tv Bloomberg Surveillance Bloomberg July 26, 2021 7:00am-8:01am EDT
>> you have a natural flowing and sequential growth. you are not going to keep -- natural slowing in sequential growth. you are not going to keep growing at 10%. >> inflation has already risen significantly higher than the fed had earlier pretty good it would. >> a lot of consumers are finally being offered parole from kevin fever -- from cabin fever. >> inflation is likely to run above expectations, but i think it will settle out at about 3%. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. jonathan: here come the downgrades. from new york city, for our audience worldwide, good morning. this is "bloomberg surveillance, " live on tv and radio. alongside tom keene and lisa abramowicz, i'm jonathan ferro. equity futures down 13. we declined slightly on the s&p 500.
goldman sachs first out the gate with a downgrade. tom: morgan stanley going the other way. that if the decision that makes people tune in in august. maybe we will have more than 42 viewers and listeners in august. jonathan: thank you for that, tom. great promotion of this program. [laughter] here's the quote. "in the near term, a complete service sector recovery will likely require return to office work patterns." how many people are in that boat? tom: there's a lot of people in the boat, but i'm sorry, morgan stanley goes completely the other way. jonathan: we will get into it any moment. that's part of the market. that's the debate. i'm with you. tom: i'm in cash. i feel comfortable. jonathan: clearly, given you are not per and what we see on the screen. are you finished?
lisa, we are not doing that. lisa: never done. jonathan: you take a drink, relax. take a deep breath. tom: tang. even when they don't launch a rocket which we have 10. lisa: the idea here, they really pointed to the return to office and how that has really liked behind -- has really like the kind -- has really lagged behind. really, the proof will be when people go back to school. as a parent, it makes a huge difference in terms of your ability to leave home and actually focus. jonathan: you will be proud of us. we talked about this all last week, and i think it is a really important topic to discuss because in september, the additional unemployment
insurance expires, and many people want is by the return to school to develop. this is really important for how the supply side of the economy develops. i anticipate this will be a massive part of the discussion at the fed. lisa: this is a big part of why wall street banks have picked september as the time to get back to the office. everyone is looking to that key september date to figure out what the new normal looks like. jonathan: equity futures down 11 on the s&p. a turnaround from where we were a couple of hours ago. in the bond market, yields lower just a little bit in the last 30 minutes or so. we are down to 1.2395%. your euro just a touch stronger. euro-dollar positive 0.4%.
lisa: there's a question of how much reaction the move to the suburbs has. new-home sales last month unexpectedly declined based on how high the prices were. now the expectation is they will increase once again and that this move to less urban regions continues. how much does that give some steam to this idea that the work from home trend will remain in place for much longer than people previously anticipated? this week we have a huge slate of treasury auctions. kicking off at 1:00 p.m. with $60 billion of two-year notes. i am curious about what this says about how much people are expecting from the fomc meeting this week. how much do people start to ratchet back their expectations for a permanently dovish fed? aftermarket, tesla also kicking off.
the key issue will be whether they mention china in light of the new regulations. a lot of the most opulent -- especially as china continues its crackdown on a lot of the most popular sectors in the region. jonathan: the csi 300 down more than 3%. earnings season picking up time. tom: carl riccadonna, always wonderful at bloomberg economics, bidens plan will be inflation light. that is like the champagne of beers, miller lite. jonathan: thank you for that, tom. is this about addressing the supply-side story? let's get to michael cushman, morgan -- michael kushma, morgan stanley cio. let's talk about goldman. "in the near term, a complete service sector recovery will likely overcome virus fears and return to work office patterns.
