Jobs number is really kind of key here to really get a better feel for how strong the economy is. Wages are going to be important to watch out for. Can the Fed really affect the things that are driving inflation right now? Whether or not it's difficult, they need to keep their eye on the ball to get us back to that point of price stability. I would brace for some volatility in the months ahead as US economic data comes in.
This is Bloomberg Surveillance with Jonathan Ferro, Lisa Abramowitz, and Annmarie Horden, live from New York City this morning. Good morning. Good morning for our audience worldwide. Bloomberg Surveillance starts right now, coming into Thursday. New quarter, same old story: equities wrestling with a shaky bond market and rock-solid earnings as tech favorite Micron's quarterly results crush analyst estimates. Bonds are sinking, sending yields to the highest levels going back to 2002.
Yields pushing higher. And the big question for me this morning is why? Why now? Why is there such an incredible selloff globally in bonds? Sure, you could point to Brent crude up 42% in the third quarter. Sure, you could take a look at fiscal concerns, although that's been ongoing for a very long time. Sure, you could look at inflation, but on the margins it actually wasn't surprisingly to the upside, at least not in the United States. Ultimately, are we seeing that sort of doom loop start to take place, particularly centered starting in Europe? Where do people want to fly to? And of course, after a day like Micron, you want to stay involved potentially in the tech trade. That has been the reason why people thought potentially with the start of the Iranian war and the conflict, maybe it's time to sell everything. Actually, it was the reason why to continue loading into technology that's keeping the index level healthy beneath the surface.
And elsewhere, start to see these rates start to bite. We've talked about small caps down 9% from the highs of August. The banks down by more than 10%. Within fixed income, look at the Fed — a steady yield over eight days, higher every single session, and over that period up by 37 basis points. Take it to high yield: high yield credit spreads have been wider for seven consecutive sessions, over that period higher by 47 basis points. The levels might not be too concerning this morning, but the speed and pace of the widening we've seen over the last week can't be ignored.
Right. Yeah. Especially when you compare another period that you saw a similar type of rising — that seven-day rise of 47 basis points that you're talking about is the biggest going back to Liberation Day in April of 2025. This looks like, just in terms of how quickly it's going, something more akin to a shock moment. Which I say, what's the shock moment? What exactly is the hot time when suddenly people are saying, we need to sell now? You're not seeing it in the break-even rates, you're not seeing it in the inflation data. And frankly, you're actually seeing a yield curve steepening. That's quite significant as some Fed officials take a more — I don't want to say dovish, but not quite as extremely hawkish — type of tone. I think that's the contradiction in the market that we need to try and reconcile over the next month or so. Why are you seeing a steepening of the curve? Ever since we got that hot PMI and it's continued over the last week or so, which traditionally reflects an improvement in the outlook for economic growth. At the same time, you see a breakdown in high yield, which traditionally signals maybe some deterioration in the outlook for economic growth. So the runway for the data to help settle this debate over the next month: payrolls tomorrow, CPI in the middle of October, October 14th. And then you start to get through the earnings a little bit more as well. October 13th you get the bank results, towards the back end 29th, 30th, that's when you start to hear from Big Tech.
Yeah. And ultimately, I'm actually this time around almost more interested to hear from the banks and from other rank-and-file companies, because ultimately I want to understand how much the story is isolated in AI-related companies and technology companies, and how much this truly is a broadening out of growth that can be sustained by consumer spending, that can be sustained by some of the stocks that have gotten beaten up, like you say, in the Russell 2000 or the equal weight, which has been underperforming. That, to me, is going to be the true tell. And when it comes to Micron, when you look at what their earnings were saying — all this insatiable demand — what does that say to me? When I heard this from some Fed officials this week as well, Lisa Cook talked about this. The fact of the matter is, when you see a broadening out of AI and that infrastructure build continues, that says one thing: more inflation. How far is this Fed willing to go?
7:30 Eastern time, we'll catch up with the Minneapolis Fed president Neel Kashkari at 7:30 in the studio right here in New York. Looking forward to that conversation right here on Bloomberg Surveillance. Coming up this hour, we'll catch up with Julian Emanuel about whether strong earnings compete with high yields. Angelo Zeno of CFRA as Micron smashes expectations. And Kelsey Barrow of J.P. Morgan Asset Management with the 10-year yield hitting a 24-year high. We begin this hour with those looking to build on tech gains as global bond yields continue to march higher. Due to the momentum of other core writing, tech remains the lead. But you don't buy rips in September, you buy dips in Q4. Julian joins us now for more. Julian, good morning.
Good morning. Are you expecting some dips in Q4? I don't see how you shouldn't be. Okay. We've got lots and lots of challenges. The macro, as you've just been talking about. I mean, I almost wonder why a stock guy is on today when we should just be talking about bonds 24/7 at this point. But, you know, high oil, incredibly high yields, the global competition for capital, the Iran situation, and the midterms. Let's remember that the last couple of midterms of the Trump political era have been very volatile. You know, and it all suggests a Fed that really we're not going to get much forward guidance. And all of that underpins volatility.
Let's start with the bond market. I'm not attempting to argue, but there are people on the trading floor this morning, and I mentioned this earlier this week, who weren't alive the last time 10s and 30-year yields were this high. Now those people might be shocked by what we're seeing on the screen. There is a certain vintage on Wall Street who are attempting to make out that this is a return to normal. Do you see this as a return to normal?
It's a new normal. Okay. Because, look, let's be frank. What was the cumulative deficit when yields were at that number? Probably $10 trillion, something along those lines. We're at $40 trillion now. And the other difference is that this global competition for capital — I don't think we can overstate the importance of it — as the rest of the world deals with globalization, the need to rearm, the need to reorder supply chains. At the same time, hyperscalers are competing for that capital. So it is a different world.
The reason why it's important to talk to stock guys this morning about the bond market is to answer a key question: are bond yields rising for the right reason? Do we see strength outside of the AI sector, even if you're not seeing it reflected in the performance of stocks?
So again, it's very uneven. And I think your intro really captured it. There are questions surrounding financials. There are questions surrounding small caps. Yet at the same time, you listen to the commentary from cruise lines, from airlines — their business is good. Demand is good. And they're like, well, you know, at some point our profitability is going to start ripping when oil prices subside. But meanwhile, you know, people are still spending.
So if we broke in the model where you take a look at bonds and they start looking pretty attractive on a relative basis to stocks — whether you look at real yields at the highest levels going back to 2008, or the 10-year yield versus the S&P 500 earnings yield at the highest level going back to 2002 — all these relative values scream, why wouldn't people start going into bonds over stocks?
Well, I think part of the reason that there's a reluctance to do that, and we think you might consider tiptoeing rebalances — we'll probably be doing a little bit of rebalancing here — is that it's all because it's more growth-oriented than we're used to. And also remember, we haven't seen a CapEx cycle like this. Talking with clients yesterday, there were elements in the 1970s, but really it hasn't happened since the 1950s when Eisenhower built the highway system across this country.
But Julian, you mentioned all the reasons why — the world rearming, the conflict in Iran, the AI trade. But all of these narratives have been with us, and even before Iran, it was Russia's invasion of Ukraine. You start to see Europe spend more on defense. So why so violent right now?
So trends, a couple of reasons. First of all, if you look at the trends in global macro this year, the one that's really been dependable is bond yields going higher. Oil, you got whipsawed. The stock market, you got whipsawed. Commodities, you got whipsawed. Broadly, gold, you got whipsawed. But the trend followers have been pouncing on this one. And, you know, that doesn't change until something breaks.
You think something breaks this quarter?
