Bloomberg Surveillance TV: October 19th, 2026

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Podcasts Radio News. 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 out with stocks bouncing back following the worst week since June. Peter Shear of Academy Securities writing, he remains cautious.

The sell-off in credit and equity starts with the compute space widening. The risk is a large, fast move to the downside. It's much greater than the chance that we see a big move tighter. Pete joins us now for more. Pete, good morning. Good to see you.

Good morning.

It's good to have you because you've got your eyes and visibility across stocks, bonds, cross-asset. Let's start with credit. Are those cracks going from triple Cs and migrating up and potentially into IG from here?

You know, my starting point is look what happened with treasuries, right? We went about 70 bps wide or over the course of a month in tens, but it's pretty much one-way street. Then you had French, Italian, Spanish bond yields in two days. Two years blew out 50-some-odd basis points, right? To me, it's the speed and size. There's this kind of full liquidity in the credit markets. And so far, we've seen it hold in in corporate credit. It's been fairly isolated to some names. But my fear is all of a sudden that trickle of selling becomes a bucket getting dumped, and the market doesn't have that liquidity, and that's when it drags everything down. And I've always joked, and I think it's kind of rightfully so, is 9 out of

10 high-yield sell-offs start with EM. And it's because EM sells off so much, someone's like, well, I can't sell something at $ 0.

80.

I'm going to sell my high-yield bond at $ 0.

99.

And so the problems might be with some specific compute bonds, but at some point you look at those and spreads that haven't widened, that's where you go for your liquidity. And that's where you get that potential for cascade. I'm not seeing it yet, but I think that risk is on the table and I'm nervous.

It's idiosyncratic until it's not. And then you start to think about fundamentals. If this compromises the capital markets boom, does it compromise the CapEx trade?

Yeah, and I think your conversation before I got on was awesome. It's really about this computer AI, and I think there's three distinct stories. One is the funding there. Can they spend it? Two is, does it actually work as well as advertised? Are people really getting these benefits, or is there... more and more stories of having to pay to people to come in and fix up your AI slot. And then the third part, I guess, and this is only starting, I think, to get more attention is, will the first mover advantage really move?

Make a big difference, right?

Is the tech that's leading the way today be the tech that's still driving forward AI in five years? I think all those three stories, they put some pressure on the market. Yes, we're bouncing today, though, again, on NASDAQ futures, I'm not going to pay too much attention until bond markets actually open today.

Just to unpack a little bit the sell-off that we saw last week, how much was driven by sovereign debt and concerns about the sovereign debt market and developed markets? You were saying it usually happens in EM. Arguably, you could say it happened in DM with respect to France and even to some degree some of the longer-term U.S.

Bonds.

How much is it that and how much is it this fundamental story tied to AI?

I think that was probably a pretty big move because for the first time people are saying, wow, what if liquidity is not there? If it's not there for France, maybe it's not there for French companies. Maybe it's not there for the compute spending. I think at some point people on the compute side are like, okay, there's a trillion coming next month maybe or next year. If there's another trillion, maybe I've got to back up the pricing because I need to get paid for that risk. So I think there is kind of this growing concern about credit.

And I think also we saw an immense amount of deglobalization last week. No matter what else we want to say, We would have probably talked about what went on, whether Starlink or Starshield was taken offline or not. That would be a huge story. You saw some response in Europe. So I think this global decoupling is real. And that, I don't see how you do well on global valuations in that sort of space.

Can potentially some of the earnings of tech companies arrest the declines, given the fact that if they still are making money and the AI trade is still on, then the synchronous beneficial results will lift all tides and you can paper over some of the concerns about all the things you're talking about.

Coming into earnings week, it's really hard to be too short, right? Because so far, it seems traditionally in the last two years, the earnings come out, they say the right things, they say they have this huge backlog, we rally on the back of that.

I do think there's a lot of mechanical trading.

When I look at the chip sector in particular, the amount of leveraged ETFs into that, so every dollar that goes into chips winds up funding all these. Same on the vice versa. That's why we moved down so hard, right? As dollars come out, all these leveraged ETFs. So I think right now you probably get those positive stories, the feel-good stories, and But then we go back to questioning, is that really new news or is that old news?

What's been priced in already?

So I think it's going to be more difficult this time to get a big pop because all these questions lurk. And I really think the big driver is going to be, do the bond markets respond? Do corporate credit spreads tighten from here? Or do we see that leakage? If we see leakage in corporate credit, I don't see how equities do well. I think equities could care less about treasuries to some degree. It's really about the corporate credit spreads.

That's the growth engine, and that's the problem. And I think your prior guest also said this, is part of why treasuries were rallied last week is all of a sudden people are.