both look likely to take longer than anticipated." both issue a downgrade to forecast growth. what is the view at the moment? michael: our view in investment management is that a slow down of some degree is not necessarily a terrible thing for the economy as a whole. we were growing very fast with almost double digit pace in the middle of this year. in terms of how much is inflationary, how much is permanent, modest downgrades in growth with a little bit longer time frame in terms of getting back to normal because of the rise of the delta variant and more uncertainty as to how people will behave with this uncertainty, and meaningfully in the near-term, with yields
falling significantly from where they're worth -- where they were at the end of q1. tom: jon insisted i do some math to shut me up. i did a 20 year regression of the five-year real yield. i'm sorry, we have been in a trend of inflation adjusting ever lower. how do we break that trend? michael: it's been a commendation of designed policy to bring inflation down over the last 20, 30, 40 years. i remember the fed talking about opportunistic disinflation as a way to bring down inflation in the 1990's. i think they succeeded beyond their wildest dreams. there's also been underlying secular stagnation. i think what has to happen is that the fed has to commit to trying to raise inflation but
keeping monetary policy easy when things are good. this is the opposite of opportunistic disinflation. we need opportunistic inflation, which means as inflation does better, we don't respond to it. more importantly aesthetic policy error occurred in the 2015 to 2018 period, and we need to get at least back to where we were at the 2012, 2013 levels, but that will be a challenge with inflation as high as it is to goodman's markets they will not revert to any kind of behavior they had prior to this pandemic. lisa: faith in how much the economy is willing to let this economy run hot. another way of looking at it is can real yield go negative. they are already at all-time lows this morning as people look at inflation picking up, supply chain issues not abating, and the fed continuing to be dovish
and pointing to the delta variant. is this a trend that has more steam? michael: i think if they remain committed, they will not change monetary policy. think about the mathematics of a 10 year bond yield. it is a cumulation of one year yield going forward, so the longer they procrastinate or do not raise interest rate, the more downward pressure there is on long-term rates today. we estimate that if the fed's 1.65% 10 year rate would be fair value if the fed it with they said they were going to do. if they procrastinate further, where yields are today are not an reasonable, considering if they procrastinate to 2024 to raise interest rates. the more they push out the forward guidance of when and how fast they are going to raise rates, the more yield can stay low. with inflation high, real yields can continue to remain very low.
i think inflation is going to peek in the next couple of quarters. jonathan: good to catch up, as always. the cio of global fixed income. just giving you some deeper insight into the range of issues right now in the outlook. this line concluding things. "we expect growth to slow further to a trend line 1.5% to 2% by the end of 2022. one of the challenges that any bank has in the research department is too much that ego view with your outlook for the equity market because if you believe in a sharper deceleration back to trend, what do you want to own in that environment in this equity market? tom: the word here is ambiguity. it can cut both ways. to a point, lower yields and everybody flips the ratio. it is better and good for earnings. beside the two-part nature of the equity market and everything else, there's a point where the
ambiguity clicks and then goes the other way. jonathan: you could make the point that the market is already there ahead of these downgrades for the forecasts. yields are aggressively lower, and the nasdaq outperformance is there for all to see. lisa: there's a question about growth in inflation. can you get deceleration in growth with ongoing deflationary pressure and perhaps supply constraints that are ongoing? jonathan: will those supply constraints ease in the back end of this year, from september onwards? huge question for gene tannuzzo, columbia threadneedle. looking forward to that question. we are down on the s&p. yields are lower vifor pharma basis points -- yields are lower by five basis points. this is bloomberg. ♪
laura: with the first word news, i'm laura wright. china is lashing out with policy. chinese diplomats handed their american counterparts lists of demands. china's vice foreign minister says the u.s. is trying to contain china. house speaker nancy pelosi has issued a warning she won't back off her plan to hold up a bipartisan infrastructure bill until the senate delivers a larger democratic only spending plan. republican senators warned that pelosi's strategy could threaten the deal. bitcoin is approaching $40,000. some are at your beating the rally -- are attributing the rally to an earlier decline. in the u.k., the number of new coronavirus cases has dropped for the fifth day in a row. that is a potential boost for prime minister boris johnson following a chaotic week.
johnson's government has sought to encourage a return to normal life over the summer. it has dropped social distancing rules and dunaway with mandatory mask wearing. banks and the eurozone are set to reopen to investors area that would put them back among the highest yielding stocks to own. the european central friday night it will let i cap on dividends and buybacks expire at the end of september. global news 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i'm laura wright. this is bloomberg. ♪
language with colleagues and staff, and i feel good about getting that done this week. we have one issue outstanding, and we are not adding much response from the democrats on it. it is about mass transit. my hope is we will see progress on that today. jonathan: that is just a hint of flavor of the world-urban divide -- the rural-urban divide between republicans and democrats. that was senator rob portman of ohio this week. alongside tom keene and lisa abramowicz, i'm jonathan ferro. here's the market. the price action this monday. futures and 11 -- futures -11 on the s&p. just a defense of foster here, slightly defensive. dollar showing some weakness, euro some strength. euro-dollar positive 0.2%. prude on the back foot, -0.5% -- crude on the back foot, -0.5%. tom: i am watching the five-year inflation-adjusted yield.
