Bloomberg Surveillance TV: September 4th, 2026

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1:32This 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'll begin this hour with stock steady as investors look to close out the week higher. Chris Ferone of Bear Strategas remaining constructive, writing, there's some unsettled price action under the hood of the market.

2:07Bullishness is not over the top given the market trailing six-month performance. Chris joins us now for more. Chris, good morning. Good to see you. Great to be here, John. That unsettled movement, help us identify. What are you pointing to? I think what you've seen basically since the middle part of last month is this little momentum bleed under the surface. You've seen 20-day lows actually start to expand. I think we got to about 30 % of the index, making a one-month low this week. So what we're trying to decipher, is this just the typical seasonal pre-midterm softness here? Or is there actually something cyclically weak starting to streak through this market?

2:41I think that's the big question as we set up, not just to payrolls today and CPI next week and the Fed in two weeks. It's, you know, have we started to see some cyclical deterioration where you would not be hiking into a strong economy, you'd be hiking into a weaker one? I think that's the big question here. Were you seeing that in, one, the market, and two, the data? Well, I think what's interesting here is you kind of came out of Jackson Hole last week, which I would describe as a more hawkish speech. And yet you had bond yields go up and cyclical stocks kind of taken on the chain. So you saw it with industrials.

3:13Now, you could say some of that's tied to this backlash on the AI build-out here. But I think on balance, there has been some modest deterioration to the cyclical corners of the market. The good news is we're not seeing it in credit here at all. Double B Spreads made news cycle tights this week. It's a big difference from late 21 into 22 when I think it was kind of pretty clear the Fed was behind the curve. You were seeing credit conditions really deteriorate. I think the two-year yield was 200 basis points above the Fed fund rate at the time. So you're not seeing that type of message here, but I do think we should just kind of have the antenna up a little bit that there's been some cyclical deterioration to groups like industrials and discretionary.

3:50Is it anything we'd see in the jobs report, or is the jobs report essentially a side note? You know what's interesting? I think there's this tendency to dismiss whatever the print is today, estimates 55 ,000 jobs. I wouldn't dismiss it. If we print a negative print here, the three-month average on payrolls will be the lowest ever if we got a hike. So the precedent for hiking with negative three-month average payrolls, you've never seen it before. So I still think the bar is probably higher for a hike in two weeks. I do think today's print matters. I think maybe one of the ironies is when we think about PC or CPI, we're spending a lot of time on the right side of the decimal.

4:34when we were supposed to spend very little time on the right side of the decimal, right? So there's a lot of emphasis on, you know, what is PCE or what is CPI here when I'm not sure we want to be making monetary policy on one print. I will say that it depends on which Kevin Warsh you're talking about because one side was the left side of the decimal point and the other day it was the right side of the decimal point. I just wonder if the Fed does remain on hold, if it's going to do so for the wrong reason for stocks. Essentially, if it's going to do so because of a weakening or they don't want to hike into disinflation in Chris Waller's Perlons.

5:06I mean, that's bad for stocks, isn't it, where everyone's not pricing in anything even close to a slowdown? What I am trying to figure out here, and I think, John, you hinted at it with the opening question, is the market unsettled because the Fed is not going to hike and they should, or is the market unsettled because we're about to hike into a slowdown? And I think that's the big question. my kind of overarching bias is listen credit's still fine i think the market's going through a seasonal uh... soft patch here i think things are okay but i'm not sure one hike or one hole here in september is going to be the final verdict um...

5:43on this entire story i think at the end of the day what we have to be so careful with this credit credit's been um... you know an asset to this market now for really two or three years go back to sivb back in march of 23 that's kind of when credit conditions really became supportive going forward. They've stayed that way basically for three years now. I don't want to start to lose that here. You start to lose credit. You begin to look like, you know, fall of 2018 when the Fed was too tight into a weak economy. Spreads are tight, all in yields are high. And that's because we've lost treasuries, haven't we?

6:17You know, I think there's maybe a little hyperbole around treasuries here. Take this stage. You've got some time. First of all, rates are not a uniquely American problem right now. I think, as we all know, G7 yields move as a unit, and G7 yields are up across the board here. If I was going to express real concern in the bond market, it's like French-German spreads blowing out here. It's not U.S. 10s at 474 this morning. When you look at the range, so let's look at the kind of trailing high-low range on U.S. 10-year yield, whether it lasts 12 months, last 24 months, last 36 months. It's one of the narrowest ranges in history.