I don't know that it's this quarter, but I will say that the people that say that AI is totally immune to the cost of capital — you don't buy it. That is a 'it's different this time' concept like you read about. It is not going to be different this time. We just don't know what that level is.
Why do you think this has been the one consistent trade? If oil prices go up or down, if stocks go up or down, why is it that bonds just keep selling off to this degree?
It is. I think it just goes back to this idea that everyone is hungry for capital, and we are now going into an environment where, you know, you're talking about net issuance after years and years of buybacks, and there doesn't seem to be any horizon where this new dynamic is going to change or slow. I mean, look, what we're looking for — $1.3 trillion in hyperscaler CapEx next year. That didn't sound like a big number. I mean, that did sound like a big number a year ago with all these numbers. Maybe it's not so big. It's big.
Are you expecting a trillion-plus company to go public this quarter? I don't know, get you in single-name trouble. We know where I'm going with that.
Yes. So we had a number of high-profile clients. We debated this issue very intensely. And there is an expectation that you will see it. And it's very important to the health of the AI trade that that happens. And it happens at a good price.
What would it mean if it didn't happen?
I think, you know, look, it's no coincidence that the market has been as choppy as it's been over the last several weeks, given the fact that some high-profile IPOs have been pulled. And it tells you — and this is why going into financials, it's going to be so important to hear what the pipeline looks like and what the expectations look like. And this is different. Financials almost never set the tone for earnings season. They will this quarter.
I agree with you. Said the same thing. Let's finish on the banks. The banks are down by more than 10% now from the highs of mid-August. There are a range of reasons why the banks are lower. We had guidance pulled in just a little bit, reset expectations over at Bank of America, something similar from Goldman on its earnings. You've got the tech disruption coming from the likes of Meta. You've got the tech-associated nerves. What happens to the IPO pipeline. And you've just got worries about the cycle. Is there one dominant reason for banks to be down as much as they are over the past few weeks?
Well, no, there isn't really one dominant reason. And obviously the accelerant — because banks are having trouble for various reasons — and really it was like broad financials worrying about credit quality and, you know, software exposure at the beginning of the year. And the sector never really found its footing despite the capital markets staying strong at midyear. There isn't really one specific reason. Obviously, the catalyst was a furry little creature called moose that thought it was going to cross everyone's profit margins. But that's how we see the commentary evolve. But more importantly, and this has been a consistent theme throughout this bull market, how the stocks react to whatever is said.
Julian, you're going to stick with us. Julian Emanuel of Evercore. Earnings season is upon us, a few weeks away. October 13th is when the banks start. What is it — promo, tech, Meta disruption, the cycle? Take your pick right now.
Yeah. Ultimately, is it fair about a consumer rolling over that other people say isn't happening? Or is it really going to come down to the pipeline?
Or who thought that the gauge of our health and how much we sleep is a gauge of the market's health? Because right now that's what people are seeing in wrestling with news. Did you see that OpenAI executive who was there to talk about dance and then talked about moose on accident?
Yeah, I mean, just like on accident. Yeah, by accident. And then when it comes time to thinking about afterwards, like, oh no, this was not part of the plan. Don't say that.
You know, honestly, which sounds better? Dots or moose? I mean, dots are kind of... to be honest, I thought they were kind of... Are you like that? I thought they were. It's a first-mover thing, I think.
Okay, let's give an update on news worldwide with your Bloomberg brief. Vonnie Quinn joins us with more. Hey, Vonnie.
Hey, John. Good morning. Authorities in Saudi Arabia are questioning a pilot who allegedly stabbed his colleague and tried to crash a plane carrying more than 170 people. Passengers and crew stormed the cockpit of the flydubai plane that was on its way to Tel Aviv. They subdued the attacker, and another pilot on board landed the plane in Saudi Arabia. Mike Brown reporting. Micron's first-quarter earnings beat estimates. The chipmaker giving an upbeat forecast for the current quarter, fueled by the AI building frenzy. Micron warning, though, that rising compensation could weigh on profit margins. OpenAI is accusing its Chinese rival Moonshot of conducting a widescale effort to extract data from its GPT models. The company says it observed thousands of attempts by users associated with Moonshot to decipher hidden information about how its models reason through problems. And that is your Bloomberg brief.
Jump in. Finally, thank you, Vonnie. More from Anthony later this hour. Up next on the program, the president's pressure campaign on Powell. 'Jay Powell is a disaster. I call him too late because it was too late with interest rates. He wasn't good. He's incompetent. And the man that's incompetent should not be sitting on the Federal Reserve Board.' That man is still sitting on the Federal Reserve Board. And we'll talk about why with Bloomberg's Tyler Kendall in just a moment, plus more with Julian Emanuel. And then, of course, live from New York City this morning. Good morning.
More data later this morning. More Fed speak too. We'll catch up with Neel Kashkari of the Minneapolis Fed later this morning on this program. 7:30 Eastern time. We'll get more data. Jobless claims at 8:30. Then later, Lisa talked about this early on in the week. It could be the data point to look for. PMI last week. Will it be validated by a hot ISM? The ISM number dropping in a few hours' time.
I'm curious to watch the long end of the yield curve, especially as you have people like John Williams talk about only one more rate hike, much less than what the market is expecting. If we get ongoing data that shows that resilience in the manufacturing after that services data, how much more does it go? I mean, who's going to step in and try to catch a falling knife? If you have this kind of data that isn't going in the direction of bringing yields lower.
The first data points as we kick off the month of October and Q4, the final quarter of 2026. Equity futures this morning positive by a tenth of 1% on the S&P 500, on the Nasdaq up by 0.4. Check out this from Reuters this morning. Getting more access to the IPO prospectus coming out of Anthropic and citing this line right here: 'Broadcom to lend Anthropic up to $42 billion to lease its chips.' The latest reporting coming from Reuters just seconds ago. And two concerns about circular financing and exactly who is buying what and exactly where this money is coming from, and whether Anthropic has the type of revenues that can offset the incredible amount of hardware and, frankly, cloud computing ability that it seems to be leasing and borrowing and getting a piece of in every single capacity. Ultimately, you ask the right question: how hinged is this market, the idea that Anthropic has to IPO this quarter or else face some sort of real reckoning about the pace of these companies?
That headline, those numbers will get people's attention. These numbers will, too, in the bond market this morning. 10-year yields up across the curve, up by two one-tenths through 5.30 on Thursday, through 5.65 — levels we have not seen in more than 24 years. Just keep cranking up your time. And if you look at the charts now, we're starting to go vertical in long-end yields over the last year. This is the concern for a lot of people, that it seems to be accelerating. And there was actually a poll done by Bloomberg of investors, and more than half of them expect us to see 6% yields on 30-year bonds by the end of this year. I mean, it gives you a sense of the fact that nobody's really stepping in to slow this down because they expect it to keep going again. Why now? And what could potentially put a cap on it?
The only point on the curve right now without a five-handle to a fortnight is very close to everything else. Three years and out, 5% and up. And a savannah this morning, a focus on the Federal Reserve and the president's pressure campaign. The president's pressure campaign on Jay Powell. 'Jay Powell is a disaster. I call him too late because it was too late with interest rates. He wasn't good. The report was a pretty bad report. The report said they did a bad job. They didn't know what they were doing. He's incompetent, and the man that's incompetent should not be sitting on the Federal Reserve Board.' So here's the latest this morning: President Donald Trump renewing his push to oust former Fed Chair Jay Powell from the Board of Governors, saying he should resign or, quote, 'be sued at the highest level,' following a report on renovation costs for the central bank's D.C. headquarters. Tyler Kendall has more.