Like, oh, maybe there's some relief.

We won't get this big supply of corporate credit. To me, that is the market driving everything in the next few weeks.

Is it also because when you look around, treasuries are safe? When you look at places like Europe and you see what's happening in France and you just spent a week in Europe?

Yeah, I think you see some of that.

I think everyone's kind of going to their home base, but I really do think there was a lot of anticipation for the compute debt coming out. And already, I think, September and October have had slightly less compute issuance than people anticipate. I think the compute companies did a phenomenal job this summer, issuing in June, July, and August, really tapping the market. So all of a sudden, I think maybe people are breathing a sigh of relief. Hey, we've prepared for a huge onslaught of debt. It might not be coming. I think the one thing, and this is really hard to explain, I'm not sure how it will play out, How I see this strategy playing out is you get the compute bond yields widening.

That drags the stocks down.

At some point, you get a relief rally in the compute bonds because, hey, they're not spending enough. But I think that will actually degrade the equity story more, right? The equity story really.

Depends on that growth.

And so I'm not sure what will inverse, but right now they're moving together. I think at some point you see bonds do okay and it all falls on the equity.

So I think there is more downside.

Pete, Anne-Marie mentioned Europe. Let's finish there. I've lost count of how many people have called a repeat of the Eurozone debt crisis in the last 10 years, and they've been dead wrong. What's this?

You know, it was kind of funny.

We were in there, and one of our people that we work with, he's actually former First Sea Lord, so he's very plugged in. He can't believe that, like, the UK is actually trying to join back into this thing as it's falling apart. So, you know, I don't think I've seen Frexit in any reports or.

But I think it has to be headed that direction.

And to me, the construct of VE is kind of a failing construct. It was built around, oh, this is all great. Everything's all working. You want to come in?

Sure. You get an equal vote.

Oh, yeah.

You want to come in? You get a veto. And now you're seeing France, Germany saying, we.

Have economies that are struggling, economies that we need to do something with, and we're being handcuffed by this artificial construct that was kind of built in a fairy tale sort of rather than the dark, deep moments which I think we're experiencing. I think you're going to see a lot of friction in Europe, and I think you're going to see a lot of people trying to break through their various debt ceilings and things like that. It's just they have to do this if they want to grow.

So I expect more friction there.

Banks are in a better position relative to where they were. The periphery is in a much better position, particularly places like Greece, given the painful reforms they went through. Can we keep this issue ring-fenced to France?

I think it'll spread a little bit on the bond side.

Having said that, I think the banks are in great shape and I think you are going to see growth. I think the spending is this time going to be much more directed to, hey, we are much more on our own. We need to build up. We need to build out, whether it's their own satellites, every single thing, their own AI, their own compute, all those things. I think Europe's kind of had this wake up moment. It's been gradually getting there. So some of what's happening on the credit side is bad. And it's going to have this higher cost. But I think you actually might, for the first time, be able to talk about, hey, Europe might actually try and grow its way out instead of just.

Like— It might galvanize the politics. I'm with you. Do they have the capital markets to support it?

I think they can. I think the banks are in a really strong position there. I think the banks have grown really well. You look at the stock price of those banks. I think they're in good shape. You know, I think the ECB will not take as long to get to a droggy whatever-it-takes moment this time around if it's needed.

So it's there again. EU's always just kind of lazy though, right?

After whatever it takes, remember there was all the talk, oh, we'll issue bonds, you know, backed by the entire EU region. That disappeared the second everything was calm. So, you know, they're not in great shape. I'm not that worried that this is going to be some sort of economic collapse there. I think this is just the early stages of re-figuring out growth and the big countries deciding we are going to do what's right for us to hell with some of these kind of artificial constraints we put on ourselves.

Stay with us. More Bloomberg surveillance coming up after this. A new poll showing President Trump's approval rating reaching at a record low, coming in at just 33% weeks before the midterms. Jessica Taylor of the Cook Political Report writing, Democrats remain in an increasingly strong position to regain a majority of governorships. The question isn't whether Democrats will gain seats, but how many? Jessica joins us now for more. Jessica, here's another question. Which seats?

North Carolina in the Senate is going to flip to Democrats. Republicans have effectively ceded that race. I think the next ones that are possible to flip are Maine and perhaps even Texas. And from there, the majority hinges on Alaska, Ohio, Iowa, and even Kansas. But the fact that this is being fought in double digit Trump states, states that are between 13 points that Trump carried just two years ago to 16 points just shows how much his approval rating has dropped there. You see it's going even it's not going in the correct direction for him in these last few weeks.

That 33 percent is a Bush low mark, really. I mean, this is just a disastrous area that you don't want to be if you are a president that has these midterms coming up in just over two weeks now.

