Bloomberg Surveillance 10/01/2026

Jobs number is really kind of key here to really get a better feel for how strong as you as economy wages are going to be important to watch out for. Can the fed really affect the things that are driving inflation right now? Whether or not it's difficult, they need to keep their eye on the ball to get us back to that point of price stability. I would brace for some volatility in the months ahead as US economic data comes in. This is Bloomberg surveillance with Jonathan Ferro Lisa Abramowitz and Annmarie Horden earn live from New York City this morning. Good morning. Good morning for our audience worldwide Bloomberg surveillance starts right now coming into Thursday. New quarter, same old story equities wrestling with a shaky bond market and rock solid earnings as tech favorite microns quarterly results a crushing analyst estimates bonds are sinking sending yields to the highest levels going back to 2002. Yields pushing higher. And the big question for me this morning is why? Why now? Why is there such an incredible selloff globally in bonds? Sure. You could point to Brent crude up 42% in the third quarter. Sure. You could take a look at fiscal concerns, although that's been ongoing for a very long time. Sure you could look at inflation, but on the margins it actually wasn't surprisingly to the upside, at least not in the United States. Ultimately, are we seeing that sort of doom loop start to take place, particularly centered starting in Europe? Where do people want to fly to? And of course, after a day like micron, you want to stay involved potentially. And just in the tech trade. That has been the reason why people thought potentially with the start of the Iranian war in the conflict, maybe it's time to sell everything. Actually, it was the reason why to continue loading into technology that's keeping the index level healthy beneath the surface and elsewhere. Start to see these rates start to bite. We've talked about small caps down 9% from the highs of August. The banks down by more than ten within fixed income. Look at the fed of yet a steady a yield over eight days higher every single session and over that period up by 37 basis points. Take it to high yield, high yield credit America spreads. Spreads have been wider for seven consecutive sessions over that period, higher by 47 basis points. The levels might not be too concerning this morning, but the speed and pace of the widening we've seen over the last week, can't you. Right. Yeah. Especially when you compare another period that you saw the similar type of rising, that seven day rise of 47 basis points that you're talking about is the biggest. Going back to Liberation Day in April of 2025. This looks like just in terms of how quickly it's going, something more akin to a shock moment, which I say, what's the shock moment? What exactly is the a hot time when suddenly people are saying, we need to sell now you're not seeing it in the break even rates, you're not seeing it in the inflation data. And frankly, you're actually seeing a yield curve steepening. That's quite significant as some fed officials take a more I don't want to say dovish, but not quite as extremely hawkish type of tone. I think that's the contradiction in the market that we need to try and reconcile over the next month or so. Why are you seeing a statement of the curve? Ever since we got that hot PMI and its continued over the last week or so, which traditionally reflects an improvement in the outlook for economic growth. At the same time, you see a breakdown in high yield, which traditionally signals maybe some deterioration in the outlook for economic growth. So the runway for the data to help settle this debate over the next month. Payrolls tomorrow. CPI in the middle of October, October 14th. And then you start to get through the earnings a little bit more as well. October 13th you get the bank results towards the back end 29th, 30th. That's when you start to hear from Big tech. Yeah. And ultimately I'm actually this time around almost more interested to hear from the banks and from other rank and file companies, because ultimately I want to understand how much the story is isolated in I related companies and technology companies, and how much this truly is a broadening out of growth that can be sustained by consumer spending, that can be sustained by some of the stocks that have gotten beaten up, like you say, in the Russell 2000, or the equal weight, which has been underperforming. That, to me is going to be the true tail end when it comes to micron. When you look at what their earnings were saying. All this insatiable demand, what does that say to me? When I heard this from some fed officials this week as well, Lisa Cook talked about this. The fact of the matter is, when you see a broadening out of eye and that infrastructure, the build continues. That says one thing more inflation. How far is this fed willing to go? 730 Eastern time. We'll catch up with the Minneapolis Fed president Neel Kashkari, at 730 in the studio right here in New York. Looking forward to that conversation right here on Bloomberg Surveillance. Coming up this hour. We'll catch up with Julian Emanuel. About the core is strong earnings compete with high yields. Angelo Zeno of Cfra as micron smashes expectations. And Cassy Barrett of J.P. Morgan Asset Management. With the ten year yield hitting a 24 year high. We begin this hour with those looking to build on tech gains as global bond yields continue to march higher due to the manual of other core writing. Tech remains the lead. But you don't buy rips in September, you buy dips in Q4. Julian joins us now for more. Julian good morning. Good morning. Are you expecting some dips in Q4? I don't see how you shouldn't be okay. We've got lots and lots of challenges. The macro, as you've just been talked about. I mean, I almost wonder why a stock guy is on today when we should just be talking about bonds 24/7 at this point. But, uh, you know, high oil, incredibly high yields, the global competition for capital. The Iran situation and the midterms. Let's remember that the last couple of midterms of the Trump political era have been very volatile. Uh, you know, and it all suggests and a fed that really we're not going to get much forward guidance. Uh, and all of that underpins volatility. Let's start with the bond market. I'm not attempting to argue, but there are people on the trading floor this morning. And I mentioned this early this week who weren't alive the last time tens and 30 year yields were this high. Now those people might be shocked by what we're seeing on the screen. There is a certain vintage on Wall Street who are attempting to make out that this is a return to normal. Do you see this as a return to normal? It's a new normal. Okay. Because, look, let's be frank. What was what was the cumulative of of, uh, deficit when yields were at that number? Probably 0 trillion. Something along those lines. We're at $40 trillion now. And the other difference is, is that this global competition for capital, I don't think we can overstate the importance of it, as the rest of the world deals with globalization, the need to rearm, the need to reorder supply chains. At the same time, hyperscalers are competing for that capital. So it is a different world. The reason why it's important to talk to stock guys this morning about the bond market is to answer a key question, are bond yields rising for the right reason? Do we see strength outside of the eye sector, even if you're not seeing it reflected in the performance of stocks. So again it's very uneven. And I think your your intro really captured it. There are questions surrounding financials. There are questions surrounding small caps. Yet at the same time, you listen to the commentary from cruise lines from airlines. Their business is good. Demand is good. And they're like, well, you know, at some point our profitability is going to start ripping when oil prices subside. But meanwhile, you know, people are still spending. So if we broke in the model were you take a look at bonds and they start looking pretty attractive on a relative basis to stocks. Whether you look at, you know, real yields at the highest levels going back to 2008 or the ten year yield versus the S&P 500 earnings yield at the highest level going back to 2002. All these relative values scream, why wouldn't people start going into bonds over stocks. Well, I think part of the reason that there's a reluctance to do that, and we think you might consider tip toeing, uh, rebalances will probably be doing a little bit of rebalancing here is that it's all because it's more growth oriented then we're used to. And also remember we haven't seen a CapEx cycle like this. Talking bad with clients yesterday. There was elements in the 1970s, but really it hasn't happened since the 1950s when Eisenhower built the the highway system across this country. But Julian, you mentioned all the reasons why in the world rearming the conflict in Iran, the eye trade. But all of these narratives have been with us and even before Iran. It was Russia's invasion of Ukraine. You start to see Europe spend more on defense. So why so violent right now? So trends a couple of reasons. First of all, if you look at the trends in global macro this year, the one has that's really been dependable is bond yields going higher. Oil you got whipsawed the stock market. You got whipsawed commodities you got whipsawed broadly gold you got whipsawed. But the trend followers have been pouncing on this one. And you know, that doesn't change until something breaks. You think something breaks this quarter? I don't know that it's this quarter, but I will. I will say that the people that say that I is totally immune to the cost of capital. You don't buy it. That is a it's different this time concept like you read about. It is not going to be different this time. We just don't know what that level is. Why do you think this has been the one consistent trade. If oil prices go up or down, if stocks go up or down. Why is it that bonds just keep selling off to this degree? It is. I think it just goes back to this idea that everyone is hungry for capital, and we are now going to an environment where, you know, you're talking about net issuance after years and years of buybacks, and there doesn't seem to be any horizon where this new dynamic is going to change or slow. I mean, look what we're looking for trillion three in hyperscale or CapEx next year. That didn't sound like a big number. I mean, that did sound like a big number a year ago with all these numbers. Maybe it's not so big. It's big. Are you expecting a trillion plus company to go public this quarter? I don't know, get you in single name trouble. We know where I'm going with that. Yes. Uh, so so we had a number of high profile clients. We debated this issue very intensely. And there is an expectation that you will see it. And it's very important to the health of the eye trade that that happened. And it happened at a good price. What would it mean if it didn't happen? I think, you know, look, it's no coincidence that the market has been as choppy as it's been over the last several weeks, given the fact that some high profile IPOs have been pulled. And it tells you and this is why go into financials, it's going to be so important to hear what the pipeline looks like and what the expectations look like. And this is different. Financials almost never set the tone for earnings season. They will this quarter. I agree with you. Said the same thing. Let's finish on the banks. The banks are down by more than 10% now from the highs of mid August. There are a range of reasons why the banks are lower. We had guidance pulled in just a little bit. Reset expectations over at Bank of America. Something similar from Goldman on its earnings. Got the tech disruption coming from the likes of meta. You've got the tech associated nerves. What happens to the IPO pipeline. And you've just got worries about the cycle. Is there one dominant reason for banks to be down as much as they are over the past few weeks? Well, no, there isn't really one dominant reason. And obviously the accelerant, because banks are having trouble for various reasons and really was like broad financials worrying about credit quality and, you know, software exposure at the beginning of the year. And the sector never really found its footing despite the capital markets staying strong at midyear. Um, there isn't really one specific reason. Obviously, the catalyst was, uh, uh, a furry little creature called moose that thought it was going to cross everyone's profit margins. But that's why how we see the commentary evolve. But more importantly, and this has been a consistent theme throughout this bull market, how the stocks react to whatever is said. Jillian, you're going to stick with us. Jillian. Only one of Evercore earnings season is upon us a few weeks away. October 13th is when the bank start. What is it? Promo tech meta disruption the cycle. Take your pick right now. Yeah. Ultimately, is it fair about a consumer rolling over that other people say isn't happening? Or is it really going to come down to the pipeline? Or, uh, who thought that the gauge of our health and how much we sleep is a gauge of the market's health? Because right now that's what people are seeing in wrestling with news. Did you see that OpenAI executive, who was there to talk about dance and then talked about muse on accident? Yeah, I mean, just like on accident. Yeah, by accident. And Mention when it comes time to thinking about afterwards like, oh no, this was not part of the plan. Don't say that. You know, honestly, which sounds better? Dots or emus? I mean dot to for kind of to be honest, I thought they were kind of. Are you like that? I thought they were. It's a first mover thing, I think. Okay, let's give an update on news worldwide with your Bloomberg for a funny Queens over with more. Hey, funny. Hey, John. Good morning. Authorities in Saudi Arabia are questioning a pilot who allegedly stabbed his colleague and tried to crash a plane carrying more than 170 people. Passengers and crew stormed the cockpit of the flydubai plane that was on its way to Tel Aviv. They subdued the attacker and another pilot on board landed the plane in Saudi Arabia. Mike Brown reporting. First quarter earnings that beat estimates. The chipmaker giving an upbeat forecast for the current quarter, fueled by the AI building frenzy. Micron warning, though, that rising compensation could weigh on profit margins. OpenAI is accusing its Chinese rival moonshot of conducting a widescale effort to extract data from its GPT models. The company says it observed thousands of attempts by users associated with moonshots to decipher hidden information about how its models reason through problems. And that is a Bloomberg brief jump in. Finally, thank you more for Anthony later this hour. Up next on the program, the president's pressure campaign on Powell and Jay Powell is a disaster. I call him too late because it was too late with interest rates. He wasn't good. He's incompetent. And the man that's incompetent should not be sitting on the Federal Reserve Board. That man is still sitting on the Federal Reserve Board. And we'll talk about why with Bloomberg's Tyler Candle in just a moment, plus more with Julian Emanuel. And then of course, live from New York City this morning. Good morning. More data later this morning. More fed speed two will catch up with Neel Kashkari of the Minneapolis Fed later this morning on this program. 730 Eastern Time we'll get more data. Jobless claims at 830. Then later Lisa talked about this early on in the week. It could be the data point to look for PMI last week. Will it be validated by a hot ism? The ISM number dropping in a few hours time? I'm curious to watch the long end of the yield curve, especially as you have people like John Williams talk about only one more rate hike, much less than what the market is expecting. If we get ongoing data that shows that resilience in the manufacturing after that service is data, how much more does it go? I mean, who's going to step in and try to catch a falling knife? If you have this kind of data that isn't going in the direction of bringing yields, lower the first data points. As we kick off the month of October and Q4, the final quarter of 2026, equity futures this morning positive by a 10th of 1% on the S&P 500 on the Nasdaq, up by 0.4. Check out this from Reuters this morning. getting more access to the IPO prospectus coming out of anthropic and citing this line right here. Broadcom to lend anthropic up to 42 billion to lease its chips. The latest reporting coming from Reuters just seconds ago. And two concerns about circular financing and exactly who is buying what and exactly where this money is coming from, and whether anthropic has the type of revenues that can offset the incredible amount of hardware and, frankly, cloud computing ability that it seems to be leasing and borrowing and, uh, and getting a piece of in every single capacity. Ultimately, you ask the right question how hinged is this market, the idea that anthropic has to IPO this quarter, or else face some sort of real reckoning about the pace of these of these companies that headline those numbers will get people's attention. These numbers will, too, in the bond market this morning. Ten year yield yields up across the kept up by two one tenths through 530 on Thursdays through 565 levels we have not seen in more than 24 years. Just keep cranking up your time. And if you look at the charts now, we're starting to go vertical and long and yields over the last year. This is the concern for a lot of people that it seems to be accelerating. And there was actually a poll done by Bloomberg of investors, and more than half of them expect us to see 6% yields on 30 year bonds by the end of this year. I mean, it gives you a sense of the fact that nobody's really stepping in to slow this down because they expect it to keep going again. Why now? And what could potentially put a cap on it? The only point on the curve right now without a five handle to a fortnight, is very close to everything else. Three years and out, 5% and up and a savannah this morning, a focus on the Federal Reserve and the president's pressure campaign. The president's pressure campaign on Jay Powell and Jay Powell is a disaster. I call him too late because it was too late with interest rates. He wasn't good. The report was a pretty bad report. The report said they did. They did a bad job. They didn't know what they were doing. He's incompetent and the man that's incompetent should not be sitting on the Federal Reserve Board. So here's the latest this morning, the President Donald Trump, renewing his push to oust former fed chair Jay Powell from the board of governors, saying he should resign or, quote, be sued at the highest level. Following a report on renovation cast for the central bank's D.C. headquarters. The town of Kendall has more. Hi, Tyler. Okay, John. Well, the Fed's independent watchdog found no evidence of criminal wrongdoing related to the construction, but it was still highly critical of management of the project, which is adding fuel to President Trump. The report should, in theory, put to rest the prospect that we could see criminal charges brought, finding that there was, quote, no administrative misconduct. That essentially means no neglect of duties. And I bring that up, keeping in mind that there is a very high legal bar to remove a Federal Reserve official from office. Still, the report did outline a series of missteps that led to cost ballooning from an initial estimate of .3 billion to $2.4 billion. That includes failing to implement a recommendation to impose a cost ceiling or asking for construction estimates. President Trump says that he