Bloomberg Surveillance 10/8/2026

>> YOU'RE BACK TOWARDS A BIT OF A SLOW GROWTH WORLD OR SLOWING GROWTH WORLD. >> WE UNDERESTIMATED HOW ROBUST THE INFLUENCE COULD BE TO DRIVE YIELDS UP. >> WE ARE STARTING TO SEE THE POINT OF HIGHER RATES. >> THE VOLATILITY OF THE RATE MARKET AND THE PACE OF THE RISE IS BRINGING SOME PAUSE TO SOME INVESTORS. >> WE CAN SEE YIELDS GETTING TO 5.5% HERE. >> THIS IS "BLOOMBERG SURVEILLANCE" WITH JONATHAN FERRO, LISA ABRAMOWICZ, AND ANNMARIE HORDERN. JONATHAN: LIVE FROM NEW YORK CITY, GOOD MORNING, GOOD MORNING. "BLOOMBERG SURVEILLANCE" STARTS RIGHT NOW. CRUDE OIL CLIMBING FOLLOWING IN ESCALATION RISKS, SENDING YIELDS HIGHER INTO AN AUCTION OF 30 YEAR BONDS WITH A FEW SIDES INCREASED BORROWING COSTS SLOWING THE AI DEBT BINGE. BROUGHT, LINING UP THE NEXT BIG DEAL. LISA: THERE CLEARLY IS A PROBLEM WITH THE SOVEREIGN BOND MARKET AND YET THE CORPORATE BOND MARKET REMAINS OPEN AND THE APPETITE FOR AI BORROWERS CONTINUES TO CLIMB, WHETHER IT IS ORACLE, BROADCOM, SPACEX, ALL COMING TO MARKET WITH DEALS EVEN WHEN YOU SEE BACK TO EARLY 2000'S. IT RAISES THE QUESTION WHY IS THE SOVEREIGN DEBT MARKET MELTDOWN -- I WILL CALL THE MELTDOWN CERTAINLY IN FRANCE -- WHY IS IT NOT AFFECTING THE BROADER MARKET YET? ANNMARIE: WHEN IT COMES TO ENERGY WE ARE NOT OUT OF THE WOODS AND A LOT OF PEOPLE HAVE GOTTEN USED TO LIVING THROUGH THIS NEW NORMAL WHEN IT COMES TO FITS AND STARTS WITH KINETIC WARFARE IN THE REGION. YOU ARE SEEING THE U.K. MARITIME TRADE OPERATIONS COME OUT AND SAYING WE ARE SEEING MORE ATTACKS THIS MONTH THAN LAST MONTH AND AT SOME POINT WILL THIS BE ANOTHER HINDRANCE WHEN IT COMES TO THE BOND MARKET, MAY BE AT SOME POINT EQUITIES AND OBVIOUSLY A PROBLEM FOR THE PRESIDENT AHEAD OF THE MIDTERMS. JONATHAN: CRUDE HIGHER MORE THAN 4%. I TAKE YOUR POINT ON SOVEREIGNS. YIELDS ARE HIGHER AND SPREADS ARE WIDER. BORROWING COSTS ARE MUCH HIGHER FOR ANYONE COMING TO THE CREDIT MARKET. WHAT IS INTERESTING IS THEY ARE NOT BACKING AWAY. HOW MUCH YOU NEED TO DO THROUGH HIGHER INTEREST RATES AT THE SHORT END AND THE LONG END TO SLOW THESE GUYS DOWN? HOW FAR ARE YOU WILLING TO TAKE THINGS TO FIND OUT WHERE THE BITE POINT IS? WHERE THE BRIGHTPOINT IS FOR THESE ISSUANCE, THINK ABOUT ELSEWHERE. THE MORE CYCLICAL PARTS OF THE ECONOMY ARE GETTING CRUSHED ALREADY. THE BITE POINT FOR EVERYONE ELSE IS ARGUABLY LOWER, POSSIBLY MONTHS AGO. LISA: WE HAVE NOT HEARD A CLEAR ANSWER ON FED OFFICIALS WHETHER THEY ARE LOOKING TO TORPEDO THE CAPEX CYCLE. IT CAN BRING DOWN INFLATION EXPECTATIONS OVER THE LONGER TERM. YOU SEE THE TENS OF BILLIONS OF DOLLARS THESE COMPANIES WANT TO RAISE. THEY ARE NOT YIELD INSENSITIVE BUT ALMOST GIVEN THE FACT THAT THIS IS AN EXISTENTIAL THREAT. YOU SEE THE EARNINGS FROM SAMSUNG AND TSMC. THE DEMAND AND PROFITS ARE STILL THERE. IS IT NECESSARY TO SEE SOME OF THESE DEALS PULLED FOR THE ECONOMY TO TURN OVER AND FOR THERE TO BE THE KIND OF DOWNTURN THAT WOULD CAUSE INFLATION TO GO DOWN? JONATHAN: WE HAD SOME RECORD-SETTING RESULTS LAST NIGHT. THE STOCKS DID NOT DO MUCH. THAT RUNS DOWNSTREAM FROM THE BORROWING BINGE WE ARE SEEING UPSTREAM THAT UNDERPINS THE CAPEX BUILD OUT AND THAT IS WHAT IS FUELING THE ECONOMY. THAT IS WHY THE ECONOMY IS DOING OK. IF YOU SWITCH THAT ENGINE OFF YOU HAVE A VERY DIFFERENT BACKDROP FOR THE U.S. ECONOMY. LISA: PEOPLE DO NOT BELIEVE IT CAN CONTINUE. EVEN THOUGH YOU SAW A NINE FOLD INCREASE IN PROFIT FOR SAMSUNG, THE SHARES ARE STILL LOWER 2% IN TRADING. SAME REACTION FOR TSMC. THE FACT THAT INVESTORS ARE SHOWING SKEPTICISM AROUND HOW LONG THIS CONTINUES GIVES A SENSE EVERYONE IS WAITING FOR IT TO END. THE PLANS FOR BROADCOM AND ORACLE AND SPACEX INDICATING IT IS NOT ENDING ANY TIME SOON. JONATHAN: A SIMILAR FIELD WHERE WE WERE YESTERDAY MORNING. EQUITIES NEAR SESSION LOWS. THEN THINGS CALM DOWN FOLLOWING A 10 YEAR BOND AUCTION THAT WENT OK. THE NEXT STOP IN THAT CONVERSATION IS LATER ON TODAY. WE WILL GET 30 YEAR SUPPLY AND SEE HOW THAT GOES. THIS HOUR WE'LL WILL CATCH UP WITH ED YARDENI, BRIAN GARDNER, AND KAY HERR ON THE RISING RISK OF A MARKET FRACTURE. ED YARDENI OF YOUR DENNY RESEARCH WRITING GIVEN WHERE THE 10 YEAR YIELD STANDS RELATIVE TO NOMINAL GDP GROWTH THE SELLOFF CANNOT BE DUBBED THE REVENGE OF THE BOND VIGILANTES. NOT JUST YET. HOW WOULD YOU DESCRIBE THE SELLOFF WITH YIELDS AT MULTI-DECADE HIGHS? ED: WHEN YOU LOOK AROUND THE GLOBE THERE ARE EXPLANATIONS FOR WHAT IS GOING ON. ONE EXPLANATION FOR THE INCREASE IN BOND YIELDS AROUND THE WORLD, WE DISCUSSED THIS LAST TIME, IT IS PROBABLY THE YEN CARRY TRADE AS THE BANK OF JAPAN HAS BEEN RAISING INTEREST RATES. ALL OF THOSE HEDGE FUNDS AND SPECULATORS HAVE BORROWED MONEY IN JAPAN AT NEAR ZERO RATES ARE NOW UNWINDING THEIR POSITIONS. THEY BOUGHT A LOT OF GOVERNMENT BONDS. THAT EXPLAINS THE GLOBAL RATE INCREASE. IN THE UNITED STATES I WOULD SAY A MORE IMPORTANT EXPLANATION FOR WHAT IS GOING ON IS WE HAVE SEEN AN ECONOMY THAT IS ON FIRE. IT IS BOOMING. CONSUMER SPENDING IS HANGING IN THERE WELL. THE BABY BOOMERS ARE RETIRING AND STILL SPENDING MONEY. CAPITAL SPENDING IS BOOMING. THE AI HYPERSCALERS AND OTHERS KEEP BORROWING MORE AND MORE. THE DEFICIT IS EXTREMELY LARGE. I THINK THE HAPPY SPIN FOR THIS BACKUP IN BOND YIELDS IS TO A LARGE EXTENT REFLECTING THE STRENGTH OF THE ECONOMY AND THAT IS WHY THE REAL RATE HAS BEEN LEADING THE INCREASE IN THE NOMINAL DEAL RATHER THAN INFLATION. JONATHAN: CAN YOU PUT A POSITIVE SPIN ON WHAT IS HAPPENING ELSEWHERE IN PLACES LIKE FRANCE? ED: I DON'T THINK YOU CAN PUT A POSITIVE SPIN IN FRANCE. FRANCE IS STARTING TO LOOK LIKE A GREEK DEBT CRISIS. THE GREEKS HAD THE DEBT CRISIS IN 2010. BOND VIGILANTES PUSH THE BOND YIELD ALL THE WAY UP TO 40%. THAT GOT THE ATTENTION OF THE POLITICIANS. AS A RESULT THE BOND YIELD IN GREECE IS LOWER THAN IN FRANCE. LISA: YOU THINK THEY ARE HITTING THE DANGER ZONE? THE IDEA YOU'RE ENTERING THIS DOOM LOOP WHERE HIGHER YIELDS BEGET HIGHER YIELDS? ED: WE ARE HEADING IN THE DIRECTION OF THE DANGER ZONE. I HAVE CALLED IT A SPECTRUM OF THE BOND YIELD SCENARIOS AND THE GOOD END OF THE SPECTRUM IS BETTER THAN EXPECTED ECONOMIC GROWTH LEADING TO AN INCREASE IN THE NEUTRAL INTEREST RATES. REMEMBER AT THE BEGINNING OF THE YEAR THAT OFFICIALS WERE SAYING THE FED FUNDS RATES WERE STILL SLIGHTLY RESTRICTIVE. NOW THE NEW FED CHAIR HAS MOST RECENTLY SAID THE 25 BASIS POINT INCREASE IN SEPTEMBER IN THE FED FUNDS RATE WAS REMOVING A DOSE OF ACCOMMODATION. FED OFFICIALS ARE SAYING THE REAL RATE IS HIGHER. THAT HAS TO DO WITH STRONGER ECONOMIC ACTIVITY. THE OTHER FACTOR IS OIL PRICES. THEY ARE UP A LOT TODAY AND THE BOND YIELDS ALMOST AT 5% ON THE FRENCH BOND YIELDS AT 4.9% LAST TIME I SAW. MEANWHILE THE U.S. BOND YIELD IS RELENTLESSLY MOVING TOWARDS 5.5% AND THEN WE WILL START TO TALK ABOUT WHERE DO WE SETTLE THIS THING BETWEEN 5.5% AND 6%? LISA: YOU MAKE A LOT OF GREAT POINTS. ONE OF THEM IS BOND VIGILANTES HAVE NOT COME OUT WITH PITCHFORKS YET ABOUT THE U.S. DEFICIT. THEY ARE RESPONDING TO THE STRENGTH IN THE U.S. ECONOMY, THE BORROWING BINGE WE ARE SEEING FROM AIN HIGHER OIL PRICES. THAT COULD BE LOOKED AT POSITIVELY AND NEGATIVELY. THE NEGATIVE SIDE IS WHEN THEY START TO CARE AND THERE IS AN ADDITIONAL ROUND OF BOMBING HEAD OF THE MIDTERMS AND ONGOING COSTS TIED TO THE WAR IN ADDITION TO ANY KIND OF COMPROMISE TO EXPAND THE DEFICIT , HOW HIGH COULD THEY GO IF THE BOND VIGILANTES START TO TAKE A LOOK AT THE DEFICIT? ED: IF THEY STARTED TO REALLY FOCUS ON THE DEFICIT THEY COULD GO HIGHER RELATIVE TO NOMINAL GDP. ONE WAY TO TRY TO ASSESS THE IMPACT OF THE BOND MARKET ON THE ECONOMY IS TO LOOK AT THE BOND YIELD, THE 10 YEAR BOND YIELD, WHICH IS UP ALMOST 5.5% RELATIVE TO NOMINAL GDP GROWTH ON A YEAR-OVER-YEAR BASIS. I WOULD SAY THE BOND VIGILANTE CONCEPT WOULD BE A REAL CONCERN IF WE SEE THE BOND YIELD UP TO 6% AND HIGHER. I THINK ONCE WE GET ABOVE NOMINAL GDP YOU START TO SLOW IT DOWN. RIGHT NOW THE ECONOMY IS LESS INTEREST RATE SENSITIVE THAN THE CONSUMER. A LOT OF THE RETIRING BABY BOOMERS COME IF RATES ARE GOING UP THAT IS A POSITIVE FOR THEM IN TERMS OF MONEY MARKET FUND YIELDS. THE AI BORROWERS IS STILL VERY LUCRATIVE. MAYBE THE AI BORROWERS ARE THE NEW SOVEREIGN BONDS IN THE SENSE THAT INVESTORS FEEL MORE COMFORTABLE OWNING THEM AND THEY FEEL OWNING SOVEREIGN DEBT FROM FRANCE AND MAYBE EVEN THE UNITED STATES. JONATHAN: WHAT WILL IT TAKE TO SLOW THIS ALL DOWN? WHAT DOES THE FEDERAL RESERVE NEED TO DO AND HOW FAR ARE THEY WILLING TO GO? ED: THE FEDERAL RESERVE MATTERS BUT NOT AS MUCH AS IT MATTERED IN THE PAST. PARTLY THAT IS BECAUSE THE ECONOMY IS LESS INTEREST RATE SENSITIVE. THE PROBLEM IS FISCAL POLICY. SCOTT BESSENT KNOWS THAT AND HE IS TRAPPED BECAUSE THE ONLY SOLUTION HE HAS IS WHAT WE ARE SEEING COMING OUT OF FRANCE. THE SCOTT BESSENT BAZOOKA WOULD BE BUYING BACK A LOT MORE TREASURY BONDS AND ISSUING A LOT MORE TREASURY BILLS. THAT MIGHT CALM THINGS DOWN AND THAT IS WHAT HE MIGHT HAVE TO DO IN THE EVENT THIS THING GETS OUT OF CONTROL. HE IS BASICALLY CONCEDED THAT HE CANNOT CONTROL WHAT IS GOING ON, WHICH SUGGESTS HE IS NOT ALL THAT CONVINCED USING THE BAZOOKA WILL DO TOO MUCH TO MAKE THIS GO AWAY. ANNMARIE: WHAT KIND OF LEVELS DO YOU THINK YOU WOULD SEE THE THE TREASURY STEP IN? ED: IS RELATIVE TO NOMINAL GDP. IF WE GET TO 6% QUICKLY WE COULD SEE CRACKS IN THE FINANCIAL SYSTEM. THAT WOULD PROBABLY REQUIRE THE FED TO START THINKING ABOUT LIQUIDITY. IF WE GET THERE IN A LEISURELY FASHION DO NOT THINK IT WILL DO AS MUCH DAMAGE. CLEARLY ALL THE FOCUS IS ON THE INCREASE IN BOND YIELD. THAT IS WHY BACK IN MID-SEPTEMBER WE TURNED LONG CAUTIOUS ON THE MARKET BECAUSE WE DID START TO RECEIVE THAT BETWEEN HIGHER AND LONGER OIL PRICES AND STRONGER THAN GROWTH AND ALL OF THE DEMAND FOR CREDIT THAT WE COULD HAVE A PROBLEM IN THE BOND MARKET AND WE DO. JONATHAN: GOOD TO SEE YOU. ED YARDENI GETTING TO THE HEART OF THE ISSUE. THE RATE REQUIRED TO SLOW DOWN THE AI TRAIT IS HIGHER THAN THE RATE REQUIRED TO SLOW EVERYTHING ELSE DOWN AND MAYBE PEPSICO IS AN EXAMPLE OF THAT. CUTTING THEIR OUTLOOK. MOUNTING COSTS AND THEY ARE STRUGGLING TO PASS THEM OFF. LISA: EARLIER THIS YEAR THEY HAD CUT PRICES BY 15% AND RAISE THEM AGAIN BECAUSE THEY REALIZED IT CAME AT A TIME THE COURT COSTS WERE INCREASING AND NOW THEY ARE LOOKING AT POTENTIAL COST CUTTING MEASURES OUT OF THE NORTH AMERICAN UNIT IN PARTICULAR TO GAIN MARKET SHARE. THEY LOST MARKET SHARE AND NOW THEY ARE TRYING TO CLAW THEIR WAY BACK AT THE SAME TIME AND IT IS VERY DIFFICULT TO COMPETE ON PRICE. HOW MUCH IS THIS AN APPETITE ISSUE AND HOW MUCH IS THE PULL THE CONSUMER HAS IS THAT MUCH SMALLER SO THERE'S NOT ENOUGH MONEY TO GO AROUND? JONATHAN: LET'S GET YOU UP TO SPEED ON THAT AND A LOT MORE. VONNIE QUINN HAS MORE. VONNIE: THE DEMOCRATIC NATIONAL COMMITTEE FILING A LAWSUIT, ACCUSING THE TRUMP ADMINISTRATION OF UNLAWFULLY USING GOVERNMENT MONEY TO PAY FOR VIDEO ADVERTISEMENTS. THE ADS FEATURE POSITIVE IMAGES AND MESSAGES ABOUT TRUMP AND HIS PRESIDENCY AND INCLUDE A DISCLOSURE THEY WERE PAID FOR BY THE UNITED STATES GOVERNMENT. PEPSI SHARES HIGHER THOUGH PARING GAINS IN THE PREMARKET EFFORT REPORTING THIRD QUARTER EARNINGS THAT BEAT ESTIMATES. THE FOOD AND BEVERAGE GIANT CUTTING ITS PROFIT OUTLOOK. PEPSI CEO SAYING THE COMPANY IS LOOKING TO CUT COSTS TO HELP MITIGATE THE IMPACT OF RISING INPUT COST INFLATION. CHINA MANAGED TO GET A HOLD OF PARTS FROM AN F-35 STEALTH FIGHTER JET AFTER A UPS EMPLOYEE MISSED IN THE MIDDLE EMPLOYEE NOT TO ROUTE THE SHIPMENT THROUGH HONG KONG. THE INCIDENT HAS PROMPTED INVESTIGATIONS BY THE PENTAGON AND THE STATE DEPARTMENT. THAT IS YOUR BLOOMBERG BRIEF GARRETT JONATHAN: I AM STRUGGLING WITH THIS STORY. I KNOW NOTHING ABOUT HOW PARTS FOR F-35'S WERE TRANSPORTED. IF YOU SAID GUESS HOW DOES THIS WORK, WE HAVE TO SEND SOMETHING FROM AUSTRALIA TO THE U.S., I WOULD NOT HAVE COME UP WITH UPS OR THAT ROUTE. LISA: AT WOULD NOT COME UP WITH RANDOM EMAILS BEING SENT TO FLAKKA FACT THAT THIS IS SENSITIVE PARTS. THERE ARE SO MANY ASPECTS OF THIS STORY THE PRESENT HOLES IN OUR SYSTEM THAT ARE HIGHLY CONCERNING. ANNMARIE: SOMETHING IS OFF. NATIONAL SECURITY KEY COMPONENTS OF F-35 PARTS BASICALLY COMES DOWN TO ONE UPS WORKER MISSING IN EMAIL? THAT MAKES NO SENSE. JONATHAN: I STILL HAVE QUESTIONS BUT THAT IS THE LATEST. FINISHING THE WAR ONE WAY OR ANOTHER. PRES. TRUMP: OIL WILL DROP LIKE A ROCK AS SOON AS WE ARE FINISHED THE WAR WHICH WE VERY SOON, ONE WAY OR THE OTHER WE WILL BE FINISHED WITH IT. OIL WILL GO DOWN TO LEVELS MAY BE EVEN LOWER THAN THEY WERE BEFORE THE WAR STARTED. JONATHAN: UP NEXT WE'LL CATCH UP WITH BRIAN GARDNER. FROM NEW YORK CITY, GOOD MORNING. ♪ JONATHAN: ANOTHER LEAD ON THE LABOR MARKET. THAT DATA POINT REMARKABLE STABLE. EVERY WEEK WE TAKE A LOOK AT IT. NO DOUBT IT WILL THE SAME AT 8:30 EASTERN TIME. IF IT DOES CHANGE THAT IS BIG NEWS. FED SPEAK. LATER THIS AFTERNOON THE BOND AUCTION. THE 10 YEAR WENT OK YESTERDAY AFTERNOON. LISA: I WOULD ARGUE AN INCREDIBLY STRONG 10 YEAR AUCTION. RECORD HIGH DEMAND FROM INDIRECT AND DIRECT INVESTORS. A QUESTION ABOUT WHO CALLED IN A FAVOR. IT HIGHLIGHTS THAT THE HIGHEST YIELD GOING BACK TO 2000. ULTIMATELY YOU GET SOME BUYERS ALTHOUGH TODAY WE ARE SELLING OFF OR GET AN THE 30 YEAR YIELD ENDED UP HIGHER. IF THIS IS A MESSY AUCTION, THESE ARE RISK EVENTS FOR THE MARKET BROADLY. THE MARKET SIGNING A BREATH OF RELIEF. JONATHAN: YESTERDAY MORNING BOND YIELDS WERE HIGHER. EQUITIES ON THE BACK FOOT. DOWN .4%. ON THE S&P DOWN .6%. BRENT CRUDE THIS MORNING AROUND 04, HIGHER BY MORE THAN 4%. I'M STRUGGLING TO FIND GOOD NEWS IN THE MIDDLE EAST. SOME OF THE STRIKES IN SAUDI ARABIA ARE DEEPLY CONCERNING THIS MORNING. ANNMARIE: THE HOUTHIS TWO AIRPORTS KILLING THREE PEOPLE AND INJURING DOZENS. AT THE SAME TIME YOU SEE THE U.K. MARITIME TRADE COMING OUT AND TALKING ABOUT THESE NUMBERS. THIS IS WHAT I'M HEARING FROM PEOPLE OFF-CAMERA. HOW MUCH HARDER IT HAS BEEN AND HOW MUCH COSTLIER IT HAS GONE TO TRY TO GET PRODUCT THROUGH THE WAR. JONATHAN: SUPPLY MIGHT BE UP BUT IT IS GETTING MORE EXPENSIVE. FINISHING THE WAR ONE WAY OR ANOTHER. PRES. TRUMP: OIL WILL DROP LIKE A ROCK AS SOON AS WE ARE FINISHED WITH THE WAR WHICH WE VERY SOON. ONE WAY OR THE OTHER WILL BE FINISHED WITH IT. OIL WILL GO DOWN TO LEVELS THAT ARE MAY BE LOWER THAN THEY WERE BEFORE THE WAR STARTED. JONATHAN: PRE-RISING ON REPORTS THE U.S. COULD HIT IRAQ WITH NEW STRIKES AHEAD OF THE MIDTERMS. THE ATLANTIC REPORTING POTENTIAL STRIKES BEING DISCUSSED, WITH THOSE IN FAVOR SEEING THEM AS A POSSIBLE VICTORY AHEAD OF THE ELECTIONS. TYLER KENDALL HAS THE LATEST. TYLER: THIS HIGHLIGHTS THE POLITICAL PRESSURE THE WHITE HOUSE IS UNDER AS DIPLOMACY REMAINED STALLED. THE ATLANTIC REPORTING THAT THE SIZE, SCOPE, AND TARGETS OF POTENTIAL OPERATIONS IS STILL UNDER CONSIDERATION BY THE PENTAGON. THE REPORTING GOES ON TO ADD THAT LIMITED ACTION COULD BE FOLLOWED BY MORE SUBSTANTIAL OPERATIONS AFTER THE MIDTERMS. THAT