Hi, Tyler. Okay, John. Well, the Fed's independent watchdog found no evidence of criminal wrongdoing related to the construction, but it was still highly critical of management of the project, which is adding fuel to President Trump. The report should, in theory, put to rest the prospect that we could see criminal charges brought, finding that there was, quote, 'no administrative misconduct.' That essentially means no neglect of duties. And I bring that up, keeping in mind that there is a very high legal bar to remove a Federal Reserve official from office. Still, the report did outline a series of missteps that led to costs ballooning from an initial estimate of $1.3 billion to $2.4 billion. That includes failing to implement a recommendation to impose a cost ceiling or asking for construction estimates. President Trump says that he has asked his attorney general, Todd Blanche, to study the report and figure out what to do next. Considering that Powell's term as governor doesn't end until January of 2028, and he's previously said he's not going to leave the board unless the investigation is, quote, 'well and truly over.' Now, John, in response to these findings, the current Fed Chair, Kevin Warsh, says that the central bank will implement all of the report's recommendations, including the use of an independent auditor for the remainder of the project, which still remains underway here in Washington. It's Tyler Kendall down in Washington, D.C., from the nation's capital.
Thank you. The pressure is building on the president of the United States. Rates are too high. He's putting pressure on the former Fed Chair, Jay Powell. The pressure's building on the president of the United States because energy costs are too high. He's putting pressure now on the Europeans to do something about it, to release inventories. This is the pressure campaign on crude product in the Europeans, and it's ramping up heading into the midterms.
Absolutely. Because the president is under immense pressure at home domestically, especially from states like Iowa. The EU Commission spokesperson is basically saying that they're in, quote, 'high-level contact with the U.S. on emergency diesel stocks.' This comes after Reuters reported earlier this morning that the U.S. told France and Germany, release those stocks or expect an export ban from the United States. To have a blast out of London, who linked the two stories a number of weeks ago. And he indicated that the debate on policy on banning diesel exports in this country was linked to a pressure campaign in Europe to get them to release crude products, something that had been sitting gone for the last seven months. And it's pretty clear they are related this morning, that ultimately this president does not want to do a ban on exports of diesel, considering that every single producer says it will only raise gasoline prices. And now he's using that as the ultimatum to get them to actually release these reserves. Honestly, a real question why they're not actually releasing these emergency diesel reserves, given the fact that the 40-year-old came out and said this is incredibly a tight market, and he's very concerned heading into the winter and heading into the midterms. You can feel the pressure building on the administration.
Now, how instructive are these midterms looking out into '27, into '28 for the runway for policy and what it could mean for markets?
Look, it is anyone's guess, to be perfectly honest. Because if nothing else, the Senate is really totally in play. But the question is, you know, look, true to form, if the Democrats were to take both houses of Congress, the president has in the past occasionally shown a willingness to work across the aisle on some issues. The test of the next two years is, if that happens, will there be a greater willingness or will there just be sort of continued acrimony? And I would suggest that stock markets actually show that divided government, contrary to people's opinions, the returns are lower than unified government. But that's why you've got a lot of volatility potentially shaping up here, because it really could go either way, depending on how the interaction ends up being based off the previous conversation we had, which how much everything is costing, the budget exploding, the need around the world for everyone to rearm.
Do you hear anyone in Washington talking about anything to address our fiscal debt?
And how much worse is that going to get regardless of who wins the House or the Senate?
Well, we're going to have a debt ceiling fight again in 2027. I mean, you know, the day after the midterms, we're going to start the countdown to, you know, to extraordinary measures and so on and so forth. And look, you go back to the establishment of the Peterson Institute more than 40 years ago to deal with the nation's debt. It has not. You know, we have stayed the hegemonic currency of account globally, and that has been extremely supportive. But to think that it's going to go on into the infinite horizon — the bond markets are telling you there's only so much globally that that's sustainable at this point.
I was talking to an investor yesterday who said that they're concerned about a contested election of some capacity, considering some of the legal questions heading up to it. Have you gamed that out? Do you get a lot of questions about that?
We do. We do. But I offer beers instead of actually doing it on Zooms to answer that. I think that's a parlor game that we're just going to have to see what the news flow starts to look like on the morning of November 4th.
Can you confirm or deny whether that investor was Ken Griffin? I continue carrying minds for want to know because you spoke to me just that.
I can say that it was not.
Yeah. Okay. Let's roll that out from his, you know, having the ability to give $3 billion. Can you imagine to have the money to find dinosaurs and build $3 billion campuses? How cool is that? And then sit on a board and be able to then to say, okay, this is what I want to work on and this is how he can do this, and he's using it as a petri dish. I know it's on Vogue right now to sort of go after billionaires, and that's the whole shtick going into '28. And I get it. I understand where it's coming from, the concentration of wealth, given the struggles that's when the economy. But when you use your concentrated wealth to do those kind of things, I think that the kind of things that should be celebrated.
I completely agree. I mean, it sort of hearkens back to — and he is not just the dinosaurs for the campus, two campuses. I mean, it's sort of ironic that it's in the same spot as Andrew Carnegie and a lot of his prolific investments, and it's sort of the new era of a similar type of time. Really cool.
Jimmy Money, whether if ever. Coming up tomorrow, we'll have more on this Federal Reserve race. Coming up later, we'll catch up with Neel Kashkari of the Minneapolis Fed. Coming up next, Angelo Zeno as Micron posts gains following some blockbuster earnings.
Kicking off October and Q4. Equities firmer by two-tenths of 1% on a three-day slide to close out Q3 and a month of September. Bouncing this morning by 0.6 on the Nasdaq. Micron crushing it. We'll get into that name in just a moment. Let's spend some time on the bond market. Two-tenths, 30s. 10-year yields have not been this high since April 2002. You've got to go back to June '02 to see 30-year bond yields this high. 5.64 this morning on the 30. So there will naturally, inevitably be a conversation about the deficit and whether this is part of the story. I have to say, stateside, just look at the US dollar. If that was the story, the dominant story, I would expect the dollar to be weaker. The dollar just had its best month since June. That's not to say you aren't seeing some fiscal jitters. You are, but I think you're seeing them much more in other places. Take a look at the German-French spread right now. France over Germany, the 10-year. The spread has got to about 129 this morning. Back in late February, it was just below 55 basis points. That's blown out. And I think this morning you've got to ask the question: at what point? How close are we to ECB officials coming out and saying, you know what, we need to do something about this? This has gone too far.
Ultimately, what can they do if this is driven clearly by fiscal concerns over in France? They've got a fiscal budget deficit that is one of the worst in the euro region, behind Poland and Romania and a couple other countries. And there's a real question about the elections and the willingness to do something. So do they have to be backed by other European Union nations? Are they going to go for that? Meanwhile, look who the stalwarts are. The French yields are actually the highest ever in modern data relative to Greek and Italian yields. So it really comes to, you know, who is going to be the strong one that supports France after a pretty chequered history. They've got to do the work. And we've talked about this repeatedly. There are no easy policy decisions right now. There are trade-offs. And for the ECB, if you're looking to tighten policy at a time when inflation is above target and you think over the medium term the inflation risk is skewed higher to the upside, then do you really want to get into the business of doing what looks like QE? Probably not. Which is why the bar to get involved is probably a lot harder, some people believe, which is why the spread has just kept on creeping wider. Closing the spreads will have ulterior consequences of inflation that they don't want to deal with. At the same time, at what point do you hit a doom loop in France? We talk about that sort of possibility in other places. Increasingly, that nation's place really trading like a developing nation more than a developed. This is a moment for strong leadership, and it's a moment to understand who the leader might be. Now, I know it's not part of the conversation right now, but flirting with different jobs into next year is going to become increasingly difficult for the chief of the ECB. When these kind of moves are developing in the bond market, I think you need to shut that down pretty quickly and make a decision and offer the market an idea of what leadership is going to look like in '27 and beyond.