6:53So I recognize we're at the top end of that range. I think we need to be mindful of that. But to say the velocity is so explosive here where you're having this kind of 1987 moment in yields or even a 94 moment in yields, I think is a little bit misleading here. Sure, but it doesn't have to be extreme for it not to be relevant. And I think that the Norwegian Sovereign Wealth Fund, moving away from some of their government debt allocation, not just to the United States, but globally, highlights how people are more comfortable with those tight credit spreads than they are government debt. And that this is a fundamental shift in the perception of safety and a ballast for the portfolio.

7:28Doesn't that change the buyer base for debt at a time where governments are issuing at a record pace? So what should the yield on the 10-year yield be right now? Nominals, six and a quarter, six and a half, maybe six and three quarters. and 10s are 470 and we're pulling our hair out. I go back, I think as many know, we kind of look at the 1990s and there wasn't a day in the 1990s where 10-year yields were below 5%. Now, the debt dynamic was extremely different back then. I'm not trying to compare apples to oranges, but I think we need to just take a little bit of breath with 10-year yields at 470.

8:01It's not the end of the world. I would also just add, I think the big question all year, and this has kind of been the basis of our work and our call. At what level, either on the long bond or on the 10-year yield, are bonds so competitive where money leaves the asset class of equities? Because that's not what we've seen, right? We've seen these rotational moves within stocks, money moving from this group to that group. We have yet to see the level in yields that pulls capital away from one asset class equities to the bond market. Double-digit earnings growth helps. Yeah. we've just seen peak earnings growth.

8:35Does that change things? You know, it's funny. The Wall Street class, of which we're all a part of, is so focused on the second derivative or even the third derivative sometimes. I think the level matters. Level of earnings is still really exceptional here. So keep putting up double digits. That's sufficient. Everything I think we're describing, right? We're going into the September FOMC with maybe a coin toss. The October meeting might be a coin toss. The December meeting, like, we're in an environment where I think the multiple probably has to come down, given that. But the earnings are exceptional.

9:09So we're in an E environment, not a PE environment. There's probably more cyclicality around that. But to say that, you know, 400-plus earnings next year are a problem, I think that's a stretch. If you really want to be constructive, you can make the case that it's bullish for the PE as well. The fact you've got non-able GDP at six, that you've got inflation above target, and we're still having a 50-50 debate into the September meeting as to whether they'll hike 25 basis points. And many people think it might just be one and done. Yeah, essentially looking at the GDP growth and saying it's exogenous factors, it's AI.

9:41And so you can really keep monetary policy where it says, can I just give a shout out to Chris Frohn? It's like meditation on a Friday morning. Calm down. Just calms everything down. The less you know, everyone just stop freaking out. It's not that big of a deal. His point on bonds, though, is shared by a lot of people who come on this program. Shared by Stanley Drucker-Miller. There's one prominent guy who doesn't seem to agree with you too much, and that's the Treasury Secretary at the moment, who seems uncomfortable with where things are. Do you see that discomfort leading to some corrective action?

10:09You know, it's funny. I'm not sure the discomfort is based in U.S. tens at 470. I think the discomfort might be based on what JGB yields have done. I think the discomfort may be what you're saying in U.K. guilts to the degree to which those drag up U.S. rates. I think it's frankly the source of discomfort. He's worried about importing this volatility. Let's keep something in mind. What's happened in yen is very meaningful over the last couple of days here. So if we're looking for a message, message received, they have swatted yen down from 165 to 155 this morning. I think it's going to 150. They have been very effective.

10:49And remember, the intervention when it first happened a couple of weeks ago was kind of largely dismissed. It's not going to work. You know, dollar yen went right back to 161. I don't know. I think it's been pretty effective. 156, we started the week at 160. What got us down to here? What is this this week? You know, I think what's interesting, if you look at the move initially, kind of 164, you know, down to the mid-150s, you retraced exactly about 60 % of that. That's kind of what you see in rallies that are going to fail. Maybe you retrace two-thirds and you roll back over. That's exactly what we've seen in dollar yen here.

