Inflation Fear | Bloomberg Surveillance 10/27/2022

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Rightly or wrongly, the Fed views the
labor markets as the conduit to achieve their inflation objectives.
I think the whole inflation fear is way overdone and it's starting to leak into
the data. We've not yet seen that turnaround in
U.S. inflation that will really get the Fed
to actually cut rates rather than just pause the hikes.
Now, the odds of a recession are very high, but we haven't seen the whites of
the eyes of that recession yet.

I think there's an argument you're
starting to price in a mild recession, but you're certainly not bright and in
something severe. This is Bloomberg Surveillance with Tom
Keene, Jonathan Ferro and Lisa Abramowicz.
Good to see you back. That was Jerry cheating.
That's good. It's a group thing in America, in New
York City. Does that sound inspired this woman that
revolutionized it and the rest of the country, which we.
It's a shame. The judge looked at me and said, I know
you. Is it Simone Foxman from NIKKEI?
Rosalind Chin a.m.. Good morning.
Good morning for our audience worldwide. This is Bloomberg Surveillance.
What a day we've got coming up for you and ECB rate decision.
Earnings from Apple and Amazon, T.K..

We've got to talk about Credit Suisse as
well. Futures unchanged on the S&P.
Credit Suisse over in Zurich. Down and down hard.
Why are we talking about this, folks? We're talking about.
This goes for the Bloomberg world and global Wall Street.
This is painful and somewhat clear. Lisa was mentioning before the show a
little peek. But, John, what I would suggest here is
I am focused on the dilution here and the stock down 12 percent, down 16
percent earlier. It's 10 percent to the Saudis.
And a further dilution. The way you spell rates, folks, rates is
not seen in America. John, spell rates devalued t o she is
delusional.

Juliette Saly 4 billion.
Swiss Franc Wright says she and some. It's the rights issue that I think a lot
of equity investors wanted to avoid and ultimately they can't avoid it.
And Tom, there's two other issues at play here as well.
You've got the rights issue. You've got a terrible earnings and then
you've got the reorg. So can we talk about the real can you
make sense of the reorg this morning? They want to be James Gorman.
Simple as that. You know, there's another FTSE.
There's an article in Nachman over at Goldman Sachs.
Goldman Sachs wants to be James Gorman. Everybody wants to do wealth management
and the consistent cash flows generated.

That's different than doing sparks.
Let's talk about what first Boston ultimately becomes law.
So that's got to be a spin off for the investment bank.
Reuters reporting just moments ago, by the way, that they're considering an IPO
for that particular unit. They're looking for outside funding to
help provide some of the risk weighted capital to go out and really build out
the leveraged finance unit that really had been the stalwart of Credit Suisse
for so long when they merged with DLJ back around 2000.
So how much can they really recreate that using private capital without
necessarily some of the consumer deposits?
And then also, I'm curious about what kind of equity stake some of the senior
managers who are taking this on have that stock.
Look, somebody with AMP by 10, 11 percentage points this morning.
T CAC if you want.

Even uglier than that.
Look at Matt Miller. Facebook is down 20 percent in the free
market. Julian Annmarie Horden, Julian Emmanuel
wrote in for forever. Call that after murder after what we saw
with Google. Sorry, Facebook, Google.
There I go. No, it's clear after what we saw there,
Amazon and Apple today are ever more important.
But I really take issue with people that compare even Google with a cash flow
streams of Amazon and Apple. Facebook is not in the mix at all.
Not anymore after the damage of that market cap so far this year.
What a for the price action for you outside of
equities, which as I say, are unchanged on the S&P 500.
And look at the bond market. Yields are high by five or six basis
points, just north of 4 percent on a 10 year kind of hanging out at that level
over the last couple of days on a 10 year maturity in the Treasury market.
And he affects market euro just slightly weaker.
Euro dollar down four tenths of 1 per cent, 1 0 0 41 in euro dollar T.K., a
weaker euro GANGI and ECB rate decision a little bit later, the weaker euro.
But coming back over the last couple of days and combined with the equity
market.

John, you mentioned in our two hour
meeting before we were on air that the idea that SPSS has actually done better
than the tech being up of the last couple days and you see it with as with
euro goes to parity, stronger euro VIX from 30, 31 and a twenty seven point
five. So there's some oddities right now in
this important. That was the story yesterday, Tom.
If you strip out the muscle of big tech and just go to the equal weight S&P 500,
it was positive yesterday sort of paying.
You saw an alphabet that you saw in Microsoft.
It didn't lead.

It didn't end in a major way.
20 percent of that speaks market cap this afternoon.
Unreal, isn't it? Yeah.
Couple of names. Just fantastic.
Lisa, looking forward to that. The earnings and ECB rate decision later
this morning. And John, you were talking about how
yesterday if he stripped out some of the big tech names, you actually saw a
positive return on the equal weighted S&P.
The reason why the stepped down, I know you guys are incredibly excited.
Do we get the step down in the ECB today?
Not necessarily. At the 15 a.m.
rate decision where they are widely expected to go with 75 basis points,
raise rates by that and across the board raise all of their benchmark rates.
But in terms of December.

Do they go to 50?
Do they even potentially go to 25 basis points?
We have a 45 press conference with ECB. Christine Legarde, how much does she
signal they're concerned about the pain and what is the litmus test of the euro?
Does the euro weaken further if they signal a step down or does it actually
gain in terms of the potential for some sort of economic growth?
At 830 a.m. USA Q3 GDP figures is the first read
that we get really digging under the surface.
Maybe we get a positive read after two consecutive quarters of negative print
kind of eradicating some of the claims about a technical recession.
Do we get a more optimistic look there? And then initial jobless claims, why are
we not seeing them really tick up? They are still at historic lows, even as
the Fed aggressively goes after raising the unemployment rate.
And as we hear some of these big tech names really talking about potential.
Cutting back pretty substantially some of their staffs.
And after the bell, Apple and Amazon report earnings.
Also, Intel, I am curious to see them as well from the chip sector.
But Apple and Amazon, front and center, Apple, importantly, John, how much can
they remain the cash cow? How much can they remain?
The story of you could all doubt me.

You could all think that we're not going
to necessarily perform, especially in light of what we're seeing at the
Intel's and the other chip producers in the world.
But we continue to outperform. Is that going to still be the story
today? Lisa, thank you.
T.K., if there's one name that can define an earnings season, it's Apple.
And we've been talking about lowering the bar for the last couple of weeks.
We've had the report here at the impact that maybe iPhone demand is faltering
some at any time. So we set that down into the print.
And as we often say, they knock it out of the park Beyond the Bell.
They're not going to the park.

And again, it's going to be the same
with Amazon. And that's a subset.
How does services do it? Apple?
You know, ISE like Dan ISE here, which is not my major.
But the answer is, John, you're right. They always are these anchors, these
worries. What I would point out, particularly to
American listeners and viewers, is I believe there's another price war if the
phone carriers to move units. I see the same thing in that.
I'm not sure how that full Zune will catch up with the Apple story a little
bit later. Let's start with ECB story this morning
and speak to Katrina Dudley, the portfolio manager and research analyst
at Franklin Mutual Series. Can we just pick with him with the ECB?
Katrina, we're looking for 75 a little bit later.
What are you looking for? I think we're all looking for 75, so
you're right in the ballpark there.

What would be the surprise here is if
they do 50. You've seen that the bank, the Reserve
Bank of Australia do 50, the Canadians followed fairly quickly.
And so that the ECB does have the flexibility to do a 50 basis point and a
little bit of a wait and see. And we've seen some kind of softening in
the PMI data. Take a look at the eurozone numbers.
There were a week of them.

We're expecting a lot of that weakness
is coming in Germany, which is really that manufacturing hub of Europe.
So we are expecting 75. The surprise here would be 50.
Katrina, is there a theory to that? Is there some form of grounding of
economics in these adjustments from Canada, maybe from ECB, maybe, dare I
say, from the Fed? Or is it they're just making it up as
they go. Everyone here is making it up as they
go, because we really have not been in this position for so many decades that
the caution with the ECB is twofold. First of all, if you go back and post
the GFC, they tightened too quickly and they acted too quickly in the past.
So I think that there was a little more hesitancy at the ECB than there are in
other markets. The second thing is that we really don't
understand here in the United States.

Europe's faced a triple whammy here.
They've had the war crisis. They've had an energy crisis.
And they're facing monetary policy tightening.
And so the combination of those three, I think, puts them a little more on the
cautious edge. That said, I really do want to say that
we are probably in line with the market expecting 75 basis points.
What we're really paying attention to is the forward guidance and any signaling
you get as to what they're going to do in that next meeting.
So let's talk about the potential reaction to that Katrina.
Yesterday we saw the Bank of Canada surprise to the downside with respect to
how big the rate hike was. This was the step down that people are
looking for. And people have looked at the Bank of
Canada to really be on the front foot with setting a tone for central banks.
If the ECB follows that and signals only a 25 basis point rate hike in December.
What's the reaction as the euro strengthened?
Do we end up seeing actually more expectations of growth in the euro
region or do we see the long end yields spike and further weakness in the euro?
What you're going to see is the markets going to react positively because what
they see is that the ECB is accommodating the fact that the PMI is a
slowing.

And by slowing down the pace at which
they increase interest rates, they're giving support to the overall economy.
The risk here on the risk that we're really focused on in the United States,
in Europe as well, is that the rise in rates chokes off an economic recovery.
So they temper that rise in rates. They're likely to see that economic
recovery has some small level of incremental support.
I do say it is a much smaller level of support in terms of Australia and
Canada, though I do want to point out one small thing is the transmission
mechanism there for those rate reductions.
So instead of doing the 75, they did the 50 is much quicker and cleaner because
the the housing markets, there are variable rate mortgages in the United
States and in more of Europe.

The UK is an exception.
You don't have as much of that debt and that mortgage debt.
So the transmission mechanism there isn't as fast as it is in those are the
Commonwealth markets. Katrina, wonderful to hear from you.
To kick off our coverage today. What a Thursday we've got.
Coming up, Katrina Dundee, that Franklin Mutual series, T.K.
the depot rate could double a little bit later from 75 out of 50.
What's great about this, folks, is we have John
with years of experience on the lawn at Frankfurt, and I believe Maria Tadeo was
there today. We're going to catch up with the two of
you together on this, because I would know the deep over Marie from whatever
Roots outro and.

Exactly.
And there is the body language of the press conference.
It's going to be really, really interesting.
We'll bring you those headlines on radio and television through the morning.
I actually think this moment is a lot more simple to understand because we're
seeing it play out in the United States increasingly, too.
You're going to see some political pushback, some huge in a much, much
bigger way. Look at the data in Europe right now.
The PMI ISE in the 40s and they're going to hike 75 basis points.
You're going to laugh at me because I've been screaming about this for months.
There's a point where you walk towards neutrality.
Maybe it's 75 B show how maybe it's 50. What do I know?
And then every step from there becomes excruciatingly difficult.
And we are there right now. Jamie Dimon at JP Morgan spoke to CNBC
in the last couple of weeks and he talked about the next 100 basis points
of tightening from the Fed being the most painful 100 basis points.
I'd extend things just a little bit late.
So I think politically it's gonna be the most painful hundred basis points, not
just for the Fed, but maybe for the ECB as well.
I would agree.

I also think, though, that at this
point, if they don't continue to hike, what is the response from the bond
vigilantes and the long end, do you start to see borrowing costs surge in a
way that becomes political untenable regardless of what they do?
The ECB decision coming up a little bit later.
Earnings from Apple and Amazon. What a first day.
Some economic data coming over 830 Eastern Time will break that down with
Mike NIKKEI coming up shortly. Sharon Ballard, Goldman Sachs.
In the next hour. Looking forward to that.
This is Bloomberg. Keeping you up to date with news from
around the world with the first word. I'm Lisa Mateo.
The European Central Bank is set to lift main interest rate hikes to the highest
level in more than a decade.

It's trying to lower high record high
inflation. Almost all economists surveyed by
Bloomberg predict a second straight 75 basis point hike today.
President Xi Jinping in China is willing to work with the U.S.
to find ways to get along. The comments came before a possible
meeting with President Biden next month at a Group of 20 summit.
It signals an effort on JI's part to maintain ties, despite disputes over
everything from Taiwan to chips to the invasion in Ukraine.
Russia has carried out military exercises simulate any retaliatory
nuclear strike. Vladimir Putin oversaw the drills.
Secretary of State Anthony Blinken told Bloomberg that the U.S.
has warned Russia that any use of nuclear weapons in the war against
Ukraine would have grave consequences. And Credit Suisse is planning a sweeping
overhaul.

It includes four big one billion in
capital raise, a carve out of its investment bank and thousands of job
cuts. It's the most urgent attempt yet to
repair Credit Suisse after huge losses and management chaos and breaking up the
investment bank. The firm will create a separate advisory
and capital markets business that will revive the first Boston branding, and
the world's richest man told Twitter employees.
He doesn't plan to cut 75 percent of staff.
Bloomberg's learn that Elon Musk deny the numbers in an address to workers at
the company's San Francisco office. Still, the billionaire is expected to
cut staff when he takes over the company, causing anxiety among workers.
A 44 billion dollar deal set to close Friday.
I'm Lisa Mateo. This is Bloomberg. We want to go through that
transformation of the next four years with very, very strong capital base and
belief. The transformation also addressed on
Capitol. It will become profitable.
Definitely from 2024 onwards. What a tough morning for everyone
working at Credit Suisse this morning. Good morning to you.
That was the Credit Suisse CEO.

The stock is down as Swiss trading by
almost 12 per cent from New York. Let's get to the price action.
What a day we've got coming up for you outside a credit squeeze.
We've got earnings from Apple and Amazon after the close.
We've also got an ECB rate decision. Equities look like they're sunny.
S&P were positive on S&P today, almost a tenth of 1 percent.
It was higher by six basis points on a 10 year just north of 4 percent.
The euro's weaker going into the ECB kill a little bit later.
Some euro dollar just above parity. Still a one handle on the euro Mark
Gurman for global Wall Street.

