engaging in countercyclical fiscal policy, not procyclical. Guy great to see you as ever, kathryn. Kathryn rooney vera, stonex financial. It is not all magic in disneys kingdom. Announcing doubledigit price hikes for disney plus streaming. Shares have been pretty volatile over the past 24 hours. We will find out next. This is bloomberg. 76 of 23andme Health Customers surveyed reported taking healthier actions. Because they know health isnt just a future state. Health happens now. Start your dnapowered Health Journey today with personalized insights from 23andme. The biggest ideas inspire new ones. 30 years ago, state street created an etf that inspired the world to invest differently. It still does. What can you do with spy . Alix it is 23 minutes past 7 00 on the west coast. Covering the top tech stories from Silicon Valley and beyond. Joining us now is ed ludlow. Almost 12 hours since disney reported. What is Silicon Valley talking about in terms of the release at this point . Ed profitability in the streaming unit actually being real. Everyone is comparing disney to netflix on a subscriber basis. Warner bros. Discovery is coming in, too. What they all have in common is they disclose such scribe or base. In the quarter gone, disney Subscriber Base fell 7 . They missed estimates, a surprise, but the core of that story was a content story which guy will love. Almost all of the subscriber ms. Is attributable to disney plus hot star, the brand in india and the middle east that fell in the quarter. They didnt renew the India Premier League cricket rights. That is the story, content is king. Guy it is a massive story in india. Cricket going into the states. English cricket watching that carefully. Is this company, doesnt want to be in the tv business . Defining tv is difficult but doesnt want to be in linear tv the way its been previously . Ed its a great question because profit from live tv dropped 11 year on year. We are talking about things like abc, espn, even as far back as sun valley, bob iger said that they are not necessarily core to the strategy. One analyst asked if we fully depreciated the value of those units. A lot of the focus was about subscriber growth, getting profitability on the streaming business, online video business. But the cost cuts also address tv which is suffering from falling ad revenues. Its incredibly expensive to make live television. A lot of people have told me we love that iger is staying on because he is so committed to live sports. But if you listen to what he said on the call, they are looking for partners to do that outside of their core when youre offering. Alix 10 seconds. If we think live tv went away, do we get a boost in the stock . Ed no. The boost was just the boring grey stuff about capex, content spending will be 27 billion dollars instead of 30 billion. That is what the street wanted to hear and that is what they got. Guy thank you very much. Bloomberg technology coming up in 90 minutes time. Coming up, more on the question of the day, is the summer of disinflation over . 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 every business thats why comcast business de is launching theal. Mobile made free event. With our business internet, new and existing customers can get one year of unlimited mobile for free. Its our best internet. Powered by the next generation 10g network and with 99. 9 reliability. Plus one line of free mobile for an entire year. Its the mobile made free eventhappening now. Get started for just 39 a month. Plus, ask how to get one free line of unlimited mobile. Comcast business, powering possibilities. Alix about one hour into the trading session. Tech outperforming and volume isnt terrible either. Abigail we have a rally on our hands, a risk on mood after a couple of down days for the s p 500. Investors liking the cpi report that is in line with what was expected. Yields down a little bit. The dollar down, easing the way for stocks, risk assets to go higher. S p 500 having its best day in two months. One stock that is really rallying, Capri Holdings up to 4 . Massive spike higher as we have tapestry by the company, planning to buy the company for 8. 5 billion, 57 a share. Some investors think there could be some regulatory issues between these two luxury brands, but some real strength. Yesterday, we were talking abou