UNDERSCORES THE BALANCING OF RISKS AS A POLL CONDUCTED BY NBC NEWS FOUND 57% OF VOTERS SAY THEY ARE LESS LIKELY TO SUPPORT A CANDIDATE WHO SUPPORTS THE WAR. PART OF THE ISSUE FOR THE WHITE HOUSE IS THERE HAS BEEN AN ESCALATION OVER THE LAST WEEK OR SO AS WE SEE AN UPTICK IN ATTACKS IN THE STRAIT OF HORMUZ. THAT HAS BEEN FUELED BY THE FACT THAT MORE OIL IS GETTING THROUGH , IN LARGE PART THANKS TO THE U.S. NAVAL BLOCKADE, BUT ALSO AN UPTICK IN THE SO-CALLED SHUTTLE SYSTEM WHERE WE SEE CARGO TRANSFERRED TO SHIPS ONCE THEY ARE SAFELY THROUGH THE STRAIGHT. NEW THIS MORNING PEOPLE FAMILIAR WITH THE MATTER TELL US THAT SAUDI ARABIA IS LOOKING AT FORMALIZING ITS SO-CALLED SHUTTLE SYSTEM IN WHAT WOULD MARK A MAJOR DEPARTURE FROM HOW THE KINGDOM TRADITIONALLY GETS APPLIED TO MARKET, INDICATING SAUDI ARABIA IT MAY BE PREPARING FOR THIS TO BE THE NEW NORMAL, AT LEAST FOR NOW. JONATHAN: IT FEELS LIKE THE NEW NORMAL FOR SEVEN MONTHS. BRIAN GARDNER WRITING "IT IS UNCLEAR HOW LONG IRAN CAN HOLD OUT BUT THEY ARE UNLIKELY TO AGREE TO A DEAL BEFORE THE NOVEMBER ELECTION." THIS FROM THE ATLANTIC. THE WHITE HOUSE IS AT THE PENTAGON TO DEVELOP STRIKE OPTIONS AGAINST IRANIAN TARGETS THAT COULD BE EXERCISED AHEAD OF THE MIDTERMS. DO YOU VIEW THAT AS AN IMMINENT POSSIBILITY OR PART OF THE ONGOING NEGOTIATIONS WITH IRAN? BRIAN: I THINK IT IS MORE IN THE ONGOING NEGOTIATIONS. I WOULD NOT RULE OUT ANOTHER ROUND OF STRIKES, BUT I THINK IT IS A LOWER PROBABILITY. I THINK GOING INTO THE MIDTERMS, THE WHITE HOUSE IS PROBABLY SENSITIVE TO THE IMAGES. THERE WAS A TIME WHEN WE WOULD SAY THIS COULD BE A RALLY AROUND THE FLAG TYPE OF EVENT WHERE COULD RALLY SUPPORT FOR THE PRESIDENT. I THINK WE HAVE SEEN OVER THE LAST SEVERAL YEARS, NOT JUST THIS ADMINISTRATION BUT THE PAST ADMINISTRATION WHERE FOREIGN INTERVENTIONS, AMERICANS DO NOT REACT TO THEM THE SAME WAY THEY USED TO. YOU DO NOT GET A BUMP OUT OF IT IN THE POLLING LIKE WE USED TO SEE. ANNMARIE: I DON'T THINK ANYONE IS SURPRISED IRAN IS RAMPING UP ATTACKS WEEKS BEFORE THE MIDTERM ELECTIONS. AT THE SAME TIME, IF THE PRESIDENT IS NOT GOING TO GO BACK IN FOR STRIKES DOES HE HAVE DOMESTIC OPTIONS HE CAN USE BEFORE THE MIDTERM ELECTION TO TRY TO ASSUAGE CONSUMER CONCERNS ABOUT DIESEL, GASOLINE, AND THE LIKE? BRIAN: THAT IS A QUESTION THAT HAS BEEN COMING UP FOR A COUPLE OF WEEKS. WE HAVE BEEN GOING BACK AND FORTH AT WHAT LEVERAGE TO THEY HAVE AHEAD OF THE MIDTERMS? I'VE BEEN ARGUING THERE ARE VERY FEW. THE DIESEL EXPORT BAN WAS FLOATED BUT THAT GOT SHUT DOWN PRETTY QUICKLY BECAUSE THEIR UNINTENDED CONSEQUENCES. I AM A LITTLE SURPRISED THAT A GAS TAX HOLIDAY DID NOT GET MORE TRACTION. NOT THAT IT IS A GREAT POLICY IDEA THAT IT DOES GIVE A LITTLE BIT OF IMMEDIATE RELIEF AT THE PUMP TO VOTERS. THAT DID NOT GO ANYWHERE. THE ANSWER IS THERE A VERY FEW LEVERS TO PULL AT THIS POINT. LET'S NOT FORGET THERE ALREADY 15 STATES THAT HAVE STARTED EARLY VOTING. THERE WILL BE A HANDFUL THAT START EARLY VOTING NEXT WEEK. THE IMPACT OF POLICY CHANGES, OF AN OCTOBER SURPRISE ON THE ELECTORATE, IS DIMINISHING AS WE GO ALONG. INCREASING PERCENTAGES OF THE VOTING POPULATION HAVE VOTED. WE DO NOT GET A LOT. THERE IS LESS BANG FOR YOUR BUCK ON THESE OCTOBER SURPRISES IN THERE USED TO BE. ANNMARIE: WHEN IT COMES TO THE MAKEUP OF CONGRESS YOU HAVE AN OUT OF CONSENSUS VIEW, YOU THINK REPUBLICANS WILL BE ABLE TO HOLD ONTO THE SENATE. WHAT SHOULD WE BE WATCHING? BRIAN: I WANT TO BE CLEAR, IT IS OUT OF CONSENSUS. I'M NOT OVERLY CONFIDENT. IT IS NOT LIKE I AM GUARANTEEING REPUBLICANS WILL HOLD THE SENATE. I THINK DEMOCRATS HAVE A 45% CHANCE OF PICKING UP THE SENATE SO I AM GETTING CLOSE TO COIN FLIP TERRITORY. THERE COUPLE OF RACES THAT HAVE MOVED TO THE REPUBLICAN DIRECTION, MAINE IS ONE OF THEM. A LOT OF RACES HAVE MOVED IN THE DEMOCRATIC DIRECTION. A LOT OF PEOPLE ARE LOOKING AT KANSAS AS A NEW OPPORTUNITY FOR DEMOCRATS. KANSAS HAS SENT FALSE ALARMS ON DEMOCRATIC CHANCES FOR DECADES AND IT HAS NOT WORKED OUT. I BELIEVE WE HAVE SEEN A PATTERN OVER THE YEARS OF REPUBLICANS OUTPERFORMING THEIR POLL NUMBERS. I THINK IT WILL BE CLOSE. IF I AM RIGHT AND REPUBLICANS HOLD ONTO MAINE, THE MATH GETS TOUGHER FOR DEMOCRATS. I AM JUST NOT AS OPTIMISTIC OR BULLISH ON DEMOCRATIC CHANCES AS SOME OTHER FOLKS ARE. JONATHAN: BRIAN GARDNER, THANK YOU. WE HAVE HEARD SOME PRETTY BIG CALLS ON THIS PROGRAM, TALK OF DEMOCRATS FLIPPING TEXAS WHICH SEEMS UNTHINKABLE A COUPLE YEARS AGO WHEN THE PRESIDENT WON THE STATE BY DOUBLE DIGITS. LISA: THIS IS INCREDIBLE PERSONALITY DRIVEN AND IDIOSYNCRATIC. CAN YOU IMAGINE A SCENARIO WHERE DEMOCRATS TAKE TEXAS BUT DO NOT WIN A MAJORITY? THAT IS A SCENARIO PEOPLE COME UP WITH. ANNMARIE: WHEN IT COMES TO KANSAS THE DEMOCRATS HAVE NOT WON A SEAT IN 94 YEARS. I HAVE SYMPATHY WITH BRIAN WHEN HE SAYS YOU SEE THE MOMENTUM IN THE POLLS AND POTENTIALLY THERE IS A SHIFT, BUT WE ARE TALKING ABOUT THIS WOULD BE SEISMIC. JONATHAN: SOME OF IT DOES NOT PASS THE SMELL TEST AND THAT IS WHAT WE ARE TRYING TO GET INTO A NEXT COUPLE WEEKS. UP NEXT WE WILL GET INTO THE CONVERSATION WITH JOSEPH MOORE OF MORGAN STANLEY. EQUITY FUTURES NEAR SESSION LOWS. DOWN .5%. ♪ JONATHAN: DATA AT 8:30. JOBLESS CLAIMS AND MORE ISSUANCE. 30 YEAR SUPPLY AT 1:00 THIS AFTERNOON. SETTING THE TONE FOR FIXED INCOME AND EQUITIES WORLDWIDE. EQUITY FUTURES NEGATIVE, DOWN ACROSS THE BOARD, PULLING BACK .5% OR .6%. YESTERDAY SNAPPING A WINNING STREAK ON THE S&P. IN THE BOND MARKET, 2, 10, AND 30'S. YIELDS HIGHER THROUGH MUCH OF THE CURVE FUELED BY THE PROSPECT OF MORE SUPPLY. YIELDS UP AGAIN. MORE DEALS ON THE TABLE LINED UP FROM ORACLE AND BROADCOM ACCORDING TO REPORTS FROM THE JOURNAL AND OTHERS. 10 YEAR HIGHER BY SIX OR SEVEN BASIS POINTS. WE ARE LOOKING AT 5.35. PUT THAT TOGETHER WITH THE PROSPECT OF THE ECB NOT STEPPING IN AND WE ARE LOOKING AT WIDER SPREAD SPIRIT FRANCE OVER GERMANY. YIELDS UP ON FRENCH DEBT BY NINE BASIS POINTS. CAME IN AND THEN POPPED OUT AGAIN. CRUDE IS NOT HELPING. UP 5% THIS MORNING. ANNMARIE: A LOT OF ISSUES TAKING PLACE. LESS OIL IS GETTING THROUGH. IF YOU'RE ABLE TO GET OIL THROUGH YOUR SPENDING A LOT MORE MONEY TO DO SO. THE HOUTHIS ATTACKED TWO AIRPORTS IN SAUDI ARABIA AND THAT YOU HAVE AN ARTICLE FROM THE ATLANTIC TALKING ABOUT HOW THE PRESIDENT IS CONSIDERING A PLAN TO STRIKE IRAN BEFORE THE MIDTERMS. PENTAGON PLANNERS ARE WEIGHING OPTIONS. IS THAT WHAT YOU SAID TO BRIAN GARDNER A MOMENT AGO? IS THIS NEGOTIATING IN PUBLIC? MAYBE. POTENTIALLY THEY ARE DRAWING UP PLANS. YOU'VE SEEN THE PRESIDENT DRAW UP PLANS AND AT THE LAST MINUTE PULL THEM BACK. DOES HE WANT TO DO SOMETHING FOR THE MIDTERMS? JONATHAN: GIVE A MASSIVE COMPETITION FOR CAPITAL AND CRUDE PUTTING THE SCREWS ON FIXED INCOME. LISA: WHERE IS THE CIRCUIT BREAKER WHICH IS WHY THE ECB COMMENT WAS PART OF THE PROBLEM. THEN YOU HAVE THE LIKES OF CHRIS WALLER ENDORSING THE IDEA OF ADDITIONAL HIKES, ALBEIT WITHOUT A CLEAR TIMETABLE. WHAT WILL STOP THIS , IF THE AI TRAIN IS STILL ROLLING, INFLATION STILL PRESENT , OIL PRICES STILL WHERE THEY ARE, NO CENTRAL BANK PUT. JONATHAN: GOVERNOR WALLER'S COMMENTS WERE WELL-CRAFTED. HE IS TALKING ABOUT THE PACE ABOUT HOW QUICKLY THEY MIGHT NEED TO MOVE. HOW QUICKLY DO YOU NEED TO DO IT IS PART OF THE DEBATE? HE POINTED TO THE DOT PLOT AND THE IDEA OF THE DOT PLOT ONLY CATCHES FOR NEXT YEAR IS A DEBATE OVER HOW MUCH IT DO OVER THE YEAR BUT IT DOES NOT INDICATE HOW QUICKLY PEOPLE NEED TO DO IT AND HE SUGGESTED THERE OFFICIALS LOOKING FOR 50 BASIS POINTS NEXT YEAR AND HE SAID WHAT IT DOES NOT SHOW IS HOW QUICKLY YOU WANT TO DELIVER THAT 50 BASIS POINTS AND I WONDER IF THAT IS A SUBTLE NOD HOW QUICKLY THEY MIGHT MOVE AT THE FRONT END OF THE YEAR AND IF THAT IS PART OF THE CONVERSATION INTO YEAR END? LISA: GIVING HIMSELF MAXIMUM FLEXIBILITY AND TRYING TO DISTILL HAWKISHNESS. MY TAKE AWAY IS THEY ARE GOING TO DO THIS AND HE WAS ALL BEHIND IT EVEN THOUGH HE HAD SHOWN SKEPTICISM EARLIER IN THE YEAR ABOUT HOW MUCH RESTRICTION WAS NEEDED. JONATHAN: THE MORE YOU WAIT, THE LONGER YOU WAIT THE MORE YOU MIGHT HAVE TO DO AND THAT IS THE CONSIDERATION FOR THIS COMMITTEE IS THEY BELIEVE THEY HAVE THE LUXURY OF TIME ON THEIR HANDS TO SKIP OCTOBER. IF YOU CARRY ON SEEING WHAT WE ARE SEEING, EVERY MORNING ANOTHER MARKET RAISING CAPITAL WHICH IS SUPPORTING NOMINAL GROWTH IN THIS ECONOMY. WE HAVE MORE WORK TO DO. LISA: DOESN'T OPEN THE DOOR TO A 50 BASIS POINT RATE HIKE OR CONSECUTIVE MOVES AND SITTING ON YOUR HAND? MAXIMUM FLEXIBILITY AT A TIME WE'VE NOT FOUND THE CIRCUIT BREAKER. THE LAST TIME THEY RAISED RATES THE MARKET CHEERED. JONATHAN: THE DOORS CLOSED SOMEWHAT TO AN OCTOBER RATE HIKE. THAT COULD CHANGE NEXT WEEK WHEN WE GET THE NEXT CPI REPORT. THREE HOURS AWAY FROM THE OPENING BELL. LET'S GET YOU SOME SINGLE NAMES. YAHAIRA: PEPSICO SHARES HAVE BEEN BOUNCING AROUND PUT UP ABOUT .3% AFTER THE COMPANY POSTED MIXED RESULTS. QUARTERLY REVENUE AND EARNINGS BOTH BEAT EXPECTATIONS, BUT THAT WAS HELPED BY GROWTH OVERSEAS. HERE IN NORTH AMERICA THE COMPANY IS STILL STRUGGLING. THAT LED IT TO CUT ITS FULL-YEAR EARNINGS FORECAST, WITH THE EXECUTIVE SAYING COST CUTS ARE ON THE WAY. THAT IS AN ENCOURAGING SIGN FOR INVESTORS. PEPSICO JUST A FEW WEEKS AGO ANNOUNCED IT IS RAISING PRICES AFTER EARLIER THIS YEAR CUTTING PRICES ON ITS DORITOS AND LAYS. THIS SEEMS TO BE A COMPANY STRUGGLING TO STRIKE THE BALANCE BETWEEN BRINGING SHOPPERS BACK AND ALSO PROTECTING ITS MARGINS. MEANWHILE WE ARE SEEING A WEAKER TSMC THIS MORNING, DOWN 1.6%, EVEN AFTER THE WORLD'S LARGEST CHIP MANUFACTURER REPORTED A MORE THAN 50% JUMP IN QUARTERLY SALES. AI SPENDING IS STILL GOING STRONG. IN A WEEK WHERE THE MASSIVE DEBT ISSUANCE SALES HAVE BEEN ANNOUNCED INVESTORS SEEM TO BE INCREASINGLY JITTERY OVER THE BORROWING BINGE AND ALL THE SPENDING. WE END ON WILL SPEED, THOUGH SHARES ARE SOARING MORE THAN 15% IN THE PREMARKET AFTER THE PENTAGON OFFER THE CHIPMAKER A CONDITIONAL LOAN OF UP TO .5 MILLION. THIS IS A MAJOR TURNAROUND FOR A COMPANY THAT FILED FOR BANKRUPTCY JUST LAST YEAR. IT LOOKS LIKE THE GOVERNMENT IS LOOKING TO HELP IT RAMP UP PRODUCTION OF ITS ADVANCED POWER CHIPS WHICH ARE USED IN EVERYTHING FROM MILITARY TO AEROSPACE EQUIPMENT. UNDER THE PROPOSED DEAL THE PENTAGON AND ALSO TAKE A STATE OF UP TO 7.5% IN THE COMPANY. JONATHAN: EQUITY FUTURES A LITTLE BIT LOWER, NEAR SESSION LOWS. DOWN .6%. CRUDE PRICES RISING AS THE TRUMP ADMINISTRATION CONSIDERS ATTACKS AGAINST IRAN BEFORE THE MIDTERM ELECTIONS. THE ATLANTIC REPORTING THE PENTAGON TOLD TO DEVELOP STRIKE PLANS WHICH IS STILL UNDER DEBATE. THE FINANCE MINISTRY TELLING BLOOMBERG THERE'LL BE NO CHANGE TO ITS REPORT FOLLOWING A WALL STREET JOURNAL REPORT PARIS IS CONSIDERING ISSUING MORE SHORT-TERM DEBT. THE AI RACE BECOMING A COMPETITION FOR CAPITAL. BROADCOM SEEKING FUNDS TO HELP THE CUSTOM CHIP BUILD OUT. APOLLO AND BLACKSTONE ARE AMONG THOSE WORKING TO ARRANGE OVER $50 BILLION. ORACLE ALSO IN TALKS WITH LINDA'S TO LINE UP CASH FOR CHIPS. LISA: THIS IS THE ONGOING RACE FOR CAPITAL DESPITE THE FACT THAT YIELDS HAVE BEEN RISING AND IT SEEMS ALMOST YIELDS INSENSITIVE. IT IS ALL GOING TO UNDERPIN THE LIKES OF OPENAI AND ANTHROPIC CREATING THE FRONTIER MODELS BUT DO NOT HAVE THE MONEY TO FINANCE THE CHIPS THAT ARE REQUIRED TO HAVE THEIR FRONTIER MODELS WORK. HOW MUCH IS THIS TRYING TO FUEL THEM? IT GOES TO THE QUESTION OF WHERE IS THE LIABILITY AND THE RISK AND GOES TO THE CIRCULAR FINANCING SOME PEOPLE ARE LOOKING FOR. JONATHAN: WE HAVE A GREAT GUEST. JOSEPH MOORE WRITES "WE EXPECT THE MEMORY SHORTAGE TO BE A CONSTRAINT ON BUILDS. SHORTAGES WILL FLUCTUATE BUT AI WILL USE ALSO APPLY FOR THE FORESEEABLE FUTURE." JOSEPH JOINS US FOR MORE. CAN WE JUST SIT ON THE CAPITAL EFFORT, THE RACE TO RAISE CAPITAL RIGHT NOW AND HOW MUCH OF THAT MONEY IS JUST FLOWING DOWNSTREAM TO ONE PLACE WHICH IS THE CHIP STOCKS THAT YOU COVER? JOSEPH: IT IS A BIG FOCUS FOR INVESTORS AND WE HAVE BEEN IN THE SITUATION WHERE IT IS EXTREMELY CAPITAL-INTENSIVE BUILDOUT BUT AT THE SAME TIME THE INDUSTRY IS CONSTRAINED BY MEMORY, BY FOUNDRY, BY LAND POWER. THERE ARE CONSTRAINTS WHERE YOU MIGHT HAVE SEEN IN PREVIOUS THERE IS OVERSUPPLY. HERE THERE IS A LOT OF INVESTMENTS BUT THEY ARE BOTTLENECKED BY THESE CONSTRAINTS AND THAT LENDS ITSELF TO THE DURATION WE ARE SEEING. TO THE EXTENT WE HAVE THESE FINANCING CONCERNS AND THINGS LIKE THAT, THERE STILL MORE DEMAND THAN WE CAN MEET. JONATHAN: ARE DOUBT STARTING TO EMERGE ABOUT THE RUNWAY BECAUSE OF THE HIGHER BORROWING COSTS? WE ARE SEEING SPREADS HIGHER. SPACEX IN THE NEWS THE LAST 24 HOURS. THEN COMPANIES LIKE SAMSUNG AND TSMC, GREAT NUMBERS AND MUTED RESPONSES AND EQUITIES. WHAT DO YOU THINK THAT SIGNALS? JOSEPH: THIS IS A DURATION BET FOR OUR STOCKS. WE ALL KNOW IT IS VERY GOOD. IT IS MORE ABOUT HOW LONG IT CAN LAST. IT IS HARD FOR COMPANIES ON EARNINGS CALLS, WE SAW THE SAME THING WITH MICRON. WE ARE TRAINED TO FIGURE OUT HOW LONG THIS WILL LAST. IT DOES FEEL QUITE DURABLE. WE HAVE SEEN THE CAPITAL SPENDING ENDURE DESPITE A NUMBER OF INFLATIONARY ASPECTS ON THE SPENDING SIDE. WE HAVE SEEN MEMORY PRICES GO UP AND A LOT OF REASONS PEOPLE OF HAD TO RAISE MORE MONEY AND SPEND MORE MONEY. THE MARKET HAS BEEN RELATIVELY ENTHUSIASTIC FOR CAPEX AND THINGS LIKE THAT. THAT IS THE THING TO WATCH IF YOU SEE CAPITAL SPENDING FROM THE CUSTOMERS LESS WELL-RECEIVED YOU ARE SEEING PEOPLE PULLBACK. THERE IS STILL A LOT OF ENTHUSIASM FOR AI AND WHAT IT REPRESENTS AND WE ARE MINDFUL OF THE RISK. PART OF OUR APPROACH IS TO THINK ABOUT WHAT HAPPENS IN DIFFERENT SCENARIOS AND A LITTLE BIT AWAY FROM THE BOTTLENECKED TRAITS AND MORE TO THE COMPANIES THAT CAN ENDURE, EVEN IF THERE ENDS UP BEING OBSTACLES. LISA: WHAT IS THE SCALE OF DURABILITY? YOU'RE TALKING ABOUT HOW PEOPLE ARE SKEPTICAL THIS CAN GO FOR A LONG TIME. ARE YOU TALKING ABOUT PEOPLE ONLY BEING ABLE TO SEE TWO YEARS OUT AND YOU ARE SEEING FIVE YEARS? HOW BIG IS THE MISMATCH OF FAITH IN A LONG-TERM TRAJECTORY? JOSEPH: ANY TIME A SEMICONDUCTOR ANALYST TELLS YOU HE KNOWS WHAT WILL HAPPEN FIVE YEARS OUT TO SHOULD BE SKEPTICAL. OUR DATA POINTS TEND TO EXTEND NOT THAT FAR OUT. FIVE YEARS AGO COULD NVIDIA BE EXTENDING, THAT IS IMPOSSIBLE. WE DID NOT SEE ALL OF THIS COMING AND WE HAVE TO BE MINDFUL OF RISKS. WE HAVE SEEN COMPANIES LIKE NVIDIA AND BROADCOM TALK ABOUT 70% GROWTH, 90% GROWTH, A LOT MORE DEMAND. A LOT GOES INTO 2028. WHEN YOU HEAR THE FINANCING PLANS FROM THE CUSTOMERS AND SEE WHAT THEY HAVE LAID OUT, THEY RAISED MONEY FOR THE NEXT COUPLE OF YEARS. FOR THE NEXT COUPLE OF YEARS IT SHOULD REMAIN STRONG. BEYOND THAT IT COULD BE DIGESTION. THAT IS THE NATURE OF CLOUD. WE HAVE SEEN 20 YEARS CLOUT HAS BEEN THE MOST PREDICTABLE TREND IN I.T.. THERE BEEN WINDOWS OF DIGESTION. AT THE MOMENT THERE IS MORE COMPUTER REQUIREMENTS THAN SUPPLIED BY A SIGNIFICANT MARGIN. LISA: BECAUSE OF THE DEBT ISSUANCE, THAT IS THE IMPORTANT ASPECT. YOU TAKE A LOOK AT ANTHROPIC CUTTING PRICES ON ITS LATEST AND