has asked his attorney general, Todd plans to study the report and figure out what to do next year, considering that Powell's term as governor doesn't end until January of 2028, and he's previously said he's not going to lead the board, lead the board unless the investigation is, quote, well and truly over. Now, John, in response to these findings, the current fed chair, Kevin Walker, says that the central bank will implement all of the report's recommendations, including the use of an independent auditor for the remainder of the project, which still remains underway here in Washington. It's on a condo down in Washington, D.C., from the nation's capital. Thank you. The pressure is building on the president of the United States. Rates are too high. He's putting pressure on the former fed chair, Jay Powell. The pressure's building on the president of United States because energy costs are too high. He's putting pressure now on the Europeans to do something about it to release inventories. This is the pressure campaign on crude product in the Europeans, and it's ramping up heading into the midterms. Absolutely. Because the president is under immense pressure at home domestically, especially from states like Iowa. The EU Commission spokesperson is basically saying that they're in, quote, high level contact with the U.S. on emergency diesel stocks. This comes after Reuters reported earlier this morning that the U.S. told France and Germany, release those stocks or expect an export ban from the United States to have a blast out of London, who linked the two stories a number of weeks ago. And he indicated that the debate on policy on banning diesel exports in this country was linked to a pressure campaign in Europe to get them to release crude products, something that had been sitting gone for the last seven months. And it's pretty clear they are related this morning that ultimately this president does not want to do a ban on exports of, uh, of diesel, considering that every single producer says it will only raise gasoline prices. And now he's using that as the ultimatum to get them to actually release these reserves. Honestly, a real question why they're not actually releasing these emergency DSO reserves, given the fact that the 40 year old came out and said, this is incredibly a tight market, and he's very concerned heading into the winter and heading into the midterms, you can feel the pressure building on the administration. Now. How instructive are these midterms looking out into 27 into 28 for the runaway, for policy and what it could mean for markets. Look, it is it is anyone's guess, to be perfectly honest. Because if nothing else, the Senate is really, uh, totally in play. Uh, but but the question is, you know, look, true to form, uh, if the Democrats were to take both houses of Congress, uh, the president has in the past occasionally shown a willingness to work, uh, across the aisle on some issues. The test of the next two years is, if that happens, where the. Will there be a greater willingness or will there just be sort of continued acrimony? And I would suggest that stock markets actually show that divided government contrary to people's opinions. The returns are lower than unified government. But that's why you've got a lot of volatility potentially shaping up here, because it really could go either way, depending on how the interaction ends up being based off the previous conversation we had, which how much everything is costing the budget, exploding the need around the world for everyone to rearm. Do you hear anyone in Washington talking about anything to address our fiscal debt? No, none. And how much worse is that going to get regardless of who wins the House or the Senate? Well, we're going to have a debt ceiling fight again in 2027. I mean, you know, the day after the midterms, we're going to start the countdown to, you know, to extraordinary measures and so on and so forth. Uh, and and look. there you go back to the establishment of the Peterson Institute more than 40 years ago to deal with the nation's debt. It has not. You know, we have stayed the hegemonic currency of account globally, and that has been extremely supportive. But to think that it's going to go on into the infinite horizon, the bond markets are telling you there's only so much globally that that's sustainable at this point. I was talking to an investor yesterday who said that they're concerned about a contested election of some capacity, considering some of the legal questions heading up to it. Have you game that out? Do you get a lot of questions about that? Uh, we do. We do. But I offer beers instead of actually doing it on zooms. Uh uh, to answer that. I think that's a parlor game that, uh, we're just going to have to see what the news flow starts to look like on the morning of November 4th. can you confirm or deny whether that investor was can Griffin I continue carrying minds for want to know because you spoke to me just that I can say that it was not. Yeah. Okay. Let's roll that out from his, you know, having the ability to give $3 billion. Can you imagine to have the money to find dinosaurs and build $3 billion campuses? How cool is that? And then sit on a board and be able to then to say, okay, this is what I want to work on and this is how he can do this, and he's using it as a petri dish. I know it's on Vogue right now to sort of go after billionaires, and that's the whole shtick gone into 28. And I get it. I understand where it's coming from, the concentration of wealth, given the struggles. That's when the economy. But when you use your concentrated wealth to do those kind of things, I think that the kind of things that should be celebrated. I completely agree. I mean, it sort of hearkens back to and he is not just the dinosaurs for the campus, two campuses. I mean, it's sort of ironic that it's in the same spot as Andrew Carnegie and a lot of his prolific investments, and it's sort of the new era of a similar type of time. Really cool. Julian, good to see you. Thank you sir. Jimmy money whether if ever. Coming up tomorrow will have more on this Federal Reserve race coming up later. We'll catch up with Neel Kashkari of the Minneapolis Fed. Coming up next. Angelo Zeno As far as micron past gains following some blockbuster earnings. Kicking off October and Q4. Equities firmer by 2/10 of 1% on a three day slide to close out Q3 and a month of September. Bouncing this morning by 0.6 on the Nasdaq. Micron. Crushing get. We'll get into that name in just a moment. Let's spend some time on the bond market 2/10 30s. Ten year yields have not been this high since April 2002. You've got to go back to June oh two to see 38 bond yields this high. 564 this morning I'm 30. So there will naturally inevitably be a conversation about the deficit and whether this is part of the story, I have to say, stateside. Just look at the US dollar. If that was the story, the dominant story. I would expect the dollar to be weaker. The dollar just had its best month since June. That's not to say you aren't seeing some fiscal jitters. You are, but I think you're seeing them much more in other places. Take a look at the German French spread right now. France over Germany, the ten year. The spread has got to about 129 this morning. Back in late February, it was just below 55 basis points. That's blown out. And I think this morning you've got to ask the question at what point. How close are we to ECB officials coming out and saying, you know what, we need to do something about this. This has gone too far. Ultimately, what can they do if this is driven clearly by fiscal concerns over in France, they've got a fiscal budget deficit that is one of the worst in the euro region, behind Poland and Romania and a couple other countries. And there's a real question about the elections and the willingness to do something. So do they have to be backed by other European Union nations? Are they going to go for that? Meanwhile, look who the stalwarts are. The French yields are actually the highest ever in modern data relative to Greek and Italian yields. So it really comes to, you know, who is going to be the strong one that supports France after a pretty chequered history. They've got to do the work. And we've talked about this repeatedly. There are no easy policy decisions right now. There are trade offs. And for the ECB, if you're looking to tighten policy at a time when inflation is above target and you think over the medium term, the inflation risk is skewed higher to the upside than do you really want to get into the business of doing what looks like QE? Probably not. Which is why the bar to get involved is probably a lot harder, some people believe, which is why the spread is just kept on creeping wider. Closing the spreads will have ulterior consequences of inflation that they don't want to deal with. At the same time, at what point do you hit a doom loop in France? We talk about that sort of possibility in other places. Increasingly that nation's place really trading like a developing nation of more than a developed. This is a moment for strong leadership, and it's a moment to understand who the leader might be. Now, I know it's not part of the conversation right now, but flirting with different jobs into next year is going to become increasingly difficult for the chief of the CCP. When these kind of moves are developing a bond market, I think you need to shut that down pretty quickly and make a decision and offer the market an idea of what leadership is going to look like in 27 and beyond. I think the Spanish prime minister has some ideas, and I think that some of the other nations that's true, and they've come out. And ultimately, I think you are right that at a moment of turmoil, at a moment of uncertainty, you need to have a concrete leader who can come out and set the tone and ultimately get the mistakes out of the way, because they all make mistakes up front. Absolutely. So start making mistakes now so that if things do blow out significantly more, they can respond. It's not the perfect moment for a leadership change right now anyway, for since we're on the topic, I've always found that the media, particularly the financial media, has been soft on this particular person leading the ECB, Christine Lagarde. And if this was a conversation taking place of the Federal Reserve and the fed chief, and we have a chair that was unlike announcing about when they might step down before their term ends, I think we'd have a different approach to that particular news. I think that people would demand a clearer and quicker resolution. You know, right now, I think that that's been an issue around the around the globe. How much of the extra premium baked into bond yields is because of policy uncertainty, personnel uncertainty, whether it's the ECB or over here at the Federal Reserve? There has been a leadership change as well. And some people have speculated that that's been part of the move, might not be a market issue right now. I'm not suggesting it is one, but it could be potentially down the line. Eurodollar right now at 112, 93 hours away from the cash opening up and about just around the corner. This case, some single name, some warning, but this money has more. Hey, Vonnie. Hey, John. So let's start with alphabet. It has released its Gemini four argon model. The latest AI model, it says is with governments and a trusted partner is right. So it's going to roll it out slowly. And as it says, responsibly. Now we did some reporting and we found that some of the voices are saying that some of the tasks that it does end up being a little messy, but Google says that that is inaccurate and it is standing by its Gemini for only accounting says the real issue may not be any of that. It may just be that it's been too long since Gemini three. These models have to start coming out on a quicker cadence. Now let's move to some power stories. So the first one is because it has raised its growth outlook for the second time in a month to 20% now from next quarter from 10%, up almost 12% in the premarket. VI Corps, based in new Jersey, makes small power modules for everything from EVs to large drones. Well, now it says it's signed on for OEMs and hyperscalers. So a great growth story there for VI Corps. And then we have Constellation Energy, the largest nuclear energy manufacturer doing a deal with Amazon. $20 billion deal. It's going to be a 20 year deal. And it's going to allow for $3 billion of extra investment in Maryland at Calvert Cliffs, the largest nuclear reactor in the United States. And that has constellation energy up almost 4%. So power definitely a theme these days. Funny. Thank you. Thank you very much. Some of the movers this morning moved from Vonnie a little bit later on. Right now this morning Fed Governor Jay Powell back under presidential fire. It's horrible what they've done. He's incompetent. And a man that's incompetent should not be sitting on the Federal Reserve Board. The report was a pretty bad report. The report said they did. They did a bad job. They didn't know what they were doing. President Trump renewing calls for the former fed chair's resignation over the central banks building renovations. The defense internal watchdog finding zero evidence of criminal wrongdoing in the project. Elsewhere, the US ramping up pressure on Europe, Reuters reported. The white House is pushing Germany and France to release emergency diesel inventories or face a potential export ban. An EU Commission spokesperson confirming high level talks with the US on the fuel and finally dissent bubbling under the surface. Tech executives privately questioning anthropic CEO Dario amid warnings about AI. The Wall Street Journal reporting. Industry leaders, including Nvidia's Jensen Huang, found his commentary extreme. I almost feel bad for him, and I know no one's going to have a wild life. I know I'm going to get a lot of hate. The smallest ever I know. But I almost feel bad because I feel like everyone's ganging up on him because he's easy to gang up on, and he sort of represents his views without any particular polish. But I do think right now, you know, it's fair to have this concern. Ultimately, how much is this a fracturing of close models versus open models? And he is the poster child for closed model and regulatory capture, and all of the other CEOs that see a business advantage to having open source when A and B, no regulatory oversight end up sort of all coming together and saying, cut it out there. He was also the odd man out for another reason that we haven't talked about. Anthropic is still labeled a supply chain risk by the Pentagon. Can you imagine the United States went to the white House driveway with the Huawei CEO? It would not happen. It would not happen at all. But yet the CEO of anthropic, who the DoD says is supply chain risk. And as of six, seven days ago, a federal court said the Pentagon can label anthropic a supply chain risk. Was standing alongside all those tech executives and the president of United States. There is a risk you're being too kind. And it's not about style. It's about substance. And this is the guy that's going around talking about the risk to the end of humanity and taking over a percentage of white collar jobs. And I got the sense looking at how that played out, that little mini cargo led by the new white House press secretary, the president of the United States, Donald Trump. What a scene. I sound like Mark Zuckerberg looked like a man who just walked out of an argument. He just won. And the other guys looked like, particularly Darry. I looked like a man who just got crushed. Ultimately, Mark Zuckerberg is telling a message that the president wants to hear. It's a superintelligence. So he's picking that up and going with it number one. But on a more serious note, there also are the consumer deliverables. And he's running fast ahead. And he's saying ultimately this will have to be a self-regulated industry because it becomes a business case. But we're on we're on the job. Yes, he probably did win. I would say it was really. I have read a lot and seen a lot. I would like to see that scenery created by actors. I would like to know the backstory. I want to see the movie. I want to see the movie. I want to see the end of the movie. I just wait a couple of years. Also, when you look at the body language, he stood right next to the president, went right to the front. Some others were trying to almost hide a little bit in the back. Take cover. They don't want to brace for the questions. They don't want to get up there and speak. He stood right next to the president. The president and him were talking when other individuals were speaking to the press. So yeah, I do think he walked out a little bit, you know, a little cocky. Let's be honest. These are all smart guys. We'll see who wins the race. Let's stick with it because the antics have been phenomenal. Micron posting blowout fourth quarter results fueled by soaring I demand the chip. My Connecticut triple digits year over year revenue to more than $54 billion until I sign off for a maintaining a buy on the stock with a 12 month price target of 1500 right in the corners. Upside was broad, based across all four business units, but mainly driven by data centers. Angelo joins us now for more. Angelo, what a story. And if you explain this story to people and then ask them to guess the multiple, I'm not sure how many people would guess correctly. Angelo, when are we going to see that rewriting of this name? Yeah, John. It usually happens when you least expect it with these type of names, is what I've learned. But, um, you know, I think people have the balls on micron for years now have been kind of waiting for this rerating. I think you'll potentially see it here over the next couple of quarters. I think this quarter specifically the we lacked a major catalyst. The results were great. I mean, and the fact that they provided some really good visibility here for 27 or 28, which is what bulls wanted to hear. They also, um, you know, despite the fact that the guidance on the gross margins were a little bit light, um, you know, they did kind of point to the fact that it was going to be the low point for the year. You're going to see higher pricing, and that would really benefit them. But I think most importantly for us is, um, you didn't get anything in terms of a potential capital allocation strategy. I think that will help rerating the stock. If you see something along the lines of a 2 or $300 billion buyback announced here over the next couple of months, they will be allowed to start buying back aggressively starting in December. So but they probably didn't want to get ahead of that. So we'll kind of see what how that develops here over the next couple of months. And then of course, the fact, you know, the street just wants to see the sustainability of this cycle. And as you progressively see that, if that if that's what transpires. I think that helps the rerating story. I just want to sit on what you said with gross margins coming in a little bit disappointing. They were at 87%. I mean, what did people want 100%? I mean, honestly, at a certain point, people used to say it wasn't so much the direction as the absolute margins that would keep people interested. Well, this seems to maybe fly in the face of that. Yeah, yeah. No, I mean, you're right. I mean, the fact that when you look at the what the company has done here over the last couple of quarters, You look at the gains. Um, the investors always want a little bit more. I think the good thing here is the fact that, hey, listen, maybe the investors now acknowledge the fact that this is going to level off in terms of the margin trajectory, in fact. Listen, at some point in time, the margins do have to come in, which is why the multiple is where it is. Um, but that being