I think the Spanish prime minister has some ideas, and I think that some of the other nations — that's true, and they've come out. And ultimately, I think you are right that at a moment of turmoil, at a moment of uncertainty, you need to have a concrete leader who can come out and set the tone and ultimately get the mistakes out of the way, because they all make mistakes up front.
Absolutely. So start making mistakes now so that if things do blow out significantly more, they can respond. It's not the perfect moment for a leadership change right now anyway. For since we're on the topic, I've always found that the media, particularly the financial media, has been soft on this particular person leading the ECB, Christine Lagarde. And if this was a conversation taking place of the Federal Reserve and the Fed chief, and we have a chair that was unlike announcing about when they might step down before their term ends, I think we'd have a different approach to that particular news. I think that people would demand a clearer and quicker resolution. You know, right now, I think that that's been an issue around the globe.
How much of the extra premium baked into bond yields is because of policy uncertainty, personnel uncertainty, whether it's the ECB or over here at the Federal Reserve? There has been a leadership change as well. And some people have speculated that that's been part of the move. Might not be a market issue right now. I'm not suggesting it is one, but it could be potentially down the line. Eurodollar right now at 1.1293, hours away from the cash opening up and about just around the corner. This case, some single name, some warning, but this money has more. Hey, Vonnie.
Hey, John. So let's start with Alphabet. It has released its Gemini 4 Argon model. The latest AI model, it says is with governments and a trusted partner is right. So it's going to roll it out slowly and, as it says, responsibly. Now we did some reporting and we found that some of the voices are saying that some of the tasks that it does end up being a little messy, but Google says that that is inaccurate and it is standing by its Gemini 4. Only accounting says the real issue may not be any of that. It may just be that it's been too long since Gemini 3. These models have to start coming out on a quicker cadence. Now let's move to some power stories. So the first one is because it has raised its growth outlook for the second time in a month to 20% now from next quarter from 10%, up almost 12% in the premarket. VI Corps, based in New Jersey, makes small power modules for everything from EVs to large drones. Well, now it says it's signed on for OEMs and hyperscalers. So a great growth story there for VI Corps. And then we have Constellation Energy, the largest nuclear energy manufacturer, doing a deal with Amazon. $20 billion deal. It's going to be a 20-year deal. And it's going to allow for $3 billion of extra investment in Maryland at Calvert Cliffs, the largest nuclear reactor in the United States. And that has Constellation Energy up almost 4%. So power definitely a theme these days.
Vonnie, thank you. Thank you very much. Some of the movers this morning moved from Vonnie a little bit later on. Right now this morning, Fed Governor Jay Powell back under presidential fire. 'It's horrible what they've done. He's incompetent. And a man that's incompetent should not be sitting on the Federal Reserve Board. The report was a pretty bad report. The report said they did a bad job. They didn't know what they were doing.' President Trump renewing calls for the former Fed Chair's resignation over the central bank's building renovations. The Fed's internal watchdog finding zero evidence of criminal wrongdoing in the project. Elsewhere, the US ramping up pressure on Europe. Reuters reported the White House is pushing Germany and France to release emergency diesel inventories or face a potential export ban. An EU Commission spokesperson confirming high-level talks with the US on the fuel. And finally, dissent bubbling under the surface. Tech executives privately questioning Anthropic CEO Dario amid warnings about AI. The Wall Street Journal reporting industry leaders, including Nvidia's Jensen Huang, found his commentary extreme.
I almost feel bad for him, and I know no one's going to have a wild life. I know I'm going to get a lot of hate. The smallest ever I know. But I almost feel bad because I feel like everyone's ganging up on him because he's easy to gang up on, and he sort of represents his views without any particular polish. But I do think right now, you know, it's fair to have this concern. Ultimately, how much is this a fracturing of closed models versus open models? And he is the poster child for closed model and regulatory capture, and all of the other CEOs that see a business advantage to having open source when A and B, no regulatory oversight, end up sort of all coming together and saying, cut it out there. He was also the odd man out for another reason that we haven't talked about. Anthropic is still labeled a supply chain risk by the Pentagon. Can you imagine the United States went to the White House driveway with the Huawei CEO? It would not happen. It would not happen at all. But yet the CEO of Anthropic, who the DoD says is a supply chain risk, and as of six, seven days ago, a federal court said the Pentagon can label Anthropic a supply chain risk, was standing alongside all those tech executives and the president of the United States.
There is a risk you're being too kind. And it's not about style. It's about substance. And this is the guy that's going around talking about the risk to the end of humanity and taking over a percentage of white-collar jobs. And I got the sense looking at how that played out, that little mini cargo led by the new White House press secretary, the president of the United States, Donald Trump. What a scene. I sound like Mark Zuckerberg looked like a man who just walked out of an argument he just won. And the other guys looked like, particularly Dario, I looked like a man who just got crushed. Ultimately, Mark Zuckerberg is telling a message that the president wants to hear. It's a superintelligence. So he's picking that up and going with it, number one. But on a more serious note, there also are the consumer deliverables. And he's running fast ahead. And he's saying ultimately this will have to be a self-regulated industry because it becomes a business case. But we're on, we're on the job. Yes, he probably did win.
I would say it was really. I have read a lot and seen a lot. I would like to see that scenery created by actors. I would like to know the backstory. I want to see the movie. I want to see the movie. I want to see the end of the movie. I just wait a couple of years. Also, when you look at the body language, he stood right next to the president, went right to the front. Some others were trying to almost hide a little bit in the back. Take cover. They don't want to brace for the questions. They don't want to get up there and speak. He stood right next to the president. The president and him were talking when other individuals were speaking to the press. So yeah, I do think he walked out a little bit, you know, a little cocky. Let's be honest. These are all smart guys. We'll see who wins the race.
Let's stick with it because the antics have been phenomenal. Micron posting blowout fourth-quarter results fueled by soaring AI demand. The chipmaker tripled its year-over-year revenue to more than $54 billion. Until I sign off for a maintaining a buy on the stock with a 12-month price target of 1500. Right in the corners. Upside was broad-based across all four business units, but mainly driven by data centers. Angelo joins us now for more. Angelo, what a story. And if you explain this story to people and then ask them to guess the multiple, I'm not sure how many people would guess correctly. Angelo, when are we going to see that rewriting of this name?
Yeah, John. It usually happens when you least expect it with these type of names, is what I've learned. But, you know, I think people have the bulls on Micron for years now have been kind of waiting for this rerating. I think you'll potentially see it here over the next couple of quarters. I think this quarter specifically, we lacked a major catalyst. The results were great. I mean, and the fact that they provided some really good visibility here for '27 or '28, which is what bulls wanted to hear. They also, you know, despite the fact that the guidance on the gross margins were a little bit light, you know, they did kind of point to the fact that it was going to be the low point for the year. You're going to see higher pricing, and that would really benefit them. But I think most importantly for us is, you didn't get anything in terms of a potential capital allocation strategy. I think that will help rerating the stock. If you see something along the lines of a 2 or $300 billion buyback announced here over the next couple of months, they will be allowed to start buying back aggressively starting in December. So, but they probably didn't want to get ahead of that. So we'll kind of see how that develops here over the next couple of months. And then, of course, the fact, you know, the street just wants to see the sustainability of this cycle. And as you progressively see that, if that's what transpires, I think that helps the rerating story.
