Bloomberg Surveillance 10/9/2026

>> THE BACKUP IN YIELDS HAS BEEN PRETTY EXTRAORDINARY. >> THE BELLY OF THE CURVE IS STILL THE PLACE TO HANG OUT IN GOVERNMENT >> THE BOND VIGILANTES CONCEPT WOULD BE A CONCERN IF HE GOT THE BOND YIELD TO 6% AND HIGHER. >> I DON'T THINK MOVING THE FRONT END OF THE YIELD CURVE UP LOOK AT THE BACK END DOWN. >> WILL START TO IMPACT THE ECONOMY. ANNOUNCER: THIS IS BLOOMBERG SURVEILLANCE WITH JONATHAN FERRO, LISA ABRAMOWICZ, AND ANNMARIE HORDERN. LISA: THE AI TRADE FACING VOLATILITY IN THE FACE OF PROFITABILITY CONCERNS TAKING THE PRESSURE OFF BONDS FOR ONE DAY COMING OFF OF MULTI-DECADE HIGHS. PRESIDENT TRUMP SAYS HE WILL WAIT FOR STRIKES ON IRAN AFTER THE MIDTERMS, MAY BE HAVING A MOMENT OF CALM AFTER A TUMULTUOUS WEEK. ANNMARIE: LESS THAN FOUR WEEKS AWAY. THIS COMES AFTER THE ATLANTIC HEADSET THAT THEY ARE WEIGHING UP PLANS TO DO IT BEFORE THE MIDTERM ELECTIONS AND THAT GAVE A LITTLE BIT OF BREATHING ROOM, BUT I THINK IT'S IMPORTANT TO SIT ON THE FACT OF WHAT DID WE TALK ABOUT YESTERDAY WHILE WE WERE ON TV? WE SAW WHAT WAS HAPPENING IN SAUDI ARABIA AND THE SAUDI'S CAME OUT AND CONFIRMED THAT THREE SAUDI ARABIAN CITIZENS WERE KILLED AND OTHERS WERE INJURED IN TWO ATTACKS IN THE MAIN AIRPORT. WE ARE NOT OUT OF THE WOODS WITH THIS CONFLICT. LISA: YOU CAN SEE THAT IN FORWARD PRICES OF OIL. HITTING NEW ALL-TIME HIGHS. A LOT OF PEOPLE HAVE TRIED TO PUT THAT TO THE SIDE AND SAID AI WILL SAVE US ALL. THE AI FREIGHT TRAIN KEEPS ON ROLLING. YESTERDAY SOME REPORTS THAT WERE THEN POTENTIALLY QUESTION THAT LATER CAUSED HUNDREDS OF BILLIONS OF DOLLARS OF SWINGS IN MARKET VALUATIONS HIGHLIGHTING HOW HEDGE TO THE ENTIRE MARKET IS TO OPENAI AND ANTHROPIC VALUATIONS. ANNMARIE: I'M CONFUSED EVEN THOUGH WE HAVE BLOOMBERG REPORTING OPENAI IS EXPECTING 170 BILLION DOLLARS IN ANNUALIZED REVENUE, BUT THE $20 BILLION GAP, TO HAVE THAT KIND OF IMPACT ON THE MARKET, I THINK MAKES A LOT OF PEOPLE STEP BACK AND QUESTION WHERE WE ARE WITH THIS TRADE. LISA: IN THE MEANTIME HE SOUGHT BID TO SAFETY AND THAT SEEM TO BE FOR THE MOMENT BONDS WITH ONE OF THE BIGGEST ONE-DAY DROPS IN 10 AND 30-YEAR TREASURY YIELDS GOING BACK TO SEPTEMBER 17. HE CAME AFTER A COUPLE OF SUCCESSFUL OPTIONS, QUESTION ABOUT HOW PERSISTENT THIS IS GOING TO BE. OUR NEXT GUEST CAME INTO THE OFFICE AND SAID, ANOTHER WEEKEND THE BOND MARKET HASN'T COLLAPSED YET. IT'S A FEELING OF, WHAT HAPPENS IF YOU DON'T GET SOME REPRIEVE? AND IF THIS IS SOMETHING THAT CAN STICK? ANNMARIE: IS THE 30 YEAR BOND ALMOST WRITING AS A MEME STOCK? I THINK THAT IS WHAT GEORGE WAS GETTING TOO WHEN HE WALKED INTO THE STUDIO THIS MORNING. LISA: A LITTLE BIT OF CALM AT LEAST 20 SEE THE REBOUND AND EQUITIES TAKING UP AFTER THE ONE ONE-DAY DROP GOING BACK TO JULY. THE NEST EGG STILL IN THE LEAD, FUTURES ARE .8%. THE RUSSELL 2000 ALSO A .4 PERCENT, THE SAME AS THE S&P. A LOT OF IT DRIVEN BY YESTERDAY'S MOVE IN THE BOND MARKET. THIS MORNING TAKING SOME OF THAT BACK WITH YIELDS UP AFTER YESTERDAY SEEING THE ONE-DAY BIGGEST DROP GOING BACK TO SEPTEMBER FOR 10 AND 30-YEAR TREASURIES, TODAY UP AGAIN TWO BASIS POINTS PRETTY MUCH ACROSS THE BOARD EVEN AFTER THE SUCCESSFUL 10 AND 30 YEAR AUCTIONS. IN CRUDE, WE WERE TALKING ABOUT THIS REALLY IMPORTANT ISSUE OF, WILL THEY OR WON'T THEY CONTINUE THIS PROTRACTED FIGHT? TODAY A LITTLE CALM AROUND THE EDGES. ANY SENSE WHY WE ARE SEEING OIL PRICES DOWN THIS MORNING, BRENT DOWN TO 102 .95? ANNMARIE: IT HAS TO BE THE GEOPOLITICAL RISK PREMIUM TAKING OFF A LITTLE ON THE TOP AND THE PRESIDENT CLARIFIED HE WON'T BE RESUMING STRIKES BEFORE THE MIDTERM ELECTIONS. I THINK CONVENTIONAL WISDOM IN WASHINGTON IN THE MARKETS, WHY WOULD YOU DO THAT BEFORE THE MIDTERM ELECTION AND SO MUCH IS FOCUSED ON AFFORDABILITY? AT THE SAME TIME WE ARE NOT OUT OF THE WOODS. THE U.S. EMBASSY IN JORDAN IS SAYING AMERICANS IN THE MIDDLE EAST SHOULD PREPARE TO RELOCATE DUE TO COMPLEX SECURITY CONDITIONS. IT'S VERY TENSE, IT'S A VERY FRAGILE ENVIRONMENT WHEN YOU HAVE THE HOUTHIS VERY MUCH INVOLVED AND THE IRANIANS GOING AFTER VESSELS, JUST A LOT OF IT HAS BEEN UNDERREPORTED. LISA: THEY HAVE GEORGE GONCALVES, MARC SHORT AND TERRY WISEMAN. FRESH DETAILS EMERGED ABOUT OPEN AS REVENUE ESTIMATES. GEORGE, WHAT DID YOU MAKE YESTERDAY OF THE INCREDIBLE SWINGS THAT WE SAW IN THE TECH SECTOR? GEORGE: YOUR POINTS ARE WELL TAKEN THAT WE ARE SO LEVER TO THE CONCEPT, THE IDEA THAT THE PROFITABILITY SWINGS CAN DRIVE OTHER MARKETS IS IMPRESSIVE. IT REMINDS YOU OF AN UPSIDE DOWN PYRAMID WHERE WE ARE BALANCING ON THE PIN OF THE EYE LISA: HOW MUCH THIS UNDERMINES THE FAITH THAT THAT AI CAN KEEP TRUCKING AND SUPPORTING THE OVERALL MARKET. THAT HAS BEEN A BALLAST FOR SO MUCH OF THE STRENGTH WE'VE SEEN SO FAR THIS YEAR. YOU THINK THAT HAS CALLED INTO QUESTION GIVEN PRIVATE COMPANIES HAVE SUCH A HUGE INFLUENCE OVER THE SECTOR? GEORGE: THE BOTTOM LINE IS IT IS CLEARLY A GROWTH DRIVER. WE SEE IT IN THE GDP DATA, LEADING TO FIXED INVESTMENT, THAT IS CLEARLY HAPPENING SO THERE IS A MACRO FACTOR THAT WILL BE WITH US FOR A LONG TIME. THE QUESTION IS THE ASSUMPTIONS AND VALUE AND THAT WILL GO UNRESOLVED UNTIL WE SEE THEIR ABILITY TO MAKE MONEY. LISA: DO YOU THINK THERE IS A TALE THAT THE BOND MARKET RALLIED IN TANDEM WITH TECH STOCKS? A SILENT U.S. GOVERNMENT BONDS ARE ONCE AGAIN A HAVEN IF THERE'S A SCARE TO THE NARRATIVE OF GROWTH WE'VE SEEN? GEORGE: THAT IS THE ONE THING THAT HAS BEEN MISSING, THE IDEA THAT TECH AND BONDS ARE LONG DURATION, BONDS TRADING AS MEME STOCKS, I'M NOT SURE YET, BUT GIVE HER THE EUROPEAN BOND MARKETS UNDER PRESSURE, THE BIRDS OF A FEATHER FLOCK TOGETHER. THE U.S. TREASURY MARKET HAS BEEN TRADING POORLY WITH ALL THESE OTHER SOVEREIGNS. WE GET THIS MOMENT WHEN WE GET THE FLIGHT TO QUALITY STATUS BACK IN? WINDOWS THE TREASURY BECOME A SAFE HAVEN? , NOT SURE IF YESTERDAY WAS THE START. IT WAS A TUMULTUOUS LAST SIX WEEKS. GOOD TO SEE STABILITY IN THE BOND MARKET BUT I DON'T KNOW IF WE ARE THERE TO SAY THE FLIGHT TO QUALITY TRADE IS BACK ON. ANNMARIE: HOW MUCH OF THAT WAS WHAT HAPPENED ON OIL PRICES? GEORGE: WE HAVE BEEN WAITING WITH BATED BREATH TO THE WHOLE WEEK BECAUSE OF THE 10 YEAR AND THE 30 YEAR AUCTION -- WHICH, BY THE WAY, WE DO EVERY MONTH. IT WAS SUCH A BIG FOCUS FOR BROADER MARKETS, NOT JUST BONDS. THEY WERE ONE OF THE STRONGEST AUCTIONS ON RECORD, RIGHT? YOU SEE IF THERE IS VALUE OF THESE HIGHER RATES, AND, YES, OIL. TREASURIES HAVE BEEN TRADING LIKE A PROXY TO OIL AND VICE VERSA. AS LONG AS OIL AT LEAST STABILIZES RATES SHOULD STABILIZE TOO. ANNMARIE: YOU SAID THIS IS GLOBAL IN NATURE BUT ISN'T IT DIFFERENT WHY EUROPE IS UNDER PRESSURE VERSUS WHY THE UNITED STATES IS? GEORGE: THE THREAT COMES BACK TO THE IDEA OF FISCAL SUSTAINABILITY. WHEN YOU DIG INTO IT THE U.S. HAS MORE CAPACITY THAN EUROPE GIVEN HOW EUROPE IS STRUCTURED IN THAT THESE COUNTRIES DON'T HAVE THEIR OWN ABILITY TO PRINT THEIR OWN CURRENCY. THEY HAVE THE ECB THAT CAN BACKSTOP AT THE FED AND TREASURY IS MUCH DIFFERENT. THEY HAVE BEEN TRADING FOR THE SAME REASONS, LARGELY BECAUSE OF CORRELATION RISK. THE SAME INVESTORS BUY THE SAME BONDS, EUROPEAN BONDS AND TREASURY BONDS. IF WE START TO DIFFERENTIATE THAT, THAT IS GOING TO BE THE MOST INTERESTING IN Q4. LISA: HOW DOES THE CENTRAL BANK PLAYING INTO THIS AND QUESTIONS WITH THE NUMBER OF FED SPEAKERS COMING OUT? WE ARE TALKING ABOUT ADDITIONAL RATE HIKES COMING DOWN THE PIKE, CHRIS MOELLER PUSHING BACK THAT THE TIMING NEEDS TO BE FRONTLOADED, WHICH IS A SPECULATION OF A NUMBER OF PEOPLE. HOW DOES THAT FACTOR INTO YOUR CALCULUS? HOW MUCH DOES THE FED NEED TO FRONTLOAD SOME OF THE TIGHTENING? GEORGE: THE BOND MARKET HAS TIGHTENED FOR THE FED, LET'S GET THAT STRAIGHT. THE QUESTION IS, DO THEY WANT TO MODULATE THAT, DELIVER ON WHAT IS PRICED IN AND ALSO THE LONG-TERM RATES ARE WELL BEYOND FED EXPECTATIONS, RIGHT. THE FACT THAT WE HAVE THE LONGER THAT RATES STAY HIGHER IT IS DOING THE JOB FOR THE FED. I THINK THE FED PROBABLY WON'T BE ABLE TO DELIVER MUCH OF WHAT'S PRICED INTO THE MARKET BUT WE WILL SEE HOW THAT PANS OUT. SOMETIMES IT IS EASY TO CONFLATE THE FED DRIVING THE BOND MARKET. THE BOND MARKET HAS BEEN DRIVEN MORE BY TECHNICAL REASONS RATHER THAN FUNDAMENTALS LIKE THE FED COME IN MY OPINION. LISA: EXPAND ON THAT. A LOT WILL SAY THE FUNDAMENTALS DON'T SUPPORT THIS IN ANY WAY IF YOU LOOK AT WHAT'S GOING ON WITH INFLATION, THE GROWTH IS EXPECTED TO SLOW DOWN, YOU'RE SEEING THAT IN EUROPE AS WELL. POTENTIALLY THERE IS A QUESTION ABOUT HOW MUCH VALUE CAN GET CREATED IN THE AI TRADE. GEORGE: WE ARE IN THE FINAL THROES OF A HIGH RATE ENVIRONMENT, WHICH I THINK WE ARE IN THIS COULD BE THE START OF A TALKING PROCESS, WHEN YOU KIND OF ZOOM OUT AND YOU THINK ABOUT AGAIN THE LACK OF BALANCE SHEET, TIME OF YEAR, IT HAS BEEN A ONE-WEIGHT TRAIN WHEN YOU HAD RATES REALLY, TO BE HONEST -- YOU HAD THE FIRST MOVE OUT OF THE WAR THEN YOU HAD RATES STABILIZE, THEN KEVIN WARSH TAKING OVER, BEING MORE HAWKISH. A RATE SELLOFF IN SEPTEMBER WAS ONE OF THE WORST MONTHS FOR THE BOND MARKET. IT FELT MORE LIKE TECHNICAL POSITIONING MARKET UNWINDS, NOT JUST FUNDAMENTALS. THAT'S WHY I'M MAKING THAT POINT THAT THE FED DOESN'T HAVE TO DELIVER IF IT'S BASED ON, JUST, YOU KNOW, IDIOSYNCRATIC THINGS. ANNMARIE: AT THE FED DOESN'T DELIVER WHAT WILL BE THE MARKET PUSH BACK? NEEL KASHKARI WAS TALKING ABOUT IT WITH US THIS WEEK OR LAST WEEK ABOUT HOW THE MARKET HAS BEEN RIGHT IN TERMS OF WHAT HAS BEEN NEEDED FOR THE ECONOMY? GEORGE: IT IS REFLECTING THE CURRENT EXPECTATIONS OF GROWTH AND IF GROWTH EXPECTATIONS CHANGE THEIR VIEW ON INFLATION. THE BIGGEST ENIGMA HAS BEEN, WHY ARE REAL RATES SO HIGH THE BREAK EVINCE SO LOW WHEN YOU HAVE OIL PRICES DOING WHAT THEY'RE DOING? THAT TELLS ME THAT YOU TRADE WHAT IS THE MOST LIQUID AND YOU SHORTEN THE TREASURY MARKET MUCH EASIER VERSUS TIPS, FOR EXAMPLE. I THINK THAT IS WHAT IS TAKING PLACE AND WHY TECHNICAL THINGS GIVE MIXED SIGNALS. LISA: WHAT IS THE TRAY NEXT WEEK INTO CPI AND BANK EARNINGS? GEORGE: I THINK WE ARE IN A TALKING PROCESS. LET'S SEE WHAT HAPPENS WITH OVERALL RISK MARKETS MORE THAN ANYTHING ELSE. IF RISK MARKETS WOBBLE THAT BENEFITS TREASURIES, SO IT IS THE BELLY OF THE CURVE. LISA: THANK YOU FOR BEING WITH US, HEADING INTO A BIG WEEK WITH THE EARNINGS THAT WILL POTENTIALLY JUSTIFY OR NOT. THANKS HAVE BEEN LAGGING BY 11% SO FAR IN THE PAST MONTH AS PEOPLE REALLY SPECULATE THAT MAY BE THE AI TRADE ISN'T GOING TO CONTINUE OUR CONSUMER ISN'T GOING TO HOLD UP OR MAYBE JUST GENERALLY EXPRESSING THEIR JITTERS THROUGH THIS TRADE. ANNMARIE: THEY HAD AN AMAZING YEAR AND PRIOR QUARTERS SO THE BAR MIGHT BE SO MUCH HIGHER FOR THEM AND NOW YOU HAVE HIGHER YIELDS POTENTIALLY THAT THEY WILL GET MAY BE ON THE MARGINS HIT. LISA: TUESDAY WE GET JP MORGAN KICKING OFF EARNINGS. THAT'S GET AN UPDATE ON STORIES ELSEWHERE. HERE IS YOUR BLOOMBERG BRIEF. VONNIE: THE FRENCH GOVERNMENT PLEDGING THOUSANDS OF ADDITIONAL TEACHERS FOR UNDERSTAFFED SCHOOLS IN A BID TO REIN IN STUDENT PROTESTS THAT HAVE LED TO CLASHES WITH RIOT POLICE. THE EDUCATION MINISTER SAYS HE IS IMPLEMENTING AN EMERGENCY PLAN TO ADDRESS STUDENT GRIEVANCES AS MORE THAN 70,000 PEOPLE RALLIED YESTERDAY. U.S. REGULATORS FINING AMERICAN EXPRESS FOR FAILING TO CATCH AND REPORT MONEY LAUNDERING, FAILING TO REPORT ABOUT 3 BILLION WORTH OF SUSPECTED MONEY LAUNDERING ACTIVITY OVER THE PAST DECADE. GUGGENHEIM INVESTORS PULLED OVER $2 BILLION FROM ITS FOUR LARGEST MUTUAL FUNDS IN SEPTEMBER AFTER REPORTS THAT FEDERAL AUTHORITIES ARE PROBING THE CEO'S BUSINESS DEALINGS. .8 BILLION FROM THE GUGGENHEIM TOTAL RETURN BOND FUND, THE FIRM'S LARGEST PUBLICLY TRADED MUTUAL FUNDS. THAT YOUR BLOOMBERG BRIEF. LISA: THANKS SO MUCH. THE PRESIDENT STRATEGY ON IRAN. PRES. TRUMP: I BELIEVE WE WILL MAKE A DEAL. RIGHT AFTER THE ELECTION. I GAVE ABSOLUTELY NO CREDENCE AND WILL NOT GIVE CREDENCE TO THE ELECTION WHEN IT COMES TO IRAN. LISA: JOINING US NEXT IS THE CHIEF OF STAFF THE FORMER VICE PRESIDENT MIKE PENCE. THIS IS BLOOMBERG SURVEILLANCE, GOOD MORNING. ♪ LISA: GETTING A BIT OF A REBOUND AFTER YESTERDAY'S TEMU JEWELERS SESSION TIED TO AI WITH A BIT OF A REPRIEVE. YOU ARE SEEING AFTER YESTERDAY'S TUMULTUOUS SESSION TIED TO AI WITH A BIT OF A REPRIEVE. YESTERDAY WE SET THE BIGGEST ONE-DAY DECLINE IN 10 YEAR AND 30 YEAR MODEL YIELDS GOING BACK TO SEPTEMBER 17. THERE WAS A RELIEF AFTER A POSITIVE AUCTION OF 10 AND 30 YOUR NOTES IN THE UNITED STATES. TODAY WE ARE TAKING SOME OF THAT BACK UP THREE BASIS POINTS ON THE 10-YEAR TO 5.2 FIVE. NEXT, CPI ON TUESDAY AND OF COURSE THE SLEW OF BANK EARNINGS, AND WHEN YOU TAKE A LOOK OVER IN THE CRUDE SPACE, VERY MUCH FRONT AND CENTER AS PEOPLE LOOK AT WHAT THE PRESIDENT STRATEGY COULD BE TODAY, SAYING THERE WON'T BE STRIKES AHEAD OF THE MIDTERM ELECTIONS AND TAKING SOME HEAT OFF OF THAT, BRENT CRUDE LOWER BY 1.3%. ANNMARIE, YOU HAVE BEEN THROWING COLD WATER ON THIS LOOKING AT FUTURES CONTRACTS AND SHOWING THEY HAVE BEEN RISING PRETTY STEADILY. ANNMARIE: THIS IS THE NEW NORMAL AND IT WILL POTENTIALLY GET HARDER IF THE IRANIANS CONTINUE AT THE PACE THEY ARE NOW, GOING AFTER MORE VESSELS THAN THEY WERE EVEN A FEW WEEKS AGO. AT LEAST THIS IS WHAT THE INDUSTRY HAS BEEN TELLING ME AND REPORTS ARE TALKING ABOUT. AT THE SAME TIME IT'S BECOMING MORE EXPENSIVE FOR THESE COMPANIES TO MOVE PRODUCT. THERE IS STILL KINETIC WARFARE HAPPENING. I GO TO THE STATEMENT SAYING THREE SAUDI ARABIAN CITIZENS WERE KILLED, TWO ENTERED IN TWO ATTACKS ON THE MAIN AIRPORT IN RIYADH. LISA: ONE THING PEOPLE ARE WATCHING. IF YOU LOOK AT THE YEAR OF THE FRENCH AND GERMAN 10 YEAR BOND YIELDS, TODAY YOU ARE SEEING A BIT OF RELIEF, SOMETHING A LOT OF PEOPLE HAVE BEEN TRYING TO SUSS OUT, HOW MUCH CONTAGION RISK. A SIX BASIS POINT DROP IN FRENCH 10 YEAR YIELDS TO FOUR POINT 8% MORE THAN THE TWO BASIS POINT DROP IN GERMAN 10 YEAR YIELDS AFTER REPORTING THAT CHRISTINE LAGARDE YESTERDAY AT A MEETING OF EURO AREA FINANCE MINISTERS AND LUXEMBOURG SAID THE ECB HAS INSTRUMENTS TO COUNTER UNWARRANTED, DISORDERLY MARKET DYNAMICS THAT THREATEN THE SMOOTH FUNCTIONING OF MONETARY POLICY TRANSMISSION. MORE ON THAT LATER. HOW MUCH THIS IS SOFT GUIDANCE GOING FORWARD. I WILL FOCUS VERY MUCH ON THE MIDDLE EAST. WITH THE PATH FORWARD COULD BE FOR IRAN. PRES. TRUMP: I WILL MAKE A DEAL RIGHT AFTER THE ELECTION. I GET NO CREDENCE AND WILL NOT GIVE CREDENCE TO THE ELECTION WHEN IT COMES TO IRAN. IT DOESN'T EVEN ENTER MY MIND. THE ONLY THING THAT DOES IS THAT IRAN WILL NEVER HAVE A NUCLEAR WEAPON. LISA: CRUDE DECLINING OF THE PRESIDENT DONALD TRUMP SAID STRIKING IRAN BEFORE THEM MIDTERMS IS OFF THE TABLE. THE PRESIDENT SAYING THE U.S. IS HAVING PRODUCTIVE TALKS WITH IRAN, CONFLICT IN PREVIOUS REPORTS CLAIMING HE WAS CONSIDERING ATTACKING THE COUNTRY AHEAD OF THE ELECTIONS. TYLER KENDALL JOINS US TO MAKE SENSE OF IT ALL. WHAT IS THE LATEST? TYLER: GOOD MORNING. AT THIS POINT IT IS FOREIGN AND DOMESTIC POLICY DOVETAILING WHICH UNDERSCORES HOW MUCH OF A POLITICAL ISSUE THE