said, listen, it's all about the free cash flow potential in our view. This is a company that potentially generates 5 or 600 billion in free cash flow, uh, by the end of this decade. And again, that helps the potential rerating story here of the name. As long as listen that that commit that demand landscape is, uh, sustained. I thought it was interesting, uh, the explanation for why gross margins weren't even higher. And this, according to the CFO, we made the decision to increase the incentive compensation incentive composite is the big driver to that gross margin outlook. How much are they having to pay people to keep them? I mean, how much competition is there for anyone who has any memory expertise whatsoever? Yeah, I mean, it's it's it's a tight market out there for labor and for that expertise. I mean, you kind of think about also, um, and then you also think about here over the next couple of quarters and years, the fact that this company isn't able to potentially even grow faster than they are, um, is the fact that the clean room capacity is just extremely tight, and it just takes time to really kind of build that capacity up. In fact, some of the most of the investment, extra investments that they're making today is going to be towards late 2018. So, um, so it takes time, right? So um, there's going to be limitations in the amount of supply you can actually add in this market. But to your point, yeah, I mean, when you look at the disappointment on the gross margin side here for the November quarter, I mean, you're talking about 3040 basis point disappointment, um, on that, the higher costs. And, um, that's probably something that's going to be a headwind, but nothing that's, that's really going to kind of disrupt the story. Our political headwind is going to be an issue for micron, because obviously they're the base for really building data centers. Yeah. I mean, I think you've always got to worry about the geopolitical landscape across the entire AI ecosystem, uh, for that matter. But when you think about micron specifically, the fact that they at least at this point in time, they're the only, um, high bandwidth memory manufacturer here domestically. Um, that's something that works in their favor. And, you know, clearly over the next couple of years, there is going to continue to be more of a push here for that local manufacturing. So, um, in many respects, that actually works in their favor. Angela. Oh, it's going to catch up until I say, you know, of course, a with a pretty punchy price target on that name after some pretty punchy earnings from micron. I just love that people are disappointed with 87% profit margins or gross margins. You just start to wonder if any other company put those kinds of gross margins. But people really be saying, yes, but it wasn't 90. What do they pay their people so much? It's looking for 50% upside on that stock. I think that there are other people who agree with them. If you take a look at the multiples and where they're trading single digits. I mean, ultimately, do prices force some sort of reconciliation in demand before supply catches up? And it sounds like the answer is no. So people are going to keep paying it. You can talk about this as an inflationary input. Either way they're making bank. The latest from micron this morning. Let's get an update on stories elsewhere with your Bloomberg brief. Vonnie Quinn has more. Hey, Vonnie. Hey, John. Thank you. Shares of Broadcom rising in the premarket Reuters releasing new details from the anthropic prospectus, saying the company will lend the startup as much as $42 billion for infrastructure. The deal is positioning anthropic to become Broadcom largest chip customer in next year. Oracle shares also rising in the premarket the Financial Times reporting. Tencent signed its largest overseas lease deal with the US cloud provider. The deal allows Tencent to access about 100,000 advanced AI tips that were not available in China. And make sure to check your mailbox. President Donald Trump has begun sending $500 checks to nearly a million people who apparently paid excessive fees under the Affordable Care Act. The texts come with a letter signed by Trump touting his record on cutting health care costs. And that is your Bloomberg Week jump. Vonnie. Thank you. Thanks for the update. More from Varney in the next hour in about 30 minutes time. Up next on the program fueling from market pressure. This is marketplace has higher rates. But it's up there because of this remarkable rate hike. Discount the productivity revolution. The deficit is high real rates a lot of this is about the narrative. Up next Kelsey Barrow of J.P. Morgan Asset Management. Equity is doing better up by a third of 1% on the S&P on the Nasdaq 100 this morning by 0.8 in the bond market. Just historic levels, numbers we haven't seen in 24 years. Ten's north of 530. Briefly we had Thursday's comfortably about 560, just about holding onto those levels. As we back away from them, we give some life to equities, and that's the tug of war right now. And it will be into our earnings season and the data through the month ahead. It's going to be the robust earnings in America versus these much higher yields across the curve and worldwide. I'm less interested about tech because we've already established tech is relatively immune relatively to some of these higher yields. The rest of the universe, how much are they getting beaten up and how much resilience does the U.S. consumer have? Ultimately, that will be the tell for fed policy and frankly, for how long stocks can remain resilient on Savannah this morning feeling from market pressure. This is marketplace has higher rates. Yes we talk about the deficit but it's up there because of this remarkable rate hike. Discount the productivity revolution the deficit high real rates. A lot of this is about the narrative. It's about what what does the future look like and what policy measures do we have in place to sort out the future fiscal issues. So here's the latest this morning. Global bond yields continuing to climb as the US ten year is hitting its highest level since 2002. Traders now looking to the next dose of data for potential clues on the fence. Next move Kelsey Power of J.P. Morgan Asset Management writing we are increasingly seeing an unsustainable gap between the inflation narrative, the market's pricing of the fence policy path and what the hard data show. Kelsey joins us now from more. Kelsey good morning. Good morning. Do you think something's going to give here. And if so what. I do think that we are in kind of a new chapter of the bond market selloff, particularly over the last week. It does feel very technically driven, very momentum driven, particularly yesterday, which was month end and quarter. And the selling that occurred after what was, I think, material new information about inflation related to core PKI. Uh, looked to me to be a little bit associated with some of these negative feedback loops selling, begetting, selling. For example, in the bond market you have a concept called negative convexity. As yields are rising certain securities their duration is extending. And that causes people to have to sell even more duration. So that feedback loop is there. Our process incorporates three factors fundamentals valuations and technicals. Technicals of those three has clearly been in the driving seat. But I don't think that they're going to be in the driving seat forever. I think we're getting increasingly closer to the point in which we are going to refocus on the fundamentals and the valuations, the valuations being highly compelling with yields where they are. As we look into the fourth quarter, you've articulated a technical negative feedback loop. Can I communicate a potential fundamental one that high yields beget high yields. Because we start to think about the deficit a little bit more and higher borrowing costs and concerns about high yields and high yields fuel and concerns about high borrowing costs. We've been talking about that through the week so far. Are we entering that messy phase. So that is a concern. But I think it's it's been a concern out there. And to me the price action that I'm seeing does not support that risk being the fundamental driver within the bond market. I think I heard you earlier this morning talk about the fact that the dollar has been well behaved. I think really strong spot on point. You know, I also look at the relative performance of swaps versus treasuries as a swap spread trade that has been also very well behaved. So there's not this kind of indiscriminate selling of the cash Treasury bonds that's causing dealer balance sheets to become bloated. So not really seeing that now where I see the disconnect on the fundamentals is particularly on the inflation side, I think we can talk about growth as well. Uh, and what is next for growth. But on the inflation side, we got a lot of new information yesterday. Uh, the core PC numbers now with the revisions with the August report. The three month run rate is at 2%. Now, that's a volatile number. Uh, you know, that is going to move around. Uh, we also have energy back up that's going to influence airfares, but it also impacted the year over year rate, which is come down to 3%. Now these numbers, they're higher than the Fed's target, but they're not miles away from the fed target. And when I look at where these inflation numbers are what they mean in a dispassionate way as it relates to a Taylor rule framework and what the market is pricing in terms of rate hikes. That disconnect is getting uncomfortable. And I'd love to hear from more fed speakers about how they're interpreting this, because I think one of the challenges with this environment, uh, particularly in this, in this new fed regime with new fed leadership, and it's something that is natural that, uh, you know, participants have to get used to. We know what can make the fed more incrementally hawkish, right. Like we get that. We know that if we get that inflation data, they're going to hike more. What we don't really know a lot about is what is sufficient improvement in inflation. That would get them to start to sound more comfortable. Now we see the mix of inflation and say, uh, on the margin you can get more comfortable. And then we'll start to talk about how the growth backdrop into place with that. So we get a lot of fed speak today. We get Jefferson Park and Colin Schmidt while our Boman Cook Logan and Neel Kashkari the Minneapolis Fed president, is going to be on this show. I do wonder though if this is fed driven in any way because what we're seeing is yield curve steepening. And actually the yield curve at the front end did decline. And people priced out some of the expected rate hike in uh, in October this month. Is this something else. Is the fed kind of really not in the table here? I do think the fed is part of it, but I understand your comment. There is a lot of multiple factors that are driving yields. For example. A couple weeks ago we were heading into, uh, you know, the fourth quarter thinking that one of the tailwinds for bonds and a possibility for lower yields could come from some temporary, uh, respite in the oil, uh, situation in the Middle East. We haven't gotten that right. So there are a number of kind of challenges to, uh, lower yields that have persisted, that have really nothing to do with the fed. That being said, what I heard from Warsh in the last multiple press conferences is that he wants yields to reprice to the data. And what I think is concerning about the price action yesterday is that the markets did not reprice to the data. And that then begs the question, does the market understand the Fed's reaction function, or is there something else going on, and I think it could be a mix of both. To be really fair. Cassie Barrick of J.P. Morgan Asset Management Kelsey, thank you. Just on the yield curve, go back to last week the morning the PMIs came out. So that was the 23rd of September the two year versus ten year. The spread between the two. The shape of the curve 17 basis points. It is now 40. So we've more than doubled. So we've had some real curve statement come in from. And I've seen a lot of articles written about a curve flattening and recession or that that's not been the story ever since. We've got a hot PMI and that story shifted and pretty quickly, you know, and even if you did price out some of the rate hikes, what you saw was an ongoing steepening. So this clearly is something else that's going on. Coming up next to a Kaiser City. Libby Cantrell of Pimco, Minneapolis Fed President Neel Kashkari plus US Trade Representative Jamison Greer, a snack second down. Rick Bloomberg Surveillance just around the corner. Do we want to proceed with caution here. When it comes to the equity market, the market needs to say something really positive on the fiscal policy front. The I story hinges on a continuous stream of positive narrative. We're just trying to find other things in tech. You could have a very bumpy bus. This is Bloomberg surveillance with Jonathan Ferro, Lisa Abramowitz and Annmarie Horden. Live from New York City this morning. Good morning. Good morning for our audience worldwide. The second day of Bloomberg Surveillance starts right now. And your price action scores look like this. It's a bounce by a third of 1% on the S&P 500, following a three day slide on the Nasdaq, up by three quarters of 1%. We've got some new levels in the bond market to tens and 30 tens, briefly, the highest level we've seen. Going back to 2002. Likewise on Thursdays this morning holding those levels. Tens 528, 35, 63 heading into this later this morning, we get some jobs data for you jobless claims in about 19 minutes time, followed by the ISM at 10 a.m. Eastern time. This is a really important data point Lisa talked about at the very beginning of this week. This curve had been flattening. The move changed after we got a hot PMI last week, and we've been looking for this output data this week to see if it validates reinforces that message we got from the PMI week ago. Yeah. Ultimately even though benchmark yields I'm talking about the expected trajectory of fed funds. The two year yield have been rising considerably. There has been ongoing strength perceived in the economy. Even though the underperformance of the Russell 2000, the S&P at equal weight. And a real question here is how sensitive is this economy to fed rate hikes and to additional ones down the pike. And ultimately the yield curve steepening seems to suggest not as sensitive as in the past. And to your point, we've seen the biggest five day steepening in that 2/10 curve going back to April of 2025. That is Liberation Day. That was the concerns about the fiscal trajectory, but also some policy uncertainty in the United States. The issue, of course, when you compare this to Liberation Day is Liberation Day clearly got this administration worried and the president came out and actually reversed course. There's a lot that's out of their control right now. We've talked about that a number of times. Now everyone's concerned about the deficit issues. Julian Emanuel, the stock guy, mentioned the debt ceiling debate that bonds as well as you mentioned, he mentioned the debt ceiling debate next year, which a lot of people who watch the government, that's why they care about the midterm elections. Who's stocking up and what are they going to be asking for? What handouts potentially to raise our debt limit. And of course, the war in Iran. We all thought, at least listening to this administration, that this would have been quicker and then he would have come to a deal. At this point, we're five weeks away from the midterm elections. There's no deal in sight. The deficit is always going to be a factor in the conversation. I just said the greatest counterpoint to the deficit concerns right now is the performance of the US dollar. Mentioned that a few times in the last, our best months since June. So what are you seeing elsewhere? Are you starting to see rates bite into this economy? I think that's a key question. Coming into this month. I would say starting to see in the equity market is starting to sit in banks, and we can get into what's really happening with banks a little bit later this hour. It's not just set in small caps, and you're starting to see it in high yield. And I don't think anyone should really underplay what's happening in high yield right now. You can make the case. We've seen supply. It's a big supply. SoftBank talked about a repeat in the last week for high yield IGA. Paramount another factor as well early this week. But to see that spread widen to the extent it has done in just a single week and in a week with higher wider by almost 50 basis points, I know the levels are still pretty tight. Primo, you've covered that market for a long, long time. When you see a 50 basis point spread widening like that pretty quickly, it usually signals something's happening. Usually this is the canary in the coal mine. Some people said, well, it was quiet for a long time. It was actually the biggest argument for a risk on move in stocks with is the bond market was performing. The fact that we've got the steepest widening over the past seven sessions, also going back to Liberation Day has to be something people take note of in a time of competition for capital. If you don't have a business model that is as worthy. You have to think it's going to really stress them out. If they have to go to a borrower or a lender and say, hey, do you want to let me money in there? Like, uh, I don't know, I can lend Paramount for 9% yield. I think I'm going to go with them. Access to capital is increasingly uneven. Maybe this is the objective of the Federal Reserve right now. Maybe this is what they want to say. We'll catch up with an official later this morning. We can ask no Kashkari about that. The Minneapolis Fed president. Is this the objective. Do you think type of financial conditions from here. Let's get inflation back to talk and your words in a timely manner. Yeah. The issue is is it a lot of the inflation components are outside of the hands of some of these consumer sensitive issues. I do wonder, though, if the aura sort of read through for the economy. I love the idea that the kind of reader for your finger is the health, is the health of the pipeline, the health of just how quickly inflation can go on, whether that actually does start to slow some of these price gains coming up. This sour stew. Kaiser of Citi as stocks look to defy elevated yields once again, we'll catch up with the Minneapolis Fed President Neel Kashkari, on the potential for another rate hike later this year and the US Trade Representative, Jamison Greer, as global trade tensions persist. We begin this hour with tech fueling some equity gains just about as bond yields hold near multi-decade high. Stuart Kansas City writing stocks shrugged off high yields and wider credit spreads thanks to large cap growth leaders. Stewart joins us now for more. Stuart good morning. Hey good morning. I expect that to persist this month at 3 to 4. We do, we do. I think the biggest misnomer out there to me is that equities aren't getting impacted by higher yields. I mean, equities are clearly getting impacted by higher yields, just not at the S&P index level. You know you mentioned Russell Russell underperformed the S&P by a thousand basis points last quarter. You've had we you know we credit companies underperforming utilities have lagged. Real estate's lagged. Insurance has lagged. So there is a lot of impact there happening. It's just not happening at the you know Nasdaq and S&P cap weighted indices because of the level of earnings growth that we're seeing in those areas. You mentioned small caps. We've talked about banks repeatedly as well. Do you think banks are being hit by the