Now an informed conversation on the
disaster known as Credit Suisse is trading on a book value basis.
This is off the BQ screen in on Bloomberg.
It is apples and oranges. One point for something for J.P.
Morgan, a little bit better for Morgan Stanley, really showing the successful
decade of James Gorman and Credit Suisse, zero point to four.
That's all you need to know. That's what markets Ashworth knows.
A Bloomberg opinion steeped in EU banking.
Marcus, you and I go to delusion, except you.
And I know the calculation of equity delusion is complex.
It is usually something failed on a CFA exam.
How bad will the equity dilution be for shareholders of Credit Suisse?
Well, I think they learned the lesson of their compatriots.
Banks know what Swiss bank which merged into their union backers Smiths and
decried the UBS model.

Ten years ago, UBS decided to cut
through, you know, muscle, but everything to just to get to a level
whereby they could be appreciated on the stock market.
It looked like, you know, wanton destruction as we are looking at Credit
Suisse now and seeing all sorts of things going on which, you know, look
unpalatable and silly in some sense, some of the most profitable parts of the
bank are riding high off. But in the result.
And as you said, that tangible book value of nought point two, five, all of
it is doubling and then going again up towards just tangible book value at some
point in the next few years that will be deemed a success and all the management
Carol Massar. Marcus, what is the time line to find
the formal dilution of these set of transactions?
To me, it's a three year timeline, even though they're talking it up in a cup of
coffee. Is it three years or is it even longer
until you let the dust settle on dilution?
Oh, I think there's gonna be some to, you know, real results.
Well, before that, they may take an I wanted to get beyond that, but you've
got out the directory trouble clearly laid out.
They need partners clearly on on the investment bank, CSFB.
You know, any partners into the structured part of the product group or
sell thereof.

They need real results and something
absolutely could clearly happen. It's Credit Suisse.
It is about a private bank, a wealth management, an asset management.
The rest of it is important, but is not vital.
And that's clearly what was showing the amount of capital opening in investment
banking, the hiving off the successful glory IBEX of states stateside staff.
That's where the money still is. The European side, not so much.
That's going to get within the bond markets.
Credit Suisse is its own animal. It has its own pain.
It has its own story. But it is within the microcosm of the
European banking system, which faces a sort of regime change today.
Potentially FTSE doubles the deposit rate if they double the benchmark rate
they've used to the highest levels in more than a decade.
How much does that change the scenario in a positive way for banks that if
they're looking for higher yield, higher rates for a very long time?
Difficult one. Not very much.
I mean, especially because causes a recession, which is quite likely.
I think in my mind that you already probably in a recession in Europe, it's
going to get worse.

So hiking interest rates and do solid
things as well. I think it's the other bear, the complex
monetary plumbing, but which is these excess reserves.
A lot of banks borrowed up to 2 trillion euros, as low as negative 1 percent.
They got free money locked in. And it's because you save deposit rates
goes one point five. They and park their money back at the
ECB. One of the hopes in the world, a lovely
round trip. That's too generous.
And clearly the ECB will do something about that.
If they overdo it, they're going to cause a liquidity withdrawal of
potential financial conditions. Nightmare blood.
We saw the UK recently. Unpopular collateral Swedes as well.
They may lose control of the money market rates.
That could get this very wrong. They could get sued.
There's all sorts of things that could go wrong with a positive rates.
The ECB is quite a new world. They also used the negative rates.
They haven't quite worked out what it's like aboveground.
Which raises a question about what they're gonna do in December.
And that's what people are really looking for today at the ECB rate
decision in terms of whether they ratchet back some of their plans to
raise rates.

Do you think that that's what the market
is basically asking for and that financial stability will be an
increasingly pressing concern if they signal an ongoing aggressiveness?
Yeah, I think the answer to this all lies as ever, not with the ECB, but in
the Federal Reserve. Will the Fed do or November 2nd is key
to everything in the Fed do slightly pivot or say that the next height won't
be something like 75. It gives the ECB the free most Sony and
want to perhaps 1850 in December and probably will stop it either there or
very soon thereafter. They will talk a bigger book.
They have to keep that euro back about poverty.
Just go back about first time for quite a while.
I don't want to keep it about parity and therefore they want to keep talking.
They really want the Fed to ease off.

You'd have to imagine markets by the
time we get to December. That's a forecast.
The spouts out recession. A note.
Is that avoidable? No.
No way. I think that absolutely.
UK, Europe, they're already in recession and all that name.
I could only get worse the more they hike interest rates, let alone talk
about withdrawing stimulus. Too hard to get because they've timing
wrong and all reduction of excess reserves.
A world of pain is coming. Marcus Ashworth, thank you, sir.
Out of London. That's the problematic view of things.
So when it comes to the ECB, the fact that that base case doesn't include
right now a recession in the eurozone. Next forecast, I believe, come in
December when they sit down in December, Tom Keene have to imagine as some form
of downturn, some real downturn in the outlook.
While Jihye Lee a hike again, 50, 70 basis points CAC.
I was remiss, John, I didn't look at this when I came in this morning.
And as the Bloomberg Financial Conditions Index, which I've mentioned a
number of times, England and America are very close and they've improved here
over the last number of days.

ECB is still dining, will show
different. This is a different press conference
than what we're going to see from chairman.
There is one really big piece of good news, though, in Europe when it comes to
getting the right story up. Lisa, it's so much better than it
could've been at this time of year, primarily because it's been warmer than
most people thought it would be. And this is what I'm struggling to
understand. At what point is this a positive
development that cares really fully been bled through into markets vs.
what everyone seems to be saying? Just wait till actually the winter comes
because it hasn't gotten cold yet.

And I was reading a story about daylight
savings time being actually a nightmare for the European region because people
turn on their lights earlier and that uses up more energy there.
All sorts of things that people are looking for.
I don't look skeptical, but, you know, I've been looking forward to getting rid
of that for a long time. Yeah.
I wonder how much John Micklethwait. Yes.
I mean, I wonder how much pressure is there is this time from an energy
perspective, because it creates a little bit more rainfall that you fall back
reform. Now, of course, spring NIKKEI forward
thinking. That's right.
You will remember that something called value. Three hours away from the opening bell.
Here's the price action for you, starting with the equity market on the
S&P 500, futures just about positive on the S&P, let's call it unchanged on the
Nasdaq.

Right now we're negative a half of 1
percent on the Nasdaq 100. Mazza is down and down hard, but like
yesterday, it's not bleeding in a major way.
We're down about 19 percent on Mazza. Yesterday, we were down hard on alpha
back. Call it Google to come down hard on the
likes of Microsoft. We're off almost 8 percent.
But as I say, if you strip it out, you equal weight.
The S&P, we were positive yesterday. Tillman, I think I might be surprised
for some people that bald is closer to the me, but there's got to be a
separation here. This is about Mr.
Zuckerberg, right? Without a doubt.
Like a it's like the must thing with a sink walking into Twitter.
I mean, Google's about Google, right? Sheryl Sandberg has left.
Facebook is kind of a mess right now. The outlook, they're investing in a very
insensitive Lisa Abramowicz. Get the brand momentum brand.
Take it seriously. Well, how much is this really the push
pull of the negativity? Yes, of better.
Facebook has its own challenges, but we're seeing the same thing across the
big tech names that have reported.

How much is this the specific situation
of ethics headwinds, an economic downturn on one side, and then the step
down, the potential for the Fed to not hike rates quite as much as people had
expected on the other, providing optimism to the other sectors.
I thought the football I thought no daughter of Renaissance macro was just
awesome yesterday sat in that chair and he just sat step down.
It's implicit in the dot plot from the Federal Reserve.
This is not news. Why did you need a journalist, the Wall
Street Journal to to write this up for you and summarize what people have
already said and what is in the guidance?
I could not agree with him more.

And you've raised the issue about how
strange it is that we seem to be a great Mark Gurman.
John mentioned this before. Eric Johnson.
I used it on talk before error, but you know, we spent 30 seconds today catching
up. And John, you mentioned that everything
in the S&P looks good versus the tech challenges that are out there.
How did the killer just out? I'm sorry.
Caterpillar's not a tech company and they're up nicely.
They go from 1 1 97, up near 200. You know, a little bit of a lift there
and get after it.

Yes.
395, the estimate, 318. Pretty good.
That's a big beat selling. That's what we're going to see.
Let's do this this time to the ECB now. I'm going to ask a couple of questions.
You get out of the way of John and his real expertise on as Christian Schulz is
the Citigroup, the deputy chief European economist.
Christian, I mentioned earlier the fancy math of the Bloomberg Financial
Conditions Index for Europe. It is extremely challenging.
How much will Christine Lagarde press conference be treated today, touched
today by the grim financial conditions of Europe?
Well, it will play a role. I think the.
I don't think it will have much of an impact on the rate path on what
Christine Lagarde is gonna decide and her team are going to decide today
simply by basis for a rate hike or what is going to follow on later.
But it will play a role in how they think about reducing the balance sheet,
because that is clearly the next thing that's going to come up that's going to
be in focus.

I think also the press conference today,
and that's where they really need to be careful to not make things even worse on
the financial conditions side. You know, obviously the Italian
question, but there's many other issues in the plumbing of financial system that
need to be dealt with. So it's like a movie theater.
The question is, well, John, jump in here on a balance sheet.
Well, I think on the balance sheets, on the Italian question right now, if you
want to deal with that, Christine, it's the Italians asking the questions, not
the Europeans asking the question to the Italians.
You've got the new prime minister essentially and not subtly going after
the ECB about hiking into a downturn and the pain it could cause back backing
away from bond buying. Christine, how do you think this ECB
will grapple with a different kind of politicisation?
Well, they've created a tool, the TBI, the transmission protection instrument,
in order to deal with spread widening where it's not fundamentally warranted.
The web is not caused by a policy error that governments themselves need to fix.
That is a bit of a warning to this Italian government not to play by the
rules.

But it's also guarantee that if they do,
the ECB will be on their side. Will it be enough if trouble really
starts hitting the proverbial. We are a bit skeptical.
It's big on paper, this tool. But make the mechanism of actually
activating it and everybody agreeing on it.
We think it's very difficult. So it's it's clearly a very, very
difficult situation. But it starts with Italy itself.
They have to play by the rules. With that in mind, is it too early to
discuss Kuti at this meeting? Kuti will inevitably have to be
discussed and it will have to be decided and will have to happen.
The minute the ECB moves beyond neutral on the policy rate, because you cannot
have the policy rate being restrictive and stepping on the brakes and at the
same time having a balance sheet setting which is still supportive to the
economy.

So at that point, the ECB is going to
have to start duty. We don't think that these view will
reach restrictive territory before the start
of 2023. So there is still a bit of time.
And with all the complications, they better take their time thinking about
it. But come, say, April next year, they
will be reducing their balance sheet. And come December, they probably decide
about this. And today, they may even hint when they
will do this. They will plan to start that in April.
They will plan to continue following the plan.
But right now, according to their plan, there will not be a recession in Europe,
even though every major Wall Street bank and beyond seems to think that there
will be. Do you expect them to revise that
expectation today? Well, today is obviously not a meeting
with new forecasts. They clearly a signal that things have
played out worse than they perhaps expected.
In their last set of forecasts in September, which will signal that a
recession would be part of the base case in December.
We've always said that they won't get very far in their rate hikes hiked
because of this.

But at the same time, inflation is in
double digit territory. We'll see it in the next few days where
it's going next. It is broadening.
Demand seems to be recovering too fast for supply to catch up.
There is a case for the ECB to hike into a recession, of course.
And I don't think they'll let a recession of, say, the garden variety
stop them. You know, Tom, I do wonder how much some
of the American tourists end up being part of the demand story, given the fact
that everyone in the mother seems to be going over Taylor Riggs literally.
Just as a quick aside here. But but I think Paris is traditionally
20. So 17 percent, 20 percent of French GDP
and then all of a sudden it was 25 percent.
Then it's 27 with the new tourist boom.

I wonder if that tips over 30 percent
French GDP. And if you look at all the airlines,
September and October is the new summer just because people can work remotely.
I wonder a question from that perspective, some of the gains that
you've seen in the recovery. Does this make the ECB job harder?
That if they are not aggressive enough, you end up with inflation that is more
persistent and you end up with market vigilantes coming out and penalizing the
ECB for their actions? Indeed, there is a strong consensus, at
least in parts of the, you know, among observers that the ECB is behind the
curve, that it failed to realize that all the stimulus that the government
subjected in the economy during the pandemic was going to have some impact
on its strong impact on demand when supply couldn't recover quickly enough.
And that that supports inflation and that raising interest rates earlier
maybe would have made the whole process a little smoother.
You know, I think, of course, we all agree that really most of the inflation
has nothing to do with the European economy comes from externally.
It comes from Mr.

Putin's war in Ukraine and know
everything that happens around energy, which the ECB cannot do anything about.
But, you know, clearly there is a rise in inflation expectations, which we
observe if the ECB doesn't react to that is effectively lowering real interest
rates. And that would support demand into a
supply crisis, which really can't be the ECB intention at the moment.
Christine, thank you. Christine Shuster, Hang Seng.
Let's go back to the earnings from Caterpillar out just months ago, third
quarter adjusted EPS 395, the estimate 318.
This was a number that jumped out for me, Tom.
Machinery, energy and transportation revenue, fourteen point to a billion
dollars year over year.

That is plus 22 percent.
You see that organic revenue is well, we've heard out here and this is a busy
day with 20 percent of the market cap. Apple, Amazon leader, Honeywell,
Southwest Deere, Caterpillar picking them out randomly as well John.
Adam, all together, they make up 11 percent.
Apple's market cap. I never would have guessed.
Okay. Something's changed with Facebook.
Did you notice the Shafron and Exxon have bigger market caps now with
Facebook? That's a change.
That's a big change. If you think about where the excess of
many would say they should, where the access investment has been for the last
10 years, it's been in technologies that we think about where the recession might
be. It's going to be the investment made in
the last 10 years in places like that. Where hasn't the investment been?
The CAC parks hasn't been in the same way in the energy names for the last
decade. I think he's led on that Paul Sweeney
his post. Thank you, Jeff.
We are in Satya Nadella.

They've all made the same point.
And and you wonder, with the durability of energy, I'm hearing most of the cell
side, the zygote, Sam Stovall as well, saying energy is something still that's
under invested, even with the rush to 120 earlier, even in the face of
recession risk. At least that's what's remarkable about
that energy coal. Even in the face of recession risk.
Yeah, there's a structural need to invest in some of these areas.
Your point, though, about the fact that tech was the leader tech were the names
where people would actually invest.