I just want to sit on what you said with gross margins coming in a little bit disappointing. They were at 87%. I mean, what did people want, 100%? I mean, honestly, at a certain point, people used to say it wasn't so much the direction as the absolute margins that would keep people interested. Well, this seems to maybe fly in the face of that.
Yeah, yeah. No, I mean, you're right. I mean, the fact that when you look at what the company has done here over the last couple of quarters, you look at the gains. The investors always want a little bit more. I think the good thing here is the fact that, hey, listen, maybe the investors now acknowledge the fact that this is going to level off in terms of the margin trajectory. In fact, listen, at some point in time, the margins do have to come in, which is why the multiple is where it is. But that being said, listen, it's all about the free cash flow potential in our view. This is a company that potentially generates 5 or $600 billion in free cash flow by the end of this decade. And again, that helps the potential rerating story here of the name. As long as, listen, that demand landscape is sustained.
I thought it was interesting, the explanation for why gross margins weren't even higher. And this, according to the CFO: 'We made the decision to increase the incentive compensation.' Incentive composite is the big driver to that gross margin outlook. How much are they having to pay people to keep them? I mean, how much competition is there for anyone who has any memory expertise whatsoever?
Yeah, I mean, it's a tight market out there for labor and for that expertise. I mean, you kind of think about also, and then you also think about here over the next couple of quarters and years, the fact that this company isn't able to potentially even grow faster than they are, is the fact that the clean room capacity is just extremely tight, and it just takes time to really kind of build that capacity up. In fact, some of the most of the investment, extra investments that they're making today is going to be towards late 2018. So, so it takes time, right? So there's going to be limitations in the amount of supply you can actually add in this market. But to your point, yeah, I mean, when you look at the disappointment on the gross margin side here for the November quarter, I mean, you're talking about 30-40 basis point disappointment on that, the higher costs. And that's probably something that's going to be a headwind, but nothing that's really going to kind of disrupt the story.
Our political headwind is going to be an issue for Micron, because obviously they're the base for really building data centers.
Yeah. I mean, I think you've always got to worry about the geopolitical landscape across the entire AI ecosystem, for that matter. But when you think about Micron specifically, the fact that they at least at this point in time, they're the only high-bandwidth memory manufacturer here domestically. That's something that works in their favor. And, you know, clearly over the next couple of years, there is going to continue to be more of a push here for that local manufacturing. So, in many respects, that actually works in their favor.
Angelo, we're going to catch up until I say, you know, of course, with a pretty punchy price target on that name after some pretty punchy earnings from Micron. I just love that people are disappointed with 87% profit margins or gross margins. You just start to wonder if any other company put those kinds of gross margins, would people really be saying, yes, but it wasn't 90? What do they pay their people so much? It's looking for 50% upside on that stock. I think that there are other people who agree with them. If you take a look at the multiples and where they're trading, single digits. I mean, ultimately, do prices force some sort of reconciliation in demand before supply catches up? And it sounds like the answer is no. So people are going to keep paying it. You can talk about this as an inflationary input. Either way, they're making bank. The latest from Micron this morning. Let's get an update on stories elsewhere with your Bloomberg brief. Vonnie Quinn has more. Hey, Vonnie.
Hey, John. Thank you. Shares of Broadcom rising in the premarket. Reuters releasing new details from the Anthropic prospectus, saying the company will lend the startup as much as $42 billion for infrastructure. The deal is positioning Anthropic to become Broadcom's largest chip customer in next year. Oracle shares also rising in the premarket. The Financial Times reporting Tencent signed its largest overseas lease deal with the US cloud provider. The deal allows Tencent to access about 100,000 advanced AI chips that were not available in China. And make sure to check your mailbox. President Donald Trump has begun sending $500 checks to nearly a million people who apparently paid excessive fees under the Affordable Care Act. The texts come with a letter signed by Trump touting his record on cutting health care costs. And that is your Bloomberg brief.
Vonnie, thank you. Thanks for the update. More from Varney in the next hour in about 30 minutes' time. Up next on the program, fueling from market pressure. This is marketplace has higher rates. But it's up there because of this remarkable rate hike. Discount the productivity revolution. The deficit is high, real rates. A lot of this is about the narrative. Up next, Kelsey Barrow of J.P. Morgan Asset Management.
Equities doing better, up by a third of 1% on the S&P, on the Nasdaq 100 this morning by 0.8. In the bond market, just historic levels, numbers we haven't seen in 24 years. 10s north of 5.30. Briefly we had Thursday's comfortably about 5.60, just about holding onto those levels. As we back away from them, we give some life to equities, and that's the tug of war right now. And it will be into our earnings season and the data through the month ahead. It's going to be the robust earnings in America versus these much higher yields across the curve and worldwide. I'm less interested about tech because we've already established tech is relatively immune relatively to some of these higher yields. The rest of the universe, how much are they getting beaten up and how much resilience does the US consumer have? Ultimately, that will be the tell for Fed policy and frankly, for how long stocks can remain resilient. On Savannah this morning, fueling from market pressure. This is marketplace has higher rates. Yes, we talk about the deficit, but it's up there because of this remarkable rate hike. Discount the productivity revolution, the deficit, high real rates. A lot of this is about the narrative. It's about what does the future look like and what policy measures do we have in place to sort out the future fiscal issues. So here's the latest this morning. Global bond yields continuing to climb as the US 10-year is hitting its highest level since 2002. Traders now looking to the next dose of data for potential clues on the Fed's next move. Kelsey Barrow of J.P. Morgan Asset Management writing, 'We are increasingly seeing an unsustainable gap between the inflation narrative, the market's pricing of the Fed's policy path, and what the hard data show.' Kelsey joins us now for more. Kelsey, good morning.
Good morning. Do you think something's going to give here? And if so, what? I do think that we are in kind of a new chapter of the bond market selloff, particularly over the last week. It does feel very technically driven, very momentum driven, particularly yesterday, which was month-end and quarter. And the selling that occurred after what was, I think, material new information about inflation related to core PCE looked to me to be a little bit associated with some of these negative feedback loops, selling begetting selling. For example, in the bond market you have a concept called negative convexity. As yields are rising, certain securities, their duration is extending. And that causes people to have to sell even more duration. So that feedback loop is there. Our process incorporates three factors: fundamentals, valuations, and technicals. Technicals of those three has clearly been in the driving seat. But I don't think that they're going to be in the driving seat forever. I think we're getting increasingly closer to the point in which we are going to refocus on the fundamentals and the valuations, the valuations being highly compelling with yields where they are.
As we look into the fourth quarter, you've articulated a technical negative feedback loop. Can I communicate a potential fundamental one that high yields beget high yields? Because we start to think about the deficit a little bit more and higher borrowing costs and concerns about high yields and high yields fueling concerns about high borrowing costs. We've been talking about that through the week so far. Are we entering that messy phase?
