tv Bloomberg Daybreak Americas Bloomberg February 3, 2017 7:00am-10:01am EST
grow increasingly optimistic that the pace of hiring accelerated in fit -- in january. a sweeping review of the wall street review book. -- rule book. from new york sunday, for our viewers worldwide. a warm welcome. david westin and alix steel are with me. futures are up. 0.1 percent. a stronger dollar story i'd of this one and bond yields are climbing. curve policy for the boj. an interesting dance this morning. off by 0.3%. no geopolitical risk premium. and the safe haven trade goals go nowhere. jon: things to watch in frankfurt. deutsche bank. the biggest one-day drop since september. deutsche bank is planning to cut 70% of staff for the whole year.
david according to the wall street journal citing unidentified people. david: they cannot get out of the news. for a look ahead to the jobs report, we are joined by julie hyman in washington. we all know the basic numbers. 180 thousand jobs. take us beyond that. what are you looking beyond those topline numbers. >> i am looking at the topline numbers and there is some optimism surrounding them. i'm going to be looking at wages. is the game being estimated by economists. average hourly earnings. looking at the average work week, 34 .3 hours. and the labor force participation rate which last time stood at 62.7%. thislso, as we hear about
debate about the economic figures, is 4.7% the number we should be looking at? we should be paying more attention to the other measures of employment including discouraged workers who have ourped looking for a job, time workers and marginalized -- marginally attacked work -- attached workers. take a look at the bloomer -- at the bloomberg. the nonfamily payroll numbers have trapped -- attract more closely together. it shows we have seen more of a correlation between these two. we had that coming into this week. renaissance macro has combined the unemployment measure and a small business employee myth
measure and there is reason for potential upside today. david: start with the wages. what about the minimum wage changes in 19 states -- how do we figure that in? >> our folks at bloomberg intelligence said that could create a bump for january but it may not be sustained or it may not give as a realistic enough you of what is going on in the job market that it could create some noise in the numbers and something to keep an eye on. jon: thank you very much. in shortly.ropping chief eric -- economist is with us. of how this sense number climbed in healthy optimism has granted higher coming into february, go to the bloomberg and you can get a shot -- you can
see the tick higher february 1 when we got the adp report. the optimism fueled by the adp report. rightly so? >> the adp covers 25% of private-sector payrolls. they have a lot of information to make this judgment. claims were also low coming into this. we have had a pop in a number of business surveys. there were reasons to be optimistic before the adp number but i think it is suggesting we will get a number in the 200 range. jon: we will have a number that is -- the white house will say that overestimates the amount of slack in the economy. how do those two views collide? president has talked about this is misleading. i think the numbers are as good as we can get them.
you can have a debate about who to include. there is a range of numbers included. we may focus too much on just the headline number. hasemployment report itself a number of different indicators. what is hard to argue with is that we have had a significant improvement in the labor market in the last five years. on a broad range of measures, we are essentially back where we were before the crisis. there are some structural things that have led to a decline in isor force but most of that demographics. when you take a holistic view, there has been a tremendous improvement in the last five years and we are a essentially back to where we were before the crisis. butd: improvements yes isn't there a point to the question about the quality of the jobs? alternative working conditions? hasn't there been a structural change in the market in that sense since 2005? not just jobs that
matter but incomes. we continue to have disappointing income growth. the continue to have widening income gaps and those are big structural problems. the fact that productivity growth has been low limits the amount of income growth associated with that increased employment is a huge issue. one of the questions we should all be asking is what can we do to increase productivity growth and minimize the income gaps? asks the question what is neru? >> the fed would tell you it is in the high fours. i do think inflation is gradually moving higher. we have seen in trends in average hourly earnings, core numbersn, all of those are telling you that inflationary forces in the u.s. are gradually growing and that is consistent with the judgment that we are close to the point
where what you will describe as neru. alix: didn't we see inflation building up near the 5% level? >> first thing i would say is that all of the evidence suggests that the curve is flatter than it used to be. as you tighten the labor market, how quickly inflation will go up. it is a lot less than what it has been. it reflects the sensitivity of the labor market itself but it also reflects that when the economy goes well, the dollar appreciates and it works in the other direction. there is certainly evidence -- you can make the argument that we are past full employment. i think you can make that argument credibly. if you go to how quickly can inflation accelerate which is the essential question for if the fed is behind the curve, it is harder to argue that is the central problem. jon: how much of a guessing game is this?
itsbank of england slashed estimates by 50 basis points. how much of a guessing game is at? -- is it? >> there have been big structural changes in the economy since the recession which means all of our models are unhinged. having said that, you have to look at all of the information that you have and what it is telling you is that there is steady momentum in the economy, the output gap has declined and inflation is starting to rise. this is happening in an environment where inflation rates are low. we should probably be raising interest rates on some sort of slow trajectory -- that is the right answer. david: how do we take into account the time that this is to occur? >> you are right. the swing between the fourth quarter in december and christmas and all of that into january is a tough time. weather is also more important.
the inherent level of in -- uncertainty is higher now than at other points in time. the other two points is the end of the summer, when people are moving in and out of the labor market. will beur guest sticking with us. coming up, and all-star lineup of guests reacting to u.s. reports. speak to the will national economic council director and former goldman sachs president. this is bloomberg. ♪
in one hour and 19 minutes, we will get the number. -- fourare up about 4% points. we closed monday at 2280. it has been flat, flat through the week. the ftse is up 0.5%. fxe state of play in the market. yields are higher and treasury is softer. alix: another story. donald trump will order a sweeping review of dodd frank. he plans to sign an executive order to scale back the regulatory system put in place after the financial crisis. we are joined by michael mcpherson. mica, what realistically can we expect to get out of president trump's? ? his -- no one is quite sure why he is so against
dodd-frank. he promised to dismantle the law. yesterday, one of the wealthy veterans, gary cohn formally from goldman sachs said american banks are overregulated and over capitalized. dodd-frank and other rules pushed of the capital levels and they plan to dismantle that. is a fiduciary ine which would take effect april making financial advisors responsible to their clients to make sure they are acting in their clients' best interest. alix: the other issue is the consumer financial protection bureau. president trump said some areas of dodd frank may be unconstitutional like creating agencies. if you connect the dots, it seems like that agency has been in trouble. >> it has long been in the cross hairs of washington.
if the agency is unconstitutional, they may use that as an excuse to get rid of him. if he makes any moves there, expect a huge fight on capitol hill led by elizabeth war essentially created the agency. interests me is not just the rules themselves that are in the firing line but it is the forums where these discussions take place. a stunning letter sent to the -- it appearsng the federal reserve continues negotiating international regulatory standards, financial institutions are among global bureaucrats in foreign lands without transparency, accountability, or the authority to do so. this is unacceptable. to be more specific michael, fed officials sit down on a financial stability board.
talk to me about how important those international forums are and why this administration does not approve of fed officials attending them. they approveow if or not of them attending the meeting but what they do not like it's getting involved in global banking regulation but this has been going on since the mid-1990's in an attempt to harmonize banking regulation and capital scandal -- standards around the world. not all big banks disliked this. they like the fact that the rules are the same in many countries around the world. one of the things i have been --d -- of course, frank dodd-frank required regulators regulators to make the rules for the banks. unless you repeal the whole thing by legislation, you cannot go in peace beyond and make chances. what donald trump might do is put in a new vice chair at the fed for financial regulation which was created by the dodd-frank law but was never failed. it may start dismantling the
regulations. when you start dismantling regulations, how important are these internationals and are in these kinds of forms? -- forums? >> these are global markets. if you start to not have rules that are in some sense common across them, you will undermine the ability of everyone to achieve their objectives. it will be a race to the bottom. the reason you have this international coordination, is unless it you do that the standards for the world and that is a recipe for further big crises. that is not what we want. a part from the downside, if you are running a business, if you move away from uniform rules that you know across many nations into an unknown situation, it is harder on your
business. >> i would agree with that. i would go back to the fact that the original word -- order of thebasel system was that japanese banks were taking over the world. at the same time, what you had going on here was in the wake of the s&l rices and the problems we had in the 1980's, we were needing to raise capital standards in the u.s. and you saw a conflict between japanese taking over the world when we needed to raise our capital standards. this is very much a something that is necessary if you are going to maintain standards globally. banks do not necessarily want to roll back regulation because it helps their competition at the end of the day. what realistically could we see from a trump administration whether it is in relation to basel or here in the u.s.? >> no law is perfect.
weree understood there problems with dodd-frank in some sense from early on. you cannot sit here and say you cannot change things but fundamental things like the need for higher capital in banks globally has been well established. can you loosen up the restrictions especially as they apply to smaller institutions? yes. can you make changes at the margin? yes. one of the problems in our system is we regulate different parts of the system to friendly. thereason you need designation is so you can view the system as a whole. we do not have anything that looks at the system as a whole. c you willtack fso undermine your ability to control aig which was such a big part of the last crisis. jon: lewis will stay with us.