right story or something else. What is it. You know, I was a little bit surprised with how banks have performed. You know, given the rate hiking cycle. I think a lot of that probably probably boils down to lower trading volumes, a little bit weaker capital market activity, at least in the announced space as well. I did become a consensus long, so I think positioning has worked against it as well. So race may be playing a bit of a role there, but I think there are multiple other headwinds kind of getting into the bank sector right now. You know, one thing that people keep pointing to is the comparative ratios between bonds and stocks. And they're starting to look increasingly favorable for bonds. I'm thinking, for example, of the ten year yield versus the S&P 500 earnings yield. And it's the highest going back to 2002. At what point does the bond universe start to become a competitive asset class with stocks in a more material way? Yeah, I mean, I guess the question is at what level is that? You know, a few months ago people would have told you was at five. Now they're telling you it's a six. So it's kind of a little bit of a moving target. Um, you know, clearly, as you mentioned, credit spreads are widening. But even, you know, I think a high yield, you know, total yield is like eight, eight, eight, 8.25%. I mean, it's attractive, but is that is that enough to get you out of equities into high yield during a rate hike cycle? I'm not sure that's necessarily the case. And you're also in a situation where it's a little bit abnormal that earnings growth is behaving like we're coming out of a recession. Right. Just the level of growth. And I think that just creates a very high bar for people to rotate out of equities and into bonds, especially if bonds are getting volatile, which is another thing we need to keep an eye on. So are you actually seeing the next couple of months as being positive right now for maybe even some of the more beaten up areas of the stock market, like Russell 2000 or equal weight? Uh, I don't think we're I'm not quite there yet. I'm Russell, 2000 equal weight. I think people are sending you a pretty market, send you a pretty clear story of where they want to allocate capital. Given the concerns about eye spending and the concerns about rate hike cycles and large cap growth. So I think for the time being, that's where you want to be, particularly as earnings, you know, start to get closer because this AI story has become a PR nightmare almost. Right. And I would expect those companies to come out very aggressively and kind of defend the spending and defend the benefits to humankind. You know, from all of this investment. If you rewind to last quarter, the concern was return on invested capital. And, you know, you had the CEO of Microsoft on on X defending return on invested capital. They understand the narratives and they understand what the narrative is today. And I think they're going to pretty aggressively try to defend that. I feel sorry for the guys on Wall Street right now going into outlook season, because this is when you start to write your outlook for the next year, and they get released going into November and slightly beyond, because you've got to have in there some kind of base case assumption about what's going to happen in the war in the Middle East. Time has done an interview with the president of the United States. They've just released the transcript of that interview. There's a couple of lines in there about what the president may or may not do after these midterms have wrapped up. The question was, are you going to ramp up bombing after the midterms? As reports of that, the president said, quote, possible. Then the interviewer pushed back. Are you considering that? I can't tell you that because, look, you know, you're asking, where are you going to bomb. Sounds like it's a consideration for this president, and he has maintained a number of times when he thinks about the war in Iran. He's not thinking about the midterm elections, even though he knows it is putting strain on consumers pocketbooks when it comes to higher diesel prices and higher gasoline costs. Some commentary in there as well on data centers and the anthropic CEO on interest rates. All the same old stuff on the interest rate side of things, on the outlook. You're doing the tactical stuff for the rest of the team, trying to look at into to 27. What are they thinking about right now? I think ultimately, just I hate to say it, it boils down to earnings growth. You know, earnings has been the tentpole that sort of held this up. And you have earnings growth on one side. You have higher yields on the other. When you're growing earnings let's say 30%, it's easy to ignore higher oil and higher yields. I think the question getting into next year is if that earnings growth decelerates down into the mid-teens, let's say is that enough to, you know, continue to offset rates. So you're in a horse race or a balancing act here between earnings growth and higher yields and how that's going to affect it. The so-called second derivative. Do you think it matters? Is it material? Yeah, I think I think it definitely matters on the earnings side. It matters on the CapEx side as well. Right. I mean, it's we have trillion of CapEx. You know, for the bank is forecasting next year, you get up to 4 trillion by 2030 almost. But that growth rate is is is materially declining. And you know what you're seeing in large cap tech as well as a lot of good news is priced here. You know I mean micron earnings last night the numbers were very very impressive. The stock had a very modest response. And that's happened. We could make a list of probably a dozen of these stocks that have hit home runs on the numbers and not seen the stocks rebound. So it doesn't matter. I mentioned the president's commentary on interest rates. He says in this interview with time that higher rates are hurting the economy more than inflation is right now. And Lisa, you keep saying the same thing about Kevin, Kevin Warsh, the fed chair, that he doesn't blame him for higher rates. He's trying to make this argument that is someone else on the fed board that's leading this effort, even though we've just seen a chorus of fed officials saying precisely the same thing about what's required from policy. That's why I think that it was so interesting to hear his commentary on former fed chair, the fed governor, uh, Jerome Powell, given the fact that he's reiterating his calls to step down now using the investigation into the renovations of the fed building as one excuse, I just wonder how much this is getting priced in with slightly higher yields due to policy uncertainty and concerns about just how much political pressure there's going to be on the board. A lot of speculation has been the President Trump is going to try to reshape the fed board with some of his own people. I mean, these are the concerns. And how do you sort of price that it's sort of this intangible that's out there. Never say the quiet part out loud. This from the president. Certain levels of inflation will help pay off the debt. People have always assumed that maybe that's the end. Can you inflate this away? But it's not the kind of thing you want to say out loud at this point. And I think, yeah, although it's not the right thing for a lot of people and sort of individual consumers, a lot of people markets have accepted this. They said ultimately, if you have growth at this level, nominal growth at 6%. Real growth. If you take out inflation at 3.5%, you can actually achieve some sort of deficit reduction. If you don't increase spending. It's a pretty big if. Nonetheless, that's not something that's going to be popular. When the interviewer asked about, do you still have confidence in Kevin Moore, the president, you know, goes on to say it's the people around him that's doing badly, as you mentioned. We said, look, our nation is going through a growth explosion like no nation has ever seen. We're blowing through the interest rates. We didn't have to. It would be great. Almost an admission he understands why the board had to hike at the prior meeting. What he said about growth is dead on. I mean nominal GDP red hot driving yields higher. Remember, that's been a major feature and I think it's due for much of this year. You can make the argument. That's why we've seen higher yields and higher equity prices. We've got a boom in nominal GDP underpinned by monster CapEx cycle. I mean look look at the ten year yield. It's up 110 112 basis points here today. 100 of that is real yields 10 or 12 is breakeven. So this has been less a break even story that has been a growth story and we set the ten year point. And that's why equity markets like it when you're talking policy uncertainty, deficits, etc. you're talking third year yields. And actually for equity markets I think Thursdays are much more dangerous at this point. Just explain that why I think I think they have much less ability to influence 30 year yields number one. Um, and number two, I think is being driven by things that are sort of negative long term. If if you believe you're getting this big CapEx spending boom and it's going to drive efficiency gains in productivity, and that's pushed your, you know, neutral rate up a bit and that moves to ten year yield up. That's great. And to 30 year point I don't think they're going to talk about actually dealing with the deficit until Social Security runs out of money. Like I think it's going to take something that extreme for them to actually make changes. If you go back to 2011, I mean, that was the type of stuff we were dealing with with sequestration. A lot of your younger viewers won't even know that word sequestration, right? So so I just I think the 30 year yield is a lot harder to deal with. I think the fact that the Treasury is talking about buying back is actually makes you more worried, not less worried. And you also have global spillover concerns, which they have almost zero ability to deal with. So I just think they have a lot less influence on the supply demand dynamics and the deficit at the long end than they do over the short. It's worth pointing out that verbal intervention on buybacks was 40 basis points ago. We're in the 520 standard. We're in the five 60s this morning on Thursdays. Arguably they did more damage because they came in and they didn't have a bazooka of any type. And it just pointed to the fact, what kind of weapons, what kind of ammunition do they have to combat this? It's good to see. Thanks for being here, Stuart Kaiser. They're a city breaking down the tactical moves that you are looking for in this market. Let's give an update on news worldwide this morning with your Bloomberg brief. Vonnie Quinn has more. Hey, funny. Hey, John. Thank you. The UAE is opening an investigation into the incident aboard the flydubai flight, where the co-pilot allegedly stabbed the captain. The Wall Street Journal reporting authorities are examining whether terrorist activity played a role. Passengers stormed the cockpit and another pilot took over controls, landing the plane safety in Saudi Arabia. Come on, Skydance says former Mattel chief on kites will become co-CEO alongside David Ellison after it completes its acquisition of Warner Brothers. The company say they expect the merger to close on October 6th after approval by a California federal judge. New York Yankees advancing to the American League Division Series after dominating the Boston Red Sox in a two game sweep during the Wild Card round. The Yankees will face their Al East division rivals, the top seeded Tampa Bay rays, in a best of five series starting Saturday in Florida. And that is your Bloomberg brief jump. Vonnie. Thank you. Thank you very much. More from Vonnie later this hour. Up next on the program backing off plans for an export ban. Mr. president, have you decided to ban diesel exports? I'm thinking about it. I speak to Chris and Doug about it a lot. They sort of think it'll help diesel, but it might raise the price of other things. And I think we're in a good place because oil prices are going to start to come down. Up next, Libby Cantrell of Pimco for life from New York City this morning. Good morning. Douglas claims later this morning, 830 eastern time. After that, the next data point, the ICM. Look for that really hot PMI last week. Let's see if we see the same thing in the ICM data at 10 a.m. eastern time. A lot of fed speak to including this guy right here Neil Kashkari Minneapolis Fed president joining this program in studio in about ten minutes time. Equity futures on the S&P 500 just about positive into all of that. Higher on the S&P by 2/10. On the Nasdaq by a half of 1%. And this move in bonds continues to the long end creeping up yo to the long and 30s up a basis point almost 2 to 564. And a savannah this morning. The pressure on the white House backing off plans for an export ban. Mr. president, have you decided to ban diesel exports? I'm thinking about it. I speak to Chris and Doug about it a lot. They sort of think it'll help diesel, but it might raise the price of other things. And I think we're in a good place because our prices are going to start to come down. Tremendous oil is coming out of the hormones right now. We have total control. So here's the latest this morning. Diesel holding their all time highs as President Donald Trump signals he might be calling on the idea of an export ban, acknowledging concerns the move could drive up gasoline prices. Kendall has the latest this morning. Hey, Tyler. Hey, John. Well, President Trump said he's still considering the option, though conceded there could be some unintended consequences here. Seem to indicate that he's been listening to some in his administration, like the U.S. Energy Secretary, Christopher, right, who has previously contended that a diesel export ban could push prices higher. And energy analysts say while initial costs may fall if refiners ultimately can't export their supplies and they would be forced to cut output. Instead, Wright has suggested that the administration wants to work with the industry to boost supplies, and also teased earlier this week more supply could soon be coming to market from Europe. People familiar with the matter tell us the administration has been privately encouraging some European allies that rely heavily on U.S. diesel to release some of their inventories. The administration is also said to be weighing a pause on diesel excise taxes. Right now, the national average for a gallon of diesel is at $6.38, still hovering near the records that were set last week. And John, that is hitting red and rural states particularly hard as farmers sound the alarm about these higher costs in places where Republicans are now defending tougher than expected seats, including in Nebraska and Iowa. President Trump there just said that they are making progress when it comes to Iran. But I will point out in this interview just released by time, he did say that we could expect some ramping up a bombing after the midterms, that that is still possible when it comes to the conflict. It's on a counter with the latest round of thank you, Libby of Pimco, with this to say on the outlook, writing, President Trump is mostly constrained in terms of what he can do on affordability with the bigger, more decisive actions only occurring if Congress acts. Libby joins us now for more. Good morning. Good morning. Is the decent export ban proposal dead? Is that finished? I think for all intents and purposes, I'd let are a lot of folks who've been close to the white House, who've been in the Oval Office arguing that there are these unintended consequences, as Tyler just talking about. And we think that maybe you could see some import restrictions on diesel. So maybe that gets you sort of halfway there, sort of helping, um, some of that, these farm states, obviously, where they're these, you know, these the Senate races. But um, it seems like the full on export ban is probably at least on ice for now. Do you think it's going to hurt the candidates in Iowa? Um, well, you know, I think this is the this is the big issue is it's I think the broader the broader issue here is, is this is is too little, too late. Right. I mean, all of these actions, I mean, lots of folks are already have already started actually voting. Um, so does this actually move the needle, you know, this 11th hour. I think that, you know, obviously, that the Iowa Senate race is one of the most contested, where basically polls are showing that it's effectively a toss up. And could these things sort of matter at the margin? You know, maybe, um, but voters as we've talked about are really upset, right? They're really upset about gas and groceries, health care and housing. I data centers. And I think that at this point, um, any of these things are going to be, I think, viewed in the voters eyes is just it's just Band-Aids and not really moving the needle as well as 7% mortgages. This is a president that was going to have potentially a national crisis on housing. Try to loosen the housing market. Do they have any means to address this? Yeah. So one of the big tools and we've talked about this as well, is that they can use is of course, they can direct Fannie and Freddie, which are still part of the government still in conservatorship, uh, to buy more mortgages. President Trump had announced a big, splashy announcement back in January, before the Iran conflict had started that Fannie and Freddie would be buying $200 billion for what we have seen. They still have a lot of that to go. Um, so they they have done some buying. Uh, they had just retreated from that. We think they are. They're now active in the market once again. I think our expectation is because this is a unilateral lever. Congress does not have jurisdiction over here. This is something that the white House can do by themselves. Um, but they will likely do this. And, of course, you know, pressure on the mortgage market is something that we all people, I'll see, you know, not necessarily. Are they in the mortgage market? Not necessarily. Lots of folks are have, uh, have lower mortgages. As she looks at Lisa. I'm sorry. Lisa. I am unfortunately not one of those people. Um, Libby is a flex, but you don't have to apologize. She feels great about it. Uh, but I don't feel that way. But it is. But it is. It's all part of this Zeit geist, right? People see higher gas prices. They see higher interest rates. You see, of course, higher mortgage rates. And this all just goes into this broader narrative and this sentiment that is just incredibly negative. If you are a Republican facing reelection in November, are there going to be more $500 checks sent out? Well, that's interesting because of course, you know, he cannot do these are $5,000 dividends, these $2,000 kind of Trump tariff refunds or what have you. But he can find some tools, uh, where, you know, Congress has already appropriated the money, where there have been maybe some mistakes made, um, to try to, uh, you know, again, kind of grease the wheels, if you will. I think just the broader question is, is it's a little bit too little, too late. And at this point, I mean, you know, we're we're we're, you know, just basically 30 days in from the election. I mean, voter sentiment is is pretty calcified. Do you think that there is going to be a more concerted effort to remove Jerome Powell as sort of the fall guy at the Federal Reserve, or more of an effort to sort of reshape the fed board to try to lower costs, frankly, and financing costs for the United States. Well, of course, I mean it's the FOMC. And this is something that we always remind our clients of that while the chairman is important they're not omnipotent right. They're only one vote out of 12. Um, and what we just saw with this latest fed rate, uh, decision was that