rounded down, i can't even do it. jonathan: you've got it, tom. tom: -1.90% on the five-year inflation-adjusted yield. jonathan: by producer in my ear is saying yes, we know. you can never do my show. carry on. tom: i don't even know how to frame that. jack fitzpatrick joins us. we forget the ancient nest -- the ancientness of this. they are talking about helping or replacing 110-year-old tunnels. do the politicians understand how silly this is? jack: they do seem to understand how ridiculous the debate for a few years now has been on gateway. you probably recall there was a
spending deal held up under former president trump, seemingly because he knew the importance of that project to senator schumer. that one has been less controversial now than that water issue of the actually what the ratio is going to be from highways to mass transit. that is the latest issue we've heard in these talks, but i think you could probably argue they understand how silly some of the issues in recent years have been because they do seem to be pretty close to a deal at this point. tom: i read the zeitgeist this morning and i was confused as anyone. where are you going to put your ear to? which door are you going to put your ear on on capitol hill today? jack: the ball is in the republicans' court. the last we heard, our colleague eric watson reported this morning that democrats, sort of a combination of democratic
senators and the white house sent along what was supposed to be a holistic check every box offer, so if there is acceptance from republicans, we would have a deal. the question right now is do republicans have any problems with any individual things they sent them, so republican senators are the ones to watch right now. lisa: we were talking about president biden was looking to the population to provide support for a bipartisan coalition of americans supporting his infrastructure plan. how is this being reflected in the conversations, if at all, down in washington? jack: in the legislative negotiations, the conversation about inflation has been very simplistic and more of a campaign talking point. i think you see some change in the president's rhetoric, talking a bit more about
inflation, trying to avoid using the kind of words you guys might use, transitory, things that might go over a lot of people's heads, and trying to address the issue, but as it plays into legislation, there's a real partisan divide over the role of spending and taxing in this recovery from the recession, so there's understandably a lot of position from republicans that inflation concerns get extend with regular old partisan divide. lisa: we do try to steer clear of transitory as well because it is a drinking game here, and if things get a little too heavy on a monday morning sets of the rest of the week perhaps a little bit poorly. there's a question going forward , you talk about the willingness to borrow and spend as we try to recover from the pandemic, and yet we are still facing that debt ceiling limit. there's dental for u.s. default. how serious is that?
is there actual pushback against the borrowing and spending that seem to be the way of the future just a few months ago? jack: the debt talks look very difficult right now. that is not really a conversation about the taxing and spending that happens. it is just the means of paying the bills that already come due. but it does look like there's a lot of republican opposition. the comments last week from senator mcconnell saying he didn't think any republicans would support suspension or increase really ramped up -- would support any extension or increase really ramped up that fight. really, it looks like democrats are probably being pushed towards a path where they go alone through the reconciliation process, which would be politically tough for democrats because they have to own that entirely on their own rather than having a bipartisan deal
where everyone takes the blame. that is the next thing to watch, although the deadline is tough to predict, as we have heard from janet yellen and others. jonathan: about addressing this surge in covid infections in this country, after dr. fauci was suggesting there's an active conversation about revised mask items. jack: everyone is all ears over whether there's going to be new mask guidance and new guidance on maybe a second shot of a different dose for people who have gotten the johnson & johnson vaccine. politically, there's clearly some nerves when it comes to determining how much of a bump in the road this is to reopening , but there are so many unknowns that when you talk to members of congress, when you talk to people in washington, there's as much confusion right now about
how significant this increase in case counts due to the delta variant is and how long it will last as there is with the rest of the population. jonathan: it is good to hear from you. that conversation is part of the broader one. to what degree would this fall recovery in this country now be delayed? tom: it is going to be delayed, and there's a lot of different opinions. i think we just don't know. what we hear from chairman powell is simple. they are massively data-dependent. i can't emphasize that enough. that is a data dependency overlaid with the pandemic. lisa: i wonder how much people are going to start to talk about demographics. over the weekend, we got the u.s. population that rose at the slowest rate ever in the past year. jonathan: we've got some problems, haven't we? welcome back, lisa.