GREATEST MODEL AND HIGHLIGHTING THIS WILL BE CHEAPER AND HAVE THE SAME KIND OF CAPABILITIES, YOU SEE A RACE TO THE BOTTOM AND PRICING WITH OPEN SOURCE MODELS. CUSTOMERS ARE NOT WILLING TO PAY WHILE AT THE SAME TIME A LOT OF THESE HYPERSCALERS ARE BORROWING TENS OF BILLIONS OF DOLLARS TO FINANCE CHIPS. THERE IS A MISMATCH. AT WHAT POINT IS THE MISMATCH GOING TO CLOSE THE WRONG WAY OR THE RIGHT WAY? JOSEPH: A LOT OF WHAT WE THINK ABOUT FROM AN INVESTMENT STANDPOINT IS COMPANIES THAT CAN BENEFIT REGARDLESS OF HOW THAT GOES. NVIDIA TALKS ABOUT THE STRENGTH IN THE PREMIUM FRONTIER MODELS BUT ALSO A LOT OF THE EXPOSURE THEY HAVE TO OPEN-WEIGHT AND THE MORE COMMODITIZED MODELS. THEY ARE BENEFITING FROM EACH OF THOSE TRENDS. AT THE MOMENT THERE IS GOOD PROFITABILITY AND ALL OF THOSE. THEIR INVESTMENTS AND ALL OF THOSE. CERTAINLY THE RATE CONCERNS ARE SOMETHING TO CONSIDER. WE HAVE ABSORBED A LOT ALREADY THAT YOU SAY MAYBE WE SHOULD SLOW BECAUSE THIS IS MORE EXPENSIVE OR THAT IS MORE EXPENSIVE. THE APPETITE TO SPEND IS STILL THERE. I FEEL IT EVERYONE WHO COMES ONTO YOUR SHOW FROM THE EXECUTIVE SIDE, AI IS CHANGING THINGS COME INTELLIGENCE IS SOMETHING WE WANT MORE OF. IT DOES FEEL LIKE IT IS ENDURING. WE WILL HAVE TO SEE THROUGH ECONOMIC CYCLES, YOU NEED A VIBRANT CAPITAL MARKET TO FUND ALL OF THIS. WHILE I DO EXPECT THERE TO BE VERY GOOD CASH FLOW FROM CLOUD AND AI IS BECAUSE IS GROWING SO QUICKLY. CAPITAL MARKETS ARE IMPORTANT BUT I STILL THINK IT IS FAIRLY ROBUST. JONATHAN: YOU'LL HAVE TO FORGIVE ME FOR FOCUSING ON ONE DAY. ONE DAY'S PRICE ACTION. I WAS CURIOUS ABOUT YESTERDAY. FOR THE STORIES ABOUT SPACEX TO RAISE SIGNIFICANT MONEY TO SPEND THAT MONEY ON NVIDIA, THAT NVIDIA FINISHED THE SESSION LOWER RAISES QUESTIONS. YOU SAW THE PUSHBACK IN THE CREDIT MARKET TO SPACEX THINKING ABOUT DOING THIS AND DID NOT SEE THE EQUITY REWARDED ON NVIDIA. MADE ME WONDER WHETHER THE MARKET DISCUSSION HAS SHIFTED. STARTING TO LOOK AT THE BORROWING COSTS IN CREDIT AND SAY ON THE DURABILITY OF THIS IT IS NOT THAT DURABLE. JOSEPH: THAT HAS FRAMED THE ENTIRE YEAR SO FAR. WE MOVED BACK TO OUR TOP PICK IN MARCH AND IT UNDERPERFORMED MATERIALLY SOME OF THE NAMES THAT HAVE THE MOST POTENTIAL NEW STUFF THAT COULD HAPPEN. THE BIGGER STALWARTS OF UNDERPERFORMED BECAUSE PEOPLE HAVE THESE DURATION CONCERNS. I THINK IT IS SOMETHING YOU PROVE A LITTLE BIT AT A TIME. IN THE SPECIFIC EXAMPLES YOU'VE SEEN COMPANIES SAY WE WANT TO SPEND EIGHT GIGAWATTS NEXT YEAR AND YOU LOOK AT WHAT IS IN THE BACKLOG AND IT IS A FRACTION OF THAT. IN SOME SENSE WE ARE TALKING ABOUT HOW MUCH UPSIDE CAN THERE BE AND HOW MUCH CAN THE INDUSTRY SUPPORT ANYWAY? NVIDIA HAS A REALLY IMPORTANT PRODUCT AND THAT WILL HELP WITH A LOT OF THESE CONCERNS. TO ME IT IS A LITTLE BIT OF A GRIND. ONE DAY AT A TIME. THAT IS HOW THE DURATION TRADES ARE. WHEN YOU HAVE SIX MONTHS AGO WAS HOW GOOD CAN HE GET THIS QUARTER COMING OUT IS HOW LONG IT CAN LAST. THAT IS HARDER TO ANSWER. JONATHAN: 300 PRICE TARGET ON NVIDIA. AMAZING TO HEAR YOU SAY IS UNDERPERFORMED. VERTICAL, IT IS CRAZY. LISA: WHEN YOU LOOK AT THE EARNINGS THEY HAVE UNDERPERFORMED. MULTIPLE CONTRACTION WITH A 27% GAIN GIVES YOU A SENSE OF HOW FLYING THOSE EARNINGS HAVE BEEN. JONATHAN: THANK YOU. JOSEPH MOORE OF MORGAN STANLEY. $300 PRICE TARGET ON NVIDIA. LET'S GET YOU AN UPDATE ON STORIES WORLDWIDE WITH VONNIE QUINN. VONNIE: SK HYNIX'S FLASH MEMORY UNITS TO LEAD A PLANNED IPO NEXT YEAR. VERSUS TELLING BLOOMBERG THE DEAL COULD RAISE BILLION WITH A POTENTIAL 00 BILLION VALUATION. SK HYNIX BOUGHT THE FLASH MEMORY BUSINESS FROM INTEL IN 2021. THE WORLD HEALTH ORGANIZATION IS PRESSING RUSSIA FOR MORE INFORMATION ON THE DEATH OF A WORKER AND A PLAGUE RESEARCH LAB. YOU AN AGENCY'S BACKING AWAY FROM AN EARLIER DECLARATION THAT THE RISK TO THE GENERAL POPULATION WAS LOW, SAYING IT IS IMPOSSIBLE TO MAKE AN ASSESSMENT. CHRIS WALLER IS SAYING STICKY INFLATION COULD LEAD TO MORE FISCAL TIGHTENING. >> IF THE ECONOMIC DATA CONTINUE TO COME IN AS EXPECTED I ANTICIPATE ADDITIONAL HIKES TO SUPPORT THE TIMELY RETURN OF INFLATION TO OUR 2% GOAL. THERE IS SOME FLEXIBILITY ABOUT WHEN THE HIKES WILL OCCUR. VONNIE: THE SIGNAL ECHOES RECENT REMARKS THAT SUGGEST THE CENTRAL BANK HAS TIME TO ASSESS THE ECONOMY BEFORE IT CONSIDERS ANOTHER RATE HIKE. JONATHAN: THANKS FOR THE UPDATE. I MISSPOKE EARLIER. THAT SPEECH TOOK PLACE VERY EARLY THIS MORNING IN ISTANBUL FROM GOVERNOR WALLER. DOES NOT MAKE MUCH OF A DIFFERENCE. LISA: THAT IS STILL LAST NIGHT FOR MANY PEOPLE. JONATHAN: INCLUDING ME, APPARENTLY. UP NEXT, THE WORLDWIDE BOND ROUT. >> IS A GLOBAL PHENOMENON AND SINCE PRESIDENT TRUMP CAME IN THE U.S. HAS BEEN THE BEST-PERFORMING BOND MARKET IN THE 10 YEAR SPACE. WE CAN SEE THAT FOR THE U.S. UNLIKE THE OTHER COUNTRIES IT IS A ISSUE. JONATHAN: UP NEXT, KAY HERR OF JP MORGAN. ♪ JONATHAN: UNDER SURVEILLANCE THIS MORNING, THE WORLDWIDE BOND ROUT. >> FIRST OF ALL IT IS A GLOBAL PHENOMENON AND SINCE PRESIDENT TRUMP CAME IN THE U.S. HAS BEEN THE BEST-PERFORMING BOND MARKET IN THE 10 YEAR SPACE. WE CAN SEE THAT WITH THE U.S., UNLIKE THE OTHER COUNTRIES, IT IS A REAL RATE ISSUE. IT IS BECAUSE OF GROWTH. GROWTH IS STRONG. WHAT WE ARE SEEING IS HEADLINE INFLATION IS HIGH BECAUSE OF THE ENERGY SHOCK. JONATHAN: GLOBAL BOND YIELDS HOVERING NEAR THE HIGHEST LEVELS IN TWO DECADES. INVESTOR APPETITE FACING OTHER TEST WITH A 30 YEAR BOND AUCTION. KAY HERR WRITING "WITH THE MARKET HAVING PRICED INTO A FIT HIKING CYCLE AND THE RATES BACKDROP, THE POTENTIAL FOR SOMETHING BREAKING INCREASES." KAY JOINS US FOR MORE. DO YOU SEE SOMETHING BREAKING? KAY: NOT YET BUT LET'S THINK ABOUT WHAT WE HAVE SAID. WE HAVE HAD A BACKUP IN RATES FOR THREE REASONS. ECONOMIC RESILIENCE. A LOT OF SUPPLIED, BOTH GOVERNMENT AND CORPORATE, AND A LOT OF QUESTIONS ABOUT THE FED REACTION FUNCTION. MARKETS DO NOT LIKE UNCERTAINTY. WE HAVE HAD UNCERTAINTY ABOUT THREE CRITICAL THINGS. WE HAVE HAD SOME COMFORT IN THE LAST FEW DAYS, SOME OF THE ECONOMIC DATA HAS BEEN SOFTER. NOT SOFT ENOUGH TO WORRY ABOUT A RECESSION, BUT SOME SENSE IT MAY BE INFLATION IS SETTLING DOWN A LITTLE BIT. EVEN OVERNIGHT OR EARLY THIS MORNING WE HAVE HAD SOME CLARITY ON THE FED REACTION FUNCTION. SUPPLY CONTINUES TO BE A PROBLEM. THE PRIOR GAS TO REFER TO SOME OF THAT AS WELL. JONATHAN: IT HAS NOT BEEN THE BRAKES ON ISSUANCE. IF WE BELIEVE WE HAD THE POINT OF MAXIMUM PAIN I WOULD EXPECT COMPANIES TO BACK AWAY AND CENTRAL BANKS TO STEP IN. WE ARE NOT SEEING THAT YET. WHY SHOULD WE BELIEVE WE HAVE HIT THE POINT OF MAXIMUM PAIN? KAY: FIRST OFF, COMPANIES ARE COMING TO THE BOND MARKET TO FINANCE BECAUSE THEY HAVE A PRODUCTIVE USE FOR THAT CAPITAL. THAT IS WHAT IS INTERESTING ABOUT THE CYCLE. IF YOU TAKE ALL OF THE HYPERSCALER COMPANIES THEY'VE BEEN AAA OR AA RELATED COMPANIES BECAUSE THEY GENERATE A TREMENDOUS AMOUNT OF FREE CASH FLOW HAVE NOT HAD ANY PRODUCTIVE USE FOR THE THEY HAVE BEEN BUYING BACK STOCK PAYING BACK DIVIDENDS AND NOW THEY HAVE PRODUCTIVE USE FOR CAPEX. WHEN PEOPLE TALK ABOUT DECLINING CREDIT QUALITY I DO NOT SEE A HUGE PROBLEM AND EITHER. INDUSTRIAL CORPORATE AMERICA HAS GONE FROM AAA COMPANIES TO A OR BBB. IT IS LIKELY YOU WILL SEE A SIMILAR TREND IN AI HYPERSCALER TYPE COMPANIES. WHAT THE MARKET HAS NOT WORRIED ABOUT IS WHEN WE GET A RETURN ON THAT AND WHO WILL PAY FOR IT? IS IT CORPORATE MARGINS. IS THAT THE LABOR MARKET AND WE WILL BE REPLACED BY AI AGENTS OR BOTS OR IS IT PROFITABILITY OR MARGINS? THAT IS WHERE WE ARE. LISA: WE ARE STILL TALKING ABOUT PRODUCTIVITY. WE ARE NOT TALKING ABOUT A PRODUCTIVE USE OF CAPITAL FOR THE SOVEREIGN SPIRIT SOMETHING ED YARDENI WAS TALKING ABOUT IS THE BORROWERS ARE THE NEW SOVEREIGN ISSUERS AND PEOPLE ARE PREFERRING TO HOLD THAT DEBT AHEAD OF POTENTIAL SOVEREIGN DEBT. YOU SEE THAT TAKING PLACE? KAY: IN SUMMER 1998 I WAS AN EMERGING CORPORATE CREDIT ANALYST AND THAT WAS A BIG TOPIC OF CAN CORPORATE CREDIT PEER THROUGH THE SOVEREIGN RATING IN TRADE INSIDE OF IT. THIS MORNING I SAW 30% OF FRENCH CORPORATE'S ARE TRADING INSIDE OF THE SOVEREIGN. I LEARNED IT ON BLOOMBERG. YOU SHOULD READ BLOOMBERG. WE HAVE 38% OF THE CORPORATE'S TRADING INSIDE THE SOVEREIGN. AT THE END OF THE DAY AS BOND INVESTORS WE NEED TO GET PAID BACK AND SOME OF THE SELLOFF WE ARE SEEING IN FRANCE IS A FUNCTION OF THE REALITY OF WHAT THE DEBT LOOKS LIKE. GERMANY IS A AAA RATED SOVEREIGN. FRANCE NOT SO MUCH. IF YOU LOOK AT THE UNDERLYING CREDIT METRICS THAT ALMOST LOOKS GENEROUS IN THAT REGARD. THE FLIPSIDE IN TERMS OF ALL OF THE SUPPLY IS WE CAN BE CHOOSY. IN A WORLD WHERE RATES ARE VERY LOW AND PEOPLE ARE SIMPLY STRETCHING FOR YIELD THEY MAY BE MORE INDISCRIMINATE ABOUT CREDIT AND HIGHER YIELDS AND SUPPLY ARE GIVING US THE OPPORTUNITY TO SAY WHERE DO WE FIND VALUE? LISA: THERE IS A SPECULATION THAT PEOPLE CAN ANALYZE THE CORPORATE ISSUANCE MORE THAN THE SOVEREIGN ISSUANCE. WE WERE TALKING ABOUT THE UNCERTAINTY PREMIUM GETTING HIGHER AND HIGHER. THE DEFICIT QUESTION AND A HOST OF OTHER QUESTIONS. WITHOUT THAT UNCERTAINTY GAP CLOSING, CAN YOU SEE YIELDS CONTINUING TO RISE SUBSTANTIALLY? KAY: WE THINK IN TERMS OF FUNDAMENTALS, QUANTITATIVE'S AND TECHNICALS. ECONOMIC RESILIENCE HAS BEEN ONE OF THE REASON RATES HAVE GONE HIGHER. AS A U.S. CITIZEN PRODUCTIVE USES OF CAPITAL, HIGHER YIELDS, THIS IS NOT NECESSARILY A BAD THING. THE LAST 18 YEARS HAS BEEN AN ENVIRONMENT FOR BORROWERS. WE ARE MOVING INTO AN ENVIRONMENT WHERE RETIREES AND PENSIONS CAN GET INCOME OFF OF FIXED INCOME. YOU HAVE TO BE MORE DISCRIMINATING AND HOW THAT CAPITAL IS USED. THAT IS WHAT HAS TO BE LOOKED AT. THAT IS A FUNDAMENTAL SIDE. QUANTITATIVE, WE HAVE HAD THE DEBATES, YIELDS ARE ATTRACTIVE. THEN YOU HAVE THE TECHNICAL SIDE. ON THE QUANTITATIVE SIDE YOU MENTIONED WHAT STOPS US. JOHN MENTIONED LOOKED AT YESTERDAY'S TREASURY AUCTION. YOU HAVE STRONG UNDERLYING DEMAND YOU GET TO 5.3, 5.53 6040 PORTFOLIO MAYBE THAT WORKS. THE MARKET HAS BEEN VERY TECHNICAL DRIVEN. PEOPLE TALK ABOUT MOMENTUM AND MEME STOCKS, NOT AS MUCH IN THE FIXED INCOME MARKET. YOU HAVE A VERY ONE-WAY NEGATIVE TECHNICAL GIVEN THE UNCERTAINTY YOU JUST DESCRIBED AND THEN SOME OF THAT SELLING FEEDS ON ITSELF BECAUSE YOU HAVE CONVEXITY SELLING. YOU HAVE EXTENSION RISKS ON MORTGAGES. IT IS NOT EXACTLY FELT LIKE -- ON TOP OF THAT WE HAVE NOT DISCUSSED OIL. ENERGY PRICES HAVE BEEN ONE MORE THING. IT HAS BEEN A ONE-WAY. THE BACKUP IN YIELDS HAS BEEN PRETTY EXTRAORDINARY. WE HAVE STEPPED IN, WE HAVE BEEN NIBBLING ON DURATION THE OTHER THING FROM A TECHNICAL PERSPECTIVE AS WE HAVE SEEN SUBSTANTIAL FLOWS INTO FIXED INCOME. WE ARE STILL SEEING THEM DAILY. JONATHAN: WE HAVE 20 SECONDS LEFT. DID YOU CALL THE 30 YEAR BOND A MEME STOCK. KAY: THAT IS NOT WHAT I SAID. JONATHAN: DON'T WANT TO MISQUOTE YOU FOR THE REST OF THIS MORNING. LIVE FROM NEW YORK, THE SECOND HOUR BLOOMBERG SURVEILLANCE IS UP NEXT. ♪ >> THERE IS A LOT OF PATIENCE AMONG INVESTORS, A LOT OF ENTHUSIASM ON THE EQUITY SIDE. >> WE ARE ALSO IN A FIERCE BULL MARKET. >> DOMINANCE OF A LARGE CAP TECH COMPANIES. >> INVESTORS ARE FEELING COMFORTABLE GIVING MORE CAPITAL TO THESE HYPERSCALERS. >> WE ARE STILL ON THE RISING SIDE OF THIS BOOM. >> THIS IS "BLOOMBERG SURVEILLANCE" WITH JONATHAN FERRO, LISA ABRAMOWICZ, AND ANNMARIE HORDERN. JONATHAN: LIVE FROM NEW YORK CITY THIS MORNING, GOOD MORNING. GOOD MORNING. THE SECOND HOUR OF "BLOOMBERG SURVEILLANCE" STARTS RIGHT NOW. BUILDING ON LOSSES FROM YESTERDAY'S SESSION, PULLING BACK FROM ALL-TIME HIGHS. NEGATIVE BY 0.6% ON THE S&P. BOND MARKET SCRIPTING HIGHER, HIGHER BY SIX BASIS POINTS ON 10S. 5.35 ON 30S. WTI AND BRENT MUCH HIGHER TODAY. 105 ON BRENT, A MOVE OF 5%, STRIKES IN SAUDI ARABIA, PROSPECT OF STRIKE BEFORE THE MIDTERMS. DATA THIS MORNING, 90 MINUTES AWAY, JOBLESS CLAIMS. LATER THIS AFTERNOON, ANOTHER TEST FOR THIS BOND MARKET, AND AUCTION OF 30 YEAR BONDS. LISA: SUCH AND COMFORTABLE DYNAMIC, AND I CANNOT GET OVER IT, THIS IDEA THAT AS YIELDS START SPIKING, TO GET CONCERNED ABOUT SOVEREIGN DEBT ISSUES AROUND THE WORLD. NORMALLY, THAT WOULD TORPEDO ECONOMIC GROWTH, BUT WE ARE SEEING IT ONLY ESCALATE IN CERTAIN CORNERS AS AI-RELATED NAMES CONTINUE TO BORROW MONEY. ULTIMATELY, WE ARE AT THIS POINT IN A FRAUD MOMENT. WHAT IS GOING TO WIN OUT? CONCERNED ABOUT FISCAL PROFLIGACY FOR MANY YEARS. ANNMARIE: WHEN IT COMES TO THE OIL MARKET, YOU CANNOT FIGHT THE FACT THAT IRANIANS INCREASING THE ATTACKS, THE HOUTHIS ALSO STUCK UP THEIR STRIKES AGAINST SAUDI ARABIA, GOING AFTER AIRPORTS. AT THE SAME TIME, THERE IS A REPORT THE PRESIDENT IS WEIGHING AN OPTION TO STRIKE YET AGAIN BEFORE THE MIDTERM ELECTION. ALL OF THIS MEANS A MUCH HIGHER GEOPOLITICAL RISK PREMIUM AND THE PRICE. JONATHAN: THIS HAS BEEN GOING ON FOR SEVEN MONTHS, ALWAYS A RISK TO BECOMING THE SENSITIZED TO WHAT IS HAPPENING. SAUDI ARABIA, 12 MONTH AGO, IF WE SAID THESE WOULD BE HAPPENING IN THE MIDDLE EAST, STRIKES ON THE SAUDI AIRPORT, PEOPLE DYING FROM THEM, AND THAT IS BARELY A STORY THAT WE HAVE SEEN THIS MORNING. ANNMARIE: YOU SEE CIVILIAN INFRASTRUCTURE HIT IN THE UAE, BIGGER MOVES IN OIL PRICE, AND TO YOUR POINT, THE MARKET HAS BECOME A LITTLE BIT NUMB. 105 IS BIGGER THAN YESTERDAY, BUT YOU WOULD EXPECT MORE. THAT IS BECAUSE THERE IS ALWAYS THIS POTENTIAL OPTION THAT THE PRESIDENT WILL WANT TO DE-ESCALATE AHEAD OF THE MIDTERM ELECTIONS. JONATHAN: WE MENTION WHAT IS HAPPENING WITH TREASURIES, LOOK AT WHAT IS HAPPENING WITH FRANCE. FRENCH DEBT YIELDS HIGHER, 1.40 PLUS THIS MORNING. YIELDS UP ON THE SESSION BY ANOTHER EIGHT BASIS POINTS. LISA: HOW MUCH OF THIS IS FRANCE'S DEFICIT COMING HOME TO ROOST IN A WAY THAT THE BOND VIGILANTES ARE LOOKING TO CIRCLE, HOW MUCH OF THIS IS A SIGN OF INFLATION RISING FOR THE WRONG REASONS, LONGER-TERM CONTRACTS OF OIL ALSO RISING TO THE HIGHS IN THIS RECENT CYCLE, AT THE SAME TIME, HUGE HANGOVER OF DEBT. IS THIS OTHER NATIONS PROBLEM OR IS THIS A FRANCE PROBLEM? JONATHAN: K HER WAS TALKING ABOUT HOW MUCH OF THE FRENCH DEBT WAS TRADING WITHIN THE SOVEREIGNS THIS MORNING. THEY ARE FAR MORE NATURE. GLOBAL CORPORATE AMERICA RIGHT NOW, GLOBAL CORPORATE'S DOING BETTER THAN GOOD. YOU SEE THAT IN CREDIT SPREADS OVER ALL, STILL PRETTY TIGHT RELATIVE TO HISTORICAL LEVELS, BUT THERE IS PUSHBACK EMERGING. WE SAW IT FROM SPACEX YESTERDAY, COMING TO MARKET POTENTIALLY. JUST THE POTENTIAL PUSHING SPREADS WIDER. YOU HAVE TO ASK THE QUESTION HOW MUCH THE FED IS WILLING TO PUSH THINGS TO GET THAT PART OF THE ECONOMY TO SLOW DOWN. THAT IS THE ULTIMATE QUESTION FOR THEM. LISA: HOW MUCH DOES THIS COST CONCERNED ABOUT CREDIT WORTHINESS? IF YOU ARE EATING LOBSTER AND CAVIAR AND THEY WANT TO BRING UP THIS INCREDIBLE BAKED ALASKA AND IT LOOKS GREAT, YOU DON'T HAVE ANY ROOM LEFT AND YOU FEEL SICK, THAT IS WHAT PEOPLE ARE DEALING WITH. INDIGESTION AFTER EATING ALL OF THIS DEBT. JONATHAN: ARE YOU HUNGRY? LISA: I STARTED ON IT, I COULD NOT STOP. JONATHAN: BRAMO SKIPPED BREAKFAST AND STARTED TO LIST ALL THE THINGS THAT SHE WANTS. COMING