Jessica, when you look at the Cook political report, for some of these states, you went from likely Republican to lean Republican to toss up in a matter of two to three weeks. What has been the driving force in the past 14, 30 days?

It has really been Republicans, their poll numbers sagging, and that's driven in part by the economy, by the war in Iran, by high gas prices, high diesel prices. Voters are just fed up with the price of everything, really. And so it's these affordability concerns. But when we are seeing— we get a lot more polling data— the closer we get to the election. So we have a lot more data points that help us make these decisions.

When you look at some of the recap of the polls we had in the past week, when you look at the Fox News poll, 95 percent of approval for Trump among self-described MAGA Republicans. But then you have less than 50 percent of those who describe themselves as Republican but not MAGA.

Who comes out to vote in this election?

I think some of those MAGA Republicans, it's a question of do they come out without Trump on the ballot? But these are probably more diehard, diehard people for Trump. But I think it's those Republicans that are they don't like Democrats and they don't like Republicans. So do they come out at all? They're more likely to vote for Republicans.

You see you see Republicans sort of closing on a message of socialism. on transgender issues. Is that enough to get Republicans to the polls to sort of alleviate the strain in some of these double-digit states? Because there are more Republican votes available in these states if they come out. But are these voters going to cross over and vote?

Perhaps most of them probably won't. So I think the biggest concern right now is just voter fatigue.

Jessica, when you say that it's not a matter of how many seats, not a matter of will Democrats gain seats, a matter of how many, what's the scope you have in terms of how big this could be of a blue wave?

For the Senate right now, we say between two and six seats. On the House, we have between nine and 19 seats. It could be more than 20 seats, really, with what we're looking at right now. So, I mean, the House is.

The more certain function.

And then with the governors, they're looking to pick up the majority of governorships for the first time since 2010. But I think it really comes down to the Senate, because President Trump has never had both a democratically controlled House and a Democrat. He's never had a Democratic Senate to work with at all. So having both houses of Congress that are working to obstruct him, and we're just going to see gridlock for the last two years— and investigations into this White House, there, it is just going to be utter, there's nothing is going to get done.

And I'm not sure that Democrats will go down the path of impeachment for President Trump, but could they work to impeach cabinet members? Like, Secretary of Defense Pete Hegseth or something like that.

Jessica, what kind of cohesion is there around the Democrats who are, in your mind, going to get elected in terms of what types of policies we can expect to get proposed, what potential market-moving events we could see coming from this Democratic complex?

I mean, what they're able to do is constrained by the fact that they don't have the presidency. So President Trump is not going to sign into anything that they are proposing. So I think it's really a lot of rhetoric that we're going to see heading into 2028. But the Democrats that are going to win, someone like Roy Cooper in North Carolina— If they are able to flip seats in Ohio and Alaska, it's going to be for more moderate members of more moderate Democrats. So I don't think we're going to see them pursuing any sort of really aggressive or progressive strategies. I think that they're going to try to do things to lower costs. Could that be possible? rolling back some of the parts of the one big, beautiful bill, bringing in, like you were talking

about earlier, more oil from Canada or something like that. I think there's pushing back on tariffs. I think we'll certainly see that as well.

Stay with us. More Bloomberg surveillance coming up after this. How many people have we spoken to just this morning and in the last month or so who do not believe the Fed hikes this month? Not because of the economic data, but because of the politics. Revving at a green light. That's what you heard from Barclays this morning.

I shared that note with you. Revving at a green light. The light is green to hike, but they're just going to sit there and rev.

Why?

A lot of people assume because of the politics. Bank of America disagrees. Aditya Bhave writes the following. Most of the FOMC was on board with two hikes this year. Why not do the second one in October? to retain the optionality for a third in December. Aditya joins us now for more. Aditya, good morning.

Good morning. Thanks for having me.

Thanks for being here. Why is October on the table for you and the team?

So the consensus right now, and it's a very strong consensus, is that this is the same old Fed. They're just going to find any excuse they can to be dovish. And this played out so beautifully, so clearly on Wednesday morning, right? So we got this horrible CPI number. It was problematic at the top line. It was problematic in the details.

The market briefly gets to about 60% chance of an October hike. Then the Corweave news breaks and the market just says, no, you're not going to do it. This is your excuse, right? So, Warshaw said he's going to bring a sea change to the Fed.

What if he does? That's our question. That's the perspective that we're offering.

What if he is serious that this was not coordinated communication by the Fed that they don't want to go this month?

Is Williams on board?

I'm not sure he would dissent. He clearly doesn't want to go in October. He did leave himself a little bit of an out, though, because he said, this is based on my expectation of how the economy and the data evolve. And obviously, nobody expected September inflation to be that bad.