terms of tax reforms. being arranged by blackstone ceo steve schwartzman. it is already causing controversy with the ceo of disney, bob iger thing he will miss the meeting as well as the ceoers ceo -- uber announcing he was leaving the council. a direct result of the executive orders coming from last week and the weekend regarding the temporary travel there. i am also told however that the tesla ceo, elon musk will raise the issue of a carbon tax at this meeting. a lot of controversy heading into this. david: for clarification. my information is that rob geithner is not attending because he has a board meeting. who will be at this meeting? kevin: we will have ceos from walmart as well as some of the other big businesses including
the former ceo of general electric. and so it is going to be a representation of that advisory board announced in december. much kevin. you so reporting from the front steps of the white house. about what istalk going on with these ceos. is this going to have an effect on the economy? effect onhad an business confidence already. and to the extent that it ends up being positive that it will be hard to change the incentives of business. david: do they line up with what the president wants to do anyway? ultimately, businesses want to be profitable and that is where things like trying to get them to move away from efficient, cost effective value chains that are outside the u.s. will be tough. alix: do the ceos have a pr problem?
bethere going to be an issue -- between your employees and loyalty? >> that is always a problem when ceos deal with washington. alix: this is more extreme. a more extreme version. how do they make business decisions in this environment? >> one of the hardest questions is will they make decisions i had of resolving this uncertainty. we don't know what will happen on corporate taxes or trade. it will be hard for these guys to make important decisions until they have more clarity and that will be a challenge in the next six months. affect trade this negotiations? >> i think they will try to put or onlyon as a threat later. i was surprised with how things turned out in mexico. to have a blowup early is
problematic but i think they will try to negotiate. jon: the focusing's to be the fx channel. -- the focus seems to be the fx channel? >> it has been so long since anyone has tried to do it, it is hard to remember. part of a be bilateral negotiation. i think people will talk about it. that is not effective. fed policyck to what is and this is something that will become an issue when we talk about change in fed leadership. corporate tax reform is another issue. >> i think on the deregulation side, that is a place where you see the most obvious opportunity. corporate taxes is complicated. as you heard you will have ge and walmart represented at these meetings.
these companies have different priorities when it comes to corporate tax reform and that will be part of the challenge. is this president's payroll or poor or president trump's? >> the week of the 12th. this reflects what happened before president trump he came president. jon: how diplomatic. to january jobs report. and get a reaction from ill gross. plus, other guest. a stacked lineup coming up on this program. one hour and four minutes away from the payrolls report. the estimate, 180,000. payroll friday. this is bloomberg. ♪
treasuries remarkably stable so far this year considering the on, theition put massive conviction trade. yields are higher and the dollar is stronger. pretty much across the board ahead of payrolls. that is a market action. let us get you up to speed on the headlines outside the business world. >> presidents trump to be education secretary is meeting major problems in the senate. a final showdown vote will take place sometime next week. u.s. is expected to impose new sanctions on iran for testing missiles and sponsoring terrorism. the sanctions could be announced today. this morning, president trump he did that i run is playing with fire and they do not appreciate how kind president obama was to them. not you. there has been attacked outside best-known museum.
the attacker was wounded and has been arrested. tourists remained inside the museum during the incident. global news 24 hours a day powered by our 2600 journalists and analysts in more than 120 countries. this is bloomberg. the the countdown to payrolls report. the greenback has continued its -- downward momentum. political concerns over president trump's policies weighing on the dollar on pace for its longest weekly losing streak since may 2015. four straight weeks of declines. joins -- kathy jones joins us. this quote.
the traded visor to president trump. it was germany continuing to exploit other countries in the eu as well as the united states with an explicit deutsche market that is grossly undervalued. how do you reconcile the data in this country with the political which ishave heard net-net, a weaker dollar? >> the balance of policy changes for the dollar. even without changes on the fiscal side, the data has been quite strong. the fed is on track to tighten it twice this year but maybe more. it is not surprising to hear a complaint from the administration and we may hear more of that if the dollar goes out. it will complicate things. i think of that as a headwind for the dollar. what if verbal intervention turns into hard policy. >> unlikely we will see hard
intervention in dollars selling unless we got to extreme levels. one way trading. i don't think that is a topic for the near term. you may see verbal complaints. the fed may get more cautious. but the dollar has to be moving for these things to happen. and the bulk of the policy changes we are looking for will be very dollar positive. alix: how do you explain the divergence we have seen in yields? >> we had a big move in the dollar in the last year and a half, 25%. also.move in yields in terms of yields, you have not seen the inflation play out that people are expecting. we have not seen the legislation that is supposed to give us a fiscal stimulus and that a be the late until late this year or early next year. it is a bit of a wait and see in terms of the bond market. me -- realzzles
yields. looking at the bloomberg. this is the dollar spot index. there is an enormous divergence between the two. this one says we are seeing inflation pickup. think the market -- certainly on the fixed income mark -- on the fixed income side has moved to a log. if you look at the term premium, it was -75 basis points and now it is positive about 20 points. reflectseen the tips the rise in inflation expectation. david: we are less than an hour away. what job numbers might move the currency one way or the other? >> we are looking for when hundred 80 k on payrolls. job creationplease for this stage in the cycle.
we think numbers close to 200 would be good for the dollar. 180 should be fine. david: does it make a difference to the currency markets if he retired hike comes in march versus june? >> i think it is 30% priced. was march, that would be a big catalyst for dollar strength. if we wait until june, there is not a not -- there is not a lot of reason for the dollar to get help on the interest rate side in the near term and could end up a little sideways. that weeep hearing could get a surprise forcing the hands to -- the fed's move more soon. -- to move more quickly. >> first of all, they are anticipating three. three this year. priced in.has twoish
i think they are like everyone else, waiting to see how this administration handles a number of things. there are a lot of expectations are ready baked in. and the economist and central bankers, they are cautious. i would not rule out march entirely. it depends on how the data play out. we have a couple of reports between then and now. and janet yellen has her congressional testimony coming up. she may lay out her reasoning for a rate hike. i thought central bankers did not matter anymore. it is all about tweets from president trump. are suggesting shorter duration from 3-5 years outperforming should we get the rate hikes anticipated. we have moved up in credit quality a little bit as well. itare not anti-credit that has priced in a lot of positive news and the spread between corporate bonds, whether it is high yield or investment grade,
we are being more cautious because the valuations are not that attractive. alix: thank you very much. another stock we are watching is deutsche bank. a day after reporting results, deutsche bank's back in does not light. it will cut 70% of staff in its equities unit. joining us now is bloombergs michael moore from london. we are hearing thrilled the morning -- was this a surprise? >> the scale of it on the equity side was a bit of a surprise. we knew that deutsche bank was going to be cutting jobs. we reported that last month. biggert you saw was a than expected drop in equities trading in the fourth quarter and then saying it has not come back so much in january. on the debt side, rings bounce to back for them so far in 2017.
the story of regarding earnings is they are spending so much capital to raise capital but it is coming at the expense of profitability. if they cut their talent, how do they increase profitability? >> that is a big thing analysts are concerned about. the balance between building up capital and generating revenue growth. the fear is they are trying to cut their way to profitability. at a certain point, you need some growth. if you are slashing a fifth of your equities worth, that will be tough. are they comfortable being a smaller bank if it means more profitability? or do they need to try to ride a wave of trading that some of the other banks have benefited from? cloudhere has been a hanging over this bank for some time. it was not just about what they had to pay authorities in this
country, it was what they had to do to raise capital. the cloud has not gone away. what can they do to dismiss those fears because it has been weighing on the stock price for some time. >> they went a long way towards that yesterday. they surprised on the capital number. some of the analysts discounted some of that move but it has gotten a lot better. they are almost at 12% capital in the fourth quarter. toy have done what they can address that and certainly as they are going to continue to shrink the trading business, that will help. and open question until they have more of their legal issues done. they talk to about 20 legal cases they are focused on and they have only done nine of the 20. alix: great stuff. setting up the difference between u.s. and european banks also. coming up, we are less than an hour away from january's jobs report. we will get an immediate
flash. apple is underscoring its focus on the world's fastest-growing major markets in smartphones. the company will start making iphones in india by the end of april. apple will use a taiwanese company to put together to -- the devices in bangalore. lockheed martin has turned to donald trump's former campaign manager to help with the dispute with the president over the as 35 -- the f-35 fighter planes. the president has criticized at company for what he calls out of control costs where the f 35. -- for the f-35. david: it may not have been a big surprise but it sure was big news yesterday when cap chad officially filed for its first public offering. ipo's passed at what we saw in all of 2016. we have the cofounder of gray croft. launching some of the biggest tech stars in the
last decade. welcome. good to have you here. you read through the s-1. tell me as an investor why should i buy this stock? >> you're making to bets. one is the number of daily active users will continue to anmb and it is still at early stage and it's a monetization and only has more to do and more to grow. focused on the deal of active user number but it has been trailing off actually. is that cause for concern? >> yes. i think you have to look at this company as a play on general social media trends and think is it worth 10% of facebook but it ofprobably not worth 100% facebook. what would be the upside in the stock? why bother going public
when everyone will say things like --is this the next twitter? some point in time, a look these companies either get acquired or go public. one interesting anecdote, you licensedhat snapchat their backend from google instead of building it themselves. you know that means the board was thinking that this company is probably going to get acquired. notbuyers ultimately do value that investment but the public market would because otherwise you with a positive gross margins instead of their licensing. alix: who would be a potential buyer? >> facebook. they tried to buy it once. there is also a rumor that the whole purpose of the ipo is to get sbo -- is to get facebook interested. the cost of revenue for them is really high. is that something i should be concerned about? >> no. no down., these costs
ultimately, the company could x tod the billion in cape do it themselves. jon: am i going to buy this stock because i hope someone else buys it? >> i would not buy it at any price but if you borrow -- if you bought it at 10 billion, youth believe it will grow -- you believe it will grow. there could be an m&a play. that may drive some of the valuation. jon: it is not making a profit at this point. the metrics you have to look at -- you mentioned active users. there are no comparisons with the likes of a snapchat because there is no other platform quite like it. what else can you look at as a metric? >> there are comparisons to a platform like snapchat. super cell.