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♪ jonathan: live from new york city, for our audience worldwide, here's the price action this monday morning. equity futures down 0.2 5% on the s&p 500. on the nasdaq, down by 0.1%. goldman sachs downgrading the outlook for u.s. growth. a full sector recovery delayed. back to tran, 1.5% to 2% gdp growth in the back end of 2022 as the sharper deceleration is a call -- is the call. is this for a move yet to develop or a move we have already seen? let's talk about that.
if growth is scarcer than we anticipate, you would expect growth equities. a little outperformance on gross equities, that is what you would -- on growth equities. switch up the board and get to the bond market. record low real yields, and your nominal yield is pinned at 1.2379% after having a look at 1.12% last week. the curve is flatter, so there's a debate right now. goldman is first out the gate. maybe we will see more, but this economist -- this economy moves first. is the market already there any way the economists were not? tom: to me, it is the expectation of fixed income
market, and we all understand stocks expect out. how far out does fixed income expect? jonathan: we are going to have that debate in a moment. before get to seema shah, we have to get to kailey leinz. you know the order of things. tom: i've been off two of the last three weeks. ♪ moon river ♪ jonathan: good morning, kailey. >> kailey: let's talk about china. there's education -- those education stocks are reflected in the u.s. adrs this morning. take a look at new oriental education, down 24% this morning after falling 54% when this news was originally reported on friday. analysts at berg intelligence say new rules from china could mean an 80% in decline for sales .
tlw is also down this morning, and other chinese companies listed in the u.s. not necessarily in the education sector are under pressure. we already know it has come for didi global which is down another 12% today. one basket of stocks is basically anything tied to could know. bitcoin nearing $40,000 once again. that is leading to news for some of those crypto related equities. microstrategy getting a nice lift as well, and coinbase up about 6% at this point. tom: we have been talking about economic views, as one says tomato and the other says tomato . seema shah joins us with principal global investors. do you care about the nuance of economists right now and how yield expects out?
jonathan: i think we have a technical problem with seema shah. we've got to reestablish that. i'm with you on this call. i could summarize it as follows from goldman. here's a quote from the team over at goldman. in the near term, a complete service sector recovery will likely were higher fully overcoming virus fears and returning to office work. those now appear likely to take longer than we had dissipated. but goldman put -- longer than we anticipated. but goldman put some numbers on it. a return to trend in the back half of 2022. it is the sharper deceleration that it now expects. the conversation i think we need to have on this program with market participants, is that fuel for a move in this market we have yet to see, or does it reinforce a narrative? tom: in bond yields, the idea of
on deals is in expectations versus equity, which a separate east. i'm in the camp of david rosenberg or steve major. how do you get to the yields they are talking about? you do that with that second-half view. jonathan: sharper deceleration, i think that is becoming a bigger theme over the last couple of months. lisa: there's also a question about how much bond yields flicked what you're talking about, which is a slowdown in growth. how do you partition growth versus inflation because they are not synonymous. what happens if you get a growth slow down when you get people come back into the workforce, even though you do see demand increasing based on all the cash that people have.
these are the questions that raise an issue. especially if the stock market is being boosted by these low bond yields. jonathan: are you just trying to tease out a conversation about stagflation? if that's where you are going in just a little bit? you were saying it without saying it. lisa: i think this is fair. a percent gdp growth is not stagflation, but we are setting up for concern. tom: you are hanging out on the pendulum of bears. give us a bear story here. jonathan: i think we just got one, didn't we? [laughter] lisa: well played, jon. we have basically a huge week ahead of us, and nobody really once to hear about the loons in tupper lake, which were beautiful by the way. jonathan: let's get serious for a moment, if we can on this program. we have three hours. let's just spend five minutes.