UP THIS HOUR, BARBARA REINHARD A VOYA INVESTMENT MANAGEMENT WITH STOCKS PULLING BACK FROM RECORD HIGHS. DALEEP SINGH SAYING THAT 5% MAY BE THE FAIR VALUE FOR 10 YEAR BOND YIELDS. WE BEGIN THIS ERROR WITH STOCKS ADDING TO LOSSES AS THE RECORD-BREAKING RALLY LOSES 16. BARBARA REINHARD STILL SEEING REASON FOR OPTIMISM, WRITING THE HEADLINES FEEL NOISY BUT THE UNDERLYING QUANTITATIVE SIGNALS ARE MORE CONSTRUCTIVE THAN MANY INVESTORS APPRECIATE. BARBARA, GOOD MORNING. CAN YOU TELL US WHERE YOU THINK PEOPLE ARE MISSING WHAT'S HAPPENING RIGHT NOW? BARBARA: EARNINGS REVISIONS ACROSS THE GLOBE ARE STRONG, STRONGEST IN JAPAN AND THE U.S., BUT STILL PRETTY POSITIVE ACROSS THE BOARD COME EVEN WITH FRANCE'S ISSUES. GLOBAL NEWS FLOW TENDS TO BE POSITIVE. WHILE WE HAVE NEVER BREDTH OF THE MARKET, WE ARE LOOKING TO HAVE THAT RESOLVED BEFORE THE END OF THE YEAR. IF WE COULD GET THAT TO WE BROUGHT IT OUT, THAT WOULD BE THE TRIFECTA. JONATHAN: HOW DOES IT RESOLVE ITSELF? BARBARA: WHEN BOND YIELDS STARTING TO TOP OUT, WHICH THERE IS A PATH TO DO SO. I DON'T WANT TO CALL THE TOP OF THE BOND MARKET, BUT YOU CAN SEE THERE ARE MEASURES OF INFLATION, THE NEW YORK FEDERAL RESERVE HAS ONE ROLLING OVER, SOME OF OUR INDICATORS ON INFLATION AREN'T ALSO STARTING TO CREST AT THIS POINT. THERE IS A PATH THAT THERE IS ENOUGH IN THE PIPELINE THAT BOND YIELDS HAVE RISEN, IT WILL SLOW ECONOMIC GROWTH ENOUGH, IT WILL BRING INFLATION UNDER CONTROL, WHICH MEANS THE FED MAY NOT HAVE TO DO AS MUCH. THAT WOULD BE A GREAT OUTCOME FOR THE EQUITY MARKET. LISA: ANY KIND OF BROADENING OR ONGOING STRENGTH IN THE EQUITY MARKET IS PREDICATED ON STRENGTH OF TOPPING OUT IN YIELDS, IS THAT A GOOD WAY TO CHARACTERIZE THIS? BARBARA: HE HAD TO HAVE THIS WEIGHED BETWEEN BOND YIELDS AND INFLATION TO BREAK AT SOME POINT, IN TERMS OF INFLATION STARTING TO ROLL OVER. THE NEW YORK FED HAS A MEASURE OF INFLATION THAT TAKES OUT A LOT OF NOISE, SUBJECT TO REVISIONS, BUT IT IS STARTING TO ROLL OVER. EVEN THE MEASURES THAT WARSH IS LOOKING AT, THEY ARE STARTING TO SHOW THAT AT LEAST THE BIRTH OF THE MEASURES ARE STARTING TO ROLL OVER. THAT IS ALL YOU NEED, A FUNDAMENTAL CHANGE AT THE MARGIN TO GET THE PRESSURE OFF THE BOND MARKET. THAT COULD BE A BIG RELIEF ESPECIALLY TO PARTS OF THE EQUITY MARKET THAT HAVE BEEN IN MORE TROUBLE LIKE U.S. SMALL CAPS,CCCS. LISA: THE PROBLEM IS BOND YIELDS ARE NOT JUST GOING UP IN RESPONSE TO INFLATION, THEY ARE ALSO GOING UP IN RESPONSE TO A GLUT OF ISSUANCE, THE LATEST COMING OUT WITH TENS OF BILLIONS OF DEBT OFFERINGS. AT WHAT POINT IS THIS A REFERENDUM ON WHICH CREDIT INVESTORS WOULD LIKE TO BUY, AND DOES IT SPEAK TO THE FED'S TRAJECTORY OR THE PATH OF INFLATION? BARBARA: THE BIGGER ISSUE THAT WE HAVE DISCUSSED IS THAT INFLATION IS THE BIGGER WAIT FOR THE BOND MARKET AT THIS POINT. INVESTORS CAN CHOOSE TO BUY OR NOT BUY NEW ISSUANCE COMING. THE COMPANY THAT ARE COMING, A LOT OF THEM HAVE VERY GOOD CASH FLOW PIPELINES BEHIND THEM. IT IS THE INFLATION STORY, ESPECIALLY SINCE THE FEDERAL RESERVE HAS CHANGED SOME OF ITS MESSAGING, MESSAGING LESS, THE BOND MARKET HAS BECOME UNCOMFORTABLE WITH IT. THEY ARE SAYING WE NEED MORE GUIDANCE. THAT WILL BE AN IMPORTANT PIECE FOR THE FED TO DELIVER. ANNMARIE: IF OIL CONTINUES TO GRIND, WILL BE SEE A BACKUP IN RATES? BARBARA: LET ME LOOK AT CONSUMER CONFIDENCE, THERE ARE MEASURES THAT SAY, ARE CONSUMERS EXPECTING RATES TO GO HIGHER? THEY ARE, AT THIS POINT, AND THAT IS USUALLY A CONTRARIAN SIGNAL THAT RATES. S MUST START TOPPING OUT. IF YOU CAN GET GET SOME SEMBLANCE OF A TAMPING DOWN IN THE MIDDLE EAST, THAT COULD BE A VERY POSITIVE SIGN FOR THE BOND MARKET. JONATHAN: NEW YORK FED SURVEY SEEM PRETTY HAWKISH TO ME. BARBARA: IF YOU LOOK AT THE ONE HAVING YOUR FORWARD NUMBERS, THEY LOOK LIKE THEY ARE CRESTING. THAT IS WHAT YOU WANT TO LOOK AT. JONATHAN: LOOKING AT THE SHORT-TERM EXPECTATIONS, THE HIGHEST FROM MAY 2023. BARBARA: THAT IS ONE SURVEY TO TAKE A LOOK AT. JONATHAN: I LIKE THIS ONE. BARBARA: I KNOW WE WANT TO DEBATE THE DATA AT THIS POINT, BUT ALSO LOOK AT THE COMPONENTS OF PERSONAL CONSUMPTION INDICATORS. THAT IS STARTING TO GET ON A LOWER LEVEL THAN IT HAS BEEN THREE MONTHS AGO. JONATHAN: I AM GOING TO STOP. CARRY ON. BARBARA: YOU HAVE TO TAKE A LOOK AT THE TOTALITY OF THE DATA. IT HAS TO SAYING COME IS THE FUNDAMENTAL CHANGE AT THE MARGIN STARTING TO CREST? I THINK THE REAL ISSUE IS, CAN YOU SEE SOME OF THAT IMPROVE ON THE DATA? WALLER THINKS IT CAN BE. THAT WOULD BE A MUCH BETTER FOR BREADTH, THE NARROWNESS OF THE MARKET, TO BROUGHT IT OUT ONCE AGAIN. JONATHAN: THANK YOU. YIELDS HIGHER BY SIX OR SEVEN BASIS POINTS THIS MORNING. LET'S GET AN UPDATE ON NEWS WORLDWIDE THIS MORNING. VONNIE QUINN HAS MORE. VONNIE: PRESIDENT TRUMP HOLDING A RALLY IN TEXAS LAST NIGHT HOPING TO BOOST KEN PAXTON AHEAD OF THE MIDTERMS. HE IS IN A CLOSE RACE WITH DEMOCRAT JAMES TALARICO. RECENT POLLS SHOW TALARICO WITH A NARROW ADVANTAGE IN WHAT HAS BEEN A RELIABLY RED STATE. BROADCOM IS LOOKING FOR FUNDS TO HELP OPENAI PURCHASE CUSTOM CHIPS. THE WALL STREET JOURNAL REPORTING APOLLO AND BLACKSTONE ARE AMONG THE LENDERS WORK TO ARRANGE MORE THAN $50 BILLION. THE MOVE IS PART OF A RECENT SURGE IN DEALS TO PAY FOR AI INFRASTRUCTURE. IN SPORTS, AND OCTOBER HEARTBREAK IN THE BRONX. THE NEW YORK YANKEES HAVE BEEN ELIMINATED FROM THE POSTSEASON. A CONTROVERSIAL FAN INTERFERENCE CALL INVOLVED IN THE LATE RALLY. THIS'LL BE THE 17TH YEAR THE YANKEES FAILED TO WIN THE WORLD SERIES. JONATHAN: WE ARE PRETENDING IT DIDN'T HAPPEN. ANNMARIE: TODAY STINKS. THANK YOU FOR PEOPLE LIKE MOHAMED EL-ERIAN RUBBING SALT IN THE WOUND. JONATHAN: METS FAN AND JETS FAN, WHAT'S ON THE SEA INTO ANYONE'S WOUNDS? COMING UP, THE PRESIDENT'S INTEREST-RATE AGENDA. >> YOU HAVE A BOY THAT WANT TO SEE THE COUNTRY DO BADLY. OUR INTEREST RATES SHOULD BE THE LOWEST. WE SHOULD BE LOWER THAN ANY OTHER COUNTRY. JONATHAN: COMING UP, DALEEP SINGH. FROM NEW YORK CITY, GOOD MORNING. ♪ JONATHAN: SESSION LOWS COMING DOWN 0.6 ON THE S&P 500. ON THE NASDAQ THIS MORNING, DOWN 0.8. EQUITY MARKET BUILDING ON THIS. 2S, 10S, 30S. THE BORROWING CONTINUES FROM THE TREASURY. SOME 30-YEAR ISSUES LATER. YOU GET EXTRA SUPPLY FROM ELSEWHERE. THAT EXTRA SUPPLY IS UNPREDICTABLE, AND EVERY SINGLE MORNING, AND EXTRA COMPANY REPORTING IN A JOURNAL OR FT LOOKING AT RAISING SOME SERIOUS MONEY TO FUND THIS BUILDOUT. LISA: THE ORACLE AND THE SPACEX DEBT IS POSING ISSUES FOR THE 30 YEAR OPERATING FROM THE UNITED STATES GOVERNMENT. HOW MUCH OF THIS IS A COMPETITION FOR CAPITAL? IT ONLY ADDS TO AN OTHERWISE INFLATIONARY MOMENT WITH OIL AND THIS QUESTION AROUND FISCAL SUSTAINABILITY. JONATHAN: UGLY HEADLINE YESTERDAY. THE MESSAGE TO VOTERS TO SEE MORTGAGE RATES, 7.5% ON A 30-YEAR FIXED, NOT A GOOD HEADLINE. ANNMARIE: TOP OF RECORD DIESEL PRICES, NORTH OF FOUR DOLLARS GASOLINE. NOT THE ECONOMIC AGENDA YOU WANT GOING INTO THIS MIDTERM ELECTION, ESPECIALLY WHEN YOU CAMPAIGNED ON AFFORDABILITY, AND NOT ONLY THAT, PROMISED MORTGAGE RATES WOULD COME DOWN TO 3% OR LOWER, THE PRESIDENT SAID. JONATHAN: UNDER SURVEILLANCE OF MORNING, THE PRESIDENT'S INTEREST-RATE AGENDA. >> YOU HAVE A BOARD THAT WANT TO SEE THE COUNTRY DO BADLY. INTEREST RATES SHOULD COME DOWN. WE HAVE A COUNTRY THAT MAKES OTHER COUNTRIES VERY RICH. IF WE DIDN'T MAKE THEM RICH, WE WOULD HAVE A COUNTRY THAT IS THE GREATEST AAA CREDIT IN HISTORY. OUR INTEREST RATE SHOULD BE THE LOWEST. JONATHAN: THE PRESIDENT DONALD TRUMP ONCE AGAIN CALLING FOR LOWER RATES WITH ENERGY COSTS AND MORTGAGE RATES CLIMBING GOING INTO THE MIDTERM ELECTIONS. TYLER KENDALL HAS MORE. TYLER: THE WHITE HOUSE US TO WALK THAT FINE LINE BETWEEN PROMOTING STRONG GROWTH WITHOUT APPEARING TO DISMISS AMERICAN CONCERNS AND FRUSTRATIONS WITH HIGHER COST OF LIVING. A NEW PULLOUT FROM THE ASSOCIATED PRESS SHOWS THE APPROVAL RATING A PRESIDENT TRUMP'S HANDLING OF THE ECONOMY HAS HIT A NEW LOW OF 17%. THE BOND MARKET IS COMPLICATED THERE AFFORDABILITY PUSH AS HIGHER BORROWING COSTS FEED THROUGH TO THE BROADER ECONOMY. THE CONTRACT RATE ON A 30 YEAR FIXED MORTGAGE IS UP HALF A PERCENT IN THE LAST THREE WEEKS ALONE, THE FASTEST INCREASE SINCE 2023. WE ARE THE U.S. TREASURY SECRETARY SCOTT BESSENT YESTERDAY ARGUED THAT HIGHER YIELDS ARE BEING FUELED BY THESE HIGHER OIL PRICES AND THE CONFLICT IN IRAN IS MASKING UNDERLYING STRENGTH. BUT THE OUTLOOK FOR THAT SEEMS POINTED TOWARD ESCALATION POTENTIALLY. ON THE REPORT THAT PRESIDENT TRUMP IS POTENTIALLY PREPARING TO STRIKE A RUN BEFORE THE MIDTERMS, REPORTS OF UPTICKS OF ATTACKS IN THE STRAIT OF HORMUZ, AND WHO THESE HITTING TWO SAUDI ARABIA AIRPORTS OVERNIGHT. JONATHAN: NOT A GREAT DEVELOPMENT. THANK YOU, TYLER. DALEEP SINGH, CHIEF GLOBAL ECONOMIST AT PGIM WRITING, THERE ARE A GOOD REASON TO BELIEVE 5% IS IN THE BALLPARK OF FAIR VALUE FOR 10-YEAR TREASURY YIELDS. GOOD MORNING. DO YOU THINK WE NEED TO GET COMFORTABLE WITH THE UNCOMFORTABLE? DALEEP: IT IS ALREADY UNCOMFORTABLE AND PROBABLY WILL GET MORE UNCOMFORTABLE FROM HERE. I'M ESPECIALLY DISTRESSED BY WHAT I SEE IN FRANCE EVERY DAY BUT IT IS NOT THE ONLY STORY. JONATHAN: DISTRESSED IS A STRONG WORD. DALEEP: THE BOND MARKET IS SAYING WE ARE OUT OF PATIENCE WITH THIS MODEL OF LOW GROWTH, LARGE DEFICITS, FRANCE HAS NOT BALANCED ITS BUDGET IN 50 YEARS, AND A GENEROUS SOCIAL WELFARE PROGRAM. I'M NOT SURPRISED TO SEE NOMINAL BORROWING COSTS BREAKING ABOVE NOMINAL GDP. DISTRESS IS A STRONG WORD, THIS IS NOT A FUNDING CRISIS. FRANCE'S AVERAGE MATURITY ON A PUBLIC DEBT IS 8.5 YEARS. THE OVERWHELMING MAJORITY OF ITS DEBT STOCK IS FIXED. YOU ARE SEEING VIOLENT RIDERS IN THE STREET DEMANDING AN END TO AUSTERITY. IT HASN'T EVEN BEGUN. WHAT I'M HEARING FROM THE FAR LEFT IN THE FAR RIGHT ARE PROMISES THAT DON'T PASS MY OWN SNIFF TEST OF CREDIBILITY. LISA: IS FRANCE AN IDIOSYNCRATIC MOMENT, OR A SYMPTOM OF WHAT IS HAPPENING RIGHT NOW? DALEEP: IT'S A MORE INTENSE VERSION OF WHAT WE ARE SEEING ACROSS THE WESTERN WORLD. TAKE THE U.S., FOR EXAMPLE. I'M ALSO DISAPPOINTED TO HEAR THE FED SOUNDING AN UNCERTAIN TRUMPET. THERE IS NO URGENCY TO RAISE INTEREST RATES, LET'S WAIT AND SEE HOW THE ECONOMY EVOLVES. INSTEAD, I THINK WE NEED TO HEAR MORE FED OFFICIALS CONVINCINGLY SAYING, WE ARE IN A TOTALLY DIFFERENT STRUCTURAL REGIME. INVESTMENT IS RISING ABOVE SAVINGS. DEFICITS ARE NOT COMING DOWN ANYTIME SOON. WE ARE IN THIS CAPEX RACE. THE NEUTRAL RATE IS RISING. POLICY RATES ARE NOT RESTRICTIVE. WE HAVE WORK TO DO COME AND WE DON'T NEED NEXT WEEK'S CPI PRINTED TELL US THAT. THIS IS A COUNTRY THAT EVERY COUNTRY IS DEALING WITH TWO BEARING DEGREES. THE GOOD NEWS IS, WE ARE GROWING. FRANCE DOESN'T. LISA: ARE YOU INVESTING MORE HEAVILY INTO THE U.S. BECAUSE OF HOW THIS COULD AFFECT POLITICALLY THE ENTIRE REGION? DALEEP: IF YOU ARE IN THE INVESTMENT WORLD, YOU HAVE TO PICK YOUR SPOTS EVERYWHERE. IN THE U.S., THE BELLY OF THE CURVE IS STILL THE PLACE TO HANG OUT IN GOVERNMENT BONDS BECAUSE YOU ARE NOT ABSORBING THE FULL RISK OF FISCAL INFLATION AND TERM PREMIUM. YOU ARE EARNING ENOUGH INCOME TO GET AN EXTENDED RATE HIKE RISE. IF GROWTH SLOWS, YOU GET CAPITAL APPRECIATION. IN FRENCH GOVERNMENT BONDS, CONDITIONS HAVE TO GET MUCH WORSE TO CRYSTALLIZE POLITICAL FOCUS. THERE WILL NOT BE A POLITICAL APPETITE TO DO THE RIGHT THING. SO I WOULD WAIT BEFORE YOU ENTER THEIR. ANNMARIE: WEAK GROWTH IN EUROPE IS NOT NEW. THE FRUSTRATIONS I'M HEARING FROM YOU, I HEARD THEM FROM YOU WHEN YOU WORK AT THE WHITE HOUSE , BUT YOU ACTUALLY SIT ACROSS SOME OF THESE CHARACTERS RUNNING PARTS OF EUROPE TODAY. WHAT IS THEIR RESPONSE? DALEEP: I THINK THEY ARE SLOW TO UNDERSTAND THAT WE ARE IN A DIFFERENT INTEREST-RATE ENVIRONMENT. THE MARKET WILL NOT UNDERWRITE CHEAP DEBT WITH THE POLITICAL AND ECONOMIC MODELS THEY HAVE CHOSEN. THAT IS THE FORCING FUNCTION. OVER THE PAST 20, 30 YEARS, POLITICIANS WERE NUMB TO THE REALITIES THAT MARKETS ARE NOW FORCING THEM TO FACE. THAT IS WHAT'S CHANGED. ANNMARIE: WHEN YOU LOOK AT EUROPE, WHEN IT COMES TO THEM BEING BEHIND, THEY HAVE ALSO BEEN BEHIND IN TERMS OF LETTING CHINESE MANUFACTURERS COME IN, TO MAKE SURE THEY HAVE THE GROWTH IN EUROPE CANNOT BE HOLLOWED OUT BY CHINA. ABIDE IN AND TRUMP ADMINISTRATION AGREE ON THIS. NEITHER MONT BYD CARS IN THE UNITED STATES. EUROPE IS 10 YEARS BEHIND. AGAIN, WHY? THE SAME WARNINGS THAT BOTH ADMINISTRATIONS GAVE TO EUROPE. DALEEP: THE PROBLEM CENTER ON GERMANY. CORPORATIONS ARE IN CHARGE OF ECONOMIC POLICY. THEY DON'T REALIZE THAT IN SUPPLY CHAIN AFTER SUPPLY CHAIN, SHIPS, CARS, DRONES, CHEMICALS, MACHINE TOOLS, CHINA IS EATING GERMANY'S LUNCH. THERE HAS TO BE A COMBINATION OF INDUSTRIAL POLICY TO BOOST CAPACITY IN THESE SECTORS BUT ALSO THERE WILL NEED TO BE A NEED FOR TARIFFS WITH COMPANIES PLANED BY A DIFFERENT SET OF RULES. WE TRIED TO MAKE THAT ARGUMENT, WE MADE INCREMENTAL PROGRESS. I THINK GERMANY IS BELATEDLY REALIZING IT HAS TO ACT NOW. JONATHAN: WHAT DO YOU THINK ACTING LOOKS LIKE, WHAT KIND OF CHANGES ARE YOU ANTICIPATING? DALEEP: I'M NOT ANTICIPATING DRAMATIC CHANGES BECAUSE OF WHAT I JUST SAID IS NOT SHARED BY MOST GERMAN LEADERS. THERE ARE OTHERS ON THE CONTINENT, ESPECIALLY IN BRUSSELS, WHO WANT TO PUSH A MORE FORCEFUL AGENDA. IT WOULD BE ALONG THE LINES OF WHAT WE PUSHED IN THE BIDEN ADMINISTRATION. WE ARE GOING TO INVEST HUNDREDS OF BILLIONS OF DOLLARS SO WE CAN RUN FASTER. FOR COUNTRIES PLAYING BY DIFFERENT SET OF RULES, WE NEED TO RAISE PROTECTIVE BARRIERS, AND WE ARE GOING TO WORK WITH COUNTRIES THAT ARE LIKE-MINDED TO SHARE IN EACH OTHER'S PRODUCTIVE CAPACITY. THAT IS THE WAY FORWARD. IT IS UNFORTUNATE THAT HERE WE ARE, FIVE YEARS LATER, HAVING THE SAME DEBATE. JONATHAN: I LOVE EUROPE, AS I'M SURE THAT YOU DO, TOO, BUT I HATE WHAT THE GOVERNMENT HAS BECOME, THEY ARE BEING SQUEEZED BY THE FAR LEFT AT THE FAR RIGHT. I DON'T SEE WHAT THE OPTIMAL OUTCOME OF THAT WILL BE IN THE FRENCH ELECTIONS NEXT SPRING. HOW DO YOU ENVISION THINGS PLAYING OUT? DALEEP: A LOT OF FOLKS ARE HOLDING ON TO HOPE THAT THERE IS A CENTRIST LAYING THAT EMERGES BETWEEN THE FAR LEFT AND RIGHT. I DON'T SEE GLOBAL POLITICS HEADING IN THAT DIRECTION. I ANTICIPATE THAT WHILE WE WILL HAVE MARINE LE PEN MAKE IT TO THE SECOND ROUND, THE ONLY QUESTION IS WHETHER MELANCON EMERGES OR IF IT IS ANOTHER CENTRIST CANDIDATE THAT THE OTHERS CAN COALESCE AROUND. JONATHAN: WE HAVE HAD A CENTRIST CANDIDATE FOR A DECADE AND HERE WE ARE. WHY IS THAT THE SOLUTION? DALEEP: THE CENTRISTS RIGHT NOW HAVE NO RULING MAJORITY IN PARLIAMENT. THEY CANNOT GET WHAT THEY NEED TO. THE REAL TEST IS, CAN YOU SELL, AS A POLITICIAN, THE TYPE OF POLICY MIX THAT IS NECESSARY TO PUT FRANCE ON A SUSTAINABLE FOOTING? FRANCE IS NEEDING TO GROW, THEY NEED MORE LABOR SUPPLY. THAT MEANS YOU CANNOT RETIRE AT 60 YEARS OLD. EVERY COUNTRY HAS ITS OWN OLIGOPOLIES. YOU HAVE TO BREAK THOSE UP. CAN YOU SELL THAT MESSAGE? MOST POLITICIANS TODAY CANNOT. JONATHAN: DO YOU THINK THE ECB LETS THIS RUN? DALEEP: THEY WILL HAVE TO MAINTAIN THEIR CREDIBILITY. THE ECB'S INSTRUMENTS ARE NOT MEANT TO BACK UP FISCAL PROFLIGACY. THEY ARE MEANT TO FUND SCARCE LIQUIDITY, DISORDERLY MARKET CONDITIONS. MARKETS ARE DOING WHAT THEY ARE SUPPOSED TO DO, REPRESSING FUNDAMENTALS, AND ITS ORDERLY. LET'S SAY THEY DID. PEOPLE ARE TALKING ABOUT SLOWING QT. THAT GROWS THE BALANCE SHEET, THAT EASES FINANCIAL CONDITIONS, WEAKENS THE EURO. THAT RAISES IMPORTANT INFLATION. YOU MIGHT REDUCE TERM PREMIUM ON ONE HAND CAN BUT YOU RAISE THE PATH OF SHORTHAND RATES ON THE OTHER. JONATHAN: JUST WONDERING HOW FAR YOU WANT TO TAKE THIS THIS MORNING. WE ALL SAW EUROPE 15 YEARS AGO. DO YOU SEE A REPEAT OF 2011 BUT A DIFFERENT STORY? DALEEP: ONE OF MY FIRST JOBS AT TREASURY WAS THE GREEK CRISIS. I'M AFRAID THE CONDITIONS THAT CREATED THE GREEK CRISIS AND THE EUROPEAN SOVEREIGN CRISIS MORE GENERALLY HAVE NOT GONE AWAY. YES, WE HAVE MORE CRISIS INSTRUMENTS. YES, THE UNION HAS BEEN FORGED THROUGH CRISIS INCREMENTALLY, BUT THERE ARE STILL EXISTENTIAL QUESTIONS THAT HAVE TO DO WITH POLITICS MORE THAN ANYTHING ELSE. JONATHAN: CLINIC, AS ALWAYS. LOTS AND LOTS OF QUESTIONS TO ANSWER, SOME UNCOMFORTABLE QUESTIONS FOR THIS BOND MARKET. LISA: WITHOUT A POLITICAL SOLUTION. THAT IS WHAT IT HAS TO BE. THE ECB IS BETWEEN A ROCK AND A HARD PLACE. THEY HAVE TO WATCH THIS BE BORNE OUT. I WONDER HOW SUSTAINABLE THIS ALL IS, THIS INTERNATIONALLY RESILIENT MARKET, WHILE YOU HAVE THESE POLITICAL CRISES ARE EMERGING. ANNMARIE: IF YOU THINK ABOUT A COUNTRY LIKE FRANCE -- PHILIPPE IS RIGHT. YOU HAVE PENSIONERS MAKING MORE THAN WORKING AGE INDIVIDUALS. AT THE SAME TIME, THEY HAVE THE RIGHT TO DISCONNECT THE LAW. IN THE AGE OF AI, HOW DO YOU GROW? JONATHAN: HE NAILED IT. UP NEXT, WINNIE CISAR OF CREDITSIGHTS. ♪ JONATHAN: LIVE FROM NEW YORK CITY THIS MORNING, GOOD MORNING. EQUITIES BELTS UP SESSION LOWS. EQUITY DONE BY HALF A PERCENT ON THE S&P, .75% ON THE NASDAQ 100. TENCENT 30S, YIELDS UP BY ABOUT FIVE BASIS POINTS. 