Bloomberg Surveillance TV: October 2nd, 2026

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1:20Seema Shah: Bloomberg Audio Studios. Podcasts. Radio. News.

1:29Michael Haigh: This is the Bloomberg Surveillance Podcast. I'm Jonathan Farrow, along with Lisa Abramowitz and Anne-Marie Hordern. Join us each day for insight from the best in markets, economics and geopolitics. From our global headquarters in New York City, we are live on Bloomberg Television weekday mornings from 6 to 9 a.m. Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen. And as always, on the Bloomberg Terminal and the Bloomberg Business App. We begin this hour with stocks rising as yields pull back from 24-year highs. Seema Shah of Principal Asset Management writing for bond markets.

2:01Michael Haigh: Today's jobs report could be as much of a test for the Fed as a test for the labour market. Seema joins us now for more. Seema, welcome to the programme. Let's just start with base case expectations. What are you looking for at 8.30am Eastern time?

2:14Jeffrey Rosenberg: So we're expecting about a 65k number. We're expecting wage growth to stay pretty stable at about 0.3 % and unemployment to stay at 4.1%. So this is, to our minds, we're expecting a pretty boring report. But boring is exactly what the market wants.

2:28Michael Haigh: We saw some heat in the PMI last week, Seema. We did not see the same heat in the ISM. This is the question, I think, a key question for Fed officials. Is the economy just strong or is it strengthening? Do you have a bias towards one versus the other right now?

2:42Jeffrey Rosenberg: We think that the economy is strong. We're not really talking about strengthening. The economy has done incredibly well this year. And a lot of that has been down to consumer resilience. Of course, we know that the AI investment story is still there, and no question about the strength continuing on that front. From the consumer side, it has had a lot of help with the tax refunds coming at the exact crucial moment. As we get into approach to 2027, some of those support handles are starting to drift away. And of course, you've got the affordability issues with regards to price pressures, borrowing costs.

3:15Jeffrey Rosenberg: So that's where we can see a little bit of weakness. But I just want to emphasize that we're not expecting a significant slowdown. This is just a slowing towards trend growth. But I would say that this week, for the first time in a long time, the kind of conversations I've been having has started to center around, are we looking at a kind of a deeper slowdown than certainly what markets have been anticipating until this point? So it does feel like the narrative is shifting a little bit with regards to economic concerns.

3:42Seema Shah: How would you express that as an investor? Let's say we get a disappointing labor market report. Do you buy bonds? Do you sell equities? How do you sort of situate?

3:52Jeffrey Rosenberg: It's a really interesting story. So if we were to get a disappointing labor report, when I say a disappointing, I mean a lower number in payrolls, a slowdown in wage growth. Actually, the equity market is going to like that. It's going to feel like, look, as long as things are not terrible from an economic front, we know that the Fed maybe is not going to move as quickly expected. And then you're going to see a bit of a pulldown and bond yields and the equity market starts to do better. But as you're to your point before, we are seeing some small, very, very early signs within the credit market that there are tensions building.

4:25Jeffrey Rosenberg: So this is a little bit of a pivot towards some of the safer assets whilst keeping the equity market exposure going just as.

4:33Seema Shah: Michael Hartnett over to Bank of America had a note overnight. He came out and said that he expects people to be jittery around riskier assets until the dollar peaks. We have had the longest streak of strengthening going back to the beginning of 2025. He recommends buying the humiliation and go in and buying bonds. Are you getting to that point of buying the humiliation?

4:55Jeffrey Rosenberg: It's going to be impossible to call the top on this. Trying to get the timing perfect is a false game. It's not something that we want to do. We think that, look, if you were to see a continuation in strong growth, Price pressure is still very evident. There is potential for bond yields to move a little bit further, absolutely. But from a technical front and from a positioning front more specifically, it does feel like we're getting close to the peak from a yield perspective. And certainly so from our side, this is probably the time that you want to be increasing your fixed income exposure. But importantly, be focusing on some of the more quality assets, the safer assets within the fixed income space.

5:33Michael Haigh: Lisa, as always, I think you're asking the right question with regards to the bond market right now. what kind of data at 8.30 Eastern time validates the backup in yields? The ICM certainly didn't validate the backup in a two-year. Elsewhere, long through the belly of the curve as well. And I'd also ask, and I think you alluded to it too, for much of this year, good news was good news. Good news drove up bond yields, but that was largely a reflection of good news, and the equity market ate it up because earnings were so powerful. Is good news still good news with yields at these levels and starting to move to a more exponential wave?