CONFLICT IN IRAN HAS BECOME. PRESIDENT TRUMP DIDN'T GIVE ANY FURTHER DETAILS ON EXACTLY WHERE DIPLOMACY STANDS, THOUGH HE DID MAINTAIN THE U.S. WILL MAINTAIN ITS NAVAL BLOCKADE, SOMETHING THAT IRAN IS DEMANDING MUST BE REMOVED IN ORDER FOR A DEAL TO GET DONE, BUT THAT REMAINS A NONSTARTER FOR THE U.S. KEEP IN MIND THAT THE REPORTING AROUND POTENTIAL STRIKES AHEAD OF THEM THE TERMS WAS BOLSTERED BY THIS IDEA THAT PROPONENTS OF THE STRAKES FELT IT COULD GIVE PRESIDENT TRUMP SOME POLITICAL WIN OR REPUBLICANS MOMENTUM HEADING INTO ELECTION DAY CONSIDERING THAT THE TALKS SO FAR HAVE REALLY REMAINED STALLED. I HAVE TO SAY, THE FEELING HERE IN WASHINGTON THIS MORNING IS ONE OF CAUTION. ANNMARIE MENTIONED IT. THE IDEA THAT PRESIDENT TRUMP'S PAST STATEMENTS HAVEN'T ALWAYS ALIGNED WITH THE COURSE OF ACTION THAT WAS TAKEN. THOUGH THERE DOES SEEM TO BE MOUNTING PRESSURE THAT SOME ACTION COULD BE TAKEN AS A NEW POLL FROM THE PEW RESEARCH CENTER RELEASED OVERNIGHT CLAIMS TWO THIRDS OF AMERICANS DISAPPROVE OF PRESIDENT DRUMS HANDLING OF THE MILITARY IN IRAN. LISA, PART OF THE CALCULUS THAT THE WHITE HOUSE IS WEIGHING IS THE RECENT ESCALATION, ESPECIALLY WHEN IT COMES TO THE STRAIT OF HORMUZ. IRAN TRIES TO REASSERT ITS GRIP OVER THAT WATERWAY. IN THE PAST FEW DAYS WE'VE SEEN AN UPTICK ON ATTACKS ON SHIPS THREATENING SUPPLY DISRUPTIONS, EVEN AS CRUDE EXPORTS WERE NEARING THOSE PRE-WAR LEVELS. WE SHOULD SAY REFINED PRODUCT CONTINUES TO LAG BEHIND. TODAY THE NATIONAL AVERAGE FOR A GALLON OF DIESEL IS $6.28. THAT, NO DOUBT, IS A POLITICAL ISSUE. LISA: THANK YOU AS ALWAYS FOR THAT REPORTING. MARC SHORT, THE FORMER CHIEF OF STAFF TO VICE PRESIDENT MIKE PENCE WRITING, "THE MIDTERM WILL BE A REFERENDUM ON THE PARTY THAT CONTROLS THE HOUSE, THE SENATE, AND THE WHITE HOUSE." HOW MUCH IS THIS A REFERENDUM ON THE WAR IN IRAN AND THE PRICE OF GASOLINE? MARC: GOOD MORNING. I THINK IT IS LARGELY A REFERENDUM ON AFFORDABILITY AND INFLATION. THAT ALL COMES TOGETHER, AS YOU KNOW, IF YOU ARE DRIVING AT THE PRICE OF ENERGY, THE PRICE OF DIESEL, THAT IS GOING TO CREATE EXTENSIONS ACROSS THE ECONOMY FOR SIMPLY TRANSPORTATION COSTS. I THINK IT IS ALL BUNDLED. I THINK ADDING MORE TO THE AFFORDABILITY OF INFLATION. I THINK IT'S HARD FOR A LOT OF AMERICANS TO GET A SENSE OF WHERE IS THE PRESIDENT GOING WITH THE WAR? I THINK AMERICANS ARE WILLING TO PAY A COST, TO INCUR HIGHER COSTS IF THEY CAN SEE WHAT THE END GOAL WAS AND SAY THIS IS WHAT THE PEACE DIVIDEND WILL BE EVENTUALLY IN THE MIDDLE EAST, BUT I THINK THAT HAS BEEN UNCLEAR FROM THE ADMINISTRATION THUS FAR. ANNMARIE: IT STARTED AS A SHORT EXCURSION AND WE ARE NOW BASICALLY EIGHT MONTHS INTO IT. YOU EXPECT THE MIDDLE EAST CONFLICT REMAIN WHERE IT IS THROUGHOUT THE REMAINDER OF HIS PRESIDENCY? MARC: I DON'T KNOW. I APPLAUD THE PRESIDENT FOR TAKING THE ACTION HE DID. I THINK IT HAS BEEN 40 YEARS OF TYRANNY AND 37 YEARS OF MURDERING INNOCENT WESTERNERS. THE PRESIDENT HAD MILITARY SUCCESS AND ONCE ENERGY PRICES ESCALATED THE ADMINISTRATION GAINED POWER AND PUSHED FOR A PAUSE. HERE WE HAVE BEEN FOR FIVE MONTHS BACK AND FORTH. EVEN NOW THE MOST RECENT NEWS, I THINK PRESIDENT TRUMP HAS BEEN PRETTY CLEAR IN PREVIOUS QUESTIONS TO THE MEDIA TO SAY I'M NEVER GOING TO TELL MY POTENTIAL ADVERSARIES WHAT I MIGHT OR MIGHT NOT DO. TO TAKE IT OFF THE TABLE, HOW DO YOU TAKE IT OFF THE TABLE OF RIGHT NOW IRAN AND THE HOUTHIS CONTINUE TO ATTACK SAUDI ARAMCO, PIPELINES, AND VESSELS GOING THROUGH THE STRAITS. I THINK THAT ENCOURAGES THEM TO DO MORE DISRUPTION. ANNMARIE: HOW DO YOU THINK THIS WHITE HOUSE WILL DEAL WITH A POTENTIAL DEMOCRATIC HOUSE AND SENATE? MARC: I THINK WE ALL KNOW WE WILL BE FULL OF INVESTIGATIONS. THAT WILL BE PARTLY WHITE HOUSE COUNSEL'S JOB. THERE IS NO DOUBT THIS WILL BE CONSUMED WITH INVESTIGATIONS. IT'S HARD TO SEE WITH THE LEGISLATIVE AGENDA IS GOING TO BE. I DON'T THINK THE DEMOCRATS HAVE LAID OUT WITH THEIR LEGISLATIVE AGENDA IS. I DON'T THINK THE WHITE HOUSE HAS LAID OUT WITH THEIRS WILL BE IN THE NEXT TWO YEARS. WHEN THEY GOT ONE BIG BEAUTIFUL BILL ACCOMPLISHED, SO MUCH WAS IN THAT IS HARD TO SAY THIS IS WHAT WE WILL DO OVER THE NEXT TWO YEARS. I THINK YOU WILL SEE IT CONSUMED WITH A LOT OF NOISE, A LAME-DUCK COME AT THE SAME TIME WE HAVE A DEBT CEILING LIMIT. MARC: YOU WILL PROBABLY SEE A GREATER INCENTIVE FOR SHUTDOWNS BECAUSE THE REALITY AS IT IS TWO PARTIES ON THE OPPOSITE SIDE. THEY BOTH WANT TO FIGHT WITH EACH OTHER. LISA: AT WHAT POINT DO YOU THINK SCOTT BESSENT GETS THE EAR OF THE PRESIDENT AND STARTS TALKING ABOUT THE BOND MARKET? AT WHAT POINT DO YOU THINK THAT WILL START DRIVING SOME OF THE POLICY? MARC: YOU HAVE TO QUESTION WHAT IS EFFICACY IS AT THIS POINT. I THINK HE SAID "I AM THE HOUSE." HE TRIED TO TAKE INTERVENTION BUYING BONDS AND DRIVE DOWN YIELDS. AT SOME POINT THE QUESTION IS, DOES HE ACTUALLY HAVE THE TOOLS HE THINKS HE DOES? LISA: SOME PEOPLE SPECULATE -- MOHAMED EL-ERIAN HAD A GREAT COLUMN OVERNIGHT TALKING ABOUT IF YOU USE SOME TOOLS IN NON-EMERGENCY TIMES AND YOU DO THEM IN CONSECUTIVE PERIODS YOU CAN ULTIMATELY REDUCE YOUR CREDIBILITY OR EFFICACY OF THEM. I WONDER, TO WHAT DEGREE THAT MEANS POLICY IS GOING TO CHANGE, THIS IS THE PATH OF TRAVEL, IT SEEMS LIKE THERE ISN'T ANYTHING TO REDUCE THE DEFICIT TO CUT FINANCING OR POTENTIAL EVEN ADDRESS SOME OF THE AFFORDABILITY? MARC: I THINK THE PRESIDENT HAS SAID MULTIPLE TIMES HE HAS WAITED TO ADDRESS THE DEFICIT TO BASICALLY DEVALUE THE DOLLAR. I DON'T THINK THAT IS WHAT MARKETS WANT TO HEAR, BUT THAT IS HIS POSITION. TO SAY YOUR DEBT IS LESS EXPENSIVE IS THE WAY TO TACKLE IT. I DON'T THINK THERE'S ACTUALLY GOING TO BE A CURTAILING OF SPENDING. I THINK WE HAVE CROSSED $2 TRILLION AGAIN THIS YEAR IN THE FISCAL YEAR, AND WE ARE OVER $40 TRILLION. I DON'T THINK THIS ADMINISTRATION HAS AN INTEREST IN ACTUALLY CUTTING SPENDING. LISA: DO YOU THINK THE DEMOCRATS ARE ACTUALLY GOING TO SWEEP AS MUCH AS THE POLLS SUGGEST OR DO YOU THINK THEY ARE OVERSTATING IT? MARC: I THINK IT'S A REFERENDUM ON THE PARTY IN POWER AND IT'S HARD TO CHANGE THE NARRATIVE. ACROSS THE COUNTRY THAT'S WHAT IT'S GOING TO BE. IN MOST CASES I DON'T THINK DEMOCRATS MADE IT ABOUT THEMSELVES. MICHIGAN IS AN EXCEPTION. WHEN EL-SAYED CANNOT TELL THE DIFFERENCE BETWEEN IRAN AND ISRAEL AND IS UNWILLING TO DENOUNCE HEZBOLLAH OR AL QAEDA, AT THAT POINT IT CAN BE A REFERENDUM ON HIM. IF REPUBLICANS FLIP JUST ONE SEAT THEY ARE NOT SUPPOSED TO GET IT WILL MAKE THE MATH HARDER FOR DEMOCRATS TO GAIN THE SENATE. LISA: MARC SHORT, THE FORMER CHIEF OF STAFF TO FORMER VICE PRESIDENT MIKE PENCE. DID YOU SEE THAT FROM MICHAEL HARTNETT THIS MORNING, PEOPLE JUST WANT TO SAY THERE FOR A WHILE. ANNMARIE: I THINK WE SHOULD GIVE MARC SHORT CREDIT. WHEN HE WAS ON LAST TIME HE TALKED ABOUT, YOU SHOULD WATCH KANSAS. THAT DID NOT PASS THE SNIFF TEST FOR ME. THE DEMOCRATS HAVE NOT PICKED UP A SENATE SEAT IN 94 YEARS, AND HERE WE ARE POTENTIALLY WITH KANSAS CLIPPING. LISA: WE WILL SEE HOW MUCH THOSE POLLS ARE REFLECTING WHO WILL SHOW UP IN WHAT POTENTIALLY IS PERHAPS OVERSTATED IN THE POLLS. THIS HAS BEEN A DEBATE IN THE POLITICAL CLASS OVER THE PAST COUPLE OF WEEKS. COMING UP MATT BLOXHAM IS OPENAI LOOKS TO CALM CONCERNS ON REVENUE. PLUS, SPACEX SHARES GAINING ON A BIG WIRELESS PUSH THAT IS HURTING SOME OF THE BIG TELECOMS. THIS IS BLOOMBERG "SURVEILLANCE." ♪ LISA: COMING TO END THE WEEK WITH A LITTLE BIT OF STRENGTH, A REPRIEVE AFTER YESTERDAY'S ONE HIKE AND A SELLOFF IN THE NASDAQ THAT ONE POINT REACHED THE GREATEST GOING BACK TO JULY. ON NASDAQ, FUTURES FOLLOWING THE WILL THEY OR WON'T THEY MEET THE $70 BILLION RUN RATE FOR OPENAI. CONFLICT REPORTING THERE THIS MORNING. A MORE POSITIVE TONE AND THE BOND MARKET, SEEING A BIT OF A SELLOFF START OFF AGAIN AFTER YESTERDAY'S BIGGEST ONE-DAY RALLY GOING BACK ALMOST A MONTH. PEOPLE LOOKING AT THESE STRONG AUCTIONS AND POTENTIALLY THIS INCREDIBLE BID COMING IN WITH THE HIGHEST YIELDS GOING BACK MORE THAN TWO DECADES. NOW, GOING ON TO THE EARNINGS PICTURE. ALL EYES FOCUSED ON WHOEVER IS GOING TO LEAD. THE LEADER NOW IS DELTA, COMING OUT LOWERING THEIR OUTLOOK AS SOARING FUEL COSTS CUT INTO EARNINGS, SHARES LOWER BY 4%. CUTTING THE FOURTH QUARTER ADJUSTED EPS TO .15 TO ONE DOLLAR 16 CENTS. IT HAD BEEN SIGNIFICANTLY HIGHER THAN, THE ADJUSTED REVENUE ALSO CAME IN LOWER THAN EXPECTED PRETTY MUCH ACROSS THE BOARD, ANNMARIE, SEEMING TO FEEL THE BITE OF HIGHER COSTS AS WELL AS, POTENTIALLY, WHAT THIS MEANS FOR CONSUMER DEMAND. ANNMARIE: $4.1 BILLION. THIS IS A LOT OF MONEY THAT A LOT OF THESE AIRLINES ARE GOING TO HAVE TO SHELL OUT EVEN MORE. WE HAVE SEEN THE PREMIUM ON UNDER THE HOOD OF BRENT AND WTI WHICH WE LOOK AT ON OUR SCREENS. THE PRODUCT MARKET, DIESEL, GASOLINE, JET FUEL GETTING MORE EXPENSIVE AND AT SOME POINT STARTS TO BITE. LISA: THE CEO OF DELTA SAYING THE COMPANY WAS OPERATING ONE OF THE MOST ELEVATED FUEL ENVIRONMENTS IN RECENT TIMES AND THIS IS ONE OF THE MOST CHALLENGING TIMES TO BE OPERATING. HOWEVER, DEMAND AMONG TRAVELERS HAS REMAINED STRONG. WE CAUGHT UP WITH A NUMBER OF AIRLINE CEOS OVER THE PAST NINE MONTHS AND THEY HAVE ALL TALKED ABOUT HOW SURPRISED THEY HAVE BEEN ABOUT THE RESILIENCE OF CONSUMER DEMAND, EVEN IN THE FACE OF INCREDIBLY HIGH PRICES AND, FRANKLY, DIFFICULTY NAVIGATING SOME OF THESE FUEL ISSUES. ANNMARIE: WE SEE THIS CONSTANTLY IN THE POLLS AND SURVEYS AND WE WILL PROBABLY GET ANOTHER TODAY WITH THE UNIVERSITY OF MICHIGAN. PEOPLE DON'T LIKE INFLATION, THEY TALK ABOUT IT IN POLLS AND SURVEYS, BUT THE AMERICAN CONSUMER IS STILL GOING OUT AND DATA SHOWS THEY ARE STILL SPENDING. LISA: YOU'RE SEEING OTHER AIRLINE SHARES FALL IN TANDEM. UNITED AND AMERICAN AIR LOWER BY 1% IN TANDEM WITH THIS FULL HEIGHT YEAR PROFIT ADJUSTMENT AND FOURTH-QUARTER PROFIT CUT. WE WILL KEEP YOU POSTED AS WE GET MORE DETAILS FROM THIS, DELTA AIRLINES NOW DOWN ALMOST 3% IN PREMARKET TRADING. THREE HOURS FROM THE CASH OPEN, HERE ARE OTHER MORNING MOVERS AHEAD OF THE BELL. YAHAIRA: SPACEX ANNOUNCING A DEAL TO ACQUIRE WIRELESS SPECTRUM THAT COULD TURN STARLINK INTO A MAJOR U.S. MOBILE CARRIER. SATELLITE PHONE SERVICE HAS MOSTLY FOCUSED ON OUTDOOR COVERAGE, BUT THIS WOULD LET IT REACH INSIDE BUILDINGS TOO. IT STILL NEEDS SEC APPROVAL BUT MUSK CALLING IT THE FINAL PIECE FOR A COMPLETE PHONE COVERAGE ACROSS AMERICA. BUT A WIN FOR STARLINK IS A THREAT TO THE MAJOR TELECOMS. AT&T, VERIZON, T-MOBILE FALLING SHARPLY IN THE PREMARKET AS MUSK MOVES CLOSER TO COMPETING FOR THEIR CUSTOMERS. WILLIAM BLAIR ANALYSTS SAY SPACEX COULD TAKE A PAGE OUT OF THEIR PLAYBOOK BY BUNDLING PHONE SERVICE WITH STARLINK INTERNET. VERIZON POURING COLD WATER OVER THIS THING MUSK STILL HAS TO DELIVER, TELLING VOTERS IN A STATEMENT THAT WITHOUT A NETWORK TO BACK IT UP, WHICH MANY HAVE POINTED OUT, IT IS JUST EMPTY AIRWAVES. WE END ON APPLE, IT IS UNDERPERFORMING, THE MAG SEVEN SHARES ARE DOWN 2% IN THE PREMARKET ON A REPORT THAT DEMAND FOR ITS PRICIEST IPHONE IS COMING IN WEAKER THAN EXPECTED. REPORTING APPLE HAS CUT OCTOBER COMPONENT ORDERS FOR THE IPHONE 18 PRO AND PRO MAX BY AT LEAST 15%. THOSE PHONES GOT MORE EXPENSIVE AS MEMORY COSTS SOARED, SO IT APPEARS, ACCORDING TO THIS REPORT, THAT CUSTOMERS ARE PULLING BACK AND MAY BE TAKING MORE FLIGHTS INSTEAD OF BUYING PHONES, LEE SAID. LISA: WE WILL CATCH UP WITH YOU IN A BIT. OPENAI EXPECTING TO REACH AT LEAST 70 BILLION DOLLARS IN ANNUALIZED REVENUE BY THE END OF THIS YEAR. SOURCES TELL US THAT BLOOMBERG THAT ANNUALIZED REVENUE WAS ROUGHLY $50 BILLION AT THE END OF SEPTEMBER, DESPITE FT REPORTING SAYING IT WAS GOING TO BE $50 BILLION FOR THE YEAR. $70 BILLION WAS THE RUN RATE PREVIOUSLY REPORTED. IS THIS AN ACCOUNTING ISSUE OR A BLACK HOLE? SOFT PINK LOOKING TO RAISE FROM COAL FOR INVESTORS. THE FOUNDER HAD BEEN HOLDING FUNDING TALKS IN RECENT WEEKS. THE FIRM IS AIMING TO USE THE MONEY TO BUY OTHER COMPANIES AND IMPROVE OPERATIONS. FINALLY, DATA CENTER COMPANY ABANDONING IPL EFFORTS. THE NVIDIA-BACKED ENTERPRISE FAILING TO ATTRACT INVESTORS AS CONCERNS BUILT AROUND ITS LOFTY VALUATION. SOURCES TELL BLOOMBERG THAT FIRMUS IS EXPLORING PRIVATE FUNDING MARKETS. ANNMARIE: IT IS ANOTHER QUESTION MARK ABOUT AI AND THE VALUATION OF THE TRADE. THE FIRM SAID THEY MADE THIS DECISION DUE TO "RECENT MARKET VOLATILITY AND PREVAILING MARKET CONDITIONS." POTENTIALLY IT IS NOT SCRAPPED FOREVER BUT IT SEEMS TO BE SCRAPPED FOR A WHILE AND THEY WILL HAVE TO FIND OTHER WAYS TO GET THE FUNDING BECAUSE THEY CONTINUOUSLY WANT TO GROW. THEY CALL THEM AI FACTORIES. THIS IS THE SHOVELS, THE COMPANIES MAKING THE DATA CENTERS. LISA: SO MANY PEOPLE SAY THE AI TRAIT IS RELATIVELY RATE INSENSITIVE AND THERE IS SO MUCH NEED FOR MONEY THAT ULTIMATELY THEY WILL KEEP GOING WITH THEIR IPO PLANS OR THEIR DEBT FINANCING PLANS REGARDLESS OF WHAT RATES AND CAPITAL MARKETS ARE. THE OURA IPO THAT WAS ALSO POSTPONED RAISED QUESTIONS AROUND THAT NARRATIVE. ANNMARIE: A LOT OF PEOPLE SAY IT IS ALMOST BUT NOT FULLY IMMUNE. ARE WE STARTING TO SEE HIGHER RATES PUSH BACK AND BITE SOME OF THE COMPANIES INVOLVED IN AI? LISA: THAT STORY AND POTENTIALLY WHAT HAPPENED YESTERDAY WITH OPENAI AND ITS REVENUE EXPECTATIONS, MATTHEW BLOXHAM JOINS US FOR MORE. CAN YOU GIVE US A SENSE OF WHAT HAPPENED YESTERDAY THAT COST HUNDREDS OF BILLIONS OF DOLLARS OF VALUATION SWINGS IN U.S. AND GLOBAL MARKETS? MATTHEW: THIS 40% DIFFERENTIAL BETWEEN 70 BILLION REVENUE RUN RATE AND 50 BILLION RUN RATE, THIS IS TO SOME DEGREE AT LEAST AN ACCOUNTING ISSUE. I THINK WHAT WE HAVE SEEN IS INVESTORS TRYING TO USE THE ANTHROPIC REVENUE CALCULATIONS AND LAY THEM ON TO OPENAI, BUT BOTH COMPANIES REPORT REVENUE SLIGHTLY DIFFERENT. ANTHROPIC INCLUDES A NUMBER OF REVENUE SOURCES WHICH OPENAI DON'T. I THINK THAT'S KIND OF FILTERING THROUGH TO THE MARKET. PRIVATE COMPANIES, INVESTORS ARE KIND OF WORKING OFF THE SCRAPS OF INFORMATION AS THEY MAKE FINANCIAL INFORMATION MORE PUBLIC. IF YOU LOOK AT OPENAI THEY'RE LOOKING TO RAISE $30 BILLION, AT 1.4 TRILLION DOLLAR VALUATION, ROUGHLY 20 TIMES THAT $70 BILLION ANNUAL RUN RATE. THAT'S A HUGE VALUATION. IT IS GOING TO TAKE THEM FIVE PLUS YEARS TO GROW INTO THAT VALUATION. I THINK THAT IS WHY YOU ARE SEEING THIS VOLATILITY BECAUSE THE COMPANY CONTINUES TO GROW IN AN EXPONENTIAL RATE, THEY CHANGED THEIR BUSINESS MODEL SIGNIFICANTLY OVER THE LAST 12 MONTHS FROM A LARGELY CONSUMER-FOCUSED BUSINESS TO NOW EMPHASIZING ENTERPRISES. A BIG OPPORTUNITY. I THINK INVESTORS ARE STILL TRYING TO SEE THE EVIDENCE THAT THAT SHIFT HAS REALLY PROVEN TO BE SUCCESSFUL, GIVEN THEY'VE HAD SO MUCH COMPETITION, PARTICULARLY FROM ANTHROPIC. LISA: I GET THAT AND UNDERSTAND THERE ARE QUESTIONS AROUND THE FACT THAT IT'S A PRIVATE COMPANY. BUT I DON'T HAVE A HANDLE ON IS HOW SYSTEMIC OPENAI AND ANTHROPIC ARE. IT IS ONE THING FOR OPENAI TO COME OUT WITH A LOWER REVENUE RUN RATE THAN PEOPLE EXPECTED AND ANOTHER THING TO SEE ORACLE SHARES FALLING MORE THAN 5% IN RESPONSE. AMD, NVIDIA, A HOST OF OTHER RELATED STOCKS FALL OUT OF