11:24I would also note it's not just dollar yen. Euro yen has broken down. Some of the other carries, look at kind of the exotic carries. Real yen or peso yen, those have all broken here as well. Now, I think when you survey FX, it's difficult to have a dollar call. Are you bullish dollar or bearish dollar? Well, it depends against what here. I think the resource-driven currencies continue to act great. Aussie dollar would be exhibit A here. I mean, copper's making new highs. Aussie dollar act straight. The copper stocks continue to act well. We've seen some life from gold. I'm a little bit taken back how quickly the bulls have rushed right back into gold after a 30 % decline.

12:07That's a little unusual. I would have expected kind of more dismissiveness. But I think if we're going to rank kind of hierarchically what we see in metals or macro, copper at the top of that list, maybe copper, basic resource stocks in the middle of that list, and gold towards the bottom. Stay with us. More Bloomberg surveillance coming up after this.

12:32If you invest or lead a business, one-sided 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.

12:48This is the Bloomberg Market Minute brought to you by Comcast Business. The markets faced plenty of challenges this year. Rising energy costs, higher interest rates, pushback to massive artificial intelligence spending. But through it all, stocks keep breaking records. And some analysts think they still can with a focus on the fundamentals. Nadia Lovell is head of global equity strategy at UBS. Earnings has been good and continues to be good. And while, you know, we might be past the peak in earnings growth, we're not past the peak in earnings level. But others, like Miller-Tabak strategist Matt Maley, say those challenges could eventually lead to a downturn.

13:24Whenever we see a significant rise in bond yields like we have, and a significant rise in oil prices like we have, the stock market always, or pretty much always, ignores it for a while. And Wall Street may be starting to take notice. A recent Citigroup index shows more analysts cut rather than raise their earnings forecasts for corporate America for the first time in more than five months. That was the Bloomberg Market Minute brought to you by Comcast Business, one partner powering 90 % of the Fortune 500 and millions of small businesses. When you add it all up, no one does business like Comcast Business.

14:01When you own your own business, you need to keep things moving. Need to book a last-minute flight? Earn a$300 travel credit to cover that. Need to take a meeting before takeoff? Do it from the comfort of the Chase Sapphire Lounge by the club. Need to catch your breath before you board? Done. Chase Sapphire Reserve for Business. The business card that gives back all you put in. Visit chase.com slash reserve business to learn more. Cards issued by JPMorgan Chase Bank. Any member of DIC. Subject to credit approval. Terms apply.

14:36So jobs coming in hotter than expected. It's a hotter than expected labor market report this morning. Bond yield to repricing higher, particularly at the front end. And that drags equities just a little bit lower going into the cash open in about 55 minutes time. With us around the table, Stephanie Roth of Wolf Research. Steph, good morning. Good to see you. Good morning. What's your first take this morning? My first take is the strong data seems to be correcting for some of the seasonal issues that we've seen. The prior two months saw substantial declines in leisure and hospitality. That has just since corrected.

15:04In July, it was minus 20. In June, it was minus 50. So the fact that it bounced back doesn't really imply that much happening under the surface. The unemployment rate did end up taking up a little bit, nearly rounding up to 4.2. It was 4.14. Wages were 0.27. So they barely, you know, they just made it to 0.3, but it was a skinny 0.3. So I think the hawkish price action is maybe taking the print a little bit too far. I mean, of course, it's a delayed market that's doing fine. But realistically, it's going to be the inflation data that are going to dictate what the Fed do. Yeah. Does this have consequences or not for the committee meeting in a few weeks?

15:38I mean, at the margin, of course, it plays into the narrative and it confirms that the labor market is not something to worry about. Really, the decision is going to be a question about does inflation end up coming in kind of below 0.3? And that's likely going to be the deciding factor here. Ultimately, this does represent, though, a good deal of strength that kind of supports the idea that the participation rate doesn't necessarily mean that this is an overall weaker economy than maybe the 4.1 percent unemployment rate would suggest. Do you think that this does support the idea that policy is not restrictive if the labor market seems to be chugging along and, if anything, breaking to the upside rather than to the downside?

