Jobs Day | Bloomberg Surveillance 12/02/2022
There is a extremely elevated chance of recession. The Fed's got it. Pray that the labor market quiets down. They're going to go gradually. They're going to watch what's happening in response to what they've already done so far. We can't wait for the next day like it is when the Fed actually starts cutting interest rates. We have more confidence that this rally
will continue into December. This is Bloomberg Surveillance with Tom Keene, Jonathan Ferro and Lisa Abramowicz, live from New York City for our audience worldwide. Good morning. Good morning. This is Bloomberg Surveillance on this payrolls Friday on TV and radio alongside Tom Keene and Lisa Abramowicz. Some Jonathan Ferro T.K. up on a week in the equity market,
yields down on the week as well. Going into this payrolls report, the number we're looking for to indicate huge news for today. And yes, we're focused on jobs. What we're really focused on is the
whisper, the number that's lower. This is where there's some gloom out there. Well, we're bonding. We're getting over our anniversary. And there's seriously, folks, there's some gloom out there today. And the jobs number, it's in the so-called whisper number. I'm going to model to hundreds of run rate in the whisper numbers are 150 ish kind of thing.
This is the runway and see around. We've got payrolls today than in a couple of weeks time because CPI on December 13th and December 14th, they got a Fed decision. Chris Harvey of Wells Fargo said to me yesterday, Lisa, that he thinks Chairman Power this week took the teeth out of the CPI report in two weeks. I wonder how important people think the payrolls report is a little bit like this morning. Every data point is going to matter. I just wonder how we know if inflation
is coming off quickly enough. We think that we've hit peak inflation and we expect numbers to be weaker. How weak is OK? How weak is enough for the Fed to really take their foot off the pedal in some kind of way that is more meaningful? Is good news bad news today? Yes. I think you're going to go with that.
I'm going to go there, OK? I mean, you know, it is good news. Bad news. Yes. If you get a hotter than expected labor market report, I think that they'll be read very Matt Miller. The good news is that the tree, the bush is being delivered today to promise they promised to be only a squirrel inside to know what happened last night. Feinstein to me last night asked to see
my tree and then he proceeded to criticize my tree. What about an hour? I came out this morning. I came in this morning. And he's still going. He's still going about my tree. Do you have is really curious.
He doesn't like to decorate it every week, just like the white lights. So clearly a store, clearly that therapy did work. Martha Stewart thing. Let's talk about 300 trees.
Perfect job. What's wrong with that? Martha, it's just it's John Street. It's a perfect tree. It says that we go through to decorate the tree. So for us disciplines like this military effort, things have just sort equal distribution, different color. It's like marching music ever since this year. CHOMSKY Exactly.
Pearl BOVESPA was white boreholes in glass ball balls mixed with, you know, it's good of shell round Switzer NERA near to Christmas dogs when you could pick up against this world that came out after the third day last year. Equity markets unchanged this morning. Let's wait for the price action going into pay. ROBERTS Equity futures on the S&P 500
down not even a tenth of 1 per cent some year with some weeks he CAC got a target on a two year this week with that 27 basis points on a two year yield in America, decent version. But the single number yesterday, John, was to see the VIX close under 20. To me is a huge deal. And to me, it was the market front running this jobs report. And it looks like Dow 10000 is it's not a big deal. The VIX is nineteen point eight hours right now, twenty point one eight. But just the symbolism of going from 31 and all that gloom of weeks ago down through 20 to me was a big deal that affects market some bit more dollar weakness as well. Lisa, you're right.
Dollar 1 to 5 handle. How much bad news do we need to really be optimistic that the Fed won't necessarily have to move as quickly as they previously expected it at eight thirty a.m. when we get that labor report? Yes, people are having a risk that is softer than expected. But how much do wages come down? And we have seen wages roll over just a touch bit, decline four point seven percent gain year over year. LUDDEN The last monthly reading.
How much do we see that continue and what pace is enough to give people confidence that the Fed can really perhaps not raise as long or as far time? Forty five a.m. Why not? Jonathan Ferro I'll be speaking with Labor Secretary. Marty was very curious to hear, first of all, what he has to say about the rail strikes.
He was involved in talks with that yesterday, but also just this dynamic between the power of the employee versus the power of the employer and as a longtime union person, how he would like to see that proceed. And today we do get a host of ISE speak, including Richmond Fed President Thomas Bach, and in Chicago, Fed President Charlie Evans, one of his last events before retiring. And we now know that Austan Goolsbee of the University of Chicago will be taking over John. Lisa, thank you for making that clear in the CEO.
I know. I know, Professor. Very, very well, he's a former member of the Milton Academy debate team, among other things. And this is ISE put out on Twitter. This is an inspired and controversial choice goose.
Goolsbee comes across so kind and so couldn't. Convivial. I would say that you don't understand that he's got first order monetary chops underneath it, that he's underestimated. He's been underestimated his whole career. I thought it was inspired. Congratulations to him, I'm sure.
CAC Krassner. We'll talk to about girls. Looking forward to that. Gregg Battle joins us now. How did U.S. equity and derivative strategy at BNP Paribas, Greg, later and I were talking about whether good news is bad news today. What are your thoughts on that?