BED, INCLUDING MICROSOFT. IT RAISES THE ISSUE WITH THE CIRCULAR FINANCING, ARE THESE COMPANIES BECOMING SYSTEMICALLY IMPORTANT AND IF THEY DON'T COME TO FRUITION THE WAY THEY HAVE BEEN PROMISED TO IT WILL CREATE A REAL MARKET PROBLEM? MATTHEW: IT REALLY COULD. ALSO BEING FULLY VALUED ON THE EXPECTATION THAT WE'RE IN THE VERY EARLY STAGES OF THE AI BOOM AND OVER THE NEXT DECADE OR SO THIS IS GOING TO BE A MARKET THAT EXPLODES. IF IT DOESN'T, EVEN IF THERE ARE SHORT-TERM DISLOCATIONS, COMPANIES LIKE ORACLE THAT ARE HEAVILY INDEBTED AND RELYING ON THAT THE GROWTH IN REVENUE TO FILL THESE DATA CENTERS AND JUSTIFY THE CAPITAL THEY ARE RAISING, IF YOU START TO SEE THE DISLOCATION IN THAT, THEN POTENTIALLY YOU SEE THINGS UNRAVEL. ANNMARIE: WHEN IT COMES TO WHAT IS GOING ON IN THE OPENAI $20 BILLION GAP, I UNDERSTAND IT IS HOW YOU LOOK AT SOME OF THE ACCOUNTING, BUT THE FACT THAT INVESTORS ARE PUSHING FOR APPLES TO APPLES -- THEY WANT TO SEE MORE SO HOW THESE COMPANIES WOULD FARE IF THEY WERE PUBLIC, DOES IT SAY TO YOU THERE'S A LITTLE BIT OF, MAY BE, FRUSTRATION ON THE INVESTOR COMMUNITY? MATTHEW: PERHAPS TO SOME DEGREE, BUT I THINK THIS IS AN INEVITABLE PART OF THE DISCOVERY PROCESS. I THINK PERHAPS WHAT IS SLIGHTLY UNIQUE ABOUT THE MARKETS RIGHT NOW IS TWO OF THE BIGGEST COMPANIES DRIVING THIS TRADE ARE PRIVATE RATHER THAN PUBLIC. IF THE INFORMATION WE HAVE BOTH FINANCIALLY AND OPERATIONALLY IS INCREDIBLY LIMITED COMPARED TO WHAT WE'VE SEEN IN HISTORIC CYCLES WHERE THE BIG COMPANIES HAVE BEEN PUBLIC, AND THAT IS A HUGE AMOUNT OF DISCLOSURE. I THINK THAT'S WHERE A LOT OF THIS FRICTION OR FRUSTRATION LIES. LISA: MATTHEW BLOXHAM A BLOOMBERG INTELLIGENCE, THANK YOU FOR TAKING THE TIME. IF YOU'RE JUST JOINING US THIS MORNING, WE ARE WAITING FOR EARNINGS SEASON TO KICK OFF NEXT WEEK BUT WE HAVE GOTTEN SOME. FROM DELTA AIRLINES. WHAT THEY DID WAS CUT THEIR FULL-YEAR ADJUSTED FORECAST FOR THE EARNINGS-PER-SHARE TO FIVE DOLLARS 10 CENTS TO FIVE DOLLARS TO $.60, PREVIOUSLY $7.50. THE CFO COMMENTING TO A NUMBER OF NEWS REPORTERS THAT THE SOLE REASON FOR THIS DOWNGRADE WAS BECAUSE THERE WAS REASON TO BELIEVE THAT FUEL PRICES WOULD REMAIN HIGHER FOR LONGER FOR A LONGER PERIOD OF TIME. ANNMARIE, IT WASN'T DUE TO CONSUMER DEMAND AND DROPPING OFF OR ANYTHING ELSE IN THEIR FUNCTIONING. ANNMARIE: IMAGINE IF CONSUMER DEMAND IT DID DROP OFF? WHERE WOULD THE STOCK BE? IT'S ALL BECAUSE OF HIGHER FUEL PRICES. HE WENT ON TO SAY THE AIR TRAVEL EVEN WITH A HIGHER PRICE POINT IS STILL A RELATIVE BARGAIN IN A CONSUMER ECONOMY. AIRFARE IS STILL 10 POINTS LOWER THAN INFLATION. CLEARLY, CONSUMERS ARE GOING OUT THERE, BUT IT IS STARTING TO HIT ON THE MARGINS. WE ARE HIGHER FOR LONGER WHEN IT COMES TO HOW MUCH THESE PRODUCTS COST, DIESEL, GASOLINE, CLEARLY JET. DELTA, YOU COVER AIRLINES, ISN'T DELTA THE DARLING? WHAT DOES IT SAY TO THE REST OF INDUSTRY? LISA: YOU CAN SEE THE SHARES OF OTHER AIRLINE INDUSTRY FALLING A BIT IN SYMPATHY BECAUSE ULTIMATELY IF DELTA IS STRUGGLING, WHAT IS IT SAFE FOR EVERYBODY ELSE? HAVE YOU BOOKED ANY FLIGHTS RECENTLY AND NOTICED HOW MUCH HIGHER THE COST HAS BEEN FOR EVEN DOMESTIC FLIGHTS? ANNMARIE: I UNDERSTAND ED BASTIAN'S SEEING AIRFARES ARE'S 10% LOWER THAN INFLATION BECAUSE IT DOESN'T FEEL LIKE THAT FOR ME. I FEEL IT FLIGHTS HAVE BEEN KIND OF EXPENSIVE. LISA: EVIDENTLY, EVEN IF PEOPLE FEEL THAT WAY THEY ARE STILL TRAVELING. WE ARE SEEING SHARES OF AIRLINES ACROSS THE BOARD LOWER, DELTA DOWN ALMOST 4%, UNITED DOWN 1.3 PERCENT. STORIES ELSEWHERE, HERE IS YOUR BLOOMBERG BRIEF WITH VONNIE QUINN. VONNIE: OFFSHORE OIL PRODUCTION IS PLUMMETING AS HURRICANE ISAIAS PUSHES TO THE GULF COAST REGION CATEGORY TWO STRENGTH YESTERDAY WITH SUSTAINED WIND OF 105 MILES PER HOUR. THE FORECAST IS TO HIT THE ALABAMA COAST OR FLORIDA PANHANDLE LATE TODAY OR EARLY TOMORROW. THE TRUMP ADMINISTRATION ACCUSING MICROSOFT, ADOBE, AND OTHER TECH COMPANIES OF ABUSING THE U.S. WORKER VISA PROGRAM. THE FIRMS ARE BANNED INDEFINITELY FROM THE POPULAR TALENT PIPELINE. IN A STATEMENT MICROSOFT DEFENDED ITS USE OF THE PROGRAM AND SAYS IT LOOKS FORWARD TO PROVIDING AUTHORITIES WITH ADDITIONAL INFORMATION. SPACEX ANNOUNCING IT HAS ACQUIRED LOW BAND SPECTRUM. STARLINK SATELLITES THAT HAVE PUSHED TO BECOME A MAJOR MOBILE CARRIER IN THE U.S.. PENDING SEC APPROVAL ELON MUSK'S COMPANY WILL PROVIDE SATELLITE TO SELL SERVICES FOR INDOOR DEVICES. THAT IS YOUR BLOOMBERG BRIEF. LISA: NEXT, TIMING OUT RATE HIKES. >> RATES OUGHT TO BE GOING UP FURTHER IN AN APPROPRIATE PERIOD OF TIME IN THE NEXT SIX TO NINE MONTHS. >> I ANTICIPATE ADDITIONAL HIKES TO SUPPORT A TIMELY YEAR RETURN OF INFLATION TO OUR 2% GOAL, BUT THERE IS SOME FLEXIBILITY ABOUT WHEN THOSE HIKES WILL OCCUR. LISA: IT IS NOT WILL THEY OR WON'T THEY, IT IS WHEN WILL THEY AND HOW FAR WILL THEY. TERRY WISEMAN JOINS US NEXT, THIS IS BLOOMBERG SURVEILLANCE. ♪ LISA: IT HAS BEEN A LONG WEEKEND PEOPLE ARE TRYING TO TAKE A BREATH AFTER A PRETTY TUMULTUOUS PERIOD OF TIME INTO NEXT WEEK'S EARNINGS PERIOD SEEING A REBOUND IN TECH STOCKS IN PARTICULAR. OFF SOME OF THE EARLIER HIGHS AFTER DELTA LOWERED ITS FULL-YEAR FORECAST ON THE RUSSELL 2000, UP NOW BY .2%, THE NASDAQ UP ABOUT POINT 7%. WHAT YOU ARE SEEING OVER IN THE BOND SPACE IS AGAIN THE CELL OF PICKING UP AT A LOWER PACE. YESTERDAY WE SAW THE BIGGEST ONE-DAY DROPPING 10 YEAR AND 30 YEAR YIELDS GOING BACK TO MID-SEPTEMBER. THIS MORNING, PULLING SOME OF THAT BACK, THREE BASIS POINT INCREASE ON THE 10-YEAR TO 5.25, 30-YEAR AT 5.63. AT WHAT POINT DO WE GET TO THE BREAK GLASS MOMENT, ULTIMATELY TAKING SOME OF THE HEAT OFF THE OIL SPACE WHERE WE ARE SEEING OIL PRICES LOWER THIS MORNING? MAYBE WE WON'T ENGAGE IN GENETIC WARFARE TO THE MAX AHEAD OF THE ELECTION. ANNMARIE: THE PRESIDENT CAME OUT ON TRUTH SOCIAL SAYING THEY WILL NOT BE STRIKING IRAN BEFORE THE MIDTERM ELECTION, SO THIS IS WHAT CONVENTIONAL THINKING HAS BEEN PEER AT MARC SHORT WAS TALKING ABOUT HOW WE HAVE SEEN THE PRESIDENT SAY ONE THING BUT DO SOMETHING ELSE. SO, I DON'T KNOW. I THINK IT IS POTENTIALLY QUITE A QUESTION MARK AND HOW THEY RESPOND GIVEN WHAT IS GOING ON IN SAUDI ARABIA. LISA: IN THE MEANTIME DELTA IS PLANNING FOR FUEL PRICES TO BE HIGHER FOR LONGER. THE FLIGHT HOME FOR THANKSGIVING, YOU SEE MAY BE PRICES ARE A BIT HIGHER THAN YOU PREVIOUSLY EXPECTED. WHAT DOES THIS MEAN FOR THE CENTRAL BANK AND NOT JUST THE FEDERAL RESERVE THAT AROUND THE WORLD? UNDER SURVEILLANCE, TIMING OUT RATE HIKES. >> BRING INFLATION BACK TO TARGET IN A TIMELY MANNER, MORE MONETARY POLICY FARMING WILL BE REQUIRED. RATES OUGHT TO BE GOING UP FURTHER IN AN APPROPRIATE PERIOD OF TIME OVER THE NEXT SIX TO NINE MONTHS. >> I ANTICIPATE ADDITIONAL HIKES TO SUPPORT A TIMELY YOUR RETURN. LISA: THE LATEST, THAT OFFICIAL SIGNALING BACK TO BACK RATE HIKES MAY NOT BE NEEDED AS TRADERS BET ON AN OCTOBER HOLD. TERRY REISMAN WHY THING, IT WILL BE DIFFICULT FOR THE FOMC TO AVOID HIKING IN DECEMBER IF THEY DO SKIP OCTOBER. THIERRY WIZMAN RIGHT THING, IT WILL BE DIFFICULT FOR THE FOMC TO AVOID HIKING IN DECEMBER IF THEY DO SKIP OCTOBER. THERE IS A NEW REALITY PEOPLE ARE GRAPPLING WITH, WHICH IS THE NEW NORMAL IS SOMETHING THAT DOESN'T FEEL NORMAL. WHAT IS YOUR TAKE ON WHAT HAPPENED THIS WEEK? THIERRY: THE LAST TWO WEEKS, NOT SO MUCH THIS WEEK. SOME OF THE CENTRAL BANKS AROUND THE WORLD WHO HAD BEEN SIGNALING THE HAWKISH DISPOSITION HAVE STARTED TO SOUND A LITTLE MORE DOVISH. IF YOU ARE SEEING WITH THE FED, CLEARLY SOME SENIOR STAFF MEMBERS HAVE BEEN WALKING AWAY FROM THE PROSPECT THEY WILL DO AN OCTOBER HIKE. THEY MAY HAVE REASONS TO DO THAT. THEY HAVE SEEN THE PCE PRICE INDEX AFTER THE REVISIONS BE LOWER. THEY'VE SEEN A JOB MARKET THAT'S A BIT WEAKER ON THE WAGE FRONT. WE HAVE SEEN WEAKER WAGE GROWTH IN THE U.S.. WE NOW HAVE REASON TO MAYBE STEP BACK AND WATCH THINGS EVOLVE COME THE DAY TO EVOLVE AND NOT HIKE EVERY MEETING BUT MAYBE JUST ON THE KEY MEETINGS. THE NEXT ONE OF COURSE WOULD BE DECEMBER. STILL, THE FED IS STILL INCLINED TO BE HIKING, THEY STILL HAVE IMPLICITLY A TIGHTENING BIAS. BUT ONE WHEREBY THEY EXPRESS IT THROUGH SKIPPING MEETINGS. OCTOBER IS THE ONE THEY WOULD SKIP. THE ECB AS WELL HAS APPARENTLY STEPPED BACK FROM THE PROSPECT OF HIKING IN OCTOBER. THEY'VE DONE SO FOR A DIFFERENT REASON. THEY SEE THE STRESSES IN FRANCE AND ARE REALIZING THAT MAYBE THE WAY TO ADDRESS THAT, AT LEAST FOR THE MOMENT, IS TO NOT HIKE. THIS HAS BEEN A THEME FOR THE LAST TWO WEEKS. LISA: TO PICK UP ON THAT POINT, THERE WAS REPORTING OVERNIGHT THAT CHRISTINE LAGARDE, THE PRESIDENT OF THE ECB, TOLD A CLOSED-DOOR MEETING OF FINANCE MINISTERS THAT THE ECB IS PREPARED TO USE ANY TOOLS POSSIBLE TO POTENTIALLY CREATE A CALM TRANSMISSION OF MONETARY POLICY. DO YOU EXPECT THIS TO BE OPERATION SAVE FRANCE FOR THE ECB TO THE EXTENT THAT THEY WON'T NECESSARILY HIKE RATES TO COMBAT THE INFLATION COMING FROM OIL PRICES? THIERRY: THE FIRST STEP THE ECB COULD TAKE IN THE CONTEXT OF THE FINANCIAL STRESS SITUATION IS TO SIMPLY STOP HIKING RATES AS SHE HAS INTIMATED ALREADY. IF WHAT YOU'RE ASKING ABOUT IS THE SPECIAL PROGRAMS, THINGS LIKE THE SECURITIES MARKET PROGRAM THAT THEY USED IT DURING THE EUROPEAN BOND CRISIS, WHICH EVENTUALLY TRANSITIONED TO THE OUTRIGHT MONETARY TRANSMISSION TRANSACTION PROGRAM, ACTUALLY, WHICH HAS A LOT OF CONDITIONALITY ATTACHED TO IT, OR SOMETHING LIKE TPI DURING THE PANDEMIC. THESE ARE PROGRAMS THEY CAN ALWAYS REVIVE. THE PROBLEM WITH REVIVING THEM NOW, IF THEY WERE TO DO SO, OR CONTEMPLATE DOING SO, IS FRENCH YIELDS ARE NOT AS HIGH AS YIELDS IN GREECE OR ITALY OR SPAIN HAD GOTTEN THAT THE POINT DURING THE EUROPEAN DEBT CRISIS WHEN THE PROGRAMS WERE INVOKED. THE OTHER PROBLEM, OF COURSE, IS WHEN YOU'RE TALKING ABOUT THE PROGRAMS INTRODUCED LATER IN THE LAST DECADE AND A HALF, THEY REQUIRE A LOT OF CONDITIONALITY. THE FRENCH HAVE AN ELECTION IN APRIL. IT'S NOT THE MOST OPPORTUNE TIME TO INTRODUCE FISCAL AUSTERITY. ESPECIALLY FISCAL AUSTERITY THAT IS IMPOSED FROM THE OUTSIDE. WE ARE IN LIMBO. I DON'T THINK THE ECB WILL BE INVOKING ANY OF THESE PROGRAMS, CERTAINLY NOT UNTIL THINGS GET WORSE. THEY COULD TO IT IF THINGS GET WORSE BEFORE THE ELECTION, BUT CERTAINLY THE ELECTION, THE POLITICAL CYCLE IN FRANCE, IS SOMETHING HOLDING EVERYTHING BACK AT THIS POINT. ANNMARIE: JON MENTIONED CPI WOULDN'T WORK IN FRANCE, TO REACH THAT YOU NEED SOUND FISCAL POLICY. IN THAT SENSE IS THIS JUST A LEAKING VERBAL INTERVENTION FROM LAGARDE? THIERRY: THAT YOU ARE NOT IN EXCESS OF THAT PROCEDURE, THE EXCESSIVE DEBT PROCEDURE IS KIND OF LIKE PROBATION. THE FRENCH HAVE HAD A DEFICIT IN THE LAST FEW YEARS THAT IS RUNNING CLOSE TO 5% OF GDP. OF COURSE THE OBLIGATION IS 3% OF GDP. THEY ARE VERY FAR FROM THAT." COULD THE EUROPEAN AUTHORITIES MAKE AN EXCEPTION? I DON'T SEE ANY REASON WHY THEY CAN'T, BUT THIS IS NOT ABOUT IF THEY CAN OR CAN'T CHANGE THE RULES. THIS IS A FRANCIS AT THE STATE AT THIS POINT WHERE AN INTERVENTION OF THAT NATURE IS REQUIRED. IF IT IS VALID. IF IT IS VIABLE, ETC.. LISA: THE MORE WE TALK ABOUT THIS THE MORE THE DOLLAR SEEMS TO BE STRENGTHENING, THE LONGEST STRENGTHENING STREAK GOING BACK TO 2005. CLEANEST SHIRT, DIRTY LAUNDRY? WHATEVER ANALOGY? THIERRY: THE REASON THE DOLLAR HAS STAYED SO STRONG DESPITE A LOT OF PEOPLE, INCLUDING OURSELVES, THINK THAT COULD BE A DOLLAR WEAKNESS IN 2026, ONE, HIGH OIL PRICES. ADMITTEDLY SOMETHING THE U.S. CAUSED. THE OTHER THING IS THE SURPRISE WE'VE SEEN IN U.S. GROWTH OF THIS YEAR BECAUSE OF THE AI-DRIVEN INFRASTRUCTURE INVESTMENT CYCLE. THOSE TWO THINGS, IF THEY CONTINUE, WELL, THE DOLLAR WILL STAY ROBUST BECAUSE THOSE ARE THE THINGS THE COST OF DOLLAR TO STRENGTHEN AND 2020 STRONG. YOU ASK ME, WILL THEY STAY ROBUST? IN THE CASE OF OIL, YOU REFERENCED EARLIER, IT IS IF SOMETHING HAPPENS WITH THE WAR, IF IT ENDS EARLIER THAN EXPECTED OIL PRICES WILL COME DOWN AND THE DOLLAR WILL WEAKEN. OR IF WE GET DIMINISHMENT IN THE INTENSITY OF THE AI INVESTMENT CYCLE, IF THAT HAPPENS, SURE, THE DOLLAR WILL WEAKEN AGAIN. THERE ARE NOT CONCERNED ABOUT RATES OF RETURN FOR THESE PROJECTS. THE HYPERSCALERS ARE MAKING MONEY. THAT IS WHY THEY ARE INVESTING IN CONTINUE INVESTING. I'M MORE CONCERNED ABOUT THE POLITICAL CYCLE'S IMPLICATIONS FOR AI AT THIS POINT. WILL THERE BE A LOT OF STATE AND LOCAL LEGISLATION THAT TRIES TO CURTAIL THE BUILDOUT OF DATA CENTERS, FOR EXAMPLE. LISA: THIS IS ULTIMATELY WHY PEOPLE ARE WATCHING THE ELECTIONS, TO UNDERSTAND WHAT THE BREAKDOWN WILL BE AND WHAT THE MAIN ISSUES FOR THE ELECTION WILL BE. ANNMARIE: IT'S NOT EVEN WHO GETS ELECTED AND WHAT DO WE HAVE IN TERMS OF THE MAKEUP OF CONGRESS. AI IS ACTUALLY ON THE BALLOT, WHETHER IT IS MORATORIUMS, HAVING A PAUSE, HAVING GUARDRAILS, PULLING BACK CONSTRUCTION. IN SIX OR SEVEN STATES THERE ARE MEASURES THAT VOTERS WILL GET REAL-TIME FEEDBACK ON HOW PEOPLE FEEL ABOUT THIS. LISA: THAT IS NOT HAPPENING IN CHINA AS THEY BUILT OUT DATA CENTERS AT THE FASTEST PACE ON RECORDS. COMING UP, CHRISTOPHER VERRONE, WAYNE SANDERS, AND JAKE POLLACK. THIS IS BLOOMBERG "SURVEILLANCE." GOOD MORNING. ♪ >> GENERALLY, MARKETS DON'T LIKE UNCERTAINTY. >> THE VOLATILITY OF THE RATE MARKET IS BRINGING SOME PASTA SOME INVESTORS. >> CAPITAL SPENDING IS BOOMING IN THE AI HYPERSCALERS AND OTHERS KEEP BORROWING MORE AND MORE. >> WE KNOW IT'S GOOD, IT'S MORE ABOUT HOW LONG IT CAN LAST. >> THERE'S ONLY SO MUCH HYPERSCALERS CAN PUSH THROUGH A SINGLE MARKET. ANNOUNCER: THIS IS BLOOMBERG "SURVEILLANCE" WITH JONATHAN FERRO, LISA ABRAMOWICZ, ANNMARIE HORDERN. LISA: INVESTORS FACING NEW QUESTIONS ABOUT FRONTIER MODEL PROFITABILITY. MONTHS COMING DOWN AS INVESTORS PILED INTO CASH AT THE FASTEST PACE SINCE THE PANDEMIC COME EXPECTING THE FED TO REMAIN ON HOLD FOR A LONGER TIME OR A HIKE WITH FED OFFICIAL SIGNALING THAT OCTOBER IS NOT A DONE DEAL FOR A RATE HIKE. ANNMARIE: WE KEEP HEARING THIS AGAIN AND AGAIN FROM FED OFFICIALS. IT SEEMS THEY WANT TO TAKE OCTOBER OFF OF THE TABLE, LOOK AT THE DATA ONCE AGAIN. ONE OF THE WORDS THEY ARE SAYING, WE CAN DO IT IN A TIMELY MATTER, THERE IS NO URGENCY, WHICH IS WHY POTENTIALLY WE WON'T HAVE THIS OCTOBER HIKE WHICH WOULD POTENTIALLY POLITICALLY RUN THE FED INTO SOME ISSUES OR GET SOME SHOUT OUTS. AT THE SAME TIME IT DOES MAKE NEXT WEEK'S EPI THAT MUCH MORE IMPORTANT. LISA: CPI AND EARNINGS. DELTA CUTTING THEIR FULL-YEAR FORECAST SIGNIFICANTLY IN RESPONSE TO HIGHER OIL PRICES, ONGOING QUESTIONS ABOUT HOW HIGH OIL PRICES WILL REMAIN ARE CLEARLY AFFECTING THEIR ABILITY TO MEET THEIR PROFIT FORECASTS, BUT IT'S NOT AFFECTING CONSUMER DEMAND.THIS IS THE TAKE-HOME POINT. WE HAVEN'T SEEN CONSUMERS PUSH BACK EVEN WITH HIGHER OIL PRICES, HIGHER DIESEL, HIGHER GAS. ANNMARIE: WE HEARD THAT FROM THE CEO, AIR TRAVEL EVEN WITH A HIGHER PRICE POINT IS STILL A RELATIVE BARGAIN, 10 POINTS LOWER THAN INFLATION. SOMETIMES I DON'T FEEL THAT LOOKING AT MY GOOGLE FLIGHTS BUT TALKING ABOUT WE CONTINUE TO SEE DEMAND, CONSUMERS COMING OUT AND SPENDING. EVEN IN SURVEYS YOU SEE POLL AFTER