Now we're seeing that really punctured.
Just to give you some sense of scope with matter, right.
Facebook, their value, their market value has collapsed by 520 billion
dollars just in the past year alone. And they're now below the level of the
20 largest US company is trading at a 50 percent discount to the Nasdaq 100.
Just to give you a sense that it's the most ever with respect to the desk, I
believe that drop is almost double the value of cat.
Honeywell is in a small southwestern Dani Burger.
John, this is a reason why I wonder, can these things happen in isolation or is
there a broader market ramification that we might not have felt yet, especially
if it's not alone? It might be idiosyncratic features for
each of these tech companies, but the investment was done during a time of
much cheaper financing and much greater ambition for some of the tech names that
are finding themselves in a new and cheaper labor to think about whether
capital was Guy Johnson is going to food delivery, food delivery.
So it's cheap car drives, cheap taxis, some delivery.
I mean, sure, it's ridiculous, but that's where the investment is been.
Let's see what Jeff Carey of Goldman came out months and months ago and said.
This is the revenge of the old economy under invested.
And this is the revenge right here on the screen.
See it play out here today.

Performance attack.
Look at the edit 8 performance of, say, energy Dani Burger.
What I see, I don't have it in front of me, but there was organic revenue.
Remember, organic revenue was a G thing was a Jack Welch thing.
Now we're seeing it everywhere in the nominal GDP pop we've seen with
inflation gives you buoyant organic revenue.
And the question is what happens in the answers like Coca-Cola the other day?
Pricing power is in place, at least for now.
Still an inflation low to disinflationary bustier.
Well, next, don't tell that to the housing market.
But I know that's Bruno. We'll talk about that later.
Futures right now unchanged on the S&P and the Nasdaq.
We're negative by about six tenths of one percent.
Coming up, Jean, tonight, so seven thirty Eastern Time, this is pulling
back. Keeping you up to date with news from
around the world with the first word. And Lisa Mateo, the European Central
Bank set to look past growing fears of a recession today.
It's expected to raise interest rates by 75 basis points for the second time in a
row.

The ECB is trying to quell inflation.
That's running at almost 10 percent, five times ECB as medium target.
The Biden administration has been forced to scale back a plan to impose a cap on
Russian oil prices. That follows skepticism by investors and
growing risk in financial markets. Instead of strangling the Kremlin's oil
revenues by imposing a strict lid on prices, the U.S.
and EU are likely to settle for a more loosely policy cap police cap at a
higher price than once envisioned.

Met CEO Mark Zuckerberg asking investors
for patience. The parent of Facebook is spending
billions to pay for its version of virtual reality at a challenging time
for digital advertising companies. Metis shares fell more than 20 percent
after it gave a disappointing quarterly revenue outlook.
Samsung Electronics has named Jay Wiley, executive chairman of South Korea's
largest company. Lee has been expected to take over the
post after his father died in 2020. But the move was delayed by corruption
investigations and two stints in jail. Among other things, Samsung is the
world's biggest chip maker. And going into the midterm election, the
American middle class is facing the biggest head to which wealth in a
generation. Still, it's also richer than it's ever
been. Thanks to a decade of cheap money.
That's a conclusion of a Bloomberg News examination that paired new wealth data
with an exclusive Harris poll of 100 million adults.
Hear more on that story with Bloomberg's new Big Take podcast.
There's new episodes every weekday morning, global news 24 hours a day on
air and on Bloomberg Quicktake, powered by more than twenty seven hundred
journalists and analysts and more than 120 countries.
I'm Lisa Matteo.

This is Bloomberg. I'm going to get the full capitulation
from companies 2023. You think it's just going to take
longer? We've written about that quite a bit.
We are research, so you know how we're thinking.
We're still bearish an intermediate term.
We do think the bear markets over. But we do think this rally is going to
be big enough to try and contribute and traded and traded for those points.
You can do that.

Awesome to catch up with Mike Wilson of
Morgan Stanley just yesterday on this program, live from New York City this
morning. Good morning.
Here's the price action for you on the S&P 500.
Teachers unchanged. A defining characteristic of the last
couple of days is that you get big tech, some names getting absolutely hammered.
And this market's still holding up, particularly FICO equal weight and strip
out the big weightings of big tech positive yesterday on the S&P 500,
despite the fact that the likes of Alphabet and Amazon and Microsoft,
rather, got absolutely hammered. Some Microsoft down by almost 8 percent,
Alphabet down 9 percent yesterday and Facebook this morning.
If you want to look at Mazza, I mean, that pretty much lays down more than 20
percent. Just a brutal morning for Matt Miller
and you wouldn't guess it. What you're looking at the equity market
this morning. No, you wouldn't because you've seen
some good industrial earnings.

People that are not techie and not VR
and the rest of I don't really understand it.
Let you go there. What I'm going to go to now and we do
this with Mandy Singh, senior technology analyst at Bloomberg, really, really
encyclopedic on this is Mandy. I looked up at Home Depot and if I want
to go out and buy a sink and walk in the Bloomberg Surveillance with a cola
memoir sink today, it'll cost me two hundred seventy one dollars, 13 cents.
Why is Elon Musk carrying a Kohler's memoirs sink into Twitter?
Well, I think what he is trying to suggest is, look, he is ready to close
the deal and probably, you know, he will be part of how this thing shakes out.
Eventually, no one knows, you know, what sort of changes he's going to make.
But clearly, he has highlighted, you know, things of on cost structure and
where they could go with the product. So Frank was just a symbol of him trying
to suggest that, yes, he's moving ahead. But how distant are Amazon and Apple
from the follies of Facebook? Well, so Facebook was self-inflicted.
I mean, if you look at the print last night, that was OK in line with
consensus.

The earnings wasn't bad, it was just the
guide around cap ex and the OP expense. And what's surprising to me and to an
extent irresponsible on the part of Mark Zuckerberg is, you know, with any new
technology or product, you have an initial launch, you get some market
feedback around product for commercial success.
There are the areas you want to double down on in this case.
He is just doubling the CapEx. Facebook used to have 19 billion dollar
annual CapEx. Now he's talking about thirty four point
thirty nine billion. And to me, it's just baffling.
At a time when your top line is decelerating, your business is
challenged because of competition from picked up.
I think that's just irresponsible. When you say competition, this is the
key. Right.
That Facebook is known as a place where grandparents post pictures of their
grandchildren for their friends. It's not known as basically the tick
tock of the new generation or even the Instagram, which has been basically
fueling them.

But even that is losing some of the
clout that it used to have to competitors.
So at what point is this an existential crisis that really calls into the
question the size of this company? And Mark Zuckerberg knows that and is
basically burning money to try to figure out what's next.
So I will give them credit that they're trying to, you know, leverage a lot of
A.I.

To catch up, to tick talk.
And a lot of that CapEx spend is going towards data centers.
So granted, you know, they're trying to narrow that gap that talk has through
CapEx investments. That is OK.
The problem is, you know, the younger demographic has already moved off the
platform to your point about, you know, Facebook and Instagram losing some of
the audience. And with any, you know, social network
or a consumer Internet company, once you lose your critical users, which the
younger demographics are, the others will follow.
And then it's a you know, it's very hard to stop.
So that's why you use doubling down. But I still think, you know, the fact
that he kept highlighting Metaverse and E are VR and, you know, adding more
products cues around VR at a time when unit sales are declining for VR is just
surprising.

Yeah.
And I would say that just from personal experience, it seems like it's ticktock
and snap of the younger cohort. On a broader level, though, how much is
Facebook really representing something deeper here about how much money was
thrown at certain tech companies that might become obsolete or out of style at
a time when they still carry massive clout in the index?
Is this the tip of the iceberg in terms of investors withdrawing?
I don't think so. I do think, you know, investments in
A.I. will pay off eventually.
You know, you look at a Microsoft or an Amazon E.W.
as these are secular growth kind of companies.
I mean, yes, you will have a digestion phase in terms of cloud spend coming
down.

But in terms of the runway.
This is huge. We will need the cloud infrastructure,
you know, for the foreseeable future, 20, 25 years.
And until something else comes up. But, you know, EAI investment isn't
going to go away. The problem is very you focus when it
comes to those A.I. investments.
And in this case, if it was autonomous driving or something that was more
proven or further ahead in terms of commercializing, it's like alphabet
pivoting completely to BMO. And, you know, saying that we will
double down and yell at and end. It just doesn't make sense.
You have to do it in a step. And that's the part that I think that
ISE getting it wrong. The mandate you get to saving the Shery
Ahn knew what was coming. Probably any time, you know, a top
executive leaves a CFO or, you know, somebody like Sheryl Sandberg.
That kind of, you know, suggesting to you that that's a yes.
They're not.

And so I would agree with that
interpretation. Just to the charge on Facebook, down 43
percent since June 1st. ISE Ugly Dani Burger 3 percent from
Sandberg Day. Amandi saying they're going to get
Sandberg DAX Sandberg Day. Yeah, I make it.
No June. Just brutal.
People, I am on this. I mean, the David Westin are on today.
They went public. I had David Kirkpatrick and Paul
Kedrosky on together. What an honor that was.
Yeah. David Kirkpatrick absolutely nailed the
success of Facebook. I was wrong.
Khodorkovsky was wrong. Kirkpatrick, the Facebook effect author,
nailed it. I wonder what he would say now.
A lot of people enjoying its failure now.
Some you know a lot about ticktock, success.
You've seen how many people are getting their news from tech somehow.
Yeah, I mean, it's slightly concerned. I mean, this companies association with
the Communist Party of China, where we're start to show Americans are
getting their news from an internal Bloomberg Surveillance show.
Welcome, all of you, to an internal meeting.
Should we be on tech dirt? No.
I have no go at Bloomberg suggesting to me I should be in ticktock.
And I'm like, no.

That app is not going on my phone.
No, I just don't get it. No interest.
Dani Burger is a branded, just destruct. Seriously, Lisa, for us to be on tick
tock. Hi.
The yen is up. Well, but it's not just about that.
And to John's point, it's about the ownership of a company in a time of
deepening strains between the U.S. and China that I share about.
You know where the data is coming from, where it's being hosted.
And there is this real insecurity about that around one of the main and quickly
growing platforms, I will say about SNAP, because that's the other one that
the kids use. And I will say my kids use.
And I see that, you know, they. Makes sense.
So what now? I can't even tell you when I get the
kids. You know, I feel like that guy.
What's his name? The guy coming in big, like, hey, kids,
how's it going? ISE Tom these days?
Yeah. My kids are not on SNAP.
They're not in tech talk.

Congratulations.
You're having a great time. Well, it's tough parenting situation.
Calls me young. Every time he says, hey, I'm just like
that really shows. You're right.
Say young Farrow is not on staff, I don't think.
But that kid to me could you see, I didn't report earnings that were that
good. I can ad revenue either that people were
expecting. I don't care.
You think it kind of ticked off? Don't.
No, I'm not going to get people telling me I should be on.
Tick tock. Thank you.
Who's telling you that might be part of my entourage?
Iranian. Rightly or wrongly, the Fed views the
labor markets as the conduit to achieve their inflation objectives.
I think of all inflation.

Fear is way overdone and it's starting
to bleed into the data. We've not yet seen that turnaround in
U.S. inflation that will really get the Fed
to actually cut rates rather than just cause the hikes.
Now, the odds of a recession are very high, but we haven't seen the way to the
ISE of that recession yet. I think there's an argument you're
starting to price in a mild recession, but you're certainly not bright and in
something severe.

This is Bloomberg Surveillance with Tom
Keene, Jonathan Ferro and Lisa Abramowicz.
It's the ECB decision coming up later this morning.
Peak earnings after the close from New York City this morning.
Good morning. Good morning for our audience worldwide.
This is Bloomberg Surveillance on TV and radio alongside Tom Keene and Lisa
Abramowicz. Some Jonathan Ferro equity futures on
the S&P essentially unchanged.

T.K.
Credit Suisse in focus, the ECB as well. Yeah.
There's a big day here and big day for earnings as well.
Let's sit on ECB right now. Really go through the statement.
And I take it, John, again, I'm not expert on this, but this is not just
about folks. What's a read?
75 beats. So that far more than the Fed.
This is about a balance sheet. And now I need to talk about Kutty, the
potential to win back that balance sheet and some I think things get harder as
the year progresses for the CCP 75 basis points to make potentially.
But then talking about balance sheet unwind to swell potentially all of this
going into a recession. And again, I've said this repeatedly all
week. They are set to do this on a week that
we've got PMI ISE in the 40s in the eurozone.
And you've got energy, as you've mentioned, down as well.
I mean, there's and frankly, you've got stability within the United Kingdom has
witnessed Sterling, haven't looked at 115, 61 and Sterling Euro a little bit.
It's just a changed landscape from two weeks, without a doubt.
The dollar's weaker bond yields have backed away from just a week ago.
That's given people a bit more faith, a little bit more faith in this equity
market.

But I got back to the ECB, Lisa, 75
basis points into a recession potentially with double digit CPI.
Not pretty. Well, although I wonder if the weakness
is actually going to be, if it comes quickly a benefit to them to be able to
hike, have a recession and then perhaps a clean slate where I suspect some of
the inflationary pressures rather than stop and then let inflation run hot and
let the bond vigilantes come in and penalize them on the long end and wreak
havoc in the bond markets. This is not the same market that it was
when the ECB had the luxury of being at negative rates and just sitting there
time outside of the trading floors of Frankfurt, the city of London, Wall
Street trading floors, worldwide, shooting to a show like this.
What do you think this sounds like when we start talking about central banks
causing recessions? What do you think?
That actually sounds like central banks trying to get unemployment to go higher
so they can get inflation lower.

It sounds like a political liability.
It sounds like a mild recession that's feasible maybe on the peripherals of
academic esoteric discussions until there is some greater weakness.
We're seeing the earnings roll in and they continue to show strength at least
around the margins. So if you see that strength, that
resilience, it's more feasible to say, OK, we still have perhaps the hopes of a
soft landing. Maybe we can get something where
everyone doesn't lose their jobs or a lot of people don't.
As you say, as we get further toward that, it gets a lot.
I think we're here right now. I think central banks are going to do a
much, much better job of explaining all this for years.
Always said.