is a great comparison and even facebook. jon: how so? >> for all of the gaming companies. if you think about snapchat's profit, it is a media company. it actually creates the skinner box mechanic that keeps people hooked. alix: are there reports in their? -- in there? combinedme mechanic with the core media mechanic looks like it is free to play games. that is measured in number of daily active users and average revenue. snapchat is really under monetized. their average revenue for daily active users is about a fifth of what you can get you. there is that much of side in terms of what they are doing without growing at all. david: another tech company in the news is uber.
reportedly the ceo came off at the administration's counsel because of the presidents executive order on immigration. did he do it as a matter of principle? i think he probably did it because of the user backlash. tech companies like this are very sensitive to their branch. to the travis responded delete uber campaigns saying this was not good for my business. david: how sensitive are these tech companies to immigration? >> very. in my business, really capital is a commodity and people are the core asset of all of our companies. you cannot build a snapchat or a facebook or a google without high-quality immigrants and scientists coming in from abroad. we compete on a global scale and we need talent on a global
scale. jon: uber is very good at this. >> i don't think that he had this much foresight to do this just to get on the news. jon: some people might disagree. coming up on this program, bill gross with immediate reaction following the january jobs report. we are counting down to president trump's first jobs report. this is bloomberg. ♪
it has been creeping higher. >> i will confirm that in about a half-hour. at the vastack majority of labor indicators heading into this jobs report, they have all been either unchanged or stronger. it is a strong report card going into this data point this morning. be givenhat, and be the big rise in confidence we have seen across an array of industries and sectors, at some point, those animal spirits will contribute to if not stronger hiring, possibly fewer layoffs which since this is a net number is still in fleets the number. i am interested historically in the pop in confidence to the pop in hard data. >> it is durable -- if it is
durable, you do not see much of a lack. this time around, it looks like it has some staying power. i would not be surprised if we got an outside surprised today or in the next couple of months. it could easily be a q1 story. jon: we have been playing this game. the data comes out and you have some people sing that is not an accurate representation. i sense the volume has been cranked up on that. alternative facts. 4.7% unemployment. just yesterday, the bank of england slashed where they think naru is. think it is a pretty good guess. ironically, i -- donald trump singing inellen are different keys but both
expressing skepticism over the real level of unemployment. janet yellen has talked about this. dismissed theas number. highlighting the notion that it is not fully accounting for people like the part-time want full-time work, or those not participating in the labor market. jon: you are being somewhat diplomatic. the difference in degree. >> they are singing in different keys but the point is we have had substantial job creation eliminating a considerable amount of slack in the labor market improving the resilience of the economy and the like the hood of an acceleration as well. the question asked after this will be does it matter that the white house sees a different job market to the federal reserve? >> i think increasingly they
will come to the same view that we are seeing more wage pressures, job creation is going to accelerate. but the wage of pressure story is often left on the sidelines of the jobs report. i think that could be a major game today. we may get a flash of a false positive. 19 states raised their minimum wage at the start of the year which means there could be a significant impact on average hourly earnings which is the wage inflation metric that economists and the fed watch. that could lead to a short-term spike which could then cause people to panic. wage pressure -- wage pressures are wailing over and the fed is behind the curve. we will see that probably today but some moderation in the quarter. the trend is higher in the long run. we may get a dramatic reading. i think we see 200,000 on the headlines.
4.7 on the unemployment rate. average hourly earnings could be five. -- .5. david: coming up, an all-star lineup with guests reacting to january's jobs report. blacke rick rieder from rock and bill gross among others. they will all be with us to talk about the december jobs numbers. this is bloomberg. ♪
in pace of hiring excels january. a sweeping review of the wall street logo, and trump's economic council convenes. ceos look to shape the white house agenda. about 30 minutes away from the number. i am jonathan ferro, alongside alix steel and david westin. futures are higher by .10%. , almostar is stronger across the board. yields are higher. , you haveollar-yen this confusion. -- higher.o hopper crude oil up .3%. the safe haven, gold, off by four dollars. jonathan: over 29 minutes away from the january jobs report. an all-star cast to digest the numbers -- alan krueger, rick
rieder, mohamed el-erian, bill gross, still to come. david: we have one of them right now. we will turn to noted labor economist alan krueger of princeton. he served in the treasury department. welcome back. there is a lot of talk right now, not so much about the top line numbers, what about whether those are the ways we should be looking at the labor situation. i want to play something sean spicer, spokesman for the white house, recently said at a press conference at the white house. secretary spicer: there are to put out full employment. there is a reason we put out several versions. one is the illustrative nature of how you count the unemployed -- whether they are long-term unemployed or still seeking a job. there is a reason you put out several of these statistics, so economist can view them and look at different landscapes on how
to make economic policy. david: does he have a point? alan: absolutely. economists look at a range of statistics -- every time i am on your show i tell you we look at butployment, wage growth, what is important is the date of the bureau of labor statistics. are the best indicators of how -- puts out are the best indicators of how the american people are doing. mr. spicer also said president trump cares about american workers, and the best way to know how they are doing is by focusing on the unemployment rate, average hourly earnings, gross in establishment implement, and someone, that the bureau of labor statistics collects. alix: two illustrate what you are talking about -- inside the terminal, what we hear out of the administration when the jobs number crosses, depending on what it is? which measure will we hear more conversation around slack? alan: i have no idea.
they do not have people nominated -- no chairman for the council of economic advisers has been nominated. those other people that have the expertise to interpret the numbers best as a president. i can tell you as an economist the unemployed rate is the best indicator of how tight or loose the economy is. looking directly at wages, of course. jonathan: you said something interesting -- one of the best cases for how the american people are doing is in this data. the administration might say look at the election result, and that is the best indication -- they did not feel great, and they want to make things better. how do you reconcile those two things? alan: of course, everyone wants to make things better. 3 million more people voted for hillary clinton than donald recognition that a majority of americans have recognized the improvements in the economy over time.
it is much more work than is to be done. jonathan: what needs to be done from this administration? if a ca labor market that is weaker than the consensus would be on this program, what can they reach for? alan: sensible corporate tax form -- corporate tax reform that is revenue neutral -- that is not too disruptive in the short-term. i think that could help the economy. infrastructure investment, if it is done right. i think i could help the economy. i think those are the main levers. there is a lot of room for the housing market to still expand. times the price have not heard more from the administration about their plans to -- i am surprised i have not heard more from the administration about their plans to strengthen the housing market. david: the numbers could indicate how tight or loose the labor market is, but it does not indicate how people are feeling. you did research on alternative work arrangements that showed a dramatic structural change in the nature of the jobs. -- over thes right
last decade, a trend that started before the recession, before president obama, we have seen a rapid growth and self-employed workers, independent contractors, contract companies that lease out workers to work at one company. we need to read if public policies to focus on that group who is really left on their own when it comes to their own safety net. socialdoes that mean new policies that will take care of the benefits they might get from a regular employer? if youbsolutely, and think about it, the way we handle pensions and health insurance it is connected to traditional employment. helpsfordable care act independent contractors get health insurance at better terms. that was a step in the right direction for this group. alix: deadly important to look at, but in reality, is it going to be about manufacturing, rust belt jobs, and vote -- labor participation by white men --
the three contingencies that voted for president trump? alan: i do not think so. those numbers are important -- alix: what i mean is if we can weakness or strength there, does it influence policy and washington, d.c.? alan: i do not think policy should be based on one month's number. policy should address long-term trends. i do not think the number should have that much impact, frankly, on policy. we know certain groups have been struggling in the labor market for a long time. unilever force participation declined, mainly because fewer women -- we know labor force participation declined, made because fewer women participated. i would like to see policies bring more women back to the workforce and make work more flexible for women that are primary caregivers. jonathan: where do you see the biggest disconnect between the narrative that has come from this administration on the campaign trail -- that many of the states are not doing so well
and the manufacturing jobs have been lost, versus the data you are looking at? alan: there is an enormous disconnect. jonathan: in what way? alan: take manufacturing -- under president obama, we saw 700,000 manufacturing jobs against a backdrop where we lost 4 million under president bush. we have seen a turnaround in manufacturing. the long-term trend has been for productivity growth and automation to replace workers, but i do not think anyone can deny the auto industry is in a much stronger position to the than it was eight years ago. david: critically important is who will be running economic policy in the united states below president trump? let's get to your job -- what about the council on economic advisers --where are we in staffing that i'll? what are we look -- staffing that out? what are we looking for? alan: a couple of names have been floated, and i do not know where the administration is. i'm disappointed they made it
such a low priority. it is the last kevin out this cabinet position -- last cabinet position to be announced. when president obama announced his economic team, it was the whole economic team all on the same day. i think it is important to have a well functioning economic team from day one. the act that set of the council ineconomic advisers, the cea statute, says that the person should be qualified based on his or her experience, training, to be able to understand of elements in the economy, to evaluate economic policies, and i think those are very good price -- criteria. david: the president has set up a lot of his team -- steve mnuchin, wilbur ross, gary cohn, and peter navarro, and economists in a new position. perhaps they will rely more on the trade and currency issues in