POLL THAT AFFORDABILITY IS AN ISSUE, GASOLINE IS AN ISSUE, DELTA IS DEALING WITH HIGHER JET FUEL COSTS, AT THE SAME TIME CONSUMERS ARE STILL SPENDING. LISA: THE QUESTION FOR A LOT OF PEOPLE IS HOW MUCH IS THIS JUST AN AI TRADE AND HOW MUCH IS IT A BROAD-BASED ECONOMIC BOOM IN THE UNITED STATES? THE FACT THAT PEOPLE CAN KEEP SPENDING AT THE AIRLINES THAT ARGUABLY CATERED THE HIGHER END CONSUMER SPEAKS TO ONE ASPECT OF THE STORY, BUT THE AI QUESTION IS OUT THERE AND THAT IS WHY YESTERDAY WAS NOTABLE WITH REPORTS OUT OF THE FINANCIAL TIMES THAT OPENAI WAS OPERATING WITH A REVENUE RUN RATE THAT WAS LOWER THAN PREVIOUSLY REPORTED. THEN THERE WAS BACKLASH SAYING IT WAS NOT NECESSARILY APPLES TO APPLES WITH ANTHROPIC. WHAT HAVE WE LEARNED OVER THE LAST COUPLE OF DAYS? ANNMARIE: PEOPLE ARE PAYING MORE ATTENTION AND THEY WANT TO KNOW WHERE EVERY DOLLAR IT'S COMING FROM PIER COULD POTENTIALLY THE IDEA OF CIRCULAR FINANCING ONCE AGAIN COMING BACK INTO PLAY WHEN YOU SEE THESE STORIES. YOU HAVE THIS ONE AUSTRALIAN MASSIVE AI DATA CENTER COMPANY SAYING WE ARE ON HOLD RIGHT NOW, LOOKING TO PRIVATE CAPITAL RATHER THAN GOING PUBLIC. DO YOUR POINT EARLIER IT WAS JUST A SIGNAL OF WHERE WE ARE IN TERMS OF THE AI TRADE AND PEOPLE MAYBE STARTING TO ASK A LITTLE MORE QUESTIONS. LISA: TODAY THEY ARE BACK TO NOT ASKING QUESTIONS, PILING BACK INTO THE TEXT TRADE, FUTURES ARE UP LED BY THE TECH GIANTS UP BY ABOUT THREE QUARTERS OF A PERCENT. USING THE BOND MARKET IS A BIT OF A RETRACEMENT FROM YESTERDAY'S RALLY. WE DID SEE THE BIGGEST ONE-DAY DECLINE IN 10 AND 30-YEAR TREASURY YIELDS GOING BACK TO SEPTEMBER 27. TAKING SOME OF THAT BACK'S OFFER EARLIER HIGHS UP ABOUT TWO BASIS POINTS FOR THE 10 YEAR IN THE 30 YEAR, 5.62. IN THE CRUDE SPACE, A BIT OF A REPRIEVE AS PRESIDENT TRUMP SIGNALS THAT HE IS GOING TO WAIT UNTIL AFTER THE MIDTERMS. HE WILL NOT ENGAGE IN ANY KIND OF KINETIC STRIKES ON IRAN. AHEAD OF THAT IS HIS RHETORIC. IT'S NOT NECESSARILY GIVING A SENSE OF WHAT IS THE COMMENT THAT IS SOMETHING YOU'VE MENTIONED BEFORE. ANNMARIE: WE HAVE SEEN THE PRESIDENT WAIVER AND CHANGE HIS MIND AT TIMES. A FEW WEEKS AGO THERE WAS REPORTING THE PENTAGON HAD DRAWN UP PLANS AND AT THE LAST MOMENT THE PRESIDENT PULLED BACK. THE ATLANTIC SAYS THERE COULD POTENTIALLY BE A STRIKE BEFORE THE MIDTERM ELECTION SO THE PRESIDENT TOOK TO TRUTH SAYING WE WON'T ATTACK IRAN PRIOR TO THE MIDTERM ELECTIONS BUT IT'S OBVIOUSLY VERY FRAGILE IN THE REGION AND SQUARELY DEFINITELY IN SAUDI ARABIA. OBVIOUSLY, AN INCREDIBLY IMPORTANT OIL PRODUCTION COMPANY, THE SWING PRODUCER FOR THE MIDDLE EAST, AND AT THE SAME TIME THEY'VE COME UNDER INCREASED ATTACKS FROM THE HOUTHIS. LISA: CHRISTOPHER VERRONE AS STOCKS RISING AS AI ANXIETY BEGINS TO EASE. COLONEL WAYNE SANDERS OF BLOOMBERG INTELLIGENCE AND DAVID TINSLEY, CHECKING ON THE STATE OF CONSUMER SPENDING. STOCKS BOUNCING BACK AS NEW DETAILS REGARDING OPENAI'S REVENUE ARE COMBING INVESTOR'S WORRIES. CHRIS, WHAT A WHIRLWIND. CHRIS: NOT WHIRLWIND, WHAT A WORLD WE ARE IN, A LOT GOING ON. LISA: WHAT YOU MAKE OF THE HUNDREDS OF DOLLARS OF VALUATION SWINGS ON THE HEELS OF THE OPENAI REPORTING? CHRIS: WHAT WAS INTERESTING IS FOR EIGHT WEEKS THERE HAS BEEN THE COURSE OF HOW BAD THE BREADTH OF THE MARKET HAD BEEN. YOU HAD MORE ADVANCERS THAN DECLINERS YESTERDAY. THIS REALLY REINFORCES OUR BIG THEME ALL YEAR THAT WE ARE IN A HIGHLY ROTATIONAL MARKET WHERE I STILL DO NOT THINK MONEY WANTS TO LEAVE THE ASSET CLASS OF EQUITIES AND FIND A NEW HOME SOMEWHERE ELSE. THEY SELL THE TECH TO COME WITH A BIT OF THE CONSUMER STOCKS AND SMALL CAPS, HIGHLY ROTATIONAL TAKE THAT PERSISTS. IT TELLS ME BOND YIELDS ARE HIGH, REAL RATES ARE HIGH, HIGHER THAN WE'VE SEEN IN 15 OR 20 YEARS, YET HIGH ENOUGH WHERE THEY ARE TRULY COMPETITIVE FOR YOUR CAPITAL EVERY DAY? I'M NOT SURE WE'VE REACHED THAT THRESHOLD. LISA: YESTERDAY HE TALKED ABOUT ROTATION IN THE STOCK MARKET OR THERE IS A BIT INTO BONDS WHICH IS NOTABLE AS TECH AND SOLD OFF BONDS WERE A HAVEN AGAIN. DO THINK THAT THAT IS A TELL OF WHAT IS TO COME WERE RELATED TO OIL PRICES AND AUCTIONS THAT WERE SUCCESSFUL? CHRIS: A COUPLE OF THINGS IN THE LAST 6, 7, EIGHT DAYS THAT SHOULD GET OUR ATTENTION. THE FIVE .35 LEVEL ON TENS SEEMS TO BE SOME RESISTANCE THAT WE HAVE FOUND HERE. IF YOU REMEMBER, LAST FRIDAY ON PAYROLLS WE TRADED BRIEFLY DOWN TO 5.1 FIVE, AN IMPORTANT LEVEL FOR THE REST OF THE YEAR. IF YOU TRADE SOUTH OF 5.15, I WOULD BE MORE COMFORTABLE SAYING HI FOR TH HERE IN BOND YIELDS. TWO DATA POINTS THAT ARE NOTABLE, NUMBER ONE, LAST WEEK YOU HAD ABOUT 65% OF THE UTILITY SECTOR MAKE A 52-WEEK LOW SO YOU HAD A BOND PROXY CAPITULATE AND PUKE. HISTORICALLY WHEN WE'VE SEEN THAT THE TOP END YIELD OR THE INTERIM TOP AND YIELDS HAS NOT BEEN TOO FAR OFF. THAT HAPPENED LAST WEEK. SECOND, OUR MEASURES OF BOND SENTIMENT ARE ABOUT AS BEARISH AS THEY'VE BEEN IN YEARS AND YEARS. IT ALLOWS US TO THINK A LITTLE DIFFERENTLY OR HAVE SOME IMAGINATION ABOUT HOW THE STORY MIGHT CHANGE. ANNMARIE: WHAT YOU MAKE OF THE TREASURY GETTING INVOLVED? DO YOU THINK SCOTT BESSENT WILL DO THAT AGAIN? LISA WAS TALKING ABOUT THE PEACE THAT MOHAMED EL-ERIAN WROTE ABOUT HOW IT'S DANGEROUS WITH THAT KIND OF INTERVENTION. CHRIS: WHEN YOU LOOK AT WHERE WE'VE SEEN INTERVENTION WITH SOME SUCCESS IT IS IN THE YEN MARKET. YEN HAS STRENGTHENED UNIQUELY SINCE THE SUMMER. THE BACKEND OF THE JAPANESE YIELD CURVE STOPPED GOING UP. THE JAPANESE 40 YEAR YIELDS HAVE NOT MADE NEW HIGHS SINCE MAY 15. JAPANESE 30 YEAR YIELDS HAVE NOT MADE NEW HIGHS SINCE MAY 15. HOW MANY TIMES WERE WE TOLD THAT THE SOURCE OF ALL THE GLOBAL BOND ANXIETIES WERE EMANATING OUT OF JAPAN? I DON’'T THINK THAT'S TRUE ANYMORE. I THINK YOU ARE INCLINED TO ALMOST THINK ABOUT BUYING THE BACKEND OF THE JAPANESE CURVE, BUYING THE YEN AND JAPANESE STOCKS. THAT IS AN AREA WHERE I THINK INTERVENTION FROM THE SECRETARY HAS BEEN VERY EFFECTIVE. LISA: AT THIS POINT WITH THAT GIVE YOU CONVICTION TO GO INTO SOME OF THE MORE BEATEN UP SECTORS, TALKING ABOUT BONDS, UTILITIES, AND MAYBE MOVE AWAY IN A MORE PROTRACTED WAY FROM THE AI HIGH FLYERS BECAUSE OF THE FINANCING RISK? CHRIS: THE MARKET CUTS INTO THREE DIFFERENT GROUPS, GROUP ONE WHICH ARE THE VERY OVERT LEADERSHIP, A LOT OF AI AND HEALTH CARE STOCKS THAT HAVE ALREADY COME OUT OF THIS THREE TO FOUR MONTH PERIOD THAT ARE ALREADY MAKING NEW HIGHS. NVIDIA IS AT NEW HIGHS, AND HE IS AT NEW HIGHS, DELL, A LOT OF HEALTH. THEN THERE IS GROUP TWO. THE SECOND GROUP, MAY BE THE BELLY OF THE MARKET, IS WHERE OUR CALL WILL HINGE ON FOR 2027. IT IS THIS, KIND OF COME A LEADERS THAT HAVE BEEN FLUSHED OVER THE LAST TWO WEEKS. A LOT OF BANKS AND INDUSTRIALS HAVE BEEN HIT REALLY HARD HERE OVER THE LAST MONTH OR TWO. HOW CAN THEY RESPOND AND RESUME THE FLAG OF LEADERSHIP AND CONTINUE TO GET BACK INVOLVED? THEN GROUP THREE, WHICH ARE THE PERVASIVE DOWN TRENDS, WHICH MANY OF THE SECTORS YOU NOTED, UTILITIES, DISCRETIONARY, IT IS HARD TO SEE THE MACRO EVEN IF THERE IS TEMPORARY MACRO RELIEF. IT'S HARD TO SEE THE MACRO OVER THE LONGER TERM BEING TOO CONDUCIVE FOR THOSE GROUPS. I THINK OUR CALL HINGES ON THE SECOND GROUP. CAN BANKS RALLY OUT OF THIS, INDUSTRIALS RALLY OUT OF THIS? I TAKE SOME COMFORT THE LAST TWO TO THREE WEEKS, INDUSTRIALS HAVE QUIETLY STARTED TO TURN THE CORNER. PARTICULARLY THE AI DATA CENTER POLITICAL KIND OF IN THE CROSSHAIRS TYPE NAMES. THINK QUANTA, EATON, QUIETLY ACTING BETTER HEAD OF THE MIDTERM SPIRIT LISA: HAVE YOU FLOWN RECENTLY? WHAT DID YOU THINK OF THE PRICING? CHRIS: I FLEW YESTERDAY. IT SEEMS THE PRICING HAS BEEN PRETTY OUTRAGEOUS. ANNMARIE: NOT ACCORDING TO SEBASTIAN. CHRIS: I THINK HE IS IN ANOTHER BATTLE WITH ELON OVER SOMETHING ELSE. I DID AN EXPERIMENT MAYBE A WEEK AGO WE WERE LOOKING TO BOOK SOME FAMILY FLIGHTS. I HAD META LET MUSE CHECK FLIGHTS EVERY DAY AND SEE WHEN A THRESHOLD OF SAVINGS WAS MET AND BOOK IT. IT DID IT SUCCESSFULLY. IF YOU'RE LOOKING FOR HELP THERE IS ONE OPTION. LISA: IT SOUNDS LIKE PEOPLE ARE PAYING IT WHICH IS NOTABLE. WHAT YOU MAKE OF THIS THAT THEY ARE SAYING FUEL PRICES ARE THE REASON WHY. WHAT YOU CALLED OUTRAGEOUS BUT PEOPLE KEEP ON BUYING. CHRIS: I CANNOT RECALL THE TIME IN MY CAREER WHEN THERE HAS BEEN SUCH A DICHOTOMY BETWEEN WHAT THE PUBLIC PERCEPTION IS OF PRICES YET SPENDING STILL CONTINUES. AT THE SAME TIME THE EQUITIES IN THE SPACE ACT POORLY, SO YOU HAVE ATTITUDES ARE PRETTY POOR, EQUITIES ARE PRETTY POOR, BUT THE DATA PRETTY GOOD. IT'S AN ODD MIX. THE OVERALL THUMB WAS WHEN CONSUMER SENTIMENT IS DOUR BUY CONSUMER STOCKS AND THAT HASN'T WORKED FOR 18 MONTHS. CONSUMER ATTITUDES HAVE BEEN PRETTY POOR AND IT HASN'T CATALYZED ANY MEANINGFUL LEADERSHIP. I'M PERPLEXED BY THAT DICHOTOMY. I THINK WHAT WE HAVE SEEN -- IN THIS MARKET WAS, PRETTY BROAD UNTIL EARLY TO MID AUGUST. WHAT HAPPENED EARLY TO MID AUGUST? HE BEGAN TO SEE YIELDS CROSS THE FOUR POINT 75 NEIGHBORHOOD. I THINK THAT IS THE LEVEL WHERE PAIN BECAME MORE OVERT, MARKET NARROWED INTO WHAT THE MARKET PERCEIVED TO BE RATE INSENSITIVE OR DESENSITIVE AI AND TECH-TYPE NAMES. LISA: GOOD LUCK WITH YOUR TRAVELS, CHRISTOPHER VERRONE WITH US. I THINK THAT'S WHAT A LOT OF PEOPLE FEEL. IT IS SO HIGH THAT A LOT OF PEOPLE ARE FEELING THE SQUEEZE, YET HAVE YOU STOPPED FLYING? ANNMARIE: NO, BUT I HAVE NOT USED MUSE DEFINED FIND ME A FLIGHT, SO PRO TIP. LISA: YOU HAVE TO GIVE MUSE ALL OF YOUR PERSONAL INFORMATION, SO THERE IS THAT. HERE IS YOUR BLOOMBERG BRIEF WITH VONNIE QUINN. VONNIE: DEFENSE SECRETARY PETE HEGSETH SAYS THAT THE FIRING SQUAD EXECUTION OF HASSAN WOULD BE VISIBLE TO THE PUBLIC. HE IS A FORMER ARMY MAJOR THAT KILLED 13 PEOPLE IN A MASS SHOOTING IN 2009 AND WAS SENTENCED TO DEATH BY A MILITARY COURT. THE EXECUTION IS TO BE CARRIED OUT BY SOLDIERS WITH RIFLES SCHEDULED FOR DECEMBER 3 AT FORT HOOD IN TEXAS. SHARES OF DELTA FALLING IN THE PREMARKET, THE AIRLINE CUTTING AT THE JUST AS EARNINGS-PER-SHARE FORECAST DUE TO A SURGE IN FUEL PRICES. CO ED BASTIAN SAYING DEMAND IS STILL STRONG. UNITED FALLING ALONGSIDE DELTA. THE MLB IS IN THE MIDDLE OF ITS PLAYOFFS, A POTENTIAL LOCKOUT LOOMS THIS SEASON. THE LATEST PROPOSAL FOR A NEW COLLECTIVE BARGAINING TO PLAYERS, THEY OFFERED A REVISED 150 FOUR-GAME REGULAR SEASON SCHEDULE AND A NEW POSTSEASON STRUCTURE. THE TWO SIDES HAVE UNTIL DECEMBER 1 TO COME TO AN AGREEMENT AND AVOID A STRIKE. THAT IS YOUR BLOOMBERG BRIEF. LISA: NEXT, HOLDING OFF ON IRAN ATTACKS. >> IT WOULD MAKE MORE SENSE TO ME TO DO IT AFTER THE MIDTERMS THAN BEFORE. THE MIDTERMS ARE LARGELY ABOUT THE WEAKNESS OF THE PRESIDENT AS A RESULT OF THE WAR. DOUBLING DOWN ON THE WEAKNESS SEEMS TO BE A LITTLE SUSPECT TO ME. LISA: COLONEL WAYNE SANDERS JOINS US NEXT. THIS IS BLOOMBERG "SURVEILLANCE." GOOD MORNING. ♪ LISA: IT HAS BEEN A LOT OF BOUNCING AROUND THIS WEEK, THIS MORNING BOUNCING BACK WITH FUTURES HIGHER AFTER YESTERDAY'S QUESTION MARKS AROUND OPENAI'S REVENUE RUN RATES. REVENUE FUTURES UP. PEOPLE WERE SO WORRIED ABOUT THOSE AUCTIONS, WORRY NO MORE. THE AUCTIONS CAME IN INCREDIBLY STRONG. YIELDS WERE THE HIGHEST GOING BACK TO 2000 ON THE AUCTION FOR THE 10 YEAR. THE 30 YEAR CAME IN A LITTLE LESS STRONG THAN THE 10 YEAR. WHAT A RELIEF FOR PEOPLE WORRIED ABOUT THIS RISK EVENT. ANNMARIE: IT IS YOUR SUPER BOWL AND THAT IS WHY I AM LAUGHING. IT IS YOUR SUPER BOWL. IT HAS GONE KIND OF MAINSTREAM. I WONDER WHEN WE ARE GOING TO GET TO THE POINT WHEN MAKE AUCTIONS BORING AGAIN? LISA: IT'S TRUE, THEY HAVE GONE MAINSTREAM. PEOPLE HAVE AUCTION PARTIES. ANNMARIE: MAINSTREAM NEWS IS TALKING ABOUT BOND AUCTIONS, THAT SHOULD TELL YOU WHERE WE ARE. LISA: IN YOUR SUPER BOWL NEWS, WE'RE LOOKING AT OIL PRICES, LOWER RIGHT NOW, CRUDE, WTI IS DOWN ABOUT 1%, $90 50 TWO CENTS. BRENT, 02 70 THREE CENTS. DOWN ABOUT 1.5 PERCENT. QUESTIONS ABOUT HOW FAR THIS PRESENT WILL GO AHEAD OF ELECTIONS. ANNMARIE: HE WAS PRETTY EXPLICIT IN HIS TRUTH SOCIAL POST OF THE UNITED STATES WOULD NOT ATTACK IRAN BEFORE THE MIDTERM ELECTIONS BUT WE'VE SEEN THE PRESIDENT SAY ONE THING SOMETIMES AND DO SOMETHING ELSE. CONVENTIONAL WISDOM IS WITH HIGHER GASOLINE PRICES AND DIESEL PRICES -- WE GOT A READ FROM DELTA -- HIGH JET FUEL PRICES, AFFORDABILITY AT THE TOP OF THE POLLS TIME YOU SEE THIS CONSISTENTLY THAT THE WAR IS NOT RATING WITH THE AMERICAN PEOPLE, SO, POTENTIALLY, WE WON'T SEE STRIKES BEFORE THE ELECTION. LISA: PEOPLE ARE TRYING TO GAME THAT OUT. HOLDING OFF ON IRAN ATTACKS. >> IT WOULD MAKE MORE SENSE TO ME TO DO IT AFTER THE MIDTERMS THAN BEFORE. THE MIDTERMS ARE LARGELY ABOUT THE WEAKNESS OF THE PRESIDENT THAT IS A RESULT OF THE WAR. DOUBLING DOWN ON THE WEAKNESS SEEMS TO BE A LITTLE SUSPECT TO ME. >> I THINK REMARKABLY THE TRUMP ADMINISTRATION HAS NOT CARED SO MUCH. LISA: PRESIDENT TRUMP DENYING THE U.S. WILL STRIKE IRAN. THE WHO THESE INTENSIFIED STRIKES ON SAUDI ARABIA. PRESIDENT TRUMP WRITING ON TRUE SOCIAL THAT WE ARE HAVING PRODUCTIVE DISCUSSIONS WITH THE IRANIANS TO GET SOME SORT OF DEAL. JOINING US IS TYLER KENDALL WITH THE LATEST PEER QUIT HELPING LEARNED IN TERMS OF PRESIDENT TRUMP'S READINESS TO RESPOND? WITH THE LATEST. WHAT HAVE WE LEARNED IN TERMS OF THE PRESIDENT'S READINESS TO RESPOND? TYLER: HIS PRIOR STATEMENTS HAVE NOT ALWAYS ALIGNED WITH THE COURSE OF ACTION TAKEN, BUT WE ARE TALKING ABOUT TWO PARALLEL CONFLICTS AT THE MOMENT AS WE AWAIT WHAT HAPPENS IN IRAN WE SHOULD SAY SO FAR THE U.S. HAS OPTED AGAINST DIRECT INVOLVEMENT IN THE FIGHT AGAINST THE HOUTHIS BEYOND INTELLIGENCE SHARING. THE IRANIAN-BACKED GROUP HAS BEEN STRIKING SAUDI ARABIA WITH MISSILES AND DRONES ALMOST DAILY SINCE EARLY SEPTEMBER WITH THE LATEST ATTACKS PROMPTING SEVERAL AIRLINES TO CANCEL FLIGHTS TO RIYADH. THE RENEWED FIGHTING IS THREATENING FLOWS IN THE RED SEA THROUGH THE BAB AL-MANDAB STRAIT AND INTERESTINGLY COINCIDES WITH THE UPTICK IN ATTACKS WE ARE SEEING FROM IRAN IN THE STRAIT OF HORMUZ. I WANTED TO MENTION OVERNIGHT WE GOT REPORTS FROM IRANIAN STATE MEDIA SAYING TWO TANKERS WERE STRUCK BY MINES TRYING TO TRANSIT WITHOUT IRGC PERMISSION COINCIDING WITH THE TRADE ORGANIZATION SAYING WE'VE SEEN AT LEAST NINE DIRECT ATTACKS ON TANKERS IN THE STRAIT SO FAR THIS MONTH MARKING HALF OF THE TOTAL AMOUNT WE SAW FOR THE ENTIRE MONTH OF SEPTEMBER. LISA, WE WILL HAVE TO SEE WHERE IT GOES FROM HERE. YOU READ THE QUOTE FROM PRESIDENT TRUMP. HE SAYS THERE IS PROGRESS ON THE DIPLOMATIC FRONT. AT THIS POINT WE HAVEN'T GOTTEN UPDATES ON WHAT, IF ANY, DETAILS ARE EMERGING. LISA: THANK YOU. COLONEL WAYNE SANDERS OF BLOOMBERG INTELLIGENCE JOINS US. COLONEL SANDERS, WHAT IS YOUR TAKE ON THE ONGOING KINETIC ACTIVITY IS UNDER THE RADAR? IT'S ALMOST LIKE THERE IS A SECRET WAR GOING ON AS PEOPLE TRY TO TALK ABOUT ONGOING NEGOTIATIONS? WAYNE: ONE OF THE BIGGEST THINGS THAT I NOTICED RIGHT NOW IS THE UPTICK WAS KIND OF EXPECTED BEFORE THE ELECTIONS. I EXPECTED IRAN, EVEN THE HOUTHIS, I SUSPECTED THIS WAS GOING TO TAKE PLACE. IT'S ACTUALLY HAPPENING A LITTLE EARLIER THAN I THOUGHT. I THOUGHT IT WAS GOING TO HAPPEN CLOSE TO