Is there a precedent where the market is pricing in this low of a chance of a Fed hike, and then the Fed surprises the market with a Fed hike?

There isn't, at least to the upside, which is why this would really have to be the.

Sea change that Warsh is promising.

Because typically what the Fed would do is, if they wanted to do something that the market wasn't expecting, they would guide in that direction. Warsh has said he does not want to guide markets. So let's see if he's serious about that, or again, if this is the same old Fed. Because the risk he runs from not hiking here is that the market says... you weren't serious about getting rid of forward guidance. We got the forward guidance from Williams and Jefferson. We were correct to price that in.

And then you didn't go.

Ultimately, how much is he forfeiting his role to the ones who are giving forward guidance? Is that part of what you're saying? Exactly.

Exactly.

So if Warsh is silent and the rest of the committee continues doing what they're doing because he can't muzzle them, then he loses the bully pulpit, right? On the flip side, if Warsh... undermines that forward guidance. And I'm not saying he's that sort of leader.

I don't know, right?

But if he does, then this would be a very strong statement to markets that he runs the show and that he's willing to deliver those surprises.

How political does it look given how bad the inflation numbers were if they don't hike?

I think there's going to be folks saying that it's political either way, which is why it's probably best to not think about the politics. The challenge for the Fed, though, is, again, you're going in six days before the midterms with just four basis points or five basis.

Points priced in.

And the long end, honestly, is giving them a pass, which is why we're open-minded to the idea that they might not end up going in October. That will be difficult to deliver that kind of hawkish surprise.

But from an individual that has said inflation is in choice, how does he communicate a hold?

Which is why he runs the risk, again, if he doesn't go, of a press conference that sounds too dovish and the market responding the way it did in July.

You mentioned Corby.

Yes.

How do you think they will internalize some of the capital markets pushback we've seen develop in?

It's tricky because initially they said that higher rates were doing the work for them and the increase in term premium was doing the work for them. But here's the asymmetry in the way in which they communicate. Have they ever said when the long end rallies that now we need to do more because term premium has come down? No, that gets interpreted as a policy mistake because they're doing too much. So either way, if you're going to take the long end as a sign that you need to do less, then eventually you're just not going to do enough.

And by the way, we're in a world of deglobalization where goods inflation is pushing up, up, up. When goods run at one percent, it's very, very difficult to hit two percent. So they need to take this problem seriously.

I attempted and failed to get the San Francisco Fed president to engage in that conversation. Remember, we asked President Daley whether we were seeing or would see an unwarranted easing of financial conditions if the Treasury secretary was successful leaning on the long gun. Just to try and find out how they think about the issue and she didn't want to engage.

Yeah, they don't want to think about how they're going to ultimately respond to anything. I guess in some ways she's trying not to give forward guidance or respond to markets. I'm just struggling to wrap my head around if the Fed doesn't hike in October, are they tacitly allowing inflation to just remain above 2%.

For a prolonged period of time?

I mean, how much is this a problem economically that creates an embedded inflation in a system at a time where the data last week seemed to suggest that it was truly broadening out?

Inflation is a choice if you let this one go. What is happening with inflation expectations?

Right.

So, so far, so good, at least in market-based inflation expectations. If you look at survey-based inflation expectations, they are ticking ever so slightly up. The trend in U-mish inflation expectations has been up. OK, they're looking through that. But the New York Fed indicator is also starting to move up.

And on the question of, you know, what could happen to inflation if they don't hike, the pass-through period is long, right? Monetary policy works with long and variable lags. If you delay the second hike to December, well, you could be sitting there, and by the end of this year.

Plausibly, core PCE could be back to 3.4%.

You mentioned the New York Fed survey. I'm with you. I looked at the same survey. What was interesting about that was also attitudes around the labor market. It seemed to improve just a little bit on the margin. BNP are alongside you on the rate hike forecast. They're kind of going one step further, though. They think that the labor market could become a source of inflation. Are you in a team there yet?

We have that in risk space for now.

So, wage inflation is probably the one thing that's giving the Fed solace, right? If wages were to really take off, and the environment in which that would happen, I think, is the unemployment rate falling below 4%, hiring starting to pick up.

With layoffs remaining fairly low.

And by the way, I've seen a couple signs around the city where we're hiring. I've not seen that since 2022, so that made me think. But we still have that in risk space because the trend in wages has been down for a long period.

That were to inflect, then yes.

Then you're thinking of not just a Fed that's doing risk management hikes, but a Fed that's potentially going back to 5%.

We're not there yet.

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Bloomberg Surveillance TV: October 19th, 2026

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