Bloomberg Surveillance TV: October 5th, 2026

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This is the Bloomberg Surveillance Podcast. I'm Jonathan Farrow, along with Lisa Abramowitz and Anne-Marie Hordern. Join us each day for insight from the best in markets, economics and geopolitics. From our global headquarters in New York City, we are live on Bloomberg Television weekday mornings from 6 to 9 a.m. Eastern.

Subscribe to the podcast on Apple, Spotify or anywhere else you listen. And as always, on the Bloomberg Terminal and the Bloomberg Business App. We begin this hour with stocks and bonds study. Jack Manley of J.P. Morgan Asset Management writing, expect more volatility, but also for the winners to keep on winning. Jack joins us now for more. Jack, good morning.

Good morning.

Who's going to keep on losing? The banks, the small caps, the equal weight.

Yeah, I mean, I think the small cap trade's in a lot of trouble right now. I mean, we're seeing a flight to quality with rates moving higher. But within the large cap space, the thing that I'm trying to wrap my head around is the biggest change, the biggest pivot over the past couple of weeks has, of course, been the about face monetary policy. And I just have a really hard time seeing how slow, well-telegraphed incremental adjustments to monetary policy are meaningfully going to outlook.

Either A, the AI trade, or B, the broader U.S. economy. And if the broader U.S.

Economy is not going to be meaningfully impacted, then I'm not looking for meaningful adjustment in the prospects for cyclical stocks. And if AI money keeps on getting spent because this is this kind of 21st century space race that we've talked about before, then the AI trade keeps on going.

And so, like, you know, I think there's a lot of choppiness.

I think we're trying to get our heads around what the data are telling us and how the Fed's going to respond.

It is this dance.

But ultimately, underneath the surface, the fundamentals have not changed enough. for my view to change a whole lot. So yeah, small caps keep on underperforming, large caps keep on doing pretty well, and market leadership within that large cap space is more or less maintained.

Ignore rate vault. Is that the message from you?

I would say so, yeah.

And I would think, I mean, and maybe I'm crazy, I'm like, look, Cards on the table like mea culpa, like egg on my face. I know I've been talking about, like, there's no way the Fed's going to raise rates. And, like, here we are, and they did. I still maintain that view, though, that interest rates did not need to move higher. They still don't need to move higher. What we saw a couple of weeks ago. was using some specifically sort of cherry-picked indicators to justify rate hikes that were ultimately much more political in nature. And that if I had to guess where, say, the 10-year goes over the next 12 to 18 months, it's lower rather than higher. So short-term, yeah, ignore it. And think longer-term that borrowing costs get a

little better.

Ignore it because you think that rate volatility is peaking out here.

I would think so, yeah. That's exactly right, yeah.

Ultimately, what are the indicators that sort of edify that view? In other words, if we get a really hot ISM services data point, do you have to shift? Do you have to think about maybe this economy being hot enough to warrant for further rate hikes?

Yeah, I mean, again, you're asking a moron, right? Because I got everything wrong over the past month. So let's just say that right there.

But when we were talking earlier, when you guys.

It's quite the opposite.

Look at this. It's like self-flagellation. Yeah, I know, really.

I feel so bad. But, you know, you were speaking earlier. Is it PMIs? Is it inflation? Is it labor? To me, it's labor.

It has to be labor because inflation is warm, not for artificial reasons, but for supply-side reasons. And when you remove the energy component of CPI... you are looking at X energy CPI that more or less looks exactly like it did back in January, February. Sure, PMIs have been warm, and we saw that upward revision to GDP numbers, but this is still not an economy that's posted 4% annualized growth.

It's the labor market that I think we really need to pay attention to.

At the same time, this isn't just a U.S.

Issue.

It's a global bond market sell-off, as we were just talking about, and potentially a Japanese carry trade that's unwinding. At what point do you start to worry about contagion in global bond markets as a result of what's going on in France?

I think it's a persistent risk.

I would say that the macro view has to be a little bit different for the rest of the world than in the United States. A lot of that coming back to the energy view, which translates into inflation. You know, this is a story we haven't talked about or I haven't really thought about in probably six months at this point.

But it does come back to this idea that, look, the United States is a fully energy independent country.

We may have to pay.

More at the pump for our refined products, but we're never going to run out of them in the way that the Europeans might or the way that the Asians might. And if that's the case, then the macro issues in that part of the world are a lot more pressing, a lot more sensitive than the macro issues over here.

I don't envy central bankers really anywhere, but in particular in Europe, that are having to engage in this really delicate balancing act, putting downward pressure on the consumer, I would imagine, purely to destroy demand and help to wrangle in demand for energy products in particular. But I think the story on the other side of the world is.

A lot more complex. challenging than it is over here.

And maybe that's energy, maybe it's trade, but it's not like everything is impacting everything in the same way.

Did you feel a bit vindicated then with the labor market report? Because I feel like you're beating yourself up. But this is a Federal Reserve that cut interest rates when inflation was higher than it is when they decided to hike this year around.

Oh, big time.

I don't want to say I like to see it because it's not great news. And we are kind of back in this perverse world where bad news is good news for the market, right? Because it means that borrowing costs aren't necessarily going to be as high as we had initially feared. But yes, I mean, the labor market to me has long been the kind of issue.

You are seeing.

Wage growth data that continue to lag.

They slow.

They lag behind inflation. You are seeing fairly anemic payroll gains. You are seeing significant, I would say, imbalances, mismatches in labor when it comes to supply and demand. None of this stuff is painting a picture to me of a labor market that is on fire. And if you're not at risk of a wage crisis, price spiral, because wage growth is running at its lowest levels in five years or whatever it happens to be, then I'm not particularly worried about actual underlying demand-driven inflation picking up from where we are right now.

Then it's just an energy thing.

Then I don't know if I don't care, but then I think the Fed should be able to look through that.

That's what you learned from the data. What did you learn from the market response to the data? Bonds didn't rally.

No.

Yields didn't fall.

They rose.

No.

Well, there are other things that are pushing up yields. I think the last time we were here together, you were running on the platform of crushing the deficit. Maybe we should send you overseas, too. This is clearly a global problem. We'll drop you into France and have you fix those issues. I mean, there are, of course, fiscal imbalances that are clearly not getting any better. There is an extraordinary amount of issuance in the corporate debt space, mostly tied to hyperscaler AI, or hyperscaler CapEx, rather, and cash flow just not.

Keeping up with that.

There are a lot of structural reasons why yields should be higher, and maybe a change in inflation sentiment in the Fed signaling that, okay, we are now officially hiking is what kind of kicked off this broader move. But I would still think as you get data that flow through in another soft labor report and maybe an inflationary that looks a little bit more like what we'd like it to look like, that you ultimately do see the 10-year ease off. I'm not talking about a 3.5% on the 10-year. I'm talking about 25 basis points lower, 30 basis points lower.

But I do think it's possible.

Would you send Bramow to the Elysee or to the ECB in Frankfurt? Where would you like her? Where do you want to be, Bramow? I think it's a global tour.

You know, fix the deficit and I'll get egg thrown at me.

It'd be like a technocrat.

You sort of drop in, make the fixes and leave again.

The food's better, though.

The food is better, although I have a feeling it might be a little bit of a rough ride for me over in France.

Yeah, you'd be busy.

Stay with us. More Bloomberg surveillance coming up after this. Stephen Stanley of Santander writing, inflation is still too sticky for comfort, but the consumer and labor market are holding up. So the Fed will likely wait in October and hike once more in December. Stephen joins us now for more. Stephen, good morning.

Morning.

We'll get a feel for what he thinks about the data because he speaks the day after the data. Is there a data point? What does it look like on October 14th that might change your mind about the back end of this month?

Yeah, I think it would have to be a really bad surprise.

You want like a 0.4 on core?

At least.

Yeah.

I just feel like the.

So the mode, it feels like, is that the Fed doesn't think they have that far to go. So they don't want to be in a rush. They moved in September. They want to leave some time and see how that plays out. We heard that from Williams last week. We heard it from Jefferson.

Yeah.

They want to be patient. So that doesn't, to me, that doesn't feel like moves at consecutive meetings unless the data just take a turn.

When you say they, you mentioned a couple of names.

Yeah.

Who do you mean by they? Who's the core that guides you? What's the North Star?

Oh, that's a good question. We talked about that last time.

Like, I mean, certainly Warsh and beyond that, I think for me, I just put the, when an individual on the FOMC speaks, I try to put it into context. This person's a hawk, so they're probably kind of at the hawkish extreme. This person might be a dove, they're at the dovish extreme, and that gives me a sense of, kind of what the range of views is, and then I can assume that the people in the middle are somewhere in between.

We talked about this earlier, the partisan divide that the NEC director's talking about. It's kind of curious to us all because right now the most hawkish guy on the committee looks like the person that the president nominated, and the more dovish candidates, if I could pick out, say, Jefferson is someone the previous president nominated. Do you see any politics in this at all?

I don't.

You know, I think in some ways the question about where Warsh was going to fall on the spectrum was a real mystery because we knew that he was hawkish when he was on the board 15 years ago, but then he was kind of making some dovish soundings when he was trying.

To get the job.

And, I mean, lo and behold, it feels like he's gone back to his roots.

When it comes to this partisan movement, divide that Kevin Hassett was talking about, he also said he thinks it's time for Jay Powell to move on and respect the independence of the Fed. Isn't Jay Powell one of the dovish members of this board?

In theory, yes, although when Powell announced that he was staying on, he said, look, I'm going to be very quiet. I'm not going to make waves. I'm not here to create an alternative leadership role, and he's been silent since then. He made the, you know, since Warsh took over. So he may very well be dovish. He was certainly dovish when he was chair. But I'm not sure that he's really moving the committee one way or the other at this point because I think he's kind of trying to fade into the background.

On a fundamental level, are the market expectations for rate hikes doing anything to slow inflation? Have you seen any efficacy in the sort of implied higher rate regime that we're in?

Yeah. Well, I think the right answer to that question is it's far too soon to say. because it will take time for that to kind of bleed into the economy. At the margin, I would say yes, but again, not in the next week or two, not in the next month. It'll take a long time for that to take effect.

Was your interpretation of Friday's non-farm payrolls report a weakening or a much weaker than expected backdrop for payrolls? Or do you think that there was strength under the hood? Because there was sort of a, again, it was a Rorschach test for the market. Some people saying, well, look, look at the headline number. Look at some of what we saw when it came to wage growth, not a hot print. Other people saying, well, take a look at some of the revisions. Take a look at the household survey versus the birth-death model. This was still a very robust market.

How do you view it?

I think we didn't learn much of anything new. So private sector payroll growth was 46,000. Economists think the break-even rate is somewhere around 50%. So you could say it's weak. Historically, it feels weak, but I'm not sure that it really was. On the household survey, there was tremendous noise through the summer.

We saw a massive decline in both the labor force and the household survey measure of employment in June and July. We reversed that in August and September. So the rate went from 4.3 down to 4.1 and then back to 4.2. I mean, I don't think that that's telling us very much other than on a trend basis, it feels like the economy's growing or jobs are growing just a little faster than that break-even rate because we started the year...

you know, around 4.4, 4.5, and now we're at 4.2.

The jobs market was never a reason to hike. We can all agree on that. There's consensus. Most Fed officials will tell you the same thing. We just started asking very different questions after that really hot PMI several Wednesdays ago. After that, we started to wonder, okay, is it happening? Are we re-accelerating? And when you start to see the labor market become a source of inflation as well, and if that's the case, this Fed needs to go faster and maybe further. After the hot PMI, we asked a different question. After the labor market report, we're back to where we were. I think we're just back to where we were two weeks ago, which is basically where the two-year is this morning, around 480.

The whole strong versus strengthening question that you're talking about. The fear here is that if you have a strengthening economy, wages can be a lagging factor. That essentially, if a lot of companies see the prospect for further growth, they're going to hire even if it costs more. And ultimately, that leverage will be felt by the worker. And that is what the likes of Neil Kashkari have.

Talked about a lot. I've questioned how close we are to that moment. And if we are and we start to see it, that the Fed is late on this and they've got a lot further to go. Do you think we are close to that? Seeing the labor market as a source of inflation?

Uh.

No.

I mean, I think the labor market is very healthy, but I don't think it's overheating, which is not to say we don't have an inflation problem. It's just not coming from the labor market. And I think your point is a very good one, which is if you were to add that on top of all the inflation pressures we're already seeing, then it becomes a real problem.

Stay with us. More Bloomberg surveillance coming up after this. The Trump administration preparing for the potential resumption of military action in the Middle East. The Saudi-led forces in Yemen launched a full-scale offensive to take back territory captured by the Iranian-backed Houthis. General Karen Gibson of Academy Securities writing that Houthis' recent success gives them significant advantages. They must be defeated militarily and this must likely be done on the ground. General Gibson joins us now for more. General Gibson, that begs the question, done on the ground by who?

Yes, that's a great question, Jonathan. There has long been an alliance of, well, it's the internationally recognized government in Yemen and various other factions.

But frankly, one of their.

Key challenges is that the only thing that often aligns them is their opposition to the Houthis. Other than that, they have a difficult time getting along and at times have even bombed each other. And so consolidating all of that into one cohesive force is, that can take on the Houthis is not an insignificant challenge. And it's one of the key shortcomings that they'll face on the ground in trying to do this.

Over the weekend, Axios reported that for the second time in recent weeks, the U.S. rebuffed Saudi pleas to join the operation, but they say they could change potentially this analysis if the operation runs into problems. Do you expect the United States to get involved?

Well, so let's measure what that involvement would look like and talk about the challenges or the reasons that the U.S. would be reluctant to do that. One, Tyler just mentioned some 200 personnel in Saudi Arabia who are probably assisting with intelligence and targeting. That's important and that.

Will be useful.

But in terms of getting more broadly engaged in actual combat operations, that would draw the kinds of aviation and naval resources that the U.S. is using against Iran over at the Strait of Hormuz. So it puts an additional strain on those. Two, if we're going to engage in airstrikes together with the Saudis, there's some question as to whether or not airstrikes alone are going to be enough to compel the Houthis to change their approach. I think I would join in that kind of skepticism. Three, if they have to be defeated on the ground, Yemen is not.

A place I would foresee the U.S.

Being willing to put troops on the ground in any meaningful or significant way. So I think there's a lot of things that the administration is weighing when they consider how they might best support the Saudis in ensuring the free flow of commercial navigation through the Bab al-Mandeb, and that targeting and intelligence support is probably, and perhaps advisers, probably what we're looking at for the foreseeable future.

Has the U.S.

Force posture been changed given the fact that you have the Air Force removing all of its bombers from the United Kingdom?

I don't think.

That's that significant, Anne-Marie.

I mean, it matters.

I think what's happened is, despite the disruption of this plot, you know, five guys, three vans, some accelerants and fuel last week, the U.S. military must have assessed that there's still some risk to their forces there that is more significant than the operational advantages that we get from being stationed there. There are certainly many other places where bombers can be positioned to support global operations. This was probably a calculus, again, of weighing potential risk based on threat reporting against operational gain. It's not like they're out of the equation. Does it say more about the United Kingdom right now? I think it says more about the potential Iranian threat, not the United Kingdom itself. And again, the

fact that an attack was thwarted, a plot was disrupted, yet they're still moved, leads me to believe that there must be some kind of reporting in intelligence or law enforcement channels that causes the Pentagon to think there's still some residual risk that they don't want to accept.

We have gotten.

Reports about the president moving troops into the Middle East in preparation potentially for strikes to resume after the midterm elections. Do you think that the likelihood of troops on the ground or paratroopers being sent into Iran has grown over the past couple of weeks?

No, I do not.

I think, you know, certainly we might face a renewed air campaign or, you know, greater naval interdiction. But troops on the ground, you know, as we discussed, you know, perhaps six months ago, that's a significant step. When you put boots on the ground, their protection suddenly becomes the highest priority. And they will divert many other resources that could be used against targets in Iran just simply to protect the boots, the troops that you've... placed into a very dangerous situation.

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

Bloomberg Surveillance TV: October 5th, 2026

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