HALLOWEEN. GET THE MOST IMPACT OUT OF IT. THE U.S. COMING BACK, ONE MINUTE IS, I'M GOING TO LOOK AT PUTTING TOGETHER ADDITIONAL MILITARY STRIKE TARGET LISTS, SPECIFICALLY AGAINST IRAN IN CASE WE ARE CALLED UPON. THE U.S. WAS GOING TO RE-ESCALATE IN THAT REGION. IRAN AS WELL AS THE IRANIAN-BACKED HOUTHIS AND A SAUDI ARABIA'S RESPONSE IS STIRRING UP THE HORNETS NEST EARLIER THAN ANYONE WAS ANTICIPATING AT THIS POINT. ANNMARIE: DO YOU THINK THE U.S. WILL STEP IN TO SUPPORT THE SAUDIS AS THEY ARE INCREASINGLY UNDER FIRE FROM THE HOUTHIS? WAYNE: YOU WILL PROBABLY SEE ADDITIONAL AIR DEFENSE SUPPORT. INTELLIGENCE AND RECONNAISSANCE IS ONE OF THE BIGGEST PIECES. INTELLIGENCE SHARING HAS BEEN KEY IN TERMS OF TARGETING ANY TYPE OF THE WHO THE ORGANIZATIONS, ESPECIALLY WHEN YOU ARE LOOKING AT LAUNCHERS, WHERE THEY ARE. THEY WERE ABLE TO STOP SOME OF THE YEMEN GOVERNMENT MOVEMENT FORWARD WHEN THE HOUTHIS ATTACKED THE LAST TIME. EACH TIME THAT HAPPENS IT BRINGS THE U.S. IN TERMS OF WHAT THEY CAN ACTUALLY BRING, BUT I DON'T THINK YOU WILL SEE A LOT OF CANADIAN EXTRACTS RIGHT NOW BECAUSE THE LAST THING THE ADMINISTRATION PROBABLY WANTS, EVEN THOUGH I AGREE WITH YOU THAT A LOT OF KINETIC STRIKES RIGHT NOW BECAUSE THE LAST THING THE ADMINISTRATION PROBABLY WANTS, EVEN THOUGH I AGREE WITH YOU, LET'S NOT HAVE THE TWO FRONT WAR AT THIS POINT. ANNMARIE: WHAT DO YOU THINK THE SAUDIS ARE ASKING? THE THREE WERE KILLED, TWO INJURED ON THE MAIN AIRPORT ON RIYADH, CIVILIAN INFRASTRUCTURE. WAYNE: ABSOLUTELY. THAT'S ONE OF THE THINGS ABOUT USING A PROXY, EVERY TIME YOU TRY TO USE SOMETHING LIKE THE HOUTHIS THEY DON'T HAVE TO PLAY BY THE SAME CONVENTIONAL MILITARY EXPECTATIONS THAN ANYBODY ELSE DOES, AND THIS IS ONE OF THE AREAS WHERE YOU CAN HAVE THIS TERRORIST ORGANIZATION, AN ORGANIZATION THAT COMES FORWARD AND STRIKES COMMERCIAL, CIVILIANS, YOU CAN GO THROUGH ALL OF THOSE PIECES BECAUSE THEY ARE NOT ALLOWED TO LEVERAGE AS MUCH AS THEY POSSIBLY CAN. THIS IS ONE OF THE AREAS. IRAN GETS TO CLAIM PLAUSIBLE DENIABILITY BECAUSE IT IS A PROXY NOT COMING DIRECTLY FROM IRAN. ANNMARIE: WHEN YOU THINK THE PRESIDENT IS THINKING ABOUT POTENTIALLY HAVING TO RESTART STRIKES, IS IT POLITICS THAT IS POTENTIALLY HOLDING HIM BACK OR THE FACT THAT WE MIGHT NOT HAVE THE PREPARATION AND MUNITIONS RIGHT NOW BECAUSE WE HAVE RUN LOW? WAYNE: I THINK THE MILITARY WOULD BE ABLE TO DO IT IF SO. I THINK YOU HIT IT ON THE HEAD WHEN YOU SAID IT'S NOT RATING VERY WELL RIGHT NOW. IF IT WAS GOING TO HAPPEN COME THE LAST THING HE PROBABLY WANTS TO DO IS DO IT RIGHT BEFORE THE MIDTERMS AND END UP LOOKING LIKE A WARMONGER OR ANYTHING THAT IS OUT THERE RIGHT NOW. WHAT THEY ARE REALLY LOOKING AT -- THE MILITARY HAS JOINT INTEGRATED PRIORITIZED TARGET LISTS, SOMETHING THEY'VE ALWAYS HAD. THE TIMING OF WHAT THEY ARE IS SPECIFIC ABOUT WHEN THEY WOULD ACTUALLY GO FORWARD INTO IT. BALLISTIC MISSILE, AIR DEFENSE, COMMAND AND CONTROL, MARITIME OPERATIONS, NUCLEAR INFRASTRUCTURE, ENERGY INFRASTRUCTURE, PROBABLY THE TOP SIX THINGS THAT YOU WOULD SEE, BUT THEY WOULD WANT TO DO IT IN AN OVERWHELMING CAPACITY SIMILAR TO EPIC FURY WHEN IT ORIGINALLY STARTED. THE TIMING OF ALL THAT IS GOING TO BE VERY, VERY IMPORTANT. LISA: WHAT COULD THIS ADMINISTRATION, OR ANYONE, DO TO TRY TO REESTABLISH SOME SECURITY OF TRAVELING OVERSEAS TO REDUCE INSURANCE COSTS FOR TANKERS AND KEEP PEOPLE CONFIDENT ACTUALLY TRANSPORT GOODS? WAYNE: THIS IS ONE OF THE BIGGEST AREAS THAT IRAN HAS LEVERAGE IN BECAUSE THEY ARE DOING THAT. THEY DON'T HAVE TO BE THE U.S. NAVY OR ANY TYPE OF ALLIED FORCE AT THIS POINT IN TIME. ALL THEY HAVE TO DO IS MAKE SURE EVERYONE IS AFRAID ENOUGH AND NOT WILLING TO INSURE SHIPPING ACROSS AT THAT POINT IN TIME. ONE WAY YOU COULD POTENTIALLY -- AND PRESIDENT TRUMP MIGHT BE LOOKING AT IT THIS WAY -- IF I STRIKE THEM HARD ENOUGH ONE TIME AGAIN, SIMILAR TO EPIC FURY, AND WALK AWAY AND SAY NOW IT IS UP TO YOU GUYS TO FIGURE IT OUT, BUT THAT LEAVES THE GULF STATES, THE ALLIES THAT HAVE SUPPORTED HIM UNTIL NOW, AND MILITARY BASES IN THE U.S. OVERSEAS, THAT STILL PUTS THEM IN JEOPARDY. LISA: THANK YOU FOR THAT. I'M LOOKING AT OIL FUTURES. THE HIGHEST LEVELS ON RECORD, REALLY, FOR DECEMBER OF 2020 SEVEN. THAT CONTRACT. HIGHER FOR LONGER SEEMS TO BE THE MENTALITY IN MARKETS PEER XP TO YOU CAN'T FORGET WHAT IS GOING ON, NOT JUST THE STRAIT OF HORMUZ, THE BAB AL-MANDAB STRAIT, THE BLACK SEA, THE DIESEL IS ON EMBARGO WHEN IT COMES TO RUSSIA, THERE IS TIGHTNESS IN THE MARKET, CLEARLY. LISA: DELTA CUTTING THEIR FULL YOUR FORECASTER AS A RESULT OF OIL PRICES HIGHER FOR LONGER. DAVID TINSLEY CHECKING IN ON THE STATE OF CONSUMER SPENDING, MANAGING TO ABSORB HIGHER AIRFARES. PLUS, YOUR MORNING MOVERS. AIRLINE STOCKS MIRRORING WHAT WE HEARD FROM DELTA AND FALLING IN SYMPATHY. THIS IS BLOOMBERG SURVEILLANCE. ♪ LISA: EVERYTHING WE HAVE BEEN SAYING YOU CAN TURN IT ON ITS HEAD FOR THIS WEEK. THE UPPER PERFORMANCE HAS BEEN ISOLATED IN BIG TECH. WE HAVE SEEN A WEAKENING IN THE BROAD EQUAL WEIGHT INDEX. WE SAW A REPRIEVE FROM THAT YESTERDAY AND YOU ARE SEEING THE S&P OUTPERFORMED THE NASDAQ. TURNING IT BACK ON ITS HEAD AS PEOPLE TAKE A LOOK AT SOME OF THE NAMES BEATEN UP YESTERDAY ON THE HEELS OF THE OPENAI REPORT. NASDAQ FUTURES UP .8%. A LOT OF THIS HAS TO DO WITH QUESTIONS IN THE BOND SPACE. YIELDS OF JUST A BIT ALTHOUGH OFF EARLIER HIGHS AFTER TWO SUCCESSFUL AUCTIONS. YOU LAUGH AT ME. THEY WERE INCREDIBLY SUCCESSFUL WITH BID TO COVER RATIOS THAT WERE STRONG. INSTITUTION AL INVESTORS COMING IN ON THE SET RECORD PACE. ANNMARIE: EVERYDAY PEOPLE ARE TALKING ABOUT THIS. THIS IS SHOWING UP NOT JUST IN FINANCIAL PRESS. IT SHOWS HOW THE WHOLE MARKET IS ON TENDER AND THE NERVOUSNESS. WE DO HAVE THE FACT ADDING TO WHAT'S GOING ON AND THE BOND WORLD, WE WILL PRICES COMING DOWN. THEY ARE INEXTRICABLY LINKED. LISA: LOOKING AT FIVE AND A QUARTER PERCENT YIELDS ON THE 10-YEAR. OIL PRICES COMING IN JUST A TOUCH BUT THE STORY HAS BEEN HIGHER FOR LONGER AND WE SEE THAT AND DELTA'S EARNINGS AND LONG-TERM EXPECTATIONS. BRENT DOWN ABOUT 1%. NOT NECESSARILY RUNNING AWAY. THERE'S A FEELING MAYBE WE ARE NOT FACING ESCALATION. ANNMARIE: GEOPOLITICAL RISK PREMIUM PULLED BACK A LITTLE BUT WE ARE IN THIS UNCOMFORTABLE NEW NORMAL. WE ARE MORE THAN SEVEN MONTHS INTO THE WAR. YES, MORE PRODUCT IS GETTING THROUGH BUT THEY ARE COMING UNDER ATTACKS THROUGH THE STRAIT OF HORMUZ. IT IS COSTING MORE TO MOVE PRODUCT, THAT WILL IMPACT PRICE. ON THE OTHER, THE RED SEA. HOW MUCH MORE TENUOUS DOES THAT GET AS THE HOUTHIS ESCALATE STRIKES ON SAUDI INFRASTRUCTURE. LISA: WE ARE TURNING TO EUROPE. IN FRANCE AND GERMANY, 10-YEAR YIELDS LOWER, DOWN ALMOST SEVEN BASIS POINTS FOR THE FRANCE. CHRISTINE LAGARDE WAS SPEAKING TO A CLOSED-DOOR ROOM OF FINANCE MINISTERS, SAYING THE ECB HAS INSTRUMENTS TO COUNTER UNWARRANTED TO SORT OF THE MARKET DYNAMICS THAT THREATENED THE SMOOTH TRANSMISSION OF MONETARY POLICY. A QUESTION OF WHETHER THEY WILL HOLD OFF ON RATE HIKES OR CONSIDER OTHER TOOLS. HERE ARE THE MORNING MOVERS. YAHAIRA: DELTA FALLING IN THE PREMARKET. THAT IS DRAGGING DOWN THE REST OF THE AIRLINES AFTER DELTA CUT ITS FULL YEAR PROFIT OUTLOOK AS FUEL COSTS SOAR. EVEN OWNING A REFINERY HAS NOT BEEN ENOUGH TO CUSHION THAT HIT WITH DELTA EXPECTED TO SPEND $6 BILLION MORE ON FUEL COSTS THAN IT DID LAST YEAR. THE CEO SAYING TO ME AND HOLDING UP WITH PEOPLE BOOKING INTO THE HOLIDAYS AND NEXT YEAR EVEN AS AIRFARE CONTINUES TO RISE. WE ARE SEEING A REBOUND IN THE CHIPS STOCKS. NVIDIA, BROADCOM ALL RISING AFTER YESTERDAY'S SELLOFF WHEN INVESTORS WERE RATTLED OUR REPORTS THAT OPENAI'S ANNUALIZED REVENUE WAS $50 BILLION IN SEPTEMBER, WELL SHORT OF THE $70 BILLION PREVIOUSLY REPORTED. THAT WAS LOOKING BACKWARD AND APPEARS STOCKS ARE FINDING RELIEF AND WE ARE REPORTING OPENAI IS EXPECTED TO REACH $70 BILLION BY YEAR END, HELPED BY ITS ENTERPRISE BUSINESS. HUMANA, ONE OF THE BIGGEST GAINERS IN THE PREMARKET, SOARING NEARLY 15% AFTER ITS BIGGEST MEDICARE ADVANTAGE PLAN EARNED A HIGHER QUALITY RATING. AND NOW QUALIFIES FOR GOVERNMENT BONUSES WHICH WILL BOOST REVENUE IN 2028. LISA: OPENAI EXPECTING TO REACH AT LEAST $70 BILLION IN ANNUALIZED REVENUE BY YEAR-END. PEOPLE TELLING US THE AI LAB SHARED THE NUMBERS WITH INVESTORS IN ITS LATEST FUND RAISING EFFORT. PEOPLE UNDERSTAND JUST HOW MUCH THESE COMPANIES ARE PROFITABLE. THE WHITE HOUSE CRACKING DOWN ON VISAS FOR BIG TECH. >> THERE HAS BEEN NO COMPANY IN THE UNITED STATES THAT HAS ABUSED THE SYSTEM MORE THAN MICROSOFT. WE HAVE DECIDED TO SUSPEND THE PROGRAM FOR MICROSOFT. THEY WILL NO LONGER BE ABLE TO APPLY -- NO LONGER TAKING THOSE H-1B'S TO APPLY FOR PERMANENT RESIDENT STATUS IN THE UNITED STATES OF AMERICA. LISA: ACCUSING MICROSOFT, ADOBE, AND OTHER COMPANIES OF ABUSING A U.S. WORKER VISA PROGRAM. THEY ARE BANDED DEFINITELY FROM THE POPULAR TALENT PIPELINE. SPACEX ENTERING THE U.S. WIRELESS MARKET. THEY ANNOUNCED PLANS TO BECOME A MAJOR MOBILE CARRIER AFTER REACHING A DEAL TO BUY SPECTRUM LICENSES. THEY STILL NEED FCC APPROVAL AND INVESTMENTS IN CELL TOWERS AND ROOFTOP EQUIPMENT BUT WE SEE SHARES OF AT&T AND VERIZON SHARPLY LOWER IN THE PREMARKET TRADING. ANNMARIE: THIS IS WHAT PEOPLE THOUGHT FOR A WHILE WHEN IT COMES TO STARLINK. AIRLINES ARE USING THEM. I HAVE GOTTEN INTO CAMPS BEFORE WITH A SAFETY WANT TO CONNECT TO MY STARLINK, I HAVE WI-FI. I DON'T KNOW IF THIS IS WHY ELON MUSK SAID I SEE A PATH TO SPACEX BEING WORTH ORDERS OF MAGNITUDE MORE THAN THE CURRENT EARTH ECONOMY. LISA: MAYBE IT WILL BE AN EARTHLY PRACTICE OF WIRELESS TELECOMMUNICATIONS RATHER THAN GOING TO MARS. THE EARTHLY PRACTICE OF SPENDING MONEY IS A STRONG. CONSUMER CHECKPOINT REPORT HIGHLIGHTING SOLID SPENDING FOR SEPTEMBER, BROAD STRENGTH ACROSS RETAIL AND SERVICES. HOUSEHOLDS SPEND UP BY 6.2%. "THE STRENGTH EXTENDS ACROSS INCOME COHORTS WITH THE ONGOING RECOVERY OF LOWER AND MIDDLE INCOME HOUSEHOLDS SPENDING GROWTH." DAVID TINSLEY JOINS US NOW. ALWAYS GREAT TO CATCH UP WITH YOU, ESPECIALLY AFTER THE DELTA REPORT THAT SHOWS DESPITE HIGHER PRICES AND FUEL THAT HAS BEEN SPIKING PEOPLE ARE STILL SPENDING. THAT SEEMS TO BE CONFIRMED IN YOUR STUDY. DAVID: VERY MUCH. THE GROWTH RATES YOU SHOWED WHERE THE STRONGEST IN FOUR YEARS. PEOPLE ARE SPENDING. WHAT STRUCK US THIS MONTH WAS THAT PEOPLE -- IT IS THE BREADTH OF THE STRENGTH. OVER 80 PERCENT ARE SEEING RISING SPENDING GROWTH AND WHEN YOU LOOK AT SERVICES, AS YOU WERE SAYING, AIRLINES, RESTAURANT, OTHER TRAVEL RELATED ITEMS ALL SHOWING STRENGTH. SOMETIMES THE CHALLENGE IS TO FIND SOMETHING GLOOMY TO SAY. EVERYTHING LOOKS PRETTY STRONG IN TERMS OF THE CONSUMER RIGHT NOW. LISA: THE ONE GLOOMY THING YOU COULD SAY IS IT IS STRONG ON AN ABSOLUTE BASIS. INFLATION IS PICKING UP AND DISPROPORTIONATELY IN THE LOWER INCOME COHORTS DISPROPORTIONAL AMOUNT OF GOODS THEY ARE BUYING ARE BEING AFFECTED BY THE HIGHER DIESEL PRICES, HIGHER GASOLINE PRICES, THE OTHER HIGHER INPUT PRICES. HOW DO YOU SQUARE THAT WITH VIDEO STRENGTH? DAVID: THAT'S A GOOD QUESTION. WHEN WE LOOK AT TRANSACTIONS RATHER THAN THE MONEY PEOPLE ARE HANDING OVER, THAT DATA LOOKS PRETTY STRONG. THAT IS OF ABOUT 70% OF DISCRETIONARY RETAIL CATEGORIES. EVEN WHEN YOU LOOK THROUGH THE INFLATION EFFECT THERE IS STRENGTH. YOU MAKE A GOOD POINT WHICH IS THAT AVERAGES HIDE A BROAD RANGE OF EXPERIENCES. AS WE HAVE HIGHLIGHTED IN THE CHECKPOINT OVER TIME THERE ARE PEOPLE IN THE DISTRIBUTION TO CONSUME A LOT OF GASOLINE AND EXPOSED A LOT TO SHOCKS WHO ARE FEELING UNDER PRESSURE. WHEN YOU LOOK AT CONSUMER CONFIDENCE DATA, PEOPLE ARE NOT FEELING GREAT. THEY ARE COGNIZANT WHEN THEY GO TO THE STORE OF THE PRICES THEY ARE PAYING NOW COMPARED TO WHAT THEY PAID A FEW YEARS AGO. ANNMARIE: DO YOU EXPECT PURCHASING POWER HIT BY THE FACT WE NOW HAVE A 7.5% MORTGAGE RATE IN THE UNITED STATES? DAVID: THE SHORT ANSWER IS NO, NOT REALLY. WHEN THE FED WAS PREVIOUSLY HIKING WE DID NOT SEE MUCH PAUSE IN TERMS OF WEAKENING ON THE CONSUMER. LARGELY WE KNOW A LOT OF PEOPLE ARE ON FIXED RATE. IF YOU WANT TO FIND SOFT SPOTS IN THE SPENDING DATA, IT TENDS TO BE IN THE HOUSING SENSITIVE AREAS. FURNITURE, BUILDING, DO-IT-YOURSELF, HOME MAINTENANCE TYPE MATERIALS. THOSE ARE ALL A BIT SOFT. I WOULD NOT BE SURPRISED IF THEY REMAINED SOFT. I DON'T THINK IN THE SHORT RUN -- OBVIOUSLY OVER TIMES HIGHER RATES FEED THROUGH TO THE REAL ENVIRONMENT BY EMPLOYMENT WAGES AND THEN IMPACT THE CONSUMER. UPFRONT THE CONSUMER WILL WEATHER THAT. ANNMARIE: I CAN SPEAK FROM PERSONAL SCREENS THAT BUILDING MATERIALS IS VERY EXPENSIVE. WE ARE UNDER FOUR WEEKS AWAY FROM AN IMPORTANT U.S. MIDTERM ELECTION. LAST TIME YOU ARE ON YOU TALKED ABOUT THE CLOSING OF THE K-SHAPED ECONOMY. CAN YOU TALK ABOUT THE LOWER END OF THE K ? HOW ARE THEY WITHSTANDING ALL THESE HIGHER PRICES? DAVID: WE HAVE SEEN THIS ONGOING STORY OVER THE LAST THREE OR FOUR MONTHS WHERE LOWER INCOME HOUSEHOLDS' WAGE GROWTH HAS PICKED UP. IN THE CURRENT DATA IT IS AROUND 4.5%. THAT HAS LARGELY HELPED THEM RECOVER IN TERMS OF THEIR SPENDING GROWTH. RIGHT NOW, UNBELIEVABLY ALMOST, LOWER INCOME HOUSEHOLDS ARE OUTSPENDING AND OUTEARNINGS AND TOMES OF GROWTH TERMS MIDDLE AND HIGHER INCOME COHORTS. WILL THAT HAVE LEGS? WE THINK SOME OF THAT IS OUT OF THE ONE BIG BEAUTIFUL BILL AND THE ADJUSTMENTS IT MADE IN TERMS OF TAX WITHHOLDINGS ON TIPS AND OVERTIME, ETC. THAT WILL HAVE SOME PERSISTENT -- DESPITE WEAKNESS IN THE LAST PAYROLLS. WHEN WE LOOK AT THE DATA WE SEE AVERAGE HOURS PICKING UP AND SOME OF THESE MORE LOWER PAID INDUSTRIES WHICH WILL SUPPORT HOURLY PAID WORKERS IN THOSE SECTORS. THE NARROWING OF THE K WILL SEE US THROUGH THE REST OF THE YEAR FOR SURE. LISA: DO YOU THINK OF OIL PRICES WENT DOWN, OVERALL SPENDING WOULD GO DOWN OR PICK UP EVEN FURTHER IN OTHER CATEGORIES? DAVID: YOU KNOW, ONE OF THE THINGS THAT SURPRISED ME FROM THE START OF THIS YEAR AS HE MOVED THROUGH WAS THAT THE HIKING OIL PRICES IN THE FUTURE IN GASOLINE DID NOT KNOCK OFF CONSUMER DISCRETIONARY SPENDING. I'M INCLINED TO THINK YOU HAVE TO BE SYMMETRICAL ABOUT THIS. IF OIL GOES DOWN, I WOULD BE SURPRISED IF DISCRETIONARY NECESSARY ACCELERATED FROM HERE. THERE IS A CHANCE OF THAT AS WE HEAD INTO THE HOLIDAYS, ETC. AMAZINGLY SO, I THINK THE CONSUMER HAS JUST BEEN RESILIENT AND FAIRLY INVARIANT TO MOVEMENTS IN GASOLINE PRICES. LISA: DAVID TINSLEY, ALWAYS INSIGHTFUL. THANK YOU FOR BEING WITH US THIS MORNING. LET'S GET AN UPDATE ON STORIES ELSEWHERE THIS MORNING. VONNIE: THANK YOU. SOFT FAKE SEEKING TO RAISE 00 BILLION FROM GULF INVESTORS TO EXPAND HIS AI BETS. FINANCIAL TIMES REPORTING THE CEO HAS HELD EARLY TALKS WITH INVESTORS, SOME BASED IN THE UAE. IT WOULD BUY COMPANIES AND USE THEIR AI TO IMPROVE OPERATIONS. NVIDIA BACKED FIRMNESS IS EXPLORING OF PRIVATE FUNDING ROUND OF HIS WHICH IS $3 BILLION AFTER HIS PLANNED IPO COLLAPSED. SOURCES TELLING US OF BLOOMBERG THAT THE DATA CENTER OPERATOR IS IN TALKS WITH EXISTING INVESTORS. THE FINANCING STRUCTURE HAS YET TO BE FINALIZED. WEEK FIVE OF THE NFL KICKED OFF WITH THE TAMPA BAY BUCCANEERS OF SETTING THE COWBOYS 24-16. MUCKY IRVING RAN FOR 160 YARDS, ACCOUNTING FOR TWO TOUCHDOWNS, LEADING TAMPERED TO THEIR FIRST WIN OF THE SEASON. JACK PRESCOTT THREW TWO INTERCEPTIONS AS THE COWBOYS FALL TO 2-3 ON THE YEAR. THAT IS YOUR BLOOMBERG BRIEF. LISA: UP NEXT, THE AI SUPER CYCLE. >> IF YOU HAVE AN ECONOMY GROWING AT SIX PLUS PERCENT, IT'S HARD TO ANTICIPATE A SIGNIFICANT DEFAULT CYCLE THAT WILL PRESENT SPREADS WIDER. LISA: JOINING US NEXT IS JAKE POLLACK. THIS IS BLOOMBERG SURVEILLANCE. ♪ LISA: BOUNCE BACK FRIDAY AFTER A TUMULTUOUS WEEK, SEEING GAINS IN THE PREMARKET TRADING LED BY THE NASDAQ AFTER YESTERDAY'S BIGGEST ONE-DAY FALL ON THE TECH NAMES GOING BACK TO JULY. TODAY TAKING IT BACK. S&P FUTURES OF .4%. IT HAS BEEN ONE OF THE LONGEST DOLLAR STRENGTHENING PERIODS GOING BACK TO 2025. 