this white house. alan: john remains to be seen, and i worry about disorganization. take the trade issue. look at all the agencies that have interests in trade -- the state department, u.s. trade representatives, the commerce department, the treasury department, this new trade council. i think there will be unclear turf when it comes to developing economic policy. jonathan: andrews payroll report -- and whose payroll report is this -- president obama or president trump? alan: the survey week was before the inauguration. i would say this is reflecting how the economy is best performed in the last week or last couple of weeks of the obama administration. on the other hand, i have learned from being there when you are in the white house you own whatever problems we have an whatever news comes out. jonathan: when it is good news you pass the problem to the
former administration. alix: just watch twitter. alix: alan krueger, thank you. plan, and what's does it mean for growth in the u.s. financial services industry? plus we will break down the jobs report and discuss the report with allianz's mohamed el-erian, andkrock's rick rieder, janus' bill gross we will break this down. this is bloomberg. ♪
check the markets, 17, 18 minutes away from the payroll report. futures are positive, of .2% on the dow. we are headed for a marginal week of declines. if you switch up the board -- headed for a week of declines, the dollar, a fourth straight week of declines. today, dollar strength against the pound and the euro. we await the payrolls report. the four we get there, let's get to what is making headlines outside the business world and say hello to emma chandra. emma: there has been an attack outside of the worlds most well-known museums. outsideier opened fire of the leave. someone taking into special safe rooms. president trump may be warning tehran of what is to come. the u.s. is expected to impose
new sanctions on iran for testing missiles. president trump tweeted this morning they are playing with fire -- they do not appreciate how kind president trump was to them. not me. controversials choice to be education secretary cleared a major hurdle in the senate -- that's the dumbest evos ahead in -- betsy dove cleared the senate in an unusual early-morning vote. alix: the other big story we are following, president trump will order a sweeping review of the dodd frank act. he plans to sign an act that will scale back the regulations put in place after the financial crisis. this is a great start from -- showing the increase in
regulations since the passage of dodd-frank. the fed had to add 3000 new regulatory restrictions after that time. alan krueger is still with us. pre, what canto that due to banks and the economy? alan: i do not think you can go back instantly. dodd-frank regulations have made the financial system more secure. at the same time, restrictions that have been placed on smaller banks probably are burdensome and unnecessary for economic stability. so, i think in the near term, it can lead to more confusion, more confusion about where the regulators are going to go. in the short-term, it could be counterproductive when it comes to increasing lending. on the other hand, i think a
smart approach to regulation could be beneficial for the u.s. economy. i worry that it goes too far. certainly, no one thought when i was in the administration in 2009 that our problem was there was too much regulation on our banking system, which almost sunk the entire u.s. economy. alix: i spoke to james gorman at morgan stanley him -- and morgan stanley, and he said we are done -- they are not going to scale back, even if dodd-frank is dismantled. david: both of them said they would not change their behavior. we had john allison on, and he said that is fine for big banks. smaller banks are in a different position. will it benefit the smaller, regional banks more than the big banks if regulations come back? alan: it depends how they do it. if they do it in a smart way, they would maintain strict requirements on the systemically important institutions, maintain surveillance from the financial
stability oversight council, and then these up on some of the unnecessary burdens on smaller banks. jonathan: that is what you think they should do. what will they do? a place tonot think start was with the fiduciary responsibility rule. who wants to be in a situation where financial advisors can be looking out for their own interest, and not that of their clients, and for the clients not to be aware of that? that does not seem to be in the interest of the vast majority of american workers. jonathan: another change we can see is where these discussions take place -- in international forms more specifically. play this week, a stunning letter sent by patrick mchenry read as follows -- "the pace of the federal reserve continues to negotiate standards for financial institutions among global bureaucrats in for lands transparency, accountability, or the authority
unacceptable."is how important our global standards for you? alan: very important. alan:financial institutions are global. the federal reserve is an independent institution. i have the authority to do this negotiation. letters like that will make it hard for the federal reserve to pursue u.s. interests in the negotiations because the party on the other side will not know what to make of this. david: let's go back to more broad deregulation. the president has said for every one regulation we put in, take likeway, and it may sound a gimmick, but i read this was done in england and it was effective. do you support that the regulatory approach? alan: i think that is a gimmick. good of a big regulation and small regulations -- add a big regulation and takeaway two small ones. it more sense to apply strict
review of regulations. president obama had a look back revision where companies could write in, say we have this regulation, it is not necessary. i think we need to do more of that, and use a more precise approach than rather rather than a blunt instrument --rather than a blunt instrument. jonathan: a civil service nightmare. alix: and is the word in the regulation should, have to, or maybe just think about it. david: i spent a good part of my career in washington, d.c., in a law firm deal with those regulatory agencies, and the regulation creeps up, and unless you take a hacksaw to it, it is hard to get down. i am not so sure about that -- and don't forget, we benefited from cleaner air, greater safety and cars. don't get me wrong. i think there are opportunities to improve the efficiency of regulatory structure, but i think we should look back -- and i think we should look back.
there is a peculiarity is when you are doing analysis of regulations we you not have that much information, but after you have it in place, you have information about it. atmake sense to look back some key regulations and say are there better ways of doing them? on the other hand, i think the impact of the rise in regulations on the economy have been grossly exaggerated. i kept hearing how obamacare regulations were going to kill job growth. well, we have added over 15 million jobs -- much stronger than the previous seven years after obamacare past. it is hard to point to direct evidence and say this is slowing job growth. not biased.s alan: just pointing out the facts. jonathan: an alternative facts as well. we are less than 10 minutes away from the january jobs report. we discussed the report with mohamed el-erian and bill gross.
jonathan: in the fx market, the dollar climbing for a third straight day, but on pace for a decline -- the longest losing streak since may. brad bechtel joins us. alan krueger is still with us. brad, to begin with you -- if we started this week and i gave you two options -- the adp report, i let you have it, and an interview with peter navarro -- which would youbrad, to begin we the currency more? brad: a good question -- you would expect adp, probably, but navarro is vocal on currencies leaves days, as is trump. you have to focus on what the administration is saying. makes me wonder how
important the data is as we go forward. in six minutes time we will get a payrolls report. this is a currency that is at a huge injection of political noise. how do you weigh those things against each other? brad: it is a good question -- basically we are doing with a tremendous amount of political noise. trump is focusing on the things we did not expect him to focus on initially like trade, geopolitical, rather than fiscal stimulus, tax cuts, which we had expected out of the gate. so, the dollar has been in a bit of a conundrum. you have now -- we had -- we know we have had a lot of dollar positive indications, but we have a lack of clarity. cameg said that, the fed out relatively hawkish, but the same as they were previously. that was a nonevent. the's emphasis on to this payroll report, and in my opinion, because it is the data that ultimately will matter for the fed. the fed will look through the
political noise in the geopolitical noise, and if we get a strong number, strong average hourly earnings print, it throws it on to the fed's shoulder again, though it does raise the -- i think it raises the odds of march. jonathan: what are you looking for? at 190,000 on is the headline and we see strength in the average hourly earnings. we're looking for a relatively strong report. adp has thrown the expectations to the top side. analysts have revised up. there is pressure for a positive report. what we see this week is nothing short of disappointment. in a disappointing fed. less hawkish than expected. . disappointment on the bank of england. disappointment on the bank of japan. we are set up for disappointment. north of 220,000 would be super solid and the dollar would get on track. tim i was jeffries would be enough to keep the dollar in check right now. alix: you mentioned
expectations. does that mean the asymmetric risk as to the downside? brad: absolutely -- i agree with that. if we get a miss, something around 170,000, which was consensus a couple of days ago, that might be enough to send the dollar lower, the euro down to yen down tohe dollar- 1.2 -- 1.12 again. --hink commodities another is another place to keep an eye on. the reflation story was, that any positive and commodity currencies have reacted to that and rallied tremendously. if we're calling into question the strength of that reflation, commodities might start backing off eyes and you can see a correction in the commodity currencies, which no one is looking for now. jonathan: what is the lesson in 2017? we came into another year with a
trade that was long dollar. do you agree with the former of the letter, vic directional trade, or long-range? brad: i'm settling into more volatility, and ranges. i do not know the ranges will be tight. you could end up with wide ranges, but the lack of a dominating trend. whereas a couple of months ago, i thought maybe dollars stronger trending all year, now the dollar wobbling through wide ranges with increased volatility around all sorts of different factors, like we are seeing the first two weeks of administration. david: brad bechtel of jeffries, thank you for being with us. to thed i want to turn question of data and talk. successful have presidents and secretaries of treasury been in talking the dollar up or down? alan: i think rhetoric could have a quick, short term effect, but not much long-term affect.
it is like trying to talk down global warming. you have forces independent of what the administration does -- the underlying strength of the economy, what the federal reserve does, which is an think innt agency -- i the relatively short time, the administration cannot do too much on the value of the dollar. david: can there be a secondary effect on this industry -- talking about currencies, not spending time on corporate tax reform, which could affect the dollar? alan: i think the long-running practice of the treasury department commenting on the dollar has reduced volatility, the we are in for a period of more volatility given the change in approach. alix: if we get a border tax, will there be a rally in the dollar? alan: i have no idea. first of all, i think we are a long way from there, and i think there would be questions about whether that is wto compliant.