I think in the very short term, it could be the story for 2022 has very much been one of the Fed and rates driving equity markets, and that's indeed what we could have into the year. And you've highlighted the data points. It's payrolls, it's CPI. It's the Fed into Iran. But we're looking ahead to 2023. And we think the focus is going to shift
away from rates driving equity markets and has to be far more about the real economy and the deceleration in growth next year with the earnings story. What is your confidence of your earnings calculation for equity markets in the next year? In the last 24 hours? I've seen all sorts of people say sort of kind of like we think. Do you have confidence in that statistic? No, I don't, and I don't think anybody else should. And that's kind of really the problem that we face next year. So the bottom up consensus is still for mid single digit growth next year and we think is far too optimistic. When we look at our kind of macro expectations of where top line revenues would come in, we think that's kind of source of risk. But really where the rubber hits the
road in terms of risk is margins. And it's incredibly difficult to model. And we don't think anyone should have any large confidence in where they where they see us margins come in. But we think the risks to the downside and the risks are material. Greg, everyone seems to say this on Wall
Street. So who's buying right now? Well, we've seen a lot of money put to work over the last two months, and it's been from a kind of collection of sources. So we've seen more than 80 billion futures bought over the last couple of months. We think at least half of that is hedge funds covering. We're seeing systematic strategies such as CTA is built around 25 billion dollars to will work over just the last month. And we've also seen signs of
discretionary money being put back into Back to work, which in ETF inflows of more than 60 billion over the last couple of months. So collectively, that's kind of getting on 475 billion that we think has been injected into the equity market over the last two months. And I think a lot of that is kind of squaring of positions into year end. It's a reduction in this kind of bearishness that we've seen this year less than it is kind of expectations for a more persistent or elongated bull market. So what's the trigger going to be for this capitulation that you expect? That usually marks the end of a bear market. So, yeah, I think that the analysis we've done has been we've looked back at all of the crashes, bear markets, recessions. Over the last hundred years, we have
seen that there has been this common common thread that they do tend to end with capitulation. So capitulation is a move associated with a sense of panic, rebasing of expectations. Aggressively cutting forecasts and volatility spiking. We haven't really seen that yet. It's been an environment where we've had more of a grind lower than in equities than an explosive move.
Tom was talking about the VIX back at the 20 level. It's kind of indicative of a much more benign environment. Analysts haven't slashed those earnings forecasts next year. We're looking to kind of Q4 earnings season that kind of kicks off the middle of January. That is a potential catalyst to shift from a monetary policy to the growth outlook, corporate and margins.
Greg, but at the same quarterly as Mike Wilson of Morgan Stanley yesterday. Are we going to miss underestimate earnings because we miss underestimate revenue growth due to nominal GDP being sprightly? Is that is that the the singular equity risk as we misjudge the top line? I personally don't think so. I think that the top line being driven by nominal rather than real growth, I think is well understood. I think more uncertainty lies in terms of the margin forecast.
The idea that margins can be resilient next year in an environment where we see a real slowdown in terms of growth in this kind of a policy tightening that's already been reflected by a kind of compression of valuations but hasn't hit the real economy. The idea that that's going to come without margin pressure, I think is a test so less focused on top line, more focused on what is the outlook for margins. How deep could the margin compression be? That's what we think drives earnings, relative trade. Question here, Craig, just to wrap things up. Europe or the U.S., the euro stocks, 50 has had such a monster rally off the lows at the end of September, up around about 20 percent.
Which one? If you got a little bit more confidence, then out of the frying pan into the fire, I'm afraid, John. I think neither is the answer for us here. We're looking for a correction in both into next year.
The value that we've seen in Europe has been absolutely massive given the still difficult economic backdrop. You look to the US as a relative safe haven, but the valuations of, you know, support there. So we're not putting bottom fishing and even market as yet. Great catch up. Greg, as always, great out there. BNP Paribas going into the weekend and payrolls Friday just around the corner. European equities about a massive run. And that's also down to China.
And this reopening story, this headline just cross the Bloomberg that the 2023 Formula 1 Kurumi Mori and China will not take place due to Covid-19 gnats on the 2023 calendar F1 not taking place. Can you read between the lines there? Can you extrapolate that out to a broader story? Do you think? I don't know about that. I thought Leland Miller was great. And the other way Lee and the other conversations we ran on China. I'm going to go back to. Question of Delta Airlines on this show 18 months ago, said Tom International. China, forget about 2003. He was dead on.
Are we are to 24 now or are we starting to crystal ball gaze into what do we do in Hong Kong, Shanghai, Beijing, Chengdu? And there's Chengdu is important for a lot of Brad Stone 24 before we even make it to 23. Formula 1 send this laser ongoing difficulties presented by the Covid-19 situation that doesn't speak to the enthusiasm and confidence people have around the reopened story in China at the moment. And this confirms what everyone's been saying, that the enthusiasm the people have been having about the reopening story in China hasn't been borne out by facts. And there's just sort of speaks to that story. And the other side. International events cannot take place
if they don't have any conviction of what that policy will be. And it's clear that that is not currently available. Very different here in America. We had a state dinner. I believe Tom Keene really was there. Tim Cook, Brian Moynihan, do your banana
under the Patrick piano. Toto, I went through this. Christiana guitar. Mr. Goldberg was there. I know you're a big senators gathered
senators that got around a lot more than they should doing with all the contrasts. I don't know how many we should do more as we did, Mr. Bennett. We should take over Jihye Lee. We should have known. That's your ultimate conclusion. That we should.
We should. Ow, ow, ow, ow, ow, ow, ow. Where are your manners? Oh, you want to do that? One of those folks, Gala asks surveillance how you felt. I don't drink. Can you tell us he dressed you a makes is joining us in a couple of minutes time. My dog. What, you were racist?
Bloomberg cameras. OK, I got a. Keeping you up to date with the news from around the world with the first word. I'm Lisa Matteo. Traders are waiting today's U.S. jobs report to see if it provides any clues on the Federal Reserve's next move.
The job market is starting to cool off, but the report may fall short of the turning point. Fed officials are seeking in their battle to beat back inflation. The median estimate says the economy created 200000 jobs in November. The Pentagon reportedly is considering a major expansion for training for Ukraine's armed forces, according to The Washington Post. The plan has been discussed for weeks by Defense Secretary Lloyd Austin and other top U.S.
military officials. It could lead thousand Ukrainian troops to be trained by U.S. forces at a base in Germany. Economists say China's top leaders are likely to signal a more pragmatic approach toward carbon controls at an upcoming meeting. They're also expected to put more focus on boosting economic growth. The 24 member Politburo usually meets in early December to set broad outlines for economic policy. Beijing has been signaling a despite a
decisive shift away from its Covid Zero policy. Global news 24 hours a day on air and on Bloomberg Quicktake powered by more than twenty seven hundred journalists and analysts and more than 120 countries. I'm Lisa Matteo. This is Bloomberg. I'm prepared to speak with Mr. Putin. If, in fact, there is an interest in him, so he's looking for a way to end the war. He hasn't done that yet. If that's the case, in consultation with my friends and friends, I'd be happy to sit down to see what he wants. Hasn't moved the president of the United
States alongside the French leader yesterday going into a state dinner. We'll pick up on that in just a moment. Cut into pay rose about two hours away. The state of play in the equity market looks a little something like this up on a week on a session pretty flat down about a tenth of 1 percent on S&P 500 futures tenure yields lower on the week. Tiger yields down by 27 basis points on the week. So far, pretty phenomenal. Move lower off the back of Chairman Power.
We'll get to that in a moment. Euro dollar, more dollar weakness. Euro, dollar right now, one of five 35. We have got to talk about unions just briefly to. Yes. The president, United States set this back in 2021 on Labor Day. He said he intended to be, quote, the most pro union president leading the most pro unions restoration house in American history.
If you don't support the right to strike, can you proceed to make that claim to. This is it is steeped in history of America. And basically they have Redux 1877, 1946, right after World War 2, and there was a period in my youth where the same thing happened. The bottom line is there is a tradition of government intervention show with the rails. And we had at this time, much like previous auto strikes where the the real laborers union members don't agree with their union management. They voted the Senate, the House. The president has stepped up for union
management, not the rank and file. Is the question somewhat leverage to the workers half if they don't have to pony up? I do know the answer to that. And what does this mean for future negotiations and this administration's role in them? I don't know. And I think it lends importance. We're going to a jobs day interview with John, where the former mayor of Boston, Martin Walsh, who started out in Dorchester, in Southie, in union management. And I guess his jobs, they really doesn't matter with the secretary today. It's about it's got a lot to say on this
show. Yeah, yeah, absolutely. Looking forward to it. I think that 945 Eastern Time, there were unions last night, represented a state dinner as well as two though, the Annmarie Horden right now. And we'll get to the serious stuff at hand. I love the theme here.
Bone Lavelle that you've got going, Lisa. You know, good news, bad news. Bone Nouvelle in Movie Nouvelle. I don't know what it was last night, but she was there, Oscar de la Renta domain for years and Annmarie Horden with Pier Balmain last night. What was the dinner like? Was it a success? Let's start with that. With Mrs. Onassis, with Mrs. Kennedy have been happy.
Listen, I was not at the dinner for. Let's just. Tom is just joking here. I was not at the dinner. Obviously, I've read all the reports out of it. Spoke to some people who were inside. It does seem like it was a success. It was on the heels of what I would say also was a very friendly press conference, which I did attend between Amanda McCone and President Biden. We're going into this trip. NIKKEI, you know, gave an interview with
a U.S. network broadcaster and really came out kind of fiery and punchy about the Inflation Reduction Act and the subsidies when he would call an unfair advantage for American companies. And it does seem like they walked a lot of that back. The tone was brought down at that Rice conference.
It does look like these. You want to work together. At moments it was almost like a bro bromance. I think you got John Alix Steel. I can see.
I guess it's the same thing. Emory very importantly here. This is serious now about the rail strike in the last 24 hours, the body language is, is labor lost? Did the rail workers lose yesterday? In some senses, they do. But we should know that the majority of these rank and file members did vote for that tentative agreement that the administration was able to broker in September.
This also came up yesterday in that press conference with the president. He was asked about this and he clearly was annoyed because the question was to the president. Are you saying that members of labor unions do not deserve paid sick leave? And he said, I negotiated a deal.
No one else would be able to negotiate and what his point was. I've been working every day since I began this administration. And I campaigned on paid sick leave, not for all, not just for the labor unions, but for all Americans. And also.
He made a quip that was know quite embarrassing for him to even have to be fighting for this and talking about this in front of a European leader, where this is obviously just the way things are in Europe. You get paid sick leave, you get maternity leave and the likes. So at this moment, we knew this was going to be tricky for the president because he's if he wants to be the most pro Labor leader, many would say he has been in modern times. But at the same time, he had to look out
for the entire economy and really force Congress to act. Well, I'm sorry. Let's blend the two stories. The French leader is very happy about the inflation reduction act within that act. You can get tax credits on visa that are domestically made. The French leader would like those tax credits to also apply to even is made in Europe.
Now, Amari, can you walk me through the current stance of this president and w Congress on this as well? How are they responding to the complaints from the Europeans? Well, Congress passed legislation. Do you know how difficult it would be, especially with Republicans will be taking the House majority next year for Congress to go back and rewrite legislation so that the Europeans would have a same advantage as the Americans. What U.S. officials will constantly say is that there's just not enough investment in this space period. So if U.S. companies are benefiting, do something maybe that European companies would benefit on your own home turf at the moment. Right now, what the president said yes.
In the press conference was he never wanted to leave folks behind that were not cooperating with the United States ally, France, Germany, et cetera. But at the same time, he said maybe there are tweaks going forward. There is a task force now on in that press conference said that they want to synchronize and have their teams cooperate and look for investments. But at the end of the day, it remains to be seen how this would actually work because it is legislation. And I do not see that being rewritten. I imagine a day say thank you. What if Obama catch up with him the next day at least? I don't think anyone wants to go back home for that in the United States. And the complaints of the Europeans are
just going to keep on coming through. How do they then come to some sort of agreement on some of these other bigger issues, whether it's China, whether it's other types of dealing with Russia? You're right. I don't think people are going to want to do that in the U.S. How do you muddle through? This is a muddle through president who's trying to come up with practical responses, even if they go against the ideals. How does he do that in this particular case? Can I switch gears to a Wall Street issue? Do you ever ask permission to dance? You have to look initially just you know, like I said, John, I'm trying to be more sensitive and more vulnerable. Can I switch gears?
Logic Emma Chandra Blackstone. This is not a small issue. I kind of get hearing. Walk us through this. This is not Credit Suisse. I want to say that from the first and Blackstone was Hugh to the FTC yesterday.
They're giving substantial returns of 9 percent ish in the returns through Natarajan and Don Limit Bloomberg, move the story forward. And basically Asian investors in their real estate fund want to take their money out for whatever reason, and they buttressed up against those limits. This is stock down a percent. It was not a small you know, the
question that's been asked, right? Summer of 0 7. Yeah, the funds it was it BNP, Vince? We did that again this up yesterday. He's like liquidity out there, 2023. It's sort of smallish. Will breathe some life until 3:00 in the morning.
OK. That was beautiful. Thanks for asking for the day. That's a new thing. The payrolls report two hours away. We're looking for something like 200 K in the November payrolls report. That's the median estimate in our survey. That range is pretty wide. Equity futures coming into it look like they're sunny S&P 500 slightly negative through much this morning, down a tenth of 1 per cent on the Nasdaq, down two tenths of 1 per cent on the week, up on a week on the S&P.
Heading for a second weekly gain in the bond market. Two year yields down on the week by more than 20 basis points. You can thank Japan for that. We're down another three or four on a two yet for 1912 on a two year yield. T.K., as chairman, Powell sounded very different to the chairman power we heard in the news conference a little more than a month ago. Head spinning. Did we learn anything from the 14 Fed speakers yesterday? I told you on the good news blackout period starts tomorrow.
Oh, yeah. So that's a benefit to the chairman, to say the least. No Fed speak after today. We'll be we're all together for December 14th, right? We are. But they they've got the semifinal of the World Cup. Well, it's good to see them.
I think it's you and me as the Friday decision comes. I mean, you get Covid twice in a month. You get 50 percent Pharoah on semi-final tie. I'll say the I'll take the federal decision and I'll watch you sign yesterday. Did you? What do you think of the vote? I was told was to screen the Emily Chang.
I don't think FIFA shat enough pictures as to why they made the decision they ultimately made about whether the ball crossed the line or not. Yeah, but they've got the technology clearly for them. They just didn't trust the audience. They I don't think they demonstrated sufficiently for the audience. And there was one camera view that made it look like the ball had crossed the line. Michael Barr is like, why am I sure? Because it's his birthday.
It's my dad. It's my dad's birthday. And this is a gift. Been on this show. NIKKEI, right. You have two hours to go and perils
Friday. Michael Barr has been the subject of what we've done through the years. Rumors he's getting a third dog and we'll see that out on Twitter. Mr. Gardner, thank you so much for joining us today on Jobs Day. I want to do an Austin Goolsbee take. Who's going to take over at the Chicago Fed, which is you guys toss around a little Latin like axiom.
We are OUTFRONT of whatever the decision is, an ex post where you have to wait, wait, wait. And that's the traditional mode of any central bank is we go through the Fed process linked to this jobs report, linked to the inflation report before the Fed meeting. Is it delusional to think the Fed can get out front and make a guesstimate or do they just simply have to wait for the data? Well, I do think that they are going to be data dependent, continuing to look at the data closely, but they can get out in front a little bit more by looking forward. And what I mean by that is we're starting to see signs of incipient labor market weakness in an array of forward looking indicators. For example, the four week average on
first time jobless claims is moving up again and it's well off the lows of the year. If we hold at current levels by next spring, we actually have a recession signal, a lot of that data. The Conference Board released some confidence numbers this week. And within that index, there is a measure of households that say jobs are plentiful. Leading indicator that's been rolling over the quits rate has been coming down, albeit from high levels. And so we're getting more data now that suggesting the labor market is losing steam. But that's the intent of the Fed.
So this is what they want. And I think this is what they're going to get. What is our history of seeing and predicting a recession the last twelve months? I suggest many have been off the mark and their gloom. Can we actually get in front of a recession or do we just simply have to wait for NBER to tell us it's here? Yeah, well, NBER, you know, the they will confirm, but they don't. They're not in the business of making forecasts, so it'll already be obvious that it's going on by the time they make that call. This year was confusing because we got two down GDP quarters and a lot of people thought that that meant there was a recession. But the NBER came out and said,
actually, that's not how we do it. So we had strong jobs growth. We had a falling unemployment rate into the summer. And so those things have never been associated with a with an actual recession. If we're thinking about 2023, where you have the unemployment rate rise start to rise. That's a totally different animal. And there is a lot of talk about recession now. That doesn't mean it isn't going to
happen. I think the risk is actually quite elevated. Your team there has done a great job covering the yield curve inversion that's been going on this year and it's recently broadened pretty dramatically. I think even now, the Fed's measure of the near term forward spread is pretty significant, inverted, and that is probably the best forward looking signal of an impending recession that we have.
The problem is, if you look back in history, the lags very pretty significantly. So there'll be no way to time it precisely. Or what all our clients ask is tell me the exact depth and duration of the next recession. And when it starts and you know, I wish I could do that. But, you know, it's it's really guesswork. So, Michael, you expect inflation to keep going down.
Do you still believe in transitory or is this a different nature of a decline in inflation? Yeah, I do think headline inflation is going to come off the boil pretty rapidly as we move into the middle of next year. But unfortunately for team transitory, I don't think that is going to bail them out. So that that phrase was used back in 2021 to mean that inflation was really non-monetary, that it would probably only last a few months when in fact the inflation was the result of the Fed going into a hyper accommodative monetary stance and then at least initially being dilatory in starting to reverse course. So the inflation intensified and broadened. But I think the Fed is caught up now. And we just we're talking about the yield curve. I think you could even argue that they're in a somewhat restrictive stance. So growth will slow, inflation will roll
over with a lag, and that's where we are. So it's not going to. It's not going to bailout team transitory. But this new argument now teams, I'm calling it team structural. I think that's going to turn out OK.
Rebranding does not work. I'm sorry. Nice try, Michael. I'll give it to you because it's your birthday. You're talking about how the Fed might
already be restrictive, and that's not consensus at all. And that's what you're not seeing in terms of the market with the Fed backs way or even just doesn't raise rates as much. You get a rip roaring rally as people pile back into risk assets.
Does that concern you or does this seem consistent with your view of the path of the economy and the path of inflation? Yeah, that's a good question. The Fed is worried about so-called financial conditions loosening up. And so if they signal a step down in the pace of hikes and interest rates pulled back in equities and move up, that's not necessarily what they want. But I think the Fed is, you know, put itself in a box here. If it if it's simply going to be responding to equity market moves, it really depends on what's happening to inflation expectations at the same time. And if we look out the curve on inflation expectations that the 10 year horizon where, you know, in the two thirties, because those are based on the CPI and not the P.C. deflator and the CPI runs 20 to 50 basis
points higher on average, you could argue those are mandate consistent levels. And so if the Fed is stepping down, the pace are starting to reverse course on on policy and those patient expectations really rise materially, then the Fed should pay attention to that and respond. But it can't just be a stock market story, in my opinion. Michael, if we look quintiles one fifth or deciles, one tenth of the labor force that we see in a 30 today in the two reports, are we aggregated? Can you look at the holistic view of the American labor economy or out of this pandemic? Are we so fractured, fragmented, polarized that it's different labor models and is can we aggregate or not? I think we can aggregate. I mean, obviously, we had a lot of distortions in the labor market and other parts of the economy from the pandemic.
And it does look like we've had some early retirements that may not be coming back. But this this labor market has, for all practical purposes, fully recovered. It's very tight, but it is losing steam at the margin. And I would just say to the viewers what? The unemployment rate, it is coincident to slightly lagging, but it's probably the best single summary variable that will tell us when a recession is ongoing or not, it's not going to predict a recession. We need the yield curve and other forward looking measures for that. But if the unemployment rate level taints half a percentage point or more from a year earlier levels, and that's, you know, basically going to be 4 percent or a little bit more, that would be a really strong sign that the U.S. economy is either on the cusp of a
recession or a few months into a downturn. It's never happened in history. I think it came up in a discussion earlier today on Bloomberg. How could the unemployment rate rise 8 percent or a percentage point and a half and stop? Never happened in post-war history. Any time we've gone up half a percentage
point from year earlier levels, we continue to rise in a recessionary fashion. In the end, the smallest increase post recession, trough to recession, peak or historic prerecession trough to post recession peak has been about 220 basis points. The median is just over 300 basis points. So a mini recession is possible, but you're really arguing against the historical track record. Hey, Mike. Happy birthday from team surveillance. Thank you, sir. Michael Barr out of there of MKM. Just want to draw your attention to
Credit Suisse session highs in Swiss trading. The stock is up by seven point five percent coming off the back of a record 13 day losing streak. Francine Lacqua catching up with the Credit Suisse chairman a little bit early this morning. Some and the chairman told Francine that the Swiss lender had seen withdrawals basically stop some of the outflows stopped at Credit Suisse 13 days down the road. I mean, there has been great. So we're still going to have a real trouble with a 7 percent move.
And maybe it's walking from the bed over to the ask away from the actual publisher. No, the answers is bounced a little bit at a grim level near that dilutive calculation when they do go out. Was it for good, Julian? They're doing leaks about how come we've seen the bulk of the bleeding through October and November. Let's let's go directly to his show. I'm RTX. I'm with you when I speak to clients who already know that they're going to be inflows. You know, on one hand, he has to calm
the markets. On the other, the specificity of this. If it is not proven in the data coming up, that's going to be another story he's going to have to face off with. This is more concrete, which is the reason why shares are responding that Credit Suisse right now up seven point seven percent. They're still trying to get it to handle its Swiss try to access the key. It's pretty ugly stuff.
Coming up, Diana, MLA, CIO for Long Buy Strategies, Kirkus while Capital Partners. Looking forward to that conversation. Been a while since we caught up with Diana. Yes, it's rose Friday, 200 K is the estimate from New York. This is blowing back. Keeping you up today with news from around the world with the first word. I'm Lisa Matteo. The Kremlin says Vladimir Putin will continue military operations in Ukraine, but he adds he's open for negotiations. A Putin spokesman was responding to
President Biden's remarks that he would meet with Russia's president, but only if Putin indicated he was looking for a way to end the war in South Africa. Leaders of the country's ruling party are meeting today while the fate of President Cyril Ramaphosa is up in the air. He said to have considered resigning after an advisory panel found he may have violated the Constitution. The panel investigated Ramaphosa, his
alleged failure to properly report a robbery at his game farm in the wake of the collapse of FTSE ex. Former FDIC chair Sheila Bair says U.S. regulators have enough power to oversee crypto currencies. And she said there's a crackdown is needed so banks know where they stand. If a business is legal, then to chill a bank, not to do not to have dealings with them, I think is flawed. And I am unaware that any of the entities doing business with U.S. banks or more illegals.
So I think it's hard. It's a very controversial issue. Try to use banks to shut insured banks to shut all of this down. U.S. authorities have now ramped up their investigation of FTSE and are asking those who use exchange for information. Global news 24 hours a day on air and on Bloomberg Quicktake powered by more than twenty seven hundred journalists and analysts and more than 120 countries. I'm Lisa Mateo. This is Bloomberg.
Until I saw our act, our actions actually had an impact that that would lower the rate of inflation. I think that my expectation would be that we would have a slightly higher rate than I had anticipated in September. Michele Bachmann of the Federal Reserve, more Fed speak still to come a little bit later, I believe you hear from Bachmann and effort and then it's done. It's the quiet period. It begins tomorrow. No money if you're happy about that,
going into the Fed decision on December 14th. Before we get to the 14th, you've got to pay Ross report a little bit later this morning. And then we've got CPI on December 13th coming to all of that. Equity futures on the S&P down a little
more than a tenth of 1 per cent. Yields unchanged on a 10 year classic kind of pay rose fail time ahead of the number 350 98. We got no way Eurodollar going nowhere. One of 530 crude going nowhere. Eighty one dollars, 25 cents. And we got a lot of interest this
morning in Maria Tadeo. Was Spain losing yesterday? I can report that she's being monitored in Brussels is improving. We've seen that she said to me last night. Maria, what sat me last night? And she said that Spain chose to lose deliberately so they could get into the weaker half of the draw. Did she say Argentina? Sandberg Look, that is the official stance today. Jonathan Ferro is lost deliberately. It was critical of her for a moment, but she's improving and now we're thrilled to bring in her. Today is being monitored as we speak.
What you need to know, folks, will a John bring this up? Because what you don't see were on commercial break and I wish you would do like you could see us talking and all that and then show the motion we think are great supporters of Bloomberg Surveillance every day. But it's one nonstop World Cup talk continuing our World Cup discussion. Diana Mower joins us now. Hugely qualified in the equity market. But, John, pick it up with Diana about the path England has from Senegal to France in VIX. A tough path now because they've got Spain. They have the hottest health of anyone. They've got to get past France. Spain, if they progress in those teams
progressed and then ultimately could be Brazil, Argentina in the final. But given how things have gone so far, I've got no idea. And I imagine Diana has no idea either. BARBARA MILLER The CIO have long for ISE strategies to Kirkus. Well, Capital Partners.
Diana, a proper introduction for you because you deserve one. Can you walk us through this market, darling? Because I keep hearing from a lot of people who expect this earnings weakness to punish equities in Q1 at 23. You're on the same side of things with those guys. I think it certainly deserves a little bit of consideration as we go into the year, particularly given the rally we've had in the last two months. I'd say markets are probably better positioned for for the weaker data that we had a couple of months ago.
I think the shot squeeze that we've seen as a result maybe speaks that positioning was extended while the US data has been slowing down. It's not slowing down fast enough, I think, to justify some of the bearishness we had in the extreme. That said, going forward into 2023, I think that outlook might be somewhat more challenging from the U.S. perspective. We're already seeing signs that there is an element of consumption that's starting to slow down somewhat in the US. And additionally, I think given where we
are from a valuation perspective, it's a less attractive market to be owning. If the concerns around earnings Ludo slowing down more aggressively into next year are actually plays out. I still don't understand this data. Everyone who comes on says that it's going to be okay for a couple more weeks and then we're going to see that earnings per share and everyone's going to sell and it's going to be terrible. This is in its forecasting instrument. It is a forward looking instrument, the S&P.
The people who are trading should be looking forward. If everyone seeing the same thing, why are the prices not reflecting it 100 percent? I think it's you can usually call the correction rate or the timing. It's very rare that you have people getting both the timing and the direction rate. And whilst there there's a lot of there's a lot of concern around earnings, justifiably so while everyone is talking about it, in my experience, it seldom plays out timing wise. So there is a chance that this ends up being one of the most frustrating bear market rallies we've seen because the timing doesn't quite play out as people expect, i.e. come Q1 next year, we may not necessarily see the kind of price action markets are discussing and that might take longer to play out.
I'm watching the 10 year yield though, and this has been really the one consensus trade that has done well. I'm looking at yields about three and a half percent, down about 70 basis points from a recent peak as recently as just a couple of weeks ago. I'm just trying to understand how much further this can go if everyone's on the same side of the trade at equities, are aren't buying into the same story. So that's the disconnect we have right now because we had this aggressive inversion of the yield curve. That's that's playing out as we've seen, the tenure has come off quite aggressively off the highs. So the bond markets are saying we're
heading into a recession. Now, typically that tends to happen between 18 to 24 months of Covid version. So what we're really seeing, if you go by what the bond market is telling us is recession is more of a second half of next year trade rather than a first half. And I think equity markets are hoping
that between now and then you will get a real Fed pivot, i.e. not slowing down hikes from 75 to 50. But actually the Fed saying we stop taking now we're mindful that the economy is slowing down perhaps faster than we'd anticipated. And if indeed that plays out, we will actually start to ease. I think that's unlikely, but it feels
the equity markets are very much more poised for pivot than the bond markets. Diana, if we get inflation sustaining at a certain given level, which gives us some form of decent nominal GDP. Can that save equities? Can that save revenue growth, revenue persistency and cash flow persistency? I think it could help. It could help, but ultimately, if you have high inflation, that supporting nominal growth, but the labor market is starting to show signs of weakness, I think markets will react to that because at the end of the day, it's really the consumer that's been keeping the economy ticking along. Yes, business balance sheets are much
more resilient than they've been. And I think Covid did help to that extent in terms of getting companies to think about refinancing and also getting rid of some of the weaker balance sheets that had been in the market. But if you stop see labor weakness, which is why I think the data today is going to be quite key. I think that could be much more meaningful and impactful for sentiment. Diana, what do you think the most important number today? Is it the headline number or is it wages? I without a dog, I'd see wages. The headline number has been somewhat noisy, as you recall, last month.
We had that higher than expected print, which people are still trying to grapple with on what was coming through in that data. There are some inconsistencies in some of the subcomponents. I think that earnings is probably what markets will be watching for, for signs that we are starting to see some ease in the labor markets, that the labor markets, inflationary pressures are not becoming entrenched. And that's something the Fed has said is a big focus for them. So they don't want to see the second round wage spiral. Dana, it has been too long. Don't leave it so long next time.
Banner memo that of Campus Wild Capital Partners wanted to catch up as always. Next, our fantastic lineup premiere of T Day. Coming up in about five minutes time. Then after that, Ellen Zentner of Morgan Stanley will catch up with Alan some at around 730 Eastern Time. Did you see for all of J.P. Morgan in 150 published 150 survey show
there is a run for the numbers. Is a whole group of people? S or Ellen Zentner, I believe she's at 180 has joined the full range, the full range to Haidi Lun. But yeah, the hostess 17. The low 60s. Yes. Yes. Youth Day. OK. OK.
I don't know. I'm with Diana. I'm looking at wage dynamics. Seriously. You know, certainly this place has been great on labor participation. I'm in the camp, Lisa. Labor participation is a fiction because of demographics and social policy, the world of Austan Goolsbee.
We don't have a clue what the labor participation, but if it doesn't change, that means people are coming back. And that was sort of the barracks very effective disincentive to retirees to retire and work with Pharrell. I mean, you know what? What are you suggesting? Therapy is definitely not working. What are you suggesting?
I don't know. Easy to talk to. There is an extremely elevated chance of recession. The Fed's got it. Pray that the labor market quiets down. They're going to go gradually. They're going to watch what's happening in response to what they've already done so far. We cannot wait for the next bull market is when the Fed actually starts cutting interest rates. We have more confidence that this rally
will continue into December. This is Bloomberg Surveillance with Tom Keene, Jonathan Ferro and Lisa Abramowicz. It is payrolls Friday and 90 minutes away.
Live from New York City. This is Bloomberg Surveillance. Good morning. Good morning to you. At some key and Lisa Abramowicz some Jonathan Ferro NIKKEI.
The number we're looking for today, 200 CAC. Everyone like we're having a light Friday about it. But this is serious stuff because all of a sudden, as we heard from Michael Barr to the date, is getting a little energy here. There's a little tension in this not I'm sorry, I'm in the camp.
CPI, you know, in a couple of days here is more important. But nevertheless, the tensions there this morning, what if we had so far ADP was an impressive was it manufacturing a little softer? A whole lot softer. In fact, looked at the ISE yesterday and saw a component. All of the assembly said not great. You wonder if this starts to show up in the data a little bit later. It also points the political pressure next year.
We haven't even seen the unemployment rate rise. We're seeing a little bit of softening from the highest levels in 40 years for inflation. And all of a sudden people are saying the Fed needs to stop. They're going to crash the economy. I mean, just to talk about a little bit, the shift in tone really highlights the conundrum next year for the Fed. And I NASDAQ, do you aggregate this
morning at a 30? Or is it about different parts of America? John Edwards of Louisiana is two or three or four Americas. I'm not aggregating. I think there's some people out there, John, in real pain. The move has started in the bond market on a 10 year and now a two year. The last time we had payrolls Friday, but 20 minutes after the number came out, we were pushing for rates on a two year, went back down to 420 with a big move this week after Chairman Pat. Well, do you follow this much more than I do? Is anyone out there framing a 330 or 320, 10 year yield? Yes, I would say no one is there people modeling recession like rates that much forward.
Brian Weinstein of Morgan Stanley, he said that he expects the 10 year yields go down to three and a quarter percent by the first quarter of next year. John, she says. But she cuts time. You don't know what you're talking about. You miss the conversation with Brian early this week.
You took the Times. This is about. I know. Well, they are pretty brutal sometimes. If you expect you to be up to speed on its feet, you haven't seen radically delivering the tree therapy. Next time to everybody.
Everybody, just so you understand it, Bloomberg here in the Bloomberg family. No one top Scarlet Fu. I mean, scary when it comes to injury. She's excellent. She's like north not to Albany, but
she's north somewhere. And the ceiling is like 30 feet tall. She didn't like that. She's like, you wouldn't fit in the White House. It wouldn't be there. Oh, she's 15 feet were like 20 feet. Yeah. They're gonna create everything they do outdoors. She she look like this on the S&P 500 its payrolls, 830 Eastern Time.
And I surf a moving target. Of course, gone into the number for the meter estimate so far is 200 thousand. Equity futures are down a couple of tenths of one per cent. We have down on the session. We are up on the week in the equity market. Yields at the moment up on a session, down on the week on a two year Tom Keene come back to this on a two year right now down in the week by more than 20 basis points after Chairman Pound and we disinterred from negative EDI gloom and all that to negative 75 ish now negative 69.
And the two stones spread less inversion than what we saw in the gloom of a week or so ago. And John, the real yield, are you doing a real yield, the shift? I'm not not resource plan. I know what I'm busy watching football. The real yield is a stunning one point one, 4 percent. Can you imagine the 10 year real yield
under a positive 1 percent to Ten's back? In a way, at least to the 2 year is the 10 year negative. Sixty eight basis points this morning. Is the data bad enough to really give people a sense that this is warranted? 830 and we get the labor market report for the month of November. How much do we get a sense of the hourly average wages coming down rapidly? How much is enough to really give people and that transitory crew which have now gone away? Just to be very clear, some and that is what I'm going to be watching 945 AM very curious to hear this conversation.
John is going to be speaking with Labor Secretary Marty Walsh, talking a lot about, I'm sure, the rail strike. Did they talk about their support of unions from this administration, plus a mandate from this Congress that they get on with it and pass a bill that the union would not ratify? A real tension underpinning, I'm sure, what you're going to do a wonderful job talking about today. And we got a host of Fed speak, the last Fed speak before a quiet period. Richmond Fed President Thomas Bach in
Chicago, Fed President Charlie Evans, one of his last addresses before he retires in January, taking over Austan Goolsbee of the University of Chicago, who has a bit more of a hawkish tilt. John, it's sort of interesting. If you look at some of his proclamations and readings ahead of time, going to be an interesting voting voice on the Federal Reserve. Sometimes the seat can change you when you get in that home. You sit around the table wrongly seat and change. She had become a public visible officer, going to be interesting to see on the seniors might change him. Professor Goolsbee. We'll talk about that with Mr. Cross, who were gifted across with us
today premieres rejoins us right now. The global head of race strategy at T.D. Securities. As we like to say, some the queen of Intel. Right. Let's just just French that this year. This year. But the trades have come off prior. So you went long. The 10 year at 425. You took that trade off it 370.
You put the flat in Iran looking for a deep, deep inversion negative 40, 50, 60. We went further that self to pray. What's left? So I have to say, I'm very nimble in terms of trades right now. I mean, it's you know, I have the direction of still lower rates. It's just we've come so far, so quickly.
I think the markets misinterpreted the Fed a little bit. I think the recession is our best guess. That's going to mean more cuts will happen in 24. That means that the Danielle we our
forecast for the 10 year, the end of next year, three and a quarter. But we've moved really fast. So, you know, I think you have to be nimble in this market. That's not very liquid. That's extremely volatile. I think you have to trade in a number of fashion. I will look to go along again. If we sell off a little bit, we realize that the Fed will be forced to keep hiking. We think the dominant team is going to
be higher than that where the market's pricing it in right now. So I think I'm trading it in a number of fashion. It's the timing, Lissa direction. But the direction, I think is still
lower rates. And unfortunately, a Fed that's going to be forced to keep hiking because inflation is going to be really sticky and premium its surveillance. We always, always listen to our guests who get it wrong and get it right. The hardest thing is to get it right two years in a row. I think of Ellen Zentner, who will join us later at Morgan Stanley's Neal, that NIKKEI Ben Brook at Wells Fargo and Foreign Exchange. And now you the call that you're going to make for next year, are you going to get the suddenness of it as we got with inversion? Is it stochastic? Is it pointing? We're boom with this invert? So I think that's the key question.
You know, at what point do you put on steepness? Do you start betting on Fed rate cuts? And that's the question I keep getting from clients. I think not yet. I mean, it's all going to come down to inflation is going to decline. And that's in our base case. How quickly is it going to decline? And does it get sticky at 3 percent? Three and a half percent? And we don't think the Fed can start to ease if inflation is at three or three and a half. So I think you stick with that inversion trade. The inversion will last much longer than what we used to. The economy is going to slow down.
We're all going to look at the Fed to ease. And I think they're going to stand back as they're as they're telling us they want to be restrictive for a while. So I think the time for the steep as much later in the year when inflation has sufficiently come down, you know, keys to handle somewhere before the Fed can start to go up. So I think you just trade the flat now when it's deepens a little bit, you put on the flat as opposed to really document disinflation. I think actually requires the Fed to start to ease in the labor market is still very tight. That's what we're looking for today. We'll watch wages. I think actually that's more important
than the headline number. That's what is going to drive or services inflation lower. If we just start to come off and I think it's still too early for we just took them off, given that that is actually a popular belief among many people. Do you think that the 10 year yields in
the rally that we've seen, frankly, across treasuries this month has been a bit overdone? I mean, the speed of it, I do struggle a little bit with I mean, you know, we thought more cuts should be priced into 24. We went from hundred basis points of cuts to almost 200 in a short period of time. I think the market's pricing in recession. I actually think that's right. I mean, I expected that to happen as we got much weaker data. It's happened faster. So it can actually now stabilize here. What I struggled with is the easing in
financial conditions or this idea that the Fed can stop at four point eight on the dominant rate. You know, if inflation is going to be sticky, I think the Fed hikes 15, you know, in two weeks time. Then they hike another 50, then they continued to hike maybe at a slower pace. It's the end point of the hiking cycle.
I think the market's a little optimistic. I think Jeff Bauer didn't push back against the easing in financial conditions. I think that's what the market took relief in. So the front end, front end rates, I think can raise that can pull that any a little bit higher, which is why it took off the long but longer. I think that the recession is sort of you know, I think it's baked in the cake at this point.
I just want to dig into that a little bit more prior. If you believe the recession is baked into the cake and you think maybe we're still underestimating how far this can go. Let's use this morning as a case study. Let's say we get an upside surprise on payrolls. And I think we all understand whether two years going to go in that world, your tire pressure. Why do you think that you pushed that out through the curve out to tens yields up and not push it out through the curve and think, you know what, the Fed's going to go harder. I'm going to get that recession that I'm
expecting you to lower. What is it that makes you think you push to your tire out through the curve and yields up off the back of the payroll? Surprise. I think if you get a strong number and strong wages, it's going to imply that the Fed has to hike more.
And then I think people look at, you know, how much can be cut if inflation is high or wages are high, that's going to constr
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