10-YEAR HIGHER BY ABOUT TWO BASIS POINTS. CRUDE OIL HIGHER ON THE BASIS PRESIDENT TRUMP MAY NOT ENGAGE UP IN CONNECTICUT WARFARE AHEAD OF THE MIDTERM ELECTIONS. KINETIC WARFARE. ANNMARIE: 500,000 BARRELS GETTING HIT FROM THE HURRICANE. I THINK WHEN YOU SEE THAT QUICK MOVE BACK YESTERDAY, THE PRESIDENT CAME OUT WITH THE TRUTH SOCIAL POST. THAT IS A GEOPOLITICAL RISK PREMIUM. LISA: YOU CAN SEE IT CONTINUING TO RISE. THE OTHER PRICING IS WHAT PEOPLE ARE PAYING FOR TOKENS AND PAYING FOR AI. UNDER SURVEILLANCE, THE AI SUPER CYCLE. >> IF YOU HAVE AN ECONOMY GROWING WITH NOMINAL GDP OF SIX PLUS PERCENT, IT IS PRETTY HARD TO ANTICIPATE A SIGNIFICANT DEFAULT CYCLE THAT WILL PRESENT SPREADS WIDER. I DON'T THINK YOU'RE SEEING A DEFAULT CYCLE COMING. LISA: A COMPANY FACING HEADWINDS. FIRMUS LOOKING TO RAISE $3 BILLION AFTER DROPPING PLANS TO GO PUBLIC DUE TO WEAK DEMAND. JACK POLLACK WRITING, "AI IS DRIVING GROWTH BUT THE SUPPLY IS CAUSING TECHNICAL INDIGESTION." JAKE IS HERE WITH US, THEY GET A BEAUTIFUL THING. JACK: MY PLEASURE. LISA: WE HAVE SEEN A NUMBER OF COMPANIES COME TO MARKET WITH BIG DEBT OFFERINGS, THERE SPREADS WIDE NONEXISTING DEBT, THE STOCKS SELL OFF. HOW MUCH IS THIS A REFLECTION OF CREDIT RISK VERSUS PEOPLE TRYING TO DEAL WITH HOW MUCH THEY ARE TRYING TO BRING DOWN? JAKE: THE AI ISSUANCE HAS CREATED A BIT OF A SUPPLY AND DEMAND IMBALANCE. IF YOU LOOK AT THE INVESTMENT-GRADE BOND INDEX, IT WIDENED ABOUT THREE BASIS POINTS ON THE YEAR. IF YOU LOOK AT THE HYPERSCALERS, IT'S ABOUT 40 BASIS POINTS ON THE YEAR. IF YOU IGNORED THE NAMES AND LOOKED AT THE CREDIT RATINGS, THAT'S A BIG BUYING OPPORTUNITY. I THINK FROM A PEER SUPPLY-DEMAND PERSPECTIVE, INVESTORS ARE WEIGHING HOW MUCH MORE WILL COME IN THE FUTURE WHICH DRIVES SPREADS AND THAT'S A HEALTHY MARKET MECHANISM. LISA: ONE THING PEOPLE HAVE BEEN TRYING TO GRAPPLE WITH IS, HOW TO THEY OFFSET THE RISK AS THEY ARE TAKING DOWN AN INCREASING PORTION OF THIS HYPERSCALER DEBT? WHAT IS YOUR SENSE OF HOW THEY ARE DOING THAT AND GOING TO NEW INSTRUMENTS TO MAKE SURE THEY ARE HEDGED? JAKE: THE CREDIT MARKETS CONTINUE TO EXPAND TO PROVIDE OPTIONS FOR INVESTORS. WE TRADE A LOT OF MACRO CREDIT PRODUCTS. CVS, WHICH A FEW YEARS AGO FOLKS WOULD HAVE SAID WAS MORE ABOUT MARKET, HAS REINVIGORATED. CREDIT DEFAULT SWAPS. CREDIT DEFAULT SWAPS ON HYPERSCALERS ARE INCREASINGLY PREVALENT. TWO OR THREE YEARS AGO WOULD YOU HAVE REALLY BOUGHT CREDIT DEFAULT SWAP? WOULD YOU BUY PROTECTION ON A GOOGLE, META, AMAZON? HEADING IN THE MARKET IS INCREASING. THAT IS A HEALTHY MARKET FUNCTION. LISA: HOW MUCH DOES THAT REFLECT THE TRUE CREDIT RISK AND HOW MUCH DOES THAT REFLECT THE FACT THAT INCREASINGLY INVESTORS ARE CONCENTRATED ON A COUPLE OF NAMES? JAKE: THE INVESTORS THAT ARE BUYING PROTECTION ARE SOMETIMES DOING IT -- YOU CAN HAVE A LOT OF DIFFERENT REASONS TO BUY PROTECTION. AN INVESTOR COULD BE CREATING PROTECTION IN THEIR PORTFOLIO . YOU CAN HAVE A CORPORATE THAT MIGHT WANT TO HEDGE RISK AND YOU CAN HAVE OTHER FOLKS THAT MIGHT HAVE EXPOSURE IN SOME MANNER TO ONE OF THOSE NAMES OR THE PERIPHERY. YOU ACCESS THE MARKET TO CREATE THAT HEDGE. I THINK THERE'S A LOT OF REASONS WHY. THERE'S A LOT OF PRACTICAL USE CASES FOR THE PRODUCTS. ANNMARIE: HOW DO YOU ANSWER CIRCULAR FINANCING CONCERNS? JAKE: YOU HAVE TO START WITH IS THE UNDERLYING PRODUCT PRODUCTIVE? IS THERE A USE CASE? YES. WE ARE USING AI VERY RESPONSIBLY BUT USING IT TO DO THINGS THAT MAKE -- WE USE IT FOR CLIENTS. WE USE IT FOR ANALYSIS. I'M A CREDIT ANALYST SO I GO BACK 22 YEARS DOING CREDIT WRITEUPS. THE PROCESS OF PULLING DATA IS ONE OF THE MOST ONEROUS PROCESSES FOR AN ANALYST. AI HELPS TO DO THAT IN LIGHTSPEED SO YOU CAN SPEND MORE TIME ON THE ANALYSIS AND MORE TIME WITH CLIENTS. THE UNDERLYING APPLICATION IS A POSITIVE ONE. THE GROWTH YOU ARE SEEING IN ALL THE ISSUES ARE ACTUALLY A PRODUCTIVE USE. ANNMARIE: A STORY ABOUT WALMART AND HOW AS THEY TRIED TO USE MORE AI AND SHIFT THEIR LOGISTICS TO MORE THIS IS ACTUALLY TAKING A LOT LONGER AND IT'S A LOT MORE EXPENSIVE. DO YOU THINK THE MARKET IS OVEREGGING HOW QUICKLY WE CAN GET TO THAT SPACE? JAKE: IT WOULD BE SURPRISING IF THE PROCESS -- YOU HAVE TO HAVE BUMPS IN THE WAY. IT IS NOT SURPRISING THAT YOU HAVE GOT AN APPLICATION THAT WHEN YOU ACTUALLY WENT TO AUTOMATE IT YOU HAD TO DO SOME WORK AROUND. THAT'S A NATURAL THING. YOU WILL CONTINUE TO SEE EXPANDED USE CASES FOR AI. AGAIN, I THINK THAT'S A BIG POSITIVE FOR THE U.S. ECONOMY. LISA: ONE BIG DEVELOPMENT IS THE OUTGROWTH OF PRIVATE CREDIT AND HOW MUCH THE INVESTMENTS HAVE SUPPORTED AND WORKED IN TANDEM WITH THE PUBLIC MARKETS. I WONDER HOW DEEP THE POOLS OF CAPITAL ARE. WE SEE THESE ANNOUNCEMENTS OF $60 BILLION OF FUNDRAISING PLAN AND COMPANIES PLANNING TO REMAIN PRIVATE FOR LONGER. TO WHAT DEGREE IS THERE A LOT OF DRY POWDER? JAKE: THE MARKETS ARE VERY DEEP AND THERE IS A LOT OF CAPITAL, BOTH IN THE PUBLIC AND PRIVATE MARKETS. IF YOU LOOK AT THE TRILLIONS OF DRY POWDER BOTH IN THE PRIVATE EQUITY AND PRIVATE CREDIT ECOSYSTEM, I THINK THEY ARE PRETTY DEEP. ONE THINK THAT'S INTERESTING. IF YOU GO BACK TO 2022, THE LAST FED HIKING CYCLE, YOU HAD PRIVATE CREDIT GROWING AND SOME OF THE LEVERAGED FINANCE MARKETS WERE SHRINKING. HIGH YIELD WAS SHRINKING AT THAT TIME. TODAY YOU HAVE THE PRIVATE CREDIT MARKET CONTINUING AND THE PUBLIC CREDIT MARKET GROWING. BOTH ARE USED TO FINANCE THE I I CAPEX ECOSYSTEM. THAT IS A POSITIVE THING THAT YOU ARE SEEING CONVERGENCE BETWEEN THOSE TWO MARKETS TO FUND CAPITAL NEEDS. LISA: PEOPLE SAY AI ISSUERS ARE RIGHT AND SENSITIVE AND THEY WILL KEEP COMING TO MARKET REGARDLESS OF WHAT BENCHMARK RATES DO. DO YOU SEE THAT AS THE CASE? DO YOU SEE MORE DISCRETION WHEN IT COMES TO EXACTLY WHEN YOU ISSUE CONSIDERING WHERE BOND YIELDS ARE? JAKE: I THINK SO. YOU WOULD NOT EXPECT TO BE LINEAR AND HAVE EVERYTHING BE SMOOTH SAILING ALL THE WAY. THAT WOULD BE CAPITAL MARKETS NOT FUNCTIONING IN A NORMAL WAY. YOU MENTIONED THE HYPERSCALER SPREADS RELATIVE TO THE THE NON-HYPERSCALER SPREADS. IF YOU LOOK YEAR TO DATE, HYPERSCALERS WERE 40 PIPS WIDER THAN THE IG INDEX. HYPERSCALERS HAVE WIDENED AS ISSUANCE HAS HAPPENED. THAT'S AN INDICATOR. IF YOU ARE A CFO AND YOU SEE YOUR BORROW COST GO UP, HE DO FACTOR THAT IN. THEY MIGHT SAY IT HAS NOT GOT UP ENOUGH FOR ME TO PULL BACK YET BUT IT IS AN INDICATOR. THEY DO LOOK AT IT. LISA: JAKE POLLACK, GREAT TO GET YOUR INSIGHTS. JAKE POLLACK OF JP MORGAN WHEN EVERYONE IS FOCUSING ON CREDIT MARKETS BECAUSE THAT IS ENABLING THE BIG AI BILL THAT. ANNMARIE: THEY ARE NOT COMPLETELY IMMUNE. MAYBE IMMUNE TO OTHER PARTS OF THE MARKET BUT NOT COMPLETELY IMMUNE. HE'S TALKING ABOUT THE FACT YOU WANT TO SEE MAYBE SOME HURDLES. IT'S MORE HEALTHY. AI AND DATA CENTER BUILDOUTS ARE MEASURES THAT ARE ON BALLOTS IN ABOUT SIX OR SEVEN STATES. LISA: A POTENTIAL FULL CASE AND IF YOU ARE LOOKING FOR REVENUE. WHERE PEOPLE ARE PUTTING THEIR MONEY AS INVESTORS INVEST IN THE DATA CENTERS. JEANNE SUN, SHEILA KAHYAOGLU, ERIN MCLAGHLIN, AND SAIRA MALIK FOR THE THIRD HOUR OF BLOOMBERG SURVEILLANCE OF NEXT. THIS IS BLOOMBERG. ♪ >> THE BACK AND YIELDS HAS BEEN PRETTY EXTRAORDINARY. >> THE BELLY OF THE CURVE IS THE PLACE TO HANG OUT IN GOVERNMENT BONDS. >> VON VIGILANTE CONCEPTS WOULD BE A REAL CONCERN IF WE GOT THE BOND YIELD UP TO 6% OR HIGHER. >> I DON'T THINK MOVING THE FRONT END UP WILL KEEP THE BACKEND DOWN. >> THE HIGHER RATES WILL IMPACT THE ECONOMY. >> THIS IS "BLOOMBERG SURVEILLANCE" WITH JONATHAN FERRO, LISA ABRAMOWICZ AND ANNMARIE HORDERN. LISA: WELCOME TO THE THIRD HOUR OF "BLOOMBERG SURVEILLANCE" WITH STOCKS CLIMBING AND BOND YIELDS MUTED. TRADERS BEING PUT ON HOLD BUT LOOKING TO KICK OFF A BUSY EARNINGS SEASON NEXT WEEK LED BY THE BIG WALL STREET BANKS AND A KEY INFLATION RATE FOR CLUES ON WHAT THE FED'S NEXT MOVE WILL BE ON TUESDAY WITH CPI. ANNMARIE: ESPECIALLY AS WE HAVE OFFICIAL AFTER OFFICIAL BASICALLY PULL BACK THE URGENCY. THEY ARE HAWKISH. WE ARE LIKELY TO HAVE ANOTHER HIKE BUT NOT A FEW DAYS BEFORE THE MIDTERM ELECTION IN OCTOBER. NEXT WEEK WILL BE ALL ABOUT EARNINGS. DELTA REALLY SETTING THE SCENE. HIGHER PRICES, HIGHER JET FUEL IS HITTING THEM. LISA: THE MAIN QUESTION WITH RESPECT TO THE BANKS BUT ALSO THE CONSUMER STOCKS AFTER DELTA IS HOW MUCH THIS IS GOING TO HIT MARGINS? HOW MUCH ARE THEY ABLE TO PASS ALONG PRICES AND CONSUMERS CONTINUING TO SPEND? THEY REDUCED THEIR FULL-YEAR FORECAST FOR PROFITS. BACK TO BACK WITH DAVID TINSLEY TALKING ABOUT HOW ROBUST SPENDING WAS AND PEOPLE ARE STILL GOING OUT THERE AND CONTINUING TO BUY GOODS. WE ARE THE SAME TONE FROM DELTA. IT SETS UP A PUSH-PULL FOR THE FEDERAL RESERVE. YES, PRICES ARE HIGHER BUT PEOPLE ARE STILL SPENDING. ANNMARIE: EVEN THOUGH IN SURVEYS AND POLLS AND YOU SEE THIS CONTINUOUSLY IN THE POLITICAL POLLS AHEAD OF THE MIDTERMS OF PORTABILITY, HIGHER PRICES, THAT IS THE MAIN DRIVER OF WHY PEOPLE ARE GOING TO COME OUT AND VOTE AND PEOPLE SAY IT'S A REFERENDUM ON THE TRUMP ADMINISTRATION. ED BASTIAN SAYS I WOULD NOT CALL THIS A SURPRISE. IT'S BECAUSE OF HIGHER FUEL PRICES. THEY HAVE THE BEST ABILITY TO PRICE FOR THAT. THEY HAVE A REFINER. THIS AS I WONDER WITH THE REST OF THE AIRLINE INDUSTRY IS GOING TO BE REPORTING IF THIS IS WHERE DELTA IS WITH HIGHER JET FUEL PRICES. LISA: WE HAVE SEEN A LOT OF THE CONSUMER DISCRETIONARY'S GETTING BEATEN UP. PEOPLE HAVE BEEN PREPARING FOR SOME SORT OF EITHER EQUILIBRIUM OR DOWNTURN IN CONSUMER SPENDING. IT'S BEEN ALL AND THE AI TRADE WHICH WAS WHY YESTERDAY WAS NOTABLE WHEN THE STORY CAME AT ABOUT OPENAI AND WHAT POTENTIAL IS THE RUNWAY FOR PROFITABILITY, SAYING HOLD ON. ALL THESE COMPANIES IN THE TECH UNIVERSE MIGHT BE HINGED ON THESE HYPERSCALERS AND THEY MIGHT NOT BE AS PROFITABLE AS THEY ONCE WERE. THE VOLATILITY OFF THE BACK OF THAT IS NOTABLE. ANNMARIE: EARLIER THIS MORNING IT IS THE SIGNAL THAT' SETS THAT $20 BILLION GAP. THEY WANT TO BE APPLES TO APPLES , BUT IT SENDS A SIGNAL ABOUT HOW MUCH INVESTORS ARE LOOKING AT THIS WITH A FINE TOOTH COMB TO MAKE SURE THEY UNDERSTAND THE FINANCIALS OF THESE COMPANIES. WHAT DID GEORGE SAY THIS MORNING? WE SURVIVED ANOTHER WEEK BUT IT FEELS LIKE THIS ENTIRE MARKET IS BALANCING ON THE PIN OF AI. LISA: BALANCING ON EXHAUSTION WITH ALL THE VOLATILITY RIGHT NOW. A BIT OF A REBOUND EQUITIES LED BY BIG TECH. UP ABOUT .9% AND CONTINUING TO CLIMB YOUR SESSION HIGHS. .4% ON THE S&P AND RUSSELL. A GIVEBACK IN THE BOND SPACE AFTER YESTERDAY'S RALLY. WE ARE SEEING YIELDS UP ALTHOUGH MUCH LESS THAN EARLIER THIS MORNING. ALMOST FLAT ON THE MORNING. 5.60% ON THE 30-YEAR. IN THE CRUDE SPACE PRESIDENT FROM SIGNALING HE DOES NOT INTEND TO IGNITE COUNTER STRIKES AGAINST IRAN AHEAD OF THE MIDTERM ELECTIONS. BRENT CRUDE DOWN ABOUT 1.5%. COMING UP, JEANNE SUN WITH MARKETS HOVERING AROUND ALL-TIME HIGHS. SHEILA KAHYAOGLU OF JEFFRIES BREAKING DOWN THE LATEST EARNINGS FROM DELTA. AND ERIN MCLAGHLIN OF THE CONFERENCE BOARD LOOKING TO A KEY WEEK OF ECONOMIC DATA ON DECK. WE BEGIN WITH STOCKS REGARDING FOLLOWING A SELLOFF IN CHIPS. JEANNE SUN WRITING, "AIS BROADENING, NOT ENDING. THE NEXT PHASE WILL FOCUS ON WHO MONETIZES AI AND WHO BENEFITS FROM THE ENORMOUS INVESTMENT REQUIRED TO BUILD AND DEPLOY IT." JEANNIE, GREAT TO SEE YOU. I WANT TO START WITH YESTERDAY. WE HAVE BEEN TRYING TO PARSE THROUGH YESTERDAY WHEN THE OPENAI STORY. WHAT WAS THE SIGNAL IT SENT TO YOU? THERE WAS SO MUCH MARKET CAPITALIZATION LOST ON THE HEELS OF THIS REPORT. JEANNE: IT'S MORE OF A SIGNAL ABOUT THE MARKET SENTIMENT THAN ABOUT THE ACTUAL UNDERLYING FUNDAMENTALS OF AI. FROM A TEAM PERSPECTIVE, WE REALLY THINK THE AI CAPEX CYCLE IS INCREDIBLY DURABLE. WE HAVE HEARD FROM THE LAST SPEAKER. THERE IS PLENTY OF BALANCE AND DEMAND FOR AI AND LOTS OF USES. THE FOCUS IS STARTING TO SHIFT A LITTLE BIT FROM THE PICKS AND SHOVELS AND THE SEMI TRADE. TO WHAT COMES NEXT THIS IS SOMETHING WE HAVE BEEN LOOKING FOR AND GETTING MORE DATA ON. MANAGEMENT TEAMS HAVE BEEN PRETTY CONSERVATIVE AND WHAT THEY ARE ABLE TO SAY IN TERMS OF PROFITABILITY GAINS, MARGIN EXPANSION, BENEFITS. I THINK THAT IS TOTALLY UNDERSTANDABLE. THE MARKETPLACE ANALYSTS LIKE TO EXTRAPOLATE NUMBERS SO IT MAKES SENSE MANAGEMENT TEAMS WOULD BE CONSERVATIVE. YOU ARE STARTING TO SEE MORE OF THAT, EXAMPLES OF WHERE PRODUCTIVITY IS STARTING TO SHOW UP. I DO THINK THIS IS ONE OF THOSE THINGS WHERE THE MARKETPLACE IS STARTING TO PREPARE FOR IT. CLIENTS HAVE BEEN ASKING, SHOULD WE BALANCE OUT THE AI EXPOSURE? THAT IS WHERE THE VOLATILITY IS SHOWING UP. LOTS OF QUESTIONS EVERY TIME THERE IS NEWS OR HEADLINES ABOUT IS THE AI TRADE OVER. IS THE BUBBLE ABOUT TO BURST. THAT SAYS SOMETHING ABOUT HOW NERVOUS PEOPLE MIGHT FEEL. YET AMONG THE CLIENT BASE WE DON'T REALLY SEE ANY SELLING OF THE ACTIVITY EITHER BECAUSE THE FUNDAMENTALS ARE SO STRONG. LISA: THIS IS COUNTERINTUITIVE TO ME. MY FIRST REACTION WAS, IT JUST SHOWS HOW LEVERAGED THE ENTIRE AI SECTOR IS TO OPENAI AND ANTHROPIC. YOUR VIEW IS IT IS A SIGNAL OF HOW MUCH PEOPLE WANT TO SELL AND HAVE A SIGNAL TO SELL THAT THE BUBBLE IS BURSTING, SO THAT GIVES YOU CONFIDENCE IT HAS LONGEVITY. JEANNE: THAT'S EXACTLY RIGHT. PULLBACKS THIS YEAR HAVE BEEN INCREDIBLY SHALLOW. THERE'S BEEN A HUGE AMOUNT OF CASH ON THE SIDELINES AND THAT'S EXACTLY WHAT WE HAVE BEEN SEEING. WE ARE ALWAYS CLOSELY WATCHING EARNINGS FOR ANY ADDITIONAL SIGNALS AND THE DATA WE MIGHT BE GETTING. WHERE YOU WERE SPEAKING EARLIER, THE NARRATIVE IS A CONSTANT PING-PONG AROUND AI BUBBLES AND HOW SUSTAINABLE IS IT, THE CIRCULAR FINANCING. HOW CONCERNED SHOULD WE BE? THESE ARE THE KNOWN RISKS AND THINGS WE CAN EASILY WATCH. THERE'S AN APPRECIATION ON OUR TEAM'S BEHALF THAT A LOT OF THE HYPERSCALERS, A KEY PART OF THAT FINANCING CYCLE IS ALSO CONSCIENTIOUS OF THE FREE CASH FLOW IN THE MARKETPLACE IS FOCUSED ON IT. THOSE ARE THE PIECES WE ARE WATCHING. IF THINGS GET STRETCHED OUT, THAT AS LONGEVITY TO THE AI CYCLE IN GENERAL. EVENTS BETWEEN THAT, WHAT'S HAPPENING IN THE MIDDLE EAST, AND WHETHER A PICTURE IS. THIS MORNING THE NARRATIVE QUICKLY SHIFTED TO WHAT IS GOING ON IN THE MIDDLE EAST, THE NEWS FROM THE ADMINISTRATION THERE WILL NOT BE ANYTHING BEFORE THE