Bloomberg Surveillance TV: September 18th, 2026

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1:36This 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 mixed following their best day in more than a month. Nadia Lovell of UBS remaining bullish writing earnings, not the Fed, driving this market.

2:09Another rate hike would be a speed bump, not a stop sign by the pullbacks. Nadia joins us now for more. Nadia, good morning. Good morning. Some breaking news from you. Thank you for that. My Bloomberg is lighting up. Thank you. I really appreciate it. You deserve the love. Of course you do. Let's pack the birthday. Fireworks. Let's talk about this market. Are you expecting a pullback?

2:29Nadia Lovell: No, we're not expecting a pullback. Of course, you know, we've seen historically at the start of a hiking cycle that equity markets tend to struggle a bit. And so we do expect some near-term volatility. But at the end of the day, as we noted, it's really the earning story that's going to drive this market. and fundamentals remain really strong. Look at the most recent earnings season where we approach almost 30 % EPS growth. And when we look out for the rest of the year, we think that this is easily a year of 25 % EPS growth and next year 14%, so above longer-term trend. And so we think that that's what the market is going to anchor to.

3:05Nadia Lovell: Yes, we have seen some pressure already on valuation year to date. So think, as you noted earlier, a lot of this is somewhat priced in in terms of the increased rates and body yields, you've seen the multiple come in from 22 times at the start of the year to now 19 times. And yes, you could see some pressure on those longer duration assets and those housing sensitive sort of stocks, areas of the market. But ultimately, we think that this is a market, even if you get a pullback, it would be likely to be a shallow pullback. And we think that the earnings story is still robust to drive it higher.

3:38You described the glide path for earnings growth out to next year. Does the second derivative matter? Does the deceleration matter at all?

3:46Nadia Lovell: It does to the extent that you might not see 20 % upside to the market from here, but we're still looking for a healthy 10 % or so. We think that what's going to drive this market is earnest, it's not valuation expansion. And I think also the fact that you're seeing a broadening out of the earnest growth is quite encouraging and proves to be a healthier state for the bull market. So it's no longer just sort of the AI story, although that is still a key driver of earnings. You're seeing financials, you're seeing energy, you're seeing industrials. I mean, in fact, that you had industry, industrials confidence this week that was quite bullish on industrials.

4:28Nadia Lovell: And the recovery that you're seeing in the manufacturing cycle also gives us increased confidence in the earnings outlook. And that broadened out that we're continuing to expect. Are rate hikes helpful or hurtful to this equity rally if they are done in a predictable manner? I think if they're done predict, the market, as we know, this market likes a level of certainty. And if it's predictable that you're seeing sort of a 25 basis points increase from the Fed in a very methodical way, that's more easy to digest for markets. We know that the market doesn't like spikes in bond yields, particularly in the long end of the curve, which tends to have a larger impact on the equity market.

5:06Nadia Lovell: just given how debt is termed out. But if it's gradual, the market is able to absorb that, particularly also the wise rise. And, you know, you even saw from the Fed a slight increase in their growth expectations, right, over the next couple of years. And so some of this is not only inflation driven, but also the fact that you have the resilience growth. And in combination with that, we think that that's why the equity market is able to absorb these rate increase and continues to move higher. There's a theory here underpinning this that the neutral rate is higher. And part of that's coming from higher productivity on the heels of artificial intelligence.

5:40This also was the key idea that Kevin Warsh was espousing before he got confirmed to be the Fed chair. I'm just wondering how much you think that's where the earnings growth is going to come from, from the productivity boost outside of artificial intelligence-related companies per se and more in the broader index that's going to be adopting some of these tools.

5:58Nadia Lovell: Yeah, I agree with you, Lisa, in terms of that. Right now, the story is really in sort of the growth, the robust growth that you're seeing among the AI-related names. But over the longer term, we do think that that will also yield to the monetization of AI. Particularly, I mean, even look like areas of like healthcare, like the opportunity to monetize and bring down the cost for drug discovery can have huge implications for earnings expectations going forward. Also, I think even we touched upon industrials earlier, automation as well and what that can mean for margins going forward. So it is today the story, yes, is on sort of the build out of the system, but the monetization becomes even more important and those potential productivity gains and what that can mean for earnings growth over the longer term.

6:45Are those gains unique to corporate America or do you see that as a global equity story?