5.71. 30 YEAR BONDS AND FOCUS THIS AFTERNOON. WE GET TO SUPPLY ON THE 30-YEAR SIDE OF THINGS. IT LOOKED BETTER THAN GOOD, OK TO ME. LOOKING AT THE 30-YEAR, YOU GET A REPEAT OF THAT, THAT MAY BRING SOME CONFIDENCE INTO THIS MARKET. THAT MOVE AT THE LONG END OF THE CURVE HAS FELT UNTETHERED AND WE ARE SEEING MORE REASON TO THINK THERE ARE CONDITIONS IN PLACE AT THE TWO THE RISING YIELDS, ONLY BUILDING. COMPANY AFTER COMPANY LOOKING TO RAISE CAPITAL TO FINANCE THE DEBT BUILDUP, CAPEX BUILD ON THAT IS FUELING THIS ECONOMY, LEADING TO RED-HOT GDP AND SUPPORTING RATES AT THESE LEVELS. LISA: THE UNCERTAINTY PREMIUM IS INCREDIBLY HIGH, AND MARKETS DON'T LIKE THE UNCERTAINTY. WHETHER IT IS THE ISSUANCE, INFLATION, POLICY RESPONSE. EVERY OPTION IS TURNING INTO A PRICE DISCOVERY MECHANISM. YESTERDAY'S WAS SUCCESSFUL WITH THE 10-YEAR WITH RECORD DEMAND. LET'S SEE IF THE 30-YEAR CAN REPEAT THIS BECAUSE IT DID NOT RESPOND TO THAT GOOD 10-YEAR OPTION. JONATHAN: IT HAS FELT UNTETHERED FOR QUITE A WHILE. THE DATA HAS BEEN SOFTER, DID NOT RALLY. CRUDE HAS COME IN COME UP AGAIN TODAY, BUT DIDN'T RALLY. REASON TO BELIEVE THE FED WOULD HIKE, AND AGAIN, WE DIDN'T GET A RALLY. IF YOU BRING UP THE YIELD CURVE, I CANNOT SAY THAT MAYBE THINGS ARE ANCHORED AT THE FRONT END. ONCE WE HAVE THAT RED-HOT PMI, THINGS SETTLED DOWN AT THE FRONT END OF THE CURVE. BANK OF AMERICA SAID YESTERDAY. IF THIS EQUITY DOES NOT HEIGHT, THE BOND YIELD WILL SPIKE. ULTIMATELY, AS PEOPLE THINK THE FED MAY WAIT, YOU ARE SEEING THE DRIFT OF THE LONG END OF THE CURVE. YOU SEE IT ON THE MARGIN AGAIN THIS MORNING. LISA: IF THE FED WERE TO TAKE A MESSAGE FROM THE MARKET, THEY ARE TELLING THEM YOU NEED TO HIKE POSSIBLY THREE MORE TIMES IN THE NEXT YEAR OR TWO. THEY ARE LOOKING AT ALL OF THESE DYNAMICS, NOT JUST INFLATION, NOT JUST OIL PRICES, BUT THE INCREDIBLE GLUT OF ISSUANCE WHERE SOME OF THE BUYERS ARE BACKING AWAY. THAT IS WHAT PEOPLE ARE SEEING IN THE 30-YEAR. JONATHAN: CRUDE IS UP TODAY. COMFORTABLY ABOUT 100. 105 AT THE MOMENT. WE TALKED ABOUT THE AMOUNT OF SUPPLY GOING THROUGH THE STRAIT OF HORMUZ, BUT IT IS GETTING MORE EXPENSIVE TO MOVE THAT SUPPLY, WHICH IS WHY PRICES WON'T DECLINE. ANNMARIE: IT'S GETTING MORE EXPENSIVE BECAUSE IRAN HAS INCREASE THEIR ATTACKS AS WELL IN RECENT DAYS. WE ARE WEEKS AWAY FROM THE MIDTERM ELECTIONS AND THE DRONES AND MISSILES HAVE NOT STOPPED THROUGH THE STRAIT OF HORMUZ. YOU ARE SEEING COMPANY TAKE ON MORE RISK TO GET THEIR PRODUCT THROUGH AND SPEND MORE ON INSURANCE. AT THE SAME TIME, TWO OTHER WRINKLES IN THE STORE THIS MORNING. THE PRESIDENT IS WEIGHING OPTIONS MAY BE TO GO AFTER IRAN ONCE AGAIN BEFORE THE MIDTERMS. ON TOP OF THAT, THE HOUTHIS HITTING TWO SAUDI AIRPORTS AND KILLING THREE INDIVIDUALS. IT IS GOING IN THE WRONG DIRECTION. JONATHAN: FOR THE SAUDI'S, TOO. IT LOOKS LIKE THERE WAS SOME POSITIVE DEVELOPMENTS ON THAT FRONT FOR THEM EARLY IN THE WEEK, BUT HERE WE ARE ON THURSDAY, THINGS ARE LOOKING BAD AGAIN. ANNMARIE: THE HOUTHIS STEPPING UP THEIR ATTACKS AND SAUDI ARABIA LOOKING INTO THE POTENTIAL THAT THIS IS THE NEW NORMAL, GOLD PRODUCER TRYING TO DO WHAT THEY CAN, LOOKING AT OTHER WAYS TO GET PRODUCT THROUGH AN AREA WHERE IT IS GOING TO BE BASICALLY ANOTHER WATERWAY. EVERYONE IS TRYING TO THINK OF NEW PIPELINES, ROUTES TO GET PRODUCT OUT. JONATHAN: TWO HOURS AWAY FROM THE CASH OPEN. LET'S GET SOME MORNING MOVERS. YAHAIRA HAS MORE. YAHAIRA: WE ARE SEEING A WEAKER OR RECALL AND BROADCOM THIS MORNING ON THIS REPORT THAT THEY ARE LOOKING TO ARRANGE MASSIVE FINANCING DEALS TO BUY AI CHIPS. IT UNDERSCORES HOW EXPENSIVE THE AI BUILDOUT HAS GOTTEN WITH THESE COMPANIES INCREASINGLY LOOKING TO BORROW IN ORDER TO EXPAND. IT COMES AT A TIME, AS YOU WERE MENTIONING, AS BORROWING COSTS ARE RISING, SO INVESTORS SEEM TO BE A LITTLE BIT JITTERY ABOUT THIS IDEA OF WHETHER THIS WILL ULTIMATELY PAY OFF OR JUST LEAVE THESE COMPANIES WITH AN ENORMOUS DEBT LOADS. ANOTHER COMPANY ALSO PART OF THE AI BUILDOUT IS APPLIED AT DIGITAL. THOSE SHARES UP 1% AFTER REPORTING EARNINGS THAT BLEW PAST WALL STREET EXPECTATIONS. THIS WAS FIRST A CRYPTO MINING INFRASTRUCTURE COMPANY BUT NOW HAS MOVED INTO BUILDING AI DATA CENTERS. THAT IS PAYING OFF WITH REVENUE COMING IN AT $342 MILLION, ALMOST THREE TIMES WHAT ANALYSTS WERE EXPECTING. WHILE IT IS STILL LOSING MONEY, IT LOST LESS THAN EXPECTED. WE ARE SEEING LEVI'S SHARES ALSO FOLLOWING IN THE PREMARKET DOWN 3% AS INVESTORS LOOK PAST AND EARNINGS OUTLOOK RAISE AND FOCUS ON ITS MISSTEPS WHEN IT COMES TO FORECASTING JEAN TRENDS. APPARENTLY THEY FOCUS ON BAGGY STYLES WHEN ALL THE TRENDS WERE POINTING TO LOWRISE. I DON'T KNOW ANYTHING ABOUT THESE THESE DAYS, BUT APPARENTLY THAT HURT ITS GROWTH AT ITS STORES. DOWN TWO PERCENT FROM 11% THE PREVIOUS QUARTER. JONATHAN: I WILL LEAVE THE FASHION TO ANNMARIE. ANNMARIE: HONESTLY, IT DEPENDS ON GENERATION. JONATHAN: LEVI'S ARE DOWN, LET'S LEAVE IT THERE. WHY ARE WE EVEN TALKING ABOUT IT? THE PRESIDENT AWARDING TOP TECH LEADERS WITH SCIENCE AND TECH MEDALS. ELON MUSK AND JENSEN HUANG ARE AMONG THOSE RECEIVING THEM. TSMC FAILING TO EXCITE INVESTORS. SAMSUNG REPORTING AND NINE FOLD INCREASE IN OPERATING PROFITS. TSMC SEEING SALES DOUBLE WITH RECORD THIRD-QUARTER REVENUE. SK HYNIX SUBSIDIARY WORKING TO CREATE A FUNDING ROUND, TAPPING J.P. MORGAN AND GOLDMAN AMONG OTHERS. THE LISTING COULD TAKE PLACE NEXT YEAR. LISA: THE MARKET IS STILL OPEN. CAPITAL MARKETS ARE STILL LIABLE FOR ALL THE DIFFERENT AI AND MEMORY RELATED NAMES COMING TO THE MARKET. THAT IS THE UNCOMFORTABLE DESCENDANTS. WE WERE TALKING ABOUT SOCIAL BREAKDOWN AND GOVERNMENT INABILITY TO DEAL WITH FISCAL DEFICITS. ON THE OTHER HAND, YOU HAVE INCREDIBLE DYNAMISM, DESIRE FOR CAPITAL COMING FROM ALL OF THE AI NAMES. THAT IS THE UNCOMFORTABLE NORMAL THAT WE ARE IN RIGHT NOW. JONATHAN: YESTERDAY, SPACEX LOOKING TO RAISE MONEY. THIS MORNING, THE WALL STREET JOURNAL REPORTING BROADCOM HOLDING TALKS TO RAISE $50 MILLION FOR AI CHIP PURCHASES. WINNIE CISAR WRITING THE AI BUILDOUT IS EXPANDING BEYOND TECHNOLOGY INTO A MUCH BROADER RACE FOR FINANCING CAPACITY. WELCOME. STARTED TO SEE SPREADS WIDE AND. ARE YOU STARTING TO SEE CRACKS? WINNIE: WE ARE SEEING SOME CRACKS. WITHIN CORPORATE CREDIT MARKETS THIS YEAR, THERE'S BEEN A LOT OF DISPERSION AND PERFORMANCE ACROSS DIFFERENT SECTORS. WHILE SPREADS HAVE BEEN STABLE AND AGGREGATE THROUGH THE EARLY PART OF SEPTEMBER, WE HAVE SEEN SOME SIGNIFICANT WIDENING AND HIGH YIELD CCC'S IN THE TECH SECTOR, MEDIA, WHERE THE HYPERSCALERS TEND TO HIDE OUT. THAT WAS OFFSET BY STRENGTH AND ENERGY AND COMMODITIES. YOU REALLY HAVE TO DRILL DOWN, ROLL BACK ALL THE DIFFERENT LAYERS OF CORPORATE CREDIT TO UNDERSTAND WHERE THE CRACKS ARE, ALSO WHERE THE OPPORTUNITIES ARE. JONATHAN: DO YOU THINK THERE ARE COMPANIES THAT ARE ALREADY ON THE BRINK OF JUNK, THAT MIGHT GET DOWNGRADED? WINNIE: WE DO HAVE A LIST OF POTENTIAL FALLEN ANGEL ISSUERS. THAT DOES HAVE A SIGNIFICANT AMOUNT OF INVESTMENT GRADE DEBT THAT MADY GET DOWNGRADED. ORACLE IS THE BIGGEST OF THE HYPERSCALERS WITH THE LOWEST RATING WITHIN THE IG COHORT. OUR ANALYSTS DON'T THINK THAT IS HER NEAR TERMED DOWNGRADE POTENTIAL, BUT AS THESE CAPITAL RAISE HEADLINES SEEM ABSOLUTELY RELENTLESS, IT IS SOMETHING WE HAVE TO KEEP IN MIND. ALSO, WE HAVE A NUMBER OF ISSUERS LIKE SPACEX WHICH ARE OPERATING TO A LEVERAGED TARGET THAT WOULD MAINTAIN INVESTMENT GRADE RATINGS PRETTY EASILY. ALSO THE TRACK RECORD OF A PUBLIC COMPANY IS PRETTY SHORT-LIVED. IT IS HARD TO SAY WHAT THE NEXT SIX TO 12 MONTHS WILL LOOK LIKE. LISA: HOW DIFFICULT IS IT TO DO FUNDAMENTAL CREDIT ANALYSIS WITH THESE NAMES GIVEN THE TECHNOLOGY IS NEW, THE PACE OF REVENUE HAS BEEN UNPRECEDENTED IN MANY WAYS, THE COSTS ARE INCREDIBLY HIGH, INCREDIBLE INVESTOR PUSHBACK -- NOT FROM THE BOND INVESTORS -- BUT PEOPLE BUYING THE AI-RELATED TECHNOLOGY, IN ADDITION TO ACTUALLY RUNNING BUSINESSES? WINNIE: THIS IS A DIFFICULT ONE. THERE ARE LOTS OF UNKNOWNS, ESPECIALLY THOSE THAT YOU LAID OUT, THE TIME ON THE RETURN OF INVESTMENT IS THE MOST PRESSING OPEN QUESTION FOR A LOT OF THE AI DATA CENTER INFRASTRUCTURE BUILD OUTS. WE ALSO NOTE IN THE NEAR TERM THERE SEEMS TO BE SIGNIFICANT COMPUTE CAPACITY CONSTRAINTS. WHEREAS IN THE MEDIUM-TERM THROUGH 2030 OR SO, THERE IS AN AWFUL LOT OF CONSTRUCTION IN THE PIPELINE. TRYING TO BALANCE THE NEAR TERM REALITIES WITH THAT LONG-TERM TRACK RECORD OF ALMOST IN EVERY CYCLE THERE IS SOME DEGREE OF OVERBUILD. YOU DON'T WANT TO BE THE ONE LEFT HOLDING THE BAG AS IT OVERBUILD REALLY STARTS TO BITE. THEN WE HAVE THE INCREMENTAL ISSUE THAT THE SPECIAL PURPOSE VEHICLES, MORE CREATIVE FINANCING ARRANGEMENTS JUST ADD ANOTHER LAYER OF COMPLEXITY TO THE FUNDAMENTAL ANALYSIS. LISA: HOW RATE SENSITIVE IS SOME OF THIS COMING FROM HYPERSCALERS? WE HAVE BEEN TALKING ABOUT HOW BANKERS SAY IT IS ESSENTIALLY RATE INSENSITIVE, BENCHMARK YIELDS WOULD HAVE TO RISE SUBSTANTIALLY MORE. WHAT IS YOUR PERCEPTION? WINNIE: I THINK THERE'S AN AWFUL LOT OF POSSIBILITY THAT HYPERSCALERS HAVE WITHIN CORPORATE BALANCE SHEETS. WE HAVE TO RECALL BACK TO A TIME WHEN ALL OF THESE ISSUERS WERE SEVERELY UNDER LEVERAGED, OPERATING VERY PRISTINE BALANCE SHEETS. NOW THEY HAVE STARTED TO REVERSE THAT TREND. THEY HAVE A LOT OF WIGGLE ROOM, ABILITY TO ADD THAT TO BALANCE SHEETS, ESPECIALLY IN PURSUIT OF A BUILDOUT THAT THEY TRULY BELIEVE THERE IS GOING TO BE TREMENDOUS UPSIDE, TREMENDOUS ROI. AT THE SAME TIME, THERE IS ONLY SO MUCH HYPERSCALERS OR ANY TYPE OF ISSUE OR COHORT CAN PUSH THROUGH A SINGLE MARKET BEFORE INVESTORS SAY, I CANNOT HAVE 10% OF MY PORTFOLIO ALLOCATED TO A SINGLE NAME, OR EVEN A COHORT OF FIVE NAMES. THAT IS MY WE ARE SEEING MORE OF THESE ANNOUNCEMENTS AROUND CHIP DEALS, SPECIAL PURPOSE VEHICLES, BECAUSE THAT ALLOWS YOU TO UNLOCK THE PRIVATE CREDIT AREA AT YIELDS ARE VERY ATTRACTIVE TO INVESTORS, WHO HAVE BEEN PUT IN CASH TO WORK AND LOWER RATED ISSUERS, LOWER RATED STRUCTURES, FOR PRETTY ATTRACTIVE YIELDS. ANNMARIE: DATA CENTERS ARE ON THE BALLOT FOR THE MIDTERMS. I AM TALKING ABOUT SOME MEASURES ACROSS A NUMBER OF STATES BETWEEN CALIFORNIA, KANSAS, FLORIDA. INDIVIDUALS ARE GOING TO BE ABLE TO VOTE ABOUT HOW THEY FEEL ABOUT THESE MEASURES WHEN IT COMES TO DATA CENTERS. ARE YOU SEEING THAT PUSHBACK? WINNIE: NOT UNITES LIKE HITTING ON BIG TECH. DATA CENTERS ARE THE FOCUS OF BIG TECH RIGHT NOW. WE DO THINK THERE ARE SOME BALANCES HERE. WE HAVE SEEN DATA CENTERS AT THE LOCAL ECONOMY LEVEL BE TREMENDOUSLY BENEFICIAL, INCREASED TAX BASIS, INCREASE EMPLOYMENT BASES. AT THE SAME TIME, INFLATION IS A CORE CONCERN OF VOTERS THIS YEAR. THERE IS THE REALITY THAT ELECTRICITY PRICES HAVE GONE UP, ENERGY AND COMMODITY PRICES HAVE GONE UP. SOME OF THAT RELATED TO DATA CENTERS, A LOT OF IT NOT RELATED TO DATA CENTERS, BUT THE NARRATIVE IS VERY EASY TO CONSTRUCT. WE ARE LOOKING AT WHETHER THERE WILL BE PUSHBACK ON THE DATA CENTER FRONT THAT IS SUSTAINABLE POST THE MIDTERM ELECTIONS. THAT COULD HELP TO REMEDIATE SOME OF THE CONCERNS AROUND OVERSUPPLY IN OVERBUILD, BUT THEN YOU HAVE TO GET GRANULAR INTO WHAT DATA CENTERS HAVE BEEN FINANCED, WHERE IS THEIR NEW CONSTRUCTION RISKS AND REGULATORY RISK THAT WAS NOT NECESSARILY APPRECIATED WHEN THE DEALS WERE FINANCED. JONATHAN: WINNIE CISAR OF CREDITSIGHTS. SOME DEVELOPMENTS IN CREDIT MARKETS RIGHT NOW. GERMAN 2-YEAR YIELDS COMING OFF SESSION HIGHS. WE HAVE HAD A CHORUS OF DOVISH SPEAK FROM ECB OFFICIALS PLAYING DOWN THE POTENTIAL OF SECOND-ROUND EFFECTS. NOW WE JUST GOT THE ACCOUNT FROM THE ECB'S LAST MEETING FROM THE MONTH OF SEPTEMBER. TWO NOTABLE HEADLINES. THE REPRICING OF YIELDS COULD IMPACT THE ECONOMY. THAT IS JUST A SUBTLE PUSHBACK TO SOME OF THE MOVES THIS MORNING. LISA: A SENSE THAT MAYBE THEY ARE NOT READY TO HIKE AS QUICKLY AS BEFORE, NOT READY TO STEP IN TO SAVE FRANCE, BUT MAYBE NOT AS WILLING TO KEEP HIKING RATES AS QUICKLY AS PEOPLE EXPECTED. JONATHAN: LET'S GET AN UPDATE ON NEWS WORLDWIDE. WITH YOUR BLOOMBERG BRIEF, VONNIE QUINN HAS MORE. VONNIE: PRESIDENT TRUMP WARNING THAT HE IS NO LONGER SEEKING A DEAL WITH IRAN. THE WHITE HOUSE HAS ORDERED THE PENTAGON TO DRAW A PLAN TO STRIKE BEFORE THE MIDTERMS. AXIOS REPORTING THE ATTACKS COULD INCLUDE MASSIVE BOMBING OF IRANIAN ENERGY. THE FIRST ATLANTIC HURRICANE OF 2026 HAS FORMED IN THE U.S. GULF. ISAIAS IS CHECKING TOWARD THE GULF COAST WITH WINDS AT 70 MILES PER OUR. THE STORM HAS FORCED OFFSHORE PRODUCERS TO SHUT 25% OF CRUDE OUTPUT AND 16% OF NATURAL GAS PRODUCTION. A PUBLIC OFFERING FOR AN NVIDIA BACKED COMPANY HANGING IN THE BALANCE. SOURCES TELL US DATA CENTER COMPANY FIRMUS CLOSED ITS BOOKS. THE COMPANY IS LOOKING TO RAISE $5.5 BILLION FOR WHAT WOULD HAVE BEEN ONE OF AUSTRALIA'S LARGEST IPO'S. THAT IS YOUR BLOOMBERG BRIEF. JONATHAN: NEXT ON THE PROGRAM, A FOCUS ON THE BOND MARKET. HIGH YIELD, HIGH RISK. >> IT'S A GLOBAL PHENOMENON. SINCE PRESIDENT TRUMP CAME IN, THE U.S. HAS BEEN THE BEST PERFORMING BOND MARKET IN THE 10-YEAR SPACE. FOR THE U.S., UNLIKE OTHER COUNTRIES, IT IS A REAL