Bloomberg Surveillance TV: September 9th, 2026

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1:38This 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. Mike Wilson of Morgan Stanley writing, higher oil and rates remain the main risk to equities in the near term. Mike joins us now for more.

2:10Mike, good morning. Morning. It's good to see you. Look, we've dealt with this now for seven months. We've dealt with it OK. Equities have been up and to the right. Does that change?

2:16Mike Wilson: It's a wall of worry. You know, I mean, like, this is our call for the whole year, which is that earnings were going to be better than people expected. It was even better than we thought, quite frankly. And we've been derating all year. So it's not as if the market is ignoring all of these risks. It's just been digesting it in a way where it's not as obvious to the casual observer. Hey, the S &P hasn't really corrected. Well, it has corrected in price, in price earnings multiples. And then the averages go up because of earnings. So the broadening out story, I think we were the first ones to talk about that.

2:43Mike Wilson: And to me, that's really the story. It's this transition now. Now, we're going from an early cycle recovery from the recession of a year ago. We had all the rotation now to the mid-cycle areas, the quality rotation. That's very typical. So I don't really see anything that's troubling to say there's some end-of-cycle calamity that's going on here. The market's dealing with all these risks. But we do worry a little bit in the short term about oil prices. And what Anne-Marie was talking about is what's really important here. It's not about the price of oil. It's about the price of product. We don't consume oil.

3:10Mike Wilson: We consume gasoline. We consume diesel. We consume heating oil. And those prices are really, really high. The crack spreads on these products are as high as they've ever been. So even if there's no more kinetic energy in this war, that spread has to narrow. And the question is, is that narrow from product prices coming down or from oil prices going up? And it looks to me like it's going to be oil prices going up because there's no demand destruction. So you need demand destruction for that product to come down. So that's the risk in the near term. I don't think it's insurmountable. I think it's another hurdle that we can get over.

3:40Mike Wilson: But it's probably the next 30 or 40 days where we're going to have to deal with this. Does it influence your sector exposure, the kind of sectors you want to be in, the kind of sectors you don't want to be in? Well, we've used energy as a hedge, right? So energy has had a great year this year. And I think you should continue to own energy stocks as a hedge in your portfolio because we like the quality parts of the market. So that's more of not a sector call, but a factor call. Free cash flow, quality factors have really been working since the beginning of June and fading some of these early cycle lower quality areas.

4:06Mike Wilson: And then owning some energy on the other side as your hedge against oil prices going up. So when would you know to get back in with the second energy comes down? Well, we're in it. We're rotating as opposed to reducing our overall equity exposure. I don't think people should be reducing their equity exposure. What they should be doing is upgrading the portfolio, which is what we've been doing, which is the S &P over foreign markets. It's quality stocks over lower quality stocks that are more vulnerable to a rise in rates, a rise in oil prices. And then having some hedges like oil, maybe being underweight duration still within fixed income.

4:36Mike Wilson: I think that's probably a good place to be. And then gold and crypto are probably good hedges against inflation getting out of bounds. Because the United States is so much of a bigger energy producer and less vulnerable, say, to Europe and countries like Japan, do you want to double down here? Absolutely. I mean, the United States is protected from a lot of these concerns. And I would say the United States is still in control of its own narrative more than other countries. Because we have the fiscal policy controls. The administration has been very forceful there. You have a Fed chair and a secretary, a treasury secretary who are very market savvy.

5:10Mike Wilson: So I feel like this is still the place to be. And let's not kid ourselves. S &P 500 is still the highest quality equity market in the world. So if you are nervous, Nelly, own the S &P 500. Don't own long bonds. I mean, long bonds have been a train wreck for five years. I mean, we've had that call for pretty consistently. And then gold and other alternative assets, I think, are a good part of the portfolio. But we're in a bull market. OK, let's not ignore that factor. We are in a bull market. OK, the economy is fine. You know, policy is a little bit erratic. Sure. OK, we have a war, a couple of wars going on.

5:43Mike Wilson: That's the that's the world. I mean, that's where we live in, been living in for 30 years. And to think that we, the four of us can sit here and say, oh, well, the market's not thinking about this. I doubt it. OK, the market's not aware of this stuff. You talked about the broadening out trade originally, and that was a significant call of yours. What's the nature of the broadening out? Is this the deployment of AI that you're actually seeing getting monetized? Is this just the rest of the economy catching up after essentially being in a recession outside of AI? Yeah, it's more of the latter. So our call was really predicated on this idea that we did complete a recession a year ago, that typically when you come out of a recession, you have massive operating leverage just on a little bit of revenue growth, which is what's happened.