it was a unanimous decision. So I think there's a there's a broader question of how much does, you know, replacing one governor over another really move the needle. Most importantly, though, from my perspective, and this is a will be an implication of the midterms is if the Senate, um, goes into Democratic hands or even if Republicans lose a few seats and have a more narrow majority, it will be very difficult for this president to get anybody confirmed. Anybody confirmed who's at all controversial, particularly to the fed. And remember, the president nominates folks. The Senate confirms you need 50 votes in the Senate right now. Of course, Republicans have a 5347 margin. But if that declines to 5050, or then, of course, if Democrats take back the Senate, um, you're going to see all of those potential controversial nominees, you know, basically been put on ice. So it's something that we're not really worried about. I think there are a lot of guardrails to protect the independence of the fed within the institution, plus the fact that you have this check and balance. And I think people underestimate this check really does work. There's a lot of back channeling between the white House and the Senate about who is actually conformable. And I think we've actually seen this work over the last 18 months or so as well. Let me let me cancel it. Let me thank you. I think we've seen that repeatedly over the last 18 months. And the Federal Reserve as an institution, a sit up to a lot of scrutiny and pressure over that period. It sounds like someone who has been speaking to a lot of investors who are worried about this and has been pushing back repeatedly and has sort of the script there. Listen, no, the checks and balances work. They've worked time and time again. Maybe we got some insight into some conversations recently. Coming up next, Minneapolis Fed President Neil Kashkari on the potential for tightening financial conditions. Kicking off Q4 and the month of October, with equity features just about positive by 2/10 of 1% on the S&P. On the Nasdaq this morning by 4/10 of 1% in the bond market, 2/10 and 30s. These levels are just wow levels we have not seen since spring 2002, on ten since June 2002, on 30 studies this morning posted 565. And for all the talk of a flatter yield curve in the last week, this curve is much, much steeper off the back of that hot PMI a week ago. Will that be validated by the data we see a little bit later, the ISM coming at 10 a.m. eastern time. Is this about the deficit. The best push back to that right now might be this in the FX market, a stronger U.S. dollar, the best month since June for the US dollar is seeing that strength. Maybe validating this idea that this is about the economy. Hot nominal GDP driving yields higher and driving a much stronger US dollar. But in those high yields starting to bite. And this is why we start to turn some cracks. Emerging care high yield spreads wider. For seven consecutive days, a move of almost 50 basis points. Still tight historically. But the move in the last week get your attention and you're seeing some real pushback. I mean, this morning people are talking about the Paramount deal that just sold. That's a blowing out in terms of prices dropping, yields rising, a real question of how much this is due to real concerns about credit worthiness or whether this is an issue of just supply. There's so much supply coming down the pike from every corner of the world that ultimately it is competition for capital. That's the price action this morning, as some of the stories cross that set two hours away from the up and about, the cash opened just around the corner. But some single name some morning movies. Bonnie has more. Hey, Bonnie. Hey, John. We'll begin with some eye movers for this hour. Broadcom up about 6/10 of 1%. We're getting more details though from the anthropic prospectus that relates to Broadcom Reuters reporting that Broadcom has agreed to land on top $42 billion for leasing chips. And Broadcom will be able to turn that into anthropic stock at some point. So lots of juicy bits in that prospectus coming out. Drip by drip. Let's move on to Oracle because we're seeing another deal there. $0.10. An oracle in a seven year, a five year, $7 billion deal which give access to 10,000 to 100,000 chips that obviously it wouldn't have access to in China. And these are for data centers across Southeast Asia. And then the big one micron overnight, of course we were waiting on it. We had some nice run up of the shares having peaked after the last earnings report. We are seeing them a little lower today but it did have a blow away quarter. The one maybe slight downside was the idea that narrowing margins might be happening when worker compensation gets a bit higher, but we're still talking about literally 86.3% margins. Now memory chip makers off the back of that are higher SanDisk and Western Digital. But also Peter Lee at Citi saying now might be the time to start building positions in memory chips. This idea that there's oversupply is gone. There's no oversupply and we could be into a shortage next year as well. So build your positions now. Vonnie thank you. Some of the movers this morning. More from Vonnie. In just a moment let's talk about the Federal Reserve sounding the alarm on inflation following a unanimous decision to hike interest rates in the last month. Diesel prices are sitting near record highs, raising expectations for higher costs in the face of a strong U.S. economy. Minneapolis Fed President Neil Kashkari, speaking at an event here in New York saying, quote, talk to companies. Shipping costs are going up all around the world, all around the economy, both because of fuel prices and labor availability. Fed President Kashkari joins us around the table for more. Good morning. Good to see you. Good morning. Good to see you. This economy is looking strong. It is. Would you say it's strengthening. That's a different kind of assessment. Yeah I think the broad economy is strong. There are obviously pockets of weakness. Housing is weak, as you all have discussed many times. And anything related to I is growing overall. The economy is growing and it keeps surprising me how resilient it has been in the face of tariffs and the conflict in Iran. And in the face of high yields as well, which raises the question whether your policy effort is going to work is going to be effective. Do you think it will be and why? What's the channel for that effectiveness? It will be effective. I mean, we will do what we need to do to get inflation back down to our target. Now the question is ultimately how high. Of course, what you're asking is how high do rates have to go? I don't know the answer to that. Uh, you know, you think about you or you are both just talking about massive demand for investment capital. I think about that in the context of what does it do to the neutral rate. The neutral rate is set by the balance of savings and investment in the economy. And if there's massive demand for investment capital that has to come from savings, ultimately that has a higher clearing price for that capital. And that means rates go higher. One of the questions that arises out of that, though, is what time frame are you looking at for neutral? Because we're having this enormous spend on AI, which is boosting the neutral rate. Everyone kind of agrees, but how long does that last? And can you get yourself off side by moving too much? Yeah, it's a great question. So the SCP has this long run dot, which is of theoretical dot theoretical interest rate that balances all of this out. When all the shocks have passed the economy. It's like this nirvana state that will never actually experience sometime in the future. I also have a concept of a near term neutral, which is what you're getting at, Mike. Then the question is how long is this AI boom continue? And are the returns to this investment? Do they materialize the way that the investors expect? If I proves to be as productive as people hope it will be, then this investment cycle could go on for a long time. If it ends up being not as productive as the investors are hoping, then maybe it won't. It won't go on for as long, I so I just don't know the answer to that right now. Now, for a long time, the fed was driving what the yield curve looked like because you were buying bonds. You're not doing that anymore. Are you getting the kind of cleaner signal that Kevin Moore says he wants in terms of what the market thinks prices should be. Well, I think a place where I'm focusing right now, the long end is obviously getting a lot of attention. There's a big gap between the two year and short rates. So, for example, uh, my staff and I computed an implied two year yield from the dot. If you take the median, you can calculate an implied two year yield. This is the biggest gap between the actual two year yield and the implied two year yield from the SP. The actual two years run for 88 or for 90. My implied two year yield from the year run a little above four. That's a very, very large gap. There have been other times where there have been gaps before, so I actually think markets are pretty good. When they want to send a signal, they will send a signal regardless of what the fed is telling them. If you go back in time. Post the financial crisis, the fed in the through the dot plot kept forecasting that they were going to raise rates and the market said, no, you're wrong. Turns out the markets were more right than the fed was. So, uh, you know, there's a little bit of looking in the mirror. The markets are looking at us. We're looking at the markets. But I also have a lot of confidence when markets have a view. They're not shy about expressing those views. What is, uh your view of what the market is telling you now? I asked because I was speaking with one of your colleagues yesterday who told me that they don't think that it's inflation in the sense that people don't trust the fed anymore. That your move last month basically gave people confidence that the fed is going to fight inflation. So it's a combination of a lot of other things. I think that's right. But there is, you know, this magical thing we call the term premium, which is the residual of all this stuff where you don't really can't really explain with any kind of confidence. Uh, one of those elements might be this thing called an inflation risk premium. So markets say, yes, we believe the fed you're going to keep inflation at 2% over the next ten years. But we want a little extra compensation just in case we're wrong. All right, that's like if it's an inflation risk premium, that's like the cousin of inflation expectations. That doesn't give me much comfort if that's why investors are sick. Because there's a there's a term premium embedded in the nominal curve. But there's a term premium embedded in the real curve. And to the extent that it's investors wanting compensation for potential inflation mistakes in the future, that's something that we need to pay attention to. There's been a lot of concerns about the efficacy of fed policy, given how much debt is outstanding. And given that a lot of the areas that are driving inflation are kind of less sensitive to rates. I'm talking about eye spending. Do you not like but feel some comfort when something like aura is taken off the market in terms of an IPO and the capital markets activity starts to slow down because of concerns that maybe we're mispricing rates, I think I mean, I do look at capital markets activity as one imperfect signal of the stance of monetary policy. If if deals are getting done, you know, they're oversubscribed and oversubscribed and markets are wide open. That makes me question is policy as tight as I previously thought it was? And so I'm not celebrating anybody's IPO being shelved. But I think to the extent that there are some tentativeness creeping into broad financial markets, that indicates, okay, there's rate environment may be having some effect, and ultimately we're seeing it have effect. I mean, we're seeing that in terms of market performance of the more consumer, the more sensitive rate sensitive sides of the markets, is the sort of one channel left that the fed has, the wealth channel, the idea that markets kind of can't be at this level and engendering that kind of spending among the wealthiest of individuals to bring inflation down. That's sort of the tool. Ultimately, the fed really has that is a tool. But I think on the margin when when yields go up. So you know, yields have gone up for a lot of reasons. You all have been discussing it. Part of it is fed policy, part of its credibility of the fed part of its the growth environment. You know that all does price into even data centers. How are they able to find themselves at what rates? How many more data centers are going to get built? How much are they going to invest? All of this stuff on the margin does have an effect on these investment decisions that are taking place. Many people have come on this program and talked about the rate and sensitivity of that data center buildout, and they've suggested that if you want to go after that, you'll have to hike rates even more. And in the meantime, you just keep beating up the parts of the economy that are already beaten up. I imagine you don't see it the same way. Could you articulate how you see it? No. I mean, I do think that housing markets under a lot of pressure and anything adjacent to housing is under a lot of pressure. There's no question about that. But let me step back and say, let's first ask, why are mortgage rates where they are in a market economy, capital gets reallocated to its highest return. So if trillion is going to go into data center related investment, that capital comes from somewhere. The market is taking it from housing and reallocating it to data centers. The mechanism is higher mortgage rates. So that first of all, I want to say that's not all. Only fed policy of why mortgage rates are where they are, but you're right. If we continue raising rates and it's not a ton of forecast, but if we continue raising rates, it will put different pressure on different sectors of the economy. And the lower return sectors of investment will feel it most acutely. But that's the tool that we have. What's the source of inflation right now? And I think that's part of this conversation. And if the tool that you have goes after the part of the economy that's not generating inflation right now and fails to go after the part of the economy that arguably is the tool that you have might not be effective. Well, I wouldn't I wouldn't say that it's one is creating inflation and one is not. I think that there are different sectors of the economy that are all contributing. Consumer spending is up. I mean, consumer spending is strong across the economy. I've heard bank CEOs saying that it's not just their wealthy customers who are spending, it's their lower income customers who are doing well and who are spending. The unemployment rate is 4.1%, which is good. Uh, layoffs are low, unemployment claims are low. The labor market broadly is healthy. So overall it's not just an eye economy overall, it is a robust economy that's proven to be quite resilient. And I think monetary policy can have an imprint on that. You talked about bond yields and why they are as high as they are. And you mentioned a whole host of reasons. One of them being fed credibility. What do you think the fed needs to do to regain fed credibility. Or do you think that ultimately this is coming from the outside with calls for Jerome Powell to step down and other potential attacks coming from the white House? I think the best thing we can do is what we've been doing, which is focusing on the data, focusing on the analysis, make our best call that we can and explain the data that we're looking at and why, what's leading us to those conclusions. That's the best thing that we can do. I was in the Midwest this week and basically hearing from business people that diesel, diesel, diesel is their concern because that's spreading in terms of inflation. And also they're worried about the level of interest rates because right now they're starting to invest again. Uh, what are you hearing in your district about those things? What's credit allocation like? Uh, in the northern part of the country? I hear a lot from we have a lot of farmers and a lot of manufacturing, and diesel is certainly top of mind. Uh, also availability of truck drivers to truck to drive those loads. So that's top of mind for folks. Uh, I don't hear as much pushback on interested. I hear from people who want to buy homes who and people in housing related sectors who are frustrated by seven, seven and 5% mortgages. But in the business community, I'm not hearing as much about interest rates. I am still hearing about inflation broadly. You know, I'm hearing people say, oh my gosh, I can't keep up. A small businessman told me over the weekend how he just lost his business because he couldn't keep up with inflation. He said he basically came to me and said, when are you guys going to get inflation back down? You know, and he was he was quite distressed by the fact that he spent seven years building a business. And in his view, inflation just made it untenable for him. And so I hear more about inflation broadly than I do about interest rates specifically, other than in the housing sector. But if you hike interest rates, you can't get more diesel flowing and you can't get more gasoline flowing. So what's the impact? No, I hear you. But this goes back to the fundamental question of if it's a one time supply shock, should monetary policy respond to it? And my view on that has evolved. If it's truly a one time supply shock, fine. If it's five years of a sequence of one time supply shocks, at the end of the day, it's the Fed's job to get inflation back down. I did this exercise a few months ago where I had different AI tools. Go back and read all the transcripts in the 1970s, and I said, go back and read it. Summarize all of the arguments for raising rates for not. The diagnosis in the 1970s was not that different. They said, oh my gosh, it's an oil supply shock. Monetary policy can't do anything about that. We shouldn't respond. I mean, there were many echoes of the same arguments that we're having today. Now, there were some differences. They did see evidence of a wage price spiral, which is clearly not happening today. But, you know, five years into this, at some point you have to say, hey, it's the Fed's job to get inflation back down, regardless of what the causes are. Let's finish on paint. Your friend and colleague, Chicago Fed President Austan Goolsbee, talked about this not being painless. It raised questions about the potential for unemployment climbing. Do you think that is necessary to get inflation back to target? I don't think it's necessary because, you know, the unemployment, the labor market is not the primary source of inflation today. So I don't think it's necessary. But I also don't want to rule it out. We have a dual mandate. One out of our mandate looks quite good right now. Once out of our mandate, it's been missing for five plus years. Can we finish on what it's like on the fed board at the moment? Just in terms of the FOMC. Sure. Can you take us inside. What's the five like. You know the way people describe it, it's almost like Governor Powell and Governor Barr might be in a corner sort of snickering as Chad Warsh comes on board and tries to make changes. Can you describe what it has been like under new leadership? Yeah. It's been it's been, uh, remarkably consistent. I mean, Kevin Warsh is a very experienced person. He spent 5 or 6 years at the board before he leads the same kind of meeting. We have the same go around where people talk about the economy. Talk about policy. Austan Goolsbee sits next