the supply-side at this economy and how it responds sets the tone, including for the federal reserve. this fed has been so vague about what substantial for the progress means. they have been very vague about it, and i think some of them believe that is a feature, not a bug. vice chair clarida came the closest of anyone on the fed board to describe the argument, and when we get a resolution to the argument, when he came on this program and said we will probably know likely at the end of the year, you've got to wait for that data september onwards to see how the supply-side of this economy responds. if it does not respond in the way that some people anticipate, then maybe lisa's little bear argument over there has something. tom: i want you to bring in seema, but i would suggest that what we are really talking about
is a federal open market committee that is more ex post than we have ever seen. they are going to wait and wait and wait. jonathan: seema shah joining us now. our apologies about the technical connection yet on this call from goldman sachs, the sharper deceleration they now expect, and the idea that we have delayed a full service sector recovery, are you in line with that call as well? seema: well, we can definitely see in the second half, we don't think we are going to revise down our forecast area may be a few tweaks coming here or there, especially as we start to understand that continue to mask wearing, continued restrictions, and probably a lack of covid confidence is going to be weighing on some consumer behavior going forward. they start to weigh on growth
expectations, but i have to say, i agree with your point that the market had probably for seen this, and that is what is driving some of the move over the last month, both in the equity market and the bond market. lisa: when you say the market, are you talking about the bond market or the stock market? seema: i think both are reflecting reality. what is going on in the fed's mind i think everyone is confused about. wednesday more than anything would be a really good opportunity for them to clear up a lot of the confusion that is there in the market, but the equity market and the bond market had been looking and think growth is going to be decelerating a little bit. tom: what do these record real lows mean? what does it mean for listeners and viewers who have to live with this fiction?
seema: i think for the normal household out there, that is real consent. -- that is a real concern. i do think the market really overacted. we all knew that pete rose was going to be hitting in q2. once he realized it is slowing to sustainable rate of growth, it is still a very impressive rate of growth, and then we should be seeing markets stabilize in terms of the cyclical rally, and we should see bond yields start to rise as well. jonathan: seema shah, good to catch up with the principal global investors chief strategist. you asked the question, bonds are equities, and seema said both. lisa: what i was thinking about is the fact that low real yields fuels the move into
stocks. it is sort of this conundrum that the more growth expectations slow, it could be even better for equities. jonathan: this is something we have been talking about now for a while, and it is interesting to me that goldman are as lonely as they are on this call, and that others haven't followed looking out. we talked about the increased possibility of downgrade risk with lori calvasina earlier this morning. there are enough things piling up to suggest we will see a lot more of the same. tom: there's clearly downside risk in a partitioned market. apple and amazon and the rest of these companies struggling. jonathan: a percent, 7%, 6% down to 5%? it seems to be rate of change that is driving things, but we still got to talk about some stunning levels, too. we are down a little more than 0.1%.
this is bloomberg. ♪ laura: with the first word news, i'm laura wright. the white house shifting its conversation about inflation. republicans are trying to use the issue to kill president biden's plans on trillions in social programs. the president used plain language explanations and assured people that price hikes will abate in time. don't expect labor shortages in the u.s. to go away anytime soon , according to a survey of business economists. only 6% expect a shortage of workers to ease off by the end of the year. nearly 1/3 of those responding to the survey say they don't know when the problem will be resolved. the survey was conducted by the national association for business economists.
china has announced a broad set of reforms for private education companies. it wants to decrease workloads of students and overhaul the sector it says has been hijacked by capital. education companies will be banned for making profit, raising capital, or going public. that sent shares of companies limiting. the world's largest maker of semiconductors is considering whether to expand taiwan semiconductor chairman. the company may be building a chipmaking plant in germany in addition to the one tsmc may build in japan. chipmakers have been cranking up production. global news 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i'm laura wright. this is bloomberg.