So that is a concern. But I think it's been a concern out there. And to me, the price action that I'm seeing does not support that risk being the fundamental driver within the bond market. I think I heard you earlier this morning talk about the fact that the dollar has been well behaved. I think really strong, spot on point. You know, I also look at the relative performance of swaps versus treasuries as a swap spread trade that has been also very well behaved. So there's not this kind of indiscriminate selling of the cash Treasury bonds that's causing dealer balance sheets to become bloated. So not really seeing that now. Where I see the disconnect on the fundamentals is particularly on the inflation side. I think we can talk about growth as well, and what is next for growth. But on the inflation side, we got a lot of new information yesterday. The core PCE numbers now with the revisions with the August report. The three-month run rate is at 2%. Now, that's a volatile number. You know, that is going to move around. We also have energy back up that's going to influence airfares, but it also impacted the year-over-year rate, which has come down to 3%. Now these numbers, they're higher than the Fed's target, but they're not miles away from the Fed target. And when I look at where these inflation numbers are, what they mean in a dispassionate way as it relates to a Taylor rule framework and what the market is pricing in terms of rate hikes, that disconnect is getting uncomfortable. And I'd love to hear from more Fed speakers about how they're interpreting this, because I think one of the challenges with this environment, particularly in this new Fed regime with new Fed leadership, and it's something that is natural that, you know, participants have to get used to. We know what can make the Fed more incrementally hawkish, right? Like we get that. We know that if we get that inflation data, they're going to hike more. What we don't really know a lot about is what is sufficient improvement in inflation that would get them to start to sound more comfortable. Now we see the mix of inflation and say, on the margin, you can get more comfortable. And then we'll start to talk about how the growth backdrop into place with that.
So we get a lot of Fed speak today. We get Jefferson, Park, and Colin Schmidt, Waller, Bowman, Cook, Logan, and Neel Kashkari, the Minneapolis Fed president, is going to be on this show. I do wonder though if this is Fed-driven in any way because what we're seeing is yield curve steepening. And actually the yield curve at the front end did decline. And people priced out some of the expected rate hike in October this month. Is this something else? Is the Fed kind of really not in the table here?
I do think the Fed is part of it, but I understand your comment. There is a lot of multiple factors that are driving yields. For example, a couple weeks ago we were heading into, you know, the fourth quarter thinking that one of the tailwinds for bonds and a possibility for lower yields could come from some temporary respite in the oil situation in the Middle East. We haven't gotten that, right? So there are a number of kind of challenges to lower yields that have persisted, that have really nothing to do with the Fed. That being said, what I heard from Warsh in the last multiple press conferences is that he wants yields to reprice to the data. And what I think is concerning about the price action yesterday is that the markets did not reprice to the data. And that then begs the question, does the market understand the Fed's reaction function, or is there something else going on? And I think it could be a mix of both, to be really fair.
Kelsey Barrow of J.P. Morgan Asset Management. Kelsey, thank you. Just on the yield curve, go back to last week, the morning the PMIs came out. So that was the 23rd of September, the 2-year versus 10-year. The spread between the two, the shape of the curve, 17 basis points. It is now 40. So we've more than doubled. So we've had some real curve steepening come in from. And I've seen a lot of articles written about a curve flattening and recession, or that that's not been the story ever since. We've got a hot PMI and that story shifted and pretty quickly, you know, and even if you did price out some of the rate hikes, what you saw was an ongoing steepening. So this clearly is something else that's going on. Coming up next to a Kaiser City, Libby Cantrell of Pimco, Minneapolis Fed President Neel Kashkari, plus US Trade Representative Jamison Greer. A snack second down. Rick Bloomberg Surveillance just around the corner.
Do we want to proceed with caution here? When it comes to the equity market, the market needs to say something really positive on the fiscal policy front. The AI story hinges on a continuous stream of positive narrative. We're just trying to find other things in tech. You could have a very bumpy bus. This is Bloomberg Surveillance with Jonathan Ferro, Lisa Abramowitz, and Annmarie Horden. Live from New York City this morning. Good morning. Good morning for our audience worldwide. The second day of Bloomberg Surveillance.
Starts right now. And your price action scores look like this. It's a bounce by a third of 1% on the S&P 500, following a three-day slide on the Nasdaq, up by three quarters of 1%. We've got some new levels in the bond market. The 10s and 30s, briefly the highest level we've seen going back to 2002. Likewise on Thursdays this morning, holding those levels. 10s 528, 35, 63 heading into this. Later this morning we get some jobs data for you: jobless claims in about 19 minutes' time, followed by the ISM at 10 a.m. Eastern time. This is a really important data point Lisa talked about at the very beginning of this week. This curve had been flattening. The move changed after we got a hot PMI last week, and we've been looking for this output data this week to see if it validates, reinforces that message we got from the PMI a week ago.
Yeah. Ultimately, even though benchmark yields — I'm talking about the expected trajectory of Fed funds — the two-year yield have been rising considerably. There has been ongoing strength perceived in the economy, even though the underperformance of the Russell 2000, the S&P at equal weight. And a real question here is how sensitive is this economy to Fed rate hikes and to additional ones down the pike. And ultimately the yield curve steepening seems to suggest not as sensitive as in the past. And to your point, we've seen the biggest five-day steepening in that 2/10 curve going back to April of 2025. That is Liberation Day. That was the concerns about the fiscal trajectory, but also some policy uncertainty in the United States. The issue, of course, when you compare this to Liberation Day is Liberation Day clearly got this administration worried and the president came out and actually reversed course. There's a lot that's out of their control right now. We've talked about that a number of times. Now everyone's concerned about the deficit issues. Julian Emanuel, the stock guy, mentioned the debt ceiling debate — bonds as well, as you mentioned — he mentioned the debt ceiling debate next year, which a lot of people who watch the government, that's why they care about the midterm elections. Who's stocking up and what are they going to be asking for? What handouts potentially to raise our debt limit. And of course, the war in Iran. We all thought, at least listening to this administration, that this would have been quicker and then he would have come to a deal. At this point, we're five weeks away from the midterm elections. There's no deal in sight. The deficit is always going to be a factor in the conversation. I just said the greatest counterpoint to the deficit concerns right now is the performance of the US dollar. Mentioned that a few times in the last — our best months since June. So what are you seeing elsewhere? Are you starting to see rates bite into this economy? I think that's a key question. Coming into this month, I would say starting to see in the equity market is starting to sit in banks, and we can get into what's really happening with banks a little bit later this hour. It's not just set in small caps, and you're starting to see it in high yield. And I don't think anyone should really underplay what's happening in high yield right now. You can make the case. We've seen supply. It's a big supply. SoftBank talked about a repeat in the last week for high yield IGA. Paramount, another factor as well early this week. But to see that spread widen to the extent it has done in just a single week — and in a week with higher, wider by almost 50 basis points — I know the levels are still pretty tight. Primo, you've covered that market for a long, long time. When you see a 50 basis point spread widening like that pretty quickly, it usually signals something's happening. Usually this is the canary in the coal mine. Some people said, well, it was quiet for a long time. It was actually the biggest argument for a risk-on move in stocks, which is the bond market was performing. The fact that we've got the steepest widening over the past seven sessions, also going back to Liberation Day, has to be something people take note of in a time of competition for capital. If you don't have a business model that is as worthy, you have to think it's going to really stress them out. If they have to go to a borrower or a lender and say, hey, do you want to let me money in there? Like, uh, I don't know, I can lend Paramount for 9% yield. I think I'm going to go with them. Access to capital is increasingly uneven. Maybe this is the objective of the Federal Reserve right now. Maybe this is what they want to say. We'll catch up with an official later this morning. We can ask Neel Kashkari about that, the Minneapolis Fed president. Is this the objective, do you think, type of financial conditions from here? Let's get inflation back to talk and your words in a timely manner. Yeah. The issue is, is it a lot of the inflation components are outside of the hands of some of these consumer-sensitive issues. I do wonder, though, if the aura sort of read through for the economy. I love the idea that the kind of reader for your finger is the health, is the health of the pipeline, the health of just how quickly inflation can go on, whether that actually does start to slow some of these price gains coming up. This sour stew. Kaiser of Citi as stocks look to defy elevated yields once again. We'll catch up with the Minneapolis Fed President Neel Kashkari on the potential for another rate hike later this year and the US Trade Representative, Jamison Greer, as global trade tensions persist. We begin this hour with tech fueling some equity gains just about as bond yields hold near multi-decade high. Stuart Kansas City writing stocks shrugged off high yields and wider credit spreads thanks to large-cap growth leaders. Stewart joins us now for more. Stewart, good morning.