6:22Mike Wilson: So that's probably 80 percent of the broadening out story that I think is still not appreciated or not understood. The second part is what you just talked about, which is that we are now seeing a transition from the enablers to the adopters. And that is happening from some of the enablers, too. For example, the hyperscalers, one of the calls you made about two months ago is hyperscalers got too punished. Hey, these guys are enablers and adopters. And not all of them are good adopters. But the ones who are using the technology to advance their businesses, to generate higher returns, will do well.

6:50Mike Wilson: And then, of course, this includes companies across the entire economy. There are winners in the AI race and there are losers in the AI race. We're seeing more winners pop up. So that could be in consumer, that could be in healthcare, it could be in financials. And so it's a pretty broad trade. Do you think that you could see the broadening out continue, even if you see some real declines in not only the hyperscalers, but say the valuation, the perceived valuation of the likes of OpenAI and Anthropic that are kind of huge question marks looming over the market ahead of those impending IPOs? Well, that's a liquidity question, which I think could come back into the fore next year.

7:23Mike Wilson: I don't think the Fed chair is going to be really overly tight on balance sheet going into midterms. You know, this is somewhat of a political game. Plus, he's new. He hasn't done his homework yet. But I do think in 2027, we could see a liquidity tightening, some of which is just a massive issuance from corporate and from sovereign. So that's a 27 issue. I'm not ready to go there yet. Are you saying that a rate hike would torpedo this? No, I'm not saying that at all. What I'm saying is a balance sheet tightening could torpedo the absorption of all the issuance that's going on across the entire economy, both equity and fixed income.

7:55Mike Wilson: When are you ready to start thinking about that 2027 dynamic? Well, we have to write a report in November. Of course. I mean, got to wait for the year ahead. Give it, Mike. You know, we can go out to lunch and maybe have a beer or two and we can tighten it. But I mean, in all seriousness, I think it's just premature to be worrying about a situation where we're over-tightening. We're aware of it. I mean, we have things to monitor. I do think in the next 30 days, okay, if oil goes to 120, 130, 140, that's a drain on liquidity. Okay. And so that will tighten. So one thing we have to be clear about, the Fed is no longer being abundant with its liquidity.

8:28Mike Wilson: They're being ample. What does that mean? Just enough to kind of keep the thing, you know, on the tracks. If, for whatever reason, we start to see things tighten in the next 30 days because of oil prices or because there's even more issuance, which, by the way, the corporate calendar looks pretty full for the next 30 or 40 days. and there's some other apprehension to buy securities, then that's another reason why I think we could have a correction in the next 30 days. But it's a correction. It's not the end of the month. You'll get a ton of supply on the debt side. High-grade issuance this month could be another record.

8:56We had a record in June, July, and August on that front. Equity issuance as well, equity supply. How well prepared are we to take in, take down another monster IPO and maybe another one after that? Well, we're very prepared at Morgan Stanley. Of course you are.

9:10Mike Wilson: And, I mean, Wall Street as a body is very prepared for issuance right now. I mean, this has been the best year since 2021. I don't see any real unwinding of that machinery yet. I mean, these deals are being absorbed, whether it's in credit or not. What I would say is that the quality of the deal matters. Okay, so we are seeing a little bit of deterioration in the lower quality issuers, but whether it be fixed income or equity. So I don't think it's as wide open, perhaps, as it was six, eight, 12 months ago. But I do think we still have quite a bit of buying demand for new issuance. Mike, appreciate it.

9:43Mike Wilson there of Morgan Stanley. Stay with us. More Bloomberg Surveillance coming up after this.

9:54If 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.

10:19Mike Wilson: 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. 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. Growing a business is ambitious, and ChatGPT can help you do it with confidence.