If you just tuned in and we were talking
about bad news being good news, if you were at some of the market, that kind of
thing drove you nuts. And this kind of thing, I think drives a
lot of people nuts to this Fed in a news conference next week.
If it's not next week, in the months after that, when unemployment's
climbing, if it's climbing, needs to explain why that is a price worth paying
to get inflation lower.

And Tom, I think a lot of people are
going to struggle with that concept. And that's why politically this is a
real problem. Politically, as you mentioned earlier,
it's about labor. And there's been any number of essays
out on this to the theories that they have work.
Richard Claire with us on the last day made clear the theories aren't there are
going to be controversial here and defend the central banks.
Well, I think yes, I know. And I'm going to say that they have
picked up the slack for fiscal policymakers for many, many years now.
Nobody has the ability because we have inflation and that's crimping both of
their abilities and now everyone's throwing it at the Fed.
So that's what happened in support of that job over BlackRock was heeded.
This is a supply side analysis and all of those theories steeped on demand
side.

Speaking of demand, we are in London for
the queen's funeral. And, you know, I was trying to be
responsible of my expensive site, popular Liverpool station, Liverpool
Station at a McDonald's there, Wall Street.
How much was McDonald's? It was not as bad as Zurich, because
when I when I go to Zurich in Davos, who want to be responsible there for, you
know, number two billion meal 15, you know, we've been talking here about the
anti tech and McDonald's series. And McDonald's is anti-tax, as you can
get. They've got a blended organics revenue
in America, up 6 percent. And I think they've got a blended
international, up nearly 9 percent of sales.
They're getting pricing power using a smart phone to order McDonald's tell.
Well, I was doing that.

And it gets the kitchen knives at the
Savoy. You know, you could log you into an
Vonnie Quinn Square. Good luck.
I think, you know, the. Them from your school.
Can I see actually. The Ugly American order?
This would be true. McDonald's coming in on a track that
charged a small stocking fee to bring it up.
That's what I'm sure they did. I'm gonna watch for the price, actually,
please. Futures unchanged and the S&P going into
the ECB a little bit later this morning. Lisa's going to run you through that as
the equity market only S&P 500 need to talk about the bond market.
So yields are higher by 7 basis points, almost close to four point one per cent.
Let's talk about foreign exchanges while it's on.
The dollar has been weaker last few weeks, last few sessions, Jihye Lee,
euro dollar and back with a one handle on euro dollar.
That's something you see it in Demian, censorious worlds as well.
E.M.

Has pulled back.
You're a little bit from crisis levels. One I mentioned, there's not as Turkey.
That's its own story. Remember seven point two for you, one
per dollar. It's a little better.
But these are small movements within the continuum shot of grim.
Yeah, well, I can tell you, the dollar biting back this morning.
The dollar stronger right now. Euro dollar negative, a half of one per
cent, Lisa, going into the ECB a little bit later.
Let's see what happens about an hour time when we get the ECB rate session
815. I am a forty five a.m.
is the press conference with Christine Lagarde, the president of the ECB.
Eight thirty a.m., a bunch of US data, including the first read on the third
quarter GDP. Do we start to see some strength come
back into the market after two consecutive quarters of declines?
Also, initial jobless claims expected to remain near historic lows after the
bell.

Apple and Amazon and Intel all reporting
earnings. A massive day of reporting results.
How much do we see some sort of confirmation or what we saw from matter
and some of the other tech names that have reported so far?
John Lisa Abramowicz. Thank you.
Shery Ahn Brown joins us now. The European equity strategist at
Goldman Sachs. Sharon, I want to start with this call
from the ECB. We're looking for 75 basis points as a
big conversation about maybe a recession taking place.
Is that an equity market that you want to own?
Yeah, I'm probably not actually in the near-term, I think the European Act is a
bounce a little bit.

You know, as per your earlier comments I
heard from Tony. We have seen some of the kind of tail
risks related, particularly to UK volatility and rate volatility come
down. That is great.
And I think that's helped with the bounce.
But I think more medium term, it's not really a market I'd look to own in to a
recessionary environment. We do think there will be recession next
year along with these tightening rates.

Tightening rates in a recession.
How does that lead into your guesstimates forward on what I'm going
to call a broad European organic revenue growth.
Can companies still deliver now not 1 to 4 percent organic revenue, but can they
do better a year, two years out? I think that revenue growth will
probably be okay because inflation will probably be staying sticky and high and
companies will pass some of that through, pass some of the costs.
But that's exactly what inflation is.

It's companies passing some of that cost
through. We won't get past all of it through and
of course not. Only if you got higher costs coming
through. You've also got higher interest rates.
You've got higher taxation as well. So I think revenue probably okay.
But margins is probably about the squeeze will be how much are you getting
bullish on European banks? This is sort of the pain trade always
just simply because rates are finally going up and that's what they've been
asking for for a long time.

Yeah, I think actually banks.
So banks are if I'm talking about a European recession and we are talking
about Europe seeing contraction in GDP next year, you would ordinarily say
that's dreadful news for the banks. They're domestic, they're levered
companies, and they would obviously be very badly
hit if there's a rise in non-performing loans.
But I actually think this time around, banks could do a little bit better.
Interest rates are rising, as you point out.
And the last few cycles, interest rates have been very low off negative in
Europe. And that's not the case now.
So higher interest rates, I think, really helpful for the net interest
margins.

But also banks themselves have got
better capital now than they've had in the past.
Also, I do think unemployment perhaps will take up a tiny bit in Europe, but
the labour market is pretty strong. So even if you get a a downturn, a
contraction in GDP growth, largely because sort of industrial output supply
starts to come down, etc., I think the employment side of things will look a
bit rosier. And for banks, people generally continue
to pay their loans and mortgages, etc. as long as they have jobs, so they will
see a squeeze on their real incomes. That's going to hit them for sure.
But for the banks, what really matters is whether people are still paying off
their debt. Now, on the flip side, of course, people
probably won't take out new loans at higher cost or they're trying to avoid
that. So it's not all rosy for the banks.
But I think that relative to previous cycles, yes, I agree, higher rates is
helpful as shown on net. You've said they can be more defensive
in this downturn, this cycle.

You and I talked about that last time.
Have you seen clients become more receptive to that message?
You've seen stocks behave that way. The bonds have outperformed again
recently, but with former bonds recently, they've been out form exactly
year to date. Even though we've seen we've seen GDP
slightly Dani Burger, we've seen, as you mentioned earlier, PMI ISE in the mid
40s now. You would never expected banks to have
been an outperform exactly into that type of environment.
So I do think that shows you you can see banks behave a bit differently this time
around. Clients are naturally skeptical about
banks and absolutely banks tends to be more of a trade than something you want
to hold longer time. But I think the fact that they are
paying reasonably good dividends and the fact that they do benefit from higher
interest rates results so far, that can be okay for the banks.
That would provide some reassurance. That's true of the whole of Europe.
I think not just the banks over the last 10 years.
Sharon, wonderful to hear from you as always.
Jump out of Goldman Sachs and a financial it's going to to the ECB a
little bit later.

T.K., I keep Santa because I'm still
surprised by it. We're talking about another 75 from the
ECB with the data where it is. I get it.
Double digit CPI, but the data is pretty weak in Europe right now on the other
side on output. So I just don't get it.
I don't get it on a nominal GDP basis and also a technology overlay.
I just does Legarde come out and say, OK, we're going to dutifully do 75 beeps
and that's it. Does she say that they're worried about
the second round effects? Tell you know that.
Well, the inflation story, I get it, too.
And Lisa, their word becomes even more entrenched because if the supply side
dynamic in the energy story.

Yeah.
And not just that, but also some of the potential supply chain disruptions with
respect to China and what's going on there.
I mean, there are a lot of issues. This is a nightmare for central banks.
It's a stagflation area environment. And that is what they're facing off
with. I think Mohamed called it a quagmire of
stagflation. That's certainly true.
A toxic tax. That sounds deeply depressing.
My quagmire of stagflation, toxic brew notes of concern.
Is becoming more constructive. He notes that some notes actually
whispered before I said that Jeremy Matt Miller over a CIBC from New York.
This is pulling back. Keeping you up today with news from
around the world with the first word. I'm Lisa Mateo.
The European Central Bank set to lift its main interest rate to the highest in
more than a decade. It's trying to low record, trying to
lower a record high inflation. Almost all economists surveyed by
Bloomberg predict a second straight 75 basis point hike today.
President Xi Jinping says China is willing to work with the U.S.
to find ways to get along.

The comments came before a possible
meeting with President Biden next month at a Group of 20 summit.
It signals an effort on JI's part to maintain ties, despite disputes over
everything from Taiwan chips to the invasion of Ukraine.
Meanwhile, U.S. Secretary of State Anthony Blinken is
accusing China of undermining the status quo that has kept both nations from
going to war over Taiwan. Lincoln spoke to Bloomberg in
Washington. He said Beijing was trying to speed up
its seizure of the island. China and Taiwan downplayed the
likelihood of an invasion anytime soon. Credit Suisse is planning a sweeping
overhaul. It includes a four point one billion
dollar capital raise, a carve out if its investment bank and thousands of job
cuts.

It's the most urgent attempt yet to
repair Credit Suisse after huge losses and management chaos in breaking up the
investment bank. The firm will create a separate advisory
and capital markets business that will revive the first Boston branding, and
the world's richest man told Twitter employees.
He does not plan to cut 75 percent of the staff.
Bloomberg's learn that Elon Musk deny the numbers.
In an address to workers at the company's San Francisco office.
Still, the billionaire is expected to cut staff when he takes over the
company, causing anxiety among workers.

The 44 billion dollar deal set to close
Friday. I'm Lisa Mateo.
This is Bloomberg. What's changed is this
decision by the government in Beijing that that status quo was no longer
acceptable, that they wanted to speed up the process by which they would pursue
reunification. That was security blanket, actually.
BLINKEN sitting down for an audience with Peggy Collins down in D.C.
T.K. Lynn, thanks very and very, very cool.
Just yesterday, an audience with you like that?
Yeah, it's important. And he's taking, obviously, the
international view. But right now in Washington, based on
the zygotes I see this morning, you know, you click inside two weeks to an
election. It's sort of like the United Kingdom.
Maybe we're becoming is focused as the United Kingdom becomes focus.
You mean we're concentrating things a little bit where the mind is
concentrating for a few months? Yeah.
We start the presidential race at the start of the year.
ISE do it better. Well, if it's two years long, I just try
to go at it.

And no, I'm trying to watch TV because I
know that I know that he finds it ridiculous, but he could push back and
say you chose to live in this. So here you go.
Two years. I love it here.
Oh, yeah. You know, I say I'm very thankful for
being a guest of this great country set that repeatedly has the rent search
going.

I can talk about the rent in a very
different fashion. Rents in Manhattan,
nuts. Honestly, Tom actually saying.
Explain the difference between rents here and rents in London.
Well, the fee model is ridiculous. The idea that it's pay one month rent on
a twelve month lazy as a fee is insane. And I see a lot more.
No fee rentals coming on and sharing easy on Zillow.
You see much more of that. But the fact that still a model in New
York or lived in New York I just think is unreal foreign to me.
Some foreign press. I am foreign, so it's OK.
Personal finance today. I'm Bloomberg and we welcome all of you.
She's familiar with the rents across the nation.
Annmarie Horden joins us now, BLOOMBERG WASHINGTON CORRESPONDENT Emory, I know
the territory along the Erie Canal of what was industrialized America coming
out of the Mohawk River Valley.

There was a carrier in Syracuse.
There was a company called Kodak in Rochester.
And they are gone, gone, gone. The president will visit that shell of
industrial America and he will try to paint stark relief within the panic.
How panicked is the White House? How panicked is the president?
Well, just quickly, to John's point, I think rents in London actually are
cheaper to the president's point today.

It's pretty, pretty astonishing.
Less than two weeks ago to the mid-term elections, they're going to deep blue
New York and he's going to be joined as well with Governor Kathy Hochul, who
also had a very contentious debate this week with her Republican challenger.
Crime is really becoming a focus in New York.
And The Washington Post has a great piece out this morning about talking
about the fact that over the last 48 hours it's become very difficult for the
Democrats. They called it a defensive crouch right
now. What did you have yesterday?
You had the first lady, Joe Biden, in Rhode Island.
They are really starting to send out these surrogates in places where
normally they would have this support already shored up and also advertising
campaign in congressional districts in New York and New Jersey.
So that really says to me that they are a little bit nervous, not about maybe
flipping some seats, but about holding or potentially flipping some of the
seats that were held by moderate Republicans that they thought a month
ago they would have easily had in the bag combined.
Dr.

Biden's in Rhode Island.
Dr. Biden's in Syracuse.
Whatever. Why are the states that are rolling up?
Well, there's dates and later, because, one, they are nervous.
And then to some of these other states that are very, very close neck and back.
You think Nevada, where it really does look like Adam Laxalt has a very good
chance of winning that seat from the Democrat incumbent.
They do not want the president there because many still view these midterm
elections. The president would say it's not, but
they are, as many view, a referendum on the current administration.
So they want to keep a very large wide distance from the president and some of
his surrogates coming out of the White House and worry.
What is the message that Treasury Secretary Janet Yellen is among those
campaigning for this administration, given that she is currently, I believe,
in Ohio, talking about electric vehicles, of all things in economic
development? What administration is going to try to
do is point to the legislative wins they've had.
And that started back last summer with the hard infrastructure package.
The president recently was talking about it today.
How with the prior administration, the Trump administration, it was almost a
running joke in Washington, D.C.

That every week was infrastructure week
and he was able to cross party lines and get that done.
And then this summer, of course, they were able to pass what they're calling
the, quote, Inflation Reduction Act. But really, that has a lot to do with
health care and also climate and even credits and things like that.
So she is going to go out and tout that and probably tried to make the case that
when you have these kinds of bills where the U.S.
government could then go on behalf of the American people and negotiate your
pharmaceutical with pharmaceutical companies and get drug pricing down, it
will help ease inflation.

But it'll be interesting because
obviously in a place like Ohio, things like inflation, the economy, these are
the number one issues people plan to go out and vote on.
Did you watch the president drive cars really fast with Jay Leno last night?
I watched about 20 minutes of it. It was the cars were very cool.
That's very cool. Did you watch that?
No, I. There is no mission.
The car is cool. Jay Leno is cool.
What are you trying to say, Jay? I didn't say anything.
Were you trying to get me in trouble this morning?
I didn't say anything. Jay Leno was president.
The president hasn't asked the president.
Joe Biden. It's cool.
Yeah. I'm sorry.
Thank you. What do you want to say to that?
What do I want to say to them? Urgently driving.
I think a 67 Corvette. The ticket.
I know it's an old. I think it was an old Ford SUV that had
been converted into an older net trick or something like that.
Can we get back to the election? And I played with our team and they ran
away.