Hey, good morning. I expect that to persist this month at 3 to 4. We do, we do. I think the biggest misnomer out there to me is that equities aren't getting impacted by higher yields. I mean, equities are clearly getting impacted by higher yields, just not at the S&P index level. You know, you mentioned Russell — Russell underperformed the S&P by a thousand basis points last quarter. You've had — we, you know, we credit companies underperforming, utilities have lagged. Real estate's lagged. Insurance has lagged. So there is a lot of impact there happening. It's just not happening at the, you know, Nasdaq and S&P cap-weighted indices because of the level of earnings growth that we're seeing in those areas.
You mentioned small caps. We've talked about banks repeatedly as well. Do you think banks are being hit by the right story or something else? What is it?
You know, I was a little bit surprised with how banks have performed. You know, given the rate hiking cycle. I think a lot of that probably boils down to lower trading volumes, a little bit weaker capital market activity, at least in the announced space as well. I did become a consensus long, so I think positioning has worked against it as well. So rates may be playing a bit of a role there, but I think there are multiple other headwinds kind of getting into the bank sector right now.
You know, one thing that people keep pointing to is the comparative ratios between bonds and stocks. And they're starting to look increasingly favorable for bonds. I'm thinking, for example, of the 10-year yield versus the S&P 500 earnings yield. And it's the highest going back to 2002. At what point does the bond universe start to become a competitive asset class with stocks in a more material way?
Yeah, I mean, I guess the question is at what level is that? You know, a few months ago people would have told you it was at five. Now they're telling you it's at six. So it's kind of a little bit of a moving target. Um, you know, clearly, as you mentioned, credit spreads are widening. But even, you know, I think a high yield, you know, total yield is like eight, eight, eight, 8.25%. I mean, it's attractive, but is that enough to get you out of equities into high yield during a rate hike cycle? I'm not sure that's necessarily the case. And you're also in a situation where it's a little bit abnormal that earnings growth is behaving like we're coming out of a recession. Right. Just the level of growth. And I think that just creates a very high bar for people to rotate out of equities and into bonds, especially if bonds are getting volatile, which is another thing we need to keep an eye on.
So are you actually seeing the next couple of months as being positive right now for maybe even some of the more beaten-up areas of the stock market, like Russell 2000 or equal weight?
Uh, I don't think we're — I'm not quite there yet. I'm Russell 2000, equal weight. I think people are sending you a pretty market, sending you a pretty clear story of where they want to allocate capital, given the concerns about AI spending and the concerns about rate hike cycles and large-cap growth. So I think for the time being, that's where you want to be, particularly as earnings, you know, start to get closer because this AI story has become a PR nightmare almost. Right. And I would expect those companies to come out very aggressively and kind of defend the spending and defend the benefits to humankind. You know, from all of this investment. If you rewind to last quarter, the concern was return on invested capital. And, you know, you had the CEO of Microsoft on X defending return on invested capital. They understand the narratives and they understand what the narrative is today. And I think they're going to pretty aggressively try to defend that.
I feel sorry for the guys on Wall Street right now going into outlook season, because this is when you start to write your outlook for the next year, and they get released going into November and slightly beyond, because you've got to have in there some kind of base case assumption about what's going to happen in the war in the Middle East. Time has done an interview with the president of the United States. They've just released the transcript of that interview. There's a couple of lines in there about what the president may or may not do after these midterms have wrapped up. The question was, are you going to ramp up bombing after the midterms? As reports of that, the president said, quote, possible. Then the interviewer pushed back. Are you considering that? I can't tell you that because, look, you know, you're asking, where are you going to bomb. Sounds like it's a consideration for this president, and he has maintained a number of times when he thinks about the war in Iran, he's not thinking about the midterm elections, even though he knows it is putting strain on consumers' pocketbooks when it comes to higher diesel prices and higher gasoline costs. Some commentary in there as well on data centers and the Anthropic CEO on interest rates. All the same old stuff on the interest rate side of things, on the outlook. You're doing the tactical stuff for the rest of the team, trying to look into 27. What are they thinking about right now?
I think ultimately, just — I hate to say it — it boils down to earnings growth. You know, earnings has been the tentpole that sort of held this up. And you have earnings growth on one side. You have higher yields on the other. When you're growing earnings, let's say 30%, it's easy to ignore higher oil and higher yields. I think the question getting into next year is if that earnings growth decelerates down into the mid-teens, let's say, is that enough to, you know, continue to offset rates.
So you're in a horse race or a balancing act here between earnings growth and higher yields and how that's going to affect it. The so-called second derivative. Do you think it matters? Is it material?
Yeah, I think it definitely matters on the earnings side. It matters on the CapEx side as well. Right. I mean, it's — we have trillion of CapEx. You know, for the bank is forecasting next year, you get up to 4 trillion by 2030 almost. But that growth rate is materially declining. And you know what you're seeing in large-cap tech as well is a lot of good news is priced here. You know, I mean, Micron earnings last night, the numbers were very, very impressive. The stock had a very modest response. And that's happened. We could make a list of probably a dozen of these stocks that have hit home runs on the numbers and not seen the stocks rebound.
So it doesn't matter. I mentioned the president's commentary on interest rates. He says in this interview with Time that higher rates are hurting the economy more than inflation is right now. And Lisa, you keep saying the same thing about Kevin — Kevin Warsh, the Fed chair — that he doesn't blame him for higher rates. He's trying to make this argument that it's someone else on the Fed board that's leading this effort, even though we've just seen a chorus of Fed officials saying precisely the same thing about what's required from policy.
That's why I think that it was so interesting to hear his commentary on former Fed chair, the Fed governor, uh, Jerome Powell, given the fact that he's reiterating his calls to step down now using the investigation into the renovations of the Fed building as one excuse. I just wonder how much this is getting priced in with slightly higher yields due to policy uncertainty and concerns about just how much political pressure there's going to be on the board. A lot of speculation has been that President Trump is going to try to reshape the Fed board with some of his own people. I mean, these are the concerns. And how do you sort of price that? It's sort of this intangible that's out there.
Never say the quiet part out loud. This from the president: certain levels of inflation will help pay off the debt. People have always assumed that maybe that's the end. Can you inflate this away? But it's not the kind of thing you want to say out loud at this point.
And I think, yeah, although it's not the right thing for a lot of people and sort of individual consumers, a lot of people, markets have accepted this. They said ultimately, if you have growth at this level, nominal growth at 6%, real growth — if you take out inflation at 3.5% — you can actually achieve some sort of deficit reduction if you don't increase spending. It's a pretty big if. Nonetheless, that's not something that's going to be popular.
When the interviewer asked about, do you still have confidence in Kevin Moore, the president, you know, goes on to say it's the people around him that's doing badly, as you mentioned. We said, look, our nation is going through a growth explosion like no nation has ever seen. We're blowing through the interest rates. We didn't have to. It would be great. Almost an admission he understands why the board had to hike at the prior meeting.
What he said about growth is dead on. I mean, nominal GDP red hot driving yields higher. Remember, that's been a major feature and I think it's due for much of this year. You can make the argument that's why we've seen higher yields and higher equity prices. We've got a boom in nominal GDP underpinned by monster CapEx cycle. I mean, look, look at the 10-year yield. It's up 110, 112 basis points here today. 100 of that is real yields, 10 or 12 is breakeven. So this has been less a breakeven story, that has been a growth story, and we set the 10-year point. And that's why equity markets like it. When you're talking policy uncertainty, deficits, etc., you're talking third-year yields. And actually for equity markets, I think Thursdays are much more dangerous at this point.