MIDTERM ELECTIONS AND YOU SEE THE MARKET TAKING A RELIEF FROM THAT. ANNMARIE: IT HAS BEEN SEVEN MONTHS OF WHIPLASH. YOU MENTIONED ALL THESE RISKS FOR AI. HOW MUCH ARE YOU THINKING ABOUT POTENTIALLY POLITICAL PUSHBACK? JEANNE: IT IS SOMETHING WE HAVE BEEN DEBATING. THE INTERESTING PART IS WHERE THE REGULATION MAY SHOW UP, LOTS OF RHETORIC IN THIS CAMPAIGN SEASON. AI HAS NOT BEEN A PARTICULARLY POPULAR THING FOR THE ELECTORATE. YET EVEN WITH THINGS LIKE DATA CENTER MORATORIUMS, BUILD OUT IS ACTUALLY INCREDIBLY HIGH. EVEN IF YOU HAVE SOME STATES PUTTING UP PROPOSALS, A LOT OF THEM TEND TO BE ABOUT PUTTING GUARDRAILS IN TERMS OF STANDARDS FOR DEVELOPMENT, THINGS LIKE THAT, THAT MY LONG-TERM HELP WITH AI BUILD OUT AT A FASTER PACE. THERE ARE PLENTY OF STATES I WOULD ACTUALLY LIKE THOSE DATA CENTER BUILDS. THERE IS A BALANCE. FOR US IT IS HARD TO SEE REGULATION THAT WILL COME THROUGH THAT TOTALLY DERAILS ANYTHING. YOU HAVE A COUPLE OF CONTROLLING FACTORS HERE. ONE IS THE INTERNATIONAL COMPETITION. NO ONE REALLY WANTS TO DERAIL U.S. PRIVACY AND DOMINANCE IN THE SPACE. YOU HAVE AN ADMINISTRATION THAT IS SUPPORTIVE OF AI DEVELOPMENT AND U.S. LEADERSHIP. I THINK THERE IS A BALANCE. COULD AI REGULATION HAPPENED? YES. IT IS MORE OF HOW, NOT OF IF. GENERALLY SPEAKING THIS IS ONE OF THE THINGS THAT PROVIDES THE SPEED LIMIT AND PROBABLY JUST EXTENDS THE AI CYCLE MORE THAN ANYTHING ELSE. ANNMARIE: A LOT OF GUESTS SAY POLITICAL PUSHBACK WOULD BE HEALTHY. WHAT DOES IT DO FOR THE SHORT-TERM? JEANNE: IT HAS NOT BEEN OUR WOULD BE SURPRISING TO SEE MORE VOLATILITY IN THE INTERIM. WHAT'S INTERESTING IS IN SEPTEMBER WHERE YOU WOULD EXPECT TO SEE VOLATILITY AND WE HAD OPPORTUNITIES BETWEEN THE HEADLINES AROUND AI, DESPITE THAT THE PULLBACK WAS INCREDIBLY SHALLOW. LISA: ARE BONDS A GOOD HEAD FOR THAT VOLATILITY? WAS THAT A SEPARATE STORY? JEANNE: WE HAVE MAINTAINED BONDS ARE LESS RELIABLE HEDGE. THEY OWN A POSITION IN PORTFOLIOS. IT'S ONE OF THE THINGS ABOUT DIVERSIFICATION. WE HAVE TO THINK ABOUT IT A LITTLE DIFFERENTLY. RATE VOL HAS BEEN ONE OF THE DRIVERS. SOMETIMES THIS IS TRIGGERING CONCERNS ABOUT THE ABILITY TO FINANCE AND WHETHER OR NOT THERE ARE CONCERNS AROUND DEBT CEILING AND THE ABILITY TO MAINTAIN OUR BUDGETS. THAT HAS HAD SOME KNOCK ON EFFECTS. YOU HAVE A LITTLE MORE POSITIVE CORRELATION BETWEEN FIXED INCOME AND EQUITIES THIS YEAR THAN WE ARE NORMALLY USED TO. THAT'S WHY AS A TEAM WE HAVE ADDED GOLD TO PORTFOLIOS AS ONE OTHER SOURCE OF DIVERSIFICATION. IT DOESN'T MEAN WE DON'T THINK BONDS HAVE A PLACE BUT WE WOULD MUCH RATHER BE LONG EQUITIES. IT'S INTERESTING THAT THE RISK IN FIXED INCOME RELATIVE TO WHAT PEOPLE ARE USED TO IS HIGHER ON A HISTORICAL BASIS THAN THE OPPORTUNITIES IN RISK-REWARD FOR EQUITIES. LISA: JEANNE SUN, THANK YOU FOR BEING WITH US THIS MORNING. WE PARSE THROUGH A WEEK WHERE WE SEE THE S&P UP, THE NASDAQ DOWN, BUT PRETTY MUCH NEAR ALL-TIME HIGHS. LET'S GET AN UPDATE ON STORIES ELSEWHERE. VONNIE: SHARES OF DELTA FALLING IN THE PREMARKET, CUTTING ADJUSTED EARNINGS PER SHARE FORECAST FROM THE FULL YEAR DUE TO A SURGE IN FUEL PRICES. THE CEO SAYING DEMAND IS STILL STRONG BUT WARNING THE COMPANY MIGHT BE FORCED TO RAISE FARES IF FUEL PRICES STAY HIGH. UNITED AND AMERICAN ALSO DOWN FRACTIONALLY ALONG WITH DELTA. OPENAI EXPECTS ANNUALIZED REVENUE TO REACH OR BEAT A $70 BILLION BY YEAR'S END, CLARIFYING THINGS FOR THE MARKET. THE GROWTH IS DRIVEN BY ITS ENTERPRISE BUSINESS. OPENAI SHARED THE NUMBERS AS PART OF ITS LATEST FUNDRAISING EFFORTS. WEEK FIVE OF THE NFL SEASON KICKED OFF OF THE TAMPA BAY BUCCANEERS OF SETTING THE DALLAS COWBOYS 24-16. BUCKY IRVING RAN FOR OVER 160 YARDS ACCOUNTING FOR TWO TOUCHDOWNS, LEADING TAMPA TO THE FIRST ONE OF THE SEASON. DAK PRESCOTT THREW TWO INTERCEPTIONS AS THE COWBOYS FALL. LISA: GETTING NEWS ON A NEW APPOINTMENT AT THE TREASURY DEPARTMENT. SCOTT BESSENT GETTING SOME WORK COMPANY. ANNMARIE: JUDY SHELTON WILL BE JOINING HIM. AN INDIVIDUAL THAT SPIN IN PHOTOS AND VIDEO OF HIM WHEN HE WAS TESTIFYING. MAYBE SHE HAS BEEN AN OUTSIDE ADVISOR BUT NOW SHE'S JOINING THE TREASURY OFFICIALLY. YOU HAVE TO REMEMBER A BIPARTISAN GROUP OF SENATORS ACTUALLY SAID NO TO HER WHEN SHE WAS TRUMP'S 2019 NOMINEE IS FED GOVERNOR BECAUSE OF SOME MORE CONTROVERSIAL VIEWS ON ECONOMICS. THIS IS AN INTERESTING ONE FOR SURE. LISA: SHELTON WILL ADVISE THE SECRETARY ON POLICY WITH A FOCUS ON EVALUATING FINANCIAL CONDITIONS IN CHINA. MORE ON THE FINANCIAL CONDITIONS IN UNITED STATES AND FOR THE AIRLINE INDUSTRY. UP NEXT, MORNING CALLS, PLUS SHEILA KAHYAOGLU AS DELTA FALLS ON SOARING FUEL COSTS. THIS IS "BLOOMBERG SURVEILLANCE ." ♪ >> WE ARE IN THIS HIGHLY ROTATIONAL MARKET WHERE I DO NOT THINK MONEY WANTS TO LEAVE THE ASSET CLASS OF EQUITIES AND FIND A NEW HOME SOMEWHERE ELSE. IT TELLS ME BOND YIELDS ARE HIGHER, REAL RATES ARE HIGH. ARE THEY HIGH ENOUGH TO BE TRULY COMPETITIVE FOR YOUR CAPITAL EVERY DAY? I'M NOT SURE WE HAVE REACHED THAT THRESHOLD YET. LISA: WE SEE A REBOUND BACK TOWARDS ALL-TIME HIGHS. THE NASDAQ LEADING THE GAINS, FUTURES OF ABOUT .8%. THAT STRENGTH AND ULTIMATELY ANY KIND OF GAINS WE HAD SEEN IN BONDS SEEMS TO BE TRYING TO GET A SECOND DAY. IN THE BOND SPACE ESSENTIALLY FLAT ON THE FRONT END. 4.77% AS WE LOOK AHEAD TO CPI NEXT WEEK AHEAD OF THE FED MEETING. 10-YEAR YIELDS AT 5.23%. TIME NOW FOR THE MORNING CALLS. BREAKING THE PRICE I COULD ON CROWDSTRIKE EXPECTING FURTHER EXPANSION. SHARES OF 1.7% AND PREMARKET TRADING. BARCLAY'S INITIATING COVERAGE OF SPACEX WITH AN OVERWEIGHT, CALLING IT PART OF EIGHT MODERN-DAY INDUSTRIAL REVOLUTION. SHARES OF 3.8%. BANK OF AMERICA LOWERING THE PRICE TARGET ON PEPSICO AFTER THIRD QUARTER EARNINGS EXCITING QUESTIONS AROUND THE ABILITY TO GROW. SHARES LOWER BY ABOUT .6%. YESTERDAY REPORTING THEY WERE NOT NECESSARILY MAKING THE INROADS IN MARKET SHARE AND GRAPPLING WITH MARGIN COMPRESSION. MARGIN COMPRESSION AND FOCUS AS WE HEADED TO THE EARNINGS SEASON, DELTA FALLING AND PREMARKET TRADING AFTER CUTTING ITS FULL-YEAR EARNINGS OUTLOOK AS THE WAR CONTINUES TO HAMMER THE INDUSTRY. ED BASTIAN WARNING THEY WILL HAVE TO RAISE FARES IF FUEL COSTS REMAIN ELEVATED. SHEILA KAHYAOGLU MAINTAINING A BUY RATING ON THE STOCK. SHE JOINS US FOR MORE. SHEILA: THANKS FOR HAVING ME. LISA: WHAT IS YOUR TAKE ON DELTA? THEY SAY CONSUMERS ARE NOT NECESSARILY PULLING BACK IN THE FACE OF HIGHER FAIR PRICES. SHEILA: THE EPS PRODUCTION IS IN LINE WITH OUR EXPECTATIONS. IT IS EATING AND THE PROPHETS, THE $6 BILLION OF HIGHER FUEL EXPENSES THAT IS DRIVING EPS LOWER BUT IT'S EMBEDDED INTO CONSENSUS EXPECTATIONS. I ACTUALLY REALLY LIKE THE DELTA PRINT IN TERMS OF THE NUMBERS. PREMIUM DEMAND OF 18%. THOSE ARE GREAT STATS IN THE FACE OF WHAT THE CONSUMER IS FACING WITH HIGHER OIL PRICES. LISA: THEY WERE SURPRISED THAT DELTA COULD NOT OFFSET HIGHER FUEL COSTS MORE BECAUSE THEY OWN A REFINERY. IT RAISES QUESTIONS ABOUT UNITED AND AMERICAN. HOW MUCH DOES THIS REALLY RAISE THE BAR POTENTIALLY FOR THE LIKES OF THE OTHER CARRIERS WHO MIGHT NOT BE IN THE SAME POSITION AS DELTA? SHEILA: THE REFINERY HAS ABOUT A BILLION BENEFIT TO THE YEAR SO IT'S PROVIDING A BOOST FOR THEM. HIGHER FUELS WILL EVENTUALLY EAT INTO THE CONSUMER DEMAND. THIS YEAR WE HAVE 15% PRICING EXPANSION ESSENTIALLY. 427, ONLY A 2% INCREASE. WITH OIL IF WE WERE TO EMBED THAT INTO 2027. LISA: YOU TALK ABOUT HOW YOU ARE SURPRISED THEY WERE ABLE TO MAINTAIN THE SAME CONSUMER REVENUES THEY HAD BEEN EXPECTING. PEOPLE BOUGHT TICKETS EVEN AS THEY WERE MORE EXPENSIVE. HOW SURPRISING HAS IT BEEN TO YOU THAT THE CONSUMERS HAVE KEPT ON BUYING AND CAPS ON TRAVELING EVEN AS WE WERE HEARING FROM DIFFERENT GAS THIS MORNING THAT THE PRICES ARE GETTING OUTRAGEOUS? SHEILA: THE U.S. CONSUMER STRENGTH IS SURPRISING ACROSS THE BOARD. MORTGAGE RATES, AUTO PRICES, AIRFARE, THE U.S. CONSUMER REMAINS REALLY RESISTANT. WE HAD THIS PRICED PROPRIETARY DATA LOOKING AT THE OLDEST AIRCRAFT GLOBALLY. ANYTHING OLDER THAN 21 PLUS YEARS AND THOSE ENGINES ARE STILL BEING UTILIZED AT THE SAME RATE ESSENTIALLY THAT THEY WERE IN JANUARY AND FEBRUARY OUTSIDE THE MIDDLE EAST. THE U.S. IS PARTICULARLY STRONG BUT NOT NECESSARILY SEEN CRACKS IN EUROPE AND ASIA AS MUCH AS ONE WOULD EXPECT GIVEN WHERE OIL IS TODAY. ANNMARIE: I WISH YOU DID NOT TELL ME THAT FACTOID. I'M LOOKING AT AVERAGE THANKSGIVING FARES OF 30%. IS THIS GOING TO BE A ROUGH THANKSGIVING FOR INDIVIDUALS OR WILL CONSUMERS STEP UP AND BUY? SHEILA: THE FAIR INCREASE IS NOT FULLY ABSORBED YET BY THE HIGHER TICKET PRICES. WE NEED OIL TO COME IN TO ENSURE THE DEMAND CAN SUSTAIN ITSELF BECAUSE THEY THERE WILL BE A CRACK. ANNMARIE: ONE GUEST TALKED ABOUT HOW HE'S GOING ON A FAMILY HOLIDAY USED MUSE TO SET THE PRICE LIMIT HE WAS WILLING TO BUY AND WHEN MUSE FOUND THE TICKET HE BOUGHT IT. DO YOU THINK MUSE AND SOME OF THESE OTHER AGENTIC AI PLAYERS ARE GOING TO CREATE MORE COMPETITION FOR PRICING IN THE AIRLINE SECTOR? SHEILA: POTENTIALLY. THERE IS ALSO A LOYALTY FACTOR WHICH IS WHAT DELTA PRIDES ITSELF ON. THE DELTA CUSTOMER, 40% TO $43 TRILLION MORE INCOME THAN THEY DID A FEW YEARS AGO. $67 TRILLION SINCE 2019 SO THEY ARE FOCUSING ON THE HIGH-END CUSTOMER TO SAY WE WILL KEEP THE HIGHEST AND AND CONTINUE TO PUSH BETTER PRODUCT TO THEM. THEY JUST STARTED THIS QUARTER OF PREMIUMIZATION WHERE THEY ARE SEGMENTING WHAT THE BUSINESS CLASS LOOKS LIKE. IN TERMS OF THE AI PLAYS ON LOWER PRICING, YOU DON'T WANT TO BE THE ONE CATERING TO THAT CUSTOMER. THAT'S A PRICING WAR AND THAT CAUSED SOME AIRLINES TO EXIT THE INDUSTRY THIS YEAR. LISA: ANY REDUCTION IN DEMAND WHEN IT COMES TO SOME THE GEOPOLITICS? WE WERE TALKING ABOUT RIYADH AND THE AIRPORT WHERE THERE WERE FATALITIES AS A RESULT OF BALLISTIC MISSILES THAT HAD BEEN DESTROYED ABOVE FROM THE HOUTHIS. HOW DOES THAT DISRUPT THE FLIGHT PATTERNS AND POTENTIALLY PROFITABILITY NOT ONLY IN THE REGION BUT THAT'S A MAJOR HUB FOR A LOT OF DIFFERENT AIRLINES? SHEILA: WE HAVE SEEN THE REDUCTION IN TURKISH AND BRITISH. IT'S A FIVE POINT REDUCTION FOR THE EUROPEAN AIRLINES. IT IS SURPRISING HOW IT HAS NOT IMPACTED ASIA AND EUROPE IS MUCH AS ONE WOULD EXPECT. LISA: IF THE WAR WAS GOING ON IN OCTOBER, WE WILL BE TALKING ABOUT FLIGHTS CANCELED BECAUSE THERE WOULD NOT BE ENOUGH JET FUEL. EUROPE IN PARTICULAR. WHY DID THOSE PROGNOSTICATIONS PROVE SO INCORRECT? SHEILA: IT WAS NOT NECESSARILY A TRUE STAT BUT THE CAPACITY CUTS HAVE BEEN NOT AS MUCH AS EXPECTED. THE LOWEST CONSUMER HAS BEEN TAKEN OUT. THE LOWEST FARE HAS BEEN REMOVED FROM THE MIX. ANNMARIE: YOU SAID IF YOU WANT TO PLAY THIS GAME YOU WILL POTENTIALLY GET WIPED OUT OF THE MARKET. WHO ARE NOW IS CATERING TO THE LOWER AND CONSUMER? SHEILA: JETBLUE, SPIRIT AIRWAYS NO LONGER EXISTS. THERE IS SOUTHWEST TRYING TO PREMIUMIZE. ANNMARIE: IS AN JETBLUE ALSO? SHEILA: THEY DON'T HAVE THE SCOPE OR THE FOOTPRINT. EVEN AMERICAN HAS A 10 POINT MARGIN CAP TO DELTA AND UNITED. THEIR INTERNATIONAL ROUTES ARE NOT AS EXPANSIVE. IF YOU DON'T HAVE INTERNATIONAL LIKE SOUTHWEST HAS ESSENTIALLY ZERO, NO LOUNGES, IT IS HARD TO CATCH UP TO DELTA AND UNITED'S MARGINS. ASIDE FROM THE TOP TWO PLAYERS EVERYONE ELSE IS ESSENTIALLY -- AMERICA IS FAR BEHIND ON THE THIRD LEG. ANNMARIE: THE AIRLINE INDUSTRY REALLY CAME UNDER FIRE IN THE BIDEN ADMINISTRATION IN TERMS OF M&A. WERE YOU INSPECTING CHANGES IN WASHINGTON HIT THE SPACE? SHEILA: NOT NECESSARILY. I DON'T THINK YOU WILL SEE CONSOLIDATION. YOU WANT TO HAVE BETTER FARES. THAT IS WHAT THE MARKET DEEMS RIGHT WITH OIL PRICES WHERE THEY ARE. LISA: SHEILA KAHYAOGLU, THANK YOU FOR BEING WITH US THIS MORNING. WE PARSE TO THE DELTA EARNINGS THAT CAME OUT. YES, REVISING DOWNWARD THEIR FULL-YEAR EARNINGS FORECAST BUT STILL RESILIENT IN THE FACE OF 100 PERCENT HIGHER OIL PRICES EARLIER THIS YEAR. ANNMARIE: THEY ARE DEALING WITH IT AND THAT IS WHY THEY ARE BASICALLY SPENDING MORE AND NOT MAKING AS MUCH BECAUSE OF JET FUEL. WE SEE STRONG DEMAND. THE CONSUMER KEEPS SPENDING. I'M LOOKING AT THANKSGIVING TICKETS. ON AVERAGE, 30% HIGHER THIS YEAR. YEAH DELTA IS SEEING CONSUMERS LINE UP TO BUY. LISA: THEY ARE COMPLAINING BUT STILL BUYING WHICH IS THE DISSONANCE BETWEEN HOW PEOPLE FEEL AND WHAT YOU SEE IN THE SENTIMENT SURVEYS AND SOME OF THE ELECTION POLLS VERSUS WHAT YOU SEE IN THE BROAD DATA AS FED OFFICIALS LINE UP TO UNDERSTAND EXACTLY HOW QUICKLY THEY HAVE TO TIGHTEN POLICY. COMING UP, ERIN MCLAGHLIN LOOKING AHEAD TO A KEY WEEK OF ECONOMIC DATA ON DECK. PLUS, YOU HIRE WITH THE MORNING MOVERS. APPLE FOLLOWING REPORTS OF WEEK IPHONE DEMAND. SHARES LOWER BY TWO POINT 3%. THIS IS "BLOOMBERG SURVEILLANCE ." ♪ >> IT IS FRIDAY. WE ARE ONE HOUR AWAY FROM THE OPENING BELL. WE ARE SEEING MARKETS WITH A POSITIVE TONE AT THE END OF THE WEEK. HOW MANY PEOPLE HAVE COME IN AND SAID, WOW, THIS HAS TO BE THE LONGEST WEEK IN HISTORY? WITH GROUNDHOG'S DAY AND THE INCREDIBLE VOLATILITY. ANNMARIE: JON IS OFF SO I WILL SAY IT -- FRIYAY. THE BOND MARKET DID NOT BLOW OUT THIS WEEK. THIS MAY BE THE CALM BEFORE THE STORM BECAUSE THIS IS NOT GOING AWAY. [LAUGHTER] PEOPLE ARE WONDERING EXACTLY WHAT WILL BREAK. PEOPLE ARE SO EXCITED WE GOT THROUGH AUCTIONS WHICH HAVE GONE MAINSTREAM IN TERMS OF HOW PEOPLE CARE ABOUT THEM. LISA: THEY WERE REALLY IMPORTANT. YOU CAN SEE THE RESULTS OF THE VERY POSITIVE AUCTIONS. WE ARE RISING JUST A TOUCH IN TERMS OF YIELDS THIS MORNING, OFF IS. YESTERDAY WE SAW A SIGNIFICANT RALLY AT 10 AND 30. PEOPLE DO CARE BECAUSE EVIDENTLY WHEN YOU GET THE HIGHEST YIELDS, 10 YEAR BONDS GOING BACK TO 2000, PEOPLE SHOW UP AT THE AUCTION. 