to me. We're usually making jokes at each other's expense a little bit, which will come out, you know, years later in the transcript, in the transcripts. Um, but it's everybody's very professional, and everybody takes it very seriously. Um, uh, it's it's what you would hope and expect it to be. You're a professional, and we appreciate your time this morning. Thank you. He's be there. The Minneapolis Fed president Neel Kashkari weighing in on the situation with the Federal Reserve. Up next on the program we'll talk about the latest with trade navigating the trade agenda. We do a lot of business with China. We do very well with China and they do well with us. The United States has been ripped off for 50 years by Canada. We lose with Mexico 95 billion a year. In just a few minutes, time will catch up with the trade representative, Jamison Korea, live from New York City. You're watching Bloomberg Surveillance. Equity futures firmer by third on the S&P this morning on the Nasdaq up by 0.6 in the bond market. Here's the shape of things for your two tens and 30s. This is a yield curve stateside coming in three basis points on Tuesday for 85. The Minneapolis Fed president no Kashkari on the program just moments ago noting the spread between the two year and the policy rate. We'll spend some time on that in the next hour. Let's spend some time on trade under some families this morning navigating the trade agenda. We do a lot of business with China. We do very well with China and they do well with us. We're going to have a lot of different deals. Canada has been a terrible trade partner. The United States has been ripped off for 50 years by Canada. We lose with Mexico 95 billion a Yeah. So here's the latest this morning, the white House continuing a push to reshape global trade. Unresolved issues remaining with top economic partners including Canada, the European Union and China. US Trade Representative Jamison Greer hosting G20 ministers for another round of talks in Wisconsin, and joins us now for more. Ambassador, it's good to see you. So it's always good to catch up. There is a phrase that's dominated talks like these for a long time. It's dumping. And we often think about steel and overcapacity over production from certain countries, including the likes of China. Ambassador, could you detail where the US effort is right now on that? Yeah. Thanks. And good to see you all this morning. Uh, we're we're covering several topics. The U.S. this year is chairing the G20. And so for trade, we came to Milwaukee. Uh, sometimes you go to a beach town or a resort town, but we wanted to come somewhere with a history of manufacturing, uh, because of the dumping, uh, and subsidized, uh, production and unfair trading practices overseas. So one of our main topics is in fact structural excess capacity and production. And we're having a pretty vigorous conversation because when you look at the G20, it's the 20 largest economies in the world. Some of these countries really are victims of excess capacity and production and have massive trade deficits, have lost, uh, manufacturing. And then a lot of the other countries China, the, uh, Vietnam's not here, but China and some others in Asia. They're actually the proponents of excess capacity. And that's a challenge. And so it's been interesting to have these conversations. And as you might imagine, uh, some countries are much more apt to, uh, fight against excess capacity and others are much more apt to say, well, uh, we're just trying to produce to demand. Well, when it comes to, you know, a partner like the European Union, where do they stand with you? Because right now they have historically low steel production. Their exports have fallen, and they are absolutely being hit by China's overcapacity. Um, on the one hand, uh, We have an agreement that we concluded last summer with the European Union, the term barrier agreement, and the and the Europeans they've executed on an important part of that. They've reduced all their tariffs towards US industrial exports. They've given us duty free quotas for important agri products. So our trade deficit with the EU has really cut down over the past year. Uh, you're talking about there. You know, this is one of the the economies that has been hit by excess capacity and production and other countries, but at the same time, they have not taken sufficient measures to manage this. You know, whether they have empty factories over there, uh, you know, because of other countries or because of their own policy decisions. All I know is it affects us. If they have empty factories, it reduces an incentive to inject more investment into the global system. There's a finite amount of demand. And as long as, uh, Europe is sluggish, whether it's because of their own policy choices, which makes up part of it, or because they're suffering from Chinese, uh, flood of Chinese imports. That's another problem. But what they need is to act. And if they don't act, we will have the diesel export ban come up with these counterparts that you're meeting with in Milwaukee. It comes up on a bilateral basis. So it's not a topic in the plenary sessions, but we have a handful of countries who have who have talked about the diesel issue. Uh, we know the prices on diesel are high. And I heard President Kashkari talking about a little bit as a as is this a one time spike or something longer. Our census. It's a one time spike. Now remember though, the Europeans they're sitting on reserves of diesel. And our sense would be they should probably release some of these if they're feeling like they're having a spike in Europe. It's higher. The price is higher in Europe. That isn't. Well, right. And there's a Reuters report that U.S. officials have told Germany, France they need to do this. Have you discussed that with your counterpart? Yes, I have, I have I spoke with my French counterpart yesterday. Very good conversation. Neither he nor I are the energy minister, but we are trade ministers. And so I let him know that this is an idea that we've had in the US. We'd love to have a collaborative response to this, that that's what we'd like to see happen. And, uh, you know, I'll meet with my European Union officials and counterparts today and I'll, I'll carry the same message. You also, of course, we could just finish on this. The Canadian minister of international trade, I know you'll be meeting with what's the status of the relationship, or are we moving back to potentially signing an agreement? Well, the Canadian minister who is here, uh, Manny Sidhu, he manages, uh, what we call their plural lateral or multilateral trade. My direct counterpart for U.S., Canada trade is Dominic LeBlanc. And he he typically doesn't come to these meetings, so he's not here. I've already met with the Canadian representative who is here. We are mostly focused on the on the G20 issues. I speak pretty frequently, uh, to Dominic LeBlanc. Um, I mean, you've heard the president talk about this most recently. He said, well, we may have a deal with Canada in a few weeks. I'd emphasize the May in that part of the situation. We've we've always been open to a deal with Canada, like we've been open to a deal with all kinds of countries, and we've made deals with all kinds of countries. Uh, the question is, does Canada want to get to us on some of these things? We have a trade policy where we're not inclined to go to zero tariffs, because we're trying to reassure, and it's being very effective that we're bringing back manufacturing, 60,000 net manufacturing jobs this year. We want to see that continue. So we want to be very careful about the terms of any deal. And other gaps remain between Canada and the United States. Ambassador, we're looking forward to catching up with you later this year in the not too distant future, to talk about those gaps and how they might be resolved. U.S. Trade Representative Jamison Graver with the latest on the trade situation between the US and the rest of the world. National security top of mind on some of these big issues, bringing some of the production back home. I wonder how much it gets complicated by, uh, cost of living issues and affordability ahead of the midterm elections, considering that whether it's a one time price shock or not. It clearly is pushing up prices. He also confirmed the Reuters report that the U.S. officials are telling the Europeans, you got to hit your diesel stockpiles and release them, because he's discussed that directly with France, big time. That's a major push right now with diesel prices sky high heading into the midterms. Up next will catch up with Tracy McMillan of Wells Fargo. Cristina Fernandez, associate vice, Renita Richardson of ADP, plus Mrs. Summers of Schwab. The third hour of Bloomberg Surveillance just around the corner. The jobs numbers really kind of key here to really get a better feel for how strong is the U.S. economy. Wages are going to be important to watch out for. Can the fed really affect the things that are driving inflation right now? Whether or not it's difficult, they need to keep their eye on the ball to get us back to that point of price stability. I would brace for some volatility in the months ahead as US economic data comes in. This is Bloomberg surveillance with Jonathan Ferro Lisa Abramowitz and Annmarie Horden live from New York City this morning. Good morning. Good morning for our audience worldwide. This third hour of Bloomberg Surveillance starts right now. And your score as the price action looks like this. Bouncing back by third on the S&P to kick off Q4 and a month of October following a three day slide to end September on the Nasdaq 100 this morning. High by 0.6. In the bond markets ten 30s, the highest levels we've seen on tens and 30s since 2002. Just backing off from those levels this morning by a basis point tens of five 2730 at 562. Heading into this a little bit later this morning at 830 eastern time, jobless claims and then and then some more data ism at 10 a.m. eastern time. Imagine if jobless claims came in at something different than 200,000. Ultimately people at 190 200, that would be absolutely hot. I mean that all of a sudden they would enter a rage fight spiral. I'm just kidding. But ultimately, people are looking at ice and manufacturing to confirm or repudiate what we saw from the S&P PMIs with respect to both services and everything else last week. Is this economy hot or overheating? You essentially asked that question. Sentiments are strengthening and ultimately we don't know the answer. And how much of the breaks that we're seeing from higher yields is actually making a real dent. Ultimately, I think manufacturing will be a really good tell on that. A really interesting conversation with Neil Kashkari of the Minneapolis Fed a little bit earlier this morning about 30 minutes ago. Get loads effectively throughout today. But if you bring up the yield curve he talked about something we've been talking about, which is this really big spread between the policy rate at the fed and the front end of the curve, where tubes are trading right now, and there is something close to 100 basis points and has been over the last, last month or so. But the way he found it was really intriguing for 86 right now. And to see pricing in a lot of effort from the Federal Reserve. And then he basically framed it by talking about a period where the market was right and the dot plot was wrong, which gave you some indication, I think, that you have a fed official there suggesting, well, this might be an indicator of how far and how much work we might actually have to do. And that's the message I'm receiving from markets. At least that was my interpretation of those comments early this morning. I think a lot of people would take that same interpretation. My impression was similar. He talked about a time when there was a similar test location, saying the market's not shy about sending a signal to the Federal Reserve. At that point in history, they were setting a signal that rates had to go much higher. The market was right. He drew that analog to this moment here. So a real question about how far the fed has to go. He also paralleled that or partner that with the idea that the neutral rate has to be significantly higher in this era of competition for capital. And speaking to the moment where now, he talked about the fact that his view on views on supply shocks and inflations have evolved in five years of supply shocks basically means it's the Fed's job now. And then immediately after we spoke to Jamison Greer, the USTR trade representative, who said, I know you just heard from Neel Kashkari, but we view what's happening with oil as a one time shock. Basically disagree. The clearing deal to attract capital right now is higher. And we can also say that right now you can sit in high yield. You can see it around the world. High yield spreads a much wider. Now over the last week we've talked about that continuously throughout this morning. We also mention what was happening with France. The French spread. It's a whole lot wider. The Europeans might have a problem on their hands here. That spread is gone from 50 basis points ish 55 back into February, blowing out well north of 100 around 120 at the moment. And the headlines coming out of France this morning. I'm not exactly encouraging on the growth front for next year. Well, France's budget watchdog came out and called the 2027 growth forecast optimistic. This is not what you want to hear, that essentially, the numbers are actually underestimating how much the budget deficit is. And the budget deficit is close to 5% over in France relative to GDP. They're also talking about how the 2027 budget plan targets significant adjustment. Look, all of this goes down to the reason why people are essentially boycotting assets from France. And ultimately, how does this get resolved? If you don't have an ECB willing or able to step in to close the gap? Ultimately, this has to be a fundamental, fundamental solution. And right now, it doesn't seem like it's necessarily moving in that direction and making it much harder for the French bond market is not just what the watchdog is saying about the budget, which is basically going to have to look at that and tweak that again. It's not looking good for the politics for next year. You have a rise on the very far right and very far left of France, and that is just going to fuel populist policies, some of which we've seen in this country. The spread is a problem right now, that's for sure. That's the extent of my French. That was not bad in grand problem, something like that. Okay. I've got nothing else. Tracy McMillan of Wells Fargo joins us with equities closing at that weakest third quarter in three years. Cristina Fernandez of Tennessee on Nike's turnaround efforts. Can I get to work? Nina Richardson of IBP breaking down another round of jobless claims. We begin this hour. With stocks rising and bond yields stabilizing heading into the final quarter of the year. Tracy McMinn and Wells Fargo writing high yields may have further room to run as persistent inflation, heavy bond issuance and fed tightening have restrained equity market optimism. Tracy joins us now for more. Tracy good morning. One area where we haven't seen restraint in a big way is tech. Yet. Even the tame out of this week downgraded it. Tracy let's start there. And let's start with Y. Okay. Thank you. Good morning John. Yes. This week the equities team did downgrade information technology. And we downgraded that because it has had such a good run through the summer. In fact, you know um in September technology was the only sector that generated positive returns. so the team feels like the valuations are getting forward at this point. Time to take some money off the table there and reallocate. And we're reallocating to industrials where we think the valuations are better. And also some of the industries within industrials are those, um, more secular driven themes that we think will, uh, give us persistent, better earnings throughout 2027. One sector you didn't mention there financials. And Tracy, that was a big call for you in the bank coming into the year looking for a steeper curve and looking for banks to perform nicely. We saw a decent stretch and by decent a pretty phenomenal stretch of gains on a weekly basis through summer. It's come to an end. We're down 10% from the August high trace. And I just wonder what you think is going on there. What are the forces guarding financials and bank stocks? Yeah. Um, I have to give the equity team credit there as well. Um, they did time that almost perfectly because we moved out of financials before the downturn started, and most of the downturn actually occurred in September, and that's when we saw greater bond volatility. Bond volatility is often a precursor to troubles in the corporate credit sector. We are seeing you know high yield spreads move higher as you've been discussing this morning. And we're also seeing some pullback in mergers and acquisitions IPO issuance. So some of the trading volumes may be coming down. And then finally we saw another leg down in financials because of uh the AI agent threat that we saw uh later in the month. So there are all these reasons why financials haven't been outperforming. Uh, a real though question is how soon can you start to get more involved with some of the names that have gotten beaten up, or do you want to just hold more bonds or hold a bigger cash? position and wait for maybe November. Yeah. So we really didn't see the mid-term pullback that that we typically see in a midterm election year this year. You know, um, September wasn't a great month for investors. But we did eke out, uh, some gains in the S&P 500 over the course of the quarter or so. It has been, uh, uh, kind of choppy summer. And as we move into October, November, we are expecting that volatility to continue. And if we see, uh, a more significant pullback, we'd be buyers. Because by the end of 2027, we still see the S&P 500 at about 8700. That's 13.5% higher than we are today. Okay. But there has been a really substantial pullback in the Russell 2008 S&P 500. That's been down for seven consecutive weeks, which is pretty unusual to see. I mean, at what point is it something you can buy when it's not necessarily going to be at the index level when you are seeing such bifurcation under the hood? Sure. So we're continuing to say underweight small caps. Um, we think that small caps here are really struggling against higher rates. Uh, their net debt to EBITDA is five times versus large caps at 1.5 times. So that higher yield environment is going to put stress on small caps. And that's not a place where we're necessarily looking for bargains. We are looking to rotate within sectors. Um, as we mentioned, we've moved, uh, our overweight favorable position on technology to neutral. We're increasing our allocation to industrials materials and communication services. Tracy, when you start to see that damage in equities banks, small caps in credit high yield spreads wider. At what point does the move in rates become self-limiting? And at what point the yields on sovereigns get to become a little bit more interesting? I'm not suggesting we're right there now. Maybe you think we are. I'm suggesting we might be getting closer. How much closer? We are getting closer. And, you know, if you've been invested in bonds for the last 15 years, you know, you have not seen a rate environment like this where the income that those bonds are generating are starting to get competitive on a risk adjusted basis with equities. So we are starting to get there, but we still think rates are moving higher on the ten year higher on the 30 year. And so there's still going to be some price pressure. So we would go uh to the shorter end of the curve on our fixed income allocations at this point. Tracy it's