16:17Yeah, I mean, I think it's a signal the labor market is in very good balance. So it tells you that rates are close to where they need to be. And inflation is probably driven by a lot of the one-off factors, as Governor Waller talked about yesterday. And we're likely seeing disinflation in the next couple of months, partially because seasonal factors held it up earlier in the year on top of tariffs and the Iran war and the chip shortage. So long story short, we're probably going to see an environment where inflation is running in the sort of mid to high twos, which is obviously not where they want to be, but not quite at the three plus percent range as Core PC is currently printed.

16:49What would we have had to see in the NFP and the nonfarm payrolls report to make you concerned about it being a source of inflation, that wages could potentially support a faster pace of price instability? I mean, certainly not with, you know, average hourly earnings coming in at 0.27 after a string of, you know, fairly sluggish readings. Now, you know, average hourly earnings is running at 3.5 percent. If we're lucky, you know, currently it's even a little bit lower than that. that's below the trend that would be even considered consistent with 2 % inflation. So we're not seeing any signs that the labor market is causing inflation.

17:24So therefore, you're unlikely to get a sort of a sustainable feedback loop where you're in a cycle where it's truly inflationary that's hard to get control of, similar to, say, the 1970s. If you're just joining us, welcome to the program. 162, the number. Maybe many of you have left already. You're in the car and you're heading to the beach. 162 against an estimate of 55K. That's a very decent upside surprise on payrolls. Wages coming in at 0.3 percent. Wages snapping back as expected. And unemployment holding at 4.1 percent. Mike, you've gone through this report, and this is where the conversation will naturally turn to now, to the Federal Reserve and how they view this labor market and how it influences or informs their outlook for inflation.

18:08It's going to be a tough call for them still. Still, this does maybe remove any chance that anybody's going to be cutting because the economy is getting stronger. It doesn't necessarily take you out of the range of holding steady. And for that, I'm looking at average hourly earnings. There's no wage pressure right now. Average hourly earnings stay the same on a year-over-year basis. And so at this point, if you are arguing that the economy doesn't need higher rates because there's no wage pressure, then you've still got that argument. And that's something Chris Waller was making yesterday. But it just puts basically everything onto the CPI report because it's the services inflation that is really bothering those who are hawks.

18:53And we'll have to see if that continues. And you pointed out earlier on surveillance that the ISM services number, we saw an increase in the inflation measure there. So it doesn't really change the outlook, but I guess it puts a little of a thumb on the scale towards the Fed looking at rate hikes. Mike McKee, thank you, sir. Brammo, in some ways, you mentioned ISM as well. In some ways, it just puts even more emphasis now on CPI next week. Oh, yeah. This is not going to necessarily shift the needle. It's just simply because it doesn't put the kibosh on the possibility of a rate hike. Again, though, Mike mentioned those services, the prices paid component.

19:27If people are worried about inflation, you see that prices paid component coming in at the fastest pace in five years, and you see diesel prices rising to the highest levels on record, you start to wonder at what point that starts to matter a bit more. Core CPI next week, the estimation in our survey, the estimate is 0.2%. Where would 0.2 leave us? Where would 0.3 leave us? Are the margins that small into the Fed meeting? I think they are. So 0.2, I think the Fed would feel comfortable holding. Of course, it would still be with a lot of debate. But if it rounds down to 0.3 and Core PC kind of follows suit in terms of tracking, the Fed's probably going to say, let's wait and get more data.

20:03If you're at 0.3, then you're going to have some of the hawks coming out and pounding the table a bit more that they should be hiking. And the risks of doing so are less so than not. And on 0.2, then the risks are a bit shifted. Stay with us. More Bloomberg Surveillance coming up after this.

20:22This is the Bloomberg Market Minute brought to you by Comcast Business. The markets faced plenty of challenges this year. Rising energy costs, higher interest rates, pushback to massive artificial intelligence spending. But through it all, stocks keep breaking records. And some analysts think they still can with a focus on the fundamentals. Nadia Lovell is head of global equity strategy at UBS. Earnings has been good and continues to be good. And while, you know, we might be past the peak in earnings growth, we're not past the peak in earnings level. But others like Miller-Tabak strategist Matt Maley say those challenges could eventually lead to a downturn.