6:49Nadia Lovell: I think it's a global equity story, right? Because, again, yes, U.S. right now is leading in the forefront of AI. But reality is some of the supply chain sits in Asia and the opportunity in Asia to monetize. We're seeing, one can argue that the ability to monetize AI could be even greater in areas in Asia, particularly in China, where there are lower cost models. And the focus is on monetization, particularly among the consumers, that could also have implications. Out of interest, where does Europe fit in? It doesn't come up much in the conversation when it comes to enabling the technology. What about adopting the technology?

7:28Nadia Lovell: I think in terms of Europe, for us, Europe is part of the story in the sense that from automation, right? Europe is also at the center of that in the way that it can use a technology to drive automation. So I don't think that Europe is completely left out of this story. We actually do like Europe at these levels, right? Even though incrementally what we've been advising clients to do who tends to be over-indexed to U.S. is to add some to Europe because you're seeing a recovery in the manufacture cycle. We also know European industrial is very much tied to that increase in defense and also automation.

8:05Nadia Lovell: So we do think that there are select opportunities in Europe, and Europe as part of the overall diversification story. Stay with us. More Bloomberg Surveillance coming up after this.

8:20If you invest, lead a business, or allocate capital, one-sided views aren't enough. Join me, Brad Rogoff, the Global Head of Research at Barclays, on the Flipside Podcast. Each month, I go head-to-head with one of our expert analysts on my global team to debate the economic and market issues that matter most. From inflation and AI to equity and credit trends, each debate helps you see what headlines might miss. Find the flip side 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.

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9:31So here's the latest this morning. investors pricing in further Fed tightening as officials commit to continuing to find inflation. Aditya Bhave of Bank of America anticipating two more hikes this year, writing, a Fed that does not think policy is restrictive should keep hiking until it finds a point of restriction. We expect rates to keep moving in this direction. Aditya joins us now for more. Aditya, good morning. Good morning. Thanks for having me. Do you think this guy is more hawkish, this guy, of course, being the chairman of the Federal Reserve, more hawkish than the rest of his committee right now?

9:59He's probably more hawkish than a lot of the committee. And I think the way he's framing it makes sense. So reasonable people can disagree as to where underlying inflation is, whether it's at 2 % once you take out the one-offs or we think it's in the mid to high twos. Reasonable people can disagree as to where the neutral rate is. But what we do know is that the nominal economy is booming. So if there were an opportunity to get that last mile done on inflation while minimizing the risk of recession. This is it. Seize the day. That's what he's doing. You've got a calendar up and you're like one of the few guys I know that's got October circled.

10:37Yes. So few others do. They just think the politics matters more. Why do you have a different view? Well, October is 60 percent priced. From our perspective, the first hike is really momentous. That's where you potentially insert yourself into the political conversation. Once you've done the first hike, the second one is more or less BAU. So if they hadn't gone in September, I would have said, okay, they probably start in December. But if they go in September, then I don't think the midterm stopped them in October. At this point, how far do you think they have to go? There is some expectation.

11:07You heard that from Patrick Harker, the former Philly Fed president, saying he doesn't think it's going to be a very long cycle. This is just slight tightening. Do you think they have to go substantially further? We think 75 bps. But the The sooner you do it, the more likely it is that you can stop at 75. That's why we have the 75 back-to-back September, October, December, and then they're done. And the reason we think it's 75 is that's the typical size of a mid-cycle adjustment. It gets you back to where you were earlier last year. And it's also kind of consistent with the idea that the inflation overshoot for us, the underlying inflation overshoot, it's about 50 basis points.

11:44And a Taylor rule would tell you, OK, you need to do 75 to offset that. You know, I want to go back to something that Jeffrey Gunlock said earlier this morning, where he was, overnight, where he was talking about in the next downturn, you could see yields go up, not go down, because of the concern about what it does to fiscal balance sheets. How much do you see central banks as buying themselves space on the monetary policy side when times are good ahead of that? How much do you think that they could be potentially effective and more effective the more they raise rates now? Right. So I don't know that that is exactly their motivation, but that has been one of our arguments for a while as to why rates should be higher.

12:24OK, you're hedging against a small increase in the unemployment rate, but what you're doing is you're losing some dry powder. So I think building that dry powder back up could actually be quite beneficial. And I think what you've seen in the market, the market response encourages the Fed to do more. Right. Equities are up. Bonds are roughly flat, but they certainly haven't sold off. So this is all good news for the Fed. I remember that phrase, an ounce of protection is worth a pound of cure. Right, but it goes both ways. It goes both ways. And it feels like we're in the complete opposite situation now, compared to where we were.