I think they have much less ability to influence 30-year yields, number one. Um, and number two, I think it's being driven by things that are sort of negative long-term. If you believe you're getting this big CapEx spending boom and it's going to drive efficiency gains in productivity, and that's pushed your, you know, neutral rate up a bit and that moves the 10-year yield up, that's great. And to the 30-year point, I don't think they're going to talk about actually dealing with the deficit until Social Security runs out of money. Like, I think it's going to take something that extreme for them to actually make changes. If you go back to 2011, I mean, that was the type of stuff we were dealing with with sequestration. A lot of your younger viewers won't even know that word, sequestration, right? So I just think the 30-year yield is a lot harder to deal with. I think the fact that the Treasury is talking about buying back actually makes you more worried, not less worried. And you also have global spillover concerns, which they have almost zero ability to deal with. So I just think they have a lot less influence on the supply-demand dynamics and the deficit at the long end than they do over the short.
It's worth pointing out that verbal intervention on buybacks was 40 basis points ago. We're in the 520 standard. We're in the 560s this morning on Thursdays. Arguably they did more damage because they came in and they didn't have a bazooka of any type. And it just pointed to the fact, what kind of weapons, what kind of ammunition do they have to combat this? It's good to see. Thanks for being here, Stuart Kaiser. They're at Citi breaking down the tactical moves that you are looking for in this market. Let's give an update on news worldwide this morning with your Bloomberg brief. Vonnie Quinn has more. Hey, Vonnie.
Hey, John. Thank you. The UAE is opening an investigation into the incident aboard the flydubai flight, where the co-pilot allegedly stabbed the captain. The Wall Street Journal reporting authorities are examining whether terrorist activity played a role. Passengers stormed the cockpit and another pilot took over controls, landing the plane safely in Saudi Arabia. Come on, Skydance says former Mattel chief on kites will become co-CEO alongside David Ellison after it completes its acquisition of Warner Brothers. The company say they expect the merger to close on October 6th after approval by a California federal judge. New York Yankees advancing to the American League Division Series after dominating the Boston Red Sox in a two-game sweep during the Wild Card round. The Yankees will face their AL East division rivals, the top-seeded Tampa Bay Rays, in a best-of-five series starting Saturday in Florida. And that is your Bloomberg brief, John.
Vonnie. Thank you. Thank you very much. More from Vonnie later this hour. Up next on the program, backing off plans for an export ban. Mr. President, have you decided to ban diesel exports? I'm thinking about it. I speak to Chris and Doug about it a lot. They sort of think it'll help diesel, but it might raise the price of other things. And I think we're in a good place because oil prices are going to start to come down. Up next, Libby Cantrell of Pimco for life from New York City this morning. Good morning. Douglas claims later this morning, 8:30 Eastern time. After that, the next data point, the ICM. Look for that really hot PMI last week. Let's see if we see the same thing in the ICM data at 10 a.m. Eastern time. A lot of Fed speak, including this guy right here, Neel Kashkari, Minneapolis Fed president, joining this program in studio in about ten minutes' time. Equity futures on the S&P 500 just about positive into all of that. Higher on the S&P by 2/10. On the Nasdaq by a half of 1%. And this move in bonds continues to the long end creeping up, yo, to the long end 30s up a basis point almost 2 to 564. And a savannah this morning. The pressure on the White House backing off plans for an export ban. Mr. President, have you decided to ban diesel exports? I'm thinking about it. I speak to Chris and Doug about it a lot. They sort of think it'll help diesel, but it might raise the price of other things. And I think we're in a good place because our prices are going to start to come down. Tremendous oil is coming out of the hormones right now. We have total control. So here's the latest this morning. Diesel holding their all-time highs as President Donald Trump signals he might be calling on the idea of an export ban, acknowledging concerns the move could drive up gasoline prices. Kendall has the latest this morning. Hey, Tyler.
Hey, John. Well, President Trump said he's still considering the option, though conceded there could be some unintended consequences here. Seem to indicate that he's been listening to some in his administration, like the U.S. Energy Secretary, Christopher, right, who has previously contended that a diesel export ban could push prices higher. And energy analysts say while initial costs may fall if refiners ultimately can't export their supplies and they would be forced to cut output instead. Wright has suggested that the administration wants to work with the industry to boost supplies, and also teased earlier this week more supply could soon be coming to market from Europe. People familiar with the matter tell us the administration has been privately encouraging some European allies that rely heavily on U.S. diesel to release some of their inventories. The administration is also said to be weighing a pause on diesel excise taxes. Right now, the national average for a gallon of diesel is at $6.38, still hovering near the records that were set last week. And John, that is hitting red and rural states particularly hard as farmers sound the alarm about these higher costs in places where Republicans are now defending tougher than expected seats, including in Nebraska and Iowa. President Trump there just said that they are making progress when it comes to Iran. But I will point out in this interview just released by Time, he did say that we could expect some ramping up of bombing after the midterms, that that is still possible when it comes to the conflict.
It's on a counter with the latest round of thank you, Libby of Pimco, with this to say on the outlook, writing, President Trump is mostly constrained in terms of what he can do on affordability with the bigger, more decisive actions only occurring if Congress acts. Libby joins us now for more. Good morning.
Is the diesel export ban proposal dead? Is that finished?
I think for all intents and purposes, I'd let — there are a lot of folks who've been close to the White House, who've been in the Oval Office arguing that there are these unintended consequences, as Tyler just talking about. And we think that maybe you could see some import restrictions on diesel. So maybe that gets you sort of halfway there, sort of helping, um, some of that, these farm states, obviously, where they're these, you know, these the Senate races. But, um, it seems like the full-on export ban is probably at least on ice for now.
Do you think it's going to hurt the candidates in Iowa?
Um, well, you know, I think this is the — this is the big issue is it's — I think the broader, the broader issue here is, is this is too little, too late. Right. I mean, all of these actions, I mean, lots of folks are already have already started actually voting. Um, so does this actually move the needle, you know, this 11th hour? I think that, you know, obviously, that the Iowa Senate race is one of the most contested, where basically polls are showing that it's effectively a toss-up. And could these things sort of matter at the margin? You know, maybe. Um, but voters, as we've talked about, are really upset, right? They're really upset about gas and groceries, health care and housing. I data centers. And I think that at this point, um, any of these things are going to be, I think, viewed in the voters' eyes as just — it's just Band-Aids and not really moving the needle.
As well as 7% mortgages. This is a president that was going to have potentially a national crisis on housing. Try to loosen the housing market. Do they have any means to address this?
Yeah. So one of the big tools, and we've talked about this as well, is that they can use is, of course, they can direct Fannie and Freddie, which are still part of the government, still in conservatorship, uh, to buy more mortgages. President Trump had announced a big, splashy announcement back in January, before the Iran conflict had started, that Fannie and Freddie would be buying $200 billion. For what we have seen, they still have a lot of that to go. Um, so they have done some buying. Uh, they had just retreated from that. We think they are — they're now active in the market once again. I think our expectation is because this is a unilateral lever. Congress does not have jurisdiction over here. This is something that the White House can do by themselves. Um, but they will likely do this. And, of course, you know, pressure on the mortgage market is something that we all people, I'll see, you know, not necessarily. Are they in the mortgage market? Not necessarily. Lots of folks are have, uh, have lower mortgages.
As she looks at Lisa. I'm sorry. Lisa.