5:59Michael Haigh: You're looking at the charts. They're almost vertical, some of these moves. Yields, not just yields, but also spreads, Germany, France, same thing.

6:07Seema Shah: Arguably, somebody might say fine news is good, but great news is bad. Ultimately, you don't want to see, to your point, and I think that you've really raised this again and again, and I think it's such an important point, strong versus strengthening.

6:17Michael Haigh: There's a difference.

6:18Seema Shah: There's a huge difference. And if the data shows resilience, but not necessarily strengthening, that's going to be good news. But if it shows a sense of strengthening or this idea that wages are starting to pick up, suddenly that becomes punitive to risk assets that are highly dependent on just how far these bond yields will go.

6:33Michael Haigh: That's the difference between a Fed shunned emergency and a Fed shunned a little bit more patience. And what we got from Jefferson and Williams, certainly this week, spoke to a Fed shunned a little bit more patience, the idea they can take their time. You get hot wages later this morning, not saying you will or won't, but if you do, just a basic scenario, if you do, you get a very different speech to the stuff we got from Jefferson and Williams in the last week.

6:54Seema Shah: Yeah, although to the point that you were just making, it's unclear what's really been moving yields. We've seen yield curves steepening in a significant way over the past couple of sessions, even as you get the sense that Fed officials are moving away from this. So ultimately, how much is this really about the Fed? And how much is this about something else that really the Fed doesn't have control over? And this, I think, is really the sort of existential reason why people aren't willing to step in just yet.

7:16Michael Haigh: Sima, can we finish on something else? We mentioned high-yield credit at the top of the program. We're having a back and forth on maybe some signs that it's starting to bite in corporate credit. Spreads are wider for eight consecutive days stateside. Sima, that's a move of more than 50 basis points. Against that backdrop, typically stocks would struggle. What's the relationship now between credit and equity?

7:36Jeffrey Rosenberg: So, I think that the general relationship between equities and fixed income has shifted a little bit. But I think that the other point is, which you have said, but it's really worth emphasising, is that, yes, you are seeing spread widening. And these are some signs of weakness potentially bubbling. But this is one, it's very, very far from record highs. The other thing is, is that, you know, from a fundamental perspective, we're not really worried about fundamentals. we can see that the corporate perspectives are still pretty strong. So to us, this is a little bit more of a digestion issue rather than a fundamental issue.

8:09Jeffrey Rosenberg: And so from that perspective, it does mean that equities, the outlook still stays positive, even as you see a bit of a spread widening in high yields. So that's the difference that we're starting to focus on.

8:20Michael Haigh: Stay with us. More Bloomberg Surveillance coming up after this.

8:30Seema Shah: views aren't enough. Join me, Brad Rogoff, and my team at Barclays Research as we debate what's driving markets on the Flipside podcast. Find the Flipside wherever you get your podcasts. With ChatGPT, you can do more than get answers. You can get things done. When you're running a business and looking to expand, you need a clear view of the landscape before making any decisions. ChatGPT can help you prepare. Connect your Google Drive, point to relevant files and reports, and ask chat to research competitors, industry forecasts, and market signals. It can turn the findings into a strategic deck in your team's template that you can review before presenting to your leadership team.

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9:24Michael Haigh: The big push continues then. The White House ramping up pressure on Europe to help ease the global. diesel shortage.

9:30Seema Shah: We know the prices on diesel are high. Our sense is it's a one-time spike. The Europeans, they're sitting on reserves of diesel. And our sense would be they should probably release some of these if they're feeling like they're having a spike in Europe.

9:43Michael Haigh: Momentum building to act. An EU spokesperson saying the bloc is ready to take action in the oil market if the IEA deems it necessary. Michael Haig of SogGen writing, global inventories are expected to remain unusually constrained until year end. The tightening is considerably more pronounced in Europe. Michael joins us now for more. Michael, welcome to the program. We've had this conversation now a number of times over the last month, waiting to see what kind of policy move the US will make. Can we just start with Europe? How much crude product are the Europeans actually sitting on at the moment?