30 YEAR, 5.6%. OIL VERY MUCH IN FOCUS. PEOPLE LOOKING AT THE LACK OF ANY CONNECTICUT WARFARE AHEAD OF THE MIDTERM ELECTION. STRIKES HAVE BEEN GOING. THAT IS WHY YOU ARE SEEING A PAUSE WITH OIL PRICES. ANNMARIE: THERE WAS REPORTING THE PRESIDENT COULD STRIKE AROUND THE MIDTERMS BUT CAME OUT WITH A STATEMENT SAYING HE COULD NOT DO THAT. BUT WE ARE NOT OUT OF THE WOODS. WHAT HAPPENED IN SAUDI ARABIA, YOU HAD AN AIRCRAFT ON FIRE. THIS IS CIVILIAN INFRASTRUCTURE. THE HOUTHIS ARE STEPPING UP WHEN IT COMES TO THE KINGDOM. PEOPLE ARE CANCELING TRIPS TO THE MIDDLE EAST. THIS IS DEFINITELY A VERY FRAGILE TIME IN THE REGION JUST MERE WEEKS AWAY FROM THE MIDTERMS. LISA: A LOT OF PEOPLE CAME INTO THE YEAR THINKING THE DOLLAR WOULD BE ON A WEAKENING TREND. IT HAS BEEN ON A STRENGTHENING TREND GOING BACK TO EARLY 2025. STRONG GROWTH IN THE U.S. AND WEAKER PROSPECTS EVERYWHERE ELSE. YOU ARE SEEING EURO GAINS VERSUS THE DOLLAR. THE ECB MIGHT TALK ABOUT INTERVENING IN RESPONSE TO WHAT IS GOING ON IN FRANCE, ACCORDING TO CHRISTINE LAGARDE'S COMMENTARY, OR T WHAT THE PEOPLE ARE TAKING FROM IT. LET'S GET TO YOUR MORNING MOVERS. >> WE ARE SEEING THE MAJOR TELECOMS STRUGGLING IN THE PREMARKET AFTER SPACEX ANNOUNCED A NEW SPECTRUM DEAL THAT COULD BRING STARLINK CLOSER TO COMPETING FOR THEIR PHONE CUSTOMERS. REST MANY HAVE POINTED OUT, BUILDING OF A NETWORK THAT COULD SUPPORT A SERVICE COULD TAKE YEARS AND BILLIONS OF DOLLARS. ONE THING TO SPEED THINGS UP IS PARTNERING WITH ONE OF THESE CARRIERS. HE SAID THAT HE HAS NOT RULED OUT BUYING ONE OF THEM OUTRIGHT. WE ARE SEEING DELTA SHARES FALLING IN THE PREMARKET AND THAT IS DRAGGING DOWN THE REST OF THE AIRLINES AFTER ITS FOUR-YEAR PROFIT OUTLOOK AS FUEL COSTS CONTINUE TO CLIMB. DELTA OWNS A REFINERY AND IT HAS NOT BEEN ENOUGH TO CUSHION THE HITS. DELTA EXPECTS TO SPEND $6 BILLION MORE ON FUEL THIS YEAR THAN IT DID LAST. AIRFARES CONTINUE TO RISE. WE ARE SEEING A WEAKER APPLE. UNDERPERFORMING THE MAG 7, DOWN 2.2%. THE DEMAND FOR ITS PRICIEST IPHONE IS COMING IN WEAKER THAN EXPECTED. NIKKEI REPORTING APPLE HAS CUT ORDERS FOR THE IPHONE 15 PRO AND PRO MAX BY AT LEAST 15%. THOSE PHONES GOT MORE EXPENSIVE AS MEMORY COSTS ROSE. IT APPEARS CONSUMERS ARE PUSHING BACK ON THE PRICE HIKES. LISA: THANK YOU SO MUCH. THE IPHONE 18 PRO STARTS AT ALMOST 200. A DIFFERENT PRICE POINT. ANNMARIE: SEMICONDUCTOR PRICES ARE GOING UP. AT THE END OF THE DAY THAT WILL BE HITTING THE END CONSUMER IN THEIR PHONES. LISA: [LAUGHTER] PRICES ARE GOING UP AND PEOPLE ARE STILL SPENDING. IT IS FRIDAY. PEOPLE WILL BE LOOKING AT PRICES INCREASING BUT PEOPLE ARE STILL SPENDING. WHAT DO YOU DO WITH THAT? >> TO BRING INFLATION BACK TO TARGET IN A TIMELY MANNER, MORE MONETARY POLICY WILL BE REQUIRED. RATES OUGHT TO BE GOING UP FURTHER WHEN APPROPRIATE IN THE NEXT 6-9 MONTHS. >> I ANTICIPATE ADDITIONAL HEIGHTS FOR A TIMELIER RETURN. >> THERE IS SOME FLEXIBILITY ABOUT WINDOWS HEIGHTS WILL OCCUR. LISA: INVESTORS PUSHING OUT RATE HIKE BETS. KEY INFLATION DATA AND COMMENTS FROM FED CHAIR KEVIN WARSH STILL AHEAD. BLOOMBERG'S ENDA CURRAN JOINS US FROM WASHINGTON, D.C. WHAT ARE YOU LOOKING FORWARD TO WITH THE ECONOMIC DATA AND POSSIBLE FORWARD GUIDANCE -- OR AT LEAST GUIDANCE FROM KEVIN WARSH? ENDA: THE BIG ONE IS INFLATION ON WEDNESDAY. HEADLINE INFLATION WE EXPECT TO SHOW A HOT READING BECAUSE OF THE ENERGY STORY. IF CORE INFLATION COMES IN WHAT COULD BE CONSIDERED ON THE HOT SIDE ON A MONTHLY RATING, THAT WOULD RAISE QUESTIONS ABOUT, WAIT A MINUTE, IS THE FED GOING TO REVERSE COURSE AND RAISE INTEREST RATES WHEN THEY MEET LATER IN THE MONTH? WILL THEY STICK BUT WE HAVE HEARD FROM KEY OFFICIALS? THE GOVERNOR, SURE, BE NEEDED BUT HE THINKS THERE IS FLEXIBILITY AND THEY DO NOT HAVE TO GO BACK TO BACK, MONTH BY MONTH. THEN OF COURSE AS YOU SAY AFTER THE INFLATION DATA, WE GET FED CHAIRMAN WARSH. IT IS UNUSUAL TO HAVE A CHAIRMAN SPEAKING AT THE MEETINGS. HE IS DOING A Q&A IN BANGKOK THURSDAY MORNING, BANGKOK TIME, U.S., WEDNESDAY NIGHT. THAT WILL BE VERY INTERESTING TO SEE WHETHER OR NOT HE DOES COMMENT ON THE DATA, HOW FAR HE IS WILLING TO GO WHEN IT COMES TO SIGNALING. A COUPLE DAYS AFTER THE FED WILL GO TO BLACK CAP AND THERE WILL BE NO MORE COMMENT BEFORE POLICY DECISION. LISA: ENDA CURRAN, THANK YOU SO MUCH FOR THAT. ERIN MCLAUGHLIN OF THE CONFERENCE BOARD FORECASTING ADDITIONAL RATE HIKES, WRITING AND ACCELERATION AND UNDERLYING INFLATION MEASURES FOR PCE WILL HELP DETERMINE THE PACE OF FURTHER INTEREST RATE TIGHTENING. ERIN JOINS US FOR MORE. ERIN: THANK YOU FOR HAVING ME. LISA: SOME RHETORIC WE HAVE HEARD FROM FED OFFICIALS WHO HAVE TALKED ABOUT NOT HAVING TO GO THAT QUICKLY. DO YOU AGREE? ERIN: I THINK IT WILL DEPEND ON THE LEVEL OF ACCELERATION IF WE SEE ACCELERATION. THAT COMES DOWN TO DO SO AND THE PRICE OF TRANSPORTATION --IT COMES DOWN TO DIESEL AND THE PRICE OF TRANSPORTATION. EVERYTHING HAS TO BE SHIPPED USING A TRUCK, GENERALLY. HOW WILL THAT BE PASSED DOWN? WILL HE SEE IT SHOW UP IN THE COMING MONTHS? ANNMARIE: DO YOU ALREADY SEE IT SHOWING UP? WE LOOK AT THE SOFTER DATA LIKE THE S&P PMI, THE SECOND SENTENCE WAS, EVERYONE IS TALKING ABOUT HIGHER PRICES. ERIN: IT IS. WE ARE SEEING IT SHOW UP EVERYWHERE. WE FORGET THAT DIESEL FACTORS INTO FOOD PRICES AND OTHER COMMODITIES THAT COME TO THE CONSUMER QUICKLY. IT IS ALSO A CONSTRUCTION COST. IT FEEDS INTO OUR WHOLE INFRASTRUCTURE. IT IS ABOUT AGRICULTURE AND FARMERS ARE FACING HIGHER COSTS FROM FERTILIZER. THIS IS OBVIOUSLY NOT SOMETHING THAT WILL BE LIMITED TO RIGHT NOW. IT WILL CONTINUE ON. I WANT TO NOTE THE OTHER PART THAT IS INTERESTING FOR CONSUMERS --THERE IS NOT A LOT OF AMERICA THAT USES OIL TO HEAT THEIR HOMES BUT THERE IS A SIGNIFICANT PORTION. 50% OF MAINE USES OIL TO HEAT THEIR HOMES. IT USED TO COST $800, 900 DOLLARS A MONTH, NOW IT IS 500-800. ANNMARIE: IT IS A HUGE PROBLEM IN THE NORTHEAST. WE ALSO HAD A TAKE FROM DELTA. HOW MUCH MORE JET FUEL IS COSTING. WHAT DOES IT SAY THAT CONSUMERS ARE STILL LINING UP TO PAY HIGH PRICES FOR AIRFARES? ERIN: WE STILL HAVE TWO SEPARATE CONSUMERS. WE HAVE CONSUMERS IN THE TOP QUINTILE'S. THEY ARE THE SPENDING GROWTH OF THE LAST THREE YEARS. THE BOTTOM THREE HAVE NOT GROWN THEIR SPENDING. THEY ARE RESILIENT. THEY ARE STILL SPENDING BECAUSE THEY HAVE JOBS FOR THE MOST PART AND THEY ARE SPENDING ON NECESSITIES, BUT THE GROWTH IN CONSUMER SPENDING IS THE WEALTHIER CONSUMER. LISA: THAT IS STILL KEEPING PRICES SIGNIFICANTLY HIGHER AND THAT IS WHY COMPANIES HAVE BEEN ABLE TO RAISE PRICES AND KEEP THEM HIGH. THERE IS A THEORY OUT THERE THAT MORE THAN FIVE YEARS AFTER INFLATION HIT ABOUT 2%, AND THE 2% TARGET THE FED HAS COME IT WILL START TO EMBED ITSELF IN THE PSYCHOLOGY OF CONSUMERS. HIGHER INFLATION BEGETS HIGHER INFLATION. INFLATION CAN TAKE ON A LIFE OF ITS OWN. OUR WE GETTING CLOSER TO THE POINT WHERE SOME PEOPLE ARE TALKING ABOUT THE FED NEEDING TO BE MORE AGGRESSIVE AND PROACTIVE VERSUS HAVING THE LUXURY OF WAITING? ERIN: I THINK THAT THE FED IS CONCERNED WITH, THEY WANT TO COOL THE MARKET BUT THEY DO NOT WANT TO CREATE A SERIES OF UNEMPLOYMENTS OR LAYOFFS. THAT WILL BRING PRICES DOWN BECAUSE IT WILL RESTRICT DEMAND. WHEN CONSUMERS DO NOT HAVE JOBS, THEY DO NOT SPEND AT THE SAME LEVEL THEY DID BEFORE. THAT IS WHERE THE BALANCE COMES IN. CERTAINLY, CONSUMERS AND BUSINESSES, MANY FOLKS ARE OUT OF PATIENCE WITH THE LEVEL OF INFLATION. THERE IS A GOOD CHANCE WE COULD SEE A PAUSE AND THEN SOME RATE HIKES IN THE COMING MONTHS. I DO NOT THINK IT NECESSARILY HAVE TO BE IMMEDIATE. ANNMARIE: THE OTHER ISSUE, AI INTEREST RATES IS A PROBLEM FOR THE FEDERAL RESERVE. LISA: THE IDEA THAT YOU HAVE CAPITAL MARKETS ACTIVITY BANKING ON THE AI EXPLOSION HAS MUTED SOME OF THE TRANSMISSION MECHANISM OF FED POLICY AND FRANKLY OBSCURED SOME OF THE EFFICACY OF SOME OF THE RATE HIKES. WHAT IS YOUR VIEW OF HOW THEY SEE THAT? ERIN: I THINK IT IS INTERESTING. THERE IS A CORRELATION. WHEN WE DO A QUARTERLY SURVEY OF CEOS, AI AND CYBER IS NOW MORE IMPORTANT TO HOW THEY ARE LOOKING AT THEIR BUSINESS AND THE ECONOMY THAN THESE ENERGY SHOTCOCKS, THAN GEOPOLITICS. A LOT OF THESE ARE UNKNOWN. THEY ARE OUT OF CONTROL OF THE FED. JUST LIKE THE STRAIT OF HORMUZ. JUST LIKE A LOT OF THESE SHOCKS. THESE ROLLING SHOCKS HAVE KEPT INFLATION HIGH. LISA: ERIN MCLAUGHLIN OF THE CONFERENCE BOARD. HOW DO YOU GAMED THAT OUT IF YOU ARE THE FEDERAL RESERVE, WHETHER IT IS INFLATIONARY OR JOB LOSS POTENTIAL? ANNMARIE: IT HAS BEEN FIVE YEARS OF SUPPLY SHOCK AFTER SUPPLY SHOCK, WHICH IS WHY THE FED FEELS LIKE IT HAS NO CHOICE BUT TO ACT. LOOKING AT ERIN'S NOTES, DIESEL UP 78% A YEAR OVER YEAR. ALUMINUM, 27%. LUMBAR. HIS TARIFFS, THE STRAIT OF HORMUZ, THIS IS ALL ADDING TO INFLATION. LISA: SOMEONE IS DOING CONSTRUCTION. HERE IS YOUR BLOOMBERG BRIEF WITH VONNIE QUINN. VONNIE: OFFSHORE OIL PRODUCTION IS PLUMMETING AS A HURRICANE PUSHES TO THE GULF COAST. THE NATIONAL WEATHER SERVICE SAID THE HURRICANE REACHED CATEGORY 2 STRENGTH YESTERDAY WITH SUSTAINED WINDS OF 105 MILES PER HOUR. IT IS FORECAST TO HIT THE ALABAMA COAST OR FLORIDA PANHANDLE LATE TODAY OR EARLY TOMORROW. SHE HAS BEEN APPOINTED AS A COUNSELOR TO TREASURY SECRETARY SCOTT BESSENT. SHE WILL ADVISE BESSENT ON POLICY WITH A PARTICULAR FOCUS ON EVALUATING FINANCIAL CONDITIONS IN CHINA. THE TRUMP ADMINISTRATION ACCUSING MICROSOFT, ADOBE AND OTHER TECH COMPANIES FOR ABUSING A U.S. WORKER VISA PROGRAM. IN A STATEMENT, MICROSOFT DEFENDED ISSUES OF THE PROGRAM AND SAID IT LOOKS FORWARD TO PROVIDING AUTHORITIES WITH ADDITIONAL INFORMATION. THAT IS YOUR BLOOMBERG BRIEF. LISA: THANK YOU SO MUCH. HAVE A WONDERFUL WEEKEND. WE WILL SET YOU UP FOR THE DAY AHEAD AND THE WEEK AHEAD AND SAIRA MALIK ON WHAT TO EXPECT FROM THE EARNINGS SEASON KICKING OFF ON TUESDAY WITH J.P. MORGAN. ALL OF THAT COMING UP NEXT. THIS IS "BLOOMBERG SURVEILLANCE ." ♪ >> THIS AI CAPEX CYCLE IS INCREDIBLY DURABLE. THERE IS PLENTY OF BALANCE AND DEMAND FOR AI. THE FOCUS IS STARTING TO SHIFT FROM THE PICKS AND SHOVELS AND THOSE WHO HAVE BENEFITED SO FAR TO WHAT COMES NEXT. THIS IS ONE OF THOSE THINGS FOR THE MARKETPLACE IS STARTING TO PREPARE. LISA: SEEMINGLY TODAY THEY ARE PREPARING BY BUYING BACK SHARES THEY LEFT FORGET YESTERDAY. THE TECH NAMES ARE LEADING THE CHARGE, OF .8% EARLIER TODAY, NOW A .6% GAIN. S&P FUTURES UP .3%. THE BOND SPACE SEEING CALM. WE ARE STILL STANDING, THE BOND MARKET DID NOT BLOW UP. WE ARE SEEING A SELLOFF OF TWO BASIS POINTS. 5.25% ON THE 10 YEAR. AFTER YESTERDAY'S RALLY, THE BIGGEST RALLY IN 10'S AND 30'S. CRUDE, THIS IS INTERESTING SEEING PRICES GO LOWER BUT OFFER EARLIER LOWS. SEEING IT RETRACE. WTI TICKS HIGHER, $91.47. THE REAL QUESTION ABOUT THE HURRICANE AND WHAT MIGHT COME. ANNMARIE: IT IS NOW A MAJOR HURRICANE WITH MAXIMUM SUSTAINED WINDS OF 120 MILES PER HOUR WITH HIGHER GUSTS. THIS IS COMING FROM THE HURRICANE CENTER. WHY THIS IS IMPORTANT TO OIL PRICES, WTI. NEARLY 500,000 BARRELS A DAY SITS IN THE PROJECTED PATH OF THIS HURRICANE. LISA:LISA: THE REAL QUESTION OF WHAT THIS MEANS FOR COMPANIES GRAPPLING WITH HIGHER OIL PRICES. DELTA REPORTING EARNINGS, DOWNGRADING THEIR FORECAST OF PROFITABILITY AS A RESULT OF OIL PRICES THAT HAVE SURGED DRAMATICALLY. COMING DOWN TO THE OPENING BELL. 4:00 P.M. EASTERN, WE GET FED SPEAK FROM SUSAN COLLINS OF THE BOSTON FED. TUESDAY IS ROOMY KICKOFF BIG BANK EARNINGS STARTING WITH J.P. MORGAN, WELLS FARGO, GOLDMAN SACHS AND CITI. WEDNESDAY WE GET CPI DATA AND EARNINGS FROM BANK OF AMERICA AND MORGAN STANLEY. POTENTIAL SHOCKS, INCLUDING HIGHER OIL PRICES. SAIRA MALIK WRITING THE DEBATE IS WHETHER STRONG Q3 GROWTH CAN SUPPORT EQUITY YIELDS. THANK YOU SO MUCH FOR BEING WITH US. THIS WEEK WAS TUMULTUOUS. A STORY OF HIGHER YIELDS AND STOCKS BEING ABLE TO CLIMB THE WALL BECAUSE OF AI. HOW DURABLE IS THE STORY THAT AI WILL PUSH EVERYTHING AHEAD REGARDLESS OF WHERE YIELDS OR OIL PRICES ULTIMATELY LAND? SAIRA: THE DEBATE HANGS ON THE THIRD QUARTER EARNINGS THAT WILL BE STRONG, UP 27% YEAR-OVER-YEAR. THAT WILL BE LED BY TECH. WE HAVE TREASURY YIELDS RUNNING AT MULTI-DECADE HIGHS OF OVER 5% AND THAT IS A HEADWIND FOR EQUITIES. OUR TECH EARNINGS, ARE THEY ABLE TO LEAD THE 27% EARNINGS GROWTH HIGHER? SECOND WILL BE THE ECONOMIC DATA. WILL THAT REMAIN STRONG? WE ARE SEEING THE ECONOMY MODERATE. CONTINUE TO WATCH THE ECONOMY CLOSELY. OIL PRICES ARE DRIVING THE DAY-TO-DAY VOLATILITY IN THE MARKET. WE ARE SEEING NO RELIEF IN SIGHT WITH A GEOPOLITICAL WORK. WE HAVE A HURRICANE RISK. OIL PRICES WILL DRIVE DAY-TO-DAY VOLATILITY. LONG-TERM EARNINGS SHOULD SUPPORT THE MARKET OVER THE MEDIUM TO LONG-TERM. LISA: DO YOU THINK THERE WILL BE MORE OF A BROADENING OUT? DO YOU THINK ULTIMATELY THAT CONCENTRATION WILL CONTINUE AS LONG AS OIL PRICES REMAIN HIGH? SAIRA: RECENTLY WE HAVE SEEN THE MARKETS GO BACK TO A MORE CONCENTRATED LEVEL. IF YIELDS REMAIN HIGH AND INFLATION IS NOT AT THE FED'S TARGET IT SHOULD LEAD TO A BROADENING OF THE MARKET. AS WE MOVE INTO HIGHER INTEREST RATES, THAT IS USUALLY A NEGATIVE FOR TECHNOLOGY STOCKS. RECENTLY THE TECH EARNINGS LIKELY COMING IN STRONG. TECH HAS STARTED TO LEAD AGAIN. . I EXPECT THE MARKET SHOULD BROADEN OUT IF EARNINGS CAN SHOW MORE RESILIENCE OUTSIDE OF THE TECH SECTOR. ANNMARIE: HOW HIGH IS THAT ARE? ME AND LISA HAVE BEEN TALKING ABOUT DELTA DEALING WITH HIGHER JET FUEL COSTS. SAIRA: IT IS SECTOR BY SECTOR. SOME ARE UNABLE TO PASS ON HIGHER PRICES. WITH DELTA THE CONSUMER REMAIN STRONG. WE HAVE SEEN SENTIMENT. CONSUMERS TEND TO BE GRUMPY SPENDERS WHERE THE ARE CONTINUING TO SPEND ON LUXURY ITEMS SUCH AS TRAVEL. IT DEPENDS ON THE SECTOR. SOME SECTORS ARE ABLE TO PASS ON THEIR COST SUCH AS WASTE MANAGEMENT. OTHER AREAS WHERE IT IS MORE DIFFICULT, CONSUMERS ARE MORE SENSITIVE, YOU WILL RUN INTO ISSUES LIKE WE SAW WITH DELTA. ANNMARIE: WILL THERE BE EVEN MORE PRESSURE ON THE CONSUMER? WE HAVE 7.5% ON MORTGAGE RATES. SAIRA: ARE HITTING THE CONSUMER. WHAT IS HELPING THE CONSUMER IS THE JOB MARKET HAS REMAINED RESILIENT AND CONSUMERS TEND TO BE MORE COMFORTABLE SPENDING IF THEY FEEL THEIR JOB IS A SECURE. THE U.S. ECONOMY IS GROWING VERY STRONG BECAUSE OF THAT TECH TAILWIND. THAT IS HOLDING UP THE CONSUMER. IT IS A K-SHAPED CONSUMER WHERE THE HIGHER END CONSUMER IS DRIVING SPENDING AND THE LOWER END CONSUMER IS TRADING DOWN TO SHOPPING AREAS WHERE THEY CAN GET MORE VALUE FOR THEIR MONEY. AS LONG AS THE JOB MARKETS HOLD UP, THIS STORY SHOULD CONTINUE. IF WE SEE THIS CONTINUING WITH WEAKER PAYROLL DATA, THAT COULD BE A RISK FOR THE U.S. ECONOMY. LISA: WHAT IS MORE IMPORTANT TO YOU NEXT WEEK? THE BANK EARNINGS OR THE CPI REPORT? SAIRA: BOTH WILL BE IMPORTANT. EARNINGS SEASON IS A CROSS. IF WE CAN CONTINUE TO GROW EARNINGS, A VERY HIGH BAR AT 27%. THAT WILL BE IMPORTANT. I WILL BE WATCHING BANK EARNINGS CLOSELY AND HOPING CPI DATA DOES NOT UNRAVEL. WE HAVE SEEN MORE MODERATE INFLATION DATA RECENTLY WITH THE PCE DATA. GIVEN THE ELONGATED HIGH OIL PRICES, WE WILL HAVE TO WATCH INFLATION DATA CLOSELY TO SEE IF THIS SPIRALS. LISA: SAIRA MALIK, THANK YOU FOR BEING WITH US. HAVE A WONDERFUL WEEKEND. WE HAVE REAL QUESTIONS AROUND THE LONGER TERM OIL BACKGROUND. WE WERE TALKING ABOUT HOW OIL PRICES HAD BEEN LOWER THROUGHOUT THE MORNING AND THAT HAD BEEN SUPPRESSING SOME OF THE YIELD MOVE. WE ARE TAKING BACK SOME OF THAT. WTI UP .2% ON REPORTS ABOUT HURRICANE ISAIAS COMING IN AND STRENGTHENING IN THE GULF. ANNMARIE: IT IS BECOMING A MAJOR HURRICANE. SUSTAINING WINDS OF 120 MILES PER HOUR. STRAIT OF HORMUZ, THE BLACK SEA, WHAT IS GOING ON BETWEEN RUSSIAN AND UKRAINE, AND THAT YOU HAVE 500,000 BARRELS OF OIL THAT IS IN THE PATH OF THIS HURRICANE. CLEARLY THAT IS GOING TO BE INCREDIBLY NERVE-RACKING AND WILL PUT PRESSURE ON OIL PRICES. LISA: WHEN YOU TAKE A LOOK AT LONGER TERM OIL PRICES IN THE FUTURES MARKET, THEY ARE CONTINUING TO CLIMB. THE EXPECTATION OF HIGHER FOR LONGER. IT HAS BEEN A STORY OF HIGHER FOR LONGER IN THE BOND SPACE. PEOPLE FIND VALUATIONS APPEALING. OIL PRICES WILL REMAIN THE MAIN STORY HEADING INTO CPI NEXT WEEK. ANNMARIE: IT IS INEXPLICABLY LINKED TO RATES. WHAT DID WE HEAR EARLIER? THE FACT OF THE MATTER IS DIESEL ESPECIALLY, THE LIFEBLOOD OF THE ECONOMY WITH MANUFACTURING AND AGRICULTURE AND DELTA WAS PROOF IN THE PUDDING. LISA: MAYBE NEXT WEEK WILL SOLVE IT ALL AND THEN WE WILL GO BACK TO --. WE HAVE VERONICA CLARK OF CITI ON MONDAY. THIS WAS "BLOOMBERG SURVEILLANCE ." HAVE A WONDERFUL WEEKEND. THANK YOU FOR BEING WITH US. ♪