RATE ISSUE. JONATHAN: UP NEXT, WE ARE CATCHING UP WITH ED AL-HUSSAINY FROM COLUMBIATHREADNEEDLE. YOU ARE WATCHING BLOOMBERG TV. ♪ JONATHAN: STOCKS ARE SOCCER THIS MORNING, DOWN BY 0.5 ON THE S&P. YIELDS BITING INTO THIS MOVE. HIGHER ACROSS THE CURVE, PARTICULARLY ON THE LONG END. 10-YEAR AT 5.33. HIGH YIELDS, HIGHER RISK. >> IT'S A GLOBAL PHENOMENON. SINCE PRESIDENT TRUMP CAME IN, THE U.S. HAS BEEN THE BEST PERFORMING BOND MARKET IN THE 10-YEAR SPACE. FOR THE U.S., UNLIKE OTHER COUNTRIES, IT IS A REAL ISSUE. GROWTH IS STRONG. WHAT WE ARE SEEING IS HEADLINE INFLATION IS HIGH BECAUSE OF THE ENERGY SHOCK. JONATHAN: U.S. TREASURY YIELDS REACHING FRESH MULTI-DECADE HIGHS. A STRONG 10-YEAR NOTE SALE SHOWING STRONG INVESTOR APPETITE AHEAD OF A 30-YEAR BOND AUCTION THIS AFTERNOON. ED AL-HUSSAINY WRITING HIGHER RATES OF STARTED TO UNWIND LEVERAGED TRAITS ACROSS THE WORLD. THIS PROCESS OFTEN HAS A SLOWLY THEN SUDDENLY DYNAMIC. GOOD MORNING. WOULD YOU STILL DESCRIBE THINGS AS ORDERLY? ED: I THINK SO. BY AND LARGE, CORPORATE BOND MARKETS HAVE BEHAVED QUITE WELL. SOVEREIGN BOND MARKETS, AS YOU WERE MENTIONING IN TERMS OF THE AUCTION, HAS SEEN SOLID DEMAND EVEN. EVEN IN FRANCE, WHERE WE HAVE SEEN THE LIQUIDITY, SPREADS HAVE WIDENED OUT. I WOULD CHARACTERIZE IT AS ORDERLY BUT IT IS NOT GUARANTEED TO STAY THAT WAY. JONATHAN: LET'S START WITH THE U.S. AND THEN MOVED TO FRANCE. THE U.S. HAS BECOME MORE ANCHORED AROUND FOUR POINT 80 PARTICULARLY GIVEN THE DOVISH FED SPEAK WE'VE SEEN, REINFORCED BY THE SOCCER DATA AS WELL. THE QUESTION BEING ASKED, HOW HARD, HOW FAST DOES THIS EQUITY NEED TO GO? ED: IT'S BEEN STRIKING TO ME HOW QUICKLY WE HAVE PIVOTED AWAY FROM HIGH CONVICTION COMING OUT OF THE SEPTEMBER FOMC MEETING, THESE GUYS ARE GOING TO FRONTLOAD THE TIGHTENING CYCLE, TO NOW, THEY HAVE ALL THE TIME IN THE WORLD TO SIT BACK AND RELAX. I THINK IT IS STRANGE, PREMATURE GIVEN THE DATA THAT HAS CONTINUED TO COME IN. ALL INDICATIONS ARE THEY ARE GOING TO SIT OUT THE OCTOBER MEETING AND THEN TAKE ANOTHER LOOK IN DECEMBER. I THINK THEY HAVE TO GO AT LEAST THREE OR FOUR. LISA: IN QUICK SUCCESSION OR CAN THEY TAKE THEIR TIME? IF THEY DON'T HIKE RATES IN OCTOBER, DO YOU EXPECT THE YIELD CURVE TO CONTINUE TO WIDEN OUT? ED: I THINK THERE WAS A STRONG CASE COMING OUT OF THE SEPTEMBER MEETING OF FRONTLOAD IN THE PROCESS, OFFSETTING SOME OF THE HEAT WE SEE IN THE ECONOMY RIGHT NOW FROM A GROWTH PERSPECTIVE, SEEING HOW INFLATION EVOLVES. INFLATION IS ON TRACK TO END UP IN THE HIGH 2'S BY THE BEGINNING OF NEXT YEAR. STILL NOWHERE NEAR THE TARGET. AT THIS STAGE, IT LOOKS LIKE THEY ARE MAKING MORE OF A LACKADAISICAL APPROACH. THE SLOWER THEY MOVE, THE MORE THEY MAY HAVE TO DO NEXT YEAR, AND THAT IS THE RISK FOR THEM. LISA: THIS IS WHAT A LOT OF PEOPLE ARE DEBATING COME HOW MUCH THE FED HAS INFLUENCE OVER WHAT IS HAPPENING IN THE 10-YEAR , 30-YEAR DENOMINATIONS. WE HEARD FROM SCOTT BESSENT, GLOBAL PHENOMENON. WE TALKED ABOUT THE BOND ISSUANCE COMING FROM HYPERSCALERS. WOULD THAT HAVE ANY EFFECT ON THE LONG END OF THE YIELD CURVE IF THE FED ACTED MORE AGGRESSIVELY? ED: SHORT ANSWER IS YES. WHAT DISTINGUISHES THE REPRICING IN THE U.S. THIS YEAR HAS BEEN THE FED EXPECTATIONS. IT HAS NOT BEEN TERM PREMIUM, INFLATION PREMIUM FURTHER OUT ON THE CURVE. THE ECONOMY HAS ACCELERATED, THE FED HAS LICENSE TO TIGHTEN POLICY HERE. THE LESS THEY DO COME IN THE MORE DAMAGE THEY RISKS TO THE LONGER END OF THE CURVE. FRONT LOADING THIS TIGHTENING PROCESS -- THEY HAVE A COUPLE MEETINGS TO GET THEIR ACT TOGETHER -- BUT FRONT LOADING IT INTO THE END OF THE YEAR, BEGINNING OF NEXT YEAR GIVES THEM A BETTER CHANCE OF STABILIZING THAT LONG END. THAT IS NOT TRUE IN FRANCE. THAT IS A DISTINCTLY FISCAL ISSUE. HYPERSCALER ISSUES ARE SHOWING UP IN THE TREASURY MARKET. THE SPILLOVER IS THERE BUT IT IS FAIRLY SMALL. ANNMARIE: THREE OR FOUR MORE TIME FOR THE FED TO HEIGHT. THAT TELLS ME THIS WILL BE PAINFUL FOR SOME PARTS OF SOCIETY. ED: I THINK WE ARE STARTING TO SEE THE PAIN MATRICULATE INTO THE HOUSING MARKET, MORTGAGES. MORTGAGES JUST HAD A BAD MONTH. ANNMARIE: 7.5%. ED: THE ADJUSTMENTS IN INTEREST RATES WHICH HAVE BEEN SMOOTH OVER THE PAST YEAR, OVER THE PAST SIX WEEKS, SHOWING UP IN INTEREST RATE VOLATILITY, WHICH WIDENS OUT THE MORTGAGE SPREADS. MORTGAGE INVESTORS ARE STARTING TO ACCUMULATE SOME LOSSES, SHOWING UP IN THE HIGH-YIELD BOND MARKET. CORPORATES WITH WEAKER BALANCE SHEETS WILL SEE SOME PRESSURE. OBVIOUSLY, IT WILL SHOW UP IN THE LOAN MARKET, DIRECTLY INDEXED TO THE FED FUNDS RATE. THAT IS REALLY TOUGH AND I'M NOT SURE WHO CAN DO IT. AT THE MOMENT, EXPECTATIONS ARE NAILED TO THE CEILING. THERE IS THE PERCEPTION THAT THE SECTOR'S INTEREST-RATE INSENSITIVE. I THINK THAT PERCEPTION IS INCORRECT. THEY ARE INSENSITIVE TO THE CURRENT LEVEL OF INTEREST RATES. JONATHAN: HOW MUCH HIGHER IS IT? ED: THE NEXT STEP HAS TO BE IN CORPORATE CREDIT SPREADS RATHER THAN RATES. JONATHAN: WHAT IS YOUR TARGET FOR SPREADS? STILL AROUND 300 ON HIGH-YIELD? ED: SO FAR, THE MOVE HAS BEEN CONSISTENT WITH INTEREST RATE VOLATILITY. WE HAVE NOT PRICED IN A DETERIORATION IN CORPORATE BALANCE SHEETS. IT IS VERY REALLY IN THE PROCESS. IF YOU LOOK AT THE INVESTMENT-GRADE MARKET, THOSE HYPERSCALERS ARE GETTING PUNISHED. THE EXTENT OF UNDERPERFORMANCE IN THE HYPERSCALER SECTOR, THERE IS A LOT OF ROOM FOR THAT TO CONTINUE INTO NEXT YEAR. JONATHAN: CAN YOU GIVE US AN IDEA OF WHERE YOU THINK THAT RATE IS FOR THESE ISSUERS TO SIT BACK AND SAY, PROBABLY NOT A GOOD IDEA? ED: WE ARE FEELING IT OUT. THE ULTIMATE CONFIRMATION HAS TO COME THROUGH THE LABOR MARKET IN MY MIND. ONCE YOU START TO SEE UNEMPLOYMENT RATES GO UP, THAT IS WHEN YOU KNOW YOU HAVE SQUEEZED THE ECONOMY TOO HARD. SO FAR, WE HAVE HAD A STABLE LABOR MARKET, WE HAVE BEEN LUCKY THIS YEAR. UNEMPLOYMENT HAS COME DOWN. THAT STABILITY IS AT RISK NEXT YEAR. THESE HIGHER RATES WILL START TO IMPACT THE ECONOMY. JONATHAN: HAPPY NEW YEAR FROM ED AL-HUSSAINY. SPREADS GOING BACK TO FIVE, UNEMPLOYMENT GOING TO CLIMB. NOT A GREAT MESSAGE GOING INTO 2027. LISA: THAT THE FIRST PERSON TO SAY THAT THIS IS REALLY FED EXPECTATIONS. JONATHAN: HOW MUCH DO YOU WANT TO BEAT UP THE PART OF THE ECONOMY THAT IS ALREADY BEATEN UP TO SLOW DOWN THE BUILDOUT? LISA: HOW MANY FED OFFICIALS HAVE SAID WE HAVE A BLUNT TOOL, BUT THIS IS THE TOOL THAT WE HAVE GOT. THERE ISN'T ANOTHER CIRCUIT BREAKER. ULTIMATELY, ARE WE IN A PRICE DISCOVERY FUNCTION FOR THE RATE REGIME, FOR THE FEDERAL RESERVE? JONATHAN: WE HAVE HEARD IT REPEATEDLY. YOU ARE WELCOME ANY TIME COME EVEN WITH A MESSAGE LIKE THAT. COMING UP, CATCHING UP WITH RICK RIEDER, NELA RICHARDSON, AND THE FORMER WHITE HOUSE SENIOR ADVISOR. WE WILL TALK ABOUT WHAT IS HAPPENING IN THIS BOND MARKET WORLDWIDE. THE THIRD HOUR OF "BLOOMBERG SURVEILLANCE" IS JUST AROUND THE CORNER. ♪ >> YOU ARE BACK TOWARDS A BIT OF GROWTH IN A SLOW GROWTH WORLD OR SLOWING GROWTH. >> WE UNDERESTIMATED HOW ROBUST THAT GROWTH COULD BE TO DRIVE YIELDS UP. >> WE ARE STARTING TO SEE HIGHER RATES. >> THE VOLATILITY OF THE RIGHT MARKET AND THE PACE OF THE RISE THAT IS BRINGING SOME PASTA SOME INVESTORS. >> WE CAN SEE YIELDS EASILY GETTING TO 5.5%. >> THIS IS "BLOOMBERG SURVEILLANCE" WITH JONATHAN FERRO, LISA ABRAMOWICZ, AND ANNMARIE HORDERN. JONATHAN: LIVE FROM NEW YORK CITY THIS MORNING, FOR OUR AUDIENCE WORLDWIDE THE THIRD HOUR BLOOMBERG SURVEILLANCE STARTS RIGHT NOW. EQUITY FUTURES ON THE S&P PULLING BACK FROM ALL-TIME HIGHS, DOWN .5% ON THE S&P, DOWN CLOSE TO .75% ON THE NASDAQ PULLING BACK FROM ALL-TIME HIGHS. YIELDS ADDING TO THE MOVE WE HAVE SEEN THE LAST 24 HOURS. TENS 5.33 AND HANGING OUT CLOSE TO MULTI-DECADE HIGHS. BRENT CRUDE AROUND 04, HIGHER MORE THAN 4% OFF THE BACK OF JITTERS IN THE MIDDLE EAST ON A REPORT THE PRESIDENT MIGHT BE PLANNING STRIKES BEFORE THE MIDTERMS, NOT AFTER. LATER THIS MORNING, JOBLESS CLAIMS 8:30. LATER AT 1:00, 30 YEAR BOND AUCTION TESTING SUPPLIED APPETITE FOR THAT SUPPLY FROM THIS TREASURY FOR THE SECOND TIME THIS WEEK. LISA: IF YOU TELL ME WHERE THE JOBLESS DATA COMES IN AND HOW THE AUCTION GOES I WOULD NOT TELL YOU HOW THE MARKET WILL TRADE BECAUSE YESTERDAY THE AUCTION OF 10 YEAR WENT REALLY WELL AND HERE WE ARE WITH YIELDS CLIMBING ONCE AGAIN. I HONESTLY CANNOT SQUARE AT WHAT WILL ULTIMATELY CHANGE THE GROUNDHOG DAY STORY WE ARE IN WHERE YIELDS KEEP CLIMBING REGARDLESS OF WHAT HAPPENS IN HYPERSCALERS KEEP ISSUING AND PEOPLE KEEP WORRYING ABOUT FRANCE. JONATHAN: WE HAD A SOFT PCE, A SOFT ISM, A SOFT PAYROLLS REPORT RELATIVE TO EXPECTATIONS. STILL DECENT NUMBERS. RELATIVE TO EXPECTATIONS. BONDS STILTED RALLY. YIELDS ARE HIGHER AGAIN THIS MORNING. LISA: AT WHAT POINT ARE PEOPLE GOING TO SAY THINGS WILL BREAK? WE HAVE HAD ONE PERSON AFTER ANOTHER POSE THE QUESTION IS THIS DISORDERLY. WE ASKED KAY HERR IS THIS DISORDERLY, NOT YET. ONE PERSON AFTER ANOTHER. IT IS NOT NECESSARILY A MELTDOWN. I GOT RAKED OVER THE COALS FOR SAYING IT IS A MELTDOWN IN FRANCE. JONATHAN: WHO IS RAKING YOU OVER THE COALS FOR THAT? LISA: SOME PEOPLE ARE SAYING HOLD MY BEER. AT WHAT POINT DO WE REACH A SELF-FULFILLING PROPHECY WHERE THIS DOES BREAK SOMETHING OR IS THIS THE NEW NORMAL? JONATHAN: THE MESSAGE FOR 2027, THIS IS WHAT IT SOUNDS LIKE. HE THINKS THE FED NEEDS TO GO TO FIVE AND UNEMPLOYMENT WILL CLIMB. NOT A GREAT RECIPE FOR 2027. THAT IS HOW FAR HE THINKS THE FED NEEDS TO GO TO START TAPPING THE BRAKES AND LEADING TO A ROBUST NOMINAL GDP. LISA: HE THINKS THE LESS THEY DO THIS YEAR THE MORE THEY WILL HAVE TO DO IN 2027. EVEN IF YOU HAVE LOWER ENERGY PRICES THE GROWTH BACKDROP HAS BEEN SO ROBUST DESPITE DIESEL PRICES WHERE THEY ARE. YOU CAN ENVISION A SCENARIO WHERE THE ECONOMY WILL ACCELERATE THAT MUCH MORE WITHOUT THE EXTRA PRESSURE. PEOPLE ARE TRYING TO UNDERSTAND HOW MUCH WE ARE IN A BOOM ECONOMY VERSUS A NEW NORMAL WITH DEFICITS WHERE THEY ARE AT A GLUT OF ISSUANCE. ANNMARIE: ED SEEMS TO BE QUESTIONING WHY THE FED IS PUTTING OCTOBER ON PAUSE. OFFICIALS HAVING MORE DOVISH ON OCTOBER. IT IS NOT SOUND LIKE THEY WILL HIKE. GOVERNOR WALLER SAYING THERE IS FLEXIBILITY WHEN THE HIKES WILL OCCUR. MAYBE WE ARE IN A CYCLE WERE NOT BE CONSECUTIVE. JONATHAN: THEY THINK THEY HAVE TIME. A FEW OF THE KEY MEMBERS THINK THEY COULD HAVE TIME. EVERY DAY THAT GOES BY IS ANOTHER STORY. THIS MORNING THE JOURNAL AND BROADCOM. ANOTHER STORY OF A COMPANY COMING TO MARKET WITH AND BARRING TENS OF MILLIONS OF DOLLARS TO FINANCE THE CAPEX BUILD OUT. LISA: I AM OLD ENOUGH TO REMEMBER ONE OF CORPORATE BOND ACCOUNT WAS AN UNPRECEDENTED AMOUNT. RIGHT NOW RATES ARE CLEARLY NOT HIGH ENOUGH TO PUSH THEM OUT OF THE MARKET. ANNMARIE: AND MAKING IT MUCH HARDER FOR RATES IS OIL GRINDING HIGHER. OIL MUCH HIGHER. SITUATION IS GETTING WORSE THAN IT WAS THE PAST FEW WEEKS. MORE OIL IS GOING THROUGH, IT IS BECOMING HARDER BECAUSE IRAN IS INCREASING SOME OF THOSE ATTACKS. YOU HAVE THE HOUTHIS STEPPING UP THEIR ATTACKS AND ADDING TO THE GEOPOLITICAL RISK PREMIUM IS THE PRESIDENT WEIGHING OPTIONS TO MAYBE STRIKE IRAN BEFORE THE MIDTERMS IN LESS THAN FOUR WEEKS. JONATHAN: WE WILL GO INTO THE ATLANTIC AND THEIR REPORTING. BRENT CRUDE HIGHER 4.5%. WTI AROUND $92. COMING UP WE WILL CATCH UP WITH RICK RIEDER OF BLACKROCK AS SURGING BOND YIELDS STRIKE EQUITIES DOWN FROM A HIGHS. NELA RICHARDSON RAKING DOWN JOBLESS CLAIMS AND FORMER WHITE HOUSE SENIOR ADVISOR WITH CRUDE GAINING ON MIDDLE EAST CONCERNS CONTINUING TO MOUNT. STOPS FALLING IN BOND YIELDS RISING. RICK RIEDER WRITING "BEING PATIENT ON INTEREST-RATE EXPOSURE MAKES SENSE BUT DIPPING A TOE ON THESE HISTORICALLY ATTRACTIVE REAL RATES MAKE SENSE TO US." GOOD TO SEE YOU. EVERY TIME I SEE YOU SEEM HAPPY AND THE BOND MARKET IS FALLING TO PIECES. EXPLAIN WHY YOU LIKE THIS? RICK: I'M DOING THIS FROM SASKATCHEWAN, WHICH IS A COOL PLACE TO BE. THANK YOU FOR HAVING ME. THIS IS HISTORIC. I HAVE WAITED DECADES FOR THESE REAL RATES AND TO BE ABLE TO CREATE INCOME AT THESE LEVELS YOU ARE BUYING FIXED INCOME ASSETS. I DO NOT FEEL LIKE THE BACK END OF THE YIELD CURVE TODAY HAS GIVEN US SUCH A GREAT OPPORTUNITY. THE FRONT END OF THE CURVE, TO KEEP YOUR VOLATILITY DOWN, KEEP YOUR INCOME HIGH IS STILL VERY ATTRACTIVE. PART OF WHY FUNDS ARE DOING OK -- YOU HAVE TO MINIATURE INTEREST-RATE EXPOSURE AND KEEP YOUR BACK INTO THE INTEREST RATE LOW. THE CARRY YOU GET FROM BUYING THESE ASSETS -- YOU CAN BUY HIGH YIELD OF 8.5%. TWO THIRDS OF THAT YIELD IS COMING FROM THE RISK-FREE RATE. WE HAD NINE YEARS OF NEGATIVE INTEREST RATES IN EUROPE. THESE ARE PRETTY GOOD LEVELS. I'M NOT SAYING LET'S JUMP IN AND BY THE BACK END OF THE YIELD CURVE, LET'S BUY LONG-TERM INTEREST RATES. FOR CREATING INCOME IT IS PHENOMENAL. JONATHAN: SPREADS ARE STILL PRETTY TIGHT. HIGH YIELDS AROUND 300 BASIS POINTS. A REPRICING RECENTLY. YIELDS ARE HIGH BECAUSE OF THE BIG MOVE WE HAVE SEEN IN THE RISK-FREE RATE. SOME PEOPLE MIGHT SUGGEST YOU'VE SEEN THE PRICE ADJUSTMENT TO THE RISK AROUND THE SOVEREIGN IN THE STORY THAT IS INFORMING THOSE HIGH RATES BUT YOU HAVE NOT SEEN IT IN THE CREDIT AND THAT IS THE NEXT LEG OF THIS. WHAT WOULD YOU SAY BACK? RICK: IT IS A GREAT QUESTION. I THINK LISA REFERRED TO THIS. YOU ARE SEEING SOME ROLLOVER FINANCING RISK AND PARTS OF THE LEVERAGED LOAN MARKET. YOU'RE SEEING ROLLOVER FINANCIAL RISKS IN PARTS OF COMMERCIAL REAL ESTATE. YOU'LL SEE MORE OF THAT GOING FORWARD. THERE IS A PRETTY GOOD OPPORTUNITY TODAY TO UPGRADE YOUR QUALITY. WHEN YIELDS MOVE HIGHER LIKE THIS, WE HAVE REDUCED HIGH YIELD TO MOVE INTO INVESTMENT-GRADE CREDIT BECAUSE YOU ARE HITTING YIELD LEVELS. I COULD INCREASE THE CALL TO THE PORTFOLIO AND FEEL PRETTY COMFORTABLE THAT I AM FLIPPING THAT YIELD. IF YOU HAVE AN ECONOMY GROWING AT NOMINAL GDP OF SIX PLUS PERCENT. OUR NOW CAST IS FASTER THAN THAT. IT IS HARD TO ANTICIPATE A SIGNIFICANT DEFAULT CYCLE THAT WILL PRESS SPREADS WIDER. I THINK THESE YIELDS ARE VERY ATTRACTIVE. AT THE MARGIN WE HAVE REDUCED QUALITY. WE ARE SENSITIVE TO PARTS OF THE LEVERAGED LOAN MARKET IN PARTS OF REAL ESTATE. I DO NOT THINK WE ARE SEEING A DEFAULT CYCLE. YOU HAVE PENSION FUND LIFE INSURANCE COMPANIES. YOU GET THE YIELD LEVELS AND THEY ARE ATTRACTIVE. I WILL SAY ONE THING ABOUT THE EQUITY MARKET. PEOPLE ASK IS THERE A POINT WHERE THE 10 YEAR CHOQUE THE EQUITY MARKET. I DON'T THINK THERE IS A LEVEL BUT WE TALK ABOUT THIS THING, THERE IS A BIG ALTERNATIVE. YOU CAN NOW CREATE A 7% YIELD WITHOUT THAT MUCH DISPERSION, WITHOUT INTEREST-RATE EXPOSURE. YOU CAN RUN LESS THAN THREE YEARS OF INTEREST-RATE EXPOSURE. IT IS A GOOD ALTERNATIVE TO EQUITIES SAVER STARTED TO SEE PEOPLE LOOK AT THAT AND SOME PENSIONS, SOME FOUNDATIONS EVOLVING THAT A BIT. LISA: YOU THINK YOU WOULD PREFER TO TAKE INVESTMENT-GRADE CREDIT RISK OVER SOVEREIGN RISK IN DEVELOPED ECONOMIES? RICK: THAT IS A GREAT QUESTION. IN MANY PLACES, YES. WE HAVE BEEN DOING MORE U.S. INVESTOR GRADE. I THINK EUROPEAN INVESTOR GRADE IS OK. I WORRY ABOUT PRESSURE AND SOME OF THE SOVEREIGN. HE TALK ABOUT FRANCE AND ITALY. WE