jonathan: the consensus estimate here at bloomberg is 180,000. what are you looking for? alan: these numbers are getting revised. alix: come on, alan. alan: nobody comes back to the revised numbers. alix: we do. jonathan: alan krueger sticking with us. the markets that features are positive, up .2% of the s&p 500, 54 points on the dow, and in europe, a decent bit as well in markets in london and frankfurt. in the bond market, treasuries on offer, yields of a basis point at 2.49%. marginal, there flattening -- the front end selling off. the front end selling off means a stronger dolly -- dollar story. dollar strength defining today's session. dollar weakness defining the week so far. will that change in 15 seconds?
cable rates are below 1.25. 10 seconds away from the payrolls report. estimate in a bloomberg survey, up from 156,000. the payroll support from d.c. with julie hyman right now. 227,000 versus the 180,000 estimate. that was the number of jobs added last month. the jobless rate at 4.8%, taking up. the real shocker, perhaps, average hourly earnings, and only 0.1%. worse than estimated. decemberthat, a average hourly earnings growth percent fromto 0.2 0.4%. november revised slightly higher to flat. average hourly earnings was a a gain of only 0.1%. participation rate at 62.9%.
kicking up a little bit, and matching the september level. the average work week ticking up slightly. unchanged, however, from a revision in december. where do we see the increases in jobs? interestingly -- clothing, electronics, furniture stores. construction saw the highest number of job gains since march. financial activities as well -- real estate insurance and banking. i should mention payrolls were revised down in november and december by a net of 39,000. we got benchmark revisions as well -- something they do annually. of march, 2016, a decrease 60,000 nonseasonally adjusted. relatively small there. jonathan: the market reacting to the downside surprise on the wage number. we are down by a basis point on the front of the curve. yields are little lower. dollar weakening of session
highs. toward flat on the session on the dollar index. i want to bring in alan krueger, princeton's verio -- a downside surprising which is. how do you read things right now? alan: an interesting report. standpoint is suggest march is a much lower probability. it is a pretty solid report. you know, the top by number was quite strong. i think the obama administration would take credit for this one. alix: but with wages here, it reverses a trend we have seen? is is a one-up, or a flattening of the turn? one-off -- monthly wage numbers are noisy. on that, i would say it is a solid month. the fact labor force sufficient blipped up is suggest that there might be slack on that margin. again, one month is the make a
defense in a longer-term trend. jonathan: the headline surprised -- 227,000. to meeting estimate was 180,000. we can cross over to tom keene along with janus capital's bill gross. tom: on bloomberg radio and bloomberg television -- good morning to all of you. --errific number -- 227 nicely above estimates of 180, and again, the constructive revision -- i don't want to make too much of that peers there is this. fields come in, they are beginning to churn as people digest the liquidity and equity futures advance off the jobs report. bill gross joins us now with janus capital. this is the final jobs report for president obama. i would suggest if you want a step forward, it is a constructive jobs report from president trump as well.
bill: yes, and i think a little schizophrenic, as you pointed out in the last minute or so. jobs growth strong, but wages revised down by .2%. instead of 2.9% -- 2.7% annual now, now 2.5%. that is good for corporate profits to keep wages down, but it is consumers and consumption that drives the economy. if they do not earn enough money or their money is only growing at 2.5%, that is a slow-growth economy. sort of a schizophrenic report, and i could see how markets might interpret it one way or the other. tom: i want to bring this to thetom: bigger picture -- futures advanced. i like what you said about it schizophrenic take. get a reflation -- from where you sit, is it a anlation that gives us inflation boost, or can we actually hope the real economy will boost with the trump's stimulus -- trump stimulus? bill: that is the hope that real
gdp now around 2%, and for the quarter, with the atlanta fed, above 3%. the hope is we are a 3% to 4% real gdp economy. that was the promise from the truck administration. -- trump administration. i remain skipped go, i guess. i read -- skeptical i guess. laborin of the cap that force is the growth -- the key to gdp growth. what produces productivity? investment. investment has not been there. to the extent that remains anemic, productivity will remain in anemic. i think we are stuck in a 2% real gdp world. tom: one of the exogenous shocks -- we have to remind yourselves, mr. gross, for decades, has had an international perspective. a key conversation this week was
with barry eichengreen of the university of california berkeley, and he was adamant mr. trump will lead us towards dollar strength. do you show up every day at janus just assuming dollar strength? mean, the dollar has had a good rally, and against emerging countries like the exit in case of, a significant one. i do not assume continuing dollar strength unless the fed stays ahead of the ecb or the boj. at the moment, that is not the case. both of those banks are stuck on quantitative easing of significant proportion. that has led to the dollar rally and stronger growth in the united states. i think there is some catch up coming into the equation from japan and from your land. their growth -- euro land.
their growth rates are close to 2% as well. dollar growth and dollar appreciation is certainly not assumed. i do not think we have a new plaza accord in which the strong dollar threatens the global economy, and we had to take significant measures. i don't see that. frameill gross, let me what keeps surveillance going -- two perspectives, we have your caution, 2% gdp, and peter huber would suggest a more optimistic tact. what is missing from the optimists? what are they missing about their belief that we do get good, if not great economic growth, and by definition, a higher interest rate regime? how will that not happen? bill: well, i think they have a point. if you have a strong fiscal program -- we don't know what it is, but if it is to to $1 trillion to 2 -- $1 trillion to $2 trillion over the next 10 , and with corporate taxes
being cut, there is the potential for near-term stimulus. time talking about real gdp over a relatively longer period of time -- 3, 5, 10 years. --we are stuck in a 2% zone i think we are stuck in a 2% zone. the short-term optimist, i will grant them 3% over the next year positivend that is a for equity markets, a positive for higher inflation, and a positive for higher body of. i can talk about -- bond yields. i can talk about that in a second. tom: we will talk about that, but critically, junior office at janus, you have a bloomberg terminal. it is a vanity terminal. you are still wedded to your munro trader. you are looking at the most basic calculator out there. does the munro trader tell you you can buy bonds right now, whether full faith in credit, foreign, or corporate? bill: yes, i think to a certain extent, and the reason is, tom,
other central banks are buying bonds. off. have it -- the qe habit about two years ago, but the ecb, the boj, the bank of england are still in the plug-in at 150 billion a month. that is a lot of money -- basically one trillion dollars to $2 trillion a year going into the bond market. in terms of arbitrage, you can move into treasuries at 2.45, and pick up 200. currency adjusted, you can take fromto 60 basis points bonds to treasuries. a huge arbitrage there. you get what hundred 50 billion coming a month -- you get 150 billion coming a month from central banks, means they are supporting a low interest rate investment -- environment. i don't like that, but you have to recognize that as an
investment. tom: what you heard is a classic long-short of what you do a should to nation in terms of dynamic -- divergence. are you picking up dimes in front of a bulldozer? will you get run over by a trump administration doing your cute arbitrage? bill: you have to be careful -- but ie zero devaluation, am concerned -- we talked about this last month, u.s. treasuries at 2.6, or 2.65 is a critical area, and that is a technical intimidation, but it is a long-term trendline going down from 1984, and it has been hit on the upside by seven, 8, 9 times. 2.6% is very critical. if we get higher yields relative to 2.6, we have a bear market. jonathan: special thanks to tom keene, and janus capital's fund manager, bill gross. ken mexico, the payrolls report
dropped -- an upside surprise -- 10 minutes ago, the payrolls report dropped. unemployment this take back up to 4.8%. a downside surprise on wages. the market reaction -- futures did catch a bid for sure. if you switch of the board quickly, treasuries were on offer. they are now bid on the margin. the dollar was a lot stronger than it currently is. the dollar just rolling over off the back of these numbers. the euro, stable. the cable rate coming in off by a third. coming up, mohamed el-erian, allianz's chief economic advisor and bloomberg view columnist. we'll get his reaction to the jobs number. that is next. this is bloomberg. ♪
emma chandra: coming up, gary cohn, national economic council director general. jonathan: for more on the jobs number -- let's get you up to speed -- 14 minutes ago, an upside surprise on the headline number, 200 -- 227,000. unemployment ticked higher to 4.8%. is the downside surprise on wages, coming in softer at 2.5%. the forecast, 2.7%. joining us, alan krueger from
princeton university, and from california, mohamed el-erian. great to have you with us. the upside surprise to payrolls, kind of expected -- the market leading toward it after the blowout adp report. 20 jamaica the softer wages figure? -- what did you make of the softer wages figure. mohamed: it is disappointing. two messages from this report, one is this will make the fed less likely to hike in march, so reducing the probability of a march hike, and secondly, it puts even more focused on structural measures to enhance wage growth in the economy. jonathan: you have described it as cyclically robust and structurally challenged. we'll get to that in a moment. i want to begin with market reaction. taking march off the table, is that what we see futures higher? are we still playing the game.