And election president is cool.
I don't like surprises. It's not cool for Democrats.
I'm looking at the map, the giant Greg Gyros.
Brilliant on this in there in New York, there in Rhode Island.
They're not on the general map. That's not where the tension is for his
party. It's the usual ones.
California, New Mexico, Obama, Maine. What's the race he focused on?
So let's get to it. What's the race you focused on?
I think the reason I'm focused on is a broader Senate race.
I don't have any narrow ones. And I really you know, I'm like
everybody else. I don't want to be a pundit on this.
We had the nation's drowning and pundits to do.
Does the UK get what, drowning in punditry, too, in the U.K.?
Yeah.

I mean, how many little elections have
we had over the last few years? Not general election.
I just mean, as soon as somebody like Johnny Leadership cost somebody more
specific, I'll be pundit. I think the Fetterman and Asa debates
going to be the debate. But had the outcome of that is going to
be really interesting considering that Fetterman is the incumbent.
But it's really sad. I mean, he's recovering immensely.
Santos Well, I would say so. So sad to see him like that.
And how does this really represent the Democrats trying to go up against
someone who they're painting as extremist with a candidate who's dealing
with his own personal issues that are are pretty, pretty obvious to people in
the audience? Really set some.
And no doubt it's gonna be a focal point for the next couple of weeks as well in
the next couple of hours.

We'll catch up with Jean tonight.
So of Columbia Threadneedle, looking forward to doing so in the next couple
of minutes, actually. And looking at this equity market, the
S&P futures lift home with 12 percent up by 6 basis points.
A member way to get the Dow probably has to down.
Yeah, well, it's kind of hyper helped, of course.
Sword fight and I love it. ISE we rebel sword fighting best friends
always outperformed us.

Peaks over the last nothing because it's
equal. Many people are invested in that.
Toots. Take a look at equity futures this
morning and start with the S&P positive, a tenth of 1 percent.
Go to the Nasdaq tech heavy down about four tenths of 1 percent.
Could you guess that Facebook is down by 22 percent?
And that's a feature of the story the last couple of days, single names, big
tech alphabet, Microsoft getting absolutely hammered and it's not showing
up in the index in a major way. In fact, if you look at the equal
weight, S&P, something that's been a story, the last Covid absolute story,
and it comes down a buoyant revenue growth and ability to raise prices.
We've heard that Gina Martin Adams has maybe that will end at some point with
Bloomberg Intelligence.

But for the meantime, these are good
organic revenue growth numbers across a broad section of non tech companies.
And, you know, I don't compare these companies to Apple and Amazon garlic.
ISE will tell us that Joel Weber intelligence, Mandy's suing will tell us
that we'll see this bear market in tech continues resilient somewhat elsewhere
for the last couple of days to see if that continues in the bond market.
Two cents in 30 shaping up as follows, 444 51 on a two year time by 4 basis
points. Everybody talking about a step down in
rate hikes. Citi talking about a step times.
Evanston is talking about that as well. I think most people on board with this
idea, they get 75, come down to 50 or maybe 25 after that.
That's what Allan said.

Morgan Stanley talking about this
morning. Holland Horst at Citi said this.
I love this. If anything, we see hawkish risk as
officials will look to avoid a real loosening of financial conditions.
And that's the interesting point from the team over at Citi.
So how do you do that? Bloomberg Surveillance, folks, you've
got a Bloomberg Financial Conditions Index, which shows you a Harlan horse
like No John negative 1 point 0 6.

Make that one standard deviation and
that is more accommodative than where it was 10 days ago when I to finish on the
euro just briefly and look at euro dollar going into the ECB looking for a
75 basis point hike. A 15 Eastern time is when we get that
decision process when about 30 minutes after that 30 minutes euro dollar
negative a third of 1 per cent. And I was just looking at Italian German
spreads, the 10 year Italy Italian trading 222 basis points over Germany on
a 10 year maturity. The whites of the year to 52.
So we've come in. But I think that's probably still an
uncomfortable level term for a lot of people in Europe.
But about 220 ish.

We'll have to see.
I stepped on. Don't get me to step down.
Just come back. What a slowdown in the rate of change is
just an online marketing thing. Where did it come from?
Who do we blame? If you want to blame McKee, I mean, I've
been sat in front of a company where I got it.
I think Jim Bianco maybe set it out on Twitter as well.
The others at Morgan Stanley is saying it this morning, said he sank it.
Would you like to rebrand it? We can rebrand everyone.
It's a change in the rate of change. Let's just call it a Newtonian move,
something everyone would understand. Yes.
Fantastic. Set aside.
So, Lisa, what you make of that Newtonian move, you go open that one
Happy Meal and rates. I don't know.
I will say a slowdown is not a pivot. That's the whole enhanced view this
morning, which is, you know, and then he used a step down, but in quotes because
he doesn't take responsibility for it.

I know.
We could have a arm on him and hopefully rebrand it.
When you were talking, John, about some of the tech names, I want to dig into
some of the scope of the moves that we have seen.
I mean, just based on Google or Alphabet, as the parent company is
called and Microsoft, those shares both suffer the biggest sell off going back
to March of 20 20 yesterday. They are still down today.
So it didn't necessarily free up valuations to people who really don't
want to catch a falling knife and metal platforms.
I mean, this is just amazing to me. There is a really smart comment on
Twitter. A viewer saying today's meadows,
tomorrow's MySpace. How much is that?
Right now, the feeling in markets for shares lower by 23 percent after already
falling dramatically, more than 60 percent and to lowest level since 2008.
Like an old museum that no one visits anymore.
So MySpace, if that's what MySpace is, it's like an old museum and still death
or worse still there.

I'd never had a mouse.
Exactly. I don't know if they're still there
because it's an old museum that I've not visited all the time.
Dig up the archaeological evidence and we'll share that with you if we can get
it later. In the meantime, we are looking ahead to
what's going to happen after the bell with Amazon and Apple and Intel.
And I put Intel in there because that's also the microcosm of the bigger story
behind the chip sector.

How much is Apple really going to be the
true bellwether if they're able to be resilient?
Does that highlight that this is specific stories time and not
necessarily just some sort of broad based retrenchment from the tech world
in general? Same on Amazon as well.
Folks are going to have some history there of how prime days or days plural
did for Amazon in the last mile of the cardboard box business seems to be a bit
of a challenge as well, right? Dow Jones, who's our global head of
fixed income at Columbia Threadneedle with a very smart note encompassing all
the econo babble. And Jeanne, I want to bring it right
over to the numbers we're going to see today.
What does the Fed do with buoyant U.S.

GDP?
Recession, this recession that I'm looking at, a two point four percent
statistic to see it, a 30 in one hour this morning.
Tom, I think it's difficult to call U.S. GDP buoyant when it's been negative for
the first half of the year. We can blame that on different fare
factors that are not related to the consumer.
But I think this is actually a requirement if the Fed still has any
chance of a soft landing to get some semblance of positive GDP for the third
quarter. Jamie is so much put back against this a
step down term. Come on, Switzer.
I think the best time is to slow the pace off rather than step down.
July that summer.

Let's slow the pace of interest rate
hikes. Gene, isn't that decision ultimately
going to be at the mercy of the next CPI print in November gone into the December
meeting? It sure is.
I think we are getting closer to that point where the Fed can decelerate its
pace of hikes, but we're not there yet. And we've seen that the Fed has a
pattern of looking at that most recent CPI print.
And that last one was sufficiently hot that, you know, 75 basis points still
needs to be the base case for next week's meeting.
But I think as we go later in the year, there can be ample justification for
them to slow down that pace. And I do think that's a meaningful
signal because that reduces interest rate volatility.
And interest rate volatility has been at the center of financial market weakness
this year. So, you know, I think that that is going
to be a critical step, even if it's not the end of this tightening cycle.
How concerned are you, Gene, about the bond vigilantes coming back in the
United States in a way, particularly for 10 year and 30 year denominations?
If there is some sort of step down, if there is a slowdown in the pace of rate
hikes, even in the face of CPI, that still is coming in hot.
Yeah.

Thanks, Lisa.
I'm not that worried about it. I don't think it's a market that has the
same vulnerabilities. For example, as we saw in the U.K.
market, where very thin liquidity and some leveraged players of the long into
the curve can really drive those prices and yields to significantly higher
levels in a short period of time. I think those dynamics are different.
The risk case for the long end of the US curve is if we really start to see
aggressive selling in a scenario, for example, where Japan ends their yield
curve control. But I still think that's an outside
case. And I think for the U.S., the idea of
the bond vigilantes coming back.

Well, it's real.
But I mean, haven't we seen it this year already?
So do you think that there's already evidence and enough evidence that there
is some sort of slowdown in the pace of inflation with AutoNation this morning,
for example, coming out and really confirming this view of used car prices
coming down and there's feeling that there's limited pricing power for an
increasing number of U.S.

Companies.
All bleeding into this feeling that perhaps people have gotten a little
carried away with some of their inflation projections, that naturally it
will come down a bit more. I think that's the most important
question in markets today. I think there is ample evidence that
there is lower inflation in the pipeline, but it's not in the headline
figures yet. And I don't think the Fed is prepared to
blink when they're barely over there. Neutral policy rate estimate and
inflation at a headline level is still high.
So it's coming. We feel like there's a broadening amount
of data that support that, whether it be in used car prices, as you suggested,
whether it be ESM prices, paid measures from the National Federation of
Independent Businesses and a variety of other things.
But it will take just a little bit more time.
Jean, final question then, Tanya, last week on Friday, I believe, was it 433?
Right now, the 10 year, a 4.0, 6 percent, the two year right now at 444
on Friday at 463. Just want to get a feel from the
conversations that you've been having with your colleagues and perhaps clients
as well.

Do you believe that might have been the
high on Friday or do you think we're still threatening to break beyond and
above those kind of levels? You know, we'll continue to press so
long as the Fed as a group is aggressively hiking in the 70 basis, 75
basis point increments. And we're likely to have the three
biggest central banks hiking in that magnitude within the next week.
But I don't think we're far away from that hike or that that peak.
John, and I don't know if we just saw it last week or if we're going to see it in
the next few weeks. But if we plan for our clients over 12
months or beyond. I think these are better.
This is a better environment to be adding duration to portfolios, quite
frankly. Jane, thank you, sir.
As always, good to catch up, buddy. Jensen, who said that?
Columbia Threadneedle, thank you very much.
Tom, that seems to be the take from a lot of people that after these 75 for
next week's meeting from this Federal Reserve, we've seen the bulk like in can
cycle.

And you can think about leaning into it.
But it's you, right? I hear that a lot from a lot of people.
Yeah, I'm here on a two once inflation report.
John, you're focused on November 10th up there is.
That's what matters. November 10, Read of the Day.
Peter Boockvar, we protect the copyright of our guest, Peter Boockvar over
Bleakly Advisory, John.

I talked about this yesterday to someone
I rented on the street. We're not talking about the redo in
floating rate paper and in commercial real estate.
The 30 year mortgage that sells on TV. I get that.
He brilliantly walks through that transaction of two years ago.
That's a three year piece of paper, multifamily housing.
And what happens a year from now? And the math doesn't work.
You know who is going to sit next to me? I know the math doesn't work.
They need time.

Absolutely.
Nails. You know, it doesn't matter.
I just going forward, though, I think that there is this bigger question of
how much inflation already is coming down.
You know, and you ask about what you look for.
It's not gonna show up in the CPI reports because it is going to cripple
some of the housing demand. We've already seen this, but it isn't
gonna show up for another year. So how much do you start to feel this
subtle feeling, not transitory, but that inflation's going to cool up faster?
And that's what I'm hearing from the likes of Peter DAX here.
And that's what we just heard just there.
Do we do we think we're going to see a substantial disinflation in rents or in
home ownership costs? Well, how you measuring it in the
official 6 DAX? No, you're not.
I mean, it's a distortion.

But the answer and we're infected by New
York and I would believe fifty nine street yesterday.
Is this what you want to call his shot? He had to.
What did you say? There's a bridge down the Brooklyn
Bridge and went right by. It was gorgeous.
We're on 50 eighth. How'd you get into the building?
I had to do that. You know, as I knew was a McDonald's on
the corner. When I saw that, I thought that was some
50 cent that's on Third Avenue. I went but between fifty seventh and
fifty fifty eight. I don't think runs nationwide.
Rents are in a decent place. Are you kidding?
That doesn't happen usually. They're not gonna just inflate, but the
pressure goes off. I was surprised you had a conversation
with someone you met on the street. Well yeah.
Usually you know an already rude and I'm like early preaches a polite and you
shout out, get in line. Especially true story.
I know. Through I.
Get a life. And I'm just sitting there.
Thank you so much for watching from New York.
This is pulling back.

Tom Keene keeping you up to date with
news around the world with the first word.
I'm Lisa Mateo. The European Central Bank set to look
past growing fears of a recession today. It's expected to raise interest rates by
75 basis points for the second time in a row.
The ECB is trying to quell inflation. That's running at almost 10 percent,
five times the ECB as medium target. The Biden administration been forced to
scale back a plan to impose a cap on Russian oil prices that follows
skepticism by investors and growing risk in financial markets.
Instead of strangling the Kremlin's oil revenues by imposing a strict lid on
prices, the U.S. and EU are likely to settle for a more
loosely policy cap at a higher price than once envisioned.
It's Credit Suisse, its most dramatic steps yet to repair the bank.
It plans a four point one billion capital raise, a carve out of its
investment bank and thousands of job cuts.
We spoke with Credit Suisse's CEO. We want to go through the transformation
of the next three years with a very, very strong capital base and leave the
transformation.

