Bloomberg Surveillance 9/29/2026

The market is taking into consideration the scale of capital spending. The drivers of growth are in particular the eye spending boom. This market has a correlation breakdown under the surface. The market's bracing for the same sort of episodic indigestion. Sometimes when there is volatility that can actually be an opportunity. This is Bloomberg surveillance with Jonathan Ferro Lisa Abramowitz and Annmarie Horden earn live from New York City this morning. Good morning. Good morning for our audience worldwide. Bloomberg Surveillance starts right now coming into Tuesday on shaky ground, the eye trade helping to insulate equities from bond yields a multi-decade highs as the president is convening tank leaders with regulation top of mind and throw off its IPO prospectus is leaking. Reuters reporting some big risks and some major costs. So is prospectus, as leaked to Reuters, opposes the risk of catastrophic, catastrophic or existential risks to humanity. Okay, so there's that side of things at the same time. They plan to spend $518 billion in cloud computing and infrastructure applications over the next few years. So yay for the spending, maybe in terms of supporting the AI trade. On the other hand, the idea that any kind of AI system could resist, shut down, and conceal or manipulate information doesn't exactly leave people feeling good. What struck me about this prospectus, as well, in Reuters, is that they devoted roughly 80 pages of the 261 page main body of its prospectus, laying out risk factors. That's nearly twice the 48 pages it actually used to describe its business. So they're coming out basically saying here are all the risks. And then guess what? They're gonna go over the white House and have lunch with the president. Yeah. And if you can't stop the prospectus from leaking, how can you sound, frankly, like can we trust them to regulate themselves? Surely that's got to be part of the conversation this morning. OpenAI or much looking good after this from anthropic. Well, yes, this is going to be a really interesting lunch because you have the likes of OpenAI and anthropic leaders meeting off of Tencent. Wong, who says. This isn't an issue of you guys self-regulating. This is an issue. Of you guys not having responsible business models. Given the fact that OpenAI did delay some of their more advanced models for security concerns. Gives a sense that they are now prioritizing the business concern of having rogue AI agents over potentially being first with the most frontier models. The OpenAI IPO delayed into next year, maybe even longer. This IPO is already delayed. It's leaking into November, perhaps even longer. Mr. Miller just moments ago postponing their IPO due to uncertainty in the market. This is not the IPO window the bankers were hoping for coming into full. This was supposed to be an incredibly active season. Remember, every single conversation that we had with bankers of major Wall Street firms said the pipeline is as full as they have ever seen it. This may be what the Federal Reserve is trying to accomplish. The uncertainty in markets, the turmoil in the implied volatility in bond yields, all leading to this window shutting at least for opportune financing and giving a little bit of, uh, I don't know, a less frothy edge to this otherwise pretty a bullion market. Speaking of the Federal Reserve, have you seen the list of speakers today? There are six of them. Six fed officials speaking later today on a range of things, including payments, the economy and a monetary policy. It kicks off later on this morning with Governor Bowman. You'll hear from Governor Barr. You'll hear from Austin Goolsbee once again. Remember his speech last week getting a lot of attention. That line about this not being painless look out for Williams later on 2 p.m. Eastern time. That was a guy heading into this decision that some people thought on the margin might be one of those who dissented to the decision to hike interest rates. Where does he stand on underlying inflation, underlying inflation in America? When he said that it was promising, and then he voted for a rate hike, and then he came out and said, ultimately, we need to make more progress. And it's clear that inflation is moving in the wrong direction. Bob Michael of J.P. Morgan yesterday highlighted that John Williams was arguably the most important speaker to hear from. Given the fact where are the doves? There is no dovish moderating voice on the FOMC at 3 p.m., so 2 p.m. is fed to the first John Williams, and then at 3 p.m. Chris Waller also speaks. Interesting to hear both of them back to back later today. Get some data as well later on this morning. Looking for jolts, job openings, the appetizer for a whole long list of data points throughout this week on the labor market. We'll get claims later this week ADP as well. Payrolls on Friday in the mix, PCA on Wednesday PCA in focus inflation in America just weeks away from the midterms. This is a huge problem still. I mean front page of Axios this morning is talking about how GOP strategist are basically saying that heartland of America's farm country is struggling right now. And that might mean what you would think a Republican stronghold could flip what's going on. And this administration is still debating whether or not to have a diesel export ban. It's not so much the issue of oil. The issue is underneath the surface when it comes to gasoline and diesel, it's in the product. We've said it a million times on this program, that debate, that policy proposal just one night. Coming up on the program will catch up with any if you do any research a stubborn yield squeeze equities Dan Ives of York the lives of an anthropic IPO prospectus lakes and Anders Pearson of Nuveen projecting peak inflation. We begin this hour with elevated yields keeping the pressure on equity markets worldwide at John Sandy. If you have any research rising, we suspect that the bond market has been hacked by bond vigilantes. Algorithms. They respond to news headlines with huge trades that exacerbate volatility. At. Joins us now for more. And welcome to the program, sir. It's good to see you. Do you believe we might be entering a little bit of a negative feedback loop in this bond market where high yields fuel deficit worries and that fuels high yield. So we're on the brink of that. And I think we're on the brink of it. We're sort of in the midst of it. We've actually seen I think uh since the beginning of the year. A synchronized increase in bond yields might actually have started last year. I think a lot of that has to do with what we've previously discussed. Um, the Bank of Japan is raising interest rates, and that is causing an unwind of the global carry trade, which I think is affecting, uh, global bonds. Uh, and so a lot of that is kind of a knee jerk mechanical event. Um, but at the same time, I think we also have these algorithms that'll take any news whatsoever that's out there and some of that's been bearish and kind of blow it up. Uh, so we get these rapid increases in bond yields. And at what point do you think it becomes self-limiting that the bank steps in. Because people start to worry about the damage. I think there's already a lot of worry about the damage. People are already kind of wondering what's what's going to break here. Uh, so I think we're already at that point. I think the best way to monitor that is to just, uh, keep watching where the bond yield is relative to short term rates. Usually you start to get, uh, bond yields going up less than short term rates when bond investors become, uh, increasingly convinced that a short term rates continue to go up, uh, that something will break. And of course, the two year treasury, uh, here and around the world has been a very good leading indicator of what central banks are going to be doing. And right now, uh, the two year treasuries, uh, in all the major, uh, countries in the world are pointing towards more tightening base by central bank. So, um, uh, on September 15th, they've kind of, uh, concluded that, uh, we want to proceed with caution here when it comes to the equity market, will it turn out to be, um, actually a good call? Uh, more of a good call for the bond market, though. I was focusing on the equity market, so. And you said it's a good time to proceed with caution this morning. We were just talking. John mentioned that Aurora has postponed its IPO due to what it called uncertainty in the market, even as it reports a 90% revenue growth over the year of 2026. Right. Is this potentially the sign of something breaking when it comes to the pipeline of deals that are trying to get done? Well, I kind of am watching Oracle more closely because of the Stargate deal, where Oracle, uh, is uh, in a partnership with, uh, OpenAI and SoftBank to build, uh, the data centers. And I think the total commitment is $500 billion. And just recently, one of those data centers, uh, was postponed rather significantly because of a 19 mile gas pipeline in New Mexico, was rejected by the state. So, uh, yeah, there's there's starting to be some stresses in the eye trade as well. Uh, and of course, that's, uh, what has continued to hold the market up. Um, uh, quite well near a record high for both the Nasdaq and the S&P 500. Does this mean that at this point, if something might break or there are signs that at least the broader risk appetite is waning or at a pretty accelerating clip, does that make you bullish bonds? We heard from Jim Bianco yesterday that he is getting bullish for the first time in years, just based on this technical retracement. I would say that, uh, bonds, uh, yielding 5.25%, uh, are very attractive. Um, you know, certainly on a ten year basis. Uh, and the good thing about bonds is if you just hold them, you'll get you get your money back and you get the yield. And I think, uh, again, five and a quarter is a pretty, pretty good yield, but it, uh, doesn't feel like this is necessarily the peak. And bond yields will think even, uh, Bianco said that, uh, we might, uh, find that, uh, we can get even better yields if we just kind of, kind of wait here. So I'm not convinced that 5.25% is necessarily the top in yields. Uh, I was thinking that that was the case, but I think. But, um, I'm increasingly wondering whether the unwind of the yield curve trade is, uh, a big problem here. This kind of I just recently wrote, uh, actually last night that this might be the revenge of the bond vigilantes. Um, the bond vigilantes were suppressed from, uh, the great financial crisis to the great virus crisis, uh, with quantitative easing and zero interest rates. And now that they've been sort of liberated and free to express an opinion, uh, they're saying, well, you know, you accumulated all that debt, uh, near zero interest rates back then, and now you're going to have to refinance that at these yields. And that's that's concerning. I looked at it this morning. You called it invasion of the bond Vigilante algorithm. So how high ed do you think yields can actually go? Well, I know I think more and more people are thinking about the possibility of getting closer to 6%. Uh, I would say 5.5%. I'm not uh, um, I'm not getting into the alarm stage here. I think we are going to find lots of buyers this at these kind of kind of levels. The same thing happened in 2023 when the bond yield got to 5% very quickly. We saw that the auctions actually started to go very well. Uh, and then bond yields actually declined because of inflation moderated. Um, this is not exactly the same scenario right now. Uh, one of the reasons I turned more cautious in mid September is because of what's going on in the Middle East. Higher for longer oil prices means stickier, uh, inflation means that central banks are not in a one and done mode, uh, but are in a tightening mode. And that in turn is pushing up bond yields. Uh, so I think the, the good and the bad news is that, uh, the repricing in the bond markets are occurring pretty rapidly, and that's hurts in the short, short term. But, uh, to the extent that we get to where the terminal rate is for the bond yield, uh, that that will be helpful. We saw another hike overnight down under in Australia. And thank you, sir, at John Downey if you have any research. Central bank after central bank responding to this high yields worldwide we often hear that don't we. High yields all around the world with the exception of one notable very large economy and that's China. Chinese yields actually year today on government bonds have been lower. And this economy is different. This government is looking to subsidize things and get the economy moving again. The latest from the PRC, China to subsidize interest payments for first time homebuyers. First home purchases. This is an important move from the Chinese. They're looking to stimulate growth. They have a very different problem over in China compared to the problem. We talk about every single morning on this show. They have essentially a disinflationary spiral, and they have consumers that are unwilling to spend, and they are unwilling or unable to meet their 5% bogey when it comes to GDP growth that's required for them to maintain equilibrium. And people were expecting, based on some policy statements yesterday, from the Chinese, from the PBoC, that they were going to inject stimulus. Here it is. Is there more to come? Is this going to be enough? The latest push from Chinese authorities this morning. Equity futures just about unchanged on the S&P 500. Whether in the bond market still and the commodity storm as well. Let's get you an update on news worldwide with your Bloomberg brief. Vonnie Quinn has more. Hey, funny. Hey, John. Good morning. President Donald Trump is criticizing the release of five men in the U.K. who were arrested over an alleged terror plot against a Royal Air Force base used by the US for strikes against Iran. The men were released on bail after an investigation found no viable explosives at the scene. British police are continuing to investigate the incident. Goldman Sachs is working on a plan for CEO John Waldron to succeed David Solomon as CEO soon as next year, the Wall Street Journal reporting. Waldron could take over towards the end of 27 or in 2028, with Solomon's move into an executive chairman role or postponing its market debut due to what it's calling uncertainty in the IPO markets. The smart ring maker is saying the company is profitable and has further strengthened since the beginning of the IPO process, adding, quote, we aim to deliver an extraordinary IPO for our employees and investors. We have the luxury of choosing our moments. And that is your Bloomberg brief, John. If only. Thank you. Thanks for the update. I'm next on a program predicting victory over Iran. We're going to win that. We're very soon to get a win. As far as I'm concerned. It's going to be one way or the other. It's going to be it's going to go pretty quickly. Up next, we'll catch up with Tobin Marcus of Wolfe Research live from New York City this morning. Good morning. This week starts picking up later on this morning. You get some economic data, consumer confidence, job openings, looking for job openings later on at 10 a.m. eastern time. Then I get together with the president of the United States and the tech titans. The I c I was looking at the headlines that comes from that and the fed speak. Later on, you'll hear from Governor Walla, Governor Bowman, Governor Barr, you'll also hear from the New York Fed President John Williams on what to do about this economy and what to do with interest rates in the equity market right now. The S&P 500 weaker through yesterday's session. No real sign of big negative follow through. Just about as stable on the S&P 500 this morning. Likewise on the Nasdaq. But we hold on to these levels in the bond market. Yields up some up. Another basis point was sent this yesterday. The curve three years are now 5% and higher on a two year. Getting closer to five for 94 this morning. Am I just inching higher? Going into this data, you know, I'm still thinking about what Edward said, which is on one hand it seems attractive. On the other. This is suddenly a sea change where people are able to express a view and they are not happy with the fiscal deficits. They're not happy with the inflation, they're not happy with having to lend their money out unless they're getting paid pretty significantly. So at this point, does it have a self-fulfilling nature? If you have deficits that only get worse or as yields climb? Are we entering a doom loop kind of spiral that leaves these yields potentially much higher? That's the negative feedback loop that we were talking about this off of the program. Are we on the brink of that. And with that already we'll have that debate throughout this hour. The commodity story looks like this. Brent pulling back by a quarter of 1%. Brent at 105. WTI at 92. Let's talk about the latest on the Savannah this morning predicting victory over Iraq. Iran will never have a nuclear weapon. We're going to win that war very soon. It'll be over and the gas and gas prices will come tumbling down. Look at the wind. As far as I'm concerned, it's going to be one way or the other. It's going to be. It's going to go pretty quickly. As soon as that war ends, inflation is going to be eradicated. Totally. So here's the latest. This morning, Iranian officials announcing a peace deal can't be reached before the midterms. Sources telling us here at Bloomberg that Tehran sees a risk of the conflict escalating after November 3rd, with the latest from Washington town of Kendall has more. Hey, Tyler. Hey, John. Good morning. Well, people familiar with the matter tell us that Iranian officials have privately conveyed pessimism about a deal, adding that little progress was made last week on the sidelines of the UN General Assembly. U.S. officials says the white House has made it clear that it is looking for firm commitments from Iran on reopening the Strait of Hormuz, as well as concessions related to its nuclear program. Now, Iran's foreign minister has remained in New York since last week and did meet with Qatari mediators overnight. But Iranian state media is reporting that he has said that they, quote, strongly deny that there's any flexibility regarding nuclear. We also know that Iran is looking for the U.S. to lift its military blockade when it comes to its port, something considered to be a non-starter as well as is seeking financial relief. But we heard from President Trump yesterday denying a report by Axios that he would be willing to ease sanctions in exchange for getting a deal done. In fact, U.S. officials are saying just the opposite that they want to ramp up the economic pressure on Iran, with the U.S. Treasury Secretary, Scott Besson, adding that right now, the U.S. estimates that Iran has only about 15 million barrels of oil that remain out for delivery, and soon those exports will dry up. Now, John, Iran's foreign minister, did say that the country is awaiting a final response from the U.S. to the latest proposal as soon as today. But at this point, it's unclear if any progress has been made on any of these issues. The town of Kendall, where the latest in Washington town of. Thank you. To build on this conversation, Toby Marcus of Wolf Research writes the following. Despite the growing political pressure on Trump from rising yields and diesel prices. I want base case is no deal before the midterms. Tobin joins us now from our Tobin. Welcome. What's informing your base case? Thanks for having me. Um, the challenges in, uh, in bridging the gap between the two sides positions is the core reason for our pessimism about the speed with which we can realistically get a deal. And fundamentally, it's not that different than the reasons that we, uh, we're cautioning, you know, it's going to take a long time to get a deal back in in April and May. You know, both sides want a deal. I think ultimately there is a recognition on both sides that the war can't last forever, and that the only way to durably get out of this crisis is some kind of a deal. But they are in very different places, both about their specific red lines and, uh, apparently after the last few days of headlines about the US side's nuclear demands. I think there's a big disparity just in terms of the concept and overall structure of a deal, um, which is deterioration relative to to where we were in May and June. Tobin, how do you read the reporting that the president might actually want to reinstate the bombing campaign after the elections? That strikes me as a fairly empty threat based on where we stand with weapons stockpiles. We've had many rounds now of President Trump either publicly threatening, uh, major escalation of the bombing campaign or reports coming out that he is discussing that internally with aides, which is what the most recent round, uh, mostly looks like. Ultimately, I think that the concerns about US based survivability, our ability to protect regional energy assets based on how depleted, uh, us, um, air defense interceptor stockpiles are, those are fairly binding constraints. Not that we literally cannot, uh, resume the bombing campaign, but that there's a lot of good reasons not to. And the Trump's hearing that from his military advisors. So I think that's an attempt to apply pressure, but not something I'm expecting to happen after the midterms to happen. Can we talk about the political implications at home in Axios this morning of a GOP campaign consultant saying in Iowa, we should brace for losing everything? That's quite harsh in a country that in a state where no one would expect that to flip to Democrat, do you think this is going to push the president into the diesel export ban? I don't uh, I think that publicly toying with it the way that he did last week and then not actually having done anything a full week later, you know, despite indicating that action would come within days. All these reports about the continued pushback he's continued to get from, uh, from industry, um, insiders and from folks, uh, with energy experience within the administration, the indications that, um, Senator Cruz, you know, told people he had been firmly assured by the white House that this was not happening. I think they've heard that it's a bad idea from people in the energy industry. And this is the reason for our skepticism about that idea in the first place. Not even that, you know, that they'd look at the pros and cons and make a decision. But what the you know, people with energy in the administration, like Secretary Rice are saying is it wouldn't even help, you know, even if you wanted to, uh, you know, bite a bullet to do this. It's just not productive in the first place. Clearly, affordability is very much in the forefront of this election season. And I just wonder how much bond yields are as well as we see some of the highest yields going back to 2007 on benchmark rates. And that's also affecting affordability. Yeah, they're certainly in the forefront of our minds. I think that the the mortgage interest rates facing consumers are in some ways the single most salient element of the affordability crisis. You know, gas prices are bigger on a day to day basis. But, you know, buying a home is this very core aspirational, uh, idea for a lot of voters. And it looks really far out of reach based on where interest rates are. So that certainly is something that the white House has been responsive to in the past. You know, the climb down from Liberation Day, uh, seem triggered by bond yields. I think even the push towards the final stage of negotiations towards the June MOU with Iran, uh, seem to have been triggered by the mid-May spike to 4.66 on the ten year, practically point level at this point. So that definitely is a consideration. I think it's one of the things that's pushed the white House back towards diplomacy. But again, a long way to go to actually get a deal. I like how you sum up why yields are higher were worse deficits in data. It seems like one of them has to give in order to durably and materially reduce yields. Were well it seems to be a quagmire, at least for the time being. Worse. Worse is going to possibly be the next Volcker based on his rhetoric. That could change, obviously, deficits. Is there any chance at all that we could actually reduce the US deficit? I don't see much of it. Uh, and that's that's, you know, precisely the the upshot of that framing that we've been using is that all those policy levers are really intractable. And so then you're going to need to see some data slow down in order to get yields down. I mean, look, the deficit projections, uh, are stuck in the 6% of GDP range for the foreseeable future. And then I think you have mostly risks to the upside of that. You know, anything that Congress does next year is probably going to be deficit increasing, whether that's higher defense funding than we expect because we're at the low end on defense funding, whether it's a health care deal, you know, most of the things that could happen next year increase the deficit. And then, of course, we have the potential of, uh, worsening negative feedback loops with, um, with, uh, interest rates, where the CBO assumptions about interest expense, you know, they have the terminal average interest expense for U.S. debt at 3.9. The entire yield curve is well above that at this point. So so upside risks there as well. Toby Marcus of Wolfe Research Toby, thank you. On the bond market and the politics, the president voted in on three things get inflation down, address immigration. And it was a fight against what a certain congresswoman likes to call woke one, which apparently was crazy. I've no idea what what two is going to look like, but that was work. One on immigration on a southern border. Done exactly what he said he would take on inflation. This war has already not helped. Affordability is very much front and center for a lot of people, because right now a lot of people are feeling pretty raw and you can see that in the polls. Question is, will that reflect what happens in, uh, in ballots just weeks away for the midterms? Up next on the program, we'll talk about technology tonight. If your lives as anthropic ambitions meet some surging chaos. Live from New York City. You're watching Glenn Beck TV. And. The data kicking off later on this morning. Consumer confidence out a little bit later on together with job openings. Looking after all of that. Plus then later in the week we'll get payrolls on Friday. Lisa pointed this out earlier this week. And she's right to ice and manufacturing just gets a little bit more attention off to that very powerful red hot US PMI begun just last week. And it was S&P data. And I'm not knocking S&P data. But S&P data usually isn't considered the gold standard in the same kind of way the ISM was. And it's still got as much traction as it did because of the surprise to the upside. Fastest pace of a ism S&P composite growth going back five years. If we get the same kind of read through, how much does that unleash a further sell off in the bond market? Or if we already got into freak out stage for the bond vigilantes, are you suggesting the S&P PMI is to the extent what ADP is to payrolls? Are you okay? You just said it. I mean I didn't say that, but that's what I was thinking I we're talking well maybe they should put that on the SATs because it seems like a good analogy. ADP and payroll is a little bit later on this week. Look out for their equity futures right now the S&P 500 slightly firmer by about a 10th of 1% on the Nasdaq. Just about unchanged on the S&P 500. Likewise on the Russell. We've seen two year yields higher by more than 50 basis points so far this month. This equity market has been flat over the last month within 2% of all time highs on the S&P, even with the two year up to 4.92. What's going on? Mike Wolfson and Morgan Stanley says that equity markets aren't made from Teflon. They are readjusting. The equity market is not complacent around the risk. More than 50% of Russell 3000 stocks have seen drawdowns of at least 20% since June, and the S&P multiple is banking in 19 times. That is close to the March lows. If you take a look at the Russell 2000 is down more than 4.5% so far in September. You can see a lot of sectors that have gotten really beaten up utilities, real estate, industrials, all of the more cyclical areas. It also has been an area where you've seen stocks of companies with incredible earnings not do anything. And that in a way is rerating just based on the price to earnings ratio that a lot of people look at. Earnings season just a few weeks away looking for it kicks off with the banks. The banks heading into earnings season not doing so well at the moment. That could be a story in the commodity market pulling back just a bit. 92 on WTI Brent around 105. The good news. The east west pipeline up to 50% capacity out of Saudi Arabia. The bad news. No date in sight heading into the midterms. That's right. This is why potentially you see a little bit of pullback when it comes to Brent crude and WTI because oil is flowing. Wall Street Journal also has a couple of report that actually a lot more oil is getting through the Strait of Hormuz. Although the blockade has been able to shield Iranian exports from coming through. At the same time, you read all the reports, no matter where it is. Looks pretty downbeat in terms of getting a deal done within the next few months. So potentially this is going to the question begs what happens after the midterm elections? Because the other reporting is that the president is going to reinstate a bombing campaign on the regime. The Iranians clearly worried about that as well. Based on initial reports, one of five on Brent went down by 2/10 of 1%, three hours away from the up and up. Now let's get some single names for morning move as you Hira has more Hira. Hi John, we start with the top gainer in the premarket and that is Summit Therapeutics. Shares are soaring more than 20% after AstraZeneca said it is investing $2 billion in the biotech, with hopes to work together on some its experimental cancer drug. This, of course, comes at a time in the industry when these drug makers are looking for their next source of growth, ahead of a wave of patent expirations. Meanwhile, we move on to fair Isaac. This is the company behind Fico. Credit score shares are up, plunging more than 13% after housing regulator Bill Pulte said rival vantage score will join Fico on Fannie Mae and Freddie Mac's mortgage pricing grid. That puts fight goes long held dominance in the mortgage market under pressure, and could change fees on some new home loans. At a time when we know mortgage rates are sky high and we end on the betas. This is, of course, a chip maker shares soaring more nearly 12% in the premarket after the chip maker said that it won an Army contract to develop next generation power chips for defense made here in the U.S.. It's a massive pot for a deal we know very little about, and Navitas hasn't said what the contract is worth or how long it runs, but investors are getting excited about it. John Uehara, thank you. Thanks for the update from Mihara and our next hour on our radar this morning, one of our top stories and thrown out with a serious warning out of its historic IPO Valley with the company there $2 trillion. Reuters reporting and Tropics Respect Us warns this technology poses, quote, catastrophic or existential risks to humanity. Elsewhere, OpenAI scrapping the rollout of the latest version of its Astra model as it works to establish stronger safeguards. The company also pausing training of its most powerful version after rogue agents breached government websites in the US and Australia. And finally, President Donald Trump hosting tech giants at the white House today. Politico reporting Jensen Huang, Mark Zuckerberg, Dario Amodei will be in attendance. The administration facing intense pressure to adopt new guardrails for the use of I. So do you think that President Trump and Jensen Huang said at one end of the table and everybody else, maybe Alex Karp on the side than all the others at the end? And it's just sort of like, stop it already. It's not an existential risk. It's not going to end humanity. We got to keep trotting forward. And you have the likes of Dario Modi saying, but, but, but the real issue here and what everyone is looking at is self recursive technology, or the idea that I systems can improve upon themselves, and the fear is that they could potentially create something that cannot be unplugged, that cannot be stopped with basic human intelligence, and that is the ultimate fear. This is what Bernie Sanders and Ro Khanna have talked about, possibly preventing in terms of the development, until there are safeguards. I'm curious what they come up with and what the readout will look like. Speaker Johnson says basically, they have to strike the right balance. They don't want a moratorium. They want to make sure that they win this race against China. At the same time, everyone in Washington is feeling this pushback. And politically, that's probably why the president is having this lunch, bringing them all together and showing that besides the fact that some of them are Dumas and he's a bit more optimistic about AI and the future of it, the entire stock market might rely upon it right now. The fact of the matter is, he needs to show that he cares what these individuals are saying and that Washington is attuned to the risks. Although I'm not quite sure. If you look at his schedule says it's a superintelligence meeting in London. I'm not quite sure superintelligence is catching on with these. I know that's the key phrase, and I'm only half joking. I imagine the communication teams who spend a lot of time on this. If you want to come out of this meeting unscathed, you can have a difference of opinion, but make sure you stay on message. This is superintelligence. And didn't we get a taste of that from Mattis, Mark Zuckerberg and last week? Yes, I believe it was yesterday with that tweet. He's talking about superintelligence that's powering meta. I still maintain that this is a free one for branding. Just call it American intelligence. Have you sent that to the president? No, I'm saying it right. You should send a message. So if he takes it up, kicks it off a little bit later on today, as sent back to anthropic, the company steamrolling ahead with huge AI spending plans going into its blockbuster IPO. Denis, if you're Philips writing advanced, this will focus on its massive growth profile. This will be a watershed event for the tech sector and the market. Dan joins us now for more than welcome to the program. It doesn't come without controversy. Let's talk about the details. The customer concentration. Dan, how much of this company is built on just a handful of names? Yeah. I mean, look, the nature, the hyperscalers and just what we're seeing on the GPU side, it's going to be constrained now. But I don't think that that's necessarily that much of an issue. I think investors understand in this I build that it starts with the small group and it's going to expand. Because remember, we're still third inning of the AI revolution. Anthropic is in a unique position. But definitely this is eye opening in terms of for the market. And I think finally investors, they've anticipated this watershed event because anthropic front and center in the area. It's certainly a unique proposition. Dan, how unusual is it to see a company in a perspective, one about existential risk to humanity? Yeah, I mean, that's definitely a first. And I think it speaks to that. A sales pitch or a warning that, hey, again, that's a head scratcher. Saturday Night Live skit, right? I mean, I think look, I think part of the problem is, is that if they slow down, China wins. And I think that's sort of the problem here, is that the safety guardrails that you could put in, you know, the genie is already out the bottle. And I think you've seen Jensen, the Dow and others kind of talk about it. You know, also part of the problem is you can't get to the top floor and then pull the ladder up. So the regulatory capture is another issue that's playing out here. And I think the reality front and center today, probably in the white House, is that there needs to be safety guardrails. But you can't have politicians into two area code slowing down innovation, especially when China is accelerating. Jen, is that really true that this is going to just give China an upper hand? If you put limits or guardrails around recursive recursive AI, self improving AI, that's something that the PBoC isn't particularly interested in engaging with, and that ultimately potentially leaves a sort of authoritarian regime at the hands of a technology that could potentially go rogue. My view is, for the first time in 30 years, the US is ahead of its time when it comes to tech. And I think part of this balancing act or quagmire is that the reality is that for the US, if you actually start to slow down the models, slow down innovation, try to narrow the gap. And that's just the reality. I think when you what Karp talks about and I agree sovereign I Jensen talks about this as well. I think that is much more of the focus now, probably a focus today in terms of enterprises having control of their own data. But look, in my view, the data center build out what companies are looking at when it comes to use cases. It's still early days, but you can talk about both sides of the mouth. And I think that continues to be what investors need to glean through talk versus action. Meanwhile, people are talking about just the scope of money that's being raised. I mean, the latest in this prospectus, reported by Reuters of anthropic talks about $518 billion of additional spending in the future on data sensors, cloud computing. At what point are we promising the financing of something that's bigger than any other industrial revolution in the United States, with kind of an unproven returning proposition? I mean, yes, we're seeing some returns on this, but the spending is incredibly robust and only accelerating from here. And we're going to have 4 to 5 trillion being spent next, you know, 3 to 4 years. But you're building the Vegas Strip in 1955. I mean that that's where we are relative to what this is going to look, going to have physical AI and data and automobile space and where it all plays out. I think investors understand that these companies just can't spend and see no returns. And I think that some that we've seen with the public companies for anthropic, that will be the focus for investors, is that when you start to see the return, the growth is eye popping relative to what they're seeing. But it's that balance. And then for investors is understanding what are the derivatives of this, the second, third, fourth derivatives. Because this anthropic goes public and others, it's healthy for the overall tax base that these are public companies. Transparency just like we've seen in beeswax. Hey Dan, I have a question regarding this meeting this afternoon, the superintelligence luncheon with the president. Do you think he's trying to get the industry on board to some of the communication he has been using when it comes to AI, or is it the other way around where potentially you have the industry trying to get the president to sign up on maybe some regulation? I think it's the former. I think it comes down to you can do about Duma, you can scare people, say AI is taking 50% of white collar jobs, electricity bill is going to go higher. It's going to be an issue for mankind. And then all of a sudden, um, you know, talk about growth. I think the reality is that it's a beast. The data center issues the midterms. It's a political debate. Tech industries created the PR nightmare themselves. And I think it's I think there's definitely some sort of, you know, closing the door to understand and getting everyone on the same page. Because if you do that, it just fuels the fire relative to try to close some of the data centers, which is a negative for the industry, and then the winner for every data and that closes or doesn't happen is China that it's got to say, thanks for catching up with us. Is there a viewer for Lives On the latest in the late prospectus from anthropic from Reuters overnight. It's a big story. What's the risk? This doesn't happen. You don't get the IPO and two year rent. Well, and ultimately, how much does the turmoil in markets increase that proposition? I mean, I think that's one reason why aura is so interesting delaying their IPO. Is this a sign of a suboptimal time to come to market for companies that have the option of pushing it into 2027. The window not as big or as wide as we thought it might be going into fall. Equity futures right now in the S&P just about unchanged. A rocky ride over the last 24 hours in both stocks and bonds. Let's get you up to speed with your Bloomberg brave Vonnie Quinn has more. Hey, Vonnie. Hey, John. Thank you. China is expanding its overseas travel restrictions for top AI professionals to private firms to include the families of key personnel. Sources telling us here at Bloomberg, the spouses and children of AI and chip executives now need approval from Beijing before going abroad. President Donald Trump denying and Axios report that he offered sanctions relief and frozen funds to Iran. Tom, commenting on the report in a post on Truth Social, saying, quote, this is untrue, I offered them nothing. The president added that Axios should withdraw the article she and shares tumbling in Hong Kong, trading in its first earnings report since going public. The company reporting a 53% drop in operating profit and net revenue growth that was nearly flat. The fast fashion retailer also warning of second half uncertainty. And that is your Bloomberg brief John Anthony thank you. More from Vonnie in our next hour. Up next on the program tamping down the demons. The entire yield curve is oversold. The demons have set in. And once we get TCE this week, uh, once we see the labor market things will start to settle down again. Up next will catch up with this person of Nuveen live from New York City. You're watching Bloomberg Surveillance. For base losses to start the trading week, equity futures just about unchanged following Monday's losses. Equity features this morning going nowhere on the S&P somewhere on the Nasdaq positive 5.15 yesterday, quite struggling once again, adding to six consecutive weeks of losses for the equal weight S&P 500 protectant. Escape the pain item. Sammy's chip struggled just a little bit as well. In the bond market 2/10 and 36 levels, we held them elevated multi-decade highs, pulling back by only a basis point on tens and not even on 3554 on a 3522 on tense heading into a week full of economic data. Yeah, a key question about the labor market and how much a robust labor market report in the United States could propel yields even higher. Interesting that we don't have any significant bond auctions. I imagine it's a breath of relief for the Treasury Department that we don't have a, say, a seven year, 20 year, one of the like, you know, lost children of the bond market getting sold either way. A real question. Also the ISM manufacturing, whether that confirms the strength that we saw in the S&P Composite Index that we got last week, a big repricing of this bond market so far this month. Around 50 basis points here on twos and on ten on the savannahs this morning citing the bond market two months. The entire yield curve is oversold. The demons have set in. Everyone has PTSD going back to 2022. Does the fed have to do 200 basis points or more? I think once we get ECB this week, uh, once we see the labor market, things will start to settle down again. So here's the latest this morning. Treasury yields are multi-decade highs as traders brace for a flurry of data. And Fed's feet too. And as person of Nuveen writing, Koepka is peaking and should moderate to around 3% by year end with only a modest drag on consumers. And it joins us now for more. And it's good morning. Good to see you. Thanks for having me. I think repricing so far this month and another leg higher after a hot PMI just last week. Do you expect this week's data to validate the strength we saw last week. Yeah I mean certainly with some key data Koepka being one of them. But we have the jobs number on Friday as well. I would say probably the jobs is where we're a little bit more focused on at this point. We have a fairly good feel for why the core PC could and should come out. We have a re revision as well as, you know, on the PC side. So that's going to be a little bit more interesting perhaps in more respects. But I think the jobs number on Friday is really kind of key here to really get a better feel for how strong is the U.S. economy after that PMI number that surprised everyone? That's certainly what we were really focus on. And more so on that side and then inflation side. As we know at this point, the fed and most market participants are, you know, focus on the inflation side is really kind of the strength of the jobs market that I think we're much more focused on at this point. So much of this year, you can make a pretty strong case that yields are up for good reasons, that nominal GDP has continued and maybe accelerated based on what we saw with the PMI. I've got no idea. We'll look out for the data later this week. Are we starting to see some batteries set into this bond market action too? Yeah. I mean I would say it feels like a bit of a perfect storm. I think that's a term we've been using on the desk here for the past few days. Um, you know, of course you had the fed hike and then of course, a lot of fed chatter after that. You had this PMI number that I mentioned. You have the ongoing concerns in the Middle East. I actually think that's a big, big driver here is this there's just no resolution in sight. And that, you know, now that the first derivative effect of the oil's been oil price being high is now filtering more to the second derivative affects diesel being a key one very big focused. Add to some of the auction concerns. Some of the I hyperscalers issuance you just pulled out altogether. And you have a sort of a toxic kind of tub mix here that's pushing yields higher and higher. So it's really tricky to kind of point to one thing that's going on, you know, rival this. It just feels like the trend is higher at this point. So what do you do. Just sort of like sit back, hope for the best, not do anything to and snooze, as John was saying yesterday. Yeah. I mean, we, uh, I would say we we have been short duration for quite some time. We haven't had a lot of conviction on the duration side. We are, you know, moving more neutral at this point. We're not quite comfortable going long duration yet just because all these moving pieces are still hard to quantify and putting, particularly on the Middle East kind of conflict, like how long is that going to continue? So instead of what we're doing, we're really diversifying the rest of the fixed income space. We continue to find opportunities in the spread sectors, particularly on the credit side. But even in securitized in the CLO space for our more tax focused investors, we find opportunities on the Muni side, a preferred side. So we're coming back to like really using the full investable kind of universe and fixed income and taking our bad stuff away. It's fascinating that people have more confidence in corporate America, the corporate creditworthiness of, uh, of U.S. companies than the U.S. government. That's what it seems like right now. How concerned are you about the sort of doom loop that we were just talking about earlier, this idea that as yields go up, it only makes the fiscal backdrop that much worse for a lot of developed market economies. Yeah, yeah. I mean, that's part of the reason why we're probably even more comfortable playing these spread sectors to corporate credit kind of world, because that part we can analyze, we can kind of look at the economy being strong. Credit fundamentals continue to hold up. Default rates may move up a little bit but are still under control. Whereas some of the doom loop kind of trap aspects of us are really, really hard to pin down. And I think it's important to keep in mind that this is not just a US phenomenon, right? This is a global phenomenon. We're seeing yield pressures everywhere. And some of those fiscal deficits kind of concerns are spreading everywhere. So that's why we're having a tougher time getting really comfortable going after the duration side of things and more comfortable playing a bit of a carry trade on other parts of fixed income. Does a pickup in rates all upset some of that for you because we have seen that pick up right fall. Yeah. I mean, certainly it makes it even more difficult to make that assessment. I think, as you both alluding to, there's a point where yields become so high that even corporate credit starts getting, you know, under pressure. Certainly if you're, you know, private credit or you kind of basically so for based on the floating rate aspect of it, start really kind of having an impact on the balance sheets. I don't feel like we're right there just yet. In fact, leverage loans on senior loans is probably one of preferred asset classes. Now you can getting nine, 9.5%. So I don't think we're really quite there yet. But if anything, I think the credit markets have been behaving incredibly stable. If you look at even equities as well. Right. So risk markets more broadly, it's really that move index that's moving around a lot. But you know VIX everything from credit spreads have been moving a bit wider in the past few trading days. But we're not seeing cracking just yet. We caught up with Goldman Amanda Line and the last couple of days. And she made the case that if you go up in quality, you actually just confront negative technicals because that's where the is further up the quality ladder. Do you sign on to that as well? Is it difficult to to go to the default safety play in front of these days? I mean, I would say I would maybe take a slightly different tack to that. I think when we look at, you know, some of the benchmark and index levels, it's easy to say nothing is happening when you go below that. Under the surface, there's quite a lot of movements and industries getting pressure. There are new issues kind of bringing, you know, opportunities up to us from that perspective. So yeah, are we probably a little bit in that camp too, a little bit more up in quality? Yes. But we're comfortable going into the more spread earlier sector. So single B Double B's continues to offer in our view a pretty attractive risk reward at this point. Um, but, you know, we fortunate to have a very large research platform. We can dig a bit deeper. So I think that's the approach that we're taking. Do you do your work, do your security selection and kind of take advantage of that? And it's good to see you. Thanks for being here. Thank you. And it's person I've never been on this fixed income market. As we're having this conversation a couple of headlines just jumping across the Bloomberg terminal on the latest in the Middle East and the diplomatic effort, crude at the moment down by about 6/10 of 1%. Around 100 for the latest. Just moments ago. Yeah. The Qatari foreign minister saying they're exchanging messages possible solutions with the U.S. and Iran. But of course that is their job as mediators. And they've been doing that since February and thus far, no real major breakthrough. Seven months and counting, this ball market, this commodity market just not been getting quite the same white bread still around one of five WCI around 92. Up next we'll catch up with Eric Johnson of cancer, Joyce Chang of JPMorgan Chase, Carey Holt of Bank of America, Karamana of Federated Live from New York City. You're watching Bloomberg TV. The U.S. economy is still on relatively positive footing. There is a lot of money still sloshing around. This economy is less less sensitive than we've seen in the past, and I think it's going to be hard to get inflation under that two and a half sort of percent for long. If there's a need to continue hiking, then that's when things break. This is Bloomberg surveillance with Jonathan Ferro Lisa Abramowitz and Annmarie Horden earn you live from New York City this morning. Good morning. Good morning. From an audience worldwide. The second day of Bloomberg Surveillance starts right now. And your score as the price action looks like this. Equity futures turn it around. Just about positive on the S&P 500. Likewise on the Nasdaq. As you trade across the yield curve twos out to 30 tens down a couple of basis points down about one this morning to 522. The commodity market turning around as well. Crude on the back foot. Brent and WTI pulling lower on Brent crude to about 124 this morning. Down by 6/10 of 1%. Just a little bit of relief on stocks bonds and commodities. No relief from this. The data and the fed speak. You will hear from six fed officials later on today. It kicks off a little bit later this morning and the economic data begins. JOLTS job openings at 10 a.m. eastern time. Consumer confidence as well. And that data just keeps picking up. Heading into the weekend, we're going to get some manufacturing. And of course, the key event, the payrolls report that comes out for the month of September on Friday. Ultimately, I like how Tobin Marcus put this, said the four concerns that really have been fueling bond yields are war, worst deficits in data. And right now, if you don't get a resolution on the war front and you have data that continues to accelerate, well, you have to hope for the Washington to reduce deficits. And considering that that's probably not going to happen anytime soon, it's a reason why bond vigilantes are having a meltdown and yields are continuing to go higher. Question is, at what point does that start to threaten cracks in the underlying economy and frankly, the risk on trade? To be honest, I have that entire list. The deficit is one that is not going to be something that there's any solution for us. Recently, reading a Wall Street Journal report where someone close to the white House and close to the president said the deficit bringing it down doesn't even enter his mind. He doesn't care about it. And guess what? Next year, if we have a divided government and they need to raise the debt limit deficit, it's just going to explode. The budget is going to explode because everyone needs to walk away with a win. We've had a meltdown in this one market. We haven't had much of one on the equity market at the index level. We'll spend some time talking about what's happening beneath the index, but not at the index level. Are you starting to see some disruption, not some signs of a bit earlier on this morning or delaying its IPO? The grand scheme of things, not a massive deal, but maybe there's only enough space now. Philanthropic and not much room for anybody else. Yeah, and aura is a company that has the choice. This is important, the idea of taking advantage of conditions that are favorable. A lot of bankers have been hoping that conditions would be favorable in the fall, considering how big their pipelines are, or also reported that they've got 90% revenue growth so far this year. And yet the market conditions aren't conducive to the most successful IPO. If you have the likes potentially, of anthropic delaying their IPO, akin to OpenAI. What kind of disruption would that make on the AI that's been the ballast of this equity market? And what kind of IPO is this going to be? If the roadshow literally sounds like a horror show? Our development of highly advanced models, platforms and application expansion of use cases could further increase the risk that our models cause harm. They're talking about potentially harm of, quote, human extinction in this prospectus. So that is going to be, I think, a very difficult rollout as they go around the country. I don't normally get excited about annexation from the big banks, you know that. But on this occasion, the bank's trading a lot softer heading into this earnings report in about two weeks time, down about 10% on the S&P 500. That guide on capital markets activity and year end. It's going to be pretty interesting. Some of those banks set the bar a little bit lower. The likes of Bank of America, for instance, heading into this earnings story, that might be one to watch in a few weeks time. Let's find out what the pipeline looks like now. Viable deals that are willing to come given the markets currently. What are consumer balance sheets looking like in the face of higher yields. And potentially, how much risk do they see of people moving out of deposits that aren't paying a little bit more? In other words, are the times of free deposits coming to an end as people take a look at where two year treasuries are, close to 5%, say 0.5%, does that really make sense? Someone needs to quote Torsten Slack on an earnings call. I think that in two weeks, I think that is suggesting I think it may be injected into a risk prospectus. Prepare Jamie Dimon for that question. All right. I'll work on it, Jamie. Earnings season starting October 13th. To think about this as the date circled on the calendar right now. Coming up this time we'll catch up with Eric Johnson of Cancer. On why he's looking for the bond market to stabilize choice shank of JPMorgan. As President Donald Trump prepares to host tech leaders for high stakes talks and Karamana Federated Hermes on the opportunities being created by rising yields. We begin this hour with stocks flat as higher borrowing costs continue to weigh on Wall Street. Eric Johnson of Cancer, seeing a light at the end of the tunnel, writing almost the entire move has been an increase in term premium real yields. So we would expect these high yields to create some demand. Eric joins us now for more. Eric good morning. Good to see you. It's been a big question for us. We've talked about twos and snows just by the two year. And then take the rest of the year Ralph if I can get 5% at the front end. Why chase equities into year end? So certainly the competition is a big deal. And you know to the point on a real yield, the real yield on the 30 year right now is 3.3%. On the ten year it's about 2.9%. So you know translation you can on inflation plus 2.9% for ten years. I think that's going to start to become attractive to to many you know, pension funds. Um, but from a funding perspective for the equity markets and for the economy, it's just not as big of a driver as it once was. So even with the hyperscalers that are raising significant amounts of debt, the reality is looking at their balance sheets, There are no net debt position or in some cases net cash position is very it is very small. Right. So although the yes they're raising they're raising debt, the ROI that they are expecting is just not going to be that impacted by the higher cost of, of the debt. And so it's something that the equity market can absolutely absorb. Um, though the competition right is is certainly there in is going to have some impact. To your point, you said it the index has absorbed that story. How much disruption is taking place beneath the index level. So beneath it it's a very different story. Right. So if you look at tech, it's had this massive outperformance over the last few weeks. Um, the rest of the market has become a source of funds. Personal agents has been part of that story. Right. Stocks getting hit that are, that have subscriptions. Um, or you mentioned, you know, banks there on the opening. Right, Is your personal agent going to figure out how to most efficiently last year? What do you think the bank's paying was about? Do you think it's a tech disruption story or a cycle play to tech disruption directly? Yes. Yeah. Just elaborate. So, um, you know, when when you look at when you look at a bank and you look at their funding, right. A lot of their cheap funding is coming from deposits, right? In many cases that's the that is the best that is the best funding. That is the cheapest. And if you think about someone keeping money in a checking account, right, they're always keeping that buffer, right, to be able to operate their lives. So to the extent that they have a personal agent to most efficiently keep that balance as low as possible in order to operate with the rest of the money going into higher yielding, uh, money market funds, which right now are a good example because they're rising, um, and they're up to, you know, 3.75% and going higher. So I think that is there's one risk. And and the other risk, of course, is just around the management of one's money. Right. And so you saw a lot of, you know, from the, uh, Schwab and so forth getting hit on that type of concern. And I think it's probably not something that's going to be in the near term, but you can see it on the horizon with a fair amount of confidence that it's coming, you know, at some point, what's the concern here? Is it the slot concern of a run of on a bank, where all of a sudden muse is downloaded by everybody and it's managing everybody's money, and money just floods away from the banks that are paying 0.5% to banks that are paying 5%. Or is this potentially a slow bleed where you have to pay out more in order to attract customers, and it really reduces your ROI? Yeah, I think it's more of the latter. Um, because I think there'll be protections that will be put in place, uh, by the banks in order to protect against, um, you know, your first point, but I think just in terms of the operations and the costs that a bank will need to fund that. Those costs are probably going to be going higher to the benefit of, uh, consumer. Um, but as we know, banks have the ability to figure things out. Right? If you think about the cost to trade. Um, whether it used to be $20, 0 and then $5 and now it's free, right? But they figured out how to how to make money. So there will be a lot of adapting. To be clear, they're not just going to sit there and let themselves become victims. How much are we looking at a scenario that, you know, in my mind, I'm reading this as the areas that could potentially get more vulnerable to higher yields. Am I looking at it wrong? Is it more the areas that potentially are more disruptive all by the eye? That is the stalwart of this economy. I mean, is that the better way to look at some of the dispersion under the hood? Yes, I think that's that's the biggest that's the biggest driver. Because, you know, when you look at what is going on in the economy right now? Yes, there certainly are, you know, higher yields. We're obviously seeing also higher oil prices. But oil as an example is a very small percent relative to what it was ten, 20, 30 years ago of one's wallet. And then from a higher interest rate perspective, if you look at the breakdown of consumer spending, that is a negative for the lower income consumer, right? But for the higher, um, income consumer who's really driving consumption, those higher yields in many cases can be a positive. If you're running with a, you know, net cash position that you're investing and taking advantage of the higher yields. And, um, you know, you're just less on leveraging, uh, your portfolio. So I think from the overall consumption perspective, um, the economy can absolutely handle that. Um, you know, of course, there there is a level where it becomes much more problematic, but I don't think we're there yet. Even with diesel prices at a record that's bleeding into the entire manufacturing agricultural economy. I mean, that's going to be an issue for core inflation that yes, it's going to, you know, filter in over the coming months. Um, but the starting point for core inflation is, is lower. So if you look at like the last four months, core CPI month over month annualized has been 2.1%. Super core has been 1.7%. I do expect that because of diesel prices to to migrate higher. But there are some offsets. One of them is the lapping of the tariffs. So just the the mechanics of the year over year, um, you know perspective and then some impact from demand in some, in some cases could also, um, you know, be some sort of an offset. Eric enjoyed this. It's good to see you. Thank you. Senator Johnson, there is a really interesting take on the banks in the financials. The banks trading much softer from the mid August. High down almost 10% for the S&P 500 listed banks. It is not just about existential risk. It's more about profit risk driven by tech disruption. I mentioned we have joked about the questions that might be asked on the on the earnings course in a few weeks time. I think that that question will be asked a few times to a few bank executives. Why not? I mean, how much more do you have to pay to attract money or keep money? I mean, how much do they see some of these free deposits moving into different accounts that they have that really crimps their ability to capitalize on that delta? I mean, to me, this is a fundamental question, and maybe less so for some of the biggest banks that have a certain capture of all assets. And it just is a lot more difficult to move all your money. But absolutely, I want to know who's going to be first, who comes out with their own agent and says, we can help you do this internally, because at the end of the day, isn't that where potentially new customers are going to flock to? They legacy capital might get a whole lot more active equity futures this morning, positive by close to a 10th of 1% with an update on news worldwide. Let's get to your Bloomberg Daybreak Vonnie Quinn has more. Hey, funny. Hey, John. Thank you. A U.S. import ban on certain Canadian motorcycles, alcoholic beverages and whey products taking effect today. President Trump expressing confidence a trade deal will be reached. Saying he expects Canada to cut tariffs on U.S. imports and apologize in the next 3 to 4 weeks. The president and House speaker, Michael Johnson, are having lunch with the CEOs of leading AI companies. Let it go. Reporting the heads of Nvidia Anthropic, OpenAI and meta will participate in the meeting, which follows a surge in concern about AI's risks. President Trump dismissing warnings, saying the U.S. must be China in the AI race. The Pentagon awarding RTX a $20.7 billion contract to nearly double the production of air to air missiles. The five year deal with its Raytheon unit comes as the Trump administration pushes to boost production of key munitions and replace thousands of missiles and interceptors used during the war with Iran. And that is your Bloomberg brief jump. Vonnie. Thank you. Thank you very much for the update. More from Vonnie in about 30 minutes time. Up next I pasing push back. We could put guardrails, we could do this and that. But I think you have a lot of negative forces in bringing it up that, uh, I shouldn't be bringing it up. We'll get more from Washington in just a moment. Plus, the latest from Joyce Shank of JP Morgan, live from New York City this morning. Good morning. Economic data coming up later this morning, 10 a.m. eastern. Time for job openings. Look out for that. Look out for the fed. Speak to later on this morning and later this afternoon as well. You'll hear from the New York Fed President John Williams, and you'll hear from Governor Wallace, too, a little bit later this afternoon. Equities into that pretty much unchanged on the S&P. The S&P 500 is still within striking distance of all time highs within 2% of those all time highs. That record on the S&P 500 is from Kevin Gordon to Swamp just months ago. The last time the percentage of the S&P 500 members above their 200 day moving average was this low, the S&P was down in correction territory. Today, the index is barely off its high. This is what he calls a competitive duck market. The idea of a paddling duck. But this evidently this duck has something other than just paddles on its feet as it frantically tries to churn under the surface and look smooth on the top. Ultimately, what are we actually seeing, though? Is this really a rates driven, uh, transformation under the hood, or is this an AI driven transformation under the hood? That was the question Eric Johnson was raising. It was interesting. We've seen banks decline down by close to 10% from the mid August. High tech disruption or the cyclical risk. He's gone for the former, not the latter. And I've had a lot of people say it's the latter, not the former. But the tech has got to be a part of the conversation into earnings season. It has been all year. I mean, talk about SaaS capella apps. I think I got that right. This question of whether software be rendered irrelevant. Now there's a question of whether banks will be rendered irrelevant given some of or not irrelevant, but disruptive, all based on how quickly people can move their money with these new genetic helpers. You know, we shall see. There's also a question in the slot. Just raise this. And I think it's a really important one. All the tech analysts out there are expecting this absolute ballooning in demand for all of their products, and all the people who are covering the companies that are going to pay for that are expecting really modest demand and ability to pay. So something's got to give their NASDAQ features this morning, not giving positive by about 2/10 of 1%. And this event is this morning pushing back against pacing the frontier. We're leading China and I will most sophisticated country in the world. And frankly I want to keep it that way because whoever wins AI wins. And we can put guardrails. We can do this and that. But I think you have a lot of negative forces in bringing it up. That shouldn't be bringing it up. So here's the latest this morning, tech leaders heading to the white House today to discuss I rest with President Donald Trump. As more industry executives push to slow development. Bloomberg's Tyler Kendall has the latest from Washington. Hey, Tyler. Hey, John. Good morning. President Trump is expected to shortly embrace, uh, and highlight his embarrassment of I at this event where I am before he heads into that lunch with top tech leaders. This event is going to be about unveiling a new government enabled AI tool designed to make it easier for the American public to interface with the administration and other government agencies. It's called america.gov. We'll get more information about that shortly. But it's going to highlight this push by the admin when it comes to the technology, but also how the administration is working with the private sector. We're expecting a range of tech leaders to be here today, including Elon Musk, Nvidia's Jensen Wong and anthropic co-founder Tom Brown. They will then move into this private luncheon later today at the white House. Other executives expected to join, including Mark Zuckerberg, as well as House speaker Mike Johnson, as Washington really grapples with what to do next here. And we saw this flurry of legislation in the last few weeks related to testing and also disclosure of risks, though we should say at this point, there is really no expectation here in Washington that lawmakers are going to get anything done, at least anytime soon, highlighted by the fact that President Trump has embraced this technology, with many administration officials saying that these companies should be individually held responsible when it comes to, uh, what happens next with their tech. We'll have to see where it comes from. Uh, here, we know that President Trump has been hearing opposing points of view on this. Over the weekend, he held a dinner with anthropic CEO Dario Amodei amid mounting pressure when it comes to these new reports about, uh, some AI breaches in models but also growing voter disconnect, uh, discontent as we get closer to the midterm elections. I appreciate the update and looking forward to your coverage throughout today. Town of Kendall, down in the nation's capital. Let's build on this. As you all know, it's well documented voter frustration building over artificial intelligence heading into the November midterms. Deutsche Bank of JP Morgan writing populist pressure will rise regardless of the outcome, with visible backlash to eye witness and neither party holding a clear economic trust advantage. Joyce joins us now from more. Joyce good morning. It's great to be here. What's the runway for policy. What does it look like heading into next year? Well, I think the midterm elections are underestimated as a risk right now. So there are three things we're really looking at. And, you know, affordability is a big issue. AI is a big issue. But there's also a possibility of higher tariffs here a greater re escalation with Iran as well. But I and affordability politics I think those two things are here to stay irrespective of what the midterm election outcomes are. We were talking yesterday how some Democratic candidates are a little bit too extreme for the mainstream, but at the same time we have higher energy prices. Is that potentially going to shift some voters maybe into the, uh, the red camp. The blue camp. Sorry, I really don't think that it does that. Because when you look at the one big, beautiful bill, I mean, if you've got gas at the pump at $4.50 and it stays there, you wipe away all the benefits of the one big, beautiful bill. And this is why I really see that neither party is really earning the economic trust right now. So, you know, the populist pressures are here to stay. But I wouldn't necessarily just say that it is going to be red versus blue. It is just, uh, the affordability issues in the last month because of gas at the pump have really seemed to me to have shifted a lot of the sentiment in the polls. I think that's going to push the president towards this populist policy of maybe an export ban. Well, the export ban is something that I think is very much on the table, and that could work for 30 days over the very short term. And then you're going to hit the refinery compressions, all of these other issues, which will just be another distortion that's not going to solve this issue. So, um, I don't think it is policy that really makes much sense here, but it's certainly on the table now. You know, arguably one driver of some of the resilience that we're seeing in earnings was the one big beautiful bill. And some of the tax cuts. And a lot of people have pointed to that as something that have really fuelled, uh, the gains in corporate balance sheets. Do you see a chance that that could be revoked, or that some of those taxes could go up? Well, I think for the personal, um, your income taxes, um, you had that benefit already. So that's passed. So right now they're focused on, you know, gas at the pump. Um, but inflation is still very sticky here. So the corporate benefits, you know, many of those are, uh, you're phased in to stay as far as, um, just the business interests, um, that benefit from that. But what I would look at more is that, uh, you're going to have more regulation that will have to be forthcoming on AI at some point, that some of these benefits, um, you know, will have some offsets going forward. Just when you look at the issues that are going to be debated, um, on technology and non-tech sovereignty. Where would that actually show up in the tech sphere? Because right now, in the tech stack, when you look at data center build out, they really haven't been affected. If you look at any kind of empirical data, it doesn't show any kind of restraint whatsoever on the build out a lot of lip service, but not actual restraint. Is there anywhere that you see real practical regulation that could crimp some of the eye trade? I don't think that it's going to happen in this administration. I think it's going to be a big issue in 2028. And I think you're going to see other countries also try to figure out the way in which they can engage with this. But these public private partnerships, I mean, I don't know, just from all of my background looking at emerging markets, they rarely end up lasting over a long duration of time. But I think you're absolutely right. I mean, right now, there's been a lot of lip service on this, and there's been a lot of concern and anxiety. And it's interesting in other parts of the world, this is not the same political issue, but I think this is much more of a 2028 issue as far as what actually could be done. How dependent is your growth outlook for the next year and what happens here with SAC? Well, I mean with the tech CapEx and next year looks very good. I think your question becomes when do you hit a crunch point on this? Um, you will have the Treasury funding, I think, by next August. There have to increase that. And then you will be looking at CapEx for the next year for 2028 and a presidential year. But for the next couple of quarters, the CapEx actually looks quite strong just given where the demand is at. So I think this is much more, um, you know, you have that mid-term mark. You have, um, the fiscal deficit taking, I think, more space than even some of the tech numbers right now, given the Federal Reserve's pursuit of 2%. Are they in a fight with those things that a fight with those forces? Well, the 2% has not been met for a long time. And I think what the markets feel is that the inflation here is sticky, but it hasn't been destabilizing. I mean, we're actually looking at one of the broadest base growth recoveries we've seen in a long time. You have the above potential growth in Japan and Europe. I mean, it's still only 1.5%, but also in the United States. And it's actually and you've got China doing stimulus. So I think, uh, you know, the higher rates are going to stay here, but the higher fiscal is also going to stay here. So it's not just the tech story. Um, you know, everybody's going to keep an eye on treasuries here. Joyce smart always good to catch up. It's been too long Joyce Cheng that of JPMorgan, the chair of global research over there breaking down the outlook for growth and of course is influencing growth right now. Yeah. And right now it is broad based. And that's actually what we're seeing across the board. We were talking earlier about CarMax coming out with better than expected earnings. And on one hand we were saying are they the new Walmart you pointed out typically used car sales are not necessarily a sign of strength. Nonetheless they also are seeing a lot of people buying stuff. So at least there are people who are able to keep going out and buying stuff. We'll talk about that name in just a moment. Up next, we'll catch up with you, Kari Hall of Bank of America. As rising yields are putting pressure on small caps. Plus we'll talk about shares of CarMax rising on a strong earnings beat. Uehara has the break down. The stock is up at a pre-market by 6%. Live from New York City. Welcome to the program. Here's the state of things. And it has been quite a state over the last 24 hours in this bond market. We'll start with stocks. Equity futures on the S&P up by 10th. On the Nasdaq up by 2/10. Call it a quarter of 1% higher. Told lots about how close we are to all time high. So the index level on the S&P within 2% of a record on the S&P 500. But since mid-August, you've seen some pain down by close to 10% for the banks. The small caps have suffered, too, after outperforming through much of the year. The small caps are not down by 8% since the middle of last month. We'll get to that story in just a moment. In the bond market, twos, tens and 30s yields have been bleeding higher all through this month, up by around 50 basis points on twos and on ten's this morning down by three on a ten year to about five 2490 on a two year. The big story last week. Believe it or not it was a hot PMI story this week. The question heading into this data is whether this data this week validates the strength we saw in that data point a week ago. Yeah. And ultimately, this is what Citigroup's Andrew Holland Horst said. So long as equity prices hold up, there is little to prevent Treasury yields from moving higher with energy prices. But ultimately it will be up to the economic data to determine if these yield levels are sustainable. In other words, if the data rolls over, then all of a sudden you could get a bond rally, but perhaps for the wrong reasons. How sustainable are those moves? How sustainable is this crude? A triple digit spring around one two, four this morning. WTI around 91. We're down about 1%. We talked about the fundamentals. The east west pipeline up to 50% capacity over in Saudi Arabia. That's the good news. And then we've talked about the rhetoric the lack of diplomacy. The diplomatic effort has stalled big time heading into the midterms. And not so long ago people said repeatedly particularly can't get to the summit. This had to stop. By September. It had to be over by the end of summer because you had to prepare for the midterms. And that's not happening right now. It's not happening. And I mean, the president's very blunt about it. He says he doesn't care or doesn't think about the midterms when he's thinking about what could be an acceptable deal for the United States when it comes to Iran. Today marks 35 days were exactly five weeks away from the midterm election, and you are really seeing pushback in states like Iowa that are pressuring this president to do something when it comes to agricultural sector, because yes, we look at WTI and Brent every single day, but it's under the hood. It's diesel. It's gasoline. That's what's going to bite potentially why this administration is weighing this bad policy. It's good politics. Brent crude right now down by 1%. Let's get you an update on news elsewhere. Some morning movers some single name Ishihara has more. You get higher. Hi. John Carmack shares were already up over 45% heading into earnings. They're up now another 7.5% after the surprisingly good results. Sales at stores open at least a year jumped 13%. That's more than double what analysts expected and ends four straight quarters of declines. So it's a significant a good report at a time when, uh, car loans are expensive, gas prices are high. So it's a good sign that we're seeing consumer spending. I will say, however, the company did say it had to rely on price cuts to bring buyers in. Uh, meanwhile, after Nvidia's 50 billion buyback boost yesterday, we are back on Earth with Wyndham Hotel. Shares are rising 2.3% after the company said it is adding $400 million to its buyback program. And we end on Summit Therapeutics. This is the top gainer in the premarket, up nearly 18% after AstraZeneca said it's investing $2 billion in the biotech. Both companies will work together on summit's experimental cancer drug. It comes at a time when drug makers are looking for their next source of growth. Ahead of what's expected to be a wave of patent clips. John Uehara, thank you. With the latest move, movies. Some of the single names to look for in the pre-market heading into the open, and found they open about two hours away. Let's get you to some stories elsewhere on our radar this morning. And three, I'll take out with a serious warning ahead of its historic IPO, valuing the company near $2 trillion, Reuters reporting. Anthropic prospectus warns its technology poses, quote, catastrophic or existential risk to humanity. Elsewhere, President Donald Trump denies reporting from Axios, suggesting he's willing to offer Iran sanctions relief. Trump posting on Truth Social. This is untrue. I offered them nothing. CNN reporting similar claims, citing unidentified U.S. officials. And finally, Goldman Sachs apparently discussing succession plans for its top leadership. The Wall Street Journal reporting the firm's board has now talks to replace CEO David Solomon with the current CEO, John Waldron, as soon as next year. This is fascinating because it goes with this ongoing question of succession at some of the biggest banks we saw with Morgan Stanley. There already had been the overturning at the top of Citigroup. Jane Frazier is well into that turnaround and that there are questions about Bank of America, JP Morgan and now Goldman Sachs. What's interesting here is that David Solvents been on the job for eight years, and that John Waldron has long been seen as that likely successor. He's 57 years old versus a 64 year old of David Solomon. A question about retaining top talent if they don't get the job quickly enough. And I wonder how much that's behind the driving force here, at a time when clearly they've tried to express their commitment and money to John Waldron. Now, perhaps it's potentially to expedite that process. Morgan Stanley James Goldman wasn't playing by stories all the time about disgruntled employees and senior leadership in quite the same way that David Solomon has been. What's interesting about Solomon, and what makes him rather a unique case for corporate America, is the stock prices quadrupled over this period. And yet, we've seen story after story over this period of people that, to be quite frank, don't like him being the CEO of Goldman Sachs. Yeah, ultimately there have been personality clashes. Clearly. To your point though, the shares have done incredibly well. and frankly, you look at the results the last earnings season. It was a moonshot. And a lot of people represented that in terms of how much the share prices went up. A question here about him being executive chairman, potentially keeping the the actual direction of the bank while John Waldron takes over. Does that ease some of the pressures? What are they trying to fix either way? To me, this is sort of, again, this ongoing succession planning. Blackstone's another one. We saw this recently with Stephen Schwarzman and a question with some of the senior leadership leaving because he was paving the path for one particular executive. And it was very clear you have to keep your talent with the promise of something better. And if you don't, then possibly that talent is going to be you. Suggesting that Waldron should do more LinkedIn videos like John Gray? Oh, no. Sorry. I would like to see your Christmas video. I didn't take. I wasn't going to follow ground. LinkedIn and those videos pop up all the time. They stopped promote them. They like paying to promote. I think that people. You know, maybe they just automatically for some of them are kind of sweet when he's like in DC going on a run, you can see the sights, you know, get you up in the morning. Not into it, but it's there. They're kind of funny, just. I'm just not into it. That's all I know. But go at it. I'm sure people are. I'm not sure about the people might enjoy it might be the ongoing search. And you know, it's putting some pressure on small and mid caps. The Russell 2000 down since the Fed's latest interest rate hike but continues to gain on the year up over 13% Joe Kari Hall of Bank of America writing historically quality and value with the best performing small cap styles during hiking cycles, we expect quality to continue to lead. We see support for value from accelerating profits. George joins us now from March. Good morning. Good to see you. We want to talk about LinkedIn videos. We'll talk about small caps. They were doing so well and they were doing well against the backdrop of rising yields. What flipped? What changed? Yeah a really strong first half. Up over 20%. Um, and you know, I still think that a lot of pockets of small caps could be well positioned even within small caps did so well. Um, a lot of the leaders in the first half were still some of the more, you know, thematic I infrastructure stories and not necessarily all of the economically manufacturing sensitive areas. So I still think some of those areas could do well if we continue to see the manufacturing recovery. But, you know, one of the things that's happened over the last several years is this increased correlation of small caps with with rates and with fed expectations. You know, on the long end you have this elevated proportion of non profitable stocks. And then on the short end you know fed expected to hike and a few more times are economists are still expecting two more hikes. And you know while I think that's manageable given how strong profits are expected to be for small caps if we see a few more hikes, I think the risk is if we get a much, you know, bigger or more prolonged hiking cycle than is expected, since small caps do have a lot of, you know, short term and floating rate debt, only about half of their debt is long term. You've alluded to it. What are the pockets where a little bit more constructive. The pockets of smaller mid-cap. Where are they. Yeah, I mean, I think, you know, quality, you know what traditionally works within small caps are the profitable stocks, higher quality, more stable earnings. And that's not what worked for much of the last, you know, 15, 18 months or so until the spring, we had seen this surge in micro caps, low quality, risky stocks that had been much more extended than historically we typically see. So I think now if we're seeing, you know, potential for elevated volatility, um, you know, an environment where there could be more uncertainty, quality should do well. And I think value, you know, both within large and small caps. We think value's well positioned typically does well in profits recoveries. It does well in fed hiking cycles. It does well in mid cycle environments, which is where our business cycle indicator tells us we are um, and value is higher quality and cheaper today than, than growth. What's a bigger risk in your mind. Higher yields or disruption coming from I. Well I think you know for for smaller stocks higher yields are if we see a prolonged and you know, dramatic hiking cycle, we have a lot of concern around the refinancing risk, the elevated leverage ratios these these stocks face. Um, I think small caps still have a lot of, you know, margin upside potential on on. I um, these are the stocks that are more labor intensive. They have a lot to gain on, you know, efficiency gains, productivity. We haven't seen productivity improvements in small caps. The way we've started to see in large caps from utilizing I there's a lot of use cases across healthcare which is a big sector within small caps. So I do think that's a sector where if they can fit a size segment or if they can figure out how to harness the power of AI, then from a utilization side, that's something that can benefit that group. The reason why I ask is because I keep thinking about this Torsten Slack note that came out just moments ago, where he's talking about how tech analysts are talking about the prospect of booming profits. All these companies looking to, uh, get on the EI bandwagon and pay up for it. And then the smaller companies just don't have the money to pay up for it. So something's got to give in this equation. do you see companies as having the money to invest in actually capitalizing on some of these trends? Well, I think, you know, we're starting to see companies talk about it. You know, when you look at discussions about eye and eye for productivity gains on small cap earnings calls, it's still lower than the amount of large caps that are talking about it. But it's it's been rising pretty handily. And, you know, a lot of these stocks that either are AI players or that can benefit from I and small caps have been not as pricey as, you know, the valuations of the ones in large caps. So I still think, you know, for companies that are able to, you know, continue on in this earnings recovery, be profitable. Um, you know, and really figure out how they can use it. Uh, you know, then that's going to be an area where there's a lot of margin potential, whether it be in financials, whether it be in health care or really a lot of parts of the the small cap size segment that are more labor intensive. So, um, I think they're they're slower on the uptake, but it is, you know, I think a long term productivity benefit, some of those labor intensive small caps. How have they been with you seeing not just a shock, but now we're seeing perpetually higher energy prices. Well, the interesting thing is, you know, small caps have historically done well in, you know, inflationary environments. We saw the 1970s. We saw, you know, historically when I've looked at margins, surprisingly small cap margins have actually been more resilient in periods of, you know, elevated inflation than than large cap margins over many periods of history. And right now, small caps have more exposure to, you know, areas like energy and capital goods that benefit from higher commodity prices versus consumer that gets hurt by higher commodity prices. And granted, consumer has been very resilient, but still some risk that there is typically a lagged impact to the consumer from oil shocks. But you know, the sector exposure has been favorable. Um, you know, certainly the you know, biggest cost for companies is labor costs, not energy costs. So we've seen some benefit to earnings on and you know the energy capital gains side from higher oil wages. You know, if we continue to see elevated wage inflation, I think that is a risk. Um, but so in that aspect of the fed bringing bringing up rates, bringing down inflation, you know, should be beneficial for that and for multiples overall. You know, we've talked about how the S&P 500, you know, there's been this strong inverse relationship between valuation multiples and inflation. Can we finish on the S&P year end at 7400. I believe it's a price target. What has to go wrong from here to gets to 7400 year end. Well you know I think we've we're entering the seasonally weak period for the market. We're sort of overdue for a correction. Arguably when you look at typically 5% corrections happen three times a year, 10% corrections historically happened once a year. It had been a while since we had seen one. Um, and, you know, risks from rates, inflation fed, uh, you know, if we haven't necessarily seen financial conditions tighten yet. But if credit concerns start to pop up again or have higher rates if there's risk, this derails the manufacturing recovery. Um, you know, we just see a lot of risks out there and less favorable liquidity conditions. The supply demand backdrop for equities, less buybacks, more issuance. Um, so so we're still cautious in the S&P 500 at these levels. But we do see more potential for pockets of the market to do well than the cap weighted index. So the equal weighted S&P 500 we would see more upside than the cap weighted index. Um pockets of small and mid caps uh value rather than growth within the S&P 500. I appreciate it Joe Carey, holder of Bank of America. It sounds like a million miles away, but we're not really a little more than 5%, five, 6% based on yesterday's close. Yeah. I mean, ultimately, I was looking at the, uh, equal weighted S&P 500 and I was thinking, my gosh, it's been absolutely beaten up. But time and time again is down 4.5%. I mean, that sounds not like a lot, but in the scheme of how much the market's been absolutely a freight train. It is a significant pullback. Some people are like, it's time to buy, which gives you a sense of the sentiment out there. Futures doing better this morning. Got 5.15% on the S&P with an update on news worldwide with your Bloomberg brief. Vonnie Quinn has more. Hey, Vonnie. Hey, John. Thank you. OpenAI is holding back a version of its Astra model after it underperformed on safety tests. The company is working on establishing stronger safeguards for AI development, including giving senior leaders the ability to veto some activities. 11 million American workers may need to change jobs by 2035 because of AI related displacement, according to a new report by McKinsey. Office and administrative support, retail and sales and transportation and logistics jobs face the most disruption. And Pope Leo is weighing in on the AI debate, the pontiff telling reporters the concerns raised by many of the experts should be taken seriously. I don't think it's fake news. As some have said, said the pope, referring to President Trump. He added we have to keep working. We can't sit back and pretend nothing is going to happen. And that is your real grief, John. Anthony. Thank you. Thanks for the update. I'm next on the program, mounting bets on more fed hikes. It's important, given that we've been missing on the inflation side of our mandate for so long, that we have a restrictive stance on policy. It's been here for a while, so maybe we should do something about it. Some modest further tightening, maybe warranted further policy adjustments are likely to be needed. Up next, we'll catch up with Karen Manor of Federated Hermes, live from New York City. You're watching Bloomberg TV. Stocks bouncing back 5/10 of 1% on the S&P 500. Likewise on the Nasdaq here. The scores this morning. Nasdaq futures higher by almost a third of 1% into the bond market. Multi-decade highs across the curve. Twos at 490 tends at 521. And we've talked about it repeatedly three years and out. Across this curve 5% or higher. It's been a long time since we've been able to say that. 30s this morning down a basis point, but still north of 550, we're looking at levels we haven't seen since 2007 or even 2004 when it comes to the long of the yield curve. And yet time after time, we talk to analysts and investors who say, I'm not convicted to buy because ultimately, we're not sure how far this bond vigilante freakout has to go unless you're Jim Bianco, who suddenly got bullish. Yeah, he got bullish because he said ultimately 5.2% is going to compensate him even if there is some sort of increase in. Right. Exactly. But then we had Eddie Artinian, who basically coined the bond vigilantes term this morning, and he's basically like, no, it's going to go higher, doesn't think at 6%, but thinks it's much higher. On the ten year fighting the bond market demons, in the words of Bob Michael at JP Morgan under Savannah this morning. Mounting that a more fed hikes. It's important, given that we've been missing on the inflation side of our mandate for so long, that we have a restrictive stance on policy. It's been here for a while, so maybe we should do something about it. Some modest further tightening, maybe warranted further policy adjustments are likely to be needed if we don't make real progress. And getting back there, you could have this inflationary mindset start to set in. So here's the latest this morning of Wall Street awaiting a busy slate of fed speak with six officials speaking later on today hawkish commentary, strong economic data, higher energy costs all happened to push U.S. Treasury yields to multi-decade highs. Karamana of Federated Hermes finding a silver lining, writing high yields are improving the long term opportunity set for fixed income investors. The front end offers attractive income and lower duration risk. Karen joins us now for more. Karen good morning. Good morning. It's the hide under the rug trade heading into year end. Do you see more people willing to do that? We are we think that 2022 the events there. You know, you can look at it mathematically without any, you know, passion and say yields had to move higher, yields up, price down. But for the investor the experience was deeply negative. And they carry that with them into this market. So we all know that your starting point on yields is a really good indicator of where you will end up from a total return perspective. However, stick to what the fixed income asset class can do for the portfolio. Lean into more knowns than unknowns, and by the front end of the curve, there's no reason to lean into trying to do too much here. Protect the principal. Get a little bit of income and add that hedge or risk. Mitigate to the portfolio overall. Is there a level at which you'd be interested in duration or right now? Are the risks just unquantifiable and thus you can't even begin to model them out in your portfolio because it's unclear exactly which driver could potentially change, whether it's the law, whether it's deficits, whether it's the data that's coming out. So many factors are pushing yields higher. But for the investor that can tolerate near-term volatility, we think it is a good time to begin to step into those core fixed income vehicles, meaning oriented around a ten year U.S. Treasury using an array of fixed income tools, corporate bonds, emerging market debt, selectively mortgage backed securities, in addition to the treasuries. All of those instruments give you a little bit more income that acts as additional compensation, but also gives a little bit more insurance around that U.S. Treasury move. But but if 2022 really sticks with you as a very negative, very negative, and you don't want that volatility from your fixed income portfolio. The front end offers a really attractive opportunity. Would you rather buy emerging markets debt than develop market sovereign debt? Yes. Can you elaborate on why? Because it's really been developing, right? We can think of it as being more like three categories developed. We all know the names of those countries well developing and then continuing emerging. There are many companies in these emerging market countries that offer really strong fundamental characteristics, but yields priced for the underlying sovereign. And in emerging markets, it is less efficient than other markets. And we can apply fundamental analysis. We can look at the stories and we can apply valuation and sense where is a good opportunity for our investors in the portfolio. Can you expand on them because you did say some em. And then you're talking about countries that have really good companies. Are you basically talking about Korea. Korea would be a good start, right? We're going to just turn now between oil exporters and oil importers. We're going to look at companies that sorry, countries that have strong foreign investment development and really broad based political support. So that's where you're looking for more of that developing theme where they're hitting on more notes, not just one rate. It's not just a single pillar of expertise, but really a broadening of their economy and one that's more readable going forward. This is a question that's come up continuously. Do you think DHM is starting to look a little bit more? Am. The yields at times right. And by debt levels, I don't know if I would go as far to say that it's all the way to em, but I think that we are seeing where debt levels are increasing and moving your way out of those rising debt levels, as we're seeing here in the United States, is very, very difficult. You can attempt to grow out of it, but not to get into politics. I'll stick with policies, but we all know that neither side really has the will right now to take on the issues, to correct the debt situation. I think you're on safe ground coming to that conclusion, Karen. Thank you. Count. Amount of. Thank you. A Federated Hermes count. It's good to see you. Appreciate it. We certainly seen some of those Am type dynamics, Griff DDM over the last few years. We keep talking about how the idea of worse economic data. Does that cause a rally into the long end of the yield curve? Because ultimately, that means that there is less of a possibility that the debt backdrop is going to look better. I mean, that is kind of the doom loop that some people are talking about. Are we on the brink of entering that negative feedback loop of high yields, breathing life into deficit concerns and deficit concerns, breathing life into high gilts? And it just feeds on itself for a while. All I know is that Liz Truss has been active out on Twitter, her ex putting out the signs to take a look at this yields hey take a look at this yields. It was this when I was in there and pushed out. I know I'm in a small camp. There's not many of us. But I do feel sorry for Liz Truss. I mean, I wouldn't want my head pushed against a head of lettuce. I think she's helping us out too much these days. But, you know, you can't take those in person. It was a circumstantial issue. Totally, totally. And she's right to point out where yields are now. Yeah. Liz Truss moment. How about a Liz Truss era. Yeah well said. But she doesn't. I just wish would say yeah. You know she would do coming out of Edward Jones Jonathan crazy. If you correct that curvy path in on a palanquin of RBC Capital Markets the third hour of Bloomberg Surveillance just around the corner. The market is taking into consideration the scale of capital spending. The drivers of growth are in particular the eye spending boom. This market has a correlation breakdown under the surface. The market's bracing for the same sort of episodic indigestion. Sometimes when there is volatility, that can actually mean opportunity. This is Bloomberg Surveillance with Jonathan Ferro Lisa Abramowitz and Annmarie Horden earn live from New York City this morning. Good morning. Good morning from our audience worldwide. The third hour of Bloomberg Surveillance starts right now. Your scores. The price action looks like this. It's a bounce of 2/10 of 1% on the S&P. On the Nasdaq up by 0.4 in the bond market. Yields retreated from multi-decade highs at the long end of the curve down by a single basis point on Thursday's to 553, down three on 10 to 520 in the commodity market helped out by this. Some relief coming from the commodity market back to 103 on Brent down by more than 1%. Likewise on high at 91 heading into this six fed speakers starting later on this morning, continuing through to this afternoon and the start of a slate of economic data, which concludes with payrolls on Friday, job openings a few hours away. Yeah. Key question on one hand you get the reaction function potentially in all of these speeches, particularly ones to note 2 p.m. and 3 p.m., John Williams and Chris Waller, respectively, of the Federal Reserve, to understand that fed reaction function. And then, of course, you get the ISM manufacturing data coming out, jobs data coming out on Friday. How resilient is this market and our yields continuing to rise for the right reasons? John, you were talking about this earlier. How much does it take a negative shock in the data to cause a rally in the bond market that doesn't necessarily support risk assets to the degree that some people might expect? It's a really important week of data, especially when you understand that the administration is paying attention to things like PMI and the presence, even going out and choosing them. So are we going to get a week where maybe he starts tweeting out JOLTS or ISM data, because they are watching every single data point to understand potentially what October will bring with this Federal Reserve and wages on Friday is going to be key. The Fed's a big piece of this. The potential for wage growth too. That's a risk factor for the Federal Reserve. The competition for capital, this funding, the CapEx cycle. Nominal GDP, all of that is fueled high yields. The missing link. It's part of the conversation. But it's not been driving yields. And this deficit concerns. I keep going back to the work of connecting CRA over at BNP Paribas, that we see the deficit numbers getting more attention, driving the next leg higher in yields thanks to fed hikes raising the interest burden. That's the negative feedback loop from bonds to deficits, deficits to bonds that we haven't seen so far. You just wanted to how close we are to it right now, how high it's to yield, how high yields have to go before the deficit becomes a campaign issue. And the answer is a lot higher, because right now we're not hearing about it as a campaign issue. And even though affordability is the main, uh, talking point, it has to do with oil, it has to do with diesel. It has to go with filling up at the pump or groceries. It doesn't have to do with what the mortgage rates are, even though housing affordability also is an issue. At a certain point you need one of these things to change. And one of these things very much is the deficit. Have we even priced it in? You raise that question earlier I think it's a good question. Are yields at this level even pricing in the level of deficits of the U.S.? As I mentioned this earlier, but there was a story in the Wall Street Journal, quote, the deficit doesn't rank high among Trump's priorities if it registers at all. Advisers say these people say his main preoccupation has been fed rate cuts, which he saw as a shortcut to shrinking the government interest bill. Well, that interest bill is getting a lot more expensive. The United States, nothing about the deficit. How is he gonna try to get Congress together for this next year? We're just going to be increasing that money this year. Could have been so different. If you think about where we were at the start of the year, we had mortgage rates coming down to a five handle. We've talked about this a few times. The onset of spring selling season by season was just around the corner. I think the broker's small value and I know we're getting pretty excited about activity picking up. Then the war started and you go on the interest rate side of things yields much higher at the long end, but you get at the front end from rate cuts to rate hikes pretty quickly in terms of market pricing. mortgage Costco from 5% 7% or higher. The cost of gasoline in the wrong direction too. That's kind of the starting gun for a very different year. The end of February, and we could have had a radically different year rent than what we're about to get. The consensus in January was a slew of rate cuts in the face of immaculate disinflation. Instead, we're talking about escalating inflation and potentially a global rate hiking cycle. And now the question is how far can that go before something breaks? And ultimately, right now we're kind of in that uncomfortable zone and uncomfortable months of September and October trying to hash this out. Coming up this hour, we'll catch up with Mona mahajan of Edward Jones, who spun off all of Tennessee. Reshapes equity, leadership, great tech out of a white path and anticipating one more rate hike for the fed this year. And Blake Gwynne of RBC explaining why he's constructive on yields. We found another one. We begin this hour with stocks rising at the sound off in bonds easing somewhat out of David Jones writing scratching beneath the surface. Higher rates sparked another rotation in leadership as large cap stocks outperform smaller companies and international equities. Joins us now for more. Mona, that's the level of disruption just away from the index. You expecting that leadership to continue into 27. Yeah. You know look I think uh one thing we have to realize with yields, it's not only the level of yields, it's the speed at which we get there. And over the last month the ten year yield has risen 50 basis points. So that speed does cause a little bit of disruption. And what we're seeing is notably that disruption hasn't occurred on the headline index level. It has occurred underneath the surface. As we noted, interest rate sensitive parts of the market have come under some pressure, whether it's small cap stocks, whether it's sectors like financials or bond proxies like utilities. Um, but to your point, as we think about the year ahead, keep in mind these rate rises and these yield increases do take some time to flow into the real economy, whether that's an impact on housing or impact on consumer and credit markets. Uh, so we do think, as we think about the next 6 to 12 months, could we get a bit of a second slowdown, especially since we are starting from a position of strength and a higher, uh, growth profile? Um, that is certainly a scenario we could see playing out that would continue to have that impact on the cyclical parts of the market and those with high cash flows, strong balance sheets, uh, would continue to benefit that environment. Well, let's just sit on that. What it means for the index. Let's go full circle. The index, the S&P 500 still within 2% of all time highs. And when we have people on the program they always point to earnings. Earnings. Trump's energy earnings Trump's rates. How much weight is on the shoulders of earnings season that we head into in a few weeks time? Yeah. You know it is probably a key point. And look we've talked about this before to drivers of market returns earnings growth plus valuation expansion earnings growth. And even as we're looking into the next set of quarterly earnings, looking like 28% in the S&P 500 for the full year, 30% plus. Keep in mind these are not earnings growth levels that we have seen historically, unless we are emerging from a downturn or a recessionary environment. So these are really outsized earnings levels. Valuation expansion. On the other hand we have actually seen contract somewhat the S&P 500 overall and maybe a 10 to 15% contraction in valuation given the rerating of earnings. But all that being said, 30% plus this year as we look to next year again, um, still positive earnings growth right now looking at 10 to 15% or so on the S&P 500. We'll see what happens with valuations with the fed rate hiking cycle potentially in front of us. Um, but this earnings season we think continues to deliver and deliver very strongly. Mona, how much is the equation shifting for you from owning stocks to say, owning paramount debt, giving 90% yields every single year without necessarily the negative potential that certain equity risk has. Yeah. You know, look, overall, um, our team still favors equities over bonds. Um, keep in mind if you think about bond profile, uh, to your point, there are some interesting opportunities we do see. You know, if you are a saver or if you are a, um, you know, someone looking for income, you're near retirement and you're in retirement or you're just an income investor, uh, all of a sudden your opportunity set does look more attractive. But what we'd say more broadly is, uh, probably still looking at that shorter duration part of the investment grade curve. We think there's a nice pick up versus cash there. Um, but not yet ready to call a longer duration play here. What's the argument for another year of double digit gains for the S&P 500, given the fact that you already have thrown so much good news at this market, it's forecasting incredible earnings. We have multiples that are challenged by higher yields. And potentially if yields go lower, it's in the face of negative news, which is some sort of decline in growth. Yeah. You know I think it's a fair point. And look we're in the year four of double digit S&P 500 returns largely driven by still the technology and tech trade. As we look to the year ahead, what we would expect is we know that if we do have a 10 to 15% earnings growth profile and valuations are flat, you could make the case for another 10 to 15% S&P 500 return. Now underneath the surface, the earnings growth profile looks a little better in that tech. And non-tech parts of the market are driving that earnings growth. But if we continue to see upward pressure in yields and some slowdown in those cyclical sectors, could that earnings growth figure start to get revised lower? We do see that happen over the course of the year, especially in the first few months of the year. Um, nonetheless, we don't yet see the case for a full on bear market or something as similar to what we saw back in 2022. Usually that happens when you're in a recession or entering a recession, or the fed rate hiking cycle is moving very aggressively higher. So thus far, certainly not a recessionary environment ahead of us. And the fed has has moved steadily. But I do think we're going to see some speed bumps ahead, though, five weeks out to the midterm election when it comes to the eye trade for the remainder of this year and next year. You know, certainly the eye trade, as we've talked about the infrastructure part of eye has, um, matured. And, you know, that cycle, whether you're building out CapEx, whether you're hyperscale or looking at your cloud business, um, whether you're looking at data center growth, that part is maturing. What we would really want to see in this eye trade is the next phase, which is AI adoption. And that we think is, uh, still in early phases of a cycle. We haven't yet seen meaningful productivity gains from sectors that could benefit. When you think about health care, you think about industrials that have manufacturing gains ahead of them. uh, financials potentially even. And so, um, we are hopeful that we start to see this hand off at some point from those infrastructure players of eye to the more productivity gainers of an eye. Um, and all that being said, given the strong cash flow nature of some of the large cap AI companies, uh, we still think some exposure in portfolios is warranted even in the year ahead manner. Always good to catch up on the I've Edward Jones on this equity market and how well this equity market has stood up to surging energy prices and much, much higher bond yields worldwide. Yeah, and it's almost annoying at this point. You asked people why earnings. Earnings aren't always earnings always earnings. But at the same time it does raise the bar for earnings season as you say. I mean think about just a beat. That's not good enough. And what that could do to certain equities given the fact that there aren't a lot of other kind of engines that are driving things here. We'll get through this slate of data this week, and then in a couple of weeks time, we'll kick things off with JP Morgan around October 13th, the middle of October for the financials. Then a few weeks from now, we're start to get the big tech players too, which make up the majority of this index. Equity futures on the S&P positive by 2/10 of 1% with an update on news worldwide with your Bloomberg brief. Vonnie Quinn has more. Hey, Vonnie. Hey, John. Thank you. And throw it back out with a serious warning as it plans to go public. Reuters, reporting the company's prospect prospectus warns that its technology poses, quote, catastrophic or existential risks to humanity and it is planning for an IPO this year that could value the 36 year old company at about $2 trillion. Goldman Sachs is working on a plan for CEO John Waldron to succeed David Solomon as CEO as soon as next year. The Wall Street Journal reporting Waldron could take over toward the end of 27 or in 2028, with Solomon's move into an executive chairman role in sports. Week three of the NFL season wraps up last night, with the bears defeating the Eagles 27 to 7. 38 year old Case Keenum starting his first game since 2023 and just three touchdowns to lead Chicago to the win. And that is your Bloomberg brief jump. Bonnie thank you. More from Varney. And later this in about 30 minutes time. Up next a morning. Plus we'll catch up with Jonathan Krinsky of Btig. Is the eye trade have shelled the broader market from bond volatility utilities getting into a little bit of trouble with talk about that with Jonathan. Just a moment. Live from New York City this morning. Good morning. The competition is a big deal. And you know to the point on real yield. The real yield on the 30 year right now is 3.3% for the equity markets and for the economy. It's just not as big of a driver as it once was. It's something that the equity market can absolutely absorb and is going to have some impact. The index is absorbing it at the index level. You don't see much sign of damage beneath the index. You start to see it happen and away from the large caps too. You see it in small caps you see in financials, though there is some debate about what is actually driving the banks right now. Is it the right story? Concerns about the cycle, a more cyclical trade taking a negative turn or is it tech disruption? As one guest earlier on This morning, Eric Johnson himself might be thinking about just wait for October 13th and maybe we'll get some answers. Clearly, there is concern about certain pockets of the market not delivering as significantly as they have in the comfort of a comparative quarter last year. Given the fact that, say, fixed income trading has fallen off just a little bit. That said, there is these there are these existential risks that are, you know, facing all of these areas. Let's see how much they actually do come to fruition. Equities this morning just slightly firmer. Higher positive by a quarter of 1% on the S&P, up by point five on the Nasdaq. Bond yields retreating just a little bit of multi-decade highs were down three basis points on tends the 520 on Thursdays down a single basis. Points of 553. Crude easing up just a bit as well. That's happening how this bond move is the moving crude Brent crude down to 103. Right to want to forward down by a little more than 1%. That WTI just about holding on to the 90s so far this morning. That's the price action. Let's get you some morning calls. First up Deutscher upgrading Netflix to a buy saying its valuation offers an attractive entry point a second call from the. See what kind of price target on Walmart now to potential shopping habit changes from I and finally TD count and is sharing coverage on space with a buy rating expecting quote massive opportunity over the long term. That name is up by 1% this morning in early trading. That's some of the morning calls. Let's get back to the eye trade helping to insulate equities from bond yields near multi-decade highs Jonathan Krinsky of BCI. Rising high yields have proven to have a much smaller impact on tech, especially larger tech. But that also means it likely doesn't see as big of a rally. Shadows fall from here. Jonathan joins us now for more. Jonathan, break it down for us. We get so many people come on the program and note that we are within 2% of all time highs, very close to those records on the S&P 500. How much disruption is taking place beneath the surface as we get this repricing in yields? Yeah. Hey, Jonathan. So, uh, you know, there's a couple stats we've been focused on that, you know, really kind of jump out at us. And we haven't seen since the year 2000. One of them is the fact we've had uh, now ten straight days with more 52 week lows than 52 week highs in the S&P, with the index itself within 2% of a 52 week high. That hasn't happened since 2000. Uh, and then we've also have less than 50% of the S&P above the 200 day moving average. Again, with that market, um, near 52 week high, as we also haven't seen that since that 98, 2000 period. So I think what it tells you is that the parts of the market that you would expect to be disrupted by, um, higher energy prices and higher interest rates have been affected. It just hasn't affected the parts of the of the market that matter to the S&P and the Nasdaq. John, that period in the late 90s, do you think that's worth noting? Is the potential here for a continued melt up in stocks, even with a meltdown in bonds? Well, it's you know, look we started seeing these signals pop up in in 1998. And it's important to note that that was after a 20% drawdown in the S&P. So I don't think that's analogous. So then you're really looking at that uh kind of late 99 early 2000 period. Now what's what's interesting is that when the Nasdaq peaked in March of 2000, along with the S&P, the equal weight S&P at that point was already down about 15 to 20% from its highs. And it actually put in a bottom. And so what you had was a situation where breadth actually bottoms the exact moment that the tech the Nasdaq tech bubble peaked. And so breadth improved throughout 2000, uh, even as the S&P moved lower. And so, you know, to some extent we could have a mini version of that where, um, you know, if we get some sort of resolution in the Middle East, you see oil and yields fall. That'll certainly help breath. But I don't know that that's going to get the, you know, the big impact on tech. And I because that's really what's been holding up at this point Jonathan, to take that a step further. Do you think that the lack of breath indicates, uh, sort of consolidation upcoming, forthcoming in the tech trade? You've been talking about that for quite a while. And the resilience has really defied some of the weakness that we've seen elsewhere. Do you think it's a matter of utilities rallying or a question of tech maybe, uh, seeing a dip? Yeah. I mean, look, I got I think you could have a bit of both. Um, you know, if we go back to July when you had the the I unwind. It really hasn't recovered. I mean, that the semiconductor index is still off about 15% from as high as only a few names within semis are actually back at 52 cars. The median semi stock is still down something like 30% from those high. So we haven't really seen a recovery in the eye trade. You have seen it in mag seven. There's been a flight, you know, back into the hyperscalers. Um, but if you look within the hyperscalers, you know, Oracle obviously is not mag seven, but that's been struggling. Um, so there's still kind of a bit of rotation but a bifurcation. We still think the eye trade is is vulnerable and has another leg lower. Um, but I think, you know, maybe that could be offset. Again, as we said, by some of the laggard areas kind of catching a bit particular utility. We looked at those yesterday. Um utilities had a RSI on last Thursday below 22, which only happened ten times since 2003. And utilities have been up ten days later, every time for average about 7%. So I think there is some some opportunity in some of these laggards. But again, I think it's going to be at the expense of some of the things that have done well. The implicit suggestion here is that you actually do you think the bond yields are going lower? If you think that utilities are going to rally, there is sort of a feeling that those two ideas need to come together. Why is it? Are you seeing anything in the technical data that signifies that maybe the sell off in treasuries has gotten too far? Well, again, I think we want to separate tactical from structural. And structurally we still think yields are going higher. They just broke out of a three year trading range for talking about ten. So that you know, that probably suggests a move up towards the 6% move for ten year, um, over time. But I think yeah, tactically there is some, some um, signs, you know, they're getting very stretched sentiment as you know about as bad as it can get. But I don't know that you have to have a huge move lower in yields for utilities to work. Um, if you look at the action of the last couple of days, uh, treasuries actually move lower since last Thursday by about a percent, whereas utilities, um, have not moved lower. So there's a little bit of a bullish divergence there. But certainly yes if yields. You know, if utilities are going to work um, for more than a little bounce I think you need yields probably to move lower here. You've been pretty bearish on semis for a while. And certain aspects of the I trade. Why do you think it hasn't necessarily been beaten up for any long period of time? It seems like when one side of the eye trade doesn't do well, the other one does well, and then it flips and then everything does well at the same time. Yeah, well, you know, there's the constant push call between semi's and software. Um, software has been acting better. Um, but again, software is still flat over the last essentially over the last 12 months. And as far as semis go, um, like we said, I mean, the Sox are still down 14% or so from its highs. And, you know, the average and median semi name is still down about 30%. So it's been a you know, it's it really depends on what your starting point is. Um, but again, if you look back at the kind of analogy of, of boom bust cycles, it's still within the confines of those analogs where you get, you know, kind of the knee jerk move down, which we saw in July. And then you have a period of, of recovery. Um, and then you typically see another like lower. And so the jury's still out on that. We still think that's coming. Um, but yeah, certainly I think the the rotation, the resiliency has kind of kept it, kept it afloat for a little bit longer than we might have anticipated otherwise. Jonathan, the president will be meeting with I executives today. We've seen a lot of push back in Washington this morning. You have three top Democrats in the House asking some of these tech executives to hand over information about the growing number of some of these rogue incidents. Do you see the midterm elections as a catalyst for this trade? So I think we have a few potential catalysts or headwinds. Um, certainly, you know, I think if you were look at the odds of, of, uh, of a blue sweep, um, that in theory should put more pressure on the, uh, trade with all the data center, uh, push back that's going to get, um, and then you have the, you know, the massive anthropic IPO, which also, you know, could be a potential source of, uh, supply where, you know, funds have to sell out of other AI to make room for that. So there's two potential catalysts. I mean, when you're talking about politics and markets, you know, you never want to, um, assume that, you know, one thing is going to for certain lead to to another thing. I think we've seen history prove that over time. But yes, I think all is equal. Uh, you know, uh, as Democratic, uh, odds rise, that should be a potential headwind for the air trade. John, good to see you. Thanks for breaking it down, John. To Chris. Kind of had a brief conversation there on utilities the day that utilities top this year and the day that ten year Treasury yields bottomed this year, exactly the same day, February 27th, the day before the war started. It's been a massive driver of price action across asset and all around the world. Utilities tend to be directly correlated to treasuries. So can you get a rally in utilities if you don't get a rally in treasuries where yields continue to come down significantly. And then there's this issue of if you do get some sort of rally in treasuries, leave for the wrong reasons, and maybe you won't have the commensurate growth that some of these stocks need. It's really hard to time this market, if so much of it is dependent on what happens with the war, while physically maybe some oil is opening up, but diplomatically there's no end in sight at this moment. At least, not now. Heading into the midterms, no change in sight. Futures right now on the S&P positive by a few tenths of 1%. Up next we'll catch up with Greco via Parthenon. Anticipating one more rate hike from the fed this year. The opening about 60 minutes away. Equity futures into that positive just off session. Highs up by 4.15 on the S&P. On the Nasdaq 100 so far this morning. Up a few tenths of 1%. Up around a third in the bond market. Bit of a retreat for yields a bit of a break from the price action that we all need at that. And to attend to 521 down one on 2 to 491. Heading into lots of economic data, it kicks off with job openings in 19 minutes time. Some key economic data points. Was that PMI one off or is it justified by the incoming data validated by the data we get between now and Friday? Yeah, to use a Kevin Warsh. His words are we're accelerating right now. And is that what the data is going to show? Given that we got PMI data at the fastest pace in five years, if we get a similar kind of read through from the ISM manufacturing. How much does that really support that these bond yields are a fundamental move that can stand even if oil prices do go down. And I know everyone wants to tout how good the the PMI data was and it was including this white House. But the line that stuck out to me. Price pressures also intensified amid a spike in costs. Are we going to see the same thread through the rest of the week? More data a little bit later this morning, 60 minutes out from the up and about the cash open just around the corner. Let's get you some single names some morning. Maybe Ishihara has more. Hagiwara. Hi, Johnny. Start with fair. Isaac. Shares are plunging nearly 22%. This is the company behind Fico credit scores. And this comes after housing regulator Bill Pulte said that vantage score will join Fico in. In Freddie Mac and Fannie Mae's mortgage pricing grid. Now, that puts Fico dominance in this space under pressure, and it could change or potentially lower fees on new home loans. At a time when we have seen mortgage rates reach really high levels. Meanwhile, we are seeing Jeffrey shares falling 1.75% as problems in its asset management business overshadow what were otherwise good results. We've been hearing about its exposure to the likes of First Brands and Radiant World. Now we're seeing some pressure in the numbers, with its asset management revenue falling by more than half. I will say this is the first of the US banks to report, so it gives us a pretty good preview of what to expect next month when the majors report. Jefferies investment banking and stock trading no surprise. Very strong fixed income was weak. We've heard similar warnings from Bank of America and Goldman and we end on CarMax, those shares rising 5% after surprisingly good earnings. Sales at stores open at least a year, jumped 13%. That's more than double what analysts expected and breaks a fourth straight quarters of declines. It's notable at a time when car loans are expensive and of course, gas prices are up. John Hammer, thank you. Thanks for this morning. Let's talk about that data then. A week full of it starts later on today, with a two year yield holding nearly 100 basis points above the fed funds rate. Wall Street's also waiting for a line up of six fed speakers throughout today, including Williams and Waller. Later this afternoon, Glenn Beck Center Curren joins us now for more. Andrew, a central question for us this morning heading into this slate of data and all of this fed speak, is whether that PMI last week was an outlier. Do you have reason to believe by the time we get all of the data for this month, that it will be an outlier or one of many? Well, I think broadly speaking, it looks like the activity side of the economy is doing fine, John. So it fits a picture of a robust, robust growth. You mentioned the data we're getting tomorrow where we get inflation adjusted consumer spending for August. That's expected to show the strongest month of spending this year. Uh, and of course, heading into the jobs data on Friday that's expected to be, you know, pretty robust. Plus 90 odd thousand unemployment remaining low, 4.1%. I think when you when you consider data, data like that, it means the PMI is less of an outlier. And just speaking to an economy that's doing quite well and that's what comes through. And all the official speak will get a lot of fed speak today. Like you mentioned. They are saying one after another. They're less worried about the jobs market, they're less worried about the economy. Their focus is on inflation. So how many doses of accommodation do they need to remove and how offsite are they? How spooked are they at the moment with this incoming data? It's very tricky to tell Jonathan truth. I mean, there's so many moving pieces right now. We have the data coming this week as we just mentioned. We also have, by the way, unusually tomorrow with the reading that's the Fed's preferred inflation gauge. We're going to get a new calculation on that a year on year. That's expected to show inflation in a better space. But month on month. It's probably going to show inflation core PC around 0.3%. That's probably not where the fed wants it to be. So that's the data story. But then the other moving pieces are the oil story. Uh, you know, we're reading these news reports now about increased supply coming on. What's that going to mean for prices down the road. And of course yields what happens. Yields in the in the near term do to continue where they're going. Or do they come off the boil a bit. All of these are moving pieces that with the Fed's be coming up this week. In truth we'll probably get some direction from them which is probably going to be around. Inflation remains our focus, but it feels a bit too soon to say whether or not they can be very definitive on what they're going to do with rates later in October, and a good to see, as always undercurrent there for Bloomberg and a Washington, D.C.. I'm not sure this is how they planned it or how they want it to be, but a lot hinges on the next CPI print heading into the next meeting. It feels like deja vu all over again. I mean, ultimately that was what happened the first time around, and it was really basis points, not even basis points. Fractions of a basis points. I could potentially make the difference between a hike and a hold. I will say right now we've got more than a 70% chance of an October rate hike. So the bar is pretty high to not hike. And how much is a hinge? Not necessarily on CPI, but the price of oil and the price of diesel potentially at that time as well. Let's give disinflation a chance. There's a chance right. That potentially. And what happened to that? I know I was thinking about that today when I saw him on the board. I think he's the sixth, the last speaker we're going to hear from today, Governor Waller, who had this hope we should give disinflation a chance. And then that's it. Voted for a hike the next CPI print October 14th. So look out for that great echo of a wide path of not expecting the fed to hike in December. Writing this could create further strain for already constrained, interest sensitive sectors while doing little to slow the I led investment search. Greg joins us for more. Greg good morning. Good morning. You get to a central question. What do these hikes achieve. What are the consequences of them? And I think it's a really important question. What do they achieve? I think that's the key question for the fed right now, because we know that monetary policy can be tightened to address any type of demand side overheating. But that's not what we're seeing today. We're seeing supply shocks that are laying one on top of the other and creating these recurring pressures on the supply side. And now you have the eye led investment boom that's creating strain on a finite set of resources, which are largely inelastic to any type of tightening of monetary policy. Could you describe the I demand as a demand shock? The I story is a demand shock. It's both an I demand and supply shock. You have the demand side, which is the first step of any technological revolution where you have a lot of investment in infrastructure, in CapEx, in cyber, to develop the foundation of that technological revolution. And then you get the supply shock, which is the hope for stronger productivity gains that aren't disinflationary. But those are hopes. We're not yet seeing any type of broad based productivity gains that would be disinflationary. If anything, costs are rising for businesses that are adopting this technology, how well-received would it be if these fed officials came out and produced a different speech and said, this is what's happening, we can't influence it. We're going to sit this one out. I think you need a central bank that is much more activist in this environment. When you have supply shocks that are coming on layer after layer. You need a central bank. That one highlights different scenarios, and it's clearer around what the scenarios could be and what the reaction function as a group is going to be to these different scenarios. When you have that, you have much more clarity as to how policymakers are interpreting the outlook, where they're seeing signs of pressure and how they would react to that. That's number one. Number two, you need to have more communication, not less. You need to be clearer about what the risks are to the outlook, that there is uncertainty and how you're going to be agile, nimble in this environment. It need not mean being hawkish for the sake of being hawkish. It need not being talking about removing accommodation when there is very little sign of excess accommodation in the economy. It's about being activist in the sense of being nimble, robust and straightforward when it comes to that reaction function from the central bank. You know, I want to challenge this question that the fed has no impact on the eye trade whatsoever, unless it raises rates to a punitive level. Based on the fact that Ora actually postponed their IPO, looking for a better time to to to sell their shares. Ultimately, doesn't that mean that it's working? Doesn't that mean that on the margins it has taken some froth out of the market? Yeah, I mean the rate hikes themselves. Not necessarily, but the long end moving much higher. And the entire yield curve moving much higher means that the cost of capital is higher and is going to be persistently higher. That's why I think we have to be careful with this narrative that the US economy is really accelerating. We're currently seeing an economy that is perhaps robust in the sense of average GDP growth, average consumer spending being strong. But if you look at the headwinds that we're facing in terms of higher inflation, in terms of higher interest rates, those are caps in terms of spending growth. And they do represent downside risks. Should we see any type of risk off environment materializing? So your question is absolutely valid. What happens if we have this prolonged environment of a higher cost of capital that weighs on the deal market, that weighs on stock markets, and that essentially lead to this pullback in private sector activity? It's absolutely a key risk. So we're in this paradox where yes the economy is showing signs of being robust. But at the same time recession risks and downturn risk are actually rising not falling. So given that I would love your interpretation of the CarMax earnings that we saw earlier this morning, John and I were negotiators debating whether this was a good sign or a bad sign for the U.S. consumer. The fact that they were better than expected. They upgraded their forecast. People are buying used cars. Is this the classic Walmart? If they do, well, that means the rest of the economy is doing badly. And if they do badly, then everyone is really doing badly. You have to be very careful with the auto sector right now, because the auto sector is one of the most interest rate sensitive sectors. Now, if you look at credit data, not alarming by any stretch of the imagination, Credit relative to spending is historically quite low, but there are pockets of pressures in terms of delinquencies that are starting to rise. Credit cards and autos are two of the key points. Now, when you combine this environment where you have fragility on the income side, income being eroded by higher inflation and higher interest rates, which means that the cost of financing that is rising, that becomes an increasing burden for more and more families across the US. You buy a car and you spend the first two years just reimbursing interest. You're not reimbursing the principal. And that becomes a key constraint in terms of consumer spending activity. So we have to be conscious of those risks that on top of 7% mortgages, how much is the everyday American getting hit with higher interest rates right now. That's why I think this every central banker has to balance the risks here. Yes, you can tighten financial conditions by raising interest rates and signaling a tighter monetary policy stance. But you want to be careful because the interest rate sensitive sectors like housing, real estate and the auto sector are already under a lot of pressure. That's not where you're seeing the sources of inflation, if anything. That's where you're seeing deflationary or disinflationary pressures coming from. So you want to be careful not to raise interest rates too much, to create more damage on the side of the economy that is interest rate sensitive. That trade off is something policymakers have to be transparent about. They can't just hide behind the fact that they're going to tighten monetary policy and address inflation where it is, that's not going to happen. Here's a great example of that. This morning. This headline cross in the Bloomberg terminal. These are not the kind of headlines you read against the backdrop of a demand led inflationary spiral target lowering prices on about 2000 products, cutting prices on home and apparel items. They're just not the kind of headlines you'd read if the consumer price tolerance was high. And these companies have the ability to pass some higher cost targets down to charity, if they could achieve it, they would do it. They're cutting prices for a reason. Yeah, they're being competitive with Walmart, which is doing the same thing. And ultimately there's a price competition. You're seeing this in other grocery chains as well. Previously, target actually had 10,000 additional price reductions in the past 12 months. We saw an earlier headline that lent was trying to attract people to their Christmas offerings. If you want chocolate by cutting prices there. So if you're trying to compete on price, that is a place that no business owner wants to be in. It is really highlighting which consumer they're trying to cater to. And I see the Walt Disney Company in hiking prices, hiking prices because you have pricing power. Well and I think they do. Well okay. Are you are you planning on making a move. Is that the point? It's the limit of my tolerance. You know, I think that they're catering to people just like you who are not going to cut their core subscription 100%, and you're not going to be doing it. You're not like subscription. They want to watch the game. We're going to get active. Oh yeah. For the full one. Yes. At some point I'll let you know when you're going to be using yourself to do it. I won't be using an agent. I just get straight into it. Yeah. I'm sure it becomes increasingly angry every morning I can't wait. Great to see you. Thanks week. Thank you. Greg. Deco, the FBI Parthenon. Let's get you an update on news worldwide this morning with your Bloomberg. Very funny. Quinn has more. Hi, Vonnie. Hey, John. Thank you. President Donald Trump and House speaker Mike Johnson are having lunch with the CEOs of leading AI companies. Politico reporting the heads of Nvidia Anthropic, OpenAI and meta will participate in the meeting, which follows a surge in concern about AI's risks. President Trump dismissing warnings, saying the US must be China in the AI race. 11 million American workers may need to change jobs by 2035 because the AI related displacement, according to a new report by McKinsey. Office and Administrative, supports retail and sales and transportation and logistics jobs face the most disruption. Or postponing its market debut due to uncertainty in the market. The smart ring maker is saying the company is profitable and has further strengthened since beginning the IPO process, adding we aim to deliver an extraordinary IPO for our employees and investors. We have the luxury of choosing our moments. And that is your Bloomberg brief jump. Bonnie. Thank you. If you're going to do it, that's how to do it. That's a flex isn't it. You've got the luxury of choosing one. I mean, ultimately a lot of different companies have the luxury. So does anthropic. But does this market have the luxury of them choosing to delay their IPO till 2027? I think that's an increasing question right now, putting the squeeze in some of these companies. At the moment, stocks are doing okay up a 10th of 1%. Up next we set you up for the day ahead. Plus we'll touch base with Blake Cohen of RBC explaining why he's constructive on yields. That conversation up next live from New York. You're watching Bloomberg Surveillance. I'm increasingly wondering whether the unwind of the yield curve trade is a big problem here. This might be the revenge of the bond vigilantes, now that they've been sort of liberated and free to express an opinion. They're saying, well, you know, you accumulated all that debt, uh, near zero interest rates back then. Now you're going to have to refinance that at these yields. And that's that's concerning. That was that jazz. If you had any research weighing in on this bond market sentiment, as we've seen over the last month or so, 50 basis point repricing on twos and tenths for the month so far, with a few days of this month still left to go. Equity futures on the S&P 500 shaping up as follows. Doing okay. Up a 10th of 1% into the cash out and the up and about 42 minutes away. Yields retreating just a little bit. Twos out to 30s down by a basis point on a ten year at 522 and unchanged on 30. Close to the levels we have not seen in a long, long time. Going back to what my 2004. Yeah, 54 on 30. So what's interesting here is you're seeing yield curve steepening. And this is exactly the opposite of a lot of what people were expecting, which is the fed potentially hiking four for more times and yield curve flattening. Well this is not that. And it really highlights an aversion to the long end of the yield curve in the absence of understanding what can break this cycle. It has felt untethered heading into all of this. Lots of fed speak throughout today and lots of data as well. Let's get to your trading diary starting at 10 a.m.. Job openings A little bit later 11:00 Am fed speak from officials, including far later Williams and Waller heading into tomorrow PCA data ism, micromanaging jobless claims, payrolls, all of that over the next three days. Yeah, ultimately, how much are we going to be looking at payrolls? How much are we gonna be looking at ISM manufacturing? How much are we going to be looking at micron? I mean, again, the one thing that is upheld, this entire economy, this entire stock market has been, frankly, the semiconductor trade, but the eye trade more broadly. Does micron hold outsized importance given the fact that ultimately when we ask people why they are remaining their bullish selves they say earnings, earnings, earnings. So let's see those earnings earnings earnings earnings kicking off just a few of them this week. And then it really gets counted a few weeks time. The send back to bond markets. Blake Cohen of RBC right. And we're constructive on the out of these levels. But like everyone else it's very scary to get long until the bleeding stops. Like joins us now from more like good morning. Good to see you. It's here for much of this year it's been described as orderly. What's the difference between orderly and disorderly? And how close have we been to the latter in the last week? Well, I will say one thing that I would put in the camp of disorderly is if you see very, um, very squeezed positioning stop outs, we haven't seen that as much in the US. And especially looking back the last few weeks, I think it has been a little bit more intense overseas than it has been here. We've been kind of getting dragged along. Um, also, there's other places you can look in the markets, like swap spreads, other things that could give you signs of stress. And we just haven't seen that. Um, it's been kind of a very steady march up in yields. And I would say it's been very interesting that it's tracked very, very well with oil even in the long run, which typically you would not expect to be that correlated with oil. But when oil moves up, yields are moving up. So I don't think we've seen that many days where you've come in and it's really just been this kind of bloodbath mentality where you know, you're getting hit with stop out after stop at after stop out. We've just been kind of moving along with oil for the most part. We often talk about the global bond market, but what differentiates the forces leading to the massive price action in places like, say, Europe compared to stay side? Yeah, I think there was a much bigger buildup of positive carry positions in Europe. So people just looking to earn a little bit of positive carry that kind of piled into these positions. I don't think that positioning in the US ever quite existed to the same extent, so there wasn't as much to really get squeezed on that side in the US. So I think that's kind of the big contrast between what's been happening over there and what you talked about, the fear that gripped people in the US. Let's just sit on that fear just for a bit. There is a fear that the next leg is more about deficit concerns and hasn't been thus far. That high yields, fuel deficit concerns and deficits concerns fuel high yields. And you're getting to that negative feedback loop that's avoidable. I mean I think it's avoidable. I'm generally a seller of the deficit concerns. I mean I look at what's happened, um, you know, to yield since March, it's a realignment of global policy expectations and its oil prices. I mean, that's what's been driving things. And if you look at where you would expect to see other signs of deficit concerns, so particularly swap spreads, right. That's somewhere where if you were experiencing a deficit concern, you would expect those to be dropping pretty considerably, especially in the long end. Um, that's typically where people trade that theme. And we haven't seen it trading very well. Um, and even the curve, um, you know, you were mentioning the curve in the intro there. Um, you know, 530 is actually flattened quite a bit now. It's deepened a little bit more locally. But you look at the levels that we're at in curve and, you know, uh, swap spreads. These are things that you would expect to be seeing stress if we were experiencing fiscal concerns and it's not there. The last thing I would say is that fiscal deficits are going to be large. But that expectation has been with us for years. Like nothing has really changed. We haven't had new information. There's not a new fiscal package. Now, you mentioned higher yields that may eventually increase interest payments by the government, which can increase deficits. But if it's happening at the long end, that happens a lot more slowly. That doesn't really impact interest payments this year. It impacts on interest payments eight, nine, ten years down the road. So I'm still not really seeing something that shocked our deficit expectations over the last few months. Like, how do you deal with this if you think it's so just highly correlated to oil prices, when that's going to be fixed in a foreign policy arena, not financial markets? Well, that's a really difficult thing for the fed as well. And I think part of the reason, you know, you could argue that they were dragging their feet is you just kind of hope this stuff wraps itself up without you being forced into rate hikes. Um, and if you look at the difference between where they were at in July when they decided to hold and where they were in September, the biggest difference to me was what was happening with Iran and what was happening with oil. I mean, you still had the forward curve in oil, kind of expecting a resolution to come on Iran. They get to September. That had completely shifted. The MOU was, um, you know, long gone. Uh, oil was back up above 00 a barrel. So that expectation, they couldn't rely on that expectation that that was going to be resolved and start to pull down prices. And so I think that was one of the big reasons that we saw that shift from from July to September. Now looking forward, what does that mean? I mean, if you kind of think about what could pull rates down, um, you know, it is it is a resolution that Iran, it's oil price is coming back down or something that happened to the I story. But can we really count on either of those things in the near term? Not really. It's tough to see that any time in the next month or two. Have we seen the cathartic puke in the US yet? Um, not particularly. I mean, I think, you know, back to the point I was making earlier, I think there was less, uh, in the it's getting a little gross here. There was listening to some other there wasn't as much, uh, there wasn't as much material to be fuking. So so I do think, um, yeah. We haven't yet seen it, I think. Late last week. Early this week. You could argue that it started to, you know, we started to see a little bit more happening on the US side, a little bit more of that kind of stopping out pressure that I was mentioning. But still it was more, more intense, I think on the European. So can I get worse? What's that? Can get worse then, uh, certainly can get worse. And I think, um, you know, that's why, you know, in the intro this, um, this idea that we're constructive on yields. But, um, so we're a lot of people and I think that's what's caused the pain is over and over. Um, you know, I think a lot of people are still smarting from 2 or 3 times where they've already tried to take a stab at getting long. And you look at yields and you say, man, these bonds look cheap. Um, you know, it looks like fed pricing has overshot what we expect the fed to do. And you take a stab at it. That's lost 2 or 3 times. And I think people are really smarting from that. So it's it's very hard to take those positions on right now. Front end is a great example of that. You've got this really comfortable spread between two years and the policy. Right. It would take a pretty big shock for the fed to deliver more than what's already priced in the yield curve right now. Yeah, but that shock could come in the form of diesel prices going much higher. And evidently the economy not rolling over is what makes people nervous. And the fact that we've actually seen fed officials come up to the expectations, rather than the other way around, gives you a sense of the potential risk out there in spring when we start to see this selloff emerge. A lot of people came to this program and talked about creating value. Value was being created in the bond market by the bond market. I never hear that anymore. You rarely ever hear that sentiment has shifted radically in the last seven months. I think Blake nailed it. When you catch a falling knife three times, you no longer want to put your hand out. And that's what we keep hearing from a lot of people. At times it felt like a falling chainsaw. That's in it. Like, thank you, sir. It's good to see you again. If I see you tomorrow. I mean, you brought up that. Look. It's not a kid. I think it's telling you. Tomorrow. Francisco flagship Bank of America, Sarah Hunt of Saxon Woods, Alex Albon of Berkeley, Stephanie Roth of Wolfe Research from New York City this morning. Good morning. Thank you for choosing Bloomberg TV. This was Bloomberg surveillance.