12:56Absolutely. That's the difference. I remember when we had that conversation, Vice Chair Claret at the time was talking about that. We had limited space. We're at 1%, 2%. What are you going to do until the next downturn? We'll make sure we don't have one. It's probably a good idea. Cut a few times now and make sure that you don't have that problem further down the road. If it was that different way, completely reengineering that, Brammo, into this, to Aditya's point, if you go 75 now and you do it quickly, it means you don't have to do more over a longer period of time. If you have the economic space and you have potentially inflation that still is running hot and you have a market, to Aditya's point, that essentially said, go for it.

13:31And if you want to go more, well, we are 100 percent on board. Why not walk through? So the economic space point is also important because some folks say that, look, when the supply shocks roll off, you'll basically be at 2%. And so there's no need to hike. Well, what happens when the supply shocks roll off in a nominal economy that's booming? You create room for more demand-driven inflation. We've noticed historically that it's very, very difficult for core PCE to run at or below target as long as nominal consumer spending is running above 5%. It's like this magic line, right? We're running at 6.3 % right now.

14:10And the third quarter looks really good as well. So they probably need to get us back down to like 5 % or 4.5 % to have any chance to hit the target. Just before you go, Aditya, are you expecting to see some wage inflation anytime soon? That's the risk. So when I said earlier that 75 will be enough, that's assuming that the labor market remains stable but doesn't start heating up again. We're seeing the unemployment rate fall. If that goes through 4%, I think the risk rises significantly that then wages pick up. And then you're talking about a full-blown demand boom. I mean, wages would be picking up in an economy that's already doing so well.

14:45Then you're talking about a demand boom. Then you're talking about rates going back to potentially 5%. Stay with us. More Bloomberg Surveillance coming up after this.

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16:32Let's keep it on some finance ministers. Bloomberg's Olly Crook joined us now from the meeting of European Economic and Financial Affairs Ministers over in Dublin. He has a special guest. Hey, Olly. Yeah, that's right, Jonathan. Here we are in Dublin with a number of different finance ministers and central bank governors here across Europe to discuss, of course, that inflation shock we've seen across Europe, but a great many other issues. And we're very pleased to be joined now by the French finance minister, Roland Le Scur. Thank you so much, Minister, for joining us this morning. One story I'd like to begin with, which will certainly be at the center of attention, is the bond market.

17:01It's a global story. We've seen the sell-off. We've seen yields rise. But in Europe, there is no bigger spread between Germany than France at the moment. There's about almost 100 basis points spread between France and Germany. The bond market is saying that the weak link in the eurozone economy is France. Is the bond market wrong? Well, yeah, I wouldn't go as far. First, you said it, and it's important to record it. It's a global story. Rates are on the rise in the U.S., in France, in Germany, Italy, and elsewhere, including Japan. There's a lot of paper being issued at the moment. The U.S., Germany, France.

17:31Germany, it's new because they're now spending on defense and the private market as well, hyperscalers and all. So there is a rise in the tide for everyone. There has been a bit of a rise in the spread, as you said, between France and Germany. This is mostly linked with the fact that we have budgetary issues. We are tackling them. We announced yesterday 54 billion spending cuts for next year. It's a big announcement. It's a big effort. But I think it's important for us to tell the market we are aware of those deficits. We also are aware of the political situation we face with. It's not an easy task to get that budget adopted, but we're going to work on it with an ambitious budget.

18:11So talking a little bit about that budget, you've also said yesterday that the deficit this year will hit 5.4 percent. That is higher than had been previously. Is 5 percent next year really a realistic goal? Is that something that's credible for the market? Yeah, it's both ambitious and realistic. You know that the natural trend, because of the rise in interest rates, we used to borrow at 0%. We're now borrowing at 4.5%. So this has an impact, I would say, mechanical on the deficit. The rising age, demographics, trends in social spending. So, you know, on the 1st of January, we start with, you know, pretty heavy weight on our backpack.

18:46And we are working on this to make sure that we do the spending cuts to make sure that we lower our deficit. This year's small rise in deficit was linked with the international shocks we've had. There was also massive heat waves in France, which are the macroeconomic impact. We've actually contained expenditures, but fiscal receipt hasn't been fully in line with what we hoped for. And therefore, the small discrepancy in deficit. But yeah, I think we have an ambitious target for next year, but it's certainly doable. And we're going to work on this in Parliament from a couple of weeks on. And thinking also about the long-term target, which is 3 % by 2029, is that something that we can kind of throw out at the moment?