mohamed: we are to some extent. it is also having an impact on the dollar. also remember today we got signals the trump administration confirmed they are going forward on the deregulation agenda. david: how much of it is deregulation, and how much will they have to make progress on the text from? -- tax front? alan: tax reform -- mohamed: cats reformatted infrastructure spending drives the country forward in terms of wages, and more inclusive expansion is key. deregulation is more of a signaling issue. earlier, one has to get the balance right in terms of deregulated on the one hand, and on the other hand, reducing soundness and safety. tax reform sides -- and infrastructure spending are heavy lifts as we would say in washington. withorried are the markets
what washington is doing and approaches these problems? it has got distracted with immigration. mohamed: for now, they are giving it the benefit of the doubt. they're waiting for people to be in place in official entities. he is not had people in place in treasury. there is still a lot to do in terms of getting the people in place. as we've seen on foreign policy, that can have an impact. the market is given this administration the benefit of the doubt. it is waiting for an announcement to go to detailed design, which as you say, david, is tricky, and then to implementation. alix: back to the intricacies of the job report -- the week wage growth, alan, your expertise -- ali making too big of a deal of it? year on year it is up 2.5%. alan: we are seeing real wage growth, when you expect with the unemployment rate below 5%. i was hoping we would see above 3%. janet yellen said a healthy labor market has nominal wage
growth of 3% to 4%. i thought we would go into that territory. twitches have been a challenge for the last three decades, particularly in the middle and the bottom. that contains to be a structural problem for the u.s.. alix: we now see the viability of a rate hike in march, 26%. we were over 30 in -- as of yesterday. manufacturing flat. what happened? a sign that all his conversations about boeing, the auto companies really did not have much impact. this suggests a real challenge in terms of rejuvenating manufacturing. i think it requires more innovation, investments in research and development, rather than closing off the u.s. to trade, but he is pursuing a different approach, you will see how it works. jonathan: a different approach, and a different approach to the jobs number as they come out. there is a huge discrepancy
between where the federal reserve the market is, and where the white house thinks the labor market is. if i told we were still adding payrolls of 200,000 every month, which is still holding around 2.5%, and the underemployment rate ticked up to 9.4%, would you conclude we are anywhere near full employment? mohamed: well, if it was 9.4%, full but we are near near employment, but the legal market is not pushing the way we had gotten used to from a technical perspective. add one more data point -- if i told you we have created 15 million jobs and we're still creating 227,000 a month, and yet wage growth is coming down, you would say that does not make sense, but that is what is happening. the is why i go back to structural functioning of the labor market is changing, and we need to understand it at her. david: mohamed el-erian -- alix: mohamed el-erian, sticking with us.
data this morning -- payrolls surprise to the upside, wages come in soft, and the trade on stocks and bonds. uber -- in options slipped to 20% march. mohamed are alien wrote it does mohamed el-erian wrote 8 -- mohamed el-erian wrote a piece earlier today -- with this is mohamed el-erian from irvine, california. marcus moving on the data -- do
you still believe that kind of statement today? mohamed: absolutely. what will determine where the market goes over the next few weeks is going to be what we hear from the white house, and particularly the balance between the program elements and the ones the markets worry about, which is protectionism. that balance will be key in determining not just where the market goes overall, but also the underlying volatility. certainly, when you face executive orders in the rhetoric -- that is another layer of tension -- how you construct a portfolio that is not complacent and addresses that kind of risk? mohamed: two areas -- you want resilience, and to focus on companies and not just with a strong balance sheet, but with the ability to react quickly. you want a certain amount of functionality. we have gone through three distinct phases of the trump rally -- the surge from after the election until mid-december. the consolidation from
mid-december until an ugly ration day -- inauguration day, and then greater volatility. sayd: the president would all of the above -- i want more restrictive policies to keep manufacturing jobs onshore, and i want tax reform and deregulation. if we get that commission, how we headed toward stagflation, where growth and reflation? say,ed: that is hard to david, because a lot will depend on the details. if we get the balance, markets will be in the midst of a tug-of-war and we will see more volatility. the hope is you get a strong signal this is about progrowth, and yes, to the extent we can renegotiate certain trade agreements, we should do so. revisitways good to trade agreement after decades. that is what sensible people do. be careful about rupturing long-standing trading relations.
when you're talking about trade relations -- give me a rank order -- china versus mexico, which is more important right now? mohamed: they are both important, david. if you're worried about the systemic effects -- the global systemic effects, you would put china about. some -- above. sorry, go ahead. david: no, carry on. about thef you worry global systemic effects, china is more important than mexico, but in the context of the u.s., they are pretty equal. mexico plays a significant role. i was in canada a few days ago. they are concerned about what has happened to a major trading partner. jonathan: in about 10 seconds -- two options, a 10 year treasury at two point 45%, the stock market at an all-time high -- buy-and-hold for you -- which one? mohamed: the stock market. jonathan: there you go.
always appreciate your time. coming up on the program, more on u.s. payrolls. blackrock's rick rieder joins us, and the reaction from the white house, with gary cohn. we cut you down to the market open. 34 minutes away. equities, futures moving higher. positive 92 on the dow. positive 10 points on the s&p 500. byasuries, yields are down three basis points on a u.s.-10 year. the dollar just about holds onto strength on the day. upside surprise on payrolls, downside surprise on wages. this is bloomberg. ♪
good morning. welcome to bloomberg daybreak. i am jonathan ferro alongside david westin and alix steel. a payrolls report -- futures are up across the board almost by .5%. upside surprise on the headline number, but a softer wages figure that may be pushes back rate hike expectations and is shaping this market. treasuries, from her. yields are lower by three basis points. the dollar was stronger, but it has just started to roll over. the euro dead flat, and the cable rate coming back up. let's get you movers now and cross over to alix steel. alix: on the downside, retail -- deckers off by 20%. they miss third-quarter estimates and cut full-year earnings. a big downside for the company. hanes brands dealing with something similar. we department store traffic. the midrange was lower than estimates.
another meet on retailers not been able to deliver. a different story when it comes to banks. a double when he for stocks -- a double whammy for stocks. higher yields, and the possibility of donald trump releasing and is a border later today trying to roll back hearts of dodd-frank -- parts of dodd-frank. financial services saw the sun dress stronger gain in jobs since 2005. the banks shaking off weaker yields now. it will be rolling back regulation. will be discussing that later in our. jonathan: 29 minutes away from the open. futures are firmer. we summarize the job report. upside surprise on the headline number, 227,000. the median estimate of bloomberg was 180,000. implement rate ticked up -- the unemployment rate ticked up to 4.8%.
average hourly earnings is the conversation -- the median estimate was 2.5% -- 2.7%. coming in at 2.5%. joining us, danny blanchflower. 30 minutes to digested. what is the takeaway, danny? danny: the takeaway is a strong nonfarm payroll, but the focus has to be on the household survey, and actually, you just said the unappointed rate ticked up, but the big news is that underemployment. basically, i am just looking at the wage growth series. my view for a long time has been 2%. i have heard people talking about a pickup in wage growth. not true. so, once again, wage growth is the story.
the dog that is not marked is not going to bark. we are a long way from full employment, and the fed was right to stay on hold. the wage numbers are the crucial went and indicate the u.s. labor market has lots of slack. on this, i am with donald trump. jonathan: you are on the same page as the president. wages around 2.5%. there is a consensus this is no longer a cyclical story. it is a structural story. are you pushing back against that as aggressively as you are a year, two years ago? danny: absolutely. i have no idea what anyone would think this is a structural story. we have slack in the labor market that is extremely high. we are in the flat part of the wage curve. we see an increasing the amount of labor market slack pushing down on wages, consistent with everything on wages and unemployment i have done in the last 25 years. this is not structural it all. what is interesting, i have been
saying the same in the u.k.. this week, the mpc put down its forecast on wages and lower the estimate on the equilibrium rate of unemployment. i completely disagree with it. i think it is really cyclical. the first time i've ever said it, donald trump and danny blanchflower are on the same rate that point -- it is a poor indicator of employment. i like production in nonsupervisory workers. the number i have for that weekly earnings is 1.9. alix: danny, what measure do you want to be looking at, and what is going to be the full employment if it is not 4.8%? danny: well, i certainly think it is well below 4%. if you look simply at the employment rate, start with the employment rate, which, for 50 years was a good indicator of
labor market slack, that tells percentagebout 3.5% points below where we were in 2008. you get to another 5 million easily -- you get a big chunk of people from underemployment. my guess is we are 7 million jobs from full employment. the number is well below 4%, and the reason why -- all the time i keep saying it -- if we were anywhere close to full implement, as all these people were saying, you would see wage growth picking up. it has been flat, and if anything, it is falling. the eci fell at 2.2%. we are a long way away. alix: we had seen average hourly earnings start to creep higher. laboris under 4%, winning -- wage growth be at 1% or something? danny: the hourly earnings story is not exactly what people care about.
people care about what they take him. we have seen declines in hours. it has met weekly earnings growth is much weaker. 2% is about the right story. i like to look at production in nonsupervisory work. this tells you how the man in the street with a woman in the street is actually feeling, and that is as flat as a pancake at 2%. we have seen a little bit of real wage growth in recent times with a pickup in inflation. that will go away and impact consumption. when you look at the wage growth, how much is the labor market? does that indicate we might be going in the wrong direction? seen, we have obviously this is been a one-month pick up. 19 states have picked up -- have seen a pickup in the minimum wage, and the question is whether that feeds through the rest of the distribution.
this is the month you would have expected a bit of a pickup. we like to focus on the medium, so the expectation is the meeting will not pick up. before anyone us as we are for employment, wage growth is picking up, they have a big problem. go to u. 9.4, and from 9.6 to there is more there because our estimate of underemployment is probably an underestimate. that is why wage growth is weak and whether president is right to say there is much more slack in the economy than other people think, and i'm with him on that one. david: come back to the question of structural versus cyclical. we had alan krueger on, same since march the has been a shift toward alternative working arrangements, contract workers.