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11:05The Citizens Financial Group CEO Bruce Van Soren is offering a different perspective, writing, despite ongoing geopolitical tensions and a fluid macro backdrop, the U.S. economy has remained remarkably resilient. Consumers continue to benefit from a generally healthy labor market. Bruce joins us now for more. Bruce, good morning. Hi. There's a lot to worry about this morning, sir. There always is. Can you give us the glass half full view on this economy right now? I'm certainly in the half-full camp. So if you look at GDP growth, I think it's starting to tick up, actually, and we'll see maybe closer to two-and-a-half growth for the next four quarters.

11:40Unemployment has stayed very steady in the low fours. Inflation, while there's concerns about it, I think is slowly on a gradual declining trajectory. Business conditions are excellent. The capital markets are wide open. People are going to market, the kind of hyperscalers and people who need funding to play the AI and the data center compute game. It's creating a lot of business opportunity. It's also lifting other companies who are suppliers along with it. And the most interesting thing is we're starting to see the broader market and demand for funding and CapEx spend broaden out a bit. So it's not just the AI and data center engine that's pulling.

12:24It's now in kind of August and September starting to broaden out. Can we build on some of that, the distribution of the benefits across income groups? Are you seeing that catch up with all income groups? Are you seeing the benefits go from higher income down to low income groups as well? Well, certainly the folks at the upper end of the wealth spectrum are doing exceptionally well. Stock market's been strong, housing values high. So, they're spending money at a kind of good clip as you get lower. The good news is people are still resilient. They may have spent down some of the excess savings they had during COVID, but being a little more selective on where they spend their money, but still spending.

13:05And that's bolstered by the strong labor market. They have jobs. They're employed. They're not worried really about what comes next. But we're in this low hire, low fire environment. People are staying put, generally speaking. And they kind of have one eye over their shoulder looking to see what's AI is potentially going to do to their positions. Have you seen the higher price of gasoline really pressure any of the businesses that you do business with or consumers? No, I think people have figured out how to absorb that generally. So it may, if you look at the percentage people spend on filling their gas tank, it's a relatively low percentage.

13:43So maybe you eat out one less time during the week to compensate for that. But it hasn't knocked people off their game that much. If I were a member of the Federal Reserve and I was sitting here listening to this, I would think to myself, wow, this just highlights why the inflationary pressures could be persistent, why they could widen out. Because the ambition for faster growth is much greater than the concern about some of the restraints on the U.S. economy. Would one or two rate hikes make a difference to your world? Yeah, I personally, I'm not sure that there will be rate hikes. even though the market is saying there could be.

14:20There's really no new evidence yet that inflation is accelerating since the last meeting they had, and that's what they're looking for. So we'll see the CPI print is going to be quite telling. But at this point, just because the economy is picking up a little steam doesn't mean that the reflex is that we need to have a hike. We don't have to choke off a good economy. Would it choke off a good economy? I think if you're in a plus one or plus two or minus one or minus two, it doesn't change the baseline a whole hell of a lot. It's more of a signaling mechanism. Well, what about the fact that potentially if you raise interest rates, is that going to hurt the consumers you were just focusing on right now, the ones that are struggling to catch up?

15:03Yeah. Yeah. Potentially, it creates a little more. But I think that level, when people, folks who are on revolving credit, the Fed raising one hike isn't going to affect kind of their debt service obligations. If 25 basis point kills it, it's not a good economy. Right. Let's put it that way. If 50 kills it, it's not a good economy. Well, and that's what I like. Yeah. People say ultimately, as Bruce was saying, it's a signaling mechanism. It's a matter really of where it goes from there. Nonetheless, us, it's clear that this economy does have some heat under it. The real key question is exactly, to Bruce's point, is it inflationary or does it continue a disinflationary feel?

15:41And how much of that is predicated on what happens with oil? I mean, a lot of what was pushing the inflation, the things like the tariffs or energy prices going up, those are temporal. Those will be absorbed and they'll pass through. So if you really don't have demand-driven inflation, and you look at wages, they're not going up dramatically. It's really supply side that's causing the inflation. So usually your antidote to that wouldn't be to make a hike if you think that's going to be transitory. I hate to use that word as a discredited word, but you know what I mean. That word is banned these days.

16:15That decision is a week away. Can I say thank you for issuing the$5 note in your ATMs? Thank you. I appreciate it. You're a customer. I appreciate that. You You don't see that from many ATMs these days. With the$5 bills? Yeah,$5 bills. Biles are really important. They are. They're good for tipping and other things. There we go. Exactly. And obviously, you put some thought into it, too. The idea that asking for change for a tip, really, really bad form. Yeah, bad form. Yeah, bad form. So you can't do that. Have you done that, Bremo? I've never done that, but I have gone somewhere. Stay with us.