20:58Whenever we see a significant rise in bond yields like we have and a significant rise in oil prices like we have, the stock market always or pretty much always ignores it for a while. And Wall Street may be starting to take notice. A recent Citigroup index shows more analysts cut rather than raise their earnings forecasts for corporate America for the first time in more than five months. That was the Bloomberg Market Minute brought to you by Comcast Business, one partner powering 90 % of the Fortune 500 and millions of small businesses. When you add it all up, no one does business like Comcast Business.

21:36When you own your own business, you need to keep things moving. Need to book a last-minute flight? Earn a$300 travel credit to cover that. Need to take a meeting before takeoff? Do it from the comfort of the Chase Sapphire Lounge by the club. Need to catch your breath before you board? Done. Chase Sapphire Reserve for Business. The business card that gives back all you put in. Visit chase.com slash reserve business to learn more. Cards issued by JPMorgan Chase Bank. Any member of DIC. Subject to credit approval. Terms apply.

22:10Mark Newman of Bernstein standing by, probably nervous about what we're going to talk about with him now. Mark, welcome to the program. We're not going to talk about Hug and Face and whatever they're up to over there, although it is important. I want to talk to you about the public backlash building across this country right now, Mark, and whether that becomes a genuine headwind to business at some of the chip companies that you cover. Mark, how do you see things building? Well, yeah, I mean, that could be a potential concern if you're getting the nimbyism pushing out, delaying some of these data centers throughout the United States.

22:41And, you know, it's not currently impacting demand for the stuff I'm covering, hardware and memory and storage. Demand is off the charts. But if you did get significant delays of several data centers, then that could start to have an impact. So definitely something worth watching. One thing that John was talking about earlier was the fact that Apple is going to sell its most expensive iPhone yet. In part, this is due to just how expensive memory is getting. How much is that going to potentially pressure prices, the fact that in consumer goods, there could potentially be some pushback by consumers?

23:20Apple has to raise the prices on the iPhone. It cannot not increase the price of the iPhone, and it has to increase them pretty significantly. We've already seen price increases for Macs and iPads. We've seen some competitors increase prices across the board from the Android players. And so Apple has to follow suit. It has to start increasing price of the iPhones. Well, we don't know how much yet, but it's in everyone's model. And, you know, we think what they're going to probably try to do is lessen the impact to the lower end. And so there's going to actually be more of a widening of the price bands.

24:01It's the foldable phone is going to help increase the kind of high end starting price for phones, for smartphones with something like twenty five hundred. We'll see next week what the what the price of the foldable phone is. And I think everything's going to be up, but the lower end hopefully up less so that it won't impact volume so much. Mark, do you think that because there is this pushback not only by consumers, but also by companies that are looking at their bills and getting a bit of a price sticker shock? Do you expect that to limit the pace of increases for memory going forward? It has to in a relative basis because memory prices have just been off the charts.

24:41They've been going up. The last two quarters have increased 60%, 70 % quarter on quarter. This is just unheard of price increases. That level cannot sustain. DRAM and NAND are both something like 400%, 300 % up in one year. So you can't continue that type of rate of increase on a relative basis. But prices are also not falling. And so now what's happening is the companies such as Apple, they have to catch up. Pricing has to catch up to the inflation and costs. But I don't think going forward from here you're going to get as much of an impact as we've had over the last 12 months. Mark, how do you value these kind of companies?

25:24what kind of multiple do you put on them? It's such a strange situation where they're putting up these massive growth numbers, but the big debate is about how long it can last. And when you look at the multiple, it's not really a multiple you'd associate with a company putting up growth at that kind of rate, Mark. What kind of multiple do you put on some of these names? I mean, I'm valuing Sandisk on 11 times forward earnings. It's currently trading around five times. And we also look at, yeah, I know it's very cheap. All these memory companies are trading three, four, five times forward earnings right now.

26:00The issue, of course, is that earnings have been doubling every quarter. And so the street investors just don't know what's the kind of normalized level of earnings. So we try to take a stab at that and put a multiple on that. and I think we're using something, it's 11 times of our through the cycle sustainable earnings and I think nine times on the peak of earnings. So that's what we try to do. We try to look at how much good earnings go down in a down cycle and try to kind of average through the cycle. This is the Bloomberg Surveillance Podcast bringing you the best in markets, economics and geopolitics.

26:38You 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 Out.

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