good to see you as always. Tracy McMillan of Wells Fargo breaking down the bond market. Let's go all the way back to 2020, and I can offer you 50 basis points on a US ten year. And I could sit there and say, six years time, let's say I can give you a five handle. And that'd be like, what, 55 basis points and I'm like 5.5%, I can give you that. But I'd rip your hand off. Yeah, I'd take it all back up the truck and battle. You get to 530 and people are like that. Different time, different time don't want this. But if you promised that yield six years ago, people are going nuts for that kind of yield in this market. Six years ago, people were not envisioning the same kind of industrial revolution, not only kicked off with BT and what happened there. And ultimately, people weren't looking at the potential for an inflationary environment that just keeps on coming back with myriad different factors really underpinning it. And that is the dynamic we are in now added on top of this race for capital that is leading people to say, we really missed this, we really didn't understand and ultimately we're not going to step in here. We said it early this week. Financial markets are the only marketplace on the planet. When things go on south, people run away and they don't run into the store and above markets. A classic example of that. People always want the extra 50 basis points. They're always worried about the extra 50 once you get the extra 50 basis points. And that's basically where we are this morning. I sort of conversation shift almost immediately this morning got to the highest level since I have two with no longer worried about 5% of the conversation about maybe going at six in the next couple of months. So people just don't have conviction to step into this market, even though now they know from the risk reward side of things. If you look at how things are priced, fed rates, all of that stuff that I think is, again, an attractive but I just don't have the confidence to step in. And part of the reason why is because when they have had the confidence to step in, they've stopped out and they've lost a lot of money. So how many times can you be that person that keeps saying, I think it's a great buy? Well, how about the last time, Jim? And how about the three times before I'm just waking up? I said, Jim, I forgot the name of a guest that actually came into the studio earlier this week, and I won't name them. Even I could remember because I was in the commercial break and I said something like, at some point you get tired of in longer rock. And that's the capitulation that you might be seeing as well at the long end, the curve. Yeah. You catch enough falling knives. You got no hands left for the chain stores premarket. So what we're doing with bombs this week, this month, this year. Let's keep an update on news worldwide with your Bloomberg brief. Vonnie Quinn has more. Hey, Vonnie. Hey, John. Thank you. Israeli Prime Minister Benjamin Netanyahu saying it's too early to tell who was behind the alleged attempt to crash a Tel Aviv bound flydubai plane. The captain was attacked by his colleague in the cockpit and the plane began descending sharply. Several passengers rushed the cockpit, taking control from the alleged attacker, and a pilot on board saved all 174 passengers. President Donald Trump says former fed Chair Jay Powell should resign from the central bank's board of governors over the mismanaged renovation of his headquarters. A report from the Fed's internal watchdog showing the project is more than billion overbudget. The report found no evidence of criminal wrongdoing. Netflix co-CEO Ted Sarandos says the streaming giant is not growing as quickly as he would like. Speaking at the Bloomberg Screen Screentime conference, Sarandos saying the company is expanding beyond its core business of films and TV series, with about 5% of its $20 billion content budget going towards live programming. And that is you're Bloomberg Rich John Wiley, thank you Anthony. Later this morning, up next, the morning co-host plus Cristina Fernandez of Chelsea on Nike's turnaround efforts. Can I get to earnings that conversation up next. Live from New York City this morning. Good morning. We will do what we need to do to get inflation back down to our target number. The question is ultimately how high? Of course what you're asking is how high do rates have to go? I don't know if the answer to that is if we continue raising rates, it will put different pressure on different sectors of the economy, and the lower return sectors of investment will feel it most acutely. But that's the tool that we have. That was the Minneapolis Fed president. No. Kashkari on the program a little bit earlier this morning addressing the question about whether they can actually address above target inflation given the dominant source of inflation right now in the opinion of many people, is coming from a CapEx cycle that is largely to some extent rate insensitive. He certainly didn't buy into that too much. Yeah, ultimately they've got one tool. They use the tool that they have. And arguably you could see some evidence that the pipeline of deals is slowing, at least on the margins. At the same time, I thought it was really interesting that he did not see the same pain that we heard from, say, some of his counterparts being necessary, that potentially you could see some sort of right sizing of inflation rates without necessarily seeing the unemployment rate spike higher. We'll look to the labor market tomorrow morning, the jobs number just around the corner that drops tomorrow. Eight seven eastern time. Let's get you some morning coats. First up West Fargo adding Microsoft to its fourth quarter tactical ideas list, citing realization of its IE advantage. The second call from JPMorgan Lam against price target on Western Alliance, noting the risk of additional interest rate hikes and instead of fun, a call from Goldman upgrading Occidental Petroleum to by anticipating benefits from higher crude prices and meaningful dividend growth at nine this morning, cut by three quarters of 1%. A sensitive consumer Nike reporting after the closing found investors watching for signs the company is making progress and has turned around efforts. Cristina Fernandez of Tosi is not optimistic, cutting a price target to 44. Rising sales trends remain weak in large parts of the business sportswear and likely won't show meaningful improvement until 2028. Cristina joins us now for more, Christine, and welcome to the program. It's a difficult question to start with, but what's going right for Nike right now? Yeah, I think one area that's going right or two areas is one performance products. So they've done a good job reinvigorating their performance running line up with new products that started launching about a year, a year and a half ago. And that has been well received. And also in global football or what we called soccer here in the US. Um, that also should have done well because of the World Cup and also new products and marketing investments they made this past quarter. So that's the good news on the performance side. And then also in the US they've been rebuilding relationship with wholesale accounts, particularly some that they left a couple of years ago in um and in that area they have been growing as well. Christina, this is a football safe zone. You can use that word whenever you like without correcting yourself. Okay. You're safe here. Christina, let's talk about football. Kidding about pay, exiting the brand. How important is that? The media gets a lot of buzz about a different company. We're not talking about Nike and in a positive way. Does that matter materially to the way these products hit the market? I would say it matters more from like a hairline perspective. Obviously, you never want to see a big athlete leave. Um, you know, Nike has had that happen in the past, for example, when Tiger Woods left a couple years to go. So it is, um, you know, it's a negative headline, but I would say at the end of the day, there's very few individual athletes, athletes that move the needle from a dollar perspective. So it probably won't have a big impact on sales given Nike has a big roster of athletes, particularly also in football, that they can leverage. If that's that said, though, Christina, it does seem like when you go into a Nike store, uh, it emphasizes basketball, it emphasizes a whole host of other sports that it really has leaned into. How much are the popularity of certain sports driving the success of certain of these athletic brands? Say, you know, yes. The personality is. One person might not make that much of a difference, but it does give a sense of who has the lead when it comes to a sport. Yeah, definitely. Some other sports are doing better than others, and both from, uh, participation and then also from like a lifestyle perspective. Right now running is a big sport, outdoor, um, you know, uh, football because of the World Cup, gets a lot of kids playing. Again. Basketball, even though is very popular in the US from a lifestyle perspective to basketball. Look from the sneaker, which it's a little bit chunkier. Had a big run during the pandemic post-pandemic and that's a little bit out of favor. So you're definitely seeing where, um, lifestyle trends are and participation affect the sales of different product categories. Because, you know, we just had, uh, the president of the Minneapolis Federal Reserve Board, and he was saying that when he talks to businesses, they talk more about concerns about inflation than they do about where rates are or any kind of slowdown in the economy. They feel it and they feel it significantly, and they are trying to capitalize on consumer strength. You see the same thing in the retail companies that you cover that ultimately the inflation, not necessarily consumers waning appetite really is the driving concern. Yeah, I agree. I think consumers are stressed when it comes to the budget. They one value. There's been a lot of price inflation over the past couple of years, particularly with rising costs in tariffs. So they are um, yeah, they're resistant to price increases. And at this time if you know our product, it's not new or it's not the right value. They you know they won't purchase it. So pricing it's really key. And what you're seeing is as consumer demands have softened in some categories, the retailers are being forced to, um, to run more promotions and lower prices to move sales. So definitely a big factor affecting what the ones we cover when it comes to on not just what's going on when in bop, but how big of a moment is this for them? Because the founder actually, before he started on, pitched his homegrown shoe to Nike. Yeah. I mean, for on, I think it's, um, you know, it's definitely a big win that they were able to get an athlete of, um, in Baptiste caliber to drive and be the face of the new, um, category for the brand that they haven't. Um, you know, they haven't competed in the past and is one where Nike and Adidas have dominated. So definitely a big deal for them to get it. You know, football is a competitive category. You're seeing a lot of, um, sales being driven by brands sponsoring different national teams and clubs. So they, you know, will have to makes more investments over time. Yeah, but definitely a big win to get, um, an athlete like this. Christina, can we just finish on history? The luxury business. The luxury brands business is littered with examples of companies that were at one point very successful, and then in the bargain basement and all of a sudden obscurity. And they never come back. They're just kind of lost. And I can think of several examples. Some names make a comeback, and I'm sure he knows the history of this better than I do, believe me. Christina for sports apparel. I'm sure you've seen the same thing as well over the last 20, 30 years. Is there a risk here that Nike is just on a one way track to obscurity and can't turn this around? I mean, you have to have risk with every brand, but I think Nike's still the dominant brand in the space. Yeah, they definitely lost share, but they have higher worthiness. And what we broadly hear, it's not that consumers, um, dislike Nike, but it's more that they're not seeing the newness on the product from Nike that they won and perhaps from the marketing side. You know, Mark, Nike used to have these really catchy campaigns years ago. So they probably want more. So I believe more as a product cycle issue as opposed to like a brand issue that's fallen out of favor. Christina, good to see you as always. A lot to think about. Looking forward to the results. Cristina Fernandez that often I'll see you think about those moments with like Burberry. Back in the day, they were rock bottom. Took a big, big effort to turn that around. There are other companies have just been lost, can't even remember their names anymore, but at one point were flying sky high. Yeah, there's lots of brands that have had these issues. I mean, Gucci sort of had a dip into that super hot. And then there was a turnaround because it was an idea that you'd have to have quiet luxury. But for some of the massive name brands, they still always come back. Abercrombie dealt with this at Hardy. I mean, there's tons of brands. Nike. I do feel like losing in pop was a big deal. It felt like it wasn't cool anymore, personally, that that's how I felt when it went over to on. But for on, I think it's the one of the greatest revenge stories. You pitched Nike your product. They said no, and then they came back and took one of your major stars. Was it a shoe with hosepipe? Something initially? Yeah, something like that. Cut off hosepipe. She sent the pictures I have bonkers nieces like I have a pair, not the cut off hose parts from this. Cut the rope. Do not get the small neck down. About 4/10 of 1% of the free market. Up next. Another round of jobless claims would need a Richardson of ADP, who may or may not be here to react. It might just be. Last week's interview played out again with jobless claims near 200 K and May sitting K in the same shirt and type as I do every Thursday. Equity futures firmer by third of 1%. Jobless claims moments away 20s away. The estimate in our survey is what the number usually is, which is 200 K previous one. 97 we laugh about it, but actually it's a pretty good sign of strength in this economy that we keep putting up these numbers 200 K week after week after week. That's a stock story. Has the bond market picture two tens and 30s. What a move. We've seen at the long end of the curve right across the curve tens this morning near the highest levels we've seen going back to 2002. Likewise on Thursdays the ten year at five 3030 on 563 with some data. What do you believe? It might make you smile. Hey, Michael. Would you believe it, John? 197,000 is the jobs, uh, jobless claims number, which is the same as it was last week, except for, uh, we are, uh, revise just a little bit here, uh, to, uh. Well, let's see here. My my numbers kind of, uh, erased, but, uh, revised to 190, uh, five, I think here. Um, so it doesn't show any problems. And you got to look at, uh, what we saw with challenger today. It's sort of the same side of the same coin. Challenger job. Uh, cut announcements fall 19%. We don't normally, uh, follow them too closely, but they're at a four year low for the year so far. So we're seeing companies still holding on to workers tomorrow. We'll find out if they're adding. Mike McKee. Thank you sir. Full week average 200. Okay. Bangor 200.00 200,094 way catfish near the Richardson of $0.80 with us around a table for more near the control room debating whether just to play out last week's interview or not, because there's no change in this data at all. At some point, putting up, hunting down with GDP and seeing layoffs this low. You'd have to imagine a wage crisis around the corner. Where's the wage growth? Welcome to the evergreen portion of the segment. Yeah, if we could just keep playing it on repeat. We are seeing some price pressure and it's kind of interesting to see it right now. So we at ADP just reported 90,000 private sector job gains. That was a lot of strength. And we saw the strengthening trend for the last four weeks. So it wasn't a surprise to us. We could track it every week. Now what's interesting is where the wage gains are coming on. It's on the goods sector. Um, most of the job gains are coming from health and health care, and that's kind of an evergreen story, too. But that's not where the wage pressure is. The wage pressure is on the good side with construction and manufacturing. We saw some gains in manufacturing. 17,000. But what what's underneath that number is the wage premium. The two highest, uh, places where you can gain from switching your jobs. Is construction and manufacturing. Is that the CapEx cycle at work? That is that is and that's where you're seeing the strength. And it's playing out not necessarily in big jobs numbers, but in over time, about a third of the gross salary increase we saw for manufacturing came from overtime hours, not base rate. So we talk about and we joke about the fact that it's always around 200,000 in terms of the jobless claims. But if you look at U.S. continuing claims, they actually fell to the lowest going back to 2023. And this indicates that, as you do have this low fire churn at the same time that you do have job growth, albeit not necessarily as robust as some people were expecting. You do get this ongoing kind of shrinking in the available population. I mean, are we reaching that point where ultimately rate hikes aren't really mattering, that the demand for people is just that much greater? I don't know if we're quite there yet, because I asked to look at the long term unemployed, and I'm going to be watching that closely on Friday. I wonder if there are more discouraged workers in the economy than we're measuring, because those claims eventually run out. You can't get jobless claims forever, and if you match that with the long term unemployed, which is over a quarter of the unemployed right now and higher than it was then it's been in the last several years. I wonder if people are giving up in that search. It's taking longer to get a job. That low hire, low fire dynamic has, uh, mollified the ability to actually get that new job, especially if you're out of work and sitting on the sidelines. So I'm curious about that dynamic playing out. I'm also curious why people feel so bad if they're getting paid more. They actually do have an economy that's growing and we can get into all the different details. I am wondering if people are having to work more jobs, if they have to work longer hours in order to compensate for the higher costs that they're paying. Yeah, so we just shared a lower than expected pick number. Workers aren't cheering. What they're seeing is that their paychecks aren't going as far as they used to. And we've tracked this with our partners at University of Chicago. A lot of workers saw real wage declines during that high inflation period, and they've never made them up. And so that's why consumer sentiment is so downtrodden. That's why people don't feel great about this economy, because it looks like the economy is working, but it's not working for my household because I can't pay the same bills that I used to right out of the pandemic. The people who are the lowest wage workers actually saw the biggest salary gains, and people at the higher incomes had slower wage gains. Are we seeing that shift, or is that dynamic kind of reassert itself? It did shift for a little bit. But now do you see the sort of lower wage workers catching up again now. And I think that's, uh, a false narrative that I've heard play out, that just because low wage and salaries are growing faster, that they're catching up. That's not the case. In