SAW A REAL PRESSURE ON THAT LAST WEEK. MY SENSE IS I DO NOT HAVE THE DILEMMA IN THE U.S.. ONE THING JONATHAN SAID, PEOPLE TALK ABOUT WHY ARE YIELDS MOVING HIGHER. THE WAR IS A BIG DEAL, CRUDE OIL IS A BIG DEAL. THE AMOUNT OF SUPPLY THAT IS COMING, AND ONE OF THE THINGS THAT IS ATTRACTIVE IS LOVE THE SUPPLY IS LESS PRICE-SENSITIVE THAN IT HAS BEEN HISTORICALLY. I CAN GET SOME OF THIS NEW ISSUE ON ATTRACTIVE LEVELS AND THEY ARE INDISCRIMINATE AS TO PRICE. THAT IS ATTRACTIVE. IT CERTAINLY PUTS PRESSURE ON THE REAL RATE WHICH IS QUITE FAIR. LISA: THE COMPETITION FOR CAPITAL SO MANY PEOPLE HAVE TALKED ABOUT. YOU SAID YOU ARE NOT INTERESTED IN DURATION AND EVEN THOUGH YOU FIND CERTAIN YIELDS ATTRACTIVE, YOU ARE STILL STAYING AWAY FROM DURATION. WHAT WOULD MAKE YOU INTERESTED IN LONG-TERM BENCHMARK INTEREST RATE INSTRUMENTS? RICK: I WILL SAY ONE THING, THERE IS NOT A YIELD. IF YOU LOOK AT HISTORY, YOU SAY WHEN YOU GET BEHIND 5%, 95% OF THE TIME YOU MAKE MONEY AND THE AVERAGE RETURN IS 9.5%. YOU MAKE MORE MONEY WHEN IT IS 5.5% TO 6%. I'M NOT SURE WE HAVE TO JUMP IN YET. THERE IS NOT A SPECIFIC LEVEL TODAY. THERE ARE A COUPLE THINGS. IF YOU HAD SOME IMPROVEMENT IN THE MIDEAST THAT WOULD BE SIGNIFICANT. THE SECOND THING, I SAID BEFORE, I DON'T THINK MOVING THE FRONT END OF THE YIELD CURVE UP WILL KEEP THE BACK END DOWN. I THINK THE FED AT SOME POINT HAS TO SAY SOMETHING ABOUT THERE IS A LEVEL THEY WOULD USE THEIR TOOLS. THERE IS A LEVEL THEY WOULD LOOK TO CONTAIN WHERE THE LONG-TERM YIELDS ARE. REAL FINANCING DOES NOT HAPPEN AT THE OVERNIGHT FUNDS RATE, IT HAPPENS OUT OF THE YIELD CURVE. YOU THINK ABOUT THE MORTGAGE MARKET AND THE CREDIT MARKET. IT HAPPENS FURTHER OUT THE YIELD CURVE. MOVING THE FRONT END OF THE YIELD CURVE DOES NOT HAVE THE EFFECT ON INFLATION OR FINANCIAL VELOCITY. ARE WE GOING TO SLOW GPU PURCHASING BECAUSE THE FUNDS RATE IS UP ANOTHER 25 BASIS POINTS? TO ME IT DOES NOT MAKE SENSE. I THINK LONG-TERM FINANCING HAS TO BE CONTAINED IN I THINK THAT IS THE TOOLS FOR THE FED TO DO THAT. JONATHAN: DID YOU SAY YIELD CURVE CONTROL WITHOUT SAYING YIELD CURVE CONTROL? RICK: I DON'T MIND CALLING IT THAT. AT THE END OF THE DAY IT GETS INTO A CONTROVERSIAL DEBATE. I THOUGHT LISA BROUGHT UP A GREAT POINT BEFORE. HOW MUCH DO YOU WANT LONG-TERM INTEREST RATES. LONG-TERM INTEREST RATES AFFECT THEIR BORROWERS IN THE HOUSING MARKET AND SMALL BUSINESS AND LOW INCOME AND THE FACT THAT THE CONTAINED DATA CENTER SPEND OR GPU SPEND THE PAIN YOU WOULD PUT ON SO MANY OF THE PEOPLE IN THIS COUNTRY DOES NOT MAKE A LOT OF SENSE TO ME. THAT IS PART OF WHY I THINK IS ARCHAIC TO THINK WE HAVE TO MOVE THE FED FUNDS RATE UP TO GET INFLATION DOWN. I DON'T THINK IT WORKS. JONATHAN: THE LAST POINT, SO MANY OF OUR AUDIENCE WILL HAVE SYMPATHY WITH THAT VIEW THAT A LOT OF THIS DOES NOT MAKE SENSE AND THE SOURCE OF INFLATION AND THIS ROBUST GROWTH IS COMING FROM A PART OF THE ECONOMY THAT IS LARGELY RATE IN SENSITIVE AND ALL YOU'LL BE DOING BETWEEN NOW AND THE NEXT 12 MONTHS IS BEATING UP THE PARTS OF THE ECONOMY THAT ARE ALREADY BEATEN UP. THE ISSUE I HAVE IS NOT HOW YOU AND I THINK IT SHOULD BE, IT IS HOW IT WILL BE. YOU ARE CLOSE TO BEING IN CHARGE OF PALLET WILL BE BUT WE ARE BOTH LOOKING IN. HOW DO YOU THINK IT WILL BE IN THIS INSTITUTION? RICK: I HAVE LEARNED IN MY CAREER, THE POINT YOU SET ABOUT INFLATION. IF YOU BREAK DOWN PCE INFLATION IS OIL PRICES AND ENERGY AND SEMICONDUCTOR PRICES. I AM CERTAIN THE FUNDS RATE WILL NOT ADDRESS THAT. THEN YOU LOOK AT SURFACE LEVEL INFLATION, YOU LOOK AT EDUCATION AND HEALTH CARE INSURANCE TO GET THAT THROUGH THE FED FUNDS RATE. I WOULD NOT RAISE THE RATE. THAT BEING SAID I AM POSITION FOR WHAT IS A HAWKISH FED AND A FUND THAT IS GOING TO MOVE. I THINK THEY WILL SKIP OCTOBER AND MOVE IN DECEMBER. IN THE NEXT YEAR WE HAVE GROWTH COMING OFF THE BOIL, WE HAVE INFLATION COMING DOWN. THE LAST THREE MONTHS OR SIX MONTH MOVING AVERAGE OF CORE PCE IS IN THE LOW TO MID TWOS. YOU CAN GET A HIKE IN DECEMBER AND THEN YOU CAN SLOW IT DOWN. FOR TODAY, WITH ALL OF THE SHOCKS TO THE SYSTEM I THINK YOU HAVE TO BE CONSERVATIVE ABOUT YOUR INTEREST-RATE EXPOSURE. YOU HAVE TO BE MODERATE IN TERMS OF ANY INTEREST-RATE EXPOSURE. CLIP COUPON AND BE HAPPY IS THE IDEA. LISA: CLICK KEEP ON AND BE HAPPY AT THE SAME TIME THE ONLY WAY YOU WOULD GET INTO LONGER-TERM DURATION IS OF THE FED EXPANDS ITS BALANCE SHEET AND DEALS WITH THE YIELD CURVE CONTROL IN SOME CAPACITY. AT WHAT POINT DOES THE SELLOFF IN LONG-TERM RATES THREATEN THE CORPORATE STORY CONSIDERING AT SOME POINT THEY WILL STRUGGLE TO PAY THIS BACK? RICK: ONE THING ABOUT THE MATH OF THE BALANCE SHEET. 89% OF THE DEBT IN THE UNITED STATES IS TWO YEARS. PART OF WHY THE INTEREST EXPENSE WILL KEEP GOING HIGHER IS AS THEY KEEP MOVING THE FUNDS RATE UP WE WILL KEEP ROLLING OVER FRONT END DEBT AND IT WILL COMPOUND THE DEBT PROBLEM IN THE COUNTRY. YOU DO NOT HAVE TO EXPAND BECAUSE THERE'S NOT THAT MUCH SCIENCE OF THE LONG END OF THE YIELD CURVE TO PURCHASE. IF YOU TAKE THE DURATION THAT SITS IN THE BACK END COME ON THE FED BALANCE SHEET OR THE PENSION BALANCE EAT, I DO NOT THINK YOU HAVE TO EXPAND THE BALANCE SHEET TO DO THAT BECAUSE THE MAP ON THE FRONT VERSUS THE BACK END. WHERE DOES IT IMPACT THE CORPORATE MARKET? YOU ARE DEFINITELY SEEING MORE COMPANIES. THAT IS DATA CENTER AND OTHERS THAT ARE THINKING ABOUT THESE RATE LEVELS. WHAT YOU ARE SEEING TODAY ISRAEL SUPPLY BECAUSE PEOPLE ARE GOING HIGHER. YOU HAVE THE NEAR TERM SUPPLY DEFECT. ADDING INTO INVESTMENT GRADE, THINGS LIKE HIGH-YIELD. IT IS QUITE FRANKLY PRETTY ATTRACTIVE FINANCIAL LEVELS WHEN YOU LOOK ONE YEAR FROM NOW AND SAY I AM IN HIGH QUALITY, IT FITS INSURANCE COMPANIES. EMERGING MARKETS ARE ON A VERY DIFFERENT PARADIGM THAT MARKETS. IF THE DOLLAR STAYS STABLE THE YIELD AND MANY EM COUNTRIES ARE STARTING TO GET OVER THE GAP ON INFLATION. EM IS AN INTERESTING WAY TO SUPPLEMENT YOUR PORTFOLIO. JONATHAN: ARE YOU STILL ON THE BORROWING ADVISORY COMMITTEE? RICK: I TIMED OUT ON THAT MANY YEARS AGO. JONATHAN: THE REASON I ASK, I REMEMBER YOU USED TO BE. I WONDER HOW YOU WOULD FEEL AT THE NEXT URA FUNDING ANNOUNCEMENT IF THE NEXT QRA ANNOUNCEMENT IF THEY ARE LONG AND IF THAT WOULD GET YOU IN BUYING SOME OF THAT DEBT? RICK: IT WOULD NOT. I HAVE HEARD THE ARGUMENT THAT WE SHOULD CUT OUT DEBT AND JUST ISSUE ON THE FRONT, I DO NOT THINK I WOULD BE AN ENTICING EXPERIENCE. THE BIGGEST PROBLEM IS ONE OF THE BIGGER PROBLEMS CREATED FOR MANY YEARS AS THE TERM STRUCTURE IS TOO SHORT. WE HAVE TO EXTEND THE WEIGHTED AVERAGE MATURITY. THE IDEA THAT WE WILL CUT OUT LONG BOND OPTIONS BECAUSE WE HAVE A NEAR-TERM PARADIGM AND WE WILL DISRUPT THE REGULAR PREDICTABLE AUCTION SCHEDULE IN THE UNITED STATES, I DO NOT THINK THAT IS AN EFFECTIVE VEHICLE. LONG TERM, MEDIUM TERM TOOLS MAKE A LOT OF SENSE. I WOULD RATHER SEE A PREDICTABLE, LET'S EXTEND, LET'S CREATE STABILITY IN OUR DEBT STRUCTURE SO WE KNOW THE CURRENCY WILL BE STABLE OVER TIME. THAT STRIKES ME AS MORE PRAGMATIC. >> DO YOU THINK WE ARE DISRUPTING THE NATURE WE TYPICALLY ASSOCIATE WITH SUPPLY FROM TREASURY? RICK: I DON'T THINK SO. I THINK THE OPTION SCHEDULES ARE WHAT THEY ARE. THE POINT YOU MADE EARLIER. I WATCH THESE 30 YEAR AUCTIONS AND 10 YEAR AUCTION LIKE A HAWK IT WAS ENCOURAGED BY YESTERDAY BUT WE HAVE A LOT OF DEBT. $520 BILLION A WEEK OF DEBT IN THE UNITED STATES. WE HAVE TO KEEP BACK AND FINANCING AT REASONABLE LEVELS. I DON'T THINK THE RATE DYNAMIC IS UNSTABLE TODAY, I THINK IT IS PRICING AND SPECTACULAR GROWTH IN THE NEAR TERM. I THINK THAT IS FINE. JONATHAN: WHERE IS THAT DEMAND GOING TO COME FROM FOR THE ISSUANCE OF THE LONG END AND CAN WE DEPEND ON FOREIGNERS THE WAY WE USED TO DEPEND GIVEN THE DEVELOPMENTS THAT MIGHT BE ON THE HORIZON IN PLACES LIKE JAPAN? RICK: YOU HIT THE NAIL ON THE HEAD. THE ANSWER IS NO. BECAUSE OF THE CROSS CURRENCY SWAP IN JAPAN. I LIKE LONG END JGB. OBVIOUSLY IN CHINA AND THE DEMAND IS GOING DOWN OR THERE IS NO DEMAND. I THINK IT IS DOMESTIC. YOU HAVE TO FIND IT DOMESTICALLY. PEOPLE UNDERESTIMATE THE POINT I MADE EARLIER. THERE IS NOT THAT MUCH -- THE REASON PEOPLE HAVE THE STEEPENER TRADE ON AND GET SQUEEZED OUT OF THE TRADE IS IT IS NOT THAT MUCH NET DURATION SITTING OUT THE CURVE AND SO AT SOME POINT WHEN THE ECONOMY -- GOD WILLING YOU GET BETTER STABILITY AROUND THE MIDEAST. THEN THE GROWTH OF THE ECONOMY STARTS TO MODERATE, WHICH I THINK YOU WILL START TO SEE OVER THE COMING MONTHS AND QUARTERS, ALL OF A SUDDEN THERE WILL BE PEOPLE WILL WANT TO BUY THE BACK END OF THE YIELD CURVE AND TAKE MORE INTEREST-RATE EXPOSURE. YOU HAVE TO SEE THAT MANIFEST ITSELF BEFORE YOU SEE A BEEN A SIGNIFICANT SIZE. JONATHAN: THIS WAS A CLINIC AND HOPE WE CAN DO IT AGAIN SOON. RICK: THANK YOU FOR HAVING ME ON FROM SASKATCHEWAN, CANADA. JONATHAN: RICK RIEDER OF BLACK ROCK ON THE LATEST IN THE BOND MARKET. A KID IN A CANDY STORE IS WHAT IT SOUNDS LIKE FOR RICK RIEDER. LISA: AT LEAST THE CANDY BEING OFFERED BY INVESTMENT GRADE CORPORATE ISSUERS, NOT NECESSARILY THE U.S. GOVERNMENT. THAT DICHOTOMY REALLY SHOWS UP AGAIN AND AGAIN WITH THE SINGLE INVESTOR WE SPEAK TO. JONATHAN: EQUITY FUTURES DECLINING .4%. LET'S GET AN UPDATE ON NEWS WORLDWIDE. VONNIE: CHINA MANAGED TO GET A HOLD OF PARTS FROM AN STEALTH FIGHTER JET AFTER A UPS EMPLOYEE MISSED IN EMAIL WARNING NOT TO ROUTE THE SHIPMENT THROUGH HONG KONG. THE INCIDENT HAS PROMPTED INVESTIGATIONS BY THE PENTAGON AND STATE DEPARTMENT. PRESIDENT TRUMP SAID TO AWARD SEVERAL TECH TITANS METALS FOR INNOVATION. SOURCES TELLING US NVIDIA'S JENSEN HUANG, ELON MUSK, AND LISA SU WILL BE SOME OF THE EXECUTIVES RECEIVING HONORS. THE TRUMP ADMINISTRATION IS ALSO SET TO ANNOUNCE MORE THAN 00 MILLION IN FUNDING FOR STEM EDUCATION. WITH A RECORD YEAR IS A RECORD PAYOUT. GOLDMAN SACHS MOST SENIOR LEADERS IS EXPECTED TO UNLOCK A BONUS AMONG THE BIGGEST THE FIRM HAS EVER AWARDED. SOURCES TELLING US IN BLOOMBERG ABOUT 20 EXECUTIVES ARE IN LINE FOR EQUITY AWARDS. THAT IS BLOOMBERG BRIEF. JONATHAN: UP NEXT WE WILL GET YOU SOME MORNING CALLS AND LOOK AHEAD TO THE CASH OPEN ABOUT ONE HOUR AND NINE MINUTES AWAY. ♪ >> I HAVE WAITED DECADES FOR THESE REAL RATES TO BE ABLE TO CREATE INCOME AT THESE LEVELS. THE FRONT END OF THE CURVE CAN KEEP YOUR VOLATILITY DOWN, KEEP YOUR INCOME HIGH IS STILL VERY ATTRACTIVE. JONATHAN: A 15 OR 20 MINUTE CLINIC FROM RICK RIEDER OF BLACKROCK ON WHAT IS HAPPENING IN THE BOND MARKET RIGHT NOW. WE WILL GET THAT UP ON THE WEBSITE FOR YOU LATER ON THIS MORNING AND ON THE BLOOMBERG TERMINAL. LET'S GET YOU INTO SOME OF THE MORNING CALLS. GOLDMAN UPGRADING PALANTIR TO BUY. MORGAN STANLEY LOWERING ITS PRICE TARGET ON NETFLIX, NOTING FLAT VIEWING HOURS IN THE ABSENCE OF A BIG ENGLISH-LANGUAGE HIT. THE STOCK IS POSITIVE .25%. JEFFRIES UPGRADING ROYAL CARIBBEAN TO BUY, SEEING HIGH CONVICTION GROWTH. THAT STOCK IS DOWN 1%. HERE IS THE PRICE ACTION. DOWN .4% ON THE S&P 500. DOWN .6% ON THE NASDAQ. YIELDS HIGHER. IN A JOBLESS CLAIMS, TENSE UP FOUR. LISA: WE WERE JUST HEARING FROM RICK RIEDER ON HOW REAL YIELDS ARE ATTRACTIVE BUT ON ON THE LONG END EVEN WITH THE HIGHEST LEVELS GOING BACK DECADES AT 3.4%. THAT IS THE DICHOTOMY. THEY LIKE YIELDS OF THE CORPORATE SECTOR, THEY LIKE THEM IN A LOT OF PLACES BUT NOT WHERE IT COUNTS. JONATHAN: LOOKING FOR SOFTER DATA INTO NEXT YEAR THAT WILL WEIGH ON YIELDS BUT WE DO NOT SEE THAT RIGHT NOW IN A BIG WAY. UP NEXT WE WILL GET YOU SOME DATA. ANOTHER ROUND OF INITIAL JOBLESS CLAIMS. NELA RICHARDSON OF ADP HERE TO REACT. YOU ARE WATCHING BLOOMBERG TV. ♪ JONATHAN: EVERY THURSDAY MORNING AT 8:30 THERE IS A NUMBER THAT YOU MIGHT HEAR US SAY. IT IS 200,000. THE FOUR WEEK MOVING AVERAGE FOR INITIAL JOBLESS CLAIMS IS PRECISELY 200,000. THE MEDIAN ESTIMATE FOR THE JOBLESS CLAIMS NUMBER IS 200,000. MICHAEL MCKEE WILL BRING THAT NUMBER IN JUST A MOMENT. EQUITY FUTURES DECLINING ON THE S&P. ON THE NASDAQ DOWN .6%. IN THE BOND MARKET YIELDS HAVE BEEN HIGHER. TENS AT 5.32. WITH THE JOBLESS CLAIMS NUMBER HERE IS MICHAEL MCKEE. MICHAEL: NO FOOLISH CONSISTENCY FOR THE HOBGOBLINS. WE HAVE 100 97,000 JOBLESS CLAIMS FILED LAST WEEK. THAT IS 3000 LOWER THAN THE ESTIMATE. 2000 LOWER THAN THE REVISED FIGURE FOR LAST WEEK OF 197,000. THE FOUR-WEEK AVERAGE IS 198,000, DOWN FROM 200,500. BASICALLY YOU CAN SAY THERE IS NO STATISTICALLY VALID CHANGE IN THE JOB MARKET SITUATION. JONATHAN: EVERY TIME WE GET THIS NUMBER I GET AN EMAIL FROM A COUPLE DIFFERENT CHARACTERS ACROSS THE BLOOMBERG TERMINAL ALONG THE SAME LINES. THIS NUMBER IS ALWAYS THE SAME. WHAT IS UP WITH THIS FIGURE. DOES IT SIGNAL RESILIENCE OR SOMETHING ELSE? IT IS AN ODD SITUATION TO BE IN TO SEE THIS EVERY WEEK. MICHAEL: I'VE BEEN OUT TALKING TO FED OFFICIALS ACROSS THE COUNTRY AND THEY ARE ALL TELLING THE SAME STORY. BUSINESSES ARE SAYING IT IS CAUTION. THEY STILL HAVE SALES THAT ARE EITHER GOOD OR RISING SO THEY WANT TO PEOPLE THEY HAVE BUT THEY DO NOT NEED ANYBODY ADDITIONAL AT THIS MOMENT BECAUSE THEY DO NOT HAVE CLARITY ON WHAT WILL HAPPEN DOWN THE ROAD. YOU ARE SEEING STABILITY IN THE LABOR MARKETS REFLECTED IN THE MINUTES YESTERDAY, WHERE THEY WERE TALKING ABOUT WHAT THE OUTLOOK FOR LABOR WAS. THEY DO NOT THINK WE'LL HAVE A BIG EXPANSION BUT WE ARE NOT SEEING ANY KIND OF REAL LOSSES. JONATHAN: THE ESTIMATE IN OUR SURVEY WAS 200,000, WE GOT 197,000. FOUR WEEK MOVING AVERAGE TO 198,000. FUTURES SOCCER ACROSS THE BOARD ON THE S&P AND THE NASDAQ. ON THE S&P DOWN 4% AND YIELDS HIGHER THROUGHOUT MUCH OF THE SESSION. TENSE AND 30 YIELDS HIGHER AGAIN THIS MORNING. LISA: THIS DATA POINT IS BECOMING THE MUZAK OF ECONOMIC DATA BECAUSE IT CONTINUES TO GRIND AT THE SAME LEVELS AND NOBODY PAYS ATTENTION TO IT ANYMORE. I WILL EXTRAPOLATE OUT THAT THE LACK OF A BREAKDOWN MEANS THE FEDERAL RESERVE CAN FOCUS ON INFLATION AND BRINGING RATE EXPECTATIONS UNDER CONTROL GIVEN THE JITTERS WE HAVE SEEN IN THE BOND MARKET. JONATHAN: NELA RICHARDSON OF ADP JOINING US TO BREAK THIS DOWN. HOW STABLE IS THIS JOBS MARKET? NELA: THERE IS STABILITY. WE ARE SEEING THAT. WE ARE SEEING STABILITY BUT NOT ACROSS THE BOARD. HEALTH CARE CONTINUES TO BE THE RELIABLE INDICATOR. THIS NUMBER, THIS JOBLESS CLAIMS NUMBER IS CONSISTENT FROM WEEK TO WEEK BUT THE CONTEXT IS CHANGING A LOT. I WOULD NOTE THAT THE LONG-TERM UNEMPLOYMENT RATE IS UP TO 27.1% IN THE LAST BLS UNEMPLOYMENT REPORT. WE HAVE TO LOOK AT THIS NUMBER IN CONTEXT. ANOTHER CONTEXTUAL POINT IS OVERTIME HOURS. I THINK THIS LABOR MARKET IS LITTLE BIT HOTTER THAN PEOPLE ARE GIVING CREDIT TO IT AND IN OUR NUMBERS THAT ADP WE ARE TRACKING ABOUT 95,000 A MONTH. WHERE WE ARE SEEING THAT SIGNAL EVEN STRONGER IS IN THE OVERTIME HOURS AND MANUFACTURING. EVEN THOUGH THOSE GAINS HAVE BEEN MODEST PEOPLE ARE WORKING A LOT MORE ON THE FACTORY FLOOR. JONATHAN: LET SIT ON CONTEXT. THE CONTEXT FOR 90,000 MONTH ON MONTH. WHERE IS THE BREAKEVEN COMPARED TO WHERE IT WAS AND HOW GOOD IS 90,000 IN 2026 COMPARED TO PRE-PANDEMIC? NELA: INITIAL JOBLESS