16:44More Bloomberg Surveillance coming up after this.

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18:46Pretty important, I think. Actually, if it's 0.20, I think we're in good shape. I think if it's 0.29, we'll probably change our call and look for a hike next week. Now, I think it's also going to be very important what we get on that PPI report on Thursday because how we put that together with the CPI to get the PCE number, which is what they're really focused on, is going to be really important. Can we get in the weeds and just break down the components? What are the components of PPI and CPI that are more important to you? Well, so PPI, some really important components in there are health care.

19:17Now, there's some controversial components in there, including how we count financial service prices. I say it's controversial because there's going to be a methodology change at the end of the month, which is going to change how we read those things. So that adds a little wrinkle here in terms of how we mush all this stuff together at the end of the week. People who've come on the show so far this morning who have been incredibly bullish and said everything is awesome and the Fed doesn't need to hike you, because this is momentum that doesn't come with any kind of inflation, point to the fact that a lot of the components that are independent of oil or AI spending have been disinflating.

19:53Do you see things the same way, or do you see things the way that Kevin Warsh seemed to see them, which is a broadening out in the component inflation? I see it pretty similar to the first way of thinking about things. The strength we've seen earlier this year, so far this year, is really the acceleration, I should say, has really come in the core goods bucket, which we think is both tariff pass-through and potentially energy price pass-through. When we look at wages, those have been pretty moderate. Last week, we got a very strong jobs report, but even within that, average hourly earnings growth continued to moderate down to 3.1 % on a year-ago basis.

20:28Now, I do think the chair and others are right to worry that even if some of this supply-driven inflation from tariffs and others is passing, that it could get embedded in inflation expectations. That's certainly, I think, a sound reason for acting next week. And that's why it's going to be a vigorous debate, because I think there are some sound reasons to hike as an insurance against breakout inflation expectations. I was looking at the differential between two-year yields right now and the Fed funds rate. And it's almost implying three rate hikes here in the United States at 65 basis points of increase in the Fed funds rate going forward.

21:05Do you think that that's likely or appropriate? Or do you think that the market is doing the work for the Federal Reserve, as so many people were saying? Well, I think that way of thinking about the market doing the work for the Federal Reserve is wrong. And I think Kevin Warsh corrected himself, I think, in Jackson Hole in saying, you can't let the market do your work for you. You have to do your own job. Now, is 65 basis points appropriate? In some cases, I think it makes sense. Again, let's see what we get on Friday as a signal of where things may be heading. 0.26, yes. 0.21, no. I wouldn't go that far.

21:39But look, I think there's a case we could see no hikes for the foreseeable future. I think there's a case we could see four hikes for the foreseeable future. Four hikes starting if they start in September? Possibly. First of all, there is a risk here that the momentum in the labor market starts to pick up again and that we could see affirming in wage inflation. We've had the unemployment rate come down a full half point from its peak last November. So you're seeing some tightening there. Hasn't shown up in wages. Maybe that's lagging. If that were to be the case, I think you have to lean against a demand-driven inflation, probably a little more forcefully than a symbolic hike or two to anchor inflation expectations.

22:23Mike, you've got a long career, lots of experience. Have the margins ever been this small between holding and starting a hiking cycle of 100 basis points? Well, I think there's a question whether this would even be a hiking cycle if we get a hike next week. And I think Governor Waller said almost as much. Close. Freudians. said almost as much last week, which is, you know, he may just need to do a little nip and tuck here to bolster our credibility. Right. So I think there is a case that this could be not a hiking cycle. Right. Some people are calling him Chair Waller. I want to breathe some life into that.

23:00Yes, I'm aware. How do you view the core, the center of the committee? Who's driving policy here? I think that's it's a little hard to know right now. Normally, you would say it's the chair, the vice chair, and the head of the New York Fed. Vice chair Jefferson has been relatively quiet for a vice chair. And I think that's one of the reasons why Waller's prominence has risen, is that he has been willing to discuss at length the economic data and the factors affecting that data. Mike, it's good to see you. Thank you, sir. My Friday day of JP Morgan. This is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics, and geopolitics.

23:40You 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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