10:11Seema Shah: So you have to break out two types of inventory. We have the commercial inventory and we have the strategic petroleum reserve inventory. So on the commercial side, Pre-war, Europe had about 400 million barrels of diesel. That has whittled down to about 360. So it's been a gradual grind down as Europe has had to try and source diesel from elsewhere other than Kuwait and Saudi Arabia. Now, when we're talking about action and forcing diesel out of the market and into the open market, out of inventory, it's the strategic petroleum reserve. Now, Europe's a very different situation than the rest of the world that mainly holds just crude.

10:50Seema Shah: Europe holds mainly products, so it does have crude in inventory about 175-ish million barrels. And it has a lot more in product inventory, about 270-ish on the diesel side.

11:03Michael Haigh: So a fairly decent cushion there. Michael, can you help us answer a question that the U.S. is ultimately asking? Why are they still sitting on it? Why hasn't it been released more quickly?

11:14Seema Shah: From the European side, because they haven't had to, quite frankly. So they're bringing down the commercial inventory ahead of the Strategic Petroleum Reserve inventory because they are getting imports, obviously not getting it from Saudi Arabia and Kuwait. We've had to replace that with more Indian and more Turkish imports. And, of course, the U.S. has very much ramped up its exports of diesel, not just to Europe, but to Latin America. And consequently, U.S. inventory levels are at incredibly low level, as are European. But I think that's what's going on. I think there's a notion that Europe has this product inventory.

11:49Seema Shah: The U.S. does have crude inventory, but it has a problem. It can't refine anymore because its refinery utilization rates are at 97 percent. And you can have as much crude as you want, but if you can't refine it, then there's no point. Michael, within Europe, how political is the decision to release these reserves? Emmanuel Macron, the president of France, is trying to convene a G7 leaders meeting as soon as possible. And he's proposing releasing some of these diesel stockpiles. Clearly, France is in the jaws of a real financial crisis and ultimately could benefit more from some of the inflationary inputs coming down.

12:23Seema Shah: How much do you see dispersion in European leaders about this? I would imagine there wouldn't be very much dispersion on something like this. The thing of having an SPR is to cover a lack of imports, not really to relieve price pressure, although we know that that's been done many, many times in the past and sometimes is effective and sometimes isn't. I think in this particular case, it would be effective. The amount of inventory that Europe does have on the diesel side, if you voluntarily release that and you allow the U.S. to rebuild diesel inventory, they export about 400 ,000 barrels a day to Europe.

12:59Seema Shah: That would help. If you released inventory from the SPR and used that to replace the U.S. imports, That means the U.S. could get its diesel inventories back to normal and above normal levels within 90 days. And Europe could still have a decent amount of inventory. So I think globally this would help petroleum prices to come down both within Europe and the U.S. and relieve some pressure on the bond markets. Michael, there have been reports of a possible escalation after the U.S. election in the Middle East. How long could potentially these inventories withhold prices at the current levels before there is a serious problem, before we reach tank bottoms, if there is a prolonged, ongoing and potentially even worsening disruption in the Middle East?

13:44Seema Shah: Yeah, so we have to separate the crude versus the products again here. Crude is managing to get through, and that's fine. But if you can't refine it, that's a problem. Of course, Russia's refineries have been hit by Ukrainian drones. They used to export three million barrels a day. Now they're importing 1 million barrels a day, so that takes it out of the product balances. Of course, utilization in the U.S. is at maximum levels. And previously, when we've had utilization at this level, you get unplanned maintenance. Most of the U.S. refiners that have planned to go on maintenance between September and November have delayed that to 2027.

14:18Seema Shah: So there will be some complexity there and some outages. And, of course, Middle Eastern refiners are still not producing at the rates that were back to normal. even if crude is going through at pre-war levels, products are not. So we are drawing down inventories globally. Taking out of SPR in Europe will temporarily relieve that. If we go into the new year and perhaps January and February and we don't have resolution, we're back to where we are, but just with lower SPR levels. So things will spike higher. So in my opinion, I think crude is going to have less of an issue than product and we can expect product prices to continue to climb after, say, a month of the SPR release in Europe, if that was to go ahead.

14:58Michael Haigh: Stay with us. More Bloomberg Surveillance coming up after this.