CLAIMS EASY TO PREDICT. BREAKEVEN ALMOST IMPOSSIBLE. I HAVE HEARD ZERO TO 70,000 JOBS. THE NUMBERS ARE TELLING US THERE IS A CONFIDENCE OR PLUS OR -122,000 JOBS. THAT MEANS ANY TIME WE GET A NUMBER FROM THE OFFICIAL DATA WE HAVE THIS WIDE CONFIDENCE IN OUR VOTES, WHERE WE ARE THE CYCLE. WE HAVE TO LOOK AT OTHER DATA IN ADDITION TO THE HEADCOUNT NUMBERS. I AM LOOKING AT OVERTIME PAY, I AM LOOKING AT PREMIUMS BETWEEN JOB CHANGERS AND JOB SWITCHERS. I AM LOOKING AT ACTIVITY IN THE GOOD CENTER THAT SUPPORTS THIS CAPITAL INVESTMENT BOOM THAT COULD LEAD TO HIGHER GROWTH AND POTENTIALLY HIGHER PRICES. LISA: HOW LONG WOULD IT TAKE OF RATES BEING AT THIS LEVEL BEFORE YOU START TO SEE IT BLEED INTO THE LABOR MARKET? NELA: I THINK THERE WOULD BE A CHALLENGE. WHERE YOU WILL PROBABLY SEE IT IS IN SMALL FIRMS. YOU MAY NOT SEE THAT INTEREST RATE LEAD INTO LARGER COMPANIES AND THEIR HIRING. YOU MIGHT SEE IT MORE IN THE SMALL FIRMS THAT ARE MORE DEPENDENT ON BANK LOANS. SMALL FIRMS ARE REALLY THAT INTENSE SIGNAL OF THE TRANSMISSION MECHANISM TO MAIN STREET. RIGHT NOW SMALL FIRM HIRING LOOKS OK. THEY ARE NOT SIGNALING THAT THEY ARE BEARING THE BURDEN OF THIS RATE INCREASED SO THAT IS A PLACE TO LOOK AS WE CONTINUE THROUGH THE CYCLE AND MAY ANOTHER RATE INCREASE. LISA: WHAT DOES THAT TELL YOU ABOUT THE NEUTRAL RATE? IF YOU ARE NOT SEEING ANY KIND OF RAMIFICATION WHEN IT COMES TO HIRING PLANS OF SMALL FIRMS FOR RATES BEING AND ELEVATED LEVELS RELATIVE TO LAST 20 YEARS, DOES THAT SUGGEST A HIGHER NEUTRAL RATE, THAT THIS ECONOMY IS LATE RATE SENSITIVE EVEN IN AREAS THAT HAVE TRADITIONALLY BEEN MORE RATE SENSITIVE NELA: WHEN IT COMES TO CAPITAL INVESTMENT THE ECONOMY IS MORE RATE IN SENSITIVE THAT HAS BEEN HISTORICALLY. IF WE ARE LOOKING AT OVERTIME WHICH IS A TREMENDOUSLY GOOD SINGLE MANUFACTURING, IT IS UPSTREAM FROM THE TRADITIONAL FACTORS OF PRODUCTION. UPSTREAM MEETING TRANSPORTATION EQUIPMENT. INDUSTRIAL CHEMICALS. TECHNOLOGY HARDWARE. THESE ARE THE THINGS WE ARE SEEING AN INCREASE IN ACTIVITY. THEY ARE SUGGESTIVE AN ECONOMY RAID TO MAKE AN INVESTMENT BOOM DESPITE HIGHER INTEREST RATES AND THAT IS REALLY IMPORTANT TO KEEP IN MIND. IT IS NOT GOING TO BE ONE NOTE. YOU'RE GOING TO SEE SOME SECTORS CONTINUE TO EXPAND WHILE OTHERS RETREAT. WE ARE NOT SEEING OVERTIME IN CONSUMER ORIENTED SECTORS LIKE APPAREL, LIKE FOOD AND BEVERAGE. THIS IS NOT SOMETHING WHERE CONSUMER SPENDING IS TAKING OFF AND CONSUMERS MAY ULTIMATELY PAY THE BIGGEST BURDEN FOR HIGHER INTEREST RATES. ANNMARIE: THAT IS THE POINT WHEN IT COMES TO SOME OF THE SECTORS THAT THEY ARE STILL SPENDING EVEN WITH HIGHER RATES. THEY ARE NOT IMMUNE. WHAT COULD PULL THEM BACK? NELA: YOU MEAN MANUFACTURERS? ANNMARIE: MANUFACTURERS. NELA: I THINK WHAT COULD PULL THEM BACK, WHAT HAS PULLED THEM BACK IN THE PAST IS UNCERTAINTY ON THE POLICY LANDSCAPE. THAT IS EVEN OUTSIDE THIS MONETARY STORY. THEY LOOK AT GEOPOLITICS, THEY LOOK AT TRYING TO PLAN OUT THE BIG INVESTMENT PROJECTS BY 10 OR 20 YEARS OUT AND NOT HAVING THE KIND OF CERTAINTY ABOUT WHAT THE LANDSCAPE IS, THAT IS GOING TO LEAD TO RETRENCHMENT. THAT IS WHY OURS IS SO EFFECTIVE WHEN IT COMES TO HIRING. HIRING IS EFFECTIVELY LEVERED BECAUSE YOU CAN ADD ACTIVITY WITHOUT ADDING PEOPLE. YOU JUST CHANGE THE SHORT-TERM METRIC WHICH IS OURS. MAYBE THAT IS WHY WE ARE NOT SEEING THE HIRING EXPAND IN MANUFACTURING WHICH IS BEEN MODEST BUT WE ARE STILL SEEING ACTIVITY. JONATHAN: NELA RICHARDSON OF ADP BREAKING DOWN WHAT SHE BELIEVES IS A HOT LABOR MARKET OR HARDER THAN OTHER PEOPLE THINK. JOBLESS CLAIMS 197, THE ESTIMATE WAS 200,000. VERY STABLE SO FAR. IT IS NOT AS IF WE LOOK AT THE LABOR MARKET FOR A HIKE, CERTAINLY RIGHT NOW THE LABOR MARKET IS NOT SAYING TO STOP. LISA: THAT IS THE THEME FOR THE DURATION OF THE YEAR. IT IS NOT NECESSARILY GIVING A NEW FLAG THAT WE NEED TO HIKE FURTHER. A WAGE PRICE SPIRAL DOES NOT SEEM TO BE IN THE OFFING. THE FED IS LOOKING AT CPI NEXT WEEK. JONATHAN: IT HAS BEEN ABOVE TARGET FOR FAR TOO LONG. OCTOBER 14 FOR THE NEXT CPI. WE'LL START WITH STOCKS IN GOING TO BONDS AND FINISH ON CRUDE. EQUITIES OBSESSION LOWS. DOWN .4% ON THE S&P. IN THE BOND MARKET, TWO, TENDONS, AND 30. HENCE HIGHER BY FOUR BASIS POINTS. I WANT TO FINISH ON CRUDE. HERE ARE REPORTS OF INTERCEPTING MISSILES IN SAUDI ARABIA. IT IS KEEPING CRUDE ELEVATED. IT IS WORTH FRAMING THAT IT IS NOT OVER YET. AT THE START OF THE WEEK THERE WAS A HOPE THAT THE SAUDIS MIGHT BE ABLE TO DO SOMETHING ABOUT THE DISRUPTION CAUSED BY THE HOUTHIS IN THE RED SEA AND THE EAST-WEST PIPELINE IN SAUDI ARABIA. THE REPORTS IN TERMS OF THE STRIKES IN SAUDI AND THE INTERCEPTION OF MISSILES IS NOT ENCOURAGING. ANNMARIE: WE KNOW THE HOUTHIS STRZOK TWO AIRPORTS IN ARE GOING AFTER CIVILIAN INFRASTRUCTURE. THESE SAUDI COALITION SAYING MISSILES ARE TARGETING THE COUNTRY AS WELL AS IF YOU LOOK AT FLIGHT TRADER, THEY SAY THE RIYADH AIRPORT IS CLOSED. THERE IS CONCERN ABOUT THE ESCALATORY MEASURES. POSITIVE BY 4% ON BRENT. LET'S GET YOUR STORIES WORLDWIDE. VONNIE QUINN HAS MORE. VONNIE: JOBLESS CLAIMS HOLDING STEADY AT 197,000, JUST SLIGHTLY BELOW ESTIMATES FOR 200,000. CONTINUING CLAIMS AT 1.70 2 MILLION, HIGHER THAN ANALYST EXPECTATIONS AND UP FROM THE PREVIOUS WEEK. BROADCOM IS SEEKING FUNDS TO HELP OPENAI PURCHASE CUSTOM CHIPS THE PAIR DEVELOPS TOGETHER. THE WALL STREET JOURNAL REPORTING APOLLO AND BLACKSTONE ARE AMONG THE LENDERS WORKING TO ARRANGE MORE THAN $50 BILLION. THE MOVE IS PART OF A RECENT SURGE IN FAILS TO PAY FOR AI INFRASTRUCTURE. NEW HIRES IN FINANCE MAY HAVE TO WAIT BECOME STUDENTS. THIS IS FROM GOLDMAN AND RAISES THE QUESTION OF WHAT HAPPENS TO THE MIDDLE MANAGERS THAT TRADITIONALLY FILL THOSE ROLES? THAT IS YOUR BLOOMBERG BRIEF. JONATHAN: UP NEXT WE WILL SET YOU UP FOR THE DAY AHEAD PLUS THE FORMER WHITE HOUSE SENIOR ADVISOR WITH CRUDE GAZING ON MIDDLE EAST ESCALATION. CLOSE TO 05 ON BRENT CRUDE. YOU ARE WATCHING "BLOOMBERG SURVEILLANCE." ♪ >> IF YOU HAVE AN ECONOMY GROWING AT NOMINAL GDP OF SIX PLUS PERCENT, AND OUR NOW CAST IS CONSIDERABLY FASTER THAN THAT , IT IS HARD TO ANTICIPATE A SIGNIFICANT DEFAULT CYCLE THAT WILL PRESS SPREADS WIDER. I DO NOT THINK WE ARE SEEING A DEFAULT CYCLE. JONATHAN: RICK RIEDER OF BLACK ROCK ON FIXED INCOME EARLIER THIS MORNING. EQUITY FUTURES ON THE S&P 500 -.4%, NEAR SESSION LOWS. DOWN .7 ON THE NASDAQ. THE MOVE IN THE BOND MARKET IS JOB HELPING. NEAR THE HIGHEST LEVELS IN THE MONTH FOR DECADES GOING BACK TO 2002 IN THE LONG END OF THE CURVE. IN AND OUT OF THE LEVELS. THE SQUEEZES COMING FROM CRUDE. BRENT CRUDE UP CLOSE TO 5%. A BIGGER AND BIGGER FOCUS ON SAUDI ARABIA THROUGH THIS MORNING. ANNMARIE: THE SAUDI LED COALITION SAYING THE INTERCEPTED HOUTHI MISSILES. THE RIYADH AIRPORT IS ON HOLD. NO FLIGHTS GOING IN AND OUT. THE SAUDIS THIS WEEKEND SAYING THREE PEOPLE WERE KILLED WHEN THE HOUTHIS WENT AFTER AIRPORTS IN THE KINGDOM. THIS WILL BE THE RISK PREMIUM ADDING TO THE OIL MARKET. AT THE SAME TIME YOU SEE THE IRANIAN STARTED TO STRIKE MORE VESSELS IN THE STRAIT OF HORMUZ. OIL IS GETTING OUT. IT IS COSTING A LOT MORE IN THE IRANIANS ARE PUSHING BACK. JONATHAN: WE WILL TRACK THOSE TO FILAMENTS IN SAUDI ARABIA. BUT SEEK AN OPPORTUNITY AHEAD OF THE OPENING BELL TO GET YOU SINGLE NAMES. YAHAIRA: WE START WITH ALPHABET. TEARS BUCKING THE RISK OFF MOOD IN THE MARKET, UP .7%. THAT IS BECAUSE OF NEWS IN THE LAST HOUR UNVEILED A NEW AI AGENT FOR BUSINESSES TRYING TO COMPETE IN A SPACE LONG DOMINATED BY ANTHROPIC AND MICROSOFT. IT IS CALLED GEMINI UNIVERSAL WORK AGENT AND HE CAN HANDLE EVERYTHING FROM WRITING CODE TO ANALYZING DATA AND CAN CREATE ITS OWN TEAM OF AI AGENTS TO HANDLE COMPLEX TASKS. IT IS STRIKING TO SEE THE CHIP STOCKS ARE WEAKER THIS MORNING DESPITE ALL OF THE REPORTS OF COMPANIES LIKE SPACEX AND ORACLE LINING UP TENS OF BILLIONS OF DOLLARS TO BUY AI CHIPS. THE DEMAND IS NOT THE PROBLEM. INVESTORS SEEM TO BE WORRIED ABOUT WHETHER ALL OF THAT SPENDING WILL GENERATE ENOUGH REVENUE OR WHETHER THEY ARE LEFT SADDLED WITH HUGE DEBT LOADS. WE END ON PEPSICO. THOSE SHARES RISING 1%. ANALYSTS SAY THE RESULTS WERE BETTER THAN FEARED, EVEN AS THE COMPANY CUT ITS FULL-YEAR EARNINGS FORECAST. THE PROBLEM FOR THEM IS NORTH AMERICA WHERE HIGHER COSTS ARE SQUEEZING PROFITS AND THE SALES ARE NOT THERE AS CONSUMERS DEAL WITH INFLATION. WE ARE HEARING FROM THE CEO ON THE CALL THAT IS ONGOING RIGHT NOW. HE SAYS WE DO NOT FEEL GOOD ABOUT THE BEVERAGE BUSINESS. WE ARE PUTTING OFF THE URGENCY IN SODA. IT SEEMS LIKE THAT OF THEIR FOCUS RIGHT NOW. JONATHAN: SOME OF THE NAMES LOOK FOR INTO THE CASH OPEN INCLUDING PEPSICO, JUST ABOUT POSITIVE IN THE PREMARKET. CRUDE CLIMBING ON FEARS OF ESCALATION IN THE MIDDLE EAST. MULTIPLE OUTLETS ARE SAYING THE WHITE HOUSE HAS TOLD THE PENTAGON TO PREP POSSIBLE STRIKE OPTIONS AND IRAN. JOINING US, FORMER WHITE HOUSE SENIOR ADVISOR AMOS HOCHSTEIN. WE WILL START WITH SAUDI ARABIA IF THAT IS OK. HOW DIFFICULT IS IT TO GET THE HOUTHIS TO BACK DOWN? AMOS: VERY DIFFICULT AS IS EVIDENT HERE. THE HOUTHIS AND YEMENIS ARE A TOUGH CROWD. THERE'S NOT A LOT OF HEAVY INFRASTRUCTURE TO TAKE OUT. WE CARRIED OUT SEVERAL STRIKES AGAINST THE HOUTHIS IN THE BIDEN ADMINISTRATION AND WERE ABLE TO REACH A NEGOTIATED CEASE-FIRE BETWEEN SALLY AND THE HOUTHIS THAT LASTED A FEW YEARS. THE IRAN WAR THEN UPENDED ALL OF THAT. AT THE END OF THE DAY THE HOUTHIS OUR INDEPENDENCE BUT THEY HAVE ALLIANCE ON THE IRANIANS AND ARE A PROXY. THEY DO NOT DO EVERYTHING THE IRANIANS TELL THEM TO DO AND THEY HAVE THEIR OWN ANIMOSITY WITH SAUDI, BUT THE IRAN WAR HAS JUMBLED UP A LOT OF THINGS THE MIDDLE EAST AND THIS IS ONE OF THOSE DERIVATIVES OF THE IRAN WAR. WHILE WE ARE NOT SEEING A CONNECTICUT WAR IN IRAN, THEY SHOULD BE SEEN AS ALL ONE IN THAT THE ISSUE. WE DID NOT COME TO THE DEFENSE OF SAUDI ARABIA WHEN THE WHO WHEN THE HOUTHIS WERE ADVANCING. THE SAUDIS CALLED AND WERE TOLD THEY WOULD GET HELP BUT THEN UNITED STATES DECIDED TO PULL BACK WE ALLOW THEM TO TAKE STRATEGIC ASSETS. ANNMARIE: I HEARD YOU WERE RECENTLY IN THE KINGDOM AND MET WITH THE CROWN PRINCE. IS THAT THE SENSE YOU GOT FROM THEM MUCH OF WANT UNITED STATES SHOULDER TO SHOULDER WHEN IT COMES TO THE HOUTHIS? AMOS: THERE IS AN EXPECTATION WHEN THE UNITED STATES LAUNCHES A WAR THAT THE REGION DID NOT WANT OR LOBBY FOR BUT ONCE IT WAS STARTED THEY ARE OUR ALLIES. THEY ARE STRATEGIC PARTNERS. WHEN THAT HAPPENS THEY JOINED AND THEY SUFFERED THE BRUNT OF THE CONSEQUENCES. THEY GOT ATTACKED. THEIR ECONOMIES GOT ATTACKED. I THINK IT IS NOT ABOUT WHAT THEY WANT. IT IS AN OBVIOUS EXPECTATION. WHEN WE GET ATTACKED BY THE HOUTHIS WE WILL GET THE U.S. AIR FORCE STRIKING AT THE ADVANCING HOUTHIS AND NOT SILENCE IN THESE GUYS. ANNMARIE: DO YOU THINK THIS LATEST ESCALATION MIGHT CHANGE HOW THE TRUMP ADMINISTRATION WILL THINK ABOUT THAT? AMOS: THE TRUMP AND MINISTRATION HAS NOT CARED SO MUCH ABOUT WHAT THE HOUTHIS ARE DOING. THAT IS PRETTY EVIDENT. I THINK THEY HAD SOME DEAL WITH THE HOUTHIS, DON'T ATTACK AMERICAN INTERESTS OR ASSETS, AND ALLOWED FOR SHIPPING. THAT CLEARLY WAS THE DEAL BECAUSE THE HOUTHIS USED TO ATTACK AMERICAN INTERESTS AND ASSETS AND THEY HAVE NOT. IT IS A BELIEVABLE DEAL THAT COULD HAVE BEEN REACHED. I THINK THE PRESIDENT SEPARATELY IS FACING A BIG DECISION ON IRAN , AND THAT IS HE IS IN A STALEMATE. ANNMARIE: YOU THINK THIS REPORTING IS REAL OR JUST A NEGOTIATING TACTIC THAT HE IS WEIGHING THE PLANS TO STRIKE BEFORE THE MIDTERMS? AMOS: I HEARD ABOUT THIS CONVERSATION HAPPENING INTERNALLY ABOUT AFTER THE MIDTERMS VERSUS BEFORE THE MIDTERMS AND I'VE NO IDEA IF THEY ARE THINKING ABOUT TWO WEEKS OR FIVE WEEKS. IT WOULD MAKE MORE SENSE TO ME TO DO IT AFTER THE MIDTERMS. THE MIDTERMS ARE LARGELY ABOUT THE WEAKNESS OF THE PRESIDENT AS A RESULT OF THE WAR. DOUBLING DOWN ON THE WEAKNESS SEEMS TO BE SUSPECT FOR ME. THERE IS A STRATEGY WITH IRAN THAT WE HAVE AN EMBARGO ON IRAN. THERE ECONOMY IS COLLAPSING. THOSE ARE TRUE STATEMENTS. THERE ECONOMY IS COLLAPSING. LET'S KEEP THAT IN PLACE FOR SIX MONTHS OR EIGHT MONTHS AND LET THAT PLAY OUT. IT DOES NOT PLAY OUT OVER ONE OR DOES TWO OR THREE MONTHS. THIS IS A VERY STRONG REGIME. THAT IS A PATIENT'S GAME AND MANY IN THE REGION THINK THAT IS THE RIGHT WAY TO DO IT. DO NOT GET SUCKERED INTO KINETIC TIT FOR TAT. KEEP THAT GOING. THEY CAN AFFORD IT. I DON'T THINK THE ADMINISTRATION CAN AFFORD IT. YOU TALKED ABOUT CRUDE CLIMBING TO 105. THE SCREEN SAYS I'M 105. THE LAND COST AND THE DIESEL PRICE IN THE UNITED STATES IMPLIES NEARLY $200 ON A 15 YEAR AVERAGE DOLLARS SPREAD. I DON'T KNOW THAT YOU CAN WAIT SIX MONTHS WITH THIS BECAUSE LOOK AT THE BOND MARKET. LISA: IN THE MEANTIME HOW YOU GET THAT DOWN? IT IS THE INSURANCE COSTS FOR THE SHIPPING CONTAINERS. IT IS NOT NECESSARILY HOW MUCH OIL IS GETTING THROUGH EITHER AT THE STRAIT OR THE STRAIT OF HORMUZ. AMOS: WE HAVE TALKED ABOUT THIS FOR THE ENTIRE WORLD. THERE IS CRUDE AND THERE IS PRODUCT. PRODUCTS ARE NOT COMING OUT OF THE MIDDLE EAST WHICH IS WHY WE HAVE MORE CRUDE COMING OUT BECAUSE THEY ARE NOT REFINING. AT THE END OF THE DAY CRUDE COMES OUT. WE HAD AN EMBARGO ON IRAQ AND THEN WE HEARD ABOUT ALL THE TEAMS. THE QUESTION BECOMES AT WHAT PRICE POINT IS IT WORTH IT, IS THE RISK WORTH IT. I HEARD YOU ON THE SHOW SAYING THE ATTACKS ON TANKERS HAVE INCREASED. THEY HAVE NOT INCREASED. WHAT HAS CHANGED IS THE REPORTING. WE HAVE HAD FOR MANY WEEKS TANKERS GETTING HIT, PEOPLE GETTING KILLED, AND ZERO REPORTING BECAUSE THIS IS A SECRET WAR. ANNMARIE: I AGREE THAT THERE HAVE BEEN ATTACKS THIS ENTIRE TIME BUT I AM HEARING FROM INDUSTRY SOURCES THAT THEY HAVE ESCALATED. AMOS: I THINK THE SHOOTING IS GOING ON A REGULAR BASIS FOR SEVERAL WEEKS. THEY ARE HITTING TANKERS WHICH WHY THE PRICE FOR AND IT CRUDE IS VERY DIFFERENT. WHAT IS IT WORTH TO ME? IF CRUDE PRICES GO DOWN AND YOU'LL HAVE LESS OIL GOING THROUGH THE STRAIT OF HORMUZ BECAUSE THE RISK PREMIUM WILL NOT BE WORTH IT. HOW YOU BRING THESE PRICES DOWN? RED-DYE DIESEL IS NOT HOW IT WILL COME DOWN. THEY HAVE A FUNDAMENTAL PROBLEM. YOUR QUESTION OF DOES HE GO BACK TO WORK? HE HAS COUPLE OPTIONS. WHAT IS YOU GO BACK TO SAY I CANNOT WAIT THIS ANYMORE, I WILL JUST CARPET BOMB AND I WILL TAKE EVERYTHING OUT AND LET THE CHIPS FALL WHERE THEY MAY. THE OTHER OPTION IS TO SAY I WILL WAIT THIS OUT. I THINK HE IS VERY UNCOMFORTABLE WITH BOTH OPTIONS, THEY ARE NOT GREAT, THE WAR HAS NOT GONE WELL . I THINK THIS REPORTING WILL CONTINUE TO ZIGZAG BECAUSE THEY DO NOT KNOW WHAT TO DO. JONATHAN: GOOD TO SEE YOU. PRETTY NEGATIVE MESSAGE BUT IT IS GOOD TO SEE YOU. OVER WHITE HOUSE SENIOR ADVISOR AMOS HOCHSTEIN. LISA: I WAS GOING TO SAY WHO HAD A POSITIVE MESSAGE? JONATHAN: BRIC SEEMED EXCITED AT BLACKROCK. LISA: HE IS STILL NOT BUYING LONG-TERM BONDS. HE IS IN CANADA FOR WHATEVER REASON. JONATHAN: A REASON FOR A VACATION. BRENT CRUDE UP 4% OR 5% THIS MORNING. COMING UP TOMORROW, JEFF CURRIE, CHRIS VERRONE, SARAH MALIK. GOOD MORNING. THIS WAS "BLOOMBERG SURVEILLANCE." ♪ ♪