isn't that a structural change that came with the crisis? big companies are not hiring on staff, doing it in other freelance ways? danny: it is cyclical. if there was tightening the labor market, employers would be forced to pay higher paying jobs and higher more people. hours,l see them raise take on tempora workers, so one. this is another indicator of cyclical things. it is entirely cyclical because they can manage to do that. they do not have to give permanent jobs to people because there are so many people out there looking for work. the people that have been unhappy -- and in the end, in the rust belt, and elsewhere, voted for trump. jonathan: i understand they're looking for people for the federal reserve. they will give you a seat around the table. they are looking at three height. the consensus is we could get
more. the way you have been speaking, you say the fed should go nowhere. would i be right in assuming that? danny: yeah, i think you would. if the -- you read the fed minutes, it was sensible -- they do not know what is going on, they are waiting and looking. my view is the legal market is much looser. the question is what will happen on the fiscal front? any move that faces stimulus is going to take quite a long time, and the fed needs to sit and look at rates and say what are they going to do? the economy has been --we have seen gdp numbers that are not great. my view is the market, as usual, does not believe the story from .he fed we have been here many times before. hike,e thinking a rate four, and we get one.
the market is not think a rate hike is coming. i think the answer is we will wait and see. jonathan: danny blanchflower, thank you. can you imagine a resume --although citations? -- although citations? coming up, rick rieder, and gary cohn, national economic council director from the white house. counting you down to the cash open. futures are positive. bonds as well. an interesting session. we're breaking it down for you. that is next. this is bloomberg. ♪
the payrolls report 45 minutes, and it look like this -- upset surprise on the headline number, 227,000. we were looking for 180,000. unemployment ticked higher to 4.8 percent. a little bit of a softer read on the wages figure. we are joined by bloomberg international and economics policy correspondent, michael mckee. it is the last time you will sit down with a fed official, what is your first question? michael: you have to ask what he thinks of the wage numbers, and if that pushes a rate increase off the table in the near term -- how focused are they on wages it is a lagging indicator, so it may not be determine if the determinate of -- determined. jonathan: danny blanchflower thinks there cyclically our problems, implying the fed has more work to do. is that a consensus view on the
fed -- the core -- janet yellen, etc. --that there is work to do? michael: there is a feeling they can help, but the majority of what they can do is over. the economy has gone to the point were keeping interest rates this low is only giving marginal additional benefits. it does raise -- raise some concerns. it is not just about low rates --it is about whether or not you are creating distortions that. -- there. it is not a slamdunk. they will not to any more rate increases. there is still a very good chance they will carry through with three. the timing is the question. alix: looking forward to that interview. thanks to michael mckee. take sure to check out the interview with san francisco fed president john williams here on bloomberg television at 1:30 p.m. eastern. we are joined by rick rieder of blackrock and danny
blanchflower. the last segment, danny blanchflower saying he agrees with president trump that u6 is the way to go? do you agree with that? rick: yes and no. i think one of the dynamics that is playing through today is goods employment is starting to pick up. a powerful number in terms of the total number of foot, but the 50 million jobs -- total number, but of the 15 million jobs, pretty good data. the wage number, suggests their eyes --suggest there is more slack. alix: how much more slack? rick: i do not think anyone knows the answer. you have to test it. you can get hung up with one higher average earnings number. we have been running at 2.9%.
our guess is the number next month will bounce back, probably not to two point &, but closer to 2.7%. i think you have more slack. people said where would you see total payroll numbers? people were saying we have to slow. we are talking about 237,000 jobs. butuld argue solid numbers, we want to look at the wage number. david: at the same time, how could you add 15 million jobs, and have it 2.5%, 2.7% -- a modest number, add that many number of jobs and not have wages pick up? jobs have been in the service sectors -- if you go back and track, health care, education, and now you see this movement into goods. we think you will see -- people
talked about how we were running that no inflation or low inflation. to run at -- in an economy where you have technology affects, etc., to run in high 2's payroll growth, it is not that. alix: we have the president of the chicago fed speaking and he in 2019,oyment falling and he sees u.s. growth boosted by fiscal policy --he sees 2% to 2.5% growth above what was estimated. he does see a tighter labor market feeding into higher wages. a mildly improving through from mr. evans. david: thank you. i want to go on -- to danny blanchflower on the question of structural versus cyclical. rick rieder mentioned technological changes. is that affecting a change in the labor market? the jobs being lost in a coming back again.
it is a different job. the old job is now being done by a computer. danny: well, there is some of that, but the story i have been listening to is about technology and aging, and people say that is the reason why the participation rate has fallen. it is interesting, when you go to the eurozone, what you find in the, you find the participation rate has been flat or rising, and people say we have the same kind of technology as in the u.s., and the same kind of aging. pretty hard to argue when the same thing applies in all these other countries that that is what is going on in the u.s.. you the-- i will tell point the commentator was just making -- we have seen a 15 million increase in jobs, but the employment rate was 63.3 in 2008. it is 59.9 today. to argue this is structural -- all you do is draw a straight
line and say that is how it is going to continue. i think what we have to say, there are so many people hurting across the center part of the country -- these people are actually saying there are not good jobs out there. hearyou hear that, and you that in the center part of the country, this tells you, yes, there is technology going on, aging going on, but this economy is running on empty. just use the employment rate. it tells you we are many millions of jobs -- even though we have created 15 million jobs, we are still 7 million, 8 million jobs from full employment. charlie evans is right -- we do not know where full employment is and we will see when we get there when wages pick up. i do not buy the technology story, aging, because it applies to other countries where we have not seen anything equal to the u.s.. jonathan: service rally over the
last few months has been defined as stocks up and on down. on the back of this, it is a bad news is good news read. bid --ies bid, futures what you feel about that? --k: a couple of things we're still talking about big payroll growth, accelerating economy, but you are not seeing pressure on margins. if you believe wages are not going to accelerate as fast, and maybe there is more slack -- maybe do not have your pressure on margins. a pretty good number for the equity -- equity markets. you get the dynamic that could hold the fed back a little bit more, and by the way, my markets are not going to get compressed as fast. it is a big deal. jonathan: is that here to stay? rick: i will think -- i think we will see better numbers on wages in the next few months. we see acceleration in, durables.
david: this is bloomberg. i am david westin. danny blanchflower and rick rieder are still with us. i want to turn to the trump administration. president trump made no secret his number one job for himself is jobs -- creating good jobs, high-paying jobs in this country. denny, i will go to you first -- when you look at the programs, the policies he is proposing, does it get to where he wants to go? danny: well, obviously, i do not
exactly know whether reality and rhetoric -- how they fit together. i think the worry is, the answer is basically no. the benefit would be if you have a huge fiscal stimulus, which i have been arguing for for a long time -- you allow the fed to step back, and that will boost job creation. that is true. a rising tide potentially lifts all boats. in a sense, what he is talking pennsylvania, to ohio, michigan -- the question is how is the commentary he has made about what is coming -- how is that going to generate jobs in the rust belt, kentucky, west virginia? i think we have seen nothing at all that suggests that other than, you know, some pickup in overall job creation, that it will go to those states. the concern will be that it will go -- not the concerned, but this is a reality, that it will go to a state like south
carolina that has a 1% private-sector unionization rate, different from michigan, ohio, and elsewhere. it will go to texas. rising tide lifts all boats. the promise you made to the people that voted for you -- i have not seen any plan that suggests job creation will go there, and we are waiting and listening to see what that would be. an importer, presumably you would say i would go to the place that is most is this friendly -- business friendly. we will see. regulation might be the answer, but i do not see evidence. david: the state will have some variance. is president trump on a track to increase high-paying jobs in this country? rick: depending on what gets put into the proposals, there is something important. if you drop corporate tax rates. weyou think about the era came out of -- what companies have been doing, get margins up,
cut my costs, including jobs, wages, just borrow, buy back my stock. just leverage. think about what is happening. she dropped the corporate tax rate -- that will incentivize companies in terms of earnings. to talk about direct, bottom line, permanent earnings impact. let's say you get direct expensing -- if you can direct expense, capital expenditures, that is powerful. third, if you are taking the tax shield away, it is a big deal in terms of interest reduction. a bunch of dynamics. jonathan: rick rieder, thank you. danny blanchflower. thank you very much. this is bloomberg. ♪
upside surprise on the headline number. 227,000, but wages were softer. yields down across the curve. the idea that you first back across from a marked rate -- from a march rate hike. the dollar was firmer. up 1/10 of 1%. that is how the stage is set. yields down three basis points. alix: trading amount record highs. up triple digits, 116 points. the dow had been down through thursday. this session could help the indices on the week. the two-year yield having the worst week since before christmas. a lot to look at. i want to take a look at five day spx gyp.
as you can see, we are seeing a lot of money flow in to the s&p writers we head into that last -- into the s&p right as we head into that last -- they tend to mimic the volume flow to an average trading day within the end of trading. we are seeing more passive investing instead of active managing. really interesting trend you want to look at as the head into the close of trading today. we are taking a look at visa, mastercard, and amex. popping up over 4%. sticking to their forecast despite -- 16 -- expect 60% to 18% revenue rise. -- expect 16% to 18% revenue rise. american express up as well. more people have jobs even if wages are lower.