19:27No. I mean, we shouldn't throw out the anchor of 3%. As you know, that's a presidential election taking place next year. And I think the candidates and then the elected president are going to have to tell us how they go about it. This is not my job. I want to make sure that the next few months we kind of clean the taking-off strip so that the planes can take off from May on once the new president is in charge. So we're doing our share of the work. I think we're doing it in a reasonable, serious, credible way. And then, yes, the candidates are going to have to explain the markets as well as the French people, what they're going to do about public finance going forward.

20:04But 3 percent is not a magic number. 3 percent is the number that stabilizes debt. So it is a target we should all have in mind. And to focus just on that spread question, because, again, it has been a very big focus for the market. I mean, SockGen says that could hit 120 basis points between France and Germany. Is that where we start to sort of talk about crisis territory? And is the main lever that you have to pull, is it the budget? Is that where it's? I've worked on markets 20 years before I became a finance minister. I know what you do with those forecasts. And I know what they're there for.

20:33My job is to reassure the market on the fact that we can do it. We're doing it. We've already done it for the last couple of years, despite, you know, international crisis and quite a challenging growth environment. Next year, what we're announcing is quite massive. You know, it's an important cut in social, state, and local authority spending. And we are suddenly, you know, convinced that we can do it. And I don't want to, you know, the idea, maybe if I can answer your question that way, is to avoid any financial trouble. To make sure that we're in the path to credibility, sustainability, and, you know, reality.

21:10And one of the places that Europe is looking for growth is potentially new trading relationships. Potentially something more than a trading relationship. We're talking about associate membership to the European Union for Canada. What does that mean? You're in a particularly singular position to sort of opine on that as a Canadian. I lived in Canada for 10 years and I acquired the Canadian citizenship when I was there, even though I've been French for 60 years. I mean, Canada is a great country. Canada has been enjoying a closer relationship with the EU and especially with France since CETA was enforced about 10 years ago.

21:43And, you know, this is a world where we need to understand that values matter, views of the world matter, common challenges matter, defense, AI. You know, they're great on AI, so are we. We can do lots of things together. So, yes, getting closer to Canada is a great idea. But what I think is interesting is for Ursula von der Leyen to sort of formally introduce this concept of associate membership is not necessarily just about Europe and Canada. it sort of opens a new concept of kinds of relationships Europe can have with other nations. Do you think that that is going to be an accelerated conversation with, say, the United Kingdom?

22:18I mean, I think that before talking about the plumbing, we should talk about what goes through the plums, which is, you know, what kind of water do we want with Canada? What are we going to do better, more intense with Canada? And then the way to do it institutionally, which we love to talk about in Europe, will follow suit. But let's make sure that, yes, on all these great subjects of our defense, that our AI, that our green energies, we can work better together, have a stronger relationship, you know, live with the world it is, which is, you know, a challenging world, and make sure that with countries who have shared values, we can work together.

22:53And those questions also arise with the UK. You know, unfortunately, the UK decided to leave the EU 11 years ago. I regretted it. I still regret it. But, you know, I'm very happy to get closer together. I'm exchanging with the new chancellor every week or so. But we have to make sure we know what to do before we decide how to do it. And I want to get your perspective on the forecast for growth and inflation with, obviously, this war in Iran, something much more persistent than I think anyone anticipated at the beginning, and particularly also with the ECB now raising rates into that environment, whereas France has lower growth but also lower inflation than many of the other countries in the eurozone.

23:31Is the ECB making the economic job in France more difficult? The ECB is doing their job, and I'm doing mine. And I'm certainly not going to start commenting on monetary policies in Europe. What I can tell you is that the last few days and weeks, I've shown central banks doing their jobs independently. And this is very important in Europe and elsewhere. And this is something that I'm very happy with. Our job is to put public finance on a sound path, and we're working on it, and we're going to do it. And I want to talk also about succession over at the ECB. We know that Christine Lagarde's term ends at the end of the year.

24:06We have some speculation that she may be leaving early, but there are also other executive board seats opening up at the ECB. Is it sort of critical that France gets one of those executive board seats? Is that something that you are certain that will happen? Well, what's critical is to have a great board at the ECB. We had, we have, and we must have. There's great French candidates, there's great candidates, but there's great French candidates. So I'm certainly hoping that there'll be a French man or woman in the loop. But, you know, Christine hasn't left yet. When you said this year, it's actually next year that a Monday is over.

24:38So that'll be something that'll keep us busy and keep you busy, I'm sure, for the next few weeks and months. But we have a great central bank. We have a great board of governors. And we have to make sure we keep it that way. 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 6 a.m. 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.

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