fact, you can even extend that to gender. Female salaries grow faster than men. That doesn't mean that the gap is narrowing, actually, because you're starting from a lower base. So those increases are not the same as the increases when you have higher income. And when we track this data we actually see a widening. There was hope coming out of the pandemic that these uh that inequality would narrow in incomes. But that's not the case. And it really embeds this shaped economy that has become, uh, almost a permanent imprint on our economy at that point. At this point. We're looking for more data in the next 24 hours, we're going to payrolls report. We've still got Mike McKee alongside us. Mike, we heard from Neel Kashkari, Minneapolis Fed president. You were with us around the table a little bit earlier this morning talking about the labor market not being a source of inflation. Given how decent the numbers have been recently, Mike is not about to change. It's hard to say. And when I've talked to fed officials over the last week, they can't figure it out quite, uh, either. As della was saying, there is a lot on the good side with the need for construction workers, and there is a lot of effort to hire factory workers around the country starting right now. But there doesn't seem to be an overall broad push for higher wages now. What we are expecting is average hourly earnings will rise by 3/10, same as the month before. And it doesn't change the year over year number 3.1%. That is essentially running about even with inflation now that we've revised down. But with payrolls rising and the, uh, the change in manufacturing and construction payrolls increases that we saw in the ADP report, we might start to see some wage pressure. It's a question of at this point. Do they need to? Or there are enough people out there who are willing to come into the labor force and work for what's being offered. We've had guest after guest come on this program now for months, pointing out that the engines of growth on that rate sensitive. Yet when you speak to fed officials, it's kind of a shrug. This is the tool we've got. What do you make of the response that we have from President Kashkari and others on that issue, that question? Well, at this point I'm hearing the same things that they are that people are relatively rate insensitive. But it depends on what industry you're in. I mean, obviously I they'll pay up anything to borrow. But some of the smaller sorts of manufacturing industries, it could start to have an impact on them. But they're more worried about inflation right now. So they're looking to the fed to raise rates and they're not too concerned about where they're going at the moment unless they start shooting back up again. And then if you've had anybody in the business for a couple of decades, they remember when these were normal interest rates, which tell you about how high they are. But in the 1990s and early 2000, this is what interest rates were. We've heard that a few times on this program. Two might think you might be breaking it down for us at the conversation of this morning. There are people on Wall Street who are just coming on board to trading desks across this country, on Wall Street here in New York, just graduated, who have never seen yields this high. When yields were this high, they weren't even born. And then there is a generation of people on Wall Street who will be trying to remind those people that this is normal, and you can sustain these levels for longer than you think. And some people who are maybe new to Wall Street will push back and say, are these levels of debt normal? Because ultimately, what has happened and the reason why the economy is so much less rate sensitive is because private corporations and individuals termed out their debt for many, many years. And so they actually have pretty low interest rates. But the government is the one that's going to be straddling this. So ultimately this gets down to fiscal. And then we shrug our heads, shrug our shoulders and roll our eyes and say, okay, no one's ever going to deal with that. So not again. When is this going to be a problem? Nina, can I ask you that question? How right sensitive are the dominant engines of growth in this economy right now? For Main Street, the main channel of fed policy to Main Street is the housing market. And the housing market is frozen because of higher prices and low inventory. So that channeling effect just is kind of not working so well right now. Um, and then if you think about small business loans, because those are impacted by, uh, by fed policy, that's where I think you're going to see the real struggle on Main Street is how to get that loan to pay their workforce. And that's the thing I'm most worried about. Nina, good to see you, as always in there of ADP. That's the issue. We talked about it with Kashkari. President Kashkari earlier on this morning. There's a risk in the minds of a lot of economists to come on this program that all you end up doing is beating up the past. The economy's already beaten up. And the parts of the economy that are booming just won't slow down. So how far are you willing to take the experiment with the one tool you've got, which is the interest rate. His answer was, we don't know. Ultimately, we aren't clear on that. I would say that the one caveat to that is the transmission mechanism of the wealth effect and, frankly, of market activity. And if you start to see some IPOs delayed or pushed back to next year, names that rhyme with anthropic, that potentially you could get some disruption that ends up kind of, uh, slowing at least the pace of increase. Anthropic and Mario. So what we're doing this morning he he he also made it as it is what it is when you push him on this very blunt tool. And they are concerned with inflation because he said it's five years supply shocks and we can no longer look through. But Libby Cantrell made a very good point, especially going to the midterm elections. And I think about older folks who've already paid off their homes even though they don't have a mortgage. 7% seeing headlines like that, knowing what kind of world we're in right now, that's worrisome for a lot of people. Space to the softer consumer confidence. You see those prints every single month on the Federal Reserve. We heard from the president earlier on this morning at a transcript, in an interview with time magazine. Making the point that it wasn't about Kevin Walsh was about everything else on the board. No doubt, to put out a note just moments ago over a Renmark, pointing out the irony of all of that, that the rest of the board seems more damaged in the fed chair. Yes, at the moment. Ultimately, John Williams, who seemed most aligned with former fed chair Jay Powell, is actually the most dovish, talking about only one more rate hike being necessary. And all the others are saying, well, you know, we have no idea what the sky's the limit. No one else is going to join us tomorrow morning, by the way, program at 830 eastern time tomorrow following the payrolls report. Let's get you an update on news worldwide this morning with your Bloomberg brief. Vonnie Quinn has more. Hey, Vonnie. Hey, John. Thank you. Recapping the day that we just got jobless claims holding steady from a week ago at 107 97,000 claims slightly underestimates for 200,000 continuing claims coming in at 1.7 million, beating analyst expectations and down from a down by 11,000 from the previous week. Tech executives questioning anthropic CEO Dario Amodei about his public warnings about AI. The Wall Street Journal reporting CEOs, including Nvidia's Jensen Huang, saying his commentary is extreme. Amodei saying it's important to be honest with the public about model capabilities and not play down risks and make sure to check your mailbox. President Donald Trump has begun sending $500 checks to nearly a million people who paid apparently excessive fees under the Affordable Care Act. The texts come with a letter signed by Trump touting his record on cutting health care costs. And that is your Bloomberg brief jump. Varney. Thank you. Thank you very much. Up next on the program was set you up for the day ahead. Plus, we'll catch up with Liz on some days of swamp on the deterioration we're seeing beneath the surface of these markets from New York City this morning. Good morning. And watching Bloomberg Surveillance. There's a big gap between the two year and the short rates. This is the biggest gap between the actual two year yield and the implied two year yield from the SP. There have been other times where there have been gaps before, so I actually think markets are pretty good. When they want to send a signal, they will send a signal regardless of what the fed is telling them. That was the Minneapolis Fed President Neel Kashkari, with some curious comments on how the market is priced right now. The very front end of the curve, there is a big spread between the policy right at the fed and the two. Yet. It implies more hikes than this. Fed is signaling and a stop plot. Was there any pushback from him? In fact, he had a historical reference to suggest that at the time, a long time ago, this market was right and the fed was wrong, and we should take note of that. I thought was an interesting line from the the fed president from Minneapolis this morning. He seemed open to the prospect of hiking rates about 100 basis points more from where we are currently. If the market is correct and inflation does continue to be solid like it has been, and he's not alone. I mean, we've heard similar types of rhetoric from Laurie Logan, from, uh, from Beth Hammack. And ultimately there is a camp that just feels open minded, clearly and unclear about exactly how persistent some of the inflationary pressures are and how resilient the economy is. That's some insight into the debate at the Federal Reserve right now. Here's a picture of the markets heading into the market. Open the cash opened the up and about 43 minutes away with equity futures positive by third on the S&P, up by 0.5 on the Nasdaq to kick off October and Q4. Your bond market hitting new highs for the year yields up to levels we haven't seen since 021 tens and 3565 on Thursdays this morning. Up another two basis points. That just is a moment. And I think that moment was this week when even when we saw lower crude prices at softer data, 30 still couldn't find a bite. People weren't stepping in to buy. It felt like a bit of a dicey moment for 30s where yields started to beget high yields, begetting high yields. It's pretty wild. You start to say why now are we seeing this sort of untethered feel in bonds. And the answer is everything. Because why not. And it seems to be that everyone is just sort of saying ultimately we're not going to step in. Given that there are so many drivers pushing yields higher 30s this morning. 565 let's get you some single names in morning movers. Vonnie Quinn has more. Hi, Vonnie. Hey, John. Okay, well, we got the micron hurdle out of the way, but there are plenty more companies related to AI in the news today. One of them being alphabet is higher by 1.5%. It's finally come out with its Gemini four argon model. So its latest iteration note governments, Harvard and cyber partners. It's rolling it out solely on what it calls responsibly. Bloomberg reporting, though, showing that some employees feel that some of the tasks can end up being a little bit messy with this model. Other employees say, no, no, no. It's at the forefront of all things AI and Google actually saying that that reporting is not an accurate reflection of actually how the model is. Once again, those shares is up 1.5%. Let's move on now to another partnership. If you like, a $7 billion, five year partnership between Oracle and Tencent, in fact to lease data centers across Southeast Asia. Now this gives Tencent obviously a its up in the China rivalry right. Because it has access to about 100,000 chips that wouldn't have access to otherwise. And that other rivals in China don't have access to. Oracle will get about 30% of that payment up front on shares. They're up 1.6%. And then for something very different, if you are what they're calling a space bull, then you have to have Rocket Lab in your portfolio. That's at least what cities analyst says today. Rocket lab up about 4.9%. Now it's interesting. Analyst says look, it's one of the only other commercial companies that can actually send launchers into space is electron launcher. Interestingly, that mix makes 19 buys now on Rocket Lab. And well city has put a 05 price target on Rocket Lab. All of the price targets assembled by Bloomberg are higher than what it's currently trading at right now. Tony thank you. With the latest moves into the iPhone, iPad, the oven and about about 40 minutes away as we take you down, stocks are looking to hold onto gains heading into the first session of the fourth quarter. Tech leading the way with Treasury yields setting a fresh, multi-decade highs with us around a table in a studio, we're happy to say. Listen send us a swap. Listen. Good morning. Good morning. It's easy to say that in the index level you haven't seen much damage from right away from the index level beneath the surface. How much damage is starting to build? Well, we we can look at traditional breadth measures like percentage of stocks trading above 50 or 200 day moving averages. And those are on the low side. But there's other unique ways to look at. So right now only 2% of the S&P is trading at a 52 week high. And only two sectors have even anything on the board. In terms of a 52 week high in the last month, only 19% of S&P constituents of outperform the index itself over the past five months, it's only 15%. So, uh, you're just seeing a lack of participation. What's also interesting is it's the mega cap tech that's leading again, but not necessarily the same players that were leading within that space earlier in the year. So even within mega cap tech, there's row rotation and churn. It's just enough that you get that contribution impact. That is to the benefit of cap weight versus equal weight. You've also had seven weeks in a row now where equal weight has underperformed. You've got a very wide spread that has grown between equal weight and cap weight. So um, pretty much across the board, it doesn't look great historically. That kind of deterioration, that kind of negative breadth. How instructive is it for future returns? Um, not terribly so. Um, unless you get really to an extreme in things like percentage of stocks trading above 50 day and 200 day moving averages, at some point you get down to such a low percent that you can't go into negative territory and you get the bounce back. I'm not quite sure where there yet. How much are some of the softer areas really reflective of true underlying pain or a threat to the earnings? And how much is this just a rerating in multiples as a result of bond yields? I think in terms of what has been underperforming, I think it's it's a rates story. So all you have to do is peel that one layer of the onion back to see the hit accrued to utilities and rates and financials. So that's where you see that connectivity between the move up in yields and what's happening. I think that there is also downward pressure on multiples. That's very natural when you're in a rising yield environment. Um the good news is, is that for a big chunk of the market, the earnings growth rate has exceeded the price appreciation. So you've already had a downward shift in multiples. And in the forward P on the S&P has gone from 23 to 19 in the last year. I just think you're limiting the upside any further upside from here. By virtue of a high yield environment that will also put downward pressure on multiples. So let's say we get to earnings season and everybody does what they usually do when they sandbag us, which is they come out with much better earnings than we could have possibly imagine. They upgrade their forecasts. How much do stocks really rally? Given the sort of overhang, considering that yields are where they are? I think it's less about what is reported for the third quarter and probably more about the outlook looking ahead, because the market is obviously a forward looking mechanism. I think some of the skittish ness that has shown up in some volatility in some of these rotations is driven by at what point do we peak and do we start to roll over? What's interesting is the the worst performance for equities in terms of earnings growth rate zones. Maybe no surprise is an implosion in earnings. You know down by more than 20% recession type conditions. The best performance for equities comes when you just inflect. Out of that You're still in negative territory, but you're off the bottom. The second worst performance is come when earnings growth is above 20%. So I think that represents some of the skittish this right now. How much longer can this go. And I also think another thing to be mindful of. And maybe we're seeing it with a little bit of weakness in micron today, is whether there's a narrow or wide spread between the sell side consensus publish estimate and the buy side, uh, expectation, which is an unpublished, you know, sort of whisper number. And that's what happened. Exactly what happened to Samsung a few months ago when it reported better than expected relative to the consensus, but it undershot the buy side expectation stock got imploded and took the cost speed down 40% with it. That I'm not suggesting that's going to happen this time, but that's something to watch for. It's what's the reaction function to the outlook? Um, and whether you get a sense that that buy side expectations bar is what has been set maybe too high based on honest expectations. Macron crushed it. Right. Then you look at the price move this morning. There's nothing there. Analysts have been behind the curve when it comes to earnings growth and chasing it all year. It's been a massive shock. But maybe investors haven't been or aren't at this point. Maybe they've already reached that point and then only can stand to be disappointed if they think that 87% is that margin. Just finally, before you go, so much of this year, there's been rotations beneath the surface within equities constantly just rotating within equities. A client's getting to the point. The clients that you have are getting to the point where the rotating out of equities and into bonds. Is that attractive enough. Um yeah a little bit. You're seeing it in the weekly of ETF flows where you still get these weeks where you get a big inflow into us large caps, but there's been a little bit more activity in sort of aggregate bond ETFs. So I think that there is some money maybe looking to lock in these, uh, higher yields. You've also seen bouts of moved into emerging markets. Uh less so in developed markets, and it varies on a week to week basis. But not. Not like earlier in the year or the last couple of years where every week, week after week, the biggest inflow was in large cap equities. Um, there's a little bit more of a mix, but it's good to say thanks for being here. Thank you. This on some. Is that a swamp breaking it down. Next up for this market about an hour from now, look out for the ice at 10 a.m. eastern on the PMI. Really set the tone for this market for this bond market for the next week. Let's see if that shows up in the signs. Sam, later this morning if the economy is still robust watch that yield curve continue to steepen because that has been the trade ever since that PMI report coming up tomorrow. Then it's payrolls the payrolls report just around the corner on payrolls Friday. Priya mishra JP Morgan Nadia level ups Becky Frank, Kuwait's of Manpowergroup. Jeffrey Rosenberg of Blackrock from New York City this morning. Good morning. Thank you for choosing Bloomberg TV. This was Bloomberg Surveillance.