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16:41Michael Haigh: The jobs report coming in looks like this. A big downside surprise. 29K. The estimate was 90 ,000. Wage growth was the big figure that we were looking for. Brammo. Downside surprise there, too. Point three was the estimate. Point one was the number.

16:55Seema Shah: If you're looking for heat, they're not necessarily seeing the inflationary pressure. It was the lowest read that we've seen in terms of wage growth going back a number of months. This is one look. Does it take the heat off of this read. How much does it reemphasize the importance of October 14th and the inflation report that we get out then?

17:13Michael Haigh: Labor market wasn't driving this Fed. It was about whether we got new information about additional tightness that was leading to wage growth that meant this Federal Reserve had to hike even more. Don't see that this morning. Does it change the story for hikes from this Federal Reserve over the next few months? Probably not, right? Because they're still going to be driven and guided by what happens with inflation. So we're down to one inflation print again. Are we doing this again? Yeah, we are. Basically one print. Most important. October 14th.

17:35Seema Shah: Yeah, And ultimately, what we're looking for is just how much it's really bleeding out in terms of energy prices to the rest of the pricing.

17:41Michael Haigh: Stocks in reaction to this positive by 0.8 on the S &P. On the Nasdaq, by more than 1 % outperformance on small caps. Rally in the bond market. You'd expect to rally. That's what you've got. At the front end of the curve, twos down by six. Tens down by five with a bit of a haven bit in the mix with money coming out of the French bond market once again this morning. Jeff Rosenberg of BlackRock joins us now for some reaction. Jeff, first reaction, please. First take. What do you see in the jobs number?

18:05Seema Shah: Yeah, it's clear. You guys have covered it really well. It's a dovish report, a little softer across the board. And the market's reacting that way. We'd already pretty much taken October off the table. And as you guys have discussed, this is really not a jobs-driven bond market and Fed. It's much more on the inflation side. But if it were too strong of a report, then it would have added to that pressure to continue to hike and maybe to accelerate that. And obviously, we got the opposite today. So you push October off, December is squarely in the mix. They're kind of signaling they want to give you one of those.

18:43Seema Shah: A lot of it's going to depend, as you guys have highlighted on the inflation report, but also just on the trajectory here of oil and then the downstream, as Warsh has talked about, the distillates and the crack spreads, as important as the crude prices themselves.

18:57Michael Haigh: Jeff, October 14th, what kind of CPI number might just open the door just a little bit to the end of this month?

19:03Seema Shah: Open the door to a rate hike month end? To a rate hike. Yeah, you know, it'd have to be, you know, a lot stronger for that to be the case, particularly, Jonathan, as we've seen, you know, some recent inflation data that's been on the more positive side in terms of lower than expected. So I think that the other big issue here is just the calendar setup and the optics of hiking right in front of the midterms. I think they want to probably try to avoid that. And so it would have to be a pretty big inflation upside surprise, given the trajectory that we've seen recently.

19:41Michael Haigh: Jeff, the damage done to fixed income, how are you and the team thinking about engaging with fixed income given the rallies we've seen this morning, but off the back of some real destruction over the last several months, not just in sovereigns, not just in the US, but France too this morning, but also in credit increasingly in the last week.

19:58Seema Shah: Yeah, you know, it's always a two-sided story, you know, in fixed income, because as the yields go up, the bond prices go down. If you're holding that fixed income, your total return is taking a hit from the price returns. But your forward looking yield, your next marginal dollar gets more attractive. And that's been the big story here. Competition for capital, global interest rate increases, we're talking about what's going on in France, go back a bit and look at the changes in Japan, resetting what is the real interest rate back to a level that gives investors an opportunity to earn a real yield over inflation is an opportunity.

20:43Seema Shah: And so you balance between kind of the negative returns from prices and the forward looking increase in carry. When you add the widening that we've seen in credit spreads and the increase in interest rates, you're starting to get to a point where yields are getting attractive. And yeah, when you compare that to the equity market that seems to, over the last four or five years, only go up, that doesn't look so attractive. But I think when you take it in the context of what you can add to your portfolio for balance and diversification, these yields are starting to look more attractive.

21:17Michael Haigh: This is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics, and geopolitics. You can watch the show live on Bloomberg TV weekday mornings from 6am to 9am Eastern. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen. And as always on the Bloomberg Terminal and the Bloomberg Business App.

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