the jobshrough through number. jon: stocks up across the board. --the doubt up 6/10 of 1% the dow up 6/10 of 1%. here is rick rieder a blackrock and manages millions in assets. we assume to good news and bad news is bad news. what do you make of this? rick: markets are reacting to what could be another -- growth is good. from a corporate dynamic, it you can have a better dynamic, but the inflation market is coming off a bit. are on the the fed backside.
we are looking for confirmations that the economy is still robust. jon: that explains the trading session. forward, do you hold on to that reflation theme from the middle of last year accelerating to the back end of last year? you are going to see better inflation data, but you have to put it into context. there are so many drags on potential inflation. what artificial intelligence will do to potential inflation is dramatic meaning we are going to decelerate. pretty good numbers from where we were. we are not going to see 80's, 90's. david: what does that take you as a bond investor? rick: there are still ways to make good money on fixed income today. the what you have to do it is different.
do you own inflation protection? the markets have really jumped on this reflation thing. we like income-producing assets. income -- generate credit markets will continue to grow. asset backspin give you growth in your portfolio better not just interest rate exposure. you have to be careful in europe. you have to be careful about interest rate exposure, but get a lot of in committee your portfolio. alix: how nimble the you have to be in this portfolio. treasuries, had you deal with that as an investor? rick: that is a great question. remember what happened a couple of months ago? rate volatility was high. as you said, that has come down. rate volatility is reasonably high, but equity volatility is
low. there are ways to buy volatility in this market. how do you get upside in your portfolio? the volatility is historic. you so much more flexibility around how you manage your portfolio. we use a lot of those volatility markets to get us convexity in the portfolio. it is a gift today in terms of the market giving you that. particular given the headlines that come out and the volatility around growth. alix: where do you think is the biggest areas of complacency in the markets? rick: i would argue the volatility markets are surprisingly low in terms of where they are. people assume -- it is the same thing that happened last summer. rate volatility was unbelievable. i would argue today that equity
currency volatility -- by the way, my guess is equities like today will grind higher. there is a lot of educated people in this market. you talk about the crosscurrents, what are the crosscurrents that concern you that will play out? rick: things like volatility move in plateau's. it is comfortable being short volatility and moves like rate volatility. we got a series of european elections coming out that could create a lot of volatility. by thewth dynamic -- way, border adjustment, how does that give implemented? what china 1 -- continues to be? as they continue to be in a good economic paradigm, and do not accelerate, that is a big one.
david: does that mean china is a contrarian move? rick: quite frankly, there are great opportunities in china. we think the growth will be pretty good and transition from goods to service domestic economy. if you are investing in the u.s. ,nd europe and in financials you got to be really careful about the dynamic and china in terms of what the risks are related to china. it is 42% of the growth in the world comes from china. terms ofhe trade in commodities. factor, forggest goods particularly. david: it is 42% of the growth and more of that 42% comes from credit. they are borrowing more than they are growing. how do you invest in that environment? rick: you hit the point.
the debt is too big. publicve been growing sector investing on the backside. is are going to be a tricky dynamic at some point in the future? absolutely. you build current accounts because you are still in that exporter. you will manage the rate dynamic and continue to play out over at period of time. accelerates,ight that is where it is harder to manage all of these tools. like you said, it has grown on credit in the credit is too big. jon: we spend a lot of time using words like risk and uncertainty. the rhetoric versus the policy we might see about currencies from the president himself. but does thats, change the direction of travel? rick: in terms of what policy
is? i see people talk about the numbers. if you do the numbers on some of these policies and the transmission effect, no one talks about multipliers. if these policies get into manufacturing and goods, the multiplier on manufacturing is different than services, education, health care because it gets into transportation, chemicals. nobody does the math on the multiplier effects that can be powerful. if there are some things that give through -- corporate spending, corporate expense -- they could create a second derivative effect that are arguably more important. david: rick rieder will be staying with us. coming up on the program, jobs reaction from the white house with gary cohn. and this is bloomberg. ♪
>> i am emma chandra in the green room. coming up, carry codirector of the national economic council will get his take on the jobs' report at 10:00 a.m. eastern time. ♪ jon: from new york city, this is bloomberg. i'm jonathan ferro. equities up across the board. the dow breaching 20,000 briefly. up for tens on the s&p 500 -- up 4/10 on the s&p 500. yield lower to 244.
the dollar holding onto strength against the pound. . it is an upside surprise on payroll softer wage growth -- it is an upside surprise on payroll. softer wage growth. avid: snapchat responded with $3 billion ipo. to make their first public offering. the 2000 levels of ipos in all of 2016. here is paul sweeney a bloomberg intelligence. $25 billion, give or take. -- how dot justify they justify that number? paul: this is a company seeing their revenue grow exponentially. looking to double potentially next year. this is a company that is a very small company relative to where facebook and alibaba was. this is a company investors will have to believe in for the
stretch in valuation simply on those metrics, but again, what they are going to appeal to investors for -- this is going to be a very valuable platform for advertisers because of a younger skewing demo. the people on snapchat are very engaged and go on 18 times a day and spend 30 minutes a day on snapchat. the user engagement is something advertisers value. goal -- not overall just the overall audience, and how engaged users are. alix: 30 minutes? i am too old. [laughter] you have to monetize it. talk about the differentiation? paul: we have seen that on the other social platforms. the advertising market in north america is much more developed than in many other parts of the world. you see higher revenue per user
in the u.s. versus some other markets and that is absolutely true for snapchat. is going to bey increasing the number of users an increase in the monetization outside of the u.s. where it is a fraction when you look at europe and asia. like some of the other social platforms, which is the story that investors are comfortable with that can be a long-term growth story. david: snapchat gets its revenue from advertising. good they -- could they be a facebook question mark paul? paul: it is a duopoly. the other 40% of the ad dollars are spent across billions of apps. investors are looking for another national brand supporting advertising platforms to put significant money and attract dollars away from television, which is why the
facebooks of the world and youtube are focusing on online video allowing advertisers to shift dollars onto digital platforms. alix: paul, good stuff. paul sweeney of bloomberg intelligence. staying in the tech world, investment great issue went hitting $176 billion in february, in january, i should say. yet three big companies -- apple selling $10 billion. microsoft and at&t. ofare with rick rieder blackrock. i love this story. the story at the end of 2016, you are going to see less supply because companies could repatriate their cash. what you make of that? rick: it is interesting. raised $10 billion.
the dynamic of when the repatriation will come through -- it is interesting, they issued shorter maturities. issuance -- companies are frontloading some of that issuance, which happens in january. the other dynamic if the bid for yielding assets coming out of places like asia, japan particularly and from pension funds. companies are tapping into it. story that they have less confidence in the trump administration to deliver? is this a story that the reinstallation world and the search for high-yield is on track? rick: tough question. some of the straight repatriation issuing on the short end of the yield curve was a play there.
the bigger dynamic is if you think about interest deduction and what happens and how does a big deal.-- financials are coming to the market in significant size. tapping into a robust bid. jon: that is the perspective of the issuer. tapped the debt market for 30 year get with a 4.5% coupon. only yield 5%. -- talk tog this up us about the dynamics. -- how do they influence sovereign versus credit? the: you think about what fed's inflationary expectations
are. august where we were in -- 30-year inflationary expectations of 115. we are over 2%. that is a huge move. since the election, we accelerated 2%. it is a big statement in terms of where we are. we are doing something significant. pay attention to the wait for sure. would you do with that? at the end of that discussion, the careful about the interest rate exposure and that inflation is accelerating, we could see inflation move up 20 basis points, which does not sound like a lot, but we had a 17% drawdown in long-term interest rates in a 100 basis point move over the last six months. that is why we like to buy credit because it absorbs some of that yield move because yields compress. it absorbs some of that interest rate pressure, summer balance in your portfolio -- so more
balance in your portfolio. jon: you have to be sensitive to that if you have a long-term horizon. and if you could hope through to another 30 year debt. if you want to buy and hold at 4%, you around 3% or said inflation will top out around where? rick: we will hear the high 2%. jon: what is the risk if you are going to have a really long-term horizon? rick: there has been this thesis to get out of everything and go to 5%. the demand overseas is significant. you could have negative returns from a small move in rate. you have to create more balance. let's say you buy a 6% asset and hold it for two to five years. that is 64 the coupon over five years. it offsets -- and about the numbers.
2.7%. the fed has a whole lot more work to do still. david: it is like the goldilocks report. muchages did not go up too , so the fed is not likely to raise as fast. gainsyou saw steady wage and growth moderate. is this a change and we have to recalibrate our expectations? jon: first question for gary cohn? -- are they doing doing as much on technology? jon: looking for to that conversation with gary cohn at the top of the hour on bloomberg. that wraps it up for "bloomberg daybreak." what a session. futures of over 100 on the dow. up by 0.55%. s&p 500 positive.
26 minutes into the session. the risk/rally looks like this -- yield down by two basis points. much in line with where we started the year despite that massive consensus in the market. and the fx market, it was a stronger dollar story. the dollar is unchanged. -- euro from new york, the payroll coverage continues. this is bloomberg. ♪
♪ vonnie: we are going to take you from new york to london in the next hour and cover stories out of washington d.c., paris, and china. we have breaking news. abigail doolittle is here to tell us what happened with durable goods. abigail: the data is just and good relative to i sm, nonmanufacturing services, looking at a small missile 56.5. ais is relative to december 57.2. a little bit of weakness for the services sector. durable goods down half a percent. this data is disappointing just slightly f
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