this summer. when we get into the fourth quarter and more likely into the first quarter of next year, summer of 2022, i think you will see a rebound. jonathan: the ryanair cfo. that stuck up by more than 4% in european trading. from new york city this morning, good morning. alongside tom keene and lisa abramowicz, i'm jonathan ferro. counting you down to the opening bell, we shape up as follows. one hour and about 42 minutes out, equity futures down seven. we are down 1.6% on the s&p 500. yields off the lows of the morning as well, still down by three basis points on tens, 1.2455%. positive 0.2% on that currency pair. tom: i'm going to call that a
gloomy range. right now it is certain that there will be a question on a conference call and mr. cook will answer it. a simple question about apple in china, and for chinese stocks, dave wilson, it is not going well. dave: absolutely not. if you really want to see how badly it is going, just look at these online tutoring companies. tom: that all use apple computers. dave: they might well. consider that those stocks come of american depository receipts on friday considering government action against the industry. they basically said these companies can't be profitable. they have to be nonprofit. there are a bunch of other
restrictions to put on the industry, but really it is taking the heart out of the business for these companies. it is part of a broader trend among chinese adrs. bny mellon developed decades ago indexes to track adrs. we are talking about the china adr index, down 46% relative to the s&p since february. lisa: this to me actually made me think of you over the weekend because the issue was a lot of the chinese officials were concerned about how much parents were spending on their children as they -- as a deterrent to having more of them because of the population. the pressures were too high on the kids and the bills were too high, and for some reason, tom, that may be think of you. the tutoring bills you talk about sometimes. tom: i believe below five
dollars or four dollars a share, institutional managers get a phone call from the general counsel, you must sell. is that happening? dave: no doubt it is at this point. tense and entertainment, a unit of tencent, a much bigger company. the government told them your exclusive deals with labels for songs, you can't have them anymore. so they've got 30 days to rewrite those. tencent music taking a hit in response. we are seeing declines across the board in this group, so that 40 print -- that 40% drop since february is going to get your for sure once trading begins today. lisa: some money managers saying chinese equities are becoming un-investable because of regulatory uncertain. it is unclear where chinese officials are going to crack down next, if they are willing to go after some of the biggest and most successful of their industries. is there some sort of coherence
behind some of the regulations being rolled out, or some sort of guidepost with respect to how the chinese demographic is changing? dave: but it comes down to is the government is trying to get its arms around these companies. they have so much data in a lot of cases. think about didi global, now down more than half and's when it was sold. these are coming up in terms of the enforcement actions. it is all about reining in all a lot of companies, especially those that have plenty of data that the government would love to see. tom: for those of you on radio, is this the biggest week, or is it sort of kind of the biggest week? dave: it is the biggest week. companies that amount to have of the s&p 500 market value, 48%,
starting with tesla after the close today and tomorrow apple, microsoft, googles alphabet. it is going to be a big week for sure. tom: we are looking at the chinese stuff. jonathan: we are trading down 7% on didi. this is a 67 billion-dollar company that has been cut in half over the last several weeks lisa asks the right question. just how investable are some of these companies? over a longer timeframe, it might cents for more risk in the near-term. tom: the risk to me is not our listeners or viewers. the risk to me is the litigation streaming towards western wall street. i'm not blaming them, but they've gotten run over by this. jonathan: now you're raising questions about the questions other people will be asking. what did the company know, and
when did they know it? if they did, why wasn't that disclosed? lisa: this is a different china. xi jinping is facing a very different demographic than he did in years ago. there's a question of how much they will emphasize a transition to a more sustainable growth over the rapid growth, over the capitalistic emphasis earlier. this is the key question in my mind area is there a move away from emphasizing success in the traditional capitalist way that pull people away from china and those investments? jonathan: that is what it is about, whether it is about didi testing the patience of beijing, jack ma testing the authority of beijing, some of these companies trying to educate. this is about party over individual, aggressively pushing
back against anyone willing to test it. tom: i agree, but to me, the massively larger story this week is given the pandemic, given the uncertainty, what do corporations decide to do on cash? the answer is they are going to delay. they're giving up buybacks, acquisitions. they will just say wait for october, wait for september, etc. jonathan: gene tannuzzo is going to join us next. from new york city this morning, good morning. alongside tom keene and lisa abramowicz, i'm jonathan ferro. your price action set up as follows. going into the monday morning opening bell, down nine on the s&p. we are -0.2%. in the bond market, yields are down three or four basis points. 1.24% on a 10 year. euro-dollar just slightly negative here at 1.1795%, -0.2%. downgrading the outlook and delaying the full recovery from
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>> we are already in that decelerating upward revision pace. >> you have a natural slowing of sequential growth. >> a slow down to some degree is not necessarily a terrible thing . >> a lot of consumers are being forgiving because they are finally being offered parole from cabin fever. >> i think it will settle out at around 3%. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz.