tv Bloomberg Daybreak Americas Bloomberg March 10, 2017 7:00am-10:01am EST
expectations ahead of the monthly jobs number. the market shapes up for a rate hike later this month. a commodity rally begins to crack. from new york city, happy friday. good morning and welcome to "bloomberg daybreak." i am jonathan ferro, along with alix steel and david westin. twitter, up on 230,000. david: where are they? they keep coming out of the word where -- out of the woodwork. jon: the markets, as we cap -- as we count you down to the cash open. that is two hours and 30 minutes away. the euro is stronger, up to 1.06 again. the yields up by a basis point. alix: if you want to see how the
yield differentials are playing out, look no further than the dollar-yen. -- .6%rude a little bit higher after a brutal selloff. copper also rising by $32. david: now for a preview of those jobs numbers. we turn to mike mckee. mike is down in washington. he will get the first look at those numbers. is there any chance we are setting of sorrows -- setting ourselves up for a disappointment? may be settinget itself up for disappointment, but nobody thinks so. mentioned that whispered number of 230,000. 200 thousand jobs is the headline number that people are putting down on paper -- 200,000
jobs is the headline number that people are putting down on paper. 215,000 is the number for private sector jobs, which means the government is going to subtract the number that donald trump put a hiring freeze on. unemployment is set to drop. that what is always a wild card when you are considering whether or not people are coming back into the labor force. if you do get a 230,000 number, what other numbers are affected? what happens to the participation rate at that point? mike: if you get a lot of people coming back into the labor force, you would see more people participating in the labor force. numbers might not grow as fast because wages disperse among more people. it is hard to see exactly in one month, a major change at the fed.
this is less about what the fed is going to do next week than how fast and far the fed will go the rest of the year. you get 230,000 or more from payrolls, you will see people pricing in a fed move sooner. you will see the two-year yield go up. david: a little less than 90 minutes right now with the actual numbers. jon: the director of global macro -- and the global head of ethic strategy at credit suisse. more hikes, while there be some people in the fed that think maybe there is room to run in the labor market? >> that is the question, but since a few weeks ago when the march hike was 30% odds, now it is 100% odds, and i look at the number of hikes that will be priced in over the next two years. the number of hikes priced in 3.5 to five in
the last couple of weeks. real rates have shot up 20 or 30 basis points. i think there is a limit to how far they can go right now, but it is interesting because three months ago we were talking about will we ever get out of this secular stagnation regime, and now we are seemingly headed into a classic environment where the fed is in the game. the question is, how much growth will they be before the yellen call will get triggered and it is offset by more tightening? jon: two we see go the consensus view was the consensus not a rate hike and mark. it did not change on the data. talking aboutd the potential for one. where did the numbers change? changed with the complacency ahead of the meeting, given that the data were good enough to argue that
the hike was a reasonable proposition. as far as the data today goes, with this particular meeting priced at nearly 100%, it is likely that the dial will not move that great, particularly for march. but the numbers are strong enough to cause the market to price in something that has not happened as yet. that would be a ticker for another rate selloff. alix: if we do not get that, though, is that pointing to the downside for the dollar? really giving the dollar the miss that you would like to see from a financial perspective, look at yesterday. draghi came through with the concept that basically we have seen the lows already, or the max easing already in europe. i think that is the issue now, from a currencies perspective. what you are seeing is rates
going up everywhere. add that a more hawkish fed would normally be dollar positive, but as the fed lifts, the ecb is probably closer to the end game, and that should lift the euro, especially if we get past the french election. if we are in a globally sick or nice environment, which we have been for the last year -- if we are in a globally synchronized environment, which we have been -- the last year alix: here is my problem when you get to the u.s. yes, you get the killer jobs numbers, but you have the atlanta fed tracking at 1.2%. how do you square the softer economic data with the stronger payrolls number? how do you square those two? jurrien: potential gdp growth is labor force and productivity growth.
demographically, we are not in an environment anywhere in the world where there is a lot of upside potential. ofare stuck at a speed limit about 2%. the problem is that when you get blowout numbers, it is the fed on guard because you overshoot your speed limit faster when your speed limit is low than when it is high. david: why is that? why doesn't it work the other way, which is to say that there is more slack in the labor market than we knew? we are already past where most experts thought we would be at this stage. jurrien: there is probably more slack than the official data suggests. if you look at the u three, we are probably at eight or so, and 6 is probably lower than it historically is. there has been more slack, and that is one of the reasons why
the fed has not been that an tsy to move. against a 1.5w percent backdrop, not on a sustained basis, unless you add to the supply side economy that boosts productivity. realotion of getting to 4% gdp rests on that particular function. david: when you come to the foreign exchange market, to what extent is it reflecting a new president who is saying we want to get to 4%? veryb: that has been important in terms of boosting animal spirits and taking the stock market to the levels we have reached, helping rates move higher. it has had an effect on the dollar as well. what we need to see moving forward arson tangible results -- are tangible results. see real signs that these events can be completed by august, which is
the current timeline, then i think you will see another lift for that view and the dollar could benefit from that, especially if you include auto adjusted taxation. jon: 0.3% is the wage estimate. shahab: from my perspective, we need to see something above the 300,000 jobs number, or we need to see something -- jurrien: it does not matter. the fed has a free option to go, and they are going to go. focus on the big picture. alix: not even a number? ien., jurr coming up, bill gross will give us his reaction to the february payrolls number. plus, gary cohn, white house national economic director. this is bloomberg. ♪
emma: this is "bloomberg daybreak." one of the advisors on the plan block of the ipo of saudi aramco. the aramco ipo is likely to be the largest ever listing and will generate millions of fees and commissions. ceo -- the ceo -- profit at the swiss bank plunged, and ubs had to cut net income to settle an agreement. pbg industries is preparing biggestbig for europe's
-- the rejected ppg $22 billion offer was too low. that is your bloomberg business flash. i am emma chandra. this is bloomberg. jon: in the bond market, the u.s. 10-year treasury yield started the day with a nine-day losing streak. jalinoos joins us. and jurrien timmer. everybody hates bonds. you look at the speculators, the economists, the strategists, everybody hates bonds. the 10-year went from 1.3 last summer to 2.6 the fourth. then we traded down to 2.3, now we are back to 2.6. if you look at the 10-year yield, it factors the rate hikes that we factored in. the fed gets,sh
the higher rates in theory should go. but the more important thing to look for is, how is that increase in yields composed? is it real rates or inflation expectations? during the taper tantrum in 2013, real rates more than nominal rates as inflation expectations fell. from the election until about mid-december, it was about half and half, which was a ulla schmidt's. but in -- which was a bullish mix. rates that in real is more than the economy can handle, that is the risk. that pushes the dollar up, titans financial commissions, pushes oil and gold down. it makes emerging markets underperform. the real rate is what i really track here. jon: a lot of people have come on this program and said look at why we are moving in this direction and not the actual
level. growth is getting better. but are you saying the repricing we have had over the last nine days is unhealthy? to ben: if it continues entirely on real rates and not inflation expectations, there is a limit to how far it can go before it undermines the economy. there is always this dynamic between the rise in rates and the amount of growth out there to withstand that rise. couple of years, the fed tried to tighten and it almost never succeeded because there is no growth. now that earnings are growing, the economy is much better. the growing economy is much better. rates hasy the rising not caused another taper tantrum. there were a few signs with the dollar getting more bid that maybe they are pushing against the limits here. we have goneid from three and a half rises over the last year to five. to what effect -- where do you
end up at five? what is the rate? jurrien: i look at the two years out, fed funds futures minus the current or you get the number of hikes that are placed in, and we went from 3.5 -- last summer at brexit it was basically zero. then it went to 3.5 during the election, and now we are at about five, and this is because of the more hawkish guidance the fed has given. the market sees the animal , but it is a race between how far the number can go up and how ready the economy is to embrace it. that is the classic fed cycle. how fast do they go, and if they go slowly enough it is ok, but if they go too fast for the amount of growth to the system, it can undo this progress. david: how does the dollar react to that scenario? the scenario already sets a relatively high hurdle rate in terms of rate hikes
already in the price for the dollar to react to. the corporate tax reform that markets are talking it gives the dollar an independent lift, aside from what the fed is doing with rates. that would help flatten out the yield curve even more than what we are seeing since december. that could, in itself, put pressure on the fed, especially since inflation expectations are still subdued. the currency could get a lift from a different area, in corporate tax reform. jon: let's talk about the euro and what this means. rate differentials are clearly set with a euro that is weak third how much oxygen is left in the direction of that spread, and therefore the direction of the currency as well? shahab: it is awkward because we have a very wide rate.
the reaction now is in european rates as of yesterday. there is the possibility it will spike higher, especially if the polls continue to show the french election is less of a risk than many markets thought a couple of weeks ago. that raises the possibility of the euro continuing to rally. tohave seen it go from 1.06 1.08. we have not gotten past the french election yet, and i think to give comfort to the market, you need to get that risk out of the way. alix: the curve is now higher than the u.s. curve. it just happened. jon: it is kind of like down here at the treasury. if you look at the euro, does that scream buy to you? jurrien: it does. since 2009, the s&p is up 281%. e.m. is up 130%. there is a 150-percentage point gap there.
since a year ago when the global cycle bottoms, u.s. earnings are up 8% and the s&p is up 26%. up -- msci europe is up 12%. my since personally is that europe will be the sleeper hit of 2017 or maybe 2018, once we get past the french election. i am not worried about the dutch or the german elections so much. jon: how do you want to be set up ahead of this payroll number? do you want to belong ahead of this? shahab: i think you can be long the dollar, for example, the canadian dollar. i feel more comfortable with that. oil is falling as well. canada is a high-cost producer of oil as well. if shale oil is falling, that is not good news for canada. rate differentials can still take canada higher as well.
is moregainst euro uncomfortable for me, given the rate moves we have seen in europe. of credithab jalinoos suisse, thank you very much. jurrien timmer will be sticking with us. coming up, we will get white house reaction from the payrolls numbers when they come up. gary cohn will join us right here. this is bloomberg. ♪
alix: this is "bloomberg daybreak." it has been a brutal week for commodities. over the last week, crude is off by 7%, copper off by 3%. four weeks down, the longest streak since 2015, november. still with us is jurrien timmer of fidelity investments. is this just a break because we had a huge rally?
fundamental commentary on china, or is it about the dollar? jurrien: is it about -- it is about real rates, which in turn is about the dollar. if you look at the breakout in real rates, it matches up well with the fall in gold and oil. a lot of that is speculative positioning. the crude oil market is driven by speculators, if you look at the cftc data. noisek there is a lot of in the story, but it is interesting that oil is down several weeks after energy stocks already took a beating. a lot of us were thinking, what does that mean, who is right, and does that mean equities, energies were right? there is no downward movement. it was up taking to almost a new high this morning, and that is a non-futures driven commodity index.
the global picture is still solid, and a lot of this is positioning because real rates go up, the dollar goes up, financial conditions tighten. i think a lot of this is positioning. alix: i wanted to point out the correlation between oil and break-even inflation. this is a two-year break-even correlation. ,he feedback loop from this short-term inflation expectations to actual inflation to the fed -- can you walk us through that? jurrien: you look at bond yields, it is a combination of inflation expectations and real yields. if inflation expectations were moving higher, commodities would be much better bid. but it is one at expense of the other, which harkens back to the taper tantrum of 2013. alix: so oil has a direct influence. direct, butbe not indirect. it is part of the same structure, and i think the fed,
especially over the last year, a year ago when we had the big decline around the world early last year, the fed has learned that the dollar is super in important,s super and financial conditions are driven by the dollar and the commodity picture as well as global up his are all part of that. it is one big puzzle with all the pieces connected to every other piece. alix: do we stabilize for oil, or will there be another down grab? bullish,we are still although the inventory drawdown is happening slower than a lot of people thought. oil goes higher and commodities in general will remain stable. we are in a converging global cycle. is done going up over the cycle, which i suspect it has, commodities and other non-us assets, or assets that are inversely linked to the
dollar, should do well. do we need to see a fix in oil for a sigh of relief, or is there no downside? jurrien: there is upside all the way to 65 or 70, but that is longer out. alix: jurrien timmer, thank you very much. coming up, reaction to the february payroll number. bill gross joins us. alongside an all-star lineup, including mohamed el-erian, and later, gary cohn, the national economic council director, joining us from the white house. you are watching bloomberg. ♪
this, withs set like futures firmer in the united states, up a third of 1%. up the boards quickly, treasuries, what a route it has been. nine straight days of the dollar leading the treasury market. it is a euro that has been ahead of this one. the euro with a 1.06 handle, one hour away from the payrolls report. let's see what is making headlines with emma chandra. has neversia, the been a day like this. south koreans have confirmed the impeachment of park geun-hye . that triggers an election within 60 days. pro-park of anti-and protests have led to at least two people dying. president is unpopular
with palestinians because he is friendlier towards the israeli government. he has also taken a stance on palestinian statehood. the european union is reminding theresa may how tough the upcoming brexit negotiations will be. --uments show the e.u. -- evensays the e.u. ireland once the u.k. to pay an exit fee. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries, i am emma chandra. this is bloomberg. david: as we wait for the u.s. nonfarm payroll numbers, out in just a little under an hour now, all the indications go in one direction, for a robust increase in employment. harry haynes is the political strategist for evercore in washington. you have a number of charts out.
they are fascinating, some of these indicators. unemploymento of to total employment. i believe it is the lowest in history at this point. explain the chart. >> it is certainly very low. -- and the chart is essentially as you described. it describes the difference between total employment and ist it says, that employment trending up very strongly. that is good news for the economy, and that probably presages a strong jobs number, which we estimate to be at about 275,000. david: what is driving this? the trump administration has only been in place for 50 days. what is really driving this? fiscalhe anticipation of stimulus, or is it something else? thingsthere are a lot of that drive animal spirits, and
that is certainly one of them. it is also the fact that the economy over the past few years has been relatively strong. there are a lot of indications that that will continue. thatf the reasons we think the jobs number will be strong today is because adp's have been very strong. you see all kinds of indications -- another turn in the rig count, for example. railcar holdings and all that. itself, in march, is another indication. and even the recent upsurge in bond yields. david: you mentioned animal spirits. when it comes to jobs, we particularly pay attention to animal spirits with small business. the incentive among small businesses is spiking up.
is that triggering employment or likely to trigger employment? terry: we think so, to some extent. what has already been baked into a large extent is that the new administration needs to make good on its promises to jumpstart the economy, particularly on tax reform. to seehen do we need legitimate proposals that change the market for the optimism and the followthrough hiring to continue? terry: proposals in what sex? -- proposals in what sense? alix: those businesses that that on more people continuing to hire? terry: sure. the markets are very different in a political time. in market time, this was originally expected to already happened, for reasons i am not quite sure of. in washington it was not expected to come about that quickly? there are predictions today -- are we going to see phase one of
the a ford will act, the thing that is going on now -- of the affordable care act, the thing that is going on right now? we think tax reform follows in a timeframe between august at the early 2018 at the latest, but certainly in the sweet spot of the third and fourth quarter. taxontinue to think that reform will end up being retrospectively applied to january 1, 2017, because that will give us the biggest bang for the buck possible. alix: is that timetable conducive for the adp number of 290 8000 and the sentiment we see from small businesses? terry: absolutely. it is a major part of that sentiment. the markets think that all of this is going to happen right now, and from my position, as a
policy political analyst, we think that is going to happen. that will continue for some time . it will take a major stumble in washington to make that be different. us for a fewith moments because we now want to return to infrastructure, one of the major focuses of the trump stimulus. promise itselfe is driving some investment decisions. matt winkler has taken a look at one prominent engineering firm, and he has a piece out this morning to explain why "infrastructure already is the stock market's favored holding since trump won the white house." welcome back. take us in the story. matt: the largest engineering company is called acom. in the one-month since trump was elected, the stock appreciated 44%. this is a company that has
aspirations to be the largest infrastructure company in the world. it has done many things. it is building right now this spectacular los angeles rams stadium, maybe the most expensive stadium in the nfl. it is bidding for a project in los angeles to build a monorail around the airport. they are all over the country, all over the world, and should this infrastructure plan that trump has disclosed, $1 trillion, come to pass, they will be a big beneficiary. but the market is not waiting. the stock market loves this company, and it is a favorite. upid: we just put a chart about what happened with stocks since november, and it has shot up dramatically. it has come off some since then. is that because it is taking a while to get to this infrastructure? matt: there is a big reality
check here, and it is right there with the company. this is what is known as a high-yield debt company. their bonds are less than investment grade. that is not a bad thing. investment grade and noninvestment grade bonds have done well for the most part. high-yield bonds have been spectacular performers of late. that is consistent with the stock market. their bonds are not performing well against the benchmark. bondholders are saying show me the money. they have not seen anything yet. that is characteristic of the bond market. the bond market is very much a, we look at the bottom line, we do not see it, we are not going to believe it. bonds trade on that basis, unlike the stock market, which loves the future. timeline,d on your should we be listening to equity investors and not the
bondholders? >> i can tell you that the president is serious about it. what needs to be understood, the president talked about a trillion dollar plan that combines direct government spending with private spending. there is in our estimation only about $300 billion over three years available to directly fund infrastructure on top of the additional spending of about $60 billion. what will be crucial about the administration's plan is how they will entice private investors into the infrastructure marketplace. alix: my question to you, same question. is a really the equity investor that has it right at this time? matt: let's draw a parallel here, and it is a very different kind of company.
if you look at tesla, it is all about promise. every established automobile company says we will do the same thing as soon as tesla starts making money, but they have not done that yet. the model of tesla has been around since 2008. consumer reports says it is one of the best cars in the world, and the stock shows that. that is all about promise. if people get excited about infrastructure -- and part of aecom's argument is that you have this rare alignment between democrats and republicans. want and the democrats infrastructure, and the public wants infrastructure. when you have those three things together -- the taxpayer, the democrats, the republicans, and the president -- there is a reason why people should be optimistic that something will happen and it will help the stock market. david: you live in the intersection between the markets in washington. i do not envy you in that
position, but that is where you live. regularlyh the fed what the expectations are with interest rates. the markets are in one place and expecting this substantial stimulus, including in infrastructure. washington is not there yet. which will come closer to the other? of -- in the sense david: does washington come up to the markets, overdue the markets have to come down to washington? terry: the markets have to come down to washington. president trump hired exactly the right person in secretary chao at transportation to spearhead this stuff. she is smart and capable, a real veteran. she knows how to talk to and work with congress. they are working hard to develop this stuff. at the same time, she has to herd cats in the administration
and congress to get the bipartisan consensus matt talks about. i completely agree with matt's statement. but at the same time, you have to go from broad convergence to the details. i am still optimistic about a fourth quarter event for that isucture, but rapidly slipping in the next year. things to bloomberg editor-in-chief emeritus matt winkler. coming up -- jon: coming up, it is the countdown to the payrolls report. you are looking at this stage set with 200,000, your estimate. gross, janus capital fund manager, joining us alongside mohamed el-erian, and later on, gary cohn, joining us from the white house. from new york on payrolls friday, this is bloomberg. ♪
emma: this is "bloomberg daybreak." coming up, gary cohn joins us from the white house after the jobs report. david: this is bloomberg. washington positive tension has been largely devoted to health care with republicans coming out with a plan that was approved by the two key congressional committees. though it may have moved quickly so far, it has faced opposition from the right and the left. here to explain what is going on is bloomberg white house withter -- i want to start
a quote from speaker ryan yesterday that we will put up here. he said it really comes down to a binary choice. david: on the other end of pennsylvania avenue, we have the president tweeting out that our wonderful new health care bill is out for review and negotiation. on the one hand you have speaker ryan saying we are not negotiating anything. on the other, president trump saying let's make a deal here. who will prevail? almosteems like this is a good cop, bad cop scenario, with senator line -- with willor ryan saying there not be too much negotiation and they have to follow the plan that has been put out without too many changes. they have me there to force is very clear on that and they have been meeting with the president, and hearing from those meetings
come as the president has met with conservative groups and lawmakers on the hill, the readout from those meetings is that the president is open to a deal, open to making changes. tois not necessarily wedded the plan as it stands now. this is a bill that is going through quickly, so it is hard to see how they will make that many changes in the short time between now and easter. but at least the president is open to making some of those changes. ifid: they do have the votes they can get them. are they going to have to make a compromise to make that easter reset deadline? >> that is what we are hearing from the senate. there is not a lot of room for error in the senate. we are hearing multiple senators on the right and multiple republican saying that they have some concerns that it is dead on arrival in the senate. it looks like they will have to make the senate holds, to get
all of those 52 votes. they can only afford to get one or risk -- to lose one or two of those senators. they have conservative senators saying that the bill goes to bank far in looking like obamacare, and moderate senators saying that the bill goes too far in looking like obamacare -- in changing obamacare. it will be a balancing act as they get those parties together. david: they have to get that through and tax reform. thanks so much. alix: the hope is that health care opens the door to tax reform by august. mitch mcconnell told politico yesterday that the debate over repealing the afford will care act is putting restraints on addressing taxes before congress goes to summer break. all tweetave you at your gdp forecast based on tax reform being delayed? michael: we did a little bit. we put things back about one to
two quarters. we thought we would get something in the 20 year -- your previous guest was saying the aca is being pushed and that the senate wants to reduce some of the components of that bill and maybe that pushes us into the third quarter. inare looking at tax reform q1 of 2018. that does not change the calendar year growth numbers that much in terms of q4, and we're still better this year, at about 2.5 next year. but things are getting delayed and pushed back. alix: does that inflate -- does that affect your inflation outlook at all? not too much. it does not change the view on
the trajectory of inflation. the call is that things will get anti-trade policies next year or this year because we can talk about something that bypasses the effect on the consumer, but that is very hard to do. that is where the rubber meets the road on us changing the inflation outlook. right now i do not see a big change, still consistent with the fed target. you look from wall street to d.c. and push out your expectations as to when tax reform comes, and when the fiscal stimulus plan comes through, are you diluting the potential for the signing of this program as well? or is it just the time horizon that changes? we have scaled it down a little bit. we believe you do not get full tax reform, you just get tax cuts and increased spending. maybe on paper that is budget neutral, but on practice, -- but in practice it may widen the deficit.
we have scaled down the size of the personal tax cuts. we think the overall plan will be significant in size, about 1.5% of gdp. trump is not an establishment republican. establishment republicans are not tea party republicans, so compromise has to go on. alix: with a one-word answer, do we see border tax adjustment? michael: no. alix: good job. you are sticking with us. next -- ng up alix: reaction to the february payroll number. bill gross will be joining us. bloomberg economist mohamed el-erian. and gary cohn joins us direct from the white house. this is bloomberg. ♪
bloomberg. the payrolls report is about 37 minutes away. michael, the median estimate of bloomberg surveys, 200,000. michael: that is where we are. there are risks in both directions around this. the soft data, the sentiment from business and consumers has been quite solid. the initial claims data suggests there is little firing going on right now, and the separation side of the labor market looks good. there is the potential for upside for private-sector hiring. in the other direction is the freeze on federal employment. there could be some downside from the public-sector data, upside from the private sector data. jon: what is the upside risk for wages? -- .2 or .3 on the month is where it should be. 27 year it will end up .
on year. jon: in terms of the narrative, 200,000 is not what you would usually associate with full employment. what do you make of that yeah go michael: if you look at the data historically, we never get this gradual slowing where employment starts at 200000 and gradually slows down to what is consistent with full employment. tends to happen with expansions, we get solid hiring until the unemployment rate pushes to around 4%, and that policy is starting to get tighter. you should expect this, that somewhere in the neighborhood of 185,000 with a little slowing, but then the jobs rate pushing unemployment lower. -- d: why has wages michael: you have to push
titans nehru to create -- to create tightness in the labor market. there is no room to run in terms of yellen's view. we are not creating scarcity and removing slack. second is the productivity growth is weak. normally wages would go to the 4% to 4.5 what -- to the 4.5% range. the payrolls report is 34 minutes away. full reaction from an all-star lineup, including bill gross, mohamed el-erian, and gary cohn. you are watching bloomberg. ♪
the market shapes up for a rate hike this month. treasuries start the day on the nine day losing streak. the commodity rally against the crack. a revival in the united states for drilling. morning york city, good and welcome to the bloomberg daybreak. report, the payrolls the stage is set like this. 30 minutes from the payrolls report and this is the all-star lineup. bill gross and of course joining us alongside him is bloomberg columnist mohamed el-erian, and then gary cohn, national economic council director is joining us from the white house. in the markets, 90 minutes away from the cash open. futures a little firmer. 131% here in the united states. the euro of a quarter of 1% against the dollar. the treasury route, 261.
dollars stronger for the seventh straight week versus the yen, up by 4/10 of 1%. the commodities market getting a little relief after they got hammered for the whole week. crude up by seven tens of 1%. gold a little weaker. since longest streak december 2016. one stock we are paying attention to is bp, up over 3%. exxon mobil is said to have sounded up bp's major shareholders seceder insurance and a potential takeover. -- isa potentially potentially worried about the offer of 120 billion pounds total. chevron also looking into that as well. david: there have been rumors around this for some time. alix: ever since my condo. -- macando.
who is going to want to take that on? jon: still with a 92,000,000,010 market cap. ause the word -- still with 92 billion pounds market cap. bought xto right with they should not have. i can't fathom why they would want to make another huge acquisition that still has clouds around it. jon: no confirmation of any this is bloomberg. the big one for us about 28 minutes away, the payrolls report. februaryobs added in and an unemployment rate of 4.7%. joining us is chief u.s. economist at rbc capital markets. let's begin with you and play the guessing game. what is the base case? >> 200,000 on the total and private. i don't think that's why the different than what -- china speaking with a number of accounts post adp, expectations
are built up more than that. i think a better question to ask is what of the expectations. i think that expectations are probably not even close to consensus in terms of what we can do for them in terms of thinking you will get a march hike over the balance of the year. i think the fed is acutely aware of that if you consider break even on unemployment -- labor, it is posted a 100,000. that it is close to 100,000. something below since this is still something for the fed and move forward within march. jon: we have a better question so i will give it to jeff rosenberg. what is it mean for the fed? jeff: there is a better question. [laughter] taken.om's point is well the fed has really slated the importance of this particular
number ahead of march expectations because they brought march expectation up to 100%, close to 100% probability. a very high bar for something to come out of today's meeting to dislodge the fed's desire to get on with normalization. if we are anywhere near the pin, this is a nonevent for fat expectations -- fed expectations. i think it is high bar for change. alix: why isn't good news bad news? if were adding 200,000 jobs, that should be a more doveish fed? tom: most of the slack in the labor backdrop is gone. we are on the other side of that fight. leslie are view off the table for a second. the fed has included we are now at the point of full employment. anything that is north of 100,000 is just gravy at this point.
i think it does beg the question, does that mean the fat becomes more hawkish if they continue to see job growth in and around 200,000 range? that could mean, according to their models, and additional wage pressure on the pipeline. i think we have flipped to the other side. the conversation should relief center more on the degree to which the fed will be hawkish in coming months. david: you gave us the other numbers. tom: we are not looking for anything the blowout this month. last month was an odd month. we expected average earnings would rise in a much more significant way, mostly on the back of minimum wage increases that we saw. we expected at least a three or four tents increase. i would not be the least bit surprising it payback this an upwardher via revisions the previous month or some sort of payback in concurrent months. don't be surprised if we see a
stronger-than-expected outcome, but it's not just about this one number. constructivee been and that is something we expect will continue as part of this bigger conversation in terms of tighter labor markets. david: jeff, coming back to tom's better question, we think we knpow what will -- know will happen in march. when will it ramp-up in the months and years? do he go from three to four, and what happens in 2018? jeff: tom's point about the wage picture and being on the other side, that is very much for the market has moved towards. there is something to be the market and it will be about that forward path. and about challenging the notion of gradualism. marchd has the market to and the markets of an sanguine about that. there's also up sense of gradualism in the markets -- they were comes. still shows the market is well
below out years. if there is a shift to come out of today it would be in the wage figure, maybe a little bit in the participation rate. that is something for the market that would be a bit challenging. it is comfortable with gradualism wherever now become double with a big surge in wages and a sense we are on the other side of the slack. tight labor lave -- market leading to it wage exhilaration. tom would otherwise tell me what questions to ask. here is a function on the bloomberg. >> hiking feeding questions all day long. jon: here's the function of the bloomberg, jim and. you can talk about that gradualism in the market at the green line, the estimate over the f1 see.
if you challenge the gradualism at the federal reserve, what is it me for the yield curve? tom: yes, it does. look at what the chart is saying. the bond market is much more sanguine around the pace of future normalization. not so much 2017. but the out year, 2018. there would have to be a repricing that takes place around the five year. one thing i would say in terms of the way chivers, there is a high bar for the market to get to this expectation that the fed will be abandoning gradualism. we can't ignore it for talking about the out years, we are talking about a very different fed. that changes the dynamic for market pricing. 2019, weoking to 2018, are not really talking about fisher and deadly and yellen. z,are talking about x, y,
and we don't know who these people are yet and how that said my wrist --fed my respond to today's data. david: we been talking only about monetary policy. the long and of the curve. what happened to the trump administration does come forward with some substantial stimulus? jeff: it is additive. we can assign an economic outcome to almost any fiscal outcome. the one area where we think there is relatively low-lying -- on the tax front. it taxes happen in the ensuing 12 months, it is worth about 4/10 on gross. 2.5%, you'll get closer to 3% if you do see something come to fruition. --hink there is no question the fed inserted in additional hike for 2017. they do not live economic
projections at all. i think if you all of a sudden get these policies that start to get baked into the cake, yes, it is fair to talk about a more aggressive fed. consider theave to composition of the fed will look different over the next year. the i can tell you, reality is if you get a more hawkish fed, it is not four hikes. it may be the fed going into every meeting next year and sprinkle in a 50 basis point hike here in their. that is entirely dependent on the competition of the fed. alix: jeff, wrap this up for me. lot: the market has put a into the moves this week already . if you look at the skew in front of the report this morning, i think it is skewed to the lower yields on the relative market reaction. the market is positioned.
the market expects a big report. we get the big report, a lot of that is already in positioning and pricing. if you have a disappointment, the get of a surgeon laser force in labortion -- surge force participation, you get more of a reaction from that than from the x-ray tech that act them -- expected outcome. alix: still not letting go. both of you are sticking with us. we will get reaction to the february payrolls number in 20 minutes time. bill gross will be joining us. bloomberg view columnist mohamed el-erian, and gary c ohn for the white house. jon: i'm writing in email. -- and jeffom fo together again. firmer, up 131% in the
tom, and jeff rosenberg blackrock. tom, when is the start to hurt the economy? tom: i don't think it does anytime soon. there is actually a lot of room to go. the reality of the u.s. backdrop is the consumer remains in it an exceedingly sound shape. a thesis we have talked about for an eternity now. -- on the back of wages we will continue to run up, we think the u.s. economy will weather this vertically find. i would flag, different based case is 2.5%, it's entirely possible to get some of these policies to come to play, you get close to 3% from that perspective. i feel good about where the consumer as.
the one thing we have always liked about this recovery is a lack of real imbalances. what we have been driving home is because of the lack of imbalances, longer than typical economic expansion. that idea remains firmly in place. the average eight year expansion, just as easy as 10 or 12 your economic expansion. something longer than typical because of the lack of balance is. -- balances. alix: you have to run back to your desk. good luck on the payrolls numbers. point you have inflation excitations starting to roll over. real rates moving higher. oil a little softer and investors are drawing cash. what does that mean? i will apologize to top ahead of time because he had to run and i will somewhat take a different opinion versus what he just said and he doesn't have the opportunity to have a counter. jon: he will be in touch, don't worry. jeff: the notion are no
imbalances is perhaps a little bit too narrowly focused on real economy outlooks in the united states. there is a very large imbalance in financial economics. eight years of zero interest rates have led to a massive reach for yield environment. the question is what happens when you bring real yield back? bringing real yield back is about fundamentally changing the nature of investor portfolios away from reach for yield. there is something to be cautious about as we talk about a pace of acceleration in terms of fed normalization and what that might mean. it means fundamentally changing the structure of investors' portfolios away from reach for yield back to safer assets. risky assets fundamentally in a fitted and the shift outward in
the demand for risky assets. how you run that in reverse is very, very unclear. it does give us a little bit of look particularly when we at how risky assets are pricing in terms of fixed income markets and valuation. the shift back towards say asset yields in an environment where risky asset yield is relatively compressed is an environment that is right for a lot more volatility than what you are seeing in markets today. there is a real disconnect. it argues for a bit of caution as we move through this transition. alix: this is the high yield investment great spread. you will see how low we are. we moved up a little bit but 125 basis points. 390 for high-yield. do we get back to the high of 2016 and 2012? jeff: i'm glad you brought this chart up. this is the picture of a point in time we are at right now.
it is relatively compressed. basically we are at the post crisis environment heights. when you bring back the perspective of safe yield. those are spread charts. at the end of the day people are investing in fixed income for you yield. the spreads compressed because he had massive push into that's the fed talks about people reaching -- they have been shoved into the yield because they having crowded out to morgan to risky assets. -- or into risky assets. the fundamental economic outlook is really quite attractive. it is recovering. it is the vulnerability of the financial side that would cause for a little bit of concern. david: are you caught by two conflicting forces right now? back intobe moving
safer assets, away from risky assets, then you have the u.s. saying we will grow at 4%. global growth is picking up. party caught between a rock a hard place? jeff: investors have been in a position for a very long time. the conclusion is pretty clear that by and far and away most instances held view had been low for longer and low for longer means he had to move out of the risk spectrum. if you couldn't are one of able to accept lower returns. the fundamental challenge them becomes what happens when you bring back an alternative? what happens when you bring back yield to cash? there is a new idea. we're not really quite there yet and 25 basis points will not change the world of the investment outlook. when you look -- when you look forward at where we are trying to get to, implying a 3% cash
rate, most people have a 5% typical view on income. if i can get most of my income without taking any risks, most people would take that choice. they have not had that choice. and how the financial markets transition into that environment, that is behind the fed's desire. let's go gradual and feel the stones. we are in uncharted territory. an epic amount of yield resulting from that. how do we withdraw? we will do it very, very slowly to avoid the disruptions and financial markets. jon: this is big picture stuff to think about the framework. jeff: the trade, and the near term if you pull that chart backup that has a very tight spread, it is recognized you invest for you have cushion in prices. valuation is your savior in the
sense it provides you some cushion towards things that might happen that are a surprise. and the trade is there is not a lot of cushion. is to recognize we are at a point in the cyclical cycle where spreads her carry compressed. despite the demand for the yield, there is an argument that maybe you want to get a bit more defensive in an environment where the markets are not giving you a lot of opportunity that allows you to put that risk back out into the market when the markets create another opportunity. alix: sorry i could i get a charter fee. david: coming up, reaction to the february jobs numbers. bill gross joins us, plus mohamed el-erian and later gary ocohn will be coming to us straight on the white house. this is bloomberg. ♪
♪ city, thenew york payrolls report that is five minutes and seven seconds away. we hear what he banks are looking at and it is the payrolls report. brad, with the base case for you? 25k for the payroll number. the average hourly earnings will be probably the bigger focus given everyone is expecting a big print. the dollar has been lagging rates throughout the last couple weeks. 260, the 10 year at dollar has had a hard time rallying significantly. att night we had dollar-yen 116, a big level. i'm looking for a big payroll number north of 225. that should help rejuvenate the dollar a little bit, especially against the yen and some of
those emerging markets that have been under pressure lately. jon: we have crying did out five weeks of gains. why does to 25 moves down in a significant way? brad: it is cemented. you might start to push fed rate expectations further out the curve. pricing in june, in september, maybe even four rate hikes this year. what is odd is we are in line with the fed. the fed had three hikes and other market is pretty much a three hikes, we might start the price even more than three hikes if we get a big number today. that will help spur the dollar. the dollar has been lagging. some of this has been the result of the real yields, which mentioned on the previous segment, they were struggling a little bit and other gaining momentum and the dollar is going with it. jon: jeff rosenberg is still with us. earnings expected
to be coming in at 0.3%. what kind of report the you check to see? jeff: i think it is a bit more focused on the wayside and -- wage side. there is the weather affect. a lot of that like a discounted. wages, less so. i think that could help to really move that forward. jon: it's three minutes away. it's always correlated to interest rates and real yield. also emerging markets. with the recent pressure on the commodity space, hires u.s. yields and lower commodities really hits emerging markets quite hard. some of this market, especially on the commodity side, will probably rally on a big number here. alix: what about the euro?
if you have a central-bank convergence rather than divergence, what does that do? brad: the euro as above 106, even the slightest hand of a pivot from draghi yesterday and talk about less urgency. the market really probably wants to own euros. they want to see draghi turn hawkish. they want to see the talk of tapering and a potential rate hike down the road. you can see the euro remain maybe bubbly from here, up to one await or 110 in the near-term. jeff: the bullish euro story, i think it's a challenge. we are coming up the latest data point and shifting from draghi. i think he can be in an environment where the euro is more sideways because you have both happening at the same time. the expectation in terms of the shift in euro, and the fed is
moving. -- question is whether the we get the fed moving faster. jon: if wages come in soft in about one minutes time, how does it reprice? there are lower yields in that environment and it would be disappointing. jon: thank you very much, jeff rosenberg. the payrolls report is 50 seconds away. the median estimate in a bloomberg survey is 200,000. the previous number is 227,000. the unemployment rate respect to come down a 4.7% from 4.8% previously. the median estimate is 0.3. year-over-year, 2.8. futures firm and out of this one. dow up by 4/10 of 1% of the s&p 500. if you switch out the board very quickly, we look like this.
treasury numbers are coming in today. nine straight days of meal sitting at -- the euro firmer against the dollar. the payroll support coming from d.c. with bloomberg's michael mckee nine now. michael: the wall street traders nailed it. 235,000 jobs are created. 230,000,er number, both higher than the 200,000 economist at forecasted. on a planet rate, 4.7%. 9.2% unchanged for the year number. the disappointment in the number if there is such a thing, 0.2% rise. the year-over-year at 2.8%, a little lower than at and forecasted. some of the details of interesting. we had the biggest rising goods producing industries since march of 2000. 95,000 jobs created. of those, 58,000 construction
jobs in a mild february. that's the most since march 2007. 28,000 manufacturing jobs created, the most since 2015. 235,000 jobs created. 227,000 were private sector jobs. they were government jobs created. 2000 seasonally adjusted, 1000 nonseasonally adjusted. the donald trump hiring freeze apparently taking effect. the labor force throws by 240,000, but a big jump in household hiring. 444,000 brings down the unemployment rate. jon: the payrolls report, and upside the price. if you're looking at wages. treasuries wearing off of the market now it adding a basis point of the 10 year. what is it me for the dollar? the dollar index rolls over after a session high.
no drama jobs report. i want to get jeff rosenberg's reaction. jeff: michael highlighted some interesting stuff in the details. you had the weather affect, a big boost to construction jobs that takes down the headline numbers. the headline number looks to be this big beat, but it's really heavily weather induced which means on the margin is a little bit weaker. you get not a lot of big outside surprises in terms of wages and what you are seeing in the market. alix: why are we pricing on the curve when you had biggest revised -- pages revised? jeff: they are covering. it was not the big blowup report people were hoping for. alix: not a blowout? jeff: it was heavily weather influenced. you have that piece as well.
that game it more towards expectations in terms of people -- jon: i'm pleased to say we can cross over to tom keene and david gura where they stand by with phil gross -- bill gross of janus capital. tom: bloomberg television worldwide, one william gross of janus capital. bill, you wrote a scathing of yesterday on mr. trump and trump economics. it is morning in america. who takes credit for this jobs report? president obama, president trump or bill gross? bill: [laughter] withs a bad report, trump certainly dismiss it. since it's a good report is an illustration, i'm sure he will take credit for it. these types of numbers, 240,000 jobs created will continue is a bit of a stretch to my way of
thinking. was onlymy itself growing at 1.2% according to the forecast. that follows a paltry 2% the quarter before. economic growth itself is not gangbusters. the jobs appear to be here. all of those are good for the future, but we shall see. it is a situation where productivity determines growth. fo --has yet the book put forth plaster productivity. tom: do we assume a federal reserve will be in some form one or two or three and done, or deal of this is a measured greenspan-like move over many sets of rising interest rates? the fed or any central bank has three carol in terms of where they moved to. the fed has a target called r-st
ar, the neutral real rate of interest. inflationmed with 2% that would be zero. to fed at the moment appears be heading for 2% nominally. -- no onefficult knows with the rate of interest is. characterize what trump would hope for is the unusual. , versus 2%mic growth of the obama administration, the new normal. interest hasate of to be a little lower than that would be assumed under a trump assumption. mario draghi said
yesterday there is not a sense of urgency. in light of what we heard from fed policymakers last week, do you disagree with him? are we seeing a new sense of urgency in the u.s.? bill: certainly in the u.s.. we have been helped in the united states certainly by the ecb in terms of quantitative .asing without those two central banks buying their particular funds and having them flow back into the united states and treasury, i think it will be much higher. what he does is important. he talked neutrally back-and-forth the way and economist would in the past few days. it's hard to know exactly what he begins to taper. daghi, thens from
the bull market in those endntries can come to an and perhaps in the united states as well. i would think it would be because they are moving away from their protective maneuvers. tom: we are worldwide this morning. futures up nine before the report. now of 12. the dow advances up 95. yields are higher. bill gross having a lousy morning. yields up, price down. it does begin to show the balance as he moved to march 15. are for to janet yellen is a modern-day goldilocks. the torch of the metaphor a little bit. at the end of the story, goldilocks escapes and the bears
get their porridge. how does all of this end? bill: it depends on your timeframe. in the long run i think it is badly. that's banks are created let's go back to 1971. $1 trillion with the credit in only of $65 trillion. that's a dollars growth rate of 10%-12%. same thing in china or more. when you create credit, it's four times more than you think. the situation cannot last. that doesn't mean i have to crash. credit creation can no longer be sustained. this is important. let's not expand the type line -- timeline. we have rising rates, new regime going toed is finally
have massive trans-atlantic emergences. the reality is you suggest the great distortion of low rates and low real rates will continue. how do our institutions get us back to normal if you have financial refresh and going on many years? l: that is what the fed has the measure in terms of walking to provoke real line -- proverbial line. goldilocks metaphor when you can't be too hot or too cold, that is what janet yellen is doing. if interest rates are too high, but they were at 525% under the primese fed, then sub and other housing related vehicles come crashing down, as well was related leverage to types of vehicles. --took very
institutions hike insurance companies, banks, pension funds and the like can't really survive and pay for the liability they assumed. we are seeing that and puerto rico, illinois, many spots in the united states. not too hot, not too cold. a very fine line. this suggests to me they can't really raise rates too high or else something will happen. jon: that was bill gross speaking to tom keene and david gura. the february jobs report cannot 10 minutes ago. on theficant upside headline number 235,000. the estimate, 200,000. the unemployment rate came in. that's a little lower to 4.7%. average hourly earnings.
month on month coming in a little softer than expected at 0.2%. market reaction as follows, i did -- up one half of one percentage point. the dollar to skim off session highs. the margin. on ninth street is a decline, treasuries yield higher for the first time. coming up, a conversation with mohamed el-erian. we get his reaction to the payrolls report. and the wife of gary cohn. from new york city, you are watching bloomberg,
♪ next coming up in the hour, gary cohn with his reaction to the jobs report. ♪ from new york city on this payrolls friday, the numbers as follow. 235,000. 0.e forecast, 200,00 we come down to 4.8%. a little softer than expected month on month. it really is a bit of a no drama report. you want to bring in mohamed el-erian. great to have you with us on the
program to get your insight. your initial takeaway from the jobs report? mohamed: solid overall. especially good for wall street because it has the goldilocks element in the context of a fed hike cycle. somewhat less good for main street because wages could have been better. jon: the reserve, could it really move the dollar and what is changed in the last two weeks that drove them to come out and change the way they has spoken to us over the last several months? mohamed: this report means we ,efinitely get a hike next week but it doesn't mean we get more than three hikes for 2017. not yet at least. the market expected a hike next week. the only thing it was worried about was doing it even? this report suggests we don't. elegantlythe fed saw and so effectively tough
expectations. i was with you when i was saying 30% is too low a probability to attach to a march hike. what the fed did in a skillful -- we don't get any disruptions to markets. alix: i don't know what the fed will say. several months of 200,000 plus. january wages of. february wages coming it -- in it -- the slack is being eaten up. americans looking for part-time work for economic reasons. that also fell through. what are they going to need to see? mohamed: i'm with you. they will get to other indicators. u6, and the labor participation rate that went up, suggesting they are still slack. people -- wages are well
behaved. is that because more people are not leaving the workforce or more people coming out of the sidelines into the workforce? mohamed: i need to have a look at the exact aggregation, but if it goes up that's a good thing. we haven't stopped at multi-decade lows. the fed would rather wait and commit the type one error that n commit a tight to ever. i would say at least three hikes this year. david: this is good news for the markets. it is not necessarily get is your people electing donald trump, people looking for more money in their paycheck. there was a slight increase to be sure, but a little below the month-to-month at 2%. why given this remarkable approach the full claimants and not seeing wage hikes? mohamed: there are lots of reasons. some are cyclical in nature.
but most important thing summer secular in nature. technology, globalization, etc. higher wages will come. you cannot create so many jobs and not end up pushing wages higher. it is just taking a lot longer than what history would've suggested. higher wages are on the way. matteras a practical what is this due to the trump ?rain he said we will get more jobs, get your salary up. when he was in this report, what is his reaction? mohamed: i think his reaction should be let's move forward aggressively on progrowth elements. let's acknowledge we had to work hard on structural issues. let's understand the impact of technology. -- let's anything that of== anything that affects growth,
including protectionism. hades to expand. the big issue, david, is the sequencing to congress. that concerns that markets could half is the going on health care first. he they reduce the probability of getting tax reform in the summer. you use of a lot of political capital going with health care first. that is what the markets should look at closely, the sequencing of policies. jon: i want to get to a question that mark asks on twitter. if you need is somebody fed governors to come out and drop heavy e-cig investors to rise march right, it was more behind the curve? the fed or the market? mohamed: markets. we have been conditioned strongly by three things. it has worked wonderfully well if you just embrace those three things, you made lots of money. one is the fed will be low for
long and it will stay that way. when you repress finance volatility. growth may be low but at least it is stable and predictable. the political noise on a calamity -- will not contaminate the markets. the fed felt the need to we co to shock us. they did so effectively, increasing the probability to nearly 100%. futures about 40 minutes away from the open. mohamed el-erian call it a goldilocks report. features 100 points higher on .he dow you are watching bloomberg. ♪
business sentiment very high and warm weather. if we don't get something from the trump administration soon, pulling it givebacks from the strong numbers we have seen? mohamed: i'm not sure because it take a long time to respond. i would argue we have not yet seen sentiment translated into economic activity to the extent they can. what you get back is on the markets. the markets have priced in progress on the growth policy reforms. politics, buthe in terms of safety outliers you had warm weather. sustained jobs number month? 200,000 plus at this stage of the recovery is a very big number. if you ask me what is the long-term average, i would say 150,000.
we are running hot right now in terms of job creation. no, we should not expect 200,000 to continue for a long time. aroundct that he down to 150,000. that would be normal in this late stage of the cycle. we created over 16 million jobs. anticipate thee red headline dropping across bloomberg this is the federal reserve has raised interest rates by 25 basis rights. outside of that, what you anticipate changing? mohamed: i will look closely at the forward guidance. i will look very closely as to they embrace more forcefully three hikes are 2017. i think they will. secondly, whether they go alix and iar what feel they should. the balance of risk as to the
upside. you may end up with more than three hikes. those of the two things i would look at. any attentionay to the 2018 or 2019 forecast will be don't know who is making those decisions of the federal reserve? mohamed: it tells you this notion of the terminal rate. i think hearing the fed on this is important. but there is lots of moving pieces. you mentioned the fed. don't forget we are transitioning policy regimes from excessive reliance on central banks to something else. hopefully is much broader from excessive reliance on central and much more effective in terms of genuine growth. let's not forget the politics. this is incredibly fluid in terms of what's going on. yes, there will be changes but it's a good indicator as to where the fed's head is. give you had to pick one thing for the trump administration that would affect job numbers
going forward, what would it be? mohamed: factory. jon: mohamed el-erian. fantastic to have you with us on the program. you can get your insight. coming up, first reaction of payrolls report with gary cohn, the national economic council director and the far. argue program each friday at midday, 30 minutes on fixed income every week. what a week to have it after the treasury route. got as this morning little firmer, up for tents of 1% on the dow. you are watching bloomberg. ♪
stage for a rate hike next week. the jobless rate falls to 4.7%, 220,000 jobs added. session highs after a goldilocks report since treasuries higher and the dollar lower. and the commodity market, and of the week so far for crude in iron ore. it comes to a halt ahead of the cash open in new york. 30 minutes away from the open. a warm welcome to bloomberg daybreak on this friday, march 10. i'm jonathan ferro, a -- alongside david and alix steel. futures up this morning. a little firmer ahead of the open. we are higher by fortunes of 1%, almost one half of 1% on both benchmarks in the united states. we switch up very quickly. a nine-day slifer treasuries with bids this morning. it is the euro pushing higher.
up one spot, .6 alix: here is a micro look. bp moving of over 2% in the west you look at the standard article this is excellent found a big bp shareholders about a potential takeover offer. bp potentially worried about an offer takeover. 120 billion pounds. who is going to want to take the debt on? chevron reportedly interested according to the evening standard. other stocks to watch. southwest off by 3%. it cut its first-quarter unit revenue. it basically measures the number of seats and airline flies and how far it goes. they are not getting last-minute higher fare customers. that is laying on the stock this morning. wrapping it up with valiant.
raising the size of its bond issue, $3.25 billion. the first net issuance since 2015. a good barometer of how the underlying company is doing after all that scandal broke over a year ago. those are three stocks we are watching. david: joining us from washington with more is are international economics and .olicy correspondent mike mckee the president tweeted out "great again." how are they doing it down there in washington? they have taken the rate out of 4.7% yet they don't the pay people much more money. it's only a .2% month over month. michael: the president was half right. it is not a question of again. the last two february's we have seen 238000 and 237,000 jobs. this is what we seem to normally get this month. will it continue? if it is a trend, what appears
to be happening is they are attracting more people into the labor force, people on the sidelines either at school or at the right job. 340,000 people came back into the labor force in the last month. that helped with the participation rate rise 8/10 of 1%. now people think it's a good time to go out and look for a job in this appears to be. david: why didn't we know there were all these people waiting to come and? labor economists have been telling us for months this will have to start trailing down because we are running out of people. we appeared not to be. michael: we may not have known it but janet yellen has talked about this for a long time. the fed's been looking at the pool of unemployed labor and saying we can get more people into the labor force by keeping rates lower for longer. we have seen a lot of baby boomers retire but a lot of people left the labor force and did not come back. the question was when they, why they leave and what are they
waiting for? they finally feel like it is worth getting out there. that may be because wages are starting to rise as well. not as much as we thought that they are rising. getting close to historical average. david: thank you so much. jon: let's bring in our guest for the next 30 minutes. ise with us in new york terry weissman of the cory global currency. i want to get to what mohamed el-erian was talking about, but goldilocks jobs report. what is your take away? it is a pylon from the data we have been getting for some time. really since the middle of last year. what's important is just as new u.s. data comes in every day better than expected, it's citigroupa, the global economic surprise index is also the highest levels of recoveries right now.
the 52 week moving average just went to a six-year high. right now we are experiencing the broadest participation in this economic recovery across the globe, almost more than any other time in this recovery. this is just another report showing economic momentum is broadening and improving and more importantly with it confidence is starting to increase and away we have not really seen in this recovery yet. boosts job report private sector spirits during jon: terry weissman in new york. is this hard data catching up a soft data? terry: i don't know what you mean by soft data. jon: the hard data is the jobs number and the labor market. terry: it's been pretty get the last two years. 200,000 is in line with where we have been. we peaked in 2014 when the
average got to about 250,000, but 235,000 is below that peak. i think this is all good news from a job creation perspective. cpi inflationews, is about 2.5%. orl earnings is about 0.2 0.3. january was revised up. there is that's look at as well. the question is what is that mean for the fed? when julie reprice faster rate hikes? look at the start of my terminal. it is the market play probability rate hike. this is a change we have seen and market pricing for a rate hike from today versus monday. i want to draw your attention to three years out. that's only moved of around nine basis points. what will it take for the market to start repricing faster in
2018 and 2019? we are really on the cusp of altering expectations surrounding the inflation environment. primarily i say that, we have a lot of inflation indicators right at levels that are going to set to catch a lot of attention. we look at the core cpi rate at 2.3% right now. will bese of 1/10, it the highest year on year rate of the entire recovery. if you look at the pc core deflator, that's the one quarter of a percent below again. if you look at the ways numbers, that could any month soon break about 3%. if you imagine that set of things breaking the new highs at the same time commodity prices like industrial prices continue to rise, and have been for a bit of the dollar rates south when
all this occurs, i think it would radically alter people's impressions about how far the fed is behind the curve. not only for the fed themselves, but for bond vigilantes in the market. that will be a big challenge of the balance of this year, particularly if we key producing 200,000 jobs a month. alix: what does that mean in your world? 122 basis points. where does this go? thierry: the yield curve for flatten. it will rise by more than yields. does that mean it will stay at about 2.6%? no, they will rise as well. right now it's 2.75%-3% for a start. nominal gdp growth has been growing and what we tend to find is that 10 year yields are usually about 100 basis points below that level of nominal gdp
growth. tracking at about 4%, it makes since. it's a simple math but a way to get to a sense of where he should see 10-year gilts going. david: is there a different message we might look at from the shop numbers? ceos are hiring people. they don't hire people unless they think there is demand. is that a direct indication that people on the front lines are seeing demand? jim: i think it is. all surveys of ceos in the last they cannotave said find the number of workers they're looking for. they have been struggling. that, if they really found the type of workers they wanted, we can see higher growth. there might be a situation where it's repressed by a lack of skills and ceos are not willing to buy the labor. jon: only half is what is in reference at the goldilocks jobs report.
i wonder if we have one more broadly. wage growth does not seem to be going anywhere fast, and all that informs at risk at risk. is that a scenario that could develop. jim: i don't know if the jobs report is total goldilocks. i believe having this type of hot numbers when you are below wagesnemployment and heading towards 3%, i think it will be tough for the fed to sit still. the idea as an investor, i think it's pretty likely we are heading higher with interest rates. both on the bond market and from the fed. that is the goldilocks piece that is taken off. i do think confidence for the first time is indeed expanding and broadening among private players.
whether that's investors, households, businesses, and part because of the broadening nature of the recovery. we have rotter level participation -- broader global participation. for the first time is reached middle america. we have real median incomes that shot up dramatically for the first time in 2015. by all accounts they went up again last year. with this recovery hitting main street, i think that will boost confidence and we might even be able to handle higher interest rates and continue to grow. jon: stick with us. y, and coming up an important conversation with gary cohn. looking forward to that. coming to you from new york city as we count down to your market open . off session highs of 83 on the dow. you are watching bloomberg .
♪ alix: we keep talking about the rate hike and it seems a goldman sachs getting on the bandwagon. pulling forward its post-hike call. it's a close call if we see three or four hikes in 2017. that conversation is always happening based on this. jon: and when the market begins a shift up towards the federal reserve three or four. alix: and equities. jim and thierry. see 3% onid he could the 10 year.
how does that affect equities? jim: i don't disagree with that assessment. what we are in right now is even as rates go up it is inflation rising, i think it is adding to confidence among equity investors. inhave a cultural mindset this recovery that is based on primary fear of deflationary of this -- abyss. we are showing this recovery can reduce inflation and it's comforting i think, and the fact we are raising rates away from zero or negative around the world, normalizing monetary policy, i think it adding to investor confidence. i think that will continue for a while. i suspect that optimism will get even more significant here. we might take the s&p up to 2600 every might take the 10 year treasury above 3% towards 3.5%. maybe have more significant collection later on this year because rates finally start to
bite. right now i think we have a ways to go before they start to affect the stock market. alix: they are basically living together. what will trigger an inverse correlation? thierry: what will trigger an inverse correlation? slow down the rally in stocks. i don't think interest rates at 3% is high enough to hurt the stock market. what can hurt the stock market is a start to slacking. we talked about how poor nominal wage growth has been. we are seeing an increase materials prices. service payments will rise. crimp earnings. i don't think it is just rates per se. alix: we had seen a bit of a positive by the fact we have not hit the key treasury levels. small caps starting to look
weak. there is a lot of risk in the market. oil, breakevens rolling over. what wins here? jim: most of the market has been dominated by the trends of swallowing -- falling inflation, falling levels in fear. the balance will be dominated by rising trend of inflation and trends of yield, the fed tightening and more confident behaviors. i think that means there is a big shift going on for the defensive volatile consumer plays, security sort of to the other side of the universe. to me that means more cyclical capital goods, industrial producers sort of sectors. it also means international
stocks away from america. i think it started last year. it caused. i would take -- it paused. i would try to feast on those pullbacks in the industrials, materials, energy. i also like technology and financials. i also look overseas at emerging markets which of also pulled back. david: how do you know it's a refresh rather than a genuine turn? at what point does the market get impatient with the promise of fiscal stimulus? jim: i think the real risk the the the earnings turned down in a big way. then it is not a refresh. i don't see that right now. a refresh have got start of the earnings cycle in part because we finally
synchronized economic policies over the last two years across the globe. we no longer have united united states pushing up on this recovery while europe is back to fiscal austerity and japan is doing nothing or china is trying to moderate the recovery. ben bernanketed expansionary policy and its working. i think it will continue to work here. i think earnings and economic momentum will continue to surprise. if that is the case, the stock set of sold off i think are going to be a great buying opportunity over the next 12-24 months. i'm betting on the refresh rather than the rollover. alix: what does that mean for the corporate bond market? -- can youn translate the thesis into a high-yield investment rate market? thierry: he would be difficult to see widening of high-yield spreads alongside a rising stock market. i think the excitement is quite a translate into risky assets
generally. of value in pockets stocks are high-yield, they tend to be outside the u.s. and on that i do agree. i would look to europe for a rising stock market at this point, for contraction in high-yield spreads. that is really value is in the early stage of the recovery is. high-yield. the other will follow treasuries. bonds, the spread is 10-five on the stock market. higher stock prices, the higher stock market. david: we have to say he called it. 235 was his number. he missed his office pool.' thierry: we usually called the
♪ alix: financials having a big run since president trump's election. a little bit of a pause recently. the white line versus the u.s. yield spread. looking at five-year versus six month. that has been flagging recently. with this is jim polson in minneapolis. earlier you said the cyclicals are the time to buy. does that hold for the financials as well? jim: financials got a lot of good news going for them. certainly continuing trend of rising deals will help for a
while in terms of adding a margin to a lot of their businesses. the laston to that, two years we have finally had a fairly significant increase in bank lending going on. loan growth after being virtually nonexistent early in the recovery. you'll have the markets continue going up, a lot of interest in deal activity. we are seeing m&a going down, which is certainly a financial market activity. just a general increase in nominal activity always helps the banking industry as well. i think there is a lot of good things. they are coming off really low after the 08 crisis. that has never really been reestablished. reduction a little bit. i think it's a good fact and lost the financials to be in a
performing sector over the balance of this recovery. alix: there was a conversation. the colonists to the financials are defensive stocks there it they now have consistent earnings because of regulation. is there a case to be made for that? yesterday we had utilities and financials higher. jim: they have kind of crossbred because of their high dividend paying nature or yield sensitive make some a little bit like a utility. . think at this point -- there will be less downside protection if the market falls because of an earnings rolling over in general or pessimism about the recovery. i think they are on the outside right now and not as much on the downside. if you think there will be a
pullback, utilities and consumer dividend, those types of issues are better than financials. jon: great to have you with us. jiim is sticking with us ahead of the opening bell. points on the doubt, 10 points on the s&p 500. ekn we eek out another wea of gains. the dollar index for the fifth straight week of gains the giving cap some of that this morning. disappointed somewhat on the margin on month to month wages. you are watching bloomberg. ♪ live-stream your favorite sport
at the airport. binge dvr'd shows while painting your toes. on demand laughs during long bubble baths. tv everywhere is awesome. the all-new xfinity stream app. xfinity. the future of awesome. jonathan: this is "bloomberg daybreak." happy friday, have the payroll day. futures this morning, up 10 points on the s&p 500.
upside surprise on the payroll number. report for wages. switch out the board quickly, that wage number means treasuries -- you'll slower. -- yields lower. by .2%.ndex softer across assets.ry you have upper movement across all indices, but not age had a follow-through. at one point, futures up on the dow by about 100 points, now about 66. the s&p up by .4%. about .5%reat week, from the record. watch big cap tech as the session gets underway.
individual sectors, take a look at manufacturing and construction. in the jobs number, a gain of 28,000 manufacturing jobs. it is the highest since august 2013. construction of the highest since 2007. .oving higher work absences from weather moving lower as well. that component tweaking manufacturing and construction. this is a chart to me that spells an interesting question mark for the fed and the markets. this is small business optimism. we have talked about it a lot, the soft data booming at the highest level since 2002. 12 year high at the end of the day. yetdvisor says this is not in the jobs market. therefore, not yet reflected in any fed forecast and not yet reflected in the market. we will continue the
conversation of the survey soft data. when does the hard data catch up and pull the fed and the markets along with it? jonathan: let's continue the conversation. joining us now. jim paulsen, i will as this question, the spread between the hard and soft data. the soft data has been terrific. when do we start to see that filter into the hard data in a much more significant way? jim: i think we are seeing that. it is not so much the speed of growth. it is still relatively slower growth than we have had historically. the broadness of the everyday better-than-expected reports, whether it is on consumption or capital good orders or housing or jobs or whatever, i think has been better throughout.
i think we're going to continue to see better data and i do think we will move up to around 3% growth in the united states. that will be plenty hot enough from a sub 5% and employment rate to kick up inflation pressure a little more and to speed up the exit strategy of the federal reserve. lisa?an: reboundingur signal credit because people are pricing in the fed will not move as quickly as some people were worried about. there is still going to be that search for yields in a low yield environment and people will say, look, the economy has a chance to go against it without the fed interrupting. alix: if you dig deeper of the jobs report, prime age dissipation and 81.7%, the highest since 2011. we will be speaking with gary cohn of the white house in about 10 minutes time. what is the one question you
want to ask about, if we can get to that 4% growth, what do they need to do? think the best thing the government can do is to reduce invoke a taxd to cut. i think those two things, if they can get those done, combined, that could move us about 3% in this country. the reduced regulation will add to animals be a behaviors, which i think have been very reserved for some time. i would prefer they not go to infrastructure spending program, for example. i think invoking a huge fiscal stimulus from full employment already with inflation and interest-rate overtones is a mistake that will prematurely abort this recovery. but across the board sort of vanilla tax cut and less regulation i think could be very beneficial. alix: i know you made a case for that, but small caps, for example, taxes.
the high tax companies have run quite a bit compared to the s&p on a normalized basis. hope andof that is what happens when the reality kicks in? jim: i think it is really -- i don't think it is tied to tropical. i think this more incredible stream of better economic momentum coming from all corners of the globe for the first time may be in this recovery. i think there's a lot more fundamental support under this market. i am less worried about whether the government does anything or doesn't do anything. then i am about whether that economic momentum keeps up in the private sector. i think it is going to and some part of me says, i don't mind gridlock in washington because the private sector is doing pretty well by itself right now. trump fear inout the sense of the bond markets? we have this play out earlier. they think the federal government is taking on too much debt.
what is the bond market building in right now for increased debt because of the trump stimulus? lisa: you're seeing some distortions on the very short term debt level because people are concerned about hysteria over the debt ceiling. right now priced in is the likelihood that the debt ceiling will be raised or they will come and do some compromise. , again,er question is going back to the yield curve. that is where you see the fear, which is that any kind of near-term push will end up with pain over the long-term and a slower growth over the long-term. david: can you get the long end of the yield curve up if the markets really believe there will be -- it's instant -- deregulation, deregulation, tax cuts, tax cuts. lisa: this is something people are talking about, the risk itself fifty-year or what hundred year debt and we will have to lock into long-term.
a way to could be raise yields. perhaps that is not the way they want to. jonathan: maybe the goldilocks is as follows. because wage growth has not picked up in a significant way, you're not going to reap right -- reprice the front and. is that where we are right now? lisa: absolutely. that is why you're seeing optimism in riskier places. they're saying, look, this is goldilocks trade 101. a yield curve. starting to see and because your cigna greater expectation the fed is going to let this momentum build. i noticed ishing emerging markets have been outperforming this year even though the federal reserve is planning to hike rates, $2.1 billion inflows in the past week into emerging markets bond funds. the biggest or second-biggest year to date. jonathan: did you say party? the federal reserve does that like parties, does it? just to be clear, i wonder if
they were worried about the kind of complacency and the pricing the federal reserve was going to do and worried to some extent about the valuation's and markets, more so maybe than the data itself? lisa: a goldilocks party. i've heard yelling can really -- david: she got to run it hot and maybe they got a little nervous. jonathan: perhaps. jim paulsen, thank you for joining us, lisa abramowicz. janet yellen likes to party. coming up next, eric cohen. what has -- economic council director joining us on this program. -- coming up next, gary cohn. what economic council director joining us is program. ♪
; coming up, gary cohn, what else, council director will be talking about the jobs numbers. jonathan: if you missed the payrolls report, here it is. wages game in a little softer than anticipated. you're a near, back in line. unemployment back in line. the market captures the story as follows, the goldilocks jobs report, a bit of risk on the equity market, futures.
after nine davos joining us around the table, our federal reserve reporter. what is the take away for you? matt: it is a pretty good report. not a lot of change in the markets in terms of what this means for the fed. still, honestly, march rate hike is baked into the cake. looking further beyond that the summer and later in the year, we're basically looking for better than even odds of a hike this summer. and one between september and december. kind of the same outlook for the fed in the markets after the jobs report. goldman sachs pulling for their post march rate hike and also saying kind of a tossup whether we get three or four hikes in 2017. the back half, we could start to talk about the balance sheet
normalization. are we going to hear more of that kind of conversation in the next six months? matt: i think so. not only this rate hike, but the next one, if it continues to go well. stocks have continued to go up. the stock market is totally unfazed by this talk of additional rate hikes this year. if the fed continues to see that, there definitely going to be empowered to not only talk about rate hikes, but more about what to do with the balance sheet as we have been hearing about drug the year. alix: futures on the s&p or at least the dow are up. you have real estate and tech or the two best-performing sectors in the s&p. that does not inspire goldilocks -- david: if you have a significant upside to price. have had a flatter yield curve, maybe a bit of risk out of the market. i would say the fact we of goes to show maybe it is one of those reports no drama as you were for
the fed. as you were for the fed. that is the point, the fed. what about the market? does it have to consider coming up for the federal reserve? matt: the interesting thing about this report, we had some decent wage growth. accelerating higher-than-expected wage growth that would freak out people who are worried about inflation. we also had the continued strong job gains. it is more of the same we have been getting. one thing we saw in his report we saw in the week was a big bounce in construction jobs. if we start to see this resurgence in construction, that could become a bit of a game changer. there are questions about whether that number was up because of the favorable weather that have a last month. alix: you are good a going through data in picking up the super nerdy things we would never, ever find. you have had a little time to do that with the job reports. what were some of the standouts? macro if you look at the breakdown of job growth by
high-paying versus low-paying industries, we are starting to see a rebound not just in construction and manufacturing, but those high paying service jobs like lawyers and accountants, relative to those low-paying service jobs like your restaurant workers and your reach a workers that have been driving the expansion. we are starting to see this handoff toward the composition of job growth will probably continue to support higher wage gains going forward because we're adding more high-paying jobs and less low-paying jobs. jonathan: on wage growth specifically, some people would have said, minimum wages have gone up in very states. if you have a downside surprise, is it even more disappointing given what is happening elsewhere? macro -- matt: i think you could make that argument. that is one reason why the markets are not getting too excited about this. because it is just not the kind of thing that we are seeing really would change or shift the paradigm maturely at this point. jonathan: great to get your
points. how quickly do the others follow. or four.ee as that going to be the conversation? jonathan: gov. pence: to david westin. david: we're joined by the present quarterback for economic policy, gary cohn, director of the national economic council coming to us from the white house. it looks cold and rainy there, but these are pretty sunny numbers you have from the jobs report. gary go it is cold and rainy. thank you for having me. the numbers are sunny, so we will enjoy the numbers more than the weather today. david co and the president turns to you and says, how can we possibly keep this sort of addition to jobs going at this point in the cycle? what do you tell him? gary: david, look. fairly easy answer. remember in our first 50 days -- today, by the way, is our 50 day halftime. seven weeks ago today was inauguration. in the first 50 days, we have
had enormous amount of ceo traffic into the white house. we have had many big announcements from ceos, whether it be the automobile manufacturers or intel. you seen the announcements about people building manufacturing back in the u.s., bringing it back to the u.s. remember, those jobs are not in these numbers. those jobs will come in the future. they will come 3, 6, 12 months from now. so we think there is enormous demand for american workers built in the system just in what we're seeing from the ceos coming into the white house. that will naturally grow demand for workers. those workers will grow demand for other workers. there will be a trickle-down and trickle up in that. we are excited about the job prospects in america. david: you have had the benefit talking with the ceos and got a good part of your team together. steve mnuchin at treasury. based on that and putting together a budget, which you're doing right now, what sort of growth projections are you building in?
gary: look, we're very optimistic on growth. one thing we are going to do in the white house is we are going to set very realistic growth projections. we have looked back at the prior administrations and their beginning and sell what they put up for gdp forecast at the beginning of their administration. none of them got close to meeting their gdp projections. we're going to put out gdp projections we think we cannot only meet, we think we will beat. we would rather under promise and over deliver than overpromise because we think it is relatively easy to do in the part of the cycle we are in. and sing the activity we're seeing from the ceos we have engaged with and the fact we're going to be rolling back regulation, bringing out new tax policies in the u.s., we are very optimistic about the gdp growth we think is coming. david: certainly what i learned at the walt disney company. but to get a little more specific, if you look at the projections right now for gdp growth for this year, something in the low two's range.
will you expect something materially better than that? gary: remember, we are already in the middle of this year. and moving the 2.3 or 2.4 protection higher, it will be tough to move that dramatically higher this year. yes, we would like to outperform the 2.3 or 2.4 prediction. as we grow over the next year or two, we think we can substantially improve on a number as we get tax reform done in the second half of this year, as we continue to get the jobs created from the companies that committed job growth to us in the future. we think growing the gdp forward will be relatively in line with our projections. our projections, as i said, they are cautiously optimistic. them.nk we can outperform we will continue to see growth. remember, this year's started to be baked in. we will outperform were some of the projections are. terry cohen, thanks for
jonathan: happy friday, payrolls friday. 22 men's is into the session -- 22 minutes into the session. let's get you up to date. no real drama here, jobs report of. if you switch out the words quickly, that wage number in the payrolls report setting the tone for what is happening elsewhere. it came at 0.2%. the median estimate was -- and our survey. a nine-day slide.
we retrace some of that move with yields coming in to the basis points on it 10 year. softerre in the markets, dollar story started to emerge. we see that more pronounced against the euro. up .5%. -- of 0.5%. , on the adps is report, the job gains. , 235,000ine in u.s. when we were looking for 200,000. hot job about the market earlier. >> we are running hot right now in terms of job creation. not in terms of wage growth. we should not expect 200,000 to continue for a very long time. we should spec this to come down toward 150,000. that would be normal in this
late stage of implement cycle. jonathan: normal at this stage of the cycle. you add 235,000, it looks good, the president tweet about it, and that is fine. the labor market truth is out there. the unemployed rate underestimates what is happening in the rest of the economy, which is more people need to come into the workforce. those big numbers kind of support that. it is a cyclical backdrop that looks good, but there is more to go. david: the president was saying this all along, don't pay attention to the jobs number. maybe he was right. e fromthis is a divergenc what we were hearing. saying the sentiment we have seen is not yet been reflected in the job market. have wether hand, you are near full employment, not going to get 200,000. bill gross saying that earlier on bloomberg television. >> to say these types of numbers, to under 40,000 jobs created will continue is a bit
of a stretch to my way of -- 240,000 jobs greater will continue as a bit of a stretch to my way of thinking. alix: a love that bill gross talking about the atlanta two to be -- gdp. the data points are tracking lower for the first quarter. how does that square itself? jonathan: bringing in your rate hike, argue? -- aren't you? maybe pull everything forward a little bit more. goldman, they are for a hike in march and june and september. alix: versus december. jonathan: to go to jeff rosenberg's point, things coming in line for the federal reserve may be the way they weren't before. three.e forecast at i guess the big question next week is, does the fed say, maybe
we push higher as well? david: that is the question. what goes on when you dot plot? alix: and the rates market is priced in a more hawkish fed. you wind up needing to see 2018 rate hikes higher than 2019, 2017 to move the needle. jonathan: 2018? alix: ecb and they fed. jonathan: we don't know, do we? 26 minutes into the session. equities moved to the upside. tim,the bloomberg daybreak thank you very much. happy friday. you're watching bloomberg. ♪
vonnie: from new york to london in this hour and cover stories out of brussels and brazil. here are the top stories we are following. 235,000 jobs in february. can growth continue at such a pace? bill gross tells us what he thinks it is unlikely. gauging the uneasy pace. volatility at historic low. what will it take to disrupt? is trying to rebound today by crude is already losing its early gains. we will look at futures to see whether oil will see a sustained rebound above $60 a barrel mark.
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