Also, as witnessed on capital, this, it
will become profitable and definitely from 2024 onwards.
Credit Suisse is trying to restore credibility after a succession of big
losses and management chaos. Global news 24 hours a day on air and on
Bloomberg Quicktake powered by more than twenty seven hundred journalists and
analysts and more than 120 countries. I'm Lisa Matteo.
This is Bloomberg. You also have to be to responsibly
manage increasingly intense competition with China.
You know, we have to maintain a military advantage, but we're making it clear
that we don't see conflict at all. We're looking for competition, stiff,
stiff competition, but not the need to be conflict.
The president of the United States on the relationship with China.
Live from New York cannot get down to an ECB rate decision about 30 minutes from
now, with equity futures slightly negative on the S&P 500 have to say no
real drama here on the S&P trauma sweater matted down by 22 per cent,
twenty two point six per cent in an around session lows.
Credit Suisse down about twelve and a half per cent.
So some drama at the single name level this morning.
And a little bit later this afternoon, you hear from Apple, you hear from
Amazon as well.

Yeah, I know one.
Always a lot of time here, John. We got Greg Valliere coming up.
But I'm going to point out that my theme for next year is the great zombie roll
up. And maybe that starts with Credit Suisse
today doing its own interior role, which is the zombie piece, the space that they
have a bad best, or is it normal to their credit?
They said, look, we're going to do the bad bank accounting and they're going to
throw part of that's going to go to Apollo PIMCO, blow up talk from Reuters.
If this IPO, if the Credit Suisse First Boston, get some.
Can you talk to us about that? The heritage of First Boston Bank to to
fossils, of which there are 12 left on Wall Street.
It is a magical name.

There is no question the romance of it.
And it's it's loyalty out of madmen. It's literally I mean, you got to go
back to the 50s, in the 60s. OK.
They're going to market it. They're going to brand.
But what I would suggest people want to see is results show.
That's what can we just say. We all know some brilliant people at
Credit Suisse and I'm sure this morning. Yes.
It's pretty tough, isn't it? Your company goes through this.
And one of the first people to get behind me in the act I'm doing, folks,
is Neil Source, head of research for years in economics at Credit Suisse
right now.

Also behind us is Greg Valliere with the
must read note from EGF Investments and he joins us this morning.
Greg, I said to them, I said, get somebody who remembers driving by the
Jeep factory in Schenectady, New York, on your way past Utica.
There's only one guy we know that remembers Jack Welch's Schenectady, New
York. It's gone, Greg.
Maybe it's for you because of America. They're going to go to Syracuse today.
Dr. Biden went to Providence as well.
Can the Democrats garner votes in the many Utica, New Yorks of America?
Well, ironically, it looks like Democrats who have been entrenched in
New England are in trouble. So, no, I think we're seeing a total
reversal. We're seeing Hispanic voters leave the
Democratic Party going to Republicans.

We're seeing a lot of changes from the
old the old rules, at least. What I think is so important here is, is
this just simple idea of the panic. Two weeks into the election, what,
Rosie, day to day is going to be extraordinarily well.
And if you look at some of the betting odds, you can see that the Democrats are
just dramatically losing seats. And there's a question of how bad of a
whopping they're going to take in both the House and the Senate.
Greg from ISE, with respect to which races you're watching, what's going to
be most telling to you in terms of not just whether the Democrats lose power,
but by how much? Yeah, I'm at 17 in the House and I'm
probably on the low side. I might have to revise my final forecast
and put it up into the 20s. So many, so many interesting dynamics in
this election. Polls show that crime has surged as a
big issue. Polls show that abortion is not as big
an issue as we thought it might be. Polls also show Hispanic voters are
moving to the Republicans.

Really interesting stuff.
And I do think there's going to be a wicked, wicked post-mortem among the
Democrats trying to figure out just what happened and not to be conspiracy
theorist. But I have to go to this because there
have been some rumblings around the edges.
How concerned are you about election security at a time when it's clear that
there are a number of international actors, as well as domestic ones that
want to raise doubts about the institution of the United States?
It's a legitimate fear. There was a break in yesterday.
We don't know the details. So we can't really speculate.
But I have a hunch that's probably not the only incident we'll have in the next
two weeks like that.

Fresh charges of that ballot box
stuffing, you know, all of that stuff. Greg, a real focus on the Democrats
here. Let's focus on the GOP right now.
How Grand Old Party is the GOP two weeks out?
Well, they've got an internal debate to resolve, and that is how much money do
we give Ukraine? Kevin McCarthy has had to walk back what
he said. I think most Republicans want to
continue the funding. I wouldn't say, please, God, I'm sorry.
Please. I'd make this point time.
I think this is one of the sleeper issues.
And it involves China. It involves Ukraine, involves Iran is a
dramatic increase in defense spending.

I think we go to eight hundred billion
in this new fiscal year. Are Democrats and Republicans on board
with that jointly as we see them both jointly with a view on China, one of the
rare issues where you could see a compromise.
And I think there's unified antipathy in Washington toward China for all all of
the things that they've done, whether it's Covid or treatment of dissidents.
Greg, let's say that the Republicans do win both the House and the Senate.
What are they going to do with the Fed when they are hiking rates?
How much are they going to start pushing back against?
A pretty aggressive tightening in some of the monetary policy is simply because
it's going to create some real problems for this economy.
Fearless forecast, Lisa.

I think we're going to start to see the
Fed really come under intense criticism. We saw yesterday Sherrod Brown, the
Democrat from Ohio, with a pretty harsh letter.
And we see people in the markets, whether it's Jeremy SIEGEL or Jim
Paulson. There are a lot of highly regarded
people who feel the Fed has overdone it. I think that criticism is going to
increase. Great to catch up.
Great. Just awesome.
No doubt we'll speak to you. Touch base again.
CAC before the midterms. Greg Valliere of ATF Investments.
Tom. Within two weeks.
Now to that vote. Yes.
So the result is those votes. We're going to a lot of coverage of this
and do it in a Bloomberg Surveillance way, which I think is to fold in the,
you know, the polling and that like what value lives him.
But as he does as well, folded into the economics for the one thing I will say
is there is a huge certitude that with gridlock or even Republican ascendancy,
tax increases, vapor, yet vapor, he mentioned China that just briefly, you
know, something we haven't talked about because it's a busy day.
I get that.

The chancellor of Germany, SCHULTZ.
Tom, have you seen this story? The German government has agreed on a
compromise which will allow Chinese state owned shipping conglomerate Costco
to buy a twenty four point nine percent stake in one of hemp export terminals.
And Americans are clueless on this. There's a huge relationship.
It's a real tension. It's a cold belt and suspenders.
What's the third thing you mean about them?
Right. Well, that's it.
Yeah, sure. It's cold.
It's not just Germany.

It's you know, why on earth you've got
that front? Yes.
I have no idea. We've talked about this, a real
consumer. We get a sense of.
Yes. You know, listen, I we have a foreigner
with us, but I think we're going to bring this up as nobody else in the
media is balanced by the John Tucker. I mean, seriously, I'm going to bring
this up now, folks. Delicate after thought, is in school
right now and in a religion class are studying Hindu.
This is momentous in your United Kingdom, this new prime minister show.
And there's people on. America words lost in translation.
The difference of the history of the United Kingdom and Religion vs.
America in that explain what it means for most of the United Kingdom or are
there some idiots out there? There's always the middle.
I mean, what it means.

No, I think it's absolutely fantastic.
And I think we've talked a lot about the diversity in the Conservative Party in
terms of they make up of who unsinkable in America Party and the makeup of the
the challenger cleverly stands for. Whatever you think.
That was a historic decision by less trust as well.
And some for me, I think the controversy is not to be around that stuff.
I'm happy to say right now the controversy is going to be about
a very rich, wealthy individual, a billionaire through marriage, coming
through with austerity. And in a kingdom, a cost, the living
price and the process to get here out a part of it as well.
Sure.

Okay.
From New York City this morning. Good morning.
This is Bloomberg. Investors obviously skittish as the Fed
pulls away the punchbowl of easy money. I do think the risk is that they end up
doing more than what they've already signaled in the DAX plot.
They're going to stick with tightening, at least from the Fed.
Yes, other central banks are hiking, but they're also beginning to slow down.
I think we've already done too much and we've set a chain reaction motion that
is going to lead us to real problems later this winter.
This is Bloomberg Surveillance with Tom Keene, Jonathan Ferro and Lisa
Abramowicz. Good morning, everyone.
Jonathan Ferro. Lisa Abramowicz.
Tom Keene. An eventful Thursday, much going on,
including in 15 minutes, Christine Lagarde and the ECB will report.
And then after the press conference, John, what will you listen for an old
guard press conference, if the tone around the economy, the balance of risks
as well, and the conversation, some around the balance sheet, they're
willing to hike 75 basis points potentially into a recession.
Are they willing to unwind that balance sheet, greater financial instability
that we've seen through bond markets over the last month?
In the intro, they're talking about the punchbowl.
I don't believe there's a punchbowl in Frankfurt.
I think it's so messed up.

It's not anything conventional.
What's the difference in regards balance sheet versus Powells balance sheet?
How doesn't have Italy on his balance sheet?
Without a doubt, that is the biggest difference.
Without a doubt, some. And that's the problem with Europe and
the bond buying program. You've got so many different countries,
so many different bond markets just sitting there.
Individual market facing very, very different situation.
What was the thing that was like eight months ago, seven months ago, out of an
ECB meeting, they were going to do a plan.
They were going to do an individual bond plan where they summed it up pretty
poorly. You talked about CPI, the transmission
protection deficit and the transmission.

I forgot that was to contain spreads Joe
Weisenthal where we are people and it hasn't been activated.
CPI is meant to work like OMT. Remember when I remember OMT close
correctly was one of my favorites. Draghi came up with OMT monetary
transactions. That was that great.
Whatever it takes moment. Early 12th OMT was never activated.
OMT and OMT RTS effectively the one that was better than any of them was e i o o
o David Ingles Emily Chang. You can laugh and to learn all this
stuff.

Emma Chandra good talking.
I mean, Lisa, come on. It's alphabet soup.
Yeah. People making it up as they go, trying
to offsets for the financial stability concerns as well as some of the just
social concerns in a place like the European Union while also combating
inflation. Is it an impossible task?
And ultimately, how much is inflation going to cooperate?
And that, I think is really the opening of the bulls and the bears.
The bulls think that you're starting to see the bulls for the market, not
necessarily economy, think that inflation is starting to roll over a
little bit faster than people think. And the bears say this is a structurally
higher inflationary regime, that you're going to see the bond vigilantes and the
currency vigilantes come out Bloomberg Surveillance correction of the month.
John was the head of the Dutch Central Bank leaning over in the middle of the
interview and certainly say stupid inflation in the Netherlands is not 11
percent, it's 17 percent.

But is that 17 percent?
Old news. Well, let's talk about a eurozone at the
moment. Double digit CPI say 10 percent.
We'll get some inflation data a little bit later this week.
Can you say we've seen the peak in eurozone inflation?
I think a lot of people on call, Tom, are not comfortable with that call just
yet. And that's the problem the ECB has.
This was always going to be the dilemma.

It was a classic E.M.
dilemma for these central banks in D.M., a dilemma time they haven't faced a
long, long time. That's upside risk to inflation and
downside risk to growth. And they've got a preference here, and
that's to attack inflation. And that's the mandate of this ECB, at
least to what, a bonds. So there are the pros, the thermometer
of this system. I mean, parity on Europe.
But what a bonds in Europe. And how do you rule that over everything
is that bonds are trading like Bitcoin? I mean, not quite not quite like that in
Europe, but you have seen bond yields get tempered a bit.
And I wonder how much the Bank of the Canada decision yesterday where they
came in with a smaller rate hike.

How much that's going to end up setting
the tone for central banks around the world that they can step down.
Let's get to the data right now and step down to a red and green on the screen.
John, I'm going to go. The more industrial, the bigger the
uglier names like the Dow Jones Industrial Average have a lift the last
number of days versus a NASDAQ flat. And it's flat on his back because the
likes of Alphabet was down 19 matter. Microsoft was down seven or eight and
matter this morning. You wanna know where Facebook is?
Facebook is down almost 23 per cent, which is worse than a few hours ago.
The trends in Orion are getting worse right now.
Eurodollar is negative four tenths of one per cent dollar, making a little bit
of a comeback, some dollar strength going into the ECB.
That decision eleven minutes away and yields are higher on a 10 year in
America, some up by 7 basis points to 4.0, 7 per cent.
So stay with us on Credit Suisse through the morning as well.
A reorganization at the beleaguered Swiss bank.
Right now, Jeremy Stretch joins to get you are 12 minutes to the ECB decision.
How did you turn out effects at CIBC? Jeremy, what will you watch for in 10
minutes? Well, you're absolutely right.
You just been previewing it and I've just been listening to your comments.
Well, clearly it's very much about the decision itself in terms of that
assumption that 75 basis points is baked in.
Even the Dobbs at best seemingly acquiesced that view.
But of course, there is still a small residual risk that the ECB doesn't
follow through.

But it seems most likely the more so it
will be very much that language regarding the forward looking bias
towards the growth trajectory and adjustments in the balance sheet and
also in terms of RTS position, in terms of the potential arbitrage between the
higher deposit rate and those DLJ rates and whether that is going to see a
gradual a graduate degree of liquidity reduction in the eurozone, which I think
could well be quite instructive. Your evaluations going forward.
So, Jeremy, three issues, the rate hike, the balance sheet and how troves.
Let's talk about the balance sheet just a little bit more on the prospect of
cutesy.

They're willing to hike into recession
risk. Do you think they're willing to do Kuti
into financial instability that we've experienced in the last month or so?
I think they're starting to debate or at least discuss cutesy, but I think we're
still some way away from actually getting towards any degree of even
passive cutesy as far as the ECB is concerned.
So if we are and when we see this process starting to be underway, then it
will be most likely be that passive nature.
So no longer in reinvestment all of the maturing proceeds.
But I think that's still very much a story for well into 2023.
I think the ECB and the bank would be much happier to at the very least, get
rates back towards some degree of neutrality before they start to consider
the balance sheet adjustment.

And that that neutrality in terms of the
ECB is probably somewhere in the region of two to two and a quarter percent.
So even 50, 75 basis points today, we have some way to go.
So I think cutesy is probably still a story if in 2023 rather than 2022.
Jeremy, we've been looking at bond yields in the German region throughout
the euro region. They had been coming down just a bit
before today and they are paring some of the gains on price and rise in yield.
How much have we baked in the idea of a slowdown in the pace of rates?
It's material after a 75 basis point rate hike in about 10 minutes, nine
minutes time.

Yes, I think that's very much what the
market is predicated upon, that if we are going to see 75 basis points to date
follow on from the previous moves of that magnitude, the market is very much
anticipating that the ECB will be quite not quite so aggressive in terms of its
polished its policy perspective going forward that we CIBC would expect a 50
basis point move in December and then ultimately probably 25 basis point move
most likely into the beginning of 2023. But at that time, I think we are getting
to a scenario where the rolling over of inflation will prove to be a little more
substantial and more durable. And at the same time, we see those
headwinds in terms of the macro backdrop playing out.
And I think that will have an impact in terms of the ECB reaction function, such
that I think they will struggle to meet what is currently priced into the OAS
curve for 2023.

If the ECB pulls back a little bit and
signals that they are open to just a 25 basis point rate hike in December, is
that bullish or bearish for the euro? Well, that's a very good question,
because clearly markets, as they say, are priced in a reasonably aggressive
scenario. No, no, no, no economics.
No one would argue that a lower rate hike would be detrimental to a currency.
But I think in a backdrop where you are seeing macroeconomic headwinds and we
have already seen some very substantive policy tightening from the ECB, I think
actually rather rather unusual.

It may well prove to be a little more a
little more supportive. So providing a little more of a tailwind
to growth, perhaps also reducing or precluding some of those fragmentation
risks from becoming even more amplified as we run into Europe.
Germany's the last decade in reverse. In the last decade, we had a cohort of
Germans complaining about the easing of the ECB.
And now you hear from the Italian prime minister complaining about the
tightening of the ECB. Jeremy, the politicization of this
European Central Bank, is that something they can handle as an institution?
Are they resilient? Does it damage the signaling that comes
from the ECB? What you make of it all?
We're actually right here. You get a sense that does underline the
difficulties that the European monetary system has relative to the Fed, and that
was I noted when you were talking before you before you came to me regarding the
difference between the balance sheet of the ECB and the Fed.
Well, clearly, that politicization and the differential positions and the
political backdrops across the eurozone do make the job of the ECB incredibly
difficult.

Because you then throw into those
fragmentation risks. We are seeing increasing degrees and
probably will see increasing degrees of criticism on both sides of the equation
in terms of the policy backdrop. And we'll see whether it's too
aggressive a tightening in the context of, say, something like Italy or perhaps
some of those northern Europeans and Nordic countries where inflation has
been very elevated for a protracted period of time, arguing that the ECB is
still being, well, relative lax in its policy.
And that really underlines the difficulties that the ECB has.
That's probably why having somebody who has a very strong political backdrop,
background at the top of the ECB is perhaps quite useful beyond any
uncertainty you have. Lagarde is not a trained economist, a
chairman. Thank you.
We cannot build on that. In a moment, Jamie Stretch, the IFC IBEX
is going to stick with us. Since the ECB decision, everyone
seemingly wants a weaker currency or rather, they want the US to have a
weaker currency.

Specifically, they want a weaker dollar.
MasterCard sees the fourth quarter adjusted growth impact some 6 to 7 per
cent by effects. We have seen a lot of that over the last
couple of weeks. Volatility in stock trades offers, I
believe 4 percent. You're not all that much given the last
number of days surge. But you know, the new 3 to 4 percent is
6 to 7 percent. A foreign exchange to everybody's
conversation here. What is the win of dollar weakness?
Everybody's gotten hold and grey weaken for dollar weakness.
So we're waiting for it at the ECB as wealth to falter into that conversation.
Alisa President, the card I'm sure would love to see a weaker dollar.
Yeah, but at what point does this start to actually feed into U.S.
economic growth? Because we're seeing these companies see
margins cramped as a result.

As for the effects headwinds, at what
point does have the U.S. problem where they're incentivized to
actually do something about it? I don't know.
People are saying not yet. You're still seeing earnings continue to
perform. Can I just say 99 Handel on Facebook
some time tonight? Drop it.
I know when I was in the middle of 20 21 board supporting 87 percent.
It's nuts. And it's again, it's it's a it's a
private company masquerading as a public company is are too harsh.
Look, it's their last show. The stock's down twenty three point five
percent. Brito ACP rate decision coming out from
New York. This is pulling back.
Keeping you up today with news from around the world with the first word.
I'm Lisa Mateo. In just a few minutes, the European
Central Bank is likely to lift its main interest rate to the highest in more
than a decade. It's trying to lower record high
inflation. Almost all economists surveyed by
Bloomberg predict a second straight 75 basis point hikes today.
President Julien Paying says China is willing to work with the U.S.
to find ways to get along.

The comments came before a possible
meeting with President Biden next month at a Group of 20 summit.
It signals an effort on his part to maintain ties.
Despite disputes over everything from Taiwan to chips to the invasion of
Ukraine. Credit Suisse is planning a sweeping
overhaul. It includes a four point one billion
capital raise, a carve out of its investment bank and thousands of job
cuts. It's the most urgent attempt yet to
repair Credit Suisse after huge losses and management chaos in breaking up the
investment bank.

The firm will create a separate advisory
on capital markets business that will revive First Boston branding.
In Singapore, the head of the central bank says Southeast Asia has done a
decent job of allowing markets to absorb some of the shocks from the surging U.S.
dollar. Robbie met and spoke with Bloomberg.
Whole lot of things going to happen to the exchange rate moves too fast, too
far, too far. But I think so far they've been managing
it well. Indonesia, Thailand, the Philippines and
Malaysia are all struggling with more than 8 percent depreciation in their
currencies this year. Global news 24 hours a day on air and on
Bloomberg Quicktake powered by more than twenty seven hundred journalists and
analysts and more than one hundred and twenty countries.
I'm Lisa Matteo.

This is Bloomberg. If you compare the development of Europe
towards the US dollar, you see a certain decline and therefore and that my my
also that in the end of course make imports more expensive and import
inflation. So I think the ECB has all these things
in mind that acts pretty much in line with what other central banks are
currently doing. The German deputy finance minister seems
to be happy with the ECB, which is a change from the last 10 years, because
this time the ECB is hike in interest rates.
It's not cutting and it's going to cease and bond buying and maybe execute Kutty
that decisions about 50 seconds away time and going into it, we have a weaker
euro, euro dollar still just above parity, euro dollar on the session down
a half of 1 percent.

Clearly, the tone in Washington with
Axel WEBER is the vector here of ECB is calming to the Netherlands and to
Germany. They're happier with this.
There are just three Tom Keene. They begin the morning.
Happy. Well, Lisa, I said it was the last 10
years in reverse because it was the Germans complaining about policy being
too loose. And now you've got the Italians who
predictably with the new prime minister, are going to complain about things
becoming too tight too quickly. Yeah, well, they also have a different
leg right now because Germany has been on the front foot of I don't to say the
offending camp here, but part of the issue in terms of what's been going on
and the dependence on Russian oil and all of that.
So how much is there a bit of, hey, we need to throw you a bone in order to see
a part of the union, which is the reason why there might be more willingness by
the ECB to close spreads and trade how you'll be Michael Barr Su Keenan.
That is the weak link in the economy right now, without a doubt.
That decision has just dropped 75 basis points was the previous number.
We got 150 on the depot race.

We go from 75 to 150 on the depot rate
in line with expectations on the marginal lending facility from 150 to
225 on the main refinancing rate from 125 to 2 per cent.
So all slap bang in line with what we expected going into what you had a
weaker euro, euro dollar down about a half of 1 per cent.
That's where it stays right now, starts to roll over just a little bit more.
I'll get into the additional headlines in just a moment.
Yields in Italy were higher on a 10 year.
They stay higher up by about 10 or 11 basis points on a 10 year to 441, as
you'd expect. Lisa, the ECB expects to raise interest
rates further from here. Yes, it stinks that euro weakness just
sort of accelerates throughout the session after these headlines I'm
watching right now, 1 point 0 0 1 3 percent or 3 per dollar.
How much can we get this sort of sense that the outlook is deteriorating?
And that's sort of what I'm looking for in some of the comments that we hear.
With inflation staying above the target for an extended period of time, seeming
to suggest ongoing hikes going forward.

Just putting out the statement quickly,
Tom, for anyone following the asset purchase program at the ECB, PAP and all
those other acronyms, is the quote for you.
The Governing Council, your life in the Governing Council intends to continue
reinvesting in full the principal payments for maturity maturing
securities purchased under the AKP for an extended period of time past the day
when it started raising a key ECB interest rates.
And in any case, for as long as necessary to maintain ample liquidity
conditions and an appropriate monetary policy stance as concerns the P E P P,
perhaps some pandemic emergency purchase program.
Let me complete.

I'll get through it.
The Governing Council intends to reinvest the principal payments for
maturing securities purchased under the program until at least the end of 24.
In any case, the future roll off of the portfolio will be managed to avoid
interference with the appropriate monetary policy stance.
The Governing Council some will continue applying flexibility in reinvesting
redemptions coming due in the PET portfolio with a view to countering risk
to the monetary policy transmission mechanism.
Related to the pandemic? Was that enough?
Monetary policy speaks in a cardinal and can do a job.
I could never do those very. But what I would suggest anyone is
anyone out there, right? Exactly.
On Bloomberg Radio, 47 people turn the radio off.
What I would suggest is two things. One, how different these headlines are
as a set from what we see at 2 p.m. for the United States Central Bank.
But the other thing missing here is the Draghi confidence of a time loan out one
year at a time. I don't see 2000, 20, twenty Scarlet Fu
did anything for it right now.

Tom Keene the Draghi timeline.
Headlines have disappeared. So we've got the 75 from the ECB.
I gave you the balance sheet unwind talk.
Am I allowed to do the Tao Trow stuff or would you like me to avoid it?
I shall avoid the Tao Trow stuff. I'm going to bring you the Tao Taro
stuff. Okay.
The Governing Council decided to change the terms and conditions of the series
of targeted long term refinancing operations during the acute phase of the
pandemic. This instrument played a key role in
countering downside risk the price stability today.
In view of the unexpected and extraordinary rise in inflation, it
needs to be recalibrated to ensure that is consistent with a monetary policy
normalization process and to reinforce the transmission of policy rate
increases to bank lending conditions.

Least to the final word here.
The Governing Council therefore decided to adjust the interest rates applicable
to Telstra 3 from the 2013 November. Okay.
Offer banks additional voluntary early repayment.
Okay. So a whole of.
This it's like English words that aren't English, right put together.
None of it is. OK.
So that's what has a central bank speak maybe is to translate.
How much are some of these cheap loans? I was actually just reading up on this
show. I didn't really understand it.
How about for these cheap loans? Sort of a problem for an ECB that wants
to tighten conditions for banks.

They're saying you can pay them down
now. Get them off your books or we're going
to raise rates on you. Is that right?
I'm not sure the banks are gonna be happy with this.
Yeah, that's the smallest violin we have.
With all this alphabet soup was someone who speaks 14 language.
Maria Tadeo Maria Tadeo can translate there.
Now I read Shery Ahn Mario. I did that for you.
So you saved her the agony that you can be a lot more direct about what's just
happened at the ECB.

Maria, what are we looking for in that
news conference in 20 minutes time? Well, clearly, two things have 75 basis
points. I was very well guided for the market,
very well calibrated. The key here we've been the signal going
into December 7 and 5. There's nothing that is new about that.
The market was expecting this. And of course, for those that wanted to
see a real action against inflation, they'll be satisfied with this.
And of course, I'm thinking of the German central bank.
The other real takeaway, which to me is the key here, is the changes to the
Telstra program. There's two reasons why this is
happening. First of all, the European Central Bank
wants to drain some of the excess liquidity on this.
Remember, European banks sit on two trillion euros of this.
And through changing the conditions for it, we need to witness the
technicalities around it. But they are changing the terms these
for the banks. Well, they may not be happy and this
could potentially entail some litigation.
The question is whether they want to take on the central bank or not.
But those are the two big things change in Taylor Riggs and 75 basis points come
from Maria.

Attorney Legarde is not economist.
Draghi Explain the inner politics that is behind her in her press conference
here in 25 minutes. What is Christine Legarde need to juggle
here within your European continent? Business, she is not an economist by
training, and that's always been the criticism that she is not technically.
Perhaps as Mario Draghi was remembered as this idea that Mario Draghi was a
master of markets, that he could really talk markets into doing anything that he
wanted.

But the reality is at this point, and
you alluded to this in your previous conversation, this is a central bank
that has to cater to tensions that are different to countries that are in
different positions. Of course, when you look at Germany,
when you look at Angelina, is her sitting on two opposite sides of the
spectrum. What I hear repeatedly in Frankfurt is
she may not be a trained economist. She may not be technically as good as
Mario Draghi is. But at this point, you need someone that
has a political instinct to get to consensus, a piece, everyone, and calm
things down.

At one point, this is very well
reported. Mario Draghi was someone who was
perceived by some members of the European Central Bank as too aggressive
and taken decisions by himself. The fact that she's seen as a consensus
maker at this point where this is in many ways new territory for the European
Central Bank sometime in Frankfurt is actually the best way to go about it.
Maria, we'll catch up later. Fantastic coverage, as always.
I have to say, I'm reading through a statement, not really even a whisper of
cutesy in this. And the Italian may face a little bit
off the back of that. Jeremy Stretch continues with us with
CIBC. Jeremy, what will you listen for?
Lagarde She's going to come out.

She's going to make a formal written
statement. And folks, I'll be blunt, the
questioning of the ECB, I think, is sharp as attacks from the journalists
there. Jeremy, what's the question?
You're going to listen for that she needs to answer.
Well, I think the market is very keen to understand where the terminal rate is
and to see whether the ECB is moving away from this whole front loading
narrative and is still just on a mark to mark market meeting.
The meeting process, I should say, really is going to be driven by the
data. So I think we need to see and I'm trying
to understand how the turnover rate plays out on see if that reflects back
into how that will play into Q2. Because there is, as you say from this,
from the reading of the language, from what I've heard thus far, there seems to
be no change in terms of ECB language, in terms of its balance sheet
adjustment.

So I think markets will be very keen to
try and understand what that process, what the procedure will be in order to
encourage the ECB to consider rolling back its balance sheet through 2023.
Jeremy, I'm curious your view and how Christine Lagarde should approach the
very increase her increasingly political question of raising rates into a
downturn? How much does she have to acknowledge
the downturn in order to provide some conviction to markets that they really
are going to hike as much as they're saying?
I think the ECB does have to remind itself and remind markets, I should say,
that its primary ethos is to control inflation.
And if we think back to the creation of the ECB the way back in the late 1990s,
it came out of the Bundesbank. But of course, as we know, the
Bundesbank was driven by that fear and determination to hold down inflation.
So I think the ECB needs to remind the market that that really its primary
focus. Yes, it has to do some make some fairly
painful and unpalatable decisions when we are undergoing a slowdown.
But I think also the bank will need to be mindful of the fact that some of
those inflationary pressures are starting to diminish.
But they need to remind the market that primacy of inflation is the pre-eminent
factor.

And if they can bet on inflation, that
will provide a more constructive backdrop in the latter stages of 2023
and into 2024. Jeremy, wonderful to hear from you, sir.
Thanks for being with us through the first 25 minutes of NASDAQ.
Jamie Strachan, CIBC on a session those negative three quarters of one per cent
just about holding on to parity. Haven't seen a ninety nine handle just
yet this morning, but getting very close to it.
Italian yields fate. They were higher and now they're lower
on an Italian Sanya by couple basis points for everything in that statement.
They said so much without saying much at all.
And for that reason, there's not even a whisper of cutesy in their sun on my
first and second read some.

And I think that's why the Italian yield
story's back in a way. So an incredibly vague statement on two
big issues Tom Cutesy and the future of interest rates and math on Italy.
And I did a very fancy study only on the Bloomberg you can do and it takes you
back to 2014. So I believe I'm back eight years
Anatolian German spreads and we're well over one standard deviation.
What are the consequences, John, if the Italian Germans spread widens for
Christine Lagarde? They were clearly uncomfortable with
250. I wouldn't say they're comfortable with
220, but it's a relative game. Lisa, 220 is obviously better than 250.
And based on this morning, things are heading in the right direction, but
heading in the right direction this morning because they're not talking
about beauty. So let's wait for the news conference
because someone going to ask about it, aren't they, in the next 60 minutes,
Mark Gurman, how much should we get any new information whatsoever from this
particular statement? It was bang in line, as you said, with
expectations.

They didn't mention CU team.
We're just basically scraping at the edges to have anything in order to make
some sort of move. I still am not totally understanding the
euro move and why the euro is weakening on this.
I don't know. Is that Kuti did you under that
understand that statement? I think
that's what Central Bank did. It was clear, John, after you explained
it, that's what central banking has become.
And that's the problem from New York. This is pulling back. It takes in America about eight seconds
away. My NIKKEI runs into the studio to get
prepared for their psychotic features on the S&P 500 just about positive by zero
point zero five percent yo to high by five basis points in the U.S., the data
drops my NIKKEI. What did you go?
Well, let's start with initial jobless claims, since that's the least important
thing today.

Two thousand two hundred seventeen
thousand. That compares the two hundred fourteen
thousand the prior week. It's lower than anticipated.
So jobless claims are telling us that the labor market is still in good shape
now. GDP third quarter gross domestic product
for the first release, two point six percent, which neatly splits the
difference between the Atlanta Fed's three point one percent GDP now and the
Bloomberg consensus of two point four percent.
Remember the first two quarters of the year we saw contraction?
It does. I have not seen yet whether any of that
has been revised personal consumption weighting on that number here.
I'll have to look into this. Personal income, personal consumption.
Well, we'll look for it just a second.

But the GDP price index, which is not
really widely followed because its quarterly numbers, four point one
percent. Durable goods orders up four tenths.
Not quite as good as expected. Zero point six percent was the
consensus. Ex transportation down five tents and
capital goods orders. Nondefense ex air down seven tenths.
Now, that tells you that maybe businesses are starting to pull back
because of the higher cost of investment and shipments were down zero point five
percent. So it does suggest also that business
spending is a little bit weaker than the markets may have hoped for given the the
Fed and what they have been doing. Might you can run us through the details
in a moment. I'll run through the markets.
So the move in the bond market this morning was yields up.
It fades.

Bear in mind that a big rally in the
bond market in Germany off the back of this ECB decision.
So that factors into this move as well. They tend to yield on a treasury at the
moment up about a basis point was up four or five just moments ago.
Equity futures, a leg higher off the back of this now positive, a half of 1
percent and the dollar even stronger. Some euro told a negative seven tenths
of one percent. Briefly, just briefly off the back of
the ECB, we did get a ninety nine handle right on euro dollar.
Tom, just a brief break. Apparently this morning, hopefully with
the day calendar year, November 2nd is a Fed meeting and inflation is at 10
percent. Fed meeting November 10.
Did they get a view Michael McKee at the Fed of what inflation is going to be
eight, nine, 10 days before the report? No, but we do get the PCC number, which
is the Fed's favorite and preferred home day.
And we get that tomorrow. We have that tomorrow for the month of
September.

So that's the is Mark I'm getting out in
front of that of a disinflationary track.
I don't think so. Not yet.
They're going to we've got 75 priced in. And you do have still the idea of a rate
cut next year. But the Fed this Fed and you were
talking about it just before the ECB decision, this Fed is going to be Mark
meeting the meeting for a while as they see the data come in.
Let's take a look at some of the numbers in the GDP.
And here's the one that really jumps out residential.
The Fed has clamped down. Mortgage rates have shot up and
residential subtracts is down by twenty six point four percent over the second
quarter. The residential contributions, we have a
GDP percentage of that. Is it easy for you to garner?
Well, residential is just over 1 percent as part of the overall GDP.
Can you explain what that means in terms of subtracting twenty six point one
percent? Well, it's not subtracting.
It's 26 percent lower than it was then.

It was the case.
So this means that basically the momentum is contributing to this.
How much when you dig into the features of the
GDP report, does it highlight this weakness that people were talking about
below the surface? Even if you get a rebound in the average
or you don't just sort of year over year comp, just looking through that now
we've got weakness in business spending. Non-residential fixed is up by.
It looks like ISE up by three point seven percent.
That's a little bit better than it was.

But when you break that down and you
take structures, structures fell by fifteen point three percent out of that
equipment's up ten point eight. So business investment hung in there,
but wasn't great. And the personal consumption, number one
point four percent is down from 2 percent in the second quarter, up
slightly from one point three percent in the in the first quarter.
Consumers are spending, but they're not spending a whole lot.
Now, the other things we want to look for, our government spending, government
spending still fairly strong. I'm a little surprised.
State and local, one point seven.

They're the ones who have the money at
this point. The federal government's been cutting
back. But a lot of this spending is on
national defense. Four point seven percent.
So, you know, they are replacing all that stuff.
They are. Sending over to Ukraine.
Would you like to translate this corporate headline from the McDonald's
CEO? Sees a mild to moderate recession in the
United States. What is a mild to moderate recession in
the United States? You know, there's there's a lot of
questions about how you define that because the Fed has some Fed officials
have suggested something along those lines.
And it seems to be what they're talking about is a small contraction in GDP, but
a not very big rise in unemployment.

If the Fed got to four point four
percent, which they had forecast, you might be saying, well, OK, that's a mild
recession, but a lot of people say they're going to have to go higher than
that quickly. Looking at the other aspects of this,
which always fall into the question of how did this work out?
Exports were up by fourteen point four percent and imports down by six point
nine percent. So trade contributing significantly to
the overall package here. Inventories up by sixty one point nine
billion. They were up by 110 billion in the
second quarter. So inventories are subtracting from
growth and exports are adding to growth at this point.
Net exports.

So.
All right. There it is.
As Lisa said, in Under the hood kind of story for the Fed, I said this morning
on early surveillance that this is kind of a non informational for the Fed.
It tells them some things about the composition of the economy, but doesn't
change that. So it's a fight of what they need to do.
Mission before this one is deservedly so.
Matt Miller. And then there's early, early, early,
early, early, early surveys. And I think they wait for America's
credit standards. That is brutal.
What's this thing like cutting Manus Cranny production?
They're just getting up now. And you get up for that, too, that it's
out of order.

Anyway, Covid, 20 minutes ago the ECB
came out and then I sent everyone back to sleep.
I know it's reading the statement 55 lately.
Surveillance as well. Michael McKee.
Thank you so much. And he'll dive into all that data for
your first look. Third quarter GDP.
There is a single sentence from a Holocaust and from Nathan Sheets, global
chief economist at Citigroup. Also is public service to the United
States Treasury. And Nathan Sheets joins us right now.
Nathan, there's that single line of global GDP in 2023.
It is well below the typical 3 percent level.
How bad is the global recession of next year?
The global economy, as you say, Tom, is looking very soft at the moment in our
guide, our projection is 2 percent global growth.
If you take out our relatively bullish expectation for China,
we see global growth at less than 1 percent next year, which is right on the
border of what's been traditionally associated with with a global recession.
Now, looking at a little bit more of the details we see early next year, fairly
severe downturn in Europe, clean both euro wearing in the UK and then as the
year progressed, says that monetary tightening in the United States leads to
a recession during the second half of the year here as well.
So pretty, pretty tough outlook, challenging in a lot of different
respects.

And and that's coupled with an inflation
outlook remains very concerning. Nathan, financial conditions of East.
With a backdrop we are talking about financial conditions have started to
ease. And that's because a lot of people are
thinking about the Federal Reserve. Back in a way from the pace of hikes go
from 75, maybe down to 50, the size down to 25.
Nathan, what do you make of that conversation?
I think the Fed has struggled in its communication.
It has set up, at least implicitly, a syllogism that if we are serious about
inflation, then we go 75 basis points.

And when rates are low, it makes sense
to have that syllogism. But once you move to 3 percent in
November, they'll be at 375. As you move higher, you've got to start
charging your determination and framing your determination to fight inflation in
different ways. Specifically, the Fed could say we moved
substantially and that reflects our commitment.
And if you don't believe the word committed, just watch what we're gonna
do. So I do think they're in a tough
situation where they've got a pill that they can't take rates up at 75 basis
points a rate indefinitely. And the markets are interpreting that as
the Fed kind of pivoting off inflation determination, which I think is a
misinterpretation of where they are. I'm looking right now at some of the GDP
components.

Michael McKee is breaking them down.
And we saw housing. He mentioned housing and he just
clarified that residential investments attracted 1 point 3 7 percent from GDP.
This safe, quickly moving story under the hood.
How much are other inflationary components offsetting some of these
disinflationary moves that we're seeing in the housing market, that we're seeing
in retail that we're seeing and used car prices that you could see on the margins
around the economy? Very clearly, we are now in a dynamic of
just seeing inflation in terms of goods prices.
That is clearly happening.

We expect that it's going to come off
quite sharply in coming months. Similarly, the shelter prices are
persistent. The way they're calculated in the
indexes. But when we're getting these monster
declines in residential investment, that's pointing to a very soft housing
market. But where that the heart of inflationary
pressures remains is in the non sheltered service sets.
And that is tied to the hot labor market, rising wages and rising
services, inflation. That is what the Fed's worried about.
And that's what the Fed is targeting here effectively is they've got to see a
more contained numbers in terms of non shelter services, price inflation, and
they may yet take a while. I look, Nathan, how we're going to
recalibrate. We're gonna recalibrate off this press
conference.

John, what, in four minutes, something
like going to recalibrate November 2nd, frame the Citigroup look for next year.
I'm going back to your stunning global GDP call of 2 percent next year.
What is your year opening report going to look like?
Give us a heads up. So what we're what we're seeing at the
moment and it's looking pretty durable in my mind.
We're calling next year rolling recessions in the global economy.
We're going to see various countries turn down.
The vast majority of GDP will see a downturn.
Now particularly be accentuated, exacerbated if the Chinese economy ends
up being somewhat softer and instead of a five and a half percent or
forecasting, if it's more like DAX year at at three and a half as you've got
this on the growth side.

And then you also have central banks are
going to have debt early in the year, continue to high.
And as the year rolls on, our expectation is hold those those rates at
high levels. So what next year is going to be a
challenging year? I'm kind of already turning the page to
2024 where you're just getting started. We already got it.
That's so much like that. So that's what we need from a former
government official doctor. She was brilliant.
Nathan, study. Nathan, thank you.
In the next month, as you will know at home, we're going to get the annual
outlooks, Tom, from so many of these banks.
And I wonder if they're right. Nathan sheets for you and just say yes
in 2024. This is what we think.
And rule number one here is the Farrell rule, folks, is the annual outlook
really starts in March 31 or so, which I think is actually pretty smart.
John, I just got to say this.

If you take me back to 2006, if you take
me and Michael McKee back to 2006, it is unthinkable that we would frame sub 3
percent global GDP that with a buoyant China.
It was literally not in the framework that we we thought about.
Right. You guess it was not.
It was not even an outlier. Views were Dani Burger more, Mike.
It's not even an outlier. View it to handle on global GDP kind of
signs like the The View global. Right now, global recession is basically
what you're going to get.

We know Europe's probably already there.
The Swedes today basically said that their confidence numbers were so weak
that that essentially tells them they're going to be in recession.
So you're looking at recession in Europe.
You're looking at probable recession in the United States.
And for all intents and purposes, China's growth rate is for them a
recession. We're getting that commentary from the
CEOs right now. Comcast, which owns Sky in the U.K., of
course, the Comcast CEO moments ago sees pressure on Sky from a weaker European
economy.

I talked about McDonald's coming out
with a series of headlines to see. ISE made a few comments this morning.
In on the EPA was a bait. Revenue was a bait.
SALES for a bait. But it's what he has to say.
And the economy sees a mild to moderate recession here in the United States.
He goes on to say, listen to this, Tom. Most significant recession in Europe.
Franchisees are under financial pressure in Europe, even talks about China, still
a challenging environment. And China sees increasing uncertainty,
unease in the economy. There are financial conditions.
And next, Goldman Sachs has a great NIKKEI as well.
There's others as well. But it's made up of like eight, nine, 10
soups of ratios by really smart people, not me figuring this out.
The European financial conditions. John is by itself.
Maybe it's war. But the fact is, it is unique and
discrete compared to other nations. Euro.
Taleb right now negative. Lisa got into this news conference with
president that got down about six tenths of 1 percent on the euro.
If you can make sense of the moves and the pretty aggressive moves right after
this particular news release, please let us know.
But I personally can't really translate the why behind it other than perhaps
some, you know, overthinking deep analysis.
You're gonna make this my problem 100 percent.
I'm gonna make it so the partner.

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